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    IVAC   US4611481080

INTEVAC, INC.

(IVAC)
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INTEVAC : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/03/2021 | 04:06pm EST
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 to Intevac'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 for
Intevac'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 comprise Intevac'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 the Securities
and Exchange Commission ("SEC"), including our Annual Report on Form
10-K
filed on February 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
®
."
Overview
Intevac 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 the U.S. government and its
agencies, allies and contractors. Intevac reports two segments: Thin-film
Equipment ("TFE") and Photonics.
Product development and manufacturing activities occur in North America and
Asia. Intevac also has field offices in Asia to support its TFE customers.
Intevac's products are highly technical and are sold primarily through Intevac's
direct sales force. Intevac also sells its products through distributors in
Japan and China.
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 for
Intevac and decrease Intevac'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 ended July 3, 2021 and June 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 $ (6,311 ) $ 2,104 $ (8,415 ) $ (12,812 ) $ 1,005 $ (13,817 ) Net income (loss)

                     $ (6,126 )    $   1,524      $        

(7,650 ) $ (12,630 ) $ 300 $ (12,930 ) Net income (loss) per diluted share $ (0.25 ) $ 0.06 $

 (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 our U.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 of Singapore. During the second quarter of fiscal 2020, the
Company received $310,000 in government assistance related to
COVID-19
from the government of Singapore 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 of Singapore 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 of Singapore 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 the U.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 the U.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 of Singapore in the remainder of fiscal 2021.
Updates to the
COVID-19
response included in our Annual Report on
10-K
for the fiscal year ended January 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. In June 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 in the United States who could work from home did so through the
middle of June 2021 when we fully reopened our offices as restrictions were
lifted by the applicable authorities. All employees in Singapore that can do so
continue to work remotely and will do so until restrictions are lifted by the
applicable authorities in Singapore. 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.
In Singapore, 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 ended
June 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 of Singapore in the remainder of fiscal 2021.

                                       25
--------------------------------------------------------------------------------
  Table of Contents
For the three and six months ended July 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 ended June 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 

) $ 30,054 $ 47,682 $ (17,628 )




TFE revenue for the three and six months ended July 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 ended July 3, 2021 did not include revenue
recognized for any systems compared to revenue recognized for two 200 Lean
HDD systems for the three months ended June 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 ended July 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 the U.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 July 3, 2021, at January 2, 2021 and at June 27, 2020 did not include any 200 Lean HDD systems.

                                       26
--------------------------------------------------------------------------------
  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 $ 14,607 $ 15,447 $ 30,054 $ 24,557 $ 23,125 $ 47,682




International sales include products shipped to overseas operations of U.S.
companies. The decrease in sales to the U.S. region in the three and six months
ended July 3, 2021 versus the same periods in the prior year, reflected lower
Photonics product shipments and lower Photonics contract R&D work. Sales to the
Asia region in both three and six month periods ended July 3, 2021 did not
include any systems. Sales to the Asia region in both three and six month
periods ended June 27, 2020 included two 200 Lean
HDD systems. Sales to the Europe region in the six months ended July 3, 2021
included one MATRIX PVD system for advanced semiconductor packaging. Sales to
the Europe region in the three and six months ended June 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 ) $ 3,022 $ 10,030 $ (7,008 ) % of Photonics net revenues

             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
--------------------------------------------------------------------------------
  Table of Contents
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 $ 3,894 $ 3,707 $ 187 $ 7,519 $ 6,991 $ 528



Research and development spending in TFE during the three and six months ended
July 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 ended July 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 ended July 3, 2021, respectively, or $3.6 million
and $6.5 million for the three and six months ended June 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 ) $ 11,455 $ 11,581 $ (126 )



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 ended July 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 ended
July 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 ended July 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 ended June 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 ended June 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 ended July 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 ) $ (132 ) $ 909 $ (1,041 )



Intevac recorded income tax benefits of $165,000 and $132,000 for the three and
six months ended July 3, 2021, respectively, and income tax provisions of
$642,000 and $909,000 for the three and six months ended June 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 which
Intevac operates. For the three and six month periods ended July 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 to the United States from
Intevac's Singapore subsidiary as discrete items. For the three and six month
periods ended June 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 to the United States from Intevac'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 of Intevac'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 of Intevac'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 the U.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
At July 3, 2021, Intevac had $54.1 million in cash, cash equivalents, restricted
cash and investments compared to $50.4 million at January 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 of Intevac common stock to
Intevac's employees through Intevac'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 $ 54,127

 $     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 at July 3, 2021 compared to
$28.6 million at January 2, 2021. Net inventories totaled $20.5 million at
July 3, 2021 compared to $21.7 million at January 2, 2021. Net inventories at
July 3, 2021 included one VERTEX SPECTRA system for DCP held at a customer's
factory previously under an evaluation agreement that expired. Net inventories
at January 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 at July 3, 2021 from $4.3 million at January 2, 2021 due to
reduced manufacturing activities. Accrued payroll and related liabilities
decreased to $6.3 million at July 3, 2021 compared to $7.7 million at January 2,
2021 due primarily to the settlement of 2020 bonuses. Other accrued liabilities
decreased to $2.4 million at July 3, 2021 compared to $3.6 million at January 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 ended July 3, 2021 were $365,000.
Financing activities generated cash of $904,000 in the first six months of
fiscal 2021. The sale of Intevac common stock to Intevac's employees through
Intevac'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 of July 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 to the 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 of July 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 in the United States of America
("US GAAP") requires management to make judgments, assumptions and estimates
that affect the amounts reported. Intevac's significant accounting policies are
described in Note 1 to the consolidated financial statements included in Item 8
of Intevac's Annual Report on Form
10-K
for the year ended January 2, 2021, filed with the SEC on February 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 of Intevac's financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect on
Intevac'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 estimates Intevac could reasonably have used, or
changes in the estimate that are reasonably likely to occur, would have a
material effect on Intevac's financial condition or results of operations.

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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 as Intevac'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 of Intevac's accounting policies and the underlying
judgments and uncertainties affecting the application of those policies,
management believes that Intevac's consolidated financial statements are fairly
stated in accordance with US GAAP, and provide a meaningful presentation of
Intevac's financial condition and results of operations.
There have been no material changes to our critical accounting policies during
the six months ended July 3, 2021.

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