MARCONA CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 9TAXES ON INCOME(Continued): The Internal Revenue Service has completed its examination of Marcona's income tax returns for the years 1963 through 1971. All issues previously raised have been settled without significant effect on the financial statements. NOTE 10CAPITAL STOCK AND RETAINED EARNINGS: (a) Capital stock consists of the following (in thousands): Class A-U and A-C, 10% noncumulative, $10.00 par value50 shares each authorized and outstanding......................................................... $ 1 Class B, $0.25 par value1,000,000 shares authorized and outstanding, at stated value....................................................................... 9,335 Class C, $5.00 par value10,000 shares authorized, 2,500 shares outstanding............................................................................................ 13 $9,349 Under the certificate of incorporation, voting rights are vested exclusively in the Class A stock. Provided that Class B dividends are not less than specified annual levels, Class C stock shares proportionately with Class B stock in earnings in excess of these specified levels subsequent to December 31, 1968. In the event of liquidation: (a) Class A stockholders are entitled to par value ($10 per share) plus the amount of any dividends declared and unpaid; (b) Class C stockholders are entitled to par value ($5 per share) plus the amount of retained earnings allocated to Class C stock; and (c) Class B stockholders are entitled to the remaining assets. During 1974, Marcona acquired 5,000 shares of previously outstanding Class C stock for approximately $420,000 in cash. The excess of purchase price over par value of the stock acquired (approximately $395,000) was charged to retained earnings. During 1975, Marcona entered into an agreement to acquire the 2,500 shares of Class C stock outstanding for the net book value of the stock as of December 31, 1974, which was approximately $223,000, with the purchase price to be paid in four annual installments through 1979. Upon acquisition in 1976, the excess of purchase price over par value of the stock acquired (approximately $210,000) will be charged to retained earnings. Because of this stock acquisition agreement, no portion of the 1975 consolidated loss was allocated to Class C stock. Except for the acquisition of 5,000 shares of Class C stock in 1974 there have been no changes in Marcona's capital stock accounts during the five years ended December 31, 1975. Marcona's consolidated retained earnings at December 31, 1975 represent accumulated earnings of subsidiaries conducting operations outside the United States. It is not anticipated that currency restrictions or other government regulations of the countries in which these subsidiaries do business will have any significant effect on Marcona's ability to remit to the United States any portion of these earnings which might become available for distribution. (b) Event (unaudited) subsequent to date of accountants' February 13, 1976 report In March 1976, the 2,500 shares of Class C stock outstanding were acquired by the Corporation. NOTE 11LEASE COMMITMENTS: Marcona's subsidiary engaged in dredge mining of aragonite in the Bahamas is obligated on a lease for certain physical assets for future annual payments based on earnings subject to certain minimum amounts. The lease contains an option to purchase the assets for a price of approximately $ 17 million with 90% of lease payments made for the years 1973 through 1980 and 80% of payments made thereafter to be applicable to the purchase price. Under a lease from the Commonwealth of the Bahama Islands, payments of royalties at the greater of six cents per ton or 6% of the FOB value of aragonite shipped, subject to minimum royalty payments, are required. A terminal tolling arrangement commencing in 1976 F-58 MARCONA CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Concluded) Note 11Lease commitments(Continued): provides for a basic service fee payment plus a tolling charge per ton of aragonite processed through the terminal with specified annual minimum payments, subject to escalation. Minimum annual payments required under the above agreements, together with Marcona's other lease commitments principally covering office and terminal facilities, are as follows (in thousands): Aragonite Aragonite Aragonite Mining Mineral Tolling Year Assets Lease Agreement Other Total 1976................................. $ 500 $ 240 $ 970 $ 875 $ 2,585 1977................................. 500 300 1,455 790 3,045 1978................................. 1,000 300 1,455 750 3,505 1979................................. 1,000 360 1,455 715 3,530 1980.................................. 1,000 360 1,455 530 3,345 1981-85............................ 7,500 1,910 7,625 1,965 19,000 1986-90............................ 1,500 405 380 750 3,035 None of the above leases (or vessel charter commitmentssee Note 3) are "financing leases" as defined by the Securities and Exchange Commission. Note 12Investment in foreign securities: At December 31, 1973, Marcona had either sold or executed foreign exchange contracts with respect to substantially all of its investments in foreign securities. The gain (before income taxes) on sale of these investments approximated $3,081,000. At that time, it was anticipated that 87% of this gain would be recorded as realized in 1974. Subsequently, all remaining foreign exchange contracts were sold resulting in recognition in 1974 of the total gain ($2,927,000 as adjusted). The cost of investments that were expected to be liquidated in 1974 was included with short-term securities and classified as a current asset. The cost of foreign securities sold has been determined on an identified security basis. Note 13Supplementary earnings statement information (in thousands): ______Charged to Costs and Expenses Year Ended December 31 - 1971 1972 1973 1974 1975 Maintenance and repairs................... $16,771 $17,911 $22,545 $29,155 $20,094 Depreciation of plant, vessels and equipment...................................... $15,286 $16,820 $21,427 $21,884 $15,547 Taxes, other than income taxes: Payroll taxes............................... $ 1,282 $ 1,422 $ 1,318 $ 1,610 $ 1,099 Sales and export taxes............... 1,961 1,876 2,713 2,713 2,010 Other taxes and licenses............. 274 427 825 214 339 $ 3,517 $ 3,725 $ 4,856 $ 4,537 $ 3,448 Rents*................................................ $25,545 $21,222 $27,643 $20,750 $20,473 Royalties............................................ $ 8,148 $ 8,484 $ 8,790 $ 9,748 $ 4,518 * Consists principally of net "charter hire" on vessels chartered on a voyage and time charter basis. F-59