notes to consolidated financial statements 1 the consolidated financial statements include the accounts of utah construction & mining co and all subsidiary companies after elimination of significant intercompany items and trans actions in addition the statements reflect utah"s equity in the earnings of affiliated companies in which utah does not have a majority interest estimated income taxes payable on such earnings when distributed have been provided in the accompanying financial statements the equity in the earnings of these affiliates has been computed based upon the reports submitted by the respective companies some of which are unaudited the composition of utah's investment in affiliated companies at october 31 1961 is shown below equity i distributed earnings of affiliated companies before of 3,985,057 for taxes on distribution ost of investm total investment 20,663,854 1,606,778 2 the company has an agreement dated february 17 1961 with the prudential insurance company of america which provides in part that stockholders equity will not at any time be less than 25,000,000 3 the increase in capital surplus of 2,221,638 in 1961 resulted from the capitalization of the excess of the value assigned to 40,764 shares of capital stock 56.50 per share over the par value 2.00 per share paid as a 2 stock dividend 4 major construction contracts may extend over a period of years accordingly the com pany reports income from its construction contracts on a percentage-of-completion basis re flecting in each accounting period the applicable portion of the total estimated profit on each contract the company's share of profits and losses from joint-venture construction contracts is reported in the same manner based upon reports submitted by the respective joint ventures some of which are unaudited proceeds from claims against owners or price adjustments arising out of construction contracts are recorded in the year such claims or adjustments are resolved these amounted to 982,000 in 1961 and 271,000 in 1960 net of applicable federal income taxes . 5 the company was contingently liable at october 31 1961 for obligations of certain affili ated companies totaling approximately 1,700,000 in 1958 the company entered into a long-term lease agreement for equipment requiring payments of approximately 420,000 annually for a now remaining period of 12 years b the accompanying statement of consolidated income includes the folio1 depreciation and depletion urges for depreciation depletion . total 4,837,114 472,079 5,427,120 685,694 6,112,814 included in depletion is 292,41 1 in 1961 and 378,386 in 1960 for amortization of mineral development costs in its federal income tax returns the company has deducted such costs as incurred while capitalizing them in its accounts the resulting reduction in federal income tax payments has been credited to deferred taxes and is being applied against taxes payable during the period of amortization of the related costs arthur andersen & go board of directors marriner s eccles chairman marriner a browning lester s corey lawrence t dee george s eccles william r kimball jr edmund w littlef1eld shepard mitchell albert l reeves paul l wattis in our opinion the accompanying consolidated balance sheets ings of affiliates present fairly the financial position of utah con ring the two years ting san francisco california december 14 1961 executive committee marriner s eccles chairman edmund w littlefield albert l reeves officers edmund w littlefield president m general manager frank m keller senior vice president charles e mcgraw senior vice president albert l reeves senior vice president orville l dykstra vice president and treasurer weston bourret vice president nixon f crossley vice president guy v sperry vice president george w vaughan vice president alexander m wilson vice president john m horrigan secretary and controller george p sealy assistant treasurer transfer agents first security bank of utah n.a salt lake city utah crocker-anglo national bank san francisco california annual meeting friday preceding the third monday of january at san francisco california