Equifax 2007 Annual Report Download - page 50

48 EQUIFAX | 2007 ANNUAL REPORT
Item 7A.
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
In the normal course of our business, we are exposed to market
risk, primarily from changes in foreign currency exchange rates
and interest rates, that could impact our results of operations and
financial position. We manage our exposure to these market
risks through our regular operating and fi nancing activities, and,
when deemed appropriate, through the use of derivative fi nancial
instruments, such as interest rate swaps, to hedge certain of
these exposures. We use derivative fi nancial instruments as risk
management tools and not for speculative or trading purposes.
Foreign Currency Exchange Rate Risk
A substantial majority of our revenue, expense and capital
expenditure activities are transacted in U.S. dollars. However,
we do transact business in other currencies, primarily the British
pound, the Euro, the Canadian dollar and the Brazilian real. For
most of these foreign currencies, we are a net recipient, and,
therefore, benefi t from a weaker U.S. dollar and are adversely
affected by a stronger U.S. dollar relative to the foreign currencies
in which we transact signifi cant amounts of business.
We are required to translate, or express in U.S. dollars, the assets
and liabilities of our foreign subsidiaries that are denominated or
measured in foreign currencies at the applicable year-end rate of
exchange on our Consolidated Balance Sheets and income statement
items of our foreign subsidiaries at the average rates prevailing
during the year. We record the resulting translation adjustment, and
gains and losses resulting from the translation of intercompany
balances of a long-term investment nature within other comprehen-
sive income, as a component of our shareholders’ equity. Other
immaterial foreign currency transaction gains and losses are recorded
in our Consolidated Statements of Income. We do not, as a matter
of policy, hedge translational foreign currency exposure. We may,
however, hedge transactional foreign currency exchange rate risks
associated with material transactions which are denominated in a
foreign currency.
At December 31, 2007, a 10% weaker U.S. dollar against the
currencies of all foreign countries in which we had operations
during 2007 would have increased our revenue by $46.1 million
and our pre-tax operating profi t by $14.4 million. At December 31,
2006, a 10% weaker U.S. dollar against the currencies of all foreign
countries in which we had operations during 2006 would have
increased our revenue by $42.2 million and our pre-tax operating
profi t by $12.8 million. A 10% stronger U.S. dollar would have
resulted in similar decreases to our revenue and pre-tax operating
profi t for 2007 and 2006.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates
to our variable-rate, long-term Senior Credit Facility and commercial
paper borrowings. We attempt to achieve the lowest all-in
weighted-average cost of debt while simultaneously taking into
account the mix of our fi xed- and fl oating-rate debt, and the average
life and scheduled maturities of our debt. At December 31, 2007,
our weighted-average cost of debt was 6.1% and weighted-average
life of debt was 11.9 years. At December 31, 2007, 57% of our
debt was fi xed rate, and the remaining 43% was variable rate.
Occasionally we use derivatives to manage our exposure to changes
in interest rates by entering into interest rate swaps. A 1% change
in the weighted-average interest rate on our variable-rate debt
would not have materially impacted our 2007 net income.
Based on the amount of outstanding variable-rate debt, we have
material exposure to interest rate risk. In the future, if our mix of
fi xed-rate and variable-rate debt were to change due to additional
borrowings under existing variable-rate credit facilities or new
variable-rate debt instruments, we could have additional exposure
to interest rate risk. The nature and amount of our long-term and
short-term debt, as well as the proportionate amount of fi xed-rate
and variable-rate debt, can be expected to vary as a result of future
business requirements, market conditions and other factors.