Form 20-F 2005

(xiii) Net sales and other revenues
As a result of the adoption of IFRS as its primary reporting standard, Rhodia realized that the previous U.S. GAAP treatment
of certain revenues needed to be revised. Historically, Rhodia did not include in its net sales certain revenue from services, such
as administrative services that it provides during a transition period after a divestiture, industrial services and raw materials and
utilities purchasing services where its shares industrial facilities, and tolling operations. These services were previously recorded
as a reduction of operating costs.
For 2004, Rhodia’s U.S. GAAP total sales, previously reported as €4,833 million were revised to €5,442 million, of which €464 million
of the increase relates to other revenue and €145 million relates to net sales. Rhodia’s U.S. GAAP operating costs previously reported
as €5,463 million were revised to €6,072 million. These revisions do not affect the previously reported U.S. GAAP net loss.
(xiv) Asset retirement obligations
Under U.S. GAAP, the recognition of the fair value of an asset retirement obligation is required if a reasonable estimate of its
fair value can be made. An asset retirement obligation is a legal obligation associated with the retirement of a tangible or other longlived
asset that results from the acquisition, construction, development and normal operation of the tangible or other long-lived
asset. The associated asset retirement cost is capitalized as part of the carrying value of the tangible or other long-lived asset and
is charged to expense over the asset’s useful life. Under IFRS, the recognition of a provision is required when an entity has a present
obligation (legal or constructive) as a result of a past event, if it is probable that an outflow of resources will be required to settle the
obligation, and if a reliable estimate can be made of the amount of the obligation. The associated cost is capitalized as part of the
carrying value of the asset and is charged to expense over the asset’s useful life.
The principal difference between U.S. GAAP and IFRS relates to conditional asset retirement obligations. In March 2005, the
Financial Accounting Standards Board (FASB) issued Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations
(FIN 47). FIN 47 clarifies the term conditional asset retirement obligation and also clarifies when an entity would have sufficient
information to reasonably estimate the fair value of an asset retirement obligation or conditional asset retirement obligation. A
conditional asset retirement obligation is a legal obligation to perform an asset retirement activity in which the timing and/or method
of settlement are conditional on a future event that may or may not be within control of the entity. Also, FIN 47 clarifies that if an entity
has sufficient information to reasonably estimate the fair value of an asset retirement obligation, it must recognize a liability. Under
IFRS, an entity discloses a contingent liability, which is defined as a possible obligation that arises from past events and whose
existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the
control of the entity, or a present obligation that arises from past events but is not recognized because it is not probable that an
outflow of resources will be required to settle the obligation; or the amount of the obligation cannot be measured with sufficient
reliability. Under IFRS, no disclosure is required if the possibility of the outflow of resources is remote.
Rhodia has reviewed its facilities for asset retirement obligations and conditional asset retirement obligations. Rhodia has
determined that it does have potential conditional asset retirement obligations, principally related to asbestos removal at its facilities.
There are no legal obligations that require Rhodia to remove this asbestos. Since Rhodia has no plans or expectations of plans to
undertake any major renovations or demolition at any of its facilities that would require removal of this asbestos, it is unable to provide
a reasonable estimate of the fair value of potential conditional asset retirement obligations under existing regulations. Due to the longterm,
productive nature of its production facilities, absent plans or expectations of plans to initiate asset retirement activities, Rhodia is
unable to make a reasonable estimate of the settlement dates or range of potential settlement dates, the methods or potential methods
of settlement, or the probabilities associated with potential settlement dates and potential methods of settlement. No significant
liabilities for asset retirement obligations have been recognized under IFRS and U.S. GAAP.
Environmental remediation liabilities currently recognized are accounted for under IAS 37, Provisions, contingent liabilities
and contingent assets, and Accounting Standards Executive Committee, Statement of Position 96-1, Environmental Remediation
Liabilities.
Form 20 - F 2005 - Rhodia
F-89