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Employee Stock Award and Benefit Plans
 12 Months Ended
Oct. 03, 2020
Share-based Payment Arrangement [Abstract]  
Employee Stock Award and Benefit Plans EMPLOYEE STOCK AWARD AND BENEFIT PLANS
Deferred Compensation Plans
Under our deferred compensation plans ("plans"), eligible employees are permitted to make compensation deferrals up to established limits set under the plans and accrue income on these deferrals based on reference to changes in available investment options. While not required by the plans, we choose to invest in insurance contracts and mutual funds in order to approximate the changes in the liability to the employees. These investments and the liability to the employees were as follows (in thousands):
 Fiscal year-end
 20202019
Cash surrender value of life insurance contracts$18,520 $16,223 
Fair value of mutual and money market funds22,981 22,852 
Total assets$41,501 $39,075 
Total assets, included in:  
Prepaid expenses and other assets$1,781 $3,233 
Other assets39,720 35,842 
Total assets$41,501 $39,075 
 Fiscal year-end
 20202019
Total deferred compensation liability, included in:  
Other current liabilities$1,781 $3,233 
Other long-term liabilities42,854 39,715 
Total deferred compensation liability$44,635 $42,948 
Life insurance premiums loads, policy fees, and cost of insurance that are paid from the asset investments and gains and losses from the asset investments for these plans are recorded as components of other income or expense; such amounts were net gains of $6.1 million in fiscal 2020, $1.1 million in fiscal 2019, and $4.8 million in fiscal 2018, and fluctuate on a quarterly basis. Changes in the obligation to plan participants are recorded as a component of operating expenses and cost of sales; such amounts were net losses of $5.3 million in fiscal 2020, $1.5 million in fiscal 2019, and $5.2 million in fiscal 2018, and fluctuate on a quarterly basis. Liabilities associated with participant balances under our deferred compensation plans are affected by individual contributions and distributions made, as well as gains and losses on the participant's investment allocation election.
Coherent Employee Retirement and Investment Plan
Under the Coherent Employee Retirement and Investment Plan, we match employee contributions to the plan up to a maximum of 4% of the employee's individual earnings subject to IRS limitations. Employees become eligible for participation and Company matching contributions on their first day of employment. The Company's contributions (net of forfeitures) during fiscal 2020, 2019, and 2018 were $6.1 million, $5.7 million, and $5.6 million, respectively.
Employee Stock Purchase Plan
We have an Employee Stock Purchase Plan ("ESPP") whereby eligible employees may authorize payroll deductions of up to 10% of their regular base salary to purchase shares at the lower of 85% of the fair market value of the common stock on the date of commencement of the offering or on the last day of the six-month offering period. During fiscal 2020, 2019, and 2018, a total of 107,284 shares, 108,034 shares, and 66,099 shares, respectively, were purchased by and distributed to employees at an average price of $114.54, $109.32, and $159.97 per share, respectively. At fiscal 2020 year-end, we had 143,465 shares of our common stock reserved for future issuance under the plan.
Stock Award Plans
We maintain stock plans in which employees, service providers, and non-employee directors are eligible participants. The plans, the 2011 Equity Incentive Plan (the "2011 Plan") and the Equity Incentive Plan (the "2020 Plan"), provide for a number of different equity-based grants, including options, time-based restricted stock units, and performance restricted stock units. Under the 2011 Plan, Coherent was able to grant options and awards (time-based restricted stock units and performance restricted stock units), of which grants with respect to 530,115 shares of common stock remained outstanding at fiscal 2020 year-end (calculated at 100% of target amount for performance awards). Under the 2020 Plan, Coherent may grant options and awards (time-based restricted stock units and performance restricted stock units) to purchase up to 3,080,000 shares of common stock plus any forfeited or cancelled shares subject to outstanding awards under the 2011 Plan, of which 3,034,036 shares remained available for grant at fiscal 2020 year-end. At fiscal 2020 year-end, all outstanding stock options and restricted stock units have been issued under plans approved by our shareholders. Following approval of the 2020 Plan by our shareholders on April 27, 2020, there will be no further grants of awards under the 2011 Equity Incentive Plan. However, the 2011 Equity Incentive Plan will continue to govern awards previously granted under it.
Since adoption of the 2011 Plan and the 2020 Plan, no stock options have been granted to employees. No options are outstanding as of fiscal 2020 year-end.
Non-employee directors are automatically granted time-based restricted stock units upon first joining the Board of Directors and then upon reelection. New non-employee directors initially receive an award of restricted stock units valued at approximately $225,000 which vest over a two year period. The annual grant for non-employee directors is a value of approximately $225,000 in shares of restricted stock units that vest on February 15 of the calendar year following the grant.
Restricted stock awards and restricted stock units are typically subject to vesting restrictions—either time-based, market-based or performance-based conditions for vesting. Until restricted stock vests, shares (including those issuable upon vesting of the applicable restricted stock unit) are generally subject to forfeiture if employment or service to the Company terminates prior to the release of restrictions and cannot be transferred.
•The service-based restricted stock awards generally vest within three years from the date of grant.
•The service-based restricted stock unit awards are generally subject to annual vesting over three years from the date of grant, though from time-to-time, depending upon exceptional circumstances, the Company has granted restricted stock unit awards with one or two year vesting. For example, the initial grants made to new members of the Board of Directors vest over two years and members of the Board of Directors have annual grants tied to their reelection to the Board, which vest on the following February 15.
•The market-based performance restricted stock unit award grants are generally subject to a single vest measurement three years from the date of grant, depending upon achievement of performance measurements based on the performance of the Company's total shareholder returns (as defined in the award) over the performance period compared with the performance of the applicable Russell Index or companies therein (or as otherwise determined by the Compensation and HR Committee).
•The performance restricted stock unit award grants based on goals related to free cash flow target amounts for the fiscal year vested as of fiscal 2020 year-end.
We recognize compensation expense for all share-based payment awards based on the fair value of such awards. The expense is recognized on a straight-line basis per tranche over the respective requisite service period of the awards.
Determining Fair Value
Employee Stock Purchase Plan
Valuation and amortization method—We estimate the fair value of employee stock purchase shares using the Black-Scholes-Merton option-pricing formula. This fair value is then amortized on a straight-line basis over the purchase period.
Expected Term—The expected term represents the period of our employee stock purchase plan.
Expected Volatility—Our process for computing expected volatility considers both historical volatility and market-based implied volatility; however our estimate of expected forfeitures is based on historical employee data and could differ from actual forfeitures.
Risk-Free Interest Rate—The risk-free interest rate used in the Black-Scholes-Merton valuation method is based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term.
The fair values of shares purchased under the employee stock purchase plan for fiscal 2020, 2019, and 2018 were estimated using the following weighted-average assumptions:
 Employee Stock Purchase Plans
 Fiscal
 202020192018
Expected life in years0.50.50.5
Expected volatility58.0 %47.9 %50.1 %
Risk-free interest rate1.0 %2.4 %1.6 %
Weighted average fair value per share$43.54 $40.77 $64.39 
Time-Based Restricted Stock Units
Time-based restricted stock units are fair valued at the closing market price on the date of grant.
Performance Restricted Stock Units
We grant performance restricted stock units to officers and certain employees. The performance restricted stock unit agreements provide for the award of performance stock units with each unit representing the right to receive one share of our common stock to be issued after the applicable award vesting period. The final number of units awarded, if any, for these performance grants will be determined as of the vesting dates, based upon our total shareholder return over the performance period compared to the applicable Russell Index or companies therein and could range from no units to a maximum of twice the initial award units.
The weighted average fair value for the performance units was determined using a Monte Carlo simulation model incorporating the following weighted average assumptions: 
Fiscal
202020192018
Risk-free interest rate0.8 %2.9 %1.7 %
Volatility50.5 %43.7 %37.0 %
Weighted average fair value$161.46 $117.43 $315.05 
 
We recognize the estimated cost of these awards, as determined under the simulation model, over the related service period of approximately 3 years, with no adjustment in future periods based upon the actual shareholder return over the performance period.

In addition, during fiscal 2020, we issued performance restricted stock unit award grants to certain employees with vesting based on goals related to free cash flow target amounts, with the initial fair value determined based on our closing stock price on the date of grant. Such awards were granted to serve as a performance incentive with a pay-for-performance forward-looking free cash flow target for the fiscal year in recognition of the impact of the COVID-19 pandemic. The number of shares issuable under these performance units upon satisfaction of the free cash flow performance criteria is capped at 100% of target. The total stock-based compensation of these awards will be adjusted based on the level of achievement of free cash flow for fiscal 2020. We believe that these awards will vest at 100% of target.
Stock Compensation Expense
The following table shows total stock-based compensation expense and related tax benefits included in the Consolidated Statements of Operations for fiscal 2020, 2019, and 2018 (in thousands):
Fiscal
202020192018
Cost of sales$5,314 $4,880 $4,403 
Research and development4,478 2,990 3,247 
Selling, general and administrative34,995 28,596 25,088 
Income tax benefit(5,640)(4,946)(5,073)
$39,147 $31,520 $27,665 

During fiscal 2020, $6.7 million of stock-based compensation cost was capitalized as part of inventory for all stock plans, $5.3 million was amortized into cost of sales, and $2.8 million remained in inventory at October 3, 2020. During fiscal 2019, $4.8 million of stock-based compensation cost was capitalized as part of inventory for all stock plans, $4.8 million was amortized into cost of sales, and $1.5 million remained in inventory at September 28, 2019.
At fiscal 2020 year-end, the total compensation cost related to unvested stock-based awards granted to employees under our stock plans but not yet recognized was approximately $37.7 million. We do not estimate forfeitures and account for them as they occur. This cost will be amortized on a straight-line basis over a weighted-average period of approximately 1.5 years.
The stock option exercise tax benefits, if any, are reported in the statement of cash flows. The tax benefits result from tax deductions in excess of the stock-based compensation cost recognized and are determined on a grant-by-grant basis. We adopted the new accounting standard on share-based compensation in the first quarter of fiscal 2018. As a result, we recognized net excess tax benefits from stock award exercises and restricted stock unit vesting as a discrete tax benefit, which reduced the provision for income taxes by $0.9 million, $2.5 million, and $12.8 million for fiscal 2020, 2019, and 2018, respectively.
Stock Awards Activity
At each of fiscal 2019 and 2018 year-end, we had 24,000 shares subject to vested stock options outstanding. The vested stock options were exercised in fiscal 2020 and none are outstanding at fiscal 2020 year-end.
The following table summarizes the activity of our time-based and performance restricted stock units for fiscal 2020, 2019, and 2018 (in thousands, except per share amounts):
Time Based Restricted Stock UnitsPerformance Restricted Stock Units
Number of
Shares		Weighted
Average
Grant Date
Fair Value		Number of
Shares		Weighted
Average
Grant Date
Fair Value
Nonvested stock at September 30, 2017399 $118.83 176 $105.34 
Granted99 254.20 78 315.05 
Vested (1)
(213)88.45 (95)70.57 
Forfeited(6)119.66 — — 
Nonvested stock at September 29, 2018279 $155.24 159 $155.76 
Granted195 128.25 105 117.43 
Vested(1)
(169)127.90 (131)74.48 
Forfeited(10)170.97 — — 
Nonvested stock at September 28, 2019295 $152.47 133 $184.26 
Granted284 141.05 84 152.96 
Vested(1)
(150)150.91 (81)163.17 
Forfeited(10)169.92 — — 
Nonvested stock at October 3, 2020419 $144.87 136 $177.54 
__________________________________________
(1)Service-based restricted stock units vested during each fiscal year. Performance-based restricted stock units included at 100% of target goal. Under the terms of the market-based awards, the recipient may earn between 0% and 200% of the award. Under the terms of the performance-based awards based on free cash flow targets, the recipient may earn between 0% and 100% of the award.
Restricted Stock Units are converted into the right to receive common stock upon vesting; prior to issuance, the Company permits the employee holders to satisfy their tax withholding requirements by net settlement, whereby the Company withholds a portion of the shares to cover the applicable taxes based on the fair market value of the Company's stock at the vesting date. The number of shares withheld to cover tax payments was 88,000 in fiscal 2020, 120,000 in fiscal 2019, and 131,000 in fiscal 2018; tax payments made were $13.5 million, $15.2 million, and $36.3 million, respectively.