Equifax 2009 Annual Report Download - page 36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT For the year ended December 31, 2009, a 10% weaker U.S. dollar
MARKET RISK against the currencies of all foreign countries in which we had oper-
In the normal course of our business, we are exposed to market ations during 2009 would have increased our revenue by $45.2 mil-
risk, primarily from changes in foreign currency exchange rates and lion and our pre-tax operating profit by $13.3 million. For the year
interest rates, that could impact our results of operations and finan- ended December 31, 2008, a 10% weaker U.S. dollar against the
cial position. We manage our exposure to these market risks currencies of all foreign countries in which we had operations during
through our regular operating and financing activities, and, when 2008 would have increased our revenue by $52.3 million and our
deemed appropriate, through the use of derivative financial instru- pre-tax operating profit by $16.2 million. A 10% stronger U.S. dollar
ments, such as interest rate swaps, to hedge certain of these expo- would have resulted in similar decreases to our revenue and pre-tax
sures. We use derivative financial instruments as risk management operating profit for 2009 and 2008.
tools and not for speculative or trading purposes.
Interest Rate Risk
Foreign Currency Exchange Rate Risk Our exposure to market risk for changes in interest rates relates to
A substantial majority of our revenue, expense and capital expendi- our variable-rate, long-term Senior Credit Facility and commercial
ture activities are transacted in U.S. dollars. However, we do trans- paper borrowings, as well as our interest rate swaps which eco-
act business in other currencies, primarily the British pound, the nomically convert our 2014 fixed rate bonds from a fixed rate of
Canadian dollar, the Brazilian real, the Chilean peso and the Euro. interest to a floating rate. We attempt to achieve the lowest all-in
For most of these foreign currencies, we are a net recipient, and, weighted-average cost of debt while simultaneously taking into
therefore, benefit from a weaker U.S. dollar and are adversely account the mix of our fixed- and floating-rate debt, and the aver-
affected by a stronger U.S. dollar relative to the foreign currencies in age life and scheduled maturities of our debt. At December 31,
which we transact significant amounts of business. 2009, our weighted average cost of debt was 4.9% and weighted-
average life of debt was 11.1 years. At December 31, 2009, 66% of
our debt was fixed rate, and the remaining 34% was variable rate.
We are required to translate, or express in U.S. dollars, the assets Occasionally we use derivatives to manage our exposure to
and liabilities of our foreign subsidiaries that are denominated or changes in interest rates by entering into interest rate swaps. A 100
measured in foreign currencies at the applicable year-end rate of basis point increase in the weighted-average interest rate on our
exchange on our Consolidated Balance Sheets and income state- variable-rate debt would have increased our 2009 interest expense
ment items of our foreign subsidiaries at the average rates prevailing by approximately $3.9 million.
during the year. We record the resulting translation adjustment, and
gains and losses resulting from the translation of intercompany bal-
ances of a long-term investment nature within other comprehensive Based on the amount of outstanding variable-rate debt, we have
income, as a component of our shareholders’ equity. Other immate- material exposure to interest rate risk. In the future, if our mix of
rial foreign currency transaction gains and losses are recorded in our fixed-rate and variable-rate debt were to change due to additional
Consolidated Statements of Income. We generally do not mitigate borrowings under existing or new variable-rate debt, we could have
the risks associated with fluctuating exchange rates, although we additional exposure to interest rate risk. The nature and amount of
may from time to time through forward contracts or other derivative our long-term and short-term debt, as well as the proportionate
instruments hedge a portion of our translational foreign currency amount of fixed-rate and variable-rate debt, can be expected to
exposure or exchange rate risks associated with material transac- vary as a result of future business requirements, market conditions
tions which are denominated in a foreign currency. and other factors.
34 EQUIFAX 2009 ANNUAL REPORT
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