Equifax 2012 Annual Report Download - page 34

32 Equifax 2012 Annual Report
Pension and Other Postretirement Plans
We consider accounting for our U.S. and Canadian pension and
other postretirement plans critical because management is required
to make significant subjective judgments about a number of actuarial
assumptions, which include discount rates, expected return on plan
assets, interest cost and mortality and retirement rates. Actuarial
valuations are used in determining our benefit obligation and net
periodic benefit cost.
Judgments and uncertainties — We believe that the most significant
assumptions related to our net periodic benefit cost are (1) the
discount rate and (2) the expected return on plan assets, in each
case as it relates to our U.S. pension plan. Our Canadian plan is
small, and the impact of changes in assumptions for that plan is
not material.
We determine our discount rates primarily based on high-quality,
fixed-income investments and yield-to-maturity analysis specific to
our estimated future benefit payments available as of the measure-
ment date. Discount rates are updated annually on the measurement
date to reflect current market conditions. We use a third party yield
curve to develop our discount rates. The yield curve provides
discount rates related to a dedicated high-quality bond portfolio
whose cash flows extend beyond the current period, from which we
choose a rate matched to the expected benefit payments required for
each plan.
The expected rate of return on plan assets is based on both our
historical returns and forecasted future investment returns by asset
class, as provided by our external investment advisor. In 2012, the
U.S. pension plan investment returns of 11.4% exceeded the
expected return of 7.75% for the third time in the last four years.
However, due to lower forecasted future returns the expected return
for 2013 was reduced to 7.5%. The CRIP earned 8.8% in 2012 also
exceeding its expected return of 6.75% for the third time in four
years. The CRIP has a lower expected return due to a higher asset
allocation to fixed income securities. Our weighted-average expected
rate of return for 2013 is 7.43% as compared to 7.67% which was
the 2012 expected rate.
Annual differences, if any, between the expected and actual returns
on plan assets are included in unrecognized net actuarial gain or loss,
a component of other comprehensive income. In calculating the
annual amortization of the unrecognized net actuarial gain or loss, we
use a market-related value of assets that smoothes actual investment
gains and losses on plan assets over a period up to five years. The
resulting unrecognized net actuarial gain or loss amount is recognized
in net periodic pension expense over the average remaining life
expectancy of the participant group since almost all participants are
inactive. The market-related value of our assets was $545.9 million at
December 31, 2012. We do not expect our 2013 net periodic benefit
cost, which includes the effect of the market-related value of assets,
to be materially different than our 2012 cost, excluding the pension
settlement and curtailment recorded in 2012. See Note 11 of the
Notes to the Consolidated Financial Statements for details on
changes in the pension benefit obligation and the fair value of
plan assets.
Effect if actual results differ from assumptions — We do not believe
there is a reasonable likelihood that there will be a material change in
the future estimates or assumptions that are used in our actuarial
valuations. Adjusting our weighted-average expected long-term rate
of return (7.67% at December 31, 2012) by 50 basis points would
change our estimated pension expense in 2013 by approximately
$2.7 million. Adjusting our weighted-average discount rate (4.17% at
December 31, 2012) by 50 basis points would change our estimated
pension expense in 2013 by approximately $1.3 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.
Purchase Accounting for Acquisitions
We account for acquisitions under Accounting Standards Codification
805, Business Combinations, which changed the application of the
acquisition method of accounting in a business combination and also
modified the way assets acquired and liabilities assumed are
recognized on a prospective basis. In general, the acquisition method
of accounting requires companies to record assets acquired and
liabilities assumed at their respective fair market values at the date of
acquisition. We primarily estimate fair value of identified intangible
assets using discounted cash flow analyses based on market
participant based inputs. Any amount of the purchase price paid that
is in excess of the estimated fair values of net assets acquired is
recorded in the line item goodwill in our consolidated balance sheets.
Transaction costs, as well as costs to reorganize acquired
companies, are expensed as incurred in our Consolidated State-
ments of Income.
Judgments and uncertainties — We consider accounting for business
combinations critical because management’s judgment is used to
determine the estimated fair values assigned to assets acquired and
liabilities assumed and amortization periods for intangible assets,
which can materially affect the our results of operations.
On December 28, 2012, we acquired CSC Credit Services recorded
total assets of $1.0 billion as of the acquisition date. The assets we
acquired included a material amount of intangible assets that were
subject to the significant estimates described above. See Note 4 of
Notes to Consolidated Financial Statements for further information
related to this acquisition.
Effect if actual results differ from assumptions — Although manage-
ment believes that the judgments and estimates discussed herein are
reasonable, actual results could differ, and we may be exposed to an
impairment charge if we are unable to recover the value of the
recorded net assets.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued