GE 2013 Annual Report Download - page 79

GE 2013 ANNUAL REPORT 77
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total of the separate selling prices and total contract
consideration (i.e., discount) is allocated pro rata across each of
the components in the arrangement. The value assigned to each
component is objectively determined and obtained primarily from
sources such as the separate selling price for that or a similar
item or from competitor prices for similar items. If such evidence
is not available, we use our best estimate of selling price, which is
established consistent with the pricing strategy of the business
and considers product confi guration, geography, customer type,
and other market specifi c factors.
Except for goods sold under long-term agreements, we rec-
ognize 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 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 situations where
arrangements include customer acceptance provisions based
on seller or customer-specifi ed objective criteria, we recognize
revenue when we have reliably demonstrated that all specifi ed
acceptance criteria have been met or when formal acceptance
occurs, respectively. In arrangements where we provide goods
for trial and evaluation purposes, we only recognize revenue after
customer acceptance occurs. Unless otherwise noted, we do not
provide for anticipated losses before we record sales.
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,
locomotive production contracts, and long-term construction
projects, using long-term construction 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, military development
contracts and locomotive production contracts, we recognize
sales as we complete major contract-specifi ed deliverables,
most often when customers receive title to the goods or accept
the services as performed. For larger oil drilling equipment proj-
ects and long-term construction projects, we recognize sales
based on our progress toward 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-specifi c 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
propulsion equipment sold to the U.S. government, or agen-
cies thereof, occurs upon receipt of a Material Inspection and
Receiving Report, DD Form 250 or Memorandum of Shipment.
Commercial aircraft engines are complex equipment manufac-
tured to customer order under a variety of sometimes complex,
long-term agreements. We measure sales of commercial aircraft
engines by applying our contract-specifi c 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. Signifi cant components of our revenue
and cost estimates include price concessions and 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 specifi c contract on a specifi cally 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 prob-
able sales of spare parts and services for those engines.
We sell product services under long-term product mainte-
nance or extended warranty agreements in our Aviation, Power
& Water, Oil & Gas and Transportation segments, where costs
of performing services are incurred on other than a straight-
line basis. We also sell product services in our Healthcare
segment, where such costs generally are expected to be on a
straight-line basis. For the Aviation, Power & Water, Oil & Gas and
Transportation agreements, we recognize related sales based
on the extent of our progress toward completion measured by
actual costs incurred in relation to total expected costs. We
routinely 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.
GECC 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, with the
exception of consumer credit card accounts. Beginning in the
fourth quarter of 2013, we continue to accrue interest on con-
sumer credit cards until the accounts are written off in the period
the account becomes 180 days past due. Previously, we stopped
accruing interest on consumer credit cards when the account
became 90 days past due. Previously recognized interest income
that was accrued but not collected from the borrower is reversed,
unless the terms of the loan agreement permit capitalization
of accrued interest to the principal balance. Although we stop
accruing interest in advance of payments, we recognize inter-
est 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
according to the loan’s original terms and (b) future payments are
reasonably assured. When we agree to restructured terms with