Analysis of Debt
Total Debt (Carrying Amount)
O’Reilly Automotive Inc., balance sheet: debt
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
An analysis of the long-term debt carrying amount reveals a period of sustained expansion followed by a moderate reduction. Between the end of 2017 and the end of 2020, there was a consistent upward trajectory in total long-term obligations, indicating a period of increased borrowing.
- Growth Period (2017–2020)
- Total long-term debt increased from 2,978,390 thousand US$ in 2017 to a peak of 4,123,217 thousand US$ in 2020. This represents a cumulative increase of approximately 38.4% over three years. The most significant annual increments were observed between 2017 and 2019, suggesting active capital raising or financing activities during this window.
- Debt Reduction Phase (2021)
- A reversal in the trend occurred by December 31, 2021, when the carrying amount of long-term debt declined to 3,826,978 thousand US$. This decrease of approximately 296.2 million US$ from the 2020 peak indicates a shift toward debt repayment or a reduction in outstanding long-term liabilities.
- Overall Debt Position
- Despite the contraction observed in 2021, the total long-term debt remains significantly higher than the 2017 baseline. The total carrying amount ended the analyzed period with a net increase of 848,588 thousand US$ compared to the starting value in 2017.
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Total Debt (Fair Value)
| Dec 31, 2021 | |
|---|---|
| Selected Financial Data (US$ in thousands) | |
| Senior Notes | 4,135,629) |
| Unsecured revolving credit facility | —) |
| Total long-term debt (fair value) | 4,135,629) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.08 |
Based on: 10-K (reporting date: 2021-12-31).
Weighted-average Interest Rate on Debt
Weighted-average interest rate on long-term debt: 3.62%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 3.85% | 300,000) | 11,535) | |
| 3.85% | 300,000) | 11,553) | |
| 3.57% | 500,000) | 17,850) | |
| 3.62% | 750,000) | 27,143) | |
| 4.38% | 500,000) | 21,915) | |
| 3.90% | 500,000) | 19,505) | |
| 4.21% | 500,000) | 21,025) | |
| 1.80% | 500,000) | 8,990) | |
| Total | 3,850,000) | 139,516) | |
| 3.62% | |||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in thousands
2 Weighted-average interest rate = 100 × 139,516 ÷ 3,850,000 = 3.62%
Interest Costs Incurred
O’Reilly Automotive Inc., interest costs incurred
US$ in thousands
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
The total interest costs incurred exhibited a consistent upward trajectory from 2017 through 2020, followed by a contraction in 2021. This progression indicates a period of increasing debt service obligations that peaked in 2020 before experiencing a decline.
- Total Interest Costs Incurred
- Total costs rose from 99,849 thousand US dollars in 2017 to a peak of 171,326 thousand US dollars in 2020, representing an overall increase of approximately 71.6% during this growth phase. A reversal occurred in 2021, with total costs decreasing to 151,768 thousand US dollars, an 11.4% reduction from the previous year.
- Interest Expense Analysis
- Interest expense acted as the primary driver of the total interest burden. This figure climbed steadily from 91,349 thousand US dollars in 2017 to 161,126 thousand US dollars in 2020. The subsequent drop to 144,768 thousand US dollars in 2021 mirrors the downward trend in total costs incurred, suggesting a reduction in the company's effective interest burden or a decrease in total outstanding debt.
- Capitalized Interest Costs
- Interest costs capitalized remained a minor component of the total costs incurred throughout the period. These costs fluctuated, peaking at 13,000 thousand US dollars in 2019 before declining to 7,000 thousand US dollars by 2021. The decrease in capitalized interest in the final two years indicates a potential reduction in the volume of qualifying capital assets under construction.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).
2021 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense
= 2,926,682 ÷ 144,768 = 20.22
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs incurred
= 2,926,682 ÷ 151,768 = 19.28
The analysis of interest coverage metrics reveals a robust capacity to meet debt obligations, characterized by a U-shaped trend between 2017 and 2021. While both metrics experienced a decline in the first three years of the period, a strong recovery was observed in the subsequent two years, resulting in the highest coverage levels in 2021.
- Adjusted Interest Coverage Ratio Trends
- The adjusted interest coverage ratio, which accounts for capitalized interest, decreased from 17.32 in 2017 to a period low of 12.62 in 2019. This downward trajectory was reversed starting in 2020, with the ratio rising to 14.17 and further accelerating to 19.28 by the end of 2021. This recovery indicates a significant improvement in the company's ability to service its debt relative to its earnings by the conclusion of the period.
- Impact of Capitalized Interest
- A consistent variance is noted between the interest coverage ratio without capitalized interest and the adjusted ratio. The adjusted ratio remains lower across all reported years, confirming that the capitalization of interest increases the total interest burden and reduces the coverage margin. However, the parallel movement of both metrics indicates that the underlying drivers of these trends impacted both measures proportionally.
- Overall Solvency Implications
- Throughout the five-year period, both coverage ratios remained well above the threshold of concern, consistently staying above 12.00. This reflects a high margin of safety and minimal risk of default, as the earnings generated were substantially higher than the total interest expenses incurred.
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