UTAH INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2. POOLINGS OF INTERESTS On November 30, 1973, March 29, 1974 and October 31, 1974, Utah acquired Ladd Petroleum Corporation ("Ladd"), Clarcan Petroleum Corporation ("Clarcan") and LVO Corporation ("LVO"), respectively, in mergers which were accounted for as poolings of interests and which resulted in the conversion of all of Ladd's, Clarcan's and LVO's common stock into approximately 2.5 million shares of Utah's common stock. 3. INVENTORIES Inventories, priced at the lower of average cost or market, used in the computation of costs and expenses were as follows (in thousands): October 31 July 31, 1970 1971 1972 1973 1974 1975 1976 Mined ore and concentrates................................ $ 6,002 $10,152 $16,627 $28,966 $29,127 $42,511 $72,627 Mining supplies................................................... 3,635 5,121 9,506 14,068 21,400 32,869 41,374 Other..... .......................................................... 5,942 5,923 6,049 6,688 1,668 128 293 $15,579 $21,196 $32,182 $49,722 $52,195 $75,508 $114,294 4. AFFILIATED COMPANIES The composition of Utah's investment in affiliated companies at October 31, 1975 and July 31, 1976 was as follows (in thousands): October 31, July 31, 1975 1976 - - Equity in undistributed earnings of affiliates- Included in retained earnings......................................... $66,144 Included in deferred income taxes................................. 3,022 3,254 $69,166 $66,262 Cost of investments................................................................ 15,304 15,304 $84,470 $81,566 Below is a summary of the unaudited financial statements of Marcona Corporation ("Marcona") and Cyprus Pima Mining Company ("Cyprus Pima"), Utah's most significant affiliates, and of all affiliates combined as of October 31, 1975 and July 31, 1976 (in thousands): Year Ended October 31,1975 Nine Months Ended July 31,1976 Cyprus Cyprus Marcona Pima Marcona Pima (46% (25% Total (46% (25% Total Owned) Owned) Affiliates Owned) Owned) Affiliates Current assets........................... $ 74,163 $ 35,446 $118,234 $ 46,167 $ 36,877 $110,496 Other assets............................... 132,592 86,572 268,482 123,382 92,364 308,200 $206,755 $122,018 $386,716 $169,549 $129,241 $418,696 Current liabilities...................... $62,423 $ 10,478 $ 81,264 $ 38,095 $ 15,493 $75,196 Lone-term liabilities 31,260 24,468 96,073 26,490 24,756 129,354 Stockholders' equity 113,072 87,072 209,379 104,964 88,992 214,146 $206,755 $122,018 $386,716 $169,549 $129,241 $418,696 Revenue ... $294,726 $ 78,823 $397,976 $120,447 $ 55,509 $200,051 NET INCOME (LOSS)...... 11,818* 6,950 18,149* (8,084) 1,920 (5,788) UTAH'S RECORDED SHARE OF- STOCKHOLDERS' EQUITY ...... $ 51,980 $ 21,769 $ 84,470 $ 48,311 $ 22,244 $ 81,566 Net income (loss)............ 5,504** 1,667 7,108** (3,669) 475 (2,904) * Before expropriation loss as described below totaling $62,800. ** Before Utah's share of expropriation loss as described below totaling $23,809. F-36 UTAH INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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. See Note 19. 5. JOINT VENTURES AND PARTNERSHIPS Below is a summary of the unaudited balance sheets of Harbor Bay Isle Associates, a partnership formed to develop a residential community in the San Francisco area, and of all joint ventures (other than mining joint ventures) and partnerships combined as of October 31, 1975 and July 31, 1976 (in thousands): Harbor Bay Isle Associates Total Joint Ventures (50% Owned) (a) and Partnerships October 31, July 31, October 31, July 31, 1975 1976 1975 1976 Current assets......................................... $ 128 $ 118 $ 1,096 $ 4,113 Other assets (principally land).............. 30,023 31,148 30,540 31,160 $30,151 $31,266 $31,636 $35,273 Current liabilities.................................... $ 777 $ 514 $ 1,238 $ 3,204 Long-term liabilities............................... 23,397(b) 25,354(b) 23,397 25,355 Net worth............................................... 5,977 5,398 7,001 6,714 $30,151 $31,266 $31,636 $35,273 (a) Partnership agreement modifications made in 1975 provide that losses will be allocated in proportion to the partners' capital accounts; profits, if any, will be shared equally after partners' prior losses have been recovered. In effect Utah, since April 1974, has recorded 100% of the partnership losses. (b) Long-term liabilities consist of assessment liens payable to a reclamation district, which issued bonds to raise funds for developing the project. Utah acquired substantially all of these bonds, and they are included in "Long-term receivables and other" in the accompanying consolidated balance sheet. Because of the difficulties experienced in developing this project, Utah has provided a significant reserve on its investment in the bonds. 6. DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT In determining depreciation on property, plant and equipment computed under the straight-line or declining-balance methods, the following rates are used: Automotive equipment............................................................... 12 1/2 to 33 1/3% Buildings...................................................................................... 2 to 10% Furniture and fixtures................................................................. 10% Machinery and equipment.......................................................... 5 to 33 1/3% F-37 ?