Honeywell 2002 Annual Report Download - page 137

approximately $2 billion of insurance remaining that can be specifically
allocated to NARCO-related liability.
On January 4, 2002, NARCO filed for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. As a result, all of the claims pending against NARCO are
automatically stayed pending the reorganization of NARCO. In addition, because
the claims pending against Honeywell necessarily will impact the liabilities of
NARCO, because the insurance policies held by Honeywell are essential to a
successful NARCO reorganization, and because Honeywell has offered to commit the
value of those policies to the reorganization, the bankruptcy court has
temporarily enjoined any claims against Honeywell, current or future, related to
NARCO. Although the stay has been extended eight times since January 4, 2002,
there is no assurance that such stay will remain in effect. In connection with
NARCO's bankruptcy filing, we paid NARCO's parent company $40 million and agreed
to provide NARCO with up to $20 million in financing. We also agreed to pay $20
million to NARCO's parent company upon the filing of a plan of reorganization
for NARCO acceptable to Honeywell, and to pay NARCO's parent company $40
million, and to forgive any outstanding NARCO indebtedness, upon the
confirmation and consummation of such a plan.
We are involved in ongoing negotiations with counsel representing more than
75% of the NARCO-related asbestos claimants regarding settlement of all pending
and potential NARCO-related asbestos claims against Honeywell. We believe that,
as part of the NARCO plan of reorganization, a trust will be established for the
benefit of all asbestos claimants, current and future. If the trust is put in
place and approved by the court as fair and equitable, Honeywell as well as
NARCO will be entitled to a permanent channeling injunction barring all present
and future individual actions in state or federal courts and requiring all
asbestos-related claims based on exposure to NARCO products to be made against
the federally-supervised trust. As part of its ongoing settlement negotiations,
Honeywell is seeking to cap its annual contributions to the trust with respect
to future claims at a level that would not have a material impact on Honeywell's
operating cash flows. Although there is no assurance that ongoing settlement
negotiations will be successfully completed or that a plan of reorganization
will be proposed or confirmed, the cost of securing a settlement which would
resolve all future, as well as all pending, NARCO-related asbestos claims could
exceed the value of our existing insurance and reserves plus the existing NARCO
assets. While any such settlement could have a material adverse impact on our
consolidated operating results or operating cash flows in the periods recognized
or paid, we do not believe that it would have a material adverse impact on our
consolidated financial position.
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