Note 11 – 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. The Company’s reportable operating segments consist of the Americas, Europe, Greater China, Japan, Rest of Asia Pacific and Retail operations. The Americas segment includes both North and South America. The Europe segment includes European countries, as well as India, 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 those countries included in the Company’s other operating segments. The results of the Company’s geographic 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.”

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 through 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 R&D, corporate marketing expenses, share-based compensation expense, income taxes, various nonrecurring charges, other separately managed general and administrative costs and certain manufacturing period expenses. The Company does not include intercompany transfers between segments for management reporting purposes.

Segment assets include receivables and inventories, and for the Retail segment also includes capital assets. Segment assets exclude corporate assets, such as cash and cash equivalents, short-term and long-term marketable securities, vendor non-trade receivables, 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 and therefore are excluded from the geographic segment assets and instead included in corporate assets. Cash payments for capital asset purchases by the Retail segment were $484 million, $495 million and $858 million for 2014, 2013 and 2012, respectively. The Company’s total depreciation and amortization was $7.9 billion, $6.8 billion and $3.3 billion in 2014, 2013 and 2012, respectively, of which $441 million, $382 million and $319 million was related to the Retail segment in the respective years. Depreciation and amortization on segment assets included in the geographic segments was not significant.

As the Company continues to expand its business, management believes collaboration across its online, Retail and indirect channels is integral to better serve its customers and optimize its financial results. Beginning in the first quarter of 2015, management will be assessing business performance and making decisions on a geographic basis, including the results of its retail stores in each respective geographic segment. Accordingly, the Company will be changing its reportable segments to align with the way the business is managed. The Company’s reportable operating segments will consist of the Americas, Europe, Greater China, Japan and Rest of Asia Pacific operations, and the Retail segment will no longer be classified as a separate reportable segment. The historical segment data for prior periods will be reclassified to reflect this change beginning in the Quarterly Report on Form 10-Q for the quarter ending December 27, 2014.

 

The following table shows information by operating segment for 2014, 2013 and 2012 (in millions):

 

		2014				2013				2012
Americas:
Net sales		$	65,232			$	62,739			$	57,512
Operating income		$	24,316			$	22,817			$	23,414
Europe:
Net sales		$	40,929			$	37,883			$	36,323
Operating income		$	14,771			$	13,025			$	14,869
Greater China:
Net sales		$	29,846			$	25,417			$	22,533
Operating income		$	11,016			$	8,541			$	9,843
Japan:
Net sales		$	14,982			$	13,462			$	10,571
Operating income		$	7,183			$	6,819			$	5,861
Rest of Asia Pacific:
Net sales		$	10,344			$	11,181			$	10,741
Operating income		$	3,636			$	3,753			$	4,253
Retail:
Net sales		$	21,462			$	20,228			$	18,828
Operating income		$	4,575			$	4,025			$	4,613

A reconciliation of the Company’s segment operating income to the Consolidated Statements of Operations for 2014, 2013 and 2012, is as follows (in millions):

 

		2014				2013				2012
Segment operating income		$	65,497			$	58,980			$	62,853
Research and development expense (1)			(4,825	)			(3,558	)			(2,713	)
Share-based compensation expense			(2,863	)			(2,253	)			(1,740	)
Other corporate expenses, net			(5,306	)			(4,170	)			(3,159	)
Total operating income		$	52,503			$	48,999			$	55,241

 

(1)

Amount excludes research and development share-based compensation expense.

 

The following table shows total assets by segment and reconciliation to the Consolidated Balance Sheets as of September 27, 2014 and September 28, 2013 (in millions):

 

		2014				2013
Segment assets:
Americas		$	9,352			$	5,653
Europe			4,631				3,134
Greater China			3,172				2,943
Japan			3,106				2,932
Rest of Asia Pacific			908				923
Retail			3,626				3,329
Total segment assets			24,795				18,914
Corporate assets			207,044				188,086
Total assets		$	231,839			$	207,000

The U.S. and China were the only countries that accounted for more than 10% of the Company’s net sales in 2014, 2013 and 2012. There was no single customer that accounted for more than 10% of net sales in 2014, 2013 or 2012. Net sales for 2014, 2013 and 2012 and long-lived assets as of September 27, 2014 and September 28, 2013 are as follows (in millions):

 

		2014				2013				2012
Net sales:
U.S.		$	68,909			$	66,197			$	60,949
China (1)			30,638				25,946				22,797
Other countries			83,248				78,767				72,762
Total net sales		$	182,795			$	170,910			$	156,508
		2014				2013
Long-lived assets:
U.S.		$	9,108			$	7,399
China (1)			9,477				7,403
Other countries			2,917				2,786
Total long-lived assets		$	21,502			$	17,588

 

(1)

China includes Hong Kong. Long-lived assets located in China consist primarily of product tooling and manufacturing process equipment and assets related to retail stores and related infrastructure.

 

Information regarding net sales by product for 2014, 2013 and 2012, is as follows (in millions):

 

		2014				2013				2012
Net Sales by Product:
iPhone (1)		$	101,991			$	91,279			$	78,692
iPad (1)			30,283				31,980				30,945
Mac (1)			24,079				21,483				23,221
iPod (1)			2,286				4,411				5,615
iTunes, Software and Services (2)			18,063				16,051				12,890
Accessories (3)			6,093				5,706				5,145
Total net sales		$	182,795			$	170,910			$	156,508

 

(1)

Includes deferrals and amortization of related non-software services and software upgrade rights.

 

(2)

Includes revenue from the iTunes Store, the App Store, the Mac App Store, the iBooks Store, AppleCare, licensing and other services.

 

(3)

Includes sales of Apple-branded and third-party accessories for iPhone, iPad, Mac and iPod.