Balance Sheet Components

Inventories

Inventories are comprised of (in thousands):



	September 30, 2012		December 31, 2011
Raw materials	$	4,445	$	4,542
Work in process	3,396		2,486
Finished goods	7,296		2,374
	$	15,137	$	9,402

Work in process includes costs to produce our clear aligner and intra-oral scanner products. Finished goods primarily represent our intra-oral scanners and ancillary products that support our clear aligner products. During the first three quarters of 2012, we increased our production volumes of our intra-oral scanners in anticipation of our move to a new facility in Israel which was completed in October 2012.

Accrued liabilities

Accrued liabilities consist of the following (in thousands):



	September 30, 2012		December 31, 2011
Accrued payroll and benefits	$	34,352	$	41,827
Accrued sales rebate	8,501		8,358
Accrued sales tax and value added tax	6,360		7,052
Unclaimed merger consideration	1,564		4,026
Accrued warranty	4,130		3,177
Accrued sales and marketing expenses	2,681		3,508
Accrued accounts payable	2,991		3,048
Accrued professional fees	2,165		654
Customer deposits	2,792		206
Accrued income taxes	461		426
Other	5,952		4,318
Total	$	71,949	$	76,600

Warranty

We regularly review the accrued balances and update these balances based on historical warranty trends. Actual warranty costs incurred have not materially differed from those accrued. However, future actual warranty costs could differ from the estimated amounts.

Clear Aligner

We warrant our Invisalign products against material defects until the Invisalign case is complete. We accrue for warranty costs in cost of net revenues upon shipment of products. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as well as current information on replacement costs.

Scanners

We warrant our scanners for a period of one year from the date of training and installation. We accrue for these warranty costs which includes materials and labor based on estimated historical repair costs. Extended service packages may be purchased for additional fees.

The following table reflects the change in our warranty accrual during the nine months ended September 30, 2012 and 2011, respectively (in thousands):



	Nine Months Ended September 30,
	2012			2011
Balance at beginning of period	$	3,177		$	2,607
Charged to cost of revenues	3,647			2,601
Assumed warranty from Cadent	—			350
Actual warranty expenditures	(2,694		)	(2,285		)
Balance at end of period	$	4,130		$	3,273