Unum 2008 Annual Report Download - page 82

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78
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• The decline in the fair value of the securities of the U.K. basednancial institution is primarily the result of the global credit crisis
and the slowdown in the economy. In addition, a major acquisition at the peak of the credit cycle required this institution to realize
impairments in loans and other assets, resulting in the need for additional capital. This capital was initially provided by shareholders
and others, but as the economic environment deteriorated further, the company participated in the U.K. government guarantee of
senior debt and capital injections in the form of preferred and common equity. Currently, the company is 58 percent owned by the
U.K. government. Its current strategy is to reduce risk on its balance sheet and make asset sales as the market improves.
• The decline in the fair value of the securities of the U.K. basednancial institution is primarily the result of the global credit crisis and
the slowdown in the economy. The company is well diversified and has global market operations in capital markets, asset-backed
securities, wealth management, asset management, commodities, and insurance. The company has recently raised capital apart
from the U.K. government program and purchased capital market businesses. The company eliminated its dividend during 2008 to
accumulate additional capital.
• The decline in the fair value of the securities of the U.S. based metals and mining company is due to the increased slowdown in global
economic activity, resulting in lower commodity prices and earnings pressure for the sector. The company continues to proactively
adjust its production activities to preserve its liquidity and manage through the current economic downturn. The company also owns
marketable long-lived assets.
• Thexed maturity securities of the U.S. government sponsored mortgage funding company were issued by the Federal Home Loan
Mortgage Corporation. The securities were rated AAA by S&P as of December 31, 2008, with no negative outlook by rating agencies.
The decline in the fair value of these securities relates to changes in interest rates subsequent to purchase of the securities as well as
concerns related to the mortgage market.
• The decline in fair value of the Canadian based metals and mining company securities is due to the increased slowdown in global
economic activity, resulting in lower commodity prices and earnings pressure for the sector. The company’s credit profile has been
strengthened due to its recent acquisition by a larger, more diversified metals and mining company. The company also owns
marketable long-lived assets. The company has adequate liquidity and free cash flow from operations.
• The fair value of the U.S. based media conglomerate securities declined due to general widening of credit spreads in the media industry,
particularly among companies sensitive to the cyclical advertising market. The company generates significant free cash flow, maintains a
sizeable cash balance, and owns interests in various media businesses that provide additional liquidity.
• The decline in fair value of the U.S. based building materials company securities is due to the ongoing weakness in the residential and
remodeling markets. The company has adequate liquidity and maintains free cash flow given its low capital expenditure requirements.
• The decline in the fair value of the U.S. based electric utility company securities is primarily due to the general widening of credit
spreads in the corporate bond market. The company is located in a growing service territory, and recent regulatory decisions have
been favorable to its business.
• The decline in the fair value of the Netherlands based nancial institution securities is due to the overall widening of credit spreads in
the corporate bond market. The company is one of the largest and strongest banks in the Netherlands. The company’s Tier 1 capital,
which is seen as the core measure of a bank’s financial strength, is indicative of a well capitalized financial institution.
• The fair value of the U.S. based food and agricultural company securities declined primarily due to a general widening of credit spreads
in the market, exacerbated by the securities’ very long-term maturity dates. The company has strong operating cash flows and is free
cash flow positive.
• The decline in the fair value of the U.S. based electric utility company securities is primarily due to the general widening of credit
spreads in the investment-grade corporate bond market. The company operates a fully regulated business with no retail competition.
The company’s customer base is expected to grow due to the expansion of a military base located within its service territory. Liquidity
remains adequate.
• The decline in fair value of the U.S. based power tools manufacturing company securities results primarily from weak consumer
demand. Despite declining demand, the company continues to maintain positive earnings and cash flow. The company has sufficient
liquidity and no near-term refinancing needs.