Honeywell 2003 Annual Report Download - page 147

for a stay of certain aspects of its May 2003 order, and we are considering
whether to appeal such ruling. The site at issue is one of twenty-one sites
located in Jersey City, New Jersey which are the subject of an Administrative
Consent Order (ACO) entered into with the New Jersey Department of Environmental
Protection (NJDEP) in 1993. Under the ACO, Honeywell agreed to study and
remediate these sites in accordance with NJDEP's directions, provided that the
total costs of such studies and remediation do not exceed $60 million. Honeywell
has cooperated with the NJDEP under the ACO and believes that decisions
regarding site cleanups should be made by NJDEP under the ACO. We are confident
that proceeding under the ACO will ensure a safe remediation and allow the
property to be placed back into productive use much faster and at a cost
significantly less than the remedies required by the court's order. We have not
completed development of a remedial action plan for the excavation and offsite
disposal directed under the court's order and therefore are unable to estimate
the cost of such actions. At trial, plaintiff's expert testified that the
excavation and offsite disposal cost might be $400 million. However, there are
significant variables in the implementation of the court's order and depending
on the method of implementation chosen, the estimate could increase or decrease.
Provisions have been previously made in our financial statements as to remedial
costs consistent with the ACO and during the three months ended June 30, 2003 we
provided for additional costs which are likely to be incurred during the
pendency of our appeal, which provisions do not assume excavation and offsite
removal of chromium from the site. There are alternative outcomes and remedies
beyond the scope of the ACO that could result from the remanding, reversal or
replacement of the Court's decision and order. At this time, we can neither
identify a probable alternative outcome nor reasonably estimate the cost of an
alternative remedy. Although we expect the court's decision and order to be
remanded, reversed or replaced, should the remedies prescribed in the court's
decision and order ultimately be upheld, such outcome could have a material
adverse impact on our consolidated results of operations or operating cash flows
in the periods recognized or paid.
ASBESTOS MATTERS - Like many other industrial companies, Honeywell is a
defendant in personal injury actions related to asbestos. We did not mine or
produce asbestos, nor did we make or sell insulation products or other
construction materials that have been identified as the primary cause of
asbestos related disease in the vast majority of claimants. Rather, we made
several products that contained small amounts of asbestos.
Honeywell's Bendix Friction Materials business manufactured automotive
brake pads that included asbestos in an encapsulated form. There is a group of
potential claimants consisting largely of professional brake mechanics. From
1981 through September 30, 2003, we have resolved about 62,500 Bendix claims at
an average indemnity cost per claim of approximately two thousand nine hundred
dollars. Through the second quarter of 2002, Honeywell had no out-of-pocket
costs for these cases since its insurance deductible was satisfied many years
ago. Beginning with claim payments made in the third quarter of 2002, Honeywell
began advancing indemnity and defense claim costs that amounted to approximately
$75 million in payments in the nine months ended September 30, 2003. A
substantial portion of this amount is expected to be reimbursed by insurance.
There are currently approximately 71,000 claims pending.
On January 30, 2003, Honeywell and Federal-Mogul Corp. (Federal-Mogul)
entered into a letter of intent (LOI) pursuant to which Federal-Mogul would
acquire Honeywell's automotive
3