Equity-Based Compensation

3 Months Ended

Mar. 31, 2012

Equity-Based Compensation [Abstract]

Equity-Based Compensation

3. Equity-Based Compensation

At March 31, 2012, Intevac had equity-based awards outstanding under the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2003 Employee Stock Purchase Plan (the “ESPP”). Intevac’s stockholders approved both of these plans.

The 2004 Plan permits the grant of incentive or non-statutory stock options, restricted stock, stock appreciation rights, restricted stock units (“RSUs” also referred to as performance units) and performance shares. During the three months ended March 31, 2012, Intevac granted 51,000 stock options with an estimated total grant-date fair value of $231,000 and 7,500 RSUs with an estimated total grant-date fair value of $61,000. During the three months ended April 2, 2011, Intevac granted 26,000 stock options with an estimated total grant-date fair value of $185,000.

The ESPP provides that eligible employees may purchase Intevac’s common stock through payroll deductions at a price equal to 85% of the lower of the fair market value at the beginning of the applicable offering period or at the end of each applicable purchase interval. Offering periods are generally two years in length, and consist of a series of six-month purchase intervals. Eligible employees may join the ESPP at the beginning of any six-month purchase interval. Under the terms of the ESPP, employees can choose to have up to 15% of their base earnings withheld to purchase Intevac common stock. During the three months ended March 31, 2012, Intevac granted purchase rights with an estimated total grant-date fair value of $872,000. During the three months ended April 2, 2011, Intevac granted purchase rights with an estimated total grant-date fair value of $1.3 million.

Compensation Expense

The effect of recording equity-based compensation for the three-month periods ended March 31, 2012 and April 2, 2011 was as follows:

	Three Months Ended
	March 31, 2012			April 2, 2011
	(In thousands)
Equity-based compensation by type of award:
Stock options	$	733		$	731
RSUs		6			—
Employee stock purchase plan		315			231
Total equity-based compensation		1,054			962
Tax effect on equity-based compensation		(279	)		(269	)
Net effect on net loss	$	775		$	693

Equity-based compensation expense is based on awards ultimately expected to vest and such amount has been reduced for estimated forfeitures. Forfeitures were estimated based on Intevac’s historical experience, which Intevac believes to be indicative of Intevac’s future experience.

Stock Options and ESPP

The fair value of stock options and ESPP awards is estimated at the grant date using the Black-Scholes option valuation model. The determination of fair value of stock options and ESPP awards on the date of grant using an option-pricing model is affected by Intevac’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual employee stock option exercise behavior.

The weighted-average estimated fair value of employee stock options granted during the three months ended March 31, 2012 and April 2, 2011 was $4.53 per share and $7.11 per share, respectively. The weighted-average estimated fair value of employee stock purchase rights granted pursuant to the ESPP during the three months ended March 31, 2012 and April 2, 2011 was $3.49 per share and $5.18 per share, respectively. The fair value of each option and employee stock purchase right grant is estimated on the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions:

	Three Months Ended
	March 31, 2012			April 2, 2011
Stock Options:
Expected volatility		65.25	%		64.89	%
Risk free interest rate		1.10	%		2.00	%
Expected term of options (in years)		5.2			4.6
Dividend yield		None			None
Stock Purchase Rights:
Expected volatility		61.77	%		52.40	%
Risk free interest rate		0.33	%		0.51	%
Expected term of purchase rights (in years)		1.56			1.23
Dividend yield		None			None

The computation of the expected volatility assumptions used in the Black-Scholes calculations for new stock option grants and purchase rights is based on the historical volatility of Intevac’s stock price, measured over a period equal to the expected term of the stock option grant or purchase right. The risk-free interest rate is based on the yield available on U.S. Treasury Strips with an equivalent remaining term. The expected term of employee stock options represents the weighted-average period that the stock options are expected to remain outstanding and was determined based on historical experience of similar awards, giving consideration to the contractual terms of the equity-based awards and vesting schedules. The expected term of purchase rights represents the period of time remaining in the current offering period. The dividend yield assumption is based on Intevac’s history of not paying dividends and the assumption of not paying dividends in the future.

RSUs

RSUs are converted into shares of Intevac common stock upon vesting on a one-for-one basis. RSUs typically are scheduled to vest over four years. Vesting of RSUs is subject to the grantee’s continued service with Intevac. The compensation expense related to these awards is determined using the fair market value of Intevac common stock on the date of the grant, and the compensation expense is recognized over the vesting period.