deferred income tax expense results from differences in the accounting period in which certain revenues costs and expenses are recognized under utah's financial and tax accounting methods the sources of these differences and the tax effect of each were as follows in thousands 1976 1975 accelerated deductions of foreign mining equipment and facilities 7,429 1 1 341 other 171 1.636 7,258 12,967 the income tax provisions are less than the amounts computed by applying the 48 u.s federal income tax rate to income before income taxes minority interest and extraordinary item the prin cipal reasons for this difference are as follows dollar amounts in before 1975 no provision was made for deferred income taxes applicable to differences arising from oil and gas exploration and development costs deducted for tax purposes but capitalized for financial statement purposes since future tax deductions attribut able to statutory depletion were estimated to be in excess of the capitalized amounts however passage of the tax reduction act of 1975 significantly reduced statutory depletion benefits as of january 1 1975 costs incurred prior to such date for which deferred income taxes were not provided nor required approxi mate 20 million utah will provide for income taxes on these prior differences on a prospective basis as prescribed by a financial accounting standards board pronouncement issued during 1975 in addition deferred taxes have been provided on timing differ ences originating after december 31 , 1 974 7 long-term liabilities long-term liabilities at october 31 1976 nds and 1975 consisted of 1976 1975 unsecured — notes payable to banks 7.1 varying installments to 1981 a b . . notes payable to insurance company 7.6 due in varying installments to 1988 note payable to a wholly owned subsidiary of marcona 7.2 payable in installments from 1981 to 1986 a . 8 guaranteed sinking fund debentures due march 15 1987 c 7'/2 guaranteed notes due march 15 1979 . advances under gas purchase contracts noninterest bearing other notes and contracts less current portion secured by assets — other notes and contracls less current portion 110,410 46,000 137,900 49,000 a interest rates on certain notes change with the prime rate or its foreign money market equivalent and range from 0 to 1 % above such rates b utah believes that competitive conditions require the mainten ance of compensating balances not legally restricted under certain loan agreements depending upon the interest rates of the borrowings compensation realized by the banks from the performance of other services and the level of use of the lines of credit the compensating balances range between 1 0 and 20 of the lines of credit at the level of borrowing under these agree ments as of october 31 , 1 976 29 million after adjusting for the differences of float between utah's records and those of the banks the compensating balance requirements are immaterial c subject to redemption through a sinking fund to which payments must be made beginning in 1977 installments due on long-term liabilities for the five years subse quent to october 31 1976 are as follows in thousands 1 977 1 978 1 979 1 980 1981 1 5,040 40,867 71 080 27,986 9,681 interest costs associated with the development of new projects principally new mining projects have been capitalized during the development period none capitalized by utah and its consoli dated subsidiaries in 1976 or 1975 if these costs had been charged directly to expense in prior years the effect would have been to increase net income by 1 million in 1976 and 1.1 million in 1975 after consideration of the amortization of interest capi talized in prior years and the related offsetting income tax effect 8 earnings per share earnings per share were computed based upon weighted average common shares outstanding 31 541,001 in 1976 and 31,540,461 in 1975 9 contingent liabilities and commitments utah is in the process of developing or expanding certain mining projects this program will require an additional investment of approximately 226 million through 1 980 including 83 million for utah's share to complete the samarco project but excluding the norwich park project see below in addition as of october 31 1976 utah's board of directors had approved the purchase of up to four additional ocean cargo vessels at a cost not to exceed 54 million to transport samarco iron ore and queensland coal in july 1976 as a major step in the development of the norwich park coking coal project an 89.2%-owned subsidiary of utah reached agreement in principle with its joint venture partner and two australian companies to increase australian participation by the sale of an interest in certain queensland coal projects if con summated after considering the effect of minority interests in both the subsidiary and the joint venture utah's equity in such projects would decrease from about 76 to 68 the implementation of the program is contingent upon a final decision to proceed with the norwich park project and the completion of necessary docu mentation in june 1976 as an incentive to the development of the norwich park project the state of queensland cabinet agreed to raise the export limitation on exports of coal from the areas leased by the joint venture after implementation of the program utah's share of the development cost for this project would be approxi mately 200 million about half of which would be furnished by the proceeds from the sale described above utah in succeeding to marcona's interest in the samarco project has guaranteed the repayment of all amounts borrowed under the project loan agreements 251 million at october 31 1976 and guaranteed the completion of the samarco project although mar cona remains a primary obligor of the credits similar guarantees have been made by the 51 % samarco shareholder which is a major brazilian company in order to protect the delivery of coking coal under certain long term sales agreements utah has entered into contracts of affreightment through 1988 with a minimum commitment of approximately 104 million 76 million with affiliated companies at october 31 1976 with respect to those contracts of affreightment with affiliated companies referred to in the preceding paragraph utah is obli gated to increase charter revenues in such amounts as will be sufficient to enable such affiliates to repay debts totaling approxi mately 22 million existing commitments to utah permitted additional borrowings of approximately 127 million from lending institutions at october 31 1976 in the opinion of management proceeds from borrow ings together with current working capital and cash generated internally are sufficient to fund mining projects now underway to purchase ocean cargo vessels as authorized and to meet the other cash requirements of utah's business 10 capital stock at october 31 1976 and 1975 utah had authorized 1,000,000 shares of preferred stock the 66 shares of the 300 cumulative convertible series outstanding at october 31 , 1974 were converted to common stock or redeemed for cash during 1975 and 1976 at october 31 1976 182,980 shares of common stock were reserved for future issuance to officers and key employees as restricted stock bonuses as of october 31 1976 and 1975 no stock option plans warrants or other claims for utah stock were outstanding 11 restrictions on retained earnings utah's long-term agreements with lending institutions contain restrictive provisions on certain payments unless utah has adequate consolidated retained earnings as defined such pro visions include limitations on the payment of cash dividends and on the purchase or redemption of outstanding capital stock retained earnings of 288,554,000 were free of such restrictions at october 31 1976 12 australian dollar devaluation on november 28 1976 the australian dollar was devaluated by 17.5 in relation to the u.s dollar recording of the currency realignment in november 1976 will not be material in relation to the october 31 , 1 976 financial statements 13 events subsequent to date of auditors report on december 20 1976 utah became a wholly owned subsidiary of general electric company as contemplated in note 1 during december 1976 marcona recorded a payment of 37 million received from the peruvian government in partial settle ment of expropriated assets see note 3 as an extraordinary gain less the appropriate tax effect in the amount of 23,550,000 utah's share of such gain net of the tax effects to marcona and utah amounted to s5.8 million and similarly has been recorded by utah in december 1976 as an extraordinary item auditors report to the stockholders and board of directors of utah international inc we have examined the consolidated balance sheet of utah inter national inc a delaware corporation and subsidiaries as of october 31 1976 and 1975 and the statements of consolidated income stockholders equity and changes in financial position for the years then ended our examination was 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 circum stances we did not examine the financial statements of certain affiliated companies the investments in which are recorded using he equity method of accounting see note 3 to the consolidated financial statements these statements were examined by other public accountants whose reports thereon have been furnished to us and our opinion expressed herein insofar as it relates to the amounts included for such affiliates is based upon the reports of the other public accountants during 1975 the peruvian government expropriated the iron ore mining properties and facilities of marcona corporation a 46 owned affiliate located in peru marcona accounted for the losses associated with the expropriation as an extraordinary item and utah recorded 23,809,000 as its share of the loss on september 23 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 as explained in note 3 marcona plans to record the 37 million cash settlement when collected expected before decem ber 31 1976 as an extraordinary gain net of the appropriate tax effect utah's share of such gain net of tax effects will similarly be recorded by utah in our opinion based upon our examination and the reports of other public accountants subject to the effect of such adjustment as may be required to record utah's share of the settlement to be received by marcona for the expropriated peruvian assets as de scribed in the preceding paragraph the accompanying consoli dated financial statements present fairly the financial position of utah international inc and subsidiaries as of october 31 1976 and 1975 and the results of their operations and the changes in their financial position for the years then ended in conformity with generally accepted accounting principles applied on a consistent basis during the periods l/istsl/vuux yt^\s^naav san francisco california december3 1976