Honeywell 2011 Annual Report Download - page 94

continuously remained in place. In November 2007, the U.S. Bankruptcy Court for the Western District of Pennsylvania confirmed NARCO's Third Amended
Plan of Reorganization (NARCO Plan of Reorganization). All challenges to the NARCO Plan of Reorganization were fully resolved in the third quarter of
2010. The NARCO Plan of Reorganization cannot become effective, however, until unrelated issues pertaining to certain NARCO affiliates which are
pending in Bankruptcy Court are resolved. It is not possible to predict the timing or outcome of the Bankruptcy Court proceedings in the affiliates' case or
whether discussions between the parties will resolve the matter. We expect that the stay enjoining litigation against NARCO and Honeywell will remain in
effect until the effective date of the NARCO Plan of Reorganization.
In connection with NARCO's bankruptcy filing, we agreed to certain obligations which will be triggered upon the effective date of the NARCO Plan of
Reorganization. Honeywell will provide NARCO with $20 million in financing and simultaneously forgive such indebtedness. We will also pay $40 million
to NARCO's former parent company and $16 million to certain asbestos claimants whose claims were resolved during the pendency of the NARCO
bankruptcy proceedings. These amounts have been classified as Accrued Liabilities in the Consolidated Balance Sheet as of December 31, 2011.
When the NARCO Plan of Reorganization becomes effective, in connection with its implementation, a federally authorized 524(g) trust ("NARCO
Trust") will be established for the evaluation and resolution of all existing and future NARCO asbestos claims. When the NARCO Trust is established, both
Honeywell and 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 Trust. The NARCO Trust will review submitted claims
and determine award amounts in accordance with established Trust Distribution Procedures approved by the Bankruptcy Court which set forth all criteria
claimants must meet to qualify for compensation including, among other things, exposure and medical criteria that determine the award amount.
Once the NARCO Trust is established and operational, Honeywell will be obligated to fund NARCO asbestos claims submitted to the trust which
qualify for payment under the Trust Distribution Procedures, subject to annual caps up to $150 million in any year, provided, however, that the first $100
million of claims processed through the NARCO Trust (the "Initial Claims Amount") will not count against the first year annual cap and any unused portion
of the Initial Claims Amount will roll over to subsequent years until fully utilized.
Once the NARCO Trust is established and operational, Honeywell will also be responsible for the following funding obligations which are not subject
to the annual cap described above: a) previously approved payments due to claimants pursuant to settlement agreements reached during the pendency of the
NARCO bankruptcy proceedings which provide that a portion of these settlements is to be paid by the NARCO Trust, which amounts are estimated at $130
million and are expected to be paid during the first year of trust operations and, b) payments due to claimants pursuant to settlement agreements reached
during the pendency of the NARCO bankruptcy proceedings that provide for the right to submit claims to the NARCO Trust subject to qualification under the
terms of the settlement agreements and Trust Distribution Procedures criteria, which amounts are estimated at $150 million and are expected to be paid during
the first two years of trust operations.
Our consolidated financial statements reflect an estimated liability for the amounts discussed above, unsettled claims pending as of the time NARCO
filed for bankruptcy protection and for the estimated value of future NARCO asbestos claims expected to be asserted against the NARCO Trust through 2018.
In light of the uncertainties inherent in making long-term projections and in connection with the initial operation of a 524(g) trust, as well as the stay of all
NARCO asbestos claims since January 2002, we do not believe that we have a reasonable basis for estimating NARCO asbestos claims beyond 2018. In the
absence of actual trust experience on which to base the estimate, Honeywell projected the probable value, including trust claim handling costs, of asbestos
related future liabilities based on Company specific and general asbestos claims filing rates, expected rates of disease and anticipated claim values.
Specifically, the valuation methodology included 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 asbestos claims filing history, general asbestos claims filing
rates in the tort system and in certain operating asbestos trusts, and the claims experience in those forums, the pending inventory of NARCO asbestos claims,
disease criteria and payment values contained in the Trust Distribution Procedures and an estimated approval rate of claims submitted to the NARCO Trust.
This methodology used to estimate the liability for future claims has been commonly accepted by numerous bankruptcy courts addressing 524(g) trusts and
resulted in a range of estimated liability for future claims of $743 to $961 million. We believe that no amount within this range is a better estimate than any
other amount and accordingly, we have recorded the minimum amount in the range.
Our insurance receivable corresponding to the liability for settlement of pending and future NARCO asbestos claims reflects coverage which
reimburses Honeywell for portions of the costs incurred to settle NARCO
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