Note 11 — Commitments and Contingencies

Warranty

Warranties are typically valid for one year from the date of system final acceptance, and the Company 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 is 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 the Company’s product warranty reserves were as follows:

	December 31,
	2016			2015			2014
	(in thousands)
Balance, beginning of the year	$	8,159		$	5,411		$	5,662
Addition for new warranties issued	3,916			7,873			3,484
Addition from PSP acquisition	—			—			809
Settlements	(6,433		)	(3,551		)	(3,802		)
Changes in estimate	(1,425		)	(1,574		)	(742		)

Balance, end of the year	$	4,217		$	8,159		$	5,411

Minimum Lease Commitments

Minimum lease commitments at December 31, 2016 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows:

	Operating
	Leases
Payments due by period:	(in thousands)
2017	$	3,281
2018	2,292
2019	1,900
2020	1,592
2021	1,203
Thereafter	3,605

Total	$	13,873

Lease expense was $2.5 million, $2.3 million, and $2.3 million for the years ended December 31, 2016, 2015, and 2014, respectively. In addition, the Company is obligated under such leases for certain other expenses, including real estate taxes and insurance.

Legal Proceedings

Veeco and certain other parties were named as defendants in a lawsuit filed on April 25, 2013 in the Superior Court of California, County of Sonoma. The plaintiff in the lawsuit, Patrick Colbus, sought unspecified damages and asserted claims that he suffered burns and other injuries while cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleged, among other things, that the molecular beam epitaxy system was defective and that Veeco failed to adequately warn of the potential risks of the system. In April 2016, the parties settled the lawsuit, without any admission of wrongdoing. The settlement amount was fully covered by Veeco’s insurance.

The Company is involved in various other legal proceedings arising in the normal course of business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial position, results of operations, or cash flows.

Concentrations of Credit Risk

The Company depends on purchases from its ten largest customers, which accounted for 73% and 75% of net accounts receivable at December 31, 2016 and 2015, respectively.

Customers who accounted for more than 10% of net accounts receivable or net sales are as follows:

	Accounts Receivable		Net Sales

	Year ended December 31,		For the Year Ended December 31,
Customer	2016	2015	2016	2015	2014
Customer A	23%	*	13%	*	*
Customer B	17%	*	*	*	*
Customer C	*	23%	*	*	*
Customer D	*	*	*	20%	*
Customer E	*	*	*	12%	*
Customer F	*	*	*	*	15%
Customer G	*	*	*	*	11%

* Less than 10% of aggregate accounts receivable or net sales

The Company manufactures and sells its products to companies in different geographic locations. Refer to Note 18, “Segment Reporting and Geographic Information,” for additional information. In certain instances, the Company requires deposits from its customers for a portion of the sales price in advance of shipment and performs periodic credit evaluations on its customers. Where appropriate, the Company requires letters of credit on certain non-U.S. sales arrangements. Receivables generally are due within 30 to 90 days from the date of invoice.

Suppliers

The Company outsources certain functions to third parties, including the manufacture of its MOCVD systems. While the Company primarily relies on one supplier for the manufacturing of these systems, the Company maintains a minimum level of internal manufacturing capability for these systems. The failure of the Company’s present suppliers to meet their contractual obligations under its supply arrangements and the Company’s inability to make alternative arrangements or resume the manufacture of these systems could have a material adverse effect on the Company’s revenues, profitability, cash flows, and relationships with its customers.

In addition, certain of the components and sub-assemblies included in the Company’s products are obtained from a single source or a limited group of suppliers. The Company’s inability to develop alternative sources, if necessary, could result in a prolonged interruption in supply or a significant increase in the price of one or more components, which could adversely affect the Company’s operating results.

The Company had deposits with its suppliers of $7.8 million and $14.6 million at December 31, 2016 and 2015, respectively, that were included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets.

Purchase Commitments

The Company had purchase commitments of $72.6 million at December 31, 2016, all of which will come due within one year. Purchase commitments are primarily for inventory used in manufacturing products. The Company have $7.8 million of offsetting supplier deposits against these purchase commitments as of December 31, 2016.

Bank Guarantees

The Company has bank guarantees and letters of credit issued by a financial institution on its behalf as needed. At December 31, 2016, outstanding bank guarantees and letters of credit totaled $5.0 million, and unused bank guarantees and letters of credit of $59.4 million were available to be drawn upon.