Honeywell 2013 Annual Report Download - page 114

asbestos claimants whose claims were fully resolved during the pendency of the NARCO bankruptcy
proceedings.
Honeywell is obligated to fund NARCO asbestos claims submitted to the trust which qualify for
payment under the Trust Distribution Procedures, subject to annual caps of $140 million in the years
2014 through 2018 and $145 million for each year thereafter, 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.
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 ($91 million of which was
paid during 2013) 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 which
remained in place throughout NARCO’s Chapter 11 case, 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 estimating 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 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 estimated liability for pending and future NARCO
asbestos claims reflects coverage which reimburses Honeywell for portions of NARCO-related
indemnity and defense costs and is provided by a large number of insurance policies written by dozens
of insurance companies in both the domestic insurance market and the London excess market. We
conduct analyses to determine the amount of insurance that we estimate is probable of recovery in
relation to payment of current and estimated future claims. While the substantial majority of our
insurance carriers are solvent, some of our individual carriers are insolvent, which has been considered
in our analysis of probable recoveries. We made judgments concerning insurance coverage that we
believe are reasonable and consistent with our historical dealings and our knowledge of any pertinent
solvency issues surrounding insurers.
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HONEYWELL INTERNATIONAL INC.
NOTES TO FINANCIAL STATEMENTS—(Continued)
(Dollars in millions, except per share amounts)