Apple (AAPL)

Retail

Retail net sales decreased $636 million or 9% during 2009 compared to 2008. The decline in net sales was driven largely by a decrease in net sales of iPhones, iPods and Mac desktop systems, offset partially by strong demand for Mac portable systems. The Company opened 26 new retail stores during 2009, including a total of 14 international stores, ending the year with 273 stores open. This compares to 247 stores open as of September 27, 2008 and 197 open stores as of September 29, 2007.

The year-over-year decline in Retail net sales is attributable to continued third-party channel expansion, particularly in the U.S. where most of the Company’s stores are located, and also reflects the challenging consumer-spending environment. With an average of 254 stores and 211 stores opened during 2009 and 2008, respectively, average revenue per store decreased to $26.2 million for 2009 from $34.6 million in 2008.

The Retail segment’s net sales grew by $2.9 billion or 67% during 2008 compared to 2007, due in large part to strong demand for the iPhone, increased sales of Mac portable and desktop systems, increased sales of iPod touch and new store openings. The Company opened 50 new retail stores during 2008, bringing the total number of open stores to 247 as of September 27, 2008. This compares to 197 open stores as of September 29, 2007. With an average of 211 stores and 178 stores opened during 2008 and 2007, respectively, average revenue per store increased to $34.6 million for 2008 from $24.5 million in 2007.

As measured by the Company’s operating segment reporting, the Retail segment reported operating income of $1.7 billion during 2009 and 2008, and $876 million during 2007. Despite the year-over-year decline in Retail net sales, the Retail segment’s operating income was flat at $1.7 billion in 2009 and 2008 due primarily to a higher gross margin percentage consistent with that experienced by the overall company. The Retail segment’s operating income increased by $785 million during 2008 as compared to 2007 due primarily to the significant Retail net sales growth of 67% as compared to 2007.

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 were $369 million in 2009, bringing the total capital asset purchases since inception of the Retail segment to $1.8 billion. As of September 26, 2009, the Retail segment had approximately 16,500 full-time equivalent employees and had outstanding operating lease commitments associated with retail store space and related facilities of $1.5 billion. The Company would incur substantial costs if it were to close multiple retail stores. Such costs could adversely affect the Company’s financial condition and operating results.

Retail

Retail net sales increased $259 million or 4% during 2009 compared to 2008. The growth in net sales was driven largely by increased iPhone revenue and Mac portable systems, offset partially by a decrease in sales of iPods and Mac desktop systems. The Company opened 26 new retail stores during 2009, including a total of 14 international stores, ending the year with 273 stores open. This compares to 247 stores open as of September 27, 2008 and 197 open stores as of September 29, 2007.

The year-over-year growth rate of Retail net sales was less than the increase in the average number of stores open during the same period, which the Company believes reflects the challenging consumer-spending environment and continued third-party channel expansion, particularly in the U.S. where most of its stores are located. With an average of 254 stores and 211 stores opened during 2009 and 2008, respectively, average revenue per store decreased to $25.9 million for 2009 from $29.9 million in 2008.

The Retail segment’s net sales grew by 53% during 2008 compared to 2007, due in large part to increased sales of Mac portable and desktop systems, strong demand for the iPhone and iPod touch, and new store openings. The Company opened 50 new retail stores during 2008, bringing the total number of open stores to 247 as of September 27, 2008. This compares to 197 open stores as of September 29, 2007. With an average of 211 stores and 178 stores opened during 2008 and 2007, respectively, average revenue per store increased to $29.9 million for 2008 from $23.1 million in 2007.

As measured by the Company’s operating segment reporting, the Retail segment reported operating income of $1.4 billion during 2009, as compared to operating income of $1.3 billion and $875 million during 2008 and 2007, respectively. This increase in operating income in 2009 was driven by increased total Retail net sales attributable to a 20% increase in average stores open and higher gross margin percentage consistent with that experienced Company-wide. The Retail segment’s operating income increased by $462 million during 2008 as compared to 2007 due primarily to the significant Retail net sales growth of 53% as compared to 2007.

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 were $369 million in 2009, bringing the total capital asset purchases since inception of the Retail segment to $1.8 billion. As of September 26, 2009, the Retail segment had approximately 16,500 full-time equivalent employees and had outstanding operating lease commitments associated with retail store space and related facilities of $1.5 billion. The Company would incur substantial costs if it were to close multiple retail stores. Such costs could adversely affect the Company’s financial condition and operating results.

Retail

Retail net sales increased $20 million or 1% during the second quarter of 2009 compared to the second quarter in 2008. The increase in net sales was due predominantly to increased iPhone revenue and strong demand for MacBook, offset partially by a decrease in sales of most other Mac portable and desktop systems and iPods. Retail Mac net sales and unit sales decreased due to lower sales across most Mac portable and desktop systems, partially offset by increased sales of MacBook and Mac mini. The Company opened one new retail store during the second quarter of 2009, ending the quarter with 252 stores open, as compared to 208 stores at the end of the second quarter of 2008. The year-over-year growth rate of Retail net sales was less than the increase in the average number of stores open during the same period, which reflects the challenging consumer-spending environment and continued third-party channel expansion. As a result, with an average of 251 stores and 205 stores open during the second quarters of 2009 and 2008, respectively, average revenue per store declined to $5.9 million for the second quarter of 2009 from $7.1 million in the second quarter of 2008.

Retail net sales grew $59 million or 2% during the first six months of 2009 compared to the same period in 2008 due primarily to increased iPhone revenue and strong demand for MacBook, offset partially by a decrease in sales of iPods, Mac desktop systems, MacBook Air, and MacBook Pro. Average revenue per store decreased to $12.8 million for the first six months of 2009 based on an average of 250 stores, down from $15.5 million in the first six months of 2008 based on an average of 203 stores.

The Retail segment reported operating income of $308 million during the second quarter of 2009 compared to operating income of $334 million during the second quarter of 2008, and reported operating income of $661 million during the first six months of 2009 compared to $739 million during the first six months of 2008. The decline in operating income during the second quarter of 2009 and first six months of 2009 was attributable primarily to lower average revenue per store.

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 $1.5 billion through the end of the second quarter of 2009. As of March 28, 2009, the Retail segment had approximately 14,000 full-time equivalent employees and had outstanding lease commitments associated with retail space of $1.3 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.

Retail

Retail net sales increased $39 million or 2% during the first quarter of 2009 compared to the first quarter of 2008, and Mac unit sales increased 2% over the same period. The increase in net sales was due to higher sales of iPhone and Mac portable systems, which were partially offset by lower sales of iPods, iMac, and software. Retail Mac unit sales grew due to increased sales of Mac portable systems, partially offset by lower sales of iMac. The Company opened four new retail stores during the first quarter of 2009, ending the quarter with 251 stores open as compared to 204 stores at the end of the first quarter of 2008. The growth in Retail net sales was less than the growth in the number of stores open. As a result, with an average of 249 stores and 201 stores open during the first quarters of 2009 and 2008, respectively, average revenue per store declined to $7.0 million for the first quarter of 2009 from $8.5 million in the first quarter of 2008. The Retail segment reported operating income of $353 million during the first quarter of 2009 compared to operating income of $405 million during the first quarter in 2008. The year-over-year decrease in operating income is attributable primarily to lower average revenue per store.

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 $1.5 billion through the end of the first quarter of 2009. As of December 27, 2008, the Retail segment had approximately 15,600 full-time equivalent employees and had outstanding lease commitments associated with retail space of $1.3 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.

Retail

Retail net sales grew by 53% during 2008 compared to 2007, due in large part to increased sales of Mac portable and desktop products, strong demand for the iPhone and iPod touch, and new store openings. The Company opened 50 new retail stores during 2008, including a total of 19 international stores, bringing the total number of open stores to 247 as of September 27, 2008. This compares to 197 open stores as of September 29, 2007 and 165 open stores as of September 30, 2006. With an average of 211 stores and 178 stores opened during 2008 and 2007, respectively, average revenue per store increased to $29.9 million for 2008, compared to $23.1 million in 2007.

Retail Mac net sales and Mac unit sales grew by 42% and 47%, respectively, during 2008 compared to the 2007, due primarily to strong demand for MacBook, iMac, and MacBook Air, introduced in January 2008. Net sales of iPods increased due to the popularity of the iPod touch, which was upgraded in June 2008, and a higher average selling price compared to 2007. The higher iPod average selling price was due to strong demand for the iPod touch.

The Retail segment’s net sales increased by 27% to $4.1 billion during 2007 compared to 2006. Retail segment Mac unit sales increased 56% during 2007 as compared to 2006. With an average of 178 stores open during 2007, average revenue per store was $23.1 million, compared to $22.9 million in 2006. The increase in Retail segment net sales during 2007 compared to 2006 was due primarily to stronger sales of Mac portable products, iMacs, accessories and services. The increase was partially offset primarily by lower net sales of iPods and other music related products due to the expanded availability of those products through third-party resellers.

As measured by the Company’s operating segment reporting, the Retail segment reported operating income of $1.3 billion during 2008 as compared to operating income of $875 million and $600 million during 2007 and 2006, respectively. This improvement in 2008 was attributable primarily to the significant Retail net sales growth of 53% as compared to 2007.

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 were $389 million in 2008, bringing the total capital asset purchases since inception of the Retail segment to $1.4 billion. As of September 27, 2008, the Retail segment had approximately 15,900 full-time equivalent employees and had outstanding operating lease commitments associated with retail store space and related facilities of $1.4 billion. The Company would incur substantial costs if it were to close multiple retail stores. Such costs could adversely affect the Company’s financial condition and operating results.

Retail

SIZE="2">Retail net sales grew by 53% during 2008 compared to 2007, due in large part to increased sales of Mac portable and desktop products, strong demand for the iPhone and iPod touch, and new store openings. The Company opened 50 new retail
stores during 2008, including a total of 19 international stores, bringing the total number of open stores to 247 as of September 27, 2008. This compares to 197 open stores as of September 29, 2007 and 165 open stores as of
September 30, 2006. With an average of 211 stores and 178 stores opened during 2008 and 2007, respectively, average revenue per store increased to $29.9 million for 2008, compared to $23.1 million in 2007.

Retail

Retail net sales grew by 58% during the third quarter of 2008 compared to the same period in 2007 due primarily to strong growth in sales of Mac products, strong sales of iPhone and new store openings. Mac unit sales increased by 44% due to greater demand for iMac and MacBook and sales of MacBook Air. The Company opened 8 new retail stores during the third quarter of 2008, ending the quarter with 216 stores open compared to 185 stores at the end of the third quarter of 2007. With an average of 211 stores and 180 stores open during the third quarters of 2008 and 2007, respectively, average revenue per store increased to $6.8 million for the third quarter of 2008, compared to $5.1 million in the third quarter of 2007.

Retail net sales and Mac unit sales grew by 61% and 58%, respectively, during the first nine months of 2008 compared to the same period in 2007, due primarily to strong demand for Mac portables, iMac, iPhone and iPod touch. Average revenue per store increased by $5.9 million to $22.4 million for the first nine months of 2008 based on an average of 205 stores, up from $16.5 million in the first nine months of 2007 based on an average of 174 stores.

The Retail segment had operating income of $297 million during the third quarter of 2008 compared to operating income of $184 million during the third quarter of 2007, and had operating income of $1.0 billion during the first nine months of 2008 compared to $607 million during the first nine months of 2007. The increased operating profit in the third quarter of 2008 compared to the same period in 2007 is attributable to higher sales, specifically higher average revenue per store, and increased operating expense leverage. For the first nine months of 2008 compared to the same period in 2007, Retail profitability increased due primarily to higher sales, an increase in gross margin percentage due to favorable standard costs experienced by the Company overall, and operating expense leverage.

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 $1.3 billion through the end of the third quarter of 2008. As of June 28, 2008, the Retail segment had approximately 13,600 full-time equivalent employees and had outstanding lease commitments associated with retail space of $1.3 billion. The Company would incur substantial costs if it were to close multiple retail stores. Such costs could adversely affect the Company’s financial condition and operating results.

Retail

Retail net sales grew by 74% during the second quarter of 2008 compared to the same period in 2007 due primarily to a 67% increase in Mac unit sales, as well as strong sales of iPhone and increased sales in accessories. The Company opened 4 new retail stores during the second quarter of 2008, ending the quarter with 208 stores open compared to 177 stores at the end of the second quarter of 2007. With an average of 205 stores and 172 stores open during the second quarter of 2008 and 2007, respectively, average revenue per store was $7.1 million for the second quarter of 2008, compared to $4.8 million in the second quarter of 2007.

Retail net sales and Mac unit sales grew by 62% and 65%, respectively, during the first six months of 2008 compared to the same period in 2007 due primarily to strong demand for the iPod touch, iPhone, and Mac desktop and portable systems. Average revenue per store increased to $15.5 million for the first six months of 2008 based on an average of 203 stores, up from $11.4 million in the first six months of 2007 based on an average of 171 stores.

The Retail segment reported operating income of $334 million during the second quarter of 2008 compared to operating income of $164 million during the second quarter of 2007, and reported operating income of $739 million during the first six months of 2008 compared to $423 million during the first six months of 2007. The increased profit in the second quarter and first six months of 2008 was attributable primarily to higher sales and an increase in gross margin percentage due to favorable standard costs experienced by the Company overall and expense leverage, offset partially by increased spending on store personnel.

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 $1.2 billion through the end of the second quarter of 2008. As of March 29, 2008, the Retail segment had approximately 12,000 full-time equivalent employees and had outstanding lease commitments associated with retail space of $1.3 billion. The Company would incur substantial costs if it were to close multiple retail stores. Such costs could adversely affect the Company’s financial condition and operating results.

Retail

Retail revenue grew by 53% year-over-year primarily due to a 64% increase in Mac unit sales, as well as higher sales of iPod and strong sales of iPhone. The Company opened seven new retail stores during the first quarter of 2008, ending the quarter with 204 stores open compared to 170 stores at the end of the first quarter of 2007. With an average of 201 stores open during the first quarter of 2008, average revenue per store was $8.5 million, compared to $6.6 million in the first quarter of 2007.

The Retail segment reported operating income of $405 million during the first quarter of 2008 compared to operating income of $259 million during the first quarter of 2007. The increased operating income in the first quarter of 2008 was attributable to higher sales and an increase in gross margin percentage due to favorable standard costs experienced by the Company overall, partially offset by increased spending on store remodeling and personnel.

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 $1.1 billion through the end of the first quarter of 2008. As of December 29, 2007, the Retail segment had approximately 11,400 full-time equivalent employees and had outstanding lease commitments associated with retail space of $1.2 billion. The Company would incur substantial costs if it were to close multiple retail stores. Such costs could adversely affect the Company’s financial condition and operating results.

Retail

The Company opened 32 new retail stores during 2007, including a total of 5 international stores in the U.K. and Italy, bringing the total number of open stores to 197 as of September 29, 2007. This compares to 165 open stores as of September 30, 2006 and 124 open stores as of September 24, 2005.

The Retail segment's net sales increased by 27% to $4.1 billion during 2007 compared to 2006. Retail segment Mac unit sales increased 56% during 2007 as compared to 2006. With an average of 178 stores open during 2007, average revenue per store was $23.1 million, compared to $22.9 million in 2006 and $21.7 million in 2005. The current year increase in Retail segment net sales was primarily due to stronger sales of Mac portable products, iMacs, accessories and services. The increase was partially offset primarily by lower net sales of iPods and other music related products due to the expanded availability of those products through third-party resellers.

The Retail segment's net sales increased by 42% to $3.3 billion during 2006 compared to 2005. Retail segment Mac unit sales increased 45% during 2006 compared to 2005. The current year increase was primarily due to strong sales of Mac portable and desktop products, iPods, and other music related products and services. Sales of iPods increased primarily due to the introduction of the updated iPod with video-playing capabilities in October 2005 and the iPod nano during September 2005. The increase in other music related products and services was due to increased sales of Apple-branded and third-party iPod accessories. Mac portable and desktop sales increased due to strong sales of the Intel-based MacBook, MacBook Pro, and iMac.

As measured by the Company's operating segment reporting, the Retail segment reported operating income of $875 million during 2007 as compared to operating income of $600 million and $396 million during 2006 and 2005, respectively. This improvement in 2007 was primarily attributable to an increase in the Company's overall gross margin percentage.

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.

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Capital asset purchases associated with the Retail segment were $294 million in 2007, bringing the total capital asset purchases since inception of the Retail segment to $1.0 billion. As of September 29, 2007, the Retail segment had approximately 7,900 employees and had outstanding operating lease commitments associated with retail store space and related facilities of $1.1 billion. The Company would incur substantial costs if it were to close multiple retail stores. Such costs could adversely affect the Company's financial condition and operating results.

Retail

The Company opened 32 new retail stores during 2007, including a total of 5 international stores in the U.K. and Italy, bringing the total number of open stores to 197 as of
September 29, 2007. This compares to 165 open stores as of September 30, 2006 and 124 open stores as of September 24, 2005.

The
Retail segment's net sales increased by 27% to $4.1 billion during 2007 compared to 2006. Retail segment Mac unit sales increased 56% during 2007 as compared to 2006. With an average of 178
stores open during 2007, average revenue per store was $23.1 million, compared to $22.9 million in 2006 and $21.7 million in 2005. The current year increase in Retail segment net
sales was primarily due to stronger sales of Mac portable products, iMacs, accessories and services. The increase was partially offset primarily by lower net sales of iPods and other music related
products due to the expanded availability of those products through third-party resellers.

The
Retail segment's net sales increased by 42% to $3.3 billion during 2006 compared to 2005. Retail segment Mac unit sales increased 45% during 2006 compared to 2005. The current year increase
was primarily due to strong sales of Mac portable and desktop products, iPods, and other music related products and services. Sales of iPods increased primarily due to the introduction of the updated
iPod with video-playing capabilities in October 2005 and the iPod nano during September 2005. The increase in other music related products and services was due to increased sales of
Apple-branded and third-party iPod accessories. Mac portable and desktop sales increased due to strong sales of the Intel-based MacBook, MacBook Pro, and iMac.

As
measured by the Company's operating segment reporting, the Retail segment reported operating income of $875 million during 2007 as compared to operating income of $600 million and
$396 million during 2006 and 2005, respectively. This improvement in 2007 was primarily attributable to an increase in the Company's overall gross margin percentage.

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.

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Capital
asset purchases associated with the Retail segment were $294 million in 2007, bringing the total capital asset purchases since inception of the Retail segment to $1.0 billion. As
of September 29, 2007, the Retail segment had approximately 7,900 employees and had outstanding operating lease commitments associated with retail store space and related facilities of
$1.1 billion. The Company would incur substantial costs if it were to close multiple retail stores. Such costs could adversely affect the Company's financial condition and operating results.

Retail

During the third quarter of 2007, the Company opened 8 new retail stores.  The Company had 185 retail stores open at the end of the third quarter of 2007 compared to 155 stores at the end of the third quarter of 2006. Retail net sales grew by 33% during the third quarter of 2007 compared to the same period in 2006 due to strong growth in sales of Macintosh products. Macintosh unit sales increased by 53% due to strong demand for the MacBook, MacBook Pro, and iMac. Strong growth in iPod unit sales was offset by lower average selling prices resulting from price reductions in September of 2006. Average quarterly revenue per store increased to $5.1 million in the third quarter of 2007 from $4.7 million in the third quarter of 2006. Retail net sales grew by 21% during the first nine months of 2007 due to an increase in Macintosh unit sales resulting from strong demand for the Company’s MacBook, MacBook Pro, and iMac as well as service and software partially, offset by a decrease in net sales of iPods and music related accessories. Average revenue per store decreased to $16.5 million for the first nine months of 2007, from $17.2 million in the first nine months of 2006 primarily due to lower iPod sales resulting from lower iPod price points and expanded and well-supplied channel distribution. as well as the impact of an additional week included in the first nine months of 2006.

The Retail segment reported a profit of $184 million during the third quarter of 2007 compared to a profit of $122 million during the third quarter of 2006. The segment reported a profit of $607 million during the first nine months of 2007 compared to a profit of $444 million during the first nine months of 2006. The increased profit in the third quarter and first nine months of 2007 was due to the addition of new stores and higher Macintosh net sales, partially offset by increased spending on store remodeling and personnel and a reduction in iPod net sales.

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 expenditures associated with the Retail segment since its inception totaled $893 million through the end of the third quarter of 2007.

As of June 30, 2007, the Retail segment had approximately 7,300 full-time equivalent employees and had outstanding lease commitments associated with retail space of $1.0 billion.

Retail

During the second quarter of 2007, the Company opened 7 new retail stores. The Company had 177 retail stores open at the end of the second quarter of 2007 compared to 141 stores at the end of the second quarter of 2006. Retail net sales grew by 34% during the second quarter of 2007 due to strong demand for portable products partially offset by a decrease in net sales of iPods. Macintosh unit sales increased by 79% due to strong demand for the MacBook, MacBook Pro, and the 24-inch iMac. The decrease in net sales of iPods was due to lower iPod price points and expanded and well-supplied channel distribution. Average quarterly revenue per store increased to $5.0 million in

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the second quarter of 2007, from $4.6 million in the second quarter of 2006. Retail net sales and Macintosh unit sales grew by 17% and 68%, respectively, during the first six months of 2007 due to strong demand for the MacBook, MacBook Pro, and the 24-inch iMac partially offset by a decrease in net sales of iPods. Average revenue per store decreased to $11.7 million for the first six months of 2007, from $12.8 million in the first six months of 2006 primarily due to lower iPod sales as well as the impact of an additional week included in the first six months of 2006.

As measured by the Company’s operating segment reporting, the Retail segment reported a profit of $32 million during the second quarter of 2007 compared to a profit of $29 million during the second quarter of 2006. The relatively flat profit despite higher revenue was caused by higher expenses from the newly opened stores and store renovations, and higher average store payroll costs to maintain high quality service levels. The profit excludes approximately $174 million and $128 million of manufacturing profit earned by the Company on net sales from the Retail segment in the second quarter of 2007 and 2006, respectively. Manufacturing profit is the difference between the amount charged to the Retail segment for Apple-branded products and the standard cost recognized by the Company for such products.

The Retail segment reported a profit of $121 million during the first six months of 2007 compared to a profit of $119 million during the first six months of 2006. The relatively flat profit despite higher revenue was caused by lower average revenue per store, higher expenses from the newly opened stores and store renovations, and higher average store payroll costs to maintain high quality service levels. The profit excludes approximately $406 million and $327 million of manufacturing profit earned by the Company on net sales from the Retail segment during the first six months of 2007 and 2006, respectively.

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 expenditures associated with the Retail segment since its inception totaled $805 million through the end of the second quarter of 2007.

As of March 31, 2007, the Retail segment had approximately 6,348 full-time equivalent employees and had outstanding lease commitments associated with retail space of $1.0 billion.

Retail

During the first quarter of 2007, the Company opened 5 new retail stores.  The Company had 170 retail stores open at the end of the first quarter of 2007 compared to 135 stores at the end of the first quarter of 2006. Retail revenue grew by 6% year-over-year due to strong demand for portable products partially offset by a decrease in net sales of iPods. Macintosh unit sales increased by 60% due to strong demand for the MacBook, MacBook Pro, and the higher-priced 24-inch iMac model. The decrease in net sales of iPods was due to lower iPod price points and expanded and well-supplied channel distribution.  Average quarterly revenue per store decreased to $6.7 million in the first quarter of 2007, which spanned 13 weeks, from $8.3 million in the first quarter of 2006, which spanned 14 weeks.

As measured by the Company’s operating segment reporting, the Retail segment reported a profit of $89 million during the first quarter of 2007 compared to a profit of $90 million during the first quarter of 2006.  The relatively flat profit was caused by higher expenses from the newly opened stores and continued investment in personnel costs to maintain service levels, which offset the increase in revenue.  The profit excludes approximately $232 million and $199 million of manufacturing profit earned by the Company on net sales from the Retail segment in the first quarter of 2007 and 2006, respectively. Manufacturing profit is the difference between the amount charged to the Retail segment for Apple-branded products and the standard cost recognized by the Company for such products.

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 expenditures associated with the Retail segment since its inception totaled $765 million through the end of the first quarter of 2007.

As of December 30, 2006, the Retail segment had approximately 6,612 full-time equivalent employees and had outstanding lease commitments associated with retail space of $906 million.

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Retail

The Company opened 41 new retail stores during 2006, including a total of 10 international stores in the U.K., Japan, and Canada, bringing the total number of open stores to 165 as of September 30, 2006. This compares to 124 open stores as of September 24, 2005 and 86 open stores as of September 25, 2004.

The Retail segment’s net sales increased by 43% to $3.4 billion during 2006 compared to 2005. Retail segment Macintosh unit sales increased 45% during 2006 compared to 2005. With an average of 142 stores open during 2006, average revenue per store increased to $23.6 million compared to $22.4 million during 2005 and $15.6 million in 2004. The current year increase was primarily due to strong sales of Macintosh portable and desktop products, iPods, and other music related products and services. Sales of iPods increased primarily due to the introduction of the updated iPod with video-playing capabilities in October 2005 and the iPod nano during September 2005. The increase in other music related products and services was due to increased sales of Apple-branded and third-party iPod accessories. Macintosh portable and desktop sales increased due to strong sales of the Intel-based MacBook, MacBook Pro, and iMac.

As measured by the Company’s operating segment reporting, the Retail segment reported operating income of $198 million during 2006 as compared to operating income of $151 million during 2005 and

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operating income of $39 million during 2004. This improvement was primarily attributable to the impact of opening new stores and the segment’s year-over-year increase in average revenue per store, which resulted in higher leverage on occupancy, depreciation, and other fixed costs.

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 expenditures associated with the Retail segment were $200 million in 2006, bringing the total capital expenditures since inception of the Retail segment to approximately $729 million. As of September 30, 2006, the Retail segment had approximately 5,787 employees and had outstanding operating lease commitments associated with retail store space and related facilities of approximately $887 million. The Company would incur substantial costs if it were to close its retail stores. Such costs could adversely affect the Company’s results of operations and financial condition.

Retail

The Company opened 41 new retail stores during 2006,
including a total of 10 international stores in the U.K., Japan, and Canada,
bringing the total number of open stores to 165 as of September 30, 2006. This
compares to 124 open stores as of September 24, 2005 and 86 open stores as
of September 25, 2004.

The Retail segment’s net sales increased by 43% to
$3.4 billion during 2006 compared to 2005. Retail segment Macintosh unit sales
increased 45% during 2006 compared to 2005.
With an average of 142 stores open during 2006, average revenue per store
increased to $23.6 million compared to $22.4 million during 2005 and $15.6
million in 2004. The current year increase was primarily due to strong
sales of Macintosh portable and desktop products, iPods, and other music
related products and services. Sales of
iPods increased primarily due to the introduction of the updated iPod with
video-playing capabilities in October 2005 and the iPod nano during September 2005.
The increase in other music related products and services was due to increased
sales of Apple-branded and third-party iPod accessories. Macintosh portable and
desktop sales increased due to strong sales of the Intel-based MacBook, MacBook
Pro, and iMac.

As measured by the Company’s operating segment
reporting, the Retail segment reported operating income of $198 million during
2006 as compared to operating income of $151 million during 2005 and

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operating income of $39 million during 2004. This
improvement was primarily attributable to the impact of opening new stores and
the segment’s year-over-year increase in average revenue per store, which
resulted in higher leverage on occupancy, depreciation, and other fixed costs.

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 expenditures associated with
the Retail segment were $200 million in 2006, bringing the total capital
expenditures since inception of the Retail segment to approximately $729
million. As of September 30, 2006, the Retail segment had approximately
5,787 employees and had outstanding operating lease commitments associated with
retail store space and related facilities of approximately $887 million. The
Company would incur substantial costs if it were to close its retail stores.
Such costs could adversely affect the Company’s results of operations and
financial condition.

Retail

The Retail segment’s net sales grew 29% to $715 million during the third quarter of 2006 compared to the same period in 2005. Retail segment Macintosh unit sales increased 50% during the third quarter of 2006 compared to the same period in 2005.  These increases are primarily attributable to an increase in total stores from 110 stores at the end of the third quarter of 2005 to 155 stores at the end of the third quarter of 2006, with an average of 146 stores open during the quarter. During the third quarter of 2006, average revenue per store decreased to $4.9 million from $5.3 million in the third quarter of 2005.  The decrease in average revenue per store was largely due to lower sales of iPods and related accessories on a per store basis, which the Company believes is due to an increase in iPod third-party points of distribution as well as an increase in supply of products to third-party resellers, partially offset by an increase in sales of Macintosh portable systems.

The Retail segment’s net sales increased by 44% to $2.4 billion in the first nine months of 2006 compared to the same period in 2005. Retail segment Macintosh unit sales increased 38% during the first nine months of 2006 compared to the same period in 2005. With an average of 137 stores open during the first nine months of 2006, average revenue per store increased to $17.6 million from $16.7 million in the first nine months of 2005. This increase was primarily due to strong sales of iPods, other music related products and services, and Macintosh portable products.

As measured by the Company’s operating segment reporting, the Retail segment reported operating income of $29 million and $148 million during the third quarter and first nine months of 2006, respectively, as compared to operating income of $29 million and $116 million during the third quarter and first nine months of 2005, respectively. Profitability remained flat for the third quarter of 2006 primarily due to a change in the product mix to lower margin products and continued increases in the service investment in the stores, offset by an increase in the number of open stores.  For the first nine months of 2006, profitability increased primarily due to increased sales of iPods, other music products, and portable Macintosh systems.

Expansion of the Retail segment will continue to require a substantial investment in fixed assets and related infrastructure, operating lease commitments, personnel, and other operating expenses. Capital expenditures associated with the Retail segment since its inception totaled $665 million through the end of the third quarter of 2006, of which $136 million was incurred during the first nine months of 2006.  As of July 1, 2006, the Retail segment had 5,384 full-time equivalent employees and had outstanding lease commitments associated with retail store space and related facilities of $810 million.

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Retail

During the second quarter of 2006, the Company opened 6 new retail stores. The Company had 141 retail stores open at the end of the second quarter of 2006 compared to 103 stores at the end of the second quarter of 2005. During the second quarter of 2006, the Retail segment’s net sales grew to $636 million as compared to $571 million in the second quarter of 2005, an 11% increase. During the second quarter of 2006, average revenue per store decreased to $4.6 million from $5.6 million in the second quarter of 2005. Net sales for the first six months of 2006 grew to $1.7 billion from $1.1 billion during the same period in 2005, a 51% increase. During the first six months of 2006, average revenue per store increased to $12.8 million from $11.6 million in the first six months of 2005.

As measured by the Company’s operating segment reporting, the Retail segment reported operating income of $29 million and $119 million during the second quarter and first six months of 2006, respectively, as compared to operating income of $42 million and $87 million during the second quarter and first six months of 2005, respectively. The decrease in profitability for the second quarter of 2006 was primarily due to the decline in average revenue per store.

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 expenditures associated with the Retail segment since its inception totaled $611 million through the end of the second quarter of 2006, of which $82 million was incurred during the first six months of 2006. As of April 1, 2006, the Retail segment had 4,851 full-time equivalent employees and had outstanding lease commitments associated with retail store space and related facilities of $782 million.

Retail

During the first quarter of 2006, the Company opened 11 new retail stores.  The Company had 135 retail stores open at the end of the first quarter of 2006 compared to 101 stores at the end of the first quarter of 2005.  During the first quarter of 2006, the Retail segment’s net sales grew to $1.1 billion as compared to $561 million in the first quarter of 2005, a 91% increase.  With an average of 129 stores open during the quarter, average quarterly revenue per store increased 41% to $8.3 million in the first quarter of 2006, up from $5.9 million in the first quarter of 2005. The increase in average revenue per store was primarily due to strong sales of iPods, other music related products and services, and Macintosh portable products.

As measured by the Company’s operating segment reporting, the Retail segment reported a profit of $90 million during the first quarter of 2006 compared to a profit of $45 million during the first quarter of 2005. This improvement in profitability is primarily attributable to the segment’s year-over-year increase in average quarterly revenue per store, the impact of opening 34 new stores, and the segment’s year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation, and other fixed costs.

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 expenditures associated with the Retail segment since its inception totaled $569 million through the end of the first quarter of 2006, of which $40 million was incurred during the first quarter of 2006.

27

Retail

The Company opened 38 new retail stores during 2005, including 6 international stores in the U.K, Japan, and Canada, bringing the total number of open stores to 124 as of September 24, 2005. This compares to 86 open stores as of September 25, 2004 and 65 open stores as of September 27, 2003.

Net sales of the Retail segment grew to $2.4 billion during 2005 from $1.2 billion and $621 million in 2004 and 2003, respectively. The increases in net sales during both 2005 and 2004 reflect the impact of new store openings for each year, including the opening of 38 new stores in 2005 and 21 new stores in 2004. An increase in average revenue per store also contributed to the segment’s strong sales in 2005. With an average of 105 stores open during 2005, the Retail segment achieved annualized revenue per store of approximately $22.4 million, as compared to $15.6 million in 2004 with a 76 store average, and $11.5 million in 2003 with a 54 store average.

As measured by the Company’s operating segment reporting, the Retail segment reported operating income of $151 million during 2005 as compared to operating income of $39 million during 2004 and an operating loss of $5 million during 2003. This improvement is primarily attributable to the segment’s year-over-year increase in average revenue per store, the impact of opening new stores, and the segment’s year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation, and other fixed costs.

36

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 expenditures associated with the Retail segment were $132 million in 2005, bringing the total capital expenditures since inception of the Retail segment to approximately $529 million. As of September 24, 2005, the Retail segment had approximately 3,673 employees and had outstanding operating lease commitments associated with retail store space and related facilities of approximately $606 million. The Company would incur substantial costs should it choose to terminate its Retail segment or close individual stores. Such costs could adversely affect the Company’s results of operations and financial condition.

Retail

The Company opened 38 new retail stores during 2005,
including 6 international stores in the U.K, Japan, and Canada, bringing the
total number of open stores to 124 as of September 24, 2005. This compares
to 86 open stores as of September 25, 2004 and 65 open stores as of September 27,
2003.

Net sales of the Retail segment grew to $2.4 billion
during 2005 from $1.2 billion and $621 million in 2004 and 2003, respectively.
The increases in net sales during both 2005 and 2004 reflect the impact of new
store openings for each year, including the opening of 38 new stores in 2005
and 21 new stores in 2004. An increase in average revenue per store also
contributed to the segment’s strong sales in 2005. With an average of 105
stores open during 2005, the Retail segment achieved annualized revenue per
store of approximately $22.4 million, as compared to $15.6 million in 2004 with
a 76 store average, and $11.5 million in 2003 with a 54 store average.

As measured by the Company’s operating segment
reporting, the Retail segment reported operating income of $151 million during
2005 as compared to operating income of $39 million during 2004 and an
operating loss of $5 million during 2003. This improvement is primarily
attributable to the segment’s year-over-year increase in average revenue per
store, the impact of opening new stores, and the segment’s year-over-year
increase in net sales, which resulted in higher leverage on occupancy,
depreciation, and other fixed costs.

36

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 expenditures associated with
the Retail segment were $132 million in 2005, bringing the total capital
expenditures since inception of the Retail segment to approximately $529
million. As of September 24, 2005, the Retail segment had approximately
3,673 employees and had outstanding operating lease commitments associated with
retail store space and related facilities of approximately $606 million. The
Company would incur substantial costs should it choose to terminate its Retail
segment or close individual stores. Such costs could adversely affect the
Company’s results of operations and financial condition.

Retail

The Company opened seven new retail stores during the third quarter of 2005, including two international stores located in Birmingham, England and Toronto, Canada.  At the end of the third quarter of 2005, the Company had 110 retail stores open compared to 80 open stores at the end of the third quarter of 2004.  The Retail segment’s third quarter 2005 net sales grew by $285 million or 106% from the same quarter in 2004.  Net sales for the first nine months of 2005 grew to $1.687 billion from $809 million during the same period of 2004, a 109% increase.  The Retail segment experienced strong net sales for the third quarter and first nine months of 2005 across all product lines. With an average of 105 stores open during the quarter, average quarterly revenue per store increased 56% to $5.3 million, up from $3.4 million in the year-ago quarter.

As measured by the Company’s operating segment reporting, the Retail segment reported profit of $29 million and $116 million during the third quarter and first nine months of 2005 as compared to profit of $7 million and $21 million during the third quarter and first nine months of 2004. This improvement in profitability is primarily attributable to the segment’s year-over-year growth in average quarterly revenue per store, the impact of opening 30 new stores, and the segment’s overall increase in net sales for the third quarter and first nine months of 2005, which resulted in higher leverage on occupancy, depreciation and other fixed costs.

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 expenditures associated with the Retail segment since its inception totaled $394 million through the end of fiscal 2004, and totaled $83 million during the first nine months of 2005. As of June 25, 2005, the Retail segment had outstanding operating lease commitments associated with retail store space and related facilities of approximately $583 million.

Retail

The Company opened two new retail stores during the second quarter of 2005, including its fourth international store, which is located in Nagoya, Japan.  At the end of the second quarter of 2005, the Company had 103 retail stores open compared to 78 open stores at the end of the second quarter of 2004.  The Retail segment’s second quarter 2005 net sales grew by $305 million or 115% from the same quarter in 2004.  Net sales for the first six months of 2005 grew to $1.132 billion from $539 million during the same period of 2004, a 110% increase.  The Retail segment experienced strong net sales for the second quarter and first half of 2005 across all product lines, except for the Power Macintosh, net sales of which were relatively flat. With an average of 102 stores open during the quarter, average quarterly revenue per store increased 60% to $5.6 million, up from $3.5 million in the year-ago quarter.

As measured by the Company’s operating segment reporting, the Retail segment reported profit of $42 million and $87 million during the second quarter and first six months of 2005 as compared to profit of $5 million and $14 million during the second quarter and first six months of 2004. This improvement in profitability is primarily attributable to the segment’s year-over-year growth in average quarterly revenue per store, the impact of opening 25 new stores, and the segment’s overall increase in net sales for the second quarter and first six months of 2005, which resulted in higher leverage on occupancy, depreciation and other fixed costs.

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 expenditures associated with the Retail segment since its inception totaled $394 million through the end of fiscal 2004, and totaled $49 million during the first six months of 2005. As of March 26, 2005, the Retail segment had approximately 2,831 employees and had outstanding operating lease commitments associated with retail store space and related facilities of approximately $489 million.

30

Retail

During the first quarter of 2005, the Company opened fifteen new retail stores, including its third international store, which is located in London, England. In addition, approximately half of the stores opened during the first quarter were in the new “mini” store design, which is the Company’s smallest store format to date.  The Company had 101 retail stores open at the end of the first quarter of 2005 compared to 73 open stores at the end of the first quarter of 2004.  During the first quarter of 2005, the Retail segment’s net sales grew to $561 million as compared to $273 million in the same period in 2004, a 105% increase.  With an average of 95 stores open during the quarter, average quarterly revenue per store increased 48% to $5.9 million in the first quarter of 2005, up from $4.0 million in the year-ago quarter.

As measured by the Company’s operating segment reporting, the Retail segment reported a profit of $45 million during the first quarter of 2005 compared to a profit of $9 million during the same period in 2004. This improvement in profitability is primarily attributable to the segment’s year-over-year increase in average quarterly revenue per store, the impact of the opening of 28 new stores, and the segment’s year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation and other fixed costs.

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 expenditures associated with the Retail segment since its inception totaled $394 million through the end of fiscal 2004, and totaled $33 million during the first quarter of 2005.

As of December 25, 2004, the Retail segment had approximately 2,675 employees and had outstanding lease commitments associated with retail store space and related facilities of $450 million.

Retail

The Company opened 21 new retail stores during 2004, including its first two international stores in Tokyo and Osaka, Japan, bringing the total number of open stores to 86 as of September 25, 2004. This compares to 65 open stores as of September 27, 2003 and 40 open stores as of September 28, 2002. During the first quarter of 2005, the Company anticipates opening approximately 14 additional stores to end the calendar year at approximately 100 stores. Approximately half of the stores expected to open during the first quarter of 2005 will be in the new "mini" store design, which is the Company's smallest store format to date; allowing it to be placed in a variety of new locations to introduce the Company's innovative products to even more customers. The Company also opened its third international store in London, England during the first quarter of 2005.

34

Net sales of the Retail segment grew to $1.185 billion during 2004 from $621 million and $283 million, in 2003 and 2002, respectively. The increases in net sales during both 2004 and 2003 reflect the impact of new store openings for each fiscal year, including the opening of 21 new stores in 2004 and 25 new stores in 2003. An increase in average revenue per store also contributed to the segment's strong sales in fiscal 2004. With an average of 76 stores open during 2004, the Retail segment achieved annualized revenue per store of approximately $15.6 million, as compared to $11.5 million in 2003 with a 54 store average and $10.2 million in 2002 with a 28 store average.

As measured by the Company's operating segment reporting, the Retail segment reported profit of $39 million during fiscal 2004 as compared to losses of $5 million and $22 million during 2003 and 2002, respectively. This improvement is primarily attributable to the segment's year-over-year increase in average quarterly revenue per store, the impact of opening new stores, and the segment's year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation and other fixed costs.

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 expenditures associated with the Retail segment were $104 million in fiscal 2004, bringing the total capital expenditures since inception of the Retail segment to approximately $394 million. As of September 25, 2004, the Retail segment had approximately 2,100 employees and had outstanding operating lease commitments associated with retail store space and related facilities of approximately $436 million. The Company would incur substantial costs should it choose to terminate its Retail segment or close individual stores. Such costs could adversely affect the Company's results of operations and financial condition.

Retail

The Company opened 21 new retail stores during 2004, including its first two international stores in Tokyo and Osaka, Japan, bringing the total number of open stores to 86 as
of September 25, 2004. This compares to 65 open stores as of September 27, 2003 and 40 open stores as of September 28, 2002. During the first quarter of 2005, the
Company anticipates opening approximately 14 additional stores to end the calendar year at approximately 100 stores. Approximately half of the stores expected to open during the first quarter of 2005
will be in the new "mini" store design, which is the Company's smallest store format to date; allowing it to be placed in a variety of new locations to introduce the Company's innovative products to
even more customers. The Company also opened its third international store in London, England during the first quarter of 2005.

34

Net
sales of the Retail segment grew to $1.185 billion during 2004 from $621 million and $283 million, in 2003 and 2002, respectively. The increases in net sales during both 2004
and 2003 reflect the impact of new store openings for each fiscal year, including the opening of 21 new stores in 2004 and 25 new stores in 2003. An increase in average revenue per store also
contributed to the segment's strong sales in fiscal 2004. With an average of 76 stores open during 2004, the Retail segment achieved annualized revenue per store of approximately $15.6 million,
as compared to $11.5 million in 2003 with a 54 store average and $10.2 million in 2002 with a 28 store average.

As
measured by the Company's operating segment reporting, the Retail segment reported profit of $39 million during fiscal 2004 as compared to losses of $5 million and $22 million
during 2003 and 2002, respectively. This improvement is primarily attributable to the segment's year-over-year increase in average quarterly revenue per store, the impact of
opening new stores, and the segment's year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation and other fixed costs.

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 expenditures associated with the Retail segment were $104 million in fiscal 2004, bringing the total capital expenditures since inception of the Retail segment to
approximately $394 million. As of September 25, 2004, the Retail segment had approximately 2,100 employees and had outstanding operating lease commitments associated with retail store
space and related facilities of approximately $436 million. The Company would incur substantial costs should it choose to terminate its Retail segment or close individual stores. Such costs
could adversely affect the Company's results of operations and financial condition.

Retail

The Company opened 25 new retail stores during 2003, bringing the total number of open stores to 65 as of September 27, 2003, which compares to 40 open stores as of September 28, 2002 and 8 open stores as of September 29, 2001. During the first quarter of fiscal 2004, the Company opened 9 additional stores including its first international store in the Ginza in Tokyo, Japan. The Retail segment's net sales grew to $621 million during 2003 from $283 million in 2002 and from $19 million in 2001. The $338 million or 119% increase in net sales during 2003 reflects the impact from opening 25 new stores in 2003, the full year impact of 2002 store openings, as well as an increase in average revenue per store. Total Macintosh sales increased by approximately $170 million of which $108 million related to year-over-year increases in PowerBook sales. The Retail segment has also contributed strongly to the increases in net sales of peripherals, software and services experienced by the Company during 2003. During 2003, approximately 45% of the Retail segment's net sales came from the sale of Apple-branded and third-party peripherals, software and services as compared to 28% for the Company as a whole. With an average of 54 stores open during 2003, the Retail segment achieved annualized revenue per store of approximately $11.5 million, as compared to approximately $10.2 million based on an average of 28 stores open in 2002.

As measured by the Company's operating segment reporting, the Retail segment improved from a loss of $22 million during 2002 to a loss of $5 million during 2003. This improvement is primarily attributable to the segment's year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation and other fixed costs.

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 expenditures associated with the Retail segment since its inception totaled approximately $290 million through the end of fiscal 2003, $92 million of which was incurred during 2003. As of September 27, 2003, the Retail segment had approximately 1,300 employees and had outstanding operating lease commitments associated with retail store space and related facilities of $354 million. The Company would incur substantial costs should it choose to terminate its Retail segment or close individual stores. Such costs could adversely affect the Company's results of operations and financial condition. Investment in a new business model such as the Retail segment is inherently risky, particularly in light of the significant investment involved, the current economic climate, and the fixed nature of a substantial portion of the Retail segment's operating expenses.

30

Retail

The Company opened 25 new retail stores during 2003, bringing the total number of open stores to 65 as of September 27, 2003, which compares to 40 open stores as of
September 28, 2002 and 8 open stores as of September 29, 2001. During the first quarter of fiscal 2004, the Company opened 9 additional stores including its first international store in
the Ginza in Tokyo, Japan. The Retail segment's net sales grew to $621 million during 2003 from $283 million in 2002 and from $19 million in 2001. The $338 million or 119%
increase in net sales during 2003 reflects the impact from opening 25 new stores in 2003, the full year impact of 2002 store openings, as well as an increase in average revenue per store. Total
Macintosh sales increased by approximately $170 million of which $108 million related to year-over-year increases in PowerBook sales. The Retail segment has also
contributed strongly to the increases in net sales of peripherals, software and services experienced by the Company during 2003. During 2003, approximately 45% of the Retail segment's net sales came
from the sale of Apple-branded and third-party peripherals, software and services as compared to 28% for the Company as a whole. With an average of 54 stores open during 2003, the Retail segment
achieved annualized revenue per store of approximately $11.5 million, as compared to approximately $10.2 million based on an average of 28 stores open in 2002.

As
measured by the Company's operating segment reporting, the Retail segment improved from a loss of $22 million during 2002 to a loss of $5 million during 2003. This improvement is
primarily attributable to the segment's year-over-year increase in net sales, which resulted in higher leverage on occupancy, depreciation and other fixed costs.

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 expenditures associated with the Retail segment since its inception totaled approximately $290 million through the end of fiscal 2003, $92 million of which
was incurred during 2003. As of September 27, 2003, the Retail segment had approximately 1,300 employees and had outstanding operating lease commitments associated with retail store space and
related facilities of $354 million. The Company would incur substantial costs should it choose to terminate its Retail segment or close individual stores. Such costs could adversely affect the
Company's results of operations and financial condition. Investment in a new business model such as the Retail segment is inherently risky, particularly in light of the significant investment
involved, the current economic climate, and the fixed nature of a substantial portion of the Retail segment's operating expenses.

30

Retail

By the end of September 2002, the Company had 40 retail stores operating in the United States, 32 of which were opened during fiscal 2002. The Company has opened 11 additional stores during the first quarter of 2003. During 2002, approximately 39% of the Retail segment's net sales came from the sale of Apple-branded and third-party peripherals and software. This compares to 21% for the Company as a whole. With an average of 35 stores open, the Retail segment achieved average annualized revenue per store during the fourth quarter of approximately $12 million and had approximately 2.25 million visitors. The Retail segment reported a loss for all of 2002 of $22 million, and a loss for the fourth quarter of 2002 of $3 million.

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 expenditures associated with the Retail segment totaled $106 million in 2002 and $92 million in 2001. As of September 28, 2002, the Retail segment had 807 employees and had outstanding operating lease commitments associated with retail store space and related facilities of $209 million. The Company would incur substantial costs should it choose to terminate its Retail segment or close individual stores. Such costs could adversely affect the Company's results of operations and financial condition. Investment

26

in a new business model such as the Retail segment is inherently risky, particularly in light of the significant investment involved, the current economic climate, and the fixed nature of a substantial portion of the Retail segment's operating expenses. Results for this segment are dependent upon a number of risks and uncertainties, some of which are discussed below under the heading "Factors That May Affect Future Results and Financial Condition."

Retail

By the end of September 2002, the Company had 40 retail stores operating in the United States, 32 of which were opened during fiscal 2002. The Company has opened 11
additional stores during the first quarter of 2003. During 2002, approximately 39% of the Retail segment's net sales came from the sale of Apple-branded and third-party peripherals and software. This
compares to 21% for the Company as a whole. With an average of 35 stores open, the Retail segment achieved average annualized revenue per store during the fourth quarter of approximately
$12 million and had approximately 2.25 million visitors. The Retail segment reported a loss for all of 2002 of $22 million, and a loss for the fourth quarter of 2002 of
$3 million.

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 expenditures associated with the Retail segment totaled $106 million in 2002 and $92 million in 2001. As of September 28, 2002, the Retail segment had
807 employees and had outstanding operating lease commitments associated with retail store space and related facilities of $209 million. The Company would incur substantial costs should it
choose to terminate its Retail segment or close individual stores. Such costs could adversely affect the Company's results of operations and financial condition. Investment

26

in a new business model such as the Retail segment is inherently risky, particularly in light of the significant investment involved, the current economic climate, and the fixed nature of a
substantial portion of the Retail segment's operating expenses. Results for this segment are dependent upon a number of risks and uncertainties, some of which are discussed below under the heading
"Factors That May Affect Future Results and Financial Condition."