GE 2015 Annual Report Download - page 168

FINANCIAL STATEMENTS PRESENTATION & POLICIES
140 GE 2015 FORM 10-K
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-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 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-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 and military propulsion equipment. Delivery of commercial engines
and non-U.S. military equipment occurs on shipment; delivery of military propulsion 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 equipment manufactured to customer order under a variety of sometimes complex, long-term agreements.
We measure sales of commercial aircraft 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 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 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 and services for those engines.
We sell product services under long-term product maintenance or extended warranty agreements in our Aviation, Power, Oil & Gas and
Transportation segments, where costs of performing services are incurred on other than a straight-line basis. We also sell similar long-
term product services in our Healthcare and Renewable Energy segments, where such costs generally are expected to be on a
straight-line basis. For the Aviation, Power, 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 and Renewable Energy 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.
GE CAPITAL 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 reversed, unless the terms of the loan agreement permit capitalization of accrued interest
to the principal balance. Payments received on nonaccrual loans 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
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we resume accruing interest only when it is reasonably assured that we will recover full contractual payments, and such loans pass
underwriting reviews equivalent to those applied to new loans.
We recognize financing lease income on the interest method to produce a level yield on funds not yet recovered. Estimated
unguaranteed residual values are based upon management's best estimates of the value of the leased asset at the end of the lease
term. We use various sources of data in determining these estimates, including information obtained from third parties, which is
adjusted for the attributes of the specific asset under lease. Guarantees of residual values by unrelated third parties are considered part
of minimum lease payments. Significant assumptions we use in estimating residual values include estimated net cash flows over the
remaining lease term, anticipated results of future remarketing, and estimated future component part and scrap metal prices,
discounted at an appropriate rate.
140 GE 2015 FORM 10-K