Acquisition-Related Contingent Consideration

3 Months Ended

Apr. 01, 2017

Acquisition-Related Contingent Consideration

6. Acquisition-Related Contingent Consideration

In connection with the acquisition of Solar Implant Technologies, Inc. (“SIT”), Intevac agreed to pay to the selling shareholders a revenue earnout in cash 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 April 1, 2017 based on probability-based forecasted revenues reflecting Intevac’s own assumptions concerning future revenue from such products. As of April 1, 2017, payments made associated 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 condensed consolidated statements of operations. The following table represents a reconciliation of the change in the fair value measurement of the contingent consideration liability for the three-month periods ended April 1, 2017 and April 2, 2016:

	Three Months Ended
	April 1,2017			April 2,2016
	(In thousands)
Opening balance	$	759		$	890
Changes in fair value		80			16
Cash payments made		(2	)		—
Closing balance	$	837		$	906

The following table displays the balance sheet classification of the contingent consideration liability account at April 1, 2017 and at December 31, 2016:

	April 1,		December 31,
	2017		2016
	(In thousands)
Other accrued liabilities	$	198	$	329
Other long-term liabilities		639		430
Total acquisition-related contingent consideration	$	837	$	759

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 April 1, 2017. 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 April 1, 2017
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(In thousands, except for percentages)
Revenue Earnout	$	837	Discounted cash flow	Weighted average cost of capital Probability weighting of achieving revenue forecasts	15.3% 10.0% - 80.0% (31.9%)