Table of Contents COHERENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. SIGNIFICANT ACCOUNTING POLICIES (Continued) Adoption of New Accounting Pronouncements Recently Issued Accounting Pronouncements 83 We historically asserted our intention to indefinitely reinvest foreign earnings. In December 2017, we reevaluated our assertion as a result of enactment of the Tax Cuts and Jobs Act (the “Tax Act”) and no longer consider certain foreign earnings to be indefinitely reinvested in our foreign subsidiaries. As a result of this change in assertion, we recorded a $14.6 million tax expense against our foreign earnings that are not indefinitely reinvested as of fiscal 2019. This is mainly related to foreign withholding taxes and state income taxes. We have not provided deferred taxes on other foreign earnings and profits of $451.6 million that are still considered indefinitely reinvested and may be subject to additional foreign withholding taxes and certain state taxes if repatriated. We also have not recognized any deferred taxes for outside basis differences in foreign subsidiaries. We adopted ASC 606 and all related amendments as of September 30, 2018 using the modified retrospective transition method applied to contracts that were not completed as of September 29, 2018 and all new contracts entered into by us subsequent to September 29, 2018. All prior period financial statements and disclosures are presented in accordance with ASC 605. We concluded that the adoption of the new standard did not have a material impact on the timing or amount of revenue recognized as the majority of our sales are not bundled. Therefore, revenue is recorded at the point-in-time when control transfers, which is consistent with the timing of revenue recognition under ASC 605. See Note 2, "Significant Accounting Policies - Revenue Recognition" and Note 3, "Revenue Recognition" for more information. In February 2016, the FASB issued accounting guidance (ASC 842, Leases) that modifies lease accounting for lessees to increase transparency and comparability by recording lease assets and liabilities for operating leases and disclosing key information about leasing arrangements. The new standard will become effective for our fiscal year 2020, which begins on September 29, 2019. ASC 842 among other things, allows an optional transition method by which companies may elect not to recast the comparative periods presented in financial statements in the period of adoption and recognize a cumulative effect adjustment in the period of adoption. We plan to adopt the new standard using the optional transition method. We intend to elect the package of practical expedients which allows us to not reassess 1) whether any expired or existing contracts are or contain leases; 2) the lease classification for any expired or existing leases; and 3) initial direct costs for any existing leases. We also will elect to use the practical expedient allowed in the standard to not separate lease and non-lease components and not record short term leases when calculating the lease liability under ASC 842. We have reviewed the requirements of this standard and have formulated a plan for implementation. We continue to implement internal controls and key system functionality to enable the preparation of financial information. We are finalizing the accumulation of lease data, including new leases entered into at the end of fiscal year 2019, and preparing the final transition adjustment calculations. We currently estimate that the adoption of the standard will result in the recognition of $90 million to $100 million in lease related right-of-use assets and liabilities on our consolidated balance sheet, primarily related to real estate leases. The estimate could change as we finalize estimates and proceed towards implementation of the standard. We expect the standard will not have a material impact on our consolidated statements of operations. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and a subsequent amendment, ASU 2018-19 (collectively, Topic 326). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. The new standard will become effective for our fiscal year 2021, which begins on October 4, 2020. We are currently evaluating the impact of our pending adoption of Topic 326 on our consolidated financial statements. We expect the standard will not have a material impact on our consolidated statements of operations.