Intevac
INTEVAC INC (Form: 10-Q, Received: 10/28/2014 16:08:31)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

(MARK ONE)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2014

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission file number 0-26946

 

 

INTEVAC, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   94-3125814

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

3560 Bassett Street

Santa Clara, California 95054

(Address of principal executive office, including Zip Code)

Registrant’s telephone number, including area code: (408) 986-9888

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     x   Yes     ¨   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      ¨    Accelerated filer    x
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company    ¨

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

On October 28, 2014, 23,226,146 shares of the Registrant’s Common Stock, $0.001 par value, were outstanding.

 

 

 


Table of Contents

INTEVAC, INC.

INDEX

 

No.

       Page  
  PART I. FINANCIAL INFORMATION   

Item 1.

 

Financial Statements (unaudited)

  
 

Condensed Consolidated Balance Sheets

     3   
 

Condensed Consolidated Statements of Operations

     4   
 

Condensed Consolidated Statements of Comprehensive Income (Loss)

     5   
 

Condensed Consolidated Statements of Cash Flows

     6   
 

Notes to Condensed Consolidated Financial Statements

     7   

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     22   

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

     30   

Item 4.

 

Controls and Procedures

     31   
  PART II. OTHER INFORMATION   

Item 1.

 

Legal Proceedings

     32   

Item 1A.

 

Risk Factors

     32   

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

     40   

Item 3.

 

Defaults upon Senior Securities

     40   

Item 4.

 

Mine Safety Disclosures

     40   

Item 5.

 

Other Information

     40   

Item 6.

 

Exhibits

     40   

SIGNATURES

     42   

 


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

INTEVAC, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

     September 27,
2014
    December 31,
2013
 
     (Unaudited)  
    

(In thousands, except

par value)

 
ASSETS     

Current assets:

    

Cash and cash equivalents

   $ 21,714      $ 20,121   

Short-term investments

     32,773        48,975   

Trade and other accounts receivable, net of allowances of $0 at both September 27, 2014 and at December 31, 2013

     9,399        15,037   

Inventories

     23,109        22,762   

Prepaid expenses and other current assets

     1,791        1,237   
  

 

 

   

 

 

 

Total current assets

     88,786        108,132   

Long-term investments

     16,253        12,318   

Restricted cash

     1,000        —     

Property, plant and equipment, net

     12,438        12,945   

Intangible assets, net of amortization of $4,187 at September 27, 2014 and $3,485 at December 31, 2013

     4,200        4,902   

Deferred income taxes and other long-term assets

     9,972        9,979   
  

 

 

   

 

 

 

Total assets

   $ 132,649      $ 148,276   
  

 

 

   

 

 

 
LIABILITIES AND STOCKHOLDERS’ EQUITY     

Current liabilities:

    

Accounts payable

   $ 4,601      $ 4,011   

Accrued payroll and related liabilities

     4,327        5,034   

Other accrued liabilities

     6,258        3,263   

Customer advances

     1,798        3,743   

Deferred income taxes

     939        939   
  

 

 

   

 

 

 

Total current liabilities

     17,923        16,990   

Other long-term liabilities

     1,821        1,715   

Stockholders’ equity:

    

Common stock, $0.001 par value

     23        24   

Additional paid-in capital

     160,282        156,359   

Treasury stock, 1,304 shares at September 27, 2014 and 241 shares at December 31, 2013

     (9,163     (1,688

Accumulated other comprehensive income

     699        725   

Accumulated deficit

     (38,936     (25,849
  

 

 

   

 

 

 

Total stockholders’ equity

     112,905        129,571   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 132,649      $ 148,276   
  

 

 

   

 

 

 

Note: Amounts as of December 31, 2013 are derived from the December 31, 2013 audited consolidated financial statements.

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

     Three Months Ended     Nine Months Ended  
     September 27,
2014
    September 28,
2013
    September 27,
2014
    September 28,
2013
 
     (Unaudited)  
     (In thousands, except per share amounts)  

Net revenues:

        

Systems and components

   $ 12,293      $ 15,991      $ 37,652      $ 38,111   

Technology development

     2,464        3,124        8,836        10,970   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total net revenues

     14,757        19,115        46,488        49,081   

Cost of net revenues:

        

Systems and components

     8,067        9,725        25,344        26,206   

Technology development

     1,875        2,495        6,308        8,638   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cost of net revenues

     9,942        12,220        31,652        34,844   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     4,815        6,895        14,836        14,237   

Operating expenses:

        

Research and development

     3,986        4,250        12,817        16,192   

Selling, general and administrative

     4,913        5,627        16,074        16,834   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     8,899        9,877        28,891        33,026   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss on divestiture

     —          —          —          (208
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (4,084     (2,982     (14,055     (18,997

Interest income and other, net

     113        220        306        392   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

     (3,971     (2,762     (13,749     (18,605

Benefit from income taxes

     412        17        662        1,184   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (3,559   $ (2,745   $ (13,087   $ (17,421
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share:

        

Basic and diluted

   $ (0.15   $ (0.11   $ (0.55   $ (0.73

Weighted average common shares outstanding:

        

Basic and diluted

     23,657        23,931        23,814        23,793   

See accompanying notes to the condensed consolidated financial statements.

 

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INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

 

     Three Months Ended     Nine Months Ended  
     September 27,
2014
    September 28,
2013
    September 27,
2014
    September 28,
2013
 
     (Unaudited)  
     (In thousands)  

Net loss

   $ (3,559   $ (2,745   $ (13,087   $ (17,421
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

        

Change in unrealized net loss on available-for-sale investments

     (9     60        (15     (29

Foreign currency translation gains (losses)

     5        3        (11     (7
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), before tax

     (4     63        (26     (36

Income tax (expense) benefit related to items in other comprehensive income (loss)

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

     (4     63        (26     (36
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (3,563   $ (2,682   $ (13,113   $ (17,457
  

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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INTEVAC, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

     Nine months ended  
     September 27,
2014
    September 28,
2013
 
     (Unaudited)  
     (In thousands)  

Operating activities

    

Net loss

   $ (13,087   $ (17,421

Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:

    

Depreciation and amortization

     3,495        3,280   

Net amortization of investment premiums and discounts

     505        655   

Equity-based compensation

     2,219        1,836   

Change in the fair value of acquisition-related contingent consideration

     19        (24

Deferred income taxes

     (417     (1,013

Loss on divestiture

     —          208   

Gain on disposal of equipment

     —          (153

Changes in operating assets and liabilities

     5,313        4,285   
  

 

 

   

 

 

 

Total adjustments

     11,134        9,074   
  

 

 

   

 

 

 

Net cash and cash equivalents used in operating activities

     (1,953     (8,347

Investing activities

    

Purchases of investments

     (27,378     (32,606

Proceeds from sales and maturities of investments

     39,125        31,736   

Proceeds from sale of DeltaNu assets

     —          500   

Proceeds from sale of equipment

     13        153   

Increase in restricted cash

     (1,000     —     

Purchases of leasehold improvements and equipment

     (2,300     (928
  

 

 

   

 

 

 

Net cash and cash equivalents provided by (used in) investing activities

     8,460        (1,145

Financing activities

    

Common stock repurchases

     (7,150     —     

Payment of acquisition-related contingent consideration

     —          (40

Net proceeds from issuance of common stock

     2,246        1,905   
  

 

 

   

 

 

 

Net cash and cash equivalents provided by (used in) financing activities

     (4,904     1,865   

Effect of exchange rate changes on cash

     (10     (8
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     1,593        (7,635

Cash and cash equivalents at beginning of period

     20,121        24,261   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 21,714      $ 16,626   
  

 

 

   

 

 

 

Non-cash investing activity

    

Finished goods inventory transferred to property, plant and equipment

   $ —        $ 1,551   

See accompanying notes to the condensed consolidated financial statements.

 

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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Basis of Presentation

In the opinion of management, the unaudited interim condensed consolidated financial statements of Intevac, Inc. and its subsidiaries (Intevac or the Company) included herein have been prepared on a basis consistent with the December 31, 2013 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in Intevac’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (2013 Form 10-K). Intevac’s results of operations for the nine months ended September 27, 2014 are not necessarily indicative of future operating results.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ materially from those estimates.

 

2. Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. The amendments in this ASU will be effective for Intevac in the fourth quarter of fiscal 2016, with early adoption permitted. We are currently evaluating the impact of the adoption of this accounting standard update on our consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) which provides guidance for revenue recognition. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets. This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under today’s guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard will be effective for Intevac in the first quarter of fiscal 2017 using one of two retrospective application methods. Early adoption is not permitted. We are currently evaluating the impact of the adoption of this accounting standard update on our consolidated financial statements.

In April 2014, the FASB issued authoritative guidance that raises the threshold for a disposal transaction to qualify as a discontinued operation and requires additional disclosures about discontinued operations and disposals of individually significant components that do not qualify as discontinued operations. The authoritative guidance becomes effective prospectively for Intevac in the first quarter of fiscal 2015. Early adoption is permitted, but only for disposals that have not been reported in financial statements previously issued.

 

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Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

3. Inventories

Inventories are stated at the lower of average cost or market and consist of the following:

 

     September 27,      December 31,  
     2014      2013  
     (In thousands)  

Raw materials

   $ 12,157       $ 13,005   

Work-in-progress

     4,985         8,196   

Finished goods

     5,967         1,561   
  

 

 

    

 

 

 
   $ 23,109       $ 22,762   
  

 

 

    

 

 

 

Finished goods inventory consists primarily of completed systems at customer sites that are undergoing installation and acceptance testing and evaluation inventory.

 

4. Equity-Based Compensation

At September 27, 2014, Intevac had equity-based awards outstanding under the 2012 Equity Incentive Plan and the 2004 Equity Incentive Plan (the “Plans”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved all of these plans. The Plans permit the grant of incentive or non-statutory stock options, restricted stock, stock appreciation rights, restricted stock units (“RSUs,” also referred to as performance units) and performance shares.

The ESPP provides that eligible employees may purchase Intevac’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the beginning of the applicable offering period or at the end of each applicable purchase interval. Offering periods are generally two years in length, and consist of a series of six-month purchase intervals. Eligible employees may join the ESPP at the beginning of any six-month purchase interval. Under the terms of the ESPP, employees can choose to have up to 15% of their base earnings withheld to purchase Intevac common stock.

Compensation Expense

The effect of recording equity-based compensation for the three and nine months ended September 27, 2014 and September 28, 2013 was as follows:

 

     Three Months Ended      Nine Months Ended  
     September 27,
2014
     September 28,
2013
     September 27,
2014
     September 28,
2013
 
     (In thousands)  

Equity-based compensation by type of award:

           

Stock options

   $ 371       $ 375       $ 765       $ 651   

RSUs

     402         130         1,070         314   

ESPP awards

     83         249         384         871   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total equity-based compensation

   $ 856       $ 754       $ 2,219       $ 1,836   
  

 

 

    

 

 

    

 

 

    

 

 

 

Tax benefit recognized

   $ 3       $ 8       $ 9       $ 18   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

Equity-based compensation expense is based on awards ultimately expected to vest and such amount has been reduced for estimated forfeitures. Forfeitures were estimated based on Intevac’s historical experience, which Intevac believes to be indicative of Intevac’s future experience.

Stock Options and ESPP

The fair value of stock options and ESPP awards is estimated at the grant date using the Black-Scholes option valuation model. The determination of fair value of stock options and ESPP awards on the date of grant using an option-pricing model is affected by Intevac’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards and actual employee stock option exercise behavior.

Option activity as of September 27, 2014 and changes during the nine months ended September 27, 2014 were as follows:

 

     Shares     Weighted Average
Exercise Price
 

Options outstanding at December 31, 2013

     2,637,969      $ 8.53   

Options granted

     466,735      $ 7.35   

Options cancelled and forfeited

     (224,108   $ 8.64   

Options exercised

     (128,833   $ 4.93   

Options outstanding at September 27, 2014

     2,751,763      $ 8.49   

Vested and expected to vest at September 27, 2014

     2,562,675      $ 8.63   

Options exercisable at September 27, 2014

     1,641,304      $ 9.70   

Intevac issued 444,000 shares under the ESPP during the nine months ended September 27, 2014.

Intevac estimated the weighted-average fair value of stock options and employee stock purchase rights using the following weighted-average assumptions:

 

     Three Months Ended     Nine Months Ended  
     September 27,
2014
    September 28,
2013
    September 27,
2014
    September 28,
2013
 

Stock Options:

    

Weighted-average fair value of grants per share

   $ 2.77      $ 2.81      $ 3.13      $ 2.48   

Expected volatility

     50.30     55.06     52.36     56.40

Risk free interest rate

     1.24     1.04     1.36     1.09

Expected term of options (in years)

     3.92        4.02        4.31        4.22   

Dividend yield

     None        None        None        None   

 

     Three Months Ended     Nine Months Ended  
     September 27,
2014
    September 28,
2013
    September 27,
2014
    September 28,
2013
 

Stock Purchase Rights:

    

Weighted-average fair value of grants per share

   $ 1.79      $ 1.97      $ 2.08      $ 1.63   

Expected volatility

     47.11     43.09     44.00     51.54

Risk free interest rate

     0.13     0.21     0.11     0.26

Expected term of purchase rights (in years)

     0.50        1.00        0.69        1.77   

Dividend yield

     None        None        None        None   

 

 

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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

The computation of the expected volatility assumptions used in the Black-Scholes calculations for new stock option grants and purchase rights is based on the historical volatility of Intevac’s stock price, measured over a period equal to the expected term of the stock option grant or purchase right. The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the equity-based awards and vesting schedules. The expected term of purchase rights represents the period of time remaining in the current offering period. The dividend yield assumption is based on Intevac’s history of not paying dividends and the assumption of not paying dividends in the future.

RSUs

A summary of the RSU activity is as follows:

 

     Shares     Weighted Average
Grant Date
Fair Value
 

Non-vested RSUs at December 31, 2013

     237,859      $ 5.34   

Granted

     243,373      $ 7.29   

Vested

     (70,527   $ 5.39   

Cancelled and forfeited

     (79,683   $ 6.31   

Non-vested RSUs at September 27, 2014

     331,022      $ 6.53   

RSUs are converted into shares of Intevac common stock upon vesting on a one-for-one basis. RSUs typically are scheduled to vest over four years. Vesting of RSUs is subject to the grantee’s continued service with Intevac. The compensation expense related to these awards is determined using the fair market value of Intevac common stock on the date of the grant, and the compensation expense is recognized over the vesting period. In fiscal 2014, the annual bonus for participants in the Company’s annual incentive plan will be settled with RSUs with one year vesting. The Company accrued for the payment of bonuses at the expected company-wide payout percentage amount at September 27, 2014, which amounts were less than the target bonus amounts for each participant. The bonus accrual is classified as a liability until the number of shares is determined on the date the awards are granted, at which time the Company classifies the awards into equity. The Company recorded equity-based compensation expense related to the annual incentive plan of $130,000 and $452,000, respectively for the three and nine months ended September 27, 2014.

Performance-based RSUs (“performance-based awards”) granted in fiscal 2013 to certain executive officers are also subject to the achievement of specified performance goals. These performance-based awards become eligible to vest only if performance goals are achieved and then actually will vest only if the grantee remains employed by Intevac through each applicable vesting date. The fair value of these performance-based awards is estimated on the date of grant and assumes that the specified performance goals will be achieved. If the goals are achieved, these awards vest over a specified remaining service period, provided that the grantee remains employed by Intevac through each scheduled vesting date. If the performance goals are not met, no compensation expense is recognized and any previously recognized compensation expense is reversed. The expected cost of each award is reflected over the service period and is reduced for estimated forfeitures. For performance-based awards granted during fiscal 2013, the performance goals require the achievement of targeted revenues and adjusted annual operating profit levels measured at the end of two and three-year periods.

 

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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

5. Purchased Intangible Assets

Details of finite-lived intangible assets by segment as of September 27, 2014, are as follows.

 

     September 27, 2014  
     Gross
Carrying
Amount
     Accumulated
Amortization
    Net
Carrying
Amount
 
     (In thousands)  

Equipment

   $ 7,172       $ (3,427   $ 3,745   

Photonics

     1,215         (760     455   
  

 

 

    

 

 

   

 

 

 
   $ 8,387       $ (4,187   $ 4,200   
  

 

 

    

 

 

   

 

 

 

Total amortization expense of finite-lived intangibles for the three and nine months ended September 27, 2014 was $234,000 and $702,000.

As of September 27, 2014, future amortization expense is expected to be as follows.

 

(In thousands)       

2014

   $ 234   

2015

     853   

2016

     853   

2017

     756   

2018

     615   

Thereafter

     889   
  

 

 

 
   $ 4,200   
  

 

 

 

 

6. Acquisition-Related Contingent Consideration

In connection with the acquisition of Solar Implant Technologies, Inc. (“SIT”), Intevac agreed to pay to the selling shareholders in cash a revenue earnout on Intevac’s net revenue from commercial sales of certain products over a specified period up to an aggregate of $9.0 million. Intevac estimated the fair value of this contingent consideration on September 27, 2014 based on probability-based forecasted revenues reflecting Intevac’s own assumptions concerning future revenue from such products. As of September 27, 2014, payments made associated with the revenue earnout obligation have not been significant.

The fair value measurement of contingent consideration is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Any change in fair value of the contingent consideration subsequent to the acquisition date is recognized in operating income within the statement of operations. The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability for the three and nine month periods ended September 27, 2014 and September 28, 2013:

 

     Three Months Ended     Nine Months Ended  
     September 27,
2014
    September 28,
2013
    September 27,
2014
     September 28,
2013
 
     (In thousands)  

Opening balance

   $ 1,481      $ 4,942      $ 1,384       $ 5,151   

Changes in fair value

     (78     185        19         (24

Cash payments made

     —          (40     —           (40
  

 

 

   

 

 

   

 

 

    

 

 

 

Closing balance

   $ 1,403      $ 5,087      $ 1,403       $ 5,087   
  

 

 

   

 

 

   

 

 

    

 

 

 

 

11


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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

The following table displays the balance sheet classification of the contingent consideration liability account at September 27, 2014 and at December 31, 2013:

 

     September 27,      December 31,  
     2014      2013  
     (In thousands)  

Other accrued liabilities

   $ 7       $ 164   

Other long-term liabilities

     1,396         1,220   
  

 

 

    

 

 

 

Total acquisition-related contingent consideration

   $ 1,403       $ 1,384   
  

 

 

    

 

 

 

The following table represents the quantitative range of the significant unobservable inputs used in the calculation of fair value of the continent consideration liability as of September 27, 2014. Significant increases or decreases in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement.

 

     Quantitative Information about Level 3 Fair Value Measurements at September 27, 2014
     Fair Value      Valuation Technique   

Unobservable Input

   Range (Weighted Average)
     (In thousands, except for percentages)

Revenue Earnout

   $ 1,403       Discounted cash flow   

Weighted average cost of capital

Probability weighting of achieving revenue forecasts

   17.2%

 

20.0% - 55.0% (33.0%)

 

7. Divestitures

Sale of DeltaNu

On March 29, 2013, the Company sold certain assets, including existing tangible and intangible assets, which comprised its Raman spectroscopy instruments product line, also known as DeltaNu, for consideration not to exceed $1.5 million. Under the terms of the agreement, the acquirer also assumed certain liabilities related to the purchased assets. Payment terms included $500,000 which was paid on the closing date, with the remaining balance to be paid in the form of an earnout of 5% of the acquirer’s Raman spectroscopy instrument sales for 5 years following the closing date which will be due and payable on or before each anniversary of the closing date or a minimum earnout payment of $100,000 annually, whichever is higher. The maximum earnout payments during the payment period shall not exceed $1.0 million.

As the earnout is collected over an extended period of time and in management’s judgment the degree of collectibility is uncertain, Intevac did not recognize the minimum earnout payments upon closing, but instead will record income in the period when the minimum earnout payments can be reasonably estimated for that period and payment is assured. The first earnout payment in the amount of $75,000 was received in the second quarter of fiscal 2014 and was reported in interest and other income, net on the condensed consolidated statement of operations.

The following table summarizes the components of the loss (in thousands):

 

Cash proceeds

   $  500   
  

 

 

 

Assets sold:

  

Accounts receivable

     147   

Inventories

     320   

Other current assets

     27   

Property, plant and equipment

     159   

Trade name

     90   
  

 

 

 

Total assets sold

     743   

 

12


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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

Liabilities divested:

  

Accounts payable

     59   

Other accrued expenses

     6   
  

 

 

 

Total liabilities divested

     65   

Transaction and other costs

     30   
  

 

 

 

Loss on sale

   $ (208
  

 

 

 

 

8. Warranty

Intevac provides for the estimated cost of warranty when revenue is recognized. Intevac’s warranty is per contract terms, and for systems sold directly the warranty typically ranges between 12 and 24 months from customer acceptance. For systems sold through a distributor, Intevac offers a 3 month warranty. The remainder of any warranty period is the responsibility of the distributor. During this warranty period any defective non-consumable parts are replaced and installed at no charge to the customer. The warranty period on consumable parts is limited to their reasonable usable lives. Intevac uses estimated repair or replacement costs along with its historical warranty experience to determine its warranty obligation. Intevac generally provides a twelve month warranty on its Photonics products. The provision for the estimated future costs of warranty is based upon historical cost and product performance experience. Intevac exercises judgment in determining the underlying estimates.

On the condensed consolidated balance sheets, the short-term portion of the warranty provision is included in other accrued liabilities, while the long-term portion is included in other long-term liabilities. The expense associated with product warranties issued or adjusted is included in cost of net revenues on the condensed consolidated statements of operations.

The following table displays the activity in the warranty provision account for the three and nine months ended September 27, 2014 and September 28, 2013:

 

     Three Months Ended     Nine Months Ended  
     September 27,
2014
    September 28,
2013
    September 27,
2014
    September 28,
2013
 
     (In thousands)  

Opening balance

   $ 1,156      $ 2,087      $ 1,647      $ 2,349   

Expenditures incurred under warranties

     (152     (309     (674     (773

Accruals for product warranties issued during the reporting period

     129        323        633        861   

Adjustments to previously existing warranty accruals

     (74     (37     (547     (373
  

 

 

   

 

 

   

 

 

   

 

 

 

Closing balance

   $ 1,059      $ 2,064      $ 1,059      $ 2,064   
  

 

 

   

 

 

   

 

 

   

 

 

 

The following table displays the balance sheet classification of the warranty provision account at September 27, 2014 and at December 31, 2013:

 

     September 27,      December 31,  
     2014      2013  
     (In thousands)  

Other accrued liabilities

   $ 982       $ 1,546   

Other long-term liabilities

     77         101   
  

 

 

    

 

 

 

Total warranty provision

   $ 1,059       $ 1,647   
  

 

 

    

 

 

 

 

13


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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

9. Guarantees

Officer and Director Indemnifications

As permitted or required under Delaware law and to the maximum extent allowable under that law, Intevac has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was serving, at Intevac’s request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments Intevac could be required to make under these indemnification obligations is unlimited; however, Intevac has a director and officer insurance policy that mitigates Intevac’s exposure and enables Intevac to recover a portion of any future amounts paid. As a result of Intevac’s insurance policy coverage, Intevac believes the estimated fair value of these indemnification obligations is not material.

Other Indemnifications

As is customary in Intevac’s industry, many of Intevac’s contracts provide remedies to certain third parties such as defense, settlement, or payment of judgments for intellectual property claims related to the use of its products. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial.

 

10. Cash, Cash Equivalents and Investments

Cash and cash equivalents, short-term investments and long-term investments consist of:

 

     September 27, 2014  
     Amortized
Cost
     Unrealized
Holding
Gains
     Unrealized
Holding
Losses
     Fair
Value
 
     (In thousands)  

Cash and cash equivalents:

           

Cash

   $ 7,384       $ —         $ —         $ 7,384   

Money market funds

     14,330         —           —           14,330   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 21,714       $ —         $ —         $ 21,714   

Short-term investments:

           

Certificate of deposit

   $ 1,000       $ —         $ —         $ 1,000   

Commercial paper

     1,498         2         —           1,500   

Corporate bonds and medium-term notes

     20,860         11         2         20,869   

Municipal bonds

     5,392         10         1         5,401   

U.S. treasury and agency securities

     4,001         2         —           4,003   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 32,751       $ 25       $ 3       $ 32,773   

Long-term investments:

           

Corporate bonds and medium-term notes

   $ 6,224       $ —         $ 9       $ 6,215   

Municipal bonds

     1,038         2         —           1,040   

U.S. treasury and agency securities

     8,994         6         2         8,998   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 16,256       $ 8       $ 11       $ 16,253   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash, cash equivalents, and investments

   $ 70,721       $ 33       $ 14       $ 70,740   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

14


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INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

     December 31, 2013  
     Amortized
Cost
     Unrealized
Holding
Gains
     Unrealized
Holding
Losses
     Fair Value  
     (In thousands)  

Cash and cash equivalents:

           

Cash

   $ 5,819       $ —         $ —         $ 5,819   

Money market funds

     14,302         —           —           14,302   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash and cash equivalents

   $ 20,121       $ —         $ —         $ 20,121   

Short-term investments:

           

Commercial paper

   $ 1,998       $ 1       $ —         $ 1,999   

Corporate bonds and medium-term notes

     27,181         13         3         27,191   

Municipal bonds

     6,108         4         —           6,112   

U.S. treasury and agency securities

     13,506         7         —           13,513   

Variable rate demand notes (“VRDNs”)

     160         —           —           160   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total short-term investments

   $ 48,953       $ 25       $ 3       $ 48,975   

Long-term investments:

           

Corporate bonds and medium-term notes

   $ 8,811       $ 12       $ —         $ 8,823   

Municipal bonds

     3,495         2         2         3,495   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total long-term investments

   $ 12,306       $ 14       $ 2       $ 12,318   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total cash, cash equivalents, and investments

   $ 81,380       $ 39       $ 5       $ 81,414   
  

 

 

    

 

 

    

 

 

    

 

 

 

The contractual maturities of available-for-sale securities at September 27, 2014 are presented in the following table.

 

     Amortized
Cost
     Fair Value  
     (In thousands)  

Due in one year or less

   $ 45,077       $ 45,099   

Due after one through two years

     18,260         18,257   
  

 

 

    

 

 

 
   $ 63,337       $ 63,356   
  

 

 

    

 

 

 

The following table provides the fair market value of Intevac’s investments with unrealized losses that are not deemed to be other-than temporarily impaired as of September 27, 2014.

 

     September 27, 2014  
     In Loss Position for
Less than 12 Months
     In Loss Position for
Greater than 12 Months
 
     Fair Value      Gross
Unrealized
Losses
     Fair Value      Gross
Unrealized
Losses
 
     (In thousands)  

Corporate bonds and medium-term notes

   $ 11,774       $ 11       $ —         $ —     

Municipal bonds

     1,000         1         —           —     

U.S. treasury and agency securities

     1,998         2         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 
   $ 14,772       $ 14       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

 

 

15


Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

All prices for the fixed maturity securities including U.S. Treasury and agency securities, certificates of deposit, commercial paper, corporate bonds, VRDNs and municipal bonds are received from independent pricing services utilized by Intevac’s outside investment manager. This investment manager performs a review of the pricing methodologies and inputs utilized by the independent pricing services for each asset type priced by the vendor. In addition, on at least an annual basis, the investment manager conducts due diligence visits and interviews with each pricing vendor to verify the inputs utilized for each asset class. The due diligence visits include a review of the procedures performed by each vendor to ensure that pricing evaluations are representative of the price that would be received to sell a security in an orderly transaction. Any pricing where the input is based solely on a broker price is deemed to be a Level 3 price. Intevac uses the pricing data obtained from its outside investment manager as the primary input to make its assessments and determinations as to the ultimate valuation of the above-mentioned securities and has not made, during the periods presented, any material adjustments to such inputs.

The following table represents the fair value hierarchy of Intevac’s available-for-sale securities measured at fair value on a recurring basis as of September 27, 2014.

 

     Fair Value Measurements
at September 27, 2014
 
     Total      Level 1      Level 2  
     (In thousands)  

Recurring fair value measurements:

        

Available-for-sale securities

        

Money market funds

   $ 14,330       $ 14,330       $ —     

U.S. treasury and agency securities

     13,001         8,998         4,003   

Certificate of deposit

     1,000         —           1,000   

Commercial paper

     1,500         —           1,500   

Corporate bonds and medium-term notes

     27,084         —           27,084   

Municipal bonds

     6,441         —           6,441   
  

 

 

    

 

 

    

 

 

 

Total recurring fair value measurements

   $ 63,356       $ 23,328       $ 40,028   
  

 

 

    

 

 

    

 

 

 

 

11. Derivative Instruments

The Company uses foreign currency forward contracts to mitigate variability in gains and losses generated from the re-measurement of certain monetary assets and liabilities denominated in foreign currencies. These hedges do not qualify for special hedge accounting treatment. These derivatives are carried at fair value with changes recorded in interest income and other, net in the condensed consolidated statements of operations. Changes in the fair value of these derivatives are largely offset by re-measurement of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. The derivatives have maturities of approximately one month. The notional amount of Company’s foreign currency derivatives was $601,000 at September 27, 2014 and $894,000 at December 31, 2013.

 

12. Equity

Stock Repurchase Program

On November 21, 2013, Intevac’s Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases. At September 27, 2014, $20.8 million remained available for future stock repurchases under the repurchase program.

 

16


Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

The following table summarizes Intevac’s stock repurchases:

 

     Three Months Ended      Nine Months Ended  
     September 27, 2014  
     (In thousands, except per share amounts)  

Shares of common stock repurchased

     868         1,063   

Cost of stock repurchased

   $ 6,007       $ 7,476   

Average price paid per share

   $ 6.89       $ 7.00   

Intevac records treasury stock purchases under the cost method using the first-in, first-out (FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid in capital. If Intevac reissues treasury stock at an amount below its acquisition cost and additional paid in capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded against retained earnings.

Accumulated Other Comprehensive Income

The changes in accumulated other comprehensive income by component for the three and nine months ended September 27, 2014 and September 28, 2013, are as follows.

 

     Three Months Ended     Nine Months Ended  
     September 27, 2014  
     Foreign
currency
     Unrealized
holding gains
on available-
for-sale
investments
    Total     Foreign
currency
    Unrealized
holding gains
on available-
for-sale
investments
    Total  
     (In thousands)  

Beginning balance

   $ 675       $ 28      $ 703      $ 691      $ 34      $ 725   

Other comprehensive income (loss) before reclassification

     5         (9     (4     (11     (15     (26

Amounts reclassified from other comprehensive income

     —           —          —          —          —          —     
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     5         (9     (4     (11     (15     (26
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 680       $ 19      $ 699      $ 680      $ 19      $ 699   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Three Months Ended      Nine Months Ended  
     September 28, 2013  
     Foreign
currency
     Unrealized
holding gains
on available-
for-sale
investments
    Total      Foreign
currency
    Unrealized
holding gains
on available-
for-sale
investments
    Total  
     (In thousands)  

Beginning balance

   $ 684       $ (14   $ 670       $ 694      $ 75      $ 769   

Other comprehensive income (loss) before reclassification

     3         60        63         (7     (29     (36

Amounts reclassified from other comprehensive income

     —           —          —           —          —          —     
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

     3         60        63         (7     (29     (36
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Ending balance

   $ 687       $ 46      $ 733       $ 687      $ 46      $ 733   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

 

17


Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

13. Net Loss Per Share

The following table sets forth the computation of basic and diluted loss per share:

 

     Three Months Ended     Nine Months Ended  
     September 27,
2014
    September 28,
2013
    September 27,
2014
    September 28,
2013
 
     (In thousands, except per share amounts)  

Net loss

   $ (3,559   $ (2,745   $ (13,087   $ (17,421
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares – basic

     23,657        23,931        23,814        23,793   

Effect of dilutive potential common shares

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted-average shares – diluted

     23,657        23,931        23,814        23,793   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share – basic and diluted

   $ (0.15   $ (0.11   $ (0.55   $ (0.73
  

 

 

   

 

 

   

 

 

   

 

 

 

Antidilutive shares based on employee awards excluded

     2,401        2,551        2,074        2,648   
  

 

 

   

 

 

   

 

 

   

 

 

 

Potentially dilutive common shares consist of shares issuable upon exercise of employee stock options and vesting of RSUs and are excluded from the calculation of diluted EPS when their effect would be anti-dilutive.

 

14. Segment Reporting

Intevac’s two reportable segments are: Equipment and Photonics. Intevac’s chief operating decision-maker has been identified as the President and CEO, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Segment information is presented based upon Intevac’s management organization structure as of September 27, 2014 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to the reportable segments disclosed.

Each reportable segment is separately managed and has separate financial results that are reviewed by Intevac’s chief operating decision-maker. Each reportable segment contains closely related products that are unique to the particular segment. Segment operating profit is determined based upon internal performance measures used by the chief operating decision-maker.

Intevac derives the segment results from its internal management reporting system. The accounting policies Intevac uses to derive reportable segment results are substantially the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics, including orders, net revenues and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. Intevac manages certain operating expenses separately at the corporate level. Intevac allocates certain of these corporate expenses to the segments in an amount equal to 3% of net revenues. Segment operating income excludes interest income/expense and other financial charges and income taxes according to how a particular reportable segment’s management is measured. Management does not consider impairment charges, gains and losses on divestitures and sales of intellectual property, and unallocated costs in measuring the performance of the reportable segments.

The Equipment segment designs, develops and markets vacuum process equipment solutions for high-volume manufacturing of small substrates with precise thin film properties for hard drive and solar cell manufacturers as well as other adjacent thin film deposition applications.

The Photonics segment develops compact, cost-effective, high-sensitivity digital-optical products for the capture and display of low-light images and the optical analysis of materials. Intevac provides sensors, cameras and systems for government applications such as night vision and long-range target identification.

 

18


Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

Information for each reportable segment for the three and nine months ended September 27, 2014 and September 28, 2013 is as follows:

Net Revenues

 

     Three Months Ended      Nine Months Ended  
     September 27,
2014
     September 28,
2013
     September 27,
2017
     September 28,
2013
 
     (In thousands)  

Equipment

   $ 3,375       $ 11,760       $ 16,184       $ 26,293   

Photonics

     11,382         7,355         30,304         22,788   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total segment net revenues

   $ 14,757       $ 19,115       $ 46,488       $ 49,081   
  

 

 

    

 

 

    

 

 

    

 

 

 

Operating Income (Loss)

 

     Three Months Ended     Nine Months Ended  
     September 27,
2014
    September 28,
2013
    September 27,
2014
    September 28,
2013
 
     (In thousands)  

Equipment

   $ (5,872   $ (1,423   $ (15,681   $ (14,607

Photonics

     3,120        192        6,595        254   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total segment operating income (loss)

     (2,752     (1,231     (9,086     (14,353
  

 

 

   

 

 

   

 

 

   

 

 

 

Unallocated costs

     (1,332     (1,751     (4,969     (4,436
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss on divestiture

     —          —          —          (208
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from operations

     (4,084     (2,982     (14,055     (18,997

Interest income and other, net

     113        220        306        392   
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before income taxes

   $ (3,971   $ (2,762   $ (13,749   $ (18,605
  

 

 

   

 

 

   

 

 

   

 

 

 

Total assets for each reportable segment as of September 27, 2014 and December 31, 2013 are as follows:

Assets

 

     September 27,
2014
     December 31,
2013
 
     (In thousands)  

Equipment

   $ 30,129       $ 33,428   

Photonics

     18,936         21,120   
  

 

 

    

 

 

 

Total segment assets

     49,065         54,548   
  

 

 

    

 

 

 

Cash, cash equivalents and investments

     70,740         81,414   

Restricted cash

     1,000         —     

Deferred income taxes

     10,021         9,605   

Other current assets

     755         982   

Common property, plant and equipment

     1,068         1,302   

Other assets

     —           425   
  

 

 

    

 

 

 

Consolidated total assets

   $ 132,649       $ 148,276   
  

 

 

    

 

 

 

 

 

19


Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

15. Restructuring Charges

During the first quarter of fiscal 2014, Intevac substantially completed implementation of the 2014 cost reduction plan (the “Plan”), which was intended to reduce expenses and reduce its workforce by 6 percent. The cost of implementing the Plan was reported under cost of net revenues and operating expenses in the condensed consolidated statements of operations. Substantially all cash outlays in connection with the Plan occurred in the first half of fiscal 2014. Implementation of the Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.1 million on an annual basis. As of September 27, 2014, activities related to the Plan were complete.

On February 1, 2013, Intevac announced the 2013 cost reduction plan (the “2013 Plan”) to reduce expenses including a reduction in its workforce. Implementation of the 2013 Plan was substantially completed in the first half of fiscal 2013 and the Company reduced its workforce by 18 percent. The cost of implementing the 2013 Plan was reported under cost of net revenues and operating expenses in the condensed consolidated statement of operations. Substantially all cash outlays in connection with the 2013 Plan occurred in the first half of fiscal 2013. As of September 27, 2014, activities related to the 2013 Plan were complete.

The changes in restructuring reserves associated with the Plans for the three and nine months ended September 27, 2014 and September 28, 2013 are as follows.

 

     Three Months Ended      Nine Months Ended  
     September 27,      September 28,      September 27,     September 28,  
     2014      2013      2014     2013  
     Severance and other employee-related costs  
     (In thousands)  

Beginning balance

   $ —         $ —         $ —        $ —     

Provision for restructuring reserves

     —           —           288        742   

Cash payments made

     —           —           (288     (742
  

 

 

    

 

 

    

 

 

   

 

 

 

Ending balance

   $ —         $ —         $ —        $ —     
  

 

 

    

 

 

    

 

 

   

 

 

 

 

16. Income Taxes

Intevac recorded income tax benefits of $412,000 and $662,000 for the three and nine months ended September 27, 2014, respectively. Intevac recorded income tax benefits of $17,000 and $1.2 million for the three and nine months ended September 28, 2013, respectively. The income tax provisions for the three and nine month periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in which Intevac operates. Intevac did not recognize a benefit on the U.S. net operating loss for the three and nine months ended September 27, 2014 and September 28, 2013 due to having full valuation allowances on the U.S. deferred tax assets. Intevac’s tax rate differs from the applicable statutory rates due primarily to establishment of a valuation allowance, the utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences. Intevac’s future effective income tax rate depends on various factors including, the level of Intevac’s projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carryforwards, availability of tax credits and the effectiveness of Intevac’s tax planning strategies. Management carefully monitors these factors and timely adjusts the effective income tax rate.

 

17. Contingencies

From time to time, Intevac may have certain contingent liabilities that arise in the ordinary course of its business activities. Intevac accounts for contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

 

20


Table of Contents

INTEVAC, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Unaudited)

 

Leases

Intevac leases certain facilities under non-cancelable operating leases that expire at various times up to March 2024 and has options to renew most leases, with rental rates and other terms to be negotiated. Certain of Intevac’s leases contain provisions for rental adjustments. Included in other long-term liabilities on the consolidated balance sheets is $248,000 of deferred rent as of September 27, 2014 related to the effective rent on Intevac’s long-term lease for Intevac’s Santa Clara, California facility. The terms of the Company’s lease of its Santa Clara, California facility include a tenant improvement allowance of up to $1.7 million. Tenant improvement allowances are reimbursements received from the landlord for initial construction costs and are amortized on a straight-line basis over the lease term as a reduction in rent. The tenant improvement allowances are recorded when the Company has completed its obligations and the tenant improvement allowance is receivable. In addition, Intevac is required to maintain a standby letter of credit for $1.0 million for this lease. This standby letter of credit is secured with $1.0 million of restricted cash. The facility leases require Intevac to pay for all normal maintenance costs. Gross rental expense was $996,000 and $2.8 million for the three and nine months ended September 27, 2014, respectively.

As of September 27, 2014, future minimum lease payments are as follows.

 

(In thousands)       

2014

   $ 207   

2015

     3,187   

2016

     3,092   

2017

     2,644   

2018

     2,630   

Thereafter

     15,149   
  

 

 

 
   $ 26,909   
  

 

 

 

 

21


Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q contains forward-looking statements, which involve risks and uncertainties. Words such as “believes,” “expects,” “anticipates” and the like indicate forward-looking statements. These forward-looking statements include comments related to Intevac’s shipments, projected revenue recognition, product costs, gross margin, operating expenses, interest income, income taxes, cash balances and financial results in 2014 and beyond; projected customer requirements for Intevac’s new and existing products, and when, and if, Intevac’s customers will place orders for these products; Intevac’s ability to proliferate its Photonics technology into major military programs; the timing of delivery and/or acceptance of the systems and products that comprise Intevac’s backlog for revenue and the Company’s ability to achieve cost savings. Intevac’s actual results may differ materially from the results discussed in the forward-looking statements for a variety of reasons, including those set forth under “Risk Factors” and in other documents we file from time to time with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed on February 20, 2014, and our periodic Form 10-Q’s and Form 8-K’s.

Overview

Intevac provides process manufacturing equipment solutions to the hard disk drive industry and offers high-productivity, thin film processing systems to the photovoltaic (“PV”) industry and to adjacent markets for thin film deposition applications. Intevac also provides sensors, cameras and systems for government applications such as night vision and long-range target identification. Intevac’s customers include manufacturers of hard disk drives and PV cells as well as the U.S. government and its agencies and contractors. Intevac reports two segments: Equipment and Photonics.

Product development and manufacturing activities occur in North America and Asia. Intevac has field offices in Asia to support its equipment customers. Intevac’s equipment and service products are highly technical and are sold primarily through Intevac’s direct sales force. Intevac also sells its products through distributors in Japan and China.

 

22


Table of Contents

The following table presents certain significant measurements for the three and nine months ended September 27, 2014 and September 28, 2013:

 

     Three months ended     Nine months ended  
     September 27,
2014
    September 28,
2013
    Change over
prior period
    September 27,
2014
    September 28,
2013
    Change over
prior period
 
     (In thousands, except percentages and per share amounts)  

Net revenues

   $ 14,757      $ 19,115      $ (4,358   $ 46,488      $ 49,081      $ (2,593

Gross profit

   $ 4,815      $ 6,895      $ (2,080   $ 14,836      $ 14,237      $ 599   

Gross margin percent

     32.6     36.1     (3.5) points        31.9     29.0     2.9 points   

Net loss

   $ (3,559   $ (2,745   $ (814   $ (13,087   $ (17,421   $ 4,334   

Loss per diluted share

   $ (0.15   $ (0.11   $ (0.04   $ (0.55   $ (0.73   $ 0.18   

Net revenues decreased for the third quarter of fiscal 2014 compared to the same period in the prior year primarily due to lower equipment sales to disk manufacturers and lower Photonics’ contract research and development (“R&D”), offset in part by higher Photonics’ product sales. Intevac recognized revenue on one 200 Lean ® system in the third quarter of 2013 and did not recognize revenue on any 200 Lean systems in the third quarter of 2014. The net loss for the third quarter of fiscal 2014 increased compared to the same period in the prior year due to lower revenues and lower gross margins, offset in part by lower operating expenses as a result of cost reduction efforts. Lower operating expenses for the third quarter fiscal 2013 reflected costs recovered under a non-recurring engineering (“NRE”) arrangement.

Net revenues decreased for the first nine months for fiscal 2014 compared to the same period in the prior year primarily due to lower equipment sales to disk manufacturers and lower Photonics’ contract R&D, offset in part by higher Photonics’ product sales. Intevac recognized revenue on one 200 Lean system in both the first nine months of fiscal 2014 and first nine months of fiscal 2013. The net loss for the first nine months of fiscal 2014 decreased compared to the same period in the prior year due to higher gross margins and lower operating expenses as a result of cost reduction efforts and curtailed R & D spending, offset in part by lower revenues and increased costs associated with a contested Board of Directors election.

In the remainder of fiscal 2014, Intevac expects that demand for and growth in hard disk media will increase modestly compared to 2013, but this demand will not exceed the existing production capacity during 2014. The Company expects that shipments of Intevac equipment to hard disk drive manufacturers will be lower than 2013. In 2014, Intevac expects higher sales of new thin-film equipment products. For fiscal 2014, Intevac expects that Photonics business levels will increase approximately 30% from 2013 as Photonics delivers production shipments of the pilot night vision system for the Apache helicopter.

Intevac’s trademarks, include the following: “200 Lean ® ,” “AccuLuber™,” “EBAPS ® ,” “ENERG i ™,” “I-Port™,” “LithoPrime™,” “LIVAR ® ,” “INTEVAC MATRIX™,” “MicroVista ® ,” “NightVista ® ,” and “Night Port™”.

 

23


Table of Contents

Results of Operations

Net revenues

 

     Three months ended     Nine months ended  
     September 27,
2014
     September 28,
2013
     Change over
prior period
    September 27,
2014
     September 28,
2013
     Change over
prior period
 
     (In thousands)  

Equipment

   $ 3,375       $ 11,760       $ (8,385   $ 16,184       $ 26,293       $ (10,109

Photonics

                

Products

   $ 8,918       $ 4,231       $ 4,687      $ 21,468       $ 11,818       $ 9,650   

Contract R&D

     2,464         3,124         (660     8,836         10,970         (2,134
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 
     11,382         7,355         4,027        30,304         22,788         7,516   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total net revenues

   $ 14,757       $ 19,115       $ (4,358   $ 46,488       $ 49,081       $ (2,593
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Equipment revenue for the three months ended September 27, 2014 decreased compared to the same period in the prior year as a result of lower sales of disk sputtering systems, technology upgrades, and spare parts. During the third quarter of 2014 Intevac recognized revenue on disk equipment technology upgrades, and spare parts. During the third quarter of 2013 Intevac recognized revenue on one 200 Lean system, disk equipment technology upgrades, and spare parts. Equipment revenue for the nine months ended September 28, 2013 decreased over the same period in the prior year as a result of lower sales of disk lubrication systems, technology upgrades and spare parts. Equipment revenue for the nine months ended September 27, 2014 included revenue recognition for one 200 Lean system, upgrades and spare parts. Equipment revenue for the nine months ended September 28, 2013 included revenue recognition for one 200 Lean system, one solar implant ENERG i ™ system, AccuLuber systems, upgrades and spare parts.

Photonics revenue for the three and nine month periods ended September 27, 2014 increased over the same periods in the prior year as a result of increased product sales offset in part by lower contract R&D work. The decrease in contract R&D revenue was the result of completion of the program to design the Apache pilot night viewing system during mid-2013. The increase in product sales resulted from the transition to production deliveries for the Apache pilot night viewing camera at the end of 2013. On March 29, 2013, Intevac sold certain assets comprising its Raman spectroscopy instruments product line, also known as DeltaNu, and no longer offers Raman spectroscopy products.

Backlog

 

     September 27,
2014
     December 31,
2013
     September 28,
2013
 
     (In thousands)  

Equipment

   $ 12,797       $ 13,565       $ 19,759   

Photonics

     31,146         46,319         50,988   
  

 

 

    

 

 

    

 

 

 

Total backlog

   $ 43,943       $ 59,884       $ 70,747   
  

 

 

    

 

 

    

 

 

 

Equipment backlog at September 27, 2014 included one 200 Lean system, one PV deposition system and one PVD touch screen cover glass coating system. Equipment backlog at December 31, 2013 included one 200 Lean system and one PV deposition system. Equipment backlog at September 28, 2013 included two 200 Lean systems. Photonics backlog at September 27, 2014 includes $24.3 million in revenue that will be earned in one year and $6.8 million in revenue that will be earned beyond one year.

 

24


Table of Contents

Revenue by geographic region

 

     Three months ended     Nine months ended  
     September 27,
2014
     September 28,
2013
     Change over
prior period
    September 27,
2014
     September 28,
2013
     Change over
prior period
 
     (In thousands)  

United States

   $ 10,810       $ 7,306       $ 3,504      $ 36,162       $ 24,352       $ 11,810   

Asia

     2,853         10,127         (7,274     7,270         20,495         (13,225

Europe

     1,094         1,682         (588     3,056         4,234         (1,178
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total net revenues

   $ 14,757       $ 19,115       $ (4,358   $ 46,488       $ 49,081       $ (2,593
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

International sales include products shipped to overseas operations of U.S. companies. The increase in U.S. sales in 2014 versus 2013 was primarily due to delivery of a 200 Lean system to a U.S. customer, higher camera sales and the initial production shipments of the pilot night vision camera for the Apache helicopter. The decrease in sales to the Asia region in 2014 versus 2013 was primarily due to lower net revenues from 200 Lean and solar implant systems, disk lubrication systems and technology upgrades. The decrease in sales to the Europe region in 2014 versus 2013 was primarily due to lower sales of Photonics’ digital night-vision cameras for rifle sights to a NATO customer.

Gross profit

 

     Three months ended     Nine months ended  
     September 27,
2014
    September 28,
2013
    Change over
prior period
    September 27,
2014
    September 28,
2013
    Change over
prior period
 
     (In thousands, except percentages)  

Equipment gross profit

   $ (322   $ 4,664      $ (4,986   $ 1,995      $ 7,218      $ (5,223

% of Equipment net revenues

     (9.5 )%      39.7       12.3     27.4  

Photonics gross profit

   $ 5,137      $ 2,231      $ 2,906      $ 12,841      $ 7,019      $ 5,822   

% of Photonics net revenues

     45.1     30.3       42.4     30.8  

Total gross profit

   $ 4,815      $ 6,895      $ (2,080   $ 14,836      $ 14,237      $ 599   

% of net revenues

     32.6     36.1       31.9     29.0  

Cost of net revenues consists primarily of purchased materials and costs attributable to contract research and development, and also includes fabrication, assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties, provisions for inventory reserves and scrap.

Equipment gross margin was (9.5)% in the three months ended September 27, 2014 compared to 39.7% in the three months ended September 28, 2013 and was 12.3% in the nine months ended September 27, 2014 compared to 27.4% in the nine months ended September 28, 2013. The lower gross margin for the three months ended September 27, 2014 was due primarily to lower systems and spares shipments and lower factory utilization. The lower gross margin for the nine months ended September 27, 2014 was due primarily to lower revenues and lower factory utilization, offset in part by lower factory costs as a result of cost containment efforts, lower inventory provisions and the lower system margin on the first solar implant ENERG i system for which revenue was recognized in second quarter of 2013. Gross margins in the Equipment business will vary depending on a number of factors, including product mix, product cost, system configuration and pricing, factory utilization, and provisions for excess and obsolete inventory.

Photonics gross margin was 45.1% in the three months ended September 27, 2014 compared to 30.3% in the three months ended September 28, 2013 and was 42.4% in the nine months ended September 27, 2014 compared to 30.8% in the nine months ended September 28, 2013. The higher gross margin for the three months ended September 27, 2014 was due to higher margins on both products and contract R&D, lower warranty provisions and improved sensor yields, offset in part by higher inventory provisions. The higher gross margin for the nine months ended September 27, 2014 was due to higher margins on both products and contract R&D, lower warranty costs, lower inventory provisions and

 

25


Table of Contents

improved sensor yields. Gross margins in the Photonics business will vary depending on a number of factors, including sensor yield, product mix, product cost, pricing, factory utilization, provisions for warranty and inventory reserves.

Research and development

 

     Three months ended     Nine months ended  
     September 27,
2014
     September 28,
2013
     Change over
prior period
    September 27,
2014
     September 28,
2013
     Change over
prior period
 
     (In thousands)  

Research and development expense

   $ 3,986       $ 4,250       $ (264   $ 12,817       $ 16,192       $ (3,375

Research and development spending decreased in Equipment during the three and nine month periods ended September 27, 2014 as compared to the same periods in the prior year. The decrease in Equipment spending during the three and nine month periods ended September 27, 2014 was due primarily to decreased PV development, offset in part by costs recovered under a NRE arrangement during fiscal 2013. Photonics research and development spending during the three and nine month periods ended September 27, 2014 was down compared to the same periods in the prior year due to engineering efforts incurred in 2014 associated with manufacturing transition costs which were included in cost of net revenues. Photonics research and development spending during the first nine months of fiscal 2013 included costs from DeltaNu which did not re-occur in the first nine months of fiscal 2014 as DeltaNu was sold on March 29, 2013. Research and development expenses do not include costs of $1.9 million and $6.3 million for the three and nine months ended September 27, 2014 respectively, or $2.5 million and $8.6 million for the three and nine months ended September 28, 2013, respectively, which are related to customer-funded contract R&D programs at Photonics and therefore included in cost of net revenues.

Selling, general and administrative

 

     Three months ended     Nine months ended  
     September 27,
2014
     September 28,
2013
     Change over
prior period
    September 27,
2014
     September 28,
2013
     Change over
prior period
 
     (In thousands)  

Selling, general and administrative expense

   $ 4,913       $ 5,627       $ (714   $ 16,074       $ 16,834       $ (760

Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. The decrease in selling, general and administrative spending in the three months ended September 27, 2014 was primarily the result of lower variable compensation program expense and savings from cost reduction initiatives, lower charges associated with the change in the fair value of the contingent consideration obligations related to the SIT acquisition, offset in part by higher equity compensation expense. The decrease in selling, general and administrative spending in the nine months ended September 27, 2014 was primarily the result of lower variable compensation program expense and savings from cost reduction initiatives, offset in part by increased professional service costs associated with a contested Board of Directors election and higher equity compensation expense. Higher equity compensation expense for all periods presented was primarily due to the 2014 annual bonus for participants in the Company’s annual incentive plan which will be settled with RSUs with one year vesting.

Cost reduction plans

During the first quarter of fiscal 2014, Intevac substantially completed implementation of the 2014 cost reduction plan (the “Plan”), which was intended to reduce expenses and reduce its workforce by 6 percent. The total cost of implementing the Plan was $288,000 of which $43,000 was reported under cost of net revenues and $245,000 was reported under operating expenses. Substantially all cash outlays in connection with the Plan occurred in the first half of fiscal 2014. Implementation of the Plan is expected to reduce salary, wages and other employee-related expenses by approximately $2.1 million on an annual basis. As of September 27, 2014, activities related to the Plan were complete.

 

26


Table of Contents

During the first quarter of fiscal 2013, Intevac announced the 2013 cost reduction plan (the “2013 Plan”) to reduce expenses including a reduction in its workforce. Implementation of the Plan was substantially completed in the first half of fiscal 2013 and the workforce was reduced by 18 percent. During the first half of 2013, Intevac recognized employee-related costs of $742,000 of which $315,000 was reported under cost of net revenues and $427,000 was reported under operating expenses in connection with the 2013 Plan. All cash outlays in connection with the 2013 Plan occurred in the first half of fiscal 2013. As of September 27, 2014, activities related to the 2013 Plan were complete.

Loss on divestiture

On March 29, 2013, the Company sold certain assets, including existing tangible and intangible assets, which comprised its Raman spectroscopy instruments product line, also known as DeltaNu, for consideration not to exceed $1.5 million, of which $500,000 was received in cash upon closing, and recorded a loss of $208,000. The first earnout payment in the amount of $75,000 was received in the second quarter of fiscal 2014 and was reported in interest and other income, net on the condensed consolidated statement of operations. See Note 7 “Divestiture” in the notes to the condensed consolidated financial statements for additional information related to the loss on divestiture.

Interest income and other, net

 

     Three months ended     Nine months ended  
     September 27,
2014
     September 28,
2013
     Change over
prior period
    September 27,
2014
     September 28,
2013
     Change over
prior period
 
     (In thousands)  

Interest income and other, net

   $ 113       $ 220       $ (107   $ 306       $ 392       $ (86

Interest income and other, net is comprised of interest income and realized gains and losses on sales of investments, foreign currency gains and losses, and other income and expense such as gains and losses on sales of fixed assets and earnout income from divestitures.

Income tax benefit

 

     Three months ended      Nine months ended  
     September 27,
2014
     September 28,
2013
     Change over
prior period
     September 27,
2014
     September 28,
2013
     Change over
prior period
 
     (In thousands)  

Income tax benefit

   $ 412       $ 17       $ 395       $ 662       $ 1,184       $ (522

Intevac recorded income tax benefits of $412,000 and $662,000 for the three and nine months ended September 27, 2014, respectively. Intevac recorded income tax benefits of $17,000 and $1.2 million for the three and nine months ended September 28, 2013, respectively. The income tax provisions for the three and nine month periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in which Intevac operates. Intevac did not recognize a benefit on the U.S. net operating loss for the three and nine months ended September 27, 2014 and September 28, 2013 due to having full valuation allowances on the U.S. deferred tax assets. Intevac’s tax rate differs from the applicable statutory rates due primarily to establishment of a valuation allowance, the utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences. Intevac’s future effective income tax rate depends on various factors including, the level of Intevac’s projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carryforwards, availability of tax credits and the effectiveness of Intevac’s tax planning strategies. Management carefully monitors these factors and timely adjusts the effective income tax rate.

 

27


Table of Contents

Liquidity and Capital Resources

At September 27, 2014, Intevac had $70.7 million in cash, cash equivalents, and investments compared to $81.4 million at December 31, 2013. During the first nine months of 2014, cash, cash equivalents and investments decreased by $10.7 million due primarily to cash used by operating activities, repurchases of common stock, purchases of fixed assets and increases in restricted cash partially offset by cash received from the sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans.

Cash, cash equivalents and investments consist of the following:

 

     September 27,
2014
     December 31,
2013
 
     (In thousands)  

Cash and cash equivalents

   $ 21,714       $ 20,121   

Short-term investments

     32,773         48,975   

Long-term investments

     16,253         12,318   
  

 

 

    

 

 

 

Total cash, cash equivalents and investments

   $ 70,740       $ 81,414   
  

 

 

    

 

 

 

Operating activities used cash of $2.0 million during the first nine months of 2014 and of $8.3 million during the first nine months of 2013. The decrease in cash used by operating activities was due primarily to a smaller net loss and to reductions in working capital during the first nine months of 2014, offset in part by the payment of annual bonuses.

Accounts receivable totaled $9.4 million at September 27, 2014, compared to $15.0 million at December 31, 2013. The decrease of $5.6 million in the receivable balance was due primarily to decreased revenue levels and improved collections. Total net inventories increased slightly to $23.1 million at September 27, 2014, compared to $22.8 million at December 31, 2013. Accounts payable increased to $4.6 million at September 27, 2014 compared to $4.0 million at December 31, 2013 primarily due to an accrual of $416,000 for unsettled trades for the stock repurchase program at September 27, 2014. Accrued payroll and related liabilities decreased to $4.3 million at September 27, 2014 compared to $5.0 million at December 31, 2013. Other accrued liabilities increased to $6.3 million at September 27, 2014 compared to $3.3 million at December 31, 2013 primarily due to $4.3 million in deferred revenue at September 27, 2014 associated with two completed systems at customer sites that are undergoing installation and acceptance testing. Customer advances decreased to $1.8 million at September 27, 2014 compared to $3.7 million at December 31, 2013.

Investing activities generated cash of $8.5 million during the first nine months of 2014. Proceeds from sales of investments net of purchases totaled $11.7 million. Intevac is required to maintain a standby letter of credit for $1.0 million for the Santa Clara, California campus lease. This standby letter of credit is secured with $1.0 million of restricted cash. Capital expenditures for the nine months ended September 27, 2014 were $2.3 million.

Financing activities in the first nine months of 2014 used cash of $4.9 million. The sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans generated cash $2.2 million. Cash used to repurchase shares of common stock under the Company’s stock repurchase program totaled $7.1 million for the nine months ended September 27, 2014.

Intevac’s investment portfolio consists principally of investment grade money market mutual funds, U.S. Treasury and agency securities, certificates of deposit, commercial paper, municipal bonds and corporate bonds. Intevac regularly monitors the credit risk in its investment portfolio and takes measures, which may include the sale of certain securities, to manage such risks in accordance with its investment policies.

As of September 27, 2014, approximately $10.6 million of cash and cash equivalents were domiciled in foreign tax jurisdictions. Intevac expects a significant portion of these funds to remain off shore in the short term. If the Company chose to repatriate these funds to the United States, it would be required to accrue and pay additional taxes on any portion of the repatriation where no United States income tax had been previously provided.

 

 

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Intevac believes that its existing cash, cash equivalents and investments will be sufficient to meet its cash requirements for the foreseeable future. Intevac intends to undertake approximately $1.0 million to $1.5 million in capital expenditures during the remainder of 2014.

Contractual Obligations

The following table summarizes Intevac’s contractual obligations as of September 27, 2014:

 

     Payments due by period  
     Total      < 1 Year      1–3 Years      3-5 Years      > 5 Years  
     (In thousands)  

Operating lease obligations

   $ 26,909       $ 207       $ 6,279       $ 5,274       $ 15,149   

Purchase obligations and commitments 1

     7,605         7,605         —           —           —     

Other long-term liabilities 2, 4

     326         326         —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total 3, 4

   $ 34,840       $ 8,138       $ 6,279       $ 5,274       $ 15,149   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1 Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on Intevac and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. These purchase obligations are related principally to inventory and other items.
2   Intevac is unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $99,000 of unrecognized tax benefits has been excluded from the table above.
3 Total excludes contractual obligations already recorded on the condensed consolidated balance sheet as current liabilities (except other long-term liabilities) and certain purchase obligations.
4 Total excludes contingent consideration that may be paid pursuant to asset purchases or business combinations.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported. Intevac’s significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 of Intevac’s Annual Report on Form 10-K filed on February 20, 2014. Certain of these significant accounting policies are considered to be critical accounting policies, as defined below.

A critical accounting policy is defined as one that is both material to the presentation of Intevac’s financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on Intevac’s financial conditions and results of operations. Specifically, critical accounting estimates have the following attributes: 1) Intevac is required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimates Intevac could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on Intevac’s financial condition or results of operations.

 

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Estimates and assumptions about future events and their effects cannot be determined with certainty. Intevac bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and as Intevac’s operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they become known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. Many of these uncertainties are discussed in the section below entitled “Risk Factors.” Based on a critical assessment of Intevac’s accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that Intevac’s consolidated financial statements are fairly stated in accordance with US GAAP, and provide a meaningful presentation of Intevac’s financial condition and results of operation.

For further information about Intevac’s other critical accounting policies, see the discussion of critical accounting policies in Intevac’s 2013 Form 10-K. Management believes that there has been no significant change during the nine months ended September 27, 2014 to the items identified as critical accounting policies in Intevac’s 2013 Form 10-K.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk. Intevac’s exposure to market risk for changes in interest rates relates primarily to its investment portfolio. Intevac does not use derivative financial instruments in Intevac’s investment portfolio. The Company has adopted an investment policy and established guidelines relating to credit quality, diversification and maturities of its investments in order to preserve principal and maintain liquidity. All investment securities in Intevac’s portfolio have an investment grade credit rating. Investments typically consist of certificates of deposit, commercial paper, obligations of the U.S. government and its agencies, corporate debt securities and municipal bonds.

The table below presents principal amounts and related weighted-average interest rates by year of expected maturity for Intevac’s investment portfolio at September 27, 2014.

 

     2014     2015     2016     Total      Fair
Value
 
     (In thousands, except percentages)  

Cash equivalents

           

Variable rate amounts

   $ 14,330        —          —        $ 14,330       $ 14,330   

Weighted-average rate

     0.03     —          —          

Short-term investments

           

Fixed rate amounts

   $ 10,105      $ 18,641        —        $ 28,746       $ 28,767   

Weighted-average rate

     0.95     2.85     —          

Variable rate amounts

   $ 4,005        —          —        $ 4,005       $ 4,006   

Weighted-average rate

     0.76     —          —          

Long-term investments

           

Fixed rate amounts

     —        $ 3,002      $ 13,254      $ 16,256       $ 16,253   

Weighted-average rate

     —          2.07     0.76     

Total investment portfolio

   $ 28,440      $ 21,643      $ 13,254      $ 63,337       $ 63,356   

Foreign exchange risk. From time to time, Intevac enters into foreign currency forward exchange contracts to hedge certain of its anticipated foreign currency re-measurement exposures. The objective of these contracts is to minimize the impact of foreign currency exchange rate movements on Intevac’s operating results. The notional amount of Company’s foreign currency derivatives was $601,000 at September 27, 2014.

 

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Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

Intevac maintains a set of disclosure controls and procedures that are designed to ensure that information relating to Intevac, Inc. required to be disclosed in periodic filings under the Securities Exchange Act of 1934, or Exchange Act, is recorded, processed, summarized and reported in a timely manner under the Exchange Act. In connection with the filing of this Form 10-Q for the quarter ended September 27, 2014, as required under Rule 13a-15(b) of the Exchange Act, an evaluation was carried out under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of Intevac’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, Intevac’s Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 27, 2014.

Attached as exhibits to this Quarterly Report are certifications of the CEO and the CFO, which are required in accordance with Rule 13a-14 of the Exchange Act. This Controls and Procedures section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Definition of disclosure controls

Disclosure Controls are controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure Controls are also designed to ensure that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Our Disclosure Controls include components of our internal control over financial reporting, which consists of control processes designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles in the U.S. To the extent that components of our internal control over financial reporting are included within our Disclosure Controls, they are included in the scope of our quarterly controls evaluation.

Limitations on the effectiveness of controls

Intevac’s management, including the CEO and CFO, does not expect that Intevac’s Disclosure Controls or Intevac’s internal control over financial reporting will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Intevac have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in internal controls over financial reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, Intevac’s internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

From time to time, Intevac is involved in claims and legal proceedings that arise in the ordinary course of business. Intevac expects that the number and significance of these matters will increase as Intevac’s business expands. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require us to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to us or at all. Intevac is not presently a party to any lawsuit or proceeding that, in Intevac’s opinion, is likely to seriously harm Intevac’s business.

 

Item 1A. Risk Factors

The following factors could materially affect Intevac’s business, financial condition or results of operations and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.

The industries we serve are cyclical, volatile and unpredictable.

A significant portion of our revenue is derived from the sale of equipment used to manufacture commodity technology products such as disk drives, PV solar cells and cell phones. This subjects us to business cycles, the timing, length and volatility of which can be difficult to predict. When demand for commodity technology products exceeds production capacity, then demand for new capital equipment such as ours tends to be amplified. Conversely, when supply of commodity technology products exceeds demand, then demand for new capital equipment such as ours tends to be depressed. For example, sales of systems for magnetic disk production were depressed from late 2007 through 2009. The number of new systems delivered increased in 2010 as customers increased their production capacity in response to increased demand for data storage, but decreased in 2011, 2012, 2013, and through the first nine months of 2014 as the hard disk drive industry did not add the same level of capacity that it did in 2010. We cannot predict with any certainty when these cycles will begin or end. We believe that our sales will continue to be depressed through 2014.

Our equipment represents only a portion of the capital expenditure that our customers incur when they upgrade or add production capacity. Accordingly, our customers generally commit to making large capital expenditures far in excess of the cost of our systems alone when they decide to purchase our systems. The magnitude of these capital expenditures requires our customers to have access to large amounts of capital. Our customers generally reduce their level of capital investment during downturns in the overall economy or during a downturn in their industries.

We must effectively manage our resources and production capacity to meet rapidly changing demand. Our business experiences rapid growth and contraction, which stresses our infrastructure, internal systems and managerial resources. During periods of increasing demand for our products, we must have sufficient manufacturing capacity and inventory to meet customer demand; attract, retain and motivate a sufficient number of qualified individuals; and effectively manage our supply chain. During periods of decreasing demand for our products, we must be able to align our cost structure with prevailing market conditions; motivate and retain key employees and effectively manage our supply chain.

Sales of our equipment are primarily dependent on our customers’ upgrade and capacity expansion plans and whether our customers select our equipment.

We have no control over our customers’ upgrade and capacity expansion plans, and we cannot be sure they will select, or continue to select, our equipment when they upgrade or expand their capacity. The sales cycle for our equipment systems can be a year or longer, involving individuals from many different areas of Intevac and numerous product presentations and demonstrations for our prospective customers. Our sales process also commonly includes production of samples, customization of our products, and installation of evaluation systems in the factories of our prospective customers. We do not enter into long-term contracts with our customers, and until an order is actually submitted by a customer there is no binding commitment to purchase our systems.

 

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The Photonics’ business is also subject to long sales cycles because many of its products, such as our military imaging products, often must be designed into the customers’ end products, which are often complex state-of-the-art products. These development cycles are typically multi-year, and our sales are contingent on our customers successfully integrating our product into their product, completing development of their product and then obtaining production orders for their product from the U.S. government or its allies.

Sales of new manufacturing systems are also dependent on obsolescence and replacement of the installed base of our customers’ existing equipment with newer, more capable equipment. If upgrades are developed that extend the useful life of the installed base of systems, then we tend to sell more upgrade products and fewer new systems, which can significantly reduce total revenue. For example, some of our 200 Lean customers continue to use legacy systems for the production of perpendicular media, which delayed the replacement of such systems with new 200 Lean systems.

Our 200 Lean customers also experience competition from companies that produce alternative storage technologies like flash memory, which offer smaller size, lower power consumption and more rugged designs. These storage technologies are being used increasingly in enterprise applications and smaller form factors such as tablets, smart-phones, ultra-books, and notebook personal computers instead of hard disk drives. Tablet computing devices and smart-phones have never contained, nor are they likely in the future to contain, a disk drive. Products using alternative technologies, such as flash memory, optical storage and other storage technologies are becoming increasingly common and could become a significant source of competition to particular applications of the products of our 200 Lean customers, which could adversely affect our results of operations. If alternative technologies, such as flash memory, replace hard disk drives as a significant method of digital storage, then demand for our hard disk manufacturing products would decrease.

Our growth depends on development of technically advanced new products and processes.

We have invested heavily, and continue to invest, in the development of new products, such as our 200 Lean and other PVD systems, our solar systems for PV applications, our digital night-vision products and our near-eye display products. Our success in developing and selling new products depends upon a variety of factors, including our ability to: predict future customer requirements, make technological advances, achieve a low total cost of ownership for our products, introduce new products on schedule, manufacture products cost-effectively including transitioning production to volume manufacturing; commercialize and attain customer acceptance of our products; and achieve acceptable and reliable performance of our new products in the field. Our new product decisions and development commitments must anticipate continuously evolving industry requirements significantly in advance of sales. In addition, we are attempting to expand into new or related markets, including the PV and cell phone cover lens markets. Our expansion into the PV market is dependent upon the success of our customers’ development plans. To date we have not recognized material revenue from such products. Failure to correctly assess the size of the markets, to successfully develop cost effective products to address the markets or to establish effective sales and support of the new products would have a material adverse effect on future revenues and profits. In addition, if we invest in products for which the market does not develop as anticipated, we may incur significant charges related to such investments.

Rapid technological change in our served markets requires us to rapidly develop new technically advanced products. Our future success depends in part on our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products have reliability or quality problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance and payment for new products and additional service and warranty expenses.

We are exposed to risks associated with a highly concentrated customer base.

Historically, a significant portion of our revenue in any particular period has been attributable to sales of our disk sputtering systems to a limited number of customers. This concentration of customers, when combined with changes in the customers’ specific capacity plans and market share shifts can lead to extreme variability in our revenue and financial results from period to period.

 

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The concentration of our customer base may enable our customers to demand pricing and other terms unfavorable to Intevac, and makes us more vulnerable to changes in demand by a given customer. Orders from a relatively limited number of manufacturers have accounted for, and will likely continue to account for, a substantial portion of our revenues. The loss of one of these large customers, or delays in purchasing by them, could have a material and adverse effect on our revenues.

We operate in an intensely competitive marketplace, and our competitors have greater resources than we do.

In the market for our disk sputtering systems, we experience competition primarily from Canon Anelva, which has sold a substantial number of systems worldwide. In the PV equipment market, Intevac faces competition from large established competitors including Eteris, Centrotherm Photovoltaics, Amtech, Jusung and Von Ardenne. In the market for our military imaging products we experience competition from companies such as Exelis and L-3 Communications. Some of our competitors have substantially greater financial, technical, marketing, manufacturing and other resources than we do, especially in the PV equipment market. Our competitors may develop enhancements to, or future generations of, competitive products that offer superior price or performance features, and new competitors may enter our markets and develop such enhanced products. Moreover, competition for our customers is intense, and our competitors have historically offered substantial pricing concessions and incentives to attract our customers or retain their existing customers.

Our operating results fluctuate significantly from quarter to quarter, which can lead to volatility in the price of our common stock.

Our quarterly revenues and common stock price have fluctuated significantly. We anticipate that our revenues, operating margins and common stock price will continue to fluctuate for a variety of reasons, including: (1) changes in the demand, due to seasonality, cyclicality and other factors in the markets for computer systems, storage subsystems and consumer electronics containing disks our customers produce with our systems; (2) delays or problems in the introduction and acceptance of our new products, or delivery of existing products; (3) timing of orders, acceptance of new systems by our customers or cancellation of those orders; (4) new products, services or technological innovations by our competitors or us; (5) changes in our manufacturing costs and operating expense; (6) changes in general economic, political, stock market and industry conditions; and (7) any failure of our operating results to meet the expectations of investment research analysts or investors.

Any of these, or other factors, could lead to volatility and/or a rapid change in the trading price of our common shares. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities. Any such litigation, if instituted against Intevac, could result in substantial costs and diversion of management time and attention.

Adverse economic conditions and volatility and disruption of the capital and credit markets may negatively impact our revenues and our ability to access financing.

Economic conditions worldwide have contributed to decreased spending by our customers and a slowdown in the hard disk drive industry. These factors have adversely impacted our operating results and have caused us to be cautious about our future outlook. Our customers also continue to remain cautious about the economy. Negative macroeconomic and global recessionary factors, further volatility or disruption in the capital and credit markets or further uncertainty or weakening in key markets could negatively impact spending for our products and may materially adversely affect our business, operating results and financial condition.

In addition, while we intend to finance operations with existing cash and cash flow from operations, if necessary, we may require financing to support our continued operations. Due to the existing uncertainty in the capital and credit markets, our access to capital may not be available on terms acceptable to us or at all.

 

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We may not be able to obtain export licenses from the U.S. government permitting delivery of our products to international customers.

Many of our products, especially Photonics’ products, require export licenses from U.S. government agencies under the Export Administration Act, the Trading with the Enemy Act of 1917, the Arms Export Act of 1976 or the International Traffic in Arms Regulations. These regulations limit the potential market for some of our products. We can give no assurance that we will be successful in obtaining all the licenses necessary to export our products. Heightened government scrutiny of export licenses for defense related products has resulted in lengthened review periods for our license applications. Exports to countries that are not considered by the U.S. government to be allies are likely to be prohibited, and even sales to U.S. allies may be limited. Failure to comply with export control laws, including identification and reporting of all exports and re-exports of controlled technology or exports made without correct license approval or improper license use could result in severe penalties and revocation of licenses. Failure to obtain export licenses, delays in obtaining licenses, or revocation of previously issued licenses would prevent us from selling the affected products outside the United States and could negatively impact our results of operations.

The Photonics business is dependent on U.S. government contracts, which are subject to fixed pricing, immediate termination and a number of procurement rules and regulations.

We sell our Photonics products and services directly to the U.S. government, as well as to prime contractors for various U.S. government programs. The U.S government is considering significant changes in the level of existing, follow-on or replacement programs. We cannot predict the impact of potential changes in priorities due to military transformations and/or the nature of future war-related activities. A shift of government priorities to programs in which we do not participate and/or reductions in funding for or the termination of programs in which we do participate, unless offset by other programs and opportunities, could have a material adverse effect on our financial position, results of operations, or cash flows.

Funding of multi-year government programs is subject to congressional appropriations, and there is no guarantee that the U.S. government will make further appropriations, particularly given the U.S. government’s recent focus on spending in other areas and spending reductions. Sales to the U.S. government and its prime contractors may also be affected by changes in procurement policies, budget considerations and political developments in the United States or abroad. For example, if the U.S. government is less focused on defense spending or there is a decrease in hostilities, demand for our products could decrease. The loss of funding for a government program would result in a loss of future revenues attributable to that program. The influence of any of these factors, which are beyond our control, could negatively impact our results of operations.

A significant portion of our U.S. government revenue is derived from fixed-price development and production contracts. Under fixed-price contracts, unexpected increases in the cost to develop or manufacture a product, whether due to inaccurate estimates in the bidding process, unanticipated increases in material costs, reduced production volumes, inefficiencies or other factors, are borne by us. We have experienced cost overruns in the past that have resulted in losses on certain contracts, and may experience additional cost overruns in the future. We are required to recognize the total estimated impact of cost overruns in the period in which they are first identified. Such cost overruns could have a material adverse effect on our results of operations.

Generally, government contracts contain provisions permitting termination, in whole or in part, without prior notice at the government’s convenience upon the payment of compensation only for work done and commitments made at the time of termination. We cannot ensure that one or more of the government contracts under which we, or our customers, operate will not be terminated under these circumstances. Also, we cannot ensure that we, or our customers, would be able to procure new government contracts to offset the revenues lost as a result of any termination of existing contracts, nor can we ensure that we, or our customers, will continue to remain in good standing as federal contractors.

As a U.S. government contractor we must comply with specific government rules and regulations and are subject to routine audits and investigations by U.S. government agencies. If we fail to comply with these rules and regulations, the results could include: (1) reductions in the value of our contracts; (2) reductions in amounts previously billed and recognized as revenue; (3) contract modifications or termination; (4) the assessment of penalties and fines; and (5) suspension or debarment from government contracting or subcontracting for a period of time or permanently.

 

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Our success depends on international sales and the management of global operations.

The majority of our revenues come from regions outside the United States. Most of our international sales are to customers in Asia, which includes products shipped to overseas operations of U.S. companies. We currently have manufacturing facilities in California and Singapore and international customer support offices in Singapore, China, and Malaysia. We expect that international sales will continue to account for a significant portion of our total revenue in future years. Certain of our suppliers are also located outside the United States.

Managing our global operations presents challenges including, but not limited to, those arising from: (1) global trade issues; (2) variations in protection of intellectual property and other legal rights in different countries; (3) concerns of U.S. governmental agencies regarding possible national commercial and/or security issues posed by growing manufacturing business in Asia; (4) fluctuation of interest rates, raw material costs, labor and operating costs, and exchange rates, including the weakening relative position of the U.S. dollar; (5) variations in the ability to develop relationships with suppliers and other local businesses; (6) changes in the laws and regulations of the United States, including export restrictions, and other countries, as well as their interpretation and application; (7) the need to provide technical and spares support in different locations; (8) political and economic instability; (9) cultural differences; (10) varying government incentives to promote development; (11) shipping costs and delays; (12) adverse conditions in credit markets; (13) variations in tariffs, quotas, tax codes and other market barriers; and (14) barriers to movement of cash.

We must regularly assess the size, capability and location of our global infrastructure and make appropriate changes to address these issues.

Changes to our effective tax rate affect our results of operations.

As a global company, we are subject to taxation in the United States, Singapore and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future effective tax rate could be affected by: (1) changes in tax laws; (2) the allocation of earnings to countries with differing tax rates; (3) changes in worldwide projected annual earnings in current and future years: (4) accounting pronouncements; or (5) changes in the valuation of our deferred tax assets and liabilities. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be different from the treatment reflected in our historical income tax provisions and accruals, which could result in additional payments by Intevac.

We booked significant tax benefits in 2008, 2009, 2011 and 2013 based on our belief that we could both carry back losses and tax credits to years Intevac paid income taxes and carry forward losses and tax credits to future years where we believed we would generate taxable income. In 2012, the Company established a $23.4 million non-cash valuation allowance against certain of its U.S. deferred tax assets based upon an evaluation of all available objectively verifiable evidence, including but not limited to the cumulative loss incurred over the three-year period ended December 31, 2012 by the Company’s U.S. operations. For the year ended December 31, 2013, a $7.2 million valuation allowance increase for the U.S. federal deferred tax asset was recorded. The establishment of the non-cash valuation allowance on the Company’s U.S. deferred tax assets did not have any impact on its cash, nor does such an allowance preclude the Company from utilizing its tax losses, tax credits or other deferred tax assets in future periods.

Intevac will need to generate approximately $54.5 million of taxable income in Singapore in order to fully realize the foreign deferred tax assets recorded as of September 27, 2014. If our expectations of future income are incorrect, we could be required to establish additional valuation allowance against some or all of the entire remaining deferred tax assets which are attributable to our Singapore operation.

Beginning in 2007, Intevac benefitted from a tax holiday in Singapore which was scheduled to expire at the end of 2015. The tax holiday provided a lower income tax rate on income from certain technology, so long as certain thresholds of business investment and employment levels were met in Singapore. Intevac was granted an early

 

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termination of this tax holiday effective January 1, 2013 by the Singapore tax authority. This request for early termination of the holiday was due to business conditions in the hard disk business, which would not allow Intevac to meet the required thresholds. The terms of the early termination include meeting certain agreed upon future annual business spending and staffing levels in Singapore. Failure to meet the terms of the early termination could result in a claw back by the Singapore government of tax benefits received in previous years. A claw back of all or part of these tax benefits would adversely affect our results of operations and cash flows.

We may be subject to additional impairment charges due to potential declines in the fair value of our assets.

As a result of our acquisitions, we have significant intangible assets and had significant goodwill on our balance sheet. We test these assets for impairment on a periodic basis as required, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The events or changes that could require us to test our intangible assets for impairment include: a significant reduction in our stock price, and as a result market capitalization, changes in our estimated future cash flows, as well as changes in rates of growth in our industry or in any of our reporting units. In the fourth quarter of 2012, as a result of a decline in our market capitalization and a reduction in our revenue expectations we recorded a goodwill impairment charge in the amount of $18.4 million. We will continue to evaluate the carrying value of our intangible assets and if we determine in the future that there is a potential further impairment, we may be required to record additional charges to earnings which could materially adversely affect our financial results and could also materially adversely affect our business. See Note 5 “Purchased Intangible Assets” in the notes to the condensed consolidated financial statements for additional information related to impairment of intangible assets.

Our success is dependent on recruiting and retaining a highly talented work force.

Our employees are vital to our success, and our key management, engineering and other employees are difficult to replace. We do not maintain key person life insurance on any of our employees. The expansion of high technology companies worldwide has increased demand and competition for qualified personnel, and has made companies increasingly protective of prior employees. It may be difficult for us to locate employees who are not subject to non-competition agreements and other restrictions.

The majority of our U.S. operations are located in California where the cost of living and of recruiting employees is high. Our operating results depend, in large part, upon our ability to retain and attract qualified management, engineering, marketing, manufacturing, customer support, sales and administrative personnel. Furthermore, we compete with industries such as the hard disk drive, semiconductor, and solar industries for skilled employees. Failure to retain existing key personnel, or to attract, assimilate or retain additional highly qualified employees to meet our needs in the future, could have a material and adverse effect on our business, financial condition and results of operations.

We are dependent on certain suppliers for parts used in our products.

We are a manufacturing business. Purchased parts constitute the largest component of our product cost. Our ability to manufacture depends on the timely delivery of parts, components and subassemblies from suppliers. We obtain some of the key components and subassemblies used in our products from a single supplier or a limited group of suppliers. If any of our suppliers fail to deliver quality parts on a timely basis, we may experience delays in manufacturing, which could result in delayed product deliveries, increased costs to expedite deliveries or develop alternative suppliers, or require redesign of our products to accommodate alternative suppliers. Some of our suppliers are thinly capitalized and may be vulnerable to failure given recent economic conditions.

Our business depends on the integrity of our intellectual property rights.

The success of our business depends upon the integrity of our intellectual property rights, and we cannot ensure that: (1) any of our pending or future patent applications will be allowed or that any of the allowed applications will be issued as patents or will issue with claims of the scope we sought; (2) any of our patents will not be invalidated, deemed unenforceable, circumvented or challenged; (3) the rights granted under our patents will provide competitive advantages to us; (4) other parties will not develop similar products, duplicate our products or design around our patents; or (5) our patent rights, intellectual property laws or our agreements will adequately protect our intellectual property or competitive position.

 

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From time to time, we have received claims that we are infringing third parties’ intellectual property rights or seeking to invalidate our rights. We cannot ensure that third parties will not in the future claim that we have infringed current or future patents, trademarks or other proprietary rights relating to our products. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us.

We could be involved in litigation.

From time to time we may be involved in litigation of various types, including litigation alleging infringement of intellectual property rights and other claims. Litigation is expensive, subjects us to the risk of significant damages and requires significant management time and attention and could have a material and adverse effect on our business, financial condition and results of operations.

We could be negatively affected as a result of a proxy contest and the actions of activist stockholders.

A proxy contest with respect to election of our directors, or other activist stockholder activities, could adversely affect our business because: (i) responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees; (ii) perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and (iii) if individuals are elected to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans.

Difficulties in integrating past or future acquisitions could adversely affect our business.

We have completed a number of acquisitions and dispositions during our operating history. For example, in 2007, we acquired certain assets of DeltaNu, LLC and certain assets of Creative Display Systems, LLC, in 2008 we acquired certain assets of OC Oerlikon Balzers Ltd., in 2010 we acquired the outstanding shares of SIT, in 2012 we completed the sale of certain semiconductor mainframe technology assets and in 2013 we completed the sale of the assets of DeltaNu. We have spent and may continue to spend significant resources identifying and pursuing future acquisition opportunities. Acquisitions involve numerous risks including: (1) difficulties in integrating the operations, technologies and products of the acquired companies; (2) the diversion of our management’s attention from other business concerns; and (3) the potential loss of key employees of the acquired companies. Failure to achieve the anticipated benefits of the prior and any future acquisitions or to successfully integrate the operations of the companies we acquire could have a material and adverse effect on our business, financial condition and results of operations. Any future acquisitions could also result in potentially dilutive issuance of equity securities, acquisition or divestiture-related write-offs or the assumption of debt and contingent liabilities. In addition, we have made and will continue to consider making strategic divestitures. With any divestiture, there are risks that future operating results could be unfavorably impacted if targeted objectives, such as cost savings, are not achieved or if other business disruptions occur as a result of the divestiture or activities related to the divestiture.

We are subject to risks of non-compliance with environmental and other governmental regulations.

We are subject to a variety of governmental regulations relating to the use, storage, discharge, handling, emission, generation, manufacture, treatment and disposal of toxic or otherwise hazardous substances, chemicals, materials or waste. If we fail to comply with current or future regulations, such failure could result in suspension of our operations, alteration of our manufacturing process, remediation costs or substantial civil penalties or criminal fines against us or our officers, directors or employees. Additionally, these regulations could require us to acquire expensive remediation or abatement equipment or to incur substantial expenses to comply with them.

 

 

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We are also subject to a variety of other governmental regulations and may incur significant costs associated with the compliance with these regulations. For example rules adopted by the SEC to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act impose diligence and disclosure requirements regarding the use of “conflict” minerals mined from the Democratic Republic of Congo and adjoining countries in the products we manufacture. Compliance with these regulations is likely to result in additional costs and expenses or may affect the sourcing and availability of the components used in the products we manufacture.

Business interruptions could adversely affect our operations.

Our operations are vulnerable to interruption by fire, earthquake, floods or other natural disaster, quarantines or other disruptions associated with infectious diseases, national catastrophe, terrorist activities, war, disruptions in our computing and communications infrastructure due to power loss, telecommunications failure, human error, physical or electronic security breaches and computer viruses, and other events beyond our control. We do not have a detailed disaster recovery plan. Despite our implementation of network security measures, our tools and servers may be vulnerable to computer viruses, break-ins and similar disruptions from unauthorized tampering with our computer systems and tools located at customer sites. Political instability could cause us to incur increased costs in transportation, make such transportation unreliable, increase our insurance costs or cause international currency markets to fluctuate. All these unforeseen disruptions and instabilities could have the same effects on our suppliers and their ability to timely deliver their products. In addition, we do not carry sufficient business interruption insurance to compensate us for all losses that may occur, and any losses or damages incurred by us could have a material adverse effect on our business and results of operations. For example, we self-insure earthquake risks because we believe this is the prudent financial decision based on the high cost of the limited coverage available in the earthquake insurance market. An earthquake could significantly disrupt our operations, most of which are conducted in California. It could also significantly delay our research and engineering effort on new products, most of which is also conducted in California. We take steps to minimize the damage that would be caused by business interruptions, but there is no certainty that our efforts will prove successful.

We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management must perform evaluations of our internal control over financial reporting. Beginning in 2004, our Form 10-K has included a report by management of their assessment of the adequacy of such internal control. Additionally, our independent registered public accounting firm must publicly attest to the effectiveness of our internal control over financial reporting.

We have completed the evaluation of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. Although our assessment, testing, and evaluation resulted in our conclusion that as of December 31, 2013, our internal controls over financial reporting were effective, we cannot predict the outcome of our testing in future periods. Ongoing compliance with this requirement is complex, costly and time-consuming. If Intevac fails to maintain effective internal control over financial reporting; our management does not timely assess the adequacy of such internal control; or our independent registered public accounting firm does not deliver an unqualified opinion as to the effectiveness of our internal control over financial reporting, then we could be subject to restatement of previously reported financial results, regulatory sanctions and a decline in the public’s perception of Intevac, which could have a material and adverse effect on our business, financial condition and results of operations.

 

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information as of September 27, 2014 with respect to the shares of common stock repurchased by Intevac during the third quarter of fiscal 2014.

 

     Total
Number of

Shares
Purchased
     Average
Price Paid
per Share
     Aggregate
Price Paid
     Total
Number of

Shares
Purchased
as Part of
Publicly

Announced
Program*
     Maximum
Dollar
Value of
Shares
That May
Yet be
Purchased
Under
the Program*
 
     (in thousands, except per share data)  

Month #1

              

June 29, 2014 to July 26, 2014

     320       $ 7.19       $ 2,313         320       $ 24,530   

Month #2

              

July 27, 2014 to August 23, 2014

     214       $ 6.53       $ 1,409         214       $ 23,121   

Month #3

              

August 24, 2014 to September 27, 2014

     333       $ 6.83       $ 2,285         333       $ 20,836   

 

* On November 21, 2013, the Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases.

 

Item 3. Defaults upon Senior Securities

None.

 

Item 4. Mine Safety Disclosures

Not applicable.

 

Item 5. Other Information

None.

 

Item 6. Exhibits

The following exhibits are filed herewith:

 

Exhibit
Number
   Description
  10.1    Change in Control Agreement with Jay Cho dated December 10, 2013. +
  31.1    Certification of President and Chief Executive Officer Pursuant to Section 302 of the
   Sarbanes-Oxley Act of 2002.
  31.2    Certification of Executive Vice President, Finance and Administration, Chief Financial Officer, Treasurer and Secretary Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  32.1    Certifications Pursuant to U.S.C. 1350 Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS    XBRL Instance Document
101.SCH    XBRL Taxonomy Extension Schema

 

 

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101.CAL    XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document
101.LAB    XBRL Taxonomy Extension Label Linkbase Document
101.PRE    XBRL Taxonomy Extension Presentation Linkbase Document

 

+ Management compensatory plan or arrangement required to be filed as an exhibit.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

      INTEVAC, INC.
Date: October 28, 2014      
    By:  

/s/ WENDELL BLONIGAN

      Wendell Blonigan
      President, Chief Executive Officer and Director
      (Principal Executive Officer)
Date: October 28, 2014      
    By:  

/s/ CHARLES EDDY

      Charles Eddy
      Interim Chief Financial Officer, Treasurer and Secretary
      (Principal Financial and Accounting Officer)

 

 

42

Exhibit 10.1

Change in Control Agreement

 

1.1 Definition: For purposes of this Agreement, “Change of Control” means occurrence in a single transaction or in a series of related transactions of any one or more of the following events:

 

  (a) Any person (within the meaning of Section 13 (d) or 14(d) of the Securities Exchange action of 1934, as amended) other than Intevac, Inc. or a company, partnership or entity in which Intevac holds, directly or indirectly, at least a 50% equity interest (an “Intevac Entity”) becomes the owner, directly or indirectly, of securities of the Company representing more than fifty (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction;

 

  (b) there is consummated a merger, consolidation or similar transactions involving (directly or indirectly ) the Company and not involving Intevac, Inc. or an Intevac, Inc. Entity, and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not own, directly or indirectly, outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving entity in such merger, consolidation or similar transaction or more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving entity in such merger, consolidation or similar transaction; or

 

  (c) there is consummated a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries to (i) Intevac, Inc. or an Intevac Inc. Entity or (ii) any entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale, lease, license or other disposition.

 

1.2 Termination After a Change in Control. IN the event that within twelve (12) months following a Change in Control, the Company terminates your employment without Cause (as defined below) or you resign for Good Reason (as defined below) (a Change in Control Termination), (a) the Company will provide you with severance in the amount of twelve (12) months of your then existing base salary, less payroll deductions and all required withholdings, paid either (at the Company’s discretion) in a lump sum or in a regular payments at equal intervals over a period of time not longer than twelve (12) months, and (b) all options held by you shall have their vesting accelerated such that all options are fully vested and exercisable as of the date of the Change of Control Termination (the “Acceleration”). As a precondition of receiving the payments and benefits under this paragraph, you must first sign and allow to become effective a general release of claims in favor of the Company in a form acceptable to the Company. Notwithstanding the foregoing, you shall not be entitled to any of the payments and benefits under this paragraph upon the termination your employment with the company in connection with your becoming an employee of Intevac, Inc. or an Intevac, Inc. Entity and the terms of this Section 1.2 with respect to the termination of your employment with the Company shall apply to your employment with Intevac Inc. or such Intevac Inc. Entity, mutatis mutandis.


1.3 Definition of “Cause”. For purposes of this Agreement, “Cause” shall mean the occurrence of one or more of the following: (a) your indictment or conviction of any felony or crime involving moral turpitude or dishonesty; (b) your participation in any fraud against he company or its successor; (c) breach of your duties to the Company or its successor, including, without limitation, persistent unsatisfactory performance of job duties; (d) intentional damage to any property of the company or its successor; (e) willful conduct that is demonstrably injurious to the Company or its successor, monetarily or otherwise; (f) breach of any agreement with the Company or its successor, including your Proprietary information and Inventions Agreement; or (g) conduct by you that in the good faith and reasonable determination of the company demonstrates gross unfitness to serve. Physical or mental disability or death shall not constitute Cause hereunder.

 

1.4 Definition of “Good Reason”. For purposes of this Agreement, your voluntary termination of employment with the company will be considered a termination for “Good Reason” if you resign your employment because one of the following events occurs without your consent: (a) a reduction of your then existing annual base salary by more than ten percent (10%), unless the then existing base salaries of other executive officers of the Company are accordingly reduced; (b) a material reduction in the package of benefits and incentives, taken as a whole, provided to you (not including raising of employee contributions to the extent of any cost increases imposed by third parties), except to the extent that such benefits and incentives of the other executive officers of the Company are similarly reduced; (c) assignment to you of any duties or any limitation of your responsibilities substantially inconsistent with your position, duties, responsibilities and status with the company immediately prior to the date of the Change in Control; or (d) relocation of the principal place of your employment to a location that is more than sixty (60) miles from your principal place of employment immediately prior to the date of the Change of Control.

 

1.5

Limitation on Payments. If any payment or benefit you would receive pursuant to a Change in Control form the company or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280Gof the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be equal to the Reduced Amount, the “Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after taking into account all applicable federal, state and local employment taxes, income taxes and the Excise Tax (all computed at the highest applicable marginal rate), results in your receipt, on the after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute payments” is necessary so that the


  Payment equals the Reduced Amount, reduction shall occur in the following order unless you elect in writing a different order (provided, however, that such election shall be subject to Board approval if made on or after the effective date of the event that triggers the Payment): reduction of cash payments; cancellation of Acceleration; reduction of employee benefits. In the event that Acceleration is to be reduced, it shall be cancelled in the reverse order of the date of grant of your Options (i.e., earliest granted Option cancelled last) unless you elect in writing a different order for cancellation.

The accounting firm engaged by the Company for general audit purposes as of the day prior to the effective date of the Change in control shall perform the foregoing calculations, if the accounting firm so engaged by the Company is serving as accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by such accounting firm required to be made hereunder.

The accounting firm engaged to make the determinations hereunder shall provide its calculations, together with detailed supporting documentation, to you and the Company within fifteen (15) calendar days after the date on which your right to a Payment is triggered (if requested at the time by you or the Company) or such other time as requested by you or the Company. If the accounting firm determines that no Excise Tax is payable with respect to a Payment, either before or after the application of the Reduced Amount, it shall furnish you and the Company with an opinion reasonably acceptable to you that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of the accounting firm made hereunder shall be final, binding and conclusive upon you and the Company.

 

2.0 General Provisions

 

2.1 Severability. Whenever possible, each provision of this Agreement will be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or any other jurisdiction, but such invalid, illegal or unenforceable provision will be reformed, construed and enforced in such jurisdiction so as to render it valid, legal and enforceable consistent with the intent of the parties insofar as Possible.

 

2.2 Entire Agreement. This Agreement, together with the Proprietary Information and Inventions Agreement, constitutes the entire and exclusive agreement between you and the Company, and it supersedes any prior agreement, promise, representation, or statement, written or otherwise, between you and the Company with regard to this subject matter. It is entered into without reliance or any promise, representation, statement or agreement other than those expressly contained or incorporated herein, and it cannot be modified or amended except in writing signed by you and a duly authorized officer of the Company.


2.3 Successors and Assigns. This Agreement is intended to bind and inure to the benefit of and be enforceable by you, the company and your and its respective successors, assigns, heirs, executors and administrators, except that you may not assign any of your duties hereunder and you may not assign any of your rights hereunder without the written consent of the Company, which shall not be withheld unreasonably.

 

2.4 Governing Law. All questions concerning the construction, validity and interpretation of this Agreement will be governed by the law of the State of California as applied to contracts made and to be performed entirely within California.

To indicate your acceptance of the Company’s offer of employment, please sign and date this Agreement and Proprietary Information and Inventions Agreement and return the signed documents to me.

Sincerely,

/s/ Kimberly Burk

Kimberly Burk

Vice President, Human Resources

Intevac Inc.

Accepted and agreed:

 

/s/ Jay Cho

   

12/10/2013

Jay Cho     Date

Exhibit 31.1

I, Wendell Blonigan certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Intevac, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 28, 2014

 

/s/ WENDELL BLONIGAN

Wendell Blonigan
President, Chief Executive Officer and Director

Exhibit 31.2

I, Charles Eddy certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Intevac, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 28, 2014

 

/s/ CHARLES EDDY

Charles Eddy
Interim Chief Financial Officer, Treasurer and Secretary

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Wendell Blonigan, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Intevac, Inc. on Form 10-Q for the quarterly period ended September 27, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Intevac, Inc.

Date: October 28, 2014

 

/s/ WENDELL BLONIGAN

Wendell Blonigan
President, Chief Executive Officer and Director

I, Charles Eddy, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Intevac, Inc. on Form 10-Q for the quarterly period ended September 27, 2014 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Intevac, Inc.

Date: October 28, 2014

 

/s/ CHARLES EDDY

Charles Eddy
Interim Chief Financial Officer, Treasurer and Secretary

A signed original of this written statement required by Section 906 has been provided to Intevac, Inc. and will be retained by Intevac, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.