##### 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 June 28, 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
    
    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
  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
 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
    
    
    18Item 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
    
    
    35SIGNATURES
    
    
    36EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 INTEVAC, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 28,
    
    
    December 31,2008
    
    
    2007(Unaudited)(In thousands)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    25,960
    
    
    $
    27,673Short-term investments
    
    
    11,948
    
    
    
    110,985Trade and other accounts receivable, net of
allowances of $88 at June 28, 2008 and $57 at 

December 31, 2007
    
    
    29,111
    
    
    
    14,142Inventories
    
    
    25,730
    
    
    
    22,133Prepaid expenses and other current assets
    
    
    3,189
    
    
    
    4,162Deferred income taxes
    
    
    4,981
    
    
    
    3,609Total current assets
    
    
    100,919
    
    
    
    182,704Property, plant and equipment, net
    
    
    15,404
    
    
    
    15,402Long-term investments
    
    
    78,195
    
    
    
    2,009Goodwill
    
    
    7,905
    
    
    
    7,905Other intangible assets, net of amortization of
$362 at June 28, 2008 and $218 at December 31,
2007
    
    
    1,638
    
    
    
    1,782Deferred income taxes and other long term assets
    
    
    6,750
    
    
    
    5,611Total assets
    
    $
    210,811
    
    
    $
    215,413LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Note payable
    
    $
    1,952
    
    
    $
    1,992Accounts payable
    
    
    6,155
    
    
    
    7,678Accrued payroll and related liabilities
    
    
    4,971
    
    
    
    8,610Other accrued liabilities
    
    
    4,912
    
    
    
    5,454Customer advances
    
    
    3,858
    
    
    
    4,340Total current liabilities
    
    
    21,848
    
    
    
    28,074Other long-term liabilities
    
    
    271
    
    
    
    278Long-term note payable
    
    
    
    
    
    
    1,898Stockholders equity:Common stock, $0.001 par value
    
    
    22
    
    
    
    22Additional paid in capital
    
    
    124,153
    
    
    
    120,056Accumulated other comprehensive income (loss)
    
    
    (623
    )
    
    
    571Retained earnings
    
    
    65,140
    
    
    
    64,514Total stockholders equity
    
    
    188,692
    
    
    
    185,163Total liabilities and stockholders equity
    
    $
    210,811
    
    
    $
    215,413
   2




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INTEVAC, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
 Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited)(In thousands, except per share amounts)Net revenues:Systems and components
    
    $
    28,126
    
    
    $
    69,603
    
    
    $
    57,140
    
    
    $
    143,196Technology development
    
    
    4,006
    
    
    
    2,502
    
    
    
    8,167
    
    
    
    5,283Total net revenues
    
    
    32,132
    
    
    
    72,105
    
    
    
    65,307
    
    
    
    148,479Cost of net revenues:Systems and components
    
    
    16,597
    
    
    
    39,895
    
    
    
    31,987
    
    
    
    81,980Technology development
    
    
    2,402
    
    
    
    1,383
    
    
    
    4,876
    
    
    
    2,890Total cost of net revenues
    
    
    18,999
    
    
    
    41,278
    
    
    
    36,863
    
    
    
    84,870Gross profit
    
    
    13,133
    
    
    
    30,827
    
    
    
    28,444
    
    
    
    63,609Operating expenses:Research and development
    
    
    8,418
    
    
    
    9,648
    
    
    
    17,806
    
    
    
    21,840Selling, general and administrative
    
    
    7,413
    
    
    
    7,839
    
    
    
    14,477
    
    
    
    15,352Total operating expenses
    
    
    15,831
    
    
    
    17,487
    
    
    
    32,283
    
    
    
    37,192Operating profit (loss)
    
    
    (2,698
    )
    
    
    13,340
    
    
    
    (3,839
    )
    
    
    26,417Interest income and other, net
    
    
    806
    
    
    
    1,538
    
    
    
    2,217
    
    
    
    2,858Income (loss) before income taxes
    
    
    (1,892
    )
    
    
    14,878
    
    
    
    (1,622
    )
    
    
    29,275Provision (benefit) for income taxes
    
    
    (955
    )
    
    
    3,326
    
    
    
    (2,248
    )
    
    
    7,878Net income (loss)
    
    $
    (937
    )
    
    $
    11,552
    
    
    $
    626
    
    
    $
    21,397Other comprehensive income (loss):Unrealized gain (loss) on securities
held as available for sale
    
    
    12
    
    
    
    
    
    
    
    (1,555
    )
    
    
    Foreign currency translation adjustments
    
    
    129
    
    
    
    (11
    )
    
    
    361
    
    
    
    10Total comprehensive income (loss)
    
    $
    (796
    )
    
    $
    11,541
    
    
    $
    (568
    )
    
    $
    21,407Basic income (loss) per share:Net income (loss)
    
    $
    (0.04
    )
    
    $
    0.54
    
    
    $
    0.03
    
    
    $
    1.00Shares used in per share amounts
    
    
    21,691
    
    
    
    21,396
    
    
    
    21,669
    
    
    
    21,345Diluted income (loss) per share:Net income (loss)
    
    $
    (0.04
    )
    
    $
    0.52
    
    
    $
    0.03
    
    
    $
    0.97Shares used in per share amounts
    
    
    21,691
    
    
    
    22,146
    
    
    
    22,115
    
    
    
    22,167
  3




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INTEVAC, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six months endedJune 28,
    
    
    June 30,2008
    
    
    2007(Unaudited)(In thousands)Operating activitiesNet income
    
    $
    626
    
    
    $
    21,397Adjustments to reconcile net income to net cash and cash equivalents
(used in) provided by operating activities:Depreciation and amortization
    
    
    2,252
    
    
    
    2,187Equity-based compensation
    
    
    3,238
    
    
    
    2,738Deferred income taxes
    
    
    (2,800
    )
    
    
    Changes in operating assets and liabilities
    
    
    (23,359
    )
    
    
    (9,005
    )Total adjustments
    
    
    (20,669
    )
    
    
    (4,080
    )Net cash and cash equivalents (used in) provided by operating activities
    
    
    (20,043
    )
    
    
    17,317Investing activitiesPurchases of investments
    
    
    (7,000
    )
    
    
    (71,661
    )Proceeds from maturities of investments
    
    
    28,500
    
    
    
    48,200Acquisition of DeltaNu LLC, net of cash acquired
    
    
    
    
    
    
    (2,083
    )Purchases of leasehold improvements and equipment
    
    
    (2,263
    )
    
    
    (3,406
    )Net cash and cash equivalents provided by (used in) investing activities
    
    
    19,237
    
    
    
    (28,950
    )Financing activitiesNet proceeds from issuance of common stock
    
    
    940
    
    
    
    1,861Repayment of note payable
    
    
    (2,000
    )
    
    
    Excess tax benefit from equity-based compensation
    
    
    
    
    
    
    767Net cash and cash equivalents (used in) provided by financing activities
    
    
    (1,060
    )
    
    
    2,628Effect of exchange rate changes on cash
    
    
    153
    
    
    
    7Net decrease in cash and cash equivalents
    
    
    (1,713
    )
    
    
    (8,998
    )Cash and cash equivalents at beginning of period
    
    
    27,673
    
    
    
    39,440Cash and cash equivalents at end of period
    
    $
    25,960
    
    
    $
    30,442Supplemental Schedule of Cash Flow InformationCash paid (received) for:Income taxes
    
    $
    
    
    
    $
    6,544Income tax refund
    
    $
    (1,135
    )
    
    $
    Other non-cash changesNotes payable issued for the acquisition of DeltaNu, LLC
    
    $
    
    
    
    $
    3,720
  4




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INTEVAC, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation
 Basis of Presentation
   Reclassifications
  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
  June 28,
    
    
    December 31,2008
    
    
    2007(In thousands)Raw materials
    
    $
    10,888
    
    
    $
    13,666Work-in-progress
    
    
    9,123
    
    
    
    6,191Finished goods
    
    
    5,719
    
    
    
    2,276$
    25,730
    
    
    $
    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
    
    
    Six Months EndedJune 28, 2008
    
    
    June 30, 2007
    
    
    June 28, 2008
    
    
    June 30, 2007Equity-based compensation by type of award:Stock options
    
    $
    1,325
    
    
    $
    1,169
    
    
    $
    2,649
    
    
    $
    2,314Employee stock purchase plan
    
    
    297
    
    
    
    214
    
    
    
    500
    
    
    
    427Amounts
(capitalized as inventory) released to cost of sales
    
    
    20
    
    
    
    1
    
    
    
    89
    
    
    
    (3
    )Total equity-based compensation
    
    
    1,642
    
    
    
    1,384
    
    
    
    3,238
    
    
    
    2,738Tax effect on equity-based compensation
    
    
    (640
    )
    
    
    (305
    )
    
    
    (1,264
    )
    
    
    (737
    )Net effect on net income
    
    
    1,002
    
    
    
    1,079
    
    
    
    1,974
    
    
    
    2,001Effect on earnings per share:Basic
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.09
    
    
    $
    0.09Diluted
    
    $
    0.05
    
    
    $
    0.05
    
    
    $
    0.09
    
    
    $
    0.09
 Valuation Assumptions
   8




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
 Three Months Ended
    
    Six Months EndedJune 28,
    
    June 30,
    
    June 28,
    
    June 30,2008
    
    2007
    
    2008
    
    2007Stock Options:Expected volatility
    
    
    65.16
    %
    
    
    68.30
    %
    
    
    65.16
    %
    
    
    67.93
    %Risk free interest rate
    
    
    3.13
    %
    
    
    4.67
    %
    
    
    3.04
    %
    
    
    4.59
    %Expected term of options (in years)
    
    
    4.4
    
    
    
    4.4
    
    
    
    4.4
    
    
    
    4.5Dividend yield
    
    None
    
    None
    
    None
    
    None
 Six Months EndedJune 28, 2008
    
    June 30, 2007Stock Purchase Rights:Expected volatility
    
    
    61.26
    %
    
    
    63.48
    %Risk free interest rate
    
    
    1.5
    %
    
    
    4.84
    %Expected term of purchase rights (in years)
    
    
    1.3
    
    
    
    1.5Dividend yield
    
    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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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Beginning balance
    
    $
    2,578
    
    
    $
    5,229
    
    
    $
    3,092
    
    
    $
    5,283Expenditures incurred under warranties
    
    
    (537
    )
    
    
    (1,189
    )
    
    
    (1,211
    )
    
    
    (2,424
    )Accruals for product warranties
issued during the reporting period
    
    
    430
    
    
    
    674
    
    
    
    790
    
    
    
    1,748Adjustments to previously existing
warranty accruals
    
    
    (335
    )
    
    
    (156
    )
    
    
    (535
    )
    
    
    (49
    )Ending balance
    
    $
    2,136
    
    
    $
    4,558
    
    
    $
    2,136
    
    
    $
    4,558
  June 28,
    
    
    December 31,2008
    
    
    2007(In thousands)Other accrued liabilities
    
    $
    1,915
    
    
    $
    2,814Other long-term liabilities
    
    
    221
    
    
    
    278Total warranty provision
    
    $
    2,136
    
    
    $
    3,092
 7. Guarantees
  8. Cash, Cash Equivalents and Investments in Debt Securities
  11




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  June 28,
    
    
    December 31,2008
    
    
    2007(in thousands)Amortized Principal Amount:Debt securities issued by the US government and its agencies
    
    $
    13,948
    
    
    $
    29,744Auction rate securities
    
    
    76,195
    
    
    
    81,450Corporate debt securities
    
    
    
    
    
    
    1,800Total investments in debt securities
    
    $
    90,143
    
    
    $
    112,994Short-term investments
    
    $
    11,948
    
    
    $
    110,985Long-term investments
    
    
    78,195
    
    
    
    2,009Total investments in debt securities
    
    $
    90,143
    
    
    $
    112,994Approximate fair value of investments in debt securities
    
    $
    90,186
    
    
    $
    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
    
    
    (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
    
    
    (600
    )Investment securities at June 28, 2008
    
    $
    76,195Net change in unrealized gains and losses relating to instruments
still held at June 28, 2008
    
    $
    1,555
 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
    
    
    Six Months EndedJune 28,
    
    
    June 30,
    
    
    June 28,
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Numerator:Numerator for
diluted earnings
per share  income
(loss) available
to common
stockholders
    
    $
    (937
    )
    
    $
    11,552
    
    
    $
    626
    
    
    $
    21,397Denominator:Denominator for basic earnings per share 
weighted-average shares
    
    
    21,691
    
    
    
    21,396
    
    
    
    21,669
    
    
    
    21,345Effect of dilutive securities:Employee stock options (1)
    
    
    
    
    
    
    750
    
    
    
    446
    
    
    
    822Dilutive potential common shares
    
    
    
    
    
    
    750
    
    
    
    446
    
    
    
    822Denominator for diluted earnings per share 
adjusted
weighted-average shares and assumed conversions
    
    
    21,691
    
    
    
    22,146
    
    
    
    22,115
    
    
    
    22,167
 
 (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 June 28, 2008 and June 30,
2007 was 2,592,022 and 455,217, respectively, and the number of employee stock options
excluded for the six-month periods ended June 28, 2008 and June 30, 2007 was 1,603,924 and
352,534, respectively. 11. Segment Reporting
    14




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
     Net Revenues
 Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30
    
    
    June 28
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Equipment
    
    $
    25,730
    
    
    $
    68,519
    
    
    $
    52,703
    
    
    $
    140,965Intevac Photonics
    
    
    6,402
    
    
    
    3,586
    
    
    
    12,604
    
    
    
    7,514Total segment net revenues
    
    $
    32,132
    
    
    $
    72,105
    
    
    $
    65,307
    
    
    $
    148,479
 Profit & Loss
 Three Months Ended
    
    
    Six Months EndedJune 28,
    
    
    June 30
    
    
    June 28
    
    
    June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(in thousands)Equipment
    
    $
    (633
    )
    
    $
    15,842
    
    
    $
    (137
    )
    
    $
    30,831Intevac Photonics
    
    
    (1,070
    )
    
    
    (1,515
    )
    
    
    (1,891
    )
    
    
    (3,115
    )Total segment operating profit (loss)
    
    
    (1,703
    )
    
    
    14,327
    
    
    
    (2,028
    )
    
    
    27,716Unallocated costs
    
    
    (995
    )
    
    
    (987
    )
    
    
    (1,811
    )
    
    
    (1,299
    )Operating profit (loss)
    
    
    (2,698
    )
    
    
    13,340
    
    
    
    (3,839
    )
    
    
    26,417Interest income and other, net
    
    
    806
    
    
    
    1,538
    
    
    
    2,217
    
    
    
    2,858Income (loss) before income taxes
    
    $
    (1,892
    )
    
    $
    14,878
    
    
    $
    (1,622
    )
    
    $
    29,275
 15




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INTEVAC, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
  Assets
 June 28,
    
    
    December 31,2008
    
    
    2007(in thousands)Equipment
    
    $
    50,202
    
    
    $
    31,814Intevac Photonics
    
    
    26,087
    
    
    
    25,609Total segment assets
    
    
    76,289
    
    
    
    57,423Cash and investments
    
    
    116,103
    
    
    
    140,667Deferred income taxes
    
    
    10,149
    
    
    
    7,349Other current assets
    
    
    2,897
    
    
    
    4,162Common property, plant and equipment
    
    
    3,819
    
    
    
    3,964Other assets
    
    
    1,554
    
    
    
    1,848Consolidated total assets
    
    $
    210,811
    
    
    $
    215,413
 12. Income Taxes
   13. Contingencies
   16




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




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
    Three months ended
    
    Six months endedJune 28,
    
    June 30,
    
    %
    
    June 28,
    
    June 30,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Net revenues
    
    $
    32,132
    
    
    $
    72,105
    
    
    
    (55.4
    )%
    
    $
    65,307
    
    
    $
    148,479
    
    
    
    (56.0
    )%Gross margin
    
    $
    13,133
    
    
    $
    30,827
    
    
    
    (57.4
    )%
    
    $
    28,444
    
    
    $
    63,609
    
    
    
    (55.3
    )%Gross margin percent
    
    
    40.9
    %
    
    
    42.8
    %
    
    
    (1.9
    )%
    
    
    43.6
    %
    
    
    42.8
    %
    
    
    0.8
    %Net income (loss)
    
    $
    (937
    )
    
    $
    11,552
    
    
    
    (108.1
    )%
    
    $
    626
    
    
    $
    21,397
    
    
    
    (97.1
    )%Earnings (loss) per
diluted share
    
    $
    (0.04
    )
    
    $
    0.52
    
    
    
    (107.7
    )%
    
    $
    0.03
    
    
    $
    0.97
    
    
    
    (96.9
    )%
  18




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® ® ® tm ® tm tm ®
 Results of Operations
 Net revenues
 Three months ended
    
    
    Six months endedJune 28,
    
    
    June 30,
    
    
    %
    
    
    June 28,
    
    
    June 30,
    
    
    %2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    Change(in thousands, except percentages)Equipment
    
    $
    25,730
    
    
    $
    68,519
    
    
    
    (62.4
    )%
    
    $
    52,703
    
    
    $
    140,965
    
    
    
    (62.6
    )%Intevac Photonics
    
    
    6,402
    
    
    
    3,586
    
    
    
    78.5
    %
    
    
    12,604
    
    
    
    7,514
    
    
    
    67.7
    %Total net revenues
    
    $
    32,132
    
    
    $
    72,105
    
    
    
    (55.4
    )%
    
    $
    65,307
    
    
    $
    148,479
    
    
    
    (56.0
    )%
     19




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##### Table of Contents



Gross profit
 Three months ended
    
    Six months endedJune 28,
    
    June 30,
    
    %
    
    June 28,
    
    June 30,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Equipment gross profit
    
    $
    10,898
    
    
    $
    29,433
    
    
    
    (63.0
    )%
    
    $
    23,606
    
    
    $
    60,778
    
    
    
    (61.2
    )%% of Equipment net
revenues
    
    
    42.4
    %
    
    
    43.0
    %
    
    
    (0.6
    )%
    
    
    44.8
    %
    
    
    43.1
    %
    
    
    1.67
    %Intevac Photonics
gross profit
    
    $
    2,235
    
    
    $
    1,394
    
    
    
    60.3
    %
    
    $
    4,838
    
    
    $
    2,831
    
    
    
    70.9
    %% of Intevac
Photonics net revenues
    
    
    34.9
    %
    
    
    38.9
    %
    
    
    (4.0
    )%
    
    
    38.4
    %
    
    
    37.7
    %
    
    
    0.7
    %Total gross profit
    
    $
    13,133
    
    
    $
    30,827
    
    
    
    (57.4
    )%
    
    $
    28,444
    
    
    $
    63,609
    
    
    
    (55.3
    )%% of net revenues
    
    
    40.9
    %
    
    
    42.8
    %
    
    
    (1.9
    )%
    
    
    43.6
    %
    
    
    42.8
    %
    
    
    0.8
    %
    20




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##### Table of Contents



Three months ended
    
    Six months endedJune 28,
    
    June 30,
    
    %
    
    June 28,
    
    June 30,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Research and
development expense
    
    $
    8,418
    
    
    $
    9,648
    
    
    
    (12.8
    )%
    
    $
    17,806
    
    
    $
    21,840
    
    
    
    (18.5
    )%% of net revenues
    
    
    26.2
    %
    
    
    13.4
    %
    
    
    
    
    
    
    27.3
    %
    
    
    14.7
    %
  TM
  Selling, general and administrative.
 Three months ended
    
    Six months endedJune 28,
    
    June 30,
    
    %
    
    June 28,
    
    June 30,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Selling, general
and administrative
expense
    
    $
    7,413
    
    
    $
    7,839
    
    
    
    (5.4
    )%
    
    $
    14,477
    
    
    $
    15,352
    
    
    
    (5.7
    )%% of net revenues
    
    
    23.1
    %
    
    
    10.9
    %
    
    
    
    
    
    
    22.2
    %
    
    
    10.3
    %
  21




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Interest income and other, net
 Three months ended
    
    Six months endedJune 28,
    
    June 30,
    
    %
    
    June 28,
    
    June 30,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Interest income and
other, net
    
    $
    806
    
    
    $
    1,538
    
    
    
    (47.6
    )%
    
    $
    2,217
    
    
    $
    2,858
    
    
    
    (22.4
    )%
  Provision for income taxes.
 Three months ended
    
    Six months endedJune 28,
    
    June 30,
    
    %
    
    June 28,
    
    June 30,
    
    %2008
    
    2007
    
    Change
    
    2008
    
    2007
    
    Change(in thousands, except percentages)Provision (benefit)
for income taxes
    
    $
    (955
    )
    
    $
    3,326
    
    
    
    (128.7
    )%
    
    $
    (2,248
    )
    
    $
    7,878
    
    
    
    (128.5
    )%
  22




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Liquidity and Capital Resources
           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
    
    ValueCash equivalentsVariable rate amounts
    
    $
    13,917
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    13,917
    
    
    $
    13,917Weighted-average rate
    
    
    2.33
    %Short-term investmentsFixed rate amounts
    
    $
    11,948
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,948
    
    
    $
    11,991Weighted-average rate
    
    
    4.23
    %Long-term investmentsFixed rate amounts
    
    
    
    
    
    $
    2,000
    
    
    
    
    
    
    
    
    
    
    $
    2,000
    
    
    $
    2,000Weighted-average rate
    
    
    
    
    
    
    4.43
    %Variable rate amounts
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    76,195
    
    
    $
    76,195
    
    
    $
    76,195Weighted-average rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.13
    %Total investment portfolio
    
    $
    25,865
    
    
    $
    2,000
    
    
    
    
    
    
    $
    76,195
    
    
    $
    104,060
    
    
    $
    104,103
  Foreign exchange risk.
 
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures.
   25




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##### Table of Contents



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




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
 Patent Infringement Complaint against Unaxis
  Other Legal Matters
  
 Item 1A. Risk Factors
 The industries we serve are cyclical, volatile and unpredictable.
    27




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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.
   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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##### 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.
   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
   We could be involved in litigation.
  Difficulties in integrating past or future acquisitions could adversely affect our business.
  32




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##### Table of Contents



We use hazardous materials and are subject to risks of non-compliance with environmental and
safety regulations.
  Business interruptions could adversely affect our operations.
  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.
   33




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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
  AbstentionsAffirmative
    
    Negative
    
    Votes
    
    and BrokerVotes
    
    Votes
    
    Withheld
    
    Non-Votes(a) Election of DirectorsNorman H. Pond
    
    
    20,200,592
    
    
    
    
    
    
    
    422,062
    
    
    
    Kevin Fairbairn
    
    
    20,319,850
    
    
    
    
    
    
    
    302,804
    
    
    
    David S. Dury
    
    
    20,138,398
    
    
    
    
    
    
    
    484,256
    
    
    
    Stanley J. Hill
    
    
    20,136,736
    
    
    
    
    
    
    
    458,918
    
    
    
    Robert Lemos
    
    
    20,136,604
    
    
    
    
    
    
    
    486,050
    
    
    
    Ping Yang
    
    
    20,320,178
    
    
    
    
    
    
    
    302,476
    
    
    
    (b) Proposal to approve an amendment to the 2004
Equity Incentive Plan to increase the number
of shares reserved for issuance thereunder
by 500,000 shares
    
    
    17,114,226
    
    
    
    880,890
    
    
    
    
    
    
    
    2,627,538(c) Ratification of Grant Thornton LLP as
independent public accountants for the fiscal year
ending December 31, 2008
    
    
    20,372,662
    
    
    
    241,872
    
    
    
    
    
    
    
    8,120
 
 Item 5. Other Information
  34




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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.
 35




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SIGNATURES
  INTEVAC, INC.Date: August 7, 2008
    By:
    /s/  KEVIN FAIRBAIRNKevin FairbairnPresident, Chief Executive Officer and Director
(Principal Executive Officer)Date: August 7, 2008
    By:
    /s/ JEFFREY ANDRESONJeffrey AndresonVice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer) 36