CONTENTS:
FINANCIAL SUMMARY
OPERATIONS ISSUES
Settlement Activity
Individual Evaluation Process
New Claim Filings
LEGAL ISSUES
UPDATING THE ESTIMATE OF THE PRO RATA PERCENTAGE
ASSET MANAGEMENT ISSUES
Trust Operating and Dispute Resolution expenses for the three months ended March 31, 1997 were $2.5 million, compared to $1.9 million for the same period in 1996. Operating expenses in 1996 were understated by approximately $300,000 due to the Trust’s collection of a contempt of court proceeding against an attorney brought in 1991. The receipt of the judgment was credited against professional fees because the litigation costs were originally charged to professional fees during the periods they were incurred. Total Trust expenses for the First Quarter of 1997 were $2.6 million compared to $2.4 million for the First Quarter of 1996. Total Trust expenses include Asset Management costs of $141,000 for 1997 and Class Action and Asset Management costs of $65,000 and $445,000, respectively, for the comparable quarter of 1996. Asset Management costs were lower during the First Quarter of 1997 than in the similar period in 1996 because the Trust completed most of the work on the Profit Sharing Exchange and sale of Riverwood International Corporation during early 1996. From January 1, 1995, (the approximate time the Trust began settling claims and operating under the Trust Distribution Process (the “TDP”)) through March 31, 1997, Operating Costs have represented approximately 3% of total claim payments.
During the First Quarter of 1997, Net Claimants’ Equity increased by almost $109 million, principally due to an unrealized gain in the Schuller Corporation (Schuller) stock of approximately $112 million. Investment income of $10.8 million and the quarterly Schuller dividend increased Net Claimants’ Equity an additional $14.6 million. During the quarter the Trust settled 11,773 claims for $54.6 million compared to 12,814 claims for $60.3 million for the first three months of 1996. For reasons discussed below, total outstanding offers decreased almost $40 million representing a net decrease of 9,732 offers during the quarter, leaving an outstanding offer balance of approximately $55.5 million. As of March 31, 1997, the Trust had approximately $832 million in unrestricted cash equivalents and marketable securities, exclusive of the Trust’s investment in Schuller and other equity investments.
Because of the need to reestimate the pro rata shares as discussed in our last letter to the Courts, no new offers (other than Exigent Health and Hardship claims) were made on claims filed after October of 1994 (FIFO number 226,400). However, because of the substantial number of outstanding offers as of year end 1996, we were able to make substantial claim payments during the First Quarter of 1997 and we expect to continue to make payments by reducing our March 31st backlog of outstanding offers. Furthermore, we are planning to accelerate our payment schedule whenever the pro rata share is confirmed in order to make our planned 60,000 new offers during 1997.
There are a large number of claims currently otherwise eligible for payment (in excess of 40,000) held by law firms whose pass or response record for the medical audit program was insufficient for them to automatically receive offers. To date, we have received virtually no submissions from those firms which would result in those claims’ release from medical audit, in order to be given an offer to settle.
As of March 31, 1997 approximately 21,200 Trust settlement offers had expired. An offer expires 180 days after it is issued by the Trust if the claimant or claimant’s attorney has not responded or requested an extension, of the offer. If requested, an offer will be extended for an additional 180 days. After an offer expires, the claim is placed on hold where it remains until one of two actions is initiated by the claimant or attorney. The law firm can request that the claim be reactivated, in which case the claim will be assigned a new FIFO number based on the date of reactivation. As of the end of March, over 3,000 expired claims had been reactivated to the end of the FIFO queue. Alternatively, if the claimant (or representative) signs a release accepting the last offer made by the Trust, it will be immediately reissued “without options” (i.e. claimant must accept the offer and cash the check because no alternatives such as alternative dispute resolution (“ADR”) are available). As of the end of March over 3,600 expired offers had been accepted by the claimant and reissued without options. Net of reactivated claims and accepted offers, approximately 14,600 claims were in expired status at the end if the First Quarter.
The Trust has become increasingly concerned about the slow pace of settlements in individual evaluation and has modified policies and procedures since the queue was opened to non-Exigent Health and Hardship claims early last year. While it was recognized in the TDP that the individual evaluation process would be substantially more time consuming than the matrix process, only a handful of non-Exigent Health claims have settled through individual evaluation. We have identified the following reasons for this difficulty:
- The claims are almost invariably many years old and have settled with all other co-defendants.
- The claims have been in inactive status for a significant period of time.
- The Trust is only paying 10% of liquidated value and therefore there is little incentive to generate an active negotiation process.
We recently altered our procedures in making offers on these claims for the second time since opening the individual evaluation queue. When requests for updated information are unanswered, the Trust will take one of two actions: a) when there is insufficient information available to make a valid offer, after 180 days the claim will be removed to the back of the individual evaluation queue; or b) when there is sufficient information for an offer, even when that information is clearly outdated, an offer will be made despite the fact that we are aware that it may be lower than what updated information might sustain. Those offers require a response within 180 days or the claim expires, as described above. Based on that process, momentum is just beginning to build and we hope during the coming months to increase substantially settlements through individual evaluation.
We have also spent a significant amount of time with claimants’ representatives advising them when we believe individual evaluation (as opposed to accepting the matrix offer) is not in the best interest of the claimant. As a result, approximately 800 claimants who requested individual evaluation have opted to take the initial matrix offer.
To date, the Trust has resolved over 550 Exigent Health claims and 1,480 regular claims that had requested individual evaluation. There are approximately 3,350 claims currently queued for individual evaluation. The Trust currently has over 450 claims in active negotiation or evaluation. There are currently 240 claims for which the Trust has made an offer or information request and is awaiting a response.
During the First Quarter of 1997, the Trust received approximately 4,500 new proofs of claim. This represents a filing rate of about two-thirds of the number received during the same period in 1996 (a record year for Trust claim filings). Reviewing a graphic presentation on claims receipts by month over the past four years, (see attached chart “Qualified POC Filings 1994-1997”) a distinct pattern emerges of consistently reduced First Quarter filings. Thus, it is too early to conclude that the rate of new claim filings in 1997 is moderating from the extremes of 1996.
The Trust ended 1996 with a backlog of 18,300 new claims not yet reviewed and recorded; and with 325,000 claims in its automated inventory. By the end of Much, 1997 the Trust had reduced the backlog of unprocessed claims to approximately 9,500. Assuming all of those claims pass initial screening for acceptability, the Trust has received a total of 346,400 claims as of the end of March 1997.
During the First Quarter of 1997 the Trust’s General Counsel’s office argued the appellee’s case in Baker vs Manville Trust, 96-7796, in the United States Court of Appeals for the Second Circuit. Also during the First Quarter, the Second Circuit affirmed the opinion of the United States District Court in this matter.
As of March 31, 1997 there were 71 ADR claims pending in the Legal Department’s ADR queue. This is approximately a threefold increase over the number of pending ADR claims at the end of the Fourth Quarter 1996. The Claims Department reports that as many 100 additional claims may proceed to ADR during the Second Quarter. As a result, substantial work in the Legal Department has been devoted to preparing Trust position papers in pending ADR claims and conducting research to assist in the responses to the ADR claims that are expected to be filed during subsequent quarters in 1997.
Also during the First Quarter the General Counsel’s office received the majority of the 24 codefendant contribution claims which are now pending. Negotiations continue with representatives of the codefendant subclass to resolve certain outstanding claim processing and release issues.
The General Counsel’s office submitted the Eleventh Amendment to the Manville Personal Injury Settlement Trust Agreement to the Bankruptcy Court during the First Quarter following negotiations with representatives of classes of Trust beneficiaries concerning the contents of the Amendment
Claims investigation, particularly with respect to certain discrete populations of claimants, continues to occupy substantial resources within the General Counsel’s office.
UPDATING THE ESTIMATE OF THE PRO RATA PERCENTAGE
At a meeting in February, the Trust received a preliminary report from Resource Planning Consultants (“RPC”) analyzing the characteristics of the 1996 claim filings. You will recall that those filings were substantially higher (over 55,000) than predicted, prompting the commencement of another reestimation of the pro rata share. At that meeting, it was estimated that RPC’s effort to review the data and reformulate their predictions of total claims to be filed would take approximately 12 weeks. Also in February, the Trust met with the SCB, and the Representative of the Futures to inform them of these developments and to discuss Trust operational issues. After the predictions of the number, disease and timing of new claim filings is complete, that information will be combined with assumptions regarding the impact of the medical audit program, the value of the Trust’s assets over the defined period, and numerous other parameters impacting the Trust’s ultimate assets and liabilities. That effort remains on schedule, and we plan to meet with Trust constituencies as soon as additional information is available regarding this critical issue.
With the aid of the Trust’s investment banker, we are continuing to closely monitor the performance of the portfolio and in particular the Trust’s proportionately smaller, but still significant investment in the common stock of Schuller Corporation. The company reported continued good results for the First Quarter of 1997 and management, motivated with new stock incentives, has targeted another record for the full year. Nonetheless, consistent with our past practice and long-term goal to diversify the Trust Estate, the Trustees, with the assistance of their advisers, are continuing to plan for the eventual monetization of this investment at appropriate values.