##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (MARK ONE)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 27, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number 0-26946
 INTEVAC, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    94-3125814
(I.R.S. Employer Identification No.)
 3560 Bassett Street
Santa Clara, California 95054
(Address of principal executive office, including Zip Code)
 Registrants telephone number, including area code: (408) 986-9888
 þ o
  Large accelerated filer 
oAccelerated filer þ
Non-accelerated filer o
(Do not check if a smaller reporting company)Smaller reporting company 
o o þ
 APPLICABLE ONLY TO CORPORATE ISSUERS:




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##### 



INTEVAC, INC.
 INDEX
 No.
    
    
    
    PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial Statements (unaudited)Condensed Consolidated Balance Sheets
    
    
    2Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
    
    
    3Condensed Consolidated Statements of Cash Flows
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition  and Results of Operations
    
    
    17Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    24Item 4.
    
    Controls and Procedures
    
    
    25PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    27Item 1A.
    
    Risk Factors
    
    
    27Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3.
    
    Defaults Upon Senior Securities
    
    
    34Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    34Item 5.
    
    Other Information
    
    
    34Item 6.
    
    Exhibits
    
    
    34SIGNATURES
    
    
    35EX-31.1EX-31.2EX-32.1
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 
 INTEVAC, INC.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 September 27,
    
    
    December 31,2008
    
    
    2007(Unaudited)(In thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    38,825
    
    
    $
    27,673Short-term investments
    
    
    2,981
    
    
    
    110,985Trade and other accounts receivable, net of
allowances of $150 at September 27, 2008 and
$57 at December 31, 2007
    
    
    19,352
    
    
    
    14,142Inventories
    
    
    15,455
    
    
    
    22,133Prepaid expenses and other current assets
    
    
    3,901
    
    
    
    4,162Deferred income taxes
    
    
    5,821
    
    
    
    3,609Total current assets
    
    
    86,335
    
    
    
    182,704Property, plant and equipment, net
    
    
    15,013
    
    
    
    15,402Long-term investments
    
    
    73,108
    
    
    
    2,009Goodwill
    
    
    17,607
    
    
    
    7,905Other intangible assets, net of amortization of
$629 at September 27, 2008 and $218 at December
31, 2007
    
    
    5,181
    
    
    
    1,782Deferred income taxes and other long term assets
    
    
    7,499
    
    
    
    5,611Total assets
    
    $
    204,743
    
    
    $
    215,413LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Note payable
    
    $
    1,976
    
    
    $
    1,992Accounts payable
    
    
    5,045
    
    
    
    7,678Accrued payroll and related liabilities
    
    
    3,967
    
    
    
    8,610Other accrued liabilities
    
    
    4,036
    
    
    
    4,163Customer advances
    
    
    1,707
    
    
    
    5,631Total current liabilities
    
    
    16,731
    
    
    
    28,074Other long-term liabilities
    
    
    407
    
    
    
    278Long-term note payable
    
    
    
    
    
    
    1,898Stockholders equity:Common stock, $0.001 par value
    
    
    22
    
    
    
    22Additional paid in capital
    
    
    126,794
    
    
    
    120,056Accumulated other comprehensive income (loss)
    
    
    (998
    )
    
    
    571Retained earnings
    
    
    61,787
    
    
    
    64,514Total stockholders equity
    
    
    187,605
    
    
    
    185,163Total liabilities and stockholders equity
    
    $
    204,743
    
    
    $
    215,413
   2




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INTEVAC, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
 Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)(In thousands, except per share amounts)Net revenues:Systems and components
    
    $
    25,263
    
    
    $
    46,082
    
    
    $
    82,403
    
    
    $
    189,278Technology development
    
    
    3,297
    
    
    
    4,522
    
    
    
    11,464
    
    
    
    9,805Total net revenues
    
    
    28,560
    
    
    
    50,604
    
    
    93,867
    

    
    199,083Cost of net revenues:Systems and components
    
    
    17,687
    
    
    
    23,564
    
    
    
    49,674
    
    
    
    105,544Technology development
    
    
    1,788
    
    
    
    2,425
    
    
    
    6,664
    
    
    
    5,315Total cost of net revenues
    
    
    19,475
    
    
    
    25,989
    
    
    
    56,338
    
    
    
    110,859Gross profit
    
    
    9,085
    
    
    
    24,615
    
    
    
    37,529
    
    
    
    88,224Operating expenses:Research and development
    
    
    8,620
    
    
    
    9,437
    
    
    
    26,426
    
    
    
    31,277Selling, general and administrative
    
    
    7,341
    
    
    
    7,062
    
    
    
    21,818
    
    
    
    22,414Total operating expenses
    
    
    15,961
    
    
    
    16,499
    
    
    
    48,244
    
    
    
    53,691Operating profit (loss)
    
    
    (6,876
    )
    
    
    8,116
    
    
    
    (10,715
    )
    
    
    34,533Interest income and other, net
    
    
    884
    
    
    
    1,797
    
    
    
    3,101
    
    
    
    4,655Income (loss) before income taxes
    
    
    (5,992
    )
    
    
    9,913
    
    
    
    (7,614
    )
    
    
    39,188Provision (benefit) for income taxes
    
    
    (2,639
    )
    
    
    1,549
    
    
    
    (4,887
    )
    
    
    9,427Net income (loss)
    
    $
    (3,353
    )
    
    $
    8,364
    
    
    $
    (2,727
    )
    
    
    29,761Other comprehensive income (loss):Unrealized gain (loss) on securities
held as available for sale
    
    
    63
    
    
    
    
    
    
    
    (1,492
    )
    
    
    Foreign currency translation adjustments
    
    
    (438
    )
    
    
    82
    
    
    
    (77
    )
    
    
    92Total comprehensive income (loss)
    
    $
    (3,728
    )
    
    $
    8,446
    
    
    $
    (4,296
    )
    
    $
    29,853Basic income (loss) per share:Net income (loss)
    
    $
    (0.15
    )
    
    $
    0.39
    
    
    $
    (0.13
    )
    
    $
    1.39Shares used in per share amounts
    
    
    21,761
    
    
    
    21,519
    
    
    
    21,700
    
    
    
    21,403Diluted income (loss) per share:Net income (loss)
    
    $
    (0.15
    )
    
    $
    0.38
    
    
    $
    (0.13
    )
    
    $
    1.34Shares used in per share amounts
    
    
    21,761
    
    
    
    22,130
    
    
    
    21,700
    
    
    
    22,155
  3




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INTEVAC, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Nine months endedSeptember 27,
    
    
    September 29,2008
    
    
    2007(Unaudited)(In thousands)Operating activitiesNet income (loss)
    
    $
    (2,727
    )
    
    $
    29,761Adjustments to reconcile net income (loss) to net cash and cash
equivalents provided by (used in) operating activities:Depreciation and amortization
    
    
    3,734
    
    
    
    3,242Equity-based compensation
    
    
    5,004
    
    
    
    4,579Deferred income taxes
    
    
    (4,514
    )
    
    
    Changes in operating assets and liabilities
    
    
    (7,498
    )
    
    
    8,113Total adjustments
    
    
    (3,274
    )
    
    
    15,934Net cash and cash equivalents provided by (used in) operating activities
    
    
    (6,001
    )
    
    
    45,695Investing activitiesPurchases of investments
    
    
    (7,000
    )
    
    
    (111,571
    )Proceeds from maturities of investments
    
    
    42,650
    
    
    
    62,700Acquisition of DeltaNu LLC, net of cash acquired
    
    
    
    
    
    
    (2,083
    )Acquisition of Oerlikon assets, net of cash acquired
    
    
    (15,093
    )
    
    
    Purchases of leasehold improvements and equipment
    
    
    (3,142
    )
    
    
    (4,366
    )Net cash and cash equivalents provided by (used in) investing activities
    
    
    17,415
    
    
    
    (55,320
    )Financing activitiesNet proceeds from issuance of common stock
    
    
    1,803
    
    
    
    3,591Repayment of note payable
    
    
    (2,000
    )
    
    
    Excess tax benefit from equity-based compensation
    
    
    
    
    
    
    953Net cash and cash equivalents provided by (used in) financing activities
    
    
    (197
    )
    
    
    4,544Effect of exchange rate changes on cash
    
    
    (65
    )
    
    
    53Net increase (decrease) in cash and cash equivalents
    
    
    11,152
    
    
    
    (5,028
    )Cash and cash equivalents at beginning of period
    
    
    27,673
    
    
    
    39,440Cash and cash equivalents at end of period
    
    $
    38,825
    
    
    $
    34,412Supplemental Schedule of Cash Flow InformationCash paid (received) for:Income taxes
    
    $
    
    
    
    $
    8,044Income tax refund
    
    
    ( $1,135
    )
    
    $
    Other non-cash changes:Notes payable issued for the acquisition of DeltaNu, LLC
    
    $
    
    
    
    $
    3,720
  4




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##### Table of Contents



INTEVAC, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
 Basis of Presentation
   Reclassifications
  Out of Period Adjustment
  2. New Accounting Pronouncements
   5




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
       6




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    3. Inventories
  September 27,
    
    
    December 31,2008
    
    
    2007(In thousands)Raw materials
    
    $
    8,994
    
    
    $
    13,666Work-in-progress
    
    
    3,040
    
    
    
    6,191Finished goods
    
    
    3,421
    
    
    
    2,276$
    15,455
    
    
    $
    22,133
   4. Equity-Based Compensation
  7




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   Compensation Expense
  Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands, except per share data)Equity-based compensation by type of award:Stock options
    
    $
    1,311
    
    
    $
    1,677
    
    
    $
    3,960
    
    
    $
    3,991Employee stock purchase plan
    
    
    478
    
    
    
    191
    
    
    
    978
    
    
    
    619Amounts (capitalized as inventory)
released to cost of sales
    
    
    (23
    )
    
    
    (27
    )
    
    
    66
    
    
    
    (31
    )Total equity-based compensation
    
    
    1,766
    
    
    
    1,841
    
    
    
    5,004
    
    
    
    4,579Tax effect on equity-based compensation
    
    
    (689
    )
    
    
    (286
    )
    
    
    (1,952
    )
    
    
    (1,098
    )Net effect on net income
    
    
    1,077
    
    
    
    1,555
    
    
    
    3,052
    
    
    
    3,481Effect on earnings per share:Basic
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.14
    
    
    $
    0.16Diluted
    
    $
    0.05
    
    
    $
    0.07
    
    
    $
    0.14
    
    
    $
    0.16
 Valuation Assumptions
   8




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three Months Ended
    
    Nine Months EndedSeptember 27,
    
    September 29,
    
    September 27,
    
    September 29,2008
    
    2007
    
    2008
    
    2007Stock Options:Expected volatility
    
    
    65.54
    %
    
    
    66.51
    %
    
    
    65.40
    %
    
    
    66.91
    %Risk free interest rate
    
    
    2.89
    %
    
    
    4.13
    %
    
    
    2.94
    %
    
    
    4.26
    %Expected term of options (in years)
    
    
    4.48
    
    
    
    4.51
    
    
    
    4.46
    
    
    
    4.49Dividend yield
    
    None
    
    None
    
    None
    
    None
 Three Months Ended
    
    Nine Months EndedSeptember 27,
    
    September 29,
    
    September 27,
    
    September 29,2008
    
    2007
    
    2008
    
    2007Stock Purchase Rights:Expected volatility
    
    
    64.22
    %
    
    
    63.14
    %
    
    
    62.65
    %
    
    
    63.19
    %Risk free interest rate
    
    
    1.90
    %
    
    
    3.92
    %
    
    
    1.68
    %
    
    
    4.04
    %Expected term of options (in years)
    
    
    1.92
    
    
    
    1.60
    
    
    
    1.87
    
    
    
    1.52Dividend yield
    
    None
    
    None
    
    None
    
    None
   5. Business Combinations
   9




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
       6. Warranty
  10




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##### Table of Contents



INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Beginning balance
    
    $
    2,136
    
    
    $
    4,558
    
    
    $
    3,092
    
    
    $
    5,283Expenditures incurred under warranties
    
    
    (842
    )
    
    
    (983
    )
    
    
    (2,053
    )
    
    
    (3,406
    )Accruals for product warranties
issued during the reporting period
    
    
    409
    
    
    
    243
    
    
    
    1,199
    
    
    
    1,990Acquired in a business combination
    
    
    85
    
    
    
    
    
    
    
    85
    
    
    
    Adjustments to previously existing
warranty accruals
    
    
    121
    
    
    
    17
    
    
    
    (414
    )
    
    
    (32
    )Ending balance
    
    $
    1,909
    
    
    $
    3,835
    
    
    $
    1,909
    
    
    $
    3,835
  September 27,
    
    
    December 31,2008
    
    
    2007(In thousands)Other accrued liabilities
    
    $
    1,552
    
    
    $
    2,814Other long-term liabilities
    
    
    357
    
    
    
    278Total warranty provision
    
    $
    1,909
    
    
    $
    3,092
 7. Guarantees
 Officer and Director Indemnifications
  11




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Other Indemnifications
  8. Cash, Cash Equivalents and Investments in Debt Securities
   September 27,
    
    
    December 31,2008
    
    
    2007(in thousands)Amortized Principal Amount:Debt securities issued by the US government and its agencies
    
    $
    2,981
    
    
    $
    29,744Auction rate securities
    
    
    73,108
    
    
    
    81,450Corporate debt securities
    
    
    
    
    
    
    1,800Total investments in debt securities
    
    $
    76,089
    
    
    $
    112,994Short-term investments
    
    $
    2,981
    
    
    $
    110,985Long-term investments
    
    
    73,108
    
    
    
    2,009Total investments in debt securities
    
    $
    76,089
    
    
    $
    112,994Approximate fair value of investments in debt securities
    
    $
    76,093
    
    
    $
    113,029
   12




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Investment securities at January 1, 2008
    
    $
    81,450Net unrealized gains and losses included in earnings
    
    
    Net unrealized gains and losses included in other comprehensive income
    
    
    (1,567
    )Purchases and settlements, net
    
    
    (3,100
    )Investment securities at March 29, 2008
    
    
    76,783Net unrealized gains and losses included in earnings
    
    
    Net unrealized gains and losses included in other comprehensive income
    
    
    12Purchases and settlements, net
    
    
    (600
    )Investment securities at June 28, 2008
    
    
    76,195Net unrealized gains and losses included in earnings
    
    
    Net unrealized gains and losses included in other comprehensive income
    
    
    63Purchases and settlements, net
    
    
    (3,150
    )Investment securities at September 27, 2008
    
    $
    73,108Net change in unrealized gains and losses relating to instruments
still held at September 27, 2008
    
    $
    1,492
 9. Borrowing Facility
  13




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 10. Net Income (Loss) Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Numerator:Numerator for
diluted earnings
per share 
income (loss)
available to
common
stockholders
    
    $
    (3,353
    )
    
    $
    8,364
    
    
    $
    (2,727
    )
    
    $
    29,761Denominator:Denominator for basic earnings per share 
weighted-average shares
    
    
    21,761
    
    
    
    21,519
    
    
    
    21,700
    
    
    
    21,403Effect of dilutive securities:Employee stock options (1)
    
    
    
    
    
    
    611
    
    
    
    
    
    
    
    752Dilutive potential common shares
    
    
    
    
    
    
    611
    
    
    
    
    
    
    
    752Denominator for diluted earnings per share 
adjusted weighted-average shares and assumed
conversions
    
    
    21,761
    
    
    
    22,130
    
    
    
    21,700
    
    
    
    22,155
 
 (1)
    
    Potentially dilutive securities, consisting of shares issuable upon exercise of employee
stock options and weighted-average unamortized compensation expense, are excluded from the
calculation of diluted EPS when their effect is anti-dilutive. The weighted average number of
employee stock options excluded for the three-month periods ended September 27, 2008 and
September 29, 2007 was 2,886,011 and 1,151,016, respectively, and the number of employee stock
options excluded for the nine-month periods ended September 27, 2008 and September 29, 2007
was 2,679,915 and 619,884, respectively. 11. Segment Reporting
    14




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Net Revenues
 Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Equipment
    
    $
    22,855
    
    
    $
    44,920
    
    
    $
    75,558
    
    
    $
    185,885Intevac Photonics
    
    
    5,705
    
    
    
    5,684
    
    
    
    18,309
    
    
    
    13,198Total segment net revenues
    
    $
    28,560
    
    
    $
    50,604
    
    
    $
    93,867
    
    
    $
    199,083
 Operating Profit (Loss)
 Three Months Ended
    
    
    Nine Months EndedSeptember 27,
    
    
    September 29,
    
    
    September 27,
    
    
    September 29,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Equipment
    
    $
    (4,357
    )
    
    $
    8,477
    
    
    $
    (4,494
    )
    
    $
    39,308Intevac Photonics
    
    
    (1,824
    )
    
    
    35
    
    
    
    (3,715
    )
    
    
    (3,080
    )Total segment operating profit (loss)
    
    
    (6,181
    )
    
    
    8,512
    
    
    
    (8,209
    )
    
    
    36,228Unallocated costs
    
    
    (695
    )
    
    
    (396
    )
    
    
    (2,506
    )
    
    
    (1,695
    )Operating profit (loss)
    
    
    (6,876
    )
    
    
    8,116
    
    
    
    (10,715
    )
    
    
    34,533Interest income and other, net
    
    
    884
    
    
    
    1,797
    
    
    
    3,101
    
    
    
    4,655Income (loss) before income taxes
    
    $
    (5,992
    )
    
    $
    9,913
    
    
    $
    (7,614
    )
    
    $
    39,188
 15




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##### Table of Contents



INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Assets
 September 27,
    
    
    December 31,2008
    
    
    2007(in thousands)Equipment
    
    $
    44,071
    
    
    $
    31,814Intevac Photonics
    
    
    25,138
    
    
    
    25,609Total segment assets
    
    
    69,209
    
    
    
    57,423Cash and investments
    
    
    114,914
    
    
    
    140,667Deferred income taxes
    
    
    11,863
    
    
    
    7,349Other current assets
    
    
    3,665
    
    
    
    4,162Common property, plant and equipment
    
    
    3,663
    
    
    
    3,964Other assets
    
    
    1,429
    
    
    
    1,848Consolidated total assets
    
    $
    204,743
    
    
    $
    215,413
 12. Income Taxes
   13. Contingencies
  16




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
    17




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Three months ended
    
    Nine months endedSeptember 27,
    
    September 29,
    
    %
    
    September 27,
    
    September 29,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages and per share amounts)Net revenues
    
    $
    28,560
    
    
    $
    50,604
    
    
    
    (43.6
    )%
    
    $
    93,867
    
    
    $
    199,083
    
    
    
    (52.9
    )%Gross margin
    
    $
    9,085
    
    
    $
    24,615
    
    
    
    (63.1
    )%
    
    $
    37,529
    
    
    $
    88,224
    
    
    
    (57.5
    )%Gross margin percent
    
    
    31.8
    %
    
    
    48.6
    %
    
    
    (16.8
    )%
    
    
    40.0
    %
    
    
    44.3
    %
    
    
    (4.3)
    %Net income (loss)
    
    $
    (3,353
    )
    
    $
    8,364
    
    
    
    (140.1
    )%
    
    $
    (2,727
    )
    
    $
    29,761
    
    
    
    (109.2
    )%Earnings (loss) per
diluted share
    
    $
    (0.15
    )
    
    $
    0.38
    
    
    
    (139.5
    )%
    
    $
    (0.13
    )
    
    $
    1.34
    
    
    
    (109.7
    )%
   ® ® ® TM ® TM TM ®
 Results of Operations
 Net revenues
 Three months ended
    
    
    Nine months endedSeptember 27,
    
    
    September 29,
    
    
    %
    
    
    September 27,
    
    
    September 29,
    
    
    %2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(in thousands, except percentages)Equipment
    
    $
    22,855
    
    
    $
    44,920
    
    
    
    (49.1
    )%
    
    $
    75,558
    
    
    $
    185,885
    
    
    
    (59.4
    )%Intevac Photonics
    
    
    5,705
    
    
    
    5,684
    
    
    
    0.4
    %
    
    
    18,309
    
    
    
    13,198
    
    
    
    38.7
    %Total net revenues
    
    $
    28,560
    
    
    $
    50,604
    
    
    
    (43.6
    )%
    
    $
    93,867
    
    
    $
    199,083
    
    
    
    (52.9
    )%
   18




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Gross profit
 Three months ended
    
    Nine months endedSeptember 27,
    
    September 29,
    
    %
    
    September 27,
    
    September 29,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Equipment gross profit
    
    $
    7,263
    
    
    $
    21,988
    
    
    
    (67.0
    )%
    
    $
    30,869
    
    
    $
    82,842
    
    
    
    (62.7
    )%% of Equipment net
revenues
    
    
    31.8
    %
    
    
    48.9
    %
    
    
    (17.1
    )%
    
    
    40.9
    %
    
    
    44.6
    %
    
    
    (3.7
    )%Intevac Photonics
gross profit
    
    $
    1,822
    
    
    $
    2,529
    
    
    
    (28.0
    )%
    
    $
    6,660
    
    
    $
    5,382
    
    
    
    23.7
    %% of Intevac
Photonics net
revenues
    
    
    31.9
    %
    
    
    44.5
    %
    
    
    (12.6
    %)
    
    
    36.4
    %
    
    
    40.8
    %
    
    
    (4.4
    )%Total gross profit
    
    $
    9,085
    
    
    $
    24,615
    
    
    
    (63.1
    )%
    
    $
    37,529
    
    
    $
    88,224
    
    
    
    (57.5
    )%% of net revenues
    
    
    31.8
    %
    
    
    48.6
    %
    
    
    (16.8
    )%
    
    
    40.0
    %
    
    
    44.3
    %
    
    
    (4.3
    )%
  19




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Research and Development
 Three months ended
    
    Nine months endedSeptember 27,
    
    September 29,
    
    %
    
    September 27,
    
    September 29,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Research and
development expense
    
    $
    8,620
    
    
    $
    9,437
    
    
    
    (8.7
    )%
    
    $
    26,426
    
    
    $
    31,277
    
    
    
    (15.5
    )%% of net revenues
    
    
    30.2
    %
    
    
    18.6
    %
    
    
    
    
    
    
    28.2
    %
    
    
    15.7
    %
  TM
 20




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Selling, general and administrative.
 Three months ended
    
    Nine months endedSeptember 27,
    
    September 29,
    
    %
    
    September 27,
    
    September 29,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Selling, general
and administrative
expense
    
    $
    7,341
    
    
    $
    7,062
    
    
    
    4.0
    %
    
    $
    21,818
    
    
    $
    22,414
    
    
    
    (2.7
    )%% of net revenues
    
    
    25.7
    %
    
    
    14.0
    %
    
    
    
    
    
    
    23.2
    %
    
    
    11.3
    %
   21




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Interest income and other, net
 Three months ended
    
    Nine months endedSeptember 27,
    
    September 29,
    
    %
    
    September 27,
    
    September 29,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Interest income and
other, net
    
    $
    884
    
    
    $
    1,797
    
    
    
    (50.8
    )%
    
    $
    3,101
    
    
    $
    4,655
    
    
    
    (33.4
    )%
  Provision for income taxes.
 Three months ended
    
    Nine months endedSeptember 27,
    
    September 29,
    
    %
    
    September 27,
    
    September 29,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Provision (benefit)
for income taxes
    
    $
    (2,639
    )
    
    $
    1,549
    
    
    
    (270.4
    )%
    
    $
    (4,887
    )
    
    $
    9,427
    
    
    
    (151.8
    )%
  Liquidity and Capital Resources
   September 27,
    
    
    December 31,2008
    
    
    2007(In thousands)Cash and cash equivalents
    
    $
    38,825
    
    
    $
    27,673Short-term investments
    
    
    2,981
    
    
    
    110,985Long-term investments
    
    
    73,108
    
    
    
    2,009Total cash, cash-equivalents and investments
    
    $
    114,914
    
    
    $
    140,667
  22




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23




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Critical Accounting Policies and Estimates
     
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
 Interest rate risk.
 24




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Fair2008
    
    2009
    
    2010
    
    Beyond
    
    Total
    
    Value(in thousands, except percentages)Cash equivalentsVariable rate amounts
    
    $
    5,927
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,927
    
    
    $
    5,927Weighted-average rate
    
    
    1.99
    %Cash equivalentsFixed rate amounts
    
    $
    12,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,000
    
    
    $
    12,000Weighted-average rate
    
    
    0.84
    %Short-term investmentsFixed rate amounts
    
    $
    2,981
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,981
    
    
    $
    2,985Weighted-average rate
    
    
    3.99
    %Long-term investmentsVariable rate amounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    73,108
    
    
    $
    73,108
    
    
    $
    73,108Weighted-average rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.74
    %Total investment portfolio
    
    $
    20,908
    
    
    
    
    
    
    
    
    
    
    $
    73,108
    
    
    $
    94,016
    
    
    $
    94,020
    Foreign exchange risk.
 
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
  25




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Definition of Disclosure Controls
  Limitations on the Effectiveness of Controls
  Changes in internal controls over financial reporting
  26




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
 The industries we serve are cyclical, volatile and unpredictable.
    Sales of our equipment are primarily dependent on our customers upgrade and capacity expansion
plans and whether our customers select our equipment.
  27




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We are exposed to risks associated with a highly concentrated customer base.
   Our growth depends on development of technically advanced new products and processes.
   28




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Our operating results fluctuate significantly from quarter to quarter, which can lead to
volatility in the price of our common stock.
    The liquidity of our auction rate securities is impaired, which could impact our ability to
meet cash requirements and require additional debt financing.
   29




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The volatility and disruption of the capital and credit markets and adverse changes in the global
economy may negatively impact our revenues and our ability to access financing.
  We operate in an intensely competitive marketplace, and our competitors have greater resources
than we do.
  We may not be able to obtain export licenses from the U.S. government permitting delivery of our
products to international customers.
  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.
  30




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Changes to our effective tax rate affect our results of operations.
  Our success depends on international sales and the management of global operations.
   31




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Our success is dependent on recruiting and retaining a highly talented work force.
   We are dependent on certain suppliers for parts used in our products.
  Our business depends on the integrity of our intellectual property rights
   32




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We could be involved in litigation.
  Difficulties in integrating past or future acquisitions could adversely affect our business.
  We use hazardous materials and are subject to risks of non-compliance with environmental and
safety regulations.
  Business interruptions could adversely affect our operations.
  33




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##### Table of Contents



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.
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security-Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
  ExhibitNumber
    
    Description31.1
    
    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
    
    Certification Pursuant to U.S.C. 1350 adopted Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
 
 34




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SIGNATURES
  INTEVAC, INC.Date:  November 6, 2008
    By:
    /s/  KEVIN FAIRBAIRNKevin FairbairnPresident, Chief Executive Officer and Director
(Principal Executive Officer)Date:  November 6, 2008
    By:
    /s/ JEFFREY ANDRESONJeffrey AndresonVice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer) 35