DEBT

The following table presents the components of notes payable at year end January 2, 2016 and January 3, 2015:



(millions)	2015				2014
	Principal amount		Effective interest rate		Principal amount		Effective interest rate
U.S. commercial paper	$	899	0.45	%	$	681	0.36	%
Europe commercial paper	261		0.01		96		0.09
Bank borrowings	44				51
Total	$	1,204			$	828

The following table presents the components of long-term debt at year end January 2, 2016 and January 3, 2015:



(millions)	2015			2014
(a) 7.45% U.S. Dollar Debentures due 2031	$	1,090		$	1,090
(b) 1.25% Euro Notes due 2025	651			—
(c) 2.75% U.S. Dollar Notes due 2023	210			210
(d) 3.125% U.S. Dollar Notes due 2022	369			357
(e) 1.75% Euro Notes due 2021	541			597
(f) 4.0% U.S. Dollar Notes due 2020	861			842
(g) 4.15% U.S. Dollar Notes due 2019	514			497
(h) 3.25% U.S. Dollar Notes due 2018	412			410
(i) 2.05% Canadian Dollar Notes due 2017	217			259
(j) 1.75% U.S. Dollar Notes due 2017	400			396
(k) 1.875% U.S. Dollar Notes due 2016	502			504
(l) 4.45% U.S. Dollar Notes due 2016	753			760
(m) 1.125% U.S. Dollar Notes due 2015	—			350
(n) Floating-rate U.S. Dollar Notes due 2015	—			250
Other	35			20
	6,555			6,542
Less current maturities	(1,266		)	(607		)
Balance at year end	$	5,289		$	5,935

(a)

In March 2001, the Company issued long-term debt instruments, primarily to finance the acquisition of Keebler Foods Company, of which $1.1 billion of thirty-year 7.45% Debentures remain outstanding. The effective interest rate on the Debentures, reflecting issuance discount and hedge settlement, was 7.54%. The Debentures contain standard events of default and covenants, and can 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).

(b)

In March 2015, the Company issued €600 million (approximately $651 million at January 2, 2016, which reflects the discount and translation adjustments) of ten-year 1.25% Euro Notes due 2025, using the proceeds from these Notes for general corporate purposes, which included repayment of a portion of the Company’s commercial paper borrowings. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was 2.07%. The Notes were designated as a net investment hedge of the Company’s investment in its Europe subsidiary when issued.

(c)

In February 2013, the Company issued $400 million of ten-year 2.75% U.S. Dollar Notes, using net proceeds from these Notes for general corporate purposes, including, together with cash on hand, to repay a portion of the Company’s $750 million 4.25% U.S. Dollar Notes that matured in March 2013. The effective interest rate on these Notes, reflecting issuance discount and hedge settlement, was 2.74% . In March 2014, the Company redeemed $189 million of the Notes. In connection with the debt redemption, the Company reduced interest expense by $10 million , including $1 million of accelerated gains on interest rate swaps previously recorded in accumulated other comprehensive income, and incurred $2 million expense, recorded in Other Income, Expense (net), related to acceleration of fees on the redeemed debt and fees related to the tender offer.

(d)

In May 2012, the Company issued $700 million of ten-year 3.125% U.S. Dollar Notes, using net proceeds from these Notes for general corporate purposes, including financing a portion of the acquisition of Pringles. The effective interest rate on these Notes, reflecting issuance discount and interest rate swaps, was 2.69% at January 2, 2016. In March 2014, the Company redeemed $342 million of the Notes. In connection with the debt redemption, the Company reduced interest expense by $2 million and incurred $2 million expense, recorded in Other Income, Expense (net), related to acceleration of fees on the redeemed debt and fees related to the tender offer. The Company entered into interest rate swaps in 2013 and 2014 with notional amounts totaling $200 million and $158 million, respectively, 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. During 2015, the Company entered into and terminated a series of interest rate swaps and as of January 2, 2016 had terminated all interest rate swaps. The $13 million gain on termination at January 2, 2016 will be amortized to interest expense over the remaining term of the Notes. The fair value adjustment for the interest rate swaps was $1 million, at January 3, 2015, recorded as an increase in the hedged debt balance.

(e)

In May 2014, the Company issued €500 million (approximately $541 million at January 2, 2016, which reflects the discount and translation adjustments) of seven-year 1.75% Euro Notes due 2021, using the proceeds from these Notes for general corporate purposes, which included repayment of a portion of the Company’s commercial paper borrowings. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was 2.18% . The Notes were designated as a net investment hedge of the Company’s investment in its Europe subsidiary when issued.

(f)

In December 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, hedge settlement and interest rate swaps, was 2.98% at January 2, 2016. In March 2014, the Company redeemed $150 million of the Notes. In connection with the debt redemption, the Company incurred $12 million of interest expense offset by $7 million of accelerated gains on interest rate swaps previously recorded in accumulated other comprehensive income, and incurred $1 million expense, recorded in Other Income, Expense (net), related to acceleration of fees on the redeemed debt and fees related to the tender offer. The Company entered into interest rate swaps in 2013 and 2014 with notional amounts totaling $400 million and $300 million , respectively, which effectively converted a portion of these Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. During 2015, the Company entered into and terminated a series of interest rate swaps and as of January 2, 2016 had terminated all interest rate swaps. The $14 million gain on termination at January 2, 2016 will be amortized to interest expense over the remaining term of the Notes. The fair value adjustment for the interest rate swaps was $3 million, at January 3, 2015, and was recorded as a decrease in the hedged debt balance.

(g)

In November 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, hedge settlement and interest rate swaps was 3.52% at January 2, 2016. In 2012, the Company entered into interest rate swaps 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. During 2015, the Company entered into and terminated a series of interest rate swaps and as of January 2, 2016 had terminated all interest rate swaps. The $15 million gain on termination at January 2, 2016 will be amortized to interest expense over the remaining term of the Notes. The fair value adjustment for the interest rate swaps was $2 million at January 3, 2015, and was recorded as a decrease in the hedged debt balance.

(h)

In May 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 on these Notes, reflecting issuance discount, hedge settlement and interest rate swaps, was 2.52% at January 2, 2016. In 2011, the Company entered into interest rate swaps 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. During 2013, the Company terminated all of the interest rate swaps and subsequently entered into interest rate swaps 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. During 2015, the Company terminated all interest rate swaps, and the resulting unamortized gain of $12 million at January 2, 2016 will be amortized to interest expense over the remaining term of the Notes. The fair value adjustment for the interest rate swaps was $3 million at January 3, 2015, and was recorded as a decrease in the hedged debt balance.

(i)

In May 2014, the Company issued Cdn. $300 million (approximately $217 million USD at January 2, 2016, which reflects the discount and translation adjustments) of three-year 2.05% Canadian Dollar Notes due 2017, using the proceeds from these Notes, together with cash on hand, to repay the Company’s Cdn. $300 million, 2.10% Notes due 2014 at maturity. The effective interest rate on the Notes, reflecting issuance discount and hedge settlement, was 2.10% .

(j)

In May 2012, the Company issued $400 million of five-year 1.75% U.S. Dollar Notes, using net proceeds from these Notes for general corporate purposes, including financing a portion of the acquisition of Pringles. The effective interest rate on these Notes, reflecting issuance discount and interest rate swaps, was 1.71% at January 2, 2016. In 2013, the Company entered into interest rate swaps with notional amounts totaling $400 million, which effectively converted the Notes from a fixed rate to a floating rate obligation. These derivative instruments were designated as fair value hedges of the debt obligation. During 2015, the Company terminated all interest rate swaps, and the resulting unamortized gain of $1 million at January 2, 2016 will be amortized to interest expense over the remaining term of the Notes. The fair value adjustment for the interest rate swaps was $3 million, at January 3, 2015, and was recorded as a decrease in the hedged debt balance.

(k)

In November 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, hedge settlement and interest rate swaps was 1.63% at January 2, 2016. In 2012, the Company entered into interest rate swaps 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 2013, the Company terminated all of the interest rate swaps and subsequently entered into interest rate swaps 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 2014, the Company terminated all of the interest rate swaps. The unamortized gain of $2 million at January 2, 2016 will be amortized to interest expense over the remaining term of the Notes.

(l)

In May 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 on these Notes, reflecting issuance discount, hedge settlement and interest rate swaps was 4.10% at January 2, 2016. The Company entered into interest rate swaps in 2011 and 2012 with notional amounts totaling $200 million and $550 million, respectively, 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 2013, the Company terminated all of the interest rate swaps. The unamortized gain of $3 million at January 2, 2016 will be amortized to interest expense over the remaining term of the Notes.


(m)	In May 2012, the Company issued $350 million of three-year 1.125% U.S. Dollar Notes, using net proceeds from these Notes for general corporate purposes, including financing a portion of the acquisition of Pringles. The effective interest rate on these Notes, reflecting issuance discount, was 1.16%. The Company redeemed these Notes in May 2015.

(n)

In February 2013, the Company issued $250 million of floating-rate U.S. Dollar Notes bearing interest at LIBOR plus 0.23% due February 2015. The proceeds from these Notes were used for general corporate purposes, including, together with cash on hand, to repay a portion the Company’s $750 million 4.25% U.S. Dollar Notes that matured in March 2013. The Company redeemed these Notes in February 2015.

All of the Company’s 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 and also contain a change of control provision.

The Company and two of its subsidiaries (the Issuers) maintain 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. There was $261 million and $96 million outstanding under this program as of January 2, 2016 and January 3, 2015, respectively.

At January 2, 2016, the Company had $2.3 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 Five-Year Credit Agreement, which the Company entered into in February 2014 and expires in 2019, replacing the Company’s unsecured Four-year Credit Agreement, which would have expired in March 2015. The Five-Year Credit Agreement allows the Company to borrow, on a revolving credit basis, up to $2.0 billion, which includes the ability to obtain letters of credit in an aggregate stated amount up to $75 million and swingline loans in aggregate principal amounts up to $200 million in U.S. Dollars and $400 million in Euros. The agreement contains customary covenants and warranties, including specified restrictions on indebtedness, liens 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.

The Company was in compliance with all covenants as of January 2, 2016.

Scheduled principal repayments on long-term debt are (in millions): 2016–$1,262; 2017–$627; 2018–$407; 2019–$506; 2020–$851; 2021 and beyond–$2,864.

Interest expense capitalized as part of the construction cost of fixed assets was (in millions): 2015–$4; 2014–$5; 2013–$2.