Operations & financial report
Balance sheet
Rio Tinto commissioned expert valuation consultants to advise on the fair values of Alcan's assets. As required under International Financial Reporting Standards (IFRS), the tangible and intangible assets of the acquired business have been uplifted to fair value. The residue of the purchase price not allocated to specific assets and liabilities has been attributed to goodwill. The provisional values incorporated in the 2007 Full financial statements will be subject to revision within 12 months of the date of acquisition as permitted by the relevant accounting standard, IFRS 3. Details of the Alcan assets acquired are included in note 41 to the 2007 Full financial statements.
The completion of the Alcan acquisition was financed under a US$40 billion syndicated bank loan at floating interest rates of which US$38 billion was drawn down. This, together with the debt held by Alcan on acquisition, resulted in an increase in net debt of US$42.8 billion to US$45.2 billion at 31 December 2007 of which US$8.1 billion is classified as short term borrowings. The US$40 billion loan is split into four facilities with final maturities ranging up to five years. Facilities A and B of this acquisition related debt are subject to mandatory prepayment to the extent of the net proceeds from disposals of assets and from the raising of funds through capital markets, under specific thresholds and conditions. Debt to total capital rose to 63 per cent and interest cover was 20 times. In addition, the Group's share of the third party net debt of equity accounted units totalled US$0.7 billion at 31 December 2007. US$0.3 billion of this debt is with recourse to the Rio Tinto Group.
Goodwill arising from the Alcan acquisition relating to subsidiaries was US$14.5 billion and that relating to equity accounted units was US$2.8 billion. The future economic benefits represented by the goodwill include those associated with synergies, future development and expansion projects and the assembled workforce. The Group has decided to dispose of Alcan Packaging, which is presented in the balance sheet in the lines: 'Assets held for sale' and 'Liabilities of disposal groups held for sale'.
Net assets attributable to Rio Tinto shareholders increased by US$6.5 billion. The increase reflected profit after tax attributable to Rio Tinto shareholders of US$7.3 billion less returns to shareholders of US$2.8 billion comprising US$1.5 billion of dividends and US$1.3 billion of share buybacks. In addition, there was a positive currency translation effect of US$1.9 billion as the Australian dollar, the Canadian dollar and the Euro all strengthened against the US dollar.
