In July 2006, the FASB issued guidance to clarify the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also discussed derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The cumulative effect, if any, of applying this guidance is to be reported as an adjustment to the opening balance of retained earnings in the year of adoption.
As of October 29, 2010, we have provided a liability of $95 for unrecognized tax benefits related to various federal and state income tax matters. This entire amount would reduce our effective income tax rate if the asset is recognized in future reporting periods. We have not identified any new unrecognized tax benefits.
As of October 30, 2009, we have provided a liability of $103 for unrecognized tax benefits related to various federal and state income tax matters. This entire amount would reduce our effective income tax rate if the asset is recognized in future reporting periods. We have not identified any new unrecognized tax benefits.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
We recognize any future accrued interest and penalties related to unrecognized tax benefits in income tax expense. As of October 29, 2010, we had approximately $1 in accrued interest and penalties which is included as a component of the $95 unrecognized tax benefit noted above.
During the year ended October 29, 2010, the Internal Revenue Service settled its audit of our U.S. federal income tax returns for fiscal years ended November 1, 2002, October 31, 2003, November 3, 2006 and November 2, 2007. This settlement resulted in the reversal of $35 of unrecognized tax benefits associated with R&D credits we reported, which increased our tax expense by $5. Our federal income tax returns are open to audit under the statute of limitations for fiscal years 2008 and 2009.
We are subject to income tax in California and various other state taxing jurisdictions. Our state income tax returns are open to audit under the statute of limitations for the fiscal years ended October 30, 2006 through 2009.
We do not anticipate a significant change to the total amount of unrecognized tax benefits within the next 12 months.
NOTE 5- Line of Credit:
Under the terms of a revolving line of credit with Bank of America, we may borrow up to $2,000 through April 30, 2011. The interest rate is at the bank’s reference rate unless we elect an optional interest rate. The borrowing agreement contains various covenants, the more significant of which require us to maintain certain levels of shareholders’ equity and working capital. We are currently in compliance with all provisions of the agreement. There were no borrowings under this line of credit during the years ended October 29, 2010 or October 30, 2009.
NOTE 6- Contingencies and Commitments:
We lease certain transportation under operating leases through fiscal year 2011. The terms of the transportation leases provide for annual renewal options and contingent rental payments based upon mileage and adjustments of rental payments based on the Consumer Price Index. The Company also leases warehouse and/or office facilities throughout the United States and Canada through month-to-month rental agreements. Minimum rental payments were $382 in fiscal year 2010 and $425 in fiscal year 2009. Contingent payments were approximately $124 in fiscal year 2010 and $56 in fiscal year 2009. Future minimum lease payments are approximately $382 in fiscal year 2011.
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