Highlights of the 3rd Quarter 2001 Filing
During the Third Quarter 2001, the Trust made over 59,600 offers, of which 57,500 were first-time offers. Total settlements were nearly 34,400 claims for total payments of approximately $82 million. On September 30, 2001, the Trust had 65,753 active, unsettled claims. Within the active unsettled claim population, 95% are claims with outstanding offers, denials or scheduled to receive an offer, and only 5% of the claims require an action by the Trust. In addition to the active, unsettled claims, there are 43,131 deactivated claims where the offer or denial notice has now expired.
At the close of the quarter, the Trust had only 117 recorded claims which had not yet been assigned a Scheduled Disease Category. The Trust anticipates that these claims will be eligible to receive their first offer in the next month.
During the first nine months of 2001, the Trust received 69,500 new claims, compared to 44,800 claims received during the comparable nine-month period last year and 59,200 claims filed during all of 2000. As of September 30, 2001, the Trust had received a total of 558,848 claims. Of that number, approximately 40,017 claims were permanently disqualified from processing (for such reasons as the claims were duplicates, the claim had been withdrawn, etc.). The growing number of Proofs of Claims (“POC”) received by the Trust in recent years is illustrated in the two attached charts. Chart 1, Total POC Filings by Month, September 1998 – September 2001 compares monthly claim filing volumes during the past three years. Chart 2, POC Receipts Rolling Two Year Average, shows increasing claim volumes over time by calculating a two-year average at the close of each new month.
A small number of law firms account for a majority of the POCs received by the Trust. Nineteen (19) law firms filed 70% of the 69,500 POCs received during the first nine months of this year. Of these nineteen firms, five (5) filed 41% of that total. The same concentration applies to unsettled claims although some of the firms are different. As of the end of September, 671 firms represented the 108,884 unsettled Manville Trust claims, but only seven (7) firms represented 33% (35,738) of all unsettled claims.
While the majority of claimants settle their claims by accepting the Scheduled Value Offer, some claimants request Individual Evaluation (“IE”) if they believe the claim does not meet the criteria of any of the seven Scheduled Disease categories or if the claim has a value higher than the Scheduled Disease category. At quarter-end, the Trust had 630 outstanding requests for IE.
During the Third Quarter 2001, 286 claims were resolved through the IE process. Of those, 54 claims were resolved by issuing a matrix offer following claimants’ submission of new information that qualified the claim for a higher Scheduled Disease. The Trust also issued 232 offers following individual evaluations – 98 with agreed upon values and 121 that were issued when an impasse was reached. An additional 13 claims that were initially denied because they did not meet the criteria of any of the seven Scheduled Disease categories, were denied again after individual evaluation, either for a lack of adequate medical documentation or for providing no evidence of an asbestos-related disease.
In the Third Quarter of 2001, the Trust received 115 new requests for IE. Since the implementation of the IE program in March of 1996, a total of 8,258 claims have been resolved through this process.
At the end of the Third Quarter, there were 246 pending claims in the Trust’s Alternative Dispute Resolution (“ADR”) program, as compared to 241 claims at the end of the Second Quarter 2001. Some of these claims, however, were awaiting claimants’ position papers to be submitted to arbitrators and additional claims were awaiting claimants’ rebuttal statements to be submitted to arbitrators. Three law firms represent almost half of the pending ADR claims.
As previously reported to you, after consultation with Selected Counsel for the Beneficiaries (SCB) and the Legal Representative of Future Claimants (Legal Representative) and the Special Advisor to the Trust (Special Advisor), the Trustees decided on June 19, 2001 to reduce the pro rata payment percentage from 10% to 5% in view of the expanding number of claims being filed. The Legal Representative has since consented to the reduction but the SCB, while not objecting to the reduction, has not given its required consent and consequently, the issue will be resolved in binding arbitration as set forth in the Trust Distribution Process (TDP). Pursuant to the TDP, the Special Advisor has identified two candidates to serve as the arbitrator and is seeking a third candidate. The SCB and Trust are each entitled to strike one of the candidates and the remaining candidate will resolve the matter.
In the meantime, the SCB and Legal Representative have consented to permitting the Trust to offer 5% payments pending the outcome of the above arbitration. Of the $234 million paid to nearly 69,000 claimants during the first three quarters of 2001, approximately $56 million has been paid to nearly 29,000 claimants who accepted 5% of the liquidated value of their claims. These claimants will be entitled to receive additional payments if the pro rata percentage is raised above 5% in the future.
Total operating expenses for the three months ended September 30, 2001 were approximately $4.5 million compared to $6.0 million in the same period in 2000. Total operating expenses were $16.2 million in the nine months ended September 30, 2001 compared to $17.9 million in 2000. Litigation costs were $4.1 million for the nine months ended September 30, 2001 compared to $10.5 million for the same period in 2000. The increase in non-litigation operating expenses between the periods is principally due to the Electronic Claims Filings project and consulting costs associated with the pro rata share re-estimation. The Electronic Claims Filings costs are for the development of computer software for filing, processing and payment of claims electronically. It is expected that these development costs will benefit future periods through reduced operating costs, but such costs have nevertheless been expensed as incurred and not capitalized. The system is scheduled for implementation in early 2002.
During the three months ended September 30, 2001, the Trust paid 34,380 claimants approximately $82.2 million (an average of $2,400 per claimant), plus $860,000 for co-defendant and distributor contribution claims. For the same period in 2000, the Trust paid $56 million to almost 14,000 claimants (an average of $4,000 per claimant) and $500,000 for co-defendant and distributor contribution claims. The reduction in average payment per claimant in the current period is due to the recent reduction of the pro rata percentage for claims with FIFO numbers greater than 445,000. Since implementation of the TDP in early 1995, the Trust has paid almost $1.6 billion to TDP claimants and settled almost 382,000 TDP claims. For that period, operating expenses, excluding class action, tobacco litigation costs and JM asset management expenses represent 4.3% of all claim payments. Since inception, the Trust has paid almost $2.8 billion (which is more than the original funding of the Trust) to co-defendants, distributors and approximately 409,000 claimants.
As of September 30, 2001, the Trust’s assets totaled slightly less than $2 billion, with almost $900 million (45%) invested in equities and over $1 billion (55%) in fixed income securities, including over $300 million in cash equivalents. The large allocation to fixed income investments, resulting from the deliberately gradual reinvestment of the proceeds from the sale of Johns Manville Corporation into other equities moderated the impact of the significant decline during this quarter in the U.S. and foreign stock markets on the performance of the Trust’s portfolio. While the total return on the broad U.S. stock market (Russell 3000 Index) was down over 15% for the third quarter and over 20% for the year to date, the preliminary total return on the Trust’s investments was down only about 6% and 5%, respectively. Because the current allocation to equities remains well below the Trust’s long-term target allocation of 65%, the Trust continues to explore new, equity investment opportunities. However, the timing of any new equity investment remains flexible and subject to a myriad of considerations, some of which are specific to the Trust (such as the projected level of claim payments) and some of which are important to all investors.
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