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Goodwill and Intangible Assets
 12 Months Ended
Oct. 03, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Intangible Assets GOODWILL AND INTANGIBLE ASSETS
Goodwill is tested for impairment on an annual basis and between annual tests if events or circumstances indicate that an impairment loss may have occurred, and we write down these assets when impaired. We perform our annual impairment tests during the fourth quarter of each fiscal year using the opening balance sheet as of the first day of the fourth quarter, with any resulting impairment recorded in the fourth quarter of the fiscal year.
In the quarter ended April 4, 2020, the worldwide spread of coronavirus ("COVID-19") created significant volatility, uncertainty and disruption to the global economy, representing an indicator to test our goodwill for impairment. Based on our internal projections and the preparation of our financial statements for the quarter ended April 4, 2020, and considering the forecasted decrease in demand due to the COVID-19 pandemic and other factors, we believed that the fair value of our ILS reporting unit might no longer have exceeded its carrying value and performed an interim goodwill impairment test on the ILS reporting unit. We also performed an interim goodwill impairment test on the OLS reporting unit.
Our goodwill impairment tests for the ILS and OLS reporting units were performed by comparing the fair value of the reporting units with their carrying values and recognizing an impairment charge for the amount by which the carrying value exceeded the fair value. Based on the estimated fair value of the ILS reporting unit, in the quarter ended April 4, 2020, we recorded a non-cash pre-tax charge related to the ILS reporting unit of $327.2 million, reducing the goodwill balance of the reporting unit to zero. The impairment charge was primarily the result of a decline in projected cash flows of the ILS reporting unit driven by lower forecasted sales volumes and profitability in several business units. The impairment charge was also the result of changes in certain market-related inputs to the analysis to reflect macro-economic changes caused by the impact of
COVID-19, including lower pricing multiples for comparable public companies. No impairment charge was recognized for the OLS reporting unit as the fair value significantly exceeded the carrying value of the reporting unit.
In assessing goodwill for impairment, we were required to make significant judgments related to the fair value of our reporting units. We used a combination of the Income (discounted cash flow) approach and the Market (market comparable) approach to estimate the fair value of our reporting units. The Income approach utilizes the discounted cash flow model to provide an estimation of fair value based on the cash flows that a business expects to generate. These cash flows are based on forecasts developed internally by management which are then discounted at an after tax rate of return required by equity and debt market participants of a business enterprise. Our assumptions used in the forecasts are based on historical data, supplemented by current and anticipated market conditions, estimated growth rates, and management’s plans. The rate of return on cost of capital is weighted based on the capitalization of comparable companies. We utilized a discount rate for each of our reporting units that represents the risks that our businesses face, considering their sizes, their current economic environment and other industry data as we believe is appropriate. The Market approach determines fair value by comparing the reporting units to comparable companies in similar lines of business that are publicly traded. The selection of comparable companies is based on the markets in which the reporting units operate giving consideration to risk profiles, size, geography and diversity of products and services. Total Enterprise Value (TEV) multiples such as TEV to revenues and TEV to earnings (if applicable) before interest and taxes of the publicly traded companies are calculated. We utilized multiples for each of our reporting units that represent the risks that our businesses face, considering their sizes, their current economic environment and other industry data as we believe is appropriate. The interim goodwill impairment testing results were also reconciled with our market capitalization as of April 4, 2020, as the final step in the impairment testing.
Before performing the goodwill impairment test for the ILS reporting unit, we performed impairment tests on the long-lived assets allocated to the asset group of the ILS reporting unit, including intangible assets, property, plant and equipment, and ROU assets as of April 4, 2020, due primarily to the same indicators that led to the interim goodwill impairment testing. Based on the impairment tests performed, we concluded that some of the long-lived assets allocated to the asset group of the ILS reporting unit were impaired as of April 4, 2020. Accordingly, we recorded non-cash pre-tax charges in the quarter ended April 4, 2020 related to the intangible assets, property, plant and equipment, and right-of-use ("ROU") assets of the ILS reporting unit of $33.9 million, $85.6 million, and $1.8 million, respectively. We did not identify any indicators that would lead us to believe that the carrying value of the long-lived assets allocated to the asset group of the OLS reporting unit may not be recoverable as of April 4, 2020. In fiscal 2019, we did not have any impairment of intangible assets as a result of the impairment analysis.
We evaluate long-lived assets and amortizable intangible assets whenever events or changes in business circumstances or our planned use of assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. In assessing our long-lived assets for impairment, we were required to make significant judgments related to the fair value of our long-lived assets, which are comprised of personal property, real property, and intangible assets. We used a combination of the Income, the Market approach, and the Cost (cost to create) approach to estimate the fair value of our long-lived assets. Our personal property assets consist of laser manufacturing and assembly equipment, semiconductor tools, laboratory and test equipment, furniture and fixtures, and computer hardware and software. We used the Cost Approach (with support from the Market Approach) to estimate the fair value of our personal property, taking into consideration the physical deterioration, functional obsolescence, and economic obsolescence of our personal property assets. Our real property assets consist of land and buildings, land rights (ground leased), and ROU assets. In determining the fair value of our real property assets, we used a combination of the Income, Market (sales comparison), and Cost approaches. We considered historical transaction information, current market conditions, operating performance, forecast growth, and market-derived rates of return in our real property determination of fair value. The fair value of our ROU assets was determined using the Income approach by considering off-market components of the associated ROU leases. Our intangible assets consist of technology and customer relationship assets, and we used the Income approach to estimate the fair value of our intangible assets. We identified cash flows associated with each intangible asset, which were discounted at an after-tax rate of return appropriate for the risk profile of each intangible asset.
We performed our annual impairment test using the opening balance sheet as of the first day of the fourth quarter of fiscal 2020 and noted no indications of impairment or triggering events, not already considered in the quarter ended April 4, 2020. In our fiscal 2020 annual testing, for our OLS reporting unit we conducted a qualitative assessment of the goodwill during the fourth quarter using the opening balance sheet as of the first day of the fourth quarter and concluded that it was more likely than not that the fair value of the reporting unit exceeded its carrying amounts. Based on our assessment, goodwill in the OLS reporting unit was not impaired as of the first day of the fourth quarter of fiscal 2020. As such, it was not necessary to perform
the goodwill impairment test in the fourth quarter of fiscal 2020. There is no goodwill in the ILS reporting unit due to the impairment of all goodwill of the ILS reporting unit in the second quarter of fiscal 2020. Between the completion of our assessment and the end of the fourth quarter of fiscal 2020, we noted no indications of impairment or triggering events to cause us to review goodwill for potential impairment.
The changes in the carrying amount of goodwill by segment for fiscal 2020 and 2019 are as follows (in thousands):
Industrial Lasers & Systems (1)OEM Laser Sources (2)Total
Balance as of September 29, 2018$342,208 $100,732 $442,940 
Additions (see Note 4)3,333 — 3,333 
Translation adjustments(15,260)(3,912)(19,172)
Balance as of September 28, 2019330,281 96,820 427,101 
Impairment charges(327,203)— (327,203)
Translation adjustments(3,078)4,497 1,419 
Balance as of October 3, 2020$— $101,317 $101,317 
(1) Gross amount of goodwill for our ILS segment was $340.2 million at October 3, 2020 and $343.3 million at September 28, 2019, respectively. At October 3, 2020 and September 28, 2019, the accumulated impairment loss for the ILS reporting unit was $340.2 million and $13.0 million, respectively, reflecting impairment charges in fiscal 2020 and fiscal 2009.
(2) Gross amount of goodwill for our OLS segment was $110.0 million and $105.5 million at October 3, 2020 and September 28, 2019, respectively. At both October 3, 2020 and September 28, 2019, the accumulated impairment loss for the OLS reporting unit was $8.7 million reflecting impairment charges in fiscal 2003 and fiscal 2009.
The components of our amortizable intangible assets are as follows (in thousands):
 Fiscal year-end 2020Fiscal year-end 2019
 Gross
Carrying
Amount		Accumulated
Amortization		NetGross
Carrying
Amount		Accumulated
Amortization		Net
Existing technology$46,547 $(37,630)$8,917 $193,704 $(131,429)$62,275 
Customer relationships24,388 (12,923)11,465 42,083 (21,512)20,571 
Trade name— — — 5,261 (5,138)123 
Production know-how2,300 (917)1,383 2,300 (456)1,844 
Total$73,235 $(51,470)$21,765 $243,348 $(158,535)$84,813 
For accounting purposes, when an intangible asset is fully amortized, it is removed from the disclosure schedule. The net carrying amounts as of fiscal 2020, have been reduced by impairment charges of $27.7 million and $6.2 million for existing technology and customer relationships, respectively.
During the third quarter of fiscal 2019, in conjunction with our decision to exit a portion of our High Power Fiber Laser ("HPFL") business and consolidate all HPFL manufacturing and engineering functions in our Tampere, Finland facility by transferring certain HPFL activities from our Hamburg, Germany facility, we abandoned the in-process research and development project totaling $4.7 million and fully amortized the intangible asset. See Note 19, "Restructuring Charges."
The weighted average remaining amortization periods for existing technology, customer relationships, and production know-how are approximately 1.5 years, 6.1 years, and 3.0 years, respectively. Amortization expense for intangible assets during fiscal 2020, 2019, and 2018 was $30.1 million, $61.5 million, and $60.0 million, respectively. The change in accumulated amortization also includes $2.9 million (increase) and $7.8 million (decrease) of foreign exchange impact for fiscal 2020 and fiscal 2019, respectively.
Estimated amortization expense for the next five fiscal years and all years thereafter are as follows (in thousands):
 Estimated
Amortization
Expense
2021$9,722 
20223,272 
20232,703 
20241,920 
20251,919 
Thereafter2,229 
Total $21,765