Financial statements

1. Details of the impairment review relating to Upstream Aluminium are set out in note 11.
   
   
2. The annual review of the goodwill allocated to Downstream Aluminium (excluding Packaging) resulted in a pre-tax impairment charge of US$1,210 million, of which US$493 million was applied in writing off the attributed goodwill, and the balance to property, plant and equipment. Downstream Aluminium is part of the Alcan group that was acquired in October 2007, and forms part of the Aluminium product group. It manufactures engineered or fabricated aluminium products and is also a full-service packaging supplier with a worldwide presence.
   The Group's intention is to sell Downstream Aluminium. As such, the recoverable amount has been estimated by reference to fair value less costs to sell. Such estimates were derived by applying multiples to forecasts of earnings for the Downstream Aluminium businesses. The multiples were derived from statistics relating to publicly traded companies in the various sectors in which the Downstream Aluminium businesses operate. The main circumstances that led to impairment were the adverse change in capital markets, making it difficult to fund acquisitions of companies generally; the global economic downturn and the adverse trading performance of Downstream Aluminium's operations.
   The specific details of the impairment review relating to Packaging are set out in note 19.
   
   
3. Full provision was made against the carrying value of the HIsmelt operation, which is within the Iron Ore product group. Operations at the Kwinana plant have been suspended and the Group's future role in developing this technology is under review, leading to doubt about the recoverability of the amount invested.
   
   
4. Large increases in the estimated capital cost of Argyle's underground project triggered an assessment of its recoverable amount during 2007. Impairment of property, plant and equipment was assessed by reference to fair value less costs to sell. The determination of fair value less costs to sell was based on the estimated amount that would be obtained from sale in an arm's length transaction between knowledgeable and willing parties. This estimate was derived from discounting projections of cash flows, using valuation assumptions that a buyer might be expected to apply.
   
   
5. An increase in the Group's long term copper price assumption triggered an assessment of the recoverable amount of Palabora during 2007. The value in use was based on cash flows forecast in real terms and discounted at a pre-tax rate of 12 per cent. This led to a full reversal of the remainder of the impairment provision previously recognised.
   
   
6. An announcement of the sale of Tarong led to full reversal in 2007 of the remainder of the impairment provision previously recognised.
   
   
7. Total impairment charges in 2008 excluded from Underlying earnings includes impairment charges of US$15 million relating to equity accounted units.

1. The sales revenue of equity accounted units excludes charges by jointly controlled entities to Group subsidiaries.

1. Interest income from other investments comprises US$72 million (2007: US$80 million) of interest income from bank deposits and US$35 million (2007: US$21 million) from other financial assets.
   
   
2. Interest payable and similar charges comprises US$1,875 million (2007: US$685 million) of interest on bank loans and other borrowings and a US$54 million gain (2007: US$25 million gain) from interest rate swaps.

1. The 'Adjustments to deferred tax liabilities following changes in tax rates', totalling US$392 million in 2007 resulted largely from a reduction in Canadian tax rates.
   
   
2. An analysis of the impact on the tax reconciliation of items excluded in arriving at Underlying earnings is given below:
   
   
3. This tax reconciliation relates to the parent companies, subsidiaries and proportionally consolidated units. The Group's share of profit of equity accounted units is net of tax charges of US$596 million (2007: US$917 million).

1. Underlying earnings per share is calculated from Underlying earnings, detailed information on which is given in note 2.
   
   
2. The weighted average number of shares is calculated as the average number of Rio Tinto plc shares outstanding not held as treasury shares of 997.8 million (2007: 1,000.1 million) plus the average number of Rio Tinto Limited shares outstanding not held by Rio Tinto plc of 285.7 million (2007: 285.7 million).
   
   
3. For the purposes of calculating diluted earnings per share, the effect of dilutive securities of 5.8 million shares in 2008 (2007: 5.5 million shares) is added to the weighted average number of shares described in (b) above. This effect is calculated under the treasury stock method. The Group's only potential dilutive ordinary shares are share options for which terms and conditions are described in note 48.

The dividends paid in 2008 are based on the following US cents per share amounts: 2007 final - 84.0 cents, 2008 interim - 68.0 cents (2007 dividends paid: 2006 final - 64.0 cents, 2007 interim - 52.0 cents).

The number of shares on which the Rio Tinto Limited dividends are based excludes those shares held by Rio Tinto plc, in order that the dividends shown represent those paid to public shareholders. The number of shares on which Rio Tinto plc dividends are based excludes those held as treasury shares.

In addition, the Directors of Rio Tinto announced a final dividend of 68.0 cents per share on 12 February 2009. This is expected to result in payments of US$872 million (Rio Tinto plc: US$678 million, Rio Tinto Limited US$194 million). The dividends will be paid on 8 April 2009 to Rio Tinto plc shareholders on the register at the close of business on 20 February 2009 and to Rio Tinto Limited shareholders on the register at the close of business on 24 February 2009.

The proposed Rio Tinto Limited dividends will be franked out of existing franking credits or out of franking credits arising from the payment of income tax during 2009.

The approximate amount of the Rio Tinto Limited consolidated tax group's retained profits and reserves that could be distributed as dividends and franked out of credits, that arose from net payments of income tax in respect of periods up to 31 December 2008 (after deducting franking credits expected to be utilised on the 2008 final dividend declared), is US$6,727 million.

1. Exploration and evaluation: useful life not determined until transferred to property, plant & equipment.
   
   
2. The Group acquired Alcan Inc. on 23 October 2007. Alcan Inc. benefits from certain intangible assets including power supply contracts, customer contracts and water rights. The water rights are expected to contribute to the efficiency and cost effectiveness of operations for the foreseeable future: accordingly, these rights are considered to have indefinite lives and are not subject to amortisation. These water rights constitute the majority of the amounts in the column of the above table entitled 'Contract based intangible assets'. Intangible assets with indefinite lives were provisionally valued at acquisition based on the advice of expert valuation consultants and subsequently this valuation was finalised within twelve months of the acquisition date. The amounts in the table have been restated accordingly. The carrying values will be reviewed for impairment annually or at any time an indicator of impairment is considered to exist. They are reviewed for impairment as part of the cash-generating units to which they relate. The water rights have been allocated to cash generating units within Upstream Aluminium. In 2008, the recoverable amount of these cash generating units was determined based on value in use, using a methodology and assumptions consistent with those described in note 1(i) and note 11. No impairment of these indefinite-lived intangible assets was recognised during 2008, as the value in use of the related cash-generating units was in excess of their carrying amounts.
   
   
3. There are no intangible assets either pledged as security or held under restriction of title.

1. Exploration and evaluation costs are stated net of gains on disposal of interests in undeveloped projects totalling US$489 million (2007: US$253 million).

1. Exchange gains credited to the income statement include amounts taken to Underlying earnings. Further information relating to the currency and interest rate exposures arising from net debt and related derivatives is given in note 34 on Financial Instruments.

1. The aggregate profit on disposal of interests in businesses (including investments) in 2008 was US$2,231 million (US$1,470 million net of tax). These gains have been excluded from Underlying earnings, as shown in note 2.
   
   
2. The Cash flow statement includes the following relating to acquisitions and disposals of interests in businesses:
• US$2,563 million in 'Net disposals/(acquisitions) of subsidiaries, joint ventures & associates', comprising US$2,572 million in disposal proceeds, net of US$9 million paid for acquisitions. In accordance with IAS 7, these proceeds were stated net of US$5 million cash and cash equivalents transferred on sale of subsidiaries.



3. Non cash disposal proceeds of US$88 million were received during the year.

2007 Disposals
There were no significant disposals in 2007.