Allstate 2008 Annual Report Download - page 250

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 is reinsured to Prudential
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 Savings and Profit Sharing Plan of Allstate Employees
(see Note 16).
Equity incentive plans
The Company currently has equity incentive plans that permit the Company to grant nonqualified stock
options, incentive stock options, restricted or unrestricted shares of the Company’s stock and restricted stock
units (‘‘equity awards’’) to certain employees and directors of the Company (see Note 17). The Company
recognizes the fair value of equity awards computed at the award date over the period in which the requisite
service is rendered. 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 fund
mortgage 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 6 and
Note 13).
Consolidation of variable interest entities (‘‘VIEs’’)
The Company consolidates VIEs when it is the primary beneficiary. A primary beneficiary is the variable
interest that will absorb a majority of the expected losses or receive a majority of the entity’s expected returns, or
both (see Note 11).
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 in the Consolidated Statements of Financial Position. 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 significant.
Earnings per share
Basic earnings per share is computed based on the weighted average number of common shares
outstanding. Diluted earnings per share is computed based on weighted average number of common and dilutive
potential common shares outstanding. For Allstate, dilutive potential common shares consist of outstanding stock
options and restricted stock units.
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Notes