Honeywell 2009 Annual Report Download - page 121

HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)
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 primarily 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) that 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. 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. The stay has remained in effect continuously
since January 4, 2002. 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 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
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.
In November 2007, the Bankruptcy Court entered an amended order confirming the NARCO Plan without
modification and approving the 524(g) trust and channeling injunction in favor of NARCO and Honeywell. In
December 2007, certain insurers filed an appeal of the Bankruptcy Court Order in the United States District Court
for the Western District of Pennsylvania. The District Court affirmed the Bankruptcy Court Order in July 2008. In
August 2008, insurers filed a notice of appeal to the Third Circuit Court of Appeals. The appeal is fully briefed,
oral argument took place on May 21, 2009, and the matter has been submitted for decision. We expect that the
stay enjoining litigation against NARCO and Honeywell will remain in effect during the pendency of these
proceedings.
Our consolidated financial statements reflect an estimated liability for settlement of pending and future
NARCO-related asbestos claims as of December 31, 2009 and 2008 of $1.1 billion. 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
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