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

3 Months Ended

Apr. 01, 2012

NOTE 8. 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:

	Three months ended
In millions	April 1, 2012			March 27, 2011
Balance, beginning of year	$	1,014		$	980
Provision for warranties issued	116			109
Deferred revenue on extended warranty contracts sold	46			22
Payments	(103		)	(84		)
Amortization of deferred revenue on extended warranty contracts	(26		)	(23		)
Changes in estimates for pre-existing warranties	(14		)	3
Foreign currency translation	4			3
Balance, end of period	$	1,037		$	1,010

Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our April 1, 2012, balance sheet were as follows:

In millions	April 1, 2012		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	105	Deferred revenue
Long-term portion	228		Other liabilities and deferred revenue
Total	$	333

Receivables related to estimated supplier recoveries
Current portion	$	7	Trade and other receivables
Long-term portion	7		Other assets
Total	$	14

Long-term portion of warranty liability	$	286	Other liabilities and deferred revenue