MANVILLE PERSONAL INJURY SETTLEMENT TRUST
Special-Purpose Unaudited Consolidated Financial Statements
As of September 30, 2001 and 2000
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
The consolidated financial statements included herein are unaudited. In the opinion of the management of the Trust, the accompanying consolidated financial statements present fairly, subject to normal year-end adjustments, the consolidated net claimants’ equity as of September 30, 2001 and 2000 and the consolidated changes in net claimants’ equity and cash flows for the three months and nine months ended September 30, 2001 presented on the special-purpose basis of accounting described in Note 2, which accounting methods have been applied on a consistent basis.
/signed/_Mark E. Lederer
Mark E. Lederer
Chief Financial Officer
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
CONSOLIDATED STATEMENTS OF NET CLAIMANTS’ EQUITY
AS OF SEPTEMBER 30, 2001 AND 2000
| 2001 | 2000 | |
| ASSETS: | ||
| Cash equivalents and investments (Notes 1 & 2) | ||
| Available-for-sale non-JM | ||
| Restricted (Note 8) | $67,697,418 | $43,292,810 |
| Unrestricted non-JM | 1,879,325,255 | 789,318,278 |
| Total | 1,947,022,673 | 832,611,088 |
| Other available-for-sale | ||
| JM common stock | 1,275,267,424 | |
| Total cash equivalents and investments | 1,947,022,673 | 2,107,878,512 |
| Accrued interest and dividend receivables | 9,826,259 | 14,229,492 |
| Deposits and other assets | 229,373 | 181,831 |
| Total assets | 1,957,078,305 | 2,122,289,835 |
| LIABILITIES: | ||
| Accrued expenses (Note 1) | 5,671,739 | 5,489,478 |
| Unpaid claims (Notes 4, 6 & Exh. III) | ||
| Settled Pre-Class Action complaint | 1,014,773 | 1,370,673 |
| Outstanding Offers – Post Class Action complaint | 72,427,327 | 64,849,298 |
| Contribution and indemnity claims payable | ||
| (Notes 4, 8 and Exh. III) | 11,702 | 256,441 |
| Lease commitments payable (Note 5) | 1,439,878 | 2,045,258 |
| Total liabilities | 80,565,419 | 74,011,148 |
| NET CLAIMANTS’ EQUITY (Note 6) | $1,876,512,886 | $2,048,278,687 |
The accompanying notes are an integral part of these statements.
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
CONSOLIDATED STATEMENTS OF CHANGES IN NET CLAIMANTS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
| Three Months Ended 9/30/01 |
Six Months Ended 9/30/01 |
|
| NET CLAIMANTS’ EQUITY | ||
| BEGINNING PERIOD | $2,135,902,658 | $2,154,502,680 |
| ADDITIONS TO NET CLAIMANTS’ EQUITY | ||
| Reimbursement by JM of prior years foreign income taxes | 124,601 | |
| Payment for assumption of income tax liability | 90,000,000 | |
| Non-JM investment income (Exh. I) | 17,626,425 | 52,111,015 |
| Realized gain on sale of JM stock | 1,232,982,811 | |
| Net reduction in outstanding claim offers | 6,045,091 | |
| Decrease in lease commitments payable | 156,533 | 456,589 |
| Total additions | 17,782,958 | 1,381,720,107 |
| DEDUCTIONS FROM NET CLAIMANTS’ EQUITY | ||
| Operating expenses (Exh. II) | 6,552,608 | 21,165,496 |
| Management expenses for investments in JM | 12,900 | 118,529 |
| Claims settled | 82,171,841 | 234,117,596 |
| Net addition in Outstanding Claim offers | 39,556,997 | |
| Contribution and indemnity claims settled | 861,590 | 1,865,220 |
| Net unrealized losses on non-JM available-for-sale securities | 148,016,794 | 163,393,800 |
| Unrealized loss on JM stock | 1,239,049,260 | |
| Total deductions | 277,172,730 | 1,659,709,901 |
| NET CLAIMANTS’ EQUITY | ||
| END OF PERIOD | $1,876,512,886 | $1,876,512,886 |
The accompanying notes are an integral part of these statements.
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS AND NINE ENDED SEPTEMBER 30, 2001 AND 2000
| Three Months Ended 9/30/01 | Nine Months Ended 9/30/01 | |
| CASH INFLOWS | ||
| JM dividends | $6,763,849 | |
| Reimbursement by JM of prior years foreign income taxes | 124,601 | |
| Payment for assumption of income tax liability | 90,000,000 | |
| Sale of JM stock | 1,329,000,647 | |
| Investment receipts | 18,587,932 | 50,370,622 |
| Decrease in deposits and other assets | 46,115 | |
| Investment receipts on escrow accounts (Note 8) | 705 | 16,169 |
| Total cash inflows | 18,588,637 | 1,476322,003 |
| CASH OUTFLOWS | ||
| Claim payments made | 82,186,841 | 234,449,496 |
| Contribution and indemnity claim payments | 861,593 | 2,083,067 |
| Total cash claim payments | 83,048,434 | 236,532,563 |
| Disbursements for Trust operating, dispute resolution and asset management expenses | 5,868,994 | 34,470,698 |
| Increase in deposits and other assets | 102,565 | |
| Total cash outflows | 89,019,993 | 271,003,261 |
| NET CASH INFLOWS (OUTFLOWS) | (70,431,356) | 1,205,318,742 |
| NON-CASH CHANGES | ||
| Net unrealized gains (losses) on non-JM | ||
| available-for-sale securities | (148,016,794) | (163,393,800) |
| NET INCREASE (DECREASE) IN CASH EQUIVALENTS AND | ||
| NON-JM INVESTMENTS AVAILABLE-FOR-SALE | (218,448,150) | 1,041,924,942 |
| CASH EQUIVALENTS AND NON-JM INVESTMENTS | ||
| AVAILABLE-FOR-SALE, BEGINNING OF PERIOD | 2,165,470,823 | 905,097,731 |
| CASH EQUIVALENTS AND NON-JM INVESTMENTS | ||
| AVAILABLE-FOR-SALE, END OF PERIOD | $1,947,022,673 | $1,947,022,673 |
The accompanying notes are an integral part of these statements.
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 2001 AND 2000
(1) DESCRIPTION OF THE TRUST
The Manville Personal Injury Settlement Trust (the Trust), organized pursuant to the laws of the state of New York with its office in Katonah, New York, was established pursuant to the Manville Corporation (Manville or JM) Second Amended and Restated Plan of Reorganization (the Plan). The Trust was formed to assume Manville’s liabilities resulting from pending and potential litigation involving (i) individuals exposed to asbestos who have manifested asbestos-related diseases or conditions, (ii) individuals exposed to asbestos who have not yet manifested asbestos-related diseases or conditions and (iii) third-party asbestos-related claims against Manville for indemnification or contribution. Upon consummation of the Plan, the Trust assumed liability for existing and future asbestos health claims. The Trust had initial funding and will receive ongoing fixed and contingent funding as described below under “Funding of the Trust.” The Trust’s funding is dedicated solely to the settlement of asbestos health claims and the related costs thereto, as defined in the Plan. The Trust was consummated on November 28, 1988.
In December 1998, the Trust formed a wholly-owned corporation, the Claims Resolution Management Corporation (CRMC), to provide the Trust with claim processing and settlement services. Prior to January 1, 1999, the Trust provided its own claim processing and settlement services. CRMC began operations on January 1, 1999 in Fairfax, Virginia. The accounts of the Trust and CRMC have been consolidated for financial reporting purposes. All significant balances and transactions between the Trust and CRMC have been eliminated in consolidation.
Funding of the Trust
The Trust was initially funded from the following sources:
- Manville provided $150 million in cash plus $5.4 million in accrued interest. At consummation, the Trust was required to transfer approximately $27.5 million to the Manville Property Damage Settlement Trust.
- Insurance settlement proceeds totaling $695 million, which included $72 million in interest thereon.
- 24,000,000 shares of Manville Common Stock (50% of Manville Common Stock outstanding at consummation). On February 26, 2001, all of the remaining shares of the Manville Common Stock were sold.
- 7,200,000 shares of a new Series A Convertible Preferred Stock of Manville. In December 1992, these shares were converted into 72,000,000 shares of Manville Common Stock.
- A $50 million interest-bearing note receivable (the Trust Note) payable in equal installments in 1990 and 1991. In December 1989, Manville prepaid the Trust Note. The payment included the $50 million in principal and $8.1 million in accrued interest.
- Up to $1.65 billion pursuant to the terms of a bond (the Trust Bond). The Trust Bond initially provided for semi-annual installments of $37.5 million commencing in 1991 and ending in 2012. In 1994, the Trust Bond was prepaid.
- Up to $150 million pursuant to the terms of a second bond (the Trust Second Bond). The Trust Second Bond required Manville to pay the Trust $37.5 million semi-annually in the years 2013 and 2014. On June 30, 1999, the Trust Second Bond was prepaid.
- Up to 20% of Manville’s profits as defined in the Plan, payable beginning in 1992 with respect to the prior year’s profits (the Profit Sharing Rights). In April 1996, the Profit Sharing Rights were exchanged for an additional 32,527,110 shares of Manville Common Stock.
Manville Stock Interests
On December 19, 2000, JM entered into a definitive merger agreement pursuant to which Berkshire Hathaway, Inc. (Berkshire) agreed to acquire all of the outstanding shares of JM for $13 per share in cash. In addition, the Trust in a separate agreement with Berkshire agreed to tender its shares of JM. On December 28, 2000 JM repurchased 10.5 million shares of its common stock from the Trust for $136.5 million, reflecting the purchase price of $13 per share in the transaction with Berkshire. On February 26, 2001 the Trust tendered all its shares and received $1.3 billion for its remaining 102,230,819 shares of JM common stock, net of transaction costs of approximately $12.5 million. In addition, JM paid the Trust $90 million in settlement of JM’s obligation for future income taxes of the Trust.
(2) SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The Trust’s financial statements are prepared using special-purpose accounting methods that differ from accounting principles generally accepted in the United States. The special-purpose accounting methods were adopted in order to better communicate to the beneficiaries of the Trust the amount of equity available for payment of current and future claims. These special-purpose accounting methods are enumerated as follows:
- The financial statements are prepared using the accrual basis of accounting.
- The funding received from JM and its liability insurers has been recorded directly to net claimants’ equity. These funds do not represent income of the Trust. Settlement offers for asbestos health claims are reported as deductions in net claimants’ equity and do not represent expenses of the Trust.
- Costs of non-income producing assets, which will be exhausted during the life of the Trust and are not available for satisfying claims, are expensed as they are incurred. These costs include acquisition costs of computer hardware, software, software development, office furniture and leasehold improvements.
- Future fixed liabilities and contractual obligations entered into by the Trust are recorded directly against net claimants’ equity. Accordingly, the future minimum rental commitments outstanding at period end for non-cancelable operating leases, net of any sublease agreements, have been recorded as deductions to net claimants’ equity.
- The liability for unpaid claims reflected in the statements of net claimants’ equity represents settled but unpaid claims and outstanding settlement offers. Post-Class Action complaint claims’ liability is recorded once a settlement offer is made to the claimant (Note 4) at the amount equal to the expected pro rata payment. No liability is recorded for future claim filings and filed claims on which no settlement offer has been made. Net claimants’ equity represents funding available to pay present and future claims on which no fixed liability has been recorded.
- Available-for-sale securities are recorded at market. All interest and dividend income, as well as net realized gains/losses, on non-JM available-for-sale securities are included in non-JM investment income on the statements of changes in net claimants’ equity. Realized gains on JM common stock and unrealized gains and losses on non-JM available-for-sale securities are recorded as separate components on the statements of changes in net claimants’ equity.
Realized gains/losses on both non-JM available-for-sale securities and JM common stock are recorded based on the security’s original cost. At the time a security is sold, all previously recorded unrealized holding gains/losses are reversed and recorded net, as a component of other unrealized gains/losses in the accompanying statements of net claimants’ equity.
The preparation of financial statements in conformity with the special-purpose accounting methods described above requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions to net claimants’ equity during the reporting period. Actual results could differ from those estimates. The most significant estimates with regard to these financial statements relate to unpaid claims, as discussed in Notes 4 and 6.
(b) JM Common Stock Interest
The Trust’s stock interests represent a majority stock interest in JM. The accounts of JM have not been consolidated in the accompanying financial statements because: (i) JM stock interests were held by the Trust in order to pay asbestos health claims, and as such, the investment was likely to be temporary; and (ii) the objective of the financial statements is to communicate the equity available over the life of the Trust to current and future claimants. Thus, the Trust believes that recording these stock interests at then current market value was appropriate.
At consummation of the Trust, the JM stock interests were recorded at market value. Subsequent changes in their market values are shown separately as unrealized gains or losses in the carrying value of JM common stock in the statements of changes in net claimants’ equity. Prior to the sale of the Trust’s JM stock, the market value of the JM common stock held by the Trust was recorded by using the closing price of JM common stock on the New York Stock Exchange composite transactions on the last day of the appropriate reporting period. As of September 30, 2000 the price was $11.3125 per share.
(c) Cash Equivalents and Non-JM Investments
At September 30, 2001 and 2000, the Trust has recorded all its non-JM investment securities at market value, as follows:.
| 2001 | 2000 | |||
| Cost | Market | Cost | Market | |
| Restricted | ||||
| Cash equivalents | $2,422,167 | $2,422,167 | $453,367 | $453,367 |
| U.S. Govt. obligations | 12,143,554 | 12,617,543 | 11,504,440 | 11,462,278 |
| Corporate and other debt | 6,062,222 | 6,268,223 | 7,415,162 | 7,413,496 |
| Equities – U.S. | 47,184,737 | 46,389,485 | 13,716,258 | 23,963,669 |
| Total | $67,812,680 | $67,697,418 | $33,089,227 | $43,292,810 |
| Unrestricted | ||||
| Cash equivalents | $354,236,431 | $354,236,431 | $87,944,784 | $87,944,784 |
| U.S. govt. obligations | 310,172,897 | 320,319,996 | 201,661,231 | 201,704,190 |
| Foreign govt. obligations | 94,835,796 | 92,241,334 | ||
| Corporate and other debt | 357,099,562 | 366,254,003 | 218,021,418 | 214,469,092 |
| Equities – U.S. | 873,216,696 | 752,604,368 | 76,289,762 | 120,058,519 |
| Equities – International | 102,113,418 | 85,910,457 | 60,964,082 | 72,900,359 |
| Total | $1,996,839,004 | $1,879,325,255 | $739,717,073 | $789,318,278 |
The Trust invests in two types of derivative financial instruments. Equity index futures are used as strategic substitutions to cost effectively replicate the underlying index of its domestic equity investment fund. At September 30, 2001, the fair value of these instruments was approximately $4.9 million and was included in non-JM investments available-for-sale on the statement of net claimants’ equity. Foreign currency forwards are utilized for both currency translation purposes and to hedge against the currency risk inherent in foreign equity issues. At September 30, 2001, the Trust held at market value approximately $64.4 million in sell currency forward contracts offset by approximately $66.0 million in buy currency forward contracts. The unrealized loss on these outstanding currency forward contracts of approximately $1.6 million is principally offset by corresponding unrealized gains due to currency exchange on the underlying securities being hedged. These amounts are recorded in the statement of net claimants’ equity at September 30, 2001.
(d) Fixed Assets
The cost of non-income producing assets that will be exhausted during the life of the Trust and are not available for satisfying claims are expensed as incurred. Since inception, these costs, net of disposals, include:
| Acquisition of furniture and equipment | $ 762,131 |
| Acquisition of computer hardware and software | 1,565,755 |
| Computer software development (in progress) | 1,157,683 |
| Leasehold improvements | 42,965 |
| Total | $3,528,534 |
These items have not been recorded as assets, but rather as direct deductions to net claimants’ equity in the accompanying financial statements. The cost of fixed assets, net of proceeds on disposals, that were expensed during the three and nine months ended September 30, 2001 was approximately $829,300 and $2,005,300, respectively.
Depreciation expense related to asset acquisitions using accounting principles generally accepted in the United States would have been approximately $39,700 and $119,100 for the three and nine months ended September 30, 2001.
(e) JM Dividends
Beginning in August 1996, the JM Board of Directors declared regular quarterly dividends of $.03 per share, the first time such dividends were declared since 1982. In August 1997, the dividend was increased to $.04 per share and in August 1998, to $.06 per share. The Trust received its last dividend payment in January 2001. Such dividends are reported as additions to net claimants’ equity.
(3) LITIGATION
During 1997, the Trustees filed a complaint in the U.S. District Court for the Eastern District of New York (the Court) on behalf of the Trust against seven tobacco manufacturers (“Falise I”), pursuant to which the Trust sought contribution and indemnification for claims paid and to be paid in which a portion of the claimant’s injury was caused by smoking. In November 1999, the Court dismissed Falise I on jurisdictional grounds and during the same month, the Trust filed a second complaint (“Falise II”) which alleged the same causes of action as in Falise I and, in addition, violations of the Federal RICO Act.
On December 4, 2000, the jury trial of Falise II began in the Court. On January 25, 2001, the Court declared a mistrial because the jury was unable to reach a verdict after six days of deliberation. Following extensive research and consultation with the Trust’s trial and appellate counsel, on July 6, 2001, the Trust and the Falise II defendants moved to dismiss the case with prejudice.
(4) UNPAID CLAIMS
The Trust distinguishes between claims that were resolved prior to the filing of the class action complaint on November 19, 1990, and claims resolved after the filing of that complaint. Claims resolved prior to the complaint (Pre-Class Action Claims) were resolved under various payment plans, all of which called for 100% payment of the full liquidated amount without interest over some period of time. However, between July 1990 and February 1995, payments on all claims except qualified exigent health and hardship claims were stayed by the courts. By court order on July 22, 1993 (which became final on January 11, 1994), a plan submitted by the Trust was approved to immediately pay, subject to claimant approval, a discounted amount on Pre-Class Action Claims, in full satisfaction of these claims. The discount amount taken, based on the claimants who accepted the Trust’s discounted offer, was approximately $135 million.
The unpaid liability for the Post-Class Action claims represents outstanding offers made in First-in, First-out (FIFO) order to claimants eligible for settlement after November 19, 1990. Under the TDP (Note 6), claimants receive an initial pro rata payment equal to a percentage of the liquidated value of their claim. The Trust remains liable for the unpaid portion of the liquidated amount only to the extent that assets will be available after paying all claimants the established pro rata share of their claims. The Trust makes these offers in the form of a check made payable to the claimant and/or claimant’s counsel. If the offer is accepted, a Trust release is completed, the check is deposited and the claim is recorded as settled. An unpaid claim liability is recorded once an offer is made. The unpaid claim liability remains on the Trust’s books until accepted or expiration of the offer after 180 days. A claimant may request that an offer be extended for an additional 180 days.
(5) COMMITMENTS AND CONTINGENCIES
Operating Leases
In September 1993, the Trust executed a 5-year lease through December 1998 for its offices in Fairfax, Virginia. The lease was extended for an additional 5 years beginning at the expiration of the initial lease. Effective January 1, 1999, the Trust assigned its rights under the lease to CRMC conditioned upon the Trust’s guarantee of future lease payments.
Future minimum rental commitments under this operating lease, as of september 30, 2001 are as follows:
| Calendar Year | Amount |
| 2001 | 156,532 |
| 2002 | 631,969 |
| 2003 | 651,377 |
| Total | $1,439,878 |
This obligation has been recorded as a liability at face value in the accompanying financial statements.
(6) NET CLAIMANTS’ EQUITY
A class action complaint was filed on behalf of all Trust beneficiaries on November 19, 1990, seeking to restructure the methods by which the Trust administers and pays claims. On July 25, 1994, the parties signed a Stipulation of Settlement that included a revised Trust Distribution Process (the TDP). The TDP prescribes certain procedures for distributing the Trust’s limited assets, including pro rata payments and initial determination of claim value based on scheduled diseases and values. The Court approved the settlement in an order dated January 19, 1995. Though six appeals were filed with the Court of Appeals, no stay was granted and the Trust implemented the TDP payment procedures effective February 21, 1995. On February 21, 1996, the Court of Appeals affirmed the decision.
Prior to the commencement of the class action in 1990, the Trust filed a motion for a determination that its assets constitute a “limited fund” for purposes of Federal Rules of Civil Procedure 23(b)(1)(B). The Courts adopted the findings of the Special Master that the Trust is a “limited fund”. In part, the limited fund finding concludes that there is a substantial probability that estimated future assets of the Trust are and will be insufficient to pay in full all claims that have been and will be asserted against the Trust.
The TDP contains certain procedures for the distribution of the Trust’s limited assets. Under the TDP, the Trust forecasts its anticipated annual sources and uses of cash until the last projected future claim has been paid. A pro rata payment percentage is calculated such that the Trust will have no remaining assets or liabilities after the last future claimant receives his/her pro rata share.
Prior to the implementation of the TDP, the Trust conducted its own research and monitored studies prepared by the Courts’ appointee regarding the valuation of Trust assets and liabilities. Based on this valuation, the TDP provided for an initial 10% payment of the liquidated value of then current and estimated future claims (pro rata payment percentage). As required by the TDP, the Trust has periodically re-estimated the values of its projected assets and liabilities to determine whether a revised pro rata payment percentage should be applied in the future. The most recent re-estimate began in 2000 and was concluded in June of 2001. Following its review and consultation with the Selected Counsel for the Beneficiaries (SCB), the Legal Representative of Future Claimants (Legal Representative) and Special Advisor to the Trust (Special Advisor), the Trust proposed to the SCB and Future Representative that the pro rata payment percentage be reduced from 10% to 5%, beginning with claims generally filed after October of 2000. The SCB and Legal Representative consented to the Trust’s request that, pending a final resolution of this issue and without prejudice to their rights to dispute the issue in binding arbitration, the Trust may make offers and pay claims based upon a 5% pro rata payment percentage. Thereafter, the Legal Representative consented to the 5% pro rata payment. However, the SCB has not provided consent.
Therefore, pursuant to the TDP, the Special Advisor is authorized to name three arbitrators to resolve this matter through binding arbitration. The SCB and the Trust are each entitled to strike one of the arbitrators. The remaining arbitrator will decide the matter. As of September 30, 2001, the Special Advisor had identified only two arbitrators for consideration by the parties.
As required under the TDP, the Trust will continue to periodically update its estimate of the pro rata payment percentage based on updated assumptions regarding its future assets and liabilities and, if appropriate, propose additional changes in the pro rata payment percentage.
(7) EMPLOYEE BENEFIT PLANS
The Trust established a tax-deferred employee savings plan under Section 401(k) of the Internal Revenue Code, with an effective date of January 1, 1988. The plan allows employees to defer a percentage of their salaries within limits set by the Internal Revenue Code with the Trust matching contributions by employees of up to 6% of their salaries. The total employer contributions and expenses under the plan were approximately $106,700 and $261,700 for the three and nine months ended September 30, 2001, respectively.
(8) RESTRICTED ASSETS
In order to avoid the high costs of director and officer liability insurance and with the approval of the United States Bankruptcy Court for the Southern District of New York, the Trust established a segregated security fund of $30,000,000 and, with the additional approval of the United States District Court for the Southern and Eastern Districts of New York, an escrow fund of $3,000,000 from the assets of the Trust, which are devoted exclusively to securing the obligations of the Trust to indemnify the former and current Trustees and officers, employees, agents and representatives of the Trust. In addition, a $15,000,000 escrow and security fund was established to secure the obligations of the Trust to exclusively indemnify the current Trustees, whose access to the other security funds is subordinated to the former Trustees. Upon the final order in the Class Action litigation (Note 4), the $15,000,000 escrow and security fund was reduced by $5,000,000. Pursuant to Section 5.07 of the plan, Trustees are entitled to a lien on the segregated security and escrow funds to secure the payment of any amounts payable to them through such indemnification. Accordingly, in total, $43 million has been transferred from the Trust’s bank accounts to separate escrow accounts and pledge and security agreements have been executed perfecting those interests. The investment earnings on these escrow accounts accrue to the benefit of the Trust.
As a condition of the tax agreement between JM and the Trust discussed in Note 9 below, the Trust was required to transfer $30 million in cash to an escrow account to secure the payment of its future income tax obligations post settlement of the transaction. The escrow account balance may be increased or decreased over time. As of September 30, 2001, securities with a market value of $24.7 million were held by an escrow agent in accordance with the agreement. These funds have been reported as restricted investments.
(9) INCOME TAXES
For Federal income tax purposes, JM has elected for the qualified assets of the Trust to be taxed as a Designated Settlement Fund (DSF). Income and expenses associated with the DSF are taxed in accordance with Section 468B of the Internal Revenue Code, which obligates JM to pay for any federal income tax liability imposed upon the DSF. In addition, pursuant to an agreement between JM and the Trust, JM is obligated to pay for any income tax liability. However, as discussed in Note 1, at the consummation of the tender offer transaction on February 26, 2001, JM paid the Trust $90 million to settle their obligation to the Trust. In return, the Trust terminated JM’s contractual liability for income taxes of the DSF and agreed to indemnify JM in respect for all future income taxes of the Trust. JM remained liable for the Trust’s income taxes through February 26, 2001. The statutory income tax rate for the DSF is 15%.
The Trust accounts for income taxes in accordance with the Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book and tax basis of assets and liabilities. As of September 30, 2001, the Trust has recorded a net deferred tax asset of $29,000, representing temporary timing differences primarily for CRMC’s accrued vacation and deferred compensation. The deferred asset is included in deposits and other assets in the accompanying consolidated statement of net claimants’ equity.
(10) PROOF OF CLAIMS FILED
Proof of claim forms have been filed with the Trust as follows:
| As of 9/30/01 | As of 9/30/00 | |
| Claims filed | 558,848 | 467,963 |
| Voided claims (1) | (40,017) | (37,290) |
| Currently disqualified (2) | (743) | (1,419)) |
| Expired offers (3) | (43,131) | (39,921) |
| Active claims | 474,957 | 389,333 |
| Settled claims | (409,204) | (323,654) |
| Claims currently eligible for settlement | 65,753 | 65,679 |
(1) Claim filings that are permanently ineligible due to duplication of filing, withdrawal or missing critical information.
(2) Claim filings on hold until representation or content problems are resolved.
(3) Claims that received a Trust offer, but failed to respond within the offer acceptance period.
A claim may be reactivated upon written request and is eligible for a new offer at the end of the FIFO queue.
The following exhibits are provided in accordance with Article 3.02 (d) (iii) of
the Manville Personal Injury Settlement Trust Agreement.
Exhibit I Consolidated Non-JM Investment Income for the Three Months Ended June 30, 2001 and 2000
Exhibit II Consolidated Operating Expenses for the Three Ended June 30, 2001 and 2000
Exhibit III, Page 1 – Schedule of Liquidated Claims Since Consummation (November 28, 1988) Through June 30, 2001
Exhibit III, Page 2 – Schedule of Liquidated Claims for the Quarter Ended June 30, 2001
EXHIBIT I
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
CONSOLIDATED NON-JM INVESTMENT INCOME
FOR THE THREE MONTHS AND NINE ENDED SEPTEMBER 30, 2001 AND 2000
| Three Months Ended 9/30/01 | Nine Months Ended 9/30/01 | |
| NON-JM INVESTMENT INCOME | ||
| Interest | $14,743,840 | $45,537,184 |
| Dividends (Note 2(e)) | 3,611,567 | 8,816,505 |
| Net realized gains (losses) | (141,161) | (688,619) |
| Total non-JM investment income | 18,214,246 | 53,665,070 |
| Investment expenses | (587,821) | (1,554,055) |
| TOTAL | $17,626,425 | $52,111,015 |
The accompanying notes are an integral part of this exhibit.
EXHIBIT II
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
CONSOLIDATED OPERATING EXPENSES
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
| Three Months Ended 9/30/01 | Nine Months Ended 9/30/01 | |
| OPERATING EXPENSES: | ||
| Personnel costs | $2,419,054 | $6,114,520 |
| Office general and administrative | 386,522 | 1,056,103 |
| Travel and meetings | 70,303 | 312,176 |
| Board of Trustees | 160,506 | 595,890 |
| Professional fees | 569,195 | 5,982,929 |
| Net fixed asset purchases | 829,345 | 2,005,272 |
| Computer and other EDP costs | 50,083 | 96,281 |
| TOTAL OPERATING EXPENSES | 4,485,008 | 16,163,171 |
| Income tax provision | 2,067,600 | 5,002,325 |
| TOTAL | $6,552,608 | $21,165,496 |
The accompanying notes are an integral part of this exhibit.
EXHIBIT III, Page 1 of 2
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
SCHEDULE OF LIQUIDATED CLAIMS
SINCE CONSUMMATION (NOVEMBER 28, 1988)
THROUGH SEPTEMBER 30, 2001
Number |
Amount |
Average Payment Amount |
||||
| Trust Liquidated Claims | ||||||
| Pre-Class Action Complaint | ||||||
| November 19, 1990 and Before- | ||||||
| Liquidated Claim Value | 27,609 | $1,188,255,672 | ||||
| Present Value Discount (1) | ______ | (135,306,535) | ||||
| Net Settlements | 27,609 | 1,052,949,137 | ||||
| Payments | (27,565) | (1,051,934,364) | $38,162 | |||
| Unpaid Balance | 44 | $1,014,773 | ||||
| Post-Class Action Complaint | ||||||
| After November 19, 1990- | ||||||
| Offers Made at Full Liquidated Amount | 413,545 | $17,709,861,010 | ||||
| Reduction in Claim Value (2) | ______ | (16,040,925,115) | ||||
| Net Offer Amount | 413,545 | 1,668,935,895 | ||||
| Payments | (381,595) | (1,596,508,568) | $4,184 | |||
| Offers Outstanding | 31,950 | $72,427,327 | ||||
| Manville Liquidated Claims Paid(3) | ||||||
| Liquidated Claim Value | 158 | $24,946,620 | ||||
| Co-Defendant Liquidated Claims (4) | ||||||
| Liquidated Claim Value | $94,297,542 | |||||
| Investment Receipts (5) | 2,624,624 | |||||
| Payments | (96,910,464) | |||||
| Unpaid Balance | $11,702 | |||||
(1) The unpaid liability for Pre-Class Action Complaint claims has been reduced based upon a plan approved by the Courts in
January, 1994 which requires the Trust to offer to pay a discounted amount in full satisfaction of the unpaid claim amount.
(2) Under the TDP, Post Class Action Complaint claims have been reported at a pro rata percent of their liquidated value.
(3) Manville Liquidated Claims refers to Liquidated AH Claims (as defined in the Plan) which the Trust has paid
pursuant to an order of the United States Bankruptcy Court for the Southern District of New York dated January 27, 1987.
(4) Number of personal injury claimants not identifiable.
(5) Investment receipts of separate investment escrow account established for the sub-class beneficiaries per the Stipulation of
Settlement, net of income taxes.
The accompanying notes are an integral part of this exhibit.
EXHIBIT III, Page 2 of 2
MANVILLE PERSONAL INJURY SETTLEMENT TRUST
SCHEDULE OF LIQUIDATED CLAIMS
FOR THE QUARTER ENDED SEPTEMBER 30, 2001
Number |
Amount |
Average Payment Amount |
|||
| Trust Liquidated Claims | |||||
| Pre-Class Action Complaint | |||||
| November 19, 1990 and Before- | |||||
| Payable as of June 30, 2001 | 45 | $1,029,773 | |||
| Paid (1) | (1) | (15,000) | |||
| Payable as of September 30, 2001 | 44 | $1,014773 | |||
| Post-Class Action Complaint | |||||
| After November 19, 1990- (2) | |||||
| Offers Outstanding as of June 30, 2001 | 7,265 | $32,870,330 | |||
| Net Offers Made (3) | 59,065 | 121,728,838 | |||
| Offers Accepted | (34,380) | (82,171,841) | $2,390 | ||
| Offers Outstanding as of September 30, 2001 | 31,950 | $72,427,327 | |||
| Co-Defendant Liquidated Claims | |||||
| Payable as of June 30, 2001 | $10,997 | ||||
| Settled | 861,593 | ||||
| Investment Receipts (4) | 705 | ||||
| Paid | (861,593) | ||||
| Payable as of September 30, 2001 | $11,702 | ||||
(1) During the period the dollar amount of paid claims includes fully and partially paid claims. The number of paid
claims represents only fully paid claims.
(2) Under the TDP, Post Class Action Complaint claims have been reported at 10% of their liquidated value.
(3) Represents payment offers made during the period net of rejected and expired offers.
(4) Investment receipts of separate investment escrow account established for the sub-class beneficiaries per the
Stipulation of Settlement, net of income taxes.