Cummins Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

PRODUCT WARRANTY LIABILITY

PRODUCT WARRANTY LIABILITY

9 Months Ended

Sep. 30, 2022

Product Warranties Disclosures [Abstract]

NOTE 12. 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:


	Nine months ended
In millions	September 30, 2022		October 3, 2021
Balance, beginning of year	$	2,425	$	2,307
Provision for base warranties issued	395		431
Deferred revenue on extended warranty contracts sold	215		210
Provision for product campaigns issued	132		162
Payments made during period	(476)		(409)

Amortization of deferred revenue on extended warranty contracts	(220)		(191)
Changes in estimates for pre-existing product warranties	(80)		(131)
Acquisitions(1)	144		—
Foreign currency translation and other	19		(4)

Balance, end of period	$	2,554	$	2,375

(1) See NOTE 16, "ACQUISITIONS," to our Condensed Consolidated Financial Statements for additional information.

We recognized supplier recoveries of $10 million and $33 million for the three and nine months ended September 30, 2022, compared with $88 million and $97 million for the comparable periods in 2021.

Warranty related deferred revenues and warranty liabilities on our Condensed Consolidated Balance Sheets were as follows:


In millions	September 30, 2022		December 31, 2021		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	295	$	286	Current portion of deferred revenue
Long-term portion	716		700		Deferred revenue
Total	$	1,011	$	986

Product warranty
Current portion	$	801	$	755	Current portion of accrued product warranty
Long-term portion	742		684		Accrued product warranty
Total	$	1,543	$	1,439

Total warranty accrual	$	2,554	$	2,425

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 second quarter of 2018, we reached agreement with the CARB and EPA regarding our plans to address the affected populations. From the fourth quarter of 2017 through the second quarter of 2018, we recorded charges for the expected costs of field campaigns to repair these engine systems.

The campaigns launched in the third quarter of 2018 are being completed in phases across the affected population. The total engine system campaign charge, excluding supplier recoveries, was $410 million. In the fourth quarter of 2020, we recorded an additional

$20 million charge related to this campaign, as a change in estimate, to bring the total campaign, excluding supplier recoveries, to $430 million. At September 30, 2022, the remaining accrual balance was $54 million.