Form 20-F 2005

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States, the United Kingdom and France. Rhodia elected to apply the exemption in IFRS 1, First-Time Adoption of International Financial Reporting Standards, which allows for the immediate recognition of actuarial gains and losses relating to past-employment benefits in equity at the date of transition to IFRS (i.e. January 1, 2004). Rhodia’s accounting policy with regard to subsequent changes in actuarial gains and loss is to recognize them in the statement of recognized income and expense in shareholders’ equity. See Note 28 to the Consolidated Financial Statements. Actuarial valuations of these obligations are calculated each year by independent actuaries in most countries. These calculations are based on the probability that the employees will remain with us, on future salary increases, and on a retirement age of between 60 and 65, depending on local conditions and applicable legislation. The discount rates used at December 31, 2005 were 4% (5% at December 31, 2004) for French plans, 5.5% at December 31, 2005 (5.75% at December 31, 2004) for U.S. plans and 4.9% at December 31, 2005 (5.8% at December 31, 2004) for UK plans. The expected long-term rates of return used for plan assets were 7.5% for U.S. plans and 8% for UK plans at December 31, 2005 and 2004. Defined benefit plans in France are unfunded. The liabilities relating to these employees were calculated at December 31, 2005, taking into consideration applicable regulations and the agreements applicable to the chemical industry in France. If actual results, in particular discount rates and/or rates of return on plan assets, were to differ from our estimates, our pension, retirement and other post-employment costs would be higher or lower, and our cash flows would be favorably or unfavorably impacted. Provisions for Environmental Liabilities We recognize provisions for environmental risks when there is a legal or constructive obligation that is expected to result in an outflow of resources and can be reliably measured. We measure these provisions to the best of our knowledge of applicable regulations, the nature and extent of the pollution, clean-up techniques and other available information. The estimated future cash flows are discounted in order to take into account market assessments of the time value of money for each geographical area, where the effect is material, using risk and inflation-free interest rates. As of December 31, 2005, our accrued environmental provisions and our contingent environmental liabilities amounted to €232 million and €145 million, respectively. See Note 29 to the Consolidated Financial Statements. We believe that environmental matters are difficult to assess for numerous reasons, including the discovery of new contamination, discovery of new information and scarcity of reliable information pertaining to certain sites, improvements in technology, changes in the scope, enforcement or interpretation of environmental laws and regulations, numerous possible remedial techniques and solutions, difficulty in assessing the involvement of and the financial capability of other potentially responsible parties and the extended time periods over which remediation occurs. Changes in estimates on which these accruals are based may result in higher or lower costs. Future events, such as changes in existing laws and technology, the promulgation of new laws or the development or discovery of new facts or conditions, could cause us to incur additional costs and liabilities that could have a material adverse effect on our business, financial condition and results of operations. Consolidated Results of Operations for 2004 and 2005 As part of our strategy to refocus our business portfolio, we decided to dispose of a number of non-strategic or underperforming operations in 2005. As a consequence, the financial information relating to these operations was reclassified to discontinued operations in the 2004 and 2005 income statements. The net sales of each enterprise no longer include net sales of operations which have been sold or are in the process of being sold. The enterprises most impacted by disposals in 2005 were RPS, Coatis and Organics. Form 20 - F 2005 - Rhodia 41
The table below sets forth an analysis of our operating profit and loss for the years ended December 31, 2004 and 2005: (in millions of euros) 2005 2004 Net sales 5,085 4,693 Other revenue 460 453 Cost of sales (4,620) (4,408) Administrative and selling expenses (574) (513) Research and development expenditure (124) (138) Restructuring costs (87) (169) Goodwill impairment (60) Other operating income/(expenses) (43) (46) Operating profit/(loss) 97 (188) Net sales Our net sales totaled €5,085 million in 2005, up 8.4% compared with 2004, primarily due to the increase in the net sales of Coatis, Polyamide and, to a lesser extent, Silcea. The impact of currency fluctuations on net sales amounted to €135 million. These fluctuations were essentially due to the appreciation of the Brazilian real against the euro. The negative impact of changes in the scope of continuing operations amounted to €14 million. The growth in our net sales in 2005 was driven essentially by price increases totaling €347 million and representing a 7.4% increase in net sales, excluding the negative impact of transactional currency fluctuations of €100 million. Demand levels remained generally favorable throughout 2005, except in the phosphorous derivatives and adipic acid markets. The table below sets forth our estimates of the effects of changes in the scope of consolidation, exchange rates, price and volume on our consolidated net sales by enterprise for the years ended December 31, 2004 and 2005. See “Presentation of Financial and Other Information”. (in millions of euros, unaudited) 2005 net sales Structure (2) Exchange rate Volume Selling price 2004 net sales Novecare 935 (42) 2 (15) 62 928 Silcea 810 (15) 8 37 32 748 Coatis 582 26 28 13 33 482 Polyamide 1,749 16 95 (9) 89 1,558 Acetow 410 4 8 7 (4) 395 Eco services 209 2 6 201 Organics 349 3 1 (13) 21 337 RPS 172 (1) 1 (10) 6 176 Other (1) (131) (5) (8) 12 2 (132) Total 5,085 (14) 135 24 247 4,693 (1) Includes the sales of other activities, sales on behalf of non-Group companies and the elimination of inter-company sales. (2) Presents the impact of changes in scope of continuing operations not classified as discontinued operations and the reclassifications of inter-company activities. 42 Form 20 - F 2005 - Rhodia
Page 1 and 2: Form 20-F 2005
Page 3 and 4: As filed with the Securities and Ex
Page 5 and 6: - We calculate the impact of “cha
Page 7 and 8: (in millions, except for per share
Page 9 and 10: Exchange Rate Information Fluctuati
Page 11 and 12: decrease in demand in certain secto
Page 13 and 14: We cannot assure you that we will n
Page 15 and 16: Our public debt ratings can affect
Page 17 and 18: Changes in these laws and regulatio
Page 19 and 20: subscription rights cannot be exerc
Page 21 and 22: Main Businesses This section gives
Page 23 and 24: Products Markets Brand names Compet
Page 25 and 26: Polyamide Polyamide recorded sales
Page 27 and 28: Engineering plastics are used for t
Page 29 and 30: It is expected that Eco Services’
Page 31 and 32: Furthermore, the synthesis business
Page 33 and 34: Any significant change in raw mater
Page 35 and 36: We remain dedicated to our zero-acc
Page 37 and 38: Property, Plant and Equipment The t
Page 39 and 40: The table below sets forth average
Page 41: The following paragraphs list the c
Page 45 and 46: Coatis Coatis net sales totaled €
Page 47 and 48: Abroad: closure of unprofitable pr
Page 49 and 50: Acetow Operating profit totaled €
Page 51 and 52: Profit/(loss) from discontinued ope
Page 53 and 54: High yield notes In order to extend
Page 55 and 56: Consolidated Balance Sheet Working
Page 57 and 58: The table below sets forth the matu
Page 59 and 60: Net loss: A reconciliation of the n
Page 61 and 62: Item 6. Directors, Senior Managemen
Page 63 and 64: Michel de Fabiani was named a Direc
Page 65 and 66: agreement to be authorized by the B
Page 67 and 68: our Company and the related compens
Page 69 and 70: Name (Age) Jean-Pierre Clamadieu (4
Page 71 and 72: Compensation According to French la
Page 73 and 74: The table below sets forth the tota
Page 75 and 76: Employee and Director share ownersh
Page 77 and 78: Options The table below sets forth
Page 79 and 80: On December 22, 2005, Sanofi-Aventi
Page 81 and 82: Item 8. Financial Information Finan
Page 83 and 84: Commercial Litigation Adisséo Arbi
Page 85 and 86: Protection Agency regarding future
Page 87 and 88: Item 9. The Offer and Listing Tradi
Page 89 and 90: Euronext Paris may temporarily rese
Page 91 and 92: However, these requirements do not
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In addition to rights to certain in
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Financial Statements and Other Comm
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Decreases in Share Capital Accordin
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Identification of shareholders Our
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French Insolvency Laws Rhodia S.A.
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period, creditors may not pursue an
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The following countries, French ove
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For purposes of the U.S.-France tax
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If you are an accrual method taxpay
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transactions), or at least 50% of t
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Interest Interest on 2003 Notes The
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Market Discount and Bond Premium If
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acquired the Euro Note. In addition
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Even aside from the effect of compe
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PART II Item 13. Defaults, Dividend
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Item 16D. Exemptions from the Listi
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Signature The registrant hereby cer
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RHODIA AND SUBSIDIARIES REPORT OF I
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RHODIA GROUP CONSOLIDATED BALANCE S
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RHODIA GROUP CONSOLIDATED STATEMENT
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RHODIA GROUP CONSOLIDATED STATEMENT
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RHODIA GROUP NOTES TO THE CONSOLIDA
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Associates The companies over which
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Dismantling costs Dismantling and r
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subsequent recognition: The allowan
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For quoted securities, fair value r
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3.13. Borrowings All borrowings are
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The fair value of the options is me
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Notes to the consolidated income st
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Depreciation, amortization and impa
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7. Depreciation, amortization and i
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Restructuring costs by business seg
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The effective tax rate for 2005 ref
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12.4 Assets held for sale and assoc
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The impairment losses accounted for
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price corresponds to the market pri
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Available-for-sale assets are inves
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23. Other current financial assets
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on June 17, 2005, signature of a ne
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Asset securitization programs Rhodi
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In addition, as from June 1, 2007,
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27. Risk management and derivative
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At December 31, 2005 At December 31
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27.3. Management of risk related to
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Actuarial assumptions These calcula
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The actual rate of return on plan a
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The cumulative effect on ordinary c
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Evolution in 2004 Charges for new m
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Estimated contingent liabilities be
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sought to exercise its call option,
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In 2004, in accordance with the aut
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Stock Option Plan 1998 Plan 1999/1
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36. Use of estimates In order to pr
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Subsidiaries Country % RHODIA PPMC
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38. Note on transition to IFRS 2004
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At January 1, 2004 At December 31,
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) Operating profit/(loss) The follo
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Financial instruments Rhodia choose
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Cash flow provided from investing a
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Recognition of past service costs r
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Primester, a 50%-owned cellulose ac
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(xv) Recent accounting pronouncemen
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(ii) Shareholders’ deficit A reco
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(v) Discontinued operations—FAS 1
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(viii) Pension and retirement plans
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(in millions of euros) 2004 Restruc
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Printed on environmentally friendly
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Financial Communication Department
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Form 20-F 2005

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