MARCONA CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 4Brazilian project and agreement with Utah International Inc.(Continued): (b) Events (unaudited) subsequent to date of accountants' February 13, 1976 report-In 1976 the agreement referred to above under which Utah would acquire Marcona's 49% interest in SAMARCO was modified. On September 10, 1976, Marcona transferred to Utah, at its book value, its interest in SAMARCO receiving in exchange a short-term promissory note in the amount of $ 18,000,000 due November 26, 1976, long-term notes receivable in the amount of $26,531,498 and the balance in cash which was used to repay advances made by Utah to finance related expenditures. The long-term notes bear interest at 1% over the rate at which substantial six month dollar deposits are offered to prime banks in the London Interbank Market and are scheduled for redemption in ten semi-annual installments beginning in 1981. Such installments will also include payment for interest earned on the notes during the first five years. The final agreement also obligates Utah to advance to Marcona working capital loans in an amount not to exceed the total of the short-term and long-term notes referred to above. At the closing of the agreement Utah advanced $17.5 million which was used to repay the then outstanding $17.5 million notes payable to banks (see Note 8). Marcona and Marcona International, S.A. remain contingently liable with respect to the $294 million long-term project loans which have been jointly and severally guaranteed by Utah and SAMITRI. The stock of Marcona International, S.A. remains pledged as security under the project loan agreements. The agreement for Utah to acquire Marcona's interest in a proposed steel production project in Saudi Arabia has been extended to October 31, 1976. Note 5Notes payable to banks and compensating balances: At December 31, 1975, $4,500,000 was outstanding under a line of credit agreement at the banks' prime rate of 7 1/4%. This borrowing was repaid in full in early 1976 and the line of credit was terminated at that time. Marcona utilized short-term funds for a total of 268 days during 1975; the average borrowings outstanding during this time were $3,860,000 and the weighted average interest rate was 7 11/16% (both calculated on a daily basis). The maximum amount outstanding at any month end under various lines of credit was $6,000,000. Under the various line of credit agreements in effect during 1975, Marcona is expected to maintain compensating balances of 10% of the lines of credit plus 10% of the average amounts outstanding under the lines of credit. Such compensating balances are not legally restricted. In addition, for the $18,000,000 7 3/4% notes due through 1979 (see Note 8), Marcona maintains compensating balances in the form of non-interest bearing certificates of deposit of $1,800,000 (classified as "Short-term securities"). At December 31, 1975, approximately $1,800,000 of the cash balance shown in the consolidated balance sheet represented compensating balances after adjustment for differences of "float" between the balance shown by Marcona's books and the records of the banks. The "float" amount used in the computation of compensating balances comprised approximately $824,000 unpresented checks less approximately $337,000 deposits of delayed availability. Borrowings outstanding at December 31, 1975 under a $6,900,000 loan agreement were payable on demand, or if no demand, in semiannual installments through 1981. The agreement provided for variable interest rates ranging from 1.3% to 1.8% over the lending banks' offered rates which were between 4 7/8% and 6% at December 31, 1975. The $6,900,000 borrowing was repaid in full in early 1976. Note 6Short-term securities: Short-term securities totalling $17,429,000 at December 31, 1975 consist principally of bank repurchase agreements and certificates of deposit. At December 31, 1975, a total of $9,184,000 is restricted as to disposition. F-54 MARCONA CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued) Note 7Plant, vessels and equipment: Plant, vessels and equipment is summarized below by major classification (in thousands): Mine plant and equipment................................................ $ 15,929 Ocean cargo vessels........................................................... 119,051 Office furniture and equipment......................................... 2,546 - 137,526 LessAccumulated depreciation.................................... 58,398 $ 79,128 As discussed in Note 3, the net book value of three vessels held for sale ($23,794,000) has been classified as a current asset and is not included in plant, vessels and equipment at December 31, 1975. The range of the estimated useful lives used in computing depreciation is as follows: Mine plant and equipment.............................................................. 5 to 15 years Ocean cargo vessels......................................................................... 15 to 20 years Office furniture and equipment....................................................... 10 years Note 8Long-term debt: (a) Long-term debt is summarized below (in thousands): 73/4% notes payable to banks due through 1979............... $ 18,000 Vessel mortgage loans: 5 1/2%, $1,118,000 due annually to 1977..................... 2,235 5 1/2%, $1,115,000 due annually to 1977..................... 2,229 5 1/2%, $1,092,000 due annually to 1978..................... 2,732 6 5/8%, $1,170,000 due annually to 1983..................... 9,360 34,556 LessCurrent portion, including 5 1/2% vessel mortgage loans of $7,196,000.............................. 8 366 $26,190 As discussed in Note 4, it is anticipated that during 1976 the $18 million notes payable to banks will be assumed by Utah International Inc. ("Utah") in exchange for a long-term note payable bearing interest at 1% over the rate offered to prime banks for six month deposits in the London Interbank Market. Repayment of the principal is not projected to commence until 1979. After giving effect to the anticipated assumption by Utah of the $18 million notes payable to banks referred to in the preceding paragraph, installments due after 1976 are payable $1,170,000 annually through 1983. Such notes are classified as non-current on the balance sheet because there is a firm obligation under the agreement between Marcona and Utah as described in Note 4 that Utah will assume such notes upon the closing of the agreement. Certain of the loan agreements contain restrictions relating to working capital, payment of dividends and stockholders' equity. The most restrictive limitations require that Marcona maintain working capital of not less than $10,000,000, not pay dividends in excess of 66 2/3% of the prior year's consolidated earnings or 6% of stockholders' equity (as defined) whichever is the lesser, and maintain stockholders' equity of not less than $160,000,000. As the result of the expropriation of the Peruvian mining assets, various events and conditions of default occurred under certain loan agreements and guarantees. Waivers from the appropriate banks have been obtained. Although such waivers terminate March 31, 1976, it is anticipated that prior to closing of the agreement with Utah (see Note 4), the restrictive covenants of all loan agreements to remain in effect will be revised so as to eliminate the condition of continuing default. F-55