Other Balance Sheet Information

The following is a summary of accounts receivable at December 31, 2016 and September 30, 2016 (in thousands):



	December 31, 2016			September 30, 2016
Accounts receivable	$	116,740		$	108,713
Less: allowance for doubtful accounts	(2,209		)	(2,241		)
Less: allowance for sales returns	(102		)	(100		)
Accounts receivable, net	$	114,429		$	106,372

The following is a summary of inventories at December 31, 2016 and September 30, 2016 (in thousands):



	December 31, 2016		September 30, 2016
Inventories:
Raw materials and purchased parts	$	59,775	$	60,979
Work-in-process	13,899		16,090
Finished goods	18,845		15,503
Total inventories	$	92,519	$	92,572

Reserves for excess and obsolete inventory were $24.1 million and $24.8 million, respectively, at December 31, 2016 and September 30, 2016.

During the three months ended December 31, 2016 and the fiscal year ended September 30, 2016, the Company had cumulative capitalized direct costs of $4.0 million and $3.7 million, respectively, associated with development of software for its internal use which are included within "Property, plant and equipment, net" in the accompanying unaudited Consolidated Balance Sheets. During the three months ended December 31, 2016, the Company capitalized direct costs of $0.3 million associated with development of software for its internal use.

Deferred financing costs of $0.7 million at December 31, 2016 and September 30, 2016 are associated with obtaining the line of credit financing and presented within "Other assets" in the accompanying unaudited Consolidated Balance Sheets. Amortization expense incurred during the three months ended December 31, 2016 was insignificant and included in interest expense in the accompanying unaudited Consolidated Statements of Operations. There was no such expense incurred during the three months December 31, 2015. Please refer to Note 7, “Line of Credit” for further information on this arrangement.

A note receivable of $0.2 million at December 31, 2016 and September 30, 2016 is recorded at carrying value and included in "Other assets" in the accompanying unaudited Consolidated Balance Sheets. The note had an initial value of $3.0 million and a stated interest rate of 9% upon its origination in fiscal year 2012 and was provided by the Company to a strategic partner (the “Borrower”) to support its future product development and other working capital requirements. Prior to fiscal year 2017, the Company amended the terms of the note due to the subordination of its security interest in the assets of the Borrower to the new lender and recognized cumulative impairment charges of $3.4 million as a result of making a determination that a recovery of all amounts due from the loan was not probable. No triggering events indicating additional impairment of the note receivable occurred during the three months ended December 31, 2016. Please refer to Note 9, "Loan Receivable" to the Company's consolidated financial statements included in the 2016 Annual Report in the Form 10-K for further information on the loan.

The Company determined that the Borrower represented a variable interest entity since the level of equity investment at risk was not sufficient for the entity to finance its activities without additional financial support. However, the Company did not qualify as the primary beneficiary since it would not absorb the majority of the expected losses from the Borrower and did not have the power to direct the Borrower's product research, development and marketing activities that have the most significant impact on its economic performance. The Company has no future contractual funding commitments to the Borrower and, as a result, the Company's exposure to loss is limited to the outstanding principal and interest due on the loan. During the first quarter of fiscal year 2017, the Company adopted the Accounting Standards Update 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, and concluded that it does not qualify as the primary beneficiary since it doesn't have the power to direct the Borrower's activities that most significantly impact its economic performance. The adoption of the guidance did not have an impact on the Company's financial position and the results of operations since it concluded that it does not have a controlling financial interest in Borrower .

The Company establishes reserves for estimated cost of product warranties based on historical information. Product warranty reserves are recorded at the time product revenue is recognized, and retrofit accruals are recorded at the time retrofit programs are established. The Company’s warranty obligation is affected by product failure rates, utilization levels, material usage, service delivery costs incurred in correcting a product failure and supplier warranties on parts delivered to the Company.

The following is a summary of product warranty and retrofit activity on a gross basis for the three months ended December 31, 2016 and 2015 (in thousands):



Activity - Three Months Ended December 31, 2016
Balance at September 30, 2016		Accruals		Costs Incurred			Balance at December 31, 2016
$	6,324	$	2,507	$	(2,614	)	$	6,217



Activity - Three Months Ended December 31, 2015
Balance at September 30, 2015		Accruals		Costs Incurred			Balance at December 31, 2015
$	6,089	$	2,124	$	(2,446	)	$	5,767