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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,
2010
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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). Yes o No o
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.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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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 July 3, 2010 was
approximately $146,965,844 (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, 2011, 22,761,223 shares of the
Registrants Common Stock, $0.001 par value, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrants Proxy Statement for the 2011
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, 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 process
manufacturing equipment solutions to the hard disk drive
industry. Intevac also offers high-productivity process
manufacturing equipment and inspection solutions for the solar
photovoltaic (PV) industry and wafer handling
platforms for the semiconductor industry.
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
as a result of new technologies such as perpendicular recording.
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 with the
introduction of thermal assisted magnetic recording
(TAMR) followed by patterned media, the next major
media technology for the hard drive industry. Intevac believes
that the transition to TAMR will require that disk manufacturers
upgrade their installed base of equipment and will result in
increased demand for equipment technology upgrades to be
performed by Intevac. 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 the transition to
patterned media 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 films, non-magnetic films and protective carbon-based
overcoats on disks that are to be used in hard disk drives using
sputtering or chemical vapor deposition (CVD)
technologies.
Intevacs 200 Lean systems began shipping in 2003 with the
installed base reaching over 140 systems by the end of 2010.
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 system,
which is designed to deliver 25% higher throughput than the
original 200 Lean systems. 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 2010, Intevac believes that
approximately 65% of these systems are still being used for
production. The balance of these systems is being used by
customers for research and development, is in storage or has
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
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 a process-critical production tool for
nano-imprint-lithography. It enables patterning on hard disks by
coating a thin adhesion layer between the disk and the resist.
This is a crucial step of the imprint process for patterned
media. Nano-imprinting is vital for the next generation
technology transition to patterned media.
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 45% in 2008, 51% in 2009
and 27% in 2010.
Semiconductor
Equipment Market
Intevac designs, manufactures and markets vacuum wafer-handling
automation equipment to the semiconductor manufacturing
industry. Semiconductor manufacturers fabricate chips and
devices which are used in a variety of products including
computers, telecommunications equipment, automotive, consumer
electronics and wireless communications devices. Intevac
believes that demand for semiconductor chips will continue to
grow over time both in terms of unit volumes and device
complexity.
Semiconductor device fabrication is the process used to create
the integrated circuits (silicon chips). It is a multiple-step
sequence of photographic and chemical processing steps during
which electronic circuits are gradually created on a silicon
wafer. Semiconductor manufacturers fabricate semiconductor chips
in a sophisticated manufacturing process using a wide range of
manufacturing equipment and process steps. The requirement for
efficient, high throughput and extremely clean manufacturing for
semiconductor wafer fabs has created a substantial market for
vacuum wafer handling automation equipment. Wafer handling
equipment moves wafers between process chambers on semiconductor
systems.
Wafer
Handling System
In 2010 Intevac introduced
Continuumtm,
a high-productivity vacuum wafer handling system. Intevacs
platform solution offers customers a cost-effective, flexible
alternative to the current cluster platform designs.
Continuums linear motion architecture and dual robot
transport system enables faster wafer transport, and offers
advantages over alternative wafer transfer design as well as
traditional cluster mainframes. To date Intevac has not
recognized revenue from its semiconductor wafer handling product.
Solar
Market
Intevac designs, manufactures and markets capital equipment to
the photovoltaic (PV) solar manufacturing industry.
Today, fossil fuels are used to generate most of the
worlds electricity supply. Volatile prices, increasing
demand, growing environmental concerns and the desire for energy
security are all driving the growth of renewable energy sources
such as solar. As a result there is growing global demand for
renewable energy sources such as PV solar electricity.
The cost of electricity generated from solar PV energy is higher
than that of electricity generated by traditional energy
sources. To offset the higher costs associated with solar energy
and to encourage the adoption of alternative energy supplies,
governments around the world have implemented various tax
credits and other financial incentives. If solar power is to
become an effective competitor to traditional energy sources, a
more efficient solar manufacturing process must be implemented
to lower the cost per watt of electricity from solar PVs. New
process technologies and integrated processing steps will become
increasingly important as companies search for lower cost
manufacturing solutions. Leading solar market research analysts
are forecasting that the global PV energy market
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demand will double between 2011 and 2014 to 33.95 GigaWatts. In
2010 the capital equipment spending amount in crystalline
silicon (c-Si) cell alone was $3.47 billion. At
the same time solar cell manufacturers are forecasted to
increase capacities on average by 35% per year.
A solar cell (also called photovoltaic or PV cell) is a solid
state device that converts the energy of sunlight directly into
electricity. Solar cells, photovoltaic modules and photovoltaic
arrays are assembled components. Assemblies of cells are used to
make solar modules, also known as solar panels. Solar panels
have broad-based end market applications for solar farms,
integrated building PV arrays, rooftop grids and portable
devices.
Currently, there are two prevailing processes for manufacturing
PV material: wafer-based c-Si and thin film solar cell
manufacturing processes. Crystalline silicon uses silicon wafers
and is similar to traditional semiconductor manufacturing
processes. Thin film coating involves applying a deposition
process and thin-film coating process onto glass or metal
substrates. Intevac offers products for both manufacturing
processes.
While the manufacturing of thin film photovoltaic cells is
expected to be an important and growing low cost cell segment of
the market, the majority of the market is served by c-Si cell
manufacturers. Intevac believes that the c-Si solar market will
continue to be a large and growing market with multiple cell
technologies. Intevac believes that both thin film and c-Si
solar technologies can benefit in lower cost manufacturing
solutions from the integrated processing solutions that Intevac
specializes in.
In c-Si solar processing there are three vacuum process
applications: deposition, etching and doping by ion implant.
With Intevacs acquisition of Solar Implant Technologies,
Inc. in November 2010, Intevac believes that it now has the
required expertise to develop a complete set of vacuum process
modules to support c-Si cell manufacturers technology and
cost reduction roadmaps.
Solar
Manufacturing Products
Solar
Cell Processing System
Intevac offers integrated, multi-step manufacturing solutions
for c-Si and Copper indium gallium (di)selenide
(CIGS) thin film applications. Integrating multiple
steps onto one platform can significantly lower solar cell
manufacturing costs. This unique manufacturing solution, LEAN
SOLARtm,
was leveraged from our leading hard disk drive system design.
LEAN SOLAR is a high-productivity solar process equipment
solution enabling low-cost solar cell manufacturing and high
cell efficiency for both CIGS (thin film) and c-Si solar. LEAN
SOLAR performs single substrate processing for precise process
control, and as a small footprint solar cell processing system,
offers low-cost, high-productivity manufacturing to the
photovoltaic industry. Intevac believes that LEAN SOLAR has the
flexibility to accommodate Intevacs customers
specific system configurations and the ability to run multiple
applications. These applications include CIGS on glass or
stainless steel substrates, and c-Si based applications.
In 2009 Intevac began offering processing equipment to PV cell
manufacturers for CIGS thin film applications and in 2010 began
offering processing equipment for wafer-based crystalline
silicon (c-Si) applications. To date Intevac has not
recognized revenue from its PV manufacturing products.
Inspection
System
Intevacs
NanoVistatm
Photoluminescence Inspection System is used in photovoltaic cell
inspection. With high throughput material handling capability
and a proprietary, high sensitivity, high resolution camera,
NanoVista captures solar cell images in milliseconds with
greater accuracy than other imaging systems. The NanoVista
system benefits from the use of Intevacs leadership in
low-light imaging technology and uses the proven proprietary
Electron Bombarded Active Pixel Sensor
(EBAPS®)
technology developed at Intevacs Photonics division. This
sensor technology enables higher sensitivity and higher speed
photoluminescence inspection. The NanoVista photoluminescence
inspection system can be used in multiple spots along the
crystalline silicon wafering and cell manufacturing lines as
well as in CIGS manufacturing.
In 2010 Intevac began offering inspection equipment to PV cell
manufacturers. To date Intevac has not recognized revenue from
its PV inspection products.
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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 based on
Intevacs core
EBAPS®
technology. 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. Historically, the
majority of Intevacs Photonics revenue has been derived
from contracts related to the development of low-light
electro-optical sensors, systems and cameras, funded by the
U.S. government, its agencies and contractors. However, the
percentage of Intevac Photonics revenue derived from product
sales continues to increase and grew from 37% in 2008 to 40% in
2009 and 47% in 2010.
Military
Products
Digital
Enhanced Night Vision Goggle
The U.S. military is funding development of a compact,
head-mounted digital imaging system, or Digital Enhanced Night
Vision Goggle (ENVG-D). ENVG-D integrates a visible
light 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
continues to further develop and evaluate this system.
Night
Port
Night
Porttm
is an integrated digital night vision viewer utilizing
Intevacs EBAPS and display 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. Derivatives of Night Port are currently being evaluated
by the U.S. Special Operations for ground applications.
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 multiple
U.S. military programs for long-range target identification
in land-based and airborne applications.
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
Near-eye display systems are high-performance, micro-display
products for near-eye, portable viewing of video in military and
commercial markets. Intevacs eyeglass and helmet-mounted
display systems provide high definition and a wide
field-of-view
in miniaturized light-weight and portable designs. Intevac
I-Porttm
helmet-mounted display provides solutions for such diverse
markets as medical, industrial, commercial and military,
including training and simulation.
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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 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. Intevac is developing
handheld Raman instruments to incorporate Intevacs core
near infrared (NIR) sensors to enable the detection
of critical materials in the growing chemical, biological and
explosives threat detection market.
Handheld
Raman Materials Identification Instruments
ReporteRtm
is a palm-sized spectrometer that identifies materials for the
first responder, homeland security and law enforcement
industries. ReporteR identifies substances by comparing unique
molecular fingerprints to reference materials stored in its
library.
RAPID-IDtm
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 over twenty meters which is used
by defense contractors for detecting explosives and hazardous
materials.
PHARMA-IDtm
is a palm-sized materials identification tool used by
pharmaceutical manufacturers in inspection of incoming raw
materials.
Laboratory
Instruments
Intevacs Advantage product line of low-cost,
high-performance bench-top spectrometers are available at
532 nm, 633 nm, 785 nm 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 Complementary
Metal Oxide Semiconductor
(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. These cameras are primarily sold through
distribution channels and to original equipment manufacturers.
Backlog
Intevacs backlog of orders at December 31, 2010 was
$46.7 million, as compared to $73.8 million at
December 31, 2009. Backlog at December 31, 2010
consisted of $27.3 million of Equipment backlog and
$19.4 million of Intevac Photonics backlog. Backlog at
December 31, 2009 consisted of $57.5 million of
Equipment backlog and $16.3 million of Intevac Photonics
backlog. The decrease in Equipment backlog was primarily the
result of decreased orders for 200 Lean disk sputtering systems.
Backlog at December 31, 2010 included two 200 Lean systems
and two LEAN SOLAR systems, as compared to ten 200 Lean systems
in backlog at December 31, 2009. 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 2010 sales to Seagate, Hitachi
Global Storage Technologies, and Fuji Electric each accounted
for more than 10% of Intevacs revenues. In 2009 and 2008
sales to Seagate and Hitachi Global Storage Technologies each
accounted for more than 10% of Intevacs revenues. In the
aggregate, sales to these three customers accounted for 78%, 58%
and 80% of revenues in 2010, 2009 and 2008 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.
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Foreign sales accounted for 77% of revenue in 2010, 50% of
revenue in 2009, and 69% of revenue in 2008. 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, Taiwan, 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 only one major
competitor, Canon Anelva, in the hard disk drive equipment
market and has historically experienced intense worldwide
competition for magnetic disk sputtering equipment. Intevac is
entering the semiconductor wafer-handling equipment market, and
Intevac faces competition from large established competitors
including Brooks Automation and Genmark Automation as well as
competition from internally developed products at Applied
Materials and Tokyo Electron. Intevac is entering the PV
equipment market, and faces competition from large established
global competitors including Veeco Instruments, Centrotherm
Photovoltaics, Roth & Rau, and Von Ardenne as well as
smaller regional competitors and 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 And many competitors have 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 (which is being acquired by BAE Systems)
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 BAE, 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, except in Japan where Intevac sells its products through
a distributor, Matsubo. The selling process for Intevacs
Equipment products is multi-level and long-term, involving
individuals from marketing, engineering, operations, customer
service and senior management.
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.
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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 due
upon completion of 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.
Warranties for Intevacs Equipment typically range between
12 and 24 months from customer acceptance. During the
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 $27.9 million (13.8% of net revenues) in
fiscal 2010, $28.1 million (36.0% of net revenues) in
fiscal 2009, and $35.1 million (31.8% of net revenues) in
fiscal 2008 for product development and engineering programs to
create new products and to improve existing technologies and
products. Intevac has spent an average of 18.6% of net revenues
on product development and engineering over the last five years.
9
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.
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 of certain
patented technologies in several of Intevacs products.
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 infringements. 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, vacuum
processing, fabrication of sputter sources, and system assembly,
alignment and testing.
Intevac Photonics products are manufactured at Intevacs
facilities in California and Wyoming. Intevac Photonics
manufactures sensors, cameras, integrated camera systems,
compact Raman spectrometry instruments and near-eye display
systems using advanced manufacturing techniques and equipment.
Intevacs operations include vacuum processing, and
electromechanical and optical system assembly.
Employees
At December 31, 2010, Intevac had 445 employees,
including 45 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 25, 2011 is listed below:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Executive Officers:
|
|
|
|
|
|
|
Norman H. Pond
|
|
|
72
|
|
|
Chairman of the Board
|
Kevin Fairbairn
|
|
|
57
|
|
|
President and Chief Executive Officer
|
Jeffrey Andreson
|
|
|
49
|
|
|
Executive Vice President, Finance and Administration, Chief
Financial Officer, Treasurer and Secretary
|
Michael Russak
|
|
|
64
|
|
|
Executive Vice President and General Manager, Hard Disk
Equipment Products
|
Luke Marusiak
|
|
|
48
|
|
|
Executive Vice President, Chief Operating Officer
|
Christopher Smith
|
|
|
51
|
|
|
Executive Vice President, Emerging Markets
|
Kimberly Burk
|
|
|
45
|
|
|
Vice President, Human Resources
|
Joseph Pietras
|
|
|
56
|
|
|
Executive Vice President and General Manager, Intevac Photonics
|
Other Key Officers:
|
|
|
|
|
|
|
Babak Adibi
|
|
|
56
|
|
|
Vice President and General Manager, Solar Implant
|
Verle Aebi
|
|
|
56
|
|
|
Chief Technology Officer, Intevac Photonics
|
James Birt
|
|
|
46
|
|
|
Vice President, Manufacturing and Customer Support, Equipment
Products
|
Terry Bluck
|
|
|
51
|
|
|
Vice President, Technology, Equipment Products
|
Jerry Carollo
|
|
|
57
|
|
|
Vice President, Strategic Business Development, Intevac Photonics
|
Timothy Justyn
|
|
|
48
|
|
|
Vice President of Manufacturing, Intevac Photonics
|
Dave Kelly
|
|
|
48
|
|
|
Vice President, Engineering, Intevac Vision Systems
|
Edward Murrer
|
|
|
61
|
|
|
Vice President, Business Development, Solar Implant
|
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
11
of Komag from 2000 to 2007. From 1993 to 2000, Dr. Russak
served as Vice President of Research and 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 in January 2010 and
currently serves as Executive Vice President, Chief Operating
Officer. 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.
Mr. Smith joined Intevac in August 2010 as Executive
Vice President, Emerging Markets. Mr. Smith has over
25 years of executive-level experience in the semiconductor
and solar capital equipment markets. Prior to joining Intevac,
Mr. Smith served as Senior Vice President Sales and
Customer Support at Oerlikon Solar, from November 2007 to August
2010. From 2006 to 2007 he served as Senior Vice President of
Sales and Service with Cymer. Previously, Mr. Smith was
employed by Applied Materials from 1994 to 2006. While at
Applied Materials he held a variety of executive-level customer
support and operations positions. He also served as product
business group general manager for Chemical Mechanical Polishing
and was managing director of Global Business Development for the
Dielectric and Physical Vapor Deposition Product Business
Groups. Mr. Smith earned his BS in Business
Administration / Material Management from
San Jose State University.
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.
Dr. Adibi joined Intevac in November 2010 as Vice
President and General Manager, Solar Implant. Prior to joining
Intevac, Dr. Adibi was President, Chief Technology Officer
and Co-Founder of Solar Implant Technologies, Inc. Prior to
founding Solar Implant Technologies, Inc., Dr. Adibi worked
for Silicon Genesis Corporation from 2006 to 2008 as the General
Manager of the Solar Equipment Division. From 2003 to 2006 he
served as Vice President in the Laser Annealing Product Division
of Ultratech, Inc. Previously, Dr. Adibi was employed by
Applied Materials from 1985 to 2003. While at Applied Materials
he held a variety of executive-level engineering positions.
Dr. Adibi holds numerous patents in the area of ion
implantation, a PhD in ion implantation and semiconductors and a
MS in nuclear power from Surrey University in England and a BS
in physics from the Imperial College of London.
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.
12
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 of
Strategic Business Development, Intevac Photonics. 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 currently serves as Vice President of
Manufacturing, Intevac Photonics. Mr. Justyn served as
Vice President of Operations, Intevac Photonics from October
2008 to September 2010. 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 our Equipment Products Division and
our former night vision business. Mr. Justyn holds a BS in
chemical engineering from the University of California,
Santa Barbara.
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.
Mr. Murrer joined Intevac in November 2010 as Vice
President, Business Development, Solar Implant. Mr. Murrer
has over 25 years of executive-level experience in the
solar capital equipment and software markets. Prior to joining
Intevac, Mr. Murrer was Chairman, Chief Executive Officer
and Co-Founder of Solar Implant Technologies, Inc. Prior to
founding Solar Implant Technologies, Inc., Mr. Murrer
worked for Silicon Genesis Corporation from 2006 to 2008 as Vice
President of Marketing and Business Development. From 2003 to
2006 he served as Senior Vice President of Sales and Marketing
with Kyberpass, Inc. Previously, Mr. Murrer was employed by
Persistence Software from 2001 to 2003. Mr. Murrer holds a
BS and a MS in mechanical engineering from the Purdue University.
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,
Continuumtm,
DeltaNu®,
EBAPS®,
ExaminerRtm,
I-Porttm,
LEAN
SOLARtm,
LithoPrimetm,
LIVAR®,
MicroVista®,
NanoVistatm,
NightVista®,
Night
Porttm,
PHARMA-IDtm,
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.
13
The
industries we serve are cyclical, volatile and
unpredictable.
The majority of our revenue is derived from the sale of
equipment used to manufacture commodity technology products such
as disk drives. We have also entered markets to sell equipment
used to manufacture commodity technology products such as
semiconductor devices and photovoltaic (PV) solar
cells. This subjects us to business cycles, the timing, length
and volatility of which can be difficult to predict. When demand
for commodity technology products exceeds production capacity,
then demand for new capital equipment such as ours tends to be
amplified. Conversely, when supply of commodity technology
products exceeds demand, then demand for new capital equipment
such as ours tends to be depressed. For example, sales of
systems for magnetic disk production were severely depressed
from mid-1998 until mid-2003 and grew rapidly from 2004 through
2006, followed by a downturn in the cycle in late 2007 which
continued through 2009. The number of new systems delivered
declined sequentially in 2007, 2008 and 2009. The number of new
systems delivered increased in 2010 as customers increased their
production capacity in response to increased demand for digital
storage. We cannot predict with any certainty when these cycles
will begin or end.
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, semiconductor and solar cell 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 managerial resources. During periods of
increasing demand for our products, we must have sufficient
manufacturing capacity and inventory to meet customer demand;
attract, retain and motivate a sufficient number of qualified
individuals; and effectively manage our supply chain. During
periods of decreasing demand for our products, we must be able
to align our cost structure with prevailing market conditions;
motivate and retain key employees and effectively manage our
supply chain.
Sales
of our equipment are primarily dependent on our customers
upgrade and capacity expansion plans and whether our customers
select our equipment.
We have no control over our customers upgrade and capacity
expansion plans, and we cannot be sure they will select, or
continue to select, our equipment when they upgrade or expand
their capacity. The sales cycle for our equipment systems can be
a year or longer, involving individuals from many different
areas of Intevac and numerous product presentations and
demonstrations for our prospective customers. Our sales process
also commonly includes production of samples, customization of
our products, and installation of evaluation systems in the
factories of our prospective customers. We do not enter into
long-term contracts with our customers, and until an order is
actually submitted by a customer there is no binding commitment
to purchase our systems.
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 delayed the replacement of such
systems with new 200 Lean systems.
14
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
operate in an intensely competitive marketplace, and our
competitors have greater resources than we do.
In the market for our disk sputtering systems, we experience
competition from Canon Anelva, which has sold a substantial
number of systems worldwide. In the market for semiconductor
wafer handling equipment we are attempting to enter a market
with several large established competitors including Brooks
Automation and Genmark Automation as well as competition from
internally developed products at Applied Materials and Tokyo
Electron. Intevac is attempting to enter the PV equipment
market, and faces competition from large established competitors
including Veeco Instruments, Centrotherm Photovoltaics,
Roth & Rau, 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 (which is being acquired
by BAE Systems). 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 and
photovoltaic equipment markets where we have not previously
offered products. 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 are
exposed to risks associated with a highly concentrated customer
base and industry consolidation.
Historically, a significant portion of our revenue in any
particular period has been attributable to sales of our disk
sputtering systems to a limited number of customers. This
concentration of customers can lead to extreme variability in
revenue and financial results from period to period.
Industry consolidation can limit the number of potential
customers for our products. For example, Seagate acquired Maxtor
in 2006 and Western Digital acquired Komag in 2007 and
Hoyas magnetic media operations in 2010. 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 Continuum wafer handling product, LEAN SOLAR systems
for PV applications, our digital night-vision products, our
Raman system products and our near-eye display products. Our
success in developing and selling new products depends upon a
variety of factors, including our ability to: predict future
customer requirements, make technological advances, achieve a
low total cost of ownership for our products, introduce new
products on schedule, manufacture products cost-effectively
including transitioning production to volume manufacturing;
commercialize and attain customer acceptance of our products;
and achieve acceptable and reliable performance of our new
products in the field. Our new product decisions and development
commitments must anticipate continuously evolving industry
requirements significantly in advance of sales. In addition, we
are attempting to expand into new or related markets, including
the semiconductor market for wafer fabrication equipment and the
PV market. Our expansion into the PV market is dependent upon
the success of our customers
15
development plans, some of which are
start-ups
and in their preliminary stages of development, as well as their
ability to raise capital to fund their future development and
capacity expansion. To date Intevac has not recognized revenue
from our semiconductor wafer handling 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.
Our quarterly revenues and common stock price have fluctuated
significantly. We anticipate that our revenues, operating
margins and common stock price will continue to fluctuate for a
variety of reasons, including: (1) changes in the demand,
due to seasonality, cyclicality and other factors in the markets
for computer systems, storage subsystems and consumer
electronics containing disks our customers produce with our
systems; (2) delays or problems in the introduction and
acceptance of our new products, or delivery of existing
products; (3) timing of orders, acceptance of new systems
by our customers or cancellation of those orders; (4) new
products, services or technological innovations by our
competitors or us; (5) changes in our manufacturing costs
and operating expense; (6) changes in general economic,
political, stock market and industry conditions; and
(7) any failure of our operating results to meet the
expectations of investment research analysts or investors.
Any of these, or other factors, could lead to volatility
and/or a
rapid change in the trading price of our common shares. In the
past, securities class action litigation has been instituted
against companies following periods of volatility in the market
price of their securities. Any such litigation, if instituted
against Intevac, could result in substantial costs and diversion
of management time and attention.
Adverse
economic conditions and volatility and disruption of the capital
and credit markets may negatively impact our revenues and our
ability to access financing.
Economic conditions worldwide have contributed to decreased
spending by our customers and a slowdown in the hard disk drive
industry. These factors have adversely impacted our operating
results in prior periods, including most recently during fiscal
2009, and have caused us to be cautious about our future
outlook. Although macroeconomic and global market conditions
improved in the latter half of 2009 and during fiscal 2010, our
customers continue to remain cautious as it relates to the
sustainability of the recovery. Negative macroeconomic and
global recessionary factors, further volatility or disruption in
the capital and credit markets or further uncertainty or
weakening in key markets could negatively impact spending for
our products and may materially adversely affect our business,
operating results and financial condition.
In addition, while we intend to finance operations with existing
cash and cash flow from operations, if necessary, we may require
financing to support our continued operations. Due to the
existing uncertainty in the capital and credit markets, our
access to capital may not be available on terms acceptable to us
or at all.
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 comply with export
16
control laws, including identification and reporting of all
exports and re-exports of controlled technology or exports made
without correct license approval or improper license use could
result in severe penalties and revocation of licenses. Failure
to obtain export licenses, delays in obtaining licenses, or
revocation of previously issued licenses would prevent us from
selling the affected products outside the United States and
could negatively impact our results of operations.
The
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. 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 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 $52 million of taxable
income in order to
17
realize the Federal deferred tax assets recorded as of
December 31, 2010. 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.
The majority of our revenues come from regions outside the
United States. Most of our international sales are to customers
in Asia, which includes products shipped to overseas operations
of U.S. companies. We currently have manufacturing
facilities in California, 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.
We must regularly assess the size, capability and location of
our global infrastructure and make appropriate changes to
address these issues.
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 significant
reduction in our stock price, and as a result market
capitalization, changes in our estimated future cash flows, as
well as changes in rates of growth in our industry or in any of
our reporting units. In the fourth quarter of 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.
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 to the Consolidated
Financial Statements for additional information related to
impairment of goodwill and intangible assets.
The
liquidity of our auction rate securities is impaired, which
could impact our ability to meet cash requirements and require
additional financing.
At December 31, 2010, we held auction rate securities
(ARS) with a par value of $10.9 million. The
market for these securities had historically been highly liquid,
even though the ARS that we hold have underlying maturities
ranging from 21 to 35 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 auctions have failed. 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 ARS 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, 2010, all of these securities
are currently rated
18
investment grade but there is no assurance that these ARS will
continue to be similarly rated in the future. As of
December 31, 2010, securities with a par value of
$8.5 million are rated AAA/Aaa, and a security with a par
value of $2.4 million is rated AAA/A3. These securities are
classified as long-term investments and we recorded a temporary
impairment charge of $627,000. 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. In addition, Intevac could, in such a
situation require additional financing which might not be
available on favorable terms, if at all.
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 existing key personnel, or to attract,
assimilate or retain additional highly qualified employees to
meet our needs in the future, could have a material and adverse
effect on our business, financial condition and results of
operations.
We are
dependent on certain suppliers for parts used in our
products.
We are a manufacturing business. Purchased parts constitute the
largest component of our product cost. Our ability to
manufacture depends on the timely delivery of parts, components
and subassemblies from suppliers. We obtain some of the key
components and subassemblies used in our products from a single
supplier or a limited group of suppliers. If any of our
suppliers fail to deliver quality parts on a timely basis, we
may experience delays in manufacturing, which could result in
delayed product deliveries, increased costs to expedite
deliveries or develop alternative suppliers, or require redesign
of our products to accommodate alternative suppliers. Some of
our suppliers are thinly capitalized and may be vulnerable to
failure given recent economic conditions.
Our
business depends on the integrity of our intellectual property
rights.
The success of our business depends upon the integrity of our
intellectual property rights, and we cannot ensure that:
(1) any of our pending or future patent applications will
be allowed or that any of the allowed applications will be
issued as patents or will issue with claims of the scope we
sought; (2) any of our patents will not be invalidated,
deemed unenforceable, circumvented or challenged; (3) the
rights granted under our patents will provide competitive
advantages to us; (4) other parties will not develop
similar products, duplicate our products or design around our
patents; or (5) our patent rights, intellectual property
laws or our agreements will adequately protect our intellectual
property or competitive position.
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.
19
We
could be involved in litigation.
From time to time we may be involved in litigation of various
types, including litigation alleging infringement of
intellectual property rights and other claims. Litigation is
expensive, subjects us to the risk of significant damages and
requires significant management time and attention and could
have a material and adverse effect on our business, financial
condition and results of operations.
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, in 2008 we acquired certain assets of OC Oerlikon Balzers
Ltd. and in 2010 we acquired the outstanding shares of Solar
Implant Technologies, Inc. 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 may be vulnerable to computer viruses,
break-ins and similar disruptions from unauthorized tampering
with our computer systems and tools located at customer sites.
Political instability could cause us to incur increased costs in
transportation, make such transportation unreliable, increase
our insurance costs or cause international currency markets to
fluctuate. 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 over financial reporting.
We have completed the evaluation of our internal controls over
financial reporting as required by Section 404 of the
Sarbanes-Oxley Act. Although our assessment, testing, and
evaluation resulted in our conclusion that as of
December 31, 2010, our internal controls over financial
reporting were effective, we cannot predict the outcome of our
testing in future periods. Ongoing compliance with this
requirement is complex, costly and time-consuming. If Intevac
fails to maintain effective internal control over financial
reporting; our management does not timely assess the adequacy of
such internal control; or our independent registered public
accounting firm does not deliver an unqualified opinion as to
the effectiveness of our internal control over financial
reporting, then we could be subject to restatement of previously
reported financial results, regulatory sanctions and a decline
in the 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.
|
|
Item 4.
|
(Removed
and Reserved)
|
21
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 Stock Market
(NASDAQ Global Select) under the symbol IVAC. As of
February 25, 2011, there were 111 holders of record. In
fiscal years 2010 and 2009 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 Stock Market for the
periods indicated.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Fiscal 2010:
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
16.82
|
|
|
$
|
13.63
|
|
Second Quarter
|
|
|
15.48
|
|
|
|
10.48
|
|
Third Quarter
|
|
|
11.57
|
|
|
|
9.04
|
|
Fourth Quarter
|
|
|
15.25
|
|
|
|
9.73
|
|
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
|
|
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,
2005 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.
22
COMPARISON
OF CUMULATIVE TOTAL RETURN SINCE DECEMBER 31, 2005
AMONG INTEVAC, NASDAQ STOCK MARKET TOTAL RETURN INDEX AND
NASDAQ COMPUTER MANUFACTURERS TOTAL RETURN INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/05
|
|
|
12/30/06
|
|
|
12/29/07
|
|
|
12/31/08
|
|
|
12/31/09
|
|
|
12/31/10
|
Intevac, Inc.
|
|
|
$
|
100
|
|
|
|
$
|
197
|
|
|
|
$
|
110
|
|
|
|
$
|
38
|
|
|
|
$
|
87
|
|
|
|
$
|
106
|
|
Nasdaq Stock Market Total Return Index
|
|
|
|
100
|
|
|
|
|
110
|
|
|
|
|
119
|
|
|
|
|
57
|
|
|
|
|
83
|
|
|
|
|
98
|
|
Nasdaq Computer Manufacturers Total Return Index
|
|
|
|
100
|
|
|
|
|
102
|
|
|
|
|
149
|
|
|
|
|
63
|
|
|
|
|
138
|
|
|
|
|
197
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands, except per share data)
|
|
Net revenues
|
|
$
|
202,526
|
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
$
|
215,834
|
|
|
$
|
259,875
|
|
Gross profit
|
|
$
|
87,672
|
|
|
$
|
32,720
|
|
|
$
|
43,339
|
|
|
$
|
96,043
|
|
|
$
|
100,959
|
|
Operating income (loss)
|
|
$
|
31,238
|
|
|
$
|
(17,347
|
)
|
|
$
|
(30,471
|
)
|
|
$
|
27,436
|
|
|
$
|
47,999
|
|
Net income (loss)
|
|
$
|
28,049
|
|
|
$
|
(10,077
|
)
|
|
$
|
(15,345
|
)
|
|
$
|
27,345
|
|
|
$
|
46,698
|
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.26
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
1.28
|
|
|
$
|
2.22
|
|
Diluted
|
|
$
|
1.22
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
$
|
1.23
|
|
|
$
|
2.13
|
|
At year end:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
251,771
|
|
|
$
|
203,378
|
|
|
$
|
189,169
|
|
|
$
|
215,413
|
|
|
$
|
206,003
|
|
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 process manufacturing equipment solutions to
the hard disk drive industry, high-productivity process
manufacturing equipment and inspection solutions to the
photovoltaic (PV) industry and wafer handling
platforms to the semiconductor industry. In 2009, Intevac
announced a high-productivity thin-film solar cell manufacturing
system for PV applications, LEAN
SOLARtm,
and began offering equipment to thin-film PV cell manufacturers.
Intevac shipped the first LEAN SOLAR system to a customer in the
second quarter of 2010. In 2010 Intevac also began offering LEAN
SOLAR to support wafer-based crystalline silicon
(c-Si) applications and inspection equipment to PV
cell manufacturers. In the semiconductor capital equipment
market, Intevac stopped offering its Lean Etch product and
refocused its efforts on a linear wafer handling platform
solution and in the second quarter of 2010 introduced
Continuumtm,
a high-productivity vacuum wafer handling system. To date,
Intevac has not yet recognized any revenue from shipments of its
semiconductor wafer handling and PV products. Intevac also
provides sensors, cameras and systems for government
applications such as night vision and long-range target
identification and for commercial applications in the
inspection, medical, scientific and security industries.
Intevacs customers and potential customers include
manufacturers of hard disk drives, semiconductor equipment, and
PV cells as well as medical, scientific and security companies,
law enforcement and the U.S. government and its agencies
and contractors. Intevac reports two segments: Equipment and
Intevac Photonics. During the fourth quarter of 2010, Intevac
completed the acquisition of the outstanding shares of Solar
Implant Technologies, Inc. (SIT), a privately-owned,
development stage company, creating a manufacturing module for
PV applications. 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.
Intevacs results are driven primarily by worldwide demand
for hard drive disks, which in turn depends on end-user demand
for personal computers, enterprise data storage, personal audio
and video players and video game platforms. Intevac continues to
execute its equipment diversification strategy into new markets
by introducing products for PV solar cell and semiconductor
equipment manufacturing. Intevac believes that expansion into
these new markets which are significantly larger than the hard
disk drive market will result in incremental equipment revenues
for Intevac and decrease Intevacs dependence on the hard
drive industry. Intevacs business is subject to cyclical
industry conditions, as demand for manufacturing equipment and
services can change depending on supply
24
and demand for hard drive disks, semiconductor wafer handling
equipment, and PV cells, as well as other factors, such as
global economic conditions and technological advances in
fabrication processes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% Change
|
|
% Change
|
Fiscal Year
|
|
2010
|
|
2009
|
|
2008
|
|
2010 vs. 2009
|
|
2009 vs. 2008
|
|
|
(In thousands, except percentages and per share amounts)
|
|
Net revenues
|
|
$
|
202,526
|
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
|
159.7
|
%
|
|
|
(29.3
|
) %
|
Gross profit
|
|
|
87,672
|
|
|
|
32,720
|
|
|
|
43,339
|
|
|
|
167.9
|
%
|
|
|
(24.5
|
) %
|
Gross margin percent
|
|
|
43.3
|
%
|
|
|
42.0
|
%
|
|
|
39.3
|
%
|
|
|
1.3 points
|
|
|
|
2.7 points
|
|
Net income (loss)
|
|
|
28,049
|
|
|
|
(10,077
|
)
|
|
|
(15,345
|
)
|
|
|
378.3
|
%
|
|
|
34.3
|
%
|
Earnings (loss) per diluted share
|
|
$
|
1.22
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
|
365.2
|
%
|
|
|
35.2
|
%
|
Fiscal 2008 financial results reflected a difficult environment
as Intevacs customers reduced or delayed capital
expenditures as a result of industry consolidation, 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 Oerlikons 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 to drive future growth. Also during the
fourth quarter of fiscal 2008, Intevacs market
capitalization and financial outlook were adversely impacted by
the prevailing 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 in
patterned media. At the end of 2009, however, Intevacs
hard drive customers began taking delivery of systems for 2010
capacity needs. In 2009, Intevac Photonics business grew, driven
by U.S. government spending plus incorporation of Intevac
products into development, pre-production and some early stage
production programs.
Fiscal 2010 financial results improved as Intevacs
Equipment customers took delivery of systems to increase their
production capacity in response to growing demand for digital
storage. In fiscal 2010, Intevac acquired SIT to develop PV
manufacturing products. Net sales during fiscal 2010 reflected
higher equipment sales to disk manufacturers and increased
Intevac Photonics technology development contracts and
product sales. Net income during fiscal 2010 reflected higher
net sales, partially offset by higher selling, general and
administrative expenses, and higher income tax expense. The
increase in selling, general and administrative expenses during
fiscal 2010 was primarily a result of variable compensation
expenses, legal expenses associated with the auction rate
securities (ARS) arbitration and transaction costs
associated with completing the acquisition of SIT.
Intevac expects to sell fewer 200 Lean systems in fiscal 2011
compared to fiscal 2010 as the hard drive industry increased
capacity and retired a significant number of legacy systems in
2010. Hard drive customers also took delivery of systems in the
fourth quarter of fiscal 2010 which will meet some of their 2011
capacity needs. Long-term demand for hard disk drives is
expected to increase, driven by growth in the demand for digital
storage, the need for corporations to replace and update
employee computers, increased information technology spending,
declining growth rate in areal density improvements and the
proliferation of personal computers into emerging economies. The
number of disk manufacturing systems needed to support this
growth is expected to vary from year to year depending on the
factors noted above. In fiscal 2011, Intevac expects its hard
drive customers will add some new systems for capacity
production as well as invest in systems for technology
development.
In fiscal 2011, Intevac expects that the Intevac Photonics
business levels will be flat compared to fiscal 2010. For fiscal
2011, Intevac expects Photonics product revenue from low-light
sensors and cameras to increase; however, contract research and
development revenue will likely be lower as a result of the
completion of certain development contracts in fiscal 2010 and
delayed contract funding for several large programs due to
delays in U.S. government defense budget approvals.
25
Results
of Operations
Net
revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
% Change
|
|
|
% Change
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
|
|
(In thousands, except percentages)
|
|
|
|
Equipment
|
|
$
|
168,252
|
|
|
$
|
51,389
|
|
|
$
|
87,469
|
|
|
|
227.4
|
%
|
|
|
(41.2
|
)
|
%
|
Intevac Photonics
|
|
|
34,274
|
|
|
|
26,592
|
|
|
|
22,838
|
|
|
|
28.9
|
%
|
|
|
16.4
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
202,526
|
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
|
159.7
|
%
|
|
|
(29.3
|
)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues consist primarily of sales of equipment used to
manufacture thin-film disks, and, to a lesser extent, related
equipment and system components; revenue from contract research
and development related to the development of electro-optical
sensors, cameras and systems; and sales of low-light imaging
products and table-top and handheld Raman instruments.
The increase in Equipment revenues in 2010 was due primarily to
an increase in the number of 200 Lean systems delivered. In
2010, Intevac delivered twenty-six 200 Lean systems compared to
four 200 Lean systems in 2009 and eleven 200 Lean systems in
2008. Revenues from disk equipment technology upgrades and spare
parts increased in 2010 versus 2009 and 2008. Fiscal 2008 new
system capacity additions in the hard disk drive market were
negatively impacted by disk manufacturers upgrading and reusing
legacy tools previously in storage. The reuse of these systems
substantially met the incremental capacity requirements of one
of our largest customers. Equipment revenues in 2011 are
expected to be lower than 2010 levels due to lower capital
spending by hard drive customers for capacity additions.
Nonetheless Intevac expects long-term demand for hard disk
drives to increase driven by the growth in digital storage, the
need for corporations to replace and update employee computers,
increased information technology spending, declining growth rate
in areal density improvements and the proliferation of personal
computers into emerging economies. The number of disk
manufacturing systems needed to support this growth can vary
from year to year and is dependent on the factors noted above.
Intevac Photonics revenues increased by 28.9% to
$34.3 million in 2010, which consisted of
$16.0 million of product revenue and $18.3 million of
contract research and development revenue. Intevac Photonics
revenues of $26.6 million in 2009 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. The increase in
product revenues in both 2010 and 2009 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 handheld Raman instruments
and near-eye display products. The increase in contract research
and development revenue was the result of a higher volume of
contracts for additional digital night vision applications. In
2011, Intevac Photonics product revenue is expected to grow due
to continued expansion of Intevacs low-light camera and
sensor products in military and commercial applications.
Contract research and development revenue will likely be lower
as a result of the completion of certain development contracts
in 2010 and delayed contract funding for several large programs
due to delays in U.S. government defense budget approvals.
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 Intevacs
development and market acceptance of commercial products.
Intevacs backlog of orders at December 31, 2010 was
$46.7 million, as compared to $73.8 million at
December 31, 2009 and $20.2 million at
December 31, 2008. Equipment backlog at December 31,
2010 was $27.3 million compared to $57.5 million at
December 31, 2009 and $11.4 million at
December 31, 2008. Intevac Photonics backlog at
December 31, 2010 was $19.4 million compared to
$16.3 million at December 31, 2009 and
$8.8 million at December 31, 2008. Equipment backlog
at December 31, 2010 included two 200 Lean systems and two
LEAN SOLAR systems, as compared to ten 200 Lean systems at
December 31, 2009, and one 200 Lean system at
December 31, 2008.
26
Significant portions of Intevacs revenues in any
particular period have been attributable to sales to a limited
number of customers. In 2010 sales to Seagate, Hitachi Global
Storage Technologies, and Fuji Electric each accounted for more
than 10% of Intevacs revenues and in the aggregate sales
to these customers accounted for 78% of revenues. 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. The magnetic disk manufacturing industry
consists of a small number of large manufacturers. Seagate
acquired Maxtor in 2006 and Western Digital acquired Komag in
2007 and Hoyas magnetic media operations in 2010, all of
which further concentrated the customer base in the industry.
International sales totaled $155.0 million,
$39.2 million, and $76.5 million in 2010, 2009, and
2008, respectively, accounting for 77%, 50%, and 69% of net
revenues. The increase in international sales in 2010 was
primarily due to increases in net revenues from disk sputtering
systems. The decrease in international sales in 2009 was
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.
Gross
margin
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 vs. 2009
|
|
2009 vs. 2008
|
|
|
(In thousands, except percentages)
|
|
Equipment gross profit
|
|
$
|
79,472
|
|
|
$
|
23,266
|
|
|
$
|
35,797
|
|
|
|
241.6
|
|
%
|
|
|
(35.0
|
)
|
%
|
% of Equipment net revenues
|
|
|
47.2
|
%
|
|
|
45.3
|
%
|
|
|
40.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Intevac Photonics gross profit
|
|
$
|
8,200
|
|
|
$
|
9,454
|
|
|
$
|
7,542
|
|
|
|
(13.3
|
)
|
%
|
|
|
25.4
|
|
%
|
% of Intevac Photonics net revenues
|
|
|
23.9
|
%
|
|
|
35.6
|
%
|
|
|
33.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Total gross profit
|
|
$
|
87,672
|
|
|
$
|
32,720
|
|
|
$
|
43,339
|
|
|
|
167.9
|
|
%
|
|
|
(24.5
|
)
|
%
|
% of net revenues
|
|
|
43.3
|
%
|
|
|
42.0
|
%
|
|
|
39.3
|
%
|
|
|
|
|
|
|
|
|
|
|
Cost of net revenues consists primarily of purchased materials
and costs attributable to contract research and development, and
also includes fabrication, assembly, test and installation labor
and overhead, customer-specific engineering costs, warranty
costs, royalties, provisions for inventory reserves and scrap.
Equipment gross margin was 47.2% in 2010 compared to 45.3% in
2009 and 40.9% in 2008. Fiscal 2010 gross margins improved
over fiscal 2009 due to higher revenues and improved factory
utilization partially offset by the higher mix of system
shipments which generally have a lower margin than technology
upgrades and spare parts. 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. 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 23.9% in 2010 compared 35.6%
in 2009 and 33.0% in 2008. The decrease in gross margin in 2010
resulted primarily from lower margins associated with Intevac
Photonics first high volume digital night vision
production shipments for a NATO customer, lower margins on
development contracts and increased warranty provisions.
Although manufacturing costs for the digital night vision
product decreased in 2010, Intevac expects to make additional
cost reductions and yield improvement in 2011. 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.
27
Research
and development
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
% Change
|
|
% Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 vs. 2009
|
|
2009 vs. 2008
|
|
|
(In thousands, except percentages)
|
|
Research and development expense
|
|
$
|
27,918
|
|
|
$
|
28,064
|
|
|
$
|
35,083
|
|
|
|
(0.5
|
) %
|
|
|
(20.0
|
) %
|
% of net revenues
|
|
|
13.8
|
%
|
|
|
36.0
|
%
|
|
|
31.8
|
%
|
|
|
|
|
|
|
|
|
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 spending decreased for Equipment during
2010 as compared to 2009 and 2008. The decrease in Equipment
spending during 2010 and 2009 was due primarily to a reduction
in spending on semiconductor products, offset by investment in
PV development. Research and development spending decreased for
Intevac Photonics during 2010 as compared to 2009 primarily
related to decreased spending for the digital night vision
camera module for Intevacs military NATO customer as the
product transitioned into production. Intevac Photonics
increased research and development spending levels in 2009 for
sensor yield improvements, sensor development and digital night
vision goggle development.
Research and development expenses do not include costs of
$12.9 million, $9.1 million, and $8.5 million, in
2010, 2009, and 2008, 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
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 vs. 2009
|
|
2009 vs. 2008
|
|
|
(In thousands, except percentages)
|
|
Selling, general and administrative expense
|
|
$
|
28,516
|
|
|
$
|
22,003
|
|
|
$
|
28,229
|
|
|
|
29.6
|
%
|
|
|
(22.1
|
) %
|
% of net revenues
|
|
|
14.1
|
%
|
|
|
28.2
|
%
|
|
|
25.6
|
%
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense consists primarily
of selling, marketing, customer support, financial and
management costs. 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 expenses increased in 2010
over the amount spent in 2009 due primarily to the result of
variable compensation, legal expenses associated with the
auction rate securities (ARS) arbitration and
transaction costs associated with completing the acquisition of
SIT, offset in part by lower equity-based compensation expense.
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.
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.
28
Impairment
of goodwill and intangibles
Goodwill and Intevacs 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 the indefinite life intangible assets may be impaired. In
the fourth quarter of 2010, Intevac performed its 2010 annual
assessment of impairment which did not result in an impairment
of goodwill or Intevacs indefinite life intangible assets.
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, 2010, Intevac
had a total of $18.4 million of goodwill and
$4.1 million of indefinite-life intangible assets. Goodwill
in the amount of $10.5 million is attributed to the
Equipment segment. Goodwill in the amount of $7.9 million
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 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 approach looked
at the valuations of comparable public companies which Intevac
selected based upon similar industries and products. Intevac
then 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
October 2, 2010, showed that the estimated fair values of
the Equipment and Intevac Photonics reporting units exceeded
their carrying values by more than $75 million and
$25 million, respectively. There was no impairment of
goodwill recorded during the years ended December 31, 2010
and 2009.
Intevac also performed the annual impairment review of a
tradename, an indefinite life intangible asset during the fourth
quarter of 2010 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
that an 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 was 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
which would adversely affect its financial results. For further
details, see Note 6 of Notes to Consolidated Financial
Statements.
29
Interest
income and other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
% Change
|
|
|
% Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
|
(In thousands, except percentages)
|
|
|
Interest income and other, net
|
|
$
|
773
|
|
|
$
|
1,254
|
|
|
$
|
3,932
|
|
|
|
(38.4
|
) %
|
|
|
(68.1
|
) %
|
Interest income and other, net in 2010 included $899,000 of
interest income on investments, a gain of $481,000 related to
the remeasurement of Intevacs pre-acquisition equity
interest in SIT at the acquisition-date fair value, partially
offset by $520,000 of foreign currency losses and $87,000 in net
other expense. Interest income and other, net in 2009 included
$1.4 million of interest income on investments and $134,000
in net other income, partially offset by $226,000 of foreign
currency losses 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. The decrease
in interest income in 2010 was driven by lower interest rates on
Intevacs investments. The decrease in interest income in
2009 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
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
|
(In thousands, except percentages)
|
|
|
Provision for (benefit from) income taxes
|
|
$
|
3,962
|
|
|
$
|
(6,016
|
)
|
|
$
|
(11,194
|
)
|
|
|
165.9
|
%
|
|
|
46.3
|
%
|
Intevacs effective income tax provision rate was 12.4% for
fiscal 2010, 37.4% for fiscal 2009, and 42.2% for fiscal 2008.
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.
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.
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 November 19, 2010, Intevac acquired the outstanding
shares of Solar Implant Technologies, Inc. (SIT), a
privately-owned, development stage company, creating an ion
implant module to be used in the manufacturing of photovoltaic
cells. Intevacs primary reasons for this acquisition were
to complement its existing product offerings and to provide
opportunities for future growth. The preliminary aggregate
purchase price was $12.4 million, which consisted of an
initial cash payment totaling $2.7 million and contingent
consideration obligations with a fair value of $9.7 million
payable in cash based on the achievement of certain product
development milestones achieved over a specified period and
revenue earnout on Intevacs net revenue from commercial
sales of certain products achieved over a specified period.
30
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, 2010. 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.
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 July 2, 2011 quarterly
report on
Form 10-Q.
Intevac is currently evaluating the impact of XBRL reporting on
its financial reporting process.
In December 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
2010-29,
Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business
Combinations. For business combinations that are material
on an individual or aggregate basis the amendment requires that
comparative financial statements be presented and revenue and
earnings of the combined entity be disclosed as though the
business combination(s) that occurred during the current year
had occurred as of the beginning of the comparable prior annual
reporting period. The amendment also expands the supplemental
pro forma disclosures to include a description of the nature and
amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the
reported pro forma revenue and earnings. The amendment is
effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010. The adoption of the
ASU 2010-29
will not have material impact to the financial statements of the
Company.
Liquidity
and Capital Resources
At December 31, 2010, Intevac had $137.4 million in
cash, cash equivalents, and investments compared to
$89.8 million at December 31, 2009. During fiscal
2010, cash, cash equivalents and investments increased by
$47.5 million due primarily to cash provided by operating
activities and cash received from the sale of Intevac common
stock to employees through employee benefit plans, partially
offset by purchases of fixed assets and cash used in the
acquisition of SIT.
Cash, cash equivalents and investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents
|
|
$
|
109,520
|
|
|
$
|
17,592
|
|
Short-term investments
|
|
|
4,994
|
|
|
|
6,000
|
|
Long-term investments
|
|
|
22,866
|
|
|
|
66,249
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash-equivalents and investments
|
|
$
|
137,380
|
|
|
$
|
89,841
|
|
|
|
|
|
|
|
|
|
|
Cash generated by operating activities totaled
$51.3 million in 2010. Cash used by operating activities
totaled $16.6 million in 2009 and $8.2 million in
2008. Higher operating cash flow was a result of net income
adjusted to exclude the effect of non-cash charges including,
depreciation, amortization and equity-based compensation. This
increase in cash from operating activities was also affected by
changes in working capital. Intevac continues to carefully
manage working capital.
31
Accounts receivable totaled $25.9 million at
December 31, 2010 compared to $44.8 million at
December 31, 2009. The number of days outstanding for
Intevacs accounts receivable was 62 at December 31,
2010 compared to 136 at December 31, 2009. The decrease in
the receivable balance and days outstanding was due primarily to
collection of customer deposit invoices which were outstanding
at the end of the prior year and collection of systems
receivables. Net inventories increased by $1.6 million
during 2010 primarily as a result of increased business levels.
Inventory turns were 5.8 in fiscal 2010 compared to 2.5 in
fiscal 2009. Accounts payable totaled $5.6 million at
December 31, 2010 compared to $4.7 million at
December 31, 2009. The increase of $861,000 relates to the
increase in inventory purchases as a result of increased
business levels. Accrued payroll and related liabilities
increased by $8.6 million during 2010 to $11.4 million
primarily related to bonus and profit sharing accruals. Customer
advances decreased from $13.2 million at December 31,
2009 to $4.9 million at December 31, 2010, as
liquidations related to revenue recognition were higher than new
advances received from customers.
Investing activities generated cash of $37.7 million in
2010, used cash of $4.1 million in 2009, and generated cash
of $19.6 million in 2008. In 2010, proceeds from sales and
maturities of investments, net of purchases, totaled
$47.4 million. 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. During 2010, Intevac
acquired the outstanding shares of SIT for a preliminary
aggregate purchase price of $12.4 million, which consisted
of an initial cash payment totaling $2.7 million and a
contingent consideration obligation with a fair value of
$9.7 million payable in cash. During 2008, Intevac invested
$15.1 million in the acquisition of certain assets from
Oerlikon. Capital expenditures totaled $7.1 million in 2010
compared to $2.6 million in 2009 and $4.2 million in
2008.
Financing activities generated cash of $2.9 million in
2010, used cash of $809,000 in 2009 and generated cash of
$165,000 in 2008. The sale of Intevac common stock to
Intevacs employees through Intevacs employee benefit
plans provided $2.8 million in 2010, $1.1 million in
2009, and $1.8 million in 2008. Subsequent to the
SIT acquisition, Intevac paid in full $177,000 in notes
payable to certain selling shareholders assumed upon the
acquisition. In 2009 and 2008, Intevac made scheduled payments
of $2.0 million each to the former owners of DeltaNu.
As of December 31, 2010, Intevacs
available-for-sale
securities included $10.9 million par value of ARS, less a
temporary valuation adjustment of $627,000 to reflect their
current lack of liquidity. Management believes that the
impairment of the ARS investments is temporary. Due to 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 2010, including the Citigroup
repurchase of securities discussed below, $59.1 million of
ARS were redeemed at par.
As described in Note 8 of Notes to Consolidated Financial
Statements, at December 31, 2010, the fair value of the ARS
was estimated at $10.3 million based on a valuation by
Houlihan Capital Advisors, LLC, 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, 2010, 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 held at that time. The statement of
32
claim requested 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. The
arbitration proceedings were completed on June 10, 2010. On
June 29, 2010, Intevac received a favorable ruling from the
arbitration panel whereby Citigroup was ordered to rescind the
sale of the $54.8 million par value in outstanding ARS
investments. On July 27, 2010, Intevac received
$54.8 million from the repurchase of the securities by
Citigroup at par including interest and recognized the reversal
of a $3.3 million temporary impairment charge in other
comprehensive income.
Intevac believes that Intevacs existing cash, cash
equivalents and investments will be sufficient to meet
Intevacs cash requirements for the next 12 months.
Intevac intends to undertake approximately $5
$6 million in capital expenditures during the next
12 months.
Contractual
Obligations
The following table summarizes Intevacs contractual
obligations as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
Total
|
|
|
< 1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
> 5 Years
|
|
|
|
(In thousands)
|
|
|
Operating lease obligations
|
|
$
|
11,699
|
|
|
$
|
2,596
|
|
|
$
|
4,017
|
|
|
$
|
3,094
|
|
|
$
|
1,992
|
|
Purchase obligations and commitments(1)
|
|
|
9,664
|
|
|
|
9,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities(2, 4)
|
|
|
1,909
|
|
|
|
1,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(3, 4)
|
|
$
|
23,272
|
|
|
$
|
14,169
|
|
|
$
|
4,017
|
|
|
$
|
3,094
|
|
|
$
|
1,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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,
$4.5 million 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. |
|
(4) |
|
Total excludes contingent consideration that may be paid
pursuant to asset purchases or business combinations. |
Off-Balance
Sheet Arrangements
As of December 31, 2010, 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.
33
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 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,
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 until
delivery of the deferred elements. When a sales arrangement
contains multiple elements, Intevac allocates revenue to each
element based on a selling price hierarchy. The selling price
for a deliverable is based on its vendor specific evidence
(VSOE) if available, third party evidence
(TPE) if VSOE is not available, or best estimate of
selling price (ESP) if neither VSOE nor TPE is
available. Intevac generally utilizes the ESP due to the nature
of its products. 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 relative sales price of the parts upon shipment
and transfer of title, and recognizes revenue for the relative
sales price 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. In
addition, Intevac uses the installment method to record revenue
based on cash receipts in situations where the account
receivable is collected over an extended period of time and in
managements judgment the degree of collectibility is
uncertain.
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
recognized on a milestone method or
percentage-of-completion
method of contract accounting. For contracts structured as
milestone agreements, revenue is recognized when a specified
milestone is achieved, provided that (1) the milestone
event is substantive in nature and there is substantial
uncertainty about the achievement of the milestone at the
inception of the agreement, (2) the milestone payment is
non-refundable, and (3) there is no continuing performance
obligations associated with the milestone payment. Any milestone
payments received prior to satisfying these revenue recognition
criteria are deferred. Intevac generally determines the
percentage completed based on the percentage of costs incurred
to date in relation to total estimated costs expected through
completion of the contract. When estimates of total costs to be
incurred on a contract exceed estimates of total revenue to be
earned, a provision for the entire loss on the contract is
recorded in the period the loss is determined.
34
Inventories
Inventories are valued 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. 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.
Valuation
of IPR&D, Contingent Consideration, Goodwill and Other
Intangible Assets
The purchase price of an acquired business is allocated, as
applicable, between in-process research and development
(IPR&D), other identifiable intangible assets,
net tangible assets and goodwill. IPR&D is defined as the
value assigned to those projects for which the related products
have no alternative future use. Determining the portion of the
purchase price allocated to IPR&D and other intangible
assets requires the Company to make significant estimates. The
amount of the purchase price allocated to IPR&D and other
intangible assets is determined by estimating the future cash
flows of each project or technology and discounting the net cash
flows back to their present values. The discount rate used is
determined at the time of the acquisition in accordance with
accepted valuation methods. For IPR&D, these valuation
methodologies include consideration of the risk of the project
not achieving commercial feasibility.
35
Contingent consideration is recorded at the acquisition date at
the estimated fair value of the contingent payments. The
acquisition date fair value is measured based on the
consideration expected to be transferred (probability-weighted),
discounted back to present value. The discount rate used is
determined at the time of the acquisition in accordance with
accepted valuation methods. The fair value of the contingent
consideration is remeasured at the estimated fair value at each
reporting period with the change in fair value recognized as
income or expense in the consolidated statements of operations.
Goodwill represents the excess of the aggregate purchase price
over the fair value of net assets, including IPR&D, of
acquired businesses. 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 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 12, 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 and 2010.
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.
36
|
|
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 commercial
paper, obligations of the U.S. government and its agencies,
corporate debt securities and ARS.
The table below presents principal amounts and related
weighted-average interest rates by year of maturity for
Intevacs investment portfolio at December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
2011
|
|
2012
|
|
2013
|
|
Beyond
|
|
Total
|
|
Value
|
|
|
|
|
(In thousands, except percentages)
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate amounts
|
|
$
|
4,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,258
|
|
|
$
|
4,257
|
|
Weighted-average rate
|
|
|
1.81
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable rate amounts
|
|
$
|
82,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
82,376
|
|
|
$
|
82,376
|
|
Weighted-average rate
|
|
|
0.12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate amounts
|
|
$
|
4,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,994
|
|
|
$
|
4,994
|
|
Weighted-average rate
|
|
|
0.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate amounts
|
|
|
|
|
|
$
|
12,593
|
|
|
|
|
|
|
$
|
10,900
|
|
|
$
|
23,493
|
|
|
$
|
22,866
|
|
Weighted-average rate
|
|
|
|
|
|
|
3.31
|
%
|
|
|
|
|
|
|
1.64
|
%
|
|
|
|
|
|
|
|
|
Total investment portfolio
|
|
$
|
91,628
|
|
|
$
|
12,593
|
|
|
|
|
|
|
$
|
10,900
|
|
|
$
|
115,121
|
|
|
$
|
114,493
|
|
At December 31, 2010, 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, 2010, Intevac had $10.3 million in ARS in
the consolidated balance sheet, which is net of a temporary
unrealized loss of $627,000. 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 income (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 2011.
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, 2010, 2009 and 2008.
37
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
INTEVAC,
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
Contents
38
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,
2010 and 2009, 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, 2010. Our audits of the basic financial
statements included the financial statement schedule listed in
the index appearing under Item 15(a)(2). 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, 2010 and 2009 and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010 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), the
Companys internal control over financial reporting as of
December 31, 2010, 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 25, 2011
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
/s/ GRANT THORNTON LLP
San Jose, California
February 25, 2011
39
INTEVAC,
INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except par value)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
109,520
|
|
|
$
|
17,592
|
|
Short-term investments
|
|
|
4,994
|
|
|
|
6,000
|
|
Trade, notes and other accounts receivable, net of allowances of
$55 and $133 at December 31, 2010 and 2009, respectively
|
|
|
25,911
|
|
|
|
44,756
|
|
Inventories
|
|
|
20,671
|
|
|
|
19,100
|
|
Prepaid expenses and other current assets
|
|
|
6,630
|
|
|
|
6,687
|
|
Deferred income tax assets
|
|
|
3,124
|
|
|
|
1,515
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
170,850
|
|
|
|
95,650
|
|
Property, plant and equipment, net
|
|
|
13,918
|
|
|
|
12,351
|
|
Long-term investments
|
|
|
22,866
|
|
|
|
66,249
|
|
Goodwill
|
|
|
18,389
|
|
|
|
7,905
|
|
Other intangible assets, net of amortization of $1,801 and
$1,248 at December 31, 2010 and 2009, respectively
|
|
|
6,984
|
|
|
|
3,537
|
|
Deferred income taxes and other long-term assets
|
|
|
18,764
|
|
|
|
17,686
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
251,771
|
|
|
$
|
203,378
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,562
|
|
|
$
|
4,701
|
|
Accrued payroll and related liabilities
|
|
|
11,365
|
|
|
|
2,784
|
|
Other accrued liabilities
|
|
|
11,104
|
|
|
|
11,104
|
|
Customer advances
|
|
|
4,867
|
|
|
|
13,180
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
32,898
|
|
|
|
31,769
|
|
Other long-term liabilities
|
|
|
11,630
|
|
|
|
252
|
|
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 22,558 and 22,079 at December 31, 2010
and 2009, respectively
|
|
|
23
|
|
|
|
22
|
|
Additional
paid-in-capital
|
|
|
139,824
|
|
|
|
134,071
|
|
Accumulated other comprehensive income (loss)
|
|
|
255
|
|
|
|
(1,828
|
)
|
Retained earnings
|
|
|
67,141
|
|
|
|
39,092
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
207,243
|
|
|
|
171,357
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
251,771
|
|
|
$
|
203,378
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems and components
|
|
$
|
184,217
|
|
|
$
|
61,893
|
|
|
$
|
95,962
|
|
Technology development
|
|
|
18,309
|
|
|
|
16,088
|
|
|
|
14,345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
|
202,526
|
|
|
|
77,981
|
|
|
|
110,307
|
|
Cost of net revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Systems and components
|
|
|
101,975
|
|
|
|
36,172
|
|
|
|
58,503
|
|
Technology development
|
|
|
12,879
|
|
|
|
9,089
|
|
|
|
8,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of net revenues
|
|
|
114,854
|
|
|
|
45,261
|
|
|
|
66,968
|
|
Gross profit
|
|
|
87,672
|
|
|
|
32,720
|
|
|
|
43,339
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
27,918
|
|
|
|
28,064
|
|
|
|
35,083
|
|
Selling, general and administrative
|
|
|
28,516
|
|
|
|
22,003
|
|
|
|
28,229
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
10,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
56,434
|
|
|
|
50,067
|
|
|
|
73,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
31,238
|
|
|
|
(17,347
|
)
|
|
|
(30,471
|
)
|
Interest income
|
|
|
899
|
|
|
|
1,362
|
|
|
|
3,968
|
|
Other income (expense), net
|
|
|
(126
|
)
|
|
|
(108
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
32,011
|
|
|
|
(16,093
|
)
|
|
|
(26,539
|
)
|
Provision (benefit) for income taxes
|
|
|
3,962
|
|
|
|
(6,016
|
)
|
|
|
(11,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
28,049
|
|
|
$
|
(10,077
|
)
|
|
$
|
(15,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.26
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
Diluted
|
|
$
|
1.22
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,340
|
|
|
|
21,975
|
|
|
|
21,724
|
|
Diluted
|
|
|
22,977
|
|
|
|
21,975
|
|
|
|
21,724
|
|
See accompanying notes.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Paid-In
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Stockholders
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income (Loss)
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in connection with:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
224
|
|
|
|
1
|
|
|
|
1,740
|
|
|
|
|
|
|
|
|
|
|
|
1,741
|
|
Employee stock purchase plan
|
|
|
255
|
|
|
|
|
|
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
1,027
|
|
Income tax benefits realized from activity in employee stock
plans
|
|
|
|
|
|
|
|
|
|
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
(279
|
)
|
Equity-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
3,265
|
|
|
|
|
|
|
|
|
|
|
|
3,265
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,049
|
|
|
|
28,049
|
|
Unrealized gain on securities held as
available-for-sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,072
|
|
|
|
|
|
|
|
3,072
|
|
Deferred taxes on unrealized gain on
available-for-sale
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,075
|
)
|
|
|
|
|
|
|
(1,075
|
)
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
|
22,558
|
|
|
$
|
23
|
|
|
$
|
139,824
|
|
|
$
|
255
|
|
|
$
|
67,141
|
|
|
$
|
207,243
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
28,049
|
|
|
$
|
(10,077
|
)
|
|
$
|
(15,345
|
)
|
Adjustments to reconcile net income (loss) to net cash and cash
equivalents provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation & amortization
|
|
|
5,307
|
|
|
|
5,031
|
|
|
|
4,709
|
|
Net accretion of investment premiums and discounts
|
|
|
|
|
|
|
(20
|
)
|
|
|
(256
|
)
|
Gain on acquisition
|
|
|
(481
|
)
|
|
|
|
|
|
|
|
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
10,498
|
|
Amortization of intangible assets
|
|
|
554
|
|
|
|
554
|
|
|
|
700
|
|
Equity-based compensation
|
|
|
3,316
|
|
|
|
4,255
|
|
|
|
6,577
|
|
Deferred income taxes
|
|
|
(2,142
|
)
|
|
|
(87
|
)
|
|
|
(8,002
|
)
|
Excess tax benefits from equity-based compensation
|
|
|
(299
|
)
|
|
|
(69
|
)
|
|
|
(327
|
)
|
Loss on disposal of equipment
|
|
|
153
|
|
|
|
57
|
|
|
|
7
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
18,845
|
|
|
|
(28,935
|
)
|
|
|
765
|
|
Inventories
|
|
|
(1,555
|
)
|
|
|
(1,411
|
)
|
|
|
4,434
|
|
Prepaid expenses and other assets
|
|
|
(2,665
|
)
|
|
|
(3,177
|
)
|
|
|
(100
|
)
|
Accounts payable
|
|
|
450
|
|
|
|
441
|
|
|
|
(3,468
|
)
|
Accrued payroll and other accrued liabilities
|
|
|
10,095
|
|
|
|
6,902
|
|
|
|
(5,475
|
)
|
Customer advances
|
|
|
(8,313
|
)
|
|
|
9,967
|
|
|
|
(2,911
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
23,265
|
|
|
|
(6,492
|
)
|
|
|
7,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents provided by (used in) operating
activities
|
|
|
51,314
|
|
|
|
(16,569
|
)
|
|
|
(8,194
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investments
|
|
|
(20,683
|
)
|
|
|
(26,979
|
)
|
|
|
(7,000
|
)
|
Proceeds from sales and maturities of investments
|
|
|
68,050
|
|
|
|
25,450
|
|
|
|
45,850
|
|
Acquisition of SIT, net of cash acquired
|
|
|
(2,638
|
)
|
|
|
|
|
|
|
|
|
Acquisition of Oerlikon assets, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(15,093
|
)
|
Purchase of equipment
|
|
|
(7,055
|
)
|
|
|
(2,615
|
)
|
|
|
(4,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents provided by (used in) investing
activities
|
|
|
37,674
|
|
|
|
(4,144
|
)
|
|
|
19,572
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
2,768
|
|
|
|
1,122
|
|
|
|
1,838
|
|
Payment of notes payable assumed upon SIT acquisition
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
Repayment of note payable
|
|
|
|
|
|
|
(2,000
|
)
|
|
|
(2,000
|
)
|
Excess tax benefits from equity-based compensation
|
|
|
299
|
|
|
|
69
|
|
|
|
327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash and cash equivalents provided by (used in) financing
activities
|
|
|
2,890
|
|
|
|
(809
|
)
|
|
|
165
|
|
Effect of exchange rate changes on cash
|
|
|
50
|
|
|
|
(87
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
91,928
|
|
|
|
(21,609
|
)
|
|
|
11,528
|
|
Cash and cash equivalents at beginning of period
|
|
|
17,592
|
|
|
|
39,201
|
|
|
|
27,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
109,520
|
|
|
$
|
17,592
|
|
|
$
|
39,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid (received) for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
1,829
|
|
|
$
|
713
|
|
|
$
|
410
|
|
Income tax refund
|
|
$
|
(481
|
)
|
|
$
|
(2,821
|
)
|
|
$
|
(3,717
|
)
|
See accompanying notes.
43
INTEVAC,
INC.
|
|
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, comprised of commercial paper, obligations of the
U.S. government and its agencies, corporate debt securities
and 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. 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.
Business
Combinations
On January 1, 2009, Intevac adopted a new accounting
standard issued by the Financial Accounting Standards Board
(FASB), related to accounting for business
combinations using the acquisition method of accounting
(previously referred to as the purchase method). Among the
significant changes, this standard requires a redefined
measurement date of a business combination, expensing direct
transaction costs as incurred, capitalizing in-process research
and development (IPR&D) costs as an intangible
asset and recording a liability for contingent consideration at
the measurement date with subsequent re-measurements recorded as
general and administrative expense. This standard also requires
costs for business restructuring and exit activities related to
the acquired company to be included in the post-combination
financial results of operations and also provides new guidance
for the recognition and measurement of contingent assets and
liabilities in a business combination. Acquisitions consummated
prior to January 1, 2009 were accounted for in accordance
with the previously applicable guidance. During 2010, Intevac
incurred $255,000 of acquisition-related costs which have been
included in selling, general and administrative expenses on the
Consolidated Statement of Operations.
44
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Trade
Accounts and Notes Receivables and Doubtful
Accounts
Intevac evaluates the collectibility of trade accounts
receivables and notes receivable 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 adequacy of the allowance for doubtful accounts. Customer
accounts are written off against the allowance when the amount
is deemed uncollectible. Also, accounts determined to be
uncollectible are put in nonaccrual status whereby interest is
not accrued on those accounts. Credit losses, when realized,
have been within the range of the Companys expectations.
Included in trade receivables at December 31, 2010 is the
current portion of a discounted promissory note from a customer
of $1.1 million. The non-current portion of the note
receivable of $3.3 million is included in other long-term
assets.
Included in trade receivables are unbilled receivables related
to government contracts of $1.1 million and
$2.1 million at December 31, 2010 and
December 31, 2009, respectively which includes $474,000 and
$371,000 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
The purchase price of an acquired business is allocated, as
applicable, between IPR&D, other identifiable intangible
assets, net tangible assets and goodwill. IPR&D is defined
as the value assigned to those projects for which the related
products have no alternative future use. Determining the portion
of the purchase price allocated to IPR&D and other
intangible assets requires the Company to make significant
estimates. The amount of the purchase price allocated to
IPR&D and other intangible assets is determined by
estimating the future cash flows of each project or technology
and discounting the net cash flows back to their present values.
The discount rate used is determined at the time of the
acquisition in accordance with accepted valuation methods. For
IPR&D, these valuation methodologies include consideration
of the risk of the project not achieving commercial feasibility.
Contingent consideration is recorded at the acquisition date at
the estimated fair value of the contingent payments. The
acquisition date fair value is measured based on the
consideration expected to be transferred (probability-weighted),
discounted back to present value. The discount rate used is
determined at the time of the acquisition in accordance with
accepted valuation methods. The fair value of the contingent
consideration is remeasured at the estimated fair value at each
reporting period with the change in fair value recognized as
income or expense in the consolidated statements of operations.
Goodwill represents the excess of the aggregate purchase price
over the fair value of net assets, including IPR&D, of
acquired businesses. 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.
45
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
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 12, 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 2010 and the results of these tests indicated that
Intevacs goodwill and a purchased intangible asset with an
indefinite useful live were not impaired. 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 and future operating expectations.
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 2010 and 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
46
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
In 2009, the FASB issued amended revenue recognition guidance
for arrangements with multiple deliverables and certain software
sold with tangible products. This new guidance eliminates the
residual method of revenue recognition and requires the use of
managements best estimate of selling price
(ESP) for individual elements of an arrangement when
vendor specific objective evidence (VSOE) or third
party evidence (TPE) is unavailable. Intevac
implemented this guidance prospectively beginning in the first
quarter of fiscal 2010 for transactions that were initiated or
materially modified during fiscal 2010. The implementation of
the new guidance had an insignificant impact on reported net
revenues as compared to net revenues under the previous
guidance, as the new guidance did not change the units of
accounting within sales arrangements, and the elimination of the
residual method for the allocation of arrangement consideration
had an inconsequential impact on the amount and timing of
reported net revenues.
In 2010, the FASB issued guidance for the milestone method of
revenue recognition. Under the milestone method, consideration
earned from achievement of the milestone is viewed as being
indicative of the value provided to the customer through either
(1) the efforts performed or (2) a specific outcome
resulting from the performance to achieve that specific
milestone. Under the milestone method, contingent arrangement
consideration earned from the achievement of a milestone is
recognized in its entirety in the period in which the milestone
is achieved. Under this new method of accounting, a milestone
must be substantive before the method can be
applied; that is, at the inception of the arrangement there is a
substantial uncertainty about the achievement of the milestone,
substantive effort is required to achieve the milestone, and
none of the payment for the milestone is refundable. Intevac
implemented this guidance prospectively beginning in the first
quarter of fiscal 2010 for transactions that were initiated or
materially modified during fiscal 2010. Implementation of this
new guidance had an insignificant impact on reported net
revenues as compared to net revenues under the previous guidance.
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,
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 until
delivery of the deferred elements. When a sales arrangement
contains multiple elements, Intevac allocates revenue to each
element based on a selling price
47
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
hierarchy. The selling price for a deliverable is based on its
vendor specific evidence (VSOE) if available, third
party evidence (TPE) if VSOE is not available, or
best estimate of selling price (ESP) if neither VSOE
nor TPE is available. Intevac generally utilizes the ESP due to
the nature of its products. 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 relative sales price of the parts upon shipment
and transfer of title, and recognizes revenue for the relative
sales price 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. In
addition, Intevac uses the installment method to record revenue
based on cash receipts in situations where the account
receivable is collected over an extended period of time and in
managements judgment the degree of collectibility is
uncertain.
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
recognized on a milestone method or
percentage-of-completion
method of contract accounting. For contracts structured as
milestone agreements, revenue is recognized when a specified
milestone is achieved, provided that (1) the milestone
event is substantive in nature and there is substantial
uncertainty about the achievement of the milestone at the
inception of the agreement, (2) the milestone payment is
non-refundable, and (3) there is no continuing performance
obligations associated with the milestone payment. Any milestone
payments received prior to satisfying these revenue recognition
criteria are deferred. Intevac generally determines the
percentage completed based on the percentage of costs incurred
to date in relation to total estimated costs expected through
completion of the contract. When estimates of total costs to be
incurred on a contract exceed estimates of total 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
in Singapore and Hong Kong is the U.S. dollar. The
functional currency of Intevacs foreign subsidiaries in
China, Malaysia and Korea, is the local currency of the country
in which the respective subsidiary operates. 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
losses from foreign currency transactions were $520,000,
$226,000 and $31,000 in 2010, 2009 and 2008, respectively.
Comprehensive
Income
The components of accumulated other comprehensive income (loss),
were as follows at December 31, 2010 and 2009:
48
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Accumulated net unrealized holding loss on
available-for-sale
investments, net
of tax
|
|
$
|
(408
|
)
|
|
$
|
(2,405
|
)
|
Foreign currency translation gains and losses
|
|
|
663
|
|
|
|
577
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive income (loss)
|
|
$
|
255
|
|
|
$
|
(1,828
|
)
|
|
|
|
|
|
|
|
|
|
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
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 July 2, 2011 quarterly
report on
Form 10-Q.
Intevac is currently evaluating the impact of XBRL reporting on
its financial reporting process.
In December 2010, the FASB issued Accounting Standards Update
(ASU)
2010-29,
Business Combinations (Topic 805): Disclosure of
Supplementary Pro Forma Information for Business
Combinations. For business combinations that are material
on an individual or aggregate basis the amendment requires that
comparative financial statements be presented and revenue and
earnings of the combined entity be disclosed as though the
business combination(s) that occurred during the current year
had occurred as of the beginning of the comparable prior annual
reporting period. The amendment also expands the supplemental
pro forma disclosures to include a description of the nature and
amount of material, nonrecurring pro forma adjustments directly
attributable to the business combination included in the
reported pro forma revenue and earnings. The amendment is
effective prospectively for business combinations for which the
acquisition date is on or after the beginning of the first
annual reporting period beginning on or after December 15,
2010. The adoption of the ASU
2010-29 will
not have material impact to the financial statements of the
Company.
|
|
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, 2010, 2009 and 2008
Intevac recognized equity-based compensation expense related to
stock options and shares issued pursuant to its employee stock
purchase plan of $3.3 million, $4.3 million and
$6.6 million, respectively.
49
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 be less than 100% of the fair market value per
share on the date of grant. As of December 31, 2010,
3.9 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, 2010, Intevac granted
763,000 stock options pursuant to the 2004 Plan with an
estimated total grant-date fair value of $5.1 million
including 2,000 shares granted to a consultant with a grant
date fair value of $13,000. 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
$1.2 million. 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.
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 255,000,
240,000 and 166,000 shares to employees in 2010, 2009 and
2008, respectively. As of December 31, 2010,
236,000 shares remained available for issuance under the
ESPP. During the years ended December 31, 2010, 2009, and
2008 Intevac granted purchase rights with an estimated total
grant-date fair value of $53,000, $328,000 and
$1.0 million, respectively.
50
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The effect of recording equity-based compensation for the years
ended December 31, 2010, 2009 and 2008 was as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Equity-based compensation by type of award:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
2,965
|
|
|
$
|
3,468
|
|
|
$
|
5,315
|
|
Employee stock purchase plan
|
|
|
351
|
|
|
|
787
|
|
|
|
1,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity-based compensation
|
|
|
3,316
|
|
|
|
4,255
|
|
|
|
6,577
|
|
Tax effect on equity-based compensation
|
|
|
(1,068
|
)
|
|
|
(1,224
|
)
|
|
|
(1,785
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net effect on net income
|
|
$
|
2,248
|
|
|
$
|
3,031
|
|
|
$
|
4,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Stock Options:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
67.75
|
%
|
|
|
67.17
|
%
|
|
|
65.60
|
%
|
Risk free interest rate
|
|
|
1.69
|
%
|
|
|
2.01
|
%
|
|
|
2.87
|
%
|
Expected term of options (in years)
|
|
|
4.52
|
|
|
|
4.47
|
|
|
|
4.47
|
|
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, 2010,
2009 and 2008 was $6.63, $2.57 and $6.12 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Stock Purchase Rights:
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility
|
|
|
55.20
|
%
|
|
|
82.56
|
%
|
|
|
62.65
|
%
|
Risk free interest rate
|
|
|
0.41
|
%
|
|
|
0.85
|
%
|
|
|
1.68
|
%
|
Expected term of purchase rights (in years)
|
|
|
0.73
|
|
|
|
1.85
|
|
|
|
1.87
|
|
Dividend yield
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
51
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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,
2010, 2009 and 2008 was $4.63, $2.73 and $5.40 per share,
respectively.
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, 2009
|
|
|
3,111,214
|
|
|
$
|
11.50
|
|
|
|
6.43
|
|
|
$
|
7,744,629
|
|
Options granted
|
|
|
762,525
|
|
|
$
|
12.22
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(264,837
|
)
|
|
$
|
15.40
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
|
(223,657
|
)
|
|
$
|
7.79
|
|
|
|
|
|
|
|
|
|
Options outstanding at December 31, 2010
|
|
|
3,385,245
|
|
|
$
|
11.61
|
|
|
|
5.93
|
|
|
$
|
12,104,861
|
|
Vested and expected to vest at December 31, 2010
|
|
|
3,179,759
|
|
|
$
|
11.66
|
|
|
|
5.86
|
|
|
$
|
11,405,013
|
|
Options exercisable at December 31, 2010
|
|
|
2,007,901
|
|
|
$
|
12.19
|
|
|
|
5.09
|
|
|
$
|
7,119,365
|
|
The total intrinsic value of options exercised during fiscal
years 2010, 2009 and 2008 was $1.3 million, $149,000 and
$204,000, respectively. At December 31, 2010, Intevac had
$3.4 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
1.46 years.
The options outstanding and currently exercisable at
December 31, 2010 were in the following exercise price
ranges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
610,506
|
|
|
|
5.07
|
|
|
$
|
3.44
|
|
|
|
346,868
|
|
|
$
|
3.08
|
|
$4.07 - $7.72
|
|
|
285,650
|
|
|
|
4.78
|
|
|
$
|
7.08
|
|
|
|
275,713
|
|
|
$
|
7.13
|
|
$7.73 - $10.69
|
|
|
276,640
|
|
|
|
5.40
|
|
|
$
|
9.30
|
|
|
|
147,015
|
|
|
$
|
9.20
|
|
$10.70 - $15.40
|
|
|
1,291,174
|
|
|
|
6.62
|
|
|
$
|
12.32
|
|
|
|
463,550
|
|
|
$
|
12.75
|
|
$15.41 - $15.81
|
|
|
13,875
|
|
|
|
4.93
|
|
|
$
|
15.74
|
|
|
|
13,875
|
|
|
$
|
15.74
|
|
$15.82 - $16.13
|
|
|
501,150
|
|
|
|
6.15
|
|
|
$
|
16.13
|
|
|
|
435,880
|
|
|
$
|
16.13
|
|
$16.14 - $22.01
|
|
|
282,250
|
|
|
|
6.17
|
|
|
$
|
19.07
|
|
|
|
208,625
|
|
|
$
|
19.75
|
|
$22.12 - $29.45
|
|
|
124,000
|
|
|
|
5.59
|
|
|
$
|
24.25
|
|
|
|
116,375
|
|
|
$
|
24.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.63 - $29.45
|
|
|
3,385,245
|
|
|
|
5.93
|
|
|
$
|
11.61
|
|
|
|
2,007,901
|
|
|
$
|
12.19
|
|
2003
Employee Stock Purchase Plan
During fiscal years 2010, 2009 and 2008 the aggregate intrinsic
value of purchase rights exercised under the ESPP was
$2.2 million, $1.0 million and $267,000, respectively,
determined as of the date of purchase. During
52
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
fiscal years 2010, 2009 and 2008, 255,000, 240,000 and
166,000 shares were purchased at an average per share price
of $4.02, $3.73 and $9.15. At December 31, 2010, there were
236,000 shares available to be issued under the ESPP. As of
December 31, 2010, Intevac had $15,000 of total
unrecognized compensation expense, net of estimated forfeitures
related to purchase rights that will be recognized over the
weighted average period of 0.25 years.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net income (loss)
|
|
$
|
28,049
|
|
|
$
|
(10,077
|
)
|
|
$
|
(15,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares basic
|
|
|
22,340
|
|
|
|
21,975
|
|
|
|
21,724
|
|
Effect of dilutive potential common shares
|
|
|
637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares diluted
|
|
|
22,977
|
|
|
|
21,975
|
|
|
|
21,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share basic
|
|
$
|
1.26
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share diluted
|
|
$
|
1.22
|
|
|
$
|
(0.46
|
)
|
|
$
|
(0.71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Antidilutive shares based on employee awards excluded
|
|
|
1,896
|
|
|
|
3,150
|
|
|
|
2,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potentially dilutive common shares consist of shares issuable
upon exercise of employee stock options, and are excluded from
the calculation of diluted EPS when their effect would be
anti-dilutive.
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 and
notes receivable. Intevac generally invests its excess cash in
money market funds, commercial paper, obligations of the
U.S. government and its agencies, corporate debt securities
and ARS. 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, 2010, three
customers accounted for 29%, 24% and 10%, respectively, of
Intevacs accounts receivable and in aggregate accounted
for 63% of net accounts receivable. 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.
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 2010, three customers
accounted for 40%, 26% and 12%, respectively, of consolidated
net revenues and in aggregate accounted for 78% of net revenues.
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. 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.
53
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Products
Disk manufacturing products contributed a significant portion of
Intevacs revenues in 2010, 2009, and 2008. 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 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 and sell new equipment products for photovoltaic
(PV) and semiconductor wafer handling.
Balance sheet details were as follows for the years ended
December 31, 2010 and 2009:
Inventories
Inventories are stated at the lower of average cost or market
and consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Raw materials
|
|
$
|
13,370
|
|
|
$
|
10,147
|
|
Work-in-progress
|
|
|
5,295
|
|
|
|
4,421
|
|
Finished goods
|
|
|
2,006
|
|
|
|
4,532
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
20,671
|
|
|
$
|
19,100
|
|
|
|
|
|
|
|
|
|
|
Finished goods inventory consists primarily of completed systems
at customer sites that are undergoing installation and
acceptance testing.
Property,
Plant and Equipment
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Leasehold improvements
|
|
$
|
14,043
|
|
|
$
|
13,964
|
|
Machinery and equipment
|
|
|
36,936
|
|
|
|
30,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,979
|
|
|
|
44,541
|
|
Less accumulated depreciation and amortization
|
|
|
37,061
|
|
|
|
32,190
|
|
|
|
|
|
|
|
|
|
|
Total property, plant and equipment, net
|
|
$
|
13,918
|
|
|
$
|
12,351
|
|
|
|
|
|
|
|
|
|
|
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 $1.3 million at December 31, 2010 and
$11.8 million at December 31, 2009.
54
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Contingent consideration
|
|
$
|
4,234
|
|
|
$
|
|
|
Accrued product warranties
|
|
|
2,612
|
|
|
|
1,550
|
|
Deferred revenue
|
|
|
1,714
|
|
|
|
7,283
|
|
Other taxes payable
|
|
|
991
|
|
|
|
1,776
|
|
Accrued income taxes
|
|
|
360
|
|
|
|
53
|
|
Other
|
|
|
1,193
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
Total other accrued liabilities
|
|
$
|
11,104
|
|
|
$
|
11,104
|
|
|
|
|
|
|
|
|
|
|
Other
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Contingent consideration
|
|
$
|
5,623
|
|
|
$
|
|
|
Accrued income taxes
|
|
|
4,098
|
|
|
|
|
|
Deferred profit
|
|
|
1,106
|
|
|
|
|
|
Accrued product warranties
|
|
|
803
|
|
|
|
52
|
|
Accrued compensation
|
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
Total other long-term liabilities
|
|
$
|
11,630
|
|
|
$
|
252
|
|
|
|
|
|
|
|
|
|
|
|
|
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 acquired during the period
|
|
|
10,484
|
|
|
|
|
|
|
|
10,484
|
|
Impairment charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2010
|
|
$
|
10,484
|
|
|
$
|
7,905
|
|
|
$
|
18,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
2010 and 2009 and the results of these tests indicated that
Intevacs goodwill and purchased intangible assets with
indefinite useful lives were not impaired.
55
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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.
During the year ended December 31, 2010, goodwill increased
by $10.5 million due to the acquisition of Solar Implant
Technologies, Inc. (SIT).
Information regarding other acquisition-related intangible
assets is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
(In thousands)
|
|
|
Customer relationships
|
|
$
|
3,181
|
|
|
$
|
1,074
|
|
|
$
|
2,107
|
|
|
$
|
3,181
|
|
|
$
|
677
|
|
|
$
|
2,504
|
|
Purchased technology
|
|
|
1,145
|
|
|
|
388
|
|
|
|
757
|
|
|
|
1,145
|
|
|
|
243
|
|
|
|
902
|
|
Covenants not to compete
|
|
|
140
|
|
|
|
140
|
|
|
|
|
|
|
|
140
|
|
|
|
129
|
|
|
|
11
|
|
Backlog
|
|
|
199
|
|
|
|
199
|
|
|
|
|
|
|
|
199
|
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amortizable intangible assets
|
|
|
4,665
|
|
|
|
1,801
|
|
|
|
2,864
|
|
|
|
4,665
|
|
|
|
1,248
|
|
|
|
3,417
|
|
IPR&D
|
|
|
4,000
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tradename
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
120
|
|
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
$
|
8,785
|
|
|
$
|
1,801
|
|
|
$
|
6,984
|
|
|
$
|
4,785
|
|
|
$
|
1,248
|
|
|
$
|
3,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2010, 2009 and 2008 was $554,000,
$554,000 and $700,000 respectively. Future amortization expense
is expected to be $541,000 for 2011, $541,000 for 2012, $541,000
for 2013, $363,000 for 2014, $284,000 for 2015 and $593,000
thereafter. Intangible assets by segment as of December 31,
2010 are as follows: Equipment; $6.0 million and Intevac
Photonics; $972,000.
On November 19, 2010, Intevac acquired the outstanding
shares of Solar Implant Technologies, Inc. (SIT), a
privately-owned, development stage company, creating an ion
implant module to be used in the manufacturing of photovoltaic
cells. Intevacs primary reasons for this acquisition were
to complement its existing product offerings and to provide
opportunities for future growth. The preliminary aggregate
purchase price was $12.4 million, which consisted of an
initial cash payment totaling $2.7 million and a contingent
consideration obligation with a fair value of $9.7 million
payable in cash. In connection with the acquisition, Intevac
acquired $4.0 million of IPR&D, $43,000 of tangible
assets, and $10.5 million of goodwill and assumed $703,000
of tangible liabilities. Intevac also recorded an
$827,000 net deferred tax liability to reflect the tax
impact of the identified intangible assets that will
56
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
not generate tax deductible amortization expense net of the
future tax benefit of acquired net operating loss carryforwards.
The value attributable to IPR&D has been capitalized as an
indefinite-lived intangible asset. Goodwill is attributable to
estimated synergies arising from the acquisition and other
intangible assets that do not qualify for separate recognition.
Goodwill is not deductible for tax purposes.
In connection with the acquisition of SIT, Intevac agreed to pay
up to an aggregate of $7.0 million in cash to the selling
shareholders if certain milestones are achieved over a specified
period. Intevac estimated the fair value of this contingent
consideration to be in the amount of $5.6 million based on
the probability that certain milestones would be met and the
payments would be made on the targeted dates outlined in the
acquisition agreement.
In connection with the acquisition of SIT, Intevac also agreed
to pay a revenue earnout on Intevacs net revenue from
commercial sales of certain products over a specified period up
to an aggregate of $9.0 million in cash to the selling
shareholders. Intevac estimated the fair value of this
contingent consideration to be in the amount of
$4.1 million based on probability-based forecasted revenues
reflecting Intevacs own assumptions concerning future
revenue of SIT. A change in the estimated probabilities of
revenue achievement could have a material effect on the
statement of operations and balance sheets in the period of
change.
Any change in fair value of the contingent consideration
subsequent to the acquisition date is recognized in operating
income within the statement of operations. The fair value of the
contingent consideration increased $108,000 during the fourth
quarter of fiscal 2010.
Prior to the acquisition, Intevac had an equity interest in SIT
with a cost basis of $94,000 that was accounted for under the
cost method. As a result of revaluing Intevacs equity
interest in SIT on the acquisition date, the Company recognized
a gain of $481,000, which was included in other income, net, in
the consolidated statement of operations.
Intevac has accounted for the acquisition of SIT as a business
combination. Under business combination accounting, the assets
and liabilities of SIT were recorded as of the acquisition date,
at their respective fair values, and consolidated with the
Company. The preliminary purchase price allocation is based on
estimates of the fair value of assets acquired and liabilities
assumed. Subsequent to the acquisition, Intevac paid in full
$177,000 in notes payable to certain selling shareholders
assumed upon the acquisition. The purchase price has been
allocated as follows:
|
|
|
|
|
|
|
(In thousands)
|
|
|
Current assets (including cash of $38)
|
|
$
|
40
|
|
Property, plant, and equipment
|
|
|
3
|
|
IPR&D
|
|
|
4,000
|
|
Goodwill
|
|
|
10,484
|
|
Long-term deferred tax assets
|
|
|
697
|
|
|
|
|
|
|
Total assets acquired
|
|
|
15,224
|
|
Notes payable to sellers
|
|
|
177
|
|
Current liabilities
|
|
|
526
|
|
Long-term deferred tax liabilities
|
|
|
1,524
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
2,227
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
12,997
|
|
|
|
|
|
|
Intevacs consolidated financial statements include
SITs operating results from the date of acquisition,
November 19, 2010. The pro forma impact of the above
acquisition was not significant to Intevacs results for
the year ended December 31, 2010.
57
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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, 2010. 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.
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.
Cash and cash equivalents, short-term investments and long-term
investments consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
22,887
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
22,887
|
|
Commercial paper
|
|
|
2,999
|
|
|
|
|
|
|
|
1
|
|
|
|
2,998
|
|
Corporate bonds
|
|
|
1,259
|
|
|
|
|
|
|
|
|
|
|
|
1,259
|
|
Money market funds
|
|
|
82,376
|
|
|
|
|
|
|
|
|
|
|
|
82,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
109,521
|
|
|
$
|
|
|
|
$
|
1
|
|
|
$
|
109,520
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
|
|
$
|
2,995
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2,995
|
|
U.S. treasury and agency securities
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
1,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
4,994
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,994
|
|
Long-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency securities
|
|
$
|
6,978
|
|
|
$
|
5
|
|
|
$
|
|
|
|
$
|
6,983
|
|
Corporate bonds and medium-term notes
|
|
|
5,615
|
|
|
|
|
|
|
|
5
|
|
|
|
5,610
|
|
ARS
|
|
|
10,900
|
|
|
|
|
|
|
|
627
|
|
|
|
10,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
23,493
|
|
|
$
|
5
|
|
|
$
|
632
|
|
|
$
|
22,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and investments
|
|
$
|
138,008
|
|
|
$
|
5
|
|
|
$
|
633
|
|
|
$
|
137,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Amortized
|
|
|
Holding
|
|
|
Holding
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
8,337
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,337
|
|
Money market funds
|
|
|
9,255
|
|
|
|
|
|
|
|
|
|
|
|
9,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
$
|
17,592
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
17,592
|
|
Short-term investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and agency securities
|
|
$
|
6,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term investments
|
|
$
|
6,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,000
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARS
|
|
$
|
69,950
|
|
|
$
|
|
|
|
$
|
3,701
|
|
|
$
|
66,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term investments
|
|
$
|
69,950
|
|
|
$
|
|
|
|
$
|
3,701
|
|
|
$
|
66,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents, and investments
|
|
$
|
93,542
|
|
|
$
|
|
|
|
$
|
3,701
|
|
|
$
|
89,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The contractual maturities of
available-for-sale
securities at December 31, 2010 are presented in the
following table.
|
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
|
(In thousands)
|
|
|
Due in one year or less
|
|
$
|
91,628
|
|
|
$
|
91,627
|
|
Due between one and two years
|
|
|
12,593
|
|
|
|
12,593
|
|
Greater than two years (ARS, ranging from 20 years to
35 years)
|
|
|
10,900
|
|
|
|
10,273
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
115,121
|
|
|
$
|
114,493
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, Intevacs investment
portfolio included ARS with an aggregate par value of
$10.9 million. 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 $8.5 million are rated AAA/Aaa, and a security
with a par value of $2.4 million is rated AAA/A3. 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, 2010, 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, 2010, the fair value of the ARS was estimated
at $10.3 million based on a valuation by Houlihan Capital
Advisors, LLC 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
59
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
until the final maturity of the underlying notes (ranging from
20 years to 35 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 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,
2010, 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,
2010, based on the Level 3 valuation performed, Intevac
determined that there was a temporary decline in fair value of
its ARS of $627,000.
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 requested 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. The arbitration proceedings were completed on
June 10, 2010. On June 29, 2010, Intevac received a
favorable ruling from the arbitration panel whereby Citigroup
was ordered to rescind the sale of the $54.8 million par
value in outstanding ARS investments. On July 27, 2010,
Intevac received $54.8 million from the repurchase of the
securities by Citigroup at par including interest and recognized
the reversal of a $3.3 million temporary impairment charge
in other comprehensive loss in the third quarter of fiscal year
2010.
The following table represents the fair value hierarchy of
Intevacs assets and liabilities measured at fair value on
a recurring basis as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
82,376
|
|
|
$
|
82,376
|
|
|
$
|
|
|
|
$
|
|
|
U.S. treasury and agency securities
|
|
|
8,982
|
|
|
|
3,995
|
|
|
|
4,987
|
|
|
|
|
|
Commercial paper
|
|
|
5,994
|
|
|
|
|
|
|
|
5,994
|
|
|
|
|
|
Corporate bonds and medium-term notes
|
|
|
6,868
|
|
|
|
|
|
|
|
6,868
|
|
|
|
|
|
ARS
|
|
|
10,273
|
|
|
|
|
|
|
|
|
|
|
|
10,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
114,493
|
|
|
$
|
86,371
|
|
|
$
|
17,849
|
|
|
$
|
10,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
9,857
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the changes in Level 3
instruments measured on a recurring basis for the years ended
December 31, 2010 and 2009. 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 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
|
|
Redemptions at par
|
|
|
(4,450
|
)
|
|
|
|
|
|
Investment securities at December 31, 2009
|
|
|
66,249
|
|
Net unrealized gains and losses included in earnings
|
|
|
|
|
Net unrealized gains and losses included in other comprehensive
income
|
|
|
3,074
|
|
Redemptions at par
|
|
|
(59,050
|
)
|
|
|
|
|
|
Investment securities at December 31, 2010
|
|
$
|
10,273
|
|
|
|
|
|
|
Included in accounts payable is $660,000 and $722,000 of book
overdraft at December 31, 2010 and 2009, respectively.
The provision for (benefit from) income taxes on income (loss)
from continuing operations consists of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
5,241
|
|
|
$
|
(3,927
|
)
|
|
$
|
(3,498
|
)
|
Deferred
|
|
|
(1,706
|
)
|
|
|
(3,860
|
)
|
|
|
(7,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,535
|
|
|
|
(7,787
|
)
|
|
|
(10,940
|
)
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
8
|
|
|
|
3
|
|
|
|
3
|
|
Deferred
|
|
|
|
|
|
|
1,567
|
|
|
|
(560
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
1,570
|
|
|
|
(557
|
)
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
419
|
|
|
|
201
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,962
|
|
|
$
|
(6,016
|
)
|
|
$
|
(11,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes (benefit) consisted of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
U.S.
|
|
$
|
384
|
|
|
$
|
(22,513
|
)
|
|
$
|
(28,886
|
)
|
Foreign
|
|
|
31,627
|
|
|
|
6,420
|
|
|
|
2,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
32,011
|
|
|
$
|
(16,093
|
)
|
|
$
|
(26,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
12.4
|
%
|
|
|
37.4
|
%
|
|
|
42.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 $299,000, $69,000 and
$327,000 in 2010, 2009 and 2008 respectively. Such benefits were
credited to additional paid-in capital.
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Vacation, rent, warranty and other accruals
|
|
$
|
1,073
|
|
|
$
|
932
|
|
Depreciation and amortization
|
|
|
3,416
|
|
|
|
3,280
|
|
Inventory valuation
|
|
|
2,029
|
|
|
|
2,044
|
|
Deferred income
|
|
|
308
|
|
|
|
(713
|
)
|
Equity-based compensation
|
|
|
6,156
|
|
|
|
6,221
|
|
Research and other tax credit carryforwards
|
|
|
16,949
|
|
|
|
15,866
|
|
Impairment losses on
available-for-sale
securities
|
|
|
221
|
|
|
|
1,295
|
|
Other
|
|
|
(211
|
)
|
|
|
(293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
29,941
|
|
|
|
28,632
|
|
Valuation allowance for deferred tax assets
|
|
|
(10,699
|
)
|
|
|
(10,576
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
19,242
|
|
|
|
18,056
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Purchased technology
|
|
|
(1,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
17,718
|
|
|
$
|
18,056
|
|
|
|
|
|
|
|
|
|
|
As reported on the balance sheet:
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
$
|
3,400
|
|
|
$
|
2,465
|
|
Valuation allowance for deferred tax assets
|
|
|
(276
|
)
|
|
|
(950
|
)
|
|
|
|
|
|
|
|
|
|
Net current deferred tax assets
|
|
|
3,124
|
|
|
|
1,515
|
|
Other long-term assets
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
25,017
|
|
|
|
26,167
|
|
Valuation allowance for deferred tax assets
|
|
|
(10,423
|
)
|
|
|
(9,626
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax assets
|
|
|
14,594
|
|
|
|
16,541
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
17,718
|
|
|
$
|
18,056
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance of $10.7 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
$7.6 million, which are fully offset by a valuation
allowance, do not expire.
62
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Income tax (benefit) at the federal statutory rate
|
|
$
|
11,204
|
|
|
$
|
(5,632
|
)
|
|
$
|
(9,289
|
)
|
State income taxes, net of federal benefit
|
|
|
5
|
|
|
|
1,020
|
|
|
|
(312
|
)
|
Effect of foreign operations taxes at various rates
|
|
|
(10,650
|
)
|
|
|
(2,046
|
)
|
|
|
(518
|
)
|
Research tax credits
|
|
|
(500
|
)
|
|
|
(565
|
)
|
|
|
(1,100
|
)
|
Effect of tax rate changes, permanent differences and
adjustments of prior deferrals
|
|
|
187
|
|
|
|
965
|
|
|
|
(36
|
)
|
Unrecognized tax benefits
|
|
|
3,716
|
|
|
|
242
|
|
|
|
140
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
(79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,962
|
|
|
$
|
(6,016
|
)
|
|
$
|
(11,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 $44.5 million of
undistributed earnings from
non-U.S. operations
as of December 31, 2010 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 $5.1 million, $1.2 million
and $250,000 in 2010, 2009 and 2008, respectively. The benefit
of the tax holiday on net income (loss) per share (diluted) was
approximately $0.22, $0.06, and $0.01 in 2010, 2009 and 2008,
respectively.
Included in prepaid expenses and other current assets at both
December 31, 2010 and 2009 is $4.4 million of Federal
income taxes receivable which represents amounts available as a
result of carryback of losses. As of December 31, 2010, the
Company had Federal NOL carryforwards available to offset future
taxable income of approximately $568,000 that expire between
2028 and 2030. As of December 31, 2010, the Company had
state NOL carryforwards available to offset future state taxable
income of approximately $28.9 million that expire between
2011 and 2030. In addition, the Company had various federal and
state tax credit carryforwards combined of approximately
$14.4 million. Approximately $6.3 million of the
credit carryforwards are available to offset future tax
liabilities and expire between 2025 and 2030. The remaining
amount is available indefinitely. Certain of these
carryforwards, when realized, will be credited to additional
paid-in capital.
63
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The total amount of gross unrecognized tax benefits was
$4.5 million as of December 31, 2010, of which up to
$4.1 million 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, 2008
|
|
$
|
540
|
|
Increases in balances related to tax positions taken during
current period
|
|
|
242
|
|
|
|
|
|
|
Balance as of December 31, 2009
|
|
|
782
|
|
Increases in balances related to tax positions taken during
current period
|
|
|
3,716
|
|
|
|
|
|
|
Balance as of at December 31, 2010
|
|
$
|
4,498
|
|
|
|
|
|
|
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. Presently, there are no other active income tax
examinations in the jurisdictions where Intevac operates.
|
|
10.
|
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 $438,000, $109,000 and $541,000 for the
years ended December 31, 2010, 2009, and 2008,
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. Charges to expense under these
plans were $7.6 million for the year ended
December 31, 2010. There were no charges to expense under
these plans for the years ended December 31, 2009 and 2008.
|
|
11.
|
Commitments
and Contingencies
|
Leases
Intevac leases certain facilities under non-cancelable operating
leases that expire at various times up to March 2017 and
has options to renew most leases, with rentals to be negotiated.
Certain of Intevacs leases contain provisions for rental
adjustments. Included in other long-term assets on the
Consolidated Balance Sheets is $576,000 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
64
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
$3.3 million, $3.4 million and $3.2 million for
the years ended December 31, 2010, 2009, and 2008,
respectively. Future minimum lease payments at December 31,
2010 totaled $11.7 million and were: $2.6 million for
fiscal 2011; $2.2 million for fiscal 2012;
$1.9 million for fiscal 2013; $1.5 million for fiscal
2014; $1.5 million for fiscal 2015 and $2.0 million
for thereafter.
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.
Warranty
Intevac provides for the estimated cost of warranty when revenue
is recognized. Intevacs warranty is per contract terms and
for its disk manufacturing 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.
65
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table displays the activity in the warranty
provision account for 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Beginning balance
|
|
$
|
1,602
|
|
|
$
|
1,695
|
|
Expenditures incurred under warranties
|
|
|
(2,938
|
)
|
|
|
(1,645
|
)
|
Accruals for product warranties
|
|
|
4,292
|
|
|
|
1,740
|
|
Adjustments to previously existing warranty accruals
|
|
|
459
|
|
|
|
(188
|
)
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
3,415
|
|
|
$
|
1,602
|
|
|
|
|
|
|
|
|
|
|
The following table displays the balance sheet classification of
the warranty provision account at December 31, 2010 and
2009:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Other accrued liabilities
|
|
$
|
2,612
|
|
|
$
|
1,550
|
|
Other long-term liabilities
|
|
|
803
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
Total warranty provision
|
|
$
|
3,415
|
|
|
$
|
1,602
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
12.
|
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 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, 2010 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
66
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. The Equipment segment began
offering solar cell processing systems for thin film
applications in 2009 and for wafer-based crystalline silicon
(c-Si) applications in 2010 to PV cell
manufacturers. In 2010 the Equipment segment also began offering
inspection equipment to PV cell manufacturers. In 2010, the
Equipment segment began offering wafer handling systems to the
semiconductor market. 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, 2010, 2009 and 2008 is as follows:
Net
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
$
|
168,252
|
|
|
$
|
51,389
|
|
|
$
|
87,469
|
|
Intevac Photonics
|
|
|
34,274
|
|
|
|
26,592
|
|
|
|
22,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment net revenues
|
|
$
|
202,526
|
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
$
|
40,286
|
|
|
$
|
(8,826
|
)
|
|
$
|
(9,924
|
)
|
Intevac Photonics
|
|
|
(4,901
|
)
|
|
|
(4,133
|
)
|
|
|
(6,674
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment operating profit (loss)
|
|
|
35,385
|
|
|
|
(12,959
|
)
|
|
|
(16,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs
|
|
|
(4,147
|
)
|
|
|
(4,388
|
)
|
|
|
(3,375
|
)
|
Impairment of goodwill and intangible assets
|
|
|
|
|
|
|
|
|
|
|
(10,498
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
31,238
|
|
|
|
(17,347
|
)
|
|
|
(30,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
899
|
|
|
|
1,362
|
|
|
|
3,968
|
|
Other income and expense, net
|
|
|
(126
|
)
|
|
|
(108
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
$
|
32,011
|
|
|
$
|
(16,093
|
)
|
|
$
|
(26,539
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
67
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Depreciation
and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Equipment
|
|
$
|
3,129
|
|
|
$
|
2,916
|
|
|
$
|
2,851
|
|
Intevac Photonics
|
|
|
1,354
|
|
|
|
1,326
|
|
|
|
1,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment depreciation and amortization
|
|
|
4,483
|
|
|
|
4,242
|
|
|
|
4,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated costs
|
|
|
1,378
|
|
|
|
1,343
|
|
|
|
1,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated depreciation and amortization
|
|
$
|
5,861
|
|
|
$
|
5,585
|
|
|
$
|
5,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
(In thousands)
|
|
Equipment
|
|
$
|
1,540
|
|
|
$
|
1,176
|
|
|
$
|
1,588
|
|
Intevac Photonics
|
|
|
5,167
|
|
|
|
938
|
|
|
|
1,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment capital additions
|
|
|
6,707
|
|
|
|
2,114
|
|
|
|
3,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
348
|
|
|
|
501
|
|
|
|
854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated capital additions
|
|
$
|
7,055
|
|
|
$
|
2,615
|
|
|
$
|
4,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
Assets
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
|
(In thousands)
|
|
Equipment
|
|
$
|
57,130
|
|
|
$
|
61,136
|
|
Intevac Photonics
|
|
|
31,275
|
|
|
|
25,529
|
|
|
|
|
|
|
|
|
|
|
Total segment assets
|
|
|
88,405
|
|
|
|
86,665
|
|
|
|
|
|
|
|
|
|
|
Cash and investments
|
|
|
137,380
|
|
|
|
89,841
|
|
Deferred income taxes
|
|
|
17,718
|
|
|
|
18,056
|
|
Other current assets
|
|
|
5,889
|
|
|
|
5,171
|
|
Common property, plant and equipment
|
|
|
1,803
|
|
|
|
2,802
|
|
Other assets
|
|
|
576
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
Consolidated total assets
|
|
$
|
251,771
|
|
|
$
|
203,378
|
|
|
|
|
|
|
|
|
|
|
Geographic revenue information for the three years ended
December 31, 2010 is based on the location of the customer.
Revenue from unaffiliated customers by geographic region/country
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
47,554
|
|
|
$
|
38,768
|
|
|
$
|
33,806
|
|
Asia(*)
|
|
|
149,456
|
|
|
|
38,144
|
|
|
|
75,102
|
|
Europe
|
|
|
5,000
|
|
|
|
1,069
|
|
|
|
1,321
|
|
Rest of world
|
|
|
516
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenues
|
|
$
|
202,526
|
|
|
$
|
77,981
|
|
|
$
|
110,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(*) |
|
Revenues are attributable to the geographic area in which
Intevacs customers are located. Net trade revenues in Asia
include shipments to Singapore, China, Japan and Malaysia. |
68
INTEVAC,
INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Net property, plant and equipment by geographic region at
December 31 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
United States
|
|
$
|
13,268
|
|
|
$
|
11,431
|
|
Asia
|
|
|
650
|
|
|
|
920
|
|
|
|
|
|
|
|
|
|
|
Net property, plant & equipment
|
|
$
|
13,918
|
|
|
$
|
12,351
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
Selected
Quarterly Consolidated Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
April 3,
|
|
|
July 3,
|
|
|
Oct. 2,
|
|
|
Dec. 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
Net sales
|
|
$
|
33,142
|
|
|
$
|
68,598
|
|
|
$
|
64,627
|
|
|
$
|
36,159
|
|
Gross profit
|
|
|
14,478
|
|
|
|
29,034
|
|
|
|
29,584
|
|
|
|
14,576
|
|
Net income
|
|
|
1,430
|
|
|
|
12,337
|
|
|
|
13,179
|
|
|
|
1,103
|
|
Basic income per share
|
|
$
|
0.06
|
|
|
$
|
0.55
|
|
|
$
|
0.59
|
|
|
$
|
0.05
|
|
Diluted income per share
|
|
$
|
0.06
|
|
|
$
|
0.54
|
|
|
$
|
0.58
|
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
69
|
|
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, 2010. 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 2010 that has
materially affected, or is reasonably likely to materially
affect, Intevacs internal control over financial reporting.
70
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, 2010, 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, 2010, 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 the Company as of
December 31, 2010 and 2009, 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, 2010. Our
audits of the basic financial statements included the financial
statement schedule listed in the index appearing under
Item 15(a)(2). Our report dated February 25, 2011
expressed an unqualified opinion on those consolidated financial
statements and schedule.
/s/ GRANT THORNTON LLP
San Jose, California
February 25, 2011
71
|
|
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 2011 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
2011 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, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
|
|
3,385,245
|
|
|
$
|
11.61
|
|
|
|
772,814
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,385,245
|
|
|
$
|
11.61
|
|
|
|
772,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes securities reflected in column (a). |
|
(2) |
|
Included in the column (c) amount are 235,571 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 2011 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 2011 Annual Meeting of Stockholders and is incorporated
herein by reference.
72
|
|
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 2010 in the Companys Proxy Statement for the
2011 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+(4)
|
|
The Registrants 2004 Equity Incentive Plan, as amended
|
|
10
|
.4
|
|
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
Seventh Amendments
|
|
10
|
.6+(3)
|
|
The Registrants 401(k) Profit Sharing Plan
|
|
10
|
.9(5)
|
|
Director and Officer Indemnification Agreement
|
|
10
|
.11+(6)
|
|
The Registrants Executive Incentive Plan
|
|
10
|
.12+(6)
|
|
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 75)
|
|
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) |
73
|
|
|
(4) |
|
Previously filed as an exhibit to the Companys
Form 10-Q
filed May 4, 2010 |
|
(5) |
|
Previously filed as an exhibit to the Companys
Form 10-K
filed March 14, 2008 |
|
(6) |
|
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 |
74
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 25, 2011.
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 25, 2011
|
|
|
|
|
|
/s/ NORMAN
H. POND
(Norman
H. Pond)
|
|
Chairman of the Board
|
|
February 25, 2011
|
|
|
|
|
|
/s/ JEFFREY
ANDRESON
(Jeffrey
Andreson)
|
|
Executive Vice President, Finance and Administration, Chief
Financial Officer Treasurer and Secretary (Principal Financial
and Accounting Officer)
|
|
February 25, 2011
|
|
|
|
|
|
/s/ DAVID
S. DURY
(David
S. Dury)
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
/s/ STANLEY
J. HILL
(Stanley
J. Hill)
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
/s/ THOMAS
M. ROHRS
(Thomas
M. Rohrs)
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
/s/ JOHN
F. SCHAEFER
(John
F. Schaefer)
|
|
Director
|
|
February 25, 2011
|
|
|
|
|
|
/s/ PING
YANG
(Ping
Yang)
|
|
Director
|
|
February 25, 2011
|
75
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, 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
|
|
Year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
133
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
78
|
(1)
|
|
$
|
55
|
|
|
|
|
(1) |
|
Write-offs of amounts deemed uncollectible. |
76