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 2006 and 2011, and the Debentures due 2031 may be redeemed in whole or part by the Company at any time at prices determined under a for- mula (but not less than 100% of the principal amount plus unpaid interest to the redemption date).  In conjunction with this issuance, the Company settled $1,900 notional amount of forward-starting interest rate swaps for approximately $88 in cash. The swaps effectively fixed a portion of the interest rate on an equivalent amount of debt prior to issuance. The swaps were designated as cash flow hedges pursuant to SFAS No. 133 (refer to Note 12). As a result, the loss on settlement (net of tax benefit) of $56 was recorded in other comprehensive income, and is being amortized to interest expense over periods of 5 to 30 years. The effective interest rates presented in the following table reflect this amortization expense, as well as discount on the debt. route franchises in the event of default or any other breach of con- tract by franchisees. Revocations are infrequent. The Company’s maximum potential future payments under these guarantees are limited to the outstanding loan principal balance plus unpaid in- terest. In accordance with FASB Interpretation No. 45 (refer to Note 1), we have recognized the fair value of guarantees associ- ated with new loans to DSD route franchisees issued beginning in 2003. These amounts are insignificant. The Company has provided various standard indemnifications in agreements to sell business assets and lease facilities over the past several years, related primarily to pre-existing tax, environ- mental, and employee benefit obligations. Certain of these indem- nifications are limited by agreement in either amount and/or term and others are unlimited. The Company has also provided various “hold harmless” provisions within certain service type agreements. Because the Company is not currently aware of any actual expo- sures associated with these indemnifications, management is un- able to estimate the maximum potential future payments to be made. At December 27, 2003, the Company had not recorded any liability related to these indemnifications. In September 2002, the Company redeemed $300.7 of the Notes due 2003 and a subsidiary of the Company issued $400 of U.S. commercial paper. In April 2003, the Company repaid the remainder of the Notes due 2003. The Company initially replaced this debt with U.S. short-term debt and subsequently issued the long-term debt described in (e). In December 2003, the Company redeemed $172.9 of the Notes due 2006. Notes payable at year end consisted of commercial paper borrow- ings in the United States and, to a lesser extent, bank loans of for- eign subsidiaries at competitive market rates, as follows: Note 7 Debt Principal Effective (dollars in millions) amount Net proceeds interest rate 5.5% U.S. Dollar Notes due 2003 $ 1,000.0 $ 997.4 5.64% 6.0% U.S. Dollar Notes due 2006 1,000.0 993.5 6.39% 6.6% U.S. Dollar Notes due 2011 1,500.0 1,491.2 7.08% 7. 4 5% U.S. Dollar Debentures due 2031 1,100.0 1,084.9 7.62% $4 , 6 00.0 $ 4,567.0 (dollars in millions) 2003 2002 Effective Effective Principal interest Principal interest  amount rate amount rate U.S. commercial paper $ 296.0 1.2% $ 409.8 2.0% Canadian commerical paper 15.3 3.0% — — Other 9.5 11.1 $320.8 $ 420.9 (d) In November 2001, a subsidiary of the Company issued $375 of five-year 4.49% fixed rate U.S. Dollar Notes to replace other maturing debt. These Notes are guaranteed by the Company and mature $75 per year over the five-year term. These Notes, which were privately placed, contain standard warranties, events of default, and covenants. They also require the maintenance of a specified consolidated interest expense coverage ratio, and limit capital lease obligations and subsidiary debt. In conjunction with this issuance, the subsidiary of the Company entered into a $375 notional US$/ Pound Sterling currency swap, which effectively converted this debt into a 5.302% fixed rate Pound Sterling obligation for the duration of the five-year term. (e) In June 2003, the Company issued $500 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. In conjunction with this issuance, the Company settled $250 notional amount of forward interest rate contracts for a loss of $11.8, which is being amortized to interest expense over the term of the debt. Taking into account this amortiza- tion and issuance discount, the effective interest rate on these five-year Notes is 3.35%. At December 27, 2003, the Company had $2.0 billion of short- term lines of credit, virtually all of which were unused and avail- able for borrowing on an unsecured basis. These lines were com- prised principally of a 364-Day Credit Agreement, which was renewed in January 2004, and a Five-Year Credit Agreement, ex- piring in January 2006. The 364-day agreement permits the Company or certain subsidiaries to borrow up to $650 million. The five-year agreement permits the Company or certain subsidiaries to borrow up to $1.15 billion (or certain amounts in foreign cur- rencies). These two credit agreements contain standard warranties, events of default, and covenants. They also require the mainte- nance of a specified amount of consolidated net worth and a specified consolidated interest expense coverage ratio, and limit capital lease obligations and subsidiary debt. Scheduled principal repayments on long-term debt are (in mil- lions): 2004-$578.1; 2005-$278.6; 2006-$904.4; 2007-$2.0; 2008-$501.4; 2009 and beyond-$2,601.7. Interest paid was (in millions): 2003-$372; 2002-$386; 2001- $303. Interest expense capitalized as part of the construction cost of fixed assets was (in millions): 2003-$0; 2002-$1.0; 2001-$2.9. Long-term debt at year end consisted primarily of fixed rate is- suances of U.S. and Euro Dollar Notes, as follows: The Company uses various equity-based compensation programs to provide long-term performance incentives for its global work- force. Currently, these incentives are administered through several plans, as described below. Note 8 Stock compensation (millions) 2003 2002 (a) 4.875% U.S. Dollar Notes due 2005 $2 00.0 $ 200.0 (b) 6.625% Euro Dollar Notes due 2004 500.0 500.0 (c) 5.5% U.S. Dollar Notes due 2003 — 699.1 (c) 6.0% U.S. Dollar Notes due 2006 824.2 995.8 (c) 6.6% U.S. Dollar Notes due 2011 1,4 93.6 1,492.7 (c) 7.45% U.S. Dollar Debentures due 2031 1,0 8 6.3 1,085.8 (d) 4.49% U.S. Dollar Notes due 2006 225.0 300.0 (e) 2.875% U.S. Dollar Notes due 2008 499.9 — Other 14.5 22.4 4,843.5 5,295.8 Less current maturities (578.1) (776.4) Balance at year end $4,265.4 $ 4,519.4 (a) In October 1998, the Company issued $200 of seven-year 4.875% fixed rate U.S. Dollar Notes to replace maturing long- term debt. In conjunction with this issuance, the Company settled $200 notional amount of interest rate forward swap agreements, which, when combined with original issue discount, effectively fixed the interest rate on the debt at 6.07%. (b) In January 1997, the Company issued $500 of seven-year 6.625% fixed rate Euro Dollar Notes. In conjunction with this issuance, the Company settled $500 notional amount of interest rate forward swap agreements, which effectively fixed the interest rate on the debt at 6.354%. These Notes were repaid in January 2004. (c) In March 2001, the Company issued $4,600 of long-term debt instruments, further described in the table below, primarily to finance the acquisition of Keebler Foods Company (refer to Note 2). Initially, these instruments were privately placed, or Kellogg Company 41