UTAH INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded) In August 1976 the Commonwealth government of Australia reduced the export duty on exports of high quality coking coal from $A6.00* per metric ton to $A4.50 per metric ton. In addition the government announced its intention to phase out entirely this duty within three years. The complete elimination of the export duty would have a favorable material effect on Utah's results of operations. On September 10, 1976, Utah completed its acquisition of Marcona's interest in Samarco, as described in Note 12 to Utah's financial statements. On September 23, 1976, an intergovernmental agreement was reached between United States and Peruvian government representatives in settlement for Marcona's assets expropriated by the Peruvian government in July 1975 (see Note 4 to Utah's financial statements). The agreement provides for a $37 million payment to Marcona in the form of an interest bearing promissory note to be paid from the proceeds of international financing being negotiated by the Peruvian government. In addition, the agreement provides for a quantity of iron ore pellets to be purchased by Marcona under a separate agreement for resale in the United States over a four year period and a contract of affreightment covering the transportation of Peruvian ore. Marcona has confirmed its acceptance of this agreement, when carried out, as full settlement of its claims against Peru arising out of the expropriation. The agreement also relieves Marcona of any liabilities for the payment of taxes or other obligations to the Peruvian government. 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. On October 1, 1976, the Department of Justice stated that it has no present intention to take legal action to prevent or otherwise challenge the proposed merger of General Electric Company and Utah as described in Note 18 above. As a result, Utah has agreed to divest itself of management control of its entire uranium assets until the year 2000, while retaining the beneficial ownership thereof and the right to receive mandatory cumulative quarterly dividends amounting to 85% of the uranium earnings during the intervening period. This is to be accomplished by depositing in a Delaware voting trust all of the outstanding shares of common stock of a Utah wholly owned unconsolidated subsidiary to which Utah's uranium assets and business will be conveyed prior to the consummation of the proposed merger. Utah will record income from this unconsolidated subsidiary as dividends are received for financial reporting purposes. _ * On September 30, 1976, the Australian dollar was equivalent to approximately $US1.24. F-44 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Marcona Corporation We have examined the consolidated balance sheet of Marcona Corporation and subsidiary companies as of December 31, 1975, and the related consolidated statements of operations and retained earnings and of changes in financial position for the five years then ended. Our examinations were made in accordance with generally accepted auditing standards and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. As discussed in Note 2 to the financial statements, the Government of Peru expropriated the Peruvian iron ore mining properties and operations of the Corporation in July 1975 by decree providing for no compensation for the assets expropriated. Losses related to the expropriation have been accounted for as an extraordinary charge to earnings in 1975. U.S. government representatives, working on the Corporation's behalf, are negotiating with Peruvian government representatives to obtain appropriate compensation and to resolve certain proposed additional tax assessments which have been asserted for prior years. Since the outcome of the negotiations cannot be determined with reasonable certainty, no estimated amount for net recovery has been included in the extraordinary item in 1975. In our opinion, subject to the effect of such adjustment, if any, as may be required upon ultimate resolution of the negotiations referred to in the preceding paragraph, the consolidated financial statements examined by us present fairly the financial position of Marcona Corporation and subsidiary companies at December 31, 1975, and the results of their operations and the changes in their financial position for the five years then ended, in conformity with generally accepted accounting principles consistently applied. Price Waterhouse & Co. San Francisco, California February 13, 1976 F-45