Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is set forth in our Consolidated Financial Statements contained in this Annual Report on Form 10-K. Specific financial statements can be found at the pages listed below:

			Page
Management’s Report on Internal Control Over Financial Reporting			64
Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42)			65
Consolidated Balance Sheets			69
Consolidated Statements of Earnings (Loss)			70
Consolidated Statements of Comprehensive Income (Loss)			71
Consolidated Statements of Shareholders’ Equity and Mezzanine Equity			72
Consolidated Statements of Cash Flows			73
Notes to Consolidated Financial Statements			75

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management’s Responsibility for Preparation of the Financial Statements

Management is responsible for the preparation of the Consolidated Financial Statements included in this Annual Report on Form 10-K. The consolidated financial statements were prepared in accordance with the accounting principles generally accepted in the United States of America and include amounts that are based on the best estimates and judgments of management. The other financial information contained in this Annual Report on Form 10-K is consistent with the Consolidated Financial Statements.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act Rules 13a-159f) and 15(d)-15(f). The Company’s internal control system is designed to provide reasonable assurance concerning the reliability of the financial data used in the preparation of the Company’s Consolidated Financial Statements, as well as reasonable assurance with respect to safeguarding the Company’s assets from unauthorized use or disposition.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement presentation and other results of such systems.

Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2023. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Management’s evaluation included reviewing the documentation of its controls, evaluating the design effectiveness of controls and testing their operating effectiveness. Based on the evaluation, management concluded that as of June 30, 2023, the Company’s internal controls over financial reporting were effective.

Ernst & Young LLP, an independent registered public accounting firm, has issued its report on the effectiveness of our internal control over financial reporting as of June 30, 2023, which report is included herein.

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Coherent Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Coherent Corp. and subsidiaries (the Company) as of June 30, 2023 and 2022, the related consolidated statements of earnings (loss), comprehensive income (loss), shareholders’ equity and mezzanine equity and cash flows for each of the three years in the period ended June 30, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at June 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated August 18, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of customer relationships, trade name and technology intangible assets in the acquisition of Coherent, Inc.
Description of the Matter			As discussed in Note 3 to the consolidated financial statements, during the year ended June 30, 2023, the Company completed the acquisition of Coherent, Inc. (“Lasers”) for a total purchase price of approximately $7.1 billion. The acquisition was accounted for as a business combination. The consideration paid in the acquisition must be allocated to the acquired assets and liabilities assumed generally based on their fair value with the excess of the purchase price over those fair values allocated to goodwill. Auditing the Company’s accounting for its acquisition of Lasers was complex due to the significant estimation uncertainty involved in estimating the fair value of customer relationships, trade name and technology intangible assets. The total fair value ascribed to customer relationships, trade name and technology intangible assets amounted to $1.8 billion, $430 million and $1.2 billion, respectively. The Company used the multi-period excess earnings method to value the customer relationships and relief from royalty method to value trade name and technology intangible assets. The significant assumptions used to estimate the fair value of customer relationships included the forecasted revenue growth, gross margin, projected operating expenses inclusive of expected synergies, including future cost savings, and other benefits expected to be achieved by combining the Company and Lasers, attrition rate and discount rate. The significant assumption used to estimate the fair value of trade name included an estimated royalty rate. The significant assumptions used to estimate the fair value of technology included the forecasted revenue growth and an estimated royalty rate. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of the Company’s controls over its accounting for the acquisition of Lasers. For example, we tested controls that address the risks of material misstatement relating to the valuation of the customer relationships, trade name and technology intangible assets, including management’s review of the methods and significant assumptions used to develop such estimates. To test the estimated fair value of the acquired customer relationships, trade name and technology intangible assets, our audit procedures included, among others, assessing the appropriateness of the valuation methodology used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. For the forecasted revenue growth, gross margin, projected operating expenses inclusive of expected synergies, including future cost savings, and other benefits expected to be achieved by combining the Company and Lasers and attrition rate, we compared the financial projections to current industry and economic trends, the historic financial performance of the acquired business, the Company’s history with other acquisitions, and forecasted performance of guideline public companies. We also performed sensitivity analyses to evaluate the changes in the fair value of the intangible assets that would result from changes in the significant assumptions. We involved our valuation specialist to assist in evaluating the methodologies used to estimate the fair value of the customer relationships, trade name and technology intangible assets and to test certain significant assumptions, including: (i) the discount rate, which included comparison of the selected discount rate to the acquired business’s weighted average cost of capital, an evaluation of the relationships of the weighted average cost of capital, internal rate of return and weighted-average return on assets, and consideration of guideline public company benchmarking analyses reflecting the composition of purchase prices for similar transactions; and (ii) the royalty rate, which included a comparison of the selected royalty rate to a range of royalty rates we identified by performing an independent search of comparable licensing agreements.

Goodwill impairment assessment - Lasers Reporting Unit
Description of the Matter			At June 30, 2023, the Company had $4.5 billion of goodwill on its consolidated balance sheet. As discussed in Note 1 to the consolidated financial statements, goodwill is reviewed annually for impairment, or more frequently if impairment indicators arise. The assessment of goodwill for impairment requires a comparison of the fair value of each reporting unit that has goodwill associated with its operations to its carrying amount, including goodwill. If the Company’s carrying amount of a reporting unit exceeds its fair value, an impairment loss would be measured as the excess of the carrying value over the calculated fair value. Auditing the Company’s annual goodwill impairment test for the Lasers reporting unit is complex because it involves making assumptions about the timing and amount of the forecasted future net cash flows of the reporting unit. The fair value estimate can be sensitive to significant assumptions such as revenue and the selected discount rate, which is based on a risk-adjusted weighted-average cost of capital. These significant assumptions are forward looking and could be impacted by future economic conditions.
How We Addressed the Matter in Our Audit			We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment evaluation process, including controls over management’s review of the assumptions described above. Our audit procedures to test management’s impairment evaluation of the Lasers reporting unit included, among others, assessing the valuation methodology and assumptions discussed above, and the underlying data used to develop such assumptions. For example, we compared certain assumptions to current industry, market and economic trends. Where appropriate, we evaluated whether changes to the Company’s business and other factors would affect the assumptions. We also assessed the historical accuracy of management’s estimates and performed independent sensitivity analyses. We involved our valuation specialists to assist us in evaluating the methodologies and auditing the assumptions used to calculate the estimated fair value of the Lasers reporting unit.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2008.

Pittsburgh, Pennsylvania

August 18, 2023

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Coherent Corp.

Opinion on Internal Control Over Financial Reporting

We have audited Coherent Corp. and subsidiaries’ internal control over financial reporting as of June 30, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Coherent Corp. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of June 30, 2023, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of June 30, 2023 and 2022, the related consolidated statements of earnings (loss), comprehensive income (loss), shareholders’ equity and mezzanine equity and cash flows for each of the three years in the period ended June 30, 2023, and the related notes and schedule listed in the Index at Item 15(a)(2) and our report dated August 18, 2023 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Pittsburgh, Pennsylvania

August 18, 2023

Coherent Corp. and Subsidiaries

Consolidated Balance Sheets

($000)

June 30,						2023						2022
Assets
Current Assets
Cash, cash equivalents, and restricted cash						$	833,333					$	2,582,371
Accounts receivable - less allowance for doubtful accounts of $8,005 and $4,206 at June 30, 2023 and June 30, 2022, respectively						901,531						700,331
Inventories						1,272,333						902,559
Prepaid and refundable income taxes						28,271						19,585
Prepaid and other current assets						216,530						100,346
Total Current Assets						3,251,998						4,305,192
Property, plant & equipment, net						1,782,035						1,363,195
Goodwill						4,512,700						1,285,759
Other intangible assets, net						3,814,684						635,404
Deferred income taxes						37,748						31,714
Other assets						311,968						223,582
Total Assets						$	13,711,133					$	7,844,846
Liabilities. Mezzanine Equity and Shareholders’ Equity
Current Liabilities
Current portion of long-term debt						$	74,836					$	403,212
Accounts payable						405,308						434,917
Accrued compensation and benefits						175,564						172,109
Operating lease current liabilities						38,271						27,574
Accrued income taxes payable						74,488						29,317
Other accrued liabilities						310,281						199,830
Total Current Liabilities						1,078,748						1,266,959
Long-term debt						4,234,962						1,897,214
Deferred income taxes						780,307						77,259
Operating lease liabilities						140,748						110,214
Other liabilities						247,402						109,922
Total Liabilities						6,482,167						3,461,568
Mezzanine Equity
Series B redeemable convertible preferred stock, no par value, 5% cumulative; issued - 215,000 and 75,000 shares at June 30, 2023 and June 30, 2022, redemption value - $2,309,966 and 798,181 as of June 30, 2023 and June 30, 2022, respectively						2,241,415						766,803
Shareholders’ Equity
Series A preferred stock, no par value, 6% cumulative; issued - 2,300,000 shares at June 30, 2023 and June 30, 2022						445,319						445,319
Common stock, no par value; authorized - 300,000,000 shares; issued - 154,719,413 shares at June 30, 2023; issued - 120,923,171 shares at June 30, 2022						3,781,211						2,064,552
Accumulated other comprehensive income (loss)						109,726						(2,167)
Retained earnings						944,416						1,348,125
						5,280,672						3,855,829
Treasury stock, at cost - 15,135,711 shares at June 30, 2023 and 13,972,758 shares at June 30, 2022						(293,121)						(239,354)
Total Shareholders’ Equity						4,987,551						3,616,475
Total Liabilities, Mezzanine Equity and Shareholders’ Equity						$	13,711,133					$	7,844,846

See Notes to Consolidated Financial Statements

Coherent Corp. and Subsidiaries

Consolidated Statements of Earnings (Loss)

Year Ended June 30,						2023						2022						2021
($000, except per share data)
Revenues						$	5,160,100					$	3,316,616					$	3,105,891
Costs, Expenses and Other Expense (Income)
Cost of goods sold						3,541,817						2,051,120						1,928,432
Internal research and development						499,603						377,106						330,105
Selling, general and administrative						1,036,699						474,096						445,235
Restructuring charges						119,101						—						—
Interest expense						286,872						121,254						59,899
Other expense (income), net						31,566						11,233						(10,370)
Total Costs, Expenses and Other Expense						5,515,658						3,034,809						2,753,301
Earnings (Loss) Before Income Taxes						(355,558)						281,807						352,590
Income Tax Expense (Benefit)						(96,100)						47,048						55,038
Net Earnings (Loss)						$	(259,458)					$	234,759					$	297,552
Less: Dividends on Preferred Stock						$	144,212					$	68,225					$	37,231
Net Earnings (Loss) available to the Common Shareholder						$	(403,670)					$	166,534					$	260,321
Basic Earnings (Loss) Per Share						$	(2.93)					$	1.57					$	2.50
Diluted Earnings (Loss) Per Share						$	(2.93)					$	1.45					$	2.37

See Notes to Consolidated Financial Statements

Coherent Corp. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Year Ended June 30,						2023						2022						2021
($000)
Net earnings (loss)						$	(259,458)					$	234,759					$	297,552
Other comprehensive income (loss):
Foreign currency translation adjustments						87,927						(89,967)						86,991
Change in fair value of interest rate swap, net of taxes of $2,122, $11,901, and $3,372 for the years ended June 30, 2023, 2022, and 2021, respectively						7,749						43,508						12,312
Change in fair value of interest rate cap, net of taxes of $5,934 and $3,818 for the years ended June 30, 2023 and 2022, respectively						22,322						14,306						—
Pension adjustment, net of taxes of ($1,682), $3,856 and $576 for the years ended June 30, 2023, 2022, and 2021, respectively						(6,105)						15,719						2,347
Other comprehensive income (loss)						111,893						(16,434)						101,650
Comprehensive income (loss)						$	(147,565)					$	218,325					$	399,202

See Notes to Consolidated Financial Statements

Coherent Corp. and Subsidiaries

Consolidated Statements of Shareholders’ Equity and Mezzanine Equity

																														Accumulated Other
						Common Stock												Preferred Stock												Comprehensive						Retained						Treasury Stock																		Mezzanine Equity
						Shares						Amount						Shares						Amount						Income (Loss)						Earnings						Shares						Amount						Total						Preferred Shares						Amount
(000, including share amounts)
Balance - June 30, 2020						105,916						$	1,486,947					—						$	—					$	(87,383)					$	876,552					(13,356)						$	(199,313)					$	2,076,803					—						$	—
Share-based and deferred compensation activities						2,512						102,737						—						—						—						—						(284)						(19,153)						83,584						—						—
Series B shares issued in March 2021						—						—						—						—						—						—						—						—						—						75						716,087
Shares issued in underwritten public offering						10,698						438,589						2,300						445,319						—						—						—						—						883,908						—						—
Net earnings						—						—						—						—						—						297,552						—						—						297,552						—						—
Foreign currency translation adjustments						—						—						—						—						86,991						—						—						—						86,991						—						—
Change in fair value of interest rate swap, net of taxes of $3,372						—						—						—						—						12,312						—						—						—						12,312						—						—
Pension adjustment, net of taxes of $576						—						—						—						—						2,347						—						—						—						2,347						—						—
Dividends						—						—						—						—						—						(37,327)						—						—						(37,327)						—						10,091
Balance - June 30, 2021						119,127						$	2,028,273					2,300						$	445,319					$	14,267					$	1,136,777					(13,640)						$	(218,466)					$	3,406,170					75						$	726,178
Share-based and deferred compensation activities						1,796						92,667						—						—						—						—						(333)						(20,888)						71,779						—						—
Net earnings						—						—						—						—						—						234,759						—						—						234,759						—						—
Foreign currency translation adjustments						—						—						—						—						(89,967)						—						—						—						(89,967)						—						—
Change in fair value of interest rate swap, net of taxes of $11,901						—						—						—						—						43,508						—						—						—						43,508						—						—
Change in fair value of interest rate cap, net of taxes of $3,818						—						—						—						—						14,306						—						—						—						14,306						—						—
Pension adjustment, net of taxes of $3,856						—						—						—						—						15,719						—						—						—						15,719						—						—
Dividends						—						—						—						—						—						(68,327)						—						—						(68,327)						—						40,625
Adjustments for ASU 2020-06						—						(56,388)						—						—						—						44,916						—						—						(11,472)						—						—
Balance - June 30, 2022						120,923						$	2,064,552					2,300						$	445,319					$	(2,167)					$	1,348,125					(13,973)						$	(239,354)					$	3,616,475					75						$	766,803
Share-based and deferred compensation activities						4,029						171,128						—						—						—						—						(1,164)						(53,767)						117,361						—						—
Coherent Acquisition						22,588						1,207,591						—						—						—						—						—						—						1,207,591						—						—
Convertible Debt Conversions						7,181						337,940						—						—						—						—						—						—						337,940						—						—
Net loss						—						—						—						—						—						(259,458)						—						—						(259,458)						—						—
Foreign currency translation adjustments						—						—						—						—						87,927						—						—						—						87,927						—						—
Change in fair value of interest rate swap, net of taxes of $2,122						—						—						—						—						7,749						—						—						—						7,749						—						—
Change in fair value of interest rate cap, net of taxes of $5,934						—						—						—						—						22,322						—						—						—						22,322						—						—
Issuance of Series B Shares						—						—						—						—						—						—						—						—						—						140						1,358,000
Pension adjustment, net of taxes of $(1,682)						—						—						—						—						(6,105)						—						—						—						(6,105)						—						—
Dividends						—						—						—						—						—						(144,251)						—						—						(144,251)						—						116,612
Balance - June 30, 2023						154,721						$	3,781,211					2,300						$	445,319					$	109,726					$	944,416					(15,137)						$	(293,121)					$	4,987,551					215						$	2,241,415

See Notes to Consolidated Financial Statements

Coherent Corp. and Subsidiaries

Consolidated Statements of Cash Flows

Year Ended June 30,						2023						2022						2021
($000)
Cash Flows from Operating Activities
Net earnings (loss)						$	(259,458)					$	234,759					$	297,552
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:
Depreciation						267,562						207,132						187,803
Amortization						414,125						79,647						82,266
Share-based compensation expense						148,872						73,214						70,953
Non-cash impairment of property, plant & equipment						119,456						—						—
Amortization of discount on convertible debt and debt issuance costs						19,850						18,807						20,732
Debt extinguishment expense						6,855						—						24,747
Losses (gains) on disposals of property, plant & equipment						2,440						617						2,537
Unrealized losses (gains) on foreign currency remeasurements and transactions						(3,549)						1,167						5,545
Earnings from equity investments						66						(2,190)						(14,246)
Deferred income taxes						(206,822)						(8,154)						(371)
Increase (decrease) in cash from changes in (net of effects of acquisitions):
Accounts receivable						68,315						(55,193)						(51,697)
Inventories						174,136						(230,882)						(44,645)
Accounts payable						(83,330)						97,053						2,266
Contract Liabilities						(18,957)						26,614						2,820
Income taxes						28,651						17,961						(18,086)
Accrued compensation and benefits						(57,140)						(9,382)						23,934
Other operating net assets (liabilities)						12,953						(37,838)						(17,757)
Net cash provided by operating activities						634,025						413,332						574,353
Cash Flows from Investing Activities
Additions to property, plant & equipment						(436,060)						(314,332)						(146,337)
Purchases of businesses, net of cash acquired						(5,488,556)						—						(34,394)
Other investing activities						(4,010)						(5,750)						7,774
Net cash used in investing activities						(5,928,626)						(320,082)						(172,957)
Cash Flows from Financing Activities
Proceeds from borrowings of Term B Facility						2,800,000						—						—
Proceeds from issuance of Series B preferred shares						1,400,000						—						750,000
Proceeds from borrowings of Term A Facility						850,000						—						—
Proceeds from borrowings of Revolving Credit Facility						65,000						—						—
Proceeds from issuance of common shares						—						—						460,000
Proceeds from issuance of Series A preferred shares						—						—						460,000
Proceeds from issuance of Senior Notes						—						990,000						—
Payments on existing debt						(1,265,175)						(62,050)						(851,650)
Payments on borrowings under Revolving Credit Facility						(65,000)						—						(74,000)
Payments on convertible notes						(3,561)						—						—
Payment of Finisar Notes						—						(14,888)						—
Debt issuance costs						(126,516)						(10,197)						—
Equity issuance costs						(42,000)						—						(58,596)
Proceeds from exercises of stock options and purchases of stock under employee stock purchase plan						24,167						17,858						32,360
Payments in satisfaction of employees’ minimum tax obligations						(54,172)						(21,249)						(19,701)
Payment of dividends						(27,600)						(34,508)						(20,319)
Other financing activities						(1,124)						(2,013)						(2,367)
Net cash provided by financing activities						3,554,019						862,953						675,727
Effect of exchange rate changes on cash, cash equivalents, and restricted cash						(4,223)						34,276						21,723
Net increase in cash and cash equivalents, and restricted cash						(1,744,805)						990,479						1,098,846
Cash, Cash Equivalents, and Restricted Cash at Beginning of Period						2,582,371						1,591,892						493,046
Cash, Cash Equivalents, and Restricted Cash at End of Period						$	837,566					$	2,582,371					$	1,591,892

Cash paid for interest						$	282,835					$	57,314					$	37,266
Cash paid for income taxes						$	89,567					$	50,000					$	60,393
Non cash transactions:
Additions to property, plant & equipment included in accounts payable						$	36,777					$	84,890					$	32,028

See Notes to Consolidated Financial Statements

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows. Restricted cash, non-current is included in the consolidated balance sheets under “Other Assets” At June 30, 2023, we had $16 million of restricted cash.

Year Ended June 30,						2023						2022						2021
($000)
Cash, cash equivalents, and restricted cash						$	833,333					$	2,582,371					$	1,591,892
Restricted cash, non-current						4,233						—						—
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows						$	837,566					$	2,582,371					$	1,591,892

See Notes to Consolidated Financial Statements

Coherent Corp. and Subsidiaries

Notes to Consolidated Financial Statements

Note 1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business. Coherent Corp. (“Coherent,” the “Company,” “we,” “us” or “our”), a global leader in materials, networking, and lasers, is a vertically-integrated manufacturing company that develops, manufactures, and markets engineered materials, optoelectronic components and devices, and lasers for use in the industrial, communications, electronics and instrumentation markets. The Company markets its products through its direct sales force and through distributors and agents.

The Company uses certain uncommon materials and compounds to manufacture its products. Some of these materials are available from only one proven outside source. The continued high quality of these materials is critical to the stability of our manufacturing yields. We have not experienced material production delays due to a shortage of materials. However, we do occasionally experience problems associated with vendor-supplied materials not meeting specifications for quality or purity. A significant failure of our suppliers to deliver sufficient quantities of necessary high-quality materials on a timely basis could have a material adverse effect on our results of operations.

Transfer to New York Stock Exchange. On February 8, 2023, the Company announced the voluntary transfer of the listing of its common stock, no par value (“Coherent Common Stock”) and Series A Mandatory Convertible Preferred Stock, no par value (“Mandatory Convertible Preferred Stock”), from the NASDAQ Global Select Market to the New York Stock Exchange (the “NYSE”), effective as of the close of trading on February 22, 2023. The Coherent Common Stock and Mandatory Convertible Preferred Stock began trading on the NYSE on February 23, 2023 under the ticker symbols “COHR” and “IIVI”, respectively.

Principles of Consolidation. The Consolidated Financial Statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates. The preparation of financial statements in conformity with generally accounting principles in the United States (“U.S. GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Although these estimates are based on management’s best knowledge of current events and actions Coherent may undertake in the future, actual results may ultimately differ from the estimates.

Foreign Currency Translation. For all foreign subsidiaries whose functional currency is not the U.S. dollar, the functional currency is the local currency. Assets and liabilities of those operations are translated into U.S. dollars using period-end exchange rates while income and expenses are translated using the average exchange rates for the reporting period. Translation adjustments are recorded as accumulated other comprehensive income (loss) within shareholders’ equity in the accompanying Consolidated Balance Sheets.

Cash, Cash Equivalents, and Restricted Cash. We consider highly liquid investment instruments with an original maturity of three months or less to be cash equivalents. As of June 30, 2023, we had restricted cash of $16,256 that is restricted for a specific purpose, with $12 million and $4 million recorded in cash, cash equivalents, and restricted cash and other assets, respectively, on our Consolidated Balance Sheet.

Allowance for Expected Credit Losses. We recognize expected credit losses resulting from the inability of our customers to make required payments through an allowance account that is measured each reporting date. We estimate credit losses over the life of our trade accounts receivable using a combination of historical loss data, current credit conditions, specific customer circumstances, and reasonable and supportable forecasts of future economic conditions.

Inventories. Inventories are valued at the lower of cost or net realizable value, with cost determined on the first-in, first-out basis. Inventory costs include material, labor and manufacturing overhead. In evaluating the net realizable value of inventory, management also considers, if applicable, other factors, including known trends, market conditions, currency exchange rates and other such issues. We generally record a reduction to the carrying value of inventory as a charge against earnings for all products on hand more than 12 to 24 months, depending on the nature of the products that have not been sold to customers or cannot be further manufactured for sale to alternative customers. An additional charge may be recorded for product on hand that is in excess of product sold to customers over the same periods noted above.

Property, Plant and Equipment. Property, plant and equipment are carried at cost or fair value upon acquisition. Major improvements are capitalized, while maintenance and repairs are generally expensed as incurred. We review our property, plant and equipment and other long-lived assets for impairment whenever events or circumstances indicate that the carrying amounts may not be recoverable. Depreciation on property, plant and equipment and amortization on finance lease right-of-use assets for financial reporting purposes is computed primarily by the straight-line method over the estimated useful lives for building, building improvements and land improvements of 10 to 40 years and 3 to 20 years for machinery and equipment.

Leases. Leases are recognized under Accounting Standards Codification 842, Leases. The Company determines whether a contract contains a lease at contract inception. A contract contains a lease if there is an identified asset and the Company has the right to control the asset. Operating lease right-of-use (“ROU”) assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We use the incremental borrowing rate in determining the present value of lease payments, unless the implicit rate is readily determinable. If lease terms include options to extend or terminate the lease, the ROU asset and lease liability are measured based on the reasonably certain decision. We have lease agreements with lease and non-lease components, which are accounted for as a single lease component for all classes of leased assets for which the Company is the lessee. Additionally, for certain equipment leases, the portfolio approach is applied to account for the operating lease ROU assets and lease liabilities. In the Consolidated Statements of Earnings (Loss), lease expense for operating lease payments is recognized on a straight-line basis over the lease term. For finance leases, interest expense is recognized on the lease liability and the ROU asset is amortized over the lease term. Some leasing arrangements require variable payments that are dependent upon usage or output, or may vary for other reasons, such as insurance or tax payments. Variable lease payments are recognized as incurred, and are not presented as part of the ROU asset or lease liability. See Note 12. Leases for further information.

Business Combinations. The Company accounts for business combinations by establishing the acquisition-date fair value as the measurement for all assets acquired and liabilities assumed. Certain provisions of U.S. GAAP prescribe, among other things, the determination of acquisition-date fair value of consideration paid in a business combination (including contingent consideration) and the exclusion of transaction and acquisition-related restructuring costs from acquisition accounting.

On July 1, 2022, we acquired Coherent, Inc. The significant accounting policies of Coherent, Inc. have been aligned to conform to those of the Company, and the consolidated financial statements include the results of Coherent, Inc. as of its acquisition date. See Note 3. Coherent Acquisition for further information.

Goodwill. The excess purchase price over the fair value allocated to identifiable tangible and intangible net assets of businesses acquired is reported as goodwill in the accompanying Consolidated Balance Sheets. We test goodwill for impairment at least annually as of April 1, or when events or changes in circumstances indicate that goodwill might be impaired. The evaluation of impairment involves comparing the current fair value of our reporting units to the recorded value (including goodwill). We use a discounted cash flow (“DCF”) model and/or a market analysis to determine the fair value of our reporting units. A number of assumptions and estimates are involved in estimating the forecasted cash flows used in the DCF model, including markets and market shares, sales volume and pricing, costs to produce, working capital changes and income tax rates. Management considers historical experience and all available information at the time the fair values of the reporting units are estimated. Goodwill impairment is measured as the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

We have the option to perform a qualitative assessment of goodwill prior to completing the quantitative assessment described above to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill and other intangible assets. If we conclude that this is the case, it must perform the quantitative assessment. Otherwise, we will forego the quantitative assessment and does not need to perform any further testing. As of April 1 of fiscal years 2023 and 2022, we completed our annual impairment tests of our reporting units using the quantitative assessment. For fiscal year 2023, the fair values of the reporting units were determined using a discounted cash flow analysis with projected financial information based on our most recently completed long-term strategic planning processes and also considers the current financial performance compared to our prior projections of the reporting units, as well as a market analysis. Determination of the fair value requires discretion and the use of estimates by management. As of April 1, 2023, we had significant headroom in the Networking and Materials reporting units.

For the Lasers reporting unit, as of April 1, 2023, based on the quantitative assessment, the estimated fair value exceeded the carrying value by approximately 10% and we had determined that the goodwill was at risk for impairment going forward should there be a deterioration of projected cash flows of the reporting unit. Our Lasers reporting unit has goodwill of approximately $3.2 billion at June 30, 2023. In evaluating the Lasers reporting unit, significant weight was provided to the forecasted revenue and related gross margins as we determined that these have the most significant impact on its fair value. The forecasted profitability is expected to increase as volumes increase and the achievement of operating efficiencies and the benefit from the multi-year synergy and site consolidation plans are realized. We used a discount rate of 13.0% which is the required return a market participant would require in its investment in the Reporting Unit based on observed market inputs. If actual results are not consistent with management’s estimates and assumptions, a material goodwill impairment charge could occur, which could have a material adverse effect on our consolidated financial statements.

Due to the cyclical nature of our business, and the other factors described in the section on Risk Factors set forth in Item 1A of this Annual Report on Form 10-K, the profitability of our individual reporting units may periodically be affected by downturns in customer demand, operational challenges and other factors. If material adverse conditions occur that impact one or more of our reporting units, our determination of future fair value might not support the carrying amount of one or more of our reporting units, and the related goodwill would need to be impaired. We will continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.

Intangibles. Intangible assets are initially recorded at their cost or fair value upon acquisition. Finite-lived intangible assets are amortized for financial reporting purposes using the straight-line method over the estimated useful lives of the assets ranging from 1 to 20 years. Indefinite-lived intangible assets are not amortized but tested annually for impairment at April 1, or when events or changes in circumstances indicate that indefinite-lived intangible assets might be impaired. As of April 1 of fiscal 2023, the Company completed a quantitative impairment test of the Coherent trade name acquired in the Merger using the relief from royalty method and determined that its fair value is well in excess of its carrying value. As of April 1, 2023, the Company recorded $25 million of impairment charges related to the abandonment of certain purchased technology and customer lists $14 million of impairment charges related to trade names for older acquisitions. See Note 7. Goodwill and Other Intangible Assets for further information.

Investments in Other Entities. In the normal course of business, we enter into various types of investment arrangements, each having unique terms and conditions. These investments may include equity interests held by the Company in business entities, including general or limited partnerships, contractual ventures, or other forms of equity participation. We determine whether such investments involve a variable interest entity (“VIE”) based on the characteristics of the subject entity. If the entity is determined to be a VIE, then management determines if the Company is the primary beneficiary of the entity and whether or not consolidation of the VIE is required. The primary beneficiary consolidating the VIE must normally have both (i) the power to direct the activities of a VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE, in either case that could potentially be significant to the VIE. When the Company is deemed to be the primary beneficiary, the VIE is consolidated and the other party’s equity interest in the VIE is accounted for as a noncontrolling interest.

We generally account for investments we make in VIEs in which we have determined that we do not have a controlling financial interest but have significant influence over or hold at least a 20% ownership interest using the equity method. Any such investment not meeting the parameters to be accounted under the equity method would be accounted for under ASC 321, Investments - Equity Securities. If an entity fails to meet the characteristics of a VIE, management then evaluates such entity under the voting model. Under the voting model, management consolidates the entity if they determine that the Company, directly or indirectly, has greater than 50% of the voting shares and determines that other equity holders do not have substantive participating rights.

Series A Mandatory Convertible Preferred Stock. The Mandatory Convertible Preferred Stock is initially measured at fair value, less underwriting discounts and commissions and offering expenses paid by the Company. The Preferred Stock’s dividends are cumulative, at 6% per annum. See Note 10. Equity and Redeemable Preferred Stock for further information.

Series B Convertible Preferred Stock. The Series B-1 Convertible Preferred Stock is initially measured at fair value less issuance costs, accreted to its redemption value over a ten-year period (using the effective interest method) with such accretion accounted for as deemed dividends and reductions to Net Earnings (Loss) Available to the Common Shareholder. The Series B-2 Convertible Preferred Stock is initially measured at fair value less issuance costs, accreted to its redemption value over a ten-year period (using the effective interest method) with such accretion accounted for as deemed dividends and reductions to Net Earnings (Loss) Available to the Common Shareholder. See Note 10. Equity and Redeemable Preferred Stock for further information.

Commitments and Contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Such accruals are adjusted as further information develops or circumstances change. Our customers may discover defects in our products after the products have been fully deployed and operated under peak stress conditions. If we are unable to correct defects or other problems, we could experience, among other things, loss of customers, increased costs of product returns and warranty expenses, damage to our brand reputation, failure to attract new customers or achieve market acceptance, diversion of development and engineering resources, or legal action by our customers. We had no material loss contingency liabilities at June 30, 2023 related to commitments and contingencies.

Income Taxes. Deferred income tax assets and liabilities are determined based on the differences between the Consolidated Financial Statements and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount more likely than not to be realized. The Company’s accounting policy is to apply acquired deferred tax liabilities to pre-existing deferred tax assets before evaluating the need for a valuation allowance for acquired deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The amount of unrecognized tax benefits is adjusted for changes in facts and circumstances. For example, adjustments could result from significant amendments to existing tax law and the issuance of regulations or interpretations by the taxing authorities, new information obtained during a tax examination, or resolution of an examination. The Company believes that its estimates for uncertain tax positions are appropriate and sufficient to pay assessments that may result from examinations of its tax returns. The Company recognizes both accrued interest and penalties related to unrecognized tax benefits in income tax expense.

Revenue Recognition. Revenue is recognized under Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606), when or as obligations under the terms of a contract with our customer have been satisfied and control has transferred to the customer. We have elected the practical expedient to exclude all taxes from the measurement of the transaction price.

For contracts with commercial customers, which comprise the majority of our performance obligations, ownership of the goods and associated revenue are generally transferred to customers at a point in time, generally upon shipment of a product to the customer or delivery of the product to the customer and without significant judgments. The majority of contracts typically require payment within 30 to 90 days after transfer of ownership to the customer.

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. 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.

Contracts with the U.S. government through its prime contractors are typically for products or services with no alternative future use to the Company with an enforceable right to payment for performance completed to date, whereas commercial contracts typically have alternative use. Customized products with no alternative future use to the Company with an enforceable right to payment for performance completed to date are recorded over time utilizing the output method of units delivered. We consider this to be a faithful depiction of the transfer to the customer of revenue over time due to short cycle time and immaterial work-in-process balances. The majority of contracts typically require payment within 30 to 90 days after transfer of ownership to the customer.

Service revenue includes repairs, tolling arrangements and installation. Repairs, tolling and installation activities are usually completed in a short period of time (normally less than one month) and therefore recorded at a point in time when the services are completed. The majority of contracts typically require payment within 30 to 90 days after performance of the service.

Non-recurring engineering arrangements are typically recognized as product revenue over time under either the time and material practical expedient, as the entity has a right to consideration from a customer, in an amount that corresponds directly with the value to the customer of the entity’s performance completed to date or under the output method. The majority of contracts typically require payment within 30 to 90 days.

Our revenue recognition policy is consistently applied across our segments, product lines, services, and geographical locations. For the periods covered herein, we measure revenue based on the amount of consideration it expects to be entitled to in exchange for products or services, reduced by the amount of variable consideration related to products expected to be returned. We determine variable consideration, which primarily consists of product returns and distributor sales price reductions resulting from price protection agreements, by estimating the impact of such reductions based on historical analysis of such activity.

Under ASC 606, we expense sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses (“SG&A”). We have elected to recognize the costs for freight and shipping when control over products has transferred to the customer as an expense in cost of goods sold.

We monitor and track the amount of product returns and reduces revenue at the time of shipment for the estimated amount of future returns, based on historical experience.

We offer an assurance-type limited warranty that products will be free from defects in materials and workmanship. We establish an accrual for estimated warranty expenses at the time revenue is recognized. The warranty is typically one year, although can be longer periods for certain products, and is typically limited to either (1) the replacement or repair of the product or (2) a credit against future purchases.

We believe that disaggregating revenue by end market provides the most relevant information regarding the nature, amount, timing, and uncertainty of revenues and cash flows. See Note 4. Revenue from Contracts with Customers for further information.

Internal Research and Development. Internal research and development (“IR&D”) expenses include salaries, contractor and consultant fees, supplies and materials, as well as costs related to other overhead such as depreciation, facilities, utilities and other departmental expenses. The costs we incur with respect to internally developed technology, including allocations of our wafer fabrication and other manufacturing facilities and resources utilized to support R&D programs, are included in IR&D expenses as incurred.

Share-Based Compensation. Share-based compensation arrangements require the recognition in net earnings (loss) of the grant date fair value of stock compensation (for equity-classified awards). We recognize the share-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period, net of forfeitures. The estimated annualized forfeitures are based on our historical experience of pre-vesting cancellations. We will record additional expense in future periods if the actual forfeiture rate is lower than estimated, and will adjust expense in future periods if the actual forfeitures are higher than estimated. See Note 13. Share-Based Compensation for a description of our share-based employee compensation plans and the assumptions we use to calculate the fair value of share-based employee compensation.

Earnings per Share. Basic earnings (loss) per common share is computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings (loss) per common share is computed by dividing the diluted earnings (loss) available to common shareholders by the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. If there is a net loss for the period, diluted earnings per share is the same as basic earnings per share. See Note 11. Earnings Per Share for further information.

Accumulated Other Comprehensive Income (Loss). Accumulated other comprehensive income (loss) is a measure of all changes in shareholders’ equity that result from transactions and other economic events in the period other than transactions with owners. Accumulated other comprehensive income (loss) is a component of shareholders’ equity and consists of accumulated foreign currency translation adjustments, changes in the fair value of interest rate swap and cap derivative instruments, and pension adjustments.

Fair Value Measurements. We apply fair value accounting for all financial assets and liabilities that are required to be recognized or disclosed at fair value in the Consolidated Financial Statements. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, we consider the principal or most advantageous market in which we would transact, and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk.

Note 2. Recently Issued Financial Accounting Standards

Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting

In March 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This topic provides optional expedients to ease the potential burden of accounting for the effects of reference rate reform as it pertains to contract modifications of debt and lease contracts and derivative contracts identified in a hedging relationship. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, to extend the temporary accounting rules under Topic 848 from December 31, 2022 to December 31, 2024. We adopted Topic 848 in the three months ended March 31, 2023 and applied the practical expedients under Topic 848 to account for modifications and updates to our floating rate debt, our interest rate swap and our interest rate cap. Application of these practical expedients allowed us to maintain hedge accounting for our interest rate cap and swap contracts. The adoption did not have a material impact on our consolidated financial statements.

Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Accounting Standards Codification ASC 606, Revenue from Contracts with Customers, rather than adjust them to fair value at the acquisition date. We adopted this accounting standard as of July 1, 2022. The acquisition of Coherent, Inc. has been accounted for in accordance with ASU 2021-08, as will any future acquisitions. Results of operations for quarterly periods prior to adoption remain unchanged as a result of the adoption of ASU No. 2021-08. Refer to Note 3. Coherent Acquisition for further information.

Note 3. Coherent Acquisition

On July 1, 2022 (the “Closing Date”), the Company completed its acquisition of Coherent, Inc. (the “Merger”), a global provider of lasers and laser-based technology for scientific, commercial, and industrial customers, in a combined cash and stock transaction in accordance with the Agreement and Plan of Merger dated March 25, 2021 (the “Merger Agreement”). Pursuant to the terms of the Merger Agreement, and subject to the conditions set forth therein, each share of common stock of legacy Coherent, Inc. (“Legacy Coherent”), par value $0.01 per share (the “Legacy Coherent Common Stock”), issued and outstanding immediately prior to July 1, 2022, was canceled and extinguished and automatically converted into the right to receive $220.00 in cash and 0.91 of a share of Coherent’s common stock, no par value (“Coherent Common Stock”).

Following the completion of the Legacy Coherent acquisition, the Company announced a new brand identity, including a corporate name change to Coherent Corp. (NYSE: COHR) on September 8, 2022.

On the Closing Date, the Company entered into a Credit Agreement (the “Credit Agreement”) by and among the Company, the lenders, and other parties thereto, and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, which provides for senior secured financing of $4.0 billion, consisting of a new term loan A credit facility (the “Term A Facility”) in an aggregate principal amount of $850 million a new term loan B credit facility (the “Term B Facility”) (and, together with the Term A Facility, the “Term Facilities”) in an aggregate principal amount of $3 billion, and a new revolving credit facility (the “Revolving Credit Facility”) in an aggregate available amount of $350 million, including a letter of credit sub-facility of up to $50 million. For further information on the credit facility refer to Note 8. Debt.

In order to complete the funding of the Merger, we had a net cash outflow of $2.1 billion on July 1, 2022. We recorded $94 million of acquisition related costs in the year ended June 30, 2023 representing professional and other direct acquisition costs. These costs are recorded within SG&A expense in our Consolidated Statement of Earnings (Loss). Approximately 23 million shares of Coherent Common Stock in the aggregate were issued in conjunction with the closing of the Merger. Total Merger consideration was $7.1 billion, including replacement equity awards attributable to pre-combination service for certain Legacy Coherent restricted stock units.

The total fair value of consideration paid in connection with the acquisition of Coherent, Inc. consisted of the following (in $000):

			Shares						Per Share						Total Consideration
Cash paid for merger consideration			—						—						$	5,460,808
Shares of COHR common stock issued to Legacy Coherent stockholders			22,587,885						$49.83						1,125,554
Converted Legacy Coherent RSUs attributable to pre-combination service			—						—						82,037
Payment of Legacy Coherent debt			—						—						364,544
Payment of Legacy Coherent transaction expenses			—						—						62,840
															$	7,095,783

The purchase price allocation set forth herein is final. We allocated the fair value of the purchase price consideration to the tangible assets, liabilities, and intangible assets acquired, generally based on estimated fair values. The excess purchase price over those fair values is recorded as goodwill. Our valuation assumptions of acquired assets and assumed liabilities require estimates, especially with respect to intangible assets, inventories, property, plant & equipment and deferred income taxes. In determining the fair value of intangible assets acquired, we must make assumptions about the future performance of the acquired business, including among other things, the forecasted revenue growth attributable to the asset group and projected operating expenses inclusive of expected synergies, future cost savings, and other benefits expected to be achieved by combining the Company and Legacy Coherent. Our intangible assets are comprised of trade names and trademarks, customer relationships, developed technology and backlog. We utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the purchase price allocation. The estimated fair value of the customer relationships and backlog are determined using the multi-period excess earnings method and the estimated fair value of the trade names and trademarks and developed technology are determined using the relief from royalty method. Both methods require forward looking estimates that are discounted to determine the fair value of the intangible asset using a risk-adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset group that could be affected by future economic and market conditions.

Our final allocation of the purchase price of Legacy Coherent, based on the estimated fair value of the assets acquired and liabilities assumed as of the Closing Date, is as follows (in $000):

						Final Purchase Price Allocation
						Previously Reported September 30, 2022												Measurement Period Adjustments (i)						As Adjusted
Assets
Current Assets
Cash, cash equivalents, and restricted cash						$	393,324											$	—					$	393,324
Accounts receivable						270,928												—						270,928
Inventories (ii)						497,345												65,539						562,884
Prepaid and refundable income taxes (iii)						8,869												(4,037)						4,832
Prepaid and other current assets (iv)						41,467												(3,662)						37,805
Total Current Assets						1,211,933												57,840						1,269,773
Property, plant & equipment, net (v)						424,228												16,704						440,932
Deferred income taxes (iii)						1,115												(879)						236
Other assets (iv)						102,726												3,662						106,388
Other intangible assets, net (vi)						2,425,454												1,079,546						3,505,000
Goodwill						4,005,727												(830,743)						3,174,984
Total Assets						$	8,171,183											$	326,130					$	8,497,313
Liabilities
Current Liabilities
Current portion of long-term debt						$	4,504											$	—					$	4,504
Accounts payable						116,754												—						116,754
Accrued compensation and benefits (vii)						60,596												(1,965)						58,631
Operating lease current liabilities						13,002												—						13,002
Accrued income taxes payable (iii)						16,936												8,116						25,052
Other accrued liabilities (vii)						136,042												2,882						138,924
Total Current Liabilities						347,834												9,033						356,867
Long-term debt						22,991												—						22,991
Deferred income taxes (iii)						563,824												313,774						877,598
Operating lease liabilities						43,313												—						43,313
Other liabilities (vii)						97,438												3,323						100,761
Total Liabilities						$	1,075,400											$	326,130					$	1,401,530
Final aggregate acquisition consideration						$	7,095,783											$	—					$	7,095,783

(i) We recorded measurement period adjustments to our preliminary acquisition date fair values due to the refinement of our valuation models, assumptions and inputs. The following measurement period adjustments were based upon information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the measurement of the amounts recognized at that date.

(ii) The Consolidated Balance Sheet has been adjusted to record Legacy Coherent’s inventories at a fair value of approximately $563 million, an increase of $66 million from the preliminary fair value reported at September 30, 2022 with a corresponding decrease to goodwill. The Consolidated Statement of Earnings (Loss) for the year ended June 30, 2023 includes cost of goods sold of approximately $158 million related to the increased basis in the fair value compared to the carrying value. The costs are being amortized over the expected period during which the acquired inventory is sold and thus are not anticipated to affect the Consolidated Statements of Earnings (Loss) beyond twelve months after the Closing Date.

(iii) We have adjusted our prepaid and refundable income taxes, deferred tax asset, income taxes payable and deferred tax liability positions as of June 30, 2023, to $5 million, $0 million, $25 million and $878 million, respectively, as a result of measurement period adjustments.

(iv) We recorded approximately $4 million of decreases in prepaid and other current assets and $4 million of increases in other assets as measurement period adjustments.

(v) The Consolidated Balance Sheet has been adjusted to record Legacy Coherent’s property, plant and equipment (consisting of land, buildings and improvements, equipment, furniture and fixtures, and leasehold improvements) at a fair value of approximately $441 million, an increase of $17 million from the preliminary fair value reported at September 30, 2022 with a corresponding decrease to goodwill. The Consolidated Statements of Earnings (Loss) have been adjusted to recognize additional depreciation expense related to the increased basis. The additional depreciation expense is computed with the assumption that the various categories of assets will be depreciated over their remaining useful lives on a straight-line basis.

(vi) Identifiable intangible assets in the Consolidated Balance Sheet increased $1.1 billion from the preliminary fair value reported at September 30, 2022 with a corresponding decrease to goodwill. Intangibles amortization recorded in cost of goods sold for the year ended June 30, 2023 was $87 million. Intangibles amortization recorded in SG&A expenses for the year ended June 30, 2023 was $209 million.

Identifiable intangible assets consist of the following and are being amortized over their estimated useful lives in the Consolidated Statements of Earnings (Loss) (in $000):

						Fair Value			Estimated Useful Life
Trade names and trademarks						$	430,000		N/A
Customer relationships						1,830,000			15 years
Developed technology						1,157,500			13.5 years
Backlog						87,500			1.0 year
Intangible assets acquired						$	3,505,000

(vii) We recorded approximately $3 million of increases in other accrued liabilities, $2 million of decreases in accrued compensation and benefits and $3 million of increases in other liabilities as measurement period adjustments.

Operating results, including goodwill and intangibles, of Legacy Coherent are reflected in the Company’s consolidated financial statements from the Closing Date, within the Lasers segment. Revenues and net loss for the Lasers segment for the year ended June 30, 2023 were $1,469 million and $412 million, respectively. Goodwill in the amount of $3.2 billion arising from the acquisition is attributed to the expected synergies, including future cost savings, and other benefits expected to be generated by combining Coherent and Legacy Coherent. Substantially all of the goodwill recognized is not expected to be deductible for tax purposes.

Supplemental Pro Forma Information

The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that we believe are reasonable under the circumstances.

The following supplemental pro forma information presents the combined results of operations for the years ended June 30, 2023 and June 30, 2022, as if Legacy Coherent had been acquired as of July 1, 2021. The supplemental pro forma information includes adjustments to amortization and depreciation for acquired intangible assets, property, plant and equipment, adjustments to share-based compensation expense, fair value adjustments on the inventories acquired, transaction costs, interest expense and amortization of debt issuance costs related to the Senior Credit Facilities (as defined in Note 8. Debt).

The unaudited supplemental pro forma financial information for the periods presented is as follows (in $000):

			Year Ended June 30, 2023						Year Ended June 30, 2022
Revenue			$	5,160,100					$	4,837,103
Net Earnings (Loss)			105,849						(289,615)

Note 4. Revenue from Contracts with Customers

We believe that disaggregating revenue by end market provides the most relevant information regarding the nature, amount, timing, and uncertainty of revenues and cash flows.

Effective July 1, 2022, we disaggregate revenue into four end markets: industrial, communications, electronics and instrumentation. All prior period market and segment disclosure information has been reclassified to conform to the current reporting structure.

As a result of the Merger, we now have the following operating segments: Networking, Materials and Lasers. Additionally, prior year numbers were recast to reflect the transfer of two entities between the Networking and Materials segments. See Note 14. Segment and Geographic Reporting for further information.

The following table summarizes disaggregated revenue by market for the years ended June 30, 2023, 2022 and 2021 ($000):

			Year Ended June 30, 2023
			Networking						Materials						Lasers						Total
Industrial			$	70,076					$	603,664					$	1,087,881					$	1,761,621
Communications			2,219,677						73,703						—						2,293,380
Electronics			11,488						614,151						—						625,639
Instrumentation			39,689						58,240						381,531						479,460
Total Revenues			$	2,340,930					$	1,349,758					$	1,469,412					$	5,160,100

			Year Ended June 30, 2022
			Networking						Materials						Lasers						Total
Industrial			$	84,032					$	662,731					$	—					$	746,763
Communications			2,064,424						90,406						—						2,154,830
Electronics			12,218						298,156						—						310,374
Instrumentation			36,575						68,074						—						104,649
Total Revenues			$	2,197,249					$	1,119,367					$	—					$	3,316,616

			Year Ended June 30, 2021
			Networking						Materials						Lasers						Total
Industrial			$	58,919					$	585,957					$	—					$	644,876
Communications			1,904,624						80,449						—						1,985,073
Electronics			13,636						364,941						—						378,577
Instrumentation			27,131						70,234						—						97,365
Total Revenues			$	2,004,310					$	1,101,581					$	—					$	3,105,891

Contract Liabilities

Payments received from customers are based on invoices or billing schedules as established in contracts with customers. Contract liabilities relate to billings in advance of performance under the contracts. Contract liabilities are recognized as revenue when performance obligations have been satisfied. During the year ended June 30, 2023, we recognized revenue of $34 million related to customer payments that were included in the Consolidated Balance Sheet as of June 30, 2022. As of June 30, 2023 and June 30, 2022, we had $148 million and $69 million, respectively, of contract liabilities recorded in the Consolidated Balance Sheets. Contract liabilities acquired from the Merger totaled $77 million. As of June 30, 2023, $104 million of deferred revenue is included other accrued liabilities, and $43 million is included within other liabilities on the Consolidated Balance Sheet.

Note 5. Inventories

The components of inventories were as follows:

June 30,						2023						2022
($000)
Raw materials						$	462,436					$	318,758
Work in progress						549,992						408,405
Finished goods						259,905						175,396
Total Inventories						$	1,272,333					$	902,559

During the year ended June 30, 2023, as part of the Merger, a fair value inventory step-up in the amount of $158 million was recorded as part of the purchase price allocation. The inventory step-up has been amortized to cost of goods sold over the expected period during which the acquired inventory was sold. Refer to Note 3. Coherent Acquisition for further information.

Note 6. Property, Plant & Equipment

Property, plant & equipment consists of the following:

June 30,						2023						2022
($000)
Land and land improvements						$	69,639					$	19,368
Buildings and improvements						780,204						415,530
Machinery and equipment						1,879,136						1,651,762
Construction in progress						287,990						271,605
Finance lease right-of-use asset						25,000						25,000
						3,041,969						2,383,265
Less accumulated depreciation						(1,259,934)						(1,020,070)
Property, plant, and equipment, net						$	1,782,035					$	1,363,195

Included in the table above is a building acquired under a finance lease. As of June 30, 2023 and June 30, 2022, the accumulated depreciation of the finance lease ROU asset was $11 million and $9 million, respectively.

During the year ended June 30, 2023, as part of the Merger, a fair value step-up in the amount of $145 million was recorded to property, plant and equipment as part of the purchase price allocation. The step-up is being amortized over the useful lives of the related assets. Refer to Note 3. Coherent Acquisition for further information.

Note 7. Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost over the net tangible and identifiable intangible assets of acquired businesses. Identifiable intangible assets acquired in business combinations are recorded based upon fair value at the date of acquisition.

Changes in the carrying amount of goodwill were as follows ($000):

						Year Ended June 30, 2023
						Networking						Materials						Lasers						Total
Balance at beginning of period						$	1,013,277					$	272,482					$	—					$	1,285,759
Goodwill acquired						—						—						3,174,984						3,174,984
Foreign currency translation						22,927						(24,787)						53,817						51,957
Balance-end of period						$	1,036,204					$	247,695					$	3,228,801					$	4,512,700

			Year Ended June 30, 2022
			Networking						Materials						Lasers						Total
Balance-beginning of period			$	1,053,028					$	243,699					$	—					$	1,296,727
Transfer between segments(1)			(35,466)						35,466						—						—
Foreign currency translation			(4,285)						(6,683)						—						(10,968)
Balance-end of period			$	1,013,277					$	272,482					$	—					$	1,285,759

(1) Refer to Note 14. Segment Reporting for information regarding the segment transfer of goodwill between segments.

The gross carrying amount and accumulated amortization of our intangible assets other than goodwill as of June 30, 2023 and 2022 were as follows ($000):

						June 30, 2023																		June 30, 2022
						Gross Carrying Amount						Accumulated Amortization						Net Book Value						Gross Carrying Amount						Accumulated Amortization						Net Book Value
Technology						$	1,661,263					$	(270,786)					$	1,390,477					$	473,845					$	(144,409)					$	329,436
Trade Names						438,470						(8,279)						430,191						22,536						(7,454)						15,082
Customer Lists						2,333,360						(339,344)						1,994,016						464,880						(173,994)						290,886
Backlog and Other						88,834						(88,834)						—						1,563						(1,563)						—
Total						$	4,521,927					$	(707,243)					$	3,814,684					$	962,824					$	(327,420)					$	635,404

Refer to Note 3. Coherent Acquisition for further information on intangibles acquired in the year ended June 30, 2023.

Amortization expense recorded on the intangible assets for the fiscal years ended June 30, 2023, 2022 and 2021 was $414 million, $80 million, and $82 million, respectively. The technology intangible assets are being amortized over a range of 72 to 228 months with a weighted-average remaining life of approximately 142 months, and the amortization is recorded in cost of goods sold in our Consolidated Statements of Earnings (Loss). The customer lists are being amortized over 72 to 180 months with a weighted-average remaining life of approximately 157 months, and the amortization is recorded in SG&A in our Consolidated Statements of Earnings (Loss).

Amortization expense in the fiscal year ended June 30, 2023 includes a total of $39 million of impairment charges, with $33 million in the Materials segment and $7 million in the Networking segment. $25 million of the impairment charges related to the abandonment of certain purchased technology and customer lists, with $8 million recorded in cost of goods sold and $18 million recorded in SG&A in our Consolidated Statements of Earnings (Loss). $14 million of impairment charges, recorded in SG&A, related to the abandonment of indefinite-lived trade names.

In connection with past acquisitions, the Company acquired trade names with indefinite lives. In conjunction with our annual impairment test for indefinite-lived intangibles in the fourth quarter of fiscal year 2023, we recognized impairment charges related to trade names for older acquisitions of $14 million, primarily due to the fiscal 2023 rebranding of the Company as Coherent Corp. We concluded that the $430 million indefinite-lived Coherent trade name acquired in the Merger was not impaired. In the fourth quarter of fiscal year 2022, we had completed our impairment test of these trade names with indefinite lives with no resulting impairment.

The estimated amortization expense for existing intangible assets for each of the five succeeding years is as follows ($000):

Year Ending June 30,
2024			$	287,493
2025			285,667
2026			284,089
2027			283,376
2028			281,688

Note 8. Debt

The components of debt for the periods indicated were as follows ($000):

			June 30, 2023						June 30, 2022
Term A Facility, interest at adjusted SOFR, as defined, plus 1.750%			$	818,125					$	—
Debt issuance costs, Term A Facility and Revolving Credit Facility			(18,149)						—
Term B Facility, interest at adjusted SOFR, as defined, plus 2.75%			2,566,625						—
Debt issuance costs, Term B Facility			(63,977)						—
5.00% Senior Notes			990,000						990,000
Debt Issuance costs, Senior Notes			(6,863)						(7,703)
1.0% State of Connecticut term loan due 2023			1,697						—
Facility construction loan in Germany due 2030			22,340						—
Prior Term A Facility, interest at LIBOR, as defined, plus 1.375%			—						995,363
Debt issuance costs, Prior Term A Facility and Revolving Credit Facility			—						(18,396)
0.25% convertible senior notes			—						341,501
Debt issuance costs and discount, 0.25% Convertible Senior Notes			—						(339)
Total debt			4,309,798						2,300,426
Current portion of long-term debt			(74,836)						(403,212)
Long-term debt, less current portion			$	4,234,962					$	1,897,214

The required annual principal repayments for all indebtedness for the next five years and thereafter, as of June 30, 2023, is set forth in the following table ($000):

						Year Ending
						June 30,
2024						$	74,836
2025						73,818
2026						89,416
2027						94,729
2028						641,916
Thereafter						3,424,072
Total						$	4,398,787

Senior Credit Facilities

On July 1, 2022, Coherent entered into a Credit Agreement by and among the Company, as borrower (in such capacity, the “Borrower”), the lenders, and other parties thereto, and JP Morgan Chase Bank, N.A., as administrative agent and collateral agent, which provides for senior secured financing of $4.0 billion, consisting of a term loan A credit facility (the “Term A Facility”), with an aggregate principal amount of $850 million, a term loan B credit facility (the “Term B Facility” and, together with the Term A Facility, the “Term Facilities”), with an aggregate principal amount of $2,800 million, and a revolving credit facility (the “Revolving Credit Facility”), in an aggregate available amount of $350 million, including a letter of credit sub-facility of up to $50 million. On March 31, 2023, Coherent entered into Amendment No. 1 to the Credit Agreement, which replaced the adjusted LIBOR-based rate of interest therein with an adjusted SOFR-based rate of interest. As amended, the Term A Facility and the Revolving Credit Facility each bear interest at an adjusted SOFR rate subject to a 0.10% floor plus a range of 1.75% to 2.50%, based on the Company’s total net leverage ratio. The New Term A Facility and the New Revolving Credit Facility bear interest at adjusted SOFR plus 1.75% as of June 30, 2023. As amended, the Term B Facility will bear interest at an adjusted SOFR rate (subject to a 0.50% floor) plus 2.75%. In relation to the Term Facilities, the Company incurred interest expense, including amortization of debt issuance costs, of $256 million in the year ended June 30, 2023, which is included in interest expense in the Consolidated Statements of Earnings (Loss).

On the Closing Date, the Borrower and certain of its direct and indirect subsidiaries, provided a guaranty of all obligations of the Borrower and the other loan parties under the Credit Agreement and the other loan documents, secured cash management agreements and secured hedge agreements with the lenders and/or their affiliates (subject to certain exceptions). The Borrower and the other guarantors have also granted a security interest in substantially of their assets to secure such obligations.

Proceeds of the loans borrowed under the Term Facilities on July 1, 2022, together with other financing sources (including the net proceeds from Coherent’s offer and sale of its 5.000% Senior Notes due 2029 (the “Senior Notes”) and cash on hand) were used to fund the cash portion of the Merger consideration, the repayment of certain indebtedness (including the repayment in full of all amounts outstanding under the Prior Credit Agreement as defined below), and certain fees and expenses in connection with the Merger and otherwise for general corporate purposes.

We capitalized approximately $90 million of debt issuance costs during the year ended June 30, 2023. These capitalized costs are presented as a reduction to debt within the long-term debt caption in the Consolidated Balance Sheets. Amortization of debt issuance costs related to the Term Facilities for the year ended June 30, 2023 totaled $20 million and is included in interest expense in the Consolidated Statements of Earnings (Loss). As of June 30, 2023, the Company was in compliance with all covenants under the Term Facilities.

Prior Senior Credit Facilities

Through June 30, 2022, the Company had senior credit facilities (the “Prior Senior Credit Facilities”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer, and the other lenders party thereto.

The credit agreement governing the Prior Senior Credit Facilities (the “Prior Credit Agreement”) provided for senior secured financing of $2.4 billion in the aggregate, consisting of:

(i)Aggregate principal amount of $1,255 million for a five-year senior secured first-lien term A loan facility (the “Prior Term A Facility”),

(ii)Aggregate principal amount of $720 million for a seven-year senior secured term B loan facility (the “Prior Term B Facility” and together with the Prior Term A Facility, the “Prior Term Loan Facilities”), which was repaid in full during the quarter ended September 30, 2020, and

(iii)Aggregate principal amount of $450 million for a five-year senior secured first-lien revolving credit facility (the “Prior Revolving Credit Facility” and together with the Prior Term Loan Facilities, the “Prior Senior Credit Facilities”).

The Prior Credit Agreement also provided for a letter of credit sub-facility not to exceed $25 million and a swing loan sub-facility initially not to exceed $20 million.

On July 1, 2022, the Company terminated the Prior Credit Agreement and repaid all amounts outstanding thereunder, of which $62 million was recorded as current portion of long-term debt, and $933 million was recorded as long-term debt at June 30, 2022.

Debt extinguishment costs related to the termination of the Prior Credit Agreement of $17 million were expensed in other expense (income), net in the Consolidated Statement of Earnings (Loss) during the year ended June 30, 2023.

Bridge Loan Commitment

Subject to the terms of an amended and restated commitment letter entered into in connection with Coherent entering into the Merger Agreement, the commitment parties thereto committed to provide, in addition to the Term Facilities and the Revolving Credit Facilities, a senior unsecured bridge loan facility in an aggregate principal amount of $990 million (the “Bridge Loan Commitment”). As a result of the issuance of the Senior Notes, the Bridge Loan Commitment was terminated. During the year ended June 30, 2023, we incurred expenses of $18 million related to the Bridge Loan Commitment, which is included in other expense (income) in the Consolidated Statements of Earnings (Loss). During the year ended June 30, 2022, we incurred expenses of $3 million related to the Bridge Loan Commitment, which is included in interest expense in the Consolidated Statements of Earnings (Loss).

Debt Assumed through Acquisition

We assumed the remaining balances of three term loans with the closing of the Merger. The aggregate principal amount outstanding is $24 million as of June 30, 2023. The terms loans assumed consisted of the following: (i) 1.3% Term Loan due 2024, (ii) 1.0% State of Connecticut Term Loan due 2023 (and repaid prior to June 30, 2023), and (iii) Facility construction loan in Germany due 2030. For the Facility construction loan, on December 21, 2020, Coherent LaserSystems GmbH & Co. KG entered into a loan agreement with Commerzbank for borrowings of up to 24 million Euros, which were drawn down by October 29, 2021, to finance a portion of the construction of a new facility in Germany. The term of the loan is 10 years, and borrowings bear interest at 1.55% per annum. Payments are made quarterly.

5.000% Senior Notes due 2029

On December 10, 2021, the Company issued $990 million aggregate principal amount of Senior Notes pursuant to the indenture, dated as of December 10, 2021 (the “Indenture”), between the Company and U.S. Bank National Association, as trustee (the “Trustee”). The Senior Notes are guaranteed by each of the Company’s domestic subsidiaries that guarantee its obligations under the Senior Credit Facilities. Interest on the Senior Notes will be payable on December 15 and June 15 of each year, commencing on June 15, 2022, at a rate of 5.000% per annum. The Senior Notes will mature on December 15, 2029*.*

On or after December 15, 2024, the Company may redeem the Senior Notes, in whole at any time or in part from time to time, at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time prior to December 15, 2024, the Company may redeem the Senior Notes, at its option, in whole at any time or in part from time to time, at a redemption price equal to 100% of the principal amount of the Senior Notes redeemed, plus a “make-whole” premium set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. Notwithstanding the foregoing, at any time and from time to time prior to December 15, 2024, the Company may redeem up to 40% of the aggregate principal amount of the Senior Notes using the proceeds of certain equity offerings as set forth in the Indenture, at a redemption price equal to 105.000% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

In relation to the Senior Notes, we incurred interest expense of $50 million year ended June 30, 2023, which is included in interest expense in the Consolidated Statements of Earnings (Loss).

The Indenture contains customary covenants and events of default, including default relating to among other things, payment default, failure to comply with covenants or agreements contained in the Indenture or the Senior Notes and certain provisions related to bankruptcy events. As of June 30, 2023, the Company was in compliance with all covenants under the Indenture.

0.25% Convertible Senior Notes

In August 2017, the Company issued and sold $345 million aggregate principal amount of its 0.25% Convertible Senior Notes due 2022 (the “Convertible Notes”) in a private placement to qualified institutional buyers within the meaning of Rule 144A under the Securities Act of 1933, as amended.

Beginning on June 1, 2022 until the close of business on the business day immediately preceding September 1, 2022 (the “Maturity Date”), holders were able to convert their Convertible Notes at any time. For the fiscal quarter ended September 30, 2022, the holders of the Convertible Notes converted $332 million of principal, which was recorded as current portion of long-term debt at June 30, 2022, and received approximately 7 million shares of Coherent Common Stock in settlement of the conversions.

On the Maturity Date, $4 million aggregate principal amount of Convertible Notes remained outstanding, and was repaid in cash, and the Convertible Notes are no longer outstanding. At the Maturity Date, the accrued interest on the Coherent Convertible Notes was immaterial. The total interest expense related to the Convertible Notes was immaterial for the year ended June 30, 2023.

Aggregate Availability

The Company had aggregate availability of $348 million under its Revolving Credit Facility as of June 30, 2023.

Weighted Average Interest Rate

The weighted average interest rate of total borrowings was 6% and 2% for the years ended June 30, 2023 and 2022, respectively.

Note 9. Income Taxes

The components of earnings (loss) before income taxes by jurisdiction were as follows:

Year Ended June 30,						2023						2022						2021
($000)
U.S. income (loss)						$	(450,370)					$	(62,721)					$	21,692
Non-U.S. income						94,812						344,528						330,898
Earnings (loss) before income taxes						$	(355,558)					$	281,807					$	352,590

The components of the income tax expense (benefit) were as follows:

Year Ended June 30,						2023						2022						2021
($000)
Current:
Federal						$	5					$	1,569					$	415
State						3,867						768						1,632
Foreign						106,850						52,865						53,362
Total Current						$	110,722					$	55,202					$	55,409
Deferred:
Federal						$	(106,044)					$	(7,185)					$	13,744
State						(7,151)						(1,215)						(431)
Foreign						(93,627)						246						(13,684)
Total Deferred						$	(206,822)					$	(8,154)					$	(371)
Total Income Tax Expense (Benefit)						$	(96,100)					$	47,048					$	55,038

Principal items comprising deferred tax assets and liabilities were as follows:

June 30,						2023						2022
($000)
Deferred income tax assets
Inventory capitalization						$	60,232					$	20,562
Non-deductible accruals						18,423						8,403
Accrued employee benefits						40,292						11,320
Net-operating loss and credit carryforwards						234,546						149,949
Share-based compensation expense						16,729						10,125
Other						9,256						3,565
Research and development capitalization						85,473						—
Deferred revenue						11,415						12,416
Right of use asset						42,688						29,817
Valuation allowances						(97,180)						(55,420)
Total deferred income tax assets						$	421,874					$	190,737
Deferred income tax liabilities
Tax over book accumulated depreciation						$	(56,742)					$	(28,701)
Intangible assets						(988,580)						(134,972)
Interest rate swap						(8,522)						(6,105)
Interest rate cap						(10,734)						(4,102)
Tax on unremitted earnings						(51,672)						(26,383)
Lease liability						(41,426)						(28,983)
Other						(6,757)						(7,036)
Total deferred income tax liabilities						$	(1,164,433)					$	(236,282)
Net deferred income taxes						$	(742,559)					$	(45,545)

The reconciliation of income tax expense at the statutory U.S. federal rate to the reported income tax expense is as follows:

Year Ended June 30,						2023						%						2022						%						2021						%
($000)
Taxes at statutory rate						$	(74,667)					21						$	59,179					21						$	74,044					21
Increase (decrease) in taxes resulting from:
State income taxes-net of federal benefit						(2,548)						1						(339)						—						1,246						—
Taxes on non U.S. earnings						191						—						(2,704)						(1)						(26,557)						(7)
Valuation allowance						3,835						(1)						(1,513)						(1)						(3,720)						(1)
Research and manufacturing incentive deductions and credits						(29,416)						8						(24,341)						(9)						(22,968)						(6)
Stock compensation						18,661						(5)						2,095						1						(2,500)						(1)
GILTI and FDII						(7,195)						2						4,866						2						27,369						8
Other						(4,961)						1						9,805						4						8,124						2
						$	(96,100)					27						$	47,048					17						$	55,038					16

The Company is partially permanently reinvested and will repatriate earnings for all non-U.S. subsidiaries with cash in excess of working capital needs. Such distributions could potentially be subject to U.S. state tax in certain states and foreign withholding taxes. Foreign currency gains (losses) related to the translation of previously taxed earnings from functional currency to U.S. dollars could also be subject to U.S. tax when distributed. The Company has estimated the associated withholding tax to be $52 million.

Additionally, the Company made a final accounting policy election to treat taxes due from future inclusions in U.S. taxable income related to global intangible low tax income (“GILTI”) as a current period expense when incurred.

During the fiscal years ended June 30, 2023, 2022, and 2021, cash paid by the Company for income taxes was $90 million, $50 million, and $60 million, respectively.

Our foreign subsidiaries in various tax jurisdictions operate under tax holiday arrangements. The impact of the tax holidays on our effective rate is a reduction in the rate of (2.27)%, 1.60% and 3.22% for the fiscal years ended June 30, 2023, 2022 and 2021, respectively, and the impact of the tax holidays on diluted earnings per share is $0.05, $0.04, and $0.10 for the fiscal years ended June 30, 2023, 2022, and 2021, respectively. The tax holiday related to Coherent Malaysia Sdn. Bhd will end during the fiscal year ended June 30, 2026 for certain business lines and new business lines will end during the fiscal year ended June 30, 2028, the tax holiday related to certain II-VI Laser Enterprise Philippines, Inc.’s business lines will end during the fiscal year ended June 30, 2026, the tax holiday related to certain II-VI Vietnam Co., Ltd business lines will end during the fiscal year ended June 30, 2024, and the tax holiday related to certain Coherent Singapore PTE Ltd business lines will end during the fiscal year ended June 30, 2027.

The Company has the following gross operating loss carryforwards and tax credit carryforwards as of June 30, 2023:

Type						Amount						Expiration Date
($000)
Tax credit carryforwards:
Federal research and development credits						$	124,892					June 2027-June 2043
Foreign tax credits						26,850						June 2030-June 2032
State tax credits						19,203						June 2024-June 2038
State tax credits (indefinite)						76,968						Indefinite
Operating loss carryforwards:
Loss carryforwards - federal						$	40,411					June 2024-June 2036
Loss carryforwards - federal (indefinite)						2,182						Indefinite
Loss carryforwards - state						266,937						June 2024-June 2043
Loss carryforwards - state (indefinite)						32,863						Indefinite
Loss carryforwards - foreign						62,719						June 2024-June 2033
Loss carryforwards - foreign (indefinite)						136,326						Indefinite

The Company has recorded a valuation allowance against the majority of the foreign and state loss and credit carryforwards. The Company’s U.S. federal loss carryforwards, federal research and development credit carryforwards, foreign tax credits, and certain state tax credits resulting from the Company’s acquisitions are subject to various annual limitations under Section 382 of the U.S. Internal Revenue Code.

Changes in the liability for unrecognized tax benefits for the fiscal years ended June 30, 2023, 2022 and 2021 were as follows:

						2023						2022						2021
($000)
Beginning balance						$	37,411					$	38,025					$	42,803
Increases in current year tax positions						110						1,803						3,940
Acquired business						86,077						—						5,341
Settlements						—						—						(7,514)
Expiration of statute of limitations						(8,418)						(2,417)						(6,545)
Ending balance						$	115,180					$	37,411					$	38,025

The Company classifies all estimated and actual interest and penalties as income tax expense. During fiscal years 2023, 2022 and 2021, there was $0.3 million, $0.4 million and $0.3 million of interest and penalties within income tax expense, respectively. The Company had $6 million, $3 million and $3 million of interest and penalties accrued at June 30, 2023, 2022 and 2021, respectively. The Company has classified the uncertain tax positions as non-current income tax liabilities, as the amounts are not expected to be paid within one year. Including tax positions for which the Company determined that the tax position would not meet the more likely than not recognition threshold upon examination by the tax authorities based upon the technical merits of the position, the total estimated unrecognized tax benefit that, if recognized, would affect our effective tax rate, was approximately $92 million, $25 million and $26 million at June 30, 2023, 2022 and 2021, respectively. The majority of the liability can be offset by credit carryforwards and would not impact cash taxes if recognized. The Company expects a decrease of $1 million of unrecognized tax benefits during the next 12 months due to the expiration of statutes of limitation.

Fiscal years 2018 and 2020 to 2023 remain open to examination by the Internal Revenue Service, fiscal years 2019 to 2023 remain open to examination by certain state jurisdictions, and fiscal years 2011 to 2023 remain open to examination by certain foreign taxing jurisdictions. The Company is currently under examination for certain subsidiary companies in Pennsylvania for the year ended June 30, 2020; Vietnam for the years ended September 30, 2018 through September 30, 2021; Singapore for the year ended September 30, 2020; Italy for the year ended September 30, 2019; Spain for the years ended September 30, 2020 through September 30, 2022; and Germany for the years ended September 30, 2011 through June 30, 2022. The Company believes its income tax reserves for these tax matters are adequate.

Note 10. Equity and Redeemable Preferred Stock

The Company has 5 million shares of preferred stock authorized, of which 2.3 million shares have been designated and issued as Mandatory Convertible Preferred Stock and 215,000 shares have been designated as Series B Convertible Preferred Stock, no par value per share, of which 215,000 and 75,000 shares were issued as of June 30, 2023 and 2022, respectively.

Mandatory Convertible Preferred Stock

In July 2020, we issued 2.3 million shares of Mandatory Convertible Preferred Stock.

Unless previously converted, each outstanding share of Mandatory Convertible Preferred Stock automatically converted on the Mandatory Conversion Date (as defined in the Statement with Respect to Shares establishing the Mandatory Convertible Preferred Stock) into a number of shares of Coherent Common Stock equal to not more than 4.4523 shares of Coherent Common Stock and not less than 3.8760 shares of Coherent Common Stock (the “Minimum Conversion Rate”), depending on the applicable market value of the Coherent Common Stock, determined in accordance with the terms of the Mandatory Convertible Preferred Stock and subject to certain anti-dilution adjustments.

Other than in the event of one of certain fundamental changes, a holder of Mandatory Convertible Preferred Stock could, at any time prior to July 1, 2023, elect to convert such holder’s shares of Mandatory Convertible Preferred Stock, in whole or in part (but in no event less than one share of Mandatory Convertible Preferred Stock), at the Minimum Conversion Rate per share of Mandatory Convertible Preferred Stock, subject to certain anti-dilution adjustments.

If one of certain fundamental changes occurred on or prior to July 1, 2023, holders of the Mandatory Convertible Preferred Stock had the right to convert their shares of Mandatory Convertible Preferred Stock, in whole or in part, into shares of Coherent Common Stock at the conversion rate determined in accordance with the terms of the Mandatory Convertible Preferred Stock during the period beginning on, and including, the effective date of such change and ending on, and including, the date that was 20 calendar days after the effective date of such fundamental change (or, if later, the date that was 20 calendar days after holders receive notice of such fundamental change, but in no event later than July 1, 2023). Holders who converted their shares of the Mandatory Convertible Preferred Stock during that period would also receive a dividend make-whole amount and, to the extent there was any, the accumulated dividend amount, in each case as calculated in accordance with the terms of the Mandatory Convertible Preferred Stock.

All outstanding shares of Mandatory Convertible Preferred Stock were converted to 10,240,290 shares of Company Common Stock on July 3, 2023, at a conversion ratio of 4.4523, and no shares of Mandatory Convertible Preferred Stock are currently issued and outstanding.

Upon issuance of the Mandatory Convertible Preferred Stock, we used a Monte Carlo simulation model to estimate the future market value of the Coherent Common Stock on the mandatory conversion date, based on the following inputs:

Expected Volatility			50% - 55%
Cost of Equity			14% - 17%
Dividend Yield			none

Expected volatility is based on the historical volatility of Coherent Common Stock, taking into consideration the mean-reverting tendency of volatility and the expected term of the Mandatory Convertible Preferred Stock, as well as traded option contracts for Coherent Common Stock. The cost of equity was calculated over a three-year term, assuming a risk-free interest rate of 0.2% derived from the average U.S. Treasury Note rate during the period. The dividend yield of zero is based on the fact that the Company has never paid cash dividends on Coherent Common Stock and has no current intention to pay cash dividends on Coherent Common Stock in the future.

We recognized $28 million and $28 million of preferred stock dividends during fiscal years 2023 and 2022, respectively, associated with the Mandatory Convertible Preferred Stock, which were presented as a reduction to retained earnings on the Consolidated Balance Sheet as of June 30, 2023.

The following table presents dividends per share and dividends recognized for the years ended June 30, 2023, and June 30, 2022:

						Year Ended June 30, 2023						Year Ended June 30, 2022
Dividends per share						$	12					$	12
Series A Mandatory Convertible Preferred Stock dividends ($000)						27,600						27,600

Series B-1 Convertible Preferred Stock

In connection with entering into the Merger Agreement, Coherent entered into an Amended and Restated Investment Agreement, dated as of March 30, 2021 (the “Investment Agreement”), with BCPE Watson (DE) SPV, LP, an affiliate of Bain Capital Private Equity, LP (the “Investor”). Pursuant to the terms of the Investment Agreement, on March 31, 2021, Coherent issued, sold, and delivered to the Investor 75,000 shares of a new Series B-1 Convertible Preferred Stock of the Company, no par value per share (“Series B-1 Preferred Stock”), for $10,000 per share (the “Equity Per Share Price”), resulting in an aggregate purchase price of $750 million.

Following our provision of notice to the Investor of its election to offer the Upsize Shares, the Investor informed the Company on June 8, 2021, of its agreement to purchase the Upsize Shares from the Company immediately prior to the closing of the Coherent acquisition, increasing the Investor’s total equity commitment to Coherent pursuant to the Investment Agreement to $2.15 billion.

On July 1, 2022, the Company issued and sold 140,000 shares of Coherent Series B-2 Convertible Preferred Stock, for $10,000 per share and an aggregate purchase price of $1.4 billion.

The shares of Series B-1 Preferred Stock accrue dividends at 5.00% per annum, subject to increase if Coherent defaults on payment obligations with respect to the Series B-1 Preferred Stock, not to exceed 14% per annum. Until the fourth anniversary of March 31, 2021 (the “Initial Issue Date”), dividends are payable solely in-kind. After the fourth anniversary of the Initial Issue Date, dividends are payable on the applicable series, at the Company’s option, in cash, in-kind, or as a combination of both.

The shares of Series B-1 Preferred Stock are convertible into shares of Coherent Common Stock as follows:

• at the election of the holder, at a conversion price of $85 per share (as it may be adjusted from time to time, the “Conversion Price”), upon the delivery by Coherent to the holders of the Series B-1 Preferred Stock of an offer to repurchase the Series B-1 Preferred Stock upon the occurrence of a Fundamental Change (as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock as defined below); and

• at the election of the Company, any time following March 31, 2024, at the then-applicable Conversion Price if the volume-weighted average price of Coherent Common Stock exceeds 150% of the then-applicable Conversion Price for 20 trading days out of any 30 consecutive trading days.

The issued shares of Series B-1 Preferred Stock currently have voting rights, voting as one class with the Coherent Common Stock and the Series B-2 Preferred Stock (as defined below), on an as-converted basis, subject to limited exceptions.

On or at any time after March 31, 2031:

• each holder has the right to require the Company to redeem all of their Series B-1 Preferred Stock, for cash, at a redemption price per share equal to the sum of the Stated Value (as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock) for such shares plus an amount equal to all accrued or declared and unpaid dividends on such shares that had not previously been added to the Stated Value (such price the “Redemption Price,” and such right the “Put Right”), and

• the Company has the right to redeem, in whole or in part, on a pro rata basis from all holders based on the aggregate number of shares of Series B-1 Preferred Stock outstanding, for cash, at the Redemption Price.

In connection with any Fundamental Change (as defined in the Statement with Respect to Shares establishing the Series B Preferred Stock), and subject to the procedures set forth in the Statement with Respect to Shares establishing the Series B Preferred Stock, the Company must, or will cause the survivor of a Fundamental Change to, make an offer to repurchase, at the option and election of the holder thereof, each share of Series B-1 Preferred Stock then outstanding at a purchase price per share in cash equal to (i) the Stated Value for such shares plus an amount equal to all accrued or declared and unpaid dividends on such shares that had not previously been added to the Stated Value as of the date of repurchase plus (ii) if prior to March 31, 2026, the aggregate amount of all dividends that would have been paid (subject to certain exceptions), from the date of repurchase through March 31, 2026.

If the Company defaults on a payment obligation with respect to the Series B-1 Preferred Stock, and such default is not cured within 30 days, the dividend rate will increase to 8% per annum and will be increased by an additional 2% per annum each quarter the Company remains in default, not to exceed 14% per annum.

The Series B-1 Preferred Stock is redeemable for cash outside of the control of the Company upon the exercise of the Put Right, and upon a Fundamental Change, and is therefore classified as mezzanine equity.

The Series B-1 Preferred Stock is initially measured at fair value less issuance costs, accreted to its redemption value over a 10-year period (using the effective interest method) with such accretion accounted for as deemed dividends and reductions to Net Earnings (Loss) available to Common Shareholders.

We recognized $117 million and $41 million of preferred stock dividends during the fiscal years ended June 30, 2023, and June 30, 2022, respectively, which were presented as a reduction to retained earnings on the Consolidated Balance Sheet as of June 30, 2023.

The following table presents dividends per share and dividends recognized for the years ended June 30, 2023, and June 30, 2022:

						Year Ended June 30, 2023						Year Ended June 30, 2022
Dividends per share						$	542					$	542
Dividends ($000)						111,785						38,598
Deemed dividends ($000)						4,827						2,027

Note 11. Earnings Per Share

Basic earnings (loss) per common share is computed by dividing net earnings (loss) available to common shareholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted earnings (loss) per common share is computed by dividing the diluted earnings (loss) available to common shareholders by the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. The dilutive effect of equity awards is calculated based on the average stock price for each fiscal period, using the treasury stock method. The shares of Coherent Common Stock issuable upon conversion of outstanding convertible debt, the Mandatory Convertible Preferred Stock and the Series B Convertible Preferred Stock are calculated under the If-Converted method. For the year ended June 30, 2023, diluted earnings (loss) per share excluded the potentially dilutive effect of the performance and restricted shares as well as the shares of Coherent Common Stock issuable upon conversion of outstanding convertible debt, the Mandatory Convertible Preferred Stock and the Series B Convertible Preferred Stock as their effects were anti-dilutive. For the fiscal years ended June 30, 2022 and June 30, 2021, diluted shares outstanding include the dilutive effect of the potential shares of our common stock issuable from stock options, performance and restricted shares and the dilutive effect of the potential shares of our common stock issuable upon conversion of outstanding convertible debt.

The following is a reconciliation of the numerators and denominators of the basic and diluted earnings (loss) per share computations for the periods presented ($000):

Year Ended June 30,						2023						2022						2021
($000 except per share)
Numerator
Net earnings (loss)						$	(259,458)					$	234,759					$	297,552
Deduct Series A preferred stock dividends						(27,600)						(27,600)						(27,140)
Deduct Series B dividends and deemed dividends						(116,612)						(40,625)						(10,091)
Basic earnings (loss) available to common shareholders						$	(403,670)					$	166,534					$	260,321
Effect of dilutive securities:
Add back interest on Convertible Notes (net of tax)						$	—					$	2,229					$	12,264
Diluted earnings (loss) available to common shareholders						$	(403,670)					$	168,763					$	272,585
Denominator
Weighted average shares						137,578						106,189						104,151
Effect of dilutive securities
Common stock equivalents						—						3,012						3,552
Convertible Notes						—						7,312						7,331
Diluted weighted average common shares						137,578						116,513						115,034
Basic earnings (loss) per common share						$	(2.93)					$	1.57					$	2.50
Diluted earnings (loss) per common share						$	(2.93)					$	1.45					$	2.37

The following table presents potential shares of common stock excluded from the calculation of diluted net earnings (loss) per share, as their effect would have been antidilutive (in thousands of shares):

Year Ended June 30,						2023						2022						2021
Series A Mandatory Convertible Preferred Stock						10,423						8,915						8,915
Series B Convertible Preferred Stock						26,349						9,162						2,230
Common stock equivalents						2,271						9,611						118
Total anti-dilutive shares						39,043						27,688						11,263

Note 12. Leases

The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. Classification and initial measurement of the right-of-use asset and lease liability are determined at the lease commencement date. The Company elected the short-term lease measurement and recognition exemption; therefore, leases with an initial term of 12 months or less are not recorded on the balance sheet.

Finance leases are generally those that allow us to substantially utilize or pay for the entire asset over its estimated useful life. Finance leases assets are recorded in property, plant and equipment, net, and finance lease liabilities within other accrued liabilities and other liabilities on our 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 for lease liabilities 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, current and non-current on our Consolidated Balance Sheets. 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 the Company. 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 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 lease assets and corresponding liabilities. Our lease terms and conditions may include options to extend or terminate. An option is recognized 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.

The following table presents lease costs, which include leases for arrangements with an initial term of more than 12 months, lease term, and discount rates ($000):

Year Ended June 30,						2023						2022						2021
Finance Lease Cost
Amortization of right-of-use assets						$	1,667					$	1,671					$	1,667
Interest on lease liabilities						1,124						1,200						1,328
Total finance lease cost						2,791						2,871						2,995
Operating lease cost						53,127						36,716						37,361
Sublease income						—						507						1,471
Total lease cost						$	55,918					$	39,080					$	38,885
Cash Paid for Amounts Included in the Measurement of Lease Liabilities
Operating cash flows from finance leases						1,124						1,200						1,268
Operating cash flows from operating leases						50,503						35,481						35,641
Financing cash flows from finance leases						1,430						1,290						1,152
Assets Obtained in Exchange for Lease Liabilities
Right-of-use assets obtained in acquisitions						56,315						—						13,391
Right-of-use assets obtained in exchange for new operating lease liabilities						27,720						18,161						52,839
Total assets obtained in exchange for new operating lease liabilities						84,035						18,161						66,230
Weighted-Average Remaining Lease Term (in Years)
Finance leases						8.5						9.5						10.5
Operating leases						6.9						6.6						7.0
Weighted-Average Discount Rate
Finance leases						5.6		%				5.6		%				5.6		%
Operating leases						5.5		%				5.7		%				6.1		%

The following table presents future minimum lease payments, which includes leases for arrangements with an initial term of more than 12 months ($000):

Future Years			Operating Leases						Finance Leases						Total
Year 1			$	46,619					$	2,624					$	49,244
Year 2			40,401						2,697						43,098
Year 3			32,359						2,771						35,129
Year 4			25,848						2,847						28,695
Year 5			18,705						2,925						21,630
Thereafter			55,493						10,763						66,256
Total minimum lease payments			$	219,425					$	24,627					$	244,052
Less: amounts representing interest			40,406						5,160						45,565
Present value of total lease liabilities			$	179,019					$	19,467					$	198,486

From time-to-time, we enter into commercial agreements with our customers that include advance payments from our customers, the cash flow from which we use to fund our capital expansion. We determine at the inception or modification of the contract if the arrangement is, or contains, a lease, which exists when the contract conveys the right to control the use of identified property or equipment for a period of time in exchange for consideration. In determining if a contract contains a lease, we evaluate whether the contract, either explicitly or implicitly, is for the use of an identified asset, and whether the customer has the right to direct the use of, and obtain substantially all of the economic benefit from, the identified asset.

Note 13. Share-Based Compensation

The Company’s Board of Directors amended the Coherent Corp. 2018 Omnibus Incentive Plan, which originally was approved by the Company’s shareholders at the Annual Meeting in November 2018 (as amended and restated, the “Plan”). The Plan was approved at the annual meeting in November 2020. The Plan provides for the grant of non-qualified stock options, stock appreciation rights, restricted shares, restricted share units, deferred shares, performance shares and performance share units to employees, officers and directors of the Company. The maximum number of shares of Coherent Common Stock authorized for issuance under the Plan is limited to 9,550,000 shares of Coherent Common Stock, not including any remaining shares forfeited under the predecessor plans that may be rolled into the Plan. The Plan has vesting provisions predicated upon the death, retirement or disability of the grantee.

On the Closing Date, the Company assumed 403,675 Legacy Coherent restricted stock units (“Converted RSUs”). The Converted RSUs are generally subject to the same terms and conditions that applied to the RSUs immediately prior to the Closing Date. Other than the assumed Converted RSUs, Coherent did not assume any other awards outstanding under Legacy Coherent equity incentive plans. On the Closing Date, Coherent assumed the unused capacity under Legacy Coherent equity incentive plan, which totaled 10,959,354 shares of issuable Coherent Common Stock.

As of June 30, 2023, there were approximately 10 million shares available to be issued under the Plan, including forfeited shares from predecessor plans.

We record share-based compensation expense for these awards, which requires the recognition of the grant-date fair value of share-based compensation in net earnings. We recognize the share-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. We account for cash-based stock appreciation rights, cash-based restricted share units and cash-based performance share units as liability awards.

Share-based compensation expense for the fiscal years ended June 30, 2023, 2022 and 2021 is as follows $000:

Year Ended June 30,						2023						2022						2021
Stock Options and Cash-Based Stock Appreciation Rights						$	2,602					$	3,218					$	10,626
Restricted Share Awards and Cash-Based Restricted Share Unit Awards						124,212						56,365						47,060
Performance Share Awards and Cash-Based Performance Share Unit Awards						14,998						10,077						16,640
Employee Stock Purchase Plan						7,819						3,443						4,670
						$	149,631					$	73,103					$	78,996

Stock Options and Cash-Based Stock Appreciation Rights

We utilize the Black-Scholes valuation model for estimating the fair value of stock options and cash-based stock appreciation rights. During the fiscal years ended June 30, 2023, June 30, 2022 and June 30, 2021, no stock options were issued.

The risk-free interest rate is derived from the average U.S. Treasury Note rate during the period, which approximates the rate in effect at the time of grant related to the expected life of the options. The risk-free interest rate shown above is the weighted average rate for all options granted during the fiscal year. Expected volatility is based on the historical volatility of the Company’s Common Stock over the period commensurate with the expected life of the options. The expected life calculation is based on the observed time to post-vesting exercise and/or forfeitures of options by our employees. The dividend yield of zero is based on the fact that we have never paid cash dividends and have no current intention to pay cash dividends in the future.

Stock option and cash-based stock appreciation rights activity during the fiscal year ended June 30, 2023 was as follows:

						Stock Options												Cash-Based Stock Appreciation Rights
						Number of Shares						Weighted Average Exercise Price						Number of Rights						Weighted Average Exercise Price
Outstanding - June 30, 2022						2,432,890						$	29.41					127,562						$	33.39
Exercised						(217,791)						$	21.22					(24,134)						$	26.05
Forfeited and Expired						(28,155)						$	34.12					(538)						$	30.04
Outstanding - June 30, 2023						2,186,944						$	30.15					102,890						$	35.12
Exercisable - June 30, 2023						2,014,904						$	29.75					89,102						$	35.12

As of June 30, 2023, 2022 and 2021, the aggregate intrinsic value of stock options and cash-based stock appreciation rights outstanding and exercisable was $44 million, $48 million and $88 million, respectively. Aggregate intrinsic value represents the total pretax intrinsic value (the difference between our closing stock price on the last trading day of the year ended June 30, and the option’s exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2023. This amount varies based on the fair market value of the Company’s stock. The total intrinsic value of stock options and cash-based stock appreciation rights exercised during the fiscal years ended June 30, 2023, 2022, and 2021 was $5 million, $8 million, and $49 million, respectively. As of June 30, 2023, total unrecognized compensation cost related to non-vested stock options and cash-based stock appreciation rights was $1 million. This cost is expected to be recognized over a weighted-average period of less than 1 year.

Outstanding and exercisable stock options at June 30, 2023 were as follows:

						Stock Options and Cash-Based Stock Appreciation Rights Outstanding																		Stock Options and Cash-Based Stock Appreciation Rights Exercisable
						Number of						Weighted Average Remaining						Weighted Average						Number of						Weighted Average Remaining						Weighted Average
Range of						Shares or						Contractual Term						Exercise						Shares or						Contractual Term						Exercise
Exercise Prices						Rights						(Years)						Price						Rights						(Years)						Price
$13.34 - $18.07						505,115						1.68						$	16.12					505,115						1.68						$	16.12
$18.07 - $24.35						425,490						2.87						$	21.33					425,490						2.87						$	21.33
$24.35 - $35.39						470,797						4.72						$	33.28					424,844						4.53						$	33.67
$35.39 - $36.90						518,636						6.19						$	36.46					380,503						6.18						$	36.46
$36.90 - $49.90						369,796						5.07						$	48.02					368,054						5.07						$	48.03
						2,289,834						4.10						$	30.38					2,104,006						3.90						$	29.98

Restricted Share Awards, Restricted Share Units, and Cash-Based Restricted Share Units

Restricted share awards, restricted share units, and cash-based restricted share units compensation expense was calculated based on the number of shares or units expected to be earned by the grantee multiplied by the stock price at the date of grant (for restricted share awards and restricted share units) or the stock price at the period end date (for cash-based restricted share units), and is being recognized over the vesting period. Generally, the restricted share awards, restricted share units, and cash-based restricted share units have a three-year tranche vesting provision. There were no restricted share awards issued in the fiscal year ending June 30, 2023, and all previous restricted share awards have been amortized in full.

Restricted share unit and cash-based restricted share unit activity during the fiscal year ended June 30, 2023, was as follows:

						Restricted Share Units												Cash-Based Restricted Share Units
						Number of Units						Weighted Average Grant Date Fair Value						Number of Units						Weighted Average Grant Date Fair Value
Nonvested - June 30, 2022						1,898,178						$	54.24					20,478						$	40.05
Granted						4,667,367						$	50.82					3,415						$	51.89
Vested						(2,881,311)						$	49.93					(17,449)						$	37.68
Forfeited						(162,280)						$	52.11					(469)						$	48.09
Nonvested - June 30, 2023						3,521,954						$	53.33					5,975						$	53.12

As of June 30, 2023, total unrecognized compensation cost related to non-vested, restricted share units and cash-based restricted share units was $88 million. This cost is expected to be recognized over a weighted-average period of approximately two years. The restricted share unit compensation expense was calculated based on the number of shares expected to be earned, multiplied by the stock price at the date of grant, and is being recognized over the vesting period. The cash-based restricted share unit compensation expense was calculated based on the number of units expected to be earned, multiplied by the stock price at the period-end date, and is being recognized over the vesting period. The total fair value of the restricted share awards, restricted share units, and cash-based restricted share units granted during the years ended June 30, 2023, 2022 and 2021, was $102 million, $54 million and $59 million, respectively. The total fair value of restricted share awards, restricted share units and cash-based restricted share units vested was $131 million, $67 million and $69 million during fiscal years 2023, 2022 and 2021, respectively.

Performance Share Units and Cash-Based Performance Share Units

The Compensation Committee of the Board of Directors of the Company has granted certain executive officers and employees performance share units and cash-based performance share units under the Plan. As of June 30, 2023, we had outstanding grants covering performance periods ranging from 12 to 36 months. These grants are intended to provide continuing emphasis on specified financial performance goals that the Company considers important contributors to the creation of long-term shareholder value. These grants are payable only if the Company achieves specified levels of financial performance during the performance periods.

For our relative Total Shareholder Return (“TSR”) performance-based units, which are based on market performance of our stock as compared to the S&P Composite 1500 – Electronic Equipment, Instruments & Components Index, the compensation cost is recognized over the performance period on a straight-line basis, because the grants vest only at the end of the measurement period, and the probability of actual shares expected to be earned is considered in the grant date valuation. As a result, the expense is not adjusted to reflect the actual shares earned. We estimate the fair value of the TSR performance-based units using the Monte-Carlo simulation model.

The performance share unit compensation expense was calculated based on the number of shares expected to be earned, multiplied by the stock price at the date of grant, and is being recognized over the vesting period. The cash-based performance share unit compensation expense was calculated based on the number of units expected to be earned, multiplied by the stock price at the period-end date, and is being recognized over the vesting period.

Performance share unit and cash-based performance share unit activity relating to the Plan during the year ended June 30, 2023, was as follows:

						Performance Share Units												Cash-Based Performance Share Units
						Number of Units						Weighted Average Grant Date Fair Value						Number of Units						Weighted Average Grant Date Fair Value
Nonvested - June 30, 2022						591,585						$	40.48					18,124						$	33.88
Granted						525,914						$	50.58					—						$	—
Vested						(435,541)						$	51.45					(36,248)						$	32.04
Forfeited						(16,496)						$	53.97					—						$	—
Performance Adjustments						217,175						$	—					18,124						$	32.04
Nonvested - June 30, 2023						882,637						$	36.11					—						$	—

As of June 30, 2023, total unrecognized compensation cost related to non-vested performance share units and cash-based performance share units was $15 million. This cost is expected to be recognized over a weighted-average period of approximately 1.73 years. The total fair value of the performance share units and cash-based performance share units granted during the fiscal years ended June 30, 2023, 2022 and 2021 was $27 million, $14 million and $14 million, respectively. The total fair value of performance share units and cash-based performance share units vested during the fiscal years ended June 30, 2023, 2022 and 2021 was $24 million, $11 million and $9 million, respectively. The performance adjustments relate to grants that exceeded the performance targets when vested during fiscal 2022, including the final number of shares issued, which were 200% of the target units based on actual results during the three-year performance period.

Note 14. Segment and Geographic Reporting

Our Chief Executive Officer has been identified as the chief operating decision maker (“CODM”) as he utilizes financial information to make decisions about allocating resources and assessing performance for the entire Company, which is used in the decision-making process to assess performance. We determine our reportable business segments based on the way the CODM organizes business segments within the Company for making operating decisions and assessing performance.

Effective July 1, 2022, we report our financial results in the following three segments: (i) Networking, (ii) Materials, and (iii) Lasers. Previously, financial results had been reported in the following two segments: (i) Photonic Solutions and (ii) Compound Semiconductors. The Networking segment represents the former Photonic Solutions segment and the Materials segment represents the former Compound Semiconductors segment.

The Networking segment has locations in the United States, Singapore, China, Germany, Switzerland, Japan, Belgium, the United Kingdom, Italy, South Korea, the Philippines, Vietnam, Sweden, and Taiwan. This segment address all of Coherent’s four end markets, namely: communications, industrial, electronics, and instrumentation, with a concentration in the communications market. This segment designs, manufactures and markets the following products: (i) optical and electro-optical components and materials used primarily in CO2 lasers, fiber-lasers and direct diode lasers for materials processing applications; (ii) infrared optical components and high-precision optical assemblies for aerospace & defense, medical and commercial laser imaging applications; (iii) semiconductor lasers and detectors for optical interconnects and sensing applications; (iv) engineered materials for thermoelectric, ceramics and silicon carbide for a wide range of applications; and (v) compound semiconductor epitaxial wafers for applications in optical and wireless communication.

The Materials segment has locations in the United States, China, Vietnam, Germany, Japan, the United Kingdom, Italy, Malaysia, and Australia. This segment manufactures (i) transceivers for data centers and telecom optical networks; (ii) pump lasers, optical amplifiers, wavelength selective switches and advanced components for telecom networks; (iii) crystal materials, optics, lasers and optoelectronic modules for a wide range of applications, including in optical communications, life sciences, and consumer electronics markets.

The Lasers segment has locations in the United States, Germany, Scotland, Finland, Sweden, Switzerland, Spain, South Korea, Singapore, and Malaysia. The Lasers segment’s lasers and optics products serve industrial customers in semiconductor and display capital equipment, precision manufacturing, and aerospace & defense, as well as instrumentation customers in life sciences and scientific devices.

To the extent possible, our corporate expenses are allocated to the segments. The Company’s CODM evaluates the performance of its segments based upon reported segment operating income, which is defined as earnings from continuing operations before income taxes, interest and other income or expense. Unallocated and Other include eliminating inter-segment sales and transfers as well as transaction costs related to the Coherent acquisition, before its close, in the fiscal year ended June 30, 2022 and June 30, 2021.

The following tables summarize selected financial information of our operations by segment:

						Networking						Materials						Lasers												Unallocated & Other						Total
($000)
2023
Revenues						$	2,340,930					$	1,349,758					$	1,469,412											$	—					$	5,160,100
Inter-segment revenues						70,120						362,179						1,517												(433,817)						—
Operating income (loss)						222,365						159,581						(419,066)												—						(37,120)
Interest expense						—						—						—												—						(286,872)
Other income, net						—						—						—												—						(31,566)
Income taxes						—						—						—												—						96,100
Net loss						—						—						—												—						(259,458)
Depreciation and amortization						172,339						143,243						366,105												—						681,687
Expenditures for property, plant & equipment						98,192						274,434						63,434												—						436,060
Segment assets						3,316,555						2,561,156						7,833,422												—						13,711,133
Goodwill						1,036,204						247,695						3,228,801												—						4,512,700

						Networking						Materials						Lasers						Unallocated & Other						Total
($000)
2022
Revenues						$	2,197,249					$	1,119,367					$	—					$	—					$	3,316,616
Inter-segment revenues						93,660						272,580						—						(366,240)						—
Operating income (loss)						231,563						218,601						—						(35,870)						414,294
Interest expense						—						—						—						—						(121,254)
Other income, net						—						—						—						—						(11,233)
Income taxes						—						—						—						—						(47,048)
Net earnings						—						—						—						—						234,759
Depreciation and amortization						172,092						114,687						—						—						286,779
Expenditures for property, plant & equipment						89,616						224,716						—						—						314,332
Segment assets						4,897,252						2,947,594						—						—						7,844,846
Goodwill						1,013,277						272,482						—						—						1,285,759

						Networking						Materials						Lasers						Unallocated & Other						Total
($000)
2021
Revenues						$	2,004,310					$	1,101,581					$	—					$	—					$	3,105,891
Inter-segment revenues						76,284						203,481						—						(279,765)						—
Operating income						201,453						227,438						—						(26,772)						402,119
Interest expense						—						—						—						—						(59,899)
Other income, net						—						—						—						—						10,370
Income taxes						—						—						—						—						(55,038)
Net earnings						—						—						—						—						297,552
Depreciation and amortization						160,458						109,611						—						—						270,069
Expenditures for property, plant & equipment						85,482						60,855						—						—						146,337
Segment Assets						4,240,869						2,271,781						—						—						6,512,650
Goodwill						1,017,562						279,165						—						—						1,296,727

Geographic information for revenues by location of the customer’s headquarters, were as follows:

						Revenues
Year Ended June 30,						2023						2022						2021
($000)
North America						$	2,745,891					$	1,771,385					$	1,560,254
Europe						979,911						623,157						567,703
China						577,180						614,393						680,479
Japan						392,479						196,512						203,655
Rest of World						464,639						111,169						93,800
Total						$	5,160,100					$	3,316,616					$	3,105,891

Major Customers

We had one major customer who accounted for 10% of consolidated revenue during fiscal 2023. The customer purchased primarily from our Networking segment.

Geographic information for long-lived assets by country, which include property, plant and equipment, net of related depreciation, and certain other long-term assets, were as follows:

						Long-Lived Assets
June 30,						2023						2022
($000)
United States						$	1,069,012					$	902,163
Non-United States
China						365,331						394,056
Germany						216,336						14,521
United Kingdom						77,474						63,898
Malaysia						70,424						64,807
Switzerland						47,110						40,540
Sweden						38,981						28,030
Korea						20,869						4,325
Vietnam						17,739						16,844
Australia						8,641						10,478
Taiwan						7,883						7,025
Philippines						7,205						7,375
Other						24,853						3,996
Total Non-United States						$	902,846					$	655,894
						$	1,971,858					$	1,558,057

Note 15. Fair Value of Financial Instruments

The FASB defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous markets for the asset and liability in an orderly transaction between market participants at the measurement date. We estimate fair value of our financial instruments utilizing an established three-level hierarchy in accordance with U.S. GAAP. The hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date as follows:

• Level 1 – Valuation is based upon unadjusted quoted prices for identical assets or liabilities in active markets.

• Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instruments.

• Level 3 – Valuation is based upon other unobservable inputs that are significant to the fair value measurements.

The classification of fair value measurements within the hierarchy is based upon the lowest level of input that is significant to the measurement.

We entered into an interest rate swap with a notional amount of $1,075 million to limit the exposure to our variable interest rate debt by effectively converting it to a fixed interest rate. We receive payments based on the one-month LIBOR and make payments based on a fixed rate of 1.52%. We receive payments with a floor of 0.00%. The interest rate swap agreement has an effective date of November 24, 2019, with an expiration date of September 24, 2024. The initial notional amount of the interest rate swap decreased to $825 million in June 2022, and will remain at that amount through the expiration date. On March 20, 2023, we amended our $825 million interest rate swap (“Amended Swap”), effective as of February 28, 2023, to replace the current reference rate (LIBOR) with SOFR, to be consistent with the amended credit agreement. See Note 8. Debt for further information. Under the Amended Swap, we receive payments based on the one-month SOFR and make payments based on a fixed rate of 1.42%. We receive payments with a floor of 0.10%. We designated this instrument as a cash flow hedge, and deemed the hedge relationship effective at inception of the contract.

The fair value of the interest rate swap of $37 million is recognized in the Consolidated Balance Sheets within prepaid and other current assets and other assets as of June 30, 2023. Changes in fair value are recorded within accumulated other comprehensive income (loss) on the Consolidated Balance Sheets and reclassified into the Consolidated Statements of Earnings (Loss) as interest expense in the period in which the underlying transaction affects earnings. Cash flows from hedging activities are reported in the Consolidated Statements of Cash Flows in the same classification as the hedged item, generally as a component of cash flows from operations. The fair value of the interest rate swap is determined using widely accepted valuation techniques and reflects the contractual terms of the interest rate swap including the period to maturity, and while there are no quoted prices in active markets, it uses observable market-based inputs, including interest rate curves. The fair value analysis also considers a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The interest rate swap is classified as a Level 2 item within the fair value hierarchy.

On February 23, 2022, we entered into an interest rate cap (“the Cap”) with an effective date of July 1, 2023. On March 20, 2023, we amended the Cap to replace the current reference rate (LIBOR) with SOFR, to be consistent with the amended credit agreement. See Note 8. Debt for further information. The Cap manages our exposure to interest rate movements on a portion of our floating rate debt. The Cap provides us with the right to receive payment if one-month SOFR exceeds 1.92%. Beginning in July 2023, we will begin to pay a fixed monthly premium based on an annual rate of 0.853% for the Cap. The Cap will carry a notional amount ranging from $500 million to $1,500 million. The fair value of the interest rate cap of $46 million is recognized in the Consolidated Balance Sheet within prepaid and other current and other assets as of June 30, 2023.

The Cap is designed to mirror the terms of the Company’s Credit Agreement as amended on March 31, 2023. We designated the Cap as a cash flow hedge of the variability of the SOFR based interest payments on the Term Loan facilities. Every period over the life of the hedging relationship, the entire change in fair value related to the hedging instrument will first be recorded within accumulated other comprehensive income (loss). Amounts accumulated in accumulated other comprehensive income (loss) will be reclassified into interest expense in the same period or periods in which interest expense is recognized on the Credit Agreement, or its direct replacement. The fair value of the Cap is determined using widely accepted valuation techniques and reflects the contractual terms of the Cap including the period to maturity, and while there are no quoted prices in active markets, it uses observable market-based inputs, including interest rate curves. The fair value analysis also considers a credit valuation adjustment to reflect nonperformance risk of both the Company and the single counterparty. The Cap is classified as a Level 2 item within the fair value hierarchy.

We estimated the fair value of the Senior Notes based on quoted market prices as of the last trading day prior to June 30, 2023; however, the Senior Notes have only a limited trading volume and as such this fair value estimate is not necessarily the value at which the Senior Notes could be retired or transferred. We concluded that this fair value measurement should be categorized within Level 2. The carrying value of the Senior Notes is net of unamortized discount and issuance costs. See Note 8. Debt for further information on the Company’s debt facilities.

The fair value and carrying value of the Senior Notes were as follows at June 30, 2023 ($000):

						Fair Value						Carrying Value
Senior Notes						$	895,950					$	983,137

The fair values of cash and cash equivalents are considered Level 1 among the fair value hierarchy and approximate fair value because of the short-term maturity of those instruments. The Company’s borrowings, including its lease obligations and the Senior Notes, are considered Level 2 among the fair value hierarchy and their principal amounts approximate fair value.

We, from time to time, purchase foreign currency forward exchange contracts, that permit us to sell specified amounts of these foreign currencies expected to be received from our export sales, for pre-established U.S. dollar amounts at specified dates. These contracts are entered into to limit transactional exposure to changes in currency exchange rates of export sales transactions in which settlement will occur in future periods and which otherwise would expose the Company, on the basis of its aggregate net cash flows in respective currencies, to foreign currency risk. At June 30, 2023, we had foreign currency forward contracts recorded at fair value. The fair values of these instruments were measured using valuations based upon quoted prices for similar assets and liabilities in active markets (Level 2) and are valued by reference to similar financial instruments, adjusted for credit risk and restrictions and other terms specific to the contracts. Realized gains related to these contracts for the year ended June 30, 2023 were not material. For the year ended June 30, 2022, the realized gains related to foreign currency forward contracts were immaterial and were included in other expense (income), net in the Consolidated Statements of Earnings (Loss). For the year ended June 30, 2021, the realized losses related to foreign currency forward contracts were not material.

Our non-financial assets, such as goodwill, intangible assets, and property, plant and equipment, are assessed for impairment when an event or circumstance indicates that a decline in value may have occurred. See Note 1. Nature of Business and Summary of Significant Accounting Policies for further information.

Note 16. Employee Benefit Plans

Eligible employees of the Company participate in an employee retirement plan. Under the Coherent Corp 401(k) Profit Sharing Plan (“Plan”), we match employee contributions to the plan equal to an amount of 50% of employee contributions up to a maximum of 8% of the employee’s individual earnings subject to IRS limitations. Employees become eligible for participation and Company matching contributions on their first day of employment. The Company’s matching contributions (net of forfeitures) during fiscal 2023, 2022, and 2021 were $11 million, $10 million, and $9 million, respectively. In addition, the Plan has a profit sharing retirement plan contribution for eligible U.S. employees of the Company. These contributions are made at the discretion of the Company’s Board of Directors and were $2 million, $2 million, and $2 million for the years ended June 30, 2023, 2022 and 2021, respectively.

Under the Legacy Coherent, Inc. Employee Retirement and Investment Plan, we match employee contributions to the plan up to a maximum of 4% of the employee’s individual earnings subject to IRS limitations. Employees become eligible for participation and Company matching contributions on their first day of employment. The Company’s matching contributions (net of forfeitures) during fiscal 2023 were $7 million.

Switzerland Defined Benefit Plan

The Company maintains a pension plan covering employees of our Swiss subsidiary (the “Swiss Plan”). Employer and employee contributions are made to the Swiss Plan based on various percentages of salary and wages that vary according to employee age and other factors. Employer contributions to the Swiss Plan for years ended June 30, 2023 and 2022 were $4 million and $2 million, respectively. Net periodic pension cost is not material for any year presented.

The underfunded pension liability was $11 million and $4 million as of June 30, 2023 and 2022, respectively. The pension adjustment amount recognized in accumulated other comprehensive income (loss) was a $7 million decrease and a $16 million increase for the fiscal years ended June 30, 2023 and 2022, respectively. The accumulated benefit obligation was $97 million as of June 30, 2023, compared to $81 million as of June 30, 2022.

Legacy Coherent Defined Benefit Plans

As a result of the Coherent, Inc. acquisition on July 1, 2022, we assumed all assets and liabilities of defined benefit plans in the U.S., Germany, South Korea, Japan, Spain, and Italy (“acquired plans”). As is the customary practice with European and Asian companies, the plans are unfunded, with the exception of the Spanish plan which is partially funded. The U.S. qualified plan is also partially funded. Any new employees hired after January 1, 2007, are not eligible for the U.S. qualified and nonqualified plans. Effective August 31, 2018, both of the U.S. plans were amended to freeze all future compensation benefit accruals. Any new employees hired after 2000 are not eligible for the primary German pension plans. For two of the German plans and the U.S. qualified plan, unrealized gains and losses are recognized as a component of other comprehensive income (loss) within stockholders’ equity. For the other plans, we have elected to recognize all actuarial gains and losses on these plans immediately, as incurred.

Liabilities and expense for pension benefits are determined using actuarial methodologies and incorporate significant assumptions, including the interest rate used to discount the future estimated cash flows, the expected long-term rate of return on plan assets, and several assumptions relating to the employee workforce (salary increases, retirement age, and mortality). All of these assumptions were based upon management’s judgment, considering all known trends and uncertainties. Actual results that differ from these assumptions would impact future expense recognition and the cash funding requirements of our defined benefit plans.

For the acquired plans, employer contributions in the year ended June 30, 2023 were $1 million and net periodic pension cost was not material. The underfunded pension liability was $32 million as of June 30, 2023. The pension adjustment amount recognized in accumulated other comprehensive income (loss) was a $1 million increase for the fiscal year ended June 30, 2023. The accumulated benefit obligation was $42 million as of June 30, 2023.

Estimated future benefit payments under all plans are estimated to be as follows:

Year Ending June 30,
($000)
2024			$	7,700
2025			9,300
2026			8,000
2027			7,800
2028			8,900
Next five years			50,700

Note 17. Other Accrued Liabilities

The components of other accrued liabilities were as follows:

June 30,						2023						2022
($000)
Contract liabilities						$	104,477					$	22,960
Warranty reserves						47,563						17,738
Accrued interest						2,923						38,872
Other accrued liabilities						155,318						120,260
						$	310,281					$	199,830

Note 18. Commitments and Contingencies

We have purchase commitments for materials and supplies as part of the ordinary conduct of business. A portion of the commitments are long-term and are based on minimum purchase requirements. Certain short-term raw material purchase commitments have a variable price component which is based on market pricing at the time of purchase. Due to the proprietary nature of some of our materials and processes, certain contracts may contain liquidated damage provisions for early termination. We do not believe that a significant amount of liquidated damages are reasonably likely to be incurred under these commitments, based upon historical experience and current expectations. Total future purchase commitments held by Coherent as of June 30, 2023 were $569 million in fiscal 2023 and $188 million thereafter.

Note 19. Share Repurchase Programs

In August 2014, the Company’s Board of Directors authorized the Company to purchase up to $50 million of its common stock through a share repurchase program (the “Program”) that calls for shares to be purchased in the open market or in private transactions from time to time. The Program has no expiration and may be suspended or discontinued at any time. Shares purchased by the Company are retained as treasury stock and available for general corporate purposes. We did not repurchase any shares pursuant to this Program during the fiscal years ended June 30, 2023 or June 30, 2022. As of June 30, 2023, we have cumulatively purchased 1,416,587 shares of Coherent common stock pursuant to the Program for approximately $22 million.

Note 20. Accumulated Other Comprehensive Income (Loss)

The changes in accumulated other comprehensive income (loss) (“AOCI”) by component, net of tax, for the years ended June 30, 2023, 2022, and 2021 were as follows ($000):

						Foreign Currency Translation Adjustment						Interest Rate Swap						Interest Rate Cap						Defined Benefit Pension Plan						Total Accumulated Other Comprehensive Income (Loss)
AOCI - June 30, 2020						$	(31,596)					$	(44,085)					$	—					$	(11,702)					$	(87,383)
Other comprehensive loss before reclassifications						86,991						(2,687)						—						1,709						86,013
Amounts reclassified from AOCI						—						14,999						—						638						15,637
Net current-period other comprehensive loss						86,991						12,312						—						2,347						101,650
AOCI - June 30, 2021						$	55,395					$	(31,773)					$	—					$	(9,355)					$	14,267
Other comprehensive income (loss) before reclassifications						(89,967)						29,711						14,306						15,300						(30,650)
Amounts reclassified from AOCI						—						13,797						—						419						14,216
Net current-period other comprehensive income						(89,967)						43,508						14,306						15,719						(16,434)
AOCI - June 30, 2022						$	(34,572)					$	11,735					$	14,306					$	6,364					$	(2,167)
Other comprehensive income (loss) before reclassifications						87,927						27,050						22,322						(5,326)						131,973
Amounts reclassified from AOCI						—						(19,301)						—						(779)						(20,080)
Net current-period other comprehensive income (loss)						87,927						7,749						22,322						(6,105)						111,893
AOCI - June 30, 2023						$	53,355					$	19,484					$	36,628					$	259					$	109,726

Note 21. Restructuring and Synergy and Site Consolidation Plans

Restructuring Plan

On May 23, 2023, the Board of Directors approved the Company’s Restructuring Plan which includes site consolidations, facilities moves and closures, as well as the relocation and requalification of certain manufacturing facilities. These restructuring actions are expected to be accompanied by other cost reductions and are intended to realign our cost structure as part of a transformation to a simpler, more streamlined, resilient and sustainable business model. We evaluate restructuring charges in accordance with ASC 420, Exit or Disposal Cost Obligations, and ASC 712, Compensation-Nonretirement Post-Employment Benefits (ASC 712).

In the fourth quarter of fiscal 2023, these activities resulted in $119 million of charges primarily for employee termination and the write-off of property and equipment, net of $65 million from reimbursement arrangements. We expect the restructuring actions to be substantially completed by the end of fiscal 2025. However, the actual timing and costs associated with these restructuring actions may differ from our current expectations and estimates and such differences may be material.

The following table presents our current and non-current liability as accrued for restructuring charges on our Consolidated Balance Sheet. The table sets forth an analysis of the components of the restructuring charges and payments and other deductions made against the accrual for fiscal 2023 (in thousands):

			Year Ended June 30, 2023
			Severance						Asset Write-Offs												Total Accrual
Balance-beginning of period			$	—					$	—											$	—
Restructuring accruals			76,944						107,157												184,101
Reimbursement arrangements			(9,247)						(55,753)												(65,000)
Reimbursement arrangement related accrual			9,247						—												9,247
Payments			(12,565)						—												(12,565)
Asset write-offs and other			—						(51,404)												(51,404)
Balance-end of period			$	64,379					$	—											$	64,379

At June 30, 2023, $27 million and $37 million of accrued severance related costs were included in other accrued liabilities and other liabilities, respectively, and are expected to result in cash expenditures through fiscal 2028. The current year severance related costs are primarily comprised of severance pay for employees being terminated due to the consolidation of certain manufacturing sites, with severance recorded in accordance with ASC 712. The current year asset write-offs are primarily comprised of specifically identified equipment write-offs due to the consolidation of certain manufacturing sites. At June 30, 2023, a $50 million receivable under a reimbursement arrangement is recorded in prepaid and other current assets.

By segment, $56 million, $60 million and $3 million of restructuring costs were incurred in the Networking, Materials and Lasers segments, respectively. Restructuring charges are recorded in Restructuring Charges in our Consolidated Statements of Earnings (Loss).

Synergy and Site Consolidation Plan

On May 20, 2023, the Company announced that it has accelerated some of the actions planned as part of its multi-year synergy and site consolidation efforts following the acquisition of Legacy Coherent, including site consolidations and relocations to lower cost sites. These relocations and other actions are expected to result in the Company achieving its previously announced $250 million synergy plan, which includes savings from supply chain management, internal supply of enabling materials and components, operational efficiencies in all functions due to scale, global functional model efficiencies and consolidation of corporate costs. We evaluate severance and other site consolidation costs in accordance with ASC 420, Exit or Disposal Cost Obligations, and ASC 712, Compensation-Nonretirement Post-Employment Benefits. In the fourth quarter of fiscal 2023, the acceleration of these activities resulted in $20 million in charges primarily for employee termination, the write-off of inventory for products that are being exited and shut down costs.

At June 30, 2023, $4 million and $5 million of accrued severance related costs were included in other accrued liabilities and other liabilities, respectively, and are expected to result in cash expenditures through fiscal 2025. The current year severance related costs are primarily comprised of severance pay for employees being terminated due to the exit or consolidation of certain manufacturing sites. The current year asset write-offs are primarily comprised of inventory write-offs due to the consolidation of and exit from certain manufacturing sites.

In fiscal 2023, the $20 million of synergy and site consolidation costs were incurred in the Lasers segment. Costs related to the synergy and site consolidation efforts are recorded in cost of goods sold ($17 million) and IR&D ($3 million) in our Consolidated Statements of Earnings (Loss).

SCHEDULE II

COHERENT CORP. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

YEARS ENDED JUNE 30, 2023, 2022, AND 2021

(IN THOUSANDS OF DOLLARS)

			Balance at Beginning of Year			Charged to Expense			Charged to Other Accounts						Deduction from Reserves						Balance at End of Year
YEAR ENDED JUNE 30, 2023:
Allowance for doubtful accounts			$	4,206		$	1,793		$	3,112		(1)			$	(1,106)		(4)			$	8,005
Warranty reserves			$	17,738		$	40,475		$	29,196		(1)			$	(39,846)					$	47,563
Deferred tax asset valuation allowance			$	55,420		$	4,035		$	37,725		(1,3)			$	—					$	97,180
YEAR ENDED JUNE 30, 2022:
Allowance for doubtful accounts			$	924		$	3,292		$	—					$	(10)		(4)			$	4,206
Warranty reserves			$	21,868		$	7,718		$	—					$	(11,848)					$	17,738
Deferred tax asset valuation allowance			$	53,765		$	2,157		$	(502)		(3)			$	—					$	55,420
YEAR ENDED JUNE 30, 2021:
Allowance for doubtful accounts			$	1,698		$	301		$	—					$	(1,075)		(4)			$	924
Warranty reserves			$	27,620		$	2,134		$	—					$	(7,886)					$	21,868
Deferred tax asset valuation allowance			$	54,559		$	(2,545)		$	1,751		(2)			$	—					$	53,765

(1) Related to amounts assumed from the Coherent, Inc. acquisition.

(2) Related to amounts assumed from the Finisar Corporation acquisition.

(3) Primarily related to currency translation adjustments.

(4) Primarily relates to write-offs of accounts receivable.