Quarterly report pursuant to Section 13 or 15(d)

PRODUCT WARRANTY LIABILITY

v3.10.0.1
PRODUCT WARRANTY LIABILITY
 9 Months Ended
Sep. 30, 2018
Product Warranties Disclosures [Abstract]  
PRODUCT WARRANTY LIABILITY NOTE 10. 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 were as follows:
 
In millions
 
September 30,
2018
 
October 1,
2017
Balance, beginning of year
 
$
1,687

 
$
1,414

Provision for warranties issued
 
793

 
446

Deferred revenue on extended warranty contracts sold
 
211

 
164

Payments made during period
 
(313
)
 
(296
)
Amortization of deferred revenue on extended warranty contracts
 
(179
)
 
(161
)
Changes in estimates for pre-existing warranties
 
18

 
71

Foreign currency translation and other
 
(6
)
 
5

Balance, end of period
 
$
2,211

 
$
1,643


Warranty related deferred revenues and the long-term portion of the warranty liabilities on our Condensed Consolidated Balance Sheets were as follows:
In millions
 
September 30,
2018
 
December 31,
2017
 
Balance Sheet Location
Deferred revenue related to extended coverage programs
 
 

 
 
 
 
Current portion
 
$
227

 
$
231

 
Current portion of deferred revenue
Long-term portion
 
570

 
536

 
Other liabilities and deferred revenue
Total
 
$
797

 
$
767

 
 
 
 
 
 
 
 
 
Long-term portion of warranty liability
 
$
790

 
$
466

 
Other liabilities and deferred revenue

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 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 Condensed Consolidated Statements of 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 Condensed Consolidated Statements of 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 will be completed in phases across the affected population with a projection to be substantially complete by December 31, 2020. The total remaining accrual related to this matter at September 30, 2018 was $396 million.