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

6 Months Ended

Jun. 26, 2011

NOTE 9. 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:

	Six months ended
	June 26,			June 27,
In millions	2011			2010
Balance, beginning of period	$	980		$	989
Provision for warranties issued	219			157
Deferred revenue on extended warranty contracts sold	50			51
Payments	(188		)	(206		)
Amortization of deferred revenue on extended warranty contracts	(46		)	(42		)
Changes in estimates for pre-existing warranties	7			(20		)
Foreign currency translation	3			(6		)
Balance, end of period	$	1,025		$	923

Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our June 26, 2011, balance sheet were as follows:

	June 26,
In millions	2011		Balance Sheet Locations
Deferred revenue related to extended coverage programs:
Current portion	$	94	Deferred revenue
Long-term portion	194		Other liabilities and deferred revenue
Total	$	288

Receivables related to estimated supplier recoveries:
Current portion	$	9	Trade and other receivables
Long-term portion	7		Other assets
Total	$	16

Long-term portion of warranty liability	$	308	Other liabilities and deferred revenue