Equifax 2006 Annual Report Download - page 42

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
40 EQUIFAX 2006 ANNUAL REPORT
the Employee Retirement Income Security Act (“ERISA”).
The new plan, the Equifax Inc. Pension Plan (“EIPP”), was
funded in January 2005 with the transfer of $17.0 million
of assets from the USRIP and a company contribution of
$20.0 million. In November 2005, an additional $30.1 mil-
lion of plan assets were transferred from the USRIP to the
EIPP. The EIPP covers all active employee participants of
Equifax as of January 1, 2005, and the USRIP covers all
inactive retired and vested participants as of that date.
Inactive participants constituted approximately 85% of
total participants prior to the separation. The benefi ts of
participants in both plans were unaffected by the separa-
tion. The two groups of participants – active and inactive –
had projected patterns of actuarial liabilities which were
markedly different, due to the demographic differences
between the two populations. The two plans have separate
assumed rates of return and separate asset allocation strat-
egies, which will allow us to more effi ciently fund our pen-
sion liabilities. Additionally, the assets of one plan will not
be available to fund the liabilities of the other plan. The
CRIP was not impacted by the separation of the USRIP.
At December 31, 2006, the USRIP and the EIPP met or
exceeded ERISA’s minimum funding requirements. We do
not expect to have to make any minimum funding contribu-
tions under ERISA for 2007 with respect to the USRIP or
the EIPP, based on applicable law as currently in effect. In
January 2006 and 2007, however, we made discretionary
contributions of $20.0 million and $12.0 million, respec-
tively, to the EIPP. We also made a $2.0 million discretion-
ary contribution in 2006 to fund our other post-retirement
benefi t plans. In the future, we will make minimum funding
contribution as required and may make discretionary contri-
butions, depending on certain circumstances, including
market conditions and liquidity needs.
In August 2006, the federal Pension Protection Act of
2006 was enacted. Included in this law are changes to the
method of valuing pension plan assets and liabilities for
funding purposes, as well as minimum contribution levels
required in 2008. We are currently evaluating the impact
of this new pension law may have on our future funding
requirements and our Consolidated Financial Statements.
We increased the discount rate assumption used to
measure the projected pension obligations from 5.68% at
December 31, 2005 to 5.86% at December 31, 2006. The
increase in discount rate is due to the general increase in
long-term interest rates during 2006 and the consequent
effect on the yields of the hypothetical portfolio of long-term
corporate bonds, which are used to determine the discount
rate. Our aggregated projected benefi t obligation of all plans
increased slightly from $579.7 million at December 31, 2005
to $582.7 million at December 31, 2006. At December 31,
2006, the Supplemental Retirement Plans were unfunded
with respect to their accumulated benefi t obligation by
$43.7 million as determined by SFAS No. 87, “Employers’
Accounting for Pensions” (“SFAS 87”), whereas the USRIP,
EIPP and CRIP were overfunded with respect to their
accumulated benefi t obligation by $65.7 million.
The expected rate of return on pension plan assets
should approximate the actual long-term investment gain
on those assets. The expected rate of return on plan assets
used to calculate annual expense was 8.00% for the USRIP
and 8.25% for the EIPP for the twelve months ended
December 31, 2006 and 2005, and 8.75% for the USRIP
for the twelve months ended December 31, 2004. In 2007,
the expected rate of return on plan assets used to calculate
the annual SFAS 87 expense will be 8.00% for the USRIP
and 8.25% for the EIPP.
For our non-U.S., tax-qualifi ed retirement plans, we fund
at least the amounts suffi cient to meet minimum funding
requirements but no more than allowed as a tax deduction
pursuant to applicable tax regulations. For the non-qualifi ed
supplementary retirement plans, we fund the benefi ts as
they are paid to retired participants, but accrue the associ-
ated expense and liabilities in accordance with U.S. generally
accepted accounting principles (“GAAP”).
For additional information about our pension and
other post-retirement benefi t plans, including the impact
of adopting SFAS No. 158, “Employers’ Accounting for
Defined Benefit Pension and Other Post retirement
Plans—An Amendment of FASB Statements No. 87, 88,
106, and 132(R)” (“SFAS 158”), see Note 9 of the Notes
to Consolidated Financial Statements.
Related Party Transactions
We engage in various transactions and arrangements with
related parties. We believe the terms of the transactions
and arrangements do not differ from those that would have
been negotiated with an independent party. For additional
information about our related parties, including the associ-
ated transactions and arrangements, see Note 13 of the
Notes to Consolidated Financial Statements.
Infl ation
We do not believe that the rate of infl ation has had a mate-
rial effect on our operating results. However, infl ation could
adversely affect our future operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
For information about new accounting pronouncements
and the potential impact on our Consolidated Financial
Statements, see Notes 1 and 2 of the Notes to Consolidated
Financial Statements.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
The preparation of fi nancial statements in conformity with
GAAP requires our management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, revenues and expenses and related disclosures of
contingent assets and liabilities in our Consolidated