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).
- Current Portion of Finance Lease Liabilities
- The current portion of finance lease liabilities showed a consistent upward trend from 2018 to 2022, increasing from 52,290 thousand US dollars in 2018 to a peak of 92,877 thousand US dollars in 2022. However, in 2023, there was a noticeable decline to 86,916 thousand US dollars, indicating a reduction in the short-term lease obligations due within the year.
- Long-Term Debt
- Long-term debt exhibited a steady increase over the six-year period. The debt rose from 5,005,930 thousand US dollars in 2018 to 7,668,549 thousand US dollars in 2023. A moderate increase occurred annually, with a particularly significant jump between 2021 and 2023, where debt grew from approximately 5,269,820 to 7,668,549 thousand US dollars, reflecting an aggressive use of long-term borrowing.
- Finance Lease Liabilities, Less Current Portion
- The finance lease liabilities due beyond one year showed a general upward trend from 102,013 thousand US dollars in 2018 to a peak of 217,428 thousand in 2022, followed by a decrease to 200,702 thousand in 2023. This pattern suggests increasing long-term lease commitments over time, with a slight reduction in the most recent year.
- Total Long-Term Debt and Finance Lease Liabilities (Carrying Amount)
- The combined carrying amount of long-term debt and finance lease liabilities also increased consistently from 5,160,233 thousand US dollars in 2018 to 7,956,167 thousand US dollars in 2023. The overall growth indicates an expansion in total leverage. The trend mirrors the movement in long-term debt, with incremental increases each year, punctuated by a stronger rise after 2021. Minor fluctuations in lease liabilities impacted the total less significantly.
- Summary of Trends
- Overall, the data reveals a strategy characterized by increased reliance on debt financing, notably long-term debt, which rose substantially over the period. The current portion of finance lease liabilities increased steadily until 2022, suggesting increasing short-term lease obligations, though these eased slightly in 2023. Long-term finance lease liabilities also grew, confirming an expanding commitment to lease financing. The reduction in both current and long-term lease liabilities in 2023 might indicate some restructuring or repayment of lease obligations. The company's total debt and lease liabilities consistently grew, highlighting a rising leverage position that could affect financial risk and interest obligations going forward.
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).
- Interest expense, less capitalized interest
- The interest expense, excluding capitalized interest, demonstrated a generally upward trend from August 2018 through August 2020, increasing from $180.2 million to approximately $206.9 million. Following this peak, there was a slight decline observed in the subsequent two years, with the expense decreasing to around $197.7 million by August 2022. However, in the most recent period, August 2023, a significant increase occurred, with the cost rising sharply to $318.4 million, representing the highest level in the time series.
- Capitalized interest
- Capitalized interest values showed relatively small fluctuations throughout the periods. Beginning at $1.5 million in August 2018, the amount slightly decreased over the next few years, reaching a low of $1.2 million in August 2022. The most recent figure in August 2023 increased modestly to $1.7 million. Overall, capitalized interest remained minimal and fairly stable compared to the total interest expense.
- Interest expense (total)
- The total interest expense, which includes both capitalized and non-capitalized interest, follows a similar pattern to the interest expense less capitalized interest due to the small share of capitalized interest. From $181.7 million in August 2018, interest expense steadily increased to just over $208.0 million by August 2020. A slight decline ensued through August 2022, lowering the expense to nearly $198.9 million. The latest figure exhibits a pronounced increase to $320.1 million in August 2023, marking a substantial cost escalation.
- Overall analysis
- The data reveals a pattern of gradual growth in interest expenses until 2020, followed by a moderate decrease until 2022, and culminating in a significant surge in 2023. Capitalized interest remains a small and relatively stable component of total interest costs, indicating that the large variations in total interest expense are driven primarily by changes in the non-capitalized portion. The marked rise in interest expense in the latest period may suggest increased borrowing, higher interest rates, or changes in debt structure requiring further investigation to understand the underlying causes.
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
Over the analyzed periods, there is a noticeable upward trend in both the interest coverage ratio without capitalized interest and the adjusted interest coverage ratio with capitalized interest from 2018 through 2022. This suggests an improving ability to cover interest expenses over those years.
Specifically, the interest coverage ratio without capitalized interest increased steadily from 10.08 in 2018 to a peak of 16.58 in 2022, indicating a stronger earnings capacity relative to interest obligations. Similarly, the adjusted interest coverage ratio also rose from 10.00 in 2018 to 16.48 in 2022, aligning closely with the unadjusted ratio and reflecting consistent improvement even when considering capitalized interest.
However, in the most recent period ending August 26, 2023, both ratios exhibit a significant decline to approximately 10.95 and 10.89 respectively. This drop indicates a reduction in the company’s cushion to meet interest expenses compared to the previous year. Despite this decrease, the coverage ratios remain slightly above the levels observed in 2018, suggesting that while the ability to cover interest payments has weakened recently, it has not deteriorated below the initial period’s baseline.
The parallel movement of both ratios throughout the periods highlights that capitalized interest has a minimal differential effect on the interest coverage measurement, signifying stability in the company's capital interest accounting practices. The notable peak in 2022 followed by a decline in 2023 may merit further investigation into underlying factors affecting operating income or interest expenses during this latest period.