Allstate 2014 Annual Report Download - page 205

less cost to sell, a loss is recognized. Assets and liabilities related to a business classified as held for sale are segregated
in the Consolidated Statement of Position in the period in which the business is classified as held for sale.
Separate accounts
Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and
available only to settle separate account contract obligations. Separate accounts liabilities represent the
contractholders’ claims to the related assets and are carried at an amount equal to the separate accounts assets.
Investment income and realized capital gains and losses of the separate accounts accrue directly to the contractholders
and therefore are not included in the Company’s Consolidated Statements of Operations. Deposits to and surrenders
and withdrawals from the separate accounts are reflected in separate accounts liabilities and are not included in
consolidated cash flows.
Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life
insurance contractholders bear the investment risk that the separate accounts’ funds may not meet their stated
investment objectives. Substantially all of the Company’s variable annuity business was reinsured beginning in 2006.
Deferred Employee Stock Ownership Plan (‘‘ESOP’’) expense
Deferred ESOP expense represents the remaining unrecognized cost of shares acquired by the Allstate ESOP to
pre-fund a portion of the Company’s contribution to the Allstate 401(k) Savings Plan.
Equity incentive plans
The Company has equity incentive plans under which the Company grants nonqualified stock options, restricted
stock units and performance stock awards (‘‘equity awards’’) to certain employees and directors of the Company. The
Company measures the fair value of equity awards at the award date and recognizes the expense over the shorter of the
period in which the requisite service is rendered or retirement eligibility is attained. The expense for performance stock
awards is adjusted each period to reflect the performance factor most likely to be achieved at the end of the
performance period. The Company uses a binomial lattice model to determine the fair value of employee stock options.
Off-balance sheet financial instruments
Commitments to invest, commitments to purchase private placement securities, commitments to extend loans,
financial guarantees and credit guarantees have off-balance sheet risk because their contractual amounts are not
recorded in the Company’s Consolidated Statements of Financial Position (see Note 7 and Note 14).
Consolidation of variable interest entities (‘‘VIEs’’)
The Company consolidates VIEs when it is the primary beneficiary. A primary beneficiary is the variable interest
holder in a VIE with both the power to direct the activities of the VIE that most significantly impact the economic
performance of the VIE and the obligation to absorb losses, or the right to receive benefits, that could potentially be
significant to the VIE.
Foreign currency translation
The local currency of the Company’s foreign subsidiaries is deemed to be the functional currency of the country in
which these subsidiaries operate. The financial statements of the Company’s foreign subsidiaries are translated into U.S.
dollars at the exchange rate in effect at the end of a reporting period for assets and liabilities and at average exchange
rates during the period for results of operations. The unrealized gains and losses from the translation of the net assets
are recorded as unrealized foreign currency translation adjustments and included in accumulated other comprehensive
income. Changes in unrealized foreign currency translation adjustments are included in other comprehensive income.
Gains and losses from foreign currency transactions are reported in operating costs and expenses and have not been
material.
Earnings per common share
Basic earnings per common share is computed using the weighted average number of common shares outstanding,
including unvested participating restricted stock units. Diluted earnings per common share is computed using the
weighted average number of common and dilutive potential common shares outstanding. For the Company, dilutive
potential common shares consist of outstanding stock options and unvested non-participating restricted stock units and
contingently issuable performance stock awards.
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