Segment Information and Geographic Data

3 Months Ended

Dec. 29, 2012

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. Prior to 2013, the Company’s reportable operating segments consisted of the Americas, Europe, Japan, Asia-Pacific and Retail. In 2013, the Company established a new reportable operating segment, Greater China, which was previously included in the Asia-Pacific segment. Segment data for prior periods has been reclassified to reflect establishment of the Greater China 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 Greater China segment includes China, Hong Kong and Taiwan. The Rest of Asia Pacific segment includes Australia and Asian countries, other than Japan and those countries included in the Greater China segment. The Retail segment operates Apple retail stores in 13 countries, including the U.S. The results of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific segments do not include results of the Retail segment. Each 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 the Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s 2012 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 research and development, corporate marketing expenses, share-based compensation expense, income taxes, various nonrecurring charges, and other separately managed general and administrative costs and certain manufacturing period expenses. Prior to 2013, the Company did not allocate certain manufacturing costs and variances, including costs related to product tooling and manufacturing process equipment, to its operating segments and instead included these costs and variances in other corporate expenses. In 2013, the Company began allocating these costs and variances to its operating segments and as a result reclassified a total of $49 million from corporate expenses to its operating segments for the three months ended December 31, 2011. The Company does not include intercompany transfers between segments for management reporting purposes.

The following table shows information by operating segment for the three months ended December 29, 2012 and December 31, 2011 (in millions):

	Three Months Ended
	December 29, 2012		December 31, 2011
Americas:
Net sales	$	20,341	$	17,714
Operating income	$	7,349	$	7,233
Europe:
Net sales	$	12,464	$	11,256
Operating income	$	4,409	$	4,663
Greater China:
Net sales	$	6,830	$	4,080
Operating income	$	2,544	$	1,706
Japan:
Net sales	$	4,443	$	3,550
Operating income	$	2,260	$	1,989
Rest of Asia Pacific:
Net sales	$	3,993	$	3,617
Operating income	$	1,335	$	1,593
Retail:
Net sales	$	6,441	$	6,116
Operating income	$	1,557	$	1,851

A reconciliation of the Company’s segment operating income to the condensed consolidated financial statements for the three months ended December 29, 2012 and December 31, 2011 is as follows (in millions):

	Three Months Ended
	December 29, 2012			December 31, 2011
Segment operating income	$	19,454		$	19,035
Share-based compensation expense		(545	)		(420	)
Other corporate expenses, net		(1,699	)		(1,275	)
Total operating income	$	17,210		$	17,340