Product Warranty Liability

Accrued product warranty and deferred warranty revenue activity is as follows:



	Nine Months Ended July 31,
(in millions)	2012			2011
Balance, at beginning of period	$	598		$	506
Costs accrued and revenues deferred	353			281
Adjustments to pre-existing warranties^(A)(B)	255			66
Payments and revenues recognized	(324		)	(288		)
Balance at end of period	882			565
Less: Current portion	448			254
Noncurrent accrued product warranty and deferred warranty revenue	$	434		$	311

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(A)

Adjustments to pre-existing warranties reflect changes in our estimate of warranty costs for products sold in prior periods. Such adjustments typically occur when claims experience deviates from historic and expected trends. Our warranty liability is generally affected by component failure rates, repair costs, and the timing of failures. Future events and circumstances related to these factors could materially change our estimates and require adjustments to our liability. In addition, new product launches require a greater use of judgment in developing estimates until historical experience becomes available. In the first quarter of 2012, we recorded adjustments for changes in estimates of $123 million ($75 million, or $1.07 per diluted share, net of tax). In the second quarter of 2012, we recorded adjustments for changes in estimates of $104 million ($63 million, or $0.92 per diluted share, net of tax). The impacts of income taxes on the adjustments reflect the Company's estimated annual effective tax rate as of July 31, 2012.


(B)	In the third quarter of 2012, we recognized $10 million of adjustments to pre-existing warranties for a specific warranty issue related to component parts from a supplier. Also during the quarter, we reached agreement for reimbursement from such supplier and recognized a recovery for that amount and recorded a receivable within Other current assets.

The amount of deferred revenue related to extended warranty programs was $332 million and $257 million at July 31, 2012 and October 31, 2011, respectively. Revenue recognized under our extended warranty programs was $17 million and $48 million for the three and nine months ended July 31, 2012, respectively, and $13 million and $39 million for the three and nine months ended July 31, 2011, respectively. In the second quarter of 2012, the Truck segment recognized a charge of $24 million related to the extended warranty contracts on our 2010 emission standard MaxxForce Big-Bore engines. The majority of the charge has been included in the adjustments to pre-existing warranties.