This Quarterly Report on Form 10-Q contains forward-looking statements, which involve risks and uncertainties. Words such as "believes," "expects," "anticipates" and the like indicate forward-looking statements. These forward-looking statements include comments related toIntevac's expected shipments, revenue recognition, product costs, gross margin, operating expenses, interest income, income taxes, cash balances and financial results in 2020 and beyond; projected customer requirements forIntevac's new and existing products, and when, and if,Intevac's customers will place orders for these products;Intevac's ability to proliferate its Photonics technology into major military programs and to develop and introduce commercial imaging products; the timing of delivery and/or acceptance of the systems and products that compriseIntevac's backlog for revenue and the Company's ability to achieve cost savings.Intevac's actual results may differ materially from the results discussed in the forward-looking statements for a variety of reasons, including those set forth under "Risk Factors" and in other documents we file from time to time with theSecurities and Exchange Commission , including our Annual Report on Form 10-K filed onFebruary 12, 2020 , and our periodic reports on Form 10-Q and current reports on Form 8-K.Intevac's trademarks include the following: "200 Lean ® ," "DiamondClad ® ," "DIAMOND DOG ® ," "EBAPS ® ," "ENERG i ® ," "LIVAR ® ," "INTEVAC LSMA ® ," "INTEVAC MATRIX ® ," "MicroVista ® ," "NightVista ® ," "oDLC ® ," "INTEVAC VERTEX ® ," "VERTEX Marathon ® ," and "VERTEX SPECTRA ® ." OverviewIntevac is a provider of vacuum deposition equipment for a wide variety of thin-film applications, and a leading provider of digital night-vision technologies and products to the defense industry. The Company leverages its core capabilities in high-volume manufacturing of small substrates to provide process manufacturing equipment solutions to the hard disk drive ("HDD"), display cover panel ("DCP"), and photovoltaic ("PV") solar cell industries.Intevac also provides sensors, cameras and systems for government applications such as night vision.Intevac's customers include manufacturers of hard disk media, DCPs and solar cells as well as theU.S. government and its agencies, allies and contractors.Intevac reports two segments: Thin-film Equipment ("TFE") and Photonics. Product development and manufacturing activities occur inNorth America andAsia .Intevac has field offices inAsia to support its TFE customers.Intevac's products are highly technical and are sold primarily throughIntevac's direct sales force.Intevac also sells its products through distributors inJapan andChina .Intevac's results are driven by a number of factors including success in its equipment growth initiatives in the DCP and solar markets and by worldwide demand for HDDs. Demand for HDDs depends on the growth in digital data creation and storage, the rate of areal density improvements, and the end-user demand for PCs, enterprise data storage, nearline "cloud" applications, video players and video game consoles that include such drives.Intevac continues to execute its strategy of equipment diversification into new markets by introducing new products, such as for a thin-film physical vapor deposition ("PVD") application for protective coating for DCP manufacturing and a thin-film PVD application for PV solar cell manufacturing.Intevac believes that expansion into these markets will result in incremental equipment revenues forIntevac and decreaseIntevac's dependence on the HDD industry.Intevac's equipment business is subject to cyclical industry conditions, as demand for manufacturing equipment and services can change depending on supply and demand for HDDs, cell phones and PV cells, as well as other factors such as global economic conditions and technological advances in fabrication processes. The following table presents certain significant measurements for the three and six months endedJune 27, 2020 andJune 29, 2019 : Three months ended Six months ended Change over Change over June 27, June 29, June 27, June 29, 2020 2019 prior period 2020 2019 prior period (In thousands, except percentages and per share amounts) Net revenues$ 28,842 $ 22,314 $ 6,528 $ 47,682 $ 47,141 $ 541 Gross profit$ 11,420 $ 8,357 $ 3,063 $ 19,577 $ 15,597 $ 3,980 Gross margin percent 39.6 % 37.5 % 2.1
points 41.1 % 33.1 % 8.0 points
Income (loss) from operations
$ 1,524 $ (1,182 ) $
2,706
0.11$ 0.01 $ (0.16 ) $ 0.17 24
-------------------------------------------------------------------------------- Table of Contents Net revenues for the second quarter of fiscal 2020 increased compared to the same period in the prior year primarily due to higher equipment sales to HDD manufacturers, higher Photonics product sales and higher Photonics contract research and development ("R&D"). TFE recognized revenue on two 200 Lean ® HDD systems in the second quarter of fiscal 2020 compared to one 200 Lean HDD system in the second quarter of fiscal 2019. The Company received$310,000 in government assistance related to COVID-19 from the government ofSingapore of which$180,000 was reported as a reduction of cost of net revenues,$49,000 was reported as a reduction of R&D expenses and$81,000 was reported as a reduction of selling, general and administrative expenses. The Company reported net income for the second quarter of fiscal 2020 compared to a net loss for the second quarter of 2019 due to higher revenues, higher gross profit and lower selling, general and administrative expenses, offset in part by increased spending on R&D. Net revenues for the first six months of fiscal 2020 increased compared to the same period in the prior year primarily due to higher Photonics product sales and higher Photonics contract R&D, offset in part by lower equipment sales to PV manufacturers and lower equipment sales to HDD manufacturers. TFE recognized revenue in the first half of fiscal 2020 on two 200 Lean HDD systems compared to two 200 Lean HDD systems and four ENERG i solar ion implant systems in the first half of fiscal 2019. The Company reported net income for the first half of fiscal 2020 compared to net loss for the first half of 2019 due to higher revenues and higher gross profit and decreased spending on R&D, offset in part by higher selling, general and administrative expenses.Intevac expects that HDD equipment sales will be down from 2019 levels as a HDD manufacturer took delivery of the two remaining 200 Lean HDD systems in backlog. In 2020,Intevac expects lower sales of new TFE products as we expect to convert one of the VERTEX systems under evaluation at a customer factory to revenue and obtain follow-on production orders for our VERTEX coating system for DCPs, but we expect a delay in a follow-on order for our solar ion implantENERGi system. The second evaluation system at a customer factory is expected to convert to revenue in 2021. In 2020, we expect increased product revenue in Photonics as we continue to deliver product shipments of the Apache camera and the night-vision camera modules for the F35 Joint Strike Fighter ("JSF") program. In 2020, we expect increased contract R&D revenue as development work continues on the multi-year IVAS contract award for the development and production of digital night-vision cameras to support theU.S. Army's IVAS program. For fiscal 2020,Intevac expects that Photonics profits will be higher than for fiscal 2019 as Photonics results will reflect higher revenue levels. The Impact of COVID-19 We are unable to accurately predict the possible future effect of the COVID-19 outbreak on the Company, which could be material to our 2020 results. Our customers may delay or cancel orders due to reduced demand, supply chain disruptions and/or travel restrictions and border closures. As the economic impact of the COVID-19 pandemic becomes clearer as the year progresses, we could see significant changes to our operations. Our factories inCalifornia andSingapore remain open as both TFE and Photonics businesses are within the critical infrastructure sectors. We have also experienced pandemic-related delays in our TFE evaluation and development work. In response to COVID-19, we have implemented initiatives to safeguard our employees in this time of crisis. We have implemented work-from-home protocols and all employees that can do so are working remotely and will continue to do so until restrictions are lifted by the applicable authorities inthe United States ,Singapore andChina . The Company has been providing a bi-weekly update to its Board of Directors highlighting the impacts of COVID-19 on its employees, business and financial condition. The following discussion highlights how we are responding and the expected impacts of COVID-19 on our business. Essential Business The Company's priorities during the COVID-19 pandemic have been to protect the health and safety of employees while keeping its manufacturing facilities open due to the essential nature of our products. Our factories inCalifornia andSingapore remain open as both TFE and Photonics businesses are within critical infrastructure sectors that are exempt from government-mandated closures. OnMarch 16, 2020 , multiple counties in theSan Francisco bay area ofCalifornia issued a "shelter-in-place" order (the "State Order") requiring businesses to temporarily cease operations, effectiveMarch 17, 2020 . The State Order provides that Californians working within 16 identified critical infrastructure sectors may continue with their work because of the importance of these sectors to Californians' health and well-being. Among the identified critical infrastructure sectors listed are Communications and Information Technology ("IT") and the Defense Industrial Base ("DIB"). OnMarch 20, 2020 ,Intevac received a communication from theDepartment of Defense stating that the DIB is identified as a Critical Infrastructure Sector by theDepartment of Homeland Security , and that the Essential Critical Infrastructure Workforce for the DIB includes workerswho support the essential products and services required to meet national security commitments to the Federal Government and theU.S. Military. 25 -------------------------------------------------------------------------------- Table of Contents Our factory inSingapore was given notice by theSingapore government to suspend all on-site activities onApril 27, 2020 . We appealed this notice and were provided an exemption onMay 14, 2020 . We were temporarily required to limit the number of employees on site at ourSingapore factory, but these restrictions were lifted onJune 2, 2020 . Employee Considerations Our goal has been to support our employees during the present uncertainty while remaining focused on meeting the needs of our customers and business continuity. Early in the crisis, we provided employees with information about best practices to prevent the spread of COVID-19 and other viruses and illnesses. We instituted practices including symptom checks and non-contact monitoring of body temperatures of those on site twice daily; requiring social distancing and face coverings; streamlining onsite personnel to only those required for production; strongly encouraging and, where mandated, requiring remote work for all thosewho can work from home; and increasing hygiene through disinfecting facilities. In addition, we have limited in-person meetings and non-employee visits to our locations, reduced room occupancies and eliminated non-essential business travel. Inthe United States , the Company has educated employees on COVID-19-related benefits (including leave benefits) under the Families First Coronavirus Response Act ("FFCRA") and the CARES Act. To further protect the health and welfare of our employees, we have also required employeeswho potentially have been exposed to COVID-19 to self-quarantine for 14 days and have committed to paying these employees their normal wages during that quarantine period. To ease access to medical assistance, we are waiving co-payments for COVID-19 testing and telemedicine for those employees enrolled in our health insurance plans. Business Continuity Team We have robust pandemic and business continuity plans that include our business units and technology environments. When COVID-19 was declared a pandemic, we activated our business continuity plan (the "Continuity Plan"). As an element of the Continuity Plan, we activated our Business Continuity Team ("BCT"), a group of senior corporate managers,who directed a series of activities to address the health and safety of our workforce, assist employees, sustain business operations, coordinate communication and address our management concerning other ongoing pandemic activities. The BCT monitors guidelines published by theCenters for Disease Control and Prevention ("CDC"), theNational Institutes of Health ("NIH"), theOccupational Safety and Health Administration ("OSHA"), theWorld Health Organization ("WHO") and other state and local authorities, makes assessments of these guidelines and implements the appropriate protocols. The BCT established a COVID-19 Policy and continually updates this policy based on the latest guidance. All employees continuing to work on site were required to complete training on the Company's COVID-19 policy and any employees returning to work at our facilities are provided additional training prior to returning to work. The BCT also updated and revised policies related to visitors and travel to include COVID-19-related health and safety measures related to the pandemic and updated the Continuity Plan to include a pandemic response appendix. Productivity There has been a modest decline in productivity for certain departments as our people adjust to this significant change in work environment. We currently believe our technology infrastructure is sufficient to maintain a remote-working environment for the vast majority of our workforce for the foreseeable future and that productivity should improve as our people adjust to this significant change in work environment. The productivity level and ability of our employees to continue working from home could change, however, as conditions surrounding COVID-19 evolve and infections increase, if there are interruptions in the internet infrastructure where our employees live or if internet service providers are otherwise adversely affected. Community We understand that the communities in which our employees live, work, and serve are also suffering distress as a result of COVID-19.Intevac is committed to help source supplies for local healthcare providers fighting COVID-19, and has donated all of its surplus N95 industrial masks and gloves to local hospitals and emergency responders. Economic Relief InSingapore ,Intevac receives government assistance under the Job Support Scheme ("JSS"). The purpose of the JSS is to provide wage support to employers to help them retain their local employees. Under the JSS,Intevac expects to receive approximately$535,000 in JSS grants in fiscal 2020. During the quarter endedJune 27, 2020 , the Company received$310,000 in JSS grants. As previously mentioned, under the CARES Act we have elected to defer the payment of the employer portion of payroll taxes and will receive tax benefits from the employee-retention-tax credit. 26 -------------------------------------------------------------------------------- Table of Contents For the three and six months endedJune 27, 2020 , the Company's expenses included approximately$59,000 and$69,000 respectively due to costs related to actions taken in response to COVID-19. Results of Operations Net revenues Three months ended Six months ended Change over Change over June 27, June 29, June 27, June 29, 2020 2019 prior period 2020 2019 prior period (In thousands) TFE$ 16,595 $ 13,264 $ 3,331 $ 24,557 $ 32,209 $ (7,652 ) Photonics: Products 6,130 3,973 2,157 12,004 6,665 5,339 Contract R&D 6,117 5,077 1,040 11,121 8,267 2,854 12,247 9,050 3,197 23,125 14,932 8,193 Total net revenues$ 28,842 $ 22,314 $ 6,528 $ 47,682 $ 47,141 $ 541 TFE revenue for the three months endedJune 27, 2020 increased compared to the same period in the prior year as a result of higher sales of systems and service, offset in part by lower sales of technology upgrades and spares. TFE revenue for the three months endedJune 27, 2020 included revenue recognized for two 200 Lean HDD systems compared to revenue recognized for one 200 Lean HDD system for the three months endedJune 29, 2019 . TFE revenue for the six months endedJune 27, 2020 decreased compared to the same period in the prior year as a result of lower sales of systems, technology upgrades, spare parts and service. TFE recognized revenue in the first half of fiscal 2020 on two 200 Lean HDD compared to revenue recognized for two 200 Lean HDD systems and four ENERG i solar ion implant systems in the first half of fiscal 2019. Photonics revenue for the three and six months endedJune 27, 2020 increased compared to the same periods in the prior year as a result of higher product sales revenues and higher contract R&D work. Backlog June 27, December 28, June 29, 2020 2019 2019 (In thousands) TFE$ 14,567 $ 21,391 $ 50,251 Photonics 54,424 71,015 43,403 Total backlog$ 68,991 $ 92,406 $ 93,654 TFE backlog atJune 27, 2020 did not include any 200 Lean HDD systems or any ENERG i solar ion implant systems. TFE backlog atDecember 28, 2019 included two 200 Lean HDD systems. TFE backlog atJune 29, 2019 included four 200 Lean HDD systems and five ENERG i solar ion implant systems. Revenue by geographic region Three Months Ended Three Months Ended June 27, 2020 June 29, 2019 (In thousands) TFE Photonics Total TFE Photonics Total United States$ 313 $ 12,125 $ 12,438 $ 356 $ 8,811 $ 9,167 Asia 16,282 - 16,282 12,908 - 12,908 Europe - 122 122 - 239 239
Total net revenues
27
--------------------------------------------------------------------------------
Table of Contents Six Months Ended Six Months Ended June 27, 2020 June 29, 2019 (In thousands) TFE Photonics Total TFE Photonics Total United States$ 832 $ 22,981 $ 23,813 $ 517 $ 14,527 $ 15,044 Asia 23,725 - 23,725 31,692 - 31,692 Europe - 144 144 - 405 405 Total net revenues$ 24,557 $ 23,125 $ 47,682 $ 32,209 $ 14,932 $ 47,141 International sales include products shipped to overseas operations ofU.S. companies. The increase in sales to theU.S. region in the first half of fiscal 2020 versus the first half of fiscal 2019 reflected higher Photonics product sales and higher Photonics contract R&D work. The decrease in sales to theAsia region in the first half of fiscal 2020 versus the first half of fiscal 2019 reflected lower equipment sales to PV manufacturers and HDD manufacturers. Sales to theAsia region in the first half of fiscal 2020 included two 200 Lean HDD systems versus two 200 Lean HDD systems and four ENERG i solar ion implant systems in the first half of fiscal 2019. Sales to theEurope region in the first half of fiscal 2020 and the first half of fiscal 2019 were not significant. Gross profit Three months ended Six months ended June 27, June 29, Change over June 27, June 29, Change over 2020 2019 prior period 2020 2019 prior period (In thousands, except percentages) TFE gross profit$ 6,047 $ 5,156 $
891
36.4 % 38.9 % 38.9 % 34.6 % Photonics gross profit$ 5,373 $ 3,201 $
2,172
43.9 % 35.4 % 43.4 % 29.9 % Total gross profit$ 11,420 $ 8,357 $ 3,063 $ 19,577 $ 15,597 $ 3,980 % of net revenues 39.6 % 37.5 % 41.1 % 33.1 % Cost of net revenues consists primarily of purchased materials and costs attributable to contract R&D, and also includes fabrication, assembly, test and installation labor and overhead, customer-specific engineering costs, warranty costs, royalties, provisions for inventory reserves and scrap. TFE gross margin was 36.4% in the three months endedJune 27, 2020 compared to 38.9% in the three months endedJune 29, 2019 and was 38.9% in the six months endedJune 27, 2020 compared to 34.6% in the six months endedJune 29, 2019 . The decline in the gross margin percentage for the three months endedJune 27, 2020 compared to the same period in the prior year was due primarily to a lower mix of higher-margin upgrades. The increase in the gross margin percentage for the six months endedJune 27, 2020 was due primarily to the lower margin on the sale of four ENERG i solar ion implant systems in the six months endedJune 29, 2019 . Gross margins in the TFE business will vary depending on a number of factors, including product mix, product cost, system configuration and pricing, factory utilization, and provisions for excess and obsolete inventory. Photonics gross margin was 43.9% in the three months endedJune 27, 2020 compared to 35.4% in the three months endedJune 29, 2019 and was 43.4% in the six months endedJune 27, 2020 compared to 29.9% in the six months endedJune 29, 2019 . The improvement in gross margin for the three and six months endedJune 27, 2020 was due to higher revenue levels and improved margins on both products and contract R&D work. Gross margins in the Photonics business will vary depending on a number of factors, including sensor yield, product mix, product cost, pricing, factory utilization, provisions for warranty and inventory reserves. Research and development expense Three months ended Six months ended June 27, June 29, Change over June 27, June 29, Change over 2020 2019 prior period 2020 2019 prior period (In thousands) Research and development expense$ 3,707 $ 3,431 $
276
28 -------------------------------------------------------------------------------- Table of Contents Research and development spending in TFE during the three months endedJune 27, 2020 increased compared to the same period in the prior year due to higher spending on semiconductor Fan-out, HDD and PV development, offset in part by lower spending on DCP development. Research and development spending in TFE during the six months endedJune 27, 2020 decreased compared to the same period in the prior year due to lower spending on HDD and PV development, offset in part by higher spending on semiconductor Fan-out and DCP development. TFE spending consisted primarily of DCP, semiconductor Fan-out, HDD and PV development. Research and development spending decreased in Photonics during the three and six months endedJune 27, 2020 , as compared to the same periods in the prior year, primarily related to lower spending on the development of the next generation of our low light level CMOS camera. Research and development expenses do not include costs of$3.6 million and$6.5 million for the three and six months endedJune 27, 2020 , respectively, or$3.5 million and$6.0 million for the three and six months endedJune 29, 2019 , respectively, which are related to customer-funded contract R&D programs in Photonics and therefore included in cost of net revenues. Selling, general and administrative expense Three months ended Six months ended June 27, June 29, Change over June 27, June 29, Change over 2020 2019 prior period 2020 2019 prior period (In thousands) Selling, general and administrative expense$ 5,609 $ 5,854 $
(245 )
Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. Selling, general and administrative expenses for the three months endedJune 27, 2020 decreased compared to the same period in the prior year primarily due to lower spending to support a customer evaluation of a next generation product, offset in part by higher variable compensation expenses and incremental costs to launch our Diamond Dog e-commerce website. Selling, general and administrative expenses for the six months endedJune 27, 2020 increased compared to the same period in the prior year primarily due to higher variable compensation expenses and incremental e-commerce costs, offset in part due to lower spending to support a customer evaluation. Interest income and other income (expense), net Three months ended Six months ended June 27, June 29, Change over June 27, June 29, Change over 2020 2019 prior period 2020 2019 prior period (In thousands) Interest income and other, income (expense), net$ 62 $ 163 $ (101 )$ 204 $ 322 $ (118 ) Interest income and other income (expense), net in the three months endedJune 27, 2020 included$77,000 of interest income on investments and various other income of$16,000 , offset in part by$31,000 of foreign currency losses. Interest income and other income (expense), net in the six months endedJune 27, 2020 included$202,000 of interest income on investments and various other income of$8,000 , offset in part by$6,000 of foreign currency losses. Interest income and other income (expense), net in the three months endedJune 29, 2019 included$154,000 of interest income on investments and various other income of$12,000 , offset in part by$3,000 of foreign currency losses. Interest income and other income (expense), net in the six months endedJune 29, 2019 included$302,000 of interest income on investments,$20,000 of earnout income from a divestiture and various other income of$35,000 , offset in part by$35,000 of foreign currency losses. The decrease in interest income in the three and six months endedJune 27, 2020 resulted from lower interest rates and lower invested balances compared to the same period in 2019. Provision for income taxes Three months ended Six months ended June 27, June 29, Change over June 27, June 29, Change over 2020 2019 prior period 2020 2019 prior period (In thousands) Provision for income taxes$ 642 $ 417 $ 225$ 909 $ 971 $ (62 ) 29 -------------------------------------------------------------------------------- Table of ContentsIntevac recorded income tax provisions of$642,000 and$909,000 for the three and six months endedJune 27, 2020 , respectively, and$417,000 and$971,000 for the three and six months endedJune 29, 2019 , respectively. The income tax provisions for these three and six month periods are based upon estimates of annual income (loss), annual permanent differences and statutory tax rates in the various jurisdictions in whichIntevac operates. For the three and six month periods endedJune 27, 2020 ,Intevac recorded income tax provisions on earnings of its international subsidiaries of$369,000 and$548,000 , respectively, and recorded$272,000 and$373,000 , respectively, for withholding taxes on royalties paid intothe United States fromIntevac's Singapore subsidiary as discrete items. For the three and six month periods endedJune 29, 2019 ,Intevac recorded income tax provisions on earnings of its international subsidiaries of$201,000 and$563,000 , respectively, and recorded$213,000 and$404,000 , respectively, for withholding taxes on royalties paid intothe United States fromIntevac's Singapore subsidiary as discrete items. For all periods presented,Intevac utilized net operating loss carry-forwards to offset the impact of the global intangible low-taxed income ("GILTI").Intevac's tax rate differs from the applicable statutory rates due primarily to establishment of a valuation allowance, utilization of deferred and current credits and the effect of permanent differences and adjustments of prior permanent differences.Intevac's future effective income tax rate depends on various factors, including the level ofIntevac's projected earnings, the geographic composition of worldwide earnings, tax regulations governing each region, net operating loss carry-forwards, availability of tax credits and the effectiveness ofIntevac's tax planning strategies. Management carefully monitors these factors and timely adjusts the effective income tax rate. Liquidity and Capital Resources AtJune 27, 2020 ,Intevac had$44.8 million in cash, cash equivalents, restricted cash and investments compared to$42.8 million atDecember 28, 2019 . During the first six months of fiscal 2020, cash, cash equivalents, restricted cash and investments increased by$2.0 million due primarily to cash provided by operating activities and cash received from the sale ofIntevac common stock toIntevac's employees throughIntevac's employee benefit plans, offset in part by purchases of fixed assets and tax payments for net share settlement. Cash, cash equivalents, restricted cash and investments consist of the following: June 27, December 28, 2020 2019 (In thousands) Cash and cash equivalents$ 23,944 $ 19,767 Restricted cash 787 787 Short-term investments 14,435 16,720 Long-term investments 5,604 5,537
Total cash, cash equivalents, restricted cash and investments
Operating activities generated cash of$3.5 million during the first six months of fiscal 2020 and generated cash of$1.0 million during the first six months of 2019. Improved operating cash flow in the first six months of fiscal 2019 was a result of a return to profitability. Accounts receivable totaled$29.0 million atJune 27, 2020 compared to$28.6 million atDecember 28, 2019 . Net inventories totaled$22.2 million atJune 27, 2020 compared to$24.9 million atDecember 28, 2019 . Net inventories atJune 27, 2020 andDecember 28, 2019 included one VERTEX SPECTRA system for DCP under evaluation in a customer's factory and one MATRIX PVD system for advance semiconductor packaging under evaluation in a customer's factory. Net inventories atJune 27, 2020 also included one VERTEX SPECTRA system for DCP atIntevac's factory pending delivery to a customer for evaluation. Accounts payable increased to$5.1 million atJune 27, 2020 from$4.2 million atDecember 28, 2019 due to increased manufacturing activities and a larger book overdraft atJune 27, 2020 . Accrued payroll and related liabilities decreased to$6.3 million atJune 27, 2020 compared to$6.5 million atDecember 28, 2019 . Other accrued liabilities increased to$3.9 million atJune 27, 2020 compared to$3.6 million atDecember 28, 2019 . Customer advances decreased from$4.0 million atDecember 28, 2019 to$433,000 atJune 27, 2020 , primarily due the recognition of revenue offset in part by the recognition of new orders. Investing activities generated cash of$460,000 during the first six months of fiscal 2020. Proceeds from sales net of purchases of investments totaled$2.3 million . Capital expenditures for the six months endedJune 27, 2020 were$1.8 million . Financing activities generated cash of$256,000 in the first six months of fiscal 2020. The sale ofIntevac common stock toIntevac's employees throughIntevac's employee benefit plans generated cash of$994,000 . Tax payments related to the net share settlement of restricted stock units were$345,000 . Cash used to repurchase shares of common stock under the Company's stock repurchase program totaled$393,000 for the six months endedJune 27, 2020 . 30 -------------------------------------------------------------------------------- Table of ContentsIntevac's investment portfolio consists principally of investment grade money market mutual funds,U.S. Treasury and agency securities, certificates of deposit, commercial paper and corporate bonds.Intevac regularly monitors the credit risk in its investment portfolio and takes measures, which may include the sale of certain securities, to manage such risks in accordance with its investment policies. As ofJune 27, 2020 , approximately$13.5 million of cash and cash equivalents and$2.9 million of short term investments were domiciled in foreign tax jurisdictions.Intevac expects a significant portion of these funds to remain offshore in the short term. If the Company chose to repatriate these funds tothe United States , it would be required to accrue and pay additional taxes on any portion of the repatriation subject to foreign withholding taxes.Intevac believes that its existing cash, cash equivalents and investments will be sufficient to meet its cash requirements for the foreseeable future.Intevac intends to undertake approximately$2.0 million to$3.0 million in capital expenditures during the remainder of 2020. Off-Balance Sheet Arrangements Off-balance sheet firm commitments relating to outstanding letters of credit amounted to approximately$787,000 as ofJune 27, 2020 . These letters of credit and bank guarantees are collateralized by$787,000 of restricted cash. We do not maintain any other off-balance sheet arrangements, transactions, obligations, or other relationships that would be expected to have a material current or future effect on the consolidated financial statements. Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted inthe United States of America ("US GAAP") requires management to make judgments, assumptions and estimates that affect the amounts reported.Intevac's significant accounting policies are described in Note 1 to the consolidated financial statements included in Item 8 ofIntevac's Annual Report on Form 10-K filed onFebruary 12, 2020 . Certain of these significant accounting policies are considered to be critical accounting policies, as defined below. A critical accounting policy is defined as one that is both material to the presentation ofIntevac's financial statements and requires management to make difficult, subjective or complex judgments that could have a material effect onIntevac's financial conditions and results of operations. Specifically, critical accounting estimates have the following attributes: 1)Intevac is required to make assumptions about matters that are highly uncertain at the time of the estimate; and 2) different estimatesIntevac could reasonably have used, or changes in the estimate that are reasonably likely to occur, would have a material effect onIntevac's financial condition or results of operations. Estimates and assumptions about future events and their effects cannot be determined with certainty.Intevac bases its estimates on historical experience and on various other assumptions believed to be applicable and reasonable under the circumstances. These estimates may change as new events occur, as additional information is obtained and asIntevac's operating environment changes. These changes have historically been minor and have been included in the consolidated financial statements as soon as they become known. In addition, management is periodically faced with uncertainties, the outcomes of which are not within its control and will not be known for prolonged periods of time. Many of these uncertainties are discussed in the section below entitled "Risk Factors." Based on a critical assessment ofIntevac's accounting policies and the underlying judgments and uncertainties affecting the application of those policies, management believes thatIntevac's consolidated financial statements are fairly stated in accordance with US GAAP, and provide a meaningful presentation ofIntevac's financial condition and results of operation. For a description of critical accounting policies that affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year endedDecember 28, 2019 filed with theSEC onFebruary 12, 2020 . There have been no material changes to our critical accounting policies during the six months endedJune 27, 2020 . Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable to smaller reporting companies.
31
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source