Honeywell 2005 Annual Report Download - page 103

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
both the filing and prosecution of NARCO-related asbestos claims against Honeywell. 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 (which amount was paid in December 2005 following the filing of NARCO's Third Amended Plan of Reorganization), and
to pay NARCO's parent company $40 million, and to forgive any outstanding NARCO indebtedness, upon the confirmation and
consummation, respectively, of such a plan.
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, pursuant to Trust Distribution Procedures negotiated with the NARCO Committee of Asbestos Creditors and the
Court-appointed legal representative for future asbestos claimants. 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. Honeywell has reached agreement with the representative for future NARCO claimants and the
Asbestos Claimants Committee 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. The Court approved NARCO's Disclosure Statement for its Third Amended
Plan of Reorganization in late January 2006. NARCO is in the process of distributing this Disclosure Statement to creditors for voting,
which will close March 31, 2006. The Court has scheduled NARCO's confirmation hearing to begin in June 2006. Although we expect
the NARCO plan of reorganization and the NARCO trust to be ultimately approved by the Court, no assurances can be given as to the
Court's ruling or the time frame for resolving any appeals of such ruling.
Our consolidated financial statements reflect an estimated liability for settlement of pending and future NARCO-related asbestos
claims of $1.8 and $2.4 billion as of December 31, 2005 and 2004, respectively. The estimated liability for current claims is based on
terms and conditions, including evidentiary requirements, in definitive agreements with approximately 260,000 current claimants.
Substantially all settlement payments with respect to current claims are expected to be made by the end of 2007. Approximately $90
million of payments due pursuant to these settlements is due only upon establishment of the NARCO trust.
The estimated liability for future claims represents the estimated value of future asbestos related bodily injury claims expected to
be asserted against NARCO through 2018 and the aforementioned obligations to NARCO's parent. The estimate is based upon the
disease criteria and payment values contained in the NARCO Trust Distribution Procedures negotiated with the NARCO Asbestos
Claimants Committee and the NARCO future claimants' representative. In light of the uncertainties inherent in making long-term
projections we do not believe that we have a reasonable basis for estimating asbestos claims beyond 2018 under Statement of
Financial Accounting Standards No. 5. Honeywell retained the expert services of Hamilton, Rabinovitz and Alschuler, Inc. (HR&A)
to project the probable number and value, including trust claim handling costs, of asbestos related future liabilities based upon
historical experience with similar trusts. The methodology used to estimate the liability for future claims has been commonly accepted
by numerous courts and is the same methodology that is utilized by an expert who is routinely retained by the asbestos claimants
committee in asbestos related bankruptcies. The valuation methodology includes an analysis of the population likely to have been
exposed to asbestos containing products, epidemiological studies to estimate the number of people likely to develop asbestos related
diseases, NARCO claims filing history, the pending
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