Apple’s quarter better than first glance: 10-Q details provide clearer picture

“There are a number of items from Apple’s 10-Q that indicate the company’s results would have been better than reported,” Chuck Jones writes for Forbes.

“March quarter’s gross margin was negatively impacted by accruing for warranty expenses from prior quarters. Accruals for product warranty for the March quarter included $414 million due to changes in the company’s services policies and warranty costs. This decreased gross margin by 95 basis points, which means instead of a reported 37.5% it would have been 38.5%,” Jones writes. “Apple has markedly increased its warranty expense accruals. For the past three fiscal years warranty accruals have been between 1.4% to 1.5% of revenue while the actual cost has been 1.1%. However in the first half of fiscal 2013 warranty accruals have been 3.0% of revenue and the actual cost has been 1.6%. It is possible that the actual cost will approach the 3% level but there seems to be some cushion built into the estimate. These additional warranty costs appear to have been charged to the Greater China and Asia Pacific regions when you look at the details in Apple’s 10-Q filing.”

MacDailyNews Note: Last month, Apple CEO Tim Cook said the company would amend its warranty policies for the iPhone 4 and 4S in China.

Jones writes, “Unrecognized gains on derivative instruments increased by $499 million to $517 million. The majority of these gains should be recognized over the next six months for a total of $0.55 in EPS. This should help offset some of the increased interest expense from the company’s bond offering.”

Read more, including a breakdown of geographic segments, in the full article here.

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