Allstate 2013 Annual Report Download - page 193

expected long-term rate of return on plan assets are a component of net actuarial loss and are recorded in accumulated
other comprehensive income.
Holding other assumptions constant, a hypothetical decrease of 100 basis points in the expected long-term rate of
return on plan assets would result in an increase of $51 million in pension cost as of December 31, 2012, compared to
$47 million as of December 31, 2011. A hypothetical increase of 100 basis points in the expected long-term rate of return
on plan assets would result in a decrease in net periodic pension cost of $51 million as of December 31, 2012, compared
to $47 million as of December 31, 2011.
We target funding levels that do not restrict the payment of plan benefits in our domestic plans and were within our
targeted range as of December 31, 2012. In 2012, we contributed $439 million to our pension plans. We expect to
contribute $578 million for the 2013 fiscal year to maintain the plans’ funded status. This estimate could change
significantly following either an improvement or decline in investment markets.
GOODWILL
Goodwill represents the excess of amounts paid for acquiring businesses over the fair value of the net assets
acquired. The goodwill balances were $822 million and $418 million as of December 31, 2012 for the Allstate Protection
segment and the Allstate Financial segment, respectively. Our reporting units are equivalent to our reporting segments,
Allstate Protection and Allstate Financial. Goodwill is allocated to reporting units based on which unit is expected to
benefit from the synergies of the business combination.
Goodwill is not amortized but is tested for impairment at least annually. We perform our annual goodwill
impairment testing during the fourth quarter of each year based upon data as of the close of the third quarter. We also
review goodwill for impairment whenever events or changes in circumstances, such as deteriorating or adverse market
conditions, indicate that it is more likely than not that the carrying amount of goodwill may exceed its implied fair value.
Impairment testing requires the use of estimates and judgments. For purposes of goodwill impairment testing, if the
carrying value of a reporting unit exceeds its estimated fair value, the second step of the goodwill test is required. In such
instances, the implied fair value of the goodwill is determined in the same manner as the amount of goodwill that would
be determined in a business acquisition. The excess of the carrying value of goodwill over the implied fair value of
goodwill would be recognized as an impairment and recorded as a charge against net income.
To estimate the fair value of our reporting units for our annual impairment test, we initially utilize a stock price and
market capitalization analysis and apportion the value between our reporting units using peer company price to book
multiples. If the stock price and market capitalization analysis does not result in the fair value of the reporting unit
exceeding its carrying value, we may also utilize a peer company price to earnings multiples analysis and/or a
discounted cash flow analysis to supplement the stock price and market capitalization analysis. If a combination of
valuation techniques are utilized, the analyses would be weighted based on management’s judgment of their relevance
given current facts and circumstances.
The stock price and market capitalization analysis takes into consideration the quoted market price of our
outstanding common stock and includes a control premium, derived from historical insurance industry acquisition
activity, in determining the estimated fair value of the consolidated entity before allocating that fair value to individual
reporting units. The total market capitalization of the consolidated entity is allocated to the individual reporting units
using book value multiples derived from peer company data for the respective reporting units. The peer company price
to earnings multiples analysis takes into consideration the price earnings multiples of peer companies for each reporting
unit and estimated income from our strategic plan. The discounted cash flow analysis utilizes long term assumptions for
revenue growth, capital growth, earnings projections including those used in our strategic plan, and an appropriate
discount rate. We apply significant judgment when determining the fair value of our reporting units and when assessing
the relationship of market capitalization to the estimated fair value of our reporting units. The valuation analyses
described above are subject to critical judgments and assumptions and may be potentially sensitive to variability.
Estimates of fair value are inherently uncertain and represent management’s reasonable expectation regarding future
developments. These estimates and the judgments and assumptions utilized may differ from future actual results.
Declines in the estimated fair value of our reporting units could result in goodwill impairments in future periods which
may be material to our results of operations but not our financial position.
During fourth quarter 2012, we completed our annual goodwill impairment test using information as of
September 30, 2012. The stock price and market capitalization analysis resulted in the fair value of our reporting units
exceeding their respective carrying values. While the fair value of the reporting units exceeded their respective carrying
values, the results indicated that the amount of excess fair value was disproportionately greater for the Allstate
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