Analysis of Debt
Total Debt (Carrying Amount)
AutoZone Inc., balance sheet: debt
US$ in thousands
Based on: 10-K (reporting date: 2023-08-26), 10-K (reporting date: 2022-08-27), 10-K (reporting date: 2021-08-28), 10-K (reporting date: 2020-08-29), 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-25).
Total liabilities related to long-term debt and finance leases exhibit a consistent upward trajectory from August 2018 to August 2023, with the total carrying amount increasing from US$ 5.16 billion to US$ 7.96 billion. This represents a substantial expansion of the company's total debt obligations over the analyzed five-year period.
- Long-term Debt Trends
- The primary driver of the overall debt increase is long-term debt, which rose from US$ 5.01 billion in 2018 to US$ 7.67 billion in 2023. A brief contraction was observed in 2021, where long-term debt decreased to US$ 5.27 billion from US$ 5.51 billion in the prior year. However, the subsequent two years saw accelerated growth, most notably a sharp increase of approximately US$ 1.55 billion between August 2022 and August 2023.
- Finance Lease Liabilities Analysis
- Finance lease liabilities, both current and non-current, showed steady growth through 2022. Non-current lease liabilities increased from US$ 102.01 million in 2018 to a peak of US$ 217.43 million in 2022, before slightly receding to US$ 200.70 million in 2023. Similarly, the current portion of these liabilities rose from US$ 52.29 million in 2018 to US$ 92.88 million in 2022, followed by a slight decrease to US$ 86.92 million in 2023.
- Aggregated Debt Growth
- The total carrying amount of debt and lease obligations experienced a significant increase, with the most pronounced growth occurring in the final year of the period. The jump from US$ 6.43 billion in 2022 to US$ 7.96 billion in 2023 suggests a heightened reliance on long-term borrowing toward the end of the analyzed timeframe.
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Total Debt (Fair Value)
| Aug 26, 2023 | |
|---|---|
| Selected Financial Data (US$ in thousands) | |
| Long-term debt | 7,261,900) |
| Finance lease liabilities | 287,618) |
| Total long-term debt and finance lease liabilities (fair value) | 7,549,518) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 0.95 |
Based on: 10-K (reporting date: 2023-08-26).
Weighted-average Interest Rate on Debt
Weighted-average effective interest rate on long-term debt and finance lease liabilities: 4.21%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 3.32% | 300,000) | 9,960) | |
| 3.36% | 400,000) | 13,440) | |
| 3.78% | 500,000) | 18,900) | |
| 3.28% | 400,000) | 13,120) | |
| 5.09% | 450,000) | 22,905) | |
| 3.83% | 600,000) | 22,980) | |
| 4.43% | 450,000) | 19,935) | |
| 3.86% | 450,000) | 17,370) | |
| 4.09% | 750,000) | 30,675) | |
| 2.19% | 600,000) | 13,140) | |
| 4.76% | 750,000) | 35,700) | |
| 4.70% | 550,000) | 25,850) | |
| 5.22% | 300,000) | 15,660) | |
| 5.43% | 1,209,600) | 65,681) | |
| 3.85% | 287,618) | 11,073) | |
| Total | 7,997,218) | 336,390) | |
| 4.21% | |||
Based on: 10-K (reporting date: 2023-08-26).
1 US$ in thousands
2 Weighted-average interest rate = 100 × 336,390 ÷ 7,997,218 = 4.21%
Interest Costs Incurred
AutoZone Inc., interest costs incurred
US$ in thousands
Based on: 10-K (reporting date: 2023-08-26), 10-K (reporting date: 2022-08-27), 10-K (reporting date: 2021-08-28), 10-K (reporting date: 2020-08-29), 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-25).
The analysis of interest costs reveals a period of relative stability and moderate fluctuation followed by a significant escalation in the final fiscal year of the period.
- Total Interest Expense Trends
- Total interest expenses exhibited a gradual upward trajectory from August 2018, rising from US$181,668 thousand to a peak of US$208,021 thousand in August 2020. A subsequent two-year period of slight contraction occurred, with expenses decreasing to US$198,883 thousand by August 2022. However, a sharp increase is observed in August 2023, where total interest expenses surged to US$320,121 thousand, representing an approximate 61% increase over the preceding year.
- Analysis of Non-Capitalized Interest
- Interest expense, less capitalized interest, closely mirrors the trend of total interest costs. After reaching a local maximum in August 2020 at US$206,854 thousand and receding to US$197,686 thousand by August 2022, this figure rose steeply to US$318,426 thousand in August 2023. This pattern indicates that the recent spike in costs is primarily driven by interest recognized directly in the income statement rather than costs allocated to capital assets.
- Capitalized Interest Observations
- Capitalized interest has remained consistently low and stable throughout the analyzed timeframe, with values fluctuating within a narrow range between US$1,167 thousand and US$1,695 thousand. The negligible proportion of capitalized interest relative to total interest expenses suggests that the company's interest costs are almost entirely related to operational debt rather than the financing of long-term capital projects.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2023-08-26), 10-K (reporting date: 2022-08-27), 10-K (reporting date: 2021-08-28), 10-K (reporting date: 2020-08-29), 10-K (reporting date: 2019-08-31), 10-K (reporting date: 2018-08-25).
2023 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense, less capitalized interest
= 3,486,040 ÷ 318,426 = 10.95
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest expense
= 3,486,040 ÷ 320,121 = 10.89
The analysis of interest coverage ratios from 2018 through 2023 reveals a period of strengthening debt service capacity followed by a notable contraction in the final year of the observed period. Both the standard and adjusted interest coverage ratios exhibit a synchronized trajectory, indicating that capitalized interest does not materially alter the company's perceived ability to meet its interest obligations.
- Adjusted Interest Coverage Ratio Trend
- A consistent upward trend is observed from August 2018 to August 2022, with the adjusted interest coverage ratio rising from 10.00 to a peak of 16.48. This growth represents a significant increase in the margin of safety for debt servicing. However, this trend reversed sharply in August 2023, as the ratio declined to 10.89, returning to levels similar to those seen in 2018 and 2019.
- Comparison of Coverage Metrics
- The variance between the interest coverage ratio without capitalized interest and the adjusted interest coverage ratio with capitalized interest is minimal across all reported years. The difference consistently remains below 0.10 units, suggesting that capitalization of interest has a negligible impact on the overall solvency profile and the company's capacity to cover interest expenses from operating profits.
- Debt Service Capacity Assessment
- Despite the decline observed in 2023, the adjusted interest coverage ratio remains well above 10.00 throughout the entire six-year period. This indicates a robust ability to service interest payments, as the company generates operating earnings significantly higher than its interest expenses, maintaining a strong cushion against potential fluctuations in earnings or increases in borrowing costs.
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