REGISTRATION DOCUMENT AND FINANCIAL REPORT - Iliad

20. FINANCIAL INFORMATION CONCERNING THE COMPANY’S ASSETS AND LIABILITIES,
FINANCIAL POSITION AND PROFITS AND LOSSES
20.1 CONSOLIDATED FINANCIAL STATEMENTS FOR 2007, 2006 AND 2005
Stock option plans
In accordance with IFRS 2, Share-based Payment, share purchase and subscription options, employee share
issues, and share awards to Group employees are measured at fair value at the grant date.
Calculations of the fair value of stock options are performed based on criteria such as the exercise price of the
options, the life of the options, the current price of the underlying shares, the volatility range of the share price,
expected dividends on the shares and the risk-free interest rate over the life of the options.
The fair value of stock options is recognized under “Share-based payment expense” on a straight-line basis over
the vesting period (i.e. the period between the grant date and the exercise date), with a corresponding adjustment
to equity for equity-settled plans and to employee-related liabilities for cash-settled plans.
Derivative financial instruments and hedging activities
Derivatives are initially recognized at fair value on the date the derivative contract is entered into and are
subsequently remeasured at fair value. The method of recognizing the resulting gain or loss depends on whether
the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group
designates certain derivatives as hedges of a particular risk associated with a highly probable forecast transaction
(cash flow hedges).
The Group documents at the inception of the transaction the relationship between hedging instruments and
hedged items, as well as its risk management objectives and hedging strategy. The Group also documents its
assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging
transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in Note 33. The full fair
value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the
hedged item exceeds 12 months, and as a current asset or liability when the remaining maturity of the hedged
item is less than 12 months.
NOTE 2: SCOPE OF CONSOLIDATION
List of consolidated companies and consolidation methods
The scope of consolidation and consolidation methods used are described in Note 37 for the year ended
December 31, 2007 and Note 38 for the year ended December 31, 2006.
2-1. CHANGES IN SCOPE OF CONSOLIDATION IN 2007
A table presenting changes in the scope of consolidation in 2007 is provided in Note 39.
The changes in 2007 correspond to:
• The purchase of minority interests in Assunet and Freebox.
• The incorporation of a wholly-owned subsidiary, Free Mobile, on July 24, 2007. The main corporate purpose
of Free Mobile – which was fully consolidated in the 2007 financial statements – is to roll out and operate a
mobile telephony network.
• The incorporation of a wholly-owned subsidiary, Immobilière Iliad on December 3, 2007. The main
corporate purpose of Immobilière Iliad – which was fully consolidated in the 2007 financial statements – is
to purchase and lease real estate assets to be used by the Broadband segment.
• The sale of Iliad’s entire interest in Kertel on February 7, 2007 for €20,661,000, including €6 million in
vendor finance repayable between June 29, 2007 and December 31, 2007. The first two repayments of
€2 million were received in 2007 and the final installment was received in early 2008.
122 - Iliad – Registration Document 2007