Cummins Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

PRODUCT WARRANTY LIABILITY

PRODUCT WARRANTY LIABILITY

12 Months Ended

Dec. 31, 2012

NOTE 11. PRODUCT WARRANTY LIABILITY

We charge the estimated costs of warranty programs, other than product recalls, to income at the time products are shipped to customers. We use historical claims experience to develop the estimated liability. We review product recall programs on a quarterly basis and, if necessary, record a liability when we commit to an action or when they become probable and estimable, which is reflected in the provision for warranties issued line. We also sell extended warranty coverage on several engines. The following is a tabular reconciliation of the product warranty liability, including the deferred revenue related to our extended warranty coverage and accrued recall programs:

	December 31,

In millions	2012			2011
Balance, beginning of year	$	1,014		$	980
Provision for warranties issued		415			428
Deferred revenue on extended warranty contracts sold		210			124
Payments		(416	)		(409	)
Amortization of deferred revenue on extended warranty contracts		(103	)		(95	)
Changes in estimates for pre-existing warranties		(33	)		(7	)
Foreign currency translation		1			(7	)

Balance, end of year	$	1,088		$	1,014

Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our Consolidated Balance Sheets were as follows:

	December 31,

In millions	2012		2011		Balance Sheet Locations
Deferred revenue related to extended coverage programs
Current portion	$	111	$	103	Deferred revenue
Long-term portion		309		210	Other liabilities and deferred revenue

Total	$	420	$	313

Receivables related to estimated supplier recoveries
Current portion	$	7	$	7	Trade and other receivables
Long-term portion		6		7	Other assets

Total	$	13	$	14

Long-term portion of warranty liability	$	282	$	279	Other liabilities and deferred revenue