Equifax 2011 Annual Report Download - page 36

pension expense in 2012 by approximately $1.4 million. However, if
actual results are not consistent with our estimates or assumptions,
we may be exposed to changes in pension expense that could
be material.
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 inter-
est rates that could impact our results of operations and financial
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 Chilean peso, the Argentine 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 bal-
ances of a long-term investment nature within other comprehensive
income, as a component of our shareholders’ equity. Foreign cur-
rency transaction gains and losses, which have historically been
immaterial, are recorded on 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, 2011, a 10% weaker U.S. dollar
against the currencies of all foreign countries in which we had opera-
tions during 2011 would have increased our revenue by $50.2 million
and our pre-tax operating profit by $15.2 million. For the year ended
December 31, 2010, a 10% weaker U.S. dollar against the currencies
of all foreign countries in which we had operations during 2010 would
have increased our revenue by $49.6 million and our pre-tax operat-
ing profit by $13.7 million. A 10% stronger U.S. dollar would have
resulted in similar decreases to our revenue and pre-tax operating
profit for 2011 and 2010.
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, 2011, our weighted average
cost of debt was 5.3% and weighted-average life of debt was
10.8 years. At December 31, 2011, 68% of our debt was fixed rate,
and the remaining 32% was variable rate after giving effect to the
interest rate swaps on our 2014 bonds. Occasionally we use deriva-
tives 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 2011 interest expense by $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.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
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