Apple 2012 Annual Report Download - page 53

hedges in 2012, 2011 and 2010. The net gain or loss on the effective portion of a derivative instrument that is
designated as an economic hedge of the foreign currency translation exposure of the net investment in a foreign
operation is reported in the same manner as a foreign currency translation adjustment. For forward exchange
contracts designated as net investment hedges, the Company excludes changes in fair value relating to changes in
the forward carry component from its definition of effectiveness. Accordingly, any gains or losses related to this
component are recognized in current income. Derivatives that do not qualify as hedges must be adjusted to fair
value through current income.
Allowance for Doubtful Accounts
The Company records its allowance for doubtful accounts based upon its assessment of various factors. The
Company considers historical experience, the age of the accounts receivable balances, credit quality of the
Company’s customers, current economic conditions, and other factors that may affect customers’ ability to pay.
Inventories
Inventories are stated at the lower of cost, computed using the first-in, first-out method, or market. If the cost of
the inventories exceeds their market value, provisions are made currently for the difference between the cost and
the market value. The Company’s inventories consist primarily of components and finished goods for all periods
presented.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is computed by use of the straight-line method
over the estimated useful lives of the assets, which for buildings is the lesser of 30 years or the remaining life of
the underlying building; between two to five years for machinery and equipment, including product tooling and
manufacturing process equipment; and the shorter of lease terms or ten years for leasehold improvements. The
Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to the
preliminary project stage. Capitalized costs related to internal-use software are amortized using the straight-line
method over the estimated useful lives of the assets, which range from three to five years. Depreciation and
amortization expense on property and equipment was $2.6 billion, $1.6 billion and $815 million during 2012,
2011 and 2010, respectively.
Long-Lived Assets Including Goodwill and Other Acquired Intangible Assets
The Company reviews property, plant and equipment, inventory component prepayments, and certain identifiable
intangibles, excluding goodwill, for impairment. Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of
these assets is measured by comparison of their carrying amounts to future undiscounted cash flows the assets are
expected to generate. If property, plant and equipment, inventory component prepayments, and certain
identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by
which the carrying value of the assets exceeds its fair market value. The Company did not record any significant
impairments during 2012, 2011 and 2010.
The Company does not amortize goodwill and intangible assets with indefinite useful lives, rather such assets are
required to be tested for impairment at least annually or sooner whenever events or changes in circumstances
indicate that the assets may be impaired. The Company performs its goodwill and intangible asset impairment
tests in the fourth quarter of each fiscal year. The Company did not recognize any impairment charges related to
goodwill or indefinite lived intangible assets during 2012, 2011 and 2010. The Company established reporting
units based on its current reporting structure. For purposes of testing goodwill for impairment, goodwill has been
allocated to these reporting units to the extent it relates to each reporting unit. In 2012 and 2011, the Company’s
goodwill was allocated to the Americas and Europe reportable operating segments.
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