3. SEGMENT INFORMATION AND GEOGRAPHIC DATA The Company reports segment information based on the "management" approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company's operating and reportable segments. The Company manages its business primarily by its product lines. Accordingly, the Company determined its two operating and reporting segments to be loose jewels and finished jewelry. The accounting policies of these segments are the same as those described in Note 2, "Basis of Presentation and Significant Accounting Policies," of this Quarterly Report on Form 10-Q and in the Notes to Consolidated Financial Statements in the 2011 Annual Report. The Company evaluates the performance of its segments based on net sales and segment gross profit, or the excess of product sales over segment cost of goods sold. Segment cost of goods sold is defined as product cost of goods sold excluding non-capitalized expenses from the Company's manufacturing and production control departments, comprising personnel costs, depreciation, rent, utilities, and corporate overhead allocations; freight out; inventory valuation allowance adjustments; and other inventory adjustments, comprising costs of quality issues, damaged goods, and inventory writeoffs. Accordingly, also excluded from the Company's segment performance measures are operating expenses, comprising sales and marketing, general and administrative, and research and development expenses; interest; and taxes. Summary information by segment is as follows: Three Months Ended March 31, 2012 2011 Loose jewels Net sales $ 2,458,321 $ 2,567,153 Segment cost of goods sold 811,613 854,311 Segment gross profit $ 1,646,708 $ 1,712,842 Finished jewelry Net sales $ 1,720,064 $ 410,403 Segment cost of goods sold 761,173 245,362 Segment gross profit $ 958,891 $ 165,041 A reconciliation of the Company's segment cost of goods sold to cost of goods sold as reported in the condensed consolidated