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Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 8—Commitments and Contingencies (Continued)
Long-Term Supply Agreements
During 2006, the Company entered into long-term supply agreements with Hynix Semiconductor, Inc., Intel Corporation, Micron Technology,
Inc., Samsung Electronics Co., Ltd., and Toshiba Corporation to secure supply of NAND flash memory through calendar year 2010. As part of
these agreements, the Company prepaid $1.25 billion for flash memory components during 2006, which will be applied to certain inventory
purchases made over the life of each respective agreement. The Company utilized $567 million of the prepayment as of September 27, 2008.
Contingencies
The Company is subject to certain other legal proceedings and claims that have arisen in the ordinary course of business and have not been fully
adjudicated. In the opinion of management, the Company does not have a potential liability related to any current legal proceedings and claims
that would individually or in the aggregate have a material adverse effect on its financial condition or operating results. However, the results of
legal proceedings cannot be predicted with certainty. If the Company failed to prevail in any of these legal matters or if several of these legal
matters were resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially
adversely affected.
Production and marketing of products in certain states and countries may subject the Company to environmental, product safety and other
regulations including, in some instances, the requirement to provide customers 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 been passed in several
jurisdictions in which the Company operates, including various countries within Europe and Asia, certain Canadian provinces 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
financial condition or operating results.
Note 9—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. Accordingly, the Company determined its operating segments, which are
generally based on the nature and location of its customers, to be the Americas, Europe, Japan, Asia-Pacific, Retail, and FileMaker operations.
The Company’
s reportable operating segments consist of Americas, Europe, Japan, and Retail operations. Other operating segments include Asia
Pacific, which encompasses Australia and Asia except for Japan, and the Company’s FileMaker, Inc. subsidiary. The Americas, Europe, Japan,
and Asia Pacific segments exclude 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. and in international markets. Each reportable operating segment provides similar hardware and software products and similar services to
the same types of customers. The accounting policies of the various segments are the same as those described in Note 1, “Summary of
Significant Accounting Policies.”
The Company evaluates the performance of its operating segments based on net sales and operating income. Net sales for geographic segments
are generally based on the location of customers, while Retail segment net sales are based on sales from the Company’s retail stores. Operating
income for each segment includes net sales to third parties, related cost of sales, and operating expenses directly attributable to the segment.
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