UTAH INTERNATIONAL INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME The following statement of consolidated income of Utah International Inc. and subsidiaries ("Utah"), insofar as it relates to the years 1971 through 1975, has been examined by Arthur Andersen & Co., independent public accountants, whose report, which is subject to the effect of such adjustment, if any, as may be required as a result of compensation which may be received by Marcona for the expropriated Peruvian assets (see Note B), is based in part upon the reports of other auditors, as set forth in such reports included elsewhere in this Joint Proxy Statement. The statement of consolidated income for the nine-month periods ended July 31, 1975 and 1976, not examined by independent public accountants, reflects, in the opinion of Utah's management, all adjustments, consisting only of normal recurring accruals, necessary to present fairly the earnings for such periods. The results of operations for the nine months ended July 31, 1976 are not necessarily indicative of the operating results for the full year. This statement should be read in conjunction with the notes thereto and with the consolidated financial statements and related notes included elsewhere in this Joint Proxy Statement. Nine Months Ended July 31 Year Ended October 31 (Unaudited) 1971 1972 1973 1974 1975 1975 1976 (Amounts in thousands) Income (A): Gross revenues from operations (14)............ $118,391 $226,534 $332,359 $501,227 $686,258 $506,517 $669,244 Costs and expenses......................................... 80,102 160,096 234,661 319,502 407,353 286,786 407,928 Gross profit from operations........... $ 38,289 $ 66,438 $ 97,698 $181,725 $278,905 $219,731 $261,316 Equity in earnings (losses) of Affiliates (B)........................................... 17,868 14,360 10,533 19,170 7,108 6,906 (2,904 Joint ventures and partnerships (5)....... 571 (88) (2,734) (3,800) (5,659) (4,094) (5,505 Interest............................................................ 2,803 4,894 7,233 7,941 7,228 5,380 6,024 Foreign currency exchange gains (losses) (C).............................................................. (1,618) 843 9,894 608 1,399 (1,263) 2,298 Other, net........................................................ 1,198 _98 (1,308) (5,782) (1,652) (2,556) (487) Gross profit and other income........ $ 59,111 $ 86,545 $121,316 $199,862 $287,329 $224,104 $260,742 Expenses: General and administrative........................... $ 4,520 $ 5,049 $ 6,017 $ 7,886 $ 10,092 $ 6,928 $ 8,302 Provision for employees' retirement program (15).............................................. 763 920 1,160 1,527 1,936 1,347 1,672 Interest............................................................ 11,137 15,968 18,245 20,680 17,973 12,768 10,847 Less: capitalized interest (8).......................... (7,592) (2,527) ( 1,569) (4,939) Minority interest in earnings of subsidiaries.. 871 1,884 3,793 7,000 14,561 11,760 14,079 $ 9,699 $ 21,294 $ 27,646 $ 32,154 $ 44,562 $ 32,803 $ 34,900 Income from Continuing Operations Before Income Taxes and Extraordinary Item........ $ 49,412 $ 65,251 $ 93,670 $167,708 $242,767 $191,301 $225,842 Provision for income taxes (A and 11)......... 13,731 20,923 31,441 70,076 107,377 85,553 99,811 Income from Continuing Operations Before Extraordinary Item......................................... $ 35,681 $ 44,328 $ 62,229 $ 97,632 $135,390 $105,748 $126,031 Discontinued Operations (A): Income from, net of income taxes.................. 629 Gain on disposition, net of income taxes....... 1,355 Income Before Extraordinary Item.................. $ 37,665 $ 44,328 $ 62,229 $ 97,632 $135,390 $105,748 $126,031 Extraordinary itemPeruvian expropriation loss of affiliate (B).............................. _ _ _ _ (23,809) (19,071) Net Income............................................................ $ 37,665 $ 44,328 $ 62,229 $ 97,632 $111,581 $ 86,677 $126,031 Earnings Per Share (D and E): Income from continuing operations before extraordinary item...................................... $1.16 $1.42 $1.99 $3.11 $4.29 $3.35 $4.00 Income from discontinued operations........... .02 Gain on disposition of discontinued operations........................................................... 05 Extraordinary item......................................... _ _ _ _ (.75) (.60) Net income...................................... $1.23 $1.42 $1.99 $3.11 $3.54 $2.75 $4.00 Cash Dividends Per Common Share (E)........... $0.375 $0.44 $0.455 $0.71 $1.00 $0.70 $0.75 Book Value Per Share......................................... $17.14 $20.40 (For alphabetical note references, see the following two pages; for numerical note references, see the "Notes to Consolidated Financial Statements" of Utah International Inc. and subsidiaries included elsewhere in this Joint Proxy Statement.) 20 NOTES TO STATEMENT OF CONSOLIDATED INCOME OF UTAH INTERNATIONAL INC. AND SUBSIDIARIES (Data for the nine months ended July 31, 1975 and 1976 have not been audited.) A. Discontinued Operations In 1971, Utah sold substantially all of its dredging assets for $5,970,000 and recorded a net profit of $1,355,000 on the sale, after applicable income taxes of $1,335,000. The gross revenue in 1971 from discontinued dredging operations was $2,629,000; dredging income amounted to $629,000 after applicable income taxes of $683,000. B. Affiliated Companies The statement of consolidated income includes Utah's equity in the earnings of affiliated companies in which Utah does not have a majority interest. The basis of recording the equity in these earnings is the affiliates' most recent audited financial statements and their subsequent unaudited interim reports. On July 25, 1975, the Peruvian government expropriated the iron ore mining properties and facilities of Marcona Mining Company in Peru. Marcona Mining Company is a wholly owned subsidiary of Marcona Corporation ("Marcona"), a 46%-owned affiliate of Utah. Utah's underlying share of the book value of Marcona's investment in the Peruvian properties was approximately $ 19.1 million (recorded as an extraordinary loss in July 1975) which is net of approximately $5 million of income taxes previously provided by Utah on the undistributed earnings of Marcona. Subsequent to the expropriation, Marcona sustained additional losses which are deemed to be directly associated with the takeover by the Peruvian government. These losses relate to Marcona-owned and chartered vessels which were involved in transporting ore from the Peruvian mine. Such losses, totaling approximately $4.7 million (Utah's share), have been combined with Utah's share of the book value of Marcona's investment in the Peruvian properties as losses resulting from the expropriation. Accordingly, Utah has written off such losses, totaling $23.8 million, as an extraordinary item during 1975. In September 1976, as a result of negotiations between United States and Peruvian government representatives, an intergovernmental agreement was reached in settlement for Marcona's expropriated assets. When the settlement amounts, net of taxes, are determinable and realization is assured, Utah will record its share of such recovery. Utah understands that Marcona will reflect the cash settlement portion of the agreement as an extraordinary gain; however, the accounting for the potential benefits resulting from the balance of the agreement has not yet been determined. See Note 19 to Utah's financial statements. C. Foreign Currency Exchange Gains and Losses Prior to August 1, 1975, foreign currency exchange gains and losses related to foreign borrowings used to finance the development of certain mining properties were deferred and amortized over the estimated lives of such mining operations. As a result of a Financial Accounting Standards Board pronouncement made during October 1975, all foreign currency exchange gains and losses, including the previously deferred items, should be included in the determination of net income for the period in which they occur. The statement of consolidated income has been appropriately restated to comply with this pronouncement and accordingly, all such gains and losses have been included in "Foreign currency exchange gains (losses)" in the statement of consolidated income. The following is a reconciliation of net income and earnings per share as previously reported with such items as restated: Nine Months Year Ended October 31 Ended - July 31, 1971 1972 1973 1974 1975 Net income (in thousands) As previously reported...................................... $38,296 $44,026 $55,436 $96,941 $87,511 Foreign currency exchange gains (losses)....... (631) 302 6,793 691 (834) As restated......................................................... $37,665 $44,328 $62,229 $97,632 $86,677 Earnings per share-As previously reported...................................... $1.25 $1.41 $1.77 $3.08 $2.78 Foreign currency exchange gains (losses)....... (.02) .01 .22 .03 (.03) As restated......................................................... $1.23 $1.42 $1.99 $3.11 $2.75 21