Equifax 2015 Annual Report Download - page 34

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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 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 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 comprehensive income, as a component of our shareholders’ equity. Foreign currency 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, 2015, a 10% weaker U.S. dollar against the currencies of all foreign countries in
which we had operations during 2015 would have increased our revenue by $52.9 million and our pre-tax operating profit by
$17.9 million. For the year ended December 31, 2014, a 10% weaker U.S. dollar against the currencies of all foreign countries
in which we had operations during 2014 would have increased our revenue by $54.0 million and our pre-tax operating profit by
$18.1 million. A 10% stronger U.S. dollar would have resulted in similar decreases to our revenue and pre-tax operating profit
for 2015 and 2014.
On average across our mix of international businesses, foreign currencies at December 31, 2015, were weaker against
the U.S. dollar than the average foreign exchange rates that prevailed across the full year 2015. As a result, if foreign exchange
rates were unchanged throughout 2016, foreign exchange translation would reduce growth as reported in U.S. dollars. As
foreign exchange rates change daily, there can be no assurance that foreign exchange rates will remain constant throughout
2016, and rates could go either higher or lower.
The Veda cash consideration of approximately $1.7 billion (2.4 billion Australian dollars) is denominated in Australian
dollars and as such subject to fluctuations related to the exchange rate of the Australian dollar. A $0.01 increase or decrease in
the exchange rate of the Australian dollar results in a $24.2 million increase or decrease in the acquisition price. In December
2015, in anticipation of the Veda acquisition, we purchased foreign currency options to buy Australian dollars with a weighted
average strike price of $0.7225 and a notional value of 1.0 billion Australian dollars. These foreign currency options ("options")
were designed to act as economic hedges for the pending Veda acquisition and are marked to market. In January 2016, we
purchased additional options with a weighted average strike price of $0.7091 and a notional value of 1.0 billion Australian
dollars. We closed out all of the options on the respective settlement dates in February 2016. We recognized a net loss of $15.4
million related to the options in the first quarter of 2016. See Note 1 for further discussion.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates to our variable-rate 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
fixed- and floating-rate debt, and the average life and scheduled maturities of our debt. At December 31, 2015, our weighted
average cost of debt was 4.5% and weighted-average life of debt was 9.07 years. At December 31, 2015, 96% of our debt was
fixed rate, and the remaining 4% 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 2015 interest expense by $0.5 million.
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