Cash, Cash Equivalents and Investments

3 Months Ended

Mar. 31, 2012

Cash, Cash Equivalents and Investments [Abstract]

Cash, Cash Equivalents and Investments

9. Cash, Cash Equivalents and Investments

Cash and cash equivalents, short-term investments and long-term investments consist of:

	March 31, 2012
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value
	(In thousands)
Cash and cash equivalents:
Cash	$	11,888	$	—	$	—	$	11,888
Money market funds		3,755		—		—		3,755
Certificates of deposit		1,200		—		—		1,200
Commercial paper		1,200		—		—		1,200
Total cash and cash equivalents	$	18,043		—		—	$	18,043
Short-term investments:
Certificates of deposit	$	1,200	$	—	$	—	$	1,200
Corporate bonds and medium-term notes		30,332		59		7		30,384
FDIC insured corporate bonds		8,053		14		—		8,067
Municipal bonds		4,871		7		—		4,878
U.S. treasury and agency securities		13,991		51		—		14,042
Variable rate demand notes (“VRDNs”)		2,320		—		—		2,320
Total short-term investments	$	60,767	$	131	$	7	$	60,891
Long-term investments:
Corporate bonds and medium-term notes	$	10,319	$	11	$	15	$	10,315
U.S. treasury and agency securities		17,978		12		3		17,987
Auction rate securities (“ARS”)		4,900		—		410		4,490
Total long-term investments	$	33,197	$	23	$	428	$	32,792
Total cash, cash equivalents, and investments	$	112,007	$	154	$	435	$	111,726

	December 31, 2011
	Amortized Cost		Unrealized Holding Gains		Unrealized Holding Losses		Fair Value
	(In thousands)
Cash and cash equivalents:
Cash	$	14,268	$	—	$	—	$	14,268
Money market funds		4,845		—		—		4,845
Commercial paper		4,447		—		—		4,447
Total cash and cash equivalents	$	23,560	$	—	$	—	$	23,560
Short-term investments:
Commercial paper	$	1,050	$	—	$	—	$	1,050
Corporate bonds and medium-term notes		26,665		28		78		26,615
FDIC insured corporate bonds		9,596		23		—		9,619
Municipal bonds		4,898		10		—		4,908
U.S. treasury and agency securities		13,987		56		—		14,043
VRDNs		2,350		—		—		2,350
Total short-term investments	$	58,546	$	117	$	78	$	58,585
Long-term investments:
Corporate bonds and medium-term notes	$	14,761	$	16	$	77	$	14,700
U.S. treasury and agency securities		13,466		22		1		13,487
ARS		4,900		—		410		4,490
Total long-term investments	$	33,127	$	38	$	488	$	32,677
Total cash, cash equivalents, and investments	$	115,233	$	155	$	566	$	114,822

The contractual maturities of available-for-sale securities at March 31, 2012 are presented in the following table.

	Amortized Cost		Fair Value
	(In thousands)
Due in one year or less	$	62,538	$	62,662
Due after one through two years (1)		28,872		28,877
Due after ten years (2)		8,709		8,299
	$	100,119	$	99,838

(1) Includes $575,000 in par value of VRDNs.

(2) Includes $1.7 million in par value of VRDNs and $4.9 million in par value of ARS.

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 March 31, 2012.

	March 31, 2012
	In Loss Position for Less than 12 Months				In Loss Position for Greater than 12 Months
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
	(In thousands)
Corporate bonds and medium-term notes	$	14,973	$	22	$	—	$	—
U.S. treasury and agency securities		10,202		3		—		—
ARS		—		—		4,490		410
	$	25,175	$	25	$	4,490	$	410

All prices for the fixed maturity securities including U.S. Treasury and agency securities, certificates of deposit, commercial paper, FDIC insured corporate bonds, 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 March 31, 2012, all of the Company’s Level 3 financial instruments consisted of ARS with an aggregate par value of $4.9 million that failed at auction. There was insufficient observable market information to determine fair value for these financial instruments. The Company estimated the fair values for these securities by incorporating assumptions that it believes market participants would use in their estimates of fair value. 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. As a result of this review, the Company determined its ARS to have a temporary impairment of $410,000 as of March 31, 2012. The estimated fair value could change significantly based on future market conditions. The Company will continue to assess the fair value of its ARS for substantive changes in relevant market conditions, changes in its financial condition or other changes that may alter its estimates described above. Failed ARS represent approximately 4.0% of the Company’s total cash, cash equivalents and investments as of March 31, 2012.

The following table represents the quantitative range of the significant unobservable inputs used in the calculation of fair value of the ARS as of March 31, 2012. Significant increases or decreases in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement.

	Quantitative Information about Level 3 Fair Value Measurements at March 31, 2012
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(In thousands, except for percentages)
ARS	$	4,490	Discounted cash flow	Probability of default	1.21% - 15.01% (6.18%)
				Probability of earning maximum rate to maturity	0% - 0.16% (0.05%)
				Probability of principal returned prior to maturity	84.83% - 98.79% (93.77%)
				Liquidity risk premium	3.50% - 5.00% (4.19%)
				Recovery rate in default	40.00% - 90.00% (68.37%)

The following table represents the fair value hierarchy of Intevac’s available-for-sale securities measured at fair value on a recurring basis as of March 31, 2012.

	Fair Value Measurements at March 31, 2012
	Total		Level 1		Level 2		Level 3
	(In thousands)
Recurring fair value measurements:
Available-for-sale securities
Money market funds	$	3,755	$	3,755	$	—	$	—
U.S. treasury and agency securities		32,029		10,717		21,312		—
Certificates of deposit		2,400		—		2,400		—
Commercial paper		1,200		—		1,200		—
Corporate bonds and medium-term notes		40,699		—		40,699		—
FDIC insured corporate bonds		8,067		—		8,067		—
Municipal bonds		4,878		—		4,878		—
VRDNs		2,320		—		2,320		—
ARS		4,490		—		—		4,490
Total recurring fair value measurements	$	99,838	$	14,472	$	80,876	$	4,490

The following table presents the changes in Level 3 instruments measured on a recurring basis for the three months ended March 31, 2012 and April 2, 2011. These balances consist of ARS classified as available-for-sale with changes in fair value recorded in stockholders’ equity.

	Three months ended
	March 31, 2012		April 2, 2011
	(In thousands)
Opening balance	$	4,490	$	10,273
Total gains for the period included in other comprehensive income		—		8
Closing balance	$	4,490	$	10,281