Note 8. Debt

Short-Term Borrowings:

At September 30, 2014 and December 31, 2013, our short-term borrowings and related weighted-average interest rates consisted of:


	September 30, 2014				December 31, 2013
	Amount		Weighted-		Amount		Weighted-
	Outstanding		Average Rate		Outstanding		Average Rate
	(in millions)				(in millions)

Commercial paper	$	1,409		0.4%	$	1,410		0.4%
Bank loans		398		7.4%		226		7.0%

Total short-term borrowings	$	1,807			$	1,636

As of September 30, 2014, the commercial paper issued and outstanding had between 1 and 80 days remaining to maturity. Bank loans include borrowings on primarily uncommitted credit lines maintained by some of our international subsidiaries to meet short-term working capital needs.

Borrowing Arrangements:

We maintain a revolving credit facility for general corporate purposes, including for working capital purposes and to support our commercial paper program. Our $4.5 billion five-year senior unsecured revolving credit facility expires on October 11, 2018. The revolving credit agreement includes a covenant that we maintain a minimum shareholders’ equity of at least $24.6 billion, excluding accumulated other comprehensive earnings / (losses) and the cumulative effects of any changes in accounting principles. At September 30, 2014, we met the covenant as our shareholders’ equity as defined by the covenant was $35.4 billion. The revolving credit facility agreement also contains customary representations, covenants and events of default. There are no credit rating triggers, provisions or other financial covenants that could require us to post collateral as security. As of September 30, 2014, no amounts were drawn on the facility.

Long-Term Debt:

On February 19, 2014, $500 million of our 6.75% U.S. dollar notes matured. The notes and accrued interest to date were paid with cash on hand and the issuance of commercial paper.

On February 6, 2014, we completed a cash tender offer and retired $1.56 billion of our long-term U.S. dollar debt consisting of:

•

$393 million of our 7.000% Notes due in August 2037

•

$382 million of our 6.875% Notes due in February 2038

•

$250 million of our 6.875% Notes due in January 2039

•

$535 million of our 6.500% Notes due in February 2040

We financed the repurchase of these notes, including the payment of accrued interest and other costs incurred, from net proceeds received from the $3.0 billion notes issuance on January 16, 2014. In connection with retiring this debt, during the first six months of 2014, we recorded a $493 million loss on extinguishment of debt within interest expense related to the amount we paid to retire the debt in excess of its carrying value and from recognizing unamortized discounts and deferred financing costs in earnings at the time of the debt extinguishment. The loss on extinguishment is included in long-term debt repayments in the 2014 consolidated statement of cash flows. We also recognized $2 million in interest expense related to interest rate cash flow hedges that were deferred in accumulated other comprehensive losses and recognized into earnings over the life of the debt. Upon extinguishing the debt, the deferred cash flow hedge amounts were recorded in earnings.

On January 16, 2014, we issued $3.0 billion of U.S. dollar notes, consisting of:

•

$400 million of floating rate notes that bear interest at a rate equal to three-month LIBOR plus 0.52% and mature on February 1, 2019

•

$850 million of 2.250% fixed rate notes that mature on February 1, 2019

•

$1,750 million of 4.000% fixed rate notes that mature on February 1, 2024

We received net proceeds of $2,982 million that were used to fund the February 2014 tender offer, pay down commercial paper borrowings and for other general corporate purposes. We recorded approximately $18 million of discounts and deferred financing costs, which will be amortized into interest expense over the life of the notes.

Our weighted-average interest rate on our total debt was 4.3% as of September 30, 2014. Our weighted-average interest rate on our total debt as of December 31, 2013 was 4.8%, down from 5.8% as of December 31, 2012.

Fair Value of Our Debt:

The fair value of our short-term borrowings at September 30, 2014 and December 31, 2013 reflects current market interest rates and approximates the amounts we have recorded on our condensed consolidated balance sheet. The fair value of our long-term debt was determined using quoted prices in active markets (Level 1 valuation data) for the publicly traded debt obligations. At September 30, 2014, the aggregate fair value of our total debt was $19,522 million and its carrying value was $17,879 million. At December 31, 2013, the aggregate fair value of our total debt was $18,835 million and its carrying value was $17,121 million.

Interest and Other Expense / (Income):

Interest and other expense / (income) within our results of continuing operations consisted of:


	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
	(in millions)

Interest expense, debt	$	188		$	257		$	582		$	783
Loss on debt extinguishment and related expenses		–			–			495			–
Unrealized gain on planned coffee business divestiture currency hedge		(420	)		–			(413	)		–
Benefit from indemnification resolution		–			(49	)		–			(49	)
Other expense / (income), net		5			10			53			(2	)

Interest and other expense / (income)	$	(227	)	$	218		$	717		$	732

See Note 2, Divestitures and Acquisition, and Note 9, Financial Instruments, for information on the currency exchange forward contracts associated with the planned coffee business transactions and Note 12, Commitments and Contingencies, for information on the benefit from the resolution of the Cadbury acquisition-related indemnification.