##### Table of Contents



UNITED STATES
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 July 3, 2010
 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
    
    94-3125814(State or other jurisdiction of
    
    (IRS Employer Identification No.)incorporation or organization)
 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
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



INTEVAC, INC.
 INDEX
 No.
    
    
    
    PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)Condensed Consolidated Balance Sheets
    
    
    3Condensed Consolidated Statements of Operations
    
    
    4Condensed Consolidated Statements of Cash Flows
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    28Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    36Item 3.
    
    Defaults Upon Senior Securities
    
    
    36Item 4.
    
    (Removed and Reserved)
    
    
    36Item 5.
    
    Other Information
    
    
    36Item 6.
    
    Exhibits
    
    
    36SIGNATURES
    
    
    37EX-23.2EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 INTEVAC, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 July 3,
    
    
    December 31,2010
    
    
    2009(Unaudited)(In thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    26,807
    
    
    $
    17,592Short-term investments
    
    
    
    
    
    
    6,000Trade and other accounts receivable, net of allowances of $55 at
July 3, 2010 and $133 at December 31, 2009
    
    
    63,583
    
    
    
    44,756Inventories
    
    
    42,551
    
    
    
    19,100Prepaid expenses and other current assets
    
    
    7,595
    
    
    
    6,687Deferred income tax assets
    
    
    1,326
    
    
    
    1,515Total current assets
    
    
    141,862
    
    
    
    95,650Property, plant and equipment, net
    
    
    11,927
    
    
    
    12,351Long-term investments
    
    
    61,632
    
    
    
    66,249Goodwill
    
    
    7,905
    
    
    
    7,905Other intangible assets, net of amortization of $1,526 at July
3, 2010 and $1,248 at December 31, 2009
    
    
    3,258
    
    
    
    3,537Deferred income taxes and other long-term assets
    
    
    15,571
    
    
    
    17,686Total assets
    
    $
    242,155
    
    
    $
    203,378LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    16,173
    
    
    $
    4,701Accrued payroll and related liabilities
    
    
    7,737
    
    
    
    2,784Other accrued liabilities
    
    
    15,328
    
    
    
    11,104Customer advances
    
    
    14,502
    
    
    
    13,180Total current liabilities
    
    
    53,740
    
    
    
    31,769Other long-term liabilities
    
    
    766
    
    
    
    252Stockholders equity:Common stock, $0.001 par value
    
    
    22
    
    
    
    22Additional paid-in capital
    
    
    136,834
    
    
    
    134,071Accumulated other comprehensive loss
    
    
    (2,066
    )
    
    
    (1,828
    )Retained earnings
    
    
    52,859
    
    
    
    39,092Total stockholders equity
    
    
    187,649
    
    
    
    171,357Total liabilities and stockholders equity
    
    $
    242,155
    
    
    $
    203,378
   3




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INTEVAC, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three months ended
    
    
    Six months endedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)(In thousands, except per share amounts)Net revenues:Systems and components
    
    $
    63,967
    
    
    $
    8,981
    
    
    $
    92,878
    
    
    $
    17,658Technology development
    
    
    4,631
    
    
    
    3,337
    
    
    
    8,862
    
    
    
    6,968Total net revenues
    
    
    68,598
    
    
    
    12,318
    
    
    
    101,740
    
    
    
    24,626Cost of net revenues:Systems and components
    
    
    36,425
    
    
    
    5,758
    
    
    
    52,327
    
    
    
    11,815Technology development
    
    
    3,139
    
    
    
    2,047
    
    
    
    5,901
    
    
    
    4,033Total cost of net revenues
    
    
    39,564
    
    
    
    7,805
    
    
    
    58,228
    
    
    
    15,848Gross profit
    
    
    29,034
    
    
    
    4,513
    
    
    
    43,512
    
    
    
    8,778Operating expenses:Research and development
    
    
    7,011
    
    
    
    7,385
    
    
    
    13,555
    
    
    
    15,415Selling, general and administrative
    
    
    7,558
    
    
    
    5,394
    
    
    
    14,125
    
    
    
    11,103Total operating expenses
    
    
    14,569
    
    
    
    12,779
    
    
    
    27,680
    
    
    
    26,518Income (loss) from operations
    
    
    14,465
    
    
    
    (8,266
    )
    
    
    15,832
    
    
    
    (17,740
    )Interest income and other, net
    
    
    72
    
    
    
    228
    
    
    
    463
    
    
    
    658Income (loss) before income taxes
    
    
    14,537
    
    
    
    (8,038
    )
    
    
    16,295
    
    
    
    (17,082
    )Provision for (benefit from) income taxes
    
    
    2,200
    
    
    
    (3,551
    )
    
    
    2,528
    
    
    
    (6,822
    )Net income (loss)
    
    $
    12,337
    
    
    $
    (4,487
    )
    
    $
    13,767
    
    
    $
    (10,260
    )Net income (loss) per share:Basic
    
    $
    0.55
    
    
    $
    (0.20
    )
    
    $
    0.62
    
    
    $
    (0.47
    )Diluted
    
    $
    0.54
    
    
    $
    (0.20
    )
    
    $
    0.60
    
    
    $
    (0.47
    )Weighted average common shares outstanding:Basic
    
    
    22,286
    
    
    
    21,930
    
    
    
    22,241
    
    
    
    21,906Diluted
    
    
    22,931
    
    
    
    21,930
    
    
    
    22,953
    
    
    
    21,906
  4




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INTEVAC, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months endedJuly 3,
    
    
    June 27,2010
    
    
    2009(Unaudited)(In thousands)Operating activitiesNet income (loss)
    
    $
    13,767
    
    
    $
    (10,260
    )Adjustments to reconcile net income (loss) to net cash and cash
equivalents provided by (used in) operating activities:Depreciation and amortization
    
    
    2,922
    
    
    
    2,578Equity-based compensation
    
    
    1,583
    
    
    
    2,709Deferred income taxes
    
    
    2,094
    
    
    
    (3,771
    )Loss on disposal of equipment
    
    
    122
    
    
    
    Changes in operating assets and liabilities
    
    
    (20,396
    )
    
    
    (988
    )Total adjustments
    
    
    (13,675
    )
    
    
    528Net cash and cash equivalents provided by (used in) operating activities
    
    
    92
    
    
    
    (9,732
    )Investing activitiesPurchases of investments
    
    
    (2,999
    )
    
    
    (14,982
    )Proceeds from maturities of investments
    
    
    13,200
    
    
    
    6,500Purchases of leasehold improvements and equipment
    
    
    (2,342
    )
    
    
    (1,453
    )Net cash and cash equivalents provided by (used in) investing activities
    
    
    7,859
    
    
    
    (9,935
    )Financing activitiesNet proceeds from issuance of common stock
    
    
    1,231
    
    
    
    513Repayment of note payable
    
    
    
    
    
    
    (2,000
    )Net cash and cash equivalents provided by (used in) financing activities
    
    
    1,231
    
    
    
    (1,487
    )Effect of exchange rate changes on cash
    
    
    33
    
    
    
    (57
    )Net increase (decrease) in cash and cash equivalents
    
    
    9,215
    
    
    
    (21,211
    )Cash and cash equivalents at beginning of period
    
    
    17,592
    
    
    
    39,201Cash and cash equivalents at end of period
    
    $
    26,807
    
    
    $
    17,990
  5




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INTEVAC, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation and Significant Accounting Policy
 Basis of Presentation
   Revenue Recognition
    6




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   2. New Accounting Pronouncement
  7




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 3. Inventories
  July 3,
    
    
    December 31,2010
    
    
    2009(In thousands)Raw materials
    
    $
    20,204
    
    
    $
    10,147Work-in-progress
    
    
    11,349
    
    
    
    4,421Finished goods
    
    
    10,998
    
    
    
    4,532$
    42,551
    
    
    $
    19,100
  4. Equity-Based Compensation
    8




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Compensation Expense
  Three Months Ended
    
    
    Six Months EndedJuly 3, 2010
    
    
    June 27, 2009
    
    
    July 3, 2010
    
    
    June 27, 2009(In thousands)Equity-based compensation by type of award:Stock options
    
    $
    836
    
    
    $
    1,105
    
    
    $
    1,299
    
    
    $
    2,217Employee stock purchase plan
    
    
    109
    
    
    
    216
    
    
    
    233
    
    
    
    450Amounts released to cost of sales
    
    
    21
    
    
    
    (9
    )
    
    
    51
    
    
    
    42Total equity-based compensation
    
    
    966
    
    
    
    1,312
    
    
    
    1,583
    
    
    
    2,709Tax effect on equity-based compensation
    
    
    (309
    )
    
    
    (382
    )
    
    
    (502
    )
    
    
    (786
    )Net effect on net income (loss)
    
    $
    657
    
    
    $
    930
    
    
    $
    1,081
    
    
    $
    1,923
 Valuation Assumptions
   Three Months Ended
    
    Six Months EndedJuly 3, 2010
    
    
    June 27, 2009
    
    
    July 3, 2010
    
    
    June 27, 2009Stock Options:Expected volatility
    
    
    67.87
    %
    
    
    68.82
    %
    
    
    67.94
    %
    
    
    67.15
    %Risk free interest rate
    
    
    1.61
    %
    
    
    2.23
    %
    
    
    1.73
    %
    
    
    2.00
    %Expected term of options (in years)
    
    
    4.5
    
    
    
    4.3
    
    
    
    4.5
    
    
    
    4.5Dividend yield
    
    None
    
    
    None
    
    
    None
    
    
    None
 Six Months EndedJuly 3, 2010
    
    
    June 27, 2009Stock Purchase Rights:Expected volatility
    
    
    55.48
    %
    
    
    82.23
    %Risk free interest rate
    
    
    0.44
    %
    
    
    0.9
    %Expected term of purchase rights (in years)
    
    
    0.75
    
    
    
    2.0Dividend yield
    
    None
    
    
    None
 9




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   5. Goodwill and Purchased Intangible Assets, Net
   6. Warranty
   10




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three months ended
    
    
    Six months endedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Beginning balance
    
    $
    1,854
    
    
    $
    1,463
    
    
    $
    1,602
    
    
    $
    1,695Expenditures incurred under warranties
    
    
    (523
    )
    
    
    (423
    )
    
    
    (1,114
    )
    
    
    (759
    )Accruals for product warranties
issued during the reporting period
    
    
    1,589
    
    
    
    147
    
    
    
    2,353
    
    
    
    448Adjustments to previously existing
warranty accruals
    
    
    66
    
    
    
    (4
    )
    
    
    145
    
    
    
    (201
    )Ending balance
    
    $
    2,986
    
    
    $
    1,183
    
    
    $
    2,986
    
    
    $
    1,183
  July 3,
    
    
    December 31,2010
    
    
    2009(In thousands)Other accrued liabilities
    
    $
    2,220
    
    
    $
    1,550Other long-term liabilities
    
    
    766
    
    
    
    52Total warranty provision
    
    $
    2,986
    
    
    $
    1,602
 7. Guarantees
 Officer and Director Indemnifications
  Other Indemnifications
  8. Cash, Cash Equivalents and Investments
  11




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
   July 3,
    
    
    December 31,2010
    
    
    2009(in thousands)Carrying value:Short-term investments-U.S. treasury bills
    
    $
    
    
    
    $
    6,000Long-term investments-Auction rate securities (ARS)
    
    
    61,632
    
    
    
    66,249Total investments in debt securities
    
    $
    61,632
    
    
    $
    72,249Approximate fair value of investments in debt securities
    
    $
    61,632
    
    
    $
    72,249
     12




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Three months ended
    
    
    Six months endedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Beginning balance
    
    $
    65,329
    
    
    $
    66,961
    
    
    $
    66,249
    
    
    $
    66,328Net unrealized gains
(losses) included in
other comprehensive
loss
    
    
    253
    
    
    
    2,626
    
    
    
    (417
    )
    
    
    3,359Redemptions at par
    
    
    (3,950
    )
    
    
    (3,400
    )
    
    
    (4,200
    )
    
    
    (3,500
    )Ending balance
    
    $
    61,632
    
    
    $
    66,187
    
    
    $
    61,632
    
    
    $
    66,187
 9. Borrowing Facility
  13




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 10. Other Comprehensive Loss
  July 3,
    
    
    December 31,2010
    
    
    2009(In thousands)Accumulated net unrealized holding
loss on available-for-sale investments,
net of tax
    
    $
    (2,676
    )
    
    $
    (2,405
    )Foreign currency translation gains
    
    
    610
    
    
    
    577Total accumulated other comprehensive loss
    
    $
    (2,066
    )
    
    $
    (1,828
    )
  Three months ended
    
    
    Six months endedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Net income (loss)
    
    $
    12,337
    
    
    $
    (4,487
    )
    
    $
    13,767
    
    
    $
    (10,260
    )Unrealized holding gains (losses) on
available-for-sale investments, net of
taxes(Increase) decrease in unrealized
holding losses on available-for-sale
investments
    
    
    253
    
    
    
    2,626
    
    
    
    (417
    )
    
    
    3,359Income tax benefit (expense)
    
    
    (89
    )
    
    
    (918
    )
    
    
    146
    
    
    
    (1,175
    )164
    
    
    
    1,708
    
    
    
    (271
    )
    
    
    2,184Foreign currency translation gains (losses)
    
    
    13
    
    
    
    221
    
    
    
    33
    
    
    
    (148
    )Total comprehensive income (loss)
    
    $
    12,514
    
    
    $
    (2,558
    )
    
    $
    13,529
    
    
    $
    (8,224
    )
 11. Net Income (Loss) Per Share
  Three months ended
    
    
    Six months endedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)Numerator:Numerator for
diluted earnings
per share  income
(loss) available
to common
stockholders
    
    $
    12,337
    
    
    $
    (4,487
    )
    
    $
    13,767
    
    
    $
    (10,260
    )Denominator:Denominator for basic earnings per share 
weighted-average shares
    
    
    22,286
    
    
    
    21,930
    
    
    
    22,241
    
    
    
    21,906Effect of dilutive securities:Employee stock options (1)
    
    
    645
    
    
    
    
    
    
    
    712
    
    
    
    Dilutive potential common shares
    
    
    645
    
    
    
    
    
    
    
    712
    
    
    
    Denominator for diluted earnings per share 
adjusted
weighted-average shares and assumed conversions
    
    
    22,931
    
    
    
    21,930
    
    
    
    22,953
    
    
    
    21,906
 14




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 
 (1)
    
    Potentially dilutive securities, consisting of shares issuable upon exercise of employee stock
options, are excluded from the calculation of diluted EPS when their effect would be anti-dilutive.
The weighted average number of employee stock options excluded for the three-month periods ended
July 3, 2010 and June 27, 2009 was 1,555,343 and 3,240,360, respectively, and the number of
employee stock options excluded for the six-month periods ended July 3, 2010 and June 27, 2009 was
1,354,985 and 2,560,645, respectively. 12. Segment Reporting
       15




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Net Revenues
 Three months ended
    
    
    Six months endedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Equipment
    
    $
    60,028
    
    
    $
    6,066
    
    
    $
    85,585
    
    
    $
    12,184Intevac Photonics
    
    
    8,570
    
    
    
    6,252
    
    
    
    16,155
    
    
    
    12,442Total segment net revenues
    
    $
    68,598
    
    
    $
    12,318
    
    
    $
    101,740
    
    
    $
    24,626
 Operating Income (Loss)
 Three months ended
    
    
    Six months endedJuly 3,
    
    
    June 27,
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    2010
    
    
    2009(in thousands)Equipment
    
    $
    16,776
    
    
    $
    (5,659
    )
    
    $
    20,656
    
    
    $
    (12,470
    )Intevac Photonics
    
    
    (1,441
    )
    
    
    (1,399
    )
    
    
    (2,625
    )
    
    
    (2,620
    )Total income (loss) from segment operations
    
    
    15,335
    
    
    
    (7,058
    )
    
    
    18,031
    
    
    
    (15,090
    )Unallocated costs
    
    
    (870
    )
    
    
    (1,208
    )
    
    
    (2,199
    )
    
    
    (2,650
    )Income (loss) from operations
    
    
    14,465
    
    
    
    (8,266
    )
    
    
    15,832
    
    
    
    (17,740
    )Interest income and other, net
    
    
    72
    
    
    
    228
    
    
    
    463
    
    
    
    658Income (loss) before income taxes
    
    $
    14,537
    
    
    $
    (8,038
    )
    
    $
    16,295
    
    
    $
    (17,082
    )
  Assets
 July 3,
    
    
    December 31,2010
    
    
    2009(in thousands)Equipment
    
    $
    102,154
    
    
    $
    61,136Intevac Photonics
    
    
    27,549
    
    
    
    25,529Total segment assets
    
    
    129,703
    
    
    
    86,665Cash, cash equivalents and investments
    
    
    88,439
    
    
    
    89,841Deferred income taxes
    
    
    15,962
    
    
    
    18,056Other current assets
    
    
    5,149
    
    
    
    5,171Common property, plant and equipment
    
    
    2,269
    
    
    
    2,802Other assets
    
    
    633
    
    
    
    843Consolidated total assets
    
    $
    242,155
    
    
    $
    203,378
 13. Income Taxes
  16




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
    14. Contingencies
  17




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Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
  Overview
    18




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Three months ended
    
    Six months endedJuly 3,
    
    June 27,
    
    
    
    July 3,
    
    June 27,2010
    
    2009
    
    % Change
    
    2010
    
    2009
    
    % Change(in thousands, except percentages and per share amounts)Net revenues
    
    $
    68,598
    
    
    $
    12,318
    
    
    
    456.9
    %
    
    $
    101,740
    
    
    $
    24,626
    
    
    
    313.1
    %Gross profit
    
    $
    29,034
    
    
    $
    4,513
    
    
    
    543.3
    %
    
    $
    43,512
    
    
    $
    8,778
    
    
    
    395.7
    %Gross margin percent
    
    
    42.3
    %
    
    
    36.6
    %
    
    6 points
    
    
    42.8
    %
    
    
    35.7
    %
    
    7 pointsNet income (loss)
    
    $
    12,337
    
    
    $
    (4,487
    )
    
    
    375.0
    %
    
    $
    13,767
    
    
    $
    (10,260
    )
    
    
    234.2
    %Earnings (loss) per
diluted share
    
    $
    0.54
    
    
    $
    (0.20
    )
    
    
    370.0
    %
    
    $
    0.60
    
    
    $
    (0.47
    )
    
    
    227.7
    %
   ® ® ® ® ® ® ® 
 Results of Operations
 Net revenues
 Three months ended
    
    
    Six months endedJuly 3,
    
    
    June 27,
    
    
    
    
    
    July 3,
    
    
    June 27,2010
    
    
    2009
    
    
    % Change
    
    
    2010
    
    
    2009
    
    
    % Change(in thousands, except percentages)Equipment
    
    $
    60,028
    
    
    $
    6,066
    
    
    
    889.6
    %
    
    $
    85,585
    
    
    $
    12,184
    
    
    
    602.4
    %Intevac Photonics
    
    
    8,570
    
    
    
    6,252
    
    
    
    37.1
    %
    
    
    16,155
    
    
    
    12,442
    
    
    
    29.8
    %Total net revenues
    
    $
    68,598
    
    
    $
    12,318
    
    
    
    456.9
    %
    
    $
    101,740
    
    
    $
    24,626
    
    
    
    313.1
    %
   19




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TM
    20




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Gross profit
 Three months ended
    
    Six months endedJuly 3,
    
    June 27,
    
    
    
    July 3,
    
    June 27,2010
    
    2009
    
    % Change
    
    2010
    
    2009
    
    % Change(in thousands, except percentages)Equipment gross profit
    
    $
    26,963
    
    
    $
    2,379
    
    
    
    1,033.4
    %
    
    $
    39,415
    
    
    $
    4,207
    
    
    
    836.9
    %% of Equipment net revenues
    
    
    44.9
    %
    
    
    39.2
    %
    
    
    
    
    
    
    46.1
    %
    
    
    34.5
    %Intevac Photonics gross
profit
    
    $
    2,071
    
    
    $
    2,134
    
    
    
    (3.0
    )%
    
    $
    4,097
    
    
    $
    4,571
    
    
    
    (10.4
    )%% of Intevac Photonics net
revenues
    
    
    24.2
    %
    
    
    34.1
    %
    
    
    
    
    
    
    25.4
    %
    
    
    36.7
    %Total gross profit
    
    $
    29,034
    
    
    $
    4,513
    
    
    
    543.3
    %
    
    $
    43,512
    
    
    $
    8,778
    
    
    
    395.7
    %% of net revenues
    
    
    42.3
    %
    
    
    36.6
    %
    
    
    
    
    
    
    42.8
    %
    
    
    35.6
    %
    Research and development
 Three months ended
    
    Six months endedJuly 3,
    
    June 27,
    
    
    
    July 3,
    
    June 27,2010
    
    2009
    
    % Change
    
    2010
    
    2009
    
    % Change(in thousands, except percentages)Research and
development expense
    
    $
    7,011
    
    
    $
    7,385
    
    
    
    (5.1
    )%
    
    $
    13,555
    
    
    $
    15,415
    
    
    
    (12.1
    )%% of net revenues
    
    
    10.2
    %
    
    
    60.0
    %
    
    
    
    
    
    
    13.3
    %
    
    
    62.6
    %
  21




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Selling, general and administrative
 Three months ended
    
    Six months endedJuly 3,
    
    June 27,
    
    
    
    July 3,
    
    June 27,2010
    
    2009
    
    % Change
    
    2010
    
    2009
    
    % Change(in thousands, except percentages)Selling,
general and
administrative
expense
    
    $
    7,558
    
    
    $
    5,394
    
    
    
    40.1
    %
    
    $
    14,125
    
    
    $
    11,103
    
    
    
    27.2
    %% of net revenues
    
    
    11.0
    %
    
    
    43.8
    %
    
    
    
    
    
    
    13.9
    %
    
    
    45.1
    %
  Interest income and other, net
 Three months ended
    
    Six months endedJuly 3,
    
    June 27,
    
    
    
    July 3,
    
    June 27,2010
    
    2009
    
    % Change
    
    2010
    
    2009
    
    % Change(in thousands, except percentages)Interest
income and other,
net
    
    $
    72
    
    
    $
    228
    
    
    
    (68.4
    )%
    
    $
    463
    
    
    $
    658
    
    
    
    (29.6
    )%
  Income tax provision (benefit)
 Three months ended
    
    Six months endedJuly 3,
    
    June 27,
    
    
    
    July 3,
    
    June 27,2010
    
    2009
    
    % Change
    
    2010
    
    2009
    
    % Change(in thousands, except percentages)Income tax
provision (benefit)
    
    $
    2,200
    
    
    $
    (3,551
    )
    
    
    162.0
    %
    
    $
    2,528
    
    
    $
    (6,822
    )
    
    
    137.1
    %
    22




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Liquidity and Capital Resources
   July 3,
    
    
    December 31,2010
    
    
    2009(In thousands)Cash and cash equivalents
    
    $
    26,807
    
    
    $
    17,592Short-term investments
    
    
    
    
    
    
    6,000Long-term investments
    
    
    61,632
    
    
    
    66,249Total cash, cash equivalents and investments
    
    $
    88,439
    
    
    $
    89,841
      23




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Critical Accounting Policies and Estimates
    24




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Revenue Recognition
  25




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Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Interest rate risk.
  Fair2010
    
    2011
    
    2012
    
    Beyond
    
    Total
    
    Value(in thousands, except percentages)Cash equivalentsFixed rate amounts
    
    $
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,000
    
    
    $
    6,000Weighted-average rate
    
    
    0.06
    %
    
    
    
    
    
    
    
    
    
    
    Variable rate amounts
    
    $
    6,139
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    6,139
    
    
    $
    6,139Weighted-average rate
    
    
    0.11
    %
    
    
    
    
    
    
    
    
    
    
    Long-term investmentsFixed rate amounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    65,750
    
    
    $
    65,750
    
    
    $
    61,632Weighted-average rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.70
    %Total investment portfolio
    
    $
    12,139
    
    
    
    
    
    
    
    
    
    
    $
    65,750
    
    
    $
    77,889
    
    
    $
    73,771
  26




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##### Table of Contents



Foreign exchange risk.
 
 Item 4.
    
    Controls and Procedures
 Evaluation of disclosure controls and procedures
   Definition of disclosure controls
  Limitations on the effectiveness of controls
  27




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##### Table of Contents



Changes in internal controls over financial reporting
  
 PART II. OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
   
 Item 1A.
    
    Risk Factors
  The industries we serve are cyclical, volatile and unpredictable.
  28




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##### Table of Contents



Sales of our equipment are primarily dependent on our customers upgrade and capacity expansion
plans and whether our customers select our equipment.
     We are exposed to risks associated with a highly concentrated customer base.
  29




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##### Table of Contents



Our growth depends on development of technically advanced new products and processes.
   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.
  30




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Adverse economic conditions and volatility and disruption of the capital and credit markets may
negatively impact our revenues and our ability to access financing.
   We may be subject to additional impairment charges due to potential declines in the fair value of
our assets.
  31




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##### Table of Contents



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.
   32




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##### Table of Contents



Changes to our effective tax rate affect our results of operations.
   Our success depends on international sales and the management of global operations.
   33




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##### Table of Contents



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.
   We could be involved in litigation.
  34




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##### Table of Contents



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.
  35




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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.
    
    (Removed and Reserved)
 
 Item 5.
    
    Other Information
  
 Item 6.
    
    Exhibits
 The following exhibits are filed herewith:
 ExhibitNumber
    
    Description23.2
    
    Consent of Independent Valuation Firm31.1
    
    Certification of President and Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Executive Vice President, Finance and Administration, Chief Financial
Officer, Treasurer and Secretary Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications Pursuant to U.S.C. 1350 Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 36




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SIGNATURES
  INTEVAC, INC.Date:  August 3, 2010
    By:
    /s/  KEVIN FAIRBAIRNKevin FairbairnPresident, Chief Executive Officer and Director
(Principal Executive Officer)Date:  August 3, 2010
    By:
    /s/  JEFFREY ANDRESONJeffrey AndresonExecutive Vice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer) 37