Apple 2005 Annual Report Download - page 94

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 10—Commitments and Contingencies (Continued)
such existing laws or future laws will not have a material adverse effect on the Company’s financial condition, liquidity, or results of
operations.
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, Europe, and Japan reportable segments do not include activities related to the Retail
segment. The Americas segment includes both North and South America. The Europe segment includes European countries as well as the
Middle East and Africa. The Retail segment operates Apple-owned retail stores in the U.S., Canada, Japan, and the U.K. 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 and variances not included in standard costs, income
taxes, and various nonrecurring charges. Corporate expenses include research and development, corporate marketing expenses, manufacturing
costs and variances not included in standard costs, 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 $132 million, $104 million, and $92 million for 2005, 2004, and
2003 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 related
adjustments not included in segment cost of sales, including variances between standard and actual manufacturing costs and the mark-
up above
standard cost for product supplied to the Retail segment, are included in corporate expenses.
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