Debt and lines of credit

9 Months Ended

Sep. 30, 2012

Long-term Debt, Unclassified [Abstract]

Debt and lines of credit

Debt and lines of credit

Short-term borrowings

We maintain a line of credit to support commercial paper borrowings and to provide additional liquidity through bank loans. In March 2012, we replaced our existing lines of credit with a new five-year variable-rate revolving credit facility that allows us to borrow up to $2 billion through March 2017. This variable-rate credit facility is indexed to the London Interbank Offered Rate (LIBOR). As of September 30, 2012, we have no commercial paper outstanding, having repaid $500 million in the third quarter of 2012 and $1 billion on a cumulative basis in 2012.

Long-term debt

In August 2012, we issued an aggregate principal amount of $1.5 billion of fixed-rate long-term debt, with $750 million due in 2015 and $750 million due in 2019. The proceeds of the offering were $1.492 billion, net of the original issuance discount. We also incurred $7 million of issuance costs which are included in Other assets and are being amortized to Interest and debt expense over the term of the debt. The proceeds are for general corporate purposes, which include, among other things, the repurchases of common stock.

In May 2011, we issued fixed- and floating-rate long-term debt to help fund the National acquisition. The proceeds of the offering were $3.497 billion, net of the original issuance discount. We also incurred $12 million of issuance costs that are included in Other assets and are being amortized to Interest and debt expense over the term of the debt.

We also have an interest rate swap agreement related to the $1 billion floating-rate debt due 2013. Under this agreement, we will receive variable payments based on three-month LIBOR rates and pay a fixed rate through May 15, 2013. Changes in the cash flows of the interest rate swap are expected to exactly offset the changes in cash flows attributable to fluctuations in the three-month LIBOR-based interest payments. We have designated this interest rate swap as a cash flow hedge and record changes in its fair value in AOCI. As of September 30, 2012, the fair value of the swap agreement is a $2 million liability. The net effect of this swap is to convert the $1 billion floating-rate debt to a fixed-rate obligation bearing a rate of 0.922 percent.

At the acquisition date, we assumed $1 billion of outstanding National debt with a fair value of $1.105 billion. The excess of the fair value over the stated value is being amortized as a reduction of Interest and debt expense over the term of the related debt. In the first nine months of 2012, we repaid $375 million of this debt.

The following table summarizes the total long-term debt outstanding as of September 30, 2012 and December 31, 2011:

	September 30, 2012			December 31, 2011
Notes due 2012 at 6.15% (assumed with National acquisition)	$	—		$	375
Floating-rate notes due 2013 (swapped to a 0.922% fixed rate)	1,000			1,000
Notes due 2013 at 0.875%	500			500
Notes due 2014 at 1.375%	1,000			1,000
Notes due 2015 at 3.95% (assumed with National acquisition)	250			250
Notes due 2015 at 0.45%	750			—
Notes due 2016 at 2.375%	1,000			1,000
Notes due 2017 at 6.60% (assumed with National acquisition)	375			375
Notes due 2019 at 1.65%	750			—
	5,625			4,500
Plus net unamortized premium	65			93
Less current portion of long-term debt	(1,500		)	(382		)
Total long-term debt	$	4,190		$	4,211

Interest incurred on debt and amortization of debt expense was $21 million and $62 million for the three- and nine-month periods ended September 30, 2012, respectively, and $15 million and $21 million for the three- and nine-month periods ended September 30, 2011, respectively. Capitalized interest was not material.