Equifax 2009 Annual Report Download - page 35

We also use our judgment to determine whether it is more likely periods of time primarily due to an asset allocation strategy where
than not that we will sustain positions that we have taken on tax large allocations to alternative asset classes (hedge fund of funds,
returns and, if so, the amount of benefit to initially recognize within private equity, real estate and real assets) provided consistently
our financial statements. We regularly review our uncertain tax posi- higher returns with a low correlation to equity market returns. These
tions and adjust our unrecognized tax benefits in light of changes in returns historically demonstrate a long-term record of producing
facts and circumstances, such as changes in tax law, interactions returns at or above the expected rate of return. However, the dra-
with taxing authorities and developments in case law. These adjust- matic adverse market conditions in 2008 skewed the traditional
ments to our unrecognized tax benefits may affect our income tax measures of long-term performance, such as the ten-year average
expense. Settlement of uncertain tax positions may require use of return. The severity of the 2008 losses, approximately negative
our cash. At December 31, 2009, $26.8 million was recorded for 20%, makes the historical ten-year average return a less accurate
uncertain tax benefits, including interest and penalties, of which it is predictor of future return expectations. In 2009, the investment
reasonably possible that up to $6.4 million of our unrecognized tax returns were approximately 16%, reflecting a partial recovery of the
benefit may change within the next twelve months. 2008 losses. Our weighted-average expected rate of return declined
from 8.02% in 2009 to approximately 7.75% for 2010 primarily
related to the U.S. Retirement Income Plan which declined due to
Effect if actual results differ from assumptions — Although manage- our migration to a lower risk investment strategy, with increased
ment believes that the judgments and estimates discussed herein allocation to lower risk/lower return asset classes, as well as the
are reasonable, actual results could differ, and we may be exposed current forecast of expected future returns for our asset classes,
to increases or decreases in income tax expense that could be which is lower than the prior year.
material.
The expected long-term rate of return is calculated on the market-
Pension and Other Postretirement Plans
related value of assets. We are allowed to use an asset value that
We consider accounting for our U.S. and Canadian pension and smoothes actual investment gains and losses on pension and pos-
other postretirement plans critical because management is required tretirement plan assets over a period up to five years. We have
to make significant subjective judgments about a number of actua- elected to smooth asset gains and losses on our pension and pos-
rial assumptions, which include discount rates, salary growth, tretirement plans over the five year period. The market-related value
expected return on plan assets, interest cost and mortality and of our assets was $596.9 million at December 31, 2009. We do not
retirement rates. Actuarial valuations are used in determining our expect our 2010 net periodic benefit cost, which includes the effect
benefit obligation and net periodic benefit cost. of the market-related value of assets, to be materially different than
our 2009 cost.
Judgments and uncertainties — We believe that the most significant
assumptions related to our net periodic benefit cost are (1) the dis- Annual differences, if any, between the expected and actual returns
count rate and (2) the expected return on plan assets. are included in the unrecognized net actuarial gain or loss amount.
We generally amortize any unrecognized net actuarial gain or loss in
We determine our discount rates primarily based on high-quality, net periodic pension expense over the average remaining life expec-
fixed-income investments and yield-to-maturity analysis specific to tancy of the participant group since almost all of the participants are
our estimated future benefit payments available as of the measure- inactive. See Note 9 of the Notes to the Consolidated Financial
ment date. Discount rates are updated annually on the measure- Statements for details on changes in the pension benefit obligation
ment date to reflect current market conditions. We use a publicly and the fair value of plan assets.
published yield curve to develop our discount rates. The yield curve
provides discount rates related to a dedicated high-quality bond Effect if actual results differ from assumptions — We do not believe
portfolio whose cash flows extend beyond the current period, from there is a reasonable likelihood that there will be a material change
which we choose a rate matched to the expected benefit payments in the future estimates or assumptions that are used in our actuarial
required for each plan. valuations. However, if actual results are not consistent with our
estimates or assumptions, we may be exposed to changes in pen-
The expected rate of return on plan assets is based on both our sion expense that could be material. Adjusting our expected
historical returns and forecasted future investment returns by asset long-term rate of return (8.02% at December 31, 2009) by 50 basis
class, as provided by our external investment advisor. In setting the points would change our estimated pension expense in 2010 by
long-term expected rate of return, management considers capital approximately $3 million. Adjusting our weighted-average discount
markets future expectations and the asset mix of the plan invest- rate (6.27% at December 31, 2009) by 50 basis points would
ments. Prior to 2008, the U.S. Pension Plans investment returns change our estimated pension expense in 2010 by approximately
were 10.9%, 13.0% and 7.5% over three, five and ten years, $1 million.
respectively. The returns exceeded the S&P 500 returns for similar
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