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Analysis of Revenues

Difficulty: Advanced


Revenue Recognition Accounting Policy

GE records all sales of goods and services only when a firm sales agreement is in place, delivery has occurred or services have been rendered and collectability of the fixed or determinable sales price is reasonably assured.

Arrangements for the sale of goods and services sometimes include multiple components. Most of GE's multiple component arrangements involve the sale of goods and services in the Healthcare segment. GE's arrangements with multiple components usually involve an upfront deliverable of large machinery or equipment and future service deliverables such as installation, commissioning, training or the future delivery of ancillary products. In most cases, the relative values of the undelivered components are not significant to the overall arrangement and are typically delivered within three to six months after the core product has been delivered. In such agreements, selling price is determined for each component and any difference between the 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, GE uses the best estimate of selling price, which is established consistent with the pricing strategy of the business and considers product configuration, geography, customer type, and other market specific factors.

Except for goods sold under long-term agreements, GE recognizes sales of goods under the provisions of U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) 104, Revenue Recognition. In arrangements where GE sells products that provide the customer with a right of return, GE uses the accumulated experience to estimate and provides for such returns when GE records the sale. In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, GE recognizes revenue when GE has reliably demonstrated that all specified acceptance criteria have been met or when formal acceptance occurs, respectively. In arrangements where GE provides goods for trial and evaluation purposes, GE only recognizes revenue after customer acceptance occurs. Unless otherwise noted, GE does not provide for anticipated losses before GE records sales.

GE recognizes 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. GE estimates 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, GE recognizes sales as GE completes 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, GE recognizes sales based on the progress toward contract completion measured by actual costs incurred in relation to the estimate of total expected costs. GE measures long-term contract revenues by applying the contract-specific estimated margin rates to incurred costs. GE routinely updates the estimates of future costs for agreements in process and reports any cumulative effects of such adjustments in current operations. GE provides for any loss that GE expects to incur on these agreements when that loss is probable.

GE recognizes revenue upon delivery for sales of aircraft engines and military propulsion equipment. Delivery of commercial aircraft 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. GE measures sales of commercial aircraft engines by applying the contract-specific estimated margin rates to incurred costs. GE routinely updates the estimates of future revenues and costs for commercial aircraft engine agreements in process and reports any cumulative effects of such adjustments in current operations. Significant components of GE's revenue and cost estimates include price concessions and performance-related guarantees as well as material, labor and overhead costs. GE measures 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. GE provides for any loss that GE expects to incur on these agreements when that loss is probable; consistent with industry practice, for commercial aircraft engines, GE makes such provision only if such losses are not recoverable from future highly probable sales of spare parts and services for those engines.

GE sells product services under long-term product maintenance or extended warranty agreements in the Aviation, Power, Oil & Gas and Transportation segments, where costs of performing services are incurred on other than a straight-line basis. GE also sells similar long-term product services in the Healthcare and Renewable Energy segments, where such costs generally are expected to be incurred on a straight-line basis. For the Aviation, Power, Oil & Gas and Transportation agreements, GE recognizes related sales based on the extent of the progress toward completion measured by actual costs incurred in relation to total expected costs. GE routinely updates the estimates of future costs for agreements in process and reports any cumulative effects of such adjustments in current operations. For the Healthcare and Renewable Energy agreements, GE recognizes revenues on a straight-line basis and expense related costs as incurred. GE provides for any loss that GE expects to incur on any of these agreements when that loss is probable.

Source: General Electric Co., Annual Report


Revenues as Reported

General Electric Co., Income Statement, Revenues

USD $ in millions

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12 months ended Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Power hidden hidden hidden hidden hidden
Renewable Energy hidden hidden hidden hidden hidden
Oil & Gas hidden hidden hidden hidden hidden
Aviation hidden hidden hidden hidden hidden
Healthcare hidden hidden hidden hidden hidden
Transportation hidden hidden hidden hidden hidden
Lighting hidden hidden hidden hidden hidden
Industrial segment revenues hidden hidden hidden hidden hidden

Source: General Electric Co. Annual Reports

Item Description The company
Industrial segment revenues Aggregate revenue recognized during the period (derived from goods sold, services rendered, insurance premiums, or other activities that constitute an entity's earning process). For financial services companies, also includes investment and interest income, and sales and trading gains. General Electric Co.'s industrial segment revenues increased from 2015 to 2016 and from 2016 to 2017.