BMW AG Annual Report 2007

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Annual Report 2007

Facts and
figures 2007

s
t
n
e
t
n
o
C

BMW Group in figures

Report of the Supervisory Board

10
10
13
17
41
44
47
47
49
51
52
55
55
57
58
62
68

73
73
74
76
78
79

80
89
96
117
131

Group Management Report
A Review of the Financial Year
General Economic Environment
Review of Operations
BMW Stock and Bonds in 2007
Disclosures relating to Takeover Regulations and Explanatory Report
Financial Analysis
– Group Internal Management System
– Earnings Performance
– Financial Position
– Net Assets Position
– Subsequent Events Report
– Value Added Statement
– Key Performance Figures
– Comments on Financial Statements of BMW AG
Risk Management
Outlook

Group Financial Statements
Group and Sub-group Income Statements
Group and Sub-group Balance Sheets
Group and Sub-group Cash Flow Statements
Group Statement of Changes in Equity
Statement of Income and Expenses
recognised directly in Equity
Notes to the Group
Financial Statements
– Accounting Principles and Policies
– Notes to the Income Statement
– Notes to the Balance Sheet
– Other Disclosures
– Segment Information

135
136

Responsibility Statement by Company’s Legal Representatives
Auditors’ Report

137
137
140
141
142

146

147

148
148
150
152
154
158
160
161

Corporate Governance
Members of the Supervisory Board
Members of the Board of Management
Corporate Governance at BMW Group
Compensation Report
(Sub-section of Management Report)
Shareholdings of Members of the Board of
Management and the Supervisory Board
Declaration of the Board of Management and of
the Supervisory Board pursuant to §161 AktG

Other Information
BMW AG Principal Subsidiaries
BMW Group 10-year Comparison
BMW Group Locations
Glossary
Index
Contacts
Financial Calendar

BMW Group in figures

Revenues
in euro billion

Capital expenditure
in euro million

5,000

4,500

4,000

3,500

3,000

2,500

41.5

44.3

46.7

49.0

56.0

4,245

4,347

3,993

4,313

4,267

Deliveries of automobiles
in thousand units

Profit before tax
in euro million

1,500

1,400

1,300

1,200

1,100

1,000

4,000

3,500

3,000

2,500

2,000

1,500

1,104.9

1,208.7

1,328.0

1,374.0

1,500.7

3,205

3,583

3,287

4,124

3,873

* adjusted for new accounting treatment of pension obligations

A portrait of the Company
Bayerische Motoren Werke G. m. b. H. came into
being in 1917, having been founded in 1916 as
“Bayerische Flugzeugwerke AG” (BFW); it became
Bayerische Motoren Werke Aktiengesellschaft
(“BMW AG”) in 1918.

Today, the BMW Group is one of the ten largest
car manufacturers in the world and possesses, with
its BMW, MINI and Rolls-Royce brands, three of the
strongest premium brands in the car industry. The
BMW Group also has a strong market position in the
motorcycle sector and operates successfully in the
area of financial services.

The Number ONE strategy, adopted in 2007,

has set the BMW Group on course for a successful
future. The business has been given a new strategic
direction with the emphasis on profitability and long-
term value growth. The BMW Group’s activities
will remain firmly focused on the premium segments
of the international automobile markets. The mission
statement up to the year 2020 is clearly defined:
the BMW Group is the world’s leading provider of
premium products and premium services for indi-
vidual mobility.

BMW Group in figures

Vehicle production

BMW

MINI

Rolls-Royce

Motorcycles1]

Deliveries to customers

BMW

MINI

Rolls-Royce

Motorcycles2]

2003

2004

2005

2006

2007

944,072

174,366

502

89,745

928,151

176,465

300

92,962

1,059,978

1,122,308

1,179,317

1,302,774

189,492

200,119

186,674

237,700

875

93,836

692

847

1,029

92,012

103,759

104,396

1,023,583

1,126,768

1,185,088

1,276,793

184,357

200,428

188,077

222,875

792

92,266

796

805

1,010

97,474

100,064

102,467

Workforce at end of year 3]

104,342

105,972

105,798

106,5754]

107,539

in euro million

2003

2004

2005

2006

2007

Revenues

Capital expenditure

Depreciation and amortisation

Operating cash flow 6]

Profit before tax

Net profit

41,525

44,335

46,656

48,999

56,018

4,245

2,370

4,970

3,205

1,947

4,347

2,672

6,157

3,583 5]

2,242 5]

3,993

3,025

6,184

3,287

2,239

4,313

3,272

5,373

4,124

2,874

4,267

3,683

6,340

3,873

3,134

Change
in %

10.5

27.3

21.5

0.6

7.7

18.5

25.5

2.4

0.9

Change
in %

14.3

– 1.1

12.6

18.0

– 6.1

9.0

1] from 2006 including BMW G 650 X assembly by Piaggio S. p. A.
2] excluding C1, sales volume to 2003: 32,859 units
3] Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners.
4] Including acquired entities, the comparable number of employees was 107,345 employees at 31 December 2006.
5] adjusted for new accounting treatment of pension obligations
6] In its financial statements for 2005, the BMW Group brought the cash flow computation into line with standards normally applied on the financial markets. Since then,

the BMW Group discloses the figures for the cash flow from operating activities (operating cash flow), corresponding to the cash flow from Industrial Operations reported in
the cash flow statement.

04 Report of the Supervisory Board

Joachim Milberg
Chairman of the
Supervisory Board

Main focus of the work of the
Supervisory Board

Ladies and Gentlemen,

The Supervisory Board monitored the business affairs and governance of the BMW Group continuously
during the financial year 2007 and supported the Board of Management throughout in an advisory capacity.

In a total of five meetings, the Supervisory Board deliberated at length on the performance and financial
position of the BMW Group, corporate planning, the composition of the Board of Management and risk
management issues. The Supervisory Board made use of regular business status reports to keep abreast of
business performance, including the degree to which stated objectives have been achieved. It also selected
a number of topics for more in-depth review and discussion based on reports and planning documents pro-
vided by the Board of Management. Two of the main areas of focus of the Supervisory Board in 2007 were
currency management and the Board of Management’s decisions concerning the future strategic direction
of the BMW Group.

The Board of Management also kept the Supervisory Board informed of key performance indicators, personnel
developments and other significant matters, both at scheduled meetings and at other times as the need
arose. The Chairman of the Supervisory Board was also kept informed regularly and directly by the Chairman
of the Board of Management of all major business transactions and projects.

The growing need to reduce CO2 emissions in the transport sector, the challenges that this poses for the
BMW Group as a premium car maker and the technical measures introduced by the Board of Management
to reduce emissions and fuel consumption were reported on in detail by the Board of Management and
discussed within the Supervisory Board. In the opinion of the Supervisory Board, the package of measures
known as EfficientDynamics – designed to improve fuel economy whilst simultaneously emphasising agile
and dynamic vehicle concepts – represents a clear competitive advantage for the BMW Group. For this
reason, the Supervisory Board fully supports the Board of Management’s strategy to extend the BMW Group’s
lead in this area. In this context, the Board of Management also reported to the Supervisory Board on one
particular ground-breaking project which is looking, amongst other things, at new ways of achieving greater
individual mobility in the world’s megacities.

One meeting of the Supervisory Board was held at the Oxford plant, enabling the Supervisory Board to see
at first hand the expansion measures undertaken at the plant. It was also given an insight into the integration
of the new generation of MINI models into existing manufacturing structures and the benefits of the flexible
working time model devised for the plant.

After detailed consideration of the BMW Group’s long-term business plan, the Supervisory Board concurred
with the Board of Management’s conclusion that the plan is feasible and formally gave its approval to the plan.

06 Report of the Supervisory Board

As part of a special review of value-added and currency management within the BMW Group, the Board of
Management provided the Supervisory Board with an overview of current and planned currency measures
as well as natural hedging activities and explained the various alternatives available to the BMW Group. On
the basis of this information, joint discussions were held on the future strategy in this area.

The Supervisory Board meeting in September 2007 primarily involved a discussion of the Board of Manage-
ment’s detailed report on the BMW Group’s strategy process. At the same meeting, the Supervisory Board
also deliberated on and made its decisions regarding the composition of the Board of Management.

The Supervisory Board was appreciative of the Board of Management’s in-depth review of the current busi-
ness model and its thorough analysis of the options open to the BMW Group to achieve continued long-term
growth. From the perspective of the Supervisory Board, the results presented and the objectives set by the
Board of Management on the basis of their analysis were convincing and well-founded. The Supervisory
Board supports the strategic objective set by the Board of Management – to be the world’s leading provider
of premium products and premium services for individual mobility. The Supervisory Board agrees with the
Board of Management that profitability and quality of earnings should play a central role in the Group’s strate-
gic realignment. It therefore encouraged the Board of Management to press ahead with the implementation
of the stated strategy and gives its full backing to the measures and targets adopted by the Board of Manage-
ment. This includes plans to generate some euro 6 billion of efficiency benefits by 2012 and to successively
take pension obligations to employees in Germany off the balance sheet by creating external pension
funds. The Supervisory Board believes that these measures will help to strengthen the Group’s competitive-
ness in the long term.

To coincide with the BMW Group’s strategic realignment, the Board of Management has formulated a set of
core principles that are intended to serve as guidelines for managers and employees. In the opinion of the
Supervisory Board, these core principles provide an excellent basis for open and objective-oriented coopera-
tion throughout the Group.

The Supervisory Board carefully considered the annual budget for the financial year 2008 presented by the
Board of Management and approved the planned measures to improve profitability. The Supervisory Board
was also fully informed of solutions and specific measures discussed with staff representatives to reduce
personnel expense.

The Board of Management also kept the Supervisory Board informed of the progress of the acquisition of
the motorcycle company Husqvarna. This move complements the Group’s activities in the single-cylinder
segment and will appeal to younger customer groups in the off-road and supermoto segments.

In response to the increased complexity of tasks facing the Board of Management and with implementation
of the new strategy in mind, the Supervisory Board decided to increase the size of the Board of Management
by two members: Dr. Herbert Diess, who has been responsible for the Motorcycles segment since 2003, was
appointed to the Board of Management with effect from 1 October 2007, taking over responsibility for the
newly created Purchasing and Supplier Network division. Dr. Friedrich Eichiner, who has been responsible
for Group planning since 2002, was also appointed to the Board of Management with effect from 1 October
2007 and now heads the newly created Corporate and Brand Development division. At his own request,
Stefan Krause’s mandate as member of the Board of Management came to an end on 13 March 2008. The
Supervisory Board thanked Mr. Krause for the successful work that he performed on behalf of the BMW Group.
At its meeting on 13 March 2008, the Supervisory Board appointed Ian Robertson with immediate effect as
member of the Board of Management. Mr. Robertson thereupon took over board responsibility for sales and

Corporate governance
and Declaration of Compliance

marketing. Since 2005, he has been Chairman and Chief Executive Officer of Rolls-Royce Motor Cars Ltd.,
a subsidiary of BMW AG.

During the financial year 2007, the Supervisory Board and the Board of Management again discussed the
subject of corporate governance in great detail and issued a joint Declaration of Compliance with the Ger-
man Corporate Governance Code (GCGC) pursuant to § 161 AktG. The recommendations of the Govern-
ment Commission on the German Corporate Governance contained in the revised code issued on 20 July
2007 will be complied with in the future except for one divergence: the discussion and regular review of
the structure of the compensation system of the Board of Management is still performed by the Personnel
Committee and not, additionally, by the Supervisory Board. This task has been delegated to the Personnel
Committee which reports in detail to the full Supervisory Board. All other recommendations are being
complied with.

A detailed report on the amount and structure of the compensation of the Board of Management and the
Supervisory Board can be found in the corporate governance report. In conjunction with the code recommen-
dations issued on 20 July 2007, the Supervisory Board decided to amend its own procedural rules regarding
the remit of the Audit Committee, to create a Nomination Committee and to expand the reporting duties of
the Board of Management.

The Supervisory Board sees it as an ongoing task to improve the quality of its work, both in plenum and
at committee level, and in its collaboration with the Board of Management. The efficiency of the Super-
visory Board’s work is therefore not only assessed, as recommended by the GCGC, on the basis of written
comments of all Supervisory Board members and open debate at year-end meetings, but also during the
year in the context of personal dialogue, whereby the Chairman of the Supervisory Board plays a key role in
proposing areas of improvement.

There was no indication during the past year of any conflicts of interest on the part of members of the Super-
visory Board and Board of Management.

Description of Presiding Board
activities and committee work

In a total of five meetings, the Presiding Board mainly focussed on preparing the plenum meetings, including
the selection of special topics of report. During the past year, the Presiding Board took a close look at the
Company’s dividend policy and the Group’s currency management. At a number of meetings during the
course of the year, it also considered alternative concepts for the compensation of Supervisory Board work,
culminating in the formulation of a proposed amendment to § 15 of the Articles of Incorporation that will be
put forward for resolution at the Annual General Meeting.

In view of the fact that the tasks performed by the Audit Committee go well beyond accounting and financial
reporting matters (e.g. in the field of compliance), the Audit Committee changed its name in German from
Bilanzausschuss to Prüfungsausschuss, bringing it into line with the name already used in English. The Audit
Committee convened three times during the period under report. One of these meetings served primarily to
prepare for the Supervisory Board meeting in spring 2007, the main purpose of which was to consider the
drafts of the Company and Group financial statements for the financial year 2006. Apart from examining the
drafts, the Audit Committee also obtained a Declaration of Independence from the external auditors, deter-
mined areas of audit emphasis and, after the Annual General Meeting, issued the audit engagement letter for
the financial year 2007. A further area of focus for the Audit Committee in 2007 was risk management. The
Audit Committee was kept informed by the Board of Management of progress made to date to implement
the Group’s compliance programme which emphasises the vital role played by managers in ensuring com-
pliance with existing law.

08 Report of the Supervisory Board

The six meetings of the Personnel Committee in 2007 were mainly dedicated to preparing for Board of
Management appointment decisions, in particular pre-selecting candidates and deliberating on compensa-
tion matters. The Personnel Committee again reviewed the appropriateness of the compensation of the
members of the Board of Management – including individually agreed upper limits – in view of the tasks per-
formed, the financial condition of the Group and compensation levels within the automotive industry and
at other DAX-listed companies. In individual cases, the Personnel Committee authorised the acceptance of
external mandates by current and former members of the Board of Management.

In line with the recommendation of the German Corporate Governance Code, the Supervisory Board created
a Nomination Committee in 2007 in addition to the existing committees. The Nomination Committee com-
prises the Chairman of the Supervisory Board (as chairman) and two further members of the Supervisory
Board representing the interests of shareholders. The Nomination Committee is charged with the task of
finding suitable candidates for election to the Supervisory Board and for inclusion in the Supervisory Board’s
proposals for election at the Annual General Meeting. The Nomination Committee did not hold any meetings
in 2007 but convened for the first time in January 2008 to propose candidates for the forthcoming elections
at the Annual General Meeting 2008.

The statutory Mediation Committee (§ 27 (3) of the Law on Worker Participation) was not required to convene
during the financial year 2007.

The Chairman reported regularly at Supervisory Board meetings on the status of Presiding Board and com-
mittee work.

Composition of the Super-
visory Board, the Presiding
Board and the committees

The names of the members of the Supervisory Board committees, including those of the newly created
Nomination Committee, are shown in the corporate governance report.

There were no other changes in the composition of the Supervisory Board during the year under report. The
mandates of Dr. Hans-Dietrich Winkhaus and Mr. Arthur L. Kelly come to an end at the close of the Annual
General Meeting on 8 May 2008. The two members will not be standing for re-election due to the age limit
applicable to Supervisory Board members. Mr. Konrad Gottinger resigned as member of the Supervisory
Board with effect from 15 February 2008. Mr. Heinz-Joachim Neubürger resigned with effect from the close
of the Annual General Meeting 2007. Both Mr. Gottinger and Dr. Winkhaus were elected to the Supervisory
Board in 1999 and carried out important functions in the Presiding Board and in various committees. Mr. Kelly,
who joined the Supervisory Board back in 1992, has provided valuable services to the BMW Group during
his long period of office. The Supervisory Board would like to thank the members leaving office for the dedi-
cated and commendable services they have performed in the interests of the BMW Group.

Examination of Company and
Group financial statements
and the proposed appropria-
tion of profit

The Company and Group financial statements of Bayerische Motoren Werke Aktiengesellschaft for the year
ended 31 December 2007 and the combined Company and Group Management Report were audited by
KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Munich, and
given an unqualified audit opinion. The Audit Committee examined these documents initially at its meeting
on 3 March 2008, discussing matters in person with representatives of the external auditors. The Super-
visory Board subsequently examined the relevant drafts of the Board of Management at its meeting on
13 March 2008, after hearing the chairman’s report on the meeting of the Audit Committee. The external
auditors were also present at this meeting to report on the main findings of their audit and to provide additional
information as necessary. The long-form audit reports of the external auditors were made available to all
members of the Supervisory Board in good time. The Supervisory Board concurred with the results of the
external audit and approved the Company and Group Financial Statements of Bayerische Motoren Werke
Aktiengesellschaft for the financial year 2007 prepared by the Board of Management. The Company financial
statements are therefore adopted. The Supervisory Board also reviewed the Board of Management’s pro-
posal for the appropriation of profit. The Supervisory Board considers the proposal appropriate and therefore
concurs with it. In accordance with the conclusion reached on the Supervisory Board’s examination, no
objections were raised.

The Board of Management and employees of the BMW Group have once again enabled the BMW Group to
post excellent earnings for the financial year 2007. The Board of Management has also defined a new stra-
tegic direction for the BMW Group which puts it on course for long-term success. The Supervisory Board
wishes to thank the members of the Board of Management and indeed all employees of the BMW Group for
their hard work and their contribution to the past year’s performance.

Munich, 13 March 2008
The Supervisory Board

Yours,

Joachim Milberg
Chairman of the Supervisory Board

10 Group Management Report

Group Management Report
A Review of the Financial Year

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

47 Financial Analysis
47 – Internal Management System
49 – Earnings Performance
51 – Financial Position
52 – Net Assets Position
55 – Subsequent Events Report
55 – Value Added Statement
57 – Key Performance Figures
58 – Comments on BMW AG
62 Risk Management
68 Outlook

BMW Group on course despite difficult
conditions
The BMW Group continued to perform successfully
in 2007 despite difficult conditions. By achieving
a sharp sales volume increase, the company has
again confirmed its position as the leading provider
within the premium segments of the automobile
markets. External factors did, how ever, continue to
affect reported figures adversely. The continuing
weakness of the US dollar and the Japanese yen,
the generally high cost of raw mate rials and less
favourable financing conditions all continued to have
a negative impact. This was exacerbated by costs
of market launches for numerous new models.

In its automobile business, the BMW Group
registered new sales volume records for all three
brands in 2007. For the first time ever, sales volume
exceeded 1.5 million units, with a total of 1,500,678
BMW, MINI and Rolls-Royce brand cars sold. This
represented an increase of 9.2 % over the previous
year. As expected, automobile business gained
pace particularly during the second half of 2007 fol-
lowing the introduction of numerous new models.

The motorcycles business also remained firmly
on course in 2007 despite divergent developments
on the major motorcycle markets. In total, 102,467
BMW motorcycles were delivered to customers,
representing a new sales volume record for the
BMW Group (+2.4 %).

The Financial Services business continued to
grow profitably in 2007, again making an important
contribution to the overall performance of the BMW
Group. As predicted, the general deterioration in
business conditions in the face of higher financing
costs and the intensely competitive market situation
continued to have an adverse impact in 2007. These
external factors were successfully countered by
achieving dynamic growth with new products, pur-
suing a strategy of targeted regional expansion and
exploiting synergy benefits wherever possible.

External factors again significantly influenced
the amounts reported as Reconciliations in 2007.
Settlement of the exchangeable bond on shares in
Rolls-Royce plc, London, which was completed in
2007, resulted in a gain of euro 97 million in 2007,
compared to one of euro 372 million in the previous
year. In addition to this, losses had to be recognised
on other derivative financial instruments, in particular
on stand-alone interest rate derivatives. A changed
market interest rate structure caused the fair values
of these financial instruments to decrease.

Dynamic revenues growth, earnings targets
achieved
Revenues of the BMW Group rose at an above-aver-
age rate on the back of a pleasing sales volume per-
formance and thanks to the dynamic growth of its
financial services business. Group revenues rose to
euro 56,018 million in 2007 and were therefore up
by 14.3 % on a year-on-year comparison. Excluding
the exchange rate impact, revenues would have
risen by 17.6 %. The BMW Group profit before tax,
at euro 3,873 million, was 6.1 % below the record
level achieved in the previous year. Excluding the
effect of the settlement of the exchangeable bond
on shares in Rolls-Royce plc, London, pre-tax earn-
ings were, as forecasted, slightly above the previous
year’s level.

Automobile business revenues reached a new
high level. They rose by 12.7 % to euro 53,818 mil-
lion, underlining the overall strength of business
operations. Despite the impact of adverse foreign
exchange factors and high raw material prices, the
Automobiles segment reported a profit before tax
of euro 3,232 million, 7.3 % up on the previous year.
Motorcycles business revenues fell short of the
previous year, dropping marginally to euro 1,228 mil-
lion (– 2.9 %). However, process optimisation and
efficiency improvement programmes implemented
in the past continued to have a positive impact,
enabling the segment to increase its profit before tax
by 7.6 % to euro 71 million.

Financial services business continued to grow at

an extremely dynamic pace, with revenues rising by
25.8 % to euro 13,940 million. This strong growth is
reflected in the segment profit before tax which, at
euro 743 million, was 8.5 % up on the previous year.
Segment earnings improved despite increasingly
difficult refinancing conditions.

Business tax reform in Germany had a positive
impact on earnings, reducing the tax expense sharply.
The effective tax rate for 2007 fell by 11.2 percentage
points to 19.1 % (2006: 30.3 %).

The Group net profit of euro 3,134 million at-
tained a new high level, surpassing the previous year’s
figure by 9.0 %.

Increased dividend proposal
The Board of Management and the Supervisory Board
will propose to shareholders at the Annual General
Meeting to use the unappropriated profit available
for distribution in BMW AG, amounting to euro
694 million, to pay an increased dividend of euro 1.06

BMW Group Revenues by region
in euro million

20,000

17,500

15,000

12,500

10,000

7,500

5,000

2,500

Rest of Europe

North America

Germany

Asia/Oceania

United Kingdom

Other markets

8,728

11,252

10,590

5,130

4,661

1,164

10,574

10,205

11,961

4,915

5,249

1,431

12,141

10,957

11,001

5,538

5,125

1,894

13,226

11,779

10,601

6,200

5,214

1,979

Rest of Europe

North America
Germany

Asia/Oceania
United Kingdom

Other markets

16,450

12,161

11,918

7,353

5,945

2,191

for each share of common stock (2006: euro 0.70/
+ 51.4 %) and an increased dividend of euro 1.08
for each share of preferred stock (2006: euro 0.72/
+ 50.0 %).

The significant increase in dividend proposed
for the financial year 2007 demonstrates the BMW
Group’s commitment to a greater focus on the capi-
tal markets.

Capital expenditure remains at previous
year’s level
The capital expenditure volume, at euro 4,267 mil-
lion, was roughly in line with the previous year’s level.
The main focus of capital expenditure in 2007 was

again the continued expansion of the BMW Group’s
production and sales networks. 2007 saw the open-
ing of the BMW Welt in Munich, the new event and
delivery centre for the BMW brand. Other further
major areas of capital expenditure were the continued
expansion of the Spartanburg plant in the USA and
investment in the Dingolfing site.

In 2007, the BMW Group invested a total of euro

2,934 million in property, plant and equipment and
intangible assets, 5.7 % more than in the previous
year. This includes goodwill of euro 97 million arising
on the acquisition of DEKRA SüdLeasing Services
GmbH (renamed to: BMW Fuhrparkmanagement
Beteiligungs GmbH) and that entity’s subsidiaries.

BMW Group Capital expenditure and operating cash flow
in euro million

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

Capital expenditure

Operating cash flow

4,245

4,970

4,347

6,157

3,993

6,184

4,313

5,373

4,267

6,340

*adjusted for new accounting treatment of pension obligations
In its financial statements for 2005, the BMW Group brought the cash flow computation into line with standards normally applied on the financial markets. Since then, the
BMW Group discloses the figures for the cash flow from operating activities (operating cash flow), corresponding to the cash flow from Industrial Operations reported in the
cash flow statement.

12 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

In addition, development expenditure of euro 1,333
million was recognised as assets in accordance
with IAS 38 (2006: euro 1,536 million/– 13.2 %).

The decrease in capitalised development costs

was due to the lower volume of series development
projects required to be recognised as assets. The
proportion of development costs recognised as
assets went down from 47.9 % in 2006 to 42.4 % in
2007.

The capital expenditure ratio (i.e. the ratio of

capital expenditure to revenues) accordingly de-
creased in 2007 to 7.6 % (2006: 8.8 %).

Strategic realignment of the BMW Group
announced
At the end of September 2007, the BMW Group
took on a new strategic direction. Up to the year
2020, the BMW Group intends to strengthen its
position within the global premium automobile mar-
ket by increasing volume of sales to more than two
million units per annum. The mission statement is
clearly defined: the BMW Group is the world’s lead-
ing provider of premium products and premium
services for individual mobility. This means that in
addition to striving for organic growth in the core
line of business, the BMW Group will also engage in
new and profitable areas of activity throughout the
automotive life-cycle and all the way along the value-
added chain. At the same time, the BMW Group
will invest substantially in future technologies, new
vehicle concepts and pioneering drive systems.
The new strategy, which has been given the name
Number ONE, is aimed at profitability and increasing
value over the long term. In order to achieve these
objectives, two new areas of responsibility have been
created within the Board of Management for the
“Corporate and Brand Development” and “Purchas-
ing and Supplier Network” divisions.

General Economic Environment

Economic developments in 2007
The global economy again grew strongly in 2007,
albeit at a slightly slower pace than in the previous
year. In addition to rising interest rates and the con-
tinuing high level of raw material prices, the main
reason for this development was the weakening of
the US residential property market and the resulting
weaker economic growth in the USA. Although the
credit crisis became acute from the middle of the
year onwards, the effects it had on the economy in
2007 were relatively minor and mainly restricted
to the USA. In other countries, primarily the financial
markets were affected. In a number of instances,
central banks were forced to take measures to en-
sure that sufficient liquid funds were available on
the markets.

After a slow start at the beginning of the year,

the US economy picked up pace again over the
course of 2007, despite the enormous pressure
coming from the residential property sector. Rising
interest rates in recent years resulted in a large vol-
ume of bad debt losses, primarily in the area of sub-
prime borrowers. As a consequence, investment on
new residential property fell to an all-time low, with
property prices dropping for the first time in more
than 15 years. Despite these developments, private
consumption nevertheless grew sharply due to the
employment market remaining strong up to autumn.
In the face of the weak residential property market,
the rise in investment volumes was far lower than
that of the previous year. On the back of a weaker US
dollar, exports provided some momentum for the first
time in years with the result that the USA’s current
account deficit decreased slightly. Overall, the USA’s
gross domestic product grew by 2.2 % in 2007.

The euro region also registered strong growth
in 2007, albeit at a somewhat slower rate than in the
previous year. Despite the positive changes evident
on the employment market, consumers were more
reluctant to spend than one year earlier, whereas in-
vestment activity continued to increase sharply. Ex-
ports grew despite the strong euro. The current bal-
ance of the region as a whole was slightly positive,
although the results in individual countries varied con-
siderably. Overall, the euro region’s economy grew
by 2.7 % in 2007.

Economic growth in Germany weakened slightly

in 2007, reflecting the trend seen in the euro region
as a whole. Investment and exports again contributed
strongly to economic growth. By contrast, private
consumption failed to match the mildly positive trends

seen in previous years and stagnated in 2007. One
of the main negative factors was the value-added tax
increase that took effect in Germany at the beginning
of the year. Although the employment market im-
proved, and large numbers of new jobs were creat-
ed, this did not motivate consumers to spend more.
On top of this, from the summer onwards, the impe-
tus generated by the construction industry tailed off
sharply. Despite these adverse factors, the growth
rate of 2.5 % was only marginally below the previous
year’s level.

The economies of the new EU member coun-
tries also continued to grow robustly in 2007. Private
consumption and investment rose sharply in many
countries, but in spite of the increase in exports,
the current accounts of these countries remained,
for the most part, negative and in some cases quite
considerably so.

The Japanese economy remained on a stable

growth course in 2007 with momentum coming
from both domestic demand and exports. However,
the persisting worry of deflation remained in 2007,
resulting in price stagnation during the year. The
general price level increased only marginally, almost
entirely due to higher energy prices. The Japanese
Central Bank was therefore only able to raise interest
rates very slightly above zero. Overall, Japan’s gross
domestic product grew by approximately 2.1 % in
2007.

Alongside the emerging economies of Eastern
Europe, the fastest growth rates were again recorded
in 2007 by the markets in Latin America and East
Asia. Once again, China was one of the fastest grow-
ing markets. The investment boom there continued
in 2007 with the export surplus reaching a new record
figure. The monetary policy measures taken, includ-
ing higher interest rates, failed to hold down eco-
nomic growth and a growth rate in excess of 11 % was
registered for the year. In India, too, economic growth
remained extremely strong at over 8 %. As in previous
years, however, the Indian current account remained
negative.

US dollar continues to lose value over the
course of the year
The US dollar continued to lose value sharply over
the course of 2007. After standing at US dollar 1.32
to the euro in January, it closed the year almost
10 % weaker at US dollar 1.46 to the euro. A rate of
almost US dollar 1.50 to the euro was recorded at
some stage during the period.

14 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

The British pound was slightly more volatile in
2007 than in preceding years. Following a healthy
start, it lost in value over the course of the year, finish-
ing at about GBP 0.73 to the euro.

The Japanese yen remained weak against the
euro. After a short period of appreciation around the
middle of the year 2007, the yen then went on to lose
value and closed at yen 164 to the euro, some 4.5 %
lower than one year earlier.

Further increases in raw material prices
The average price of oil in 2007 was once again
higher than in the previous year. After dropping to
approximately US dollar 50 per barrel in January, the
price almost doubled over the course of the year and
by autumn it had risen to almost US dollar 100 per
barrel. The average cost during the year was roughly
US dollar 70 per barrel, up by more than 10 % com-
pared to 2006. The main reasons for this were on-
going shortages in oil production and processing
capacities, supplies being held back by OPEC and
the fact that some of the world’s oil-producing coun-
tries are currently unstable. This situation was fur-
ther exacerbated by rising demand, mainly from the
emerging markets and also by a certain amount of
speculation.

The price of steel again exceeded the level of
the previous year. This was also largely due to a fur-
ther sharp rise in demand coming mainly from the
emerging markets. The prices of most precious
metals have been rising continually for several years
and this trend continued in 2007. In addition to in-
creased demand, the loss in value of the US dollar
has created additional demand for precious metals
as investments, in particular in the emerging mar-
kets.

Exchange rates compared to the Euro
(Index: 31 December 2002 = 100)

Automobile markets in 2007
The sale of cars rose worldwide by approximately 4 %
in 2007 and therefore slightly faster than in the pre-
vious year. As in the preceding years, the three main
traditional car markets (the USA, Japan and Western
Europe) did not show any significant momentum
in terms of growth rates, whereas the car markets in
Asian and Latin American emerging economies
again grew strongly.

Sales of passenger cars in the USA fell again,
this time by approximately 2.5 % to 16.1 million units.
Whereas in the previous year the market for light
trucks had contracted drastically, the reduction in
2007 was spread across all segments of the market.
The market share held by US manufacturers con-
tinued to decline and stood at just over 50 %.

The number of cars sold in Western Europe was

static with new vehicle registrations stagnating at
around the 14.8 million mark. This was largely due
to the sharp decrease in Germany, where car sales
fell by more than 9 % to below 3.2 million units.

Steel price trend
(Index: January 2003 = 100)

180

170

160

150

140

130

120

110

100

Source: German Federal Statistical Agency

140

135

130

125

120

115

110

105

100

US Dollar

Japanese Yen

British Pound

Source: Reuters

Oil price
Price per barrel of Brent Crude

Euro

100

US Dollar

100

Price in US Dollar

Price in Euro

Source: Reuters

The value-added tax increase, high fuel prices and
the climate change debate all made themselves felt.
Most of the other major European countries did, how-
ever, experience some growth, with new registra-
tions up by almost 7 % in Italy, by 2.5 % in the United
Kingdom and by more than 3 % in France. By con-
trast, the Spanish market contracted slightly by just
over 1 %.

Eastern Europe registered strong growth for
the first time in years. This was mainly due to a sharp
increase in new car sales in Poland, where the
number of new registrations rose by almost a quarter
despite the continued high volume of used car im-
ports. Russia again saw double-digit growth, with
passenger car sales up by more than a quarter.

Unit sales again rose steeply in the emerging

markets of Asia. The Chinese market grew at the
fastest rate (26 %), while India recorded a growth
rate of 15 %. The South Korean market grew by 7 %.
By contrast, the Japanese car market failed once
again to benefit from the general improvement in
the economy and contracted by approximately 5 %.

Precious metals price trend
(Index: 31 December 2002 = 100)

The Latin American automobile markets again
generated strong growth in 2007, with the Brazilian
and Argentinian markets each growing by approxi-
mately 25 %. By contrast, the Mexican market con-
tracted slightly.

Motorcycle markets in 2007
As in previous years, the motorcycle markets rele-
vant for the BMW Group again developed diver-
gently in 2007. Worldwide motorcycles sales in the
500 cc plus segment were 0.2 % down on the pre-
vious year. The drop was particularly pronounced
in the USA where 4.1 % fewer motorcycles were
sold. By contrast, the motorcycle markets relevant
for the BMW Group grew by 3.0 % in Europe, al-
though developments varied from one country to
the next. Whereas the markets contracted in Ger-
many (– 0.6 %) and Italy (– 4.9 %), there was growth
in France (+ 0.4 %), Spain (+ 13.0 %) and the United
Kingdom (+ 8.3 %). Motorcycle sales in Japan were
down by 2.0 %.

310

280

250

220

190

160

130

100

Palladium

Silver

Gold

Platinum

Source: Reuters

16 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Business environment for financial services
in 2007
As in the previous year, the financial services busi-
ness during the first half of 2007 was influenced by
high interest rate levels on the money and capital
markets. The European Central Bank (ECB) con-
tinued to pursue the tighter monetary policies initi-
ated in 2006, increasing the reference interest rate
over the course of the year by a further 50 basis
points to 4.00 %. By the middle of the year, the Bank
of England (BoE) had also raised its reference inter-
est rate by a further 75 basis points to 5.75 %,
whereas the US Federal Reserve (Fed) kept its rate
at the same level.

The second half of 2007 saw the onset of the

subprime crisis on the US mortgage market and
a resulting confidence crisis on the financial markets.
The BMW Group has not been left unaffected by
these developments. While the ECB decided not to
change the reference interest rate, the BoE reduced
its rate by 25 basis points. The Fed even reduced
its rate by a total of 100 basis points. Despite these
moves, refinancing conditions deteriorated signifi-
cantly as credit spreads widened sharply across all
sectors, thereby putting strain on the earnings of the
financial services sector worldwide.

Competition on the market for automobile-re-
lated financial services increased in intensity. The
trend is likely to continue due to products being of-
fered by banks (private customer business) and other
manufacturer-related financial service providers.
The trend towards leasing-related products remains
unchanged. These are being supplemented increas-
ingly by other products such as insurance policies.

Review of Operations

BMW Group remains best-selling premium
manufacturer
The BMW Group registered new sales volume records
in 2007 for all three brands. In total, 1,500,678 BMW,
MINI and Rolls-Royce brand cars were sold during
2007, an increase of 9.2 % compared to the previous
year.

The number of BMW brand cars sold rose by
7.7 % to 1,276,793 units. The MINI achieved a par-
ticularly encouraging increase. This brand recorded
an 18.5 % rise, with 222,875 units handed over to
customers. The Rolls-Royce brand also reported
strong volume growth (+ 25.5 %) in 2007. With
1,010 units sold, it was able to surpass the 1,000
mark for the first time.

Sales volume increases on nearly all markets
The car sales volume increase recorded by the BMW
Group in 2007 was spread over practically all mar-
kets. Particularly high growth rates were achieved in
the emerging markets of South America and Asia,
notably China.

In North America, retail sales increased by 7.9 %
to 363,966 units. In total, 336,225 vehicles were sold
in the USA, the BMW Group’s largest single market,
7.1 % more than in the previous year.

In Europe, the number of cars sold in 2007 in-
creased by 10.0 % to 898,339 units. Whereas the
German market as a whole contracted by 9 %, the
number of cars delivered by the BMW Group fell by
only 1.5 % to 280,938 units. The BMW Group sold
173,818 units in the United Kingdom, up 12.8 %

BMW Group Deliveries of automobiles by region and market
in 1,000 units

BMW Group – key automobile markets 2007
as a percentage of sales volume

USA

Germany

United Kingdom

Italy

Spain

France

Japan

Other

27.0

22.4

4.0

4.3

4.9

7.1

11.6

18.7

compared to the previous year. In Italy, the 100,000
mark was surpassed for the first time. The sales
volume there rose by 10.9 % with 106,992 units
sold. In Spain, the sales volume climbed by 15.6 %
to 72,853 units. The increase in France (+ 23.1 %)
was particularly sharp with a sales volume of 65,093
units. Sales also grew strongly in Poland (3,543
units/+ 65.0 %) and in Russia (14,712 units/+ 54.5 %).
A sales volume increase of 12.2 % was recorded

in Asia. In total, 159,508 vehicles were handed over
to customers in this region. Strong growth was again
recorded on the Chinese markets (China, Hong Kong,
Taiwan), with 61,195 units sold (+ 36.7 %). The 2.6 %
decrease in sales volume in Japan (60,488 units)
should be seen in the light of the 5 % contraction
of the market as a whole. In India, where the BMW
Group operates its own assembly plant since March
2007, sales were up five-fold to 1,398 units
(+ 429.5 %).

480

420

360

300

240

180

120

Rest of Europe

North America

Germany

United Kingdom

Asia

Other markets

264.6

294.9

255.8

134.5

103.5

51.6

299.7

315.9

283.6

145.3

106.4

57.9

350.8

329.0

295.9

156.2

125.7

70.4

375.0

337.4

285.3

154.1

142.2

80.0

Rest of Europe

North America

Germany

United Kingdom
Asia

Other markets

443.6

364.0

280.9

173.8

159.5

78.9

18 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

BMW remains the most successful premium
car brand in the world
In total, 1,276,793 BMW brand cars were sold in
2007, 7.7 % more than in the previous year, thereby
creating a new retail sales volume record. No other
premium automobile brand was selected by so many
customers in 2007.

165,803 units of the BMW 1 Series (+ 9.1 %)

were sold. This increase was driven in particular by
the introduction of the three-door version in May
2007. Additional impetus came from the new BMW 1
Series Coupé towards the end of the year. The
BMW 1 Series Convertible available from spring 2008
will further add to the appeal of this model series.
The BMW 3 Series with its Sedan, Touring,
Coupé and Convertible versions was once again the
best-selling BMW model series (43.5 %) and was
also well ahead of its nearest competitors. Altogether,
555,219 units of this model series were sold, 9.2 %
more than the previous year’s figure. This includes
310,194 units of the BMW 3 Series Sedan (– 7.7 %)
and 102,399 of the BMW 3 Series Touring model
(– 2.9 %). Sales of the BMW 3 Series Coupé con-
tinued to make good progress in 2007, its first year
of full availability. 89,572 units of the BMW 3 Series
Coupé were handed over to customers, representing
a 117.5 % increase over the previous year. The BMW 3
Series Convertible, available on the markets since
March 2007, also enjoyed a similarly good perform-
ance with sales up by 109.9 % to 52,970 units.

The revised BMW 5 Series has been available

since the end of March 2007. In total, 230,845 units
were sold in 2007, slightly fewer (– 0.6 %) than the
pre vious year’s high level. Sales of the BMW 5 Series
Sedan, at 181,534 units, were down 0.6 % on the
previous year and the figure for the BMW 5 Series
Touring was down by 0.7 % to 49,311 units.

Due to the fact that the revised BMW 6 Series

did not become available until September 2007,

the sales volume fell to 19,626 units (– 10.6 %) for
model life-cycle reasons. This figure comprised
9,967 BMW 6 Series Coupés (– 16.5 %) and 9,659
BMW 6 Series Convertibles (– 3.5 %).

Now nearing the end of its product life-cycle,
the sales performance of the BMW 7 Series was in
line with expectations. In total, 44,421 units (– 11.6 %)
of the BMW 7 Series were handed over to customers
in 2007.

In its fourth year since market launch, sales of
the BMW X3 Sports Activity Vehicle remained at a
high level of 111,879 units (– 1.9 %).

The new BMW X5, on the North American mar-
kets since November 2006, has also been available
in Europe and Asia since March 2007. Sales of
the BMW X5 grew sharply in 2007 with a total of
120,617 units (+ 60.1 %) handed over to customers.
Now in its sixth year since market introduction,

the BMW Z4 could not match the sales volume figure
achieved in 2006. 28,383 units of the BMW Z4 were
sold, down 8.4 % against the previous year.

Proportion of diesel-powered cars continues
to rise
The BMW brand was the most successful supplier of
diesel vehicles in the premium segment in 2007. In
many European countries, the proportion of diesel-
powered cars is significantly higher than the equiva-
lent petrol-powered versions. The highest proportion
(93 %) of BMW brand diesel vehicles was recorded
in Portugal. Similarly high proportions were also re-
corded in France and Italy (both 89 %) and Belgium
(including Luxembourg), where the proportion was
88 %. In Germany, the proportion of diesel-powered
BMW brand cars rose by four percentage points in
2007 to 63 %.

Diesel-powered BMW brand cars will also be
sold in the USA in future. This was confirmed by the
BMW Group during the North American International

BMW brand cars in 2007 – analysis by series
as a percentage of total BMW brand sales volume

Deliveries of BMW diesel automobiles
in 1,000 units and as a percentage of total volume

1 Series

3 Series

5 Series

6 Series

7 Series

2.2

9.4

13.0

8.8

3.5
1.5

18.1

43.5

550

500

450

400

350

300

250

units

273.7

352.5

438.3

472.7

525.9

as a percentage of
total volume

Auto Show in Detroit in January 2008. From autumn
2008 onwards, the BMW X5 and the BMW 335d,
both powered by 3.0-litre in-line six-cylinder diesel
engines will be available on the American market.

MINI models performing successfully
The new MINI has been available to customers since
November 2006 and created significant momentum
in 2007. Sales of MINI brand cars were up by 18.5 %
compared to the previous year, reaching a new retail
sales volume record figure of 222,875 units. The
new MINI Clubman was launched in November in
the Cooper and Cooper S variants and has already
achieved a sales volume of almost 5,000 units.

The high-value model mix of the MINI brand

was raised even further in 2007. More than one half
of customers (55.9 %) opted for the MINI Cooper.
The MINI Cooper S and the MINI One accounted for
29.9 % and 14.2 % respectively of the sales volume.

Rolls-Royce registers growth for the fourth
time in succession
The Rolls-Royce brand was again market leader in
its segment during the past year. With 1,010 vehi-
cles handed over to customers, it posted a new sales
volume record (+ 25.5 %). The new Rolls-Royce
Phantom Drophead Coupé also made a good con-
tribution towards this performance. Since its sales
launch in summer 2007 it has been purchased by
253 customers.

Preparations for the Coupé version announced
in September 2007 are running according to plan.
The first Phantom Coupés will be handed over to
customers in the second half of 2008.

Car production volume at all-time high level
The BMW Group also increased its production
volume figure, recording new high levels for all
three brands. In total, 1,541,503 BMW, MINI and

Rolls-Royce brand cars left the BMW Group plants in
2007 (+ 12.8 %).

1,302,774 BMW brand cars were manufactured,

10.5 % more than in the previous year. In addition,
237,700 MINI brand cars were manufactured in the
MINI Production Triangle in the United Kingdom in
2007, representing a 27.3 % production volume
increase. 1,029 Rolls-Royce Phantoms were manu-
factured at Goodwood, England, during the year
(+ 21.5 %), including 300 Drophead Coupés.

Production network demonstrates high level
of efficiency
The BMW Group’s production network again dem-
onstrated its capabilities in 2007 by handling a total
of 16 model start-ups (eight new and eight model
revisions) and 13 start-ups for engines.

Productivity of the BMW Group’s production
network improved by well over 10 % in 2007. One
major contributing factor to this was the consistent
ability to focus efforts on generating added value
throughout the whole of the production process.

The BMW Group continued to expand its pro-
duction network in 2007. A new assembly plant for
BMW 3 Series and 5 Series production was officially
opened in March 2007 in Chennai, India. This is
part of the “production follows the market” strategy,
creating opportunities to engage in markets with
long-term growth potential. The first BMW 3 Series
vehicle rolled off the assembly line in Chennai in
February 2007 and production of BMW 5 Series
vehicles commenced in May.

205,044 units of the BMW 3 Series Sedan and

the BMW 3 Series Touring were produced at the
BMW plant Munich in 2007. In October, the new
visitors’ walkway through the Munich plant – the so-
called “production mile” – was commissioned to
coincide with the opening of the BMW Welt. Visitors
are able to obtain an insight into the production of

MINI brand cars in 2007 – analysis by model variant
as a percentage of total MINI brand sales volume

MINI brand cars in 2007 – analysis by engine variant
as a percentage of total MINI brand sales volume

MINI

MINI Convertible

MINI Clubman

2.2

15.8

MINI Cooper (including Cooper D)

14.2

MINI Cooper S

MINI One

82.0

29.9

55.9

20 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

BMW cars during a two-hour visit. Since it opened,
some 20 tours (with up to 30 visitors) take place each
day. The production mile, which starts and finishes in
the BMW Welt, runs through the pressing plant, chas-
sis construction, paint shop, engine construction and
assembly areas. This will enable up to 150,000 guests
to visit the BMW plant in Munich each year.

The BMW plant Dingolfing celebrated its 40th
anniversary in March 2007. More than seven million
BMW brand cars have rolled off the production lines
since it opened. In 2007, a total of 282,867 vehicles
left the plant. In addition to the model revisions of
the BMW 5 Series Sedan, the BMW 5 Series Touring
and the two M5 models in March, the revised BMW
6 Series rolled off the production lines for the first
time in September. Construction work began in mid-
November on a new building in which, from 2009
onwards, a completely new method of pressing com-
ponents will be introduced, namely hot forming.
Compared to conventional techniques, hot forming
increases the stability of components by a factor of
two to three. Depending on the specifications for
their intended functions, components can be made
thinner and therefore lighter.

The BMW plant Landshut has also been operat-
ing as a BMW production site for 40 years, supplying
innovative vehicle components to the production
network. In January, a new highly automated pro-
duction line was commissioned to produce the light-
weight roof for the new BMW M3. The BMW Group
is thus setting new standards in the industrialised
production of vehicle components made of carbon
reinforced plastic (CRP). Following completion of
the second construction phase, the new replace-
ment engine production facilities in Landshut were
commissioned in May 2007. The new structures are
enabling the process chain to be optimised further
by eliminating activities which do not add value and
by reducing set-up and throughput times. A new
building for the production of car interior compo-
nents for future models also went into operation to-
wards the end of 2007.

The new Vocational and Further Training Centre
at the BMW Landshut plant also took up activities in
July 2007. Approximately 100 apprentices and their
trainers at the plant now have access to a modern
training workshop with additional space for teaching.
The further training and adult education facilities
comprise four training and seminar rooms. The new
centre will ensure the long-term supply of suitably
trained high-quality staff for the Landshut plant.

Automobile production of the BMW Group by plant in 2007
in 1,000 units

Regensburg

Dingolfing

Oxford

Munich

Leipzig

Spartanburg

Rosslyn

Goodwood

111.7

32.8

1.0

50.2

157.5

158.9

303.8

282.9

Shenyang ( joint venture)

Contract production Magna Steyr

205.0

237.7

Three new start-ups were implemented at the
BMW plant Regensburg in 2007, namely the model
revision of the BMW 1 Series five-door version in
March, the new M3 Coupé in June and the new
M3 Sedan in December. In total, 303,766 BMW cars
were manufactured at the site in the course of
2007. In August, the BMW plant Regensburg was
presented the J. D. Power Plant Award for the best
plant in Europe. In December, construction com-
menced on the extension of the pressing plant
which will have 80 % more capacity and will start
operations at the end of 2009. This will increase
the Group’s own share of value-added to the
vehicle and at the same time reduce logistics
costs.

In total, 158,974 vehicles were produced at

the BMW plant Leipzig in 2007. Following the
production start-ups for the new BMW 1 Series
models (three-door version, Coupé and Conver t-
ible), several model variants are now being manu-
factured at the Leipzig plant. Rapid and flexible
processes have made it possible to achieve the
planned daily production volume after only three
months. In September, the decision was taken
to expand the BMW plant Leipzig by the end of
2009 with a planned capital expenditure volume
of approximately euro 100 million. Over the coming
two years, a pressing plant and component manu-
facturing facilities for door, bonnet and boot panels
will be built at the BMW site.

816,900 engines were built at the BMW Group’s

largest engine plant in Steyr, Austria, in 2007, two
thirds (67 %) of which were diesel engines. Since
starting operations 25 years ago, more than ten
million BMW engines have left the plant. January
saw the start of production of the fourth genera-
tion of four-cylinder diesel engines, an important

version of the BMW 5 Series Sedan. This model is
only manufactured at the Shenyang plant and is in-
tended exclusively for the Chinese market.

BMW cooperation partner Magna Steyr
Fahrzeugtechnik, based in Graz, Austria, manufac-
tured 111,665 units of the BMW X3 for the BMW
Group in 2007. The decision to have the MINI brand
Sports Activity Vehicle manufactured by Magna Steyr
was taken in December.

One millionth MINI produced
Six years after going into production, the one-mil-
lionth MINI rolled off the production line at the Oxford
plant at the beginning of April 2007. This specially
equipped and uniquely painted MINI was added to
the BMW Group Mobile Tradition collection.

In September, series production of the third
model variant, the MINI Clubman, began at the MINI
Production Triangle, comprising the Hams Hall,
Oxford and Swindon plants. The BMW Group an-
nounced that annual production capacity at the
Oxford plant will be increased in the medium
term to 260,000 units without additional capital
expenditure.

Successful production start for the
Rolls-Royce Phantom Drophead Coupé
For the first time, more than 1,000 Rolls-Royce vehi-
cles were manufactured in a single year at Goodwood,
England. The first Rolls-Royce Drophead Coupé
left the factory in June 2007.

In October 2007, Rolls-Royce Motor Cars
announced that it would be increasing production
capacity at the Goodwood plant. This step was
necessary as a result of the decision to develop a
further model in addition to the Phantom family and
in the light of the high demand for existing models.

element in the overall package of measures labelled
EfficientDynamics.

In February, the BMW Group announced that

it would be investing euro 14 million to expand its
diesel development centre in Steyr. The focus will
be on increasing capacities in the area of vehicle
measurement technology and function testing.

The Hams Hall engine plant is the only site
within the production network that produces engines
for both the BMW and MINI brands. In total, 367,000
engines left the plant in 2007, of which 172,600
units were intended for MINI vehicles and 194,400
units for BMW vehicles. In mid-April, the one-mil-
lionth engine came off the production lines since
the Hams Hall plant was commissioned.

The first new-generation BMW four-cylinder
petrol engine left the plant in January. It incorporates
High Precision Injection technology and boasts sig-
nificantly lower fuel consumption and CO2 emission
values.

The BMW plant Rosslyn in South Africa manu-

factures only BMW 3 Series Sedans. In 2007, a total
of 50,168 vehicles left the plant. As part of the on-
going process of optimising logistics workflows, a
nearby supplier was linked directly to the Rosslyn
plant in 2007. This results in shorter and faster trans-
port routes and reduces logistics costs. As further
advantages, it is no longer necessary to use the
public road system and environmental pollution is
reduced.

In total, 157,530 units of the BMW X5 and Z4

Series left the BMW plant Spartanburg, USA, in
2007. As part of its strategic realignment, the BMW
Group has announced that annual production ca-
pacity at the Spartanburg plant will be increased in
the medium term to 240,000 units. It is planned
that the X6 and a possible successor to the X3
will be built there alongside the BMW X5 and Z4. In
February 2007 the US Environmental Protection
Agency designated the BMW plant Spartanburg as
“Energy Partner of the Year”. The award was given
in recognition of the fact that the Spartanburg plant
had converted its energy supply for the paint shop
to run on methane gas collected from a local waste
disposal site, thereby avoiding some 59,000 tons of
CO2 emissions per annum.

The plant in Shenyang, North China, is oper-
ated by the distribution and production joint venture
BMW Brilliance Automotive Ltd. In total, 32,760 units
of the BMW 3 Series and 5 Series were produced
there in 2007, including 21,192 units of the extended

22 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Motorcycles segment sets new sales volume
record
With 102,467 BMW motorcycles sold in 2007, the
BMW Group registered a new sales volume record,
surpassing the previous year’s figure by 2.4 %. An
important contribution to this development was made
by the new models of the G 650 X series which have
been available on the markets since spring 2007.

BMW motorcycles sales develop divergently
from country to country
The number of BMW motorcycles sold continued
to develop divergently from one country to the next
in 2007. The BMW Group sold 72,567 motorcycles
in Europe, 1.7 % fewer than one year earlier. In Ger-
many, sales of BMW motorcycles, at 21,507 units,
were down by 8.9 % as the market continued to
contract. By contrast, sales were up in Italy (14,424
units/+ 5.7 %) and Spain (10,384 units/+ 3.8 %).

In the USA, where the market also contracted,
the number of BMW motorcycles sold fell by 5.7 %
to 12,094 units.

Sales recorded in Japan, however, jumped by
25.2 % to 3,311 units, bolstered in particular by sales
of the lighter models of the G 650 X series.

R1200 GS remains the most popular
BMW motorcycle
As in the previous year, the R 1200 GS (a long-dis-
tance enduro) was again the best-selling BMW
motorcycle. Including the Adventure version, 30,077
units of this model were sold in 2007. The R 1200 RT
touring bike came in second place with 12,201 units
sold, followed by the F 650 GS, of which 10,461 units
were sold (including the Dakar version).

Model initiative continued
The BMW Group’s Motorcycles segment contin-
ued its model initiative in 2007. The K 1200 R Sport

and the G 650 Xchallenge, G 650 Xmoto and
G 650 Xcountry models were all introduced to the
markets in spring 2007, followed by the HP2 Mega-
moto in June.

The new HP2 Sport was presented at the end of

September at the motorcycle fair in Paris and will be
available on the markets from March 2008 onwards.
The HP2 Sport is the sportiest, most powerful, but
also the lightest series Boxer to date and is designed
primarily to attract ambitious, sports-minded motor-
cyclists.

Five new BMW motorcycles made their world
debuts at the International Motorcycle Fair in Milan
in November 2007. The R 1200 GS and R 1200 GS
Adventure models have been available to customers
since the end of January 2008. Both of these mod-
els have been enhanced and are now fitted with
more powerful boxer engines, resulting in a 5 % bet-
ter performance, and new gear ratios. These features
result in a significant increase in both traction and
acceleration.

The new medium-class BMW F 800 GS long-
distance enduro combines excellent off-road char-
acteristics and above-average long-distance quali-
ties. This motorcycle is powered by the two-cylinder
engine from the F 800 Series. The related BMW
F 650 GS model is another new addition. As an all-
round variant for newcomers, this model is designed
for easier control and mainly for use on roads and is
also powered by the same two-cylinder engine with
a somewhat lower performance capability. Both of
these models will be available on the markets for the
start of the 2008 season.

The BMW Group also presented the BMW
G 450 X Sports Enduro as a fifth new product. This
model, exclusively developed for enduro sports
activities, will be launched in the second half of
2008.

BMW motorcycles delivered
in 1,000 units

BMW Group – key motorcycle markets 2007
as a percentage of sales volume

105

100

93.0

92.3

97.5

100.1

102.5

Germany

Italy

USA

Spain

France

United Kingdom

Other

30.5

21.0

14.1

5.1

7.4

10.1

11.8

BMW motorcycles in 2007 – analysis by series
as a percentage of sales volume

R Series

F Series

K Series

15.8

26.1

58.1

Motorcycle production volume at previous
year’s level
Motorcycle production volume in 2007, at 104,396
units, was 0.6 % above the previous year’s level.
96,006 units were produced at the BMW plant Berlin
and 8,390 units by the cooperation partner, Piaggio
S. p. A. in Noale, Italy.

Four years after commencing production, the

100,000th R 1200 GS (including the Adventure
version) left the BMW plant Berlin at the end of July
2007. Never before have so many units of one
model been produced at the Berlin plant in such a
short space of time.

Five new models came off the production line

for the first time in 2007. Production of the BMW
HP2 Megamoto commenced at the beginning of
May. This was followed in October by the BMW
R 1200 GS and the Adventure variant and in Novem-
ber by the BMW F 800 GS and the F 650 GS.

BMW Group acquires Husqvarna
The BMW Group completed the acquisition of the
motorcycle manufacturer Husqvarna on 1 October.
This company operates under the name Husqvarna
Motorcycles S. r. l., Cassinetta di Biandronno.*

The Husqvarna models are mainly intended for
the competitive sports market. With this move, the
BMW Group is therefore expanding its product range
with a view to increasing its appeal to younger buyers
and to covering the off-road and supermoto seg-
ments. The acquisition will also give the Motorcycles
segment access to a worldwide sales network in the
off-road segment.

* Husqvarna Motorcycles S. r. l., Cassinetta di Biandronno, is not included in the con-
solidated financial statements for the financial year 2007.

Successful year for the Financial Services
segment in 2007
The Financial Services business achieved further
profitable growth in 2007 and again made an impor-
tant contribution to the overall performance of the
BMW Group. The total business volume as disclosed
in the balance sheet increased by 16.5 % to euro
51,257 million. At the year-end, 2,629,949 lease and
financing contracts were in place with dealers and
retail customers, representing an increase of 15.8 %
over the previous year. The proportion of new BMW
Group vehicles leased or financed by the Financial
Services segment was 44.7 %, 2.3 points above the
percentage recorded in the previous year.

Regional presence expanded
The Financial Services segment continued its strat-
egy of regional expansion by acquiring companies
in Germany, Malaysia and Hong Kong, thereby open-
ing up new opportunities for growth.

This was a further demonstration of the BMW
Group’s determination to broaden the international
scope of its financial services business. The Finan-
cial Services segment now provides services to
customers in more than 50 markets, either with its
own companies and divisions or in the form of ven-
tures based on cooperation agreements.

The BMW Group acquired DEKRA SüdLeasing

Services GmbH (renamed to: BMW Fuhrparkman-
agement Beteiligungs GmbH) and that entity’s sub-
sidiaries at the beginning of April.

In mid-April, the BMW Group acquired Sime-

Lease (Malaysia) Sdn Bhd and its subsidiary, Sime-
Credit (Malaysia) Sdn Bhd. These entities are oper-
ating in the meantime as BMW Lease (Malaysia) Sdn
Bhd and BMW Credit (Malaysia) Sdn Bhd. In Octo-
ber, the BMW Group acquired 51 % of the shares
of CEC Finance Ltd. (renamed to: BMW Financial
Services Hong Kong Limited), based in Hong Kong.
These acquisitions in Malaysia and Hong Kong
have opened up two further fast-growing markets in
Asia.

The Financial Services segment set up a new

company in Argentina in 2007. This entity offers
financing and insurance products to retail customers
and financing to dealers.

In addition, cooperation arrangements were
put in place in the Czech Republic and Slovakia and
organisational units created in Poland, Hungary and
India during 2007.

24 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Retail customer business remains strong
Finance and lease business with retail customers,
the segment’s largest line of business, was further
expanded in 2007. New contracts were signed with
retail customers to the value of euro 28,462 million,
representing a 16.4 % increase over the previous
year. The number of new contracts signed in a sin-
gle year surpassed the one million mark for the first
time and, at 1,086,493 contracts, exceeded the
previous year’s level by 18.6 %. Approximately 60 %
of these contracts related to new vehicles manufac-
tured by the BMW Group.

At 31 December 2007, leasing business ac-
counted for 38.2 % of total new retail customer busi-
ness, 0.8 percentage points above the proportion
recorded one year earlier. Lease business grew by
21.0 % and credit financing increased by 17.2 % com-
pared to the previous year.

The number of new contracts signed for used

cars rose in 2007 by 15.0 %. Approximately three-
quarters of these were related to the credit financing
of used BMW and MINI brand cars.

At 31 December 2007, 2,401,208 contracts
were in place with retail customers, 15.6 % more
than one year earlier. The growth was spread across
all regions. The portfolio of retail customer business
contracts was up by 16.8 % in Germany, by 13.9 %
in the remaining European markets and by 16.2 %
for the markets in the Asia/Oceania/Africa region.
There was another sharp rise (+ 16.0 %) in the
Americas region, which, with 790,808 contracts,
also accounts for the largest proportion of contracts
in the retail customer business.

tended during the period to Malaysia and Hong Kong.
This means that credit financing and lease contracts
are now being offered under the name “Alphera” and
“up2drive” in 25 markets, either via multiple-brand
dealerships or directly by Group companies. The
“up2drive” brand name was introduced successfully
in the area of direct business in order to meet differ-
ing marketing needs. Business via dealers continues
to be transacted under the name “Alphera”. One
advantage of this is that it takes account of the trend
amongst dealers to look for financing solutions with
a single business partner. At the same time, it also
takes into account the growing practise, particularly
amongst younger customers, of obtaining financing
via the internet.

New business with multi-brand financing in 2007

was highly encouraging. In total, 124,556 new con-
tracts were signed, more than doubling the number
achieved in the previous year. The largest proportion
of new contracts related to the Americas region.

Continuous growth in the area of dealer
financing
The Financial Services segment supports the BMW
Group dealer organisation with a comprehensive
range of products. In addition to the financing of vehi-
cle inventories held by dealerships, these activities
also include real estate and equipment financing.
By the end of the period under report, dealer

financing had attained a total business volume of
euro 8,364 million, corresponding to a growth rate
of 15.4 %. 228,741 dealer financing contracts were
in place at 31 December 2007.

As in the previous year, organic growth gener-

Multi-brand financing accelerates growth
Business with multi-brand financing continued to
make good progress in 2007. Operations were ex-

ated within the multi-brand line of business and
geographical expansion both contributed to this de-
velopment.

Contract portfolio of BMW Group Financial Services
in 1,000 units

Contract portfolio retail customer financing of
BMW Group Financial Services 2007
as a percentage by region

2,800

2,600

2,400

2,200

2,000

1,800

1,600

America

Rest of Europe

Germany

Asia/Oceania/Africa

25.9

13.3

32.9

1,623

1,843

2,087

2,271

2,630

27.9

Fleet business activities attain new magnitude
The BMW Group operates internationally in the field
of multi-brand fleet business via the Alphabet group
of companies as a provider of financing, full-service
leasing and fleet management services. Business
volumes expanded rapidly in 2007 following the ac-
quisition of DEKRA SüdLeasing Services GmbH (re-
named to: BMW Fuhrparkmanagement Beteiligungs
GmbH) and as a result of continued organic growth.
Alphabet has commenced operations in Mexico,
thus establishing a foothold for the first time on the
American continent. Operations have also been
taken up in Denmark, which means that Alphabet is
now represented throughout the whole of Scandina-
via. The international customer base also grew sig-
nificantly in the 15 countries where Alphabet oper-
ates. At the year-end, the contract portfolio covered
279,843 units, up by 55.6 % compared to the end
of the previous year. Excluding the contracts taken
over in conjunction with the acquisition of DEKRA
SüdLeasing Services GmbH (renamed to: BMW
Fuhrparkmanagement Beteiligungs GmbH), the vol-
ume increased by 21.2 %. Thanks to organic growth
and targeted acquisitions, a major provider of fleet
business services has meanwhile emerged in Ger-
many within the BMW Group stable. The BMW
Group has also moved into a new magnitude in this
dynamic business sector in international terms and
is now one of the top ten fleet service providers in
Europe.

Continued growth in the area of insurance
business
In addition to credit financing and lease contracts,
the Financial Services segment also operates as an
agent for motor vehicle, residual liability and other
vehicle-related insurance policies. These services
are now being offered in more than 30 markets via
cooperation arrangements entered into with local
insurance companies. The segment continued its
strategy of expanding insurance business with cus-
tomers in international markets and entered into
new cooperation agreements with partners in India,
China, Greece, Hungary, Argentina and Portugal.
The range of products on offer in existing markets
was also expanded and new products launched on
the markets in Italy and Spain.

These measures contributed to the fact that
new insurance business grew by 12.2 % in 2007

with 395,039 insurance contracts signed. At the
end of 2007, the Financial Services segment had
a worldwide portfolio of 947,394 insurance con-
tracts.

Deposit business influenced by increased
competition
The intense level of competition in the area of de-
posit business remained evident in 2007. The seg-
ment’s deposit volume worldwide at 31 December
2007 amounted to euro 5,732 million and there-
fore 0.8 % lower than the figure recorded one year
earlier.

The main success factors for investment fund

business were the exclusive certificates introduced in
the previous year and the new fund-of-funds product
concept “Comfort Invest”. The unabated trend to-
wards private old-age pension arrangements by
making regular transfers to investment funds also
had a positive impact. In order to meet the growing
advisory needs of customers, the range of services
on offer in Germany was expanded accordingly,
including the opportunity for customers to obtain in-
vestment advice by telephone.

By the year-end, the number of customer deposit

accounts had increased by 6.0 % to 31,801.

BMW and MINI Card activities increased world-

wide in 2007. At the end of the year under report,
the Financial Services segment serviced 393,741
credit card accounts, 15.9 % more than one year
earlier. The BMW Card is available in eleven countries.
The MINI Card is part of the product range offered
in Germany, the USA, the United Kingdom and
Japan.

Awards for service quality
The excellent cooperation between the Financial
Services segment and the dealer organisation re-
ceived recognition in 2007 with a number of awards
won. The BMW Group was presented the J. D. Power
and Associates “Dealer Satisfaction Award” in both
the USA and Japan.

A strong, customer-friendly approach repre-
sents an important factor for the ongoing success of
the BMW Financial Services segment in the area of
retail customer business. This was documented in
2007 by the presentation of the J. D. Power and
Associates “Customer Satisfaction Award” to BMW
Group Financial Services in the USA.

26 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Risk situation remains evenly balanced
During the financial year 2007, the credit risk for
credit and lease financing activities remained, with
the exception of the USA, at a similar level to that
of 2006. There, the risk situation was negatively in-
fluenced by the credit crisis. Compared to the pre-
vious year, the bad debts ratio increased by 5 basis
points to 0.46 %. The interest rate risk is managed
using a risk-return approach. Diversified value-at-
risk, as measured by the Financial Services segment
to quantify the interest rate risk *, increased during the
year from euro 34.9 million to euro 37.3 million.

* based on a 99 % confidence level and a holding period of ten days

Softlab changes name to Cirquent
The softlab Group offers consultancy and other
services along the entire value-added chain, with its
main focus on the banking, insurance, telecommu-
nication and manufacturing sectors. In order to un-
derline its strong position as an organisation offering
first-class service under one single brand name,
the softlab Group changed its name to Cirquent at
the end of 2007.

Cirquent has continued to strengthen its market

position over the past year. This is highlighted by
the rise in revenues from euro 262 million in 2006 to
euro 286 million in 2007. One of the cornerstones
on which this growth has been built is the expansion
consultancy business, including the Finance Trans-
formation Unit, a new line of business which spe-
cialises in providing advisory services to finance de-
partments of corporate enterprises.

In addition to sector-specific consultancy ser-
vices, Cirquent also offers customer management,
finance transformation, IT management, SAP con-
sulting and application management services.

Workforce virtually unchanged
The BMW Group’s workforce increased slightly
(+ 0.9 %) during the financial year 2007 to stand at
107,539 employees at 31 December 2007. This
was largely attributable to acquisitions made by the
BMW Group in the financial services sector. Approx-
imately 75 % of the Group workforce is employed in
Germany, where the number of employees edged
up by 232 in 2007.

The employee fluctuation ratio at the BMW
Group has been at a low level for many years in com-
parison with other automobile manufacturers and
with companies operating in other sectors. The BMW
Group continues to recruit employees on a targeted
basis in order to compensate for fluctuation. In addi-
tion to more than 1,200 new apprentices taken on,
a total of 886 permanent jobs were advertised and
filled externally by BMW AG.

High number of apprenticeships
1,214 young people commenced apprenticeships
with the BMW Group at the start of the new training
year. A total of 4,281 apprentices were undergoing
their training with the BMW Group at the end of
2007, 1.8 % fewer than at the end of the previous year.
This small decrease came about despite the steady
number of apprentices recruited and reflects the fact
that some apprentices were able to complete their
vocational training early as a result of their above-
average performance. These vacated positions can-
not be replaced, however, until the next round of re-
cruitment. This is also the reason why the apprentice
ratio in Germany (i.e. the ratio of apprentices to the
total workforce) fell by 0.1 percentage points in 2007
to a level of 4.8 %.

Starter programmes for high school leavers and
university graduates are also in place to complement
the range of opportunities available to those about

BMW Group apprentices at 31 December

5,500

5,000

4,500

4,000

3,500

3,000

2,500

4,306

4,464

4,359

4,281

to begin their careers. This includes the “Fastlane”
programme (a programme to help university and
works students that have previously excelled on work
experience with the BMW Group) and the “Drive”
programme (a starter and development programme
for university graduates with up to three years’ pro-
fessional experience).

Further training tailored to requirements
As a premium provider, the BMW Group attaches
great importance to both the basic and the further
training of its workforce. Further training is always
tailored to suit requirements and carried out with
specific objectives in mind. Further training activities
in 2007 were therefore focused on specific priority
topics and selected target groups. In 2007, the
BMW Group invested a total of euro 181 million on
basic and further training courses for its employees,
1.6 % less than in 2006.

Internationalisation supported by placements
abroad
The international transfer of knowledge and network-
ing at all levels are crucial factors for globally operat-
ing businesses such as the BMW Group. For exam-
ple, key specialists are moved around between the
various production sites as start-ups commence for
new models, thus ensuring the same high quality
each time.

In 2007, more than 750 BMW AG employees

were deployed at foreign locations. The main target
countries were again the Group’s business locations
in markets currently experiencing dynamic growth,
in particular North America, the United Kingdom
and Asia. Furthermore, approximately 175 employees
from non-German locations were working in Ger-
many or at other international locations away from
their home countries. In the case of longer-term

Employee fluctuation ratio BMW AG*
as a percentage of workforce

3.5

3.0

2.5

2.0

1.5

1.0

0.5

1.43

1.91

2.45

2.68

2.66

* Number of employees on unlimited employment contracts leaving the company

placements, employees remain abroad for an aver-
age period of three years. This is a sufficient length
of time for them to pass on process and technical
know-how, receive further training while abroad
and, at the same time, gain international experience
which will stand them in good stead during the
course of their subsequent careers. Apart from over
900 employees who have worked abroad for longer
periods, more than 500 people were also called up
for short-term international duty.

The BMW Group remains a highly attractive
employer
Numerous studies and ranking lists in 2007 con-
firmed the BMW Group’s reputation as an attractive
company to work for. In the study “Germany’s Most
Popular Employers” (Trendence), young academics
from both the business and engineering fields chose
the BMW Group as the most popular employer for
the sixth year running. As documented in the study
“The Ideal Employer 2007” (Universum), engineers
and business management graduate career begin-
ners judge the BMW Group to be one of the most
attractive employers. The BMW Group’s excellent
reputation as an employer helps greatly towards

BMW Group employees

Automobiles

Motorcycles

Financial Services

Other

thereof consultancy/software

BMW Group

adjusted *

* Figure for end of previous year including acquired entities

31.12. 2007

31.12. 2006

Change
in %

98,548

98,505

2,989

4,097

1,905

1,793

2,782

3,478

1,810

1,743

107,539

106,575

107,345

–

7.4

17.8

5.2

2.9

0.9

0.2

28 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

attracting well-qualified newcomers to join the com-
pany. This special appeal as an employer is not re-
stricted to the external perception of the company;
it is also reflected in the outcome of the most recent
employee survey carried out in 2007. Almost 90 %
of employees stated that they were either satisfied or
very satisfied with their working situation at the BMW
Group. This means that employee satisfaction and
identification with the company have remained at a
consistently high level since 2002. This employee
survey is carried out regularly on a worldwide basis
every two years. It is a useful instrument for manage-
ment, providing the basis for a continuous improve-
ment process within the company.

Joint agreement for BMW AG’s blue-collar and
white-collar staff implemented
The new Remuneration Framework Agreement
(Entgelt-Rahmen-Abkommen – ERA) came into
force at BMW AG on 1 June 2007. Parallel to the in-
troduction of ERA, a wide-ranging concept for im-
proving company competitiveness was drawn up in
cooperation with employee representatives. This new
concept includes plans to provide financing for pre-
retirement part-time working agreements even after
the current legal requirement for such arrangements
has expired. This ensures that employees will also
be able to retire before reaching the statutory retire-
ment age. BMW AG is the first company to put a
model in place to follow the statutory regulations.

“Today for Tomorrow” project – seeing
demographic change as an opportunity
The ageing of populations of many industrialised
nations can no longer be avoided. This is having an
impact on the economy as a whole as well as on
each individual company.

In a few years’ time, the BMW Group workforce
will also be considerably older on average than it is at
present. The ever-rising requirement for greater per-
formance will have to be fulfilled by an on-average
older workforce in future. Older employees also have
quite specific advantages. They have a wealth of
experience and are able to pass on their knowledge
of the organisation and cultural values. The more de-
cisive a company is in encouraging its employees to
achieve and be engaged, the more successful it will
be. The BMW Group is already taking appropriate
action in anticipation of these future developments.

The necessary overall framework and specific in-
struments are being developed in conjunction with
the “Today for Tomorrow” project, which takes a
comprehensive approach.

The BMW Group has defined five principal areas

of action:

Health management and prophylaxis
Within the action area “health management”, a pro-
phylactic programme has been developed to en-
courage employees to adopt a responsible attitude
towards their own health. A new concept has been
devised for corporate health forums which are not
confined to specific corporate locations. These fo-
rums will have an important part to play in the future.
Any knowledge gained there will be used to identify
areas where action needs to be taken. They will also
be the basis for measures (such as weight loss pro-
grammes) that may need to be aimed at specific
target groups. It should then be possible to monitor
the long-term efficacy of any measures taken. So far,
some 28,000 employees have participated in the
company’s health forums.

Information about healthy living is being offered
both in seminars and in the health forum. The “Fit for
Job” seminar is aimed at all employees, while the
“Fit for Leadership” seminar is specifically tailored to
the needs of managers. Both seminars show partici-
pants how they can pay more attention to healthy
nutrition, physical fitness and mental equilibrium in
their daily lives.

Another outcome is the newly designed reha-
bilitation network which has already supported over
800 employees with a shortened, effective rehabili-
tation programme.

Working environment
The action area “working environment” is mainly
concerned with creating age-compatible working
conditions in technical and organisational terms –
with particular regard to workplaces, working hours
and job structures. All of these factors can contrib-
ute enormously to maintaining and extending the
working capacity of employees in the long term.
A further objective is to improve the employment
opportunities for personnel with health-related limi-
tations.

A concept for systematic rotation is currently
being drawn up for use in the production area with

Group Intranet. It is the first communication platform
to be created specifically aimed at increasing em-
ployees’ awareness of their responsibility to make
personal provision for the future. It contains a wealth
of information and some specific aids relating to
training, health, working environment and personal
provision. The BMW Group’s internal media are reg-
ularly updated on different aspects of saving for the
future and highlighting possible areas for action.
This information is wholly aimed at encouraging em-
ployees to take a pro-active approach to making pro-
vision for their own future.

Competitive level of personnel expense
Within an intensely competitive environment, the
management of personnel expense becomes in-
creasingly significant. A competitive level of per-
sonnel expense contributes enormously to the suc-
cess of the BMW Group. This is primarily concerned
with bringing the idea of performance into the fore-
front rather than just a one-sided cost-oriented
approach. The high degree of motivation amongst
employees and the positive approach taken to the
workforce are maintained by a combination of rewards
determined individually on the basis of performance
and success and with the aid of flexible working
time models. Remuneration, working time arrange-
ments and other benefits are reviewed and modified
regularly and in close cooperation with employee
representatives.

the aim of reducing repetitive physical strain and
thus preserving employees’ physical and mental
flexibility.

Qualification and expertise
In the future, traditional training methods will be en-
hanced and to some extent replaced by “hands-on”
learning. In the action area “qualification”, studies
are being carried out to identify how learning can best
be promoted, both at the workplace and for specific
functions. Based on the results of these studies, it
should be possible to determine the most suitable
(direct or indirect) methods of learning. These findings
are also taken into account in the company’s training
concepts for employee and management staff de-
velopment.

One of the functions of qualitative personnel

planning is to examine how skills and expertise are
likely to develop within the company. By analysing
the requirements that result from a changed age
structure of its workforce, the company will find clues
as to when and what type of know-how it will require
in the future as well as (and how and when) that know-
how will disappear as employees leave the company.

Individual life-time working models
In spite of improvements in preventative care, some
employees may not be able, or may not wish, to con-
tinue working until they reach the statutory retire-
ment age. The BMW Group has, together with em-
ployee representatives, devised new retirement
models which best suit the needs of those concerned.
These models are intended to fit in with each
employee’s future plans and with the company’s
requirements. The financial basis for these models is
being set aside.

In order to give employees the opportunity to
supplement any self-financed pension plan, an attrac-
tive deferred remuneration retirement scheme has
been available to the workforce for several years now,
allowing part of an employee’s remuneration to be
converted into pension provision.

Communication
Appropriate communication measures help to
keep managers and employees aware of changes
taking place in society and within the company. One
example of this is the electronic portal “My Future
Provision” which employees can access on the BMW

30 Group Management Report

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10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

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Regulations and Explanatory Report

Design for recycling – EU directive on
end-of-life vehicles
In 2007, the BMW Group pushed ahead with its strat-
egy of designing vehicles with subsequent recycling
in mind. One of the areas of focus during the year
was the development of a recycling concept for hy-
brid vehicles.

Over the last few years, a network of recovery

centres for end-of-life vehicles has been set up
throughout the European Union. Since 1 January
2007, customers in the EU have been able to return
their BMW, MINI or Rolls-Royce vehicles to these
recovery centres to be recycled free of charge. Dur-
ing 2007, the BMW Group increased the number
of end-of-life vehicle recovery centres by 7.8 %.

In order to meet the mandatory requirements

resulting from the EU End-of-life Vehicles Directive,
both in ecological and commercial terms, plans are
underway to increase the use of so-called “Post
Shredder Technology” (PST) in the future. After
completion of the vehicle shredder process, shred-
der residue fractions are sorted and sifted into their
various constituent materials such as metals, plastics
and minerals, in preparation for further processing.
On the basis of a large-scale trial performed in 2007
with approximately 500 vehicles from the current
model range, the BMW Group was able to demon-
strate that, with the aid of PST, it meets the manda-
tory requirements relating to the recycling of end-of-
life vehicles.

The EU End-of-life Vehicles Directive also re-

quires that recycled materials are used in new vehi-
cles. This involves recycling waste materials from
production processes or those won from end-of-life
parts. In 2007, experts at the BMW Group suc-
ceeded in extending the use of recycled materials
to other components, such as the mountings for
bumpers and soundproofing covers for diesel
engines. The use of recycled materials in individual

models was also extended to other model series.
For example, the wheel arch liners produced from
recycled bumper fascia previously used in the
BMW 1 Series and BMW 3 Series are also being
used in the X5 from 2007 onwards.

Group-wide environmental protection
measures set standards
The BMW Group’s “Clean Production” philosophy
is based on the idea of preventative environmental
protection. Certified environmental management
systems throughout the BMW Group have been in
place since 1996. These systems serve as the basis
for coordinating and optimising the Group’s environ-
ment protection activities and hence the careful con-
sumption of resources. The certification audit of the
production function, in accordance with DIN EN ISO
9001 and DIN EN ISO 14001, was successfully con-
cluded in December 2007, once again confirming
the high standards prevailing at all locations in the
field of quality and environmental protection. Spe-
cialist external auditors (the German TÜV organisa-
tion) once again confirmed a very high standard
in terms of quality and environmental performance,
highlighting several processes as exemplary. A
new objectives-based process was introduced for
production in 2007, making it easier to measure and
manage the effective use of resources. Performance
indicators relevant to environmental protection, such
as energy consumption and waste levels at the BMW
Group production sites, are measured and reported
on a monthly basis and a so-called “environment effi-
ciency ratio” is calculated. The aim is to improve the
efficiency ratio by 5 % a year. The new “eco-facts” IT
system was implemented in mid-2007. This system
collates data for some 150 environmentally relevant
performance indicators and is therefore an extremely
useful tool for managing environmental protection
activities. The introduction of “eco-facts” meant that

Volatile organic compounds (VOC) per unit produced
in kg/unit

Process waste water per unit produced
in m3/unit

3.25

3.00

2.75

2.50

2.25

2.00

1.00

0.90

0.80

0.70

0.60

0.50

2.88

2.26

2.07

2.04

2.36

0.98

0.83

0.76

0.67

0.64

* Basis for data expanded in 2007 from ten to 17 locations: Munich, Dingolfing,

Landshut, Regensburg, Leipzig, Steyr, Rosslyn, Spartanburg, Hams Hall, Oxford
and, since 2007, Berlin (brake disc production), Eisenach, Swindon, Goodwood,
Rayong (assembly), Chennai (assembly) and BMW Brilliance in Shenyang.

the number of plants covered by the Group’s envi-
ronmental protection reporting system went up from
ten to 17.

Compared to 2006, the BMW Group reduced

energy consumption per unit produced by 4.1 %
and CO2 emissions by 10.6 %. These reductions
were achieved by an array of innovative projects and
measures:
– Combined heat and power generation facilities

(80 % efficiency rate compared to 35 % efficiency
rate of conventional energy production) generate
electricity and heat at plants in Dingolfing, Lands-
hut, Regensburg, Steyr, Oxford, Spartanburg and
at the Research and Innovation Centre (FIZ) in
Munich.

– A groundwater cooling system ensures environ-
ment-friendly air conditioning at the FIZ. This
involves using near-surface ground water to cool
parts of buildings, thus saving some 8,000 MWh
of electricity and 5,000 tons of CO2 annually.
– The BMW plant Spartanburg meets 63 % of its

energy requirements by using methane gas from
a nearby landfill site. The gas, which had previously
gone unused, is used as a source of energy, thus
reducing the consumption of natural gas. As a
result, almost 59,000 tons of CO2 emissions were
avoided in the Spartanburg region in 2007.

– In autumn 2007, the BMW Group’s second photo-
voltaic installation was put into operation at the
BMW Welt in Munich, in addition to the smaller
one already in place in Leipzig.

Over the past ten years, the BMW Group has suc-
ceeded in reducing emissions of solvents by nearly
37 %. However, due to the fact that the num ber of
production sites now covered by the reporting sys-
tem rose from ten to 17, solvent emissions per unit
produced were higher in 2007 than in 2006. The
emissions of the sites recently added to the system
will be brought down in stages to the low emission

levels already achieved by the longer-standing pro-
duction sites.

The plants in Regensburg, Dingolfing and Leip-

zig already use powder-based paint technology.
The BMW plant Landshut set a new benchmark in
2007 by reducing solvent emissions in its light metal
foundry operations. The sand grains needed for
the casting process are no longer produced using
synthetic resin binders. Instead, mineral binders are
used which cause practically no smell or emissions.
The BMW Group is the only automobile manufacturer
in the world currently using this technology on motor
components such as crankcases and cylinder heads.
This process reduces the proportion of organic ele-
ments discharged into the air by 98 %.

Over the last five years, the BMW Group has
also significantly reduced the volume of waste water
it produces. During this period, the amount of water
used per unit produced was cut by almost 35 %.
The BMW Group accomplished this by using closed
water circulation systems and by treating waste water
created during the production process. For example,
water used in the paint shop, in car washes and for
waterproof testing on new vehicles is re-used. An
innovative combination of membrane technologies
has been in use at the BMW Steyr location since
the beginning of 2007. At this plant, all waste water
created during the production process is purified
and fed back into the production system. This en-
abled the plant to save approximately 30 million litres
of water in 2007.

Environment-friendly transportation solutions
Logistics experts within the BMW Group analyse
and optimise all flows of goods – from procurement
through to delivery – with the objective of keeping
environmental pollution caused by transportation to
a minimum. The focus is on cutting down the volume
of traffic, redeploying to more ecologically favourable

Energy consumed per unit produced
in MWh/unit

CO2 emissions per unit produced
in tons/unit

3.10

3.00

2.90

2.80

2.70

2.60

1.05

1.00

0.95

0.90

0.85

0.80

2.94

2.90

2.78

1.00

0.94

0.99

0.94

0.84

* Basis for data expanded in 2007 from ten to 17 locations: Munich, Dingolfing,

1] The increase is attributable to a change in the energy mix.
2] Basis for data expanded in 2007 from ten to 17 locations: Munich, Dingolfing,

32 Group Management Report

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10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
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Regulations and Explanatory Report

carrier forms and reducing the surface protection
used on new cars.

A new procedure for transporting materials
within the US market was introduced in July 2007
for the BMW plant Spartanburg, as a result of which
billing is now based on performance. Since then,
haulage contractors have only been remunerated on
the basis of the volume carried, thus automatically
providing an incentive to plan and use transport ca-
pacities more efficiently.

Transportation by sea accounted for 76.8 % of
the total volume transported in 2007, almost on par
with the previous year’s high level of 76.9 %. By
contrast, as a consequence of wage disputes at the
Deutsche Bahn (German Railways), the proportion
of goods transported by rail fell from 7.2 % in 2006 to
6.9 % in 2007.

Overall, 54.8 % of all new vehicles left their re-

spective production plants by rail, slightly down
(– 0.6 %) on the previous year. In absolute terms, how-
ever, approximately 95,000 more vehicles left plants
by rail than in the previous year. For the first time,
the BMW plant Leipzig switched to rail on a major
scale in 2007, supplying the British and Spanish mar-
kets from the beginning of 2007 onwards mainly by
rail. As a result, the proportion of vehicles leaving
the BMW plant Leipzig by rail jumped to 27 % in a
single year.

The BMW Group again significantly reduced

the volume of wax or adhesive films used to protect
the outside surfaces of vehicles. This also enabled
the use of solvents and other chemicals to be re-
duced in 2007. In total, approximately 72 % of vehi-
cles were delivered without surface protection in
2007, compared to 53 % in the previous year. In
addition, some 3,500 tons of CO2 emissions were
avoided in 2007 by transporting vehicles without
surface protection. This avoided extensive cleaning
on arrival, causing 80 % less CO2 emissions.

Making progress towards sustainable mobility
The BMW Group is aware of its responsibility in the
area of climate protection and has been working for
many years on reducing the fuel consumption of its
fleet. The strategy of working towards sustainable
mobility comprises three main stages. The BMW
Group is continuously improving fuel economy in its
vehicles with a combination of highly efficient engines,
optimised energy management, innovative light-
construction design and improved aerodynamics. In
the medium term, the BMW Group is working on
achieving additional fuel economy benefits by various
measures, from electrification of the drivetrain through

to a wide range of hybrid solutions. In the long term,
the BMW Group is committed to the use of hydro-
gen gained from various renewable energy sources.

Consistent CO2 reduction at all levels
The efficient use of fuel is a fundamental criterion
for every vehicle developed by the BMW Group.
The status report produced for each vehicle project
provides clear and transparent information on fuel
consumption and CO2 emissions, highlighting the
degree to which emission reduction targets have
been achieved.

The agreement between the European Auto-
mobile Manufacturers (ACEA) and the European
Commission included a target of 140 g/km of CO2
emissions for the combined new car fleet of all
European car manufacturers for 2008. This repre-
sents a reduction of 25 % compared to the base
year, 1995. The BMW Group is also making its con-
tribution and stands by its commitment to reduce
CO2 emissions for its own fleet by 25 % during the
period from 1995 to 2008.

The BMW Group has also cut back CO2 emis-
sions significantly outside Europe in recent years.
A study by the US organisation Environmental De-
fense recently confirmed that the BMW Group takes
top position in this area. The result of the study: of
all auto mobile manufacturers represented in the
USA, the BMW Group has made the best progress
in terms of the reduction of CO2 emissions for its
vehicle fleet during the period from 1990 to 2005.

EfficientDynamics benefit entire vehicle fleet
Apart from the use of highly efficient petrol and die-
sel engines, the EfficientDynamics measures intro-
duced by the BMW Group in 2007 also comprise
energy management measures, weight reduction
and improved aerodynamics. Examples of energy
management improvements within the vehicle are
Brake Energy Regeneration, the Auto Start Stop
Function and the gear shift indicator. These innova-
tions, which all help to reduce fuel consumption,
were introduced on the BMW 1 Series, the BMW 5
Series and the new BMW 3 Series Convertible and
Coupé models in March 2007. Since autumn 2007,
model-specific EfficientDynamics packages also
became standard in the BMW 3 Series Sedan, the
BMW 3 Series Touring and the X models as well as in
the revised BMW 6 Series Coupé and Convertible
models. All MINI models apart from the convertible
have been fitted with Brake Energy Regeneration,
the Auto Start Stop Function and the gear shift indi-
cator since autumn 2007.

Roadmap of the BMW Group for sustainable mobility

Adoption of the
EfficientDynamics
strategy.

BMW Group cuts
fuel consumption
in Germany
pursuant to VDA
agreement of
1990 by 2005 by
almost 30 %.

2006 BMW Hydro-
gen 7 is presented
to the public.

2007 Introduction
of EfficientDynam-
ics measures in
numerous BMW
and MINI models.

About 40 % of
the BMW Group’s
new vehicles in
Europe will be
emitting a maxi-
mum of
140 g CO2/km.

First BMW Group
vehicles with
hybrid drive.

Use of regenera-
tive hydrogen as
fuel in motor traffic.

2000

2005

2006

2007

2008

2009

long-term

The principle of introducing the EfficientDynamics

innovations as standard for all cars manufactured
by the BMW Group, and not just for niche models,
is helping to reduce CO2 emission levels across
the whole fleet. This policy means that more than
450,000 BMW and MINI cars driving on Europe’s
roads were equipped with these fuel-saving innova-
tions by the end of 2007. By spring 2008 emission
levels for 26 BMW and MINI models will be at a maxi-
mum of 140 g/km CO2.

Highly efficient engines for lower fuel
consumption
The engine is one of the main areas where fuel con-
sumption can be reduced. BMW’s High Precision
Injection system enables four- and six-cylinder petrol
engines to achieve consumption levels during lean
operation that had previously only been attained by
diesel engines. BMW 1 and 5 Series vehicles sold
in Europe have been equipped with this system
since March 2007. In autumn 2007, this innovation
also became available throughout Europe in the top-
selling BMW 3 Series. In markets such as the USA,
however, the sulphur-free fuel necessary for the lean
operation of these engines is not yet on sale nation-
wide. On these markets, the efficient VALVETRONIC
engines featuring fully variable valve drive help
to reduce fuel consumption. The new BMW diesel
engines, equipped with third-generation Common-
Rail injection technology and employing injection
pressures of up to 2,000 bar, now use less fuel whilst
still delivering higher performance.

In autumn 2008, the BMW Group will launch

the first diesel engines under the name “BMW
AdvancedDiesel with BluePerformance” on the US
and Cana dian markets. An oxidation catalytic con-
verter and a diesel particle filter will be responsible
for optimising emission levels in these engines. An
SCR (Selective Catalytic Reduction) system featur-
ing urea injection will reduce nitric oxide emissions
(NOx). The use of this SCR system ensures that
the particularly strict emission limits applicable in
California and other US federal states are adhered

to. It will enable nationwide introduction of BMW
AdvancedDiesel with BluePerformance as a 50-
state model (BIN5).

Comprehensive energy management within
the car
Improved energy management has enabled the
BMW Group to achieve far greater fuel economy
throughout its latest range of models. The Auto
Start Stop Function, which switches the engine off
automatically when the vehicle comes to a halt,
serves to save fuel. Brake Energy Regeneration
technology makes use of both braking and acceler-
ation phases to charge the vehicle’s battery and re-
duces drag on the engine. During these phases, as
soon as the driver stops accelerating, kinetic energy
is automatically harnessed and fed into the battery.
By contrast, the alternator is disengaged during
acceleration. This results in lower fuel consumption
and maximum thrust when accelerating. Electric
steering assistance and the efficient, demand-con-
trolled operation of fuel, coolant and oil pumps en-
sure that aggregates are only activated for as long
as necessary. A gear shift indicator informs the
driver of the optimum moment to change gear in
terms of energy efficiency. Active aerodynamics
measures enable air flaps at the front of the vehicle
to be opened only for as long as the engine requires
air from outside for cooling purposes. This helps to
speed up the warming-up phase and improve aero-
dynamics at the same time.

The BMW Group’s EfficientDynamics concept

was awarded numerous prizes in 2007. These in-
clude, among others, the “Grüne Lenkrad” prize
awarded by the German Sunday newspaper “Bild
am Sonntag” and the “Green Award” presented by
the British motoring magazine “CAR”.

Hybrid technology improves fuel economy
From the BMW Group’s perspective, hybrid technol-
ogy offers potential to further improve fuel economy.
The Group’s aim is to develop hybrid engines that
not only reduce consumption in city traffic but also

34 Group Management Report

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10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

The BMW EfficientDynamics measures – an overview

Roll resistance-reduced
tires

Brake Energy
Regeneration

Gear shift
indicator

Diesel engines with third-generation
common rail and lightweight construction

Electric steering
assistance

Auto Start Stop
Function

Petrol engines with High Precision
Injection and lean operation

Additional devices (demand-con-
trolled fuel, coolant and oil pumps)

Air flap control

offer benefits when driving on non-urban roads and
motorways.

Since September 2005, the BMW Group has
been working on a modular system for hybrid-driven
vehicles in collaboration with Daimler, Chrysler and
General Motors at a joint development centre near
Detroit, USA. The objective of these cooperation
arrangements is to bundle the extensive know-how
held by each of the entities involved, exploit benefits
and realise potential efficiency improvements.

In September 2007 the BMW Group presented

its hybrid car, the BMW Concept X6 ActiveHybrid,
at the Frankfurt International Motor Show (IAA) in
Frankfurt. The drive concept of this vehicle, which
will go into series production at the end of 2009,
offers a far more dynamic driving performance than
conventional hybrid cars. At the same time, the
ActiveHybrid requires up to 20 % less fuel than a
comparable car powered only by a combustion
engine. With this development, EfficientDynamics is
moving closer to its objective of sustainable mobility.

Shaping the future with hydrogen
In the third phase of its EfficientDynamics strategy,
the BMW Group remains committed to the use

of renewably produced hydrogen in combustion en-
gines. Major milestones for the BMW Group were
the commencement of series development of a
hydrogen-powered vehicle in 2001 and the presen-
tation of the BMW Hydrogen 7 at the end of 2006.
The BMW Hydrogen 7 is the world’s first hydrogen-
driven luxury sedan designed for everyday use and
is equipped with a bivalent combustion engine that
can be fuelled by either petrol or hydrogen. This
car has gone through the full series development
process and has now been approved for road use.
The Hydrogen 7 therefore meets all requirements
stipulated for conventional road vehicles. The 100
cars of the BMW Hydrogen 7 small series have been
made available to selected persons from politics,
business and other areas of society for general daily
use since April 2007 with the aim of creating a mul-
tiplier effect. In addition, numerous celebrities from
the film world and show business are taking the
opportunity to experience the future of mobility by
taking a drive in a BMW Hydrogen 7. Within a few
months, these “pioneers” of hydrogen technology
have covered more than 2.7 million kilometres in
Europe, the USA and other regions of the world with
the BMW Hydrogen 7.

Development of CO2 emissions of BMW Group cars in Europe (EU-15)
(Index: 1995 = 100; Basis: fleet consumption of newly registered cars in Europe (EU-15) measured on the basis of the New European Driving Cycle in accordance
with the ACEA commitment)

105

100

100.0

101.0

102.4

101.0

98.6

96.7

92.9

94.8

90.0

88.6

80.0

Research and development expenditure
reduced
In 2007, research and development expenditure
amounted to euro 3,144 million, a 2.0 % reduction
on the pre vious year. Further information regarding
research and development expenditure is provided
in Note [11] of the Group financial statements. The
research and development expenditure ratio was
5.6 % (2006: 6.5 %).

The BMW Group’s innovation network com-
prises ten sites in five countries with a total of 9,800
employees.

Leading position amongst premium
manufacturers
The strength of the BMW Group’s innovation network
was again underlined with the receipt of numerous
awards in 2007.

For the third consecutive time, the BMW Group

took the main prize in the “International Engine of
the Year Award” in 2007. The award went to the new
BMW 3.0-litre Twin Turbo petrol engine which now
powers the entire range of models in the BMW 3 Se-
ries. The BMW Group was the most successful car
manufacturer in this competition and came out
winner in seven of the twelve categories as well as
gaining four second places and two third places.

The BMW Group won the prize for the design
team of the year in the “red dot award 2007”. This
accolade was awarded for exceptional achievements
for its overall performance in the field of design.
Eight further awards were received for two cars, three
motorcycles and three products created by BMW
Group DesignworksUSA.

In November, the BMW Group won the newly in-

troduced “Grüne Lenkrad” award from the German
Sunday newspaper “Bild am Sonntag” in recognition
of its EfficientDynamics measures package, which
includes highly efficient petrol and diesel engines,
Brake Energy Regeneration, the Auto Start Stop
Function, active aerodynamics and intelligent light-
weight construction innovations. EfficientDynamics
is designed to boost performance while simulta-
neously improving fuel economy and reducing CO2
emissions. The BMW Group offers EfficientDynam-
ics as standard in all BMW models from the BMW 1
Series through to the BMW X5 and also in many of
the MINI models. For the model year 2008, around

40 % of new cars sold by the BMW Group in Europe
will emit a maximum of 140 g CO2/km.

Third crash-test facility taken into operation
Approximately 350 to 400 tests are carried out an-
nually at the Research and Innovation Centre (FIZ)
as part of the vehicle development process. Tests are
also carried out to ensure vehicles fulfil legal and
consumer protection requirements.

The BMW Group’s third crash-test facility was
commissioned in mid-2007. Up to 100 tests will be
carried out each year at the new facility near Munich.
In a new building at the facility, all tests (including
roll-over tests) can be carried out regardless of pre-
vailing weather conditions.

The new test facility supplements the one
built at the FIZ in 2005. An additional, smaller crash-
test facility within the FIZ complex completes the
com pany’s crash-testing capability for testing at
speeds of up to approximately 30 km/h. These addi-
tional capacities enable the Group’s engineers to
conduct time-consuming tests that had previously
only been feasible at the facilities of third-party pro-
viders.

The three crash-test facilities now permit a higher
number of tests and greater flexibility than the “all-in-
one” solutions favoured by competitors, but which
entail substantially higher costs. In addition, a wide
range of modern computer-based crash simulation
methods are employed, particularly during the
early stages of vehicle development projects. Such
methods cannot, however, replace real crash tests
using prototypes.

Research to promote greater road safety
After a four-year period, the European Commission-
backed research project PreVENT was concluded
in 2007, in line with schedule. The project supports
the target set by the European Commission to halve
the number of accidents on European roads by
2010. The objective was to raise road safety stand-
ards even further through the use of preventative
technologies. These applications, aimed at assisting
the driver, are designed to prevent or at least mini-
mise the consequences of accidents. The research
shows that it will be possible to develop systems
in the future that will be able, for example, to recog-
nise the nature and urgency of a hazard whilst simul-

36 Group Management Report

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10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
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Disclosures relating to Takeover
Regulations and Explanatory Report

taneously taking the current condition of the driver
into account. The BMW Group played a leading role
in some of PreVENT’s sub-projects.

Road safety research carried out by the BMW
Group does not only focus on identifying solutions
that will increase the safety of vehicle occupants. It
is also aimed at benefiting other road users. Current
research projects in the field of driver assistance
systems include emergency braking to increase the
safety of pedestrians, cross-traffic and traffic light
assistance as well as information on wrong-way
drivers and upcoming bends. However, the same
basic principle remains valid for all systems – the
responsibility always remains with the driver; it is
the driver who has to make the decisions; and he
or she must be able to override or even deactivate
systems.

the “Automobile Network”. The technical basis for
this is the Internet Protocol (IP).

The new, IP-based vehicle on-board system
adds flexibility to the car’s infrastructure and also
provides many other benefits. It will, for instance,
enable the customer to use portable devices more
easily in the car in the future. It will also make it easier
for service staff to integrate new control units and/or
new functions. It will no longer be necessary to install
all applications permanently in the vehicle because
the IP-based on-board network will keep systems
connected to the internet. As far as driver assistance
systems are concerned, the new developments in
on-board network technology will create many op-
portunities, in particular for complex systems which
access information from various sources such as
sensors, cameras, etc.

Expertise in driving dynamics expanded
The Dynamic Performance Control (DPC) devel-
oped by the BMW Group actively improves driving
stability, whether under load, when coasting or when
the clutch is engaged. This innovative system will
be available in the new BMW X6 from 2008 onwards.
DPC distributes the drive torque to the two drive
wheels at the rear, irrespective of engine perform-
ance, thus improving steering behaviour and pre-
cision, straight-line stability and traction. This simul-
taneously improves steering response, thereby
requiring far fewer steering corrections on the part of
the driver or intervention from electronic stabilising
systems.

Further development to Dynamic Stability Con-
trol (DSC), now in combination with the xDrive four-
wheel drive system, have also led to significant
improve ments in car handling characteristics and in
active safety aspects, particularly on slippery road
surfaces. This enhancement has been available in all
four-wheel drive models of the BMW 5 Series since
March 2007. Further BMW brand models and series
will be equipped with this technology in the future.

Integrated on-board network technology
offers numerous benefits
Up to five different bus systems operate in modern
cars to transmit electronic data throughout the
vehicle. When information from various systems is
being used, the data must first be synchronised
accordingly. The BMW Group is therefore conduct-
ing research on a standard language to simplify

New purchasing and supplier network
corporate division
As part of its strategic realignment and in the light of
the ever-increasing complexity of the supplier chain
structure, the BMW Group created a new Purchas-
ing and Supplier Network corporate division with
effect from 1 October 2007. In addition to purchas-
ing, the following functions have been assigned to
the division: quality management of parts, logistics,
vehicle components and systems. This new division
has been charged with the task of achieving even
further improvements in the areas of quality, supplier
loyalty and costs. This will involve keeping the num-
ber of system interfaces to a minimum and opti-
mising processes right from the raw material stage
through to the finished product.

Purchase volume increased in Central and
Eastern Europe
The BMW Group’s purchase volume went up in
2007 in line with the expansion of production activi-
ties. Increased global sourcing activities as well as
the successful implementation of a quality and cost
initiative resulted in an increase in the volume of
purchases sourced in Central and Eastern Europe.
The purchase volume in Western Europe also in-
creased, reflecting increased production of the
MINI. The purchase volume in the NAFTA region
was also up, due to the first full year of production
of the new BMW X5 at the Spartanburg plant in the
USA. The volume of purchases sourced in South
America fell sharply due to the fact that the engine
cooperation arrangements with TRITEC are wound
down.

The proportion of production material purchases
sourced in Germany was down in percentage terms
and accounted for approximately one half of mate rial
procurements. In the remaining regions, volumes in-
creased in line with production growth. The ratio of
material procurements to the total purchase volume
remained practically unchanged.

Situation on the commodity markets
remains tense
The high price levels on the raw material markets
once again represented a major challenge for the
Group’s purchasing departments in 2007. The addi-
tional costs were spread over the entire value-added
chain with the BMW Group also bearing its share.
Compared to the previous year, the average market
prices of steel and plastics were up by 10 % and 6 %

Regional mix of BMW Group purchase volumes 2007
in %, basis: production material

Germany

Rest of Western Europe

Central and Eastern Europe

3 2

NAFTA

Asia/Australia

Africa

respectively in 2007. By contrast, the price of alu-
minium fell by 5 % and that of copper by 1 %.

Overall, the prices of industrial raw materials,

non-ferrous metals and energy raw materials in-
creased by 7 %, 4 % and 2 % respectively in 2007.
Compared to the previous year, the prices of pre-
cious metals relevant for the BMW Group went up
in 2007 by rates of between 11 % and 35 %. In the
case of precious metals (rhodium, palladium, plati-
num), purchase price hedges reduced the impact of
sharp market price rises for the BMW Group.

Close cooperation with suppliers strengthens
competitiveness
Given the high share of suppliers in the value-added,
cooperating closely with them represents a major
factor in improving products and processes. The
BMW Group is involving its large system suppliers
from the very initial stage of a development project
even more intensively. Joint analyses are carried out
to identify potential areas where efficiency can be
improved and development and manufacturing costs
reduced. Any solutions that these joint teams come
up with are taken into account in current and future
development projects.

Further investigations are made along the entire

value-added chain to identify potential ways of
achieving further product and/or process improve-
ments. Ensuring that close networks are in place
between internal and external partners has an impor-
tant role to play here. Increasing the transparency
of activities with suppliers is also seen as being vital
for the BMW Group.

One of the main objectives of supplier manage-

ment is to raise the quality of bought-in material.
Suppliers to the Group are increasingly taking over
responsibility in this respect. As part of the process
of managing supplier performance and expertise,

38 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

47 Financial Analysis
47 – Internal Management System
49 – Earnings performance
51 – Financial Position
52 – Net Assets Position
55 – Subsequent Events Report
55 – Value Added Statement
57 – Key Performance Figures
58 – Comments on BMW AG
62 Risk Management
68 Outlook

the BMW Group provides its suppliers with supply
quality performance indicators for all plants in real
time. Similarly, data concerning customer complaints
and warranty costs can also be called up by sup-
pliers at any time.

International focus sharpened by regional
purchasing centres
One of the main tasks taken on by the BMW Group’s
international purchasing centres in 2007 was to en-
gage in new procurement markets and keep abreast
of any innovations relevant for the BMW Group
emerging from the procurement markets. Following
the opening of new purchasing centres in India,
Turkey and Hungary, the BMW Group now has a
presence on all major procurement markets. The
capacities of existing purchasing centres, such as in
China and Singapore, were also increased. In 2007,
the sphere of expertise of the Group’s purchasing
centres was also significantly expanded after they
took over responsibility for parts quality management
and for logistics. Amongst other benefits, this will
help to ensure the quality and availability of parts.

Cost benefits have also been achieved, particu-

larly in the emerging markets. The BMW Group takes
a pro-active approach to the procurement markets
and also encourages its suppliers to take full advan-
tage of the available potential. The positive impact
that this has on purchase prices helps to increase
the competitiveness of the BMW Group.

High ecological and social standards expected
of suppliers
The BMW Group is aware of its responsibility to
ensure that its suppliers also adhere to social and
ecological standards. Apart from dealing with quality
targets and cost aspects, the BMW Group’s national
and international purchasing terms and conditions
also stipulate social and ecological standards. The
ability to adhere to these principles is taken into ac-
count when selecting potential suppliers.

Model initiative continued
The growth recorded by the BMW Group in 2007
was driven by the introduction of a wide range of
new vehicles and model revisions. Ten new or revised
models were introduced for the BMW brand alone.
In addition to the new M5 Touring, model improve-
ment measures were carried out for the BMW 5 and
6 Series as well as for the five-door version of the
BMW 1 Series. The three-door version of the BMW 1
Series and the BMW 1 Series Coupé also came onto
the market. The BMW 1 Series Convertible was pre-
sented to the public in autumn 2007 and will be on
sale on the markets from spring 2008 onwards.

In spring 2007, the focus was on the introduc-

tion of the new BMW 3 Series Convertible, available
for the first time with a hardtop option. The M version
of the 3 Series Coupé followed later in the year and
the M3 Sedan will celebrate its debut in 2008. The
new BMW X5, which had already been launched
in the USA in autumn 2006, reached dealers world-
wide during the course of 2007.

The second generation of the MINI was also

available on the market for the first time for a full year
in 2007. The new MINI is repeating the success of
its predecessor. A further step in expanding the MINI
model family was taken in November with the launch
of the MINI Clubman in Europe.

The Rolls-Royce convertible, the Phantom
Drophead Coupé, has been available since summer
2007. The positive response received from media
and customers alike was also reflected in the sales
volume performance.

BMW Welt opened
The outstanding event for the BMW marketing de-
partment in 2007 was the opening of the BMW Welt
in Munich. Since October, a wide range of experi-
ences have been on offer there to customers, visi-
tors and local inhabitants alike. With this building,
which explores the limits of the technically feasible,
the BMW Group has set a new architectural bench-
mark. The BMW Welt is the new home of the BMW
brand. It stands for dynamism and elegance and
reflects the premium standards of the BMW brand.
The centrepiece of this multifunctional building is its
individualised personal delivery centre. Each year,
approximately 45,000 people from all over the world
will come here to collect their vehicles. In addition
to the exclusive presentation of all current car and
motorcycle model series, multimedia shows and

exhibits will provide an insight into the research, de-
velopment, design and production activities of the
BMW Group, giving visitors the chance to enjoy an
all-round experience of the BMW brand and of the
company as a whole. The BMW Welt also boasts an
events forum including state-of-the-art technology
for staging all kinds of events, such as receptions
and seminars, concerts, exhibitions, conferences
and live transmissions. More than 500,000 people
visited the BMW Welt within the first 100 days of
opening.

Innovative marketing and investment in
brands
Numerous vehicle presentations represented an im-
portant aspect of the BMW Group’s marketing and
communication activities in 2007. Marketing cam-
paigns and similar activities, targeted purposefully at
specific groups, ranged from international test-drive
events for the launch of the BMW X5 through to
enhanced activities on Web 2.0 to coincide with the
launch of the BMW 1 Series Coupé.

Campaigns were run for both specific models
and for the BMW Group’s brands in general. In the
European markets, the focus was primarily on com-
municating the benefits of BMW Efficient Dynamics,
the designation used to cover the whole range of
measures adopted by the BMW Group in its bid to
reduce fuel consumption and emissions.

For several years now, the BMW CleanEnergy
project has not only been working on the reduction
of emissions, but has also embraced the vision of
emission-free driving based on the use of hydrogen.
The Hydrogen 7 vehicle, based on the BMW 7 Se-
ries, was first presented to the public back in 2006.
In 2007 the Hydrogen 7 was made available to se-
lected persons from the worlds of politics, business,
science and show business, thus bringing the so-
called “Club of Pioneers” into being. The idea
behind this is to accelerate the change towards a
“hydrogen society”, including the construction of
an appropriate infrastructure.

One of BMW Marketing’s responses to the up-

and-coming trend towards new media was to set
up BMW web.tv in 2007. Using this online TV plat-
form, BMW now broadcasts reports and articles
every week on brand-related issues, including some
advertising content. Right from the outset, several
hundred thousand videos were viewed each month
on average via BMW web.tv.

BMW’s sport sponsoring activities were focused

on motor sports, golf and sailing in 2007. The event
that created the greatest media attention around the
world for BMW in 2007 was The America’s Cup held
in Valencia. The participation of the US American
BMW Oracle Team clearly helped to raise the profile
and awareness of the BMW brand. The BMW Sauber
F1 Team firmly established itself as the third force in
Formula One in 2007.

MINI pushed ahead with the creation of a global
MINI Community. In this context, another MINI United
Festival was held at Zandvoort, near Amsterdam,
under the motto “Friends. Festival. Challenge.” More
than 8,000 visitors from 50 countries took part in the
three-day event. The MINI Challenge, a special MINI
club sports series, has become an established com-
ponent of the Community idea, combining profes-
sional sport with modern lifestyle.

Marketing activities for the MINI in 2007 were

mainly focused on the market launch of the MINI
Clubman. The global marketing campaign with the
slogan “The other MINI.” fitted perfectly with the
vehicle’s claim to set new trends and created a few
surprises with its snappy ads and “guerrilla” market-
ing approach.

At the forefront of marketing activities for the

Rolls-Royce brand were the world premiere (in
Detroit, USA) and the market launch (in L’Andana,
Italy) of the Phantom Drophead Coupé. This exclu-
sive convertible was presented at the Rolls-Royce
dealerships in conjunction with numerous events.
Rolls-Royce also set in motion a project for Rolls-
Royce dealerships specifically aimed at attracting
and providing services to customers in the ultra-
luxury segment.

Sales network expanded further
The BMW Group intensified its sales activities in
the established markets in 2007, whilst at the same
time expanding activities in the growth markets.
The global presence of the BMW, MINI and
Rolls-Royce brands was strengthened further during
the past year with the opening of four new sales
locations. A subsidiary was set up in India and a
sales office opened in Slovenia on 1 January 2007,
followed by sales offices in Rumania and Bulgaria
on 1 July. As a result of this expansion, which has
taken place mainly in the growth markets of Asia and
Eastern Europe, the BMW Group is now represented
by its own sales organisations in 41 markets.

40 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Training centre network further expanded
The global initiative to improve skills within the BMW
Group was successfully continued in 2007 as part
of the premium service strategy. One of the tasks
is to pass on knowledge quickly and directly to the
markets. In 2007, for example, a train-the-trainer
conference, attended by 160 trainers from 68 coun-
tries, was held in this vein for the new BMW 3 Series
Convertible and the new BMW X5.

Training courses for dealers took place in San
Diego, Newbury and Kyoto ahead of the launch of
the Rolls-Royce Drophead Coupé.

In 2007 the BMW Group opened up new training

centres in India, South Korea, Portugal, Denmark,
Japan and Greece to ensure optimal training condi-
tions for people working in the dealer organisations.

Internationalisation of distribution centres
continued
The distribution centre in Krefeld was expanded and
now supplies the markets in Belgium, the Nether-
lands and Luxembourg. In September 2007, the
second of three planned regional distribution centres
in China commenced operations in Shanghai. Parts
are supplied directly from the centralised parts distri-
bution centre in Dingolfing. Plans to supply parts to
the new sales company and dealerships in India via
the regional distribution centre in Mumbai are taking
shape.

The infrastructure and quality of the dealer
organisation in China, where there are currently well
over 100 dealerships, was further improved. The
dealer network is also being expanded in India, a
new market for the BMW Group.

Worldwide, more than 3,000 dealerships sell
BMW brand cars. The MINI brand is sold at approxi-
mately 1,500 locations. In total, the dealerships which
work with the BMW Group have some 100,000 em-
ployees worldwide. In addition, the BMW Group has
its own branches at 37 locations in 14 countries.

Rolls-Royce cars are currently sold in 30 coun-
tries. The sales network for this brand has been ex-
panded to 80 dealerships, including four in China.

Future plans of BMW Group’s sales organisation

are currently focused on the following:
– improving the infrastructure and quality of the

dealer organisation in anticipation of further volume
and model expansion,

– increasing marketing activities in the area of used

car business,

– systematically developing relationships with cus-
tomers and potential customers in all aspects.

Premium service also in customer services
Taking care of customers’ needs throughout the whole
of the product life-cycle is one of the BMW Group’s
main priorities. The objective is to provide premium
quality services – not just to meet customers’ expec-
tations, but to exceed them. The quality of processes
and structures in place in service reception areas
and workshops is constantly under scrutiny.

Using its unique BMW TeleServices system,

BMW is able to guarantee customers the highest
levels of comfort and safety. Where necessary, a
vehicle’s details can be transmitted directly via a
data link to the BMW service partner, for example to
a dealership prior to a forthcoming inspection or
to a mobile services unit in the case of a malfunction.
This automated link between vehicle and BMW
service partner reduces the length of time a custom-
er’s car needs to be kept at the service point and, in
the event of a malfunction, allows immediate and
expert help to be given on the spot.

The new BMW TeleServices system has been

available since September 2007 in a number of
markets (Germany, Austria and France) for all new
BMW 1, 3, 5, 6 and X5 series vehicles.

BMW Stock and Bonds in 2007

Crisis on US credit market has impact on
world’s stock exchanges
The world’s stock markets were in general highly
volatile in 2007. During the first half of the year, market
prices benefited sharply from good corporate figures.
In the second half, however, the markets were influ-
enced by the credit crisis in the USA. The weakness
of the US dollar against the euro also had an increas-
ingly adverse impact on the share prices of European
exporting companies.

The US dollar lost 9.5 % in value against the

euro during the period, closing at US dollar 1.46 to
the euro on the last day of trading (29 December
2006: US dollar 1.32 to the euro). In November 2007,
the US dollar even dropped to US dollar 1.50 to the
euro, thus reaching its record low value since intro-
duction of the common European currency in 2002.
As the subprime crisis took hold in the USA,
some of the gains recorded by the world’s stock mar-
kets during the first half of the year were lost. On the
last day of trading in 2007, the leading German stock
index, the DAX, closed at 8,067.32 points, 22.3 %
ahead for the year, but short of its record high level
of 8,151 points in July 2007. The Dow Jones EURO
STOXX 50 ended the year with a gain of 6.8 %.
The Prime Automobile sector index performed very
strongly over the year, gaining 37.9 % after closing
at 785.54 points.

BMW common stock stood at euro 42.35 on
the last day of trading, compared to a price of euro
43.51 one year earlier. With this 2.7 % drop, BMW
common stock was unable in 2007 to repeat the
gains made in preceding years. During the year un-
der report, BMW preferred stock lost sharply in value,
finishing the year 16.6 % lower at euro 36.30. The
change in the price of preferred stock reflects a high
degree of market price speculation during 2006 and
2007. According to media reports, one major Ger-
man bank took up large-scale positions in BMW
preferred stock, resulting in a sharp market price

increase (+ 34.3 %) in 2006. The bank unwound these
positions in 2007, thus significantly influencing the
market price of BMW preferred stock in 2007.

Precious metal prices rose during the year, in
some cases quite sharply. For the first time since
1980, the price of gold went above US dollar 800
per ounce, closing at the end of the year at US dollar
834.00 per ounce (+ 30.9 %). Oil prices developed
similarly. The price for one barrel of Brent Crude
at 31 December 2007 was US 94.33, well above
(+ 61.2 %) its level one year earlier.

Programme to buy back shares of common
stock
Following on from the buy-back and withdrawal from
circulation of treasury shares in 2005 and 2006, a
new authorisation was passed at the Annual General
Meeting on 15 May 2007. On that date, the share-
holders authorised the Board of Management to ac-
quire up to a maximum of 10 % of the share capital
in place at the date of the reso lution and to withdraw
these shares from circulation without any further res-
olution by the Annual General Meeting. At the same
time, the authorisation from 16 May 2006 to acquire
treasury shares was rescinded. The authorisation
from 15 May 2007 is valid until 14 November 2008.
There are currently no plans to exercise the authori-
sation. The option of a share buy-back does, however,
remain open to BMW AG.

Buy-back of shares of preferred stock for
employee stock plan
BMW AG has allowed employees to participate in
its success for more than 30 years. In this context,
employee participation was changed back in 1989
to an employee share scheme. In conjunction with
this scheme, BMW AG purchased a total of 660,305
shares of preferred stock in 2007 via the stock ex-
change at an average price of euro 45.48 and issued
these to employees.

Development of BMW stock compared to stock exchange indices
(Index: 30.12.1997 = 100)

350

300

250

200

150

100

BMW preferred stock

BMW common stock

Prime Automobile

DAX

42 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

The Board of Management of BMW AG has
decided to continue this scheme in 2008. In order to
be able to issue shares to employees, it is planned,
from 1 January 2008 onwards, to buy back up
to 1 million shares of preferred stock via the stock
exchange. The BMW Group will report on the
progress of the buy-back at its internet address
www.bmwgroup.com/ir. The buy-back will be exe-
cuted under the leadership of a number of securities
houses or banks, which will be able to determine
the timing of individual buy-backs independently of,
and uninfluenced by, BMW AG. The buy-back will
be carried out in compliance with the trading con-
ditions contained in Article 5 of Regulation (EC) No.
2273/2003 of the European Commission dated
22 December 2003.

BMW Group as a successful bond issuer
In order to refinance the strong growth of the Finan-
cial Services segment, the BMW Group stepped up
its activities in 2007 as an issuer of bonds and asset-
backed securities (ABS).

During the year 2007, two benchmark bonds

with a total issue volume of euro 2.4 billion were
placed on the European capital markets. The BMW
Group also issued bonds denominated in pounds
sterling, Swiss franks and US dollars with a total vol-
ume of approximately euro 680 million.

It also issued a public ABS bond for the first
time in the euro zone. The euro 800 million bond se-
curitises trade receivables and leases.

The American capital market was used in 2007

primarily for ABS transactions and commercial
paper. In October 2007, for instance, a public lease-
securitised ABS bond with a total volume of US dol-
lar 1.25 billion was issued in the USA.

Thanks to above-average ratings and regular
provision of information to the capital markets, secu-

rities issued by the BMW Group were – as in pre-
vious years – highly sought after by institutional and
private investors alike. Compared to 2006, refinanc-
ing conditions deteriorated slightly in the euro region
over the course of 2007. With credit markets suffer-
ing under the effects of the subprime crisis in the
USA during the second half of the year, the US Fed-
eral Reserve was forced, for the first time since 2003,
to announce several interest rate reductions.

The difficult market conditions – particularly in
the second half of 2007 as a result of the credit crisis
in the USA – did not in any way impair the issuing
activities of the BMW Group. The underlying strength
of the BMW Group as one of the world’s leading
suppliers of premium vehicles is therefore also re-
flected in its dealings with the international capital
markets.

Using the internet to communicate with the
capital markets
The internet plays a key role for the BMW Group in
the process of communicating financial information.
The nature and detail of information provided is
therefore continually being improved and expanded
(www.bmwgroup.com/ir). Alongside much informa-
tion aimed at shareholders, all of the BMW Group’s
financial publications, presentations and additional
material on financial statements are available for
download at the Group’s corporate website. For
several years now, recordings of annual and quarterly
financial reporting conferences have also been avail-
able as audio or video files.

Sustainability growing in significance
Sustainability plays an increasingly important role in
investors’ decisions. For this reason, socially respon-
sible investment (SRI) became an even more im-
portant issue in the context of the company’s capital

Development in the value of a BMW stock investment in euro thousand
Investment of euro 10,000 at 1.1.1998, including dividends and proceeds from subscription rights, values at end of year

euro thousand

12.1

14.7

17.0

19.7

14.6

18.8

17.3

19.7

23.5

23.2

market communication activities. Regular communi-
cation with sustainability investors and analysts was
supplemented by roadshows in London and Paris.

In September 2007, the BMW Group was again

included (as in 2005 and 2006) as sector leader in
the Dow Jones Sustainability Indexes. The BMW
Group is therefore the only company in the sector
to have been included in this important group of in-
dices for sustainable investment for the ninth time in
succession. It has also been included for six consec-
utive years in the relevant FTSE4Good indices pub-
lished by the London Stock Exchange and the Finan-
cial Times. In 2007, the BMW Group was also taken
into the FTSE4Good Environmental Leaders Europe
40 Index. This index comprises European companies

with leading environmental practices. In December
2007, the BMW Group took third place overall (as
the best automobile company) in the DAX 30 sustain-
ability ratings compiled by Scoris.

The BMW Group keeps the public informed
of its commitment and the progress made in the
field of sustainable business in its Sustainable Value
Report, which is published once every two years.
The current Sustainable Value Report 2007/2008
was presented to the public in mid-September to
coincide with the IAA. The report can be down-
loaded from the internet at www.bmwgroup.com /
sustainability. A printed version can also be ordered
at that address.

BMW stock

2007

2006

2005

2004

2003

Common stock

Number of shares in 1,000

601,995

Shares bought back at the reporting date

–

622,228

13,488

622,228

–

Stock exchange price in euro 1]

Year-end closing price

High

Low

Preferred stock

Number of shares in 1,000

Stock exchange price in euro 1]

Year-end closing price

High

Low

Key data per share in euro

Dividend

Common stock

Preferred stock

Earnings per share of common stock 3]

Earnings per share of preferred stock 4]

Cash flow 6]

Equity

1] Xetra closing prices
2] proposed by management
3] annual average weighted amount
4] stock weighted according to dividend entitlements
5] adjusted for new accounting treatment of pension obligations
6] calculated on the basis of operating cash flow

42.35

50.73

39.81

43.51

46.47

35.52

37.05

39.97

32.04

33.20

37.44

31.78

36.75

38.40

21.12

52,196

36.30

47.52

33.64

43.52

45.91

31.80

33.00

33.98

24.48

24.80

26.20

22.86

24.65

26.25

14.86

2007

2006

2005

20045]

2003

1.06 2]

1.08 2]

4.78

4.80

9.70

33.24

0.70

0.72

4.38

4.40

8.21

0.64

0.66

3.33

3.35

9.17

0.62

0.64

3.33

3.35

9.13

0.58

0.60

2.89

2.91

7.37

29.24

25.17

24.52

23.95

44 Group Management Report

Disclosures relating to Takeover Regulations to § 289 (4) HGB and
§ 315 (4) HGB and Explanatory Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

The share capital of BMW AG, totalling euro
654,191,358 is, pursuant to Article 4 (1) of the Arti-
cles of Incorporation, sub-divided into 601,995,196
shares of common stock and 52,196,162 non-voting
shares of preferred stock, each with a par value of
euro 1. The shares are issued to bearer. The rights
and duties of shareholders derive from the German
Stock Corporation Act (AktG) in conjunction with
the Company’s Articles of Incorporation, the full text
of which is available at www.bmwgroup.com. The
voting power attached to each share corresponds to
its par value. Each euro 1 of par value of share capital
represented in a vote is entitled to one vote (Article
18 (1) of the Articles of Incorporation). The Company’s
shares of preferred stock are non-voting within the
meaning of § 139 AktG et seq., i.e. they only confer
voting rights in exceptional cases stipulated by law
such as when the preference amount has not been
paid or has not been fully paid in one year and the
arrears are not paid in the subsequent year. Except
for voting rights, shares of preferred stock give the
same rights as shares of common stock. Article 24
of the Articles of Incorporation confers preferential
treatment to the non-voting shares of preferred stock
with regard to the appropriation of the Company’s
unappropriated profit. Accordingly, the unappropriated
profit is required to be appropriated in the following
order:
(a) subsequent payment of any arrears on dividends
on non-voting preferred shares in the order of ac-
cruement,

(b) payment of an additional dividend of euro 0.02 per
euro 1 par value on non-voting preferred shares
and

shares on common and preferred stock, provided

the shareholders do not resolve otherwise at the
Annual General Meeting.

The right of shareholders to have their shares evi-
denced in writing is excluded.

Shareholders are only entitled to participate at
the Annual General Meeting and exercise their voting
rights if, prior to the meeting, they have given notice
(in the written form prescribed by § 126b of the Ger-
man Civil Code), either in German or English, of their
intention to participate at the meeting. Shareholders
are also required to provide evidence of their entitle-
ment to participate and exercise their voting rights at
the Annual General Meeting. For this purpose, doc-
umentary evidence of the shareholding, issued by
the custodian bank (in the written form prescribed by
§ 126b BGB), in either German or English, is required.
Votes may also be exercised by proxy. The Company
may determine that proxy authorisations may be
granted electronically or by fax, and may stipulate
the specific rules for granting proxy authorisations
(see Article 17 of the Articles of Incorporation). The
chairperson may determine a reasonable time limit
with respect to the right of shareholders to raise
questions and speak (Article 19 (2) of the Articles of
Incorporation).

When the Company issues shares to employees

in conjunction with its employee share scheme,
the shares are subject to a company-imposed vest-
ing period of four years, during which time the shares
may not be sold. The shares issued in conjunction
with the employee share scheme are shares of non-
voting preferred stock which are transferred solely
and directly to employees.

Based on the information available to the Compa-
ny, the following direct or indirect holdings exceeding
10 % of the voting rights were held at the date stated:

Direct share of
voting rights (%)

Indirect share of
voting rights (%)

Date

Johanna Quandt GmbH & Co. KG für Automobilwerte, Bad Homburg v. d. Höhe

Johanna Quandt, Bad Homburg v. d. Höhe

Susanne Klatten GmbH & Co. KG für Automobilwerte, Bad Homburg v. d. Höhe

Susanne Klatten, Munich

Stefan Quandt GmbH & Co. KG für Automobilwerte, Bad Homburg v. d. Höhe

Stefan Quandt, Bad Homburg v. d. Höhe

* Confirmed by notifications as at 20 January 2007.

15.4

1.3

11.5

1.0

16.1

1.3

1.4.2002 *

15.4

1.4.2002 *

1.4.2002

11.5

1.4.2002

1.4.2002 *

16.1

1.4.2002 *

The voting power percentages disclosed above

may have changed subsequent to the stated date
if these changes were not required to be reported to
the Company. Due to the fact that the Company’s
shares are issued to bearer, the Company is gener-
ally only aware of changes in shareholdings if such
changes are subject to mandatory notification rules.

There are no shares with special rights which

confer control rights.

The appointment and removal of members of
the Board of Management are based on the rules
contained in § 84 et seq. AktG in conjunction with § 31
of the German Co-Determination Law (MitbestG). In
accordance with Article 7 of the Articles of Incorpo-
ration, the Board of Management consists of two or
more members. The Supervisory Board determines
the number of the members of the Board of Manage-
ment. It is responsible for appointing members to
the Board of Management and for revoking appoint-
ments. It also designates one of the members as
the Chairman of the Board of Management.

Amendments to the Articles of Incorporation

must comply with § 179 et seq. AktG. All amend-
ments must be resolved by the shareholders at the
Annual General Meeting (§ 119 (1) no. 5, § 179 (1)
AktG). The Supervisory Board is authorised to ap-
prove amendments to the Articles of Incorporation
which only affect its wording (Article 14 no. 3 of the
Articles of Incorporation). Resolutions are passed at
the Annual General Meeting by simple majority of
shares unless otherwise explicitly required by binding
provisions of law (§ 20 of the Articles of Incorpora-
tion).

In accordance with the resolution passed at the
Annual General Meeting on 15 May 2007, the Board
of Management is authorised, up to 14 November
2008 and subject to the price limits stipulated in the
resolution, to acquire shares of common and/or non-
voting preferred stock via the stock exchange, up
to a maximum of 10 % of the share capital in place
at the date of the resolution. The Board of Manage-
ment is also authorised, without any further resolu-
tion by the Annual General Meeting, to withdraw
from circulation the treasury shares (common and/or
non-voting preferred stock) acquired in accordance
with the authorisation described above. Further-
more, the Board of Management is authorised to
buy back shares and sell bought-back shares in situ-

ations specified in § 71 AktG, e.g. to avert serious
and imminent damage to the Company or for the
purposes of an employee share scheme. There is no
authorised or conditional capital at the reporting
date.

The BMW AG is party to the following significant

agreements which contain special provisions for
the event of a change in control or the acquisition of
control which could arise, for example, from a take-
over offer:
– An agreement, concluded with an international

consortium of banks relating to a syndicated credit
line (which was not being utilised at the balance
sheet date), entitles the lending banks to give ex-
traordinary notice to terminate the credit line (such
that all outstanding amounts, including interest,
would fall due immediately) if one or more parties
jointly acquire direct or indirect control of BMW
AG. The term “control” is defined as the acquisi-
tion of more than 50 % of the share capital of
BMW AG, the right to receive more than 50 % of
the dividend or the right to direct the affairs of the
Company or appoint the majority of members of
the Supervisory Board.

– A cooperation agreement concluded with Peugeot
SA relating to the joint development and produc-
tion of a new family of small (1 to 1.6-litre) petrol-
driven engines entitles each of the cooperation
partners to give extraordinary notification of termi-
nation in the event of a competitor acquiring con-
trol over the other contractual party and if any con-
cerns of the other contractual party concerning
the impact of the change of control on the cooper-
ation arrangements are not allayed during the
subsequent discussion process.

– Under the terms of a contractual agreement with
Daimler, Chrysler and General Motors, BMW AG
acquires intellectual property rights in conjunction
with a cooperation for the development of a hybrid
propulsion system. The cooperation can be ter-
minated with immediate effect by either party if a
change of control occurs with respect to any other
contractual party or an affiliate of another con-
tractual party. Examples of change of control are
the acquisition of beneficial ownership of securities
which confer the majority of voting power or the
acquisition of beneficial ownership of securities
which confer 20 % of the voting power provided

46 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

that within 18 months a majority of the shareholder-
elected members of the Supervisory Board are
the nominees of the new beneficial owner as well
as certain merger transactions and the transfer of
all or substantially all of the assets involved in the
performance of the cooperation agreement.

– BMW AG acts as the guarantor for all of the obliga-
tions arising from the joint venture agreement re-
lating to BMW Brilliance Automotive Ltd. in China.
This agreement grants an extraordinary right of
termination to either joint venture partner in the
event that, either directly or indirectly, more than
25 % of the shares of the other party are acquired
by a third party or the other party is merged with
another legal entity. The termination of the joint
venture agreement may result in the sale of the
shares to the other joint venture partner or in the
liquidation of the joint venture entity.

– Regarding the trading of derivative financial in-
struments, framework agreements are in place
with financial institutions and banks (ISDA Master
Agreements), each of which contain extraordinary
rights of termination which trigger the immediate
settlement of all current transactions, in the event
that the creditworthiness of the respective party
is materially weaker following the direct or indirect
acquisition of beneficial ownership of equity se-
curities having the power to elect a majority of the
Supervisory Board of a contractual party or any
other ownership interest enabling the acquirer to
exercise control of a contractual party or a merger
or transfer of assets.

The BMW Group has not concluded any compen-
sation agreements with members of the Board
of Management or with employees for situations in-
volving a takeover offer.

Analysis of the Group Financial Statements

Group internal management system
The underlying long-term objective of the Group’s
internal management system is to increase the
value of the BMW Group. The targets set for the
Automobiles, Motorcycles and Financial Services
segments all stem from this objective. Within the
Automobiles and Motorcycles segments, this ap-
proach is put into practise for specific product,
process and structure-related projects. By contrast,
the Financial Services segment is primarily con-
cerned with cash flows and risk positions resulting
from its credit and lease portfolio.

Minimum rate of return derived from cost of
capital
The cornerstone of the value-added management
of the BMW Group is the entity-specific minimum
rate of return, derived from capital market data, and
based on the weighted average cost of capital:

Cost of equity capital x market value of equity capital

Market value of equity and debt capital

WACC =

Cost of debt capital x market value of debt capital

Market value of equity and debt capital

The cost of equity capital is measured using the
Capital Asset Pricing Model (CAPM). The cost of
debt capital is partly based on the average interest
rate paid for long-term external debt and partly on
the interest rate applicable for pension obligations.

Value management in the context of project
control
The strategies set for each segment (and also the
ensuing project decisions) give rise to the areas of
strategic emphasis which are then implemented at
a functional level. The overall project development
process becomes more targeted as a result of the
closer link between the strategies defined for each

segment and the objectives defined for specific
projects. Once a project decision has been reached,
the task is to manage each individual project over
time. Projects are therefore monitored continuously
and resources reallocated according to require-
ments.

The project decision and related project selec-
tion are therefore important aspects of value-based
management. Net present values (NPVs) and rates
of return are computed as part of the decision-mak-
ing process. This involves computing the present
value of cash flows and the internal project rate of
return (or model rate of return in the case of vehicle
projects) which are expected to be generated by
a project decision and comparing them with the
minimum rate of return derived from capital market
data.

Using this method, the amount by which a
project will contribute to the total value of the seg-
ment can be documented when the project decision
is taken. Targets and performance are controlled
using project-related target NPVs and individual cash
flow related parameters which have an impact on
those values.

The NPV of a project programme is computed

by aggregating the amounts for all projects and
discounting them back to a specific date. This
value serves as an important target for the Auto-
mobiles and Motorcycles segments. The business
value of each segment is then computed by de-
ducting the market value of debt capital. For both
of these segments, the objective is to increase
business value, as computed above, on a con-
tinuous basis.

Return on capital used to measure value on
a periodic basis
The management of product projects and product
programmes is subject to basic conditions which
result from periodic planning. The aim here is to

Return on Capital Employed

Profit before financial result
in euro million

2007

2006

Capital employed
in euro million

2007

2006

Return on Capital Employed
in %

2007

2006

Automobiles

Motorcycles

3,450

3,055

15,108

14,056

440

423

22.8

18.2

21.7

17.7

48 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Capital employed by
automobiles segment
in euro million

2007

2006

to the return on assets, the Financial Services seg-
ment also manages its business using risk-based
performance indicators such as value-at-risk.

Assets employed

28,515

less: Non-interest bearing liabilities

– 13,407

Capital employed

15,108

27,227

– 13,171

14,056

ROCE =

Profit before financial result

Capital employed

monitor and manage periodic targets on a long-term
basis in order to ensure that the BMW Group’s earn-
ings performance can develop at a steady pace.
Periodic performance is managed in the light of de-
fined accounting policies and external financial re-
porting requirements. The BMW Group primarily
uses profit before tax and segment-specific rates of
return as the key indicator figures by which it manages
operating performance.

For example, return on capital employed is used

as the main performance indicator for the Automo-
biles and Motorcycles segments. Return on sales is
also used as a performance indicator. The return on
assets is used for the Group as a whole. In addition

ROA Group =

Profit before interest expense and taxes

Balance sheet total

ROA Financial Services =

Profit before tax

Operating assets

The ROCE is derived by dividing segment operat-
ing profit by segment capital employed. The latter
comprises all current and non-current operational
assets of the segment, less liabilities used opera-
tionally and which are not subject to interest e.g.
trade payables. This net amount is the capital em-
ployed.

The ROCE target value for the Automobiles

segment (i.e. the minimum required rate of return
derived from the cost of capital) is at least 26 %.

Return on Assets

Profit before tax / Profit before
interest expense and taxes
in euro million

2007

2006

Operating assets /
Total assets
in euro million

2007

2006

Return on Assets

in %

2007

2006

Financial Services

BMW Group

743

4,721

685

4,979

59,040

88,997

50,529

79,057

1.3

5.3

1.4

6.3

Key performance indicators
in %

Return on Capital Employed

Automobiles

Motorcycles

Return on Assets

Financial Services

BMW Group

*adjusted for new accounting treatment of pension obligations

2007

2006

2005

2004*

2003

22.8

18.2

1.3

5.3

21.7

17.7

1.4

6.3

23.2

17.8

1.3

5.6

25.4

10.4

1.4

6.5

23.8

16.7

1.4

6.6

Long-term creation of value
The overall target set for earnings is continuous
growth, whereby the relevant performance indicators
are measured against the Group’s minimum rate of
return. These periodic targets are supplementary to
project and programme targets.

In order to implement this comprehensive target

and management system, whilst at the same time
satisfying periodic reporting and accounting require-
ments, the model analyses show for each project
decision reached the impact of cash flows on the
NPV and on the model rate of return as well as the
impact on periodic earnings. This approach enables
the BMW Group to analyse the effect of each project-
based decision on business value (quantified in
terms of the NPV of the project programme) as well
as on earnings and rates of return. “Multi-project
planning” data gleaned from these procedures al-
lows ongoing comparison between dynamic multi-
period targets and periodic performance.

Strategic realignment
The BMW Group’s strategic realignment will also
bring with it changes to the Group internal manage-
ment system. In future, the BMW Group intends
to focus even more on profitability and increasing
business value in the long-term. This means that
the efficient use of capital at a project, segment and
Group level will play an even greater role.

Earnings Performance
The BMW Group recorded a net profit of euro
3,134 million (2006: euro 2,874 million) for the finan-
cial year 2007. The post-tax return on sales was
5.6 % (2006: 5.9 %). Earnings per share of common
and preferred stock were euro 4.78 and euro 4.80
respectively.

Group revenues rose by 14.3 % compared to
the previous year. Excluding exchange rate factors,
Group revenues would have increased by 17.6 % or
euro 8,397 million. Revenues from the sale of BMW,
MINI and Rolls-Royce brand cars went up by 11.8 %.
Revenues from motorcycles business fell by 2.5 %.
Revenues from financial services business climbed
by 26.5 % on the back of volume growth. Revenues
from other activities of the Group amounted to euro
214 million and related mainly to the Cirquent Group
(previously: softlab Group). The comparable figure
for the previous year was euro 193 million.

Revenue growth was spread across all regions.

Group revenues increased by 12.4 % in Germany
and by 21.4 % in the rest of Europe. Revenues for the
Americas region rose by 5.5 %. For the Africa, Asia
and Oceania regions, they grew in total by 14.0 %,
mainly as a result of the sharp sales volume increase
recorded in China. Cost of sales went up 2.1 per-
centage points faster than revenues. This develop-
ment reflected the impact of additional costs which
the BMW Group has reported on since the begin-
ning of 2007, namely the effect of less favourable ex-
change rates and higher raw material prices. Despite
these adverse factors, gross profit increased in ab-
solute terms by 7.5 %, giving a gross profit percent-
age of 21.8 % (2006: 23.1 %). The gross profit per-
centage for Industrial Operations was down by 0.5
percentage points and that of Financial Operations
by 1.1 percentage points. Information regarding the
composition of these sub-groups is provided in
Note [1].

Sales and administrative costs increased by
5.7 % due to the high level of business volumes; the
increase was, however, lower than that of revenues.
They represented 9.4 % of revenues and were there-
fore 0.7 percentage points lower on a year-to-year
comparison.

Research and development costs were 14.8 %
higher than in 2006, unchanged as a percentage of
revenues at 5.2 %. They include amortisation of cap-
italised development costs amounting to euro 1,109
million (2006: euro 872 million). Total research and
development costs amounted to euro 3,144 million
(2006: euro 3,208 million). This figure comprises
research costs, development costs not recognised
as assets and capitalised development costs. The
research and development expenditure ratio for 2007
was 5.6 % (2006: 6.5 %).

Depreciation and amortisation of property, plant

and equipment and intangible assets included in
cost of sales, sales and administrative costs and re-
search and development costs amounted to euro
3,683 million (2006: euro 3,272 million).

Pension obligations decreased as a result of

the Retirement Age Amendment Act passed in
2007 which raised the statutory retirement age for
the state pension scheme in Germany. The euro
103 million positive impact on earnings is spread
over the relevant income statement cost lines by
function.

50 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Group Income Statement

in euro million

Revenues

Cost of sales

Gross profit

Sales and administrative costs

Research and development costs

Other operating income

Other operating expenses

Profit before financial result

Result from equity accounted investments

Other financial result

Financial result

Profit before tax

Income taxes

Net profit

2007

2006

56,018

– 43,832

12,186

48,999

– 37,660

11,339

– 5,254

– 2,920

730

– 530

4,212

– 350

– 339

3,873

– 739

3,134

– 4,972

– 2,544

744

– 517

4,050

– 25

4,124

– 1,250

2,874

The positive net amount from other operating in-
come and expenses fell by 11.9 % compared to the
previous year. Other operating income decreased
primarily as a result of lower income from the reversal
of provisions. Other operating expenses increased
slightly by euro 13 million or 2.5 %.

The profit before financial result increased by
euro 162 million (4.0 %) against the previous year
and therefore reached a new high level.

The financial result deteriorated by euro 413 mil-

lion, of which euro 445 million relates to the line
“Other financial result”. As stated above, earnings in
2006 included a gain of euro 372 million resulting
from the partial settlement of the exchangeable bond
on shares in Rolls-Royce plc, London. Further con-
versions in 2007 gave rise to a gain of euro 97 mil-
lion. The bond was completely settled by the end
of 2007. In addition to the gain on the exchangeable
bond, other financial result also includes losses on
other derivative financial instruments, in particular
stand-alone interest-rate derivatives. A changed
market interest rate structure caused the fair values
of these financial instruments to decrease. The net
result from using the equity method improved by
euro 36 million. This was primarily attributable to
an impairment loss recognised in the previous year

on the BMW Group investment in TRITEC Motors
Ltda., Campo Largo. These shares were sold to
the Chrysler Group in 2007. The net positive result
from investments decreased by euro 35 million. Net
interest expense improved by euro 31 million. Within
the net interest result, the net negative amount re-
sulting from unwinding the discounting on pension
obligations and recognising income for the expected
return on pension plan assets improved by 3.8 % on
a year-on-year basis.

As a result of the changes in the financial result
described above, profit before tax fell by 6.1 % com-
pared to the previous year. The pre-tax return on
sales was 6.9 % (2006: 8.4 %). Excluding the impact
of the settlement of the exchangeable bond on
shares in Rolls-Royce plc, London, and the fair mar-
ket loss on the option obligation, the profit before tax
improved by 0.6 % to euro 3,776 million.

The Group net profit was euro 260 million or
9.0% above the figure reported in the previous year.
The significantly lower effective tax rate is due to
effect of the Business Tax Reform Act 2008 and the
resulting decrease in deferred taxes.

The Automobiles segment recorded a 9.2 %
increase in sales volume and a 12.7 % increase in
revenues. Segment profit improved by 7.3 % to euro

3,232 million despite the adverse factors described
above.

Revenues of the Motorcycles segment fell by

2.9 %. Ongoing efficiency improvements neverthe-
less allowed the segment result to improve. The
segment profit before tax, at euro 71 million, im-
proved by 7.6 % compared to the previous year.

The Financial Services segment was again able
to expand its business successfully in 2007, enabling
the segment profit to be improved by 8.5 % on a
year-on-year comparison. Reconciliations to the
Group profit from ordinary activities were again neg-
ative in 2007, with a net expense of euro 173 million;
this represented a deterioration of euro 534 million
compared to the previous year. This was largely due
to the higher gain recognised in the previous year on
the settlement of the exchangeable bond on shares
in Rolls-Royce plc, London, and to fair value losses
recognised on derivative financial instruments.

Financial Position
The Group cash flow statement shows the sources
and applications of cash flows for the financial years
2007 and 2006, classified into cash flows from oper-
ating, investing and financing activities.

Cash flows from operating activities are deter-
mined indirectly starting with the Group net profit. By
contrast, cash flows from investing and financing ac-
tivities are based on actual payments and receipts.
Cash and cash equivalents in the cash flow state-
ment correspond to the amount disclosed in the
balance sheet.

Operating activities of the BMW Group gener-

ated a positive cash flow of euro 11,794 million in
2007, an increase of euro 1,814 million or 18.2 %
compared to the previous year. Changes in net cur-
rent assets during 2007 generated a cash inflow of
euro 204 million (2006: euro 174 million). The cash
outflow for investing activities amounted to euro
17,248 million and was therefore euro 3,578 million
higher than in 2006. Capital expenditure for intangi-
ble assets and property, plant and equipment result-
ed in the cash outflow for investing activities de-
creasing by euro 46 million on a year-on-year
comparison. The cash outflow for net investments
in financial services activities rose steeply and was
euro 3,604 million higher than in the previous year.

Financing activities in 2007 generated a positive

cash flow of euro 6,557 million (2006: euro 3,323
million). Cash inflows from the issue of bonds to-

Revenues by segment

in euro million

Automobiles

Motorcycles

Financial Services

Reconciliations

Group

Profit before tax by segment

in euro million

Automobiles

Motorcycles

Financial Services

Reconciliations

Group

2007

2006

53,818

1,228

13,940

– 12,968

56,018

47,767

1,265

11,079

– 11,112

48,999

2007

2006

3,232

743

– 173

3,873

3,012

685

361

4,124

52 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

talled euro 6,038 million (2006: euro 6,876 million),
and euro 4,152 million (2006: euro 4,491 million)
was used to repay bonds. The dividend payment
in 2007 totalled euro 458 million. The cash inflow
from other financial liabilities and commercial paper
increased by euro 3,519 million.

68.4 % (2006: 73.0 %) of the cash outflow for

investing activities was covered by the cash inflow
from operating activities. The cash flow statement
for Industrial Operations shows that the cash outflow
for operating activities exceeded the cash inflow
from investing activities by 56.6 % (2006: 21.6 %).
As expected, the cash flow statement for Financial
Operations shows that cash inflow from operating
activities did not cover the cash outflow for investing
activities due to the high level of capital expenditure
on leased products and receivables from sales fi-
nancing. The shortfall was 58.7 % (2006: 50.2 %).
After adjustment for the effects of exchange-
rate fluctuations and changes in the composition
of the BMW Group amounting to a negative amount
of euro 46 million (2006: positive amount of euro
82 million), the various cash flows resulted in an in-
crease in cash and cash equivalents of euro 1,057
million (2006: decrease of euro 285 million).

Net interest-bearing assets relating to Industrial

Operations (including receivables from Financial
Operations) amounted to euro 7,052 million at the
year-end, representing an increase of euro 1,667
million since 31 December 2006. Net interest-bear-
ing assets relating to Industrial Operations comprise
cash and cash equivalents (euro 1,887 million), mar-
ketable securities relating to Industrial Operations
(euro 1,933 million) and receivables from the Finan-
cial Operations (euro 5,910 million) less financial lia-
bilities of Industrial Operations. Excluding interest
and currency derivatives, the latter amounts to euro
2,678 million.

Net Assets Position
The Group balance sheet total increased by euro
9,940 million or 12.6 % to euro 88,997 million. Cur-
rency effects, largely attributable to a weaker US
dollar, again held down the increase in the balance
sheet total in 2007. Adjusted for changes in ex-
change rates, the balance sheet total would have
increased by 16.7 % to euro 12,703 million. The
main factors behind the increase on the assets
side were the increased level of leased products
(+ 24.7 %), financial assets (+ 21.4 %), cash and

Change in cash and cash equivalents
in euro million

13,000

12,000

11,000

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

– 1,000

– 2,000

– 3,000

– 4,000

Cash and cash
equivalents
31.12. 2006

Cash inflow from
operating activities

Cash outflow from
investing activities

Cash inflow from
financing activities

Currency trans-
lation, changes in
Group composition

Cash and cash
equivalents
31.12. 2007

1,336

+ 11,794

– 17,248

+ 6,557

– 46

2,393

cash equivalents (+ 79.1 %) and receivables from
sales financing (+ 12.8 %). On the equity and liabili-
ties side of the balance sheet, the main increases
related to equity (+ 13.7 %) and financial liabilities
(+ 20.5 %).

Intangible assets increased by 6.7 % to euro

5,670 million. Within intangible assets, capitalised
development costs went up by 4.7 % to euro 5,034
million. Development costs recognised as assets
during the year under report amounted to euro 1,333
million (– 13.2 %), equivalent to a capitalisation ratio
of 42.4 % (2006: 47.9 %). The lower level of addi-
tions to capitalised development costs in 2007 was
due to the smaller number of projects in the series
development phase. Amortisation on intangible
assets amounted to euro 1,109 million (+27.2 %).
The carrying amount of property, plant and
equipment decreased slightly (– 1.6 %) to euro
11,108 million. The bulk of capital expenditure related
to further expansion of the worldwide production
and sales networks. Capital expenditure on property,
plant and equipment was euro 2,684 million or 1.1 %
more than in the previous year. Depreciation on prop-
erty, plant and equipment totalled euro 2,471 million
(+ 6.8 %). Balances brought forward for subsidiaries
being consolidated for the first time amounted to
euro 5 million. Capital expenditure on intangible as-
sets and property, plant and equipment totalled euro
4,267 million (– 1.1 %), which, as in the previous year,
was financed fully out of cash flow. Capital expendi-
ture as a percentage of revenues was 7.6 % (2006:
8.8 %).

due to higher business volumes. Trade receivables
went up by 18.3 % compared to one year earlier.
Financial assets increased by 21.4 % to euro

4,795 million, mainly as a result of higher fair values
of derivative financial instruments.

Liquid funds increased by 29.1 % to euro 4,352
million. Whereas marketable securities were roughly
at the previous year’s level, cash and cash equiva-
lents increased by euro 1,057 million compared to
one year earlier.

On the equity and liabilities side of the balance
sheet, equity grew by 13.7 % to euro 21,744 million.
The profit for the year attributable to shareholders of
BMW AG increased equity by euro 3,126 million. Fair
value changes recognised directly in other accumu-
lated equity reduced equity by euro 61 million (2006:
reduction of euro 43 million). The latter comprises
translation differences, fair value gains and losses
on financial instruments and available-for-sale secu-
rities as well as actuarial gains and losses for pension
provisions. The increase in the discount factor applied,
especially in Germany, in 2007 gave rise to actuarial
gains totalling euro 528 million. The carrying amounts
of investments decreased, mainly reflecting the
settle ment of the exchangeable bond on shares in
Rolls-Royce plc, London. Translation differences re-
duced accumulated other equity by a further euro
384 million. By contrast, derivative financial instru-
ments increased by euro 366 million. Deferred taxes
on fair value gains and losses recognised directly
in equity corresponded to a negative amount of euro
388 million at 31 December 2007.

As a result of the growth of financial services busi-

Minority interests amounted to euro 11 million.

ness, the total carrying amount of leased products
increased sharply by 24.7 % to euro 17,013 million.
Adjusted for changes in exchange rates, leased
products would have risen by 33.2 %.

The carrying amount of other investments de-
creased by 47.9 % to euro 209 million, mainly as a
result of the settlement of the exchangeable bond on
the investment in Rolls-Royce plc, London, com-
pleted in 2007. The BMW Group no longer holds any
shares in Rolls-Royce plc, London.

Receivables from sales financing were up by
12.8 % to euro 34,244 million due to higher busi-
ness volumes. Of this amount, retail customer and
dealer financing accounted for euro 26,181 million
(+ 13.6 %) and finance leases accounted for euro
8,063 million (+10.0 %). Inventories increased by
euro 555 million or 8.2 % to euro 7,349 million, mainly

The equity ratio of the BMW Group therefore im-
proved by 0.2 percentage points to 24.4 %.

The equity ratio for Industrial Operations was

43.8 % compared to 40.6 % at the end of the previ-
ous year. The equity ratio for Financial Operations fell
from 10.4 % at the end of the previous year to 9.2 %
at 31 December 2007.

The amount recognised in the balance sheet
for pension obligations decreased by 7.8 % to euro
4,627 million. As in the previous year, the amount re-
ported under pension provisions corresponds to the
full defined benefit obligation (DBO). In the case of
pension plans with fund assets, the fair value of fund
assets is offset against the defined benefit obliga-
tion. The decrease in pension obligations was attrib-
utable principally to the higher discount factor in
Germany.

54 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Balance sheet structure Group
in euro billion

Non-current assets

64 %

24 %

38 %

64 %

24 %

40 %

Equity

Non-current provisions and liabilities

Current assets

36 %

38 %

Current provisions and liabilities

of which cash and cash equivalents
and marketable securities

3 %

2 %

2007

2006

2007

Balance sheet structure Industrial Operations
in euro billion

Non-current assets

48 %

44 %

51 %

41 %

Equity

Current assets

52 %

49 %

31 %

28 %

Non-current provisions and liabilities

28 %

Current provisions and liabilities

of which cash and cash equivalents
and marketable securities

5 %

3 %

2007

2006

2007

penses are treated as bought-in costs in the value
added calculation. The allocation statement applies
value added to each of the participants involved in
the value added process. It should be noted that the
gross value added treats depreciation as a com-
ponent of value added which, in the allocation state-
ment, is treated as internal financing.

Net value added by the BMW Group in 2007 in-

creased by 3.8 % to euro 14,096 million. The in-
crease over the previous year was largely attributable
to the higher level of revenues. The increase in gross
value added, at 9.5 %, was even more pronounced
since it is not affected by depreciation and amortisa-
tion, which are higher than in the previous year.

The bulk of the net value added (53.3 %) is ap-
plied to employees. The amount applied to providers
of finance increased to 16.1 % as a result of the high-
er funding volume required for financial services
business. The government/public sector (including
deferred tax expense) accounted for 8.4 %. The pro-
portion of net value added applied to shareholders,
at 4.9 %, was higher than in the previous year. The
remaining proportion of net value added (17.3 %)
will be retained in the Group to finance future oper-
ations. It decreased by 0.4 percentage points com-
pared to one year earlier.

Other provisions went down slightly (– 0.6 %) to
euro 5,502 million. Deferred tax liabilities were down
by euro 44 million to euro 2,714 million, whereby
the deferred tax effects of the Business Tax Reform
Act, fair value gains and losses recognised directly in
equity and translation differences largely offset each
other. Financial liabilities went up by 20.5 %, reflect-
ing the strong growth of the financial services busi-
ness. Within financial liabilities, bonds increased by
12.0 % to euro 18,383 million. Liabilities to banks,
asset backed financing obligations and commercial
paper were all also up.

Trade payables amounted to euro 3,551 million

and were thus 5.0 % lower than one year earlier.
Other liabilities were 4.7 % higher at euro
6,130 million, mainly due to the increase in deferred
income relating to service and repair contracts and
lease financing.

Compensation Report
The compensation of the Board of Management
comprises fixed and variable remuneration compo-
nents. In addition, benefits are also payable at the
end of members’ mandates, primarily in the form
of pension benefits. Further details, including an
analysis of remuneration by individual, are disclosed
in the Compensation Report which can be found in
the “Corporate Governance” section of the Annual
Report on pages 142 to 145. The Compensation
Report is a sub-section of the Management Report.

Subsequent Events Report
No events have occurred after the balance sheet date
which could have a major impact on the earnings
performance, financial position and net assets of the
BMW Group.

Value Added Statement
The value added statement shows the value of work
performed less the value of work bought in by the
BMW Group during the financial year. Depreciation
and amortisation, cost of materials and other ex-

56 Group Management Report

BMW Group value added statement

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

in euro million

Work performed

Revenues

Financial income

Other income

Total output

Cost of materials

Other expenses

Bought-in costs

2007

2007
in %

2006

2006
in %

Change
in %

56,018

– 114

730

56,634

31,019

5,355

36,374

20,260

6,164

14,096

7,511

2,270

1,181

694

2,432

98.9

– 0.2

1.3

48,999

393

744

97.7

0.8

1.5

100.0

50,136

100.0

13.0

54.8

9.4

64.2

35.8

10.9

24.9

53.3

16.1

8.4

4.9

17.3

–

26,598

5,037

31,635

18,501

4,916

13,585

7,448

1,627

1,636

458

2,410

53.1

10.0

63.1

36.9

9.8

27.1

54.9

12.0

3.4

17.7

–

15.0

9.5

3.8

0.8

39.5

27.8

51.5

0.9

33.3

3.8

14,096

100.0

13,585

100.0

10.9

9.4

53.3 %

Employees

24.9

54.8

16.1 %

Providers of finance

8.4 % Government/public sector
4.9 %
Shareholders
17.3 %
Group

Gross value added

Depreciation and amortisation

Net value added

Applied to:

Employees

Providers of finance

Government/public sector

Shareholders

Group

Minority interest

Net value added

BMW Group value added 2007
in %

Net value added

Cost of materials

Depreciation and amortisation

Other expenses

2007

2006

21.8

14.1

7.5

6.9

5.6

20.2

16.4

24.4

43.8

9.2

23.1

14.9

8.3

8.4

5.9

24.3

16.9

24.2

40.6

10.4

129.6

115.3

5.3

1.3

22.8

18.2

6.3

1.4

21.7

17.7

Key Performance Figures

Gross margin

EBITDA margin

EBIT margin

Pre-tax return on sales

Post-tax return on sales

Pre-tax return on equity

Post-tax return on equity

Equity ratio – Group

Industrial Operations

Financial Operations

Coverage of intangible assets, property, plant and equipment by equity

Return on Assets

BMW Group

Financial Services

Return on Capital Employed

Automobiles

Motorcycles

Cash inflow from operating activities

euro million

11,794

9,980

Cash outflow from investing activities

euro million

17,248

13,670

Coverage of cash outflow from investing activities by cash inflow from operating activities

68.4

73.0

Net financial assets of Industrial Operations

euro million

7,052

5,385

58 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Capital expenditure on intangible assets and
property, plant and equipment was increased by
26.1 % to euro 1,670 million (2006: euro 1,324 mil-
lion), with the increase mainly attributable to the
high level of product and infrastructure investments
made at the Dingolfing plant. Depreciation and
amortisation amounted to euro 1,791 million.

Equity rose by euro 727 million to euro 5,648

million. The existing authorisation to acquire treasury
shares was not exercised during the financial year
2007. The equity ratio increased from 23.4 % to
25.0 %. Long-term external capital (registered profit-
sharing certificates, special untaxed reserves, pen-
sion provisions, the liability to the BMW Unterstüt-
zungsverein e.V. and liabilities due after one year)
decreased by 15.0 % to euro 4,068 million.

A special untaxed reserve pursuant to § 6b (3)
German Income Tax Act (EStG) was recognised in
2007.

As in previous years, the cash inflow from
BMW AG’s operating activities was utilised in 2007
to finance the operations of affiliated companies.

Comments on the financial statements of
BMW AG
Whereas the Group financial statements are drawn
up in accordance with IFRSs issued by the IASB, the
financial statements of BMW AG are drawn up in
accordance with the provisions of the German Com-
mercial Code (HGB). Where it is permitted and con-
sidered sensible, the principles and policies of IFRSs
are also applied in the individual company financial
statements. The pension provision in the individual
company financial statements, for example, is also
determined in accordance with IAS 19 and the full
defined benefit obligation recognised. In numerous
other cases, however, the accounting principles and
policies in the individual company financial state-
ments of BMW AG differ from those applied in the
Group financial statements. The main differences
relate to the recognition of intangible assets, depre-
ciation and amortisation methods, the measurement
of inventories and provisions as well as the treatment
of financial assets.

BMW AG develops, manufactures and sells cars
and motorcycles manufactured by itself and foreign
subsidiaries. These vehicles are sold through the
Company’s own branches, independent dealers, sub-
sidiaries and importers. The number of cars manu-
factured at German and foreign plants in 2007 rose
by 12.8 % to 1,541,503 units. At 31 December 2007,
BMW AG had 76,064 employees, 92 fewer than one
year earlier. Wage earners account for approximately
53 % of the workforce.

In 2007, revenues were 13.9 % higher than in

the previous year. Sales to foreign Group sales com-
panies accounted for euro 36.0 billion or approxi-
mately 74.5 % of the total revenues of euro 48.3 bil-
lion. Cost of sales increased slightly faster than
revenues. In absolute terms, gross profit improved
by euro 0.8 billion (+ 13.4 %) and amounted to euro
6.9 billion.

Adverse currency factors in the area of the US

dollar and Japanese yen as well as continued in-
tense competition on the automobile markets had
a negative impact on BMW AG’s earnings. The
change in the interest rate used to discount the pen-
sion provision (raised from 4.40 % in 2006 to 5.50 %
in 2007) and the new Retirement Age Amendment
Act both had a positive impact on earnings.

2007

2006

109

4,986

4,814

9,909

2,654

1,218

5,937

644

1,763

436

5,268

4,823

10,171

2,866

1,075

4,478

693

1,583

106

12,652

10,801

22,616

21,045

654

1,991

2,309

694

5,648

–

654

1,991

1,818

458

4,921

–

3,793

6,292

4,347

6,131

10,085

10,478

394

1,716

2,597

2,094

6,801

607

2,046

1,618

1,313

5,584

22,616

21,045

BMW AG
Balance Sheet at 31 December in euro million

Assets

Intangible assets

Property, plant and equipment

Investments

Tangible, intangible and investment assets

Inventories

Trade receivables

Receivables from subsidiaries

Other receivables and other assets

Marketable securities

Cash and cash equivalents

Current assets

Prepayments

Total assets

Equity and liabilities

Subscribed capital

Capital reserves

Revenue reserves

Unappropriated profit available for distribution

Equity

Registered profit-sharing certificates

Special untaxed reserve for emission rights granted free of charge

Special untaxed reserves

Pension provisions

Other provisions

Provisions

Liabilities to banks

Trade payables

Liabilities to subsidiaries

Other liabilities

Liabilities

Deferred income

Total equity and liabilities

60 Group Management Report

BMW AG
Income Statement in euro million

2007

2006

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Revenues

Cost of sales

Gross profit

Sales costs

Administrative costs

Research and development costs

Other operating income and expenses

Result on investments

Net interest result

Profit from ordinary activities

Income taxes

Other taxes

Net profit

Profit carried over from previous year

Transfer to revenue reserves

Unappropriated profit available for distribution

48,310

– 41,448

6,862

– 2,786

– 881

– 2,828

731

255

– 38

1,315

– 115

– 16

1,184

– 491

694

42,417

– 36,364

6,053

– 2,560

– 917

– 2,966

654

304

– 8

560

– 60

– 15

485

– 31

458

Revenues from the sale of vehicles to car rental
companies are not recognised when there is an
obligation to take back the vehicles. In accordance
with the draft financial reporting pronouncement
“Specific Issues relating to the Transfer of Beneficial
Ownership and Profit Realisation in accordance
with HGB” (IDW ERS HFA 13 revised version dated

29 November 2006) issued by the German Institute
of Public Accountants (IDW), vehicles remain on
the balance sheet, measured at amortised cost,
because, on the basis of the criteria set out in the
pronouncement, beneficial ownership has not been
transferred to the car rental companies.

KPMG Deutsche Treuhand-Gesellschaft Aktienge-
sellschaft Wirtschaftsprüfungsgesellschaft, Munich,
has issued an unqualified audit opinion on the finan-
cial statements of BMW AG, of which the balance
sheet and the income statement are presented here.
The BMW AG Financial Statements and Manage-
ment Report for the financial year 2007 will be sub-
mitted to the operator of the electronic version of the
German Federal Gazette and can be obtained via
the Company Register website. These financial state-
ments are available from BMW AG, 80788 Munich,
Germany.

62 Group Management Report

Risk Management

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Risk management in the BMW Group
All entrepreneurial activities involve an element of
risk. Some of those risks can be quite substantial.
They may arise in conjunction with business opera-
tions or they may affect a company as a result of
external factors. Other risks arise as business be-
comes more international. As a globally operating
enterprise, the BMW Group is confronted with nu-
merous risks. Price fluctuations on the global cur-
rency, money, capital and commodity markets as
well as shorter innovation cycles result in an ever-
rising complexity which places great demands on
enterprises with international operations.

The BMW Group has long been founded on
the idea of consciously taking reasonable (measur-
able) risks and making full use of the opportunities
relating to those risks. As part of the risk reporting
system, the Board of Management and the Super-
visory Board are regularly informed about risks
which could have a significant impact on business
development.

The BMW Group has an integrated risk man-
agement system which provides it with the informa-
tion to be prepared for changes in market and other
conditions. The system also enables it to manage
the value-added process within the Group. Business
decisions are reached after consideration of in-depth
project analyses which present potential risks and
opportunities in detail. In addition, as part of the long-
term planning strategy and short-term forecasting
procedures, the risks and opportunities attached to
specific business activities are evaluated and used
as the basis for setting targets and implementing ap-
propriate risk-mitigation measures.

The risk management process ensures that
risks are identified at an early stage and that suitable
instruments are employed for both the manage-
ment and monitoring of those risks. The risk manage-
ment system comprises a wide range of organisa-
tional and methodological components that are all
finely tuned with each other. The system’s decen-
tralised structure also encourages a balanced ap-
proach to risks at all organisational levels.

The Group reporting system provides the deci-

sion makers with comprehensive, up-to-date in-
formation on performance against targets and on
new developments with regard to the market and
competitors. Critical success factors are monitored

continuously to ensure that unfavourable develop-
ments are identified at an early stage so that appro-
priate countermeasures can be implemented.

Overall risk management within the BMW Group

is managed centrally and is reviewed for its appro-
priateness and effectiveness by external auditors and
by the Group’s internal audit department. The find-
ings reached serve as the basis for further improve-
ments.

A network of risk managers is in place through-
out the Group, regularly carrying out risk reviews in
which significant risks are recorded, systematically
identified, measured and reported upon on a timely
basis. The reviews cover general economic, legal
and compliance risks as well as risks specific to the
automobile sector and to internal processes. Risk
managers are allocated to predefined areas to carry
out reviews for the risk network. The network can
draw on experts with specialist knowledge in specific
risk areas. Based on the BMW Group’s set of risk
principles, decisions are made as to whether risks
should be avoided, reduced, insured against or
entered into if there are potential business opportu-
nities.

For the basis for an organisation that is per-
manently learning, standardised rules are in place,
which are consistently applied throughout the
Group. Risk management is an ongoing task, since
changes in the legal, economic or regulatory envi-
ronment or changes within the Group itself could
lead to new risks or to known risks being assessed
differently. By regularly sharing experiences with
other companies, the BMW Group ensures that in-
novative ideas and approaches flow into the risk
management system and that risk management is
subjected to continual improvement. Regular train-
ing sessions, continued education measures and
information events are invaluable ways of preparing
people for new or additional requirements with
regard to the processes in which they are involved.

At present, no risks have been identified which
could threaten the existence of the BMW Group or
which could have a materially adverse impact on the
net assets, financial position or results of operations
of the Group. However, risks can never be entirely
ruled out.

In the course of its business activities, the BMW

Group is exposed to various types of risk which are

addressed below. Additional comments on risks in
conjunction with financial instruments are provided
in note [38] of the consolidated financial statements.

Risks relating to the general economic
environment
As a globally operating enterprise, the BMW Group
is affected by global economic factors such as
changes in currency parities and changes on the
financial markets. The US dollar is particularly impor-
tant for the development of Group revenues and
earnings and represents the greatest individual risk
within the BMW Group’s foreign currency portfolio.
Exchange rate fluctuations of the Japanese yen, the
British pound and the Chinese renminbi in relation
to the euro can also have a material impact on earn-
ings. Based on Group forecasts, these four curren-
cies account for some 75 % of the foreign currency
exposure of the BMW Group.

The BMW Group manages currency risks at
both a strategic and an operating level. From a stra-
tegic point of view, i.e. in the medium and long term,
the BMW Group endeavours to manage foreign ex-
change risks by “natural hedging”, in other words by
increasing the volume of purchases denominated
in foreign currency or increasing the volume of local
production. In the short to medium term (i.e. for
operative purposes), currency risks are hedged on
the financial markets. Hedging transactions are en-
tered into only with financial partners of first-class
credit standing. The nature and scope of such meas-
ures are set out in guidelines applicable throughout
the BMW Group. A cash-flow-at-risk model and sce-
nario analyses are used to measure exchange rate
risks. These instruments are also used as part of
the process of currency management for the purpose
of taking business decisions.

The BMW Group reduces currency risk by re-

financing its financing and lease business as a gen-
eral rule in the currency of the relevant market. If
funds are raised in a foreign currency, swap con-
tracts are concluded immediately afterwards in the
corresponding local currency in order to reduce the
risk exposure.

Liquidity and interest-rate risks are managed

within the BMW Group by raising refinancing funds
with matching maturities and by employing deriva-
tive financial instruments. Interest-rate risks are

measured and limited both at a country and Group
level on the basis of the value-at-risk concept. The
risk-return ratio is also measured regularly using sim-
ulated computations in conjunction with a present
value-based interest-rate management system.
Sensitivity analyses, which contain stress scenarios
and show the potential impact of interest rate changes
on earnings, are also used as tools to manage
interest-rate risks. Credit lines with various banks
and the use of various financing instruments ensure
sufficient liquid funds are available to the Group. Li-
quidity risk is continuously monitored at a separate
entity level and documented in a rolling cash flow
forecasting system.

A major part of financing and lease business
within the Financial Services segment is refinanced
on the capital markets. As a result of its good credit
standing, reflected in the long standing first-class
short-term ratings issued by Moody’s (P-1) and
Standard & Poor’s (A-1), the BMW Group is able to
obtain competitive conditions. The long-term ratings
for the BMW Group published by Standard&Poor’s
and Moody’s in September 2005 remain unchanged,
also helping the BMW Group to obtain competitive
conditions. Moody’s issued an A1 rating and S & P
an A+ rating, both with stable outlook. As a con-
sequence of the general crisis of confidence on the
financial markets, financing conditions also deterio-
rated for the BMW Group in the second half of 2007,
despite the good ratings that it enjoys.

Changes in the international raw material mar-
kets also have an impact on the business develop-
ment of the BMW Group. In order to safeguard the
supply of production materials and to minimise
the cost risk, the commodity markets relevant for
the BMW Group are closely monitored. The market
price trend of precious metals such as platinum,
palladium and rhodium, for which appropriate hedg-
ing strategies are decided upon by the Raw Mate rials
Committee, is also important in this context.

Changes in the price of crude oil, which is an
important basic material in the manufacture of com-
ponents, have an indirect impact on production costs.
As a manufacturing enterprise, the BMW Group is
also affected by changes in energy prices, caused by
both market factors and tax legislation.

Cyclical economic fluctuations also represent
risk factors for future business development. Unfore-

64 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

seeable interventionist economic policies can also
impair the BMW Group’s performance in specific
markets. The BMW Group anticipates these risks by
monitoring the markets in detail and by observing
early warning indicators. The BMW Group’s world-
wide operations also have the effect of spreading
risk. At the same time, determined engagement
in new markets and segments with both existing
and new products creates significant opportunities
for the BMW Group to strengthen its competitive
position.

An escalation of political tensions, terrorist ac-
tivities or possible pandemics could have a negative
impact on the general economic situation, the inter-
national capital markets and hence the business
development of the BMW Group.

Specific industry risks
Fuel prices, whether influenced by market or gov-
ernmental tax policies, and increasingly stringent
requirements to reduce vehicle fuel consumption
and emissions, all set high demands on the BMW
Group’s engine and product development activities.
One manifest result of this has been the reduction
of consumption and emissions achieved with the
BMW Group’s EfficientDynamics strategy.

The issue of CO2 emission limits based on the
unladen weight of a vehicle has been taken up by
the European Commission. This involves setting
differentiated CO2 emission limits on the basis of
predefined vehicle classes. The proposal requires
significantly higher CO2 reductions for larger vehicle
classes than for smaller ones. Consumption effi-
ciency requirements and proposals have also been
put forward in the USA. The proposed rules for CO2
emissions and fuel economy could have a materially
adverse effect on the business development of
the Automobiles segment and consequently on the
Group’s earnings performance.

The BMW Group is confronting these challenges

by rigorously applying its technological expertise
and innovative strength to reduce the CO2 emissions
of its vehicles. The EfficientDynamics strategy was
adopted back in 2000: a combination of highly effi-
cient engines, improved aerodynamics, lightweight
construction and energy management reduces
the average fuel consumption of the vehicle fleet.
In the medium term, the BMW Group is working on

achieving additional fuel economy by a wide range
of measures from electrification of the drivetrain
through to hybrid solutions. In the long-term, the
BMW Group is committed to the use of hydrogen
gained from various renewable sources to power
engines. The need to reduce consumption and
emissions is fully integrated into the Group’s product
innovation process. A specialist department is
studying the interplay of energy management, aero-
dynamics, lightweight construction, drive perform-
ance and CO2 emissions. The BMW Group advo-
cates the use of differentiated CO2 limits for different
vehicle classes. These limits should be set at levels
that are transparent and therefore meet customers’
expectations. Achieving real improvements for the
environment requires measures to be applied fairly to
all vehicle classes. The BMW Group therefore sup-
ports the current debate as to how ecological im-
provements can be achieved that take all factors into
account.

Operating risks
Risks arising from business interruption and loss of
production are insured up to economically reasonable
levels. The BMW Group’s highly flexible production
network and working time models also help to re-
duce operating risks.

Close cooperation between manufacturers and

suppliers is normal in the automotive sector, and
whilst this provides economic benefits, it also creates
a degree of mutual dependence. Some suppliers
have become very important for the production ac-
tivities of the BMW Group. Delivery delays, cancella-
tions, strikes or poor quality can lead to production
stoppages, and thus have a negative impact on profit-
ability. The Group mitigates this risk by employing
extensive procedures for selecting, monitoring and
handling suppliers. Before selection, for example,
both the technical competence and the financial
strength of potential suppliers are appraised. A com-
prehensive Supplier Relationship Management
system, which also takes account of social and eco-
logical aspects, helps to reduce risk exposure.

Risks relating to the provision of financial
services
As a consequence of the ongoing successful
growth in lease business, the BMW Group also faces

a volume-induced increase in the residual value risk
on vehicles returned to the Group at the end of lease
contracts. Residual values of BMW Group vehicles
on the used car markets are continuously monitored
over time, and future developments forecasted. Ex-
ternal market observations are also used in this con-
text. The overall risk exposure is measured each
quarter by comparing forecasted market values and
contractual values according to model and market
and the return ratio computed. Thanks to active life-
cycle management for current models and measures
aimed at optimising the process of international
reselling, residual value risks remained at a stable,
albeit low, level compared to the previous year. Iden-
tified risks are covered in the balance sheet either
by provisions or by write-downs on the lease vehicles
concerned. Market forecasts also confirm the stable
trend for lease residuals of the Group’s car lease
portfolio. Internal and external forecasts as well as
actual prices achieved on the market, broadly docu-
ment high residual values for cars manufactured by
the BMW Group.

Operational risks relating to the financial services
business include the risk of damage caused by inap-
propriate or failed internal procedures and systems,
human error or external factors. The scope of proce-
dures applied in each country to manage operational
risks is set out in a Group manual which, amongst
other things, addresses the requirements of the
Basle II accord. This manual stipulates the rules for
identifying and measuring potential risk scenarios
and for computing key risk indicators on an ongoing
basis. It also sets out the Group’s systematic ap-
proach to recording losses and the nature of any
agreed risk mitigation measures. Both qualitative
and quantitative aspects are required to be taken
into account in the decision process. The latter is
backed up by various system-based solutions, all
of which follow the principles of operational risk
manage ment, such as separation of duties, dual
control and the documentation of system changes.
In addition, the effectiveness and efficiency of the
internal control system are tested regularly.

Credit risks affecting the retail customer busi-
ness (leasing, financing) on the one hand and the
commercial customer financing business (dealers,
fleet customers, importers) on the other, are con-
tinually monitored, assessed and measured, and

where necessary, risk mitigating measures put into
place. In line with the Group’s own mandatory risk
guidelines and the stringent requirements imposed
by Basle II, the main risk measurement methods used
are customer scoring (retail customer business) and
credit rating (commercial customer business). Close
contacts with borrowers, a good understanding of
the leased or financed vehicles involved, prudent
measurement of collateral and the use of local credit
audits all help to prevent losses. For risk manage-
ment purposes, the BMW Group reverts to normal
good banking practises, such as the use of maxi-
mum unsecured risks for each rating category.
Risk criteria such as arrears and bad debt ratios are
analysed quarterly and used to actively manage
the credit portfolio and improve portfolio quality.
The credit decision process comprises up to three
phases. Depending on the credit volume applied for
and the credit risk rating of the party involved, financ-
ing applications for international dealers, importers
and fleet customers are presented to the local, re-
gional or global credit committees for approval. The
dual control and segregation of duties principles
apply worldwide and are rigorously implemented.
In order to minimise risk further, the BMW Group is
continuously making efforts to standardise its credit-
decision processes and the quality of credit applica-
tions, and to ensure that uniform and transparent
rating systems are in place worldwide. Provisions are
recognised in the balance sheet to cover identified
risks.

Legal risks
The BMW Group is currently not involved in any court
or arbitration proceedings which could have a signifi-
cant impact on its financial condition.

Compliance with the law is a basic prerequisite
for the success of the BMW Group. Current law pro-
vides the binding framework for the BMW Group’s
various business activities around the world. The
growing international scale of business and the huge
number of complex legal regulations increase the
risk of laws being broken simply because they are
not known or fully understood. The BMW Group
takes all necessary measures to ensure that its
management bodies, managers and staff act lawful-
ly. It is essential for all employees to know and to
comply with current legal regulations. The extent of

66 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

those legal regulations is set out in corporate guide-
lines and in the BMW Group’s stated set of core
principles. However, wrongdoing by individuals can
never be entirely ruled out. It is the BMW Group’s
objective to keep such risks to a minimum and to
systematically uncover any cases of corruption,
bribery or blackmail. The BMW Group set up a Com-
pliance Committee in 2007 which reports directly to,
and advises, the Board of Management of BMW AG.
Like all enterprises, the BMW Group is exposed

to the risk of warranty claims. Adequate provisions
have been recognised in the balance sheet to cover
such claims. Part of the risk, especially where the
American market is concerned, has been insured
externally up to economically acceptable levels. The
high quality of BMW Group products, additionally
ensured by regular quality audits and ongoing im-
provement measures, helps to reduce this risk. In
comparison with competitors, this can give rise to
benefits and opportunities for the BMW Group.

Changes in the regulatory environment may im-

pair the sales volume, revenues and earnings per-
formance of the BMW Group in individual markets
or economic regions. Further information is given in
the section on sector-specific risks.

Personnel risks
As an attractive employer, the BMW Group has found
itself in a favourable position for many years in the in-
tense competition for qualified technical and manage-
ment staff. Employee satisfaction and a low level of
employee fluctuation also help to minimise the risk
of know-how drift. The BMW Group’s attractiveness
as an employer also helps to ensure that appropri-
ately qualified staff can be recruited, particularly in
conjunction with the implementation of the Group’s
new strategy.

An ageing and shrinking population in Germany
will have a lasting impact on the conditions prevailing
in the labour, product, services and financial mar-
kets. Demographic change will give rise to risks and
opportunities which will affect enterprises more and
more in the coming years. The BMW Group sees
demographic change as one of its main challenges
and is actively involved in planning for its effect

on operations. The focus is on the following areas of
action, aimed at creating and retaining a motivated
workforce in the long-term:
(1) the creation of a working environment for the

future

(2) promotion and maintenance of the workforce’s

ability to perform with the appropriate set of skills

(3) appropriate levels of qualification
(4) increasing employees’ awareness of their re-

sponsibility to make personal provisions for their
future

(5) individual employee working life-time models
The BMW Group’s pension obligations to its em-
ployees resulting from defined benefit plans are
measured on the basis of actuarial reports. In accord-
ance with IAS 19, future pension payments are dis-
counted by reference to market yields on high-
quality corporate bonds. These yields are subject to
market fluctuation and influence the level of pension
obligations. Furthermore, changes in other factors,
such as longer life expectancies, can also have an
impact on pension obligations. In the United King-
dom, the USA and a number of other countries,
funds intended to cover pension entitlements are
held in pension funds which are kept separate from
corporate assets and are mainly invested in fixed-
income securities (with a high level of creditworthi-
ness), equities and property. In Germany, by contrast,
the funds remain part of the enterprise’s assets.

Risks affecting pension funds are monitored
continuously and managed from a risk and yield
perspective. Regular asset-liability studies are per-
formed and used to match the maturities of inter-
est-generating investments with future pension
payments, thereby reducing the interest rate risk
attached to each pension fund. Investments are
broadly spread in order to reduce risk. In addition,
risk limits for investment activities have been de-
fined for each pension fund and are monitored con-
tinuously.

Risk indicators (e.g. value-at-risk) are regularly
computed in order to identify risks at an early stage.
Risk mitigation measures are put into place as soon
as predefined risk limits are reached. Worst-case
analyses are also carried out regularly to assess the

The BMW Group protects its intellectual property
by ensuring that the relevant departments have clear
instructions regarding data protection and the use
of information technology. Information underlying
key areas of expertise is subject to particularly
stringent security measures. In addition, employees
working in such functions are increasingly receiving
specific training in the area of data protection.

potential impact on the Group of unexpectedly high
market fluctuations.

From 2008 onwards, in a measure to reduce

risks further, the BMW Group intends to set up pen-
sion funds for all of its pension commitments that
are not already externally funded. This will take place
over the coming years in three stages.

Information and IT risks
Great importance is attached in the BMW Group to
the protection of data, business secrets and inno-
vative development against unauthorised access,
damage and misuse. The protection of information
and data is an integral component of business pro-
cesses and is achieved within the BMW Group by ap-
plying international security standards. Employees,
process design and information technology each play
a role in the Group’s comprehensive security concept.
The Group’s procedures are documented in regular-
ly updated manuals, guidelines and process descrip-
tions. All of these require employees to handle infor-
mation appropriately and ensure that information
systems are properly used. Purposeful communica-
tion and training measures create a high degree of
security awareness on the part of all people involved.
The technical data protection procedures used by
the BMW Group include process-specific security
measures as well as standard activities such as virus
scanners, firewall systems and access controls at
operating system and application level. Further
measures include internal testing procedures and
the regular back-up of data. A security network is
in place throughout the Group to ensure compliance
with security specifications. Regular analyses and
rigorous security management ensure high-quality
protection. This includes the activities of the BMW
Group’s Security Operations Centre which is re-
sponsible for the security of internal network com-
munications. The Group’s core process “Product
develop ment” and the related IT infrastructure have
been audited and certified to international security
standard ISO 27001/17799. Protecting BMW
Group-specific know-how is also treated as a major
issue as far as cooperation arrangements and rela-
tionships with partner companies are concerned.

68 Group Management Report

Outlook

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

The economic environment in 2008
The BMW Group forecasts that the global economy
will again lose some of its momentum in 2008, but
will nevertheless continue to grow. The pace will again
be set by the emerging markets in Asia, Latin America
and Eastern Europe, whereas growth in North America
and the rest of Europe is likely to be robust, but no-
where near as high. From today’s perspective, the
US credit crisis is not expected to result in massive
global economic upheaval. It could, however, hold
down domestic demand somewhat, particularly in
the USA itself, without causing a recession there.
The US growth rate in 2008 will again remain
below the average registered in recent years. The
impact of the property and credit crisis is not likely
to tail off until the second half of the year at the earli-
est. The US Federal Reserve will no doubt endeavour
to stimulate the economy with further interest rate
cuts. It is nevertheless likely that consumers will be
much more reluctant to spend than they were a
year ago. Overall, the growth rate should remain at
roughly the same level as in the previous year.

By contrast, a slowdown in growth is forecasted
for Europe in 2008. Firstly, higher interest rates will
take their toll and hold down investment volumes.
Secondly, export growth is likely to weaken once
again. The sharp increase in the inflation rate at the
turn of the year will probably deter the European
Central Bank from lowering interest rates significantly.

The growth rate for Germany will also weaken.

Whereas private consumption is forecasted to re-
main buoyant, exports and particularly investments
are likely to grow at a much slower pace.

The Japanese economy should grow in 2008

at a somewhat lower pace to that of 2007, with
momentum still coming from both the domestic
market and abroad. The recent sharp rise in con-
sumer prices – mostly due to higher energy prices
– should make it easier for the Japanese central
bank to increase interest rates in small steps.

The emerging economies of Asia, Latin America

and Eastern Europe will continue to expand rapidly
with growth rates only marginally down on the pre-
vious year.

A generally strong euro expected
The euro again appreciated sharply against the US
dollar in the course of 2007. Lower interest rates,
weaker growth and the USA’s high current account
deficit all suggest that the US dollar is likely to remain
weak in the near future.

Although the British pound fell steeply during
the second half of 2007, it is not expected to suffer
any further significant loss in value.

The Japanese yen also depreciated sharply in

2007. The fact that interest rates are still on the low
side in Japan means that the yen is likely to remain
undervalued for the time being.

Risks affecting economic growth
Energy and commodity prices will remain high in
2008, reflecting the fact that demand – in particular
from the emerging economies – will continue to
grow strongly. With the global economy still enjoying
robust growth and the US dollar weakening, com-
modities are likely to remain in demand as an invest-
ment in the near future. As a result of the extremely
tense situation on the markets, the risk of specula-
tive price rises remains present for the foreseeable
future. The most significant risk emanates from the
credit crisis in the USA. Should the crisis become
more serious in the USA or spill over into other
markets, this could result in a significantly lower
global growth rate. All in all, the credit crisis causes
forecasts for 2008 to be subject to a high degree of
uncertainty.

Economic outlook for the automobile industry
in 2008
The global automotive economy will again be driven
by the emerging economies of Asia, Eastern Europe
and Latin America, whereas sales on the three main
traditional markets (Japan, the USA and Western
Europe) are likely to stagnate.

Double-digit growth is again forecasted for China
and India in 2008. The forecast for Russia and some
of the Latin American markets is on a similar scale.
Growth will also remain strong overall in Eastern
Europe.

By contrast, the car markets in the USA, Japan

and Western Europe are still not generating any
momentum. At best, the markets there will stagnate.
Car sales will decrease slightly in the USA in the
wake of the credit crisis. Japan is also unlikely to see
any significant upturn. This also applies to Western
Europe taken as a whole. A slight recovery is, how-
ever, forecasted for Germany.

Motorcycle markets will continue to develop
divergently
The divergent development of the international mo-
torcycle markets will continue in 2008. The BMW
Group forecasts that the overall market for motor-
cycle sales in the 500 cc plus segment should be
close to the previous year’s level.

Whereas the US market is forecasted to con-
tract slightly, the markets in Europe and Asia should
remain stable overall, with European markets in par-
ticular again developing divergently.

More difficult environment for the financial
services sector
The current market environment is having an ad-
verse impact on the refinancing and liquidity situa-
tion and on credit risk within the financial services
sector. In combination with a stronger euro, this
will put a strain on profitability within the sector.

Outlook for the BMW Group in 2008
In the light of the general economic environment dis-
cussed above, the BMW Group believes that it will
continue to perform successfully in the financial year
2008 with the initial benefits of the Group’s new stra-
tegic direction already becoming visible.

With the Number ONE strategy, the BMW Group

will lay the foundation in 2008 for the planned im-
provement in profitability. This will involve measures
on both the revenue and expenditure side. In total,
the BMW Group is aiming to achieve cumulative im-
provements of some euro 6 billion compared to the
original forecasts by 2012. The greatest potential for
savings is seen in the cost of materials, the largest
block of costs for the business.

As the basis for its continuing success, the
BMW Group is also aiming for sales volume records
with all three brands and is confident of being able to
retain its position as the world’s leading premium
manufacturer. Further expansion of the product
range and targeted engagement on new markets
will also help it to achieve these objectives. Against
the background of these aims, the BMW Group fore-
casts that business will grow faster in the first half of
2008 and more moderately in the second.

The BMW Group is also working hard to im-

prove cost efficiency in order to achieve its profit-
ability targets. This focus on costs, which needs
to start during the development phase, involves
avoiding unnecessary complexity, focusing firmly
on achieving value for the customer and creating
synergy benefits by the increased use of modular
components.

One of the objectives is to reduce research and

development expenditure for new products and
technologies as efficiently as possible, based on the
principle “More output from less input”. This will
enable the BMW Group to set the R&D ratio to a
level of approximately 5.0 % – 5.5 % of revenues and
still meet the same high standards.

In this context, the BMW Group is also setting

new targets for the ratio of internal and external input
in strategically important technological areas. Further
opportunities for better profitability will also come
from more efficiently designed interfaces within the
Group’s supplier network. In future, for example,
suppliers will be involved at an even earlier stage in
the decision-making process within product and
technology projects. In future, wherever it makes
commercial sense and the appropriate economies of
scale can be realised, the BMW Group will enter into
more cooperation arrangements.

The BMW Group believes that, compared to

the levels invested in the past, it will be able to
reduce its capital expenditure ratio over the coming
years whilst, at the same time, still remaining fully
prepared to face any future challenges. The plan is
to scale down the capital expenditure ratio to below
7.0 % of revenues.

70 Group Management Report

10 Group Management Report
10 A Review of the Financial Year
13 General Economic Environment
17 Review of Operations
41 BMW Stock and Bonds
44

Disclosures relating to Takeover
Regulations and Explanatory Report

Within an intensely competitive environment,
personnel expense management takes on an ever-
greater significance. Substantial efficiency improve-
ments, particularly in production, will enable person-
nel capacities to be reduced, resulting in lower per-
sonnel expenditure. In this context, any opportunities
to improve flexibility are made use of in close coop-
eration with employee representatives. This includes
reducing the number of temporary personnel, the
use of early retirement models and fluctuation.

In addition to the earnings factors described
above, the BMW Group also intends to achieve better
capital efficiency – return on capital employed – as
part of its strategy to increase the value of the busi-
ness in the long term. The BMW Group is therefore
committed to making more use of performance in-
dicators that allow better management of capital em-
ployed.

Segments all expected to perform well
In the coming years, the BMW Group will continue to
take full advantage of opportunities to achieve profit-
able growth in all segments.

Adverse external factors caused by unfavourable
exchange rates and high commodity prices will again
affect the Automobiles segment’s earnings during
the financial year 2008. Nonetheless, the BMW Group
is targeting a further improvement in segment earn-
ings, with sales volumes continuing to develop posi-
tively and the efficiency improvement measures
described above beginning to bear fruit. The seg-
ment should also achieve a higher return on capital
employed.

The BMW Group’s Motorcycles segment will
continue with its model initiative in 2008. An increase
in motorcycle sales is forecasted for all regions. This
includes a reversal of the negative trends previously
witnessed in Germany and the USA. Segment
revenues and earnings will be slightly higher than in
2007.

The Financial Services segment will continue
to grow in 2008. Market activities in the segment’s

established lines of business will be intensified by
expanding the product range and paying even greater
attention to the needs of dealers, dealer groups
and retail customers. The process of geographical
expansion will also be continued, particularly in
Eastern Europe and Asia.

Multi-brand financial services business will be
strengthened, particularly in the area of direct channel
operations. In this context, the “up2drive” brand
name will be additionally promoted. Within the fleet
business, the integration of the acquired fleet manage-
ment company, DEKRA SüdLeasing Services GmbH
(renamed to: BMW Fuhrparkmanagement Be teili-
gungs GmbH), will be completed and organic growth
continued. All lines of business will continue to be
developed in 2008, building on the high quality of
service offered by the Financial Services segment in
order to strengthen its outstanding market position.
The various measures described above will result in
a further increase in the volume of financial services
business. Simultaneously, continuous measures will
be implemented in conjunction with a global project
to improve process efficiency. All of these factors
give good reason to expect a further increase in seg-
ment earnings in 2008.

Overall positive outlook for 2008
External factors will continue to have an adverse im-
pact on the BMW Group’s earnings during the finan-
cial year 2008. Currency factors (in particular the
continuing weakness of the US dollar and the Japa-
nese yen), higher raw material costs and less favour-
able refinancing conditions as a consequence of
the credit crisis still remain the principal challenges
to future earnings.

By contrast, the efficiency and productivity im-

provements described above will have a positive
impact on Group earnings. On top of this, the BMW
Group forecasts further stable growth for its operat-
ing segments which will, in turn, create further impe-
tus for earnings in 2008. Overall, the BMW Group
is aiming to improve the quality of earnings in 2008.

This will also be reflected in the key performance
figures such as return on sales and return on capital
that are used to manage the BMW Group.

Adjusted for the exceptional gain on the
Rolls-Royce exchangeable bond in 2007, the
BMW Group aims to achieve higher pre-tax earnings
for the financial year 2008 than one year earlier.

Numerous projects have already been initiated

in conjunction with the Group’s strategic realign-
ment, aimed at raising the quality of future earnings.
By 2012, the BMW Group’s Automobiles segment
is aiming to achieve a return on capital employed in
excess of 26 % and a return on sales in a range of
8 % to 10 %.

72 Group Financial Statements

Contents

Group Financial Statements
Group and Sub-group Income Statements
Group and Sub-group Balance Sheets at 31 December
Group and Sub-group Cash Flow Statements
Group Statement of Changes in Equity
Statement of Income and Expenses recognised directly in Equity
Notes to the Group Financial Statements
Accounting Principles and Policies
Notes to the Income Statement
Notes to the Balance Sheet
Other Disclosures
Segment Information

Responsibility Statement by the Company’s Legal Representatives
Auditors’ Report

73
74
76
78
79

80
89
96
117
131

135
136

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

BMW Group
Group and Sub-group Income Statements

in euro million

Notes

Group

Industrial Operations *

Financial Operations*

2007

2006

2007

2006

2007

2006

56,018

48,999

55,263

49,227

14,349

11,349

– 43,832 – 37,660

– 44,331 – 39,238

– 12,877 – 10,050

12,186 11,339

10,932

9,989

1,472

1,299

– 5,254

– 4,972

– 4,647

– 4,464

– 609

– 535

[8]
[9]

[10]
[11]
[12]
[12]

[13]
[14]

Revenues

Cost of sales

Gross profit

Sales and administrative costs

Research and development costs

Other operating income

Other operating expenses

Profit before financial result

Result from equity accounted investments

Other financial result

Financial result

Profit before tax

Income taxes

Net profit

– 2,920

– 2,544

– 2,920

– 2,544

730

744

594

626

– 530

– 517

– 430

– 450

4,212

4,050

3,529

3,157

– 25

– 350

– 339

– 81

– 70

– 25

383

358

3,873

4,124

3,459

3,515

[15]

– 739

– 1,250

– 496

– 1,066

3,134

2,874

2,963

2,449

–

194

– 167

890

–

– 139

751

–

175

– 125

814

–

– 33

781

– 327

424

– 246

535

–

424

–

535

Attributable to minority interest

Attributable to shareholders of BMW AG

3,126

2,868

2,955

2,443

Earnings per share

of common stock in euro

Earnings per share

of preferred stock in euro

[16]

4.78

4.38

4.80

4.40

* before consolidation of transactions between the sub-groups; unaudited

74 Group Financial Statements

BMW Group
Group and Sub-group Balance Sheets at 31 December

Assets
in euro million

Notes

Group

Industrial Operations *

Financial Operations*

2007

2006

2007

2006

2007

2006

Intangible assets

Property, plant and equipment

Leased products

Investments accounted for using the

equity method

Other investments

Receivables from sales financing

Financial assets

Deferred tax

Other assets

Non-current assets

Inventories

Trade receivables

Receivables from sales financing

Financial assets

Current tax

Other assets

Cash and cash equivalents

Current assets

[19]
[20]
[21]

[22]
[22]
[23]
[24]
[25]
[26]

[27]
[28]
[23]
[24]
[25]
[26]
[29]

5,670

5,312

5,550

5,276

11,108

11,285

11,083

11,260

120

17,013

13,642

254

19,911

16,364

209

20,248

1,173

720

415

401

17,865
816
755

378

186

–

388

–

20,248

17,865

1,092

755

1,201

1,192

– 1,952

– 1,828

892

875

344

255

56,619 50,514

19,310 19,366

39,811 33,485

7,349

2,672

6,794

2,258

13,996

12,503

7,340

2,592

–

6,784

2,214

–

13,996

12,503

3,622

3,134

2,213

2,348

1,409

237

2,109

2,393

246

2,272

1,336

225

6,932

1,887

222

5,574

1,235

863

506

786

772

101

32,378 28,543

21,189 18,377

16,875 14,240

Total assets

88,997 79,057

40,499 37,743

56,686 47,725

Total assets adjusted for

asset backed financing transactions

82,651

74,556

–

50,340

43,224

* before consolidation of transactions between the sub-groups; unaudited

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

Equity and liabilities
in euro million

Notes

Group

Industrial Operations *

Financial Operations*

2007

2006

2007

2006

2007

2006

Subscribed capital

Capital reserves

Revenue reserves

Accumulated other equity

Minority interest

Equity

Pension provisions

Other provisions

Deferred tax

Financial liabilities

Other liabilities

654

1,911

20,789

18,121

– 1,621

– 1,560

[30]

[31]
[32]
[33]
[34]
[35]

21,744 19,130

17,755 15,315

5,197

4,965

4,627

2,676

2,714

5,017

2,865

2,758

21,428

18,800

4,595

2,417

2,067

716

4,983

2,462

2,012

882

259

369

403

464

20,712

17,918

2,024

1,932

1,514

1,458

1,843

1,732

Non-current provisions and liabilities

33,469 31,372

11,309 11,797

23,215 20,551

Other provisions

Current tax

Financial liabilities

Trade payables

Other liabilities

[32]
[33]
[34]
[36]
[35]

2,826

2,671

2,673

2,489

808

567

22,493

17,656

3,551

4,106

3,737

3,924

654

2,090

2,938

3,080

437

1,407

3,288

3,010

178

154

207

130

20,403

16,249

613

449

6,926

5,174

Current provisions and liabilities

33,784 28,555

11,435 10,631

28,274 22,209

Total equity and liabilities

88,997 79,057

40,499 37,743

56,686 47,725

Total equity and liabilities adjusted for

asset backed financing transactions

* before consolidation of transactions between the sub-groups; unaudited

82,651

74,556

–

50,340

43,224

76 Group Financial Statements

BMW Group
Group and Sub-group Cash Flow Statements

in euro million

Net profit

Reconciliation of net profit to cash inflow from operating activities

Current tax

Depreciation of leased products

Depreciation and amortisation of tangible, intangible and investment assets

Change in provisions

Change in deferred taxes

Other non-cash income and expense items

Gain/loss on disposal of non-current assets and marketable securities

Result from equity accounted investments

Changes in current assets and current liabilities

Change in inventories

Change in receivables

Change in liabilities

Income taxes paid

Notes3]

Group

2007

20062]

3,134

2,874

1,002

4,698

3,689

221

– 256

111

– 181

– 11

– 700

894

– 817

993

3,808

3,340

– 346

242

– 329

– 68

– 265

– 611

1,050

– 733

9,980

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

Cash inflow from operating activities

[39]

11,794

Investment in intangible assets and property, plant and equipment

– 4,267

– 4,313

Proceeds from the disposal of intangible assets and property, plant and equipment

Expenditure for investments

Proceeds from the disposal of investments

Investment in leased products

Disposals of leased products

Additions to receivables from sales financing

Payments received on receivables from sales financing

Investment in marketable securities

Proceeds from marketable securities

Cash outflow from investing activities

Buy-back of treasury shares

Payment of dividend for the previous year

Proceeds from the issue of bonds

Repayment of bonds

Internal financing of financial operations

Change in other financial liabilities

Change in commercial paper

Cash inflow/outflow from financing activities

Effect of exchange rate and changes in composition of group on

cash and cash equivalents

Change in cash and cash equivalents

Cash and cash equivalents as at 1 January

Cash and cash equivalents as at 31 December

1] unaudited
2] Previous year’s figures adjusted due to changed presentation of taxes.
3] Interest paid and received are presented in Note [39].

272

– 44

– 29

110

– 13,261

– 10,754

4,917

3,719

– 54,573

– 50,313

49,813

– 2,698

2,577

47,848

– 2,654

2,677

[39]

– 17,248

– 13,670

–

– 458

6,038

– 4,152

–

3,603

1,526

6,557

– 253

– 419

6,876

– 4,491

–

1,027

583

3,323

– 46

1,057

– 285

1,336

2,393

1,621

1,336

[39]

Industrial Operations1]
2007

20062]

Financial Operations1]
2007

20062]

2,963

2,449

424

535

Net profit

948

3,665

398

– 472

146

– 180

– 11

– 703

– 98

368

– 688

6,340

938

3,315

– 220

– 436

– 70

– 261

– 493

658

– 613

5,373

4,324

– 143

300

– 35

– 1

–

– 112

745

– 129

Reconciliation of net profit to cash inflow from operating activities

Current tax

3,560

– 130

227

107

–

– 4

– 135

485

– 120

Depreciation of leased products

Depreciation and amortisation of tangible, intangible and investment assets

Change in provisions

Change in deferred taxes

Other non-cash income and expense items

Gain/loss on disposal of non-current assets and marketable securities

Result from equity accounted investments

Changes in current assets and current liabilities

Change in inventories

Change in receivables

Change in liabilities

Income taxes paid

5,454

4,607

Cash inflow from operating activities

– 4,156

– 4,272

– 111

– 41

Investment in intangible assets and property, plant and equipment

270

– 44

– 359

354

–

– 2,698

2,568

– 4,049

–

– 458

–

– 24

– 392

364

–

– 2,619

2,419

– 4,417

– 253

– 419

– 1

– 1,634

– 1,040

– 377

845

– 129

644

– 1,624

– 1,197

–

– 5

Proceeds from the disposal of intangible assets and property, plant and equipment

Expenditure for investments

Proceeds from the disposal of investments

– 12,902

– 10,362

Investment in leased products

4,563

– 54,573

49,813

–

3,355

Disposals of leased products

– 50,313

47,848

– 35

258

Additions to receivables from sales financing

Payments received on receivables from sales financing

Investment in marketable securities

Proceeds from marketable securities

– 13,199

– 9,253

Cash outflow from investing activities

–

6,038

– 4,152

1,634

3,980

681

8,181

–

6,875

– 4,490

1,040

1,156

– 61

4,520

Buy-back of treasury shares

Payment of dividend for the previous year

Proceeds from the issue of bonds

Repayment of bonds

Internal financing of financial operations

Change in other financial liabilities

Change in commercial paper

Cash inflow/outflow from financing activities

– 15

104

– 31

– 22

cash and cash equivalents

Effect of exchange rate and changes in composition of group on

652

– 137

405

– 148

Change in cash and cash equivalents

1,235

1,887

1,372

1,235

101

506

249

101

Cash and cash equivalents as at 1 January

Cash and cash equivalents as at 31 December

78 Group Financial Statements

BMW Group
Group Statement of Changes in Equity

in euro million

Subscribed
capital

Capital Revenue
reserves

reserves

Accumulated other equity

Treasury Minority
interest

Total

Translation Securities Derivative
financial
differences
instru-
ments

Pension
obliga-
tions

31 December 2005

674

1,971 16,351

– 646

562

29 – 1,462

– 506

– 16,973

–

– 253

Acquisition of treasury shares

–

Withdrawal of shares from

circulation

Dividends paid

Translation differences

Financial instruments

Actuarial gains and losses

on pension obligations

Deferred tax on transactions

recognised directly in equity

Net profit 2006

Other changes

– 20

– 60

–

– 679

– 419

–

2,868

–

– 191

–

– 370

–

198

–

– 28

–

543

– 69

– 168

–

31 December 2006

654

1,911 18,121

– 837

214

178 – 1,115

Dividends paid

Translation differences

Financial instruments

Actuarial gains and losses

on pension obligations

Deferred tax on transactions

recognised directly in equity

Net profit 2007

–

– 458

–

3,126

–

– 422

–

– 183

366

–

528

– 113

– 279

–

31 December 2007

654

1,911 20,789

– 1,259

438

– 835

see also Note [30]

–

– 2

– 253

–

– 419

– 199

– 172

543

– 215

2,874

– 2

4 19,130

–

– 1

–

– 458

– 385

183

528

– 388

3,134

11 21,744

759

–

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

BMW Group
Statement of Income and Expenses recognised directly in Equity

in euro million

2007

2006

Fair value gains and losses on available-for-sale investments

recognised directly in equity

Fair value gains and losses on financial instruments used for

hedging purposes recognised directly in equity

Exchange differences arising on the translation of foreign subsidiaries

Actuarial gains and losses on defined benefit pension

and similar obligations

Deferred tax on gains and losses recognised directly in equity

Gains and losses recognised directly in equity

– 183

– 370

373

– 422

559

– 388

– 61

218

– 191

515

– 215

– 43

Profit after tax attributable to shareholders of BMW AG

3,126

2,868

Aggregate amount of net profit for period and gains and losses

recognised directly in equity

3,065

2,825

80 Group Financial Statements

BMW Group
Notes to the Group Financial Statements
Accounting Principles and Policies

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

[1]

Basis of preparation
The consolidated financial statements of Bayerische
Motoren Werke Aktiengesellschaft (“BMW Group
financial statements” or “Group financial statements”)
at 31 December 2007 have been drawn up in ac-
cordance with International Financial Reporting
Standards (IFRSs) as endorsed by the EU. The des-
ignation “IFRSs” also includes all valid International
Accounting Standards (IASs). All interpretations of
the International Financial Reporting Interpretations
Committee (IFRIC) mandatory for the financial year
2007 are also applied.

The Group financial statements comply with

provision § 315a of the German Commercial Code
(HGB). This provision, in conjunction with the
Regulation (EC) No. 1606/2002 of the European
Parliament and Council of 19 July 2002, relating to
the application of International Financial Reporting
Standards, provides the legal basis for preparing
consolidated financial statements in accordance with
international standards in Germany and applies to
financial years beginning on or after 1 January 2005.
The BMW Group and sub-group income state-

ments are presented using the cost of sales method.
The Group balance sheet and sub-group balance
sheets correspond to the classification provisions
contained in IAS 1 (Presentation of Financial State-
ments). In order to improve clarity, various items are
aggregated in the income statement and balance
sheet. These items are disclosed and analysed sep-
arately in the Notes.

In order to support the sale of its products, the

BMW Group provides various financial services –
mainly loan and lease financing – to retail customers
and to dealers. The inclusion of the financial services
activities of the Group therefore has an impact on the
Group financial statements. In order to provide a bet-
ter insight into the earnings, financial and net assets
position of the Group, additional information has been
presented in the BMW Group financial statements
on its Industrial and Financial Operations. Financial
Operations include financial services and the activities
of the Group financing companies. The operating
interest income and expense of Financial Operations
are included in revenues and cost of sales respec-
tively. The holding companies BMW (UK) Holdings
Ltd., Bracknell, BMW Holding B.V., The Hague, BMW
Österreich Holding GmbH, Steyr, BMW (US) Holding
Corp., Wilmington, Del., BMW España Finance S. L.,
Madrid, and BMW Holding Malaysia Sdn Bhd,
Kuala Lumpur, are allocated to Industrial Operations.

The main business transactions between Industrial
and Financial Operations, which are eliminated in
the Group financial statements, are internal sales of
products, the provision of funds for Group compa-
nies and the related interest. These additional disclo-
sures allow the assets, liabilities, financial position
and performance of Industrial and Financial Opera-
tions to be presented, in accordance with the recog-
nition and measurement principles stipulated by
IFRSs, as if they were two separate groups. This in-
formation, which has not been audited by the Group
auditors, is provided on a voluntary basis.

In conjunction with the refinancing of financial
services business, a significant volume of receivables
arising from retail customer and dealer financing is
sold. Similarly, rights and obligations relating to leases
are sold. The sale of receivables is a well established
instrument used by industrial companies. These
transactions are usually in the form of asset backed
financing transactions involving the sale of a portfolio
of receivables to a trust which, in turn, issues market-
able securities to refinance the purchase price. The
BMW Group continues to “service” the receivables
and receives an appropriate fee for these services. In
accordance with IAS 27 (Consolidated and Separate
Financial Statements) and the interpretation con-
tained in SIC-12 (Consolidation – Special Purpose
Entities) such assets remain in the Group financial
statements although they have been legally sold.
Gains and losses relating to the sale of such assets
are not recognised until the assets are removed from
the Group balance sheet on transfer of the related
significant risks and rewards. The balance sheet value
of the assets sold at 31 December 2007 totalled
euro 6.3 billion (31 December 2006: euro 4.5 billion).
For an additional understanding of the asset, liability
and financial position of the BMW Group, the Group
balance sheet contains a supplementary disclosure
of the balance sheet total adjusted for assets which
have been sold.

In addition to credit financing and lease con-
tracts, the Financial Services segment also brokers
insurance business via cooperation arrangements
entered into with local insurance companies. These
activities are not material to the BMW Group as a
whole.

The Group currency is the euro. All amounts are

disclosed in millions of euros (euro million) unless
stated otherwise.

All of the consolidated subsidiaries have a cor-

responding year-end to BMW AG.

The Group financial statements, drawn up in
accordance with § 315a HGB, and the Group manage-
ment report for the financial year 2007 will be sub-
mitted to the operator of the electronic version of the
German Federal Gazette and can be obtained via the
Company Register website. Printed copies will also
be made available on request. In addition the Group

financial statements and the Group management
report can be downloaded from the BMW Group
website at www.bmwgroup.com/ir.

The Board of Management authorised the

consolidated financial statements for issue on
19 February 2008.

[2] Consolidated companies

The BMW Group financial statements include, be-
sides BMW AG, all material subsidiaries, 17 special
purpose securities funds and 24 special purpose
trusts (almost all used for asset backed financing
transactions) both in Germany and abroad.

The number of subsidiaries, special purpose
securities funds and other special purpose trusts
included in the Group financial statements changed
in 2007 as follows:

Included at 31.12. 2006

Included for the first time in 2007

No longer included in 2007

Included at 31.12. 2007

Germany

Foreign

Total

–

144

155

189

204

65 subsidiaries (2006: 68), either dormant or gen-
erating a negligible volume of business, are not
included. Their influence on the Group’s earnings,
financial and net assets position is immaterial. Non-
inclusion of operating subsidiaries reduces total
Group revenues by 1.2 % (2006: 1.5 %).

One joint venture is consolidated using the
equity method. The investment in TRITEC Motors
Ltda., Campo Largo, was sold during the financial
year 2007. 16 equity investments are not consoli-
dated using the equity method since they are not
material to the Group’s earnings, financial and net
assets position. They are included in the line “Other
investments”, measured at cost less, where appli-
cable, accumulated impairment losses.

A separate “List of Group Investments” pursu-
ant to § 313 (4) HGB will be submitted to the opera-
tor of the electronic version of the German Federal
Gazette. This list, along with the “List of Third Party
Companies which are not of Minor Importance for
the Group”, will also be posted on the BMW Group
website at the address www.bmwgroup.com/ir.

The subsidiaries BMW Fuhrparkmanagement
Beteiligungs GmbH, Stuttgart, LHS Leasing- und
Handelsgesellschaft Deutschland mbH, Stuttgart,
BMW Financial Services Danmark A /S, Kolding,

BMW Renting (Portugal) Lda., Lisbon, BMW Vertriebs
GmbH, Salzburg, BMW Acquisitions Ltda., São Paulo,
BMW Financeira S. A. Credito, Financiamento e In-
vestimento, São Paulo, BMW Leasing do Brasil, S. A.,
São Paulo, BMW Asia Pte. Ltd., Singapore, BMW
Melbourne Pty. Ltd., Melbourne, BMW Sydney Pty.
Ltd., Sydney, and BMW Financial Services New
Zealand Ltd., Auckland, were all consolidated for the
first time in 2007.

BMW Renting Iberica S. L., Madrid (following its

merger with Alphabet Fleet Services España S. L.,
Madrid) and British Motor Holdings Ltd., Bracknell,
ceased to be consolidated companies during the
financial year.

The Group reporting entity also changed by
comparison to the previous year as a result of the
first-time consolidation of seven special purpose
trusts and two special purpose securities funds and
the deconsolidation of two special purpose trusts
and two special purpose securities funds.

In addition, the names of four entities were
changed during the financial year 2007. softlab
GmbH für Systementwicklung und EDV-Anwendung,
Munich, was renamed Cirquent GmbH, Munich;
softlab Gesellschaft für Systementwicklung und
EDV-Anwendung Ges.m.b.H., Vienna, was renamed

82 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

Cirquent Ges.m.b.H., Vienna, and softlab AG, Zürich,
was renamed Cirquent AG, Zürich. The name of BL

Reinsurance Company Ltd., Dublin, was changed to
BMW Financial Services (Ireland) Limited, Dublin.

[3] Business acquisitions and disposals

The acquisition of DEKRA SüdLeasing Services
GmbH, Stuttgart, and that entity’s subsidiaries,
LHS Leasing- und Handelsgesellschaft Deutsch-
land mbH, Stuttgart, DSL Fleetservices GmbH,
Stuttgart, MOBIDIG GmbH, Stuttgart, and LHS Auto-
land GmbH, Stuttgart, was completed on 2 April
2007, thus expanding the scale of the Group’s fleet
business. All of the above entities became wholly
owned subsidiaries. During the year, LHS Autoland
GmbH, Stuttgart, was merged with LHS Leasing-
und Handelsgesellschaft Deutschland mbH, Stutt-

gart. DEKRA SüdLeasing Services GmbH, Stuttgart,
was renamed BMW Fuhrparkmanagement Beteili-
gungs GmbH, Stuttgart. This entity and its subsidiary,
LHS Leasing- und Handelsgesellschaft Deutschland
mbH, Stuttgart, were consolidated for the first time
in the second quarter.

The acquisition cost was euro 121 million (in-
cluding euro 1 million of transaction costs). Based on
the definitive purchase price allocation, the following
carrying amounts and fair values were attributed to
the assets and liabilities of the acquired companies
at the acquisition date:

in euro million

Assets

Intangible assets and property, plant and equipment

Leased products

Investments in subsidiaries

Receivables from sales financing

Other assets

Liabilities

Provisions

Financial liabilities

Other liabilities

Net assets acquired

Acquisition cost

Goodwill

Allocation by segment:

Automobiles

Financial Services

Carrying
amount

Fair
value

515

230

699

–

515

230

699

121

The following identifiable assets have been recog-
nised and included in intangible assets, measured at
fair value:
– contract portfolio
– customer relationships
– contract management system
These intangible assets are amortised systematically
over the following useful lives:
4 years
– contract portfolio:
– customer relationships:
7 years
– contract management system: 5 years

The remainder of the surplus (euro 97 million)
of the acquisition cost over the fair value of the iden-
tifiable net assets acquired is largely attributable to
potential synergy benefits which will arise from the
future growth of the Group’s fleet business.

BMW Fuhrparkmanagement Beteiligungs GmbH,

Stuttgart, and LHS Leasing- und Handelsgesell-
schaft Deutschland mbH, Stuttgart, recorded a net
loss of euro 5.7 million in the period since their first-
time consolidation. Net revenues of the two entities
since the date of first-time consolidation amounted
to euro 379 million.

In addition, after obtaining approval from the
relevant local authorities, BMW Holding B. V., The
Hague, acquired SimeLease (Malaysia) Sdn Bhd,
Kuala Lumpur, and that entity’s subsidiary, SimeCredit
(Malaysia) Sdn Bhd, Kuala Lumpur, on 13 April 2007.
The names of these entities have been changed to
BMW Lease (Malaysia) Sdn Bhd, Kuala Lumpur, and
BMW Credit (Malaysia) Sdn Bhd, Kuala Lumpur.

With effect from 1 October 2007, all of the shares

of Boxer S. r. l., Cassinetta di Biandronno, were ac-
quired by BMW Italia S. p. A., Milan, and BMW España
Finance S. L., Madrid. The acquired company was
renamed Husqvarna Motorcycles S. r. l., Cassinetta
di Biandronno.

In addition, 51 % of the shares of CEC Finance
Ltd., Hong Kong, and 100 % of the shares of BMW
Osaka Corp., Osaka, Husqvarna Motorcycles NA,
LLC, Wilmington, Del., and John Cooper Garages
Ltd., Bracknell, were acquired during the year.
CEC Finance Ltd., Hong Kong, was renamed BMW
Financial Services Hong Kong Limited, Hong Kong.

The entities listed above are not material in terms

of the Group’s earnings performance, financial posi-
tion and net assets.

The investment in TRITEC Motors Ltda., Campo

Largo, was sold to the Chrysler Group on 11 July
2007 in line with agreements in place between the
various parties.

[4]

Consolidation principles
The equity of subsidiaries is consolidated in accord-
ance with IFRS 3 (Business Combinations). IFRS 3
requires that all business combinations are accounted
for using the purchase method, whereby identifiable
assets and liabilities acquired are measured initially
at their fair value. The excess of the Group’s interest
in the net fair value of the identifiable assets and lia-
bilities acquired over cost is recognised as goodwill
and is subjected to a regular review for possible im-
pairment. Goodwill of euro 91 million which arose
prior to 1 January 1995 remains netted against re-
serves. In the event of impairment and deconsolida-
tion, goodwill that has been deducted from equity
is dealt with directly in equity. The companies BMW
Financial Services Danmark A /S, Kolding, BMW
Renting (Portugal) Lda., Lisbon, BMW Acquisitions
Ltda., São Paulo, BMW Financeira S. A. Credito,
Financiamento e Investimento, São Paulo, BMW
Leasing do Brasil, S. A., São Paulo, BMW Asia Pte.
Ltd., Singapore, BMW Melbourne Pty. Ltd., Mel-
bourne, BMW Sydney Pty. Ltd., Sydney, and BMW

Financial Services New Zealand Ltd., Auckland, were
all consolidated for the first time as of 1 January 2007.
The equivalent date for BMW Fuhrparkmanagement
Beteiligungs GmbH, Stuttgart, and LHS Leasing-
und Handelsgesellschaft Deutschland mbH, Stutt-
gart, was 30 June 2007, and that for BMW Vertriebs
GmbH, Salzburg, 31 December 2007.

Receivables, liabilities, provisions, income and ex-
penses and profits between consolidated com panies
(intragroup profits) are eliminated on consolidation.
Under the equity method, investments are

measured at the Group’s share of equity taking ac-
count of fair value adjustments on acquisition, based
on the Group’s shareholding. Any difference be-
tween the cost of investment and the Group’s share
of equity is accounted for in accordance with the
purchase method. Investments in other companies
are accounted for as a general rule using the equity
method when significant influence can be exercised
(IAS 28 Investments in Associates). This is normally
the case when voting rights of between 20 % and
50 % are held (associated companies).

[5]

Foreign currency translation
The financial statements of consolidated compa-
nies which are drawn up in a foreign currency are
translated using the functional currency concept
(IAS 21: The Effects of Changes in Foreign Exchange
Rates) and the modified closing rate method. The
functional currency of a subsidiary is determined as
a general rule on the basis of the primary economic
environment in which it operates and corresponds
therefore to the relevant local currency. Income and
expenses of foreign subsidiaries are translated in the
Group financial statements at the average exchange
rate for the year, and assets and liabilities are trans-

lated at the closing rate. Exchange differences arising
from the translation of shareholders’ equity are off-
set directly against accumulated other equity. Ex-
change differences arising from the use of different
exchange rates to translate the income statement
are also offset directly against accumulated other
equity.

Foreign currency receivables and payables in

the single entity accounts of BMW AG and subsidi-
aries are recorded, at the date of the transaction, at
cost. Exchange gains and losses computed at the
balance sheet date are recognised as income or ex-
pense.

84 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

The exchange rates of those currencies which have a material impact on the Group financial statements
were as follows:

US Dollar

British Pound

Chinese renminbi

Japanese Yen

Australian Dollar

Closing rate

Average rate

31.12. 2007

31.12. 2006

2007

2006

1.46

0.73

10.70

163.77

1.67

1.32

0.67

10.29

156.88

1.67

1.37

0.68

10.42

161.28

1.64

1.26

0.68

10.02

146.06

1.67

[6]

Accounting principles
The financial statements of BMW AG and of its sub-
sidiaries in Germany and elsewhere have been
prepared for consolidation purposes using uniform
accounting policies in accordance with IAS 27.

Revenues from the sale of products are recog-
nised when the risks and rewards of ownership of
the goods are transferred to the customer, the sales
price is agreed or determinable and receipt of pay-
ment can be assumed. Revenues are stated net of
discounts, allowances, settlement discount and
rebates. In the case of long-term construction work,
revenues are generally recognised in accordance
with IAS 18 (Revenue) and IAS 11 (Construction
Contracts) on the basis of the stage of completion
of work performed using the percentage of com-
pletion method. Revenues also include lease
rentals and interest income from financial services.
Revenues for the Financial Operations sub-group
also include the interest income earned by Group
financing companies.

If the sale of products includes a determinable

amount for subsequent services (“multiple-com-
ponent contracts”), the related revenues are deferred
and recognised as income over the period of the
contract. Amounts are normally recognised as in-
come by reference to the expected pattern of related
expenditure.

Profits arising on the sale of vehicles for which

a Group company retains a repurchase commitment
(buy-back contracts) are not recognised until such
profits have been realised. The vehicles are included
in inventories and stated at cost.

Cost of sales comprises the cost of products

sold and the acquisition cost of purchased goods
sold. It includes all directly attributable material and
production costs and production overheads, includ-

ing depreciation/amortisation of property, plant and
equipment and intangible assets relating to produc-
tion and write-downs on inventories. Cost of sales
also includes freight and insurance costs relating to
deliveries to dealers and agency fees on direct sales.
Expenses which are directly attributable to the finan-
cial services business and interest expense from re-
financing the entire financial services business, in-
cluding the expense of risk provisions and impairment
losses, are reported in cost of sales. Cost of sales for
the Financial Operations sub-group also includes
the interest expense of Group financing companies.
Research costs and development costs which

are not capitalised are recognised as an expense
when incurred.

In accordance with IAS 20 (Accounting for
Government Grants and Disclosure of Government
Assistance), public sector grants are not recognised
until there is reasonable assurance that the con-
ditions attaching to them have been complied with
and the grants will be received. They are recognised
as income over the periods necessary to match
them with the related costs which they are intended
to compensate.

Basic earnings per share are computed in ac-
cordance with IAS 33 (Earnings per Share). Undiluted
earnings per share are calculated for common and
preferred stock by dividing the net profit after mi-
nority interests, as attributable to each category of
stock, by the average number of outstanding shares.
The net profit is accordingly allocated to the different
categories of stock. The portion of the Group net
profit for the year which is not being distributed is
allocated to each category of stock based on the
number of outstanding shares. Profits available for
distribution are determined directly on the basis of
the dividend resolutions passed for common and

preferred stock. Diluted earnings per share would
have to be disclosed separately.

Purchased and internally-generated intangible
assets are recognised as assets in accordance with
IAS 38 (Intangible Assets), where it is probable that
the use of the asset will generate future economic
benefits and where the costs of the asset can be
determined reliably. Such assets are measured at
acquisition and/or manufacturing cost and, to the
extent that they have a finite useful life, amortised on
a straight-line basis over their estimated useful lives.
With the exception of capitalised development costs,
intangible assets are generally amortised over their
estimated useful lives of between three and five
years. Intangible assets with infinite useful lives are
assessed regularly for recoverability and their carry-
ing amounts are reduced to the recoverable amount
in the event of impairment.

Development costs for vehicle and engine
projects are capitalised at manufacturing cost, to the
extent that costs can be allocated reliably and both
technical feasibility and successful marketing are
assured. It must also be probable that the develop-

ment expenditure will generate future economic
benefits. Capitalised development costs comprise
all expenditure that can be attributed directly to the
development process, including development-re-
lated overheads. Capitalised development costs
are amortised on a systematic basis, following the
commencement of production, over the estimated
product life which is generally seven years.

All items of property, plant and equipment are
considered to have finite useful lives. They are rec-
ognised at acquisition or manufacturing cost less
scheduled depreciation based on the estimated
useful lives of the assets. Depreciation on property,
plant and equipment reflects the pattern of their
usage and is generally computed using the straight-
line method. Components of items of property,
plant and equipment with different useful lives are
depreciated separately.

Expenditure on low value non-current assets
is generally written off in full in the year of acquisi-
tion.

Systematic depreciation is based on the fol-
lowing useful lives, applied throughout the Group:

in years

Factory and office buildings, distribution facilities and residential buildings

Plant and machinery

Other equipment, factory and office equipment

8 to 50

5 to 10

3 to 10

For machinery used in multiple-shift operations,
depreciation rates are increased to account for the
additional utilisation.

assets are attributed to the lessee and in the case
of operating leases the assets are attributed to the
lessor.

The cost of internally constructed plant and
equipment comprises all costs which are directly
attributable to the manufacturing process and an
appropriate portion of production-related overheads.
This includes production-related depreciation and
an appropriate proportion of administrative and social
costs.

Financing costs are not included in acquisition

or manufacturing cost.

Non-current assets also include assets relating

to leases. The BMW Group uses property, plant
and equipment as lessee and also leases out assets,
mainly vehicles produced by the Group, as lessor.
IAS 17 (Leases) contains rules for determining, on
the basis of risks and rewards, the economic owner
of the assets. In the case of finance leases the

In accordance with IAS 17, assets leased under
finance leases are measured at their fair value at the
inception of the lease or at the present value of the
lease payments, if lower. The assets are depreciated
using the straight-line method over their estimated
useful lives or over the lease period, if shorter. The
obligations for future lease instalments are recog-
nised as financial liabilities.

Where Group products are recognised by BMW

Group leasing companies as leased assets under
operating leases, they are measured at manufacturing
cost. All other leased products are measured at ac-
quisition cost. All leased products are depreciated
using the straight-line method over the period of the
lease to the lower of their imputed residual value or
estimated fair value.

86 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

The recoverability of the carrying amount of
intangible assets (including capitalised development
costs and goodwill) and property, plant and equip-
ment is tested regularly for impairment in accordance
with IAS 36 (Impairment of Assets) on the basis of
cash generating units. This relates primarily to capi-
talised development costs and property, plant and
equipment connected with vehicle projects. If there
is no indication of impairment during the year, an
annual impairment test is carried out at the year-end.
An impairment loss is recognised when the recover-
able amount (defined as the higher of the asset’s net
selling price and its value in use) is lower than the
carrying amount. The value in use is determined on
the basis of a present value computation. If the rea-
son for the previously recognised impairment loss
no longer exists, the impairment loss is reversed up
to the level of its rolled-forward depreciated or amor-
tised cost.

Investments accounted for using the equity
method are measured at the Group’s share of equity
taking account of fair value adjustments on acquisi-
tion unless the investment is impaired.

Investments in non-consolidated Group com-

panies reported in other investments are measured
at cost or, if lower, at their fair value.

Investments in other companies are measured

at their quoted market price or fair value. When, in
individual cases, these values are not available or
cannot be determined reliably, investments in other
companies are measured at cost.

Non-current marketable securities are meas-

ured according to the category of financial asset to
which they are classified. No held-for-trading finan-
cial assets are included under this heading.

Financial assets are accounted for on the basis

of the settlement date. On initial recognition, they
are measured at acquisition cost, including transac-
tion costs.

Subsequent to initial recognition, available-for-

sale and held-for-trading financial assets are
measured at fair value. When market prices are not
available, the fair value of available-for-sale financial
assets is measured using appropriate valuation
techniques e.g. discounted cash flow analysis based
on market information available at the balance sheet
date.

Available-for-sale assets include financial assets,

securities and shares in securities funds. This cate-

gory includes all non-derivative financial assets which
are not classified as “loans and receivables” or “held-
to-maturity investments” or as items measured “at
fair value through profit and loss”.

Loans and receivables which are not held for

trading, held-to-maturity financial investments and
all financial assets for which published price quota-
tions in an active market are not available and whose
fair value cannot be determined reliably, are meas-
ured, to the extent that they have a fixed term, at
amortised cost, using the effective interest method.
When the financial assets do not have a fixed term,
they are measured at acquisition cost.

In accordance with IAS 39 (Financial Instruments:

Recognition and Measurement), assessments are
made regularly as to whether there is any objective
evidence that a financial asset or group of assets
may be impaired. Impairment losses identified after
carrying out an impairment test are recognised as
an expense. Gains and losses on available-for-sale
financial assets are recognised directly in equity until
the financial asset is disposed of or is determined to
be impaired, at which time the cumulative loss pre-
viously recognised in equity is included in net profit
or loss for the period.

With the exception of derivative financial instru-

ments, all receivables and other current assets re-
late to loans and receivables which are not held for
trading and are measured at amortised cost. Receiv-
ables with maturities of over one year which bear
no or a lower than market interest rate are discounted.
Appropriate impairment losses are recognised to
take account of all identifiable risks.

Receivables from sales financing comprise
receivables from retail customer, dealer and lease
financing.

Impairment losses on receivables and loans re-

lating to the financial services business are recognised
using a uniform methodology that is applied through-
out the Group and meets the requirements of IAS 39.
This methodology results in the recognition of im-
pairment losses on individual assets and groups of
assets. If there is objective evidence of impairment,
the BMW Group recognises impairment losses on
the basis of individual assets. Within the customer
retail business, the existence of overdue balances
or the incidence of similar events in the past are ex-
amples of such objective evidence. In the event of
overdue receivables, impairment losses are always

recognised individually based on the length of period
of the arrears. In the case of dealer financing receiv-
ables, the allocation of the dealer to a corresponding
rating category is also deemed to represent objec-
tive evidence of impairment. If there is no objective
evidence of impairment, impairment losses are
recognised on financial assets using a portfolio ap-
proach based on similar groups of assets. Company-
specific loss probabilities and loss ratios, derived
from historical data, are used to measure impairment
losses on similar groups of assets.

The recognition of impairment losses on receiv-
ables relating to the industrial business is also, as far
as possible, based on the same process applied to
the financial services business.

Impairment losses (write-downs and allowances)

on receivables are always recorded on separate
accounts and are not written off until the correspond-
ing receivables are derecognised.

Items are presented as financial assets to the

item (usually external revenue) is recognised in the
income statement. The portion of the gains or losses
from fair value measurement not relating to the
hedged item is recognised immediately in the income
statement. If, contrary to the normal case within the
BMW Group, hedge accounting cannot be applied,
the gains or losses from the fair value measurement
of derivative financial instruments are recognised im-
mediately in the income statement.

In accordance with IAS 12 (Income Taxes), de-
ferred taxes are recognised on all temporary differ-
ences between the tax and accounting bases of as-
sets and liabilities and on consolidation procedures.
Deferred tax assets also include claims to future
tax reductions which arise from the expected usage
of existing tax losses available for carryforward, where
usage is probable. Deferred taxes are computed
using enacted or planned tax rates which are ex-
pected to apply in the relevant national jurisdictions
when the amounts are recovered.

extent that they relate to financing transactions.

Inventories of raw materials, supplies and goods

Derivative financial instruments are only used

within the BMW Group for hedging purposes to
reduce currency, interest rate and market price risks
from operations and any related financing require-
ments. All derivative financial instruments (such as
interest, currency and combined interest/currency
swaps as well as forward currency contracts) are
measured in accordance with IAS 39 at their fair
value, irrespective of their purpose or the intention
for which they are held. The fair values of derivative
financial instruments are measured using market
information and recognised valuation techniques.
In those cases where hedge accounting is applied,
changes in fair value are recognised either in income
or directly in equity under accumulated other equity
depending on whether the transactions are classi-
fied as fair value hedges or cash flow hedges. In
the case of fair value hedges, the results of the fair
value measurement of the derivative financial instru-
ments and of the related hedged items are recog-
nised in the income statement. In the case of fair
value changes from cash flow hedges which are used
to mitigate the future cash flow risk on a recognised
asset or liability or on forecast transactions, unrealised
gains and losses on the hedging instrument are
recognised initially directly in accumulated other
equity. Any such gains or losses are recognised sub-
sequently in the income statement when the hedged

for resale are stated at the lower of average acquisi-
tion cost and net realisable value.

Work in progress and finished goods are stated
at the lower of average acquisition cost and net realis-
able value. Manufacturing cost comprises all costs
which are directly attributable to the manufacturing
process and an appropriate proportion of produc-
tion-related overheads. This includes production-
related depreciation and an appropriate proportion
of administrative and social costs.

Financing costs are not included in acquisition

or manufacturing cost.

Provisions for pensions and similar obligations
are recognised using the projected unit credit method
in accordance with IAS 19 (Employee Benefits).
Under this method, not only obligations relating to
known vested benefits at the reporting date are
recognised, but also the effect of future increases in
pensions and salaries. This involves taking account
of various input factors which are evaluated on a
prudent basis. The provision is derived from an inde-
pendent actuarial valuation which takes into account
all relevant biometric factors.

Actuarial gains and losses are recognised, net

of deferred tax, directly in equity.

The expense related to the reversal of discount-
ing on pension obligations and the income from the
expected return on pension plan assets are reported

88 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

[7]

separately as part of the financial result. All other
costs relating to allocations to pension provisions are
allocated to costs by function in the income state-
ment.

Other provisions are recognised when the Group

has an obligation to a third party, an outflow of re-
sources is probable and a reliable estimate can be
made of the amount of the obligation. Measurement
is computed on the basis of fully attributable costs.
Non-current provisions with a remaining period of
more than one year are discounted to the present
value of the expenditures expected to settle the ob-
ligation at the balance sheet date.

Financial liabilities are measured on first-time
recognition at cost, which is equivalent to the fair value
of the consideration given. Transaction costs are in-
cluded in this initial measurement. Subsequent to
initial recognition, liabilities are, with the exception of
derivative financial instruments, measured at amor-
tised cost. The BMW Group has no liabilities which
are held for trading. Liabilities from finance leases
are stated at the present value of the future lease
payments and disclosed under financial liabilities.
The preparation of the Group financial state-
ments in accordance with IFRSs requires manage-

ment to make certain assumptions and estimates
that affect the reported amounts of assets and lia-
bilities, revenues and expenses and contingent lia-
bilities. The assumptions and estimates relate prin-
cipally to the group-wide determination of economic
useful lives, the recognition and measurement of
provisions and the recoverability of future tax bene-
fits. All assumptions and estimates are based on
f actors known at the balance sheet date. They are
determined on the basis of the most likely outcome
of future business developments. This includes the
situation in the automotive sector and the general
business environment. Actual amounts could in cer-
tain cases differ from those assumptions and esti-
mates, if business conditions develop differently to
the Group’s expectations at the balance sheet date.
Where new information comes to light, differences
are reflected in the income statement and assump-
tions changed accordingly. There was no indication
at the balance sheet date that any assumptions and
estimates were subject to any material risks. For
that reason, there is no reason to assume that the
figures will require to be adjusted in the coming
financial year. No adjustments of this nature were
recorded during the financial year 2007.

New financial reporting rules
(a) Financial reporting rules applied for the first time
in the financial year 2007
The following Standards and Revised Standards
were applied for the first time in the financial year
2007:
– Amendments to IAS 1 (Presentation of Financial
Statements: Capital Disclosures), mandatory for
financial years beginning on or after 1 January
2007

– IFRS 7 (Financial Instruments: Disclosures),

mandatory for financial years beginning on or after
1 January 2007

In addition, the following Interpretations were applied
for the first time:
– IFRIC 7 (Applying the Restatement Approach un-

der IAS 29 Financial Reporting in Hyperinflationary
Economics), mandatory for financial years begin-
ning on or after 1 March 2006

– IFRIC 8 (Scope of IFRS 2), mandatory for financial

years beginning on or after 1 May 2006

– IFRIC 9 (Reassessment of Embedded Derivatives),
mandatory for financial years beginning on or after
1 June 2006

– IFRIC 10 (Interim Financial Reporting and Impair-
ment), mandatory for financial years beginning on
or after 1 November 2006

IFRS 7 (Financial Instruments: Disclosures) results
in a greater scope of disclosures about financial in-
struments in the Notes to the Group financial state-
ments. Other financial reporting rules applied for
the first time in 2007 did not have a significant im-
pact on the BMW Group.

(b) New financial reporting rules issued in 2007
The IASB issued a revised version of IAS 23 (Bor-
rowing Costs) in 2007, which is mandatory for finan-
cial years beginning on or after 1 January 2009. A
revised version of IAS 1 (Presentation of Financial
Statements) was also issued. The revised standard
is mandatory for financial years commencing on or
after 1 January 2009.

BMW Group
Notes to the Group Financial Statements
Notes to the Income Statement

In addition, the following Interpretations were

also issued:
– IFRIC 13 (Customer Loyalty Programmes)
– IFRIC 14 (IAS 19 – The Limit on a Defined Benefit
Asset, Minimum Funding Requirements and their
Interaction)

IFRIC 13 is mandatory for financial years commenc-
ing on or after 1 July 2008 and IFRIC 14 is mandato-

ry for financial years commencing on or after 1 Janu-
ary 2008.

These new financial reporting rules are not
expected to have a significant impact on the BMW
Group. This also applies to financial reporting rules
issued in earlier periods and for which application in
2007 is encouraged but not mandatory.

[8]

Revenues
Revenues by activity comprise the following:

in euro million

Sales of products and related goods

Income from lease instalments

Sale of products previously leased to customers

Interest income on loan financing

Other income

Revenues

2007

2006

43,297

38,769

5,069

4,185

2,457

1,010

4,141

3,107

1,925

1,057

56,018

48,999

An analysis of revenues by business segment and geographical region is shown in the segment information
on pages 132 to 134.

[9]

Cost of sales
Cost of sales comprises:

in euro million

Manufacturing costs

Warranty expenditure

Cost of sales directly attributable to financial services

Interest expense for financial operations

Expense for risk provisions and write-downs for financial services business

Other cost of sales

Cost of sales

2007

2006

29,536

26,449

1,309

8,450

2,045

529

1,963

1,081

6,612

1,308

501

1,709

43,832

37,660

Cost of sales include euro 11,024 million (2006:
euro 8,421 million) relating to the financial services
business.

Manufacturing costs include impairment
losses on intangible assets and property, plant and
equipment of euro 17 million (2006: euro 15 million).

90 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

Cost of sales is reduced by public-sector subsidies
in the form of reduced taxes on assets and re-

duced consumption-based taxes amounting to euro
16 million (2006: euro 11 million).

[10]

Sales and administrative costs
Sales costs amounted to euro 4,284 million (2006:
euro 4,039 million) and comprise mainly marketing,
advertising and sales personnel costs.

Administrative costs amounted to euro 970 mil-

lion (2006: euro 933 million) and comprised ex-
penses for administration not attributable to develop-
ment, production or sales functions.

[11]

Research and development costs
Research and development costs of euro 2,920 mil-
lion (2006: euro 2,544 million) comprise all research
costs and development costs not recognised as
assets as well as amortisation of capitalised develop-
ment costs of euro 1,109 million (2006: euro 872
million).

Total research and development expenditures
comprising research costs, development costs not
recognised as assets and capitalised development
costs were as follows:

in euro million

Research and development costs

Amortisation

New expenditure for capitalised development costs

Total research and development expenditures

2007

2006

2,920

– 1,109

1,333

3,144

2,544

– 872

1,536

3,208

[12]

Other operating income and expenses

in euro million

2007

2006

Exchange gains

Income from the reversal of provisions

Income from the reversal of write-downs

Gains on the disposal of assets

Sundry operating income

Other operating income

Exchange losses

Expense for additions to provisions

Expenses for impairment losses

Sundry operating expenses

Other operating expenses

Other operating income and expenses

204

229

169

730

231

210

530

200

245

141

102

232

744

219

109

155

517

227

Sundry operating income includes public-sector grants of euro 36 million (2006: euro 32 million).

[13]

Result from equity accounted investments
The profit from equity accounted investments of
euro 11 million (2006: loss of euro 25 million) in-
cludes the result of the joint venture, BMW Brilliance

Automotive Ltd., Shenyang. In the previous year, the
result of TRITEC Motors Ltda., Campo Largo, was
also included.

[14]

Other financial result

in euro million

Income from investments

– thereof from subsidiaries euro 1 million (2006: euro 58 million)

Impairment losses on investments in subsidiaries and other companies

Reversals of impairment losses on investments in subsidiaries and other companies

Result on investments

Expected return on plan assets

Other interest and similar income *

– thereof from subsidiaries euro 12 million (2006: euro 19 million)

Interest and similar income

Expense from reversing the discounting of pension obligations

Expense from reversing the discounting of other long-term provisions

Write-downs on marketable securities

Sundry interest and similar expenses*

– thereof to subsidiaries euro 1 million (2006: euro 2 million)

Interest and similar expenses

Net interest result

Fair value measurement of financial instruments

Sundry other financial result

Other financial result

2007

2006

– 6

–

– 3

358

287

645

– 537

– 86

– 49

– 225

– 46

315

259

574

– 501

– 35

– 2

– 319

– 897

– 857

– 252

– 283

– 95

– 350

350

* Interest income and expenses relating to stand-alone derivatives are netted within the net interest result. Interest income includes net interest income of euro 70 million (2006:
euro 83 million) relating to stand-alone derivatives.

The deterioration in other financial result is due to
the exceptional gain recorded in 2006 on the partial
settlement of the exchangeable bond on shares in
Rolls-Royce plc, London. As well as the impact of
the exchangeable bond, sundry other financial result

also includes losses recognised on derivative finan-
cial instruments, in particular on stand-alone inter-
est rate derivatives. The decrease in the fair values of
these financial instruments reflected the changes
in the interest rate structure.

[15]

Income taxes
Taxes on income comprise the following:

in euro million

Current tax expense

Deferred tax expense

2007

2006

1,002

– 263

739

993

257

1,250

92 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

The deferred tax expense was euro 520 million

lower than in the previous year, primarily reflecting
the impact of the Business Tax Reform Act 2008,
adopted by the German Bundesrat (Federal Council)
on 6 July 2007.

Deferred taxes are recognised on temporary dif-
ferences between the carrying amount of assets and
liabilities for IFRS purposes and their tax bases. De-
ferred taxes are computed using enacted or planned
tax rates which are expected to apply in the relevant
national jurisdictions when the amounts are recovered.
A corporation tax rate of 15.0 % applies in Germany
with effect from 1 January 2008 onwards. After taking
account of the average multiplier rate (Hebesatz) of
410 % for municipal trade tax and the solidarity charge

of 5.5 %, the overall income tax rate for companies
in Germany is 30.2 % (2006: 38.9 %). This reduced
rate has been applied in 2007 to measure deferred
tax assets and liabilities. As in the previous year, the
tax rates for companies outside Germany remain in
a range of between 12.5 % and 40.7 %. A valuation
allowance is recognised on deferred tax assets when
recoverability is uncertain. In determining the level
of the valuation allowance, all positive and negative
factors concerning the likely existence of sufficient
taxable profit in the future are taken into account.
These estimates can change depending on the ac-
tual course of events.

An analysis of deferred tax assets and liabilities

by position at 31 December is shown below:

in euro million

Intangible assets

Property, plant and equipment

Leased products

Investments

Other current assets

Tax loss carryforwards

Provisions

Liabilities

Consolidations

Valuation allowance

Netting

Deferred tax assets

Deferred tax liabilities

2007

2006

2007

2006

558

1,110

1,072

1,145

3,084

1,661

8,676

– 671

– 7,285

720

–

572

1,058

849

1,540

3,653

1,600

9,322

– 528

– 8,039

755

1,528

428

3,205

3,767

–

690

329

1,859

510

3,368

–

3,696

–

134

827

403

9,999

10,797

–

– 7,285

2,714

–

– 8,039

2,758

Compared to the previous reporting period, the main
changes to deferred tax assets and liabilities were as
follows:

Application of the income tax rate of 30.2 %
(2006: 38.9 %), which is valid in Germany from 1 Jan-
uary 2008 onwards, significantly affected the meas-
urement of deferred tax assets and liabilities relating
to intangible assets, property, plant and equipment,
leased products, provisions and liabilities.

The changes in deferred tax assets and liabili-

ties relating to leased products and other current as-
sets are attributable primarily to the financial services
business.

Deferred tax assets on tax losses available for
carryforward and on capital losses increased margin-
ally on a net basis. Tax losses available for carryfor-
ward, which for the most part can be carried forward
without restriction, totalled euro 1.8 billion at the
year-end (2006: euro 1.7 billion). A valuation allow-
ance of euro 43 million (2006: euro 65 million) was
recognised in 2007 on deferred tax assets relating
to tax losses. Capital losses in the United Kingdom
increased to euro 2.2 billion at the end of 2007
(2006: euro 1.5 billion). In this context, a definitive
agreement was reached with the UK tax authorities
in 2007. As in previous years, these tax losses

amounting to euro 628 million at the end of the year
(2006: euro 463 million) were fully written down
since they can only be utilised against future capital
gains. Capital losses are not connected to ongoing
business operations.

Deferred taxes recognised directly in equity

amounted to euro 116 million (2006: euro 512 mil-
lion). The decrease was due mainly to actuarial gains
and losses (net) arising in conjunction with pension
obligations and recognised directly in equity. The
level of actuarial gains and losses in 2007 was af-
fected in particular by the increase in the discount
factors applied.

Deferred taxes are not recognised on retained
profits of euro 13,925 million (2006: euro 13,866 mil-
lion) of foreign subsidiaries, as it is intended to invest
these profits to maintain and expand the business
volume of the relevant companies. A computation
was not made of the potential impact of income taxes
on the grounds of disproportionate expense.

The tax returns of BMW Group entities are
checked regularly by German and foreign tax author-
ities. Taking account of a variety of factors – including
existing interpretations, commentaries and legal de-
cisions taken relating to the various tax jurisdictions
and the BMW Group’s past experience – adequate
provision has, as far as identifiable, been made for
potential future tax obligations.

The actual tax expense for the financial year 2007
of euro 739 million (2006: euro 1,250 million) is euro
767 million (2006: euro 354 million) lower than the
expected tax expense of euro 1,506 million (2006:
euro 1,604 million) which would theoretically arise if
the tax rate of 38.9 % (unchanged from the previous
year), applicable for German companies, was applied
across the Group. The difference between the ex-
pected and actual tax expense is attributable to the
following:

in euro million

2007

2006

Expected tax expense

Variances due to different tax rates

Tax reductions (–)/tax increases (+) as a result of non-taxable income and

non-deductible expenses

Tax expense (+)/benefits (–) for prior periods

Other variances

Actual tax expense

1,506

– 731

– 4

– 36

739

1,604

– 213

– 68

– 94

1,250

The sharp decrease in the effective tax rate was
mainly caused by the significant increase in variances
due to different tax rates. This includes the one-off
impact of the remeasurement of deferred tax assets
and liabilities at 31 December 2007. The total posi-

tive impact for the BMW Group was euro 491 million,
most of which was due to the application of the tax
rate of 30.2 % (valid from 1 January 2008) for German
entities.

94 Group Financial Statements

[16] Earnings per share

2007

2006

Net profit for the year after minority interest

euro million

3,125.9

2,867.8

Profit attributable to common stock

Profit attributable to preferred stock

euro million

2,878.4

247.5

2,641.0

226.8

Average number of common stock shares in circulation

Average number of preferred stock shares in circulation

number

601,995,196

602,461,673

number

51,535,857

51,506,787

Earnings per share of common stock

Earnings per share of preferred stock

Dividend per share of common stock

Dividend per share of preferred stock

euro

4.78

4.80

1.06

1.08

4.38

4.40

0.70

0.72

Earnings per share of preferred stock are computed
on the basis of the number of preferred stock shares
entitled to receive a dividend in each of the relevant

financial years. Diluted earnings per share were not
applicable in either the current or prior year.

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

[17]

Other disclosures relating to the income statement
The income statement includes personnel costs as follows:

in euro million

Personnel costs

Wages and salaries

Social security, retirement and welfare costs

– thereof retirement costs: euro 761 million (2006: euro 767 million)

2007

2006

6,268

1,243

6,207

1,241

7,511

7,448

The average number of employees during the year was:

Wage earners

Other employees

Apprentices and students gaining work experience

2007

2006

51,906

46,016

97,922

52,812

44,394

97,206

6,480

6,521

104,402

103,727

For information regarding the number of employees
at the year-end, reference is made to pages 26 and
27 in the Group management report.

The fee expense recognised in the financial year

2007 for the auditors of the Group financial state-

ments, KPMG Deutsche Treuhand-Gesellschaft,
Aktiengesellschaft, Wirtschaftsprüfungsgesellschaft,
pursuant to § 314 (1) no. 9 HGB amounted to euro
5 million (2006: euro 4 million) and consists of the
following:

in euro million

Fee expense

Year-end audits

Tax advisory services

2007

2006

The item “Year-end audits” includes fees for the
audit of annual financial statements of BMW AG, the
audit of the Group financial statements and the
audit of the annual financial statements of the Ger-
man subsidiaries.

The item “Tax advisory services” relates prin-

cipally to fees for services provided to employees
seconded abroad.

96 Group Financial Statements

BMW Group
Notes to the Group Financial Statements
Notes to the Balance Sheet

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

[18] Analysis of changes in Group tangible, intangible and investment assets 2007

in euro million

Acquisition and manufacturing cost

1.1. 20071] Translation
differences

Additions

Reclassi-
fications

Disposals 31.12. 2007

Development costs

Other intangible assets

Intangible assets

7,684

813

8,497

–

– 11

1,333

250

1,583

Land, titles to land, buildings, including buildings on

third party land

Plant and machinery

Other facilities, factory and office equipment

Advance payments made and construction in progress

Property, plant and equipment

6,425

19,640

2,055

740

28,860

– 118

– 315

– 44

– 23

– 500

248

1,444

184

808

2,684

Leased products

17,628

– 1,219

11,038

Investments accounted for using the equity method

Investments in associated companies

Investments in other companies

Non-current marketable securities

Other investments

272

195

481

–

– 1

–

– 1

– 2

–

1] including the gross balances brought forward of companies consolidated for the first time during the financial year
2] including impairment losses of euro 12 million
3] including impairment losses of euro 5 million

–

231

264

– 501

–

538

581

220

618

147

990

8,479

1,009

9,488

6,566

20,415

2,054

1,019

30,054

6,587

20,860

187

–

251

261

290

Analysis of changes in Group tangible, intangible and investment assets 2006

in euro million

Acquisition and manufacturing cost

1.1. 20061]

Translation
differences

Additions

Reclassi-
fications

Disposals 31.12. 2006

Development costs

Other intangible assets

Intangible assets

Land, titles to land, buildings, including buildings on

third party land

Plant and machinery

Other facilities, factory and office equipment

Advance payments made and construction in progress

Property, plant and equipment

6,593

739

7,332

6,150

18,977

2,078

899

28,104

–

– 5

– 70

– 185

– 46

– 15

– 316

1,536

121

1,657

242

1,717

206

491

2,656

Leased products

13,983

– 1,182

8,522

Investments accounted for using the equity method

Investments in associated companies

Investments in other companies

Non-current marketable securities

Other investments

191

1,002

1,225

–

– 2

–

– 1

– 3

–

152

–

163

1] including the gross balances brought forward of companies consolidated for the first time during the financial year
2] including impairment losses of euro 8 million
3] including impairment losses of euro 7 million

–

445

501

7,684

799

8,483

152

464

– 632

–

1,333

211

6,425

19,640

2,043

740

1,596

28,848

4,578

16,745

807

909

267

195

476

Depreciation and amortisation

1.1. 20071]

Translation
differences

Current year

Disposals

31.12. 2007

2,874

310

3,184

2,529

13,525

1,515

17,570

–

– 4

– 48

– 200

– 43

–

– 291

1,109

103

1,2122]

201

2,057

213

–

2,4713]

538

574

602

141

–

804

3,445

373

3,818

2,621

14,780

1,544

18,946

Carrying amount

31.12. 2007 31.12. 2006

5,034

636

5,670

3,945

5,635

510

1,018

4,810

502

5,312

3,896

6,115

535

739

11,108

11,285

3,289

– 247

2,475

1,670

3,847

17,013

13,642

–

185

209

197

190

401

Depreciation and amortisation

Reversals

1.1. 20061]

Translation Current year
differences

Disposals

31.12. 2006

Carrying amount

31.12. 2006 31.12. 2005

2,447

290

2,737

2,384

13,104

1,506

–

– 4

– 30

– 128

– 36

–

872

959 2]

207

1,867

239

–

445

495

1,318

201

–

16,995

– 194

2,313 3]

1,551

2,608

– 222

1,576

859

–

2,874

297

3,171

–

2,529

13,525

1,508

17,563

3,103

–

4,810

502

5,312

3,896

6,115

535

739

4,146

447

4,593

3,757

5,871

562

897

11,285

11,087

13,642

11,375

197

190

401

149

997

1,178

98 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

[19]

Intangible assets
Intangible assets mainly comprise capitalised de-
velopment costs on vehicle and engine projects as
well as subsidies for tool costs, licences, purchased
development projects and software. Amortisation
on intangible assets is presented in cost of sales,
administrative costs and research and development
costs.

In addition, intangible assets include goodwill
of euro 163 million (2006: euro 66 million). This com-
prises goodwill arising on earlier business acquisi-
tions within the Cirquent Group and on the acquisition

of DEKRA SüdLeasing Services GmbH, Stuttgart,
and that entity’s subsidiaries. This item is not pre-
sented separately in the BMW Group balance sheet
since the amount is not significant in relation to
either the balance sheet total or intangible assets.
There were no reversals of impairment losses

on intangible assets (2006: euro 26 million).

Changes in intangible assets during the year

are≈shown in the analysis of changes in Group tan-
gible, intangible and investment assets on pages
96 and 97.

[20]

Property, plant and equipment
A break-down of the different classes of property,
plant and equipment disclosed in the balance sheet
and changes during the year are shown in the
analysis of changes in Group tangible, intangible and
investment assets on pages 96 and 97.

Property, plant and equipment include leased

plant and machinery and other equipment amounting
to euro 102 million (2006: euro 146 million) and, in
addition to operational buildings used by BMW AG,
also includes leased plant and equipment used
primarily in the Oxford and Hams Hall production
plants. Due to the nature of the lease arrangements
(finance leases), economic ownership of these
assets is attributable to the Group. The leases for
buildings, with a carrying amount of euro 60 million
(2006: euro 66 million), run for periods up to 2023
at the latest. Some of the leases contain extension
and purchase options. The leases for plant and

machinery and other equipment at the Oxford pro-
duction plant, with a carrying amount of euro 19 mil-
lion (2006: euro 46 million) at 31 December, run for
periods up to 2011 at the latest. For each of the
leases, there is a recurring option to extend the leases
by one year. A purchase option was not agreed. The
lease for plant and machinery and other facilities,
factory and office equipment at the Hams Hall pro-
duction plant, with a carrying amount of euro 17 mil-
lion (2006: euro 25 million), runs until 2018 and may
be extended for one-year periods thereafter. A pur-
chase option was not agreed.

Disposal of land, titles to land and buildings,
including buildings on third-party land, relate primarily
to a number of properties which were sold and are
being leased back.

Minimum lease payments of the relevant leases

are as follows:

in euro million

31.12. 2007

31.12. 2006

Total of future minimum lease payments

due within one year

due between one and five years

due later than five years

Interest portion of the future minimum lease payments

due within one year

due between one and five years

due later than five years

Present value of future minimum lease payments

due within one year

due between one and five years

due later than five years

318

201

604

137

270

128

467

413

257

761

111

186

354

146

575

[21]

Leased products
The BMW Group, as lessor, leases out assets (pre-
dominantly own products) as part of its financial

services business. Minimum lease payments of
euro 7,419 million (2006: euro 6,210 million) from
non-cancellable operating leases fall due as follows:

in euro million

31.12. 2007

31.12. 2006

within one year

between one and five years

later than five years

3,902

3,516

7,419

3,342

2,867

6,210

Contingent rents of euro 10 million (2006: euro 4 mil-
lion), based principally on the distance driven, were
recognised in income. The agreements have, in part,
extension and purchase options as well as price es-
calation clauses.

Changes in leased products during the year are
shown in the analysis of changes in Group tangible,
intangible and investment assets on pages 96 and
97.

[22]

Investments accounted for using the equity
method and other investments
Investments accounted for using the equity method
comprise the Group’s interest in the joint venture
BMW Brilliance Automotive Ltd., Shenyang. At the

end of the previous year, the interest in TRITEC
Motors Ltda., Campo Largo, was also included. The
interest in BMW Brilliance Automotive Ltd., Shen-
yang, (with a 50 % shareholding) was as follows:

in euro million

31.12. 2007

31.12. 2006

Disclosures relating to the income statement

Income

Losses

Disclosures relating to the balance sheet

Non-current assets

Current assets

Equity

Non-current liabilities

Current liabilities

627

615

106

259

244

589

568

122

286

110

264

Other investments relate primarily to investments in
non-consolidated subsidiaries and to equity invest-
ments in other entities.

Additions to investments in subsidiaries relate to
share capital increases at BMW Distribution S. A. S.,
Montigny le Bretonneux, BMW India Pvt. Ltd., New
Delhi, BMW Sauber Holding AG, Vaduz, and BMW
Leasing de Argentina S. A., Buenos Aires, as well as
the acquisitions of BMW Lease (Malaysia) Sdn Bhd,
Kuala Lumpur, John Cooper Garages Ltd., Bracknell,
BMW Financial Services Hong Kong Limited, Hong

Kong, and Husqvarna Motorcycles S. r. l., Cassinetta
di Biandronno.

Disposals of investments in subsidiaries relate

primarily to the first-time consolidation of BMW
Financial Ser vices Danmark A /S, Kolding, BMW
Vertriebs GmbH, Salzburg, BMW Renting (Portugal)
Lda., Lisbon, BMW Acquisitions Ltda., São Paulo,
BMW Financeira S. A. Credito, Financiamento e
Investimento, São Paulo, and BMW Financial Services
New Zealand Ltd., Auckland.

100 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

Impairment losses on investments in subsidiaries
relate primarily to BMW Distribution S. A. S., Montigny
le Bretonneux.

changeable bond issued by the BMW Group on
Rolls-Royce shares.

A break-down of the different classes of other

In the case of investments in other companies,

the changes in 2007 related to the disposal of
shares in Rolls-Royce plc, London, following the
exercise of the conversion option relating to the ex-

investments disclosed in the balance sheet and
changes during the year are shown in the analysis
of changes in Group tangible, intangible and invest-
ment assets on pages 96 and 97.

[23]

Receivables from sales financing
Receivables from sales financing, totalling euro
34,244 million (2006: euro 30,368 million), comprise
euro 26,181 million (2006: euro 23,038 million) for

loan financing for retail customers and dealers and
euro 8,063 million (2006: euro 7,330 million) for
finance leases. Finance leases are analysed as fol-
lows:

in euro million

31.12. 2007

31.12. 2006

Gross investment in finance leases

due within one year

due between one and five years

due later than five years

Present value of future minimum lease payments

due within one year

due between one and five years

due later than five years

3,215

6,013

9,229

2,886

5,176

8,063

3,029

5,192

8,227

2,758

4,567

7,330

Unrealised interest income

1,166

897

Contingent rents recognised as income, generally
relating to the distance driven, amounted to euro
12 million (2006: euro 7 million). Write-downs on
finance leases amounting to euro 52 million (2006:
euro 60 million) were measured and recognised on
the basis of specific credit risks.

Allowance for impairment and credit risk

Receivables from sales financing include euro

20,248 million (2006: euro 17,865 million) with a
remaining term of more than one year.

in euro million

31.12. 2007

31.12. 2006

Gross carrying amount

Allowance for impairment

Net carrying amount

35,036

792

34,244

31,100

732

30,368

101

Allowances for impairment on receivables from sales financing developed as following during the year under
report:

31 December 2007
in euro million

Balance at 1 January *

Allocated/reversed

Utilised

Exchange rate impact and other changes

Balance at 31 December

* including entities consolidated for the first time during the financial year

31 December 2006
in euro million

Balance at 1 January *

Allocated/reversed

Utilised

Exchange rate impact and other changes

Balance at 31 December

* including entities consolidated for the first time during the financial year

Allowance for impairment recognised on a

Total

specific item basis

group basis

590

277

– 184

– 16

667

149

– 3

– 17

– 4

125

739

274

– 201

– 20

792

Allowance for impairment recognised on a

Total

specific item basis

group basis

572

173

– 155

– 6

584

173

–

– 23

– 2

148

745

173

– 178

– 8

732

At the year-end, impairment allowances of euro 125
million (2006: euro 148 million) were recognised on
a group basis on gross receivables from sales financ-
ing totalling euro 18,979 million (2006: euro 18,296
million). Impairment allowances of euro 667 million
(2006: euro 584 million) were recognised at 31 De-
cember 2007 on a specific item basis on gross re-
ceivables from sales financing totalling euro 5,493
million (2006: euro 4,223 million).

Receivables from sales financing which were not
overdue at the balance sheet date amounted to euro
10,564 million (2006: euro 8,581 million). No impair-
ment allowances were recognised for these balances.

The estimated fair value of collateral received

for receivables on which impairment allowances
were recognised totalled euro 14,617 million (2006:
euro 12,130 million) at the balance sheet date. This
collateral related primarily to vehicles. The carrying
amount of assets held as collateral and taken back as
a result of payment default amounted to euro 36 mil-
lion (2006: euro 13 million).

As at the end of the previous year, there were no
receivables from sales financing at the balance sheet
date which have been renegotiated and which were
otherwise overdue or otherwise required recognition
of an impairment allowance.

[24]

Financial assets
Financial assets comprise:

in euro million

31.12. 2007

31.12. 2006

Interest and currency derivatives

Marketable securities and investment funds

Loans to third parties

Credit card receivables

Other

thereof non-current

thereof current

1,980

1,959

260

568

4,795

1,173

3,622

1,321

2,034

239

289

3,950

816

3,134

102 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

The change in the line item “Interest and
currency derivatives” relates primarily to changed
exchange rate parities with the US dollar and the

British pound as well as to the changed interest rate
structure.

Marketable securities and investment funds relate

to available-for-sale financial assets and comprise:

in euro million

31.12. 2007

31.12. 2006

Stocks

Investment funds

Fixed income securities

Sundry marketable securities

452

415

1,082

1,959

579

487

943

2,034

The contracted maturities of debt securities are as follows:

in euro million

31.12. 2007

31.12. 2006

Fixed income securities

due within 3 months

due later than 3 months

Sundry marketable securities

due within 3 months

due later than 3 months

–

1,082

1,092

942

968

Investment funds include euro 10 million (2006:
euro 2 million) assigned as collateral to Deutsche
Treuinvest Stiftung, Frankfurt am Main, to secure
obligations relating to pre-retirement part-time work
arrangements. Fixed income securities include
euro 77 million (2006: euro 64 million) assigned as

collateral to Deutsche Treuinvest Stiftung, Frankfurt
am Main, for the same reason.

Allowance for impairment and credit risk
Receivables relating to credit card business comprise
the following:

in euro million

31.12. 2007

31.12. 2006

Gross carrying amount

Allowance for impairment

Net carrying amount

267

260

244

239

103

Allowances for impairment on receivables relating to credit card business developed as following during the
year under report:

31 December 2007
in euro million

Balance at 1 January

Allocated/reversed

Utilised

Exchange rate impact and other changes

Balance at 31 December

31 December 2006
in euro million

Balance at 1 January

Allocated/reversed

Utilised

Exchange rate impact and other changes

Balance at 31 December

[25]

Income tax assets
Income tax assets can be analysed as follows:

31 December 2007
in euro million

Deferred tax

Current tax

31 December 2006
in euro million

Deferred tax

Current tax

Allowance for impairment recognised on a

Total

specific item basis

group basis

–

– 9

– 1

– 9

– 1

Allowance for impairment recognised on a

Total

specific item basis

group basis

–

– 6

– 1

Maturity
within
one year

Maturity
later than
one year

–

118

720

119

839

Maturity
within
one year

Maturity
later than
one year

– 6

– 1

Total

720

237

957

Total

–

123

755

123

878

755

246

1,001

104 Group Financial Statements

[26]

Other assets
Other assets comprise:

in euro million

31.12. 2007

31.12. 2006

Other taxes

Receivables from subsidiaries

Receivables from other companies in which an investment is held

Prepayments

Collateral receivables

Sundry other assets

thereof non-current

thereof current

554

641

104

729

135

361

2,524

415

2,109

584

693

202

683

120

368

2,650

378

2,272

Receivables from subsidiaries include trade receiv-
ables of euro 96 million (2006: euro 198 million) and
financial receivables of euro 545 million (2006: euro
495 million). A total of euro 25 million (2006: euro 44
million) has a remaining term of more than one year.

As in the previous year receivables from other
companies in which an investment is held are all due
within one year.

Prepayments of euro 729 million (2006: euro

683 million) relate mainly to prepaid interest, de-
velopment costs not eligible for capitalisation as
non-current assets, insurance premiums and rent.
Prepayments of euro 494 million (2006: euro
522 million) have a maturity of less than one year.

Collateral receivables comprise mainly custom-

ary collateral arising on the sale of receivables.

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

[27]

Inventories
Inventories comprise the following:

in euro million

31.12. 2007

31.12. 2006

Raw materials and supplies

Work in progress, unbilled contracts

Finished goods

Goods for resale

632

871

4,731

1,115

7,349

689

911

4,280

914

6,794

At 31 December 2007, inventories measured at their
net realisable value amounted to euro 473 million
(2006: euro 316 million) and are included in total
inventories of euro 7,349 million (2006: euro 6,794
million). Write-downs to net realisable value amount-

ing to euro 40 million (2006: euro 12 million) were
recognised in 2007. Amounts recognised as income
from the reversal of write-downs on the disposal of in-
ventories were not significant.

[28]

Trade receivables
Trade receivables amounting in total to euro 2,672 million (2006: euro 2,258 million) include euro 3 million due
later than one year (2006: euro 21 million).

105

Allowance for impairment and credit risk

in euro million

31.12. 2007

31.12. 2006

Gross carrying amount

Allowance for impairment

Net carrying amount

2,717

2,672

2,335

2,258

Allowances for impairment on trade receivables developed as following during the year under report:

31 December 2007
in euro million

Balance at 1 January

Allocated/reversed

Utilised

Exchange rate impact and other changes

Balance at 31 December

31 December 2006
in euro million

Balance at 1 January

Allocated/reversed

Utilised

Exchange rate impact and other changes

Balance at 31 December

Allowance for impairment recognised on a

Total

specific item basis

group basis

– 11

– 18

– 1

– 4

–

– 9

– 22

– 1

Allowance for impairment recognised on a

Total

specific item basis

group basis

– 12

–

– 12

–

As at the end of the previous year, there were no
trade receivables at the balance sheet date which
have been renegotiated and which were otherwise
overdue or otherwise required recognition of an
impairment allowance.

Some trade receivables were overdue for which
an impairment allowance was not recognised. Over-
due balances are catagorised into the following time
windows:

in euro million

31.12. 2007

31.12. 2006

1 – 30 days overdue

31 – 60 days overdue

61 – 90 days overdue

91 – 120 days overdue

More than 120 days overdue

327

474

473

521

Receivables that are overdue by between 1 and 30
days do not normally result in bad debt losses since
the overdue nature of the receivables is primarily at-
tributable to the timing of receipts around the month-

end. In the case of trade receivables, collateral is
generally held in the form of vehicle documents and
bank guarantees so that the risk of bad debt loss is
extremely low.

106 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

[29]

Cash and cash equivalents
Cash and cash equivalents of euro 2,393 million
(2006: euro 1,336 million) comprise cash on hand

and at bank, all with a maturity of under three
months.

[30]

Equity
The Group Statement of Changes in Equity is shown
on page 78.

Capital reserves
Capital reserves include premiums arising from
the issue of shares and were unchanged at euro
1,911 million.

Number of shares issued
At 31 December 2007, common stock issued by
BMW AG was divided into 601,995,196 shares with
a par-value of one euro. Preferred stock issued by
BMW AG was divided into 52,196,162 shares with a
par-value of one euro, unchanged from the previous
year. Unlike the common stock, no voting rights are
attached to the preferred stock. All of the company’s
stock is issued to bearer. Preferred stock bears an
additional dividend of euro 0.02 per share. 660,305
of the shares of preferred stock are only entitled to
receive dividends with effect from the beginning of
the financial year 2008.

During the financial year 2007, BMW AG ac-
quired 660,305 treasury shares of preferred stock at
an average price of euro 45.48 per share. These
shares were issued to employees at a reduced price
of euro 26.42 per share in conjunction with an em-
ployee share scheme. As a result of the repurchase
of shares of preferred stock and their sub sequent
issue, the preferred stock portion of share capital
remained unchanged at euro 52 million. The effect
of applying IFRS 2 (Share-Based Payments) to the
employee share scheme was not material for the
Group.

At the Annual General Meeting of BMW AG on

15 May 2007, the shareholders again authorised
the Board of Management to acquire treasury shares
via the stock exchange, up to a maximum of 10 %
of the share capital in place at the date of the resolu-
tion and to withdraw those shares from circulation
without any further resolution by the Annual General
Meeting. At the same time, the authorisation from
16 May 2006 to acquire treasury shares was re-
scinded. The authorisation from 15 May 2007 is
valid until 14 November 2008. The authorisation
was not exercised in 2007. It has not yet been de-
cided whether or the extent to which the authorisa-
tion will be used in the future.

Revenue reserves
Revenue reserves comprise the post-acquisition
and non-distributed earnings of consolidated Group
companies. In addition, revenue reserves include
both positive and negative goodwill arising on the
consolidation of Group companies prior to 31 De-
cember 1994.

Revenue reserves stood at euro 20,789 million
at 31 December 2007, 14.7 % higher than one year
earlier. They were increased in 2007 by the amount
of the net profit attributable to shareholders of
BMW AG (euro 3,126 million) and were reduced by
the payment of the dividend for 2006 (euro 458 mil-
lion).

The unappropriated profit of BMW AG of euro

694 million for 2007 will be proposed to the Annual
General Meeting for distribution. The proposed
distribution must be authorised by the shareholders
at the Annual General Meeting of BMW AG. It is
therefore not recognised as a liability in the Group
financial statements.

Accumulated other equity
Accumulated other equity consists of all amounts
recognised directly in equity resulting from the trans-
lation of the financial statements of foreign sub-
sidiaries, the effects of recognising changes in the
fair value of derivative financial instruments and
securities directly in equity, and actuarial gains and
losses relating to defined benefit pension plans and
similar obligations. Accumulated other equity was
increased by deferred taxes amounting to euro 116
million (2006: euro 512 million) recognised directly
in equity.

Minority interest
Equity attributable to minority interests was a posi-
tive amount of euro 11 million (2006: euro 4 mil-

107

lion). This includes a minority interest of euro 8 mil-
lion (2006: euro 6 million) in the results for the
period.

adjust the capital structure, the BMW Group uses
various instruments including the amount of divi-
dends paid to shareholders and share buy-backs.

Capital management disclosures
The BMW Group’s objectives when managing capi-
tal are to safeguard the ability to continue as a going
concern in the long-term and to provide an adequate
return to shareholders.

The BMW Group manages the capital structure

and makes adjustments to it in the light of changes
in economic conditions and the risk characteristics
of the underlying assets. In order to maintain or

The BMW Group manages the structure of debt

capital on the basis of a target debt ratio. An impor-
tant aspect of the selection of financial instruments
is the objective to achieve matching maturities for
the Group’s financing requirements. In order to reduce
non-systematic risk, the BMW Group uses a variety
of financial instruments available on the world’s capi-
tal markets to achieve optimal diversification.

The capital structure at the balance sheet date

was as follows:

in euro million

31.12. 2007

31.12. 2006

Equity attributable to shareholders of BMW AG

Proportion of total capital

Non-current financial liabilities

Current financial liabilities

Total financial liabilities

Proportion of total capital

Total capital

21,733

33.1 %

21,428

22,493

43,921

66.9 %

19,126

34.4 %

18,800

17,656

36,456

65.6 %

65,654

55,582

Equity attributable to shareholders of BMW AG went
up during the financial year by 13.6 %, mainly due to
the increase in revenue reserves. The decrease in
percentage terms (equity attributable to shareholders
of BMW AG as a percentage of total capital) was
due to the higher funding requirements for the finan-
cial services business.

The BMW Group is officially rated by the rating

agencies, Standard & Poor’s and Moody’s. The

long-term ratings for the BMW Group published by
Standard & Poor’s and Moody’s in September 2005
remain valid. Moody’s issued an A1 rating and
Standard & Poor’s an A+ rating, both with stable out-
look. As a result of its good credit standing, reflected
in the long-standing first-class short-term ratings
issued by Moody’s (P-1) and Standard & Poor’s
(A-1), the BMW Group is able to obtain competitive
refinancing terms and conditions.

Non-current financial liabilities

Current financial liabilities

Outlook

Moody’s

Standard & Poor’s

P-1

stable

A+

A-1

stable

[31]

Pension provisions
Pension provisions are recognised as a result of
commitments to pay future vested pension benefits
and current pensions to present and former em-
ployees of the BMW Group and their dependants.
Depending on the legal, economic and tax circum-
stances prevailing in each country, various pension

plans are used, based generally on the length of
service and salary of employees. Due to similarity of
nature, the obligations of BMW Group companies
in the US and of BMW (South Africa) (Pty) Ltd.,
Pretoria, for post-employment medical care are also
disclosed as pension provisions. The provision for
these pension-like obligations amounts to euro 55 mil-

108 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

lion (2006: euro 49 million) and is measured, similar
to pension obligations, in accordance with IAS 19.
In the case of post-employment medical care, it is
assumed that the costs will increase on a long-term
basis by 6 % p. a. (unchanged from the previous year).
The expense for medical care costs in the financial
year 2007 amounted to euro 6 million (2006: euro
6 million).

Post-employment benefit plans are classified as
either defined contribution or defined benefit plans.
Under defined contribution plans, an enterprise pays
fixed contributions into a separate entity or fund and
does not assume any other obligations. The total
pension expense for all defined contribution plans
of the BMW Group amounted to euro 442 million
(2006: euro 409 million). This includes employer con-
tributions paid to state pension insurance schemes
amounting to euro 406 million (2006: euro 388 mil-
lion).

Under defined benefit plans, the enterprise is

required to pay the benefits granted to present and

past employees. Defined benefit plans may be
funded or unfunded, the latter sometimes financed
by means of accounting provisions. Most of the
pension commitments of the BMW Group in Ger-
many relate to BMW AG, whose pension plans, like
all those of the BMW Group’s German sub sidiaries,
are unfunded and financed by means of accounting
provisions. In addition, a deferred remuneration
retirement scheme is in place which is funded by
employee contributions. The main funded plans of
the BMW Group are in the United Kingdom, the
USA, Switzerland, the Netherlands, Belgium and
Japan.

Pension obligations are computed on an actu-
arial basis at the level of the defined benefit obliga-
tion. This computation requires the use of estimates.
The main assumptions, in addition to life expect-
ancy, depend on the economic situation in each
particular country. The following disclosures for the
United Kingdom (UK) and the other countries are
based on weighted average values:

in %
31 December

Discount rate

Salary level trend

Pension level trend

Germany

Other

2007

2006

2007

2006

2007

2006

5.50

3.25

1.75

4.40

3.25

1.75

5.53

4.39

3.38

5.11

4.12

3.09

5.78

3.36

1.90

5.19

2.59

1.79

The salary level trend refers to the expected
rate of salary increase which is estimated annually
depending on inflation and the period of service of
employees with the Group.

In the case of funded plans, the defined benefit
obligation is offset against plan assets measured at
their fair value. Where the plan assets exceed the
pension obligations and the enterprise has a right of
reimbursement or a right to reduce future contribu-
tions, the surplus amount is recognised in accord-
ance with IAS 19 as an asset under other assets. In
the case of funded pension plans, a liability is recog-
nised under pension provisions where the benefit
obligation exceeds fund assets.

Actuarial gains or losses may result from in-
creases or decreases in either the present value of
the defined benefit obligation or in the fair value of
the plan assets. Causes of actuarial gains or losses
include the effect of changes in the measurement
parameters, changes in estimates caused by the
actual development of risks impacting on pension
obligations and differences between the actual and
expected return on plan assets. Past service cost
arises where a BMW Group company introduces a
defined benefit plan or changes the benefits payable
under an existing plan.

109

Based on the measurement principles contained in IAS 19, the following funding status applies to the
Group’s pension plans:

in euro million
31 December

Germany

Other

Total

2007

2006

2007

2006

2007

2006

2007

2006

Present value of pension benefits covered by

accounting provisions

3,849

4,412

–

Present value of funded pension benefits

–

6,327

6,568

Defined benefit obligations

Fair value of plan assets

Net obligation

Income (+) expense (–) from past service cost

not yet recognised

Amount not recognised as an asset because of

the limit in IAS 19.58

Balance sheet amounts at 31 December

thereof pension provision

thereof pension assets (–)

3,849

4,412

6,327

6,568

–

5,686

6,134

3,849

4,412

641

434

–

3,849 4,412

3,849

4,412

–

647

651

– 4

–

439

440

– 1

119

336

455

343

112

134

316

3,968

4,546

6,663

6,884

450 10,631 11,430

298

152

6,029

6,432

4,602

4,998

– 2

127

164 4,623 5,015

165

4,627

5,017

–

– 1

– 4

– 2

Pension provisions relating to pension plans in other
countries amounted to euro 127 million (2006: euro
165 million). This includes euro 53 million (2006: euro
80 million) relating to externally funded plans.

The change in the defined benefit obligations

The changes in the pension provision and
in pension assets (reimbursement claims or right
to reduce future contributions to the funds) as
disclosed in the balance sheet can be derived as
follows:

was attributable mainly to changes in the discount
rates used in the actuarial computation.

in euro million

Germany

Other

Total

2007

2006

2007

2006

2007

2006

2007

2006

Balance sheet amounts at 1 January

Expense from pension obligations

Pension payments or transfers to external funds

4,414 * 4,234

239

– 80

329

– 72

439

– 47

792

– 98

164

– 67

202

5,017

5,228

319

445

– 55

– 194

– 225

Actuarial gains (–) and losses (+)

on defined benefit obligations

– 776

– 167

211

– 241

Actuarial gains (–) and losses (+) on plan assets

–

– 98

– 557

– 19

– 400

– 117

Employee contributions to the deferred

remuneration retirement scheme

Translation differences and other changes

Balance sheet amounts at 31 December

thereof pension provision

thereof pension assets (–)

* including entities consolidated for the first time during the financial year

–

3,849 4,412

3,849

4,412

–

– 50

647

651

– 4

–

439

440

– 1

–

– 8

127

–

– 17

– 58

– 3

164 4,623 5,015

165

4,627

5,017

–

– 1

– 4

– 2

110 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

The defined benefit plans of the BMW Group give

rise to an expense from pension obligations in the

financial year 2007 of euro 319 million (2006: euro
445 million), comprising the following components:

in euro million

Germany

Other

Total

2007

2006

2007

2006

2007

2006

2007

2006

Current service cost

150

160

243

258

Expense from reversing the discounting of

pension obligations

Past service cost

Expected return on plan assets (–)

Expense from pension obligations

192

169

323

307

– 103

–

– 335

– 300

239

329

–

– 23

537

501

– 103

– 15

– 358

– 315

319

445

The expense from reversing the discounting of pen-
sion obligations and the income from the expected
return on plan assets are reported as part of the
financial result. All other components of pension
expense are included in the relevant income state-
ment under costs by function.

Pension plan assets are invested in various
investment categories, the most predominant one
being bonds. Other equity instruments and alter-
native investments such as property are also con-
sidered. The expected rate of return is derived on
the basis of the specific investment strategy applied
to each individual pension fund, either by applying
percentages based on long-term state bonds or
using absolute estimates of pension fund income.

The actual return from external pension funds

United Kingdom only provides a basic fixed amount
benefit, retirement benefits are largely organised in
the form of company pensions and arrangements
financed by the individual. The pension benefits in
the United Kingdom therefore contain contributions
made by the employee.

Past service cost included in the expense from
pension obligations decreased in 2007 by euro 103
million as a result of the Retirement Age Amendment
Act passed in 2007 which raised the statutory retire-
ment age for the state pension scheme in Germany.
The later retirement age of employees resulted in
an amendment to the pension plan in place at the
Group’s German entities. The resulting decrease in
the pension obligation was recognised in the income
statement.

was euro 314 million (2006: euro 432 million).

The net obligation from pension plans in Ger-

The level of the pension obligations differ de-
pending on the pension system applicable in each
country. Since the state pension system in the

many, the United Kingdom and other countries
changed as follows:

in euro million

Defined benefit obligation

Germany
Plan assets

Net obligation

2007

2006

2007

2006

2007

2006

1 January

Expense from pension obligations

Payments to external funds

Pension payments

Actuarial gains (–) and losses (+)

Employee contributions to the deferred remuneration

retirement scheme

Translation differences and other changes

4,414 *

4,234

239

–

– 80

– 776

–

329

–

– 72

– 167

31 December

3,849

4,412

* including entities consolidated for the first time during the financial year

–

4,414

4,234

239

–

– 80

– 776

–

329

–

– 72

– 167

3,849

4,412

111

in euro million

Defined benefit obligation

2007

2006

United Kingdom
Plan assets

2007

2006

Net obligation

2007

2006

1 January

Expense from pension obligations

Payments to external funds

Pension payments

Actuarial gains (–) and losses (+)

Translation differences and other changes

6,568

6,576

– 6,134

– 5,784

387

–

– 293

211

– 546

371

–

– 278

– 241

140

– 335

– 300

– 47

293

495

– 98

278

– 98

– 132

31 December

6,327

6,568

– 5,686

– 6,134

434

– 47

–

253

– 51

641

792

– 98

–

– 339

434

in euro million

Defined benefit obligation

2007

2006

Other countries
Plan assets

2007

2006

Net obligation

2007

2006

1 January

Expense from pension obligations

Payments to external funds

Pension payments

Actuarial gains (–) and losses (+)

Translation differences and other changes

31 December

450

–

– 16

– 38

455

427

–

– 10

– 34

450

– 298

– 233

– 23

– 57

– 14

– 51

– 19

– 343

– 298

152

– 57

– 10

– 11

112

194

– 51

– 4

– 11

– 21

152

Plan assets in the United Kingdom and other countries comprise the following:

in euro million

Equity instruments

Debt securities

Real estate

Other

31 December

United Kingdom
2006
2007

Components of plan assets
Other countries
2006
2007

Total

2007

2006

1,266

3,135

487

798

1,902

3,323

664

245

5,686

6,134

205

111

343

172

106

298

1,471

3,246

493

819

2,074

3,429

669

260

6,029

6,432

Benefit obligations are covered in Germany by
accounting provisions. In the United Kingdom, a

substantial portion of plan assets is invested in debt
securities in order to minimise value fluctuations.

112 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

[32]

Other provisions
Other provisions comprise the following items:

in euro million

Obligations for personnel and social expenses

Obligations for ongoing operational expenses

Other obligations

31.12. 2007

31.12. 2006

Total

thereof
due within
one year

Total

thereof
due within
one year

1,559

2,818

1,125

5,502

1,062

1,129

635

2,826

1,493

3,000

1,043

5,536

979

1,135

557

2,671

Provisions for obligations for personnel and social
expenses comprise mainly profit-share schemes
and bonuses, early retirement part-time working
arrangements and employee long-service awards.

They comprise mainly obligations and risks in re-
spect of the disengagement from the former Rover
Group, risks from legal disputes and the obligation
for recovery and recycling of end-of-life vehicles.

Provisions for obligations for ongoing operational

Other provisions changed during the year as

expenses comprise primarily warranty obligations.

follows:

Provisions for other obligations cover numerous

specific risks and obligations of uncertain amount.

in euro million

At Translation
1.1. 2007 * differences

Additions Reversal of
discounting

Utilised

Reversed

At
31.12. 2007

Obligations for personnel and

social expenses

Obligations for ongoing

operational expenses

Other obligations

1,497

– 8

890

– 794

– 34

1,559

3,011

1,062

5,570

– 36

– 8

– 52

1,218

369

2,477

– 1,362

– 190

– 2,346

– 74

– 125

– 233

2,818

1,125

5,502

* including entities consolidated for the first time during the financial year

Of the amount shown as reversed, euro 143 million are included in costs by function in the income statement.

[33]

Income tax liabilities

31 December 2007
in euro million

Deferred tax

Current tax

Maturity
within
one year

Maturity
later than
one year

–

378

2,714

430

3,144

Total

2,714

808

3,522

113

31 December 2006
in euro million

Deferred tax

Current tax

Maturity
within
one year

Maturity
later than
one year

–

206

2,758

361

3,119

Total

2,758

567

3,325

Current tax liabilities of euro 808 million (2006: euro
567 million) comprises euro 161 million (2006: euro
88 million) for taxes payable and euro 647 million

(2006: euro 479 million) for tax provisions. In 2007
tax provisions of euro 8 million were reversed (2006:
euro 2 million).

[34]

Financial liabilities
Financial liabilities include all liabilities of the BMW Group at the relevant balance sheet dates relating to
financing activities and comprise:

31 December 2007
in euro million

Bonds

Liabilities to banks

Liabilities from customer deposits (banking)

Commercial paper

Asset backed financing transactions

Interest and currency derivatives

Bills of exchange payable

Other

31 December 2006
in euro million

Bonds

Liabilities to banks

Liabilities from customer deposits (banking)

Commercial paper

Asset backed financing transactions

Interest and currency derivatives

Bills of exchange payable

Other

Maturity
within
one year

Maturity
between one
and five years

Maturity
later than
five years

5,230

4,548

5,030

5,445

1,638

105

–

497

8,945

1,450

702

–

4,708

472

–

273

4,208

503

–

128

Total

18,383

6,501

5,732

5,445

6,346

616

–

898

22,493

16,550

4,878

43,921

Maturity
within
one year

Maturity
between one
and five years

Maturity
later than
five years

Total

4,442

2,077

5,138

4,154

1,305

279

260

8,450

2,205

643

–

3,196

317

–

235

17,656

15,046

3,528

16,420

–

220

3,754

4,288

5,781

4,154

4,501

596

715

36,456

Other financial liabilities of euro 898 million (2006: euro 715 million) comprise mainly finance lease liabilities.

114 Group Financial Statements

Bonds comprise:

Issuer

Interest

Issue volume
in relevant currency
(ISO-Code)

Weighted
average maturity
period (in years)

Weighted
average effective
interest rate (in %)

BMW Finance N. V., The Hague

BMW Coordination Center V. o. F., Bornem

BMW (UK) Capital plc, Bracknell

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

BMW US Capital, LLC, Wilmington, Del.

variable

fixed

variable

fixed

variable

fixed

variable

fixed

JPY 17,500 million

SKK 768 million

EUR 735 million

USD 81 million

JPY 45,000 million

EUR 5,542 million

USD 950 million

GBP 400 million

CHF 200 million

EUR 500 million

EUR 150 million

JPY 33,200 million

EUR 275 million

GBP 186 million

JPY 5,000 million

GBP 300 million

JPY 33,000 million

USD 1,475 million

EUR 595 million

CAD 100 million

JPY 8,200 million

EUR 2,500 million

USD 1,212 million

MXN 1,000 million

CHF 450 million

GBP 150 million

AUD 100 million

Rolls-Royce Motor Cars Limited, Bracknell

variable

GBP 46 million

Other

* unlimited

variable

fixed

JPY 48,600 million

EUR 1,275 million

SEK 800 million

USD 120 million

CAD 50 million

JPY 84,000 million

CHF 500 million

EUR 75 million

1.1

3.0

1.9

2.0

8.3

7.6

4.8

6.0

5.0

1.2

1.0

2.4

2.1

1.0

5.2

1.8

2.5

2.1

3.0

1.9

7.1

8.1

4.0

3.8

3.0

2.0

– *

1.6

2.2

2.0

6.0

1.0

13.9

4.5

1.0

4.3

4.7

5.0

2.3

4.4

5.1

5.2

2.0

4.7

4.5

0.9

4.7

6.0

1.1

6.4

1.0

4.7

4.8

0.4

4.0

5.3

7.8

2.3

4.6

5.8

5.9

1.0

4.8

4.7

5.3

4.9

2.2

2.3

4.6

115

The following details apply to commercial paper:

Issuer

Issue volume
in relevant currency
(ISO-Code)

Weighted
average maturity
period (in days)

Weighted
average nominal
interest rate (in %)

BMW AG, Munich

BMW Finance N. V., The Hague

BMW (UK) Capital plc, Bracknell

BMW US Capital, LLC, Wilmington, Del.

EUR 1,630 million

EUR 1,521 million

GBP 100 million

GBP 270 million

USD 2,665 million

28.4

38.6

49.0

8.9

16.2

[35]

Other liabilities
Other liabilities comprise the following items:

31 December 2007
in euro million

Other taxes

Social security

Advance payments from customers

Deposits received

Subsidiaries

Deferred income

Other

31 December 2006
in euro million

Other taxes

Social security

Advance payments from customers

Deposits received

Subsidiaries

Deferred income

Other

Maturity
within
one year

Maturity
between one
and five years

Maturity
later than
five years

537

367

1,002

2,023

4,106

–

1,651

1,792

–

191

232

Maturity
within
one year

Maturity
between one
and five years

Maturity
later than
five years

553

267

909

2,066

3,924

–

1,362

118

1,586

–

306

346

4.8

4.7

6.6

6.7

4.3

Total

537

382

146

2,844

2,100

6,130

Total

553

278

143

2,577

2,224

5,856

116 Group Financial Statements

Deferred income comprises the following items:

in euro million

Deferred income from lease financing

Deferred income relating to service contracts

Grants

Other deferred income

31.12. 2007

31.12. 2006

Total

thereof
due within
one year

Total

thereof
due within
one year

977

1,433

358

2,844

580

317

1,002

763

1,295

412

107

2,577

484

266

909

Deferred income relating to service contracts relates
to service and repair work to be provided under
commitments given at the time of the sale of a vehicle
(multi-component arrangements). Grants comprise
primarily public funds to promote regional structures;

this has been invested in the construction of the pro-
duction plant in Leipzig. In accordance with IAS 20,
they are recognised as income over the useful lives
of the assets to which they relate.

[36]

Trade payables

31 December 2007
in euro million

Maturity
within
one year

Maturity
between one
and five years

Maturity
later than
five years

Total

Trade payables

3,516

–

3,551

31 December 2006
in euro million

Maturity
within
one year

Maturity
between one
and five years

Maturity
later than
five years

Total

Trade payables

3,624

3,737

The total amount of financial liabilities, other liabilities
and trade payables with a maturity later than five years

amounts to euro 5,110 million (2006: euro 4,139 mil-
lion).

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

BMW Group
Notes to the Group Financial Statements
Other Disclosures

117

[37]

Contingent liabilities and other financial commitments

Contingent liabilities
No provisions were recognised for the following con-
tingent liabilities (stated at their nominal amount),

since an outflow of resources is not considered to be
probable:

in euro million

31.12. 2007

31.12. 2006

Guarantees

Performance guarantees

Bills of exchange

132

147

224

252

As at the end of the previous year, all contingent liabili-
ties relate to non-group entities.

Several liability applies in the case of investments

in general partnerships.

The usual commercial guarantees have been
given in relation to the sale of Rover Cars and Land
Rover activities.

Other financial obligations
In addition to liabilities, provisions and contingent lia-
bilities, the BMW Group also has other financial com-

mitments, primarily under lease contracts for land,
buildings, plant and machinery, tools, office and other
facilities. The leases run for periods of one to 95
years and in some cases contain extension and /or
purchase options. Lease payments of euro 61 million
(2006: euro 77 million) were recognised as expense
during the year.

The total of future minimum lease payments

under non-cancellable leases can be analysed by
maturity as follows:

in euro million

31.12. 2007

31.12. 2006

Nominal total of future minimum lease payments

due within one year

due between one and five years

due later than five years

212

575

683

271

583

560

1,470

1,414

The above amounts include euro 3 million (2006: euro
4 million) in respect of non-consolidated subsidiaries
and euro 7 million (2006: euro 65 million) for back-
to-back operating leases.

In addition, the BMW Group is the lessee in the

case of operating leases for vehicles which are leased
to third parties over matching periods. The following
amounts are payable under these contracts:

in euro million

31.12. 2007

31.12. 2006

Nominal total of future minimum lease payments

due within one year

due between one and five years

due later than five years

403

296

–

699

677

497

–

1,174

118 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

These future obligations are matched, or ex-

ceeded, by income on sub-leases.

Purchase commitments for property, plant and

equipment amount to euro 1,925 million (2006: euro
1,099 million). Sundry other financial commitments
amount to euro 239 million (2006: euro 249 million).

[38]

Financial instruments
The carrying amounts and fair values of financial
instruments are allocated below to IAS 39 catego-

ries, cash funds, cash flow hedges and fair value
hedges:

31 December 2007
in euro million

Assets

Other investments

Receivables from sales financing

Financial assets

Derivative instruments

Marketable securities and investment funds

Loans to third parties

Credit card receivables

Other financial assets

Cash and cash equivalents

Trade receivables

Other assets

Receivables from subsidiaries

Receivables from companies in which an investment is held

Collateral receivables

Other

Liabilities

Financial liabilities

Bonds

Liabilities to banks

Liabilities from customer deposits (banking)

Commercial paper

Asset backed financing transactions

Derivative instruments

Bills of exchange payable

Other financial liabilities

Trade payables

Other liabilities

Liabilities to subsidiaries

Other

* Carrying amount corresponds to fair value.

Cash funds

Loans and
receivables

Fair value

Carrying
amount

Fair value

Carrying
amount

–

2,393

–

33,490

34,244

–

260

568

–

260

568

–

135

–

135

2,672

641

104

–

641

104

–

119

Held-to-
maturity
investments

Other
liabilities

Available-
for-sale

Fair value
option

Held for
trading

Cash flow
hedges

Fair value
hedges

Fair value

Carrying
amount

Fair value

Carrying
amount

Carrying
amount *

–

18,808

18,383

6,485

5,702

5,446

5,882

–

910

3,551

2,081

6,501

5,732

5,445

6,346

–

898

3,551

2,081

209

–

1,904

–

195

802

983

–

180

423

–

120 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

31 December 2006
in euro million

Assets

Other investments

Receivables from sales financing

Financial assets

Derivative instruments

Marketable securities and investment funds

Loans to third parties

Credit card receivables

Other financial assets

Cash and cash equivalents

Trade receivables

Other assets

Receivables from subsidiaries

Receivables from companies in which an investment is held

Collateral receivables

Other

Liabilities

Financial liabilities

Bonds

Liabilities to banks

Liabilities from customer deposits (banking)

Commercial paper

Asset backed financing transactions

Derivative instruments

Bills of exchange payable

Other financial liabilities

Trade payables

Other liabilities

Liabilities to subsidiaries

Other

1] Carrying amount corresponds to fair value.
2] Including the negative fair value of the option obligation relating to the Rolls-Royce exchangeable bond.

Cash funds

Loans and
receivables

Fair value

Carrying
amount

Fair value

Carrying
amount

–

1,336

–

30,183

30,368

–

239

289

–

239

289

–

120

–

120

2,258

693

202

–

106

693

202

–

106

–

121

Held-to-
maturity
investments

Other
liabilities

Available-
for-sale

Fair value
option

Held for
trading

Cash flow
hedges

Fair value
hedges

Fair value

Carrying
amount

Fair value

Carrying
amount

Carrying
amount 1]

–

16,507

16,420

4,231

5,731

4,151

4,299

–

728

3,737

2,009

4,288

5,781

4,154

4,501

–

715

3,737

2,009

401

–

1,981

–

122

511

688

–

1652]

115

316

–

122 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

Fair value measurement of financial instruments
The fair values shown are computed using market
information available at the balance sheet date, on
the basis of prices quoted by the counterparties

or using appropriate measurement methods, e.g.
discounted cash flow models. In the latter case,
amounts were discounted at 31 December 2007
on the basis of the following interest rates:

ISO-Code
in %

Interest rate for six months

Interest rate for one year

Interest rate for five years

Interest rate for ten years

EUR

USD

GBP

JPY

4.3

4.6

4.8

4.6

4.2

4.8

5.9

5.7

5.1

1.0

1.1

1.2

1.7

These interest rates were adjusted, where necessary, to take account of the credit quality and risk of the
underlying financial instrument.

Gains and losses on financial instruments
The following table shows the net gains and losses arising for each of the categories of financial instrument
defined by IAS 39:

in euro million

Held for trading

2007

2006

Gains/losses from the use of derivative instruments

– 39

Available-for-sale

Gains/losses on sale and fair value gains/losses on available-for-sale securities;

including equity investments carried at cost

Income from investments

Accumulated other equity

Balance at 1 January

Total change during the year

– of which recognised in the income statement during the period under report

Balance at 31 December

Loans and receivables

Impairment losses/reversals of impairment losses

Other income/expenses

Other liabilities

Income/expenses

214

– 179

– 168

– 277

– 12

562

– 348

– 431

214

– 190

– 31

168

108

Gains/losses from the use of derivative instruments
relate primarily to fair value gains or losses arising on
stand-alone derivative instruments.

Write-downs of euro 49 million (2006: euro 2 mil-

lion) on available-for-sale securities, for which fair
value changes were previously recognised directly
in equity, were recognised as expenses in 2007.
Reversals of write-downs on current marketable se-
curities of euro 2 million were recognised directly in
equity (2006: euro 4 million).

The disclosure of interest income resulting from
the unwinding of interest on future expected receipts
would normally only be relevant for the BMW Group
where assets have been discounted as part of the
process of determining impairment losses. However,
as a result of the assumption that most of the income
that is subsequently recovered is received within one
year and the fact that the impact is not material, the
BMW Group does not discount assets for the purposes
of determining impairment losses.

123

Cash flow hedges
The effect of cash flow hedges on accumulated other equity was as follows:

in euro million

Balance at 1 January

Total changes during the year

– of which recognised in the income statement during the period under report

Balance at 31 December

2007

2006

178

260

– 260

438

149

– 266

178

During the period under report, an expense of euro
4 million (2006: euro 3 million) was recognised in the
income statement to reflect the ineffective portion of
cash flow hedges.

At 31 December 2007, the BMW Group held
derivative instruments with terms of up to 41 months
(2006: 44 months) to hedge currency risks attached
to future transactions. It is expected that euro 384 mil-
lion of net gains, recognised in equity at the balance
sheet date, will be recognised in the income state-
ment in 2008.

At 31 December 2007, the BMW Group held de-

rivative instruments with terms of up to 108 months

(2006: 120 months) to hedge interest rate risks at-
tached to future transactions. It is expected that euro
5 million of net gains, recognised in equity at the
balance sheet date, will be recognised in the income
statement in 2008.

Cash flow hedges are used to hedge cash flows

arising in conjunction with the supply of vehicles to
subsidiaries.

Fair value hedges
The following table shows gains and losses on
hedging instruments and hedged items which are
deemed to be part of a fair value hedge relationship:

in euro million

31.12. 2007

31.12. 2006

Gains/losses on hedging instruments designated as part of a fair value hedge relationship

Profit/loss from hedged items

272

– 271

159

– 147

The difference between the gains/losses on hedging
instruments and the result recognised on hedged
items represents the ineffective portion of fair value
hedges.

Fair value hedges are mainly used to hedge

bonds and other financial liabilities.

Credit risk
Notwithstanding the existence of collateral accepted,
the carrying amounts of financial assets generally
take account of the maximum credit risk arising from
the possibility that counterparties will not be able
to fulfil their contractual obligations. The maximum
credit risk for irrevocable credit commitments relat-
ing to credit card business amounted to euro 2,082
million (2006: euro 1,395 million). The equivalent
figure for dealer financing was euro 12,043 million
(2006: euro 9,968 million).

In the case of performance relationships under-
lying non-derivative financial instruments, collateral
will be required, information on the credit standing
of the counterparty 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 the exposure that the BMW Group is proposing to
enter into.

Within the financial services business, the
financed items (e.g. vehicles, equipment and prop-
erty) in the retail customer and dealer lines of busi-
ness serve as first-ranking collateral with a recover-
able value. Security is also put up by customers in the
form of collateral asset pledges, asset assignment
and first-ranking mortgages, supplemented where
appropriate by warranties and guarantees. If an item
previously accepted as collateral is acquired, it un-

124 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

dergoes a multi-stage process of repossession
and disposal in accordance with the legal situation
prevailing in each relevant market. The assets in-
volved are generally vehicles which can be con-
verted into cash at any time via the dealer organi-
sation.

Impairment losses are recorded as soon as
credit risks are identified on individual financial assets,
using a methodology specifically designed by the
BMW Group. More detailed information regarding
this methodology is provided in the section on ac-
counting policies.

The use of comprehensive rating and scoring

The credit risk relating to derivative financial in-

struments 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 de-
rivative financial instruments utilised by the BMW
Group is therefore not considered to be significant. A
concentration of credit risk with particular borrowers
or groups of borrowers has not been identified.

Further disclosures relating to credit risk, in par-

ticular impairment losses recognised, are provided in
the notes to the relevant category of receivables on
pages 100 to 105.

techniques and credit monitoring procedures
ensures the recoverability of the value of receivables
from sales financing which are neither overdue nor
impaired.

Liquidity risk
The following table shows the maturity structure of
contractual cash flows (undiscounted) for financial
liabilities:

31 December 2007
in euro million

Bonds

Liabilities to banks

Liabilities from customer deposits (banking)

Commercial paper

Asset backed financing transactions

Interest and currency derivative instruments

Bills of exchange payable

Trade payables

Other financial liabilities

31 December 2006
in euro million

Bonds

Liabilities to banks

Liabilities from customer deposits (banking)

Commercial paper

Asset backed financing transactions

Interest and currency derivative instruments

Bills of exchange payable

Trade payables

Other financial liabilities

Maturity
within
one year

Maturity
between one
and five years

Maturity
later than
five years

Total

– 5,947

– 4,736

– 5,193

– 5,474

– 1,854

–

– 3,516

– 497

– 10,627

– 1,630

– 774

–

– 5,043

234

–

– 35

– 273

– 4,920

– 551

–

132

–

– 128

– 21,494

– 6,917

– 5,967

– 5,474

– 6,897

429

–

– 3,551

– 898

– 27,154

– 18,148

– 5,467

– 50,769

Maturity
within
one year

Maturity
between one
and five years

Maturity
later than
five years

Total

– 5,126

– 2,178

– 5,250

– 4,159

– 1,440

– 127

– 1

– 3,624

– 260

– 9,789

– 2,385

– 699

–

– 3,365

287

–

– 74

– 235

– 4,007

– 18,922

– 7

–

127

–

– 39

– 220

– 4,570

– 5,949

– 4,159

– 4,805

287

– 1

– 3,737

– 715

– 22,165

– 16,260

– 4,146

– 42,571

125

The cash flows shown comprise principal re-

payments and the related interest. The amounts
disclosed for interest rate and currency derivative
instruments include all cash flows relating to deriva-
tives that have a negative fair value at the balance
sheet date as well as all cash flows relating to deriva-
tives that have a positive fair value at the balance
sheet date but which are part of a hedging relation-
ship with a financial liability.

Solvency is assured at all times by managing

and monitoring the liquidity situation on the basis of
a rolling cash flow forecast. The resulting funding
requirements are secured by a variety of instruments
placed on the world’s financial markets. The objec-
tive is to minimise risk by matching maturities for the
Group’s financing requirements within the framework
of the target debt ratio. The long-term ratings pub-
lished by Standard & Poor’s (A+) and Moody’s (A1)
enable the BMW Group to obtain financing on com-
petitive terms and conditions.

Short-term liquidity is managed primarily by is-
suing money market instruments (commercial paper).
As a result of its good credit standing, reflected in
the first-class short-term ratings issued by Moody’s
(P-1) and Standard & Poor’s (A-1), the BMW Group is
also able to obtain competitive terms and conditions
in this area.

Also reducing liquidity risk, additional secured
and unsecured lines of credit are in place with first-
class international banks. Intragroup cash flow
fluctuations are evened out by the use of daily cash
pooling arrangements.

Market risks
The principal market risks to which the BMW Group
is exposed are currency risk and interest rate risk.

Protection against such risks is provided in the
first instance through natural hedging which arises
when the values of non-derivative financial instruments

have matching maturities and amounts (netting).
Derivative financial instruments are used to reduce
the risk remaining after netting. Derivative financial
instruments are only used to hedge underlying posi-
tions or forecast transactions.

The scope of permitted transactions, responsi-

bilities, financial reporting procedures and control
mechanisms used for financial instruments are set
out in detailed internal guidelines. This includes,
above all, a clear separation of duties between trading
and processing. Currency and interest rate risks are
managed at a corporate level.

Further disclosures relating to risk management

are provided in the Group Management Report.

Currency risk
As an enterprise with worldwide operations, business
is conducted in a variety of currencies, from which
currency risks arise. Since a significant portion of
Group revenues are generated outside the euro cur-
rency region and the procurement of production
material and funding is also organised on a worldwide
basis, currency risk is an extremely important factor
for Group earnings.

At 31 December 2007, derivative financial instru-
ments were in place to hedge exchange rate risks, in
particular for the currencies US dollar, British pound,
Canadian dollar and Japanese yen. The hedging
contracts comprise mainly option and forward cur-
rency contracts.

A description of how currency risk is managed is
provided in the Group Management Report on page
63. The BMW Group measures currency risks using
a cash-flow-at-risk model.

The starting point for analysing currency risk with

this model is the identification of forecast foreign
currency transactions or “exposures”. At the balance
sheet date, exposures for the coming year were as
follows:

in euro million

Euro/US dollar

Euro/British pound

Euro/Japanese yen

31.12. 2007

31.12. 2006

6,140

3,484

1,263

5,787

3,331

1,552

126 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

In the next stage, these exposures are com-

pared to all hedges that are in place. The net cash
flow surplus represents an uncovered risk position.
The cash-flow-at-risk approach involves allocating
the impact of potential exchange rate fluctuations to
operating cash flows on the basis of probability dis-
tributions. Volatilities and correlations serve as input
factors to assess the relevant probability distribu-
tions.

The potential negative impact on earnings for
the current period is computed on the basis of cur-

rent market prices and exposures to a confidence
level of 95 % for each currency. Aggregation of these
results creates a risk reduction effect due to correla-
tions between the various portfolios.

The following table shows the potential negative
impact for the BMW Group – measured on the basis
of the cash-flow-at-risk approach – attributable to
unfavourable changes in exchange rates for the three
principal currencies at the balance sheet date.

in euro million

Euro/US dollar

Euro/British pound

Euro/Japanese yen

31.12. 2007

31.12. 2006

155

The BMW Group’s currency risk relates primarily to
the three currencies shown.

Interest rate risk
The BMW Group’s financial management system
involves the use of standard financial instruments
such as short-term deposits, investments in variable
and fixed-income securities as well as securities
funds. The BMW Group is therefore also exposed to
risks resulting from changes in interest rates.

These risks arise when funds with differing fixed-

rate periods or differing terms are borrowed and in-
vested. All items subject to, or bearing, interest are
exposed to interest rate risk. Interest rate risks can
affect either side of the balance sheet.

The fair values of the Group’s interest rate port-

folios for the three principal currencies were as fol-
lows at the balance sheet date:

in euro million

Euro

US dollar

British pound

31.12. 2007

31.12. 2006

6,930

6,012

2,278

7,481

5,759

3,023

Interest rate risks can be managed by the use of in-
terest rate derivative instruments. The interest rate
contracts used for hedging purposes comprise
mainly swaps which are accounted for on the basis
of whether they are designated as a fair value hedge
or as a cash flow hedge. A description of how inter-
est rate risk is managed is provided in the Group
management report on page 63.

As stated there, the BMW Group applies a val-
ue-at-risk approach for internal reporting purposes

and to manage interest rate risks. This is based on
a state-of-the-art historical simulation, in which the
potential future fair value losses of the interest rate
portfolios are compared across the Group with ex-
pected amounts measured on the basis of a holding
period of three months and a confidence level of
99 %. Aggregation of these results creates a risk re-
duction effect due to correlations between the various
portfolios.

127

In the following table the potential volume of fair

value fluctuations – measured on the basis of the
value-at-risk approach – are compared with the ex-

pected value for the interest rate relevant positions
of the BMW Group for the three principal curren-
cies:

in euro million

Euro

US dollar

British pound

31.12. 2007

31.12. 2006

109

Other risks
The BMW Group is exposed to raw material price
risks. A description of how the raw material price risk
is managed is provided in the Group Management
Report on page 63. Derivative financial instruments
are used on a relatively small scale to reduce these
risks, primarily for the purchase of precious metals.
The risk from these derivatives was not material to
the Group in 2007 and 2006 and remains small at

the balance sheet date. For this reason, a sensitivity
analysis for these derivatives is not provided.

A further exposure relates to the residual value
risk on vehicles returned to the Group at the end of
lease contracts. The risks from financial instruments
used in this context were not material to the Group in
the past or at the balance sheet date. A description
of how these risks are managed is provided in the
Group Management Report on pages 64 and 65.

[39]

Explanatory notes to the cash flow statements
The cash flow statements show how the cash and
cash equivalents of the BMW Group, Industrial
Operations 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 76 and 77.

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 2007 was euro 47 million (2006:
negative impact of euro 42 million).

The cash flows from investing and financing ac-
tivities are based on actual payments and receipts.
The cash flow from operating activities is computed
using the indirect method, starting from the net profit
of the Group. Under this method, changes in assets

and liabilities relating to operating activities are ad-
justed for currency translation effects and changes
in the composition of the Group. The changes in
balance sheet positions shown in the cash flow
statement do not therefore agree directly with the
amounts shown in the Group balance sheet.

If the BMW Group acts as the lessor in a finance

lease, the relevant cash flows are reported in the
cash flow statement as part of the cash flow from
investing activities. If the BMW Group acts as the
lessee in a finance lease, the cash flows are reported
as part of the cash flows from operating and invest-
ing activities.

If the BMW Group acts as the lessor in an oper-

ating lease, cash flows are reported as part of the
cash flow from investing activities. In the final case,
where the BMW Group acts as the lessee in an
operating lease, cash flows are reported as part of
the cash flow from operating activities.

The payment for the acquisition of DEKRA
SüdLeasing Services GmbH, Stuttgart, and that en-
tity’s subsidiaries (euro 121 million) is included for
the most part in investing activities.

128 Group Financial Statements

The cash inflow from operating activities includes the following cash flows in accordance with IAS 7.31 and
IAS 7.35:

in euro million

Interest received

Interest paid

Dividends received

2007

2006

386

389

391

328

[40]

Related party relationships
In accordance with IAS 24 (Related Party Disclo-
sures), related individuals or entities which have the
ability to control the BMW Group or which are con-
trolled by the BMW Group, must be disclosed un-
less such parties are not already included in the
consolidated financial statements as consolidated
companies. Control is defined as ownership of more
than one-half of the voting power of BMW AG or the
power to direct, by statute or agreement, the finan-
cial and operating policies of the management of
the Group.

In addition, the disclosure requirements of IAS 24

also cover transactions with associates and with
parties which have the ability to exercise significant
influence over the financial and operating policies of
the BMW Group. This also includes close relatives
and intermediaries. Significant influence over the
financial and operating policies of the Group can
arise when a party holds 20 % or more of the shares
of BMW AG or is a member of the Board of Manage-
ment or Supervisory Board of BMW AG.

For the financial year 2007, the disclosure require-
ments contained in IAS 24 only affect the BMW Group
with regard to business relationships with affiliated,
non-consolidated entities, joint ventures, other equity
investments as well as with members of the Board of
Management and the Super visory Board of BMW AG.
The BMW Group’s relationships with affiliated,

non-consolidated entities are based on arm’s length
principles. Transactions with these entities are small
in scale and in the normal course of business.

Transactions of BMW Group companies with
joint ventures and other equity investments – mainly
BMW Brilliance Automotive Ltd., Shenyang (50 %) –
all arise in the normal course of business and are
conducted on the basis of arm’s length principles.

Stefan Quandt is a shareholder and Deputy
Chairman of the Supervisory Board of BMW AG. He
is also sole shareholder and Chairman of the Super-
visory Board of DELTON AG, Bad Homburg v. d. H.,
which, via its subsidiaries, performed logistics services
for the BMW Group during the financial year 2007.
In addition, companies of the DELTON Group pur-
chased vehicles from the BMW Group. These service
and sale contracts are not material for the BMW
Group and are made, without exception, on the basis
of arm’s length principles.

Susanne Klatten is a shareholder and member

of the Supervisory Board of BMW AG, and also a
shareholder and Deputy Chairman of the Supervisory
Board of Altana AG, Wesel, which purchased vehicles
from the BMW Group during the financial year 2007.
These sale contracts are not material for the BMW
Group and are made, without exception, on the basis
of arm’s length principles.

With the exception of these related party trans-

actions, companies of the BMW Group did not enter
into any significant transactions with members of
the Board of Management or the Supervisory Board
of BMW AG or with companies in whose representa-
tive bodies those persons are represented. The same
applies to close members of the families of those
persons.

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

129

[41]

Declaration with respect to the Corporate
Governance Code
The Board of Management and the Supervisory Board
of Bayerische Motoren Werke Aktiengesellschaft
have issued a declaration, required by § 161 of the

German Stock Corporation Act, which is included in
the BMW Group Annual Report 2007 and which
is available to shareholders on the BMW Group web-
site under the address www.bmwgroup.com/ir.

[42]

Shareholdings of members of the Board of
Management and Supervisory Board
The members of the Supervisory Board of BMW AG
hold in total 27.70 % of the issued common and
preferred stock shares, of which 16.12 % relates to

Stefan Quandt, Bad Homburg v. d. H., and 11.58 %
to Susanne Klatten, Munich. The shareholding of
the members of the Board of Management of
BMW AG is, in total, less than 1 % of the issued
stock shares.

[43]

Compensation of members of the Board of
Management and Supervisory Board
Subject to the approval of the proposed dividend at
the Annual General Meeting of Shareholders, the

remuneration of current members of the Board of
Management and the Supervisory Board amounts to
euro 18.7 million (2006: euro 17.8 million). The re-
muneration consists of the following:

in euro million

Short-term employment benefits

Benefits due at end of employment relationship

2007

2006

18.0

0.7

18.7

17.2

0.6

17.8

Subject to the approval of the proposed dividend at
the Annual General Meeting, the salaries of the mem-
bers of the Board of Management for the financial
year 2007 amounted to euro 15.2 million (2006:
euro 14.5 million). This comprises fixed components
of euro 2.7 million (2006: euro 2.3 million) and vari-
able components of euro 12.5 million (2006: euro
12.2 million).

In addition, an amount of euro 0.7 million (2006:

euro 0.6 million) has been granted to current mem-
bers of the Board of Management after the end of
their employment relationship. This relates to the ex-
pense for allocations to pension provisions.

Subject to the approval of the proposed dividend
at the Annual General Meeting, the compensation of
the members of the Supervisory Board for the finan-
cial year 2007 amounts to euro 2.8 million (2006:
euro 2.7 million). This comprises fixed components
of euro 0.1 million (2006: euro 0.1 million) and variable
components of euro 2.7 million (2006: euro 2.6 mil-
lion).

Further details about the remuneration of cur-
rent members of the Board of Management and of
the Supervisory Board can be found in the Compen-
sation Report on pages 142 to 145. The Compensa-
tion Report is part of the Group Management Report.
The remuneration of former Board members

and their dependants amounted to euro 4.3 million
(2006: euro 3.8 million).

Pension obligations to former members of the
Board of Management and their dependants are fully
covered by pension provisions amounting to euro
38.3 million (2006: euro 38.8 million), computed in
accordance with IAS 19.

Members of the Board of Management or the
Supervisory Board holding a BMW Bank GmbH, Munich,
credit card have a credit line of up to euro 25,565.
At the balance sheet date the balances resulting from
credit card usage were all within the agreed limits.

The names of the members of the Supervisory

Board and of the Board of Management are dis-
closed on pages 137 to 140.

130 Group Financial Statements

[44]

Application of § 264 (3) and § 264b HGB
A number of companies and incorporated partner-
ships (as defined by § 264a HGB) which are affiliated,
consolidated entities of BMW AG and for which the
consolidated financial statements of BMW AG repre-
sent exempting consolidated financial statements,
apply the exemptions available in § 264 (3) and § 264b
HGB with regard to the drawing up of a management
report. The exemptions have been applied by:
– Alphabet Fuhrparkmanagement GmbH, Munich
– Bavaria Wirtschaftsagentur GmbH, Munich
– BMW Fahrzeugtechnik GmbH, Eisenach
– BMW Fuhrparkmanagement Beteiligungs GmbH,

Stuttgart

– BMW Hams Hall Motoren GmbH, Munich
– BMW Ingenieur-Zentrum GmbH + Co., Dingolfing
– BMW Leasing GmbH, Munich
– BMW M GmbH Gesellschaft für individuelle Auto-

– BMW Vertriebs GmbH & Co. oHG, Dingolfing
– LHS Leasing- und Handelsgesellschaft Deutsch-

land mbH, Stuttgart

– Rolls-Royce Motor Cars GmbH, Munich
In addition, the following entities apply the exemption
available in § 264 (3) and § 264b HGB with regard to
publication:
– Alphabet Fuhrparkmanagement GmbH, Munich
– Bavaria Wirtschaftsagentur GmbH, Munich
– BMW Fuhrparkmanagement Beteiligungs GmbH,

Stuttgart

– BMW Hams Hall Motoren GmbH, Munich
– BMW Ingenieur-Zentrum GmbH + Co., Dingolfing
– BMW INTEC Beteiligungs GmbH, Munich
– BMW Leasing GmbH, Munich
– BMW Vertriebs GmbH, Munich
– BMW Vertriebs GmbH & Co. oHG, Dingolfing
– LHS Leasing- und Handelsgesellschaft Deutsch-

mobile, Munich

land mbH, Stuttgart

– BMW Vertriebs GmbH, Munich

– Rolls-Royce Motor Cars GmbH, Munich

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

BMW Group
Notes to the Group Financial Statements
Segment Information

131

[45]

Segment information
Description of business segments
In accordance with the rules contained in IAS 14
(Segment Reporting), the BMW Group presents
segment information using business segments
as its primary reporting format and geographical
segments as its secondary reporting format. This
distinction is based on internal management and
financial reporting systems and reflects the risk and
earnings structure of the Group.

The activities of the BMW Group are broken

down into the segments Automobiles, Motorcycles
and Financial Services.

The Automobiles segment develops, manu-
factures, assembles and sells cars and off-road vehi-
cles under the brands BMW, MINI and Rolls-Royce,
as well as spare parts and accessories.

BMW and MINI brand products are sold in Ger-

many through branches of BMW AG and by inde-
pendent, authorised dealers. Sales outside Germany
are handled primarily by subsidiary companies and,
in a number of markets, by independent import com-
panies. Rolls-Royce brand vehicles are sold in the
USA via a subsidiary company and elsewhere by in-
dependent, authorised dealers.

The BMW Motorcycles segment develops,
manufactures, assembles and sells BMW brand
motorcycles as well as spare parts and accessories.

Reconciliations to the Group profit before tax
for the Group include holding companies, Group
financing companies and income and expenses not
specifically attributable to the business segments.
Reconciliations also include certain operating com-
panies which are not allocated to segments, namely
BMW Services Ltd., Bracknell, BMW (UK) Investments
Ltd., Bracknell, and the Cirquent Group.

Other explanatory comments on segment
information
Segment information is generally prepared in con-
formity with the accounting policies adopted for
preparing and presenting the Group financial state-
ments. Inter-segment receivables and payables,
provisions, income, expenses and profits are elimi-
nated in Reconciliations. Inter-segment sales take
place at arm’s length prices.

Significant non-cash items comprise mainly
changes in provisions, impairment losses, reversal
of impairment losses and depreciation on leased
products.

Capital expenditure comprises additions to prop-

erty, plant and equipment and intangible assets.

Segment assets and segment liabilities comprise
all assets and liabilities employed by the relevant busi-
ness segment to generate the profit before financial
result.

The Financial Services segment focuses pri-

The return on sales for each segment is based

marily on car leasing, fleet business, retail customer
and dealer financing, customer deposit business and
insurance activities. The profit before financial result
of this segment includes net interest income on retail
customer and dealer financing business and the re-
sult of lease business. Leased products are carried
at acquisition cost less straight-line depreciation down
to the imputed residual value of the vehicles. Leased
products are written down to their fair value where
this is lower. Intra-group profits on own products
are eliminated on consolidation and included in the
Reconciliations to the Group profit before tax.

on the profit before tax.

Internal financing is computed as the profit

before tax adjusted for depreciation and significant
non-cash items and less actual tax payments.

In the case of segment information by geograph-

ical region, external sales are based on the location
of the customer’s registered office. Segment infor-
mation is provided for the regions Germany, rest of
Europe, the Americas and Africa, Asia and Oceania,
in line with internal management and reporting pro-
cedures.

132 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

Segment information by business segment
in euro million

External revenues

Change compared to previous year

Inter-segment revenues

Change compared to previous year

Total revenues

Change compared to previous year

Gross profit

Profit before financial result

Change compared to previous year

Result from equity method accounting

Other financial result

Profit before tax

Change compared to previous year

Return on sales

Significant non-cash items

Internal financing

Capital expenditure

Depreciation and amortisation

Additions to leased products

Investments accounted for using the equity method

Assets

Liabilities

Average workforce during the year

* including impairment loss of euro 17 million due to volume-induced adjustment to forecast

Automobiles

2007

2006

42,435

11.8

11,383

15.9

53,818

12.7

37,948

1.9

9,819

14.0

47,767

4.2

10,528

9,636

3,450

12.9

– 229

3,232

7.3

6.0

356

3,055

– 0.8

– 25

– 18

3,012

1.2

6.3

– 117

6,591

5,552

4,103

4,185

3,562

3,159

359

392

28,515

27,227

19,881

20,069

95,927

95,920

133

Motorcycles

Financial Services

Reconciliations

Group

2007

2006

2007

2006

2007

2006

2007

2006

1,223

– 2.5

– 50.0

1,228

– 2.9

345

6.7

–

– 9

7.6

5.8

156

86 *

–

670

404

1,255

3.1

66.7

1,265

3.4

322

11.9

–

– 9

10.0

5.2

12,146

26.5

1,794

21.5

13,940

25.8

9,603

19.0

1,476

10.6

11,079

17.8

1,345

1,215

717

4.1

–

743

8.5

5.3

689

10.8

–

– 4

685

13.2

6.2

214

10.9

– 13,182

16.6

– 12,968

16.7

– 32

– 35

–

– 138

– 173

–

4,204

3,475

387

144

4,873

4,095

110

193

62.2

56,018

14.3

48,999

5.0

– 11,305

13.6

– 11,112

13.0

–

56,018

14.3

48,999

5.0

166

12,186

11,339

231

862.5

–

130

361

–

272

4,212

4.0

– 350

3,873

– 6.1

4,050

6.8

– 25

4,124

25.5

6.9

8.4

4,958

3,400

11,697

10,063

4,267

4,313

3,683

3,272

12,902

10,362

– 2,223

– 2,232

11,038

8,522

–

59,040

50,529

–

772

–

614

88,997

79,057

52,626

44,480

– 5,658

– 5,018

67,253

59,927

–

687

396

2,761

2,816

3,848

3,315

1,866

1,676

104,402

103,727

134 Group Financial Statements

73 Group Financial Statements
73
Income Statements
74 Balance Sheets
76 Cash Flow Statements
78

Group Statement of Changes
in Equity
Statement of Income and
Expenses recognised directly
in Equity

80 Notes
80 – Accounting Principles

and Policies
89 – Notes to the Income

Statement

96 – Notes to the Balance Sheet
117 – Other Disclosures
131 – Segment Information

Segment information by region
in euro million

External revenues
2006

2007

Capital expenditure
2006
2007

Assets

2007

2006

Germany

Rest of Europe

The Americas

Africa, Asia, Oceania

Reconciliations

Group

11,918

22,395

13,014

8,691

–

10,601

18,440

12,336

7,622

–

3,364

3,089

475

378

–

665

511

–

31,615

24,356

23,290

9,526

210

28,903

19,789

21,589

8,705

56,018

48,999

4,267

4,313

88,997

79,057

Munich, 19 February 2008

Bayerische Motoren Werke
Aktiengesellschaft

The Board of Management

BMW Group
Responsibility Statement by the Company’s Legal Representatives

135

Statement pursuant to § 37y No. 1 of the
Securities Trading Act (WpHG) in conjunction
with § 297 (2) sentence 3 and § 315 (1) sen-
tence 6 of the German Commercial Code (HGB)
“To the best of our knowledge, and in accordance with
the applicable reporting principles, the consolidated
financial statements give a true and fair view of the
assets, liabilities, financial position and profit of the
Group, and the Group management report includes
a fair review of the development and performance of
the business and the position of the Group, together
with a description of the principal opportunities and
risks associated with the expected development of
the Group.”

Bayerische Motoren Werke
Aktiengesellschaft

The Board of Management

136

BMW Group
Auditors’ Report

We have audited the consolidated financial state-
ments prepared by Bayerische Motoren Werke
Aktiengesellschaft, comprising the income state-
ment, the balance sheet, statements of changes in
equity, cash flow statement and the notes to the
consolidated financial statements and its report on
the position of the Company and the Group for the
business year from 1 January to 31 December 2007.
The preparation of the consolidated financial state-
ments and Group management report in accordance
with IFRS, as adopted by the EU, and the additional
requirements of German commercial law pursuant
to § 315a (1) HGB are the responsibility of the parent
company’s management. Our responsibility is to
express an opinion on the consolidated financial
statements and on the Group management report
based on our audit.

We conducted our audit of the consolidated
financial statements in accordance with § 317 HGB
and German generally accepted standards for the
audit of financial statements promulgated by the
Institut der Wirtschaftsprüfer (IDW). Those standards
require that we plan and perform the audit such
that material misstatements materially affecting the
pre sentation of the net assets, financial position and
results of operations in the consolidated financial
statements in accordance with the applicable finan-
cial reporting framework and in the Group manage-
ment report are detected with reasonable assurance.
Knowledge of the business activities and the eco-

nomic and legal environment of the Group and ex-
pectations as to possible misstatements are taken
into account in the determination of audit proce-
dures. The effectiveness of the accounting-related
internal control system and the evidence supporting
the disclosures in the consolidated financial state-
ments and in the Group management report are ex-
amined primarily on a test basis within the framework
of the audit. The audit also includes assessing the
annual financial statements of those entities included
in consolidation, the determination of entities to be
included in consolidation, the accounting and con-
solidation principles used and significant estimates
made by management, as well as evaluating the
overall presentation of the consolidated financial
statements and Group management report. We be-
lieve that our audit provides a reasonable basis for
our opinion.

Our audit has not led to any reservations.
In our opinion, based on the findings of our audit,

the consolidated financial statements comply with
IFRSs, as adopted by the EU, the additional require-
ments of German commercial law pursuant to § 315a
(1) HGB and give a true and fair view of the net assets,
financial position and results of operations of the
Group. The Group management report is consistent
with the consolidated financial statements and as
a whole provides a suitable view of the Group’s posi-
tion and suitably presents the opportunities and risks
of future development.

Munich, 3 March 2008

KPMG Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft

Dr. Schindler
Wirtschaftsprüfer

Pastor
Wirtschaftsprüfer

Members of the Supervisory Board
Members of the Board of Management
Corporate Governance at BMW Group

137 Corporate Governance
137
140
141
142 Compensation Report
146

Shareholdings of Members of
the Board of Management and
Supervisory Board
Declaration of the Board of
Management and of the Supervisory
Board pursuant to §161 AktG

147

Members of the Supervisory Board

137

Prof. Dr.-Ing. Dr. h. c. Dr.-Ing. E. h.
Joachim Milberg
Chairman
Former Chairman of the Board of
Management of BMW AG

Chairman of the Presiding Board, Personnel
Committee, Audit Committee and Nomination
Committee; member of the Mediation Committee

Mandates

Bertelsmann AG
FESTO AG
MAN AG (Deputy Chairman) (until 10. 05. 2007)
SAP AG (from 16.05. 2007)

Deere & Company

Manfred Schoch*
Deputy Chairman
Chairman of the General Works Council
Industrial Engineer

Member of the Presiding Board, Personnel
Committee, Audit Committee and Mediation
Committee

Stefan Quandt
Deputy Chairman
Industrial Engineer

Member of the Presiding Board, Personnel
Committee, Audit Committee, Nomination
Committee and Mediation Committee

Mandates

DELTON AG (Chairman)
Dresdner Bank AG (until 31.12. 2007)

DataCard Corp.

Konrad Gottinger *
(until 15.02. 2008)
Deputy Chairman
Member of the Works Council, Dingolfing

Member of the Presiding Board, Personnel
Committee, Audit Committee and Mediation
Committee

Dr. Hans-Dietrich Winkhaus
Deputy Chairman
Former Chairman of the Board of
Henkel KGaA

Member of the Presiding Board, Personnel
Committee, Audit Committee and Nomination
Committee

Mandates

Deutsche Lufthansa AG
ERGO Versicherungsgruppe AG

Henkel KGaA

Ulrich Eckelmann*
Head of Division Industry, Technology and
Environment with the Executive Board of IG Metall

Bertin Eichler *
Executive Member of the
Executive Board of IG Metall

Mandates

ThyssenKrupp AG (Deputy Chairman)
BGAG Beteiligungsgesellschaft der
Gewerkschaften GmbH (Chairman)

* Employee representative
Membership of other statutory supervisory boards
Membership of equivalent national or foreign boards of business enterprises

138

Corporate Governance

Members of the Supervisory Board
Members of the Board of Management
Corporate Governance at BMW Group

137 Corporate Governance
137
140
141
142 Compensation Report
146

Shareholdings of Members of
the Board of Management and
Supervisory Board
Declaration of the Board of
Management and of the Supervisory
Board pursuant to §161 AktG

147

Franz Haniel
Engineer, MBA

Mandates

DELTON AG (Deputy Chairman)
Franz Haniel & Cie. GmbH (Chairman)
Heraeus Holding GmbH
Metro AG (Chairman) (from 04.11. 2007)
secunet Security Networks AG

Giesecke & Devrient GmbH

Arthur L. Kelly
Managing Partner of
KEL Enterprises L. P.

Mandates
BASF SE

DataCard Corp.
Deere & Company
Northern Trust Corp.
Robert Bosch Corp.
Snap-on Inc.

Susanne Klatten
BSc., MBA
Honorary Senator of the
Technical University of Munich

Mandates

ALTANA AG (Deputy Chairman)

UnternehmerTUM GmbH

Willibald Löw *
Chairman of the Works Council, Landshut

Prof. Dr. rer. nat. Drs. h.c. mult. Hubert Markl
Former President of Max-Planck-Gesellschaft
zur Förderung der Wissenschaften e. V.
Professor of Biology (retired)

Mandates

Münchener Rückversicherungs-Gesellschaft AG

Georg von Holtzbrinck GmbH
Sanofi-Aventis S. A.

Wolfgang Mayrhuber
Chairman of the Board of Management of
Deutsche Lufthansa AG

Mandates

Eurowings Luftverkehrs AG
Fraport AG
LSG Lufthansa Service Holding AG
Lufthansa Cargo AG
Lufthansa Technik AG
Münchener Rückversicherungs-Gesellschaft AG
Thomas Cook AG (Deputy Chairman)
(until 02. 04. 2007)

HEICO Corp.
SWISS International Air Lines AG

Heinz-Joachim Neubürger
Senior Advisor of Kohlberg Kravis Roberts & Co.
Managing Director of Kohlberg Kravis Roberts &
Co. Ltd.
Export Merchant, MBA

Mandates

Allianz Versicherungs-AG
ProSiebenSat.1 Media AG (from 17. 07. 2007)

KKR Guernsey GP Limited (until 15. 06. 2007)
Gruppo Banca Leonardo S. p. A. (until 19. 07. 2007)

139

Werner Neugebauer *
Regional Executive Officer of IG Metall Bavaria

Franz Oberländer *
Member of the Works Council, Munich

Anton Ruf *
Director Product Line L7

Stefan Schmid*
(from 03.01. 2007)
Chairman of the Works Council, Dingolfing

Prof. Dr. Jürgen Strube
Chairman of the Supervisory Board of BASF SE

Mandates

Allianz Deutschland AG
BASF SE (Chairman)
Bertelsmann AG (Deputy Chairman)
Commerzbank AG
Fuchs Petrolub AG (Chairman)
Hapag-Lloyd AG
Linde AG

Werner Zierer *
Chairman of the Works Council, Regensburg

* Employee representative
Membership of other statutory supervisory boards
Membership of equivalent national or foreign boards of business enterprises

140

Corporate Governance

Members of the Board of Management

Dr.-Ing. Norbert Reithofer
Chairman

Frank-Peter Arndt
Production

Mandates

BMW Motoren GmbH (Chairman)

BMW (South Africa) (Pty) Ltd. (Chairman)
Leipziger Messe GmbH

Ernst Baumann
Human Resources, Industrial Relations Director

Mandates

Krones AG

Dr.-Ing. Herbert Diess
(from 01.10. 2007)
Purchasing and Supplier Network

Dr.-Ing. Klaus Draeger
Development

Dr. Friedrich Eichiner
(from 01.10. 2007)
Corporate and Brand Development

Mandates

BMW Brilliance Automotive Ltd. (Deputy Chairman)
(from 01.11. 2007)
BMW (US) Holding Corp.

Dr. Michael Ganal
Sales and Marketing (until 30. 09. 2007)
Finance (from 01.10. 2007)

Mandates

BMW Brilliance Automotive Ltd. (Deputy Chairman)
(until 31.10. 2007)

Stefan Krause
Finance (until 30. 09. 2007)
Sales and Marketing (from 01.10. 2007)

Mandates

Allianz Deutschland AG

General Counsel:
Dr. Dieter Löchelt

Membership of other statutory supervisory boards
Membership of equivalent national or foreign boards of business enterprises

Members of the Supervisory Board
Members of the Board of Management
Corporate Governance at BMW Group

137 Corporate Governance
137
140
141
142 Compensation Report
146

Shareholdings of Members of
the Board of Management and
Supervisory Board
Declaration of the Board of
Management and of the Supervisory
Board pursuant to §161 AktG

147

Corporate Governance

141

Corporate Governance at BMW Group
For the BMW Group, corporate governance is an all-
embracing issue which affects all areas of the enter-
prise. Transparent reporting and a policy of corporate
governance aimed at the interests of stakeholders
are well-established traditions within the BMW Group.
Cooperation between the Board of Management
and the Supervisory Board, in an atmosphere of
commonly shared trust and responsibility, have long
been the basis for managing the affairs of the BMW
Group. The underlying corporate culture at the BMW
Group is founded upon the principles of transparency,
placing trust in others and taking responsibility for
one’s own actions.

Declaration of Compliance and the BMW Group
Corporate Governance Code
Management and supervisory boards of companies
listed in Germany are required by law (§ 161 German
Stock Corporation Act) to report once a year whether
the officially published and relevant recommenda-
tions issued by the “German Government Corporate
Governance Code Commission”, as valid at the date
of the declaration, have been, and are being, com-
plied with. Companies affected are also required to
state which of the recommendations of the Code
have not been or are not being applied.

The Board of Management and Supervisory
Board of Bayerische Motoren Werke Aktiengesell-
schaft believe that the recommendations and sug-
gestions contained in the German Corporate Govern-
ance Code (GCGC) contribute to an enhancement
of the financial markets in Germany, in particular for
international investors. At the joint meeting held on
4 December 2007, the Board of Management and
Supervisory Board of BMW AG issued the Declara-
tion of Compliance with the new version of the Ger-
man Corporate Governance Code valid from 20 July
2007. BMW AG continues to comply with the rec-
ommendations of the GCGC with only one excep-
tion: namely, that the discussion and regular review
of the structure of the compensation system of the
Board of Management is performed by the Personnel
Committee. The Chairman of that committee informs
the members of the Supervisory Board at its next
meeting in detail. All other recommendations are com-
plied with. Moreover, the Board of Management and
Supervisory Board have, in the past, developed the
BMW Group’s own corporate governance code on
the basis of the GCGC taking account of the specific
circumstances of the BMW Group. The aim is to
provide shareholders and other stakeholders with a
comprehensive and stand-alone document covering

the corporate governance practices applied by the
BMW Group. The BMW Group’s Corporate Govern-
ance Code has been revised in conjunction with
the new version of the GCGC. A copy of it can be ob-
tained, along with other shareholder information,
from the BMW Group website. Interested parties can
also find other general information about the BMW
Group, up-to-date analysts’ reports and all Group
financial publications at www.bmwgroup.com/ir.
A coordinator responsible for all corporate govern-
ance issues reports directly and on a regular basis to
the Board of Management and Supervisory Board.

Compliance at BMW Group
The corporate culture that has evolved at the BMW
Group is characterised by clear lines of responsibility,
mutual respect and trust. Nevertheless, the risk of
wrongdoing by individuals can never be entirely ruled
out. The BMW Group is firmly committed to keeping
such risks to a minimum and to systematically un-
covering and following up any cases of corruption
that might occur. In accordance with the anti-corrup-
tion principle enshrined in the United Nations Global
Compact, the BMW Group has a well-established
internal control system, the effectiveness of which is
tested regularly using a risk-based approach. In ad-
dition, employees in relevant divisions and depart-
ments are sensitised to the risk of corruption. The
ways in which employees are expected to deal with
this risk are set out in corporate guidelines and in the
BMW Group’s stated set of core principles. Those
requirements are supplemented by organisational
rules such as the dual control principle and segrega-
tion of duties between requisitioning and purchas-
ing. Regular and mandatory job rotation within the
purchasing function helps to prevent dependencies
between the parties involved and therefore receives
the full support of the personnel department. In addi-
tion, all business units are subjected to audit by the
Group’s internal audit department within a prede-
fined time scale in accordance with the Standards
promulgated by the German Institute of Internal Au-
diting. Processes and areas of the BMW Group that
are exposed to a higher degree of risk are audited
more frequently, for example in countries where cor-
ruption is more prevalent. The internal audit depart-
ment also provides tools to specialist departments
to carry out their own risk assessment and controls.
One example of the effectiveness of the Group’s
internal control mechanisms is the uncovering of
various incidences of corruption in BMW AG’s pur-
chasing department in 2005. Legal proceedings
culminated in the conviction of a number of ex-em-

142

Corporate Governance

Members of the Supervisory Board
Members of the Board of Management
Corporate Governance at BMW Group

137 Corporate Governance
137
140
141
142 Compensation Report
146

Shareholdings of Members of
the Board of Management and
Supervisory Board
Declaration of the Board of
Management and of the Supervisory
Board pursuant to §161 AktG

147

ployees of the BMW Group during the years 2006
and 2007. In order to reduce the risk of irregularities,
the applicable rules for receiving payments/benefits
and attending non-business events have once again
been communicated to employees working in the
purchasing department as well as to some 600 sup-
pliers. In 2007, the BMW Group set up a Compliance
Committee which reports directly to, and advises,
the Board of Management of BMW AG on compli-
ance-related matters. The Committee has, amongst
other functions, the task of identifying and assessing
compliance-related risks and other risks which could
endanger the good reputation of the BMW Group.
By analysing the structural, organisational and/or
process-related context of identified breaches of
rules, the Compliance Committee is also able to de-
sign preventative measures and instruct the relevant
departments to implement those measures. Each
and every employee of the BMW Group is obliged to
act responsibly and in compliance with the law.

In the interest of investor protection and in order
to ensure that the BMW Group complies with regu-
lations relating to potential insider information, the
Board of Management has appointed an Ad-hoc
Committee which is made up from representatives
of various specialist departments and whose mem-
bers examine the relevance of issues for ad-hoc
disclosure purposes. The procedures and decision-
taking process applied by this committee, which has
been in place since 1994, have been brought into
line with the revised requirements of the Investors’
Protection Improvement Act. All persons working
on behalf of the enterprise and with access to insider
information in accordance with existing rules have
been, and continue to be, included in an appropriate
list and informed of the duties arising from insider
rules.

Compliance matters are also included in the

Board of Management’s reports to the Audit Com-
mittee set up by the Supervisory Board.

Compensation Report
The BMW Group supports the endeavours of the
German Corporate Governance Code to increase
transparency in the disclosure of the components of
compensation. The following section therefore de-
scribes the principles relating to the compensation
of the Board of Management and the stipulations set
out in the statutes relating to the compensation of
the Supervisory Board. As well as discussing the
structure of remuneration, the components of

compensation are also disclosed in absolute figures.
In accordance with the recommendations of the
GCGC, the compensation of each member of the
Board of Management and the Supervisory Board is
disclosed by name and analysed into components.

1. Compensation of the Board of Management
Responsibilities
The determination and monitoring of the compen-
sation of the Board of Management are the respon-
sibility of the Personnel Committee of the Super-
visory Board. The Personnel Committee comprises
the Chairman of the Supervisory Board and his four
deputies.

Overall objectives
The compensation model used for the Board of
Management should be attractive in the context of
the competitive environment for highly qualified ex-
ecutives. As an incentive to encourage performance,
the variable component should be linked to a high
degree to the financial success of the BMW Group.
The structure of the compensation of the Board
of Management should also contain parallels to the
compensation system applied to employees and
senior management.

Components of compensation
The compensation of the Board of Management
comprises a fixed and a variable component. In addi-
tion, benefits are also payable at the end of mem-
bers’ mandates, primarily in the form of pension
benefits. For the purposes of determining the overall
compensation of the Board of Management, the
Personnel Committee, having considered the overall
position and forecasts of the BMW Group, decides
on an overall salary framework, which will include a
high variable proportion.

The Personnel Committee reviews the com-
pensation system at regular intervals, with regard to
the structure and amount of the remuneration of the
Board of Management.

Fixed salaries comprise a base remuneration
amount, which is paid as monthly salary, and other
remuneration elements. Other remuneration ele-
ments comprise mainly the use of company cars
and the payment of insurance premiums.

The factors determining the amount of variable

compensation enable members of the Board of
Management to earn a competitive level of income
with a very high bonus element (2007: 82.2 %, 2006:

143

84.1 %) for financial years in which the BMW Group
performs well. The measures used to determine the
variable component of compensation are the Group
net profit and the dividend level for the relevant
year, subject to specifically defined upper limits. As
a change from the previous arrangements, upper
limits were agreed with the members of the Board of
Management for the financial year 2007 based on
amounts actually paid in the previous year.

The compensation system does not include any

stock options, value appreciation rights comparable
to stock options or any other stock-based compen-
sation components. No compensation agreements
have been concluded with members of the Board
of Management for situations involving a take-over
offer. Similarly, they did not receive any payments or
benefits from third parties in 2007 on account of their
activities as the members of the Board of Manage-
ment.

Pension agreements are in place for the event of

the termination of a mandate.

Pensions are paid to former members of the
Board of Management who have either reached the
age of 65, or, if their mandate had terminated earlier
and had not been extended, to members who have
either reached the age of 60, or who are unable to
work due to ill-health or accident, or who have entered
into early retirement in accordance with a special
arrangement. The amount of the pension comprises
a basic monthly amount of euro 10,000 or euro
15,000 (Chairman of the Board of Management)
plus a fixed amount. The fixed amount is made up of
approximately euro 75 for each year of service in the
company before becoming a member of the Board
of Management plus between euro 154 and euro
400, or between euro 153 and euro 600 (Chairman
of the Board of Management), for each full year of
service on the board (up to a maximum of 15 years).
Pension payments are adjusted by analogy to the
rules applicable for the adjustment of civil servants’
pensions: the pensions of members of the Board
of Management are adjusted accordingly when the
civil servants’ remuneration level B6 (excluding allow-
ances) is increased by more than 5 %.

If a mandate is ended early before the member
of the Board of Management reaches the age of 60,
a transitional payment amounting to two-thirds of
the pension theoretically earned up to the date when
a full pension can be drawn, may become payable if,
after a minimum of three years of service as a mem-
ber of the Board of Management, this is considered

appropriate on the basis of an objective evaluation
of all circumstances. Arrangements are in place con-
cerning the offsetting of other income against pen-
sions and transitional payments.

The amounts disclosed below as the annual
pension provision allocation for each member corre-
sponds to the pension service cost.

Members of the Board of Management holding
a BMW Bank GmbH credit card have a credit line of
up to euro 25,565. At the balance sheet date the
balances resulting from credit card usage were all
within the agreed limits.

Compensation of the Board of Management
for the financial year 2007 (total)
On the basis of the agreed upper limits, the total re-
muneration of the current members of the Board of
Management of BMW AG for the financial year 2007
amounted to euro 15.2 million (2006: euro 14.5 mil-
lion). This comprises fixed components (including
other remuneration) of euro 2.7 million (2006: euro
2.3 million) and variable components of euro 12.5 mil-
lion (2006: euro 12.2 million).

in euro million

20071]

2006

Amount Proportion Amount Proportion

Fixed remuneration

2.7

17.8 %

Variable remuneration 12.52]

82.2 %

Total remuneration

15.2

100.0 %

2.3

12.2

14.5

15.9 %

84.1 %

100.0 %

1] The Board of Management of BMW AG was increased in 2007 by two additional

members.

2] Calculation based on an agreed upper limit.

In addition, an amount of euro 0.7 million (2006: euro
0.6 million) was incurred for current members of the
Board of Management after termination of their em-
ployment relationship. This relates to the expense for
allocations to pension provisions (service cost).

The amount paid to former members of the
Board of Management and their dependants was
euro 4.3 million (2006: euro 3.8 million). Pension ob-
ligations to former members of the Board of Manage-
ment and their dependants are fully covered by
pension provisions amounting to euro 38.3 million
(2006: euro 38.8 million), computed in accordance
with IAS 19.

144

Corporate Governance

Members of the Supervisory Board
Members of the Board of Management
Corporate Governance at BMW Group

137 Corporate Governance
137
140
141
142 Compensation Report
146

Shareholdings of Members of
the Board of Management and
Supervisory Board
Declaration of the Board of
Management and of the Supervisory
Board pursuant to §161 AktG

147

Compensation of the individual members of the Board of Management for the financial year 2007

in euro

Norbert Reithofer

Frank-Peter Arndt

Ernst Baumann

Herbert Diess 1]

Klaus Draeger

Friedrich Eichiner 1]

Michael Ganal

Stefan Krause

Total 2]

Fixed remuneration
Other
remuneration

Salary

Fixed remune-
ration Total

Variable
remuneration

Remuneration
Total

Allocation for
year to pension
provision

600,000

300,000

360,000

75,000

300,000

75,000

360,000

15,222

98,199

15,737

9,662

55,900

11,068

14,220

16,222

615,222

398,199

375,737

84,662

355,900

86,068

374,220

376,222

3,139,200

1,569,600

1,818,300

392,400

3,754,422

1,967,799

2,194,037

477,062

1,569,600

1,925,500

392,400

1,818,300

478,468

2,192,520

2,194,522

2,430,000

236,230

2,666,230

12,518,100

15,184,330

161,124

84,851

95,394

28,909

85,602

25,157

122,013

72,557

675,607

1] Member of the Board of Management from 1 October 2007.
2] Group perspective.

2. Compensation of the Supervisory Board
Responsibilities, regulation pursuant to
Articles of Incorporation
The compensation of the Supervisory Board is de-
termined by shareholders’ resolution at the Annual
General Meeting. Compensation is currently based
on shareholders’ resolutions taken at the Annual
General Meeting on 18 May 1999 and § 15 of the
Articles of Incorporation of BMW AG. The Articles of
Incorporation of BMW AG can be accessed via the
Internet.

Components of compensation
Each member of the Supervisory Board receives, in
addition to the reimbursement of expenses, a fixed
amount of euro 6,000 (payable at the end of the
year), a variable amount of euro 1,500 for each per-
cent of the dividend resolved by the shareholders at
the Annual General Meeting in excess of 4 % of the
company’s share capital (common stock). The Chair-
man of the Supervisory Board receives three times
this amount and each deputy receives two times this
amount. The company also reimburses to each
member of the Supervisory Board any value added
tax arising on their remuneration.

The Board of Management and the Supervisory
Board have decided to put forward a resolution at the
Annual General Meeting to be held on 8 May 2008
regarding a new rule for the compensation of the
Supervisory Board. In order to reflect the control and
advisory functions exercised by the Supervisory
Board in a more balanced way in the total compen-

sation amount, it is planned that the fixed proportion
should be raised and the variable proportion reduced.
Under the new rule, the variable compensation will –
subject to a predefined upper limit – be based in the
future on earnings per share (EPS) if EPS is above a
predefined minimum amount. In this way, compen-
sation will be based to a greater extent on the actual
success of the business.

Compensation of the Supervisory Board for
the financial year 2007 (total)
Against the background of the proposed dividend
increase and in anticipation of the new rule that will
be put forward at the Annual General Meeting, all
members of the Supervisory Board have agreed to
an upper limit for their compensation for the financial
year 2007 (see below).

On this basis, the compensation of the Super-
visory Board for activities during the financial year
2007 amounted to euro 2.8 million (2006: euro 2.7
million). This comprised a fixed component of euro
0.1 million (2006: euro 0.1 million) and a variable com-
ponent of euro 2.7 million (2006: euro 2.6 million).

in euro million

2007
Amount Proportion

2006

Amount Proportion

Fixed compensation 0.1

3.6 %

Variable compensation 2.7

96.4 %

0.1

2.6

3.7 %

96.3 %

Total compensation

2.8 100.0 %

2.7 100.0 %

145

Compensation of the individual members of the Supervisory Board for the financial year 2007

in euro

Fixed

compensation1]

Variable
compensation 2]

Total

Joachim Milberg (Chairman)

Manfred Schoch (Deputy Chairman)

Stefan Quandt (Deputy Chairman)

Konrad Gottinger (Deputy Chairman)

Hans-Dietrich Winkhaus (Deputy Chairman)

Ulrich Eckelmann

Bertin Eichler

Franz Haniel

Arthur L. Kelly

Susanne Klatten

Willibald Löw

Hubert Markl

Wolfgang Mayrhuber

Heinz-Joachim Neubürger

Werner Neugebauer

Franz Oberländer

Anton Ruf

Stefan Schmid 3]

Jürgen Strube

Werner Zierer

Total

18,000

12,000

6,000

5,967

6,000

310,680

207,120

103,560

102,993

103,560

328,680

219,120

109,560

108,960

109,560

155,967

2,691,993

2,847,960

1] In accordance with § 15 of the Articles of Incorporation, the fixed compensation is paid after the end of the financial year.
2] Calculation based on the dividend proposal of the Board of Management and Supervisory Board and the compensation upper limit agreed with the members of the Super-

visory Board. The variable remuneration for the financial year 2007 will not be paid until after the shareholders have passed a resolution at the Annual General Meeting 2008
regarding the appropriation of the unappropriated profit available for distribution.

3] Member of the Supervisory Board from 3 January 2007.

Members of the Supervisory Board holding a BMW
Bank GmbH credit card have a credit line of up to
euro 25,565. At the balance sheet date the balances
resulting from credit card usage were all within the
agreed limits.

None of the members of the Supervisory Board

performed advisory, agency or other services for
the BMW Group in a personal capacity in 2007. In

consequence, no additional compensation was paid.
It is BMW Group’s policy and practice not to enter
into contractual relationships with members of the
Supervisory Board requiring them to provide personal
services, in particular advisory and agency services,
in return for compensation (cf. Section 4.4 of the
BMW Group Corporate Governance Code).

146

Corporate Governance

Shareholdings of Members of the Board of
Management and the Supervisory Board
The members of the Supervisory Board of BMW AG
hold in total 27.70 % of the issued common and
preferred stock shares, of which 16.12 % relates to
Stefan Quandt, Bad Homburg v.d.H. and 11.58 % to
Susanne Klatten, Munich. The shareholding of the
members of the Board of Management is, in total,
less than 1 % of the issued stock shares.

Members of the Supervisory Board
Members of the Board of Management
Corporate Governance at BMW Group

137 Corporate Governance
137
140
141
142 Compensation Report
146

Shareholdings of Members of
the Board of Management and
Supervisory Board
Declaration of the Board of
Management and of the Supervisory
Board pursuant to §161 AktG

147

Declaration of the Board of Management and of the Supervisory Board
of Bayerische Motoren Werke Aktiengesellschaft with respect to the
recommendations of the “Government Commission of the German Corporate
Governance Code” pursuant to § 161 German Stock Corporation Act

147

The Board of Management and Supervisory Board
of Bayerische Motoren Werke Aktiengesellschaft
(“BMW AG”) declare the following with respect to the
recommendations of the “Government Commission
on the German Corporate Governance Code”:

BMW AG will comply with all recommendations

published in the official section of the electronic
Federal Gazette (Code version dated 14 June 2007)
except for one divergence: the discussion and
regular review of the structure of the compensation
system of the Board of Management is performed
by the Personnel Committee and not, additionally, by
the Supervisory Board (section 4.2.2 paragraph 1
GCGC).

During the period since filing the most recent

declaration on 5 December 2006, BMW AG has, ex-
cept for the one divergence stated above, complied
with all recommendations published in the elec-
tronic version of the Federal Gazette on 24 July 2006
(Code version dated 12 June 2006).

Munich, 4 December 2007

Bayerische Motoren Werke
Aktiengesellschaft

Supervisory Board

Board of Management

Reason for divergence
Section 4.2.2 paragraph 1 GCGC:
The Supervisory Board has transferred discussion
and regular review of the structure of the compen-
sation system of the Board of Management to the
Personnel Committee. The Supervisory Board is
informed on a regular basis and in detail of the work
of the Personnel Committee.

148

Other Information

BMW AG
Principal Subsidiaries

Principal subsidiaries of BMW AG
at 31 December 2007

Equity
in euro million

Net result Capital investment
in %

in euro million

Domestic1]

BMW Bank GmbH, Munich 2]

BMW Finanz Verwaltungs GmbH, Munich

BMW INTEC Beteiligungs GmbH, Munich 2]

Cirquent GmbH, Munich 3]

BMW Ingenieur-Zentrum GmbH + Co., Dingolfing

BMW Maschinenfabrik Spandau GmbH, Berlin

BMW Leasing GmbH, Munich 2]

BMW Hams Hall Motoren GmbH, Munich 4]

BMW Fahrzeugtechnik GmbH, Eisenach 2]

BMW M GmbH Gesellschaft für individuelle Automobile, Munich 2]

1] In the case of German subsidiaries, based on financial statements drawn up in accordance with HGB.
2] profit and loss transfer agreement with BMW AG
3] Consolidated with the operating subsidiaries of Cirquent GmbH, Munich.

The sub-group financial statements have been drawn up in accordance with IFRS.

268

130

113

–

– 46

–

100

4] profit and loss transfer agreement with a subsidiary of BMW AG
5] below euro 0.5 million
6] In the case of foreign subsidiaries, based on financial statements drawn up in accordance with uniform IFRSs accounting policies.

Equity and net result are translated at the closing rate.

148 Other Information
148
150
152
154
158
160
161

BMW AG Principal Subsidiaries
BMW Group 10-year Comparison
BMW Group Locations
Glossary
Index
Contacts
Financial Calendar

149

Principal subsidiaries of BMW AG
at 31 December 2007

Equity
in euro million

Net result Capital investment
in %

in euro million

Foreign 6]

BMW Österreich Holding GmbH, Steyr

BMW Motoren GmbH, Steyr

BMW Russland Trading OOO, Moscow

BMW China Automotive Trading Ltd., Beijing

BMW Austria Gesellschaft m. b. H., Salzburg

BMW Holding B. V., The Hague

BMW Australia Finance Ltd., Melbourne, Victoria

BMW Finance N. V., The Hague

BMW Overseas Enterprises N. V., Willemstad

BMW (South Africa) (Pty) Ltd., Pretoria

BMW Italia S. p. A., Milan

BMW (Schweiz) AG, Dielsdorf

BMW Japan Corp., Tokyo

BMW Japan Finance Corp., Tokyo

BMW Canada Inc., Whitby

BMW Belgium Luxembourg S. A. / N. V., Bornem

BMW France S. A., Montigny le Bretonneux

BMW Australia Ltd., Melbourne, Victoria

BMW Portugal Lda., Lisbon

BMW Hellas Trade of Cars SA, Athens

BMW Sverige AB, Stockholm

BMW Nederland B. V., The Hague

BMW Automotive (Ireland) Ltd., Dublin

BMW New Zealand Ltd., Auckland

BMW Korea Co., Ltd., Seoul

BMW (UK) Holdings Ltd., Bracknell

BMW (UK) Ltd., Bracknell

BMW (UK) Manufacturing Ltd., Bracknell

BMW Financial Services (GB) Ltd., Hook

BMW (UK) Capital plc, Bracknell

BMW Malta Ltd., St. Julians

BMW Malta Finance Ltd., St. Julians

BMW Coordination Center V. o. F., Bornem

BMW España Finance S. L., Madrid

BMW Ibérica S. A., Madrid

BMW de Mexico, S. A. de C. V., Mexico City

BMW (US) Holding Corp., Wilmington, Del.

BMW Financial Services NA, LLC, Wilmington, Del.

BMW Manufacturing, LLC, Wilmington, Del.

BMW of North America, LLC, Wilmington, Del.

BMW US Capital, LLC, Wilmington, Del.

1,545

851

157

138

6,191

444

407

386

373

335

303

251

211

191

174

101

1,263

1,125

929

345

161

865

729

594

339

266

1,147

656

564

397

203

286

173

402

– 4

119

– 4

– 6

264

104

– 4

149

113

– 41

– 50

100

150

Other Information

BMW Group 10-year Comparison

Deliveries to customers

Automobiles 3]

Motorcycles 4]

Production

Automobiles 3]

Motorcycles 5]

Financial Services

Contract portfolio

2007
IASs/IFRSs

2006
IASs/IFRSs

units

1,500,678

1,373,970

102,467

100,064

units

1,541,503

1,366,838

104,396

103,759

contracts

2,629,949

2,270,528

Business volume (based on balance sheet carrying amounts)

euro million

51,257

44,010

Income Statement

Revenues

Gross profit percentage Group

Gross profit percentage Industrial Operations

Gross profit percentage Financial Operations

Profit before financial result

Profit before tax

Return on sales (earnings before tax /revenues)

Income taxes

Effective tax rate

Net profit/ – loss for the year

Balance Sheet

Non-current assets

Current assets

Equity

Equity ratio Group

Industrial Operations

Financial Operations

Non-current provisions and liabilities

Current provisions and liabilities

Balance sheet total

Cash Flow Statement

Cash and cash equivalents at balance sheet date

Operating cash flow 8]

Capital expenditure

Capital expenditure ratio (capital expenditure/revenues)

148 Other Information
148
150
152
154
158
160
161

BMW AG Principal Subsidiaries
BMW Group 10-year Comparison
BMW Group Locations
Glossary
Index
Contacts
Financial Calendar

Personnel

Workforce at the end of year 7]

Personnel cost per employee

Dividend

Dividend total

Dividend per share of common stock/preferred stock

euro million

56,018

48,999

euro million

21.8

19.8

10.3

4,212

3,873

6.9

739

19.1

3,134

56,619

32,378

21,744

24.4

43.8

9.2

33,469

33,784

88,997

2,393

6,340

4,267

7.6

23.1

20.3

11.4

4,050

4,124

8.4

1,250

30.3

2,874

50,514

28,543

19,130

24.2

40.6

10.4

31,372

28,555

79,057

1,336

5,373

4,313

8.8

euro

107,539

76,704

106,575

76,621

euro million

694

458

euro

1.06/1.08

0.70/0.72

1] adjusted for new accounting treatment of pension obligations 2] reclassified after harmonisation of internal and external reporting systems 3] including Rover Cars up to 9 May 2000
excluding C1 production by Bertone, production volume C1 up to 2002: 33,489 units 6] the net profit before exceptional items amounted to euro 663 million 7] figures since 1998
of treasury shares

151

2005

IASs/IFRSs

2004

IASs/IFRSs

adjusted1]

2003

IASs/IFRSs

2002

IASs/IFRSs
adjusted 2]

2001
IASs/IFRSs

2000
IASs/IFRSs

2000
HGB

1999
HGB

1998

HGB

1,327,992

1,208,732

1,104,916

1,057,344

97,474

92,266

92,962

92,599

1,323,119

1,250,345

1,118,940

1,090,258

92,012

93,836

89,745

93,010

905,657

84,713

946,730

90,478

1,011,874

1,180,429

1,187,115

74,614

65,168

60,308

1,026,775

1,147,420

1,204,000

74,397

69,157

60,152

2,087,368

1,843,399

1,623,425

1,443,236

1,297,702

1,317,150

40,428

32,556

28,647

26,505

25,306

24,958

970,747

17,578

1,010,839

16,859

855,250

12,564

46,656

44,335

41,525

42,411

38,463

37,226

22.9

20.9

12.0

3,793

3,287

7.0

1,048

31.9

2,239

47,556

27,010

16,973

22.8

39.1

10.4

29,509

28,084

74,566

1,621

6,184

3,993

8.6

23.2

21.9

12.5

3,774

3,583

8.1

1,341

37.4

2,242

40,822

26,812

16,534

24.4

41.6

9.7

26,517

24,583

67,634

2,128

6,157

4,347

9.8

22.7

22.1

12.3

3,353

3,205

7.7

1,258

39.3

1,947

36,921

24,554

16,150

26.3

45.4

9.8

22,090

23,235

61,475

1,659

4,970

4,245

10.2

22.8

22.7

10.5

3,505

3,297

7.8

1,277

38.7

2,020

34,667

20,844

13,871

25.0

43.1

9.4

20,028

21,612

55,511

2,333

4,553

4,042

9.5

25.3

24.0

16.0

3,356

3,242

8.4

1,376

42.4

1,866

31,282

19,977

10,770

21.0

37.0

8.4

19,223

21,266

51,259

2,437

4,304

3,516

9.1

22.8

23.5

12.0

2,065

2,032

5.5

823

40.5

1,209

30,079

19,261

9,432

19.1

35.9

8.1

17,386

22,522

49,340

2,927

3,966

2,781

7.5

35,356

18.1

–

1,578

1,663

4.7

637

38.3

1,026

20,056

15,819

4,896

13.6

19.1

8.0

13,457

17,522

35,875

2,879

–

2,138

6.0

34,402

16.4

–

931

1,111

3.2

448

40.3

–2,487 6]

19,857

17,650

3,932

10.5

11.9

8.7

14,785

18,790

37,507

2,055

–

2,155

6.3

32,280

16.0

–

1,232

1,061

3.3

537

50.6

462

18,586

12,053

6,445

21.0

28.7

10.0

9,331

14,863

30,639

1,935

–

2,179

6.8

105,798

75,238

105,972

73,241

104,342

73,499

101,395

69,560

97,275

66,711

93,624

63,548

93,624

62,307

114,952

55,710

118,489

51,703

4199]

419

392

351

350

310

269

234

0.64/0.66

0.62/0.64

0.58/0.60

0.52/0.54

0.46/0.48

0.40/0.42

10.23/10.74

and Land Rover up to 30 June 2000 4] excluding C1, sales volume to 2003: 32,859 units 5] up to 1999 including BMW F 650 assembly by Aprilia S. p. A., from 2006 including BMW G 650 X assemply by Piaggio S. p. A./
exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time arrangements and low wage earners 8] figures available since 2000 9] adjustment to dividend due to acquisition

152

Other Information

BMW Group Locations. The BMW Group is present in the world markets
with 23 production and assembly plants, 41 sales subsidiaries and a
research and development network.

148 Other Information
148
150
152
154
158
160
161

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BMW Group 10-year Comparison
BMW Group Locations
Glossary
Index
Contacts
Financial Calendar

153

Headquarters

Research and Development
BMW Group Research and Innovation
Centre (FIZ), Munich
BMW Group Forschung und Technik, Munich
BMW Group Car IT, Munich
BMW Innovations- und Technologiezentrum
für Leichtbau, Landshut
BMW Entwicklungszentrum für Dieselmotoren,
Steyr, Austria
BMW Group Designworks, Newbury Park, USA
BMW Group Technology Office, Palo Alto, USA
BMW Group Engineering and Emission Test
Center, Oxnard, USA
BMW Group Technology Office, Tokyo, Japan
BMW Group Entwicklungsbüro, Beijing, China

Production
Berlin plant
Dingolfing plant
Eisenach plant
Goodwood plant, GB (headquarters of
Rolls-Royce Motor Cars Limited)
Hams Hall plant, GB
Landshut plant
Leipzig plant
Munich plant
Oxford plant, GB
Regensburg plant
Rosslyn plant, South Africa
BMW Brilliance Automotive Ltd.,
Shenyang, China (joint venture with
Brilliance China Automotive Holdings)
Spartanburg plant, USA
Steyr plant, Austria
Swindon plant, GB
Wackersdorf plant

Contract production
Magna Steyr Fahrzeugtechnik, Austria

Assembly plants
CKD production Cairo, Egypt
CKD production Chennai, India
CKD production Jakarta, Indonesia
CKD production Kaliningrad, Russia
CKD production Kuala Lumpur, Malaysia
CKD production Rayong, Thailand

Sales subsidiary markets
Malaysia
Argentina
Malta
Australia
Mexico
Austria
Netherlands
Belgium
New Zealand
Brazil
Norway
Bulgaria
Philippines
China
Poland
Canada
Portugal
Czech Republic
Romania
Denmark
Russia
Finland
Slovakia
France
Slovenia
Germany
South Africa
Great Britain
South Korea
Greece
Spain
Hungary
Sweden
India
Switzerland
Indonesia
Thailand
Ireland
Italy
USA
Japan

154

Other Information

Glossary

[ACEA]
Abbreviation for “Association des Constructeurs
Européens d’Automobiles” (European Automobile
Manufacturers Association).

[EBIT]
Abbreviation for “Earnings Before Interest and Taxes”.
The profit before income taxes, minority interest and
financial result.

[Common stock]
Stock with voting rights (cf. preferred stock).

[Cost of materials]
Comprises all expenditure to purchase raw materials
and supplies.

[DAX]
Abbreviation for “Deutscher Aktien Index”, the Ger-
man Stock Index. The index is based on the weighted
market prices of the 30 largest German stock cor-
porations (by stock market capitalisation).

[Deferred taxes]
Accounting for deferred taxes is a method of
allocating tax expense/benefit to the appropriate
accounting period.

[Derivatives]
Financial products, whose measurement is derived
principally from market price, market price fluctua-
tions and expected market price changes of the
underlying instrument (e.g. indices, stocks or bonds).

[DJSI]
Abbreviation for “Dow Jones Sustainability Index
World”. A family of indexes created by Dow Jones
and the Swiss investment agency SAM Sustain-
ability Group for companies with strategies based
on a sustainability concept. The BMW Group has
been one of the leading companies in the DJSI
since 1999.

[EBITDA]
Abbreviation for “Earnings Before Interest, Taxes,
Depreciation and Amortisation”. The profit before in-
come taxes, minority interest, financial result and
depreciation/amortisation.

[Effectiveness]
The degree to which offsetting changes in fair value
or cash flows attributable to a hedged risk are
achieved by the hedging instrument.

[EfficientDynamics]
The aim of EfficientDynamics is to reduce con-
sumption and emissions whilst simultaneously
increasing dynamics and performance. This involves
a holistic approach to achieving optimum automo-
bile potential, ranging from efficient engine tech-
nologies, lightweight construction and comprehen-
sive energy and heat management inside the
vehicle.

[Equity ratio]
The proportion of equity (= subscribed capital,
reserves, accumulated other equity and minority
interest) to the balance sheet total.

[ERA]
Remuneration Framework Agreement.

148 Other Information
148
150
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154
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160
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BMW Group 10-year Comparison
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Glossary
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Financial Calendar

155

[Free cash flow]
Free cash flow corresponds to the cash inflow from
operating activities of Industrial Operations less
the cash outflow for investing activities of Industrial
Operations.

[Gross margin]
Gross profit as a percentage of revenues.

[IASs]
International Accounting Standards.

[IFRSs]
International Financial Reporting Standards, intended
to ensure global comparability of financial reporting
and consistent presentation of financial statements.
The IFRSs are issued by the International Accounting
Standards Board and include the International
Accounting Standards (IASs), which are still valid.

[Internal financing]
Internal financing is calculated as the profit before
tax, adjusted for depreciation and amortisation and
significant non-cash items, less income tax paid.

[ISO 14001]
An internationally recognised standard for environ-
mental management systems.

[Operating cash flow]
Cash inflow from Industrial Operations.

[Preferred stock]
Stock which receives a higher dividend than com-
mon stock, but without voting rights.

[Principal subsidiaries]
Subsidiaries are those enterprises which, either
directly or indirectly, are under the uniform control of
the management of BMW AG or in which BMW AG,
either directly or indirectly
– holds the majority of the voting rights
– has the right to appoint or remove the majority of
the members of the Board of Management or
equivalent governing body, and in which BMW AG
is at the same time (directly or indirectly) a share-
holder

– has control (directly or indirectly) over another

enterprise on the basis of a control agreement or
a provision in the statutes of that enterprise.

[Production network]
The BMW Group production network consists
worldwide of 16 plants, six assembly plants and one
contract production plant. Within this network, the
plants supply one another with systems and com-
ponents and are all characterised by a high level of
productivity, agility and flexibility.

[Production Triangle MINI]
The three British plants (Hams Hall, Oxford and
Swindon) are jointly manufacturing the MINI – with
greater capacity levels, flexibility and efficiency.
The Hams Hall plant produces the new MINI petrol
engines; the Oxford plant remains responsible for
chassis construction, painting and assembly. The
Swindon plant produces the pressed panels and
chassis components.

[Rating]
Standardised evaluation of a company’s credit
standing which is widely accepted on the global
capital markets. Ratings are published by inde-
pendent rating agencies, e.g. Standard & Poor’s or
Moody’s, based on their analysis of a company.

[Return on Assets BMW Group]
Profit before interest expense (expense from revers-
ing the discounting of pension obligations and of
other long-term provisions, sundry interest and simi-
lar expenses) and tax as a percentage of the balance
sheet total.

[Return on Assets Financial Services]
Profit before tax as a percentage of operating assets.

[Return on Capital Employed]
Profit before financial result as a percentage of
capital employed. Capital employed is defined as
operating assets less non-interest bearing liabilities.
For this purpose, non-interest bearing liabilities
exclude non-interest bearing provisions and liabili-
ties.

[Return on sales]
Pre-tax:

Profit before tax as a percentage of
revenues.

Post-tax: Profit as a percentage of revenues.

[Risk management]
An integral component of all business processes.
Following enactment of the Law on Control and
Transparency within Businesses (KonTraG), all
companies listed on a stock exchange in Germany
are required to set up a risk management system.
The purpose of this system is to identify risks at an
early stage which could have a significant adverse
effect on the assets, liabilities, financial position and
results of operations, and which could endanger the

continued existence of the company. This applies
in particular to transactions involving risk, errors in
accounting or financial reporting and violations of
legal requirements. The Board of Management is
required to set up an appropriate system, to docu-
ment that system and monitor it regularly with the
aid of the internal audit department.

[Sports Activity Vehicle]
The BMW X5 is the first-ever Sports Activity Vehicle –
a combination of a typical BMW sedan featuring
sporting and comfortable driving features on the
one hand, with far-reaching driving abilities in terrain
on the other. This creates a new market segment. In
2004, the BMW Group added another SAV, the
BMW X3, to its model range.

[Subscribed capital]
The share capital of a company is computed by
multiplying the nominal value of the shares by the
number of shares.

[Supplier relationship management]
Supplier relationship management (SRM) uses
focused procurement strategies to organise net-
worked supplier relationships, optimise processes
for supplier qualification and selection, ensure
the application of uniform standards throughout
the Group and create efficient sourcing and
procurement processes along the whole value
added chain.

156

Other Information

148 Other Information
148
150
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154
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BMW Group 10-year Comparison
BMW Group Locations
Glossary
Index
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Financial Calendar

157

[Sustainability]
Sustainability or sustainable development. The
United Nations Conference on the Environment
and Development, held in Rio de Janeiro in 1992, re-
solved a global action plan for combating poverty,
ensuring a suitable population policy, promoting
urban development, human rights, trade, agriculture,
environmental protection, research and technology.
Referred to as Agenda 21, this action plan serves
to ensure sustainable development, preserving the
world’s natural resources and limiting the emission
of pollutants to a volume the environment can ab-
sorb or degrade.

[xDrive]
The xDrive all-wheel drive system distributes engine
power fully variably to all four wheels. The system
recognises at a very early stage when power has to
be shifted and reacts in fractions of a second. This in-
creases driving dynamics, ensures maximum traction
and can maintain the vehicle’s directional stability in
critical situations.

158

Other Information

Index

[A]
Accounting principles 58, 84
Analysis of changes in Group tangible, intangible and
investment assets 96, 98 – 99
Annual General Meeting 07, 26, 106, 129, 144 – 145,
161
Application of § 264 (3) and § 264b of the German
Commercial Code (HGB) 130
Apprentices 20, 26, 95
Attributable to minority interest 73

[B]
Balance sheet structure 54
Board of Management 05 – 10, 12, 41 – 42, 45, 55,
62, 66, 81, 106, 128 – 129, 134 – 135, 138, 140 – 147,
155 – 156
Bonds 41 – 42, 51 – 52, 55, 66, 77, 110, 113 – 114, 119,
121, 123 – 124, 154

[C]
Capital expenditure 02 – 03, 11 – 12, 20 – 21, 51 – 53,
58, 69, 131, 133 – 134, 151
Cash and cash equivalents 51 – 54, 59, 74, 77, 106,
119, 121, 127, 151
Cash flow statement 03, 11, 51 – 52, 127, 136
CO2 emissions 05, 21, 31 – 32, 34 – 35, 64
Commercial Code 58, 80, 135
Compensation of members of the Board of Manage-
ment and Supervisory Board 129
Compensation Report 07, 55, 66, 129, 142
Compliance 07 – 08, 42, 65, 69, 141 – 142
Consolidated companies 81, 83, 128
Consolidation principles 83, 136
Contingent liabilities and other financial commit-
ments 117
Corporate Governance 55, 129, 141 – 142, 145 – 147
Cost of materials 55 – 56, 154
Cost of sales 49, 73, 80, 84, 89 – 90, 98
Current assets 51, 59, 74, 77, 85 – 86, 92, 99 – 100,
104, 151
Current tax 74 – 75, 77, 91, 103, 112 – 113

[D]
DAX 41, 43, 08, 154
Dealer organisation 24 – 25, 40, 124
Debt 13, 47, 65, 102, 105, 107, 111, 125
Deferred income 55, 59, 115 – 116
Deferred taxes 53, 77, 87, 92 – 93, 106, 154
Development 06 – 07, 11 – 13, 34, 41 – 43, 52 – 53,
45, 73, 84 – 86, 90, 97 – 98, 104, 108, 135 – 136, 140,
152 – 153, 157
Dividend 10 – 11, 43 – 44, 77, 84, 94, 106, 129,
143 – 145, 151, 155
Dow Jones Sustainability Index World 154

[E]
Earnings per share 49, 43, 73, 84 – 85, 94, 144
EfficientDynamics 21, 28 – 29, 32 – 35, 154
Employees 26 – 29, 56, 67, 95, 106 – 108, 110,
141 – 142, 151
End-of-life Vehicles 30, 112

Environment 13, 16, 21, 28, 30 – 31, 47, 50, 53, 83,
88, 136 – 137, 142, 155, 157
Equity 43, 46 – 47, 53 – 54, 57 – 59, 73 – 75, 77 – 79,
81, 83, 86 – 87, 91, 93, 97, 99, 106 – 107, 110 – 111,
122 – 123, 128, 133, 136, 148 – 149, 151, 154
Exchange rates 14, 49, 52 – 53, 70, 83 – 84, 126
Explanatory notes to the cash flow statements 127

[F]
Financial assets 52 – 53, 57 – 58, 74, 86 – 87, 101 – 102,
119, 121, 123 – 124
Financial instruments 10, 46, 50 – 51, 53, 63, 91,
78 – 79, 86 – 88, 91, 106 – 107, 118, 122 – 127
Financial liabilities 52 – 53, 55, 75, 77, 82, 85, 88, 107,
113, 116, 119, 121, 123 – 124
Financial result 47 – 48, 50, 73, 88, 91, 110, 131, 133,
151, 154, 156
Financial Services 03, 07, 09 – 10, 23, 35, 42, 58, 61,
63, 80 – 83, 99, 131, 133, 149, 151, 156
Financial statements 11, 23, 80 – 81, 83 – 84, 88, 95,
106, 128, 130 – 131, 135 – 136, 148, 155
Fleet consumption 34
Foreign currency translation 83

[G]
Group Management Report 09, 10 – 71, 81, 95,
125 – 127, 129, 135 – 136

[I]
Income statement 49 – 50, 60 – 61, 73, 80, 83, 87 – 89,
94, 99, 110, 112, 122 – 123, 136, 151
Income tax assets 103
Income taxes 87, 93, 154
Intangible assets 11, 53, 58 – 59, 74, 77, 82, 84 – 86,
89, 92, 97 – 98, 131
Internal financing 55, 77, 131, 133, 155
Inventories 24, 53, 74, 77, 84, 87, 104
Investments accounted for using the equity method
and other investments 99

[K]
Key data per share 43

[L]
Leased products 52 – 53, 74, 77, 82, 85, 92, 97, 99,
131, 133
Locations 152

[M]
Mandates of members of the Board of Manage-
ment 140
Mandates of members of the Supervisory Board 137
Marketable securities 52 – 54, 59, 77, 80, 86, 91, 97,
101 – 102, 122
Market price changes 154
Minority interest 56, 73, 75, 94, 106 – 107, 154
Motorcycles 10, 15, 22 – 23, 83, 99, 131, 133

[N]
New accounting treatment 02 – 03, 11, 43, 48, 151
New financial reporting rules 88 – 89
Non-current assets 54, 74, 77, 85, 99 – 100, 104, 151

148 Other Information
148
150
152
154
158
160
161

BMW AG Principal Subsidiaries
BMW Group 10-year Comparison
BMW Group Locations
Glossary
Index
Contacts
Financial Calendar

[O]
Other disclosures relating to the income statement 94
Other investments 53, 74, 81, 86, 97, 99 – 100, 119,121
Other liabilities 55, 59, 75, 82, 115 – 116, 119, 121 – 122
Other operating income and expenses 50, 60, 90
Other provisions 55, 68, 75, 88, 112
Outlook 63, 69, 107

[P]
Pension provisions 53, 58, 59, 75, 88, 107 – 109, 129,
143
Personnel costs 90, 94
Prepayments 59, 104
Principal subsidiaries 148 – 149, 155
Production network 03, 19, 50, 53, 155
Profit before tax 10, 37, 48 – 49, 63, 73, 131, 133, 151,
155 – 156
Property, plant and equipment 11, 59, 74, 77, 82,
84 – 86, 89, 92, 97 – 98, 118, 131
Purchases 37

[R]
Rating 63, 65, 87, 107, 124, 155
Receivables 42, 53, 59, 74, 77, 80, 82 – 83, 86 – 87,
100 – 105, 119, 121 – 122, 124, 131
Receivables from sales financing 52 – 53, 74, 77, 82,
86, 100 – 101, 119, 121, 124
Reconciliations 10, 51, 131, 133 – 134
Related party relationships 128
Research 31, 35, 49 – 50, 57, 60, 71, 73, 84, 90, 98,
152 – 153, 157
Return on sales 48 – 49, 131, 133, 151, 156
Revenue reserves 59 – 60, 75, 106 – 107
Revenues 05, 07, 10 – 11, 49, 62, 65, 73, 80 – 82, 84,
88 – 89, 125, 133, 151, 155 – 156
Risk management 62, 125, 156

[S]
Sales and administrative costs 49 – 50, 73, 90
Sales volume 03, 10, 17 – 19, 22 – 23, 38, 49 – 50, 66,
69, 151
Segment information 89, 131, 133 – 134
Shareholdings of members of the Board of Manage-
ment and Supervisory Board 129
Stock 11, 23, 41, 43 – 44, 46, 53, 58 – 59, 73, 84 – 85,
94, 106, 129, 141, 143 – 144, 146 – 147, 151, 154 – 156
Subscribed capital 59, 75, 154, 156
Subsidiaries 12, 37, 79 – 84, 91, 93, 95, 98 – 100, 104,
106 – 108, 115, 117, 119, 121, 123, 127 – 128, 148 – 149,
152, 155
Suppliers 37, 142

[T]
Trade payables 48, 55, 59, 75, 116, 119, 121, 124

[W]
Workforce 03, 26, 26 – 29, 58, 66, 133, 151

Index of graphs

159

[Finances]
BMW Group Capital expenditure 02
BMW Group Profit before tax 02
BMW Group Revenues 02
BMW Group Revenues by region 11
BMW Group Capital expenditure and
operating cash flow 11
Exchange rates compared to the Euro 14
Steel price trend 14
Oil price 15
Precious metals price trend 15
Contract portfolio of BMW Group Financial Services 24
Contract portfolio retail customer financing of
BMW Group Financial Services 2007 24
Regional mix of BMW Group purchase
volumes 2007 37
Change in cash and cash equivalents 52
Balance sheet structure Group 54
Balance sheet structure Industrial Operations 54
BMW Group value added 2007 56

[Production and sales volume]
BMW Group Deliveries of automobiles 02
BMW Group Deliveries of automobiles by region
and market 17
BMW Group – key automobile markets 2007 17
BMW brand cars in 2007 – analysis by series 18
Deliveries of BMW diesel automobiles 18
MINI brand cars in 2007 – analysis by model variant 19
MINI brand cars in 2007 – analysis by engine variant 19
Automobile production of the BMW Group by
plant in 2007 20
BMW Group – key motorcycle markets 2007 22
BMW motorcycles delivered 22
BMW motorcycles in 2007 – analysis by series 23

[Workforce]
BMW Group apprentices at 31 December 26
Employee fluctuation ratio BMW AG 27

[Environment]
Process waste water per unit produced 30
Volatile organic compounds (VOC) per unit
produced 30
CO2 emissions per unit produced 31
Energy consumed per unit produced 31
Roadmap of the BMW Group for sustainable mobility 33
Development of CO2 emissions of BMW Group cars in
Europe (EU-15) 34
The BMW EfficientDynamics measures –
an overview 34

[Stock]
Development of BMW stock compared to stock
exchange indices 41
Development in the value of a BMW stock invest-
ment 42

This version of the Annual Report is a translation
from the German version. Only the original German
version is binding.

160

Other Information

Contacts

Business Press
Telephone +49 89 382-2 33 62
+49 89 382-2 41 18
+49 89 382-1 08 81
presse@bmwgroup.com

Fax
E-mail

Investor Relations
Telephone +49 89 382-2 42 72
+49 89 382-2 53 87
+49 89 382-1 46 61
ir@bmwgroup.com

Fax
E-mail

The BMW Group on the Internet
Further information about the BMW Group is
available online at www.bmwgroup.com.
Investor Relations information is available directly
at www.bmwgroup.com/ir.
Information about the various BMW Group brands
is available at www.bmw.com, www.mini.com and
www.rolls-roycemotorcars.com

148 Other Information
148
150
152
154
158
160
161

BMW AG Principal Subsidiaries
BMW Group 10-year Comparison
BMW Group Locations
Glossary
Index
Contacts
Financial Calendar

Financial Calendar

161

Interim Report to 31 March 2008
Annual General Meeting
Interim Report to 30 June 2008
Interim Report to 30 September 2008

29 April 2008
8 May 2008
5 August 2008
4 November 2008

Number ONE
Opportunities < New > Efficiency

The art of
engineering
our own future.
BMW Group.

The art of engineering our own future.

001 The art of engineering

our own future.
002 The BMW Group’s

strategic realignment.

To stay in the lead, we need to meet tomorrow’s
challenges today. We need to take responsibility
for finding answers to the key questions the world
is facing – from climate change to the depletion
of fossil fuel reserves, from the effects of demo-
graphic developments to those of globalisation.

These challenges affect all of us. And so we all
have to find ways of dealing with them.

Foresight

The foresight to
detect potential
in the challenges
of the future.

The art of engineering our own future.

Freedom

The freedom
to be able
to question
old habits.

Melting glaciers make water levels of the oceans rise by 0.8 millimetres each year (World Climate Report of the United Nations 2007).

Natural phenomenon or call for action?

Accept demographic structures or tap their hidden potential?

The population of the industrialised nations is ageing. For example: in Germany, one out of three people will be older than 60 in 2030.

Today’s global export volume of goods and services amounts to over 10,000 billion euros each year.

Export globally or explore local opportunities?

The end of an era or a driving force for innovation?

Fossil fuels are running out, global crude oil reserves will have been exploited a few decades from now.

Millions of people travel the streets of megacities like Los Angeles every day. Traffic congestion is a common occurrence.

Collective stalemate or impulse for new concepts of individual mobility?

Agility

The agility to see
change as a new
opportunity time
and again.

The art of engineering our own future.

Knowledge

The knowledge
to have defined
the framework for
future activities.

Objective

The objective
to reinvent
completely
the concept
of individual
mobility.

The art of engineering our own future.

Willpower

The willpower
to stay in the
lead in the future.
BMW Group.

002

The BMW Group’s
strategic
realignment.

Profitability and Growth

Value enhance-
ment as the
main objective.
Profitability
and growth to
safeguard
independence.
Scope to engineer
our future.

002

The BMW Group’s strategic realignment.

24 Mission
26 House of Strategy
38 Vision

Mission

At the beginning of the 21st century, the world is facing a number
of challenges too great and too complex to be tackled successfully
with short-term solutions.

The BMW Group has seriously looked into these matters, well
aware of the fact that each challenge also presents an opportunity.
We know: those who best master their future tasks get the chance
to maintain a lasting lead over competitors in the industry.

Following more than a century in automotive engineering, we want
to break new ground in individual mobility. In the long term, our idea
is to strive for the optimum by making sustainability the guideline
behind all our activities.

Only the claim to achieve the best can result in premium quality.
This belief has always made the BMW Group cut its own path.
EfficientDynamics is only one example which demonstrates that
this approach has brought us to a new level time and again. We are
going to continue along this path – for the benefit of our customers,
our employees and our shareholders.

The BMW Group’s strategic realignment.

Based on this belief, we analysed more than 200 trends. Above all,
we asked ourselves: How can we align what we do even better with
our customers’ demands and requirements in the future? What
more can we do to counter climate change? Which effect does the
demographic development have on society – and our company?
How do we make best use of the opportunities arising from the
value change in our society? How can individual mobility in a world
of megacities be guaranteed in the long term?

Obviously, we were not able to find conclusive answers to all these
questions. But this was not our goal in the first place. The main point
was that – by looking at our environment – we were able to set the
direction the BMW Group will be taking by 2020 and to develop our
corporate strategy Number ONE. ONE stands for “New Opportuni-
ties” and “New Efficiency”. In a nutshell: we will make best use of
new opportunities and reach a new efficiency level so as to guarantee
the BMW Group’s lead over competitors as well as the power and
independence to shape the company’s future actively.

House of Strategy. The drawing up of “Number ONE” resulted in the
House of Strategy adopted by BMW AG’s Board of Management. The
vision to be realised by 2020 is the strategy’s roof. It consists of specific
targets concerning retail, return on capital employed and return on sales.
The cross beam is the strategic competitive advantage, resulting from
the BMW Group’s particular strengths and distinctive features. The differ-
ent options for further activities form the strategy’s four pillars: “Growth”,
“Shaping the Future”, “Profitability” and “Access to Technologies and
Customers”.

Before we come to the four pillars, a few remarks about what makes the
BMW Group unique and provides a clear competitive advantage. All prod-
ucts are characterised by high emotional appeal and trendsetting design.
The product substance delivers on the premium promise of the three
brands BMW, MINI and Rolls-Royce. BMW Group services also promote
the individual brand experience. We claim to have developed a unique
understanding of our customers and their requirements. This leads to a
high level of customisation in our products as well as great innovative
power. Plus: a unique corporate culture.

The BMW Group’s strategic realignment.

The BMW Group has always been different from other companies, thanks
to our unique corporate culture. This culture is based on values imple-
mented by all employees. Day by day. We scrutinised this value system in
the face of the challenges lying ahead and modified it to a certain extent.
Those who want to take a company to a new level must bear in mind that
this endeavour requires a climate that allows employees to align their
thoughts and actions with the new requirements. That offers them individual
scope to be creative and act as an entrepreneur. That provides clear guide-
lines outlining the roadmap.

This is how our twelve basic principles were developed. They will in future
define everybody’s performance. This includes, for example, that we focus
more strongly on customer benefit in all decisions. That each employee
feels personally responsible for our success – for both accomplishments
achieved and ahead. That we are committed to sustainability as the guide-
line for our further business development, including ecological, social and
corporate responsibility.

This corporate culture provides the foundation of our strategy.

Vision

Competitive Advantage

Growth

Shaping
the Future

Profitability

Access to
Technologies
and
Customers

Basic Principles

BMW Group House of Strategy: four strategic directions are pursued to
realise our vision for the year 2020.

Growth. How will we continue to grow with our existing brands and
products? How can we reach new customer groups and open up new
markets?

Growth means dynamics. Only profitable growth guarantees that our shareholders’ invest-
ment will bear fruit, that employees will receive a profit-sharing contribution, and that we will
be able to invest in new technologies at the same time. Growth is also crucial in determining
a company’s position among competitors.

As a premium provider, the BMW Group operates in a segment that grows faster than the
total automotive market. Today, one out of ten vehicles sold is a premium product.

We have identified three future growth areas: our existing core business as well as new
potential along the vehicle life-cycle and in our industry’s value chain.

Initially, the priority is to strengthen the BMW Group’s lead in today’s core business. Organic
growth with the existing brands will provide a retail volume of 1.8 million cars and 150,000
motorcycles by 2012.

Structured by region, absolute growth in the next decade will be highest in Europe and the
United States. This is why the BMW Group will continue to strive for market leadership
among premium manufacturers in the mature markets. The highest growth rates, however,
will be achieved in Asia, with China and India as well as in Latin America, Eastern Europe and
Russia. So, following the expansion of our production network to include China and India, we
will also be expanding our sales structures by implementing new market strategies.

The BMW Group’s strategic realignment.

In 2007, BMW was the world’s best-selling premium brand for the third consecutive year.
The importance of the premium segment can be explained by a particular social phenomenon:
the desire for individual products which help people distinguish themselves from others.
Premium customers request premium product substance and quality. And they are willing
to pay an adequate price. We are also aware that demand for traditional vehicle concepts in
the premium segment will diminish. These variants will be replaced by new concepts, such
as the Sports Activity Vehicle – a segment first opened up by the BMW Group. Concepts
such as coupé, convertible and roadster will remain popular as well. Apart from those, there
is a trend towards crossovers. In other words, the intelligent combination of characteristics of
various vehicle concepts.

We have therefore decided to include some crucial expansions of the product portfolio in our
corporate long-range planning:

– a BMW Gran Turismo, to be developed by BMW M based on the concept study CS,
– a Rolls-Royce Coupé as the third Phantom model alongside the Sedan and the Drophead

Coupé,

– an additional Rolls-Royce model to be positioned below the Phantom regarding price

and size,

– a BMW Progressive Activity Sedan – a new interpretation of the sedan concept, combining

its characteristic flair with new intelligent functions,

– the X1 following the X6 as the fourth member of the X family
– and finally, a Sports Activity Vehicle of the MINI brand.

The BMW Concept CS is the starting point for the development of a BMW Gran Turismo – only one of many new models
announced in the context of the BMW Group’s strategic realignment.

No matter whether we are talking about new or existing markets, new or well-proven con-
cepts – we will not lose sight of one thing: to always develop brand-specific premium
offers that fully meet our customers’ requirements and make best use of the respective
brand’s strength. If this cannot be done with existing brands, we might consider expanding
our brand portfolio in the future. As a result of our strategic review, we have acquired
Husqvarna Motorcycles to complement our motorcycle division. Together with BMW
Motorrad, the new brand will help increase sales in the motorcycle business by as much
as 50 percent by 2012.

But we will not stop at that: only 25 percent of total revenues to be achieved during the
vehicle life-cycle is created in the new car business, while service, parts and accessories,
and the used car business account for the other 75 percent. We intend to exploit the
greater potential along the vehicle life-cycle, with new sales channels in the accessory
business and a broader range of services. As far as marketing of pre-owned cars is con-
cerned, the BMW Group benefits from the fact that the company’s cars retain their value
better than most. In this field, our best option is high-end remarketing such as BMW
Premium Selection and MINI next. Accessory sales and resale are only two examples of
many opportunities in this business area.

The BMW Group’s strategic realignment.

Just like the remarkable potential along the vehicle life-cycle, the value chain offers consider-
able potential. One of our company’s strengths is our expertise in engine manufacturing –
we have built premium engines for airplanes, motorcycles and automobiles for over 90 years.
Engines from Munich, Steyr and Hams Hall are world famous. This is why it seems a logical
choice to provide drive systems to other manufacturers in certain growth areas.

Approximately one-fifth of our operating profit is presently achieved with financial services.
Once again, this is a field in which we see chances for substantial growth. Going beyond the
present core business of Financial Services, we are currently addressing additional fields,
including vehicle financing for foreign-brand vehicles, vehicle-related insurances and direct
banking as well as further geographical expansion. A further addition to our service range will
be new offers concerning individual mobility and modules making everyday life even more
convenient for our customers.

Taking advantage of all these options, the BMW Group will generate growth as the driving
force for further progress.

Growth
Value Chain

Product Initiative

Core Business

Market Initiative

Growth
Vehicle Life-cycle

Sights set on future growth. In addition to the core business, there is considerable potential along both the
vehicle life-cycle and the value chain. The two areas we have identified are highly profitable and expected
to generate a substantial result contribution.

Shaping the future. How can we take advantage of the changing con-
ditions as an opportunity for growth? How can we align our product portfolio
accordingly? How can we create new concepts for individual mobility?

When the automobile was invented at the end of the 19 th century, nobody would have
guessed the changes in society and the business world this invention would bring about.
Today, individual mobility has become an inherent part of our private and professional life.

But conditions have changed dramatically. Experts warn us of the effects of global warming
caused by carbon emissions from industrial production, power plants, households and road
traffic. Add to that the depletion of fossil fuel resources. The traditional combustion engine
powered by petrol or diesel will no longer be able to provide a satisfying answer to this
problem. Mobility in so-called megacities, large metropolitan and urban areas, is reaching its
limits.

This is why we are taking on the challenge to help guarantee future individual mobility. It is a
basic need we intend to meet by developing contemporary solutions. We will be developing
completely new vehicle concepts. To create something entirely different you have to be
willing to break new ground. There cannot be any taboos. Nothing can continue as it used
to be. As an automotive manufacturer with a more than 90-year history, we consider it our
social and corporate responsibility to make these challenges our top priority. For we want
to add new chapters to our company’s success story in the future.

Which drive system is sustainable, efficient and high-performance enough? Does every car
need to have four wheels? Which interior concepts really correspond to the demographic
change? Which vehicle concepts suit megacity traffic? How can we customise our vehicles
even better? What else will customers demand in the third millennium? And can we pursue
the idea of sustainable automotive engineering even more consistently? Do new business
models make sense? These are some of the questions that have led to a trendsetting future
project launched as an element of our new strategy Number ONE.

We know that we are facing the critical task for the automotive industry in the third millennium.
Tackling this challenge is essential for survival in our industry. And the company to come up
with the best solution will have a competitive advantage for many years to come.

The BMW Group’s strategic realignment.

==1

==2

==1 – 2

With the energy and drive strategy EfficientDynamics, the BMW Group has indicated the course towards future individual mobility.
Today’s accomplishments include an intelligent energy management for Brake Energy Regeneration and battery charging. But
there is more to electrifying the drivetrain: in 2009, BMW will launch a dynamic and efficient hybrid car. With the new strategy,
the BMW Group has furthermore announced to invest into the development of entirely new vehicle concepts equipped with new
drive systems.

Access to technologies and customers. How does our cooperation
with development partners and suppliers look like? How can we make best
use of the initiative of independent dealers and fleet service providers and
still stay in close touch with our customers?

Future competitive advantages will result from collaborations and networks established within
the automotive industry as well as from distinguishing oneself from others in the industry
through brand-specific strengths – something the BMW Group has always done well. This is
how we have developed a number of innovations offering added value to our customers over
the course of the past few years.

The premium segment comes up with most innovations in the automotive industry: progress
for more environmental compatibility, technologies to improve active and passive safety,
solutions for more convenience and entertainment. Ideas that have given us the reputation to
be the innovation leader.

For a company such as the BMW Group, it is crucial to derive key technologies from the strate-
gically important issues. The right balance between in-house production, supplier management
and collaborations gives us access to these technologies.

Future cooperations are also relevant to the sales organisation: in our industry, the dealers
and fleet service providers are the main points of contact with the customer. But it will be
important in the future to guarantee direct customer contact for the BMW Group when
cooperating with these partners. This is essential if we truly want to satisfy our customers’
demands over their vehicles’ entire life-cycle. And first and foremost, it helps us learn for the
future from customers’ present demands.

Despite increasingly fierce competition, strategic cooperations will define the automotive
industry and its environment. In this endeavour, we guarantee one thing: a BMW will always
be a BMW, a MINI always a MINI, and a Rolls-Royce always a Rolls-Royce.

The BMW Group’s strategic realignment.

==1

==2

==1

==2

This radar-based system is an example from the innovation network set up by the BMW Group and suppliers. Active cruise control
with stop and go function supports the driver when starting the car and when braking in slow traffic, while always maintaining
the required safety distance. It is designed for speeds up to 180 kilometres an hour and can automatically brake the car down to a
standstill.

BMW ConnectedDrive acts as a virtual co-pilot. The system connects the vehicle with its environment and with general traffic. In
future, it is supposed to be complemented by intelligent vehicle-to-vehicle communication via Wireless LAN. Providing information
collected by other vehicles, the system informs the driver about potentially dangerous braking manoeuvres and traffic holdups
nearby.

Profitability. How can we reduce cost per vehicle produced? How can
we reach economies of scale? How can we minimise the effect of exchange
rates? How can we create added value for our customers and achieve an
adequate price for our products?

Profitability and earnings quality are the decisive factors in everything we do; our goal is inde-
pendence. We consider it vital to apply the capital provided in such a way as to make investing
an attractive option for our shareholders by generating positive results in our operating activi-
ties. People investing in a premium manufacturer expect a premium return. Therefore, we
have to concentrate on those business areas promising a return on investment that matches
our premium aspirations. At the same time, we never lose sight of guaranteeing our company’s
lasting independence.

More output from less input. That is the philosophy behind EfficientDynamics. This idea is not
only applied to our products, but also to the entire company. As far as costs are concerned,
we understand less input as: re-evaluating all cost structures and achieving an increase in
efficiency of at least five percent a year. We have set up a far-reaching programme that will
help us tap into an efficiency potential of approximately six billion euros by 2012. We will
invest in future technologies while reducing costs, investment and therefore reduce capital
applied per unit. So growth will remain the driving force behind our success.

Exceeding this growth, we intend to achieve economies of scale by establishing collabora-
tions in the areas of components, drive systems and modules. It has always been one of
the BMW Group’s key strengths to make best use of project-based cooperation and cost-
efficient networks. In 2007, we concentrated strongly on collaborations in the areas of engine
development and hybrid technology.

A factor that is highly relevant to our profitability targets is that our cars and motorcycles are
popular all over the world. For our automobiles the United States have been the most important
individual market for years. This is why we depend to a large extent on the development of
currency exchange rates, mainly between the US dollar and the euro. In order to minimise the
effect, we will in future increase our purchasing volume in the US dollar area as well as the
number of units produced in the United States. This is why we will stock up production
capacities of our US plant in Spartanburg to 240,000 units to be applied, among other things,
to the production of the successor of the current BMW X3. Our supplier network and our glo-
bal purchasing structures will also have a share in strengthening our natural hedging activities.

As far as performance is concerned, we understand more output as continuing to position
our vehicles consistently in the premium segment. Premium is what we do best. This is
our key strength, and this is where we achieve our best results. Our customers, employees
and shareholders stand to benefit from our accomplishments in this segment. Additional
earnings potential will arise from expanding present operations and launching new activities.

The BMW Group’s strategic realignment.

==1

==2

==3

==1 – 3

The BMW Group’s brands – BMW, MINI and Rolls-Royce – are among the world’s most valuable automotive brands, thanks to the
company’s strong premium position.

Vision

Our strategy Number ONE will guide us to the year 2020. To see us
through the first five years we have set ourselves an initial interim
goal. By 2012, we will increase automobile retail to 1.8 million units
and motorcycle sales by 50 percent to stand at 150,000 bikes per
year. From 2012 onwards, we intend to achieve a return on capital
employed of 26 percent and consequently a return on sales of
between eight and ten percent.

Our strategic objective is to ensure that: The BMW Group is the
leading provider of premium products and premium services for
individual mobility.

The BMW Group’s strategic realignment.

This means that we no longer refer to ourselves as a producer, but
rather as a provider, and are making customer orientation and our
understanding of service the focus of the BMW Group. At the same
time, we continue to operate in the premium segment, not only in
terms of our cars and motorcycles, but also in terms of our services.
We are thus building on our strengths and concentrating on our core
competence in a clearly defined segment.

We consider potential future fields of action all types services
relating to individual mobility.

Strategic Objective

The objective
is to be the
leading provider
of premium
products and
premium services
for individual
mobility.

Bayerische Motoren Werke
Aktiengesellschaft
80788 Munich, Germany
Telephone +49 89 382-0
Fax +49 89 382-1 08 81

The year 2007.

Seize the future.

The year 2007.

Seize the future.

04 Preface by the Chairman of the

Board of Management.

08 Report: A matter of consistency.
26 The year 2007.

Norbert Reithofer
Chairman of the Board
of Management

Preface by the Chairman of the Board of Management.

Ladies and Gentlemen,

2007 was a successful year for the BMW Group and an eventful one, too. We accom-
plished what we set out to do at the start of the year and delivered what we had
promised you, our shareholders. In addition to that, more than 1.5 million customers
around the world bought an automobile from the BMW Group in 2007 and a further
102,000 people bought a BMW motorcycle. Our revenues also reached a new
record of 56 billion euros. We also proved our strength in terms of earnings – under
very difficult circumstances marked by the weak US dollar, rising raw material prices,
and intense compe tition. We were only able to achieve all of this because every per-
son in the company showed utmost personal dedication to achieving our ambitious
goals. On behalf of the Board of Management and myself, I would like to express my
sincere thanks to all our employees.

My thanks also go out to our dealer network and our business partners who last year
once again made a major contribution to the success of our company. But above all
I would like to thank the customers who placed their trust in us over the past year:
a trust which we will not disappoint – and which we need to earn over and over again
in the future. We made this a core requirement and obligation when we developed
our new strategy Number ONE.

2007 targets fulfilled

Earning customer trust

Strategy Number ONE
developed

Competitive edge through
EfficientDynamics

Number ONE is our path to the future. This strategy will allow us to address the
challenges we all face as a company and as part of society. The most important task
for an automobile supplier is surely that of reducing vehicle emissions. That is abso-
lutely essential to ensure individual mobility in the future.

In 2007 our EfficientDynamics package proved that we are on the right path and
can already deliver solutions today. This approach has also been endorsed by inde-
pendent sources. The “Grünes Lenkrad” environmental award we received for
EfficientDynamics is just one of many examples. EfficientDynamics can be summed
up as better performance with lower consumption. This principle is already having
a definite effect today: in Europe, around 40 percent of the BMW Group’s 2008 new
vehicle models generate only 140 g CO2/km or less. That translates into fuel consump-
tion of less than 5.1 l/100 km diesel or 5.8 l/100 km petrol. With EfficientDynamics
we have a package of measures which is unique in the industry – and thus gives us a
competitive edge.

We bring the same consistent approach that we use to tackle the reduction of CO2
emissions to other challenges. Whether climate change, globalisation, or the impact
of demographic developments in different parts of the world – we aim to find solutions
to the questions we must all ask ourselves, because we know that whoever is best
at meeting these challenges will have a competitive advantage in the future.

Preface by the Chairman of the Board of Management.

Turning challenges
into opportunities

To be more specific: those who have the right products to deal with climate change
will have the best chances in the marketplace. Those who face up to the challenges
of globalisation and exploit them as opportunities will be less dependent on currency
effects and will be able to open up new markets. And those who do not take demo-
graphic structures for granted, but respond flexibly to them instead, will continue to
have highly qualified, efficient employees in the future. That is what turns challenges
into opportunities for competitive advantage. We will exploit these opportunities.

Rest assured that the BMW Group will continue to stand its ground against its com-
petitors and further expand its leading position in the premium segments of the
international automobile and motorcycle markets. To be precise: we will maintain our
leading position. Our new strategy Number ONE will help us – and the dedication
and motivation of all our employees will guarantee our success.

Yours,

Norbert Reithofer
Chairman of the Board of Management

001

A matter
of consistency.

Report

Leader in Innovation

Fresh thinking:
better perform-
ance and safety
combined with
less consumption
and lower
emissions.
Leadership begins
in the mind.

001

A matter of consistency.

Report

To enable individual mobility in the future, we have
to completely rethink things today. BMW Group
engineers reveal what sustainable mobility could
look like through a mixture of unconventional
ideas which are already taking effect today and
will have a broad impact reaching far into the
future. Their most important tools are curiosity,
expertise, and plenty of questions.

==2

==1

Report: A matter of consistency.

It weighs all of two kilos and measures just 18 centimetres. Its sole purpose is to provide the engine
with a steady supply of coolant. It is hardly surprising that most car owners are completely unaware of
its existence during the vehicle’s lifetime. And yet it represents a minor revolution. The electric water
pump is part of a comprehensive energy strategy with which the BMW Group is completely redefining
the relationship between efficiency and performance. This strategy includes technical innovations
which immediately reduce the fuel consumption of the new vehicle fleet, as well as innovative hybrid
solutions and the use of hydrogen from regenerative sources – measures which stretch far into the
future of individual mobility. This strategy goes by the name of EfficientDynamics. Its philosophy is
better performance, less consumption. That is how the BMW Group translates its responsibility for
protecting the climate and resources into highly-effective innovations.

Hundreds of engineers, programmers, mechanics and other specialists within the BMW Group’s global
development and production network are currently working on this silent revolution in efficiency.
At Forschungs- und Technik GmbH, researchers are refining technologies which will one day use the
energy from vehicle exhaust emissions. In Troy, Michigan, the Global Hybrid Cooperation is developing
electric drive assemblies which exceed the efficiency of all known hybrid drives. At the Research and
Innovation Centre (FIZ) in Munich – with more than 8,500 developers the Group’s biggest think-tank –
engineers conceptually take apart every new vehicle and scrutinise it for energy-saving potential. This
is how efficiency boosters like Auto Start Stop Function, Brake Energy Regeneration, or active aero-
dynamics are born. All these EfficientDynamics features have quite an effect on their own – but together
they make a huge difference.

==1
Optical 3D data capture using
a wind tunnel model designed to
improve vehicle aerodynamics.

==2
Examining the vehicle’s aero-
dynamic features.

==3
The active air flap control auto-
matically manages the air supply
according to the engine’s cooling
requirements.

==3

Many of these technologies represent completely new solutions – but developing concepts for eco-
nomical high-performance vehicles is a success story that goes back a long way.

In 1975 the BMW Group was the world’s first manufacturer to introduce electronic petrol injection:
“L-Jetronic” made it possible for the first time to precisely control fuel supply. Together with the revo-
lutionary Valvetronic engine management system, innovative lightweight bodies, series implementation
of the Common Rail Technology, the fuel-efficient diesel turbocharger, and other BMW innovations,
these measures are today considered technological milestones on the road to less consumption in auto-
mobile design. Many key technologies which were discovered and readied for series production by the
BMW Group later found their way into the mass market. For instance, the integrated overrun fuel cut-
off, which made its debut in 1976 in the BMW 3.0si, is taken for granted these days, just like ABS or the
catalytic converter. “Engineers at the BMW Group,” says Dr. Johannes Liebl, “always were the ones to
break new ground for more efficient automobile design.”

Liebl is a mechanical engineer who has worked as an engine designer at the BMW Group for 23 years.
The 57-year-old currently coordinates the group-wide EfficientDynamics development work, including
a whole troop of highly effective “groundbreakers”. “At a time of climate change,” says the engineer,
“EfficientDynamics provides us with a comprehensive answer to questions about saving resources,
climate protection, and securing individual mobility. And we are not just developing solutions for the
medium and long term. Customers and the climate are already benefiting from our solutions from the
very first kilometre they drive.” The result is that where a BMW 320i back in 1983 still guzzled 9.6 litres of
petrol over 100 km, the current BMW 320i needs only 6.1 litres and still offers substantially better
performance, greater comfort and improved vehicle safety.

However, these responses are only possible because developers at the BMW Group consistently ask
questions in a new way.

Report: A matter of consistency.

==1 – 3
BMW Group employees prepare
1:2 vehicle models for wind tunnel
tests.

==1

==2

==3

==1

==2

==3

Report: A matter of consistency.

How can we use the momentum of thrust phases? How can the fuel injected into engines be used
even more efficiently? Or how does switching on the headlamps or air conditioning affect a vehicle’s
energy consumption? Where do further potential energy savings lie hidden within the vehicle? And
how do you measure all of this?

The last question in particular has tremendous ramifications, because even though design engineers
can now simulate all manner of designs and functions on the computer, until recently there was no
software capable of calculating a vehicle’s overall utilisation of energy resources. But that is exactly what
the “energy optimisers” at the BMW Group were interested in. “Traditionally,” explains Dr. Liebl, “when
you design an automobile all the vehicle’s functions and the energy they use are added together. The
total represents the performance required from the engine. It is then up to the engine developers to
provide this performance with the least possible consumption.” In the industry this design approach is
referred to as “end of pipe” – where engineers try to correct at the end what was neglected at the start.
However, in automotive design “end of pipe” thinking is rapidly reaching its limits. Air conditioning,
driving dynamics systems, and every extra comfort and safety feature increase the demand for power
output – and ultimately raise fuel consumption and carbon dioxide emissions. This is where physics
sets natural limits: engine efficiency cannot be enhanced indefinitely.

With the EfficientDynamics strategy developers at the BMW Group take a more comprehensive approach
that starts at an earlier stage. Like the designers of a regatta yacht who trim every fibre, every square
inch of their boat for top performance, they now analyse the consumption and potential for improvement
of every single component at the beginning of each vehicle’s development. They optimise what can be
optimised and ultimately combine many substantially improved elements to make far more efficient
vehicles. They are supported by simulation software refined five years ago by the BMW Group together
with the Technical Universities of Dresden and Munich. “Dymola” fulfilled the requirements which
made it possible to completely rethink efficient vehicle design. This simulation software maps all energy
fluxes in the vehicle. Dymola now allows considerable energy potential to be utilised – even in seem-
ingly insignificant components such as the water pump.

Specifically, regular mechanical water pumps typically lose up to 2,000 watts of energy – enough to
drive a small moped. Since virtually all motor vehicles around the world are fitted with a mechanical
water pump, you could say that today’s millions of automobiles are driving millions of small mopeds, too.

==1
The engineers of the BMW Group
are continually developing features
to enhance vehicle efficiency.

==2 – 3
The BMW Group presents its
first fully hybrid vehicle: the
BMW Concept X6 ActiveHybrid.

==1

==3

==2

Report: A matter of consistency.

This is where the BMW Group’s engineers come in: their electric water pump only switches on when it
is actually needed – and for that it only needs the energy of two bright light bulbs. This technology,
which was driven largely by the BMW Group (and still the only auto manufacturer in the world to use it)
currently saves two percent of fuel in the automobile.

In this way – segment by segment, component by component – the engineers scour all models for
potential economies: engineering minor revolutions such as highly-efficient Brake Energy Regeneration
and the jet-guided direct fuel injection system that result in consumption figures which only used to be
possible for diesel engines; optimising small things such as air flaps which open or close on their own
depending on the engine’s cooling requirements; designing a detachable air conditioning compressor
which only springs into action when it really needs to cool; drastically reducing the roll resistance of
tyres and replacing conventional hydraulic steering with much more economical electric steering. In
the meantime, all of these features are standard in almost all models of the BMW and MINI brands.
Many of them seem so obvious that one has to wonder why they were not implemented long ago. The
reason is that these apparently simple solutions often conceal extremely complex technologies. Just
how complex can be seen from the example of the ASSF.

==1
Tyres with less roll resistance
are especially fuel-efficient, owing
to reduced strain on tread and
sidewalls.

==2 – 3
Preparations for flow and circu-
lation testing of the engine com-
partment in the wind tunnel.

ASSF stands for Auto Start Stop Function and is the most radical approach to throttling engine con-
sumption since it cuts off the engine immediately once it is no longer needed. A small number
of automobile manufacturers tried automatic engine stop functions years ago, but they were quickly
withdrawn from the market because they were too cumbersome, too unreliable, and, as a result,
ineffective. However, engineers at the BMW Group knew from simulations and trial runs that switching
off and restarting the drive train for state-of-the-art injection engines pays off after just a few seconds’
standing time. A red traffic light lasts on average about 20 seconds. “That made us realise that there
were huge potential savings to be discovered here,” one developer remembers. “What we didn’t
realise at the outset was how much work would be involved in successfully harnessing that potential.”

==1

==2

Report: A matter of consistency.

As a core vehicle function, switching the engine on and off must be coordinated with the window
regulator, air conditioning, electronic immobiliser system, and a total of 17 other control units on board.
The engineers had to ensure that the engine does not switch off if it is too cold or too hot outside or
simply because the battery gets too low to easily restart the engine after a stop, for instance. Clustered
around the ASSF is a small orchestra of sensors which synchronise how the system is used.

What at first glance appears to be a simple engine function actually comprises a highly-intelligent sys-
tem which affects the vehicle’s whole organism. Today, this function is considered a particularly effec-
tive energy feature of the EfficientDynamics package, offering customers a major benefit without being
at all conspicuous. In the standardised European Driving Cycle it saves around three percent of fuel.
Developers at the BMW Group are currently pulling out all the stops to implement the system in the
Group’s automatic models as soon as possible – up until now it has only been available for manual
transmissions.

And yet their imagination and their pioneering spirit are still far from being exhausted. Among other things
the EfficientDynamics engineers are researching technologies which will tap into an energy source
that has so far been completely ignored: heat. For technical reasons little more than a third of the fuel in
the engine block is converted into operating power; almost two-thirds are lost in the form of waste
heat in the engine compartment and through the exhaust pipe.

“But what if we could harness that energy?” automotive engineers wondered. What if we could obtain
energy from the heat? The technology to do this is already doing the rounds of test benches at the
Munich Research Centre. In simple terms, the principle of the steam engine is transferred to the auto-
mobile: liquid is heated in two loops to generate the steam to drive a motor – the so-called “turbo
steamer”. The energy from the exhaust gas produced can be used on the one hand to support the
drive train; on the other hand there is also sufficient energy in the exhaust gas to easily supply the air
conditioning, vehicle computer and navigation system as well as all the electronic consumer loads on
board.

==1 – 2
Setting up the technology to
measure and analyse all energy
flows in the vehicle.

==3
The Auto Start Stop Function
helps to reduce fuel consumption
substantially by switching off the
engine when standing.

==3

==1
Using High Precision Injection
petrol engines can produce con-
sumption figures which only used
to be possible for diesel engines.

==2 – 3
The BMW Hydrogen 7 is the
world’s first premium sedan with
hydrogen combustion engine.

In just the same way that their engineers now analyse every vehicle down to the last detail, the com-
pany’s energy strategy also takes a holistic approach. It covers all three of the Group’s brands: BMW,
MINI and Rolls-Royce; reaches far into the future of sustainable mobility with hybrid and hydrogen
drives – and yet still delivers drastically improved consumption data today. For instance, the High
Precision Injection introduced in the 2007 models is the world’s first jet-guided direct fuel injection
system in large-series production to facilitate fuel-efficient lean operation across a particularly wide
range of speeds. This also results in quite noticeable and measurable fuel savings even in every-
day traffic. Combined with “traditional” vehicle optimisations such as sophisticated aerodynamics,
intelligent lightweight construction concepts, and energy management features, this means that since
autumn 2007 around 40 percent of the BMW Group vehicles sold in Europe have CO2 emissions of only
140 g/km or less. This corresponds to a consumption of 5.8 litres petrol or 5.1 litres diesel over 100 km.

As part of an unusual development cooperation, BMW Group engineers are currently exploring how
the hybrid technology – so often discussed in public – can be used much more effectively. Classic
hybrids, like the ones on the roads today, realise their true potential for savings primarily in city traffic.
However, at constant and higher speeds those efficiency gains are largely cancelled out by a sharp
increase in fuel consumption. That is quite different with the two-mode hybrid technology that is an
important component of the second, medium-term phase of the EfficientDynamics strategy: “Two-
mode hybrids support the combustion engine not just at low speeds, but also at average and higher
speeds,” explains Rainer Rump. As head of the development cooperation he is one of about 100 de-
velopment engineers at the BMW Group who have been working at the Hybrid Development Center in
Troy for just over two years. In this Detroit suburb in the US state of Michigan the BMW Group has
joined forces with Daimler, Chrysler and General Motors to form the Global Hybrid Cooperation. This is
the first time the automotive industry has seen a cooperation of this kind between four major manufac-
turers working together to advance technology. The two-mode drive train also promises impressive
efficiency gains: when the first BMW model with two-mode hybrid drive hits the market in late 2009 it
will consume up to 20 percent less fuel than a comparable model fitted with just a combustion engine.
“In this instance we made a very deliberate decision to cooperate on development so that we could

==1

Report: A matter of consistency.

bring the potential of the two-mode hybrid technology to the market as fast and as cost-efficiently
as possible,” explains Rump. “Of course, at the beginning everyone was a little sceptical whether
such close collaboration between competitors could even work. But the results exceeded all our
expectations.” While engineers from all four manufacturers are developing the components for the
hybrid system together in the core area of the Hybrid Development Center, developers from the
BMW Group are working on the brand-specific application of the hybrid drives in a separate secu-
rity zone. This guarantees that a BMW with hybrid drive will still be distinctive as a BMW. The de-
velopers’ aim is to create a comprehensive modular system from which the BMW Group can offer
its customers the best hybrid solution tailored to each model.

Nevertheless, the declared aim of the BMW Group is to cut carbon dioxide emissions by
100 percent over the long term. That sounds visionary, but is already reality on roads in Europe
and the United States. One hundred models of the world’s first series-produced, hydrogen-driven
luxury sedan, the BMW Hydrogen 7, have been on the roads since spring of 2007. Their drivers
have meanwhile clocked up more than 2.7 million kilometres with the Hydrogen 7 fleet and pro-
vided researchers like Wolfgang Strobl with valuable insights. “In many respects hydrogen is
the ideal fuel,” says the EfficientDynamics manager at the BMW Group Forschung und Technik
GmbH. “It combusts without leaving any residue, is highly effective and can be produced cost-
effectively in large quantities in a way that is CO2-neutral.” The necessary technology already
exists – for instance in the form of solar power stations that have been generating electricity in
California for the megacity of Los Angeles for 20 years – and has been successfully proved and
tested. The go-ahead for the development of the necessary capacities and infrastructure is still
pending.

Strobl and his research colleagues are using the intervening period to work, among other things,
on improving tank technology. Because although hydrogen is extremely environmental-friendly,
it is also a very volatile energy source. The hydrogen is stored at minus 250 degrees Celsius in
refrigerated liquid form in a tank similar to a thermos flask. 70 layers of wafer-thin aluminium foil and

==2

==3

an ultra-high vacuum in the tank of the BMW Hydrogen 7 ensure absolutely minimal cooling losses – it
would take a snowball 13 years to melt completely in this marvel of insulation. Other fields of research
include innovative on-board power supply concepts and further consolidation of the hydrogen engine’s
performance. “Even after 100 years of development diesel and petrol engines have only achieved an
efficiency of around 40 percent,” explains Wolfgang Strobl. “But with hydrogen as fuel higher energy
efficiency is already possible today.” The 191 kW drive of the Hydrogen 7 – with the option of using
hydrogen or regular petrol – already accelerates from zero to 100 km/h in just 9.5 seconds. That goes to
show how powerful sustainable mobility can be.

The EfficientDynamics strategy represents a real paradigm shift in automotive design. Up until now the
energy-efficient models on the market were generally associated with pricey options and lower stand-
ards of comfort, performance and safety – and, as a result, were not very successful. The philosophy of
the BMW Group is completely different: The EfficientDynamics innovations come as standard in new
models and make an impact with every vehicle sold. Drivers who want to be responsible about their
mobility no longer need to forego dynamic performance. For the most part BMW Group customers are
happily unaware of the energy innovations in their vehicles. There are only two factors which make
them perceptible: better driving dynamics and lower consumption.

In this way the EfficientDynamics strategy has an impact that is both deep in terms of vehicle technology
and broad in terms of market. In 2007 alone the BMW Group already sold more than 450,000 vehicles
equipped with EfficientDynamics. In the European Federation for Transport and Environment’s (T& E)
comparison of the 14 highest-volume premium suppliers the BMW Group already occupies the top
spot for cutting CO2 emissions.

The authors of the independent US “Environmental Defense Report” were even more explicit: no other
manufacturer did more over recent years for the reduction of fuel consumption and CO2 emissions than
the BMW Group. In their performance class the vehicles of the BMW Group are already by far the most
efficient with regard to consumption and emissions.

And let us not forget that EfficientDynamics is only just gathering momentum: according to engineer
Liebl, “The best ideas probably haven’t even occurred to us yet.”

Report: A matter of consistency.

==1 – 2
Thanks to its EfficientDynamics
package the BMW Group has
significantly reduced the fuel con-
sumption and CO2 emissions of
its vehicles.

==1

==2

002

The year 2007.

Profitable Growth

Operate more
effectively.
Substantially
increase effi-
ciency. Continue
to improve and
respond faster.
Achieve greater
autonomy.

002

The year 2007.

January

February

March

April

May

June

July

30 World premieres in Detroit

31 Research Centre for Artificial Intelligence

32 International Motor Show Geneva
33 Ten years Intercultural Learning
33 BMW goes India

34 Acquisition of DEKRA SüdLeasing completed
34 One-millionth MINI
34 Number one in corporate sustainability
34 World debut for BMW Concept CS in Shanghai

34 International Engine of the Year Award
35 Mille Miglia 2007
35 State Opera for All

35 Design Team of the Year
36 MINI United Festival in Zandvoort

37 BMW Group acquires Husqvarna Motorcycles
37 90 years of BMW

August

37 MINI wins top marks in frontal crash test

September 38 IAA Motor Show Frankfurt

40 BMW Group sets course for the future
40 World debut of BMW HP2 Sport
40 Rolls-Royce announces a new Coupé

October

41 BMW Welt opens
42 World premiere at the Tokyo Motor Show
42 Rolls-Royce production expands

November 43 New BMW motorcycles at the EICMA 2007

43 “Grünes Lenkrad” environmental award for

BMW EfficientDynamics

December 43 Scientific Award 2007 presented

January

07/ 01
World premieres in Detroit. The BMW 3 Series Convertible is presented to the public
for the first time at the North American International Auto Show in Detroit. With its
classic lines and the convenience of a new retractable hardtop, this fourth-generation
model heralds a new chapter in the four-seater convertible’s success story. In Detroit
the BMW Group also unveiled the new BMW X5 as well as the BMW Hydrogen 7,
the first hydrogen-powered sedan for everyday traffic.

07/ 01
The MINI brand also has a world premiere to offer the public in Detroit
with its MINI Sidewalk Convertible. It is also the first time that the
second, completely new generation of MINI was on display on the
North American continent.

The year 2007.

07/ 01
At the unveiling ceremony for the Phantom Drophead Coupé Ian Robertson, Chairman and
Chief Executive of Rolls-Royce Motor Cars, was also able to announce a new record in sales
volume. For the third time in a row the Phantom was able to confirm its leading position in the
super-luxury class. The Drophead Coupé broadens the Rolls-Royce brand’s range of models.
Like the Phantom, it is manufactured at the Goodwood facility.

February

22 / 02
BMW Group Research and Technology participates in the German Research Centre for
Artificial Intelligence. Collaboration focuses on issues such as the future of the internet and its
importance to mobile usage and in supporting mobility in an ageing society. This long-term
cooperation further expands the BMW Group’s research subsidiary’s global technology and
partner network.

March

06 / 03
International Motor Show in Geneva – world premieres and visions. Alongside the new BMW 1 Series,
the new BMW 5 Series and the M5 Touring are also presented to the public for the first time. The
BMW M3 concept study is also unveiled. The company also introduces a wealth of technical innova-
tions. The EfficientDynamics package is particularly well received.

The year 2007.

06 / 03
The MINI brand brings more world debuts to the Geneva Motor Show:
the new MINI One and the new MINI Cooper D, the most economical
MINI ever built.

26 / 03
Ten years BMW Group Award for Intercultural Learning. In front of more than 300 guests the Board Member
for Human Resources, Ernst Baumann, presents the winners of the 2006 competition with their awards.
The tenth anniversary of the internationally recognised event showcases more than 40 award-winning pro-
jects and academic papers as well as several hundred more, equally prize-worthy, efforts.

29 / 03
BMW goes India. The opening of the BMW plant in Chennai, India, is the company’s second move
into India’s growth market. The first step was taken on January 1st 2007 when the BMW Group set
up a subsidiary in Delhi. The new plant will produce vehicles of the BMW 3 Series and 5 Series for
the Indian market.

April

02 / 04
Acquisition of DEKRA SüdLeasing completed. In early April the acquisition of Dekra
SüdLeasing Services GmbH (renamed to: BMW Fuhrparkmanagement Beteiligungs
GmbH) and its subsidiaries by the BMW Group is finalised. It was approved by the EU
Commission in late March.

05 / 04
One-millionth MINI. The one-millionth MINI rolls off the production line
six years after series production started in Oxford. The MINI Cooper S
is manufactured to individual customer specifications. The “customer”
is BMW Group Mobile Tradition, for whom the designers created a
special roof graphic composed of one million tiny MINI cars.

12 / 04
Number one in corporate sustainability. According to a survey of 28 German companies the BMW Group is num-
ber one in the efficient use of financial, ecological and social resources. The BMW Group is five times better at
managing corporate sustainability than the German economy as a whole. The study was conducted by the Berlin
Institute for Future Studies and Technology Assessment (IZT). Evaluations were based on economic, ecological
and social indicators such as capital expenditure, water consumption, amount of waste produced and the num-
ber of occupational accidents.

20 / 04
World debut of the BMW Concept CS at the Auto Shanghai 2007. Here the BMW Group
turns its attention to a new vehicle segment. The BMW Concept CS concept study com-
bines the exclusivity of a luxury-segment Gran Turismo with the fascination of a high-per-
formance sports car.

May

09 / 05
“International Engine of the Year Award” goes to BMW. The BMW 3.0 litre Twin
Turbo in-line 6-cylinder petrol engine is voted “International Engine of the Year”
in the world’s leading engine contest. This engine is used in all BMW 3 Series
model variants. Overall the BMW Group wins seven of the twelve competition
categories.

The year 2007.

16 / 05
BMW at the Mille Miglia 2007. The first Mille Miglia was held 80 years ago. For the past
25 years it has been held as an endurance race. For the 25th anniversary BMW Group
Mobile Tradition sends nine of its most striking classic cars to Northern Italy. A total of
19 teams take to the start in a BMW. Together with 300 other classic racing cars they make
the legendary drive over 1,000 miles from Brescia through Ferrara to Rome and back again.

19 / 05
State Opera for All. Jules Massenet’s opera “Manon” is broadcast live
from the sold-out “Staatsoper unter den Linden” opera house on a big
screen on Bebelplatz square. This is made possible by cooperation
between the State Opera and the BMW Group. Over the next few years
the Berlin public will again have the opportunity to enjoy free open-air
opera – a new highlight for Berlin’s cultural calendar.

June

25 / 06
BMW Group Design is “Design Team of the Year”. The 2007 red dot award for “Design Team of
the Year” goes to the BMW Group. Chief Designer Chris Bangle accepts the award in Essen on
behalf of all his staff. The BMW Group also picks up eight further awards for outstanding product
design: two automobiles and three motorcycles from the BMW Group as well as three other
products designed by BMW Group DesignworksUSA also receive a red dot.

22 / 06
MINI United Festival in Zandvoort. More than 8,000 people from 50 countries flock to the MINI United
Festival in the Dutch resort of Zandvoort on the North Sea coast. Under the motto “Friends. Festival.
Challenge.” the MINI fan community enjoys three days of a unique mix of racing atmosphere, party and
lifestyle. Many visitors had come a long way to be a part of MINI United 2007. Probably the longest
journey, at 4,200 kilometres, was that of Yuliya Tkachenk. She set off from Krasnodar in Russia some
seven days before the start of the festival to be in Zandvoort with her MINI.

The year 2007.

July

19 / 07
The BMW Group acquires Husqvarna Motorcycles. The acquisition of Husqvarna Motorcycles
is a logical move to continue BMW’s activities in the field of lightweight sports motorcycles.
Like BMW Motorrad, Husqvarna is one of the world’s oldest, most established motorcycle
companies.

21 / 07
90 years of BMW – trademark for innovation. On this exact day 90 years
ago the Bayerische Motoren Werke was recorded in the register of
companies. Two days later the letters BMW were being used on the
company’s products.

August

01 / 08
MINI wins top marks in frontal crash test. The new MINI emerges from the Euro NCAP Crash
Test with a top rating of five stars. This verdict is also confirmed by the ADAC (Allgemeiner
Deutscher Automobilclub). The foundation for the top rating in this rigorous testing procedure
is the new MINI’s design with its focus on a high degree of passive safety available in all MINI
versions.

September

13 / 09
New models at the IAA Motor Show Frankfurt. The new BMW 1 Series Coupé has its world premiere at the
IAA Motor Show in Frankfurt. It combines driving pleasure with exemplary efficiency. Also unveiled for the first
time are the new models of the BMW 6 Series, boasting drive innovations and specific design modifications.
The newly designed BMW M3 Coupé also makes its world debut. For the first time the BMW Group introduces
a coupé for the Sports Activity Vehicles segment in the shape of the BMW Concept X6. The BMW Group’s
first automobile with hybrid drive is the BMW Concept X6 ActiveHybrid.

The year 2007.

13 / 09
The MINI Clubman debuts as the brand’s third model variant in Frankfurt. The
MINI Clubman offers greater functionality and has a hatch with two doors that
open to the side as well as an extra “Clubdoor” which opens to the rear on the
vehicle’s right-hand side. The new MINI John Cooper Works CHALLENGE was
developed primarily for the Clubsport Series’ MINI Challenge.

27/ 09
BMW Group sets course for the future. With its strategic realignment the BMW Group is
consistently aligning itself to achieve profitability and increase value over the long term. The
strategic objective is clearly defined: the BMW Group as the world’s leading provider of
premium products and premium services for individual mobility. As part of the realignment
the BMW Group also creates two new divisions as of October 1st: “Corporate and Brand
Development” and “Purchasing and Supplier Network”.

28 / 09
BMW HP2 Sport makes its world debut in Paris. At the “Mondial du Deux Roues” the new BMW HP2 Sport cele-
brates its world premiere. The sportiest, strongest, yet lightest series-produced Boxer of the HP model series so
far is designed with the ambitious sports rider in mind. Its fascination lies in a wealth of exclusive details which were
previously used only in racing – some of them are now finding their way into series production for the first time.

28 / 09
Rolls-Royce announces a new Coupé. Rolls-Royce Motor Cars confirms that a
coupé version of the Phantom will be launched in 2008. This model will be
an elegant two-door coupé derived from the Phantom Drophead Coupé and
will offer exceptional handling performance.

The year 2007.

October

17 / 10
BMW Welt opens. Right next door to the BMW Group headquarters, the BMW Museum, and the company’s
first plant, the BMW Welt opens its doors to the public. The architecturally striking building, for which the
architect pushed the limits of what is technically possible, is the new home of the BMW brand. At the core is
the individual, personalised BMW Automobile Delivery in which up to 45,000 BMW automobiles a year can
be handed over to their new owners. Visitors can look forward to an extensive programme which allows
them to experience the BMW brand and the company in its entirety. BMW Welt is also the venue for a wide
range of different cultural, social and corporate events.

22 / 10
World premiere at the Tokyo Motor Show. The BMW M3 Sedan is revealed to the world public for the first time at
the 40th Tokyo Motor Show. Following on from the Coupé, it is the second BMW M3 body variant.

23 / 10
Rolls-Royce production expands. Rolls-Royce Motor Cars announces that it
will expand production capacity at its Goodwood facility. The company is thus
responding to the strong demand for Rolls-Royce automobiles and preparing
for the planned extension of its model range.

The year 2007.

November

06 / 11
New BMW motorcycles at the EICMA 2007. The revised models of the BMW Group’s most successful motorcycles –
the BMW R 1200 GS and the BMW R 1200 GS Adventure – are just two of the world premieres at the 65th EICMA
International Motorcycle Show. The new BMW F 800 GS with its excellent off-road characteristics and long-distance
qualities is also showcased. Another newcomer is the BMW F 650 GS: an all-round version suitable for beginners.
The fifth world debut belongs to the BMW G 450 X which was developed exclusively for Enduro Sport.

08 / 11
“Grünes Lenkrad” environmental award for BMW EfficientDynamics. The BMW Group receives the
“Grünes Lenkrad” award, presented for the first time in 2007 by the German Sunday newspaper
“Bild am Sonntag”. The award recognises the EfficientDynamics package which comes as standard
in the BMW 1 Series through to the BMW X5, and is also found in many MINI models.

December

06 /12
Scientific Award 2007 presented. The BMW Group’s Scientific Award is presented at an award
ceremony held at the Deutsches Museum in Munich. The award, which focused on “Passion for
Innovation”, is one of the most renowned and lucrative awards for up-and-coming scientists. The
award honours outstanding graduate and doctoral theses from 24 disciplines. Through its Scientific
Award, which has been presented every two years since 1991, the BMW Group underlines the
tremendous importance of innovation and supports young people whose pioneering research will
further society.

The year 2007.

At the end of 2007 the BMW Group’s product range includes 26 models that produce
only 140 kilograms of CO2 per kilometre or less. If the Hydrogen 7 is included, that
number increases to 27.

In 2008 the company aims to roll out more than 800,000 automobiles equipped with EfficientDynamics features
across Europe. At the same time the BMW Group will continue to forge ahead with its work on innovative drive
solutions. That is how innovations turn into valuable competitive advantages – and how challenges become
opportunities.

Consumption data

Values measured in accordance with the New European Drive Cycle (EU Directive: 80 / 1268 / EEC in the relevant
applicable version). Valid for vehicles with a European country specification.

Model

Urban
(l/100 km)

Extraurban
(l/100 km)

Combined CO2-emissions
[g/km]
(l/100 km)

Model

Urban
(l /100 km)

Extraurban
(l/100 km)

Combined CO2-emissions
[g/km]
(l/100 km)

BMW

116i 3-door

118i 3-door

120i 3-door

130i 3-door

118d 3-door

120d 3-door

123d 3-door

116i 5-door

118i 5-door

120i 5-door

130i 5-door

118d 5-door

120d 5-door

123d 5-door

125i Coupé

135i Coupé

120d Coupé

123d Coupé

118i Convertible

120i Convertible

125i Convertible

135i Convertible

318i Sedan

320i Sedan

325i Sedan

325xi Sedan

330i Sedan

330xi Sedan

335i Sedan

335xi Sedan
318d Sedan1]
320d Sedan

325d Sedan

330d Sedan

330xd Sedan
335d Sedan 2]
M3 Sedan3]

318i Touring

320i Touring

325i Touring

325xi Touring

330i Touring

330xi Touring

335i Touring

335xi Touring
318d Touring1]
320d Touring
325d Touring

BMW

7.5 (8.3)

7.9 (8.2)

8.7 (8.4)

4.8 (5.3)

5.8 (6.4) 139 (152)

330d Touring

4.7 (5.0)

5.9 (6.2) 140 (148)

5.1 (5.1)

6.4 (6.3) 152 (150)

330xd Touring
335d Touring2]

8.3 (9.1)

9.2 (9.8)

9.2

5.0 (5.3)

6.2 (6.7) 163 (176)

5.6 (5.8)

6.9 (7.3) 181 (193)

5.4

6.8

178

12.2 (12.3)

6.0 (6.0)

8.3 (8.3) 197 (198)

5.4 (6.9)

6.1 (7.2)

6.5 (7.3)

7.5 (8.3)

7.9 (8.2)

8.7 (8.4)

4.0 (4.5)

4.5 (5.4) 119 (144)

320i Coupé

4.1 (4.4)

4.8 (5.4) 128 (144)

325i Coupé

8.7 (8.9)

9.8 (9.7)

4.9 (5.1)

6.3 (6.5) 151 (156)

5.5 (5.6)

7.1 (7.1) 170 (170)

4.4 (4.6)

5.2 (5.6) 138 (148)

325xi Coupé

10.9 (10.8)

6.1 (6.2)

7.9 (7.9) 189 (189)

4.8 (5.3)

5.8 (6.4) 139 (152)

330i Coupé

9.9 (9.9)

5.6 (5.6)

7.2 (7.2) 173 (173)

4.7 (5.0)

5.9 (6.2) 140 (148)

330xi Coupé

11.0 (11.0)

6.2 (6.2)

8.0 (8.0) 193 (193)

5.1 (5.1)

6.4 (6.3) 152 (150)

335i Coupé

13.2 (13.1)

6.7 (6.9)

9.1 (9.2) 218 (221)

12.2 (12.3)

6.0 (6.0)

8.3 (8.3) 197 (198)

335xi Coupé

14.1 (13.8)

7.1 (7.3)

9.7 (9.7) 232 (232)

5.4 (6.9)

6.1 (7.2)

6.5 (7.3)

4.0 (4.5)

4.5 (5.4) 119 (144)

320d Coupé

4.1 (4.4)

4.8 (5.4) 128 (144)

325d Coupé

4.4 (4.6)

5.2 (5.6) 138 (148)

330d Coupé

11.4 (11.4)

5.9 (5.9)

7.9 (7.9) 190 (190)

13.0 (13.2)

7.0 (6.9)

9.2 (9.2) 220 (221)

4.1 (4.4)

4.8 (5.4) 128 (144)

4.4 (4.6)

5.2 (5.6) 138 (148)

330xd Coupé
335d Coupé2]
M3 Coupé3]

6.1 (7.2)

6.5 (7.3)

8.5 (8.7)

8.9 (9.1)

6.0 (7.2)

7.8 (8.3)

8.2 (9.0)

9.1 (9.7)

9.1

17.9

4.1 (4.5)

4.8 (5.5) 128 (145)

4.8 (5.3)

5.9 (6.4) 155 (169)

4.9 (5.2)

6.1 (6.6) 160 (175)

5.5 (5.7)

6.8 (7.2) 178 (190)

5.3

9.2

6.7

12.4

177

295

5.0 (5.4)

6.3 (6.6) 149 (158)

320i Convertible

9.0 (9.4)

5.2 (5.4)

6.6 (6.9) 157 (165)

5.2 (5.5)

6.6 (6.8) 158 (163)

325i Convertible

10.4 (10.6)

5.9 (6.1)

7.6 (7.8) 181 (187)

11.7 (11.6)

6.0 (6.1)

8.1 (8.1) 195 (195)

330i Convertible

10.5 (10.6)

6.0 (6.1)

7.7 (7.8) 185 (187)

13.3 (13.5)

7.1 (7.0)

9.4 (9.4) 224 (225)

335i Convertible

13.6 (13.4)

7.1 (7.2)

9.5 (9.5) 226 (226)

120d Convertible

6.4 (7.4)

4.3 (4.5)

5.1 (5.6) 134 (148)

320d Convertible

7.9 (8.5)

8.4 (8.9)

9.8 (9.7)

4.8 (5.2)

5.9 (6.4) 142 (152)

4.8 (5.1)

6.1 (6.5) 146 (156)

5.5 (5.6)

7.1 (7.1) 170 (170)

325d Convertible

330d Convertible
M3 Convertible3]

6.9 (7.5)

8.1 (8.6)

8.6 (9.3)

4.3 (4.8)

5.3 (5.8) 140 (153)

5.1 (5.6)

6.2 (6.7) 164 (176)

5.3 (5.5)

6.5 (6.9) 170 (181)

18.7 (17.3)

9.6 (9.4) 12.9 (12.3) 309 (293)

10.9 (10.8)

6.1 (6.2)

7.9 (7.9) 189 (189)

520i Sedan

9.2 (9.4)

5.4 (5.4)

6.7 (6.9) 162 (164)

9.9 (9.9)

5.6 (5.6)

7.2 (7.2) 173 (173)

523i Sedan

10.1 (10.3)

5.7 (5.9)

7.3 (7.5) 174 (178)

11.0 (11.0)

6.2 (6.2)

8.0 (8.0) 193 (193)

525i Sedan

10.3 (10.4)

5.7 (5.8)

7.4 (7.5) 176 (178)

13.2 (13.1)

6.7 (6.9)

9.1 (9.2) 218 (221)

525xi Sedan

11.3 (11.2)

6.2 (6.3)

8.1 (8.1) 193 (193)

14.1 (13.8)

7.1 (7.3)

9.7 (9.7) 232 (232)

530i Sedan

10.9 (10.8)

5.8 (5.6)

7.7 (7.5) 182 (178)

4.1

4.7

123

530xi Sedan

11.5 (11.6)

6.2 (6.0)

8.2 (8.1) 194 (193)

4.1 (4.4)

4.8 (5.4) 128 (144)

540i Sedan

15.8 (14.4)

7.4 (6.9)

10.5 (9.7) 250 (232)

4.8 (5.3)

5.9 (6.4) 155 (169)

550i Sedan

16.6 (15.5)

7.6 (7.2) 10.9 (10.3) 260 (246)

5.7

6.0 (7.1)

7.8 (8.3)

8.2 (9.0)

9.1 (9.7)

9.1

4.9 (5.2)

6.1 (6.6) 160 (175)

520d Sedan

5.5 (5.7)

6.8 (7.2) 178 (190)

525d Sedan

5.3

6.7

177

525xd Sedan

17.9 (17.0)

9.2 (9.0) 12.4 (11.9) 295 (285)

530d Sedan

8.0 (8.6)

8.5 (9.1)

9.9 (9.8)

4.9 (5.3)

6.0 (6.5) 144 (156)

4.9 (5.3)

6.2 (6.7) 148 (160)

5.6 (5.7)

7.2 (7.2) 173 (173)

530xd Sedan
535d Sedan 2]
M51]

6.5 (7.5)

8.2 (8.5)

8.8 (9.1)

8.6 (9.1)

9.2 (9.6)

9.0

22.7

4.3 (4.6)

5.1 (5.6) 136 (149)

5.0 (5.3)

6.2 (6.5) 165 (172)

5.4 (5.6)

6.7 (6.9) 179 (183)

5.1 (5.2)

6.4 (6.6) 170 (176)

5.5 (5.5)

6.9 (7.0) 183 (186)

5.4

10.2

6.7

14.8

178

357

11.0 (10.9)

6.2 (6.3)

8.0 (8.0) 193 (191)

520i Touring

9.4 (9.5)

5.6 (5.5)

6.9 (7.0) 166 (167)

10.0 (10.1)

5.7 (5.8)

7.3 (7.4) 175 (178)

523i Touring

10.6 (10.6)

6.0 (6.0)

7.7 (7.7) 183 (184)

11.1 (11.1)

6.3 (6.3)

8.1 (8.1) 194 (194)

525i Touring

10.8 (10.7)

5.9 (6.0)

7.7 (7.7) 183 (184)

13.4 (13.2)

6.9 (7.0)

9.3 (9.3) 222 (223)

525xi Touring

11.8 (11.7)

6.4 (6.5)

8.4 (8.4) 201 (201)

14.2 (13.9)

7.2 (7.4)

9.8 (9.8) 235 (235)

530i Touring

11.1 (11.0)

6.0 (5.8)

7.9 (7.7) 187 (184)

5.8

6.1 (7.3)
7.9 (8.4)

4.2

4.8

125

530xi Touring

12.0 (12.1)

6.4 (6.3)

8.5 (8.4) 203 (201)

4.2 (4.6)
4.9 (5.4)

4.9 (5.6) 131 (146)
6.0 (6.5) 158 (172)

550i Touring
520d Touring

17.0 (16.1)
6.7 (7.7)

7.8 (7.5) 11.2 (10.7) 267 (254)
5.3 (5.8) 140 (154)
4.5 (4.7)

Model

Urban
(l /100 km)

Extraurban
(l /100 km)

Combined CO2-emissions
[g/km]
(l/100 km)

Model

Urban
(l /100 km)

Extraurban
(l/100 km)

Combined CO2-emissions
[g/km]
(l/100 km)

BMW

525d Touring

525xd Touring

530d Touring

530xd Touring
535d Touring2]
M5 Touring1]

630i Coupé

650i Coupé
635d Coupé2]
630i Convertible

650i Convertible
635d Convertible 2]
M6 Coupé1]
M6 Convertible1]

730i2]
730Li2]
740i2]
740Li2]
750i2]
750Li2]
760i2]
760Li2]
730d2]
730Ld2]
745d2]

X3 2.0i1]
X3 2.5si

X3 3.0si

X3 2.0d

X3 3.0d
X3 3.0sd2]

X5 3.0si2]
X5 4.8i2]
X5 3.0d2]
X5 3.0sd2]

X6 xDrive35i 2]
X6 xDrive30d 2] (from 05/08)
X6 xDrive35d 2]
X6 xDrive50i 2] (from 05/08)

Z4 2.0i1]
Z4 2.5i

Z4 2.5si

Z4 3.0si

Z4 3.0si Coupé
Z4 M Roadster1]
Z4 M Coupé1]

MINI

8.4 (8.6)

9.1 (9.2)

8.8 (9.3)

9.6 (9.9)

9.2

22.4

5.2 (5.4)

6.4 (6.6) 171 (176)

5.6 (5.7)

6.9 (7.0) 184 (187)

5.3 (5.3)

6.6 (6.8) 176 (180)

MINI One
MINI One Convertible1]
MINI Cooper

6.8 (9.0)

4.4 (5.0)

5.3 (6.5) 128 (155)

9.8

5.4

7.0

168

6.9 (9.1)

4.5 (5.0)

5.4 (6.5) 129 (156)

5.8 (5.6)

7.2 (7.2) 192 (192)

MINI Cooper Convertible 10.0 (10.7)

5.7 (5.8)

7.3 (7.6) 174 (182)

5.6

10.6

6.9

15.0

182

361

MINI Cooper D

MINI Cooper S

4.7 (6.5)

7.9 (9.7)

3.5 (4.2)

3.9 (5.0) 104 (134)

5.2 (5.3)

6.2 (6.9) 149 (165)

MINI Cooper S Convertible 11.3 (12.7)

6.6 (6.4)

8.3 (8.7) 199 (208)

11.2 (11.0)

6.0 (5.8)

7.9 (7.7) 188 (184)

MINI Cooper Clubman

17.8 (15.9)

8.1 (7.4) 11.7 (10.5) 279 (249)

MINI Cooper D Clubman

9.2

5.6

6.9

183

MINI Cooper S Clubman

7.1 (9.2)

4.9 (6.6)

8.0 (9.8)

4.5 (5.1)

5.5 (6.6) 132 (159)

3.6 (4.2)

4.1 (5.1) 109 (136)

5.3 (5.4)

6.3 (7.0) 150 (168)

11.8 (11.6)

6.3 (6.0)

8.3 (8.1) 198 (192)

19.2 (16.5)

8.8 (7.7) 12.6 (10.9) 299 (258)

9.6

21.4

22.0

14.6

16.3

16.9

20.7
20.7

10.9

11.0

12.8

12.6

5.8

10.2

10.6

7.5

8.2

8.3

9.5
9.5

6.2

6.3

6.8

6.9

7.2

14.3

14.7

10.1

11.2

11.4

13.6
13.6

7.9

8.0

9.0

190

342

352

241

242

267

268

271

272

327
327

210

212

239

215

12.8 (13.1)

7.3 (7.4)

9.3 (9.5) 224 (228)

13.4 (13.3)

7.3 (7.6)

9.5 (9.7) 229 (233)

8.2 (8.3)

9.7 (9.9)

9.7

13.7

16.9

10.2

10.3

14.9
10.4

10.5

17.6

10.6

5.5 (5.8)

6.5 (6.7) 172 (178)

6.0 (6.4)

7.4 (7.7) 196 (206)

6.7

8.2

9.2

6.9

7.0

8.6
7.0

7.1

9.5

5.5

7.8

10.2

12.0

8.1

8.2

10.9
8.2

8.3

12.5

7.4

208

244

286

214

216

262
217

220

299

176

11.8 (12.0)

6.1 (6.3)

8.2 (8.4) 197 (202)

11.9 (12.4)

6.2 (6.6)

8.3 (8.7) 199 (207)

12.4 (12.7)

6.2 (6.5)

8.5 (8.8) 204 (211)

12.8 (12.7)
18.2

6.3 (6.5)
8.6

8.7 (8.8) 207 (209)
292

12.1

Rolls-Royce
Rolls-Royce Phantom2]
Rolls-Royce Phantom
Long wheelbase 2]
Rolls-Royce Phantom
Drophead Coupé2]

23.2

11.3

15.7

23.3

11.4

15.8

23.2

11.3

15.7

377

380

377

Figures in brackets only valid for automatic transmissions
1] only available with manual transmission.
2] only available with automatic transmission.
3] Values in brackets are valid for 7-gear M dual clutch transmission with Drivelogic

Further information and constantly updated data for the vehicles
is available on the Internet at www.bmw.com, www.mini.com and
www.rolls-roycemotorcars.com.

18.2

8.6

12.1

292

As of March 2008

a
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The manufacture of, and the paper used for, the BMW Group’s Annual Report 2007, have been certified in accordance
with the criteria of the Forest Stewardship Council (FSC). The FSC prescribes stringent standards for forest manage-
ment, thus helping to avoid uncontrolled deforestation, human rights infringements and damage to the environment.
Since products bearing the FSC label are handled by various enterprises along the processing and trading chain, the
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Published by
Bayerische Motoren Werke
Aktiengesellschaft
80788 Munich
Germany
Telephone +49 89 382-0