MARCONA CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION In Thousands Year Ended December 31____ 1971 1972 1973 1974 1975 Working capital was provided from: Earnings for the year before extraordinary item.... $26,608 $20,061 $20,174 $20,191 $ 3,425 Add income charges (deduct credits) not affecting working captial: Depreciation ............................................. 15,286 16,820 21,427 21,884 15,547 Provision for Peruvian severance indemnities 1,474 1,530 1,933 2,697 1,700 Deferred income taxes..................................... 8,225 (104) (212) ( 1,248) (59) Amortization of payments applicable against future Peruvian income taxes...................... 2,443 305 342 Gain on sale of long-term foreign securities... (2,860) _(280) - Working capital provided from operations.................................................... ,-/.--> 501) Effect of extraordinary item on working capital.... (33,501) Reclassification of foreign securities to be liquidated within one year (Note 12)............................ Long-term debt proceeds........................................ 34,100 3,900 3,435 Proceeds from sale of foreign securities................. 14,349 2,801 Reclassification of vessels held for sale, net of 19 923 long-term vessel debt of $3,871,000................... 1,089 Reduction in other investments and assets............. _ _ _ -- 85,693 44,650 84,352 46,387 8,124 Working capital was used for: Additions to plant, vessels and equipment, net of retirements.......................................................... 30,854 16,413 35,931 3,991 Investment in and advances to Samarco Miner- acao S.A............................................................... Investment in foreign securities.............................. 22,819 6,591 1,637 Exploration and predevelopment costs.................. 17 Additions to other investments and assets............. 2,347 1,155 1,345 4,137 Payments on long-term debt................................... 12,068 10,996 11,193 9,083 5,569 Reclassification of long-term debt to notes pay- able to banks....................................................... 8,000 Payments of severance indemnities........................ 471 568 609 1,017 369 Increase in payments applicable against future Peruvian income taxes......................................... 519 6,100 Dividends................................................................ 9,201 10.700 11,313 11,713 6,100 Purchase of Class C stock....................................... _ _ _ - - 78,279 46,423 63,342 45,853 56,403 Increase (decrease) in working capital.......................... $ 7,414 $(1,773) $21,010 $534 $(48,279) Analysis of Changes in Working Capital Increase (decrease) in current assets: ........ $ 8,023 $ (199) $17,276 $ 9,309 $(41,734) Reimbursable Brazilian project expenditures........ Mineral inventories and operating materials and supplies................................................................ (136) 1,328 217 1,385 (16,111) Costs applicable to voyages in progress and pre-paid expenses (915) 1,267 1,567 3,973 (2,8,6, Vessels and related assets held for sale.................. _ _ _ - -- 8,133 3,421 35,289 16,119 (31,490) (Increase) decrease in current liablities: Notes payable to banks....................... (4,000) (2,000) (14,900) 9,500 Notes payable to Utah International Inc............... (3,227) 577 Accounts payable and accrued expenses................ 2,800 (2,297) ( 11,828) (3,227 577 Income taxes payable.............................................. (104) 789 92 (45) 62) Current portion of long-term debt.......................... (239) 107 ( 1,142) 526 2,128 Revenues applicable to voyages in progress.......... (3,176) 207 599 2,061 - (719) (5,194) ( 14,279) (15,585) ( 16,789) Increase (decrease) in working capital.......................... $7,414 $(1,773) $21,010 $ 534 $(48,279) F-48 MARCONA CORPORATION AND SUBSIDIARY COMPANIES notes to consolidated financial statements Note 1 Ownership, operations and summary of accounting policies: Marcona Corporation ("Marcona") is owned principally by Cyprus Mines Corporation and Utah International Inc. Significant subsidiary companies, substantially all assets and operations of which are outside the United States, are Marcona Mining Company, Marcona International, S.A., Marcona Carriers, Ltd., Marcona (N.Z.) Company, and Marcona Ocean Industries, Ltd. Prior to the expropriation of its mining assets and operations in July 1975 (see Note 2), Marcona Mining Company was engaged in the mining and processing of iron ore in Peru. Marcona International, S.A., a Panamanian corporation, is engaged in the marketing of iron ore and both it and Marcona Carriers, Ltd., a Liberian corporation, are engaged in ocean transportation. Marcona International, S.A. has marketed Australian iron ore purchased from Marcona's principal stockholders. Such purchases during the last five years were as follows: 1971$37,000,000; 1972$34,900,000; 1973$49,100,000; 1974$51,200,000 and 1975$56,800,000. Marcona (N.Z.) Company, through its 75% ownership of Waipipi Iron Sands, Ltd., is engaged in mining and beneficiating of iron sands in New Zealand. Marcona Ocean Industries, Ltd. is engaged in dredge mining of aragonite in the Bahamas. A summary of significant accounting policies follows: Consolidation The accompanying consolidated financial statements include the accounts of the parent company and all significant subsidiaries. Intercompany items and transactions have been eliminated. The write-off of assets and liabilities resulting from the expropriation of the Peruvian mining operations (see Note 2) has had a significant effect on the comparability of the 1975 financial statements with those of prior years. Earnings (loss) per share Earnings (loss) per share of Class B stock are determined by dividing the portion of consolidated earnings (loss) allocated to the Class B stock as determined under the certificate of incorporation by the number of shares of Class B stock outstanding during the year. Foreign exchange and currency translation For financial statement purposes, the accounts of subsidiaries which are maintained in foreign currencies are translated into U.S. dollars on the following basis: net current assets and deferred income taxes at year-end exchange rates; other assets and liabilities at rates in effect when initially recorded; costs and expenses (except depreciation) at the average rates of exchange during the period; and depreciation at the rates existing when the related asset was acquired. Mineral sales are in U.S. dollars. Exchange adjustments resulting from foreign currency translations are included in current year's earnings. Gain or loss on forward exchange contracts is recognized in income upon settlement. Foreign currency translation procedures as set forth in Financial Accounting Standards Board Statement No. 8 issued in October 1975 will be adopted in 1976. The effect of the change in translation policies is not expected to be material. Exploration and predevelopment costs Exploration and predevelopment costs incurred in connection with prospective operations are deferred until either capitalized as a portion of Marcona's investment in the project or, if it is determined that commercial development is not feasible within a reasonably definite period of time, such costs are charged to expense. Ocean transportation earnings Shipping subsidiaries recognize earnings generally on a terminated voyage basis under which revenues and costs are deferred until completion of individual voyages. F-49