Form 20-F 2005

The fair value of the options is measured at the grant date, using the Black & Scholes model, taking into account, in particular,
expected volatility, the expected life and estimated forfeiture rate of the options. The expense recognized in the income statement
is only modified if the effect of the actual forfeiture rate is material.
In accordance with IFRS 2, only the plans granted after November 7, 2002 that are not yet vested at January 1, 2005 are
measured and recognized in employee expense.
3.17. Provisions
A provision is recognized when Rhodia has a legal or constructive obligation as a result of a past event, which can be reliably
measured, and whose settlement is expected to result in an outflow of economic resources for Rhodia.
Provisions are discounted in order to take into account market assessments of the time value of money, where the effect of
this value is material.
Environmental liabilities
Rhodia analyses its environmental risks annually and takes into account, for interim balance sheet dates, any changes requiring
the corresponding provisions to be considerably re-estimated.
Rhodia recognizes provisions for environmental risks where there is a legal or constructive obligation that is expected to
result in an outflow of resources and can be reliably measured. Rhodia measures these provisions to the best of its 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. The impact of interest rate fluctuations is recognized
in other operating expenses in the income statement. The interest expense (interest accretion) is recognized in finance costs in
the income statement.
Restructuring
Restructuring comprises all measures designed to permanently adapt structures, production and employees to economic
changes. A provision for restructuring costs is recognized when the Group has approved a detailed formal plan and has either
started to implement the plan, or announced its main features to the public.
Restructuring costs include severance pay, compensation for the early termination of operating leases and all exit costs arising
from restructurings, including impairment losses recognized on discontinued assets due to the closure of a site or operation. They
are recognized net of reductions in employee benefits upon the loss of these benefits by employees.
3.18. Trade and other payables
Trade and other payables are measured at fair value on initial recognition, which in most cases corresponds to the nominal
value, and then at amortized cost. Short-term borrowings with no stated interest rates are recognized at their nominal amount
unless the effect of market rate discounting is material.
3.19. Net sales and other revenue
Net sales and other revenue are measured at the fair value of the consideration received or receivable, net of returns, rebates
and trade benefits granted and sales tax, once the risks and rewards inherent to the ownership of the goods has been transferred
to the customers or the service has been rendered. No net sales are recognized where there is a substantial uncertainty as to (i)
the recoverability of the consideration receivable, (ii) the costs incurred or to be incurred related to the service or (iii) the possible
return of the goods upon cancellation of the purchase, and where the Group remains involved in the management of the goods. Net
sales comprise the sales of goods (goods and goods for resale) and value-added services corresponding to Rhodia’s know-how.
F-22 Form 20 - F 2005 - Rhodia