Item 7A. Quantitative and Qualitative Disclosures About Market Risk

(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 mitigate currency risk in a number of ways, such as locating factories in the same country or region in which products are sold, hedging contracts, cost reduction and pricing actions or working capital management. However, there can be no assurance that any or all such actions taken by the Company will be fully effective in successfully 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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One of the Company’s wholly owned European subsidiaries (the “Euro Issuer”) has two outstanding unsecured senior notes issued in Europe (collectively, the “Euro Notes”), each of which were issued with a principal amount of €500.0. The 0.750% Euro Senior Notes, which were issued in May 2020, mature on May 4, 2026, while the 2.000% Euro Senior Notes, which were issued in October 2018, mature on October 8, 2028. The Company and the Euro Issuer also have a commercial paper program (the “Euro Commercial Paper Program” and, together with the U.S. Commercial Paper Program, the “Commercial Paper Programs”), pursuant to which the Euro Issuer may issue, outside of the United States, short-term unsecured commercial paper notes. 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 also 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, 2022, 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, 2022 and 2021. 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, 2022, 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 senior notes outstanding, in both the United States and Europe, with various maturity dates, the most recent of which was issued in 2021. 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.

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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”). Similarly, any borrowings under the two-year, $750.0 unsecured delayed draw term loan credit agreement (the “2022

Term Loan”) entered into by the Company in April of 2022, bear interest at rates that fluctuate with a spread that varies, based on the Company’s debt rating, over either the base rate or the adjusted term 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, 2022, approximately $640, or 14%, 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, 2022 was 4.69%. 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, 2022 and 2021, there were no outstanding borrowings under the Revolving Credit Facility, 2022 Term Loan, and Euro Commercial Paper Program. As a result of recent increases in the federal funds rate by the U.S. Federal Reserve, the floating interest rates related to our U.S. Commercial Paper Program increased substantially over the course of 2022, a trend that could continue throughout 2023. Consequently, the Company currently expects the floating interest rates related to its U.S. Commercial Paper Program (as well as its Revolving Credit Facility and 2022 Term Loan, to the extent either are drawn upon in the future) to continue to increase in the first quarter of 2023 and potentially beyond, which is expected to result in increased interest expense in 2023 as compared to 2022. A 10% change in the interest rate at December 31, 2022 and 2021 under our Revolving Credit Facility, 2022 Term Loan or Commercial Paper Programs would not have a material effect on interest expense. Although the Company does not expect changes in interest rates to have a material effect on income or cash flows in 2023, primarily due to our current expected limited reliance on borrowings tied to floating rates of interest, there can be no assurance that interest rates will not change significantly from current levels.

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