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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2009
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 0-26946
INTEVAC, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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94-3125814
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification
No.)
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3560 Bassett Street
Santa Clara, California 95054
(Address of principal executive
office, including Zip Code)
Registrants telephone number, including area code:
(408) 986-9888
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock ($0.001 par value)
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The Nasdaq Stock Market LLC (NASDAQ Global Select)
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Securities registered pursuant to Section 12(g) of the
Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. o Yes þ No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes þ No
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. þ Yes o 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). o Yes o No
Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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 definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). o Yes þ No
The aggregate market value of voting stock held by
non-affiliates of the Registrant, as of June 27, 2009 was
approximately $104,262,779 (based on the closing price for
shares of the Registrants Common Stock as reported by the
Nasdaq Stock Market for the last trading day prior to that
date). Shares of Common Stock held by each executive officer,
director, and holder of 5% or more of the outstanding Common
Stock have been excluded in that such persons may be deemed to
be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
On February 24, 2010, 22,220,746 shares of the
Registrants Common Stock, $0.001 par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrants Proxy Statement for the 2010
Annual Meeting of Stockholders are incorporated by reference
into Part III. Such proxy statement will be filed within
120 days after the end of the fiscal year covered by this
Annual Report on
Form 10-K.
TABLE OF CONTENTS
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain information in this Annual Report on
Form 10-K
(report or
Form 10-K)
of Intevac, Inc. and its subsidiaries (Intevac or the Company),
including Managements Discussion and Analysis of
Financial Condition and Results of Operations in
Item 7, is forward-looking in nature. All statements in
this report, including those made by the management of Intevac,
other than statements of historical fact, are forward-looking
statements. Examples of forward-looking statements include
statements regarding Intevacs future financial results,
operating results, cash flows and cash deployment strategies,
business strategies, costs, products, working capital,
competitive positions, managements plans and objectives
for future operations, research and development, acquisitions
and joint ventures, growth opportunities, customer contracts,
investments, liquidity, declaration of dividends, compensation
practices, and legal proceedings, as well as market conditions
and industry trends. These forward-looking statements are based
on managements estimates, projections and assumptions as
of the date hereof and include the assumptions that underlie
such statements. Forward-looking statements may contain words
such as may, will, should,
could, would, expect,
plan, anticipate, believe,
estimate, predict, potential
and continue, the negative of these terms, or other
comparable terminology. Any expectations based on these
forward-looking statements are subject to risks and
uncertainties and other important factors, including those
discussed in Item 1A, Risk Factors, below and
elsewhere in this report. Other risks and uncertainties may be
disclosed in Intevacs prior Securities and Exchange
Commission (SEC) filings. These and many other factors could
affect Intevacs future financial condition and operating
results and could cause actual results to differ materially from
expectations based on forward-looking statements made in this
report or elsewhere by Intevac or on its behalf. Intevac
undertakes no obligation to revise or update any forward-looking
statements.
The following information should be read in conjunction with the
Consolidated Financial Statements and the accompanying Notes to
Consolidated Financial Statements included in this report.
PART I
Overview
Intevacs business consists of two reportable segments:
Equipment: Intevac is a leader in the design, development
and marketing of high-productivity magnetic media processing
systems to the hard drive industry, and offers high-productivity
technology solutions to the photovoltaic (PV) and
semiconductor industries.
Intevac Photonics: Intevac is a leader in the development
and manufacture of leading edge, high-sensitivity imaging
products and vision systems, as well as table-top and handheld
Raman instruments. Markets addressed include military, law
enforcement, industrial, medical and scientific.
Intevac was incorporated in October 1990 in California and
completed a leveraged buyout of a number of divisions of Varian
Associates in February 1991. Intevac was reincorporated in
Delaware in 2007.
Equipment
Segment
Hard
Disk Drive Equipment Market
Intevac designs, manufactures, markets and services complex
capital equipment used to deposit thin films onto magnetic disks
that are used in hard disk drives, and also equipment to
lubricate these disks. Disk and disk drive manufacturers produce
magnetic disks in a sophisticated manufacturing process
involving many steps, including plating, annealing, polishing,
texturing, sputtering, etching, stripping and lubrication.
Intevac believes its systems represent approximately 60% of the
installed capacity of disk sputtering systems worldwide.
Intevacs systems are used by manufacturers such as Fuji
Electric, Hitachi Global Storage Technologies, Seagate
Technology, Showa Denko and Western Digital.
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Hard disk drives are a primary storage medium for digital data
and are used in products and applications such as personal
computers, enterprise data storage, personal audio and video
players and video game platforms. Intevac believes that hard
disk drive shipments will continue to grow over time, driven by
growth in digital storage, by new and emerging applications, and
by the proliferation of personal computers into emerging
economies. Continued growth in hard disk drive shipments is a
key factor in determining demand for magnetic disks used in hard
disk drives.
Demand for Intevacs disk manufacturing products is driven
by a number of factors, including unit demand for hard disk
drives, market share, the average number of magnetic disks used
in each hard drive, utilization and productivity of disk
manufacturers installed base of magnetic disk
manufacturing equipment and obsolescence of the installed base.
The introduction of perpendicular recording technology by disk
manufacturers had a significant impact on the equipment market,
and increased demand both for new equipment, such as
Intevacs 200
Lean®
disk sputtering system, and for technology upgrades to the
installed base of Intevacs legacy MDP-250 systems from
2005 through 2007.
Intevac expects that hard disk drive manufacturers will extend
planar perpendicular media for the next several years and the
next major media technology for the hard drive industry will be
patterned media. The transition to patterned media by disk
manufacturers, which introduces new processes and requires new
equipment, will result in increased demand for Intevacs
equipment. Although Intevac does not expect this transition to
occur for several years, Intevac introduced the 200 Lean
Gen II etch and deposition system in 2009 which is being
used by the industry for patterned media application development.
Hard
Disk Drive Equipment Products
Disk
Sputtering Systems
Disk sputtering is the process of depositing a thin film of
various materials on a substrate. Intevac equipment deposits
magnetic, non-magnetic and protective carbon-based overcoat
using sputtering or chemical vapor deposition (CVD)
technologies.
Intevacs first generation 200 Lean systems began shipping
in 2003 with the installed base reaching over 120 systems by the
end of 2009. Intevac estimates that approximately 90% of these
systems are used in production with the balance used for
research and development.
In 2008, Intevac shipped the first 200 Lean Gen II,
Intevacs latest generation disk sputtering system. It is
designed to deliver 25% higher throughput than the original 200
Lean. This increase in throughput enables Intevac customers to
manufacture more magnetic disks per square foot of factory floor
space, further reducing overall cost per disk.
In 2009, Intevac shipped the first 200 Lean Gen II etch and
deposition system to be used for patterned media. Intevac
provides a cost-effective solution for high-volume manufacturing
by providing new etch and associated process modules on the
high-productivity 200 Lean Gen II platform.
From 1994 through 2005, Intevac shipped approximately 110
MDP-250s. As of the end of 2009, Intevac believes that
approximately 65% of these systems are still being used for
production. The balance of these systems are being used by
customers for research and development, are in storage or have
been retired from service.
Disk
Lubrication Systems
Disk lubrication is the manufacturing step that follows
deposition of thin films. During lubrication, a microscopic
layer of lubricant is applied to the disks surface to
improve durability and reduce surface friction between the disk
and the read/write head assembly.
The Intevac DLS-100 disk lubrication system provides
Intevacs customers with a lubrication process by dipping
disks into a lubricant/solvent mixture. Intevac has been
manufacturing dip lubrication systems similar to the DLS-100
since 1996.
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The Intevac
AccuLubertm
disk lubrication system lubricates disks by depositing a thin
film of lubricant on the disk while it is under vacuum. This
eliminates the use of solvents during the lubrication process,
which are environmentally hazardous and are expensive to
procure, store and dispose.
Deposition
System
The Intevac
LithoPrimetm
is used in patterned media applications and deposits a priming
film on the disk before it goes into a third party lithography
tool which deposits resist track patterns on the disk. This tool
enables patterning on hard disks by providing an adhesion layer
between the disk and the resist. In 2009, Intevac shipped three
LithoPrime tools.
Non-Systems
Business
Intevac also provides installation, maintenance and repair
services, technology upgrades, spare parts and consumables to
Intevacs system customers. Non-system business as a
percentage of Equipment revenues was 36% in 2007, 45% in 2008
and 51% in 2009.
Semiconductor
Equipment Market
A wide range of manufacturing equipment is used to fabricate
semiconductor chips including: atomic layer deposition, chemical
vapor deposition, physical vapor deposition, electrochemical
plating, etch, ion implantation, rapid thermal processing,
chemical mechanical planarization, wafer wet cleaning, wafer
metrology and inspection, and systems that etch, measure and
inspect circuit patterns on masks used in the photolithography
process.
Most chips are built on a silicon wafer base and include a
variety of circuit components, such as transistors and other
devices, that are connected by multiple layers of wiring
(interconnects). To build a chip, the transistors, capacitors
and other circuit components are first created on the surface of
the wafer by performing a series of processes to deposit and
selectively remove successive film layers. Similar processes are
then used to build the layers of wiring structures on the wafer.
Most chips are currently fabricated using 65 nanometer (nm) and
larger linewidth dimensions. Over time, Intevac believes that 45
nm, and then 32 nm, are likely to be the next line width
nodes to be implemented as manufacturers work to
squeeze more and more components onto each chip. As the density
of the circuit components increases to enable greater computing
power in the same or smaller area, the complexity of building
the chip also increases, necessitating more process steps to
form smaller structures and more intricate wiring schemes.
Intevac is utilizing its expertise in the design, manufacturing,
and marketing of complex manufacturing equipment and the prior
experience of Intevacs management team in the
semiconductor manufacturing equipment business to develop
products for the semiconductor manufacturing market.
Semiconductor
Manufacturing Products
In 2007, Intevac announced the dielectric etch semiconductor
manufacturing system, the Lean
Etchtm.
The Lean Etch is a 300 mm system designed to address the need
for significant productivity improvement and provide enabling
etch technology at 45 nm nodes and below. During 2009, Intevac
delivered an evaluation system to its alliance partner, TES Co.,
Ltd. (TES), a Korean equipment company and TES
actively demonstrated the system to semiconductor manufacturers
in the Korean market.
Intevac is in the early stages of offering its wafer handling
mainframe to third parties.
To date, Intevac has not yet recognized any revenue from
shipments of any of its semiconductor products.
Solar
Market
A related application for Intevac is in the solar market. In
2009 Intevac began offering 200 Lean tools to manufacturers of
Copper indium gallium (di)selenide (CIGS) thin film
solar cells. A significant amount of new research and spending
is required to develop solar technologies as an alternative
energy solution. The solar industry requires massive investment
to create solar cell manufacturing infrastructure. Today,
without government subsidies,
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solar power cannot compete effectively with conventional sources
of electrical energy. For solar power to become an effective
competitor, a more efficient solar manufacturing process must be
implemented. While many of todays solar panels are based
upon older silicon technologies, thin film CIGS offers the
potential for lower manufacturing costs, has the highest
efficiency of the thin film technologies and can be manufactured
on rigid or flexible substrates. Since PV manufacturers often
build their own equipment, there is a market opportunity
emerging for equipment suppliers such as Intevac. CIGS solar
panels have broad-based end market applications for solar farms,
integrated building PV, rooftop grids and portable devices.
Thin film PV manufacturing processes can be used in the solar
industry by combining
state-of-the-art,
magnetic media thin film manufacturing technologies used by the
hard disk drive industry with proven thin film PV processes.
Thin film technology is a lower cost alternative to solar cell
production using silicon wafer technologies. Intevac believes
thin film manufacturing technologies will increase cell
efficiency, improve production speeds and yields, and lower the
cost for solar cells.
Solar
Manufacturing Product
In 2009, Intevac began offering a high-efficiency, low-cost thin
film solar cell equipment solution for PV applications, LEAN
SOLARtm
which performs single substrate processing for precise process
control. LEAN SOLARs sequential processing performs
deposition and processes standard cell sizes for glass, silicon,
and metal substrates. LEAN SOLAR can be used in CIGS
applications, on glass or stainless steel substrates, as well as
depositing front and back conductive layer coatings for
crystalline silicon PV cells. Intevac did not recognize any
revenue from LEAN SOLAR shipments in 2009.
Intevac
Photonics Segment
Intevac
Photonics Market
Intevac develops, manufactures and sells 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,
near-eye displays and systems for military applications such as
night vision, long-range target identification and simulation
training. Intevac also provides commercial products that include
compact Raman instruments and cameras for commercial
applications in the inspection, medical, and scientific markets,
and for government applications in law enforcement and in the
chemical, biological and explosives threat-detection markets.
The majority of Intevacs Photonics revenue has been
derived from contracts related to the development of low-light
electro-optical sensors and cameras, funded by the
U.S. government, its agencies and contractors. However, the
percentage of Intevac Photonics revenue derived from product
sales grew from 29% in 2007 to 37% in 2008 and 40% in 2009.
Military
Products
Night
Vision Systems
Since 1995, the U.S. military has funded Intevacs
development of digital night vision sensor technology based on
Intevacs patented Electron Bombarded Active Pixel Sensor
(EBAPS®)
design. The EBAPS design utilizes Complementary
Metal-Oxide-Semiconductor (CMOS) technology to
produce a compact, lightweight, low-light level digital sensor,
which provides the U.S. military size and weight
advantages, as well as the many benefits associated with digital
imaging compared to analog Generation-III night
vision tubes. During 2009, Intevac reached agreement with a
major NATO defense contractor for high volume production, with a
ramp that began in late 2009, and is expected to continue for
the next five years. Intevac completed the development of a
two-megapixel digital night vision sensor and delivered cameras
using this sensor to multiple branches of the U.S. military
for evaluation in a number of ground and avionics applications.
Additionally, Intevac won the first product-based contract for
this sensor to be built into a camera and evaluated for
deployment as a digital upgrade for a large-volume, existing
avionics platform. Intevac Photonics also received initial
funding for a next-generation four-megapixel digital low-light
sensor for panoramic night vision viewing applications.
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Digital
Enhanced Night Vision Goggle
The U.S. military is also funding development of a compact,
head-mounted digital imaging system, or Digital Enhanced Night
Vision Goggle (DENVG). DENVG integrates a visible
imager, a thermal imager and a video display. This approach
allows low-light level and thermal imagery to be viewed
individually, or to be overlaid (digitally fused),
and enables connectivity to a wireless network for distribution
of the imagery and other information. The U.S. Army plans
to begin procurement of this type of system in 2013. Intevac is
developing the DENVG goggle system along with its partner DRS.
In addition, Intevacs sensor is being used in a
competitors system.
Night
Port
In 2008, Intevac began the development of Night
Porttm,
the first digital night vision viewer utilizing Intevacs
EBAPS technology. Night Port combines digital sensor and
near-eye display technology to create a compact, monocular
system that provides full digital night vision viewing and
recording capabilities. The Night Port system is designed to
replace legacy night vision goggles for military and commercial
applications for ground and avionics night vision. In 2009,
Intevac Photonics received several contracts for development of
Night Port derivative products, including a digital binocular
and target identification system for use by ground troops.
LIVAR
Intevac Photonics Laser Illuminated Viewing and Ranging
(LIVAR®)
camera enables the development of long range military nighttime
surveillance systems which can identify targets at distances of
up to twenty kilometers. Presently, Intevac Photonics
LIVAR camera is being incorporated into U.S. military
programs that deploy long-range target identification in
land-based and airborne applications. During 2008, Intevac
delivered pre-production LIVAR cameras for both land-based and
airborne applications and received an initial low-level
production order for LIVAR for an airborne application. During
2009, Intevac received a production order for an airborne
application and began delivering production quantities against
this order. Intevac also received an initial LIVAR camera order
for a second airborne application, which is expected to lead to
production orders.
Intensified
Photodiodes
Intevac continues to develop, under a number of research and
development contracts, intensified photodiode technology that
enables single photon detection at extremely high data rates,
which is designed for use in target identification and other
military applications.
Near-Eye
Display Systems
Intevac provides high-performance, micro-display products for
near-eye, portable viewing of video in military and commercial
markets. Intevacs eyeglass-mounted display systems provide
high definition and a wide
field-of-view
in miniaturized light-weight and portable designs.
I-Porttm
is a removable display module which snaps onto eyewear via a
novel ball/socket mount to ensure optimum placement of the image
to the viewers eye through simple adjustments. I-Port
provides digital night vision solutions for such diverse markets
as medical, industrial, commercial, and military, including
training and simulation.
Commercial
Products
Raman spectrometer systems are used to identify the chemical
composition of solid materials, powders and liquids by
illuminating the sample with a laser and measuring the
characteristic spectrum of light scattered from the tested
sample. Raman spectroscopy is used in HAZMAT, forensics,
homeland security, geology, gemology, medical, pharmaceutical
and industrial quality assurance applications. Intevac provides
bench-top and handheld Raman instruments, designed by
DeltaNu®,
that perform non-destructive identification of liquids and
solids in the field and in the laboratory. In 2009, Intevac
received contract awards for the development of handheld Raman
instruments which will incorporate Intevacs core near
infrared (NIR) sensors to enable the detection of
critical materials in the growing chemical, biological, and
explosives threat detection market.
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Handheld
Raman Materials Identification Instruments
ReporteRtm
is a palm-sized spectrometer that identifies materials for the
HAZMAT and law enforcement industries. ReporteR identifies
substances by comparing unique molecular fingerprints to
reference materials stored in its library.
RAPIDIDtm
is a palm-sized, lightweight materials identification tool
designed to analyze and identify industrial plastics for use in
the automotive, consumer products and medical device industries.
Observertm
is a stand-off materials identification tool that operates at
distances from three meters to twenty meters.
Laboratory
Instruments
The Advantage product line of low-cost, high-performance
bench-top spectrometers are available at 532 nm, 633 nm,
785 nm NIR or 1064 nm excitation wavelengths for education and
research use.
ExamineRtm
is a modular Raman microscopy system designed for applications
that require precise spectral characterization at 532 nm, 785
nm, or 1064 nm wavelengths.
Low-Light
Cameras
Intevac Photonics
MicroVista®
product line of commercial low-light CMOS cameras provides high
sensitivity in the ultraviolet, visible, or NIR regions of the
spectrum by using proprietary fabrication technology in
back-thinning CMOS sensors. MicroVistas compact and
lightweight camera design is used in industrial inspection,
bio-medical, and scientific applications. Intevac also provides
a high-sensitivity NIR
MOSIR®
camera that is used in scientific spectroscopy applications
where high
signal-to-noise
is achieved through Intevacs EBAPS design.
Backlog
Intevacs backlog of orders at December 31, 2009 was
$73.8 million, as compared to $20.2 million at
December 31, 2008. Backlog at December 31, 2009
consisted of $57.5 million of Equipment backlog and
$16.3 million of Intevac Photonics backlog. Backlog at
December 31, 2008 consisted of $11.4 million of
Equipment backlog and $8.8 million of Intevac Photonics
backlog. The increase in Equipment backlog was primarily the
result of increased orders for 200 Lean disk sputtering systems.
Backlog at December 31, 2009 includes ten 200 Lean systems,
as compared to one 200 Lean system in backlog at
December 31, 2008. Backlog includes only customer orders
with scheduled delivery dates.
Customer
Concentration
Historically, a significant portion of Intevacs revenue in
any particular period has been attributable to sales to a
limited number of customers. In both 2009 and 2008 sales to
Seagate and Hitachi Global Storage Technologies each accounted
for more than 10% of Intevacs revenues. In 2007 sales to
Seagate, Matsubo -Intevacs Japanese distributor, Hitachi
Global Storage Technologies, and Fuji Electric each accounted
for more than 10% of Intevacs revenues. In the aggregate
sales to these customers accounted for 58%, 80% and 90% of
revenues in 2009, 2008 and 2007, respectively. Intevac expects
that sales of Intevacs products to relatively few
customers will continue to account for a high percentage of
Intevacs revenues in the foreseeable future.
Foreign sales accounted for 50% of revenue in 2009, 69% of
revenue in 2008, and 82% of revenue in 2007. The majority of
Intevacs foreign sales are to companies in Asia or to
U.S. companies for use in their Asian manufacturing or
development operations. Intevac anticipates that sales to these
international customers will continue to be a significant
portion of Intevacs Equipment revenues. Intevacs
disk sputtering equipment customers include magnetic disk
manufacturers, such as Fuji Electric and Showa Denko, and
vertically integrated hard disk drive manufacturers, such as
Hitachi Global Storage Technology, Seagate, and Western Digital.
Intevacs customers manufacturing facilities are
primarily located in California, China, Japan, Malaysia and
Singapore.
Competition
The principal competitive factors affecting the markets for
Intevac Equipment products include price, product performance
and functionality, ease of integration, customer support and
service, reputation and reliability. Intevac has historically
experienced intense worldwide competition for magnetic disk
sputtering equipment from
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companies that have sold substantial numbers of systems
worldwide, including Anelva Corporation. Intevac is attempting
to enter the semiconductor equipment market, and Intevac faces
competition from large established competitors including Applied
Materials, LAM Research and Tokyo Electron. Intevac is
attempting to enter the PV equipment market, and faces
competition from large established competitors including Veeco
Instruments, Centrotherm Photovoltaics, Von Ardenne as well as
cell module manufacturers that are internally developing
manufacturing equipment that may be sold externally in the
future. These competitors all have substantially greater
financial, technical, marketing, manufacturing and other
resources as compared to Intevac. Furthermore, any of
Intevacs competitors may develop enhancements to, or
future generations of, competitive products that offer superior
price or performance features. In addition, new competitors with
enhanced products may enter the markets that Intevac currently
serves.
The principal competitive factors affecting Intevac Photonics
products include price, extreme low-light level detection
performance, power consumption, resolution, size, ease of
integration, reliability, reputation and customer support and
service. Intevac faces substantial competition for Intevac
Photonics products, many with substantially greater resources
and brand recognition. In the military market, ITT Industries,
is a large and well-established defense contractor and is a
primary U.S. manufacturer of image intensifier tubes used
in Generation-III night vision devices and their derivative
products. Intevacs digital night vision sensors, cameras
and systems are intended to displace Generation-III night vision
based products. Intevac expects that ITT, Fairchild Imaging and
other companies will develop digital night vision products and
aggressively promote their sales. Furthermore, Intevacs
LIVAR target identification sensors and cameras face competition
from CMC Electronics, DRS, FLIR Systems, Goodrich and Raytheon,
established companies that manufacture infrared sensors and
cameras which are presently used in long-range target
identification systems. Within the near-eye display market,
Intevac also faces competition from Rockwell-Collins, Vuzix and
Oasys, all of which can offer cost-competitive products. In the
commercial markets, companies such as Andor, Dalsa, E2V,
Hamamatsu, Texas Instruments and Roper offer competitive sensor
and camera products, and companies such as Ahura, B&W Tek,
GE Security, Horiba-Jobin Yvon, Ocean Optics, Renishaw, Thermo
Scientific and Smiths Detection offer competitive Raman
spectrometer products.
Marketing
and Sales
Equipment sales are made through Intevacs direct sales
force, with the exception of in Japan, where Intevac sells its
products through a distributor, Matsubo. Sales of Intevacs
Lean Etch system will be made by TES, Intevacs alliance
partner, in Korea and China and by Intevacs direct sales
force elsewhere. The selling process for Intevacs
Equipment products is multi-level and long-term, involving
individuals from marketing, engineering, operations, customer
service and senior management. The process involves making
sample disks or wafers for the prospective customer and
responding to their needs for moderate levels of machine
customization. Customers often require a significant number of
product presentations and demonstrations before making a
purchasing decision.
Installing and integrating new equipment requires a substantial
investment by a customer. Sales of Intevacs systems
depend, in significant part, upon the decision of a prospective
customer to replace obsolete equipment or to increase
manufacturing capacity by upgrading or expanding existing
manufacturing facilities or by constructing new manufacturing
facilities, all of which typically involve a significant capital
commitment. After making a decision to select Intevacs
equipment, Intevacs customers typically purchase one or
more engineering systems to develop and qualify their production
process prior to ordering and taking delivery of multiple
production systems. Accordingly, Intevacs systems have a
lengthy sales cycle, during which Intevac may expend substantial
funds and management time and effort with no assurance that a
sale will result.
The production of large complex systems requires Intevac to make
significant investments in inventory both to fulfill customer
orders and to maintain adequate supplies of spare parts to
service previously shipped systems. In some cases Intevac
manufactures subsystems
and/or
complete systems prior to receipt of a customer order to smooth
Intevacs production flow
and/or
reduce lead time.
Intevac maintains inventories of spare parts in the United
States, Singapore and China to support its customers. Intevac
often requires its customers to pay for systems in three
installments, with a portion of the system price billed upon
receipt of an order, a portion of the price billed upon
shipment, and the balance of the price and any sales tax
8
due upon completing installation and acceptance of the system at
the customers factory. All customer product payments are
recorded as customer advances, which are released into revenue
in accordance with Intevacs revenue recognition policy.
Intevac provides process and applications support, customer
training, installation,
start-up
assistance and emergency service support to Intevacs
Equipment customers. Intevac conducts training classes for
Intevacs customers process engineers, machine
operators and machine service personnel. Additional training is
also given to Intevacs customers during equipment
installation. Intevac has field offices in Singapore, China, and
Malaysia to support Intevacs customers in Asia. Intevac
generally adds additional support centers as necessary to
maintain close proximity to Intevacs customers
factories as they deploy Intevacs systems.
Warranty for Intevacs Equipment typically ranges between
12 and 24 months from customer acceptance. During this
warranty period any necessary non-consumable parts are supplied
and installed without charge. Intevacs employees provide
field service support in the United States, Singapore, Malaysia,
China and Japan. In Japan, field service support is also
supplemented by Intevacs distributor, Matsubo.
Sales of Intevac Photonics products for military applications
are primarily made to the end user through Intevacs direct
sales force. Intevac sells to leading defense contractors such
as Lockheed Martin Corporation, Northrop Grumman Corporation,
Raytheon, DRS Technologies, BAE and Sagem.
Intevac is subject to long sales cycles in the Photonics segment
because many of Intevacs products, such as Intevacs
night vision systems, typically must be designed into
Intevacs customers products, which are often complex
and
state-of-the-art.
These development cycles are often multi-year, and
Intevacs sales are contingent on Intevacs customer
successfully integrating Intevacs product into its
product, completing development of its product and then
obtaining production orders for its product. Sales of these
products are also often dependent on ongoing funding of defense
programs by the U.S. government and its allies.
Additionally, sales to international customers are contingent on
issuance of export licenses by the U.S. government.
Sales of Intevac Photonics commercial products are made through
a combination of direct sales, system integrators, distributors
and value added resellers and can also be subject to long sales
cycles.
Intevac Photonics generally invoices its research and
development customers either as costs are incurred, or as
program milestones are achieved, depending upon the particular
contract terms. As a government contractor, Intevac invoices
customers using estimated annual rates approved by the Defense
Contracts Audit Agency (DCAA).
Research
and Development and Intellectual Property
Intevacs long-term growth strategy requires continued
development of new products. Intevac works closely with
Intevacs global customers to design products that meet
their planned technical and production requirements. Product
development and engineering organizations are located primarily
in the United States and Singapore.
Intevac invested $28.1 million (36.0% of net revenues) in
fiscal 2009, $35.1 million (31.8% of net revenues) in
fiscal 2008, and $40.1 million (18.6% of net revenues) in
fiscal 2007 for product development and engineering programs to
create new products and to improve existing technologies and
products. Intevac has spent an average of 18.4% of net revenues
on product development and engineering over the last five years.
Intevacs competitive position significantly depends on
Intevacs research, development, engineering, manufacturing
and marketing capabilities, and not just on Intevacs
patent position. However, protection of Intevacs
technological assets by obtaining and enforcing intellectual
property rights, including patents, is important. Therefore,
Intevacs practice is to file patent applications in the
United States and other countries for inventions that Intevac
considers important. Intevac has a substantial number of patents
in the United States and other countries, and additional
applications are pending for new inventions. Although Intevac
does not consider Intevacs business materially dependent
upon any one patent, the rights of Intevac and the products made
and sold under Intevacs patents along with other
intellectual property, including trademarks, know-how, trade
secrets and copyrights, taken as a whole, are a significant
element of Intevacs business.
9
Intevac enters into patent and technology licensing agreements
with other companies when management determines that it is in
Intevacs best interest to do so. Intevac pays royalties
under existing patent license agreements for use, in several of
Intevacs products, of certain patented technologies.
Intevac also receives, from time to time, royalties from
licenses granted to third parties. Royalties received from or
paid to third parties have not been material to Intevacs
consolidated results of operations.
In the normal course of business, Intevac periodically receives
and makes inquiries regarding possible patent infringement. In
dealing with such inquiries, it may be necessary or useful for
us to obtain or grant licenses or other rights. However, there
can be no assurance that such licenses or rights will be
available to us on commercially reasonable terms, or at all. If
Intevac is not able to resolve or settle claims, obtain
necessary licenses
and/or
successfully prosecute or defend Intevacs position,
Intevacs business, financial condition and results of
operations could be materially and adversely affected.
Manufacturing
Intevac manufactures its Equipment products at its facilities in
California and Singapore. Intevacs Equipment manufacturing
operations include electromechanical assembly, mechanical and
vacuum assembly, fabrication of sputter sources, and system
assembly, alignment and testing. Intevac makes extensive use of
the local supplier infrastructure serving the semiconductor
equipment business. Intevac purchases vacuum pumps, valves,
instrumentation and fittings, power supplies, printed wiring
board assemblies, computers and control circuitry, and custom
mechanical parts made by forging, machining and welding.
Intevac Photonics products are manufactured at Intevacs
facilities in California and Wyoming. Intevac Photonics
manufactures advanced photocathodes and sensors, cameras,
integrated camera systems, compact Raman spectrometry
instruments and near-eye display systems using advanced
manufacturing techniques and equipment. Intevacs
operations include vacuum, electromechanical and optical system
assembly. Intevac uses the supplier infrastructure serving the
semiconductor, laser, camera and optics manufacturing
industries. In manufacturing Intevacs sensors, Intevac
purchases wafers, components, processing supplies and chemicals.
In manufacturing Intevacs camera systems and near-eye
displays, Intevac purchases printed circuit boards,
electromechanical components and assemblies, mechanical
components and enclosures, optical components and computers.
Employees
At December 31, 2009, Intevac had 370 employees,
including 15 contract employees.
Compliance
with Environmental Regulations
Intevac is 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.
Intevac treats the cost of complying with government regulations
and operating a safe workplace as a normal cost of business and
allocates the cost of these activities to all functions, except
where the cost can be isolated and charged to a specific
function. The environmental standards and regulations
promulgated by government agencies in California, Wyoming and
Singapore are rigorous and set a high standard of compliance.
Intevac believes its costs of compliance with these regulations
and standards are comparable to other companies operating
similar facilities in these jurisdictions.
10
Executive
Officers of the Registrant
Certain information about our executive officers as of
February 26, 2010 is listed below:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Executive Officers:
|
|
|
|
|
|
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Norman H. Pond
|
|
|
71
|
|
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Chairman of the Board
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Kevin Fairbairn
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|
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56
|
|
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President and Chief Executive Officer
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Jeffrey Andreson
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48
|
|
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Executive Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
|
Michael Russak
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|
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63
|
|
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Executive Vice President and General Manager, Hard Disk
Equipment Products
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Luke Marusiak
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|
|
47
|
|
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Executive Vice President and General Manager, Emerging Equipment
Products
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Kimberly Burk
|
|
|
44
|
|
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Vice President, Human Resources
|
Joseph Pietras
|
|
|
55
|
|
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Executive Vice President and General Manager, Intevac Photonics
|
Other Key Officers:
|
|
|
|
|
|
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Verle Aebi
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|
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55
|
|
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Chief Technology Officer, Intevac Photonics
|
James Birt
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|
|
45
|
|
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Vice President, Manufacturing and Customer Support, Equipment
Products
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Terry Bluck
|
|
|
50
|
|
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Vice President, Technology, Equipment Products
|
Jerry Carollo
|
|
|
56
|
|
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Vice President and General Manager, Intevac Vision Systems
|
Timothy Justyn
|
|
|
47
|
|
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Vice President of Operations, Intevac Photonics
|
Michael Kayat
|
|
|
57
|
|
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Vice President and General Manager, DeltaNu
|
Dave Kelly
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|
|
47
|
|
|
Vice President, Engineering, Intevac Vision Systems
|
Mr. Pond is a founder of Intevac and has served as
Chairman of the Board since February 1991. Mr. Pond served
as President and Chief Executive Officer from February 1991
until July 2000 and again from September 2001 through January
2002. Mr. Pond holds a BS in physics from the University of
Missouri at Rolla and an MS in physics from the University of
California at Los Angeles.
Mr. Fairbairn joined Intevac as President and Chief
Executive Officer in January 2002 and was appointed a director
in February 2002. Before joining Intevac, Mr. Fairbairn was
employed by Applied Materials from July 1985 to January 2002,
most recently as Vice President and General Manager of the
Conductor Etch Organization with responsibility for the Silicon
and Metal Etch Divisions. From 1996 to 1999, Mr. Fairbairn
was General Manager of Applied Materials Plasma Enhanced
Chemical Vapor Deposition Business Unit and from 1993 to 1996,
he was General Manager of Applied Materials Plasma Silane
CVD Product Business Unit. Mr. Fairbairn holds an MA in
engineering sciences from Cambridge University.
Mr. Andreson joined Intevac in June 2007 and has
served as Executive Vice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary since August
2007. Before joining Intevac Mr. Andreson served as
Managing Director and Controller of Applied Materials
Global Services product group. Since joining Applied Materials
in 1995, Mr. Andreson held a number of senior financial
positions, including Managing Director, Global Financial
Planning and Analysis; Controller, Metron Subsidiary;
Controller, North American Sales and Service; and Controller,
Volume Manufacturing. From 1989 through 1995, Mr. Andreson
held various roles at Measurex Corporation. Mr. Andreson
holds an MBA from Santa Clara University and a BS in
finance from San Jose State University.
Dr. Russak joined Intevac in July 2008 and currently
serves as Executive Vice President and General Manager, Hard
Disk Equipment Products. Before joining Intevac Dr. Russak
served as President and Chief Technical Officer of Komag from
2000 to 2007. From 1993 to 2000, Dr. Russak served as Vice
President of Research and
11
Development at HMT Technology. Previously, Dr. Russak held
management positions in the Research Division of IBM
Corporation. Prior to IBM, Dr. Russak worked for Grumman
Aerospace Corporation as a contributing scientist.
Dr. Russak holds a BS in ceramic engineering and a PhD in
materials science from Rutgers University.
Mr. Marusiak rejoined Intevac as Executive Vice
President and General Manager, Emerging Equipment Products in
January 2010. Mr. Marusiak had previously served as
Intevacs Chief Operating Officer from 2004 through 2008.
From October 2008 through December 2009, Mr. Marusiak
served as the Chief Executive Officer of MDC Vacuum Products,
LLC. Before joining Intevac, Mr. Marusiak was employed by
Applied Materials from July 1991 to April 2004, most recently as
Senior Director of North American Operations. From 1984 to 1991,
Mr. Marusiak served as a signal officer in the
U.S. Army. Mr. Marusiak holds a BS in electrical
engineering from Gannon University and an MS in teleprocessing
science from the University of Southern Mississippi.
Ms. Burk joined Intevac in May 2000 and currently
serves as Vice President of Human Resources. Prior to joining
Intevac, Ms. Burk served as Human Resources Manager of
Moen, Inc. from 1999 to 2000 and as Human Resources Manager of
Lawson Mardon from 1994 to 1999. Ms. Burk holds a BS in
sociology from Northern Illinois University.
Dr. Pietras joined Intevac as Executive Vice
President and General Manager of the Intevac Photonics Business
in August 2006. Before joining Intevac, Dr. Pietras was
employed by the Sarnoff Corporation from March 2005 to July 2006
as General Manager of Sarnoff Imaging Systems. From September
1998 to March 2005, he was employed by Roper Scientific as Vice
President, Operations. Dr. Pietras holds a BS in physics
from the Stevens Institute of Technology and a MA and PhD in
physics from Columbia University.
Mr. Aebi has served as Chief Technology Officer of
the Intevac Photonics business since August 2006. Previously,
Mr. Aebi served as President of the Photonics Division from
July 2000 to July 2006 and as General Manager of the Photonics
Division since May 1995. Mr. Aebi was elected as a Vice
President of the Company in September 1995. From 1988 through
1994, Mr. Aebi was the Engineering Manager of the night
vision business Intevac acquired from Varian Associates in 1991,
where he was responsible for new product development in the
areas of advanced photocathodes and image intensifiers.
Mr. Aebi holds a BS in physics and an MS in electrical
engineering from Stanford University.
Mr. Birt joined Intevac in September 2004 and
currently serves as Vice President, Manufacturing and Customer
Support of the Equipment Products Division. Before joining
Intevac, Mr. Birt was employed by Applied Materials from
July 1992 to September 2004, most recently as Director, Field
Operations/Quality North America. Mr. Birt holds a BS in
electrical engineering from Texas A&M University.
Mr. Bluck rejoined Intevac as Vice President,
Technology of the Equipment Products Division in August 2004.
Mr. Bluck had previously worked at Intevac from December
1996 to November 2002 in various engineering positions. The
business unit Mr. Bluck worked for was sold to Photon
Dynamics in November 2002, and he was employed there as Vice
President, Rapid Thermal Process Product Engineering until
August 2004. Mr. Bluck holds a BS in physics from
San Jose State University.
Mr. Carollo joined Intevac in November 2007 as Vice
President and General Manager of Intevacs Creative Display
Systems subsidiary and currently serves as Vice President and
General Manager, Intevac Vision Systems. Prior to joining
Intevac, Mr. Carollo was founder, President and Chief
Executive Officer of Creative Display Systems. Prior to founding
Creative Display Systems Mr. Carollo worked for
Rockwell-Collins Optronics Electro-Optics from 1993 to 2006
where his most recent position was General Manager.
Mr. Carollo holds numerous patents in the area of optics,
display systems and optical communications, a MS in optics from
the University of Rochester and a BS in physics from the State
University of New York.
Mr. Justyn has served as Vice President of
Operations, Intevac Photonics from October 2008. Mr. Justyn
served as Vice President, Equipment Manufacturing from April
1997 to October 2008. Mr. Justyn joined Intevac in February
1991 and has served in various roles in the Equipment Products
Division and the former night vision business. Mr. Justyn
holds a BS in chemical engineering from the University of
California, Santa Barbara.
Dr. Kayat joined Intevac in June 2009 as Vice
President and General Manager of DeltaNu, a division of Intevac
Photonics. Before joining Intevac Photonics, Dr. Kayat
served as Vice President of Sales and Marketing at Ocean
12
Optics from January 2008 to May 2009. Previously, he served as
President of the ICC Division at UTEK Corporation from January
2005 to January 2008, and Vice President of Sales and Marketing
at Exa Corporation from June 1998 to January 2001.
Dr. Kayats experience also includes senior sales
roles at two
start-ups
which were subsequently acquired. He began his industrial career
as a management consultant for aerospace and defense systems at
LogicaCMG. Dr. Kayat received his Ph.D. in physics from the
University of Leicester and MBA from Pepperdine University.
Mr. Kelly joined Intevac in December 2006 and
currently serves as Vice President, Engineering, Intevac Vision
Systems. Before joining Intevac, Mr. Kelly was employed by
Redlake MASD LLC, a division of Roper Industries from January
2004 to December 2006, most recently as Vice President,
Engineering and Custom Service. From November 2000 to December
2003, he was employed by Fast Technology AG as Vice President,
Engineering. Mr. Kelly holds a BS and a MS in mechanical
engineering from the University of Michigan.
Available
Information
Intevacs website is
http://www.intevac.com.
Intevac makes available free of charge, on or through its
website, its annual, quarterly and current reports, and any
amendments to those reports, as soon as reasonably practicable
after electronically filing such reports with, or furnishing
them to, the SEC. This website address is intended to be an
inactive textual reference only and none of the information
contained on Intevacs website is part of this report or is
incorporated by reference herein.
Trade
Marks
200 Lean®,
AccuLubertm,
DeltaNu®,
EBAPS®,
ExaminerRtm,
I-Porttm,
Lean
Etchtm,
LEAN
SOLARtm,
LithoPrimetm,
LIVAR®,
MicroVista®,
MOSIR®,
NightVista®,
Night
Porttm,
and
RAPID-IDtm
among others, are our trademarks.
The following factors could materially affect Intevacs
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.
The majority of our revenue is derived from the sale of
equipment used to manufacture technology commodity products such
as disk drives and our target new markets include other
technology commodity markets including semiconductors and
photovoltaic (PV) cells. This subjects us to
business cycles, the timing, length and volatility of which can
be difficult to predict. When demand for technology commodity
products exceeds production capacity, then demand for new
capital equipment such as ours tends to be amplified.
Conversely, when supply of technology commodity 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 severely depressed from mid-1998 until mid-2003
and grew rapidly from 2004 through 2006. The number of new
systems delivered declined sequentially in 2007, 2008 and 2009.
We cannot predict with any certainty when these cycles will
begin or end, although we entered into a downturn in the cycle
in late 2007 which continued through 2009.
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. The
magnetic disk and semiconductor manufacturing industries have
from time to time made significant additions to their production
capacity. 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
13
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 product 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.
Intevac 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 often 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 delays 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. 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.
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. In 2009,
two of our customers accounted for 55% of total revenues, and
four customers in aggregate accounted for 65% of total revenues.
The same four customers, in aggregate, accounted for 83% of our
net accounts receivable at December 31, 2009. This
concentration of customers can lead to extreme variability in
revenue and financial results from period to period. For
example, over the last eight quarters, our revenues per quarter
have fluctuated between $12.3 million and
$34.2 million.
Industry consolidation can limit the number of potential
customers for our products. For example, Seagate acquired Maxtor
in 2006, Western Digital acquired Komag in 2007, and Toshiba
acquired Fujitsus hard drive business in 2009. 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.
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 Gen II
system, our Lean Etch system, 200 Lean systems for PV
applications and our digital night-vision products.
14
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 semiconductor market for our Lean Etch system, and the PV
market. To date Intevac has not received revenue from our Lean
Etch or PV manufacturing 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.
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.
Our
operating results fluctuate significantly from quarter to
quarter, which can lead to volatility in the price of our common
stock.
Over the last eight quarters, our quarterly revenues have
fluctuated between $12.3 million and $34.2 million and
our operating income (loss) as a percentage of revenues has
fluctuated between approximately (120.2%) and 12.0% of revenues.
Over the same period, the price of our common stock has
fluctuated between $3.43 and $17.46 per share.
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.
The
liquidity of our auction rate securities is impaired, which
could impact our ability to meet cash requirements and require
additional debt financing.
At December 31, 2009, we held auction rate securities
(ARS) with a par value of $70.0 million. The
market for these securities had historically been highly liquid,
even though the ARS that we hold have underlying maturities
ranging from 23 to 39 years. The liquidity was achieved
through auctions, which occurred every 7 or 28 days
depending on the security, in which the interest paid on each
security was reset to current market rates. We never intended to
hold these securities to maturity, but rather to use the auction
feature to sell the securities as needed to provide liquidity.
Since February 2008, all of these ARS have failed auction. The
ARS will continue to be illiquid until a successful auction
process is reinstated, they are restructured into a more liquid
security, or a buyer is found outside of the auction process. We
do not know when, or if, this will occur. All of the auction
rate securities held by us are student loan structured issues,
originated under the U.S. Department of Educations
Federal Family Education Loan Program with principal and
interest 97% 98% reinsured by the
U.S. Department of Education. As of December 31, 2009,
all of these securities are currently rated investment grade but
there is no assurance that
15
these ratings will continue in the future. As of
December 31, 2009, securities with a par value of
$57.7 million are rated AAA/Aaa, securities with a par
value of $9.3 million are rated AAA/A3 and a security with
a par value of $3.0 million is rated AAA/Baa3. These
securities are classified as long-term investments and we
recorded an impairment charge of $3.7 million. If:
(1) the issuers of the ARS are unable to successfully
resume auctions; or (2) the issuers do not redeem the ARS;
or (3) a liquid market for the ARS does not develop; or
(4) the U.S. Department of Education fails to support
its guaranty of the obligations; or (5) these or any other
valuation metrics or processes change, then Intevac may be
required to further adjust the carrying value of the ARS
and/or
record an
other-than-temporary
impairment charge. On March 19, 2009, Intevac filed a
statement of claim under the Financial Industry Regulatory
Authority dispute resolution process against Citigroup Inc. and
Citigroup Global Markets, Inc. (collectively,
Citigroup) with respect to alleged fraud and market
manipulation by Citigroup related to ARS. The statement of claim
requests that Citigroup accept Intevacs tender of its ARS
at par value and that Intevac receive compensatory,
consequential and punitive damages and costs and expenses.
Citigroup responded denying Intevacs claims. Intevac is
currently in the discovery stage of this matter. An arbitration
date of May 13, 2010 has been agreed upon for commencement
of the arbitration of this dispute. We could incur significant
legal costs associated with the legal action and there can be no
guarantee our efforts would be successful.
In order to increase our liquidity we entered into a line of
credit with Citigroup, secured by $55.8 million in par
value of our ARS. At December 31, 2009, approximately
$18.5 million of credit is available pursuant to the loan
facility. This loan facility may be terminated at the discretion
of Citigroup and amounts outstanding are payable on demand. If
we are unable to maintain this line of credit, or if the
interest rate of the line of credit is prohibitive or the amount
of the line of credit is insufficient, we could experience
difficulties in meeting our cash requirements until the market
for the ARS becomes liquid again and we could have to seek
additional debt funding to finance our operations, which may not
be available on attractive terms, if at all.
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 in prior periods, including most recently during fiscal
2009, and have caused us to be cautious about our future
outlook. Although market conditions improved in the latter half
of 2009, market conditions remain volatile and our customers
continue to remain cautious. 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, cash flow from operations and, if necessary, borrowing
under our existing credit facility, we may require additional
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.
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 goodwill
and intangible assets on our balance sheet. We test goodwill and
intangible 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 goodwill and
intangible assets for impairment include: a 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 2008, we recorded an impairment charge of
$10.5 million for goodwill due to a decline in our market
capitalization and certain purchased technology intangible
assets due to lower revenue expectations in light of current
operating performance and future operating expectations. We will
continue to evaluate the carrying value of our remaining
goodwill and intangible assets and if we determine in the future
that there is a potential further impairment in any of our
reporting units, 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 6. Goodwill and Purchased
Intangible Assets, Net in the Notes
16
to the Consolidated Financial Statements for additional
information related to impairment of goodwill and intangible
assets.
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 have
experienced competition from Anelva Corporation, a subsidiary of
Canon, which has sold substantial numbers of systems worldwide.
In the market for semiconductor equipment we are attempting to
enter a market dominated by competitors such as Applied
Materials, LAM Research and Tokyo Electron. Intevac is
attempting to enter the PV equipment market, and faces
competition from large established competitors including Veeco
Instruments, Centrotherm Photovoltaics, Von Ardenne and cell
module manufacturers that are internally developing
manufacturing equipment that may be sold externally in the
future. In the market for our military imaging products we
experience competition from companies such as ITT Industries and
Fairchild Imaging. In the markets for our commercial imaging
products we compete with companies such as Andor, Dalsa, E2V,
Hamamatsu, Texas Instruments and Roper Industries for sensor and
camera products, and with companies such as Ahura, B&W Tek,
GE Security, Horiba-Jobin Yvon, Ocean Optics, Renishaw, Thermo
Scientific, and Smiths Detection for Raman spectrometer
products. Our competitors have substantially greater financial,
technical, marketing, manufacturing and other resources than we
do, especially in the semiconductor equipment market where we
have not previously offered a product. We cannot ensure that our
competitors will not develop enhancements to, or future
generations of, competitive products that offer superior price
or performance features. Likewise, we cannot ensure that new
competitors will not 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.
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 Intevac 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 obtain export licenses or 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
Intevac 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 many of our imaging products and services directly to
the U.S. government, as well as to prime contractors for
various U.S. government programs. Our revenues from
government contracts totaled $14.8 million,
$14.8 million, and $14.1 million in 2009, 2008, and
2007, respectively. 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. governments recent focus on spending in other
areas. 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
17
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
governments 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.
Changes
to our effective tax rate affect our results of
operations.
As a global company, we are subject to taxation in the United
States 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 a significant tax benefit in both 2009 and 2008 based
on managements belief that we could both carryback losses
to years Intevac paid income taxes and carryforward tax credits
to future years where we would generate taxable income. Intevac
will need to generate approximately $48 million of taxable
income in order to realize the Federal deferred tax assets
recorded as of December 31, 2009. If our expectations of
future income are incorrect, we could be required to establish a
valuation allowance against some or all of the deferred tax
assets.
Our
success depends on international sales and the management of
global operations.
In 2009, approximately 50% of our revenues came 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, Wyoming 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.
18
We must regularly assess the size, capability and location of
our global infrastructure and make appropriate changes to
address these issues.
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
generally do not have employment contracts with our key
employees. Further, 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. Additionally, 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 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 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
sub-assemblies
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.
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. For example, in
March 2009, Intevac filed a statement of claim under the
Financial Industry Regulatory Authority dispute resolution
process against Citigroup with respect to alleged fraud and
market manipulation by Citigroup related to ARS. The statement
of claim requests that Citigroup accept Intevacs tender of
its ARS at par value and that Intevac receive compensatory,
consequential and punitive damages and costs and expenses.
Citigroup responded denying Intevacs claims. Intevac is
currently in the discovery stage of this matter. An arbitration
date of May 13, 2010 has been agreed upon for commencement
of the
19
arbitration of this dispute. 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.
Difficulties
in integrating past or future acquisitions could adversely
affect our business.
We have completed a number of acquisitions during our operating
history. For example, in 2007, we acquired certain assets of
DeltaNu, LLC and certain assets of Creative Display Systems, LLC
and in 2008 we acquired certain assets of OC Oerlikon Balzers
Ltd. 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 managements 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.
We use
hazardous materials and are subject to risks of non-compliance
with environmental and safety 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, 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.
Business
interruptions could adversely affect our
operations.
Our operations are vulnerable to interruption by fire,
earthquake 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 are 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 and cause international currency markets to
fluctuate. This same instability 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
20
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.
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, 2009, 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:
(1) Intevac fails to maintain effective internal control
over financial reporting; (2) our management does not
timely assess the adequacy of such internal control; or
(3) 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: (1) restatement of previously reported
financial results, (2) regulatory sanctions and (3) a
decline in the publics perception of Intevac, which could
have a material and adverse effect on our business, financial
condition and results of operations.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
None.
Intevac maintains its corporate headquarters in
Santa Clara, California. The location, approximate size and
type of facility of the principal properties are listed below.
Intevac leases all of its properties and does not own any real
estate.
|
|
|
|
|
|
|
Location
|
|
Square Footage
|
|
|
Principal Use
|
|
Santa Clara, CA
|
|
|
169,583
|
|
|
Corporate Headquarters; Equipment and Intevac Photonics
Marketing, Manufacturing, Engineering and Customer Support
|
Fremont, CA
|
|
|
9,505
|
|
|
Intevac Photonics Sensor Fabrication
|
Laramie, WY
|
|
|
12,000
|
|
|
Intevac Photonics Raman Spectrometer Manufacturing
|
Carlsbad, CA
|
|
|
10,360
|
|
|
Intevac Photonics Micro Display Product Manufacturing
|
Singapore
|
|
|
31,947
|
|
|
Equipment Manufacturing and Customer Support
|
Malaysia
|
|
|
1,291
|
|
|
Equipment Customer Support
|
Shenzhen, China
|
|
|
2,568
|
|
|
Equipment Customer Support
|
Intevac considers these properties adequate to meet its current
and future requirements. Intevac regularly assesses the size,
capability and location of its global infrastructure and
periodically makes adjustments based on these assessments.
|
|
Item 3.
|
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 Intevacs 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
Intevacs opinion, is likely to seriously harm
Intevacs business.
On March 19, 2009, Intevac filed a statement of claim under
the Financial Industry Regulatory Authority dispute resolution
process against Citigroup Inc. and Citigroup Global Markets,
Inc. (collectively, Citigroup) with respect to
alleged fraud and market manipulation by Citigroup related to
ARS. The statement of claim requests that
21
Citigroup accept Intevacs tender of its ARS at par value
and that Intevac receive compensatory, consequential and
punitive damages and costs and expenses. Citigroup responded
denying Intevacs claims. Intevac is currently in the
discovery stage of this matter. An arbitration date of
May 13, 2010 has been agreed upon for commencement of the
arbitration of this dispute.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
None.
22
PART II
Item 5. Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Price
Range of Common Stock
Intevac common stock is traded on The Nasdaq National Market
(NASDAQ Global Select) under the symbol IVAC. As of
February 24, 2010, there were 117 holders of record. In
fiscal years 2009 and 2008 Intevac did not declare or pay cash
dividends to its stockholders. Intevac currently has no plans to
declare or pay cash dividends.
The following table sets forth the high and low closing sale
prices per share as reported on The Nasdaq National Market for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Fiscal 2009:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
5.73
|
|
|
$
|
3.43
|
|
Second Quarter
|
|
|
8.65
|
|
|
|
5.02
|
|
Third Quarter
|
|
|
13.14
|
|
|
|
7.45
|
|
Fourth Quarter
|
|
|
13.45
|
|
|
|
10.00
|
|
Fiscal 2008:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
14.28
|
|
|
$
|
10.14
|
|
Second Quarter
|
|
|
17.46
|
|
|
|
11.16
|
|
Third Quarter
|
|
|
13.32
|
|
|
|
9.50
|
|
Fourth Quarter
|
|
|
10.64
|
|
|
|
3.93
|
|
Recent
Sales of Unregistered Securities
None.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
None.
Performance
Graph
The following graph compares the cumulative total stockholder
return on Intevacs Common Stock with that of the NASDAQ
Stock Market Total Return Index, a broad market index published
by the Center for Research in Security Prices
(CRSP), and the NASDAQ Computer Manufacturers Stock
Total Return Index compiled by CRSP. The comparison for each of
the periods assumes that $100 was invested on December 31,
2004 in Intevacs Common Stock, the stocks included in the
NASDAQ Stock Market Total Return Index and the stocks included
in the NASDAQ Computer Manufacturers Stock Total Return Index.
These indices, which reflect formulas for dividend reinvestment
and weighting of individual stocks, do not necessarily reflect
returns that could be achieved by individual investors.
23
COMPARISON
OF CUMULATIVE TOTAL RETURN SINCE DECEMBER 31, 2004
AMONG INTEVAC, NASDAQ STOCK MARKET TOTAL RETURN INDEX AND
NASDAQ COMPUTER MANUFACTURERS TOTAL RETURN INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/04
|
|
|
12/31/05
|
|
|
12/30/06
|
|
|
12/29/07
|
|
|
12/31/08
|
|
|
12/31/09
|
Intevac, Inc.
|
|
|
$
|
100
|
|
|
|
$
|
175
|
|
|
|
$
|
343
|
|
|
|
$
|
192
|
|
|
|
$
|
67
|
|
|
|
$
|
152
|
|
Nasdaq Stock Market Total Return Index
|
|
|
|
100
|
|
|
|
|
102
|
|
|
|
|
112
|
|
|
|
|
122
|
|
|
|
|
59
|
|
|
|
|
84
|
|
Nasdaq Computer Manufacturers Total Return Index
|
|
|
|
100
|
|
|
|
|
102
|
|
|
|
|
105
|
|
|
|
|
153
|
|
|
|
|
64
|
|
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
|
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Item 6.
|
Selected
Financial Data
|
The following selected financial information has been derived
from Intevacs historical audited consolidated financial
statements and should be read in conjunction with the
consolidated financial statements, the accompanying notes and
Managements Discussion and Analysis of Financial Condition
and Results of Operations for the corresponding fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
2005
|
|
|
(In thousands, except per share data)
|
|
Net revenues
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
$
|
215,834
|
|
|
$
|
259,875
|
|
|
$
|
137,229
|
|
Gross profit
|
|
$
|
32,720
|
|
|
$
|
43,339
|
|
|
$
|
96,043
|
|
|
$
|
100,959
|
|
|
$
|
43,578
|
|
Operating income (loss)
|
|
$
|
(17,347
|
)
|
|
$
|
(30,471
|
)
|
|
$
|
27,436
|
|
|
$
|
47,999
|
|
|
$
|
14,717
|
|
Net income (loss)
|
|
$
|
(10,077
|
)
|
|
$
|
(15,345
|
)
|
|
$
|
27,345
|
|
|
$
|
46,698
|
|
|
$
|
16,151
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
1.28
|
|
|
$
|
2.22
|
|
|
$
|
0.79
|
|
Diluted
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
1.23
|
|
|
$
|
2.13
|
|
|
$
|
0.76
|
|
At year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
203,378
|
|
|
$
|
189,169
|
|
|
$
|
215,413
|
|
|
$
|
206,003
|
|
|
$
|
130,444
|
|
Long-term debt
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,898
|
|
|
$
|
|
|
|
$
|
|
|
23
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Managements Discussion and Analysis (MD&A) is
intended to facilitate an understanding of Intevacs
business and results of operations. This MD&A should be
read in conjunction with Intevacs Consolidated Financial
Statements and the accompanying Notes to Consolidated Financial
Statements included elsewhere in this
Form 10-K.
The following discussion contains forward-looking statements and
should also be read in conjunction with the cautionary statement
set forth at the beginning of this
Form 10-K.
MD&A includes the following sections:
|
|
|
|
|
Overview: a summary of Intevacs business,
measurements and opportunities.
|
|
|
|
Results of Operations: a discussion of operating results.
|
|
|
|
Liquidity and Capital Resources: an analysis of cash
flows, sources and uses of cash, contractual obligations and
financial position.
|
|
|
|
Critical Accounting Policies: a discussion of critical
accounting policies that require the exercise of judgments and
estimates.
|
Overview
Intevac provides manufacturing equipment and solutions to the
hard disk drive industry and offers high-productivity solutions
to the photovoltaic (PV) and semiconductor
industries. In 2009, Intevac announced a high-productivity thin
film solar cell manufacturing system for PV applications, LEAN
SOLARtm
and began offering equipment to PV cell manufacturers. Intevac
also provides sensors, cameras and systems for commercial
applications in the inspection, medical, scientific and security
industries and for government applications such as night vision
and long-range target identification. Intevacs customers
and potential customers include manufacturers of hard disk
drives, semiconductor chips and wafers, PV cells as well as
medical, scientific and security companies, law enforcement and
the U.S. government and its contractors. Intevac reports
two segments: Equipment and Intevac Photonics. Effective in the
second quarter of 2008, Intevac renamed the Imaging
Instrumentation segment to Intevac Photonics. During the third
quarter of 2008, Intevac completed the acquisition of certain
assets and liabilities of the magnetic media equipment business
of OC Oerlikon Balzers Ltd. (Oerlikon).
Product development and manufacturing activities occur in North
America and Asia. Intevac has field offices in Asia to support
its equipment customers. Intevacs equipment and service
products are highly technical and, with the exception of Japan,
are sold primarily through a direct sales force. In Japan, sales
are typically made by Intevacs Japanese distributor,
Matsubo. In Korean and China, Intevacs Lean
Etchtm
system is sold by TES Co., Ltd. (TES), a Korean
equipment manufacturer. To date, Intevac has not yet recognized
any revenue from shipments of its Lean Etch product.
Intevacs results are driven primarily by worldwide demand
for hard disk drives, which in turn depends on end-user demand
for personal computers, enterprise data storage, personal audio
and video players and video game platforms. Intevacs
business is subject to cyclical industry conditions, as demand
for manufacturing equipment and services can change depending on
supply and demand for hard disk drives, chips, and other
electronic devices, as well as other factors, such as global
economic conditions and technological advances in fabrication
processes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
% Change
|
Fiscal Year
|
|
2009
|
|
2008
|
|
2007
|
|
2009 vs. 2008
|
|
2008 vs. 2007
|
|
|
(In thousands, except percentages and per share amounts)
|
|
Net revenues
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
$
|
215,834
|
|
|
|
(29.3
|
)%
|
|
|
(48.9
|
)%
|
Gross profit
|
|
|
32,720
|
|
|
|
43,339
|
|
|
|
96,043
|
|
|
|
(24.5
|
)%
|
|
|
(54.9
|
)%
|
Gross margin percent
|
|
|
42.0
|
%
|
|
|
39.3
|
%
|
|
|
44.5
|
%
|
|
|
2.7
|
%
|
|
|
(5.2
|
)%
|
Net income (loss)
|
|
|
(10,077
|
)
|
|
|
(15,345
|
)
|
|
|
27,345
|
|
|
|
34.3
|
%
|
|
|
(156.1
|
)%
|
Earnings (loss) per diluted share
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
1.23
|
|
|
|
35.2
|
%
|
|
|
(157.7
|
)%
|
Fiscal 2007 financial results reflected good conditions in the
hard disk drive industry driven by end-user demand for hard
drives in personal computers and consumer electronic products.
During 2007 the hard drive industry completed the technology
transition to perpendicular media which began in 2005. This
technology
24
transition resulted in increased Equipment sales. During this
period Intevac expanded its photonics product portfolio with the
acquisitions of DeltaNu, LLC, (Delta Nu) and
Creative Display Systems, LLC (CDS).
Fiscal 2008 financial results reflected a difficult environment
as Intevacs customers reduced or delayed capital
expenditures as a result of industry consolidation, price
erosion, lower growth and global economic conditions. In this
period, Intevac focused on lowering costs, improving
efficiencies, and bringing new products to market. In 2008,
Intevac acquired certain assets and liabilities of OC Oerlikon
Balzers Ltd. (Oerlikon)s magnetic media
equipment business. In the fourth quarter of fiscal 2008, in
response to the deteriorating economic conditions, Intevac
announced and executed a global cost reduction plan that reduced
its cost structure and its cash burn, while still enabling
Intevac to invest in products that will drive future growth.
Also during the fourth quarter of fiscal 2008, Intevacs
market capitalization and financial outlook were adversely
impacted by the current macroeconomic business environment. This
triggered Intevacs performing interim impairment tests on
its goodwill and intangible assets; and as a result Intevac
recorded non-cash goodwill and intangible impairment charges of
$10.5 million.
Fiscal 2009 financial results reflected a challenging
environment that resulted from the economic slowdown. Demand in
the hard disk drive industry was flat compared to fiscal 2008
and Intevacs Equipment customers did not require capacity
additions. During fiscal 2009, demand for new equipment resulted
primarily from the retirement of some legacy systems and
customer research and development activities, including
patterned media. At the end of 2009 Intevacs hard drive
customers began taking delivery of systems for 2010 capacity
needs. In 2009, Intevac Photonics business grew, driven by
government spending plus incorporation of Intevac products into
development, pre-production and some early stage production
programs.
Intevac expects the business environment to improve in fiscal
2010. Demand for hard disk drives is expected to increase driven
by the need for corporations to replace and update employee
computers, increased information technology spending, growth in
digital storage and the proliferation of personal computers into
emerging economies. Intevac believes that due to delayed
spending during the recent economic downturn, increased demand
for hard drives and technology transitions, the hard drive
industry will need to add capacity to meet increased production
requirements. Intevac expects its hard drive customers will add
new systems for capacity production as well as make selective
purchases for technology development. In 2010, Intevac expects
that the Intevac Photonics business will grow, driven by
proliferation of our low-light sensors and cameras onto new
platform programs, volume shipments of those products and
increased demand from commercial and industrial customers as a
result of the economic recovery.
Results
of Operations
Net
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
% Change
|
|
|
% Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009 vs. 2008
|
|
|
2008 vs. 2007
|
|
|
|
(In thousands, except percentages)
|
|
|
Equipment
|
|
$
|
51,389
|
|
|
$
|
87,469
|
|
|
$
|
196,686
|
|
|
|
(41.2
|
)%
|
|
|
(55.5
|
)%
|
Intevac Photonics
|
|
|
26,592
|
|
|
|
22,838
|
|
|
|
19,148
|
|
|
|
16.4
|
%
|
|
|
19.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
$
|
215,834
|
|
|
|
(29.3
|
)%
|
|
|
(48.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues consist primarily of sales of equipment used to
develop and manufacture thin film disks, and, to a lesser
extent, related equipment and system components; contract
research and development related to the development of sensors,
cameras and systems; low-light imaging products and Raman
spectrometers.
The decrease in Equipment revenues in 2009 was due primarily to
a reduction in the number of 200 Lean systems delivered. In
2009, Intevac delivered four 200 Lean systems compared to eleven
200 Lean systems in 2008 and twenty-nine 200 Lean systems in
2007. Equipment revenue in 2009 also included six disk
lubrication systems compared to eleven disk lubrication systems
in 2008 and four disk lubrication in 2007. Revenues from disk
equipment technology upgrades and spare parts decreased in 2009
versus 2008 and 2007. Fiscal 2008 new system capacity additions
in the hard disk drive market were lower due to the upgrade and
reuse of approximately twenty legacy tools previously in
storage. The reuse of these systems substantially met the
incremental capacity
25
requirements of one of our largest customers. During 2007,
Intevac sold a
D-Star®
flat panel technology license for $1.3 million. Equipment
revenues in 2010 are expected to exceed 2009 levels due to
increased capital spending by hard drive customers for capacity
additions and technology purchases to support growth in the hard
drive market. Equipment revenues are dependent on the demand for
magnetic media, Intevacs customers capacity
expansion plans, and obsolescence of the installed base of
Intevacs customers existing equipment.
Intevac Photonics revenues increased by 16.4% to
$26.6 million in 2009, which consisted of
$10.5 million of product revenue and $16.1 million of
contract research and development revenue. Intevac Photonics
2008 revenues of $22.8 million consisted of
$8.5 million of product revenue and $14.3 million of
contract research and development revenue. Intevac Photonics
2007 revenue of $19.1 million consisted of
$5.6 million of product revenue and $13.5 million of
contract research and development revenue. The increase in
product revenues resulted from higher sales of low-light sensors
and cameras used in military night vision and long-range imaging
as well as commercial applications such as Intevacs
table-top and portable Raman instruments and near-eye display
products. The increase in contract research and development
revenue was the result of a higher volume of contracts and
incremental revenue generated from contract close-outs. In 2010,
Intevac Photonics revenue is expected to grow due to government
spending on development and deployment of digital night vision
technology and continued expansion of Intevacs low-light
camera and sensor products in military and commercial
applications. Substantial growth in future Intevac Photonics
revenues is dependent on the proliferation of Intevacs
technology into major military programs, continued defense
spending, the ability to obtain export licenses for foreign
customers, obtaining production subcontracts for these programs,
and development and sale of commercial products.
Intevacs backlog of orders at December 31, 2009 was
$73.8 million, as compared to $20.2 million at
December 31, 2008 and $34.2 million at
December 31, 2007. Equipment backlog at December 31,
2009 was $57.5 million compared to $11.4 at
December 31, 2008 and $28.4 million at
December 31, 2007. Intevac Photonics backlog at
December 31, 2009 was $16.3 million compared to
$8.8 million at December 31, 2008 and
$5.8 million at December 31, 2007. Equipment backlog
at December 31, 2009 includes ten 200 Lean systems, as
compared to one 200 Lean system at December 31, 2008, and
two 200 Lean systems at December 31, 2007.
Significant portions of Intevacs revenues in any
particular period have been attributable to sales to a limited
number of customers. In 2009, sales to Seagate and Hitachi
Global Storage Technologies each accounted for more than 10% of
Intevacs revenues and in the aggregate sales to these
customers accounted for 55% of revenues. In 2008, sales to
Seagate and Hitachi Global Storage Technologies each accounted
for more than 10% of Intevacs revenues and in the
aggregate sales to these customers accounted for 69% of
revenues. In 2007, sales to Seagate, Matsubo
Intevacs Japanese distributor, Hitachi Global Storage
Technologies, and Fuji Electric each accounted for more than 10%
of Intevacs revenues. In the aggregate sales to these
customers accounted for 90% of revenues in 2007. The magnetic
disk manufacturing industry consists of a small number of large
manufacturers. Seagate acquired Maxtor in 2006, Western Digital
acquired Komag in 2007, and Toshiba acquired Fujitsus hard
drive business in 2009, all of which further concentrated the
customer base in the industry.
International sales totaled $39.2 million,
$76.5 million, and $177.0 million in 2009, 2008, and
2007, respectively, accounting for 50%, 69%, and 82% of net
revenues. The decreases in international sales in 2009 and 2008
were primarily due to decreases in net revenues from disk
sputtering systems. Substantially all of Intevacs
international sales are to customers in Asia, which includes
products shipped to overseas operations of U.S. companies.
26
Gross
margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009 vs. 2008
|
|
2008 vs. 2007
|
|
|
(In thousands, except percentages)
|
|
Equipment gross profit
|
|
$
|
23,266
|
|
|
$
|
35,797
|
|
|
$
|
87,885
|
|
|
|
(35.0
|
)%
|
|
|
(59.3
|
)%
|
% of Equipment net revenues
|
|
|
45.3
|
%
|
|
|
40.9
|
%
|
|
|
44.7
|
%
|
|
|
|
|
|
|
|
|
Intevac Photonics gross profit
|
|
$
|
9,454
|
|
|
$
|
7,542
|
|
|
$
|
8,158
|
|
|
|
25.4
|
%
|
|
|
(7.6
|
)%
|
% of Intevac Photonics net revenues
|
|
|
35.6
|
%
|
|
|
33.0
|
%
|
|
|
42.6
|
%
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
32,720
|
|
|
$
|
43,339
|
|
|
$
|
96,043
|
|
|
|
(24.5
|
)%
|
|
|
(54.9
|
)%
|
% of net revenues
|
|
|
42.0
|
%
|
|
|
39.3
|
%
|
|
|
44.5
|
%
|
|
|
|
|
|
|
|
|
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.
Cost of net revenues for 2009, 2008 and 2007 included $353,000,
$781,000 and $638,000 of equity-based compensation expense,
respectively.
Equipment gross margin was 45.3% in 2009 compared to 40.9% in
2008 and 44.7% in 2007. Fiscal 2009 gross margins improved
over fiscal 2008 due to product mix, improved systems margins,
and savings from cost reduction programs, which were partially
offset by lower volume and unabsorbed factory utilization.
Fiscal 2008 gross margins declined over fiscal 2007 due to
lower volume, product mix, unabsorbed factory utilization and
costs from acquired businesses, which were offset in part by
cost reduction programs. Gross margins in the Equipment business
will vary depending on a number of additional factors, including
product mix, product cost, system configuration and pricing,
factory utilization, and provisions for excess and obsolete
inventory.
Intevac Photonics gross margin was 35.6% in 2009 compared 33.0%
in 2008 and 42.6% in 2007. The increase in gross margin in 2009
resulted primarily from higher technology development margins,
higher volume and factory utilization, partially offset by
higher manufacturing costs of new products. The decrease in
gross margin in 2008 resulted primarily from increased
provisions for inventory and warranty and increased costs from
acquired businesses.
Research
and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009 vs. 2008
|
|
2008 vs. 2007
|
|
|
(In thousands, except percentages)
|
|
Research and development expense
|
|
$
|
28,064
|
|
|
$
|
35,083
|
|
|
$
|
40,137
|
|
|
|
(20.0
|
)%
|
|
|
(12.6
|
)%
|
% of net revenues
|
|
|
36.0
|
%
|
|
|
31.8
|
%
|
|
|
18.6
|
%
|
|
|
|
|
|
|
|
|
Research and development expense consists primarily of prototype
materials, salaries and related costs of employees engaged in
ongoing research, design and development activities for disk
sputtering equipment, semiconductor equipment, PV cell
manufacturing equipment and Intevac Photonics products. Research
and development costs for 2009, 2008 and 2007 included
$1.4 million, $2.0 million and $2.1 million of
equity-based compensation expense, respectively.
Research and development spending decreased for Equipment during
2009 as compared to 2008 and 2007. The decrease in Equipment
spending during 2009 was due primarily to a reduction in
spending on the Lean Etch product line (as the product design
phase is substantially complete and on-going efforts are
primarily related to continuous improvement) and savings from
the global cost reduction plan implemented in the fourth quarter
of 2008, offset by investment in PV development. The decrease in
Equipment spending during 2008 was due primarily to lower
spending on the development of Intevacs Lean Etch product
line, and to a lesser extent, reductions in incentive
compensation expense. Intevac Photonics increased research and
development spending levels in 2009 and 2008 for sensor yield
improvements, sensor development and digital night vision goggle
development.
27
Research and development expenses do not include costs of
$9.1 million, $8.5 million, and $7.4 million, in
2009, 2008, and 2007, respectively, which are related to
customer-funded contract research and development programs and
included in cost of net revenues.
Selling,
general and administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009 vs. 2008
|
|
2008 vs. 2007
|
|
|
(In thousands, except percentages)
|
|
Selling, general and administrative expense
|
|
$
|
22,003
|
|
|
$
|
28,229
|
|
|
$
|
28,470
|
|
|
|
(22.1
|
)%
|
|
|
(0.9
|
)%
|
% of net revenues
|
|
|
28.2
|
%
|
|
|
25.6
|
%
|
|
|
13.2
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense consists primarily
of selling, marketing, customer support, financial and
management costs and also includes production of customer
samples, travel, liability insurance, legal and professional
services and bad debt expense. All domestic sales and
international sales of disk sputtering products in Asia, with
the exception of Japan, are typically made by Intevacs
direct sales force, whereas sales in Japan of disk sputtering
products and other products are typically made by Intevacs
Japanese distributor, Matsubo, which provides services such as
sales, installation, warranty and customer support. Intevac also
has subsidiaries in Singapore and in Hong Kong, along with field
offices in Malaysia and Shenzhen, China to support
Intevacs equipment customers in Asia. Selling, general and
administrative costs for 2009, 2008 and 2007 included
$2.5 million, $3.8 million and $3.5 million of
equity-based compensation expense, respectively.
Selling, general and administrative expenses decreased in 2009
over the amount spent in 2008 due primarily to the global cost
reduction plan implemented in the fourth quarter of 2008,
decreased costs related to customer service and support for the
Equipment business, partially offset by business development
expenses in the Intevac Photonics business. Selling, general and
administrative spending in 2008 was flat compared to 2007 levels
as a result of cost reduction activities, and lower provisions
for employee profit sharing and bonus plans, partially offset by
increased costs related to business development, customer
service and support in both the Equipment and Intevac Photonics
businesses and higher equity-based compensation expense.
Global
cost reduction plan
During the fourth quarter of fiscal 2008, Intevac announced a
global cost reduction plan (the Plan) to reduce the
global workforce by fifteen percent. Implementation of the Plan
was completed in the fourth quarter. The total cost of
implementing the Plan was $386,000 and was reported under cost
of products sold and operating expenses. Substantially all cash
outlays in connection with the Plan occurred in the fourth
quarter of fiscal 2008. Implementation of the Plan reduced
expenses by approximately $15 million on an annual basis.
Impairment
of goodwill and intangibles
Goodwill and Intevacs indefinite life intangible asset are
tested for impairment on an annual basis or more frequently upon
the occurrence of circumstances that indicate that goodwill and
the indefinite life intangible asset may be impaired. In the
fourth quarter of 2009, Intevac performed its 2009 annual
assessment of impairment which did not result in an impairment
of goodwill or Intevacs indefinite life intangible asset.
Intevacs reporting units for goodwill impairment testing
purposes are consistent with the reportable segments: Equipment
and Intevac Photonics. Intevac tested goodwill for possible
impairment by first determining the fair value of the related
reporting unit and then comparing this value to the recorded net
assets of the reporting unit. At December 31, 2009, Intevac
had a total of $7.9 million of goodwill and $120,000 of
indefinite-life intangible assets. All goodwill is attributed to
the Intevac Photonics segment.
The process of evaluating the potential impairment of goodwill
is highly subjective and requires significant judgment. Intevac
used two valuation methodologies to determine the fair value for
its reporting units, with each approach given equal weighting:
the income approach and the market approach. Using the income
approach, the fair value of each reporting unit was calculated
based on the present value of estimated future cash flows, which
were formed by evaluating historical trends, current budgets,
operating plans and industry data. Estimates of the
28
future cash flows associated with the businesses are critical to
these assessments. The assumptions used in the fair value
calculation included revenue growth rates, operating margins,
risk adjusted discount rates and future economic and market
conditions. Changes in these assumptions based on changed
economic conditions or business strategies could result in
material impairment charges in future periods. The market
analysis looked at the valuations of comparable public companies
which Intevac selected based upon similar industries and
products. Intevac evaluated the reasonableness of the fair value
calculations of the reporting units by reconciling the total of
the fair values of the two reporting units to Intevacs
total market capitalization, taking into account an appropriate
control premium. Intevac compared the carrying value of the
reporting units to the fair value calculations.
The results of the test for goodwill impairment, as of
September 26, 2009, showed that the estimated fair values
of the Equipment and Intevac Photonics reporting units exceeded
their carrying values by more than $50 million and
$30 million, respectively. There was no impairment of
goodwill during the year ended December 31, 2009.
Intevac also performed the annual impairment review of a
tradename, an indefinite life intangible asset during the fourth
quarter of 2009 using a discounted cash flow model and the
relief-from-royalty method. Based on the discounted cash flow
model Intevac determined the fair value of the tradename
exceeded its carrying value.
In the fourth quarter of fiscal 2008, Intevac experienced a
significant decline in its stock price and as a result of the
decline in its stock price, Intevacs market capitalization
fell significantly below the recorded value of its consolidated
net assets. Based on the results of its assessment of goodwill
for impairment, Intevac determined that the fair value of its
Equipment reporting unit was less than the carrying value and
impairment existed. Therefore, Intevac performed the second step
of the impairment test to determine the implied fair value of
goodwill. The analysis indicated that there would be no
remaining implied value attributable to goodwill in the
Equipment reporting unit and accordingly, during fiscal 2008,
Intevac wrote off all $9.7 million of goodwill in its
Equipment reporting unit. The goodwill associated with the
Intevac Photonics reporting unit was not impaired. As a result
of the intangible assets impairment test, in fiscal 2008,
Intevac recorded an $808,000 impairment charge related to the
write-down to fair value of the net carrying value of certain
purchased technology intangible assets in the Equipment and
Intevac Photonics segments due to lower revenue expectations and
future operating expectations.
Intevac will continue to evaluate the carrying value of goodwill
and intangible assets and if it is determined that there is a
potential impairment, Intevac may record additional charges to
earnings which would adversely affect its financial results. For
further details, see Note 6 of Notes to Consolidated
Financial Statements.
Interest
income and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009 vs. 2008
|
|
2008 vs. 2007
|
|
|
(In thousands, except percentages)
|
|
Interest income and other, net
|
|
$
|
1,254
|
|
|
$
|
3,932
|
|
|
$
|
8,142
|
|
|
|
(68.1
|
)%
|
|
|
(51.7
|
)%
|
Interest income and other, net in 2009 included
$1.4 million of interest income on investments, partially
offset by $92,000 in net other expense and $16,000 in interest
expense. Interest income and other, net in 2008 included
$4.0 million of interest income on investments, and $84,000
in net other income, partially offset by $120,000 in interest
expense. Interest income and other, net in 2007 included a
$1.5 million gain on the redemption of Intevacs
preferred interest in 601 California Avenue LLC,
$6.5 million of interest income on investments and $129,000
in net other income. The decrease in interest income in 2009 and
2008 was driven by lower interest rates on Intevacs
investments and lower average invested balances.
Provision
for (benefit from) income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2009
|
|
2008
|
|
2007
|
|
2009 vs. 2008
|
|
2008 vs. 2007
|
|
|
(In thousands, except percentages)
|
|
Provision for (benefit from) income taxes
|
|
$
|
(6,016
|
)
|
|
$
|
(11,194
|
)
|
|
$
|
8,233
|
|
|
|
46.3
|
%
|
|
|
(236.0
|
)%
|
29
Intevacs effective income tax provision rate was 37.4% for
fiscal 2009, 42.2% for fiscal 2008, and 23.1% for fiscal 2007.
Intevacs tax rate differs from the applicable statutory
rates due primarily to the utilization of deferred and current
credits and the effect of permanent differences and adjustments
of prior permanent differences. Intevacs future effective
income tax rate depends on various factors including, the level
of Intevacs 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 Intevacs tax planning strategies.
Management carefully monitors these factors and timely adjusts
the effective income tax rate accordingly. Management believes
that the valuation allowances for Intevacs deferred tax
assets are adequate based on several factors including:
(1) degree to which Intevacs 2009 and 2008 losses
were attributable to unusual items or charges; (2) long
duration of Intevacs deferred tax assets; and
(3) expectation of improved earnings in the long term.
During 2009, Intevac established an additional valuation
allowance to fully reserve its California state deferred tax
assets due to the impact of California tax legislation that was
enacted in February 2009. This additional valuation allowance
decreased the income tax benefit by $1.0 million. Intevac
recognized the effect of the change in valuation allowance as a
discrete item.
Business
Combinations
On July 14, 2008, Intevac acquired certain assets and
liabilities of OC Oerlikon Balzers Ltd.
(Oerlikon)s magnetic media equipment business
for a purchase price of $15.1 million in cash, net of cash
acquired. In addition Intevac agreed to pay contingent
consideration to Oerlikon in the form of a royalty on
Intevacs net revenue from commercial sales of certain
products. This agreement terminates on July 13, 2011.
Intevac has made no payments to Oerlikon under this agreement
through December 31, 2009. As part of the acquisition,
Intevac also entered into a settlement agreement with Oerlikon
related to a patent infringement lawsuit filed by Intevac
against Unaxis USA, Inc., a wholly owned subsidiary of Oerlikon,
and all claims in the litigation were dismissed.
On November 9, 2007, Intevac acquired the assets and
certain liabilities of Creative Display Systems, LLC
(CDS) for a purchase price of $4.8 million in
cash, net of cash acquired. The acquired business is a supplier
of high-performance micro-display products for near-eye and
portable applications in defense and commercial markets.
On January 31, 2007, Intevac acquired the assets and
certain liabilities of DeltaNu, LLC (DeltaNu) for a
purchase price of $5.8 million of which $2 million was
paid in cash at the close of the acquisition, $2 million
was paid on January 31, 2008 and $2 million was paid
on January 31, 2009, which was in the form of a non
interest-bearing note. Interest was imputed, and the related
note payable was recorded at a discount in the accompanying
Consolidated Balance Sheets. The acquired business is a supplier
of small footprint and handheld Raman spectrometry instruments.
For further details, see Note 7 of Notes to Consolidated
Financial Statements.
Recent
Accounting Pronouncements
In January 2009, the Securities and Exchange Commission
(SEC) issued Release
No. 33-9002,
Interactive Data to Improve Financial Reporting. The
final rule requires companies to provide their financial
statements and financial statement schedules to the SEC and on
their corporate websites in interactive data format using the
eXtensible Business Reporting Language (XBRL). The
rule was adopted by the SEC to improve the ability of financial
statement users to access and analyze financial data. The SEC
adopted a phase-in schedule indicating when registrants must
furnish interactive data. Under this schedule, Intevac will be
required to submit filings with financial statement information
using XBRL commencing with its June 25, 2011 quarterly
report on
Form 10-Q.
Intevac is currently evaluating the impact of XBRL reporting on
its financial reporting process.
In October 2009, the Financial Accounting Standards Board
(FASB) amended revenue recognition guidance for
arrangements with multiple deliverables. The guidance eliminates
the residual method of revenue recognition and allows the use of
managements best estimate of selling price for individual
elements of an arrangement when vendor specific objective
evidence (VSOE), vendor objective evidence
(VOE) or third-party evidence (TPE) is
unavailable. This guidance should be applied on a prospective
basis for revenue arrangements entered into or
30
materially modified in fiscal years beginning on or after
June 15, 2010, with early adoption permitted. Full
retrospective application of the guidance is optional. Intevac
is currently evaluating the impact of adopting this guidance on
its consolidated financial statements.
In October 2009, the FASB issued guidance which amends the scope
of existing software revenue recognition accounting. Tangible
products containing software components and non-software
components that function together to deliver the products
essential functionality would be scoped out of the accounting
guidance on software and accounted for based on other
appropriate revenue recognition guidance. This guidance should
be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on
or after June 15, 2010, with early adoption permitted. Full
retrospective application of the new guidance is optional. This
guidance must be adopted in the same period that Intevac adopts
the amended accounting for arrangements with multiple
deliverables described in the preceding paragraph. Intevac is
currently evaluating the impact of adopting this guidance on its
consolidated financial statements.
In January 2010, the FASB issued guidance which clarifies and
provides additional disclosure requirements related to recurring
and non-recurring fair value measurements. Intevac must
implement these new requirements in its first quarter of fiscal
2010. Certain additional disclosures about purchases, sales,
issuances and settlements in the roll forward of activity in
Level 3 fair value measures are not effective until fiscal
years beginning after December 15, 2010. Other than
requiring additional disclosures, implementation of this new
guidance will not have a material impact on Intevacs
consolidated financial statements.
Liquidity
and Capital Resources
At December 31, 2009, Intevac had $89.8 million in
cash, cash equivalents, and investments compared to
$105.5 million at December 31, 2008. During fiscal
2009, cash, cash equivalents and investments decreased by
$15.7 million due primarily to cash used by operating
activities, purchases of fixed assets and a scheduled payment to
the owners of DeltaNu, LLC, partially offset by cash received
from the sale of Intevac common stock to employees through
employee benefit plans.
Cash, cash equivalents and investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
17,592
|
|
|
$
|
39,201
|
|
Short-term investments
|
|
|
6,000
|
|
|
|
|
|
Long-term investments
|
|
|
66,249
|
|
|
|
66,328
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash-equivalents and investments
|
|
$
|
89,841
|
|
|
$
|
105,529
|
|
|
|
|
|
|
|
|
|
|
Cash used by operating activities totaled $16.6 million in
2009 compared to $8.2 million in 2008. Cash generated by
operating activities totaled $40.6 million in 2007. Lower
operating cash flow was a result of a net loss adjusted to
exclude the effect of non-cash charges including, depreciation,
amortization and equity-based compensation. This decrease in
cash from operating activities was also affected by changes in
working capital. Intevac continues to carefully manage working
capital. Intevac believes that its efforts to reduce costs
through its global cost reduction plan and headcount
restructuring activity implemented in the fourth quarter of 2008
reduced its cash loss from operations to a level sustainable
until market conditions and Intevacs business improves.
Accounts receivable totaled $44.8 million at
December 31, 2009 compared to $15.0 million at
December 31, 2008. The number of days outstanding for
Intevacs accounts receivable were 136 at December 31,
2009 compared to 45 at December 31, 2008. The increase in
the receivable balance and days outstanding was due primarily to
invoicing the deposits on orders for eight 200 Lean systems as
well as having three 200 Lean systems recognized as revenue late
in the fourth quarter of 2009. Net inventories increased by
$1.4 million during 2009 due primarily to an increase in
finished goods related to the deferred revenue system discussed
below. Inventory turns were 2.5 in fiscal 2009 compared to 3.4
in fiscal 2008. Accounts payable totaled $4.7 million at
December 31, 2009 compared to $4.2 million at
December 31, 2008. The increase of $487,000 relates to the
increase in inventory purchases as a result of increased
business levels. Accrued payroll and related liabilities
decreased by $611,000 during 2009 to
31
$2.8 million. Other accrued liabilities increased from
$3.2 million at December 31, 2008 to
$11.1 million at December 31, 2009, primarily due to
deferral of revenue on a 200 Lean system shipment in the fourth
quarter until customer acceptance and demonstration of product
specifications. Customer advances increased from
$2.8 million at December 31, 2008 to
$13.2 million at December 31, 2009 due to the increase
in backlog at December 31, 2009.
Investing activities in 2009 used cash of $4.1 million,
generated cash of $19.6 million in 2008 and used cash of
$59.4 million in 2007. In 2009, purchases of investments,
net of proceeds from sales and maturities, totaled
$1.5 million. In 2008 proceeds from maturities of
investments, net of purchases, totaled $38.9 million. In
2007, purchases of investments, net of proceeds from sales and
maturities, totaled $49.2 million. During 2008, Intevac
invested $15.1 million in the acquisition of certain assets
from Oerlikon. During 2007, Intevac invested $6.9 million
in the acquisitions of DeltaNu and CDS, and Intevac sold
Intevacs investment in 601 California Avenue LLC. Capital
expenditures totaled $2.6 million in 2009, compared to
$4.2 million in 2008, and $5.7 million in 2007.
Financing activities used cash of $809,000 in 2009 and generated
cash of $165,000 in 2008 and $6.9 million in 2007. The sale
of Intevac common stock to Intevacs employees through
Intevacs employee benefit plans provided $1.1 million
in 2009, $1.8 million in 2008, and $3.9 million in
2007. Intevac realized tax benefits from equity-based
compensation of $3.0 million in 2007. In 2009 and 2008,
Intevac made scheduled payments of $2.0 million each to the
former owners of DeltaNu.
As of December 31, 2009, Intevacs available-for-sale
securities represented $70.0 million par value of auction
rate securities (ARS), less a temporary valuation
adjustment of $3.7 million to reflect their current lack of
liquidity. Management believes that the impairment of the ARS
investments is temporary. Due to current market conditions,
these investments have experienced failed auctions beginning in
mid-February 2008. These failed auctions result in a lack of
liquidity in the securities, but do not affect the underlying
collateral of the securities. Intevac does not anticipate that
any potential lack of liquidity in these ARS will affect its
ability to finance its operations and planned capital
expenditures. Intevac continues to monitor efforts by the
financial markets to find alternative means for restoring the
liquidity of these investments. These investments are classified
as non-current assets until Intevac has better visibility as to
when their liquidity will be restored. The classification and
valuation of these securities will continue to be reviewed
quarterly. During fiscal 2009 and 2008, $4.5 million and
$14.1 million, respectively of ARS were redeemed at par.
As described in Note 8 of Notes to Consolidated Financial
Statements, at December 31, 2009, the fair value of the ARS
was estimated at $66.2 million based on a valuation by
Houlihan Smith & Company, Inc., using discounted cash
flow models and applying managements internal analysis to
the valuation. The estimates of future cash flows are based on
certain key assumptions, such as discount rates appropriate for
the type of asset and risk, which are significant unobservable
inputs. As of December 31, 2009, there was insufficient
observable market information for the ARS held by Intevac to
determine the fair value. Therefore Level 3 fair values
were estimated for these securities by incorporating assumptions
that market participants would use in their estimates of fair
value. Some of these assumptions included credit quality,
collateralization, final stated maturity, estimates of the
probability of being called or becoming liquid prior to final
maturity, redemptions of similar ARS, previous market activity
for the same investment security, impact due to extended periods
of maximum auction rates and valuation models.
On March 19, 2009, Intevac filed a statement of claim under
the Financial Industry Regulatory Authority dispute resolution
process against Citigroup Inc. and Citigroup Global Markets,
Inc. (collectively, Citigroup) with respect to
alleged fraud and market manipulation by Citigroup related to
ARS. The statement of claim requests that Citigroup accept
Intevacs tender of its ARS at par value and that Intevac
receive compensatory, consequential and punitive damages and
expenses. Citigroup responded denying Intevacs claims.
Intevac is currently in the discovery stage of this matter and
an arbitration date of May 13, 2010 has been agreed upon
for commencement of the arbitration of this dispute.
Intevac has entered into a line of credit with Citigroup Global
Markets Inc. under which approximately $18.5 million is
available. Intevac intends to use this line to help secure its
ability to fund cash requirements until Intevac is able to
liquidate its ARS holdings. For additional information on this
borrowing facility, see Note 10 of Notes to Consolidated
Financial Statements.
32
Intevac believes that Intevacs existing cash, cash
equivalents and investments will be sufficient to meet
Intevacs cash requirements for the foreseeable future.
Intevac intends to undertake approximately $6.5 million in
capital expenditures during the next 12 months.
Contractual
Obligations
The following table summarizes Intevacs contractual
obligations as of December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
< 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
> 5 Years
|
|
|
|
(In thousands)
|
|
|
Operating lease obligations
|
|
$
|
5,422
|
|
|
$
|
2,340
|
|
|
$
|
3,082
|
|
|
$
|
|
|
|
$
|
|
|
Purchase obligations and commitments(1)
|
|
|
13,071
|
|
|
|
13,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities(2)
|
|
|
252
|
|
|
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(3)
|
|
$
|
18,745
|
|
|
$
|
15,663
|
|
|
$
|
3,082
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, $782,000
of unrecognized tax benefits has been excluded from the table
above. |
|
(3) |
|
Total excludes contractual obligations already recorded on the
consolidated balance sheet as current liabilities (except other
long-term liabilities) and certain purchase obligations. |
Off-Balance
Sheet Arrangements
As of December 31, 2008, Intevac did not have any material
off-balance sheet arrangements (as defined in
Item 303(a)(4)(ii) of
Regulation S-K).
Critical
Accounting Policies
The preparation of consolidated financial statements and related
disclosures in conformity with accounting principles generally
accepted in the United States of America requires management to
make judgments, assumptions and estimates that affect the
amounts reported. Note 1 of Notes to Consolidated Financial
Statements describes the significant accounting policies used in
the preparation of the consolidated financial statements.
Certain of these significant accounting policies are considered
to be critical accounting policies.
A critical accounting policy is defined as one that is both
material to the presentation of Intevacs consolidated
financial statements and requires management to make difficult,
subjective or complex judgments that could have a material
effect on Intevacs financial condition or results of
operations. Specifically, these policies 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
Intevacs financial condition or results of operations.
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 Intevacs
operating environment changes. These changes have historically
been minor and have been included in the consolidated financial
statements as soon as they became 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. These uncertainties are discussed in the
section above entitled Risk Factors. Based on a
critical assessment of its accounting policies and the
underlying judgments and uncertainties affecting the application
of those policies, management believes that Intevacs
consolidated financial statements are fairly
33
stated in accordance with accounting principles generally
accepted in the United States of America, and provide a
meaningful presentation of Intevacs financial condition
and results of operations.
Management believes that the following are critical accounting
policies:
Revenue
Recognition
Intevac recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred and title and risk of
loss have passed to Intevacs customer or services have
been rendered, the price is fixed or determinable, and
collectibility is reasonably assured. Intevacs shipping
terms are customarily FOB shipping point or equivalent terms.
Intevacs revenue recognition policy generally results in
revenue recognition at the following points: (1) for all
transactions where legal title passes to the customer upon
shipment, Intevac recognizes revenue upon shipment for all
products that have been demonstrated to meet product
specifications prior to shipment; the portion of revenue
associated with certain installation-related tasks is deferred
based on the estimated fair value, and that revenue is
recognized upon completion of the installation-related tasks;
(2) for products that have not been demonstrated to meet
product specifications prior to shipment, revenue is recognized
at customer acceptance; and (3) for arrangements containing
multiple elements, the revenue relating to the undelivered
elements is deferred at estimated fair value until delivery of
the deferred elements. In certain cases, technology upgrade
sales are accounted for as multiple-element arrangements usually
split between delivery of the parts and installation on the
customers systems. In these cases, Intevac recognizes
revenue for the fair market value of the parts upon shipment and
transfer of title, and recognizes revenue for the fair market
value of installation services when those services are
completed. Revenue related to sales of spare parts is generally
recognized upon shipment. Revenue related to services is
generally recognized upon completion of the services.
Intevac performs research and development work under various
government-sponsored research contracts. Revenue on
cost-plus-fee contracts is recognized to the extent of costs
actually incurred plus a proportionate amount of the fee earned.
Intevac considers fixed fees under cost-plus-fee contracts to be
earned in proportion to the allowable costs actually incurred in
performance of the contract. Revenue on fixed-price contracts is
generally recognized using the percentage-of-completion method
of contract accounting. Intevac determines the percentage
completed based on the percentage of costs incurred to date in
relation to total estimated costs expected upon completion of
the contract. When estimates of total costs to be incurred on a
contract exceed total estimates of revenue to be earned, a
provision for the entire loss on the contract is recorded in the
period the loss is determined.
Inventories
Inventories are priced using average actual costs and are stated
at the lower of cost or market. The carrying value of inventory
is reduced for estimated obsolescence by the difference between
its cost and the estimated market value based upon assumptions
about future demand. Intevac evaluates the inventory carrying
value for potential excess and obsolete inventory exposures by
analyzing historical and anticipated demand. In addition,
inventories are evaluated for potential obsolescence due to the
effect of known and anticipated engineering change orders and
new products. If actual demand were to be substantially lower
than estimated, additional inventory adjustments for excess or
obsolete inventory might be required, which could have a
material adverse effect on Intevacs business, financial
condition and results of operations.
Warranty
Intevac estimates the costs that may be incurred under the
warranty it provides and records a liability in the amount of
such costs at the time the related revenue is recognized.
Estimated warranty costs are determined by analyzing specific
product and historical configuration statistics and regional
warranty support costs. Intevacs warranty obligation is
affected by product failure rates, material usage, and labor
costs incurred in correcting product failures during the
warranty period. As Intevacs customer service engineers
and process support engineers are highly trained and deployed
globally, labor availability is a significant factor in
determining labor costs. The quantity and availability of
critical replacement parts is another significant factor in
estimating warranty costs. Unforeseen component failures or
exceptional component performance can also result in changes to
warranty costs.
34
If actual warranty costs differ substantially from our
estimates, revisions to the estimated warranty liability would
be required.
Income
Taxes
Intevac accounts for income taxes by recognizing deferred tax
assets and liabilities using statutory tax rates for the effect
of temporary differences between the book and tax bases of
recorded assets and liabilities, net operating losses and tax
credit carryforwards. Deferred tax assets are also reduced by a
valuation allowance if it is more likely than not that a portion
of the deferred tax asset will not be realized. Management has
determined that it is more likely than not that its future
taxable income will be sufficient to realize its deferred tax
assets.
The effective tax rate is highly dependent upon the geographic
composition of worldwide earnings, tax regulations governing
each region, non-tax deductible expenses and availability of tax
credits. Management carefully monitors the changes in many
factors and adjusts the effective income tax rate as required.
If actual results differ from these estimates, Intevac could be
required to record a valuation allowance on deferred tax assets
or adjust its effective income tax rate, which could have a
material adverse effect on Intevacs business, financial
condition and results of operations.
The calculation of tax liabilities involves significant judgment
in estimating the impact of uncertainties in the application of
complex tax laws. Resolution of these uncertainties in a manner
inconsistent with Intevacs expectations could have a
material impact on Intevacs results of operations and
financial condition.
Goodwill
and Purchased Intangible Assets
Goodwill and purchased intangible assets with indefinite useful
lives are not amortized, but are reviewed for impairment
annually during the fourth quarter of each fiscal year and
whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. For goodwill,
Intevac performs a two-step impairment test. In the first step,
Intevac compares the fair value of each reporting unit to its
carrying value. Intevacs reporting units are consistent
with the reportable segments identified in Note 14, based
on the manner in which Intevac operates its business and the
nature of those operations. Depending on the facts and
circumstances Intevac determines the fair value of each of its
reporting units based upon the most appropriate valuation
technique using the income approach, the market approach or a
combination thereof. The income and market approaches were
selected as management believes these approaches generally
provide the most reliable indications of fair value when the
value of the operations is more dependent on the ability to
generate earnings than on the value of the assets used in the
production process. Under the income approach Intevac calculates
the fair value of the reporting units based on the present value
of estimated future cash flows. Under the market approach
Intevac estimates the fair value based on market multiples of
revenue or earnings for comparable companies. Each valuation
technique has advantages and drawbacks, which must be considered
when applying those techniques. The income approach closely
correlates to managements expectations of future results
but requires significant assumptions which can be highly
sensitive. The market approach is relatively straightforward to
measure, but it may be difficult to find directly comparable
companies in the marketplace. If the fair value of the reporting
unit exceeds the carrying value of the net assets assigned to
that unit, goodwill is not impaired and no further testing is
performed. If the carrying value of the net assets assigned to
the reporting unit exceeds the fair value of the reporting unit,
then Intevac would perform the second step of the impairment
test in order to determine the implied fair value of the
reporting units goodwill. If the carrying value of a
reporting units goodwill exceeds its implied fair value,
Intevac would record an impairment loss equal to the difference.
In the fourth quarter of 2008, Intevac recorded an impairment
charge of $10.5 million for goodwill and purchased
technology intangible assets due to a decline in market value
and lower revenue expectations in light of current operating
performance and future operating expectations. No impairment
charges were recognized in fiscal 2009.
Intevacs methodology for allocating the purchase price
relating to purchase acquisitions is determined through
established and generally accepted valuation techniques.
Goodwill is measured as the excess of the cost of the
acquisition over the sum of the amounts assigned to tangible and
identifiable intangible assets acquired less liabilities
assumed. Intevac assigns assets acquired (including goodwill)
and liabilities assumed to a reporting unit as of the date of
acquisition.
35
Equity-Based
Compensation
Intevac records compensation expense for equity-based awards
under Accounting Standards Codification (ASC) 718,
Compensation-Stock Compensation, using the
Black-Scholes option pricing model. This model requires Intevac
to estimate the expected volatility of the price of
Intevacs common stock and the expected life of the
equity-based awards. ASC 718 also requires forfeiture estimates
of equity-based awards. Estimating volatility, expected life and
forfeitures requires significant judgment and an analysis of
historical data. Intevac may have to increase or decrease
compensation expense for equity-based awards if actual results
differ significantly from Intevacs estimates.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Interest rate risk. Intevacs exposure to
market risk for changes in interest rates relates primarily to
Intevacs investment portfolio. Intevac does not use
derivative financial instruments in Intevacs investment
portfolio. Intevac places investments with high quality credit
issuers and, by policy, limits the amount of credit exposure to
any one issuer. Investments typically consist of ARS and debt
instruments issued by the U.S. government and its agencies.
The table below presents principal amounts and related
weighted-average interest rates by year of maturity for
Intevacs investment portfolio at December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
2010
|
|
2011
|
|
2012
|
|
Beyond
|
|
Total
|
|
Value
|
|
|
(In thousands, except percentages)
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate amounts
|
|
$
|
9,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,255
|
|
|
$
|
9,255
|
|
Weighted-average rate
|
|
|
0.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate amounts
|
|
$
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
6,000
|
|
|
$
|
6,000
|
|
Weighted-average rate
|
|
|
0.06
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
69,950
|
|
|
$
|
69,950
|
|
|
$
|
66,249
|
|
Weighted-average rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
%
|
|
|
|
|
|
|
|
|
Total investment portfolio
|
|
$
|
15,255
|
|
|
|
|
|
|
|
|
|
|
$
|
69,950
|
|
|
$
|
85,205
|
|
|
$
|
81,504
|
|
At December 31, 2009, Intevac held investments in ARS. With
the liquidity issues experienced in global credit and capital
markets, Intevacs ARS have experienced multiple failed
auctions. Intevac continues to earn interest at the maximum
contractual rate for each security. The estimated values of the
ARS held by Intevac are no longer at par. As of
December 31, 2009, Intevac had $66.2 million in ARS in
the consolidated balance sheet, which is net of a temporary
unrealized loss of $3.7 million. Management believes that
the impairment of the ARS investments is temporary, primarily
due to the government guarantee of the underlying securities and
Intevacs ability to hold the ARS for the foreseeable
future. Management believes that it is more likely than not that
it would not be required to sell these securities before the
recovery of their par amounts. The unrealized loss is included
in other comprehensive loss.
Intevac continues to monitor the market for ARS and consider its
impact (if any) on the fair market value of its investments. If
the current market conditions continue, or the anticipated
recovery in market values does not occur, Intevac may be
required to record additional unrealized losses or record an
other-than-temporary impairment charge in 2010.
Based on Intevacs ability to access its cash, its expected
operating cash flows, and other sources of cash, Intevac does
not anticipate that the lack of liquidity of these investments
will affect Intevacs ability to operate its business in
the ordinary course.
Foreign exchange risk. From time to time,
Intevac enters into foreign currency forward exchange contracts
to economically hedge certain of Intevacs anticipated
foreign currency transaction, translation and re-measurement
exposures. The objective of these contracts is to minimize the
impact of foreign currency exchange rate movements on
Intevacs operating results. Intevac had no foreign
currency forward exchange contracts during any of the years
ended December 31, 2009, 2008 and 2007.
36
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
INTEVAC,
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
Contents
|
|
|
|
|
|
|
Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
38
|
|
Consolidated Balance Sheets
|
|
|
39
|
|
Consolidated Statements of Operations
|
|
|
40
|
|
Consolidated Statement of Stockholders Equity and
Comprehensive Income (Loss)
|
|
|
41
|
|
Consolidated Statements of Cash Flows
|
|
|
42
|
|
Notes to Consolidated Financial Statements
|
|
|
43
|
|
37
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Intevac, Inc.
We have audited the accompanying consolidated balance sheets of
Intevac, Inc. (a Delaware corporation) and subsidiaries
(collectively, the Company) as of December 31,
2009 and 2008, and the related consolidated statements of
operations, stockholders equity and comprehensive income
(loss), and cash flows for each of the three years in the period
ended December 31, 2009. Our audits of the basic financial
statements included the financial statement schedule listed in
the index appearing under Item 15(a). These financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Intevac, Inc. and subsidiaries as of
December 31, 2009 and 2008 and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2009 in conformity with
accounting principles generally accepted in the United States of
America. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Intevac, Inc. and subsidiaries internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) and our report
dated February 26, 2010 expressed an unqualified opinion on
the effectiveness of the Companys internal control over
financial reporting.
/s/ GRANT THORNTON LLP
San Jose, California
February 26, 2010
38
INTEVAC,
INC.
CONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except par value)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,592
|
|
|
$
|
39,201
|
|
Short-term investments
|
|
|
6,000
|
|
|
|
|
|
Trade and other accounts receivable, net of allowances of $133
and $145 at December 31, 2009 and 2008, respectively
|
|
|
44,756
|
|
|
|
15,014
|
|
Inventories
|
|
|
19,100
|
|
|
|
17,674
|
|
Prepaid expenses and other current assets
|
|
|
6,687
|
|
|
|
4,806
|
|
Deferred income tax assets
|
|
|
1,515
|
|
|
|
3,204
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
95,650
|
|
|
|
79,899
|
|
Property, plant and equipment, net
|
|
|
12,351
|
|
|
|
14,886
|
|
Long-term investments
|
|
|
66,249
|
|
|
|
66,328
|
|
Goodwill
|
|
|
7,905
|
|
|
|
7,905
|
|
Other intangible assets, net of amortization of $1,248 and $693
at December 31, 2009 and 2008, respectively
|
|
|
3,537
|
|
|
|
4,054
|
|
Deferred income taxes and other long-term assets
|
|
|
17,686
|
|
|
|
16,097
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
203,378
|
|
|
$
|
189,169
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Note payable
|
|
$
|
|
|
|
$
|
2,000
|
|
Accounts payable
|
|
|
4,701
|
|
|
|
4,214
|
|
Accrued payroll and related liabilities
|
|
|
2,784
|
|
|
|
3,395
|
|
Other accrued liabilities
|
|
|
11,104
|
|
|
|
3,175
|
|
Customer advances
|
|
|
13,180
|
|
|
|
2,807
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
31,769
|
|
|
|
15,591
|
|
Other long-term liabilities
|
|
|
252
|
|
|
|
509
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Undesignated preferred stock, $0.001 par value,
10,000 shares authorized, no shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value :
|
|
|
|
|
|
|
|
|
Authorized shares 50,000 issued and outstanding
shares 22,079 and 21,805 at December 31, 2009
and 2008, respectively
|
|
|
22
|
|
|
|
22
|
|
Additional
paid-in-capital
|
|
|
134,071
|
|
|
|
128,686
|
|
Accumulated other comprehensive loss
|
|
|
(1,828
|
)
|
|
|
(4,808
|
)
|
Retained earnings
|
|
|
39,092
|
|
|
|
49,169
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
171,357
|
|
|
|
173,069
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
203,378
|
|
|
$
|
189,169
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
39
INTEVAC,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems and components
|
|
$
|
61,893
|
|
|
$
|
95,962
|
|
|
$
|
202,292
|
|
Technology development
|
|
|
16,088
|
|
|
|
14,345
|
|
|
|
13,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
77,981
|
|
|
|
110,307
|
|
|
|
215,834
|
|
Cost of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems and components
|
|
|
36,172
|
|
|
|
58,503
|
|
|
|
112,376
|
|
Technology development
|
|
|
9,089
|
|
|
|
8,465
|
|
|
|
7,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of net revenues
|
|
|
45,261
|
|
|
|
66,968
|
|
|
|
119,791
|
|
Gross profit
|
|
|
32,720
|
|
|
|
43,339
|
|
|
|
96,043
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
28,064
|
|
|
|
35,083
|
|
|
|
40,137
|
|
Selling, general and administrative
|
|
|
22,003
|
|
|
|
28,229
|
|
|
|
28,470
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
10,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
50,067
|
|
|
|
73,810
|
|
|
|
68,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(17,347
|
)
|
|
|
(30,471
|
)
|
|
|
27,436
|
|
Interest income
|
|
|
1,362
|
|
|
|
3,968
|
|
|
|
6,544
|
|
Other income (expense), net
|
|
|
(108
|
)
|
|
|
(36
|
)
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
(16,093
|
)
|
|
|
(26,539
|
)
|
|
|
35,578
|
|
Provision (benefit) for income taxes
|
|
|
(6,016
|
)
|
|
|
(11,194
|
)
|
|
|
8,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,077
|
)
|
|
$
|
(15,345
|
)
|
|
$
|
27,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
1.28
|
|
Diluted
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
1.23
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,975
|
|
|
|
21,724
|
|
|
|
21,447
|
|
Diluted
|
|
|
21,975
|
|
|
|
21,724
|
|
|
|
22,150
|
|
See accompanying notes.
40
INTEVAC,
INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND
COMPREHENSIVE INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
Earnings
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
(Accumulated
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Deficit)
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
21,188
|
|
|
$
|
99,468
|
|
|
$
|
7,319
|
|
|
$
|
354
|
|
|
$
|
37,169
|
|
|
$
|
144,310
|
|
Shares issued in connection with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
313
|
|
|
|
2,141
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
2,494
|
|
Employee stock purchase plan
|
|
|
90
|
|
|
|
671
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
1,375
|
|
Reclassification of par value for Delaware
|
|
|
|
|
|
|
(102,258
|
)
|
|
|
102,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefits realized from activity in employee stock
plans
|
|
|
|
|
|
|
|
|
|
|
3,009
|
|
|
|
|
|
|
|
|
|
|
|
3,009
|
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,379
|
|
|
|
|
|
|
|
|
|
|
|
6,379
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,345
|
|
|
|
27,345
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
251
|
|
|
|
|
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
21,591
|
|
|
$
|
22
|
|
|
$
|
120,022
|
|
|
$
|
605
|
|
|
$
|
64,514
|
|
|
$
|
185,163
|
|
Shares issued in connection with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
48
|
|
|
|
|
|
|
|
322
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
Employee stock purchase plan
|
|
|
166
|
|
|
|
|
|
|
|
1,516
|
|
|
|
|
|
|
|
|
|
|
|
1,516
|
|
Income tax benefits realized from activity in employee stock
plans
|
|
|
|
|
|
|
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
327
|
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,499
|
|
|
|
|
|
|
|
|
|
|
|
6,499
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,345
|
)
|
|
|
(15,345
|
)
|
Unrealized loss on securities held as
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,072
|
)
|
|
|
|
|
|
|
(8,072
|
)
|
Deferred taxes on unrealized loss on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,825
|
|
|
|
|
|
|
|
2,825
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(166
|
)
|
|
|
|
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
21,805
|
|
|
$
|
22
|
|
|
$
|
128,686
|
|
|
$
|
(4,808
|
)
|
|
$
|
49,169
|
|
|
$
|
173,069
|
|
Shares issued in connection with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
34
|
|
|
|
|
|
|
|
223
|
|
|
|
|
|
|
|
|
|
|
|
223
|
|
Employee stock purchase plan
|
|
|
240
|
|
|
|
|
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
|
899
|
|
Income tax benefits realized from activity in employee stock
plans
|
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
69
|
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
4,194
|
|
|
|
|
|
|
|
|
|
|
|
4,194
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,077
|
)
|
|
|
(10,077
|
)
|
Unrealized gain on securities held as
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,371
|
|
|
|
|
|
|
|
4,371
|
|
Deferred taxes on unrealized gain on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,529
|
)
|
|
|
|
|
|
|
(1,529
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
22,079
|
|
|
$
|
22
|
|
|
$
|
134,071
|
|
|
$
|
(1,828
|
)
|
|
$
|
39,092
|
|
|
$
|
171,357
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
41
INTEVAC,
INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(10,077
|
)
|
|
$
|
(15,345
|
)
|
|
$
|
27,345
|
|
Adjustments to reconcile net income (loss) to net cash and cash
equivalents provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization
|
|
|
5,031
|
|
|
|
4,709
|
|
|
|
4,203
|
|
Net accretion of investment premiums and discounts
|
|
|
(20
|
)
|
|
|
(256
|
)
|
|
|
(175
|
)
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
10,498
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
554
|
|
|
|
700
|
|
|
|
218
|
|
Equity-based compensation
|
|
|
4,255
|
|
|
|
6,577
|
|
|
|
6,270
|
|
Deferred income taxes
|
|
|
(87
|
)
|
|
|
(8,002
|
)
|
|
|
(1,654
|
)
|
Excess tax benefits from equity-based compensation
|
|
|
(69
|
)
|
|
|
(327
|
)
|
|
|
(3,009
|
)
|
Loss on disposal of equipment
|
|
|
57
|
|
|
|
7
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(28,935
|
)
|
|
|
765
|
|
|
|
26,687
|
|
Inventories
|
|
|
(1,411
|
)
|
|
|
4,434
|
|
|
|
16,657
|
|
Prepaid expenses and other assets
|
|
|
(3,177
|
)
|
|
|
(100
|
)
|
|
|
(2,537
|
)
|
Accounts payable
|
|
|
441
|
|
|
|
(3,468
|
)
|
|
|
(8,671
|
)
|
Accrued payroll and other accrued liabilities
|
|
|
6,902
|
|
|
|
(5,475
|
)
|
|
|
(3,964
|
)
|
Customer advances
|
|
|
9,967
|
|
|
|
(2,911
|
)
|
|
|
(20,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
(6,492
|
)
|
|
|
7,151
|
|
|
|
13,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents provided by (used in) operating
activities
|
|
|
(16,569
|
)
|
|
|
(8,194
|
)
|
|
|
40,634
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
(26,979
|
)
|
|
|
(7,000
|
)
|
|
|
(175,624
|
)
|
Proceeds from sales and maturities of investments
|
|
|
25,450
|
|
|
|
45,850
|
|
|
|
126,400
|
|
Sale of investment in 601 California Avenue LLC
|
|
|
|
|
|
|
|
|
|
|
2,431
|
|
Acquisition of Oerlikon assets, net of cash acquired
|
|
|
|
|
|
|
(15,093
|
)
|
|
|
|
|
Acquisition of DeltaNu, LLC, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(2,083
|
)
|
Acquisition of Creative Display Systems, LLC, net of cash
acquired
|
|
|
|
|
|
|
|
|
|
|
(4,782
|
)
|
Purchase of equipment
|
|
|
(2,615
|
)
|
|
|
(4,185
|
)
|
|
|
(5,735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents provided by (used in) investing
activities
|
|
|
(4,144
|
)
|
|
|
19,572
|
|
|
|
(59,393
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
1,122
|
|
|
|
1,838
|
|
|
|
3,869
|
|
Repayment of note payable
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
|
|
|
|
Excess tax benefits from equity-based compensation
|
|
|
69
|
|
|
|
327
|
|
|
|
3,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents provided by (used in) financing
activities
|
|
|
(809
|
)
|
|
|
165
|
|
|
|
6,878
|
|
Effect of exchange rate changes on cash
|
|
|
(87
|
)
|
|
|
(15
|
)
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(21,609
|
)
|
|
|
11,528
|
|
|
|
(11,767
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
39,201
|
|
|
|
27,673
|
|
|
|
39,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
17,592
|
|
|
$
|
39,201
|
|
|
$
|
27,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
713
|
|
|
$
|
410
|
|
|
$
|
11,644
|
|
Income tax refund
|
|
$
|
(2,821
|
)
|
|
$
|
(3,717
|
)
|
|
$
|
(259
|
)
|
Other non-cash changes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable issued for the acquisition of DeltaNu, LLC
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,720
|
|
See accompanying notes.
42
INTEVAC,
INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
1.
|
Summary
of Significant Accounting Policies
|
Principles
of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of
Intevac, Inc. and its subsidiaries (Intevac or the Company)
after elimination of inter-company balances and transactions.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ
materially from those estimates.
Cash,
Cash Equivalents and Investments
Intevac considers all highly liquid investments with original
maturities of three months or less when purchased to be cash
equivalents.
Available-for-sale
securities, consisting solely of Auction Rate Securities
(ARS), are carried at fair value, with unrealized
gains and losses recorded within other comprehensive income
(loss) as a separate component of stockholders equity.
Realized gains and losses and declines in value judged to be
other than temporary, if any, on
available-for-sale
securities are included in earnings.
Held-to-maturity
securities are carried at amortized cost. The cost of investment
securities sold is determined by the specific identification
method.
Fair
Value Measurement Definition and
Hierarchy
Intevac reports certain financial assets and liabilities at fair
value. Intevac measures fair value in accordance with Accounting
Standards Codification (ASC)
820-10,
Fair Value Measurements and Disclosures, which
defines fair value as the price that would be received from
selling an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date.
Fair value measurements are classified and disclosed in one of
the following three categories:
Level 1 Valuations based on quoted
prices in active markets for identical assets or liabilities.
Level 2 Valuations based on other than
quoted prices in active markets for identical assets and
liabilities, quoted prices for identical or similar assets or
liabilities in inactive markets, or other inputs that are
observable or can be corroborated by observable market data for
substantially the full term of the assets or liabilities.
Level 3 Valuations based on inputs that
are generally unobservable and typically reflect
managements estimates of assumptions that market
participants would use in pricing the asset or liability.
As of December 31, 2009, financial assets measured
utilizing: (1) Level 1 inputs included money market
funds in the amount of $9.3 million and U.S. Treasury
Bills in the amount of $6.0 million which were valued based
on quoted market prices in active markets for identical
securities, and (2) Level 3 inputs in the amount of
$66.2 million included long-term investments in ARS
consisting of securities collateralized by student loans which
were valued using a third-party valuation firm and management
applying internal analysis to the valuation (see Note 8).
At December 31, 2009, Intevac did not have any financial
assets measured utilizing Level 2 inputs. Also at
December 31, 2009, Intevac did not have any liabilities
that were required to be measured at fair value.
Trade
Receivables and Doubtful Accounts
Intevac evaluates the collectibility of trade receivables on an
ongoing basis and provides reserves against potential losses
when appropriate. Management analyzes historical bad debts,
customer concentrations, customer creditworthiness, changes in
customer payment tendencies and current economic trends when
evaluating the
43
adequacy of the allowance for doubtful accounts. Customer
accounts are written off against the allowance when the amount
is deemed uncollectible.
Included in trade receivables are unbilled receivables related
to government contracts of $2.1 million and
$1.3 million at December 31, 2009 and
December 31, 2008, respectively which includes $371,000 and
$329,000 of fee retention, respectively.
Inventories
Inventories are generally stated at the lower of cost or market,
with cost determined on an average cost basis.
Property,
Plant and Equipment
Equipment and leasehold improvements are stated at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets as follows: computers and
software, 3 years; machinery and equipment, 5 years;
furniture, 7 years; vehicles, 4 years; and leasehold
improvements, remaining lease term.
Goodwill
and Purchased Intangible Assets
Goodwill and purchased intangible assets with indefinite useful
lives are not amortized, but are reviewed for impairment
annually during the fourth quarter of each fiscal year and
whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. For goodwill,
Intevac performs a two-step impairment test. In the first step,
Intevac compares the fair value of each reporting unit to its
carrying value. Intevacs reporting units are consistent
with the reportable segments identified in Note 14, based
on the manner in which Intevac operates its business and the
nature of those operations. Depending on the facts and
circumstances Intevac determines the fair value of each of its
reporting units based upon the most appropriate valuation
technique using the income approach, the market approach or a
combination thereof. The income and market approaches were
selected as management believes these approaches generally
provide the most reliable indications of fair value when the
value of the operations is more dependent on the ability to
generate earnings than on the value of the assets used in the
production process. Under the income approach Intevac calculates
the fair value of the reporting units based on the present value
of estimated future cash flows. Under the market approach
Intevac estimates the fair value based on market multiples of
revenue or earnings for comparable companies. Each valuation
technique has advantages and drawbacks, which must be considered
when applying those techniques. The income approach closely
correlates to managements expectations of future results
but requires significant assumptions which can be highly
sensitive. The market approach is relatively straightforward to
measure, but it may be difficult to find directly comparable
companies in the marketplace. If the fair value of the reporting
unit exceeds the carrying value of the net assets assigned to
that unit, goodwill is not impaired and no further testing is
performed. If the carrying value of the net assets assigned to
the reporting unit exceeds the fair value of the reporting unit,
then Intevac would perform the second step of the impairment
test in order to determine the implied fair value of the
reporting units goodwill. If the carrying value of a
reporting units goodwill exceeds its implied fair value,
Intevac would record an impairment loss equal to the difference.
Intevac conducted these impairment tests in the fourth quarter
of fiscal 2009 and the results of these tests indicated that
Intevacs goodwill and purchased intangible asset with an
indefinite useful live were not impaired.
In the fourth quarter of fiscal 2008, Intevac recorded an
impairment charge of $10.5 million for goodwill and
purchased technology intangible assets due to a decline in
market value of Intevacs common stock and lower revenue
expectations in light of current operating performance and
future operating expectations.
Intevacs methodology for allocating the purchase price
relating to purchase acquisitions is determined through
established and generally accepted valuation techniques.
Goodwill is measured as the excess of the cost of the
acquisition over the sum of the amounts assigned to tangible and
identifiable intangible assets acquired less liabilities
assumed. Intevac assigns assets acquired (including goodwill)
and liabilities assumed to a reporting unit as of the date of
acquisition. Goodwill and indefinite life intangible assets are
tested for impairment on an annual basis and between annual
tests in certain circumstances, and written down when impaired.
In the fourth quarter of fiscal 2008, based upon an interim
impairment analysis Intevac wrote off all $9.7 million of
goodwill in its Equipment segment.
44
Purchased intangible assets other than goodwill are amortized
over their useful lives unless these lives are determined to be
indefinite. Purchased intangible assets are carried at cost,
less accumulated amortization. Amortization is computed over the
estimated useful lives of the respective assets, generally one
to thirteen years using the straight line method.
Impairment
of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets to
be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of
such assets may not be recoverable. Determination of
recoverability of long-lived assets is based on an estimate of
undiscounted future cash flows resulting from the use of the
asset and its eventual disposition. Measurement of an impairment
loss for long-lived assets and certain identifiable intangible
assets that management expects to hold and use is based on the
fair value of the asset. When an impairment loss is recognized,
the carrying amount of the asset is reduced to its estimated
fair value. As a result of Intevacs projected undiscounted
future cash flows related to certain of its intangible assets
being less than the carrying value of those assets, Intevac
recorded an impairment charge of $808,000 in fiscal 2008. No
impairment charges were recognized in fiscal 2009.
Income
Taxes
Deferred tax assets and liabilities are recognized using enacted
tax rates for the effect of temporary differences between book
and tax bases of recorded assets and liabilities. Deferred tax
assets are reduced by a valuation allowance if it is more likely
than not that a portion of the deferred tax asset will not be
realized.
On a quarterly basis, Intevac provides for income taxes based
upon an annual effective income tax rate. The effective tax rate
is highly dependent upon the level of Intevacs 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 Intevacs tax planning strategies. Intevac carefully
monitors the changes in many factors and adjust its effective
income tax rate on a timely basis. If actual results differ from
the estimates, this could have a material effect on
Intevacs business, financial condition and results of
operations.
The calculation of tax liabilities involves significant judgment
in estimating the impact of uncertainties in the application of
complex tax laws. Resolution of these uncertainties in a manner
inconsistent with Intevacs expectations could have a
material effect on Intevacs business, financial condition
and results of operations.
Intevac recognizes accrued interest and penalties related to
unrecognized tax benefits in the provision for income taxes.
Sales
and Value Added Taxes
Taxes collected from customers and remitted to governmental
authorities are presented on a net basis in the accompanying
Consolidated Statements of Operations.
Revenue
Recognition
Intevac recognizes revenue when persuasive evidence of an
arrangement exists, delivery has occurred and title and risk of
loss have passed to Intevacs customer or services have
been rendered, the price is fixed or determinable, and
collectibility is reasonably assured. Intevacs shipping
terms are customarily FOB shipping point or equivalent terms.
Intevacs revenue recognition policy generally results in
revenue recognition at the following points: (1) for all
transactions where legal title passes to the customer upon
shipment, Intevac recognizes revenue upon shipment for all
products that have been demonstrated to meet product
specifications prior to shipment; the portion of revenue
associated with certain installation-related tasks is deferred
based on the estimated fair value, and that revenue is
recognized upon completion of the installation-related tasks;
(2) for products that have not been demonstrated to meet
product specifications prior to shipment, revenue is recognized
at customer acceptance; and (3) for arrangements containing
multiple elements, the revenue relating to the undelivered
elements is deferred at estimated fair value until delivery of
the deferred elements. In certain cases, technology upgrade
sales are accounted for as multiple-element arrangements usually
split between delivery of the parts and installation on
45
the customers systems. In these cases, Intevac recognizes
revenue for the fair market value of the parts upon shipment and
transfer of title, and recognizes revenue for the fair market
value of installation services when those services are
completed. Revenue related to sales of spare parts is generally
recognized upon shipment. Revenue related to services is
generally recognized upon completion of the services.
Intevac performs research and development work under various
government-sponsored research contracts. Revenue on
cost-plus-fee contracts is recognized to the extent of costs
actually incurred plus a proportionate amount of the fee earned.
Intevac considers fixed fees under cost-plus-fee contracts to be
earned in proportion to the allowable costs actually incurred in
performance of the contract. Revenue on fixed-price contracts is
generally recognized using the
percentage-of-completion
method of contract accounting. Intevac determines the percentage
completed based on the percentage of costs incurred to date in
relation to total estimated costs expected upon completion of
the contract. When estimates of total costs to be incurred on a
contract exceed total estimates of revenue to be earned, a
provision for the entire loss on the contract is recorded in the
period the loss is determined.
Advertising
Costs
Advertising costs are expensed as incurred. Advertising costs
were not material for all periods presented.
Foreign
Currency Translation
The functional currency of Intevacs foreign subsidiaries,
with the exception of Hong Kong, is the local currency of the
country in which the respective subsidiary operates. Hong
Kongs functional currency is the U.S. dollar. Assets
and liabilities recorded in foreign currencies are translated at
year-end exchange rates; revenues and expenses are translated at
average exchange rates during the year. The effect of foreign
currency translation adjustments are included in
stockholders equity as a component of accumulated other
comprehensive income in the accompanying consolidated balance
sheets. The effects of foreign currency transactions are
included in other income in the determination of net income. Net
gains or (losses) from foreign currency transactions were
($226,000), ($31,000) and $62,000 in 2009, 2008 and 2007,
respectively.
Comprehensive
Income
The components of accumulated other comprehensive income (loss),
were as follows at December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Accumulated net unrealized holding loss on
available-for-sale
investments, net of tax
|
|
$
|
(2,405
|
)
|
|
$
|
(5,247
|
)
|
Foreign currency translation gains and losses
|
|
|
577
|
|
|
|
439
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
(1,828
|
)
|
|
$
|
(4,808
|
)
|
|
|
|
|
|
|
|
|
|
Employee
Stock Plans
Intevac has equity-based compensation plans that provide for the
grant to employees of equity-based awards, including incentive
or non-statutory stock options, restricted stock, stock
appreciation rights, performance units and performance shares.
In addition, these plans provide for the grant of non-statutory
stock options to non-employee directors and consultants. Intevac
also has an employee stock purchase plan, which provides
Intevacs employees with the opportunity to purchase
Intevac common stock at a discount through payroll deductions.
See Note 2 for a complete description of these plans and
their accounting treatment.
Recent
Accounting Pronouncements
In January 2009, the Securities and Exchange Commission
(SEC) issued Release
No. 33-9002,
Interactive Data to Improve Financial Reporting. The
final rule requires companies to provide their financial
statements and financial statement schedules to the SEC and on
their corporate websites in interactive data format using the
46
eXtensible Business Reporting Language (XBRL). The
rule was adopted by the SEC to improve the ability of financial
statement users to access and analyze financial data. The SEC
adopted a phase-in schedule indicating when registrants must
furnish interactive data. Under this schedule, Intevac will be
required to submit filings with financial statement information
using XBRL commencing with its June 25, 2011 quarterly
report on
Form 10-Q.
Intevac is currently evaluating the impact of XBRL reporting on
its financial reporting process.
In October 2009, the Financial Accounting Standards Board
(FASB) amended revenue recognition guidance for
arrangements with multiple deliverables. The guidance eliminates
the residual method of revenue recognition and allows the use of
managements best estimate of selling price for individual
elements of an arrangement when vendor specific objective
evidence (VSOE), vendor objective evidence
(VOE) or third-party evidence (TPE) is
unavailable. This guidance should be applied on a prospective
basis for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15,
2010, with early adoption permitted. Full retrospective
application of the guidance is optional. Intevac is currently
evaluating the impact of adopting this guidance on its
consolidated financial statements.
In October 2009, the FASB issued guidance which amends the scope
of existing software revenue recognition accounting. Tangible
products containing software components and non-software
components that function together to deliver the products
essential functionality would be scoped out of the accounting
guidance on software and accounted for based on other
appropriate revenue recognition guidance. This guidance should
be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on
or after June 15, 2010, with early adoption permitted. Full
retrospective application of the new guidance is optional. This
guidance must be adopted in the same period that Intevac adopts
the amended accounting for arrangements with multiple
deliverables described in the preceding paragraph. Intevac is
currently evaluating the impact of adopting this guidance on its
consolidated financial statements.
In January 2010, the FASB issued guidance which clarifies and
provides additional disclosure requirements related to recurring
and non-recurring fair value measurements. Intevac must
implement these new requirements in its first quarter of fiscal
2010. Certain additional disclosures about purchases, sales,
issuances and settlements in the roll forward of activity in
Level 3 fair value measures are not effective until fiscal
years beginning after December 15, 2010. Other than
requiring additional disclosures, implementation of this new
guidance will not have a material impact on Intevacs
consolidated financial statements.
|
|
2.
|
Equity-Based
Compensation
|
Intevac accounts for share-based awards in accordance with the
provisions of the revised accounting guidance which requires the
measurement and recognition of compensation expense for all
share-based payment awards made to employees, consultants and
directors based upon the grant-date fair value of those awards.
The estimated fair value of Intevacs equity-based awards,
less expected forfeitures, is amortized over the awards
service periods using the graded vesting attribution method.
During the years ended December 31, 2009, 2008 and 2007
Intevac recognized equity-based compensation expense related to
stock options and shares issued pursuant to its ESPP of
$4.3 million, $6.6 million and $6.3 million,
respectively.
Descriptions
of Plans
2004
Equity Incentive Plan
In 2004, the Board of Directors and Intevac stockholders
approved adoption of The 2004 Equity Incentive Plan (the
2004 Plan). The 2004 Plan serves as the successor
equity incentive program to the 1995 Stock Option/Stock Issuance
Plan (the 1995 Plan). Upon adoption of the 2004
Plan, all remaining shares available for issuance under the 1995
Plan were transferred to the 2004 Plan.
The 2004 Plan is a broad-based, long-term retention program
intended to attract and retain qualified management and
employees, and align stockholder and employee interests. The
2004 Plan permits the grant of incentive or non-statutory stock
options, restricted stock, stock appreciation rights,
performance units and performance shares. To date only stock
options have been issued pursuant to the 2004 Plan. Option
price, vesting period, and other terms are determined by the
administrator of the 2004 Plan, but the option price shall
generally not
47
be less than 100% of the fair market value per share on the date
of grant. As of December 31, 2009, 3.6 million shares
of common stock were authorized for future issuance under the
2004 Plan. Options granted under the 2004 Plan are exercisable
upon vesting and vest over periods of up to five years. Options
currently expire no later than ten years from the date of grant.
The 2004 Plan expires no later than March 10, 2014.
During the year ended December 31, 2009, Intevac granted
536,000 stock options pursuant to the 2004 Plan with an
estimated total grant-date fair value of $1.4 million. Of
this amount, Intevac estimated that the equity-based
compensation for option grants that will be forfeited, and are
therefore not expected to vest, was $319,000. During the year
ended December 31, 2008, Intevac granted 697,000 stock
options pursuant to the 2004 Plan with an estimated total
grant-date fair value of $4.3 million, including
7,500 shares granted to a consultant with a grant date fair
value of $50,000. Of this amount, Intevac estimated that the
equity-based compensation for option grants that will be
forfeited, and are therefore not expected to vest, was $904,000.
During the year ended December 31, 2007, Intevac granted
750,000 stock options with an estimated total grant-date fair
value of $7.4 million, including 3,000 shares granted
to a consultant with a grant date fair value of $24,000. Of this
amount, Intevac estimated that the equity-based compensation for
option grants that will be forfeited, and are therefore not
expected to vest, was $1.6 million.
2003
Employee Stock Purchase Plan
In 2003, Intevacs stockholders approved adoption of the
2003 Employee Stock Purchase Plan (the ESPP), which
serves as the successor to the Employee Stock Purchase Plan
originally adopted in 1995. Upon adoption of the ESPP, all
shares available for issuance under the prior plan were
transferred to the ESPP. The ESPP provides that eligible
employees may purchase Intevac 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 10% of their base earnings withheld to purchase
Intevac common stock. Under the ESPP, Intevac sold 240,000,
166,000 and 90,000 shares to employees in 2009, 2008 and
2007, respectively. As of December 31, 2009,
491,000 shares remained available for issuance under the
ESPP. During the years ended December 31, 2009, 2008, and
2007 Intevac granted purchase rights with an estimated total
grant-date fair value of $328,000, $1.0 million and
$2.0 million, respectively.
The effect of recording equity-based compensation for the years
ended December 31, 2009, 2008 and 2007 was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Equity-based compensation by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
3,418
|
|
|
$
|
5,252
|
|
|
$
|
5,517
|
|
Employee stock purchase plan
|
|
|
776
|
|
|
|
1,247
|
|
|
|
864
|
|
Amounts released to cost of sales (capitalized as inventory)
|
|
|
61
|
|
|
|
78
|
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation
|
|
|
4,255
|
|
|
|
6,577
|
|
|
|
6,270
|
|
Tax effect on equity-based compensation
|
|
|
(1,224
|
)
|
|
|
(1,785
|
)
|
|
|
(1,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect on net income
|
|
$
|
3,031
|
|
|
$
|
4,792
|
|
|
$
|
4,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately $41,000 and $102,000 of equity-based compensation
is included in inventory as of December 31, 2009 and 2008,
respectively.
48
Stock
Options
The exercise price of each stock option equals the market price
of Intevacs stock on the date of grant. Most options are
scheduled to vest over four years and expire no later than ten
years after the grant date. The fair value of each option grant
is estimated on the date of grant using the Black-Scholes option
pricing model. This model was developed for use in estimating
the value of publicly traded options that have no vesting
restrictions and are fully transferable. Intevacs employee
stock options have characteristics significantly different from
those of publicly traded options. The weighted average
assumptions used in the model are outlined in the following
table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
67.17
|
%
|
|
|
65.60
|
%
|
|
|
66.67
|
%
|
Risk free interest rate
|
|
|
2.01
|
%
|
|
|
2.87
|
%
|
|
|
4.05
|
%
|
Expected term of options (in years)
|
|
|
4.47
|
|
|
|
4.47
|
|
|
|
4.49
|
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
The computation of the expected volatility assumption used in
the Black-Scholes calculations for new grants is based on
historical volatility of Intevacs stock price. The
risk-free interest rate is based on the yield available on
U.S. Treasury Strips with an equivalent remaining term. The
expected life 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 stock-based awards and vesting
schedules. The dividend yield assumption is based on
Intevacs history of not paying dividends and the
assumption of not paying dividends in the future.
The weighted-average estimated fair value of employee stock
options granted during the years ended December 31, 2009,
2008 and 2007 was $2.57, $6.12 and $9.89 per share, respectively.
ESPP
The fair value of the employee stock purchase right is estimated
on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Stock Purchase Rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
82.56
|
%
|
|
|
62.65
|
%
|
|
|
63.15
|
%
|
Risk free interest rate
|
|
|
0.85
|
%
|
|
|
1.68
|
%
|
|
|
3.94
|
%
|
Expected term of purchase rights (in years)
|
|
|
1.85
|
|
|
|
1.87
|
|
|
|
1.97
|
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
The expected life of purchase rights is the period of time
remaining in the current offering period. The weighted-average
estimated fair value of employee stock purchase rights granted
pursuant to the ESPP during the years ended December 31,
2009, 2008 and 2007 was $2.73, $5.40 and $8.23 per share,
respectively.
49
Stock
Plan Activity
2004
Equity Incentive Plan
A summary of activity under the above captioned plan is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average Remaining
|
|
|
|
|
|
|
Weighted Average
|
|
Contractual Term
|
|
Aggregate Intrinsic
|
|
|
Shares
|
|
Exercise Price
|
|
(years)
|
|
Value
|
|
Options outstanding at December 31, 2008
|
|
|
2,926,411
|
|
|
$
|
12.83
|
|
|
|
7.13
|
|
|
$
|
683,649
|
|
Options granted
|
|
|
536,025
|
|
|
$
|
4.76
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(317,064
|
)
|
|
$
|
12.89
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(34,158
|
)
|
|
$
|
6.54
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2009
|
|
|
3,111,214
|
|
|
$
|
11.50
|
|
|
|
6.43
|
|
|
$
|
7,744,629
|
|
Vested and expected to vest at December 31, 2009
|
|
|
2,932,870
|
|
|
$
|
11.60
|
|
|
|
6.30
|
|
|
$
|
7,202,315
|
|
Options exercisable at December 31, 2009
|
|
|
1,827,023
|
|
|
$
|
11.94
|
|
|
|
5.03
|
|
|
$
|
4,299,791
|
|
The total intrinsic value of options exercised during fiscal
years 2009, 2008 and 2007 was $149,000, $204,000 and
$5.1 million, respectively. At December 31, 2009,
Intevac had $2.7 million of total unrecognized compensation
expense, net of estimated forfeitures, related to stock option
plans that will be recognized over the weighted average period
of 1.35 years.
The options outstanding and currently exercisable at
December 31, 2009 were in the following exercise price
ranges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Remaining
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Number of Shares
|
|
|
Contractual Term
|
|
|
Weighted Average
|
|
|
Vested and
|
|
|
Weighted Average
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
(In Years)
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
Exercise Price
|
|
|
$2.63 - $4.06
|
|
|
|
|
|
|
679,924
|
|
|
|
6.20
|
|
|
$
|
3.48
|
|
|
|
|
|
|
|
303,449
|
|
|
$
|
2.95
|
|
$4.07 - $7.72
|
|
|
|
|
|
|
379,650
|
|
|
|
5.26
|
|
|
$
|
7.06
|
|
|
|
|
|
|
|
295,775
|
|
|
$
|
7.20
|
|
$7.73 - $10.69
|
|
|
|
|
|
|
210,290
|
|
|
|
5.66
|
|
|
$
|
9.09
|
|
|
|
|
|
|
|
175,603
|
|
|
$
|
9.18
|
|
$10.70 - $15.40
|
|
|
|
|
|
|
792,025
|
|
|
|
7.82
|
|
|
$
|
12.34
|
|
|
|
|
|
|
|
321,320
|
|
|
$
|
12.39
|
|
$15.41 - $15.81
|
|
|
|
|
|
|
103,875
|
|
|
|
0.81
|
|
|
$
|
15.80
|
|
|
|
|
|
|
|
100,500
|
|
|
$
|
15.80
|
|
$15.82 - $16.13
|
|
|
|
|
|
|
573,700
|
|
|
|
6.67
|
|
|
$
|
16.12
|
|
|
|
|
|
|
|
369,376
|
|
|
$
|
16.13
|
|
$16.14 - $22.01
|
|
|
|
|
|
|
221,750
|
|
|
|
6.84
|
|
|
$
|
19.77
|
|
|
|
|
|
|
|
162,500
|
|
|
$
|
19.76
|
|
$22.12 - $29.45
|
|
|
|
|
|
|
150,000
|
|
|
|
6.59
|
|
|
$
|
25.15
|
|
|
|
|
|
|
|
98,500
|
|
|
$
|
24.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.63 - $29.45
|
|
|
|
|
|
|
3,111,214
|
|
|
|
6.43
|
|
|
$
|
11.50
|
|
|
|
|
|
|
|
1,827,023
|
|
|
$
|
11.94
|
|
2003
Employee Stock Purchase Plan
During fiscal years 2009, 2008 and 2007 the aggregate intrinsic
value of purchase rights exercised under the ESPP was
$1.0 million, $267,000 and $317,000, respectively,
determined as of the date of purchase. During fiscal years 2009,
2008 and 2007, 240,000, 166,000 and 90,000 shares were
purchased at an average per share price of $3.73, $9.15 and
$15.27. At December 31, 2009, there were
491,000 shares available to be issued under the ESPP. As of
December 31, 2009, Intevac had $306,000 of total
unrecognized compensation expense, net of estimated forfeitures
related to purchase rights that will be recognized over the
weighted average period of 0.5 years.
50
Intevac calculates basic earnings per share (EPS)
using net income (loss) and the weighted-average number of
shares outstanding during the reporting period. Diluted EPS
includes the effect from potential issuance of common stock
pursuant to the exercise of employee stock options.
The following table sets forth the computation of basic and
diluted income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for diluted earnings per share income
(loss) available to common stockholders
|
|
$
|
(10,077
|
)
|
|
$
|
(15,345
|
)
|
|
$
|
27,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
weighted-average shares
|
|
|
21,975
|
|
|
|
21,724
|
|
|
|
21,447
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options(1)
|
|
|
|
|
|
|
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share adjusted
|
|
|
21,975
|
|
|
|
21,724
|
|
|
|
22,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Potentially dilutive securities, consisting of shares issuable
upon exercise of employee stock options, are excluded from the
calculation of diluted EPS if their effect would be
anti-dilutive. The weighted average number of employee stock
options excluded from the twelve-month periods ended
December 31, 2009, 2008, and 2007 was 3,150,397, 2,760,874,
and 784,684 respectively. |
Credit
Risk and Significant Customers
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist of cash
equivalents, short- and long-term investments, and accounts
receivable. Intevac generally invests its excess cash in money
market funds, ARS and debt securities of the
U.S. government and its agencies. By policy, investments in
money market funds and ARS are rated AAA or better, and Intevac
limits the amount of credit exposure to any one issuer.
Intevacs accounts receivable tend to be concentrated in a
limited number of customers. At December 31, 2009, two
customers accounted for 47% and 35%, respectively, of
Intevacs accounts receivable and in aggregate accounted
for 82% of net accounts receivable. At December 31, 2008,
two customers accounted for 40% and 11%, respectively, of
Intevacs accounts receivable and in aggregate accounted
for 51% of net accounts receivable.
Intevacs largest customers tend to change from period to
period. Historically, a significant portion of Intevacs
revenues in any particular period have been attributable to
sales to a limited number of customers. In 2009, two customers
accounted for 38% and 17%, respectively, of consolidated net
revenues and in aggregate accounted for 55% of net revenues. In
2008, two customers accounted for 35% and 34%, respectively, of
consolidated net revenues and in aggregate accounted for 69% of
net revenues. In 2007, four customers accounted for 31%, 23%,
23% and 13%, respectively, of consolidated net revenues and in
aggregate accounted for 90% of net revenues. Intevac performs
credit evaluations of its customers financial condition
and generally requires deposits on system orders but does not
generally require collateral or other security to support
customer receivables.
Products
Disk manufacturing products contributed a significant portion of
Intevacs revenues in 2009, 2008, and 2007. Intevac expects
that the ability to maintain or expand its current levels of
revenues in the future will depend upon continuing market demand
for its products; its success in enhancing its existing systems
and developing and
51
manufacturing competitive disk manufacturing equipment, such as
the 200 Lean; Intevacs success in developing both military
and commercial products based on its low-light technology; and
its success in utilizing Intevacs expertise in complex
manufacturing equipment to develop new equipment products for
photovoltaic (PV) and semiconductor manufacturing.
Balance sheet details were as follows for the years ended
December 31, 2009 and 2008:
Inventory
Inventories are stated at the lower of average cost or market
and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
10,147
|
|
|
$
|
10,470
|
|
Work-in-progress
|
|
|
4,421
|
|
|
|
4,932
|
|
Finished goods
|
|
|
4,532
|
|
|
|
2,272
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,100
|
|
|
$
|
17,674
|
|
|
|
|
|
|
|
|
|
|
Finished goods inventory consists primarily of completed systems
at customer sites that are undergoing installation and
acceptance testing.
Inventory reserves included in the above numbers were
$6.1 million and $9.1 million at December 31,
2009 and 2008, respectively.
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Leasehold improvements
|
|
$
|
13,964
|
|
|
$
|
13,834
|
|
Machinery and equipment
|
|
|
30,577
|
|
|
|
28,263
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,541
|
|
|
|
42,097
|
|
Less accumulated depreciation and amortization
|
|
|
32,190
|
|
|
|
27,211
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
12,351
|
|
|
$
|
14,886
|
|
|
|
|
|
|
|
|
|
|
Customer
Advances
Customer advances generally represent nonrefundable deposits
invoiced by the Company in connection with receiving customer
purchase orders and other events preceding acceptance of
systems. Customer advances related to products that have not
been shipped to customers and included in accounts receivable
were $11.8 million at December 31, 2009 and
$1.7 million at December 31, 2008.
52
Other
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Deferred revenue
|
|
$
|
7,283
|
|
|
$
|
588
|
|
Other taxes payable
|
|
|
1,776
|
|
|
|
517
|
|
Accrued product warranties
|
|
|
1,550
|
|
|
|
1,286
|
|
Accrued income taxes
|
|
|
53
|
|
|
|
421
|
|
Other
|
|
|
442
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
Total other accrued liabilities
|
|
$
|
11,104
|
|
|
$
|
3,175
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Goodwill
and Purchased Intangible Assets, Net
|
Information regarding goodwill by reportable segment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intevac
|
|
|
|
|
|
|
Equipment
|
|
|
Photonics
|
|
|
Total
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
|
|
|
$
|
7,905
|
|
|
$
|
7,905
|
|
Goodwill acquired during the period
|
|
|
9,768
|
|
|
|
|
|
|
|
9,768
|
|
Impairment charges
|
|
|
(9,689
|
)
|
|
|
|
|
|
|
(9,689
|
)
|
Foreign exchange
|
|
|
(79
|
)
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
$
|
|
|
|
$
|
7,905
|
|
|
$
|
7,905
|
|
Goodwill acquired during the period
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
$
|
|
|
|
$
|
7,905
|
|
|
$
|
7,905
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and indefinite life intangible assets are tested for
impairment on an annual basis or more frequently upon the
occurrence of circumstances that indicate that goodwill and
indefinite life intangible assets may be impaired. Intevac
conducted these impairment tests in the fourth quarter of fiscal
2009 and the results of these tests indicated that
Intevacs goodwill and purchased intangible asset with an
indefinite useful live were not impaired.
In the fourth quarter of fiscal 2008, the Company experienced a
significant decline in its stock price. As a result of the
decline in its stock price, the Companys market
capitalization fell significantly below the recorded value of
its consolidated net assets. Based on the results of its
assessment of goodwill for impairment, Intevac determined that
the fair value of its Equipment reporting unit was less than the
carrying value and impairment existed. Therefore, Intevac
performed the second step of the impairment test to determine
the implied fair value of goodwill. The analysis indicated that
there would be no remaining implied value attributable to
goodwill in the Equipment reporting unit and accordingly,
Intevac wrote off all $9.7 million of goodwill in its
Equipment reporting unit. The goodwill associated with the
Intevac Photonics reporting unit was not impaired.
Information regarding other acquisition-related intangible
assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
3,181
|
|
|
$
|
677
|
|
|
$
|
2,504
|
|
|
$
|
3,152
|
|
|
$
|
282
|
|
|
$
|
2,870
|
|
Purchased technology
|
|
|
1,145
|
|
|
|
243
|
|
|
|
902
|
|
|
|
1,136
|
|
|
|
101
|
|
|
|
1,035
|
|
Covenants not to compete
|
|
|
140
|
|
|
|
129
|
|
|
|
11
|
|
|
|
140
|
|
|
|
111
|
|
|
|
29
|
|
Backlog
|
|
|
199
|
|
|
|
199
|
|
|
|
|
|
|
|
199
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
4,665
|
|
|
|
1,248
|
|
|
|
3,417
|
|
|
|
4,627
|
|
|
|
693
|
|
|
|
3,934
|
|
Indefinite life tradename
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
4,785
|
|
|
$
|
1,248
|
|
|
$
|
3,537
|
|
|
$
|
4,747
|
|
|
$
|
693
|
|
|
$
|
4,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
During the fourth quarter of fiscal year 2008 Intevac performed
an impairment test on intangible assets and determined that
certain purchased technology assets in the Equipment and Intevac
Photonics segments were impaired due to lower revenue
expectations and future operating expectations. The
determination was based on reviewing estimated undiscounted cash
flows for these intangible assets, which were less than their
carrying values. As a result, Intevac recorded an impairment
charge of $808,000 in fiscal 2008, which represented the
difference between the estimated fair values of these intangible
assets as compared to their carrying fair values which were
determined based upon market conditions, the income approach
which utilized cash flow projections, and other factors.
Total amortization expense of purchased intangibles for the
years ended December 31, 2009, 2008 and 2007 was $554,000,
$700,000 and $218,000 respectively. Future amortization expense
is expected to be $552,000 for 2010, $541,000 for 2011, $541,000
for 2012, $541,000 for 2013, $363,000 for 2014 and $879,000
thereafter. Intangible assets by segment as of December 31,
2009 are as follows: Equipment; $2.4 million and Intevac
Photonics; $1.1 million.
On July 14, 2008, Intevac acquired certain assets and
liabilities of OC Oerlikon Balzers Ltd.
(Oerlikon)s magnetic media equipment business
for a purchase price of $15.1 million in cash, net of cash
acquired. In addition Intevac agreed to pay contingent
consideration to Oerlikon in the form of a royalty on
Intevacs net revenue from commercial sales of certain
products. This agreement terminates on July 13, 2011.
Intevac has made no payments to Oerlikon under this agreement
through December 31, 2009. As part of the acquisition,
Intevac also entered into a settlement agreement with Oerlikon
related to a patent infringement lawsuit filed by Intevac
against Unaxis USA, Inc., a wholly owned subsidiary of Oerlikon,
and all claims in the litigation were dismissed.
In connection with this acquisition, Intevac recorded goodwill
of $9.8 million and intangible assets of $3.8 million.
Of the $3.8 million of acquired intangible assets,
$2.6 million was assigned to customer relationships (to be
amortized over 6 to 9 years), $1.2 million was
assigned to purchased technology (to be amortized over 3 to
7 years) and $80,000 was assigned to acquired backlog (to
be amortized over 1 year). Future contingent payments will
also be allocated to goodwill.
On November 9, 2007, Intevac acquired the assets and
certain liabilities of Creative Display Systems, LLC
(CDS) for a purchase price of $4.8 million in
cash, net of cash acquired. The acquired business is a supplier
of high-performance micro-display products for near-eye and
portable applications in defense and commercial markets. In
connection with this acquisition, Intevac recorded goodwill of
$2.5 million and intangible assets of $1.6 million. Of
the $1.6 million of acquired intangible assets, $890,000
was assigned to purchased technology (to be amortized over
10 years), $560,000 was assigned to customer relationships
(to be amortized over 13 years), $110,000 was assigned to
acquired backlog (to be amortized over 1 year), and $40,000
was assigned to covenants not to compete (to be amortized over
3 years).
On January 31, 2007, Intevac acquired the assets and
certain liabilities of DeltaNu, LLC (DeltaNu) for a
purchase price of $5.8 million of which $2.0 million
was paid in cash at the close of the acquisition,
$2.0 million was paid on January 31, 2008 and
$2.0 million was paid on January 31, 2009, which was
in the form of a non interest-bearing note. Interest was
imputed, and the related note payable was recorded at a discount
in the accompanying Consolidated Balance Sheets. The acquired
business is a supplier of small footprint and handheld Raman
spectrometry instruments. In connection with this acquisition,
Intevac recorded goodwill of $5.4 million, an
indefinite-life tradename of $120,000 and amortizable intangible
assets of $280,000 which are comprised of customer
relationships, covenants not to compete and backlog to be
amortized over their respective useful lives of 1-2 years.
The results of operations for the acquired businesses have been
included in Intevacs consolidated statements of operations
for the periods subsequent to their respective acquisition
dates. Pro forma results of operations have not been presented
because the effects of the acquisitions, individually and in
aggregate, were not material.
54
Intevacs investment portfolio consists of cash, cash
equivalents and investments in ARS and debt securities of the
U.S. government and its agencies. Included in accounts
payable is $722,000 and $916,000 of book overdraft at
December 31, 2009 and 2008, respectively.
The table below presents the estimated fair value or amortized
principal amount and major security type for Intevacs
investments:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Carrying value:
|
|
|
|
|
|
|
|
|
Short-term investments-U.S. treasury bills
|
|
$
|
6,000
|
|
|
$
|
|
|
Long-term investments-ARS
|
|
|
66,249
|
|
|
|
66,328
|
|
|
|
|
|
|
|
|
|
|
Total investments in debt securities
|
|
$
|
72,249
|
|
|
$
|
66,328
|
|
|
|
|
|
|
|
|
|
|
Approximate fair value of investments in debt securities
|
|
$
|
72,249
|
|
|
$
|
66,328
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, financial assets measured
utilizing Level 1 inputs were valued based on quoted market
prices in active markets for identical securities and included
money market funds in the amount of $9.3 million and
U.S. Treasury Bills in the amount of $6.0 million.
As of December 31, 2009, Intevacs investment
portfolio included $70.0 million par value in ARS. All of
the ARS are student loan structured issues, where the loans have
been originated under the U.S. Department of
Educations Federal Family Education Loan Program. The
principal and interest are
97-98%
reinsured by the U.S. Department of Education and the
collateral ratios range from 102% to 115%. Securities with a par
value of $57.7 million are rated AAA/Aaa, securities with a par
value of $9.3 million are rated AAA/A3 and a security with
a par value of $3.0 million is rated AAA/Baa3. These
investments have experienced failed auctions beginning in
February 2008. The investments in ARS will not be accessible
until a successful auction occurs, they are restructured into a
more liquid security, a buyer is found outside of the auction
process, or the underlying securities have matured.
As of December 31, 2009, there was insufficient observable
market information for the ARS held by Intevac to determine the
fair value. Therefore Level 3 fair values were estimated
for these securities by incorporating assumptions that market
participants would use in their estimates of fair value. At
December 31, 2009, the fair value of the ARS was estimated
at $66.2 million based on a valuation by Houlihan
Smith & Company, Inc. using discounted cash flow
models and management applying internal analysis to the
valuation. The estimates of future cash flows are based on
certain key assumptions, such as discount rates appropriate for
the type of asset and risk, which are significant unobservable
inputs. Some of these assumptions included credit quality,
collateralization, final stated maturity, estimates of the
probability of being called or becoming liquid prior to final
maturity, redemptions of similar ARS, previous market activity
for the same investment security, impact due to extended periods
of maximum auction rates and valuation models. These securities
are classified as long-term assets, as management believes that
the ARS market will not become liquid within the next year.
Potentially, it could take until the final maturity of the
underlying notes (ranging from 23 years to 39 years)
to realize these investments recorded values.
Management believes that the impairment of the ARS investments
is temporary, primarily due to the government guarantee of the
underlying securities and Intevacs ability to hold these
securities for the foreseeable future. Management believes that
it is more likely than not that it would not be required to sell
these securities before the recovery of their par amounts. A
temporary impairment charge results in an unrealized loss being
recorded in the other comprehensive income component of
stockholders equity. Such an unrealized loss does not
reduce net income for the applicable accounting period, because
the loss is not viewed as
other-than-temporary.
The factors evaluated to differentiate between temporary and
other-than-temporary
include the projected future cash flows, credit ratings actions,
and assessment of the credit quality of the underlying
collateral. Factors considered in determining whether a loss is
temporary include length of time and the extent to which the
investments fair value
55
has been less than the cost basis, the financial condition and
near-term prospects of the issuer, including any specific events
which may influence the operations of the issuer, and
Intevacs intent and ability to retain the investment for a
period of time sufficient to allow for any anticipated recovery
of fair value. As of December 31, 2009, management has no
reason to believe that any of the underlying issuers of
Intevacs ARS or their insurers are presently at risk or
that the underlying credit quality of the assets backing
Intevacs ARS has been impacted by the reduced liquidity of
these investments. As of December 31, 2009, based on the
Level 3 valuation performed, Intevac determined that there
was a temporary decline in fair value of its ARS of
$3.7 million.
On March 19, 2009, Intevac filed a statement of claim under
the Financial Industry Regulatory Authority dispute resolution
process against Citigroup Inc. and Citigroup Global Markets,
Inc. (collectively, Citigroup) with respect to
alleged fraud and market manipulation by Citigroup related to
ARS. The statement of claim requests that Citigroup accept
Intevacs tender of its ARS at par value and that Intevac
receive compensatory, consequential and punitive damages and
costs and expenses. Citigroup responded denying Intevacs
claims. Intevac is currently in the discovery stage of this
matter. An arbitration date of May 13, 2010 has been agreed
upon for commencement of the arbitration of this dispute. As of
December 31, 2009, the total par amount of ARS held by
Intevac which are subject to the Citigroup claim amounted to
$55.8 million.
The following table presents the changes in Level 3
instruments measured on a recurring basis for the years ended
December 31, 2009 and 2008. The majority of Intevacs
Level 3 balances consist of investment securities
classified as
available-for-sale
with changes in fair value recorded in equity.
Changes in Level 3 instruments (in thousands):
|
|
|
|
|
|
|
|
|
Investment securities at January 1, 2008
|
|
|
|
|
|
$
|
81,450
|
|
Net unrealized gains and losses included in earnings
|
|
|
|
|
|
|
|
|
Net unrealized gains and losses included in other comprehensive
income
|
|
|
|
|
|
|
(8,072
|
)
|
Purchases
|
|
|
|
|
|
|
7,000
|
|
Settlements
|
|
|
|
|
|
|
(14,050
|
)
|
|
|
|
|
|
|
|
|
|
Investment securities at December 31, 2008
|
|
|
|
|
|
|
66,328
|
|
Net unrealized gains and losses included in earnings
|
|
|
|
|
|
|
|
|
Net unrealized gains and losses included in other comprehensive
income
|
|
|
|
|
|
|
4,371
|
|
Settlements
|
|
|
|
|
|
|
(4,450
|
)
|
|
|
|
|
|
|
|
|
|
Investment securities at December 31, 2009
|
|
|
|
|
|
$
|
66,249
|
|
|
|
|
|
|
|
|
|
|
601
California Avenue LLC
In 1995, Intevac entered into a Limited Liability Company
Operating Agreement (the Operating Agreement), with
601 California Avenue LLC (the LLC), a California
limited liability company formed and owned by Intevac and
certain stockholders of Intevac. Under the Operating Agreement
Intevac transferred its leasehold interest in the site of its
discontinued night vision business in exchange for a Preferred
Share in the LLC with a face value of $3.9 million. During
1996, the LLC formed a joint venture with Stanford University
(the Stanford JV) to develop and lease the property.
In December 2007, the Stanford JV sold the property, and LLC
redeemed Intevacs $3.9 million Preferred Share.
Intevac accounted for the investment under the cost method and
originally recorded Intevacs investment in the LLC at
$2,431,000, which represented Intevacs historical carrying
value of the leasehold interest in the site. The Company
received dividends of $292,500 in 2007 from LLC. These dividends
and the $1,469,000 gain realized upon redemption of the
Preferred Share in December 2007 were included in other income
and expense.
56
On March 5, 2008, Intevac entered into an agreement with
Citigroup for a secured revolving loan facility. This loan
facility may be terminated at the discretion of Citigroup and
amounts outstanding are payable on demand. It is secured by
Intevacs ARS held at Citigroup. Approximately
$18.5 million of credit is currently available pursuant to
the loan facility. The interest rate on the loan facility is
prime minus 1.5 percent. No amounts were outstanding under
this credit facility at December 31, 2009.
The provision for (benefit from) income taxes on income (loss)
from continuing operations consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
(3,927
|
)
|
|
$
|
(3,498
|
)
|
|
$
|
9,534
|
|
Deferred
|
|
|
(3,860
|
)
|
|
|
(7,442
|
)
|
|
|
(1,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,787
|
)
|
|
|
(10,940
|
)
|
|
|
8,027
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Deferred
|
|
|
1,567
|
|
|
|
(560
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,570
|
|
|
|
(557
|
)
|
|
|
(144
|
)
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
201
|
|
|
|
303
|
|
|
|
350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6,016
|
)
|
|
$
|
(11,194
|
)
|
|
$
|
8,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes (benefit) consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
U.S.
|
|
$
|
(22,513
|
)
|
|
$
|
(28,886
|
)
|
|
$
|
32,066
|
|
Foreign
|
|
|
6,420
|
|
|
|
2,347
|
|
|
|
3,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(16,093
|
)
|
|
$
|
(26,539
|
)
|
|
$
|
35,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
37.4
|
%
|
|
|
42.2
|
%
|
|
|
23.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax benefits associated with exercises of nonqualified stock
options and disqualifying dispositions of stock acquired through
incentive stock options and the employee stock purchase plan
increased income taxes receivable by $69,000, $327,000 and
$3.0 million in 2009, 2008 and 2007 respectively. Such
benefits were credited to additional paid-in capital. The fiscal
2009 income tax benefit is net of $454,000 of unfavorable
federal adjustments related to prior year estimates for research
tax credits.
57
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts for
income tax purposes. Significant components of deferred tax
assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Vacation, rent, warranty and other accruals
|
|
$
|
932
|
|
|
$
|
742
|
|
Depreciation and amortization
|
|
|
3,280
|
|
|
|
3,806
|
|
Inventory valuation
|
|
|
2,044
|
|
|
|
3,254
|
|
Deferred income
|
|
|
(713
|
)
|
|
|
(264
|
)
|
Equity-based compensation
|
|
|
6,221
|
|
|
|
4,935
|
|
Research and other tax credit carryforwards
|
|
|
15,866
|
|
|
|
9,320
|
|
Impairment losses on
available-for-sale
securities
|
|
|
1,295
|
|
|
|
2,825
|
|
Other
|
|
|
(293
|
)
|
|
|
(552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
28,632
|
|
|
|
24,066
|
|
Valuation allowance for deferred tax assets
|
|
|
(10,576
|
)
|
|
|
(6,097
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
18,056
|
|
|
$
|
17,969
|
|
|
|
|
|
|
|
|
|
|
As reported on the balance sheet:
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
2,465
|
|
|
$
|
3,696
|
|
Valuation allowance for deferred tax assets
|
|
|
(950
|
)
|
|
|
(492
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
1,515
|
|
|
|
3,204
|
|
Other long-term assets
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
26,167
|
|
|
|
20,370
|
|
Valuation allowance for deferred tax assets
|
|
|
(9,626
|
)
|
|
|
(5,605
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets
|
|
|
16,541
|
|
|
|
14,765
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
18,056
|
|
|
$
|
17,969
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance of $10.6 million is attributable to
state income tax temporary differences and deferred research and
other tax credits that are not realizable in the foreseeable
future. State research credit carry-forwards of
$6.5 million, which are fully offset by a valuation
allowance, do not expire.
The difference between the tax provision (benefit) at the
statutory federal income tax rate and the tax provision
(benefit) was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Income tax (benefit) at the federal statutory rate
|
|
$
|
(5,632
|
)
|
|
$
|
(9,289
|
)
|
|
$
|
12,452
|
|
State income taxes, net of federal benefit
|
|
|
1,020
|
|
|
|
(312
|
)
|
|
|
27
|
|
Effect of foreign operations taxes at various rates
|
|
|
(2,046
|
)
|
|
|
(518
|
)
|
|
|
(879
|
)
|
Research tax credits
|
|
|
(565
|
)
|
|
|
(1,100
|
)
|
|
|
(1,800
|
)
|
Effect of tax rate changes, permanent differences and
adjustments of prior deferrals
|
|
|
965
|
|
|
|
(36
|
)
|
|
|
(1,699
|
)
|
Unrecognized tax benefits
|
|
|
242
|
|
|
|
140
|
|
|
|
400
|
|
Change in valuation allowance
|
|
|
|
|
|
|
|
|
|
|
(121
|
)
|
Other
|
|
|
|
|
|
|
(79
|
)
|
|
|
(147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(6,016
|
)
|
|
$
|
(11,194
|
)
|
|
$
|
8,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the above rate reconciliation for the year ended
December 31, 2009 is $600,000 of net unfavorable federal
adjustments related to prior estimates for research tax credits
and the Domestic Production Activities Deduction (DPAD).
Included in the above rate reconciliation for the year ended
December 31, 2008 is $696,000 of net favorable federal and
state adjustments related to prior estimates for research tax
credits, DPAD, deduction
58
limits on executive compensation, and a book and tax basis
difference related to Intevacs interest in a real estate
investment.
Intevac has not provided for U.S. federal income and
foreign withholding taxes on approximately $13.4 million of
undistributed earnings from
non-U.S. operations
as of December 31, 2009 because Intevac intends to reinvest
such earnings indefinitely outside of the United States. If
Intevac were to distribute these earnings, foreign tax credits
may become available under current law to reduce the resulting
U.S. income tax liability. Determination of the amount of
unrecognized deferred tax liability related to these earnings is
not practicable. Intevac will remit the non-indefinitely
reinvested earnings, if any, of Intevacs
non-U.S. subsidiaries
where excess cash has accumulated and Intevac determines that it
is advantageous for business operations, tax or cash reasons.
Intevac enjoys a tax holiday in Singapore through the tax years
ending in 2015. The tax holiday provides a lower income tax rate
on certain classes of income and the agreement requires that
certain thresholds of business investment and employment levels
be met in Singapore in order to maintain this holiday. As a
result of this incentive, the impact of the tax holiday
decreased income taxes by $1.2 million, $250,000 and
$321,000 in 2009, 2008 and 2007, respectively. The benefit of
the tax holiday on net income (loss) per share (diluted) was
approximately $0.06, $0.01 and $0.01 in 2009, 2008 and 2007,
respectively.
Included in prepaid expenses and other current assets at
December 31, 2009 and 2008 is $4.4 million and
$2.8 million, respectively of Federal income taxes
receivable which represents amounts available for carryback of
losses. As of December 31, 2009, the Company had state NOL
carryforwards available to offset future state taxable income of
approximately $27.2 million that expire between 2010 and
2029. In addition, the Company had various federal and state tax
credit carryforwards combined of approximately
$13.9 million. Approximately $13.3 million of the
credit carryforwards are available to offset future taxable
income and expire between 2026 and 2029. The remaining amount is
available indefinitely. Certain of these carryforwards, when
realized, will be credited to additional paid-in capital.
The total amount of gross unrecognized tax benefits was $782,000
as of December 31, 2009, of which up to $382,000 would
affect Intevacs effective tax rate if realized. The
aggregate changes in the balance of gross unrecognized tax
benefits were as follows:
|
|
|
|
|
|
|
(In thousands):
|
|
|
Beginning balance as of December 31, 2007
|
|
$
|
400
|
|
Increases in balances related to tax positions taken during
current period
|
|
|
140
|
|
|
|
|
|
|
Balance as of December 31, 2008
|
|
|
540
|
|
Increases in balances related to tax positions taken during
current period
|
|
|
242
|
|
|
|
|
|
|
Balance as of at December 31, 2009
|
|
$
|
782
|
|
|
|
|
|
|
The unrecognized tax benefits may decrease in the next twelve
months due to examinations by tax authorities. Intevac did not
accrue any interest or penalties related to these unrecognized
tax benefits because Intevac has other tax attributes which
would offset any potential taxes due.
Intevac is subject to income taxes in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. Tax
regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and
require significant judgment to apply. With few exceptions,
Intevac is not subject to U.S. federal, state and local, or
international jurisdictions income tax examinations by tax
authorities for the years before 2004. The Company currently has
a California income tax examination for fiscal years ended 2005,
2006 and 2007. In 2009, the Internal Revenue Service conducted a
field review of the fiscal year 2008 tax return and the
examination is pending approval from the U.S. Joint
Committee on Taxation. Presently, there are no other active
income tax examinations in the jurisdictions where Intevac
operates.
59
|
|
12.
|
Employee
Benefit Plans
|
Employee
Savings and Retirement Plan
In 1991, Intevac established a defined contribution retirement
plan with 401(k) plan features. The plan covers all United
States employees eighteen years and older. Employees may make
contributions by a percentage reduction in their salaries, not
to exceed the statutorily prescribed annual limit. Intevac made
cash contributions of $109,000 $541,000 and $481,000 for the
years ended December 31, 2009, 2008, and 2007,
respectively. Employees may choose among several investment
options for their contributions and their share of
Intevacs contributions, and they are able to move funds
between investment options at any time. Intevacs common
stock is not one of the investment options. Administrative
expenses relating to the plan are insignificant.
Employee
Bonus Plans
Intevac has various employee bonus plans. A
profit-sharing plan provides for the distribution of a
percentage of pre-tax profits to substantially all of
Intevacs employees not eligible for other
performance-based incentive plans, up to a maximum percentage of
compensation. Other plans award annual or quarterly bonuses to
Intevacs executives and key contributors based on the
achievement of profitability and other specific performance
criteria. There were no charges to expense under these plans for
the years ended December 31, 2009 and 2008. Charges to
expense under these plans were $5.2 million for the year
ended December 31, 2007.
|
|
13.
|
Commitments
and Contingencies
|
Leases
Intevac leases certain facilities under non-cancelable operating
leases that expire at various times up to February 2013. Certain
of Intevacs leases contain provisions for rental
adjustments, including a provision based on increases in the Bay
Area Consumer Price Index. Included in other long-term assets on
the Consolidated Balance Sheets is $843,000 of prepaid rent
related to the effective rent on Intevacs long-term lease
for Intevacs Santa Clara facility. The facility
leases require Intevac to pay for all normal maintenance costs.
Gross rental expense was approximately $3.4 million,
$3.2 million, and $3.3 million for the years ended
December 31, 2009, 2008, and 2007, respectively. Future
minimum lease payments at December 31, 2009 totaled
$5.4 million and were: $2.3 million for fiscal 2010;
$2.2 million for fiscal 2011; $788,000 for fiscal 2012; and
$104,000 for fiscal 2013.
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 Intevacs 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 corporation 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
Intevacs exposure and enables Intevac to recover a portion
of any future amounts paid. As a result of Intevacs
insurance policy coverage, Intevac believes the estimated fair
value of these indemnification obligations is not material.
Other
Indemnifications
As is customary in Intevacs industry, many of
Intevacs contracts provide remedies to certain third
parties such as defense, settlement, or payment of judgment 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.
60
Warranty
Intevac provides for the estimated cost of warranty when revenue
is recognized. Intevacs warranty is per contract terms and
for its systems 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 Intevac
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 Consolidated Balance Sheet, 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
Consolidated Statements of Operations.
The following table displays the activity in the warranty
provision account for 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
1,695
|
|
|
$
|
3,092
|
|
Expenditures incurred under warranties
|
|
|
(1,645
|
)
|
|
|
(2,997
|
)
|
Accruals for product warranties
|
|
|
1,740
|
|
|
|
1,450
|
|
Adjustments to previously existing warranty accruals
|
|
|
(188
|
)
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
1,602
|
|
|
$
|
1,695
|
|
|
|
|
|
|
|
|
|
|
The following table displays the balance sheet classification of
the warranty provision account at December 31, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Other accrued liabilities
|
|
$
|
1,550
|
|
|
$
|
1,286
|
|
Other long-term liabilities
|
|
|
52
|
|
|
|
409
|
|
|
|
|
|
|
|
|
|
|
Total warranty provision
|
|
$
|
1,602
|
|
|
$
|
1,695
|
|
|
|
|
|
|
|
|
|
|
Legal
Matters
From time to time, Intevac receives notification from third
parties, including customers and suppliers, seeking
indemnification, litigation support, payment of money or other
actions in connection with claims made against them. In
addition, from time to time, Intevac receives notification from
third parties claiming that Intevac may be or is infringing
their intellectual property or other rights. Intevac also is
subject to various other legal proceedings and claims, both
asserted and unasserted, that arise in the ordinary course of
business. Although the outcome of these claims and proceedings
cannot be predicted with certainty, Intevac does not believe
that any of these other existing proceedings or claims will have
a material adverse effect on its consolidated financial
condition or results of operations.
On March 19, 2009, Intevac filed a statement of claim under
the Financial Industry Regulatory Authority dispute resolution
process against Citigroup Inc. and Citigroup Global Markets,
Inc. (collectively, Citigroup) with respect to
alleged fraud and market manipulation by Citigroup related to
auction rate securities. The statement of claim requests that
Citigroup accept Intevacs tender of its auction rate
securities at par value and that Intevac receive compensatory,
consequential and punitive damages and costs and expenses.
Citigroup responded denying Intevacs claims. Intevac is
currently in the discovery stage of this matter. An arbitration
date of May 13, 2010 has been agreed upon for commencement
of the arbitration of this dispute.
61
|
|
14.
|
Segment
and Geographic Information
|
Intevacs two reportable segments are: Equipment and
Intevac Photonics. Effective in the second quarter of 2008,
Intevac renamed the Imaging Instrumentation segment to Intevac
Photonics. Intevacs 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 Intevacs management
organization structure as of December 31, 2009 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 Intevacs 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 segments
management is measured. Management does not consider impairment
charges and unallocated costs in measuring the performance of
the reportable segments.
The Equipment segment designs, develops and markets
manufacturing equipment and solutions to the hard disk drive
industry and offers high-productivity technology solutions to
the PV and semiconductor industries. In 2009, the Equipment
segment began offering high-productivity thin film solar cell
manufacturing equipment to PV cell manufacturers. Historically,
the majority of Intevacs revenue has been derived from the
Equipment segment and Intevac expects that the majority of its
revenues for the next several years will continue to be derived
from the Equipment segment.
The Intevac 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 and for commercial applications in the
inspection, law enforcement, scientific and medical industries.
Information for each reportable segment for the years ended
December 31, 2009, 2008 and 2007 is as follows:
Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
$
|
51,389
|
|
|
$
|
87,469
|
|
|
$
|
196,686
|
|
Intevac Photonics
|
|
|
26,592
|
|
|
|
22,838
|
|
|
|
19,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net revenues
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
$
|
215,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Operating
Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
$
|
(8,826
|
)
|
|
$
|
(9,924
|
)
|
|
$
|
32,903
|
|
Intevac Photonics
|
|
|
(4,133
|
)
|
|
|
(6,674
|
)
|
|
|
(2,919
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit (loss)
|
|
|
(12,959
|
)
|
|
|
(16,598
|
)
|
|
|
29,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs
|
|
|
(4,388
|
)
|
|
|
(3,375
|
)
|
|
|
(2,548
|
)
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
(10,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(17,347
|
)
|
|
|
(30,471
|
)
|
|
|
27,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,362
|
|
|
|
3,968
|
|
|
|
6,544
|
|
Other income and expense, net
|
|
|
(108
|
)
|
|
|
(36
|
)
|
|
|
1,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
(16,093
|
)
|
|
$
|
(26,539
|
)
|
|
$
|
35,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
$
|
2,916
|
|
|
$
|
2,851
|
|
|
$
|
2,228
|
|
Intevac Photonics
|
|
|
1,326
|
|
|
|
1,384
|
|
|
|
1,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment depreciation and amortization
|
|
|
4,242
|
|
|
|
4,235
|
|
|
|
3,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs
|
|
|
1,343
|
|
|
|
1,174
|
|
|
|
701
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation and amortization
|
|
$
|
5,585
|
|
|
$
|
5,409
|
|
|
$
|
4,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
$
|
1,176
|
|
|
$
|
1,588
|
|
|
$
|
2,816
|
|
Intevac Photonics
|
|
|
938
|
|
|
|
1,743
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment capital additions
|
|
|
2,114
|
|
|
|
3,331
|
|
|
|
3,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
501
|
|
|
|
854
|
|
|
|
2,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated capital additions
|
|
$
|
2,615
|
|
|
$
|
4,185
|
|
|
$
|
5,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Assets
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
$
|
61,136
|
|
|
$
|
33,132
|
|
Intevac Photonics
|
|
|
25,529
|
|
|
|
23,839
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
86,665
|
|
|
|
56,971
|
|
|
|
|
|
|
|
|
|
|
Cash and investments
|
|
|
89,841
|
|
|
|
105,529
|
|
Deferred income taxes
|
|
|
18,056
|
|
|
|
17,969
|
|
Other current assets
|
|
|
5,171
|
|
|
|
3,753
|
|
Common property, plant and equipment
|
|
|
2,802
|
|
|
|
3,643
|
|
Other assets
|
|
|
843
|
|
|
|
1,304
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$
|
203,378
|
|
|
$
|
189,169
|
|
|
|
|
|
|
|
|
|
|
63
Geographic revenue information for the three years ended
December 31, 2009 is based on the location of the customer.
Revenue from unaffiliated customers by geographic region/country
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
38,768
|
|
|
$
|
33,806
|
|
|
$
|
38,801
|
|
Asia(*)
|
|
|
38,144
|
|
|
|
75,102
|
|
|
|
175,907
|
|
Europe
|
|
|
1,069
|
|
|
|
1,321
|
|
|
|
1,083
|
|
Rest of world
|
|
|
|
|
|
|
78
|
|
|
|
43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
$
|
215,834
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Revenues are attributable to the geographic area in which
Intevacs customers are located. Net trade revenues in Asia
includes shipments to Singapore, China, Japan and Malaysia. |
Net property, plant and equipment by geographic region at
December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
11,431
|
|
|
$
|
14,016
|
|
Asia
|
|
|
920
|
|
|
|
870
|
|
|
|
|
|
|
|
|
|
|
Net property, plant & equipment
|
|
$
|
12,351
|
|
|
$
|
14,886
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
Selected
Quarterly Consolidated Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 28,
|
|
June 27,
|
|
Sept. 26,
|
|
Dec. 31,
|
|
|
2009
|
|
2009
|
|
2009
|
|
2009
|
|
|
(In thousands, except per share data)
|
|
Net sales
|
|
$
|
12,308
|
|
|
$
|
12,318
|
|
|
$
|
19,155
|
|
|
$
|
34,200
|
|
Gross profit
|
|
|
4,265
|
|
|
|
4,513
|
|
|
|
8,678
|
|
|
|
15,264
|
|
Net income (loss)
|
|
|
(5,773
|
)
|
|
|
(4,487
|
)
|
|
|
(1,792
|
)
|
|
|
1,975
|
|
Basic income (loss) per share
|
|
$
|
(0.26
|
)
|
|
$
|
(0.20
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
0.09
|
|
Diluted income (loss) per share
|
|
|
(0.26
|
)
|
|
|
(0.20
|
)
|
|
|
(0.08
|
)
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 29,
|
|
June 28,
|
|
Sept. 27,
|
|
Dec. 31,
|
|
|
2008
|
|
2008
|
|
2008
|
|
2008
|
|
|
(In thousands, except per share data)
|
|
Net sales
|
|
$
|
33,175
|
|
|
$
|
32,132
|
|
|
$
|
28,560
|
|
|
$
|
16,440
|
|
Gross profit
|
|
|
15,311
|
|
|
|
13,133
|
|
|
|
9,085
|
|
|
|
5,810
|
|
Net income (loss)
|
|
|
1,563
|
|
|
|
(937
|
)
|
|
|
(3,353
|
)
|
|
|
(12,618
|
)
|
Basic income (loss) per share
|
|
$
|
0.07
|
|
|
$
|
(0.04
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.58
|
)
|
Diluted income (loss) per share
|
|
|
0.07
|
|
|
|
(0.04
|
)
|
|
|
(0.15
|
)
|
|
|
(0.58
|
)
|
64
|
|
Item 9.
|
Changes
In and Disagreements With Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
Managements
Report on Assessment of Internal Controls Over Financial
Reporting
Evaluation
of Disclosure Controls and Procedures
Based on Intevacs managements evaluation (with the
participation of Intevacs chief executive officer and
chief financial officer), as of the end of the period covered by
this report, Intevacs chief executive officer and chief
financial officer have concluded that Intevacs disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended, (the
Exchange Act)) are effective to ensure that
information required to be disclosed by Intevac in reports that
Intevac files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms
and is accumulated and communicated to Intevacs
management, including Intevacs chief executive officer and
chief financial officer, as appropriate to allow timely
decisions regarding required disclosure.
Managements
Report on Internal Control over Financial
Reporting
Management is responsible for establishing and maintaining
adequate internal control over financial reporting for Intevac.
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting
includes those policies and procedures that: (i) pertain to
the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the Companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management (with the participation of the chief executive
officer and chief financial officer) conducted an evaluation of
the effectiveness of Intevacs internal control over
financial reporting based on the framework in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, management concluded that
Intevacs internal control over financial reporting was
effective as of December 31, 2009. Grant Thornton LLP, an
independent registered public accounting firm, has audited the
effectiveness of Intevacs internal control over financial
reporting and has issued a report on Intevacs internal
control over financial reporting, which is included in their
report on the following page.
Changes
in Internal Control over Financial Reporting
There was no change in our internal control over financial
reporting during our fourth quarter of fiscal 2009 that has
materially affected, or is reasonably likely to materially
affect, Intevacs internal control over financial reporting.
65
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Intevac, Inc.
We have audited Intevac, Inc. (a Delaware corporation) and
subsidiaries (collectively, the Company)
internal control over financial reporting as of
December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Companys management is
responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in the
accompanying Managements Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Intevac, Inc. and subsidiaries maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated
Framework issued by COSO.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Intevac Inc. as of
December 31, 2009 and 2008, and the related consolidated
statements of operations, stockholders equity and
comprehensive income (loss), and cash flows for each of the
three years in the period ended December 31, 2009. Our
audits of the basic financial statements included the financial
statement schedule listed in the index appearing under
Item 15(a). Our report dated February 26, 2010
expressed an unqualified opinion on those consolidated financial
statements and schedule.
/s/ GRANT THORNTON LLP
San Jose, California
February 26, 2010
66
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by this item relating to the
Companys directors and nominees, disclosure relating to
compliance with Section 16(a) of the Securities Exchange
Act of 1934, and information regarding Intevacs code of
ethics, audit committee and stockholder recommendations for
director nominees is included under the captions Election
of Directors, Nominees, Business
Experience of Nominees for Election as Directors,
Board Meetings and Committees, Corporate
Governance Matters, Section 16(a) Beneficial
Ownership Reporting Compliance and Code of Business
Conduct and Ethics in the Companys Proxy Statement
for the 2010 Annual Meeting of Stockholders and is incorporated
herein by reference. The information required by this item
relating to the Companys executive officers and key
employees is included under the caption Executive Officers
of the Registrant under Item 1 in Part I of this
Annual Report on
Form 10-K.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this item is included under the
caption Executive Compensation and Related
Information in the Companys Proxy Statement for the
2010 Annual Meeting of Stockholders and is incorporated herein
by reference.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Securities authorized for issuance under equity compensation
plans. The following table summarizes the number of
outstanding options granted to employees and directors, as well
as the number of securities remaining available for future
issuance, under Intevacs equity compensation plans at
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
|
|
|
|
(c)
|
|
|
|
Number of Securities
|
|
|
(b)
|
|
|
Number of Securities
|
|
|
|
to be Issued upon
|
|
|
Weighted-Average
|
|
|
Remaining Available
|
|
|
|
Exercise of
|
|
|
Exercise Price of
|
|
|
for Future Issuance
|
|
|
|
Outstanding Options,
|
|
|
Outstanding Options,
|
|
|
under Equity
|
|
Plan Category
|
|
warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Compensation Plans
|
|
|
|
|
|
|
|
|
|
(1)
|
|
|
Equity compensation plans approved by security holders(2)
|
|
|
3,111,214
|
|
|
$
|
11.56
|
|
|
|
1,025,941
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,111,214
|
|
|
$
|
11.56
|
|
|
|
1,025,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes securities reflected in column (a). |
|
(2) |
|
Included in the column (c) amount are 491,010 shares
available for future issuance under Intevacs 2003 Employee
Stock Purchase Plan. |
The other information required by this item is included under
the caption Ownership of Securities in the
Companys Proxy Statement for the 2010 Annual Meeting of
Stockholders and is incorporated herein by reference.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The information required by this item is included under the
captions Certain Transactions and Corporate
Governance Matters in the Companys Proxy Statement
for the 2010 Annual Meeting of Stockholders and is incorporated
herein by reference.
67
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this item is included under the
caption Fees Paid To Accountants For Services Rendered
During 2009 in the Companys Proxy Statement for the
2010 Annual Meeting of Stockholders and is incorporated herein
by reference.
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
a) The following documents are filed as part of this Annual
Report on
Form 10-K:
1. Financial Statements:
See Index to Consolidated Financial Statements in
Part II, Item 8 of this
Form 10-K.
2. Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts
All other schedules have been omitted since the required
information is not present in amounts sufficient to require
submission of the schedule or because the information required
is included in the consolidated financial statements or notes
thereto.
3. Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1(1)
|
|
Certificate of Incorporation of the Registrant
|
|
3
|
.2(2)
|
|
Bylaws of the Registrant, as amended
|
|
10
|
.1+(3)
|
|
The Registrants 1995 Stock Option/Stock Issuance Plan, as
amended
|
|
10
|
.2+(4)
|
|
The Registrants 2003 Employee Stock Purchase Plan, as
amended
|
|
10
|
.3+(5)
|
|
The Registrants 2004 Equity Incentive Plan, as amended
|
|
10
|
.4(6)
|
|
Lease, dated February 5, 2001 regarding the space located
at 3510, 3544, 3560, 3570 and 3580 Bassett Street,
Santa Clara, California, including the First through Sixth
Amendments
|
|
10
|
.6+(3)
|
|
The Registrants 401(k) Profit Sharing Plan
|
|
10
|
.8(7)
|
|
Loan Facility with Citigroup Global Markets, Inc.
|
|
10
|
.9(8)
|
|
Director and Officer Indemnification Agreement
|
|
10
|
.11+(9)
|
|
The Registrants Executive Incentive Plan
|
|
10
|
.12+(9)
|
|
Employment Agreement of Kevin Fairbairn dated January 24,
2002, as amended
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm
|
|
23
|
.2
|
|
Consent of Independent Valuation Firm
|
|
24
|
.1
|
|
Power of Attorney (see page 70)
|
|
31
|
.1
|
|
Certification of President and Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
31
|
.2
|
|
Certification of 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
|
|
|
|
(1) |
|
Previously filed as an exhibit to the Companys Report on
Form 8-K
filed July 23, 2007 |
|
(2) |
|
Previously filed as an exhibit to the Companys Report on
Form 8-K
filed November 19, 2008 |
|
(3) |
|
Previously filed as an exhibit to the Registration Statement on
Form S-1
(No.
33-97806) |
68
|
|
|
(4) |
|
Previously filed as an exhibit to the Companys Definitive
Proxy Statements filed March 25, 2003 |
|
(5) |
|
Previously filed as an exhibit to the Companys Report on
Form 8-K
filed May 20, 2008 |
|
(6) |
|
Previously filed as an exhibit to the Companys
Form 10-K
filed March 16, 2007 |
|
(7) |
|
Previously filed as an exhibit to the Companys Report on
Form 8-K
filed March 6, 2008 |
|
(8) |
|
Previously filed as an exhibit to the Companys
Form 10-K
filed March 14, 2008 |
|
(9) |
|
Previously filed as an exhibit to the Companys
Form 10-K
filed March 4, 2009 |
|
+ |
|
Management compensatory plan or arrangement required to be filed
as an exhibit pursuant to Item 15(c) of
Form 10-K |
69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on February 26, 2010.
INTEVAC, INC.
Jeffrey Andreson
Executive Vice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
POWER OF
ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Kevin Fairbairn
and Jeffrey Andreson and each of them, as his true and lawful
attorneys-in-fact and agents, with full power of substitution
and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report on
Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to
be done in connection therewith, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ KEVIN
FAIRBAIRN
(Kevin
Fairbairn)
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ NORMAN
H. POND
(Norman
H. Pond)
|
|
Chairman of the Board
|
|
February 26, 2010
|
|
|
|
|
|
/s/ JEFFREY
ANDRESON
(Jeffrey
Andreson)
|
|
Executive Vice President, Finance and Administration, Chief
Financial Officer Treasurer and Secretary (Principal Financial
and Accounting Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ DAVID
S. DURY
(David
S. Dury)
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ STANLEY
J. HILL
(Stanley
J. Hill)
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ ROBERT
LEMOS
(Robert
Lemos)
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ PING
YANG
(Ping
Yang)
|
|
Director
|
|
February 26, 2010
|
70
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
INTEVAC,
INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions (Reductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Charged
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(Credited)
|
|
|
(Credited)
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
to Costs and
|
|
|
to Other
|
|
|
|
|
|
End
|
|
Description
|
|
of Period
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions - Describe
|
|
|
of Period
|
|
|
|
(In thousands)
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
143
|
|
|
$
|
(84
|
)
|
|
$
|
|
|
|
$
|
2
|
(1)
|
|
$
|
57
|
|
Year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
57
|
|
|
$
|
93
|
|
|
$
|
|
|
|
$
|
5
|
(1)
|
|
$
|
145
|
|
Year ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
145
|
|
|
$
|
133
|
|
|
$
|
|
|
|
$
|
145
|
(1)
|
|
$
|
133
|
|
|
|
|
(1) |
|
Write-offs of amounts deemed uncollectible. |
71