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 May 2020, one of the Company’s wholly owned European subsidiaries (the “Euro Issuer”) issued €500.0 (approximately $545.4) principal amount of unsecured 0.750% senior notes (“2026 Euro Notes”) due May 4, 2026. In October 2018, (i) the Euro Issuer issued €500.0 (approximately $574.6) principal amount of unsecured 2.000% senior notes (“2028 Euro Notes” and collectively with the 2026 Euro Notes, the “Euro Notes”) due October 8, 2028 and (ii) the Company and the Euro Issuer entered into a euro-commercial paper program (the “Euro Commercial Paper Program” and collectively with the U.S. Commercial Paper Program, “Commercial Paper Programs”). While the Euro Notes are denominated in Euros, the Company may borrow, from time to time, under the Revolving Credit Facility and Euro Commercial Paper Program, and such borrowings have been and may continue to 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 changes in exchange rates, including in the event of a significant and sudden decline in the value of any of the foreign currencies in which such borrowings are made. Refer to Note 4 of the Notes to Consolidated Financial Statements for a discussion of debt.

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The Company utilizes foreign exchange forward contracts to hedge foreign currency exchange rate fluctuations for exposures associated with (i) certain transactions denominated in foreign currencies and (ii) net investments in certain foreign subsidiaries from which we expect to repatriate earnings to the United States. As of December 31, 2021, the fair value of such foreign exchange forward 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, 2021 and 2020. The Company does not engage in purchasing forward contracts for trading or speculative purposes, and our derivative financial instruments are with large financial institutions with strong credit ratings. As of December 31, 2021, the Company does not have any significant concentration of exposure with any one counterparty. Refer to Note 1 and Note 5 of the Notes to 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 various fixed rate series of senior notes outstanding over various maturity dates, one of which was issued in 2021 and two in 2020. In September 2021, the Company issued $750.0 principal amount of unsecured 2.200% Senior Notes due September 15, 2031, the net proceeds of which were used to repay certain outstanding borrowings under the U.S. Commercial Paper Program. In May 2020, the Euro Issuer issued the unsecured 2026 Euro Notes, the net proceeds of which were used to repay amounts outstanding under the then existing revolving credit facility. In February 2020, the Company issued $400.0 principal amount of unsecured 2.050% Senior Notes due March 1, 2025, the net proceeds of which were used, together with cash on hand, to repay the $400.0 outstanding principal amount of 2.20% Senior Notes due April 1, 2020 upon maturity.

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Any borrowings under the Revolving Credit Facility bear interest at rates that fluctuate with a spread that varies based on the Company’s debt rating over certain currency-specific benchmark rates, which benchmark rates in the case of U.S. dollar borrowings are either the base rate or the adjusted term Secured Overnight Financing Rate (“SOFR”). 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, 2021, approximately $804, or 17%, of the Company’s outstanding borrowings, primarily under the U.S. Commercial Paper Program, were subject to floating interest rates; the Company’s weighted average floating rate on borrowings under the U.S. Commercial Paper Program as of December 31, 2021 was 0.29%. As of December 31, 2020, there were no outstanding borrowings under the U.S. Commercial Paper Program. As of December 31, 2021 and 2020, there were no outstanding borrowings under the Revolving Credit Facility and Euro Commercial Paper Program. A 10% change in the interest rate at December 31, 2021 and 2020 under our Revolving Credit Facility or 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 2022, although there can be no assurances that interest rates will not change significantly.