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Liabilities | 6 Months Ended
--- | ---
Jun. 30, 2018
Liabilities |
Liabilities | Note 5 - Liabilities Accrued Expenses and Other Current Liabilities The components of accrued expenses and other current liabilities at June 30, 2018 and December 31, 2017 consist of:
|  | June 30, |  | December 31, |
|  | 2018 |  | 2017 |
|  | (in thousands) |
Payroll and related benefits |  | $ | 25,910 |  | $ | 32,996 |
Warranty |  | 6,889 |  | 6,532 |
Interest |  | 4,477 |  | 4,430 |
Professional fees |  | 3,807 |  | 3,942 |
Merger consideration payable |  | 2,662 |  | 2,662 |
Sales, use, and other taxes |  | 891 |  | 2,144 |
Restructuring liability |  | 2,178 |  | 1,520 |
Other |  | 8,460 |  | 3,842 |
Total |  | $ | 55,274 |  | $ | 58,068 |
Other liabilities include accruals for costs related to customer training, royalties, and travel. 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 six months ended June 30, 2018 include:
|  | (in thousands) |
Balance - December 31, 2017 |  | $ | 6,532 |
Warranties issued |  | 3,514 |
Consumption of reserves |  | (3,444 | )
Changes in estimate |  | 287 |
Balance - June 30, 2018 |  | $ | 6,889 |
Restructuring Accruals During 2017, the Company substantially completed its restructuring activities related to its initiative to streamline operations, enhance efficiencies, and reduce costs, as well as reduced investments in certain technology development. In addition, during 2017, the Company began the Ultratech acquisition integration process to enhance efficiencies, resulting in reductions in headcount and other facility costs. During the six months ended June 30, 2018, additional accruals were recognized and payments were made related to prior year restructuring initiatives. During the second quarter of 2018, the Company initiated plans to further reduce excess capacity associated with the manufacture and support of the Company’s advanced packaging lithography and 3D wafer inspection systems by consolidating these operations into its San Jose, California facility. As a result of this and other cost saving initiatives, the Company announced headcount reduction of approximately 40 employees and recorded restructuring charges related to these actions of $1.7 million, consisting principally of personnel severance and related costs. The Company expects the consolidation to be completed in the first quarter of 2019. Over the next few quarters, the Company expects to incur additional restructuring costs of $2 million to $4 million as it completes these activities.
|  | Personnel |  |  |  |  |
|  | Severance and |  | Facility |  |  |
|  | Related Costs |  | Related Costs |  | Total |
|  | (in thousands) |
Balance - December 31, 2017 |  | $ | 1,520 |  | $ | — |  | $ | 1,520 |
Provision |  | 2,412 |  | 2,371 |  | 4,783 |
Payments |  | (1,754 | ) | (2,371 | ) | (4,125 | )
Balance - June 30, 2018 |  | $ | 2,178 |  | $ | — |  | $ | 2,178 |
Included within restructuring expense in the Consolidated Statements of Operations for the six months ended June 30, 2018 is approximately $0.8 million of non-cash charges related to accelerated share-based compensation for employee terminations. Customer Deposits and Deferred Revenue Customer deposits totaled $25.2 million and $41.5 million at June 30, 2018 and December 31, 2017, 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, 2017 |  | $ | 70,536 |
Deferral of revenue |  | 9,608 |
Recognition of previously deferred revenue |  | (31,867 | )
Balance - June 30, 2018 |  | $ | 48,277 |
As of June 30, 2018, the Company has approximately $91.4 million of remaining performance obligations on contracts with an original estimated duration of one year or more, of which approximately 74% 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:
|  | June 30, |  | December 31, |
|  | 2018 |  | 2017 |
|  | (in thousands) |
Principal amount |  | $ | 345,000 |  | $ | 345,000 |
Unamortized debt discount |  | (57,779 | ) | (63,022 | )
Unamortized transaction costs |  | (5,820 | ) | (6,348 | )
Net carrying value |  | $ | 281,401 |  | $ | 275,630 |
Total interest expense related to the Convertible Senior Notes is as follows:
|  | Three months ended June 30, |  | Six months ended June 30, |
|  | 2018 |  | 2017 |  | 2018 |  | 2017 |
|  | (in thousands) |
Cash Interest Expense |  |  |  |  |  |  |  |  |
Coupon interest expense |  | $ | 2,329 |  | $ | 2,329 |  | $ | 4,658 |  | $ | 4,244 |
Non-Cash Interest Expense |  |  |  |  |  |  |  |  |
Amortization of debt discount |  | 2,646 |  | 2,455 |  | 5,243 |  | 4,440 |
Amortization of transaction costs |  | 266 |  | 247 |  | 528 |  | 447 |
Total Interest Expense |  | $ | 5,241 |  | $ | 5,031 |  | $ | 10,429 |  | $ | 9,131 |
The Company determined the Convertible Senior Notes is a Level 2 liability in the fair value hierarchy and estimated its fair value as $304.3 million at June 30, 2018. 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 June 30, 2018 and December 31, 2017, plan assets approximated $3.5 million and $3.4 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 $4.0 million and $4.7 million, respectively, and is included within “Other liabilities” in the Consolidated Balance Sheets. Other liabilities also include asset retirement obligations of $3.3 million at both June 30, 2018 and December 31, 2017, and medical and dental benefits of $2.1 million and $2.2 million, respectively.

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