Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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(amounts in millions)

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The Company, in the normal course of doing business, is exposed to a variety of risks, including market risks associated with foreign currency exchange rates and changes in interest rates. The Company does not have any significant concentration with any one counterparty.

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Foreign Currency Exchange Rate Risk

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The Company conducts business in many foreign currencies through its worldwide operations, and as a result is subject to foreign exchange exposure due to changes in exchange rates of the various currencies. Changes in exchange rates can positively or negatively affect the Company’s sales, operating margins and equity. The Company attempts to manage currency exposure risk in a number of ways including producing its products in the same country or region in which the products are sold (thereby generating revenues and incurring expenses in the same currency), cost reduction and pricing actions, working capital management and hedging contracts. However, there can be no assurance that these actions will be fully effective in managing currency risk, including in the event of a significant and sudden decline in the value of any of the foreign currencies of the Company’s worldwide operations.

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In July 2018, the Company and one of its wholly owned European subsidiaries (collectively, the “Euro Issuer”) entered into a Euro Commercial Paper Program, and then in October 2018, issued €500.0 (approximately $574.6) of unsecured 2.000% senior notes (“2028 Euro Notes”) due October 8, 2028. While the 2028 Euro Notes are denominated in Euros, any borrowings under the Company’s Euro Commercial Paper Program may be denominated in various foreign currencies, including the Euro. When borrowing in foreign currencies, there can be no assurance that the Company can successfully manage these changes in exchange rates, including in the event of a significant and sudden decline in the value of any of the foreign currencies for which such borrowings are made. Refer to Note 4 of the Notes to the Consolidated Financial Statements for a discussion of debt.

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The Company utilizes foreign exchange forward contracts to hedge exposure to foreign currency exchange rate fluctuations for certain transactions denominated in foreign currencies. As of December 31, 2019, the fair value of such contracts was not material. A 10% change in foreign currency exchange rates would not have a material effect on the value of the hedges as of December 31, 2019 and 2018. The Company does not engage in purchasing forward contracts for trading or speculative purposes. Refer to Note 1 and Note 5 of the Notes to the Consolidated Financial Statements for a discussion of derivative financial instruments.

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Interest Rate Risk

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The Company is subject to market risk from exposure to changes in interest rates based on the Company’s financing activities. The Company manages its exposure to interest rate risk through a mix of fixed and variable rate debt. The Company currently has outstanding various fixed rate series of senior notes over various maturity dates, two of which were issued in 2019. In January 2019, the Company issued $500.0 of unsecured 4.350% Senior Notes due June 2029, the net proceeds of which, along with borrowings under the U.S. Commercial Paper Program, were used to repay $750.0 of 2.55% Senior Notes due January 30, 2019. In September 2019, the Company issued $900.0 of unsecured 2.80% Senior Notes due February 2030, the net proceeds of which were used to repay the cash consideration payable as a result of the tender offers associated with the 3.125% Senior Notes and 4.00% Senior Notes, with the remaining net proceeds being used for general corporate purposes, including to partially reduce outstanding borrowings related to the U.S. Commercial Paper Program.

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While there were no such borrowings as of December 31, 2019, any borrowings under the Revolving Credit Facility either bear interest at or trade at rates that fluctuate with a spread over LIBOR. Any borrowings under the Commercial Paper Programs are subject to floating interest rates. Therefore, when the Company borrows under these debt instruments, the Company is exposed to market risk related to changes in interest rates. As of December 31, 2019, approximately $400, or 11% of the Company’s outstanding borrowings, which related primarily to the Company’s Commercial Paper Programs, were subject to floating interest rates. At December 31, 2019 and 2018, the Company’s average floating rate on borrowings under the U.S. Commercial Paper Program was 1.85% and 2.88%, respectively. At December 31, 2019 and 2018, the Company’s average floating rate on borrowings under the Euro Commercial Paper Program was (0.13)% and (0.10)%, respectively. A 10% change in the interest rate at December 31, 2019 and 2018 for either or both Commercial Paper Programs would not have a material effect on interest expense. The Company does not expect changes in interest rates to have a material effect on income or cash flows in 2020, although there can be no assurances that interest rates will not change significantly.

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