Apple Investor Relations SEC Filings

10-Q

APPLE INC filed this Form 10-Q on Apr 23, 2009

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 28, 2009

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 000-10030

Apple Inc.

(Exact name of Registrant as specified in its charter)


California		94-2404110
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1 Infinite Loop Cupertino, California		95014
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (408) 996-1010

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

892,109,834 shares of common stock issued and outstanding as of April 13, 2009

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

APPLE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(in millions, except share amounts which are reflected in thousands and per share amounts)


	Three Months Ended				Six Months Ended
	March 28, 2009		March 29, 2008		March 28, 2009		March 29, 2008
Net sales	$	8,163	$	7,512	$	18,330	$	17,120
Cost of sales		5,192		5,038		11,827		11,314

Gross margin		2,971		2,474		6,503		5,806

Operating expenses:
Research and development		319		273		634		519
Selling, general, and administrative		985		886		2,076		1,846

Total operating expenses		1,304		1,159		2,710		2,365

Operating income		1,667		1,315		3,793		3,441
Other income and expense		63		162		221		362

Income before provision for income taxes		1,730		1,477		4,014		3,803
Provision for income taxes		525		432		1,204		1,177

Net income	$	1,205	$	1,045	$	2,810	$	2,626


Earnings per common share:
Basic	$	1.35	$	1.19	$	3.16	$	2.99
Diluted	$	1.33	$	1.16	$	3.11	$	2.92

Shares used in computing earnings per share:
Basic		891,180		879,546		890,161		877,704
Diluted		902,993		899,329		902,243		899,783

See accompanying Notes to Condensed Consolidated Financial Statements.

APPLE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except share amounts)


	March 28, 2009		September 27, 2008
ASSETS:
Current assets:
Cash and cash equivalents	$	4,466	$	11,875
Short-term marketable securities		20,547		10,236
Accounts receivable, less allowances of $60 and $47, respectively		1,932		2,422
Inventories		312		509
Deferred tax assets		1,539		1,447
Other current assets		5,057		5,822

Total current assets		33,853		32,311
Long-term marketable securities		3,865		2,379
Property, plant and equipment, net		2,546		2,455
Goodwill		207		207
Acquired intangible assets, net		268		285
Other assets		2,498		1,935

Total assets	$	43,237	$	39,572


LIABILITIES AND SHAREHOLDERS’ EQUITY:
Current liabilities:
Accounts payable	$	3,976	$	5,520
Accrued expenses		2,761		3,719
Deferred revenue		7,014		4,853

Total current liabilities		13,751		14,092
Deferred revenue – non-current		3,460		3,029
Other non-current liabilities		1,715		1,421

Total liabilities		18,926		18,542

Commitments and contingencies
Shareholders’ equity:
Common stock, no par value; 1,800,000,000 shares authorized; 891,911,821 and 888,325,973 shares issued and outstanding, respectively		7,643		7,177
Retained earnings		16,653		13,845
Accumulated other comprehensive income		15		8

Total shareholders’ equity		24,311		21,030

Total liabilities and shareholders’ equity	$	43,237	$	39,572

See accompanying Notes to Condensed Consolidated Financial Statements.

APPLE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in millions)


	Six Months Ended
	March 28, 2009			March 29, 2008
Cash and cash equivalents, beginning of the period	$	11,875		$	9,352

Operating Activities:
Net income		2,810			2,626
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation, amortization, and accretion		330			222
Stock-based compensation expense		351			242
Deferred income tax (benefit)/expense		(31	)		6
Loss on disposition of property, plant, and equipment		8			10
Changes in operating assets and liabilities:
Accounts receivable, net		490			44
Inventories		197			(18	)
Other current assets		859			(444	)
Other assets		(456	)		(150	)
Accounts payable		(1,527	)		(740	)
Deferred revenue		2,592			1,585
Other liabilities		(844	)		597

Cash generated by operating activities		4,779			3,980

Investing Activities:
Purchases of marketable securities		(23,483	)		(12,740	)
Proceeds from maturities of marketable securities		6,280			6,683
Proceeds from sales of marketable securities		5,457			1,676
Purchases of other long-term investments		(54	)		(17	)
Payment for acquisition of property, plant, and equipment		(439	)		(384	)
Payment for acquisition of intangible assets		(30	)		(63	)
Other		(55	)		21

Cash used in investing activities		(12,324	)		(4,824	)

Financing Activities:
Proceeds from issuance of common stock		122			233
Excess tax benefits from stock-based compensation		47			445
Cash used to net share settle equity awards		(33	)		(116	)

Cash generated by financing activities		136			562

Decrease in cash and cash equivalents		(7,409	)		(282	)

Cash and cash equivalents, end of the period	$	4,466		$	9,070


Supplemental cash flow disclosure:
Cash paid for income taxes, net	$	1,828		$	753

See accompanying Notes to Condensed Consolidated Financial Statements.

Apple Inc.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1 – Summary of Significant Accounting Policies

Apple Inc. and its wholly-owned subsidiaries (collectively “Apple” or the “Company”) design, manufacture, and market personal computers, portable digital music players, and mobile communication devices and sell a variety of related software, third-party digital content and applications, services, peripherals, and networking solutions. The Company sells its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, resellers, and value-added resellers. In addition, the Company sells a variety of third-party Mac, iPod, and iPhone compatible products including application software, printers, storage devices, speakers, headphones, and various other accessories and supplies through its online and retail stores. The Company sells to consumer, small and mid-sized business (“SMB”), education, enterprise, government, and creative markets.

Basis of Presentation and Preparation

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company. Intercompany accounts and transactions have been eliminated. The accompanying Condensed Consolidated Financial Statements include all adjustments, consisting of normal recurring adjustments, which in the opinion of management are necessary to present fairly the Condensed Consolidated Financial Statements for all periods presented. The preparation of these Condensed Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements and accompanying notes. Actual results could differ materially from those estimates.

Certain prior year amounts in the Condensed Consolidated Financial Statements and notes thereto have been reclassified to conform to the current period’s presentation. During the first quarter of 2009, the Company reclassified $2.4 billion of certain fixed-income securities from short-term marketable securities to long-term marketable securities in the September 27, 2008 Condensed Consolidated Balance Sheet. The reclassification resulted from a change in accounting presentation for certain investments based on contractual maturity dates, which more closely reflects the Company’s assessment of the timing of when such securities will be converted to cash. As a result of this change, marketable securities with maturities less than 12 months are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term. There have been no changes in the Company’s investment policies or practices associated with this change in accounting presentation. See Note 2, “Financial Instruments” of this Form 10-Q for additional information.

These Condensed Consolidated Financial Statements and accompanying notes should be read in conjunction with the Company’s annual Consolidated Financial Statements and the notes thereto for the fiscal year ended September 27, 2008, included in its Annual Report on Form 10-K (the “2008 Form 10-K”). Unless otherwise stated, references to particular years or quarters refer to the Company’s fiscal years ended in September and the associated quarters of those fiscal years.

Earnings Per Common Share

Basic earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per common share is computed by dividing income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding options, shares to be purchased under the employee stock purchase plan, and unvested restricted stock units (“RSUs”). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

The following table sets forth the computation of basic and diluted earnings per share for the three- and six-month periods ended March 28, 2009 and March 29, 2008 (in thousands, except net income in millions and per share amounts):


	Three Months Ended				Six Months Ended
	March 28, 2009		March 29, 2008		March 28, 2009		March 29, 2008
Numerator:
Net income	$	1,205	$	1,045	$	2,810	$	2,626

Denominator:
Weighted-average shares outstanding		891,180		879,546		890,161		877,704
Effect of dilutive securities		11,813		19,783		12,082		22,079

Denominator for diluted earnings per share		902,993		899,329		902,243		899,783


Basic earnings per share	$	1.35	$	1.19	$	3.16	$	2.99

Diluted earnings per share	$	1.33	$	1.16	$	3.11	$	2.92

Potentially dilutive securities representing approximately 19.2 million and 12.3 million shares of common stock for the three months ended March 28, 2009 and March 29, 2008, respectively, and 18.0 million and 8.6 million shares of common stock for the six months ended March 28, 2009 and March 29, 2008, respectively, were excluded from the computation of diluted earnings per share for these periods because their effect would have been antidilutive.

Fair Value Measurements

During the first quarter of 2009, the Company adopted Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements, which defines fair value, establishes guidelines for measuring fair value and expands disclosures regarding fair value measurements. SFAS No. 157 does not require any new fair value measurements, but rather eliminates inconsistencies in guidance found in various other accounting pronouncements. The adoption of SFAS No. 157 did not have a material effect on the Company’s financial condition or operating results.

SFAS No. 157 establishes a hierarchy for information and valuations used in measuring fair value, which is broken down into three levels. Level 1 valuations are based on quoted prices in active markets for identical assets or liabilities. Level 2 valuations are based on inputs that are observable, either directly or indirectly, other than quoted prices included within Level 1. Level 3 valuations are based on information that is unobservable and significant to the overall fair value measurement.

The Company also adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an amendment of FASB Statement No. 115, during the first quarter of 2009. SFAS No. 159 allows companies to choose to measure eligible financial instruments and certain other items at fair value that are not required to be measured at fair value. SFAS No. 159 requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings at each reporting date. The Company adopted SFAS No. 159 but has not elected the fair value option for any eligible financial instruments.

Refer to Note 3, “Fair Value Measurements” of this Form 10-Q for additional information on the adoption of SFAS Nos. 157 and 159.

Derivative Financial Instruments

During the second quarter of 2009, the Company adopted SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities—an amendment of FASB Statement No. 133, which requires additional disclosures about the Company’s objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and related interpretations, and how the derivative instruments and related hedged items affect the financial statements. The adoption of SFAS No. 161 had no financial impact on the Company’s Condensed Consolidated Financial Statements. Refer to Note 2, “Financial Instruments” of this Form 10-Q for additional information on the adoption of SFAS No. 161.

Note 2 – Financial Instruments

Cash, Cash Equivalents and Marketable Securities

The following table summarizes the fair value of the Company’s cash and available-for-sale securities held in its marketable securities investment portfolio, recorded as cash, cash equivalents, short-term or long-term marketable securities as of March 28, 2009 and September 27, 2008 (in millions):


	March 28, 2009		September 27, 2008
Cash	$	622	$	368


Money market funds		1,808		1,536
U.S. Treasury securities		340		118
U.S. agency securities		777		2,798
Certificates of deposit and time deposits		610		2,560
Commercial paper		309		4,429
Corporate securities		—		66

Total cash equivalents		3,844		11,507


U.S. Treasury securities		1,116		343
U.S. agency securities		15,632		5,823
Non-U.S. government securities		54		83
Certificates of deposit and time deposits		196		486
Commercial paper		1,295		1,254
Corporate securities		2,249		2,247
Municipal securities		5		—

Total short-term marketable securities		20,547		10,236


U.S. Treasury securities		195		100
U.S. agency securities		1,375		751
Certificates of deposit and time deposits		—		32
Corporate securities		2,232		1,496
Municipal securities		63		—

Total long-term marketable securities		3,865		2,379


Total cash, cash equivalents and marketable securities	$	28,878	$	24,490

As of December 27, 2008, the Company changed its accounting presentation for certain fixed-income investments, which resulted in the reclassification of certain investments from short-term marketable securities to long-term marketable securities. As a result, prior period balances have been reclassified to conform to the current period’s presentation. The Company classifies its marketable securities as either short-term or long-term based on each instrument’s underlying contractual maturity date, while its prior classifications were based on the nature of the securities and their availability for use in current operations. As a result of this change, marketable securities with maturities of less than 12 months are classified as short-term and marketable securities with maturities greater than 12 months are classified as long-term. The Company’s long-term marketable securities’ maturities range from one year to five years. The Company believes this new presentation is preferable as it more closely reflects the Company’s assessment of the timing of when such securities will be converted to cash. Accordingly, certain fixed-income investments totaling $2.4 billion have been reclassified from short-term marketable securities to long-term marketable securities in the September 27, 2008 Condensed Consolidated Balance Sheet to conform to the current period’s financial statement presentation. There have been no changes in the Company’s investment policies or practices associated with this change in accounting presentation.

The Company had net unrealized losses on its investment portfolio of $69 million and $117 million as of March 28, 2009 and September 27, 2008, respectively. In both periods, the net unrealized losses related primarily to long-term marketable securities. The Company may sell certain of its marketable securities prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. The Company recognized no material net gains or losses during the three- and six-month periods ended March 28, 2009 and March 29, 2008 related to such sales.

The following table shows the gross unrealized losses and fair value for investments in an unrealized loss position as of March 28, 2009 and September 27, 2008, aggregated by investment category and the length of time that individual securities have been in a continuous loss position (in millions):


	March 28, 2009
	Less than 12 Months					12 Months or Greater					Total
Security Description	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agency securities	$	2,375	$	(2	)	$	—	$	—		$	2,375	$	(2	)
Corporate securities		1,422		(16	)		1,109		(106	)		2,531		(122	)

Total	$	3,797	$	(18	)	$	1,109	$	(106	)	$	4,906	$	(124	)


	September 27, 2008
	Less than 12 Months					12 Months or Greater					Total
Security Description	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agency securities	$	6,822	$	(13	)	$	—	$	—		$	6,822	$	(13	)
Corporate securities		2,147		(31	)		1,148		(77	)		3,295		(108	)

Total	$	8,969	$	(44	)	$	1,148	$	(77	)	$	10,117	$	(121	)

The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature. The unrealized losses on the Company’s marketable securities were caused primarily by changes in market interest rates, specifically, widening credit spreads. The Company typically invests in highly-rated securities, and its policy generally limits the amount of credit exposure to any one issuer. The Company’s investment policy requires investments to be rated single-A or better, with the objective of minimizing the potential risk of principal loss. Fair values were determined for each individual security in the investment portfolio. When evaluating the investments for other-than-temporary impairment, the Company reviews factors such as the length of time and extent to which fair value has been below cost basis, the financial condition of the issuer, and the Company’s ability and intent to hold the investment for a period of time, which may be sufficient for anticipated recovery in market value. During the three- and six-month periods ended March 28, 2009 and March 29, 2008, the Company did not recognize any material impairment charges on outstanding securities. As of March 28, 2009, the Company does not consider any of its investments to be other-than-temporarily impaired.

Derivative Financial Instruments

The Company uses derivatives to partially offset its business exposure to foreign exchange risk. The Company may enter into foreign currency forward and option contracts to offset some of the foreign exchange risk of expected future cash flows on certain forecasted revenue and cost of sales, of net investments in certain foreign subsidiaries, and on certain existing assets and liabilities. To help protect gross margins from fluctuations in foreign currency exchange rates, certain of the Company’s subsidiaries whose functional currency is the U.S. dollar, hedge a portion of forecasted foreign currency revenue. The Company’s subsidiaries whose functional currency is not the U.S. dollar and who sell in local currencies, may hedge a portion of forecasted inventory purchases not denominated in the subsidiaries’ functional currencies. The Company typically hedges portions of its forecasted foreign currency exposure associated with revenue and inventory purchases for three to six months. To help protect the net investment in a foreign operation from adverse changes in foreign currency exchange rates, the Company may enter into foreign currency forward and option contracts to offset the changes in the carrying amounts of these investments due to fluctuations in foreign currency exchange rates. The Company may also enter into foreign currency forward and option contracts to partially offset the foreign exchange gains and losses generated by the re-measurement of certain assets and liabilities denominated in non-functional currencies. However, the Company may choose not to hedge

certain foreign exchange exposures for a variety of reasons, including but not limited to immateriality, accounting considerations, and the prohibitive economic cost of hedging particular exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in foreign exchange rates. As of the end of the second quarter of 2009, the general nature of the Company’s risk management activities and the general nature and mix of the Company’s derivative financial instruments have not changed materially from the end of 2008.

The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge instruments in accordance with SFAS No. 133. The Company records all derivatives on the balance sheet at fair value. The effective portions of cash flow hedges are recorded in other comprehensive income until the hedged item is recognized in earnings. The effective portions of net investment hedges are recorded in other comprehensive income as a part of the cumulative translation adjustment. Derivatives that are not designated as hedging instruments and the ineffective portions of cash flow hedges and net investment hedges are adjusted to fair value through earnings in other income and expense.

The Company had a net deferred gain associated with cash flow hedges of approximately $72 million and $19 million, net of taxes, recorded in other comprehensive income as of March 28, 2009 and September 27, 2008, respectively. Other comprehensive income associated with cash flow hedges of foreign currency revenue is recognized as a component of net sales in the same period as the related revenue is recognized, and other comprehensive income related to cash flow hedges of inventory purchases is recognized as a component of cost of sales in the same period as the related costs are recognized. The portion of the Company’s net deferred gain related to products under subscription accounting is expected to be recorded in earnings ratably over the related products’ estimated economic lives beginning when the hedged transactions occur, while the portion of the net deferred gain related to other products is expected to be recorded in earnings at the time the hedged transactions occur. As of March 28, 2009, the hedged transactions are expected to occur within six months.

Derivative instruments designated as cash flow hedges must be de-designated as hedges when it is probable the forecasted hedged transaction will not occur in the initially identified time period or within a subsequent two month time period. Deferred gains and losses in other comprehensive income associated with such derivative instruments are reclassified immediately into earnings through other income and expense. Any subsequent changes in fair value of such derivative instruments also are reflected in current earnings unless they are re-designated as hedges of other transactions. The Company did not recognize any material net gains related to the loss of hedge designation on discontinued cash flow hedges during the three- and six-month periods ended March 28, 2009 and March 29, 2008, respectively.

The Company had an unrealized net gain on net investment hedges of $6 million, net of tax, and an unrealized net loss on net investment hedges of $1 million, net of tax, included in the cumulative translation adjustment account of accumulated other comprehensive income (“AOCI”) as of March 28, 2009 and September 27, 2008, respectively. The ineffective portions and amounts excluded from the effectiveness test of net investment hedges are recorded in current earnings in other income and expense.

The Company recognized in earnings a total net gain on foreign currency forward and option contracts not designated as hedging instruments in accordance with SFAS No. 133 of $15 million and $173 million during the three- and six-month periods ended March 28, 2009, respectively.

The following table shows the notional principal and credit risk amounts of the Company’s derivative instruments as of March 28, 2009 (in millions):


	March 28, 2009
	Notional Principal		Credit Risk Amounts
Instruments qualifying as accounting hedges:
Foreign exchange contracts	$	2,981	$	75

Instruments other than accounting hedges:
Foreign exchange contracts	$	2,351	$	29

The notional principal amounts for derivative instruments provide one measure of the transaction volume outstanding as of March 28, 2009, and do not represent the amount of the Company’s exposure to credit or market loss. The credit risk amounts shown in the table above represent the Company’s gross exposure to potential accounting loss on these transactions if all counterparties failed to perform according to the terms of the contract, based on then-current currency exchange rates. The Company’s exposure to credit loss and market risk will vary over time as a function of currency exchange rates. Although the table above reflects the notional principal and credit risk amounts of the Company’s foreign exchange instruments, it does not reflect the gains or losses associated with the exposures and transactions that the foreign exchange instruments are intended to hedge. The amounts ultimately realized upon settlement of these financial instruments, together with the gains and losses on the underlying exposures, will depend on actual market conditions during the remaining life of the instruments.

The estimates of fair value are based on applicable and commonly used pricing models and prevailing financial market information as of March 28, 2009. Refer to Note 3, “Fair Value Measurements” of this Form 10-Q, for additional information on the fair value measurements for all financial assets and liabilities, including derivative assets and derivative liabilities, that are measured at fair value in the Condensed Consolidated Financial Statements on a recurring basis. The following table shows the Company’s derivative instruments measured at gross fair value as reflected in the Condensed Consolidated Balance Sheet as of March 28, 2009 (in millions):


	March 28, 2009
	Fair Value of Derivatives Designated as Hedge Instruments		Fair Value of Derivatives Not Designated as Hedge Instruments
Derivative assets (a):
Foreign exchange contracts	$	70	$	30

Derivative Liabilities (b):
Foreign exchange contracts	$	34	$	16

(a)

All derivative assets are recorded as other current assets in the Condensed Consolidated Balance Sheet.

(b)

All derivative liabilities are recorded as accrued expenses in the Condensed Consolidated Balance Sheet.

The following tables show the effect of the Company’s derivative instruments designated as cash flow and net investment hedges in the Condensed Consolidated Statement of Operations for the three- and six-month periods ended March 28, 2009 (in millions):


	Three Months Ended March 28, 2009
	Gain or (Loss) Recognized in AOCI - Effective Portion (a)		Location of Gain or (Loss) Reclassified from AOCI into Income - Effective Portion	Gain or (Loss) Reclassified from AOCI into Income - Effective Portion (a)		Location of Gain or (Loss) Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing	Gain or (Loss) Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
Cash flow hedges:
Foreign exchange contracts	$	27	Net sales	$	79	Other income and expense	$	(28	)
Foreign exchange contracts	$	27	Cost of sales	$	25	Other income and expense	$	(6	)

Net investment hedges:
Foreign exchange contracts	$	16	Other income and expense	$	—	Other income and expense	$	—

Total	$	70		$	104		$	(34	)


	Six Months Ended March 28, 2009
	Gain or (Loss) Recognized in AOCI - Effective Portion (a)			Location of Gain or (Loss) Reclassified from AOCI into Income - Effective Portion	Gain or (Loss) Reclassified from AOCI into Income - Effective Portion (a)		Location of Gain or (Loss) Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing	Gain or (Loss) Recognized - Ineffective Portion and Amount Excluded from Effectiveness Testing
Cash flow hedges:
Foreign exchange contracts	$	298		Net sales	$	240	Other income and expense	$	(51	)
Foreign exchange contracts	$	123		Cost of sales	$	97	Other income and expense	$	(5	)

Net investment hedges:
Foreign exchange contracts	$	(22	)	Other income and expense	$	—	Other income and expense	$	2

Total	$	399			$	337		$	(54	)

(a)	Refer to Note 6, “Shareholders’ Equity” of this Form 10-Q, which summarizes the activity in other comprehensive income related to derivatives.

Note 3 – Fair Value Measurements

In the first quarter of 2009, the Company adopted SFAS No. 157 for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 defines fair value as the price that would be received from selling an asset or paid to transfer a

liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Company considers the principal or most advantageous market in which the Company would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions, and credit risk.

SFAS No. 157 also establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement. SFAS No. 157 establishes and prioritizes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities.

Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 - Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

Assets/Liabilities Measured at Fair Value on a Recurring Basis

The following table presents the Company’s assets and liabilities measured at fair value on a recurring basis as of March 28, 2009 (in millions):


	March 28, 2009
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	1,808	$	—	$	—	$	1,808
U.S. Treasury securities		—		1,651		—		1,651
U.S. agency securities		—		17,784		—		17,784
Non-U.S. government securities		—		54		—		54
Certificates of deposit and time deposits		—		806		—		806
Commercial paper		—		1,604		—		1,604
Corporate securities		—		4,481		—		4,481
Municipal Securities		—		68		—		68
Marketable equity securities		10				—		10
Derivative assets		—		100		—		100

Total assets measured at fair value	$	1,818	$	26,548	$	—	$	28,366


Liabilities:
Derivative liabilities	$	—	$	50	$	—	$	50

Total liabilities measured at fair value	$	—	$	50	$	—	$	50

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis presented in the Company’s Condensed Consolidated Balance Sheet as of March 28, 2009 (in millions):


	March 28, 2009
	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash equivalents	$	1,808	$	2,036	$	—	$	3,844
Short-term marketable securities		—		20,547		—		20,547
Long-term marketable securities		—		3,865		—		3,865
Other current assets		—		100		—		100
Other assets		10		—		—		10

Total assets measured at fair value	$	1,818	$	26,548	$	—	$	28,366


Liabilities:
Other current liabilities	$	—	$	50	$	—	$	50

Total liabilities measured at fair value	$	—	$	50	$	—	$	50

Note 4 – Condensed Consolidated Financial Statement Details

The following tables show the Company’s Condensed Consolidated Financial Statement details as of March 28, 2009 and September 27, 2008 (in millions):

Other Current Assets


	March 28, 2009		September 27, 2008
Deferred costs under subscription accounting - current	$	2,701	$	1,931
Vendor non-trade receivables		1,104		2,282
Inventory component prepayments		306		475
Other current assets		946		1,134

Total other current assets	$	5,057	$	5,822

Property, Plant, and Equipment


	March 28, 2009			September 27, 2008
Land and buildings	$	899		$	810
Machinery, equipment, and internal-use software		1,679			1,491
Office furniture and equipment		131			122
Leasehold improvements		1,388			1,324

		4,097			3,747
Accumulated depreciation and amortization		(1,551	)		(1,292	)

Net property, plant, and equipment	$	2,546		$	2,455

Other Assets


	March 28, 2009		September 27, 2008
Deferred costs under subscription accounting - non-current	$	1,191	$	1,089
Long-term inventory component prepayments		502		208
Deferred tax assets - non-current		180		138
Capitalized software development costs, net		98		67
Other assets		527		433

Total other assets	$	2,498	$	1,935

Accrued Expenses


	March 28, 2009		September 27, 2008
Deferred margin on component sales	$	383	$	681
Accrued compensation and employee benefits		309		320
Accrued warranty and related costs		247		267
Accrued marketing and distribution		236		329
Other accrued tax liabilities		100		100
Other current liabilities		1,486		2,022

Total accrued expenses	$	2,761	$	3,719

Other Non-Current Liabilities


	March 28, 2009		September 27, 2008
Deferred tax liabilities	$	863	$	675
Other non-current liabilities		852		746

Total other non-current liabilities	$	1,715	$	1,421

Note 5 – Income Taxes

As of March 28, 2009, the Company recorded gross unrecognized tax benefits of $586 million, of which $274 million, if recognized, would affect the Company’s effective tax rate. As of September 27, 2008, the total amount of gross unrecognized tax benefits was $506 million, of which $253 million, if recognized, would affect the Company’s effective tax rate. The Company’s total gross unrecognized tax benefits are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets. The Company had $265 million and $219 million of gross interest and penalties accrued as of March 28, 2009 and September 27, 2008, respectively, which are classified as other non-current liabilities in the Condensed Consolidated Balance Sheets.

Management believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome of tax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. Although the timing of the resolution and/or closure of audits is highly uncertain, the Company does not believe it is reasonably possible that its unrecognized tax benefits would materially change in the next 12 months.

Note 6 – Shareholders’ Equity

Preferred Stock

The Company has five million shares of authorized preferred stock, none of which is issued or outstanding. Under the terms of the Company’s Restated Articles of Incorporation, the Board of Directors is authorized to determine or alter the rights, preferences, privileges and restrictions of the Company’s authorized but unissued shares of preferred stock.

Comprehensive Income

Comprehensive income consists of two components, net income and other comprehensive income. Other comprehensive income refers to revenue, expenses, gains, and losses that under U.S. generally accepted accounting principles are recorded as an element of shareholders’ equity but are excluded from net income. The Company’s other comprehensive income consists of foreign currency translation adjustments from those subsidiaries whose functional currency is not the U.S. dollar, the effective portion of foreign currency net investment hedges, unrealized gains and losses on marketable securities categorized as available-for-sale, and net deferred gains and losses on certain derivative instruments accounted for as cash flow hedges.

The following table summarizes the components of total comprehensive income, net of taxes, during the three- and six-month periods ended March 28, 2009 and March 29, 2008 (in millions):


	Three Months Ended						Six Months Ended
	March 28, 2009			March 29, 2008			March 28, 2009			March 29, 2008
Net income	$	1,205		$	1,045		$	2,810		$	2,626
Other comprehensive income:
Net change in unrecognized gains on derivative instruments		(33	)		(19	)		53			(15	)
Change in foreign currency translation		(3	)		28			(77	)		35
Net change in unrealized losses on marketable securities		(18	)		(14	)		31			(14	)

Total comprehensive income	$	1,151		$	1,040		$	2,817		$	2,632

The following table summarizes activity in other comprehensive income related to derivatives, net of taxes, held by the Company during the three- and six-month periods ended March 28, 2009 and March 29, 2008 (in millions):


	Three Months Ended						Six Months Ended
	March 28, 2009			March 29, 2008			March 28, 2009			March 29, 2008
Change in fair value of derivatives	$	32		$	(15	)	$	139		$	(11	)
Adjustment for net gains realized and included in net income		(65	)		(4	)		(86	)		(4	)

Change in unrealized gains on derivative instruments	$	(33	)	$	(19	)	$	53		$	(15	)

The following table summarizes the components of AOCI, net of taxes, as of March 28, 2009 and September 27, 2008 (in millions):


	March 28, 2009			September 27, 2008
Net unrealized losses on available-for-sale securities	$	(39	)	$	(70	)
Cumulative foreign currency translation		(18	)		59
Net unrecognized gains on derivative instruments		72			19

Accumulated other comprehensive income	$	15		$	8

Employee Benefit Plans

Rule 10b5-1 Trading Plans

As of April 17, 2009, executive officers Timothy D. Cook, Peter Oppenheimer, Philip W. Schiller, and Bertrand Serlet have entered into trading plans pursuant to Rule 10b5-1(c)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). A trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s stock including the exercise and sale of employee stock options and shares acquired pursuant to the Company’s employee stock purchase plan and upon vesting of RSUs.

Stock Option Activity

Historically, the Company used equity awards in the form of stock options as one of the means for recruiting and retaining highly skilled talent. Beginning in 2009, the Company changed its equity compensation program for eligible employees to RSUs as the primary type of long-term equity-based award. A summary of the Company’s stock option activity and related information for the six months ended March 28, 2009 is as follows (in thousands, except per share amounts and contractual term in years):


			Outstanding Options
	Shares Available for Grant		Number of Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance at September 27, 2008	50,572		44,146		$	74.39
Restricted stock units granted	(12,020	)	—		$	—
Options granted	(192	)	192		$	96.70
Options cancelled	714		(714	)	$	115.72
Restricted stock units cancelled	684		—		$	—
Options exercised	—		(2,298	)	$	30.29
Plan shares expired	(3	)	—		$	—

Balance at March 28, 2009	39,755		41,326		$	76.24	3.87	$	1,859,606


Exercisable at March 28, 2009			26,994		$	50.96	3.22	$	1,672,320

Expected to vest after March 28, 2009			13,913		$	93.78	5.09	$	181,817

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable. The aggregate intrinsic value excludes the effect of stock options that have a zero or negative intrinsic value. The total intrinsic value of options at the time of exercise was $94 million and $149 million for the three- and six-month periods ended March 28, 2009, respectively, and $183 million and $1.1 billion for the three- and six-month periods ended March 29, 2008, respectively.

RSUs granted are deducted from the shares available for grant under the Company’s stock option plans utilizing a factor of two times the number of RSUs granted. Similarly, RSUs cancelled are added back to the shares available for grant under the Company’s stock option plans utilizing a factor of two times the number of RSUs cancelled.

Restricted Stock Units

The Company’s Board of Directors has granted RSUs to members of the Company’s executive management team, excluding its Chief Executive Officer (“CEO”), as well as various employees within the Company. Beginning in 2009, the Company changed its equity compensation program for eligible employees to RSUs as the primary type of long-term equity-based award. RSUs generally vest over four years either at the end of the four-year service period, in two equal installments on the second and fourth anniversaries of the date of grant, in equal installments on each of the first through fourth anniversaries of the grant date, or in equal installments on each semi-annual anniversary of the grant date. Upon vesting, the RSUs are generally net share settled to cover the required withholding tax and the remaining amount is converted into an equivalent number of shares of common stock.

Outstanding RSU balances were not included in the outstanding options balances in the preceding table. A summary of the Company’s RSU activity and related information for the six months ended March 28, 2009 is as follows (in thousands, except per share amounts):


	Number of Shares		Weighted- Average Grant Date Fair Value		Aggregate Intrinsic Value
Balance at September 27, 2008	7,040		$	134.91
Restricted stock units granted	6,010		$	96.66
Restricted stock units vested	(902	)	$	149.95
Restricted stock units cancelled	(342	)	$	122.22

Balance at March 28, 2009	11,806		$	114.66	$	1,261,472

The fair value as of the vesting date of RSUs that vested was $2 million and $88 million for the three- and six-month periods ended March 28, 2009, respectively, and $257 million and $300 million for the three- and six-month periods ended March 29, 2008, respectively.

Note 7 – Stock-Based Compensation

SFAS No. 123 (revised 2004), Share-Based Payment, requires the use of a valuation model to calculate the fair value of stock-based awards. The Company uses the Black-Scholes-Merton (“BSM”) option-pricing model to calculate the fair value of stock-based awards. The BSM option-pricing model incorporates various assumptions including expected volatility, expected life, and interest rates. The expected volatility is based on the historical volatility of the Company’s common stock over the most recent period commensurate with the estimated expected life of the Company’s stock options and other relevant factors including implied volatility in market traded options on the Company’s common stock. The Company bases its expected life assumption on its historical experience and on the terms and conditions of the stock awards it grants to employees. Stock-based compensation cost is estimated at the grant date based on the award’s fair-value as calculated by the BSM option-pricing model and is recognized as expense ratably on a straight-line basis over the requisite service period.

The compensation expense incurred by the Company for RSUs is based on the closing market price of the Company’s common stock on the date of grant and is amortized ratably on a straight-line basis over the requisite service period.

The weighted average assumptions used for the three- and six-month periods ended March 28, 2009 and March 29, 2008 and the resulting estimates of weighted-average fair value per share of options granted and of employee stock purchase plan rights (“stock purchase rights”) during those periods are as follows:


	Three Months Ended				Six Months Ended
	March 28, 2009		March 29, 2008		March 28, 2009		March 29, 2008
Expected life - stock options		3.4 years		3.4 years		3.4 years		3.4 years
Expected life - stock purchase rights		6 months		6 months		6 months		6 months
Interest rate - stock options		1.26%		2.60%		1.73%		3.55%
Interest rate - stock purchase rights		0.19%		3.40%		0.92%		4.17%
Expected volatility - stock options		51.00%		46.70%		53.26%		45.87%
Expected volatility - stock purchase rights		57.64%		38.08%		53.71%		34.57%
Expected dividend yields		—		—		—		—

Weighted-average fair value of stock options granted during the period	$	38.04	$	52.38	$	38.23	$	63.28
Weighted-average fair value of stock purchase rights during the period	$	24.92	$	49.01	$	32.18	$	37.95

The following table provides a summary of the stock-based compensation expense included in the Condensed Consolidated Statements of Operations for the three- and six-month periods ended March 28, 2009 and March 29, 2008 (in millions):


	Three Months Ended				Six Months Ended
	March 28, 2009		March 29, 2008		March 28, 2009		March 29, 2008
Cost of sales	$	29	$	20	$	57	$	38
Research and development		67		47		127		86
Selling, general, and administrative		85		65		167		118

Total stock-based compensation expense	$	181	$	132	$	351	$	242

Stock-based compensation expense capitalized as part of software development costs was not significant as of March 28, 2009 and September 27, 2008. The income tax benefit related to stock-based compensation expense was $66 million and $132 million for the three- and six-month periods ended March 28, 2009, respectively, and was $50 million and $84 million for the three- and six-month periods ended March 29, 2008, respectively. As of March 28, 2009, the total unrecognized compensation cost related to outstanding stock options and RSUs expected to vest was $1.6 billion, which the Company expects to recognize over a weighted-average period of 2.82 years.

Note 8 – Commitments and Contingencies

Lease Commitments

The Company leases various equipment and facilities, including retail space, under noncancelable operating lease arrangements. The Company does not currently utilize any other off-balance sheet financing arrangements. The major facility leases are for terms of 3 to 20 years and generally provide renewal options for terms of 1 to 5 years. Leases for retail space are generally for terms of 5 to 20 years, the majority of which are for 10 years, and often contain multi-year renewal options. As of September 27, 2008, the Company’s total future minimum lease payments under noncancelable operating leases were $1.8 billion, of which $1.4 billion related to leases for retail space. As of March 28, 2009, total future minimum lease payments under noncancelable operating leases related to leases for retail space decreased $21 million to $1.3 billion.

Accrued Warranty and Indemnifications

The following table reconciles changes in the Company’s accrued warranties and related costs for the three- and six-month periods ended March 28, 2009 and March 29, 2008 (in millions):


	Three Months Ended						Six Months Ended
	March 28, 2009			March 29, 2008			March 28, 2009			March 29, 2008
Beginning accrued warranty and related costs	$	265		$	237		$	267		$	230
Cost of warranty claims		(73	)		(80	)		(151	)		(160	)
Accruals for product warranties		55			61			131			148

Ending accrued warranty and related costs	$	247		$	218		$	247		$	218

The Company generally does not indemnify end-users of its operating system and application software against legal claims that the software infringes third-party intellectual property rights. Other agreements entered into by the Company sometimes include indemnification provisions under which the Company could be subject to costs and/or damages in the event of an infringement claim against the Company or an indemnified third-party. However, the Company has not been required to make any significant payments resulting from such an infringement claim asserted against it or an indemnified third-party and, in the opinion of management, does not have a potential liability related to unresolved infringement claims subject to indemnification that would have a material adverse effect on its financial condition or operating results. Therefore, the Company did not record a liability for infringement costs as of either March 28, 2009 or September 27, 2008.

Concentrations in the Available Sources of Supply of Materials and Product

Although most components essential to the Company’s business are generally available from multiple sources, certain key components including, but not limited to microprocessors, enclosures, certain liquid crystal displays (“LCDs”), certain optical drives, and application-specific integrated circuits (“ASICs”) are currently obtained by the Company from single or limited sources, which subjects the Company to significant supply and pricing risks. Many of these and other key components that are available from multiple sources including, but not limited to NAND flash memory, dynamic random access memory (“DRAM”), and certain LCDs, are subject at times to industry-wide shortages and significant commodity pricing fluctuations. In addition, the Company has entered into certain agreements for the supply of key components including, but not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable pricing, but there is no guarantee that the Company will be able to extend or renew these agreements on similar favorable terms, or at all, upon expiration or otherwise obtain favorable pricing in the future. Therefore, the Company remains subject to significant risks of supply shortages and/or price increases that can have a material adverse effect on its financial condition and operating results.

The Company and other participants in the personal computer, consumer electronics and mobile communication industries also compete for various components with other industries that have experienced increased demand for their products. In addition, the Company uses some custom components that are not common to the rest of the personal computer, consumer electronics and mobile communication industries, and new products introduced by the Company often utilize custom components available from only one source until the Company has evaluated whether there is a need for, and subsequently qualifies, additional suppliers. When a component or product uses new technologies, initial capacity constraints may exist until the suppliers’ yields have matured. If the Company’s supply of a key single-sourced component for a new or existing product were delayed or constrained, if such components were available only at significantly higher prices, or if a key manufacturing vendor delayed shipments of completed products to the Company, the Company’s financial condition and operating results could be materially adversely affected. The Company’s business and financial performance could also be adversely affected depending on the time required to obtain sufficient quantities from the original source, or to identify and obtain sufficient quantities from an alternative source. Continued availability of these components at acceptable prices, or at all, may be affected if those suppliers decided to concentrate on the production of common components instead of components customized to meet the Company’s requirements.

Significant portions of the Company’s Mac computers, iPods, iPhones, logic boards, and other assembled products are now manufactured by outsourcing partners, primarily in various parts of Asia. A significant concentration of this outsourced manufacturing is currently performed by only a few of the Company’s outsourcing partners, often in single locations. Certain of these outsourcing partners are the sole-sourced supplier of components and manufacturing outsourcing for many of the Company’s key products including but not limited to final assembly of substantially all of the Company’s portable Mac computers, iPods, iPhones and most of the Company’s iMacs. Although the Company works closely with its outsourcing partners on manufacturing schedules, the Company’s operating results could be adversely affected if its outsourcing partners were unable to meet their production commitments. The Company’s purchase commitments typically cover its requirements for periods ranging from 30 to 150 days.

Long-Term Supply Agreements

The Company has entered into prepaid long-term supply agreements to secure the supply of certain inventory components. During the first quarter of 2009, a long-term supply agreement with Intel Corporation was terminated and the remaining prepaid balance of $167 million was repaid to the Company. During the second quarter of 2009, the Company made a prepayment of $500 million to LG Display for the purchase of LCD panels. As of March 28, 2009, the Company had a total of $808 million of inventory component prepayments outstanding.

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, which are discussed in Part II, Item 1 of this Form 10-Q under the heading “Legal Proceedings”. 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” of this Form 10-Q and in the Notes to Consolidated Financial Statements in the Company’s 2008 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, 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, 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 asset purchases for long-lived assets are not reported to management by segment. Cash payments for capital asset purchases by the Retail segment were $30 million and $101 million during the three- and six-month periods ended March 28, 2009, respectively, and $63 million and $138 million during the three- and six-month periods ended March 29, 2008, respectively.

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 marketing 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 11 high-profile stores as of March 28, 2009. Expenses allocated to corporate marketing resulting from the operations of high-profile stores were $16 million and $32 million during the three- and six-month periods ended March 28, 2009, respectively, and $13 million and $24 million during the three- and six-month periods ended March 29, 2008, respectively.

Summary information by operating segment for the three- and six-month periods months ended March 28, 2009 and March 29, 2008 is as follows (in millions):


	Three Months Ended				Six Months Ended
	March 28, 2009		March 29, 2008		March 28, 2009		March 29, 2008
Americas:
Net sales	$	3,517	$	3,268	$	8,018	$	7,566
Operating income	$	1,027	$	918	$	2,297	$	2,091

Europe:
Net sales	$	2,097	$	1,780	$	4,868	$	4,251
Operating income	$	611	$	485	$	1,420	$	1,245

Japan:
Net sales	$	500	$	424	$	981	$	824
Operating income	$	190	$	125	$	317	$	233

Retail:
Net sales	$	1,471	$	1,451	$	3,211	$	3,152
Operating income	$	308	$	334	$	661	$	739

Other Segments (a):
Net sales	$	578	$	589	$	1,252	$	1,327
Operating income	$	159	$	143	$	343	$	342

(a)	Other Segments consist of Asia-Pacific and FileMaker.

A reconciliation of the Company’s segment operating income to the Condensed Consolidated Financial Statements for the three- and six-month periods months ended March 28, 2009 and March 29, 2008 is as follows (in millions):


	Three Months Ended						Six Months Ended
	March 28, 2009			March 29, 2008			March 28, 2009			March 29, 2008
Segment operating income	$	2,295		$	2,005		$	5,038		$	4,650
Stock-based compensation expense		(181	)		(132	)		(351	)		(242	)
Other corporate expenses, net (a)		(447	)		(558	)		(894	)		(967	)

Total operating income	$	1,667		$	1,315		$	3,793		$	3,441

(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.

Note 10 – Related Party Transactions and Certain Other Transactions

The Company entered into a Reimbursement Agreement with its CEO, Steve Jobs, for the reimbursement of expenses incurred by Mr. Jobs in the operation of his private plane when used for Apple business. The Company did not recognize any expenses pursuant to the Reimbursement Agreement during the three months ended March 28, 2009 and recognized a total of $4,000 in expenses pursuant to the Reimbursement Agreement during the six months ended March 28, 2009. The Company recognized a total of $30,000 and $580,000 in expenses pursuant to the Reimbursement Agreement during the three- and six-month periods ended March 29, 2008, respectively. All expenses recognized pursuant to the Reimbursement Agreement have been included in selling, general, and administrative expenses in the Condensed Consolidated Statements of Operations.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section and other parts of this Form 10-Q contain forward-looking statements that involve risks and uncertainties. Forward-looking statements can be identified by words such as “anticipates,” “expects,” “believes,” “plans,” “predicts,” and similar terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed in Part II, Item 1A, “Risk Factors,” which are incorporated herein by reference. The following discussion should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended September 27, 2008 (the “2008 Form 10-K”) filed with the U.S. Securities and Exchange Commission (“SEC”) and the Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q. All information presented herein is based on the Company’s fiscal calendar. Unless otherwise stated, references in this report to particular years or quarters refer to the Company’s fiscal years ended in September and the associated quarters of those fiscal years. The Company assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.

Available Information

The Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange Act”) are filed with the SEC. Such reports and other information filed by the Company with the SEC are available on the Company’s website at http://www.apple.com/investor when such reports are available on the SEC website. The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references to the URLs for these websites are intended to be inactive textual references only.

Executive Overview

The Company designs, manufactures, and markets personal computers, portable digital music players, and mobile communication devices and sells a variety of related software, services, peripherals, and networking solutions. The Company’s products and services include the Mac^® line of desktop and portable computers, the iPod^® line of portable digital music players, iPhone^TM, Apple TV^®, Xserve^®, a portfolio of consumer and professional software applications, the Mac OS^® X operating system, third-party digital content and applications through the iTunes Store^®, and a variety of accessory, service and support offerings. The Company sells its products worldwide through its online stores, its retail stores, its direct sales force, and third-party wholesalers, retailers, and value-added resellers. In addition, the Company sells a variety of third-party Mac, iPod and iPhone compatible products, including application software, printers, storage devices, speakers, headphones, and various other accessories and peripherals through its online and retail stores. The Company sells to consumer, small and mid-sized business (“SMB”), education, enterprise, government, and creative markets. A further description of the Company’s products may be found below under the heading “Products” and Part II, Item 1A, “Risk Factors,” as well as in Part I, Item 1, “Business,” of the Company’s 2008 Form 10-K.

The Company is focused on providing innovative products and solutions to consumer, SMB, education, enterprise, government and creative customers that greatly enhance their evolving digital lifestyles and work environments. The Company is the only participant in the personal computer industry that controls the design and development of the entire personal computer, including the hardware, operating system, and sophisticated software applications. Additionally, the Company controls the design and development of hardware and system software for its portable digital music players and mobile communication devices, and hosts a robust platform for the discovery and delivery of third-party digital content and applications for these devices through the iTunes Store. The Company is therefore uniquely positioned to offer superior and well-integrated digital lifestyle and productivity solutions, which are further enhanced by the Company’s emphasis on ease-of-use and creative industrial designs.

The Company participates in several highly competitive markets, including personal computers with its Mac line of personal computers, consumer electronics with its iPod product families, mobile communications with iPhone, and distribution of third-party digital content and applications through its online iTunes Store. While the Company is widely recognized as a leading innovator in the personal computer and consumer electronics markets as well as a

leader in the emerging market for distribution of third-party digital content and applications, these markets are highly competitive and subject to aggressive pricing. To remain competitive, the Company believes that increased investment in research and development and marketing and advertising is necessary to maintain or expand its position in the markets where it competes. The Company’s research and development spending is focused on further developing its existing Mac line of personal computers, its operating system, application software, iPhone and iPods; developing new digital lifestyle consumer and professional software applications; and investing in new product areas and technologies. The Company also believes increased investment in marketing and advertising programs is critical to increasing product and brand awareness.

The Company utilizes a variety of direct and indirect distribution channels. The Company believes that sales of its innovative and differentiated products are enhanced by knowledgeable salespersons who can convey the value of the hardware, software, and peripheral integration, demonstrate the unique digital lifestyle solutions that are available on Mac computers, and demonstrate the compatibility of the Mac with the Windows platform and networks. The Company further believes providing a high-quality sales and after-sales support experience is critical to attracting new and retaining existing customers. To ensure a high-quality buying experience for its products in which service and education are emphasized, the Company continues to expand and improve its distribution capabilities by opening its own retail stores in the U.S. and internationally. The Company had 252 stores open as of March 28, 2009.

The Company has also invested in programs to enhance reseller sales, including the Apple Sales Consultant Program, which places Apple employees and contractors at selected third-party reseller locations. The Company believes providing direct contact with its targeted customers is an efficient way to demonstrate the advantages of its Mac computers and other products over those of its competitors. The Company also sells to customers directly through its online stores around the world and through its direct sales force.

The Company’s iPods are sold through a significant number of distribution points to provide broad access. iPods can be purchased in certain department stores, member-only warehouse stores, large retail chains, and specialty retail stores, as well as through the channels for Mac distribution listed above.

iPhone is distributed through the Company, its cellular network carriers’ distribution channels, and certain third-party resellers in over 80 countries. The Company has signed multi-year agreements with various cellular network carriers authorizing them to distribute and provide cellular network services for iPhone 3G. These agreements are generally not exclusive with a specific carrier, except in the U.S., U.K., Germany, Spain, Ireland, and certain other countries.

Products

The Company offers a range of personal computing products including desktop and portable personal computers, related devices and peripherals, and various third-party hardware and software products. In addition, the Company offers its own software products, including Mac OS X, the Company’s proprietary operating system software for the Mac; server software and related solutions; professional application software; and consumer, education, and business oriented application software. The Company also designs, develops, and markets to Mac and Windows users its family of iPod digital music players and its iPhone mobile communication device, along with related accessories and services, including the online distribution of third-party digital content through the Company’s iTunes Store.

In March 2009, the Company introduced updates to its iMac^®, Mac Pro, and Mac mini desktop computers and in April 2009 the Company introduced an updated Xserve.

In March 2009, the Company introduced the new iPod shuffle, which is nearly half the size of the previous model and is the first music player with the VoiceOver feature enabling it to speak song titles, artists and playlist names. iPod shuffle features a new aluminum design, holds up to 1,000 songs and is the first iPod shuffle to accommodate playlists.

A detailed discussion of the Company’s other products as of the end of 2008 may be found in Part I, Item 1, “Business,” of the Company’s 2008 Form 10-K.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles and the Company’s discussion and analysis of its financial condition and operating results

require the Company’s management to make judgments, assumptions, and estimates that affect the amounts reported in its Condensed Consolidated Financial Statements and accompanying notes. Note 1, “Summary of Significant Accounting Policies” of this Form 10-Q and the Notes to Consolidated Financial Statements in the Company’s 2008 Form 10-K describes the significant accounting policies and methods used in the preparation of the Company’s Condensed Consolidated Financial Statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates and such differences may be material.

Management believes the Company’s critical accounting policies and estimates are those related to revenue recognition, valuation of marketable securities, allowance for doubtful accounts, inventory valuation and inventory purchase commitments, warranty costs, stock-based compensation, income taxes, and legal and other contingencies. Management considers these critical policies because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company’s senior management has reviewed these critical accounting policies and related disclosures with the Audit and Finance Committee of the Company’s Board of Directors.

Revenue Recognition

Net sales consist primarily of revenue from the sale of hardware, software, music products, third-party digital content and applications, peripherals, and service and support contracts. The Company recognizes revenue for software products (operating system software and applications software), or any product that is considered to be software-related, in accordance with the guidance in Emerging Issues Task Force (“EITF”) No. 03-5, Applicability of AICPA Statement of Position 97-2 to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software, (e.g., Mac computers, iPod portable digital music players and iPhone) pursuant to American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”) No. 97-2, Software Revenue Recognition, as amended. For products that are not software or software-related, (e.g., third-party digital content sold on the iTunes Store and certain Mac, iPod and iPhone supplies and accessories), the Company recognizes revenue pursuant to the SEC Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition.

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For most of the Company’s product sales, these criteria are met at the time the product is shipped. For online sales to individuals, for some sales to education customers in the U.S., and for certain other sales, the Company defers revenue until the customer receives the product because the Company retains a portion of the risk of loss on these sales during transit. If at the outset of an arrangement the Company determines the arrangement fee is not, or is presumed not to be, fixed or determinable, revenue is deferred and subsequently recognized as amounts become due and payable and all other criteria for revenue recognition have been met.

For both Apple TV and iPhone, the Company has indicated that from time-to-time it may provide future unspecified features and additional software products free of charge to customers. Therefore, sales of Apple TV and iPhone handsets are recognized under subscription accounting in accordance with SOP No. 97-2. The Company recognizes the associated revenue and cost of goods sold on a straight-line basis over the currently estimated 24-month economic lives of these products, with any loss recognized at the time of sale. Costs incurred by the Company for engineering, sales, marketing, and warranty are expensed as incurred.

The Company records reductions to revenue for estimated commitments related to price protection and for customer incentive programs, including reseller and end-user rebates, and other sales programs and volume-based incentives. For transactions involving price protection, the Company recognizes revenue net of the estimated amount to be refunded, provided the refund amount can be reasonably and reliably estimated and the other conditions for revenue recognition have been met. The Company’s policy requires that, if refunds cannot be reliably estimated, revenue is not recognized until reliable estimates can be made or the price protection lapses. For customer incentive programs, the estimated cost of these programs is recognized at the later of the date at which the Company has sold the product or the date at which the program is offered. The Company also records reductions to revenue for expected future product returns based on the Company’s historical experience. Future market conditions and product transitions may require the Company to increase customer incentive programs and incur incremental price protection obligations that could result in additional reductions to revenue at the time such programs are offered. Additionally, certain customer

incentive programs require management to estimate the number of customers who will actually redeem the incentive based on historical experience and the specific terms and conditions of particular incentive programs. If a greater than estimated proportion of customers redeem such incentives, the Company would be required to record additional reductions to revenue, which would have a negative impact on the Company’s results of operations.

Valuation of Marketable Securities

The Company’s investments in available-for-sale securities are reported at fair value. Unrealized gains and losses related to changes in the fair value of investments are included in accumulated other comprehensive income, net of tax, as reported in the Company’s Condensed Consolidated Balance Sheets. Changes in the fair value of investments impact the Company’s net income only when such investments are sold or an other-than-temporary impairment is recognized. Realized gains and losses on the sale of securities are determined by specific identification of each security’s cost basis. The Company regularly reviews its investment portfolio to determine if any investment is other-than-temporarily impaired due to changes in credit risk or other potential valuation concerns, which would require the Company to record an impairment charge in the period any such determination is made. In making this judgment, the Company evaluates, among other things, the duration and extent to which the fair value of an investment is less than its cost, the credit rating of the investment and any changes thereto, and the Company’s ability and intent to hold the investment until the earlier of market price recovery or maturity. The Company’s assessment on whether an investment is other-than-temporarily impaired or not, could change in the future due to new developments or changes in assumptions related to any particular investment.

Allowance for Doubtful Accounts

The Company distributes its products through third-party distributors, cellular network carriers, and resellers and directly to certain education, consumer, and enterprise customers. The Company generally does not require collateral from its customers; however, the Company will require collateral in certain instances to limit credit risk. In addition, when possible the Company does attempt to limit credit risk on trade receivables with credit insurance for certain customers in Latin America, Europe, Asia, and Australia and by arranging with third-party financing companies to provide flooring arrangements and other loan and lease programs to the Company’s direct customers. These credit-financing arrangements are directly between the third-party financing company and the end customer. As such, the Company generally does not assume any recourse or credit-risk-sharing related to any of these arrangements. However, considerable trade receivables that are not covered by collateral, third-party flooring arrangements, or credit insurance are outstanding with the Company’s distribution and retail channel partners.

The allowance for doubtful accounts is based on management’s assessment of the ability to collect specific customer accounts and includes consideration of the credit-worthiness and financial condition of those specific customers. The Company records an allowance to reduce the specific receivables to the amount that it reasonably believes to be collectible. The Company also records an allowance for all other trade receivables based on multiple factors, including historical experience with bad debts, the general economic environment, the financial condition of the Company’s distribution channels, and the aging of such receivables. If there is a deterioration of a major customer’s financial condition, if the Company becomes aware of additional information related to the credit-worthiness of a major customer, or if future actual default rates on trade receivables in general differ from those currently anticipated, the Company may have to adjust its allowance for doubtful accounts, which would affect earnings in the period the adjustments are made.

Inventory Valuation and Inventory Purchase Commitments

The Company must order components for its products and build inventory in advance of product shipments. The Company records a write-down for inventories of components and products, including third-party products held for resale, which have become obsolete or are in excess of anticipated demand or net realizable value. The Company performs a detailed review of inventory each fiscal quarter that considers multiple factors including demand forecasts, product life cycle status, product development plans, current sales levels, and component cost trends. The personal computer, consumer electronics and mobile communications industries are subject to a rapid and unpredictable pace of product and component obsolescence and demand changes. If future demand or market conditions for the Company’s products are less favorable than forecasted or if unforeseen technological changes negatively impact the utility of component inventory, the Company may be required to record additional write-downs, which would negatively affect gross margins in the period when the write-downs were recorded.

The Company accrues reserves for estimated cancellation fees related to component orders that have been cancelled or are expected to be cancelled. Consistent with industry practice, the Company acquires components through a

combination of purchase orders, supplier contracts, and open orders based on projected demand information. These commitments typically cover the Company’s requirements for periods ranging from 30 to 150 days. If there is an abrupt and substantial decline in demand for one or more of the Company’s products or an unanticipated change in technological requirements for any of the Company’s products, the Company may be required to record additional reserves for cancellation fees that would negatively affect gross margins in the period when the cancellation fees are identified and recorded.

Warranty Costs

The Company provides for the estimated cost for hardware and software warranties at the time the related revenue is recognized based on historical and projected warranty claim rates, historical and projected cost-per-claim, and knowledge of specific product failures that are outside of the Company’s typical experience. Each quarter, the Company reevaluates its estimates to assess the adequacy of its recorded warranty liabilities considering the size of the installed base of products subject to warranty protection and adjusts the amounts as necessary. For products accounted for under subscription accounting pursuant to SOP No. 97-2, the Company recognizes warranty expense as incurred. If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liability would be required and could negatively affect the Company’s results of operations.

The Company periodically provides updates to its applications and operating system software to maintain the software’s compliance with specifications. The estimated cost to develop such updates is accounted for as warranty cost that is recognized at the time related software revenue is recognized. Factors considered in determining appropriate accruals related to such updates include the number of units delivered, the number of updates expected to occur, and the historical cost and estimated future cost of the resources necessary to develop these updates.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), Share-Based Payment. Under the provisions of SFAS No. 123R, stock-based compensation cost is estimated at the grant date based on the award’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model and is recognized as expense ratably on a straight-line basis over the requisite service period. The BSM option-pricing model requires various judgmental assumptions including expected volatility, forfeiture rates, and expected option life. Significant changes in any of these assumptions could materially affect the fair value of stock-based awards granted in the future.

Income Taxes

The Company records a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with SFAS No. 109, Accounting for Income Taxes, the provision for income taxes is computed using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to taxable income in effect for the years in which those tax assets are expected to be realized or settled. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

The Company recognizes and measures uncertain tax positions in accordance with the Financial Accounting Standards Board (“FASB”) issued Financial Interpretation No. (“FIN”) 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, whereby the Company only recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

Management believes it is more likely than not that forecasted income, including income that may be generated as a result of certain tax planning strategies, together with the tax effects of the deferred tax liabilities, will be sufficient to fully recover the remaining deferred tax assets. In the event that the Company determines all or part of the net deferred tax assets are not realizable in the future, the Company will make an adjustment to the valuation allowance that would be charged to earnings in the period such determination is made. In addition, the calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of FIN 48 and other complex tax laws. Resolution of these uncertainties in a manner inconsistent with management’s expectations could have a material impact on the Company’s financial condition and operating results.

Legal and Other Contingencies

As discussed in Part II, Item 1 of this Form 10-Q under the heading “Legal Proceedings” and in Note 8 “Commitments and Contingencies” in Notes to Condensed Consolidated Financial Statements, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. In accordance with SFAS No. 5, Accounting for Contingencies, the Company records a contingent liability when it is probable that a loss has been incurred and the amount is reasonably estimable. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. In management’s opinion, 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 outcomes of legal proceedings and claims brought against the Company are subject to significant uncertainty. Should the Company fail to prevail in any of these legal matters or should several of these legal matters be resolved against the Company in the same reporting period, the operating results of a particular reporting period could be materially adversely affected.

Net Sales

The following table summarizes net sales and Mac unit sales by operating segment and net sales and unit sales by product during the three- and six-month periods ended March 28, 2009 and March 29, 2008 (in millions, except unit sales in thousands and per unit amounts):


	Three Months Ended					Six Months Ended
	March 28, 2009		March 29, 2008		Change	March 28, 2009		March 29, 2008		Change
Net Sales by Operating Segment:
Americas net sales	$	3,517	$	3,268	8%	$	8,018	$	7,566	6%
Europe net sales		2,097		1,780	18%		4,868		4,251	15%
Japan net sales		500		424	18%		981		824	19%
Retail net sales		1,471		1,451	1%		3,211		3,152	2%
Other Segments net sales (a)		578		589	(2)%		1,252		1,327	(6)%

Total net sales	$	8,163	$	7,512	9%	$	18,330	$	17,120	7%

Unit Sales by Operating Segment:
Americas Mac unit sales		809		884	(8)%		1,721		1,725	— %
Europe Mac unit sales		658		627	5%		1,453		1,332	9%
Japan Mac unit sales		109		118	(8)%		208		209	— %
Retail Mac unit sales		438		458	(4)%		953		962	(1)%
Other Segments Mac unit sales (a)		202		202	— %		405		380	7%

Total Mac unit sales		2,216		2,289	(3)%		4,740		4,608	3%

Net Sales by Product:
Desktops (b)	$	1,050	$	1,352	(22)%	$	2,093	$	2,867	(27)%
Portables (c)		1,895		2,142	(12)%		4,406		4,179	5%

Total Mac net sales		2,945		3,494	(16)%		6,499		7,046	(8)%

iPod		1,665		1,818	(8)%		5,036		5,815	(13)%
Other music related products and services (d)		1,049		881	19%		2,060		1,689	22%
iPhone and related products and services (e)		1,521		378	302%		2,768		619	347%
Peripherals and other hardware (f)		358		412	(13)%		736		794	(7)%
Software, service, and other sales (g)		625		529	18%		1,231		1,157	6%

Total net sales	$	8,163	$	7,512	9%	$	18,330	$	17,120	7%

Unit Sales by Product:
Desktops (b)		818		856	(4)%		1,546		1,833	(16)%
Portables (c)		1,398		1,433	(2)%		3,194		2,775	15%

Total Mac unit sales		2,216		2,289	(3)%		4,740		4,608	3%


Net sales per Mac unit sold (h)	$	1,329	$	1,526	(13)%	$	1,371	$	1,529	(10)%

iPod unit sales		11,013		10,644	3%		33,740		32,765	3%

Net sales per iPod unit sold (i)	$	151	$	171	(12)%	$	149