Balance Sheet Components

Inventories

Inventories are comprised of (in thousands):



	March 31, 2013		December 31, 2012
Raw materials	$	7,381	$	7,629
Work in process	3,196		3,889
Finished goods	4,865		3,604
	$	15,442	$	15,122

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.

Accrued liabilities

Accrued liabilities consist of the following (in thousands):



	March 31, 2013		December 31, 2012
Accrued payroll and benefits	$	31,246	$	39,621
Accrued sales rebate	8,996		8,333
Accrued sales tax and value added tax	4,890		5,253
Accrued sales and marketing expenses	3,695		4,088
Accrued warranty	4,129		4,050
Accrued accounts payable	2,230		2,866
Accrued distributor expenses	2,300		1,800
Accrued professional fees	1,207		2,349
Unclaimed merger consideration	508		1,575
Accrued income taxes	595		572
Other	4,839		3,740
Total	$	64,635	$	74,247

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 three months ended March 31, 2013 and 2012, respectively (in thousands):



	Three Months Ended March 31,
	2013			2012
Balance at beginning of period	$	4,050		$	3,177
Charged to cost of revenues	1,263			888
Actual warranty expenditures	(1,184		)	(914		)
Balance at end of period	$	4,129		$	3,151