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.