Liabilities

3 Months Ended

Mar. 31, 2020

Liabilities

Liabilities

Note 4 — Liabilities

Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities at March 31, 2020 and December 31, 2019 consist of:

	March 31,		December 31,
	2020		2019
	(in thousands)
Payroll and related benefits	$	18,909	$	15,174
Warranty		5,968		7,067
Operating lease liabilities		4,286		4,196
Interest		1,992		4,321
Professional fees		1,936		2,443
Sales, use, and other taxes		2,644		811
Restructuring liability		2,074		2,841
Other		3,759		4,390
Total	$	41,568	$	41,243

Warranty

Warranties are typically valid for one year from the date of system final acceptance, and Veeco estimates the costs that may be incurred under the warranty. Estimated warranty costs are determined by analyzing specific product and historical configuration statistics and regional warranty support costs and are affected by product failure rates, material usage, and labor costs incurred in correcting product failures during the warranty period. Unforeseen component failures or exceptional component performance can also result in changes to warranty costs. Changes in product warranty reserves for the three months ended March 31, 2020 include:

		(in thousands)
Balance - December 31, 2019	$	7,067
Warranties issued		645
Consumption of reserves		(1,708)
Changes in estimate		(36)
Balance - March 31, 2020	$	5,968

Restructuring Accruals

The Company continued to record restructuring charges during the year ended December 31, 2019 as a result of its efforts to further streamline operations, enhance efficiencies, and reduce costs. In the second half of 2019, the Company executed an initiative to reorganize various functions along product lines and created a central research and development organization to better allocate its resources to the Company’s highest priority projects. In addition, the Company delayered the organization. Collectively, these actions impacted approximately 60 employees. During the three months ended March 31, 2020, additional accruals were recognized and payments were made related to these restructuring initiatives.

The following table shows the amounts incurred and paid for restructuring activities during the three months ended March 31, 2020, and the remaining accrued balance of restructuring costs at March 31, 2020, which is included in

“Accrued expenses and other current liabilities” in the Consolidated Balance Sheets, and principally consists of personnel severance and related costs:

	(in thousands)
Balance - December 31, 2019	$	2,841
Provision		625
Payments		(1,392)
Balance - March 31, 2020	$	2,074

Customer Deposits and Deferred Revenue

Customer deposits totaled $24.9 million and $26.6 million at March 31, 2020 and December 31, 2019, respectively. Deferred revenue represents amounts billed, other than deposits, in excess of the revenue that can be recognized on a particular contract at the balance sheet date. Changes in deferred revenue were as follows:

	(in thousands)
Balance - December 31, 2019	$	28,249
Deferral of revenue		5,089
Recognition of previously deferred revenue		(8,607)
Balance - March 31, 2020	$	24,731

As of March 31, 2020, the Company has approximately $32.2 million of remaining performance obligations on contracts with an original estimated duration of one year or more, of which approximately 88% is expected to be recognized within one year, with the remaining amounts expected to be recognized between one to three years. The Company has elected to exclude disclosures regarding remaining performance obligations that have an original expected duration of one year or less.

Convertible Senior Notes

On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes (the “Convertible Senior Notes”). The Company received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The Convertible Senior Notes bear interest at a rate of 2.70% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2017. The Convertible Senior Notes mature on January 15, 2023 (the “Maturity Date”), unless earlier purchased by the Company, redeemed, or converted.

The carrying value of the Convertible Senior Notes is as follows:

	March 31,		December 31,
	2020		2019
	(in thousands)
Principal amount	$	345,000	$	345,000
Unamortized debt discount		(37,804)		(40,820)
Unamortized transaction costs		(3,808)		(4,112)
Net carrying value	$	303,388	$	300,068

Total interest expense related to the Convertible Senior Notes is as follows:

	Three months ended March 31,
	2020		2019
	(in thousands)
Cash Interest Expense
Coupon interest expense	$	2,329	$	2,329
Non-Cash Interest Expense
Amortization of debt discount		3,016		2,799
Amortization of transaction costs		304		282
Total Interest Expense	$	5,649	$	5,410

The Company determined the Convertible Senior Notes is a Level 2 liability in the fair value hierarchy and estimated its fair value as $283.8 million at March 31, 2020.

Other Liabilities

As part of the acquisition of Ultratech, the Company assumed an executive non-qualified deferred compensation plan that allowed qualifying executives to defer cash compensation. The plan was frozen at the time of acquisition and no further contributions have been made. At March 31, 2020 and December 31, 2019, plan assets approximated $1.9 million and $2.7 million, respectively, representing the cash surrender value of life insurance policies and is included within “Other assets” in the Consolidated Balance Sheets, while plan liabilities approximated $2.3 million and $3.1 million, respectively, and is included within “Other liabilities” in the Consolidated Balance Sheets. Other liabilities at both March 31, 2020 and December 31, 2019 also included medical and dental benefits for former executives of $2.0 million, asset retirement obligations of $3.2 million, and income tax payables of $1.0 million.