utah construction & mining co and subsidiaries utah construction & mining co and subsidiaries statement of consolidated income for the years ended october 31 1965 and 1964 notes to consolidated financial statements october 31 1965 income gross revenues from operations note 4 89,317,424 costs and expenses 76,372,121 gross profit from operations 12,945,303 equity in net income of — affiliates note 1 6,109,231 joint ventures proportionate share of gross revenue was approximately 49,000,000 for 1965 and 42,000,000 for 1964 note 4 465,982 gain loss on sale of equipment and investments 1,749,375 interest 338,147 other income expense 264,427 21,343,611 expenses : general and administrative $ 3,383,893 employees retirement plan provision 680,000 interest 2,1 13,227 $ 6,177,120 net income before income taxes 15,166,491 provision for income taxes 4,150,000 net income 11,016,491 59,890,248 50,569,194 4,327,538 1,555,303 157,347 404,802 376,162 15,389,882 $ 3,741,101 604,000 2,152,819 $ 6,497,920 $ 8,891,962 1,600,000 $ 7,291,962 statement of consolidated earned surplus for the years ended october 31 1965 and 1964 balance beginning of year add net income deduct cash dividends 1.00 per share in 1965 and $ 95 per share in 1964 . balance end of year including equity in undistributed earnings of affiliates notes 1 and 3 58,217,167 11,016,491 69,233,658 4,300,240 55,010,571 7,291,962 62,302,533 4,085,366 1 the consolidated financial statements include the accounts of utah construction & mining co and all subsidiary companies after elimination of significant intercompany items and transactions in addition the statements include utah's equity in the net earnings of affiliated companies in which utah does not have a majority interest the equity in these earnings is recorded based upon the affiliates audited financial statements as of their most recent fiscal year-end and upon subsequent interim reports submitted by the respective companies estimated income taxes payable on such earnings when distributed have been provided in the accompanying financial statements the composition of utah's investment in affiliated companies is shown below 1965 1964 total equity in undistributed earnings of affiliates 36,045,329 30,770,326 less income taxes payable upon distribution of earnings to utah 6,806,051 5-81 included in earned surplus 297239^78 24,950,888 cost of investments 3,224,322 2,722,454 noncurrent advances — 200,500 32,463,600 27,873,842 the accounts of foreign subsidiaries and affiliates have been translated to u.s dollars at the exchange rates in effect as of october 31 1965 fluctua tions in these exchange rates during the year had no significant effect upon the accompanying consolidated financial statements 2 the company and its consolidated subsidiaries have entered into various agreements for the acquisition of land to be developed and sold among other things certain of these agreements generally provide that the related obligations will mature only as the company chooses to develop individ ual units or parcels further such obligations amounting to 3,437,407 at october 31 1965 and 5,246,243 at october 31 1964 are secured only by the related land in which the company has an investment of 1,092,881 and do not represent claims against other corporate assets 3 the company's long-term loan agreements contain certain restrictive provisions including a limitation on the payment of cash dividends and on the purchase or redemption of outstanding capital stock earned surplus in the amount of 14,998,187 was free of such restrictions at october 31 1965 4 major construction contracts may extend over a period of years accordingly the company reports income from its construction contracts on a percentage-of-completion basis the company's share of income from joint venture construction contracts is reported in the same manner based upon reports submitted by the respective joint ventures proceeds from claims against owners or price adjustments arising out of construction contracts are recorded in the year such claims are resolved no significant items of this nature with respect to contracts completed in a prior year were recorded in 1965 or 1964 5 contingent liabilities include the usual liability of contractors for the performance and completion of both company and joint venture con tracts in addition the company is committed to invest and/or advance funds to certain affiliates and joint ventures in connection with their expan sion and operating activities as of october 31 1965 the principal commitment is an additional 10 million for mount goldsworthy mining asso ciates the company has a lease agreement expiring in 1980 for the rental of its home office the annual base rental under this agreement varies from 185,000 for 1966 to 210,000 for the last five years of the lease the company also has a long-term lease agreement for equipment requiring pay ments of approximately 420,000 annually for a remaining period of 8 years 6 the accompanying statement of income includes provisions for depreciation and depletion of 4,899,797 in 1965 and 6,060,582 in 1964 7 in february 1965 federal income tax deficiencies were proposed by the u s internal revenue service against certain of the company's affiliates for the taxable years 1953 through 1962 the deficiencies are being contested by these affiliates and counsel has advised that there are substantial defenses against such deficiencies in the company's opinion any resulting tax liability of the affiliates would not have a material effect on the accompanying financial statements and no provision therefor has been made in connection with its review of the company's income tax returns for the fiscal years 1955 to 1963 inclusive the u s internal revenue service has proposed certain deficiencies in taxes counsel for the company has advised it that there are substantial defenses against the proposed deficiencies and they are presently being contested in the opinion of the company the ultimate liability for the deficiencies if any will not exceed the amounts reserved therefor the company is defendant to certain pending litigation arising out of the 1960 merger with lucky me uranium corporation management and counsel are of the opinion that the company's position is correct and sound and the action is being vigorously defended accordingly no provision for such litigation has been made in the accompanying financial statements 8 subsequent event as of december 14 1965 the company entered into an agreement for the sale of 35,000,000 of 5vi notes to an insurance company maturing in varying installments from 1971 to 1986 proceeds will be used to refund present long-term debt and for the financing of mining expansion