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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------- TO
---------------.
COMMISSION FILE NUMBER 0-26946
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INTEVAC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 94-3125814
(STATE OR OTHER JURISDICTION OF (IRS 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
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 CORPORATE ISSUERS:
On March 28, 1998 approximately 12,153,525 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....................... 1
Condensed Consolidated Statements of Income................. 2
Condensed Consolidated Statements of Cash Flows............. 3
Notes to Condensed Consolidated Financial Statements........ 4
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 18
ITEM 2. Changes in Securities....................................... 18
ITEM 3. Defaults Upon Senior Securities............................. 18
ITEM 4. Submission of Matters to a Vote of Security-Holders......... 18
ITEM 5. Other Information........................................... 18
ITEM 6. Exhibits and Reports on Form 8-K............................ 18
SIGNATURES............................................................ 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEVAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 28, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 611 $ 3,338
Short-term investments.................................... 65,100 67,804
Accounts receivable, net of allowances of $1,583 and
$1,505 at March 28, 1998 and December 31, 1997,
respectively........................................... 12,972 9,634
Inventories............................................... 34,484 35,915
Short-term note receivable, net of allowance of $395 at
March 28, 1998 and December 31, 1997................... -- --
Prepaid expenses and other current assets................. 703 641
Deferred tax asset........................................ 6,572 6,572
-------- --------
Total current assets................................... 120,442 123,904
Property, plant, and equipment, net......................... 14,531 13,760
Investment in 601 California Avenue LLC..................... 2,431 2,431
Goodwill and other intangibles.............................. 4,800 5,344
Debt issuance costs......................................... 1,947 2,029
Deferred tax assets and other assets........................ 287 326
-------- --------
Total assets...................................... $144,438 $147,794
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 5,357 $ 4,585
Accrued payroll and related liabilities................... 2,048 1,949
Other accrued liabilities................................. 11,787 10,304
Customer advances......................................... 21,336 28,247
Net liabilities of discontinued operations................ -- 794
-------- --------
Total current liabilities.............................. 40,528 45,879
Convertible notes........................................... 57,500 57,500
Long-term notes payable..................................... 1,980 1,980
Shareholders' equity:
Common stock, no par value................................ 17,079 17,336
Retained earnings......................................... 27,351 25,099
-------- --------
Total shareholders' equity............................. 44,430 42,435
-------- --------
Total liabilities and shareholders' equity........ $144,438 $147,794
======== ========
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 28, MARCH 29,
1998 1997
--------- ---------
Net revenues................................................ $34,235 $31,141
Cost of net revenues........................................ 23,574 20,997
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Gross profit................................................ 10,661 10,144
Operating expenses:
Research and development.................................. 3,562 2,560
Selling, general and administrative....................... 3,105 2,600
Restructuring............................................. 1,164 --
------- -------
Total operating expenses............................... 7,831 5,160
------- -------
Operating income............................................ 2,830 4,984
Interest expense............................................ (1,016) (400)
Interest income and other, net.............................. 771 755
------- -------
Income from continuing operations before income taxes....... 2,585 5,339
Provision for income taxes.................................. 855 1,923
------- -------
Income from continuing operations........................... 1,730 3,416
Gain from discontinued operations, net of applicable income
taxes..................................................... 532 --
------- -------
Net income.................................................. $ 2,262 $ 3,416
======= =======
Basic earnings per share:
Income from continuing operations......................... $ 0.14 $ 0.27
Net income................................................ $ 0.19 $ 0.27
Shares used in per share amounts.......................... 12,190 12,505
Diluted earnings per share:
Income from continuing operations......................... $ 0.14 $ 0.26
Net income................................................ $ 0.18 $ 0.26
Shares used in per share amounts.......................... 12,511 14,128
See accompanying notes.
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INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
----------------------
MARCH 28, MARCH 29,
1998 1997
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OPERATING ACTIVITIES
Net income.................................................. $ 2,262 $ 3,416
Adjustments to reconcile net income to net cash and cash
equivalents provided by (used in) operating activities:
Depreciation and amortization............................. 1,614 1,131
Gain on sale of Chorus investment......................... -- (390)
Gain on sale of discontinued operations................... (794) --
Foreign currency loss..................................... (12) --
Loss on IMAT investment................................... 37 --
Restructuring charge -- non-cash portion.................. 194 --
Loss on disposal of equipment............................. 94 16
Changes in assets and liabilities......................... (7,685) 5,442
-------- --------
Total adjustments...................................... (6,552) 6,199
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Net cash and cash equivalents provided by (used in)
operating activities...................................... (4,290) 9,615
INVESTING ACTIVITIES
Purchase of investments..................................... (38,471) (60,618)
Proceeds from sale of investments........................... 41,175 --
Proceeds from sale of Chorus investment..................... -- 390
Purchase of leasehold improvements and equipment............ (884) (1,268)
-------- --------
Net cash and cash equivalents provided by (used in)
investing activities...................................... 1,820 (61,496)
FINANCING ACTIVITIES
Net borrowings under line of credit agreement............... -- (2)
Notes payable repayments.................................... -- (20)
Proceeds from issuance of common stock...................... 551 422
Repurchase of common stock.................................. (808) --
Proceeds from convertible bond offering..................... -- 55,175
-------- --------
Net cash and cash equivalents provided by (used in)
financing activities...................................... (257) 55,575
-------- --------
Net increase (decrease) in cash and cash equivalents........ (2,727) 3,694
Cash and cash equivalents at beginning of period............ 3,338 938
-------- --------
Cash and cash equivalents at end of period.................. $ 611 $ 4,632
======== ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for:
Interest.................................................. $ 1,900 $ 46
Income taxes.............................................. 950 300
See accompanying notes.
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INTEVAC, INC.
NOTES TO CONDENSED 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, enables disk manufacturers to
produce 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 subsidiaries in Singapore and
Malaysia and a branch office in Taiwan to support its customers in Southeast
Asia.
The Company also realizes revenues from the sales of system components,
contract research and development activities, flat panel display ("FPD")
manufacturing equipment and electron beam processing equipment. 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 derived primarily from prime contracts awarded by
and subcontracts awarded under various Department of Defense ("DOD") and NASA
development projects for the FPD industry and various photonics products. FPD
manufacturing equipment consists of sputtering and rapid thermal processing
equipment for the manufacture of FPD's. Electron beam processing equipment is
used for curing inks, coatings and adhesives, in the manufacture of shrink wrap
films and for in-line sterilization.
The financial information at March 28, 1998 and for the three-month periods
ended March 28, 1998 and March 29, 1997 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, it does 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, 1997.
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 28, 1998 are not
considered indicative of the results to be expected for any future period or for
the entire year.
2. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130").
SFAS 130 establishes new rules for the reporting and display of comprehensive
income and its components; however, the adoption of this statement has no impact
on the Company's net income or shareholders' equity. The Company's total
comprehensive income was the same as its net income for all periods presented.
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INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
The components of inventory consist of the following:
MARCH 28, DECEMBER 31,
1998 1997
--------- ------------
(IN THOUSANDS)
Raw materials........................................ $ 8,423 $ 8,784
Work-in-progress..................................... 17,626 18,756
Finished goods....................................... 8,435 8,375
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$34,484 $35,915
======= =======
A significant portion of the finished goods inventory is represented by
completed units at customer sites undergoing installation and acceptance
testing.
4. DISCONTINUED OPERATIONS
During the quarter, the Company recognized a gain of $532,000 (net of
income taxes) resulting from the reversal of excess warranty reserves related to
the sale of the Company's night vision business in 1995. Basic and diluted
earnings per share on the gain from discontinued operations were $0.05 and
$0.04, respectively.
5. INCOME TAXES
The effective tax rates used for the three-month periods ending March 28,
1998 and March 29, 1997 were 33% and 36% of pretax income, respectively. These
rates are 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
The following table sets forth the computation of basic and diluted
earnings per share:
THREE MONTHS ENDED
----------------------
MARCH 28, MARCH 29,
1998 1997
--------- ---------
(IN THOUSANDS)
Numerator:
Income from continuing operations.................... $1,730 $3,416
====== ======
Net income........................................... $2,262 $3,416
====== ======
Numerator for basic earnings per share -- income
available to common stockholders.................. 2,262 3,416
Effect of dilutive securities:
6 1/2% convertible notes(1)....................... -- 198
------ ------
Numerator for diluted earnings per share -- income
available to common stockholders after assumed
conversions....................................... $2,262 $3,614
====== ======
Denominator:
Denominator for basic earnings per
share -- weighted-average shares.................. 12,190 12,505
Effect of dilutive securities:
Employee stock options............................ 321 609
6 1/2% convertible notes(1)....................... -- 1,014
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Dilutive potential common shares..................... 321 1,623
------ ------
Denominator for diluted earnings per share --adjusted
weighted-average shares and assumed conversions... 12,511 14,128
====== ======
- ---------------
(1) Diluted EPS for the three months ended March 28, 1998 excludes "as
converted" treatment of the Convertible Notes as their inclusion would be
anti-dilutive.
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INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RESEARCH AND DEVELOPMENT COST SHARING AGREEMENT
The Company entered into an agreement with a Japanese company to perform
best efforts joint research and development work. The nature of the project is
to develop a glass coating machine to be used in the production of flat panel
displays. The Company was funded for one-half of the actual costs of the project
up to a ceiling of $6,750,000. Based upon discussions with its development
partner, the Company believes that it will receive additional cost sharing
funding during the second half of 1998.
8. RESTRUCTURING
On March 2, 1998, as a result of weak demand for its disk sputtering
systems, the Company's management adopted a plan to reduce expenses. The expense
reduction plan included a reduction in force of approximately 90 employees out
of the Company's staff of contract and regular personnel. The reductions took
place at the Company's facilities in Santa Clara, CA; Los Gatos, CA; Rocklin,
CA; and in Taiwan. Additionally, the Company is relocating its Rapid Thermal
Processing Operation from Rocklin to the Company's Santa Clara headquarters and
closing the Rocklin facility.
In the first quarter of 1998, the Company incurred a restructuring charge
of $1,164,000 related to the expense reduction plan. The significant components
of this charge include $290,000 for closure of the Rocklin facility, $462,000
for the balance of the rent due on the lease and $392,000 for employee severance
costs. Closure of the facility is expected to be complete by June 30, 1998.
As of March 28, 1998, approximately $184,000 in termination benefits had
been paid out to affected employees.
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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 under "Certain Factors
Which May Affect Future Operating Results" and in 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 March 1998, Form 10-Q's and
Form 8-K's.
OVERVIEW
The Company's revenues are generated by the sale of disk sputtering systems
and related disk manufacturing equipment; system components; contract research
and development activities; flat panel display manufacturing equipment; and
electron beam processing equipment. Disk sputtering systems and related disk
manufacturing equipment generally represent the majority of the Company's
revenue, and Intevac is a leading supplier of this equipment. Sputtering is a
complex vacuum deposition process used to deposit multiple thin-film layers on a
disk. 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 derived
primarily from prime contracts awarded by and subcontracts awarded under various
DOD and NASA development projects for the FPD industry and various photonics
products. Flat panel display manufacturing equipment consists of sputtering and
rapid thermal processing equipment for the manufacture of FPD's. Electron beam
processing equipment is used for curing inks, coatings and adhesives, in the
manufacture of shrink-wrap films and for sterilization.
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").
In the second quarter of 1997, the Company paid $0.4 million for a 49%
interest in IMAT Inc. ("IMAT"), a joint venture formed with its Japanese
distributor, Matsubo, to market the Company's flat panel manufacturing equipment
in the Far East.
In the fourth quarter of 1997, the Company purchased all of the assets of
RPC Industries ("RPC"). RPC is a manufacturer of electron beam processing
systems. This acquisition was accounted for under the purchase method. The total
purchase price was approximately $1.0 million plus contingent payments equal to
25% of the future earnings of RPC. The total of these contingent payments is
limited to approximately $7.7 million.
In March of 1998, as a result of weak orders for its disk sputtering
systems and an expectation that revenues would decline significantly in the
third quarter of 1998, the Company implemented an expense reduction plan that
involved the termination of approximately 20% of the Company's work force. As
part of the expense reduction plan the Company also decided to close its
Rocklin, California facility and transfer its Rapid Thermal Processing Operation
from Rocklin to the Company's headquarters in Santa Clara. During the first
quarter of 1998, the Company incurred a restructuring charge of approximately
$1.2 million related to the expense reduction plan.
The Company's backlog was $53.6 million and $65.0 million at March 28, 1998
and March 29, 1997, respectively. The Company includes in backlog the value of
purchase orders for its products with scheduled delivery dates. Delivery dates
may be rescheduled from time to time. 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.
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RESULTS OF OPERATIONS
Three Months Ended March 28, 1998 and March 29, 1997
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, electron
beam processing equipment and contract research and development. Net revenues
from the sales of sputtering systems and electron beam processing equipment 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 10% to $34.2 million for the three
months ended March 28, 1998 from $31.1 million for the three months ended March
29, 1997. The increase in net revenues was due to an increase in the net
revenues from system components, electron beam processing equipment and contract
research and development which was partially offset by a reduction in net
revenues from disk sputtering systems.
International sales increased by 25% to $18.3 million for the three months
ended March 28, 1998 from $14.7 million for the three months ended March 29,
1997. The increase in international sales was primarily due to an increase in
the sales of disk sputtering systems and electron beam processing systems.
International sales constituted 53% of net revenues for the three months ended
March 28, 1998 and 47% of net revenues for the three months ended March 29,
1997.
Gross margin. Cost of net revenues consists primarily of purchased
materials, fabrication, assembly, test, installation, warranty costs, scrap and
costs attributable to contract research and development. Gross margin was 31.1%
for the three months ended March 28, 1998 as compared to 32.6% for the three
months ended March 29, 1997. Gross margins declined primarily as the result of
the establishment of a $0.5 million cost to market reserve which was taken to
reduce the inventory value of Company's first RIGEL flat panel sputtering system
to a value approximately equal to the sales price less the cost of selling the
system. With the RIGEL flat panel sputtering system valued in inventory at an
amount approximating the sales value, the Company expects there to be
approximately zero contribution to gross profit by the RIGEL system in the
quarter that the system is recognized for revenue, and a significant reduction
in gross margins. The Company believes that the ongoing cost of producing
additional RIGEL systems will be significantly lower than the cost of the first
system. The Company also believes that lower sales volumes expected in the third
quarter of 1998 will cause lower absorption of factory overhead which may also
negatively impact gross margins.
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
manufacturing equipment, flat panel manufacturing equipment, electron beam
processing equipment and research by the Photonics Division. Company funded
research and development expense increased by 39% to $3.6 million for the three
months ended March 28, 1998 from $2.6 million for the three months ended March
29, 1997, representing 10.4% and 8.2%, respectively, of net revenue. This
increase was primarily the result of increased expense for the development of
disk manufacturing equipment and to a lesser extent increased expense for the
development of flat panel manufacturing equipment, electron beam processing
equipment and company funded research and development in the Photonics Division.
Research and development expenses do not include costs of $0.4 million in
the three months ended March 29, 1997, reimbursed under the terms of a research
and development cost sharing agreement with the Company's Japanese flat panel
manufacturing equipment development partner. Since 1993 the Company has received
$6.8 million of funds under this cost sharing agreement. Based upon discussions
with its development partner, the Company believes that it will receive
additional cost sharing payments during the second half of 1998.
Selling, general and administrative. Selling, general and administrative
expense consists primarily of selling, marketing, customer support, financial,
travel, management, legal and professional services. Domestic sales are made by
the Company's direct sales force, whereas international sales are made by
distributors that typically provide sales, installation, warranty and ongoing
customer support. The Company also has
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subsidiaries in Singapore and Malaysia and a branch office in Taiwan to support
customers in Southeast Asia and markets its flat panel manufacturing equipment
to the Far East through its Japanese joint venture, IMAT. Selling, general and
administrative expense increased by 19% to $3.1 million for the three months
ended March 28, 1998 from $2.6 million for the three months ended March 29, 1997
representing 9.1% and 8.3%, respectively, of net revenue. The increase in
expense was primarily the result of additional selling, general and
administrative expenses associated with the electron beam equipment business
which was acquired during the fourth quarter of 1997. Selling, general and
administrative headcount grew to 91 employees at March 28, 1998 from 85
employees at March 29, 1997.
Restructuring expense. In March 1998, the Company's management adopted a
restructuring plan to relocate its Rapid Thermal Processing Operation from
Rocklin, California to the Company's Santa Clara, California headquarters and to
close the Rocklin facility. The restructuring plan also included an approximate
20% reduction in the worldwide staff of the Company's contract and regular
employees. As a result of this plan, the Company expensed approximately $1.2
million of restructuring expense in the three months ended March 28, 1998. The
restructuring expense included approximately $0.8 million related to closure of
the Rocklin facility and approximately $0.4 million of severance pay for
terminated employees.
Interest expense. Interest expense consists primarily of interest on the
Convertible Notes, and to a lesser extent, interest on approximately $2.0
million of long term debt related to the purchase of Cathode Technology in 1996.
Interest expense increased by 154% to $1.0 million for the three months ended
March 28, 1998 from $0.4 million in the three months ended March 29, 1997. The
primary reason for the increase in interest expense was that the Convertible
Notes were only outstanding for a portion of the three month period ended March
29, 1997.
Interest and other income, net. Interest and other income, net consists
primarily of interest income on the Company's investments, income related to the
sale of the Company's 20% interest in the capital stock of Chorus and early
payment discounts on the purchase of inventories, goods and services, partially
offset by the Company's 49% share of the loss incurred by IMAT. Interest and
other income, net increased by 2% to $0.8 million for the three months ended
March 28, 1998 from $0.8 million for the three months ended March 29, 1997 as
the result of increased interest income on funds raised from the sale of the
Company's 6 1/2% Convertible Subordinated Notes due 2004 which was largely
offset by decreased income related to the sale of the Company's 20% interest in
the capital stock of Chorus and to a lesser extent the Company's 49% share of
the loss incurred by IMAT.
Discontinued operations. The Company recorded a gain from discontinued
operations of $0.5 million resulting from the reversal of excess warranty
reserves related to the sale of the Company's night vision business in 1995.
Provision for income taxes. Income tax expense as a percentage of pretax
income for the three months ended March 28, 1998 and March 29, 1997, was 33% and
36%, respectively. The Company's tax rate differs from the applicable statutory
rates primarily due to benefits from the Company's foreign sales corporation and
tax-exempt interest income partially offset by nondeductible goodwill
amortization. The tax rate declined in 1998 because a larger percentage of 1998
income is expected to be derived through the Company's foreign sales corporation
and from tax-exempt interest income.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $4.3 million for the three
months ended March 28, 1998. The cash used in 1998 was due primarily to a
reduction in customer advances and an increase in accounts receivable, which
were partially offset by increased expense accruals and accounts payable, net
income and increased depreciation and amortization.
The Company's investing activities provided cash of $1.8 million for the
three months ended March 28, 1998 due primarily to the net sale of investments
which was partially offset by the purchase of fixed assets.
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The Company's financing activities used cash of $0.3 million for the three
months ended March 28, 1998, primarily due to the repurchase of 95,000 shares of
the Company's stock for $0.8 million, which was partially offset by the sale of
the Company's stock to its employees through the Company's employee benefit
plans.
YEAR 2000
The Company is currently evaluating the software and computer systems it
uses in order to ensure compliance with Year 2000 issues. This evaluation, and
any corrective actions required, is estimated to be completed no later than
December 31, 1998. The Company does not expect to encounter significant problems
or that material expenditures will be required to comply with Year 2000 issues.
These expectations are based primarily on the fact that the Company purchases
all business software from third party vendors.
Specific actions to be taken include: reviewing all software used and
assessing the vendor's plans to comply with Year 2000; testing of all hardware
to ensure its ability to recognize dates after 1999; and contacting significant
suppliers to determine their ability to comply with Year 2000.
The expectations of the findings of this project and the date on which the
Company believes it will be completed are based on management's best estimates.
However, there can be no guarantee that these expectations will be achieved and
actual results could differ materially.
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 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 cancellation or reschedule,
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, 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.
The Company derives the majority of its net revenues from the sale of a
relatively small number of sputtering systems. Over the last nine quarters, the
number of systems accepted by customers in any particular quarter has varied
from four to thirteen 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. Over the last nine
quarters the Company's gross margin and operating income (loss) as a percentage
of net revenues has fluctuated from approximately 30% to 40% of net revenues and
from (9)% to 18% of net revenues, respectively. The Company anticipates that its
unit shipments, revenues, gross and operating margins 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.
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. In addition, orders in backlog are subject to cancellation, and
although the Company generally 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. The Company may from time to time manufacture a
system in anticipation of an order that may not be placed during the period or
at all. In any given quarter in which such a system is manufactured, the Company
may not receive funds to cover its manufacturing costs. Orders may be subject to
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
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longer before final payment is received. The relatively long manufacturing
cycles of many of the Company's products has 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. 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. 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 sales and operating results in any future period cannot
be forecasted with certainty.
Due to all of the foregoing factors, the Company expects its 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.
Cyclicality of the Media Industry
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. The Company's
business depends upon capital expenditures by manufacturers of thin-film disks,
including manufacturers that are opening new fabrication facilities or entering
the market, expanding or upgrading existing facilities, or replacing obsolete
equipment, which in turn depend upon the current and anticipated market demand
for hard disk drives. In recent years, 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. However, the disk
drive industry is cyclical and historically has experienced periods of
oversupply, resulting in significantly reduced demand for thin-film disks and
for the capital equipment used to manufacture such disks, including the systems
manufactured and marketed by the Company.
A number of manufacturers of hard disk drives and hard disk drive component
suppliers have recently reported both substantial reductions in revenues and
substantial financial losses. Many of these manufacturers attributed their
problems to an excess supply of hard drives, or, in the case of component
suppliers, an excess supply of components for hard drives (including thin-film
disks) and the rapid change of technology which caused a number of products to
become obsolete. This industry-wide over-capacity has led to a period of reduced
demand for thin-film disk production and for the capital equipment used in such
production. In March of 1998, as a result of weak orders for its disk sputtering
systems, the Company determined that sales in the third quarter of 1998 would
likely be significantly reduced from current levels and implemented an expense
reduction plan that involved the termination of approximately 20% of the
Company's work force.
Cyclical downturns in the hard disk drive industry are likely to materially
adversely affect the Company's business, financial condition and results of
operations.
Intense Competition
The Company's disk sputtering business experiences intense competition
worldwide from two principal competitors, Balzars A.G. ("Balzars") and Anelva
Corporation ("Anelva"), each of which is a large
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manufacturer of complex vacuum equipment and thin-film disk manufacturing
systems and has sold a substantial number of thin-film disk sputtering machines
worldwide. Both Balzars and Anelva are manufacturers of static sputtering
systems, and each has substantially greater financial, technical, marketing,
manufacturing and other resources than the Company. The Company also experiences
competition from two other manufacturers of static sputtering systems as well as
from 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 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 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 two 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. For example, Matsubo, HMT Technology and Trace Storage Technology
accounted for 37%, 17% and 15%, respectively of the Company's total net revenues
in 1997, and Matsubo, 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. The Company's largest customers change
from period to period as large thin-film disk fabrication facilities are
completed and new projects are initiated. 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, 68% of
the Company's backlog at December 31, 1997 was represented by two customers for
disk sputtering systems, with each representing 10% or more of the Company's
backlog at December 31, 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.
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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 some of
the manufacturers of thin-film disks have adopted an in-line approach as opposed
to 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. 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, is characterized by rapid technological change and
evolving industry standards. The Company maintains an active development program
to make sputter system improvements, to add additional capabilities that will
improve disk performance, increase machine throughput, permit optimum
utilization of alternative substrates, lower cost of ownership and respond to
future market requirements. The Company's ability to remain competitive has
required and will continue to require substantial investments 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'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
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16
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.
Flat Panel Display Manufacturing Equipment Risks
In 1997, the Company spent approximately $4.9 million on various programs
to fund the development of equipment for use in the FPD industry, of which
approximately 54% 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 March 28, 1998 all of the
approximately $6.75 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 only three rapid thermal processing ("RTP") systems to date and
continuing development of its FPD sputtering system. Although during the first
quarter of 1998 the Company delivered a second larger version of its 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 market acceptance. 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.
Risks Associated With International Sales and Operations
Foreign sales accounted for 64%, 41% and 20% of revenues in 1997, 1996 and
1995, respectively. Substantially all of the Company's foreign sales are to
companies in the Far East. The Company anticipates that sales to customers in
the Far East will continue to be a significant portion of its revenues in the
foreseeable future. In order to effectively service customers located in
Southeast Asia, the Company has established sales and service operations in
Singapore, Taiwan and Malaysia and a joint venture in Japan. 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.
The Company's products have been sold in to companies headquartered in the
United States, Japan, Taiwan and Korea and have been installed in factories in
the United States, Japan, Singapore, Malaysia, Korea and Taiwan. All of the Far
Eastern countries with which the Company does business have banking systems and
foreign currency exposures that have experienced serious troubles recently and
therefore subject the Company's customers to substantial business risks. 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.
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
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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.
Ability to Attract Qualified Personnel
The Company's operating results 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 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.
Leverage
In connection with the sale of the Convertible Notes, the Company incurred
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
28, 1998 and December 31, 1997 was approximately 57.2% and 58.4%, 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.
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.
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 and Los Gatos, California. The Company's
Santa Clara and Los Gatos facilities are located in a
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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 one acquisition during 1997 and
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 and the assumption of debt and contingent liabilities, any of which
could materially adversely affect the Company's business, financial condition
and results of operations. Additionally, as a result of the Company's ongoing
repurchase of its stock in the open market, the Company may not be able to use
the "pooling of interests" method of accounting in some acquisitions, and the
Company may therefore be required to amortize any intangible assets acquired in
connection with any acquisition.
The Company incurred a charge to operations of $0.3 million in the fourth
quarter of 1997 and $5.8 million in the second quarter of 1996 and to reflect
the purchase of in-process research and development related to the acquisitions
completed in those quarters. In addition, the Company is amortizing intangible
assets of approximately $9.0 million relating to the four acquisitions. 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, 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.
Patents and Other Intellectual Property
The Company currently has 24 patents issued in the United States and 2
patents issued in Japan, and has pending patent applications in the United
States and foreign countries. Of the 24 U.S. patents, 7 relate to sputtering, 10
relate to RTP, 1 relates to lubrication systems and 6 relate to photonics. The 2
Japanese patents relate to sputtering. 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 has been substantial 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. 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 the first quarter of
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1997, Rockwell's patent in suit was held invalid. Rockwell has appealed that
decision. These issues are now pending before the appellate court.
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 display 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 can 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.
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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
None.
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
------- -----------
27.1 Financial Data Schedule
27.2 Financial Data Schedule -- Qtr 1 1996 Restated
27.3 Financial Data Schedule -- Qtr 3 1996 Restated
27.4 Financial Data Schedule -- Qtr 1 1997 Restated
27.5 Financial Data Schedule -- Qtr 2 1997 Restated
27.6 Financial Data Schedule -- Qtr 3 1997 Restated
27.7 Financial Data Schedule -- 1996 Restated
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEVAC, INC.
Date: May 11, 1998 By: /s/ NORMAN H. POND
------------------------------------
Norman H. Pond
Chairman of the Board, President and
Chief
Executive Officer (Principal
Executive Officer)
Date: May 11, 1998 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 DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
27.2 Financial Data Schedule -- Qtr 1 1996 Restated
27.3 Financial Data Schedule -- Qtr 3 1996 Restated
27.4 Financial Data Schedule -- Qtr 1 1997 Restated
27.5 Financial Data Schedule -- Qtr 2 1997 Restated
27.6 Financial Data Schedule -- Qtr 3 1997 Restated
27.7 Financial Data Schedule -- 1996 Restated