INTEVAC, INC. 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 shipments, projected revenue recognition, product costs, gross margin, operating expenses, interest income, income taxes, cash balances and financial results in 2021 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; 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 ("SEC"), including our Annual Report on Form 10-K filed onFebruary 17, 2021 , and our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.Intevac's trademarks include the following: "200 Lean ® ," "DiamondClad ® ," "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"), photovoltaic ("PV") solar cell, and advanced semiconductor packaging 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, semiconductor outsourced assembly and test companies 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 also 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 of operations are driven by a number of factors including success in its equipment growth initiatives in the DCP, solar and advanced semiconductor packaging 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, a thin-film PVD application for PV solar cell manufacturing, and a PVD fan-out application for advanced semiconductor packaging.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, PV cells, and semiconductor chips 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 endedJuly 3, 2021 andJune 27, 2020 : Three months ended Six months ended July 3, June 27, Change over July 3, June 27, Change over 2021 2020 prior period 2021 2020 prior period (In thousands,
except percentages and per share amounts)
Net revenues$ 13,813 $ 28,842 $ (15,029 ) $ 30,054 $ 47,682 $ (17,628 ) Gross profit$ 3,108 $ 11,420 $ (8,312 ) $ 6,162 $ 19,577 $ (13,415 ) Gross margin percent 22.5 % 39.6 % (17.1) points 20.5 % 41.1 % (20.6) points
Income (loss) from operations
$ (6,126 ) $ 1,524 $
(7,650 )
(0.31 )$ (0.52 ) $ 0.01 $ (0.53 ) 24
-------------------------------------------------------------------------------- Table of Contents Net revenues for the second quarter of fiscal 2021 decreased compared to the same period in the prior year primarily due to lower equipment sales to HDD manufacturers, lower Photonics product sales and lower Photonics contract R&D. TFE did not recognize revenue on any systems in the second quarter of fiscal 2021. TFE recognized revenue on two 200 Lean ® HDD systems in the second quarter of fiscal 2020. During the second quarter of fiscal 2021, Photonics delivered the first prototype units for ourU.S. Army Integrated Visual Augmentation System ("IVAS") product. During the second quarter of fiscal 2021, the Company did not receive any government assistance related to COVID-19 from the government ofSingapore . During the second quarter of fiscal 2020, 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 a net loss for the second quarter of fiscal 2021 compared to net income for the second quarter of 2020 due to lower revenues, lower gross profit and higher R&D expenses, offset in part by lower selling, general and administrative expenses. Net revenues for the first six months of fiscal 2021 decreased compared to the same period in the prior year primarily due to lower equipment sales to HDD manufacturers, lower Photonics product sales and lower Photonics contract R&D revenue, offset in part by higher equipment sales for advanced semiconductor packaging. TFE recognized revenue on one MATRIX PVD system for advanced semiconductor packaging in the first half of fiscal 2021 compared to two 200 Lean HDD systems in the first half of fiscal 2020. During the first half of fiscal 2021, the Company received$66,000 in government assistance related to COVID-19 from the government ofSingapore of which$39,000 was reported as a reduction of cost of net revenues,$10,000 was reported as a reduction of R&D expenses and$17,000 was reported as a reduction of selling, general and administrative expenses. During the first half of fiscal 2020, 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 a net loss for the first half of fiscal 2021 compared to net income for the first half of 2020 due to lower revenues, lower gross profit and higher spending on R&D, offset in part by lower selling, general and administrative expenses. We believe fiscal 2021 will be a challenging year and we do not expect to be profitable in fiscal 2021. We expect that 2021 HDD equipment sales will be lower than 2020 levels. In 2021, we expect to obtain production orders for our VERTEX systems. In 2021, we expect product revenue in Photonics to decline slightly as shipments for the Apache camera under the current contract with theU.S. government concluded in the third quarter of 2020. In 2021, we will continue to deliver product shipments of the night-vision camera modules for the F35 Joint Strike Fighter program and our LIVAR cameras for advanced precision targeting systems. In 2021, we expect decreased contract R&D revenue as development work 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 completed in early 2021. In 2021, we delivered the first prototype units for our IVAS product. We do not expect to receive any additional government assistance related to COVID-19 from the government ofSingapore in the remainder of fiscal 2021. Updates to the COVID-19 response included in our Annual Report on 10-K for the fiscal year endedJanuary 2, 2021 The impact of COVID-19, including changes in consumer behavior, pandemic fears, and market downturns, as well as restrictions on business and individual activities, has created significant volatility in the global economy and led to reduced economic activity. Although COVID-19 vaccines are now broadly distributed and administered, there remains significant uncertainty concerning the magnitude of the impact and the duration of the COVID-19 pandemic. If new strains of COVID-19 develop, the continued impacts to our business could be material to our fiscal 2021 results. Our customers may delay or cancel orders due to reduced demand, supply chain disruptions, and/or travel restrictions and border closures. We have experienced pandemic-related delays in our TFE evaluation and development work. In response to COVID-19, we implemented initiatives to safeguard our employees, including work-from-home protocols. InJune 2021 we began reopening our offices on a regional basis in accordance with local authority guidelines while ensuring that our return to work is thoughtful, prudent, and handled with a safety-first approach. All employees inthe United States who could work from home did so through the middle ofJune 2021 when we fully reopened our offices as restrictions were lifted by the applicable authorities. All employees inSingapore that can do so continue to work remotely and will do so until restrictions are lifted by the applicable authorities inSingapore . Our employees' health and safety is our top priority, and we will continue to monitor local restrictions across the world, the administration of vaccines, and the number of new cases. 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 received$66,000 in JSS grants in the first half of fiscal 2021. During the quarter endedJune 27, 2020 , the Company received$310,000 in JSS grants.Intevac does not expect to receive any additional government assistance related to COVID-19 from the government ofSingapore in the remainder of fiscal 2021. 25 -------------------------------------------------------------------------------- Table of Contents For the three and six months endedJuly 3, 2021 , the Company's expenses included approximately$44,000 and$87,000 , respectively, due to costs related to actions taken in response to COVID-19. For the three and six months endedJune 27, 2020 , the Company's expenses included approximately$59,000 and$69,000 , respectively, due to costs related to actions taken in response to COVID-19. Results of Operations Net revenues Three months ended Six months ended July 3, June 27, Change over July 3, June 27, Change over 2021 2020 prior period 2021 2020 prior period (In thousands) TFE$ 5,369 $ 16,595 $ (11,226 ) $ 14,607 $ 24,557 $ (9,950 ) Photonics: Products 5,282 6,130 (848 ) 9,103 12,004 (2,901 ) Contract R&D 3,162 6,117 (2,955 ) 6,344 11,121 (4,777 ) 8,444 12,247 (3,803 ) 15,447 23,125 (7,678 ) Total net revenues$ 13,813 $ 28,842 $ (15,029
)
TFE revenue for the three and six months endedJuly 3, 2021 decreased compared to the same periods in the prior year as a result of lower sales of systems and technology upgrades, offset in part by higher sales of spares and service. TFE revenue for the three months endedJuly 3, 2021 did not include revenue recognized for any systems compared to revenue recognized for two 200 Lean HDD systems for the three months endedJune 27, 2020 . TFE recognized revenue in the first half of fiscal 2021 on one MATRIX PVD system for advanced semiconductor packaging compared to revenue recognized for two 200 Lean HDD systems in the first half of fiscal 2020. Photonics revenue for the three and six months endedJuly 3, 2021 decreased compared to the same periods in the prior year as a result of lower product sales revenues and lower contract R&D work. Development work 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 completed in early 2021. During the second quarter of fiscal 2021, Photonics delivered the first prototype units for our IVAS product. Backlog July 3, January 2, June 27, 2021 2021 2020 (In thousands) TFE$ 18,943 $ 5,623 $ 14,567 Photonics 32,726 41,317 54,424 Total backlog$ 51,669 $ 46,940 $ 68,991
TFE backlog at
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Table of Contents
Revenue by geographic region
Three Months Ended Three Months Ended
July 3, 2021 June 27, 2020
(In thousands)
TFE Photonics Total TFE Photonics Total
United States $ 2,121 $ 8,371 $ 10,492 $ 313 $ 12,125 $ 12,438
Asia 3,248 - 3,248 16,282 - 16,282
Europe - 73 73 - 122 122
Total net revenues $ 5,369 $ 8,444 $ 13,813 $ 16,595 $ 12,247 $ 28,842
Six Months Ended Six Months Ended
July 3, 2021 June 27, 2020
(In thousands)
TFE Photonics Total TFE Photonics Total
United States $ 2,488 $ 15,331 $ 17,819 $ 832 $ 22,981 $ 23,813
Asia 8,269 - 8,269 23,725 - 23,725
Europe 3,850 116 3,966 - 144 144
Total net revenues
International sales include products shipped to overseas operations ofU.S. companies. The decrease in sales to theU.S. region in the three and six months endedJuly 3, 2021 versus the same periods in the prior year, reflected lower Photonics product shipments and lower Photonics contract R&D work. Sales to theAsia region in both three and six month periods endedJuly 3, 2021 did not include any systems. Sales to theAsia region in both three and six month periods endedJune 27, 2020 included two 200 Lean HDD systems. Sales to theEurope region in the six months endedJuly 3, 2021 included one MATRIX PVD system for advanced semiconductor packaging. Sales to theEurope region in the three and six months endedJune 27, 2020 were not significant. Gross profit Three months ended Six months ended July 3, June 27, Change over July 3, June 27, Change over 2021 2020 prior period 2021 2020 prior period (In
thousands, except percentages)
TFE gross profit$ 1,006 $ 6,047 $ (5,041 ) $ 3,140 $ 9,547 $ (6,407 ) % of TFE net revenues 18.7 % 36.4 % 21.5 % 38.9 % Photonics gross profit$ 2,102 $ 5,373 $
(3,271 )
24.9 % 43.9 % 19.6 % 43.4 %
Total gross profit $ 3,108 $ 11,420 $ (8,312 ) $ 6,162 $ 19,577 $ (13,415 )
% of net revenues 22.5 % 39.6 % 20.5 % 41.1 %
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 18.7% in the three months ended July 3, 2021 compared to
36.4% in the three months ended June 27, 2020 and was 21.5% in the six months
ended July 3, 2021 compared to 38.9% in the six months ended June 27, 2020 . The
decline in the gross margin percentage for the three months ended July 3, 2021
compared to the same period in the prior year was due primarily to lower
revenues and lower factory utilization. The decrease in the gross margin
percentage for the six months ended July 3, 2021 was due primarily to lower
revenues, lower factory utilization, and the lower margin on the first MATRIX
PVD system for advanced semiconductor packaging. 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.
27
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Photonics gross margin was 24.9% in the three months ended July 3, 2021 compared
to 43.9% in the three months ended June 27, 2020 and was 19.6% in the six months
ended July 3, 2021 compared to 43.4% in the six months ended June 27, 2020 . The
decline in gross margin for the three months ended July 3, 2021 was due to lower
revenue levels, incremental
start-up
costs for
non-recurring
engineering associated with the first shipments of our IVAS product, lower
margins on contract R&D work and loss provisions taken on several small firm
fixed price contracts. The decline in gross margin for the six months ended
July 3, 2021 was due to lower revenue levels, lower margins on contract R&D work
primarily due to additional development costs to integrate our camera into the
IVAS platform, incremental scrapping of materials and loss provisions taken on
several small firm fixed price contracts. 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
July 3, June 27, Change over July 3, June 27, Change over
2021 2020 prior period 2021 2020 prior period
(In thousands)
Research and development expense
Research and development spending in TFE during the three and six months endedJuly 3, 2021 decreased compared to the same periods in the prior year due to lower spending on DCP, semiconductor Fan-out, HDD and PV development offset in part by higher spending on HDD development. TFE spending consisted primarily of DCP, HDD, semiconductor Fan-out, and PV development. Research and development spending increased in Photonics during the three and six months endedJuly 3, 2021 , as compared to the same periods in the prior year, primarily related to incremental start-up non-recurring engineering costs associated with our IVAS product and higher spending on the development of the next generation of our low light level CMOS camera. Research and development expenses do not include costs of$2.1 million and$5.3 million for the three and six months endedJuly 3, 2021 , respectively, or$3.6 million and$6.5 million for the three and six months endedJune 27, 2020 , respectively, which are related to customer-funded contract R&D programs in Photonics and therefore included in cost of net revenues. Selling, general and administrative expense Three months ended Six months ended July 3, June 27, Change over July 3, June 27, Change over 2021 2020 prior period 2021 2020 prior period (In thousands) Selling, general and administrative expense$ 5,525 $ 5,609 $
(84 )
Selling, general and administrative expense consists primarily of selling, marketing, customer support, financial and management costs. Selling, general and administrative expenses for the three and six months endedJuly 3, 2021 decreased compared to the same periods in the prior year as lower variable compensation expenses and lower e-commerce costs were offset in part by higher stock compensation expenses, higher costs to support a customer evaluation and higher bid and proposal costs for contract R&D work in Photonics. Cost reduction plan During the first quarter of fiscal 2021,Intevac substantially completed implementation of the 2021 cost reduction plan (the "Cost Reduction Plan"), which was intended to reduce expenses and reduce its workforce by 1.4 percent. The total cost of implementing the Cost Reduction Plan was$43,000 of which$9,000 was reported under cost of net revenues and$34,000 was reported under operating expenses. Substantially all cash outlays in connection with the Cost Reduction Plan were completed in the first quarter of fiscal 2021. Implementation of the Cost Reduction Plan is expected to reduce salary, wages and other employee-related expenses by approximately$576,000 on an annual basis. Interest income and other income (expense), net Three months ended Six months ended July 3, June 27, Change over July 3, June 27, Change over 2021 2020 prior period 2021 2020 prior period (In thousands) Interest income and other, income (expense), net$ 20 $ 62 $ (42 )$ 50 $ 204 $ (154 ) 28
-------------------------------------------------------------------------------- Table of Contents Interest income and other income (expense), net in the three months endedJuly 3, 2021 included$10,000 of interest income on investments, various other income of$5,000 and$5,000 of foreign currency gains. Interest income and other income (expense), net in the six months endedJuly 3, 2021 included$27,000 of interest income on investments and various other income of$25,000 , offset in part by$2,000 of foreign currency losses. 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$6,000 of foreign currency losses. The decrease in interest income in the three and six months endedJuly 3, 2021 resulted from lower interest rates. Provision for (benefit from) income taxes Three months ended Six months ended July 3, June 27, Change over July 3, June 27, Change over 2021 2020 prior period 2021 2020 prior period (In thousands) Provision for (benefit from) income taxes$ (165 ) $ 642 $
(807 )
Intevac recorded income tax benefits of$165,000 and$132,000 for the three and six months endedJuly 3, 2021 , respectively, and income tax provisions of$642,000 and$909,000 for the three and six months endedJune 27, 2020 , respectively. The income tax provisions (benefits) 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 endedJuly 3, 2021 ,Intevac recorded income tax benefits on losses of its international subsidiaries of$189,000 and$208,000 , respectively, and recorded$24,000 and$72,000 , respectively, for withholding taxes on royalties paid tothe United States fromIntevac's Singapore subsidiary as discrete items. 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 tothe 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 global intangible low-taxed income.Intevac's tax rate differs from the applicable statutory rates due primarily to the establishment of a valuation allowance, the 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. The income tax expense (benefit) consists primarily of income taxes in foreign jurisdictions in which we conduct business and foreign withholding taxes. We maintain a full valuation allowance for domestic deferred tax assets, including net operating loss carryforwards and certain domestic tax credits.Intevac's effective tax rate differs from theU.S. statutory rate in both 2021 and 2020 primarily due to the Company not recognizing an income tax benefit on the domestic loss. Liquidity and Capital Resources AtJuly 3, 2021 ,Intevac had$54.1 million in cash, cash equivalents, restricted cash and investments compared to$50.4 million atJanuary 2, 2021 . During the first six months of fiscal 2021, cash, cash equivalents, restricted cash and investments increased by$3.8 million due primarily to cash generated by operating activities and cash received from the sale ofIntevac common stock toIntevac's employees throughIntevac's employee benefit plans, partially offset by purchases of fixed assets and tax payments on net share settlements. Cash, cash equivalents, restricted cash and investments consist of the following: July 3, January 2, 2021 2021 (In thousands) Cash and cash equivalents$ 32,856 $ 29,341 Restricted cash 787 787 Short-term investments 15,805 14,839 Long-term investments 4,679 5,388
Total cash, cash equivalents, restricted cash and investments
$ 50,355 29
-------------------------------------------------------------------------------- Table of Contents Operating activities generated cash of$3.4 million during the first six months of fiscal 2021 and generated cash of$3.5 million during the first six months of fiscal 2020. Accounts receivable totaled$14.4 million atJuly 3, 2021 compared to$28.6 million atJanuary 2, 2021 . Net inventories totaled$20.5 million atJuly 3, 2021 compared to$21.7 million atJanuary 2, 2021 . Net inventories atJuly 3, 2021 included one VERTEX SPECTRA system for DCP held at a customer's factory previously under an evaluation agreement that expired. Net inventories atJanuary 2, 2021 included one VERTEX SPECTRA system for DCP under evaluation in a customer's factory and one MATRIX PVD system for advanced semiconductor packaging under evaluation in a customer's factory. Accounts payable decreased to$3.9 million atJuly 3, 2021 from$4.3 million atJanuary 2, 2021 due to reduced manufacturing activities. Accrued payroll and related liabilities decreased to$6.3 million atJuly 3, 2021 compared to$7.7 million atJanuary 2, 2021 due primarily to the settlement of 2020 bonuses. Other accrued liabilities decreased to$2.4 million atJuly 3, 2021 compared to$3.6 million atJanuary 2, 2021 . Investing activities used cash of$713,000 during the first six months of fiscal 2021. Purchases of investments net of proceeds from sales totaled$348,000 . Capital expenditures for the six months endedJuly 3, 2021 were$365,000 . Financing activities generated cash of$904,000 in the first six months of fiscal 2021. The sale ofIntevac common stock toIntevac's employees throughIntevac's employee benefit plans generated cash of$1.4 million . Tax payments related to the net share settlement of restricted stock units were$532,000 .Intevac'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 ofJuly 3, 2021 , approximately$24.9 million of cash and cash equivalents and$1.9 million of 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. We believe that our existing cash, cash equivalents and investments and cash flows from operating activities will be adequate to meet our liquidity needs for the next twelve months and for the foreseeable future beyond the next twelve months. Our significant funding requirements include procurement of manufacturing inventories, operating expenses, non-cancelable operating lease obligations, capital expenditures and variable compensation. We have flexibility over some of these uses of cash, including capital expenditures and discretionary operating expenses, to preserve our liquidity position. Capital expenditures for fiscal 2021 are projected to be approximately$6.0 million related to network infrastructure and security, and laboratory and test equipment to support our R&D programs. Off-Balance Sheet Arrangements Off-balance sheet firm commitments relating to outstanding letters of credit amounted to approximately$787,000 as ofJuly 3, 2021 . 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 for the year endedJanuary 2, 2021 , filed with theSEC onFebruary 17, 2021 . 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. 30
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Table of Contents 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 operations. There have been no material changes to our critical accounting policies during the six months endedJuly 3, 2021 .
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