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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
------------------ TO
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COMMISSION FILE NUMBER 0-26946
INTEVAC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-3125814
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
3550 BASSETT STREET
SANTA CLARA, CALIFORNIA 95054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 986-9888
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
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 [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
On March 29, 1997 approximately 12,532,584 shares of the Registrant's
Common Stock, no par value, were outstanding.
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INTEVAC, INC.
INDEX
NO. PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets.......................................... 3
Condensed Consolidated Statements of Income.................................... 4
Condensed Consolidated Statements of Cash Flows................................ 5
Notes to Consolidated Financial Statements..................................... 6
Management's Discussion and Analysis of Financial Condition and Results of
ITEM 2. Operations..................................................................... 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................................. 19
ITEM 2. Changes in Securities.......................................................... 19
ITEM 3. Defaults Upon Senior Securities................................................ 19
ITEM 4. Submission of Matters to a Vote of Security-Holders............................ 19
ITEM 5. Other Information.............................................................. 19
ITEM 6. Exhibits and Reports on Form 8-K............................................... 19
SIGNATURES............................................................................... 21
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEVAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 29, DECEMBER 31,
1997 1996
----------- -----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 4,632 $ 938
Short-term investments............................................ 58,537 --
Accounts receivable, net of allowances of $1,256 and $1,024 at
March 29, 1997 and December 31, 1996, respectively............. 12,487 17,570
Inventories....................................................... 28,617 25,666
Short-term note receivable, net of allowance of $790 and $1,180 at
March 29, 1997 and December 31, 1996, respectively............. -- --
Prepaid expenses and other current assets......................... 754 507
Deferred tax asset................................................ 4,397 4,397
-------- -------
Total current assets...................................... 109,424 49,078
Property, plant, and equipment, net................................. 9,961 9,273
Long-term investments............................................... 2,081 --
Investment in 601 California Avenue LLC............................. 2,431 2,431
Goodwill and other intangibles...................................... 6,762 7,301
Debt issuance costs................................................. 2,297 --
Deferred tax assets and other assets................................ 2 2
-------- -------
Total assets.............................................. $ 132,958 $68,085
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable..................................................... $ 1,230 $ 1,252
Accounts payable.................................................. 5,820 4,465
Accrued payroll and related liabilities........................... 1,537 1,937
Other accrued liabilities......................................... 8,971 4,275
Customer advances................................................. 18,607 20,702
Net liabilities of discontinued operations........................ 583 600
-------- -------
Total current liabilities................................. 36,748 33,231
Convertible notes................................................... 57,500 --
Long-term notes payable............................................. 730 730
Deferred tax liability.............................................. 406 388
Shareholders' equity:
Common stock, no par value........................................ 17,169 16,747
Retained earnings................................................. 20,405 16,989
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Total shareholders' equity................................ 37,574 33,736
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Total liabilities and shareholders' equity................ $ 132,958 $68,085
======== =======
See accompanying notes.
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INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED
-------------------------
March 29, March 30,
1997 1996
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Net revenues........................................................ $31,141 $15,126
Cost of net revenues................................................ 20,997 9,203
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Gross profit........................................................ 10,144 5,923
Operating expenses:
Research and development.......................................... 2,560 1,379
Selling, general, and administrative.............................. 2,600 1,887
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Total operating expenses.................................. 5,160 3,266
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Operating income.................................................... 4,984 2,657
Interest expense.................................................... (400) (26)
Interest income and other, net...................................... 755 287
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Income from continuing operations before income taxes............... 5,339 2,918
Provision for income taxes.......................................... 1,923 1,021
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Net income.......................................................... $ 3,416 $ 1,897
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Net income per share................................................ $0.26 $0.15
Shares used in per share amounts.................................... 13,114 12,631
See accompanying notes.
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INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
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March 29, March 30,
1997 1996
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OPERATING ACTIVITIES
Net income......................................................... $ 3,416 $ 1,897
Adjustments to reconcile net income to net cash and cash
equivalents provided by (used in) operating activities:
Depreciation and amortization.................................... 1,131 335
Gain on sale of Chorus Investment................................ (390) --
Loss on disposal of equipment.................................... 16 --
Changes in assets and liabilities................................ 5,442 (3,506)
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Total adjustments.................................................. 6,199 (3,171)
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Net cash and cash equivalents provided by (used in) operating
activities....................................................... 9,615 (1,274)
INVESTING ACTIVITIES
Purchase of investments............................................ (60,618) (2,571)
Proceeds from sale of Chorus Investment............................ 390 --
Investment in Cathode Technology Corporation....................... -- (1,074)
Purchase of leasehold improvements and equipment................... (1,268) (1,385)
-------- -------
Net cash and cash equivalents used in investing activities......... (61,496) (5,030)
FINANCING ACTIVITIES
Net borrowings under line of credit agreement...................... (2) --
Notes payable repayments........................................... (20) --
Proceeds from issuance of common stock............................. 422 1
Proceeds from convertible bond offering............................ 55,175 --
-------- -------
Net cash and cash equivalents provided by financing activities..... 55,575 1
-------- -------
Net increase (decrease) in cash and cash equivalents............... 3,694 (6,303)
Cash and cash equivalents at beginning of period................... 938 20,422
-------- -------
Cash and cash equivalents at end of period......................... $ 4,632 $14,119
======== =======
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid (received) for:
Interest......................................................... $ 46 $ --
Income taxes..................................................... 300 1,850
Other non-cash changes:
Investment in Cathode Technology Corporation through assumption
of notes payable.............................................. $ -- $ 1,980
See accompanying notes.
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INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Intevac, Inc. ("Intevac" or the "Company") is a leading supplier of static
sputtering systems and related manufacturing equipment used to manufacture
thin-film disks for computer hard disk drives. Sputtering is a complex vacuum
deposition process used to deposit multiple thin-film layers on a disk. The
Company's primary objective is to be the industry leader in supplying disk
sputtering equipment by providing disk sputtering systems which have both the
highest overall performance and the lowest cost of ownership in the industry.
The Company's principal product, the MDP-250B, which is the fourth generation of
the Company's Magnetic Disk Processing ("MDP") system, enables disk
manufacturers to achieve high coercivities, high signal-to-noise ratios, minimal
disk defects, durability and uniformity, all of which are necessary in the
production of high performance, high capacity disks. The Company sells its
static sputtering systems and related manufacturing equipment to both captive
and merchant thin-film disk manufacturers. The Company sells and markets its
products directly in the United States, and through exclusive distributors in
Japan and Korea. The Company has established a subsidiary in Singapore and a
branch office in Taiwan to support its customers in Southeast Asia.
The Company also realizes revenues from the sales of system components and
from contract research and development activities. Intevac's system component
business consists primarily of sales of spare parts and after-sale service to
purchasers of the Company's disk sputtering systems, as well as sales of
components to other manufacturers of vacuum equipment. Contract research and
development revenues have been primarily derived from contracts with ARPA for
development projects for the flat panel display ("FPD") industry.
The financial information at March 29, 1997 and for the three-month periods
ended March 29, 1997 and March 30, 1996 is unaudited, but includes all
adjustments (consisting only of normal recurring accruals) that the Company
considers necessary for a fair presentation of the financial information set
forth herein, in accordance with generally accepted accounting principles for
interim financial information, the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. For further information, refer to the Consolidated
Financial Statements and footnotes thereto included or incorporated by reference
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
The results for the three-month period ended March 29, 1997 are not
considered indicative of the results to be expected for any future period or for
the entire year.
2. INVESTMENTS
The Company invests its excess cash in high-quality debt instruments.
Management determines the appropriate classification of debt securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
At March 29, 1997 all of the Company's marketable investments were designated as
available-for-sale under Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". The
amortized cost of available-for-sale debt securities is adjusted for the
amortization and accretion of discounts to maturity. Such amortization is
included in investment income. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in other income and expenses. The cost of securities sold is based on the
specific identification method. Interest and dividends on the investments are
included in interest income.
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INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a summary of the Company's available-for-sale securities:
MARCH 29,
1997
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(IN THOUSANDS)
Tax-exempt municipal bonds..................................... $ 60,618
Amounts included in short-term investments..................... $ 58,537
Amounts included in long-term investments...................... 2,081
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$ 60,618
=======
At March 29, 1997, the carrying amount of securities approximated the fair
value (quoted market price), and the amount of unrealized gain or loss was not
significant. Gross realized gains and losses for the first quarter of 1997 were
not significant. The long-term investments are due within one year to fourteen
months.
3. INVENTORIES
The components of inventory consist of the following:
MARCH 29, DECEMBER 31,
1997 1996
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(IN THOUSANDS)
Raw materials........................................ $ 9,531 $ 6,953
Work-in-progress..................................... 14,345 11,728
Finished goods....................................... 4,741 6,985
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$28,617 $ 25,666
======= =======
A significant portion of the finished goods inventory is represented by
completed units at customer sites undergoing installation and acceptance
testing.
4. CONVERTIBLE NOTES
During the first quarter of 1997, the Company completed an offering of
$57.5 million of its 6 1/2% Convertible Subordinated Notes, which mature on
March 1, 2004. The notes are convertible into shares of the Company's common
stock at $20.625 per share. Expenses associated with the offering of
approximately $2.3 million are deferred. Such expenses are being amortized to
interest expense over the term of the note.
5. INCOME TAXES
The effective tax rate used for the three-month periods ending March 29,
1997 and March 30, 1996 were 36% and 35% of pretax income, respectively. This
rate is based on the estimated annual tax rate complying with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
6. NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
shares of common stock and common equivalent shares, when dilutive, from
convertible notes (using the as-if-converted method) and from stock options
(using the treasury stock method). During the first quarter of 1997, the Company
issued subordinated convertible notes. These securities are included in fully
diluted earnings per share computations for the period outstanding under the "if
converted" method. Dual presentation of primary and fully diluted earnings per
share is not shown on the face of the income statement because the difference is
insignificant.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share" ("SFAS 128"), which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
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INTEVAC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in primary earnings per share for the three-month periods ended March 29,
1997 and March 30, 1996 of $0.27 and $0.15 per share, respectively. The impact
of SFAS 128 on the calculation of fully diluted earnings per share for these
periods is not expected to be material.
7. COMMITMENTS
During the first quarter of 1997 the Company entered into an amended lease
with respect to its Santa Clara facilities. Under the terms of the lease
amendment, the Company agreed to lease an additional 73,000 square feet from
April 1997 through March 2002. In addition, the leases for the remaining space
in Santa Clara were extended through March 2002.
Future minimum rental payments under all of the Company's leases at March
29, 1997 are as follows (in thousands):
1997................................................ $1,527
1998................................................ 2,057
1999................................................ 2,180
2000................................................ 2,380
2001................................................ 2,445
2002................................................ 615
8. SUBSEQUENT EVENTS
On April 30, 1997 the Company entered into a Line of Credit Agreement with
a bank which provides for a total of $10.0 million in available borrowings. This
agreement replaced the Company's prior line of credit which expired on May 1,
1997. The agreement is for a unsecured, revolving line of credit, which is
available until May 1, 1998, when the outstanding principal will be payable. The
line of credit bears interest, at the option of the Company, at the bank's prime
rate or the London Interbank Offering Rate (LIBOR) plus 175 basis points.
Interest on advances is due monthly. In the event of default, interest on the
outstanding loan increases to 5.00% above the interest rate applicable prior to
the default. At March 29, 1997, no amounts were outstanding under the expired
agreement. The Company is required to maintain certain financial ratios and
other financial conditions including restrictions on its ability to pay
dividends.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
materially from those discussed in the forward-looking statements. Factors that
might cause such a difference, include but are not limited to, the risk factors
set forth elsewhere in this Quarterly Report on Form 10-Q and other documents
the Company files from time to time with the Securities and Exchange Commission,
including the Company's Annual Report on Form 10-K filed in February 1997, Form
10-Q's and Form 8-K's.
OVERVIEW
Intevac is a leading supplier of static sputtering systems and related
manufacturing equipment used to manufacture thin film disks for computer hard
disk drives. Sputtering is a complex vacuum deposition process used to deposit
multiple thin-film layers on a disk. The Company has three primary sources of
net revenues: sales of disk sputtering systems and related disk manufacturing
equipment; sales of system components; and contract research and development
activities. Disk sputtering systems and related disk manufacturing equipment
generally represent the majority of the Company's revenue and are sold to
vertically integrated disk drive manufacturers and to original equipment
manufacturers that sell disk media to disk drive manufacturers. Intevac's system
component business consists primarily of sales of spare parts and after-sale
service to purchasers of the Company's disk sputtering systems, as well as sales
of components to other manufacturers of vacuum equipment. Contract research and
development revenues have been primarily derived from contracts with ARPA for
development projects for the flat panel display ("FPD") industry. During the
first quarter of 1997 the Company received its first order for the design and
delivery of a scaled up version of its D-Star FPD sputtering machine. To date,
revenue from the sale of FPD sputtering equipment has not been.
In the first quarter of 1996, the Company acquired Cathode Technology
Corporation ("CTC"), a designer and manufacturer of magnetron sputter sources
for use in the Company's disk sputtering systems. In the second quarter of 1996,
the Company acquired San Jose Technology Corp. ("SJT") and Lotus Technologies,
Inc. ("Lotus"). SJT is a manufacturer of systems used to lubricate thin film
disks. Lotus is a manufacturer of contact stop/start test equipment for disk
drives and drive components.
In the first quarter of 1997, the Company completed the sale of $57.5
million of its 6 1/2% Convertible Subordinated Notes Due 2004 (the "Convertible
Notes").
The Company's backlog was $65.0 million and $45.6 million at March 29, 1997
and March 30, 1996, respectively.
RESULTS OF OPERATIONS
Three Months Ended March 29, 1997 and March 30, 1996
Net revenues. Net revenues consist primarily of sales of the Company's disk
sputtering systems and related equipment used to manufacture thin-film disks for
computer hard disk drives, and to a lesser extent, system components and
contract research and development. Net revenues from the sales of sputtering
systems are recognized upon customer acceptance. Sales of related equipment and
system components are recognized upon product shipment, and contract research
and development is recognized in accordance with contract terms, typically as
costs are incurred. Net revenues increased by 106% to $31.1 million for the
three months ended March 29, 1997 from $15.1 million for the three months ended
March 30, 1996. The increase in net revenues was primarily due to an increase in
the sales of disk sputtering systems, and to a lesser extent the sales of
related equipment sold by the SJT and Lotus divisions, which were both acquired
by the Company during the second quarter of 1996.
International sales increased by 118% to $14.7 million for the three months
ended March 29, 1997 from $6.7 million for the three months ended March 30,
1996. The increase in revenues from international sales was primarily due to an
increase in the sales of disk sputtering systems and to a lesser extent the
sales of related equipment by the SJT and Lotus divisions. International sales
constituted 47% of net revenues for the three months ended March 29, 1997 and
45% of net revenues for the three months ended March 30, 1996.
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Gross margin. Cost of net revenues consists primarily of purchased
materials, fabrication, assembly, test, installation, international distributor
costs, warranty costs, scrap and costs attributable to contract research and
development. Gross margin was 32.6% for the three months ended March 29, 1997 as
compared to 39.2% for the three months ended March 30, 1996. Overall gross
margins declined primarily as the result of lower gross margins on disk
sputtering system sales, and to a lesser extent as the result of goodwill
amortization relating to the purchase of CTC, SJT and Lotus and an increased
level of contract research and development.
Research and development. Research and development expense consists
primarily of prototype materials, salaries and related costs of employees
engaged in ongoing research, design and development activities for disk
sputtering equipment, flat panel manufacturing equipment, laser texturing
equipment, contact stop-start test equipment, disk lubrication equipment and
research by the Advanced Technology Division. Company funded research and
development expense increased by 86% to $2.6 million for the three months ended
March 29, 1997 from $1.4 million for the three months ended March 30, 1996,
representing 8.2% and 9.1%, respectively, of net revenue. This increase was
primarily the result of increased expense for the development of disk sputtering
products, flat panel display manufacturing machines, contact stop start test
equipment and company funded research and development in the Advanced Technology
Division.
Research and development expenses do not include costs of $0.4 million in
the three months ended March 30, 1996, reimbursed under the terms of a research
and development cost sharing agreement with the Company's Japanese flat panel
manufacturing equipment ("D-Star") development partner. Under the terms of the
development agreement, Intevac and its development partner each paid half of
D-Star development costs. At December 31, 1996 there was no balance remaining
under the development agreement. The Company is currently discussing further
cost sharing agreements with its development partner, but there can be no
assurance that any further cost sharing agreements will be made.
Selling, general and administrative. Selling, general and administrative
expense consists primarily of selling, marketing, customer support, financial,
travel, management, legal and professional services. The Company sells and
markets it products directly in the United States, and through exclusive
distributors in Japan and Korea. Distributors typically provide services such as
sales, installation, warranty and ongoing customer support. International
distributor costs are included in cost of net revenues. The Company has a
subsidiary in Singapore and a branch office in Taiwan to support customers in
Southeast Asia. Selling, general and administrative expense increased by 38% to
$2.6 million for the three months ended March 29, 1997 from $1.9 million for the
three months ended March 30, 1996 representing 8.3% and 12.5%, respectively, of
net revenue. The increase in selling, general and administrative expense in
absolute dollars was primarily the result of increased expense associated with
the marketing and support of disk sputtering systems, and to a lesser extent,
increased expense associated with the marketing and support of related equipment
by the SJT and Lotus divisions. Selling, general and administrative headcount
grew to 85 employees at March 29, 1997 from 55 employees at March 30, 1996.
Other income, net. Other income consists primarily of income related to the
sale of the Company's 20% interest in the capital stock of Chorus, interest
income on the Company's investments and early payment discounts on the purchase
of inventories, goods and services, offset by interest expense. Other income,
net increased by 36% to $0.4 million for the three months ended March 29, 1997
from $0.3 million for the three months ended March 30, 1996 as the result of
increased income related to the sale of the Company's 20% interest in the
capital stock of Chorus which was partially offset by an increase in net
interest expense as the result of the Company's sale of its Convertible Notes in
the first quarter of 1997.
Provision for income taxes. Income tax expense as a percentage of pretax
income for the three months ended March 29, 1997 and March 30, 1996, was 36% and
35%, respectively. The Company's tax rate for these periods differs from the
applicable statutory rates primarily due to tax exempt interest income and state
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $9.6 million for the
three months ended March 29, 1997. The cash provided in 1997 was due primarily
to net income, increased accrued expense and accounts
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payable, decreased accounts receivable and depreciation which was partially
offset by increased inventory and reduced customer advances.
The Company's investing activities used cash of $61.5 million for the three
months ended March 29, 1997 due primarily to the purchase of investments, and to
a lesser extent, the purchase of capital equipment and leasehold improvements.
The Company's financing activities provided cash of $55.6 million for the
three months ended March 29, 1997, primarily due to the sale by the Company of
its Convertible Notes.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS
Fluctuations of Results of Operations
The Company's operating results have historically been subject to
significant quarterly and annual fluctuations. The Company derives most of its
net revenues from the sale of a relatively small number of sputtering systems.
The number of systems accepted by customers in any particular quarter has varied
from zero to ten and, as a result, the Company's net revenues and operating
results for a particular period could be materially adversely affected if an
anticipated order for even one system is not received in time to permit shipment
and customer acceptance during that accounting period. The Company's backlog at
the beginning of a quarter may not include all system orders needed to achieve
the Company's revenue objectives for that quarter. Orders in backlog are subject
to cancellation, and although in some cases the Company requires a deposit on
orders for its systems, such deposits may not be sufficient to cover the
expenses incurred by the Company for the manufacture of the canceled systems or
fixed operating expenses associated with such systems to the date of
cancellation. From time to time, in order to meet anticipated customer demand,
the Company has manufactured disk sputtering systems in advance of the receipt
of orders for such systems. The Company expects to continue this practice in the
future. In the event that anticipated orders are not received as expected, the
Company could be materially adversely affected by higher inventory levels and
increased exposure to surplus and obsolete inventory write-offs. Orders may be
subject to cancellation, delay, deferral or rescheduling by a customer. From the
date the Company receives an order, it often takes more than six months before
the net revenues from such order are recognized and even longer before final
payment is received. The relatively long manufacturing cycles of many of the
Company's products have caused and could cause shipments of such products to be
delayed from one quarter to the next, which could materially adversely affect
the Company's business, financial condition and results of operations for a
particular quarter. Announcements by the Company or its competitors of new
products and technologies could cause customers to defer purchases of the
Company's existing systems, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
Installing and integrating new sputtering systems into the thin-film disk
manufacturing process requires a substantial investment by a customer.
Therefore, customers often require a significant number of product presentations
and demonstrations, as well as substantial interaction with the Company's senior
management, before making a purchasing decision. Accordingly, the Company's
systems typically have a lengthy sales cycle during which the Company may expend
substantial funds and management time and effort with no assurance that a sale
will result. Furthermore, the Company's expense levels are based, in part, on
its expectations as to future net revenues. If revenue levels are below
expectations, operating results are likely to be adversely affected. Net income,
if any, may be disproportionately affected by a reduction in net revenues
because a proportionately smaller amount of the Company's expenses varies with
its net revenues. The impact of these and other factors on the Company's
revenues and operating results in any future period cannot be forecasted with
certainty. Due to all of the foregoing factors, the Company expects it quarterly
operating results to fluctuate significantly and may in certain quarters be
below the expectations of securities analysts and investors. In such event it is
likely the price of the Company's Common Stock would be materially adversely
affected.
The Company believes that its operating results will continue to fluctuate
on a quarterly and annual basis due to a variety of factors. These factors
include the cyclicality of the thin-film disk manufacturing and disk drive
industries, patterns of capital spending by customers, the timing of significant
orders, order cancellations
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and shipment reschedulings, market acceptance of the Company's products,
unanticipated delays in design, engineering or production or in customer
acceptance of product shipments, changes in pricing by the Company or its
competitors, the timing of product announcements or introductions by the Company
or its competitors, discounts offered by the Company to sell demonstration
units, the mix of systems sold, the relative proportions of sputtering systems,
system components and subassemblies, and contract research and development net
revenues, the availability and cost of components and subassemblies, changes in
product development costs, expenses associated with acquisitions and exchange
rate fluctuations. Over the last nine quarters the Company's gross margin and
operating income (loss) as a percentage of net revenues has fluctuated from
approximately 31% to 40% of net revenues and (9)% to 21% of net revenues,
respectively. The Company anticipates that its gross and operating margin will
continue to fluctuate. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as indications of future performance.
Cyclicality of the Media Industry
The Company's business depends upon capital expenditures by manufacturers
of thin-film disks, including manufacturers that are opening new fabrication
facilities, expanding or upgrading existing facilities or replacing obsolete
equipment, which in turn depend upon the current and anticipated market demand
for hard disk drives. The disk drive industry is cyclical and historically has
experienced periods of oversupply. Within the past year, many media
manufacturers have undertaken programs to increase capacity. In addition,
Hyundai has announced plans to commence media manufacturing. This industry-wide
increase in capacity may lead to a period of oversupply of thin-film disks,
resulting in significantly reduced demand for thin-film disk production and for
the capital equipment used in such production, including the systems
manufactured and marketed by the Company. In recent years, particularly in very
recent periods, the disk drive industry has experienced significant growth,
which, in turn, has caused significant growth in the capital equipment industry
supplying manufacturers of thin-film disks. There can be no assurance that such
growth will continue. The Company anticipates that a significant portion of new
orders will depend upon demand from thin-film disk manufacturers building or
expanding fabrication facilities, and there can be no assurance that such demand
will exist. The Company's business, financial condition and results of
operations could be materially adversely affected by downturns or slowdowns in
the disk drive market.
Sales of the Company'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 constructing new manufacturing facilities, all of which typically
involve a significant capital commitment. In addition, the cyclicality of the
disk drive industry, among other factors, may cause prospective customers to
postpone decisions regarding major capital expenditures, including purchases of
the Company's systems. In the event customers delay the purchase of the
Company's systems, the Company's business, financial condition and results of
operations could be materially adversely affected.
Intense Competition
The Company experiences intense competition worldwide from three principal
competitors, Ulvac Japan, Ltd. ("Ulvac"), Balzars A.G. ("Balzars") and Anelva
Corporation ("Anelva"), each of which is a large manufacturer of complex vacuum
equipment and thin-film disk manufacturing systems and has sold a substantial
number of thin-film disk sputtering machines worldwide. Each of Ulvac, Balzars
and Anelva is a manufacturer of in-line and static sputtering systems, and each
has substantially greater financial, technical, marketing, manufacturing and
other resources than the Company. The Company also experiences competition from
other manufacturers of in-line sputtering systems used in thin-film disk
fabrication facilities as well as the manufacturers of thin-film disks that have
developed the capability to manufacture their own sputtering systems. There can
be no assurance that the Company's competitors will not develop enhancements to,
or future generations of, competitive products that will offer superior price or
performance features or that new competitors will not enter the Company's
markets and develop such enhanced products. Furthermore, the failure of
manufacturers of thin-film disks currently using in-line machines and
manufacturers using internally
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developed sputtering systems to switch to static sputtering systems in the
future could adversely affect the Company's ability to increase its sputtering
system market share.
In addition, the Company's three principal competitors are based in foreign
countries and have cost structures and system prices based on foreign
currencies. Accordingly, currency fluctuations could cause the Company's
dollar-priced products to be less competitive than its competitors' products
priced in other currencies. Currency fluctuations could also increase the
Company's cost structure relative to those of its competitors, which could make
it more difficult for the Company to maintain its competitiveness.
Given the lengthy sales cycle and the significant investment required to
integrate a disk sputtering system into the manufacturing process, the Company
believes that once a thin-film disk manufacturer has selected a particular
supplier's disk sputtering equipment, the manufacturer generally relies upon
that equipment for the specific production line application and frequently will
continue to purchase its other disk sputtering equipment from the same supplier.
The Company expects to experience difficulty in selling to a particular customer
for a significant period of time if that customer selects a competitor's disk
sputtering equipment. Accordingly, competition for customers in the disk
sputtering equipment industry is particularly intense, and suppliers of disk
sputtering equipment may offer pricing concessions and incentives to attract
customers, which could adversely affect the Company's business, financial
condition, gross margins and results of operations. Because of these competitive
factors, there can be no assurance that the Company will be able to compete
successfully in the future.
Customer Concentration
Historically, a significant portion of the Company's revenues in any
particular period have been attributable to sales to a limited number of
customers. The Company's largest customers change from period to period as large
thin-film disk production facilities are completed and new projects are
initiated. Matsubo, the Company's Japanese distributor, Seagate Technology
("Seagate") and HMT Technology accounted for 32%, 32% and 13%, respectively, of
the Company's total net revenues in 1996; Seagate, HMT Technology, and Matsubo
accounted for 40%, 20% and 17%, respectively, of the Company's total net
revenues in 1995; and Trace Storage Technology ("Trace"), Matsubo, Seagate,
Varian Associates and Komag accounted for 25%, 15%, 13%, 12% and 10%,
respectively, of the Company's total net revenues during 1994.
The Company expects that sales of its products to relatively few customers
will continue to account for a high percentage of its net revenues in the
foreseeable future. For example, 61% of the Company's backlog at March 29, 1997
was represented by orders from three customers for disk sputtering systems, with
each representing 10% or more of the Company's backlog at March 29, 1997. None
of the Company's customers has entered into a long-term agreement requiring it
to purchase the Company's products. As purchases related to a particular new or
expanded fabrication facility are completed, sales to that customer may decrease
sharply or cease altogether. If completed contracts are not replaced on a timely
basis by new orders from the same or other customers, the Company's net revenues
could be adversely affected. The loss of a significant customer, any reduction
in orders from any significant customer or the cancellation of a significant
order from a customer, including reductions or cancellations due to customer
departures from recent buying patterns, financial difficulties of a customer or
market, economic or competitive conditions in the disk drive industry, could
materially adversely affect the Company's business, financial condition and
results of operations.
Limited Number of Opportunities
The Company's business depends upon capital expenditures by manufacturers
of thin-film disks, of which there are a limited number worldwide. According to
a April 1997 report by TrendFOCUS, an independent market research firm, as of
the end of 1996 there were 231 installed disk sputtering lines (sputtering
systems and related equipment such as plating, polishing, texturing, lubrication
and test equipment as well as related handling equipment) worldwide and only 15
companies in the world with five or more installed disk sputtering lines.
Therefore, winning or losing an order from any particular customer could
significantly affect the Company's operating results. In addition, the Company's
opportunities to sell its systems are further limited by the fact that many of
the manufacturers of thin-film disks have adopted an in-line approach as opposed
to
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the Company's static approach to thin-film disk manufacturing. These
manufacturers have invested significant amounts of capital in their in-line
systems, and there may be significant resistance to change to a static approach
in the future. At times the Company has derived a significant proportion of its
net revenues from sales of its systems to manufacturers constructing new
thin-film disk fabrication facilities. The construction of new thin-film disk
fabrication facilities involves extremely large capital expenditures, resulting
in few thin-film disk fabrication facilities being constructed worldwide at any
particular time. A substantial investment is also required by disk manufacturers
to install and integrate additional thin-film disk manufacturing equipment in
connection with upgrading or expanding their existing fabrication facilities.
These costs are far in excess of the cost of purchasing the Company's system.
The magnitude of such capital expenditures has caused certain thin-film disk
manufacturers to forego purchasing significant additional thin-film disk
manufacturing equipment. Consequently, only a limited number of opportunities
for the Company to sell its systems may exist at any given time.
Rapid Technological Change; New Products
The disk drive industry in general, and the thin-film disk manufacturing
industry in particular, are characterized by rapid technological change and
evolving industry standards. As a result, the Company must continue to enhance
its existing systems and to develop and manufacture new systems with improved
capabilities. This has required and will continue to require substantial
investments by the Company in research and development to advance its
technologies. The failure to develop, manufacture and market new systems, or to
enhance existing systems, would have a material adverse effect on the Company's
business, financial condition and results of operations. In the past, the
Company has experienced delays from time to time in the introduction of, and
certain technical difficulties with, certain of its systems and enhancements. In
addition, the Company's competitors can be expected to continue to develop and
introduce new and enhanced products, any of which could cause a decline in
market demand for the Company's systems or a reduction in the Company's margins
as a result of intensified price competition.
Changes in the manufacturing processes for thin-film disks could also have
a material adverse effect on the Company's business, financial condition and
results of operations. The Company anticipates continued changes in the
requirements of the disk drive industry and thin-film disk manufacturing
technologies. There can be no assurance that the Company will be able to
develop, manufacture and sell systems that respond adequately to such changes.
In addition, the data storage industry is subject to constantly evolving
technological standards. There can be no assurance that future technological
innovations will not reduce demand for thin-film disks. The Company's business,
financial condition and results of operations could be materially adversely
affected by any trend toward technology that would replace thin-film disks as a
storage medium.
The Company has expended significant amounts for research and development
for its disk sputtering systems, flat panel display manufacturing equipment and
other new products under development, such as laser-texturing equipment and
electro-optical products.
The Company's success in developing and selling enhanced disk sputtering
systems and other new products depends upon a variety of factors, including
accurate prediction of future customer requirements, technology advances, cost
of ownership, introduction of new products on schedule, cost-effective
manufacturing and product performance in the field. The Company's new product
decisions and development commitments must anticipate the requirements for the
continuously evolving disk drive industry approximately two or more years in
advance of sales. Any failure to accurately predict customer requirements and to
develop new generations of products to meet those requirements would have a
sustained material adverse effect on the Company's business, financial condition
and results of operations. New product transitions could adversely affect sales
of existing systems, and product introductions could contribute to quarterly
fluctuations in operating results as orders for new products commence and orders
for existing products decline. There can be no assurance that the Company will
be successful in selecting, developing, manufacturing and marketing new products
or enhancements of existing products.
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Flat Panel Display Manufacturing Equipment Risks
In 1996, the Company spent approximately $5.3 million on various programs
to fund the development of equipment for use in the flat panel display ("FPD")
industry, approximately 59% which was paid for by the Company's development
partners. In exchange for certain development funding, the Company has granted
to one of its development partners the exclusive rights to manufacture and
market the Company's FPD sputtering systems in Japan. As of December 31, 1996,
all of the approximately $5.5 million advanced by the Company's development
partner had been applied to qualifying costs. The Company has limited experience
in the development, manufacture, sale and marketing of FPD manufacturing
equipment, having sold two rapid thermal processing ("RTP") systems to date and
having not yet completed development of its FPD sputtering system. Although
during the first quarter of 1997 the Company received its first order for the
design and delivery of a scaled up version of its D-Star FPD sputtering machine,
there can be no assurance that the market for FPD manufacturing equipment
targeted by the Company will develop as quickly or to the degree the Company
currently anticipates, or that the Company's proposed FPD manufacturing
equipment will achieve customer acceptance or that the Company will achieve any
net revenues from the sale of its proposed FPD manufacturing equipment. There
can be no assurance the Company will receive additional customer sponsored
research and development funding in the future. The failure to receive
additional customer sponsored research and development funds could result in the
Company internally funding the development of such FPD manufacturing equipment,
and the costs of such research and development may have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company in any event will continue to fund
research and development in the FPD area.
Leverage
In connection with the sale of the Convertible Notes, the Company incurred
approximately $57.5 million in indebtedness which resulted in a substantial
increase in the Company's ratio of long-term debt to total capitalization
(shareholders' equity plus long-term debt). The ratio at March 29, 1997 and
December 31, 1996 was approximately 60.8% and 2.1%, respectively. As a result of
this indebtedness, the Company incurred substantial principal and interest
obligations. The degree to which the Company is leveraged could have a material
adverse effect on the Company's ability to obtain additional financing for
working capital, acquisitions or other purposes and could make it more
vulnerable to industry downturns and competitive pressures. The Company's
ability to meet its debt service obligations will be dependent on the Company's
future performance, which will be subject to financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control.
Management of Expanding Operations
The Company has recently experienced a period of rapid expansion in its
operations that has placed, and could continue to place, a significant strain on
the Company's management and other resources. The Company's ability to manage
its expanding operations effectively will require it to continue to improve its
operational, financial, and management information systems, and to train,
motivate and manage its employees. If the Company's management is unable to
manage its expanding operations effectively, the Company's results of operations
could be adversely affected.
The Company's operating results will depend in significant part upon its
ability to retain and attract qualified management, engineering, marketing,
customer support and sales personnel. Competition for such personnel is intense
and the Company has difficulties attracting such personnel, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The failure to attract and retain such personnel could make it
difficult to undertake or could significantly delay the Company's research and
development efforts and the expansion of its manufacturing capabilities or other
activities, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
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Manufacturing Risks
The Company's systems have a large number of components and are highly
complex. The Company may experience delays and technical and manufacturing
difficulties in future introductions or volume production of new systems or
enhancements. In addition, some of the systems built by the Company must be
customized to meet individual customer site or operating requirements. The
Company has limited manufacturing capacity and may be unable to complete the
development or meet the technical specifications of its new systems or
enhancements or to manufacture and ship these systems or enhancements in a
timely manner. Such an occurrence would materially adversely affect the
Company's business, financial condition and results of operations as well as its
relationships with customers. In addition, the Company may incur substantial
unanticipated costs early in a product's life cycle, such as increased cost of
materials due to expediting charges, other purchasing inefficiencies and greater
than expected installation and support costs which cannot be passed on to the
customer. Any of such events could materially adversely affect the Company's
business, financial condition and results of operations. Due to recent increases
in demand, the average time between order and shipment of the Company's systems
may increase substantially in the future. The Company's ability to quickly
increase its manufacturing capacity in response to short-term increases in
demand could be limited given the complexity of the manufacturing process, the
lengthy lead times necessary to obtain critical components and manufacturing
space and the need for highly skilled personnel. The failure of the Company to
satisfy any such short-term increases in demand and to keep pace with customer
demand would lead to further extensions of delivery times, which could deter
customers from placing additional orders, and could adversely affect product
quality, which could have a materially adverse effect on the Company's business,
financial condition and results of operation.
In certain instances, the Company is dependent upon a sole supplier or a
limited number of suppliers, or has qualified only a single or limited number of
suppliers, for certain complex components or sub-assemblies utilized in its
products. The Company has implemented a key supplier program in which it
appoints certain key vendors as sole suppliers for certain parts with the goal
of improving response time and reducing costs. In addition, the Company makes
extensive use of suppliers serving the semiconductor equipment business and such
suppliers may choose to give priority to their semiconductor equipment customers
that are much larger than the Company. Any prolonged inability to obtain
adequate deliveries could require the Company to pay more for inventory, parts
and other supplies, seek alternative sources of supply, delay its ability to
ship its products and damage relationships with current and prospective
customers. Any such delay or damage could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company conducts substantially all of its manufacturing activities at
its leased facilities in Santa Clara, San Jose and Los Gatos, California. The
Company's Santa Clara, San Jose and Los Gatos facilities are located in a
seismically active area. A major catastrophe (such as an earthquake or other
natural disaster) could result in a prolonged interruption of the Company's
business.
Acquisitions
The Company's business strategy includes acquiring related businesses,
products or technologies. The Company completed three acquisitions during 1996
and expects that it may pursue additional acquisitions in the future. Any future
acquisition may result in potentially dilutive issuance of equity securities,
the write-off of in-process research and development, the incurrence of debt and
contingent liabilities and amortization expense related to intangible assets
acquired, any of which could materially adversely affect the Company's business,
financial condition and results of operations. In particular, the Company will
not be able to use the "pooling of interests" method of accounting due to a
shareholder being greater than a 50% holder of the Company's Common Stock prior
to the Company's initial public offering, in connection with any acquisition
consummated prior to November 21, 1997 and the Company will therefore be
required to amortize any intangible assets acquired in connection with any
acquisition consummated during that period.
The Company incurred a charge to operations of $5.8 million in the second
quarter of 1996 to reflect the purchase of in-process research and development
related to the two acquisitions completed in that quarter. In addition, the
Company is amortizing intangible assets of approximately $8.8 million of costs
relating to the
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three acquisitions completed in 1996. The amortization period for such costs is
over the useful lives, which range from two years to seven years. Additionally,
unanticipated expenses may be incurred relating to the integration of
technologies and research and development and administrative functions. Any
acquisition will involve numerous risks, including difficulties in the
assimilation of the acquired company's employees, operations and products,
uncertainties associated with operating in new markets and working with new
customers, the potential loss of the acquired company's key employees as well as
the costs associated with completing the acquisition and integrating the
acquired company.
Risks Associated With International Sales and Operations
Sales to customers in countries other than the United States accounted for
41%, 20% and 40% of revenues in 1996, 1995 and 1994, respectively. The Company
anticipates that international sales will continue to account for a substantial
portion of net revenues in the future. In order to effectively service customers
located in Singapore and the surrounding region, the Company has established
sales and service operations in Singapore and Taiwan. Sales and operating
activities outside of the United States are subject to certain inherent risks,
including fluctuations in the value of the United States dollar relative to
foreign currencies, tariffs, quotas, taxes and other market barriers, political
and economic instability, restrictions on the export or import of technology,
potentially limited intellectual property protection, difficulties in staffing
and managing international operations and potentially adverse tax consequences.
There can be no assurance that any of these factors will not have a material
adverse effect on the Company's business, financial condition or results of
operations. In particular, although the Company's international sales have been
denominated in United States dollars, such sales and expenses may not be
denominated in dollars in the future, and currency exchange fluctuations in
countries where the Company does business could materially adversely affect the
Company's business, financial condition and results of operations.
Patents and Other Intellectual Property
The Company currently has 23 patents issued in the United States, and has
pending patent applications in the United States and foreign countries. Of the
23 patents, 7 relate to sputtering, 10 relate to RTP, 1 relates to lubrication
systems and 5 relate to other areas not in Intevac's mainstream business. In
addition, the Company has the right to utilize certain patents under licensing
arrangements with Litton Industries, Varian Associates, Stanford University,
Lawrence Livermore Laboratories and Alum Rock Technology. There can be no
assurance that any of the Company's patent applications will be allowed or that
any of the allowed applications will be issued as patents. There can be no
assurance that any patent owned by the Company will not be invalidated, deemed
unenforceable, circumvented or challenged, that the rights granted thereunder
will provide competitive advantages to the Company or that any of the Company's
pending or future patent applications will be issued with claims of the scope
sought by the Company, if at all. Furthermore, there can be no assurance that
others will not develop similar products, duplicate the Company's products or
design around the patents owned by the Company. In addition, there can be no
assurance that foreign patent rights, intellectual property laws or the
Company's agreements will protect the Company's intellectual property rights.
Failure to protect the Company's intellectual property rights could have a
material adverse effect upon the Company's business, financial condition and
results of operations.
There have also been substantial amounts of litigation in the technology
industry regarding intellectual property rights. The Company has from time to
time received claims that it is infringing third parties' intellectual property
rights. In August 1993, Rockwell International Corporation ("Rockwell") sued the
Federal government alleging infringement of certain patent rights with respect
to the contracts the Federal government has had with a number of companies,
including Intevac. In the first quarter of 1997, Rockwell's patent in suit was
held invalid. However, Rockwell has the right to appeal that decision. The
Federal government has notified Intevac that it may be liable in connection with
contracts for certain products from the Company's discontinued night vision
business. Although the Company believes it will have no material liability under
these contracts, there can be no assurance that the resolution of the claims by
Rockwell with the Federal government will not have a material adverse effect on
the Company's business, operating results and financial condition. In addition,
a third party has sent correspondence to a consortium, of which the
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Company is a party, in a government sponsored research and development program
claiming that the work to be done under this program may infringe patents owned
by this third party. The Company and its subcontractors have reviewed the
correspondence and patents and believe these claims are without merit; however,
there can be no assurance that litigation will not result from such development
program. There can be no assurance that other third parties will not in the
future claim infringement by the Company with respect to current or future
patents, trademarks, or other proprietary rights relating to the Company's disk
sputtering systems, flat panel manufacturing equipment or other products. Any
present or future claims, with or without merit, could be time-consuming, result
in costly litigation, cause product shipment delays or require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. Any of the foregoing could have a material adverse effect
upon the Company's business, operating results and financial condition.
In addition, the Company believes that one of its competitors may be
infringing the Company's patent rights in connection with products currently
being offered by this competitor. Although the Company has not undertaken formal
legal proceedings, the Company has informed this competitor that the Company
believes its patent rights are being infringed and that the Company may
undertake litigation to protect its patent rights if necessary. If undertaken,
such litigation could be costly, time-consuming and result in legal claims being
made against the Company. This could have a material adverse effect on the
Company's business, operating results and financial condition, and, in addition,
there could be no assurance that the Company would ultimately prevail in any
such litigation.
Environmental Regulations
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture,
treatment and disposal of toxic or other hazardous substances, chemicals,
materials or waste. Any failure to comply with current or future regulations
could result in substantial civil penalties or criminal fines being imposed on
the Company, or its officers, directors or employees, suspension of production,
alteration of its manufacturing process or cessation of operations. Such
regulations could require the Company to acquire expensive remediation or
abatement equipment or to incur substantial expenses to comply with
environmental regulations. Any failure by the Company to properly manage the
use, disposal or storage of, or adequately restrict the release of, hazardous or
toxic substances could subject the Company to significant liabilities.
Dependence on Key Employees
The Company's operating results will depend significantly upon the
continued contributions of its officers and key management, engineering,
marketing, customer support and sales personnel, many of whom would be difficult
to replace. The Company does not have an employment agreement with any of its
employees or maintain key person life insurance with respect to any employee.
The loss of any key employee could have a material adverse effect on the
Company's business, financial condition and results of operations. Employees of
the Company are currently required to enter into a confidentiality agreement as
a condition of their employment. However, these agreements do not expressly
prohibit the employees from competing with the Company after leaving its employ.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party or
to which any of its property is subject.
ITEM 2. CHANGES IN SECURITIES
Recent Sales of Unregistered Securities.
(a) On February 25, 1997, the Registrant sold $50,000,000 of 6 1/2%
Convertible Subordinated Notes due in 2004 (the "Convertible Notes"). On March
5, 1997, the Registrant sold an additional $7,500,000 of the Convertible Notes.
(b) The initial purchasers of the Convertible Notes were Salomon Brothers
Inc., Hambrecht & Quist LLC and Robertson, Stephens & Company LLC (the "Initial
Purchasers").
(c) The total offering price of the Convertible Notes was $57,500,000 with
an aggregate discount to the Initial Purchasers of $2,012,500.
(d) The Registrant relied upon the exemption set forth in Section 4(2) of
the Securities Act of 1933, as amended (the "Securities Act"), for the sale of
the Convertible Notes to the Initial Purchasers. The Initial Purchasers intend
to resell the Convertible Notes in the United States to qualified institutional
buyers under Rule 144A under the Securities Act and to a limited number of other
institutional "accredited investors" as defined in Rule 501 of the Securities
Act and outside the United States to non-U.S. persons in reliance upon
Regulation S under the Securities Act.
(e) The Convertible Notes, unless previously redeemed or repurchased, are
convertible at the option of the holder at any time after 90 days following the
last day of original issuance thereof and prior to maturity into shares of
Common Stock at a conversion price of $20.625 per share, subject to adjustment
in certain events.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
10.1 Amendment to Loan and Security Agreement dated February 19, 1997.
10.2 Amendment to Lease effective April 1, 1997.
10.3 Line of Credit Agreement dated April 30, 1997.
11.1 Computation of Net Income Per Share.
27.1 Financial Data Schedule.
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20
The following exhibits were previously filed as exhibits to a Registration
Statement on Form S-3 (No. 333-24275) dated March 31, 1997 and are incorporated
herein by reference:
EXHIBIT
NUMBER DESCRIPTION
------ ------------------------------------------------------------------------------
4.2 Indenture, dated as of February 15, 1997, between the Company and State Street
Bank and Trust Company of California, N.A. as Trustee, including the form of
the Convertible Notes.
4.3 Registration Agreement, dated as of February 15, 1997, among the Company,
Salomon Brothers Inc., Robertson, Stephens & Company LLC and Hambrecht & Quist
LLC.
(b) Reports on Form 8-K:
On February 20, 1997, the registrant filed a report on Form 8-K,
regarding the offering of the Convertible Notes.
On March 11, 1997, the registrant filed a report on Form 8-K, regarding
the sale of $57,500,000 of the Convertible Notes.
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SIGNATURES
Pursuant to the requirements of the Securities and 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 8, 1997 By: /s/ NORMAN H. POND
------------------------------------
Norman H. Pond
Chairman of the Board, President and
Chief Executive Officer (Principal
Executive Officer)
Date: May 8, 1997 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)
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EXHIBIT INDEX
EXHIBIT
NUMBER
- ------
10.1 Amendment to Loan and Security Agreement dated February 19, 1997.
10.2 Amendment to Lease effective April 1, 1997.
10.3 Line of Credit Agreement dated April 30, 1997.
11.1 Computation of Net Income Per Share.
27.1 Financial Data Schedule.
22