BMW 2006 Annual Report Download - page 108

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Explanatory notes to the cash flow statements
The cash flow statements show how the cash and
cash equivalents of the BMW Group, industrial oper-
ations and financial operations have changed in the
course of the year as a result of cash inflows and
cash outflows. In accordance with IAS 7 (Cash Flow
Statements), cash flows are classified into cash
flows from operating, investing and financing activi-
ties. The cash flow statements of the BMW Group
are presented on pages 68 and 69.
Cash and cash equivalents included in the cash
flow statement comprise cash in hand, cheques,
and cash at bank, to the extent that they are available
within three months from the balance sheet date
and are subject to an insignificant risk of changes in
value. The negative impact of changes in cash and
cash equivalents due to the effect of exchange rate
fluctuations in 2006 was euro 42 million (2005: posi-
tive impact of euro 60 million).
The cash flows from investing and financial ac-
tivities are based on actual payments and receipts.
The cash flow from operating activities is com-
puted using the indirect method, starting from the
net profit of the Group. Under this method, changes
in assets and liabilities relating to operating activi-
ties are adjusted for currency translation effects
and changes in the composition of the Group.The
changes in balance sheet positions shown in the
sale securities are recognised directly in accumulated
other equity. At 31 December 2006, the positive
impact from the fair value measurement of financial
instruments (net of deferred taxes) amounted to
euro 392 million (2005: euro 591 million) and has
been recognised directly in equity. This comprises a
positive impact from cash flow hedges of euro 178
million (2005: euro 29 million) and a positive impact
from available-for-sale securities of euro 214 million
(2005: euro 562 million).
During the year under report, negative changes
in fair value measurement amounting to euro 199
million (2005: euro 543 million) were recognised
directly in equity. This includes a positive impact of
euro 149 million from cash flow hedges (2005: neg-
ative impact of euro 1,043 million) and a negative im-
pact of euro 348 million (2005: positive impact of
euro 500 million) from available-for-sale securities.
In the financial year under report, positive fair
value measurement changes of euro 266 million
(2005: euro 661 million) were removed from other
accumulated equity and realised in the income state-
ment. Write-downs of euro 2 million (2005: euro 10
million) on available-for-sale securities, for which fair
value changes were previously recognised directly
in equity, were recognised as expenses in 2006.
Reversals of write-downs on current marketable se-
curities of euro 4 million were recognised directly in
equity (2005: euro 3 million). In 2006, gains of euro
431 million (2005: euro 33 million) were realised on
the disposal of available-for-sale securities and the
equivalent amount removed from other accumulated
equity and recognised in the income statement.
Credit risk
Financial assets are recognised in the balance sheet
net of write-downs for the risk that counter-parties
are unable to fulfil their contractual obligations, irre-
spective of the value of collateral received. In the
case of performance relationships underlying non-
derivative financial instruments, collateral will be
required, information on the credit-standing of the
counter-party obtained or historical data based
on the existing business relationship (i.e. payment
patterns to date) reviewed in order to minimise the
credit risk, all depending on the nature and amount
of exposure entered into. Write-downs are recorded
as soon as credit risks are identified on individual
financial assets. This credit risk is minimised by the
fact that the Group only enters into such contracts
with parties of first-class credit standing. The general
credit risk on derivative financial instruments utilised
by the BMW Group is therefore not considered to
be significant. A concentration of credit risk with par-
ticular borrowers or groups of borrowers has not
been identified.
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