Honeywell 2006 Annual Report Download - page 106

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
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. On
January 4, 2002, NARCO filed for reorganization under Chapter 11 of the U.S Bankruptcy Code.
As a result of the NARCO bankruptcy filing, all of the claims pending against NARCO are automatically stayed pending the
reorganization of NARCO. In addition, the bankruptcy court enjoined 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 to Honeywell, upon the effective date of the plan of reorganization.
We believe that, as part of 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 Asbestos Claimants Committee 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 vast majority of the asbestos claimants have voted in favor of NARCO's Third Amended Plan Of Reorganization (NARCO
Plan). The court conducted its evidentiary hearing on confirmation issues on June 5 and 6, 2006. All objections to the NARCO Plan
have either been resolved or dismissed by the Bankruptcy Court. The Court's confirmation order for the NARCO Plan may be
delayed, however, due to additional evidentiary requirements relating to the confirmation of a plan of reorganization for one of
NARCO's affiliates. Although we expect the NARCO Plan 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 as of December 31, 2006 and 2005 of $1.3 and $1.8 billion, respectively. The estimated liability for pending claims is based on
terms and conditions, including evidentiary requirements, in definitive agreements with approximately 260,000 current claimants, and
an estimate of the unsettled claims pending as of the time NARCO filed for bankruptcy protection. Substantially all settlement
payments with respect to current claims are expected to be completed 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. 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
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