BDO Knowledge Webinar Recovering from Deepwater Horizon

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BDO Knowledge Webinar Recovering from Deepwater Horizon

BDO Consulting, a division of BDO USA, LLPClark Schweers, Principal

Rogers & Hardin LLPJeffrey W. Willis, Partner

Wednesday, April 9, 2014

BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

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every week. A copy of your certificate will be sent after you have been issued credit.• Clients and Contacts and all other individual participants ‒ You will be emailed instructions on how

to access your certificate.

Deepwater Horizon – Settlement & Recovery Issues2

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CPE and Support (Continued)Group Participation ‒ To receive credit:• Sign-in sheets must list a Proctor name and CPA license number.• Clients and contacts ‒ Email sign-in sheets to [email protected] within 24 hours of the webcast.• BDO USA professionals ‒ Submit your sign-in sheets using a General Training & Development Request in

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Professional BiographyClark Schweers, CFE

EXPERIENCE SUMMARY

Clark Schweers leads the firm’s Insurance Claim Services practice with more than 15 years of experience advising clients on complex property and business interruption claims for insured businesses. Mr. Schweers has assisted Fortune 1000 and mid-market companies in preparing and analyzing complex insurance claims relating to losses from catastrophic events. Having worked closely with senior corporate executives to devise strategies for timely and successful claims resolution, he has conducted extensive work on international losses, leading engagements encompassing more than $1 billion dollars in recoveries.

Mr. Schweers is an accomplished practitioner in the assessment of incurred property damage losses and conditional risks associated with business interruption, and has significant experience in the consumer products and retail, chemical, hospitality, manufacturing, real estate, financial services, automotive and technology industries.

Mr. Schweers has been quoted and published on insurance claims and business interruption topics in several national and industry publications, including CNBC, the Journal of Accountancy, Business Insurance, Treasury & Risk, and Property Casualty 360. Prior to joining BDO, Mr. Schweers was a Senior Manager at Ernst & Young, where he advised clients on complex business interruption and property damage claims, construction damage and fraud investigation matters.

PROFESSIONAL AFFILIATIONS

American Bar Association – Associate MemberAssociation of Certified Fraud ExaminersRisk and Insurance Management Society – Associate Member

EDUCATION

Executive MBA Programs, Competitive Strategy, Kellogg School of Business, Northwestern UniversityB.S., Business Administration, University of Richmond


[email protected]

Direct: 301-634-0281Mobile: 703-898-8703

700 12th Street NWSuite 700Washington, DC 20005

www.bdoconsulting.com

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Professional BiographyJeffrey W. Willis ― Rogers & Hardin LLP

EXPERIENCE SUMMARY

Jeff Willis is a partner in Rogers & Hardin’s litigation group. His practice is focused on representing clients in complex business litigation, regulatory and enforcement matters, and a broad range of other commercial disputes. Mr. Willis is recognized as a "Georgia Super Lawyer" and is listed in The Best Lawyers in America.

Mr. Willis has experience in a variety of complex litigation, including lawsuits and arbitrations against broker-dealers and other financial institutions; securities class actions; litigation of contract, unfair competition and trade secret claims; employment claims; the defense of qui tam proceedings; and the representation of public companies and individuals in investigations and enforcement actions brought by the SEC, self-regulatory organizations, and securities regulators of numerous states.

Mr. Willis also leads the firm's Deepwater Horizon Class Action Settlement group, supporting business clients in the filing of their claims to the fund. He has spoken nationally on the claims process and is recognized as an authority on the subject. The firm currently represents over forty Fortune 500 companies and eight Fortune 100 companies in the filing of their claims.

PROFESSIONAL AFFILIATIONS

Member, American Bar Association and the ABA’s Committee on Broker-Dealer Litigation, and the Securities Industry Association Compliance & Legal Division.Former Chairman of the Elections Committee of the Atlanta Bar Association and recipient of their 2007 Distinguished Service Award

EDUCATION

J.D., Vanderbilt University Law School, Executive Editor, Vanderbilt Law Review; Moot Court BoardB.A., magna cum laude, University of the South, Phi Beta Kappa; Guerry Award for English


[email protected]

Direct: 404-420-4619

2700 International Tower220 Peachtree St NEAtlanta, GA 30303

www.rh-law.com

Learning Objectives

Upon completion of this course participants will be able to:

• Name the benefits associated with filing a claim related to the 2010 Gulf oil spill

• Describe legal measures that provide organizations with confidentiality safeguards

• Interpret key areas that can impact claim value determinations• Recall frequently overlooked claim types (Modified V and Decline Only)• Recognize legal developments affecting the claims process and corresponding

deadlines

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Agenda

1. Background & Claims Process Overview

2. Claim Eligibility

3. Model & Calculations

4. Overlooked Claim Types

5. Legal Update and Filing Deadline

6. Filing Decision Tree


On April 20, 2010, the Deepwater Horizon oil rig exploded, causing millions of gallons of oil to spill into the Gulf of Mexico for nearly three months, resulting in the largest offshore oil spill in U.S. history. The economic impact to businesses along the Gulf Coast was devastating, affecting a variety of different industries across numerous states.

Several lawsuits were filed against BP PLC and other defendants and were consolidated before the U.S. District Court for the Eastern District of Louisiana in August 2010. In March 2012, BP PLC reached a Settlement with attorneys representing the victims of the disaster. As part of the Settlement Agreement between the parties, a Court-Supervised Settlement Program has been created to review and pay qualified claims made by individuals and companies for economic damages resulting from the spill.

BP PLC has estimated the total costs of the Settlement will be approximately $9.6 billion. However, under the terms of the Agreement, there is no limit on the total settlement amount and total compensation to victims which will depend on the number and magnitude of qualified claims submitted.


Deepwater Horizon Oil Spill Background

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Claims Process OverviewIneligible/Eligible Industries

Claimants in most industries are eligible to submit claims. However, the following industries are precluded from submitting claims under the terms of the Settlement Agreement:

Financial Institutions

Fund, Financial Trust, or other Financial Vehicle

Gaming

Insurance

Oil and Gas Industry

Defense Contractor or Subcontractor

Real Estate Development

Selling or marketing BP-branded fuel


Types of Clients Benefiting Most

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Gas Stations, Convenience Stores & Drug

Stores

Lodging, Transportation

& Touring

Big Box & Other Retailers

Manufacturing & Construction

Beverage Makers & Bottlers

Distributors: Food and Industrial

Service Businesses

Deepwater Horizon – Settlement & Recovery Issues

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Claims Process OverviewEconomic Loss Zone Locations

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Qualify with:

• Full-time employees

• Facility

• Vessel


Which Zone: A, C, or D?


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Causation Proof for V-Test

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Zone A• No Causation Required

Zone B,C

• 8.5% Decline & 5% Recovery• No causation required for Zone B if in Tourism

Zone D• 15% Decline & 10% Recovery


Causation Proof for Modified V-Test

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Zone B,C

• 5% Decline & 5% Recovery and either 10% Decline in Non-Local Customer Sales or 10% Decline in Customer Sales Located in Zones A-C

Zone D

• 10% Decline & 7% Recovery and Same Sales Criteria as Zones B and C


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Causation Proof for Decline-Only

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Zone B,C

• 8.5% Decline and Specific Documentation Identifying Factors Outside the Control of Claimant* that Prevented Recovery of Revenues in 2011 and Either 10% Decline in Non-Local Customer Sales or 10% Decline in Customer Sales Located in Zones A-C

Zone D

D

• 15% Decline and Same Sales Criteria as Zones B and C

*Examples of Factors Outside Control: Entry of Competitor, Bankruptcy of Significant Customer in, Nearby Road Closures Affecting Business, etc.


Compensation Framework

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Step 3: Apply Risk Transfer Premium

Step 2: Compensation

Apply lost growth potential, as applicable

Step 1: Compensation

3-8 month damages period loss compared to same 3-8 month benchmark period Deduct variable expenses


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Claims ProcessCompensation

RTP CompensationClaimants are also eligible for RTP compensation. The RTP compensation factor is determined by zone and industry.


Zone Tourism RTP Non-Tourism RTP

A 2.5 1.5

B 2.0 1.25

C 2.0 0.25

D 1.25 0.25

Claims ProcessCompensation: Step One Compensation Example


Description July August September October November

Benchmark Revenue 1,000,000$ 1,300,000$ 1,200,000$ 1,500,000$ 1,400,000$

Benchmark Variable Expenses (300,000) (360,000) (310,000) (380,000) (370,000)

Benchmark Variable Payroll ‐ (40,000) (30,000) (50,000) (45,000)

Benchmark Variable Profit 700,000$ 900,000$ 860,000$ 1,070,000$ 985,000$

2010 Revenue 800,000$ 1,050,000$ 1,300,000$ 1,100,000$ 1,200,000$

2010 Variable Expenses (250,000) (360,000) (325,000) (305,000) (320,000)

2010 Variable Payroll ‐ (30,000) (35,000) (37,000) (28,000)

2010 Variable Profit 550,000$ 660,000$ 940,000$ 758,000$ 852,000$

Difference in Variable Profit 150,000$ 240,000$ (80,000)$ 312,000$ 133,000$

Total Step One Compensation 755,000$

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Claims ProcessCompensation: Step Two Compensation Application of Adjustment Factor Example


Description Amount

Benchmark Revenue May ‐ Oct 3,500,000$

Benchmark Revenue June ‐ Nov 3,700,000

Benchmark Revenue July ‐ Dec 3,900,000

Selected Benchmark Revenue 3,900,000$

Step 2 Adjustment Factor 12%

Incremental Revenue 468,000$

Benchmark Variable Profit Margin 80%

Step 2 Compensation 374,400$

Claims ProcessCompensation: RTP Compensation Example


Description Amount

Step One Compensation 755,000$

Step Two Compensation 374,400

Step One + Step Two 1,129,400$

RTP 2.0

RTP Compensation 2,258,800$

TOTAL COMPENSATION 3,388,200$

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Step One Compensation – Fixed Expenses


Fixed Expenses

Advertising Expense Insurance Renovation Expense

Auto Expense Interest Expense Rental Expense

Bank Charges Lease Expense Retirement Expense

Cleaning & Housekeeping Licenses & Taxes Security Services

COGS - Fixed Maintenance Storage Expense

Computer & Internet Misc Expense Supplies

Contract Services Overhead Unemployment Tax

Dues & Subscriptions Postage Uniforms

Fees Professional Services Utilities

Franchise Fees Fixed Property Taxes


Step One Compensation – Variable Expenses


Variable Expenses

Bad Debt Expense Franchise Fees - Variable

COGS - Variable Freight

Commissions Fuel Expense

Consumable Goods Inventory Adjustment

Contract Labor Repairs (Excl. Maintenance)

Credit Card Fees Sales/Lodging Tax

Discounts & Rebates Training & Education

Donations / Contributions Travel & Entertainment

Drug Testing

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Causation Proof for Modified V-Test

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Zone B,C

• 5% Decline & 5% Recovery and either 10% Decline in Non-Local Customer Sales or 10% Decline in Customer Sales Located in Zones A-C

Zone D

• 10% Decline & 7% Recovery and Same Sales Criteria as Zones B and C


Causation Proof for Decline-Only

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Zone B,C

• 8.5% Decline and Specific Documentation Identifying Factors Outside the Control of Claimant* that Prevented Recovery of Revenues in 2011 and Either 10% Decline in Non-Local Customer Sales or 10% Decline in Customer Sales Located in Zones A-C

Zone D

• 15% Decline and Same Sales Criteria as Zones B and C


*Examples of Factors Outside Control: Entry of Competitor, Bankruptcy of Significant Customer in, Nearby Road Closures Affecting Business, etc.

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Customer Mix TestsModified V-Test and Decline-Only Claims

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Causation Standards Affirmed in the Courts

• U.S. Court of Appeals affirms that where objective revenue tests are met, Claims Administrator will not consider other possible causes of the loss.

BEL Appeal

• U.S. Court of Appeals affirms that the Settlement’s causation standards and the Settlement as a whole are constitutional.

Certification Appeal

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BP has filed a petition for rehearing of both decisions.


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Deadline for Filing Claims

Six-month countdown

begins running when

triggered

90 days after U.S. Court of Appeals decision in Certification Appeal becomes final

Upon the conclusion of any review by the U.S. Supreme Court

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OR

Claims Submissions

Closed

Timing would change if the event rehearing is granted in the U.S. Court of Appeals and the decision in Certification Appeal is overturned.


Responsibilities

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Company

Assemble financial information

Answer questions from service providers

Assemble documents filed with claims

BDO/Rogers & Hardin

Calculate potential claim value

Manage entire claims process

Manage entire appeals process (if necessary)


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Why Are Companies Filing Claims?


1 Opportunity to contribute revenue with minimal effort

2 Turn cost center into a profit center

3 Fiduciary duty to shareholders

4 Competition benefiting

Conclusions

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• Listing of locations within Louisiana, Mississippi, Alabama, Texas, and Florida

• Monthly revenue financials for January 2007 to December 2011

It is that simple to understand if you qualify for the settlement fund and the directional magnitude of your recovery

There are also multiple resources available to answer questions and help you navigate your claim

Clark Schweers Partner, BDO Consulting

[email protected]

Direct: 301-634-0281

Jeff WillisPartner, Rogers & Hardin LLP

[email protected]

Direct: 404-420-4619

How do I know if I qualify for reimbursement? What do I need to get started?


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Evaluation

We continually try and improve our programming and appreciate constructive feedback.

Following the program, we will be sending out a thank you e-mail that contains a link to a brief evaluation.

Thank you in advance for your participation!


Thank You for Your Participation!

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Group Participation Reminder – to receive credit:• Sign-in sheets must list a Proctor name and CPA license number.• Clients and Contacts – email sign-in sheets to [email protected] within 24 hours of the webcast.• BDO USA professionals ‒ Submit your sign-in sheets using BDO Service Now.• Alliance Firm Members – Should proctor their own group participants. This process is detailed in the LearnLive Participant Guide on Alliance Portal > Resource Center. Call LearnLive Support for questions – 1-888-228-4088.• International Firm Members - Unfortunately, we cannot currently support group CPE for International Firms. Those requesting CPE must have registered and participated from their own computer.

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BDO Knowledge Webinar Recovering from Deepwater Horizon

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