Segment Information and Geographic Data

3 Months Ended

Dec. 31, 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 reportable operating 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 results of the Americas, Europe, Japan and Asia-Pacific reportable segment 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 Asian countries, other than 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 2011 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 expenditures are incurred. 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, share-based compensation expense, income taxes, various nonrecurring charges, and other separately managed general and administrative costs. Prior to 2012, the Company allocated to corporate expenses certain costs associated with its high-profile retail stores that have been designed and built to promote brand awareness and serve as vehicles for corporate sales and marketing activities. Beginning in 2012, the Company no longer allocates these costs to corporate expenses and reclassified $24 million of such costs from corporate to Retail segment expenses for the three months ended December 25, 2010. The Company does not include intercompany transfers between segments for management reporting purposes. Segment assets exclude corporate assets, such as cash and cash equivalents, short-term and long-term marketable securities, other long-term investments, manufacturing and corporate facilities, product tooling and manufacturing process equipment, miscellaneous corporate infrastructure, goodwill and other acquired intangible assets. Except for the Retail segment, capital asset purchases for long-lived assets are not reported to management by segment.

The following table shows information by operating segment for the three months ended December 31, 2011 and December 25, 2010 (in millions):

		September 30,		September 30,
	Three Months Ended
	December 31, 2011		December 25, 2010
Americas:
Net sales	$	17,714	$	9,218
Operating income	$	7,261	$	2,899
Europe:
Net sales	$	11,256	$	7,256
Operating income	$	4,668	$	2,756
Japan:
Net sales	$	3,550	$	1,433
Operating income	$	1,997	$	572
Asia-Pacific:
Net sales	$	7,697	$	4,987
Operating income	$	3,304	$	2,042
Retail:
Net sales	$	6,116	$	3,847
Operating income	$	1,854	$	1,006

A reconciliation of the Company’s segment operating income to the condensed consolidated financial statements for the three months ended December 31, 2011 and December 25, 2010 is as follows (in millions):

		September 30,			September 30,
	Three Months Ended
	December 31, 2011			December 25, 2010
Segment operating income	$	19,084		$	9,275
Share-based compensation expense		(420	)		(299	)
Other corporate expenses, net (a)		(1,324	)		(1,149	)
Total operating income	$	17,340		$	7,827

(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.