Honeywell 2012 Annual Report Download - page 106

NARCO Products—On January 4, 2002, NARCO filed a petition for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. In connection with the filing of NARCO’s petition in 2002, the
U.S. Bankruptcy Court for the Western District of Pennsylvania (“the Bankruptcy Court”) issued an
injunction staying the prosecution of NARCO-related asbestos claims against the Company, which stay
has continuously remained in place. In November 2007, the Bankruptcy Court 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 the Plan of Reorganization of certain NARCO
affiliates, which is pending in Bankruptcy Court, is confirmed and then affirmed by the District Court. It
is not possible to predict the timing or outcome of the Bankruptcy and District Court proceedings in the
affiliates’ case. 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 are
expected to be paid during the first year of trust operations.
When the NARCO Plan of Reorganization becomes effective, in connection with its implementa-
tion, 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
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HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)