UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

⌧
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 26, 2010
or
 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 (I.R.S. Employer Identification No.)
of incorporation or organization)

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 ⌧ 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.

⌧ 
 (Do not check if a smaller reporting company) 
Large accelerated filer Accelerated filer
Non-accelerated filer 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 ⌧
913,562,880 shares of common stock issued and outstanding as of July 9, 2010
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 Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Net sales $ 15,700 $ 9,734 $ 44,882 $ 30,698
Cost of sales 9,564 5,751 26,710 18,581
Gross margin 6,136 3,983 18,172 12,117
Operating expenses:
Research and development 464 341 1,288 975
Selling, general and administrative 1,438 1,010 3,946 3,086
Total operating expenses 1,902 1,351 5,234 4,061
Operating income 4,234 2,632 12,938 8,056
Other income and expense 58 60 141 281
Income before provision for income taxes 4,292 2,692 13,079 8,337
Provision for income taxes 1,039 864 3,374 2,634
Net income $ 3,253 $ 1,828 $ 9,705 $ 5,703
Earnings per common share:
Basic $ 3.57 $ 2.05 $ 10.69 $ 6.40
Diluted $ 3.51 $ 2.01 $ 10.51 $ 6.30
Shares used in computing earnings per share:
Basic 912,197 893,712 907,762 891,345
Diluted 927,361 909,160 923,341 904,549

See accompanying Notes to Condensed Consolidated Financial Statements.

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 APPLE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(In millions, except share amounts)

June 26, September 26,

2010 2009
ASSETS:
Current assets:
Cash and cash equivalents $ 9,705 $ 5,263
Short-term marketable securities 14,583 18,201
Accounts receivable, less allowances of $52 in each period 3,447 3,361
Inventories 942 455
Deferred tax assets 1,216 1,135
Vendor non-trade receivables 2,952 1,696
Other current assets 3,188 1,444
Total current assets 36,033 31,555

Long-term marketable securities 21,551 10,528

Property, plant and equipment, net 3,990 2,954
Goodwill 714 206
Acquired intangible assets, net 318 247
Other assets 2,119 2,011
Total assets $ 64,725 $ 47,501

LIABILITIES AND SHAREHOLDERS’ EQUITY:

Current liabilities:
Accounts payable $ 8,469 $ 5,601
Accrued expenses 4,452 3,852
Deferred revenue 2,691 2,053
Total current liabilities 15,612 11,506

Deferred revenue – non-current 1,021 853

Other non-current liabilities 4,981 3,502
Total liabilities 21,614 15,861

Commitments and contingencies

Shareholders’ equity:
Common stock, no par value; 1,800,000,000 shares authorized; 913,482,347 and
899,805,500 shares issued and outstanding, respectively 10,133 8,210
Retained earnings 32,870 23,353
Accumulated other comprehensive income 108 77
Total shareholders’ equity 43,111 31,640
Total liabilities and shareholders’ equity $ 64,725 $ 47,501

See accompanying Notes to Condensed Consolidated Financial Statements.

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 APPLE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In millions)

Nine Months Ended

June 26, June 27,
2010 2009
Cash and cash equivalents, beginning of the period $ 5,263 $ 11,875
Operating activities:
Net income 9,705 5,703
Adjustments to reconcile net income to cash generated by operating activities:
Depreciation, amortization and accretion 698 531
Stock-based compensation expense 655 530
Deferred income tax expense 1,298 772
Loss on disposition of property, plant and equipment 14 18
Changes in operating assets and liabilities:
Accounts receivable, net (79) (264)
Inventories (487) 129
Vendor non-trade receivables (1,256) 788
Other current assets (944) 62
Other assets (71) (602)
Accounts payable 2,812 (648)
Deferred revenue 806 323
Other liabilities (239) (293)
Cash generated by operating activities 12,912 7,049
Investing activities:
Purchases of marketable securities (41,318) (34,696)
Proceeds from maturities of marketable securities 19,758 12,780
Proceeds from sales of marketable securities 14,048 9,117
Purchases of other long-term investments (10) (61)
Payments made in connection with business acquisitions, net of cash acquired (615) 0
Payments for acquisition of property, plant and equipment (1,245) (685)
Payments for acquisition of intangible assets (63) (56)
Other (26) (62)
Cash used in investing activities (9,471) (13,663)
Financing activities:
Proceeds from issuance of common stock 733 288
Excess tax benefits from stock-based compensation 652 124
Taxes paid related to net share settlement of equity awards (384) (68)
Cash generated by financing activities 1,001 344
Increase/(decrease) in cash and cash equivalents 4,442 (6,270)
Cash and cash equivalents, end of the period $ 9,705 $ 5,605
Supplemental cash flow disclosure:
Cash paid for income taxes, net $ 2,657 $ 2,490

See accompanying Notes to Condensed Consolidated Financial Statements.

4
 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”) designs, manufactures, and markets personal
computers, mobile communication and consumer electronics devices, and portable digital music and video players and sells a variety
of related software, services, peripherals, networking solutions, and third-party digital content and applications. 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 Macintosh (“Mac”), iPhone, iPad and iPod 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, education, enterprise, government
and creative customers.

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 preparation of these condensed consolidated financial statements in conformity with U.S.
generally accepted accounting principles (“GAAP”) 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.

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 26, 2009, included in its Annual
Report on Form 10-K, as amended (the “2009 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.

Retrospective Adoption of New Accounting Principles

In September 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards related to revenue
recognition for arrangements with multiple deliverables and arrangements that include software elements (“new accounting
principles”). The new accounting principles permit prospective or retrospective adoption, and the Company elected retrospective
adoption during the first quarter of 2010.

Under the historical accounting principles, the Company was required to account for sales of both iPhone and Apple TV using
subscription accounting because the Company indicated it might from time-to-time provide future unspecified software upgrades and
features for those products free of charge. Under subscription accounting, revenue and associated product cost of sales for iPhone and
Apple TV were deferred at the time of sale and recognized on a straight-line basis over each product’s estimated economic life. This
resulted in the deferral of significant amounts of revenue and cost of sales related to iPhone and Apple TV.

The new accounting principles impact the Company’s accounting for all past and current sales of iPhone, iPad, Apple TV and for
sales of iPod touch beginning in June 2010. The new accounting principles require the Company to account for the sale of these
devices as two deliverables. The first deliverable is the hardware and software essential to the functionality of the hardware device
delivered at the time of sale, and the second deliverable is the right included with the purchase of these devices to receive on a when-
and-if-available basis, future unspecified software upgrades and features relating to the product’s essential software. The new
accounting principles result in the recognition of a substantial portion of the revenue and all product costs from the sale of these
devices at the time of their sale. Additionally, the Company is required to estimate a standalone selling price for the unspecified
software upgrade rights included with the sale of these devices and recognizes that amount ratably over the 24-month estimated life of
the related hardware device.
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The Company had the option of adopting the new accounting principles on a prospective or retrospective basis. Prospective adoption
would have required the Company to apply the new accounting principles to sales beginning in fiscal year 2010 without reflecting the
impact of the new accounting principles on iPhone and Apple TV sales made prior to September 2009. Accordingly, the Company’s
financial results for the two years following adoption would have included the impact of amortizing the significant amounts of
deferred revenue and cost of sales related to historical iPhone and Apple TV sales. The Company believes prospective adoption
would have resulted in financial information that was not comparable between financial periods because of the significant amount of
past iPhone sales; therefore, the Company elected retrospective adoption. Retrospective adoption required the Company to revise its
previously issued financial statements as if the new accounting principles had always been applied. The Company believes
retrospective adoption provides the most comparable and useful financial information for financial statement users, is more consistent
with the information the Company’s management uses to evaluate its business, and better reflects the underlying economic
performance of the Company.

Refer to the “Explanatory Note” and Note 2, “Retrospective Adoption of New Accounting Principles” in the 2009 Form 10-K for
additional information on the impact of adoption.

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 common 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 common share for the three- and nine-month periods
ended June 26, 2010 and June 27, 2009 (in thousands, except net income in millions and per share amounts):
Three Months Ended Nine Months Ended
June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Numerator:
Net income $ 3,253 $ 1,828 $ 9,705 $ 5,703
Denominator:
Weighted-average shares outstanding 912,197 893,712 907,762 891,345
Effect of dilutive securities 15,164 15,448 15,579 13,204
Weighted-average shares diluted 927,361 909,160 923,341 904,549
Basic earnings per common share $ 3.57 $ 2.05 $ 10.69 $ 6.40
Diluted earnings per common share $ 3.51 $ 2.01 $ 10.51 $ 6.30

Potentially dilutive securities representing approximately 220,000 and 10.5 million shares of common stock for the three months
ended June 26, 2010 and June 27, 2009, respectively, and 498,000 and 13.4 million shares of common stock for the nine months
ended June 26, 2010 and June 27, 2009, respectively, were excluded from the computation of diluted earnings per common share for
these periods because their effect would have been antidilutive.

Revenue Recognition
Net sales consist primarily of revenue from the sale of hardware, software, digital content and applications, peripherals, and service
and support contracts. The Company recognizes revenue when persuasive evidence of an
6
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
legally retains a portion of the risk of loss on these sales during transit. The Company recognizes revenue from the sale of hardware
products (e.g., Macs, iPhones, iPads, iPods and peripherals), software bundled with hardware that is essential to the functionality of
the hardware, and third-party digital content sold on the iTunes Store in accordance with general revenue recognition accounting
guidance. The Company recognizes revenue in accordance with industry specific software accounting guidance for the following
types of sales transactions: (i) standalone sales of software products, (ii) sales of software upgrades and (iii) sales of software bundled
with hardware not essential to the functionality of the hardware.

Revenue from service and support contracts is deferred and recognized ratably over the service coverage periods. These contracts
typically include extended phone support, repair services, web-based support resources and diagnostic tools offered under the
Company’s standard limited warranty.

The Company sells software and peripheral products obtained from other companies. The Company generally establishes its own
pricing and retains related inventory risk, is the primary obligor in sales transactions with its customers, and assumes the credit risk
for amounts billed to its customers. Accordingly, the Company generally recognizes revenue for the sale of products obtained from
other companies based on the gross amount billed.

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. The estimated cost of these
programs is accrued as a reduction to revenue in the period the Company has sold the product and committed to a plan. The Company
also records reductions to revenue for expected future product returns based on the Company’s historical experience. Revenue is
recorded net of taxes collected from customers that are remitted to governmental authorities, with the collected taxes recorded as
current liabilities until remitted to the relevant government authority.

Revenue Recognition for Arrangements with Multiple Deliverables

For multi-element arrangements that include tangible products that contain software that is essential to the tangible product’s
functionality and undelivered software elements that relate to the tangible product’s essential software, the Company allocates
revenue to all deliverables based on their relative selling prices. In such circumstances, the new accounting principles establish a
hierarchy to determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific objective
evidence of fair value (“VSOE”), (ii) third-party evidence of selling price (“TPE”), and (iii) best estimate of the selling price (“ESP”).
VSOE generally exists only when the Company sells the deliverable separately and is the price actually charged by the Company for
that deliverable. ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly
on a stand-alone basis.

As described in more detail below, for all past and current sales of iPhone, iPad, Apple TV and for sales of iPod touch beginning in
June 2010, the Company has indicated it may from time-to-time provide future unspecified software upgrades and features free of
charge to customers. The Company has identified two deliverables in arrangements involving the sale of these devices. The first
deliverable is the hardware and software essential to the functionality of the hardware device delivered at the time of sale. The second
deliverable is the right included with the purchase of iPhone, iPad, iPod touch and Apple TV to receive on a when-and-if-available
basis, future unspecified software upgrades and features relating to the product’s essential software. The Company has allocated
revenue between these two deliverables using the relative selling price method. Because the Company has neither VSOE nor TPE for
the two deliverables, the allocation of revenue has been based on the Company’s ESPs. Amounts allocated to the delivered hardware
and the related essential software are recognized at the time of sale provided the other conditions for revenue recognition have been
met. Amounts allocated to the unspecified software upgrade rights are deferred and recognized on a straight-line basis over the 24-
month estimated life of each of these devices. All product cost of sales, including estimated warranty costs, are recognized at the time
of sale. Costs for engineering and sales and marketing are expensed as incurred.
7
The Company’s process for determining its ESP for deliverables without VSOE or TPE considers multiple factors that may vary
depending upon the unique facts and circumstances related to each deliverable. The Company believes its customers, particularly
consumers, would be reluctant to buy unspecified software upgrade rights related to iPhone iPad, iPod touch and Apple TV. This
view is primarily based on the fact that upgrade rights do not obligate the Company to provide upgrades at a particular time or at all,
and do not specify to customers which upgrades or features will be delivered. Therefore, the Company has concluded that if it were to
sell upgrade rights on a standalone basis, including those rights associated with iPhone, iPad, iPod touch and Apple TV, the selling
price would be relatively low. Key factors considered by the Company in developing the ESPs for these upgrade rights include prices
charged by the Company for similar offerings, the Company’s historical pricing practices, the nature of the upgrade rights (e.g.,
unspecified and when-and-if-available), and the relative ESP of the upgrade rights as compared to the total selling price of the
product. The Company may also consider, when appropriate, the impact of other products and services, including advertising
services, on selling price assumptions when developing and reviewing its ESPs for software upgrade rights and related deliverables.
The Company may also consider additional factors as appropriate, including the pricing of competitive alternatives if they exist, and
product-specific business objectives.

Beginning in the third quarter of 2010 in conjunction with the announcement of iOS 4, the Company’s ESPs for the software upgrade
rights included with iPhone, iPad and iPod touch reflect the positive financial impact expected by the Company as a result of its
planned implementation of a mobile advertising platform for these devices and the expectation of customers regarding software that
includes or supports an advertising component. iOS 4 supports iAd, the Company’s new mobile advertising platform, which will
enable applications on iPhone, iPad and iPod touch to feature media-rich advertisements within applications.

For all periods presented, the Company’s ESP for the software upgrade right included with each Apple TV sold is $10. The
Company’s ESP for the software upgrade right included with each iPhone sold through the Company’s second quarter of 2010 was
$25. Beginning in April 2010 in conjunction with the Company’s announcement of iOS 4 for iPhone, the Company lowered its ESP
for the software upgrade right included with each iPhone to $10.

Beginning with initial sales of iPad in April 2010, the Company has also indicated it may from time-to-time provide future
unspecified software upgrades and features free of charge to iPad customers. The Company’s ESP for the software upgrade right
included with the sale of each iPad is $10. In June 2010, the Company announced that certain previously sold iPod touch models
would receive an upgrade to iOS 4 free of charge and indicated iPod touch devices running on iOS 4 may from time-to-time receive
future unspecified software upgrades and features free of charge. The Company’s ESP for the software upgrade right included with
each iPod touch sold beginning in June 2010 is $5.

The Company accounts for multiple element arrangements that consist only of software or software-related products, including the
sale of upgrades to previously sold software, in accordance with industry specific accounting guidance for software and software-
related transactions. For such transactions, revenue on arrangements that include multiple elements is allocated to each element based
on the relative fair value of each element, and fair value is generally determined by VSOE. If the Company cannot objectively
determine the fair value of any undelivered element included in such multiple-element arrangements, the Company defers revenue
until all elements are delivered and services have been performed, or until fair value can objectively be determined for any remaining
undelivered elements. When the fair value of a delivered element has not been established, but fair value exists for the undelivered
elements, the Company uses the residual method to recognize revenue. Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and is recognized as
revenue.

Except as described for iPhone, iPad, iPod touch and Apple TV, the Company generally does not offer specified or unspecified
upgrade rights to its customers in connection with software sales or the sale of extended warranty and support contracts. A limited
number of the Company’s software products are available with maintenance agreements that grant customers rights to unspecified
future upgrades over the maintenance term on a when and if available basis. Revenue associated with such maintenance is recognized
ratably over the maintenance term.

Fair Value Measurements

During 2009, the Company adopted the FASB’s new accounting standard on fair value measurements and disclosures for all financial
assets and liabilities. The new accounting principles defined fair value, provided a
8
framework for measuring fair value, and expanded the disclosures required for fair value measurements. During the first quarter of
2010, the Company adopted the new fair value accounting principles for all non-financial assets and non-financial liabilities, except
for items that are recognized or disclosed at fair value in the financial statements on a recurring basis, which did not have a material
effect on the Company’s financial condition or operating results.

Business Combinations
In December 2007, the FASB issued a new accounting standard for business combinations, which established principles and
requirements for how an acquirer is to recognize and measure in its financial statements the identifiable assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquiree in a business combination. This new accounting standard also established
principles regarding how goodwill acquired in a business combination or a gain from a bargain purchase should be recognized and
measured, as well as providing guidelines on the disclosure requirements. In April 2009, the FASB amended this new accounting
standard to require that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized
at fair value, if the fair value can be determined during the measurement period. The Company adopted the new business combination
accounting standard in the first quarter of 2010 and applied these principles to any business combinations completed in or after the
first quarter of 2010. The adoption of the new business combination accounting standard did not have a material effect on the
Company’s financial condition or operating results.

During the first nine months of 2010, the Company completed various business acquisitions for an aggregate cash consideration, net
of cash acquired, of $615 million, of which $508 million was allocated to goodwill and $101 million to acquired intangible assets.
9
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 or short-term or long-term marketable securities as of June 26, 2010 and
September 26, 2009 (in millions):

June 26, 2010 September 26, 2009

Cash $ 1,926 $ 1,139
Money market funds 1,707 1,608
U.S. Treasury securities 1,420 289
U.S. agency securities 3,011 273
Non-U.S. government securities 21 0
Certificates of deposit and time deposits 460 572
Commercial paper 1,095 1,381
Corporate securities 50 0
Municipal securities 15 1
Total cash equivalents 7,779 4,124
U.S. Treasury securities 2,241 2,843
U.S. agency securities 4,688 8,582
Non-U.S. government securities 1,091 219
Certificates of deposit and time deposits 769 1,142
Commercial paper 1,326 2,816
Corporate securities 4,211 2,466
Municipal securities 257 133
Total short-term marketable securities 14,583 18,201
U.S. Treasury securities 3,626 484
U.S. agency securities 2,819 2,252
Non-U.S. government securities 2,065 102
Certificates of deposit and time deposits 222 0
Corporate securities 11,450 7,320
Municipal securities 1,369 370
Total long-term marketable securities 21,551 10,528
Total cash, cash equivalents and marketable securities $ 45,839 $ 33,992

10
The following tables summarize the Company’s available-for-sale securities’ adjusted cost, gross unrealized gains, gross unrealized
losses and fair value by significant investment category as of June 26, 2010 and September 26, 2009 (in millions):

June 26, 2010

Adjusted Unrealized Unrealized Fair
Cost Gains Losses Value
Money market funds $ 1,707 $ 0 $ 0 $ 1,707
U.S. Treasury securities 7,263 24 0 7,287
U.S. agency securities 10,509 10 (1) 10,518
Non-U.S. government securities 3,164 14 (1) 3,177
Certificates of deposit and time deposits 1,451 0 0 1,451
Commercial paper 2,421 0 0 2,421
Corporate securities 15,683 59 (31) 15,711
Municipal securities 1,636 6 (1) 1,641
Total cash equivalents and marketable securities $43,834 $ 113 $ (34) $43,913

September 26, 2009

Adjusted Unrealized Unrealized Fair
Cost Gains Losses Value
Money market funds $ 1,608 $ 0 $ 0 $ 1,608
U.S. Treasury securities 3,610 6 0 3,616
U.S. agency securities 11,085 22 0 11,107
Non-U.S. government securities 320 1 0 321
Certificates of deposit and time deposits 1,714 0 0 1,714
Commercial paper 4,197 0 0 4,197
Corporate securities 9,760 42 (16) 9,786
Municipal securities 502 2 0 504
Total cash equivalents and marketable securities $32,796 $ 73 $ (16) $32,853

The Company had net unrealized gains on its investment portfolio of $79 million and $57 million as of June 26, 2010 and
September 26, 2009, respectively. The net unrealized gains as of June 26, 2010 and September 26, 2009 are 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 significant net gains or
losses during the three- and nine-month periods ended June 26, 2010 and June 27, 2009 related to such sales.
11
The following tables show the gross unrealized losses and fair value for investments in an unrealized loss position as of June 26, 2010
and September 26, 2009, aggregated by investment category and the length of time that individual securities have been in a
continuous loss position (in millions):
June 26, 2010
Less than 12 Months 12 Months or Greater Total
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
U.S. agency securities $ 1,882 $ (1) $ 0 $ 0 $ 1,882 $ (1)
Non-U.S. government securities 897 (1) 0 0 897 (1)
Corporate securities 5,408 (27) 313 (4) 5,721 (31)
Municipal securities 551 (1) 0 0 551 (1)
Total $ 8,738 $ (30) $ 313 $ (4) $ 9,051 $ (34)

September 26, 2009

Less than 12 Months 12 Months or Greater Total
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
Corporate securities $ 1,667 $ (3) $ 719 $ (13) $ 2,386 $ (16)
Total $ 1,667 $ (3) $ 719 $ (13) $ 2,386 $ (16)

The unrealized losses on the Company’s marketable securities were caused primarily by changes in market interest rates or widening
credit spreads. The Company considers the declines in market value of its marketable securities investment portfolio to be temporary
in nature. 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 investment grade, primarily 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 any changes
thereto, and the Company’s intent to sell, or whether it is more likely than not it will be required to sell, the investment before
recovery of the investment’s amortized cost basis. During the three- and nine-month periods ended June 26, 2010 and June 27, 2009,
the Company did not recognize any significant impairment charges on outstanding securities. As of June 26, 2010, 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 currency 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
currency 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 currency exchange exposures for a variety of reasons,
including but not limited to immateriality, accounting considerations and the prohibitive economic cost of hedging particular
12
exposures. There can be no assurance the hedges will offset more than a portion of the financial impact resulting from movements in
foreign currency exchange rates.

The Company’s accounting policies for these instruments are based on whether the instruments are designated as hedge or non-hedge
instruments. The Company records all derivatives on the Condensed Consolidated Balance Sheets 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 $42 million and $1 million, net of taxes,
recorded in other comprehensive income as of June 26, 2010 and September 26, 2009, 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. Substantially all of the Company’s hedged
transactions as of June 26, 2010 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 significant net gains or losses
related to the loss of hedge designation on discontinued cash flow hedges during the three- and nine-month periods ended June 26,
2010 and June 27, 2009, respectively.

The Company had an unrealized net loss on net investment hedges of $17 million and $2 million, net of taxes, included in the
cumulative translation adjustment account of accumulated other comprehensive income (“AOCI”) as of June 26, 2010 and
September 26, 2009, 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 net gain on foreign currency forward and option contracts not designated as hedging
instruments of $25 million and $15 million during the three- and nine-month periods ended June 26, 2010, respectively, and a net loss
on foreign currency forward and option contracts not designated as hedging instruments of $34 million and a net gain of $139 million
during the three- and nine-month periods ended June 27, 2009, respectively.

The following table shows the notional principal and credit risk amounts of the Company’s derivative instruments outstanding as of
June 26, 2010 and September 26, 2009 (in millions):
June 26, 2010 September 26, 2009
Notional Credit Risk Notional Credit Risk
Principal Amounts Principal Amounts
Instruments qualifying as accounting hedges:
Foreign exchange contracts $10,321 $ 216 $ 4,422 $ 31
Instruments other than accounting hedges:
Foreign exchange contracts $ 6,078 $ 22 $ 3,416 $ 10

The notional principal amounts for derivative instruments provide one measure of the transaction volume outstanding as of June 26,
2010 and September 26, 2009, and do not represent the amount of the Company’s exposure to credit or market loss. The credit risk
amounts represent the Company’s gross exposure to potential
13
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 at each respective date. The Company’s gross exposure on these transactions may be further
mitigated by collateral received from certain counterparties. 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 Company generally enters into master netting arrangements, which reduce credit risk by permitting net settlement of transactions
with the same counterparty. To further limit credit risk, the Company generally enters into collateral security arrangements that
provide for collateral to be received when the net fair value of certain financial instruments exceeds contractually established
thresholds. The Company presents its derivative assets and derivative liabilities at their gross fair values. As of June 26, 2010, the
Company has received cash collateral related to the derivative instruments under its collateral security arrangements of $73 million
and recorded the offsetting balance as accrued expenses in the Condensed Consolidated Balance Sheet. The Company did not record
any significant amounts of cash collateral related to the derivative instruments under its master netting arrangements as of
September 26, 2009. The Company did not have any derivative instruments with credit risk-related contingent features that would
require it to post additional collateral as of June 26, 2010 or September 26, 2009.

The estimates of fair value are based on applicable and commonly used pricing models and prevailing financial market information as
of June 26, 2010 and September 26, 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 tables show the
Company’s derivative instruments measured at gross fair value as reflected in the Condensed Consolidated Balance Sheets as of
June 26, 2010 and September 26, 2009 (in millions):

June 26, 2010

Fair Value of Fair Value of
Derivatives Derivatives
Designated Not Designated
as Hedge as Hedge Total
Instruments Instruments Fair Value
Derivative assets (a):
Foreign exchange contracts $ 184 $ 22 $ 206
Derivative liabilities (b):
Foreign exchange contracts $ 160 $ 24 $ 184

September 26, 2009

Fair Value of Fair Value of
Derivatives Derivatives
Designated Not Designated
as Hedge as Hedge Total
Instruments Instruments Fair Value
Derivative assets (a):
Foreign exchange contracts $ 27 $ 10 $ 37
Derivative liabilities (b):
Foreign exchange contracts $ 24 $ 1 $ 25

(a) All derivative assets are recorded as other current assets in the Condensed Consolidated Balance Sheets.
(b) All derivative liabilities are recorded as accrued expenses in the Condensed Consolidated Balance Sheets.
14
The following tables show the pre-tax effect of the Company’s derivative instruments designated as cash flow and net investment
hedges in the Condensed Consolidated Statements of Operations for the three- and nine-month periods ended June 26, 2010 and
June 27, 2009 (in millions):
Three Month Periods
Gains (Losses) Gains (Losses) Recognized – Ineffective
Recognized in OCI - Gains (Losses) Reclassified from AOCI Portion and Amount Excluded from
Effective Portion (a) into Income - Effective Portion (a) Effectiveness Testing
June 26, June 27, June 26, June 27, June 26, June 27,
2010 2009 Location 2010 2009 Location 2010 2009
Cash flow hedges:
Foreign exchange $ 118 $ (13) Net sales $ 78 $ 1 Other income $ (46) $ (13)
contracts and expense
Foreign exchange (35) (36) Cost of sales (11) (6) Other income (4) (4)
contracts and expense
Net investment hedges:
Foreign exchange (18) (8) Other income 0 0 Other income 0 1
contracts and expense and expense
Total $ 65 $ (57) $ 67 $ (5) $ (50) $ 16

Nine Month Periods

Gains (Losses) Gains (Losses) Recognized – Ineffective
Recognized in OCI - Gains (Losses) Reclassified from AOCI Portion and Amount Excluded from
Effective Portion (a) into Income - Effective Portion (a) Effectiveness Testing
June 26, June 27, June 26, June 27, June 26, June 27,
2010 2009 Location 2010 2009 Location 2010 2009
Cash flow hedges:
Foreign exchange $ 212 $ 285 Net sales $ 109 $ 324 Other income $ (69) $ (64)
contracts and expense
Foreign exchange (67) 87 Cost of sales (29) 105 Other income (19) (9)
contracts and expense
Net investment hedges:
Foreign exchange (16) (30) Other income 0 0 Other income 0 3
contracts and expense and expense
Total $ 129 $ 342 $ 80 $ 429 $ (88) $ (70)

(a) Refer to Note 6, “Shareholders’ Equity and Stock-Based Compensation” of this Form 10-Q, which summarizes the activity in
accumulated other comprehensive income related to derivatives.
15
Note 3 – Fair Value Measurements
The Company 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.

The Company applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and
bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value
measurement:
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.

The Company’s valuation techniques used to measure the fair value of money market funds and certain marketable equity securities
were derived from quoted prices in active markets for identical assets or liabilities. The valuation techniques used to measure the fair
value of all other financial instruments, all of which have counterparties with high credit ratings, were valued based on quoted market
prices or model driven valuations using significant inputs derived from or corroborated by observable market data.
16
Assets/Liabilities Measured at Fair Value on a Recurring Basis
The following tables present the Company’s assets and liabilities measured at fair value on a recurring basis as of June 26, 2010 and
September 26, 2009 (in millions):

June 26, 2010

Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Instruments Inputs Inputs
(Level 1) (Level 2) (Level 3) Total (a)
Assets:
Money market funds $ 1,707 $ 0 $ 0 $ 1,707
U.S. Treasury securities 0 7,287 0 7,287
U.S. agency securities 0 10,518 0 10,518
Non-U.S. government securities 0 3,177 0 3,177
Certificates of deposit and time deposits 0 1,451 0 1,451
Commercial paper 0 2,421 0 2,421
Corporate securities 0 15,711 0 15,711
Municipal securities 0 1,641 0 1,641
Marketable equity securities 89 0 0 89
Foreign exchange contracts 0 206 0 206
Total assets measured at fair value $ 1,796 $ 42,412 $ 0 $ 44,208
Liabilities:
Foreign exchange contracts $ 0 $ 184 $ 0 $ 184
Total liabilities measured at fair value $ 0 $ 184 $ 0 $ 184

17
 September 26, 2009
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Instruments Inputs Inputs
(Level 1) (Level 2) (Level 3) Total (a)
Assets:
Money market funds $ 1,608 $ 0 $ 0 $ 1,608
U.S. Treasury securities 0 3,616 0 3,616
U.S. agency securities 0 11,107 0 11,107
Non-U.S. government securities 0 321 0 321
Certificates of deposit and time deposits 0 1,714 0 1,714
Commercial paper 0 4,197 0 4,197
Corporate securities 0 9,786 0 9,786
Municipal securities 0 504 0 504
Marketable equity securities 61 0 0 61
Foreign exchange contracts 0 37 0 37
Total assets measured at fair value $ 1,669 $ 31,282 $ 0 $ 32,951
Liabilities:
Foreign exchange contracts $ 0 $ 25 $ 0 $ 25
Total liabilities measured at fair value $ 0 $ 25 $ 0 $ 25

(a) The total fair value amounts for assets and liabilities also represent the related carrying amounts.

The following tables summarize the Company’s assets and liabilities measured at fair value on a recurring basis presented on the
Company’s Condensed Consolidated Balance Sheets as of June 26, 2010 and September 26, 2009 (in millions):

June 26, 2010

Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Instruments Inputs Inputs
(Level 1) (Level 2) (Level 3) Total (a)
Assets:
Cash equivalents $ 1,707 $ 6,072 $ 0 $ 7,779
Short-term marketable securities 0 14,583 0 14,583
Long-term marketable securities 0 21,551 0 21,551
Other current assets 0 206 0 206
Other assets 89 0 0 89
Total assets measured at fair value $ 1,796 $ 42,412 $ 0 $ 44,208
Liabilities:
Other current liabilities $ 0 $ 184 $ 0 $ 184
Total liabilities measured at fair value $ 0 $ 184 $ 0 $ 184

18
 September 26, 2009
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Instruments Inputs Inputs
(Level 1) (Level 2) (Level 3) Total (a)
Assets:
Cash equivalents $ 1,608 $ 2,516 $ 0 $ 4,124
Short-term marketable securities 0 18,201 0 18,201
Long-term marketable securities 0 10,528 0 10,528
Other current assets 0 37 0 37
Other assets 61 0 0 61
Total assets measured at fair value $ 1,669 $ 31,282 $ 0 $ 32,951
Liabilities:
Other current liabilities $ 0 $ 25 $ 0 $ 25
Total liabilities measured at fair value $ 0 $ 25 $ 0 $ 25

(a) The total fair value amounts for assets and liabilities also represent the related carrying amounts.

Note 4 – Condensed Consolidated Financial Statement Details

The following tables show the Company’s condensed consolidated financial statement details as of June 26, 2010 and September 26,
2009 (in millions):

Property, Plant and Equipment

June 26, 2010 September 26, 2009

Land and buildings $ 1,302 $ 955
Machinery, equipment and internal-use software 2,898 1,932
Office furniture and equipment 133 115
Leasehold improvements 1,895 1,665
Gross property, plant and equipment 6,228 4,667
Accumulated depreciation and amortization (2,238) (1,713)
Net property, plant and equipment $ 3,990 $ 2,954

Accrued Expenses

June 26, 2010 September 26, 2009

Accrued warranty and related costs $ 590 $ 577
Accrued compensation and employee benefits 405 357
Deferred margin on component sales 511 225
Accrued marketing and distribution 365 359
Income taxes payable 56 430
Other current liabilities 2,525 1,904
Total accrued expenses $ 4,452 $ 3,852

19
Non-Current Liabilities

June 26, 2010 September 26, 2009

Deferred tax liabilities $ 3,828 $ 2,216
Other non-current liabilities 1,153 1,286
Total other non-current liabilities $ 4,981 $ 3,502

Note 5 – Income Taxes

As of June 26, 2010, the Company recorded gross unrecognized tax benefits of $879 million, of which $346 million, if recognized,
would affect the Company’s effective tax rate. As of September 26, 2009, the total amount of gross unrecognized tax benefits was
$971 million, of which $307 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 $217 million and $291 million of gross interest and penalties accrued as of June 26, 2010 and September 26, 2009, respectively,
which are also classified as other non-current liabilities in the Condensed Consolidated Balance Sheets.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years
2004 through 2006 and proposed certain adjustments. The Company has contested certain of these adjustments through the IRS
Appeals Office. The IRS is currently examining the years 2007 through 2009. All IRS audit issues for years prior to 2004 have been
resolved. During the third quarter of 2010, the Company reached a tax settlement with the IRS for the years 2002 through 2003. In
connection with the settlement, the Company reduced its gross unrecognized tax benefits by $100 million and recognized a $52
million tax benefit in the third quarter of 2010.

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 timing of the resolution and/or closure of audits is not certain, 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 and Stock-Based Compensation

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 GAAP 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 not using the U.S. dollar as their functional currency, 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.
20
The following table summarizes the components of total comprehensive income, net of taxes, during the three- and nine-month
periods ended June 26, 2010 and June 27 2009 (in millions):

Three Months Ended Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Net income $ 3,253 $ 1,828 $ 9,705 $ 5,703
Other comprehensive income:
Change in unrecognized gains on derivative instruments 13 (27) 41 (33)
Change in foreign currency translation (54) 39 (43) (68)
Net change in unrealized gains/losses on marketable securities 24 60 33 91
Total comprehensive income $ 3,236 $ 1,900 $ 9,736 $ 5,693

The following table summarizes activity in other comprehensive income related to derivatives, net of taxes, held by the Company
during the three- and nine-month periods ended June 26, 2010 and June 27, 2009 (in millions):

Three Months Ended Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Change in fair value of derivatives $ 55 $ (30) $ 91 $ 224
Adjustment for net gains/losses realized and included in net
income (42) 3 (50) (257)
Change in unrecognized gains on derivative instruments $ 13 $ (27) $ 41 $ (33)

The following table summarizes the components of accumulated other comprehensive income, net of taxes, as of June 26, 2010 and
September 26, 2009 (in millions):

June 26, 2010 September 26, 2009

Net unrealized gains/losses on marketable securities $ 81 $ 48
Net unrecognized gains on derivative instruments 42 1
Cumulative foreign currency translation (15) 28
Accumulated other comprehensive income $ 108 $ 77

Employee Benefit Plans

Rule 10b5-1 Trading Plans
During the third quarter of 2010, executive officers Timothy D. Cook, Ronald B. Johnson, Peter Oppenheimer, Mark Papermaster,
Philip W. Schiller and Bertrand Serlet had 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.

2003 Employee Stock Plan

The 2003 Employee Stock Plan (the “2003 Plan”) is a shareholder approved plan that provides for broad-based equity grants to
employees, including executive officers. At the Company’s 2010 annual meeting of shareholders, the 2003 Plan was amended to
(1) increase the number of shares of the Company’s common stock that may be delivered pursuant to awards granted under the 2003
Plan by an additional 36,000,000 shares and (2) extend the Company’s authority to grant awards under the 2003 Plan intended to
qualify as “performance-based awards” within the meaning of Section 162(m) of the U.S. Internal Revenue Code through the 2015
annual meeting of shareholders.
21
1997 Director Stock Plan
In August 1997, the Company’s Board of Directors adopted a Director Stock Plan (the “Director Plan”) for non-employee directors of
the Company, which was approved by shareholders in 1998. At the Company’s 2010 annual meeting of shareholders, the Director
Plan was amended to (1) permit the Company to grant awards of RSUs under the Director Plan, (2) effective for grants awarded on or
after February 25, 2010, replace the automatic initial and annual grants of stock options under the Director Plan with automatic initial
and annual grants of RSUs under the plan, (3) modify the Director Plan’s existing share-counting provision so that RSUs granted are
deducted from the shares available for grant under the Director Plan utilizing a factor of two times the number of RSUs granted, and
(4) extend the term of the Director Plan to November 9, 2019.

Restricted Stock Units

A summary of the Company’s RSU activity and related information for the nine months ended June 26, 2010, is as follows (in
thousands, except per share amounts):

Weighted-
Average Aggregate
Number of Grant Date Intrinsic
Shares Fair Value Value
Balance at September 26, 2009 12,263 $ 122.52
Restricted stock units granted 4,920 $ 198.30
Restricted stock units vested (4,456) $ 117.77
Restricted stock units cancelled (549) $ 146.42
Balance at June 26, 2010 12,178 $ 153.80 $3,247,780

The fair value as of the vesting date of RSUs that vested was $353 million and $990 million for the three- and nine-month periods
ended June 26, 2010, respectively, and $98 million and $186 million for the three- and nine-month periods ended June 27, 2009,
respectively.

Stock Option Activity

A summary of the Company’s stock option and RSU activity and related information for the nine months ended June 26, 2010, is as
follows (in thousands, except per share amounts and contractual term in years):

Outstanding Options
Weighted-
Weighted- Average
Shares Average Remaining Aggregate
Available Number Exercise Contractual Intrinsic
for Grant of Shares Price Term Value
Balance at September 26, 2009 37,261 34,375 $ 81.17
Additional shares authorized 36,000 0 $ 0
Restricted stock units granted (9,840) 0 $ 0
Options granted (34) 34 $ 202.00
Options assumed 0 98 $ 11.99
Options cancelled 368 (368) $ 137.61
Restricted stock units cancelled 1,098 0 $ 0
Options exercised 0 (10,440) $ 64.45
Balance at June 26, 2010 64,853 23,699 $ 87.55 2.99 $4,245,660
Exercisable at June 26, 2010 18,448 $ 72.09 2.63 $3,590,214
Expected to vest after June 26, 2010 5,167 $ 141.88 4.25 $ 644,939
22
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 $559 million and $1.6 billion for the three- and nine-month periods ended June 26, 2010, respectively, and $218 million
and $367 million for the three- and nine-month periods ended June 27, 2009, 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. Outstanding RSU balances are not included in the
outstanding options balances in the stock option activity table.

Stock-Based Compensation
Stock-based compensation cost for RSUs is measured based on the closing fair market value of the Company’s common stock on the
date of grant. Stock-based compensation cost for stock options is estimated at the grant date based on each option’s fair-value as
calculated by the Black-Scholes Merton (“BSM”) option-pricing model. 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. The Company recognizes stock-based compensation cost as expense ratably on a straight-line basis over the requisite
service period.

The weighted-average assumptions used for stock options granted do not apply to employee stock options assumed in conjunction
with business acquisitions during the three- and nine-month periods ended June 26, 2010. The weighted-average fair value of stock
options assumed during the three- and nine-month periods ended June 26, 2010 was $256.63 and $216.82, respectively. The
weighted-average assumptions used for the three- and nine-month periods ended June 26, 2010 and June 27, 2009, and the resulting
estimates of weighted-average fair value per share of stock options granted and of employee stock purchase plan rights (“stock
purchase rights”) during those periods are as follows:

Three Months Ended Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Expected life - stock options 0 years 9.6 years 10 years 3.7 years
Expected life - stock purchase rights 7 months 6 months 7 months 6 months
Interest rate - stock options 0% 3.70% 3.71% 1.83%
Interest rate - stock purchase rights 0.20% 0.19% 0.26% 0.64%
Expected volatility - stock options 0% 40.84% 36.30% 52.61%
Expected volatility - stock purchase rights 27.12% 57.64% 32.82% 55.23%
Expected dividend yields 0% 0% 0% 0%
Weighted-average fair value of stock options granted during the period $ 0 $ 68.84 $ 108.58 $ 39.83
Weighted-average fair value of stock purchase rights during the period $ 46.82 $ 24.92 $ 41.98 $ 29.38
23
The following table provides a summary of the stock-based compensation expense included in the Condensed Consolidated
Statements of Operations for the three- and nine-month periods ended June 26, 2010 and June 27, 2009 (in millions):

Three Months Ended Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Cost of sales $ 38 $ 28 $ 112 $ 85
Research and development 80 65 240 192
Selling, general and administrative 101 86 303 253
Total stock-based compensation expense $ 219 $ 179 $ 655 $ 530

The income tax benefit related to stock-based compensation expense was $77 million and $238 million for the three- and nine-month
periods ended June 26, 2010, respectively, and was $67 million and $199 million for the three- and nine-month periods ended
June 27, 2009. As of June 26, 2010, the total unrecognized compensation cost related to outstanding stock options and RSUs expected
to vest was $1.8 billion, which the Company expects to recognize over a weighted-average period of 2.65 years.

Note 7 – 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 generally for
terms of one to 20 years and generally provide renewal options for terms of one to five additional years. Leases for retail space are for
terms of five to 20 years, the majority of which are for ten years, and often contain multi-year renewal options. As of September 26,
2009, the Company’s total future minimum lease payments under noncancelable operating leases were $1.9 billion, of which $1.5
billion related to leases for retail space. During the nine months ended June 26, 2010, total future minimum lease payments under
noncancelable operating leases related to leases for retail space increased $200 million to $1.7 billion.

Accrued Warranty and Indemnifications

The following table reconciles changes in the Company’s accrued warranties and related costs for the three- and nine-month periods
ended June 26, 2010 and June 27, 2009 (in millions):

Three Months Ended Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Beginning accrued warranty and related costs $ 588 $ 637 $ 577 $ 671
Cost of warranty claims (155) (124) (427) (395)
Accruals for product warranties 157 65 440 302
Ending accrued warranty and related costs $ 590 $ 578 $ 590 $ 578

The Company generally does not indemnify its operating system and application software customers 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 materially adversely
affect its financial condition or operating results. Therefore, the Company did not record a liability for indemnification costs as of
either June 26, 2010 or September 26, 2009.
24
The Company has entered into indemnification agreements with its directors and executive officers. Under these agreements, the
Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their
status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is
not possible to determine the maximum potential amount of payments the Company could be required to make under these
agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim.
However, the Company maintains directors and officers’ liability insurance coverage to reduce its exposure to such obligations, and
payments made under these agreements historically have not materially adversely affected the Company’s financial condition or
operating results.

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 materially adversely affect its financial condition and
operating results.

The Company and other participants in the personal computer, mobile communication and consumer electronics 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, mobile communication and
consumer electronics 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 or
manufacturing capacity has increased. 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 Macs, iPhones, iPads, iPods, 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 outsourcing partners of the Company, 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 Macs, iPhones, iPads and iPods. 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.

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 materially adversely affect its financial condition or operating results. However, the results of
legal proceedings cannot be predicted with certainty.
25
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 and certain
states and provinces within North America. 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
materially adversely affect the Company’s financial condition or operating results.

Note 8 – Segment Information and Geographic Data

The Company reports segment information based on the “management” approach. The management approach designates the internal
reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments.

The Company manages its business primarily on a geographic basis. Accordingly, the Company determined its operating and
reporting segments, which are generally based on the nature and location of its customers, to be the Americas, Europe, Japan, Asia-
Pacific and Retail operations. The Americas, Europe, Japan and Asia Pacific 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 Asia-Pacific segment includes Australia and Asia, but does not include Japan. 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 generally 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 2009 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 $128
million and $276 million during the three- and nine-month periods ended June 26, 2010, respectively, and $101 million and $202
million during the three- and nine-month periods ended June 27, 2009.

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 12 high-profile stores as of June 26, 2010.
Expenses allocated to corporate marketing resulting from the operations of high-profile stores were $18 million and
26
$54 million during the three- and nine-month periods ended June 26, 2010, respectively, and $17 million and $49 million during the
three- and nine-month periods ended June 27, 2009, respectively.

Summary information by operating segment for the three- and nine-month periods months ended June 26, 2010 and June 27, 2009 is
as follows (in millions):

Three Months Ended Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Americas:
Net sales $ 6,227 $ 4,474 $17,312 $13,745
Operating income $ 1,997 $ 1,610 $ 5,482 $ 4,783
Europe:
Net sales $ 4,160 $ 2,505 $13,234 $ 8,575
Operating income $ 1,631 $ 926 $ 5,457 $ 2,971
Japan:
Net sales $ 910 $ 560 $ 2,580 $ 1,645
Operating income $ 390 $ 273 $ 1,185 $ 658
Asia-Pacific:
Net sales $ 1,825 $ 703 $ 5,524 $ 2,118
Operating income $ 841 $ 235 $ 2,553 $ 675
Retail:
Net sales $ 2,578 $ 1,492 $ 6,232 $ 4,615
Operating income $ 593 $ 387 $ 1,447 $ 1,113

A reconciliation of the Company’s segment operating income to the condensed consolidated financial statements for the three- and
nine-month periods ended June 26, 2010 and June 27, 2009 is as follows (in millions):

Three Months Ended Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 2010 2009
Segment operating income $ 5,452 $ 3,431 $16,124 $10,200
Stock-based compensation expense (219) (179) (655) (530)
Other corporate expenses, net (a) (999) (620) (2,531) (1,614)
Total operating income $ 4,234 $ 2,632 $12,938 $ 8,056

(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 9 – 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 recognized a total of $12,000 and
$155,000 in expenses pursuant to the Reimbursement Agreement during the three- and nine-month periods ended June 26, 2010,
respectively. The Company did not recognize any expenses pursuant to the Reimbursement Agreement during the three months ended
June 27, 2009 and recognized a total of $4,000 in expenses pursuant to the Reimbursement Agreement during the nine months ended
June 27, 2009. All expenses recognized pursuant to the Reimbursement Agreement have been included in selling, general, and
administrative expenses in the Condensed Consolidated Statements of Operations.
27
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 26, 2009, as amended (the
“2009 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.

Retrospective Adoption of New Accounting Principles

In September 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standards related to revenue
recognition for arrangements with multiple deliverables and arrangements that include software elements (“new accounting
principles”). The Company adopted the new accounting principles on a retrospective basis during the first quarter of 2010.

Under the historical accounting principles, the Company was required to account for sales of both iPhone ® and Apple TV® using
subscription accounting because the Company indicated it might from time-to-time provide future unspecified software upgrades and
features for those products free of charge. Under subscription accounting, revenue and associated product cost of sales for iPhone and
Apple TV were deferred at the time of sale and recognized on a straight-line basis over each product’s estimated economic life. This
resulted in the deferral of significant amounts of revenue and cost of sales related to iPhone and Apple TV.

The new accounting principles impact the Company’s accounting for all past and current sales of iPhone, iPad™, Apple TV and for
sales of iPod touch ® beginning in June 2010. The new accounting principles require the Company to account for the sale of these
devices as two deliverables. The first deliverable is the hardware and software essential to the functionality of the hardware device
delivered at the time of sale, and the second deliverable is the right included with the purchase of these devices to receive on a when-
and-if-available basis, future unspecified software upgrades and features relating to the product’s essential software. The new
accounting principles result in the recognition of a substantial portion of the revenue and all product costs from the sale of these
devices at the time of their sale. Additionally, the Company is required to estimate a standalone selling price for the unspecified
software upgrade rights included with the sale of these devices and recognizes that amount ratably over the 24-month estimated life of
the related hardware device.

Note 1, “Summary of Significant Accounting Policies” under the subheadings “Basis of Presentation and Preparation” and “Revenue
Recognition” of this Form 10-Q provides additional information on the Company’s
28
change in accounting resulting from the adoption of the new accounting principles and the Company’s revenue recognition
accounting policy.

Executive Overview
The Company designs, manufactures, and markets a range of personal computers, mobile communication and consumer electronics
devices, and portable digital music and video players and sells a variety of related software, services, peripherals, and networking
solutions, and third-party digital content and applications. The Company’s products and services include the Mac ® line of desktop and
portable computers, iPhone®, iPad™, the iPod ® line of portable digital music and video players, 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, cellular network carriers, and third-party wholesalers, retailers, and
value-added resellers. In addition, the Company sells a variety of third-party Mac, iPhone, iPad and iPod 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 2009 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’s overall business
strategy is to control the design and development of the hardware and software for all of its products, including personal computers,
mobile communications and consumer electronics devices. The Company’s business strategy leverages its unique ability to design
and develop its own operating system, hardware, application software, and services to provide its customers new products and
solutions with superior ease-of-use, seamless integration, and innovative industrial design. The Company believes continual
investment in research and development is critical to the development and enhancement of innovative products and technologies.

In conjunction with its strategy, the Company continues to build and host a robust platform for the discovery and delivery of third-
party digital content and applications through the iTunes Store. The Company’s App Store™ and iBookstore™ allow customers to
browse, search for, and purchase third-party applications and books through either a Mac or Windows-based computer or by
wirelessly downloading directly to an iPhone, iPad or iPod touch. The Company also desires to support a community for the
development of third-party products that complement the Company’s offerings through its developer programs. The Company is
therefore uniquely positioned to offer superior and well-integrated digital lifestyle and productivity solutions.

The Company participates in several highly competitive markets, including personal computers with its Mac line of personal
computers; mobile communications and consumer electronics devices with its iPhone, iPad and iPod product families; and through
distribution of third-party digital content and applications with its online iTunes Store. While the Company is widely recognized as a
leading innovator in the personal computer, mobile communications and consumer electronics markets as well as a leader in the
market for distribution of 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; the Mac OS X and iOS operating systems; application
software for the Mac; iPhone, iPad and iPod and related software; development of 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 its products, 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
29
education are emphasized, the Company continues to expand and improve its distribution capabilities by opening its own retail stores
in the U.S. and in international markets. The Company had 293 stores open as of June 26, 2010. The Company also sells to customers
directly through its online stores around the world and through its direct sales force.

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, and the Apple Premium Reseller Program, through which
independently run businesses focus on the Apple platform and provide a high level of customer service and product expertise. The
Company believes providing direct contact with its targeted customers is an efficient way to demonstrate the advantages of its
products over those of its competitors.

Additionally, the Company has signed multi-year agreements with various cellular network carriers authorizing them to distribute and
provide cellular network services for iPhones. These agreements are generally not exclusive with a specific carrier, except in the U.S.,
Germany and certain other countries. The Company’s iPods are also sold through a significant number of distribution points,
including certain department stores, member-only warehouse stores, and large retail chains and specialty retail stores.

Product Updates
In June 2010, the Company introduced the new iPhone 4, featuring an all-new design, FaceTime® video calling, a new high resolution
Retina™ display, a 5 megapixel camera with LED flash and front facing camera, high definition video recording, Apple’s A4
processor and a 3-axis gyroscope. iPhone 4 comes with iOS 4, the newest version of the Company’s mobile operating system, and is
available in 16GB and 32GB models. iPhone 4 first became available in the U.S., France, Germany, Japan and the U.K. on June 24,
2010 and is expected to be made available in other countries in the fourth quarter of 2010.

In June 2010, the Company launched iOS 4, which includes new features such as Multitasking that allows customers to move
between applications, Folders to organize and easily access applications, a unified Mail inbox, support for the iAd™ mobile
advertising platform, and the iBooks ® reader and iBookstore. iOS 4 became available for iPhone 3G, iPhone 3GS, iPhone 4, and
second and third generation iPod touch in June 2010, and is expected to be available for iPad in the fall of 2010. Certain features of
the iOS 4 software will not function on certain earlier iPhone and iPod touch models.

In June 2010, the Company announced its iAd mobile advertising network that was launched on July 1, 2010 on iPhone and iPod
touch devices running its iOS 4 software. iAd combines the appearance of TV advertising with the interactivity of Internet advertising
and will allow mobile device customers to engage with an ad without being removed from the applications they are currently using.

In January 2010, the Company introduced iPad, a multi-purpose mobile device for browsing the web, reading and sending email,
viewing photos, watching videos, listening to music, playing games, reading e-books and more. iPad is based on the Company’s
Multi-Touch™ technology, has a 9.7-inch LED-backlit display, is 0.5 inches thick and weighs 1.5 pounds. iPad is available in two
models, one with Wi-Fi connectivity and the other with both Wi-Fi and 3G connectivity. Both versions of iPad became available in
the U.S. in April 2010 and in nine additional countries in May 2010.

A detailed discussion of the Company’s other products may be found in Part I, Item 2, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” of the Company’s 2010 Form 10-Qs and in Part I, Item 1, “Business,” of the
Company’s 2009 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
(“GAAP”) 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 in the Notes to
Consolidated Financial Statements in the Company’s 2009 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
30
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,
income taxes, and legal and other contingencies. Management considers these policies critical 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, digital content and applications, peripherals, and service
and support contracts. 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 recognition of revenue until the customer receives the product because the Company retains a portion of the risk of
loss on these sales during transit. The Company recognizes revenue from the sale of hardware products (e.g., Macs, iPhones, iPads,
iPods and peripherals), software bundled with hardware that is essential to the functionality of the hardware, and third-party digital
content sold on the iTunes Store in accordance with general revenue recognition accounting guidance. The Company recognizes
revenue in accordance with industry specific software accounting guidance for the following types of sales transactions: (i) standalone
sales of software products, (ii) sales of software upgrades and (iii) sales of software bundled with hardware not essential to the
functionality of the hardware.

For multi-element arrangements that include tangible products containing software essential to the tangible product’s functionality
and undelivered software elements relating to the tangible product’s essential software, the Company allocates revenue to all
deliverables based on their relative selling prices. In such circumstances, the new accounting principles establish a hierarchy to
determine the selling price to be used for allocating revenue to deliverables as follows: (i) vendor-specific objective evidence of fair
value (“VSOE”), (ii) third-party evidence of selling price (“TPE”) and (iii) best estimate of the selling price (“ESP”). VSOE generally
exists only when the Company sells the deliverable separately and is the price actually charged by the Company for that deliverable.
ESPs reflect the Company’s best estimates of what the selling prices of elements would be if they were sold regularly on a stand-
alone basis.

For all past and current sales of iPhone, iPad, Apple TV and for sales of iPod touch beginning in June 2010, the Company indicated it
might from time-to-time provide future unspecified software upgrades and features free of charge to customers. The Company has
identified two deliverables in arrangements involving the sale of these devices. The first deliverable is the hardware and software
essential to the functionality of the hardware device delivered at the time of sale. The second deliverable is the right included with the
purchase of iPhone, iPad, iPod touch and Apple TV to receive on a when-and-if-available basis, future unspecified software upgrades
and features relating to the product’s essential software. The Company has allocated revenue between these two deliverables using the
relative selling price method. Because the Company has neither VSOE nor TPE for the two deliverables, the allocation of revenue has
been based on the Company’s ESPs. Amounts allocated to the delivered hardware and the related essential software are recognized at
the time of sale provided the other conditions for revenue recognition have been met. Amounts allocated to the unspecified software
upgrade right are deferred and recognized on a straight-line basis over the 24-month estimated life of each of these devices. All
product cost of sales, including estimated warranty costs, are recognized at the time of sale. Costs for engineering and sales and
marketing are expensed as incurred. If the estimated life of the hardware product should change, the future rate of amortization of the
revenue allocated to the software upgrade right will also change.

The Company’s process for determining its ESP for deliverables without VSOE or TPE involves management’s judgment. The
Company’s process considers multiple factors that may vary depending upon the unique facts and
31
circumstances related to each deliverable. The Company believes its customers, particularly consumers, would be reluctant to buy
unspecified software upgrade rights related to iPhone, iPad, iPod touch and Apple TV. This view is primarily based on the fact that
upgrade rights do not obligate the Company to provide upgrades at a particular time or at all, and do not specify to customers which
upgrades or features will be delivered. Therefore, the Company has concluded if it were to sell upgrade rights on a standalone basis,
including those rights associated with iPhone, iPad, iPod touch and Apple TV, the selling price would be relatively low. Key factors
considered by the Company in developing the ESPs for these upgrade rights include prices charged by the Company for similar
offerings, the Company’s historical pricing practices, the nature of the upgrade rights (e.g., unspecified and when-and-if-available),
and the relative ESP of the upgrade rights as compared to the total selling price of the product. The Company may also consider,
when appropriate, the impact of other products and services, including advertising services, on selling price assumptions when
developing and reviewing its ESPs for software upgrade rights and related deliverables. The Company may also consider additional
factors as appropriate, including the pricing of competitive alternatives if they exist, and product-specific business objectives. If the
facts and circumstances underlying the factors considered change or should future facts and circumstances lead the Company to
consider additional factors, the Company’s ESP for software upgrades related to future sales for these devices could change in future
periods.

Beginning in the third quarter of 2010 in conjunction with the announcement of iOS 4, the Company’s ESPs for the software upgrade
rights included with iPhone, iPad and iPod touch reflect the positive financial impact expected by the Company as a result of its
planned implementation of a mobile advertising platform for these devices and the expectation of customers regarding software that
includes or supports an advertising component. iOS 4 supports iAd, the Company’s new mobile advertising platform, which will
enable applications on iPhone, iPad and iPod touch to feature media-rich advertisements within applications.

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. Management’s estimates are 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 and Impairment 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 financial condition of the issuer and any changes thereto, and the Company’s intent to sell, or whether it is more likely than
not it will be required to sell, the investment before recovery of the investment’s amortized cost basis. 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.
32
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, or by
requiring third-party financing, loans or leases to support credit exposure. 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 financing 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 its results of operations 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, mobile communications and consumer electronics 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 its results of
operations in the period when the write-downs were recorded.

The Company records accruals 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 accruals for cancellation fees that would negatively affect its results of operations in the period when
the cancellation fees are identified and recorded.

Warranty Costs
The Company provides for the estimated cost of 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. If actual product failure rates or repair costs differ from estimates, revisions to the estimated warranty liability
would be required and could materially 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
33
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.

Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations. In accordance with
GAAP, 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 GAAP, 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 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
GAAP and 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 7 “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 GAAP, the Company records a 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 materially adversely
affect 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.
34
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 nine-month periods ended June 26, 2010 and June 27, 2009 (in millions, except unit sales in thousands and per unit
amounts):

Three Months Ended Nine Months Ended

June 26, June 27, June 26, June 27,
2010 2009 Change 2010 2009 Change
Net Sales by Operating Segment:
Americas net sales $ 6,227 $ 4,474 39% $17,312 $13,745 26%
Europe net sales 4,160 2,505 66% 13,234 8,575 54%
Japan net sales 910 560 63% 2,580 1,645 57%
Asia-Pacific net sales 1,825 703 160% 5,524 2,118 161%
Retail net sales 2,578 1,492 73% 6,232 4,615 35%
Total net sales $15,700 $ 9,734 61% $44,882 $30,698 46%
Unit Sales by Operating Segment:
Americas Mac unit sales 1,358 1,147 18% 3,516 2,868 23%
Europe Mac unit sales 914 626 46% 2,881 2,079 39%
Japan Mac unit sales 129 108 19% 363 316 15%
Asia-Pacific Mac unit sales 394 230 71% 1,045 635 65%
Retail Mac unit sales 677 492 38% 1,972 1,445 36%
Total Mac unit sales 3,472 2,603 33% 9,777 7,343 33%
Net Sales by Product:
Desktops (a) $ 1,301 $ 1,134 15% $ 4,525 $ 3,235 40%
Portables (b) 3,098 2,220 40% 8,084 6,644 22%
Total Mac net sales 4,399 3,354 31% 12,609 9,879 28%

iPod 1,545 1,492 4% 6,797 6,528 4%

Other music related products and services (c) 1,214 958 27% 3,705 3,018 23%
iPhone and related products and services (d) 5,334 3,060 74% 16,357 8,427 94%
iPad and related products and services (e) 2,166 0 N/M 2,166 0 N/M
Peripherals and other hardware (f) 396 340 16% 1,337 1,084 23%
Software, service and other sales (g) 646 530 22% 1,911 1,762 8%
Total net sales $15,700 $ 9,734 61% $44,882 $30,698 46%
Unit Sales by Product:
Desktops (a) 1,004 849 18% 3,385 2,395 41%
Portables (b) 2,468 1,754 41% 6,392 4,948 29%
Total Mac unit sales 3,472 2,603 33% 9,777 7,343 33%

Net sales per Mac unit sold (h) $ 1,267 $ 1,289 (2%) $ 1,290 $ 1,345 (4%)
iPod unit sales 9,406 10,215 (8%) 41,261 43,955 (6%)
Net sales per iPod unit sold (h) $ 164 $ 146 12% $ 165 $ 149 11%
iPhone unit sales 8,398 5,208 61% 25,887 13,364 94%
iPad unit sales 3,270 0 N/M 3,270 0 N/M

35
(a) Includes iMac, Mac mini, Mac Pro and Xserve product lines.
(b) Includes MacBook, MacBook Air and MacBook Pro product lines.
(c) Includes iTunes Store sales, iPod services, and Apple-branded and third-party iPod accessories.
(d) Derived from handset sales, carrier agreements, and Apple-branded and third-party iPhone accessories.
(e) Includes iPad sales and Apple-branded and third-party iPad accessories.
(f) Includes sales of displays, wireless connectivity and networking solutions, and other hardware accessories.
(g) Includes sales of Apple-branded operating system, application software, third-party software, AppleCare, and Internet services.
(h) Derived by dividing total product-related net sales by total product-related unit sales.
N/M = Not meaningful.

Net sales during the third quarter of 2010 and the first nine months of 2010 increased $6.0 billion or 61%, and $14.2 billion or 46%,
respectively, compared to the same periods in 2009. Several factors contributed positively to this increase, including the following:
• Net sales of iPhone and related products and services were $5.3 billion and $16.4 billion in the third quarter and first nine
months of 2010, respectively, representing an increase of 74% and 94%, respectively, compared to the same periods in
2009. Net sales of iPhone and related products and services accounted for 34% and 36% of the Company’s total net sales
for the third quarter and first nine months of 2010, respectively. iPhone unit sales totaled 8.4 million and 25.9 million
during the third quarter and first nine months of 2010, respectively, and increased 61% and 94% during the third quarter
and first nine months of 2010, respectively, compared to the same periods in 2009. iPhone year-over-year growth was
attributed primarily to expanded distribution with new international carriers and resellers, continued growth across existing
carriers, and strong overall demand for iPhones, especially in international markets. iPhone revenue includes handset
revenue recognized and revenue from sales of iPhone accessories and carrier agreements.
• Net sales of iPad and related products and services were $2.2 billion and unit sales of iPad were 3.3 million during the third
quarter of 2010. iPad was launched in the U.S. on April 3, 2010 and expanded to Australia, Canada, France, Germany,
Italy, Japan, Spain, Switzerland and the U.K. on May 28, 2010. The Company distributes iPad through its direct channels,
certain of its cellular network carriers’ distribution channels and certain third-party resellers. Net sales of iPad and related
products and services accounted for 14% and 5% of the Company’s total net sales for the third quarter and first nine
months of 2010, respectively.
• Mac net sales increased by $1.0 billion or 31% and $2.7 billion or 28% in the third quarter and first nine months of 2010,
respectively, compared to the same periods in 2009. Mac unit sales increased by 33% in both the third quarter and first nine
months of 2010 compared to the same periods in 2009. Net sales of the Company’s Macs accounted for 28% of the
Company’s total net sales in both the third quarter and first nine months of 2010. During the third quarter and first nine
months of 2010, net sales of the Company’s Mac portable systems increased by 40% and 22%, respectively, primarily
attributable to strong sales growth in MacBook and MacBook Pro. Net sales of the Company’s Mac desktop systems
increased by 15% and 40% in the third quarter and first nine months of 2010, respectively, driven by strong demand for
iMac which was updated in October 2009.
• Net sales of other music related products and services increased $256 million or 27% during the third quarter of 2010 and
increased $687 million or 23% during the first nine months of 2010, compared to the same periods in 2009. These
increases were due primarily to increased net sales from the iTunes Store. During the third quarter and first nine months of
2010, the iTunes store reported net sales of $1.0 billion and $3.0 billion, respectively. The Company believes this
continued growth is the result of heightened consumer interest in downloading third-party digital content and applications,
continued growth in its customer base of iPhone, iPad, and iPod customers, the expansion of third-party audio and video
content available for sale and rent via the iTunes Store, and the continued interest in and growth of the iTunes ® App Store.
The Company continues to expand its iTunes content and applications offerings around the
36
 world. Net sales of other music related products and services accounted for 8% of the Company’s total net sales for both
the third quarter and first nine months of 2010.
• Net sales of iPods increased $53 million or 4% during the third quarter of 2010, while iPod unit sales declined by 8%
during the third quarter of 2010 compared to the same periods in 2009. During the first nine months of 2010, net sales of
iPods increased $269 million or 4%, while iPod unit sales decreased by 6% compared to the same period in 2009. Net sales
per iPod unit sold increased by 12% and 11% in the third quarter and first nine months of 2010, respectively, compared to
the same periods in 2009. The increase in net sales per iPod unit sold was driven primarily by a shift in product mix toward
iPod touch, which had strong growth in each of the Company’s reportable geographic segments. Net sales of iPods
accounted for 10% and 15% of the Company’s total net sales for the third quarter and first nine months of 2010,
respectively.

Segment Operating Performance

The Company manages its business primarily on a geographic basis. The Company’s operating and reporting segments consist of the
Americas, Europe, Japan, Asia-Pacific and Retail operations. The Americas, Europe, Japan and Asia-Pacific reportable segments do
not include 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 Asia-Pacific segment includes Australia and Asia,
but does not include Japan. 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.
Further information regarding the Company’s operating segments may be found in Note 8, “Segment Information and Geographic
Data” in Notes to Condensed Consolidated Financial Statements of this Form 10-Q.

Americas
Net sales in the Americas during the third quarter of 2010 increased $1.8 billion or 39% compared to the third quarter of 2009. This
increase in net sales was attributable to strong demand for iPad, increased iPhone revenue primarily attributable to carrier expansion
and continued growth across existing carriers, strong sales of Mac portable systems, and higher sales of third-party digital content and
applications from the iTunes Store. Americas Mac net sales and unit sales increased 19% and 18%, respectively, during the third
quarter of 2010 compared to the third quarter of 2009, primarily due to strong demand for Mac portable systems. The Americas
segment represented 40% and 46% of the Company’s total net sales in the third quarters of 2010 and 2009, respectively.

During the first nine months of 2010, net sales in the Americas segment increased $3.6 billion or 26% compared to the same period in
2009. The primary contributors to this net sales growth were a significant year-over-year increase in iPhone revenue, strong demand
for iPad, higher sales of Macs, and increased sales of third-party digital content and applications from the iTunes Store. The Americas
segment represented approximately 39% and 45% of the Company’s total net sales for the first nine months of 2010 and 2009,
respectively.

Europe
Net sales in Europe increased $1.7 billion or 66% during the third quarter of 2010 compared to the third quarter of 2009. The growth
in net sales was due mainly to the significant increase in iPhone revenue primarily attributable to country and carrier expansion and
continued growth across existing carriers, continued demand for Mac desktop and portable systems and strong demand for iPad,
partially offset by a stronger U.S. dollar. Europe Mac net sales and unit sales increased 43% and 46%, respectively, during the third
quarter of 2010 compared to the same period in 2009. The Europe segment represented 26% of the Company’s total net sales for both
the third quarters of both 2010 and 2009.

For the first nine months of 2010, net sales in Europe increased $4.7 billion or 54% compared to the same period in 2009. Similar to
the growth in net sales during the third quarter of 2010, the increase in net sales during the first nine months of 2010 was attributable
primarily to the significant year-over-year increase in iPhone revenue, higher sales of Mac desktop and portable systems, and strong
demand for iPad. Strong sales of third-party digital content and applications from the iTunes Store also contributed to higher net sales
during the first nine months of 2010 compared to the same period in 2009. The Europe segment represented 29% and 28% of the
Company’s total net sales for the first nine months in 2010 and 2009, respectively.
37
Japan
Japan’s net sales increased $350 million or 63% during the third quarter of 2010 and increased $935 million or 57% during the first
nine months of 2010 compared to the same periods in 2009. The key contributors to Japan’s net sales growth for both the third quarter
and first nine months of 2010 were increased iPhone revenue, strong demand for iPad and strength in the Japanese Yen relative to the
U.S. dollar. Japan Mac net sales and unit sales grew by 12% and 19%, respectively, during the third quarter of 2010 compared to the
same period in 2009. Japan Mac unit sales increased by 15% and Mac net sales decreased by 1% during the first nine months of 2010
compared to the same period in 2009, due primarily to lower average selling prices. The Japan segment represented 6% of the
Company’s total net sales for the third quarters of both 2010 and 2009, and 6% and 5% of the Company’s total net sales in the first
nine months of 2010 and 2009, respectively.

Asia-Pacific
Net sales in Asia Pacific increased $1.1 billion or 160% during the third quarter of 2010 and increased $3.4 billion or 161% during
the first nine months of 2010 compared to the same periods in 2009. The growth in Asia-Pacific net sales was due mainly to the
significant increase in iPhone revenue primarily attributable to country and carrier expansion and continued growth across existing
carriers, strong demand for Mac portable and desktop systems, and strength in the Australian dollar relative to the U.S. dollar. Higher
sales of iPod touch also contributed to the increase in net sales. The Asia Pacific segment represented 12% of the Company’s total net
sales in both the third quarter of 2010 and the first nine months of 2010 and represented 7% of the Company’s total net sales in both
the third quarter of 2009 and the first nine months of 2009.

Retail
Retail net sales increased $1.1 billion or 73% during the third quarter of 2010 compared to the third quarter of 2009, driven primarily
by strong demand for iPad, as well as increased sales of Mac portable systems and higher sales of Mac and iPad-related accessories.
Mac net sales and unit sales grew in the Retail segment by 29% and 38%, respectively, during the third quarter of 2010 compared to
the third quarter of 2009. The Company opened seven new Retail stores during the third quarter of 2010, three of which were
international stores, ending the quarter with 293 stores open as compared to 258 stores at the end of the third quarter of 2009. With an
average of 287 stores and 254 stores opened during the third quarter of 2010 and 2009, respectively, average revenue per store
increased to $9.0 million in the third quarter of 2010, compared to $5.9 million in the third quarter of 2009. The Retail segment
represented 16% and 15% of the Company’s total net sales in the third quarter of 2010 and 2009, respectively.

Retail net sales grew $1.6 billion or 35% during the first nine months of 2010 compared to the same period in 2009 due primarily to
strong demand for iPad, continued increases in sales of Mac portable and desktop systems, and higher sales of Mac and iPad-related
accessories. Mac net sales and unit sales grew by 26% and 36%, respectively, during the first nine months of 2010 compared to the
same period in 2009. Average revenue per store was $22.0 million for the first nine months of 2010 based on an average of 283
stores, up from $18.3 million in the first nine months of 2009 based on an average of 252 stores. The Retail segment represented 14%
and 15% of the Company’s total net sales for the first nine months of 2010 and 2009, respectively.

The Retail segment reported operating income of $593 million during the third quarter of 2010 compared to operating income of $387
million during the third quarter of 2009, and reported operating income of $1.4 billion during the first nine months of 2010 compared
to $1.1 billion during the first nine months of 2009. The increase in Retail operating income year-over-year is attributable to higher
overall net sales and improved leverage of Retail operating expenses.

Expansion of the Retail segment has required and will continue to require a substantial investment in fixed assets and related
infrastructure, operating lease commitments, personnel, and other operating expenses. Capital asset purchases associated with the
Retail segment since its inception totaled $2.1 billion through the end of the third quarter of 2010. As of June 26, 2010, the Retail
segment had approximately 22,400 full-time equivalent employees and had outstanding lease commitments associated with retail
space and related facilities of $1.7 billion. The Company would incur substantial costs if it were to close multiple retail stores and
such costs could adversely affect the Company’s financial condition and operating results.
38
Gross Margin
Gross margin for the three- and nine-month periods ended June 26, 2010 and June 27, 2009 was as follows (in millions, except gross
margin percentages):

Three Months Ended Nine Months Ended

June 26, 2010 June 27, 2009 June 26, 2010 June 27, 2009
Net sales $ 15,700 $ 9,734 $ 44,882 $ 30,698
Cost of sales 9,564 5,751 26,710 18,581
Gross margin $ 6,136 $ 3,983 $ 18,172 $ 12,117
Gross margin percentage 39.1% 40.9% 40.5% 39.5%

The gross margin percentage in the third quarter of 2010 was 39.1% compared to 40.9% in the third quarter of 2009. This decline in
gross margin is primarily attributable to new and innovative products that have higher cost structures and deliver greater value to
customers, including iPad, partially offset by a more favorable sales mix towards products with higher gross margins,
including iPhone. The gross margin percentage for the first nine months of 2010 was 40.5% compared to 39.5% for the first nine
months of 2009. This increase in gross margin was largely driven by a higher mix of iPhone sales.

The Company expects its gross margin percentage to decrease in future periods compared to levels achieved during the first nine
months of 2010 and anticipates gross margin levels of about 35% in the fourth quarter of 2010. This expected decline is largely due to
flat or reduced average selling prices on new and innovative products that have higher cost structures and deliver greater value to
customers, a stronger U.S. dollar, both expected and potential future cost increases for key components, and to a lesser extent, the
impact in the fourth quarter of the recently announced program to provide iPhone 4 customers with a free case.

The foregoing statements regarding the Company’s expected gross margin percentage are forward-looking and could differ from
anticipated levels because of several factors, including but not limited to certain of those set forth below in Part II, Item 1A, “Risk
Factors” under the subheading “Future operating results depend upon the Company’s ability to obtain key components including but
not limited to microprocessors, NAND flash memory, DRAM and LCDs at favorable prices and in sufficient quantities,” which is
incorporated herein by reference. There can be no assurance that targeted gross margin percentage levels will be achieved. In general,
gross margins and margins on individual products will remain under downward pressure due to a variety of factors, including
continued industry wide global product pricing pressures, increased competition, compressed product life cycles, product transitions
and expected increases in the cost of key components including but not limited to microprocessors, NAND flash memory, dynamic
random access memory (“DRAM”) and liquid crystal displays (“LCDs”), as well as potential increases in the costs of outside
manufacturing services and a potential shift in the Company’s sales mix towards products with lower gross margins. In response to
these competitive pressures, the Company expects it will continue to take product pricing actions, which would adversely affect gross
margins. Gross margins could also be affected by the Company’s ability to manage product quality and warranty costs effectively and
to stimulate demand for certain of its products. Due to the Company’s significant international operations, financial results can be
significantly affected in the short-term by fluctuations in exchange rates.
39
Operating Expenses
Operating expenses for the three- and nine-month periods ended June 26, 2010 and June 27, 2009 were as follows (in millions, except
for percentages):

Three Months Ended Nine Months Ended

June 26, 2010 June 27, 2009 June 26, 2010 June 27, 2009
Research and development $ 464 $ 341 $ 1,288 $ 975
Percentage of net sales 3.0% 3.5% 2.9% 3.2%
Selling, general, and administrative $ 1,438 $ 1,010 $ 3,946 $ 3,086
Percentage of net sales 9.2% 10.4% 8.8% 10.1%

Research and Development (“R&D”)

Expenditures for R&D increased 36% or $123 million to $464 million during the third quarter of 2010 compared to the same period
in 2009, and increased 32% or $313 million to $1.3 billion during the first nine months of 2010 compared to the same period in 2009.
These increases were due primarily to an increase in headcount in the current year to support expanded R&D activities. In addition,
$19 million and $64 million of software development costs were capitalized related to Mac OS X Version 10.6 Snow Leopard and
excluded from R&D expense during the three- and nine-month periods ended June 27, 2009, respectively, while no software
development costs were capitalized during the three- and nine-month periods ended June 26, 2010. The Company continues to believe
that focused investments in R&D are critical to its future growth and competitive position in the marketplace and are directly related
to timely development of new and enhanced products that are central to the Company’s core business strategy. As such, the Company
expects to continue to invest in R&D to remain competitive.

Selling, General, and Administrative (“SG&A”)

SG&A expenditures increased $428 million or 42% to $1.4 billion during the third quarter of 2010 compared to the same period in
2009, and increased $860 million or 28% to $3.9 billion during the first nine months of 2010 compared to the same period in 2009.
These increases were due primarily to the Company’s continued expansion of its Retail segment, higher spending on marketing and
advertising, higher stock-based compensation expenses, and increased variable costs associated with the overall growth of the
Company’s net sales.

Other Income and Expense

Total other income and expense decreased $2 million or 3% to $58 million during third quarter of 2010 compared to the same period
of 2009, and decreased $140 million or 50% to $141 million during the first nine months of 2010 compared to the same period in
2009. The overall decrease in other income and expense is primarily attributable to the decline in interest rates on a year-over-year
basis, partially offset by the Company’s higher cash, cash equivalents and marketable securities balances. The weighted-average
interest rate earned by the Company on its cash, cash equivalents and marketable securities decreased to 0.76% in the third quarter of
2010 from 1.11% in the third quarter of 2009. During the third quarter and first nine months of 2010 and 2009, the Company had no
debt outstanding and accordingly did not incur any related interest expense.

The Company’s investment portfolio had gross unrealized gains of $113 million and $73 million as of June 26, 2010 and
September 26, 2009, respectively, which were partially offset by gross unrealized losses of $34 million and $16 million as of June 26,
2010 and September 26, 2009, respectively. As of June 26, 2010 and September 26, 2009, the gross unrealized gains related primarily
to long-term marketable securities and the gross unrealized losses on the Company’s marketable securities were caused primarily by
changes in market interest rates or widening credit spreads.

The Company considers the declines in market value of its marketable securities investment portfolio to be temporary in nature. The
Company does not have the intent to sell, nor is it more likely than not the Company will be required to sell, any investment before
recovery of its amortized cost basis. Accordingly, no significant declines in fair value were recognized in the Company’s Condensed
Statements of Operations during the three- and nine-month periods ended June 26, 2010 and June 27, 2009. The Company may sell its
marketable securities prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration
management. The
40
Company recognized no significant net gains or losses during the three- and nine-month periods ended June 26, 2010 and June 27,
2009 related to such sales.

Provision for Income Taxes

The Company’s effective tax rates for the three- and nine-month periods ended June 26, 2010 were approximately 24% and 26%,
respectively, compared to approximately 32% for both the three- and nine-month periods ended June 26, 2009. The Company’s
effective rates for both periods differ from the statutory federal income tax rate of 35% due primarily to certain undistributed foreign
earnings for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S. The
lower effective tax rate during the third quarter of 2010 as compared to the same quarter in 2009 is due primarily to an increase in
foreign earnings on which U.S. income taxes have not been provided as such earnings are intended to be indefinitely reinvested
outside the U.S.

The Internal Revenue Service (the “IRS”) has completed its field audit of the Company’s federal income tax returns for the years
2004 through 2006 and proposed certain adjustments. The Company has contested certain of these adjustments through the IRS
Appeals Office. The IRS is currently examining the years 2007 through 2009. All IRS audit issues for years prior to 2004 have been
resolved. During the third quarter of 2010, the Company reached a tax settlement with the IRS for the years 2002 through 2003. In
addition, the Company is subject to audits by state, local, and foreign tax authorities. Management believes that 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 taxes in the period such resolution occurs.

Liquidity and Capital Resources

The following table presents selected financial information and statistics as of June 26, 2010 and September 26, 2009 (in millions):

June 26, 2010 September 26, 2009

Cash, cash equivalents and marketable securities $ 45,839 $ 33,992
Accounts receivable, net $ 3,447 $ 3,361
Inventory $ 942 $ 455
Working capital $ 20,421 $ 20,049

As of June 26, 2010, the Company had $45.8 billion in cash, cash equivalents and marketable securities, an increase of $11.8 billion
from September 26, 2009. The principal component of this net increase was the cash generated by operating activities of $12.9
billion, which was partially offset by payments for acquisition of property, plant and equipment of $1.2 billion and payments made in
connection with business acquisitions, net of cash acquired, of $615 million.

The Company’s marketable securities investment portfolio is invested primarily in highly rated securities with a minimum rating of
single-A. As of June 26, 2010 and September 26, 2009, $27.1 billion and $17.4 billion, respectively, of the Company’s cash, cash
equivalents and marketable securities were held by foreign subsidiaries and are generally based in U.S. dollar-denominated holdings.
The Company believes its existing balances of cash, cash equivalents and marketable securities will be sufficient to satisfy its
working capital needs, capital asset purchases, outstanding commitments, and other liquidity requirements associated with its existing
operations over the next 12 months.

Capital Assets
The Company’s capital expenditures were $1.6 billion during the first nine months of 2010, consisting of approximately $280 million
for Retail store facilities and $1.3 billion for other capital expenditures. The Company’s actual cash payments for these capital
expenditures during the first nine months of 2010 were $1.2 billion.

The Company anticipates utilizing approximately $2.5 billion for capital expenditures during 2010, including approximately $400
million for Retail store facilities and approximately $2.1 billion for product tooling and manufacturing process equipment, real estate
acquisitions, and corporate facilities and infrastructure, including information systems enhancements.
41
Historically the Company has opened between 25 and 50 new retail stores per year. During 2010, the Company expects to open a
number of new stores near the upper end of this range, over half of which are expected to be located outside of the U.S.

Off-Balance Sheet Arrangements and Contractual Obligations

The Company has not entered into any transactions with unconsolidated entities whereby the Company has financial guarantees,
subordinated retained interests, derivative instruments or other contingent arrangements that expose the Company to material
continuing risks, contingent liabilities, or any other obligation under a variable interest in an unconsolidated entity that provides
financing, liquidity, market risk or credit risk support to the Company.

Lease Commitments
As of September 26, 2009, the Company had total outstanding commitments on noncancelable operating leases of $1.9 billion, $1.5
billion of which are related to the lease of retail space and related facilities. The Company’s major facility leases are generally for
terms of one to 20 years and generally provide renewal options for terms of one to five additional years. Leases for retail space are for
terms of five to 20 years, the majority of which are for ten years, and often contain multi-year renewal options. Total outstanding
commitments on noncancelable operating leases related to the lease of retail space increased to $1.7 billion as of June 26, 2010.

Purchase Commitments with Contract Manufacturers and Component Suppliers

The Company utilizes several contract manufacturers to manufacture sub-assemblies for the Company’s products and to perform final
assembly and test of finished products. These contract manufacturers acquire components and build product based on demand
information supplied by the Company, which typically covers periods ranging from 30 to 150 days. The Company also obtains
individual components for its products from a wide variety of individual suppliers. Consistent with industry practice, the Company
acquires components through a combination of purchase orders, supplier contracts, and open orders based on projected demand
information. Such purchase commitments typically cover the Company’s forecasted component and manufacturing requirements for
periods ranging from 30 to 150 days. As of June 26, 2010, the Company had outstanding off-balance sheet third-party manufacturing
commitments and component purchase commitments of $6.2 billion.

The Company has entered into prepaid long-term supply agreements to secure the supply of certain inventory components. As of
June 26, 2010, the Company had a total of $991 million of inventory component prepayments outstanding, which $161 million is
classified as other current assets and $830 million is classified as other assets in the Condensed Consolidated Balance Sheets. The
Company had a total of $1.2 billion of inventory component prepayments outstanding as of September 26, 2009, of which $309
million was classified as other current assets and $844 million was classified as other assets in the Condensed Consolidated Balance
Sheets.

Other Obligations
Other outstanding obligations were $256 million as of June 26, 2010, primarily related to advertising, research and development,
Internet and telecommunications services, and other obligations.

As of June 26, 2010, the Company had gross unrecognized tax benefits of $879 million and an additional $217 million for gross
interest and penalties classified as non-current liabilities in the Condensed Consolidated Balance Sheet. At this time, the Company is
unable to make a reasonably reliable estimate of the timing of payments in individual years due to uncertainties in the timing of tax
audit outcomes.

Indemnifications
The Company generally does not indemnify its operating system and application software customers 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 liability related to unresolved infringement claims subject to indemnification that would materially adversely affect its
financial condition or operating results. Therefore, the Company did not record a liability for indemnification costs as of either
June 26, 2010 or September 26, 2009.
42
The Company has entered into indemnification agreements with its directors and executive officers. Under these agreements, the
Company has agreed to indemnify such individuals to the fullest extent permitted by law against liabilities that arise by reason of their
status as directors or officers and to advance expenses incurred by such individuals in connection with related legal proceedings. It is
not possible to determine the maximum potential amount of payments the Company could be required to make under these
agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each claim.
However, the Company maintains directors and officers’ liability insurance coverage to reduce its exposure to such obligations, and
payments made under these agreements historically have not materially adversely affected the Company’s financial condition or
operating results.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s market risk profile has not changed significantly during the first nine months of 2010.

Interest Rate and Foreign Currency Risk Management

The Company regularly reviews its foreign exchange forward and option positions, both on a stand-alone basis and in conjunction
with its underlying foreign currency and interest rate related exposures. However, given the effective horizons of the Company’s risk
management activities and the anticipatory nature of the exposures, there can be no assurance the hedges will offset more than a
portion of the financial impact resulting from movements in either foreign exchange or interest rates. In addition, the timing of the
accounting for recognition of gains and losses related to mark-to-market instruments for any given period may not coincide with the
timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect the Company’s financial
condition and operating results.

Interest Rate Risk

While the Company is exposed to interest rate fluctuations in many of the world’s leading industrialized countries, the Company’s
interest income and expense is most sensitive to fluctuations in the general level of U.S. interest rates. As such, changes in U.S.
interest rates affect the interest earned on the Company’s cash, cash equivalents and marketable securities, the fair value of those
investments, as well as costs associated with foreign currency hedges.

The Company’s investment policy and strategy are focused on preservation of capital and supporting the liquidity requirements of the
Company. A portion of the Company’s cash is managed by external managers within the guidelines of the Company’s investment
policy and to objective market benchmarks. The Company’s internal portfolio is benchmarked against external manager performance.

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment portfolio. 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 investment grade, primarily rated single-A or better with the objective
of minimizing the potential risk of principal loss. All highly liquid investments with initial maturities of three months or less at the
date of purchase are classified as cash equivalents. The Company classifies its marketable securities as either short-term or long-term
based on each instrument’s underlying contractual maturity date. All short-term marketable securities have maturities less than 12
months, while all long-term marketable securities have maturities greater than 12 months. The Company may sell its investments
prior to their stated maturities for strategic purposes, in anticipation of credit deterioration, or for duration management. The
Company recognized no significant net gains or losses during the three- and nine-month periods ended June 26, 2010 and June 27,
2009 related to such sales.

Foreign Currency Risk

In general, the Company is a net receiver of currencies other than the U.S. dollar. Accordingly, changes in exchange rates, and in
particular a strengthening of the U.S. dollar, will negatively affect the Company’s net sales and gross margins as expressed in U.S.
dollars. There is also a risk that the Company will have to adjust local currency product pricing due to competitive pressures when
there has been significant volatility in foreign currency exchange rates.

The Company may enter into foreign currency forward and option contracts with financial institutions to protect against foreign
exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash
flows, and net investments in foreign subsidiaries. Generally, the Company’s
43
practice is to hedge a majority of its material foreign exchange exposures, typically for three to six months. 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.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal
executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) were effective as of
June 26, 2010 to ensure that information required to be disclosed by the Company in reports that it files or submits under the
Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange
Commission rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal
executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the third quarter of 2010, which were
identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange
Act, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings
As of June 26, 2010, the end of the quarterly period covered by this report, the Company was subject to the various legal proceedings
and claims discussed below, as well as certain other legal proceedings and claims that have not been fully resolved and that have
arisen in the ordinary course of business. In the opinion of management, the Company does not have a potential liability related to any
current legal proceeding or claim that would individually or in the aggregate materially adversely affect its financial condition or
operating results. However, the results of legal proceedings cannot be predicted with certainty. 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. The Company settled certain matters during
the third quarter of 2010 that did not individually or in the aggregate have a material impact on the Company’s financial condition and
results of operations.

Branning et al. v. Apple Computer, Inc.

Plaintiffs originally filed this purported class action against the Company in San Francisco County Superior Court on February 17,
2005 on behalf of putative classes of consumers and resellers. The case was transferred to Santa Clara Superior Court in May 2005. In
general, the consumer plaintiffs allege that the Company “shorted” the coverage provided under its warranties and AppleCare
Protection Plan extended service contracts and sold plaintiffs used products that were represented to be new. In general, the reseller
plaintiffs allege that the Company damaged their businesses by opening the Apple retail stores and making misrepresentations in
connection with doing so. The complaint seeks unspecified damages and other relief. On October 28, 2009, the Court granted the
consumer plaintiffs’ motion to certify a class relating to their “shorting” claims, but denied class certification as to their “used as new”
claims. The Company filed a motion to decertify the consumer class, which was heard on July 14, 2010. The reseller plaintiffs have
also filed a motion to certify a class of Apple specialist resellers, which is set for hearing on September 28, 2010. This case is
currently pending.

Harvey v. Apple Inc.

Plaintiff filed this action against the Company on August 6, 2007, in the United States District Court for the Eastern District of Texas
alleging infringement by the Company of U.S. Patent Nos. 6,753,671 and 6,762,584. The complaint seeks unspecified damages and
other relief. On October 8, 2009, the case was transferred to the Northern District of California. The parties reached a settlement and
the case has been dismissed.
44
In re Apple & ATTM Antitrust Litigation
This is a purported class action filed against the Company and AT&T Mobility in the United States District Court for the Northern
District of California. The Consolidated Complaint alleges that the Company and AT&T Mobility violated the federal antitrust laws
by monopolizing and/or attempting to monopolize the “aftermarket for voice and data services” for the iPhone and that the Company
monopolized and/or attempted to monopolize the “aftermarket for software applications for iPhones.” The Consolidated Complaint
also alleges that Apple violated numerous laws by intentionally “bricking” (rendering inoperable) iPhones through the release of
iPhone software update 1.1.1. On July 8, 2010, the Court granted Apple’s motion for summary judgment on all of plaintiffs’ claims
related to the alleged bricking of iPhones. In the same July 8, 2010 order the Court granted in part plaintiffs’ motion for class
certification, certifying a class related to plaintiffs’ antitrust claims. This case is currently pending.

Mediostream, Inc. v. Acer America Corp. et al.

Plaintiff filed this action against the Company, Acer America Corp., Dell, Inc. and Gateway, Inc. on August 28, 2007, in the United
States District Court for the Eastern District of Texas alleging infringement of U.S. Patent No. 7,009,655. Plaintiff seeks unspecified
damages and other relief. This case is currently pending.

Nokia Corporation v. Apple Inc.; Apple Inc. v. Nokia Corporation

Nokia Corporation (“Nokia”) and the Company have asserted multiple claims against one another in lawsuits pending in the United
States District Courts for the Districts of Delaware and Wisconsin, and in the International Trade Commission. These cases include
claims and counterclaims by Nokia and the Company of patent infringement related to iPhones, iPods, iPads and Apple computers,
and Nokia’s mobile computing devices. Nokia alleges that certain of its asserted patents are essential to one or more of the GSM,
UMTS and 802.11 wireless communications standards, and acknowledges its commitment to license them on fair, reasonable, and
non-discriminatory (“FRAND”) terms and conditions. Nokia seeks unspecified FRAND compensation, damages and other
declaratory and injunctive relief in these pending District Court actions as well as an exclusion order from the ITC. The Company
also has asserted claims and counterclaims for declaratory judgments of non-infringement and invalidity of Nokia’s asserted
patents as well as for breach of contract, promissory estoppel and antitrust violations.

Saito Shigeru Kenchiku Kenkyusho (Shigeru Saito Architecture Institute) v. iPod; Apple Japan Inc. v. Shigeru Saito Architecture
Institute
Plaintiff Saito filed a petition against the Company in the Japan Customs Office in Tokyo on January 23, 2007, alleging infringement
by the Company of Japanese Patent No. 3,852,854. The petition sought an order barring the importation into Japan of fifth generation
iPods and second generation iPod nanos. The Customs Office rejected the petition to bar importation and dismissed plaintiff’s case.

Apple Japan, Inc. filed a Declaratory Judgment action against Saito on February 6, 2007, in the Tokyo District Court, seeking a
declaration that the ‘854 patent is invalid and not infringed. Saito filed a Counter Complaint for infringement seeking damages. These
cases are currently pending.

The Apple iPod iTunes Antitrust Litigation (formerly Charoensak v. Apple Computer, Inc. and Tucker v. Apple Computer, Inc.);
Somers v. Apple Inc.
The first-listed action is a consolidated case filed in the United States District Court for the Northern District of California combining
two cases previously pending under the names Charoensak v. Apple Computer Inc. (formerly Slattery v. Apple Computer Inc., filed
on January 3, 2005) and Tucker v. Apple Computer, Inc. (filed on July 21, 2006). A Consolidated Complaint was filed on April 17,
2007 on behalf of a purported class of direct purchasers of iPods and iTunes Store content, alleging various claims including alleged
unlawful tying of music and video purchased on the iTunes Store with the purchase of iPods and unlawful acquisition or maintenance
of monopoly market power. The Court granted partial certification of plaintiffs’ monopolization claims and subsequently de-certified
these claims. The Court also dismissed plaintiffs’ tying claims. Plaintiffs subsequently filed an Amended Consolidated Complaint
seeking unspecified damages and other relief pursuant to § 2 of the Sherman Act (15 U.S.C. § 2), California Business & Professions
Code §16700 et seq. (the Cartwright Act), California Business & Professions Code §17200 (unfair competition), the California
Consumer Legal Remedies Act and California monopolization law, and preserving for appeal the dismissed tying claims. The Court
dismissed all claims in the Amended Consolidated Complaint other than the Sherman Act § 2 and California Business & Professions
Code §17200 claims. This case is currently pending.

A related complaint, Somers v. Apple Inc., was filed on December 31, 2007, in the United States District Court for the Northern
District of California on behalf of a purported class of indirect purchasers, alleging various claims including alleged unlawful tying of
45
music and videos purchased on the iTunes Store with the purchase of iPods and vice versa and unlawful acquisition or maintenance of
monopoly market power under §§1 and 2 of the Sherman Act, the Cartwright Act, California Business & Professions Code §17200
(unfair competition), the California Consumer Legal Remedies Act and California monopolization law. Plaintiff subsequently filed an
Amended Complaint on behalf of purported classes of indirect iPod purchasers and direct purchasers of music from the iTunes Store,
seeking unspecified damages and other relief pursuant to Sherman Act § 2 and California Business & Professions Code §17200, and
preserving for appeal the dismissed tying claims, claims for the overcharge of the iPod, and claims under the Cartwright Act,
Consumers Legal Remedies Act, and common law monopolization. This case is currently pending.

Tse v. Apple Computer, Inc. et al.

Plaintiff filed this action against the Company and other defendants on August 5, 2005, in the United States District Court for the
District of Maryland alleging infringement of U.S. Patent No. 6,665,797. The complaint seeks unspecified damages and other relief.
The action was subsequently transferred to the Northern District of California. The case is currently stayed pending the outcome of
the U.S. Patent and Trademark Office reexamination of the asserted patent.

Vitt v. Apple Computer, Inc.

Plaintiff filed this purported class action on November 7, 2006, in the United States District Court for the Central District of
California on behalf of a purported nationwide class of all purchasers of the iBook G4 alleging that the computer’s logic board fails at
an abnormally high rate. The complaint alleges violations of California Business & Professions Code §17200 (unfair competition) and
California Business & Professions Code §17500 (false advertising). The complaint seeks unspecified damages and other relief. On
May 21, 2010, the Court granted the Company’s motion to dismiss the case with prejudice. This case is currently on appeal.

Vogel et al. v. Jobs et al.

On August 24, 2006, plaintiffs filed a purported shareholder class action in the United States District Court for the Northern District
of California against the Company and certain current and former officers and directors, alleging improper backdating of stock option
grants to maximize certain defendants’ profits, failing to properly account for those grants and issuing false financial statements. On
June 27, 2008, plaintiffs filed another, similar purported shareholder class action in the United States District Court for the Northern
District of California. Plaintiffs’ First Amended Consolidated Complaint, filed on March 22, 2010, asserts claims for unspecified
damages against the Company and certain current and former officers and directors under the federal securities laws on behalf of a
purported class of shareholders. These cases have been consolidated and are currently pending.

Item 1A. Risk Factors

Because of the following factors, as well as other factors affecting the Company’s financial condition and operating results, past
financial performance should not be considered to be a reliable indicator of future performance, and investors should not use
historical trends to anticipate results or trends in future periods.

Economic conditions could materially adversely affect the Company.

The Company’s operations and performance depend significantly on worldwide economic conditions. Uncertainty about current
global economic conditions poses a risk as consumers and businesses may continue to postpone spending in response to tighter credit,
unemployment, negative financial news and/or declines in income or asset values, which could have a material negative effect on
demand for the Company’s products and services. Demand also could differ materially from the Company’s expectations since the
Company generally raises prices on goods and services sold outside the U.S. to offset the effect of a strengthening of the U.S. dollar.
Other factors that could influence demand include increases in fuel and other energy costs, conditions in the real estate and mortgage
markets, labor and healthcare costs, access to credit, consumer confidence, and other macroeconomic factors affecting consumer
spending behavior. These and other economic factors could materially adversely affect demand for the Company’s products and
services and on the Company’s financial condition and operating results.

In the event of renewed financial turmoil affecting the banking system and financial markets, additional consolidation of the financial
services industry, or significant financial service institution failures, there could be a new or incremental tightening in the
credit markets, low liquidity, and extreme volatility in fixed income, credit, currency, and equity markets. In addition, the risk remains
that there could be a number of follow-on effects from the credit crisis on the Company’s business, including the insolvency of key
suppliers or their inability to obtain
46
credit to finance development and/or manufacture products resulting in product delays; inability of customers, including channel
partners, to obtain credit to finance purchases of the Company’s products and/or customer, including channel partner, insolvencies;
and failure of derivative counterparties and other financial institutions negatively impacting the Company’s treasury operations. Other
income and expense also could vary materially from expectations depending on gains or losses realized on the sale or exchange of
financial instruments; impairment charges resulting from revaluations of debt and equity securities and other investments; interest
rates; cash balances; and changes in fair value of derivative instruments. Increased volatility in the financial markets and overall
economic uncertainty would increase the risk of the actual amounts realized in the future on the Company’s financial instruments
differing significantly from the fair values currently assigned to them.

Uncertainty about current global economic conditions could also continue to increase the volatility of the Company’s stock price.

Global markets for personal computers, mobile communication devices, digital music and video devices, and related peripherals and
services are highly competitive and subject to rapid technological change. If the Company is unable to compete effectively in these
markets, its financial condition and operating results could be materially adversely affected.
The Company competes in highly competitive global markets characterized by aggressive price cutting, with resulting downward
pressure on gross margins, frequent introduction of new products, short product life cycles, evolving industry standards, continual
improvement in product price/performance characteristics, rapid adoption of technological and product advancements by competitors,
and price sensitivity on the part of consumers.

The Company’s ability to compete successfully depends heavily on its ability to ensure a continuing and timely introduction of
innovative new products and technologies to the marketplace. The Company believes it is unique in that it designs and develops
nearly the entire solution for its personal computers, mobile communication devices, and consumer electronics, including the
hardware, operating system, numerous software applications, and related services. As a result, the Company must make significant
investments in research and development and as such, the Company currently holds a significant number of patents and copyrights
and has registered and/or has applied to register numerous patents, trademarks and service marks. By contrast, many of the
Company’s competitors seek to compete primarily through aggressive pricing and very low cost structures. If the Company is unable
to continue to develop and sell innovative new products with attractive margins or if other companies infringe on the Company’s
intellectual property, the Company’s ability to maintain a competitive advantage could be negatively affected and its financial
condition and operating results could be materially adversely affected.

In the market for personal computers and peripherals, the Company faces a significant number of competitors, many of which have
broader product lines, lower priced products, and larger installed customer bases. Consolidation in this market has resulted in larger
and potentially stronger competitors. Price competition has been particularly intense as competitors selling Windows-based personal
computers have aggressively cut prices and lowered product margins. The Company also faces increased competition in key market
segments, including consumer, SMB, education, enterprise, government and creative markets. An increasing number of Internet
devices that include software applications and are smaller and simpler than traditional personal computers compete for market share
with the Company’s existing products.

The Company is currently the only authorized maker of hardware using the Mac OS. The Mac OS has a minority market share in the
personal computer market, which is dominated by computer makers using competing operating systems, most notably Windows. The
Company’s financial condition and operating results depend substantially on the Company’s ability to continually improve the Mac
platform to maintain functional and design advantages. Use of unauthorized copies of the Mac OS on other companies’ hardware
products may result in decreased demand for the Company’s hardware products, and could materially adversely affect the Company’s
financial condition and operating results.

The Company is currently focused on certain mobile communication devices and consumer electronic devices and third-party digital
content and applications distribution. The Company faces substantial competition from companies that have significant technical,
marketing, distribution and other resources, as well as established hardware, software and digital content supplier relationships. The
Company also competes with illegitimate ways to obtain third-party
47
digital content and applications. The Company has only recently entered the mobile communications market, and many of its
competitors in the mobile communications market have significantly greater experience, product breadth and distribution channels
than the Company. Because some current and potential competitors have substantial resources and experience and a lower cost
structure, they may be able to provide such products and services at little or no profit or even at a loss. The Company also expects
competition to intensify as competitors attempt to imitate the Company’s approach to providing these components seamlessly within
their individual offerings or work collaboratively to offer integrated solutions.

The Company currently receives subsidies from its exclusive and non-exclusive carriers providing cellular network service for
iPhone. There is no assurance that such subsidies will be continued at all or in the same amounts upon renewal of the Company’s
agreements with these carriers or in agreements the Company enters into with new carriers.

There can be no assurance the Company will be able to continue to provide products and services that compete effectively.

To remain competitive and stimulate customer demand, the Company must successfully manage frequent product introductions and
transitions.
Due to the highly volatile and competitive nature of the personal computer, mobile communication and consumer electronics
industries, the Company must continually introduce new products, services and technologies, enhance existing products and services,
and effectively stimulate customer demand for new and upgraded products. The success of new product introductions depends on a
number of factors including but not limited to timely and successful product development, market acceptance, the Company’s ability
to manage the risks associated with new products and production ramp issues, the availability of application software for new
products, the effective management of purchase commitments and inventory levels in line with anticipated product demand, the
availability of products in appropriate quantities and costs to meet anticipated demand, and the risk that new products may have
quality or other defects in the early stages of introduction. Accordingly, the Company cannot determine in advance the ultimate effect
of new product introductions and transitions on its financial condition and operating results.

The Company faces substantial inventory and other asset risk.

The Company records a write-down for product and component inventories that have become obsolete or exceed anticipated demand
or net realizable value and accrues necessary cancellation fee reserves for orders of excess products and components. The Company
also reviews its long-lived assets for impairment whenever events or changed circumstances indicate the carrying amount of an asset
may not be recoverable. If the Company determines that impairment has occurred, it records a write-down equal to the amount by
which the carrying value of the assets exceeds its fair market value. Although the Company believes its inventory and other asset
related provisions are currently adequate, no assurance can be given that, given the rapid and unpredictable pace of product
obsolescence in the personal computer, mobile communications, and consumer electronics industries, the Company will not incur
additional inventory or asset related charges. Such charges have, and could, materially adversely affect the Company’s financial
condition and operating results.

The Company must order components for its products and build inventory in advance of product announcements and shipments.
Consistent with industry practice, components are normally acquired through a combination of purchase orders, supplier contracts,
open orders and, where appropriate, prepayments, in each case based on projected demand. Such purchase commitments typically
cover forecasted component and manufacturing requirements for 30 to 150 days. Because the Company’s markets are volatile,
competitive and subject to rapid technology and price changes, there is a risk the Company will forecast incorrectly and order or
produce excess or insufficient inventories of components or products. The Company’s financial condition and operating results have
been in the past and could be in the future materially adversely affected by the Company’s ability to manage its inventory levels and
respond to short-term shifts in customer demand patterns.

Future operating results depend upon the Company’s ability to obtain key components including but not limited to microprocessors,
NAND flash memory, DRAM and LCDs at favorable prices and in sufficient quantities.
48
Because the Company currently obtains certain key components including but not limited to microprocessors, enclosures, certain
LCDs, certain optical drives, and application-specific integrated circuits (“ASICs”), from single or limited sources, the Company is
subject 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, DRAM and certain LCDs, are subject at times to industry-wide shortages and
significant commodity pricing fluctuations. 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. The follow-on effects from the credit crisis on the Company’s key suppliers, referred to in
“Economic conditions could materially adversely affect the Company” above, which is incorporated herein by reference, also could
affect the Company’s ability to obtain key components. Therefore, the Company remains subject to significant risks of supply
shortages and/or price increases that could materially adversely affect the Company’s financial condition and operating results. The
Company expects to experience decreases in its gross margin percentage in future periods, as compared to levels achieved during the
first nine months of 2010, largely due to flat or reduced average selling prices on new and innovative products that have higher cost
structures and deliver greater value to customers, a stronger U.S. dollar, and both expected and potential future cost increases for key
components. For additional information refer to Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and
Results of Operations,” under the subheading “Gross Margin,” which is incorporated herein by reference.

The Company and other participants in the personal computer, mobile communication and consumer electronics industries compete
for various components with other industries that have experienced increased demand for their products. The Company uses some
custom components that are not common to the rest of the personal computer, mobile communication and consumer electronics
industries. The Company’s new products 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 or manufacturing capacity has increased.
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. If the 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 depends on component and product manufacturing and logistical services provided by third parties, many of whom are
located outside of the U.S.
Most of the Company’s components and products are manufactured in whole or in part by a few third-party manufacturers. Many of
these manufacturers are located outside of the U.S., and are concentrated in several general locations. The Company has also
outsourced much of its transportation and logistics management. While these arrangements may lower operating costs, they also
reduce the Company’s direct control over production and distribution. It is uncertain what effect such diminished control will have on
the quality or quantity of products or services, or the Company’s flexibility to respond to changing conditions. In addition, the
Company relies on third-party manufacturers to adhere to the Company’s supplier code of conduct. Although arrangements with such
manufacturers may contain provisions for warranty expense reimbursement, the Company may remain responsible to the consumer
for warranty service in the event of product defects. Any unanticipated product defect or warranty liability, whether pursuant to
arrangements with contract manufacturers or otherwise, could materially adversely affect the Company’s reputation, financial
condition and operating results.

Final assembly of the Company’s products is currently performed in the Company’s manufacturing facility in Ireland, and by external
vendors in California, Texas, China, the Czech Republic and Korea. Currently, the supply and manufacture of many critical
components is performed by sole-sourced third-party vendors in the U.S., China, Germany, Ireland, Israel, Japan, Korea, Malaysia,
the Netherlands, the Philippines, Taiwan, Thailand and Singapore. Sole-sourced third-party vendors in China perform final assembly
of substantially all of the Company’s Mac products, iPhones, iPads and iPods. If manufacturing or logistics in these locations is
disrupted for any reason, including but not limited to, natural disasters, information technology system failures, military actions or
economic,
49
business, labor, environmental, public health, or political issues, the Company’s financial condition and operating results could be
materially adversely affected.

The Company relies on third-party digital content and applications, which may not be available to the Company on commercially
reasonable terms or at all.
The Company contracts with certain third parties to offer their digital content and applications through the Company’s iTunes Store.
The Company pays substantial fees to obtain the rights to audio, video and other digital content. The Company’s licensing
arrangements with these third parties are short-term and do not guarantee the continuation or renewal of these arrangements on
reasonable terms, if at all. Some third-party content providers currently or in the future may offer competing products and services,
and could take action to make it more difficult or impossible for the Company to license their content in the future. Other content
owners, providers or distributors may seek to limit the Company’s access to, or increase the total cost of, such content. If the
Company is unable to continue to offer a wide variety of content at reasonable prices with acceptable usage rules, or continue to
expand its geographic reach, the Company’s financial condition and operating results may be materially adversely affected.

Many third-party content providers require that the Company provide certain digital rights management (“DRM”) and other security
solutions. If these requirements change, the Company may have to develop or license new technology to provide these solutions.
There is no assurance the Company will be able to develop or license such solutions at a reasonable cost and in a timely manner. In
addition, certain countries have passed or may propose legislation that would force the Company to license its DRM, which could
lessen the protection of content and subject it to piracy and also could affect arrangements with the Company’s content providers.

The Company relies on access to third-party patents and intellectual property, and the Company’s future results could be materially
adversely affected if it is alleged or found to have infringed intellectual property rights.
Many of the Company’s products are designed to include third-party intellectual property, and in the future the Company may need to
seek or renew licenses relating to various aspects of its products and business methods. Although the Company believes that, based on
past experience and industry practice, such licenses generally could be obtained on reasonable terms, there is no assurance that the
necessary licenses would be available on acceptable terms or at all.

Because of technological changes in the global personal computer, mobile communication and consumer electronics industries,
current extensive patent coverage, and the rapid issuance of new patents, it is possible that certain components of the Company’s
products and business methods may unknowingly infringe the patents or other intellectual property rights of third parties. From time
to time, the Company has been notified that it may be infringing such rights. Regardless of merit, responding to such claims can
consume significant time and expense. At present, the Company is vigorously defending a number of patent infringement cases, and
several pending claims are in various stages of evaluation. In certain cases, the Company may consider the desirability of entering
into licensing agreements, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation
will not occur. If the Company is found to be infringing such rights, it may be required to pay substantial damages. If there is a
temporary or permanent injunction prohibiting the Company from marketing or selling certain products or a successful claim of
infringement against the Company requires it to pay royalties to a third party, the Company’s financial condition and operating results
could be materially adversely affected, regardless of whether it can develop non-infringing technology. While in management’s
opinion the Company does not have a potential liability for damages or royalties from any known current legal proceedings or claims
related to the infringement of patent or other intellectual property rights that would individually or in the aggregate materially
adversely affect its financial condition and operating results, the results of such legal proceedings cannot be predicted with certainty.
Should the Company fail to prevail in any of the matters related to infringement of patent or other intellectual property rights of others
or should several of these matters be resolved against the Company in the same reporting period, the Company’s financial condition
and operating results could be materially adversely affected.

With the introduction of iPhones and 3G enabled iPads, the Company has begun to compete with mobile communication device
companies that hold significant patent portfolios. Regardless of the scope or validity of such patents or the merits of any potential
patent claims by competitors, the Company may have to engage in protracted litigation, enter into
50
expensive agreements or settlements and/or modify its products. Any of these events could have a material adverse impact on the
Company’s financial condition and operating results.

The Company’s future performance depends on support from third-party software developers. If third-party software applications
and services cease to be developed and maintained for the Company’s products, customers may choose not to buy the Company’s
products.
The Company believes decisions by customers to purchase its hardware products, including its Macs, iPhones, iPads and iPods, are
often based to a certain extent on the availability of third-party software applications and services. There is no assurance that third-
party developers will continue to develop and maintain applications and services for the Company’s products on a timely basis or at
all, and discontinuance or delay of these applications and services could materially adversely affect the Company’s financial
condition and operating results.

With respect to its Mac products, the Company believes the availability of third-party software applications and services depends in
part on the developers’ perception and analysis of the relative benefits of developing, maintaining, and upgrading such software for
the Company’s products compared to Windows-based products. This analysis may be based on factors such as the perceived strength
of the Company and its products, the anticipated revenue that may be generated, continued acceptance by customers of Mac OS X,
and the costs of developing such applications and services. If the Company’s minority share of the global personal computer market
causes developers to question the Company’s prospects, developers could be less inclined to develop or upgrade software for the
Company’s products and more inclined to devote their resources to developing and upgrading software for the larger Windows
market. The Company’s development of its own software applications and services may also negatively affect the decisions of third-
party developers, such as Microsoft, Adobe and Google, to develop, maintain, and upgrade similar or competitive software and
services for the Company’s products. Since October 2007, Mac OS X has included a feature that enables Intel-based Mac systems to
run Microsoft Windows operating systems. This feature may deter developers from creating software applications for Mac OS X if
such applications are already available for the Windows platform.

With respect to iPhone, iPad and iPod touch, the Company relies on the continued availability and development of compelling and
innovative software applications. Unlike third-party software applications for Mac products, the software applications for the iPhone,
iPad and iPod touch platforms are distributed through a single distribution channel, the App Store. The absence of multiple
distribution channels, which are available for competing platforms, may limit the availability and acceptance of third-party
applications by the Company’s customers, thereby causing developers to curtail significantly, or stop, development for the
Company’s platforms. In addition, iPhone, iPad and iPod touch are subject to rapid technological change, and, if third-party
developers are unable to keep up with this pace of change, third-party applications might not successfully operate and may result in
dissatisfied customers. Further, if the Company develops its own software applications and services, such development may
negatively affect the decisions of third-party developers to develop, maintain, and upgrade similar or competitive applications for the
iPhone, iPad and iPod touch platforms. As with applications for the Company’s Mac products, the availability and development of
these applications also depend on developers’ perceptions and analysis of the relative benefits of developing software for the
Company’s products rather than its competitors’ products, including devices that use competing platforms. If developers focus their
efforts on these competing platforms, the availability and quality of applications for the Company’s devices may suffer.

The Company’s future operating performance depends on the performance of distributors, carriers and other resellers.
The Company distributes its products through wholesalers, resellers, national and regional retailers, value-added resellers, and
cataloguers, many of whom distribute products from competing manufacturers. The Company also sells many of its products and
resells third-party products in most of its major markets directly to customers, certain education customers, cellular network carriers’
distribution channels and certain resellers through its online and retail stores.

Many resellers operate on narrow operating margins and have been negatively affected in the past by weak economic conditions.
Some resellers have perceived the expansion of the Company’s direct sales as conflicting with their business interests as distributors
and resellers of the Company’s products. Such a perception could discourage
51
resellers from investing resources in the distribution and sale of the Company’s products or lead them to limit or cease distribution of
those products. The Company’s financial condition and operating results could be materially adversely affected if the financial
condition of these resellers weakens, if resellers stopped distributing the Company’s products, or if uncertainty regarding demand for
the Company’s products caused resellers to reduce their ordering and marketing of the Company’s products. The Company has
invested and will continue to invest in programs to enhance reseller sales, including staffing selected resellers’ stores with Company
employees and contractors and improving product placement displays. These programs could require a substantial investment while
providing no assurance of return or incremental revenue.

The Company’s retail business has required and will continue to require a substantial investment and commitment of resources and is
subject to numerous risks and uncertainties.
Through June 26, 2010, the Company had opened 293 retail stores. The Company’s retail stores have required substantial fixed
investment in equipment and leasehold improvements, information systems, inventory and personnel. The Company also has entered
into substantial operating lease commitments for retail space with terms ranging from five to 20 years, the majority of which are for
ten years. Certain stores 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. Due to the high fixed cost structure associated with the
Retail segment, a decline in sales or the closure or poor performance of individual or multiple stores could result in significant lease
termination costs, write-offs of equipment and leasehold improvements, and severance costs that could materially adversely affect the
Company’s financial condition and operating results.

Many factors unique to retail operations, some of which are beyond the Company’s control, pose risks and uncertainties that could
materially adversely affect the Company’s financial condition and operating results. These risks and uncertainties include, among
other things, macro-economic factors that could have a negative effect on general retail activity, as well as the Company’s inability to
manage costs associated with store construction and operation, inability to sell third-party products at adequate margins, failure to
manage relationships with existing retail channel partners, more challenging environment in managing retail operations outside the
U.S., costs associated with unanticipated fluctuations in the value of retail inventory, and inability to obtain and renew leases in
quality retail locations at a reasonable cost.

Investment in new business strategies and initiatives could disrupt the Company’s ongoing business and present risks not originally
contemplated.
The Company has invested, and in the future may invest, in new business strategies or acquisitions. Such endeavors may involve
significant risks and uncertainties, including distraction of management from current operations, insufficient revenue to offset
liabilities assumed and expenses associated with the strategy, inadequate return of capital, and unidentified issues not discovered in
the Company’s due diligence. Because these new ventures are inherently risky, no assurance can be given that such strategies and
initiatives will be successful and will not materially adversely affect the Company’s financial condition and operating results.

The Company’s products and services experience quality problems from time to time that can result in decreased sales and operating
margin.
The Company sells highly complex hardware and software products and services that can contain defects in design and manufacture.
Sophisticated operating system software and applications, such as those sold by the Company, often contain “bugs” that can
unexpectedly interfere with the software’s intended operation. Defects may also occur in components and products the Company
purchases from third parties. There can be no assurance the Company will be able to detect and fix all defects in the hardware,
software and services it sells. Failure to do so could result in lost revenue, harm to reputation, and significant warranty and other
expenses, and could have a material adverse impact on the Company’s financial condition and operating results.
52
In certain countries, including the U.S., the Company relies on a single cellular network carrier to provide service for iPhone.
In the U.S., Germany and certain other countries, the Company has contracted with a single carrier to provide cellular network
services for iPhone on an exclusive basis. If these exclusive carriers cannot successfully compete with other carriers in their markets
on any basis, including but not limited to the quality and coverage of wireless voice and data services, performance and timely build-
out of advanced wireless networks, and pricing and other terms or conditions of customer contracts, or if these exclusive carriers fail
to promote iPhone aggressively or favor other handsets in their promotion and sales activities or service plans, sales may be
materially adversely affected.

The Company is subject to risks associated with laws, regulations and industry-imposed standards related to mobile communications
devices.
Laws and regulations related to mobile communications devices in the many jurisdictions in which the Company operates are
extensive and subject to change. Such changes, which could include but are not limited to restrictions on production, manufacture,
distribution, and use of the device, locking the device to a carrier’s network, or mandating the use of the device on more than one
carrier’s network, could materially adversely affect the Company’s financial condition and operating results.

Mobile communication devices, such as iPhones and 3G enabled iPads, are subject to certification and regulation by governmental
and standardization bodies, as well as by cellular network carriers for use on their networks. These certification processes are
extensive and time consuming, and could result in additional testing requirements, product modifications or delays in product
shipment dates, which could materially adversely affect the Company’s financial condition and operating results.

The Company’s success depends largely on the continued service and availability of key personnel.
Much of the Company’s future success depends on the continued availability and service of key personnel, including its CEO, its
executive team and highly skilled employees in technical, marketing and staff positions. Experienced personnel in the technology
industry are in high demand and competition for their talents is intense, especially in the Silicon Valley, where most of the
Company’s key personnel are located. There can be no assurance that the Company will continue to attract and retain key personnel.

In addition, the Company has relied on equity awards in the form of stock options and restricted stock units as one means for
recruiting and retaining highly skilled talent. Significant adverse volatility in the Company’s stock price could result in a stock
option’s exercise price exceeding the underlying stock’s market value or a significant deterioration in the value of restricted stock
units granted, thus lessening the effectiveness of stock-based awards for retaining employees.

Political events, war, terrorism, public health issues, natural disasters and other circumstances could materially adversely affect the
Company.
War, terrorism, geopolitical uncertainties, public health issues, and other business interruptions have caused and could cause damage
or disruption to international commerce and the global economy, and thus could have a strong negative effect on the Company, its
suppliers, logistics providers, manufacturing vendors and customers, including channel partners. The Company’s business operations
are subject to interruption by natural disasters, fire, power shortages, terrorist attacks, and other hostile acts, labor disputes, public
health issues, and other events beyond its control. Such events could decrease demand for the Company’s products, make it difficult
or impossible for the Company to make and deliver products to its customers, including channel partners, or to receive components
from its suppliers, and create delays and inefficiencies in the Company’s supply chain. Should major public health issues, including
pandemics, arise, the Company could be negatively affected by more stringent employee travel restrictions, additional limitations in
freight services, governmental actions limiting the movement of products between regions, delays in production ramps of new
products, and disruptions in the operations of the Company’s manufacturing vendors and component suppliers. The majority of the
Company’s research and development activities, its corporate headquarters, information technology systems, and other critical
business operations, including certain component suppliers and manufacturing vendors, are located near major seismic faults. Because
53
the Company does not carry earthquake insurance for direct quake-related losses and significant recovery time could be required to
resume operations, the Company’s financial condition and operating results could be materially adversely affected in the event of a
major earthquake.

The Company may be subject to information technology system failures, network disruptions and breaches in data security.
Information technology system failures, network disruptions and breaches of data security caused by such factors, including but not
limited to, earthquakes, fire, theft, fraud, malicious attack or other causes could disrupt the Company’s operations by causing delays
or cancellation of customer, including channel partner, orders, negatively affecting the Company’s online, iTunes, MobileMe and
retail offerings and services, impeding the manufacture or shipment of products, processing transactions and reporting financial
results, resulting in the unintentional disclosure of customer or Company information, or damage to the Company’s reputation. While
management has taken steps to address these concerns by implementing sophisticated network security and internal control measures,
there can be no assurance that a system failure or loss or data security breach will not materially adversely affect the Company’s
financial condition and operating results.

The Company expects its quarterly revenue and operating results to fluctuate for a variety of reasons.
The Company’s profit margins vary among its products and its distribution channels. The Company’s software, accessories, and
service and support contracts generally have higher gross margins than certain of the Company’s other products. Gross margins on the
Company’s hardware products vary across product lines and can change over time as a result of product transitions, pricing and
configuration changes, and component, warranty, and other cost fluctuations. The Company’s direct sales generally have higher
associated gross margins than its indirect sales through its channel partners. In addition, the Company’s gross margin and operating
margin percentages, as well as overall profitability, may be materially adversely impacted as a result of a shift in product, geographic
or channel mix, new products, component cost increases, strengthening U.S. dollar, or price competition. The Company has typically
experienced greater net sales in the first and fourth fiscal quarters compared to the second and third fiscal quarters due to seasonal
demand related to the holiday season and the beginning of the school year, respectively. Furthermore, the Company sells more
products from time-to-time during the third month of a quarter than it does during either of the first two months. Developments late in
a quarter, such as lower-than-anticipated demand for the Company’s products, issues with new product introductions, an internal
systems failure, or failure of one of the Company’s key logistics, components supply, or manufacturing partners, could have a
material adverse impact on the Company’s financial condition and operating results.

The Company’s stock price continues to be volatile.

The Company’s stock has at times experienced substantial price volatility due to a number of factors, including but not limited to
variations between its actual and anticipated financial results, announcements by the Company and its competitors, and uncertainty
about current global economic conditions. The stock market as a whole also has experienced extreme price and volume fluctuations
that have affected the market price of many technology companies in ways that may have been unrelated to these companies’
operating performance. Furthermore, the Company believes its stock price reflects high future growth and profitability expectations.
If the Company fails to meet these expectations its stock price may significantly decline.

The Company’s business is subject to the risks of international operations.

The Company derives a significant portion of its revenue and earnings from its international operations. Compliance with U.S. and
foreign laws and regulations that apply to the Company’s international operations, including without limitation import and export
requirements, the Foreign Corrupt Practices Act, tax laws (including U.S. taxes on foreign subsidiaries), foreign exchange controls
and cash repatriation restrictions, data privacy requirements, labor laws, and anti-competition regulations, increases the costs of doing
business in foreign jurisdictions, and such costs may rise in the future as a result of changes in these laws and regulations or in their
interpretation. Furthermore, the Company has implemented policies and procedures designed to ensure compliance with these laws
and regulations, but there can be no assurance that the Company’s employees, contractors, or agents will not violate such laws and
54
regulations or the Company’s policies. Any such violations could individually or in the aggregate materially adversely affect the
Company’s financial condition or operating results.

The Company’s financial condition and operating results also could be significantly affected by other risks associated with
international activities, including but not limited to, economic and labor conditions, political instability, and changes in the value of
the U.S. dollar versus local currencies. Margins on sales of the Company’s products in foreign countries, and on sales of products that
include components obtained from foreign suppliers, could be materially adversely affected by foreign currency exchange rate
fluctuations and by international trade regulations, including duties, tariffs and antidumping penalties.

The Company’s primary exposure to movements in foreign currency exchange rates relate to non-U.S. dollar denominated sales in
Europe, Japan, Australia, Canada and certain parts of Asia, as well as non-U.S. dollar denominated operating expenses incurred
throughout the world. Weakening of foreign currencies relative to the U.S. dollar will adversely affect the U.S. dollar value of the
Company’s foreign currency-denominated sales and earnings, and generally will lead the Company to raise international pricing,
potentially reducing demand for the Company’s products. In some circumstances, due to competition or other reasons, the Company
may decide not to raise local prices to the full extent of the dollar’s strengthening, or at all, which would adversely affect the U.S.
dollar value of the Company’s foreign currency denominated sales and earnings. Conversely, a strengthening of foreign currencies,
while generally beneficial to the Company’s foreign currency-denominated sales and earnings, could cause the Company to reduce
international pricing, thereby limiting the benefit. Additionally, strengthening of foreign currencies may also increase the Company’s
cost of product components denominated in those currencies, thus adversely affecting gross margins.

The Company has used derivative instruments, such as foreign currency forward and option contracts, to hedge certain exposures to
fluctuations in foreign currency exchange rates. The use of such hedging activities may not offset any or more than a portion of the
adverse financial effects of unfavorable movements in foreign exchange rates over the limited time the hedges are in place.

The Company is exposed to credit risk and fluctuations in the market values of its investment portfolio.
Although the Company has not recognized any material losses on its cash, cash equivalents and marketable securities, any significant
future declines in their market values could materially adversely affect the Company’s financial condition and operating results.
Given the global nature of its business, the Company has investments both domestically and internationally. Additionally, the
Company’s overall investment portfolio has concentrations in the financial sector, which has been negatively impacted by adverse
market liquidity conditions in the recent past. Credit ratings and pricing of these investments can be negatively impacted by liquidity,
credit deterioration or losses, financial results, or other factors. As a result, the value or liquidity of the Company’s cash, cash
equivalents and marketable securities could decline and result in a material impairment, which could materially adversely affect the
Company’s financial condition and operating results.

The Company is exposed to credit risk on its trade accounts receivable, vendor non-trade receivables and prepayments related to
long-term supply agreements. This risk is heightened during periods when economic conditions worsen.
A substantial majority of the Company’s outstanding trade receivables are not covered by collateral or credit insurance. The Company
also has unsecured vendor non-trade receivables resulting from purchases of components by contract manufacturers and other vendors
that manufacture sub-assemblies or assemble final products for the Company. In addition, the Company has made prepayments
associated with long-term supply agreements to secure supply of certain inventory components. While the Company has procedures
to monitor and limit exposure to credit risk on its trade and vendor non-trade receivables as well as long-term prepayments, there can
be no assurance such procedures will effectively limit its credit risk and avoid losses, which could materially adversely affect the
Company’s financial condition and operating results.
55
The matters relating to the Company’s past stock option practices and its restatement of consolidated financial statements may result
in additional litigation.
The Company’s investigation into its past stock option practices and its restatement of prior financial statements in the Annual Report
on Form 10-K for the year ended September 30, 2006 gave rise to litigation and government investigations. As described in Part II,
Item 1, “Legal Proceedings,” several derivative and class action complaints regarding stock options were filed against the Company
and current and former officers and directors. These actions have been dismissed following a comprehensive settlement. Two former
officers of the Company were also named as defendants in an SEC enforcement action, which has been settled.

No assurance can be given that additional actions will not be filed against the Company and current and former officers and directors
as a result of past stock option practices. If such actions are filed and result in adverse findings, the remedies could materially
adversely affect the Company’s financial condition and operating results.

Unfavorable results of legal proceedings could materially adversely affect the Company.
The Company is subject to various legal proceedings and claims that have arisen out of the ordinary conduct of its business and are
not yet resolved and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty.
Regardless of merit, litigation may be both time-consuming and disruptive to the Company’s operations and cause significant expense
and diversion of management attention. In recognition of these considerations, the Company may enter into material settlements.
Should the Company fail to prevail in certain matters, or should several of these matters be resolved against the Company in the same
reporting period, the Company may be faced with significant monetary damages or injunctive relief against it that would materially
adversely affect a portion of its business and might materially affect the Company’s financial condition and operating results.

The Company is subject to risks associated with laws and regulations related to health, safety and environmental protection.
The Company’s products and services, and the production and distribution of those goods and services, are subject to a variety of
laws and regulations. These may require the Company to offer customers the ability to return a 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 and certain states and
provinces within North America. Although the Company does not anticipate any material adverse effects based on the nature of its
operations and the focus of such laws, there is no assurance such existing laws or future laws will not materially adversely affect the
Company’s financial condition and operating results.

Changes in the Company’s tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities
could affect its future results.
The Company is subject to taxes in the United States and numerous foreign jurisdictions. The Company’s future effective tax rates
could be affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred
tax assets and liabilities, or changes in tax laws or their interpretation. In addition, the current administration and Congress have
recently announced proposals for new U.S. tax legislation that, if adopted, could adversely affect the Company’s tax rate. Any of
these changes could have a material adverse affect on the Company’s profitability. The Company is also subject to the continual
examination of its income tax returns by the Internal Revenue Service and other tax authorities. The Company regularly assesses the
likelihood of adverse outcomes resulting from these examinations to determine the adequacy of its provision for taxes. There can be
no assurance that the outcomes from these examinations will not materially adversely affect the Company’s financial condition and
operating results.

The Company is subject to risks associated with the availability and coverage of insurance.
For certain risks, the Company does not maintain insurance coverage because of cost and/or availability. Because the Company
retains some portion of its insurable risks, and in some cases self-insures completely, unforeseen or
56
catastrophic losses in excess of insured limits could materially adversely affect the Company’s financial condition and operating
results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 5. Other Information

None.
57
Item 6. Exhibits
(a) Index to Exhibits

Incorporated by
Reference
Filing Date/
Exhibit Period End
Number Exhibit Description Form Date

3.1 Restated Articles of Incorporation, filed with the Secretary of State of the State of California on
July 10, 2009. 10-Q 6/27/09
3.2 By-Laws of the Registrant, as amended through May 27, 2009. 8-K 6/2/09
4.1 Form of Stock Certificate of the Registrant. 10-Q 12/30/06
10.1* Employee Stock Purchase Plan, as amended through March 8, 2010. 10-Q 3/27/10
10.2* Form of Indemnification Agreement between the Registrant and each director and executive
officer of the Registrant. 10-Q 6/27/09
10.3* 1997 Employee Stock Option Plan, as amended through October 19, 2001. 10-K 9/28/02
10.4* 1997 Director Stock Plan, as amended through February 25, 2010. 8-K 3/1/10
10.5* 2003 Employee Stock Plan, as amended through February 25, 2010. 8-K 3/1/10
10.6* Reimbursement Agreement dated as of May 25, 2001 by and between the Registrant and Steven
P. Jobs. 10-Q 6/29/02
10.7* Form of Option Agreements. 10-K 9/24/05
10.8* Form of Restricted Stock Unit Award Agreement effective as of August 28, 2007. 10-K 9/29/07
10.9* Form of Restricted Stock Unit Award Agreement effective as of November 11, 2008. 10-Q 12/27/08
10.10* Transition Agreement and Settlement Agreement and Release dated as of November 3, 2008 by
and between the Registrant and Anthony Fadell. 10-Q 12/27/08
14.1 Business Conduct Policy of the Registrant dated February 2009. 10-Q 3/28/09
31.1** Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer.
31.2** Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer.
32.1*** Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer.
101.INS**** XBRL Instance Document
101.SCH**** XBRL Taxonomy Extension Schema Document
101.CAL**** XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**** XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**** XBRL Taxonomy Extension Label Linkbase Document
101.PRE**** XBRL Taxonomy Extension Presentation Linkbase Document

* Indicates management contract or compensatory plan or arrangement.

** Filed herewith.
*** Furnished herewith.
58
**** Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation
relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions
of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission
requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply
with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data
files are deemed not filed and otherwise are not subject to liability.
59
 SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

July 21, 2010 APPLE INC.

By: /s/ Peter Oppenheimer

Peter Oppenheimer
Senior Vice President,
Chief Financial Officer
60
 Exhibit 31.1

CERTIFICATIONS

I, Steven P. Jobs, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apple Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

Date: July 21, 2010

By: /s/ Steven P. Jobs

Steven P. Jobs
Chief Executive Officer
 Exhibit 31.2

CERTIFICATIONS

I, Peter Oppenheimer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Apple Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.

Date: July 21, 2010

By: /s/ Peter Oppenheimer

Peter Oppenheimer
Senior Vice President,
Chief Financial Officer
 Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven P. Jobs, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that the Quarterly Report of Apple Inc. on Form 10-Q for the period ended June 26, 2010 fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all
material respects the financial condition and results of operations of Apple Inc.

Date: July 21, 2010

By: /s/ Steven P. Jobs

Steven P. Jobs
Chief Executive Officer

I, Peter Oppenheimer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that the Quarterly Report of Apple Inc. on Form 10-Q for the period ended June 26, 2010 fully complies with the requirements
of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in
all material respects the financial condition and results of operations of Apple Inc.

Date: July 21, 2010

By: /s/ Peter Oppenheimer

Peter Oppenheimer
Senior Vice President,
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Apple Inc. and will be retained by Apple Inc.
and furnished to the Securities and Exchange Commission or its staff upon request.