NOTE K: WARRANTY RESERVE

We generally do not independently provide warranties on the products that we distribute. Instead, in almost all cases, the manufacturers of the products that we distribute warrant the products and allow us to return defective products, including those that have been returned to us by our customers. However, we sell a line of portable generators under a product supply arrangement which obligates us to provide warranty services for these products and to share the costs of providing those services with the manufacturer. Accordingly, we maintain a reserve against which we charge warranty claims. The amount of the reserve is determined based primarily on our historical warranty claims experience and the number of portable generators that we sell each year. We periodically increase the warranty reserve to replenish it after it has been reduced by warranty claims charged against it or to increase the reserve in response to increases in claims or in the number of generators that we have sold. Those increases are effectuated by means of a provision for warranty claims which is recorded as a component of our costs of sales in our consolidated statements of operations.

Accrued warranty expense, which is included in accrued liabilities on the consolidated balance sheet, as of December 31, 2011 and December 30, 2010 was as follows (in thousands):


	2011			2010
Accrued warranty balance as of January 1,	$	469		$	358
Warranty costs incurred		(878	)		(616	)
Provision for warranty claims		973			727

Accrued warranty balance as of December 31,	$	564		$	469