ITEM 1.01 Other
Events.
This disclosure updates disclosure previously made by Honeywell
International Inc. (“Honeywell”) in Note 14 to the unaudited
Consolidated Financial Statements (“Note 14”) set forth in
Honeywell’s Quarterly Report on Form 10-Q for the period ended
September 30, 2022 and filed with the Securities and Exchange
Commission on October 27, 2022 (the “Form 10-Q”). Capitalized terms used but not
defined herein shall have the meaning given to them in the Form
10-Q.
On November 18, 2022, Honeywell entered into a definitive
agreement (the “Buyout Agreement”) with the North American
Refractories Asbestos Personal Injury Settlement Trust (the
“Trust”), providing for the elimination of Honeywell’s funding
obligations to the Trust.
Subject to the terms of the Buyout Agreement (including the
satisfaction of the conditions noted below), Honeywell will make a
one-time, lump sum payment
in the amount of $1.325 billion (subject to adjustment as
described in the Buyout Agreement) (the “Buyout Amount”) to the
Trust in exchange for the release by the Trust of Honeywell from
all further and future obligations of any kind related to the Trust
and/or any claimants who were exposed to asbestos-containing
products manufactured, sold or distributed by North American
Refractories Company (“NARCO”) or its predecessors, including
Honeywell’s ongoing evergreen obligation to fund (i) claims
against the Trust, which comprise Honeywell’s NARCO
asbestos-related claims liability, and (ii) the Trust’s annual
operating expenses, including its legal fees (which operating
expenses, for reference, were approximately $21 million in
2021) (such evergreen obligations referred to in (i) and (ii),
the “Honeywell Obligations”). Following the consummation of the
foregoing transactions (the “Buyout Closing”), Honeywell will have
limited obligations to the Trust as set forth in the Buyout
Agreement and the Existing Confidentiality Agreement (as defined in
the Buyout Agreement).
The Buyout Closing is subject to the satisfaction of certain
conditions, including a final order from the United States
Bankruptcy Court for the Western District of Pennsylvania (the
“Bankruptcy Court”) that (A) approves the Buyout Agreement,
and (B) declares that the NARCO Channeling Injunction (which
bars all present and future individual actions in state or federal
courts based on exposure to NARCO asbestos-containing products and
requires all such claims to be made against the Trust) will remain
in full force and effect without modification. The Buyout Closing
is also subject to the NARCO Trust Advisory Committee (the “TAC”)
and Lawrence Fitzpatrick, in his capacity as the NARCO Asbestos
Future Claimants Representative (the “FCR”), each becoming a party
to the Buyout Agreement. Should the Buyout Agreement be approved by
the Bankruptcy Court, the Buyout Closing would also resolve all
outstanding litigation currently ongoing between Honeywell and the
Trust as described in Note 14.
The Buyout Agreement provides that the Trust will retain its equity
interest in HarbisonWalker International Holdings, Inc., the
reorganized and renamed entity that emerged from the NARCO
bankruptcy (“HWI”), unless and until such equity interest is sold,
and that the economic rights of the Trust in such equity interest
(including any dividends or sale proceeds) will continue to inure
to the benefit of Honeywell.
Honeywell currently recognizes certain insurance receivables in
connection with its insurance policies that cover its NARCO
asbestos-related liabilities as more fully described in Note 19 to
the Consolidated Financial Statements included in Honeywell’s
Annual Report on Form 10-K
for the year ended December 31, 2021. Following the Buyout
Closing, Honeywell will continue to have the right to collect
proceeds in connection with its insurance policies and will
accordingly continue recognizing such receivables.
Should the Buyout Agreement be approved by the Bankruptcy Court and
the other conditions to the Buyout Closing be satisfied, the
current NARCO reserve of $695 million as of September 30,
2022 (which reflects Honeywell’s estimate for the resolution of
NARCO asbestos-related claims for all years of epidemiological
disease projection through 2059 but does not account for potential
benefits related to HWI or insurance recoveries) would be removed
from Honeywell’s balance sheet, and Honeywell would recognize a
charge associated with the settlement of the Honeywell Obligations
pursuant to the Buyout Agreement.
The Buyout Agreement will automatically terminate on March 31,
2023 unless the Buyout Closing occurs prior to such date or
Honeywell and the Trust mutually agree to extend the term of the
Buyout Agreement.
In the event the TAC and the FCR do not become parties to the
Buyout Agreement, Bankruptcy Court approval is not obtained, or the
Buyout Agreement is otherwise terminated, Honeywell will continue
to preserve all its available rights.
The foregoing description of the Buyout Agreement is not intended
to be complete and is qualified in its entirety by reference to the
Buyout Agreement, a copy of which is to be filed by an amendment to
this Form 8-K.