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

Jul. 01, 2012

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
	July 1,			June 26,
In millions	2012			2011
Balance, beginning of year	$	1,014		$	980
Provision for warranties issued	227			219
Deferred revenue on extended warranty contracts sold	98			50
Payments	(196		)	(188		)
Amortization of deferred revenue on extended warranty contracts	(51		)	(46		)
Changes in estimates for pre-existing warranties	(27		)	7
Foreign currency translation	(3		)	3
Balance, end of period	$	1,062		$	1,025

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

In millions	July 1, 2012		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	102	Deferred revenue
Long-term portion	258		Other liabilities and deferred revenue
Total	$	360

Receivables related to estimated supplier recoveries
Current portion	$	7	Trade and other receivables
Long-term portion	6		Other assets
Total	$	13

Long-term portion of warranty liability	$	295	Other liabilities and deferred revenue