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, 2012

NOTE 11. 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:

	Nine months ended
	September 30,			September 25,
In millions	2012			2011
Balance, beginning of year	$	1,014		$	980
Provision for warranties issued	320			329
Deferred revenue on extended warranty contracts sold	154			82
Payments	(294		)	(292		)
Amortization of deferred revenue on extended warranty contracts	(77		)	(71		)
Changes in estimates for pre-existing warranties	(36		)	(4		)
Foreign currency translation	2			(6		)
Balance, end of period	$	1,083		$	1,018

Warranty related deferred revenue, supplier recovery receivables and the long-term portion of the warranty liability on our September 30, 2012, balance sheet were as follows:

	September 30,
In millions	2012		Balance Sheet Location
Deferred revenue related to extended coverage programs
Current portion	$	106	Deferred revenue
Long-term portion	284		Other liabilities and deferred revenue
Total	$	390

Receivables related to estimated supplier recoveries
Current portion	$	6	Trade and other receivables
Long-term portion	6		Other assets
Total	$	12

Long-term portion of warranty liability	$	287	Other liabilities and deferred revenue