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Product warranties

The estimated cost of honoring warranties on products already sold: when it is recorded, how companies set the estimate, and the rollforward table, with Caterpillar, Lockheed Martin and RTX.

The short answer

A product-warranty liability is the company's estimate of what it will cost to repair or replace products already sold that are still under warranty. The cost is recorded when the sale is recognized, not when a customer later makes a claim. The 10-K describes the method and often includes a rollforward: the opening balance, new warranties issued, claims settled, and the closing balance.

When the cost is recorded

Caterpillar's 10-K for 2025 states the timing plainly: at the time it recognizes a sale, it records estimated future warranty costs. It determines the product-warranty liability by applying historical claim-rate experience to the current field population and dealer inventory, generally based on actual warranty experience for each product by machine model or engine size and by customer or dealer location. Lockheed Martin's 10-K uses the same timing: it records estimated warranty costs in the period in which the related products are delivered, and it bases the liability on the months of coverage remaining and average historical monthly warranty payments. Warranty costs on some long-term production contracts, it notes, are handled inside the contract estimates at completion instead.

Source: Caterpillar 10-K for fiscal 2025, filed Feb 13, 2026 · Lockheed Martin 10-K for fiscal 2025, filed Jan 29, 2026

The rollforward table

RTX's 10-K for 2025 includes a table showing the change in the carrying amount of service and product warranties during the year, with lines for the opening balance, amounts issued, settlements, other changes, and the closing balance. Issued is the new estimate added when products are sold or services are provided. Settlements are the claims actually paid or otherwise resolved. If settlements run consistently above the amounts that were issued, the estimate may have been light; the table is where that shows up over time.

Source: RTX 10-K for fiscal 2025, filed Feb 6, 2026

What the liability is not

It is an estimate. Claim rates change with product quality, usage and the terms of the warranty. Companies update the rates as new claims come in.
It is not a product-liability reserve for lawsuits. Lawsuits and recalls, if material, are discussed with legal proceedings and loss contingencies.
Extended warranties sold separately are often a service contract, closer to deferred revenue, than an accrued cost of the original sale.

At companies that sell equipment with multi-year coverage, this estimate is often listed among the critical accounting estimates in the MD&A, because a change in the assumed claim rate moves the liability and the period's cost.

Common questions

What is a product-warranty liability?

The amount a company has recorded for the expected cost of honoring warranties on products already sold. It is a liability on the balance sheet, and the related expense is usually recorded with the sale.

When is the cost recorded?

When the sale is recognized, not when a later claim is made. Caterpillar and Lockheed Martin both describe that timing in their 10-Ks.

What is a warranty rollforward?

A table that starts with last year's liability, adds new warranties issued, subtracts settlements (claims paid), and arrives at this year's liability. RTX publishes a rollforward of its service and product-warranty liability.

Is a larger warranty liability a bad sign?

Not by itself. A company that sold more units, or that offers longer coverage, will often have a larger liability. The useful comparison is settlements against the amounts previously estimated.

Where do I find it?

In a warranties note, sometimes combined with commitments and contingencies, and often in the critical-accounting-estimates part of the MD&A.

Disclosures

Editor holdings: The editor holds no position in any company named on this page. As of Nov 11, 2026.
Compensation: Nobody paid for this page. No affiliate links on this page.
Sources: Each company's own SEC filings, linked next to each number.
Last updated: Nov 10, 2026

General education, the same for every reader. Not a recommendation to buy, sell or hold any security, and it doesn't consider your situation.

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