Honeywell 2004 Annual Report Download - page 217

When we sold the NARCO business in 1986, we agreed to indemnify
NARCO with respect to personal injury claims for products that had been
discontinued prior to the sale (as defined in the sale agreement). NARCO
retained all liability for all other claims. NARCO had resolved approximately
176,000 claims through January 4, 2002, the date NARCO filed for reorganization
under Chapter 11 of the U.S. Bankruptcy Code, at an average cost per claim of
two thousand two hundred dollars. Of those claims, 43 percent were dismissed on
the ground that there was insufficient evidence that NARCO was responsible for
the claimant's asbestos exposure. As of the date of NARCO's bankruptcy filing,
there were approximately 116,000 remaining claims pending against NARCO,
including approximately 7 percent in which Honeywell was also named as a
defendant. Since 1983, Honeywell and our insurers have contributed to the
defense and settlement costs associated with NARCO claims.
As a result of the NARCO bankruptcy filing, all of the claims
pending against NARCO are automatically stayed pending the reorganization of
NARCO, except one claim which is not material as to which the stay was lifted in
August 2003. 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 twenty-nine 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.
As a result of negotiations with counsel representing NARCO related
asbestos claimants regarding settlement of all pending and potential NARCO
related asbestos claims against Honeywell, we have reached definitive agreements
with approximately 260,000 claimants, which represents in excess of 90 percent
of the approximately 275,000 current claimants who are now expected to file a
claim as part of the NARCO reorganization process. We are also in discussions
with the NARCO Committee of Asbestos Creditors on Trust Distribution Procedures
for NARCO. We believe that, as part of the NARCO plan of reorganization, a trust
will be established pursuant to these Trust Distribution Procedures 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. We expect the NARCO plan of reorganization and
the NARCO trust to be approved by the Court in 2004. As part of its ongoing
settlement negotiations, Honeywell has reached agreement in principle with the
representative for future NARCO claimants 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. Given the substantial progress of
negotiations between Honeywell and NARCO related asbestos claimants and between
Honeywell and the Committee of Asbestos Creditors during the fourth quarter of
2002, Honeywell developed an estimated liability for settlement of pending and
future asbestos claims
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