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 we receive with respect to those generators. 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 the number or the amounts of the warranty claims or increases in the number of generators that we have sold. Since the warranty reserve is replenished or increased by recording a charge which is included in, and has the effect of increasing, our costs of sales in our consolidated statements of operations, an increase in the reserve will reduce income in the period when the increase is recognized.

Set forth in the table below is our accrued warranty expense (in thousands), which is included in accrued liabilities on the consolidated balance sheets:


	As of December 31,
	2014			2013
Accrued warranty balance as of January 1,	$	737		$	690
Warranty costs incurred		(965	)		(1,193	)
Provision for warranty claims		990			1,240

Accrued warranty balance as of December 31,	$	762		$	737