Segment Information and Geographic Data

9 Months Ended

Jun. 25, 2011

Segment Information and Geographic Data

Note 7 – 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 reportable segments.

The Company manages its business primarily on a geographic basis. Accordingly, the Company determined its operating and reporting segments, which are generally based on the nature and location of its customers, to be the Americas, Europe, Japan, Asia-Pacific and Retail operations. The Americas, Europe, Japan and Asia-Pacific reportable segment results do not include results of 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 Asia-Pacific segment includes Australia and Asia, but does not include Japan. The Retail segment operates Apple retail stores in 11 countries, including the U.S. Each reportable operating segment provides similar hardware and software products and similar services. The accounting policies of the various segments are the same as those described in Note 1, “Summary of Significant Accounting Policies” of this Form 10-Q and in the Notes to Consolidated Financial Statements in the Company’s 2010 Form 10-K.

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. Advertising expenses are generally included in the geographic segment in which the advertising occurs. Operating income for each segment excludes other income and expense and certain expenses managed outside the operating segments. Costs excluded from segment operating income include various corporate expenses such as manufacturing costs and variances not included in standard costs, research and development, corporate marketing expenses, stock-based compensation expense, income taxes, various nonrecurring charges, and other separately managed general and administrative costs. The Company does not include intercompany transfers between segments for management reporting purposes. Segment assets exclude corporate assets, such as cash, cash equivalents, short-term and long-term investments, manufacturing and corporate facilities, miscellaneous corporate infrastructure, goodwill and other acquired intangible assets. Except for the Retail segment, capital expenditures for long-lived assets are not reported to management by segment.

The Company has certain retail stores that have been designed and built to serve as high-profile venues to promote brand awareness and serve as vehicles for corporate sales and marketing activities. Because of their unique design elements, locations and size, these stores require substantially more investment than the Company’s more typical retail stores. The Company allocates certain operating expenses associated with its high-profile stores to corporate expense to reflect the estimated Company-wide benefit. The allocation of these operating costs to corporate expense is based on the amount incurred for a high-profile store in excess of that incurred by a more typical Company retail location. The Company had opened a total of 16 high-profile stores as of June 25, 2011. Amounts allocated to corporate expense resulting from the operations of high-profile stores were $26 million and $75 million during the three- and nine-month periods ended June 25, 2011, respectively, and $18 million and $54 million during the three- and nine-month periods ended June 26, 2010, respectively.

Summary information by operating segment for the three- and nine-month periods ended June 25, 2011 and June 26, 2010 is as follows (in millions):

		September 30,		September 30,		September 30,		September 30,
	Three Months Ended				Nine Months Ended
	June 25, 2011		June 26, 2010		June 25, 2011		June 26, 2010
Americas:
Net sales	$	10,126	$	6,227	$	28,667	$	17,312
Operating income	$	3,596	$	1,997	$	10,250	$	5,482
Europe:
Net sales	$	7,098	$	4,160	$	20,381	$	13,234
Operating income	$	3,107	$	1,631	$	8,414	$	5,457
Japan:
Net sales	$	1,510	$	910	$	4,326	$	2,580
Operating income	$	735	$	390	$	1,996	$	1,185
Asia-Pacific:
Net sales	$	6,332	$	1,825	$	16,062	$	5,524
Operating income	$	2,782	$	841	$	6,869	$	2,553
Retail:
Net sales	$	3,505	$	2,578	$	10,543	$	6,232
Operating income	$	828	$	593	$	2,665	$	1,447

A reconciliation of the Company’s segment operating income to the condensed consolidated financial statements for the three- and nine-month periods ended June 25, 2011 and June 26, 2010 is as follows (in millions):

		September 30,			September 30,			September 30,			September 30,
	Three Months Ended						Nine Months Ended
	June 25, 2011			June 26, 2010			June 25, 2011			June 26, 2010
Segment operating income	$	11,048		$	5,452		$	30,194		$	16,124
Stock-based compensation expense		(284	)		(219	)		(870	)		(655	)
Other corporate expenses, net (a)		(1,385	)		(999	)		(4,244	)		(2,531	)
Total operating income	$	9,379		$	4,234		$	25,080		$	12,938

(a) Other 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.