Divestiture and Discontinued Operations

6 Months Ended

Jul. 01, 2023

Disposal Group, Including Discontinued Operation, Balance Sheet Disclosures [Abstract]

2.	Divestiture and Discontinued Operations

Sale of Photonics

On December 30, 2021, the Company entered into an asset purchase agreement (the “Purchase Agreement”) with EOTECH, LLC (“EOTECH”) governing the sale of the Company’s Photonics business to EOTECH in exchange for (i) $70.0 million in cash consideration, (ii) up to $30.0 million in earnout payments and (iii) the assumption by EOTECH of certain liabilities of the Photonics business as specified in the Purchase Agreement. The transaction closed on December 30, 2021. Under the Purchase Agreement, EOTECH also agreed to pay to the Company, if earned, earnout payments of up to an aggregate of $30.0 million based on achievement of fiscal year 2023, 2024 and 2025 Photonics segment revenue targets for the Integrated Visual Augmentation System (“IVAS”) program as specified in the Purchase Agreement. At any time prior to December 31, 2024, EOTECH may elect to pay to the Company $14.0 million, which would terminate EOTECH’s obligations with respect to any remaining earnout payments. As of July 1, 2023, there have been no earnout payments under the Purchase Agreement. The cash proceeds do not include any estimated future payments from the revenue earnout as the Company has elected to record the proceeds when the consideration is deemed realizable. The Company believes the disposition of the Photonics business will allow it to benefit from a streamlined business model, simplified operating structure, and enhanced management focus.

In connection with the Photonics sale, the Company and EOTECH also entered into a Transition Service Agreement (the “TSA”) and a Lease Assignment Agreement. The TSA, which expired on June 30, 2022, outlined the information technology, people, and facility support the parties provided to each other for a period after the closing of the sale. The Lease Assignment Agreement assigns the lease obligation for two buildings in the Company’s California campus to EOTECH. As part of the assignment, the Company has agreed to subsidize a portion of EOTECH’s lease payments through the remainder of the lease term which expires in March 2024. In August 2022, Intevac and EOTECH entered into a Shared Services Agreement (the “Shared Services Agreement”) to share certain building maintenance costs.

TSA fees earned since the divestiture were $408,000 for the three months ended July 2, 2022 and $1.2 million for the six months ended July 2, 2022. The agreed-upon charges for such services were generally intended to allow the service provider to recover all costs and expenses of providing such services. The TSA fees were included in selling, general and administrative expenses and cost of sales, respectively, in the Company’s condensed consolidated statement of operations. Additionally, during the three and six months ended July 2, 2022, the Company sold inventory in the amount of $32,000 and $148,000, respectively to EOTECH. Fees earned under the Shared Services Agreement for the three and six months ended July 1, 2023 were $39,000 and $65,000, respectively. As of July 1, 2023 and December 31, 2022, accounts receivable from EOTECH of $41,000 and $49,000, respectively, were included in trade and other accounts receivable in the Company’s condensed consolidated balance sheets.

Based on its magnitude and because the Company exited certain markets, the sale of the Photonics segment represents a significant strategic shift that has a material effect on the Company’s operations and financial results, and the Company has separately reported the results of its Photonics segment as discontinued operations in the condensed consolidated statements of operations for the three and six months ended July 1, 2023 and July 2, 2022.

The key components from discontinued operations related to the Photonics segment are as follows:


	Three Months Ended						Six Months Ended
	July 1, 2023			July 2, 2022			July 1, 2023			July, 2022

	(In thousands)
Selling, general and administrative	$	(40	)	$	238		$	(317	)	$	373

Total operating expenses		(40	)		238			(317	)		373

Operating income (loss) – discontinued operations		40			(238	)		317			(373	)
Other income (expense) – discontinued operations		—			—			—			—

Income (loss) from discontinued operations before provision for income taxes		40			(238	)		317			(373	)
Provision for income taxes		—			—			—			—

Net income (loss) from discontinued operations, net of taxes	$	40		$	(238	)	$	317		$	(373	)

The cash flows related to discontinued operations have not been segregated and are included in the condensed consolidated statements of cash flows. The following table presents cash flow and

non-cash

information related to discontinued operations for the three and six months ended July 1, 2023 and July 2, 2022:


	Three Months Ended				Six Months Ended
	July 1, 2023		July 2, 2022		July 1, 2023			July 2, 2022

	(In thousands)
Equity-based compensation	$	—	$	39	$	(260	)	$	(291	)