Microsoft Excel LibreOffice Calc

PepsiCo Inc. (PEP)


Analysis of Operating Leases

Difficulty: Advanced

An operating lease is treated like a rental contract. Neither the leased asset nor the associated liability is reported on the lessee statement of financial position, but the rights may be very similar to the rights of an owner. The lessee only records the lease payments as a rental expense in income statement.


Present Value of Future Operating Lease Payments

PepsiCo Inc., future operating lease payments

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
Total undiscounted future operating lease payments (USD $ in millions) 1,840  1,894  1,780  1,860  1,894 
Discount rate1 3.46% 3.05% 2.80% 3.16% 3.31%
Total present value of future operating lease payments (USD $ in millions) 1,656  1,718  1,626  1,668  1,686 

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

1 Weighted-average interest rate for PepsiCo Inc.’s debt

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.46%
2019 459  2019 459  444 
2020 406  2020 406  379 
2021 294  2021 294  265 
2022 210  2022 210  183 
2023 161  2023 161  136 
2024 and thereafter 310  2024 161  131 
2025 149  117 
Total: 1,840  1,840  1,656 

Based on: 10-K (filing date: 2019-02-15).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.05%
2018 452  2018 452  439 
2019 403  2019 403  379 
2020 297  2020 297  271 
2021 215  2021 215  191 
2022 160  2022 160  138 
2023 and thereafter 367  2023 160  134 
2024 160  130 
2025 47  37 
Total: 1,894  1,894  1,718 

Based on: 10-K (filing date: 2018-02-13).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 2.80%
2017 423  2017 423  411 
2018 374  2018 374  354 
2019 289  2019 289  266 
2020 197  2020 197  176 
2021 147  2021 147  128 
2022 and thereafter 350  2022 147  125 
2023 147  121 
2024 56  45 
Total: 1,780  1,780  1,626 

Based on: 10-K (filing date: 2017-02-15).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.16%
2016 387  2016 387  375 
2017 330  2017 330  310 
2018 330  2018 330  301 
2019 190  2019 190  168 
2020 190  2020 190  163 
2021 and thereafter 433  2021 190  158 
2022 190  153 
2023 53  41 
Total: 1,860  1,860  1,668 

Based on: 10-K (filing date: 2016-02-11).

Year Future operating lease payments (as reported) Year Future operating lease payments (estimated) Present value at 3.31%
2015 403  2015 403  390 
2016 316  2016 316  296 
2017 315  2017 315  286 
2018 194  2018 194  170 
2019 193  2019 193  164 
2020 and thereafter 473  2020 193  159 
2021 193  154 
2022 87  67 
Total: 1,894  1,894  1,686 

Based on: 10-K (filing date: 2015-02-12).


Analyst Adjustments for Operating Leases

PepsiCo Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
Adjustment to Total Assets
Total assets (as reported) 77,648  79,804  74,129  69,667  70,509 
Add: Operating leased assets1 1,656  1,718  1,626  1,668  1,686 
Total assets (adjusted) 79,304  81,522  75,755  71,335  72,195 
Adjustment to Total Debt
Total debt (as reported) 32,321  39,281  36,945  33,284  28,897 
Add: Operating lease obligations2 1,656  1,718  1,626  1,668  1,686 
Total debt (adjusted) 33,977  40,999  38,571  34,952  30,583 
Adjustment to Earnings before Interest and Tax (EBIT)
EBIT3 (as reported) 10,714  10,753  9,895  8,412  9,666 
Add-back: Rent expense 771  742  701  696  707 
Less: Depreciation expense, operating leased assets4 690  669  638  624  630 
EBIT (adjusted) 10,795  10,826  9,958  8,484  9,743 
Adjustment to Interest Expense
Interest expense (as reported) 1,525  1,151  1,342  970  909 
Add: Interest expense, operating lease obligations5 81  73  63  72  77 
Interest expense (adjusted) 1,606  1,224  1,405  1,042  986 

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

1, 2 Equal to total present value of future operating lease payments. See Details »

3 See Details »

4 See Details »

5 See Details »


PepsiCo Inc., Financial Data: Reported vs. Adjusted


Adjusted Ratios for Operating Leases (Summary)

PepsiCo Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
Total Asset Turnover1
Reported total asset turnover 0.83 0.80 0.85 0.91 0.95
Adjusted total asset turnover 0.82 0.78 0.83 0.88 0.92
Debt to Equity2
Reported debt to equity 2.23 3.61 3.33 2.79 1.66
Adjusted debt to equity 2.34 3.77 3.48 2.93 1.75
Return on Assets3 (ROA)
Reported ROA 16.12% 6.09% 8.54% 7.83% 9.24%
Adjusted ROA 15.78% 5.96% 8.35% 7.64% 9.02%
Interest Coverage4
Reported interest coverage 7.03 9.34 7.37 8.67 10.63
Adjusted interest coverage 6.72 8.85 7.09 8.14 9.88

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. PepsiCo Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.
Adjusted debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. PepsiCo Inc.’s adjusted debt-to-equity deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. PepsiCo Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.
Adjusted interest coverage A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments. PepsiCo Inc.’s adjusted interest coverage improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

PepsiCo Inc., Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net revenue 64,661  63,525  62,799  63,056  66,683 
Total assets 77,648  79,804  74,129  69,667  70,509 
Ratio
Total asset turnover1 0.83 0.80 0.85 0.91 0.95
Adjusted for Operating Leases
Selected Financial Data (USD $ in millions)
Net revenue 64,661  63,525  62,799  63,056  66,683 
Adjusted total assets 79,304  81,522  75,755  71,335  72,195 
Ratio
Adjusted total asset turnover2 0.82 0.78 0.83 0.88 0.92

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Total asset turnover = Net revenue ÷ Total assets
= 64,661 ÷ 77,648 = 0.83

2 Adjusted total asset turnover = Net revenue ÷ Adjusted total assets
= 64,661 ÷ 79,304 = 0.82

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. PepsiCo Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 not reaching 2016 level.

Adjusted Debt to Equity

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
As Reported
Selected Financial Data (USD $ in millions)
Total debt 32,321  39,281  36,945  33,284  28,897 
Total PepsiCo shareholders’ equity 14,518  10,889  11,095  11,923  17,438 
Ratio
Debt to equity1 2.23 3.61 3.33 2.79 1.66
Adjusted for Operating Leases
Selected Financial Data (USD $ in millions)
Adjusted total debt 33,977  40,999  38,571  34,952  30,583 
Total PepsiCo shareholders’ equity 14,518  10,889  11,095  11,923  17,438 
Ratio
Adjusted debt to equity2 2.34 3.77 3.48 2.93 1.75

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 Debt to equity = Total debt ÷ Total PepsiCo shareholders’ equity
= 32,321 ÷ 14,518 = 2.23

2 Adjusted debt to equity = Adjusted total debt ÷ Total PepsiCo shareholders’ equity
= 33,977 ÷ 14,518 = 2.34

Ratio Description The company
Adjusted debt-to-equity A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity. PepsiCo Inc.’s adjusted debt-to-equity deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to PepsiCo 12,515  4,857  6,329  5,452  6,513 
Total assets 77,648  79,804  74,129  69,667  70,509 
Ratio
ROA1 16.12% 6.09% 8.54% 7.83% 9.24%
Adjusted for Operating Leases
Selected Financial Data (USD $ in millions)
Net income attributable to PepsiCo 12,515  4,857  6,329  5,452  6,513 
Adjusted total assets 79,304  81,522  75,755  71,335  72,195 
Ratio
Adjusted ROA2 15.78% 5.96% 8.35% 7.64% 9.02%

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

2018 Calculations

1 ROA = 100 × Net income attributable to PepsiCo ÷ Total assets
= 100 × 12,515 ÷ 77,648 = 16.12%

2 Adjusted ROA = 100 × Net income attributable to PepsiCo ÷ Adjusted total assets
= 100 × 12,515 ÷ 79,304 = 15.78%

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. PepsiCo Inc.’s adjusted ROA deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Interest Coverage

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
As Reported
Selected Financial Data (USD $ in millions)
Earnings before interest and tax1 (EBIT) 10,714  10,753  9,895  8,412  9,666 
Interest expense 1,525  1,151  1,342  970  909 
Ratio
Interest coverage2 7.03 9.34 7.37 8.67 10.63
Adjusted for Operating Leases
Selected Financial Data (USD $ in millions)
Adjusted EBIT 10,795  10,826  9,958  8,484  9,743 
Adjusted interest expense 1,606  1,224  1,405  1,042  986 
Ratio
Adjusted interest coverage3 6.72 8.85 7.09 8.14 9.88

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

1 See Details »

2018 Calculations

2 Interest coverage = EBIT ÷ Interest expense
= 10,714 ÷ 1,525 = 7.03

3 Adjusted interest coverage = Adjusted EBIT ÷ Adjusted interest expense
= 10,795 ÷ 1,606 = 6.72

Ratio Description The company
Adjusted interest coverage ratio A solvency ratio calculated as adjusted EBIT divided by adjusted interest payments. PepsiCo Inc.’s adjusted interest coverage ratio improved from 2016 to 2017 but then deteriorated significantly from 2017 to 2018.

Estimation of Depreciation Expense, Operating Leased Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
Rent expense 771  742  701  696  707 
Less: Estimated interest expense, operating lease obligations1 81  73  63  72  77 
Estimated depreciation expense, operating leased assets 690  669  638  624  630 

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).


Estimation of Interest Expense, Operating Lease Obligations

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
Operating leased assets, at beginning of year1 (USD $ in millions) 2,346  2,387  2,264  2,292  2,316 
Discount rate2 3.46% 3.05% 2.80% 3.16% 3.31%
Estimated interest expense, operating lease obligations3 (USD $ in millions) 81  73  63  72  77 

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

1 See Details »

2 Weighted-average interest rate for PepsiCo Inc.’s debt

2018 Calculations

3 Estimated interest expense, operating lease obligations = Operating leased assets, at beginning of year × Discount rate
= 2,346 × 3.46% = 81


Present Value of Operating Lease Payments, at Beginning of Year

Microsoft Excel LibreOffice Calc
Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 26, 2015 Dec 27, 2014
Total present value of future operating lease payments1 (USD $ in millions) 1,656  1,718  1,626  1,668  1,686 
Rent expense (USD $ in millions) 771  742  701  696  707 
Discount rate2 3.46% 3.05% 2.80% 3.16% 3.31%
Total present value of operating lease payments, at beginning of year3 (USD $ in millions) 2,346  2,387  2,264  2,292  2,316 

Based on: 10-K (filing date: 2019-02-15), 10-K (filing date: 2018-02-13), 10-K (filing date: 2017-02-15), 10-K (filing date: 2016-02-11), 10-K (filing date: 2015-02-12).

1 Equal to total present value of future operating lease payments. See Details »

2 Weighted-average interest rate for PepsiCo Inc.’s debt

2018 Calculations

3 Total present value of operating lease payments, at beginning of year = (Total present value of future operating lease payments + Rent expense) ÷ (1 + Discount rate)
= (1,656 + 771) ÷ (1 + 3.46%) = 2,346