Equifax 2008 Annual Report Download - page 31

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Income Taxes Pension and Other Postretirement Plans
We account for income taxes in accordance with SFAS Our pension and other postretirement plans are accounted
No. 109, ‘‘Accounting for Income Taxes,’’ and FASB Inter- for in accordance with SFAS No. 158, ‘‘Employers’
pretation No. 48, ‘‘Accounting for Uncertainty in Income Accounting for Defined Benefit Pension and Other Postre-
Taxes — an interpretation of FASB Statement No. 109.’’ tirement Plans — an Amendment of FASB Statements
We record deferred income taxes using enacted tax laws No. 87, 88, 106 and 132(R).’’ Actuarial valuations are used
and rates for the years in which the taxes are expected to in determining our benefit obligation and net periodic bene-
be paid. We periodically assess the likelihood that our net fit cost as required by SFAS No. 87, ‘‘Employers’ Account-
deferred tax assets will be recovered from future taxable ing for Pension,’’ or SFAS 87, and SFAS No. 106,
income or other tax planning strategies. To the extent that ‘‘Employers’ Accounting for Postretirement Benefits Other
we believe that recovery is not likely, we must establish a Than Pensions’’. We consider accounting for our U.S. and
valuation allowance to reduce the deferred tax asset to the Canadian pension and other postretirement plans critical
amount we estimate will be recoverable. because management is required to make significant sub-
jective judgments about a number of actuarial assump-
Our income tax provisions are based on assumptions and tions, which include discount rates, salary growth,
calculations which will be subject to examination by various expected return on plan assets, interest cost and mortality
tax authorities. We record tax benefits for positions in rates.
which we believe are more likely than not of being sus-
tained under such examinations. Regularly, we assess the Judgments and uncertainties — We believe that the most
potential outcome of such examinations to determine the significant assumptions related to our net periodic benefit
adequacy of our income tax accruals. cost are (1) the discount rate and (2) the expected return
on plan assets.
Judgments and uncertainties — We consider accounting
for income taxes critical because management is required We determine our discount rates primarily based on
to make significant judgments in determining our provision high-quality, fixed-income investments and yield-to-maturity
for income taxes, our deferred tax assets and liabilities, and analysis specific to our estimated future benefit payments
our future taxable income for purposes of assessing our available as of the measurement date. Discount rates are
ability to realize any future benefit from our deferred tax reset annually on the measurement date to reflect current
assets. These judgments and estimates are affected by our market conditions. We use a publicly published yield curve
expectations of future taxable income, mix of earnings updated monthly to develop our discount rates. The yield
among different taxing jurisdictions, and timing of the rever- curve provides discount rates related to a dedicated
sal of deferred tax assets and liabilities. high-quality bond portfolio whose cash flows extend
beyond the current period, from which we choose a rate
We also use our judgment to determine whether it is more matched to the expected benefit payments required for
likely than not that we will sustain positions that we have each plan.
taken on tax returns and, if so, the amount of benefit to
initially recognize within our financial statements. We regu- The expected rate of return on plan assets is based on
larly review our uncertain tax positions and adjust our both our historical returns and forecasted future investment
unrecognized tax benefits in light of changes in facts and returns by asset class, as provided by our external invest-
circumstances, such as changes in tax law, interactions ment advisor. Prior to 2008, the U.S. Pension Plans invest-
with taxing authorities and developments in case law. ment returns were 10.9%, 13.0% and 7.5% over three, five
These adjustments to our unrecognized tax benefits may and ten years, respectively. The returns exceeded the
affect our income tax expense. Settlement of uncertain tax S&P 500 returns for similar periods of time primarily due to
positions may require use of our cash. At December 31, an asset allocation strategy where large allocations to alter-
2008, we have $22.3 million recorded for uncertain tax native asset classes (hedge fund of funds, private equity,
benefits, including interest and penalties, of which it is rea- real estate and real assets) provided consistently higher
sonably possible that up to $6.0 million of our unrecog- returns with a low correlation to equity market returns.
nized tax benefit may change within the next twelve These returns historically demonstrate a long-term record
months. of producing returns at or above the expected rate of
return. In 2008, the investment returns were approximately
Effect if actual results differ from assumptions — Although negative 20%, exceeding the S&P 500 index returns (over
management believes that the judgments and estimates negative 38%), and again reflecting the asset allocation
discussed herein are reasonable, actual results could differ, benefit. We feel 2008 investment market returns were
and we may be exposed to increases or decreases in abnormal and are not reflective of our expected future
income tax expense that could be material. investment returns. Our external investment advisor has
provided projected ten year investment returns by asset
class and, based on our asset allocation strategy, the
2008 ANNUAL REPORT 29