Unum 2008 Annual Report Download - page 81

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77

For those securities with a gross unrealized loss of $20.0 million or greater, further discussed as follows are (a) the factors which we
believe resulted in the impairment and (b) the information we considered, both positive and negative, in reaching the conclusion that the
impairments were not other than temporary. We believe the decline in fair value of these securities is temporary, and we have the ability
to hold these securities to the earlier of recovery or maturity.
Investment-Grade Fixed Maturity Securities:
• The principal protected equity linked trust certicates represent our investment in a trust which holds forward contracts to purchase
shares of a Vanguard S&P 500 index mutual fund. This trust also holds a defeasance swap contract for U.S. Treasury bonds to provide
principal protection for the investments. The trust investment derives its value from the underlying S&P 500 index mutual fund.
This security is currently at an unrealized loss because the fixed rate of accretion on the note has exceeded the rate of return on the
underlying S&P 500 index fund since the purchase date of the note. Because we purchased this security at a price point in a previous
market decline in the S&P 500 index mutual fund, we believe that the value of the underlying S&P 500 index mutual fund will
equate to or exceed the par value of the security at maturity.
• The fair value of the U.S. based insurance andnancial services company securities declined primarily due to liquidity concerns
specific to the company and for financial institutions in general. The company’s balance sheet is solid, and its core businesses are
profitable. The company also owns marketable assets which can be sold to increase liquidity. The company is seeking approval to
participate in the U.S. Treasury Department’s Capital Purchase Program under the Troubled Asset Relief Program in an effort to gain
access to government funding.
• The decline in the fair value of the global building materials company is due to the increased slowdown in commercial and infrastructure-
related construction as well as a weak residential construction market. The company maintains adequate liquidity and owns marketable
long-lived assets.
• The decline in the fair value of the global building materials company is due to the increased slowdown in commercial and infrastructure-
related construction as well as a weak residential construction market. While the company has acquisition-related debt that will require
refinancing in the near future, it reduced this liquidity need through new debt issuance and asset sales prior to the current market
pressure on credit availability. The company also owns marketable long-lived assets.
• The decline in fair value of the U.S. based retail company is due to the recent decline in consumer spending and the depressed
economy. While concerns surrounding the retail sector and consumer spending will continue to affect performance, the company
maintains its leading market position and has adequate liquidity to withstand an economic downturn.
• The decline in fair value of the U.S. based retail company is due to the recent decline in consumer spending and the depressed
economy. Management has reduced capital spending and has taken other appropriate steps to maintain adequate liquidity. While
concerns surrounding the retail sector and consumer spending will continue to affect performance, the company has the financial
strength to withstand an economic downturn.
• The decline in fair value of the Canadian based railroad company securities is due primarily to its weakenednancial risk prole
resulting from a recent debt financed acquisition. The company’s position is strengthened by stable industry fundamentals and
a favorable regulatory environment. The company has adequate access to capital markets, and it recently implemented cash
preservation policies such as suspension of its share repurchase program and freezing any shareholder dividend increases. Additionally,
management has stated that it will seek to improve cash flow through the implementation of operational efficiencies and a reduction in
capital expenditures. Current liquidity should provide adequate coverage for near term funding requirements.
• The decline in fair value of the U.S. based forest products company securities is due to lower demand and weaker pricing
capabilities in the current environment. The company has adequate liquidity to meet its obligations and has a strong asset base
through its ownership of 5.9 million acres of timberland.