Kellogg Annual Report 2007 - Form 10-K Financial Statements and Supplementary Data Note 7

NOTE 7
DEBT

Notes payable at year end consisted of commercial paper borrowings in the United States and Canada, and to a lesser extent, bank loans of foreign subsidiaries at competitive market rates, as follows:



	2007					2006

			Effective					Effective
	Principal		interest			Principal		interest
(dollars in millions)	amount		rate			amount		rate

U.S. commercial paper	$	1,434		5.3	%	$	1,141		5.3	%
Canadian commercial paper		5		4.3	%		87		4.4	%
Other		50					40


	$	1,489				$	1,268

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



(millions)				2007			2006

	(a	)	6.6% U.S. Dollar Notes due 2011	$	1,425		$	1,496
	(a	)	7.45% U.S. Dollar Debentures due 2031		1,088			1,088
	(b	)	2.875% U.S. Dollar Notes due 2008		465			465
	(c	)	Guaranteed Floating Rate Euro Notes due 2007		—			722
	(d	)	5.125% U.S. Dollar Notes due 2012		750			—
			Other		8			5


					3,736			3,776
Less current maturities					(466	)		(723)


Balance at year end				$	3,270		$	3,053


(a)		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 2007 and 2006. The effective interest rates on these Notes, reflecting issuance discount and swap settlement, were as follows: due 2011-7.08%; due 2031-7.62%. Initially, these instruments were privately placed, or sold outside the United States, in reliance on exemptions from registration under the Securities Act of 1933, as amended (the “1933 Act”). The Company then exchanged new debt securities for these initial debt instruments, with the new debt securities being substantially identical in all respects to the initial debt instruments, except for being registered under the 1933 Act. These debt securities contain standard events of default and covenants. The Notes due 2011 and the Debentures due 2031 may 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). In December 2007, the Company redeemed $72 million of the Notes due 2011.


(b)		In June 2003, the Company issued $500 million of five-year 2.875% fixed rate U.S. Dollar Notes, using the proceeds from these Notes to replace maturing long-term debt. These Notes were issued under an existing shelf registration statement. The effective interest rate on these Notes, reflecting issuance discount and swap settlement, is 3.35%. 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. In December 2005, the Company redeemed $35 million of these Notes.


(c)		In November 2005, a subsidiary of the Company (the “Borrower”) issued Euro 550 million of Guaranteed Floating Rate Notes (the “Euro Notes”) due May 2007. The Euro Notes were issued and sold in transactions outside the United States in reliance on exemptions from registration under the 1933 Act. The Euro Notes were guaranteed by the Company with an interest rate of 0.12% per annum above three-month EURIBOR for each quarterly interest period. The Euro Notes contained customary covenants that limited 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 Euro Notes were redeemable in whole or in part at par on interest payment dates or upon the occurrence of certain events in 2006 and 2007. In accordance with these terms, on January 31, 2007, the Borrower announced that it had exercised its right to call for early redemption all of the outstanding Euro Notes effective February 28, 2007, at a redemption price equal to the principal amount, plus accrued and unpaid interest through the redemption date.


(d)		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. These Notes were issued under an existing shelf registration statement. The effective interest rate on these Notes, reflecting issuance discount and swap settlement, is 5.12%. 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.

As discussed in preceding subnote (c), on January 31, 2007, a subsidiary of the Company announced an early redemption, effective February 28, 2007, of Euro 550 million of Guaranteed Floating Rate Notes otherwise due May 2007. To partially refinance this redemption, 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 29, 2007 no notes were issued under this program.

At December 29, 2007, the Company had $2.6 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 during November 2006 to replace an existing facility, which would have expired in 2009. The 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, 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, and demand the deposit of cash collateral equal to the lender’s letter of credit exposure plus interest. The Company entered into a $400 million unsecured 364-Day Credit Agreement effective January 31, 2007, and a $700 million 364-Day Credit Agreement effective June 13, 2007, both containing customary covenants, warranties, and restrictions similar to those described herein for the Five-Year Credit Agreement. The facilities are available for general corporate purposes, including commercial paper back-up, although the Company does not currently anticipate any usage under the facilities. On December 3, 2007, the Company terminated the $700 million Credit Agreement. The $400 million Credit Agreement expired at the end of January 2008 and the Company did not renew it.

Scheduled principal repayments on long-term debt are (in millions): 2008–$466; 2009–$2; 2010–$1; 2011–$1,429; 2012–$751; 2013 and beyond–$1,102.

Interest paid was (in millions): 2007–$305; 2006–$299; 2005–$295. Interest expense capitalized as part of the construction cost of fixed assets was (in millions): 2007–$5; 2006–$3; 2005–$1.

ANNUAL REPORT 2007