Acquisition-Related Contingent Consideration

9 Months Ended

Sep. 28, 2013

Acquisition-Related Contingent Consideration

7. Acquisition-Related Contingent Consideration

In connection with the acquisition of Solar Implant Technologies, Inc. (“SIT”), Intevac agreed to pay up to an aggregate of $7.0 million in cash to the selling shareholders if certain milestones were achieved over a specified period. Intevac has made payments to the selling shareholders for achievement of the first milestone in 2011 and for achievement of the second and third milestones in 2012. The fourth and final milestone was not achieved on the targeted date outlined in the acquisition agreement and will not be paid. There is no remaining contingent consideration obligation associated with the milestone payments at September 28, 2013.

In connection with the acquisition of SIT, Intevac also agreed to pay to the selling shareholders in cash a revenue earnout on Intevac’s net revenue from commercial sales of certain products over a specified period up to an aggregate of $9.0 million. Intevac estimated the fair value of this contingent consideration on September 28, 2013 based on probability-based forecasted revenues reflecting Intevac’s own assumptions concerning future revenue from such products. As of September 28, 2013, payments made in connection with the revenue earnout obligation have not been significant.

The fair value measurement of contingent consideration is based on significant inputs not observed in the market and thus represents a Level 3 measurement. Any change in fair value of the contingent consideration subsequent to the acquisition date is recognized in operating income within the statement of operations. The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability for the three and nine month periods ended September 28, 2013 and September 29, 2012.

	Three Months Ended						Nine Months Ended
	September 28, 2013			September 29, 2012			September 28, 2013			September 29, 2012
	(In thousands)
Opening balance	$	4,942		$	6,969		$	5,151		$	8,715
Changes in fair value		185			(200	)		(24	)		443
Cash payments made		(40	)		(956	)		(40	)		(3,345	)
Closing balance	$	5,087		$	5,813		$	5,087		$	5,813

The following table displays the balance sheet classification of the contingent consideration liability account at September 28, 2013 and at December 31, 2012:

	September 28,		December 31,
	2013		2012
	(In thousands)
Other accrued liabilities	$	42	$	265
Other long-term liabilities		5,045		4,886
Total acquisition-related contingent consideration	$	5,087	$	5,151

The following table represents the quantitative range of the significant unobservable inputs used in the calculation of fair value of the continent consideration liability as of September 28, 2013. 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 September  28, 2013
	Fair Value	Valuation Technique	Unobservable Input	Range (Weighted Average)
	(In thousands, except for percentages)
Revenue Earnout	$    5,087	Discounted cash flow	Weighted average cost of capital	16.0%
			Probability weighting of achieving revenue forecasts	15.0% - 50.0% (31.7%)