Form 20-F 2005

7. Depreciation, amortization and impairment
The depreciation and amortization included in operating expenses concern the following assets:
(in millions of euros) 2005 2004
Property, plant and equipment–depreciation (328) (388)
Development costs–amortization (3) (1)
Other intangible assets–amortization (31) (35)
Property, plant and equipment–impairment (8) (48)
Goodwill–impairment (1) 0 (60)
Other intangible assets–impairment 0 0
Total (370) (532)
(1) Impairment losses by business segment are detailed in Note 7.2.
The depreciation and amortization included in operating expenses are reported in the following lines of profit and loss
statement:
(in millions of euros) 2005 2004
Cost of sales (313) (375)
Administrative and selling expenses (42) (48)
Research and development expenses (14) (15)
Goodwill impairment 0 (60)
Restructuring costs (1) (34)
Depreciation, amortization and impairment after reclassification of discontinued operations (370) (532)
7.1. Impairment tests
In accordance with the principle set forth in Note 3.5, and in the absence of fair value observable in an organized market, the
recoverable amount of the cash generating units (CGUs) is calculated using their value in use.
The carrying amount of each group of assets tested was therefore compared with its value in use considered as equal to the
sum of net cash flows from the latest forecasts for each group of CGUs prepared using the following assumptions and methods:
5-year budgets and business plans prepared by Management based on growth and profitability assumptions, taking into
account past performances, forecast changes in the economic environment and expected market development;
consideration of a terminal value determined by capitalizing a standard cash flow obtained by extrapolating the most recent
cash flow of the explicit forecast period, affected by a long-term growth rate deemed appropriate for the activity;
discounting of expected cash flows resulting from these plans at a rate determined using the weighted average capital
cost formula of Rhodia.
The main assumptions used for impairment tests are as follows:
Discount rate.
An independent expert was consulted in order to determine the weighted average cost of capital. The market parameters
were determined using a sample of nine companies from the chemicals industry. Considering these parameters and a market
risk premium of 4.5%, the cost of capital used to discount future cash flows was set at 7% for assets located in the OECD zone.
Specific discount rates were determined for the CGUs operating in several zones, including China (8% euro cash flow base) and
Brazil (12% euro cash flow base);
Long-term growth rate:
F-28 Form 20 - F 2005 - Rhodia