Honeywell 2004 Annual Report Download - page 97

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
Given the scope and complexity of this project, it is possible that actual costs could exceed estimated costs by an amount that could
have a material adverse impact on our consolidated results of operations and operating cash flows in the periods recognized or paid. At
this time, however, we cannot identify any legal, regulatory or technical reason to conclude that a specific alternative outcome is more
probable than the outcome for which we have made provisions in our financial statements.
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. Products containing asbestos previously
manufactured by Honeywell or by previously owned subsidiaries fall into two general categories; refractory products and friction
products.
Refractory Products—Honeywell owned North American Refractories Company (NARCO) from 1979 to 1986. NARCO
produced refractory products (high temperature bricks and cement) which were sold largely to the steel industry in the East and
Midwest. Less than 2 percent of NARCO's products contained asbestos.
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. 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, except one claim which is not material as to which the stay was lifted in August 2003. Although
the stay has remained in effect continuously 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 anticipated current claimants who are expected to file a claim as part of the
NARCO reorganization process. We are also in discussions with the NARCO Committee of Asbestos Creditors and the Court-
appointed legal representative for future asbestos claimants 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
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