_454 2023 UNIVERSAL REGISTRATION DOCUMENT_MICHELIN 5 FINANCIAL PERFORMANCE Financial statements 4.2 Investments 4.2.1 Shares in subsidiaries and affiliates Shares in subsidiaries and affiliates are stated at historical cost, except for investments held at the time of the 1976/1978 legal revaluation, which are stated at valuation. At each annual closing, the fair value of shares in subsidiaries and affiliates is estimated based on the investee's net assets (stated at valuation if applicable), profitability and outlook, and its fair value for the investor company. In the event of a lasting decline in fair value to below the carrying amount, an impairment loss is recognized. Investment acquisition costs are recorded as an expense on the transaction date. 4.2.2 Loans and advances to subsidiaries and affiliates Loans and advances to subsidiaries and affiliates are stated at nominal value and a provision for impairment is recognized to cover any risk of non-recovery. 4.3 Receivables Accounts receivable are stated at nominal value and a provision for impairment is recognized to cover any risk of non-recovery. 4.4 Paid-in capital in excess of par This item corresponds to premiums on shares issued for cash or on conversion of bonds, after deducting issuance costs net of tax. When shares are cancelled, the difference between their purchase cost and par value is recorded as a deduction from paid-in capital in excess of par. 4.5 Untaxed reserves Substantially all untaxed reserves correspond to reinvested capital gains qualifying for rollover relief under the former Article 40 of the French General Tax Code (Code général des impôts). 4.6 Conversion of foreign currencies Revenues and expenses in foreign currencies are converted at the transaction date exchange rate. Foreign currency receivables and payables are converted at the year-end exchange rate. In accordance with regulation ANC 2015-05 dated July 2, 2015, separate accounting treatments are applied to commercial transactions in foreign currencies and financial transactions in foreign currencies: ● exchange gains and losses on commercial transactions are included in operating income and expenses; ● exchange gains and losses on financial transactions are included in financial income and expenses. 4.7 Derivative instruments 4.7.1 Currency derivatives at fair value through profit or loss Forward foreign exchange contracts that are outstanding at the balance sheet date are marked to market in the balance sheet. 4.7.2 Currency derivatives qualifying for hedge accounting Losses and gains arising from remeasurement at fair value of currency derivatives qualified as hedges are recorded in the balance sheet under conversion losses or conversion gains, to offset the gain or loss on the hedged item. 4.7.3 Options on treasury stock qualifying for hedge accounting The Company has purchased cash-settled call options to hedge its economic exposure to the potential exercise of the conversion rights embedded in non-dilutive cash-settled convertible bonds. Pursuant to regulation ANC 2015-05, Article 628-12, the premium on the purchased options was initially recorded in the balance sheet and is being amortized through financial expense over the hedging period (five years).
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