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live and on-demand audio and video streaming. The live webcast will begin<br />
at 2:00 p.m. PDT on April 22, 2009 at<br />
<a href="http://www.apple.com/quicktime/qtv/earningsq209/" title="www.apple.com/quicktime/qtv/earningsq209/">www.apple.com/quicktime/qtv/earningsq209/</a> and will also be available for<br />
replay for approximately two weeks thereafter.</p>
<p>*Non-GAAP Financial Measures</p>
<p>During fiscal 2007, the Company began selling the iPhone and Apple TV.<br />
Because the Company may provide unspecified features and additional<br />
software products to iPhone and Apple TV customers in the future free of<br />
charge, in accordance with GAAP the Company recognizes revenue and cost of<br />
goods sold for these products on a straight-line basis over their economic<br />
lives, with any loss recognized at the time of sale. Currently, the<br />
economic lives of these products are estimated to be 24 months. This<br />
accounting treatment, referred to as subscription accounting, results in<br />
the deferral of almost all of the reve nue and cost of goods sold during<br />
the quarter in which the products are sold to the customer. Other costs<br />
related to these products, including costs for engineering, sales,<br />
marketing and warranty, are expensed as incurred. Further, the</p>
<p>costs to develop any future unspecified features and additional software<br />
products that may eventually be provided to customers also are expensed as<br />
incurred. In contrast, the Company generally recognizes revenue and cost of<br />
goods sold for its other products, such as Macs and iPods, at the time of<br />
sale, as the Company does not provide future unspecified features or<br />
additional software products to those customers free of charge.</p>
<p>In July 2008, the Company began selling iPhone 3G, the second-generation<br />
iPhone, and at that time significantly expanded distribution by<br />
establishing carrier relationships in over 70 countries. Unit sales of<br />
iPhone 3G have been significantly greater than sales of the<br />
first-generation iPhone. During the first quarter of iPhone 3G availability<br />
ended September 27, 2008, 6.9 million units were sold, exceeding the 6.1<br />
million first-generation iPhone units sold in the prior five quarters<br />
combined.</p>
<p>Unit sales of iPhone 3G continued to be significant in the quarter ended<br />
March 28, 2009, with 3.79 million iPhones sold. As a result, the amount of<br />
revenue and product cost related to those iPhone sales that the Company<br />
deferred for recognit ion in future periods under subscription accounting<br />
was substantial. While the GAAP results provide significant insight into<br />
the Company's operations and financial position, management continues to<br />
supplement its analysis of the business using financial measures that look<br />
at the total sales, related product costs and resulting income for iPhones<br />
and Apple TVs sold to customers during the period. The presentation at the<br />
end of this press release includes the following non-GAAP measures:<br />
"Adjusted Sales," "Adjusted Cost of Sales," "Adjusted Gross Margin,"<br />
"Adjusted Operating Margin," "Adjusted Net Income" and "Adjusted Diluted<br />
Earnings per Share." These financial measures are not consistent with GAAP<br />
because they do not reflect the deferral of revenue and product costs for<br />
recognition in later periods. The above-mentioned non-GAAP measures are<br />
generated by adjusting the related GAAP measures solely to reverse the<br />
effect of subscription accounting. The Company uses these financ ial<br />
measures, along with other measures discussed below, to provide additional<br />
insight into current operating and business trends not readily apparent<br />
from the GAAP results.</p>
<p>Management uses Adjusted Sales to evaluate the Company's growth rate,<br />
revenue mix and performance relative to competitors. Given the impact of<br />
iPhone unit sales during the quarter ended March 28, 2009, Adjusted Sales<br />
provides a meaningful measurement of the Company's growth by reflecting<br />
amounts generally due to Apple at the time of sale related to products sold<br />
within the period. Further, eliminating the effects of deferred revenue<br />
(current sales deferred to future periods and prior sales being recognized<br />
currently) provides more transparency into the Company's underlying sales<br />
trends. Management uses the non-GAAP m easures of "Adjusted Cost of Sales,"<br />
"Adjusted Gross Margin" and "Adjusted Operating Margin" to measure the<br />
Company's operating performance based on current period iPhone and Apple TV<br />
sales and to facilitate ongoing operating decisions. Additionally, because<br />
the Company recognizes engineering, sales, and marketing expenses as<br />
incurred, including expenses related to iPhone and Apple TV, management<br />
uses Adjusted Sales to evaluate returns on those costs, to manage<br />
year-over-year operating expense growth, and to budget future expenses.<br />
Furthermore, because they are considered meaningful indicators of current<br />
business performance, the non-GAAP measures "Adjusted Sales" and "Adjusted<br />
Operating Margin" are metrics that factor into the determination of<br />
management compensation beginning in fiscal year 2009. Finally, management<br />
uses the non-GAAP measures of "Adjusted Net Income" and "Adjusted Diluted<br />
Earnings per Share" to measure the Company's operating performance based on<br />
current p eriod iPhone and Apple TV sales, to facilitate ongoing operating<br />
decisions, and compare performance relative to competitors.</p>
<p>Management believes that these non-GAAP financial measures, when taken<br />
together with the corresponding consolidated GAAP measures and related<br />
segment information, provide incremental insight into the underlying<br />
factors and trends affecting both the Company's performance and its cash<br />
generating potential. Management believes these non-GAAP measures increase<br />
the transparency of the Company's current results and enable investors to<br />
more fully understand trends in its current and future performance.</p>
<p>Cautions on Use of Non-GAAP Measures</p>
<p>As noted previously, these non-GAAP financial measures are not consistent<br />
with GAAP because they do not reflect the deferral of revenue and product<br />
costs for recognition in later periods. These non-GAAP financial measures<br />
do not adjust for the costs associated with the Company's intention to<br />
provide unspecified new features and software to purchasers of iPhone and<br />
Apple TV products. These costs are expensed as incurred under GAAP's<br />
subscription accounting model, and are not adjusted in these non-GAAP<br />
financial measures. As such, these non-GAAP financial measures are not<br />
intended to reflect in a given period all of the costs of sales made in<br />
that period. Rather, the non-GAAP financial measures presented below are<br />
intended for the lim ited purpose of presenting performance measures that<br />
include the total sales, related product costs, and resulting income for<br />
iPhones and Apple TVs in the period those products are sold to customers.</p>
<p>Management believes investors will benefit from greater transparency in<br />
referring to these non-GAAP financial measures when assessing the Company's<br />
operating results, as well as when forecasting and analyzing future<br />
periods. However, management recognizes that:</p>
<p>-- these non-GAAP financial measures are limited in their usefulness and<br />
should be considered only as a supplement to the Company 's GAAP financial<br />
measures;</p>
<p>-- these non-GAAP financial measures should not be considered in isolation<br />
from, or as a substitute for, the Company's GAAP financial measures;</p>
<p>-- these non-GAAP financial measures should not be considered to be<br />
superior to the Company's GAAP financial measures;</p>
<p>-- these non-GAAP financial measures were not prepared in accordance with<br />
GAAP and investors should not assume that the non-GAAP financial measures<br />
presented in this earnings release were prepared under a comprehensive set<br />
of rules or principles;</p>
<p>-- these non-GAAP financial measures are not presented with comparable<br />
non-GAAP financial measures for prior periods, although management intends<br />
to continue to track and present these non-GAAP financial measures for<br />
future periods; and</p>
<p>-- until management presents comparable non-GAAP financial measures for<br />
additional pe riods, these non-GAAP financial measures do not provide any<br />
information regarding trends in the Company's performance and, as such,<br />
investors should not assume that the presentation of these non-GAAP<br />
financial measures reflects any positive or negative trends in the<br />
Company's performance. Further, these non-GAAP financial measures may be<br />
unique to the Company, as they may be different from non-GAAP financial<br />
measures used by other companies. As such, this presentation of non-GAAP<br />
financial measures may not enhance the comparability of the Company's<br />
results to the results of other companies.</p>
<p>A reconciliation of each non-GAAP financial measure to the most directly<br />
comparable GAAP financial measure or measures appears at the end of this<br />
press release.</p>
<p>This press release contains forward-looking statements including without<br />
limitation those about the Company's estimated revenue and earnings per<br />
share. These statements involve risks and uncertainties, and actual results<br />
may differ. Risks and uncertainties include without limitation the effect<br />
of competitive and economic factors, and the Company's reaction to those<br />
factors, on consumer and business buying decisions with respect to the<br />
Company's products; potential litigation from the matters investigated by<br />
the special committee of the board of directors and the restatement of the<br />
Company's consolidated financial statements; continued competitive<br />
pressures in the marketplace; the ability of the Company to deliver to the<br />
marketplace and stimulate customer demand for new programs, products , and<br />
technological innovations on a timely basis; the effect that product<br />
transitions, changes in product pricing or mix, and/or increases in<br />
component costs could have on the Company's gross margin; the inventory<br />
risk associated with the Company's need to order or commit to order product<br />
components in advance of customer orders; the continued availability on<br />
acceptable terms, or at all, of certain components and services essential<br />
to the Company's business currently obtained by the Company from sole or<br />
limited sources; the effect that the Company's dependency on manufacturing<br />
and logistics services provided by third parties may have on the quality,<br />
quantity or cost of products manufactured or services rendered; the<br />
Company's reliance on the availability of third-party digital content and<br />
applications; the potential impact of a finding that the Company has<br />
infringed on the intellectual property rights of others; the effect that<br />
product and service quality problems could hav e on the Company's sales and<br />
operating profits; the Company's reliance on sole service providers for<br />
iPhone in certain countries; war, terrorism, public health issues, and<br />
other circumstances that could disrupt supply, delivery, or demand of<br />
products; the continued service and availability of key executives and<br />
employees; unfavorable results of other legal proceedings; and the<br />
Company's dependency on the performance of distributors and other resellers<br />
of the Company's products. More information on potential factors that could<br />
affect the Company's financial results is included from time to time in the<br />
Company's public reports filed with the SEC, including the Company's Form<br />
10-K for the fiscal year ended September 27, 2008, its Form 10-Q for the<br />
quarter ended December 27, 2008, and its Form 10-Q for the quarter ended<br />
March 28, 2009 to be filed with the SEC. The Company assumes no obligation<br />
to update any forward-looking statements or information, which speak as of<br />
their respe ctive dates.</p>
<p>Apple ignited the personal computer revolution in the 1970s with the Apple<br />
II and reinvented the personal computer in the 1980s with the Macintosh.<br />
Today, Apple continues to lead the industry in innovation with its<br />
award-winning computers, OS X operating system and iLife and professional<br />
applications. Apple is also spearheading the digital media revolution with<br />
its iPod portable music and video players and iTunes online store, and has<br />
entered the mobile phone market with its revolutionary iPhone.</p>
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