Apple 2004 Annual Report Download - page 101

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the ability to return product at the end of its useful life, and place responsibility for environmentally safe disposal or recycling with the
Company. Such laws and regulations have recently been passed in several jurisdictions in which the Company operates including various
European Union member countries, Japan and certain states within the U.S. Although the Company does not anticipate any material adverse
effects in the future based on the nature of its operations and the thrust of such laws, there is no assurance that such existing laws or future laws
will not have a material adverse effect on the Company's results of operations and financial position.
Note 11—Segment Information and Geographic Data
In accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information , 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 reportable segments.
The Company manages its business primarily on a geographic basis. The Company's reportable operating segments are comprised of the
Americas, Europe, Japan, and Retail. The Americas segment includes both North and South America, except for the activities of the Company's
Retail segment. The Europe segment includes European countries as well as the Middle East and Africa. The Japan segment includes only Japan
and excludes revenue from the Company's own retail stores in Japan, which is included in the Company's Retail segment. The Retail segment
operated Apple-owned retail stores in the U.S. and Japan during fiscal 2004. Other operating segments include Asia-Pacific, which includes
Australia and Asia except for Japan, and the Company's subsidiary, FileMaker, Inc. Each reportable geographic operating segment provides
similar hardware and software products and similar services, and the accounting policies of the various segments are the same as those described
in Note 1, "Summary of Significant Accounting Policies," except as described below for the Retail segment.
The Company evaluates the performance of its operating segments based on net sales. The Retail segment's performance is also evaluated based
on operating income. Net sales for geographic segments are generally based on the location of the customers. Operating income for each
segment includes net sales to third parties, related cost of sales, and operating expenses directly attributable to the segment. Operating income for
each segment excludes other income and expense and certain expenses that are managed outside the operating segments. Costs excluded from
segment operating income include various corporate expenses, manufacturing costs not included in standard costs, income taxes, and various
nonrecurring charges. Corporate expenses include research and development, corporate marketing expenses, and other separately managed
general and administrative expenses including certain corporate expenses associated with support of the Retail segment. The Company does not
include intercompany transfers between segments for management reporting purposes. Segment assets exclude corporate assets. Corporate assets
include cash, short-term and long-
term investments, manufacturing facilities, miscellaneous corporate infrastructure, goodwill and other acquired
intangible assets, and retail store construction-in-progress that is not subject to depreciation. Except for the Retail segment, capital expenditures
for long-
lived assets are not reported to management by segment. Capital expenditures by the Retail segment were $104 million, $92 million and
$106 million for 2004, 2003 and 2002, respectively.
Operating income for all segments, except Retail, includes cost of sales at manufacturing standard cost, other cost of sales, related sales and
marketing costs, and certain general and administrative costs. This measure of operating income, which includes manufacturing profit, provides
a comparable basis for comparison between the Company's various geographic segments. Certain manufacturing expenses and
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