SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q/A
(Amendment No. 1)
(MARK ONE)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 27, 2004
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission file number 0-26946
INTEVAC, INC.
(Exact name of registrant as specified in its charter)
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California
(State or other jurisdiction of
incorporation or organization)
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94-3125814
(IRS Employer Identification No.)
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3560 Bassett Street
Santa Clara, California 95054
(Address of principal executive office, including Zip Code)
Registrants telephone number, including area code: (408) 986-9888
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
þ
No
o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
On March 27, 2004, 19,991,293 shares of the Registrants Common Stock, no par value, were
outstanding.
INTEVAC, INC.
INDEX
EXPLANATORY NOTE
This Amendment No. 1 to Intevac, Incs (the Company) Quarterly Report on Form 10-Q for the
quarter ended March 27, 2004 is being filed to reflect the restatement of the Companys condensed
consolidated financial statements for that period. The restatement relates to revenue on various
technology development contracts that was not recognized per contract terms or per accounting
principles generally accepted in the United States of America. Also included in this restatement
are two timing inaccuracies in reported cost of sales and a revision to the amount of other
comprehensive income reported. See Note 2 to the Companys unaudited condensed consolidated
financial statements for additional discussion. This Form 10-Q/A does not reflect events occurring
after the filing of the original Form 10-Q, or modify or update the disclosures therein in any way
other than as required to reflect the amendment set forth in Note 2.
1
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INTEVAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
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March 27,
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December 31,
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2004
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2003
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(Unaudited)
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Restated
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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48,633
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$
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19,507
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Short term investments
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9,637
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Trade and other accounts receivable, net of allowances of $23 and $22
at March 27, 2004 and December 31, 2003
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9,873
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14,016
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Inventories
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29,891
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13,108
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Prepaid expenses and other current assets
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1,107
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1,113
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Total current assets
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99,141
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47,774
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Property, plant and equipment, net
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6,176
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5,796
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Investment in 601 California Avenue LLC
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2,431
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2,431
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Debt issuance costs and other long term assets
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3
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4
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Total assets
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$
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107,751
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$
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55,975
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Convertible notes
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$
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$
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1,025
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Accounts payable
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10,611
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3,396
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Accrued payroll and related liabilities
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1,743
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1,610
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Other accrued liabilities
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2,190
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2,643
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Customer advances
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23,712
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16,432
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Total current liabilities
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38,256
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25,106
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Shareholders equity:
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Common stock, no par value
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93,967
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51,982
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Accumulated other comprehensive income
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224
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223
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Accumulated deficit
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(24,696
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)
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(21,336
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)
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Total shareholders equity
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69,495
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30,869
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Total liabilities and shareholders equity
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$
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107,751
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$
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55,975
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See accompanying notes.
2
INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
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Three months ended
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March 27,
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March 29,
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2004
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2003
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Restated
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Net revenues:
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Systems and components
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$
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4,193
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$
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10,564
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Technology development
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2,242
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1,451
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Total net revenues
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6,435
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12,015
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Cost of net revenues:
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Systems and components
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2,643
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9,321
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Technology development
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1,667
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1,124
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Inventory provisions
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506
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410
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Total cost of net revenues
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4,816
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10,855
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Gross profit
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1,619
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1,160
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Operating expenses:
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Research and development
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3,058
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2,629
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Selling, general and administrative
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2,170
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1,925
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Total operating expenses
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5,228
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4,554
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Operating loss
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(3,609
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)
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(3,394
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Interest expense
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(12
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(517
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Interest income and other, net
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249
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(95
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)
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Loss before income taxes
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(3,372
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(4,006
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Benefit from income taxes
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(12
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)
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Net loss
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$
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(3,360
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)
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$
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(4,006
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)
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Other comprehensive income:
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Foreign currency translation adjustments
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1
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(6
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)
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Total comprehensive loss
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$
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(3,359
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$
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(4,012
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)
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Basic and diluted loss per share:
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Net loss
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$
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(0.18
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$
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(0.33
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Shares used in per share amounts
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18,736
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12,164
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See accompanying notes.
3
INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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Three months ended
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March 27,
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March 29,
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2004
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2003
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Restated
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Operating activities
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Net loss
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$
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(3,360
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)
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$
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(4,006
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)
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Adjustments to reconcile net loss to net cash and cash
equivalents used in operating activities:
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Depreciation and amortization
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532
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431
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Inventory provisions
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506
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410
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Unrealized loss on disposal of equipment
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297
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Changes in operating assets and liabilities
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1,037
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(1,850
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)
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Total adjustments
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2,075
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(712
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)
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Net cash and cash equivalents used in operating activities
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(1,285
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)
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(4,718
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Investing activities
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Purchases of investments
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(9,637
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)
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Purchases of leasehold improvements and equipment
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(911
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)
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(768
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)
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Net cash and cash equivalents used in investing activities
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(10,548
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)
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(768
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Financing activities
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Proceeds from issuance of common stock
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41,985
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150
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Payoff of convertible notes due 2004
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(1,025
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)
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Net cash and cash equivalents provided by financing activities
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40,960
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150
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Effect of exchange rate changes on cash
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(1
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)
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2
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Net increase (decrease) in cash and cash equivalents
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29,126
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(5,334
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)
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Cash and cash equivalents at beginning of period
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19,507
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28,457
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Cash and cash equivalents at end of period
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$
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48,633
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$
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23,123
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Supplemental Schedule of Cash Flow Information
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Cash paid (received) for:
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Interest
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$
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33
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$
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993
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See accompanying notes.
4
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
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Business Activities and Basis of Presentation
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We are the worlds leading provider of thin-film disk sputtering equipment for the thin-film
disk industry and a developer of leading technology for extreme low light imaging sensors, cameras
and systems. We operate two businesses: Equipment and Imaging.
Our Equipment business designs, manufactures, markets and services complex capital equipment
used in the sputtering, or deposition, of highly engineered thin-films of material onto thin-film
disks which are used in hard disk drives. Hard disk drives are the primary storage medium for
digital data and function by magnetically storing data on thin-film disks. These thin-film disks
are created in a sophisticated manufacturing process involving many steps, including plating,
annealing, polishing, texturing, sputtering and lubrication.
Our Imaging business develops and manufactures electro-optical sensors, cameras, and systems
that permit highly sensitive detection of photons in the visible and near infrared portions of the
spectrum, allowing imaging in extreme low light situations. These efforts are aimed at creating new
products for both military and commercial applications.
The financial information at March 27, 2004 and for the three-month periods ended March 27,
2004 and March 29, 2003 is unaudited, but includes all adjustments (consisting only of normal
recurring accruals) that we consider necessary for a fair presentation of the financial information
set forth herein, in accordance with accounting principles generally accepted in the United States
of America (U.S. GAAP) for interim financial information, the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, it does not include all of the information and
footnotes required by U.S. GAAP for annual financial statements. For further information, refer to
the Consolidated Financial Statements and footnotes thereto included in our Annual Report on Form
10-K for the fiscal year ended December 31, 2003.
The preparation of financial statements in conformity with U.S. GAAP requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual results inevitably
will differ from those estimates, and such differences may be material to the financial statements.
We evaluate the collectibility of trade receivables on an ongoing basis and provide reserves
against potential losses when appropriate.
The results for the three-month period ended March 27, 2004 are not considered indicative of
the results to be expected for any future period or for the entire year.
2.
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Restatement of Financial Statements
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In connection with our preparation of the consolidated financial statements for the fiscal
year ended December 31, 2004, we determined that the previously issued financial statements
contained in the Quarterly Reports on Form 10-Q for the quarters ended March 27, 2004, June 26,
2004 and September 25, 2004 should be restated to correct errors in those financial statements. The
decision to restate these financial statements was made based on the following information:
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We determined during the course of our year-end audit that projected, rather
than approved, billing rates were used to calculate revenue for cost-plus-fixed-fee
technology development contracts. An adjustment was made at year-end to reflect the correct
revenue recognition, but the previously reported quarterly revenue numbers were misstated.
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5
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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A series of proposed adjustments, which were not material by themselves,
became material when combined with the restatement of revenue described above.
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A revision to the amount of other comprehensive income reported was made to
move certain amounts unrelated to foreign currency adjustments to other income.
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The following is a summary of the effect of these changes on our condensed consolidated
balance sheet as of March 27, 2004 and our condensed consolidated statement of operations for the
three months ended March 27, 2004 (in thousands, except per share data):
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Condensed Consolidated Balance Sheet
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As Previously
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As
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March 27, 2004
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Reported
|
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Adjustments
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Restated
|
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Trade and other accounts receivable
|
|
$
|
9,937
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|
|
$
|
(64
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)
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|
$
|
9,873
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|
Inventories
|
|
|
29,873
|
|
|
|
18
|
|
|
|
29,891
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|
Total current assets
|
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|
99,187
|
|
|
|
(46
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)
|
|
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99,141
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Total assets
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107,797
|
|
|
|
(46
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)
|
|
|
107,751
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|
Accumulated other comprehensive income
|
|
|
227
|
|
|
|
(3
|
)
|
|
|
224
|
|
Accumulated deficit
|
|
|
(24,653
|
)
|
|
|
(43
|
)
|
|
|
24,696
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|
Total shareholders equity
|
|
|
69,541
|
|
|
|
(46
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)
|
|
|
69,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Condensed Consolidated Statement of
|
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|
|
Operations
|
|
|
|
As Previously
|
|
|
|
|
|
|
As
|
|
Three
months ended March 27, 2004
|
|
Reported
|
|
|
Adjustments
|
|
|
Restated
|
|
Net revenues
|
|
$
|
6,499
|
|
|
$
|
(64
|
)
|
|
$
|
6,435
|
|
Cost of net revenues
|
|
|
4,834
|
|
|
|
(18
|
)
|
|
|
4,816
|
|
Gross profit
|
|
|
1,665
|
|
|
|
(46
|
)
|
|
|
1,619
|
|
Interest income and other, net
|
|
|
246
|
|
|
|
3
|
|
|
|
249
|
|
Net income (loss)
|
|
|
(3,317
|
)
|
|
|
(43
|
)
|
|
|
(3,360
|
)
|
Net income
(loss) per share - basic
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
(0.18
|
)
|
Net income
(loss) per share - diluted
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
(0.18
|
)
|
The components of inventory consist of the following:
|
|
|
|
|
|
|
|
|
|
|
March 27,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(In thousands)
|
|
|
|
Restated
|
|
|
|
|
|
Raw materials
|
|
$
|
9,793
|
|
|
$
|
3,306
|
|
Work-in-progress
|
|
|
11,833
|
|
|
|
4,371
|
|
Finished goods
|
|
|
8,265
|
|
|
|
5,431
|
|
|
|
|
|
|
|
|
|
|
$
|
29,891
|
|
|
$
|
13,108
|
|
|
|
|
|
|
|
|
Finished goods inventory consists primarily of completed systems at customer sites that are
undergoing installation and acceptance testing.
6
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventory reserves included in the above numbers were $10.7 million and $10.2 million at March
27, 2004 and December 31, 2003, respectively. Each quarter, we analyze our inventory (raw
materials, WIP and finished goods) against the forecast demand for the next 12 months. Parts with
no forecast requirements in that period are considered excess and inventory provisions are
established to write those parts down to zero net book value. During this process, some inventory
is identified as having no future use or value to us and is disposed of against the reserves.
During the three months ended March 27, 2004, $566,000 was added to inventory reserves based on the
quarterly analysis and $86,000 of inventory was disposed of and charged to the reserve. During the
three months ended March 29, 2003, $410,000 was added to inventory reserves based on the quarterly
analysis and $25,000 of inventory was disposed of and charged to the reserve.
At March 27, 2004, we had two stock-based employee compensation plans. We account for those
plans under the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. No stock-based employee compensation cost is
reflected in net income, as all options granted under those plans had an exercise price equal to
the market value of the underlying common stock on the date of grant. We do not plan to adopt the
fair value requirements of SFAS 123 for reporting purposes, unless it is mandated by GAAP.
The following table illustrates the effects on net income and earnings per share if Intevac
had applied the fair value-recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
|
Restated
|
|
|
|
|
|
Net income (loss), as reported
|
|
$
|
(3,360
|
)
|
|
$
|
(4,006
|
)
|
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
|
|
|
(268
|
)
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income (loss)
|
|
$
|
(3,628
|
)
|
|
$
|
(4,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
(0.18
|
)
|
|
$
|
(0.33
|
)
|
Pro forma
|
|
$
|
(0.19
|
)
|
|
$
|
(0.34
|
)
|
Our typical warranty is 12 months from customer acceptance. In some cases we market extended
warranty periods beyond 12 months to our customers. The warranty period on used systems is
generally shorter than 12 months. During this warranty period any necessary non-consumable parts
are supplied and installed. The warranty period on consumable parts is limited to their reasonable
usable life. A provision for the estimated warranty cost is recorded at the time revenue is
recognized.
The following table displays the activity in the warranty provision account, which is included
in other accrued liabilities on our balance sheet, for the three-month periods ending March 27,
2004 and March 29, 2003:
7
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
Beginning balance
|
|
$
|
534
|
|
|
$
|
845
|
|
Expenditures incurred under warranties
|
|
|
(56
|
)
|
|
|
(561
|
)
|
Accruals for product warranties issued during the reporting period
|
|
|
37
|
|
|
|
159
|
|
Adjustments to previously existing warranty accruals
|
|
|
(129
|
)
|
|
|
201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
386
|
|
|
$
|
644
|
|
|
|
|
|
|
|
|
6.
|
Cash, Cash Equivalents and Investments in Debt Securities
|
Our investment portfolio consists of cash, cash equivalents and investments in debt
securities. We consider all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents. Investments in debt securities consists principally of highly
rated debt instruments with maturities generally between one and 25 months.
In accordance with Statement of Accounting Standards No. 115 Accounting for Certain
Investments in Debt and Equity Securities, and based on our intentions regarding these
instruments, we have classified our investments in debt securities as held-to-maturity and account
for these investments at amortized cost. Interest income is recorded using an effective interest
rate, with the associated premium or discount amortized to interest income. Realized gains and
losses are included in earnings.
7.
|
Net Income (Loss) Per Share
|
The following table sets forth the computation of basic and diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
|
Restated
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Numerator
for basic income (loss) per share - loss available to
common stockholders
|
|
$
|
(3,360
|
)
|
|
$
|
(4,006
|
)
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
6 1/2% convertible notes (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
for diluted income (loss) per share - loss available to
common stockholders after assumed conversions
|
|
$
|
(3,360
|
)
|
|
$
|
(4,006
|
)
|
|
|
|
|
|
|
|
8
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic income (loss) per share
weighted-average shares
|
|
|
18,736
|
|
|
|
12,164
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Employee stock options (2)
|
|
|
|
|
|
|
|
|
6 1/2% convertible notes (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive potential common shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted income (loss) per share adjusted
weighted-average shares and assumed conversions
|
|
|
18,736
|
|
|
|
12,164
|
|
|
|
|
|
|
|
|
(1)
|
|
Diluted EPS for the three-month periods ended March 27, 2004 and March 29, 2003 exclude as
converted treatment of the convertible notes as their inclusion would be anti-dilutive. The
number of as converted shares excluded for the three-month periods ended March 27, 2004 and
March 29, 2003 was 34,273 and 4,269,983, respectively.
|
|
(2)
|
|
Potentially dilutive securities, consisting of shares issuable upon exercise of employee
stock options, are excluded from the calculation of diluted EPS as their effect would be
anti-dilutive. The weighted average number of employee stock options excluded for the
three-month periods ended March 27, 2004 and March 29, 2003 was 1,452,438 and 1,790,168,
respectively.
|
Segment Description
We have two reportable operating segments: Equipment and Imaging. Our Equipment business
designs, manufactures, markets and services complex capital equipment used in the sputtering, or
deposition, of highly engineered thin-films of material onto thin-film disks which are used in hard
disk drives. Our Imaging business develops and manufactures electro-optical sensors, cameras and
systems that permit highly sensitive detection of photons in the visible and near infrared portions
of the spectrum, allowing imaging in extreme low light situations.
Included in corporate activities are general corporate expenses, less an allocation of
corporate expenses to operating units equal to 3% of net revenues. Assets of corporate activities
include unallocated cash and short-term investments, deferred income tax assets (which were written
off in 2001) and other assets.
Business Segment Net Revenues
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
|
Restated
|
|
|
|
|
|
Equipment
|
|
$
|
4,153
|
|
|
$
|
10,417
|
|
Imaging
|
|
|
2,282
|
|
|
|
1,598
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,435
|
|
|
$
|
12,015
|
|
|
|
|
|
|
|
|
9
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Business Segment Profit & Loss
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 27,
|
|
|
March 29,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
|
Restated
|
|
|
|
|
|
Equipment
|
|
$
|
(2,200
|
)
|
|
$
|
(1,220
|
)
|
Imaging
|
|
|
(889
|
)
|
|
|
(1,627
|
)
|
Corporate activities
|
|
|
(520
|
)
|
|
|
(547
|
)
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(3,609
|
)
|
|
|
(3,394
|
)
|
Interest expense
|
|
|
(12
|
)
|
|
|
(517
|
)
|
Interest income
|
|
|
84
|
|
|
|
77
|
|
Other income and expense, net
|
|
|
165
|
|
|
|
(172
|
)
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(3,372
|
)
|
|
$
|
(4,006
|
)
|
|
|
|
|
|
|
|
Business Segment Net Assets
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 27,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
|
Restated
|
|
|
|
|
|
Equipment
|
|
$
|
37,258
|
|
|
$
|
25,462
|
|
Imaging
|
|
|
8,606
|
|
|
|
7,702
|
|
Corporate activities
|
|
|
61,887
|
|
|
|
22,811
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,751
|
|
|
$
|
55,975
|
|
|
|
|
|
|
|
|
Geographic Area Net Trade Revenues
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 27,
|
|
|
December 31,
|
|
|
|
2004
|
|
|
2003
|
|
|
|
(in thousands)
|
|
|
|
Restated
|
|
|
|
|
|
United States
|
|
$
|
2,796
|
|
|
$
|
2,087
|
|
Far East
|
|
|
3,639
|
|
|
|
9,928
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,435
|
|
|
$
|
12,015
|
|
|
|
|
|
|
|
|
We did not accrue a tax benefit for either of the three-month periods ended March 27, 2004 or
March 29, 2003, due to the inability to realize additional refunds from loss carry-backs. The
$12,000 credit to income tax expense during the three-month period ended March 27, 2004 related to
a revised estimate of 2003 taxes owed by our Singapore subsidiary. Our $17.8 million deferred tax
asset is fully offset by a $17.8 million valuation allowance, resulting in a net deferred tax asset
of zero at March 27, 2004.
10
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
During the three-month period ending March 27, 2004, we completed a public offering of
4,750,000 shares of our common stock, of which 2,969,000 were newly issued and outstanding shares
sold by us for net proceeds of $41.6 million. A selling shareholder sold 1,781,000 shares in the
offering. We also sold stock to our employees under Intevacs Stock Option and Employee Stock
Purchase Plans. A total of 68,829 shares were issued under these plans, for which Intevac received
$395,000.
11.
|
Financial Presentation
|
Certain prior year amounts in the Condensed Consolidated Financial Statements have been
reclassified to conform to 2004 presentation.
11
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures.
We maintain a set of disclosure controls
and procedures that are designed to ensure that information relating to Intevac, Inc. required to
be disclosed in periodic filings under Securities Exchange Act of 1934, or Exchange Act, is
recorded, processed, summarized and reported in a timely manner under the Exchange Act. In
connection with the original filing of Form 10-Q for the quarter ended March 27, 2004, as required
under Rule 13a-15(b) of the Exchange Act, an evaluation was carried out under the supervision and
with the participation of management, including the Chief Executive Officer and Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation,
our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of March 27, 2004 to ensure that information we are required to
disclose in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange Commission
rules and forms.
Subsequent to the period covered by this report, in connection with our preparation of the
consolidated financial statements for the fiscal year ended December 31, 2004, management of the
Company determined that the previously issued financial statements contained in the Companys
Quarterly Reports on Form 10-Q for the quarter ended March 27, 2004, June 26, 2004 and September
25, 2004 should be restated to correct errors in those financial statements. This restatement is
further discussed in Note 2, Restatement of Financial Statements to the condensed consolidated
financial statements included in this Quarterly Report on Form 10-Q/A.
As a result, we are implementing a change in our internal controls over financial reporting
(as defined in Rule 13a-15(f) under the Exchange Act) to remediate internal control deficiencies
that led to the restatements noted above. Management has concluded that these internal control
deficiencies constitute material weaknesses in our internal control over financial reporting. A
material weakness is a control deficiency, or combination of control deficiencies, that results in
more than a remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.
Management identified the following material weaknesses in its assessment of the effectiveness
of the Companys internal control over financial reporting. As of December 31, 2004, we concluded
that we did not maintain effective controls over (1) aspects of the Imaging Business, (2) approval
of inventory cycle count adjustments, and (3) documentation related to our quarterly review and
approval of excess and obsolete inventory reserves. The Companys evaluation was as follows:
Imaging Business
- We determined during the course of our year-end audit that projected,
rather than approved, billing rates were used to calculate revenue for cost-plus-fixed-fee
technology development contracts. In addition, journal entries for revenue recognition and the
related documentation were not subjected to adequate review and approval.
We also determined during the course of our year-end audit that firm fixed-price technology
development contracts were not being accounted for in accordance with U.S. GAAP for firm
fixed-price contracts. This would have resulted in an overstatement of revenue and operating
profit had it not been discovered prior to the public release of our 2004 earnings. During the
first quarter of 2005, we retrained our accounting staff in proper application of revenue
recognition policies and implemented policies regarding analyzing contracts for proper revenue
recognition accounting.
We determined during the course of our year-end audit that a receivable greater than one
year old had not been reserved as a bad debt. During the fourth quarter of 2004, we implemented
a bad debt policy that required receivables aged more than one year to be fully reserved. Our
review did not include unbilled receivables and we did not establish the appropriate bad debt
reserve. This would have resulted in an understatement of bad debt expense and an overstatement
of operating profit had it not been discovered prior to the public release of our earnings. We
have changed our process for evaluating accounts receivable to ensure that all balances are
reviewed for collectibility on a regular basis.
12
Approval of Inventory Cycle Count Adjustments
We routinely cycle count our stockroom
inventories and make corrections to our inventory balances as a result of those cycle counts. We
determined late in 2004 that the cycle count adjustments were being made, but without written
approval by management as required by our internal control policies. Management authorization of
cycle count adjustments is necessary to reduce the potential of an employee using a cycle count
adjustment to conceal a theft of inventory. The requirement for the appropriate management
approval of all cycle count adjustments was re-emphasized in December of 2004.
Documentation of Excess and Obsolete Inventory Reserve Calculation Review and Approval
We
determine, on a quarterly basis, the level of reserves required related to excess and obsolete
inventory. Excess and obsolete inventory reserves are an estimate which requires significant
judgment on the part of management. Our Chief Financial Officer reviews and approves these
estimates on a quarterly basis. Given the significant nature of the estimate, we determined
during the course of our internal controls evaluations that improved documentation of those
reviews was needed. We will document the quarterly management reviews of excess and obsolete
calculations beginning with the reviews performed in the first quarter of 2005.
Because of these material weaknesses, management has concluded that the Company did not
maintain effective internal control over financial reporting at December 31, 2004, as well as at
March 27, 2004, based on the criteria set forth in the COSO
Internal Control-Integrated Framework
.
Managements assessment of the effectiveness of the Companys internal control over financial
reporting as of December 31,2004 has been audited by Grant Thornton LLP, an independent registered
public accounting firm, as stated in their report which is included in our Annual Report on Form
10-K for the year ended December 31, 2004.
Changes in internal controls.
There was no change in our internal controls over financial
reporting which was identified in connection with the evaluation required by Rule 13(a)-15(d) of
the Exchange Act that occurred during our first quarter ended March 27, 2004 that has materially
affected, or is reasonably likely to materially affect, our internal controls over financial
reporting.
13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
|
(a)
|
The following exhibits are filed herewith:
|
|
|
|
|
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
|
31.1
|
|
|
Certification of President and Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
31.2
|
|
|
Certification of Vice President, Finance and Administration, Chief Financial
Officer, Treasurer and Secretary Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
|
|
32.1
|
|
|
Certification Pursuant to U.S.C. 1350 adopted Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
|
|
(1)
|
On January 5, 2004, the registrant filed a report on Form 8-K regarding the
issuance of a press release announcing its preliminary results for the three months
ended December 31, 2003.
|
|
|
(2)
|
On January 30, 2004, the registrant filed a report on Form 8-K regarding the
issuance of a press release announcing its results for the three months ended December
31, 2003.
|
|
|
(3)
|
On March 10, 2004, the registrant filed a report on Form 8-K regarding a
business presentation provided to investors.
|
|
|
(4)
|
On April 23, 2004, the registrant filed a report on Form 8-K regarding the
issuance of a press release announcing its results for the three months ended March 27,
2004.
|
14
SIGNATURES
Pursuant to the requirements 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.
|
|
|
|
|
|
|
|
|
INTEVAC, INC.
|
|
|
|
|
|
|
|
|
|
Date: May 10, 2005
|
|
By:
|
|
/s/ KEVIN FAIRBAIRN
Kevin Fairbairn
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
|
|
|
|
|
|
Date: May 10, 2005
|
|
By:
|
|
/s/ CHARLES B. EDDY III
|
|
|
|
|
|
|
Charles B. Eddy III
Vice President, Finance and Administration,
Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
|
|
|
15
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
Number
|
|
Description
|
31.1
|
|
Certification of President and Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
31.2
|
|
Certification of Vice President, Finance and Administration, Chief Financial
Officer, Treasurer and Secretary Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
32.1
|
|
Certification Pursuant to U.S.C. 1350 adopted Pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002.
|