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, 2019

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:



	December 31,
In millions	2019			2018			2017
Balance, beginning of year	$	2,208		$	1,687		$	1,414
Provision for base warranties issued	458			437			376
Deferred revenue on extended warranty contracts sold	356			293			240
Provision for product campaigns issued	210			481			181
Payments made during period	(590		)	(443		)	(398		)
Amortization of deferred revenue on extended warranty contracts	(230		)	(244		)	(219		)
Changes in estimates for pre-existing product warranties	(24		)	3			85
Foreign currency translation and other	1			(6		)	8
Balance, end of year	$	2,389		$	2,208		$	1,687

We recognized supplier recoveries of $67 million, $26 million and $16 million for the for the years ended December 31, 2019, 2018 and 2017, respectively.

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



	December 31,
In millions	2019		2018		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	227	$	227	Current portion of deferred revenue
Long-term portion	714		587		Deferred revenue
Total	$	941	$	814

Product warranty
Current portion	$	803	$	654	Current portion of accrued product warranty
Long-term portion	645		740		Accrued product warranty
Total	$	1,448	$	1,394

Total warranty accrual	$	2,389	$	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. We recorded charges of $36 million to "Cost of sales" in our Consolidated Statements of Net Income during 2017 for the then expected cost of field campaigns to repair some of these engine systems.

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 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 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 are being 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 December 31, 2019, the remaining accrual balance was $247 million.