Apple (AAPL)

Operating Expenses

Operating expenses for the three years ended September 26, 2009, are as follows (in millions, except for percentages):

Research and Development (“R&D”)

R&D expenditures increased 20% or $224 million to $1.3 billion in 2009 compared to 2008. These increases were due primarily to an increase in headcount in the current year to support expanded R&D activities and higher stock-based compensation expenses. In addition, $71 million of software development costs were capitalized related to Mac OS X Snow Leopard and excluded from R&D expense during 2009, compared to $11 million of software development costs capitalized during 2008. Although total R&D expense increased 20% during 2009, it remained relatively flat as a percentage of net sales given the 14% increase in revenue in 2009. 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 make further investments in R&D to remain competitive.

Expenditures for R&D increased 42% or $327 million to $1.1 billion in 2008 compared to 2007. These increases were due primarily to an increase in headcount in 2008 and higher stock-based compensation expenses. In 2008, $11 million of software development costs were capitalized related to Mac OS X Snow Leopard and excluded

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from R&D expense, while R&D expense for 2007 excluded $75 million of capitalized software development costs related to Mac OS X Leopard and iPhone software. Although total R&D expense increased 42% during 2008, it remained relatively flat as a percentage of net sales given the 53% increase in revenue during 2008.

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

SG&A expenditures increased $388 million or 10% to $4.1 billion in 2009 compared to 2008. These increases are due primarily to the Company’s continued expansion of its Retail segment in both domestic and international markets, higher stock-based compensation expenses and higher spending on marketing and advertising.

Expenditures for SG&A increased $798 million or 27% to $3.8 billion in 2008 compared to 2007. These increases are due primarily to higher stock-based compensation expenses, higher variable selling expenses resulting from the significant year-over-year increase in total net sales and the Company’s continued expansion of its Retail segment in both domestic and international markets. In addition, the Company incurred higher spending on marketing and advertising during 2008 compared to 2007.

Operating Expenses

Operating expenses for the three years ended September 26, 2009, are as follows (in millions, except for percentages):

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Research and Development (“R&D”)

R&D expenditures increased 20% or $224 million to $1.3 billion in 2009 compared to 2008. These increases were due primarily to an increase in headcount and higher stock-based compensation expenses in the current year to support expanded R&D activities. In addition, $71 million of software development costs were capitalized related to Mac OS X Snow Leopard and excluded from R&D expense during 2009, compared to $11 million of software development costs capitalized during 2008. Although total R&D expense increased 20% during 2009, it remained relatively flat as a percentage of net sales given the 12% increase in revenue in 2009. 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 make further investments in R&D to remain competitive.

Expenditures for R&D increased 42% or $327 million to $1.1 billion in 2008 compared to 2007. These increases were due primarily to an increase in headcount in 2008 and higher stock-based compensation expenses. In 2008, $11 million of software development costs were capitalized related to Mac OS X Snow Leopard and excluded from R&D expense, while R&D expense for 2007 excluded $75 million of capitalized software development costs related to Mac OS X Leopard and iPhone software. Although total R&D expense increased 42% during 2008, it remained relatively flat as a percentage of net sales given the 35% increase in revenue during 2008.

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

SG&A expenditures increased $388 million or 10% to $4.1 billion in 2009 compared to 2008. These increases are due primarily to the Company’s continued expansion of its Retail segment in both domestic and international markets, higher stock-based compensation expenses and higher spending on marketing and advertising.

Expenditures for SG&A increased $798 million or 27% to $3.8 billion in 2008 compared to 2007. These increases are due primarily to higher stock-based compensation expenses, higher variable selling expenses resulting from the significant year-over-year increase in total net sales and the Company’s continued expansion of its Retail segment in both domestic and international markets. In addition, the Company incurred higher spending on marketing and advertising during 2008 compared to 2007.

Operating Expenses

Operating expenses for the three- and six-month periods ended March 28, 2009 and March 29, 2008 were as follows (in millions, except for percentages):

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Research and Development (“R&D”)

Expenditures for R&D increased 17% or $46 million to $319 million in the three months ended March 28, 2009 compared to the same period in 2008, and increased 22% or $115 million to $634 million during the six months ended March 28, 2009 compared to the same period in 2008. These increases were due primarily to higher stock-based compensation expenses and an increase in R&D headcount in the current year to support expanded R&D activities. In addition, $23 million and $45 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 six-month periods ended March 28, 2009, respectively, while no software development costs were capitalized during the same periods of 2008. Although total R&D expense increased 17% and 22% during the three- and six-month periods ended March 28, 2009, respectively, it remained relatively flat as a percentage of net sales given the revenue growth of 9% and 7%, respectively, during the same periods in 2008. 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 make further investments in R&D to remain competitive.

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

SG&A expenditures increased $99 million or 11% and $230 million or 12%, respectively, for the three- and six-month periods ended March 28, 2009 compared to the same periods in 2008. These increases are due primarily to the Company’s continued expansion of its Retail segment, higher stock-based compensation expenses and higher spending on marketing and advertising.

Operating Expenses

Operating expenses for the three months ended December 27, 2008 and December 29, 2007, were as follows (in millions, except for percentages):

Research and Development (“R&D”)

Expenditures for R&D increased 28% or $69 million to $315 million in the first quarter of 2009 compared to $246 million in the first quarter of 2008, which was due primarily to higher stock-based compensation expenses and an increase in R&D headcount in the current year to support expanded R&D activities. In addition, $22 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 first quarter of 2009, while no software development costs were capitalized during the first quarter of 2008. Although total R&D expense increased 28%, it remained flat as a percentage of net sales, which increased 6% in the first quarter of 2009 as compared to the same period in 2008. 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.

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

SG&A increased 14% or $131 million to $1.1 billion in the first quarter of 2009 compared to $960 million in the first quarter of 2008. This increase is primarily due to higher stock-based compensation expenses, higher variable selling expenses resulting from the year-over-year increase in total net sales, an increase in SG&A headcount, the Company’s continued expansion of its Retail segment, and higher spending on marketing and advertising.

Operating Expenses

Operating expenses for the three fiscal years ended September 27, 2008, are as follows (in millions, except for percentages):

Research and Development (“R&D”)

Expenditures for R&D increased 42% or $327 million to $1.1 billion in 2008 compared to 2007. These increases were due primarily to an increase in R&D headcount in the current year to support expanded R&D activities and higher stock-based compensation expenses. In 2008, $11 million of software development costs were capitalized

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related to Mac OS X Version 10.6 Snow Leopard and excluded from R&D expense, while R&D expense for 2007 excluded $75 million of capitalized software development costs related to Mac OS X Leopard and iPhone. Although total R&D expense increased 42% during 2008, it remained relatively flat as a percentage of net sales given the 35% increase in revenue during 2008. 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 increase spending in R&D to remain competitive.

Expenditures for R&D increased 10% or $70 million to $782 million in 2007 compared to 2006. The increases in R&D expense were due primarily to an increase in R&D headcount in 2007 to support expanded R&D activities, partially offset by one less week of expenses in the first quarter of 2007 and the capitalized software development costs mentioned above.

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

Expenditures for SG&A increased $798 million or 27% to $3.8 billion in 2008 compared to 2007. These increases are due primarily to higher stock-based compensation expenses, higher variable selling expenses resulting from the significant year-over-year increase in total net sales and the Company’s continued expansion of its Retail segment in both domestic and international markets. In addition, the Company incurred higher spending on marketing and advertising during 2008 compared to 2007.

Expenditures for SG&A increased $530 million or 22% during 2007 compared to 2006. The increase was due primarily to higher direct and indirect channel variable selling expenses resulting from the significant year-over-year increase in total net sales in 2007, the Company’s continued expansion of its Retail segment in both domestic and international markets, and higher spending on marketing and advertising, partially offset by one less week of expenses in the first quarter of 2007.

Operating Expenses

Operating expenses for the three and nine-month periods ended June 28, 2008 and June 30, 2007 were as follows (in millions, except for percentages):

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Research and Development (“R&D”)

Expenditures for R&D increased 40% or $84 million to $292 million in the third quarter of 2008 compared to the same period in 2007, and increased 41% or $236 million to $811 million during the first nine months of 2008 compared to the same period in 2007. These increases were due primarily to an increase in R&D headcount in the current year to support expanded R&D activities and higher stock-based compensation expenses. In addition, R&D expense for the three and nine months ended June 30, 2007 excluded $26 million and $53 million, respectively, of capitalized software development costs related to Mac OS X Leopard and iPhone. No software development costs were capitalized in 2008. Although total R&D expense increased 40% and 41%, respectively, during the third quarter and first nine months of 2008 compared to the same periods in 2007, it remained flat as a percentage of net sales given the 38% increases in revenue in both the third quarter and first nine months of 2008 compared to the same periods in 2007. 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 $170 million or 23% and $622 million or 29%, respectively, for the third quarter and the first nine months of 2008 compared to the same periods in 2007. These increases are due primarily to higher stock-based compensation expenses, higher variable selling expenses resulting from the significant year-over-year increase in total net sales and the Company’s continued expansion of its Retail segment in both domestic and international markets. In addition, the Company incurred higher spending on marketing and advertising during the first nine months of 2008 compared to the same period in 2007.

Operating Expenses

Operating expenses for the three and six-month periods ended March 29, 2008 and March 31, 2007 were as follows (in millions, except for percentages):

Research and Development (“R&D”)

Expenditures for R&D increased 49% or $90 million to $273 million in the second quarter of 2008 compared to the same period in 2007, and increased 41% or $152 million to $519 million during the first six months of 2008 compared to the same period in 2007. These increases were due primarily to an increase in R&D headcount in the current year to support expanded R&D activities and higher stock-based compensation expenses. In addition, R&D expense for the first half of 2007 excluded $27 million of capitalized software development costs related to Mac OS X Leopard and iPhone. No software development costs were capitalized in 2008. Although total R&D expense increased 49%, it remained relatively flat as a percentage of net sales given the 43% and 38% increases in revenue in the second quarter and first six months of 2008 compared to the same periods in 2007. 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 make further investments in R&D to remain competitive.

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

SG&A expenditures increased $206 million or 30% and $452 million or 32%, respectively, for the second quarter and the first six months of 2008 compared to the same periods in 2007. These increases are due primarily to higher stock-based compensation expenses, higher variable selling expenses resulting from the significant year-over-year

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increase in total net sales for the second quarter and first six months of 2008, the Company’s continued expansion of its Retail segment in both domestic and international markets, and higher spending on marketing and advertising.

Operating Expenses

Operating expenses for the three months ended December 29, 2007 and December 30, 2006 were as follows (in millions, except for percentages):

Research and Development (“R&D”)

Expenditures for R&D increased 34% or $62 million to $246 million in the first quarter of 2008 compared to $184 million in the first quarter of 2007 primarily due to an increase in R&D headcount in the current year to support expanded R&D activities. Although total R&D expense increased 34%, it remained flat at 3% of net sales given the 35% increase in revenue in the first quarter of 2008 as compared to the same period in 2007. 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 make further investments in R&D to remain competitive.

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

SG&A increased 34% or $246 million to $960 million in the first quarter of 2008 compared to $714 million in the first quarter of 2007. This increase is primarily due to higher variable selling expenses resulting from the significant year-over-year increase in total net sales for the first quarter, the Company’s continued expansion of its Retail segment in both domestic and international markets, and higher spending on marketing and advertising.

Operating Expenses

Operating expenses for each of the last three fiscal years are as follows (in millions, except for percentages):

Research and Development ("R&D")

Expenditures for R&D increased 10% or $70 million to $782 million in 2007 compared to 2006. R&D expense does not include capitalized software development costs of $75 million related to the development of Mac OS X Leopard and iPhone. The increases in R&D expense were primarily due to an increase in R&D headcount in the current year to support expanded R&D activities, partially offset by one less week of expenses in the first quarter of 2007 and the capitalized software development costs mentioned above. 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 increase spending in R&D to remain competitive.

Selling, General, and Administrative Expense ("SG&A")

Expenditures for SG&A increased $530 million or 22% during 2007 compared to 2006. The increase was primarily due to higher direct and indirect channel variable selling expenses resulting from the significant year-over-year increase in total net sales in 2007, the Company's continued expansion of its Retail segment in both domestic and international markets, and a current year increase in spending on marketing and advertising, partially offset by one less week of expenses in the first quarter of 2007.

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Operating Expenses

Operating expenses for each of the last three fiscal years are as follows (in millions, except for percentages):

Research and Development ("R&D")

Expenditures for R&D increased 10% or $70 million to $782 million in 2007 compared to 2006. R&D expense does not include capitalized software development costs of
$75 million related to the development of Mac OS X Leopard and iPhone. The increases in R&D expense were primarily due to an increase in R&D headcount in the current year to support expanded
R&D activities, partially offset by one less week of expenses in the first quarter of 2007 and the capitalized software development costs mentioned above. 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 increase spending in R&D to remain competitive.

Selling, General, and Administrative Expense ("SG&A")

Expenditures for SG&A increased $530 million or 22% during 2007 compared to 2006. The increase was primarily due to higher direct and indirect channel variable selling
expenses resulting from the significant year-over-year increase in total net sales in 2007, the Company's continued expansion of its Retail segment in both domestic and
international markets, and a current year increase in spending on marketing and advertising, partially offset by one less week of expenses in the first quarter of 2007.

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Operating Expenses

Operating expenses for the three and nine-month periods ended June 30, 2007 and July 1, 2006 were as follows (in millions, except for percentages):

Research and Development (R&D)

Expenditures for R&D increased 19% or $33 million to $208 million in the third quarter of 2007 compared to the same period in 2006, and increased 8% or $42 million to $575 million compared to the first nine months of 2006. R&D expense for the three and nine months ended June 30, 2007 does not include capitalized software development costs of approximately $26 million and $53 million, respectively, related to the development of Mac OS X Leopard and iPhone.  The increases in R&D expense were primarily due to an increase in R&D headcount in the current year to support expanded R&D activities, partially offset by one less week of expenses in the first quarter of 2007 and the capitalized software development costs mentioned above. 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 increase spending in R&D to remain competitive.

Selling, General, and Administrative Expense (SG&A)

Expenditures for SG&A increased $162 million or 28% and $332 million or 18%, respectively, for the three and nine-month periods ended June 30, 2007, compared to the same periods in 2006.  The increases were primarily due to higher direct and indirect channel variable selling expenses resulting from the significant year-over-year increase in total net sales for both the third quarter and first nine months of 2007, the Company’s continued expansion of its Retail segment in both domestic and international markets, and a current year increase in spending on marketing and advertising, partially offset by one less week of expenses in the first quarter of 2007.

Operating Expenses

Operating expenses for the three and six-month periods ended March 31, 2007 and April 1, 2006 were as follows (in millions, except for percentages):

Research and Development (R&D)

Expenditures for R&D increased 4% or $7 million to $183 million in the second quarter of 2007 compared to the same period in 2006, and increased 3% or $9 million to $367 million compared to the first six months of 2006. R&D expense for the three and six months ended March 31, 2007 does not include capitalized software development costs of approximately $27 million related to the development of Mac OS X Leopard and iPhone. The increases in R&D expense were primarily due to an increase in R&D headcount in the current year to support expanded R&D activities, partially offset by one less week of expenses in the first quarter of 2007. 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 make further investments in R&D to remain competitive.

Selling, General, and Administrative Expense (SG&A)

Expenditures for SG&A increased $88 million or 15% and $170 million or 14%, respectively, for the three and six-month periods ended March 31, 2007, compared to the same periods in 2006. The increases were primarily due to higher direct and indirect channel variable selling expenses resulting from the significant year-over-year increase in total net sales for both the second quarter and first six months of 2007, the Company’s continued expansion of its Retail segment in both domestic and international markets, and a current year increase in spending on marketing and advertising, partially offset by one less week of expenses in the first quarter of 2007.