HIGHLIGHTS OF THE 4TH QUARTER 1999 FILING
CONTENTS:
FINANCIAL SUMMARY
OPERATIONS ISSUES
1999 Overview
Individual Evaluation Process
New Claim Filings
LEGAL ISSUES
ASSET MANAGEMENT
Operating expenses for the year ended December 31, 1999 approximated 1998 expenses although total Trust expenses for the year ended December 31, 1999 were $19.7 million compared to $12.3 million for the year ended December 31, 1998. Approximately $5.3 million of the $7.4 million increase was due to professional fees and related expenses of the Adams litigation and the Trust’s lawsuit against the tobacco industry. In addition, approximately $1.4 million of the increase was due to expenses related to managing the Trust’s investment in the Johns Manville Corporation (“JM” or “the Company”) which were $2.2 million compared to $780,000 in 1998. The increase was due to investment banking, legal and other expenses associated with the Trust’s strategic review of its investment in JM and, in addition, the $200 million stock repurchase and Trust Bond redemption.
Net Claimants’ Equity decreased for the year ended December 1999 by approximately $575 million principally due to claim settlements and outstanding offers of over $340 million during the period and a decrease in the market value of the JM common stock of approximately $380 million. These reductions in Net Claimants’ Equity were partially offset by $46 million in non-JM investment income, JM dividends of almost $29 million and unrealized gains on non-JM securities of $26 million. In addition, the Trust realized a gain of $63 million (total proceeds of $166.8 million) on the sale of 12.2 million shares of JM common stock back to JM in July 1999 and a $6.4 million increase in the realized value (accretion) of the Second Bond also sold back to JM.
During 1999, the Trust paid almost 83,000 claims for approximately $303 million, exclusive of $5.7 million paid for co-defendant and distributor claims for contribution, compared to the payment of approximately $108 million for 25,000 claims in 1998. Since implementation of the Trust Distribution Process (“TDP”) in early 1995, the Trust has paid over $1,080 million in claim payments to TDP claimants and settled over 249,000 TDP claims. For that period, operating expenses, excluding class action and JM asset management expenses, represent 4.6% of all claim payments. Since inception, the Trust has paid approximately $2.3 billion to claimants.
As of December 31, 1999, the Trust had approximately $995 million in cash equivalents and investments, exclusive of the Trust’s investment in JM securities (valued at $1,571 million as of December 31, 1999), and $2,473 million in Net Claimants’ Equity.
The Trust has now completed its fifth full year of operation under the TDP. By the end of 1994, the Trust had received over 248,000 Proof of Claim forms, and had a backlog of over 211,000 unsettled claims. This backlog of claims was created during the five years of class action litigation that ultimately led to the approval of the TDP. This backlog included claims filed in 1988 which meant that some claimants had to wait seven years before their claims became eligible for settlement due to that litigation.
During the following five years, approximately 180,000 new claims have been received which brings total claims filed with the Trust to 428,400. The Trust has settled approximately 276,600 claims, of which 249,000 claims were settled under the TDP. Additionally, over 30,000 claim filings have been disqualified or voided. The majority of these claims are represented by the Maritime Asbestos Legal Clinic (MALC) and as part of a settlement reached with MALC earlier this year, we anticipate that most of these claims will be refiled in the future.
Last year, as a result of the Adams Settlement, the Trust made offers on claims which it had previously held pending the receipt of an x-ray. In 1999, the Trust made almost 118,000 offers and settled 82,700 claims.
At the end of 1999, the Trust had approximately 114,100 unsettled claims. Within this population, about 43,100 claims had outstanding offers or deficiency letters, approximately 32,000 additional claims had expired after their offers lapsed, and about 25,000 claims were not yet eligible for a first offer. Under the Adams Settlement the claim population was divided into Retrospective Audit Claims (claims filed before April 10, 1999) and Prospective Audit Claims (claims filed on or after April 10, 1999). With the exception of about 4,700 claims being held as a result of disputes among claimants’ attorneys over attorney representation, claims subject to the Retrospective Audit have received at least one offer or denial notice, pursuant to the Adams Settlement. Under the terms of Adams, claims which could be subject to a prospective audit are to be held until an agreement is reached among the Trust, SCB and the Representative of the Future Claimants on the nature of that audit. The Trustees presented an approach to the SCB and Futures Representative in October 1999. In February 2000, an agreement was reached among the parties and the Trust began making offers on Prospective Audit Claims.
While the majority of claimants settle their claims by accepting the Scheduled Value Offer, some claimants 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. At year-end, the Trust had 2,597 outstanding requests for IE, of which almost 60% were claims denied for not meeting the criteria of one of the seven Scheduled Value categories.
In 1999 2,221 claims were resolved through the IE process of which 957 claims were resolved by issuing a matrix offer, an estimated 500 claims were resolved as a result of the Adams Settlement and the remainder were resolved as a result of new information being supplied and the claim qualifying for a higher Scheduled Value. The Trust also issued 771 individually evaluated offers – 436 with an agreed upon value and 335 which were issued as a result of impasse. An additional 493 claims, which were initially denied because they did not meet the criteria of any of the seven Scheduled Value categories, were also denied after individual evaluation, either for a lack of adequate medical documentation or for providing no evidence of an asbestos-related disease.
In 1999, the Trust received 1,344 requests for IE. Since the implementation of the IE program in March of 1996, a total of 5,485 claims have been resolved through this process.
During 1999 approximately 32,500 new claims were filed with the Trust. This represented a 9% increase in volume over 1998. A total of 244 law firms filed claims with the Trust during 1999. Nearly 80% filed fewer than 100 claims. Ten law firms accounted for the filing of 51% of all claims received in 1999. Approximately 8,900 new claims were filed during the Fourth Quarter of 1999, bringing the total claims received to date by the Trust to about 428,400. Two charts are attached. Chart 1, Total POC Filings, 1996-1999, compares monthly claim filing volumes in 1999 against the three prior years. Chart 2, Quarterly POC Filings, compares quarterly claim filing volumes for 1999 against the years 1994 through 1998.
At year end, approximately 32,000 claims of the above total received were in inactive status due to expiration of the Trust’s offers, compared to 27,000 at the end of 1998. Some 79% of these expired offers were denials. Over 12,800 claims have expired and have been subsequently reactivated to restart the settlement process since the TDP expiration procedures were implemented.
The complaint naming the Trust as a co-defendant (Wm. Roberts Wilson, Jr., et al v. Richard E. Scruggs, et al, No. 99-2215, Chancery Court, Jackson, Mississippi), which involves a dispute over attorneys’ fees (as described in the Third Quarter letter to the Courts) has been dismissed as to the Trust.
Discovery in the litigation filed by the Trust against seven tobacco manufacturers continued during the Fourth Quarter, with the CRMC General Counsel’s Office taking an increasingly active role in the case. An April 17, 2000 trial date has been scheduled.
In Amato, et al. v. Manville Personal Injury Settlement Trust (CA 99-2317), a case which challenges the Trust’s application of pulmonary function test standards, the claimants have filed an amended complaint, Beauchemin v. Manville Personal Injury Settlement Trust, and discovery in the case is continuing. The Trust is represented in this matter by the CRMC’s General Counsel’s Office.
As of the end of the Fourth Quarter, there were 231 pending claims in the Trust’s Alternative Dispute Resolution (“ADR”) program, as compared to 297 claims at the end of 1998. 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.
At the end of 1999, total Trust assets were approximately $2.6 billion. The most significant, single asset held by the Trust continues to be its remaining ownership of approximately 113 million shares of JM common stock (about 76% of the outstanding shares). Based on the December 31, 1999 closing market price of $13.9375, this investment is valued at approximately $1.6 billion or about 61% of all Trust assets. Of the other assets, $276 million (11%) are invested in diversified equities with the balance of $727 million (28%) in diversified fixed income securities which includes $183 million in cash and cash equivalents.
During 1999, the Company purchased approximately 12.2 million shares from the Trust and prepaid its last debt owed to the Trust, for total proceeds of $200 million. These funds, combined with about $77 million in dividend and interest receipts, largely offset the $328 million paid out in 1999 for claims and expenses. In addition, due to approximately $26 million in unrealized gains on the Trust’s non-JM portfolio, total cash equivalents and non-JM investments were almost $1 billion at the end of 1999, only slightly less than the previous year. Therefore, notwithstanding the continuing large investment in JM stock, the Trust has ample other assets available to pay claims and expenses in the foreseeable future.
At the beginning of last year, the Company and the Trust jointly undertook a review of strategic alternatives available to maximize JM’s shareholder value. Such alternatives included the possible sale or merger of the Company. The Trust strongly supported this effort which was an important step forward in achieving the Trustees’ long-term goal of further diversifying the Trust Estate. The Board of Directors of the Company determined that no satisfactory offers were received for the Company. Nonetheless, the Company is in a strong financial position, has robust cash flow and recently announced another record of sales and underlying earnings for 1999 and is targeting a higher increase in underlying earning for this year. In the same announcement, the Company reported that Jerry Henry, the Company’s Chairman and CEO would be retiring on March 31, 2000. While the Trustees regret Mr. Henry’s decision, the Board of Directors of the Company has already begun a search for a new CEO. Against this backdrop, the Trustees will continue to consider both tactical and strategic alternatives to achieve our long-term goals of enhancing and preserving the Trust Estate.
To obtain a complete copy of the quarterly filing, please contact Manville Trust in care of: inquiry@claimsres.com.