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Liabilities | 3 Months Ended
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Mar. 31, 2021
Liabilities |
Liabilities | Note 4 — Liabilities ​ Accrued Expenses and Other Current Liabilities ​ The components of accrued expenses and other current liabilities at March 31, 2021 and December 31, 2020 consist of: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31,
​ |  | 2021 |  | 2020
​ | ​ | (in thousands)
Payroll and related benefits | ​ | $ | 29,238 | ​ | $ | 26,630
Warranty | ​ | ​ | 5,363 | ​ | ​ | 5,058
Operating lease liabilities | ​ | ​ | 4,375 | ​ | ​ | 4,148
Interest | ​ | ​ | 4,017 | ​ | ​ | 2,574
Professional fees | ​ | ​ | 1,335 | ​ | ​ | 1,112
Sales, use, and other taxes | ​ |  | 3,221 | ​ |  | 2,658
Other | ​ |  | 3,515 | ​ |  | 2,696
Total | ​ | $ | 51,064 | ​ | $ | 44,876
​ 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, 2021 include: ​
​ | ​ | ​ | ​
​ | ​ | ​ | (in thousands)
Balance - December 31, 2020 | ​ | $ | 5,058
Warranties issued | ​ |  | 1,561
Consumption of reserves | ​ |  | (1,310)
Changes in estimate | ​ |  | 54
Balance - March 31, 2021 | ​ | $ | 5,363
​ Customer Deposits and Deferred Revenue ​ Customer deposits totaled $52.2 million and $49.3 million at March 31, 2021 and December 31, 2020, 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, 2020 |  | $ | 17,985
Deferral of revenue | ​ |  | 3,647
Recognition of unearned revenue | ​ |  | (4,913)
Balance - March 31, 2021 |  | $ | 16,719
​ As of March 31, 2021, the Company has approximately $21.8 million of remaining performance obligations on contracts with an original estimated duration of one year or more, of which approximately 80% 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 ​ 2023 Notes ​ On January 10, 2017, the Company issued $345.0 million of 2.70% convertible senior unsecured notes due 2023 (the “2023 Notes”). The Company received net proceeds, after deducting underwriting discounts and fees and expenses payable by the Company, of approximately $335.8 million. The 2023 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 2023 Notes mature on January 15, 2023, unless earlier purchased by the Company, redeemed, or converted. ​ On May 18, 2020, in connection with the completion of a private offering of $125.0 million aggregate principal amount of 3.75% convertible senior notes due 2027 described below, the Company repurchased and retired approximately $88.3 million in aggregate principal amount of its outstanding 2023 Notes, with a carrying amount of $78.1 million, for approximately $81.2 million of cash. ​ Additionally, on November 11, 2020, the Company entered into a privately negotiated exchange agreement with a holder of its outstanding 2023 Notes, under which the Company agreed to retire $125.0 million in aggregate original principal amount of the 2023 Notes, with a carrying amount of $113.1 million, in exchange for the issuance of $132.5 million in aggregate principal amount of new 3.50% convertible senior notes due 2025 described below, which had a fair value that approximated the principal amount of notes issued. ​ 2025 Notes ​ On November 17, 2020, as part of the privately negotiated exchange agreement described above, the Company issued $132.5 million of 3.50% convertible senior notes due 2025 (the “2025 Notes”). The 2025 Notes bear interest at a rate of 3.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, commencing on July 15, 2021. The 2025 Notes mature on January 15, 2025, unless earlier purchased by the Company, redeemed, or converted. ​ 2027 Notes ​ On May 18, 2020, the Company completed a private offering of $125.0 million of 3.75% convertible senior notes due 2027 (the “2027 Notes”). The Company received net proceeds of approximately $121.9 million, after deducting underwriting discounts and fees and expenses payable by the Company. Additionally, the Company used approximately $10.3 million of cash to purchase capped calls, discussed below. The 2027 Notes bear interest at a rate of 3.75% per year, payable semiannually in arrears on June 1 and December 1 of each year, commencing on December 1, 2020. The 2027 Notes mature on June 1, 2027, unless earlier purchased by the Company, redeemed, or converted. ​ The 2023 Notes, 2025 Notes, and 2027 Notes (collectively, the “Notes”) are unsecured obligations of Veeco and rank senior in right of payment to any of Veeco’s subordinated indebtedness; equal in right of payment to all of Veeco’s unsecured indebtedness that is not subordinated; effectively subordinated in right of payment to any of Veeco’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally subordinated to all indebtedness and other liabilities (including trade payables) of Veeco’s subsidiaries. ​ The Notes are convertible at the option of the holders upon the satisfaction of specified conditions and during certain periods as described below. The initial conversion rates are 24.9800, 41.6667, and 71.5372 shares of the Company’s common stock per $1,000 principal amount of the 2023 Notes, 2025 Notes, and 2027 Notes, respectively, representing initial effective conversion prices of $40.03, $24.00, and $13.98 per share of common stock, respectively. The conversion rates may be subject to adjustment upon the occurrence of certain specified events. ​ Holders may convert all or any portion of their notes, in multiples of one thousand dollar principal amount, at their option at any time prior to the close of business on the business day immediately preceding October 15, 2022 with respect to the 2023 Notes, October 15, 2024 with respect to the 2025 Notes, and October 1, 2026 with respect to the 2027 Notes, only under the following circumstances: ​
| (i) | During any calendar quarter (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
​
| (ii) | During the five consecutive business day period after any five consecutive trading day period (the “measurement period”) in which the trading price per one thousand dollar principal amount of Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of Veeco’s common stock and the conversion rate on each such trading day;
​
| (iii) | If the Company calls any or all of applicable series of the Notes for redemption at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date; or
​
| (iv) | Upon the occurrence of specified corporate events.
​ For the calendar quarter ended March 31, 2021, the last reported sales price of common stock during the 30 consecutive trading days, based on the criteria outlined in (i) above, was greater than 130% of the conversion price of the 2027 Notes, and as such the 2027 Notes are convertible by the holders until June 30, 2021. ​ Holders may convert their notes at any time, regardless of the foregoing circumstances, on or after October 15, 2022 with respect to the 2023 Notes, October 15, 2024 with respect to the 2025 Notes, and October 1, 2026 with respect to the 2027 Notes, until the close of business on the business day immediately preceding the respective maturity date. ​ Upon conversion by the holders, the Company may elect to settle such conversion in shares of its common stock, cash, or a combination thereof. As a result of its cash conversion options, the Company segregated the liability component of the instruments from the equity components. The liability components were measured by estimating the fair value of a non-convertible debt instrument that is similar in its terms to the Notes. The calculation of the fair value of the debt components required the use of Level 3 inputs, including utilization of convertible investors’ credit assumptions and high yield bond indices. Fair value was estimated through discounting future interest and principal payments, an income approach, due under the Notes at a discount rate equal to the estimated borrowing rate for similar non-convertible debt, or 7.0%, 8.0%, and 9.1% with respect to the 2023 Notes, 2025 Notes, and 2027 Notes, respectively. The excess of the aggregate face values of the Notes over the estimated fair values of the liability components of $72.5 million, $21.0 million, and $34.2 million with respect to the 2023 Notes, 2025 Notes, and 2027 Notes, respectively, were recognized as debt discounts and recorded as an increase to additional paid-in capital and will be amortized over the expected lives of the Notes using the effective interest rate method. Amortization of the debt discounts are recognized as non-cash interest expense. ​ The transaction costs of $9.2 million, $1.9 million, and $3.1 million incurred in connection with the issuance of the 2023 Notes, 2025 Notes, and 2027 Notes, respectively, were allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability component are being amortized using the effective interest rate method and recognized as non-cash interest expense over the expected terms of the Notes. Transaction costs allocated to the equity component of $1.9 million, $0.3 million, and $0.8 million with respect to the 2023 Notes, 2025 Notes, and 2027 Notes, respectively, reduced the value of the equity components recognized in stockholders' equity. ​ In connection with the offering of the 2027 Notes, on May 13, 2020, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”), pursuant to capped call confirmations, covering the total principal amount of the 2027 Notes for an aggregate premium of $10.3 million. The Capped Call Transactions are expected generally to reduce the potential dilution to the Company’s common stock upon any conversion of the 2027 Notes and/or offset any cash payments the Company is required to make in excess of the aggregate principal amount of converted 2027 Notes, as the case may be, with such reduction and/or offset subject to a cap based on the capped price of the Capped Call Transactions. The Capped Call Transactions exercise price is equal to the initial conversion price of the 2027 Notes, and the capped price of the Capped Call Transactions is approximately $18.46 per share and is subject to certain adjustments under the terms of the capped call confirmations. ​ The Capped Call Transactions are separate transactions entered into by the Company with the capped call counterparties, are not part of the terms of the 2027 Notes and do not change the holders’ rights under the 2027 Notes. Holders of the 2027 Notes do not have any rights with respect to the Capped Call Transactions. The cost of the Capped Call Transactions is not expected to be tax-deductible as the Company did not elect to integrate the Capped Call Transactions into the 2027 Notes for tax purposes. The Company used a portion of the net proceeds from the offering of the 2027 Notes to pay for the Capped Call Transactions, and the cost of the Capped Call Transactions was recorded as a reduction of the Company’s additional paid-in capital in the accompanying consolidated financial statements. ​ The carrying value of the 2023 Notes, 2025 Notes and 2027 Notes are as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | March 31, 2021 | ​ | ​ | December 31, 2020
​ |  | ​ | Principal Amount |  | ​ | Unamortized debt discount/ transaction costs |  | ​ | Net carrying value |  | ​ | Principal Amount |  | ​ | Unamortized debt discount/ transaction costs |  | ​ | Net carrying value
​ | ​ | ​ | (in thousands)
2023 Notes | ​ | $ | 131,695 | ​ | $ | (10,560) | ​ | $ | 121,135 | ​ | $ | 131,695 | ​ | $ | (11,925) | ​ | $ | 119,770
2025 Notes | ​ |  | 132,500 | ​ |  | (20,935) | ​ |  | 111,565 | ​ |  | 132,500 | ​ |  | (22,097) | ​ |  | 110,403
2027 Notes | ​ | ​ | 125,000 | ​ | ​ | (33,071) | ​ | ​ | 91,929 | ​ | ​ | 125,000 | ​ | ​ | (34,058) | ​ | ​ | 90,942
Net carrying value | ​ | $ | 389,195 | ​ | $ | (64,566) | ​ | $ | 324,629 | ​ | $ | 389,195 | ​ | $ | (68,080) | ​ | $ | 321,115
​ ​ Total interest expense related to the 2023 Notes, 2025 Notes and 2027 Notes is as follows: ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three months ended March 31, | ​
​ |  | 2021 |  | 2020 | ​
​ |  | (in thousands) | ​
Cash Interest Expense |  | ​ |  | ​ | ​ |  | ​
Coupon interest expense - 2023 Notes | ​ | $ | 889 | ​ | $ | 2,329 | ​
Coupon interest expense - 2025 Notes | ​ | ​ | 1,159 | ​ | ​ | — | ​
Coupon interest expense - 2027 Notes | ​ | ​ | 1,172 | ​ | ​ | — | ​
Non-cash Interest Expense | ​ |  | ​ | ​ |  |  | ​
Amortization of debt discount/transaction costs- 2023 Notes | ​ |  | 1,365 | ​ |  | 3,320 | ​
Amortization of debt discount/transaction costs- 2025 Notes | ​ | ​ | 1,162 | ​ | ​ | — | ​
Amortization of debt discount/transaction costs- 2027 Notes | ​ | ​ | 987 | ​ | ​ | — | ​
Total Interest Expense | ​ | $ | 6,734 | ​ | $ | 5,649 | ​
​ The Company determined the 2023 Notes, 2025 notes, and 2027 Notes are Level 2 liabilities in the fair value hierarchy and had an estimated fair value at March 31, 2021 of $132.3 million, $155.3, and $215.1 million, respectively. ​ 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, 2021 and December 31, 2020, plan assets approximated $2.5 million and $2.4 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 $2.5 million at December 31, 2020 and was included within “Other liabilities” in the Consolidated Balance Sheets. The plan was terminated and fully liquidated during the first quarter of 2021. Other liabilities at March 31, 2021 and December 31, 2020 also included (i) medical and dental benefits for former executives of $1.9 million; (ii) asset retirement obligations of $2.7 million; and (iii) income tax payables of $1.4 million. Additionally, as a result of the Coronavirus, Aid, Relief, and Economic Security Act, the Company has accrued for and deferred the deposit and payment of its share of social security taxes, resulting in a liability of $3.5 million at both March 31, 2021 and December 31, 2020, of which $1.7 million is included within “Accrued expenses and other current liabilities”, and $1.8 million is included within “Other liabilities” in the Consolidated Balance Sheets for both periods.

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