Honeywell 2003 Annual Report Download - page 272

Bendix Friction Materials (Bendix) business, with the exception of certain U.S.
based assets. In exchange, Honeywell would receive a permanent channeling
injunction shielding it from all current and future personal injury asbestos
liabilities related to Honeywell's Bendix business.
Federal-Mogul, its U.S. subsidiaries and certain of its United Kingdom
subsidiaries voluntarily filed for financial restructuring under Chapter 11 of
the U.S. Bankruptcy Code in October 2001. Federal-Mogul will seek to establish
one or more trusts under Section 524(g) of the U.S. Bankruptcy Code as part of
its reorganization plan, including a trust for the benefit of Bendix asbestos
claimants. The reorganization plan to be submitted to the Bankruptcy Court for
approval will contemplate that the U.S. Bankruptcy Court in Delaware would issue
an injunction in favor of Honeywell that would channel to the Bendix 524(g)
trust all present and future asbestos claims relating to Honeywell's Bendix
business. The 524(g) trust created for the benefit of the Bendix claimants would
receive the rights to proceeds from Honeywell's Bendix related insurance
policies and would make these proceeds available to the Bendix claimants.
Honeywell would have no obligation to contribute any additional amounts toward
the settlement or resolution of Bendix related asbestos claims.
In the fourth quarter of 2002, we recorded a charge of $167 million
consisting of a $131 million reserve for the sale of Bendix to Federal-Mogul,
our estimate of asbestos related liability net of insurance recoveries and costs
to complete the anticipated transaction with Federal-Mogul. Completion of the
transaction contemplated by the LOI is subject to the negotiation of definitive
agreements, the confirmation of Federal-Mogul's plan of reorganization by the
Bankruptcy Court, the issuance of a final, non-appealable 524(g) channeling
injunction permanently enjoining any Bendix related asbestos claims against
Honeywell, and the receipt of all required governmental approvals. We do not
believe that completion of such transaction as contemplated under the LOI would
have a material adverse impact on our consolidated results of operations or
financial position.
During the third quarter of 2003, DaimlerChrysler AG, Ford Motor Co. and
General Motors Corp. filed a lawsuit in the U.S. Bankruptcy Court, against
Honeywell and Federal-Mogul seeking a declaration that Honeywell's Bendix unit
cannot be sold to Federal-Mogul and receive protection from asbestos claims
under Section 524(g) of the U.S. Bankruptcy Code. Honeywell believes the lawsuit
is without merit and intends to vigorously defend against the allegations in the
complaint.
There can be no assurance, however, that the transaction contemplated by
the LOI will be completed. Honeywell presently has approximately $1.9 billion of
insurance coverage remaining with respect to Bendix related asbestos claims.
Although it is impossible to predict the outcome of pending or future claims, in
light of our potential exposure, our prior experience in resolving these claims,
and our insurance coverage, we do not believe that the Bendix related asbestos
claims will have a material adverse effect on our consolidated financial
position.
Another source of claims is refractory products (high temperature bricks
and cement) sold largely to the steel industry in the East and Midwest by North
American Refractories Company (NARCO), a business we owned from 1979 to 1986.
Less than 2 percent of NARCO's products contained asbestos.
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