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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the Fiscal Year ended December 31, 2000 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934
Commission File Number 1-9298
RAYTECH CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 06-1182033
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
Suite 295, Four Corporate Drive
Shelton, Connecticut 06484
(Address of Principal Executive Office) (Zip Code)
(203) 925-8023
(Registrant's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
Common Stock - $1.00 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filed requirements for the
past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of March 2, 2001, 3,519,313 shares of common stock were
outstanding and the aggregate market value of these shares (based
upon the closing price of these shares on the New York Stock Exchange)
on such date held by non-affiliates was approximately $10.9 million.
Documents incorporated by reference: None
INDEX TO RAYTECH CORPORATION
2000 FORM 10-K
PART I.
Page
Item 1. Business
(a) General Development of Business .................. 4
(b) Financial Information About Industry Segments .... 6
(c) Narrative Description of Business ................ 6
Introduction ..................................... 6
Sales Methods .................................... 7
Raw Material Availability ........................ 7
Patents and Trademarks ........................... 7
Competition, Significant Customers and Backlog ... 8
Employees ........................................ 9
Capital Expenditures ............................. 9
Research and Development ......................... 9
Environmental Matters ............................ 10
(d) Financial Information About Foreign Operations ... 10
Item 2. Properties ............................................ 11
Item 3. Legal Proceedings ..................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ... 20
PART II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters ........................... 21
Item 6. Selected Financial Data ............................... 22
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................... 23
Item 7a. Quantitative and Qualitative Disclosures About
Market Risk ........................................... 37
Page
Item 8. Financial Statements and Supplementary Data ........... 38
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures .................. 93
PART III.
Item 10. Directors and Officers of Registrant ................ 94
Item 11. Executive Compensation .............................. 97
Item 12. Security Ownership of Certain Beneficial
Owners and Management ............................... 103
Item 13. Certain Relationships and Related Transactions ...... 104
PART IV.
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K ................................. 104
(a)(1) List of Financial Statements ................ 104
(a)(2) List of Financial Statement Schedules ....... 104
(a)(3) Exhibits .................................... 104
(b) Reports on Form 8-K ......................... 104
(c) Index of Exhibits............................ 106
(d) Index to Consolidated Financial Statements
and Financial Statement Schedules
(reference) ................................. 109
Signatures .................................................... 110
Item 1. Business
(a) General Development of Business.
Raytech Corporation ("Raytech" or the "Company") was
incorporated in June 1986 in Delaware as a subsidiary of Raymark
Corporation ("Raymark"). In October 1986, the Raymark
shareholders approved a triangular merger restructuring plan
resulting in Raytech becoming the publicly traded (NYSE) holding
company of Raymark with each share of the Raymark common stock
being automatically converted to a share of Raytech common stock,
plus a right to purchase a warrant for Raytech stock. The issued
warrants expired in October 1994. The purpose of the formation
of Raytech and the restructuring plan was to provide a means to
gain access to new sources of capital and borrowed funds to be
used to finance the acquisition and operation of new businesses
in a corporate structure that should not subject it or such
acquired businesses to any asbestos-related or other liabilities
of Raymark under the doctrines of successor liability, piercing
the corporate veil and fraudulent conveyance.
In accordance with the stated restructuring purposes,
Raytech, through its subsidiaries, purchased certain non-asbestos
businesses of Raymark in 1987, including the Wet Clutch and Brake
Division for $76.9 million and Raybestos Industrie-Produkte GmbH,
a German subsidiary for $8.2 million. In anticipation of such
sales, Raymark retained independent investment bankers and
financial analysts for the purpose of determining fair purchase
prices and divestiture. Representing part of the consideration
of the transactions, Raymark agreed to indemnify Raytech for
Raymark's liabilities, including asbestos, environmental, pension
and others.
In May 1988, Raytech divested all of the Raymark stock
to Asbestos Litigation Management, Inc. The purchase price of
the stock was affected by Raymark's substantial asbestos-related
liabilities.
Despite the restructuring plan implementation and
subsequent divestiture of Raymark, Raytech was named a co-defendant
with Raymark and other named defendants in numerous
asbestos-related lawsuits as a successor in liability to Raymark.
Until February 1989, the defense of all such lawsuits was
provided to Raytech by Raymark in accordance with the
indemnification included as a condition of the purchase of the
Wet Clutch and Brake Division and the German subsidiary from
Raymark in 1987. In February 1989, an involuntary petition for
bankruptcy was filed against Raymark, causing Raymark to be
unable to continue funding the costs of defense to Raytech in the
asbestos-related lawsuits referenced above.
With the loss of defense from Raymark, the defense of
such lawsuits shifted directly to Raytech as it had no insurance
providing coverage for asbestos-related liabilities. As a result
of the above factors and to halt the asbestos-related litigation,
in March 1989 Raytech filed a petition seeking relief under
Chapter 11 of Title 11, United States Code in the United States
Bankruptcy Court, District of Connecticut. Under Chapter 11,
substantially all litigation against Raytech was stayed while the
debtor corporation and its non-filed operating subsidiaries
continue to operate their businesses in the ordinary course under
the same management and without disruption to employees,
customers or suppliers. The bankruptcy proceedings imposed
little or no limitation to the manufacturing and selling of
products and other day-to-day operations of the businesses.
In one of the asbestos-related personal injury lawsuits
decided in October 1988 in a U.S. District Court in Oregon,
Raytech was ruled under Oregon equity law to be a successor to
Raymark's asbestos-related liability. The successor ruling was
appealed by Raytech and in October 1992, the Ninth Circuit Court
of Appeals affirmed the District Court's judgment on the grounds
stated in the District Court's opinion. The effect of this
decision extended beyond the Oregon District due to a 1995 Third
Circuit Court of Appeals decision in a related case wherein
Raytech was collaterally estopped (precluded) from relitigating
the issue of its successor liability for Raymark's asbestos-related
liabilities and a petition for a writ of certiorari was
denied by the U.S. Supreme Court in October 1995. (For a further
discussion regarding this liability and bankruptcy proceedings,
refer to Item 3. Legal Proceedings herein.)
In October 1998, Raytech reached a tentative settlement
with its creditors to achieve a consensual plan of
reorganization. The settlement provided for all general
unsecured creditors, including asbestos and environmental
claimants, to receive 90% of the equity of the Company and
existing equity holders to retain the remaining 10% of the
equity. In fulfillment of the settlement, on August 31, 2000,
the consensual plan of reorganization ("Plan") was confirmed by
the Bankruptcy Court. The Plan is not yet effective pending
fulfillment of certain conditions.
Barring an unforeseen downturn in business and assuming
that the confirmed reorganization plan to control its legal
responsibility for Raymark's asbestos-related and other
liabilities will be made effective in the bankruptcy proceedings,
Raytech believes it will generate sufficient cash flow to satisfy
2001 debt maturities, working capital and capital spending needs.
However, the outcome of these matters is uncertain and should
Raytech be held fully liable, there would be a material adverse
impact on Raytech as it does not have the resources needed to
fund the substantial uninsured asbestos-related, employee
benefit-related and environmental liabilities and related costs
of litigation as defined further in Item 3. Legal Proceedings.
(b) Financial Information About Industry Segments
The sales and operating income of Raytech on a
consolidated basis, and its identifiable assets for the fiscal
years ended December 31, 2000, January 2, 2000, and January 3, 1999
are set forth herein starting on page 73.
(c) Narrative Description of Business
Introduction
Raytech Corporation and its subsidiaries
manufacture and distribute engineered products for heat
resistant, inertia control, energy absorption and transmission
applications. The Company's operations are categorized into
three business segments: wet friction, dry friction and
aftermarket.
The wet friction operations produce specialty engineered
products for heat resistant, inertia control, energy
absorption and transmission applications used in an oil
immersed environment. The Company markets its products
to automobile and heavy duty original equipment
manufacturers ("OEM"), as well as to farm machinery,
mining, truck and bus manufacturers.
The dry friction operations produce engineered friction
products, primarily used in original equipment
automobile and truck transmissions. The clutch facings
produced by this segment are marketed to companies who
assemble the manual transmission systems used in
automobiles and trucks.
The aftermarket segment produces specialty engineered
products primarily for automobile and light truck
transmissions. In addition to these products, this
segment markets transmission filters and other
transmission related components. The focus of this
segment is marketing to warehouse distributors and
certain retail operations in the automotive aftermarket.
The percentage of net sales for each segment over the
past three years is as follows:
2000 1999 1998
Wet friction operations 64% 62% 63%
Dry friction operations 12% 13% 13%
Aftermarket operations 24% 25% 24%
Additional segment information is contained in the Management
Discussion and Analysis section and in Note K - Notes to
Consolidated Financial Statements.
Sales Methods
The wet friction operations, predominantly a
domestic operation, serves the on-highway and off-highway
vehicular markets by sale of its products to OEM of heavy trucks,
buses, automobiles, construction and mining equipment and
agricultural machinery, and through distributors supplying
components and replacement parts for these vehicles. Sales to
certain vehicular markets in the wet friction operation are made
through a wholly-owned distributor.
The aftermarket, predominantly a domestic
operation, sells its products primarily to equipment distributors
and in certain instances directly to retail outlets.
The dry friction operation sells dry friction
facings to clutch assemblers who in turn supply the OEM and
aftermarket predominantly in Europe.
Sales are made in all segments by company sales
representatives. Sales are made under standard sales contracts
for all or a portion of a customer's products over a period of
time or on an open order basis.
Raytech's products are sold around the world,
through export from the U.S. plants, through its wholly-owned
subsidiaries in Germany, the United Kingdom and China, and
through distributors.
Raw Material Availability
The principal raw materials used in the manufacture
of energy absorption and transmission products include cold-
rolled steel, metal powders, synthetic resins, plastics and
synthetic and natural fibers. All of these materials are readily
available from a number of competitive suppliers.
Patents and Trademarks
Raytech owns a number of patents both foreign and
domestic. Such patents expire between 2001 and 2018. In the
opinion of management, the business is not dependent upon the
protection of any of its patents or licenses and would not be
materially affected by the expiration of any of such patents and
licenses.
Raytech operates under a number of registered and
common law trademarks, including the trademark "RAYBESTOS."
Certain trademarks have been licensed on a limited basis. Some
trademarks are registered internationally.
Competition, Significant Customers and Backlog
Raytech faces vigorous competition with respect to
price, service and product performance in all of its markets from
both foreign and domestic competitors.
In the wet friction original equipment automotive
automatic transmission parts sector there are approximately four
competitors, including one foreign company utilizing price,
service and product performance to attempt to gain market share.
Though not the largest company competing in this market, Raytech
is highly competitive due to cost efficient plants, dedicated and
skilled employees and products that are high in quality and
reliability. The original equipment heavy-duty, off-highway
vehicle sector is highly competitive with approximately three
companies vying for the business, including two foreign
companies, and approximately three competitors for the oil-
immersed friction plate sector. Raytech is the leading competitor
in these markets and sets the standards for the industry,
resulting from its integrated, cost efficient operations and its
high quality products and service. Domestic sales as a percentage
of total Raytech sales to three customers are as follows:
2000 1999 1998
Caterpillar 13.0% 11.9% 12.4%
DaimlerChrysler 15.4% 14.8% 14.9%
Allison 7.7% 10.2% 9.2%
Sales backlog for the wet friction segment at the end of 2000,
1999, and 1998 was approximately $72 million, $92 million, and
$69 million, respectively. It is anticipated that current
backlog will be filled in 2001.
In the dry friction segment the European markets in which
the Company participates are competitive with approximately two
competitors in the passenger car clutch sector. Raytech is not the
leader but has enhanced its competitive position in these markets,
having significantly increased its market share through acquisition
and restructuring. Raytech entered the Asian market with
manufacturing that began in China in 1998. The markets are
competitive with several Chinese and other Asian-based
manufacturers competing for the business. Sales backlog at the end
of 2000, 1999, and 1998 was approximately $.7 million, $.7 million,
and $0 million, respectively.
In the aftermarket segment, the domestic automotive,
automatic transmission sector has approximately five competitors.
Here, Raytech believes that some of its competitors have greater
financial resources, but its competitive position is increasing due
to the customer acceptance of both its high quality and low cost
product lines. The transmission filter business is competitive
with approximately five competitors. Sales backlog at the end of
2000, 1999, and 1998 was approximately $6 million, $9 million, and
$7 million, respectively. It is anticipated that current backlog
will be filled in 2001.
Competition in all markets served by Raytech is based on
product quality, service and price. On such basis Raytech believes
that it is highly competitive in all markets in which it is
engaged.
Employees
At December 31, 2000, Raytech employed approximately
1,642 employees, compared with 1,729 employees at the end of 1999.
Raytech has agreements with labor unions relating to wages, hours,
fringe benefits and other conditions of employment which cover most
of its production employees. The term of the labor contract at
Raybestos Products Company in Crawfordsville, Indiana, is due to
expire in May 2003. The term of the labor contract at Automotive
Composites Company in Sterling Heights, Michigan, is due to expire
in October 2001.
Capital Expenditures
Capital expenditures were $13.4 million, $23.2
million, and $19.8 million for 2000, 1999 and 1998, respectively.
Capital expenditures for 2001 are projected at $17.8 million.
Research and Development
Research and development costs were approximately
$6.8 million, $7.1 million, and $5.6 million for 2000, 1999 and
1998, respectively. Separate research and development facilities
are maintained at appropriate manufacturing plants for the purpose
of developing new products, improving existing production
techniques, supplying technical service to the business units and
customers, and discovering new applications for existing products.
Research and development costs for 2001 are projected at $9.3
million.
Environmental Matters
Various federal, state and local laws and regulations
related to the discharge of potentially hazardous materials into
the environment, and the occupational exposure of employees to
airborne particles, gases and noise have affected and will continue
to affect the Registrant's operations, both directly and
indirectly, in the future. The Company's operations have been
designed to comply with applicable environmental standards
established in such laws and regulations. Pollution and hazardous
waste controls are continually being upgraded at the existing
manufacturing facilities to help to ensure environmental
compliance. Expenditures for upgrading of pollution and hazardous
waste controls for environmental compliance, including capital
expenditures, are projected to be $1.1 million for 2001. Because
environmental regulations are constantly being revised and are
subject to differing interpretations by regulatory agencies,
Raytech is unable to predict the long-range cost of compliance with
environmental laws and regulations. Nevertheless, management
believes that compliance should not materially affect earnings,
financial position or its competitive position.
(d) Financial Information about Foreign Operations
Financial information about the foreign operations of
Raytech for the fiscal years ended December 31, 2000, January 2,
2000, and January 3, 1999 is set forth in Note K to Consolidated
Financial Statements, included herein.
Item 2. Properties
Raytech, through its three operating segments, has plants
as follows:
The wet friction operations has a Crawfordsville, Indiana,
facility that is owned and consists of approximately 455,000 square
feet of office, production, research and warehousing space that is
suitable and adequate to provide the productive capacity to meet
reasonably anticipated demand of products. The Sterling Heights,
Michigan, facility is owned and consists of approximately 111,000
square feet of office, production, research and warehousing space
that is suitable and adequate to provide the productive capacity to
meet reasonably anticipated demand of products. The Liverpool,
England, facility is leased and consists of 27,000 square feet of
office, production, research and warehousing space. Wet friction
also leases sales office space in Leverkusen, Germany and Peoria,
Illinois, and has an administrative office in Indianapolis,
Indiana.
The dry friction operations has a Morbach, Germany, plant
that is owned and consists of 108,000 square feet of office,
production, research and warehousing space that is suitable and
adequate to provide the production capacity to meet reasonably
anticipated demand of products. The Suzhou, China, facility is
owned and consists of 25,000 square feet of office, production,
research and warehousing space that is suitable and adequate to
provide the production capacity to meet reasonably anticipated
demand of products.
The aftermarket operations has two facilities in
Sullivan, Indiana, that are owned and consist of 130,000 and 37,500
square feet of office and warehousing space that is suitable and
adequate to provide the capacity to meet anticipated demand of
products. The capacity is underutilized, leaving space for future
demand. A separate Crawfordsville, Indiana, facility is owned and
consists of approximately 41,000 square feet of warehousing space
for aftermarket distribution. Aftermarket also leases sales office
space in Floral Park, New York.
Raytech also leases office space in Shelton, Connecticut,
for its headquarters staff.
Raytech believes that its properties are substantially
suitable and adequate for its purposes. All of the production
facilities are continually being upgraded to comply with applicable
environmental standards and to improve efficiency.
Item 3. Legal Proceedings
The formation of Raytech and the implementation of the
restructuring plan more fully described in Item 1 above was for the
purpose of providing a means to acquire and operate businesses in a
corporate structure that should not be subject to any asbestos-
related or other liabilities of Raymark.
Prior to the formation of Raytech, Raymark had been named
as a defendant in more than 88,000 lawsuits, claiming substantial
damages for injury or death from exposure to airborne asbestos
fibers. Subsequent to the divestiture of Raymark in 1988, lawsuits
continued to be filed against Raymark at the rate of approximately
1,000 per month until an involuntary petition in bankruptcy was
filed against Raymark in February 1989 which stayed all its
litigation. In August 1996, the involuntary petition filed against
Raymark was dismissed following a trial and the stay was lifted.
However, in March 1998, Raymark filed a voluntary bankruptcy
petition again staying the litigation.
Despite the restructuring plan implementation and
subsequent divestiture of Raymark, Raytech was named a co-defendant
with Raymark and other named defendants in numerous asbestos-related
lawsuits as a successor in liability to Raymark. Until February
1989, the defense of all such lawsuits was provided to Raytech by
Raymark in accordance with the indemnification included as a
condition of the purchase of the Wet Clutch and Brake Division and
German subsidiary from Raymark in 1987. In 1989, the involuntary
bankruptcy proceedings against Raymark caused Raymark to be unable
to fund the costs of defense to Raytech in the asbestos-related
lawsuits referenced above. Raytech management was informed that
Raymark's cost of defense and disposition of cases up to the
automatic stay of litigation in 1989 under the involuntary
bankruptcy proceedings was approximately $333 million of Raymark's
total insurance coverage of approximately $395 million. It has also
been informed that as a result of the dismissal of the involuntary
petition, Raymark encountered newly filed asbestos-related lawsuits
but had received $27 million from a state guarantee association to
make up the insurance policies of an insolvent carrier and had $32
million in other policies to defend against such litigation. In
March 1998, Raymark filed a voluntary bankruptcy petition as a
result of several large asbestos-related judgments against it.
In October 1988, in a case captioned Raymond A. Schmoll v.
ACandS, Inc., et al., the U.S. District Court for the District of
Oregon ruled, under Oregon equity law, Raytech to be a successor to
Raymark's asbestos-related liability. The successor decision was
appealed by Raytech, and in October 1992, the Ninth Circuit Court of
Appeals affirmed the District Court's judgment on the grounds stated
in the District Court's opinion. The effect of this decision
extends beyond the Oregon District due to a Third Circuit Court of
Appeals decision in a related case cited below wherein Raytech was
collaterally estopped (precluded) from relitigating the issue of its
successor liability for Raymark's asbestos-related liabilities.
As the result of the inability of Raymark to fund Raytech's
cost of defense recited above and to halt the asbestos-related
litigation, on March 10, 1989, Raytech filed a petition seeking
relief under Chapter 11 of Title 11, United States Code in the
United States Bankruptcy Court, District of Connecticut. Under
Chapter 11, substantially all litigation against Raytech was stayed
while the debtor corporation and its non-filing operating
subsidiaries continue to operate their businesses in the ordinary
course under the same management and without disruption to
employees, customers or suppliers. In the Bankruptcy Court a
creditors' committee was appointed, comprised primarily of asbestos
claimants' attorneys. In August 1995, an official committee of
equity security holders was appointed relating to a determination of
equity security holders' interest in the bankruptcy estate.
In June 1989 Raytech filed a class action in the Bankruptcy
Court captioned Raytech v. Earl White, et al. against all present
and future asbestos claimants seeking a declaratory judgment that it
not be held liable as a successor for the asbestos-related
liabilities of Raymark. The U.S. District Court withdrew its
reference of the case to the Bankruptcy Court, and agreed to hear
and decide the case. In September 1991, the U.S. District Court
issued a ruling dismissing the class action citing as a reason the
preclusive effect of the 1988 Schmoll case recited above under the
doctrine of collateral estoppel (conclusiveness of judgment in a
prior action), in which Raytech was ruled to be a successor to
Raymark's asbestos liability under Oregon law. Upon a motion for
reconsideration, the U.S. District Court affirmed its prior ruling
in February 1992. Also, in February 1992, the U.S. District Court
transferred the case in its entirety to the U.S. District Court for
the Eastern District of Pennsylvania. Such transfer was made by the
U.S. District Court without motion from any party in the interest of
the administration of justice as stated by the U.S. District Court.
In February 1994, the U.S. District Court's dismissal of the case
was appealed. In May 1995, the Third Circuit Court of Appeals ruled
that Raytech is collaterally estopped (precluded) from relitigating
the issue of its successor liability as ruled in the 1988 Oregon
case recited above, affirming the U.S. District Court's ruling of
dismissal. A petition for a writ of certiorari was denied by the
U.S. Supreme Court in October 1995. The ruling leaves the Oregon
case, as affirmed by the Ninth Circuit Court of Appeals, as the
prevailing decision holding Raytech to be a successor to Raymark's
asbestos-related liabilities.
As the result of the Court rulings recited above holding
Raytech a successor to Raymark's asbestos-related liabilities,
Raytech halted payments to Raymark under the 1987 Asset Purchase
Agreement in May 1995. However, in February 1997, with Raymark
temporarily out of bankruptcy, Raytech resumed making payments
pursuant to the Agreement. As the result of the creditors'
committee's action to halt the payments, the Bankruptcy Court
ordered the payments stopped in January 1998.
Costs incurred by the Company for asbestos-related
liabilities are subject to indemnification by Raymark under the 1987
acquisition agreements. By agreement, in the past, Raymark has
reimbursed the Company in part for such indemnified costs by payment
of the amounts due in Raytech common stock of equivalent value.
Under such agreement, Raytech received 926,821 shares in 1989,
177,570 shares in 1990, 163,303 in 1991 and 80,000 shares in 1993.
The Company's acceptance of its own stock was based upon an intent
to control dilution of its outstanding stock. In 1992, the
indemnified costs were reimbursed by offsetting certain payments due
Raymark from the Company under the 1987 acquisition agreements.
Costs incurred since 1994 were applied as a reduction of the note
obligations pursuant to the agreements.
In March and April 1998, Raymark and its parent, Raymark
Corporation, filed voluntary petitions in bankruptcy in a Utah Court
which stayed all litigation in the Raytech bankruptcy in which
Raymark was a party. In connection with asserting control over
Raymark and its assets, the creditors' committee, Raytech, the
Guardian ad litem for Future Claimants, the equity committee and the
government agencies caused the Raymark bankruptcies to be
transferred from Utah to the Connecticut Court. In October 1998, a
trustee was appointed by the United States Trustee over the Raymark
bankruptcies and is currently administering the Raymark estate.
In October, 1998 Raytech reached a tentative settlement
with its creditors and entered into a Memorandum of Understanding
with respect to achieving a consensual plan of reorganization (the
"Plan"). The parties to the settlement included Raytech, the
Official Creditors Committee, the Guardian ad litem for Future
Claimants, the Connecticut Department of Environmental Protection
and the U. S. Department of Justice, Environmental and Natural
Resources Division. Substantive economic terms of the Memorandum of
Understanding provided for all general unsecured creditors including
but not limited to all asbestos and environmental claimants to
receive 90% of the equity in reorganized Raytech and any and all
refunds of taxes paid or net reductions in taxes owing resulting
from the transfer of equity to a trust established under the
Bankruptcy Code, and existing equity holders in Raytech to receive
10% of the equity in reorganized Raytech. The Memorandum of
Understanding also requires that an amount of cash, which will be
determined at the effective date, be transferred to the trust. The
amount of cash has been estimated at $2.5 million. Substantive non-
economic terms of the Memorandum of Understanding provided for the
parties to jointly work to achieve a consensual Plan, to determine
an appropriate approach to related pension and employee benefit
plans and to cease activities that have generated adverse
proceedings in the Bankruptcy Court. The parties also agreed to
jointly request a finding in the confirmation order to the effect
that while Raytech's liabilities appear to exceed the reasonable
value of its assets, the allocation of 10% of the equity to existing
equity holders is fair and equitable by virtue of the benefit to the
estate of resolving complicated issues without further costly and
burdensome litigation and the risks attendant therewith and the
economic benefits of emerging from bankruptcy without further delay.
In August 1999, the Bankruptcy Court set a bar date for
filing claims against Raytech, resulting in approximately 3,200
claims. Such claims were categorized into asbestos personal injury,
asbestos property damage, environmental, including the EPA and State
of Connecticut, pension/retiree benefits and other employee related
claims and other contractual and general categories. Through Court
proceedings many of the filed claims were expunged, leaving only
valid claims to be dealt with in the Plan. In order to comply with
the mandatory estimation of all claims against the debtor in the
confirmation process, Raytech, the creditors' committee and the
Government entered into discussions to attempt to make estimations
of the asbestos and Government claims not subject to the bar date.
The discussions resulted in an agreement on the estimate of such
asbestos and Government claims, and accordingly, a motion was filed
in the Bankruptcy Court for an allowance of asbestos claims of
$6.760 billion and Government claims of $431.8 million for purposes
of voting and distribution under the terms of the Plan. In March
2000, the Bankruptcy Court entered an interim order allowing such
amounts as general unsecured claims subject to an objection period
through June 2000 and the completion of the initial vote of the Plan
of confirmation on July 7, 2000. As a result of the resolution of
the objections raised with only a slight modification to the Plan
and the overwhelming favorable response to the initial vote,
management was substantially certain that the Plan would be
confirmed and that the estimate of the $7.2 billion of allowed
claims would be finally approved by the Bankruptcy Court.
Accordingly, Raytech recorded a charge and related liability in the
financial statements in the amount of $7.2 billion for the estimated
amount of allowed claims in the second quarter of 2000. Such
estimations are recorded as liabilities subject to compromise since
it is expected that the distributions under the Plan with respect to
such claims will be lesser amounts consisting of a 90% equity
distribution in reorganized Raytech at the effective date pursuant
to the Plan referenced above in this Note A. Upon the effective
date of the Plan, Raytech will utilize the "fresh start" reporting
principles contained in the AICPA's Statement of Position 90-7,
which will result in adjustments relating to the amounts and
classification of recorded assets and liabilities determined as of
the effective date. Under the Plan, the ultimate consideration to
be received by all unsecured creditors will be covered under the
referenced 90% equity distribution and will be substantially less
than amounts shown in the accompanying financial statements.
In 1999, the Bankruptcy Court ("Court") issued rulings on
adversary actions brought by Raymark retirees and pensioners seeking
rights as claimants for benefits from Raytech on the basis of
successor liability. As to the pensioners, the Court ruled that
Raytech has the liability as a successor to Raymark. The decision
has been appealed and remains pending. As noted in the previous
paragraph, during the second quarter of 2000, management was
substantially certain that the Plan would be confirmed and that the
pension liability would be Raytech's responsibility, although
under legal appeal. The resulting recorded charge and related
liability estimated at $16 million was recorded in the second
quarter of 2000 and is subject to compromise based on the pending
appeal. As to the retirees, the Court ruled that the Raymark
Trustee's termination of the retirees benefit plans was justified
and thus the post-termination liability thereafter could not be
transferred to Raytech. In response to the bar date set for filing
claims in 1999, approximately 700 retirees filed timely claims. The
validity and the amount of claims were not estimated until the
fourth quarter of 2000. The charge for the estimated amount of
allowed claims of $2.5 million was recorded in the fourth quarter of
2000, and the liability is subject to compromise. For both the PBGC
and retiree claims, the Court has not yet determined if they will be
classified as priority or unsecured claims. At December 31, 2000,
they are both considered to be unsecured claims and included in
liabilities subject to compromise pending final Court decision.
On August 31, 2000, the Bankruptcy Court confirmed
Raytech's Plan, which confirmation was affirmed by the U.S.
District Court on September 13, 2000. The Plan contained several
conditions to the occurrence of the effective date of the Plan
("Effective Date"). The majority of the conditions have been met,
and the remaining conditions to the Effective Date are the
resolution of the Raymark claims and the requested tax-related
rulings from the IRS or an opinion of counsel. It is unknown when
the above-referenced conditions to the Effective Date will be
satisfied, but it is management's intention that they will be met as
soon as possible. Until the Effective Date occurs, the terms of the
Plan, although confirmed, are not yet in effect. On the Effective
Date, a channeling injunction ordered by the Bankruptcy Court
pursuant to Section 524(g) of the Bankruptcy Code will permanently
and forever stay, enjoin and restrain any asbestos-related claims
against Raytech and subsidiaries, thereby channeling such claims to
the PI Trust for resolution. On the Effective Date, the rights
afforded and the treatment of all claims and equity interests in the
Plan shall be in exchange for and in complete satisfaction,
discharge and release of all claims and equity interests against
Raytech.
In 1991, an environmental claim was filed by the
Pennsylvania Department of Environmental Resources ("DER") to
perform certain activities in connection with Raymark's Pennsylvania
manufacturing facility, including submission of an acceptable
closure plan for a landfill containing hazardous waste products
located at the facility. In March 1991, the Company entered a
Consent Order which required Raymark to submit a revised closure
plan acceptable to the DER. The estimated cost for Raymark to
comply with the order was $1.2 million. The DER notified the
Company in 2000 that Raymark had failed to comply with its
obligations under the Consent Order. In December 2000, Raymark sold
its Pennsylvania manufacturing facility, and the buyer has entered a
consent agreement with the DER to comply with the order, thereby
satisfying the claim against Raytech.
In April 1996, the Indiana Department of Environmental
Management ("IDEM") advised Raybestos Products Company ("RPC"), a
wholly-owned subsidiary of the Company, that it may have contributed
to the release of lead and PCB's (polychlorinated biphenyls) found in
a drainage ditch near its Indiana facility. In June 1996, IDEM named
RPC as a potentially responsible party ("PRP"). RPC notified its
insurers of the IDEM action and one insurer responded by filing a
complaint in January 1997 in the U.S. District Court, Southern
District of Indiana, captioned Reliance Insurance Company vs. RPC
seeking a declaratory judgment that any liability of RPC is excluded
from its policy with RPC. In January 2000, the District Court
granted summary judgment to RPC, indicating that the insurer has a
duty to defend and indemnify losses stemming from the IDEM claim.
IDEM has turned the matter over to the U.S. Environmental Protection
Agency ("EPA"), and in April 2000, the EPA issued a subpoena for
information to determine compliance with federal environmental
regulations and in July 2000 proposed a consent order of
environmental response that was rejected by RPC. In December 2000,
the EPA issued a Unilateral Administrative Order under CERCLA
("Order") demanding removal of contaminated soils from the referenced
drainage ditch. RPC has given notice that it intends to comply with
the Order and has designated a contractor and project coordinator as
required. RPC is preparing a plan for implementing and carrying out
the cleanup Order. Based on preliminary assessments, the Company has
estimated that the cost to comply with the Order will be in the range
of $3 million to $6 million and has recorded a liability in the
amount of $3 million at December 31, 2000. It is at least reasonably
possible that the preliminary assessment of estimated costs to comply
with the Order may be modified as the project progresses. A
receivable from Reliance Insurance Company will be recorded when the
Company has determined that it is probable that such recovery will be
realized.
In January 1997, Raytech was named through a subsidiary in a
third party complaint captioned Martin Dembinski, et al. vs. Farrell
Lines, Inc., et al. vs. American Stevedoring, Ltd., et al. filed in
the U.S. District Court for the Southern District of New York for
damages for asbestos-related disease. The case has been removed to
the U.S. District Court, Eastern District of Pennsylvania. When
required, the Company will seek an injunction in the Bankruptcy Court
to halt the litigation under the channeling injunction referenced
above.
In December 1998, a subsidiary of the Company filed a
complaint against a former administrative financial manager of
Advanced Friction Materials Company ("AFM") in the U.S. District
Court, Eastern District of Michigan, captioned Raytech Composites,
Inc. vs. Richard Hartwick, et ux. alleging that he wrongfully
converted Company monies in his control to his own use and benefit in
an amount greater than $3.3 million prior to the April 1998
completion of the acquisition of AFM as discussed in the following
paragraph. In December 1999, the District Court ruled on summary
judgment in favor of Raytech on its claim against Hartwick in the
amount of $3.330 million. A constructive trust had been ordered by
the Court providing ownership to Raytech of four real estate
properties purchased by Hartwick with the converted funds. The four
properties have been sold resulting in a net recovery of $1.337
million. Hartwick has been arrested by the State of Michigan under
13 counts of embezzlement. In May 2000, Hartwick pled guilty to the
charges and has been sentenced for 2 to 15 years in the Michigan
State Penitentiary. A restitution order was granted to the Company
in the amount of $1.33 million.
In April 1998, AFM redeemed 53% of its stock from the former
owner for a formulated amount of $6.044 million, $3.022 million paid
at closing and the balance of $3.022 million payable by note in three
equal annual installments resulting in the Company attaining 100%
ownership of AFM. In April 1999, an adversary proceeding was filed
in the Connecticut Bankruptcy Court against the former owner
captioned Raytech Corporation, et al. vs. Oscar E. Stefanutti, et al.
to recover $1.5 million of the amount paid for the AFM stock and to
obtain a declaratory judgment that the balance of $3.022 million is
not owed based upon the judgment that a fraud was perpetrated upon
the Company related to the Hartwick case referenced above. In
September 1999, the Bankruptcy Court granted jurisdiction of the case
but exercised discretionary abstention to enable the Court to focus
on issues impeding the plan confirmation. In June 1999, the former
owner filed an action against the Company in a County Court in
Michigan captioned Oscar E. Stefanutti, et al. vs. Raytech Automotive
Components Company to enforce payment of the note. Discovery has
been completed, and cross motions for summary judgment are being
considered by the Court. A trial date has been set for April 2001.
In December 1998, the trustee of Raymark, Raytech and the
Raytech creditors' committee joined in filing an adversary proceeding
(complaint) against Craig R. Smith, et al. (including relatives,
business associates and controlled corporations) alleging a
systematic stripping of assets belonging to Raymark in an elaborate
and ongoing scheme perpetrated by the defendants. The alleged
fraudulent scheme extended back to the 1980's and continued up to
this action and has enriched the Smith family by an estimated $12
million and has greatly profited their associates, while depriving
Raymark and its creditors of nearly all of its assets amounting to
more than $27 million. Upon motion of the plaintiffs, the Bankruptcy
Court issued a temporary restraining order stopping Mr. Smith and all
defendants from dissipating, conveying, encumbering or otherwise
disposing of any assets, which order has been amended several times
and remains in effect pending a preliminary injunction hearing. The
reference to the Bankruptcy Court has been withdrawn, and the matter
is now being litigated in the U.S. District Court in Connecticut. A
motion for summary judgment was filed by the plaintiffs and was ruled
upon in March 2000. The ruling granted plaintiffs summary judgment
on several of the counts but denied summary judgment with respect to
the claims against Mr. Smith for the stripping of assets from Raymark
and its creditors for the reason that there was insufficient evidence
of insolvency of Raymark, giving plaintiffs standing to file the
claim. The Court invited plaintiffs to file for reconsideration of
the denial with sufficient evidence of insolvency of Raymark at the
time Mr. Smith expropriated the assets. Such motion for
reconsideration was filed in April 2000 and remains pending.
The adverse ruling in the Third Circuit Court of Appeals, of
which a petition for writ of certiorari was denied by the U.S.
Supreme Court, precluding Raytech from relitigating the issue of its
successor liability leaves the U.S. District Court's (Oregon) 1988
ruling as the prevailing decision holding Raytech to be a successor
to Raymark's asbestos-related liabilities. This ruling has had a
material adverse impact on Raytech as it did not have the resources
needed to fund Raymark's potentially substantial uninsured asbestos-
related and environmental liabilities. However, the Plan of
Reorganization has defined the impact of the successor liabilities
imposed by the referenced court decisions. While the Plan of
Reorganization has been confirmed by the Bankruptcy Court and the
U.S. District Court, it is not yet effective subject to certain
conditions precedent, which timing cannot be predicted with
certainty. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern, which
contemplates continuity of operations, realization of assets and
liquidation of liabilities in the normal course of business. The
uncertainties regarding the reorganization proceedings raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments
relating to the recoverability, revaluation and classification of
recorded asset amounts or adjustments relating to settlement and
classification of liabilities that may be required in connection with
reorganizing under the Bankruptcy Code.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Registrant's (Raytech) common stock is traded on the New
York Stock Exchange under the trading symbol RAY. As of March 1,
2001, there were 1,596 holders of record of the Registrant's common
stock.
Information regarding the quarterly high and low sales prices
for 2000 and 1999 and information with respect to dividends is set
forth in Note L of the Consolidated Financial Statements, Part II,
Item 8 hereof.
Item 6. Selected Financial Data
FIVE-YEAR REVIEW OF OPERATIONS
(in thousands, except per share data)
2000 1999 1998 1997 1996
Operating Results
Net sales $ 239,532 $251,966 $247,464 $234,475 $217,683
Gross profit 59,489 60,238 58,650 51,575 54,269
Operating profit 27,215 27,518 26,007 26,164 23,603
Interest expense 2,218(3) 2,279(3) 2,158(3) 3,345 3,132
Net (loss) income (7,058,978)(4) 16,364 16,357 15,538(2) 15,991(5)
Share Data
Basic (loss) earnings per share $ (2,015.40)(4) $ 4.76 $ 4.81 $ 4.76 $ 4.95
Weighted average share 3,502,522 3,439,017 3,402,019 3,263,137 3,232,674
Diluted (loss) earnings
per share $ (2,015.40)(4) $ 4.65 $ 4.61 $ 4.41 $ 4.65
Adjusted weighted average shares 3,502,522 3,518,884 3,548,893 3,524,391 3,441,645
Balance sheet
Total assets $ 320,316 $188,686 $172,034 $153,385 $140,155
Working capital 21,402 11,201 5,464 7,324 7,418
Long-term obligations 31,238 35,055 39,002 38,639 41,522
Liabilities subject to
compromise(4) 7,211,433 - - - -
Commitments and contingencies(1)
Total shareholders' (deficit)
equity (6,979,138) 80,788 64,297 48,462 34,015
Property, plant and equipment
Capital expenditures $ 13,399 $ 23,203 $ 19,754 $ 20,603 $ 8,390
Depreciation 11,545 10,569 9,477 8,746 8,039
Dividends declared per share $ - $ - $ - $ - $ -
(1) See Notes A and N to the consolidated financial statements.
(2) Includes the reversal of $1,519 of valuation allowance against deferred tax
assets of German operations.
(3) Includes cessation of interest accruals on Raymark note in connection with a
Bankruptcy Court Order.
(4) Includes recording of the estimated amount of allowed claims in the amount of $7.2
billion relating to asbestos personal injury, environmental and employee benefits
issues. See Note A to the consolidated financial statements.
(5) Includes reversal of $3,100 of prior year tax accruals no longer required.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations and Liquidity and Capital Resources
Raytech Corporation and its subsidiaries manufacture and
distribute engineered products for heat resistant, inertia
control, energy absorption and transmission applications. The
Company's operations are categorized into three business
segments: wet friction, dry friction and aftermarket.
Additional information on these business segments is presented in
Note K - Segment Reporting in the Notes to Consolidated Financial
Statements.
2000 Compared With 1999
The most significant event that occurred in the year 2000 for
Raytech Corporation was the confirmation by the Bankruptcy Court of
Raytech's Second Amended Plan of Reorganization ("Plan"), which
confirmation was affirmed by the U.S. District Court on
September 13, 2000. The Plan and the confirmation process are
discussed more fully in Note A to the Consolidated Financial
Statements herein. During fiscal 2000, the Company recorded certain
charges and related liabilities as "liabilities subject to
compromise" in accordance with the American Institute of Certified
Public Accountants Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code.
The charges and related liabilities discussed above included an
estimate of the asbestos-related personal injury liability of $6.76
billion and an estimate of the government's claim for certain
environmental liabilities of $431.8 million. As part of the
bankruptcy proceedings with respect to successor liability, Raytech
has recorded a charge of $16 million to reflect its liability for
funding the Raymark pension plan as well as a charge for $2.5
million for certain other Raymark retiree liabilities.
When the Plan becomes effective, substantially all the
liabilities subject to compromise will be discharged in exchange for
90% of stock of reorganized Raytech, while the current equity
holders will retain a 10% ownership position. The Bankruptcy Court
has not yet determined if the pension and retiree claims will be
discharged as part of the exchange for 90% of stock of reorganized
Raytech or whether they will be addressed as a priority claim, which
would require Raytech to fund the liabilities out of current
operations. There are several conditions and other matters that
must be resolved in order to have the Plan become effective.
Accordingly, it is difficult to predict with certainty when it will
become effective.
Raytech Corporation's revenues for the year ended December 31,
2000 were $239.5 million compared to $252.0 million in 1999. Net
loss for the year ended December 31, 2000 was ($7.1) billion or
$(2,015.40) basic loss per share, as compared to net income of $16.4
million or $4.76 basic earnings per share in 1999.
Net Sales
Worldwide net sales were $239.5 million, compared with $252.0
million in 1999, a reduction of $12.5 million or 5%. The wet
friction segment sales decreased $4.0 million primarily due to weak
sales in the light duty component of the wet friction segment. The
decline in sales volume was partially due to the much anticipated
slowing in the U.S. economy and the loss of certain sales to a major
customer due to foreign competition. The impact on the automotive
original equipment manufacturers has resulted in slow movement of
inventory. However, decreases were partially offset by improvements
in the heavy duty and agricultural markets as the demand for certain
items increased. Aftermarket sales decreased $5.7 million compared
with the prior year as a result of aggressive inventory management
at certain of our customers. In general, the aftermarket was slower
in 2000 as compared to 1999. The dry friction segment sales
decreased $2.8 million year over year due to an adverse foreign
currency fluctuation ($3.9 million), offset by an increase in sales
of $1.1 million.
Gross Profit
Gross profit as a percentage of sales for the period ended
December 31, 2000 is 24.8% as compared to 23.9% for the same period
one year ago. The improved gross profit of .9 percentage points was
due primarily to the improved performance at the Sterling Heights,
Michigan, manufacturing facility. During the 2000 fiscal year,
management changes and related cost savings programs at this
facility provided for the improved performance. Manufacturing costs
were further controlled through reductions in the number of
employees during the year, as well as benefits derived through
improved efficiencies from capital investment.
Selling, General and Administrative
Selling, general and administrative expenses decreased .9% to
$32.4 million as compared to $32.7 one year earlier. The cost
decrease is attributable to reduced administrative staff and
reductions in selling costs.
Interest Expense
Interest expense, excluding the Raymark note, is down slightly
as compared to the prior year. During 2000, Raybestos Products
Company and Raytech Automotive Components Company terminated their
Loan and Security Agreements with Bank of America and entered into a
new Loan and Security Agreement ("Agreement") with Congress
Financial Corporation. The new Agreement provides for Raybestos
Products Company, Raytech Automotive Components Company and
Automotive Composites Company to borrow up to $30 million in the
aggregate. The Agreement consists of a $25 million revolving line
of credit and a term loan of $5 million. The revolving line of
credit is limited through a formula which provides availability
based on qualified accounts receivable and inventory. The debt
refinancing lowered the interest rate 50 basis points on all
domestic borrowing. Additionally, lower capital expenditures year-
over-year provided funds to lower the overall debt position of the
Company.
In connection with the January 1998 Bankruptcy Court decision
to require Raytech to halt payments on its promissory note payable
to Raymark, management has concluded that interest should not be
accrued during the cease payment period. Accordingly, no interest
has been accrued in fiscal 2000, 1999 and 1998. The ultimate
resolution of interest to be paid on the note is subject to the
uncertainties inherent in reorganization proceedings under the
Bankruptcy Code.
Other Income, Net
Other income, net consists of miscellaneous items of which the
most significant is interest income in the amount of $592 thousand.
Income Taxes
In 2000, the Company recorded an additional deferred tax asset
of $2.767 billion relating to the tax effects of the liabilities
subject to compromise. Based on its historical taxable income, the
Company expects to realize approximately $140 million of the total
deferred tax asset through the ten-year carryback of the previously
paid taxes and the expected tax benefits during the twenty-year
carryforward period. Accordingly, the Company has recorded a
valuation allowance of $2.633 billion against the gross deferred tax
asset to state it at its expected net realizable value. When the
Plan becomes effective, and the liabilities subject to compromise
are settled for less than the recorded amount of allowed claims, the
net deferred tax asset will be adjusted accordingly.
The Company's effective tax rate, excluding the deferred tax
benefit referred to above, for the year ended December 31, 2000 was
42% compared to 32% for the same period in the prior year. The
Company's effective tax rate of 42% differs from the federal
statutory rate primarily due to state and foreign taxes. In the
prior periods, the tax rate was reduced by the effect of certain
legal and other costs deducted for tax purposes but offset for
financial reporting purposes against the principal balance of the
Raymark note payable in connection with an indemnification agreement
with Raymark (see Note A to the Consolidated Financial Statements).
The offset against the principal balance of the Raymark note has
been substantially utilized and this tax benefit is no longer
available. This issue accounts for substantially all of the
increase in the effective tax rate.
The Company has in process an Internal Revenue Service tax
audit for the 1996 through 1999 fiscal years. The IRS has proposed
disallowance of $9.9 million of bankruptcy-related costs relating to
1996 through 1998, which are included in the indemnification
agreement with Raymark. The Company has deducted approximately
$17.0 million of such costs through December 31, 2000 and continues
to believe these costs are deductible. The ultimate resolution of
the Company's liability, if any, is dependent on the interpretation
of a complex set of facts and applicable legal precedents. While
the Company and its advisors believe the Company's position is
supported by the facts and the weight of the legal precedents, it is
reasonably possible, through a different factual analysis and
application of countervailing legal authority, that a final
determination could be adverse to the Company. As such, the Company
intends to contest the proposed disallowance and has not recorded
any related provisions. Should the IRS ultimately prevail in its
claim, an adjustment related to prior year tax accruals would be
required.
Business Segment and Geographic Area Results
The following discussion of operating results by industry
segment and geographic area relates to information contained in Note
K - Segment Reporting in the Notes to Consolidated Financial
Statements. Operating profit is income before income taxes and
minority interest.
2000 Net Sales by Business Segment
Wet Friction 64%
Aftermarket 24%
Dry Friction 12%
Wet Friction Segment (in millions)
Net Sales Operating Profit
2000 $152.7 $18.1
1999 156.7 18.1
1998 155.8 18.4
Wet Friction Segment
Revenues decreased 2.6 percent to $152.7 million as compared
with $156.7 million in 1999. The decline was the result of slowing
demand in the light duty original equipment market, which includes
automotive original equipment and light duty or highway original
equipment. New products totaling $5.3 million were introduced
through the automotive original equipment section of the Wet
Friction segment. The increases were offset by slower demand in the
fourth quarter of 2000 as the automobile manufacturers reduced
orders for our products. Additionally, the loss to foreign
competitors of certain parts to one of our customers further reduced
sales. The heavy duty market showed improvement over 1999 as demand
for certain agricultural products increased. The agricultural
market increased approximately $2.2 million as compared to 1999.
Operating profit was equal to the prior year at $18.1 million.
The ability to retain the operating profits at the same level as
1999 with $4 million less in sales is due primarily to improved
profitability at the Michigan manufacturing facility and other cost
containment programs throughout the Company.
Aftermarket Segment (in millions)
Net Sales Operating Profit
2000 $58.4 $10.8
1999 64.1 11.6
1998 58.8 9.0
Aftermarket Segment
The Aftermarket segment recorded revenues of $58.4 million for
fiscal 2000 as compared to $64.1 million in 1999, a decrease of $5.7
million or 9%. The decrease was due partly to an internal
reorganization at a major customer combined with a more focused
inventory management program. The combination of these changes
reduced sales $1.7 million. Additionally, the aftermarket in
general was slower in 2000 as compared to 1999, which is reflected
in reduced sales across all product lines.
Operating profits of $10.8 million were less than the $11.6
million recorded in 1999, a decrease of $.8 million or 7%. The
decrease in operating profits was due entirely to the lower sales
volume year-over-year. Operating profit as a percent of sales
increased to 18.5% in 2000 from 18.1% in 1999. The increase
reflects the effect of cost reduction programs and improved
manufacturing efficiencies implemented in 2000.
Dry Friction Segment (in millions)
Net Sales Operating Profit
2000 $28.4 $ .7
1999 31.2 1.2
1998 32.9 .8
Dry Friction Segment
Revenues of $28.4 million were recorded in the Dry Friction
segment for 2000 as compared to $31.2 million in 1999, a decline of
$2.8 million or 9%. Revenues produced at our facility in China
improved significantly over 1999 with $.9 million of increased
revenues, an increase of 46%. In local currency, revenues of the
German operation were up slightly ($.2 million) when compared to
1999. The most significant impact in this segment was the year-
over-year decline in the deutsche mark, which provided a negative
translation adjustment of $3.9 million.
Operating profit of $.7 million was lower than 1999 by $.5
million or 42%. The decrease in operating profit was due to the
currency translation adjustment offset by increases in sales from
the China facility.
Market Conditions and Outlook
The Company's wet friction segment expects to continue to face
an increasingly competitive automotive environment and a continued
slowdown for the demand in certain agricultural machine products.
Our major customers in the automotive industry face an increased
competitive automotive environment which is likely to continue to
limit Raytech's pricing flexibility in the near term. In addition,
the weakness of the Japanese yen and other Asian currencies against
the U.S. dollar and the uncertain future of the Asian economies
could result in substantial increases in imports from Asia to the
U.S. and Canada. The Asian economic difficulties could have an
unfavorable effect on overall economic conditions in the U.S. and
Canada, where our major customers' sales are concentrated.
With regard to the Company's agricultural equipment operations,
worldwide farm commodity prices remain low as a result of prospects
for increased global supplies of grains and oilseeds, as well as
fears about the Asian economic issues. Accordingly, retail demand
for agricultural equipment in 2001 is now projected to remain at
2000 levels in North America, Europe, Latin America and Australia.
In light of this outlook and the Company's continuing commitment to
aggressive asset management, production schedules are being reviewed
for 2001 to ensure the Company's production meets demand.
The aftermarket segment is expected to remain constant compared
to results for 2000. The competition in this market continues to
increase as mergers continue to occur between suppliers. The sales
in this segment have been driven by new product introductions in
filters, dry friction clutch facings and planetary gears over the
past years. Introducing new products for this market is a key
element in the 2001 strategy.
The dry friction segment continues to operate in a sluggish
European environment with unemployment remaining at high levels and
economic growth improving only marginally. The development of new
market opportunities in Asia is supported through the new production
facility in China. This facility improved sales substantially over
1999, growing from $1.9 million in sales to $2.8 million in 2000, an
increase of $.9 million. The overall Asian economy continues to be
negatively affected by the weakened economies of Japan and other
Asian countries. Therefore, growth in 2001 will be at a slower pace
compared to 2000.
The Company's outlook for 2001 anticipates modest reduction in
sales with lower operating income compared to 2000 results.
Maintaining market share in the automotive original equipment market
and the continued introduction of new products for aftermarket
distribution are expected to be the drivers for performance.
Further, it is anticipated that the dry friction operation in China
will improve the performance of this segment.
Euro Conversion
The Company is well advanced in the process of identification,
implementation and testing of its systems to adopt the euro currency
in its operations affected by this change. The Company's affected
suppliers, distribution network and financial institutions have been
contacted and the Company does not believe the currency change will
significantly impact these relationships. As a result, the Company
expects to have its systems ready to process the euro conversion
during the transition period through January 1, 2002 when the euro
will become the official currency of participating nations. The
cost of information systems modifications, effects on product
pricing and purchase contracts, and the impact on foreign currency
financial instruments are not expected to be material.
Financial Risks
The Company maintains lines of credit with United States and
foreign banks, as well as other creditors detailed in Note F - Debt
in the Notes to Consolidated Financial Statements.
The Company is naturally exposed to various interest rate risk
and foreign currency risk in its normal course of business.
The Company effectively manages its accounts receivable as
evidenced by the average days sales in trade receivables of 37 days,
a reduction of 9 days from the prior year. This allows for minimum
borrowings in supporting inventory and trade receivables.
Management does not anticipate a significant change in fiscal policy
in any of its borrowing markets in 2001 given current economic
conditions. Further, the Company can reduce the short-term impact
of interest rate fluctuation through deferral of capital investment
should the need arise.
The Company maintains borrowings in both fixed rate and
variable rate debt instruments. The fixed rate debt at year-end
2000 of $16.9 million had rates of interest that ranged from 2.5% to
7.5%. The variable rate debt at year-end 2000 of $13.1 million had
rates of interest that ranged from 8% to 9.5%. The variable debt
reprices either at prime rate, the Eurodollar rate or the European
Community discount rate. The Company has not entered into any
interest rate management programs such as interest rate swaps or
other derivative type transactions. The amount of exposure which
could be created by increases in rates is not considered significant
by management.
The local currencies of the Company's foreign subsidiaries have
been designated as the functional currencies. Accordingly,
financial statements of foreign operations are translated using the
exchange rate at the balance sheet date for assets and liabilities,
historical exchange rates for elements of stockholders' equity and
an average exchange rate in effect during the year for revenues and
expenses. Where possible, the Company attempts to mitigate foreign
currency translation effects by borrowing in local currencies to
fund operations. The Company does not believe that the fluctuation
in foreign currency will have a material adverse effect on the
Company's overall financial condition. Additionally, the Company
does not enter into agreements to manage any currency transaction
risks due to the immaterial amount of transactions of this type.
Liquidity and Capital Resources
The Company's wet friction and dry friction operations are
capital intensive and the required capital is funded through current
operations and external borrowing sources. The aftermarket
operation has historically required less capital investment and has
provided needed capital through current operations.
The positive cash flows provided by operations in 2000 were the
result of continued strong performance in operating activities and
totaled $34.3 million. Cash provided by changes in trade accounts
receivable of $7.0 million, other current assets of $1.3 million and
accrued and other liabilities of $2.6 million were offset by cash
used by changes in inventory of $.3 million, other long-term assets
of $.9 million and accounts payable of $4.0 million. The aggregate
amount of the 2000 cash flow was used principally to invest in
capital projects of $13.5 million, to reduce bank debt $7.6 million
net (after borrowings) and to reduce the Raymark debt $9.6 million.
Over the past three years, operating activities have provided
an aggregate of $83.5 million in cash. During this period, net cash
used in financing activities was $25.0 million and cash and cash
equivalents increased $4.0 million. The aggregate amount of these
cash flows was used mainly to fund capital investments and the
acquisition of AFM.
Trade accounts receivable result from sales in the normal
course of business. Trade receivables decreased $7.0 million during
2000 due to reduced sales and stronger receivables management. The
ratios of worldwide net trade accounts receivable to year-end net
sales were 10.2% in 2000, 12.6% in 1999, and 11.9% in 1998. The
collection period for trade receivables averaged 37 days in 2000 and
46 and 44 days for 1999 and 1998, respectively.
Inventories were equal to 1999 levels. Inventories are valued
on a first in, first out (FIFO) basis. The inventory levels at the
end of 2000 reflect the impact of reduced sales offset by the need
to maintain adequate inventory levels for customer service delivery.
The ratios of inventories to year-end net sales were 13.9% for 2000,
13.2% for 1999, and 12.5% for 1998.
Additional information detailing the debt of Raytech
Corporation can be found in Note F - Debt in Notes to the
Consolidated Financial Statements.
Future Liquidity
See Item 3 Legal Proceedings.
The future liquidity issues facing the Company are partially
outlined in Note F in Notes to the Consolidated Financial
Statements. Costs incurred by the Company relating to Raymark
successor liability matters and the related bankruptcy proceedings
are subject to indemnification by Raymark under the 1987
acquisition agreements and are being applied as a reduction of the
note obligations. These costs amounted to $9.6 million, $5.3
million and $6.3 million, respectively, for fiscal 2000, 1999, and
1998. At December 31, 2000, the principal balance of the Wet
Clutch and Brake note was $5.8 million. There is also other
Raymark debt that is not subject to indemnification that amounted
to $4.8 million at December 31, 2000.
Additionally, the future liquidity will be affected by the
Second Amended Plan of Reorganization ("Plan") and certain
liabilities recorded during 2000, which are classified as
"Liabilities Subject to Compromise." Included in these liabilities
are certain amounts relating to environmental and asbestos personal
injury claims that are expected to be extinguished upon the
transfer of Raytech stock to the Personal Injury Trust, as fully
discussed in Note A to the Consolidated Financial Statements. Also
included in the liabilities subject to compromise are $16 million
for the Raymark pension and $2.5 for certain other Raymark retiree
benefits. It is uncertain at this time how these two liabilities
will be extinguished.
The Plan also sets forth a Tax Refund Assignment Agreement
between the Company and the Personal Injury Trust, which provides
for the tax benefits received by the Company due to the
reorganization to be passed onto the Personal Injury Trust as
received.
The Plan also requires that an amount of cash, which will be
determined at the effective date, will be transferred to the
Personal Injury Trust. It is estimated that the amount will be
approximately $2.5 million.
The Company reduced its debt position $17.5 million, as
compared to 1999 (see Note F to the Consolidated Financial
Statements). Additionally, the Company increased its cash position
$3.2 million during fiscal 2000. The Company had outstanding bank
debt at year-end of $16.0 million with available lines of credit of
$6 million. The cash position of Raytech at year-end 2000 is $13.9
million. In addition to cash and available lines of credit, the
Company has budgeted $17.8 million in capital expenditures for the
2001 year. Certain of these expenditures could be postponed if
financial demands warranted such action. Subject to the outcome of
the legal matters discussed above, management believes that the
Company will generate sufficient cash flow during 2001 to meet all
of the Company's obligations arising in the normal course of
business and anticipated capital investments. If the Plan becomes
effective in 2001, and the details of the Plan remain consistent to
their current status, management believes that the Company will
generate sufficient cash flow during 2001 to meet all of the
Company's obligations arising in the normal course of business and
to meet all the obligations of the proposed Plan.
Recently Issued Accounting Pronouncements
Effective January 1, 2001, the Company adopted SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities," as
amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS NO. 133, as
amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The
statement requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position
and measure those instruments at fair value. Management has
completed its analysis relating to the adoption of these statements
and will include the effects of this adoption in the 2001 financial
statements. Management has concluded that the impact of SFAS No.
133 will not be material.
In December 1999, the Securities and Exchange Commission
("SEC") issued SEC Staff Accounting Bulletin ("SAB") No. 101,
"Revenue Recognition in Financial Statements," as amended by SAB
No. 101A, which delayed the implementation date of SAB No. 101 for
companies with fiscal years beginning between December 16, 1999 and
March 15, 2000. Since the issuance of SAB No. 101 and SAB No.
101A, the SEC issued SAB No. 101B, which delayed implementation
until no later than the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. SAB No. 101 summarized the
SEC's views in applying generally accepted accounting principles to
revenue recognition in financial statements. Management has
reviewed its policies with respect to revenue recognition and has
determined that the policies are in compliance with SAB 101 and
accounting principles generally accepted in the United States of
America.
In March 2000, the FASB issued guidance on stock compensation
issues in the form of FASB Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25." The Interpretation
clarifies the application of APB Opinion No. 25 for certain issues.
The Interpretation is effective beginning July 1, 2000. Management
has completed its analysis of FASB Interpretation No. 44 and has
determined that it is not applicable at this time.
1999 Compared With 1998
Raytech continued its solid performance through the fourth
quarter of 1999 and as a result ended the year with record sales of
$252.0 million. Net income for the 1999 fiscal year amounted to
$16,364 or $4.76 basic earnings per share as compared to $16,357 or
$4.81 basic earnings per share in fiscal 1998.
Net Sales
Worldwide net sales rose 1.8% to $252.0 million, compared with
$247.5 million in 1998. The wet friction segment sales increased
$.9 million due to strong sales in the automotive component of the
wet friction segment, including sales of Raytech Automotive
Components Company for the full year. However, increases were
partially offset by declines in the heavy duty and agricultural
markets as the demand for certain items continued to slow.
Aftermarket sales increased $5.3 million compared with the prior
year as a result of marketing efforts in existing product lines,
the introduction of new products, and improvement in market share.
The dry friction segment sales decreased $1.7 million year over
year due to a decline in sales ($2.0 million) and an adverse
foreign currency fluctuation ($1.6 million), offset by $1.9 million
in revenues from the China facility that became fully operational
in 1999.
Gross Profit
Gross profit as a percentage of sales for the period ended
January 2, 2000 is 23.9% as compared to 23.7% for the same period
one year ago. The improvement is the result of cost saving
programs implemented at our manufacturing facilities, capital
investment aimed at reducing labor and creating greater
efficiencies and a favorable mix of products sold.
Selling, General and Administrative
Selling, general and administrative expenses decreased .9% to
$32.7 million as compared to $33.0 one year earlier. The cost
decrease is attributable to reduced administrative staff and
selling costs.
Interest Expense
Interest expense, excluding the Raymark note, increased
primarily as a result of higher interest rates on borrowings under
the Company's revolving line of credit. Average monthly bank
borrowings increased during the year due to increased sales volume
and new borrowings for our China expansion.
In connection with the January 1998 Bankruptcy Court decision
to require Raytech to halt payments on its promissory note payable
to Raymark, management has concluded that interest should not be
accrued during the cease payment period. Accordingly, no interest
has been accrued in fiscal 1999 and 1998. The ultimate resolution
of interest to be paid on the note is subject to the uncertainties
inherent in reorganization proceedings under the Bankruptcy Code.
Other Income, Net
Other income, net in 1999 includes interest income in the
amount of $352 thousand, which is comparable to interest income for
1998.
Income Taxes
The effective tax rate for the year ended January 2, 2000 was
32.2% versus 28.0% in 1998. The effective tax rate in each year is
less than the federal statutory rate of 35% due primarily to the
effect of certain legal and other costs deducted for tax purposes
but net against the Raymark note payable for financial reporting
purposes in connection with the indemnification agreement with
Raymark, offset in part by the effect of foreign and state income
taxes. Due to the uncertainties inherent in bankruptcy
proceedings, a full valuation allowance is provided for domestic
deferred tax assets where recoverability is contingent upon future
taxable income. The Company has approximately $6.2 million of
foreign loss carryforwards that can be used to offset future
foreign cash taxes. A valuation allowance is provided on the tax
benefit of approximately $3.5 million of these foreign loss
carryforwards due to uncertainty of future profitability of certain
operations.
Business Segment and Geographic Area Results
The following discussion of operating results by industry
segment and geographic area relates to information contained in
Note K - Segment Reporting in the Notes to Consolidated Financial
Statements. Operating profit is income before income taxes and
minority interest.
1999 Net Sales by Business Segment
Wet Friction 62%
Aftermarket 25%
Dry Friction 13%
Wet Friction Segment (in millions)
Net Sales Operating Profit
1999 $156.7 $18.1
1998 155.8 18.4
Wet Friction Segment
Revenues increased .6 percent to $156.7 million as compared
with $155.8 million in 1998. The growth was driven by the continued
strong sales in the automotive original equipment market, with an
increase of approximately $8.6 million over the prior year. New
products totaling $7.6 million were introduced through the
automotive original equipment channel of the Wet Friction segment.
The heavy duty market continues to decline as demand slows, with
agricultural product sales being exceptionally slow. The
agricultural market declined approximately $6.2 million as compared
to 1998. Lower farm commodity prices and weaker farm economic
conditions have adversely affected retail demand.
Operating profit declined slightly from the prior year from
$18.1 million in 1999 as compared to $18.4 million in 1998. The
modest decrease of $.3 million relates directly to the decrease in
overhead spending and material handling offset by an increase in
direct labor.
Aftermarket Segment (in millions)
Net Sales Operating Profit
1999 $64.1 $11.6
1998 58.8 9.0
Aftermarket Segment
Revenues increased 9.0% to $64.1 million as compared with
$58.8 million in 1998. The increase is a result of marketing
efforts on existing product lines, the introduction of new products
and improvement in market share. The growth in sales of
transmission filters, friction plates and steel plates provided
$5.0 million of the total $5.3 million in growth year-over-year.
The expansion of the dry friction clutch plates program provided
the remainder of the growth over 1998.
Operating profit increased 28.9% to $11.6 million as compared
to $9.0 million in 1998. The increase is primarily due to increased
unit production and the introduction of new products in 1999. The
Aftermarket segment increased operating profit $2.6 million over
1998 on $5.3 million of increased sales. This equates to operating
profits increasing 49 cents for every new sales dollar. This
strong profitability ratio is due to improved operating
efficiencies in the manufacturing and distribution components of
this business.
Dry Friction Segment (in millions)
Net Sales Operating Profit
1999 $31.2 $1.2
1998 32.9 .8
Dry Friction Segment
Revenues decreased 5.2% to $31.2 million as compared with
$32.9 million in 1998. The decrease of $1.7 million is due to a
decline in sales ($2.0 million) and an adverse foreign currency
fluctuation ($1.6 million), offset by $1.9 million in revenues from
the China facility that became fully operational in 1999.
Increased competition and the slow growth in the European economy
are significant factors contributing to the 1999 performance.
Operating profit increased 50.0% to $1.2 million as compared
to $.8 million in 1998. The increase is due to the positive results
generated from the Company's China facility.
Safe Harbor Statement
Safe Harbor Statement under the Private Securities Litigation
Reform Act of 1995: Statements under the "Market Conditions and
Outlook" and "Euro Conversion" headings above and other statements
herein that relate to future operating periods are subject to
important risks and uncertainties that could cause actual results
to differ materially. Forward-looking statements relating to the
Company's businesses involve certain factors that are subject to
change, including the many interrelated factors that affect
consumer confidence, including worldwide demand for automotive and
heavy duty products, general economic conditions, the environment,
actions of competitors in the various industries in which the
Company competes; production difficulties, including capacity and
supply constraints; dealer practices; labor relations; interest and
currency exchange rates (including the effect of conversion to the
euro); technological difficulties; accounting standards, and other
risks and uncertainties. Further information, including factors
that potentially could materially affect the Company's financial
results, is included in the Company's filings with the Securities
and Exchange Commission.
Item 7a. Quantitative and Qualitative Disclosures about
Market Risk
See Item 7.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements:
Consolidated Balance Sheets at
December 31, 2000 and January 2, 2000
Consolidated Statements of Operations
for the 2000, 1999 and 1998 Fiscal Years
Consolidated Statements of Cash Flows
for the 2000, 1999 and 1998 Fiscal Years
Consolidated Statements of Changes in
Shareholders' Equity for the 2000, 1999,
and 1998 Fiscal Years
Notes to Consolidated Financial Statements
Report of Independent Accountants
RAYTECH CORPORATION
CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
At Fiscal Year Ended 2000 1999
ASSETS
Current assets
Cash and cash equivalents $ 13,917 $ 10,746
Trade accounts receivable, less allowance of $1,234
for 2000 and $1,350 for 1999 24,487 31,804
Inventories, net 33,322 33,325
Other current assets 6,459 8,169
Total current assets 78,185 84,044
Property, plant and equipment 189,659 180,511
Less accumulated depreciation (106,954) (98,136)
Net property, plant and equipment 82,705 82,375
Intangible assets, net of accumulated amortization of
$2,121 for 2000 and $1,299 for 1999 19,499 20,074
Deferred income taxes 137,147 304
Other assets 2,780 1,889
Total assets $ 320,316 $188,686
LIABILITIES
Current liabilities
Notes payable and current portion of long-term debt $ 10,308 $ 20,537
Raymark debt 10,631 11,167
Accounts payable 13,070 18,505
Accrued liabilities 22,774 22,634
Total current liabilities 56,783 72,843
Liabilities subject to compromise 7,211,433 -
Long-term debt due to Raymark - 9,206
Long-term debt 9,053 6,581
Postretirement benefits other than pensions 13,150 12,132
Other long-term liabilities 9,035 7,136
Total liabilities 7,299,454 107,898
COMMITMENTS & CONTINGENCIES
SHAREHOLDERS' (DEFICIT) EQUITY
Capital stock
Cumulative preferred stock, no par value
800,000 shares authorized, none issued - -
Common stock, par value $1.00
7,500,000 shares authorized; 5,651,372 and 5,612,963
issued in 2000 and 1999, respectively 5,651 5,613
Additional paid in capital 70,631 70,564
(Accumulated deficit) retained earnings (7,049,641) 9,337
Accumulated other comprehensive loss (1,218) (165)
(6,974,577) 85,349
Less treasury shares at cost (4,561) (4,561)
Total shareholders' (deficit) equity (6,979,138) 80,788
Total liabilities and shareholders' (deficit) equity $ 320,316 $188,686
The accompanying notes are an integral part of these statements.
RAYTECH CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share data)
Fiscal year 2000 1999 1998
Net sales $ 239,532 $ 251,966 $ 247,464
Cost of sales (180,043) (191,728) (188,814)
Gross profit 59,489 60,238 58,650
Selling, general and administrative
expenses (32,440) (32,686) (33,030)
Other operating income (expense), net 166 (34) 387
Operating profit 27,215 27,518 26,007
Currency transaction gains (losses) 316 105 (114)
Interest expense - Raymark (262) (274) (284)
Interest expense (1,956) (2,005) (1,874)
Other income, net 1,028 1,201 1,065
Income before provision for asbestos
litigation, provision for
environmental and other claims,
income taxes and minority interest 26,341 26,545 24,800
Provision for environmental and
other claims (450,250) - -
Provision for asbestos litigation (6,760,000) - -
(Loss) income before income taxes
and minority interest (7,183,909) 26,545 24,800
Income tax benefit (provision) 126,422 (8,554) (6,944)
(Loss) income before minority
interest (7,057,487) 17,991 17,856
Minority interest (1,491) (1,627) (1,499)
Net (loss) income $(7,058,978) $ 16,364 $ 16,357
Basic (loss) earnings per share $ (2,015.40) $ 4.76 $ 4.81
Diluted (loss) earnings per share $ (2,015.40) $ 4.65 $ 4.61
The accompanying notes are an integral part of these statements.
RAYTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Fiscal Year 2000 1999 1998
Cash flows from operating activities:
Net (loss) income $(7,058,978) $ 16,364 $16,357
Adjustments to reconcile net (loss) income
to net cash provided by operations:
Deferred income tax (136,273) 1,272 1,061
Depreciation and amortization 12,367 11,543 10,026
Income applicable to minority interest,
net of dividends 1,491 1,627 1,499
Adjustment for asbestos-related claims 7,210,250 - -
Other items not (providing) or requiring
cash (Note C) (190) 600 485
Changes in operating assets and liabilities:
Trade receivables 6,972 (3,545) (2,730)
Inventories (298) (3,080) (2,348)
Other current assets 1,254 (348) 1,028
Other long-term assets (893) (79) (216)
Accounts payable (4,006) 1,991 (3,437)
Accrued liabilities 1,451 1,315 (1,142)
Other long-term liabilities 1,159 169 761
Net cash provided by operating activities 34,306 27,829 21,344
Cash flow from investing activities:
Proceeds from sales of securities - - 2,300
Capital expenditures (13,539) (22,969) (18,038)
Proceeds on sales of property, plant
and equipment 167 211 182
Equity investment in and advances to AFM - - (2,665)
Net cash used in investing activities: (13,372) (22,758) (18,221)
Cash flow from financing activities:
Net (payments) borrowings (on) from short-term
notes (12,668) 1,039 5,266
Proceeds from long-term borrowings 5,717 1,667 2,394
Principal payments on long-term debt (636) (209) (4,267)
Payments on borrowings from Raymark (9,616) (5,256) (6,322)
Cash overdrafts (622) 993 (3,090)
Exercise of stock options 105 123 362
Net cash used in financing activities (17,720) (1,643) (5,657)
Effect of exchange rate changes on cash (43) (164) 103
Net change in cash and cash equivalents 3,171 3,264 (2,431)
Cash and cash equivalents at beginning of year 10,746 7,482 9,913
Cash and cash equivalents at end of year $ 13,917 $ 10,746 $ 7,482
The accompanying notes are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except shares)
Treasury
Retained Accumulated Stock
Additional Earnings Other At Cost
Common Paid in (Accumulated Comprehensive (2,132,059
Stock Capital Deficit) (Loss) Income Shares) Total
Balance,
December 28, 1997 $5,417 $70,275 $(23,384) $ 715 $(4,561) $ 48,462
Comprehensive income:
Net income 16,357 16,357
Changes during
the year (884) (884)
Total comprehensive
income 16,357 (884) 15,473
Stock options exercised
(136,087 shares) 136 226 362
Balance,
January 3, 1999 5,553 70,501 (7,027) (169) (4,561) 64,297
Comprehensive income:
Net income 16,364 16,364
Changes during
the year 4 4
Total comprehensive
income 16,364 4 16,368
Stock options exercised
(59,509 shares) 60 63 123
Balance,
January 2, 2000 5,613 70,564 9,337 (165) (4,561) 80,788
Comprehensive loss:
Net loss (7,058,978) (7,058,978)
Changes during
the year (1,053) (1,053)
Total comprehensive
loss (7,058,978) (1,053) (7,060,031)
Stock options exercised
(38,409 shares) 38 67 105
Balance,
December 31, 2000 $5,651 $70,631 $(7,049,641) $(1,218) $(4,561) $(6,979,138)
The accompanying notes are an integral part of these statements.
RAYTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, unless otherwise noted,
except per share data)
Note A - Formation of Raytech Corporation, Sale of Raymark,
Chapter 11 Proceeding and Other Litigation
Raytech Corporation ("Raytech" or the "Company") was
incorporated in June, 1986 in Delaware and held as a subsidiary
of Raymark Corporation ("Raymark"). In October 1986, Raytech
became the publicly traded (NYSE) holding company of Raymark
stock through a triangular merger restructuring plan approved by
Raymark's shareholders whereby each share of common stock of
Raymark was automatically converted into both a share of Raytech
common stock and a right to purchase a warrant for Raytech common
stock. The warrants expired on October 1, 1994. The purpose of
the formation of Raytech and the restructuring plan was to
provide a means to gain access to new sources of capital and
borrowed funds to be used to finance the acquisition and
operation of new businesses in a corporate structure that should
not subject it or such acquired businesses to any asbestos-
related or other liabilities of Raymark under the doctrine of
successor liability, piercing the corporate veil and fraudulent
conveyance.
Prior to the formation of Raytech, Raymark had been named as
a defendant in more than 88,000 lawsuits claiming substantial
damages for injury or death from exposure to airborne asbestos
fibers. Subsequent to the divestiture sale of Raymark in 1988,
lawsuits continued to be filed against Raymark at the rate of
approximately 1,000 per month until an involuntary petition in
bankruptcy was filed against Raymark in February 1989, which
stayed all its litigation. In August 1996, the involuntary
petition filed against Raymark was dismissed following a trial
and the stay was lifted. However, in March 1998, Raymark filed a
voluntary bankruptcy petition again staying the litigation.
In accordance with the stated restructuring plan, Raytech,
through its subsidiaries, purchased certain non-asbestos
businesses of Raymark in 1987, including the Wet Clutch and Brake
Division for $76.9 million and Raybestos Industrie-Produkte GmbH,
a German subsidiary for $8.2 million. In anticipation of such
sales, Raymark retained independent investment bankers and
financial analysts for the purpose of determining fair purchase
prices and divestiture. Representing part of the consideration
of the transactions, Raymark agreed to indemnify Raytech for
Raymark's liabilities, including asbestos, environmental, pension
and others.
In May 1988, Raytech divested all of the Raymark stock to
Asbestos Litigation Management, Inc. The purchase price of the
stock was affected by Raymark's substantial asbestos-related
liabilities.
Despite the restructuring plan implementation and subsequent
divestiture of Raymark, Raytech was named a co-defendant with
Raymark and other named defendants in numerous asbestos-related
lawsuits as a successor in liability to Raymark. Until February
1989, the defense of all such lawsuits was provided to Raytech by
Raymark in accordance with the indemnification included as a
condition of the purchase of the Wet Clutch and Brake Division
and German subsidiary from Raymark in 1987. In 1989, the
involuntary bankruptcy proceedings against Raymark caused Raymark
to be unable to fund the costs of defense to Raytech in the
asbestos-related lawsuits referenced above. Raytech management
was informed that Raymark's cost of defense and disposition of
cases up to the automatic stay of litigation in 1989 under the
involuntary bankruptcy proceedings was approximately $333 million
of Raymark's total insurance coverage of approximately $395
million. It has also been informed that as a result of the
dismissal of the involuntary petition, Raymark encountered newly
filed asbestos-related lawsuits but had received $27 million from
a state guarantee association to make up the insurance policies
of an insolvent carrier and had $32 million in other policies to
defend against such litigation. In March 1998, Raymark filed a
voluntary bankruptcy petition as a result of several large
asbestos-related judgments.
In an asbestos-related personal injury case captioned
Raymond A. Schmoll v. ACandS, Inc., et al. decided in October
1988 in a U.S. District Court in Oregon, Raytech was ruled under
Oregon equity law to be a successor to Raymark's asbestos-related
liability. The successor ruling was appealed by Raytech and in
October 1992 the Ninth Circuit Court of Appeals affirmed the
District Court's judgment on the grounds stated in the District
Court's opinion. The effect of this decision extends beyond the
Oregon District due to a Third Circuit Court of Appeals decision
in a related case cited below wherein Raytech was collaterally
estopped (precluded) from relitigating the issue of its successor
liability for Raymark's asbestos-related liabilities.
As the result of the inability of Raymark to fund Raytech's
cost of defense recited above and to halt the asbestos-related
litigation, on March 10, 1989, Raytech filed a petition seeking
relief under Chapter 11 of Title 11, United States Code in the
United States Bankruptcy Court, District of Connecticut. Under
Chapter 11, substantially all litigation against Raytech was
stayed while the debtor corporation and its non-filing operating
subsidiaries continue to operate their businesses in the ordinary
course under the same management and without disruption to
employees, customers or suppliers. In the Bankruptcy Court a
creditors' committee was appointed, comprised primarily of
asbestos claimants' attorneys. In August 1995, an official
committee of equity security holders was appointed relating to a
determination of equity security holders' interest in the
bankruptcy estate.
In June 1989 Raytech filed a class action in the Bankruptcy
Court captioned Raytech v. Earl White, et al. against all present
and future asbestos claimants seeking a declaratory judgment that
it not be held liable as a successor for the asbestos-related
liabilities of Raymark. The U.S. District Court withdrew its
reference of the case to the Bankruptcy Court, and agreed to hear
and decide the case. In September 1991, the U.S. District Court
issued a ruling dismissing the class action citing as a reason
the preclusive effect of the 1988 Schmoll case recited above
under the doctrine of collateral estoppel (conclusiveness of
judgment in a prior action), in which Raytech was ruled to be a
successor to Raymark's asbestos liability under Oregon law. Upon
a motion for reconsideration, the U.S. District Court affirmed
its prior ruling in February 1992. Also, in February 1992, the
U.S. District Court transferred the case in its entirety to the
U.S. District Court for the Eastern District of Pennsylvania.
Such transfer was made by the U.S. District Court without motion
from any party in the interest of the administration of justice
as stated by the U.S. District Court. In February 1994, the U.S.
District Court's dismissal of the case was appealed. In May
1995, the Third Circuit Court of Appeals ruled that Raytech is
collaterally estopped (precluded) from relitigating the issue of
its successor liability as ruled in the 1988 Oregon case recited
above, affirming the U.S. District Court's ruling of dismissal.
A petition for a writ of certiorari was denied by the U.S.
Supreme Court in October 1995. The ruling leaves the Oregon
case, as affirmed by the Ninth Circuit Court of Appeals, as the
prevailing decision holding Raytech to be a successor to
Raymark's asbestos-related liabilities.
As the result of the Court rulings recited above holding
Raytech a successor to Raymark's asbestos-related liabilities,
Raytech halted payments to Raymark under the 1987 Asset Purchase
Agreement in May 1995. However, in February 1997, with Raymark
temporarily out of bankruptcy, Raytech resumed making payments
pursuant to the Agreement. As the result of the creditors'
committee's action to halt the payments, the Bankruptcy Court
ordered the payments stopped in January 1998.
Costs incurred by the Company for asbestos-related
liabilities are subject to indemnification by Raymark under the
1987 acquisition agreements. By agreement, in the past, Raymark
has reimbursed the Company in part for such indemnified costs by
payment of the amounts due in Raytech common stock of equivalent
value. Under such agreement, Raytech received 926,821 shares in
1989, 177,570 shares in 1990, 163,303 in 1991 and 80,000 shares
in 1993. The Company's acceptance of its own stock was based
upon an intent to control dilution of its outstanding stock. In
1992, the indemnified costs were reimbursed by offsetting certain
payments due Raymark from the Company under the 1987 acquisition
agreements. Costs incurred since 1994 were applied as a
reduction of the note obligations pursuant to the agreements.
In March and April 1998, Raymark and its parent, Raymark
Corporation, filed voluntary petitions in bankruptcy in a Utah
Court which stayed all litigation in the Raytech bankruptcy in
which Raymark was a party. In connection with asserting control
over Raymark and its assets, the creditors' committee, Raytech,
the Guardian ad litem for Future Claimants, the equity committee
and the government agencies caused the Raymark bankruptcies to be
transferred from Utah to the Connecticut Court. In October 1998,
a trustee was appointed by the United States Trustee over the
Raymark bankruptcies and is currently administering the Raymark
estate.
In October, 1998 Raytech reached a tentative settlement with
its creditors and entered into a Memorandum of Understanding with
respect to achieving a consensual plan of reorganization (the
"Plan"). The parties to the settlement included Raytech, the
Official Creditors Committee, the Guardian ad litem for Future
Claimants, the Connecticut Department of Environmental Protection
and the U. S. Department of Justice, Environmental and Natural
Resources Division. Substantive economic terms of the Memorandum
of Understanding provided for all general unsecured creditors
including but not limited to all asbestos and environmental
claimants to receive 90% of the equity in reorganized Raytech and
any and all refunds of taxes paid or net reductions in taxes
owing resulting from the transfer of equity to a trust
established under the Bankruptcy Code, and existing equity
holders in Raytech to receive 10% of the equity in reorganized
Raytech. The Memorandum of Understanding also requires that an
amount of cash, which will be determined at the effective date,
be transferred to the trust. The amount of cash has been
estimated at $2.5 million. Substantive non-economic terms of the
Memorandum of Understanding provided for the parties to jointly
work to achieve a consensual Plan, to determine an appropriate
approach to related pension and employee benefit plans and to
cease activities that have generated adverse proceedings in the
Bankruptcy Court. The parties also agreed to jointly request a
finding in the confirmation order to the effect that while
Raytech's liabilities appear to exceed the reasonable value of
its assets, the allocation of 10% of the equity to existing
equity holders is fair and equitable by virtue of the benefit to
the estate of resolving complicated issues without further costly
and burdensome litigation and the risks attendant therewith and
the economic benefits of emerging from bankruptcy without further
delay.
In August 1999, the Bankruptcy Court set a bar date for
filing claims against Raytech, resulting in approximately 3,200
claims. Such claims were categorized into asbestos personal
injury, asbestos property damage, environmental, including the
EPA and State of Connecticut, pension/retiree benefits and other
employee related claims and other contractual and general
categories. Through Court proceedings many of the filed claims
were expunged, leaving only valid claims to be dealt with in the
Plan. In order to comply with the mandatory estimation of all
claims against the debtor in the confirmation process, Raytech,
the creditors' committee and the Government entered into
discussions to attempt to make estimations of the asbestos and
Government claims not subject to the bar date. The discussions
resulted in an agreement on the estimate of such asbestos and
Government claims, and accordingly, a motion was filed in the
Bankruptcy Court for an allowance of asbestos claims of $6.760
billion and Government claims of $431.8 million for purposes of
voting and distribution under the terms of the Plan. In March
2000, the Bankruptcy Court entered an interim order allowing such
amounts as general unsecured claims subject to an objection
period through June 2000 and the completion of the initial vote
of the Plan of confirmation on July 7, 2000. As a result of the
resolution of the objections raised with only a slight
modification to the Plan and the overwhelming favorable response
to the initial vote, management was substantially certain that
the Plan would be confirmed and that the estimate of the $7.2
billion of allowed claims would be finally approved by the
Bankruptcy Court. Accordingly, Raytech recorded a charge and
related liability in the financial statements in the amount of
$7.2 billion for the estimated amount of allowed claims in the
second quarter of 2000. Such estimations are recorded as
liabilities subject to compromise since it is expected that the
distributions under the Plan with respect to such claims will be
lesser amounts consisting of a 90% equity distribution in
reorganized Raytech at the effective date pursuant to the Plan
referenced above in this Note A. Upon the effective date of the
Plan, Raytech will utilize the "fresh start" reporting principles
contained in the AICPA's Statement of Position 90-7, which will
result in adjustments relating to the amounts and classification
of recorded assets and liabilities determined as of the effective
date. Under the Plan, the ultimate consideration to be received
by all unsecured creditors will be covered under the referenced
90% equity distribution and will be substantially less than
amounts shown in the accompanying financial statements.
In 1999, the Bankruptcy Court ("Court") issued rulings on
adversary actions brought by Raymark retirees and pensioners
seeking rights as claimants for benefits from Raytech on the
basis of successor liability. As to the pensioners, the Court
ruled that Raytech has the liability as a successor to Raymark.
The decision has been appealed and remains pending. As noted in
the previous paragraph, during the second quarter of 2000,
management was substantially certain that the Plan would be
confirmed and that the pension liability would be Raytech's
responsibility, although under legal appeal. The resulting
recorded charge and related liability estimated at $16 million
was recorded in the second quarter of 2000 and is subject to
compromise based on the pending appeal. As to the retirees, the
Court ruled that the Raymark Trustee's termination of the
retirees benefit plans was justified and thus the post-
termination liability thereafter could not be transferred to
Raytech. In response to the bar date set for filing claims in
1999, approximately 700 retirees filed timely claims. The
validity and the amount of claims were not estimated until the
fourth quarter of 2000. The charge for the estimated amount of
allowed claims of $2.5 million was recorded in the fourth quarter
of 2000, and the liability is subject to compromise. For both
the PBGC and retiree claims, the Court has not yet determined if
they will be classified as priority or unsecured claims. At
December 31, 2000, they are both considered to be unsecured
claims and included in liabilities subject to compromise pending
final Court decision.
On August 31, 2000, the Bankruptcy Court confirmed Raytech's
Plan, which confirmation was affirmed by the U.S. District Court
on September 13, 2000. The Plan contained several conditions to
the occurrence of the effective date of the Plan ("Effective
Date"). The majority of the conditions have been met, and the
remaining conditions to the Effective Date are the resolution of
the Raymark claims and the requested tax-related rulings from the
IRS or an opinion of counsel. It is unknown when the above-
referenced conditions to the Effective Date will be satisfied,
but it is management's intention that they will be met as soon as
possible. Until the Effective Date occurs, the terms of the
Plan, although confirmed, are not yet in effect. On the
Effective Date, a channeling injunction ordered by the Bankruptcy
Court pursuant to Section 524(g) of the Bankruptcy Code will
permanently and forever stay, enjoin and restrain any asbestos-
related claims against Raytech and subsidiaries, thereby
channeling such claims to the PI Trust for resolution. On the
Effective Date, the rights afforded and the treatment of all
claims and equity interests in the Plan shall be in exchange for
and in complete satisfaction, discharge and release of all claims
and equity interests against Raytech.
In 1991, an environmental claim was filed by the
Pennsylvania Department of Environmental Resources ("DER") to
perform certain activities in connection with Raymark's
Pennsylvania manufacturing facility, including submission of an
acceptable closure plan for a landfill containing hazardous waste
products located at the facility. In March 1991, the Company
entered a Consent Order which required Raymark to submit a
revised closure plan acceptable to the DER. The estimated cost
for Raymark to comply with the order was $1.2 million. The DER
notified the Company in 2000 that Raymark had failed to comply
with its obligations under the Consent Order. In December 2000,
Raymark sold its Pennsylvania manufacturing facility, and the
buyer has entered a consent agreement with the DER to comply with
the order, thereby satisfying the claim against Raytech.
In April 1996, the Indiana Department of Environmental
Management ("IDEM") advised Raybestos Products Company ("RPC"), a
wholly-owned subsidiary of the Company, that it may have contributed
to the release of lead and PCB's (polychlorinated biphenyls) found in
a drainage ditch near its Indiana facility. In June 1996, IDEM named
RPC as a potentially responsible party ("PRP"). RPC notified its
insurers of the IDEM action and one insurer responded by filing a
complaint in January 1997 in the U.S. District Court, Southern
District of Indiana, captioned Reliance Insurance Company vs. RPC
seeking a declaratory judgment that any liability of RPC is excluded
from its policy with RPC. In January 2000, the District Court
granted summary judgment to RPC, indicating that the insurer has a
duty to defend and indemnify losses stemming from the IDEM claim.
IDEM has turned the matter over to the U.S. Environmental Protection
Agency ("EPA"), and in April 2000, the EPA issued a subpoena for
information to determine compliance with federal environmental
regulations and in July 2000 proposed a consent order of
environmental response that was rejected by RPC. In December 2000,
the EPA issued a Unilateral Administrative Order under CERCLA
("Order") demanding removal of contaminated soils from the referenced
drainage ditch. RPC has given notice that it intends to comply with
the Order and has designated a contractor and project coordinator as
required. RPC is preparing a plan for implementing and carrying out
the cleanup Order. Based on preliminary assessments, the Company has
estimated that the cost to comply with the Order will be in the range
of $3 million to $6 million and has recorded a liability in the
amount of $3 million at December 31, 2000. It is at least reasonably
possible that the preliminary assessment of estimated costs to comply
with the Order may be modified as the project progresses. A
receivable from Reliance Insurance Company will be recorded when the
Company has determined that it is probable that such recovery will be
realized.
In January 1997, Raytech was named through a subsidiary in a
third party complaint captioned Martin Dembinski, et al. vs. Farrell
Lines, Inc., et al. vs. American Stevedoring, Ltd., et al. filed in
the U.S. District Court for the Southern District of New York for
damages for asbestos-related disease. The case has been removed to
the U.S. District Court, Eastern District of Pennsylvania. When
required, the Company will seek an injunction in the Bankruptcy Court
to halt the litigation under the channeling injunction referenced
above.
In December 1998, a subsidiary of the Company filed a complaint
against a former administrative financial manager of Advanced
Friction Materials Company ("AFM") in the U.S. District Court,
Eastern District of Michigan, captioned Raytech Composites, Inc. vs.
Richard Hartwick, et ux. alleging that he wrongfully converted
Company monies in his control to his own use and benefit in an amount
greater than $3.3 million prior to the April 1998 completion of the
acquisition of AFM as discussed in the following paragraph. In
December 1999, the District Court ruled on summary judgment in favor
of Raytech on its claim against Hartwick in the amount of $3.330
million. A constructive trust had been ordered by the Court
providing ownership to Raytech of four real estate properties
purchased by Hartwick with the converted funds. The four properties
have been sold resulting in a net recovery of $1.337 million.
Hartwick has been arrested by the State of Michigan under 13 counts
of embezzlement. In May 2000, Hartwick pled guilty to the charges
and has been sentenced for 2 to 15 years in the Michigan State
Penitentiary. A restitution order was granted to the Company in the
amount of $1.33 million.
In April 1998, AFM redeemed 53% of its stock from the former
owner for a formulated amount of $6.044 million, $3.022 million paid
at closing and the balance of $3.022 million payable by note in three
equal annual installments resulting in the Company attaining 100%
ownership of AFM. In April 1999, an adversary proceeding was filed
in the Connecticut Bankruptcy Court against the former owner
captioned Raytech Corporation, et al. vs. Oscar E. Stefanutti, et al.
to recover $1.5 million of the amount paid for the AFM stock and to
obtain a declaratory judgment that the balance of $3.022 million is
not owed based upon the judgment that a fraud was perpetrated upon
the Company related to the Hartwick case referenced above. In
September 1999, the Bankruptcy Court granted jurisdiction of the case
but exercised discretionary abstention to enable the Court to focus
on issues impeding the plan confirmation. In June 1999, the former
owner filed an action against the Company in a County Court in
Michigan captioned Oscar E. Stefanutti, et al. vs. Raytech Automotive
Components Company to enforce payment of the note. Discovery has
been completed, and cross motions for summary judgment are being
considered by the Court. A trial date has been set for April 2001.
In December 1998, the trustee of Raymark, Raytech and the
Raytech creditors' committee joined in filing an adversary proceeding
(complaint) against Craig R. Smith, et al. (including relatives,
business associates and controlled corporations) alleging a
systematic stripping of assets belonging to Raymark in an elaborate
and ongoing scheme perpetrated by the defendants. The alleged
fraudulent scheme extended back to the 1980's and continued up to
this action and has enriched the Smith family by an estimated $12
million and has greatly profited their associates, while depriving
Raymark and its creditors of nearly all of its assets amounting to
more than $27 million. Upon motion of the plaintiffs, the Bankruptcy
Court issued a temporary restraining order stopping Mr. Smith and all
defendants from dissipating, conveying, encumbering or otherwise
disposing of any assets, which order has been amended several times
and remains in effect pending a preliminary injunction hearing. The
reference to the Bankruptcy Court has been withdrawn, and the matter
is now being litigated in the U.S. District Court in Connecticut. A
motion for summary judgment was filed by the plaintiffs and was ruled
upon in March 2000. The ruling granted plaintiffs summary judgment
on several of the counts but denied summary judgment with respect to
the claims against Mr. Smith for the stripping of assets from Raymark
and its creditors for the reason that there was insufficient evidence
of insolvency of Raymark, giving plaintiffs standing to file the
claim. The Court invited plaintiffs to file for reconsideration of
the denial with sufficient evidence of insolvency of Raymark at the
time Mr. Smith expropriated the assets. Such motion for
reconsideration was filed in April 2000 and remains pending.
The adverse ruling in the Third Circuit Court of Appeals, of
which a petition for writ of certiorari was denied by the U.S.
Supreme Court, precluding Raytech from relitigating the issue of its
successor liability leaves the U.S. District Court's (Oregon) 1988
ruling as the prevailing decision holding Raytech to be a successor
to Raymark's asbestos-related liabilities. This ruling has had a
material adverse impact on Raytech as it did not have the resources
needed to fund Raymark's potentially substantial uninsured asbestos-
related and environmental liabilities. However, the Plan of
Reorganization has defined the impact of the successor liabilities
imposed by the referenced court decisions. While the Plan of
Reorganization has been confirmed by the Bankruptcy Court and the
U.S. District Court, it is not yet effective subject to certain
conditions precedent, which timing cannot be predicted with
Note A, continued
certainty. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern, which
contemplates continuity of operations, realization of assets and
liquidation of liabilities in the normal course of business. The
uncertainties regarding the reorganization proceedings raise
substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments
relating to the recoverability, revaluation and classification of
recorded asset amounts or adjustments relating to settlement and
classification of liabilities that may be required in connection with
reorganizing under the Bankruptcy Code.
Note B - Summary of Significant Accounting Policies
1. Background and Basis of Presentation
Raytech Corporation and its subsidiaries manufacture and
distribute engineered products for heat resistant, inertia
control, energy absorption and transmission applications. The
Company's operations are categorized into three business
segments: wet friction, dry friction and aftermarket.
Demand for the Company's product is derived primarily from the
automotive original equipment, agriculture, construction and
aftermarket segments which are highly competitive. These
markets can be highly influenced by prevailing economic
conditions such as interest rates and employment issues.
The consolidated financial statements include the accounts of
Raytech Corporation and its majority-owned subsidiaries.
Intercompany balances and transactions have been eliminated in
consolidation. The minority interest in Allomatic Products
Company is accounted for as minority interest in the
consolidated financial statements.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the amounts reported and disclosures
of contingent liabilities made in the financial statements and
accompanying notes. Actual results could differ from these
estimates. Significant estimates include inventory and
receivable reserves, depreciable lives of property, plant and
equipment and intangible assets, pension and other
postretirement and postemployment benefits, bankruptcy-related
claims (see Note A) and the recoverable value of deferred tax
assets.
Certain amounts for prior years have been reclassified to
conform to the current year's presentation.
2. Fiscal Year
The Company reports on a 52-53 week fiscal year; the last
three fiscal years ended December 31, 2000, January 2, 2000,
and January 3, 1999.
3. Cash Equivalents
Cash equivalents are recorded at cost, which approximates
market and consist of certificates of deposit with original
maturities of three months or less.
Note B, continued
4. Inventories
Inventories are stated at the lower of cost or market with
cost determined primarily by using the FIFO (first in, first
out) method.
5. Property, Plant and Equipment
Property, plant and equipment is stated at cost less
accumulated depreciation. Depreciation is based on the
estimated service life of the related asset and is provided
using the straight line method. Maintenance and repairs that
do not increase the useful life of an asset are expensed as
incurred. Interest is capitalized on major capital
expenditures during the period of construction and to the date
such asset is placed in service. Upon disposal of property,
plant and equipment, the appropriate accounts are reduced by
the related costs and accumulated depreciation. The resulting
gains and losses are reflected in the Consolidated Statements
of Operations. Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount many not be recoverable. If the sum of the
expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset, an
impairment is recognized.
6. Amortization of Intangibles
Intangible assets consist of goodwill and the intangible
pension asset. Goodwill is amortized on a straight line basis
over forty years or less. The intangible pension asset is
remeasured and adjusted annually through an actuarial
calculation. The Company periodically evaluates the carrying
value of intangible assets when events and circumstances
warrant such a review. The carrying value is considered
impaired and written down to its appropriate value when the
anticipated undiscounted cash flow from such asset is
separately identified and is less than its carrying value.
7. Income Taxes
The Company accounts for income taxes using the liability
method which recognizes the amount of taxes payable or
refundable for the current year and recognizes deferred tax
liabilities and assets for the future tax consequences of
events that have been recognized in the financial statements
or tax returns.
Note B, continued
8. Earnings Per Share
Basic earnings per common share is computed based on the
weighted average number of common shares outstanding during
the year. Diluted earnings per share is computed based on the
weighted average number of common and dilutive potential
common shares during the year.
9. Translation of Foreign Currencies
The local currencies of the Company's subsidiaries in Germany,
the United Kingdom and China have been designated as the
functional currencies. Accordingly, financial statements of
foreign operations are translated using the exchange rate at
the balance sheet date for assets and liabilities, historical
rates for elements of stockholders' equity and an average
exchange rate in effect during the year for revenue and
expense items. The effects of translating the Company's
foreign subsidiaries' financial statements are recorded as a
separate component of accumulated comprehensive income in
shareholders' equity.
10. Revenue Recognition
Sales are recorded by the Company upon delivery of products
when both title and risks and rewards of ownership have passed
to the customer.
11. Environmental Matters
Accruals for environmental matters are recorded when it is
probable that a liability has been incurred and the amount of
the liability can be reasonably estimated or if an amount is
likely to fall within a range and no amount within the range
can be determined to be the better estimate, the minimum
amount of the range is recorded. Remediation obligations are
not recorded on a discounted basis. Revenues from insurance
carriers relating to environmental matters are not recorded
until it is probable that such recoveries will be realized.
12. Recently Issued Accounting Pronouncements
Effective January 1, 2001, the Company adopted SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities,"
as amended by SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities." SFAS NO. 133, as
amended, establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities. The statement requires that an entity recognize
Note B, continued
all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments
at fair value. Management has completed its analysis relating
to the adoption of these statements and will include the
effects of this adoption in the 2001 financial statements.
Management has concluded that the impact of SFAS No. 133 will
not be material.
In March 2000, the FASB issued guidance on stock compensation
issues in the form of FASB Interpretation No. 44, "Accounting
for Certain Transactions Involving Stock Compensation, an
Interpretation of APB Opinion No. 25." The Interpretation
clarifies the application of APB Opinion No. 25 for certain
issues. The Interpretation is effective beginning July 1,
2000. Management has completed its analysis of FASB
Interpretation No. 44 and has determined that it is not
applicable at this time.
Note C - Statements of Cash Flows
Other items not (providing) or requiring cash consist of:
2000 1999 1998
Net loss on sale/writedown
of fixed assets $ 515 $ 326 $ 84
Other non-cash items (705) 274 401
$ (190) $ 600 $ 485
Income taxes paid were $8,619, $7,517, and $ 5,992 during
2000, 1999 and 1998, respectively.
Interest paid was $1,700, $1,868, and $1,955 during 2000, 1999
and 1998, respectively.
Excluded from the 2000, 1999 and 1998 Consolidated Statements
of Cash Flows is $140, $268, and $1,716, respectively, of plant and
equipment acquisitions in accounts payable or under capital leases.
Note D - Inventories
Net Inventories
Inventories, net of inventory reserves, are as follows:
At 2000 1999
Raw materials $ 10,685 $ 10,883
Work-in-process 8,165 9,177
Finished goods 14,472 13,265
$ 33,322 $ 33,325
Inventory Reserves
At 2000 1999 1998
Beginning balance $ 3,288 $ 3,164 $ 3,825
Provisions for obsolete and
slow moving inventory 869 894 366
Charge-offs (646) (770) (1,027)
Ending balance $ 3,511 $ 3,288 $ 3,164
Note E - Property, Plant and Equipment
Property, plant and equipment, at cost, is summarized as
follows:
Estimated
Useful
Lives
At 2000 1999 (Years)
Land $ 1,688 $ 1,542 -
Buildings and improvements 31,170 30,078 5-40
Machinery and equipment 149,739 136,235 3-20
Capital leases 764 951 See Below
Construction in progress 6,298 11,705 -
189,659 180,511
Less accumulated depreciation (106,954) (98,136)
Net property, plant and
equipment $ 82,705 $ 82,375
Capital leases consist primarily of automobiles and telephone
and computer equipment and are amortized over the economic life of
the assets or the term of the leases, whichever is shorter.
Maintenance and repairs charged to expense amounted to
approximately $10,601, $10,902, and $11,470 for 2000, 1999 and
1998, respectively.
Depreciation expense relating to property, plant and equipment
was $11,545, $10,569, and $9,477 for 2000, 1999 and 1998,
respectively.
Note F - Debt
Debt consists of the following:
2000 1999
Current Non-Current Total Current Non-Current Total
Domestic bank debt $ 3,689 $ 3,750 $ 7,439 $ 16,673 $ - $ 16,673
Foreign bank debt 3,465 5,066 8,531 2,736 4,375 7,111
Total bank debt 7,154 8,816 15,970 19,409 4,375 23,784
Note to former
AFM principal 3,022 - 3,022 1,007 2,015 3,022
Leases 132 237 369 121 191 312
10,308 9,053 19,361 20,537 6,581 27,118
Raymark debt 10,631 - 10,631 11,167 9,206 20,373
Total borrowings $ 20,939 $ 9,053 $ 29,992 $ 31,704 $ 15,787 $ 47,491
The aggregate maturities of debt are as follows:
2001 $ 20,939
2002 2,261
2003 1,605
2004 1,665
2005 1,408
Thereafter 2,114
$ 29,992
It is not practical for the Company to estimate the fair value of
the debt it has with Raymark due to the uncertainties associated with
the current bankruptcy proceedings. Additionally, the note payable to
the former principal owner of AFM is being disputed (see Note A). Due
to the uncertainty associated with the outcome of the court case, it is
not practical to estimate the fair value of the debt. The remaining
bank debt of the Company is at variable interest rates, and the
carrying amount approximates fair value.
Domestic Bank Debt
On September 28, 2000, Raybestos Products Company and Raytech
Automotive Components Company terminated the Loan and Security
Agreements with Bank of America Commercial Funding and entered into
a new Loan and Security Agreement ("Agreement"), with Congress
Financial Corporation. The new Agreement provides for Raybestos
Products Company ("RPC"), Raytech Automotive Components Company
("RACC") and Automotive Composites Company ("ACC") to borrow up to
$30 million in the aggregate. The Agreement consists of a $25
million revolving line of credit and a term loan of $5 million. The
revolving line of credit is limited through a formula which provides
availability based on qualified accounts receivable and inventory.
The term note is payable in 36 monthly payments, commencing
Note F, continued
November 1, 2000, with the final payment being the remainder of the
balance. The revolving line of credit and the term note are
collateralized by accounts receivable, inventory and machinery and
equipment. The notes bear interest at either 2.25% above the
adjusted Eurodollar rate or prime rate at the discretion of the
Company. The interest rate at December 31, 2000 was 9.5%. The
agreement includes certain covenant restrictions. At December 31,
2000, the net pledged assets of RPC, RACC and ACC amounted to
$96,543, consisting of cash, accounts receivable, inventory,
property, plant and equipment and all other tangible and intangible
assets. At December 31, 2000, the outstanding balance from the
revolving line of credit amounted to $2,689 with $4,800 available
in additional borrowings (availability is determined based on
qualified accounts receivable and inventory). The balance under the
term loan at December 31, 2000 was $4,750, of which $1,000 is
classified as current and $3,750 is classified as long-term.
The outstanding balances at January 2, 2000 with Bank of
America Commercial Funding were $12,265 for the revolving loan and
$4,408 for the term loan. The additional borrowing available under
the revolving loan at January 2, 2000 was zero.
Foreign Bank Debt
The Company's wholly-owned German subsidiaries (Raybestos
Industrie-Produkte GmbH ["RIP"] and Raytech Composites Europe GmbH
["RCE"]) have available lines of credit with several German banks
amounting to DM8,010 ($3,859). Interest is charged at rates between
8.3% and 10.8%. The lines are repayable on demand. The amounts
outstanding under these available lines of credit at December 31,
2000 and January 2, 2000 were DM5,441 ($2,621) and DM3,686 ($1,898),
respectively, and are classified as current debt. At December 31,
2000 and January 2, 2000, the remaining available lines of credit
amounted to DM2,569 ($1,238) and DM4,324 ($2,226), respectively.
During 2000 and 1999, RCE and RIP entered into various loan
agreements with Commerzbank for amounts ranging from DM790 to
DM2,847. The maturities range from September 2006 through December
2012. The loans bear interest at rates between 2.5% and 8.5%. At
December 31, 2000 and January 2, 2000, respectively, the net pledged
assets amounted to DM20,738 ($9,991) and DM19,314 ($9,945),
consisting of machinery and equipment. At December 31, 2000 and
January 2, 2000 the outstanding balances were DM10,009 ($4,823) and
DM8,952 ($4,609), respectively. The current portion of this debt is
DM749 ($361) and DM455 ($234) at December 31, 2000 and January 2,
2000, respectively.
Note F, continued
In February 1999, the Company's wholly-owned China subsidiary
[Raybestos Friction Products (Suzhou) Co. Ltd. "RFP" ] entered into
a loan agreement with the Industrial and Commercial Bank of China.
The loan bears interest at 5.85% per annum. As of December 31, 2000
and January 2, 2000, the balance due on the loan amounted to Rmb
4,000 ($483) and Rmb 5,000 ($604), respectively, and is classified
as current debt.
In December 2000, RFP entered into a loan agreement with
the Industrial and Commercial Bank of China for Rmb 5,000 ($604).
The loan bears interest at 5.94% per annum and matures in December
2002. As of December 31, 2000 the balance due on the loan amounted
to Rmb 5,000 ($604) and is classified as long-term debt.
The weighted average rates on all domestic and foreign
bank notes payable at December 31, 2000 and January 2, 2000 were
8.08% and 8.67%, respectively.
Note Payable to Former AFM Principal
The note payable to the former AFM principal dated April 1998
is payable in three equal annual installments and bears interest at
prime. As noted in Note A, the Company is litigating the
outstanding payments on this note. The entire balance has been
classified as current, anticipating settlement of this issue in
2001.
Raymark Debt
The notes due to Raymark are the result of the purchase of the
Wet Clutch and Brake Division and the German subsidiary from
Raymark in 1987. In addition, Raytech Composites, Inc. ("RCI")
entered into loan agreements with Raymark.
In December 1992, the Company and Raymark amended the
Asset Purchase Agreement of the Wet Clutch and Brake Division.
Under the terms of the amendment, the original note in the
principal amount of $23,074 plus accrued interest of $17,543 was
canceled and replaced by an uncollateralized promissory note in the
amount of $40,617, bearing interest at the rate of 6% per annum and
payable in equal monthly installments of $650 commencing April
1993. The principal portion of the monthly installments was to be
paid into an escrow account pending clearance of all Raymark
encumbrances and liabilities as provided by the agreement (refer to
Note A). In May 1995, the escrow agreement was amended, and the
Company reclaimed the balance in the escrow and suspended payment
of the monthly installments as a result of the Third Circuit Court
of Appeals decision that jeopardized the assets purchased from
Raymark in 1987 being free of all Raymark related encumbrances and
liabilities. In February 1997, monthly installments of $650 were
resumed to ensure indemnification for Raymark liabilities. In
connection with a complaint filed by the creditors' committee and a
subsequent Bankruptcy Court injunction, the Company halted payments
on the Wet Clutch and Brake note in December 1997, and management
has concluded that interest should not be accrued during the cease
payment period. Accordingly, no interest has been accrued in
fiscal 2000, 1999 and 1998. The ultimate resolution of interest to
be paid on the note is subject to the uncertainties inherent in
reorganization proceedings under the bankruptcy code. Costs
incurred by the Company subject to the indemnification clause of
the 1987 agreements are being applied as a reduction of the note
obligations. These costs amounted to $9,616, $5,256 and $6,322,
respectively, for fiscal 2000, 1999, and 1998. At December 31,
2000 and January 2, 2000, the principal balance of the Wet Clutch
and Brake note was $5,803 and $15,419, respectively.
As agreed by the Company and Raymark, remaining obligations
under the German subsidiary note, payable in German deutsche marks
(DM) are suspended pending the assets purchased being free of all
Raymark related encumbrances and liabilities. At December 31, 2000
and January 2, 2000, the balances due on the German note amounted
to DM3,795 ($1,828) and DM3,795 ($1,954), respectively. The note
bears interest at 7.5% per annum. As of December 31, 2000 and
January 2, 2000, the accrued interest amounted to DM1,611 ($776)
and DM1,332 ($686), respectively, and is included in accrued
liabilities.
In September 1993 and January 1994, RCI entered into loan
agreements with Raymark for $2,500 and $3,000, respectively. As of
December 31, 2000 and January 2, 2000, RCI has $3,000 outstanding
under the loan agreements. The loans bear interest at 6% per
annum. As of December 31, 2000 and January 2, 2000, the accrued
interest amounted to $1,303 and $1,123, respectively, and is
included in accrued liabilities.
The Company has classified all of the Raymark debt as
current at December 31, 2000 due to the pending status of the
bankruptcy proceedings (see Note A).
Note G - Research and Development
Cost of research and new product development amounted to
$6,822 in 2000, $7,085 in 1999, and $5,642 in 1998 and is included
in selling, general and administrative expenses in the Consolidated
Statements of Operations.
Note H - Related Parties
During 1988, the Company repurchased 200,000 shares of its
common stock from Echlin Inc. (since acquired by Dana Corporation)
in exchange for approximately $1,200 of credit on future product
sales from the Company to Dana, which is pre-petition debt under
the Company's bankruptcy filing. At December 31, 2000, Dana's
voting interest in the Company is 15.5%. This debt is included in
"Liabilities Subject to Compromise" at December 31, 2000.
In 1990 and 1991, Raytech Powertrain, Inc., a subsidiary of
the Company, and owner of all of the capital stock of Allomatic
Products Company ("APC"), sold approximately 45% of the capital
stock of APC to a group of investors, including Craig Smith, for
the purpose of partially financing APC's move from New York to
Indiana and for the further growth of its business. Subsequently,
all APC stock held by Craig Smith was transferred to relatives and
related companies, including Universal Friction Composites, Inc.
(see below), and accordingly, in the opinion of General Counsel of
the Company, remains 40% beneficially owned by him. The Company's
Board of Directors reviewed Craig Smith's beneficial ownership of
the APC stock at length and recommended continued disclosure of
the related party transactions and appointed the General Counsel
of the Company to monitor and report all such related party
transactions in the future.
Earnings attributable to minority shareholders of Allomatic
Products Company have been presented net of income tax as minority
interest in the Consolidated Statements of Operations.
During 1998 and 1997, the Company purchased yarn from
Universal Friction Composites ("UFC"), a company that management
has been informed is owned by Bradley C. Smith, son of Craig
Smith. At December 31, 2000 and January 2, 2000, $246 is included
in accounts payable relating to these purchases.
In 1998, the Company acquired manufacturing equipment from
UFC for $1,051, of which $907 is included in accounts payable at
December 31, 2000 and January 2, 2000.
Also see discussion regarding Raymark in Note A.
Note I - Income Taxes
(Loss) income before (benefit) provision for income taxes
and minority interest consists of:
2000 1999 1998
Domestic $(7,186,663) $26,260 $25,314
Foreign 2,754 285 (514)
$(7,183,909) $26,545 $24,800
The Company's income tax (benefit) provision consists of the
following:
2000 1999 1998
Current:
Federal $ 7,698 $ 5,163 $ 4,229
State 1,823 1,158 1,074
Foreign 330 961 580
Deferred:
Federal (118,236) 775 636
State (18,494) 121 100
Foreign 457 376 325
Total income taxes $(126,422) $ 8,554 $ 6,944
Reconciliation of (loss) income from operations multiplied
by the statutory federal tax rate to reported income tax
(benefit) expense is summarized as follows:
2000 1999 1998
Pretax (loss) income
multiplied by the
statutory rate (35%) $(2,514,368) $ 9,291 $ 8,680
Increases (decreases)
resulting from:
Effect of foreign income
taxes net of loss carry-
forwards utilized (177) 1,248 670
Utilization of tax credits (205) (308) (397)
Net change in federal
valuation allowance 2,397,794 (539) (292)
State income taxes, net of
federal benefit (10,836) 831 763
Adjustment of prior years'
accruals 628 447 (992)
Raymark indemnification
payments (896) (2,362) (1,736)
Amortization of nondeductible
intangibles 294 284 174
Other 1,344 (338) 74
Income tax (benefit) expense $(126,422) $ 8,554 $ 6,944
Note I, continued
Deferred tax assets (liabilities) are comprised of the
following:
2000 1999 1998
Liabilities subject to
compromise $ 2,766,573 $ - $ -
Excess of book provisions
over tax deductions 2,557 2,928 3,559
Postretirement benefit 5,149 4,758 4,325
Excess of tax basis over
book basis of assets due
to restructuring 1,312 1,806 2,301
Foreign loss carryforwards 925 1,822 1,927
Other 947 947 947
Gross deferred tax assets 2,777,463 12,261 13,059
Deferred tax asset
valuation allowance (2,632,637) (4,633) (4,851)
Deferred tax assets 144,826 7,628 8,208
Gross deferred tax
liabilities (excess of
tax over book depreciation) ( 5,309) (4,384) (3,692)
Net deferred tax asset $ 139,517 $ 3,244 $ 4,516
In 2000, the Company recorded a deferred tax asset of $2.767
billion relating to the tax effects of the liabilities subject to
compromise. Total deferred tax assets and liabilities at
December 31, 2000 amounted to $2.772 billion. Based on its
historical domestic taxable income, the Company expects to
realize approximately $140 million of the deferred tax asset
through the ten-year carryback of the previously paid domestic
taxes and the expected tax benefits during the twenty-year
carryforward period. In addition, the Company has recognized a
deferred tax asset in connection with German loss carryforwards.
Accordingly, the Company has recorded a valuation allowance of
$2.633 billion against the deferred tax asset to state it at its
expected net realizable value. When the Plan becomes effective
and the liabilities subject to compromise are settled for less
than the recorded amount of allowed claims, the net deferred tax
asset will be adjusted accordingly.
In 1999 and 1998, the net deferred asset represents future
tax deductions that can be realized upon carryback to prior years
and German loss carryforwards.
At December 31, 2000, the Company had foreign loss
carryforwards of $3,486 (Germany $2,254, China $1,010 and U.K.
$222), which do not expire. A valuation allowance has been
Note I, continued
provided against the tax benefit of the U.K. and China loss
carryforwards due to uncertainty of future profitability of these
operations.
The Company has in process an Internal Revenue Service tax
audit for the fiscal years 1996 through 1999. The IRS has proposed
disallowance of $9.9 million of bankruptcy related costs from 1996
through 1998, which are included in the indemnification agreement
with Raymark. The Company has deducted approximately $17.0 million
of such costs through December 31, 2000 and continues to believe
these costs are deductible. The ultimate resolution of the
Company's liability, if any, is dependent on the interpretation of
a complex set of facts and applicable legal precedents. While the
Company and its advisors believe the Company's position is
supported by the facts and the weight of the legal precedents, it
is reasonably possible, through a different factual analysis and
application of countervailing legal authority, that a final
determination could be adverse to the Company. As such, the
Company intends to contest the proposed disallowance and has not
recorded any related provisions. Should the IRS ultimately prevail
in its claim, an adjustment related to prior year tax accruals
would be required.
Note J - Employee Benefits
Raytech has several pension plans covering substantially all employees and
also provides certain postretirement, self-insured health care and life insurance
benefits for its domestic active and retired employees.
Postretirement
Pension Benefits Benefits
2000 1999 2000 1999
Change in benefit obligations
Benefit obligations at
beginning of year $3,455 $ 4,177 $10,043 $11,540
Service cost 302 319 499 561
Interest cost 302 246 801 695
Plan participants' contributions - - 25 29
Amendments 228 - - 95
Actuarial loss (gain) 428 (1,202) 644 (2,683)
Benefits paid (97) (85) (305) (287)
Other - - 50 93
Benefit obligations at end of year $4,618 $3,455 $11,757 $10,043
Change in plan assets
Fair value of plan assets
at beginning of year $3,407 $2,894 $ - $ -
Actual return on plan assets 222 178 - -
Employer contribution 850 420 280 258
Plan participants' contributions - - 25 29
Benefits paid (97) (85) (305) (287)
Fair value of plan assets
at end of year $4,382 $3,407 $ - $ -
Funded Status Reconciliation and Key Assumptions
Postretirement
Pension Benefits Benefits
2000 1999 2000 1999
Funded status $ (236) $ (48) $(11,757) $(10,043)
Unrecognized actuarial loss
(gain) 292 (131) (1,743) (2,446)
Unrecognized prior service 375 184 80 88
Net amount recognized $ 431 $ 5 $(13,420) $(12,401)
Amounts recognized in the
statements of financial
position consist of:
Accrued benefit liability $ (236) $ (48) $(13,420) $(12,401)
Intangible asset 375 53 - -
Accumulated other
comprehensive loss 292 - - -
Net amount recognized $ 431 $ 5 $(13,420) $(12,401)
Note J, continued
Postretirement
Pension Benefits Benefits
2000 1999 2000 1999
Weighted average assumptions
Discount rate 7.50% 7.75% 7.50% 7.75%
Expected return on plan assets 6.00% 6.00% n/a n/a
Rate of compensation increase n/a n/a 5.00% 5.00%
Healthcare trend rate n/a n/a 6.50% 6.50%
Sensitivity Analysis, Postretirement Benefits:
For measurement purposes, a 6.50% annual rate of increase in the per capita cost
of covered healthcare benefits was assumed. The healthcare cost trend rate
assumption has a significant effect on the amounts reported. To illustrate the
impact, increasing or decreasing the assumed health care cost trend rates by 1
percentage point in each year would have the following effects:
1 Percentage Point 1 Percentage Point
Increase Decrease
2000 1999 2000 1999
Effect on total of service
and interest cost components
of expense $ 129 $ 141 $ (114) $(122)
Effect on accumulated postretire-
ment benefit obligations $ 945 $ 895 $ (900) $(806)
Net Periodic Benefit Expense
Postretirement
Pension Benefits Benefits
2000 1999 1998 2000 1999 1998
Service cost - benefits
attributed to service during
the period $ 302 $ 319 $ 270 $ 499 $ 561 $ 490
Interest cost on benefit
obligations 302 246 219 801 695 640
Expected return on plan assets (217) (178) (150) - - -
Amortization of prior
service cost 37 20 20 8 7 -
Amortization of net actuarial
loss (gain) - 25 22 (59) (51) (55)
Early retirement window - - - 50 - -
Total net periodic benefit
cost $ 424 $ 432 $ 381 $1,299 $1,212 $1,075
Note J, continued
The Company's German subsidiaries have unfunded defined benefit plans
covering certain employees.
Pension Benefits
2000 1999
Change in benefit obligations
Benefit obligations at
beginning of year $2,319 $2,562
Service cost 60 67
Interest cost 150 163
Actuarial (gain) loss (97) 16
Benefits paid (115) (121)
Translation adjustment (149) (368)
Benefit obligations at end of year $2,168 $2,319
Change in plan assets
Fair value of plan assets
at beginning of year $ - $ -
Actual return on plan assets - -
Employer contribution 115 121
Plan participants' contributions - -
Benefits paid (115) (121)
Fair value of plan assets
at end of year $ - $ -
Funded Status Reconciliation and Key Assumptions
Pension Benefits
2000 1999
Funded status $(2,168) $(2,319)
Unrecognized actuarial loss 382 346
Unrecognized transition obligation 129 183
Accrued benefit cost $(1,657) $(1,790)
Note J, continued
Weighted average assumptions
Discount rate 7.00% 7.00%
Expected return on plan assets n/a n/a
Rate of compensation increase n/a n/a
Net Periodic Benefit Expense
Pension Benefits
2000 1999 1998
Service cost - benefits
attributed to service during
the period $ 60 $ 67 $ 84
Interest cost on benefit
obligations 150 163 161
Amortization of transition
obligations 45 49 50
Amortization of net actuarial
gain (124) (166) (172)
Total net periodic benefit
cost $ 131 $ 113 $ 123
The Company also sponsors a defined contribution plan which covers essentially
all salaried employees of Raytech. Contributions generally aggregate up to 4% of
each salaried employee's base salary in stock or cash and 2% of adjusted gross
salaries in stock or cash. The total Company contributions in 2000, 1999, and 1998
under the salary defined contribution plan were $874, $1,024, and $818, respectively.
Raytech also has a voluntary defined contribution plan available to all bargaining
unit and other hourly-paid employees of the Company and its subsidiaries that are
authorized to participate. At Allomatic Products Company, a subsidiary, an incentive
contribution of 2% is payable upon the attainment of certain operating earnings
goals. The total contributions in 2000, 1999, and 1998 under the hourly defined
contribution plan were $41, $39, and $30, respectively.
Note K - Segment Reporting
The Company's operations are categorized into three business
segments based on management structure, product type and
distribution channel as described below.
The Wet Friction segment produces specialty engineered
products for heat resistant, inertia control, energy
absorption and transmission applications. The Company
markets its products to automobile original equipment
manufacturers, heavy duty original equipment manufacturers,
as well as farm machinery, mining, truck and bus
manufacturers.
The Dry Friction segment produces engineered friction
products, primarily used in original equipment automobile and
truck transmissions. The clutch facings produced by this
segment are marketed to companies who assemble the manual
transmission systems used in automobiles and trucks.
The Aftermarket segment produces specialty engineered
products primarily for automobile and lift truck
transmissions. In addition to these products, this segment
markets transmission filters and other transmission related
components. The focus of this segment is marketing to
warehouse distributors and certain retail operations in the
automotive aftermarket.
Information relating to operations by industry segment follows:
NOTE K, continued
OPERATING SEGMENTS
Dry Total
Wet Friction Aftermarket Friction Segments
2000
Net sales to external
customers $ 152,673 $ 58,435 $ 28,424 $ 239,532
Intersegment net sales (1) 12,440 38 882 13,360
Total net sales $ 165,113 $ 58,473 $ 29,306 $ 252,892
Depreciation $ 7,869 $ 1,579 $ 2,051 $ 11,499
Interest expense 1,353 239(3) 452 2,044
Operating profit (2) 18,102 10,806 716 29,624
Segment assets 131,427 33,473 22,927 187,827
Expenditures for property,
plant and equipment 8,351 2,299 2,680 13,330
1999
Net sales to external
customers $ 156,725 $ 64,085 $ 31,156 $ 251,966
Intersegment net sales (1) 15,554 16 1,155 16,725
Total net sales $ 172,279 $ 64,101 $ 32,311 $ 268,691
Depreciation $ 7,037 $ 1,434 $ 2,050 $ 10,521
Interest expense 1,560 322 (3) 381 2,263
Operating profit (2) 18,092 11,559 1,186 30,837
Segment assets 138,062 30,802 22,385 191,249
Expenditures for property,
plant and equipment 16,006 3,098 4,047 23,151
1998
Net sales to external
customers $ 155,769 $ 58,844 $ 32,851 $ 247,464
Intersegment net sales (1) 15,358 19 165 15,542
Total net sales $ 171,127 $ 58,863 $ 33,016 $ 263,006
Depreciation $ 6,458 $ 1,243 $ 1,736 $ 9,437
Interest expense 1,385 430 (3) 336 2,151
Operating profit (2) 18,368 9,020 750 28,138
Segment assets 125,206 24,896 21,473 171,575
Expenditures for property,
plant and equipment 12,851 1,813 4,935 19,599
(1) The Company records intersegment sales at an amount negotiated between the
segments. All intersegment sales are eliminated in consolidation.
(2) The Company's management reviews the performance of its reportable segments
on an operating profit basis, consisting of income before tax and minority
interest.
(3) Interest on debt due to affiliate.
NOTE K, continued
SALES BY GEOGRAPHIC LOCATION
Dry
Wet Friction Aftermarket Friction Consolidated
2000
United States $ 141,199 $ 58,435 $ - $ 199,634
Germany 10,819 - 25,635 36,454
Other foreign countries 655 - 2,789 3,444
Total net sales $ 152,673 $ 58,435 $ 28,424 $ 239,532
1999
United States $ 146,466 $ 64,085 $ - $ 210,551
Germany 9,190 - 29,246 38,436
Other foreign countries 1,069 - 1,910 2,979
Total net sales $ 156,725 $ 64,085 $ 31,156 $ 251,966
1998
United States $ 146,323 $ 58,844 $ - $ 205,167
Germany 9,294 - 32,721 42,015
Other foreign countries 152 - 130 282
Total net sales $ 155,769 $ 58,844 $ 32,851 $ 247,464
Sales are attributed to geographic areas based on the location of the assets
producing the sales.
Domestic sales to four wet friction customers, which were each greater than
10% of total net sales, were as follows:
2000 1999 1998
Customer A $ 31,159 $ 29,976 $ 30,716
Customer B 36,820 37,305 36,974
Customer C 18,430 25,588 22,799
Customer D 13,917 17,035 13,971
NOTE K, continued
LONG-LIVED ASSETS BY GEOGRAPHIC LOCATION
Dry
Wet Friction Aftermarket Friction Consolidated
2000
United States $ 46,724 $ 8,422 $ - $ 55,146
Germany 13,057 - 10,012 23,069
Other foreign countries 3,192 - 4,078 7,270
Total long-lived assets $ 62,973 $ 8,422 $ 14,090 $ 85,485
1999
United States $ 45,754 $ 9,116 $ - $ 54,870
Germany 12,766 - 9,971 22,737
Other foreign countries 2,517 - 4,140 6,657
Total long-lived assets $ 61,037 $ 9,116 $ 14,111 $ 84,264
1998
United States $ 35,651 $ 7,881 - $ 43,532
Germany 12,812 - $ 9,901 22,713
Other foreign countries 2,020 - 3,855 5,875
Total long-lived assets $ 50,483 $ 7,881 $ 13,756 $ 72,120
NOTE K, continued
Income 2000 1999 1998
Operating profit (3) $ 29,624 $ 30,837 $ 28,138
Corporate (1) (3,230) (4,131) (3,236)
Provision for asbestos
litigation, environmental
and other claims (7,210,250)(4) - -
Elimination (53) (161) (102)
Consolidated (loss) income
before taxes and minority
interest $(7,183,909) $ 26,545 $ 24,800
Net Sales 2000 1999 1998
Total segment sales $ 252,892 $ 268,691 $ 263,006
Eliminations (13,360) (16,725) (15,542)
Consolidated net sales $ 239,532 $ 251,966 $ 247,464
Assets 2000 1999 1998
Total segment assets $ 187,827 $ 191,249 $ 171,575
Corporate (2) 139,305 2,640 5,988
Eliminations (6,816) (5,203) (5,529)
Total consolidated assets $ 320,316 $ 188,686 $ 172,034
(1) Represents compensation and related costs for employees of the
Company's corporate headquarters, professional fees, shareholder
fees and public relations expenses.
(2) Includes cash, deferred tax assets and long-term assets.
(3) The Company's management reviews the performance of its reportable segments
on an operating profit basis, consisting of income before tax and minority
interest.
(4) Represents a charge for liabilities subject to compromise (see Note A).
Segment Corporate Consolidated
Other Significant Items Total Headquarters Total
2000
Depreciation $ 11,499 $ 46 $ 11,545
Interest expense 2,044 174 2,218
Expenditures for property,
plant and equipment 13,330 69 13,399
1999
Depreciation $ 10,521 $ 48 $ 10,569
Interest expense 2,263 16 2,279
Expenditures for property,
plant and equipment 23,151 52 23,203
1998
Depreciation $ 9,437 $ 40 $ 9,477
Interest expense 2,151 7 2,158
Expenditures for property,
plant and equipment 19,599 155 19,754
NOTE L - Summarized Quarterly Financial Data (Unaudited)
(in thousands except share and market data)
Fiscal Quarters Ended 2000
April 2 July 2 October 1 December 31
Net sales $ 67,475 $ 61,122 $ 56,755 $ 54,180
Gross profit 18,109 14,824 14,012 12,544
Income (loss) before
provision for taxes and
minority interest 9,106 (7,201,306)(1) 5,918 2,373
Net (loss) income 4,820 (7,063,828)(1) 2,972 (2,942)
Basic earnings (loss) per
share(2) 1.38 (2,023.70)(1) .84 (.84)
Diluted earnings (loss) per
share(2) 1.36 (2,023.70)(1) .84 (.84)
Market range:
-high 4.00 3.94 3.31 2.94
-low 3.33 3.00 2.63 1.88
Dividends - - - -
(1) Includes recording of the estimated amount of allowed claims in the
amount of $7.2 billion relating to asbestos personal injury,
environmental and employee benefits issues. See Note A to the
Consolidated Financial Statements.
(2) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share for
2000 does not equal the total computed for the year due to the impact
of the average weighted shares for the year versus the average
weighted shares in the second quarter and the magnitude of the
recorded loss in the second quarter.
Fiscal Quarters Ended 1999
April 4 July 4 Oct. 3 January 2
Net sales $ 67,343 $ 65,833 $ 62,473 $ 56,317
Gross profit 16,526 16,351 14,477 12,884
Income before provision
for taxes and minority
interest 7,599 7,831 5,260 5,855
Net income 4,488 5,339 3,378 3,159
Basic earnings per share 1.31 1.56 .98 .91
Diluted earnings per share 1.29 1.53 .94 .89
Market range:
-high 3.25 4.25 7.56 4.13
-low 2.75 2.56 3.75 3.19
Dividends - - - -
Note M - Supplementary Financial Statement Detail
At 2000 1999
OTHER CURRENT ASSETS
Deferred income taxes $ 2,686 $ 2,938
Non-trade receivables 1,408 1,095
Prepaid insurance 361 371
Other 2,004 3,765
$ 6,459 $ 8,169
ACCOUNTS PAYABLE
Trade accounts payable $ 12,699 $ 17,512
Cash overdraft 371 993
$ 13,070 $ 18,505
ACCRUED LIABILITIES
Property taxes $ 2,632 $ 2,452
Accrued interest 2,058 1,811
Wages and other compensation and
related taxes 5,106 7,948
Income taxes payable 1,199 -
Pensions and employee benefits 2,806 2,411
Dana claim (formerly Echlin
[see Note H]) - 1,183
Environmental cleanup 3,000 -
Other 5,973 6,829
$ 22,774 $ 22,634
LIABILITIES SUBJECT TO COMPROMISE
Personal injury asbestos
litigation claims $6,760,000 $ -
Governmental environmental claims 431,750 -
Raymark pension claims 16,000 -
Raymark retiree claims 2,500 -
Dana claim (formerly Echlin
[see Note H]) 1,183 -
$7,211,433 $ -
OTHER LONG-TERM LIABILITIES
Long-term pensions $ 1,714 $ 1,669
Minority interest 6,505 5,014
Other 816 453
$ 9,035 $ 7,136
Note M, continued
Fiscal Year 2000 1999 1998
OTHER INCOME, NET
Interest income $ 592 $ 352 $ 412
Other, net 436 849 653
$ 1,028 $ 1,201 $ 1,065
ALLOWANCE FOR BAD DEBTS
Beginning balance $ 1,350 $ 1,109 $ 1,186
Provisions 26 388 655
Charge-offs (142) (147) (732)
Ending balance $ 1,234 $ 1,350 $ 1,109
AMORTIZATION OF INTANGIBLE
ASSETS
Raytech Automotive Components
Company $ 751 $ 751 $ 477
Allomatic Products Company 57 57 57
Other 14 166 15
$ 822 $ 974 $ 549
Note M, continued
CONDENSED FINANCIAL INFORMATION OF RAYTECH CORPORATION (PARENT)
Summary financial information of the parent holding company, Raytech
Corporation, which is operating under Chapter 11 of the U.S. Bankruptcy
Code, is as follows:
Balance Sheets
At fiscal year ended 2000 1999
Current Assets:
Cash $ 143 $ 427
Other current assets 2 2
Total current assets 145 429
Investment in subsidiaries 96,618 83,336
Deferred taxes 137,035 192
Other long-term assets 2,125 2,019
Total assets $ 235,923 $ 85,976
Current Liabilities:
Accounts payable and
accrued liabilities $ 2,796 $ 4,488
Liabilities subject to compromise 7,211,433 -
Other liabilities 832 700
Total liabilities 7,215,061 5,188
Shareholders' equity
Common stock 5,651 5,613
Additional paid in capital 70,631 70,564
(Accumulated deficit) retained
earnings (7,049,641) 9,337
Accumulated other
comprehensive loss (1,218) (165)
(6,974,577) 85,349
Less treasury stock at cost (4,561) (4,561)
Total shareholders' (deficit)
equity (6,979,138) 80,788
Total liabilities and
shareholders' equity $ 235,923 $85,976
Note M, continued
Statements of Operations
Fiscal year 2000 1999 1998
General and administrative expenses $ (3,230) $ (4,131) $(3,236)
Provision for environmental and
other claims (450,250) - -
Provision for asbestos litigation (6,760,000) - -
Income tax benefit (provision) 129,604 (5,387) (4,226)
Loss before equity in earnings in
subsidiaries (7,083,876) (9,518) (7,462)
Equity in earnings of subsidiaries 24,898 25,882 23,819
Net (loss) income $(7,058,978) $16,364 $16,357
Statements of Cash Flows
Fiscal year 2000 1999 1998
Net cash used in operating activities $ (8,670) $(5,549) $(5,921)
Cash flow from investing activities:
Dividends from subsidiaries 8,350 5,425 5,898
Other (69) (52) (155)
Net cash provided by investing activities: 8,281 5,373 5,743
Net cash provided by financing activities:
Proceeds from sale of stock 105 123 362
Net change in cash (284) (53) 184
Cash, beginning of year 427 480 296
Cash, end of year $ 143 $ 427 $ 480
Note M, continued
NOTE TO CONDENSED FINANCIAL INFORMATION
OF RAYTECH CORPORATION (PARENT)
Note 1: Basis of Presentation
The accompanying financial statements of Raytech
Corporation, a holding company, include the following
accounts:
- Cash in debtor-in-possession accounts.
- All of the Company's income tax accounts except as
related to Allomatic Products Company and foreign
subsidiaries.
- Costs and expenses and related accounts payable and
accrued liabilities which in the opinion of
management relate to the operation of the holding
company. Such costs consist principally of
compensation and related costs of certain employees
designated as employees of the Registrant,
operating costs of the Shelton, Connecticut,
headquarters facility, certain professional fees,
shareholder fees, public relations expenses and
bankruptcy-related (asbestos personal injury,
environmental, and employee benefits) claims.
These costs are financed with subsidiary dividends.
- Capital accounts of the holding company.
The investment in and operating results of the holding
company's wholly- and majority-owned subsidiaries are
reflected on the equity method.
Note N - Commitments
Rental expense amounted to $1,379, $1,361, and $1,334, in
2000, 1999 and 1998, respectively. The approximate minimum rental
commitments under non-cancelable leases at December 31, 2000 were
as follows: 2001, $633; 2002, $630, 2003, $371; 2004, $248; 2005
$172 and thereafter, $96.
Note O - Stock Option Plans
In 1991, the shareholders approved the adoption of a non-
qualified stock option plan ("1990 Plan"). In general, options
granted under the 1990 Plan were at 100% of the fair market value
on grant date or par value, whichever was higher. Once granted,
options became exercisable in whole or in part after one year and
expired on the tenth anniversary of the grant. The Plan provided
for the grant of options for up to 500,000 shares of common stock
authorized for such purpose by the shareholders. Effective
November 1, 1992, the Company granted 479,071 non-qualified options
at an option price of $2.75. At the date of grant the market price
per share was $2.375. In 1997, the shareholders approved an
amendment of the 1990 Plan authorizing 500,000 additional shares of
common stock for grant. Effective August 13, 1998, the Company
granted 500,000 non-qualified options at the option price of $4.25
which was the market price per share at the date of the grant. The
term during which options could be granted under the 1990 Plan
expired on December 31, 2000.
The Company applies APB Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for
its stock plans as allowed under FASB Statement No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost
been determined consistent with FASB No. 123, pro forma net income
for the years ended January 2, 2000 and January 3, 1999 would have
been $16,012 and $16,106, respectively. There was no pro forma
impact on net loss for the year ended December 31, 2000 as the
options outstanding were fully vested in 1999. Pro forma basic and
diluted earnings per share for the years ended January 2, 2000 and
January 3, 1999 would have been $4.66 and $4.55, respectively, and
$4.73 and $4.54, respectively.
The fair value of the options granted during 1998 was
estimated at $2.01 per common share on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
the expected volatility was 54%, the dividend yield was $0, the
risk free interest rate used was 5.42% and the expected life of
four years was used for the options.
Note O, continued
Changes during the three years ended December 31, 2000 in
shares under option were as follows:
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
Outstanding at
beginning of year 758,013 $3.73 845,957 $3.56 526,050 $2.99
Granted (1) - - - - 500,000 4.25
Exercised (38,409) 2.75 (59,509) 2.06 (136,087) 2.66
Lapsed - - (3,735) 4.25 (650) 1.75
Canceled (19,191) 3.33 (24,700) 1.75 (43,356) 7.53
Outstanding at
end of year 700,413 $3.79 758,013 $3.73 845,957 $3.56
Options exercisable
at end of year 700,413 $3.79 758,013 $3.73 347,202 $2.56
There were no options available for future awards at December 31,
2000. There were 35,279 and 31,544, respectively, options available for
future option awards at December 31, 1999 and 1998.
Options outstanding and exercisable at December 31, 2000 were as
follows:
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
$2.75 212,863 1.84 $2.75 212,863 $2.75
$4.25 487,550 7.62 4.25 487,550 4.25
$2.75 - $4.25 700,413 5.86 $ 3.79 700,413 $ 3.79
(1) Options become exercisable one year from the date of grant.
Note P - Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and cash
equivalents and trade receivables. The Company places its cash with
high credit quality institutions. At times such amounts may be in
excess of the FDIC insurance limits. The primary businesses of the
Company's U.S. subsidiaries are the automotive and heavy duty
equipment markets and the related aftermarkets within the United
States. At December 31, 2000 and January 2, 2000, the Company's
five largest uncollateralized receivables represented approximately
$9,450 or 39% and $18,556 or 58%, respectively, of the Company's
trade account balance. The Company performs ongoing credit
evaluations of its customers' financial condition but does not
require collateral to support customer receivables. The Company
establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends
and other information.
Note Q - Earnings Per Share
2000 1999 1998
Basic EPS computation
Numerator $(7,058,978) $ 16,364 $ 16,357
Denominator:
Common shares outstanding
at beginning of the year 3,480,904 3,421,395 3,285,308
Stock options exercised 21,618 17,622 116,711
Weighted average shares 3,502,522 3,439,017 3,402,019
Basic (loss) earnings
per share $ (2,015.40) $4.76 $4.81
Diluted EPS Computation
Numerator $(7,058,978) $ 16,364 $ 16,357
Denominator:
Common shares outstanding
at beginning of the year 3,480,904 3,421,395 3,285,308
Dilutive potential common
shares - 79,867 146,874
Stock options exercised 21,618 17,622 116,711
Adjusted weighted
average shares 3,502,522 3,518,884 3,548,893
Diluted (loss) earnings
per share $ (2,015.40) $4.65 $4.61
Options to purchase 495,020 shares of common stock at $4.25 were
outstanding during the year ended December 31, 2000. Options to
purchase 498,755 shares at $4.25 were outstanding during the year
ended January 2, 2000. These shares were not included in the
computation of diluted earnings per share because the options'
exercise price was greater than average market price of the common
shares and, therefore, to do so would be anti-dilutive.
Note Q, continued
In addition, the dilutive potential common shares of 26,853 for the
year ended December 31, 2000 were not included in the computation of
diluted earnings per share because of their anti-dilutive effect.
See Note A regarding the potential dilutive effect of the Company's
Plan of Reorganization.
Note R - Comprehensive Income
In 1998, Raytech adopted SFAS No. 130, "Reporting Comprehensive
Income" and has elected to report Comprehensive Income in the
Consolidated Statements of Changes in Shareholders' Equity.
The components of and changes in accumulated other
comprehensive (loss) income are as follows:
Foreign Minimum Accumulated
Currency Pension Other
Translation Liability Comprehensive
Adjustments Adjustments (Loss) Income
Balance 1/3/99 $ 926 $(1,095) $ (169)
Changes during the year (1,091) 1,095 4
Balance 1/2/00 (165) - (165)
Changes during the year (761) (292) (1,053)
Balance 12/31/00 $ (926) $ (292) $(1,218)
No tax benefit has been provided for the future tax deduction
associated with the minimum pension liability and translation
adjustments due to the limitations on the realizability of deferred
tax assets.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Raytech Corporation:
In our opinion, the consolidated financial statements listed in
the accompanying index appearing under Item 14(a)(1) on page 103
present fairly, in all material respects, the financial position
of Raytech Corporation (the "Company," a holding company) and its
subsidiaries at December 31, 2000 and January 2, 2000, and the
results of their operations and their cash flows for each of the
three fiscal years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the
United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our
audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
As discussed in Note A to the consolidated financial statements,
Raymark Corporation ("Raymark") is a defendant in numerous
lawsuits seeking substantial damages relating to airborne
asbestos fibers. The Company has been named a co-defendant in
numerous of these asbestos-related lawsuits as a successor in
liability to Raymark. In addition, the Company is co-defendant
with Raymark in lawsuits involving environmental and employee
benefit matters as a successor in liability to Raymark. On
March 10, 1989, Raytech filed a petition seeking relief under
Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code"). Under the provisions of the Bankruptcy Code, the Company
is operating as a debtor-in-possession. The Company's operating
subsidiaries, none of which have filed for protection under
Chapter 11, continue to operate their businesses in the ordinary
course of business. Raytech filed to protect itself from the
lawsuits mentioned above and to obtain a binding ruling for all
jurisdictions on whether Raytech is liable as a successor for
asbestos-related claims, including any claims yet to be filed,
relating to the operations of Raymark or its predecessors.
During 1995, Raytech received adverse rulings precluding it from
relitigating the 1988 ruling holding Raytech to be a successor to
Raymark's asbestos-related claims. During 1998, Raytech entered
into a tentative settlement with its creditors for a formal
consensual plan of reorganization. Subsequently, the Bankruptcy
Court determined an estimated amount of allowed claims, which
Raytech has recorded as Liabilities Subject to Compromise. In
August 2000, the Bankruptcy Court confirmed Raytech's consensual
plan of reorganization; however, several conditions to the
occurrence of the effective date of the plan of reorganization
remain outstanding. Until the effective date occurs, the terms
of the plan of reorganization are not yet in effect.
Consequently, Raytech is still subject to the uncertainties
inherent in the process of reorganizing under the Bankruptcy
Code. The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
These uncertainties, however, raise substantial doubt about the
Company's ability to continue as a going concern, which
contemplates realization of assets and settlement of liabilities
in the ordinary course of business. The financial statements do
not include any adjustments relating to the recoverability,
revaluation and classification of recorded asset amounts or
adjustments relating to settlement and classification of
liabilities that may be required in connection with reorganizing
under the Bankruptcy Code.
PRICEWATERHOUSECOOPERS LLP
Hartford, Connecticut
March 20, 2001
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
Not applicable
PART III
Item 10. Directors and Executive Officers of Registrant
Directors
The Certificate of Incorporation of Raytech Corporation
provides that the Board of Directors shall consist of not more than
nine and not less than three Directors, that the Directors shall be
divided into three classes, designated Class I, Class II and Class
III, as nearly equal in number as may be possible, and that each class
of Directors shall be elected for a term of three years. The term of
office of the Class III Director expires with the 2001 Annual Meeting
and one Director will be elected as a Class III Director for a full
three-year term and until his successor is elected and qualified.
Set forth below is the name of one person nominated by the
Board of Directors for election as a Class III Director and the names
of the other Class I and the Class II Directors, together with their
ages, principal occupations and business experience during the last
five years, present directorships and the year each first became a
Director. The number of shares of Raytech Common Stock owned by each
beneficially, directly or indirectly, as of March 2001 is included in
Item 12. Except as otherwise indicated, the persons listed have sole
voting and investment power with respect to shares beneficially owned
by them. The nominees are presently Directors and the nominees and
Directors were elected Directors at an Annual Meeting of Shareholders.
Principal Occupation
Business Experience
During Last 5 Years First
and Present Became
Name Age Directorships Director
Class I (serving until the Annual Meeting of Shareholders in 2002)
Donald P. Miller 69 Retired, formerly 1986
President and Chief
Executive Officer of
Posi-Seal International,
Inc. until 1986; Director,
Information Management
Associates; Director,
Saab Financial Auto
Receivables Corp.
Robert B. Sims 58 President and Chief 1986
Executive Officer of
Counselcor LLC since
1995; Prior thereto Senior
Vice President, Secretary
and General Counsel of
Summagraphics Corporation
Principal Occupation
Business Experience
During Last 5 Years First
and Present Became
Name Age Directorships Director
Class II (serving until the Annual Meeting of Shareholders in 2003)
Robert M. Gordon 84 Retired, formerly 1986
President and Vice
Chairman of Raybestos-
Manhattan, Inc.
Frederick J. Mancheski 74 Retired, formerly 1998
Chairman of the Board
and Chief Executive
Officer of Echlin Inc.;
Director, Marlin Co.
Albert A. Canosa 55 President and Chief 1998
Executive Officer of
Raytech Corporation;
Previously, Vice
President of Adminis-
tration, Treasurer
and Chief Financial
Officer of Raytech
Corporation
Class III (currently serving and nominated to serve until the Annual
Meeting of Shareholders in 2004)
Robert L. Bennett 64 Principal, Bennett, 1989
Fisher, Giuliano &
Gottsman, The Electronic
Publishing Group since
1993
Directors' Compensation
Directors received a $20,500 per year meeting fee plus $3,500
per year fee for one or more committee appointments in 2000. The
Directors are paid the annual Director's meeting fee or proportion
thereof only for scheduled meetings attended. The committee meeting
fee is paid regardless of attendance. There is no minimum attendance
rule and any Director that misses all meetings would receive no
portion of the annual Director's meeting fee.
Executive Officers
First Became
Name Age Positions Held Officer
Albert A. Canosa 55 President and 1986
Chief Executive
Officer
John B. Devlin 49 Vice President, 1998
Treasurer and Chief
Financial Officer
John J. Easton 57 Vice President, 1991
President of
Subsidiary, Raybestos
Products Company,
since 1987
LeGrande L. Young 65 Vice President, 1986
Administration,
Secretary and
General Counsel
Item 11. Executive Compensation
Summary Compensation Table:
The following Summary Compensation Table identifies current,
long-term and stock-related compensation paid to the Chief Executive
Officer and the three most highly compensated executive officers for
2000 and two prior years:
Long-Term
Compensation
Annual Compensation Awards Payouts All Other
Name/ Salary Bonus Options LTIP Compensation
Position (1) Year ($) ($) # $(2) ($)(3)
Albert A. Canosa 2000 298,800 311,352 - - 15,429
President and Chief 1999 286,758 308,265 - 286,758 13,901
Executive Officer 1998 276,225 352,000 - - 9,600
John B. Devlin 2000 161,771 162,865 - - 10,684
Vice President, 1999 155,250 128,948 - 156,300 10,192
Treasurer and 1998 116,477 144,000 - - 6,989
Chief Financial
Officer
John J. Easton 2000 199,056 201,083 - - 14,222
Vice President 1999 191,033 144,734 - 144,734 13,460
1998 182,411 142,234 - - 13,304
LeGrande L. Young 2000 197,706 201,083 - - 13,216
Vice President, 1999 189,737 207,451 - 192,978 12,495
Administration, 1998 179,724 237,056 - - 9,600
Secretary and
General Counsel
Craig R. Smith (4) 2000 - - - - -
1999 - - - - -
1998 33,394 - - - 379
(1) Registrant has only four executive officers, including the CEO.
(2) Payouts pursuant to the Strategic Plan Variable Compensation Program providing
awards for a three-year strategic planning period based upon earnings per
share achievements.
(3) The numbers stated for each year recite Registrant contributions to Messrs.
Canosa, Devlin, Easton and Young under its defined contribution plan [401(k)]
in the amounts of $10,200, $9,870, $10,200, and $10,200, respectively, for 2000
and in the amounts of $9,600, $9,410, $9,600 and $9,600, respectively, for 1999
and in the amounts of $9,600, $6,989, $9,600 and $9,600, respectively, for
1998.
(4) Mr. Smith was formerly President and Chief Executive Officer but was
terminated in January 1998.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option
Values
Value of
Number of Unexercised
Shares Unexercised In-the-Money
Acquired Options Options
on Value at 1/1/01 at 1/1/01
Exercise Realized Exercisable Exercisable
Name (#) ($) (#) ($)
Albert A. Canosa (CEO) - - 159,781 -
John B. Devlin - - 22,000 -
John J. Easton - - 66,566 -
LeGrande L. Young - - 133,908 -
Performance Graph (Table)
The following Performance Graph (Table) compares the
Registrant's cumulative total shareholder return on its common
stock with certain indexes and peer groups for a five-year
period:
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG RAYTECH CORPORATION, DOW JONES GLOBAL INDEX U.S.*
AND DOW JONES AUTO PARTS INDUSTRY GROUP INDEX*
Dow Jones Auto
Dow Jones Global Parts Industry
Raytech Index U.S. Group Index
1995 $100 $100 $100
1996 139 120 115
1997 191 155 146
1998 100 191 141
1999 118 232 142
2000 76 208 102
* Based on closing index on the last trading day of the
calendar year.
Assumes $100 invested on December 31, 1995 in Raytech common
stock, Dow Jones Global Index U.S., and Dow Jones Auto Parts
Industry Group Index
Compensation Committee Report on Executive Compensation
The Compensation Committee of the Board of Directors of
the Registrant, consisting of three Directors, makes this report
of its compensation policies applicable to the executive officers
and the basis for the Chief Executive Officer's compensation for
the last completed fiscal year.
The compensation philosophy of the Compensation
Committee is based upon the premise that all salaried personnel
should be eligible to receive additional compensation for
outstanding contribution to the Corporation and consists of the
following two elements: a fixed base salary and a management
incentive in variable amounts in accordance with the levels of
eligibility and performance criteria. The objectives under this
philosophy are to maintain an equitable internal classification
of positions by grade, to maintain compensation opportunity equal
to or greater than the competition, to provide for aggregate
compensation related to performance achievement, to maintain an
effective system of salary planning and control and to provide
executives with the opportunity to earn additional compensation
based on achievement of certain goals for the Corporation and its
shareholders attributable to excellence in management and
performance.
To accomplish the compensation objectives, all salaried
positions, including the Chief Executive Officer, are graded to
reflect level of responsibility inherent in the position and
market value. The grading takes into account the following
factors: organizational relationships, knowledge requirements,
impact potential on corporate profitability, scope of monetary
responsibility and managerial control and the areas of functional
responsibility requiring direction. The Compensation Committee
considers all such factors but places no relative weight on any
of the factors. Though the determination of executive
compensation is performed in an organized manner, using
documented criteria as referenced below, the Compensation
Committee retains full discretionary authority in establishing
executive compensation.
The base salary for executive officers is set in
relation to the base salary policy and practice of other bonus
paying employers in the metalworking/fabricating industry. The
data source for determining the base salary practice of bonus
paying employers is Hewitt Associates Total Compensation
Measurement, which resulted from an integration of Management
Compensation Services Project 777 Study and Hewitt's Compensation
Data Base used in the past. This data source was selected as a
model for executives' salaries based upon the similarities of
industry, operations and products to the Registrant and the
prestige of the sponsoring firm. Special pay practice surveys
may be conducted if the Compensation Committee deems it
appropriate in its discretion but have not done so within the
last three years. The other bonus paying employers used in
establishing the base salary of executives are listed in the
reference Total Compensation Measurement. Of all industry groups
of corporations set forth in the Total Compensation Measurement,
the metalworking/fabricating group was determined by the
Compensation Committee to be the closest and most fitting in type
of operations, products and job responsibilities to the
Registrant. The base salaries of executive officers, including
the Chief Executive Officer, were generally low compared to the
survey listed. Since this base salary tends to be lower than the
salary policy of non-bonus paying employers, comparable levels of
total compensation are achieved or exceeded only when the
variable element of compensation is added to the base. To
strengthen the executives commitment to improvement of the
financial performance of the Corporation, the amount available
for distribution as variable compensation in any year is
determined by either the return on equity or earnings before tax
at the Board's discretion. The formula necessitates that the
Corporation achieve a stipulated earnings before tax or return on
equity goal before variable compensation is paid. Payment of
shareholder dividends in the year variable compensation is earned
is a prerequisite to payment; provided, however, that such
compensation may be paid in any event if the Board finds that
unusual circumstances justify such payments.
In accordance with the philosophy recited above, the
Board stipulated earnings before tax goals in each of the fiscal
years 1998, 1999 and 2000 based upon a Board approved Business
Plan for each year. The stipulated earnings before tax goals
were achieved for the years 1998, 1999 and 2000 resulting in
variable compensation or bonus to the executive officers,
including the Chief Executive Officer, as well as other key
employees, in amounts established in the variable compensation
plan. Earnings before tax are recited in the Registrant's 2000
Annual Report on Form 10-K herein. The total compensation of the
executive officers in the years in which variable compensation or
bonus was paid based on performance was high compared to the
Project 777 survey grouping referenced above.
The bonus opportunities in the 2000 fiscal year for
executive officers and the Chief Executive Officer were therefore
based on the following factors:
(i) Each such position was graded in accordance with the
level of responsibility inherent in the position
including market value, organizational relationships,
knowledge requirements, impact on corporate
profitability, scope of monetary responsibility, scope
of managerial control and areas of functional
responsibility, all as set forth in the established
compensation plan and was determined to be eligible for
participation in variable compensation.
(ii) The executive officers' positions all received a grade
providing for variable compensation eligibility of 75%
or 100% of each executive officer's base salary.
(iii) The Chief Executive Officer's position received a grade
providing for variable compensation eligibility of 100%
of the Chief Executive Officer's base salary.
(iv) The corporate earnings before tax goals stipulated by
the Board for 2000 were met and exceeded in the amount
of 100% resulting in a variable compensation
opportunity to each executive officer of 100% of 75% or
100% of each such officer's base salary and resulting
in variable compensation opportunity to the Chief
Executive Officer of 100% of 100% of such officer's
base salary. Actual variable compensation awarded was
then determined by the evaluation of performance of
each officer to specific written objectives submitted
at the beginning of 2000.
In addition to the variable compensation opportunities
based upon achieving earnings before tax goals annually, the
Variable Compensation Plan provides for long-term variable
compensation opportunities for any three-year strategic planning
period determined by earnings per share goals established at the
Board's discretion. Being part of the Variable Compensation Plan,
the strategic plan variable compensation program has an identical
philosophy to the annual variable compensation program recited
above. Additionally, the strategic plan variable compensation
program is designed to (i) provide shareholder returns comparable
to other high performance publicly traded companies; (ii)
strengthen key management commitment to improve the long-term
financial performance of the Corporation; (iii) provide key
management with a shareholder perspective; and (iv) focus key
employee resources on technology driven growth.
In accordance with the recited philosophy above, the
Board stipulated annual earnings per share goals for the strategic
planning period beginning 1996 through 1999. The stipulated
earnings per share goals were achieved for each of the years 1997,
1998 and 1999 resulting in long-term (three-year) variable
compensation payouts to the executive officers, including the
Chief Executive Officer, as well as other members of the strategic
planning teams, in amounts established in the variable
compensation plan. Each executive officer and the Chief Executive
Officer were eligible for 100% of base salary. Earnings per share
are recited in the Registrant's Annual Reports on Form 10-K for
the years referenced above. The maximum award is limited to 100%
of eligibility.
Reiterating, the base salary of the Chief Executive
Officer is based upon comparable positions in the
metalworking/fabrication industry grouping of Project 777 and is
low in comparison. The variable or bonus portion of the Chief
Executive Officer compensation is subject to achievement of the
earnings goals referenced above and is high in comparison to total
compensation of other chief executive officers similarly
positioned in Project 777. As stated, the achievement of the
stipulated earnings before tax goal was directly related to the
variable compensation or bonus received by the Chief Executive
Officer in 2000 as well as prior years, and the long-term variable
compensation related to strategic planning received in 1999.
The Registrant's contributions under the defined
contribution plan [401(k)] to the executive officers, including
the Chief Executive Officer, were made to all participants in the
plan in accordance with the operative provisions of said plan.
Such provisions, which apply to all participants, provide for a
basic Company contribution, a matching Company contribution and a
supplemental Company contribution. Only the supplemental Company
contribution is discretionary under the plan and if granted is
made to all participants.
The Registrant currently has not established any policy
with respect to qualifying compensation paid to executive
officers under Section 162(m) of the Internal Revenue Code. In
the event such a policy is established, it will be included in
this Compensation Committee Report on Executive Compensation.
The preceding Performance Graph (Table) compares the
Registrant's cumulative total shareholder return on its common
stock with the Dow Jones Global Index U.S. and the Dow Jones Auto
Parts Industry Group Index. The Dow Jones Global Index U.S. was
selected as a broad equity market index comparison in place of
Standard & Poor's 500 for the reasons that the Registrant is not
included in the Standard & Poor's 500 and such Index includes
companies that trade on the same exchange and some companies that
are of comparable market capitalization. The Dow Jones Auto
Parts Industry Group Index was selected in lieu of a Registrant-
constructed peer group index for the reasons that difficulties
were encountered in presenting the requisite peer comparison due
to a very limited peer group and such peers essentially being
privately held companies or subsidiaries or divisions of larger
publicly held companies which necessary data to draw a comparison
is not publicly available. Further, the Dow Jones Auto Parts
Industry Group Index includes companies that trade in the same
industry and have similar market capitalizations.
Compensation Committee
Albert A. Canosa
Donald P. Miller
Robert B. Sims
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Directors
Shares of Common Stock
Beneficially Owned
Percent
Total Of Class
Robert L. Bennett 21,048 (a) .6%
Albert A. Canosa 161,781 (b) 4.4%
Robert M. Gordon 29,548 (c) .8%
Frederick J. Mancheski - -
Donald P. Miller 28,048 (c) .8%
Robert B. Sims 28,048 (c) .8%
Executive Officers
Albert A. Canosa 161,781 (b) 4.4%
President and Chief
Executive Officer
John B. Devlin 22,000 (d) .6
Vice President, Treasurer
and Chief Financial Officer
John J. Easton 73,899 (e) 2.1%
Vice President
LeGrande L. Young 140,908 (f) 3.9%
Vice President, Administration,
Secretary and General Counsel
All Directors and Executive Officers
as a Group (9) 505,280 (g) 12.6%
(a) Total represents 21,048 shares which Mr. Bennett holds the
option to purchase within 60 days.
(b) Total includes 159,781 shares which Mr. Canosa holds the
option to purchase within 60 days.
(c) Total represents 28,048 shares which the named Director
holds the option to purchase within 60 days.
(d) Total includes 22,000 shares which Mr. Devlin holds the
option to purchase within 60 days.
(e) Total includes 66,566 shares which Mr. Easton holds the
option to purchase within 60 days.
(f) Total includes 133,908 shares which Mr. Young holds the
option to purchase within 60 days.
(g) Total includes 487,447 shares which the Directors and
Executive Officers as a group hold the option to purchase
within 60 days.
Item 13. Certain Relationships and Related Transactions
Since January 1998 there have been no certain
relationships and related transactions. (For related
transactions prior to January 1998 refer to Note H of
Item 8.)
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(a) The following financial statements are included in Part II,
Item 8:
(1) Financial Statements
Consolidated Balance Sheets at December 31, 2000
and January 2, 2000
Consolidated Statements of Operations for the 2000,
1999 and 1998 fiscal years
Consolidated Statements of Cash Flows for the 2000,
1999 and 1998 fiscal years
Consolidated Statements of Changes in Shareholders'
Equity for the 2000, 1999 and 1998 fiscal years
Notes to Consolidated Financial Statements
Report of Independent Accountants
(2) Financial Statement Schedules
Schedules not included with this additional financial
information have been omitted either because they are
not applicable or because the required information is
shown in the consolidated financial statements or
footnotes.
(3) The Exhibits are listed in the index of Exhibits at
Item (c) hereafter.
(b) Reports on Form 8-K
In Form 8-K dated August 31, 2000, the Registrant reported
that on August 31, 2000, the Bankruptcy Court entered an Order
Confirming Raytech Corporation's Second Amended Plan of
Reorganization (the "Confirmation Order"), which confirmed the
Company's Second Amended Plan of Reorganization (the "Plan").
The "effective date of the plan," as used in the Bankruptcy Code,
shall not occur until the satisfaction of certain conditions
precedent (the "Effective Date").
The Plan was proposed jointly by the Debtor, the Official
Committee of Unsecured Creditors, the Guardian ad litem for
Future Claimants, the Connecticut Department of Environmental
Protection and the United States Environmental Protection Agency
(the "Governments") and the Official Committee of Equity Holders
in an agreement signed in October 1998 providing for the basic
terms of a consensual plan of reorganization.
As previously disclosed, Orders of various courts have held
the Debtor liable as a successor to Raymark Industries, Inc. for
asbestos-related personal injury claims ("API Claims") and
environmental claims of the Governments ("Environmental Claims")
amounting to an estimated $7.2 billion in total liabilities.
The Plan is based on a settlement providing for an exchange
of allowed API Claims estimated to be $6.76 billion and allowed
Environmental Claims of $432 million for 90% of the common stock
of the Debtor with existing equity holders in the Debtor
retaining 10% of the common stock in the Debtor. In accordance
with the Plan, all present and future API Claims will be assumed
and resolved by an independently administered claims trust (the
"PI Trust"). On the Effective Date, a channeling injunction
ordered by the Bankruptcy Court pursuant to Section 24(g) of the
Bankruptcy Code will permanently and forever stay, enjoin and
restrain any asbestos-related claims against the Debtor, thereby
channeling such claims to the PI Trust for resolution.
The Plan provides for the classification and treatment of
all claims and equity interests and on the Effective Date the
rights afforded and the treatment of all claims and equity
interests in the Plan shall be in exchange for and in complete
satisfaction, discharge and release of all claims and equity
interests against the Debtor.
The total assets of the Debtor as of July 2000 month-end of
$235.5 million consist of investments in subsidiaries of $93 million
and a deferred tax asset of $141 million. The total liabilities as
of that date consist of liabilities subject to compromise of $7.2
billion offset by negative equity of $7.0 billion.
The Effective Date of the Confirmation Order is subject to the
following conditions precedent: (a) The Bankruptcy Court and
United States District Court shall have entered an order or orders
establishing the asbestos personal injury permanent channeling
injunction and the claims trading injunction, (b) the enabling
agreement of the PI Trust is signed and in effect and (c) certain
favorable rulings have been obtained from the Internal Revenue
Service concerning the Plan or in lieu thereof opinions of counsel.
The date of fulfillment of the referenced conditions and the
Effective Date are unknown at this time.
(c) Index of Exhibits Page
2(o) Raytech Corporation's Second Amended Plan
of Reorganization
3(a) Certificate of Incorporation of Raytech (d)
3(b) By-laws of Raytech (d)
4(a) Amendment No. 1 to Form S-4 Registration
Statement, Registration No. 33-7491 (b)
10(a) Raytech Corporation's 1980 Non-Qualified Stock
Option Plan, as amended (c)
10(a) Raytech Corporation's 1990 Non-Qualified Stock
Option Plan (h)
10(b) Raytech Corporation's Variable Compensation
Program as amended and restated December 14,
1990 (g)
10(c) Amended and Restated Agreement and Plan of
Merger dated as of September 4, 1986 (a)
10(d) Stock Purchase Agreement dated March 30, 1987
between Raymark Industries, Inc. and Raytech
Composites (e), Amendment dated July 18, 1991
(i) and Amendment dated December 21, 1992 (j)
10(e) Asset Purchase Agreement dated October 29, 1987
between Raymark Industries, Inc. and Raytech
Composites, Inc. (e), Amendment dated July 18,
1991 (i) and Amendment dated December 21, 1992 (j)
10(f) Stock Purchase Agreement dated May 18, 1988
between Raytech Corporation and Asbestos
Litigation Management, Inc. (f)
10(g) Asset Purchase Agreement (Notarial Deed)
dated June 19, 1992 between Ferodo Beral
GmbH and Raytech Composites, Inc. and
Raybestos Reibbelag GmbH (j)
10(h) Loan Agreement dated September 16, 1993 between
Raytech Composites, Inc. and Raymark Industries,
Inc. (k)
10(i) Loan Agreement dated January 10, 1994 between
Raytech Composites, Inc. and Raymark Industries,
Inc. (k)
Page
10(j) Loan and Security Agreement dated March 29,
1995 between Raybestos Products Company and
The CIT Group/Credit Finance, Inc. (l)
10(k) Loan and Security Agreement dated November 21,
1997 between Raybestos Products Company and
Nations credit Commercial Corporation (m)
10(l) Memorandum of Understanding dated July 23, 1998
Re. Consensual Plan of Reorganization (n)
21 Subsidiaries of Raytech 112
23 Consent of Independent Accountants 114
Footnotes to Exhibits
(a) Filed as an Exhibit to Registrant's Amendment
No. 1 to Form S-4, Registration Statement,
Registration No. 33-7491, filed with the
Securities and Exchange Commission on September 5, 1986.
(b) Filed with the Securities and Exchange Commission on
September 5, 1986.
(c) Included in Registrant's Registration Statement on Form
S-8 (Registration No. 2-95251) filed with the
Securities and Exchange Commission on January 11, 1985.
(d) Included as an Exhibit to Registrant's Report on Form
10-K filed with the Securities and Exchange Commission
on March 23, 1987.
(e) Included as an Exhibit to Registrant's Report on Form
10-K filed with the Securities and Exchange Commission
on March 28, 1988, as amended by Form 8 filed on
April 11, 1988 and Form 8 filed on April 19, 1988.
(f) Included as an Exhibit to Registrant's Report on Form
10-K filed with the Securities and Exchange Commission on March 29, 1989.
(g) Included as an Exhibit to Registrant's Report on Form
10-K filed with the Securities and Exchange Commission
on March 20, 1991.
(h) Included in Registrant's Registration Statement on Form
S-8 (Registration No. 33-42420) filed with the
Securities and Exchange Commission on August 23, 1991
(i) Included as an Exhibit to Registrant's Report on Form
10-Q filed with the Securities and Exchange Commission
on September 29, 1991, as amended by Form 8 filed on
February 27, 1992.
(j) Included as an Exhibit to Registrant's Report on Form
10-K filed with the Securities and Exchange Commission
on March 22, 1993.
(k) Included as an Exhibit to Registrant's Report on Form
10-K filed with the Securities and Exchange Commission
on March 14, 1994.
(l) Included as an Exhibit to Registrant's Report on Form
10-Q filed with the Securities and Exchange Commission
on April 2, 1995.
(m) Included as an Exhibit to Registrant's Report on Form
10-K filed with the Securities and Exchange Commission
on March 18, 1998.
(n) Included as an Exhibit to Registrant's Report on Form
10-Q filed with the Securities and Exchange Commission
on November 6, 1998.
(o) Included as an Exhibit to Registrant's Report on Form
10-K filed with the Securities and Exchange Commission
on March 23, 2001.
Copies of exhibits which are not included herewith and which
have not previously been filed with the Securities and
Exchange Commission may be obtained by submitting a written
request, specifying the name of the exhibit and including
payment of $2.00 for each exhibit to cover handling and
postage, to: LeGrande L. Young, Secretary, Raytech
Corporation, Suite 295, Four Corporate Drive, Shelton,
Connecticut 06484.
(d) The Index to Consolidated Financial Statements and Financial
Statement Schedules is included beginning on page 109 hereafter.
Index to Consolidated Financial Statements
Financial Statements: Page
Consolidated Balance Sheets as of
December 31, 2000 and January 2, 2000 39
Consolidated Statements of Operations
for the 2000, 1999 and 1998 Fiscal Years 40
Consolidated Statements of Cash Flows
for the 2000, 1999, and 1998 Fiscal Years 41
Consolidated Statements of Changes in
Shareholders' Equity for the 2000, 1999
and 1998 Fiscal Years 42
Notes to Consolidated Financial Statements 43
Report of Independent Accountants 91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RAYTECH CORPORATION
By: /s/ALBERT A. CANOSA
Albert A. Canosa
President and
Chief Executive Officer
Date: March 26, 2001
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities shown on March 26,
2001.
Signature and Title Signature and Title
/s/ ALBERT A. CANOSA /s/FREDERICK J. MANCHESKI
Albert A. Canosa Frederick J. Mancheski
President, Chief Executive Director
Officer and Director
/s/JOHN B. DEVLIN /s/DONALD P. MILLER
John B. Devlin Donald P. Miller
Vice President, Treasurer and Director
Chief Financial Officer
(Principal Accounting Officer)
/s/ROBERT L. BENNETT /s/ROBERT B. SIMS
Robert L. Bennett Robert B. Sims
Director Director
/s/ROBERT M. GORDON
Robert M. Gordon
Director