Note 12 — 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,
	2014			2013
	(in thousands)
Balance, beginning of the year	$	5,662			$	4,942
Addition for new warranties issued	3,484				5,291
Addition from PSP acquisition	809				—
Settlements	(3,802		)		(5,580		)
Changes in estimate	(742		)		1,009
Balance, end of the year	$	5,411			$	5,662

Minimum Lease Commitments

Minimum lease commitments at December 31, 2014 for property and equipment under operating lease agreements (exclusive of renewal options) are payable as follows:

	Operating
	Leases
Payments due by period:	(in thousands)
2015	$	2,322
2016	2,423
2017	1,993
2018	1,224
2019	526
Thereafter	2,700
Total	$	11,188

Rent expense was $2.3 million, $2.9 million, and $3.5 million in 2014, 2013 and 2012, respectively. In addition, the Company is obligated under such leases for certain other expenses, including real estate taxes and insurance.

Environmental Remediation

The Company is aware that petroleum hydrocarbon contamination has been detected in the soil at the site of a facility formerly leased by the Company in Santa Barbara, California. The Company has been indemnified for any liabilities that may be incurred which arise from environmental contamination at the site. Even without consideration of such indemnification, the Company does not believe that any material loss or expense is probable in connection with any such liabilities. The former owner of the land and building in Santa Barbara, California in which the Company’s former Metrology operations were located (which business was sold to Bruker Corporation (“Bruker”) on October 7, 2010), has disclosed that there are hazardous substances present in the ground under the building. Management believes that the comprehensive indemnification clause that was part of the purchase contract relating to the purchase of such land provides adequate protection against any environmental issues that may arise. The Company has provided Bruker with similar indemnification as part of the sale.

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, seeks unspecified damages and asserts claims that he suffered burns and other injuries while he was cleaning a molecular beam epitaxy system alleged to have been manufactured by Veeco. The lawsuit alleges, 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. The Company believes this lawsuit is without merit and intends to defend vigorously against the claims. The Company is unable to predict the outcome of this action or to reasonably estimate the possible loss or range of loss, if any, arising from the claims asserted therein. The Company believes that, in the event of any recovery by the plaintiff from Veeco, such recovery would be fully covered by 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 65% and 69% of total accounts receivable as of December 31, 2014 and 2013, respectively.

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

	Accounts Receivable				Net Sales for the Year Ended
	Year ended December 31,				December 31,
Customer	2014		2013		2014		2013		2012
Customer A		*		*		15%		*		*
Customer B		20%		10%		11%		14%		*
Customer C		13%		11%		*		*		*
Customer D		*		23%		*		*		14%

* 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 19, “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 – 90 days from the date of invoice. The net accounts receivable balance is concentrated in the following geographic locations:

	December 31,
	2014		2013
	(in thousands)
China	$	17,911		$	4,130
Korea	8,118			2,411
Thailand	6,324			2,041
Taiwan	5,838			427
Other	3,986			4,890
Asia Pacific	42,177			13,899
United States	13,139			8,369
EMEA and other	4,769			1,555
Total	$	60,085		$	23,823

Suppliers

The Company outsources certain functions to third parties, including the manufacture of all or substantially all of its MOCVD systems, ion beam and other data storage systems, and ion sources. The Company primarily relies on several suppliers for the manufacturing of these systems, but the Company does maintain 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 $12.7 million and $9.4 million at December 31, 2014 and 2013, respectively, that were included in “Prepaid expenses and other current assets” on the Consolidated Balance Sheets.

Purchase Commitments

The Company had purchase commitments of $112.4 million at December 31, 2014, all of which will come due within one year.

Bank Guarantees

The Company has bank guarantees issued by a financial institution on its behalf as needed. At December 31, 2014, outstanding bank guarantees totaled $45 million, of which $0.5 million is collateralized against cash that is restricted from use. As of December 31, 2014, the Company had $26 million of unused lines of credit available, which can be drawn upon to cover performance bonds required by customers.