Accrued Liabilities

12 Months Ended

Oct. 31, 2011

Accrued Liabilities [Abstract]

Accrued Liabilities

Note 9. Accrued Liabilities

Accrued liabilities at October 31, 2011 and 2010 consisted of the following:

	2011		2010
Accrued payroll and employee benefits (1)	$	4,672	$	3,430
Accrued contract and operating costs (2)		88		2,126
Reserve for product warranty costs (3)		1,134		696
Reserve for long-term service agreement costs (4)		11,096		7,742
Reserve for B1200 repair and upgrade program (5)		7,949		—
Accrued taxes, legal, professional and other (6)		1,955		2,727
	$	26,894	$	16,721

(1)	Balance relates to amounts owed to employees for compensation and benefits as of the end of the period.
(2)	Balance includes estimated losses accrued on product sales contracts and amounts estimated as potentially owed to customers related to contract performance.
(3)	Activity in the reserve for product warranty costs during the year ended October 31, 2011 included additions for estimates of potential future warranty obligations of $0.9 million on contracts in the warranty period and reserve reductions related to actual warranty spend and reversals to income of $0.5 million as contracts progress through the warranty period or are beyond the warranty period.
(4)	The Company provides for reserves on all LTSA agreements when the estimated future stack replacement and service costs are estimated to exceed the remaining unrecognized contract value. Our reserve estimates are performed on a contract by contract basis and include cost assumptions based on what we anticipate the service requirements will be to fulfill obligations for each contract. As of October 31, 2011, our reserve on LTSA contracts totaled $8.9 million compared to $6.6 million as of October 31, 2010. If minimum output falls below the contract requirement, we may be subject to performance penalties or may be required to repair or replace the customer’s fuel cell stack. An estimate is not recorded for a potential performance guarantee liability until a performance issue has occurred on a particular power plant. At that point, the actual power plant’s output is compared against the minimum output guarantee and a reserve is recorded. The Company has provided for a reserve for performance guarantees, which based on historical fleet performance totaled $2.2 million and $1.2 million as of October 31, 2011 and 2010, respectively.

(5)

During the second quarter of fiscal 2011, the Company incurred an obligation to repair and upgrade a select group of 1.2 megawatt (MW) fuel cell modules produced between 2007 and early 2009. The repair and upgrade obligation was based on events that occurred and knowledge obtained concerning the performance of this select group of modules during the second fiscal quarter of 2011 however, the formal agreement to begin the repair and upgrade program was not finalized until May 2011. The program commenced in the third quarter of 2011 and is expected to conclude by mid-2012. The Company recorded a charge of approximately $8.8 million during the quarter ended April 30, 2011 recorded as a cost of product sales and revenues on the consolidated statements of operations. The charge consisted of the costs associated with the replacement of modules of $9.5 million and the costs associated with the repair of other modules of $4.1 million, partially off-set by the estimated fair value at the end of the respective LTSA contract terms for upgraded assets being deployed in the program of approximately $4.8 million, which will be returned to the Company at the expiration of the respective LTSA agreements if the customer does not renew the LTSA agreement through at least the remaining useful life of the upgraded assets. The reserve reflected on the consolidated balance sheet as of April 30, 2011 was approximately $11.3 million as certain costs were previously incorporated in the Company’s LTSA reserve. For the remainder of fiscal 2011 since April 30, 2011, the Company incurred actual repair and upgrade costs of approximately $2.9 million and reduced its estimate for future repair costs under this program resulting in a benefit to cost of product sales and revenues of $0.5 million.

(6)

Balance includes accrued sales, use and payroll taxes as well as estimated legal, professional and other expense estimates as of the end of the period.