2007 Financial statements

Note 2 - Reconciliation of net earnings to underlying earnings

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	Pre-tax 2007 US$m	Taxation 2007 US$m	Outside interests 2007 US$m	Net amount 2007 US$m	Net amount 2006 US$m
Exclusions from Underlying earnings
Profits less losses on disposal of interests in businesses (a)	2	(1)	-	1	3
Impairment (charges)/reversals (b) (note 5)	(58)	18	(73)	(113)	44
Exchange differences and gains/(losses) on derivatives:
- Exchange gains/(losses) on US dollar net debt and intragroup balances (c)	201	(37)	(8)	156	(14)
- Gains/(losses) on currency and interest rate derivatives not qualifying for hedge accounting (d), (e)	52	(19)	1	34	30
Other exclusions (f)	(308)	99	-	(209)	37
Total excluded from Underlying earnings	(111)	60	(80)	(131)	100
Net earnings	9,836	(2,090)	(434)	7,312	7,438
Underlying earnings	9,947	(2,150)	(354)	7,443	7,338

'Underlying earnings' is an alternative measure of earnings, which is reported by Rio Tinto to provide greater understanding of the underlying business performance of its operations. Underlying earnings and Net earnings both represent amounts attributable to Rio Tinto shareholders. Items (a) to (f) below are excluded from Net earnings in arriving at Underlying earnings.

Notes	Expand
Gains and losses arising on the disposal of interests in businesses. Charges and credits relating to impairment of non-current assets other than undeveloped properties. Exchange gains and losses on US dollar net debt and intragroup balances. This includes amounts relating to equity accounted units. Valuation changes on currency and interest rate derivatives which are ineligible for hedge accounting, other than those embedded in commercial contracts. The currency revaluation of embedded US dollar derivatives contained in contracts held by entities whose functional currency is not the US dollar. Other credits and charges that, individually, or in aggregate if of a similar type, are of a nature or size to require exclusion in order to provide additional insight into underlying business performance. Other charges excluded from Underlying earnings, in 2007, primarily resulted from the acquisition of Alcan. These include the non recurring impact of US$213 million on pre-tax profit of revaluing inventories on acquisition based on selling price, together with integration costs.