ITEM 7A. Quantitative and qualitative disclosures about market risk

Foreign exchange risk

The U. S. dollar is our functional currency for financial reporting. Our non-U. S. entities own assets or liabilities denominated in U. S. dollars or other currencies, and exchange rate fluctuations in those jurisdictions may impact our effective tax rate.

Our balance sheet also reflects amounts remeasured from non-U. S. dollar currencies. Because most of the aggregate non-U. S. dollar balance sheet exposure is hedged by forward currency exchange contracts, which are based on year-end 2023 balances and currency exchange rates, a hypothetical 10% plus or minus fluctuation in non-U. S. currency exchange rates relative to the U. S. dollar would result in a pretax currency exchange gain or loss of approximately $4 million.

We use these forward currency exchange contracts to reduce the earnings impact that exchange rate fluctuations may have on our non-U. S. dollar net balance sheet exposures. As of December 31, 2023, we had forward currency exchange contracts outstanding with a notional value of $328 million to hedge net balance sheet exposures (including $102 million to sell Japanese yen, $77 million to sell British pounds and $58 million to buy Chinese yuan). Similar hedging activities existed at year-end 2022.

Interest rate risk

We have the following potential exposure to changes in interest rates: (i) the effect of changes in interest rates on the fair value of our investments in cash equivalents and short-term investments, which could produce a gain or a loss; and (ii) the effect of changes in interest rates on the fair value of our debt.

As of December 31, 2023, a hypothetical 100 basis point increase in interest rates would decrease the fair value of our investments in cash equivalents and short-term investments by about $22 million and decrease the fair value of our long-term debt by $891 million. Because interest rates on our long-term debt are fixed, changes in interest rates would not affect the cash flows associated with long-term debt.

Equity risk

Long-term investments at year-end 2023 include the following:

•Investments in mutual funds - includes mutual funds that were selected to generate returns that offset changes in certain liabilities related to deferred compensation arrangements. The mutual funds hold a variety of debt and equity investments.

•Investments in venture capital funds - includes investments in limited partnerships (accounted for under either the equity method or at cost with adjustments to observable market changes or impairments).

• Equity investments - includes nonmarketable (nonpublicly traded) equity securities.

Investments in mutual funds are stated at fair value. Changes in prices of the mutual fund investments are expected to offset related changes in certain deferred compensation liabilities. Nonmarketable equity securities and certain venture capital funds are stated at cost minus impairment, if any, plus or minus changes resulting from qualifying observable price changes. Investments in the remaining venture capital funds are stated using the equity method. See Note 6 to the financial statements for details of equity and other long-term investments.

We also utilize total return swaps to economically hedge exposure to changes in liabilities related to the market risks of certain deferred compensation arrangements with employees. Gains or losses from changes in the fair value of these total return swaps generally offset the related losses or gains on the deferred compensation liabilities.

ITEM 8. Financial statements and supplementary data