Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following at:



	October 31, 2018		July 31, 2018
Accrued wages and benefits	$	22,506,000	23,936,000
Accrued contract costs	13,285,000		10,016,000
Accrued warranty obligations	9,982,000		11,738,000
Accrued legal costs	6,946,000		6,179,000
Accrued commissions and royalties	4,605,000		4,654,000
Other	11,485,000		8,511,000
Accrued expenses and other current liabilities	$	68,809,000	65,034,000

On August 1, 2018, in connection with our adoption of ASC 606, $2,079,000 of accrued expenses and other current liabilities were reclassified to contract liabilities on our Condensed Consolidated Balance Sheet. Of this total amount, $1,679,000 and $400,000, respectively, was reclassified from the “accrued warranty obligations” and “other” categories presented in the above table to contract liabilities as they represented deferred revenue related to service-type warranty performance obligations. See Note (3) - "Revenue" for further discussion of our adoption of ASC 606.

Other accrued expenses as of October 31, 2018 include $992,000 for the current portion of the facility exit costs related to the closure of a manufacturing facility, as discussed in more detail in Note (9) - "Cost Reduction Actions."

Accrued legal costs as of October 31, 2018 and July 31, 2018 include $3,314,000 and $3,372,000, respectively, related to estimated costs associated with certain TeleCommunication Systems, Inc. ("TCS") intellectual property matters. The accrued potential settlement costs do not reflect the final amounts we may actually pay. Ongoing legal costs associated with defending legacy TCS intellectual property matters and the ultimate resolution could vary and have a material adverse effect on our future consolidated results of operations, financial position or cash flows. TCS intellectual property matters are discussed in more detail in Note (18) - "Legal Proceedings and Other Matters."

Accrued contract costs represent direct and indirect costs on contracts as well as estimates of amounts owed for invoices not yet received from vendors or reflected in accounts payable.

Accrued warranty obligations as of October 31, 2018 relate to estimated liabilities for assurance-type warranty coverage that we provide to our customers. We generally provide warranty coverage for some of our products for a period of at least one year from the date of delivery. We record a liability for estimated warranty expense based on historical claims, product failure rates, a consideration of contractual obligations, future costs to resolve software issues and other factors. Some of our product warranties are provided under long-term contracts, the costs of which are incorporated into our estimates of total contract costs.

Changes in our accrued warranty obligations during the three months ended October 31, 2018 and 2017 were as follows:



	Three months ended October 31,
	2018			2017
Balance at beginning of period	$	11,738,000		17,617,000
Reclass to contract liabilities as of August 1, 2018	(1,679,000		)	—
Provision for warranty obligations	1,020,000			1,106,000
Charges incurred	(1,515,000		)	(1,830,000	)
Warranty settlement and reclass (see below)	418,000			(3,892,000	)
Balance at end of period	$	9,982,000		13,001,000

Our current accrued warranty obligations at October 31, 2018 and July 31, 2018 include $4,402,000 and $4,650,000, respectively, of warranty obligations for a small product line that we refer to as the TCS 911 call handling software solution. This solution was licensed to customers prior to our acquisition of TCS. During the three months ended October 31, 2017, we entered into a full and final warranty settlement with AT&T, the largest customer/distributor of this product line, pursuant to which we issued thirty-six credits to AT&T of $153,000 which AT&T can apply on a monthly basis to purchases of solutions from us, beginning October 2017 through September 2020. As of October 31, 2018, the total present value of these monthly credits is $3,232,000, of which $1,621,000 is included in our current accrued warranty obligations and $1,611,000 is reflected in other liabilities (non-current) on our Condensed Consolidated Balance Sheet. In connection with this favorable settlement, during the three months ended October 31, 2017, we recorded a benefit to cost of sales of $660,000.