Apple 2005 Annual Report Download - page 71

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1—Summary of Significant Accounting Policies (Continued)
pursuant to SFAS No. 86, Computer Software to be Sold, Leased, or Otherwise Marketed . In most instances, the Company’s products are
released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological
feasibility are usually not significant, and generally all software development costs have been expensed.
In the fourth quarter of 2004, the Company began incurring substantial development costs associated with Mac OS X version 10.4 Tiger
subsequent to achievement of technological feasibility as evidenced by public demonstration in August 2004 and the subsequent release of a
developer beta version of the product. The Company capitalized approximately $29.7 and $4.5 million during 2005 and 2004, respectively, of
costs associated with the development of Tiger. In accordance with SFAS No. 86, amortization of this asset to cost of sales began in April 2005
when the Company began shipping Tiger and is being recognized on a straight-line basis over a 3 year estimated useful life.
During the second quarter of 2004, the Company incurred substantial development costs associated with FileMaker Pro 7 subsequent to
achievement of technological feasibility as evidenced by public demonstration and release of a developer beta version, and prior to the release
of the final version of the product in March 2004. Therefore, during the second quarter of 2004, the Company capitalized approximately $2.3
million of costs associated with the development of FileMaker Pro 7. In accordance with SFAS No. 86, amortization of this asset to cost of
sales began in March 2004 when the Company began shipping FileMaker Pro 7 and is being recognized on a straight-line basis over a 3 year
estimated useful life.
During the third and fourth quarters of 2003, the Company incurred substantial development costs associated with the development of Mac OS
X version 10.3 (code-named “Panther”), subsequent to achievement of technological feasibility as evidenced by public demonstration and
release of a developer beta in June 2003, and prior to release of the final version of the product in the first quarter of 2004. Therefore, during
2003 the Company capitalized approximately $14.7 million of development costs associated with the development of Panther. Amortization of
this asset began in the first quarter of 2004 when Panther was shipped and is being recognized on a straight-
line basis in accordance with SFAS
No. 86 over a 3 year estimated useful life.
Total amortization related to capitalized software development costs was $15.7 million, $10.7 million, and $5.8 million in 2005, 2004, and
2003, respectively.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense was $287 million, $206 million, and $193 million for 2005, 2004, and 2003,
respectively.
Stock-Based Compensation
The Company currently measures compensation expense for its employee stock-based compensation plans using the intrinsic value method
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees . The Company applies the
disclosure provisions of SFAS No. 123, Accounting for Stock-based Compensation , as amended by SFAS No. 148, Accounting for Stock-
based Compensation—Transition and Disclosure as if the fair-value-based method had been applied in measuring compensation expense.
Under APB Opinion No. 25, when the exercise price of the Company’s employee stock options equals the market price of the underlying stock
on the date of the grant, no compensation expense is recognized.
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