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Debt

12 Months Ended

Dec. 31, 2011

NOTE 6

DEBT

The following table presents the components of notes payable at year end December 31, 2011 and January 1, 2011:

(millions)		2011				2010
		Principal amount	Effective interest rate			Principal amount	Effective interest rate

U.S. commercial paper	$	216	0.24	%	$	-	-	%
Bank borrowings		18				44
Total	$	234			$	44

Long-term debt at year end consisted primarily of issuances of U.S. Dollar Notes, as follows:


(millions)			2011		2010
(a)	7.45% U.S. Dollar Debentures due 2031	$	1,090	$	1,090
(b)	4.0% U.S. Dollar Notes due 2020		992		991
(c)	4.25% U.S. Dollar Notes due 2013		772		800
(d)	4.45% U.S. Dollar Notes due 2016		763		748
(e)	5.125% U.S. Dollar Notes due 2012		760		768
(f)	1.875% U.S. Dollar Notes due 2016		499		-
(g)	4.15% U.S. Dollar Notes due 2019		499		498
(h)	3.25% U.S. Dollar Notes due 2018		409		-
(a)	6.6% U.S. Dollar Notes due 2011		-		951
	Other		14		14
			5,798		5,860
Less current maturities			(761)		(952)
Balance at year end		$	5,037	$	4,908

In March 2001, the Company issued $4.6 billion of long-term debt instruments, primarily to finance the acquisition of Keebler Foods Company. The preceding table reflects the remaining principal amounts outstanding as of year-end 2011 and 2010. The debt securities contain standard events of default and covenants. The Notes due 2011 and the Debentures due 2031 could be redeemed in whole or in part by the Company at any time at prices determined under a formula (but not less than 100% of the principal amount plus unpaid interest to the redemption date). The effective interest rate on the Debentures due 2031, reflecting issuance discount and hedge settlement, was 7.62%. In May 2009, the Company entered into interest rate swaps with notional amounts totaling $400 million, which effectively converted a portion of the Notes due 2011 from a fixed rate to a floating rate obligation for the remainder of the ten-year term. These derivative instruments were designated as fair value hedges of the debt obligation. The Company redeemed $72 million of the Notes due 2011 in December 2007, an additional $482 million in December 2009, and the remainder in April 2011. The Company incurred $35 million of interest expense and $3 million of accelerated losses on interest rate swaps previously recorded in accumulated other comprehensive income in connection with the 2009 redemption.
On December 8, 2010, the Company issued $1.0 billion of ten-year 4.0% fixed rate U.S. Dollar Notes, using net proceeds from these Notes for incremental pension and postretirement benefit plan contributions and to retire a portion of its commercial paper. The effective interest rate on these Notes, reflecting issuance discount and hedge settlement, was 3.42%. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions. The customary covenants also contain a change of control provision.
On March 6, 2008, the Company issued $750 million of five-year 4.25% fixed rate U.S. Dollar Notes, using the proceeds from these Notes to retire a portion of its U.S. commercial paper. The effective interest rate on these Notes, reflecting issuance discount, hedge settlement and interest rate swaps was 1.733% at December 31, 2011. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions. The customary covenants also contain a change of control provision. In conjunction with this debt issuance, the Company entered into interest rate swaps with notional amounts totaling $750 million, which effectively converted this debt from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. During 2011, the Company transferred a portion of the interest rate swaps to another counterparty and subsequently terminated all the interest rate swaps. The resulting unamortized gain of $22 million at December 31, 2011 will be amortized to interest expense over the remaining term of the Notes.
On May 18, 2009, the Company issued $750 million of seven-year 4.45% fixed rate U.S. Dollar Notes, using net proceeds from these Notes to retire a portion of its commercial paper. The effective interest rate as of December 31, 2011 on these Notes, reflecting issuance discount, hedge settlement and interest rate swaps, was 3.89%. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions. The customary covenants also contain a change of control provision. In February 2011, the Company entered into interest rate swaps with notional amounts totaling $200 million, which effectively converted a portion of these Notes from a fixed rate to a floating rate obligation for the remainder of the seven-year term. These derivative instruments were designated as fair value hedges of the debt obligation. The fair value adjustment for the interest rate swaps was $14 million, and was recorded as an increase in the hedged debt balance at December 31, 2011.
In December 2007, the Company issued $750 million of five-year 5.125% fixed rate U.S. Dollar Notes, using the proceeds from these Notes to replace a portion of its U.S. commercial paper. The effective interest rate on these Notes, reflecting issuance discount, hedge settlement and interest rate swaps was 3.632% at December 31, 2011. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions. The customary covenants also contain a change of control provision. In May 2009, the Company entered into interest rate swaps with notional amounts totaling $750 million, which effectively converted these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. In August 2011, the Company terminated the interest rate swaps. The unamortized gain of $10 million at December 31, 2011 will be amortized to interest expense over the remaining term of the Notes.
On November 14, 2011, the Company issued $500 million of five-year 1.875% fixed rate U.S. Dollar Notes, using net proceeds from these Notes for general corporate purposes including repayment of a portion of its commercial paper. The effective interest rate on these Notes, reflecting issuance discount and hedge settlement, was 1.98%. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions. The customary covenants also contain a change of control provision.
On November 15, 2009, the Company issued $500 million of ten-year 4.15% fixed rate U.S. Dollar Notes, using net proceeds from these Notes to retire a portion of its 6.6% U.S. Dollar Notes due 2011. The effective interest rate on these Notes, reflecting issuance discount and hedge settlement, was 4.23%. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions. The customary covenants also contain a change of control provision.
On May 16, 2011, the Company issued $400 million of seven-year 3.25% fixed rate U.S. Dollar Notes, using net proceeds from these Notes for general corporate purposes including repayment of a portion of its commercial paper. The effective interest rate as of December 31, 2011 on these Notes, reflecting issuance discount, hedge settlement and interest rate swaps, was 2.31%. The Notes contain customary covenants that limit the ability of the Company and its restricted subsidiaries (as defined) to incur certain liens or enter into certain sale and lease-back transactions. The customary covenants also contain a change of control provision. In October 2011, the Company entered into interest rate swaps with notional amounts totaling $400 million, which effectively converted these Notes from a fixed rate to a floating rate obligation for the remainder of the seven-year term. These derivative instruments were designated as fair value hedges of the debt obligation. The fair value adjustment for the interest rate swaps was $10 million, and was recorded as an increase in the hedged debt balance at December 31, 2011.

In February 2007, the Company and two of its subsidiaries (the Issuers) established a program under which the Issuers may issue euro-commercial paper notes up to a maximum aggregate amount outstanding at any time of $750 million or its equivalent in alternative currencies. The notes may have maturities ranging up to 364 days and will be senior unsecured obligations of the applicable Issuer. Notes issued by subsidiary Issuers will be guaranteed by the Company. The notes may be issued at a discount or may bear fixed or floating rate interest or a coupon calculated by reference to an index or formula. As of December 31, 2011 and January 1, 2011, no notes were outstanding under this program.

At December 31, 2011, the Company had $2.2 billion of short-term lines of credit, virtually all of which were unused and available for borrowing on an unsecured basis. These lines were comprised principally of an unsecured Four-Year Credit Agreement, which the Company entered into in March 2011 and expires in 2015, replacing the Company's unsecured Five-Year Credit Agreement, which would have expired in November 2011. The Four-Year Credit Agreement allows the Company to borrow, on a revolving credit basis, up to $2.0 billion, to obtain letters of credit in an aggregate amount up to $75 million, U.S. swingline loans in an aggregate amount up to $200 million and European swingline loans in an aggregate amount up to $400 million and to provide a procedure for lenders to bid on short-term debt of the Company. The agreement contains customary covenants and warranties, including specified restrictions on indebtedness, liens, sale and leaseback transactions, and a specified interest coverage ratio. If an event of default occurs, then, to the extent permitted, the administrative agent may terminate the commitments under the credit facility, accelerate any outstanding loans under the agreement, and demand the deposit of cash collateral equal to the lender's letter of credit exposure plus interest.

Scheduled principal repayments on long-term debt are (in millions): 2012–$750; 2013–$752; 2014–$8; 2015–$1; 2016–$1,251; 2017 and beyond–$3,001.

Interest paid was (in millions): 2011–$249; 2010–$244; 2009–$302. Interest expense capitalized as part of the construction cost of fixed assets was (in millions): 2011–$5; 2010–$2; 2009–$3.