Highlights of the 3rd Quarter 2000 Filing
Operating expenses for the three months ended September 30, 2000 were approximately $5.9 million, compared to $3.5 million for the same period in 1999. Operating expenses for the nine months ended September 30, 2000 were $17.9 million compared to $12.4 million for the nine months ended September 30, 1999. The increase in operating expenses is attributable to litigation expenses associated with the Trust’s lawsuit against the tobacco companies. For the first nine months of 2000, the Trust incurred approximately $10.5 million in tobacco litigation costs compared to $4.8 million for tobacco and other litigation for the same period in 1999. A trial in the case is scheduled to begin on November 27, 2000. Operating costs, excluding litigation costs, were approximately $7.3 million for the first nine months of 2000 compared to $7.7 million for the same period in 1999. JM Asset management expenses relating to the Trust’s majority share holdings in Johns Manville Corporation (“JM”) were approximately $560,000 for the nine months ended September 30, 2000 compared to $2.2 million for the same period in 1999 during which negotiations for the sale of JM were being conducted. Costs associated with the current negotiations for the sale of JM (See Asset Management) have not yet been recorded; such costs will be netted against the proceeds of the sale if it is consummated.
Net Claimants’ Equity decreased for the quarter ended September 2000 by approximately $280 million principally due to a decrease in the market value of the JM common stock from $13.44 per share on June 30, 2000 to $11.31 per share at September 30, 2000. For the nine months ended September 30, 2000 Net Claimants’ Equity has decreased by approximately $424 million due to almost a $300 million decrease in the market price of JM’s stock and the settlement of $187 million of claims. Additions to Net Claimants’ Equity during the nine months ended September 30, 2000 included the recognition of $58.9 million in non-JM investment income, $20.3 million of JM dividends and a reduction in outstanding claim offers of $28.4 million.
During the quarter ended September 30, 2000, the Trust paid, including contribution and indemnity claims, $57 million compared to $97 million in claim payments for the same period in 1999. For the nine months ending September 30, 2000, the Trust paid approximately $197 million, including contribution and indemnity claims, compared to $175 million for the nine months ended September 30, 1999. Since implementation of the Trust Distribution Process (“TDP”) in early 1995, the Trust has paid over $1.35 billion to TDP claimants and settled over 296,000 TDP claims. For that period, operating expenses, excluding class action and JM asset management expenses, which were more than offset by investment income, represent 5.2% of total expenditures and represent 4.0% of total expenditures excluding tobacco litigation costs.
As of September 30, 2000, the Trust had approximately $833 million in cash equivalents and investments, exclusive of the Trust’s investment in JM securities (valued at $1.3 billion as of September 30, 2000), and $2.05 billion in Net Claimants’ Equity.
During the Third Quarter, the Trust made nearly 14,400 offers, of which 9,671 were first time offers. These offers cover claims received or reactivated through April 2000, making the time from receipt of the claim to first offer approximately five months. Each month the Trust anticipates it will be advancing the eligible FIFO range by 4,000 claims.
In the Third Quarter, the Trust settled nearly 14,000 claims for total payments of close to $56 million. The average settlement amount was $4,033. On September 30, 2000, the Trust had approximately 65,700 unsettled active claims, which was 16,100 less than at year-end and almost 44,900 less than September 30, 1999. Within the unsettled active claim population, 39% are claims with outstanding offers or deficiency notices and 61% of the claims require an action by the Trust. In addition to the active unsettled claims, there are 39,900 deactivated claims where the offer or denial notice has now expired.
On September 30, 2000 the Trust had 27,387 claims which have not yet been assigned a Scheduled Value Category. The Trust anticipates that the filings for these claims will be completed and that they will be eligible to receive their first offer within seven to eight months.
Processing issues remain outstanding concerning the interpretation and application of the reporting requirements of Pulmonary Function Testing results for a relatively small claim population under the Adams Settlement. After discussions with the SCB and the Futures Representative, the Trust will continue to work directly with the firms involved to resolve these issues.
While the overwhelming majority of claimants settle their claims by accepting the Scheduled Value Offer, a small percentage opt for Individual Evaluation (“IE”) if the claim does not meet the criteria of any of the seven Scheduled Value categories or if the claimants believe the claim has a value higher than the Scheduled Value. On September 30, 2000, the Trust had 2,050 outstanding requests for IE, of which almost 59% were claims denied for not meeting the criteria of one of the seven Scheduled Value categories. During the Third Quarter 2000, the Trust received 109 new requests for IE and resolved 313. On average, during 2000, the Trust has received fewer requests for IE than it has in prior years.
Third Quarter 2000 claims receipts totaled 18,700, nearly double the number of claims received during the same time period in 1999. During the first nine months of this year, the Trust received about 39,500 new claim filings. This volume is greater than total annual filings in 1999 at 32,500 and 1998 at 29,800. The attached chart, “Total POC Filings by Month – August 1997 – September 2000” presents claim receipts along a monthly continuum. It continues to demonstrate a steady upward trend in filing volumes. Total claim receipts over the life of the Trust are about 468,000. Excluding claims that have been permanently disqualified from processing (i.e., void claims), about 430,700 potentially valid claims have been filed since the Trust’s inception.
Over 200 law firms have filed claims during 2000. Filing patterns are very concentrated. Ten law firms have filed a combined 53% of all claims filed this year. At the other end of the spectrum, half of the 200 filing firms have filed fewer than ten claims each this year.
About 360 law firms represent claimants whose claims are not yet settled. Again demonstrating the concentrated nature of claims filings, about ten law firms represent over 40% of all unsettled claims on file with the Trust.
On September 30, 2000 there were 39,921 expired offers of which 74% were category zero at their time of expiration.
As described in the last Quarterly Report, after more than eighteen months of examining, together with JM strategic alternatives to further diversity the Trust’s assets and maximize shareholder value for all JM stockholders, JM entered into a definitive merger agreement with an investor group led by Hicks, Muse, Tate & Furst Incorporated and Bear Stearns Merchant Fund Corp. (HB). Under the terms of the agreement, JM’s public shareholders (including the Trust) would receive, for each share of JM stock hled at the time of the merger, $13.625 in cash and $2 in liquidation value of a 13 percent pay-in-kind preferred stock (PIK Preferred). As a condition of the transaction required by HB, the Trust was required to exchange some of its JM stock to continue its investment of approximately $50 million in the new common equity and equivalents of the corporation surviving the merger.
On October 19, 2000, however, JM announced that it did not believe that the transaction will be completed on the terms contained in the previously announced definitive merger agreement and that JM was currently engaged in discussions with HB regarding possible changes in the transaction. The Trust concurs with JM’s announcement and is participating in discussions with the investor group. The Courts had previously approved the transaction, but it remains subject to as yet unsatisfied conditions.
As of September 30, 2000, the Trust’s investment in JM constitutes approximately 60% of the Trust Estate, but the Trust maintains very substantial investments in diversified equities of $217 million and diversified fixed income securities of $622 million. During 2000 the principal and income from these diversified investments, combined with the ordinary dividend from JM, have provided the funds necessary to sustain the prompt payment of claims and operating expenses.
The Trustees and Trust staff appreciate the ongoing support of the representatives of our beneficiaries and the patience of the Courts as we work our way through these complex matters and seek a way to maximize the shareholder value in JM.
Discovery in the litigation filed by the Trust against seven cigarette manufacturers continued during the Third Quarter, with active participation by the CRMC General Counsel’s Office. A stay issued by the United States Court of Appeals for the Second Circuit delayed the start of the trial date in this matter, but a November 27th trial date has since been established.
As of September 30, 2000, there were 378 pending claims in the Trust’s Alternative Dispute Resolution program, as compared to 372 claims at the end of the Second Quarter. Two hundred and thirty-eight of these claims were awaiting claimants’ position papers to be submitted to arbitrators and six additional claims were awaiting claimants’ rebuttal statements to be submitted to arbitrators.
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