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Pfizer Inc. (PFE)

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
Analyst Adjustments for Operating Leases
Adjusted Ratios for Operating Leases (Summary)
Adjusted Total Asset Turnover
Adjusted Debt to Equity
Adjusted Return on Assets (ROA)
Adjusted Interest Coverage
Estimation of Depreciation Expense, Operating Leased Assets
Estimation of Interest Expense, Operating Lease Obligations
Present Value of Operating Lease Payments, at Beginning of Year

Present Value of Future Operating Lease Payments

Pfizer Inc., future operating lease payments

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Total undiscounted future operating lease payments
	Discount rate¹

	Total present value of future operating lease payments

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

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

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2019		2019
2020		2020
2021		2021
2022		2022
2023		2023
2024 and thereafter		2024
		2025
		2026
		2027
		2028
		2029
		2030
		2031
		2032
Total:

Based on: 10-K (filing date: 2019-02-28).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2018		2018
2019		2019
2020		2020
2021		2021
2022		2022
2023 and thereafter		2023
		2024
		2025
		2026
		2027
		2028
		2029
		2030
Total:

Based on: 10-K (filing date: 2018-02-22).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2017		2017
2018		2018
2019		2019
2020		2020
2021		2021
2022 and thereafter		2022
		2023
		2024
		2025
		2026
		2027
		2028
		2029
Total:

Based on: 10-K (filing date: 2017-02-23).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2016		2016
2017		2017
2018		2018
2019		2019
2020		2020
2021 and thereafter		2021
		2022
		2023
		2024
		2025
		2026
		2027
		2028
		2029
Total:

Based on: 10-K (filing date: 2016-02-29).

Year	Future operating lease payments (as reported)	Year	Future operating lease payments (estimated)	Present value at
2015		2015
2016		2016
2017		2017
2018		2018
2019		2019
2020 and thereafter		2020
		2021
		2022
		2023
		2024
		2025
		2026
		2027
		2028
Total:

Based on: 10-K (filing date: 2015-02-27).

Analyst Adjustments for Operating Leases

Pfizer Inc., adjustments to financial data

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Total Assets
	Total assets (as reported)
	Add: Operating leased assets¹
	Total assets (adjusted)
	Adjustment to Total Debt
	Total debt (as reported)
	Add: Operating lease obligations²
	Total debt (adjusted)
	Adjustment to Earnings before Interest and Tax (EBIT)
	EBIT³ (as reported)
	Add-back: Rental expense, net of sublease income
	Less: Depreciation expense, operating leased assets⁴
	EBIT (adjusted)
	Adjustment to Interest Expense
	Interest expense (as reported)
	Add: Interest expense, operating lease obligations⁵
	Interest expense (adjusted)

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

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

³ See Details »

⁴ See Details »

⁵ See Details »

Pfizer Inc., Financial Data: Reported vs. Adjusted

Adjusted Ratios for Operating Leases (Summary)

Pfizer Inc., adjusted ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Total Asset Turnover¹
	Reported total asset turnover
	Adjusted total asset turnover
	Debt to Equity²
	Reported debt to equity
	Adjusted debt to equity
	Return on Assets³ (ROA)
	Reported ROA
	Adjusted ROA
	Interest Coverage⁴
	Reported interest coverage
	Adjusted interest coverage

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

¹ See Details »

² See Details »

³ See Details »

⁴ See Details »

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

Pfizer Inc., Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Revenues
	Total assets
	Ratio
	Total asset turnover¹
	Adjusted for Operating Leases
	Selected Financial Data (USD $ in millions)
	Revenues
	Adjusted total assets
	Ratio
	Adjusted total asset turnover²

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ Total asset turnover = Revenues ÷ Total assets
= hidden ÷ hidden = hidden

² Adjusted total asset turnover = Revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted total asset turnover	An activity ratio calculated as total revenue divided by adjusted total assets.	Pfizer Inc.’s adjusted total asset turnover deteriorated from 2016 to 2017 but then improved from 2017 to 2018 exceeding 2016 level.

Adjusted Debt to Equity

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Total debt
	Total Pfizer Inc. shareholders’ equity
	Ratio
	Debt to equity¹
	Adjusted for Operating Leases
	Selected Financial Data (USD $ in millions)
	Adjusted total debt
	Total Pfizer Inc. shareholders’ equity
	Ratio
	Adjusted debt to equity²

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ Debt to equity = Total debt ÷ Total Pfizer Inc. shareholders’ equity
= hidden ÷ hidden = hidden

² Adjusted debt to equity = Adjusted total debt ÷ Total Pfizer Inc. shareholders’ equity
= hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted debt-to-equity	A solvency ratio calculated as adjusted total debt divided by total shareholders’ equity.	Pfizer Inc.’s adjusted debt-to-equity improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

Adjusted Return on Assets (ROA)

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net income attributable to Pfizer Inc.
	Total assets
	Ratio
	ROA¹
	Adjusted for Operating Leases
	Selected Financial Data (USD $ in millions)
	Net income attributable to Pfizer Inc.
	Adjusted total assets
	Ratio
	Adjusted ROA²

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

2018 Calculations

¹ ROA = 100 × Net income attributable to Pfizer Inc. ÷ Total assets
= 100 × hidden ÷ hidden = hidden

² Adjusted ROA = 100 × Net income attributable to Pfizer Inc. ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio	Description	The company
Adjusted ROA	A profitability ratio calculated as net income divided by adjusted total assets.	Pfizer Inc.’s adjusted ROA improved from 2016 to 2017 but then slightly deteriorated from 2017 to 2018 not reaching 2016 level.

Adjusted Interest Coverage

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Earnings before interest and tax¹ (EBIT)
	Interest expense
	Ratio
	Interest coverage²
	Adjusted for Operating Leases
	Selected Financial Data (USD $ in millions)
	Adjusted EBIT
	Adjusted interest expense
	Ratio
	Adjusted interest coverage³

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

¹ See Details »

2018 Calculations

² Interest coverage = EBIT ÷ Interest expense
= hidden ÷ hidden = hidden

³ Adjusted interest coverage = Adjusted EBIT ÷ Adjusted interest expense
= hidden ÷ hidden = hidden

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

Estimation of Depreciation Expense, Operating Leased Assets

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Rental expense, net of sublease income
	Less: Estimated interest expense, operating lease obligations¹
	Estimated depreciation expense, operating leased assets

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

¹ See Details »

Estimation of Interest Expense, Operating Lease Obligations

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Operating leased assets, at beginning of year¹
	Discount rate²

	Estimated interest expense, operating lease obligations³

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

¹ See Details »

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

2018 Calculations

³ Estimated interest expense, operating lease obligations = Operating leased assets, at beginning of year × Discount rate
= hidden × hidden = hidden

Present Value of Operating Lease Payments, at Beginning of Year

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Total present value of future operating lease payments¹
	Rental expense, net of sublease income
	Discount rate²

	Total present value of operating lease payments, at beginning of year³

Based on: 10-K (filing date: 2019-02-28), 10-K (filing date: 2018-02-22), 10-K (filing date: 2017-02-23), 10-K (filing date: 2016-02-29), 10-K (filing date: 2015-02-27).

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

² Weighted-average interest rate for Pfizer 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 + Rental expense, net of sublease income) ÷ (1 + Discount rate)
= ( hidden + hidden ) ÷ (1 + hidden ) = hidden

	Pfizer Inc.	Other companies (not purchased previously)
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Long-term Trends
Analysis
Financial Reporting Quality

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Financial Statements
Common-Size Financial Statements
Ratios
Relative Valuation
Discounted Cash Flow (DCF) Valuation
Economic Value Added (EVA)
Long-term Trends
Analysis
Financial Reporting Quality

Pfizer Inc. (PFE)

Analysis of Operating Leases

Present Value of Future Operating Lease Payments

2018 Calculations

2017 Calculations

2016 Calculations

2015 Calculations

2014 Calculations

Analyst Adjustments for Operating Leases

Pfizer Inc., Financial Data: Reported vs. Adjusted

Adjusted Ratios for Operating Leases (Summary)

Pfizer Inc., Ratios: Reported vs. Adjusted

Adjusted Total Asset Turnover

Adjusted Debt to Equity

Adjusted Return on Assets (ROA)

Adjusted Interest Coverage

Estimation of Depreciation Expense, Operating Leased Assets

Estimation of Interest Expense, Operating Lease Obligations

Present Value of Operating Lease Payments, at Beginning of Year