GE 2010 Annual Report Download - page 75

GE 2010 ANNUAL REPORT 73
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engines by applying our contract-specific estimated margin rates
to incurred costs. We routinely update our estimates of future
revenues and costs for commercial aircraft engine agreements in
process and report any cumulative effects of such adjustments
in current operations. Significant components of our revenue and
cost estimates include price concessions, performance-related
guarantees as well as material, labor and overhead costs. We
measure revenue for military propulsion equipment and spare
parts not subject to long-term product services agreements
based on the specific contract on a specifically-measured output
basis. We provide for any loss that we expect to incur on these
agreements when that loss is probable; consistent with industry
practice, for commercial aircraft engines, we make such provision
only if such losses are not recoverable from future highly probable
sales of spare parts for those engines.
We sell product services under long-term product mainte-
nance or extended warranty agreements in our Technology
Infrastructure and Energy Infrastructure segments, principally in
Aviation, Energy and Transportation, where costs of performing
services are incurred on other than a straight-line basis. We also
sell product services in Healthcare, where such costs generally are
expected to be on a straight-line basis. For the Aviation, Energy
and Transportation agreements, we recognize related sales based
on the extent of our progress towards completion measured by
actual costs incurred in relation to total expected costs. We rou-
tinely update our estimates of future costs for agreements in
process and report any cumulative effects of such adjustments in
current operations. For the Healthcare agreements, we recognize
revenues on a straight-line basis and expense related costs as
incurred. We provide for any loss that we expect to incur on any
of these agreements when that loss is probable.
NBC Universal records broadcast and cable television and
Internet advertising sales when advertisements are aired, net of
provision for any viewer shortfalls (make goods). We record sales
from theatrical distribution of films as the films are exhibited;
sales of home videos, net of a return provision, when the videos
are delivered to and available for sale by retailers; fees from cable/
satellite operators when services are provided; and licensing of
film and television programming when we make the material
available for airing.
GECS Revenues from Services (Earned Income)
We use the interest method to recognize income on loans.
Interest on loans includes origination, commitment and other
non-refundable fees related to funding (recorded in earned
income on the interest method). We stop accruing interest at the
earlier of the time at which collection of an account becomes
doubtful or the account becomes 90 days past due. Previously
recognized interest income that was accrued but not collected
from the borrower is evaluated as part of the overall receivable in
determining the adequacy of the allowance for losses. Although
we stop accruing interest in advance of payments, we recognize
interest income as cash is collected when appropriate, provided
the amount does not exceed that which would have been earned
at the historical effective interest rate; otherwise, payments
received are applied to reduce the principal balance of the loan.
We resume accruing interest on nonaccrual, non-restructured
commercial loans only when (a) payments are brought current
determined, we defer revenue until all components of an arrange-
ment are delivered.
Except for goods sold under long-term agreements, we recog-
nize sales of goods under the provisions of U.S. Securities and
Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104,
Revenue Recognition. We often sell consumer products, home
videos and computer hardware and software products with a
right of return. We use our accumulated experience to estimate
and provide for such returns when we record the sale. In situa-
tions where arrangements include customer acceptance
provisions based on seller or customer-specified objective crite-
ria, we recognize revenue when we have reliably demonstrated
that all specified acceptance criteria have been met or when
formal acceptance occurs. In arrangements where we provide
goods for trial and evaluation purposes, we only recognize rev-
enue after customer acceptance occurs. Unless otherwise noted,
we do not provide for anticipated losses before we record sales.
Certain of our sales of goods and services involve inconse-
quential or perfunctory performance obligations. These
obligations can include non-essential installation or training, and
in some instances provision of product manuals and limited
technical product support. When the only remaining undelivered
performance obligation under an arrangement is inconsequential
or perfunctory, we recognize revenue on the total contract and
provide for the cost of the unperformed obligation.
We recognize revenue on agreements for sales of goods and
services under power generation unit and uprate contracts;
nuclear fuel assemblies; larger oil drilling equipment projects;
aeroderivative unit contracts; military development contracts;
and long-term construction projects, using long-term construc-
tion and production contract accounting. We estimate total
long-term contract revenue net of price concessions as well as
total contract costs. For goods sold under power generation unit
and uprate contracts, nuclear fuel assemblies, aeroderivative unit
contracts and military development contracts, we recognize sales
as we complete major contract-specified deliverables, most often
when customers receive title to the goods or accept the services
as performed. For larger oil drilling equipment projects and long-
term construction projects, we recognize sales based on our
progress towards contract completion measured by actual costs
incurred in relation to our estimate of total expected costs. We
measure long-term contract revenues by applying our contract-
specific estimated margin rates to incurred costs. We routinely
update our estimates of future costs for agreements in process
and report any cumulative effects of such adjustments in current
operations. We provide for any loss that we expect to incur on
these agreements when that loss is probable.
We recognize revenue upon delivery for sales of aircraft
engines, military propulsion equipment and related spare parts
not sold under long-term product services agreements. Delivery
of commercial engines, non-U.S. military equipment and all
related spare parts occurs on shipment; delivery of military pro-
pulsion equipment sold to the U.S. Government or agencies
thereof occurs upon receipt of a Material Inspection and Receiving
Report, DD Form 250 or Memorandum of Shipment. Commercial
aircraft engines are complex aerospace equipment manufactured
to customer order under a variety of sometimes complex, long-
term agreements. We measure sales of commercial aircraft