Equifax 2010 Annual Report Download - page 35

position. We manage our exposure to these market risks through our
regular operating and financing activities, and, when deemed
appropriate, through the use of derivative financial instruments, such
as interest rate swaps, to hedge certain of these exposures. We use
derivative financial 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
Canadian dollar, the Brazilian real, the Chilean peso and the Euro. For
most of these foreign currencies, we are a net recipient, and,
therefore, benefit 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 significant 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 state-
ment 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
comprehensive income, as a component of our shareholders’ equity.
Foreign currency transaction gains and losses, which have histori-
cally been immaterial, are recorded in our Consolidated Statements
of Income. We generally do not mitigate the risks associated with
fluctuating exchange rates, although we may from time to time
through forward contracts or other derivative instruments hedge a
portion of our translational foreign currency exposure or exchange
rate risks associated with material transactions which are
denominated in a foreign currency.
For the year ended December 31, 2010, a 10% weaker U.S. dollar
against the currencies of all foreign countries in which we had opera-
tions during 2010 would have increased our revenue by $49.6 million
and our pre-tax operating profit by $13.7 million. For the year ended
December 31, 2009, a 10% weaker U.S. dollar against the currencies
of all foreign countries in which we had operations during 2009 would
have increased our revenue by $45.2 million and our pre-tax operat-
ing profit by $13.3 million. A 10% stronger U.S. dollar would have
resulted in similar decreases to our revenue and pre-tax operating
profit for 2010 and 2009.
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, as well as our interest rate swaps which economi-
cally convert our 2014 fixed rate bonds from a fixed rate of interest to
a floating rate. We attempt to achieve the lowest all-in weighted-aver-
age cost of debt while simultaneously taking into account the mix of
our fixed- and floating-rate debt, and the average life and scheduled
maturities of our debt. At December 31, 2010, our weighted average
cost of debt was 5.4% and weighted-average life of debt was
11.9 years. At December 31, 2010, 72% of our debt was fixed rate,
and the remaining 28% was variable rate. Occasionally we use
derivatives to manage our exposure to changes in interest rates by
entering into interest rate swaps. A 100 basis point increase in the
weighted-average interest rate on our variable-rate debt would have
increased our 2010 interest expense by approximately $2.8 million.
Based on the amount of outstanding variable-rate debt, we have
material exposure to interest rate risk. In the future, if our mix of fixed-
rate and variable-rate debt were to change due to additional
borrowings under existing or new variable-rate debt, 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 fixed-rate and variable-rate debt, can be expected to vary
as a result of future business requirements, market conditions and
other factors.
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