Annual report pursuant to Section 13 and 15(d)

DEBT

v3.20.4
DEBT
 12 Months Ended
Dec. 31, 2020
Debt Disclosure [Abstract]  
DEBT NOTE 11. DEBT
Loans Payable and Commercial Paper
Loans payable at December 31, 2020 and 2019 were $169 million and $100 million, respectively, and consisted primarily of notes payable to financial institutions. The weighted-average interest rate for notes payable, bank overdrafts and current maturities of long-term debt at December 31 was as follows:
2020 2019 2018
Weighted-average interest rate 2.53  % 3.20  % 4.66  %
We can issue up to $3.5 billion of unsecured, short-term promissory notes (commercial paper) pursuant to the Board of Directors (the Board) authorized commercial paper programs. The programs facilitate the private placement of unsecured short-term debt through third-party brokers. We intend to use the net proceeds from the commercial paper borrowings for general corporate purposes. We had $323 million and $660 million in outstanding borrowings under our commercial paper programs at December 31, 2020 and 2019, respectively. The weighted-average interest rate for commercial paper at December 31 was as follows:
2020 2019 2018
Weighted-average interest rate (0.01) %
(1)
 1.82  % 2.59  %
(1) The weighted-average interest rate, inclusive of all brokerage fees, was negative 0.01 percent at December 31, 2020. This includes $123 million of borrowings under the EUR program that were at a negative weighted-average interest rate of 0.34 percent and $200 million of borrowings under the U.S. program at a weighted-average interest rate of 0.19 percent.
On April 14, 2020, we were approved for the Federal Reserve Bank of New York’s Commercial Paper Funding Facility (CPFF) program to assure access to the commercial paper funding markets during volatile credit market conditions. The CPFF was intended to provide a liquidity backstop to U.S. issuers of commercial paper through a special purpose vehicle (SPV). The facility allows us, based on our current short-term credit rating, to issue three-month unsecured commercial paper at a rate equal to a +110 basis point spread over the three-month overnight index swap rate on the date of issuance. The maximum amount of commercial paper that we may issue at any time through this program is $1.5 billion less the total principal amount of all other outstanding commercial paper that we have issued. We retain full access to our Board authorized $3.5 billion commercial paper program, as reduced by any amounts issued under this facility. The SPV is currently scheduled to cease purchasing commercial paper on March 17, 2021. At December 31, 2020, there were no outstanding borrowings under the CPFF program.
Revolving Credit Facilities
On August 19, 2020, we entered into an amended and restated 364-day credit agreement that allows us to borrow up to $1.5 billion of unsecured funds at any time prior to August 18, 2021. This credit agreement amended and restated the prior $1.5 billion 364-day credit facility that matured on August 19, 2020.
On August 22, 2018, we entered into a new 5-year revolving credit agreement with a syndicate of lenders and we amended the agreement on August 21, 2019. The amended credit agreement provides us with a $2 billion senior unsecured revolving credit facility until August 22, 2023. Amounts payable under our revolving credit facility will rank pro rata with all of our unsecured, unsubordinated indebtedness. Advances under the facility bear interest at (i) an alternate base rate or (ii) a rate equal to the adjusted LIBOR plus an applicable margin based on the credit ratings of our outstanding senior unsecured long-term debt. Based on our current
long-term debt ratings, the applicable margin on adjusted LIBOR rate loans was 0.75 percent per annum as of December 31, 2020. Advances under the facility may be prepaid without premium or penalty, subject to customary breakage costs.
Both credit agreements include various covenants, including, among others, maintaining a net debt to total capital leverage ratio of no more than 0.65 to 1.0. At December 31, 2020, we were in compliance with the covenants. We maintain credit facilities at the current or higher aggregate amounts by renewing or replacing these facilities at or before expiration. These revolving credit facilities are maintained primarily to provide backup liquidity for our commercial paper borrowings and for general corporate purposes. There were no outstanding borrowings under these facilities at December 31, 2020.
At December 31, 2020, our $323 million of commercial paper outstanding effectively reduced the $3.5 billion available capacity under our revolving credit facilities to $3.2 billion.
At December 31, 2020, we also had $256 million available for borrowings under our international and other domestic credit facilities.
Long-term Debt
A summary of long-term debt was as follows:
  December 31,
In millions Interest Rate 2020 2019
Long-term debt    
Senior notes, due 2023 (1)
3.65% $ 500  $ 500 
Senior notes, due 2025 0.75% 500  — 
Debentures, due 2027 6.75% 58  58 
Debentures, due 2028 7.125% 250  250 
Senior notes, due 2030 1.50% 850  — 
Senior notes, due 2043 4.875% 500  500 
Senior notes, due 2050 2.60% 650  — 
Debentures, due 2098 (2)
5.65% 165  165 
Other debt 132  59 
Unamortized discount and deferred issuance costs (72) (50)
Fair value adjustments due to hedge on indebtedness 48  35 
Finance leases 91  90 
Total long-term debt 3,672  1,607 
Less: Current maturities of long-term debt 62  31 
Long-term debt $ 3,610  $ 1,576 
(1) In June and July 2020, we settled our February 2014 interest rate swaps. See "Interest Rate Risk" below for additional information.
(2) The effective interest rate is 7.48%.
Principal payments required on long-term debt during the next five years are as follows:
In millions 2021 2022 2023 2024 2025
Principal payments $ 62  $ 49  $ 526  $ 23  $ 506 
On August 24, 2020, we issued $2 billion aggregate principal amount of senior unsecured notes consisting of $500 million aggregate principal amount of 0.75% senior unsecured notes due in 2025, $850 million aggregate principal amount of 1.50% senior unsecured notes due in 2030 and $650 million aggregate principal amount of 2.60% senior unsecured notes due in 2050. We received net proceeds of $1.98 billion. The senior unsecured notes pay interest semi-annually on March 1 and September 1, commencing on March 1, 2021. The indenture governing the senior unsecured notes contains covenants that, among other matters, limit (i) our ability to consolidate or merge into, or sell, assign, convey, lease, transfer or otherwise dispose of all or substantially all of our and our subsidiaries' assets to another person, (ii) our and certain of our subsidiaries' ability to create or assume liens and (iii) our and certain of our subsidiaries' ability to engage in sale and leaseback transactions.
The $250 million 7.125% debentures and $165 million 5.65% debentures are unsecured and are not subject to any sinking fund requirements. We can redeem these debentures at any time prior to maturity at the greater of par plus accrued interest or an amount designed to ensure that the debenture holders are not penalized by the early redemption.
Our debt agreements contain several restrictive covenants. The most restrictive of these covenants applies to our revolving credit facility which will upon default, among other things, limit our ability to incur additional debt or issue preferred stock, enter into sale-leaseback transactions, sell or create liens on our assets, make investments and merge or consolidate with any other entity. At December 31, 2020, we were in compliance with all of the covenants under our borrowing agreements.
Shelf Registration
As a well-known seasoned issuer, we filed an automatic shelf registration for an undetermined amount of debt and equity securities with the Securities and Exchange Commission on February 13, 2019. Under this shelf registration we may offer, from time to time, debt securities, common stock, preferred and preference stock, depositary shares, warrants, stock purchase contracts and stock purchase units. Our current shelf is scheduled to expire in February 2022.
Interest Expense
For the years ended December 31, 2020, 2019 and 2018, total interest incurred was $102 million, $112 million and $116 million, respectively, and interest capitalized was $2 million, $3 million and $2 million, respectively.
Interest Rate Risk
In 2019 we entered into $350 million of interest rate lock agreements, and in the first half of 2020 we entered into an additional $150 million of lock agreements to reduce the variability of the cash flows of the interest payments on a total of $500 million of fixed rate debt forecast to be issued in 2023 to replace our senior notes at maturity. The terms of the rate locks mirror the time period of the expected fixed rate debt issuance and the expected timing of interest payments on that debt. The gains and losses on these derivative instruments will be initially recorded in "Other comprehensive income" and will be released to earnings in "Interest expense" in future periods to reflect the difference in (1) the fixed rates economically locked in at the inception of the hedge and (2) the actual fixed rates established in the debt instrument at issuance.
The following table summarizes the interest rate lock activity in AOCL:
Year ended December 31,
In millions 2020 2019
Type of Swap Gain (Loss) 
Recognized in AOCL		 Gain (Loss) Reclassified from AOCL into Interest Expense Gain (Loss) 
Recognized in AOCL		 Gain (Loss) Reclassified from AOCL into Interest Expense
Interest rate locks $ (22) $ —  (10) — 

We had a series of interest rate swaps to effectively convert our September 2013, $500 million debt issue, due in 2023, from a fixed rate of 3.65 percent to a floating rate equal to the one-month LIBOR plus a spread. The debt is included in the Consolidated Balance Sheets as "Long-term debt." The terms of the swaps mirrored those of the debt, with interest paid semi-annually. The swaps were designated, and were accounted for, as fair value hedges. The gain or loss on these derivative instruments, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, were recognized in current income as “Interest expense.” The net swap settlements that accrued each period were also reported in the Consolidated Financial Statements as "Interest expense." A basis adjustment related to credit risk, excluded from the assessment of effectiveness, was being amortized over the life of the hedge using a straight-line method and was considered de minimis.
In June and July of 2020, we settled our February 2014 interest rate swaps, which previously converted our $500 million debt issue, due in 2023, from fixed rate to floating rate based on a LIBOR spread. We will amortize the $24 million gain realized upon settlement over the remaining three-year term of the related debt.
The following table summarizes the gains and losses:
  Years ended December 31,
In millions 2020 2019 2018
Type of Swap Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on Swaps Gain (Loss) on Borrowings Gain (Loss) on
Swaps		 Gain (Loss) on
Borrowings
Interest rate swaps(1)
$ 7  $ (5) $ 16  $ (14) $ (8) $ 7 
(1) The difference between the gain/(loss) on swaps and borrowings represented hedge ineffectiveness.
Fair Value of Debt
Based on borrowing rates currently available to us for bank loans with similar terms and average maturities, considering our risk premium, the fair values and carrying values of total debt, including current maturities, were as follows:
December 31,
In millions 2020 2019
Fair values of total debt (1)
$ 4,665  $ 2,706 
Carrying value of total debt 4,164  2,367 
(1) The fair value of debt is derived from Level 2 inputs.