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| IVAC > SEC Filings for IVAC > Form 10-Q on 1-May-2009 | All Recent SEC Filings |
1-May-2009
Quarterly Report
The following table presents certain significant measurements for the three months ended March 28, 2009 and March 29, 2008:
Three months ended
March 28, March 29, %
2009 2008 Change
(in thousands, except percentages and per share amounts)
Net revenues $ 12,308 $ 33,175 (62.9 )%
Gross profit $ 4,265 $ 15,311 (72.1 )%
Gross margin percent 34.7 % 46.2 % (11.5 )%
Net income (loss) $ (5,773 ) $ 1,563 (469.4 )%
Earnings (loss) per diluted share $ (0.26 ) $ 0.07 (471.4 )%
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First quarter financial results for fiscal 2009 reflected a challenging
environment as Intevac's Equipment customers reduced or delayed capital
expenditures as a result of reduced demand, price erosion and industry
consolidation. Net sales decreased during the first quarter of fiscal 2009
primarily due to lower equipment sales to disk manufacturers partially offset by
increased Intevac Photonics' product sales. The global economic climate and
constrained financing environment have caused a broad slowdown in capital
equipment purchases by Intevac's hard drive customers. Net income for the first
quarter of fiscal 2009 decreased compared to the same period in the prior year
due to lower net sales and lower investment income, partially offset by lower
operating expenses and higher income tax benefits. The decrease in operating
expenses was a result of the global cost reduction plan implemented in the
fourth quarter of 2008 and continuing focus on operating efficiency. As part of
the global cost reduction plan, Intevac has reduced its global workforce by 21%
and reduced its global infrastructure.
For the second quarter of 2009, Intevac expects its Equipment revenue to be
down from the first quarter of 2009 as a result of lower demand, seasonality and
global macroeconomic conditions as hard drive customers experience tightening
credit, inventory rationalization throughout all channels and price competition.
Intevac expects Intevac Photonics revenues in the second quarter of 2009 to
increase from the first quarter of 2009.
"200 Lean®", "AccuLuber™", "ExaminerR™", "Lean Etch®", "LIVAR®",
"MicroVista®", "NightVista®", "MOSIR®" and "Night Port™", among others, are our
trademarks.
Results of Operations
Net revenues
Three months ended Change over
March 28, March 29, Prior period
2009 2008 Amount %
(in thousands, except percentages)
Equipment $ 6,118 $ 26,973 $ (20,855 ) (77.3 )%
Intevac Photonics 6,190 6,202 (12 ) (0.2 )%
Total net revenues $ 12,308 $ 33,175 $ (20,867 ) (62.9 )%
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Net revenues consist primarily of equipment sales used to manufacture
thin-film disks, and, to a lesser extent, related equipment and system
components; contract research and development related to the development of
electro-optical sensors, cameras and systems; and low-light imaging products.
Equipment revenue for the three months ending March 28, 2009 included revenue
recognized for four AccuLuberTM systems, disk equipment technology upgrades and
spare parts. Equipment revenue for the three months ended March 28, 2009 did not
include any 200 Lean systems. Equipment revenue for the three months ended
March 29, 2008 included revenue recognition for two 200 Lean systems, eleven
disk lubrication systems including one AccuLuber system, upgrades and spare
parts. While the uncertainty of end market demand continues to dampen
expectations for the hard drive market, Intevac expects that in 2009 the demand
for equipment will result primarily from the first shipments of patterned media
development systems, incremental research and development systems, and the
replacement of legacy systems with 200 Leans to support the continued growth in
mobile drives. Intevac does not expect any of its hard drive customers to add
new systems for capacity in 2009.
Intevac Photonics revenue for the three months ended March 28, 2009 consisted
of $3.6 million of research and development contract revenue and $2.6 million of
product sales. Intevac Photonics revenue for the three months ended March 29,
2008 consisted of $4.2 million of research and development contract revenue and
$2.0 million of product sales. The increase in product revenue resulted from
higher sales of digital night vision camera modules and commercial products. The
decrease in contract research and development revenue was the result of a lower
volume of contracts and no revenue from contract close-outs. Intevac expects
that in 2009, Intevac Photonics revenues will grow driven by government spending
as well as growth in commercial products. Substantial growth in future Intevac
Photonics revenues is dependent on proliferation of Intevac's technology into
major military programs, continued defense spending, the ability to obtain
export licenses for foreign customers, obtaining production subcontracts for
these programs, and development and sale of commercial products.
Intevac's backlog of orders at March 28, 2009 was $17.0 million, as compared
to $20.2 million at December 31, 2008 and $43.5 million at March 29, 2008. The
$17.0 million of backlog at March 28, 2009 consisted of $8.3 million of
Equipment backlog and $8.7 million of Intevac Photonics backlog. The
$20.2 million of backlog at December 31, 2008 consisted of $11.4 million of
Equipment backlog and $8.8 million of Intevac Photonics backlog. Backlog at
March 28, 2009 and December 31, 2008 included one 200 Lean system, compared to
seven at March 29, 2008.
International sales decreased by 78% to $5.9 million for the three months
ended March 28, 2009 from $26.4 million for the three months ended March 29,
2008. International sales include products shipped to overseas operations of
U.S. companies. The decrease in international sales was primarily due to a
decrease in net revenues from disk sputtering systems, upgrades and spare parts.
Substantially all of Intevac's international sales are to customers in Asia.
International sales constituted 48% of net revenues for the three months ended
March 28, 2009 and 80% of net revenues for the three months ended March 29,
2008. The mix of domestic versus international sales will change from period to
period depending on the location of Intevac's largest customers in each period.
Gross profit
Three months ended
March 28, March 29, %
2009 2008 Change
(in thousands, except percentages)
Equipment gross profit $ 1,828 $ 12,708 (85.6 )%
% of Equipment net revenues 29.9 % 47.1 %
Intevac Photonics gross profit $ 2,437 $ 2,603 (6.4 )%
% of Intevac Photonics net revenues 39.4 % 42.0 %
Total gross profit $ 4,265 $ 15,311 (72.1 )%
% of net revenues 34.7 % 46.2 %
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Cost of net revenues consists primarily of purchased materials and costs
attributable to contract research and development, and also includes
fabrication, assembly, test and installation labor and overhead,
customer-specific engineering costs, warranty costs, royalties, provisions for
inventory reserves and scrap. Cost of net revenues for the three months ended
March 28, 2009 and March 29, 2008 included $107,000 and $249,000 of equity-based
compensation expense, respectively.
Equipment gross margin was 29.9% in the three months ended March 28, 2009
compared to 47.1% in the three months ended March 29, 2008. The lower gross
margin was due primarily to lower revenues, product mix, lower factory
utilization, and costs from an acquired business partially offset by the savings
from the global cost reduction plan implemented in the fourth quarter of 2008.
Intevac expects the gross margin for the Equipment business in the second
quarter of 2009 will improve over the first quarter of 2009 due to improved
factory utilization and product
mix and decline over the second quarter of 2008 due to lower revenue levels.
Gross margins in the Equipment business will vary depending on a number of
additional factors, including product mix, product cost, system configuration
and pricing, factory utilization, and provisions for excess and obsolete
inventory.
Intevac Photonics gross margin was 39.4% in the three months ended March 28,
2009 compared to 42.0% in the three months ended March 29, 2008. The decrease in
gross margin resulted primarily from increased provisions for inventory and
warranty, partially offset by higher margins on development contracts. Intevac
expects the gross margin for the Intevac Photonics business in the second
quarter of 2009 to improve over the first quarter of 2009 and the second quarter
of 2008, primarily as a result of the projected increase in product sales, which
typically carry higher gross margins.
Research and development
Three months ended Change over
March 28, March 29 prior period
2009 2008 Amount %
(in thousands, except percentages)
Research and development expense $ 8,030 $ 9,388 $ (1,358 ) (14.5 )%
% of net revenues 65.2 % 28.3 %
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Research and development spending decreased in Equipment and increased in Intevac Photonics during the three months ended March 28, 2009 as compared to the three months ended March 29, 2008. The decrease in Equipment spending was due primarily to a reduction in spending on the Lean Etch product line and savings from the global cost reduction plan implemented in the fourth quarter of 2008. The increase in Intevac Photonics research and development reflected increased spending for sensor yield improvements, sensor development and digital night vision goggle development. Intevac expects that research and development spending will decrease in the second quarter of 2009 over the same quarter in the previous year and the first quarter of 2009 primarily as a result of the lower level of spending on Intevac's Lean Etch product line. Research and development expense for the three months ended March 28, 2009 and March 29, 2008 included $444,000 and $466,000 of equity-based compensation expense, respectively. Research and development expenses do not include costs of $2.0 million and $2.5 million for the three-month periods ended March 28, 2009 and March 29, 2008, respectively, which are related to Intevac Photonics contract research and development and included in cost of net revenues.
Selling, general and administrative
Three months ended Change over
March 28, March 29, prior period
2009 2008 Amount %
(in thousands, except percentages)
Selling, general and administrative expense $ 5,709 $ 7,064 $ (1,355 ) (19.2 )%
% of net revenues 46.4 % 21.3 %
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Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. The decrease in selling, general and administrative spending in the three months ended March 28, 2009 was primarily the result of savings from the global cost reduction plan implemented in the fourth quarter of 2008. Intevac expects that selling, general and administrative expenses will also decrease in the second quarter of 2009 over the amount spent in the same quarter in the previous year and remain flat as compared to the first quarter of 2009. Selling, general and administrative expense for the three months ended March 28, 2009 and March 29, 2008 included $846,000 and $881,000, of equity-based compensation expense, respectively.
Interest income and other, net
Three months ended Change over
March 28, March 29 prior period
2009 2008 Amount %
(in thousands, except percentages)
Interest income and other, net $ 430 $ 1,411 $ (981 ) (69.5 )%
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Interest income and other, net consists primarily of interest income on investments and foreign currency gains and losses. The decrease in interest and other income in the three months ended March 28, 2009 resulted from lower average invested balances, lower interest rates and fluctuations in foreign currency gains and losses. Intevac expects interest income to decrease in the second quarter of 2009 over the same period in the previous year due primarily to lower investment portfolio balances and interest rates. Income tax benefit
Three months ended Change over
March 28, March 29, prior period
2009 2008 Amount %
(in thousands, except percentages)
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Income tax benefit $ 3,271 $ 1,293 $ 1,978 153.0 %
Intevac recorded an income tax benefit at an effective rate of 47.4% for the
three months ended March 28, 2009, compared with (478.9%) for the three months
ended March 29, 2008. Intevac adjusts its effective income tax rate each quarter
to be consistent with the estimated annual effective income tax rate. The
effective income tax rate differs from the applicable statutory rates due
primarily to the utilization of deferred and current credits, the effect of
permanent differences and the geographical composition of Intevac's worldwide
earnings. Intevac's effective income tax rate is highly dependent on the
availability of tax credits and the geographic composition of Intevac's
worldwide earnings.
During the first quarter of 2009, Intevac established an additional valuation
allowance to fully reserve its California state deferred tax assets due to the
impact of California tax legislation that was enacted in February 2009. This
additional valuation allowance decreased the income tax benefit by $1.0 million.
Intevac recognized the effect of the change in valuation allowance as a discrete
item during the period.
Liquidity and Capital Resources
At March 28, 2009, Intevac had $100.8 million in cash, cash equivalents, and
investments compared to $105.5 million at December 31, 2008. During the first
three months of 2009, cash and cash equivalents and investments decreased by
$4.7 million due primarily to cash used by operating activities, a scheduled
payment to the owners of DeltaNu, LLC, and purchases of fixed assets partially
offset by cash received from the sale of Intevac common stock to Intevac's
employees through Intevac's employee benefit plans.
Cash, cash-equivalents and investments consist of the following:
March 28, December 31,
2009 2008
(In thousands)
Cash and cash equivalents $ 27,876 $ 39,201
Short-term investments 5,993 -
Long-term investments 66,961 66,328
Total cash, cash equivalents and investments $ 100,830 $ 105,529
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Operating activities used cash of $3.0 million and $11.8 million during the
first three months of 2009 and 2008, respectively. The decrease in cash used by
operating activities was due primarily to changes in working capital, partially
offset by the reduction in net income, and non-cash changes in deferred taxes
during the first three months of 2009.
Accounts receivable totaled $9.2 million at March 28, 2009, compared to
$15.0 million at December 31, 2008. The decrease of $5.8 million in the
receivable balance was due to lower revenues and improved collection activities.
Total net inventories decreased to $17.2 million at March 28, 2009, compared to
$17.7 million at December 31, 2008 primarily as a result of lower business
levels. Accounts payable increased slightly to $4.3 million at March 28, 2009
compared to December 31, 2008. Accrued payroll and related liabilities decreased
by $468,000 during the three months ended March 28, 2009. Customer advances
decreased by $1.7 million during the first three months of 2009, as liquidations
related to revenue recognition were higher than new advances received from
Intevac's customers.
Investing activities in the first three months of 2009 used cash of
$6.7 million. Purchases of investments, net of proceeds from maturities of
investments totaled $5.9 million. Capital expenditures for the three months
ended March 28, 2009 were $779,000.
Financing activities in the first three months of 2009 used cash of
$1.5 million. Intevac made a scheduled payment of $2.0 million to the owners of
DeltaNu, LLC, which Intevac acquired in the first quarter of 2007. Intevac
generated $453,000 during the three months ended March 28, 2009 from the sale of
Intevac common stock to Intevac's employees through Intevac's employee benefit
plans.
It is anticipated that market conditions may continue to weaken, but Intevac
anticipates that its efforts to reduce costs through its global cost reduction
plan and headcount restructuring activity implemented in the fourth quarter will
reduce its cash loss from operations to a level sustainable until market
conditions and Intevac's business improves.
As of March 28, 2009, Intevac's available-for-sale securities represented
$74.3 million par value of auction rate securities ("ARS"), less a temporary
valuation adjustment of $7.3 million to reflect their current lack of liquidity.
Since this valuation adjustment is deemed to be temporary it was recorded in
other comprehensive loss. Due to current market conditions, these investments
have experienced failed auctions beginning in mid-February 2008. These failed
auctions result in a lack of liquidity in the securities, but do not affect the
underlying collateral of the securities. Intevac believes that given their high
credit quality, it will ultimately recover at par all amounts invested in these
securities. Intevac does not anticipate that any potential lack of liquidity in
these ARS will affect its ability to finance its operations and planned capital
expenditures. Intevac continues to monitor efforts by the financial markets to
find alternative means for restoring the liquidity of these investments. During
April 2009, $3.3 million of ARS were redeemed at par. These investments are
classified as non-current assets until Intevac has better visibility as to when
their liquidity will be restored. The classification and valuation of these
securities will continue to be reviewed quarterly.
As described in Note 8 of Notes to Condensed Consolidated Financial
Statements, at March 28, 2009, the fair value of the ARS was estimated at
$67.0 million based on a valuation by Houlihan Smith & Company, Inc., using
discounted cash flow models. The estimates of future cash flows are based on
certain key assumptions, such as discount rates appropriate for the type of
asset and risk, which are significant unobservable inputs. As of March 28, 2009,
there was insufficient observable market information for the ARS held by Intevac
to determine the fair value. Therefore Level 3 fair values were estimated for
these securities by incorporating assumptions that market participants would use
in their estimates of fair value. Some of these assumptions included credit
quality, collateralization, final stated maturity, estimates of the probability
of being called or becoming liquid prior to final maturity, redemptions of
similar ARS, previous market activity for the same investment security, impact
due to extended periods of maximum auction rates and valuation models.
On March 19, 2009, Intevac filed a statement of claim under the Financial
Industry Regulatory Authority dispute resolution process against Citigroup Inc.
and Citigroup Global Markets, Inc. (collectively, "Citigroup") with respect to
alleged fraud and market manipulation by Citigroup related to ARS. The statement
of claim requests that
Citigroup accept Intevac's tender of its ARS at par value and that Intevac
receive compensatory, consequential and punitive damages and costs and expenses.
As of March 28, 2009, the total par amount of ARS held by Intevac which are
subject to the Citigroup claim amounted to $56.8 million.
Intevac has entered into a line of credit with Citigroup under which
approximately $20 million is available. For additional information on this
borrowing facility, see Note 9 of Notes to Condensed Consolidated Financial
Statements.
Intevac believes that its existing cash, cash equivalents, investments and
credit facility will be sufficient to meet its cash requirements for the
foreseeable future. Intevac intends to undertake approximately $4 to $5 million
in capital expenditures during the remainder of 2009.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
("US GAAP") requires management to make judgments, assumptions and estimates
that affect the amounts reported. Intevac's significant accounting policies are
described in Note 1 to the consolidated financial statements included in Item 8
of Intevac's Annual Report on Form 10-K. Certain of these significant accounting
policies are considered to be critical accounting policies, as defined below.
A critical accounting policy is defined as one that is both material to the
. . .
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