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Case 03-35592-TPADoc 2951Filed 04/26/19 Entered 04/26/19 13:11:46DocumentPage 3 of 8Desc MainIN THE UNITED STATES BANKRUPTCY COURTWESTERN DISTRICT OF PENNSYLVANIAIn re:§§§§§§MID-VALLEY, INC., et al.,Reorganized DebtorsJointly Administered atCase No. 03-35592-JKFChapter 11DII INDUSTRIES, LLC ASBESTOS PI TRUST’S2018 ANNUAL REPORT AND NOTICE OF UNCLAIMED PROPERTY2018 ANNUAL REPORTPursuant to the DII Industries, LLC Asbestos PI Trust Agreement, the Trustees of the DIIIndustries, LLC Asbestos PI Trust (“Trust”) report the following 2018 activities:I.Financial StatementsThe Trust’s Special-Purpose Financial Statements with Report of Independent Auditorsfor the Years Ended December 31, 2018 and 2017 are attached as Exhibit A.II.Claims SummaryA summary of the number and types of claims the Trust disposed of in 2018 is attachedas Exhibit B.III.Trustees’ Fees, Expenses, and ActivitiesThe Trustees earned 952,311 in 2018 (a) conducting weekly meetings with the Trust’sstaff; (b) leading quarterly meetings with the Trust Advisory Committee and LegalRepresentative; (c) monitoring the Trust’s financial portfolio; (d) regularly meeting with theTrust’s financial advisors and investment managers; (e) supervising the Trust’s activity inarbitrations, mediations, and litigation; (f) considering and revising the Trust’s claim reviewprocesses; (g) monitoring the Trust’s claims processing facility’s performance; (h) assessing theTrust’s staffing needs and staff compensation; (i) supervising the Trust’s claims audit program;
Case 03-35592-TPADoc 2951Filed 04/26/19 Entered 04/26/19 13:11:46DocumentPage 4 of 8Desc Main(j) reviewing and approving the Trust’s financial statements; (k) supervising the developmentand implementation of the Trust’s information security policies; (l) overseeing an increase in uchvaluesareavailableatwww.diiasbestostrust.org); (m) monitoring the revision of the Trust’s Documented Site list (areport of changes made to the list in 2018 is attached as Exhibit C); and (n) otherwiseadministering the Trust. Additionally, the Trust reimbursed 46,821 of the expenses the Trusteesincurred.In particular, and as described below, the Trustees devoted significant attention to(a) reevaluating and raising the Payment Percentage in light of updated projections of the Trust’sassets and liabilities; (b) managing the Honorable Robert Parker’s planned retirement andreplacement as Trustee; (c) overseeing the Trust’s claims audit program; (d) addressing the civilinvestigation demand the Trust received from the Department of Justice; and (e) extending thetime claimants have to respond to the Trust’s offer of payment or rejection of a claim.A.Payment PercentageIn 2018, professionals retained by the Trustees, in consultation with professionalsretained by the Trust Advisory Committee and Legal Representative, updated the Trust’sforecast of its assets and liabilities, including the number, types, and values of pending and futureclaims. As a result of this updated forecast, the Trustees, with the consent of the Trust AdvisoryCommittee and Legal Representative, increased the Trust’s Payment Percentage from 50 percentto 60 percent. The Trust also began making supplemental payments to eligible claimants whoseclaims were paid at Payment Percentages below 60 percent.2
Case 03-35592-TPAB.Doc 2951Filed 04/26/19 Entered 04/26/19 13:11:46DocumentPage 5 of 8Desc MainJudge Parker’s RetirementIn early 2018, Judge Robert Parker announced that he would not seek reappointment as aTrustee when his term expired on January 20, 2019. The other Trustees, Alan Kahn and MarkGleason, chose the Trust’s Executive Director, Marcellene Malouf, to succeed Judge Parker;asked Gregg McHugh, the Trust’s General Counsel, to replace Ms. Malouf as ExecutiveDirector; and invited Molly Spieczny, the Trust’s Assistant General Counsel, to assume Mr.McHugh’s position. After everyone accepted these promotions, the Trustees devoted substantialtime to preparing for the transitions.C.Claims Audit ProgramThroughout 2018, the Trustees monitored the resolutions of more than 730 claim audits.They received frequent reports on these audits from Trust staff and attorneys, and they providedfeedback in response. In addition, the Trustees consulted with the Trust Advisory Committeeand Legal Representative regarding the objectives, components, and results of the Trust’s auditprogram.To ensure that it continues to comprehensively examine and promptly resolve claimsundergoing audit, the Trust presented to law firms best practices for responding to audits andcontinued to devote significant resources to its audit department in 2018. Specifically, sevenattorneys worked primarily on evaluating and resolving audits.D.Civil Investigation DemandIn September 2018, the Trust received a civil investigative demand from the Departmentof Justice that instructs it to produce information about settlement agreements between it andclaimants. During the remainder of the year, the Trust actively discussed with the Departmentthe scope of information to be produced, striving to respond to the demand in a manner that is3
Case 03-35592-TPADoc 2951Filed 04/26/19 Entered 04/26/19 13:11:46DocumentPage 6 of 8Desc Maineffective, is efficient, and protects the Trust and its claimants. The Trustees received frequentreports on the demand from Trust staff, attorneys, and outside counsel, and they providedfeedback in response. A copy of the demand is attached to the Trust’s October 1, 2018 TrustUpdate, available at www.diiasbestostrust.org.E.Extension of Claimants’ Response TimeBecause claimants’ counsel sometimes experience challenges in locating personsauthorized to accept the Trust’s offers, the Trustees, with the consent of the Trust AdvisoryCommittee and Legal Representative, amended Section 6.3 of the DII Industries, LLC AsbestosPI Trust Eighth Amended Trust Distribution Procedures, as of May 15, 2018, as shown below(deleted language is stricken through, and added language is underlined):6.3Withdrawal or Deferral of ClaimsA claimant can withdraw an Asbestos Unsecured PI Trust Claim at any time upon writtennotice to the Asbestos PI Trust and file another claim subsequently without affecting thestatus of the claim for statute of limitations purposes, but any such claim filed afterwithdrawal shall be given a place in the FIFO Processing Queue based on the date ofsuch subsequent filing. A claimant can also request that the processing of his or herAsbestos Unsecured PI Trust Claim by the Asbestos PI Trust be deferred for a period notto exceed three (3) years without affecting the status of the claim for statute of limitationpurposes, in which case the claimant shall also retain his or her original place in the FIFOProcessing Queue. During the period of such deferral, any sequencing adjustment onsuch claimant’s Asbestos Unsecured PI Trust Claim provided for in section 7.5 hereundershall not accrue and payment thereof shall be deemed waived by the claimant. Except forAsbestos Unsecured PI Trust Claims held by representatives of deceased or incompetentclaimants for which court or probate approval of the Asbestos PI Trust’s offer is required,or an Asbestos Unsecured PI Trust Claim for which deferral status has been granted, aclaim shall be deemed to have been withdrawn if the claimant neither accepts, rejects, norinitiates arbitration within six monthsone (1) year of the Asbestos PI Trust’s offer ofpayment or rejection of the claim. Upon written request and good cause, the Asbestos PITrust may extend the withdrawal or deferral period for an additional six months.IV.Trust Advisory Committee Fees, Expenses, and ActivitiesIn 2018, the Trust paid the Trust Advisory Committee and its legal counsel and otherprofessionals 247,259 in fees and reimbursed 2,200 of the expenses they incurred. During the4
Case 03-35592-TPADoc 2951Filed 04/26/19 Entered 04/26/19 13:11:46DocumentPage 7 of 8Desc Mainyear, the Trust Advisory Committee advised the Trustees in their performance of the activitieslisted above.V.Legal Representative Fees, Expenses, and ActivitiesIn 2018, the Trust paid the Legal Representative and its legal counsel and otherprofessionals 194,334 in fees and reimbursed 5,158 of the expenses they incurred. Like theTrust Advisory Committee, the Legal Representative advised the Trustees in their performanceof the activities listed above.VI.Additional InformationFor additional information regarding the Trust’s financial statements or operations, pleasecontact its Executive Director, Gregg McHugh, at P.O. Box 821628, Dallas, Texas 75382 or at214-271-0554 or go to www.diiasbestostrust.org.5
Case 03-35592-TPADoc 2951Filed 04/26/19 Entered 04/26/19 13:11:46DocumentPage 8 of 8Desc MainNOTICE OF UNCLAIMED PROPERTYPursuant to section 9.6(a) of the Conformed Fourth Amended and Restated JointPrepackaged Plan of Reorganization for the Debtors under Chapter 11 of the United StatesBankruptcy Code, attached as Exhibit D is information regarding unclaimed or undeliverablefunds that the Trust attempted to distribute./s/Alan R. Kahn, Managing TrusteeDII Industries, LLC Asbestos PI Trust/s/Mark M. Gleason, TrusteeDII Industries, LLC Asbestos PI Trust/s/Marcellene J. Malouf, TrusteeDII Industries, LLC Asbestos PI Trust6
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 1 of 20Exhibit ASpecial-Purpose Financial Statements withReport of Independent Auditors forYears Ended December 31, 2018 and 2017Desc
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 2 of 20DII INDUSTRIES, LLC ASBESTOS PI TRUSTSpecial-Purpose Financial StatementswithReport of Independent AuditorsYears Ended December 31, 2018 and 2017Desc
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 3 of 20DII INDUSTRIES, LLC ASBESTOS PI TRUSTDescTable of ContentsPageReport of Independent Auditors1-2Financial Statements:Special-Purpose Statements of Net Claimants’ Equity3Special-Purpose Statements of Changes in Net Claimants’ Equity4Special-Purpose Statements of Changes in Investments5Notes to Special-Purpose Financial Statements6 - 17
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 4 of 20DescREPORT OF INDEPENDENT AUDITORSTo the Trustees of theDII Industries, LLC Asbestos PI Trust15301 Dallas ParkwaySuite 960Addison, Texas 75001MAIN 214 545 3965FAX214 545 3966www.bkmsh.comWe have audited the accompanying special-purpose financial statements(Financial Statements) of the DII Industries, LLC Asbestos PI Trust (theTrust), which comprise the statements of net claimants’ equity as ofDecember 31, 2018 and 2017, and the related statements of changes in netclaimants’ equity and changes in investments for the years then ended, andthe related notes to the financial statements.Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of theFinancial Statements in accordance with the special-purpose accountingmethods adopted by the Trust and its Trustees, as described in Note 2.Management is also responsible for the design, implementation, andmaintenance of internal controls relevant to the preparation and fairpresentation of financial statements that are free from materialmisstatement, whether due to fraud or error.Auditor’s ResponsibilityOur responsibility is to express an opinion on the Financial Statements basedon our audits. We conducted our audits in accordance with auditingstandards generally accepted in the United States of America. Thosestandards require that we plan and perform the audits to obtain reasonableassurance about whether the Financial Statements are free from materialmisstatement.An audit involves performing procedures to obtain audit evidence about theamounts and disclosures in the Financial Statements. The proceduresselected depend on the auditor’s judgment, including the assessment of therisks of material misstatement of the Financial Statements, whether due tofraud or error. In making those risk assessments, the auditor considersinternal controls relevant to the Trust’s preparation and fair presentation ofthe Financial Statements in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Trust’s internal controls. Accordingly, weexpress no such opinion. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness ofsignificant accounting estimates made by management, as well as evaluatingthe overall presentation of the Financial Statements.
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 5 of 20DescWe believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our audit opinion.OpinionIn our opinion, the Financial Statements present fairly, in all material respects,the financial positions of the Trust as of December 31, 2018 and 2017; theresults of its operations; and the changes in its investments for the years thenended in conformity with the special-purpose method of accounting.Basis of AccountingWe draw attention to Note 2 of the Financial Statements, which describesthe method of accounting. The Financial Statements were prepared pursuantto a special-purpose method of accounting, which differs from accountingprinciples generally accepted in the United States of America. The Trust hasused the special-purpose method of accounting to communicate to itsbeneficiaries the net assets available for the payment of claims and the relatedoperating expenses. Our opinion is not modified with respect to this matter.Restriction of UseThis report is intended for the information and use of the Trustees,management of the Trust, and for filing with the United States BankruptcyCourt for Western District of Pennsylvania – Pittsburgh Division, and itshould not be used by anyone other than those specified parties. Thisrestriction is not intended to limit distribution of this report, which, uponfiling with the United States Bankruptcy Court for the Western District ofPennsylvania – Pittsburgh Division, is a matter of public record.April 17, 2019Addison, Texas
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 6 of 20DII INDUSTRIES, LLC ASBESTOS PI TRUSTDescSpecial-Purpose Statements of Net Claimants' EquityDecember 31,20182017ASSETSInvestments, at fair valueInvestment income receivable Prepaid expenses and other assetsProperty and equipment, netPrepaid income taxesTotal assetsLIABILITIESAccounts payable and accrued expensesSettled but unpaid claimsIncome tax payable1,697,011,14911,587,874 19,155,0685,945,446-1,511,464Deferred tax liability83,552,597127,742,638Total liabilities93,325,702135,817,309Net claimants' equity (Note 2) 1,625,020,621 See accompanying notes to special-purpose financial statements-3-1,887,827,233
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 7 of 20DII INDUSTRIES, LLC ASBESTOS PI TRUSTDescSpecial-Purpose Statements of Changes in Net Claimants' EquityYears ended December 31,20182017AdditionsInterest and dividend income, net Net realized gain on investments41,658,394 38,311,39742,821,49615,441,621Net unrealized gain on investments, netof investment fees and expenses-Income tax benefit29,709,014Total sNet unrealized loss on investments, netof investment fees and expenses(110,818,543)Asbestos claims payment 933)Operating and legal expensesIncome tax expense-Total deductionsIncrease (decrease) in net claimants' equityNet claimants' equity, beginning of yearNet claimants' equity, end of 6,612)31,437,0611,887,827,233 1,625,020,6211,856,390,172 See accompanying notes to special-purpose financial statements-4-1,887,827,233
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 8 of 20DII INDUSTRIES, LLC ASBESTOS PI TRUSTDescSpecial-Purpose Statements of Changes in InvestmentsYears ended December 31,20182017Investment inflowsInvestment income, includingnet realized gains Change in unrealized gains on investments82,728,911 -Total tment outflowsAsbestos claims paymentsOperating and legal paymentsChange in unrealized losses on investments(110,818,543)-Income taxes paid(25,475,000)(6,764,000)Total 38,988Net increase (decrease) in investmentsInvestments, beginning of yearInvestments, end of year2,008,991,789 1,697,011,1491,940,652,801 See accompanying notes to special-purpose financial statements-5-2,008,991,789
Case 03-35592-TPADoc 2951-1 Filed 04/26/19 Entered 04/26/19 13:11:46Exhibit A Page 9 of 20DII INDUSTRIES, LLC ASBESTOS PI TRUSTDescNotes to Special-Purpose Financial StatementsNote 1 - Description of the TrustGeneralThe Trust is a Pennsylvania common law trust and is a Qualified Settlement Fund within themeaning of Treasur
initiates arbitration within one (1) yearsix months of the Asbestos PI Trust’s offer of payment or rejection of the claim. Upon written request and good cause, the Asbestos PI Trust may extend the withdrawal or deferral period for an additional six months. IV. Trust Advisory Committee Fees,
