Quarterly report pursuant to Section 13 or 15(d)

PRODUCT WARRANTY LIABILITY

v3.19.2
PRODUCT WARRANTY LIABILITY
 6 Months Ended
Jun. 30, 2019
Product Warranties Disclosures [Abstract]  
PRODUCT WARRANTY LIABILITY
NOTE 11. PRODUCT WARRANTY LIABILITY
A tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued product campaigns was as follows:
 
 
 
Six months ended
In millions
 
June 30,
2019
 
July 1,
2018
Balance, beginning of year
 
$
2,208

 
$
1,687

Provision for base warranties issued
 
259

 
222

Deferred revenue on extended warranty contracts sold
 
171

 
139

Provision for product campaigns issued
 
134

 
403

Payments made during period
 
(308
)
 
(212
)
Amortization of deferred revenue on extended warranty contracts
 
(117
)
 
(118
)
Changes in estimates for pre-existing product warranties
 
(8
)
 
10

Foreign currency translation and other
 
(1
)
 
(1
)
Balance, end of period
 
$
2,338

 
$
2,130


We recognized supplier recoveries of $3 million and $61 million and $10 million and $13 million for the three and six months ended June 30, 2019 and July 1, 2018, respectively.
Warranty related deferred revenues and the long-term portion of the warranty liabilities on our Condensed Consolidated Balance Sheets were as follows:
In millions
 
June 30,
2019
 
December 31,
2018
 
Balance Sheet Location
Deferred revenue related to extended coverage programs
 
 

 
 
 
 
Current portion
 
$
224

 
$
227

 
Current portion of deferred revenue
Long-term portion
 
642

 
587

 
Deferred revenue
Total
 
$
866

 
$
814

 
 
 
 
 
 
 
 
 
Product warranty
 
 

 
 
 
 
Current portion
 
$
809

 
$
654

 
Current portion of accrued product warranty
Long-term portion
 
663

 
740

 
Accrued product warranty
Total
 
$
1,472

 
$
1,394

 
 
 
 
 
 
 
 
 
Total warranty accrual
 
$
2,338

 
$
2,208

 
 

Engine System Campaign Accrual
During 2017, the California Air Resources Board (CARB) and the U.S. Environmental Protection Agency (EPA) selected certain of our pre-2013 model year engine systems for additional emissions testing. Some of these engine systems failed CARB and EPA tests as a result of degradation of an aftertreatment component.
In the first quarter of 2018, we concluded based upon additional emission testing performed, and further discussions with the EPA and CARB that the field campaigns should be expanded to include a larger population of our engine systems that are subject to the aftertreatment component degradation, including our model years 2010 through 2015. As a result, we recorded an additional charge of $187 million or $0.87 per share, to cost of sales in our Condensed Consolidated Statements of Net Income ($94 million recorded in the Components segment and $93 million in the Engine segment).
In the second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations. In finalizing our plans, we increased the number of systems to be addressed through hardware replacement compared to our assumptions resulting in an additional charge of $181 million, or $0.85 per share, to cost of sales in our Condensed Consolidated Statements of Net Income ($91 million recorded in the Engine segment and $90 million in the Components segment).
The campaigns launched in the third quarter of 2018 and will be completed in phases across the affected population with a projection to be substantially complete by December 31, 2020. The total engine system campaign charge, excluding supplier recoveries, was $410 million. At June 30, 2019, the remaining accrual balance was $309 million.