Note 9. Accrued Liabilities

Accrued liabilities at October 31, 2016 and 2015 consisted of the following (in thousands):



	2016		2015
Accrued payroll and employee benefits	$	4,183	$	3,914
Accrued product warranty costs ⁽¹⁾	516		964
Accrued material purchases ⁽²⁾	6,908		7,568
Accrued service agreement costs ⁽³⁾	6,030		3,437
Accrued taxes, legal, professional and other	3,263		3,292

	$	20,900	$	19,175

(1)

Activity in the accrued product warranty costs during the fiscal year ended October 31, 2016 and 2015 included additions for estimates of potential future warranty obligations of $0.3 million and $0.6 million, respectively, on contracts in the warranty period and reductions related to actual warranty spend of $0.7 million and $0.8 million, respectively, as contracts progress through the warranty period or are beyond the warranty period.


(2)	The Company acts as a procurement agent for POSCO under the Integrated Global Supply Chain Plan ("IGSCP") whereby the Company procures materials on POSCO's behalf for its production facility. The liability represents amounts received for the purchase of materials on behalf of POSCO. Amounts due to vendors is recorded as Accounts Payable.

(3)

Activity in service agreement costs represents an increase in loss accruals on service contracts of $1.9 million from $0.8 million as of October 31, 2015 to $2.7 million as of October 31, 2016. The increase primarily relates to renewals of legacy service contracts. The accruals for performance guarantees also increased from $2.6 million as of October 31, 2015 to $3.3 million as of October 31, 2016 based on the minimum output falling below the contract requirements for certain contracts offset by guarantee payments to customers.