Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
USR Industries, Inc. (the "Company") was established in Delaware in 1980 as a holding corporation owning diversified small manufacturing interests. At the time of its formation, the Company's principal business lines were held through wholly-owned subsidiary corporations into which were contributed various divisional operations of the former United States Radium Corporation ("USRC"). In connection with the establishment of the Company, USRC was merged into a newly formed subsidiary of the Company and the respective assets and liabilities of former divisional operations of USRC were assumed by separate, wholly-owned subsidiaries of the Company. Thereafter, to more closely reflect its business as primarily a manufacturer of safety lighting products, USRC changed its name to Safety Light Corporation ("Safety Light"). In 1982 the Company sold all of its common stock in Safety Light to a group led by Safety Light management personnel.
The Company's current operations consist primarily of the support and development of the specialty metals business of its subsidiaries located in Bloomsburg, Pennsylvania, USR Metals, Inc. and MultiMetal Products Corporation. Also, very significant amounts of management time and corporate resources are used in the conduct of litigation involving so called environmental litigation allegations dating back nearly a century ago. The increasing scope of such litigation has frustrated and made moot the Company's former plans to pursue corporate development pursuant to its plan for asset redeployment as previously announced.
The Company's financial resources and personnel levels effectively have been reduced to bankruptcy levels as a result of the adverse effects of the litigation and related proceedings referred to above. The Company's common stock is not listed on a stock exchange for trading and the Company is advised that during the last two years there has been no bid recorded for the Company's securities. Litigation involving the Company is further described in Notes to Consolidated Financial Statements and Note 10 thereof.
The Company's remaining manufacturing operations generally are profitable on a current operations basis, and generally they contribute towards payment of legal expenses, administrative and other parent company overhead costs such as accounting, tax, secretarial and management, as well as certain maintenance expenses and ongoing regulatory costs. The Company's legal costs include particularly the direct and indirect costs of ongoing environmental and insurance litigation and regulatory matters. The Company is subject to serious financial pressures due to being required to conduct material legal actions on both offensive and defensive fronts simultaneously. The Company considers that its pursuit of offensive claims against more than a dozen major insurance companies in which the Company seeks judicial determination of its insurance coverages, payment of its defense costs and other relief critical to the Company's future.
Multi-million dollar settlements of successful actions by the Company against insurance companies have provided the basis for settlements with plaintiffs, lawyers and with governmental
agencies which have asserted claims against the Company. However, the costs of initiating and maintaining such legal actions, together with costs to the Company for site monitoring, remediation and other programs, substantially exceed the Company's cash flow from recurring operations. Moreover, while substantial long-standing litigation was settled during the last full year, new or continuing actions threaten to further damage the Company. Because of the nature of America's litigation system, the costs to determine whether and to what extent claims against the Company may be covered by insurance are themselves prohibitive.
Apart from litigation, Safety Light and the Company have engaged in negotiations with their respective insurance carriers. The first major insurance settlement was agreed to in 1985 (see paragraph (e) of Note 10 to the Consolidated Financial Statements). During 1991, certain carriers entered into settlement agreements which obligated them to fund separate accounts established in connection with the environmental matters, while other carriers refused to settle. Safety Light and the Company intend to pursue litigation against other carriers which have not settled.
Years before any environmental claims were asserted or any statutes were adopted by Congress to provide unlimited retroactive liability for defendants in certain environmental litigation, USRC's operating business lines already were buffeted by negative trends and a deteriorating economic climate. During the late 1960s and 1970s, there was a dramatic and general increase in foreign competition against several important sectors of United States industries. The domestic American automotive and consumer electronics industries, particularly the color television and wristwatch industries which had been the primary customers of USRC for many years, were severely damaged. Often the foreign companies enjoyed political, financial and public support from their governments, while similar support was not available to American companies. In response, much of the former U.S. based television, watch and consumer electronics business literally moved their production and jobs outside the United States.
In view of the foregoing, there is substantial doubt about the Company's ability to continue as a going concern. As a result, the Company could be required to seek protection from its creditors under the bankruptcy statutes.
DEVELOPMENTS IN U.S. ECONOMY. As foreign companies increased their sales into American markets in many industries, hundreds of thousands of American jobs were lost, and America's industrial base was undercut. As a result, major production facilities were closed and expansion of existing plants was moved overseas. The American automotive and consumer electronics industries were severely damaged. USRC's principal customers, the American color television, wristwatch, automobile and consumer electronics manufacturers, were damaged and their domestic business operations were cut back. In turn USRC's business as a supplier to these markets was cut back, and USRC's principal business lines became more intensely price competitive and were driven to marginal profitability or losses. Foreign producers in Europe and Asia, whose export businesses and capital expenditure programs often were subsidized or otherwise supported by their home governments, were able to combine modern manufacturing equipment with lower cost labor, improved worldwide delivery systems and more realistic legal systems, delivered goods of increasing quality into America at competitive prices.
USRC'S SALE OF DIVISION IN 1978. By the mid-1970s the management of USRC recognized that the principal businesses of USRC would not return to their earlier levels of volume or profitability. By 1978 cumulative financial pressures forced USRC to sell the assets of a principal operating division, the Medical Products Division, in order to deal with debt payments and liquidity needs. In 1978, USRC sold the assets of its Medical Products Division to the GAF Corporation, a large chemical company headquartered in New Jersey. This sale of a business line was the first of several sales necessary for debt and liquidity reasons. Management also took steps to reposition assets into business sectors believed to offer more promise then did the domestic color TV, watch, and metal fabricating businesses.
FORMATION OF NEW HOLDING CORPORATION. USR Industries, Inc. was formed in 1980 as a holding corporation primarily aiming for new areas such as the financial services, natural resources and real estate sectors for improved long-term potential. The Company intended to gradually diversify from manufacturing operations dependent upon sales to segments of American business which appeared to be in severe decline.
Through the 1980s, the Company continued gradual divestiture of manufacturing sector operations dependent on declining U.S. markets. Following the 1978 sale of assets of the Medical Product Division to GAF Corporation as above, in 1982 the Company sold certain net assets of USR Chemical Products, Inc. ("Chemicals") to Mitsubishi Chemical Industries Limited of Japan ("Mitsubishi"). While at the time Chemicals was the Company's largest subsidiary operation, it was competing to sell in worldwide markets to color television manufacturers, a customer base which was rapidly leaving the U.S. as described above. The business of Chemicals tended to be cyclical, capital intensive and vulnerable to competition from foreign companies better supported by their own governments such as Mitsubishi of Japan and Hoescht AG of Germany.
The Company believed it had to diversify from dependence on customers whose businesses were being driven out of the U.S. To this end, the Company repositioned its asset profile through divestitures and the purchase of interests in other sectors, including financial services, real estate and natural resources. Following is a summary of such transactions.
FINANCIAL SERVICES/REALTY. During 1981 and early 1982, the Company established an ownership interest in the financial services and real estate sectors through the purchase of common stock of Boothe Financial Corporation ("BFC"), a diversified real estate and financial services concern based in San Francisco, California. The Company's ownership position in the stock of BFC was sold during late 1983 and 1984, with the Company realizing profits exceeding $1 million on such sales.
During 1987, the Company purchased an interest in a limited partnership which acquired a commercial office building located in Houston, Texas. However, as the Company fell under increasing financial pressures arising from environmental and related insurance litigation the Company negotiated non-cash settlements of legal bills and ongoing administrative expenses related to litigation by payments using such limited partnership interests as consideration.
For further discussion of environmental, insurance and other litigation, see Notes to Consolidated Financial Statements and Note 10 thereof.
NATURAL RESOURCES. During late 1983 the Company established an ownership interest in the natural resources sector through the purchase of common stock of the former Pinnacle Petroleum, Inc. ("Pinnacle"), a small, publicly-held oil and gas exploration and production company. Thereafter Pinnacle successfully expanded its scope of operations by merger transactions with other small, publicly traded energy companies, including Spur Petroleum, Inc., Amarillo, Texas; Regal Petroleum, Ltd. and V-Mc Operating Company, Denver, Colorado; and Golden Oil Company ("Golden Oil"), Tulsa, Oklahoma. The name Golden Oil Company was established for the parent corporation in 1989. The success gained in earlier years by the foregoing transactions was undermined by the sudden worldwide collapse of oil prices and a severe depression which spread throughout the independent oil and gas industry. During this depression oil prices fell from around $36 per barrel to around $10 per barrel, and the value of the Company' s investment in Golden Oil declined.
During the same general time as above, serious financial pressure on the Company was caused by the environmental and related insurance and other litigation combined with the erosion of the traditional U.S. based markets as described above. Such pressures forced the Company to continue to sell divisional assets first begun in the mid-1970s following the collapse of the domestic U.S. television manufacturing and consumer electronics industries. Under intense pressure from litigation based on new legal theories of retroactive liability propounded by legislation passed in the early 1980s and vastly expanded by "active" judicial interpretation, and with its traditional markets eroding and its major consumer base moving out of the United States, the Company faced a choice between retaining its remaining core manufacturing operation in Bloomsburg, Pennsylvania or divesting its remaining investment in shares of Golden Oil stock. The Company chose to divest such stock through a rights offering to all Company shareholders. As registered with the SEC, the same terms were offered to all Company stockholders to purchase stock of Golden Oil at its then market value as traded on the National Association of Securities Dealers Automated Quotation system ("NASDAQ"). The Company also conserved cash resources by paying non-cash consideration rather than cash for a portion of its compensation to directors.
For further discussion of the environmental and related insurance and other litigation, see Notes to Consolidated Financial Statements and Note 10 thereof.
OTHER. In connection with plans to redeploy assets, the Company also proposed to sell certain assets of its USR Lighting, Inc. subsidiary in order to diversify from a single-product business which was heavily defense related. Effective February 13, 1985 certain net assets of Lighting were sold to AeroPanel Corporation ("AeroPanel") a newly formed corporation principally owned by an officer of the Company and managed by former Company employees. In connection with its review and approval of the transaction, the Company's Board of Directors did not authorize the transaction until it had received the written opinion of the investment banking group of Connecticut National Bank, a subsidiary of Hartford National Corporation, that the transaction would be fair, from a financial point of view, to the Company and its stockholders.
Such sale was duly approved and ratified by the Company Stockholders at a Meeting of Stockholders held March 7, 1986 at which such transaction was considered.
NARRATIVE DESCRIPTION OF BUSINESS
The Company's current operations consist primarily of the support of its ownership interests in its specialty metals business. In addition, a significant proportion of management's time and corporate resources are involved with litigation affecting the Company.
CONTINUING MANUFACTURING OPERATIONS. USR Metals, Inc. and MultiMetal Products Corporation (such companies being together referred to herein as "Metals") continue to own and operate the Company's core manufacturing interests. Metals specializes in the custom fabrication of specialty dials and in the anodizing treatment of metals. Metals' specialty dials are used as components for clocks and timers for automotive and consumer applications, and are marketed through direct sales and independent sales representatives. Generally, Metals' products are fabricated and marketed on a quoted fixed-price basis. The principal raw materials used are aluminum, steel, plastics and paints. Raw materials are available from several commercial sources, and Metals has experienced no significant difficulties in obtaining supplies for its ongoing business operations. Metals holds patents, trademarks or licenses as deemed advisable in connection with its activities, but does not believe that its operations are materially dependent thereon. Metals' services include various fabricating, finishing and decorating processes.
Metals competes against a substantial number of small specialty companies, many of which have sales and financial resources exceeding those of Metals. Price, customer service and product performance are believed important in marketing products manufactured by Metals. Price competition is very intense, and requires the purchase of higher volume production machinery to lower Metals' cost per unit. Metals business is dependent on sales to a limited number of customers. During 1994, sales to two customers constituted approximately 66% and 11%, respectively, of the total revenues. During 1993, sales to three customers constituted approximately 53%, 14% and 11%, respectively, of the total revenues. During 1992, sales to two customers constituted approximately 40% and 26%, respectively of the total revenues. No other single customer accounted for more than 10% of such sales in each of the respective years.
Substantially all product development programs of Metals' specialty dial business are undertaken by Metals at its expense. Due to the severe pressures resulting from litigation, resources available for capital expenditures have been severely limited. Under a settlement with the U.S. Nuclear Regulatory Commission ("NRC") respecting the Bloomsburg, Pennsylvania site where Metals is a tenant, Metals is unable to move existing equipment off the site without first applying for and obtaining permission from the NRC. In view of such NRC settlement and of ongoing Environmental Protection Agency ("EPA") negotiations, the Company or potential outside investors are reluctant or unwilling to arrange or provide funds needed to finance modernization of Metals' production equipment.
During the last three years through December 31, 1994, expenses for research, development and engineering for the Company's continuing operations, including salaries and
other expenses of personnel employed on a regular basis in such work, were primarily connected with Metals' custom anodizing operations and are estimated at approximately $30,000 per year. Various activities of Metals are subject to federal, state or local regulation with regard to environmental impact. Operations conducted by Metals have received all certificates from regulatory agencies necessary to operate Metals' manufacturing equipment in the normal course of business. Currently, the Company is defending litigation in which substantial claims for alleged environmental injury are being asserted against it and Metals. Such claims arise from allegations as to operations of USRC many decades ago in the era of World War I and to the period following World War II.
For further discussion as to environmental regulations and litigation, see Notes to Consolidated Financial Statements and Note 10 thereof.
EMPLOYEES. The Company and its consolidated subsidiaries employed 24 persons on a full-time basis as of December 31, 1994. In addition, the Company regularly employs part-time personnel and outside professionals who provide accounting, legal and other services.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS, FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES. Metals is engaged in custom anodizing, fabrication and distribution of metal products and specialty dials. It had no export sales during the last three years.
ITEM 2.



ITEM 2. PROPERTIES
The Company leases approximately 1,750 square feet of space for its principal management and accounting offices located in a commercial office building at 550 Post Oak Boulevard, Suite 545, Houston, Texas 77027, having approximately 55,000 net rentable square feet. Such space is under a lease term which extends through December 31, 1995.
Metals' manufacturing facility is located in Bloomsburg, Pennsylvania where Metals currently leases from the owner, Safety Light, approximately 10,000 square feet of space under a lease with renewals through March 31, 2007.
During December 1983, upon expiration of the lease on its former 23,000 square foot factory and office facility in Parsippany, New Jersey, a subsidiary of the Company, USR Lighting, Inc. ("Lighting"), entered into an industrial lease for a term of ten years for a factory and office facility in Boonton, New Jersey comprising approximately 27,000 feet. Following the sale of certain net assets of Lighting effective February 13, 1985, facility betterments were leased to the purchaser over a term which expired December 31, 1993. The facility is owned by a partnership in which an officer and director of the Company holds a principal interest.
During 1980, a lease covering administrative offices in Morristown, New Jersey formerly leased by the Company and having approximately 7,000 square feet of office space was assigned to Lighting, which subleased the premises to an unrelated third party subtenant for an initial term of five years with an optional five year extension which was exercised by the subtenant. Upon expiration of the lease extension in September 1990, the subtenant dissolved its business
operations and did not renew the lease. Lighting is seeking a new tenant for the facility. The property which was built by its owner, Blanchard Construction Company ("Blanchard"), using long-term "credit-lease" financing provided through USRC, has been the subject of continuing litigation with Blanchard for many years.
During 1992 the Company and Lighting became involved in litigation for the third time in approximately ten years with Blanchard, which owns the above office premises. Blanchard constructed the building in the 1950s using financing under a long-term "credit lease" provided by USRC. Relationships between USRC and Blanchard remained mutually cordial and productive for some twenty years until the succession to management of family heirs. Since then virtually continual litigation ensued. Such litigation has the common theme that Blanchard tries different theories before different local state Judges, all of which are aimed at breaking Lighting's long-term sublease so that Blanchard can dispossess its tenant and seize control of the premises. For further description of litigation with Blanchard, see Item 3

ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiary corporations continue to defend litigation in which substantial claims for alleged environmental damages are being asserted. Plaintiffs include both private parties and governmental regulatory bodies. The Company is also pursuing claims against insurance carriers to determine their responsibility for insurance coverages and their obligations to assist in defense of their insureds.
Legal proceedings involve claims by private sector parties and by governmental agencies. The principal private sector party actions are also described in Note 10 to the Consolidated Financial Statements. The primary regulatory proceedings are actions by the EPA and by the NRC further described in Note 10 to the Consolidated Financial Statements. Also, the Company is a plaintiff in actions against certain insurance companies which have been settled in part. These are discussed in Note 10 to the Consolidated Financial Statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" hereof.
During April 1992 Blanchard, owner of a commercial office property located in Morristown, New Jersey leased by a subsidiary of the Company under a "credit lease" entered in 1955, instituted an action against Lighting for summary dispossession. Blanchard has made claims for dispossession three times during the last ten years and has interfered with Lighting's rights by communicating to potential subtenants that litigation between Blanchard and Lighting could affect any lease such potential subtenants might have signed with Lighting. All of Blanchard's claims seek to dispossess Lighting from continuing tenancy and control of the premises. To date, Blanchard has been unsuccessful. However, Blanchard continues to try new
theories and prolific litigations aimed in part at increasing the costs of Lighting's occupancy to prohibitive levels, or to catch a local Judge who may be responsive to one of the various scenarios argued by Blanchard. As further described in Note 10 to the Consolidated Financial Statements, during 1994, only thirteen days following final affirmation by the New Jersey Supreme Court against Blanchard's most recent previous claims, Blanchard started new litigation, again seeking to dispossess Lighting.
Beginning during February 1991 the Company and Safety Light successfully negotiated individual settlement agreements with five primary insurance carriers and three excess insurance carriers. In January 1992, the Company and Safety Light negotiated a settlement agreement with an additional insurance carrier. Monies obtained under the initial installment thereunder have been applied in part toward payment on settlement and defense of the environmental matters. Monies obtained under the second and final installment will be applied toward the NRC claims further discussed in Note 10 to the Consolidated Financial Statements. For information relating to this and additional legal proceedings, see Notes to Consolidated Financial Statements and Note 10 thereof.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for vote by security holders during the fourth quarter of 1994.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is not listed for trading on a regular exchange. For each of the quarterly periods within the two years ended December 31, 1994, the transfer agent reported that there were no transfers recorded.
No cash dividends were declared or paid during the two year period ended December 31, 1994, and management believes it unlikely that the Company will pay dividends in the future. At December 31, 1994 there were approximately 1,150 holders of record of the Company's common stock.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information has been derived from, and is qualified by reference to and should be read in conjunction with, the Company's Consolidated Financial Statements and Notes thereto included elsewhere herein, except that data relating to the fiscal years ended December 31, 1991 and 1990 has been derived from previously published financial statements.
YEARS ENDED DECEMBER 31, (in thousands, except per share amounts)
1994 1993 1992 1991 1990 ------- ------ ------ ----- ------ Revenues ........................... $ 1,291 1,258 1,257 1,238 1,343
Net earnings (loss) before extraordinary item ............. $ (121) (396) (278) 12 (273)
Net earnings (loss) ................ $ (265) (396) (278) 12 (273)
Net earnings (loss) per common share ................... $ (.26) (.40) (.28) .01 (.27)
Total assets ....................... $ 765 883 1,138 1,255 1,367
Total current liabilities .......... $ 868 720 578 403 512
Long-term obligations .............. $ 56 57 58 73 88
Stockholders' equity ............... $ (159) 106 502 780 767
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES. To date the Company has funded its internal cash needs from operations, asset sales and bank borrowings from time to time. The Company expects to look to sales of other assets to meet its liquidity needs, if such are not met from current operations. There can be no assurance that the proceeds from such transactions would be sufficient to meet the Company's future expenses, particularly its legal expenses. If in the future the Company is unable to meet its obligations as they fall due, the Company could seek protection from creditors under the federal bankruptcy statutes.
As of December 31, 1994, the Company's working capital deficit was $560,179 and the ratio of current assets to current liabilities was 0.4 to 1.0 versus a working capital deficit of $390,589 and a current ratio of 0.5 to 1.0 as of December 31, 1993. The primary causes for the deterioration of the Company's current ratio are legal fees, litigation related administrative and travel expenses, and the material and increasingly grave adverse negative impact on the Company's business caused by inability to attract needed investment, borrowings or other financing resulting from the extensive environmental litigation and settlements thereunder. The Company evaluates its accounts and notes receivable from time to time and provides an allowance against current operations for accounts deemed to be uncollectable. During 1992 the terms of certain notes receivable were revised to increase the interest rate thereon to 8.5% and establish the maturity dates at March 31, 2004 and 2005, respectively. As further described in the Company's Consolidated Financial Statements and Note 3 thereto, such notes were restructured during 1994. On an historical basis the Company has not experienced any significant losses from the extension of credit to its customers.
As a result of complex litigation and the settlements pertaining thereto, the Company has been required to bear very substantial legal and related administrative and travel expenses, as well as increasingly costly and difficult restrictions on its operations. While settlements of litigation and certain legal expenses for environmental and related claims during 1991 and 1992 were eventually caused to be paid directly by insurance carriers, the related direct and indirect costs and restrictions, particularly restrictions on the Company's ability to arrange equity financing, new debt agreements or lease financing so as to remove and replace antiquated production equipment, have badly damaged the Company. The combined effect of the foregoing have undermined the Company's ability to modernize and compete. For further discussion of environmental litigation matters, see Notes to Consolidated Financial Statements and Note 10 thereof.
Under a Defense Agreement dated September 30, 1985 to which the Company, Safety Light and five primary insurance carriers are parties ("Defense Agreement"), certain of the Company's ongoing legal defense costs in the environmental litigation were assumed by such insurance carriers. However, payments by such carriers under the Defense Agreement do not cover either the direct or indirect costs to the Company of the litigation and, in any event, the Defense Agreement has been superseded to a substantial degree by subsequent litigation settlements. To the extent such Defense Agreement may still be in effect, it should be noted that the insurance carriers are defending "under reservation" of their absolute rights to deny all liability on the underlying claims and that certain of the insurance carriers under the 1985 Defense Agreement and certain other insurance carries not party to the 1985 Defense Agreement have advised that they may refuse to further assist the Company unless compelled to do so by judicial means.
The Company is subject to additional environmental claims which are not covered by the Defense Agreement or other agreements with insurers, although discussions for the possible participation by certain insurance carriers have been held. Of course there can be no assurance that any such discussions will result in any further agreement as to the payment of defense costs by insurance carriers. In the event that no agreement is reached with insurers with respect to such defense costs, the Company will be required to pay additional legal and litigation related expenses.
Potential sources of payment for such costs include the sale or transfer of Company assets or the sale, conveyance or discounting of its accounts receivable.
Beginning during February 1991 the Company and Safety Light successfully negotiated individual settlement agreements with five primary insurance carriers and three excess insurance carriers. Settlement documents were executed covering the monies and releases to be exchanged between the parties. The insurance carriers paid $6,050,000 in cash into separate trust accounts administered by parties unrelated to the Company. Substantially all such amounts were applied to settle lawsuits, as further described in Note 10 of Notes to the Consolidated Financial Statements. (See Notes 10(a) and 10(b)). The Company also has settled matters described in such Notes (Note 10(d)); other claims that may be covered under the various trust fund agreements; two claims against Safety Light; and insurance actions discussed in the Consolidated Financial Statements and Note 10(e) thereto. In January 1992 monies obtained under the initial installment were applied toward defense costs of matters described in Note 10. (See Notes 10(f) and 10(g)). In January 1992, the Company and Safety Light successfully negotiated a settlement agreement with an additional insurance carrier, pursuant to which the insurance carrier paid two installments, one of which was paid in February 1992 upon execution of all settlement documents and the other paid in January 1993. Monies have been placed into a separate trust account for the defense of matters described in the Notes to the Consolidated Financial Statements, (particularly Note 10(f) and Note 10(g)) and to a separate action naming the Company and Safety Light. On or about May 1992, the Company and Safety Light cocluded a settlement agreement with three primary insurance carriers whereby the insureds will be reimbursed a total of seventy-five percent (75%) of legal costs and expenses incurred in the matter described in Note 10(f) of the Notes to Consolidated Financial Statements.
Because the uses of amounts paid to the trust accounts were specifically restricted by terms of the settlement agreements entered into by the Company, the effects of the above transactions were not reflected in the Company's Consolidated Financial Statements, other than the reversal of certain previously accrued legal expenses of $229,240 during 1991, as such expenses were reimbursed through direct payments by the carriers. Furthermore, since settlements are negotiated only with the consent of the insurance carriers, no insurance company receivables are or have been reflected on the Company's Consolidated Financial Statements.
Having resolved several of its long-standing litigation matters, but with new and different matters still in preliminary stages, at this time the liability of the Company and its subsidiaries alleged to be corporate successors to the former USRC cannot be reasonably estimated, nor at this time does management believe that ultimate liability is sufficiently likely to be viewed as "probable" or that an estimate of insurance proceeds can be made with any degree of certainty. Therefore, the Company has not made additional accruals for possible liability at this time. However, due to factors including the very substantial potential costs of remediation and the uncertainty of the possibilities of further settlements and of the ultimate outcome of these matters, despite what the Company and its counsel believe are meritorious defenses and claims, the Company may be materially adversely affected in the future even if there is no judicial finding of successor liability.
The Company is of the opinion that if, in the future, there is any further material adverse development in such environmental litigation, the Company may be required to make additional asset sales and to file for protection from creditors under the federal bankruptcy statutes.
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993. For the year ended December 31, 1994 total revenues increased slightly to $1,291,294 compared to $1,257,724 for the previous year, a net increase of $33,570. Manufacturing sales for the year ended December 31, 1994 increased to $1,246,294 compared to $1,158,772 for the prior year. Increased manufacturing sales of $87,522 were primarily due to increased shipping volumes rather than to increased price levels. The Company had no net rental income for the year ended December 31, 1994 compared to $31,678 for the prior year, as a sublease expired as scheduled at December 31, 1993.
Interest income for 1994 was zero compared to $28,820 for the prior year. Such interest income was derived primarily from the accretion of the discount and interest received on notes receivable from the sale of certain net assets of Lighting. During the third quarter of 1993, the company agreed to forgive interest on these notes from July 1, 1993 to September 1, 1994. During the first quarter of 1994 these notes were converted into preferred stock redeemable by the issuer from time to time at various prices through maturity. See Consolidated Financial Statements and Note 3 thereof.
Cost of sales for the current year was $815,876 compared to $637,920 for 1993, an increase of $177,956. Increased cost of sales resulted from increased manufacturing sales, as well as changes in the Company's sales mix to products with higher relative material and overhead costs. Offsetting this increase, selling, general and administrative expenses for the current year were reduced to $560,880 compared to $942,165 for the prior year. The decrease in selling, general and administrative expenses of $381,285 primarily reflects decreased travel and related expenses in support of litigation as well as reduced professional fees for 1994. The Company includes its legal expenses for litigation in selling, general and administrative expenses as further discussed in Note 10 to Consolidated Financial Statements. Depreciation and amortization expense decreased to $35,148 for the year ended December 31, 1994 from $68,452 during 1993 as a result of certain assets having become fully depreciated for financial reporting purposes. Interest expense for the current year decreased to zero from $780 in the prior year, reflecting repayment of a Company note outstanding during the prior year.
During 1994 the Company's net pro rata share of earnings from its limited partnership's realty interest was zero compared to a loss of $4,677 for the corresponding prior year. For the current year, no equity in earnings from the limited partnership were recorded since the Company accounted for this investment during 1994 using the cost method of accounting rather than the equity method. This change in presentation reflected the Company's ownership levels after September 30, 1993, when the Company settled certain legal fees and other obligations using such partnership interest as a method of non-cash payment. During 1993 the Company realized a gain of $38,383 from the settlements compared to its book basis in the interests paid. During 1994 the Company transferred additional interests in settlement of obligations, which resulted in a further
gain to the Company of $45,000. Offsetting the gains described above, during 1994 the Company recognized a non-cash loss of $144,055 on the restructuring of notes receivable. See Consolidated Financial Statements and Note 3 thereof.
Primarily as a result of the foregoing factors, the Company had a reduced net loss of $264,665 for the year ended December 31, 1994 compared to a net loss of $396,270 in 1993.
1993 COMPARED WITH 1992. For the year ended December 31,1993 total revenues were $1,257,724 compared to $1,256,616 for the previous year, a net increase of $1,108. Net sales from manufacturing for the year ended December 31, 1993 increased slightly to $1,158,772 compared to $1,153,824 for the prior year. The Company reported net rental income of $31,678 for the year ended December 31, 1993 compared to $31,608 for the prior year. The Company's rental income is derived from the subleasing of a building leased by the Company under an operating lease.
The Company had interest income of $28,820 during the year ended December 31, 1993 compared to $48,929 for the prior year. The Company's interest income is derived primarily from the accretion of the discount and interest received on notes receivable from the sale of certain net assets of Lighting. During the third quarter of 1993, the Company agreed to forgive interest on these notes from July 1, 1993 to September 1, 1994 causing the decrease in interest income in the current year. See Consolidated Financial Statements and Note 3 thereto. The Company reported a net gain from the sale of property and equipment of $20,000 during the year ended December 31, 1992. There were no such sales during 1993.
Cost of sales for 1993 was $637,920 compared to $487,821 for 1992, an increase of $150,099. Such increase is primarily the result of changes in the Company's sales mix which resulted in products with higher relative material and overhead costs. Offsetting increased cost of sales was a reduction in 1993 selling, general and administrative expenses to $942,165 from $975,825 for the prior year. This decrease of $33,660 is primarily the result of reduced professional fees and administrative expenses, partially offset by increased Company travel and litigation related support expenses recorded in the current year, including amounts incurred in prior years. The Company includes in selling, general and administrative expenses its expenses for environmental and other litigation discussed in Note 10 to Consolidated Financial Statements. Depreciation and amortization expense decreased slightly to $68,452 compared to $70,046 for the prior year. Interest expense for 1993 decreased to $780 from $1,477 in the prior year, reflecting a lower outstanding principal balance on the Company's note.
During 1993 the Company's equity in net pro rata share of the loss attributable to its limited partnership realty interest was $4,677 compared to a gain of $803 for the prior year. Such amounts represent the Company's pro-rata equity share of the limited partnership's operations for the respective years. Overall the limited partnership reported a net loss of $33,654 during 1993 compared to net earnings of $3,105 reported for 1992. The limited partnership's reported earnings for 1993 reflect increased rental income due to higher average occupancy levels offset by non-recurring repairs and maintenance expenses and amortization of rental credits negotiated in connection with the renewal of a lease covering approximately one-third of the building. Also
during 1993 the Company recorded a gain of $38,383 on the transfer of partnership interests in a non-cash settlement of certain legal and litigation related expenses.
Primarily as a result of the foregoing factors, the Company reported a net loss of $396,270 for the year ended December 31, 1993 compared to a net loss of $277,750 for 1992.
INFLATION AND CHANGES IN PRICES. In recent years, entities in which the Company holds interests have operated in sectors having generally deflationary economic environments. Thus the impact of inflation on the revenues and expense levels reported by the Company during the past three years has been insignificant. With the easing of inflationary pressures during recent years both the selling prices for the Company's manufactured products and the costs of production, including costs of labor and materials, have tended to stabilize.
FINANCIAL ACCOUNTING STANDARDS BOARD'S STATEMENT RELEASES. During the first quarter of 1992 the Financial Accounting Standards Board ("FASB") issued SFAS No. 109, Accounting for Income Taxes, which superseded SFAS No. 96. The primary changes incorporated in SFAS No. 109 include, among other things, relaxation of the criteria for recognizing deferred tax assets and a reduction in the complexity of calculating deferred taxes by reducing the need to schedule the reversal of temporary differences year-by-year. The statement is effective for fiscal years beginning after December 15,1992.
The Company adopted SFAS No. 109 in the first quarter of 1993 which required the Company to change to the liability method for financial accounting and reporting for income taxes. The Company is currently in a net operating loss carryforward position. As a result of the Company's net operating loss position, the Company's overall deferred tax position results in a deferred tax asset. Due to the anticipated costs of maintaining the Company's ongoing litigation, such deferred tax asset has been fully reserved for financial reporting purposes. Adoption of the statement did not have a material effect upon the Company's financial position.
USR INDUSTRIES, INC.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE Consolidated Balance Sheets 17 Consolidated Statements of Operations 19 Consolidated Statements of Stockholders' Equity 20 Consolidated Statements of Cash Flows 21 Notes to Consolidated Financial Statements 23
USR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
December 31, ---------------------------- 1994 1993 ------------ ------------- ASSETS
Current assets: Cash and equivalents ...................... $ 1,852 $ 53,105 Accounts receivable: Trade ................................ 158,118 87,570 Other ................................ 119,717 142,909 Inventories ............................... 28,395 25,007 Notes receivable-current portion .......... -- 18,121 Prepaid expenses and other ................ -- 2,697 ------------ ------------- Total current assets ................. 308,082 329,409 ------------ ------------- Redeemable preferred stock, related party ...... 386,217 -- Notes receivable, related party ................ -- 385,484
Property, plant and equipment, at cost ......... 1,682,744 1,681,072 Less: accumulated depreciation ........... (1,611,642) (1,576,494) ------------ ------------- 71,102 104,578 ------------ ------------- Other .......................................... -- 63,482 ------------ ------------- $ 765,401 $ 882,953 ============ =============
See Notes to Consolidated Financial Statements (Continued)
USR INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED) (UNAUDITED) December 31, ---------------------------- 1994 1993 ----------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities: Accounts payable .......................... $ 261,597 $ 272,704 Accrued expenses .......................... 606,664 447,294 ----------- ------------ Total current liabilities ............ 868,261 719,998 ----------- ------------ Long-term obligation under capital lease ............................. 56,275 57,425
Commitments and contingencies
Stockholders' equity: Common stock, par value $1; 3,500,000 shares authorized; issued and outstanding 994,655 shares at December 31, 1994 and 1993 ............................. 994,655 994,655 Additional paid-in capital ................ 365,461 365,461 Accumulated deficit ....................... (1,519,251) (1,254,586) ----------- ------------ Total stockholders' equity ........... (159,135) 105,530 ----------- ------------ $ 765,401 $ 882,953 =========== ============
See Notes to Consolidated Financial Statements
USR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
See Notes to Consolidated Financial Statements
USR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
See Notes to Consolidated Financial Statements
USR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
See Notes to Consolidated Financial Statements (Continued)
USR INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(UNAUDITED)
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest was zero, $780 and $1,596 for 1994, 1993 and 1992, respectively. Due to its substantial tax loss carryforward and operating losses the Company was not required to make cash payments for federal income taxes during 1994, 1993 and 1992.
As more fully described in Note 3 to the Consolidated Financial Statements, during 1994 the Company restructured certain notes receivable, together with certain unsecured accounts receivable, into preferred stock having a par value of approximately $386,000.
See Notes to Consolidated Financial Statements
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
SUMMARY AND PRINCIPLES OF CONSOLIDATION. The accompanying Consolidated Financial Statements and Notes thereto present on a consolidated basis the accounts of USR Industries, Inc. ("Company") and its wholly owned subsidiaries USR Chemicals, Inc. ("Chemicals"); 550 POB, Inc., ("POB"); USR Lighting, Inc. ("Lighting"); and Metal Fabricators, Inc. ("Fabricators"); which in turn owns its subsidiaries USR Metals, Inc. ("Metals"); and MultiMetal Products Corporation ("MultiMetals"). All significant intercompany accounts and transactions have been eliminated in consolidation.
PRESENTATION. As more fully discussed in Note 10 to the Consolidated Financial Statements, the Company is subject to material contingent liabilities for environmental claims arising from allegations of nearly a century ago. Such claims have been asserted through litigation and by proceedings with various governmental agencies. Certain insurance carriers which have assisted the Company's defense in earlier years have indicated recently that they may refuse or restrict further financial assistance for defense costs. Litigation related costs are expected to continue to be material.
It is uncertain whether the Company's current operations will generate sufficient working capital to enable it to continue to support an effective legal defense, which raises substantial doubts about the Company's ability to continue as a going concern. As the outcome of these uncertainties cannot presently be determined, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of these uncertainties.
The Company's financial resources effectively have been reduced to bankruptcy levels as a result of the adverse effect of the litigation and related proceedings referred to above. The Company's common stock is not listed on a stock exchange for trading and there has been no transactions recorded by the Company's transfer agent during the last two full years. The accompanying Financial Statements and related Notes are unaudited, as the Company is without resources necessary to continue to engage independent certified public accountants. In the opinion of management, such unaudited statements reflect all adjustments which are necessary to present fairly, in all material respects, the results of the Company for the periods included herein.
INVENTORIES. Inventories of raw materials are carried at the lower of cost (first-in, first-out) or market. Work-in-process and finished goods inventories are valued at the lower of average cost or market. The majority of inventories at December 31, 1994 consisted of work-in-process.
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115") effective January 1, 1994. Prior to the adoption of SFAS 115, investment securities were carried at the lower of average cost or market. The Company had no short-term investments at December 31, 1994 and 1993.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are depreciated over the estimated useful lives of the depreciable assets using the straight line method. Expenditures for maintenance and repairs which do not improve or extend the useful lives are charged to operations as incurred, while expenditures for major renewals and betterments are capitalized.
Dispositions of assets are reflected at their historical cost less accumulated depreciation, with resulting gain or loss reflected in operations currently.
INCOME TAXES. The Company and its wholly-owned subsidiaries join in filing a consolidated federal income tax return. Investment tax credits are accounted for by the flow-through method.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes ("SFAS No. 109") which requires that deferred income tax assets and liabilities be recognized for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amounts of assets and liabilities.
ACCRUALS AND RESERVES. The consolidated balance sheets include an accrual provision of $250,000 at December 31, 1994 and 1993, in respect of estimated future litigation expenses in connection with claims asserted against the Company and its wholly owned subsidiaries. See Note 10 to the Consolidated Financial Statements. Also at December 31, 1994 and 1993 fees owed but unpaid to directors had accrued to $125,000 and $99,000, respectively.
EARNINGS PER SHARE. Earnings per share of common stock are based on the weighted average number of shares of common stock outstanding during each period.
CASH EQUIVALENTS. For purposes of accounting presentation, highly liquid instrument purchases with an original maturity of three months or less are shown as cash equivalents.
RECLASSIFICATIONS. Certain amounts from prior periods have been reclassified to conform with the presentation format of the 1994 Consolidated Financial Statements with no effect on reported results of operations.
(2) INTEREST IN LIMITED PARTNERSHIP
During 1987 the Company formed POB, and through it acquired an interest in a Texas limited partnership which purchased a commercial office building located at 550 Post Oak Boulevard, Houston, Texas 77027. POB agreed to serve as the corporate general partner of the limited partnership, known as Houston-Phoenix Co., Ltd. As corporate general partner POB could be contingently liable for the debts of such partnership.
As of September 30, 1993, the Company settled certain net amounts due to another company which shares office facilities with the Company (and which has one common officer and
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
director but no ownership of the Company) in the amount of $77,000 and from an officer in the amount of $180,000 by non-cash payment and exchange of interests in the limited partnership. The Company realized a gain on the transfer of these interests totaling approximately $38,000. As the result of such changes in the Company's relative ownership, as of September 30, 1993 the Company began accounting for such limited partnership investment under the cost method rather than the equity method. During 1994, the Company settled with partnership interests amounts due to such other company for $45,000, which resulted in a gain to the Company for financial reporting purposes. During 1993 and 1992 the Company paid certain other accrued compensation and expenses owed to officers totaling $25,000 and $25,000, respectively, by exchanging limited partnership interests in lieu of cash payments.
(3) CERTAIN TRANSACTIONS
Effective February 13, 1985 Company stockholders considered and approved the sale of certain net assets of Lighting to AeroPanel Corporation ("AeroPanel") a newly formed corporation owned by an officer of the Company and managed by former Company personnel. In connection with its review and approval of the transaction, the Board of Directors of the Company received the written opinion of the investment banking group of Connecticut National Bank (a subsidiary of Hartford National Corporation) that the transaction would be fair, from a financial point of view, to the Company and its stockholders. At a meeting held March 7, 1986 the Company's stockholders voted to approve and ratify the sale.
In connection with the asset sale, in addition to cash consideration of $325,000, the Company received notes payable to it having aggregate face value of $570,000 as of the transaction date, secured by a subordinated interest in AeroPanel assets. The principal amounts of such notes were discounted at issuance using an imputed interest rate of 11%, which for financial statement reporting purposes resulted in an original issue discount of $175,950. Effective as of December 31,1992, the terms of such notes were revised to increase the interest rate to 8.5% and to establish the maturity dates at March 31, 2004 and 2005, respectively. During 1993 and 1992 interest income to the Company from the notes totaled $28,820 and $48,929 respectively, of which $9,660 and $9,162 respectively were attributable to accretion of original issue discount. At December 31, 1993 remaining unamortized discount totaled $38,187. As more fully discussed below, such notes were restructured effective during the first quarter of 1994.
During the third quarter of 1993 the Company agreed to defer principal payments on such notes receivable and to forgive interest thereon from July 1, 1993 to September 1, 1994. As a condition thereto, the Company required AeroPanel to raise substantial new financing. The Company's actions were deemed necessary and in the best interests of the Company in view of sudden and significant reductions in defense spending following the end of the Cold War and the curtailment or cancellation of military and space exploration programs for which AeroPanel serves as a subcontractor. The Company believed that if it were to attempt to force accelerated payment of the notes payable to it, AeroPanel in turn might be forced to seek defensive reorganization under the bankruptcy statutes, impairing the value of a Company asset.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
As of September 1, 1993 AeroPanel fulfilled the first performance milestone required by the Company as a condition to the possible restructure of the notes by concluding an agreement with a commercial factor. The agreement provided up to $250,000 of cash financing available immediately to AeroPanel and provided the factor a senior security interest in AeroPanel's assets, as well as other independent security. Effective during the first quarter of 1994 AeroPanel fulfilled the second condition required by the Company on obtaining new loan financing. Such loan, which may extend to a total amount of $400,000, is secured by second liens on the business and assets of AeroPanel, and is subordinate to the first lien of the commercial factor as above.
Upon receiving evidence satisfactory to the Company of the successful completion of the AeroPanel financing as above, the Company agreed to restructure the notes receivable, together with certain unsecured accounts receivable from AeroPanel, into non-cumulative, redeemable preferred stock having a par value of approximately $386,000. In connection with the restructuring, the Company recognized a non-cash loss of approximately $144,000. The preferred stock is redeemable by AeroPanel prior to maturity at December 31, 2003 on a scheduled basis which provides an incentive discount for early redemption. In the year 2003, the preferred stock becomes payable in full at par value. The schedule for early redemption provides an incentive discount of 25% from face value if preferred stock is redeemed by AeroPanel on or before December 31, 1995; 20% if redeemed on or before December 31, 1997; 15% if redeemed on or before December 31, 1999; 10% if redeemed on or before December 31, 2001; and 5% if redeemed on or before December 31, 2003.
AeroPanel made no redemption of preferred stock during 1994. Of course the ability of AeroPanel to redeem its preferred stock, whether on an accelerated basis or at maturity in 2003, is dependent upon a number of factors beyond the control of the Company, including future developments in the aerospace and aircraft markets.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at December 31, 1994 and 1993 is as follows:
1994 1993 ----------- ----------- Land and buildings, under capital lease .......... $ 183,254 $ 183,254 Machinery and equipment .......................... 858,438 858,438 Office furniture and fixtures .................... 76,921 75,249 Leasehold improvements ........................... 564,131 564,131 ----------- ----------- 1,682,744 1,681,072
Less: accumulated depreciation (including accumulated amortization of assets under capital lease of $117,843 in 1994 and $114,788 in 1993) ........................... (1,611,642) (1,576,494) ----------- ----------- $ 71,102 $ 104,578 =========== ===========
(5) EMPLOYEE BENEFIT PLAN
Effective January 1, 1987 the Company adopted a 401(k) savings plan. The plan covers all employees who have completed one or more years of service and are not covered by a collective bargaining agreement. Each participant may make annual contributions up to the lesser of the maximum amount allowable or 13% of compensation. The Company, at its discretion, may match participants' contributions up to 2% of their compensation. Participant contributions are vested at all times, and the discretionary employer contributions vest 20% per year after two years. The Company incurred contribution expense of $2,461 in 1992. No contributions were made by the Company in 1993 or 1994.
Effective January 1, 1987 the Company adopted a defined benefit plan for all employees covered by a collective bargaining agreement. The Company's annual contribution to the plan is actuarially determined. Currently the defined benefit plan covers 18 employees and the participants in the plan are fully vested after five years of service. The actuarial status of the defined benefit plan at December 31,1994 has not been determined; however, management does not consider the impact of the plan to be material to the Consolidated Financial Statements. The Company incurred pension expense of $4,385, $2,980 and $4,123 in 1994, 1993 and 1992 respectively.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(6) FEDERAL INCOME TAXES
At December 31, 1994 the Company had aggregate net operating loss carryforwards of approximately $2,296,000 which expire at various dates through the year 2006. Certain restrictions may exist as to the utilization of such carryforwards. As discussed in Note 1, the Company adopted SFAS No. 109 on January 1, 1993. The Company has provided a valuation allowance for its net deferred tax assets at January 1, 1993, and therefore no cumulative effect of a change in accounting method was recognized in the 1993 consolidated statement of operations. The components of the Company's deferred tax assets and liabilities at December 31, 1994 and 1993 are as follows:
Deferred Tax Assets (Liabilities) ------------------------- 1994 1993 --------- --------- Accounts receivable ............................ $ -- $ 50,640 Inventory ...................................... -- 304 Property, plant and equipment .................. 990 1,247 Accrued expenses ............................... (133,794) 22,715 Accounts payable ............................... 3,776 18,360 Investments .................................... 11,492 11,895 Net operating losses ........................... 780,808 674,884 --------- --------- Subtotal ............................... 663,272 780,045 Valuation allowance ............................ (663,272) (780,045) --------- --------- Net deferred tax assets (liabilities) .......... $ -- $ -- ========= =========
Due to the Company's ongoing litigation expenses and resultant financial position, the Company believes it is unlikely that it will be able to utilize its deferred tax asset prior to its expiration and, accordingly, has provided a reserve on the full amount of the asset. During 1994, the Company's valuation allowance decreased by approximately $117,000 due to expiration of previous years' tax loss carryforwards.
(7) LEASES
The Company leases its administrative offices in a commercial office building at 550 Post Oak Boulevard, Houston, Texas under a three year lease through December 1995. The Company owns a limited partnership interest in such building. The Company's office space comprises 1,750 square feet in such building, which has a total of approximately 55,000 square feet.
The Company's wholly-owned subsidiary, Lighting, leases an office building and leased a manufacturing facility under long-term capital and operating leases, respectively. During 1980 through 1990 the office building leased by Lighting was subleased at rentals in excess of its lease expense; however, there has been no subtenant since 1990. The operating lease expired on December 31, 1993. The Company did not guarantee any obligation under the operating lease.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At December 31, 1994, the aggregate future minimum lease payments under the above capital lease are as follows:
Capital Lease ------------- 1995 $ 5,318 1996 5,318 1997 5,318 1998 5,318 Subsequent to 1998 ....................................... 92,565 --------- Total minimum lease payments ............................. 113,837 Less amount representing interest ............................................ (56,412) --------- Present value of future minimum lease payments .............................. 57,425 Less current obligation .................................. (1,150) --------- $ 56,275 =========
Total rental expense on the operating leases was approximately $172,883 and $176,349 for the years ended December 31, 1993 and 1992, respectively. The Company received sublease rental income under Lighting's operating lease for each of the years ended December 31, 1993 and 1992 of approximately $187,000. For financial reporting purposes, sublease rental revenue is recorded net of rental expense.
(8) NOTES PAYABLE AND LONG-TERM DEBT
At December 31, 1992 the Company had a note payable to a commercial bank of $13,230, collateralized by certain accounts receivable, inventory and equipment of MultiMetals. The note bore interest at bank prime plus 1% (the bank prime rate was 6.0% at December 31, 1992) and required monthly principal payments of $1,167 plus accrued interest until maturity at November 1,1993. This note was fully repaid during 1993.
(9) SIGNIFICANT CUSTOMERS
For the year ended December 31, 1994, subsidiaries of the Company had sales to two (2) customers of approximately 66% and 11% of its total consolidated revenues. For the year ended December 31, 1993, subsidiaries of the Company had sales to three (3) customers of approximately 53%, 14% and 11% of total revenues. For the year ended December 31, 1992, subsidiaries of the Company had sales to two (2) customers of approximately 40% and 26% of
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
total revenues. The Company's accounts receivable are primarily from companies involved in the consumer products and machinery control industries and generally are not collateralized.
(10) COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
(a) T&E INDUSTRIES, INC. On April 2, 1981 an action was commenced in the Superior Court of New Jersey, Essex County, by T & E Industries, Inc. naming USRC, the corporate predecessor to Safety Light Corporation ("Safety Light"), as a defendant and alleging, inter alia, that property in Orange, New Jersey owned by the plaintiff suffers from contamination from certain radioactive materials allegedly deposited thereon by USRC during prior years. The litigation arises from operations conducted by USRC at the site during the years 1917 through 1925. Subsequent to the commencement of this action the complaint was amended to include the Company and certain of its wholly owned subsidiary corporations alleged to be corporate successors to the former USRC. The plaintiff seeks to compel remedial action as to alleged improper condition of the site and damages in unspecified amounts in compensation for alleged injury to its property and business as well as punitive damages.
During December 1983 plaintiffs amended such complaint to include as additional defendants GAF Corporation, Mitsubishi Chemical Industries, Inc. ("MCI") and MCI's subsidiary in New Jersey, USR Optonix, Inc., which was alleged to be a corporate successor to the former USRC. The additional defendants were claimed to be liable under the product line exception to the general theory that a third party purchaser of assets is not liable as a successor. The additional defendants answered denying liability and demanded that the previously named defendants defend the action on their behalf and indemnify them against costs and any potential liability in connection therewith. In 1984 the additional defendants were successful on a motion for summary judgment against the plaintiffs and, accordingly, the claims of the additional defendants against the Company and its subsidiaries were dismissed.
In early 1985 the Company prevailed against a motion for summary judgment by the plaintiff seeking judgment that the Company is the successor to USRC.
In September 1985 five primary insurance carriers of the Company and Safety Light assumed the defense of the Company, certain of the Company's subsidiaries and Safety Light, pursuant to a Defense Agreement. While the insurance carriers assisted in the defense of certain actions their defense was made subject to an absolute reservation of rights to deny liability on any of the underlying claims.
On February 3, 1986, this matter was tried before a jury in front of the Honorable Stanley G. Bedford. This trial was only with respect to the liability, if any, of Safety Light. Prior to trial, the Court bifurcated the count asserting liability against the Company and certain of the Company's subsidiaries and on November 18, 1985 ordered that all claims against the Company
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
would be severed and separately tried, if at all, in the event plaintiff obtains a judgment against Safety Light.
During the trial the Court granted a directed verdict in favor of Safety Light dismissing all of plaintiff's strict liability claims, all negligence based claims relating to the conduct of USRC between 1917-1925, and all claims based upon fraud, recklessness and intentional conduct. The only remaining claims against Safety Light were an alleged negligent failure to warn when the premises were sold in 1943 and a negligence theory which allegedly placed upon USRC a continuing duty to warn prospective purchasers up through the time plaintiff purchased the property in 1974, thirty-one years later. The Court also reduced plaintiff's damage claim from $2.8 million to under $400,000.
On March 11, 1986, the jury returned a verdict, finding that USRC was not negligent in 1943 when it failed to warn its immediate purchaser that the presence of radioactive tailings on the premises constituted a potential risk to health or property. The jury did find that USRC was negligent for not warning plaintiff before its purchase of the property thirty-one years later, in 1974, that some potential risk to health or property existed on the premises. Damages were assessed against Safety Light in the amount of $372,100.
On April 25, 1986, Judge Bedford granted Safety Light's motion for judgment in its favor notwithstanding the jury's verdict of March 11, 1986. The Court also denied plaintiff's application for indemnification by Safety Light of all cleanup costs assessed against plaintiff as a result of any future government efforts to decontaminate the property. Final judgment was thereafter entered in favor of Safety Light, the Company and certain of the Company's subsidiaries on May 29, 1986 and awarded on September 20, 1986, dismissing all of plaintiff's claims in their entirety.
On July 9, 1986, plaintiff filed a Notice of Appeal from the June 20, 1986 judgment. On August 11, 1988 the Appellate Division reversed the lower court's decision, entered judgment in favor of plaintiff based on plaintiff's absolute liability claim and remanded the case to the trial court for a new trial on the issue of damages. By order dated September 19,1988 Safety Light's motion for re-consideration was denied by the Appellate Division. A petition for certification to the Supreme Court of New Jersey was granted and oral arguments were heard on March 12, 1990. On April 2, 1991 Safety Light and the Company settled all claims asserted by plaintiff with the exception of future unknown third party claims against plaintiff relating to the property and future cleanup costs incurred by plaintiff. Settlement documents have been finalized and executed by all parties. All monies for this settlement have been provided by certain insurance carriers of the Company and Safety Light. On April 3,1991, the Supreme Court modified the Appellate Division's decision, affirmed the decision and modified and remanded the matter for a new trial on damages. Because of the aforementioned settlement, this new trial will not be necessary.
Claims also were made by T & E Industries in an action brought in the U.S. District Court for the District of New Jersey, allegedly pursuant to the Comprehensive Environmental Response, Compensation Liability Act of 1980 ("CERCLA") seeking a declaration that defendants are liable
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
for all costs of cleanup and decontamination, consistent with the National Contingency Plan, of the site presently known as 422 Alden Street, Orange, New Jersey and seeking a judgment for "response costs" already incurred and injunctive relief for enforcing such remedy. Defendants made a motion to dismiss and plaintiffs made a cross-motion for partial summary judgment against Safety Light. The motions were heard on February 10, 1988. The Court, through Judge Wolin, found against the defendants' motion to dismiss and granted T & E's application that Safety Light is liable under CERCLA for all necessary costs of response incurred by T & E which are consistent with the National Contingency Plan. The Court, however, limited T & E's alleged damages and determined, inter alia, that T & E's claim for attorney's fees are not recoverable response costs under CERCLA.
This matter has also been settled pursuant to the terms of the settlement agreement discussed previously with all monies paid in settlement provided by certain insurance carriers of the Company and Safety Light. The same reservation of rights by plaintiff pertains to this matter. Plaintiff has asserted no claims against the Company or Safety Light under this reserved right to seek recovery for future unknown third party claims against plaintiff relating to the property and future cleanup costs incurred by plaintiff. At this time, since no claims have been made, the Company cannot predict whether or in what amount plaintiff may seek recovery against the Company under plaintiff's right to make such claims.
(b) MONTCLAIR, GLEN RIDGE AND WEST ORANGE. Between 1984 and 1990 Safety Light, the Company and its two manufacturing subsidiaries, USR Lighting, Inc. and USR Metals, Inc., were named as defendants in seven actions commenced in Superior Court, Essex County, New Jersey. These actions were brought on behalf of certain residents in the Townships of Montclair, Glen Ridge and West Orange, New Jersey and claim, inter alia, damages to land and personal injury in amounts to be proved at trial as well as punitive damages. Such alleged damages are claimed to have been caused by actual or threatened exposure of the property and persons of plaintiffs to gamma radiation and levels of radon gas, a radioactive decay product of uranium or radium bearing ores, at levels above background levels naturally occurring and in excess of permissible levels established by the government for members of the public. Plaintiffs allege that such radiation is a product of landfill obtained from the former USRC site in Orange, New Jersey.
By notice of motion returnable on July 18, 1986, the Company, certain of the Company's subsidiaries and Safety Light moved for summary judgment dismissing plaintiff's claims based upon the continued lack of a factual nexus between their activities and the presence of radon in plaintiffs' homes. The motion was also based upon the inapplicability of the legal theories advanced by plaintiffs to these matters. By order dated August 22, 1986, the Court granted in part and denied in part the motion for summary judgment, ruling that there remained factual issues preventing the dismissal of certain claims which could not be resolved without a full plenary hearing. The Court dismissed all causes of action based upon manufacture of a defective product, breach of an express or implied warranty, battery and trespass. By the same order, the Court also consolidated these matters for discovery and trial purposes.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
By order dated January 16, 1987, the Court granted the motion filed by the Company, certain of the Company's subsidiaries and Safety Light for severance and separate trial of certain liability and damage issues. The Court directed that these matters be tried in three separate phases: (1) a Phase I trial relating solely to plaintiffs' claims that the allegedly contaminated soil around plaintiffs' homes originated at the former USRC site in Orange, New Jersey; (2) if plaintiffs are successful in the Phase I trial, a second trial would follow encompassing all remaining liability issues; and (3) if plaintiffs are successful again in the Phase II trial, a third trial would follow relating to the plaintiffs' personal injury and property damage claims.
On November 19 and 20, 1987 the defendants' motion for partial summary judgment regarding the absence of contaminated soil originating from the Orange site of the former USRC on plaintiffs' property was argued before the Superior Court of New Jersey, Law Division, Essex County. By letter opinion dated January 29, 1988, as supplemented by Judge Yanoff's letter of February 4, 1988, the Court granted in part and denied in part defendants' application. The Court adjudicated as a fact that there is no contamination fill originating from the Orange site on six of the properties claiming to be contaminated and directed a hearing, with further expert testimony, regarding the alleged presence of contaminated sub-surface material on 14 properties as well as 30 remaining properties where certain bore hole sampling results were relied upon. On March 18, 1988, the Court denied plaintiffs' request for a rehearing on defendants' motion, as well as plaintiffs' request for leave to perform additional bore hole sampling and analysis to oppose defendants' application. Following a lengthy hearing in April and May, 1989, the Court, by letter opinion dated July 12, 1989, determined such testimony to be inadmissible.
By notice of motion dated September 15, 1989 defendants renewed their motion for partial summary judgment adjudicating as a fact that there is not contaminated fill originating from the former USRC's former property in Orange on 18 plaintiff owned or occupied properties. Defendants also moved for the dismissal of all property damage and consequential damage claims of 22 plaintiffs, based on the absence of contaminated fill on certain properties.
As in the T&E Industries matter, the same five primary insurance carriers of the Company and Safety Light assumed the defense of the Company, certain of the Company's subsidiaries and Safety Light, with a complete reservation of rights.
On March 15, 1991, the parties agreed to the terms of a settlement pursuant to which plaintiffs would release the Company and Safety Light from all claims, present and future, known and unknown. All monies paid as the result of this settlement were provided by certain insurance carriers of the Company and Safety Light. Settlement documents have been executed with all monies paid as of September 30, 1991. These monies have been distributed to all plaintiffs following receipt of signed releases from each plaintiff and/or court approval of the settlement as to all plaintiffs who have not yet reached the age of majority.
(c) U.S. ENVIRONMENTAL PROTECTION AGENCY PROCEEDINGS. The U.S. Environmental Protection Agency ("EPA") has included the Orange, New Jersey site and the Montclair, Glen Ridge and West Orange sites on the national priorities list of the Comprehensive Environmental
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Response Compensation Liability Act of 1980, 42 U.S.C. 9601, et seq., and has notified the Company that it, among others, may be a potentially responsible party under the Act. The Company has provided requested information to the EPA. In view of the decision of Judge Wolin of the U.S. Federal District Court declaring Safety Light a liable party under CERCLA for the remediation and cleanup for the Orange site, the EPA completed a Work Plan for Remedial Investigation and Feasibility Study ("RI/FS") for cleanup of the Orange, New Jersey site. Based on a preliminary review and certain assumptions about the remediation steps to be undertaken, a consultant for defendants estimated remediation costs at $4,800,000. EPA has estimated remediation costs with this property and so called satellite and vicinity properties at $80,000,000. Defendants agreed to erect a security fence around the Orange site. An Administrative Consent Order embodying this agreement was negotiated with EPA and the fence was completed. Four of the same five preliminary insurance carriers of the Company and Safety Light assumed all the costs associated with the construction of the security fence. The RI/FS is currently planned to begin within the near future.
The RI/FS and supplemental RI/FS have been completed by EPA for the Glen Ridge, Montclair and West Orange sites. EPA has estimated remediation costs for a ten year excavation and removal program at these offsite locations to be approximately $250,000,000. The Record of Decision ("ROD") selecting the remedy for the sites was issued by EPA and implementation of the selected remedy has begun. At this time, the federal government has not commenced any proceedings against the Company or Safety Light for the recovery costs associated with the investigation or remediation of the Orange site or the Glen Ridge, Montclair and West Orange sites.
The Company has not made additional accruals for any potential exposure in this matter at this time due to the preliminary stage of the matter and the unresolved question of the Company's liability under CERCLA as an alleged successor to the former USRC. However, the costs of remediation are potentially very large, and in the event the Company is found liable and the insurance carriers prevail in any further action seeking to deny or limit coverage, the Company would be materially adversely affected and would be required to seek protection under the federal bankruptcy code. At this time, the Company believes it has meritorious defense against liability as an alleged successor and meritorious claims against its insurance carriers; however, of course no assurance can be given as to the outcome of these matters.
The Company believes that its employees, stockholders and itself have been unfairly and wrongfully subjected to theories of retroactive liability springing from allegations dating back to the turn of the century and the era before World War I. The Company believes that the actions complained of were legal and, moreover were in accordance with the accepted knowledge and practice of their time. If further litigation claims are made by the government or private parties the Company will have no alternative but to file for reorganization pursuant to the bankruptcy statutes.
(d) U.S. NUCLEAR REGULATORY COMMISSION PROCEEDING. During the first quarter of 1989 the Company received from the U.S. Nuclear Regulatory Commission ("NRC") an order
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
dated March 16, 1989 modifying certain operating licenses of Safety Light and demanding information respecting the Bloomsburg, Pennsylvania site of Safety Light. The order, which alleges in part that the Company is liable as a "corporate successor" of Safety Light, requires certain activities including the preparation and implementation of a plan for site characterization and decontamination of the Bloomsburg facility, and makes demand for certain information. On June 2, 1989, a Joint Characterization Plan prepared by the Company's consultant was submitted in response to the March 16, 1989 Order. That plan was rejected by the NRC Staff on June 16, 1989. An alternative plan was submitted in August 1989.
On August 21, 1989, the NRC Staff issued a second immediately effective order requiring the named parties, including the Company, to establish a one million dollar trust fund to finance a broad plan to characterize the extent of contamination at the Bloomsburg site. The Company requested a hearing before the Atomic Safety and Licensing Board (the "Licensing Board") with respect to both the March and August orders. In addition, the Company filed a petition for Review before the United States Court of Appeals for the District of Columbia Circuit. By orders dated November 22, 1989 and December 1, 1989, the Licensing Board issued a stay of the March and August orders with respect to the Company. By order dated July 26, 1989, the District of Columbia Circuit Court stayed further action in that proceeding pending further action by the NRC on the March 16, 1989 order.
By order dated February 8, 1990, the Licensing Board reconsidered and modified the stay of the March and August Orders, and required the Company to make contributions to an escrow fund pursuant to the August 21, 1989 order. The Atomic Safety and Licensing Appeal Board heard oral argument on the issue of reconsideration and modification of the stay on March 6, 1990. The Appeal Board has not yet issued a decision on the imposition of a stay. On April 24, 1990, the Atomic Safety and Licensing Appeal Board affirmed the Licensing Board's February 8, 1990 Order. On August 3, 1990, the Company filed a timely petition for review of the Appeal Board's decision in the United States Court of Appeals for the District of Columbia Circuit. That appeal has been stayed pending further agency action.
On or about May 4, 1990, the Company and the NRC Staff entered into a partial interim settlement, which provided for partial characterization study of the Safety Light site to be completed on or by October 15, 1990. By order dated May 4, 1990, the Licensing Board granted a joint motion by the NRC Staff and the Company to stay the NRC proceedings during the term of the partial interim settlement agreement. The NRC Staff and the Company further agreed to (a) report to the Licensing Board on or by November 26, 1990, on the results of the study and (b) to make recommendations for further action at that time. On or about October 15, 1990, the Company forwarded to the NRC Staff and to the members of the Licensing Board copies of the partial interim characterization study prepared by Chem-Nuclear Systems, Inc., pursuant to the partial settlement agreement. Of that study, the Company has been advised that remediation costs could total between $15,000,000 to in excess of $25,000,000 based on remediation costs for similar properties if all remediation actions originally ordered were completed.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
By order dated November 21, 1990, the Licensing Board granted a joint motion to hold the NRC proceeding in abeyance until January 21, 1991, to enable the NRC Staff to issue Demands for Information to USR Industries, Inc. and Safety Light regarding NRC decommission funding requirements found in 10 C.F.R. _ss.30.35. On January 7, 1991, the NRC Staff issued the Demand for Information to the Company. The Company responded on February 7, 1991. On January 22, 1991, the NRC Staff and the Company filed a second joint motion to hold the NRC proceeding in abeyance until March 4, 1991, to enable the staff to complete its review. On March 4, 1991, the NRC Staff again moved to stay action.
In addition, on February 7, 1992 the NRC issued an order to the Company and Safety Light in which it denied the license renewal applications which had been filed by Safety Light on January 24, 1984 and November 27, 1987, respectively. The NRC based its denial on Safety Light's alleged violation of regulations regarding a decommissioning funding plan. The Company and Safety Light have filed an answer and request for hearing. Among the issues identified for that hearing is whether the NRC has jurisdiction over the Company. No schedule has been set in that proceeding. However, the Licensing Board has asked the parties to respond to a series of questions to enable the Licensing Board to determine if the proceedings should be consolidated.
Pursuant to the settlement agreements referenced in (e) below, the Company and Safety Light have allocated approximately $975,000 of trust funds toward defense efforts and payment of costs and expenses associated with the continuing investigation and decommissioning of the property. Approximately $230,000 of this amount has been paid to consultants retained by the Company and Safety Light. Of the aforementioned allocated amount, $200,000 was paid in January 1993 by the insurance carrier with whom settlement was reached in January 1992. Additional costs and expenses are anticipated.
During March 1993 the Company's NRC counsel became concerned that the money available from insurance settlements for legal costs, remediation and additional settlements was being outstripped by accelerating legal expenses to defend motions, requests for interrogatories and other actions by the NRC legal staff. Such counsel and the Company both believe that the combined legal costs to wage simultaneous actions offensively against the insurance carriers and defensively to protect the Company are running substantially in excess of amounts currently available. Accordingly, such counsel advised the Company, Safety Light and the NRC that it has withdrawn from representation of the Company and Safety Light effective March 15, 1993. Thereafter, other than with respect to certain limited contributions of legal services to encourage settlement between the Company, Safety Light and the NRC, and except to provide representation of the Company to contest NRC jurisdiction, such counsel will no longer represent the interests of the Company or Safety Light in the foregoing proceedings.
The Company thereupon advised the NRC that, as it would be unable to continue to pay legal counsel both for defense of the NRC matter and offensive pursuit of the insurers, the Company had no alternative but to represent itself before the NRC. On April 2, 1993 the Company and Safety Light appeared before a three judge panel of the Atomic Safety and Licensing Board in a settlement review. On April 2, 1993 that Board directed that all pending
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
legal motions in the matter would be suspended to allow for direct review and negotiation between Safety Light and the NRC technical staff without use of attorneys by any party. The Company was given standing to be present and assist at such meetings.
One of the areas to review is a proposal for site characterization and potential remediation which Safety Light arranged to be submitted by Amersham International, Inc. ("Amersham"), a leading worldwide specialist in nuclear medicine and remediation. Amersham is a commercial outgrowth of a government atomic energy authority of the United Kingdom. A conference between NRC technical personnel and Amersham was set for the week beginning May 3, 1993.
Following conferences and proposals between the Company; Safety Light; NRC staff, licensing, enforcement and technical personnel; outside experts on remediation, lead by Amersham; and with the further limited participation and assistance of NRC counsel for the Company and Safety Light, a settlement agreement was concluded on September 20, 1994 between the NRC, Safety Light and the Company. Under the agreement the Atomic Safety and Licensing Board dismissed proceedings which were then pending against Safety Light and the Company. Such dismissal of these proceedings effectively terminated enforcement actions which had been brought by the NRC staff against the Company and Safety Light for a period of five years through December 1999. In conjunction with the settlement the Company agreed to make monthly payments into a trust account in the amount of $1,000 for forty-eight (48) consecutive months. Safety Light undertook independent financial and remediation obligations.
Separately, the NRC advised the Company that the Licensing Board of the NRC had determined that, for NRC purposes, the Company is deemed a "successor" to USRC.
At this time, the Company believes it has meritorious defenses against liability as an alleged successor and meritorious claims for defense and coverage against its insurance carriers; however, of course no assurance can be given as to the final outcome of these matters.
(e) PROCEEDINGS AGAINST CERTAIN INSURERS. During 1984 the Company notified its insurance carriers as to the pendancy of certain of the above described actions and requested that such carriers defend and indemnify the Company as a named insured under various primary insurance policies as well as excess coverage or umbrella policies. All such carriers answered denying liability and denying any obligation to defend the Company against the claims asserted. Thereupon on August 20, 1984 the Company commenced an action in Superior Court of New Jersey, Essex County, naming as defendants all of the Company's primary and excess coverage insurers and seeking judicial determination as to such carriers' duty to defend and to indemnify the Company and its subsidiaries and seeking reimbursement of costs expended by the Company for its defense, assumption of such defense on an ongoing basis, damages for wrongful declination to defend and punitive damages and counsel fees for willful failure to defend and indemnify the Company in each of the foregoing actions.
In September 1985, five primary insurance carriers of Safety Light and the Company assumed the defense of the Company and certain of its subsidiaries alleged to be successors in
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
certain of the underlying actions described above, while reserving their right to disclaim liability. As a result of that Agreement, this action had been stayed except with respect to applications by plaintiffs to require other primary insurance carriers not party to the Defense Agreement to provide for a defense and indemnification of the Company, certain of the Company's subsidiaries and Safety Light. By case management order dated March 21, 1989, the case was re-activated to the extent that discovery was taken concerning the existence, placement, negotiation and terms of insurance contracts potentially applicable to the underlying matters referred to in the Amended Complaint.
Beginning during February 1991 Safety Light and the Company successfully negotiated individual settlement agreements with all five primary insurance carriers and three excess insurance carriers. Settlement documents have been executed with all monies and releases to be exchanged between the parties. The insurance carriers paid $6,050,000 on behalf of the Company and Safety Light into separate trust accounts administered by parties unrelated to the Company, none of which amounts were received by the Company. These amounts were used to settle matters described in Note 10(a) and 10(b) of Notes to Consolidated Financial Statements as well as various payments discussed in Note 10(d) to the Consolidated Financial Statements and approximately $229,000 of legal fees previously accrued by the Company. The remaining $672,000 in these trust accounts may be used solely to pay future costs and expenses in resolving the matters described in Note 10(c) and 10(d) to the Consolidated Financial Statements as well as other claims that may be covered under the various trust fund agreements; two claims against Safety Light, and the prosecution of the Company's insurance actions discussed in 10(e) to the Consolidated Financial Statements. In January 1992, monies obtained under the initial installment were applied toward defense costs of matters described in Note 10(f) and 10(g). Because the use of amounts paid to the trust accounts were specifically restricted, the effects of the above transactions were not reflected in the Company's Consolidated Financial Statements, other than reversal of previously accrued legal expenses of $229,240 during 1991, which expenses were paid through direct insurance carrier payments. Furthermore, since settlements are negotiated only with the consent of the insurance carriers, no insurance company receivables are or have been reflected on the Company's Consolidated Financial Statements. Monies will also be applied towards defense costs, remediation efforts made pursuant to settlements and the continued pursuit of non-settling carriers. During late March 1993 Judge Humphreys, the administrative judge currently assigned for the foregoing insurance litigation, ordered that the trial date for USR Industries, Inc. et al. versus INA, et al., Docket No. L-055362-84, would be set. In order to more fully prepare this complex matter for trial, both sides evaluated a possible agreement to procedurally dismiss the case by stipulation, shortly after which the action would be refiled under a new docket number. Such stipulation would include agreements by both sides not to change the status quo in other respects, including a Discovery Order issued by Judge Yanoff on December 16, 1992. Following further negotiation the Company and Safety Light entered a stipulation in the foregoing case and is in settlement discussions with INA.
While there can of course be no assurance as to the outcome of these matters, the Company has been advised that it has meritorious claims to support its actions against the remaining insurance carriers for defense and indemnification.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(f) TAYLOR MATTER. In this matter it was alleged that plaintiff's decedent was employed by the Wellsbach Company of Philadelphia during the years 1966 and 1967. His duties there allegedly included quality control testing of gas mantles. The complaint as amended contends that during the course of his employment he was exposed to thorium, thorium nitrate, thorium dioxide and/or tredium. Such exposure allegedly caused angiosarcoma of the liver and ultimately his death on April 7, 1990.
Theodore Taylor ("Taylor"), while still living, filed a complaint in the same court in 1989 to which the Company was not a party. The 1989 action was dismissed without prejudice in March 1991 based on plaintiff's failure to comply with a number of discovery orders directing plaintiff to specify the products which allegedly caused Taylor's injuries and to identify the manufacturers and distributors of same.
The Company believes that the plaintiff's claims against the Company are without merit as the former USRC was not involved in the manufacture, distribution or sale of thorium or thorium compounds, nor was it involved in manufacturing gas mantles, nor did it deal with the Wellsbach Company. Further, although USRC dealt with tritium, the Company has been advised that tritium could not have been used in the making of gas mantles due to its scientific properties. Based on the foregoing, the Company has successfully defended against this claim and a Stipulation of Dismissal with Prejudice was filed with the court and received by the Company.
(g) SHARKEY LANDFILL MATTER. A third-party complaint was filed on July 31, 1991 against, inter alia, USR Industries, Inc., as the alleged successor to the former USRC.
The claim against the Company is based on an affidavit claiming that Carl Gulick, Inc., a waste hauler, pumped a sudsy rinse water from a photographic slide manufacturing process from USRC's plant at Hanover Avenue and Horsehill Road in Morris County, New Jersey. The affidavit further claims that this material was believed to have been taken to the Sharkey Landfill in Parsippany, New Jersey and that such substances are of the type alleged by government plaintiffs to have been found at the Landfill. Based on this allegation, the third-party complaint seeks contribution under Section 113(f) of CERCLA, and under New Jersey statutes, for the investigation and remediation of the Landfill.
The Company has joined the Sharkey Landfill Steering Committee and from the aforementioned trust funds paid the sum of $10,000 for its share of administrative costs incurred by the Committee. The litigation has been stayed pending settlement discussions with the government plaintiffs. When and if any settlement figure is agreed upon, the Steering Committee members must arrive at an allocation of that sum amongst themselves. In connection with that effort, the Company has responded to an Allocation Questionnaire and has submitted the required position statements to the Allocation Consultant. After the Allocation Consultant issues the first draft report, the Company will have an opportunity to request withdrawal from the group.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At this time, the Company cannot determine the final outcome of this matter and of course no assurance can be given with respect thereto.
(h) BLANCHARD SECURITIES CO. MATTER. On April 29, 1992 Blanchard Securities Co. ("Blanchard") owner of a commercial office property located in Morristown, New Jersey which is leased by a subsidiary of the Company under a long term "credit lease", instituted an action for summary dispossession against tenant, USR Lighting, Inc. ("Lighting") and the Company. The property is subject to a Lease Agreement entered into in 1955 which upon the exercise of options expires in 2016. Blanchard's complaint was filed in the Landlord-Tenant Special Civil Part Division, Morris County. On April 30, 1992 Lighting commenced an action by Verified Complaint against Blanchard and its managing partner, William C. Blanchard, in the Superior Court of New Jersey, Chancery Division, Morris County. By this Complaint, Lighting seeks injunctive and declaratory relief relating to Blanchard's attempted termination of the 1955 Lease Agreement, as well as compensatory and punitive damages for business torts, including tortuous interference with Lighting's contract with a proposed subtenant with whom Lighting had signed a long-term sublease held in escrow and to which Blanchard had consented as Landlord.
On May 8, 1992 Lighting moved to transfer Blanchard's Special Civil Part suit and consolidate that matter with Lighting's Chancery Division action. Lighting's motion was granted on May 15, 1992. On May 20, 1992 Blanchard and William C. Blanchard filed their Answer to Lighting's Verified Complaint. Blanchard's Answer generally denied Lighting's allegations and asserted a counterclaim which incorporated the summary dispossession action.
Blanchard, which since 1979 has followed the pattern of attempting to hinder or block potential subtenants from taking occupancy, has repeatedly asserted similar claims against Lighting and the Company. To date Blanchard has been unsuccessful in each such claim. Blanchard's summary dispossession action primarily rests upon the premise that repairs to the roof and heating, ventilation, and air conditioning ("HVAC") systems were required under the parties 1955 Lease Agreement, and that Lighting's failure to effect those repairs after due notice from Blanchard resulted in a breach of that agreement. The sole basis for Blanchard's claim that Lighting breached the 1955 Lease Agreement consists of provisions in the sublease agreement concerning improvements to the roof and the HVAC systems which Lighting agreed to perform in order to induce its proposed subtenant to enter into a long-term sublease with Lighting. Blanchard admitted to never having inspected the roof or operated the HVAC systems to determine whether any repairs were in fact necessary under the 1955 Lease Agreement. Blanchard also admitted to not knowing the condition of the roof and HVAC systems or the specific nature of the improvements agreed to between Lighting and its proposed subtenant.
During 1994, only thirteen days following final affirmation by the New Jersey Supreme Court against Blanchard's most recent previous claims, Blanchard started new litigation in Supreme Court, Morris County, New Jersey seeking to dispossess Lighting. Again Blanchard's litigation was first filed in Landlord-Tenant Special Civil Part Division, Morris County and, upon application by Lighting, was again transferred to the Superior Court, Chancery Division, Morris County, New Jersey.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
In the latest chapter of its ongoing suits, Blanchard repeated its theories that Lighting had not properly maintained and repaired the building. Blanchard cited in particular the allegedly excessive length of time required to repair substantial water damage to the building caused by freezing and burst plumbing which occurred as a result of a power outage during the winter of 1994. Blanchard also asserted that Lighting did not meet repair and maintenance obligations respecting grounds maintenance and removal of trash, principally containers deposited on the wooded area of the property by patrons of a nearby fast food restaurant. Blanchard also alleged, inter alia, that the property had been abandoned by Lighting; that Lighting had not made a proper effort to sublease the property; and that Lighting was not meeting on a full and timely basis other incidents of long-term ownership in that Lighting was late in delivering local property taxes assessed on the property. Lighting had appealed the property tax assessment, which appeal successfully reduced applicable property taxes by approximately 25%. The Company expects this matter to be tried in the second quarter of 1996.
SUMMARY
Having resolved several of the Company's long-standing litigation matters, but with other matters still in preliminary stages, at this time the liability of the Company and its subsidiaries alleged to be corporate successors to the former USRC cannot be reasonably estimated, nor does management believe at this time that ultimate liability is sufficiently likely to be viewed as "probable" or that an estimate of insurance proceeds can be made with any degree of certainty. For these reasons the Company has not made additional accruals for possible liability at this time. However, due to factors including the very substantial potential costs of remediation and the uncertainty of the final outcome of these matters, despite what the Company believes are meritorious defenses and claims, the Company may be materially adversely affected in the future even if there is no judicial finding of successor liability.
The legal costs both to defend and to prosecute the above litigation and related contingent items have been and are expected to be material in amount. If the Company is not successful in its pursuit of additional financial assistance from its insurance companies, it is unlikely that current operations will generate sufficient working capital to enable the Company to continue its legal defense.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of these uncertainties. The Company believes that its employees, stockholders and itself have been unfairly and wrongfully subjected to theories of retroactive liability springing from allegations dating back to the turn of the century and the era before World War I. The Company believes that the actions complained of were legal and, moreover were in accordance with the accepted knowledge and practice of their time. If further litigation claims are made by the government or private parties the Company will have no alternative but to file for reorganization pursuant to the bankruptcy statutes.
USR INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(11) SELECTED QUARTERLY FINANCIAL DATA
The following selected financial data is unaudited and summarizes the Company's operations on a quarterly basis:
---------------------------------------------- March 31 June 30 September 30 December 31 --------- -------- -------- ------- Net sales ..................... $ 286,363 361,225 304,855 293,851 Cost of sales ................. $ 204,546 226,263 215,626 169,441 Selling, general and administrative expenses ..... $ 134,735 194,378 160,482 71,285 Net earnings (loss) before extraordinary item ........................ $ (64,708) (71,207) (82,820) 98,125 Net earnings (loss) ........... $(208,763) (71,207) (82,820) 98,125 Net earnings (loss) per common share ............ $ (0.21) (0.07) (0.08) 0.10
---------------------------------------------- March 31 June 30 September 30 December 31 --------- -------- -------- ------- Net sales ..................... $ 255,812 303,515 264,093 335,352 Cost of sales ................. $ 156,887 169,549 139,105 172,379 Selling, general and administrative expenses ..... $ 244,853 169,265 481,434 46,613 Net earnings (loss) ........... $(145,071) (33,249) (329,621) 111,671 Net earnings (loss) per common share ............ $ (0.15) (0.03) (0.33) 0.11
---------------------------------------------- March 31 June 30 September 30 December 31 --------- -------- -------- ------- Net sales ..................... $ 288,266 321,506 291,753 252,299 Cost of sales ................. $ 130,461 130,025 113,107 114,228 Selling, general and administrative expenses ..... $ 208,151 237,592 225,479 304,603 Net loss ...................... $ (50,269) (41,539) (23,756) (162,186) Net earnings (loss) per common share ............ $ (0.05) (0.04) (0.02) (0.16)
USR INDUSTRIES, INC.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND DISCLOSURE
Not applicable.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information to be filed by the Company pursuant to Regulation 14A of the Securities Exchange Act of 1934 is expected to be filed by August 15, 1997.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The information to be filed by the Company pursuant to Regulation 14A of the Securities Exchange Act of 1934 is expected to be filed by August 15, 1997.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information to be filed by the Company pursuant to Regulation 14A of the Securities Exchange Act of 1934 is expected to be filed by August 15, 1997.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information to be filed by the Company pursuant to Regulation 14A of the Securities Exchange Act of 1934 is expected to be filed by August 15, 1997.
USR INDUSTRIES, INC.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE
(a) 1. The following Consolidated Financial Statements are included in Part II, Item 8:
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1994 and 1993 17
Consolidated Statements of Operations for the years ended December 31, 1994, 1993 and 1992 19
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1994 and 1993 20
Consolidated Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992 21
Notes to Consolidated Financial Statements 23
2. Financial Statement Schedules:
All schedules are omitted because they are not applicable or the information is included in the financial statements and notes included herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Company's last fiscal quarter of 1994.
(c) Exhibits
The following exhibits are filed as part of this report. Where such filing is made by incorporation by reference to a previously filed statement or report, such statement or report is identified in parenthesis.
3. Articles of Incorporation and Bylaws
3.1 Certificate of Incorporation (incorporated by reference to Exhibit 3(a) of Form 8-B dated October 15, 1980).
USR INDUSTRIES, INC.
3.2 Amendment to Certificate of Incorporation filed on June 13, 1984 (incorporated by reference to Exhibit 3 of Form 10-K for year ended December 31, 1984).
3.3 Bylaws (incorporated by reference to Exhibit 3(b) of Form 8-B dated October 15, 1980).
10. Material Contract
10.1 Asset Purchase Agreement between USR Lighting, Inc. and AeroPanel Corporation (incorporated by reference to Exhibit 2(a) of Form 8-K March 8, 1985).
10.2 Asset Purchase Agreement between USR Metals, Inc. and MultiMetal Products Corporation (incorporated by reference to Exhibit 2(b) of Form 8-K March 8, 1985).
10.3 Lease dated as of December 12, 1983 between USR Lighting, Inc. and 661 Myrtle Property Co., Ltd. (incorporated by reference to Exhibit 10 of Form 10-K for year ended December 31, 1984).
10.4 Restructuring Agreement between USR Lighting, Inc. and AeroPanel Corporation dated as of January 1, 1994 (filed herewith).
22.1 Subsidiaries of the Company (filed herewith).
USR INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
USR INDUSTRIES, INC.
Date: March 15, 1995 By: /S/RALPH T. MCELVENNY, JR. Ralph T. McElvenny, Jr., Acting Principal Executive, Financial and Accounting Officer
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 Company and in the capacities and on the dates indicated.
Date: March 15, 1995 By: /S/STEPHEN B. AYCOCK Stephen B. Aycock, Director
Date: March 15, 1995 By: /S/RALPH T. MCELVENNY, JR. Ralph T. McElvenny, Jr., Director