Apple- Off-Balance Sheet Commitments Jump To $24.5B

Apple- Off-Balance Sheet Commitments Jump To $24.5B

Apple Inc. (NASDAQ:AAPL)’s off-balance sheet commitments, which include third-party manufacturing and component purchase obligations, have a high correlation with the company’s forward product revenue. The Cupertino company disclosed in its 10-K filing with SEC that it ended FY2014 with off-balance sheet commitments of $24.5 billion. That’s a significant increase from $15.4 billion at the end of June quarter and $18.6 billion in the same quarter last year.

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Apple guides FY2015 capex of $13 billion

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Stifel analysts Aaron C. Rakers and Sanjiv Wadhwani illustrated in a research note the historical correlation between Apple’s obligations and its revenue over the next two quarters. The iPhone maker also revealed in its filing that it had about $3.4 billion in other outstanding obligations at the end of FY2014. That includes manufacturing process equipment, product tooling and commitments related to R&D, advertising and Internet.

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Apple Correlation

Further, the tech giant estimates FY2015 capex of $13 billion, including $600 million on retail stores. Recently, Apple announced that it would open 25 new retail stores in China by 2016. The company will also remodel five stores. The remaining $12.4 billion will be spent on manufacturing process and product tooling equipment, corporate facilities and data centers.

Notably, the 2015 capex outlook includes data centers, which wasn’t the case in FY2014. Investors wonder whether a portion of the capex will go to the construction of its new ‘Spaceship’ headquarters. Apple’s capex in FY2014 stood at $11 billion, including $491 million for retail stores. The chart below shows Apple’s capex spend since 2003.

Apple Capex

Apple’s warranty accruals relatively stable

The 10-K filing shows that Apple’s product warranty accrual was relatively stable in the September quarter. Stifel analysts say the increase in warranty accruals from $756 million in the prior quarter to $866 million is a “reasonable increase” given the launch of the iPhone 6 and 6 Plus.  The $110 million sequential increase in recognized warranty expenses will negatively impact gross margins by 26 basis points. Total warranty costs stood at $949 million during Q4, 2014. That’s lower than $1.14 billion recorded in the same quarter last year.

Apple Warranty

Apple shares inched up 0.48% to $105.61 in pre-market trading Tuesday.

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