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3 Tidbits from Apple Inc.'s Latest Form 10-Q Filing

By Ashraf Eassa - Jan 29, 2016 at 4:30PM

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A look at some items from the iDevice maker's latest quarterly filing with the SEC.

Although the key information about a company's quarterly results can be gleaned from earnings press releases and the accompanying conference call with analysts, the detailed quarterly and annual reports that publicly traded companies are required to file with the U.S. Securities and Exchange Commission are usually filled with a lot of interesting information.

Apple (AAPL 0.98%) typically files its quarterly reports with the SEC within a day or so of its earnings results, so investors can get a good look "under the covers" in a quite timely fashion.

In this column, I'd like to go over three interesting "tidbits" from Apple's most recent quarterly filing.

Capital expenditure forecast remains unchanged
Apple typically spends quite heavily on capital expenditures, commonly referred to as "capex." According to the company's 10-Q filing, the bulk of the company's capital expenditures go toward manufacturing equipment, data centers, and its retail stores.

In Apple's Sept. 2015 form 10-K filing, the company disclosed that it spent about $11.2 billion in capex in fiscal 2015 and, at the time, expected to spend about $15 billion on such expenditures during its fiscal 2016.

In the just-released 10-Q filing, Apple's capital expenditure forecast of $15 billion for fiscal 2016 remained unchanged at $15 billion.

This seems to suggest that even in light of the recent weakness in iPhone sales, Apple isn't cutting back on its investments for tools and equipment to build future products.

Apple's view of iPad
Although management has expressed its long-term bullishness on iPad, the harsh reality is that this segment continued its rather steep decline in the company's most recent quarter, with units down 25% and revenue down 21%, both year-over-year figures.

In the 10-Q, Apple provided some additional context around the financial performance of iPad.

The company attributed the decline in iPad to two major factors. First, it blamed a "longer repurchase cycle for iPads." Apple also admitted in the filing that iPad is seeing "some level of cannibalization" from its other products (i.e. iPhone and, probably to a lesser extent, Mac).

As you might have noticed, revenues declined at a slower pace than did unit shipments. This, according to Apple, was thanks to a "shift in mix to higher-priced iPads, including iPad Pro."

Serving to "partially offset" the good news in mix was the "effect of weakness in most foreign currencies relative to the U.S. Dollar."

Apple's share repurchase activity now looking a bit... premature
In the filing, Apple provides information about how many shares it repurchased within specified quarters and what the company paid, on average, for those shares in a given quarter. You can see the data in the image below:

Source: Apple form 10-Q filing.

Although share repurchases are often viewed mainly as a mechanism by which a company can return cash to shareholders, I'm not a fan of a company "overpaying" for shares. That is, I want to see a company buy stock when it's severely undervalued so that when the true value is realized, the repurchases create significant value for stockholders.

One could argue that even if a company "pays too much" for its own shares, it can still "create value" by virtue of the fact that earnings per share for a given level of net income is inflated. There's also an argument to be made that a company lessens its total dividend burden with fewer shares outstanding.

That being said, I'd say that money would have been better off sitting in the bank so that it could be used at more opportune times.

At any rate, it would appear that Apple spent no less than $30 billion in open market share repurchases at an average price of around $117.68 per share -- that's a full 25% premium to where the stock is currently trading!

Although hind-sight is 20/20, it doesn't look as though it was a particularly good idea for Apple to buy tens of billions of dollars' worth of stock in the middle of a gargantuan iPhone upgrade cycle that would have been very difficult to beat in the following year. 

Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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