Sears 2006 Annual Report Download - page 80

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SEARS HOLDINGS CORPORATION
Notes to Consolidated Financial Statements—(Continued)
participants following retirement. The effect of this plan change, which was to reduce the projected benefit
obligation of the Sears domestic pension plan by approximately $80 million, has been recorded as a component
of purchase accounting.
In addition to providing pension benefits, Sears provides domestic and Canadian employees and retirees
certain medical benefits. Certain domestic Sears retirees are also provided life insurance benefits. The Company
shares the cost of the retiree medical benefits with retirees based on years of service. Generally, the Company’s
share of these benefit costs will be capped at Sears’ contribution calculated during the year of retirement. Sears’
postretirement benefit plans are not funded. The Company has the right to modify or terminate these plans.
Effective January 1, 2006, the Company eliminated its subsidization of retiree medical costs under the Sears
domestic retiree medical plan for those Sears retirees who were under age 65 as of December 31, 2005. The
effect of this plan change, which was to reduce the projected benefit obligation associated with the plan by
approximately $174 million, has been recorded as a component of purchase accounting.
Changes in Accounting for Pensions and Postretirement Plans
In September 2006, the FASB issued SFAS No. 158 which became effective for the Company as of
February 3, 2007, and requires recognition of an asset or liability in the statement of financial position reflecting
the funded status of pension and other postretirement benefit plans, with current-year changes in the funded
status recognized in stockholders’ equity. SFAS No. 158 did not change the existing criteria for measurement of
periodic benefit costs, plan assets or benefit obligations. See Note 3 for the incremental effects of the initial
adoption of SFAS No. 158 on the Company’s consolidated financial position at February 3, 2007.
In fiscal 2005, the Company changed the measurement date of its benefit programs from the last Wednesday
in January to December 31. The Company believes the one-month change of the measurement date is a
preferable change as it allows more time for management to plan and execute its review of the completeness and
accuracy of its benefit programs results. The change did not have a material effect on retained earnings as of
January 27, 2005, and income from continuing operations, net income, and related per share amounts for fiscal
2005. Accordingly, all amounts reported in the following tables for balances as of February 3, 2007 and
January 28, 2006 are based on a measurement date of December 31, 2006 and December 31, 2005, respectively.
Amounts reported in the following tables for balances as of January 26, 2005 are based on a measurement date of
January 26, 2005.
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