The following table provides the fair market value of Intevac’s investments with unrealized losses that are not deemed to be other-than temporarily impaired as of July 2, 2011.


	July 2, 2011
	In Loss Position for				In Loss Position for
	Less than 12 Months				Greater than 12 Months
			Gross				Gross
			Unrealized				Unrealized
	Fair Value		Losses		Fair Value		Losses
	(In thousands)
Corporate bonds and medium-term notes	$	2,509	$	6	$	—	$	—
Municipal bonds		1,219		1		—		—
ARS		—		—		7,127		473

	$	3,728	$	7	$	7,127	$	473

All prices for the fixed maturity securities including U.S. Treasury and agency securities, commercial paper, corporate bonds, VRDNs and municipal bonds are received from independent pricing services utilized by Intevac’s outside investment manager. This investment manager performs a review of the pricing methodologies and inputs utilized by the independent pricing services for each asset type priced by the vendor. In addition, on at least an annual basis, the investment manager conducts due diligence visits and interviews with each pricing vendor to verify the inputs utilized for each asset class. The due diligence visits include a review of the procedures performed by each vendor to ensure that pricing evaluations are representative of the price that would be received to sell a security in an orderly transaction. Any pricing where the input is based solely on a broker price is deemed to be a Level 3 price. Intevac uses the pricing data obtained from its outside investment manager as the primary input to make its assessments and determinations as to the ultimate valuation of the above-mentioned securities and has not made, during the periods presented, any material adjustments to such inputs.

VRDNs are long-term floating rate municipal bonds with embedded put options that allow the bondholder to sell the security at par plus accrued interest. Intevac’s VRDN portfolio is comprised of investments in many municipalities, which are secured by irrevocable letters of credit from major financial institutions or other highly rated companies that serve as the pledged liquidity source. Intevac can tender these VRDN securities for sale upon notice to the broker and receive payment for the tendered securities within seven days.

As of July 2, 2011, Intevac’s investment portfolio included ARS with an aggregate par value of $7.6 million. All of the ARS are student loan structured issues, where the loans have been originated under the U.S. Department of Education’s Federal Family Education Loan Program. The principal and interest are 97-98% reinsured by the U.S. Department of Education and the collateral ratios range from 102% to 115%. Securities with a par value of $5.5 million are rated AAA/Aaa, and a security with a par value of $2.1 million is rated AAA/A3. These investments have experienced failed auctions beginning in February 2008. The investments in ARS will not be accessible until a successful auction occurs, they are restructured into a more liquid security, a buyer is found outside of the auction process, or the underlying securities have matured. In June 2011, the Company participated in a tender offer, sold an ARS with a par value of $3.0 million, collected $2.9 million and recognized a realized loss on the sale of $150,000.

As of July 2, 2011, there was insufficient observable market information for the ARS held by Intevac to determine the fair value. Therefore Level 3 fair values were estimated for these securities by incorporating assumptions that market participants would use in their estimates of fair value. At July 2, 2011, the fair value of the ARS was estimated at $7.1 million based on a valuation by Houlihan Capital Advisors, LLC using discounted cash flow models and management applying internal analysis to the valuation. The estimates of future cash flows are based on certain key assumptions, such as discount rates appropriate for the type of asset and risk, which are significant unobservable inputs. Some of these assumptions included credit quality, collateralization, final stated maturity, estimates of the probability of being called or becoming liquid prior to final maturity, redemptions of similar ARS, previous market activity for the same investment security, impact due to extended periods of maximum auction rates and valuation models. These securities are classified as long-term assets, as management believes that the ARS market will not become liquid within the next year. Potentially, it could take until the final maturity of the underlying notes (ranging from 20 years to 34 years) to realize these investments’ recorded values.

Management believes that the impairment of the ARS investments is temporary, primarily due to the government guarantee of the underlying securities and Intevac’s ability to hold these securities for the foreseeable future. Management believes that it is more likely than not that it would not be required to sell these securities before the recovery of their par amounts. A temporary impairment charge results in an unrealized loss being recorded in the other comprehensive income component of stockholders’ equity. Such an unrealized loss does not reduce net income for the applicable accounting period, because the loss is not viewed as other-than-temporary. The factors evaluated to differentiate between temporary and other-than-temporary include the projected future cash flows, credit ratings actions, and assessment of the credit quality of the underlying collateral. Factors considered in determining whether a loss is temporary include length of time and the extent to which the investment’s fair value has been less than the cost basis, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer, and Intevac’s intent and ability to retain the investment for a period of time sufficient to allow for any anticipated recovery of fair value. As of July 2, 2011, management has no reason to believe that any of the underlying issuers of Intevac’s ARS or their insurers are presently at risk or that the underlying credit quality of the assets backing Intevac’s ARS has been impacted by the reduced liquidity of these investments. As of July 2, 2011, based on the Level 3 valuation performed, Intevac determined that there was a temporary decline in fair value of its ARS of $473,000.

The following table represents the fair value hierarchy of Intevac’s assets and liabilities measured at fair value on a recurring basis as of July 2, 2011.


	Fair Value Measurements at July 2, 2011
	Total		Level 1		Level 2		Level 3
	(In thousands)
Assets:
Money market funds	$	11,339	$	11,339	$	—	$	—
Certificate of deposit		250		250		—		—
U.S. treasury and agency securities		21,556		8,027		13,529		—
Commercial paper		7,999		—		7,999		—
Corporate bonds and medium-term notes		41,260		—		41,260		—
Municipal bonds		6,180		—		6,180		—
VRDNs		7,025		—		7,025		—
ARS		7,127		—		—		7,127

Total assets	$	102,736	$	19,616	$	75,993	$	7,127


Liabilities:
Acquisition-related contingent consideration	$	10,430	$	—	$	—	$	10,430

The following table presents the changes in Level 3 instruments measured on a recurring basis for the three and six months ended July 2, 2011 and July 3, 2010. The majority of Intevac’s Level 3 balances consist of investment securities classified as available-for-sale with changes in fair value recorded in stockholders’ equity.