Analysis of Debt
Total Debt (Carrying Amount)
Norfolk Southern Corp., balance sheet: debt
US$ in millions
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).
A consistent upward trend is observed in the total debt carrying amount from 2017 through 2021. Total debt obligations increased from US$ 9,836 million in 2017 to US$ 13,840 million by the end of 2021, representing a cumulative increase of approximately 40.7% over the five-year period.
- Long-Term Debt Growth
- The increase in total debt was primarily driven by a steady rise in long-term debt, excluding current maturities. This component grew from US$ 9,136 million in 2017 to US$ 13,287 million in 2021. The most pronounced growth occurred between 2017 and 2019, followed by a continued, though slightly more moderated, increase through 2021.
- Current Maturities and Short-Term Obligations
- Current maturities of long-term debt exhibited fluctuations throughout the period, ranging from a low of US$ 316 million in 2019 to a high of US$ 600 million in 2017. Short-term debt was present only in 2017 at US$ 100 million and was not recorded in the subsequent four years, indicating a shift away from very short-term borrowing instruments.
- Debt Composition and Structure
- The overall debt profile is heavily skewed toward long-term financing. By December 31, 2021, long-term debt excluding current maturities constituted approximately 96% of the total debt carrying amount. This structure suggests a strategic preference for long-term capital over short-term liabilities, which minimizes immediate refinancing pressure.
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Total Debt (Fair Value)
| Dec 31, 2021 | |
|---|---|
| Selected Financial Data (US$ in millions) | |
| Short-term debt | —) |
| Long-term debt, including current maturities | 17,033) |
| Total debt (fair value) | 17,033) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.23 |
Based on: 10-K (reporting date: 2021-12-31).
Weighted-average Interest Rate on Debt
Weighted average interest rate on debt: 4.06%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 3.40% | 2,699) | 92) | |
| 4.26% | 2,614) | 111) | |
| 4.02% | 8,097) | 325) | |
| 5.22% | 1,384) | 72) | |
| Total | 14,794) | 601) | |
| 4.06% | |||
Based on: 10-K (reporting date: 2021-12-31).
1 US$ in millions
2 Weighted-average interest rate = 100 × 601 ÷ 14,794 = 4.06%
Interest Costs Incurred
Norfolk Southern Corp., interest costs incurred
US$ in millions
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 interest costs incurred between 2017 and 2021 reveals a consistent upward trajectory in total financing costs. Total interest cost incurred on debt rose from 570 million US$ in 2017 to 657 million US$ by 2021, representing a steady increase in the company's overall debt servicing requirements over the five-year period.
- Total Interest Cost Incurred
- The aggregate interest cost demonstrated a continuous year-over-year increase. The most significant escalation occurred between 2018 and 2019, where costs rose from 574 million US$ to 620 million US$, a jump of approximately 7.9% in a single fiscal year.
- Interest Expense on Debt
- Interest expensed directly through the income statement mirrored the overall upward trend, growing from 550 million US$ in 2017 to 646 million US$ in 2021. This suggests either an increase in the total principal amount of outstanding debt or an increase in the average interest rates applied to the company's borrowings.
- Interest Capitalized
- Conversely, interest capitalized showed a persistent downward trend, declining from 20 million US$ in 2017 to 11 million US$ in 2021. This decrease indicates a reduction in the amount of interest attributed to the construction or acquisition of long-term assets.
The divergence between rising interest expenses and falling capitalized interest indicates that a larger proportion of total interest costs is being recognized immediately as an expense rather than being deferred as part of asset costs. This shift places greater pressure on periodic net income compared to the beginning of the analyzed period.
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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 on debt
= 4,524 ÷ 646 = 7.00
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest cost incurred on debt
= 4,524 ÷ 657 = 6.89
The interest coverage metrics exhibit a fluctuating trend between 2017 and 2021, characterized by an initial increase, a significant contraction in 2020, and a robust recovery by the end of the period. Both the standard and adjusted ratios move in close correlation, indicating a consistent relationship between operating earnings and interest obligations regardless of the treatment of capitalized interest.
- Adjusted Interest Coverage Ratio Trend
- The adjusted interest coverage ratio, which accounts for capitalized interest, began at 6.45 in 2017 and peaked at 7.01 in 2018. A gradual decline followed, reaching 6.60 in 2019, before dropping sharply to a five-year low of 4.94 in 2020. By December 31, 2021, the ratio recovered significantly to 6.89, nearly returning to its 2018 peak.
- Comparative Analysis of Interest Treatment
- A consistent variance is observed between the ratio without capitalized interest and the adjusted ratio. The adjusted ratio remains lower across all reported years, reflecting the additional interest burden imposed by capitalization. However, the margin between the two metrics narrowed over time, decreasing from a difference of 0.24 in 2017 to 0.11 in 2021.
- Analysis of the 2020 Downturn
- The most notable volatility occurred in 2020, where the adjusted interest coverage ratio experienced a decrease of approximately 25% compared to 2019. This decline indicates a temporary reduction in the margin of safety for servicing debt obligations. The subsequent rebound in 2021 suggests a rapid restoration of earnings capacity or a reduction in interest expenses.
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