Raytech Corporation

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Raytech Corporation

4 Corporate Drive, Suite 295
Shelton, Connecticut 06484
U.S.A.
Telephone: (203) 925-8023
Fax: (203) 925-8088
Web site: http://www.raytech.com

Public Company
Incorporated: 1986
Employees: 1,593
Sales: $209.86 million (2002)
Stock Exchanges: New York
Ticker Symbol: RAY
NAIC: 332999 All Other Miscellaneous Fabricated Metal Products

Based in Shelton, Connecticut, Raytech Corporation and its subsidiaries manufacture and distribute engineered products for heat-resistant, inertia control, energy absorption, and transmission applications, serving both automotive original equipment manufacturers and aftermarket customers around the world. Operations are divided into three business segments. Wet Friction products, accounting for more than 60 percent of the company's revenues, are used in an oil-immersed environment found in automobiles, trucks, buses, heavy-duty equipment, farm machinery, and mining equipment. Dry Friction products are used in automobile and truck manual transmissions that do not use an oil-immersed environment. Finally, the Aftermarket segment produces wet friction products and other transmission products for automobile and light trucks, catering to warehouse distributors and aftermarket retailers. In addition to manufacturing operations in the United States, Raytech maintains facilities in Great Britain, Germany, and China. Dogged for years by asbestos-related litigation, the company finally has emerged from a 12-year period of operating under Chapter 11 protection. As a result of a 2001 agreement, Raytech has turned over 90 percent of its stock to bankruptcy court to settle current and future claims.

Founding the Company in 1902

The origins of Raytech date back to 1902 and the establishment of the A.H. Raymond Company in Bridgeport, Connecticut. The small shop served the young automotive industry, producing clutch facings, the Raymond brake, and brake linings. The company developed a new brake lining that used noncharring asbestos, which it trademarked as Raybestos and later applied to clutch facings. Asbestos, which in reality represented a range of fibrous silicate minerals, was known to the ancient Greeks and Romans and was rediscovered during the Industrial Revolution. Due to its great strength and resistance to heat, and because it was the only mineral that could be woven, asbestos began to find an increasing number of industrial applications. What the ancients also observed, and modern medicine later confirmed, was that weaving asbestos into cloth was extremely harmful to the lungs, which took in microscopic particles and fibers that often led to an early death.

A.H. Raymond Company changed its name to the Royal Equipment Company of Bridgeport, then in 1916 appropriated the Raybestos name, becoming Raybestos Company. Named president was Sumner Simpson, who proved to be the most important figure in the history of the firm, heading it for nearly four decades. The company grew as the automobile became affordable to an increasing number of people. Raybestos established a factory in Stratford, Connecticut, in 1919, and in the early 1920s completed a pair of acquisitions to maintain a reliable supply of asbestos yarns, buying United States Asbestos Company and General Asbestos and Rubber Company. A major turning point came in 1929 when Raybestos merged with competitor Manhattan Rubber Manufacturing Company, which in addition to brake and clutch products made industrial rubber products. The resulting company was Raybestos-Manhattan Friction Materials Company.

Formed only months before the stock crash that ushered in the Great Depression, Raybestos-Manhattan, nevertheless, thrived during the 1930s. Despite tough times, the United States was now very much dependent on cars and trucks, and the company enjoyed a steady demand for its products, both with automakers and the garages and service stations that repaired vehicles. Moreover, the company continued to be a pioneer in its field. It created a semi-metallic clutch facing, which led to the development of a friction clutch that in 1938 was used by Buick to produce an early version of automatic transmission, relying on brake pads to shift gears while the vehicle was in motion. (A clutch was still used for starting, but a year later Oldsmobile brought out the first fully automatic transmission.) Nevertheless, the company's major product continued to be asbestos brake linings, which Raybestos-Manhattan supported by launching a national advertising campaign that promoted the importance of safe brakes.

The first half of the 1940s were impacted by World War II. Raybestos-Manhattan was already supplying parts to the military, but with severe cutbacks in the manufacture of new automobiles as part of the war effort, the company greatly expanded its defense contracting. Raybestos-Manhattan brake linings were used on almost all heavy bombers, and the company's clutch plates were used on the two-speed planetary B-29 Supercharger. In addition, the company continued to produce brake and clutch parts used in almost all military vehicles. In the second half of the 1940s, Raybestos-Manhattan returned its focus to the automobile industry, which was poised to enjoy strong growth as carmakers ramped up to meet rising demand, now that the Great Depression was overcome by massive government spending on the war and an increasing number of middle class consumers were in the market for a new car. In 1948 Chevrolet introduced its Powerglide automatic transmission and Buick its Dynaflow transmission, both of which relied on Raybestos-Manhattan clutch parts. A year later, Ford and Chrysler followed suit with their own automatics, creating an even greater need for the company's automatic transmission products.

The 1950s: A Golden Era for Raybestos

The 1950s were a golden era for Raybestos-Manhattan, which diversified into new products and added manufacturing facilities. The company moved into powdered metal products, building a plant in Crawfordville, Indiana, and with the acquisition of Paramount, California-based Graf Manufacturing began producing fluorinated polymers. Automobile parts also continued to hold a significant place in the company's business mix. To meet increasing demand, Raybestos-Manhattan established factories in Neenah, Wisconsin, and Peterborough, Ontario. The Raybestos name would gain even greater credibility in automotive circles starting in 1957, when the company's disc brake pads were used by the winner of the Indianapolis 500, Sam Hanks, marking the first of 23 consecutive Indy winners relying on Raybestos products. Raybestos disc brake pads were first introduced that same year to the passenger car market, incorporated by Studebaker in its Avanti model. The later years of the 1950s also witnessed the advent of the space age, precipitated by the Soviet Union launching its Sputnik satellite, which led to a frantic race to the moon as part of a Cold War competition between the world's two superpowers.Raybestos materials would quickly find an application in the American answer to Sputnik, the U.S. Explorer I, launched early in 1958. Also of note during the decade was the 1953 death of Sumner Simpson, who was instrumental in the company's growth but whose name would gain notoriety years later in connection with asbestos litigation.

During the 1960s Raybestos-Manhattan became involved in the development of composite materials needed in the U.S. space program but that also had applications in such consumer products as fabric and hose, and even bowling balls. The company also added new hydraulic parts and smog-control devices to its line of car products. It was also during this period that the company expanded overseas, acquiring Breku Reibbelag GmbH & Co., a West German maker of clutch facings, friction washers, and disc brake pads. Domestically, Raybestos-Manhattan acquired Milford Rivet & Machine Co., a Connecticut manufacturer of rivet and rivet setting machines. Five plants were added and used in the production of rubber belts.

Raybestos-Manhattan continued its effort to expand internationally during the 1970s, moving into such countries as Australia, Ireland, and Venezuela. The company invested heavily in capital improvements and initiated a strategy to diversify into new product lines. It also discontinued the last of the products inherited from Manhattan Rubber Manufacturing Company. Furthermore, because the company no longer maintained manufacturing facilities in Manhattan, the company changed its name in 1978 to Raybestos Friction Materials Company. Of greater significance to its future, however, was a wave of lawsuits to be filed against Raybestos and other asbestos manufacturers by workers, who charged that the company knew of the hazards of asbestos yet took inadequate steps to protect them from asbestosis.

Asbestosis was coined by English physician W.E. Cook in 1924. He performed a postmortem examination on a 33-yearold woman who had worked for 20 years in an asbestos-textile factory and during the final seven years of her life endured severe coughing and poor health. Cook's autopsy revealed massive lung scarring and thick strands of abnormal fibrous tissue. His results were published in the British Medical Journal. For several years, American and Canadian insurance companies had already made the practical decision not to issue life insurance policies to asbestos workers, concluding without the benefit of scientific study that the asbestos industry offered working conditions injurious to health.

Company Perspectives:

The Raytech of tomorrow will build on the expertise gained during the last 100 years and upon the ability to create a diverse, global, multi-market-driven company.

As early as the 1930s the largest U.S. asbestos manufacturer, Johns-Manville, and Raybestos-Manhattan, the second largest, faced the first damage suits filed by workers who suffered from asbestosis. According to investigative journalist Paul Brodeur, "The two firms, together with other leading asbestos manufacturers, initiated a cover-up of the asbestos hazard that continued for more than forty years." It was not until the 1960s that the situation began to change. Sellers of dangerous products were now required by law to post adequate warnings or be held accountable, and Dr. Irving J. Selikoff at the Mount Sinai School of Medicine conducted studies that provided incontrovertible evidence about the health dangers of industrial exposure to asbestos. In 1971 the first asbestos product liability lawsuit was won, and the verdict was upheld by a federal appeals court two years later. According to Brodeur, "During the next ten years, Johns-Manville, Raybestos-Manhattan, and more than a dozen other manufacturers of asbestos insulation were the targets of some 15,000 lawsuits. At first, the defendant manufacturers tried to claim that they did not know about the asbestos hazard until Dr. Selikoff's pioneering studies of the early 1960s. However, plaintiff attorneys soon unearthed Sumner Simpson's correspondence." The so-called "Sumner Simpson documents" would form the basis of most asbestos lawsuits over the ensuing years. Simpson's personal papers, consisting of some 6,000 documents, came to light in the late 1970s during the course of discovery in a pending lawsuit and were used by plaintiffs to prove that Raybestos-Manhattan and other manufacturers were aware of the health hazards connected to asbestos.

Asbestos manufacturers faced millions of dollars in litigation costs and possible liabilities. In 1982 Johns-Manville filed for Chapter 11 bankruptcy protection—claiming that it was the victim of unwarranted lawsuits—as a way to shield its assets. Raybestos took a different approach, following a policy of accommodation and compromise. First, it sought to disassociate itself from asbestos. In 1982 the company changed its named to Raymark Corporation and ultimately ceased the production of asbestos products. Nevertheless, the company was forced to pay claimants millions of dollars, resulting in the sale of major assets. A new CEO, Craig R. Smith, was hired in 1985 and he launched an aggressive campaign to fight litigation, going so far as to sue lawyers representing workers, pursuing civil fraud and racketeering charges. He engineered the 1986 creation of a holding company called Raytech Corporation to protect the company's non-asbestos assets, its wet clutch, transmission, and heavy-duty brake business. Raymark shareholders became Raytech shareholders, and Raymark became a subsidiary of Raytech. According to the Wall Street Journal, "The idea was to free Raytech of its costly litigation. But Mr. Smith went a step further. In January 1988, Raytech spun off Raymark entirely to distance Raytech's non-asbestos-related corporate assets from the claimants. Raytech approached seven prospective purchasers. But perhaps not surprisingly, only one submitted a bid—Asbestos Litigation Management Corp., a subsidiary of Litigation Control, formed by Mr. Smith to manage Raymark's asbestos litigation." Although Smith maintained that the transaction was done at arm's length and the selling price represented fair-market value, critics charged that the bid was the lowest amount that could be considered a bona fide offer. The $1 million bid, in fact, called for just $50,000 in cash and a $950,000 balloon payment at the end of six years.

Filing for Chapter 11 Bankruptcy in 1989

Because of the judgments levied against it, Raymark was soon unable to pay its bills, which allowed plaintiffs' attorneys to force the company into Chapter 7 bankruptcy, thus permitting the sale of assets to pay off Raymark's creditors. Asbestos attorneys next turned their attention to Raytech, dismissed Smith's maneuvers as little more than a corporate shell game, and began listing Raytech as a co-defendant in asbestos cases. When it became obvious that the holding company strategy was not working, Raytech followed the lead of Johns-Manville and in 1989 filed for Chapter 11 bankruptcy protection, which allowed a company to shield its assets from creditors while attempting to reorganize. Smith explained at the time, "Because of the number of actions being initiated against our company and because we have been unable to secure a decision on successor liability that is binding across all jurisdictions, we have no recourse but to turn to the federal bankruptcy court."

Raytech operated under Chapter 11 protection for the entire decade of the 1990s. During that time, the company reorganized its structure and expanded on a number of fronts. In 1990 it acquired Allomatic Products Co., paying nearly $2 million for the OE friction, steel, and transmission filter manufacturer. In 1992 Raytech acquired the German firm of Ferodo Beral GmbH, which made clutch facings and industrial friction products. That same year, the company formed Raybestos Aftermarket Products company and set up shop in Crawfordsville, Indiana. In 1996 Raytech bought a stake in Advanced Friction Materials Company, a Michigan maker of bands for automatic transmissions. Two years later Raytech bought the remaining interest in the business, although the deal was complicated by the eventual discovery that AFM's longtime CFO had embezzled more than $3.33 million. In addition, during the 1990s, Raytech continued to extend its global reach, opening a plant in Liverpool, England, in 1998 to produce wet clutch products, and a factory in China to manufacture dry clutch facings.

Key Dates:

1902:: The A.H. Raymond Company is formed in Bridgeport, Connecticut.
1916:: The company changes its name to Raybestos Company.
1929:: Merger with Manhattan Rubber Manufacturing Company.
1982:: The company changes its name to Raymark Corp.
1986:: Raytech Corporation is formed as a holding company.
1989:: Due to asbestos litigation, Raytech files for Chapter 11 bankruptcy protection.
2001:: Raytech emerges from bankruptcy.

While Raytech managed to operate during the 1990s it was never free of civil litigation stemming from asbestos claims. In addition, the company faced court actions from the Environmental Protection Agency and the Connecticut Attorney General's Office regarding the cleanup costs of a 33-acre site in Stratford, Connecticut, where Raybestos had manufactured friction products for 70 years, resulting in wastes that contained asbestos, lead, PCBs, and other hazardous substances. Raytech continued to maintain that it had no successor liability, litigating the matter for eight years until finally in October 1995 the U.S. Supreme Court rejected the argument, thus forcing the company to bow to reality and begin to negotiate with the parties suing it. In October 1998 Raytech reached a tentative agreement to resolve its legal difficulties, but it was not until April 2001 that the plan was finalized and Raytech was able to emerge from Chapter 11 protection. Under terms of the settlement, Raytech turned over 90 percent of its stock to trustees appointed by bankruptcy court, as well as to state and federal government entities, in order to satisfy $7.2 million in asbestos-related claims, plus future claims. Of that $7.2 billion, $6.76 billion involved personal injury claims and $432 million was connected to cleanup costs to federal and state governments. Raytech was now completely free to plot a future course of business, which management hoped would include even more international expansion, albeit the shareholders that it now served were primarily the victims of a previous administration's earlier policy.