UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form
10-K

(Mark One)

☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 30, 2017

January 2, 2021

or

☐
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
incorporation or organization)
 
(I.R.S. 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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

  

Trading
Symbol(s)
Name of each exchange on which registered

Common Stock ($0.001 par value)
  
IVAC
The Nasdaq Stock Market LLC (NASDAQ(Nasdaq Global Select)

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☐  Yes    ☒  No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    ☐  Yes    ☒  No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    ☒  Yes    ☐  No

Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K(§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of thisForm 10-K or any amendment to thisForm 10-K.    ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and emerging“emerging growth companycompany” in Rule
12b-2
of the Exchange Act. (Check one):

Large accelerated filer ☐  Accelerated filer ☒

Non-accelerated
filer

 

☐ (Do not check if a smaller reporting company)

  Smaller reporting company ☐☒
   Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act).    ☐  Yes    ☒  No

As of June 30, 2017,27, 2020, the aggregate market value of voting and
non-voting
stock held by
non-affiliates
of the Registrantregistrant was approximately $201,615,560$124,191,554 (based on the closing price for shares of the Registrant’sregistrant’s Common Stock as reported by the Nasdaq Stock Market for the last trading day prior to that date). Shares of Common Stock held by each executive officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

On February 14, 2018, 22,059,45812, 2021,
24,089,621 shares of the Registrant’sregistrant’s Common Stock, $0.001 par value, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE.

Portions of the Registrant’sregistrant’s Proxy Statement for the 20182021 Annual Meeting of Stockholders are incorporated by reference into Part III. Such proxy statement will be filed within 120 days after the end of the fiscal year covered by this Annual Report on Form
10-K.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain information in this Annual Report on
Form 10-K (report
(“report” or
“Form 10-K)10-K”)
of Intevac, Inc. and its subsidiaries (“Intevac” or the “Company”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, is forward-looking in nature. All statements in this report, including those made by the management of Intevac, other than statements of historical fact, are forward-looking statements. Examples of forward-looking statements include statements regarding Intevac’s future financial results, operating results, cash flows and cash deployment strategies, business strategies, costs, products, working capital, competitive positions, management’s plans and objectives for future operations, research and development, acquisitions and joint ventures, growth opportunities, customer contracts, investments, liquidity, declaration of dividends, and legal proceedings, as well as market conditions and industry trends. These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include the assumptions that underlie such statements. Forward-looking statements may contain words such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential” and “continue,” the negative of these terms, or other comparable terminology. Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in Item 1A, “Risk Factors,” below and elsewhere in this report. Other risks and uncertainties may be disclosed in Intevac’s prior Securities and Exchange Commission (“SEC”) filings. These and many other factors could affect Intevac’s future financial condition and operating results and could cause actual results to differ materially from expectations based on forward-looking statements made in this report or elsewhere by Intevac or on its behalf. Intevac undertakes no obligation to revise or update any forward-looking statements.

The following information should be read in conjunction with the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in this report.

PART I

Item 1.
Business

Overview

Intevac’s business consists of two reportable segments:

Thin-film Equipment:Equipment (“TFE”):
Intevac is a leader in the design and development of high-productivity, thin-film processing systems. Our production-proven platforms are designed for high-volume manufacturing of substrates with precise thin-film properties, such as the hard disk drive (“HDD”) media, display cover panel (“DCP”), and solar photovoltaic (“PV”) markets we serve currently.

Photonics:
Intevac is a leading developer of advanced high-sensitivity digital sensors, cameras and systems that primarily serve the defense industry. We are thea leading provider of integrated digital night-vision imaging systems for the U.S. military.

Intevac was incorporated in California in October 1990 and was reincorporated in Delaware in 2007.

Thin-film Equipment

TFE Segment

Hard Disk Drive (“HDD”) Equipment Market

Intevac designs, manufactures, markets and services complex capital equipment used to deposit thin films and lubricants onto substrates to produce magnetic disks that are used in HDDs. Disk and disk drive manufacturers produce magnetic disks in a sophisticated manufacturing process involving many steps, including plating, annealing, polishing, texturing, sputtering, etching, stripping and lubrication. Intevac believes its systems represent approximately 60%65% of the installed capacity for disk sputtering worldwide. Intevac’s systems are used by manufacturers of magnetic media such as Seagate Technology, Western Digital includingand its wholly-owned subsidiary HGST, Fuji Electric and Showa Denko.

HDDs are a primary storage medium for digital data including nearline “cloud” applications and are used in products and applications such as personal computers (“PCs”), enterprise data storage, video players and video game consoles. Intevac believes that HDD media shipments will grow over time, driven by continued high growth rates in digitally-stored data, by the slowing of areal density improvements, by the increase in demand for nearline drives for cloud storage, an increasing tie ratio (the average number of disks per hard drive) and by new and emerging applications. The projected growth rates for digitally-stored data on HDDs exceed the rate of areal density improvements, at the same time as the tie ratio is increasing, which results in demand for magnetic disks outpacing HDD units.

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In recent years HDD media units have been negatively impacted by declining PC units, primarily caused as a result ofresulting from the proliferation of tablets and the transition to centralized storage. Although the HDD industry continues to expect growth in the nearline data storage market segment, the transition to centralized storage combined with the negative growth in PC shipments has resulted in lower HDD shipments in recent years. However, Intevac continues to believe that long-term demand for hard disks required for high capacity HDDs will increase, driven by growth in demand for digital storage, a declining growth rate in areal density improvements, and increased information technology spending to support the transition to cloud storage. The number of disk manufacturing systems needed to support this growth as well as future technology transitions and improvements is expected to vary from year to year depending on the factors noted above.

Intevac expects that HDD manufacturers will extend their utilization of planar perpendicular media with the introduction of new technologies such as Heat Assisted Magnetic Recording (“HAMR”) and MicrowaveEnergy Assisted Magnetic Recording (“MAMR”EAMR”). Initial volume shipments of both HAMR and MAMR-basedEAMR-based HDDs are expected to beginbegan in 2019.2020. Intevac believes that leading manufacturers of magnetic media that are using Intevac systems for the development of these new technologies, will create a significant market opportunity for systemsystems upgrades in support of the media evolution required by these new technologies as they are more widely adopted.

Display Cover Panel (“DCP”) Market

Intevac develops equipment to deposit optically transparent thin films onto DCPs typically found on consumer and automotive electronic products.

DCPs are found in products including smartphones, tablet PCs, wearable devices, gaming systems, digital cameras, automotive infotainment systems and digital signage. In 2016,2020, approximately 1.51.55 billion smartphones, 175150 million tablet PCs and 3591 million smart watches were shipped to consumers worldwide. For smartphones alone, it is forecasted that nearly 1.7 billion units will ship by 2021,2024, representing a CAGR of 3.3%2.3% for the 20162020 – 20212024 time period.

The DCP is typically made of tempered glass, such as soda-lime or aluminosilicate, or other materials such as sapphire.sapphire, ceramic and colorless polyimide. The primary function of the DCP is to provide a clear protective interface to the display it protects. In many cases, the DCP is treated with various coatings to enhance its protective performance as well as for clarity, readability and touch sensitivity.

The types of coatings typically found on DCPs of electronic devices include: Scratch Protection (“SP”) coatings, Anti-Reflection (“AR”) coatings, Anti-FingerAnti-Fingerprint (“AF”) and
Non-Conductive
Vacuum Metallization (“NCVM”) coatings.

SP coatings generally consist of hard thin films deposited onto the surface of the DCP. Their primary function is to provide enhanced protection against the incidence of scratch, but they can also provide greater breakage resistance.

Intevac has developed and is currently marketing a SP coating known as Optical Diamond-like-Carbon (“oDLC

®
”) utilizing its production-proven carbon film technology that is also used on HDD media. This coating provides a hard protective layer which significantly improves the DCP’s resistance to scratches and breakage. The oDLC coating has demonstrated scratch protection benefits reflecting a greater than 20 times improvement over current standard cover glass under stainless steel ball Taber scratch testing. Furthermore, using a
Ring-on-Ring
(“RoR”) test, cover glass with our oDLC coating provides a greater than 20 percent increase in breakage resistance strength over cover glass without the oDLC coating. Intevac expects that the adoption of AR and NCVM coatings on mobile devices will create an increased need for SP coatings and provide a significant demand opportunity for oDLC.
In 2019, Intevac released DiamondClad
®
protective coating. DiamondClad is a proprietary multi-step process that improves upon our original single film solution, oDLC. Developed
in-house
utilizing the ion beam source technology released in 2018, DiamondClad now performs similarly to sapphire in scratch testing at the Mohs scale of material hardness 8 standard, compared to the industry standard glass with anti-fingerprint or AF coatings, which scratches at a Mohs 5 level. DiamondClad coating outperforms standard cover glass by a factor of 4 in Taber wear testing, and by a factor of 4 to 6 times in
use-case
AF durability testing with sand, denim, and perspiration.
AR coatings enable greater light transmission though the DCP by reducing the light reflected by the surface back to the user’s eye. This allows the user to more easily read the display and reduces the required power

needed to display the image which results in extending the battery life. A significant drawback to using AR coatings is their susceptibility to scratch. AR coatings are typically soft and must be applied to the outer surface of the DCP. These coatings generally scratch easily, and as such, smartphone manufacturers have been reluctant to implement AR coatings on their products.

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AF coatings provide water and oil protection for the surface of the DCP. This coating, which prevents fingerprints, provides greater aesthetics as well as improving readability. AF coatings allow for greater visual acuity when fingerprints are not visible. The drawback to AF coatings is their relatively low resistance to wear. The coating is soft and usually wears off within a few months of product purchase.

With theincreasing adoption of wireless charging and the upcoming 5G standard of wireless communication, smartphone manufacturers are making a major transition to DCPsignificantly expanding use of DCPs on the backside of the device.devices. This transition is essential to ensure that the backside cover, which previously used to bewas metallic, does not interfere with the wireless signals. NCVM coatings are a new type of color film coating, applied for decorative purposes, to the backside DCP. When applied to the exterior, the NCVM coating provides a pleasing aesthetic and gives manufacturers flexibility with color customization. Decorative NCVM coatings have evolved from single color to multiple colors with complex transitions. Intevac has developed a proprietary technology that enables the creation of uniquely patterned NCVM coatings for the phone back cover. Several leading handset manufacturers are currently evaluating this technology for potential incorporation into their upcoming phone models.
When applied to the exterior of the backside DCP, NCVM has a tendency to scratch easily and rub off over time, leading to a poor appearance. To preserve the color film on the backside DCP, manufacturers are reliant on SP coatings for scratch-resistance and a consistent appearance.

Intevac has developed and is currently marketing a SP coating known as Optical Diamond-like-Carbon (“oDLC™”) utilizing its production-proven carbon film technology that is also used on HDD media. This coating provides a hard protective layer which significantly improves the DCP’s resistance to scratches and breakage. The scratch protection benefits with the oDLC coating has demonstrated a greater than 20 times improvement over current standard cover glass under stainless steel ball Taber scratch testing. Furthermore using aRing-on-Ring (“RoR”) test, cover glass with our oDLC coating provides a greater than 20 percent increase in breakage resistance strength over cover glass without the oDLC coating. Intevac expects that the adoption of AR and NCVM coatings on mobile devices will create an increased need for SP coatings and provide a significant demand opportunity for oDLC.

oDLC and DiamondClad coatings.

DIAMOND DOG
®
Screen Protectors
In fiscal 2020, Intevac launched DIAMOND DOG
®
screen protectors for mobile devices with DiamondClad
®
tempered glass, a consumer product. DIAMOND DOG provides long-lasting mobile device screen protection and performance. The DIAMOND DOG screen protector features the patented DiamondClad diamond-like carbon coating technology, which is designed to help protect phones and preserve their
brand-new
look. The screen protector is custom fit for iPhone and Samsung models. Lab tests show DIAMOND DOG screen protectors provide up to 6 times better scratch protection, up to 5 times more abrasion protection, up to
4-6
times longer anti-fingerprint protection, and up to 3 times better breakage protection. During fiscal 2020 sales of DIAMOND DOG screen protectors were not significant.
Solar Market

Intevac designs, manufactures and markets capital equipment for the PV solar manufacturing industry.

A solar cell (also called a PV cell) is a solid state device that converts the energy of sunlight directly into electricity. Assemblies of cells are used to make solar modules, also known as solar panels. Solar panels have broad-based end market applications for utility-scale solar farms; integrated building PV arrays for commercial, retail, and offices; residential rooftop; and for portable devices.

The cost of electricity generated from solar energy, in many cases, remains higher than that of electricity generated from traditional energy sources. However, deployment of photovoltaics is gaining momentum on a worldwide scale, particularly in Asia, North America and other regions, where solar PV is now increasingly competitive with conventional energy sources. Grid parity, whereby solar PV generates power at a levelized cost of electricity (“LCOE”) less than or equal to the price of power purchased from the electrical grid, has already been reached in about thirty countries. In countries or areas where the cost of solar energy generation remains higher than traditional electricity generation sources, some governments have implemented various tax credits and other financial incentives to promote the growth in solar and other alternative energy sources. As a result of solar energy costs having favorably declined due to the increased scale and improved manufacturing efficiencies spurred by these incentive policies, many governments have reduced or are planning to reduce their incentives for solar, a trend which is likely to continue. More than 90120 gigawatts of solar capacity were expected to be added globally in 2017, growing 15.2%2020, rising 7.1%
year-on-year, before leveling
but the rate is expected to taper off towards sustainedto a modest growth of 5.6%4.1% in 2018.2021. Intevac expects that 20182021 will continue to be challenging for the solar industry due to further declines in solar panel pricing.

The PV industry continues to focus on the development of high-efficiency cell technologies aimed at simultaneously boosting PV efficiency and reducing solar energy production costs. New vacuum process technologies and integrated processing steps are expected to become increasingly important as companies search for lower-cost manufacturing solutions for PV cells.

Intevac offers products for wafer-based crystalline silicon
(“c-Si”)
solar cell manufacturing processes, the prevailing manufacturing process in the PV industry. Intevac’s products for the solar industry are specifically focused on cell designs with the highest energy conversion efficiency, which are within the
n-type
mono crystalline portion of the market.

4
Intevac offers thin-film vacuum process manufacturing solutions for
c-Si
cell fabrication applications. Intevac offers high-productivity process equipment solutions that enable
low-cost
solar cell manufacturing with high cell efficiency, consistent with the PV industry’s focus and requirements. Intevac has developed two vacuum process application technologies for solar cell manufacturing: one utilizes Physical Vapor Deposition (“PVD”) technology for the deposition of thin films onto
c-Si
wafers, and the other utilizes ion implantation, which selectively changes the electrical characteristics of the
c-Si
solar cell.

PVD is a process used in multiple ways in the manufacturing of solar cells such as for fabricating electrical contacts and conductor layers, depositing reflective layers of various types, and for growing transparent conductive oxide layers, all of which are critical to the efficiency of solar cells.

Ion implantation is a solar cell processing technology whereby an impurity is added to a PV structure to improve its conductivity. In ion implantation, a beam of ions of a desired dopant element such as phosphorus or boron is electrostatically accelerated and directed toward the target material, introducing the impurity. In a subsequent thermal annealing step, the dopant is electrically activated. The ion implant processes enable precision engineering of the dose and of the depth of dopant elements to form emitter structures in working solar cells. Ion implantation is a technique being introduced to solar cell lines as a means to lower the cost per watt to manufacture the cell. Ion implantation can replace existing diffusion processes in existing solar processing lines for
present-day
PV cell structures, and is also extendable to new advanced cell structures. In both cases, ion implant-formed emitters are created with fewer processing steps, and therefore at lower cost, than the diffusion processes implant displaces. Intevac’s ion implantation products are based upon technology developed by Solar Implant Technologies, Inc. (“SIT”) which was acquired by Intevac in November 2010.

Fan-Out
Packaging Market

Intevac is bringing to market capital equipment for
fan-out
packaging applications,
fan-out
packaging being a specialized part of the overall semiconductor device packaging market.

Semiconductor device packaging technology in general, and
fan-out
wafer level packaging
(“FOWLP”)/fan-out
panel level packaging (“FOPLP”) technology in particular, is being driven by the strong cost advantages these technologies offer over the cost of further implementing continued Moore’s Law progress for 10nm and 7nm semiconductor interconnect (“IC”)device process nodes. Generally speaking,
fan-out
packaging provides for increased Input/Output (“I/O”) density for a given semiconductor device while simultaneously supporting continued progress in shrinking the individual semiconductor devices, resulting in decreased footprint per device and, by extension, decreases in the amount of space integrated circuit content occupies in handheld consumer electronic products, for example in smartphones, wearables, and in Internet of Things (“IoT”) devices.

Fan-out
packaging technology consists of a series of operations where known good semiconductor devices from silicon wafers fabricated by an Integrated Device Manufacturer (“IDM”), or by a semiconductor foundry, are singulated and then assembled onto a substrate or temporary carrier, which is then overmolded with epoxy mold compound and cured to create what is known as a reconstituted wafer. The reconstituted wafer then goes through another series of process steps (dielectric deposition, metallization, photolithography), to create a

redistributed

“fan-out”
of the electrical interconnections from the original silicon device area to an expanded area that includes the device (die) surface itself, along with a generous amount of extra surface created from the mold compound area.

A redistribution layer (“RDL”) is the
“fanned-out”
metal layer on a packaged integrated circuit that makes the I/O pads of the integrated circuit available in other locations. PVD processes are essential to RDL fabrication; in
fan-out
packaging, our IntevacINTEVAC MATRIX
®
PVD system is used to deposit thin layers of Titanium (“Ti”), Titanium Tungsten (“TiW”), Aluminum (“Al”) and Copper (“Cu”) to form the barrier/seed layer upon which the full RDL is constructed.

Applications driving the adoption of
fan-out
packaging include, among others:

Baseband (1) baseband processors and application processors

RFprocessors; (2) radio frequency (“RF”) transceivers switches, etc.

Powerand switches; (3) power management integrated circuits (“PMIC”)

Radar; (4) radar modules for automotiveautomotive; (5) audio codec; and (6) microcontrollers.

Audio codec

Microcontrollers

Smartphones of the iPhone 8 generationfrom OEMs including Apple, Samsung, Xiaomi, OPPO and others incorporate

fan-out
packaged components, as do most
higher-end
automobiles. IoT applications in the future are expected to contribute additional significant volume in
fan-out
packaged devices.

The significantcompelling advantages our INTEVAC MATRIX® PVD system brings to
fan-out
packaging are a much-reduced cost of ownership over the current PVD process tools of record used for RDL barrier/seed layer applications, and also the flexibility to
5
run round wafers, and square or rectangular substrates,panels, with no changes to the INTEVAC MATRIX PVD system beyond a simple substrate carrier substitution.

Thin-Film Equipment

TFE Products

Intevac’s Thin-film EquipmentTFE product portfolio addressing each of these markets is based around common core technologies and competencies. Intevac believes its Thin-film EquipmentTFE product portfolio can be extended to support adjacent markets. Based on its history and market and technology leadership in the hard disk driveHDD industry, Intevac offers superior high-productivity vacuum handling of small substrates at the lowest cost of ownership. Lowest cost of ownership includes various advantages such as high target utilization, high throughput, small footprint, double-sided coating, and reduced materials costs.

Product Table

The following table presents a representative list of the Thin-film EquipmentTFE products that we offered during fiscal 2017, fiscal 20162020 and fiscal 2015.

2019.

Thin Film Equipment

TFE Products

  

Applications and Features

Hard Disk Drive

HDD Equipment Market

200 Lean
®
Disk Sputtering System

  

•  Uses PVD and chemical vapor deposition (“CVD”) technologies.

•  Deposits magnetic films,
non-magnetic
films and protective carbon-based overcoats.

•  Provides high-throughput for small-substrate processing.

•  Over 150164 units installed.

200 Lean Etch and Deposition System

•  Uses PVD and etch technologies.

•  For use in HAMR and patterned media development.

AccuLuber® Disk Lubrication System

•  Deposits lubricants onto the hard disk’s surface to improve durability and reduce surface friction.

•  Lubricates disks while under vacuum.

•  Eliminates the environmentally hazardous use of solvents.

Upgrades, spares, consumables and services
(non-systems
business)

  

•  Upgrades to the installed base to support the continued growth in areal density or reduce the manufacturing cost per disk.

DCP Market

INTEVAC VERTEX
®
System

  

•  Utilizes vertical sputtering for multiple film types.

•  Provides high-throughput for small-substrate processing.

•  Uses patented carbon deposition source.

•  Modular design enables expandability.

•  Enables
low-temperature
processing.

Solar PV Market

INTEVAC VERTEX
®
Spectra System
•  Extension of the VERTEX system.
•  Incorporates multiple source technologies in a single system.
•  Uses proprietary ion beam processing for deposition and etching.
•  Enables unique patterned NCVM and hard AR coatings.
INTEVAC VERTEX
®
Marathon System
•  Versatile platform for high volume manufacturing of multi-step, multi-layer optical coatings.
•  Enables diverse coatings — DiamondClad, patterned NCVM and AR films.
DIAMOND DOG
®
•  Screen protectors for mobile devices, a consumer product line with DiamondClad tempered glass.
•  Provides long lasting protection against scratches and abrasion.
•  Preserves screen clarity and anti-fingerprint performance.
Solar PV Market
INTEVAC MATRIX PVD System

  

•  Deposits electrical contacts and conductor layers, reflective layers, and transparent conductive oxide layers, all of which are critical to the efficiency of solar cells.

•  Includes patented Linear Scanning Magnetic Array (“LSMA”) magnetron source, with industry-leading target utilization rate of over 65 percent.

•  Provides high-throughput for small-substrate processing.

INTEVAC MATRIX Implant System

  

•  Utilizes the chambers and transport mechanism of the MATRIX platform while using the implant sources from the ENERG
i
system.

ENERG
i
®
Implant System

  

•  Supports both phosphorus and boron dopant technologies.

•  Extendable to new advanced solar cell structures.

6

TFE Products
Applications and Features
Fan-Out
Packaging Market

INTEVAC MATRIX PVD System

  

•  Deposits barrier/seed layers for
fan-out
RDL.

•  Includes LSMA magnetron source, with industry-leading target utilization rate of over 65 percent.

•  Provides high-throughput and low cost of ownership for small-substrate or large panel processing.

•  Provides flexibility for handling round, square, or rectangular substrates for
fan-out
packaging.

Thin Film Equipment Products

Applications and Features

Adjacent Markets

INTEVAC MATRIX System

  

•  Incorporates multiple thin-film deposition techniques such as PVD, CVD, Etch, Implant, heating and cooling.

•  Consists of high-speed linear transport.

•  Flexible design enables handling of various different small substrate sizes and shapes.

•  Performs double-sided coating within vacuum.

Photonics Segment

Photonics Market

Intevac Photonics develops, manufactures and sells compact, cost-effective, high-sensitivity digital-optical products for the capture and display of extreme
low-light
images. These products incorporate high resolution digital night-image sensors operating in the visible and near infrared (“NIR”) light spectrums and are based on Intevac’s proprietary EBAPS
® (Electron
(Electron Bombarded Active Pixel Sensor) technology.

Photonics products primarily address the high performancehigh-performance military night-vision market. Our products provide digital imagery in extremely
low-light
level conditions. Intevac provides these products for military aircraft including the U.S. Army
AH-64
Apache Attack Helicopter and the
F-35
Joint Strike Fighter. Additionally, theThe Company is developing applicationsadditional technologies to address ground vehicles, and soldier head-mounted and weapon-mounted applications.

Military Products

Intevac’s EBAPS sensors areis incorporated into custom-designed cameras, modules and gogglesystem products for high performance military applications. Intevac’s EBAPS sensors can be integrated at various levels with optics, electronics, software, and displays based upon customer specifications and requirements. Intevac has developed a next-generation, 3.7 mega-pixel resolution Intevac Silicon Imagine Engine (“ISIE”) 19 EBAPS which operates at higher resolutions, lower light levels, higher speeds, and lower power consumption for use in next-generation systems. Customization typically occurs in the areas of electronics,
near-eye
micro-displays and mechanical packaging. Intevac’s products by application are:

Helicopter Pilotage

Intevac provides a night-vision camera with a 2.0 mega-pixel resolution EBAPS module which is gimbal turret-mounted on the nose of the Apache helicopter. The
low-light
level digital video is then viewable by the helicopter pilot on a Head-Mounted Display (“HMD”) enabling the pilot to have enhanced night vision and allowing the aircrew to view multiple aircraft-mounted sensor information. In addition, the U.S. Navy has funded a High Resolution Digital Night Vision Goggle (“HRDG”) development program incorporating a 4.0 mega-pixel resolution EBAPS module for aviation applications. The initial HRDG prototypes were delivered to the U.S. Navy in 2016. These goggles are under evaluation for an enhanced night vision program for Navy helicopters.

Fixed Wing Aircraft Pilotage

Intevac provides night-vision camerasmodules with a 2.0 mega-pixel resolution EBAPS module which isare integrated with the
F-35
fighter pilot’s helmet and enables the pilot to have enhanced night vision incorporating navigational and tactical information. Additionally, a similar integrated night vision camera utilizing a2.0 mega-pixel resolution EBAPS is being designed into the Striker II helmet for the NATO Eurofighter Typhoon Fighter aircraft.

Long-Range Target Identification

Intevac provides the Laser Illuminated Viewing and Ranging (“LIVAR
®
”) shortwave-infrared camera for long range military night timenight-time surveillance systems that can identify targets at distances of up to twenty

kilometers. Photonics’ LIVAR camera is incorporated into long range target identification systems manufactured by a major defense contractor.

Soldier Mobility

Both the U.S. Army and Special Operations Command sponsored programs to develop binocular night-vision goggles incorporating digitally fusedlow-light level and thermal image sensors. Both head-mounted digital imaging systems will allowlow-light level and thermal imagery to be viewed individually or to be overlaid. Our solution targets the fused night-vision monocular for U.S. Army ground forces, which is the program of record to replace analog night vision. We delivered our first demonstrator monocular to the Army in 2016, for evaluation of alternatives for the fused mobility vision program. We will be demonstrating not only superior night-vision capability, but the advantage of digital, such as zoom, information overlay, and wireless digital image transmission and reception.


7
Augmented Reality (“AR”) and Wireless Weapon Sights

HMDs

Intevac provides HMDs for applications in AR and wireless weapon sights. The HMD is a
near-eye, high definition,
high-definition, wide field of view
field-of-view
(“FOV”) micro-display system for portable viewing of video in military and commercial markets.applications. Depending on the application, Intevac provides configuration choices that include monocular or binocular, mono or stereo video, and wired or wireless interfaces. Integral Inertial Measurement Unitsinterfaces, and with integral inertial measurement units (“IMU”) are also offered.

Rifle Sight    

. An AR HMD overlays symbology and other information on and tracked in a view of the real world, creating the illusion that they occupy the same space. Intevac provided EBAPS moduleshas developed and demonstrated wide FOV AR displays for use in HMDs.

Soldier Mobility
Intevac is developing a digital-fused binocular night-vision goggle with AR which will integrate the next-generation EBAPS. This goggle will demonstrate superior night-vision capability, with digital advantages, such as zoom, information overlay, and wireless image transmission and reception.
Intevac is developing a digital night-vision camera for the U.S. Army’s Integrated Visual Augmentation System (“IVAS”) program. The IVAS will incorporate head, body, and weapon technologies on individual soldiers. It is a single platform that were integrated by our customers intosoldiers can use to fight, rehearse, and train that provides increased mobility and situational awareness necessary to achieve overmatch against adversaries and includes a weapon sight attached to weaponry, including rifles for night time aiming and targeting.

squad-level combat training capability.

Commercial Products

Low-Light
Cameras

Photonics’ MicroVista
®
product line of commercial compact and lightweight
low-light
Complementary Metal–Oxide–Semiconductor (“CMOS”) cameras provides high sensitivity in the ultraviolet, visible or NIR regions of the spectrum for use in industrial inspection,
bio-medical
and scientific applications. These cameras are primarily sold through distribution channels and to original equipment manufacturers.

Backlog

Intevac’s backlog of orders at December 30, 2017 was $64.0 million, as compared to $68.5 million at December 31, 2016. Backlog at December 30, 2017 consisted of $51.7 million of Thin-film Equipment backlog and $12.3 million of Photonics backlog. Backlog at December 31, 2016 consisted of $46.3 million of Thin-film Equipment backlog and $22.2 million of Photonics backlog. Backlog at December 30, 2017 includes three 200 Lean systems and twelve PV implant systems.

Customer Concentration

Historically, a significant portion of Intevac’s revenue in any particular period has been attributable to sales to a limited number of customers.

The following customers accounted for at least 10 percent of Intevac’s consolidated net revenues in fiscal 2017, 2016,2020 and 2015.

   2017  2016  2015 

Seagate Technology

   40%   34%   22% 

U.S. Government

   15%   22%   26% 

Elbit Systems of America

   *   10%   * 

HGST

   *   *   15% 

*Less than 10%

2019.

   
2020
  
2019
 
Seagate Technology
   42%   49% 
U.S. Government
   29%   20% 
Elbit Systems of America
   12%   * 
Jolywood (Hongkong) Industrial Holdings Co., Limited
   *   14% 
* Less than 10%
Intevac expects that sales of Intevac’s products to relatively few customers will continue to account for a high percentage of Intevac’s revenues in the foreseeable future.

Foreign sales accounted for 47% of revenue in fiscal 2020 and 67% of revenue in fiscal 2017, 48% of revenue in fiscal 2016, and 35% of revenue in fiscal 2015.2019. The majority of Intevac’s foreign sales are to companies in Asia or to U.S. companies for use in their Asian manufacturing or development operations. Intevac anticipates that foreign sales will continue to be a significant portion of Intevac’s Thin-film EquipmentTFE revenues. Intevac’s disk sputtering equipment customers include magnetic disk manufacturers, such as Fuji Electric and Showa Denko, and vertically integrated HDD manufacturers, such as Seagate, Western Digital and HGST. Intevac’s PV solar equipment customers include several major solar cell manufacturers. Intevac’s DCP equipment customers include DCP manufacturers, such as Truly Opto-electronics. Intevac’s customers’ manufacturing facilities are primarily located in California, China, Taiwan, Japan, Malaysia, PhilippinesPortugal and Singapore.

8
Competition

The principal competitive factors affecting the markets for Intevac Thin-film EquipmentTFE products include price, product performance and functionality, ease of integration, customer support and service, reputation and reliability. Intevac has one major competitor, Canon Anelva, in the hard disk drive equipment market and has historically experienced intense worldwide competition for magnetic disk sputtering equipment. Intevac primarily faces competition from large established global competitors in the PV equipment market including Applied Materials, Centrotherm Photovoltaics, Amtech, Jusung, Kingstone, Von Ardenne and Von Ardenne.Belight Technology. Intevac faces competition in the DCP market from optical coating equipment manufacturers such as Optorun, Shincron and Shincron,Hongda, glass manufacturers that may develop scratch resistant glass, touchscreen manufacturers that may adopt harder substrate materials, or other equipment companies, chemical companies or the display cover plate manufacturers themselves that may offer competing protective coatings including oDLC.DLC, NCVM and AR. Intevac’s competitors for PVD processes in the
fan-out
packaging market include the companies SPTS Technologies (a KLA company), Evatec AG, ULVAC Technologies, Inc., Tango Systems, Inc. (an Applied Materials company) and ASM NEXX, Inc. These competitors generally have substantially greater financial, technical, marketing, manufacturing and other resources as compared to Intevac. Furthermore, any of Intevac’s competitors may develop enhancements to, or future generations of, competitive products that offer superior price or performance features. In addition, new competitors, with enhanced products may enter the markets that Intevac currently serves.

The principal competitive factors affecting Photonics products include price, extreme
low-light
level detection performance, power consumption, resolution, size, ease of integration, reliability, spectral band, reputation and customer support and service. Intevac faces substantial competition for Photonics products, and many competitors have substantially greater resources and brand recognition. In the military market Harris Corporationfor soldier andL-3 Communications helicopter night vision goggles, Elbit Systems and L3Harris Technologies are large and well-established defense contractors and are the primary U.S. manufacturers of analog image intensifier tubes used in
Generation-III
night-vision devices and their derivative products.devices. For long range airborne targeting applications, Intevac competes against camera providers using low light CMOS imagery. Intevac expects that other companies will develop digital night-vision products and aggressively promote their sales. Within thenear-eye display market, Intevac also currently faces competition from Rockwell-Collins, Kopin and Six 15 Technologies in the defense space and anticipates that in the future it will experience competition from lower performance, niche commercial HMD providers expanding into defense applications, all of which can offer cost-competitive products.

Marketing and Sales

Thin-film Equipment

TFE sales are made primarily through Intevac’s direct sales force. Intevac also sells its products through distributors in Japan and China. The selling process for Intevac’s Thin-film EquipmentTFE products is multi-level and lengthy, involving individuals from marketing, engineering, operations, customer service and senior management.

Installing and integrating new equipment requires a substantial investment by a customer. Sales of Intevac’s systems depend, in significant part, upon the decision of a prospective customer to replace obsolete equipment or to increase manufacturing capacity by upgrading or expanding existing manufacturing facilities or by constructing new manufacturing facilities, all of which typically involve a significant capital commitment. Intevac’s systems have a lengthy sales cycle, during which Intevac may expend substantial funds and management time and effort with no assurance that a sale will result.

The production of large complex systems requires Intevac to make significant investments in inventory both to fulfill customer orders and to maintain adequate supplies of spare parts to service previously shipped systems. Intevac maintains inventories of spare parts in the United States, Singapore, Malaysia and China to support its Thin-film EquipmentTFE customers. Intevac often requires its Thin-film EquipmentTFE customers to pay for systems in three installments, with a portion of the system price billed upon receipt of an order, a portion of the price billed upon shipment, and the balance of the price and any sales tax due upon completion of installation and acceptance of the system at the customer’s factory.

Intevac provides process and applications support, customer training, installation,
start-up
assistance and post-installation service support to Intevac’s Thin-film EquipmentTFE customers. Intevac supports US customers from Intevac headquarters in Santa Clara, California, and has field offices in Singapore, China, and Malaysia to support Intevac’s customers in Asia.

Warranties for Intevac’s Thin-film EquipmentTFE products typically range between 12 and 24 months from customer acceptance. During the warranty period any necessary
non-consumable
parts are supplied and installed without charge.

Sales of Photonics products for military applications are primarily made to the end user through Intevac’s direct sales force. Intevac sells to the U.S. government and to leading defense contractors such as Lockheed Martin Corporation, Northrop Grumman Corporation, Elbit Systems of America, Raytheon, Leonardo DRS, Technologies, BAE Systems and Safran Electronics and Defense.

9
Intevac is subject to long sales cycles in the Photonics segment because many of Intevac’s products, such as Intevac’s night-vision systems, typically must be designed into Intevac’s customers’ products, which are often complex and
state-of-the-art.
These development cycles are generally multi-year, and Intevac’s sales are dependent on Intevac’s customer successfully integrating Intevac’s product into its product, completing development of its product and then obtaining production orders for its product. Sales of these products are also often dependent on ongoing funding of defense programs by the U.S. government and its allies. Additionally, sales to international customers are contingent on issuance of export licenses by the U.S. government.

Photonics generally invoices its research and development customers either as costs are incurred, or as program milestones are achieved, depending upon the particular contract terms. As a government contractor, Intevac invoices customers using estimated annual rates approved by the Defense Contracts Audit Agency (“DCAA”).

Research and Development and Intellectual Property

Intevac’s long-term growth strategy requires continued development of new products. Intevac works closely with Intevac’s customers to design products that meet their planned technical and production requirements. Product development and engineering organizations are located primarily in the United States and Singapore.

Intevac invested $17.7 million (15.7% of net revenue) in fiscal 2017, $18.2 million (22.7% of net revenue) in fiscal 2016, and $15.7 million (20.8% of net revenue) in fiscal 2015 for product development and engineering programs to create new products and to improve existing technologies and products. Intevac has spent an average of 21.9% of net revenues on product development and engineering over the last five years.

Intevac’s competitive position significantly depends on Intevac’s research, development, engineering, manufacturing and marketing capabilities, and not just on Intevac’s patent position. However, protection of Intevac’s technological assets by obtaining and enforcing intellectual property rights, including patents, is important. Therefore, Intevac’s practice is to file patent applications in the United States and other countries for inventions that Intevac considers important. Although Intevac does not consider Intevac’s business materially dependent upon any one patent, the rights of Intevac and the products made and sold under Intevac’s patents along with other intellectual property, including trademarks,
know-how,
trade secrets and copyrights, taken as a whole, are a significant element of Intevac’s business.

Intevac enters into patent and technology licensing agreements with other companies when management determines that it is in Intevac’s best interest to do so. Intevac pays royalties under existing patent license agreements for use of certain patented technologies in several of Intevac’s products. Intevac also receives, from time to time, royalties from licenses granted to third parties. Royalties received from or paid to third parties have not been material to Intevac’s consolidated results of operations.

In the normal course of business, Intevac periodically receives and makes inquiries regarding possible patent infringements. In dealing with such inquiries, it may be necessary or useful for us to obtain or grant licenses or other rights. However, there can be no assurance that such licenses or rights will be available to us on commercially reasonable terms, or at all. If Intevac is not able to resolve or settle claims, obtain necessary licenses and/or successfully prosecute or defend Intevac’s position, Intevac’s business, financial condition and results of operations could be materially and adversely affected.

Manufacturing

Intevac manufactures its Thin-film EquipmentTFE products at its facilities in California and Singapore. Intevac’s Thin-film EquipmentTFE manufacturing operations include electromechanical assembly, vacuum processing, fabrication of sputter sources, and system assembly, alignment and testing.

Photonics products are manufactured at Intevac’s facilitiesfacility in California. Photonics manufactures sensors, cameras, integrated camera systems, and
near-eye
display systems using advanced manufacturing techniques and equipment. Intevac’s operations include vacuum processing, and electromechanical and optical system assembly.

Employees

At December 30, 2017, Intevac had 298 employees, including 17 contract employees.

Compliance with Environmental

Government Regulations

Intevac is

We are subject to a variety ofvarious government regulations in the United States as well as various international locations where we operate. These regulations cover several diverse areas including environmental compliance, import and export controls, economic sanctions, data and privacy protection, transfer pricing rules, anti-bribery, anti-trafficking and anti-trust provisions. Our policies mandate compliance with applicable laws and regulations administered by various state, federal and international agencies. We instituted various training programs to educate our employees on compliance with governmental regulations, as well as applied legal and ethical practices in our everyday work. We are subject to international, federal, state, and local legislation, regulations, and other requirements relating to the use, storage, discharge, handling, emission, generation, manufacture, treatment and disposal of toxic or otherwise hazardous substances, chemicals, materials or waste. Intevac treatswaste; recycling and
10
product packaging; worker health and safety; and other activities affecting the environment, our workforce, and the management of our manufacturing operations. We believe that our operations and facilities comply in all material respects with applicable environmental laws and worker health and safety laws. We treat the cost of complying with government regulations and operating a safe workplace as a normal cost of business and allocates the cost of these activities to all functions, except where the cost can be isolated and charged to a specific function. The environmental standards and regulations promulgated by government agencies in California and Singapore are particularly rigorous and set a high standard of compliance. Intevac believes itsWe believe our costs of compliance with these regulations and standards are comparable to other companies operating similar facilities in these jurisdictions.

Executive Officers We are also subject to import/export controls, tariffs, and other trade-related regulations and restrictions in the countries in which we have operations or otherwise do business. These controls, tariffs, regulations, and restrictions (including those related to, or affected by, United States-China relations) have had, and we believe may continue to have, a material impact on our business, including our ability to sell products and to manufacture or source components. Our business is affected by numerous laws and regulations relating to the award, administration and performance of U.S. Government contracts. In addition, many federal and state laws materially affect our operations. These laws relate to ethics, labor, tax, and employment matters. As any employer is, we are subject to federal and state statutes and regulations governing their standards of business conduct with the government, including that government contracts typically contain provisions permitting government clients to terminate contracts without cause with limited notice or compensation. The development of additional statutes and regulations and interpretation of existing statutes and regulations with respect to our industry can be expected to evolve over time. As with any commercial enterprise, we cannot predict with certainty the nature or direction of the Registrant

development of federal statutes and regulations that will affect its business operations.

Human Capital Resources
General Information About Our Human Capital Resources
As of January 2, 2021, we had 269 employees, including 3 contract employees. Approximately 71% of our employees are located in the United States and 29% are located in Asia. Of our total workforce, 86 employees are involved in research and development; 115 employees are involved in operations, manufacturing, service and quality assurance; and 68 employees are involved in sales, order administration, marketing, finance, information technology, general management and other administrative functions.
Core Principles
Our core values are integral to our Company culture. We pride ourselves in providing a safe and positive work environment where mutual respect and ethical conduct is a core value. We believe in continuous learning and professional development and provide employees with opportunities to grow.
Community Involvement
Our employees are committed to making a difference in the community by actively volunteering and fundraising for many charities, including American Cancer Society, Second Harvest, Human Society, Make a Wish, and Salvation Army.
Health and Safety
The health and safety of our employees is of utmost importance to us. We conduct regular self-assessments and audits to ensure compliance with our health and safety guidelines and regulatory requirements. Our ultimate goal is to achieve a level of work-related injuries as close to zero as possible through continuous investment in our safety programs. We provide protective gear (e.g. eye protection, masks and gloves) as required by applicable standards and as appropriate given employee job duties. Annual participation in trainings related to ethics, environment, health and safety, and emergency responses are at or near 100%.
Refer to “Impact of
COVID-19”
included in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information on actions taken by the Company to support its employees in response to the
COVID-19
pandemic.
Talent Management
We regularly monitor and review with management human capital metrics that are key to our business, including hiring statistics, promotion rates, turnover rates, career growth and development, and diversity and inclusion.
11
Hiring Practices
It is our policy to hire and promote the best-qualified person for the job and comply fully with all domestic, foreign and local laws relating to discrimination in the workplace. Our good faith outreach efforts are designed to ensure that there are no barriers for members of any group and to encourage interest by all qualified persons. We believe our actions enhance diversity, including recruiting at venues representing women, minorities and U.S. military veterans.
Turnover
We continually monitor employee turnover rates, both regionally and as a whole, as our success depends upon retaining our highly trained engineering, manufacturing and operating personnel. The average tenure of our employees is 9.8 years in the United States and 9.5 years in Asia.
Diversity and Inclusion
Recognizing and respecting our global presence, we strive to maintain a diverse and inclusive workforce everywhere we operate. We believe that a diverse and motivated workforce is vital to our success. We strive to advance diversity and inclusion through various talent acquisition programs to attract, retain and develop a diverse, highly-skilled work force. We conduct employee surveys to provide
on-going
feedback on how we are doing against our commitment to treat all employees fairly and provide equal opportunity in an environment free of discrimination. Our diversity and inclusion principles are also reflected in our employee training, in particular by educating employees about our policies against harassment and bullying and about the elimination of bias in the workplace.
Management Team
We believe our management team has the experience necessary to effectively execute our strategy and advance our product and technology leadership. Our chief executive officer and business unit leaders average approximately 25 years of industry experience. They are supported by an experienced and talented professional team.
Training and Talent Development
We are committed to the continued development of our employees. Strategic talent reviews and succession planning occur on a planned cadence annually – globally and across all business areas. We are committed to identifying and developing the talents of our next generation leaders. We have a robust talent and succession planning process and have established specialized programs to support the development of our talent pipeline for critical roles in management, engineering, and operations. We also provide technical, professional and leadership training to our employees. We recognize and support the growth and development of our employees and offer opportunities to participate in internal as well as external learning opportunities.
Compensation and Benefits
We strive to offer employees regionally competitive compensation and benefits that are aligned to our values. All employees receive a base salary, incentive compensation and welfare benefits. Depending on the region, benefits include medical, dental and vision coverage, short and long-term disability income protection, flexible spending plans (health, dependent and limited flexible spending) and basic and supplemental life insurance, accidental death and dismemberment insurance and retirement savings plan. Intevac pays the majority or all of the costs for these benefits.
We have various employee incentive plans. Our profit-sharing plan provides for the distribution of a percentage of
pre-tax
profits to substantially all of our employees not eligible for other performance-based incentive plans. Our executives and key contributors participate in bonus plans based on the achievement of profitability and other individual performance goals and objectives.
To foster a stronger sense of ownership and align the interests of employees with our stockholders we grant equity-based awards, including restricted stock units (“RSUs”) and performance-based restricted stock units (“PRSUs”) to eligible employees. We also have an employee stock purchase plan, which provides employees with the opportunity to purchase Intevac common stock at a discount through payroll deductions. See Note 3 to the consolidated financial statements for a description of these plans.
12
Oversight and Management
As noted in its charter, our Compensation Committee is responsible for periodically reviewing our employee programs and initiatives, including healthcare and other benefits, as well as our management development and succession planning practices and strategies.
Information about our Executive Officers
Certain information about our executive officers as of February 14, 201817, 2021 is listed below:

Name

  
Age
   

Position

Executive Officers:

    

Wendell T. Blonigan

   5659   
President and Chief Executive Officer

James Moniz

   6063   
Executive Vice President, Finance and Administration, Chief Financial Officer, Secretary and Treasurer

Andres Brugal

60Executive Vice President and General Manager, Photonics

Jay Cho

53Executive Vice President and General Manager, Thin-Film Equipment

Christopher Smith

Timothy Justyn
   58   
Executive Vice President Business Developmentand General Manager, Photonics
Jay Cho
56
Executive Vice President and General Manager, TFE

Other Key Officers:

    

Verle Aebi

   6366   
Chief Technology Officer, Photonics

Terry Bluck

   5861   
Chief Technology Officer, Thin-film EquipmentTFE

Kimberly Burk

52Senior Vice President, Global Human Resources

Timothy Justyn

   55   
Senior Vice President, of Global OperationsHuman Resources

Mr.
 Blonigan
joined Intevac in July 2013 as President and Chief Executive Officer. Prior to joining Intevac, Mr. Blonigan
co-founded
Orbotech LT Solar in 2009 and served as the company’s Chief Executive Officer until 2013. From 2006 until 2009, he was the Chief Operating Officer at Photon Dynamics, Inc. In 1991, Mr. Blonigan joined Applied Materials’ AKT display subsidiary. During his tenure at AKT, he held various positions. In 2003, he was appointed President and served in this role until 2006; from 1999 through 2003 he was Vice President, and prior to that time he was Director of Engineering and New Product Development. Mr. Blonigan holds a BS in electronic engineering technology from DeVry University Missouri Institute of Technology.

Mr.
 Moniz
joined Intevac as Executive Vice President, Finance and Administration, Chief Financial Officer and Treasurer in November 2014. Mr. Moniz previously served as the Chief Financial Officer of Nanometrics, Inc. from 2009 until his retirement in 2011. During 2008, Mr. Moniz was the Chief Financial Officer at Photon Dynamics, Inc. From 2000 until 2008, Mr. Moniz served as the Chief Financial Officer at Nextest Systems Corporation. Prior to Nextest, Mr. Moniz held senior financial management positions at Millennia Vision Corporation, Lockheed Martin Corporation, Loral Corporation and Varian Associates. Mr. Moniz holds an MBA, a BS in accounting and a BS in marketing from San Jose State University.

Mr. Brugaljoined Intevac
 Justyn
has served as Executive Vice President and General Manager, Photonics in January 2012. Before joining Intevac,from February 2018. Mr. Brugal was employed at Vision Systems International, a joint venture between Rockwell Collins and Elbit SystemsJustyn served as Senior Vice President of America,Global Operations from 2006February 2015 to 2012, servingFebruary 2018. Mr. Justyn served as Vice President, and Chief Executive OfficerPhotonics from October 2008 to February 2015. Mr. Justyn served as Vice President, TFE Manufacturing from April 20071997 to January 2012. From 2005 to 2006,October 2008. Mr. Brugal was employed as a consultant for DRS Technologies, a subsidiary of Finmeccanica SPA.Justyn joined Intevac in February 1991 and has served in various roles in our TFE Products Division and our former night-vision business. Mr. Brugal retired from active service with the U.S. Navy in October 2005 with the rank of Captain. Mr. BrugalJustyn holds an MS in strategic studies and security affairs from the U.S. Naval War College and a BS in generalchemical engineering from the U.S. Naval Academy.

University of California, Santa Barbara.

Mr.
 Cho
joined Intevac in January 2014 and currently serves as Executive Vice President and General Manager, Thin-Film Equipment.TFE. Prior to joining Intevac, Mr. Cho was President, Chief Executive Officer and
Co-Founder
of REEnewal Corporation. From 2006 to 2011, Mr. Cho served as Vice President / General Manager of the Tester and Repair Business Units of Orbotech LTD. From 2005 to 2006, Mr. Cho served as Vice President, Product Development at Metara Inc. From 1992 to 2005, Mr. Cho held various management positions at Novellus Systems, Inc. Prior to Novellus, Mr. Cho worked for Digital Equipment Corporation and Intermec Corporation. Mr. Cho holds a BS in electrical engineering from Washington State University and an MBA from University of Phoenix.

Mr. Smithjoined Intevac in August 2010 and currently serves as Vice President, Business Development. Prior to joining Intevac, Mr. Smith served as Senior Vice President Sales and Customer Support at Oerlikon

Solar, from November 2007 to August 2010. From 2006 to 2007 he served as Senior Vice President of Sales and Service with Cymer. Previously, Mr. Smith was employed by Applied Materials from 1994 to 2006. While at Applied Materials he held a variety of executive-level customer support and operations positions. He also served as product business group general manager for Chemical Mechanical Polishing and was managing director of Global Business Development for the Dielectric and Physical Vapor Deposition Product Business Groups. Mr. Smith earned his BS in Business Administration / Material Management from San Jose State University.

Mr.

 Aebi
has served as Chief Technology Officer of the Photonics business since August 2006. Previously, Mr. Aebi served as President of the Photonics Division from July 2000 to July 2006 and as General Manager of the Photonics Division since May 1995. Mr. Aebi was elected as a Vice President of the Company in September 1995. From 1988 through 1994, Mr. Aebi was the Engineering Manager of the night-vision business Intevac acquired from Varian Associates in 1991, where he was responsible for new product development in the areas of advanced photocathodes and image intensifiers. Mr. Aebi holds a BS in physics and an MS in electrical engineering from Stanford University.

13
Mr.
 Bluck
rejoined Intevac as Chief Technology Officer of the Thin-film EquipmentTFE in August 2004. Mr. Bluck had previously worked at Intevac from December 1996 to November 2002 in various engineering positions. The business unit Mr. Bluck worked for was sold to Photon Dynamics in November 2002, and he was employed there as Vice President, Rapid Thermal Process Product Engineering until August 2004. Mr. Bluck holds a BS in physics from San Jose State University.

Ms.
 Burk
joined Intevac in May 2000 and currently serves as Senior Vice President of Global Human Resources. Prior to joining Intevac, Ms. Burk served as Human Resources Manager of Moen, Inc. from 1999 to 2000 and as Human Resources Manager of Lawson Mardon from 1994 to 1999. Ms. Burk holds a BS in sociology from Northern Illinois University.

Mr. Justyn has served as Senior Vice President of Global Operations from February 2015. Mr. Justyn served as Vice President, Photonics from October 2008 to February 2015. Mr. Justyn served as Vice President, Thin-film Equipment Manufacturing from April 1997 to October 2008. Mr. Justyn joined Intevac in February 1991 and has served in various roles in our Thin-film Equipment Products Division and our former night-vision business. Mr. Justyn holds a BS in chemical engineering from the University of California, Santa Barbara.

Available Information

Intevac’s website is
http://www.intevac.com.
Intevac makes available free of charge, on or through its website, its annual, quarterly and current reports, and any amendments to those reports, as soon as reasonably practicable after electronically filing such reports with, or furnishing them to, the SEC. This website address is intended to be an inactive textual reference only and none of the information contained on Intevac’s website is part of this report or is incorporated by reference herein.

Trademarks

Intevac’s trademarks include the following: “200 Lean
®
,” “AccuLuber“DiamondClad
®
,” “DIAMOND DOG
®
,” “EBAPS
®
,” “ENERG
i
®
,”“I-Port™,” “LIVAR
®
,” “INTEVAC LSMA™LSMA
®
,” “INTEVAC MATRIX
®
,” “MicroVista
®
,” “NightVista
®
,” “Night Port™“oDLC
®
,” “oDLC™“INTEVAC VERTEX
®
,” “VERTEX Marathon
®
,” and “INTEVAC VERTEX“VERTEX SPECTRA
®
.”.

Item 1A.
Risk Factors

The following factors could materially affect Intevac’s business, financial condition or results of operations and should be carefully considered in evaluating the Company and its business, in addition to other information presented elsewhere in this report.

Risks Related to Our Business
The industries we serve are cyclical, volatile and unpredictable.

A significant portion of our revenue is derived from the sale of equipment used to manufacture commodity technology products such as disk drives, PV solar cells and cell phones. This subjects us to business cycles, the timing, length and volatility of which can be difficult to predict. When demand for commodity technology products exceeds production capacity, then demand for new capital equipment such as ours tends to be amplified. Conversely, when supply of commodity technology products exceeds demand, then demand for new capital equipment such as ours tends to be depressed. For example, sales of systems for magnetic disk production were depressed from late 2007 through 2009. The number of new systems delivered increased in 2010 as customers increased their production capacity in response to increased demand for data storage, but decreased in 2011 through 2015 as the hard disk drive industry did not add the same level of capacity that it did in 2010. We cannot predict with any certainty when these cycles will begin or end. Our sales of systems for magnetic disk production increased modestly in 2016 as a customer began upgrading the technology level of its manufacturing capacity. 2017 salesSales of systems and upgrades for magnetic disk production in 2017 and 2018 were higher than in 2016 levels as this customer’s technology upgrade continued.

Sales of systems and upgrades for magnetic disk production in 2019 were slightly down from the levels in 2018 as this customer took delivery of four systems. Sales of systems and upgrades for magnetic disk production in 2020 were down from the levels in 2019 as this customer took delivery of only two systems. Intevac expects sales of systems and upgrades for magnetic disk production in 2021 will be at levels lower than the levels in 2020.

Our equipment represents only a portion of the capital expenditure that our customers incur when they upgrade or add production capacity. Accordingly, our customers generally commit to making large capital expenditures far in excess of the cost of our systems alone when they decide to purchase our systems. The magnitude of these capital expenditures requires our customers to have access to large amounts of capital. Our customers generally reduce their level of capital investment during downturns in the overall economy or during a downturn in their industries.

In recent years the photovoltaic (solar) market has undergone a downturn, which is likely to impact our sales of PV equipment. The solar industry from time to time experiences periods of structural imbalance between supply and demand, and such periods put intense pressure on our customers’ pricing. The solar industry is currently in such a period. Competition in solar markets globally and across the solar value chain is intense, and could remain that way for an extended period of time. During any such period, solar module manufacturers may reduce their sales prices in response to competition, even below their
14
manufacturing costs, in order to generate sales and may do so for a sustained period of time. As a result, our customers may be unable to sell their solar modules or systems at attractive prices or for a profit during a period of excess supply of solar modules, which would adversely affect their results of operations and their ability to make capital investments such as purchasing our products.

We must effectively manage our resources and production capacity to meet rapidly changing demand. Our business experiences rapid growth and contraction, which stresses our infrastructure, internal systems and managerial resources. During periods of increasing demand for our products, we must have sufficient manufacturing capacity and inventory to meet customer demand; attract, retain and motivate a sufficient number of qualified individuals; and effectively manage our supply chain. During periods of decreasing demand for our products, we must be able to align our cost structure with prevailing market conditions; motivate and retain key employees and effectively manage our supply chain.

The impact of the
COVID-19
outbreak, or similar global health concerns, could negatively impact our operations, supply chain and customer base.
The
COVID-19
outbreak has severely restricted the level of economic activity around the world, which may impact demand for our products. Our operations and supply chains for certain of our products or services could be negatively impacted by the regional or global outbreak of illnesses, including
COVID-19.
Any quarantines, labor shortages or other disruptions to our operations, or those of our suppliers or customers, may adversely impact our sales and operating results. In addition, a significant outbreak, epidemic, or pandemic of contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, including those in which we operate, resulting in an economic downturn that could affect the supply or demand for our products and services. Our factory in Singapore was given notice by the Singapore government to suspend all
on-site
activities on April 27, 2020. We appealed this notice and were provided an exemption on May 14, 2020. We were temporarily required to limit the number of employees on site at our Singapore factory but these restrictions were lifted on June 2, 2020. We are unable to accurately predict the possible future effect on the Company, which could be material to our 2021 results, and which is highly dependent on the breadth and duration of the outbreak and could be affected by other factors we are not currently able to predict, including new information which may emerge concerning the severity of
COVID-19,
the success of actions taken to contain or treat
COVID-19,
and reactions by consumers, companies, governmental entities and capital markets. Any widespread growth in infections, or travel restrictions, quarantines or site closures imposed as a result of
COVID-19,
could, among other things, require the Company to extend mandatory work-from-home protocols resulting in additional expenses and strain on the business as well as adversely impact its supply chain.
Sales of our equipment are primarily dependent on our customers’ upgrade and capacity expansion plans and whether our customers select our equipment.

We have no control over our customers’ upgrade and capacity expansion plans, and we cannot be sure they will select, or continue to select, our equipment when they upgrade or expand their capacity. The sales cycle for our equipment systems can be a year or longer, involving individuals from many different areas of Intevac and numerous product presentations and demonstrations for our prospective customers. Our sales process also commonly includes production of samples and customization of our products. We do not typically enter into long-term contracts with our customers, and until an order is actually submitted by a customer there is no binding commitment to purchase our systems.

In some cases, orders are also subject to customer acceptance or other criteria even in the case of a binding agreement.

Sales of new manufacturing systems are also dependent on obsolescence and replacement of the installed base of our customers’ existing equipment with newer, more capable equipment. If upgrades are developed that extend the useful life of the installed base of systems, then we tend to sell more upgrade products and fewer new systems, which can significantly reduce total revenue.

Our 200 Lean HDD customers also experience competition from companies that produce alternative storage technologies like flash memory, which offer smaller size, lower power consumption and more rugged designs. These storage technologies are being used increasingly in enterprise applications and smaller form factors such as tablets, smart-phones, ultra-books, and notebook PCs instead of hard disk drives. Tablet computing devices and smart-phones have never contained, nor are they likely in the future to contain, a disk drive. Products using alternative technologies, such as flash memory, optical storage and other storage technologies are becoming increasingly common and could become a significant source of competition to particular applications of the products of our 200 Lean HDD customers, which could adversely affect our results of operations. If
15
alternative technologies, such as flash memory, replace hard disk drives as a significant method of digital storage, then demand for our hard disk manufacturing products would decrease.

The Photonics business is also subject to long sales cycles because many of its products, such as our military imaging products, often must be designed into the customers’ end products, which are often complex
state-of-the-art
products. These development cycles are typically multi-year, and our sales are contingent on our customers successfully integrating our product into their product, completing development of their product and then obtaining production orders for their product from the U.S. government or its allies.

We operate in an intensely competitive marketplace, and our competitors have greater resources than we do.

In the market for our disk sputtering systems, we experience competition primarily from Canon Anelva, which has sold a substantial number of systems worldwide. In the PV equipment market, Intevac faces competition from large established competitors including Applied Materials, Centrotherm Photovoltaics, Amtech, Jusung, Kingstone, Von Ardenne and Von Ardenne.Belight Technology. In the market for our military imaging products we experience competition from companies such as Harris CorporationElbit Systems, L3Harris Technologies andL-3 Communications. Photonis. Some of our competitors have substantially greater financial, technical, marketing, manufacturing and other resources than we do, especially in the DCP and PV equipment markets. Our competitors may develop enhancements to, or future generations of, competitive products that offer superior price or performance features, and new competitors may enter our markets and develop such enhanced products. Moreover, competition for our customers is intense, and our competitors have historically offered substantial pricing concessions and incentives to attract our customers or retain their existing customers.

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

We have invested heavily, and continue to invest, in the development of new products, such as our 200 Lean and other PVD systems, our coating systems for DCP, our solar systems for PV applications, our digital night-vision products and ournear-eye display products. Our success in developing and selling new products depends upon a variety of factors, including our ability to: predict future customer requirements; make technological advances; achieve a low total cost of ownership for our products; introduce new products on schedule; manufacture products cost-effectively including transitioning production to volume manufacturing; commercialize and attain customer acceptance of our products; and achieve acceptable and reliable performance of our new products in the field. Our new product decisions and development commitments must anticipate continuously evolving industry requirements significantly in advance of sales. In addition, we are attempting to expand into new or related markets, including the PV and display cover glass markets. Our expansion into the PV and cover glass markets is dependent upon the success of our customers’ development plans. To date we have not recognized material revenue from such products. Failure to correctly assess the size of the markets, to successfully develop cost effective products to address the markets or to establish effective sales and support of the new products would have a material adverse effect on future revenues and profits. In addition, if we invest in

products for which the market does not develop as anticipated, we may incur significant charges related to such investments.

Rapid technological change in our served markets requires us to rapidly develop new technically advanced products. Our future success depends in part on our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products have reliability or quality problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance and payment for new products and additional service and warranty expenses.

We are exposed to risks associated with a highly concentrated customer base.

Historically, a significant portion of our revenue in any particular period has been attributable to sales of our disk sputtering systems to a limited number of customers. This concentration of customers, when combined with changes in the customers’ specific capacity plans and market share shifts can lead to extreme variability in our revenue and financial results from period to period.

The concentration of our customer base may enable our customers to demand pricing and other terms unfavorable to Intevac, and makes us more vulnerable to changes in demand by or issues with a given customer. Orders from a relatively limited number of manufacturers have accounted for, and will likely continue to account for, a substantial portion of our revenues. The loss of one of these large customers, or delays in purchasing by them, could have a material and adverse effect on our revenues.

Our operating results fluctuate significantly from quarter to quarter, which can lead to volatility in the price of our common stock.

Our quarterly revenues and common stock price have fluctuated significantly. We anticipate that our revenues, operating margins and common stock price will continue to fluctuate for a variety of reasons, including: (1) changes in the demand, due to seasonality, cyclicality and other factors in the markets for computer systems, storage subsystems and consumer electronics containing disks as well as cell phones and PV solar cells our customers produce with our systems; (2) delays or problems in the introduction and acceptance of our new products, or delivery of existing products; (3) timing of orders, acceptance of new systems by our customers or cancellation or delay of those orders; (4) new products, services or technological innovations by our competitors or us; (5) changes in our manufacturing costs and operating expense; (6) changes in general economic, political, stock market and industry conditions; and (7) any failure of our operating results to meet the expectations of investment research analysts or investors.

Any of these, or other factors, could lead to volatility and/or a rapid change in the trading price of our common shares. In the past, securities class action litigation has been instituted against companies following periods of volatility in the market price of their securities. Any such litigation, if instituted against Intevac, could result in substantial costs and diversion of management time and attention.

We may not be able to obtain export licenses from the U.S. government permitting delivery of our products to international customers.

Many of our products, especially Photonics products, require export licenses from U.S. government agencies under the Export Administration Act, the Trading with the Enemy Act of 1917, the Arms Export Act of 1976 or the International Traffic in Arms Regulations. These regulations limit the potential market for some of our products. We can give no assurance that we will be successful in obtaining all the licenses necessary to export our products. Heightened government scrutiny of export licenses for defense related products has resulted in lengthened review periods for our license applications. Exports to countries that are not considered by the U.S. government to be allies are likely to be prohibited, and even sales to U.S. allies may be limited. Failure to comply with export control laws, including identification and reporting of all exports andre-exports of controlled

technology or exports made without correct license approval or improper license use could result in severe penalties and revocation of licenses. Failure to obtain export licenses, delays in obtaining licenses, or revocation of previously issued licenses would prevent us from selling the affected products outside the United States and could negatively impact our results of operations.

The Photonics business is dependent on U.S. government contracts, which are subject to fixed pricing, immediate termination and a number of procurement rules and regulations.

We sell our Photonics products and services directly to the U.S. government, as well as to prime contractors for various U.S. government programs. The U.S government is considering significant changes in the level of existing,follow-on or replacement programs. We cannot predict the impact of potential changes in priorities due to military transformations and/or the nature of futurewar-related activities. A shift of government priorities to programs in which we do not participate and/or reductions in funding for or the termination of programs in which we do participate, unless offset by other programs and opportunities, could have a material adverse effect on our financial position, results of operations, or cash flows.

Funding of multi-year government programs is subject to congressional appropriations, and there is no guarantee that the U.S. government will make further appropriations, particularly given the U.S. government’s recent focus on spending in other areas and spending reductions. Sales to the U.S. government and its prime contractors may also be affected by changes in procurement policies, budget considerations and political developments in the United States or abroad. For example, if the U.S. government is less focused on defense spending or there is a decrease in hostilities, demand for our products could decrease. The loss of funding for a government program would result in a loss of future revenues attributable to that program. The influence of any of these factors, which are beyond our control, could negatively impact our results of operations.

A significant portion of our U.S. government revenue is derived from fixed-price development and production contracts. Under fixed-price contracts, unexpected increases in the cost to develop or manufacture a product, whether due to inaccurate estimates in the bidding process, unanticipated increases in material costs, reduced production volumes, inefficiencies or other factors, are borne by us. We have experienced cost overruns in the past that have resulted in losses on certain contracts, and may experience additional cost overruns in the future. We are required to recognize the total estimated impact of cost overruns in the period in which they are first identified. Such cost overruns could have a material adverse effect on our results of operations.

Generally, government contracts contain provisions permitting termination, in whole or in part, without prior notice at the government’s convenience upon the payment of compensation only for work done and commitments made at the time of termination. We cannot ensure that one or more of the government contracts under which we, or our customers, operate will not be terminated under these circumstances. Also, we cannot ensure that we, or our customers, would be able to procure new government contracts to offset the revenues lost as a result of any termination of existing contracts, nor can we ensure that we, or our customers, will continue to remain in good standing as federal contractors.

As a U.S. government contractor we must comply with specific government rules and regulations and are subject to routine audits and investigations by U.S. government agencies. If we fail to comply with these rules and regulations, the results could include: (1) reductions in the value of our contracts; (2) reductions in amounts previously billed and recognized as revenue; (3) contract modifications or termination; (4) the assessment of penalties and fines; and (5) suspension or debarment from government contracting or subcontracting for a period of time or permanently.

Changes to our effective tax rate affect our results of operations.

As a global company, we are subject to taxation in the United States, Singapore and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future effective tax rate

could be affected by: (1) changes in tax laws; (2) the allocation of earnings to countries with differing tax rates; (3) changes in worldwide projected annual earnings in current and future years: (4) accounting pronouncements; or (5) changes in the valuation of our deferred tax assets and liabilities. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be different from the treatment reflected in our historical income tax provisions and accruals, which could result in additional payments by Intevac.

Comprehensive tax reform could adversely affect the company’s business and financial condition.

The Tax and Jobs Act (“the Act”) was enacted on December 22, 2017 and significantly reforms the Internal Revenue Code of 1986, as amended. The Act contains significant changes to corporate taxation, including reduction of the corporate tax rate from 35% to 21%, limitation of the tax deduction for interest expense to 30% of earnings, limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the Act is uncertain, and the combined Company’s business and financial condition could be adversely affected.

Our success depends on international sales and the management of global operations.

In previous years, the majority of our revenues have come from regions outside the United States. Most of our international sales are to customers in Asia, which includes products shipped to overseas operations of U.S. companies. We currently have
16
manufacturing facilities in California and Singapore and international customer support offices in Singapore, China, and Malaysia. We expect that international sales will continue to account for a significant portion of our total revenue in future years. Certain of our suppliers are also located outside the United States.

Managing our global operations presents challenges including, but not limited to, those arising from: (1) global trade issues; (2) variations in protection of intellectual property and other legal rights in different countries; (3) concerns of U.S. governmental agencies regarding possible national commercial and/or security issues posed by growing manufacturing business in Asia; (4) fluctuation of interest rates, raw material costs, labor and operating costs, and exchange rates; (5) variations in the ability to develop relationships with suppliers and other local businesses; (6) changes in the laws and regulations of the United States, including export restrictions, and other countries, as well as their interpretation and application; (7) the need to provide technical and spares support in different locations; (8) political and economic instability; (9) cultural differences; (10) varying government incentives to promote development; (11) shipping costs and delays; (12) adverse conditions in credit markets; (13) variations in tariffs, quotas, tax codes and other market barriers; and (14) barriers to movement of cash.

We must regularly assess the size, capability and location of our global infrastructure and make appropriate changes to address these issues.

Our success is dependent on recruiting and retaining a highly talented work force.
Our employees are vital to our success, and our key management, engineering and other employees are difficult to replace. We do not maintain key person life insurance on any of our employees. The expansion of high technology companies worldwide has increased demand and competition for qualified personnel, and has made companies increasingly protective of prior employees. It may be difficult for us to locate employees who are not subject to
non-competition
agreements and other restrictions.
The majority of our U.S. operations are located in California where the cost of living and of recruiting employees is high. Our operating results depend, in large part, upon our ability to retain and attract qualified management, engineering, marketing, manufacturing, customer support, sales and administrative personnel. Furthermore, we compete with industries such as the hard disk drive, semiconductor, and solar industries for skilled employees. Failure to retain existing key personnel, or to attract, assimilate or retain additional highly qualified employees to meet our needs in the future, could have a material and adverse effect on our business, financial condition and results of operations.
We are dependent on certain suppliers for parts used in our products.
We are a manufacturing business. Purchased parts constitute the largest component of our product cost. Our ability to manufacture depends on the timely delivery of parts, components and subassemblies from suppliers. We obtain some of the key components and subassemblies used in our products from a single supplier or a limited group of suppliers. If any of our suppliers fail to deliver quality parts on a timely basis, we may experience delays in manufacturing, which could result in delayed product deliveries, increased costs to expedite deliveries or develop alternative suppliers, or require redesign of our products to accommodate alternative suppliers. Some of our suppliers are thinly capitalized and may be vulnerable to failure.
Risks Related to Our Intellectual Property
Our growth depends on development of technically advanced new products and processes.
We have invested heavily, and continue to invest, in the development of new products, such as our 200 Lean HDD and other PVD systems, our coating systems for DCP, our solar systems for PV applications, our digital night-vision products and our
near-eye
display products. Our success in developing and selling new products depends upon a variety of factors, including our ability to: predict future customer requirements; make technological advances; achieve a low total cost of ownership for our products; introduce new products on schedule; manufacture products cost-effectively including transitioning production to volume manufacturing; commercialize and attain customer acceptance of our products; and achieve acceptable and reliable performance of our new products in the field. Our new product decisions and development commitments must anticipate continuously evolving industry requirements significantly in advance of sales. In addition, we are attempting to expand into new or related markets, including the PV and display cover glass markets. Our expansion into the PV and cover glass markets is dependent upon the success of our customers’ development plans. To date we have not recognized material revenue from such products. Failure to correctly assess the size of the markets, to successfully develop cost effective products to address the
17
markets or to establish effective sales and support of the new products would have a material adverse effect on future revenues and profits. In addition, if we invest in products for which the market does not develop as anticipated, we may incur significant charges related to such investments.
Rapid technological change in our served markets requires us to rapidly develop new technically advanced products. Our future success depends in part on our ability to develop and offer new products with improved capabilities and to continue to enhance our existing products. If new products have reliability or quality problems, our performance may be impacted by reduced orders, higher manufacturing costs, delays in acceptance and payment for new products and additional service and warranty expenses.
Our business depends on the integrity of our intellectual property rights.
The success of our business depends upon the integrity of our intellectual property rights, and we cannot ensure that: (1) any of our pending or future patent applications will be allowed or that any of the allowed applications will be issued as patents or will issue with claims of the scope we sought; (2) any of our patents will not be invalidated, deemed unenforceable, circumvented or challenged; (3) the rights granted under our patents will provide competitive advantages to us; (4) other parties will not develop similar products, duplicate our products or design around our patents; or (5) our patent rights, intellectual property laws or our agreements will adequately protect our intellectual property or competitive position.
From time to time, we have received claims that we are infringing third parties’ intellectual property rights or seeking to invalidate our rights. We cannot ensure that third parties will not in the future claim that we have infringed current or future patents, trademarks or other proprietary rights relating to our products. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us.
Risks Related to Government Regulation
We may not be able to obtain export licenses from the U.S. government permitting delivery of our products to international customers.
Many of our products, especially Photonics products, require export licenses from U.S. government agencies under the Export Administration Act, the Trading with the Enemy Act of 1917, the Arms Export Act of 1976 or the International Traffic in Arms Regulations. These regulations limit the potential market for some of our products. We can give no assurance that we will be successful in obtaining all the licenses necessary to export our products. Heightened government scrutiny of export licenses for defense related products has resulted in lengthened review periods for our license applications. Exports to countries that are not considered by the U.S. government to be allies are likely to be prohibited, and even sales to U.S. allies may be limited. Failure to comply with export control laws, including identification and reporting of all exports and
re-exports
of controlled technology or exports made without correct license approval or improper license use could result in severe penalties and revocation of licenses. Failure to obtain export licenses, delays in obtaining licenses, or revocation of previously issued licenses would prevent us from selling the affected products outside the United States and could negatively impact our results of operations.
The Photonics business is dependent on U.S. government contracts, which are subject to fixed pricing, immediate termination and a number of procurement rules and regulations.
We sell our Photonics products and services directly to the U.S. government, as well as to prime contractors for various U.S. government programs. The U.S government is considering significant changes in the level of existing,
follow-on
or replacement programs. We cannot predict the impact of potential changes in priorities due to military transformations and/or the nature of future
war-related
activities. A shift of government priorities to programs in which we do not participate and/or reductions in funding for or the termination of programs in which we do participate, unless offset by other programs and opportunities, could have a material adverse effect on our financial position, results of operations, or cash flows.
Funding of multi-year government programs is subject to congressional appropriations, and there is no guarantee that the U.S. government will make further appropriations. Sales to the U.S. government and its prime contractors may also be affected by changes in procurement policies, budget considerations and political developments in the United States or abroad. For example, if the U.S. government is less focused on defense spending or there is a decrease in hostilities, demand for our
18
products could decrease. The loss of funding for a government program would result in a loss of future revenues attributable to that program. The influence of any of these factors, which are beyond our control, could negatively impact our results of operations.
A significant portion of our U.S. government revenue is derived from fixed-price development and production contracts. Under fixed-price contracts, unexpected increases in the cost to develop or manufacture a product, whether due to inaccurate estimates in the bidding process, unanticipated increases in material costs, reduced production volumes, inefficiencies or other factors, are borne by us. We have experienced cost overruns in the past that have resulted in losses on certain contracts, and may experience additional cost overruns in the future. We are required to recognize the total estimated impact of cost overruns in the period in which they are first identified. Such cost overruns could have a material adverse effect on our results of operations.
Generally, government contracts contain provisions permitting termination, in whole or in part, without prior notice at the government’s convenience upon the payment of compensation only for work done and commitments made at the time of termination. We cannot ensure that one or more of the government contracts under which we, or our customers, operate will not be terminated under these circumstances. Also, we cannot ensure that we, or our customers, would be able to procure new government contracts to offset the revenues lost as a result of any termination of existing contracts, nor can we ensure that we, or our customers, will continue to remain in good standing as federal contractors.
As a U.S. government contractor we must comply with specific government rules and regulations and are subject to routine audits and investigations by U.S. government agencies.
We are subject to risks of
non-compliance
with environmental and other governmental regulations.
We are subject to a variety of governmental regulations relating to the use, storage, discharge, handling, emission, generation, manufacture, treatment and disposal of toxic or otherwise hazardous substances, chemicals, materials or waste. If we fail to comply with current or future regulations, such failure could result in suspension of our operations, alteration of our manufacturing process, remediation costs or substantial civil penalties or criminal fines against us or our officers, directors or employees. Additionally, these regulations could require us to acquire expensive remediation or abatement equipment and incur substantial expenses to comply with them.
General Risk Factors
Our business could be negatively impacted by cyber and other security threats or disruptions.
As a defense contractor, we face various cyber and other security threats, including espionage and attempts to gain unauthorized access to sensitive information and networks. Although we utilize various procedures and controls to monitor and mitigate the risk of these threats, there can be no assurance that these procedures and controls will be sufficient. These threats could lead to losses of sensitive information or capabilities; financial liabilities and damage to our reputation. If we are unable to maintain compliance with security standards applicable to defense contractors, we could lose business or suffer reputational harm.
Cyber threats to businesses in general are evolving and include, but are not limited to, malicious software, destructive malware, attempts to gain unauthorized access to data, disruption or denial of service attacks, and other electronic security breaches that could lead to disruptions in our systems, unauthorized release of confidential, personal or otherwise protected information (ours or that of our employees, customers or partners), and corruption of data, networks or systems. In addition, we could be impacted by cyber threats or other disruptions or vulnerabilities found in products we use or in our partners’ or customers’ systems that are used in connection with our business. These events, if not prevented or effectively mitigated, could damage our reputation, require remedial actions and lead to loss of business, regulatory actions, potential liability and other financial losses.
Changes to our effective tax rate affect our results of operations.
As a global company, we are subject to taxation in the United States, Singapore and various other countries. Significant judgment is required to determine and estimate worldwide tax liabilities. Our future effective tax rate could be affected by: (1) changes in tax laws; (2) the allocation of earnings to countries with differing tax rates; (3) changes in worldwide projected annual earnings in current and future years: (4) accounting pronouncements; or (5) changes in the valuation of our deferred tax
19
assets and liabilities. Although we believe our tax estimates are reasonable, there can be no assurance that any final determination will not be different from the treatment reflected in our historical income tax provisions and accruals, which could result in additional payments by Intevac.
Difficulties in integrating past or future acquisitions could adversely affect our business.

We have completed a number of acquisitions and dispositions during our operating history. For example, in 2007, we acquired certain assets of DeltaNu, LLC and certain assets of Creative Display Systems, LLC, in 2008 we acquired certain assets of OC Oerlikon Balzers Ltd., in 2010 we acquired the outstanding shares of SIT, in 2012 we completed the sale of certain semiconductor mainframe technology assets and in 2013 we completed the sale of the assets of DeltaNu. We have spent and may continue to spend significant resources identifying and pursuing future acquisition opportunities. Acquisitions involve numerous risks including: (1) difficulties in

integrating the operations, technologies and products of the acquired companies; (2) the diversion of our management’s attention from other business concerns; and (3) the potential loss of key employees of the acquired companies. Failure to achieve the anticipated benefits of the prior and any future acquisitions or to successfully integrate the operations of the companies we acquire could have a material and adverse effect on our business, financial condition and results of operations. Any future acquisitions could also result in potentially dilutive issuance of equity securities, acquisition or divestiture-related write-offs or the assumption of debt and contingent liabilities. In addition, we have made and will continue to consider making strategic divestitures. With any divestiture, there are risks that future operating results could be unfavorably impacted if targeted objectives, such as cost savings, are not achieved or if other business disruptions occur as a result of the divestiture or activities related to the divestiture.

We may be subject to additional impairment charges due to potential declines in the fair value of our assets.

As a result of our acquisitions, we have significant intangible assets and had significant goodwill on our balance sheet. We test these assets for impairment on a periodic basis as required, and whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The events or changes that could require us to test our intangible assets for impairment include: a significant reduction in our stock price, and as a result market capitalization, changes in our estimated future cash flows, as well as changes in rates of growth in our industry or in any of our reporting units. In the fourth quarter of 2012, as a result of a decline in our market capitalization and a reduction in our revenue expectations we recorded a goodwill impairment charge in the amount of $18.4 million. We will continue to evaluate the carrying value of our intangible assets and if we determine in the future that there is a potential further impairment, we may be required to record additional charges to earnings which could materially adversely affect our financial results and could also materially adversely affect our business.

Our success is dependent on recruiting and retaining a highly talented work force.

Our employees are vital to our success, and our key management, engineering and other employees are difficult to replace. We do not maintain key person life insurance on any of our employees. The expansion of high technology companies worldwide has increased demand and competition for qualified personnel, and has made companies increasingly protective of prior employees. It may be difficult for us to locate employees who are not subject tonon-competition agreements and other restrictions.

The majority of our U.S. operations are located in California where the cost of living and of recruiting employees is high. Our operating results depend, in large part, upon our ability to retain and attract qualified management, engineering, marketing, manufacturing, customer support, sales and administrative personnel. Furthermore, we compete with industries such as the hard disk drive, semiconductor, and solar industries for skilled employees. Failure to retain existing key personnel, or to attract, assimilate or retain additional highly qualified employees to meet our needs in the future, could have a material and adverse effect on our business, financial condition and results of operations.

We are dependent on certain suppliers for parts used in our products.

We are a manufacturing business. Purchased parts constitute the largest component of our product cost. Our ability to manufacture depends on the timely delivery of parts, components and subassemblies from suppliers. We obtain some of the key components and subassemblies used in our products from a single supplier or a limited group of suppliers. If any of our suppliers fail to deliver quality parts on a timely basis, we may experience delays in manufacturing, which could result in delayed product deliveries, increased costs to expedite deliveries or develop alternative suppliers, or require redesign of our products to accommodate alternative suppliers. Some of our suppliers are thinly capitalized and may be vulnerable to failure.

Our business depends on the integrity of our intellectual property rights.

The success of our business depends upon the integrity of our intellectual property rights, and we cannot ensure that: (1) any of our pending or future patent applications will be allowed or that any of the allowed applications will be issued as patents or will issue with claims of the scope we sought; (2) any of our patents will not be invalidated, deemed unenforceable, circumvented or challenged; (3) the rights granted under our patents will provide competitive advantages to us; (4) other parties will not develop similar products, duplicate our products or design around our patents; or (5) our patent rights, intellectual property laws or our agreements will adequately protect our intellectual property or competitive position.

From time to time, we have received claims that we are infringing third parties’ intellectual property rights or seeking to invalidate our rights. We cannot ensure that third parties will not in the future claim that we have infringed current or future patents, trademarks or other proprietary rights relating to our products. Any claims, with or without merit, could be time-consuming, result in costly litigation, cause product shipment delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to us.

We could be involved in litigation.

From time to time we may be involved in litigation of various types, including litigation alleging infringement of intellectual property rights and other claims.claims and customer disputes. Litigation is expensive, subjects us to the risk of significant damages and requires significant management time and attention and could have a material and adverse effect on our business, financial condition and results of operations.

We are subject to risks ofnon-compliance with environmental and other governmental regulations.

We are subject to a variety of governmental regulations relating to the use, storage, discharge, handling, emission, generation, manufacture, treatment and disposal of toxic or otherwise hazardous substances, chemicals, materials or waste. If we fail to comply with current or future regulations, such failure could result in suspension of our operations, alteration of our manufacturing process, remediation costs or substantial civil penalties or criminal fines against us or our officers, directors or employees. Additionally, these regulations could require us to acquire expensive remediation or abatement equipment and incur substantial expenses to comply with them.

Business interruptions could adversely affect our operations.

Our operations are vulnerable to interruption by fire, earthquake, floods or other natural disaster, quarantines or other disruptions associated with infectious diseases, national catastrophe, terrorist activities, war, disruptions in our computing and communications infrastructure due to power loss, telecommunications failure, human error, physical or electronic security breaches and computer viruses, and other events beyond our control. We do not have a detailed disaster recovery plan. Despite our implementation of network security measures, our tools and servers may be vulnerable to computer viruses,
break-ins
and similar disruptions from unauthorized tampering with our computer systems and tools located at customer sites. Political instability could cause us to incur increased costs in transportation, make such transportation unreliable, increase our insurance costs or cause international currency markets to fluctuate. All these unforeseen disruptions and instabilities could have the same effects on our suppliers and their ability to timely deliver their products. In addition, we do not carry sufficient business interruption insurance to compensate us for all losses that may occur, and any losses or damages incurred by us could have a material adverse effect on our business and results of operations. For example, we self-insure earthquake risks because we believe this is the prudent financial decision based on the high cost of the limited coverage available in the earthquake insurance market. An earthquake could significantly disrupt our operations, most of which are conducted in California. It could also significantly delay our research and engineering effort on new products, most of which is also conducted in California. We take steps to minimize the damage that would be caused by business interruptions, but there is no certainty that our efforts will prove successful.

We could be negatively affected as a result of a proxy contest and the actions of activist stockholders.

A proxy contest with respect to election of our directors, or other activist stockholder activities, could adversely affect our business because: (i)(1) responding to a proxy contest and other actions by activist stockholders can be costly and time-consuming, disruptive to our operations and divert the attention of management and our employees; (ii)(2) perceived uncertainties as to our future direction caused by activist activities may result in the loss of potential business opportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and (iii)(3) if individuals are elected to our Board of Directors with a specific agenda, it may adversely affect our ability to effectively and timely implement our strategic plans.

20
We are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002, and any adverse results from such evaluation could result in a loss of investor confidence in our financial reports and have an adverse effect on our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management must perform evaluations of our internal control over financial reporting. Beginning in 2004, our Form
10-K
has included a report by management of their assessment of the adequacy of such internal control. Additionally, our independent registered public accounting firm must publicly attest to the effectiveness of our internal control over financial reporting. We have completed the evaluation of our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act. Although our assessment, testing, and evaluation resulted in our conclusion that as of December 30, 2017,January 2, 2021, our internal controls over financial reporting were effective, we cannot predict the outcome of our testing in future periods. Ongoing compliance with this requirement is complex, costly and time-consuming. If Intevac fails to maintain effective internal control over financial reporting; our management does not timely assess the adequacy of such internal control; or our independent registered public accounting firm does not deliver an unqualified opinion as to the effectiveness of our internal control over financial reporting, then we could be subject to restatement of previously reported financial results, regulatory sanctions and a decline in the public’s perception of Intevac, which could have a material and adverse effect on our business, financial condition and results of operations.

Item 1B.
Unresolved Staff Comments

None.

Item 2.
Properties

Intevac maintains its corporate headquarters in Santa Clara, California. The location, approximate size and type of facility of the principal properties are listed below. Intevac leases all of its properties and does not own any real estate.

Location

  

Square Footage

   

Principal Use

Santa Clara, CA

California
   169,583   
Corporate Headquarters; Thin-film Equipment
TFE and Photonics Marketing, Manufacturing, Engineering and Customer Support

Carlsbad, CA

10,360Photonics Micro Display Product Manufacturing

Singapore

   31,947   Thin-film EquipmentTFE Manufacturing and Customer Support

Malaysia

   1,291   Thin-film EquipmentTFE Customer Support

Shenzhen, China

   2,568   Thin-film EquipmentTFE Customer Support

Intevac considers these properties adequate to meet its current and future requirements. Intevac regularly assesses the size, capability and location of its global infrastructure and periodically makes adjustments based on these assessments.

Item 3.
Legal Proceedings

From time to time, Intevac is involved in claims and legal proceedings that arise in the ordinary course of business. Intevac expects that the number and significance of these matters will increase as Intevac’s business

expands. Any claims or proceedings against us, whether meritorious or not, could be time consuming, result in costly litigation, require significant amounts of management time, result in the diversion of significant operational resources, or require us to enter into royalty or licensing agreements which, if required, may not be available on terms favorable to us or at all. Intevac is not presently a party to any lawsuit or proceeding that, in Intevac’s opinion, is likely to seriously harm Intevac’s business.

Item 4.
Mine Safety Disclosures

Not applicable.

21
PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Price Range of Common Stock

Market Information
Intevac common stock is traded on The Nasdaq Stock Market (NASDAQ Global Select) under the symbol “IVAC.” As of February 14, 2018,17, 2021, there were 8073 holders of record. In fiscal years 2017 and 2016, Intevac did not declare or pay cash dividends to its stockholders. Intevac currently has no plans to declare or pay cash dividends.

The following table sets forth the high and low closing sale prices per share as reported on The Nasdaq Stock Market for the periods indicated.

   High   Low 

Fiscal 2017:

    

First Quarter

  $12.50   $8.05 

Second Quarter

   13.75    11.10 

Third Quarter

   12.20    8.40 

Fourth Quarter

   9.00    6.80 

Fiscal 2016:

    

First Quarter

  $5.08   $4.21 

Second Quarter

   5.74    4.35 

Third Quarter

   6.25    5.49 

Fourth Quarter

   8.55    5.65 

Recent Sales of Unregistered Securities

None.

Performance Graph

The following graph compares the cumulative total stockholder return on Intevac’s Common Stock with

Dividend Policy
We currently anticipate that of the NASDAQ US Benchmark Total Return Index and the NASDAQ Computer Hardware (Subsector) Total Return Index. The comparison assumes $100 was invested on December 31, 2012 in Intevac Common Stock and in each of the foregoing indices and assumes reinvestment of dividends,we will retain our earnings, if any. The performance shownany, for use in the graph represents past performanceoperation of our business and shoulddo not be considered an indication of future performance.

COMPARISON OF CUMULATIVE TOTAL RETURN SINCE DECEMBER 31, 2012

AMONG INTEVAC, NASDAQ US BENCHMARK TOTAL RETURN INDEX AND

NASDAQ COMPUTER HARDWARE (SUBSECTOR) TOTAL RETURN INDEX

   12/31/12  12/31/13  01/03/15  01/02/16  12/31/16  12/30/17 

Intevac, Inc.

 $100  $163  $162  $103  $187  $150 

Nasdaq US Benchmark Total Return Index

  100   134   150   151   171   207 

Nasdaq Computer Hardware Total Return Index

  100   118   158   145   167   241 

expect to pay cash dividends on our capital stock in the foreseeable future.

Repurchases of Intevac Common Stock

On November 21, 2013, Intevac’s Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases. On August 15, 2018, Intevac’s Board of Directors approved a $10.0 million increase to the original stock repurchase program authorizing up to $40.0 million. At September 30, 2017, $1.5January 2, 2021, $10.4 million remains available for future stock repurchases under the repurchase program. Intevac did not make any common stock repurchases during the three months ended December 30, 2017.

January 2, 2021.

Item 6.
Selected Financial Data

The following selected financial information has been derived from Intevac’s historical audited consolidated financial statements and should be read in conjunction with the consolidated financial statements, the accompanying notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations

Not applicable for the corresponding fiscal years.

   Fiscal Year (1) 
   2017   2016  2015  2014  2013 
   (in thousands, except per share data) 

Net revenues

  $112,847   $80,124  $75,160  $65,550  $69,632 

Gross profit

  $45,663   $30,409  $26,317  $17,433  $21,973 

Operating income (loss)

  $4,848   $(7,563)  $(8,738)  $(19,354)  $(17,823) 

Net income (loss)

  $4,118   $(7,441)  $(9,166)  $(27,445)  $(15,696) 

Net income (loss) per share:

       

Basic

  $0.19   $(0.36)  $(0.41)  $(1.16)  $(0.66) 

Diluted

  $0.18   $(0.36)  $(0.41)  $(1.16)  $(0.66) 

At year end:

       

Total assets

  $115,023   $108,324  $97,681  $120,275  $148,276 

smaller reporting companies.
22
1On February 19, 2014, the Board of Directors of the Company approved the Company’s change to a52-53 week fiscal year ending on the Saturday nearest to December 31 of each year in order to improve the alignment of financial and business processes and to streamline financial reporting. Each fiscal quarter consists of 13 weeks, with an occasional fourth quarter extending to 14 weeks, if necessary, for the fiscal year to end on the Saturday nearest to December 31. The Company’s fiscal 2017, fiscal 2016 and fiscal 2015 years ended on December 30, 2017, December 31, 2016, and on January 2, 2016, respectively.

Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis (MD&A) is intended to facilitate an understanding of Intevac’s business and results of operations. This MD&A should be read in conjunction with Intevac’s Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included elsewhere in this
Form 10- K.
The following discussion contains forward-looking statements and should also be read in conjunction with the cautionary statement set forth at the beginning of this
Form 10-K.
MD&A includes the following sections:

•Overview: a summary of Intevac’s business, measurements and opportunities.

•Results of Operations: a discussion of operating results.

•Liquidity and Capital Resources: an analysis of cash flows, sources and uses of cash, contractual obligations and financial position.

•Critical Accounting Policies: a discussion of critical accounting policies that require the exercise of judgments and estimates.

Overview:
a summary of Intevac’s business, measurements and opportunities.
Results of Operations:
a discussion of operating results.
Liquidity and Capital Resources:
an analysis of cash flows, sources and uses of cash, and financial position.
Critical Accounting Policies:
a discussion of critical accounting policies that require the exercise of judgments and estimates.
Overview

Intevac is a provider of vacuum deposition equipment for a wide variety of thin-film applications, and a leading provider of digital night-vision technologies and products to the defense industry. The Company leverages its core capabilities in high-volume manufacturing of small substrates to provide process manufacturing equipment solutions to the HDD, DCP, and solar cell industries. Intevac also provides sensors, cameras and systems for government applications such as night vision and long-range target identification. Intevac’s customers include manufacturers of hard disk media, DCPs and solar cells as well as the U.S. government and its agencies, allies and contractors. Intevac reports two segments: Thin-film EquipmentTFE and Photonics.

Product development and manufacturing activities occur in North America and Asia. Intevac has field offices in Asia to support its Thin-film EquipmentTFE customers. Intevac’s products are highly technical and are sold primarily through Intevac’s direct sales force. Intevac also sells its products through distributors in Japan and China.

Intevac’s results are driven by a number of factors, including success in its equipment growth initiatives in the DCP and solar markets and by worldwide demand for HDDs. Demand for HDDs depends on the growth in digital data creation and storage, the rate of areal density improvements, the
end-user
demand for PCs, enterprise data storage, nearline “cloud” applications, video players and video game consoles that include such drives. Intevac continues to execute its strategy of equipment diversification into new markets by introducing new products, such as for a thin-film PVD application for protective coating for DCP manufacturing and a thin-film PVD application for PV solar cell manufacturing. Intevac believes that expansion into these markets will result in incremental equipment revenues for Intevac and decrease Intevac’s dependence on the HDD industry. Intevac’s equipment business is subject to cyclical industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for HDDs, cell phones, and PV cells as well as other factors such as global economic conditions and technological advances in fabrication processes.

Fiscal Year  2017  2016  2015  Change
2017 vs. 2016		   Change
2016 vs. 2015		 
   (in thousands, except percentages and per share amounts) 

Net revenues

  $112,847  $80,124  $75,160  $32,723   $4,964 

Gross profit

   45,663   30,409   26,317   15,254    4,092 

Gross margin percent

   40.5%   38.0%   35.0%   2.5 points    3.0 points 

Operating income (loss)

   4,848   (7,563)   (8,738)   12,411    1,175 

Net income (loss)

   4,118   (7,441)   (9,166)   11,559    1,725 

Net income (loss) per diluted share

  $0.18  $(0.36)  $(0.41)  $0.54   $0.05 

Fiscal Year
  
        2020        
  
        2019        
  
Change

        2020 vs. 2019        
 
   
(in thousands, except percentages and per share amounts)
 
Net revenues
  $97,824  $108,885  $(11,061) 
Gross profit
  $40,545  $40,868  $(323) 
Gross margin percent
   41.4%   37.5%   3.9 points 
Operating income
  $2,555  $3,925  $(1,370) 
Net income
  $1,056  $1,148  $(92) 
Net income per diluted share
  $0.04  $0.05  $(0.01) 
Fiscal 2015 financial results reflected a challenging environment. In the HDD industry media unit shipments declined year over year and PC sales decreased. PC sales were negatively impacted by price increases in Asian markets as a result of a stronger U.S. dollar against Asian currencies. During fiscal 2015, our HDD customers’ media production capacity continued to exceed demand, which limited the near-term demand for our 200 Lean systems. The Company shipped only one 200 Lean system to a HDD manufacturer during 2015. In 2015 the PV market continued to improve as global solar panel installations increased 33% over the previous year. In 2015, Intevac continued to execute on its diversification strategy to enter into new and adjacent markets and revenue recognized the first MATRIX PVD system for solar cell manufacturing and the first VERTEX coating system for DCPs. Intevac also received new customer system orders for VERTEX coating systems for DCPs and MATRIX tools for both solar metallization and implant. In fiscal 2015, Photonics business levels decreased as both Photonics’ product sales and Photonics’ contract research and development (“R&D”) declined. The fiscal 2015 net loss reflected higher net revenues, higher gross margins and lower operating expenses. Fiscal 2015 operating expenses reflected savings from cost reduction initiatives which were implemented in the first half of fiscal 2015. During fiscal 2015, as part of a continued effort to lower cash expenditures, the Company settled certain executive incentive variable compensation programs with restricted stock units with a one year vesting. During fiscal 2015, the Company did not recognize an income tax benefit on the U.S. net operating loss.

Fiscal 2016 financial results reflected an improved environment. In 2016 the HDD industry began to show signs of improvement as media unit shipments and PC sales increased in the second half of the year. Intevac revenue recognized four 200 Lean systems with an additional four in backlog at the end of the year as one of our HDD customers upgraded the technology level of its manufacturing capacity. In 2016 Intevac gained traction with its entry into the DCP market and booked its first production capacity order. In 2016, Intevac recognized revenue on one VERTEX coating system for DCPs and shipped an additional four VERTEX systems that were undergoing installation and acceptance testing at 2016year-end. In 2016 the PV market showed signs of stress as utility-scale solar projects came under pricing pressure and retail deployments were below expectations as U.S. consumers delayed spending as a result of the extension of the investment tax credit. In 2016, Intevac recognized revenue on one MATRIX PVD system and one implant system for solar cell manufacturing and shipped an additional two ENERGi implant systems that were undergoing installation and acceptance testing at the end of fiscal 2016. In fiscal 2016, Photonics business levels were at similar levels compared to the prior year as increased Photonics’ product sales were offset by lower Photonics’ contract R&D. The fiscal 2016 net loss reflected higher net revenues and higher gross margins, offset in part by higher operating expenses as the Company made incremental R&D investments in both its business units. During fiscal 2016, as part of a continued effort to lower cash expenditures, the Company settled certain executive incentive variable compensation programs with restricted stock units with a one year vesting. During fiscal 2016, the Company did not recognize an income tax benefit on the U.S. net operating loss.

Fiscal 20172019 financial results reflected an improved environment andas the Company returned to profitability. Intevac recognized revenue on six 200 Lean systems with an additional three in backlog at the end of the year as one of our HDD customers continued to upgrade the technology level ofresumed its manufacturing capacity. In 2017,growth trajectory. Intevac recognized revenue on four VERTEX coating system for DCPs, one MATRIX200 Lean HDD systems. In 2019, Intevac recognized revenue on nine solar implant pilot systemENERG

i
systems. We also made significant progress in our TFE growth initiatives, placing evaluation tools with leading manufacturers in both the display cover glass market and two ENERGi implant systems for solar cell manufacturing. In 2017 Intevac shipped an additional three ENERGi implant systems which as of the end of fiscal 2017 had yet to be installed and qualification of the tools had not started.advanced semiconductor packaging market. In fiscal 2017,2019, Photonics business levels were at similar levelshigher compared to the prior year with lower Photonics’ product sales, offset by higher Photonics’due primarily to the $31.6 million U.S. Army IVAS contract R&D.award. Photonics margins and operating results were negatively impacted by ahigher-mix of lower margin technology development contracts versus product sales. The fiscal 2017 net income reflected higher net revenues and higher gross margins, offset in part by higher operating expenses as the Company recorded higher variable compensation expenses as a result of the return to profitability. During fiscal 2017, the Company did not recognize an income tax benefit on the U.S. net operating loss.

We believe that we will continue to be profitable in fiscal 2018. Intevac expects that HDD equipment sales will be approximately at the same levels as 2017 as a HDD manufacturer takes delivery of the three 200 Lean

systems in backlog and we expect additional 200 Lean system orders. In 2018, Intevac expects higher sales of new Thin-film Equipment products as we expect follow on production orders for our VERTEX coating system for DCPs and we recognize the three ENERGi implant systems that are pending installation at our customer’s fab. We are also in discussions with our solar customer to determine a delivery schedule for the remaining nine ENERGi implant systems in backlog. Photonics will continuecontinued to deliver production shipments of the night-vision camera modules for the F35 Joint Strike Fighter program in fiscal 2018. Deliveries under the multi-year Apache arrangement were completed in 2017. With the completion2019 and resumed shipments of the Apache program, our Photonics revenue profile is now moving from a product-driven one,camera in the second half of 2019. Fiscal 2019 net income was the result of higher net revenues and higher gross margins. During 2019, the Company received an unfavorable decision on its appeal to a funded

23
tax audit in Singapore and recorded a charge of $732,000 which was included in the provision for income taxes. During fiscal 2019, the Company did not recognize an income tax benefit on its U.S. net operating loss.
Fiscal 2020 financial results reflected a challenging environment, partially as a result of the
COVID-19
pandemic. We continued to be profitable and grew cash, cash equivalents, restricted cash and investments in 2020 by $7.5 million to $50.4 million. Fiscal 2020 HDD equipment sales were lower than 2019 as Intevac recognized revenue on only two 200 Lean HDD systems, and there were no 200 Lean HDD systems in backlog at the end of 2020. Lower HDD systems revenue was offset in part by higher sales of upgrades, spare parts and service. In fiscal 2020, Photonics business levels were higher compared to the prior year due to higher product shipments as Photonics continued to deliver production shipments of the night-vision camera modules for the F35 Joint Strike Fighter program and the Apache camera and due to higher contract research and development (“R&D”) primarily from the IVAS contract award. Lower fiscal 2020 net income resulted from lower net revenues and higher operating expenses, offset in part by higher contributions from gross margins. Higher selling general and administrative expenses resulted primarily from higher variable compensation expenses and incremental
e-commerce
costs to launch our Diamond Dog
e-commerce
website. During fiscal 2020, the Company received $567,000 in government assistance related to
COVID-19
from the government of Singapore of which $328,000 was reported as a reduction of cost of net revenues, $90,000 was reported as a reduction of R&D revenue profile. Forexpenses and $149,000 was reported as a reduction of selling, general and administrative expenses. During fiscal 2018,2020, the Company did not recognize an income tax benefit on its U.S. net operating loss.
We believe fiscal 2021 will be a challenging year and Intevac does not expect be profitable in fiscal 2021, unless new orders are received sooner than anticipated. Intevac expects that Photonics profits2021 HDD equipment sales will be lower than fiscal 20172020 levels as although we expect higher 200 Lean HDD systems revenue, upgrade revenue is expected to be lower. In 2021, Intevac expects higher sales of new TFE products as we expect to: (i) convert the two systems under evaluation at customer factories to revenue and (ii) obtain follow on production orders for our VERTEX coating system for DCPs. In 2021, we expect product revenue in Photonics results will reflect a higher mixto decline slightly as we continue to deliver product shipments of lower marginthe night-vision camera modules for the F35 Joint Strike Fighter program. Shipments for the Apache camera under the current contract with the U.S. government concluded in the third quarter of 2020. In 2021, we expect decreased contract R&D revenue.

revenue as development work on the multi-year IVAS contract award for the development and production of digital night-vision cameras to support the U.S. Army’s IVAS program comes to a conclusion in early 2021. During fiscal 2021, the Company expects to receive $108,000 in government assistance related to

COVID-19
from the government of Singapore.
The Impact
of COVID-19
We are unable to accurately predict the possible future effect of
the COVID-19 outbreak
on the Company, which could be material to our 2021 results. Our customers may delay or cancel orders due to reduced demand, supply chain disruptions and/or travel restrictions and border closures. As the economic impact of
the COVID-19 pandemic
becomes clearer as the year progresses, we could see significant changes to our operations. Our factories in California and Singapore remain open as both TFE and Photonics businesses are within the critical infrastructure sectors. We have experienced pandemic-related delays in our TFE evaluation and development work. In response
to COVID-19, we
have implemented initiatives to safeguard our employees in this time of crisis. We have implemented work-from-home protocols and all employees that can do so are working remotely and will continue to do so until restrictions are lifted by the applicable authorities in the United States, Singapore and China. The following discussion highlights how we are responding and the expected impacts
of COVID-19 on
our business.
Essential Business
The Company’s priorities during
the COVID-19 pandemic
have been to protect the health and safety of employees while keeping its manufacturing facilities open due to the essential nature of our products. Our factories in California and Singapore remain open as both TFE and Photonics businesses are within critical infrastructure sectors that are exempt from government-mandated closures. On March 16, 2020, multiple counties in the San Francisco bay area of California issued
a “shelter-in-place” order
(the “State Order”) requiring businesses to temporarily cease operations, effective March 17, 2020. The State Order provides that Californians working within 16 identified critical infrastructure sectors may continue with their work because of the importance of these sectors to Californians’ health and well-being. Among the identified critical infrastructure sectors listed are Communications and Information Technology (“IT”) and the Defense Industrial Base (“DIB”). On March 20, 2020, Intevac received a communication from the Department of Defense stating that the DIB is identified as a Critical Infrastructure Sector by the Department of Homeland Security, and that the Essential Critical Infrastructure Workforce for the DIB includes workers who support the essential products and services required to meet national security commitments to the Federal Government and the U.S. Military.
24
Our factory in Singapore was given notice by the Singapore government to suspend
all on-site activities
on April 27, 2020. We appealed this notice and were provided an exemption on May 14, 2020. We were temporarily required to limit the number of employees on site at our Singapore factory, but these restrictions were lifted on June 2, 2020.
Employee Considerations
Our goal has been to support our employees during the present uncertainty while remaining focused on meeting the needs of our customers and business continuity. Early in the crisis, we provided employees with information about best practices to prevent the spread of
COVID-19
and other viruses and illnesses. We instituted practices including symptom checks and
non-contact
monitoring of body temperatures of those on site twice daily; requiring social distancing and face coverings; streamlining onsite personnel to only those required for production; strongly encouraging and, where mandated, requiring remote work for all those who can work from home; and increasing hygiene through disinfecting facilities. In addition, we have limited
in-person
meetings and
non-employee
visits to our locations, reduced room occupancies and eliminated
non-essential
business travel. In the United States, the Company has educated employees on
COVID-19-related
benefits (including leave benefits) under the Families First Coronavirus Response Act (“FFCRA”) and the Coronavirus Aid, Relief, and Economic Security Act (“CARES”). To further protect the health and welfare of our employees, we have also required employees who potentially have been exposed to
COVID-19
to self-quarantine for 14 days and have committed to paying these employees their normal wages during that quarantine period. To ease access to medical assistance, we are waiving
co-payments
for
COVID-19
testing and telemedicine for those employees enrolled in our health insurance plans.
Business Continuity Team
We have robust pandemic and business continuity plans that include our business units and technology environments. When
COVID-19
was declared a pandemic, we activated our business continuity plan (the “Continuity Plan”). As an element of the Continuity Plan, we activated our Business Continuity Team (“BCT”), a group of senior corporate managers who directed a series of activities to address the health and safety of our workforce, assist employees, sustain business operations, coordinate communication and address our management concerning other ongoing pandemic activities. The BCT monitors guidelines published by the Centers for Disease Control and Prevention (“CDC”), the National Institutes of Health (“NIH”), the Occupational Safety and Health Administration (“OSHA”), the World Health Organization (“WHO”) and other state and local authorities, makes assessments of these guidelines and implements the appropriate protocols. The BCT established a
COVID-19
policy and continually updates this policy based on the latest guidance. All employees continuing to work on site and visitors were required to complete training on the Company’s
COVID-19
policy and any employees returning to work at our facilities are provided additional training prior to returning to work. The BCT also updated and revised policies related to visitors and travel to
include COVID-19-related health
and safety measures related to the pandemic and updated the Continuity Plan to include a pandemic response appendix.
Productivity
There has been a modest decline in productivity for certain departments as our people adjusted to this significant change in work environment. We currently believe our technology infrastructure is sufficient to maintain a remote-working environment for the vast majority of our workforce for the foreseeable future and that productivity improved as our people adjusted to this significant change in work environment. The productivity level and ability of our employees to continue working from home could change, however, as conditions surrounding COVID-19 evolve and infections increase, if there are interruptions in the internet infrastructure where our employees live or if internet service providers are otherwise adversely affected.
Community
We understand that the communities in which our employees live, work, and serve are also suffering distress as a result
of COVID-19. Intevac
is committed to help source supplies for local healthcare providers
fighting COVID-19, and
has donated all of its surplus N95 industrial masks and gloves to local hospitals and emergency responders.
Economic Relief
In Singapore, Intevac receives government assistance under the Job Support Scheme (“JSS”). The purpose of the JSS is to provide wage support to employers to help them retain their local employees. Under the JSS, Intevac received $567,000 in JSS grants in fiscal 2020. Intevac expects to receive an additional $108,000 in JSS grants in fiscal 2021. As previously mentioned,
25
under the CARES Act we have elected to defer the payment of the employer portion of payroll taxes and will receive tax benefits from
the employee-retention-tax credit.
During fiscal 2020, the Company’s expenses included approximately $159,000 due to costs related to actions taken in response
to COVID-19.
Results of Operations

Net revenues

   Fiscal Year   Change
2017 vs. 2016		  Change
2016 vs. 2015		 
   2017   2016   2015    
   (in thousands) 

Thin-film Equipment

  $79,004   $45,253   $39,622   $33,751  $5,631 

Photonics

         

Products

   25,852    29,089    28,450    (3,237)   639 

Contract R&D

   7,991    5,782    7,088    2,209   (1,306) 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 
   33,843    34,871    35,538    (1,028)   (667) 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total net revenues

  $112,847   $80,124   $75,160   $32,723  $4,964 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

   
2020
   
2019
   
Change

2020 vs. 2019
 
   
(in thousands)
 
TFE
  $52,128   $73,678   $(21,550) 
Photonics
      
Contract R&D
   22,945    19,657    3,288 
Products
   22,751    15,550    7,201 
  
 
 
   
 
 
   
 
 
 
   45,696    35,207    10,489 
  
 
 
   
 
 
   
 
 
 
Total net revenues
  $97,824   $108,885   $(11,061) 
  
 
 
   
 
 
   
 
 
 
Net revenues consist primarily of sales of equipment used to manufacture thin-film disks, PV cells, DCPs and related equipment and system components; sales of
low-light
imaging products; and revenue from contract R&D related to the development of electro-optical sensors, cameras and systems.

The increasedecrease in Thin-film EquipmentTFE revenues in fiscal 20172020 versus fiscal 20162019 was due primarily to lower systems sales as TFE recognized revenue recognized on sixtwo 200 Lean HDD systems, four VERTEX coating system for DCPs, two solar implant ENERGi systems, and a MATRIX implant pilot system as well asoffset in part by increases in revenue recognized on technology upgrades, service and spare parts. The increase in Thin-film Equipment revenues inIn fiscal 2016 versus fiscal 2015 was due primarily to2019, TFE revenue recognized on four 200 Lean HDD systems one VERTEX coating system for DCPs, oneand nine solar implant ENERG
i system, and a MATRIX PVD system, offset in part by a decrease in revenue recognized on
systems, technology upgrades, service and spare parts. Thin-film Equipment revenues in fiscal 2015 reflected revenue recognized on one 200 Lean system, one MATRIX PVD system and one VERTEX coating system for DCPs as well as higher revenues recognized on technology upgrades and spare parts.

Photonics revenues decreasedincreased by 2.9%30% to $33.8$45.7 million in fiscal 20172020 versus fiscal 2016 and decreased by 1.9% to $34.9 million in fiscal 2016 versus fiscal 2015. Contract R&D revenue increased in fiscal 2017 versus fiscal 2016 as a result of a higher volume of contracts. Contract R&D revenue decreased in fiscal 2016 versus fiscal 2015 as a result of a lower volume of contracts.

2019. Photonics product revenue decreased in fiscal 2017 versus fiscal 2016 due to lowerreflected higher unit shipments and lower average sales prices for the Apache pilot night-viewing camera shipments and lower average sales prices for the F35 Joint Strike Fighter program night-vision camera offset in part by increased F35 camera shipments. Photonics product revenue increased in fiscal 2016 versus fiscal 2015 due to increased F35 camera shipments, offset in part by lower shipments and lower average sales prices for the Apache camera. Photonics productContract R&D revenue in fiscal 2015 reflected the lower average sales prices for the Apache camera. Deliveries under the multi-year Apache arrangement were completed in the third quarter2020 increased as a result of fiscal 2017.

For fiscal 2018, Intevac expects that Photonics revenue will be at similar levels as fiscal 2017. With the completion of the multi-year Apache arrangement in 2017, we expect our Photonics revenue profile in the near term to transition from a product-driven one, to a funded R&D profile. Substantial growth in future Photonics revenues is dependentdevelopment on the proliferation of Intevac’s technology into major military programs, continued defense spending, the ability to obtain export licenses for foreign customers and obtaining production subcontracts for these programs.

IVAS program.

Backlog

   December 30,
2017		   December 31,
2016		 
   (in thousands) 

Thin-film Equipment

  $51,719   $46,283 

Photonics

   12,302    22,244 
  

 

 

   

 

 

 

Total backlog

  $64,021   $68,527 
  

 

 

   

 

 

 

Thin-film Equipment

   
January 2, 2021
   
December 28, 2019
 
   
(in thousands)
 
TFE
  $5,623   $21,391 
Photonics
   41,317    71,015 
  
 
 
   
 
 
 
Total backlog
  $46,940   $92,406 
  
 
 
   
 
 
 
TFE backlog at January 2, 2021 did not include any 200 Lean HDD systems. TFE backlog at December 30, 201728, 2019 included threetwo 200 Lean HDD systems and twelve ENERGi solar ion implant systems. Three of the twelve ENERGi systems have been delivered to the customer’s fab and are awaiting installation. Delivery of the remaining nine tools is pending finalization of shipment dates with the customer. Thin-film Equipment backlog at December 31, 2016 included four 200 Lean HDD systems, four VERTEX systems for DCP, one pilot MATRIX solar ion implant system, and two ENERGi solar ion implant systems.

Significant portions of Intevac’s revenues in any particular period have been attributable to sales to a limited number of customers. The following customers accounted for at least 10 percent of Intevac’s consolidated net revenues in fiscal 2017, 2016,2020 and 2015.

   2017   2016   2015 

Seagate Technology

   40%    34%    22% 

U.S. Government

   15%    22%    26% 

Elbit Systems of America

   *      10%    *   

HGST

   *      *      15% 

*Less than 10%

2019.

   
2020
  
2019
 
Seagate Technology
   42%   49% 
U.S. Government
   29%   20% 
Elbit Systems of America
   12%   * 
Jolywood (Hongkong) Industrial Holdings Co., Limited
   *   14% 
* Less than 10%
26
Revenue by geographic region

   Fiscal Year   Change
2017 vs. 2016		  Change
2016 vs. 2015		 
   2017   2016   2015    
   (in thousands) 

United States

  $37,311   $42,048   $49,034   $(4,737)  $(6,986) 

Asia

   73,525    37,143    23,855    36,382   13,288 

Europe

   884    933    2,271    (49)   (1,388) 

Rest of World

   1,127    —      —      1,127   —   
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

Total net revenues

  $112,847   $80,124   $75,160   $32,723  $4,964 
  

 

 

   

 

 

   

 

 

   

 

 

  

 

 

 

   
2020
   
2019
 
   
(in thousands)
 
   
TFE
   
Photonics
   
Total
   
TFE
   
Photonics
   
Total
 
United States
  $6,450   $45,363   $51,813   $1,306   $34,664   $35,970 
Asia
   45,611    —      45,611    72,372    —      72,372 
Europe
   67    333    400    —      543    543 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
Total net revenues
  $52,128   $45,696   $97,824   $73,678   $35,207   $108,885 
  
 
 
   
 
 
   
 
 
   
 
 
   
 
 
   
 
 
 
International sales include products shipped to overseas operations of U.S. companies. The decreaseincrease in sales to the U.S. region in 20172020 versus 2016 was due primarily2019 reflected higher Photonics product sales, higher Photonics contract R&D work and higher HDD upgrade sales to U.S. customers. There were no TFE systems sold to factories in the U.S. region in 2017 versus one MATRIX PVD system sold in 2016. 2020 or 2019.
The decrease in sales to the U.S. region in 2016 versus 2015 was primarily due to no shipments of 200 Leans to factories in the U.S. compared to one 200 Lean delivered to a U.S. factory in 2015, offset in part by revenue recognized on one MATRIX PVD system.

The increase in sales to the Asia region in 20172020 versus 20162019 reflected higherlower system sales, and increasedoffset in part by higher technology upgrade, service and spare parts sales. Sales to the Asia region in 20172020 included sixtwo 200 Lean HDD systems, four VERTEX coating systems for DCP, one pilot MATRIX solar ion implant system and two ENERGi solar ion implant systems versussystems. Sales to the Asia region in 2019 included four 200 Lean HDD systems oneand nine solar implant ENERG

i system and one VERTEX coating system for DCPs in 2016. The increase in sales to the Asia region in 2016 versus 2015 was primarily due to increased equipment sales including four 200 Lean systems, one solar implant ENERGi system and one VERTEX coating system for DCPs, offset in part by a decrease in revenue recognized on technology upgrades and spare parts.

systems.
Sales to the Europe region in 2017, 20162020 and 20152019 were not significant. The decrease in sales to the Europe region in 2016 versus 2015 was primarily due to lower sales of Photonics’ digital night-vision cameras to a NATO customer. This contract ended in fiscal 2015.

Rest of World includes contract R&D for the Australian government as part of a program under the Department of Defense’s Coalition Warfare Program which is funded by the U.S. government and several foreign nation coalition partners.

Gross margin

   Fiscal Year  Change
2017 vs. 2016		   Change
2016 vs. 2015		 
   2017  2016  2015    
   (in thousands, except percentages) 

Thin-film Equipment gross profit

   $33,750   $14,847   $12,852   $18,903    $1,995 

% of Thin-film Equipment net revenues

   42.7%   32.8%   32.4%    

Photonics gross profit

   $11,913   $15,562   $13,465   $(3,649)    $2,097 

% of Photonics net revenues

   35.2%   44.6%   37.9%    

Total gross profit

   $45,663   $30,409   $26,317   $15,254    $4,092 

% of net revenues

   40.5%   38.0%   35.0%    

   
Fiscal Year
  
Change

2020 vs. 2019
 
   
2020
  
2019
 
   
(in thousands, except percentages)
 
TFE gross profit
  $22,417  $27,377  $(4,960) 
% of TFE net revenues
   43.0%   37.2%  
Photonics gross profit
  $18,128  $13,491  $4,637 
% of Photonics net revenues
   39.7%   38.3%  
Total gross profit
  $40,545  $40,868  $(323) 
% of net revenues
   41.4%   37.5%  
Cost of net revenues consists primarily of purchased materials and costs attributable to contract R&D, and also includes assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties, provisions for inventory reserves and scrap.

Thin-film Equipment

TFE gross margin was 42.7%43.0% in fiscal 20172020 compared to 32.8%37.2% in fiscal 2016 and 32.4% in fiscal 2015.2019. Fiscal 20172020 gross margins improved over fiscal 2016 due primarily to2019 as a result of higher revenue levels, a higher mix of higher-margin upgrades versus systems shipments, higher factory utilization andmargins on upgrades. Fiscal 2019 gross margins reflected lower provisions for inventory reserves. Thin-film Equipment gross margin in fiscal 2017 reflects the release of $2.2 million in previously-recognized inventory provisions uponmargins on the sale of twonine solar implant ENERG
i solar ion implant systems, offset in part by the lower margin on the pilot MATRIX solar ion implant system. Fiscal 2016 gross margins improved slightly over fiscal 2015 due primarily to higher revenue levels, higher factory utilization and lower provisions for inventory reserves, offset in part by lower sales of higher-margin upgrades. Fiscal 2015 gross margins reflected higher sales of higher-margin upgrades, higher factory utilization and lower provisions for inventory reserves.
systems. Gross margins in the Thin-film EquipmentTFE business vary depending on a number of factors, including product mix, product cost, system configuration and pricing, factory utilization, and provisions for excess and obsolete inventory.

Photonics gross margin was 35.2%39.7% in fiscal 20172020 compared to 44.6%38.3% in fiscal 2016 and 37.9%2019. The improvement in gross margin for fiscal 2015. Fiscal 2017 gross margins declined2020 over fiscal 20162019 is due primarily to a higher mix of lower-margin contract R&D versusrevenue levels and improved margins on product sales, slightly offset by lower margins on contract R&D loss provisions recorded on firm fixed price contracts, higher inventory provisions and higher manufacturing engineering spending. Fiscal 2016 gross margins improved over fiscal 2015 due primarily to higher margins on products and lower inventory provisions, offset in part by lower margins on contract R&D.work. Manufacturing costs for digital night-vision products decreased in fiscal 2017, 20162020 and 20152019 as a result of cost reductions and yield improvements.

Research and development

   Fiscal Year   Change
2017 vs. 2016		  Change
2016 vs. 2015		 
   2017   2016   2015    
   (in thousands) 

Research and development expense

   $17,724    $18,156    $15,661    $(432)   $2,495 

   
Fiscal Year
   
Change

2020 vs. 2019
 
   
2020
   
2019
 
   
(in thousands)
 
Research and development expense
  $14,093   $14,309   $(216) 
Research and development expense consists primarily of salaries and related costs of employees engaged in and prototype materials used in ongoing research, design and development activities for PV cell manufacturing equipment, DCP manufacturing equipment, HDD disk sputtering equipment, semiconductor
Fan-out
equipment and Photonics products.

27
TFE research and development spending in fiscal 2020 was flat compared to fiscal 2019 due to lower spending on semiconductor
Fan-out
and DCP development, offset by higher spending on HDD and PV development.
Research and development spending for Thin-film Equipment in fiscal 2017, fiscal 2016 and fiscal 2015 increased sequentially as a result of higher spending on DCP development, PV development andFan-out development.

Research and development spendingPhotonics decreased for Photonics during 20172020 as compared to 2016. Photonics research and development spending during 2016 reflected incrementalfiscal 2019 primarily due to lower spending on demonstrators developed for evaluation by the U.S. Army and U.S. Navy which were self-funded by Intevac.development of the next generation of our low light level CMOS camera. Research and development expenses do not include costs of $7.1 million, $4.5$15.0 million and $5.1$12.3 million in 2017, 2016,2020 and 2015,2019, respectively, which are related to customer-funded contract R&D programs and therefore included in cost of net revenues.

Selling, general and administrative

   Fiscal Year   Change
2017 vs. 2016		   Change
2016 vs. 2015		 
   2017   2016   2015     
   (in thousands) 

Selling, general and administrative expense

   $23,314    $19,916    $19,638    $3,398    $278 

   
Fiscal Year
   
Change

2020 vs. 2019
 
   
2020
   
2019
 
   
(in thousands)
 
Selling, general and administrative expense
  $23,897   $22,634   $1,263 
Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. All domestic sales and the majority of international sales of HDD disk sputtering products in Asia are made through Intevac’s direct sales force. Intevac also sells its Thin-film EquipmentTFE products through distributors in Japan and China. Intevac has offices in Singapore, Malaysia and China to support Intevac’s Thin-film EquipmentTFE customers in Asia.

Selling, general and administrative expenses increased in 20172020 over the amount spent in 20162019 primarily due primarily to higher variable compensation expenses, incremental
e-commerce
costs asto launch our Diamond Dog
e-commerce
website and higher bid and proposal costs in our Photonics segment, offset in part due to lower spending to support a result of the Company’s return to profitability, higher equity compensation expense, and increased spending for strategic consulting. Selling, general and administrative expenses increased in 2016 over the amount spent in 2015 due primarily to costs associated with the consolidation of our Photonics’ manufacturing facilities and increased equity compensation expense.

Acquisition-related (benefit), net

   Fiscal Year  Change
2017 vs. 2016		  Change
2016 vs. 2015		 
   2017  2016  2015   
   (in thousands) 

Acquisition-related (benefit), net

  $(223)  $(100)  $(244)  $(123)  $144 

Acquisition-related (benefit), net, represents the change in the fair value of contingent consideration arrangements related to the SIT acquisition. See Note 7 “Contingent Consideration” in the notes to the consolidated financial statements for additional information related to the fair value of contingent consideration. Increases in the assessed likelihood of a higher payout under a contingent consideration arrangement contribute

to increases in the fair value of the related liability. Conversely, decreases in the assessed likelihood of a higher payout under a contingent consideration arrangement contribute to decreases in the fair value of the related liability.

The benefits recognized during fiscal 2017, fiscal 2016 and fiscal 2015 are associated with changes in the fair value of the contingent consideration related to the revenue earnout obligation. We recorded liabilities on our consolidated balance sheet of $4.1 million as of the original acquisition date for this contingent consideration arrangement and subsequently remeasured the liability to fair value, with changes in fair value reported in earnings. As a result of this remeasurement, we recorded a net gain of $223,000, $100,000 and $244,000, respectively during fiscal 2017, fiscal 2016 and fiscal 2015.

customer evaluation.

Cost reduction plan

During the firstthird quarter of fiscal 2015,2020, Intevac substantially completed implementation of the 20152020 cost reduction plan (the “2015“2020 Plan”), which reduced expenses and reduced its workforce by 31 percent. The total cost of implementing the 20152020 Plan was $148,000$103,000, of which $81,000$16,000 was reported under cost of net revenues and $67,000$87,000 was reported under operating expenses. Substantially all cash outlays in connection with the 20152020 Plan occurredwere completed in the first quarter of fiscal 2015.2020. Implementation of the 20152020 Plan reduced salary, wages and other employee-related expenses by approximately $1.4 million$864,000 on an annual basis. As of December 30, 2017, activities related to the 2015 Plan were complete.

Interest income and other income (expense), net

   Fiscal Year   Change
2017 vs. 2016		   Change
2016 vs. 2015		 
   2017   2016   2015     
   (in thousands) 

Interest income and other, net

   $373    $373    $127    $—      $246 

   
Fiscal Year
   
Change

2020 vs. 2019
 
   
2020
   
2019
 
   
(in thousands)
 
Interest income and other income (expense), net
  $212   $582   $(370) 
Interest income and other income (expense), net in fiscal 20172020 included $291,000$284,000 of interest income on investments and $115,000$56,000 from the sale of scrap materials offset in part by $139,000 of foreign currency losses. Interest income and other income (expense), net in fiscal 2019 included $574,000 of interest income on investments and $20,000 in earnout income from a divestiture, offset in part by $107,000$85,000 of foreign currency losses. Interest income and other, net in fiscal 2016 included $195,000 of interest income on investments, $136,000 of gains associated with the sale and disposal of fixed assets and $30,000 earnout income from a divestiture, offset in part by $99,000 of foreign currency losses. Interest income and other, net in fiscal 2015 included $179,000 of interest income on investments and $100,000 earnout income from a divestiture and $80,000 of foreign currency gains, offset in part by $271,000 in losses associated with the disposal of fixed assets. The increasedecrease in interest income in 20172020 over 20162019 reflected higher interest rates on Intevac’s investments. The increase in interest income in 2016 over 2015 reflected higherlower interest rates on Intevac’s investments offset in part byand lower invested balances.

Provision for income taxes

   Fiscal Year   Change
2017 vs. 2016		   Change
2016 vs. 2015		 
   2017   2016   2015     
   (in thousands) 

Provision for income taxes

   $1,103    $251    $555    $852    $(304) 

   
Fiscal Year
   
Change

2020 vs. 2019
 
   
2020
   
2019
 
   
(in thousands)
 
Provision for income taxes
  $1,711   $3,359   $(1,648) 
Intevac’s effective income tax rate was 21.1%61.8% for fiscal 2017, (3.5%)2020 and 74.5% for fiscal 20162019 and (6.4%)we recorded income tax expense of $1.7 million and $3.4 million in 2020 and 2019, respectively. The income tax expense consists primarily of income taxes in foreign jurisdictions in which we conduct business and foreign withholding taxes. We maintain a full valuation allowance for fiscal 2015.
28
domestic deferred tax assets, including net operating loss carryforwards and certain domestic tax credits. Intevac’s effective tax rate differs from the applicableU.S. statutory ratesrate in both 2020 and 2019 primarily due primarily to establishment of a valuation allowance, the utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences. Intevac’s future effectiveCompany not recognizing an income tax rate dependsbenefit on various factors including, the level of Intevac’s projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carry forwards, availability of tax credits and the effectiveness of Intevac’s tax planning strategies. Management carefully monitors these factors and timely adjusts the effectivedomestic loss.
The income tax rate accordingly.

On December 22, 2017,expense for 2020 was largely the “Tax Cutsresult of foreign withholding taxes and Jobs Act” (“ACT”)income taxes in foreign jurisdictions. The income tax expense for 2019 was signed into law that significantly reformslargely the Internal Revenue Coderesult of 1986, as amended. The Act, among other things, permanently lowers the U.S. federalforeign withholding taxes, income taxes in foreign jurisdictions, and fully reserving a contested tax rate to 21% from the existing maximum rate of 35%, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxationdeposit related to a territorial system. Our net deferred tax assets and liabilities have been revalued ataudit in Singapore.

During 2019 the newly enacted U.S. federalCompany received an unfavorable decision on its appeal to a tax rate. There wasaudit in Singapore. Management determined that the Company could no impact to our tax expense in fiscal 2017, the year of enactment.

Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. In fiscal 2014, based upon an analysis,longer support a valuation allowance of $9.4 million was recorded for the portion of the Singapore deferred tax asset that more likely than not will be realized. For fiscal 2017 and 2016, valuation allowance decreasesposition. Accordingly, the Company recorded a charge of $603,000 and $136,000, respectively,$732,000 in provision for income taxes. During 2020 the Company appealed the decision to the Singapore deferredHigh Court, which was denied. Management decided not to pursue additional appeals and the matter is fully settled. Presently, there are no other active income tax asset were recorded. For fiscal 2015, a valuation allowance increase of $631,000 forexaminations in the Singapore deferred tax asset was recorded.

In fiscal 2012, a valuation allowance of $23.4 million was added to record onlyjurisdictions where Intevac operates.

We assess the portion of the U.S. federal deferred tax assetlikelihood that more likely than not will be realized. For fiscal 2017, a valuation allowance decrease of $6.9 million for the U.S. federal deferred tax asset was recorded. This decrease was a result of revaluing our deferred tax assets and liabilities atwill be recovered based upon our consideration of many factors, including the newly enacted U.S federal tax rate. For fiscal 2016 and 2015, valuation allowance increases of $3.3 million and $1.6 million, respectively, for the U.S federal deferred tax asset were recorded.

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimatescurrent economic climate, our expectations of future taxable income, during the carryforward period are increased, or if objective negative evidence in the formand our ability to project such income. We maintain a full valuation allowance for our U.S. deferred tax assets due to uncertainty regarding their realization as of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

January 2, 2021.

Liquidity and Capital Resources

At December 30, 2017,January 2, 2021, Intevac had $42.5$50.4 million in cash, cash equivalents, restricted cash and investments compared to $48.2$42.8 million at December 31, 2016.28, 2019. During fiscal 2017,2020, cash, cash equivalents, restricted cash and investments decreasedincreased by $5.8$7.5 million due primarily to cash usedgenerated by operating activities and cash received from the sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans, offset in part by cash used for repurchases of common stock, purchases of fixed assets and tax payments related to the net share settlement of restricted stock units, partially offset by cash received from the sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans.

units.

Cash, cash equivalents, restricted cash and investments consist of the following:

   December 30,
2017		   December 31,
2016		 
   (in thousands) 

Cash and cash equivalents

  $19,941   $27,043 

Short-term investments

   15,698    17,602 

Long-term investments

   6,849    3,593 
  

 

 

   

 

 

 

Total cash, cash-equivalents and investments

  $42,488   $48,238 
  

 

 

   

 

 

 

Cash used in operating activities totaled $2.4 million in 2017.

   
January 2, 2021
   
December 28, 2019
 
   
(in thousands)
 
Cash and cash equivalents
  $29,341   $19,767 
Restricted cash
   787    787 
Short-term investments
   14,839    16,720 
Long-term investments
   5,388    5,537 
  
 
 
   
 
 
 
Total cash, cash-equivalents, restricted cash and investments
  $50,355   $42,811 
  
 
 
   
 
 
 
Cash generated by operating activities totaled $3.8$8.9 million in 2016 and $635,0002020 compared to $4.9 million in 2015. Lower2019. Improved operating cash flow in 20172020 was a result of additional investments innet income and improved working capital offset in part by higher net income as a result of the return to profitability.

management.

Accounts receivable totaled $20.5$28.6 million at both January 2, 2021 and December 30, 2017 compared28, 2019. Customer advances for products that had not been shipped to $17.4 millioncustomers and included in accounts receivable were $201,000 at December 31, 2016.28, 2019. The number of days outstanding for Intevac’s accounts receivable was 7490 at January 2, 2021 compared to 72 at December 30, 2017 compared to 66 at December 31, 2016.28, 2019. Net inventories totaled $33.8$21.7 million at December 30, 2017January 2, 2021 compared to $24.9 million at December 31, 2016.28, 2019. Net inventories at January 2, 2021 and December 30, 2017

include three ENERGiimplant systems at28, 2019 included one VERTEX SPECTRA system for DCP under evaluation in a customer sitecustomer’s factory and one MATRIX PVD system for which installation procedures have not begun and four ENERGiimplant systemsadvance semiconductor packaging under evaluation in work in process that are virtually complete, pending customer shipment.a customer’s factory. Net inventories at December 31, 2016January 2, 2021 also included fourone VERTEX systemsSPECTRA system for DCP and two ENERGiimplant systems at customer sites that were undergoing installation and acceptance testing.Intevac’s factory. Inventory turns were 1.81.6 in fiscal 20172020 and were 2.32.5 in fiscal 2016.2019. Accounts payable totaled $3.9increased to $4.3 million at January 2, 2021 compared to $4.2 million at December 30, 2017 and $5.3 million at December 31, 2016.28, 2019. Other accrued liabilities decreasedwere $3.6 million at both January 2, 2021 and December 28, 2019. Accrued payroll and related liabilities increased to $7.7 million at December 30, 2017January 2, 2021 compared to $17.0$6.5 million at December 31, 2016. Other accrued28, 2019 as a result of higher variable compensation accruals and the deferral of payroll tax liabilities at December 30, 2017 includes $5.1 million in deferred revenue related to three ENERGiimplant systems at a customer site for which installation procedures have not begun. Other accrued liabilities at December 31, 2016 includes $14.2 million in deferred revenue related to four VERTEX systems for DCP and two ENERGiimplant systems at customer sites that were undergoing installation and acceptance testing.under the CARES Act. Customer advances increaseddecreased from $5.4$4.0 million at December 31, 201628, 2019 to $11.0 million$33,000 at January 2, 2021 as a result of recognition of revenue. Other long term liabilities increased to $457,000 at January 2, 2021 compared to $186,000 at December 30, 2017.

28, 2019 as a result of the deferral of payroll tax liabilities under the CARES Act.

29
Investing activities used cash of $5.2$599,000 in 2020 and $5.8 million in 2017,2019. Proceeds from sales and generated cashmaturities of $8.6investments net of purchases of investments, totaled $2.0 million in 2016, and $8.7 million in 2015.2020. Purchases of investments net of proceeds from sales and maturities of investments, totaled $1.4$1.7 million in 2017. Proceeds from sales and maturities of investments, net of purchases, totaled $11.6 million in 2016, and $11.8 million in 2015. Intevac is required to maintain a standby letter of credit for $600,000 for the Santa Clara, California campus lease. This standby letter of credit is secured with $600,000 of restricted cash. Intevac has pledged $400,000 as collateral for various guarantees with its bank.2019. Capital expenditures were $4.4$2.6 million in 2017, $3.42020 and $4.1 million in 2016, and $3.1 million in 2015.

2019.

Financing activities generated cash of $256,000 in 2017 and $1.0$1.1 million in 20162020 and used cash of $16.9$1.5 million in 2015.2019. The sale of Intevac common stock to Intevac’s employees through Intevac’s employee benefit plans provided $2.4$1.9 million in 2017, $1.52020 and $2.3 million in 2016, and $1.7 million in 2015.2019. Tax payments related to the net share settlement of restricted stock units were $2.0 million$402,000 in 2017, $426,0002020 and $404,000 in 2016, and $132,000 in 2015.2019. In November 2013, Intevac’s Board of Directors approved a stock repurchase program authorizing up to $30 million in repurchases. On August 15, 2018, Intevac’s Board of Directors approved a $10.0 million increase to the original stock repurchase program authorizing up to $40.0 million in repurchases. Cash used to repurchase common stock totaled $18.5 million$393,000 in 2015.

2020 and $111,000 in 2019.

In connection with the acquisition of SIT, Intevac agreed to pay to the selling shareholders in cash a revenue earnout on Intevac’s net revenue from commercial sales of certain solar implant products over a specified period up to an aggregate of $9.0 million. The earnout period terminated on June 30, 2019. Payments made associated with the revenue earnout obligation were $174,000$230,000 in 2017 and $31,000 in 2016.

2019.

Intevac’s investment portfolio consists principally of investment grade money market mutual funds, U.S. treasury and agency securities, certificates of deposit, commercial paper, municipal bonds asset backed securities and corporate bonds. Intevac regularly monitors the credit risk in its investment portfolio and takes measures, which may include the sale of certain securities, to manage such risks in accordance with its investment policies.

As of December 30, 2017,January 2, 2021, approximately $6.3$19.3 million of cash and cash equivalents and $3.3$3.4 million of short term investments were domiciled in foreign tax jurisdictions. Intevac expects a significant portion of these funds to remain off shoreoffshore in the short term. If the Company chose to repatriate these funds to the United States, it would be required to accrue and pay additional taxes on any portion of the repatriation subject to foreign withholding taxes.

Intevac believes that its existing cash, cash equivalents and investments will be sufficient to meet Intevac’s cash requirements for the next 12 months. Intevac intends to undertake between approximately $5.0$6.0 million to $7.0$8.0 million in capital expenditures during the next 12 months.

Contractual Obligations

The following table summarizes Intevac’s contractual obligations as of December 30, 2017:

   Payments due by period 
   Total   < 1 Year   1–3 Years   3-5 Years   > 5 Years 
   (in thousands) 

Operating lease obligations

  $18,877   $3,154   $6,073   $5,834   $3,816 

Purchase obligations and commitments1

   10,209    10,209    —      —      —   

Other long-term liabilities 2, 4

   237    237    —      —      —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total 3, 4

  $29,323   $13,600   $6,073   $5,834   $3,816 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1Purchase obligations include agreements to purchase goods or services that are enforceable and legally binding on Intevac and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable without penalty. These purchase obligations are related principally to inventory and other items.
2Intevac is unable to reliably estimate the timing of future payments related to uncertain tax positions; therefore, $84,000 of unrecognized tax benefits has been excluded from the table above.
3Total excludes contractual obligations already recorded on the consolidated balance sheet as current liabilities (except other long-term liabilities) and certain purchase obligations.
4Total excludes contingent consideration that may be paid pursuant to asset purchases or business combinations.

Off-Balance
Sheet Arrangements

Off-balance
sheet firm commitments relating to outstanding letters of credit amounted to approximately $1.0 million$787,000 as of December 30, 2017.January 2, 2021. These letters of credit and bank guarantees are collateralized by $1.0 million$787,000 of restricted cash. We do not maintain any other
off-balance
sheet arrangements, transactions, obligations, or other relationships that would be expected to have a material current or future effect on the consolidated financial statements.

Critical Accounting Policies

The preparation of consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported. Note 1 of Notes to Consolidated Financial Statements describes the significant accounting policies used in the preparation of the consolidated financial statements. Certain of these significant accounting policies are considered to be critical accounting policies.

A critical accounting policy is defined as one that is both material to the presentation of Intevac’s consolidated financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect on Intevac’s financial condition or results of operations. Specifically, these policies have the following attributes: (1) Intevac is required to make assumptions about matters that are highly uncertain at the time of the estimate; and (2) different estimates Intevac could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect on Intevac’s financial condition or results of operations.

Estimates and assumptions about future events and their effects cannot be determined with certainty. Intevac bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the
30
circumstances. These estimates may change as new events occur, as additional information is obtained and as Intevac’s operating environment changes. These changes have historically been minor and

have been included in the consolidated financial statements as soon as they became known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. These uncertainties are discussed in the section above entitled “Risk Factors.” Based on a critical assessment of its accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes that Intevac’s consolidated financial statements are fairly stated in accordance with accounting principles generally accepted in the United States of America, and provide a meaningful presentation of Intevac’s financial condition and results of operations.

Management believes that the following are critical accounting policies:

Revenue Recognition

Intevac recognizes

In our TFE segment, a majority of our equipment sales revenue, which includes systems, technology upgrades, service and spare parts is recognized when persuasive evidenceproducts are shipped from our manufacturing facilities. In our TFE segment, we recognize revenue for equipment sales at a point in time following the transfer of an arrangement exists, delivery has occurred and title and riskcontrol of loss have passed to Intevac’s customer or services have been rendered, the price is fixed or determinable, and collectibility is reasonably assured. Intevac’s shipping terms are customarily FOB shipping point or equivalent terms. Intevac’s revenue recognition policy generally results in revenue recognition at the following points: (1) for all transactions where legal title passessuch products to the customer, which typically occurs upon shipment Intevac recognizes revenue upon shipment for all products that have been demonstrated to meet product specifications prior to shipment;or delivery depending on the portion of revenue associated with certain installation-related tasks is deferred, and that revenue is recognized upon completionterms of the installation-related tasks; (2) for products that have not been demonstrated to meet product specifications prior to shipment, revenue is recognized at customer acceptance; and (3) for arrangements containing multiple elements, the revenue relating to the undelivered elements is deferred until delivery of the deferred elements. When a sales arrangement contains multiple elements, Intevac allocates revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based on its vendor specific evidence (“VSOE”) if available, third party evidence (“TPE”) if VSOE is not available, or best estimate of selling price (“ESP”) if neither VSOE nor TPE is available. Intevac generally utilizes the ESP due to the nature of its products. In certain cases, technology upgrade sales are accounted for as multiple-element arrangements, usually split between delivery of the parts and installation on the customer’s systems. In these cases, Intevac recognizes revenue for the relative sales price of the parts upon shipment and transfer of title, and recognizes revenue for the relative sales price of installation services when those services are completed. Revenue related to sales of spare parts is generally recognized upon shipment.underlying contracts. Intevac recognizes revenue in certain circumstances before delivery has occurred (commonly referred to as bill and hold transactions). In such circumstances, among other things, risk of ownership has passed to the customer, the customer has made a written fixed commitment to purchase the finished goods, the customer has requested the finished goods be held for future delivery as scheduled and designated by them, and no additional performance obligations exist by Intevac. For these transactions, the finished goods are segregated from inventory and normal billing and credit terms granted. Revenue relatedOur contracts with customers may include multiple performance obligations. Under the revenue standard we allocate revenue for such arrangements to services is generally recognized upon completion of the services. In addition, Intevac uses the installment method to record revenueeach performance obligation based on cash receipts in situations whereits relative standalone selling price. We generally determine standalone selling prices based on the account receivableprices charged to customers or by using expected cost plus margin. Under the revenue standard, the expected costs associated with our base warranties continue to be recognized as expense when the equipment is collectedsold.
In our Photonics segment, we recognize revenue for cost plus fixed fee (“CPFF”) and firm fixed price (“FFP”) government contracts over an extended periodtime under the
cost-to-cost
method for the majority of time and in management’s judgmentour government contracts, which is consistent with our historical revenue recognition model. Revenue on the degreemajority of collectibility is uncertain.

Intevac performs research and development work under various government-sponsored research contracts. Revenue oncost-plus-feeour government contracts is recognized over time because of the continuous transfer of control to the extentcustomer. For U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs actually incurred plus a proportionatereasonable profit and take control of any work in process. Similarly, for

non-U.S.
government contracts, the customer typically controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date to deliver products or services that do not have an alternative use to the Company. Under the revenue standard, the
cost-to-cost
measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs.
The majority of our contracts in our Photonics segment have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development and production). For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
In our Photonics segment, we recognize revenue for homogenous manufactured military products sold to the U.S. government and its contractors over time under the
units-of-delivery
method because of the continuous transfer of control to the customer. Intevac believes that the
units-of-delivery
method is an appropriate measure for measuring progress for the manufactured units as an equal amount of value is individually transferred to the customer upon delivery. The Company previously recognized revenue for substantially all manufactured military products sold to the U.S. government and its contractors when the customers took delivery of the products, which was generally upon shipment.
The nature of our contracts in our Photonics segment gives rise to several types of variable consideration including tiered pricing. Allocation of contract revenues among Photonics military products, and the timing of the recognition of those revenues,
31
is impacted by agreements with tiered pricing or variable rate structures. We include variable consideration in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee earned. Intevac considers fixed fees undercost-plus-feeconsideration. These estimates are based on historical experience, anticipated performance and our best judgment at the time. Because of our certainty in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.
Accounting for CPFF and FFP contracts and programs involves the use of various techniques to be earned in proportionestimate total contract revenue and costs. For these contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the allowable costs actually incurred in performancelife of the contract. RevenueContract estimates are based on fixed-price contracts is recognized on a milestone method orpercentage-of-completion methodvarious assumptions to project the outcome of contract accounting. For contracts structured as milestone agreements, revenue is recognized when a specified milestone is achieved, provided that (1)future events. These assumptions include the milestone event is substantive in nature and there is substantial uncertainty about the achievementcomplexity of the milestone atwork to be performed; the inceptioncost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative
catch-up
method. Under this method, the impact of the agreement, (2) the milestone payment isnon-refundable, and (3) there is no continuing performance obligations associated with the milestone payment. Any milestone payments received prioradjustment on profit recorded to satisfying these revenue recognition criteria are deferred. Intevac generally determines the percentage completed based on the percentage of costs incurred to date in relation to total estimated costs expected through

completion of the contract. When estimates of total costs to be incurred on a contract exceed estimatesis recognized in the period the adjustment is identified. Revenue and profit in future periods of total revenue to be earned, a provision forcontract performance are recognized using the entireadjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, is recordedwe recognize the total loss in the period the lossquarter it is determined.

identified.

Inventories

Inventories are valued using average actual costs and are stated at the lower of cost or net realizable value. The carrying value of inventory is reduced for estimated obsolescence by the difference between its cost and the net realizable value based upon assumptions about future demand. Intevac evaluates the inventory carrying value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand. In addition, inventories are evaluated for potential obsolescence due to the effect of known and anticipated engineering change orders and new products. If actual demand were to be substantially lower than estimated, additional inventory adjustments for excess or obsolete inventory might be required, which could have a material adverse effect on Intevac’s business, financial condition and results of operations.

Warranty

Intevac estimates the costs that may be incurred under the warranty it provides and records a liability in the amount of such costs at the time the related revenue is recognized. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs. Intevac’s warranty obligation is affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. As Intevac’s customer service engineers and process support engineers are highly trained and deployed globally, labor availability is a significant factor in determining labor costs. The quantity and availability of critical replacement parts is another significant factor in estimating warranty costs. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. If actual warranty costs differ substantially from our estimates, revisions to the estimated warranty liability would be required.

Income Taxes

Intevac accounts for income taxes by recognizing deferred tax assets and liabilities using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities, net operating losses and tax credit carryforwards. Deferred tax assets are also reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized. Management has determined that it is more likely than not that its future taxable income will not be sufficient to realize its entire deferred tax assets.

In determining whether to establish or maintain a valuation allowance against a deferred tax asset, the Company reviews available evidence to determine whether it is more likely than not that all or a portion of the Company’s net deferred tax assets will be realized in future periods. Consideration is given to various positive and negative factors that could affect the realization of the net deferred tax assets. In making such a determination, the Company considers, among other things, future reversals of existing taxable temporary differences, projected future taxable income,
tax-planning
strategies, historical financial performance, the length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their
32
net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
The effective tax rate is highly dependent upon the geographic composition of worldwide earnings, tax regulations governing each region,
non-tax
deductible expenses and availability of tax credits. Management carefully monitors the changes in many factors and adjusts the effective income tax rate as required. If actual results differ from these estimates, Intevac could be required to record additional valuation allowances on deferred tax assets or adjust its effective income tax rate, which could have a material adverse effect on Intevac’s business, financial condition and results of operations.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with Intevac’s expectations could have a material impact on Intevac’s results of operations and financial condition.

Valuation of Acquisition-Related Contingent Consideration

Contingent consideration related to a business combination is recorded at the acquisition date at the estimated fair value of the contingent payments. The acquisition date fair value is measured based on the

consideration expected to be transferred (probability-weighted), discounted back to present value. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods. The fair value of the acquisition-related contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense in the consolidated statements of operations.

income.

Equity-Based Compensation

Intevac records compensation expense for equity-based awards using the Black-Scholes option pricing model. This model requires Intevac to estimate the expected volatility of the price of Intevac’s common stock and the expected life of the equity-based awards. Estimating volatility and expected life requires significant judgment and an analysis of historical data. Beginning January 1, 2017, Intevac accounts for forfeitures as they occur rather than estimating expected forfeitures. Intevac may have to increase or decrease compensation expense for equity-based awards if actual results differ significantly from Intevac’s estimates.

Item 7A.
Quantitative and Qualitative Disclosures About Market Risk

Interest rate risk.Intevac’s exposure to market risk

Not applicable for changes in interest rates relates primarily to its investment portfolio. Intevac does not use derivative financial instruments in Intevac’s investment portfolio. The Company has adopted an investment policy and established guidelines relating to credit quality, diversification and maturities of its investments in order to preserve principal and maintain liquidity. All investment securities in Intevac’s portfolio have an investment grade credit rating. Investments typically consist of money market funds, certificates of deposit, commercial paper, obligations of the U.S. government and its agencies, corporate debt securities, asset backed securities and municipal bonds.

The table below presents principal amounts and related weighted-average interest rates by year of expected maturity for Intevac’s investment portfolio at December 30, 2017.

   2018  2019  2020  Total   Fair
Value		 
   (In thousands, except percentages) 

Cash equivalents

       

Variable rate amounts

  $6,746  $—    $—    $6,746   $6,746 

Weighted-average rate

   1.18%   —     —     —     

Short-term investments

       

Fixed rate amounts

  $15,710  $—    $—    $15,710   $15,698 

Weighted-average rate

   1.27%   —     —     —     

Long-term investments

       

Fixed rate amounts

  $—    $6,382  $500  $6,882   $6,849 

Weighted-average rate

   —     1.90%   1.99%    

Total investment portfolio

  $22,456  $6,382  $500  $29,338   $29,293 

Foreign exchange risk.From time to time, Intevac enters into foreign currency forward exchange contracts to hedge certain of its anticipated foreign currencyre-measurement exposures and to offset certain operational exposures from the impact of changes in foreign currency exchange rates. The objective of these contracts is to minimize the impact of foreign currency exchange rate movements on Intevac’s operating results. The derivatives have maturities of approximately 30 days. The notional amount of the Company’s foreign currency derivatives was $1.3 million at December 30, 2017 and $1.1 million at December 31, 2016.

smaller reporting companies.

33
Item 8.
Financial Statements and Supplementary Data

INTEVAC, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Contents

   
Page

Report of Independent Registered Public Accounting Firm

  4135

Consolidated Balance Sheets

  4237

Consolidated Statements of OperationsIncome

  4338

Consolidated Statements of Comprehensive Income (Loss)

  4439

Consolidated Statements of Stockholders’ Equity

  4540

Consolidated Statements of Cash Flows

  4641

Notes to Consolidated Financial Statements

  4742

34
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

of

Intevac, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Intevac, Inc. (a Delaware corporation) and its subsidiaries (the “Company”) as of December 30, 2017January 2, 2021 and December 31, 2016,28, 2019, and the related consolidated statements of operations,income, comprehensive income, (loss), stockholders’ equity, and cash flows for each of the threetwo years in the period ended December 30, 2017,January 2, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 30, 2017January 2, 2021 and December 31, 2016,28, 2019, and the results of its operations and its cash flows for each of the threetwo years in the period ended December 30, 2017,January 2, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 30, 2017,January 2, 2021, based on criteria established in
Internal Control—Integrated Framework (2013)
 issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 14, 2018,17, 2021, expressed an unqualified opinion.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ BPM LLP

We have served

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Inventory Valuation - Adjustments for Excess or Obsolete Inventories
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated inventories balance was $21.7 million as of January 2, 2021. The Company’s inventories are valued using average actual costs and are stated at the lower of cost or net realizable value. The Company adjusts the carrying value of inventories for estimated excess quantities and obsolescence equal to the difference between the costs of inventories and the net realizable value based upon assumptions about future demand, market conditions and product life expectancy. If actual demand were to be substantially lower than estimated, there could be a significant adverse impact on the carrying value of inventories and results of operations.
The principal considerations for our determination that performing procedures relating to net realizable value adjustments to inventories is a critical audit matter are the significant amount of judgement by management in developing the assumptions of the forecasted product demand, which in turn led to significant auditor since 2015.

San Jose, California

February 14, 2018

judgement, subjectivity, and effort in performing audit procedures and evaluating audit evidence relating to the forecasted product demand. Additionally, for certain new product launches there may be limited historical data with which to evaluate forecasts.

35
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of internal controls relating to management’s adjustments for excess or obsolete inventories, including internal controls over the development of assumptions related to forecasted product demand. The procedures also included, among others, testing management’s process for developing the estimate of the adjustments for excess or obsolete inventories, testing the completeness and accuracy of the underlying data used in the estimate, and evaluating management’s assumptions of forecasted product demand. Evaluating management’s demand forecast for reasonableness involved considering historical sales by product, comparing prior period estimates to actual results of the same period, and determining whether the demand forecast used was consistent with evidence obtained in other areas of the audit.
Revenue Recognition – Determination of Total Estimated Contract Costs for Fixed-price Contracts
As described in Notes 1 and 2 to the consolidated financial statements, $22.9 million of the Company’s total consolidated net revenues for the year ended January 2, 2021 was generated from fixed-price contracts (also known as cost plus
fixed-fee
and firm fixed-price contracts), as reported under the Photonics segment for technology development revenues. The Company recognizes revenue for these fixed-price contracts over time under the
cost-to-cost
measure of progress method as it best depicts the transfer of control of assets to the customer, which occurs as it incurs costs. Accounting for these contracts involves the use of various techniques to estimate total contract costs. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include the complexity of the work to be performed; the cost and availability of materials; and the performance of engineers and subcontractors. As a significant change in one or more of these estimates could affect the profitability of the contracts, the Company reviews and updates its contract-related estimates regularly.
The principal considerations for our determination that performing procedures relating to the determination of the total estimated contract costs for fixed-price contracts is a critical audit matter are the significant amount of judgement required by management in determining the total estimated contract costs for fixed-price contracts, which in turn led to significant auditor judgement, subjectivity, and effort in performing audit procedures and in evaluating audit evidence relating the total estimated contract costs for fixed-price contracts used to calculate the
cost-to-cost
measure of progress.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of internal controls relating to the revenue recognition process, including internal controls over the determination of total estimated contract costs for fixed-price contracts. These procedures also included, among others, testing management’s process for developing the estimate of total estimated contract costs for a sample of contracts, which included evaluating the contract terms and other documents that support those estimates, performing inquiries with the project managers and others directly involved with the contracts to evaluate project status and project needs which may affect total estimated cost to complete, and testing of the underlying contract costs; assessing management’s ability to reasonably estimate total contract costs by performing a comparison of the actual total estimated contract costs as compared with prior period estimates, including the timely identification of circumstances that may warrant a modification to the total estimated contract costs; and evaluating, for certain contracts, management’s methodologies and assessing the consistency of management’s approach over the life of the contract.
/s/ BPM LLP
We have served as the Company’s auditor since 2015.
San Jose, California
February 17, 2021
36
INTEVAC, INC.

CONSOLIDATED BALANCE SHEETS

   December 30,
2017		  December 31,
2016		 
   

(In thousands, except

par value)

 

ASSETS

   

Current assets:

   

Cash and cash equivalents

  $19,941  $27,043 

Short-term investments

   15,698   17,602 

Trade and other accounts receivable, net of allowances of $0 at both December 30, 2017 and December 31, 2016

   20,474   17,447 

Inventories

   33,792   24,876 

Prepaid expenses and other current assets

   2,524   1,768 
  

 

 

  

 

 

 

Total current assets

   92,429   88,736 

Property, plant and equipment, net

   12,478   11,237 

Long-term investments

   6,849   3,593 

Restricted cash

   1,000   1,602 

Intangible assets, net of amortization of $6,884 and $6,129 at December 30, 2017 and December 31, 2016, respectively

   1,503   2,258 

Other long-term assets

   764   898 
  

 

 

  

 

 

 

Total assets

  $115,023  $108,324 
  

 

 

  

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

   

Current liabilities:

   

Accounts payable

  $3,949  $5,323 

Accrued payroll and related liabilities

   6,818   4,220 

Other accrued liabilities

   7,688   17,011 

Customer advances

   11,026   5,422 
  

 

 

  

 

 

 

Total current liabilities

   29,481   31,976 

Other long-term liabilities

   2,879   3,082 

Commitments and contingencies

   

Stockholders’ equity:

   

Undesignated preferred stock, $0.001 par value, 10,000 shares authorized, no shares issued and outstanding

   —     —   

Common stock, $0.001 par value :

   

Authorized shares — 50,000 issued and outstanding shares — 21,811 and 20,939 at December 30, 2017 and December 31, 2016, respectively

   22   21 

Additionalpaid-in capital

   177,521   171,314 

Treasury stock, 4,845 shares at both December 30, 2017 and December 31, 2016

   (28,489)   (28,489) 

Accumulated other comprehensive income

   490   321 

Accumulated deficit

   (66,881)   (69,901) 
  

 

 

  

 

 

 

Total stockholders’ equity

   82,663   73,266 
  

 

 

  

 

 

 

Total liabilities and stockholders’ equity

  $115,023  $108,324 
  

 

 

  

 

 

 

   
January 2,
2021
  
December 28,
2019
 
   
(In thousands, except
par
 
value)
 
ASSETS
       
Current assets:
         
Cash and cash equivalents
  $29,341  $19,767 
Short-term investments
   14,839   16,720 
Trade and other accounts receivable, net of allowances of $0 at both January 2, 2021 and December 28, 2019
   28,646   28,619 
Inventories
   21,689   24,907 
Prepaid expenses and other current assets
   1,893   1,504 
          
Total current assets
   96,408   91,517 
Property, plant and equipment, net
   11,004   11,598 
Operating lease
right-of-use-assets
   8,165   10,279 
Long-term investments
   5,388   5,537 
Restricted cash
   787   787 
Deferred income taxes and other long-term assets
   5,486   6,604 
          
Total assets
  $127,238  $126,322 
          
LIABILITIES AND STOCKHOLDERS’ EQUITY
         
Current liabilities:
         
Current operating lease liabilities
  $2,853  $2,524 
Accounts payable
   4,259   4,199 
Accrued payroll and related liabilities
   7,679   6,488 
Other accrued liabilities
   3,598   3,593 
Customer advances
   33   4,007 
          
Total current liabilities
   18,422   20,811 
Noncurrent liabilities:
         
Noncurrent operating lease liabilities
   6,803   9,532 
Other long-term liabilities
   457   186 
          
Total noncurrent liabilities
   7,260   9,718 
Commitments and contingencies
   0   0 
Stockholders’ equity:
         
Undesignated preferred stock, $0.001 par value, 10,000 shares authorized, 0 shares issued and outstanding
   0—     0—   
Common stock, $0.001 par value :
         
Authorized shares
 — 
50,000 issued and outstanding shares
 — 
23,874 and 23,346 at January 2, 2021 and December 28, 2019, respectively
   24   23 
Additional
paid-in
capital
   193,173   188,290 
Treasury stock, 5,087 shares at January 2, 2021 and 4,989 shares at December 28, 2019
   (29,551)   (29,158) 
Accumulated other comprehensive income
   640   424 
Accumulated deficit
   (62,730)   (63,786) 
          
Total stockholders’ equity
   101,556   95,793 
          
Total liabilities and stockholders’ equity
  $127,238  $126,322 
          
See accompanying notes.

37
INTEVAC, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

   Year Ended, 
   December 30,
2017		  December 31,
2016		  January 2,
2016		 
   

(In thousands, except per share

amounts)

 

Net revenues:

    

Systems and components

  $104,856  $74,342  $68,072 

Technology development

   7,991   5,782   7,088 
  

 

 

  

 

 

  

 

 

 

Total net revenues

   112,847   80,124   75,160 

Cost of net revenues:

    

Systems and components

   60,120   45,263   43,700 

Technology development

   7,064   4,452   5,143 
  

 

 

  

 

 

  

 

 

 

Total cost of net revenues

   67,184   49,715   48,843 

Gross profit

   45,663   30,409   26,317 

Operating expenses:

    

Research and development

   17,724   18,156   15,661 

Selling, general and administrative

   23,314   19,916   19,638 

Acquisition-related (benefit), net

   (223)   (100)   (244) 
  

 

 

  

 

 

  

 

 

 

Total operating expenses

   40,815   37,972   35,055 
  

 

 

  

 

 

  

 

 

 

Operating income (loss)

   4,848   (7,563)   (8,738) 
  

 

 

  

 

 

  

 

 

 

Interest income

   291   195   179 

Other income (expense), net

   82   178   (52) 
  

 

 

  

 

 

  

 

 

 

Income (loss) before income taxes

   5,221   (7,190)   (8,611) 

Provision for income taxes

   1,103   251   555 
  

 

 

  

 

 

  

 

 

 

Net income (loss)

  $4,118  $(7,441)  $(9,166) 
  

 

 

  

 

 

  

 

 

 

Net income (loss) per share:

    

Basic

  $0.19  $(0.36)  $(0.41) 

Diluted

  $0.18  $(0.36)  $(0.41) 

Weighted average shares outstanding:

    

Basic

   21,555   20,761   22,218 

Diluted

   22,920   20,761   22,218 

INCOME

   
Year Ended,
 
   
January 2,
2021
  
December 28,
2019
 
 
   
(In thousands, except per share
amounts)
 
Net revenues:
         
Systems and components
  $74,879  $89,228 
Technology development
   22,945   19,657 
          
Total net revenues
   97,824   108,885 
Cost of net revenues:
         
Systems and components
   42,231   55,678 
Technology development
   15,048   12,339 
          
Total cost of net revenues
   57,279   68,017 
Gross profit
   40,545   40,868 
Operating expenses:
         
Research and development
   14,093   14,309 
Selling, general and administrative
   23,897   22,634 
          
Total operating expenses
   37,990   36,943 
          
Operating income
   2,555   3,925 
          
Interest income
   284   574 
Other income (expense), net
   (72)   8 
          
Income before provision for income taxes
   2,767   4,507 
Provision for income taxes
   1,711   3,359 
          
Net income
  $1,056  $1,148 
          
Net income per share:
         
Basic
  $0.04  $0.05 
Diluted
  $0.04  $0.05 
Weighted average shares outstanding:
         
Basic
   23,669   23,063 
Diluted
   24,151   23,340 
See accompanying notes.

38
INTEVAC, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

   Year Ended, 
   December 30,
2017		  December 31,
2016		  January 2,
2016		 
   (In thousands) 

Net income (loss)

  $4,118  $(7,441)  $(9,166) 

Other comprehensive income (loss), before tax

    

Change in unrealized net loss onavailable-for-sale investments

   (23)   18   (39) 

Foreign currency translation gains and losses

   192   (109)   (168) 
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss), before tax

   169   (91)   (207) 

Income tax expense related to items in other comprehensive income (loss)

   —     —     —   
  

 

 

  

 

 

  

 

 

 

Other comprehensive income (loss), net of tax

   169   (91)   (207) 
  

 

 

  

 

 

  

 

 

 

Comprehensive income (loss)

  $4,287  $(7,532)  $(9,373) 
  

 

 

  

 

 

  

 

 

 

   
Year Ended,
 
   
January 2,
2021
  
December 28,
2019
 
   
(In thousands)
 
Net income
  $1,056  $1,148 
Other comprehensive income (loss), before tax
         
Change in unrealized net gain on
available-for-sale
investments
   (5)   70 
Foreign currency translation gains and (losses)
   221   (24) 
          
Other comprehensive income, before tax
   216   46 
Income tax expense related to items in other comprehensive income
   0     —   
          
Other comprehensive income, net of tax
   216   46 
          
Comprehensive income
  $1,272  $1,194 
          
See accompanying notes.

39
INTEVAC, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands)

  Common Stock  Additional
Paid-In
Capital		  Treasury Stock  Accumulated
Other
Comprehensive
Income		  Accumulated
Deficit		  Total
Stockholders’
Equity		 
  Shares  Amount   Shares  Amount    

Balance at January 3, 2015

  23,275  $23  $161,271   1,426  $(9,989)  $619  $(53,294)  $98,630 

Shares issued in connection with:

        

Exercise of stock options

  54   —     239   —     —     —     —     239 

Settlement of RSUs

  113   —     —     —     —     —     —     —   

Employee stock purchase plan

  374   —     1,460   —     —     —     —     1,460 

Shares withheld in connection with net share settlement of RSUs

  (25)   —     (132)   —     —     —     —     (132) 

Equity-based compensation expense

  —     —     3,296   —     —     —     —     3,296 

Grant of RSUs to settle accrued bonus

  —     —     380   —     —     —     —     380 

Net loss

  —     —     —     —     —     —     (9,166)   (9,166) 

Other comprehensive loss

  —     —     —     —     —     (207)   —     (207) 

Common stock repurchases

  (3,419)   (3)   —     3,419   (18,500)   —     —     (18,503) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at January 2, 2016

  20,372  $20  $166,514   4,845  $(28,489)  $412  $(62,460)  $75,997 

Shares issued in connection with:

        

Exercise of stock options

  9   —     38   —     —     —     —     38 

Settlement of RSUs

  269   —     —     —     —     —     —     —   

Employee stock purchase plan

  384   1   1,450   —     —     —     —     1,451 

Shares withheld in connection with net share settlement of RSUs

  (95)   —     (426)   —     —     —     —     (426) 

Equity-based compensation expense

  —     —     3,254   —     —     —     —     3,254 

Grant of RSUs to settle accrued bonus

  —     —     484   —     —     —     —     484 

Net loss

  —     —     —     —     —     —     (7,441)   (7,441) 

Other comprehensive loss

  —     —     —     —     —     (91)   —     (91) 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 31, 2016

  20,939  $21  $171,314   4,845  $(28,489)  $321  $(69,901)  $73,266 

Cumulative effect of accounting change

  —     —     1,098   —     —     —     (1,098)   —   

Shares issued in connection with:

        

Exercise of stock options

  135   —     878   —     —     —     —     878 

Settlement of RSUs

  505   —     —     —     —     —     —     —   

Employee stock purchase plan

  406   1   1,550   —     —     —     —     1,551 

Shares withheld in connection with net share settlement of RSUs

  (174)   —     (1,999)   —     —     —     —     (1,999) 

Equity-based compensation expense

  —     —     4,075   —     —     —     —     4,075 

Grant of RSUs to settle accrued bonus

  —     —     605   —     —     —     —     605 

Net income

  —     —     —     —     —     —     4,118   4,118 

Other comprehensive income

  —     —     —     —     —     169   —     169 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

Balance at December 30, 2017

  21,811  $22  $177,521   4,845  $(28,489)  $490  $(66,881)  $82,663 
 

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

  

 

 

 

  
Common Stock
  
Additional
Paid-In

Capital
  
Treasury Stock
  
Accumulated
Other
Comprehensive

Income
  
Accumulated

Deficit
  
Total
Stockholders’

Equity
 
  
Shares
  
Amount
  
Shares
  
Amount
 
Balance at December 28, 2019
  22,700  $23  $183,204   4,965  $(29,047)  $378  $(64,934)  $89,624 
Shares issued in connection with:
                                
Exercise of stock options
  175   —     799   —     —     —     —     799 
Settlement of RSUs
  199   —     —     —     —     —     —     —   
Employee stock purchase plan
  370   —     1,466   —     —     —     —     1,466 
Shares withheld in connection with net share settlement of RSUs
  (74)   —     (404)   —     —     —     —     (404) 
Equity-based compensation expense
  —     —     3,225   —     —     —     —     3,225 
Net income
  —     —     —     —     —     —     1,148   1,148 
Other comprehensive income
  —     —     —     —     —     46   —     46 
Common stock repurchases
  (24)   —     —     24   (111)   —     —     (111) 
                                 
Balance at December 28, 2019
  23,346  $23  $188,290   4,989  $(29,158)  $424  $(63,786)  $95,793 
Shares issued in connection with:
                                
Exercise of stock options
  67   —     326   —     —     —     —     326 
Settlement of RSUs
  244   —     —     —     —     —     —     —   
Employee stock purchase plan
  392   1   1,570   —     —     —     —     1,571 
Shares withheld in connection with net share settlement of RSUs
  (77)   —     (402)   —     —     —     —     (402) 
Equity-based compensation expense
  —     —     3,389   —     —     —     —     3,389 
Net income
  —     —     —     —     —     —     1,056   1,056 
Other comprehensive income
  —     —     —     —     —     216   —     216 
Common stock repurchases
  (98)   —     —     98   (393)   —     —     (393) 
                                 
Balance at January 2, 2021
  23,874  $24  $193,173   5,087  $(29,551)  $640  $(62,730)  $101,556 
                                 
See accompanying notes.

40
INTEVAC, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

   Year Ended 
   December 30,
2017		  December 31,
2016		  January 2,
2016		 
   (In thousands) 

Operating activities

    

Net income (loss)

  $4,118  $(7,441)  $(9,166) 

Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities:

    

Depreciation & amortization

   3,116   3,983   3,743 

Net amortization (accretion) of investment premiums and discounts

   42   128   319 

Amortization of intangible assets

   755   854   854 

Equity-based compensation

   4,178   3,744   3,620 

Deferred income taxes

   (1)   9   (12) 

Change in the fair value of acquisition-related contingent consideration

   (223)   (100)   (244) 

Loss (gain) on disposal of equipment

   —     (136)   271 

Changes in assets and liabilities:

    

Accounts receivable

   (3,027)   (5,137)   (223) 

Inventories

   (8,916)   (6,116)   452 

Prepaid expenses and other assets

   (621)   496   (1,382) 

Accounts payable

   (1,374)   (627)   1,310 

Accrued payroll and other accrued liabilities

   (6,029)   12,329   19 

Customer advances

   5,604   1,797   1,074 
  

 

 

  

 

 

  

 

 

 

Total adjustments

   (6,496)   11,224   9,801 
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents provided by (used in) operating activities

   (2,378)   3,783   635 

Investing activities

    

Purchase of investments

   (26,581)   (12,429)   (21,058) 

Proceeds from sales and maturities of investments

   25,164   24,005   32,900 

Proceeds from sale of equipment

   —     208   11 

Decrease in restricted cash

   602   178   —   

Purchase of equipment

   (4,356)   (3,373)   (3,117) 
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents provided by (used in) investing activities

   (5,171)   8,589   8,736 

Financing activities

    

Proceeds from issuance of common stock

   2,429   1,489   1,699 

Common stock repurchases

   —     —     (18,503) 

Taxes paid related to net share settlement

   (1,999)   (426)   (132) 

Payment of acquisition-related contingent consideration

   (174)   (31)   —   
  

 

 

  

 

 

  

 

 

 

Net cash and cash equivalents provided by (used in) financing activities

   256   1,032   (16,936) 

Effect of exchange rate changes on cash

   191   (107)   (171) 
  

 

 

  

 

 

  

 

 

 

Net increase (decrease) in cash and cash equivalents

   (7,102)   13,297   (7,736) 

Cash and cash equivalents at beginning of period

   27,043   13,746   21,482 
  

 

 

  

 

 

  

 

 

 

Cash and cash equivalents at end of period

  $19,941  $27,043  $13,746 
  

 

 

  

 

 

  

 

 

 

Cash paid (received) for:

    

Income taxes

  $902  $516  $1,190 

Income tax refund

  $(19)  $(524)  $—   

   
Year Ended
 
   
January 2,
2021
  
December 28,
2019
 
 
   
(In thousands)
 
Operating activities
         
Net income
  $1,056  $1,148 
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
         
Depreciation and amortization
   3,206   2,976 
Net amortization (accretion) of investment premiums and discounts
   12   (75) 
Amortization of intangible assets
   274   615 
Equity-based compensation
   3,389   3,225 
Straight-line rent adjustment and amortization of lease incentives
   (286)   (289) 
Deferred income taxes
   917   1,661 
Change in the fair value of acquisition-related contingent consideration
   —     7 
Loss on disposal of equipment
   —     120 
Changes in assets and liabilities:
         
Accounts receivable
   (27)   (902) 
Inventories
   3,218   6,301 
Prepaid expenses and other assets
   (462)   1,621 
Accounts payable
   60   (1,850) 
Accrued payroll and other accrued liabilities
   1,467   694 
Customer advances
   (3,974)   (10,307) 
          
Total adjustments
   7,794   3,797 
          
Net cash and cash equivalents provided by operating activities
   8,850   4,945 
Investing activities
         
Purchase of investments
   (23,342)   (23,306) 
Proceeds from sales and maturities of investments
   25,355   21,642 
Purchase of leasehold improvements and equipment
   (2,612)   (4,107) 
          
Net cash and cash equivalents used in investing activities
   (599)   (5,771) 
Financing activities
         
Proceeds from issuance of common stock
   1,897   2,265 
Common stock repurchases
   (393)   (111) 
Taxes paid related to net share settlement
   (402)   (404) 
Payment of acquisition-related contingent consideration
   —     (230) 
          
Net cash and cash equivalents provided by financing activities
   1,102   1,520 
Effect of exchange rate changes on cash
   221   (24) 
          
Net increase in cash, cash equivalents and restricted cash
   9,574   670 
Cash, cash equivalents and restricted cash at beginning of period
   20,554   19,884 
          
Cash, cash equivalents and restricted cash at end of period
  $30,128  $20,554 
          
Cash paid (received) for:
         
Income taxes
  $850  $1,016 
Income tax refund
  $(157)  $(157) 
See accompanying notes.

41
INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of Intevac, Inc. and its subsidiaries (Intevac, the Company or the Company)we) after elimination of inter-company balances and transactions.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates.

Change in

Fiscal Year End Date

On February 19, 2014, the Board of Directors of the Company approved the Company’s change to

Intevac operates under a
52-53
week fiscal year ending on the Saturday nearest to December 31 of each year in order to improve the alignment of financial and business processes and to streamline financial reporting. Each fiscal quarter consists of 13 weeks, with an occasional fourth quarter extending to 14 weeks, if necessary, for the fiscal year to end on the Saturday nearest to December 31. The Company’s fiscal 2017, fiscal 20162020 and fiscal 20152019 years ended on December 30, 2017, December 31, 2016 and on January 2, 2016,2021 and December 28, 2019, respectively.

Cash, Cash Equivalents and Investments

Intevac considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.
Available-for-sale
securities, comprised of certificates of deposit, commercial paper, obligations of the U.S. government and its agencies, corporate debt securities, asset backed securities and municipal bonds, are carried at fair value, with unrealized gains and losses recorded within other comprehensive income (loss) as a separate component of stockholders’ equity. Realized gains and losses and declines in value judged to be other than temporary, if any, on
available-for-sale
securities are included in earnings. Purchases and sales of investment securities are recognized on a trade date basis. The cost of investment securities sold is determined by the specific identification method.

Restricted Cash

Restricted cash of $600,000 as of December 30, 2017January 2, 2021 secures a standby letter of credit obligation associated with a lease obligation and the restriction on the cash will be removed when the letter of credit expires. In addition, Intevac pledged $400,000$187,000 as collateral for various guarantees with its bank.

Derivative Instruments and Hedging Arrangements

Foreign Exchange Exposure Management —
Intevac 
enters into forward foreign currency contracts that economically hedge the gains and losses generated by the
re-measurement
of certain recorded assets and liabilities in a
non-functional
currency and to offset certain operational exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company’s operations, assets and liabilities that are denominated in currencies other than the U.S. dollar, primarily the Singapore dollar. These foreign currency exchange contracts are entered into to support transactions made in the normal course of business, and accordingly, are not speculative in nature. The contracts are for periods consistent with the terms of the underlying transactions, generally one year or less. Changes in the fair value of these undesignated hedges are recognized in other income (expense), net immediately as an offset to the changes in the fair value of the asset or liability being hedged.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Fair Value Measurement—Definition and Hierarchy

Intevac reports certain financial assets and liabilities at fair value. Intevac defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value measurements are classified and disclosed in one of the following three categories:

Level 1
—Valuations based on quoted prices in active markets for identical assets or liabilities.

42
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Level 2
—Valuations based on other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3
—Valuations based on inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

Trade Accounts Receivables and Doubtful Accounts

Intevac evaluates the collectibility of trade accounts receivable on an ongoing basis and provides reserves against potential losses when appropriate. Management analyzes historical bad debts, customer concentrations, customer creditworthiness, changes in customer payment tendencies and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Customer accounts are written off against the allowance when the amount is deemed uncollectible.

Inventories

Inventories are generally stated at the lower of cost or net realizable value, with cost determined on an average cost basis.

Property, Plant and Equipment

Equipment and leasehold improvements are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: computers and software, 3 years; machinery and equipment, 5 years; furniture, 7 years; vehicles, 4 years; and leasehold improvements, remaining lease term.

Contingent Consideration and Purchased Intangible Assets

Contingent consideration related to a business combination is recorded at the acquisition date at the estimated fair value of the contingent payments. The acquisition date fair value is measured based on the consideration expected to be transferred (probability-weighted), discounted back to present value. The discount rate used is determined at the time of the acquisition in accordance with accepted valuation methods. The fair value of the acquisition-related contingent consideration is remeasured at the estimated fair value at each reporting period with the change in fair value recognized as income or expense in the consolidated statements of operations.

income.

Purchased intangible assets other than goodwill arewere amortized over their useful lives unless these lives arewere determined to be indefinite. Purchased intangible assets arewere carried at cost, less accumulated amortization. Amortization iswas computed over the estimated useful lives of the respective assets, generally one to thirteen years using the straight line method. As of January 2, 2021, all purchased intangible assets had reached the end of their useful lives and did not have any remaining carrying value. In 2012, as a result of its impairment analysis, Intevac wrote off all of the goodwill in both its Thin-film EquipmentTFE and Photonics reporting units.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Impairment of Long-Lived Assets

Long-lived assets and certain identifiable finite-lived intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability of long-lived assets is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. When an impairment loss is recognized, the carrying amount of the asset is reduced to its estimated fair value. No impairment charges were recognized in fiscal 2017, 20162020 and 2015.

2019.

Income Taxes

Deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between book and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that a portion of the deferred tax asset will not be realized.

43
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In determining whether to establish or maintain a valuation allowance against a deferred tax asset, the Company reviews available evidence to determine whether it is more likely than not that all or a portion of the Company’s net deferred tax assets will be realized in future periods. Consideration is given to various positive and negative factors that could affect the realization of the net deferred tax assets. In making such a determination, the Company considers, among other things, future reversals of existing taxable temporary differences, projected future taxable income,
tax-planning
strategies, historical financial performance, the length of statutory carry forward periods, experience with operating loss and tax credit carry forwards not expiring unused. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
On a quarterly basis, Intevac provides for income taxes based upon an annual effective income tax rate. The effective tax rate is highly dependent upon the level of Intevac’s projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carryforwards, availability of tax credits and the effectiveness of Intevac’s tax planning strategies. Intevac carefully monitors the changes in many factors and adjust its effective income tax rate on a timely basis. If actual results differ from the estimates, this could have a material effect on Intevac’s business, financial condition and results of operations.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Resolution of these uncertainties in a manner inconsistent with Intevac’s expectations could have a material effect on Intevac’s business, financial condition and results of operations.

Intevac recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes.

Sales and Value Added Taxes

Taxes collected from customers and remitted to governmental authorities are presented on a net basis in the accompanying consolidated statements of operations.

income.

Revenue Recognition

Intevac recognizes

In our TFE segment, a majority of our equipment sales revenue, which includes systems, technology upgrades, service and spare parts is recognized when persuasive evidenceproducts are shipped from our manufacturing facilities. In our TFE segment, we recognize revenue for equipment sales at a point in time following the transfer of an arrangement exists, delivery has occurred and title and riskcontrol of loss have passed to Intevac’s customer or services have been rendered, the price is fixed or determinable, and collectibility is reasonably assured. Intevac’s shipping terms are customarily FOB shipping point or equivalent terms. Intevac’s revenue recognition policy generally results in revenue recognition at the following points: (1) for all transactions where legal title passessuch products to the customer, which typically occurs upon shipment Intevac recognizes revenue upon shipment for all products that have been demonstrated to meet product specifications prior to shipment;or delivery depending on the portion of revenue associated with certain installation-related tasks is deferred, and that revenue is recognized upon completionterms of the installation-related tasks; (2) for products that have not been demonstrated to meet product specifications prior to shipment, revenue is recognized at customer acceptance; and (3) for arrangements containing multiple elements, the revenue relating to the undelivered elements is deferred until delivery of the deferred elements. When a sales arrangement contains multiple elements, Intevac allocates revenue to each element based on a selling price hierarchy. The selling price for a deliverable is based

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

on its VSOE if available, TPE if VSOE is not available, or best ESP if neither VSOE nor TPE is available. Intevac generally utilizes the ESP due to the nature of its products. In certain cases, technology upgrade sales are accounted for as multiple-element arrangements, usually split between delivery of the parts and installation on the customer’s systems. In these cases, Intevac recognizes revenue for the relative sales price of the parts upon shipment and transfer of title, and recognizes revenue for the relative sales price of installation services when those services are completed. Revenue related to sales of spare parts is generally recognized upon shipment.underlying contracts. Intevac recognizes revenue in certain circumstances before delivery has occurred (commonly referred to as bill and hold transactions). In such circumstances, among other things, risk of ownership has passed to the customer, the customer has made a written fixed commitment to purchase the finished goods, the customer has requested the finished goods be held for future delivery as scheduled and designated by them, and no additional performance obligations exist by Intevac. For these transactions, the finished goods are segregated from inventory and normal billing and credit terms granted. Revenue related to services is generally recognized upon completion of the services. In addition, Intevac uses the installment method to record revenue based on cash receipts in situations where the account receivable is collected over an extended period of time and in management’s judgment the degree of collectibility is uncertain.

Intevac performs research and development work under various government-sponsored research contracts. Revenue oncost-plus-fee contracts is recognized to the extent of costs actually incurred plus a proportionate amount of the fee earned. Intevac considers fixed fees undercost-plus-fee contracts to be earned in proportion to the allowable costs actually incurred in performance of the contract. Revenue on fixed-price contracts is recognized on a milestone method orpercentage-of-completion method of contract accounting. For contracts structured as milestone agreements, revenue is recognized when a specified milestone is achieved, provided that (1) the milestone event is substantive in nature and there is substantial uncertainty about the achievement of the milestone at the inception of the agreement, (2) the milestone payment isnon-refundable, and (3) there is no continuing performance obligations associated with the milestone payment. Any milestone payments received prior to satisfying these revenue recognition criteria are deferred. Intevac generally determines the percentage completed based on the percentage of costs incurred to date in relation to total estimated costs expected through completion of the contract. When estimates of total costs to be incurred on a contract exceed estimates of total revenue to be earned, a provision for the entire loss on the contract is recorded in the period the loss is determined.

Advertising Costs

Advertising costs are expensed as incurred. Advertising costs were not material for all periods presented.

Foreign Currency Translation

The functional currency of Intevac’s foreign subsidiaries in Singapore and Hong Kong and the Taiwan branch is the U.S. dollar. The functional currency of Intevac’s foreign subsidiaries in China, Malaysia and Korea is the local currency of the country in which the respective subsidiary operates. Assets and liabilities recorded in foreign currencies are translated atyear-end exchange rates; revenues and expenses are translated at average exchange rates during the year. The effect of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. The effects of foreign currency transactions are included in other income in the determination of net loss. Net income (losses) from foreign currency transactions were ($107,000), ($99,000), and $80,000 in 2017, 2016 and 2015, respectively.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Comprehensive Income

The changes in accumulated other comprehensive income by component, were as follows for the years ended December 30, 2017 and December 31, 2016:

   Foreign
currency		   Unrealized
holding
gains
(losses) on
available-
for-sale
investments		   Total 
   (in thousands) 

Balance at January 2, 2016

  $452   $(40)   $412 
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before reclassification

   (109)    18    (91) 

Amounts reclassified from other comprehensive income (loss)

   —      —      —   
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

   (109)    18    (91) 
  

 

 

   

 

 

   

 

 

 

Balance at December 31, 2016

  $343   $(22)   $321 
  

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss) before reclassification

   192    (23)    169 

Amounts reclassified from other comprehensive income (loss)

   —      —      —   
  

 

 

   

 

 

   

 

 

 

Net current-period other comprehensive income (loss)

   192    (23)    169 
  

 

 

   

 

 

   

 

 

 

Balance at December 30, 2017

  $535   $(45)   $490 
  

 

 

   

 

 

   

 

 

 

Employee Stock Plans

Intevac has equity-based compensation plans that provide for the grant to employees of equity-based awards, including incentive ornon-statutory stock options, restricted stock, stock appreciation rights, restricted stock units (“RSUs”), performance units and performance bonus awards. In addition, these plans provide for the grant ofnon-statutory stock options and RSUs tonon-employee directors and consultants. Intevac also has an employee stock purchase plan, which provides Intevac’s employees with the opportunity to purchase Intevac common stock at a discount through payroll deductions. See Note 2 for a complete description of these plans and their accounting treatment.

Recent Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)2017-09,Compensation—Stock Compensation: Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. An entity will account for the effects of a modification unless the fair value of the modified award is the same as the original award, the vesting conditions of the modified award are the same as the original award and the classification of the modified award as an equity instrument or liability instrument is the same as the original award. This update becomes effective and will be adopted by Intevac in the first quarter of fiscal 2019. The update is to be adopted prospectively to an award modified on or after the adoption date. Early adoption is permitted. Intevac does not expect the adoption of this update to have a material impact on its consolidated financial statements.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In March 2017, the FASB issued ASU2017-08,Receivables – Nonrefundable Fees and Other Costs (Subtopic310-20): Premium Amortization on Purchased Callable Debt Securities. ASU2017-08 amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. This update becomes effective and will be adopted by Intevac in the first quarter of fiscal 2019. Intevac does not expect the adoption of this update to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU2017-04,Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU2017-04 eliminates Step 2 from the goodwill impairment test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in ASU2017-04, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. This update becomes effective and will be adopted by Intevac in the first quarter of fiscal 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Intevac does not expect the adoption of this update to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU2016-09Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. We have adopted these amendments beginning in the first quarter of 2017. Starting in the first quarter of fiscal 2017, stock-based compensation excess tax benefits or deficiencies are reflected in the Consolidated Statements of Operations as a component of the provision for income taxes, whereas they previously were recognized in equity. Additionally, our Consolidated Statements of Cash Flows now presents excess tax benefits as an operating activity. Finally, we have elected to account for forfeitures as they occur, rather than estimate expected forfeitures. The net cumulative effect of this change was recognized as a $1.1 million charge to the accumulated deficit as of January 1, 2017.

In May 2014, the FASB issued ASU2014-09(Topic 606) Revenue from Contracts with Customers. Topic 606 supersedes the revenue recognition requirements in Accounting Standards Codification Topic 605, “Revenue Recognition”, and requires entities to recognize revenue when they transfer control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We expect revenue recognition for our equipment sales arrangements, which includes systems, technology upgrades, service and spare parts, to remain materially consistent with our historical practice.

We expect to recognize revenue for equipment sales at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Our contracts with customers may include multiple performance obligations. For such arrangements, under the revenue standard we expect to allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or by using expected cost plus margin. TheUnder the revenue standard, the expected costs associated with our base warranties will continue to beare recognized as expense when the equipment is sold.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

We expect to

In our Photonics segment, we recognize revenue for cost plus fixed feeCPFF and firm fixed pricedFFP government contracts over time under the
cost-to-cost
method for the majority of our government contracts, which is consistent with our currenthistorical revenue recognition model. Revenue on the majority of our government contracts will continue to beare recognized over time because of the continuous transfer of control to the customer. For U.S. government contracts, this continuous transfer of control to the customer is supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Similarly, for
non-U.S.
government contracts, the customer typically
controls the work in process as evidenced either by contractual termination clauses or by our rights to payment for work performed to date to deliver products or services that do not have an alternative use to the company.Company. Under the newrevenue standard, the
cost-to-cost
measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs.

44
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The new standard must be adopted by Intevacmajority of our contracts in our Photonics segment have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development and production). For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.
In our Photonics segment, we recognize revenue for homogenous manufactured military products sold to the U.S. government and its contractors over time under the
units-of-delivery
method because of the continuous transfer of control to the customer. Intevac believes that the
units-of-delivery
method is an appropriate measure for measuring progress for the manufactured units as an equal amount of value is individually transferred to the customer upon delivery. The Company previously recognized revenue for substantially all manufactured military products sold to the U.S. government and its contractors when the customers took delivery of the products, which was generally upon shipment.
The nature of our contracts in our Photonics segment gives rise to several types of variable consideration including tiered pricing. Allocation of contract revenues among Photonics military products, and the timing of the recognition of those revenues, is impacted by agreements with tiered pricing or variable rate structures. We include variable consideration in the estimated transaction price when there is a basis to reasonably estimate the amount of the consideration. These estimates are based on historical experience, anticipated performance and our best judgment at the time. Because of our certainty in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.
Accounting for CPFF and FFP contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For these contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events. These assumptions include the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative
catch-up
method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the quarter it is identified.
Government Grants and Credits
The Company generally records grants from governmental agencies related to income as a reduction in operating expense. Grants are recognized when there is reasonable assurance that the Company will comply with the conditions attached to the grant arrangement and the grant will be received. Reimbursements of eligible expenditures pursuant to government assistance programs are recorded as reductions of operating costs when the related costs have been incurred and there is reasonable assurance regarding collection of the claim. Grant claims not settled by the balance sheet date are recorded as receivables,
provided their receipt is reasonably assured. The determination of the
amount
of the claim, and accordingly the receivable amount, requires management to make calculations based on its interpretation of eligible expenditures in accordance with the terms of the programs. The reimbursement claims submitted by the Company are subject to review by the relevant government agencies. In Singapore, Intevac receives government assistance under the Job Support Scheme (“JSS”). During fiscal year beginning2020, the Company received $567,000 in JSS grants of which $328,000 is reported as a reduction of cost of net revenues, $90,000 is reported as a reduction of research and development (“R&D”) expenses and $149,000 is reported as a reduction of selling, general and administrative expenses on the consolidated statement of income.

45
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were not material for all periods presented.
Foreign Currency Translation
The functional currency of Intevac’s foreign subsidiaries in Singapore and Hong Kong and the Taiwan branch is the U.S. dollar. The functional currency of Intevac’s foreign subsidiaries in China, Malaysia and Korea is the local currency of the country in which the respective subsidiary operates. Assets and liabilities recorded in foreign currencies are translated at
year-end
exchange rates; revenues and expenses are translated at average exchange rates during the year. The effects of foreign currency translation adjustments are included in stockholders’ equity as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets. The effects of foreign currency transactions are included in other income (expense), net in the determination of net income. Losses from foreign currency transactions were $139,000 and $85,000 in 2020 and 2019, respectively.
Comprehensive Income
The changes in accumulated other comprehensive income by component, were as follows for the years ended January 2, 2021 and December 28, 2019:​​​​​​​
   
Foreign
currency
   
Unrealized holding
gains (losses) on
available-for-sale

investments
   
Total
 
   
(in thousands)
 
Balance at December 29, 2018
  $405   $(27)   $378 
                
Other comprehensive income (loss) before reclassification
   (24)    70    46 
Amounts reclassified from other comprehensive income (loss)
   —      —      —   
                
Net current-period other comprehensive income (loss)
   (24)    70    46 
                
Balance at December 28, 2019
  $381   $43   $424 
                
Other comprehensive income (loss) before reclassification
   221    (5)    216 
Amounts reclassified from other comprehensive income (loss)
   —      —      —   
                
Net current-period other comprehensive income (loss)
   221    (5)    216 
                
Balance at January 2, 2021
  $602   $38   $640 
                
Employee Stock Plans
Intevac has equity-based compensation plans that provide for the grant to employees of equity-based awards, including incentive or
non-statutory
stock options, performance-based stock options (“PSOs”), restricted stock, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and performance shares. In addition, these plans provide for the grant of
non-statutory
stock options and RSUs to
non-employee
directors and consultants. Intevac also has an employee stock purchase plan, which provides Intevac’s employees with the opportunity to purchase Intevac common stock at a discount through payroll deductions. See Note 3 for a complete description of these plans and their accounting treatment.

Recent Accounting Pronouncements Not Yet Adopted
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-04,
Reference Rate Reform (Topic 848)
. This ASU provides optional expedients and exceptions for applying U.S. generally accepted accounting principles to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. Adoption of the expedients and exceptions is permitted upon issuance of this update through December 31, 2017. 2022. The FASB also issued ASU
2021-01,
Reference Rate Reform (Topic 848): Scope
in January 2021. It clarifies that certain optional expedients and exceptions in Topic 848 apply to derivatives that are affected by the discounting transition. The amendments in this ASU affect the guidance in ASU
2020-04
and are effective in the same timeframe as ASU
2020-04.
We intend to adopt the new standard as of December 31, 2017, using the modified retrospective transition method applied to those contracts which weredo not completed as of that date. Upon adoption, we will recognize the cumulative effect of adopting this guidance as an adjustment to our opening balance of the accumulated deficit. Prior periods will not be retrospectively adjusted. Based on our preliminary assessment, we expect the adoption of Topic 606 will not have a material impact to our consolidated financial statements, including the presentation of revenues in our Consolidated Statements of Operations. We also do not expect the standardthis guidance to have a material impact on our Consolidated Balance Sheets.consolidated financial statements.

46
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In December 2019, the FASB issued ASU
2019-12,
Simplifying the Accounting for Income Taxes (ASC Topic 740)
. This ASU simplifies accounting for income taxes by removing certain exceptions to the general principles and amending existing guidance to improve consistent application. The immaterialCompany is required to adopt this guidance in the first quarter of fiscal year 2021. We do not expect the adoption of this guidance to have a material impact primarily relateson our consolidated financial statements.
In June 2016, the FASB issued ASU
2016-13,
Financial Instruments – Credit Losses 
(Topic 326).
This ASU amends the impairment model to reclassifications amongutilize an expected loss methodology in place of the currently used incurred loss methodology, which will result in the more-timely recognition of losses. This update becomes effective and will be adopted by Intevac in the first quarter of fiscal 2023. We are currently assessing how the adoption of this standard will impact our consolidated financial statement accounts to alignstatements.
2.    Revenue
The following tables represent a disaggregation of revenue from contracts with customers for fiscal 2020 and 2019 along with the new standard. Most notably, contractsreportable segment for each category.
Major Products and Service Lines
TFE
  
2020
   
2019
 
   
(in thousands)
 
   
HDD
   
DCP
   
PV
   
Total
   
HDD
   
DCP
   
PV
   
Total
 
Systems, upgrades and spare parts
  $45,620   $—     $426   $46,046   $52,759   $0     $15,653   $68,412 
Field service
   6,080    0      2    6,082    5,210    2    54    5,266 
                                         
Total TFE net revenues
  $51,700   $0—     $428   $52,128   $57,969   $02   $15,707   $73,678 
                                         
Photonics
  
2020
   
2019
 
   
(in thousands)
 
Products:
          
Military products
  $20,409   $12,480 
Commercial products
   395    640 
Repair and other services
   1,947    2,430 
           
Total Photonics product net revenues
   22,751    15,550 
Technology development:
          
FFP
   19,648    12,521 
CPFF
   3,297    7,134 
Time and materials
   0      2 
           
Total technology development net revenues
   22,945    19,657 
           
Total Photonics net revenues
  $45,696   $35,207 
           
Primary Geography Markets
   
2020
   
2019
 
   
(in thousands)
 
   
TFE
   
Photonics
   
Total
   
TFE
   
Photonics
   
Total
 
United States
  $6,450   $45,363   $51,813   $1,306   $34,664   $35,970 
Asia
   45,611    0—      45,611    72,372    —      72,372 
Europe
   67    333    400    —      543    543 
                               
Total net revenues
  $52,128   $45,696   $97,824   $73,678   $35,207   $108,885 
                               
47
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Timing of Revenue Recognition
   
2020
   
2019
 
   
(in thousands)
 
   
TFE
   
Photonics
   
Total
   
TFE
   
Photonics
   
Total
 
Products transferred at a point in time
  $52,128   $1,947   $54,075   $73,678   $2,430   $76,108 
Products and services transferred over time
   —      43,749    43,749    —      32,777    32,777 
                               
Total net revenues
   $52,128   $45,696   $97,824   $73,678   $35,207   $108,885 
                               
The following table reflects the changes in process, net will be reclassified as receivables orour contract assets, basedwhich we classify as accounts receivable, unbilled or retainage and our contract liabilities which we classify as deferred revenue and customer advances for fiscal 2020:
   
January 2,
2021
   
December 28,
2019
   
Change
 
   
(In thousands)
 
TFE:
               
Contract assets:
               
Accounts receivable, unbilled
  $369   $760   $(391) 
                
Contract liabilities:
               
Deferred revenue
  $482   $320   $162 
Customer advances
   33    4,007    (3,974) 
                
   $515   $4,327   $(3,812) 
                
Photonics:
               
Contract assets:
               
Accounts receivable, unbilled
  $5,439   $3,210   $2,229 
Retainage
   126    99    27 
                
             
   $5,565   $3,309   $2,256 
                
Contract liabilities:
               
Deferred revenue
  $779   $—     $779 
                
Accounts receivable, unbilled in our TFE segment represents a contract asset for revenue that has been recognized in advance of billing the customer. For our system and certain upgrade sales, our TFE customers generally pay in 3 installments, with a portion of the system price billed upon receipt of an order, a portion of the price billed upon shipment, and the balance of the price due upon completion of installation and acceptance of the system at the customer’s factory. Accounts receivable, unbilled in our TFE segment generally represents the balance of the system price that is due upon completion of installation and acceptance less the amount that has been deferred as revenue for the performance of the installation tasks. During fiscal 2020, contract assets in our TFE segment decreased by $391,000 primarily due to the final billing on two systems that were pending acceptance as of December 28, 2019 that completed installation and were accepted by the customer, offset by the accrual of revenue for an additional two systems delivered during fiscal 2020, one of which was pending acceptance as of January 2, 2021.
Customer advances in our TFE segment generally represent amounts billed or unbilled, respectively. Advance paymentsto the customer prior to transferring goods which represents a contract liability. The Company has elected to use the practical expedient to disregard the effect of the time value of money in a significant financing component when its payment terms are less than one year. These contract advances are liquidated when revenue is recognized. Deferred revenue in our TFE segment generally represents amounts billed to a customer for completed systems at the customer site that are undergoing installation and billingsacceptance testing where transfer of control has not yet occurred as Intevac does not yet have a demonstrated history of meeting the acceptance criteria upon the customer’s receipt of product and represents a contract liability. During fiscal 2020, we recognized revenue in excessour TFE segment of costs incurred$4.0 million and $203,000 that was included in customer advances and deferred revenue, will be combined and reclassified as contract liabilities. Our contract balances will be reportedrespectively, at the beginning of the period.
48
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Accounts receivable, unbilled in our Photonics segment represents a net contract asset for revenue that has been recognized in advance of billing the customer, which is common for contracts in the defense industry. In our Photonics segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. Our contracts with the U.S. government may also contain retainage provisions. Retainage represents a contract asset for the portion of the contract price earned by us for work performed, but held for payment by the U.S. government as a form of security until satisfactory completion of the contract. The retainage is billable upon completion of the contract performance and approval of final indirect expense rates by the government. During fiscal 2020, contract assets in our Photonics segment increased by $2.3 million primarily due to the revenue recognized on FFP contracts in advance of billing and the accrual of revenue incurred costs under CPFF contracts, offset in part by the completion of certain CPFF contracts and the final settlement of retainage amounts under certain CPFF contracts.
Deferred revenue in our Photonics segment generally represents a contract liability position on acontract-by-contract basisfor amounts billed to the customer upon achievement of contractual milestones. These amounts are liquidated when revenue is recognized.
On January 2, 2021 we had $ 46.9 million of remaining performance obligations, which we also refer to as backlog. Backlog at the endJanuary 2, 2021 consisted of each reporting period.

2.$5.6 million of TFE backlog and $41.3 million of Photonics backlog. We expect to recognize approximately 61% of our remaining performance obligations as revenue in 2021, 26% in 2022, 12% in 2023 and 1% in 2024.

3. Equity-Based Compensation

Intevac accounts for share-based awards in accordance with the provisions of the accounting guidance which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, consultants and directors based upon the grant-date fair value of those awards. The estimated fair value of Intevac’s equity-based awards is amortized over the awards’ service periods using the graded vesting attribution method.

Descriptions of Plans

Equity Incentive Plans

At December 30, 2017,January 2, 2021, Intevac had equity-based awards outstanding under the 2020 Equity Incentive Plan, the 2012 Equity Incentive Plan and the 2004 Equity Incentive Plan (the “Plans”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved all of these plans.

The Plans are a broad-based, long-term retention program intended to attract and retain qualified management and employees, and align stockholder and employee interests. The Plans permit the grant of incentive or
non-statutory
stock options, performance-based stock options (“PSOs”), restricted stock, stock appreciation rights, RSUsrestricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and performance shares. Option price, vesting period, and other terms are determined by the administrator of the Plans, but the option price shall generally not be less than 100% of the fair market value per share on the date of grant. As of December 30, 2017, 6.6January 2, 2021, 5.0 million shares of common stock were authorized for future issuance under the Plans. The 20122020 Equity Incentive Plan expires no later than May 8, 2022.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

13, 2030.

2003 Employee Stock Purchase Plan

In 2003, Intevac’s stockholders approved adoption of the ESPP, which serves as the successor to the Employee Stock Purchase Plan originally adopted in 1995. Upon adoption of the ESPP, all shares available for issuance under the prior plan were transferred to the ESPP.

The ESPP provides that eligible employees may purchase IntevacIntevac’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the beginningentry date of the applicable offering period or at the end of each applicable purchase interval. Offering periods are generally two years in length, and consist of a series of
six-month
purchase intervals. Eligible employees may join the ESPP at the beginning of any
six-month
purchase interval. Under the terms of the ESPP, employees can choose to have up to 15% of their base earnings withheld to purchase Intevac common stock. Beginning August 1, 2020, under the terms of the ESPP, employees can choose to have up to 50% of their base earnings withheld to purchase Intevac common stock (not to exceed $25,000 per year). As of December 30, 2017, 336,000January 2, 2021, 663,000 shares remained available for issuance under the ESPP.

49
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The effect of recording equity-based compensation for fiscal 2017, 20162020 and 20152019 was as follows (in thousands):

   2017   2016   2015 

Equity-based compensation by type of award:

      

Stock options

  $1,176   $880   $963 

RSUs

   2,598    2,190    1,711 

Employee stock purchase plan

   404    674    946 
  

 

 

   

 

 

   

 

 

 

Total equity-based compensation

  $4,178   $3,744   $3,620 
  

 

 

   

 

 

   

 

 

 

   
2020
   
2019
 
Equity-based compensation by type of award:
          
Stock options
   $504    $819 
RSUs
   1,936    1,657 
Employee stock purchase plan
   949    749 
           
Total equity-based compensation
  $3,389   $3,225 
           
Equity-based compensation expense is based on awards ultimately expected to vest and such amount has been historically reduced for estimated forfeitures. Beginning January 1, 2017,which vest. Intevac accounts for forfeitures as they occur, rather than estimating expected forfeitures. The net cumulative effect of this change was recognized as a $1.1 million increase to the accumulated deficit as of January 1, 2017.

Stock Options

The exercise price of each stock option equals the market price of Intevac’s stock on the date of grant. Most options are scheduled to vest over three and/or four years and expire no later than tenthanten years after the grant date. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. Intevac’s employee stock options have characteristics significantly different from those of publicly traded options. The weighted-average assumptions used in the model are outlined in the following table:

   2017  2016  2015 

Stock Options:

    

Weighted-average fair value of grants per share

  $4.52  $1.76  $2.05 

Expected volatility

   40.49%   43.86%   46.12% 

Risk free interest rate

   1.81%   0.97%   1.42% 

Expected term of options (in years)

   4.22   4.28   3.99 

Dividend yield

   None   None   None 

   
2020
  
2019
 
Stock Options:
         
Weighted-average fair value of grants per share
  $1.82  $2.06 
Expected volatility
   46.06%   43.23% 
Risk free interest rate
   0.44%   1.86% 
Expected term of options (in years)
   4.39   4.60 
Dividend yield
   NaN   NaN 
The computation of the expected volatility assumption used in the Black-Scholes calculations for new grants is based on historical volatility of Intevac’s stock price. The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term. The expected life of employee stock options

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards and vesting schedules. The dividend yield assumption is based on Intevac’s history of not paying dividends and the assumption of not paying dividends in the future.

Performance stock options (“PSOs”) vest upon the achievement of certain market conditions (our stock performance) during a set performance period (typically 4 years) subject to the grantee’s continued service with Intevac through the date the applicable market condition is achieved. The fair value is based on the values calculated under the Monte Carlo simulation model on the grant date. Compensation cost is not adjusted in future periods for subsequent changes in the expected outcome of market related conditions. The compensation expense is recognized over the derived service period. We granted
37,500
of such stock options to the chief executive officer in 2019. These PSOs have a derived service period of
1.1
years.
Intevac estimated the weighted-average fair value of PSOs using the following weighted-average assumptions:
   
2019
 
Weighted-average fair value of grants per share
  $1.75 
Expected volatility
   43.43% 
Risk free interest rate  1.96% 
Expected term (in years)
   4.60 
Dividend yield
   NaN 
50
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
A summary of the stock option activity is as follows:

   Shares  Weighted
Average
Exercise
Price		   Weighted Average
Remaining
Contractual Term
(years)		   Aggregate
Intrinsic
Value		 

Options outstanding at December 31, 2016

   2,740,364  $7.00    3.64   $5,837,900 

Options granted

   417,325  $12.28     

Options cancelled and forfeited

   (96,546)  $11.82     

Options exercised

   (135,282)  $6.49     
  

 

 

      

Options outstanding at December 30, 2017

   2,925,861  $7.62    3.00   $2,292,521 
  

 

 

      

Options exercisable at December 30, 2017

   2,125,416  $7.17    2.04   $1,686,673 

   
Shares
  
Weighted Average

Exercise Price
   
Weighted

Average
Remaining
Contractual
Term (years)
   
Aggregate

Intrinsic

Value
 
Options outstanding at December 28, 2019
   2,096,610  $6.63    3.75   $2,048,964 
Options granted
   6,000  $4.88           
Options cancelled and forfeited
   (220,971)  $6.88           
Options exercised
   (67,172)  $4.85           
                    
Options outstanding at January 2, 2021
   1,814,467  $6.66    3.08   $2,520,722 
                    
Options exercisable at January 2, 2021
   1,372,871  $6.77    2.52   $1,798,938 
The total intrinsic value of options exercised during fiscal years 2017, 20162020 and 20152019 was $586,000, $13,000$110,000 and $65,000,$249,000, respectively. At December 30, 2017,January 2, 2021, Intevac had $1.4 million$312,000 of total unrecognized compensation expense related to stock option plans that will be recognized over the weighted-average period of 1.31.03 years.

RSUs

A summary of the RSU activity is as follows:

   Shares  Weighted
Average Grant
Date Fair
Value		   Weighted Average
Remaining
Contractual
Term (years)		   Aggregate
Intrinsic
Value		 

Non-vested RSUs at December 31, 2016

   949,455  $4.64    1.04   $8,117,840 

Granted

   370,221  $11.37     

Vested

   (504,841)  $4.47     

Cancelled

   (45,384)  $7.06     
  

 

 

      

Non-vested RSUs at December 30, 2017

   769,451  $7.84    0.97   $5,270,739 
  

 

 

      

   
Shares
  
Weighted
Average
Grant Date
Fair Value
   
Weighted

Average
Remaining
Contractual
Term (years)
   
Aggregate
Intrinsic
Value
 
Non-vested
RSUs at December 28, 2019
   553,355  $6.15    1.30   $3,713,012 
Granted
   668,413  $4.87           
Vested
   (243,312)  $6.38           
Cancelled
   (76,822)  $4.26           
                    
Non-vested
RSUs at January 2, 2021
   901,634  $5.30    1.50   $6,500,781 
                    
Time-based RSUs are converted into shares of Intevac common stock upon vesting on a
one-for-one
basis. Time-based RSUs typically are scheduled to vest over three and/or four years. Vesting of time-based RSUs is subject to the grantee’s continued service with Intevac. The compensation expense related to these awards is determined using the fair market value of Intevac common stock on the date of the grant, and the compensation expense is recognized over the vesting period. At December 30, 2017,January 2, 2021, Intevac had $2.5 million of total unrecognized compensation expense related to RSUs that will be recognized over the weighted-average period of 1.01.50 years.

Market condition-based RSUs vest upon

In May 2020, we granted 109,465 performance-based restricted stock units (“PRSUs”) to members of our senior management. The PRSUs were issued collectively in four separate tranches with individual
one-year
performance periods beginning in May 2020, 2021, 2022 and 2023, respectively. Vesting of the achievement of certain market conditions (our stock performance) during a set performance period (typically five years) subject to the grantee’s continued service with Intevac through the date the applicable market condition is achieved. The fair valuePRSUs is based on the values calculated underperformance of our common stock relative to the performance of a peer group. The fair value of each PRSU award was estimated on the date of grant using a Monte Carlo simulation model onsimulation. PRSU activity is included in the grant date.above RSU tables. At the end of each performance measurement
period, the Compensation cost is not adjusted in future

Committee will determine the achievement against the performance objectives. Any earned PRSU awards will vest 100% after the end of the applicable performance measurement period.

Intevac estimated the weighted-average fair value of PRSUs using the following weighted-average assumptions:
   
2020
 
Weighted-average fair value of grants per share
  $3.16 
Expected volatility
   46.7% 
Risk-free interest rate
   0.25% 
Dividend yield
   NaN 
51
INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

periods for subsequent changes in the expected outcome of market related conditions. The compensation expense is recognized over the derived service period. Intevac granted 125,000 of such awards to certain executive officers in fiscal 2016. These awards have a derived service period of 2.8 years. The weighted-average assumptions used in the model are outlined in the following table.

   2016 

Weighted-average fair value of grants per share

  $2.46 

Expected volatility

   47.65% 

Risk free interest rate

   1.35% 

Expected term (in years)

   4.79 

Dividend yield

   None 

The annual bonus for certain participants in the Company’s annual incentive plan for fiscal 2016 was settled with RSUs with one year vesting issued in 2017. The Company recorded equity-based compensation expense related to the annual incentive plan of $102,000 in fiscal 2017 and $490,000 in fiscal 2016. In February 2017, 33 participants were granted stock awards to receive an aggregate of 134,000 shares of common stock with a weighted-average grant date fair value of $9.63 per share.

The annual bonus for certain participants in the Company’s annual incentive plan for fiscal 2015 was settled with RSUs with one year vesting issued in 2016. The Company recorded equity-based compensation expense related to the annual incentive plan of $324,000 in fiscal 2015. In February 2016, 34 participants were granted stock awards to receive an aggregate of 266,000 shares of common stock with a weighted-average grant date fair value of $4.40 per share.

ESPP

The fair value of the employee stock purchase right is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

   2017  2016  2015 

Stock Purchase Rights:

    

Weighted-average fair value of grants per share

  $2.75  $1.55  $2.14 

Expected volatility

   43.51%   39.22%   43.45% 

Risk free interest rate

   1.22%   0.75%   0.45% 

Expected term of purchase rights (in years)

   0.65   1.87   1.36 

Dividend yield

   None   None   None 

   
2020
  
2019
 
Stock Purchase Rights:
         
Weighted-average fair value of grants per share
  $2.20  $1.73 
Expected volatility
   51.49%   45.81% 
Risk free interest rate
   0.14%   2.28% 
Expected term of purchase rights (in years)
   1.24   0.91 
Dividend yield
   NaN   NaN 
The expected life of purchase rights is the period of time remaining in the current offering period.

The ESPP activity during fiscal 2017, 20162020 and 20152019 is as follows:

   2017   2016   2015 
   (in thousands, except per share amounts) 

Shares purchased

   406    384    374 

Weighted-average purchase price per share

  $3.82   $3.78   $3.90 

Aggregate intrinsic value of purchase rights exercised

  $2,673   $514   $688 

   
2020
   
2019
 
   
(in thousands, except per share amounts)
 
Shares purchased
   392    370 
Weighted-average purchase price per share
  $4.01   $3.96 
Aggregate intrinsic value of purchase rights exercised
  $765   $513 
As of December 30, 2017,January 2, 2021, Intevac had $34,000$1.2 million of total unrecognized compensation expense related to purchase rights that will be recognized over the weighted-average period of 0.081.11 years.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3.

4. Earnings Per Share

Intevac calculates basic earnings per share (“EPS”) using net income (loss) and the weighted-average number of shares outstanding during the reporting period. Diluted EPS includes the effect from potential issuance of common stock pursuant to the exercise of employee stock options and vesting of RSUs.

The following table sets forth the computation of basic and diluted net income (loss) per share:

   2017   2016   2015 
   (in thousands, except per share amounts) 

Net income (loss)

  $4,118   $(7,441)   $(9,166) 
  

 

 

   

 

 

   

 

 

 

Weighted-average shares – basic

   21,555    20,761    22,218 

Effect of dilutive potential common shares

   1,365    —      —   
  

 

 

   

 

 

   

 

 

 

Weighted-average shares – diluted

   22,920    20,761    22,218 
  

 

 

   

 

 

   

 

 

 

Net income (loss) per share – basic

  $0.19   $(0.36)   $(0.41) 
  

 

 

   

 

 

   

 

 

 

Net income (loss) per share – diluted

  $0.18   $(0.36)   $(0.41) 
  

 

 

   

 

 

   

 

 

 

   
2020
   
2019
 
   
(in thousands, except per share amounts)
 
Net income
  $1,056   $1,148 
           
Weighted-average shares – basic   23,669    23,063 
Effect of dilutive potential common shares
   482    277 
           
Weighted-average shares – diluted   24,151    23,340 
           
Net income per share –basic  $0.04   $0.05 
           
Net income per share –diluted  $0.04   $0.05 
           
The potentially dilutive securities were excluded (as common stock equivalents) from the computation of diluted net income (loss) per share for the periods presented as their effect would have been antidilutive:

   2017   2016   2015 
   (in thousands, except per share amounts) 

Stock options to purchase common stock

   867    2,740    2,434 

RSUs

   218    949    554 

Employee stock purchase plan

   —      181    168 

4.

   
2020
   
2019
 
   
(in thousands)
 
Stock options to purchase common stock
   935    1,235 
RSUs
   5    5 
Employee stock purchase plan
   103    3 
52
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
5. Concentrations

Credit Risk and Significant Customers

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash equivalents, short- and long-term investments, restricted cash, and accounts receivable. Intevac generally invests its excess cash in money market funds, certificates of deposit, commercial paper, obligations of the U.S. government and its agencies, corporate debt securities, asset backed securities and municipal bonds. The Company has adopted an investment policy and established guidelines relating to credit quality, diversification and maturities of its investments in order to preserve principal and maintain liquidity. All investment securities in Intevac’s portfolio have an investment grade credit rating.

Intevac’s accounts receivable tend to be concentrated in a limited number of customers. The following customers accounted for at least 10 percent of Intevac’s accounts receivable at December 30, 2017January 2, 2021 and December 31, 2016.

   2017  2016 

Seagate Technology

   70%   55% 

HGST

   *   10% 

28, 2019.
   
2020
  
2019
 
Seagate Technology
   45%   60% 
U.S. Government
   26%   25% 
HGST
   14%   0* 
*
Less than 10%

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Intevac’s largest customers tend to change from period to period. Historically, a significant portion of Intevac’s revenues in any particular period have been attributable to sales to a limited number of customers. Intevac performs credit evaluations of its customers’ financial condition and generally requires deposits on system orders but does not generally require collateral or other security to support customer receivables.

The following customers accounted for at least 10 percent of Intevac’s consolidated net revenues in fiscal 2017, 2016,2020 and/or 2015.

   2017  2016  2015 

Seagate Technology

   40%   34%   22% 

U.S. Government

   15%   22%   26% 

Elbit Systems of America

   *   10%   * 

HGST

   *   *   15% 

2019.
   
2020
  
2019
 
Seagate Technology
   42%   49% 
U.S. Government
   29%   20% 
Elbit Systems of America
   12%   0* 
Jolywood (Hongkong) Industrial Holdings Co., Limited
   0*   14% 
*
Less than 10%

Products

Disk manufacturing products contributed a significant portion of Intevac’s revenues in fiscal 2017, 2016,2020 and 2015.2019. Intevac expects that the ability to maintain or expand its current levels of revenues in the future will depend upon continuing market demand for its products; its success in enhancing its existing systems and developing and manufacturing competitive disk manufacturing equipment, such as the 200 Lean; its success in utilizing Intevac’s expertise in complex manufacturing equipment to develop and sell new manufacturing equipment products for PV, DCP and DCP manufacturingadvanced semiconductor packaging and Intevac’s success in developing military products based on its
low-light
technology.

5.

53
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
6. Balance Sheet Details

Balance sheet details were as follows as of December 30, 2017January 2, 2021 and December 31, 2016:

28, 2019:

Trade and Other Accounts Receivable, Net

Receivables consisted of the following components:

   December 30,   December 31, 
   2017   2016 
   (in thousands) 

Trade receivables and other

  $17,479   $15,167 

Unbilled costs and accrued profits

   2,995    2,280 

Less: allowance for doubtful accounts

   —      —   
  

 

 

   

 

 

 
  $20,474   $17,447 
  

 

 

   

 

 

 

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

   
January 2,
   
December 28,
 
   
2021
   
2019
 
   
(in thousands)
 
Trade receivables and other
  $22,712   $24,472 
Unbilled costs and accrued profits
   5,934    4,069 
Income tax receivable
   —      78 
Less: allowance for doubtful accounts
   —      —   
           
   $28,646   $28,619 
           
Inventories

Inventories are stated at the lower of average cost or marketnet realizable value and consist of the following:

   December 30,   December 31, 
   2017   2016 
   (in thousands) 

Raw materials

  $19,881   $10,290 

Work-in-progress

   9,433    6,470 

Finished goods

   4,478    8,116 
  

 

 

   

 

 

 
  $33,792   $24,876 
  

 

 

   

 

 

 

   
January 2,
   
December 28,
 
   
2021
   
2019
 
   
(in thousands)
 
Raw materials
  $9,999   $15,286 
Work-in-progress
   4,832    4,748 
Finished goods
   6,858    4,873 
           
   $21,689   $24,907 
           
Finished goods inventory consists primarily of completed systems at customer sites that are undergoing installationJanuary 2, 2021 and acceptance testing.

December 28, 2019 included one VERTEX SPECTRA system for DCP under evaluation at a customer’s factory and one MATRIX PVD system for advanced semiconductor packaging under evaluation at a customer’s factory.

Property, Plant and Equipment

   December 30,   December 31, 
   2017   2016 
   (in thousands) 

Leasehold improvements

  $15,035   $14,653 

Machinery and equipment

   44,766    41,678 
  

 

 

   

 

 

 
   59,801    56,331 

Less accumulated depreciation and amortization

   47,323    45,094 
  

 

 

   

 

 

 

Total property, plant and equipment, net

  $12,478   $11,237 
  

 

 

   

 

 

 

Customer Advances

Customer advances generally represent nonrefundable deposits invoiced by the Company in connection with receiving customer purchase orders

   
January 2,
2021
   
December 28,
2019
 
   
(in thousands)
 
Leasehold improvements
  $16,323   $15,037 
Machinery and equipment
   46,846    46,674 
           
    63,169    61,711 
Less accumulated depreciation and amortization
   52,165    50,113 
           
Total property, plant and equipment, net
  $11,004   $11,598 
           
Deferred Income Taxes and other events preceding acceptance of systems. Customer advances related to products that have not been shipped to customers and included in accounts receivable were $206,000 at December 30, 2017 and $53,000 at December 31, 2016, respectively.

Accounts Payable

Included in accounts payable is $163,000 and $349,000 of book overdraft at December 30, 2017 and December 31, 2016, respectively.

Other Accrued Liabilities

   December 30,
2017		   December 31,
2016		 
   (in thousands) 

Deferred revenue

  $5,287   $14,416 

Other taxes payable

   860    660 

Accrued product warranties

   757    829 

Income taxes payable

   262    246 

Acquisition-related contingent consideration

   103    329 

Other

   419    531 
  

 

 

   

 

 

 

Total other accrued liabilities

  $7,688   $17,011 
  

 

 

   

 

 

 

Long-Term Assets

   
January 2,
2021
   
December 28,
2019
 
   
(in thousands)
 
Deferred income taxes
  $5,335   $6,252 
Prepaid expenses
   151    —   
Purchased intangible assets, net
   —      274 
Income tax receivable
   —      78 
           
   $5,486   $6,604 
           
54
INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Accounts Payable
Included in accounts payable is $84,000 and $512,000 of book overdraft at January 2, 2021 and December 28, 2019, respectively.
Other Accrued Liabilities
   
January 2,
2021
   
December 28,
2019
 
   
(in thousands)
 
Deferred revenue
  $1,261   $320 
Other taxes payable
   935    1,155 
Accrued product warranties
   405    846 
Income taxes payable
   263    403 
Other
   734    869 
           
Total other accrued liabilities
  $3,598   $3,593 
           
Other Long-Term Liabilities

   December 30,
2017		   December 31
2016		 
   (in thousands) 

Deferred rent

  $2,299   $2,392 

Acquisition-related contingent consideration

   259    430 

Accrued product warranties

   237    178 

Accrued income taxes

   84    82 
  

 

 

   

 

 

 

Total other long-term liabilities

  $2,879   $3,082 
  

 

 

   

 

 

 

6.

   
January 2,
2021
   
December 28,
2019
 
   
(in thousands)
 
Employer payroll taxes
  $382   $—   
Accrued product warranties
   75    176 
Accrued income taxes
   —      10 
           
Total other long-term liabilities
  $457   $186 
           
7. Purchased Intangible Assets, Net

Information regarding

As of January 2, 2021, all acquisition-related intangible assets is as follows:

   December 30, 2017   December 31, 2016 
   Gross
Carrying
Amount		   Accumulated
Amortization		   Net
Carrying
Amount		   Gross
Carrying
Amount		   Accumulated
Amortization		   Net
Carrying
Amount		 
   (in thousands) 

Customer relationships

  $3,119   $2,997   $122   $3,119   $2,869   $250 

Purchased technology

   5,148    3,767    1,381    5,148    3,140    2,008 

Covenants not to compete

   40    40    —      40    40    —   

Backlog

   80    80    —      80    80    —   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total amortizable intangible assets

  $8,387   $6,884   $1,503   $8,387   $6,129   $2,258 
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Intangiblehad reached the end of their useful lives and did not have any remaining carrying value. The carrying value of acquisition-related intangible assets by segmentsubject to amortization, excluding fully amortized intangible assets, as of December 30, 2017 are as follows: Thin-film Equipment; $1.4 million and Photonics; $122,000.

28, 2019 is set forth in the following table:

   
December 28, 2019
 
   
Gross Carrying
Amount
   
Accumulated
Amortization
   
Net Carrying
Amount
 
   
(in thousands)
 
Customer relationships
  $560   $524   $36 
Purchased technology
   4,000    3,762    238 
                
Total amortizable intangible assets
  $4,560   $4,286   $274 
                
Total amortization expense of purchased intangibles was $274,000 for fiscal 2017, 20162020 and 2015 was $755,000, $854,000, and $854,000 respectively.

Estimated future amortization expense related to finite-lived purchased intangible assets as of December 30, 2017, is as follows.

(in thousands)    

2018

  $615 

2019

   615 

2020

   273 
  

 

 

 
  $1,503 
  

 

 

 

7.$615,000 for fiscal 2019.

8. Contingent Consideration

In connection with the acquisition of SIT, Intevac agreed to pay up to an aggregate of $7.0 million in cash to the selling shareholders if certain milestones were achieved over a specified period. Intevac has made payments to the selling shareholders for achievement of the first milestone in 2011, and for achievement of the second and third milestones in 2012. The fourth and final milestone was not achieved on the targeted date outlined in the acquisition agreement and will not be paid. There is no remaining contingent consideration obligation associated with the milestone agreement at December 30, 2017.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In connection with the acquisition of SIT, Intevac also agreed to pay to the selling shareholders in cash a revenue earnout on Intevac’s net revenuerevenues from commercial sales of certain products over a specified period up to an aggregate of $9.0 million. Intevac estimated the fair value of thisThe earnout period terminated on June 30, 2019. There is 0 remaining contingent consideration on December 30, 2017 based on probability-based forecasted revenues reflecting Intevac’s own assumptions concerning future revenue from such products.

The fair value measurement of contingent consideration is based on significant inputs not observable inobligation associated with the market and thus represents a Level 3 measurement. The following table represents the quantitative range of the significant unobservable inputs used in the calculation of fair value of the contingent consideration liability as of December 30, 2017. Significant increases or decreases in any of these inputs even in isolation would result in a significantly lower (higher) fair value measurement.

Quantitative Information about Level 3 Fair Value Measurements at December 30, 2017

  Fair Value 

Valuation Technique

 

Unobservable Input

 

Range

(Weighted Average)

  (in thousands, except for percentages)
Revenue Earnout $362 Discounted cash flow Weighted-average cost of capital 12.1%
   Probability weighting of achieving revenue forecasts 10.0% - 80.0% (37.1%)

Any change in fair value of the contingent consideration subsequent to the acquisition date is recognized in operating income within the consolidated statement of operations. earnout agreement at January 2, 2021.

55
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability for fiscal 2017, 2016 and 2015:

   2017   2016   2015 
   (in thousands) 

Beginning balance

  $759   $890   $1,134 

Changes in fair value

   (223)    (100)    (244) 

Cash payments made

   (174)    (31)    —   
  

 

 

   

 

 

   

 

 

 

Ending balance

  $362   $759   $890 
  

 

 

   

 

 

   

 

 

 

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8.2019:

   
2019
 
   
(in thousands)
 
Beginning balance
  $223 
Changes in fair value
   7 
Cash payments made
   (230) 
      
Ending balance
  $—   
      
9. Financial Instruments

Cash, Cash Equivalents and Investments

Cash and cash equivalents, short-term investments and long-term investments consist of:

   December 30, 2017 
   Amortized
Cost		   Unrealized
Holding
Gains		   Unrealized
Holding
Losses		   Fair
Value		 
   (in thousands) 

Cash and cash equivalents:

        

Cash

  $13,195   $—     $—     $13,195 

Money market funds

   6,746    —      —      6,746 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

  $19,941   $—     $—     $19,941 

Short-term investments:

        

Certificates of deposit

  $2,500   $1   $1   $2,500 

Commercial paper

   3,291    —      —      3,291 

Corporate bonds and medium-term notes

   4,502    —      5    4,497 

Municipal bonds

   500    —      3    497 

U.S. treasury and agency securities

   4,917    —      4    4,913 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term investments

  $15,710   $1   $13   $15,698 

Long-term investments:

        

Asset backed securities

  $500   $—     $—     $500 

Corporate bonds and medium-term notes

   4,384    —      21    4,363 

U.S. treasury and agency securities

   1,998    —      12    1,986 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term investments

  $6,882   $—     $33   $6,849 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cash, cash equivalents, and investments

  $42,533   $1   $46   $42,488 
  

 

 

   

 

 

   

 

 

   

 

 

 

   
January 2, 2021
 
   
Amortized Cost
   
Unrealized
Holding Gains
   
Unrealized
Holding Losses
   
Fair Value
 
   
(in thousands)
 
Cash and cash equivalents:
                    
Cash
  $24,729   $—     $—     $24,729 
Money market funds
   3,612    —      —      3,612 
Certificates of deposit
   1,000    —      —      1,000 
                     
Total cash and cash equivalents
  $29,341   $—     $—     $29,341 
Short-term investments:
                    
Certificates of deposit
  $6,450   $2   $—     $6,452 
Commercial paper
   500    —      —      500 
Corporate bonds and medium-term notes
   2,929    6    —      2,935 
Municipal bonds
   400    —      —      400 
U.S. treasury securities
   4,527    25    —      4,552 
                     
Total short-term investments
  $14,806   $33   $—     $14,839 
Long-term investments:
                    
Certificates of deposit
  $500   $—     $—     $500 
Corporate bonds and medium-term notes
   3,474    4    —      3,478 
U.S. treasury securities
   1,409    1    —      1,410 
                     
Total long-term investments
  $5,383   $5   $—     $5,388 
                     
Total cash, cash equivalents, and investments
  $49,530   $38   $—     $49,568 
                     
56
INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

   December 31, 2016 
   Amortized
Cost		   Unrealized
Holding
Gains		   Unrealized
Holding
Losses		   Fair
Value		 
   (in thousands) 

Cash and cash equivalents:

        

Cash

  $18,726   $—     $—     $18,726 

Money market funds

   8,317    —      —      8,317 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cash and cash equivalents

  $27,043   $—     $—     $27,043 

Short-term investments:

        

Commercial paper

  $1,992   $—     $1   $1,991 

Corporate bonds and medium-term notes

   8,586    —      6    8,580 

Municipal bonds

   600    —      —      600 

U.S. treasury and agency securities

   6,432    —      1    6,431 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total short-term investments

  $17,610   $—     $8   $17,602 

Long-term investments:

        

Corporate bonds and medium-term notes

  $2,510   $—     $11   $2,499 

Municipal bonds

   500    —      4    496 

U.S. treasury and agency securities

   597    1    —      598 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total long-term investments

  $3,607   $1   $15   $3,593 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total cash, cash equivalents, and investments

  $48,260   $1   $23   $48,238 
  

 

 

   

 

 

   

 

 

   

 

 

 

   
December 28, 2019
 
   
Amortized Cost
   
Unrealized
Holding Gains
   
Unrealized
Holding Losses
   
Fair Value
 
   
(in thousands)
 
Cash and cash equivalents:
                    
Cash
  $16,512   $—     $—     $16,512 
Money market funds
   3,255    —      —      3,255 
                     
Total cash and cash equivalents
  $19,767   $—     $—     $19,767 
Short-term investments:
                    
Certificates of deposit
  $3,000   $1   $—     $3,001 
Commercial paper
   1,891    2    —      1,893 
Corporate bonds and medium-term notes
   6,383    25    —      6,408 
U.S. treasury securities
   5,417    1    —      5,418 
                     
Total short-term investments
  $16,691   $29   $—     $16,720 
Long-term investments:
                    
Certificates of deposit
  $499   $1   $—     $500 
Corporate bonds and medium-term notes
   2,530    12    —      2,542 
U.S. treasury securities
   2,494    1    —      2,495 
                     
Total long-term investments
  $5,523   $14   $—     $5,537 
                     
Total cash, cash equivalents, and investments
  $41,981   $43   $—     $42,024 
                     
The contractual maturities of
available-for-sale
securities at December 30, 2017January 2, 2021 are presented in the following table.

   Amortized
Cost		   Fair
Value		 
   (in thousands) 

Due in one year or less

  $22,456   $22,444 

Due after one through five years

   6,882    6,849 
  

 

 

   

 

 

 
  $29,338   $29,293 
  

 

 

   

 

 

 

The following table provides the fair market value of Intevac’s investments with unrealized losses that are not deemed to be other-than temporarily impaired as of December 30, 2017.

   December 30, 2017 
   In Loss Position for
Less than 12 Months		   In Loss Position for
Greater than 12 Months		 
   Fair
Value		   Gross
Unrealized
Losses		   Fair
Value		   Gross
Unrealized
Losses		 
   (in thousands) 

Certificates of deposit

  $1,249   $1   $—     $—   

Corporate bonds and medium-term notes

   7,446    23    1,099    3 

Municipal bonds

   —      —      497    3 

U.S. treasury and agency securities

   5,882    16    —      —   
  

 

 

   

 

 

   

 

 

   

 

 

 
  $14,577   $40   $1,596   $6 
  

 

 

   

 

 

   

 

 

   

 

 

 

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

   
Amortized Cost
   
Fair Value
 
   
(in thousands)
 
Due in one year or less
  $19,418   $19,451 
Due after one through five years
   5,383    5,388 
           
   $24,801   $24,839 
           
All prices for the fixed maturity securities including U.S. treasury and agency securities, certificates of deposit, commercial paper, corporate bonds, asset backed securities and municipal bonds are received from independent pricing services utilized by Intevac’s outside investment manager. This investment manager performs a review of the pricing methodologies and inputs utilized by the independent pricing services for each asset type priced by the vendor. In addition, on at least an annual basis, the investment manager conducts due diligence visits and interviews with each pricing vendor to verify the inputs utilized for each asset class. The due diligence visits include a review of the procedures performed by each vendor to ensure that pricing evaluations are representative of the price that would be received to sell a security in an orderly transaction. Any pricing where the input is based solely on a broker price is deemed to be a Level 3 price. Intevac uses the pricing data obtained from its outside investment manager as the primary input to make its assessments and determinations as to the ultimate valuation of the above-mentioned securities and has not made, during the periods presented, any material adjustments to such inputs.

57
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table represents the fair value hierarchy of Intevac’s
available-for-sale
securities measured at fair value on a recurring basis as of December 30, 2017.

   Fair Value Measurements
at December 30, 2017		 
   Total   Level 1   Level 2 
   (in thousands) 

Recurring fair value measurements:

      

Available-for-sale securities

      

Money market funds

  $6,746   $6,746   $—   

U.S. treasury and agency securities

   6,899    4,876    2,023 

Certificates of deposit

   2,500    —      2,500 

Commercial paper

   3,291    —      3,291 

Asset backed securities

   500    —      500 

Corporate bonds and medium-term notes

   8,860    —      8,860 

Municipal bonds

   497    —      497 
  

 

 

   

 

 

   

 

 

 

Total recurring fair value measurements

  $29,293   $11,622   $17,671 
  

 

 

   

 

 

   

 

 

 

January 2, 2021.

   
Fair Value Measurements

at January 2, 2021
 
   
Total
   
Level 1
   
Level 2
 
   
(in thousands)
 
Recurring fair value measurements:
               
Available-for-sale
securities
               
Money market funds
  $3,612   $3,612   $—   
U.S. treasury securities
   5,962    5,962    —   
Certificates of deposit
   7,952    —      7,952 
Commercial paper
   500    —      500 
Corporate bonds and medium-term notes
   6,413    —      6,413 
Municipal bonds
   400    —      400 
                
Total recurring fair value measurements
  $24,839   $9,574   $15,265 
                
Derivatives

The Company uses foreign currency forward contracts to mitigate variability in gains and losses generated from the
re-measurement
of certain monetary assets and liabilities denominated in foreign currencies and to offset certain operational exposures from the impact of changes in foreign currency exchange rates. These derivatives are carried at fair value with changes recorded in interest income and other, net in the consolidated statements of operations.income. Changes in the fair value of these derivatives are largely offset by
re-measurement
of the underlying assets and liabilities. Cash flows from such derivatives are classified as operating activities. The derivatives have maturities of approximately 30approximately30 days.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the Company’s outstanding derivative instruments on a gross basis as recorded in its consolidated balance sheets as of December 30, 2017January 2, 2021 and December 31, 2016:

   Notional Amounts   Derivative Liabilities 

Derivative Instrument

  December 30,
2017		   December 31,
2016		   December 30,
2017		   December 31,
2016		 
           Balance
Sheet
Line		   Fair
Value		   Balance
Sheet
Line		   Fair
Value		 
   (In thousands) 

Undesignated Hedges:

            

Forward Foreign Currency Contracts

   $1,276    $1,146    (a)   $5    (a)    $8 
  

 

 

   

 

 

     

 

 

     

 

 

 

Total Hedges

   $1,276    $1,146      $5      $8 
  

 

 

   

 

 

     

 

 

     

 

 

 

28, 2019:
   
Notional Amounts
   
Derivative Liabilities
 
Derivative Instrument
  
January 2,
2021
   
December 28,
2019
   
January 2,
2021
   
December 28,
2019
 
           
Balance

Sheet

Line
   
Fair

Value
   
Balance

Sheet

Line
   
Fair

Value
 
   
(in thousands)
                 
Undesignated Hedges:
                              
Forward Foreign Currency Contracts
  $983    1,035    *    $3    *     $4 
                               
Total Hedges
  $983    1,035        $3        $4 
                               
(a)*
Other accrued liabilities

9.

10. Equity

Stock Repurchase Program

On November 21, 2013, Intevac’s Board of Directors approved a stock repurchase program authorizing up to $30.0 million in repurchases. On August 15, 2018, Intevac’s Board of Directors approved a $10.0 million increase to the original stock repurchase program authorizing up to $40.0 million. Under this authorization, Intevac purchases shares of its common stock under a systematic stock repurchase program and may also make supplemental stock repurchases from time to time, depending on market conditions, stock price and other factors.

On November 12, 2015, Intevac entered into a Share Repurchase Agreement with Northern Right Capital Management, L.P. and certain of its affiliated funds, including on behalf of a managed account (collectively, “NRC”), whereby Intevac repurchased 1,483,171 shares of its common stock from NRC in a privately negotiated transaction at a purchase price of $4.98 per share, for an aggregate purchase price of $7.4 million. The repurchase was made in conjunction with Intevac’s stock repurchase program.

At December 30, 2017, $1.5January 2, 2021, $10.4 million remains available for future stock repurchases under the repurchase program.

58
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table summarizes Intevac’s stock repurchases for fiscal 2017, 20162020 and 2015:

   2017   2016   2015 
   (in thousands, except per share amounts) 

Shares of common stock repurchased

   —      —      3,419 

Cost of stock repurchased

  $—     $—     $18,503 

Average price paid per share

  $—     $—     $5.39 

2019:

   
2020
   
2019
 
   
(in thousands, except per share amounts)
 
Shares of common stock repurchased
   98    24 
Cost of stock repurchased
  $393   $111 
Average price paid per share
  $3.97   $4.67 
Intevac records treasury stock purchases under the cost method using the
first-in,
first-out
(FIFO) method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional
paid-in
capital. If Intevac reissues treasury stock at an amount below its acquisition cost and additional
paid-in
capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded against retained earnings.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

10.the accumulated deficit.

11. Income Taxes

The provision for income taxes on lossincome from continuing operations for fiscal 2017, 20162020 and 20152019 consists of the following (in thousands):

   2017   2016   2015 

Federal:

      

Current

  $—     $—     $—   

Deferred

   —      —      —   
  

 

 

   

 

 

   

 

 

 
   —      —      —   

State:

      

Current

   13    5    6 

Deferred

   —      —      —   
  

 

 

   

 

 

   

 

 

 
   13    5    6 

Foreign:

      

Current

   1,091    237    561 

Deferred

   (1)    9    (12) 
  

 

 

   

 

 

   

 

 

 
   1,090    246    549 

Total

  $1,103   $251   $555 
  

 

 

   

 

 

   

 

 

 

   
2020
   
2019
 
Federal:
          
Current
  $(915)   $—   
Deferred
   0      0   
           
    (915)    —   
State:
          
Current
   4    4 
Deferred
   0      0   
           
    4    4 
Foreign:
          
Current
   1,705    1,694 
Deferred
   917    1,661 
           
    2,622    3,355 
Total
  $1,711   $3,359 
           
Income (loss) before income taxes for fiscal 2017, 20162020 and 20152019 consisted of the following (in thousands):

   2017  2016  2015 

U.S

  $(794)  $(8,703)  $(9,538) 

Foreign

   6,015   1,513   927 
  

 

 

  

 

 

  

 

 

 
  $5,221  $(7,190)  $(8,611) 
  

 

 

  

 

 

  

 

 

 

Effective tax rate

   21.1%   (3.5)%   (6.4)% 
  

 

 

  

 

 

  

 

 

 

   
2020
  
2019
 
U.S
  $(3,293)  $(4,875) 
Foreign
   6,060   9,382 
          
   $2,767  $4,507 
          
Effective tax rate
   61.8%   74.5% 
          
59
INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for income tax purposes. Significant components of deferred tax assets are as follows (in thousands):

   December 30,
2017		  December 31,
2016		 

Deferred tax assets:

   

Vacation, warranty and other accruals

  $601  $926 

Depreciation and amortization

   91   600 

Intangible amortization

   1,071   2,060 

Inventory valuation

   1,341   3,091 

Deferred income

   22   29 

Equity-based compensation

   2,636   3,821 

Net operating loss, research and other tax credit carryforwards

   52,882   54,844 

Other

   543   918 
  

 

 

  

 

 

 
   59,187   66,289 

Valuation allowance for deferred tax assets

   (58,455)   (65,189) 
  

 

 

  

 

 

 

Total deferred tax assets

   732   1,100 
  

 

 

  

 

 

 

Deferred tax liabilities:

   

Purchased technology

   (307)   (720) 

Unbilled revenue

   (421)   (377) 
  

 

 

  

 

 

 

Total deferred tax liabilities

   (728)   (1,097) 
  

 

 

  

 

 

 

Net deferred tax assets

  $4  $3 
  

 

 

  

 

 

 

As reported on the balance sheet:

   

Non-current deferred tax assets

  $4  $3 
  

 

 

  

 

 

 

   
January 2,
2021
  
December 28,
2019
 
Deferred tax assets:
         
Vacation, warranty and other accruals
  $651  $635 
Depreciation and amortization
   —     89 
Intangible amortization
   551   804 
Purchased technology
   14   —   
Inventory valuation
   1,101   1,288 
Equity-based compensation
   1,494   1,593 
Net operating loss, research and other tax credit carryforwards
   55,322   54,818 
Other
   30   43 
          
    59,163   59,270 
Valuation allowance for deferred tax assets
   (52,088)   (52,099) 
          
Total deferred tax assets
   7,075   7,171 
          
Deferred tax liabilities:
         
Depreciation and amortization
   (341)   —   
Purchased technology
   —     (45) 
Unbilled revenue
   (1,399)   (874) 
          
Total deferred tax liabilities
   (1,740)   (919) 
          
Net deferred tax assets
  $5,335  $6,252 
          
As reported on the balance sheet:
         
Non-current
deferred tax assets
  $5,335  $6,252 
          
Intevac accounts for income taxes in accordance with accounting standards for such taxes, which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the financial reporting and tax bases of recorded assets and liabilities.

Accounting standards also require that deferred tax assets be reduced by a valuation allowance if it is more likely than not that some portion of or all of the deferred tax asset will not be realized. Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. In fiscal 2014, a valuation allowance of $9.4 million was established to record the portion of the Singapore deferred tax asset that more likely than not will not be realized. The Company recordedconcluded that, as of December 29, 2018, it is more likely than not that the Company will generate sufficient taxable income in Singapore to realize its deferred tax assets and reversed the valuation allowance decreasesduring the fourth quarter of $603,0002018. This reversal resulted in the recognition of a
non-cash
income tax benefit of $7.9 million for fiscal 20172018. The Company has considered all positive and $136,000 for fiscal 2016, respectively, fornegative evidence regarding the Singaporeability to fully realize the deferred tax asset. The Company recorded aasset, including past operating results and the forecast of future taxable income. This conclusion, and the resulting reversal of the deferred tax asset valuation allowance, increasewas based upon consideration of $631,000 for fiscal 2015 fora number of factors, including the SingaporeCompany’s completion of 7 consecutive quarters of profitability and its forecast of future profitability under multiple scenarios that support the utilization of net operating loss carryforwards. After recognizing the reversal, the Company does not have a remaining valuation allowance against the deferred tax asset.

assets in Singapore at January 2, 2021.

In fiscal 2012, a valuation allowance of $23.4 million was established to record the portion of the U.S. federal deferred tax asset that more likely than not will not be realized. For fiscal 2017,2020 a valuation allowance decrease of $6.9 million$416,000 and for fiscal 2019 a valuation allowance decrease of $689,000, respectively, were recorded for the U.S. federal deferred tax asset was recorded. This decrease was a result of revaluing our deferred tax assets and liabilities at the newly enacted U.S federal tax rate. For fiscal 2016, 2015, 2014 and 2013, valuation allowance increases of $3.3 million, $1.6 million, $4.7 million and $7.2 million, respectively, for the U.S. federal deferred tax asset were recorded.asset. A valuation allowance is recorded against the entire state deferred tax asset which consists of state income tax temporary differences and deferred research and other tax credits that are not realizable in the foreseeable future.

60
INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased, or if objective negative evidence in the form of cumulative losses is no longer present and additional weight may be given to subjective evidence such as our projections for growth.

As of December 30, 2017,January 2, 2021, our federal, foreign and state net operating loss carryforwards for income tax purposes were approximately $65.1$71.0 million, $54.8$30.3 million and $56.2$70.8 million, respectively. The federal and state net operating loss carryforwards are subject to various limitations under Section 382 of the Internal Revenue Code and applicable state tax laws. If not utilized, the federal net operating loss carryforwards and the state net operating loss carryforwards will begin to expire in 2028.2029 and 2028, respectively. The foreign net operating loss carryforwards do not expire. As of December 30, 2017,January 2, 2021, our federal and state tax credit carryforwards for income tax purposes were approximately $15.5$19.1 million and $14.3$16.8 million, respectively. If not utilized, the federal tax credit carryforwards will begin to expire in 20192021 and the state tax credits carry forward indefinitely.

We account for Global Intangible
Low-Taxed
Income (“GILTI”) earned by certain foreign subsidiaries in the year the tax is incurred.
The Tax CutsCoronavirus Aid, Relief, and JobsEconomic Security Act (“theCARES Act”) was enacted on December 22, 2017.March 27, 2020 in the United States. The CARES Act reducesincludes several significant provisions for corporations, including the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay aone-time transition tax on earningsusage of certainnet operating losses and payroll benefits. Several foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. At December 30, 2017,
(non-U.S.)
jurisdictions in which we operate have not completed our accounting fortaken similar economic stimulus measures. The Company evaluated the tax effects of enactmentprovisions of the Act; however, in certain cases,CARES Act and other
non-U.S.
economic measures and determined the impact on our financial position at January 2, 2021 and on the results of operations and cash flows for fiscal 2020 to be as described below,follows.
Under the CARES Act, we have made a reasonable estimateelected to defer payment, on an interest-free basis, of the effectsemployer portion of social security payroll taxes incurred from March 27, 2020 to December 31, 2020.
One-half
of such deferral amount will become due on our existingeach of December 31, 2021 and December 31, 2022. We elected to utilize this deferral program to delay payment of approximately $764,000 of the employer portion of payroll taxes which were incurred between March 27, 2020 and December 31, 2020. On the consolidated balance sheets, the short-term portion of the deferred payroll tax balances and theone-time transition tax. In other cases, we have not been able to make a reasonable estimate and continue to account for those items based on our existing accounting under ASC 740, Income Taxes. For the items for which we were able to determine a reasonable estimate, we recognized a provisional amount of $1.8 million, whichliability is included in accrued payroll and related liabilities, while the long-term portion is included in other long-term liabilities. The Company also utilized the employee retention tax credit under the CARES Act for certain qualifying employee salary and wage expenditures. Tax benefits under the employee retention tax credit are not significant. Additionally, the CARES Act accelerated the timing of the refund for alternative minimum tax (“AMT”) credits. The entire balance of the income tax refund receivable of $157,000 was received in fiscal 2020.
In Singapore, Intevac receives government assistance under the Job Support Scheme (“JSS”). The purpose of the JSS is to provide wage support to employers to help them retain their local employees. During fiscal 2020, the Company received $567,000 in JSS grants, of which $328,000 is reported as a componentreduction of income tax expense from continuing operationscost of net revenues, $90,000 is reported as a reduction of R&D expenses and fully offset by the current operating loss.

Deferred tax assets$149,000 is reported as a reduction of selling, general and liabilities: Were-measured certain deferred tax assets and liabilities basedadministrative expenses on the rates at which they are expected to reverse in the future, which is generally 21%. However, we are still analyzing certain aspectsconsolidated statement of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to there-measurement of our deferred tax balance was $9.2 million.

Foreign tax effects: Theone-time transition tax is based on our total post-1986 earnings and profits (“E&P”) for which we have previously deferred from U.S. income taxes. We recorded a provisional amount for ourone-time transition tax liability for seven of our foreign subsidiaries, resulting in no increase in income tax expense due to current losses. We have not yet completed our calculation of the total post-1986 foreign E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 foreign E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax and any additional outside basis difference inherent in these entities as these amounts continue to be indefinitely reinvested in foreign operations. The Company did not have the necessary information prepared or analyzed to develop a reasonable estimate of the tax liability, if any, for its remaining outside basis difference including any deferred tax accounting that may be required due to other provisions in the Act beyond theone-time transition tax, including how that accounting may be affected by the Company’s ongoing accounting position to indefinitely reinvest unremitted foreign earnings.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

income.

The difference between the tax provision (benefit) at the statutory federal income tax rate and the tax provision (benefit) for fiscal 2017, 20162020 and 20152019 was as follows (in thousands):

   2017   2016   2015 

Income tax (benefit) at the federal statutory rate

  $1,827   $(2,517)   $(3,014) 

State income taxes, net of federal benefit

   13    5    6��

Change in valuation allowance:

      

U.S

   (6,873)    3,333    1,625 

Foreign

   (603)    (136)    631 

Effect of foreign operations taxed at various rates

   (1,036)    (232)    (140) 

Research tax credits

   (2,267)    (1,058)    (931) 

Change in federal tax rate

   9,201    —      —   

Effect of tax rate changes, permanent differences and adjustments of prior deferrals

   639    1,137    2,114 

Unrecognized tax benefits

   202    (281)    264 
  

 

 

   

 

 

   

 

 

 

Total

  $1,103   $251   $555 
  

 

 

   

 

 

   

 

 

 

   
2020
  
2019
 
Income tax at the federal statutory rate
  $581  $947 
State income taxes, net of federal benefit
   4   4 
Change in valuation allowance:
         
U.S
   (416)   (689) 
Foreign
   0—   —   
Effect of foreign operations taxed at various rates
   (235)   (397) 
Research tax credits
   (1,306)   (1,710) 
Effect of tax rate changes, permanent differences and adjustments of prior deferrals
   2,504   3,685 
Unrecognized tax benefits
   579   1,519 
          
Total
  $1,711  $3,359 
          
Intevac has not provided for foreign withholding taxes on approximately $1.2$1.7 million of undistributed earnings from
non-U.S.
operations as of December 30, 2017January 2, 2021 because Intevac intends to reinvest such earnings indefinitely outside of the United States. If Intevac were to distribute these earnings, foreign withholding tax would be payable. For all other undistributed foreign earnings, Intevac will remitalso intends to reinvest such earnings indefinitely outside of thenon-indefinitely reinvested earnings, if any, of Intevac’snon-U.S. subsidiaries where excess cash has accumulated and Intevac determines that it is advantageous for business operations, tax or cash reasons.

United States.

61
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The total amount of gross unrecognized tax benefits was $5.7$7.3 million as of December 30, 2017,January 2, 2021, none of which $73,000 would affect Intevac’s effective tax rate if realized. The aggregate changes in the balance of gross unrecognized tax benefits were as follows for fiscal 2017, 20162020 and 2015:

   2017   2016   2015 
       (in thousands)     

Beginning balance

  $7,544   $7,173   $6,578 

Additions based on tax positions related to the current year

   898    652    574 

Additions for tax positions of prior years

   —      —      21 

Settlements

   —      (281)    —   

Change in federal tax rate

   (2,764)    —      —   

Lapse of statute of limitations

   —      —      —   
  

 

 

   

 

 

   

 

 

 

Ending balance

  $5,678   $7,544   $7,173 
  

 

 

   

 

 

   

 

 

 

2019:

   
2020
  
2019
 
Beginning balance
  $7,683  $6,164 
Additions based on tax positions related to the current year
   589   1,519 
Settlements
   0—   —   
Lapse of statute of limitations
   (945)   —   
          
Ending balance
  $7,327  $7,683 
          
The Company does not anticipate any changes in the amount of unrecognized tax benefits in the next twelve months. It is Intevac’s policy to include interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of operations.income. During fiscal 2017, 20162020 and 2015,2019, Intevac recognized a net tax expense (benefit) for interest of $2,000, ($1,000)2,000) and $2,000,$0, respectively. As of December 30, 2017January 2, 2021 Intevac had $11,000 ofdid 0t have any accrued interest related to unrecognized tax benefits, which was classified as a long-term liability in the consolidated balance sheets.benefits. Intevac did not accrue any penalties related to these unrecognized tax benefits because Intevac has other tax attributes which would offset any potential taxes due.

Intevac is subject to income taxes in the U.S. federal jurisdiction, and various state and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

and require significant judgment to apply. The material jurisdictions whereIntevac has certain tax attributes that are subject to adjustment back to 1999. Intevac is subject to potential income tax return examination by tax authorities for tax years after 2009 includein the following material jurisdictions: U.S. (Federal and California) and Singapore.

Intevac has certain tax attributes that are subject to adjustment back to 1999.

The Inland Revenue Authority of Singapore (“IRAS”) is currently conductingconducted a review of the fiscal 2009 through 20122010 tax returns of the Company’s wholly-owned subsidiary, Intevac Asia Pte. Ltd. IRAS has challenged the Company’s tax position with respect to certain aspects of the Company’s transfer pricing. Under Singapore tax law, thedeductions. The Company must paypaid all contested taxes and the related interest to have the right to defend its position. As a result, the Company made deposits of $318,000 for the 2009position under Singapore tax year in fiscal 2014 and $1.1 million for the 2010 tax year in fiscal 2015, respectively. In fiscal 2016, IRAS allowed the deduction of a portion of the challenged deductions andlaw. During 2019, the Company received a partial refundan unfavorable decision on its appeal to the Singapore Income Tax Board of $517,000 ofReview. The Company appealed the contested taxes. Accordingly,decision to the Singapore High Court. In October 2020, the Company derecognized a portion ofreceived an unfavorable decision on its appeal to the tax accrual of approximately $281,000 by reducingSingapore High Court. Management decided not to pursue additional appeals and the income tax provision by $281,000. The contested tax deposits of $743,000 and $871,000 are included in other long-term assets at December 30, 2017 and December 31, 2016, respectively, on the consolidated balance sheets. The ultimate outcome of this examinationmatter is subject to uncertainty. The Company’s management and its advisors continue to believe that the Company is “more likely than not” to successfully defend that the tax treatment was proper and in accordance with Singapore tax regulations. Based on the information currently available, the Company does not anticipate a significant increase or decrease to its unrecognized tax benefits for this matter within the next twelve months. We believe that adequate amounts have been reserved for any adjustments that may ultimately result from this or other examinations.fully settled. Presently, there are no other active income tax examinations in the jurisdictions where Intevac operates.

11.

12. Employee Benefit Plans

Employee Savings and Retirement Plan

In 1991, Intevac established a defined contribution retirement plan with 401(k) plan features. The plan covers all United States employees eighteen years and older. Employees may make contributions by a percentage reduction in their salaries, not to exceed the statutorily prescribed annual limit. Intevac made cash contributions of $357,000$358,000 for fiscal 20172020 and $310,000$334,000 for fiscal 2016. Intevac did not make any cash contributions for fiscal 2015.2019. Employees may choose among several investment options for their contributions and their share of Intevac’s contributions, and they are able to move funds between investment options at any time. Intevac’s common stock is not one of the investment options. Administrative expenses relating to the plan are insignificant.

Employee Bonus Plans

Intevac has various employee bonus plans. A profit-sharing plan provides for the distribution of a percentage of
pre-tax
profits to substantially all of Intevac’s employees not eligible for other performance-based incentive plans, up to a maximum percentage of compensation. Other plans award annual cash bonuses to Intevac’s executives and key contributors based on the achievement of profitability and other specific performance criteria. Charges to expense under these plans were $3.3 million, and $2.8 million, $295,000 and $219,000, respectively, for fiscal 2017, 20162020 and 2015. In fiscal 2016 and 2015 the annual bonus for certain participants in the Company’s annual incentive plan was settled with RSUs with one year vesting. Charges for bonuses in the amount of $102,000, $490,000 and $324,000 for fiscal 2017, 2016 and 2015, respectively, were reported as stock-based compensation expense. In February 2017, 33 participants were granted stock awards to receive an aggregate of 134,000 shares of common stock with a weighted-average grant date fair value of $9.63 per share. In February 2016, 34 participants were granted stock awards to receive an aggregate of 266,000 shares of common stock with a weighted-average grant date fair value of $4.40 per share. See Note 2 “Equity-Based Compensation.”

2019.

62
INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

12.

13. Commitments and Contingencies

Leases

Intevac leases certain manufacturing facilities, warehouses, office space, and equipment under
non-cancelable
operating leases that expire at various times up to March 2024 and has options to renew most leases, with rentals to be negotiated. Certain of Intevac’s leases contain provisions for rental adjustments. Included in other long-term liabilitiesOperating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the consolidated balance sheet is $2.3 million of deferred rent as of December 30, 2017 related to the effective rent on Intevac’s long-term lease for Intevac’s Santa Clara, California facility. The termsdate we take possession of the Company’sproperty. At lease inception, we determine the lease term by assuming the exercise of its Santa Clara, California facility includethose renewal options that are reasonably assured. The exercise of lease renewal options is at our sole discretion. The lease term is used to determine whether a tenant improvement allowancelease is financing or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of up to $1.7 million. Tenant improvement allowancesleasehold improvements is limited by the expected lease term. Leases with an initial term of 12 months or less are reimbursements received fromnot recorded on the landlordbalance sheet; we recognize lease expense for construction costs and are amortizedthese leases on a straight-line basis over the lease termterm.
The following table reflects our lease assets and our lease liabilities at January 2, 2021 and December 28, 2019.
   
January 2,

2021
   
December 28,

2019
 
   
(in thousands)
 
Assets:
          
Operating lease
right-of-use
assets
  $8,165   $10,279 
Liabilities:
          
Current operating lease liabilities
  $2,853   $2,524 
Noncurrent operating lease liabilities
   6,803    9,532 
           
   $9,656   $12,056 
           
Lease Costs:
The components of lease costs were as a reduction in rent. The tenant improvement allowances are recorded when the Company has completed its obligations and the tenant improvement allowance is receivable. In addition, Intevac is required to maintain a standby letter of credit for $600,000 for this lease. This standby letter of credit is secured with $600,000 of restricted cash. The facility leases require Intevac to pay for all normal maintenance costs. Gross rental expense was approximately $3.8 million, $3.8 million and $4.0 million for fiscal 2017, 2016, and 2015, respectively.

follows:

   
2020
   
2019
 
   
(in thousands)
 
Operating lease cost
  $2,942   $3,112 
Short-term lease cost
   93    78 
           
Total lease cost
  $3,035   $3,190 
           
As of December 30, 2017, future minimumJanuary 2, 2021 the maturity of operating lease payments areliabilities was as follows.

(in thousands)    

2018

  $3,154 

2019

   3,215 

2020

   2,858 

2021

   2,874 

2022

   2,960 

Thereafter

   3,816 
  

 

 

 
  $18,877 
  

 

 

 

follows:

(In thousands)
    
2021
  $3,388 
2022
   3,474 
2023
   3,289 
2024
   541 
      
Total lease payments
   10,692 
Less: Interest
   (1,036) 
      
Present value of lease liabilities
  $9,656 
      
Lease Term and Discount Rate:
   
January 2,

2021
  
December 28,

2019
 
Weighted-average remaining lease term (in years)
   3.09   4.08 
Weighted-average discount rate
   6.39%   6.37% 
63
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other information:
Supplemental cash flow information related to leases was as follows (in thousands):
   
2020
   
2019
 
   
(in thousands)
 
Operating cash outflows from operating leases
  $3,332   $3,484 
           
Right-of-use
assets obtained in exchange for new operating lease liabilities
  $128   $934 
           
Guarantees

Officer and Director Indemnifications

As permitted or required under Delaware law and to the maximum extent allowable under that law, Intevac has certain obligations to indemnify its current and former officers and directors for certain events or occurrences while the officer or director is, or was, serving at Intevac’s request in such capacity. These indemnification obligations are valid as long as the director or officer acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The maximum potential amount of future payments Intevac could be required to make under these indemnification obligations is unlimited; however, Intevac has a director and officer insurance policy that mitigates Intevac’s exposure and enables Intevac to recover a portion of any future amounts paid. As a result of Intevac’s insurance policy coverage, Intevac believes the estimated fair value of these indemnification obligations is not material.

Other Indemnifications

As is customary in Intevac’s industry, many of Intevac’s contracts provide remedies to certain third parties such as defense, settlement, or payment of judgmentjudgments for intellectual property claims related to the use of its products. Such indemnification obligations may not be subject to maximum loss clauses. Historically, payments made related to these indemnifications have been immaterial.

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Letters of Credit

As of December 30, 2017,January 2, 2021, we had letters of credit and bank guarantees outstanding totaling $1.0 million,$787,000, including the standby letter of credit outstanding under the Santa Clara, California facility lease and various other guarantees with its bank. These letters of credit and bank guarantees are collateralized by $1.0 million$787,000 of restricted cash.

Warranty

Intevac provides for the estimated cost of warranty when revenue is recognized. Intevac’s warranty is per contract terms and for its hard disk drive,HDD, PV and DCP manufacturing systems the warranty typically ranges between 12 and 24 months from customer acceptance. For systems sold through a distributor, Intevac offers a 3 month
3-month
warranty. The remainder of any warranty period is the responsibility of the distributor. During this warranty period any defective
non-consumable
parts are replaced and installed at no charge to the customer. The warranty period on consumable parts is limited to their reasonable usable lives. Intevac uses estimated repair or replacement costs along with its historical warranty experience to determine its warranty obligation. The provision for the estimated future costs of warranty is based upon historical cost and product performance experience. Intevac exercises judgment in determining the underlying estimates.

On the consolidated balance sheets, the short-term portion of the warranty provision is included in other accrued liabilities, while the long-term portion is included in other long-term liabilities. The expense associated with product warranties issued or adjusted is included in cost of net revenues on the consolidated statements of operations.

income.

64
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
The following table displays the activity in the warranty provision account for fiscal 20172020 and 2016:

   2017   2016 
   (in thousands) 

Beginning balance

  $1,007   $982 

Expenditures incurred under warranties

   (773)    (488) 

Accruals for product warranties

   854    943 

Adjustments to previously existing warranty accruals

   (94)    (430) 
  

 

 

   

 

 

 

Ending balance

  $994   $1,007 
  

 

 

   

 

 

 

2019:

   
2020
   
2019
 
   
(in thousands)
 
Beginning balance
  $1,022   $997 
Expenditures incurred under warranties
   (512)    (625) 
Accruals for product warranties
   280    955 
Adjustments to previously existing warranty accruals
   (310)    (305) 
           
Ending balance
  $480   $1,022 
           
Legal Matters

From time to time, Intevac receives notification from third parties, including customers and suppliers, seeking indemnification, litigation support, payment of money or other actions in connection with claims made against them. In addition, from time to time, Intevac receives notification from third parties claiming that Intevac may be or is infringing their intellectual property or other rights. Intevac also is subject to various other legal proceedings and claims, both asserted and unasserted, that arise in the ordinary course of business. Although the outcome of these claims and proceedings cannot be predicted with certainty, Intevac does not believe that any of these other existing proceedings or claims will have a material adverse effect on its consolidated financial condition or results of operations.

13.

14. Segment and Geographic Information

Intevac’s two

Intevac’s2 reportable segments are: Thin-film EquipmentTFE and Photonics. Intevac’s chief operating decision-maker has been identified as the President and CEO, who reviews operating results to make decisions

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

about allocating resources and assessing performance for the entire Company. Segment information is presented based upon Intevac’s management organization structure as of December 30, 2017January 2, 2021 and the distinctive nature of each segment. Future changes to this internal financial structure may result in changes to the reportable segments disclosed.

Each reportable segment is separately managed and has separate financial results that are reviewed by Intevac’s chief operating decision-maker. Each reportable segment contains closely related products that are unique to the particular segment. Segment operating profit is determined based upon internal performance measures used by the chief operating decision-maker.

Intevac derives the segment results from its internal management reporting system. The accounting policies Intevac uses to derive reportable segment results are substantially the same as those used for external reporting purposes. Management measures the performance of each reportable segment based upon several metrics, including orders, net revenues and operating income. Management uses these results to evaluate the performance of, and to assign resources to, each of the reportable segments. Intevac manages certain operating expenses separately at the corporate level. Intevac allocates certain of these corporate expenses to the segments in an amount equal to 3% of net revenues. Segment operating income excludes interest income/expense and other financial charges and income taxes according to how a particular reportable segment’s management is measured. Management does not consider impairment charges, gains and losses on divestitures and sales of intellectual property, and unallocated costs in measuring the performance of the reportable segments.

The Thin-film EquipmentTFE segment designs, develops and markets vacuum process equipment solutions for high-volume manufacturing of small substrates with precise thin-film properties, such as for the hard drive, solar cell and DCP industries, as well as other adjacent thin-film markets.

The Photonics segment develops compact, cost-effective, high-sensitivity digital-optical products for the capture and display of
low-light
images. Intevac provides sensors, cameras and systems for government applications such as night vision and long-range target identification.

vision.

65
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Information for each reportable segment for fiscal 2017, 20162020 and 20152019 is as follows:

   2017   2016   2015 
   (in thousands) 

Net evenues

      

Thin-film Equipment

  $79,004   $45,253   $39,622 

Photonics

   33,843    34,871    35,538 
  

 

 

   

 

 

   

 

 

 

Total segment net revenues

  $112,847   $80,124   $75,160 
  

 

 

   

 

 

   

 

 

 

Net Revenues
  
2020
   
2019
 
   
(in thousands)
 
TFE
  $52,128   $73,678 
Photonics
   45,696    35,207 
           
Total segment net revenues
  $97,824   $108,885 
           
Operating Profit (Loss)
  
2020
  
2019
 
   
(in thousands)
 
TFE
  $(1,978)  $1,747 
Photonics
   10,064   6,434 
          
Total segment operating profit
   8,086   8,181 
          
Unallocated costs
   (5,531)   (4,256) 
          
Operating income
   2,555   3,925 
          
Interest income
   284   574 
Other income (expense), net
   (72)   8 
          
Income before provision for income taxes
  $2,767  $4,507 
          
Depreciation and Amortization
  
2020
   
2019
 
   
(in thousands)
 
TFE
  $1,817   $1,909 
Photonics
   1,159    1,310 
           
Total segment depreciation and amortization
   2,976    3,219 
           
Unallocated costs
   504    372 
           
Total consolidated depreciation and amortization
  $3,480   $3,591 
           
Capital Additions
  
2020
   
2019
 
   
(in thousands)
 
TFE
  $1,336   $2,611 
Photonics
   636    832 
           
Total segment capital additions
   1,972    3,443 
           
Unallocated
   640    664 
           
Total consolidated capital additions
  $2,612   $4,107 
           
66
INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

   2017   2016   2015 
   (in thousands) 

Operating Profit (Loss)

  

Thin-film Equipment

  $6,116   $(8,309)   $(9,345) 

Photonics

   3,900    5,813    5,206 
  

 

 

   

 

 

   

 

 

 

Total segment operating profit (loss)

   10,016    (2,496)    (4,139) 
  

 

 

   

 

 

   

 

 

 

Unallocated costs

   (5,168)    (5,067)    (4,599) 
  

 

 

   

 

 

   

 

 

 

Operating income (loss)

   4,848    (7,563)    (8,738) 
  

 

 

   

 

 

   

 

 

 

Interest income

   291    195    179 

Other income (expense), net

   82    178    (52) 
  

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

  $5,221   $(7,190)   $(8,611) 
  

 

 

   

 

 

   

 

 

 

   2017   2016   2015 
   (in thousands) 

Depreciation and Amortization

  

Thin-film Equipment

  $1,773   $2,710   $2,443 

Photonics

   1,750    1,736    1,737 
  

 

 

   

 

 

   

 

 

 

Total segment depreciation and amortization

   3,523    4,446    4,180 
  

 

 

   

 

 

   

 

 

 

Unallocated costs

   348    391    417 
  

 

 

   

 

 

   

 

 

 

Total consolidated depreciation and amortization

  $3,871   $4,837   $4,597 
  

 

 

   

 

 

   

 

 

 

   2017   2016   2015 
   (in thousands) 

Capital Additions

  

Thin-film Equipment

  $2,137   $700   $1,433 

Photonics

   1,643    2,463    749 
  

 

 

   

 

 

   

 

 

 

Total segment capital additions

   3,780    3,163    2,182 
  

 

 

   

 

 

   

 

 

 

Unallocated

   576    210    935 
  

 

 

   

 

 

   

 

 

 

Total consolidated capital additions

  $4,356   $3,373   $3,117 
  

 

 

   

 

 

   

 

 

 

   2017   2016 
   (in thousands) 

Segment Assets

  

Thin-film Equipment

  $52,156   $39,503 

Photonics

   16,364    16,071 
  

 

 

   

 

 

 

Total segment assets

   68,520    55,574 
  

 

 

   

 

 

 

Cash and investments

   42,488    48,238 

Restricted cash

   1,000    1,602 

Deferred income taxes

   4    3 

Other current assets

   1,001    997 

Common property, plant and equipment

   1,267    1,039 

Other assets

   743    871 
  

 

 

   

 

 

 

Consolidated total assets

  $115,023   $108,324 
  

 

 

   

 

 

 

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Geographic revenue information for fiscal 2017, 2016 and 2015 is based on the location of the customer. Revenue from unaffiliated customers by geographic region/country was as follows:

   2017   2016   2015 
   (in thousands) 

United States

  $37,311   $42,048   $49,034 

Asia (*)

   73,525    37,143    23,855 

Europe

   884    933    2,271 

Rest of World

   1,127    —      —   
  

 

 

   

 

 

   

 

 

 

Total net revenues

  $112,847   $80,124   $75,160 
  

 

 

   

 

 

   

 

 

 

(*)Revenues are attributable to the geographic area in which Intevac’s customers are located. Net trade revenues in Asia include shipments to Singapore, China, Japan and Malaysia. Net trade revenues in Rest of World includes technology development revenue in Australia.

Segment Assets
  
2020
   
2019
 
   
(in thousands)
 
TFE
  $44,335   $51,153 
Photonics
   22,923    22,071 
           
Total segment assets
   67,258    73,224 
           
Cash and investments
   49,568    42,024 
Restricted cash
   787    787 
Deferred income taxes
   5,335    6,252 
Other current assets
   1,093    752 
Common property, plant and equipment
   1,443    1,307 
Common operating lease
right-of-use
assets
   1,603    1,898 
Other assets
   151    78 
           
Consolidated total assets
  $127,238   $126,322 
           
Net property, plant and equipment by geographic region at December 30, 2017January 2, 2021 and December 31, 201628, 2019 was as follows:

   December 30,   December 31, 
   2017   2016 
   (in thousands) 

United States

  $12,363   $11,148 

Asia

   115    89 
  

 

 

   

 

 

 

Net property, plant & equipment

  $12,478   $11,237 
  

 

 

   

 

 

 

14.

   
January 2,
2021
   
December 28,
2019
 
   
(in thousands)
 
United States
  $10,678   $11,420 
Asia
   326    178 
           
Net property, plant & equipment
  $11,004   $11,598 
           
15. Restructuring Charges

During the firstthird quarter of fiscal 2015,2020, Intevac substantially completed implementation of the 20152020 cost reduction plan (the “2015“2020 Plan”), which reduced expenses and reduced its workforce by 31 percent. The cost of implementing the 20152020 Plan was reported under cost of net revenues and operating expenses in the consolidated statements of operations.income. Substantially all cash outlays in connection with the 20152020 Plan occurred in the firstthird quarter of fiscal 2015.2020. Implementation of the 20152020 Plan reduced salary, wages and other employee-related expenses by approximately $1.4 million$864,000 on an annual basis.

As of December 30, 2017,January 2, 2021, activities related to the 20152020 Plan were complete.

The changes in restructuring reserves for severance and other employee-related costs associated with the cost reduction plan for fiscal 2015,2020, are as follows.

   2015
2020
 
   
(in thousands)
 

Balance at the beginning of the year

  $—   

Provision for restructuring charges

   148103 

Cash payments made

   (148103) 
  

 

Balance at the end of the year

  $—   
  

 

15. Related Party Transaction

On November 12, 2015, Intevac entered into a Share Repurchase Agreement with Northern Right Capital Management, L.P. and certain of its affiliated funds, including on behalf of a managed account

INTEVAC, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(collectively, “NRC”), whereby Intevac repurchased 1,483,171 shares of its common stock from NRC in a privately negotiated transaction at a purchase price of $4.98 per share, for an aggregate purchase price of $7.4 million. The repurchase was made in conjunction with Intevac’s stock repurchase program. Matthew Drapkin, a former member of Intevac’s Board of Directors, is a principal of NRC and a member of BC Advisors, LLC, which is the general partner of NRC.

16. Selected Quarterly Consolidated Financial Data (Unaudited)

   Three Months Ended 
   Apr. 1,
2017		   July 1,
2017		   Sept. 30,
2017		   Dec. 30,
2017		 
   (in thousands, except per share data) 

Net sales

  $30,388   $30,963   $26,726   $24,769 

Gross profit

   13,047    11,470    11,298    9,847 

Net income (loss)

   1,829    1,100    1,230    (41) 

Basic net income (loss) per share

  $0.09   $0.05   $0.06   $0.00 

Diluted net income (loss) per share

  $0.08   $0.05   $0.05   $0.00 

   Three Months Ended 
   Apr. 2,
2016		   July 2,
2016		   Oct. 1,
2016		  Dec. 31,
2016		 
   (in thousands, except per share data) 

Net sales

  $13,664   $14,918   $22,559  $28,982 

Gross profit

   3,856    6,127    8,515   11,912 

Net income (loss)

   (6,305)    (3,490)    (481)   2,835 

Basic net income (loss) per share

  $(0.31)   $(0.17)   $(0.02)  $0.14 

Diluted net income (loss) per share

  $(0.31)   $(0.17)   $(0.02)  $0.13 

Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

None.

67
INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Item 9A.
Controls and Procedures

Management’s Report on Assessment of Internal Controls Over Financial Reporting

Evaluation of Disclosure Controls and Procedures

Based on Intevac’s management’s evaluation (withwith the participation of Intevac’s chief executive officerthe Chief Executive Officer (the “CEO”) and chief financial officer)the Chief Financial Officer (the “CFO”), as of the end of the period covered by this report, Intevac’s chief executive officerCEO and chief financial officerCFO have concluded that Intevac’s disclosure controls and procedures (as defined in RulesRule
13a-15(e) and15d-15(e)
under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)) are effective to ensure that information required to be disclosed by Intevac in reports that Intevac files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and is accumulated and communicated to Intevac’s management, including Intevac’s chief executive officerCEO and chief financial officer,CFO, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for Intevac. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting (as defined in Rule
13a-15(f)
ender the Exchange Act) includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management (with the participation of the chief executive officerCEO and chief financial officer)CFO) conducted an evaluation of the effectiveness of Intevac’s internal control over financial reporting based on criteria established in the 2013
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that Intevac’s internal control over financial reporting was effective as of December 30, 2017.January 2, 2021. BPM LLP, anthe independent registered public accounting firm that has audited the effectiveness of Intevac’s internal control over financial reporting andstatements included in this report, has issued aan attestation report on Intevac’s internal control over financial reporting, which is included in their report on the following page.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting during our fourth quarter of fiscal 20172020 that has materially affected, or is reasonably likely to materially affect, Intevac’s internal control over financial reporting.

68
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders

of

Intevac, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Intevac, Inc. (a Delaware corporation) and its subsidiaries (the “Company”) as of December 30, 2017,January 2, 2021, based on criteria established in
Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30, 2017,January 2, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 30, 2017January 2, 2021 and December 31, 201628, 2019 and the related consolidated statements of operations,income, comprehensive income, (loss), stockholders’ equity, and cash flows for each of the threetwo years in the period ended December 30, 2017,January 2, 2021, and the related notes (collectively referred to as the “consolidated financial statements”) of the Company, and our report dated February 14, 201817, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Assessment of Internal Controls Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BPM LLP
San Jose, California
February 14, 201817, 2021

69
Item 9B.
Other Information

None.

PART III

Item 10.
Directors, Executive Officers and Corporate Governance

The information required by this item relating to the Company’s directors and nominees, disclosure relating to compliance with Section 16(a) of the Securities Exchange Act of 1934, and information regarding Intevac’s code of ethics, audit committee and stockholder recommendations for director nominees is included under the captions “Election of Directors,” “Nominees,” “Business Experience of Nominees for Election as Directors,” “Board Meetings and Committees,” “Corporate Governance Matters,” “Section 16(a) Beneficial Ownership Reporting Compliance ” and “Code of Business Conduct and Ethics” in the Company’s Proxy Statement for the 20182021 Annual Meeting of Stockholders and is incorporated herein by reference. The information required by this item relating to the Company’s executive officers and key employees is included under the caption “Executive Officers of the Registrant” under Item 1 in Part I of this Annual Report on Form
10-K.

Item 11.
Executive Compensation

The information required by this item is included under the caption “Executive Compensation and Related Information” in the Company’s Proxy Statement for the 20182021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities authorized for issuance under equity compensation plans.

The following table summarizes the number of outstanding options granted to employees and directors, as well as the number of securities remaining available for future issuance, under Intevac’s equity compensation plans at December 30, 2017.

   (a)   (b)   (c) 

Plan Category

  Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights		   Weighted-average
exercise price of
outstanding
options,
warrants and rights		   Number of securities
remaining available
for future issuance
under equity
compensation plans		 
           (1) 

Equity compensation plans approved by security holders (2)

   3,695,312   $7.62    1,501,645 

Equity compensation plans not approved by security holders

   —      —      —   
  

 

 

   

 

 

   

 

 

 

Total

   3,695,312   $7.62    1,501,645 
  

 

 

   

 

 

   

 

 

 

(1)Excludes securities reflected in column (a).
(2)Included in the column (c) amount are 335,938 shares available for future issuance under Intevac’s 2003 Employee Stock Purchase Plan.

The other information required by this item is included under the caption “Ownership of Securities” in the Company’s Proxy Statement for the 20182021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 13.
Certain Relationships and Related Transactions, and Director Independence

The information required by this item is included under the captions “Certain Transactions” and “Corporate Governance Matters” in the Company’s Proxy Statement for the 20182021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 14.
Principal Accountant Fees and Services

The information required by this item is included under the caption “Fees Paid To Accountants For Services Rendered During 2017”2020” in the Company’s Proxy Statement for the 20182021 Annual Meeting of Stockholders and is incorporated herein by reference.

70
PART IV

Item 15.
Exhibits and Financial Statements

(a) The following documents are filed as part of this Annual Report on
Form 10-K:

1. Financial Statements:

See “Index to Consolidated Financial Statements” in Part II, Item 8 of this
Form 10-K.

All other schedules have been omitted since the required information is not present in amounts sufficient to require submission of the schedule or because the information required is included in the consolidated financial statements or notes thereto.

2. Exhibits

Exhibit


Number

 

Description

    3.1 (1) Certificate of Incorporation of the Registrant
    3.2 (2) Bylaws of the Registrant, as amended
    4.1 (4)Description of the Registrant’s Common Stock
10.1+ (4)(5) The Registrant’s 2004 Equity Incentive Plan, as amended
  10.2+ (5)(6) The Registrant’s 2003 Employee Stock Purchase Plan, as amended February 12, 2020
  10.3+ (5)(7) The Registrant’s 2012 Equity Incentive Plan, as amended
  10.4+ (6)(8) Form of Restricted Stock Unit Agreement for 2012 Equity Incentive Plan
  10.5+ (6)(8) Form of Restricted Stock Agreement for 2012 Equity Incentive Plan
  10.6+ (6)(8) Form of Stock Option Agreement for 2012 Equity Incentive Plan
  10.7 (7)10.7+ (9)Form of Performance Based Stock Option Agreement for 2012 Equity Incentive Plan
  10.8+ (9)Form of Outside Director Restricted Stock Unit Agreement for 2012 Equity Incentive Plan
  10.9+ (10) Lease dated March 20, 2014 regarding the space located at 3544, 3560, 3570 and 3580 Bassett Street, Santa Clara, California
  10.8+10.10+ (6)The Registrant’s 2020 Equity Incentive Plan
  10.11+ (11)Form of Restricted Stock Unit Agreement for 2020 Equity Incentive Plan
  10.12+ (11)Form of Performance Based Restricted Stock Unit Agreement for 2020 Equity Incentive Plan
  10.13+ (11)Form of Stock Option Agreement for 2020 Equity Incentive Plan
  10.14+ (11)Form of Outside Director Restricted Stock Unit Agreement for 2020 Equity Incentive Plan
  10.15+ (3) The Registrant’s 401(k) Profit Sharing Plan (P)
  10.9 (8)10.16 (12) Director and Officer Indemnification Agreement
  10.10+ (7)10.17+ (6) The Registrant’s Executive Incentive Plan
  10.11+ (9)10.18+ (13) Offer Letter with Wendell Blonigan
  10.12+ (9)10.19+ (13) Severance Agreement with Wendell Blonigan
71
Exhibit
Number
Description
  10.13+ (10)10.20+ (14) Change in Control Agreement with Jay Cho dated December 10, 2013

Exhibit

Number

Description

  10.14+ (11)10.21+ (15) Offer Letter with James Moniz
  10.15+ (11)10.22+ (15) Change in Control Agreement with James Moniz dated October 29, 2014
  10.16+ (12)10.23+ (16)Change in Control Agreement with Timothy Justyn dated March 2, 2018
  10.24+ (17) Form of Change in Control Agreement
  10.17 (13)Share Repurchase Agreement, dated as of November 12,  2015, by and among Intevac, Inc., Northern Right Capital Management, L.P. (f/k/a Becker Drapkin Management, L.P.), and Becker Drapkin Partners SLV, Ltd.
  21.1 Subsidiaries of the Registrant
  23.1 Consent of Independent Registered Public Accounting Firm
  24.1 Power of Attorney (see page 82)73)
  31.1 Certification of 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 SecretaryTreasurer 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
101.INS101 The following financial statements from the Registrant’s Annual Report on
Form 10-K for
the year ended January 2, 2021, formatted in Inline XBRL Instance Document(i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
101.SCH104 Cover Page Interactive Data File (formatted as inline XBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Documentand contained in Exhibit 101)

(1)
Previously filed as an exhibit to the Company’s Report on Form
8-K
filed July 23, 2007
(2)
Previously filed as an exhibit to the Company’s Report on Form
8-K
filed March 15, 2012
(3)
Previously filed as an exhibit to the Registration Statement on Form
S-1 (No.
(No.
33-97806)
(4)
Previously filed as an exhibit to the Company’s Form
10-K
filed February 12, 2020
(5)
Previously filed as an exhibit to the Company’s Form
10-Q
filed May 3, 2011
(5)(6)
Previously filed as an exhibit to the Company’s Definitive Proxy Statement filed April 12, 2017.6, 2020.
(6)(7)
Previously filed as an exhibit to the Company’s Definitive Proxy Statement filed April 11, 2018
(8)
Previously filed as an exhibit to the Company’s Form
10-Q
filed May 1, 2012
(7)(9)
Previously filed as an exhibit to the Company’s Form
10-Q
filed April 29, 2014July 30, 2019
(8)(10)
Previously filed as an exhibit to the Company’s Form
10-Q
filed April 29, 2014
(11)
Previously filed as an exhibit to the Registration Statement on Form
S-8
filed May 14, 2020 (No.
33-238262)
(12)
Previously filed as an exhibit to the Company’s Form
10-K
filed March 14, 2008
(9)(13)
Previously filed as an exhibit to the Company’s Report on Form
8-K
filed July 9, 2013
(10)(14)
Previously filed as an exhibit to the Company’s Form
10-Q
filed October 28, 2014
(11)(15)
Previously filed as an exhibit to the Company’s Report on Form
8-K
filed October 31, 2014
(12)(16)
Previously filed as an exhibit to the Company’s Form
10-Q
filed May 1, 2018
(17)
Previously filed as an exhibit to the Company’s Report on Form
8-K
filed November 15, 2016
(13)Previously filed as an exhibit to the Company’s Report on Form8-K filed November 12, 2015
(P)
Paper exhibit.
+
Management compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(b) of Form
10-K

72
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange
Act
of
1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 14, 2018.

17, 2021.
INTEVAC, INC.

 /s//s/ JAMES MONIZ

James Moniz
Executive Vice President, Finance and Administration
Chief Financial Officer, Secretary and Treasurer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Wendell T. Blonigan and James Moniz and each of them, as his true and lawful
attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report on
Form 10-K,
and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature

  

Title

 

Date

    /s/ WENDELL T. BLONIGAN

  President, February 14, 201817, 2021
(Wendell T. Blonigan)  
Chief Executive Officer and Director
(Principal Executive Officer)
 

    /s/ JAMES MONIZ

  Executive Vice President, Finance and February 14, 201817, 2021
(James Moniz)  
Administration, Chief Financial Officer,
Secretary
and Treasurer (Principal Financial
and Accounting Officer)
 

    /s/ DAVID S. DURY

  Chairman of Board February 14, 201817, 2021
(David S. Dury)   

    /s/ THOMAS M. ROHRS

KEVIN D. BARBER		  Director February 14, 201817, 2021
(Kevin D. Barber)
    /s/ DOROTHY D. HAYESDirectorFebruary 17, 2021
(Dorothy D. Hayes)
    /s/ STEPHEN A. JAMISONDirectorFebruary 17, 2021
(Stephen A. Jamison)
    /s/ MICHELE F. KLEINDirectorFebruary 17, 2021
(Michele F. Klein)
    /s/ MARK P. POPOVICHDirectorFebruary 17, 2021
(Mark P. Popovich)
    /s/ THOMAS M. ROHRSDirectorFebruary 17, 2021
(Thomas M. Rohrs)   

    /s/ JOHN F. SCHAEFER

DirectorFebruary 14, 2018
(John F. Schaefer)

82

73