BMW AG
Annual Report 2008

Plain-text annual report

Annual Report 2008 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 success- fully 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 individual mobility.  Dual binding The two books slide apart to reveal the index register. This provides for fast and easy access to individual chapters.  06 BMW Group in figures 08 Report of the Supervisory Board 14 14 16 20 42 45 47 Group Management Report A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Bonds in 2008 Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 55 55 57 58 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 62 68 Risk Management Outlook 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes to the Group Financial Statements Accounting Principles and Policies 79 Notes to the Income Statement 88 Notes to the Balance Sheet 94 Other Disclosures 115 Segment Information 129 132 Responsibility Statement by the Company’s Legal Representatives 133 Auditors’ Report 134 134 137 138 140 141 147 Corporate Governance Members of the Supervisory Board Members of the Board of Management Corporate Governance in the BMW Group Compliance in the BMW Group Compensation Report (Sub-section of Management Report) Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 148 148 150 152 154 156 159 160 Other Information BMW AG Principal Subsidiaries BMW Group Ten-year Comparison BMW Group Locations Glossary Index Financial Calendar Contacts 06 BMW Group in figures Deliveries of automobiles in thousand units 1,500 1,400 1,300 1,200 1,100 1,000 Revenues in euro billion 55 50 45 40 35 30 04 05 06 07 08 04 05 06 07 08 1,208.7 1,328.0 1,374.0 1,500.7 1,435.9 44.3 46.7 49.0 56.0 53.2 Profit before financial result in euro million Profit before tax in euro million 4,500 3,750 3,000 2,250 1,500 750 4,500 3,750 3,000 2,250 1,500 750 04 05 06 07 08 04 * 05 06 07 08 3,774 3,793 4,050 4,212 921 3,583 3,287 4,124 3,873 351 * adjusted for new accounting treatment of pension obligations 07 BMW Group in figures Deliveries to customers BMW MINI Rolls-Royce 2004 2005 2006 2007 2008 Change in % 1,023,583 1,126,768 1,185,088 1,276,793 1,202,239 184,357 200,428 188,077 222,875 232,425 792 796 805 1,010 1,212 Automobile deliveries total 1,208,732 1,327,992 1,373,970 1,500,678 1,435,876 Motorcycles1 92,266 97,474 100,064 102,467 101,685 Vehicle production BMW MINI Rolls-Royce 1,059,978 1,122,308 1,179,317 1,302,774 1,203,482 189,492 200,119 186,674 237,700 235,019 875 692 847 1,029 1,417 Automobile production total 1,250,345 1,323,119 1,366,838 1,541,503 1,439,918 Motorcycles 2 93,836 92,012 103,759 104,396 104,220 – 5.8 4.3 20.0 – 4.3 – 0.8 – 7.6 – 1.1 37.7 – 6.6 – 0.2 Workforce at end of year 3 BMW Group 105,972 105,798 106,575 107,539 100,041 – 7.0 Financial figures in euro million Revenues Capital expenditure Depreciation and amortisation Operating cash flow 4 Profit before financial result Profit before tax Net profit 44,335 46,656 48,999 56,018 53,197 4,347 2,672 6,157 3,774 3,583 5 2,242 5 3,993 3,025 6,184 3,793 3,287 2,239 4,313 3,272 5,373 4,050 4,124 2,874 4,267 3,683 6,246 4,212 3,873 3,134 4,204 3,670 4,471 921 351 330 – 5.0 – 1.5 – 0.4 – 28.4 – 78.1 – 90.9 – 89.5 1 excluding Husqvarna Motorcycles (13,511 motorcycles) 2 from 2006 including BMW G 650 X assembly by Piaggio S. p. A., excluding Husqvarna Motorcycles (14,232 motorcycles) 3 Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners. 4 reported in the cash flow statement up to 2006 as cash inflow from operating activities of Industrial Operations and from 2007 as cash inflow from operating activities of the Automobiles segment 5 adjusted for new accounting treatment of pension obligations 08 Joachim Milberg Chairman of the Supervisory Board 09 Report of the Supervisory Board Ladies and Gentlemen, The Supervisory Board oversaw the running of the BMW Group throughout the financial year 2008 on the basis of detailed written and oral reports provided by the Board of Management and, in joint discussions, advised the Board of Management on matters of governance. In a total of five meetings, the Supervisory Board deliberated at length on the current performance and financial position of the BMW Group, risk management issues (including the level of risk provisions recorded in the Group Financial Statements by the Board of Management), short and long-term corporate planning and the composition of the Board of Management. The Supervisory Board made use of regular reports prepared by the Board of Manage- ment, followed up by talks and discussions, to keep abreast of business developments as well as the Group’s performance, including variances from budget. The Supervisory Board additionally reviewed and discussed a number of pertinent topics in more depth on the basis of reports and planning documents provided by the Board of Management. Apart from scheduled meetings, the Board of Management also kept the Supervisory Board informed of the course of business, with particular regard to key performance indicators, personnel figures and other significant matters. The Chairman of the Supervisory Board was also kept directly informed by the Chairman of the Board of Management of all major business transactions and projects. The two chairmen ex- change information regularly throughout the year. Main focus of the Supervisory Board’s monitoring and advisory activities Over the past year, the Supervisory Board paid particular attention to the implementation of the BMW Group’s business strategy and corporate plan as well as its progress in achieving greater competitiveness by rolling out Efficient Dynamics across the whole product range. Due to the business repercussions of the financial market crisis, the Supervisory Board both monitored and provided advice to the Board of Management during the financial year concerning risk management and risk provision. In the light of declining vehicle residual values on certain markets, the Supervisory Board was kept fully informed by the Board of Management both regarding the current situation and the future prospects of the Financial Services segment. The two Boards held in-depth discussions on possible courses of action in this area. Furthermore, at the request of the Supervisory Board and in the course of joint discussions, the Board of Management presented the strategies and measures adopted to optimise the value-added chain. The Supervisory Board carefully considered the annual budget for the financial year 2009 together with the Board of Management, including the matter of forecasting sensitivities in the face of current business conditions. The Supervisory Board also kept itself well informed regarding the financial management of the BMW Group, including the measures and concepts put forward by the Board of Management to enhance profitability. The Supervisory Board expressed its support for the measures being taken by the Board of Management. In this context, the Supervisory Board stressed the necessity of continuing the dialogue with employee representatives in a fair and constructive manner. After extensive deliberations on the long-term corporate plan drawn up on the basis of the strategy Number ONE and presented by the Board of Management, the Supervisory Board granted its formal approval to the plan. The Supervisory Board firmly believes that the package of measures known as “Efficient Dynamics” – de- signed to reduce emissions and consumption without compromising the vehicle’s agility or vitality – provides 10 answers to the needs and expectations of customers and thereby represents an important competitive ad- vantage for the BMW Group. The Supervisory Board thus fully supports the Board of Management in its endeavours to strengthen the BMW Group’s competitive edge in this area. One Supervisory Board meeting was held in Steyr, Austria, where engines are developed and manufac- tured. Using the Steyr plant as an example, the benefits of a production system based on a value-added approach were demonstrated to the Supervisory Board. The Supervisory Board also took the opportunity to witness a demonstration of the electrically powered MINI E. Corporate governance and Declaration of Compliance The Supervisory Board and the Board of Manage- ment jointly examined whether the corporate governance principles laid down in the previous year had been applied during the financial year 2008 and also deliberated in detail on further corporate governance de velopments within the BMW Group to be initiated during the current year. The two Boards issued a joint Declaration of Compliance with the German Corporate Governance Code (GCGC) pursuant to § 161 AktG and had it posted to the BMW Group’s website. The recommendations of the Government Commission on the German Corporate Governance Code contained in the revised code issued on 8 August 2008 will be complied with in the future with one exception: the Supervisory Board has delegated the task of deter- mining both remuneration and the remuneration system – including the principal contractual components and the regular review of the system – to the Personnel Committee. The full Supervisory Board is, how ever, informed regularly and in great detail of the work of the Personnel Committee. From the point of view of the Supervisory Board, this division of duties has proved beneficial for its work. All other GCGC recommen- dations are being complied with. The BMW Group Corporate Governance Code was updated on the basis of resolutions taken by the Board of Management and the Supervisory Board. The code, setting out the principles of good corporate governance applied by the BMW Group, is available via the Group’s website. 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 (pages 141 – 146). In conjunction with the code recommendations issued on 8 August 2008 and in preparation for the Finan- cial Reporting Modernisation Act in Germany, the Supervisory Board transferred further duties relating to financial reporting to the Audit Committee and extended the terms of reference accordingly. The efficiency of the Supervisory Board’s work – which the GCGC recommends examining on a regular basis – was also a separate topic of discussion for the full Supervisory Board. The subject was addressed in the absence of the Board of Management and prepared for by the completion of a questionnaire pre- viously devised and distributed by the members of the Supervisory Board. The Supervisory Board believes that this kind of efficiency examination represents an important part of a continuous process of improving its work, including cooperation with the Board of Management. As part of this improvement process, one of the measures decided by the Supervisory Board is the scheduling of more time for the exchange of information and opinions relating to major technological issues. There was no indication of any conflicts of interest on the part of members of the Supervisory Board and Board of Management during the past year. During the financial year 2008, several changes were made to the composition of the Supervisory Board (see below). No member of the Supervisory Board failed to attend more than half of the Supervisory Board meetings held during their period of office. 11 Report of the Supervisory Board Description of Presiding Board activities and committee work In a total of six meetings, the Presiding Board mainly focussed on preparations for the meetings of the full Supervisory Board (Plenum). The Pre- siding Board selected additional topics for report and made further suggestions for the coverage of the Board of Management’s reports to the Plenum. During the financial year 2008, the Presiding Board closely followed the implementation of the Board of Management’s business strategy approved in 2007, including the one-year and multi-period business plans. Particular attention was given to the impact of the financial crisis on these plans. The Board of Management also reported to the Presiding Board on its intention to take out directors’ and officers’ liability insurance on behalf of management. The Presiding Board also con- sidered concepts for the compensation of Supervisory Board work in order to formulate a proposal for an amendment to § 15 of the Articles of Incorporation at the 2008 Annual General Meeting. The Audit Committee convened three times during the period under report. One further Audit Committee meeting took place in the form of a telephone conference. One meeting was devoted to preparing for the Supervisory Board meeting in spring 2008 at which the financial statements were examined. As part of the process of electing and engaging the external auditor for the financial year 2008, the Audit Committee also obtained a Declaration of Independence from the external auditors and a fee proposal from the firm of auditors subsequently elected as Company and Group auditor. After the Annual General Meeting and in line with a resolution taken by the shareholders, the Audit Committee accordingly appointed KPMG as auditor for the financial year 2008. The terms of engagement issued by the Audit Committee set out areas of audit emphasis which also took account of suggestions made by the full Supervisory Board. In two further meetings and one telephone conference, the Audit Committee considered the Board of Management’s detailed reports on the latest risk situation, the risk management system, the risk pro- vision measures proposed by the Board of Management (especially with respect to the Financial Services segment) and the internal control system in place throughout the Group. The Audit Committee also re- ceived reports from the Head of Group Internal Audit on the main areas of emphasis for Group Internal Audit and from the Chairman of the Compliance Committee regarding progress in implementing the new Compliance Organisation. In order to support its activities in monitoring the financial reporting process, the Audit Committee engaged the external auditor to review the Group’s Six-Month Interim Report. The Personnel Committee held seven meetings during the financial year 2008 and conducted one further meeting by telephone. One of the main points dealt with at these meetings was the pre-selection by the Supervisory Board of two candidates for future membership of the Board of Management as well as preparatory work on decisions for extending the mandates of current members. In accord with the Board of Management, the Personnel Committee also deliberated on changes to the organisation of the Board of Management. The Personnel Committee reviewed the parameters, level of compensation and pen- sion benefits of current Board of Management members. It also considered the appropriateness of members’ compensation arrangements in the light of their duties, individual performance and the current financial condition of the BMW Group. Comparative data resulting from a remuneration study for the automotive sector and other DAX companies were used in the process. In specific cases, the Personnel Committee also reached decisions with respect to pension benefits for current and former members of the Board of Management. The Nomination Committee, set up in 2007 to find suitable candidates for election to the Supervisory Board and for inclusion in the Supervisory Board’s proposals for election at the Annual General Meeting, convened in January 2008 to propose candidates for the forthcoming elections at the Annual General 12 Meeting 2008. A further meeting was held in February 2009 to propose candidates for the Annual General Meeting 2009. The statutory Mediation Committee (§ 27 (3) of the Law on Worker Participation) was not required to con- vene during the financial year 2008. The Chairman reported regularly and in depth at Supervisory Board meetings on the status of Presiding Board and committee work. Changes in composition and reorganisation of the Board of Management At its meeting on 13 March 2008, the Supervisory Board, in agreement with the Personnel Committee, appointed Ian Robertson as member of the Board of Management with immediate effect. Mr. Robertson was appointed to the Board with responsibility for Sales and Marketing after Stefan Krause left the Board of Management and the company at his own request. Ernst Baumann, who had been responsible for Human Resources and had held the post of Industrial Relations Director since 1999, retired from office on 30 November 2008. The Supervisory Board thanked Mr. Baumann for his 35 years of successful work for the BMW Group. Following the proposal of the Person- nel Committee, the Supervisory Board appointed Harald Krüger as member of the Board of Manage- ment for Human Resources and as Industrial Relations Director with effect from 1 December 2008. Dr. Michael Ganal, member of the Board of Management, passed away on 4 December 2008 at the age of 54 after a serious illness. Up to that point, Dr. Ganal had held Board responsibility for Finances. Dr. Friedrich Eichiner, who had initially deputised on a temporary basis in agreement with Dr. Ganal, was officially given responsibility for Finances on 2 December 2008 as part of a Board reorganisation proposed by the Board of Management and supported by the Personnel Committee. Dr. Ganal – whose return to work had been hoped for until the end by the Board of Management, Supervisory Board and employees alike – had con- sistently worked with great energy, discipline and diligence in the interests of the BMW Group, even during his illness. The company is exceedingly indebted to him and will always remember him with high esteem. The Group and Brand Development portfolio of tasks for which Dr. Eichiner was previously responsible has been reallocated to the various Board members as part of a reorganisation of duties within the Board of Management. Changes in the composition of the Supervisory Board, Presiding Board and committees The names of the members of the Supervisory Board committees appear in the Corporate Governance Report. Several changes occurred in the composition of the Supervisory Board, Presiding Board and the Supervisory Board’s committees during the financial year 2008: Maria Schmidt, member of the Works Council for the Dingolfing site, was officially appointed by the District Court of Munich on 25 March 2008 as member of the Supervisory Board in the role of employee representative. Prof. Dr. Reinhard Hüttl, Dr. Karl-Ludwig Kley and Prof. Dr. Renate Köcher were newly elected to the Supervisory Board by the shareholders at the Annual General Meeting on 8 May 2008. The mandates of Arthur L. Kelly, Heinz-Joachim Neubürger and Dr. Hans-Dietrich Winkhaus came to an end at the close of the Annual General Meeting on 8 May 2008. Mr. Konrad Gottinger resigned as member of the Supervisory Board with effect from 15 February 2008. The Supervisory Board would again like to thank all members leaving office for their dedicated and 13 Report of the Supervisory Board commendable services performed on behalf of the BMW Group. On 13 March 2008 Stefan Schmid was elected to the Presiding Board and as a member of the Audit Committee and the Personnel Committee. On 8 May 2008, after many years of service as member of the Supervisory Board, Prof. Dr. Jürgen Strube was elected to the Presiding Board, the Personnel Committee, the Nomination Committee and the Audit Committee. He took over the chair of the Audit Committee with effect from 2 December 2008. Examination of financial statements and the profit distribution proposal The Company and Group Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the year ended 31 December 2008 and the combined Company and Group Management Report were audited by KPMG AG Wirt schafts- prü fungs gesell schaft, Munich, and given an unqualified audit opinion on 18 February 2008. The Audit Committee initially examined these documents intensively at its meeting on 27 February 2009, discussing matters in person with representatives of the external auditor. The Supervisory Board subsequently ex- amined the relevant drafts of the Board of Management at its meeting on 12 March 2009, after hearing the committee 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. Documents relating to the Company and Group Financial Statements and to the combined Management Report as well as the long-form audit reports of the external auditors were made available to all members of the Supervisory Board in a timely manner. 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 2008 prepared by the Board of Management. The Company Financial Statements are therefore adopted. The Board of Management’s profit distribution proposal was reviewed by the Audit Committee and the Supervisory Board. They consider the proposal appropriate and therefore concur with it. In accordance with the conclusion reached on the Supervisory Board’s examination, no objections were raised. During the second half of 2008, the BMW Group had to assert itself in the midst of difficult business con- ditions brought on by a global crisis on the financial markets. The Supervisory Board wishes to thank the members of the Board of Management, employees and employee representatives for their joint efforts in strengthening the competitiveness of the BMW Group. In the opinion of the Supervisory Board the BMW Group is on the right track with its new strategic focus and its programme of rolling out Efficient Dynamics across the whole of the product range – a programme which is having measurable success in reducing both emissions and fuel consumption. The Supervisory Board is convinced that this programme forms a solid foundation for mastering the challenges presented during a difficult economic period. Munich, 12 March 2009 The Supervisory Board Yours, Joachim Milberg Chairman of the Supervisory Board  Group Management Report 14 A Review of the Financial Year 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 14 Group Management Report A Review of the Financial Year BMW Group’s performance adversely affected by economic crisis The economic climate deteriorated drastically in 2008. Towards the end of the reporting year, the situation on the international financial markets reached an unprecedented pitch. At the same time, the effects of the crisis also spilled over onto the world’s markets for goods and services. The rapid pace of the economic downturn and ongoing uncertainty as to how the economic crisis might proceed took a heavy toll on the BMW Group’s performance in 2008. Especially during the second half of the year, consumer uncertainty resulted in a cutback in spending, affecting nearly all of the world’s major car markets. In many coun- tries, car sales volumes plummeted compared to the pre- vious year. The ongoing weak state of the used car mar- kets also had a negative impact on the reported figures of the BMW Group. The situation was further exacerbated by the significant increase of refinancing costs on the in- ternational capital markets. The weakness of the US dol- lar – particularly during the first half of the year – and the fall in value of the British pound also had a negative impact. Despite the sharp drop in raw material prices in the second half of the year, price levels on the commodity markets remained above-average for the year as a whole. In addi- tion to the negative impact of external factors, it was also necessary for the BMW Group in 2008 to recognise the cost of implementing previously announced measures to reduce the size of the workforce. Model life cycle factors also contributed to a reduction in the number of cars sold by the BMW Group compared to the previous year. In total, the BMW Group sold 1,435,876 BMW, MINI and Rolls-Royce cars during the year under report, 4.3 % fewer than in the previous year. In its motorcycles business, the BMW Group almost reached the previous year’s level with 101,685 motorcycles sold in 2008 (– 0.8 %), thus strengthening its competitive position in a generally contracting market. Financial services business was also severely affected by the knock-on effects of the global economic and financial crisis. In particular, the tense situation on the international used car markets and the higher level of bad debts incurred necessitated the recognition, over the course of the year, of substantial expenses for risk provision. In addition, refinancing costs on the international capital markets in- creased to reflect higher net interest spreads. Revenue and earnings hard hit by financial crisis The BMW Group was unable to avoid the effects of global economic developments in 2008. A slump in revenues in the final months of the year meant that Group revenues for 2008 fell by 5.0 % to euro 53,197 million. Excluding the ex- change rate impact, automobile business revenues would have fallen by 5.4 % and Group revenues would have slipped by 0.8 %. The enormous impact of the economic downturn can be seen most clearly in the change in reported earnings for the year. In 2008, the BMW Group recognised an additional risk provision expense for bad debts and residual value risks amounting to euro 1,968 million. In addition to this, expenditure in conjunction with previously announced measures to cut back the size of the workforce reduced Group earnings by euro 455 million. Under the weight of these negative factors, the profit before finance result (EBIT) decreased by 78.1 % to euro 921 million. These substantial expenses are also reflected in the profit before tax which dropped by 90.9 % to euro 351 million. In line with its sales volume performance, automobile busi- ness revenues in 2008 did not come up to the previous year’s high level. Revenues generated by the Automobiles segment fell by 9.4 % to euro 48,782 million. The high level of risk provision expenses for residual value risks in the auto- mobiles line of business and expenditure incurred in conjunction with previously announced measures to cut back the size of the workforce meant that the profit before finance result (EBIT) of the Automobiles segment, at euro 690 million, was 80.0 % down on the previous year. The seg- ment profit before tax for 2008 was euro 318 million (– 90.2 %). The Motorcycles segment generated revenues totalling euro 1,230 million in 2008, similar to the previous year’s level (+ 0.2 %). In the face of difficult business conditions, the segment profit before finance result (EBIT) fell by 25.0 % to euro 60 million and the segment profit before tax came in at euro 51 million (– 28.2 %). The total business volume of the Financial Services seg- ment rose again in 2008. Revenues increased to euro 15,725 million, 12.8 % up on the previous year. Particularly during the second half of the year, increasingly adverse business conditions had a massive impact on earnings in this line of business. The Financial Services segment reported a loss before tax of euro 292 million (2007: profit before tax of euro 743 million) primarily as a result of the risk provision expense recognised for residual value and bad debt risks. The effective tax rate for the Group, at 6.0 %, was approxi- mately 13 percentage points lower than in the previous year. The income tax expense, at euro 21 million, was down by 97.2 %. The Group net profit for the year declined by 89.5 % to euro 330 million. 15 Group Management Report BMW Group Revenues by region in euro million 60,000 52,500 45,000 37,500 30,000 22,500 15,000 7,500 Rest of Europe North America Germany Asia / Oceania United Kingdom Other markets 04 05 06 07 08 Rest of Europe North America Germany Asia / Oceania United Kingdom Other markets Total 10,574 10,205 11,961 4,915 5,249 1,431 44,335 12,141 10,957 11,001 5,538 5,125 1,894 46,656 13,226 11,779 10,601 6,200 5,214 1,979 48,999 16,450 12,161 11,918 7,353 5,945 2,191 56,018 15,780 12,461 10,739 7,523 4,913 1,781 53,197 Dividend lower than one year earlier The Board of Management and the Supervisory Board will propose to shareholders at the Annual General Meeting that the unappropriated profit available for distribution in BMW AG, amounting to euro 197 million, be used to pay a decreased dividend of euro 0.30 for each share of common stock (2007: euro 1.06 /– 71.7 %) and a decreased dividend of euro 0.32 for each share of preferred stock (2007: euro 1.08 /– 70.4 %). The proposed reduction in the dividend for the financial year 2008 reflects the earnings performance. The distribution rate for 2008 would be 60.8 % (2007: 22.2 %). to 7.9 % (2007: 7.6 %) as a result of the lower level of revenues. BMW Group sells majority shareholding in Cirquent With effect from 30 September 2008, the BMW Group sold 72.9 % of its shares in the IT consultancy company Cirquent (formerly Softlab) to the Japanese company NTT Data. The BMW Group continues to hold 25.1 % of the shares. The remaining 2.0 % of shares are held by Cirquent itself. BMW Group Capital expenditure and operating cash flow Capital expenditure down on previous year Capital expenditure, at euro 4,204 million (2007: euro 4,267 million / – 1.5 %), was lower than in the previous year. The main focus of capital expenditure was on product invest- ments in conjunction with the production start-ups of new models such as the BMW 7 Series, the Z4, the X1 and the MINI Convertible as well as infrastructure investments. in euro million 7,000 6,000 5,000 4,000 3,000 2,000 1,000 The BMW Group invested euro 2,980 million in property, plant and equipment and other intangible assets (+ 1.6 %) in 2008. In addition, development expenditure of euro 1,224 million was recognised as assets in accordance with IFRS (2007: euro 1,333 million / – 8.2 %). The proportion of develop- ment costs recognised as assets, at 42.7 %, was at a similar level to the previous year (2007: 42.4 %). The capital expenditure ratio (i. e. the ratio of capital ex- penditure to Group revenues) increased slightly in 2008 04 05 06 07 08 Capital expenditure Operating cash flow 1 4,347 3,993 4,313 4,267 4,204 6,157 2 6,184 5,373 6,246 4,471 1 reported in the cash flow statement up to 2006 as cash inflow from operating activities of Industrial Operations and from 2007 as cash inflow from operating activities of the Automobiles segment 2 adjusted for new accounting treatment of pension obligations 14 14 16 20 42 45 47 62 68 Group Management Report A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook Internal Management System Earnings Performance Financial Position 16 General Economic Environment Financial crisis reaches the real economy The world economy suffered a major setback in 2008. In the period up to summer the primary causes were the high prices of raw materials and the consequences of the re- cession on the US property market. In the second half of the year, however, the downturn worsened due to the massive impact of the financial crisis. The problem was not confined to the USA, but caused a crisis of confidence on financial markets worldwide as well as a massive reduction in lending volumes. The situation led to major disruptions in the real economy. The downturn in the US economy, which had already begun mid-2007, continued to gather momentum over the course of 2008. The decline in prices for residential properties and cutbacks in housing construction investments worsened during the year and there was still no end in sight by the end of 2008. The crisis of confidence on the financial mar- kets triggered by loan defaults on house mortgages went on to have a far-reaching impact on the real economy. American consumers in particular, who had generally been quite willing to consume in recent years, became extremely reluctant to spend. Companies increased their level of in- vestment only slightly in 2008. Only foreign trade volumes profited from the weakness of the US dollar through to the middle of the year, allowing the US current account deficit to be reduced further. Although the US economy grew by 1.3 % over the full year, it nevertheless registered a downturn towards the end of the year. The euro zone was also unable to avoid the effects of the financial crisis. Since summer 2008, its performance has been significantly weaker than in preceding years. Only a very small increase was registered in the area of private consumer spending. The main aggravating factors were sharp price rises during the first half of the year and the pe- tering out of positive developments on the job markets during the second half of the year. Companies were ex- tremely reluctant to invest and export figures fell from sum- mer onwards in the wake of the global downturn, causing the euro zone current account balance to drop into the negative zone. Overall, the euro zone recorded a growth of only 0.7 % in 2008. In Germany too, the positive growth rate began to slide from summer onwards. Exports, which had largely been responsible for economic growth in recent years, ceased to be the driving force for the economy when even they began to drop towards the end of the year. Consumer spending also remained weak. The positive impetus gen- erated by the employment market right up to the end of the year was not enough to relieve consumers of their sense of uncertainty. It was only because of the robust performance at the beginning of the year that the German economy could record a growth rate of 1.3 % for the full year. Although the new EU member states were still growing robustly in 2008, the growth rates registered were signifi- cantly lower than in the previous year. This applied both to domestic demand and to exports. The current account deficits in these countries deteriorated noticeably. It was originally thought that the Japanese economy would only be marginally affected by the financial crisis. As a result of the global downturn and the appreciation of the yen, however, Japan too felt the knock-on effects of the financial crisis, with recent export figures even showing negative trends. Domestic demand also weak- ened perceptibly. As a result economic output decreased by 0.7 %. The emerging economies of Latin America and Eastern Asia continued to register the fastest growth rates along with the Eastern European markets. Here too, however, the negative factors outweighed the positive, resulting in lower growth rates. While the credit markets in those re- gions were far less affected than those of the industrial na- tions, these countries were nevertheless hit by the finan- cial crisis, particularly due to the outflow of capital and lower export demand. The growth rate in China slowed down, albeit still at a high level, and the export surplus Exchange rates compared to the Euro (Index: 31 December 2003 = 100) 150 140 130 120 110 100 90 Source: Reuters British Pound US Dollar Japanese Yen 04 05 06 07 08 17 Group Management Report Oil price trend Price per barrel of Brent Crude 160 140 120 100 80 60 40 20 Source: Reuters 04 05 06 07 08 Price in US Dollar Price in Euro shrank considerably. The rate of growth in India also re- mained lower than the rates registered in preceding years. Declining export volumes in particular caused the current account deficit to widen. US dollar appreciates against the euro The value of the US dollar against the euro increased sig- nificantly during the second half of 2008. Having fallen to an all-time low of almost US dollar 1.60 to the euro in April, it went on to reach its highest level in two years at US dol- lar 1.23 to the euro in November. By the end of the period under report, it had stabilised at a level of approximately US dollar 1.40 to the euro. The US dollar’s closing rate was therefore 4.3 % up on one year earlier. Similarly, there was a sharp rise in the value of the Japanese yen compared to the euro. After reaching its lowest level for the year of almost yen 170 to the euro, by the end of the year its value was fluctuating between yen 120 and yen 130 to the euro. The Japanese currency rose in value by around 22 % during the year, strengthening from yen 163 to the euro at the beginning of the year to yen 127 to the euro at the end of the year. By contrast the British pound saw a massive drop in value in 2008, with an exchange rate of GBP 0.95 to the euro. This means that it lost approximately 28 % in value over the course of 2008. Prices of raw materials highly volatile The global economic downturn caused demand for raw materials to fall sharply worldwide during the second half of the year. The price of crude oil reached its peak at ap- proximately US dollar 150 per barrel in summer 2008. It then proceeded to fall to under US dollar 40 by the end of the year. Although reducing supplies to the market, OPEC Steel price trend (Index: January 2004 = 100) 180 170 160 150 140 130 120 110 100 04 05 06 07 08 Source: German Federal Statistical Agency Precious metals price trend (Index: 31 December 2003 = 100) 400 350 300 250 200 150 100 Source: Reuters 04 05 06 07 08 Gold Platinum Palladium 14 14 16 20 42 45 47 62 68 Group Management Report A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook Internal Management System Earnings Performance Financial Position 18 was unable to stop the price of oil falling. Despite these developments, the average price of a barrel of Brent Crude over the entire year was around US dollar 97, some 37 % above the previous year’s average. maintain the high growth rates seen in previous years and expanded by only 6 %. In India, the market increased by only 2 %. While the South Korean market dipped by more than 2 %, car sales in Japan fell by almost 4 %. The price of steel also witnessed another sharp rise in 2008, reaching its highest point in summer before starting to fall. The prices of most precious metals dropped from the middle of the year onwards, some of them drastically. Car markets in 2008 The global economic downturn also had a severe impact on the international car markets in 2008. After a long period of growth, the number of passenger cars sold worldwide fell for the first time in years. The three main traditional mar- kets (the USA, Western Europe and Japan) suffered dra- matic slumps in some areas, while the growth rates of the emerging markets, while still at a high level, slowed down. In the USA, sales figures fell by more than 18 %. The com- bined effect of high fuel prices and the credit crisis caused sales of light trucks to drop by approximately 25 %. Only 13.2 million vehicles were sold in total. The market share for American manufacturers also continued to shrink. With a market share of only 47.6 %, for the first time, less than half of passenger cars registered in the USA were manufac- tured by domestic carmakers. In Western Europe too the passenger car market experi- enced sharp volume contraction. The number of new reg- istrations fell by approximately 8 % to 13.6 million vehicles. The countries most badly hit were those in which the property markets had suffered most. The number of new registrations fell in the United Kingdom by 11 %, in Italy by 13 % and in Spain by more than a quarter. By contrast, the reduction of nearly 1 % recorded in France was quite moderate. In Germany, almost 3.1 million passenger cars were sold in 2008, 2 % fewer than in the previous year. Consumers re- mained reluctant to spend in the face of the financial crisis, the ongoing debate on the taxation of CO2 emissions and high fuel prices. After the strong growth rates achieved in the previous year, Eastern European markets recorded a slight fall in 2008, with the markets performing differently from one country to the next. The momentum of the Russian market slowed down and grew by 16 % in 2008. The impact of the global downturn in car markets was more evident in Asia than in the emerging markets of other parts of the world. The Chinese market was no longer able to In contrast to the generally weaker performance elsewhere, car markets in Latin America were again able to maintain their momentum in 2008. Passenger car sales in Brazil rose by more than 14 % and sales in Argentina went up by approximately 9 %. In contrast, the Mexican market con- tracted by almost 7 %. Motorcycle markets in 2008 The economic and financial crisis also affected interna- tional motorcycle markets in 2008, with hardly any markets achieving the previous year’s sales levels. Worldwide mo- torcycles sales in the 500 cc plus segment relevant for the BMW Group were 6.5 % lower than one year earlier. In Europe, the decline in sales was even greater at 7.2 %. The German 500 cc plus motorcycle market contracted by 9.4 %. The markets in Italy and the United Kingdom de- clined by 9.4 % and 5.7 % respectively. The 12.1 % drop in sales in Spain was particularly sharp. The only motorcycle market in the region to see any growth was France which edged up by 0.2 %. Many markets outside Europe also failed to match their prior year performance. In the USA, the largest motorcycle market worldwide, motorcycle sales were 7.3 % down on the previous year. In Japan, the short-fall was 5.8 %. Financial services market in 2008 The worsening economic and financial crisis in 2008 also presented enormous challenges for the financial services sector. Financial services providers were forced to recog- nise huge expenses in the face of a worldwide downturn in economic growth, much higher financing costs and in- creased levels of residual value and credit risk. After credit spreads had narrowed somewhat during the first half of the year, massive losses incurred by numerous financial institutions and the collapse of one of America’s largest investment banks in September triggered wide- spread disruption on the financial markets. Risk spreads subsequently rose sharply, reaching a peak in December. The loss of confidence conveyed by these developments also made it more difficult to supply financial markets with sufficient liquidity. In the area of leasing, several automo- bile financial service providers and fleet operators reacted by increasing prices sharply, confining their operations to specific markets or even withdrawing altogether from the leasing business. 19 Group Management Report Fluctuations in reference interest rates were extreme in 2008. The American reference rate fell during the year from 4.25 % to a historic low (a range of 0 % to 0.25 %). After ini- tially raising its reference interest rate by 0.25 percentage points to 4.25 % in July, the European Central Bank lowered it in stages during the second half of the year to 2.50 %. The Bank of England lowered its reference rate from 5.50 % at the beginning of 2008 to 1.50 % at the beginning of Janu- ary 2009. Developments were also similar in other industrial countries and in numerous emerging market states. The prospect of further reference rate reductions also resulted in a sharp drop in interest rates for contracts with medium- term maturities. The effect of the global economic downturn has also been reflected in a sharp drop in prices on the international used vehicle markets. The increasing number of insolvencies, coupled with the reluctance of consumers and dealers to spend during a period of ongoing uncertainty, resulted in a huge drop in demand for used cars during the second half of 2008.  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 20 Review of Operations Sales volume down on previous year’s high level The car sales volume recorded by the BMW Group in 2008 was influenced – particularly during the second half of the year – by the ongoing financial crisis and the resulting re- luctance of consumers to spend. In total, the BMW Group sold 1,435,876 BMW, MINI and Rolls-Royce cars during the year under report, 4.3 % fewer than in the previous year. Sales of BMW brand cars in 2008 were also adversely af- fected by model life cycle factors relating to the BMW 7 Series and the Z4. The number of BMW brand cars sold in 2008 fell by 5.8 % to 1,202,239 units. The MINI brand recorded a sales volume of 232,425 units, up 4.3 % on the previous year, benefiting amongst other things from the success of the MINI Clubman. The BMW Group sold 1,212 Rolls-Royce cars (+ 20.0 %), enjoying an additional boost when the Rolls-Royce Phantom Coupé became available from autumn 2008 onwards. Lower sales volumes recorded on many markets The downturn in the global economy resulted in a signifi- cant reduction in sales volumes in many countries, partic- ularly in the second half of 2008. In North America, the BMW Group recorded an 8.8 % drop in retail sales for 2008 with 331,798 units sold. This includes 303,639 units sold in the USA, lagging 9.7 % behind the previous year’s performance. In Europe, the impact of the financial crisis was mostly felt from mid-year onwards. Negative trends in Western Europe could not be fully offset by positive growth rates in Eastern Europe, which in some cases, were still quite strong. In total, the BMW Group sold 864,583 BMW, MINI BMW Group Deliveries of automobiles by region and market BMW Group – key automobile markets 2008 as a percentage of sales volume Other USA Spain France China Germany Italy United Kingdom USA Germany United Kingdom Italy 21.1 19.6 10.6 6.3 China France Spain Other 5.3 4.9 4.2 28.0 and Rolls-Royce brand cars in 2008, 3.8 % fewer than one year earlier. In Germany, the sales volume of 280,915 units meant that the previous year’s level was matched despite the exceptionally difficult business climate in 2008 (2007: 280,938 units). By contrast, the number of cars sold in the United Kingdom dropped sharply to 151,527 units (– 12.8 %). Sales were also down in Italy and Spain. With 90,470 units sold in Italy, the sales volume was 15.4 % down on the pre- vious year. In Spain, the number of cars sold fell by 18.1 % to 59,658 units. In France, however, the BMW Group regis- tered strong growth in 2008, with the sales volume up by 8.3 % to 70,516 units. This was also due to the fact that the in 1,000 units 1,600 1,400 1,200 1,000 800 600 400 200 Rest of Europe North America Germany Asia United Kingdom Other markets Rest of Europe North America Germany Asia United Kingdom Other markets 04 299.7 315.9 283.6 106.4 145.3 57.8 05 350.8 329.0 295.9 125.7 156.2 70.4 06 375.0 337.4 285.3 142.2 154.1 80.0 07 443.6 364.0 280.9 159.5 173.8 78.9 08 432.2 331.8 280.9 165.7 151.5 73.8 Total 1,208.7 1,328.0 1,374.0 1,500.7 1,435.9 21 Group Management Report taxation of vehicles in France is already emissions-based, thus allowing the BMW Group to profit to a high degree from its Efficient Dynamics technology. In Asia, some individual markets developed positively, with the BMW Group achieving a total sales volume of 165,745 units in this region, 3.9 % up on the previous year. Even though growth on the Chinese markets (China, Hong Kong and Taiwan) weakened during the second half of the year, the sales volume on a full-year basis rose by 23.3 % to 75,481 units. In Japan, by contrast, the number of BMW Group vehicles sold (48,848 units) was well down (– 19.2 %) on the previous year. BMW sales volume influenced by model life cycle factors In 2008, the sales volume performance of the BMW brand was affected by global economic developments and model life cycle factors. Sales of the BMW 1 Series in 2008 rose sharply (+ 35.8 %) to 225,095 units, mainly due to the availability of additional model variants since mid-2007. The perform- ance of the BMW 3 Series in 2008 was adversely affected by the life cycle impact of the Sedan and Touring variants. The revised versions of these two variants did not become available to customers until autumn 2008. In total, 474,208 units of the BMW 3 Series were handed over to customers in 2008, a decrease of 14.6 % on a year-on-year basis. Deliveries of BMW automobiles by model variant in units 2008 2007 Change in % Proportion of BMW deliveries 2008 in % BMW 1 Series Three-door Five-door Coupé Convertible BMW 3 Series Sedan Touring Coupé Convertible BMW 5 Series Sedan Touring BMW 6 Series Coupé Convertible BMW 7 Series BMW X3 BMW X5 BMW X6 BMW Z4 Series Coupé Roadster 49,559 122,666 26,304 26,566 225,095 246,231 93,191 79,248 55,538 30,984 133,525 1,287 7 165,803 310,278 102,399 89,572 52,970 474,208 555,219 156,825 45,462 202,287 8,337 7,962 16,299 181,534 49,311 230,845 9,967 9,659 19,626 60.0 – 8.1 – – 35.8 – 20.6 – 9.0 –11.5 4.8 –14.6 –13.6 – 7.8 –12.4 –16.4 –17.6 –17.0 38,835 44,421 –12.6 84,440 111,879 – 24.5 116,489 120,617 – 3.4 26,580 – – 4,035 13,971 18,006 8,361 20,022 28,383 – 51.7 – 30.2 – 36.6 18.7 39.5 16.8 1.4 3.2 7.0 9.7 2.2 1.5 BMW total 1,202,239 1,276,793 – 5.8 100.0  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 22 The BMW 5 Series registered a 12.4 % decrease in sales volume, with 202,287 units sold in 2008. The BMW 6 Series, of which 16,299 units were sold, also fell short of its prior year performance (– 17.0 %). Both the BMW 7 Series and the BMW Z4 were in the final stages of their life cycles in 2008. This resulted, as ex- pected, in lower demand. The BMW 7 Series was handed over to 38,835 customers in 2008 (– 12.6 %). The new BMW 7 Series has been available since November 2008. The BMW Z4 recorded a sales volume of 18,006 units in 2008 (– 36.6 %). The new model was presented in December 2008 and will be launched on the markets in spring 2009. The number of BMW X3 sold dropped by 24.5 % to 84,440 units, partly as a result of the BMW Group’s targeted management of the number of cars sold on the US market. Sales figures for the BMW X5 did not quite match the pre- vious year’s performance, with the sales volume down by 3.4 % to 116,489 units. The BMW X6, which has been avail- able on the markets since spring 2008 was handed over to 26,580 customers during the period under report. Proportion of diesel-powered BMW cars remains at high level The proportion of diesel-powered BMW brand cars rose by two percentage points to 43 % in 2008. The diesel propor- tion for Europe as a whole was 70 %. In Portugal, the diesel proportion was as high as 96 %. Diesel-powered BMW cars are also extremely popular in France (92 %), Belgium and Luxembourg (91 %) and Italy (89 %). Deliveries of MINI automobiles by model variant in units Deliveries of BMW diesel automobiles in 1,000 units and as a percentage of total volume 700 600 550 500 450 400 350 300 04 05 06 07 08 units 352.5 438.3 472.7 525.9 511.2 as a percentage of total volume 34 39 40 41 43 Since the end of 2008, diesel BMW brand cars have also been available in the USA. The BMW Group therefore fore- casts that the proportion of diesel engines in the BMW fleet will continue to increase. Increase in MINI sales volume The BMW Group sold a total of 232,425 MINI brand vehicles worldwide in 2008, corresponding to a growth rate of 4.3 %. Despite difficult business conditions, the MINI brand was therefore able to set a new sales volume record. The MINI brand continued to generate a high-value prod- uct mix in 2008. Overall, 13.5 % of customers opted for the 2008 2007 Change in % Proportion of MINI deliveries 2008 in % MINI One Cooper Cooper S MINI Convertible One Cooper Cooper S MINI Clubman Cooper Cooper S 27,154 91,695 43,286 162,135 4,100 11,706 7,402 23,208 31,741 15,341 47,082 25,445 104,432 52,976 182,853 6,257 16,686 12,165 35,108 3,556 1,358 4,914 MINI total 232,425 222,875 6.7 –12.2 –18.3 –11.3 – 34.5 – 29.8 – 39.2 – 33.9 – – – 4 .3 69.8 10.0 20.2 100.0 23 Group Management Report MINI brand cars in 2008 – analysis by model variant Automobile production of the BMW Group by plant in 2008 as a percentage of total MINI brand sales volume in 1,000 units MINI One Graz 2 Shenyang 1 Goodwood Rosslyn Leipzig Regensburg MINI Cooper S Spartanburg Dingolfing MINI Cooper (including Cooper D) MINI Cooper MINI Cooper S (including Cooper D) 58.1 MINI One 28.4 13.5 Regensburg Dingolfing Munich Oxford 274.0 241.3 235.0 202.9 170.7 Leipzig Rosslyn Goodwood Shenyang1 Graz (Magna Steyr) 2 150.0 48.0 1.4 33.7 82.9 Oxford Munich Spartanburg 1 Joint venture 2 Contract production 1,439,918 BMW, MINI and Rolls-Royce brand cars were manufactured by the BMW Group’s worldwide produc- tion network, a reduction of 6.6 % on a year-on-year basis. The BMW brand accounted for 1,203,482 units (– 7.6 %). A total of 235,019 MINI brand cars left the Oxford plant in England during the year under report, a reduction of 1.1 %. This was partially due to the fact that production of the previous MINI Convertible came to an end in August 2008 and production of the new MINI Convertible did not com- mence until December. A total of 1,417 Rolls-Royce vehicles were manufactured in Goodwood, England in 2008, corresponding to a pro- duction volume increase of 37.7 % over the previous year. Since summer 2008, the new Rolls-Royce Phantom Coupé is also being manufactured at the Goodwood plant. 2008 2007 644 431 137 1,212 757 253 – 1,010 Change in % –14.9 70.4 – 20.0 MINI One, more than half for a MINI Cooper (58.1 %) and 28.4 % for a MINI Cooper S. Sales of the MINI Convertible fell in 2008 due to model life cycle factors. This, however, was more than offset by the success of the MINI Clubman. The new MINI Convertible celebrated its world debut at the Detroit Motor Show in January 2009 and will be availa- ble to customers from spring onwards. Rolls-Royce records strong growth Rolls-Royce Motor Cars recorded strong sales volume growth (+ 20.0 %), handing over 1,212 Phantom, Phantom Drophead Coupé and Phantom Coupé vehicles to cus- tomers in 2008. The Rolls-Royce brand therefore achieved its fifth successive annual sales volume increase and re- mains the most successful manufacturer in the super-luxury segment. Since its market launch in autumn 2008, a total of 137 units of the Rolls-Royce Phantom Coupé have been handed over to customers. Car production volume reduced on year-on-year basis The BMW Group reduced production volumes in 2008 in line with lower demand on the car markets. In total, Deliveries of Rolls-Royce automobiles by model variant in units Rolls-Royce Phantom (including Phantom Extended Wheelbase) Drophead Coupé Coupé Rolls-Royce total  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 24 Highly adaptable production network As a result of the reduction in global car sales volumes, the BMW Group’s production network manufactured fewer vehicles than originally planned in 2008. Even though a very large proportion of cars under production are subject to specific customer orders, production volume has been adapted even more stringently to market demand. Further- more, instruments such as flexible working hours and shift models made it possible to implement reduced produc- tion schedules to suit each individual plant. The consistent value-added approach adopted resulted in further process optimisation during the year. As a result, the targeted 7 % to 8 % annual improvement in cost productivity was achieved once again. The BMW Group launched a total of seven new models in its various plants in 2008, two of which were revised models. Production of the revised BMW 3 Series Sedan and revised BMW 3 Series Touring commenced at the BMW Munich plant in 2008. Working closely with the MINI plant in Oxford, approximately 500 units of the MINI E were manufactured in Munich. Since the beginning of 2009, these cars have been tested in day-to-day use by selected customers in the USA. The production of the MINI E enabled valuable know- how in the use of lithium-ion technology to be gained at the Munich plant. In September 2008, the chassis and powertrain component production unit at the Dingolfing plant received the “Best Plant in Europe” award for the outstanding quality of its management system. In January 2008, the five-millionth BMW 5 Series vehicle (now in its fifth generation) rolled off the production line at the BMW plant in Dingolfing: it was a 530d Sedan. Production of the new BMW 7 Series began successfully in autumn. The high number of tech- nical innovations in this car placed particularly high de- mands on the various production units involved. Each of the production units at the Landshut plant played its part in the successful production start-ups of the various new and revised models in 2008. The Interior department saw the commissioning of a new production line with inno- vative injection moulding machines for the manufacture of cockpits for the new BMW 7 Series. One of the year’s high- lights for the Exterior department was the introduction of a special cleaning plant, for the first time allowing large parts of the outer body skin area to be cleaned. Thus simplifying processes and minimising throughput times. Above all, the new system also greatly reduces energy costs and avoids wastewater entirely. The introduction of inorganic sand core technology for series production underlines the high technological manu- facturing standards applied in the light alloy foundry. This production method – using mineral binders which cause practically no smell or emissions – has vast benefits both for employees and for the environment. It also increases yield while simultaneously reducing maintenance costs and optimising tool utilisation times. By 2010, the entire foundry at the Landshut plant will have been converted to the use of inorganic sand core technology. At the BMW Regensburg plant, the four-millionth vehicle to be manufactured since the plant was commissioned in 1986 rolled off the production line at the end of May 2008. Key milestones in 2008 included the production start-up of the new BMW M3 Convertible and that of the revised BMW 3 Series Sedan. Work on the extension of the press- ing plant, which began in 2007, continued according to schedule in 2008. The BMW Group is investing a total of euro 90 million on the extension which will be taken into operations in autumn 2009. From 2009 onwards, the new BMW Z4 will be manufactured at the Regensburg plant. The installation of the necessary equipment, involving capital expenditure in the region of euro 100 million, was begun in 2008. Four different BMW models are currently being produced at the BMW plant in Leipzig: the BMW 3 Series Sedan, the BMW 1 Series three-door version, the Coupé and the Convertible. At the end of May 2008 a “topping out” cere- mony was held at the BMW Leipzig plant for the new pressing plant which is adjoined to a component produc- tion unit for doors, front hatches and rear hatches. The BMW Group is investing approximately euro 100 million in this extension project which is to be commissioned by the end of 2009. With the BMW X6 also now included in its production pro- gramme, more than 170,000 vehicles were produced for the first time at the Spartanburg plant in the USA in 2008. Work began in spring on the large-scale extension of the plant and is scheduled to take several years. The BMW Group is investing the equivalent of some euro 510 million in this project which also includes the construction of a new paint shop and an additional assembly building. Production of the BMW Z4 at the Spartanburg plant was discontinued mid-2008 and its successor will be manufactured at the BMW plant in Regensburg. In its place, the next generation of the BMW X3 will be produced in Spartanburg and the plant will become the main production centre for the BMW X family. The first of the revised BMW 3 Series Sedans rolled off the production line at the BMW plant in Rosslyn, South Africa in 2008. The proportion of vehicles produced for the export market at the plant during the reporting year rose further to stand at 83 %. At the end of October 2008 a milestone was reached in the production of engines at the BMW plant in Steyr, Austria: 25 Group Management Report The first “two-working-day engine” was supplied by the BMW Steyr plant to the BMW car plant in Dingolfing. The continuous improvement of production and logistics processes has now made it possible to reduce the through- put time from the installation of the first engine compo- nent to the commencement of assembly at BMW car plants in Germany to only two days. With this remarkable throughput time, the BMW Group is setting new stand- ards for production efficiency in the automotive industry. In December, the expansion of the BMW development centre for diesel engines in Steyr was commissioned with a total investment volume of euro 14 million. The focus is on increasing capacities in the area of vehicle measurement technology and function testing. Series production of the new six- cylinder diesel engine began at the BMW plant in Steyr in 2008. This diesel engine is a component in the BMW Group’s Efficient Dynamics package. Engines for both the BMW and the MINI brands are pro- duced at the Hams Hall plant in the United Kingdom. In to- tal, 371,269 engines were manufactured at the plant in 2008. 189,284 of these were produced for BMW brand cars and 181,985 for MINI brand cars. More than 1.5 million engines have been built at Hams Hall since the plant was commis- sioned in January 2001. Activities at the Rolls-Royce Goodwood plant in 2008 were primarily geared towards preparations for the new model announced for 2010. The BMW Group is investing a total of euro 50 million in the expansion of the plant. The work in- cludes the installation of a second assembly line as well as the extension of the paint, wood and leather workshops. Motorcycle sales volume at previous year’s level The BMW Group sold a total of 101,685 BMW motorcycles in 2008 and therefore almost achieved the same sales volume level as in the previous year (– 0.8 %), despite the overall contraction of the market. The positive perform- ance by comparison with the competition was helped in particular by the availability of the R 1200 GS (including the Adventure version), F 650 GS and F 800 GS enduro models from spring 2008 onwards. Divergent sales volume performance on the markets In total, 71,889 BMW motorcycles were sold in Europe in 2008, only marginally (– 0.9 %) fewer than one year earlier. Within the region, however, the individual markets con- tinued to perform divergently. The BMW Group set itself apart from these negative market developments in many countries and increased market shares. This success was largely due to the ongoing new model initiative. In Ger- many, which is the largest single market for BMW motor- cycles, the sales volume dropped sharply to 18,571 units, a decrease of 13.7 % against the previous year. There was also a moderate fall in the number of motorcycles sold in Spain, with the sales volume slipping by 2.2 % to 10,152 units. Sales of BMW motorcycles in other European countries were well up on the previous year, in some cases quite con- siderably. The 8,211 motorcycles handed over to customers in France corresponded to a 7.9 % sales volume increase. More motorcycles were also sold in the United Kingdom (5,618 units / + 7.0 %) and Italy (15,049 units / + 4.3 %) than in 2007. In the USA, the BMW Group recorded a sales volume of 11,617 units, 3.9 % down on the previous year’s performance. This was mainly due to the fact that the F 650 GS and the F 800 GS did not become available on the US market until the second half of the year (and hence later than in Europe). The Motorcycles segment’s sales in Japan followed the general market trend. The BMW Group sold 3,015 motorcy- cles on this market in 2008, an 8.9 % drop on a year-on-year BMW motorcycles delivered in 1,000 units 110 105 100 95 90 85 80 04 05 06 07 08 * 92.3 97.5 100.1 102.5 101.7 * excluding Husqvarna Motorcycles (13,511 motorcycles)  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 26 comparison. The F 800 GS did not become available to customers until January 2009. BMW motorcycles in 2008 – analysis by series as a percentage of sales volume K Series F Series R Series R Series F Series 55.5 32.8 K Series 11.7 were manufactured during the period under report (– 0.2 %). Production at the Berlin plant increased by 6.2 % to 101,964 units, while the number of motorcycles manufactured by the cooperation partner, Piaggio S. p. A. in Noale, Italy, de- creased by 73.1 % to 2,256 units. Numerous models came off the production lines for the first time at the Berlin plant in 2008 in conjunction with the segment’s new model initiative, including three K-Series models (K 1300 S / R / GT), the HP2 Sport and the G 450 X. Numerous new models launched / presented The Motorcycles segment expanded its product range further in 2008, introducing several new models to the markets. The revised versions of the R 1200 GS and R 1200 GS Adventure enduro models, the new F 800 GS and F 650 GS enduros and the high-performance HP2 sports bike all became available to customers in time for the start of the season in March. The G 450 X, an enduro designed specifically for sports activities, was launched in autumn 2008. Other new models were presented at the world’s largest motorcycle show, INTERMOT, in October: the K 1300 S sports bike, the K 1300 R urban bike, K 1300 GT tourer and the racing version of the S 1000 RR. More new models were presented to the public for the first time during the Italian EICMA Motorcycle Fair in November, including the new F 800 R urban bike and the purist concept study, the BMW Custom Concept. The K 1300 Series models have been available since the beginning of February 2009, the F 800 R from May onwards. The road version of the S 1000 RR will go on sale at the end of the year. Motorcycle production volume at previous year’s level Motorcycle production volume in 2008 was almost at the previous year’s level. In total, 104,220 BMW motorcycles BMW Group – key motorcycle markets 2008 as a percentage of sales volume Other Germany Italy United Kingdom France Spain USA Germany Italy USA Spain 18.3 14.8 11.4 10.0 France United Kingdom Other 8.1 5.5 31.9 27 Group Management Report Financial Services segment severely affected by economic crisis The worldwide economic and financial crisis affected earn- ings of the Financial Services segment in 2008 more se- verely than expected. Above all else, the tense situation on the international used car markets and the higher level of bad debts risk necessitated the recognition of substantial expenses for risk provision. For a current assessment of risk in the financial services business, reference is made to the risk report on pages 64 – 65. The business volume in balance sheet terms at 31 Decem- ber 2008 amounted to euro 57,587 million and therefore increased by 12.3 % on a year-on-year basis. 3,031,935 lease and credit contracts were in place with dealers and retail customers at 31 December 2008, 15.3 % more than at the end of the previous reporting period. The increase was due, amongst other reasons, to the repurchase of a previously off-balance-sheet port folio of vehicles which had included a part of the leasing business for Germany. The proportion of new BMW Group cars leased or financed by the Finan- cial Services segment in 2008 went up by 3.8 percentage points to 48.5 %. Targeted regional expansion continued The Financial Services segment continued its strategy of targeted regional expansion in 2008. In October 2008, an agreement was signed with BMW Brilliance Automotive Ltd., Shenyang, concerning the establishment of a joint venture for financial services products in China. In conjunc- tion with a cooperation agreement with Nordea Finance, a subsidiary of Scandinavia’s largest bank, Nordea Bank, financing products have also been available to retail cus- tomers in Estonia, Latvia and Lithuania since July 2008. During the first half of the year, the Financial Services seg- ment received its banking licence for Russia. Retail cus- tomer financing operations were commenced on this mar- ket in July 2008. Study bears out retail customer and dealer satisfaction The internationally renowned market research institute, J. D. Power and Associates, published the results of its Consumer Financing Satisfaction StudySM 2008 in December 2008. The BMW Group’s Financial Services segment took first place in both award categories for customer satisfaction in the USA. In the Dealer Financing Satisfaction StudySM 2008 pub- lished in September 2008, the segment headed all cate- gories for dealer satisfaction in the USA. These awards acknowledge the quality of services provided by the BMW Group to retail customers and dealers in the area of finan- cial services. Retail customer business continues to expand Credit and lease business with retail customers, the seg- ment’s largest line of business, again grew strongly in 2008. The value of new contracts signed with retail customers in 2008 amounted to euro 29,341 million, representing a 3.1 % increase over the previous year. 1,197,871 new contracts were signed in 2008, 10.3 % more than one year earlier. Well over half of these contracts related to new vehicles manu- factured by the BMW Group. Lease contracts accounted for 34.2 % of new business with retail customers. This was 4.0 percentage points down on the previous year and is the result of a targeted shift in focus towards credit financing. In terms of new contracts, lease business was 1.4 % lower and credit finance business was 17.5 % higher than in the previous year. In the area of used car financing, the number of new con- tracts rose by 22.2 %. Almost three quarters of these related to the credit financing of used BMW and MINI brand cars. At the end of the reporting period, the Financial Services segment had a portfolio of 2,785,509 contracts with retail customers, 16.0 % more than one year earlier. The number of contracts in place with retail customers in Germany rose by 19.4 %, partly due to the repurchase of a previously off-balance-sheet port folio of vehicles which had included a part of the leasing business for Germany. The contract portfolio in the remaining European markets grew by 13.9 % and in the Asia / Oceania / Africa region by 14.1 %. The Americas region, with 916,509 contracts, continues Contract portfolio of BMW Group Financial Services in 1,000 units 3,000 2,800 2,600 2,400 2,200 2,000 1,800 04 05 06 07 08 1,843 2,087 2,271 2,630 3,032  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 28 Contract portfolio retail customer financing of BMW Group Financial Services 2008 as a percentage by region Asia / Oceania / Africa Germany America Rest of Europe America Rest of Europe 32.9 27.5 Germany Asia / Oceania / Africa 26.6 13.0 to constitute the largest proportion of the contract portfo- lio. Here, the growth rate compared to one year earlier was 15.9 %. Dealer financing volumes up The Financial Services segment supports the BMW Group dealer organisation with a comprehensive range of prod- ucts. Dealer financing business increased in 2008. At 31 De- cember 2008, the managed business volume stood at euro 8,887 million, up 6.3 % against the previous year. In total, 246,426 dealer financing contracts were in place at the end of the reporting period. Multi-brand financing business up on previous year The multi-brand financing line of business was further ex- panded in 2008. Under the brand name “Alphera”, credit financing, leasing and other products are marketed to retail customers via dealerships in 25 markets. In the previous year, the “up2drive” brand name was successfully intro- duced for direct business. This sales channel was further expanded in four markets during the year under report. In total, 172,317 new business multi-brand financing con- tracts were signed in 2008, 38.3 % more than in the previous year. The largest proportion of new contracts related to the Americas and Asia / Oceania / Africa regions. Fleet business continues to grow The BMW Group’s international brand-neutral fleet busi- ness operates in the fields of financing, full-service leasing and fleet management, offering its services under the brand name “Alphabet”. The contract portfolio for fleet business continued to grow in 2008 despite difficult mar- ket conditions. At the end of the reporting period, fifteen Alphabet fleet management entities were managing a portfolio of 322,755 contracts worldwide, 15.3 % more than one year earlier. Alphabet was thus able to strengthen its market position further. Sharp volume rise in deposit business Despite the difficult climate caused by the financial and economic crisis, the Financial Services segment’s deposit volume totalled euro 8,209 million at the end of the report- ing period. This was 43.2 % higher than the level one year earlier. The number of securities custodian accounts maintained at the end of the reporting period totalled 31,681, roughly in line with the previous year (– 0.4 %). Credit card business could not be maintained at the pre- vious year’s level. The managed portfolio comprised 355,606 BMW and MINI credit cards at 31 December 2008, a decrease of 9.7 %. The BMW Card is included in the product portfolio in ten countries and the MINI Card in four. Growth in insurance business In addition to credit financing and lease business, the Finan- cial Services segment also operates as an agent for vehi- cle and mobility-related insurance products in more than 30 markets. In this context, the Financial Services segment maintains cooperative arrangements with local insurance companies. The internationalisation of the retail customer insurance line of business was continued in 2008. The range of combined insurance and financing products was ex- panded and adapted to meet a growing demand amongst customers for one-stop solutions. The outcome of these measures was that the number of new business insurance contracts increased by 25.0 % to 493,672 contracts. During the course of 2008, the port- folio of insurance contracts exceeded the one million mark for the first time. 1,146,967 contracts were in place at 31 De- cember 2008, 21.1 % more than at the end of the previous year. Financial and economic crisis influences risk situation Credit and lease business was exposed to a higher level of credit risk in 2008. Compared to the previous year, the bad debts ratio rose by 13 basis points to 0.59 %. 29 Group Management Report The interest rate risk is managed within the Financial Services segment using a risk-return approach. Diversified value-at-risk *, as measured to quantify the interest rate risk, increased during the year from euro 37.3 million to euro 51.0 million. * Based on a 99 % confidence level and a holding period of 10 days BMW Group Employees Automobiles Motorcycles Financial Services Other thereof consultancy / software BMW Group Size of workforce reduced The BMW Group’s workforce was reduced by 7,498 em- ployees (– 7.0 %) during the financial year 2008 to stand at 100,041 employees at 31 December 2008. This is largely due to the implementation of previously reported meas- ures to reduce the size of the workforce and the sale of business units in 2008. The workforce reduction pro- gramme resulted in a sharp rise in the employee fluctua- tion ratio at BMW AG. Despite the overall reduction in personnel, the BMW Group nevertheless recruited staff on a targeted basis in 2008. In addition to the recruitment of almost 1,200 new appren- tices, 226 permanent posts were also filled during the course of the year at BMW AG. Approximately 74 % of the BMW Group’s workforce is employed in Germany. Number of apprenticeships remains high 1,177 young people started their apprenticeships with the BMW Group at the beginning of the training year 2008. The number of apprentices recruited has been consistently BMW Group Apprentices at 31 December 5,500 5,000 4,500 4,000 3,500 3,000 2,500 04 05 06 07 08 4,464 4,464 4,359 4,281 4,102 31.12. 2008 31.12. 2007 92,924 2,917 4,077 123 – 98,548 2,989 4,097 1,905 1,793 100,041 107,539 Change in % – 5.7 – 2.4 – 0.5 – 93.5 – – 7.0  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 30 on a high level for many years. At the same time, due to their good performance, many apprentices were able to shorten their training periods, resulting in decreased num- bers in statistical terms at the year-end. The BMW Group employed 4,102 apprentices at 31 December 2008, 4.2 % fewer than one year earlier. BMW AG’s apprenticeship ratio in Germany (i. e. the ratio of apprentices to the total workforce) increased slightly in 2008 by 0.2 percentage points to 5.0 %. Starter programmes for high school leavers and university graduates are also in place to complement the range of opportunities available to those about to start their careers with the BMW Group. Focused basic and further training As a premium provider, the BMW Group attaches great im- portance to both the basic and the further training of its workforce. Further training is always tailored to suit require- ments and carried out with specific objectives in mind. The BMW Group continued to invest at a high level during the financial year 2008. In response to difficult business conditions, the BMW Group’s further training activities were focused on selected target groups and specific priority topics in 2008. As a consequence, total expenditure of euro 154 million was 14.9 % lower than in 2007. Demand for positions abroad remains strong The international transfer of know-how and networking at all levels are crucial factors for businesses such as the BMW Group. In view of this fact, specialists are, for exam- ple, specifically sent to various manufacturing sites when production start-ups commence for new models, thus ensuring a consistent level of high quality during each start- up throughout the entire production network. An increas- ing number of employees are also taking on international duties within the development and purchasing network. During the year under report, more than 650 BMW AG employees worked outside their home country, Germany. The main targets were North America, the United Kingdom and China. Furthermore, approximately 175 employees from non-German BMW Group locations were on assign- ments in Germany or at international sites away from their home countries. Employees on longer-term placements spend an average of two-and-a-half years abroad. 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. Employee fluctuation ratio BMW AG1 as a percentage of workforce 7.0 6.0 5.0 4.0 3.0 2.0 1.0 04 05 06 07 08 1.91 2.45 2.68 2.66 5.85 2 1 Number of employees on unlimited employment contracts leaving the company 2 after implementation of previously reported measures to reduce the size of the workforce Attractiveness as employer confirmed The BMW Group continued to be amongst the most at- tractive employers in 2008. This fact was underscored by numerous studies and ranking lists. In the study entitled “Germany’s Most Popular Employers” (Trendence), young academics from business and engineering fields judged the BMW Group to be one of the most popular employers in Germany. Another study, the “Universum Student Survey 2008” (Universum) also came to the same conclusion; further confirmation of the fact that the BMW Group has an excellent reputation amongst business and engineering students. “Today for Tomorrow” project – taking a proactive approach to demographic realities The ageing of society affects the economy as a whole as well as each individual company. The BMW Group is there- fore consciously taking up the challenges of demographic change with an awareness of the opportunities it offers. The cornerstone for maintaining the ability of the BMW Group’s workforce to perform with the appropriate set of skills was laid in the wide-ranging project “Today for Tomorrow”. The project was divided into five main areas of action: health management and preventative care, quali- fications and skills, work environment, individual working- life time models and communication. During the second half of 2008, further steps were taken in successfully imple- menting the results of the project within the organisation. Amongst a wide range of measures taken, a great deal of effort was expended in 2008 to adapt production systems greater consideration is given to the contribution made by an individual when determining the overall level of remu- neration. This approach takes better account of the under- lying principle of performance and reward and is also an effective way of motivating managers to meet their targets. In future, annual bonuses will be linked to the post-tax re- turn on sales, the net profit and the dividend level. Growth and profitability strategies are therefore now directly linked to the level of management remuneration at BMW AG. Internationalisation of personnel activities The Excellence in Human Resources (EHR) programme in place since 2002 has consistently improved the efficiency of the personnel and human resources function within the BMW Group. An important objective of EHR is to ensure that employees receive efficient service and competent advice from members of the human resources department and a swift response to their enquiries. Based on the experiences made in Germany, organisational structures, procedures and supporting IT systems were adapted for international use and successfully introduced in the United Kingdom in November 2008. A system is now in place that offers employees at the Hams Hall, Good- wood and Oxford sites standardised procedures for con- tacting the Human Resources department. Routine and special topics relating to matters such as recruitment and training have also been standardised and can be handled centrally, thus improving efficiency whilst maintaining a high quality of service. The changeover will be completed in the United Kingdom with roll-out of the new system to the Bracknell and Hook sites in 2009. 31 Group Management Report to the ergonomic needs of older employees. A good example of this is the “Work System 2017” pilot project – the only project of its kind currently being carried out with- in the automotive industry. Under this project, the forecast age structure for 2017 has been “reproduced” for everyday work purposes in one production section at the Dingolfing site, thus enabling a targeted evaluation of whether the measures and instruments employed are practical and effective. The aim now is to pass on the know-how gained in the pilot project to other areas of the business, the ulti- mate goal being more suitable technical and organisational working conditions for older employees – particularly in terms of workplaces, working hours and job structures. A new working time model, known as “Full-time Select” was also introduced in 2008, giving employees the option to take additional days off with corresponding reductions in pay. This working time model was well received by the workforce, providing additional scope for employees to structure their own time. Competitive level of personnel expense Maintaining a competitive level of personnel expense plays a major role in the success of the BMW Group, and thus in the securing of jobs. Personnel expense management is therefore gaining in importance in an increasingly competi- tive environment. The BMW Group does not, however, take the one-sided approach of simply focusing on reducing costs. The main emphasis is placed on achieving greater efficiency by increasing productivity. The high degree of motivation amongst the workforce on the one hand and the em- ployee-friendly orientation of the BMW Group on the other are backed up by performance-based and profit-linked remuneration arrangements and flexible working time models. Remuneration, working time rules and other ben- efits are reviewed and adjusted regularly in close coopera- tion with employee representatives. In 2008, for example, the corridor for employees with a BMW time account was widened to + / – 300 hours. The flexibility thus gained gives the BMW Group more scope to adapt production to fluc tuating demand without affecting employees’ pay or personnel expense. New structure for management remuneration The remuneration system for middle and senior manage- ment was restructured in 2008 in an attempt to embed the BMW Group’s new strategic direction in the management remuneration system at BMW AG. Under the new system,  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 32 Further enhancements in environmentally compatible vehicle design The BMW Group again set new milestones in improving the environmental compatibility of its products in 2008. One example of this is the creation of a comprehensive product data system containing details of the material composition of all components used in a vehicle. In May 2008, with the help of this system, the BMW Group became the first carmaker to present a virtual “material balance sheet” (for the new BMW 7 Series) conforming to interna- tional standard ISO 22628. Furthermore, in a large-scale industrial trial, the BMW Group was able to demonstrate that, with the aid of post- shredder technology, BMW Group-manufactured cars are at least 85 % recyclable and up to 95 % recoverable. Un- der the post-shredder method (after vehicles have been dismantled and shredded mechanically), shredder residue fractions are sorted and sifted into their various constituent materials such as metals, plastics and minerals, in prepara- tion for further processing. Thanks to the extensive preparatory work carried out, the BMW Group passed the preliminary tests of the relevant licensing agency in May 2008. The BMW Group therefore complies with the regulations of the European Directive 2005 / 64 / EG on type approval of motor vehicles with regard to their reusability, recyclability and recoverability. The use of recovered materials (recyclates) was also increased in 2008. The proportion of recyclates used in the new BMW 7 Series for instance was increased by approximately 15 % compared to the preceding model. The use of quality-ap- proved recyclates reduces costs and preserves resources while still ensuring compliance with established quality standards. Strict management of environmental care activities The BMW Group applies the “Clean Production” phi- losophy to its production activities. In line with this forward- looking commitment to environmental care, the BMW Group endeavours to achieve systematic and consistent reductions in the volume of resources used and to lessen the impact of production activities on the environment. In order to monitor this, environmentally relevant indicators are measured automatically and reported on a monthly basis. The following key indicators – expressed as amounts per vehicle produced – are integral components of the group- wide target system and are managed accordingly: – energy consumption – water consumption – process wastewater – solvent emissions – waste for disposal CO2 emissions per vehicle produced are also recorded based on the amount of energy consumed and the energy mix used. The target for the global production network is to reduce these key indicators by 30 % between 2006 and 2012. This entails achieving an average reduction of 5 % p. a. These targets can, however, vary as a result of model production start-ups, discontinuations or changed production vol- umes. The reduction across all key indicators is additionally examined on the basis of an Environmental Efficiency Ratio (EER). The EER computation for 2008 showed that the improvement in resource efficiency remained within the agreed target corridor. Energy consumed per vehicle produced in MWh / vehicle CO2 emissions per vehicle produced in t / vehicle 3.10 3.00 2.90 2.80 2.70 2.60 1.05 1.00 0.95 0.90 0.85 0.80 04 05 06 07 * 08 04 05 1 06 07 2 08 2.94 2.94 2.90 2.78 2.80 0.94 0.99 0.94 0.84 0.82 * Basis for data expanded in 2007 from ten to 17 locations. Until 2006: Munich, Dingolfing, Landshut, Regensburg, Leipzig, Steyr, Rosslyn, Spartanburg, Hams Hall, Oxford. Since 2007: Berlin (brake disc production), Eisenach, Swindon, Goodwood, Rayong (assembly), Chennai (assembly) and BMW Brilliance in Shenyang. 1 The increase is attributable to a change in the energy mix. 2 Basis for data expanded in 2007 from ten to 17 locations. Until 2006: Munich, Dingolfing, Landshut, Regensburg, Leipzig, Steyr, Rosslyn, Spartanburg, Hams Hall, Oxford. Since 2007: Berlin (brake disc production), Eisenach, Swindon, Goodwood, Rayong (assembly), Chennai (assembly) and BMW Brilliance in Shenyang. 33 Group Management Report Fewer resources, lower emissions Energy savings totalling more than 650,000 MWh achieved throughout the BMW Group reduced energy costs by approximately euro 35 million in 2008. The reduction of other key indicators such as water consumption, process water and waste for disposal resulted in savings of approximately euro 1.2 million in the year under report. The groupwide activities undertaken to reduce energy con- sumption have been managed since the beginning of 2007 as part of an international energy project. Energy con- sumption per vehicle produced, at 2.80 MWh, came very close to the previous year’s level of 2.78 MWh. Considering the 6.6 % reduction in vehicle production compared to the previous year, it was only possible to maintain this figure at roughly the previous year’s level by reducing energy consumption volumes in absolute terms. Some of the fac- tors that contributed to the savings were the combined heat and power plants used in the Landshut and Steyr plants as well as the conversion of the heating system to natural gas at the Swindon plant in the United Kingdom. A wide range of analyses and measures to save even more energy were carried out in a pilot project at the BMW plant in Munich in 2008. The know-how gained will now be intro- duced in stages at further locations throughout the pro- duction network. At a series of energy awareness seminars, BMW Group employees in the Berlin, Dingolfing, Leipzig, Munich and Steyr plants were shown how they can make an important contribution towards reducing energy con- sumption at their workplaces. annual energy consumption of a German city of 170,000 in- habitants. In financial terms, the resulting savings amounted to approximately euro 62 million. Most noticeably, the BMW Group was able to reduce its electricity consumption in 2008. Due to the higher CO2 emission factor for electricity compared to that for gas, CO2 emissions per vehicle produced decreased from 0.84 tons of CO2 in 2007 to 0.82 tons in 2008. Water consumption continued to be exceedingly low. In 2008, water consumption per vehicle produced was ap- proximately 2.56 m³ (2007: 2.61 m³). In absolute terms, the BMW Group used 335,000 m³ less water than in the pre- vious year. Process wastewater per vehicle produced in 2008 remained steady at the previous year’s level of 0.64 m³. Here too, the absolute amount was reduced by approxi- mately 68,000 m³. Waste for disposal (i.e. waste that could not be recycled) decreased by more than 8 % compared to the previous year. The figure currently stands at 14.84 kg per vehicle produced. In addition, improved separation and sorting methods increased the proportion of recycled waste, there- by reducing the volume of waste for disposal. Solvent emissions per vehicle produced fell sharply (by almost 17 %) to a new low of 1.96 kg in 2008. Improvements in painting processes at all manufacturing plants were a major contributing factor for this performance. The various energy-saving measures emerging from the international energy project have resulted in total energy savings of approximately 1.1 million MWh groupwide since the beginning of 2007. This is roughly equivalent to the Solvent emissions were also lowered by further reducing the protective coating used on new cars. Overall, approxi- mately 82 % of new vehicles were transported in 2008 without the use of surface protection such as wax, adhesive Water consumption* per vehicle produced in m3 / vehicle Process wastewater per vehicle produced in m3 / vehicle 3.00 2.90 2.80 2.70 2.60 2.50 1.00 0.90 0.80 0.70 0.60 0.50 04 05 06 07 08 04 05 06 07 * 08 3.03 2.60 2.56 2.61 2.56 0.83 0.76 0.67 0.64 0.64 * The indicators for water consumption refer to the production sites of the BMW Group. The water consumption includes the process water input for the production as well as the general water consumption e. g. for sanitation facilities. * Basis for data expanded in 2007 from ten to 17 locations. Until 2006: Munich, Dingolfing, Landshut, Regensburg, Leipzig, Steyr, Rosslyn, Spartanburg, Hams Hall, Oxford. Since 2007: Berlin (brake disc production), Eisenach, Swindon, Goodwood, Rayong (assembly), Chennai (assembly) and BMW Brilliance in Shenyang.  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 34 Waste for disposal* per vehicle produced in kg / vehicle 17.5 15.0 12.5 10.0 7.5 5.0 Volatile organic compounds (VOC) per vehicle produced in kg / vehicle 2.75 2.50 2.25 2.00 1.75 1.50 07 08 04 05 06 07 * 08 16.17 14.84 2.26 2.07 2.04 2.36 1.96 * “Waste for disposal per vehicle produced“ became a performance indicator in 2007 * Basis for data expanded in 2007 from ten to 17 locations. Until 2006: Munich, and has been reported since then. Dingolfing, Landshut, Regensburg, Leipzig, Steyr, Rosslyn, Spartanburg, Hams Hall, Oxford. Since 2007: Berlin (brake disc production), Eisenach, Swindon, Goodwood, Rayong (assembly), Chennai (assembly) and BMW Brilliance in Shenyang. foil or protective covers. One year earlier the equivalent percentage stood at 72 %. In line with the BMW Group’s policy to eliminate the use of surface protection, it was possible to shut down the last remaining car body con- servation facilities. Environmentally friendly transportation solutions The BMW Group also managed to reduce the negative environmental impact caused by transporting goods along the whole chain from purchasing to delivery. The propor- tion of goods transported by air freight to international plants was halved in 2008 by further measures to optimise the supply chain. Accordingly, air freight accounted for only 0.1 % of all goods transported (2007: 0.2 %). The percentage of goods transported by sea freight rose from 76.8 % in 2007 to 79.1 % in 2008. The equivalent percentage for rail fell slightly from 6.9 % in 2007 to 6.3 % in 2008, while that for road was reduced from 16.1 % to 14.5 %. In all, 50.3 % of all new vehicles left the BMW Group’s plants by rail, a reduction of 4.5 percentage points against the previous year. This was partly due to a shift in sales to mar- kets that cannot be supplied by rail. The use of an addi- Roadmap of the BMW Group for sustainable mobility tional harbour in the USA made it possible to reduce the distances travelled by trucks. Sustainable mobility as the goal The BMW Group is aware of its responsibility to protect the climate and is working with great determination on solutions that promote sustainable mobility. The strategy pursued can be subdivided into three phases: 1. The BMW Group is continuously improving the fuel economy of its vehicles with a combination of highly efficient engines, optimised energy management, inno- vative lightweight construction and improved aero- dynamics. 2. In the medium term, the Group is additionally increasing fuel economy by a wide range of measures from electri- fication of the drive train through to hybrid solutions. 3. In the long term, the BMW Group is committed to the forward-looking use of hydrogen gained from renewable sources. Adoption of the Efficient Dynamics strategy. BMW Group cuts fuel consumption in Germany pursuant to VDA agreement of 1990 by 2005 by almost 30 %. Introduction of Efficient Dynamics measures in nu- merous BMW and MINI models. A fleet of approxi- mately 500 purely electrically driven cars, the MINI E, put to the test in everyday traffic conditions. First BMW Group vehicles with hybrid drive. Use of regenerative hydrogen as fuel in motor traffic. 2000 2005 2006 2007 2008 2009 2010 long-term BMW Hydrogen 7 is presented to the public. About 40 % of the BMW Group’s new vehicles in Europe emitting a maximum of 140 g CO2 / km. More than one mil- lion vehicles equip- ped with Efficient Dynamics. BMW Group is pro- viding vehicles for sustainable mobility in densely populated areas. 35 Group Management Report 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 95 90 85 80 75 70 95 96 97 98 99 00 01 02 03 04 05 06 07 08 * 100.0 101.0 102.4 101.0 98.6 96.7 96.7 92.9 92.9 94.8 90.0 88.6 80.0 73.3 * CO2 emissions of newly registered cars in Europe for 2008 stood at 154 grams CO2 per kilometre driven (EU-15) and 156 grams CO2 per kilometre driven (EU-27). Fleet fuel consumption drastically reduced The BMW Group has been working intensively for years to reduce its fleet’s overall fuel consumption. Efficient Dynamics was adopted as many as eight years ago as an all-embracing development strategy. Efficient Dynamics is an innovation package designed to boost fuel economy and reduce CO2 emissions. It includes highly efficient petrol and diesel engines, lightweight construction, im- proved aerodynamics and a sophisticated energy manage- ment system that includes Auto Start Stop and Brake Energy Regeneration functions. These innovations are helping the BMW Group to reduce the fuel consumption of its new cars by up to 23 % compared to the relevant predecessor models. Efficient Dynamics is a global strategy across all models and therefore brings benefits not only for individual niche models but for the entire fleet. Since the beginning of 2009, the emissions of 27 BMW Group models are a maximum of 140 grams of CO2 per kilo- metre driven. This has resulted in the BMW Group reduc- ing CO2 emissions of new cars sold in Europe (EU-15) by almost 27 % between 1995 and 2008. The BMW Group has therefore met its targets under the ACEA voluntary com- mitment. In fact, the BMW Group’s voluntary commitment to reduce the fuel consumption of its EU fleet (EU-15) from 1995 to 2008 by 25 % has already been surpassed by nearly 2 %. CO2 emissions of newly registered cars in Europe (EU-27) in 2008 stood at 156 grams CO2 per kilometre driven. The BMW 118d received the international World Green Car of the Year Award in the USA in 2008. Studies made in the United Kingdom and the USA highlight the extent to which Efficient Dynamics reduces fleet fuel consumption overall. An analysis published by the Clean Green Cars in- ternet service in the United Kingdom showed that the CO2 emissions of newly registered BMW brand cars sold in the first half of 2008 were 11.3 % lower than those sold in the corresponding period one year earlier. The BMW Group thus made more progress in reducing the CO2 emissions of its fleet than any other manufacturer. The latest Environ- mental Defense Report published in the USA in the spring of 2008 came to a similar conclusion. This independent study of the fuel consumption of new vehicles sold be- tween 1990 and 2005 in the USA points out that the BMW Group reduced fleet CO2 emissions by 12.3 % during the period studied. During the same period, the number of cars sold by the BMW Group in the USA quadrupled. Thanks to this performance, the BMW Group is now undisputed leader in the rankings for CO2 emissions reduction. Numerous models fulfil EU5 and EU6 standards The BMW Group is also market leader when it comes to introducing vehicles that comply with the future EU5 emissions standard. By spring 2009, the BMW brand will be selling 49 models that fulfil the EU5 emissions standard. Moreover, the new BMW 330d with optional BMW BluePerformance technology is the first vehicle that already (in model year 2009) complies with the EU6 emissions standard that comes into force from 2014 onwards. BMW AdvancedDiesel with BluePerformance was intro- duced in the USA and Canada in 2008. The first diesel models have been available to customers in North America since December 2008. The BMW AdvancedDiesel with BluePerformance comprises a 3.0-litre straight six-cylinder engine featuring a variable twin turbo and SCR system (Selective Catalytic Reduction) with urea injection. This in-  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 Driving in the long-term with hydrogen In the long term, the BMW Group is committed to the use of renewably produced hydrogen for sustainable automo- bility and continues to pursue its vision of driving without causing CO2 emissions. With the BMW Hydrogen 7, the pioneering use of hydrogen as a source of energy for indi- vidual mobility is already becoming today’s reality. The hydrogen-driven vehicle is powered by a twelve-cylinder engine which generates 191 kW (260 hp). The dual-fuel design allows either hydrogen or petrol to be used in the engine’s combustion chambers. The switch from one operating mode to the other can be made at any time at the push of a button. The world’s first hydrogen-powered luxury sedan for day-to-day use has been produced in a small series of 100 vehicles and made available to a se- lected group of people from politics, business and other areas of society for daily use. By the end of 2008, the BMW Hydrogen 7 had covered more than 3.5 million kilometres across Europe, the USA and other regions of the world. The intensive use of the hydrogen sedan in real-life con- ditions proves that this drive concept is suitable for the challenges of everyday driving and is a real sustainable option for the future. 36 novative drive unit sets new standards for fuel consump- tion and emission reduction. It also complies with the par- ticularly stringent emission limits valid in California and other US federal states. BMW AdvancedDiesel is being offered as a so-called 50-state model (BIN5) throughout the USA. The introduction of BMW AdvancedDiesel represents another important aspect of the Efficient Dynamics strategy designed to reduce fuel consumption worldwide. BMW ActiveHybrid – the next step towards greater fuel economy The use of hybrid technology is enabling the BMW Group to realise potential efficiency improvements. The BMW Group is developing a comprehensive hybrid modular system in order to provide the optimal solution for each model – the Best of Hybrid. The BMW Concept 7 Series ActiveHybrid combines a highly efficient V8 twin turbo petrol engine and an electric drive based on the “Mild Hybrid” concept. The electric drive supports the combus- tion engine in clearly defined driving situations, thus opti- mising the propulsion unit. A newly developed lithium-ion battery serves as the energy storage unit. By contrast, the BMW Concept X6 ActiveHybrid com- bines an eight-cylinder petrol engine and the electric drive with the help of an innovative two-mode active gearbox. Unlike hybrid models that are currently available, BMW ActiveHybrid technology will deliver efficiency benefits not only in city traffic, but also out on the open road. Fuel savings of up to 20 % are possible in comparison to cars powered by conventional combustion engines. The hybrid models of the BMW X6 and the BMW 7 Series will be ready for series production in 2009. Innovative concepts for tomorrow’s mobility The BMW Group continues to work on solutions for sus- tainable mobility. A separate organisational unit (known as “project i”) has been set up as part of the Number ONE strategy to develop new mobility concepts, especially for densely populated areas. The first results of its work – the MINI E electric vehicle – were presented at the Los Angeles Auto Show in November 2008. In a pilot project, approxi- mately 500 all-electric MINI E cars are being tested by selected private and corporate customers in everyday use in the US federal states of California, New York and New Jersey. The MINI E is equipped with a 150 kW (204 hp) electric motor powered by a lithium-ion battery. The car is capable of covering distances of up to 250 kilometres (156 miles). The objective of the pilot project is to gain an understanding of how individual mobility can be organised on the basis of an all-electric vehicle. The findings made and the response of customers will be incorporated into the further development of electric vehicles. 37 Group Management Report Research and development expense at budgeted level In 2008 the BMW Group scaled down its research and de- velopment expense intentionally by 8.9 % to euro 2,864 mil- lion. Detailed disclosures on research and development expenditures are provided in the notes to the Group Finan- cial Statements (Note 11 ). At 5.4 %, the research and de- velopment ratio – research and development expenditures as a percentage of revenues – was 0.2 percentage points lower than in the previous year. This targeted reduction was mainly achieved by means of efficiency improvements to work processes. The rigorous value-added approach adopted ensures that all research and development activi- ties create discernible benefits for the customer. During the year under report, some 9,300 employees worked within the BMW Group’s innovation network at eleven locations in five countries. Driving pleasure without emissions: the MINI E At the beginning of 2009 the BMW Group became the world’s first manufacturer of premium automobiles to de- ploy a fleet of approximately 500 purely electrically driven vehicles for private daily use. The MINI E is powered by a 150 kW (204 hp) electric motor fed by a rechargeable lithium- ion battery which transfers its power almost soundlessly and entirely free of emissions. Specially engineered for automobile use, the lithium-ion battery can be plugged into any conventional power outlet and has a range of up to 250 kilometres. The MINI E exemplifies the BMW Group’s resolve to reduce energy consumption and emissions through targeted development and by drawing on its unique technological expertise in the field of drive systems. Putting some 500 cars on the road under real daily traffic conditions will make it possible to gain widely applicable hands-on experience. These findings will be subsequently factored into the engineering of series-built vehicles. The BMW 7 Series as champion of innovation The launch of the new BMW 7 Series in autumn 2008 saw the debut of numerous technological innovations in a series vehicle. As well as a completely revised range of engines, the new models make full use of lightweight con- struction technology. The BMW 7 Series’ newly developed chassis ensures optimal driving dynamics and comfort. A unique combination of innovative driver assistance systems has been incorporated in the new models. This includes functions such as Lane Departure Warning, Speed Limit Display, Lane Change Warning, Head-up-Display, High Beam Assist, Active Cruise Control with Stop & Go function, Night Vision (for the first time with Pedestrian Detection and Warning system), Side View and Back-up Camera. The new BMW 7 Series also offers maximum occupant safety thanks to its optimised body structure and a comprehensive range of passive safety systems which are electronically controlled and coordinated to react as intended in all situations. Driver assistance systems increase comfort and safety Numerous innovations in the areas of safety and comfort were also introduced for the first time in 2008 with the new BMW 7 Series. Based on an extensive analysis of accidents, an integrated concept was developed, ranging from assistance for the driver in normal driving situations through to automatic emergency calls. Useful functions of the driver assistance systems men- tioned above include Active Cruise Control with Stop & Go capability and Front Collision Warning, Lane Departure and Lane Change Warning and the Night Vision Pedestrian Detection and Warning system. These innovations are successively being integrated into the whole of the BMW Group’s range of cars. The Active Cruise Control with Stop & Go function takes away some of the tasks generally considered less pleasant by drivers such as when driving in stop and go traffic. Ad- ditional radar sensors warn the driver of possible collisions. Within a range of between 30 and 180 km / h, the system will maintain the speed set by the driver and, if required, also regulate the distance kept to the car in front. In critical situations, the driver is made aware of the situation. If the situation becomes more dangerous an acute warning is activated, still giving the driver the opportunity to take action. The Lane Change Warning system monitors the space behind the vehicle over a range of several lanes. When other road users approach from behind in the next lane or if they are already located in the car’s blind spot, the driver is informed of the situation if the car is travelling at more than 50 km / h. A warning is given when the driver intends to change lanes and another vehicle is located in the critical area. The Lane Departure Warning system keeps a check on lane markings for a distance of up to 50 metres. The system is mainly designed for primary routes and motorways. When the driver unintentionally leaves a lane, a warning of the critical situation is given before the vehicle crosses the lane marking. If the lane change is intentional, for example if the indicator has been activated, no warning is given. BMW Night Vision improves visibility in the dark for a dis- tance of up to 300 metres ahead. Any thermal radiation emitted by the surroundings and objects is converted into an image by the vehicle’s infrared camera and shown in the control display. The second generation of the Night Vision  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 presented during the New York International Auto Show, pays tribute to vehicles and technologies that make a measurable contribution to the reduction of emissions symbolising the outstanding environmental awareness of the relevant manufacturer. The recognition gained by the BMW 118d can be largely attributed to the Efficient Dynamics package. In May 2008 the BMW Group won the “International Engine of the Year” award for the fourth successive year. The title was awarded to the 3.0-litre twin-turbo petrol engine, which, as in the previous year, not only won the overall award, but also the 2.5 to 3.0-litre engine category. In total, the BMW Group came first in six of twelve categories, second in a further six categories and third in one category. The BMW Group was therefore, yet again, the most successful com- pany in this engine competition, which is now in its tenth year. In September the BMW Group won the ÖkoGlobe 2008 awarded by DEVK, the ACV Automobile Club and the Center Automotive Research of the University of Gelsen- kirchen in the category “Enhancement of the Combustion Engine”. The award was presented for research into the use of the thermal electric generator, which allows the energy gained from heat loss in the combustion engine to be re-used. In November 2008 the readers of Europe’s largest Sunday newspaper, “Bild am Sonntag”, chose the BMW 1 Series Coupé as the best new vehicle in the coupé class in 2008. The BMW Group was presented with the Golden Steering Wheel for this achievement. 38 system has been expanded to include a Pedestrian De- tection system, which identifies persons via camera and warns the driver of dangerous situations by displaying sym- bols in the control display. The biggest benefit of BMW Night Vision comes at night on unlit country roads where restricted visibility in conjunction with high speeds creates a higher risk of accident. Persons are identified within a distance of approximately 100 metres. Depending on the speed of the car, the driver is warned. The system also gives a warning when persons approach the road from the side. Research into future mobility Vehicle networking is the basis for future driver assistance systems. The main focus for the BMW Group, apart from achieving greater comfort, is on enhancing the driver’s con- trol over the situation and increasing the safety of all road users. Within the international forum of the CAR 2 CAR Communication Consortium, European manufacturers are working on inter-vehicle communication independent of vehicle type. For its part, the BMW Group is showing how the BMW cars and motorcycles in the future will be capable of communicating with vehicles of other manufacturers. Cars will be interlinked with each other via wireless LAN radio contact and able to exchange data with road infra- structure such as traffic lights and road signs. This will en- able car drivers to be informed immediately and in good time of potentially dangerous road traffic situations. The system can help to avoid accidents or reduce their effects, particularly in situations such as tail-ends of traffic jams, road works, accident scenes or slippery road surfaces. In order to exploit the full potential of Car-to-X communi- cation systems with blanket coverage, two preconditions must be met: a joint technological base of operations to determine interface standards and a uniform radio fre- quency. A major milestone has been achieved in terms of standardisation following the recent activation of the 5.9 GHz European frequency band for Car-to-X communi- cation applications (similar to those already existing in the USA and in Japan). Numerous awards for BMW Group’s development work The BMW Group’s research and innovation network again underlined its strength in 2008, receiving numerous awards for its development work. In March 2008 a panel of inter- national automotive journalists voted the BMW 118d as the “World Green Car of the Year”. The award, which was 39 Group Management Report Creating efficient value-added chains The BMW Group’s Purchasing and Supplier Network was driven in 2008 by the desire to achieve sustainable improve- ments along the valued added chain in the areas of quality, innovation, compliance with deadlines and cost. The focus of activities was on reducing production costs whilst im- proving quality. Despite worsening market conditions during the second half of the year, the BMW Group was able, to- gether with its suppliers, to achieve the challenging cost and quality targets that had been set, both for ongoing se- ries products and development projects. High volatility on raw materials markets The price levels of all major raw materials and supplies needed for car production rose again sharply during the first half of 2008 as compared to 2007, creating additional pressure along the whole of the value-added chain. Costs rose substantially, particularly for steel and aluminium as well as for precious metals such as platinum, palladium and rhodium. Hedges already in place for precious metals helped to cushion the immediate impact for the BMW Group. During the second half of the year, the BMW Group took advantage of falling prices to conclude new contracts with medium and long-term price hedges for the coming years. The BMW Group is responding to the increasing signifi- cance and complexity of raw materials procurement by centralising its raw materials management. This will allow it to react even more swiftly and efficiently to price fluctu- ations on raw materials markets in the future. Bundling purchase volumes creates additional synergies in the area of requirements forecasting, whilst also having a positive impact on pricing structures. Natural hedging potential fully used Purchasing production materials, goods for resale, services and investment goods in the currencies of the sales mar- kets in which the BMW Group operates helps to reduce exchange rate exposures. Careful consideration is given when selecting suppliers so that the natural hedging potential is taken full advantage of in the NAFTA region, China and Japan. Selections are made jointly with the in- ternational purchasing network. The course has already been set for a significant increase in foreign currency purchases for the BMW X3 successor and successor models of the current BMW 3 Series. By the same token, favourable cost factors can also be exploited in the relevant procurement markets. Regional mix of BMW Group purchase volumes 2008 in %, basis: production material Asia / Australia Africa Central and Eastern Europe NAFTA Rest of Western Europe Germany Germany Rest of Western Europe NAFTA 45 21 13 Central and Eastern Europe 12 Asia / Australia Africa 6 3 Exploiting internal and external efficiency synergies The BMW Group continued to work closely with its sup- pliers in 2008. Interdisciplinary teams from development, purchasing, production and quality management came together with suppliers to analyse potential opportunities to reduce costs and improve quality along the entire value- added chain. In addition to productivity improvements, the main emphasis was on generating benefits which are relevant for customers and which can be applied across all models. Initiatives were also taken to raise productivity by using common technologies for component production. Analyses of existing systems and processes resulted in significant reductions in the use of space, inventory volumes and throughput times for products. At the same time, quality was improved and costs reduced. Sustainable development and production processes in the supplier network The application of high ecological and social standards and compliance with strict environmental protection requirements are regarded by the BMW Group as ex- tremely important criteria for its suppliers. As part of the process of nominating suppliers, the BMW Group takes care to ensure that the companies involved ad- here to internationally recognised standards of sustain- ability.  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 40 Numerous new models launched The BMW Group continued to expand its model range in 2008. Numerous new or revised BMW brand models were launched over the course of the year. The BMW 1 Series was expanded by the introduction of the Convertible and Coupé models. The BMW M range of vehicles was also increased by two new variants (Convertible and Coupé). The BMW 3 Series Sedan and the BMW 3 Series Touring each received a model revision. The BMW X6 was sold for the first time as a Sports Activity Coupé during the year. The new BMW 7 Series was also launched in 2008. Two new MINI brand models were presented at the begin- ning of 2008: the MINI John Cooper Works and the MINI John Cooper Works Clubman, both of which have been available to customers since summer. Rolls-Royce also expanded its model range. Following the introduction of the Rolls-Royce Phantom Coupé, the Phantom family now comprises four models. BMW Museum reopened After two-and-a-half years of remodelling, the BMW Group reopened the BMW Museum in mid-June. The museum building has been extended so that 120 exhibits displayed in an area of 5,000 m2 give visitors an insight into the history of the company and an authentic experience of the BMW brand. The new museum pursues the original museum philosophy “continuation of the road in a new setting”. Roads and paths connect the seven independent exhibition areas, each of which is dedicated to a different theme. The museum is not only an exhibition hall for unusual cars and motorcycles from almost 90 years of BMW history; it also reflects the dynamics and innovative strength of the BMW brand and of the company as a whole. The newly designed museum had already welcomed 230,000 visitors by the end of the year. BMW Marketing’s main focuses The main focuses for BMW Marketing in 2008 were the continuation of the Efficient Dynamics campaign and the market launch of the new BMW 7 Series. The second major focus of marketing activities was the market launch of the new BMW 7 Series. This model is particularly significant within the BMW brand range of vehi- cles, not least because of its role as a champion of inno- vation. As well as aiming to achieve a good position on the market in a short space of time, marketing activities were also focused on evoking exceptional emotionality. One milestone in these communication activities was the un- veiling of the new BMW 7 Series on the Red Square in Mos- cow: the biggest hourglass in the world was the setting for the BMW 7 Series’ first public appearance on the Russian market – a market crucial to the BMW Group’s activities. MINI John Cooper Works presented The new brand MINI John Cooper Works celebrated its world debut in spring 2008 at the Geneva International Motor Show. Both the MINI John Cooper Works and the MINI John Cooper Works Clubman were presented to the public at this event. In conjunction with the renewed foundation and repositioning of John Cooper Works, the brand image was revised and a new logo designed. A range of communication measures was employed to support the introduction of products onto the market, including a campaign aimed at opinion leaders and an international press event held in summer 2008. The MINI brand an- nounced an addition to the model range when it presented the MINI Crossover Concept at the Paris Auto Show. Rolls-Royce launches the Phantom Coupé The main emphasis of the marketing activities of Rolls-Royce Motor Cars in 2008 was the market launch of the fourth model within the Phantom family: the Phantom Coupé. The world debut of the Phantom Coupé was celebrated at the Geneva International Motor Show. The new model was presented to members of the press in the course of a journey right across Europe, starting in Goodwood and ending in the South of France. In addition, several events were held worldwide with the support of the dealer organi- sation, giving customers the opportunity to get to know the Coupé better. The response to the Phantom Coupé was very positive: two thirds of purchases were first-time customers for Rolls-Royce Motor Cars. The Efficient Dynamics package enabled the BMW brand to assert itself in the premium segment as the market leader for vehicles with low fuel consumption and CO2 emis- sions. More than 800,000 BMW brand vehicles equipped with Efficient Dynamics technology were sold in 2008. Communicating this technical advantage stood at the fore- front of BMW’s marketing activities during the year. Sales organisation restructured In line with the BMW Group’s new strategic direction, sales and marketing activities were focused even more sharply on profitability and greater customer orientation. During the year under report, a decision was reached to aggregate the administrative functions of the financial the introduction of additional BMW ConnectedDrive func- tions. The BMW Group is therefore the first car manufac- turer to offer unlimited access to the World Wide Web via the car’s control display, underlining the pioneering role played in the area of in-car online services. Greater customer orientation is especially important for customer support, which is one of the focal points of the BMW Group’s strategic efforts. Expanding the range of services on offer and implementing other measures not only raised the quality of customer support even further but also opened up growth opportunities for the BMW Group and the dealer organisation. Other activities, such as BMW TeleServices and BMW / MINI Service Inclusive offers, which had already been able to prove their worth, were further expanded in 2008. As well as having attractive products and services, it is a vital aspect of premium customer care to have well-trained sales and service staff in the dealer showrooms. Approxi- mately 34,000 employees attended the BMW Group’s tech- nical and non-technical training courses in 2008. 41 Group Management Report services companies and sales companies in selected markets in order to generate synergies. Parallel to this reorganisation the BMW Group continued to invest in im- portant growth markets. The measures taken also covered dealers worldwide. The BMW Group expanded the dealer organisation in emerg- ing markets such as China and India, whereas streamlining measures were undertaken in the more mature markets. The number of partners in many European markets there- fore decreased. The number of customer services points, however, remained as high as ever, so that customers con- tinued to receive the same high quality of service to which they are accustomed. BMW vehicles are sold via approximately 3,000 dealer show- rooms worldwide. The MINI sales network comprises ap- proximately 1,300 showrooms. Marketing activities continue to emphasise the independence of the different brands. At the end of 2008, MINI had just over 500 and Rolls-Royce 80 exclusive sales and service locations. Tar geted training of dealership staff and consistent application of selling standards ensure that the quality and efficiency of the dealer showrooms remain high. Training courses were held around the world in conjunction with the market launch of the Rolls-Royce Phantom Coupé, giving the dealer organi- sation the opportunity to prepare for the new model and strengthen its commitment to the brand. The BMW Group’s involvement in retail customer business at its own branches is becoming increasingly targeted on strategically important cities, resulting in branch consolida- tion at specific international locations. The implementation of a European strategy for spare parts logistics has brought about improvements in service and efficiency and created the basis for forward-looking, com- petitive logistics structures in Europe. According to a study carried out by the US consultancy Carlisle & Company, the BMW Group’s regional distribution centre in Hanover was the most productive centre in Europe. In the same study, the spare parts logistics operations for BMW, MINI and BMW motorcycles achieved top marks in terms of availability of parts. Greater customer focus at all levels Improving the BMW Group’s customer focus was at the heart of all sales and marketing activities in 2008. The same can be said for product design, as demonstrated by the new iDrive in the latest BMW 7 Series, coupled with  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 42 BMW Stock and Bonds in 2008 Stock markets tumble The worldwide financial crisis worsened in 2008, climaxing – at least for the time being – in the provision of government support to numerous financial institutions and the potential insolvency of whole countries. The ensuing turmoil also took its toll on the markets for goods and services, casting a dark shadow over the world’s major economies, particu- larly during the second half of the year. The world’s leading stock markets lost substantially in value, with volatility at times reaching extremely high levels. The German stock index, the DAX, was unable to escape these developments. Compared to the final day of trading at the end of the previous year, the index lost some 40 % in value, closing the year 2008 at 4,810.20 points (28 December 2007: 8,067.32 points). Due to one exceptional factor, the Prime Automobile sector index performed slightly better than the DAX, closing on the last day of trading 35.3 % down at 508.42 points (28 December 2007: 785.54 points). The Dow Jones EURO STOXX 50 ended the year 44.3 % down. The negative developments on the stock market were also reflected in the performance of BMW stock. BMW com- mon stock closed at euro 21.61 on the last day of trading of 2008, 49.0 % below its level a year earlier. Despite this sharp drop, BMW common stock was – against the background of an exceedingly difficult year for the stock markets – one of the best performers amongst European car manufac- turers in 2008. BMW preferred stock finished 2008 with a market price of euro 13.86, down 61.8 % on a year earlier. Authorisation to buy back shares of common stock extended At the Annual General Meeting on 8 May 2008, the Board of Management was authorised 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 resolution and to withdraw these shares from circulation without any further resolution by the Annual General Meeting. At the same time, the authorisation from 15 May 2007 to acquire treasury shares was rescinded. The authorisation from 8 May 2008 is valid until 6 November 2009. There are no current plans to exercise the authorisation. The option of a share buy-back does, however, remain open to BMW AG. Buy-back of preferred stock for employee share plan For over 30 years, BMW AG has encouraged its employees to participate in the company’s success. Since 1989, this participation has been in the form of an employee share programme. As a result, BMW AG acquired a total of 900,000 shares of preferred stock in 2008 via the stock mar- ket and issued some of the acquired shares to employees. BMW Group as a successful bond issuer on international capital markets Refinancing conditions deteriorated sharply over the course of 2008 compared to the previous year. Especially in the second half of the year, the credit markets experienced significant disruption. However, coordinated measures im- plemented by central banks and governments worldwide were able to prevent a meltdown of the financial system. As part of the process of refinancing business undertaken by the Financial Services segment, the BMW Group and relevant Group entities were again active in 2008 as issuers of bonds, notes and asset backed securities (ABS). As in previous years, the instruments issued by the BMW Group were highly sought after, both by institutional and private investors. Good ratings and continuous provision of infor- Development of BMW stock compared to stock exchange indices (Index: 30.12.1998 = 100) 350 300 250 200 150 100 50 99 00 01 02 03 04 05 06 07 08 BMW preferred stock BMW common stock Prime Automobile DAX 43 Group Management Report mation to the capital markets helped to reinforce the solid reputation enjoyed by the BMW Group. During the year, the BMW Group placed two benchmark bonds with a total issue volume of euro 2.5 billion on Euro- pean capital markets. In addition, bonds for an aggregate equivalent amount of some euro 880 million were issued in Swiss franks, Japanese yen and US dollars and private placements were made in various currencies for an aggre- gate amount of approximately euro 4.7 billion. The BMW Group was also able to demonstrate its ability to obtain funds via ABS transactions once again, securitising transactions totalling euro 5.2 billion in 2008. This included the placement of euro 2.5 billion each on US and European capital markets via conduit transactions. The BMW Group proved in 2008 that, despite difficult mar- ket conditions, it had excellent access to the capital markets and that the supply of liquidity was ensured at all times. The underlying strength of the BMW Group as one of the world’s leading suppliers of premium vehicles is therefore also reflected in its dealings with the international capital markets. Capital markets acknowledge sustainability as value driver During 2008, the BMW Group continued its communication drive on the capital markets with regard to Socially Re- sponsible Investment (SRI). Road shows held in London and Paris and an additional event in Zurich helped to pro- mote and intensify the exchange of ideas with investors and analysts interested in sustainability. BMW stock Common stock Number of shares in 1,000 Shares bought back at the reporting date Stock exchange price in euro1 Year-end closing price High Low Preferred stock Number of shares in 1,000 Shares bought back at the reporting date Stock exchange price in euro1 Year-end closing price High Low Key data per share in euro Dividend Common stock Preferred stock Earnings per share of common stock 4 Earnings per share of preferred stock 5 Cash flow 6 Equity 2008 2007 2006 2005 2004 601,995 601,995 601,995 – – – 622,228 13,488 622,228 – 21.61 42.73 17.04 52,196 363 13.86 36.51 13.00 42.35 50.73 39.81 43.51 46.47 35.52 37.05 39.97 32.04 33.20 37.44 31.78 52,196 52,196 52,196 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 2008 2007 2006 2005 2004 2 0.30 3 0.32 3 0.49 0.51 6.84 30.99 1.06 1.08 4.78 4.80 9.70 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 33.24 29.24 25.17 24.52 1 Xetra closing prices 2 adjusted for new accounting treatment of pension obligations 3 proposed by management 4 annual average weighted amount 5 stock weighted according to dividend entitlements 6 calculated on the basis of operating cash flow: up to 2006 as cash inflow from operating activities of Industrial Operations and from 2007 as cash inflow from operating activities of the Automobiles segment  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 44 In 2008, for the fourth time in succession, the BMW Group was the sector leader in the Dow Jones Sustainability in- dices and is thus the most sustainable car manufacturer in the world. The BMW Group is the only enterprise from the automobile sector to have been represented continuously in this important group of sustainability indices since their creation in 1999. In order to be included in the index, the business, ecological and social performance of some 2,500 enterprises is analysed and the best in each sector chosen to appear in the relevant Dow Jones Sustainability Index. The analyses include an assessment of general sustain- ability criteria as well as of measures implemented in re- sponse to sector-specific challenges. In the SAM Group’s corporate sustainability assessment published at the beginning of 2008, the BMW Group re- ceived three top awards with the titles Sector Leader, Gold Class and Sector Mover. Each year the SAM Group as- sesses more than 1,000 companies from 57 industrial sec- tors on the basis of company-specific sustainability criteria. The BMW Group is therefore the leading automotive com- pany in terms of sustainable business (SAM Sector Leader), picking up more than 75 % of possible points (SAM Gold Class) and making the most progress in the sector (SAM Sector Mover). The BMW Group has also been included – for eight consecutive years now – in the FTSE4Good indi- ces, which focus on SRI. The BMW Group keeps the public informed of its perform- ance in the field of sustainable business by publishing its Sustainable Value Report every two years. The report can be downloaded from the internet at www.bmwgroup.com/ sustainability. A printed version can also be ordered at that address. In March 2008, the most recent Sustainable Value Report (for 2007 / 2008) was awarded first prize in the Best Carbon Disclosure category of the Corporate Responsibility Reporting Awards 2007 (CRRA). The CRRA 2007 are the first global independent internet-based reporting awards, acknowledging the best sustainability reports in nine dif- ferent categories. The BMW Group won by a huge margin in the category for the best report on climate protection. The BMW Group’s next Sustainable Value Report will be published in 2009. 45 Group Management Report Disclosures pursuant to § 289 (4) HGB and § 315 (4) HGB and Explanatory Report Pursuant to Article 4 (1) of the Articles of Incorporation, BMW AG ’s share capital totalling euro 654,191,358 is 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 Incor- poration). The Company’s shares of preferred stock are non-voting within the meaning of 139 et seqq. AktG, i. e. they only confer voting rights in exceptional cases stipu- lated 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 confer 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 ap- propriation of the Company’s unappropriated profit. Ac- cordingly, 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 accrue- ment, (b) payment of an additional dividend of euro 0.02 per euro 1 par value on non-voting preferred shares and (c) uniform payment of any other dividends on shares on common and preferred stock, provided the share- holders do not resolve otherwise at the Annual General Meeting. The right of shareholders to have their shares evidenced 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 written notice (in the form prescribed by § 126 b of the German Civil Code), either in German or English, of their intention to participate at the meeting. Shareholders are also required to provide evi- dence of their entitlement to participate and exercise their voting rights at the Annual General Meeting. For this pur- pose, documentary evidence of the shareholding, issued by the custodian bank (in the written form prescribed by § 126 b BGB), in either German or English, is required. Votes may also be exercised by proxy. The Company may deter- mine that proxy authorisations may be granted electroni- cally 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 rea- sonable 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 con- junction with its employee share programme, the shares are subject to a company-imposed vesting period of four years, during which time the shares may not be sold. The shares issued in conjunction with the employee share pro- gramme are shares of non-voting preferred stock which are transferred solely and directly to employees. Like all other shareholders, employees exercise their control rights over these shares on the basis of relevant legal pro- visions and the Company’s Articles of Incorporation. Based on the information available to the Company, the following direct or indirect holdings exceeding 10 % of the voting rights were held at the balance sheet date:* Stefan Quandt, Bad Homburg v. d. Höhe, Germany AQTON SE, Munich, Germany Stefan Quandt Verwaltungs GmbH, Bad Homburg v. d. Höhe, Germany Stefan Quandt GmbH & Co. KG für Automobilwerte, Bad Homburg v. d. Höhe, Germany Johanna Quandt, Bad Homburg v. d. Höhe, Germany Johanna Quandt GmbH, Bad Homburg v. d. Höhe, Germany Johanna Quandt GmbH & Co. KG für Automobilwerte, Bad Homburg v. d. Höhe, Germany Susanne Klatten, Munich, Germany Susanne Klatten Beteiligungs GmbH, Bad Homburg v. d. Höhe, Germany Susanne Klatten GmbH, Bad Homburg v. d. Höhe, Germany Susanne Klatten GmbH & Co. KG für Automobilwerte, Bad Homburg v. d. Höhe, Germany * based on voluntary balance notifications provided by the listed shareholders at 31 December 2008 Direct share of voting rights (%) Indirect share of voting rights (%) 17.4 17.4 17.4 16.3 16.3 12.6 12.6 12.6 17.4 0.4 16.3 12.6  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 46 The voting power percentages disclosed on the previous page 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 generally only aware of changes in share-holdings if such changes are subject to mandatory notification rules. There are no shares with special rights which confer con- trol 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-De- termination Law (MitbestG). In accordance with Article 7 of the Articles of Incorporation, the Board of Management consists of two or more members. The Supervisory Board determines the number of the members of the Board of Management. 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 seqq. AktG. All amendments must be resolved by the shareholders at the Annual General Meeting (§ 119 (1) no. 5, § 179 (1) AktG). The Supervisory Board is authorised to approve 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 other- wise explicitly required by binding provisions of law (§ 20 of the Articles of Incorporation). In accordance with the resolution passed at the Annual General Meeting on 8 May 2008, the Board of Management is authorised, up to 6 November 2009 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 resolution 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 de- scribed above. Furthermore, the Board of Management is authorised to buy back shares and sell bought-back shares in situations 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. in control or the acquisition of control which could arise, for example, from a takeover offer: – An agreement, concluded with an international con- sortium of banks relating to a syndicated credit line (which was not being utilised at the balance sheet date), entitles the lending banks to give extraordinary 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 acquisition of more than 50 % of the share capital of BMW AG, the right to receive more than 50 % of the divi- dend 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 production of a new family of small (1 to 1.6 litre) petrol-driven engines entitles each of the cooperation partners to give extra- ordinary notification of termination in the event of a com- petitor acquiring control over the other contractual party and if any concerns of the other contractual party con- cerning the impact of the change of control on the co- operation arrangements are not allayed during the sub- sequent discussion process. – BMW AG acts as the guarantor for all of the obligations arising from the joint venture agreement relating 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 indi- rectly, 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 instruments, framework agreements are in place with financial insti- tutions and banks (ISDA Master Agreements), each of which contain extraordinary rights of termination which trigger the immediate settlement of all current trans- actions, in the event that the creditworthiness of the re- spective party is materially weaker following the direct or indirect acquisition of beneficial ownership of equity securities 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. BMW AG is party to the following significant agreements which contain special provisions for the event of a change The BMW Group has not concluded any compensation agreements with members of the Board of Management or with employees for situations involving a takeover offer. 47 Group Management Report Analysis of the Group Financial Statements Group Internal Management System In conjunction with the strategy Number ONE, the BMW Group has also continued to develop its groupwide inter- nal management system. Processes are now focused even more sharply on profitability and long-term value growth. Coherent management of capital employed at all levels means that the efficient use of capital funds is a prime cri- terion at project, segment and Group levels. The targets set for the Automobiles, Motorcycles and Financial Services segments all stem from this objective. Within the Auto- mobiles and Motorcycles segments, capital employed is managed at the level of individual product, process and infrastructure projects. By contrast, the credit and lease portfolios of the Financial Services segment are managed primarily on the basis of a cash flow and risk approach. 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 (WACC) as follows: Cost of equity capital x fair value of equity capital Fair value of equity and debt capital WACC = + Cost of debt capital x fair value of debt capital Fair value of total capital The cost of equity capital is measured using the Capital Asset Pricing Model (CAPM). The cost of debt capital is based partly 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 Strategic priorities set at a functional level are based on segment-specific strategies and on the project decisions reached in accordance with those strategies. The close link between segment-specific strategies and project objectives ensures that the project development process remains effective. Once a positive decision has been Return on Capital Employed reached for a particular project, it is managed over time using a value-based approach. Projects are monitored continuously and resources reallocated according to re- quirements. The project decision and related project selection are important aspects of value-based management for the BMW Group. Project decisions are taken on the basis of net present values (NPVs) and rates of return: this involves computing the present value of cash flows and the inter- nal project rate of return (or model rate of return in the case of vehicle projects) expected to be generated by a project decision and comparing the results with competitive mar- ket values. In this way, the amount by which a project will contribute to the total value of the segment can be measured 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 identi- fying the cash flows of all related projects and discounting them back to a specific date. This value serves as an im- portant target for the Automobiles and Motorcycles seg- ments. The business value of each segment is measured after adjusting for the fair value of debt capital. The objec- tive for the Automobiles and Motorcycles segments is to increase the value of the business continually. Capital employed by BMW Group in euro million Group equity + Financial liabilities + Pension provisions Capital employed 2008 2007 21,766 2,832 3,717 28,315 20,303 2,247 4,771 27,321 BMW Group Automobiles Motorcycles Earnings for ROCE purposes in euro million Capital employed in euro million 2008 2007 2008 2007 639 690 60 4,193 3,450 80 28,315 27,321 14,056 13,953 432 444 Return on Capital Employed in % 2008 2007 2.3 4.9 13.9 15.3 24.7 18.0  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 48 Capital employed by Automobiles segment in euro million ROCE Automobiles and Motorcycles = Profit before financial result Capital employed 2008 2007 Capital employed 28,867 less: Non-interest bearing liabilities 14,811 Capital employed 14,056 28,713 14,760 13,953 Return on capital used to measure value on a periodic basis General business conditions relevant for periodic planning have a bearing on how product projects and the product programme as a whole are managed. It is important that period-specific targets are also monitored and managed on a long-term basis. This helps to ensure that the BMW Group’s earnings performance can develop at a steady pace. Periodic performance is managed in the context of defined accounting policies and external financial reporting requirements. The BMW Group primarily uses profit before tax and segment-specific rates of return as the key indica- tor figures by which it assesses operating performance for a given reporting period. Instead of the previous return on assets, capital efficiency within the BMW Group is now measured on the basis of the return on capital employed (ROCE). This key indicator takes account of capital employed across all lines of busi- ness, thus reflecting the overall Group performance. In line with the method applied at Group level, the return on capital employed remains the primary performance indica- tor for the Automobiles and Motorcycles segments. In the Financial Services segment, the performance indicator “return on assets” has been replaced by the return on equity (ROE). The ROE performance indicator is important for the value-based management of the Financial Services segment in that it focuses on equity as a resource with limited availability and on the desire to use capital efficiently. ROE Financial Services = Profit before tax Equity capital Group ROCE is measured by dividing earnings for ROCE purposes by the average amount of capital employed. Capital employed is measured for the BMW Group by reference to liabilities and comprises Group equity, pension provisions and the financial liabilities of the Automobiles and Motorcycles segments. The average level of capital employed for the year is measured as the average capital employed at the beginning of the year, at quarter-ends and at the end of the year. In line with the computation of capi- tal employed, earnings for ROCE purposes is defined as profit before interest expense incurred in conjunction with the pension provision and financial liabilities of the Auto- mobiles and Motorcycles segments (profit before interest expense and tax). The ROCE of the Automobiles and Motorcycles seg- ments is measured as the ratio of the profit before finan- cial result (the operating profit of the two segments) and the average amount of capital employed. The latter com- prises all current and non-current operational assets and liabilities after adjustment for specified liabilities which are not subject to interest e. g. trade payables. Based on the cost of capital as a minimum rate of return and com- parisons with competitive market values, the target ROCE for the Automobiles segment has been set at a minimum of 26 %. ROE is defined as the profit before tax divided by the average amount of equity capital allocated to the Financial Services segment. The target is a minimum return on equity of 18 %. ROCE Group Profit before interest expense and tax = Capital employed Long-term creation of value The overall objective set for earnings is continuous growth; the minimum rate of return required for each line of busi- Return on Equity Profit before tax in euro million Equity in euro million Return on Equity in % 2008 2007 2008 2007 2008 2007 Financial Services – 292 743 4,013 4,105 – 18.1 49 Group Management Report Key performance indicators in % Return on Capital Employed BMW Group Automobiles Motorcycles Return on Equity Financial Services * Capital employed calculated on year-end basis 2008 2007 2006 * 2005 * 2.3 4.9 13.9 15.3 24.7 18.0 16.7 21.7 17.7 15.1 23.2 17.8 – 18.1 17.6 16.9 ness is used as the relevant parameter. These periodic tar- gets are supplementary to project and programme targets. 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 over the long term are documented. The fact that the performance indicators also take account of periodic financial reporting requirements ensures consistency within the target and management model. 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 pro- gramme) 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. Earnings Performance The unfavourable business conditions described else- where in this report had an adverse impact on the BMW Group’s earnings performance for the financial year 2008. Reported earnings were also negatively affected by ex- 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 Interest and similar income Interest and similar expenses Other financial result Financial result Profit before tax Income taxes Net profit * restated presentation of financial result 2008 2007 * 53,197 56,018 – 44,323 – 43,832 8,874 12,186 – 5,369 – 2,825 1,428 – 1,187 921 26 685 – 930 – 351 – 570 351 – 21 330 – 5,254 – 2,920 730 – 530 4,212 11 645 – 897 – 98 – 339 3,873 – 739 3,134  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis Internal Management System 47 Earnings Performance 49 51 Financial Position 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 50 penditure to implement previously announced measures to reduce the workforce, by more pronounced adverse currency factors and by the ongoing high prices of raw materials. The BMW Group recorded a net profit of euro 330 million (2007: euro 3,134 million) for the financial year 2008. The post-tax return on sales was 0.6 % (2007: 5.6 %). Earnings per share of common and preferred stock were euro 0.49 and euro 0.51 respectively (2007: euro 4.78 and euro 4.80 respec- tively). Group revenues fell by 5.0 % compared to the previous year. Revenues from the sale of BMW, MINI and Rolls-Royce brand cars decreased by 10.7 %, while revenues from motor- cycles business remained at the previous year’s level. Revenues from financial services business grew by 14.9 % as a result of business volume growth. Revenues gen- erated by “Other Entities” amounted to euro 146 million. This largely related to the Cirquent Group which was part of the BMW Group up to 30 September 2008. The compa- rable revenues figure for “Other Entities” in 2007 was euro 214 million. Revenues declined in almost all regions. A drop of 9.9 % was recorded in Germany and one of 7.6 % for the remain- der of Europe. Revenues generated in the Americas region edged up by 2.2 %. For the Africa, Asia and Oceania re- gions, revenues fell overall by 2.5 %, despite the fact that revenues generated in China grew by 24.0 %. Cost of sales increased in absolute terms by 1.1 % on a year-on-year comparison. Cost of sales in 2008 include the impact of expenses recognised for additional risk provi- sions for residual value risks and bad debts totalling euro 1,968 million. Unfavourable exchange rates and higher raw material prices also contributed to the increase in cost of sales. As a result of these adverse factors, the gross profit fell by 27.2 %, giving a gross profit margin of 16.7 % (2007: 21.8 %). The gross profit margin recorded by the Automo- biles segment was 16.4 % (2007: 19.6 %) and that of the Motorcycles segment was 25.8 % (2007: 28.1 %). Sales and administrative costs increased by 2.2 % mainly due to the fact that most of the expenditure incurred to reduce the size of the workforce is presented within ad- ministrative costs (euro 455 million). Sales and administra- tive costs represented 10.1 % of revenues, 0.7 percentage points higher than in the previous year. Research and development costs decreased by 3.3 % to euro 2,825 million and represented 5.3 % (2007: 5.2 %) of rev- enues. They include amortisation of capitalised develop- ment costs amounting to euro 1,185 million (2007: euro 1,109 million). Total research and development costs amounted to euro 2,864 million (2007: euro 3,144 million). This figure comprises research costs, development costs not recog- nised as assets and capitalised development costs. The research and development expenditure ratio for 2008 was 5.4 % (2007: 5.6 %). Depreciation and amortisation of property, plant and equip- ment and intangible assets included in cost of sales, sales and administrative costs and research and development costs amounted to euro 3,670 million (2007: euro 3,683 mil- lion). The positive net amount from other operating income and expenses increased by 20.5 % to euro 241 million, mainly reflecting the higher level of income from the reversal of provisions. In contrast, gains from the sale of assets (in particular marketable securities) fell significantly. The profit before financial result, at euro 921 million, was euro 3,291 million or 78.1 % below the previous year’s figure. The financial result deteriorated by euro 231 million. Of this amount, euro 253 million relates to the line “Other financial result”. In 2007, this line had included a gain of euro 97 mil- lion resulting from the settlement of the exchangeable bond on shares in Rolls-Royce plc, London. Other financial result also includes losses on other derivative financial in- struments, in particular on stand-alone interest-rate deriva- tives. The decrease in the fair values of these financial in- struments reflected changes in the interest rate structure. The result from equity accounted investments improved by euro 15 million, and includes, in addition to the result from the investment in BMW Brilliance Automotive Ltd., Shen- yang, the Group’s share of the result of the Cirquent Group. Net interest result improved by euro 7 million. Within net interest result, the net expense from the reversal of dis- counting on pension obligations and the income from the expected return on pension plan assets increased by euro 11 million. Taking into account the changes in the financial result described above, profit before tax fell by 90.9 % compared to the previous year. The pre-tax return on sales was 0.7 % (2007: 6.9 %). 51 Group Management Report Revenues by segment in euro million Automobiles Motorcycles Financial Services Other Entities Eliminations Group Profit before tax by segment in euro million Automobiles Motorcycles Financial Services Other Entities Eliminations Group 2008 2007 48,782 1,230 15,725 191 –12,731 53,197 53,818 1,228 13,940 290 –13,258 56,018 2008 2007 318 51 – 292 295 – 21 351 3,232 71 743 168 – 341 3,873 The Group net profit was euro 2,804 million or 89.5 % below the figure reported in the previous year. The significantly lower effective tax rate was due primarily to higher tax reim- bursements. The Automobiles segment recorded a 4.3 % decrease in sales volume and a 9.4 % decrease in revenues. Due to the adverse factors described above, the segment profit fell by 90.2 % to euro 318 million. Revenues of the Motorcycles segment edged up by 0.2 %. Difficult business conditions caused the segment profit to drop by 28.2 % to euro 51 million. Revenues generated by the Financial Services segment rose by 12.8 % to euro 15,725 million as a result of business vol- ume growth. Higher risk provision expense and refinancing costs resulted in a segment loss of euro 292 million in 2008. The segment profit for the Other Entities segment was euro 295 million (2007: euro 168 million). The increase here was mainly due to the higher level of income from reversals of provisions and a gain on the partial sale of the Cirquent Group. Financial position The Group and Segment cash flow statements show the sources and applications of cash flows for the financial years 2008 and 2007, classified into cash flows from operat- ing, investing and financing activities. Cash flows from operating activities are determined indi- rectly starting with the Group net profit. By contrast, cash flows from investing and financing activities are based on actual payments and receipts. Cash and cash equivalents in the cash flow statement correspond to the amount disclosed in the balance sheet. Operating activities of the BMW Group generated a positive cash flow of euro 10,872 million in 2008, a de- crease of euro 1,311 million or 10.8 % compared to the pre- vious year. Changes in net current assets during 2008 generated a cash inflow of euro 411 million (2007: euro 269 million). The cash outflow for investing activities amounted to euro 18,652 million and was therefore euro 1,404 million higher than in 2007. Capital expenditure for intangible assets and property, plant and equipment resulted in the cash outflow for investing activities de- creasing by euro 63 million on a year-on-year comparison.  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis Internal Management System 47 Earnings Performance 49 Financial Position 51 Net Assets Position 52 Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 52 The cash outflow for net investments in financial services activities increased by euro 1,288 million compared to the previous year. Financing activities in 2008 generated a positive cash flow of euro 12,904 million (2007: euro 6,168 million). Cash in- flows from the issue of bonds totalled euro 9,959 million (2007: euro 6,038 million) while euro 5,080 million (2007: euro 4,152 million) was used to repay bonds. The dividend pay- ment for the financial year 2008 amounted to euro 694 mil- lion. The net cash inflow from other financial liabilities and commercial paper increased by euro 3,912 million. 58.3 % (2007: 70.6 %) of the cash outflow for investing activities was covered by the cash inflow from operating activities. The cash flow statement for the Automobiles segment shows that the cash outflow for operating activities fell slightly short (euro 81 million) of the cash inflow from in- vesting activities (2007: surplus of euro 2,147 million). As ex- pected, the cash flow statement for the Financial Services segment shows that the cash inflow from operating activi- ties did not cover the cash outflow for investing activities due to the high level of capital expenditure on leased prod- ucts and receivables from sales financing. The short-fall was 39.4 % (2007: 38.7 %). After adjustment for the effects of exchange-rate fluctua- tions and changes in the composition of the BMW Group amounting to a negative amount of euro 63 million (2007: negative amount of euro 46 million), the various cash flows resulted in an increase in cash and cash equivalents of euro 5,061 million (2007: euro 1,057 million). Net interest-bearing assets relating to the Automobiles segment (including inter-segment finance receivables) amounted to euro 9,046 million at the end of the reporting period, representing an increase of euro 1,692 million since 31 December 2007. Net interest-bearing assets relating to the Automobiles segment comprise cash and cash equivalents (euro 5,073 million), marketable securities (euro 557 million) and inter-segment finance receivables (euro 8,185 million) less the financial liabilities of the Automobiles segment. Excluding derivative financial instruments, they amount to euro 4,769 million. Net Assets Position The Group balance sheet total increased by euro 12,089 mil- lion or 13.6 % to euro 101,086 million. Currency effects, largely attributable to a weaker British pound, held down the increase in the balance sheet total in 2008. Adjusted for changes in exchange rates, the balance sheet total would 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 – 5,000 Cash and cash equivalents 31.12. 2007 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. 2008 2,393 + 10,872 – 18,652 + 12,904 – 63 7,454 53 Group Management Report have increased by euro 15,044 million or 17.5 %. The main factors behind the increase on the assets side were the increased level of cash and cash equivalents (+ 211.5 %), re- ceivables from sales financing (+ 11.2 %) and leased products (+ 14.8 %). On the equity and liabilities side of the balance sheet, the main increase related to financial liabilities (+ 37.5 %). Intangible assets amounted to euro 5,641 million, slightly below their level one year earlier. Within this line item, capitalised development costs went up by 0.8 % to euro 5,073 million. Development costs recognised as assets during the year under report amounted to euro 1,224 million (– 8.2 %), equivalent to a capitalisation ratio of 42.7 % (2007: 42.4 %). The lower level of additions to capitalised develop- ment costs in 2008 was due to the smaller number of projects in the series development phase. Amortisation on intangible assets amounted to euro 1,185 million (+ 6.9 %). The carrying amount of property, plant and equipment increased slightly by 1.7 % to euro 11,292 million. Capital expenditure increased by euro 2,865 million or 6.7 %, with the main focus on product investments for production start-ups and infrastructure improvements. Depreciation on property, plant and equipment totalled euro 2,375 million (– 3.9 %). Balances brought forward for subsidiaries being consolidated for the first time amounted to euro 67 million. Total capital expenditure as a percentage of revenues was 7.9 % (2007: 7.6 %). The amount reported for leased products in the balance sheet rose sharply compared to the end of the previous year, reflecting a general increase in business volumes as well as the integration of the – previously off-balance- sheet – vehicle portfolio of a leasing company which had included a part of the leasing business for Germany. Leased products rose by 14.8 % to euro 19,524 million. Ad- justed for changes in exchange rates, they would have risen by 14.4 %. The carrying amount of other investments increased by 54.1 % to euro 322 million, mainly as a result of capital in- creases at non-consolidated companies. 59 million (– 0.8 %) to euro 7,290 million. Trade receivables were 13.7 % lower than at 31 December 2007. Financial assets increased by 6.7 % to euro 5,114 million, mainly as a result of the higher fair values of derivative finan- cial instruments. Liquid funds increased by 86.3 % to euro 8,107 million. Mar- ketable securities and investment funds decreased as a result of the transfer of assets to the newly founded BMW Trust e. V., Munich, in conjunction with the creation of an external fund for pension obligations. Cash and cash equivalents rose by euro 5,061 million. On the equity and liabilities side of the balance sheet, equity decreased by 6.8 % to euro 20,273 million. The profit for the year attributable to shareholders of BMW AG in- creased equity by euro 324 million. Fair value changes rec- ognised directly in accumulated other equity reduced equity by euro 1,088 million (2007: euro 61 million). The latter comprises translation differences, fair value gains and losses on financial instruments and available-for-sale securities as well as actuarial gains and losses on pension plans. Translation differences reduced accumulated other equity by euro 711 million. The fair values of derivative financial in- struments decreased by a further euro 601 million. Actu- arial gains and losses within accumulated other equity increased by euro 5 million. The fair values of marketable securities fell marginally by euro 7 million. Deferred taxes on fair value gains and losses recognised directly in equity increased equity by euro 226 million in 2008. Minority interests amounted to euro 8 million. The equity ratio of the BMW Group fell by 4.3 percentage points to 20.1 %. The equity ratio for the Automobiles segment was 42.3 % compared to 41.2 % at the end of the previous year. The equity ratio for the Financial Services segment fell from 6.9 % to 5.4 %. Receivables from sales financing were up by 11.2 % to euro 38,063 million due to higher business volumes. Of this amount, customer and dealer financing accounted for euro 29,470 million (+ 12.6 %) and finance leases accounted for euro 8,593 million (+ 6.6 %). Inventories decreased by euro The amount recognised in the balance sheet for pension provisions went down by 28.4 % to euro 3,314 million. In the case of pension plans with fund assets, the fair value of fund assets is offset against the defined benefit obligation. The reduction in pension obligations resulted primarily from the transfer of pension obligations to the newly  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis Internal Management System 47 Earnings Performance 49 Financial Position 51 Net Assets Position 52 Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 54 Balance sheet structure – Group in euro billion Non-current assets 62 % 20 % 41 % 64 % 24 % 38 % Equity Non-current provisions and liabilities Current assets 38 % 39 % Current provisions and liabilities 36 % 38 % thereof cash and cash equivalents 7 % 3 % 2008 2007 2007 2008 101 89 89 101 Balance sheet structure – Automobiles segment in euro billion Non-current assets 44 % 46 % 41 % 42 % Equity Current assets 56 % 54 % 21 % 26 % Non-current provisions and liabilities 38 % 32 % Current provisions and liabilities thereof cash and cash equivalents 10 % 2 % 2008 2007 2007 2008 53 52 52 53 founded BMW Trust e. V. in conjunction with a Contractual Trust Arrangement (CTA). Obligations also decreased be- cause of the higher discount factor used. Other provisions decreased by 11.3 % to euro 4,882 million, with the reduction mainly due to lower obligations for per- sonnel-related and other expenses. less pronounced since it is not affected by depreciation and amortisation, which are higher than in the previous year. Once again, the bulk of the net value added (64.8 %) is ap- plied to employees. The amount applied to providers of finance increased to 27.0 % as a result of the higher funding volume required for the financial services business. The government / public sector (including deferred tax expense) accounted for 5.1 %. The proportion of net value added applied to shareholders, at 1.9 %, was lower than in the pre- vious year. The remaining proportion of net value added (1.2 %) will be retained by the BMW Group to finance future operations. This represents a decrease of 16.1 percentage points. 55 Group Management Report Financial liabilities increased by 37.5 % in conjunction with the refinancing of the Group’s financial services business. Within financial liabilities, bonds increased by 31.4 % to euro 24,159 million. Liabilities to banks, asset-backed financing obligations and deposit liabilities were all also up. Trade payables amounted to euro 2,562 million and were thus 27.9 % lower than one year earlier. Other liabilities went up by 2.5 % to euro 6,281 million, mainly reflecting increases in deferred income relating to service and repair contracts, deferred income from lease financing and the valuation of financial instruments. Compensation Report The compensation of the Board of Management comprises fixed and variable components. 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 “Corpo- rate Governance” section of the Annual Report on pages 141 – 146. The Compensation Report is a sub-section of the Group Management Report. Subsequent Events Report No events have occurred after the balance sheet date which 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 per- formed less the value of work bought in by the BMW Group during the financial year. Depreciation and amortisation, cost of materials and other expenses 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 compo- nent of value added which, in the allocation statement, is treated as internal financing. Net value added by the BMW Group in 2008 decreased by 25.7 % to euro 10,469 million. The decrease over the pre- vious year was largely attributable to the lower level of rev- enues. The decrease in gross value added, at 10.6 %, was  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position 55 55 57 58 Comments on BMW AG Risk Management Outlook Subsequent Events Report Value Added Statement Key Performance Figures 47 62 68 56 BMW Group Value added statement Work performed Revenues Financial income Other income Total output Cost of materials Other expenses Bought-in costs 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 2008 in euro million 2008 in % 2007 in euro million 2007 in % Change in % 53,197 – 410 1,428 54,215 30,648 5,447 * 36,095 18,120 7,651 10,469 6,781 2,823 535 197 127 6 98.1 – 0.7 2.6 100.0 56.5 10.1 66.6 33.4 14.1 19.3 64.8 27.0 5.1 1.9 1.2 – 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 8 98.9 – 0.2 1.3 100.0 54.8 9.4 64.2 35.8 10.9 24.9 53.3 16.1 8.4 4.9 17.3 – 10,469 100.0 14,096 100.0 – 4.3 – 0.8 –10.6 – 25.7 – 9.7 24.4 – 54.7 – 71.6 – 94.8 – 25.0 – 25.7 * including expenditure in conjunction with measures to reduce the size of the workforce BMW Group Value added 2008 in % Depreciation and amortisation Cost of materials Other expenses Net value added Net value added 19.3 Depreciation and amortisation 14.1 Cost of materials 56.5 Other expenses 10.1 64.8 % Employees 27.0 % Providers of finance 5.1 % 1.9 % 1.2 % Government / public sector Shareholders Group 57 Group Management Report 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 Automobiles Financial Services Coverage of intangible assets, property, plant and equipment by equity Return on Capital Employed Group Automobiles Motorcycles Return on Equity Financial Services Cash inflow from operating activities Cash outflow from investing activities % % % % % % % % % % % % % % % euro million euro million Coverage of cash outflow from investing activities by cash inflow from operating activities % Net financial assets Automobiles segment euro million * adjusted due to changed presentation 2008 2007 16.7 8.6 1.7 0.7 0.6 1.6 1.5 20.1 42.3 5.4 119.7 2.3 4.9 13.9 – 10,872 18,652 58.3 9,046 21.8 14.1 7.5 6.9 5.6 20.2 16.4 24.4 41.2 6.9 129.6 15.3 24.7 * 18.0 * 18.1 12,183 * 17,248 70.6 * 7,354  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position 55 55 57 58 Risk Management Outlook Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 62 68 58 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 Commercial Code (HGB). Where it is permitted and considered sensible, the princi- ples 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 statements of BMW AG differ from those applied in the Group Financial State- ments. The main differences relate to the recognition of intangible assets, depreciation and amortisation methods, the measurement of inventories and provisions as well as the treatment of financial instruments. Adverse currency factors relating to the US dollar and Japanese yen as well as continued intense competition on the automobile markets had a negative impact on BMW AG’s earnings. In conjunction with measures to optimise the structure of investments within the BMW Group, BMW AG incurred a loss of the disposal of subsidiaries and a higher profit on an existing profit and loss transfer agreement. Investments were reduced as a result of this transaction. Capital expenditure on intangible assets and property, plant and equipment amounted to euro 2,064 million (2007: euro 1,670 million), up 23.6 % compared to the previous year. The increase was mainly related to high product in- vestments for the new BMW 7 Series and the new Z4. Depreciation and amortisation amounted to euro 1,569 mil- lion. BMW AG develops, manufactures and sells cars and mo- torcycles manufactured by itself and foreign subsidiaries. These vehicles are sold through the Company’s own branches, independent dealers, subsidiaries and import- ers. The number of cars manufactured at German and foreign plants in 2008 decreased by 6.6 % to 1,439,918 units. At 31 December 2008, BMW AG had 71,596 employees, 4,468 fewer than one year earlier. This is largely due to the implementation of previously reported measures to re- duce the size of the workforce. The expenditure incurred in this context increased administrative costs. Consumer reluctance to spend in the face of the current financial crisis as well as model life cycle factors caused a reduction in the number of cars sold by BMW AG. As a con- sequence, revenues fell in 2008 by 8.3 %. Sales to foreign group sales companies accounted for euro 32.5 billion or approximately 73.3 % of the total revenues of euro 44.3 bil- lion. In percentage terms, the decrease in cost of sales was slightly more pronounced than the decrease in revenues. Gross profit fell by euro 0.4 billion (– 5.6 %) and amounted to euro 6.5 billion. In order to secure obligations resulting from pre-retirement part-time work arrangements and a part of the Company’s pension obligations, an amount of euro 1,285 million was transferred to the newly founded BMW Trust e. V., Munich, in conjunction with a Contractual Trust Arrangement (CTA). Equity decreased by euro 310 million to euro 5,338 million. The existing authorisation to acquire treasury common stock shares was not exercised during the financial year 2008. Of the preferred stock treasury shares acquired dur- ing 2008, 363,130 shares were held by the Company at the end of the reporting period. The equity ratio decreased from 25.0 % to 22.9 %. Long-term external capital (registered profit-sharing certificates, pension provisions, the liability to the BMW Unterstützungsverein e. V. and liabilities due later than one year) increased by 48.8 % to euro 6,054 mil- lion. Despite the heightening of the financial crisis during the second half of 2008, BMW AG had access to the credit and financial markets at all times and was able to increase its liquid funds significantly. 59 Group Management Report 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 reserves Pension provisions Other provisions Provisions Liabilities to banks Trade payables Liabilities to subsidiaries Other liabilities Liabilities Deferred income Total equity and liabilities 2008 2007 143 5,404 1,096 6,643 2,586 982 6,098 623 2,360 3,970 109 4,986 4,814 9,909 2,654 1,218 5,937 644 1,763 436 16,619 12,652 54 23,316 55 22,616 654 1,991 2,496 197 5,338 34 13 3,791 6,142 9,933 3,049 1,276 2,311 1,338 7,974 654 1,991 2,309 694 5,648 34 34 3,793 6,292 10,085 394 1,716 2,597 2,094 6,801 24 23,316 14 22,616  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position 55 55 57 58 Risk Management Outlook Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 62 68 60 BMW AG Income Statement in euro million Revenues Cost of sales Gross profit Sales costs Administrative costs Research and development costs Other operating income and expenses Result on investments Financial 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 2008 2007 44,313 48,310 – 37,833 – 41,448 6,480 6,862 – 3,085 –1,366 – 2,646 – 641 1,807 –154 395 3 – 14 384 – – 187 197 – 2,786 – 881 – 2,828 731 255 – 38 1,315 –115 –16 1,184 1 – 491 694 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 re- porting 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. 61 Group Management Report KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, has issued an unqualified audit opinion on the financial state- ments of BMW AG, of which the balance sheet and the income statement are presented here. The BMW AG finan- cial statements for the financial year 2008 will be submitted to the operator of the electronic version of the German Federal Gazette and can be obtained via the Company Register website. These financial statements are available from BMW AG, 80788 Munich, Germany.  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 62 Risk Management Risk management in the BMW Group All business activities involve an element of risk. Some of those risks can be quite substantial. They may arise in conjunction with business operations or they may affect a company as a result of changes in external factors. Other risks arise as business becomes more inter national. As a globally operating organisation, the BMW Group is con- fronted with numerous risks. Price fluctuations on the global markets for currency, money, capital and commodities as well as shorter innovation cycles result in ever-increasing complexity, all of which place great demands on enterprises with international operations. The downturn that has be- fallen the world’s economies over the past year has also affected the risk profile. The BMW Group’s approach to business has long been founded on the idea of consciously taking calculated risks and making full use of the opportunities arising from them. As part of the risk reporting system, the Board of Management and the Supervisory Board are regularly in- formed about risks which could have a significant impact on business performance. This information is derived from the BMW Group’s integrated risk management system. Business decisions are reached after consideration of in- depth project analyses which show both potential risks and potential opportunities. In addition, as part of long-term planning, annual budget and short-term forecasts, the risks and opportunities attached to specific business activities are evaluated and used as the basis for setting targets and implementing appropriate risk-mitigation measures. The groupwide risk management process comprises the early identification of risks and opportuni- ties, their measurement and the use of suitable instru- ments to manage and monitor risks. The risk manage- ment system comprises a wide range of organisational and methodological components that are all finely tuned to each other. The system’s decentralised structure also encourages a balanced approach to risks at all organisa- tional levels. The Group reporting system provides decision makers with comprehensive, up-to-date information on performance against targets and on new developments relating to the market and competitors. Critical success factors are moni- tored continuously to ensure that unfavourable develop- ments are identified at an early stage so that appropriate counter measures can be implemented and opportunities exploited. Standardised rules and procedures, consistently applied throughout the BMW Group form the basis for an organisa- tion that is permanently learning. Risk management is a continuous process since changes in the legal, economic or regulatory environment or changes within the company itself could lead to new risks or to known risks being differ- ently assessed. By regularly sharing experiences with other companies, the BMW Group ensures that innovative approaches and ideas flow into the risk management system and that risk management is subject to continual improvement. Regular basic and further training as well as information events are invaluable ways of preparing people for new or additional requirements with regard to the processes in which they are involved. Overall risk management within the BMW Group is man- aged centrally and reviewed for its appropriateness and effectiveness by external auditors and by the Group’s inter- nal audit department. The findings reached serve as the basis for further improvements. 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, finan- cial position or results of operations of the Group. How ever, risks can never be entirely ruled out. The areas of risk relevant for the BMW Group are pre- sented in the following section. Additional comments on risks in conjunction with financial instruments are provid- of the consolidated financial statements. ed in note 39 Risks relating to the general economic environment As a globally operating enterprise, the BMW Group is affect- ed by global economic conditions. This includes changes in exchange rates as well as developments on the financial markets. The financial crisis and its impact on the world’s markets for goods and services had a major effect on re- ported Group revenues and earnings for 2008. In addition to the effect of changes in demand and refinancing con- ditions, fluctuations in exchange rates also had a signifi- cant impact on Group earnings. This related in particular to the US dollar (the main single source of risk in the BMW Group’s currency portfolio), the Japanese yen, the British pound and the Chinese renminbi. Based on forecasts, these four currencies account for some 65 % of the foreign currency exposure of the BMW Group. The BMW Group manages currency risks both at a strate- gic and at an operating level. At a strategic level (i. e. in the medium and long term), the BMW Group endeavours to manage foreign exchange risks by “natural hedging”, in 63 Group Management Report other words by increasing the volume of purchases de- nominated in foreign currency or increasing the volume of local production. In the short to medium term (i. e. at an operating level), currency risks are hedged on the financial markets. Hedging transactions are entered into only with financial partners of good credit standing. It must be noted, however, that the financial crisis has resulted in a deterio- ration of the creditworthiness of many financial institutions and set in motion a process of consolidation within the banking sector which has not yet been completed. The BMW Group takes account of these circumstances by adjusting counterparty limits as deemed appropriate. The nature and scope of such measures are set out in guide- lines applicable throughout the BMW Group. A cash-flow- at-risk model and scenario 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. As a general rule, the BMW Group reduces currency risk by refinancing credit and lease business in the currency of the relevant market. If funds are raised in a foreign cur- rency, exchange rate hedges are concluded immediately afterwards in the corresponding local currency in order to reduce the risk exposure. Interest-rate risks are managed within the BMW Group by raising refinancing funds with matching maturities and by employing derivative financial instruments. Interest-rate risks are measured and limited both at country and Group level on the basis of the value-at-risk concept. The risk- return ratio is also measured regularly using simulated computations in conjunction with a present-value-based interest rate management system. Sensitivity analyses, which contain stress scenarios and show the potential im- pact of interest rate changes on earnings, are also used as tools to manage interest rate risks. The deposit business operated by the Financial Services segment, credit lines with various banks and the use of a wide range of financing instruments ensure that sufficient liquid funds are available to the Group. Liquidity risk is continuously monitored at a separate entity level and doc- umented in a rolling cash flow forecasting system. Most of the financing and lease business undertaken by 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 terms and conditions. Despite all of those factors, the BMW Group was neverthe- less not able entirely to extricate itself from the difficulties facing the automobile sector. This is reflected in revised long-term ratings published by the rating agencies: in November 2008, Standard & Poor’s lowered its long-term rating from A+ to A, while Moody’s changed its long-term rating from A1 to A2. Despite this development, the BMW Group and the securities issued by its Group entities re- tained the clas sification “investment grade”. Refinancing conditions deteriorated markedly as a result of the general crisis on financial markets during the second half of 2008. The high level of liquidity reported at the year-end reflects the BMW Group’s ability to obtain refinancing funds even in the face of extremely difficult market conditions. Any continued deterioration in these conditions entails the risk of further drops in ratings for the entire automobile sector. Changes on international raw material markets also have an impact on the business performance of the BMW Group. In order to safeguard the supply of production materials and minimise the cost risk, the commodity markets relevant for the BMW Group are closely monitored. Changes in prices of precious metals (such as platinum, palladium and rhodium), steel and other non-ferrous metals have an impact on production costs. Hedging strategies are de- cided on for these metals and other raw materials as part of the BMW Group’s commodity management proce- dures. Changes in the price of crude oil, an important basic mate- rial in the manufacture of components, have an indirect impact on production costs. Moreover, the price of crude oil also directly influences the purchasing behaviour of drivers when fuel prices change. An escalation of political tensions, terrorist activities, natural catastrophes or possible pandemics could have a negative impact on the economic situation, the international capi- tal markets and hence the business performance of the BMW Group. Sector risks Fuel prices, whether influenced by market or governmental tax policies, and increasingly stringent requirements to reduce vehicle fuel consumption and emissions, present demanding challenges for the BMW Group’s engine and product development activities. One manifest result of this has been the reduction of consumption and emissions achieved through the BMW Group’s Efficient Dynamics programme.  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 64 In conjunction with their “trilog debate”, the European Commission, the European Parliament and the Council of the European Union reached agreement in December 2008 on the details of a CO2 regulation, which constituted an important step towards the adoption of a CO2 regulation for passenger cars. The proposed weight-based CO2 emission standards result in considerably higher efficiency requirements for the BMW Group than for high-volume and small-car manufacturers. However, a definitive as- sessment of the situation is only possible after considering the legal basis and the manner in which the new regula- tions are transformed into national law. The proposed regulations on CO2 emissions and fuel consumption could influence the business of the Automobiles segment and thus have a significant impact on Group earnings. The BMW Group is confronting these challenges by rigor- ously applying its technological expertise and innovative strength to reduce the CO2 emissions of its vehicles. The package of measures known as Efficient Dynamics was adopted in 2000: a combination of highly efficient engines, improved aerodynamics, lightweight construction and energy management reduces the average fuel consump- tion of the vehicle fleet. In the medium term, the BMW Group is working on achieving additional fuel economy with the aid of a wide range of measures from electrifica- tion of the drive train through to hybrid solutions. The BMW Group is also endeavouring to make sustainable mobility possible in densely populated areas. In this con- text, towards the end of the financial year the BMW Group presented the MINI E, a purely electrically powered vehicle. As part of a large-scale field trial, approximately 500 MINI E vehicles were made available to selected customers, most of them in the USA, at the beginning of 2009. The practical experience gained from this trial will be incor- porated in the further development of electric vehicles. In the long term, the BMW Group is committed to the use of hydrogen gained from various renewable sources to power engines. centives for all parties involved to contribute to the requi- site development of efficient drive systems. Operating risks Risks arising from business interruption and loss of pro- duction are insured up to economically reasonable levels with insurance companies of good credit standing. The BMW Group’s highly flexible production network and working time models also help to reduce operating risks. Close cooperation between manufacturers and suppliers is usual in the automotive sector and whilst this provides economic benefits, it also creates a degree of mutual de- pendence. Partly reflecting increasing consolidation within the automotive supply industry, certain suppliers have become extremely important for the BMW Group. Delivery delays, cancellations, strikes or poor quality can lead to production stoppages and thus have a negative impact on profitability. The currently adverse business climate is also affecting the supply industry. Revenue contraction in the automobile sector clearly has an impact on the earnings performance of suppliers. Simultaneously, as a result of the turmoil on the capital markets, the banks have only been willing to provide credit to businesses – including those of the supply industry – on a more restrictive scale and at less favourable conditions. The availability of capital is be- coming increasingly critical for suppliers with high levels of debt. However, although the number of problem cases increased in 2008, the BMW Group was not affected by any defaults. In cooperation with other car manufacturers, the BMW Group endeavours to maintain close contact with its suppliers in order to identify troubled suppliers as early as possible and find appropriate solutions. When selecting suppliers, both their technical competence and financial strength are evaluated. Once a supplier has been selected, a comprehensive Supplier Relationship Management system – also covering social and ecological aspects – helps to reduce risk exposure. The need to reduce consumption and emissions is fully integrated in the Group’s product innovation process. A specialist department is studying the interplay of energy management, aerodynamics, lightweight construction, performance and CO2 emissions. The BMW Group advo- cates the use of differentiated CO2 limits for different vehi- cle classes. These levels should be transparent and meet customers’ expectations. Achieving real improvements for the environment requires measures to be applied fairly to all vehicle classes. The BMW Group therefore welcomes the current debate on the best way of achieving ecologi- cal improvements. The solution must provide sufficient in- Risks relating to the provision of financial services The BMW Group’s leasing business also entails a volume- induced increase in the residual value risk on vehicles re- turned at the end of lease contracts. The volatility of used car prices on the major sales markets has intensified as a result of the financial crisis, thus increasing the residual value risk. Residual values of BMW Group vehicles on used car markets are continuously monitored over long periods and future developments forecasted. External market ob- servations are also used in this context. The overall risk po- sition is measured by comparing forecasted market values and contractual values by model and market. The return 65 Group Management Report ratio for lease vehicles is also computed. The resulting re- valuation of the portfolio of vehicles exposed to residual value risks and the losses incurred when selling preowned cars has an additional negative impact on earnings of the Financial Services and Automobiles segments. Expected risks are covered in the balance sheet either by provisions or by write-downs on the lease vehicles concerned. The BMW Group strives to mitigate declining residual values by actively managing the life cycle of current models, opti- mising reselling processes on international markets and implementing targeted price and volume measures. Re- sidual values in the leasing business are reviewed regularly and adjusted to take account of the latest market condi- tions and expected future developments. Operational risks relating to financial services business in- clude the risk of damage caused by inappropriate or failed internal procedures and systems, human error or external factors. The scope of procedures 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. The 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 approach to recording losses and the nature of any agreed risk-mitigation meas- ures. Both qualitative and quantitative aspects need 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 management, such as separation of duties, dual control and the docu- mentation of system changes. In addition, the effectiveness and efficiency of the internal control system are tested regularly. Credit risks affecting the retail customer business (leasing, financing) on the one hand and the commercial customer financing business (dealers, fleet customers, importers) on the other, are continually monitored, assessed and meas- ured. Risk-mitigating measures are put into place where necessary. In line with the Group’s own mandatory guide- lines on risk mitigation 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 con- tacts 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 pre- vent losses. For risk management purposes, the BMW Group reverts to normal good banking practices, such as the use of maximum unsecured risks for each rating cate- gory. Risk criteria such as arrears and bad debt ratios are analysed quarterly and used to actively manage the credit portfolio and improve portfolio quality. Measures imple- mented during 2008 helped in part to scale back the in- creased credit risk. 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, financing applications for international dealers, importers and fleet customers are presented to the local, regional or global credit committees for approval. The dual control and seg- regation of duties principles apply worldwide and are rig- orously 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 ap- plications and to ensure that uniform and transparent rating systems are in place worldwide. Allowances are recog- nised in the balance sheet to cover identified risks. Within the financial services business, the negative impact on the credit risk portfolio was reflected in a higher level of payment arrears and bad debts with retail customers. In addition, the drastic fall in sales caused by changes in cus- tomer purchasing behaviour is having an adverse impact on the financial situation of the dealer network and in- creases the risk of insolvency within the dealer organisa- tion. Developments in 2008 necessitated higher risk pro- visions in the areas of retail customer and dealer financing business. Legal risks The BMW Group is not currently involved in any court or arbitration proceedings which could have a significant im- pact on its financial condition. Compliance with the law is a basic prerequisite for the suc- cess of the BMW Group. Current law provides the binding framework for the BMW Group’s various business activities around the world. The growing international scale of busi- ness 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 lawfully. It is essential for all employees to know and to comply with current legal regu- lations. The extent of those regulations is set out in cor- porate guidelines 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 un- cover any cases of corruption, bribery or blackmail. Further information on compliance in the BMW Group is included in the Compliance Report on pages 140 – 141.  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 66 Like all enterprises, the BMW Group is exposed to the risk of warranty claims. Adequate provisions have been recog- nised 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, addition- ally ensured by regular quality audits and ongoing improve- ment measures, helps to reduce this risk. In comparison with competitors, this can give rise to benefits and oppor- tunities for the BMW Group. Changes in the regulatory environment may impair the sales volume, revenues and earnings performance of the BMW Group in individual markets or economic regions. Further information is given in the section on sector-spe- cific risks. Personnel risks As an attractive employer, the BMW Group has been in a favourable position for many years in the intense compe- tition for qualified technical and management staff. A high level of employee satisfaction helps to minimise the risk of know-how drift. The BMW Group’s attractiveness as an employer also helps to ensure that appropriately qualified staff can be recruited, particularly at a time when new strategies are being implemented. An ageing and shrinking population in Germany will have a lasting impact on the conditions prevailing in the labour, product, services and financial markets. Demographic change will give rise to risks and opportunities which will affect businesses 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 qualifications, (4) increasing employees’ awareness of their responsibility to make personal provisions for their future and (5) individual employee working life-time models. Risks relating to pension obligations The BMW Group’s pension obligations to its employees resulting from defined benefit plans are measured on the basis of actuarial reports. In accordance with IAS 19, future pension payments are discounted 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 Kingdom, the USA and a number of other countries, funds intended to cover the pension entitlements of BMW Group employees are held in pension funds which are kept separate from corpo- rate assets and mainly invested in fixed-income securities (with a high level of creditworthiness), equities, property and other investment classes. In 2008, a part of the pension obligations arising in Germany was also transferred to an external fund, namely to BMW Trust e. V. It is planned that further pension obligations will be externalised in the coming years. Risks affecting pension funds are monitored continuously and managed from a risk and yield perspective. Regular asset-liability studies are performed and used to match the maturities of interest-generating investments with future pension payments, thereby reducing the interest rate risk relating to pensions. Investments are broadly spread in order to reduce risk. In addition, risk limits for investment activities have been defined for each pension fund and are monitored continuously. Risk indicators (e. g. value-at-risk) are regularly computed in order to identify risks at an early stage and used to de- velop measures to mitigate risk. Information and IT risks In the BMW Group, great importance is attached to the protection of data, business secrets and innovative devel- opment to safeguard against unauthorised access, damage and misuse. The protection of information and data is an integral component of business processes and systems are based on international security standards. Staff, process design and information technology each play a role in the overall security concept. Groupwide standards, which are incorporated in the BMW Group’s set of core principles and documented in detailed working instructions, require employees to handle all information appropriately and to ensure that information systems are properly used. Pur- poseful communication and training measures create a high degree of security awareness on the part of the em- ployees involved. Employees receive training from the Group’s Compliance Organisation to ensure compliance with legal and regulatory requirements. The technical data protection procedures used by the BMW Group include process-specific security measures 67 Group Management Report as well as standard activities such as virus scanners, fire- wall systems and access controls at both operating system and application level. Further measures include internal testing procedures and the regular backing up of data. A security network is in place groupwide 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 Opera- tions Centre which is responsible for the security of inter- nal network communications. The Group’s core process “Product Development” and the related IT infrastructure have been audited and certified as conforming to interna- tional security standard ISO 27001. The protection of BMW Group-specific know-how also plays an important role in cooperation arrangements and relationships with partner companies. 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 pertaining to key areas of expertise is subject to particularly stringent security measures.  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 68 Outlook The economic environment in 2009 The BMW Group forecasts that the global economic down- turn will continue throughout the whole of 2009. Economic output in most industrial countries is likely to shrink in the current year. The dynamism of emerging markets is also likely to slacken noticeably. An end to the downturn is not likely to come until confidence in the credit markets is re- stored and the property markets recover. This, however, is unlikely to happen before the end of 2009. The turmoil on the property and credit markets in the USA will have a massive impact on the real economy in 2009. The situation cannot be expected to calm down until the second half of the year at the earliest. Consumer spending in particular will remain weak in the USA. Both the US Reserve Bank and the US Government are endeavouring with all means available to them to prevent the recession becoming any worse. These measures will, however, not be able to prevent a drop in economic output on a full year basis. Europe will also suffer heavily in 2009 from the consequences of the economic and financial crisis. The gross domestic product is likely to shrink in this region too. Exports will drop further in the wake of the global economic downturn and consumer spending will falter in the face of uncertainty as to how the future will unfold. Governments and central banks in Europe will also apply countermeasures in the form of fiscal and monetary policies. The growth rate in Germany in 2009 is also likely to be negative. Consumer spending will once again fail to gen- erate any growth, while shrinking exports will also have a negative impact. The Japanese economy will also contract in 2009. The negative trend with exports and the weakness of domestic demand will continue. Due to its policy of low interest rates to date, the Japanese Reserve Bank does not have the option of reducing interest rates further. Manoeuvring room for fiscal measures is also restricted due to the high level of national debt. Growth rates in the emerging markets of Asia, Latin America and Eastern Europe are also likely to weaken significantly in 2009. In these regions, the global economic downturn will primarily have a negative impact on exports. Euro likely to remain strong The value of the US dollar against the euro increased sig- nificantly in the course of 2008. However, lower growth and lower interest rates plus the very high current account defi- cit in the USA suggest that the US dollar will depreciate in value once again. The British pound lost significant ground against the euro in 2008. In contrast, the Japanese yen appreciated sharply against the euro over the course of the year. In 2009, the Japanese yen is forecast to remain stable. Risks affecting economic growth The greatest risk for the global economy continues to come from the world’s financial crisis and its knock-on impact on markets for goods and services. If confidence in the credit markets is restored more slowly than is currently being predicted, the impact for the global economy would be even more severe. The global recession will then be longer and have more serious consequences. Although energy and raw material prices fell sharply in 2008, they still remain above long-term average levels. At present, the global economic downturn is preventing higher prices on the energy and commodity markets. Nevertheless, the risk remains of excessive price reactions caused by specu- lative forces. Car markets in 2009 The financial crisis will again have a massively adverse impact on the global automotive economy in 2009. Overall, the slump in the world’s industrial countries is expected to be at least as severe as in 2008. Impetus from the triad of traditional markets (the USA, Japan and Western Europe) will once again be extremely weak in 2009. Passenger car sales are again likely to drop sharply. In Germany, the negative growth rate will probably be even higher than in 2008. Lower volumes, in some cases reflecting quite substantial reductions, are also predicted for the majority of emerging markets. Even markets such as China and India which have experienced extreme high growth rates up to now are likely to see fewer new registrations. In Russia the reduction could even reach the double-digit range. The same applies to most markets in Eastern Europe and Latin America. Motorcycle markets in 2009 One of the features of the motorcycle business is that most sales are recorded by the middle of the year. Largely because of this seasonal pattern, the BMW Group does not now expect to see a recovery of the motorcycles mar- kets in 2009. Since the financial crisis and resulting crisis in 69 Group Management Report confidence is likely to last throughout the entire year, the performance of motorcycle markets will be severely affected in 2009. In line with the overall trend, the BMW Group fore- casts that motorcycle sales in the 500 cc plus segment will be down in 2009. Financial services sector in 2009 The business climate in the financial services sector is cur- rently being overshadowed by a high degree of uncertainty, which, in turn, is having a negative impact on the refinanc- ing and liquidity situation and the bad debt risk exposure of the whole sector. Until confidence in the financial markets is restored, there can be little hope that refinancing condi- tions will stabilise. Based on recent developments, the situation on credit markets is unlikely to ease quickly. If the economic down- ward trend continues, the financial services sector too is likely to have to bear further losses in conjunction with credit risk. A recovery of the prices on the used car markets is also not in sight before the end of 2009. Outlook for the BMW Group in 2009 Towards the end of 2008 the situation on international financial markets climaxed in an unprecedented fashion. At the same time, the crisis also spilled over to the real economy worldwide. The rapid pace of the economic downturn and uncertainty as to how the economic crisis will proceed make reliable forecasts extremely difficult, even for the near future. The current business environment will also make the year 2009 a challenging one for the BMW Group. By the same token, the BMW Group has shown on numerous occasions in the past its ability to adapt successfully to changing con- ditions. Processes and structures have also been newly aligned and continually improved at the same time. For these reasons, the BMW Group has – now more than ever – the necessary manoeuvring room to position itself appro- priately during the economic crisis in order to ensure as good a starting position as possible for the ensuing phase of economic recovery. As long as the current situation shows no signs of easing, the BMW Group will continue to charter its course through this phase of extreme uncertainty by applying the neces- sary combination of coordinated tactical measures and a high degree of flexibility. In this way, the BMW Group is bracing itself to cope with the market conditions that the year 2009 brings with it. The necessary flexibility was shown in early adoption of a wide range of measures to bring car production volumes into line with falling worldwide demand. The various meas- ures implemented – such as flexible deployment of em- ployees in the production network, the use of employee time accounts and the option of employees taking sab- baticals – are decided on in close cooperation with em- ployee representatives. Production volumes are also being managed by the use of temporary short-time working arrangements at specific sites. The BMW Group has also been able to reduce workforce numbers on a targeted basis, especially in the production area, by introducing efficiency improvements, thus enabling personnel ex- pense to be adapted to changing conditions at an early stage. Due to its flexible manufacturing structures, the BMW Group is second to none in competitive terms. The extreme flexi- bility of the production network therefore provides a clear competitive advantage, enabling the BMW Group to adjust production capacities in line with changing situations on the various sales markets. The Group’s customer-oriented sales and production processes enable capacities and sales processes to be adjusted flexibly and at short notice. On the sales side, the BMW Group is responding to the challenges it faces by intensifying its various sales strate- gies. As part of the process of managing sales volume, this also includes tailoring volumes to suit demand in individual sales markets. This strategy allows the BMW Group to react quickly to changes in demand with due regard to its strong market position, customer satisfaction and the sta- bility of the dealer organisation. The BMW Group took measures to allow for changing busi- ness conditions at an early stage. For example, the first signs of problems in 2008 triggered an early adjustment to risk provisions when the portfolio of lease cars was reas- sessed. This move took account of the specific risks iden- tified as well as the impact on the lease portfolio. In view of the currently adverse climate, the strategy Number ONE is proving to be an appropriate and forward- looking entrepreneurial decision for redirecting the BMW Group. A great deal of preliminary work was carried out in originally developing this strategy. With business condi- tions having deteriorated so extremely, this preliminary work is proving to be a highly useful instrument in man- aging the business in the short term. The initiatives that emerged from the strategy Number ONE are now helping the business to charter its course through the crisis and  Group Management Report A Review of the Financial Year 14 14 16 General Economic Environment 20 42 45 Internal Management System Earnings Performance Financial Position Review of Operations BMW Stock and Bonds Disclosures pursuant to § 289 (4) and § 315 (4) HGB Financial Analysis 47 49 51 52 Net Assets Position Subsequent Events Report 55 Value Added Statement 55 57 Key Performance Figures 58 Comments on BMW AG Risk Management Outlook 47 62 68 70 will significantly improve opportunities for the BMW Group when the situation begins to ease. Thanks to its broad expertise in the area of innovation, the BMW Group will retain its ability to satisfy the needs of its customers with its premium products and services. In the subsequent phase of economic recovery – which is generally expected to gather pace during the course of 2010 – the BMW Group will also benefit from the addi- tional impetus generated by its renewed range of models. Recently, for example, the new BMW Z4 and the MINI Con- vertible were presented to the public at the North Ameri- can International Auto Show in Detroit. At the beginning of February, the new BMW 7 Series came onto the markets (in the USA and Asia together with the extended wheelbase version) and are receiving a positive response from cus- tomers and the media alike. In 2009, the X range of vehicles will be extended by the addition of the BMW X1. The BMW Group will also expand its portfolio with the Progressive Activity Sedan (PAS), the concept study of which was pre- sented at the Geneva Motor Show. After-sales business continues to gain in strategic impor- tance for the BMW Group. A worldwide initiative is cur- rently being implemented to tap the full potential of further profitable growth in the service and spare parts lines of business. Despite difficult conditions, the BMW Group has success- fully managed to increase efficiency and operating per- formance. Ongoing initiatives to improve efficiency and productivity on a continuous basis ensure the sustainable and economic use of resources. On the cost side, these measures represent another important aspect of the BMW Group’s new strategic direction. Good progress has already been made in implementing the profitability pro- gramme in the areas of fixed and variable costs. This is being achieved by rigorous exploitation of benefits of scale, standardisation of processes throughout the business and targeted management of capital employed. The BMW Group’s research and development expense ratio in 2008 was within the announced target range of 5.0 % to 5.5 % of revenues. Despite its efforts to rationalise re- search and development activities, the BMW Group will continue to develop visionary products and technologies – such as the MINI E – and thus ensure that the combustion engine is not the only field in which it sets standards. The BMW Group will also continue to invest in the future in or- der to extend its competitive advantage. This also includes the development of innovative mobility concepts in con- junction with project i. In the current transitional phase, up- front expenditure in this area provides an important basis for opening up medium and long-term opportunities. Rising to the substantial challenges that it faces, the BMW Group is now intensifying the various measures it has initi- ated to implement its new strategic direction. The BMW Group is convinced that these initiatives will yield benefits for the business in the medium term. This confidence is based, amongst other things, on a dis- cernible trend towards smaller-sized and more efficient drive systems that are nevertheless powerful. The BMW Group recognised this trend at an early stage. After meas- uring the impact on its own model programme, these concepts have now been incorporated in future forecasts. This trend and the move towards a CO2 emissions-based tax are seen as the first important steps towards creating stable legal conditions, thus giving the BMW Group a great opportunity to increase its technological lead with Efficient Dynamics. Automobiles segment As a result of the massively adverse impact of the economic crisis, the BMW Group does not expect to achieve the car sales volume level it recorded in 2008. The prevailing uncertainties make it difficult to forecast sales volumes at present. The BMW Group is working on various market and sales volume performance scenarios and is preparing the appropriate measures. From today’s perspective, the BMW Group believes that these uncertainties will remain throughout 2009 and the following year. Since economic recovery generally lags behind, it is not now expected that the targeted return on sales and EBIT margin for 2010 will be achieved. Motorcycles segment The BMW Group will continue the Motorcycles segment’s new model initiative in 2009 in an attempt to counter the reduction in consumer spending caused by the financial crisis. Despite this, motorcycle sales volume is still forecast to be lower than in 2008. Financial Services segment Business conditions for the Financial Services segment will again be subjected to a high degree of volatility in 2009. The availability of attractive credit and lease products for cus- tomers of BMW, MINI and Rolls-Royce brand cars will remain the basis for sustainable growth in the segment’s business volume. The same applies in the area of dealer financing. 71 Group Management Report If the situation on used car markets does not stabilise in 2009, further losses on the sale of vehicles coming out of leases cannot be ruled out. Given the current economic situation, it seems unlikely that the bad debts risk for the retail customer and dealer financing lines of business will diminish in the short term. As part of the strategy Number ONE, the further develop- ment of the various lines of business will be reviewed in the light of changed external parameters. As well as focusing on service quality and process efficiency, greater impor- tance will be attached to achieving a well-balanced earnings and risk profile for the segment’s various lines of business. Profitability targets for 2012 remain in place Against the background of the business conditions de- scribed above, it is not possible to provide any further quan- titative earnings forecasts over and beyond those that are necessarily made in conjunction with the preparation of the Group Financial Statements and that are described in the notes to the Group Financial Statements and in the Group Management Report. Since economic recovery will lag behind, the original fore- cast for the financial year 2009 and the target for 2010 are not attainable. The profitability targets for 2012 set in con- junction with the strategy Number ONE nevertheless remain in place. The BMW Group will continue to steer its new strategic course by stepping up cost-cutting and efficiency improvement measures and still intends to achieve a return on capital employed (ROCE) in the Auto- mobiles segment in excess of 26 % and a return on sales of between 8 % and 10 %. With its strategy Number ONE and the rigorous value- added approach adopted, the BMW Group is laying the foundation for achieving its ambitious targets in the future. 72 Group Financial Statements BMW Group Income Statement for Group and Segments 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 Interest and similar income Interest and similar expenses Other financial result Financial result Profit before tax Income taxes Net profit / loss Attributable to minority interest Attributable to shareholders of BMW AG Earnings per share of common stock in euro Earnings per share of preferred stock in euro * adjusted for changed presentation of financial result Note Group 2008 2007 * Automobiles Motorcycles Financial Services Other Entities Eliminations 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 8 9 10 11 12 12 13 14 14 15 16 17 17 53,197 56,018 – 44,323 – 43,832 8,874 12,186 – 5,369 – 2,825 1,428 – 1,187 921 26 685 – 930 – 351 – 570 – 5,254 – 2,920 730 – 530 4,212 11 645 – 897 – 98 – 339 351 3,873 318 3,232 51 71 – 292 743 295 168 – 21 – 341 – 21 330 6 324 0.49 0.51 – 739 3,134 8 3,126 4.78 4.80 48,782 53,818 – 40,791 – 43,290 7,991 10,528 – 4,572 – 2,714 559 – 574 690 25 766 –1,036 –127 – 372 – 4,417 – 2,805 552 – 408 3,450 11 710 – 870 – 69 – 218 – 92 226 6 220 – 511 2,721 8 2,713 1,230 – 913 317 –147 –111 3 – 2 60 – 1 – 10 – – 9 – 14 37 – 37 1,228 – 883 345 –152 –115 2 – 80 – – – 9 – – 9 –11 60 – 60 15,725 13,940 –15,332 –12,595 393 1,345 – 583 – 606 – 31 – 57 – 216 – 2 – 8 – 70 – 76 131 –161 – –161 – 25 – 47 717 – 2 – 2 26 26 – 269 474 – 474 191 –145 46 – 57 – 891 – 607 273 1 2,102 –154 22 –16 279 – 279 290 – 229 61 – 76 – 209 –145 49 – 1,768 – 58 119 – 5 163 – 163 –12,731 –13,258 12,858 13,165 127 – 93 –10 – – 56 53 114 – 3 – – 58 70 – 84 – – – 2,186 –1,835 – –135 3 – 257 – 30 – 51 – – 51 57 – 284 – – 284 –1,927 –1,591 2,051 1,575 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 73 Group Financial Statements 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 Interest and similar income Interest and similar expenses Other financial result Financial result Profit before tax Income taxes Net profit / loss Attributable to minority interest Attributable to shareholders of BMW AG Earnings per share of common stock in euro Earnings per share of preferred stock in euro * adjusted for changed presentation of financial result Note Group 2008 2007 * Automobiles Motorcycles Financial Services Other Entities Eliminations 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 48,782 53,818 – 40,791 – 43,290 7,991 10,528 – 4,572 – 2,714 559 – 574 690 25 766 –1,036 –127 – 372 – 4,417 – 2,805 552 – 408 3,450 11 710 – 870 – 69 – 218 1,230 – 913 317 –147 –111 3 – 2 60 – 1 – 10 – – 9 1,228 – 883 345 –152 –115 2 – 80 – – – 9 – – 9 15,725 13,940 –15,332 –12,595 393 1,345 – 583 – 606 – 31 – 57 – 216 – 2 – 8 – 70 – 76 – 25 – 47 717 – 2 – 2 26 26 191 –145 46 – 57 – 891 – 607 273 1 2,102 290 – 229 61 – 76 – 209 –145 49 – 1,768 –12,731 –13,258 12,858 13,165 127 – 93 –10 – – 56 53 114 – 3 – – 58 70 – 84 – – – 2,186 –1,835 –1,927 –1,591 2,051 1,575 –154 22 – 58 119 – –135 3 – 257 351 3,873 318 3,232 51 71 – 292 743 295 168 – 21 – 341 – 92 226 6 220 – 511 2,721 8 2,713 – 14 37 – 37 –11 60 – 60 131 –161 – –161 – 269 474 – 474 –16 279 – 279 – 5 163 – 163 – 30 – 51 – – 51 57 – 284 – – 284 8 9 10 11 12 12 13 14 14 15 16 17 17 53,197 56,018 – 44,323 – 43,832 8,874 12,186 – 5,369 – 2,825 1,428 – 1,187 921 26 685 – 930 – 351 – 570 – 21 330 6 324 0.49 0.51 – 5,254 – 2,920 730 – 530 4,212 11 645 – 897 – 98 – 339 – 739 3,134 8 3,126 4.78 4.80 74 BMW Group Balance Sheet for Group and Segments at 31 December Assets in euro million 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 Total assets Equity and liabilities in euro million Subscribed capital Capital reserves Revenue reserves Accumulated other equity Treasury shares Minority interest Equity Pension provisions Other provisions Deferred tax Financial liabilities Other liabilities Non-current provisions and liabilities Other provisions Current tax Financial liabilities Trade payables Other liabilities Current provisions and liabilities Total equity and liabilities Note Group 2008 2007 Automobiles Motorcycles Financial Services Other Entities Eliminations 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 20 21 22 23 23 24 25 26 27 28 29 24 25 26 27 30 5,641 11,292 19,524 111 322 22,192 1,808 866 660 5,670 11,108 17,013 63 209 20,248 1,173 720 415 62,416 56,619 7,290 2,305 7,349 2,672 15,871 13,996 3,306 602 1,842 7,454 3,622 237 2,109 2,393 38,670 32,378 2,693 6,121 5,348 5,319 – 7,744 –11,254 22,192 20,248 23,248 24,147 244 259 41,453 22,590 19,911 – 3,334 – 3,152 123 25 – 25 424 485 1,961 47,825 9 122 839 39 3,034 2,053 120 25 – 23 349 385 392 9 80 442 8 2,879 789 15,871 13,996 64 – – 29 – 1,381 160 14,055 21,037 – 4 – 1,481 205 152 19 – – – 762 219 11,015 17,486 13 35 – 1,026 49 – – – – – 1 – – – – – 235 –1,125 – 30 – 894 –17,500 –11,396 – 29,938 – 26,726 -415 – 580 – – – – –1 – – – – 21,967 18,203 23,127 21,415 – 36,745 – 35,918 21,109 19,937 – 36,329 – 35,337 328 355 101,086 88,997 53,183 52,414 69,792 59,656 44,164 38,901 – 66,683 – 62,644 Note Group 2008 2007 Automobiles Motorcycles Financial Services Other Entities Eliminations 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 654 1,911 20,419 – 2,709 –10 8 654 1,911 20,789 –1,621 – 11 20,273 21,744 22,481 21,583 – – 3,752 4,139 4,883 8,499 –10,843 –12,477 3,314 2,757 2,757 30,497 2,201 41,526 2,125 633 4,627 2,676 2,714 21,428 2,024 33,469 2,826 808 29,887 22,493 2,562 4,080 3,551 4,106 39,287 33,784 28 252 3,096 10,030 14,128 27,534 311 105 364 22,519 38,506 31 258 2,725 7,663 12,020 22,697 178 115 612 21,109 32,820 317 30 18 654 2 12 – – – – – 2,290 – 2,087 18,018 13,063 – 236 –13 586 418 –16,751 –12,723 18,969 14,149 – 19,277 –14,823 2 60 9 27 63 18 – 4 – – 414 – – 26 – – 598 –10 7,746 20,312 5,947 16,253 – 36,145 – 34,710 – 36,563 – 35,344 15,207 10,806 12,495 10,198 31 32 33 34 35 36 33 34 35 37 36 101,086 88,997 53,183 52,414 69,792 59,656 44,164 38,901 – 66,683 – 62,644 5,403 11,074 268 82 – 238 1,346 2,144 7,005 2,070 – 1,401 358 14,028 5,073 29,935 5,333 10,870 254 63 – 92 1,010 404 7,036 2,438 – 2,734 180 14,630 1,249 28,267 13,861 10,986 2,847 2,412 1,931 2,685 3,986 1,795 468 2,599 2,029 9,950 16,841 3,831 2,354 2,062 715 2,024 2,612 630 2,087 2,769 11,747 19,845 51 193 65 194 – – – – – – – 277 109 – – – – – 386 630 122 63 2 – 252 439 21 – – 160 10 191 630 – – – – – – – 292 119 – – – – – 411 670 111 62 2 – 285 460 35 – – 162 13 210 670 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 Receivables from sales financing 15,871 13,996 Assets in euro million 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 Financial assets Current tax Other assets Cash and cash equivalents Current assets Total assets Equity and liabilities in euro million Subscribed capital Capital reserves Revenue reserves Accumulated other equity Treasury shares Minority interest Equity Pension provisions Other provisions Deferred tax Financial liabilities Other liabilities Other provisions Current tax Financial liabilities Trade payables Other liabilities Non-current provisions and liabilities Current provisions and liabilities Total equity and liabilities 20 21 22 23 23 24 25 26 27 28 29 24 25 26 27 30 31 32 33 34 35 36 33 34 35 37 36 38,670 32,378 5,641 11,292 19,524 111 322 22,192 1,808 866 660 7,290 2,305 3,306 602 1,842 7,454 654 1,911 20,419 – 2,709 –10 8 3,314 2,757 2,757 30,497 2,201 41,526 2,125 633 2,562 4,080 5,670 11,108 17,013 63 209 20,248 1,173 720 415 7,349 2,672 3,622 237 2,109 2,393 654 1,911 20,789 –1,621 – 11 4,627 2,676 2,714 21,428 2,024 33,469 2,826 808 3,551 4,106 29,887 22,493 39,287 33,784 75 Group Financial Statements Note Group 2008 2007 Automobiles Motorcycles Financial Services Other Entities Eliminations 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 5,403 11,074 268 82 5,333 10,870 254 63 2,693 6,121 – 238 1,346 2,144 – 92 1,010 404 51 193 65 194 – – – – – – – – – – – – – – 62,416 56,619 23,248 24,147 244 259 7,005 2,070 – 1,401 358 14,028 5,073 29,935 7,036 2,438 – 2,734 180 14,630 1,249 28,267 101,086 88,997 53,183 52,414 277 109 – – – – – 386 630 292 119 – – – – – 411 670 123 25 120 25 22,590 19,911 – 25 – 23 22,192 20,248 424 485 1,961 47,825 9 122 349 385 392 41,453 9 80 15,871 13,996 839 39 3,034 2,053 442 8 2,879 789 64 – – 29 152 19 – – – – – – – 3,334 – 3,152 – – 5,348 5,319 – 7,744 –11,254 – 1,381 160 14,055 21,037 – 4 – 1,481 205 – 762 219 11,015 17,486 13 35 – 1,026 49 – – 235 –1,125 – – 30 – 894 –17,500 –11,396 – 29,938 – 26,726 – 1 – – –1 – – -415 – 580 – – 21,109 19,937 – 36,329 – 35,337 328 355 – – 21,967 18,203 23,127 21,415 – 36,745 – 35,918 69,792 59,656 44,164 38,901 – 66,683 – 62,644 Note Group 2008 2007 Automobiles Motorcycles Financial Services Other Entities Eliminations 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 20,273 21,744 22,481 21,583 – – 3,752 4,139 4,883 8,499 –10,843 –12,477 2,847 2,412 1,931 2,685 3,986 3,831 2,354 2,062 715 2,024 13,861 10,986 1,795 468 2,599 2,029 9,950 16,841 2,612 630 2,087 2,769 11,747 19,845 101,086 88,997 53,183 52,414 122 63 2 – 252 439 21 – – 160 10 191 630 111 62 2 – 285 460 35 – – 162 13 210 670 28 252 3,096 10,030 14,128 27,534 311 105 31 258 2,725 7,663 12,020 22,697 178 115 317 30 18 654 2 12 – – – – – 2,290 – 2,087 18,018 13,063 – 236 –13 586 418 –16,751 –12,723 18,969 14,149 – 19,277 –14,823 2 60 27 63 15,207 10,806 12,495 10,198 364 22,519 38,506 612 21,109 32,820 9 7,746 20,312 18 5,947 16,253 – 4 – – 414 – – 26 – – 598 –10 – 36,145 – 34,710 – 36,563 – 35,344 69,792 59,656 44,164 38,901 – 66,683 – 62,644 76 BMW Group Cash Flow Statement for Group and Segments in euro million Net profit / loss Reconciliation of net profit / loss to cash inflow from operating activities Current tax Other interest and similar income / expenses 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 Interest received Note Group 2008 2007 1 Automobiles Financial Services 2008 2007 1 2008 2007 1 330 3,134 226 2,721 –161 474 Net profit / loss 75 –169 6,763 3,676 – 332 – 51 424 – 21 – 26 37 859 – 485 – 448 240 1,002 – 62 4,698 3,689 221 – 256 111 –181 –11 – 700 398 571 – 817 386 Cash inflow from operating activities 40 10,872 12,183 5,110 Cash inflow from operating activities Investment in intangible assets and property, plant and equipment – 4,204 – 4,267 – 4,114 – 4,103 – 31 –110 Investment in intangible assets and property, plant and equipment Reconciliation of net profit / loss to cash inflow from operating activities Current tax Other interest and similar income / expenses 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 Interest received Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investments Proceeds from the disposal of investments 1 – 2 4,324 24 –109 358 – 78 1 – 3 – 528 738 – 98 – 2 2 – – – 9 379 –113 6 3,567 – 515 – 213 94 – 22 – 25 9 597 571 – 281 191 4,471 177 – 319 2 – 353 333 – – – 5,317 5,039 – 4,552 –10 – 694 –127 – – 2,786 2,858 – 868 3,945 1,043 –155 4 3,568 236 – 459 98 –180 –11 – 663 371 85 – 589 177 6,246 270 –147 16 – – – 2,698 2,568 – 4,099 – – 458 – 147 – – –1,389 – 333 845 –1,482 – 294 5 6,591 26 62 192 163 1 – 1 –1,177 268 – 74 – 5,603 – – – – 75 260 – – – 1,129 –1,412 3,768 6,405 – 9,890 – 359 – 14,811 –12,902 Investment in leased products 354 5,507 4,563 Disposals of leased products – 61,630 – 54,573 Additions to receivables from sales financing 56,562 49,813 Payments received on receivables from sales financing Investment in marketable securities Proceeds from marketable securities – – – 2 1,127 –1,160 6,233 2,140 Repurchase of treasury shares Payment of dividend for the previous year Interest paid Proceeds from the issue of bonds Repayment of bonds Internal financing Change in other financial liabilities – Change in commercial paper 8,340 Cash inflow / outflow from financing activities 177 – 142 2 272 – 44 16 – 15,164 –13,261 5,840 4,917 – 61,630 – 54,573 56,562 – 5,392 5,299 49,813 – 2,698 2,577 40 –18,652 –17,248 –14,218 –13,198 Cash outflow from investing activities 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 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 Repurchase of treasury shares Payment of dividend for the previous year Interest paid Proceeds from the issue of bonds Repayment of bonds Internal financing Change in other financial liabilities Change in commercial paper –10 – 694 – 312 9,959 – – 458 – 389 6,038 – 5,080 – 4,152 – 9,050 – 9 12,904 – 3,603 1,526 6,168 Cash inflow / outflow from financing activities 40 Effect of exchange rate and changes in composition of Group on cash and cash equivalents 40 – 63 – 46 – 40 – 15 –11 – 20 Effect of exchange rate and changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents 5,061 1,057 3,824 650 1,264 232 Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 40 2,393 7,454 1,336 2,393 1,249 5,073 599 1,249 789 2,053 557 789 Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 1 adjusted for changed presentation of interest 2 Interest relating to financial services business is generally classified as revenues / cost of sales. 77 Group Financial Statements Note Group 2008 2007 1 Automobiles Financial Services 2008 2007 1 2008 2007 1 330 3,134 226 2,721 –161 474 Net profit / loss 379 –113 6 3,567 – 515 – 213 94 – 22 – 25 9 597 571 – 281 191 4,471 1,043 –155 4 3,568 236 – 459 98 –180 –11 – 663 371 85 – 589 177 6,246 – 294 5 6,591 26 62 192 163 1 – 1 –1,177 268 – 74 – 5,603 1 – 2 4,324 24 –109 358 – 78 1 – 3 – 528 738 – 98 – 2 Reconciliation of net profit / loss to cash inflow from operating activities Current tax Other interest and similar income / expenses 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 Interest received 5,110 Cash inflow from operating activities Investment in intangible assets and property, plant and equipment – 4,204 – 4,267 – 4,114 – 4,103 – 31 –110 Investment in intangible assets and property, plant and equipment 177 – 319 2 – 353 333 – – – 5,317 5,039 – 4,552 –10 – 694 –127 – – 2,786 2,858 – 868 3,945 270 –147 16 – – – 2 – – Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investments Proceeds from the disposal of investments – 359 – 14,811 –12,902 Investment in leased products 354 5,507 4,563 Disposals of leased products – – – 2,698 2,568 – 4,099 – – 458 – 147 – – –1,389 – 333 845 –1,482 – 61,630 – 54,573 Additions to receivables from sales financing 56,562 49,813 Payments received on receivables from sales financing – 75 260 – 9 Investment in marketable securities Proceeds from marketable securities –14,218 –13,198 Cash outflow from investing activities – – – 1,129 –1,412 3,768 6,405 – 9,890 – – – 2 1,127 –1,160 6,233 2,140 Repurchase of treasury shares Payment of dividend for the previous year Interest paid Proceeds from the issue of bonds Repayment of bonds Internal financing Change in other financial liabilities – Change in commercial paper 8,340 Cash inflow / outflow from financing activities Effect of exchange rate and changes in composition of Group on cash and cash equivalents 40 – 63 – 46 – 40 – 15 –11 – 20 Effect of exchange rate and changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents 5,061 1,057 3,824 650 1,264 232 Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 40 2,393 7,454 1,336 2,393 1,249 5,073 599 1,249 789 2,053 557 789 Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 1 adjusted for changed presentation of interest 2 Interest relating to financial services business is generally classified as revenues / cost of sales. Cash inflow from operating activities 40 10,872 12,183 in euro million Net profit / loss Current tax Reconciliation of net profit / loss to cash inflow from operating activities Other interest and similar income / expenses 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 Interest received 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 Repurchase of treasury shares Payment of dividend for the previous year Interest paid Proceeds from the issue of bonds Repayment of bonds Internal financing Change in other financial liabilities Change in commercial paper Cash inflow / outflow from financing activities 40 75 –169 6,763 3,676 – 332 – 51 424 – 21 – 26 37 859 – 485 – 448 240 177 – 142 2 –10 – 694 – 312 9,959 – 9,050 – 9 12,904 1,002 – 62 4,698 3,689 221 – 256 111 –181 –11 – 700 398 571 – 817 386 272 – 44 16 – – 458 – 389 6,038 – 3,603 1,526 6,168 – 15,164 –13,261 5,840 4,917 – 61,630 – 54,573 56,562 – 5,392 5,299 49,813 – 2,698 2,577 40 –18,652 –17,248 – 5,080 – 4,152 78 BMW Group Statement of Income and Expenses recognised in Equity in euro million 2008 2007 Fair value gains and losses on available-for-sale investments recognised directly in equity – 7 –183 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 Profit after tax attributable to shareholders of BMW AG Aggregate amount of net profit for period and gains and losses recognised in equity – 617 – 806 116 226 –1,088 373 – 422 559 – 388 – 61 324 3,126 – 764 3,065 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 79 Group Financial Statements BMW Group Notes to the Group Financial Statements Accounting Principles and Policies 1 Basis of preparation The consolidated financial statements of Bayerische Motoren Werke Aktiengesellschaft (“BMW Group Financial Statements” or “Group Financial Statements”) at 31 De- cember 2008 have been drawn up in accordance with International Financial Reporting Standards (IFRSs) as en- dorsed by the EU. The designation “IFRSs” also includes all valid International Accounting Standards (IASs). All Inter- pretations of the International Financial Reporting Inter- pretations Committee (IFRIC) mandatory for the financial year 2008 are also applied. The changes relate to the following: – supplementation of the Group Income Statement with segment income statements for the Automobiles, Motorcycles, Financial Services and Other Entities seg- ments, – supplementation of the Group Balance Sheet with seg- ment balance sheets for the Automobiles, Motorcycles, Financial Services and Other Entities segments and – supplementation of the Group Cash Flow Statement with segment cash flow statements for the Automobiles and Financial Services segments. The Group Financial Statements comply with § 315 a 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 consoli- dated financial statements in accordance with interna- tional standards in Germany and applies to financial years beginning on or after 1 January 2005. The BMW Group and segment income statements are presented using the cost of sales method. The Group and segment balance sheets correspond to the classification provisions contained in IAS 1 (Presentation of Financial Statements). In order to improve clarity, various items are aggregated in the income statement and balance sheet. These items are disclosed and analysed separately in the Notes. In order to support the sale of its products, the BMW Group provides various financial services – mainly credit and lease financing – to retail customers and to dealers. The in- clusion of the financial services activities of the Group has a significant impact on the Group Financial Statements. To coincide with the first-time application of IFRS 8 (Operating Segments) at 31 December 2008, the previous practise of providing additional information on the BMW Group’s Industrial Operations and Financial Operations has been discontinued and replaced by the uniform presenta- tion of segment information. In addition to the mandatory segment information disclosures required by IFRS 8, addi- tional detailed segment information is provided on a volun- tary basis in order to provide a better insight into the earn- ings, financial and net assets position of the BMW Group. Inter-segment transactions – relating primarily to internal sales of products, the provision of funds and the related in- terest – are eliminated in the “Eliminations” column. Fur- ther information regarding the allocation of activities of the BMW Group to segments and a description of the seg- ments is provided in the explanatory notes to segment in- formation on pages 129 – 131. The differences between the new and old method of presentation and a reconcilia- tion of significant performance indicators can be found on the BMW Group’s website at www.bmwgroup.com/ir. 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 marketable securities to refinance the purchase price. The BMW Group continues to “service” the receiv- ables and receives an appropriate fee for these services. In accordance with IAS 27 (Consolidated and Separate Financial Statements) and the interpretation contained 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 2008 totalled euro 8.7 billion (31 December 2007: euro 6.3 billion). In addition to credit financing and lease contracts, the Financial Services segment also brokers insurance busi- ness via cooperation arrangements entered into with 80 local insurance companies. These activities are not mate- rial 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 consolidated subsidiaries have the same year-end as BMW AG. The Group Financial Statements, drawn up in accordance with § 315 a HGB, and the Management Report for the financial year 2008 will be submitted 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 Manage- ment Report can be downloaded from the BMW Group website at www.bmwgroup.com/ir. The Board of Management authorised the Group Financial Statements for issue on 18 February 2009. 2 Consolidated companies The BMW Group Financial Statements include, besides BMW AG, all material subsidiaries, 7 special purpose secu- rities funds and 24 special purpose trusts (almost all used for asset-backed financing transactions). The number of subsidiaries, special purpose securities funds and other special purpose trusts included in the Group Financial Statements changed in 2008 as follows: Included at 31.12. 2007 Included for the first time in 2008 No longer included in 2008 Included at 31.12. 2008 Germany Foreign Total 49 – 18 31 155 9 11 153 204 9 29 184 54 subsidiaries (2007: 65), either dormant or generating a negligible volume of business, are not included. These subsidiaries were not consolidated because the resulting impact on the Group Financial Statements would not influence the economic decisions of users taken on the basis of the financial statements. Non-inclusion of operat- ing subsidiaries reduces total Group revenues by 1.1 % (2007: 1.2 %). The joint venture BMW Brilliance Automotive Ltd., Shen- yang, and the participation in Cirquent GmbH, Munich, are accounted for using the equity method. 14 (2007: 16) participations are not consolidated using the equity method on the grounds of immateriality. They are included in the balance sheet in the line “Other investments”, measured at cost less, where applicable, accumulated impairment losses. 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 www.bmwgroup.com/ir. BMW Roma S. r. l., Rome, BMW de Argentina S. A., Buenos Aires, and BMW of Manhattan, Inc., Wilmington, Del., are consolidated in the BMW Group Financial Statements for the first time. In addition, SimeLease (Malaysia) Sdn Bhd, Kuala Lumpur, and that entity’s subsidiary, SimeCredit (Malaysia) Sdn Bhd, Kuala Lumpur – acquired by BMW Holding B. V., The Hague, on 13 April 2007 following receipt of approval from the relevant local authorities – were also consolidated for the first time. The names of these entities were changed to BMW Lease (Malaysia) Sdn Bhd, Kuala Lumpur, and BMW Credit (Malaysia) Sdn Bhd, Kuala Lumpur, immediately after acquisition. A separate “List of Group Investments” pursuant to § 313 (4) HGB will be submitted to the operator of the electronic The purchase consideration for the two companies – all settled with cash and cash equivalents – was euro 23 million. 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 81 Group Financial Statements Transaction costs were not incurred. The transaction in- volved the acquisition of all issued share capital and voting rights. Based on the purchase price allocation, the follow- ing carrying amounts and fair values were attributed to the assets and liabilities of the acquired companies at the ac- quisition date: in euro million Assets Receivables from sales financing Other assets Liabilities Provisions Financial liabilities Other liabilities Net assets acquired Acquisition cost Goodwill Carrying amount / Fair value 179 3 4 141 28 9 23 14 The excess of cost over the fair value of recognised net assets amounted to euro 14 million. This relates primarily to potential synergy benefits that can be realised by ex- panding lease and financing business. The full amount is attributable to the Financial Services segment. This good- will is tested annually for impairment. BMW Lease (Malaysia) Sdn Bhd, Kuala Lumpur, and its subsidiary, BMW Credit (Malaysia) Sdn Bhd, Kuala Lumpur, recorded a net profit of euro 3 million in 2008. Net revenues of the two entities in 2008 amounted to euro 18 million. The companies entory AG, Ettlingen, axentiv AG, Darm- stadt, Nexolab GmbH, Munich, and F. A. S.T. Gesellschaft für angewandte Softwaretechnologie mbH, Munich, all ceased to be consolidated companies in 2008 following their merger with Cirquent GmbH, Munich. As a result of the sale of 72.9 % of Cirquent GmbH, Munich, with effect from 30 September 2008, that entity and its subsidiaries ceased to be consolidated companies on that date. Aveling Barford Manufacturing (Pty) Ltd., Cape Town, entory S. A. Luxembourg, Luxembourg, Midland Gears Ltd., Bracknell, Lingford Australia Pty Ltd., Sydney, and BMW Vertriebs GmbH, Munich – the latter due to its merger with BMW Leasing GmbH, Munich – also ceased to be consolidated companies. The BMW Group reporting entity also changed by com- parison to the previous year as a result of the first-time consolidation of four special purpose trusts and the decon- solidation of four special purpose trusts and ten special purpose securities funds. The changes are not material, because the resulting im- pact on the Group Financial Statements would not in- fluence the economic decisions of users taken on the basis of the financial statements. 3 Business disposals 72.9 % of the shares of Cirquent GmbH, Munich, were sold with effect from 30 September 2008. Due to the fact that this entity is no longer controlled in accordance with the criteria stipulated in IAS 27, Cirquent GmbH, Munich, and its subsidiaries arcensis GmbH, Stuttgart, Silverstroke AG, Ettlingen, Cirquent Ges. m. b. H., Vienna, Cirquent AG, Zurich, and Cirquent Ltd., Birmingham, ceased to be consolidated companies. A put option exists for the remaining 25.1 % of the shares of Cirquent GmbH, Munich, which can be exercised through to 2012. The remaining interest in Cirquent GmbH, Munich, is included in the Group Financial Statements as an invest- ment accounted for using the equity method. Income and expenses recorded by Cirquent GmbH, Munich, and by its subsidiaries during the first nine months of 2008 are included in the Group Financial Statements for the year ended 31 December 2008. 82 4 Consolidation principles The equity of subsidiaries is consolidated in accordance with IFRS 3 (Business Combinations). IFRS 3 requires that all business combinations are accounted for using the purchase method, whereby identifiable assets and liabili- ties 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 liabilities acquired over cost is recognised as goodwill and is subjected to a regular review for possible impairment. Goodwill of euro 91 million which arose prior to 1 January 1995 is netted against reserves. The companies BMW Roma S. r. l., Rome, and BMW de Argentina S. A., Buenos Aires, were consoli dated for the first time with effect from 1 January 2008. The equivalent date for BMW Lease (Malaysia) Sdn Bhd, Kuala Lumpur, and BMW Credit (Malaysia) Sdn Bhd, Kuala Lumpur, was 1 April 2008, and that for BMW of Manhattan, Inc., Wilming- ton, Del., was 1 October 2008. 5 Foreign currency translation The financial statements of consolidated companies 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 sub- sidiary 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. In- come and expenses of foreign subsidiaries are translated in the Group Financial Statements at the average ex- change 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 offset directly US Dollar British Pound Chinese Renminbi Japanese Yen Australian Dollar Receivables, liabilities, provisions, income and expenses and profits between consolidated companies (intragroup profits) are eliminated on consolidation. Under the equity method, investments are measured at the BMW Group’s share of equity taking account of fair value adjustments on acquisition, based on the Group’s shareholding. Any difference between the cost of invest- ment 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 exer- cised (IAS 28 Investments in Associates). This is normally the case when voting rights of between 20 % and 50 % are held (associated companies). against accumulated other equity. Exchange differences arising from the use of different exchange rates to translate the income statement are also offset directly against accu- mulated other equity. Foreign currency receivables and payables in the single entity accounts of BMW AG and subsidiaries are recorded, at the date of the transaction, at cost. Exchange gains and losses computed at the end of the reporting period are recognised as income or expense. The exchange rates of those currencies which have a material impact on the Group Financial Statements were as follows: Closing rate Average rate 31.12. 2008 31.12. 2007 2008 2007 1.40 0.95 9.54 126.74 2.03 1.46 0.73 10.70 163.77 1.67 1.47 0.80 10.23 152.29 1.74 1.37 0.68 10.42 161.28 1.64 6 Accounting principles The financial statements of BMW AG and of its subsidiar- ies 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 recognised when the risks and rewards of ownership of the goods are trans- ferred to the customer, the sales price is agreed or deter- minable and receipt of payment can be assumed. Rev- enues are stated net of discounts, allowances, settlement 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 83 Group Financial Statements discount and rebates. In the case of long-term construc- tion work, revenues are generally recognised in accord- ance with IAS 18 (Revenue) and IAS 11 (Construction Con- tracts) on the basis of the stage of completion of work performed using the “percentage of completion” method. Revenues also include lease rentals and interest income from financial services. If the sale of products includes a determinable amount for subsequent services (multiple-component contracts), the related revenues are deferred and recognised as income over the period of the contract. Amounts are normally rec- ognised as income by reference to the expected pattern of related expenditure. Profits arising on the sale of vehicles for which a BMW 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 pro- duction overheads, including depreciation/amortisation of property, plant and equipment and intangible assets re- lating to production 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 financial services business and interest expense from refinancing the entire financial services business, including the expense of risk provisions and write-downs, are reported in cost of sales. Research costs and development costs which are not capitalised are recognised as an expense when in- curred. 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 conditions 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 accordance with IAS 33 (Earnings per Share). Undiluted earnings per share are calculated for common and preferred stock by dividing the net profit after minority interests, as attributa- ble 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 finite useful lives are assessed regularly for recovera- bility and their carrying amounts are reduced to the recov- erable 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 prob- able that the development expenditure will generate future economic benefits. Capitalised development costs com- prise all expenditure that can be attributed directly to the development process, including development-related over- heads. Capitalised development costs are amortised on a systematic basis, following the commencement of pro- duction, 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 recognised at acquisi- tion or manufacturing cost less scheduled depreciation based on the estimated useful lives of the assets. Depre- ciation on property, plant and equipment reflects the pat- tern 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 depre- ciated separately. 84 Systematic depreciation is based on the following useful lives, applied throughout the BMW Group: in years Factory and office buildings, distribution facilities and residential buildings Plant and machinery Other equipment, factory and office equipment For machinery used in multiple-shift operations, depre- ciation rates are increased to account for the additional utilisation. 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 manu- facturing 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 pro- duced 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 assets are attributed to the lessee and in the case of operating leases the assets are attributed to the lessor. 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 recognised 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 acquisition 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. Residual value pro- visions are treated as write-downs and offset against leased products on the assets side of the balance sheet. 8 to 50 5 to 10 3 to 10 The recoverability of the carrying amount of intangible as- sets (including capitalised development costs and good- will) and property, plant and equipment is tested regularly for impairment in accordance with IAS 36 (Impairment of Assets) on the basis of cash generating units. This relates primarily to capitalised 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 recoverable 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 reason for the previously recognised impairment loss no longer exists, the impair- ment loss is reversed up to the level of its rolled-forward depreciated or amortised cost. Investments accounted for using the equity method are measured at the Group’s share of equity taking account of fair value adjustments on acquisition unless the invest- ment is impaired. Investments in non-consolidated subsidiaries reported in other investments are measured at cost or, if lower, at their fair value. Participations are measured at their quoted market price or fair value. When, in individual cases, these values are not available or cannot be determined reliably, participations are measured at cost. Non-current marketable securities are measured according to the category of financial asset to which they are classi- fied. No held-for-trading financial 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 transaction costs. 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 85 Group Financial Statements 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 appro- priate valuation techniques e.g. discounted cash flow analysis based on market information available at the end of the reporting period. Available-for-sale assets include financial assets, securities and investment fund shares. This category 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 quotations in an active market are not available and whose fair value cannot be determined reliably, are measured, 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: Recog- nition and Measurement), assessments are made regularly as to whether there is any objective evidence that a finan- cial 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 previously recognised in equity is included in net profit or loss for the period. With the exception of derivative financial instruments, all receivables and other current assets relate to loans and receivables which are not held for trading and they are measured at amortised cost. Receivables with maturities of over one year which bear no or a lower-than-market in- terest 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 relating to the financial services business are recognised using a uniform method- ology that is applied throughout the Group and meets the requirements of IAS 39. This methodology results in the recognition of impairment losses on individual assets and groups of assets. If there is objective evidence of impair- ment, the BMW Group recognises impairment losses on the basis of individual assets. Within the customer retail business, the existence of overdue balances or the inci- dence of similar events in the past are examples 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 receivables, the allocation of the dealer to a cor- responding rating category is also deemed to represent objective evidence of impairment. If there is no objective evidence of impairment, impairment losses are recognised on financial assets using a portfolio approach based on similar groups of assets. Company-specific loss proba- bilities and loss ratios, derived from historical data, are used to measure impairment losses on similar groups of assets. The recognition of impairment losses on receivables relat- ing to industrial business is also, as far as possible, based on the same process applied to financial services business. Impairment losses (write-downs and allowances) on re- ceivables are always recorded on separate accounts and are not written off until the corresponding receivables are derecognised. Items are presented as financial assets to the extent that they relate to financing transactions. Derivative financial instruments are only used within the BMW Group for hedging purposes in order to reduce the currency, interest rate and market price risks from operating activities and related financing requirements. All derivative financial instruments (such as interest, currency and com- bined 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 rec- ognised either in income or directly in equity under accu- mulated other equity, depending on whether the transac- tions are classified 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 instruments and 86 the related hedged items are recognised in the income statement. In the case of fair value changes in cash flow hedges which are used to mitigate the future cash flow risk on a recognised asset or liability or on forecast transac- tions, unrealised gains and losses on the hedging instru- ment are recognised initially directly in accumulated other equity. Any such gains or losses are recognised subse- quently in the income statement when the hedged 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 recog- nised immediately in the income statement. If, contrary to the normal case within the BMW Group, hedge account- ing cannot be applied, the gains or losses from the fair value measurement of derivative financial instruments are recognised immediately in the income statement. In accordance with IAS 12 (Income Taxes), deferred taxes are recognised on all temporary differences between the tax and accounting bases of assets and liabilities and on consolidation procedures. Deferred tax assets also in- clude claims to future tax reductions which arise from the expected usage of existing tax losses available for carry- forward (where future usage is probable). Deferred taxes are computed using enacted or planned tax rates which are expected to apply in the relevant national jurisdictions when the amounts are recovered. Inventories of raw materials, supplies and goods for resale are stated at the lower of average acquisition cost and net realisable value. Work in progress and finished goods are stated at the lower of average manufacturing cost and net realisable value. Manufacturing cost comprises all costs which are directly attributable to the manufacturing process and an appropriate proportion of production-related over- heads. This includes production-related depreciation and an appropriate proportion of administrative and social costs. Financing costs are not included in acquisition or manu- facturing cost. Provisions for pensions and similar obligations are recog- nised using the projected unit credit method in accord- ance 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 in- dependent 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 the discounting of pension obligations and the income from the expected return on pension plan assets are reported separately as part of the financial result. All other costs relating to alloca- tions to pension provisions are allocated to costs by func- tion in the income statement. Other provisions are recognised when the BMW Group has an obligation to a third party, an outflow of resources 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 provi- sions with a remaining period of more than one year are discounted to the present value of the expenditures ex- pected to settle the obligation at the end of the reporting period. Financial liabilities are measured on first-time recognition at cost, which is equivalent to the fair value of the con- sideration given. Transaction costs are included in this initial measurement. Subsequent to initial recognition, lia- bilities are, with the exception of derivative financial instru- ments, measured at amortised 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 other financial lia- bilities. The preparation of the Group Financial Statements in ac- cordance with IFRSs requires management to make cer- tain assumptions and estimates that affect the reported amounts of assets and liabilities, revenues and expenses and contingent liabilities. The assumptions and estimates relate principally to the groupwide determination of eco- nomic useful lives, the recognition and measurement of provisions and the recoverability of future tax benefits. All assumptions and estimates are based on factors known at the end of the reporting period. They are determined on the basis of the most likely outcome of future business developments. This includes the situation in the auto- 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 87 Group Financial Statements motive sector and the general business environment. Estimates and underlying assumptions are checked regu- larly. Actual amounts could differ from those assumptions and estimates if business conditions develop differently to the Group’s expectations at the end of the reporting period. Where new information comes to light, differences are reflected in the income statement and assumptions changed accordingly. 7 New financial reporting rules (a) Financial reporting rules applied for the first time in the financial year 2008 The following Standards and Revised Standards were ap- plied for the first time in the financial year 2008: On 13 October 2008 the IASB published amendments to IAS 39 Financial Instruments: Recognition and Measure- ment and IFRS 7 Financial Instruments: Disclosures (Reclassification of Financial Assets) permitting the re- classification of certain financial instruments. Due to the necessity to be able to apply these amendments with immediate effect in the light of the deterioration of the financial market crisis during the third quarter 2008, the IASB’s usual due process was suspended. The re- classification amendments can be applied retrospec- tively from 1 July 2008. On 27 November 2008, the IASB published an update of these amendments (Reclassi- fication of Financial Assets – Effective Date and Transi- tion) in order to clarify the effective dates of the amend- ments. Reclassifications of the kind referred to in the amendments are not made by the BMW Group. IFRS 8 (Operating Segments) was applied by the BMW Group for the first time in the financial year 2008, resulting in changes in the preparation and presentation of seg- ment information. (b) New financial reporting rules issued in 2008 The IASB revised the following Standards in 2008: – Amendments to IAS 39 Financial Instruments: Recogni- tion and Measurement and IFRS 7 Financial Instru- ments: Disclosures (Reclassification of Financial Assets and Reclassification of Financial Assets: Effective Date and Transition) – Amendments to IFRS 1 First-time Adoption of Interna- tional Financial Reporting Standards and IAS 27 Con- solidated and Separate Financial Statements (Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate) – IFRS 1 First-time Adoption of International Financial Reporting Standards (revised version) – Amendment to IFRS 2 (Vesting Conditions and Cancel- lations) – Amendments to IAS 32 Financial Instruments: Presen- tation and IAS 1 Presentation of Financial Statements (Puttable Financial Instruments and Obligations Arising on Liquidation) – Amendment to IAS 39 Financial Instruments: Recogni- tion and Measurement (Eligible Hedged Items). The Amendments to IAS 39 Financial Instruments: Recog- nition and Measurement and IFRS 7 Financial Instruments: Disclosures (Reclassification of Financial Assets and Re- classification of Financial Assets: Effective Date and Tran- sition) are mandatory from 1 July 2008. The following Interpretations were also applied early for the first time: The amended IFRS 1 (revised version) replaces the current IFRS 1 and must be applied by entities drawing up IFRS financial statements after 1 July 2009. – IFRIC 11 (IFRS 2 Group and Treasury Share Trans- actions) – IFRIC 12 (Service Concession Arrangements), not yet endorsed by the EU – IFRIC 14 (IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction) Interpretations applied for the first time in 2008 did not have a significant impact on the BMW Group. The amendments to IAS 39 Financial Instruments: Rec- ognition and Measurement (Eligible Hedged Items) are mandatory for the first time for financial years beginning on or after 1 July 2009. The revised IAS 39 is required to be applied retrospectively. All other amendments referred to above are mandatory for the first time for financial years commencing on or after 1 January 2009. 88 BMW Group Notes to the Group Financial Statements Notes to the Income Statement The IASB also published a revised version of IFRS 3 (Business Combinations) and IAS 27 (Consolidated and Separate Financial Statements) in 2008. The new rules come into effect for financial years beginning on or after 1 July 2009. The IASB has also published a collection of amendments to various IFRSs (“Improvements to IFRSs”). This in- cludes amendments to various existing IFRSs. The total of 35 amendments to 20 IFRSs are presented in two parts: Part I contains amendments that involve accounting changes for presentation, recognition or measurement purposes (24 improvements). Part II contains 11 amend- ments involving terminology or editorial changes with minimal effect on accounting. Unless otherwise specified, the amendments are effective for financial years begin- ning on or after 1 January 2009. These new financial reporting rules are not expected to have a significant impact on the BMW Group. In addition, the following Interpretations were also issued: – IFRIC 15 (Agreements for the Construction of Real Estate). This Interpretation is mandatory for the first time for financial years beginning on or after 1 January 2009. – IFRIC 16 (Hedges of a Net Investment in a Foreign Oper- ation). This Interpretation is mandatory for financial years commencing on or after 1 October 2008, whereby exist- ing hedging relationships that do not meet the criteria contained in IFRIC 16 may be wound up prospectively. – IFRIC 17 (Distributions of Non-cash Assets to Owners). This Interpretation is mandatory for the first time for reporting periods in financial years beginning on or after 1 July 2009. 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 2008 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 2008 2007 38,652 43,297 5,544 4,997 2,943 1,061 5,069 4,185 2,457 1,010 53,197 56,018 An analysis of revenues by operating segment and geographical region is shown in the segment information on pages 129 – 131. 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 relating to financial services business Expense for risk provisions and write-downs for financial services business Other cost of sales Cost of sales 2008 2007 26,727 29,536 990 9,634 2,666 1,697 2,609 1,309 8,450 2,045 529 1,963 44,323 43,832 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 89 Group Financial Statements Cost of sales include euro 13,997 million (2007: euro: 11,024 million) relating to the financial services business. Manufacturing costs include impairment losses on intan- gible assets and property, plant and equipment of euro 3 million (2007: euro 17 million). Cost of manufacturing is reduced by public-sector subsidies in the form of reduced taxes on assets and reduced consumption-based taxes amounting to euro 23 million (2007: euro 16 million). 10 Sales and administrative costs Sales costs amounted to euro 4,047 million (2007: euro 4,284 million) and comprise mainly marketing, advertising and sales personnel costs. Administrative costs amounted to euro 1,322 million (2007: euro 970 million) and comprise expenses for administra- tion not attributable to development, production or sales functions. This includes most of the expenditure incurred to reduce the size of the workforce. 11 Research and development costs Research and development costs of euro 2,825 million (2007: euro 2,920 million) comprise all research costs and devel- opment costs not recognised as assets as well as amorti- sation of capitalised development costs of euro 1,185 million (2007: euro 1,109 million). Total research and development expenditure 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 12 Other operating income and expenses in euro million 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 2008 2007 2,825 –1,185 1,224 2,864 2,920 –1,109 1,333 3,144 2008 2007 827 278 8 50 265 1,428 748 113 52 274 1,187 241 204 90 38 229 169 730 231 64 25 210 530 200 Other operating income includes public-sector grants of euro 32 million (2007: euro 36 million). 90 13 Result from equity accounted investments The profit from equity accounted investments of euro 26 million (2007: euro 11 million) includes the result of the joint venture BMW Brilliance Automotive Ltd., Shenyang and the result for the final three months of the financial year 2008 relating to the remaining investment in Cirquent GmbH, Munich. 14 Net interest result in euro million Expected return on plan assets Other interest and similar income* thereof from subsidiaries euro 10 million (2007: euro 12 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 Other interest and similar expenses* thereof to subsidiaries euro 1 million (2007: euro 1 million) Interest and similar expenses Net interest result 2008 2007 360 325 685 – 550 – 96 – 123 – 161 358 287 645 – 537 – 86 – 49 – 225 – 930 – 897 – 245 – 252 * Interest income and expenses relating to stand-alone derivatives are netted within the net interest result. Interest income includes net interest income of euro 102 million (2007: euro 70 million) relating to stand-alone derivatives. 15 Other financial result in euro million Income from investments thereof from subsidiaries euro 4 million (2007: euro 1 million) Expense of assuming losses under profit and loss transfer agreements thereof from subsidiaries – euro 1 million (2007: –) Impairment losses on investments in subsidiaries Result on investments Losses and gains relating to financial instruments Sundry other financial result 2008 2007 4 –1 – 6 – 3 – 348 – 348 3 – – 6 – 3 – 95 – 95 Other financial result – 351 – 98 Other financial result includes losses on other derivative financial instruments, in particular on stand-alone interest rate derivatives. The decrease in the fair values of these financial instruments reflected the change in the interest rate structure. 16 Income taxes Taxes on income comprise the following: in euro million Current tax expense Deferred tax expense Income taxes 2008 2007 75 – 54 21 1,002 – 263 739 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 91 Group Financial Statements Deferred taxes are recognised on temporary differences between the carrying amount of assets and liabilities for IFRS purposes and their tax bases. Deferred 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 uniform corporation tax rate of 15.0 % applies in Germany from 1 January 2008. After taking account of the average multiplier rate (Hebe- satz) of 410.0 % for municipal trade tax and the solidarity charge of 5.5 %, the overall tax rate for BMW companies in Germany is 30.2 % (2007: 38.9 %). This reduced rate was already applied in the financial year 2007 to measure de- ferred tax assets and liabilities. The non-deductibility of 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 taxes municipal trade tax for corporation tax purposes with effect from the beginning of the financial year 2008 has been taken into account. The tax rates for companies outside Germany range from 12.5 % (2007: 12.5 %) to 46.9 % (2007: 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 nega- tive factors concerning the likely existence of sufficient taxable profit in the future are considered. These estimates can change depending on the actual course of events. An analysis of deferred tax assets and liabilities by position at 31 December is shown below: Deferred tax assets Deferred tax liabilities 2008 2007 2008 2007 1 43 573 3 1,796 1,438 1,197 2,945 1,736 9,732 1 43 558 2 1,110 1,072 1,145 3,084 1,661 8,676 – 513 – 8,353 866 – 671 – 7,285 720 1,541 454 4,137 5 3,196 – 75 1,296 406 11,110 – – 8,353 2,757 1,528 428 3,205 1 3,767 – 51 690 329 9,999 – – 7,285 2,714 “Netting” relates to the offset of deferred tax assets and liabilities within individual separate entities or tax groups. Deferred tax assets on tax losses available for carryforward and on capital losses increased on a net basis. Tax losses available for carryforward, which for the most part can be carried forward without restriction, totalled euro 3.8 billion at the end of the reporting period (2007: euro 1.8 billion). A valuation allowance of euro 30 million (2007: euro 43 million) was recognised in 2008 on deferred tax assets relating to tax losses available for carryforward. Capital losses in the United Kingdom decreased to euro 1.7 billion in 2008 (2007: euro 2.2 billion) due to exchange rate factors. As in pre- vious years, these tax losses – amounting to euro 483 mil- lion at the end of the reporting period (2007: euro 628 mil- lion) – were fully written down since they can only be utilised against future capital gains. Capital losses are not connected to on-going business operations. Deferred tax assets were recognised in 2008 for entities which recorded tax losses in either 2008 or 2007. These deferred tax assets exceed deferred tax liabilities by euro 185 million (2007: euro 325 million). Deferred tax assets are recognised on the basis of management’s assessment of whether it is probable that the relevant entities will generate sufficient taxable profits against which deductible temporary differences can be offset. Deferred taxes recognised directly in equity amounted to euro 303 million (2007: euro 116 million). The increase of euro 187 million relates to deferred taxes on gains and losses arising on items recognised directly in equity, namely on marketable securities (negative amount of euro 11 million), on derivative financial instruments (positive amount of euro 231 million) and on actuarial gains and losses relating to defined benefit pension plans (negative amount of euro 33 million). The change also includes a euro 39 million re- duction in deferred taxes arising from the translation of for- eign subsidiaries’ financial statements. Deferred taxes are not recognised on retained profits of euro 15,641 million (2007: euro 13,925 million) of foreign sub- sidiaries, 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. 92 The tax returns of BMW Group companies are checked regularly by German and foreign tax authorities. Taking account of a variety of factors – including existing inter- pretations, commentaries and legal decisions taken relat- ing 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 obliga- tions. The actual tax expense for the financial year 2008 of euro 21 million (2007: euro 739 million) is euro 85 million (2007: euro 767 million) lower than the expected tax expense of euro 106 million (2007: euro 1,506 million) which would theo- retically arise if the tax rate of 30.2 % (2007: 38.9 %), appli- cable for German companies, was applied across the Group. The difference between the expected and actual tax expense is attributable to the following: in euro million 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 2008 2007 106 1,506 24 – 49 – 60 – 21 – 731 4 – 4 – 36 739 The effects of the sale of Cirquent GmbH, Munich, are in- cluded in the line relating to non-taxable income. Rulings made by the European Court of Justice with regard to Ger- man tax legislation have had a positive impact on the tax expense of German entities. The impact in 2008 is included on the line “Tax expenses / benefits for prior periods”. The line “Variances due to different tax rates” includes a tax expense of euro 18 million relating to the revaluation of de- ferred tax assets and liabilities as a result of changed tax rates (2007: tax income of euro 491 million). The effect of the reduction in tax expense as a result of the utilisation of tax losses for which deferred tax assets had not previously been recognised amounted to euro 4 million (2007: euro 12 million). Moreover, the tax expense was re- duced by euro 9 million (2007: euro 2 million) as a result of deferred taxes on previously unrecognised temporary differences. The tax expense for the valuation allowance on deferred tax assets relating to tax losses available for carryforward and temporary differences amounted to euro 21 million (2007: euro 4 million). Tax income from the re- versal of previously recognised allowances amounted to euro 21 million (2007: euro 67 million). Overall, the net tax income from new or reversing temporary differences totalled euro 63 million (2007: tax expense of euro 293 mil- lion). 17 Earnings per share Net profit for the year after minority interest euro million 324.3 3,125.9 2008 2007 Profit attributable to common stock Profit attributable to preferred stock Average number of common stock shares in circulation Average number of preferred stock shares in circulation 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 million euro million 297.9 26.4 2,878.4 247.5 number 601,995,196 number 51,296,162 601,995,196 51,535,857 euro euro euro euro 0.49 0.51 0.30 0.32 4.78 4.80 1.06 1.08 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 93 Group Financial Statements 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. 18 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 811 million (2007: euro 761 million) 2008 2007 5,991 1,245 6,268 1,243 7,236 7,511 Personnel costs include euro 455 million of expenditure incurred to reduce the size of the workforce. The average number of employees during the year was: Employees Apprentices and students gaining work experience Average number of employees 2008 2007 95,699 6,034 101,733 97,922 6,480 104,402 For information regarding the number of employees at the year-end, reference is made to pages 29 – 31 in the Group Management Report. The fee expense recognised in the financial year 2008 for the auditors of the Group Financial Statements, KPMG AG Wirtschaftsprüfungsgesellschaft and its affiliated entities, pursuant to § 314 (1) no. 9 HGB amounted to euro 7 million (2007: euro 5 million) and consists of the following: in euro million Year-end audits Audit-related services Tax advisory services 2008 1 2007 2 3 1 3 7 2 – 3 5 1 Fee expense for KPMG Europe LLP 2 Fee expense for KPMG Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft 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 subsidiaries in Germany, the United Kingdom, Switzerland and Spain. 94 BMW Group Notes to the Group Financial Statements Notes to the Balance Sheet 19 Analysis of changes in Group tangible, intangible and investment assets 2008 Acquisition and manufacturing cost 1.1. 2008 1 Translation differences Additions Reclassi- fications Disposals 31.12. 2008 1.1. 2008 1 Translation differences Depreciation and amortisation Current year Disposals 31.12. 2008 Carrying amount 31.12. 2008 31.12. 2007 in euro million 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 8,479 1,020 9,499 6,623 20,430 2,062 Advance payments made and construction in progress 1,019 Property, plant and equipment 30,134 – –11 –11 –127 – 330 – 22 5 – 474 1,224 115 1,339 255 1,535 179 896 2,865 – 13 13 266 471 32 – 782 –13 848 175 1,023 142 440 182 17 781 8,855 962 9,817 6,875 21,666 2,069 1,121 31,731 Leased products 20,860 – 22 12,376 – 7,807 25,407 3,847 28 3,975 1,967 5,883 19,524 17,013 Investments accounted for using the equity method 63 – Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 261 8 21 290 –1 – – 5 – 6 1 including gross balances brought forward for entities consolidated for the first time in the financial year 2 including impairment losses of euro 3 million 3 including assets under construction of euro 727 million 48 158 – 7 165 – – – – – – 43 – – 43 111 375 8 23 406 Analysis of changes in Group tangible, intangible and investment assets 2007 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 Acquisition and manufacturing cost 1.1. 2007 1 Translation differences Additions Reclassi- fications Disposals 31.12. 2007 1.1. 2007 1 Translation differences Depreciation and amortisation Current year Disposals 31.12. 2007 Carrying amount 31.12. 2007 31.12. 2006 in euro million 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 7,684 813 8,497 6,425 19,640 2,055 Advance payments made and construction in progress 740 Property, plant and equipment 28,860 – –11 – 11 –118 – 315 – 44 – 23 – 500 1,333 250 1,583 248 1,444 184 808 2,684 – – – 231 264 6 – 501 – 538 43 581 220 618 147 5 990 8,479 1,009 9,488 6,566 20,415 2,054 1,019 30,054 Leased products 17,628 –1,219 11,038 – 6,587 20,860 3,289 – 247 2,475 1,670 3,847 17,013 13,642 Investments accounted for using the equity method 82 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 272 195 14 481 – –1 – –1 – 2 18 54 – 8 62 – – – – – 37 64 187 – 251 63 261 8 21 290 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 3,445 378 3,823 2,626 14,783 1,549 1 18,959 – 76 5 – 81 2,874 310 3,184 2,529 13,525 1,515 1 17,570 22 70 5 – 75 – 2 – 2 – 4 – 58 – 214 –18 – – 290 – – – – – – – 4 – 4 – 48 – 200 – 43 – – 291 – – – – – 1,185 110 1,295 202 2,002 171 – 2,375 2 – 6 – – 6 1,109 103 1,212 2 201 2,057 213 – 2,471 3 – 6 – – 6 846 92 938 52 423 130 – 605 – 3 – – 3 538 36 574 61 602 141 – 804 22 – – – – 3,782 394 4,176 2,718 16,148 1,572 1 20,439 – 79 5 – 84 3,445 373 3,818 2,621 14,780 1,544 1 18,946 – 76 5 – 81 11,292 11,108 5,073 568 5,641 4,157 5,518 497 1,120 3 111 296 3 23 322 5,034 636 5,670 3,945 5,635 510 1,018 63 185 3 21 209 5,034 636 5,670 3,945 5,635 510 1,018 63 185 3 21 209 4,810 502 5,312 3,896 6,115 535 739 60 197 190 14 401 11,108 11,285 95 Group Financial Statements Acquisition and manufacturing cost 1.1. 2008 1 Translation differences Additions Disposals 31.12. 2008 Reclassi- fications Depreciation and amortisation 1.1. 2008 1 Translation differences Current year Disposals 31.12. 2008 3,445 378 3,823 2,626 14,783 1,549 1 18,959 – 2 – 2 – 4 – 58 – 214 –18 – – 290 1,185 110 1,295 202 2,002 171 – 2,375 2 846 92 938 52 423 130 – 605 3,782 394 4,176 2,718 16,148 1,572 1 20,439 Carrying amount 31.12. 2008 31.12. 2007 5,073 568 5,641 4,157 5,518 497 1,120 3 5,034 636 5,670 3,945 5,635 510 1,018 11,292 11,108 Leased products 20,860 – 22 12,376 – 7,807 25,407 3,847 28 3,975 1,967 5,883 19,524 17,013 – 76 5 – 81 – – – – – – 6 – – 6 – 3 – – 3 – 79 5 – 84 Acquisition and manufacturing cost 1.1. 2007 1 Translation differences Additions Disposals 31.12. 2007 Reclassi- fications Depreciation and amortisation 1.1. 2007 1 Translation differences Current year Disposals 31.12. 2007 2,874 310 3,184 2,529 13,525 1,515 1 17,570 – – 4 – 4 – 48 – 200 – 43 – – 291 1,109 103 1,212 2 201 2,057 213 – 2,471 3 538 36 574 61 602 141 – 804 3,445 373 3,818 2,621 14,780 1,544 1 18,946 111 296 3 23 322 63 185 3 21 209 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 Leased products 17,628 –1,219 11,038 – 6,587 20,860 3,289 – 247 2,475 1,670 3,847 17,013 13,642 22 70 5 – 75 – – – – – – 6 – – 6 22 – – – – – 76 5 – 81 63 185 3 21 209 60 197 190 14 401 in euro million 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 1,019 Property, plant and equipment 8,479 1,020 9,499 6,623 20,430 2,062 30,134 – –11 –11 –127 – 330 – 22 5 – 474 Investments accounted for using the equity method 63 – Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 261 8 21 290 –1 – – 5 – 6 1 including gross balances brought forward for entities consolidated for the first time in the financial year 2 including impairment losses of euro 3 million 3 including assets under construction of euro 727 million in euro million 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 740 Property, plant and equipment 7,684 813 8,497 6,425 19,640 2,055 28,860 Investments accounted for using the equity method 82 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 272 195 14 481 – –11 – 11 –118 – 315 – 44 – 23 – 500 – –1 – –1 – 2 1,224 115 1,339 255 1,535 179 896 2,865 48 158 – 7 165 1,333 250 1,583 248 1,444 184 808 2,684 18 54 – 8 62 – 13 13 266 471 32 – 782 –13 – – – – – – – – 231 264 6 – 501 – – – – – – 848 175 1,023 142 440 182 17 781 – 43 – – 43 538 43 581 220 618 147 5 990 37 64 187 – 251 8,855 962 9,817 6,875 21,666 2,069 1,121 31,731 111 375 8 23 406 8,479 1,009 9,488 6,566 20,415 2,054 1,019 30,054 63 261 8 21 290 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 96 20 Intangible assets Intangible assets mainly comprise capitalised development costs on vehicle and engine projects as well as subsidies for tool costs, licences, purchased development projects and software. Amortisation on intangible assets is pre- sented in cost of sales, administrative costs, research and development costs and other operating expenses. In addition, intangible assets include a brand-name right amounting to euro 37 million (2007: euro 49 million) and goodwill amounting to euro 111 million (2007: euro 163 mil- lion) with indefinite useful lives. The latter comprises goodwill arising on the acquisition of DEKRA SüdLeasing Services GmbH, Stuttgart, and its subsidiaries and on the acquisition of SimeLease (Malaysia) Sdn Bhd, Kuala Lumpur, and its subsidiary SimeCredit (Malaysia) Sdn Bhd, Kuala Lumpur. This item is not presented separately in the Group balance sheet since the amount is not significant in rela- tion to either the balance sheet total or intangible assets. As in the previous year there were no reversals of impair- ment losses on intangible assets. Changes in intangible assets during the year are shown in the analysis of changes in Group tangible, intangible and investment assets on pages 94 – 95. 21 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 94 – 95. Property, plant and equipment include a total of euro 68 mil- lion (2007: euro 102 million) relating to operational buildings used by BMW AG as well as leased plant, machinery and other equipment used primarily at the Oxford and Hams Hall production plants. Due to the nature of the lease ar- rangements (finance leases), economic ownership of these assets is attributable to the BMW Group. The leases for buildings, with a carrying amount of euro 50 million (2007: euro 60 million) run for periods up to 2028 at the latest. Some of the leases contain extension and purchase op- tions. The leases for plant and machinery and other equip- ment at the Oxford plant, with a carrying amount of euro 6 million (2007: euro 19 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 production plant, with a carrying amount of euro 10 million (2007: euro 17 million) runs until 2018 and may be extended for one year periods thereafter. A purchase option was not agreed. Disposals 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. 2008 31.12. 2007 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 67 202 157 426 9 27 49 85 58 175 108 341 85 318 201 604 16 48 73 137 69 270 128 467 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 97 Group Financial Statements 22 Leased products The BMW Group, as lessor, leases out assets (predomi- nantly own products) as part of its financial services busi- ness. Minimum lease payments of euro 8,515 million (2007: euro 7.419 million) from non-cancellable operating leases fall due as follows: in euro million within one year between one and five years later than five years Leased products 31.12. 2008 31.12. 2007 4,589 3,925 1 8,515 3,902 3,516 1 7,419 Contingent rents of euro 30 million (2007: euro 10 million), based principally on the distance driven, were recognised in income. The agreements have, in part, extension and purchase options as well as price escalation clauses. Changes in leased products during the year are shown in the analysis of changes in Group tangible, intangible and investment assets on pages 94 – 95. 23 Investments accounted for using the equity method and other investments Investments accounted for using the equity method comprise the Group’s interests in the joint venture BMW Brilliance Automotive Ltd., Shenyang, and, for the first time in 2008, the investment in Cirquent GmbH, Munich. The disclosures relating to the income statement include the income and expenses of Cirquent GmbH, Munich, since the deconsolidation of the Cirquent Group. The ag- gregated interests of the Group are as follows: in euro million 31.12. 2008 31.12. 2007 Disclosures relating to the income statement Income Expenses Disclosures relating to the balance sheet Non-current assets Current assets Equity Non-current liabilities Current liabilities 627 603 139 234 126 31 216 627 615 106 259 80 41 244 Other investments relate primarily to investments in non- consolidated subsidiaries, participations and non-current marketable securities. consolidation of BMW Lease (Malaysia) Sdn Bhd, Kuala Lumpur, BMW Roma S. r. l., Rome, and BMW de Argentina S. A., Buenos Aires. Additions to investments in non-consolidated subsidiaries relate to the foundation of BMW Bank OOO, Moscow, and an equity capital increase at the level of Husqvarna Motorcycles S. r. l., Cassinetta di Biandronno. Items reported as disposals of investments in non-con- solidated subsidiaries result primarily from the first-time Impairment losses on investments in subsidiaries relate to BMW Philippines Corp., Manila. A break-down of the different classes of other investments 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 94 – 95. 98 24 Receivables from sales financing Receivables from sales financing, totalling euro 38,063 mil- lion (2007: euro 34,244 million), comprise euro 29,470 mil- lion (2007: euro 26,181 million) for credit financing for retail customers and dealers and euro 8,593 million (2007: euro 8,063 million) for finance leases. Finance leases are analysed as follows: in euro million 31.12. 2008 31.12. 2007 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 3,315 6,357 29 9,701 2,932 5,634 27 8,593 3,215 6,013 1 9,229 2,886 5,176 1 8,063 Unrealised interest income 1,108 1,166 Contingent rents recognised as income (generally relating to the distance driven) amounted to euro 5 million (2007: euro 12 million). Write-downs on finance leases amounting to euro 52 million (2007: euro 52 million) were measured and recognised on the basis of specific credit risks. Allowance for impairment and credit risk in euro million Gross carrying amount Allowance for impairment Net carrying amount Receivables from sales financing include euro 22,192 mil- lion (2007: euro 20,248 million) with a remaining term of more than one year. 31.12. 2008 31.12. 2007 39,116 1,053 38,063 35,036 792 34,244 Allowances for impairment on receivables from sales financing developed as following during the year under report: 2008 in euro million Balance at 1 January * Allocated / reversed Utilised Exchange rate impact and other changes Balance at 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 Allowance for impairment recognised on a group basis specific item basis 672 543 – 262 –15 938 125 10 –14 – 6 115 Allowance for impairment recognised on a group basis specific item basis 590 277 –184 –16 667 149 – 3 –17 – 4 125 Total 797 553 – 276 – 21 1,053 Total 739 274 – 201 – 20 792 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 99 Group Financial Statements At the end of the reporting period, impairment allowances of euro 115 million (2007: euro 125 million) were recognised on a group basis on gross receivables from sales financing totalling euro 17,274 million (2007: euro 18,979 million). Im- pairment allowances of euro 938 million (2007: euro 667 mil- lion) were recognised at 31 December 2008 on a specific item basis on gross receivables from sales financing total- ling euro 7,755 million (2007: euro 5,493 million). Receivables from sales financing which were not overdue at the end of the reporting period amounted to euro 14,087 million (2007: euro 10,564 million). No impairment losses were recognised for these balances. The estimated fair value of collateral received for receiva- bles on which impairment losses were recognised totalled euro 14,570 million (2007: euro 14,617 million) at the end of the reporting period. 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 44 million (2007: euro 36 million). As in the previous year, there were no receivables from sales financing at the end of the reporting period which have been renegotiated and which were otherwise over- due or otherwise required recognition of an impairment loss. 25 Financial assets Financial assets comprise: in euro million Interest and currency derivatives Marketable securities and investment funds Loans to third parties Credit card receivables Other Financial assets thereof non-current thereof current 31.12. 2008 31.12. 2007 3,449 653 13 253 746 5,114 1,808 3,306 1,980 1,959 28 260 568 4,795 1,173 3,622 The change in the line item “Interest and currency deriva- tives” relates primarily to changed exchange rate parities and the changed interest rate structure. to the newly founded BMW Trust e. V., Munich, in con- junction with the creation of an external fund for pension obligations. The decrease in marketable securities and investment funds was primarily attributable to the transfer of securities Marketable securities and investment funds relate to avail- able-for-sale financial assets and comprise: in euro million Stocks Investment funds Fixed income securities Sundry marketable securities Marketable securities and investment funds 31.12. 2008 31.12. 2007 32 – 620 1 653 452 415 1,082 10 1,959 100 The contracted maturities of debt securities are as follows: in euro million Fixed income securities due within three months due later than three months Sundry marketable securities due within three months due later than three months Debt securities 31.12. 2008 31.12. 2007 – 620 1 – 621 – 1,082 1 9 1,092 Obligations resulting from pre-retirement part-time work arrangements were previously secured by investment funds maintained with the Deutsche Treuinvest Stiftung, Frankfurt am Main. In 2008, these investment funds were transferred to the newly founded BMW Trust e. V., Munich, in conjunction with a Contractual Trust Arrangement (CTA). The value of the investment funds that exceeds the obli- gations for pre-retirement part-time work arrangements (settlement arrears) amounting to euro 35 million is reported under other financial assets. Allowance for impairment and credit risk Receivables relating to the credit card business comprise the following: 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 in euro million Gross carrying amount Allowance for impairment Net carrying amount Allowances for impairment losses on receivables relating to credit card business developed as following: 2008 in euro million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 2007 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 group basis specific item basis 1 28 –15 1 15 6 – 5 –1 – – Allowance for impairment recognised on a group basis specific item basis 1 – – – 1 4 12 – 9 –1 6 31.12. 2008 31.12. 2007 268 15 253 267 7 260 Total 7 23 – 16 1 15 Total 5 12 – 9 –1 7 101 Group Financial Statements 26 Income tax assets Income tax assets can be analysed as follows: 31 December 2008 in euro million Deferred tax Current tax Income tax assets 31 December 2007 in euro million Deferred tax Current tax Income tax assets 27 Other assets Other assets comprise: in euro million Other taxes Receivables from subsidiaries Receivables from other companies in which an investment is held Prepayments Collateral receivables Sundry other assets Other assets thereof non-current thereof current Maturity within one year Maturity later than one year – 498 498 866 104 970 Maturity within one year Maturity later than one year – 118 118 720 119 839 Total 866 602 1,468 Total 720 237 957 31.12. 2008 31.12. 2007 373 425 103 848 291 462 554 641 104 729 135 361 2,502 2,524 660 1,842 415 2,109 Receivables from subsidiaries include trade receivables of euro 139 million (2007: euro 96 million) and financial re- ceivables of euro 286 million (2007: euro 545 million). They include euro 43 million (2007: euro 25 million) with a remain- ing term of more than one year. Prepayments of euro 848 million (2007: euro 729 million) relate mainly to prepaid interest, development costs not eligible for capitalisation as non-current assets, insurance premiums and rent. Prepayments of euro 483 million (2007: euro 494 million) have a maturity of less than one year. Receivables from other companies in which an investment is held are, as in the previous year, all due within one year. Collateral receivables comprise mainly customary collateral arising on the sale of receivables. 102 28 Inventories Inventories comprise the following: in euro million 31.12. 2008 31.12. 2007 Raw materials and supplies Work in progress, unbilled contracts Finished goods and goods for resale Inventories 596 803 5,891 7,290 632 871 5,846 7,349 At 31 December 2008, inventories measured at their net realisable value amounted to euro 426 million (2007: euro 473 million) and are included in total inventories of euro 7,290 million (2007: euro 7,349 million). Write-downs to net realisable value amounting to euro 47 million (2007: euro 40 million) were recognised in 2008. 29 Trade receivables Trade receivables amounting in total to euro 2,305 million (2007: euro 2,672 million) include euro 40 million due later than one year (2007: euro 3 million). Allowance for impairment and credit risk in euro million Gross carrying amount Allowance for impairment Net carrying amount 31.12. 2008 31.12. 2007 2,373 68 2,305 2,717 45 2,672 Allowances on trade receivables developed as following during the year under report: 2008 in euro million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 2007 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 group basis specific item basis 38 32 – 8 – 62 7 2 – 2 –1 6 Allowance for impairment recognised on a group basis specific item basis 68 –11 –18 –1 38 9 2 – 4 – 7 Total 45 34 –10 –1 68 Total 77 – 9 – 22 –1 45 As in the previous year, there were no trade receivables at the end of the reporting period which have been rene- gotiated and which were otherwise overdue or otherwise required recognition of an impairment loss. 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 103 Group Financial Statements Some trade receivables were overdue for which an impairment loss was not recognised. Overdue balances are analysed into the following time windows: in euro million 1 – 30 days overdue 31 – 60 days overdue 61 – 90 days overdue 91 – 120 days overdue More than 120 days overdue 31.12. 2008 31.12. 2007 301 81 3 6 43 434 327 63 24 14 46 474 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 attributable to the timing of receipts around the month-end. In the case of trade receivables, collateral is generally held in the form of vehicles documents and bank guarantees so that the risk of bad debt loss is extremely low. 30 Cash and cash equivalents Cash and cash equivalents of euro 7,454 million (2007: euro 2,393 million) comprise cash on hand and at bank, all with a maturity of under three months. 31 Equity Equity of the BMW Group developed during the year under report as follows: in euro million Subscribed capital Capital reserves Revenue reserves Accumulated other equity Treasury shares Minority interest Total Trans- lation dif- ferences Securities Derivative financial instru- ments Pension obliga- tions 31 December 2006 654 1,911 18,121 – 837 214 178 –1,115 – 4 19,130 Dividends paid Translation differences Financial instruments Actuarial gains and losses on pension obligations Deferred tax on transactions recognised directly in equity Net profit 2007 31 December 2007 Repurchase of treasury shares Dividends paid Translation differences Financial instruments Actuarial gains and losses on pension obligations Deferred tax on transactions recognised directly in equity Net profit 2008 Other changes – – – – – – – – – – – – – – – – 3,126 – 458 – – 422 – – – 7 – –183 366 – 31 – – – – – 4 – – 528 –113 – 279 – – – – – – – – – –1 – – – 8 – 458 – 385 183 528 – 388 3,134 654 1,911 20,789 –1,259 35 438 – 835 – 11 21,744 – – – – – – – – – – – – – – – – – – 694 – – – – 324 – – – – 806 – – – – – – – – – – –16 – 7 – 601 – – –11 224 – – – – – – 111 – 5 13 – – –10 – – – – – – – – – –1 – – – 6 – 8 –10 – 694 – 712 – 608 5 226 330 – 8 31 December 2008 654 1,911 20,419 – 2,065 17 45 – 706 –10 8 20,273 104 Number of shares issued At 31 December 2008, 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, also 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. During the financial year 2008, BMW AG acquired 900,000 treasury shares of preferred stock at an average price of euro 28.54 per share. 536,870 of these shares were issued to employees at a reduced price of euro 13.77 per share in conjunction with an employee share scheme. These shares are entitled to receive dividends for the financial year 2009. The remaining 363,130 shares of preferred stock were held by BMW AG as treasury shares at 31 December 2008. As a result of the buy-back of shares of preferred stock and their subsequent issue, the preferred stock por- tion 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 8 May 2008, the shareholders again authorised the Board of Manage- ment 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 resolution and to withdraw those shares from circulation without any further resolution by the Annual General Meeting. At the same time, the authorisation from 15 May 2007 to acquire treasury shares was rescinded. The authorisation from 8 May 2008 is valid until 6 November 2009. The authorisation was not exercised in 2008. It has not yet been decided whether or the extent to which the authorisation will be used in the future. Capital reserves Capital reserves include premiums arising from the issue of shares and were unchanged at euro 1,911 million. Revenues reserves Revenue reserves comprise the post-acquisition and non- distributed earnings of consolidated companies. In addi- tion, revenue reserves include both positive and negative goodwill arising on the consolidation of Group companies prior to 31 December 1994. Revenue reserves decreased marginally to euro 20,419 mil- lion during the year under report. They were increased in 2008 by the amount of the net profit attributable to share- holders of BMW AG amounting to euro 324 million and were reduced by the payment of the dividend for 2007 amounting to euro 694 million. The unappropriated profit of BMW AG of euro 197 million for 2008 will be proposed to the Annual General Meeting for distribution. The proposed distribution must be au- thorised 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 rec- ognised directly in equity resulting from the translation of the financial statements of foreign subsidiaries, the effects of recognising changes in the fair value of de- rivative financial instruments and marketable securities directly in equity, actuarial gains and losses relating to defined benefit pension plans and similar obligations and deferred taxes. Minority interest Equity attributable to minority interests amounted to euro 8 million (2007: euro 11 million). This includes a minority interest of euro 6 million (2007: euro 8 million) in the results for the year. Capital management disclosures The BMW Group’s objectives when managing capital are to safeguard the Group’s 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 eco- nomic conditions and the risk profile of the underlying assets. In order to manage its capital structure, the BMW Group uses various instruments including the amount of divi- dends paid to shareholders and share buy-backs. The BMW Group manages the structure of debt capital on the basis of a target debt ratio. An important 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 avail- able on the world’s capital markets to achieve optimal di- versification. 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 105 Group Financial Statements The capital structure at the end of the reporting period was as follows: in euro million 31.12. 2008 31.12. 2007 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 20,275 25.1 % 30,497 29,887 60,384 74.9 % 80,659 21,733 33.1 % 21,428 22,493 43,921 66.9 % 65,654 Equity attributable to shareholders of BMW AG decreased during the financial year by 6.7 %, mainly as a result of high- er translation differences on various items within equity. 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 financial 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. In November 2008 Moody’s issued an A2 rating (with negative outlook) and Standard & Poor’s issued an A rating (with stable out- look) for the BMW Group. On 18 February 2009 Moody’s revised the rating to “under review for possible downgrade”. 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 also able to obtain competitive re financing terms and conditions in the short term. Non-current financial liabilities Current financial liabilities Outlook * rating under review for possible downgrade Moody’s Standard & Poor’s A2 P-1 under review * A A-1 stable 32 Pension provisions Pension provisions are recognised as a result of commit- ments to pay future vested pension benefits and current pensions to present and former employees of the BMW Group and their dependants. Depending on the legal, eco- nomic and tax circumstances prevailing in each country, various pension plans are used, based generally on the length of service, final salary and remuneration structure of the employees involved. Due to similarity of nature, the obligations of BMW Group companies in the U. S. and of BMW (South Africa) (Pty) Ltd., Pretoria, for post-em- ployment medical care are also disclosed as pension pro- visions. The provision for these pension-like obligations amounts to euro 66 million (2007: euro 55 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 2008 was euro 7 million (2007: euro 6 million). Post-employment benefit plans are classified as either de- fined 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 412 million (2007: euro 442 million). This includes employer contributions paid to state pension insurance schemes amounting to euro 376 million (2007: euro 406 million). 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 lat- ter sometimes covered by accounting provisions. Most of the pension commitments of the BMW Group in Germany relate to BMW AG. In 2008 BMW AG and a number of Ger- man subsidiaries transferred some of their pension obli- gations to the newly founded BMW Trust e. V., Munich, in conjunction with a Contractual Trust Arrangement (CTA). In addition, the existing deferred remuneration retirement 106 scheme, into which employees can make contributions in the form of salary conversion, was transferred in full to BMW Trust e.V., Munich. Obligations not covered by assets held by the fund are covered by pension provisions. The main other countries with funded plans were the United Kingdom, the USA, Switzerland, the Netherlands, Belgium and Japan. Pension obligations are computed on an actuarial basis at the level of the defined benefit obligation. This computa- tion requires the use of estimates. The main assumptions, in addition to life expectancy, depend on the economic situation in each particular country. The following weighted average values are used in the United Kingdom and in the other countries: 31 December in % Discount rate Salary level trend Pension level trend Germany 2008 2007 United Kingdom 2008 2007 Other 2008 2007 6.00 3.25 2.25 5.50 3.25 1.75 6.01 4.01 3.11 5.53 4.39 3.38 5.44 3.58 1.86 5.78 3.36 1.90 The salary level trend refers to the expected rate of salary increase which is estimated annually depending on in- flation and career development of employees within the Group. In the case of externally funded plans, the defined benefit obligation is offset against plan assets measured at their fair value. Where the plan assets exceed the pension obli- gations and the enterprise has a right of reimbursement or a right to reduce future contributions, the surplus amount is recognised in accordance with IAS 19 as an asset under sundry other assets. In the case of externally funded plans, a liability is recognised under pension provisions where the benefit obligation exceeds fund assets. Actuarial gains or losses may result from increases or de- creases 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 ex- pected 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. Based on the measurement principles contained in IAS 19, the following funding status applies to the Group’s pen- sion plans: in euro million 2008 2007 2008 2007 2008 2007 2008 2007 Germany United Kingdom Other Total Present value of pension benefits covered by accounting provisions 31 3,849 – – Present value of funded pension benefits 3,817 – 4,403 6,327 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 3,848 3,849 4,403 6,327 1,155 – 4,059 5,686 2,693 3,849 344 641 – – – – – 1 – 6 131 406 537 277 260 4 9 119 162 3,968 336 8,626 6,663 455 8,788 10,631 343 5,491 6,029 112 3,297 4,602 – 2 4 – 2 17 10 23 Balance sheet amounts at 31 December 2,693 3,849 345 647 273 127 3,311 4,623 thereof pension provision thereof pension assets (–) 2,693 3,849 345 651 – – – – 4 276 – 3 127 3,314 4,627 – – 3 – 4 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 107 Group Financial Statements Pension provisions relating to pension plans in other coun- tries amounted to euro 276 million (2007: euro 127 million). This includes euro 145 million (2007: euro 8 million) relating to externally funded plans. The change in the defined benefit obligations was attribut- able mainly to changes in the discount rates used in the actuarial computation. In addition, exchange rate changes, in particular the depreciation of the British pound, had a substantial impact on the measurement of the defined benefit obligations and fund assets. The changes in the pension provision and pension as- sets (reimbursement claims or right to reduce future contributions to the funds) as disclosed in the balance sheet can be derived as follows: in euro million 2008 2007 2008 2007 2008 2007 2008 2007 Germany United Kingdom Other Total Balance sheet amounts at 1 January 3,849 4,414 647 439 127 164 4,623 5,017 Deconsolidation effects Expense from pension obligations – 4 293 – 239 4 76 – 52 – 30 – 28 – – 399 319 Pension payments or transfers to external funds –1,471 – 80 – 98 – 47 –14 – 67 –1,583 –194 Actuarial gains (–) and losses (+) on defined benefit obligations – 271 – 776 – 647 Actuarial gains (–) and losses (+) on plan assets 278 – 486 211 42 Employee contributions to the deferred remuneration retirement scheme Translation differences and other changes 20 –1 52 – – – –123 – 50 –1 104 – 27 8 2 – 919 – 557 868 44 – 20 52 – 8 – 97 – 58 Balance sheet amounts at 31 December 2,693 3,849 345 647 273 127 3,311 4,623 thereof pension provision thereof pension assets (–) 2,693 3,849 345 651 – – – – 4 276 – 3 127 3,314 4,627 – – 3 – 4 The defined benefit plans of the BMW Group give rise to an expense from pension obligations in the financial year 2008 of euro 399 million (2007: euro 319 million), comprising the following components: in euro million 2008 2007 2008 2007 2008 2007 2008 2007 Germany United Kingdom Other Total Current service cost Expense from reversing the discounting of pension obligations Past service cost Expected return on plan assets (–) Expense from pension obligations 117 209 150 192 –1 –103 59 316 4 64 323 – 31 25 –1 29 22 – 207 550 243 537 2 –103 – 32 293 – – 303 – 335 – 25 – 23 – 360 – 358 239 76 52 30 28 399 319 The expense from reversing the discounting of pension 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 statement under costs by function. Depending on the risk structure of the pension obligations involved, pension plan assets are invested in various in- vestment classes, the most predominant one being bonds. Other equity instruments, property and alternative invest- ments (e. g. infrastructure funds) are also considered. The expected rate of return is derived on the basis of the specific investment strategy applied to each individual pension fund. This is determined on the basis of the rates of return from the individual investment classes taking account of costs and unplanned risks. This approach re- sulted in the following expected rates of return on plan assets (disclosed on the basis of weighted averages). 108 in % Germany 2008 2007 United Kingdom 2008 2007 Other 2008 2007 Expected rate of return on plan assets 5.43 – 5.93 5.75 6.99 7.25 Compared to the expected return of euro 360 million (2007: euro 358 million), fund assets actually decreased in the financial year 2008 by euro 508 million (2007: increase in fund assets of euro 314 million). This gave rise to actuarial losses on fund assets of euro 868 million (2007: euro 44 mil- lion). The actuarial losses on fund assets compare with actuarial gains of euro 919 million (2007: euro 557 million) on benefit obligations. This offsetting effect was attributable primarily to the fact that the pension funds’ investment strategy is based on the structure of the related benefit obligations. The level of the pension obligations differs depending on the pension system applicable in each country. Since the state pension system in the United Kingdom only pro- vides a basic fixed amount benefit, retirement benefits are largely organised in the form of company pensions on the one hand and arrangements financed by the individual on the other. The pension benefits in the United Kingdom therefore contain contributions made by the employee. The net obligation from pension plans in Germany, the United Kingdom and other countries changed as follows: Germany in euro million Defined benefit obligation Plan assets Net obligation 2008 2007 2008 2007 2008 2007 1 January Deconsolidation effects Expense from pension obligations Payments to external funds Employee contributions (deferred remuneration retirement scheme) Payments on account and pension payments Actuarial gains (–) and losses (+) Translation differences and other changes 3,849 4,414 – 4 325 – – 239 – 49 52 – 99 – 80 – 271 – 776 –1 – – – – 32 –1,375 – 29 3 278 – – – – – – – – – 3,849 4,414 – 4 293 –1,375 – 239 – 20 52 – 96 – 80 7 – 776 –1 – 31 December 3,848 3,849 –1,155 – 2,693 3,849 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 United Kingdom in euro million 1 January Deconsolidation effects Expense from pension obligations Payments to external funds Employee contributions Pension payments Actuarial gains (–) and losses (+) Defined benefit obligation Plan assets Net obligation 2008 2007 2008 2007 2008 2007 6,327 6,568 – 5,686 – 6,134 641 434 – 24 379 – 13 – 387 – 15 – 285 – 293 – 647 211 28 – – 303 – 335 – 98 –13 285 486 – 47 –15 293 42 510 4 76 – 52 – 98 – 47 – – – 161 – 118 344 – – 253 – 51 641 Translation differences and other changes – 1,360 – 561 1,242 31 December 4,403 6,327 – 4,059 – 5,686 109 Group Financial Statements Other in euro million 1 January Effects of first-time consolidation Deconsolidation effects Expense from pension obligations Payments to external funds Employee contributions Pension payments Actuarial gains (–) and losses (+) Translation differences and other changes 31 December Defined benefit obligation Plan assets Net obligation 2008 2007 2008 2007 2008 2007 455 450 – 343 – 298 112 152 1 –1 55 – 1 – – 51 – 1 –17 –16 –1 44 537 8 – 39 455 – – – 25 – 8 –1 11 104 –15 – – – 23 – 57 –1 6 2 28 – 277 – 343 1 –1 30 – 8 – – 6 103 29 260 – – 28 – 57 – –10 10 –11 112 Plan assets in Germany, the United Kingdom and other countries comprised the following: Components of plan assets in euro million 2008 2007 2008 2007 2008 2007 2008 2007 Germany United Kingdom Other countries Total Equity instruments Debt securities Real estate Other 31 December 379 641 – 135 – – – – 642 1,266 2,620 3,135 278 519 487 798 1,155 – 4,059 5,686 151 101 7 18 277 205 111 6 21 343 1,172 1,471 3,362 3,246 285 672 493 819 5,491 6,029 For the first time, benefit obligations in Germany are being financed partly by pension provisions and partly by fund assets. In both Germany and the United Kingdom, a sub- stantial portion of plan assets is invested in debt securities in order to minimise the effect of capital market fluctua- tions. Other investment classes, such as stocks, serve to generate higher rates of return. This is necessary to cover risks (such as longer life expectancies) not taken into ac- count in the actuarial assumptions applied. The present value of the defined benefit obligations and the fair values of fund assets – as well as the experience- based (actuarial) adjustments made for those two items – have developed as follows over the last four years: in euro million 2008 2007 2006 2005 Defined benefit obligation Fair value of plan assets Net obligation Actuarial gains (–) and losses (+) on defined benefit obligations Actuarial gains (–) and losses (+) on plan assets 8,788 5,491 3,297 – 919 868 10,631 6,029 4,602 – 557 44 11,430 6,432 4,998 – 400 –117 11,237 6,017 5,220 1,131 – 424 Experience adjustments on defined benefit obligations are not disclosed since the amounts involved are immate- rial. Actuarial gains on plan assets are primarily attributable to experience adjustments. 110 33 Other provisions Other provisions comprise the following items: in euro million 31.12. 2008 31.12. 2007 Obligations for personnel and social expenses Obligations for ongoing operational expenses Other obligations Other provisions Provisions for obligations for personnel and social expens- es comprise mainly performance-related remuneration components, early retirement part-time working arrange- ments and employee long-service awards. Provisions for obligations for on-going operational expens- es comprise primarily warranty obligations. Total 1,241 2,790 851 4,882 thereof due within one year 603 1,081 441 2,125 Total 1,559 2,818 1,125 5,502 thereof due within one year 1,062 1,129 635 2,826 Provisions for other obligations cover numerous specific risks and obligations of uncertain amount. Other provisions changed during the year as follows: in euro million At Translation 1.1. 2008 1 differences Additions Reversal of discounting Utilised 2 Reversed At 31.12. 2008 Obligations for personnel and social expenses Obligations for ongoing operational expenses Other obligations 1,562 2,836 1,129 5,527 – 7 – 51 – 28 – 86 659 1,173 414 2,246 14 74 8 – 950 –1,197 – 213 96 – 2,360 – 37 – 45 – 459 – 541 1,241 2,790 851 4,882 1 actuarial gains (-) and losses (+) on plan assets 2 including entities deconsolidated during the financial year Of the amount shown as reversed, euro 263 million are included in costs by function in the income statement. 34 Income tax liabilities 31 December 2008 in euro million Deferred tax Current tax Income tax liabilities 31 December 2007 in euro million Deferred tax Current tax Income tax liabilities Maturity within one year Maturity later than one year – 265 265 2,757 368 3,125 Maturity within one year Maturity later than one year – 378 378 2,714 430 3,144 Total 2,757 633 3,390 Total 2,714 808 3,522 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 111 Group Financial Statements Current tax liabilities of euro 633 million (2007: euro 808 mil- lion) comprise euro 97 million (2007: euro 161 million) for taxes payable and euro 536 million (2007: euro 647 million) for tax provisions. In 2008, tax provisions of euro 141 million were reversed (2007: euro 8 million). 35 Financial liabilities Financial liabilities include all liabilities of the BMW Group at the relevant reporting dates relating to financing activities and comprise the following: 31 December 2008 in euro million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Interest and currency derivatives Other 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 derivatives Other Financial liabilities Maturity within one year Maturity between one and five years Maturity later than five years 6,685 6,365 6,402 5,471 3,439 762 763 11,787 3,879 1,785 – 5,263 796 207 5,687 900 22 – – 63 108 Total 24,159 11,144 8,209 5,471 8,702 1,621 1,078 29,887 23,717 6,780 60,384 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 22,493 16,550 4,208 503 – – – 39 128 4,878 Total 18,383 6,501 5,732 5,445 6,346 616 898 43,921  Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in years) Weighted average effective interest rate (in %) 112 Bonds comprise: Issuer BMW Finance N. V., The Hague BMW (UK) Capital plc, Bracknell BMW US Capital, LLC, Wilmington, Del. Interest variable variable variable variable fixed fixed fixed fixed fixed fixed variable variable variable variable variable fixed fixed fixed variable variable variable variable variable fixed fixed fixed fixed fixed 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 JPY 16,500 million SKK 768 million EUR 2,698 million USD 111 million JPY 98,700 million EUR 7,740 million USD 1,250 million GBP 400 million SEK 1,300 million CZK 735 million JPY 67,100 million EUR 200 million GBP 12 million CZK 1,080 million SEK 690 million EUR 267 million GBP 300 million JPY 39,000 million JPY 10,000 million USD 261 million EUR 100 million CAD 100 million MXN 405 million JPY 2,200 million EUR 4,250 million USD 1,212 million MXN 1,725 million CHF 1,150 million Rolls-Royce Motor Cars Ltd., Bracknell variable GBP 46 million Other * unlimited variable variable variable variable fixed fixed fixed JPY 22,200 million EUR 660 million SEK 800 million USD 320 million JPY 111,700 million CHF 500 million SEK 400 million 1.6 3.0 2.6 2.5 4.3 6.6 4.4 6.0 1.3 1.0 3.3 1.5 1.0 3.0 1.5 1.0 5.2 3.5 2.0 3.4 3.0 3.0 5.0 3.0 7.1 8.1 4.4 4.4 – * 2.6 1.9 2.0 4.1 10.7 4.5 1.5 1.2 4.5 5.1 2.7 1.2 5.0 4.9 5.2 4.6 4.4 0.8 2.9 2.8 3.4 2.4 5.1 6.4 1.6 1.0 1.8 2.9 2.3 8.7 1.1 4.4 5.3 7.8 2.9 3.0 1.2 4.3 4.4 2.8 2.0 2.3 2.5 113 Group Financial Statements The following details apply to the 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 760 million EUR 1,895 million GBP 275 million USD 3,580 million 24.8 40.2 30.7 25.0 36 Other liabilities Other liabilities comprise the following items: 31 December 2008 in euro million Other taxes Social security Advance payments from customers Deposits received Payables to subsidiaries Payables to other companies in which an investment is held Deferred income Other Other liabilities 31 December 2007 in euro million Other taxes Social security Advance payments from customers Deposits received Payables to subsidiaries Payables to other companies in which an investment is held Deferred income Other Other liabilities Deferred income comprises the following items: Maturity within one year Maturity between one and five years Maturity later than five years 335 30 327 88 44 28 1,262 1,966 4,080 – 8 19 177 1 – 1,675 29 1,909 – 6 – – – – 244 42 292 Maturity within one year Maturity between one and five years Maturity later than five years 537 46 367 56 75 – 1,002 2,023 4,106 – – 15 90 – – 1,651 36 1,792 – – – – – – 191 41 232 5.1 4.7 5.2 2.4 Total 335 44 346 265 45 28 3,181 2,037 6,281 Total 537 46 382 146 75 – 2,844 2,100 6,130 in euro million 31.12. 2008 31.12. 2007 Deferred income from lease financing Deferred income relating to service contracts Grants Other deferred income Deferred income Total 1,068 1,615 303 195 3,181 thereof due within one year 654 485 56 67 1,262 Total 977 1,433 358 76 2,844 thereof due within one year 580 317 49 56 1,002 114 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 production plant in Leipzig. In accord- ance with IAS 20, they are recognised as income over the useful lives of the assets to which they relate. Other deferred income includes primarily the effects of the initial measurement of financial instruments. 37 Trade payables 31 December 2008 in euro million Maturity within one year Maturity between one and five years Maturity later than five years Total Trade payables 2,525 37 – 2,562 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 35 – 3,551 The total amount of financial liabilities, other liabilities and trade payables with a maturity later than five years amounts euro 7,072 million (2007: euro 5,110 million). 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 115 Group Financial Statements BMW Group Notes to the Group Financial Statements Other Disclosures 38 Contingent liabilities and other financial commitments Contingent liabilities No provisions were recognised for the following contingent liabilities (stated at their nominal amount), since an outflow of resources is not considered to be probable: in euro million Guarantees Performance guarantees Bills of exchange Other Contingent liabilities 31.12. 2008 31.12. 2007 83 8 – 60 151 132 13 2 78 225 Contingent liabilities relate primarily to non-group entities. Guarantees include an amount of euro 5 million (2007: –) in respect of non-consolidated subsidiaries. Several liability applies in the case of investments in gen- eral 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 liabilities, the BMW Group also has other financial commitments, primarily under lease contracts for land, buildings, plant and machinery, tools, office and other facilities. The leases run for periods of one to 94 years and in some cases con- tain extension and / or purchase options. In 2008 an amount of euro 230 million (2007: euro 169 million) was recognised as expense in conjunction with other financial commit- ments. The total of future minimum lease payments under non- cancellable leases can be analysed by maturity as follows: in euro million 31.12. 2008 31.12. 2007 Nominal total of future minimum lease payments due within one year due between one and five years due later than five years Other financial obligations 222 619 695 1,536 212 575 683 1,470 The above amounts include euro 7 million (2007: euro 3 mil- lion) in respect of non-consolidated subsidiaries and euro 1 million (2007: euro 7 million) for back-to-back operating leases. Purchase commitments for property, plant and equipment amount to euro 1,891 million (2007: euro 1,925 million). Sundry other financial commitments amount to euro 158 mil- lion (2007: euro 161 million). 116 39 Financial instruments The carrying amounts and fair values of financial instruments are allocated below to IAS 39 categories, cash funds, cash flow hedges and fair value hedges: 31 December 2008 in euro million Cash funds Loans and receivables 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 Fair value Fair value Carrying amount Carrying amount Carrying amount * Carrying amount * Carrying amount * Carrying amount * Carrying amount * 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 Other financial liabilities Trade payables Other liabilities Liabilities to subsidiaries Other * Carrying amount corresponds to fair value. – – – – – – – – – – – – – – 7,454 7,454 – – – 291 – – – – – – – – – – – – – – 291 – – – – – – – – – – – – – 37,839 38,063 – – 13 253 711 – – – 13 253 711 – 2,305 2,305 425 103 – 186 – – – – – – – – – – 425 103 – 186 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 24,280 11,120 8,263 5,473 8,615 – 1,097 2,562 45 1,931 – – – – – – – – – – – – – 24,159 11,144 8,209 5,471 8,702 – 1,078 2,562 45 1,931 322 – – 653 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 836 817 1,796 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 610 637 374 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 117 Group Financial Statements 31 December 2008 in euro million Cash funds Loans and receivables Held-to-maturity investments Other liabilities Available- for-sale Fair value- option Held for trading Cash flow hedges Fair value hedges Fair value Fair value Carrying amount Carrying amount Fair value Carrying amount Fair value Carrying amount Carrying amount * Carrying amount * Carrying amount * Carrying amount * Carrying amount * Receivables from subsidiaries Receivables from companies in which an investment is held 291 – 291 – Marketable securities and investment funds Assets Other investments Receivables from sales financing Financial assets Derivative instruments Loans to third parties Credit card receivables Other financial assets Cash and cash equivalents Trade receivables Other assets Collateral receivables Other Liabilities Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Other financial liabilities Trade payables Other liabilities Liabilities to subsidiaries Other * Carrying amount corresponds to fair value. 7,454 7,454 2,305 2,305 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 37,839 38,063 – – 13 253 711 – 425 103 – 186 – – – – – – – – – – – – 13 253 711 – 425 103 – 186 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 24,280 11,120 8,263 5,473 8,615 – 1,097 2,562 45 1,931 – – – – – – – – – – – – – 24,159 11,144 8,209 5,471 8,702 – 1,078 2,562 45 1,931 322 – – 653 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 836 817 1,796 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 610 637 374 – – – – – – – – – – – – 118 31 December 2007 in euro million Cash funds Loans and receivables 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 Fair value Fair value Carrying amount Carrying amount Carrying amount * Carrying amount * Carrying amount * Carrying amount * Carrying amount * 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 Other financial liabilities Trade payables Other liabilities Liabilities to subsidiaries Other * Carrying amount corresponds to fair value. – – – – – – – – – – – – – – 2,393 2,393 – – – 135 1 – – – – – – – – – – – – – 135 1 – – – – – – – – – – – – 33,490 34,244 – – 27 260 568 – – – 28 260 568 – 2,672 2,672 641 104 – 78 – – – – – – – – – – 641 104 – 78 – – – – – – – – – – – – – 52 – – – – – – – – – – – – – – – – – – – – – – 51 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 6,485 5,702 5,446 5,882 – 910 3,551 75 2,081 – – – – – – – – – – – – – 6,501 5,732 5,445 6,346 – 898 3,551 75 2,081 18,808 18,383 209 – 1,904 – – – – – – – – – – – – – – – – – – – – 195 802 983 – – – 4 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 13 – – – – – – – – – – – – – – – – – – – – – – – – – 180 423 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 119 Group Financial Statements 31 December 2007 in euro million Cash funds Loans and receivables Held-to-maturity investments Other liabilities Available- for-sale Fair value- option Held for trading Cash flow hedges Fair value hedges Fair value Fair value Carrying amount Carrying amount Fair value Carrying amount Fair value Carrying amount Carrying amount * Carrying amount * Carrying amount * Carrying amount * Carrying amount * Receivables from subsidiaries Receivables from companies in which an investment is held 135 1 135 1 Marketable securities and investment funds Assets Other investments Receivables from sales financing Financial assets Derivative instruments Loans to third parties Credit card receivables Other financial assets Cash and cash equivalents Trade receivables Other assets Collateral receivables Other Liabilities Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Other financial liabilities Trade payables Other liabilities Liabilities to subsidiaries Other * Carrying amount corresponds to fair value. 2,393 2,393 2,672 2,672 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 33,490 34,244 – – 27 260 568 – 641 104 – 78 – – – – – – – – – – – – 28 260 568 – 641 104 – 78 – – – – – – – – – – – – – 52 – – – – – – – – – – – – – – – – – – – – – – 51 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 18,808 18,383 6,485 5,702 5,446 5,882 – 910 3,551 75 2,081 6,501 5,732 5,445 6,346 – 898 3,551 75 2,081 209 – – 1,904 – – – – – – – – – – – – – – – – – – – – – – 4 – – – – – – – – – – – – – – – – – – – – – – – – – 195 802 983 – – – – – – – – – – – – – – – 180 – – – – – – – – – – – – – – – – – – – 13 – – – – – – – – – – – – – – – – – – – 423 – – – – 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 120 Fair value measurement of financial instruments The fair values shown are computed using market informa- tion available at the end of the reporting period on the basis of prices quoted by the counterparties or using ap- propriate measurement methods, e. g. discounted cash flow models. In the latter case, amounts were discounted at 31 December 2008 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 2.1 2.0 3.3 3.8 1.8 2.0 2.1 2.5 3.0 3.1 3.2 3.5 1.0 1.1 0.9 1.2 These interest rates were adjusted, where necessary, to take account of the credit quality and risk of the underlying financial instrument. possible – unlike in the past – that different models (e. g. the par-method) could result in different fair values. As a result of the impact of the financial market crisis, some of the interest rates used to measure the fair value of de- rivatives are based on wider-than-normal credit and liquidity spreads. It is therefore possible that the calculated fair values cannot be traded at present on the markets. Currency hedging contracts used to hedge cash flows are measured on the basis of the zero-coupon method. As a result of the financial crisis and current climate, it is in euro million Held for trading Closing out existing positions could have an impact on profit or loss. The contracts involved have, however, been entered into for hedging purposes, and it is therefore in- tended to hold them until maturity. 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: 2008 2007 Gains / losses from the use of derivative instruments – 208 – 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 –195 4 35 –18 20 17 – 610 – 41 49 3 214 –179 –168 35 – 277 –12 –109 168 Gains / losses from the use of derivatives relate primarily to fair value gains or losses arising on stand-alone derivatives. Write-downs of euro 123 million (2007: euro 49 million) on available-for-sale securities, for which fair value changes were previously recognised directly in equity, were recog- nised as expenses in 2008. Reversals of write-downs on current marketable securities of euro 5 million were recog- nised directly in equity (2007: euro 2 million). The disclosure of interest income resulting from the un- winding of interest on future expected receipts would nor- mally only be relevant for the BMW Group where assets have been discounted as part of the process of determin- ing impairment losses. However, as a result of the assump- tion 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. 121 Group Financial Statements 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 2008 2007 438 – 393 – 627 45 178 260 – 260 438 During the period under report, an expense of euro 32 mil- lion (2007: euro 4 million) was recognised in the income statement to reflect the ineffective portion of cash flow hedges due to over-hedging. to hedge interest rate risks attached to future transactions. It is expected that euro 27 million of net losses, recognised in equity at the end of the reporting period, will be recog- nised in the income statement in 2009. At 31 December 2008, the BMW Group held derivative in- struments with terms of up to 48 months (2007: 41 months) to hedge currency risks attached to future transactions. It is expected that euro 258 million of net gains, recognised in equity at the end of the reporting period, will be recog- nised in the income statement in 2009. At 31 December 2008, the BMW Group held derivative in- struments with terms of up to 96 months (2007: 108 months) 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. 2008 31.12. 2007 Gains / losses on hedging instruments designated as part of a fair value hedge relationship Gains / loss from hedged items 386 – 405 – 19 272 – 271 1 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. information on the credit-standing of the counterparty ob- tained or historical data based on the existing business re- lationship (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. 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 the counterparties will not be able to fulfill their contractual obligations. The maximum credit risk for irrevocable credit commitments relating to the credit card business amounts to euro 1,570 million (2007: euro 2,082 million). The equivalent figure for dealer financing is euro 12,490 million (2007: euro 12,043 million). In the case of performance relationships underlying non- derivative financial instruments, collateral will be required, Within the financial services business, the financed items (e. g. vehicles, equipment and property) in the retail cus- tomer and dealer lines of business serve as first-ranking collateral with a recoverable 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 undergoes a multi-stage process of repossession and disposal in accordance with the legal situation prevailing in the relevant market. The assets involved are generally vehicles which can be converted into cash at any time via the dealer organ- isation. 122 Impairment losses are recorded as soon as credit risks are identified on individual financial assets, using a method- ology specifically designed by the BMW Group. More de- tailed information regarding this methodology is provided in the section on accounting policies. The use of comprehensive rating and scoring techniques and credit monitoring procedures ensures the recoverabil- ity of the value of receivables from sales financing which are neither overdue nor impaired. The credit risk relating to derivative financial instruments is minimised by the fact that the Group only enters into such contracts with parties of first-class credit standing. The general credit risk on derivative financial instruments utilised by the BMW Group is therefore not considered to be significant. A concentration of credit risk with particular borrowers or groups of borrowers has not been identified. In the context of the current climate for financing, it must be reckoned with that assessments of individual counter parties’ creditworthiness may need to be amended. Further disclosures relating to credit risk, in particular im- pairment losses recognised, are provided in the notes to the relevant category of receivables on pages 98, 100 and 102. Liquidity risk The following table shows the maturity structure of con- tractual cash flows (undiscounted) for financial liabilities: 31 December 2008 in euro million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Interest and currency derivative instruments Trade payables Other 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 Trade payables Other financial liabilities Maturity within one year Maturity between one and five years Maturity later than five years –7,755 – 6,434 – 6,639 – 5,504 – 3,670 349 – 2,525 –766 – 32,944 –13,690 – 4,236 –1,866 – – 5,405 383 – 37 – 218 – 25,069 Maturity within one year Maturity between one and five years – 5,947 – 4,736 – 5,193 – 5,474 –1,854 63 – 3,516 – 497 – 27,154 –10,627 –1,630 – 774 – – 5,043 234 – 35 – 273 –18,148 – 5,900 – 945 – 26 – – –106 – –145 – 7,122 Maturity later than five years – 4,920 – 551 – – – 132 – –128 – 5,467 Total – 27,345 –11,615 – 8,531 – 5,504 – 9,075 626 – 2,562 –1,129 – 65,135 Total – 21,494 – 6,917 – 5,967 – 5,474 – 6,897 429 – 3,551 – 898 – 50,769 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 123 Group Financial Statements The cash flows shown comprise principal repayments and the related interest. The amounts disclosed for interest rate and currency derivatives include all cash flows relating to derivatives that have a negative fair value at the balance sheet date as well as all cash flows relating to derivatives that have a positive fair value at the balance sheet date but which are part of a hedging relationship with a financial liability. Solvency is assured at all times by managing and monitor- ing 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 objective 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 published by Standard & Poor’s (A) and Moody’s (A2) enable the BMW Group to obtain financing on competitive terms and conditions. Against the background of the current financial market and economic crisis and the re- sulting impact on the automobile sector, Moody’s revised the rating on 18 February 2009 to “under review for pos- sible downgrade”. The BMW Group will continue to be able to raise sufficient funds to refinance its business even after taking account of forthcoming rating adjust- ments. Short-term liquidity is managed primarily by issuing 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 com- petitive terms and conditions in this area. Also reducing liquidity risk, additional secured and un- secured lines of credit are in place with first-class interna- tional 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 ex- posed are currency risk and interest rate risk. Protection against such risks is provided at first instance through natural hedging which arises when the values of non-derivative financial instruments have matching matu- rities and amounts (netting). Derivative financial instru- ments are used to reduce the risk remaining after netting. Financial instruments are only used to hedge underlying positions or forecast transactions. The scope of permitted transactions, responsibilities, financial reporting procedures and control mechanisms used for financial instruments are set out in detailed inter- nal 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 pro- vided 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 currency region and the procurement of production material and funding is also or- ganised on a worldwide basis, the currency risk is an ex- tremely important factor for Group earnings. At 31 December 2008, derivative financial instruments 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 currency contracts. A description of how these risks are managed is provided in the Group Management Report on page 62. 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 end of the reporting period, exposures for the coming year were as follows: in euro million Euro / US Dollar Euro / British Pound Euro / Japanese Yen 31.12. 2008 31.12. 2007 3,631 2,291 835 6,140 3,484 1,263 124 In the next stage, these exposures are compared to all hedges that are in place. The net cash flow surplus repre- sents an uncovered risk position. The cash-flow-at-risk approach involves allocating the impact of potential ex- change rate fluctuations to operating cash flows on the basis of probability distributions. Volatilities and correla- tions serve as input factors to assess the relevant proba- bility distributions. The potential negative impact on earnings for the current period is computed on the basis of current market prices and exposures to a confidence level of 95 % for each cur- rency. Aggregation of these results creates a risk reduction effect due to correlations 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 at the balance sheet date to unfavourable changes in exchange rates for the three principal currencies. in euro million Euro / US Dollar Euro / British Pound Euro / Japanese Yen 31.12. 2008 31.12. 2007 39 56 54 33 14 56 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 peri- ods or differing terms are borrowed and invested. 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 portfolios for the three principal currencies were as follows at the end of the reporting period: in euro million Euro US Dollar British Pound 31.12. 2008 31.12. 2007 6,241 5,646 1,860 6,930 6,012 2,278 Interest rate risks can be managed by the use of interest rate derivatives. The interest rate contracts used for hedg- ing 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 interest rate risk is managed is provided in the Group Man- agement Report on page 63. As stated there, the BMW Group applies a value-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 expected amounts measured on the basis of a holding period of three months and a con- fidence level of 99 %. Aggregation of these results creates a risk reduction effect due to correlations between the various portfolios. 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 125 Group Financial Statements 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 expected value for the interest rate relevant positions of the BMW Group for the three principal currencies: in euro million Euro US Dollar British Pound 31.12. 2008 31.12. 2007 52 119 7 76 109 10 Other risks The BMW Group is exposed to raw material price risks. A description of how these risks are managed is provided in the Group Management Report on pages 62 – 63. De- rivative 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 2008 and 2007 and remains small at the present time. 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 finance lease contracts. The risks from financial instruments used in this context were not material to the Group in the past and at the end of the reporting period. A description of how these risks are managed is provided in the Group Management Report on pages 62 – 63. Information re- garding the residual value risk from operating leases is provided in the section on accounting policies. 40 Explanatory notes to the cash flow statements The cash flow statements show how the cash and cash equivalents of the BMW Group and of the Automobiles and Financial Services segments have changed in the course of the year as a result of cash inflows and cash out- flows. In accordance with IAS 7 (Cash Flow Statements), cash flows are classified into cash flows from operating, investing and financing activities. The Group and segment cash flow statements are presented on pages 76 – 77. Cash and cash equivalents included in the cash flow state- ment comprise cash in hand, cheques, and cash at bank, to the extent that they are available within three months from the end of the reporting period 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 2008 was euro 44 million (2007: euro 47 million). The cash flows from investing and financing activities 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 adjusted 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 and segment balance sheets. 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 investing activities. If the BMW Group acts as the lessor in an operating 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. In 2008, some of the shares of Cirquent GmbH, Munich, were sold to NTT Data Corporation, Tokyo. The cash inflow for the purchase consideration, amounting to euro 153 million, was not reported on a separate line within in- vesting activities on the grounds of materiality. The sale of Cirquent GmbH, Munich, resulted in an outflow of cash funds amounting to euro 21 million. The amounts of assets and liabilities of Cirquent GmbH, Munich, summarised by major category pursuant to IAS 7.40 (d), are not disclosed on the grounds of materiality. Cash outflows for taxes on income and cash inflows for interest are classified as cash flows from operating activi- ties in accordance with IAS 7.31 and IAS 7.35. Cash out- flows for interest are presented on a separate line within cash flows from financing activities. Cash flows from dividends received amounted to euro 4 mil- lion (2007: euro 3 million). 126 41 Related party relationships In accordance with IAS 24 (Related Party Disclosures), related individuals or entities which have the ability to con- trol the BMW Group or which are controlled by the BMW Group, must be disclosed unless such parties are not al- ready 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 financial and operating policies of the management of the Group. In addition, the disclosure requirements of IAS 24 also cover transactions with participations, joint ventures 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 inter- mediaries. Significant influence over the financial and operating policies of the BMW Group can arise when a party holds 20 % or more of the shares of BMW AG or is a member of the Board of Management or Supervisory Board of BMW AG. For the financial year 2008, the disclosure requirements contained in IAS 24 only affect the BMW Group with re- gard to business relationships with non-consolidated sub- sidiaries, joint ventures and participations as well as with members of the Board of Management and Supervisory Board of BMW AG. The BMW Group maintains normal business relationships with non-consolidated subsidiaries. Transactions with these entities are small in scale, arise in the normal course of business and are conducted on the basis of arm’s length principles. Transactions of BMW Group companies with the joint ven- ture, BMW Brilliance Automotive Ltd., Shenyang, all arise in the normal course of business and are conducted on the basis of arm’s length principles. Group companies sold goods and services to BMW Brilliance Automotive Ltd., Shenyang, during 2008 for an amount of euro 406 mil- lion (2007: euro 293 million). At 31 December 2008, receiva- bles of Group companies from BMW Brilliance Automotive Ltd., Shenyang, amounted to euro 102 million (2007: euro 103 million). As in the previous year there were no payables from Group companies to BMW Brilliance Automotive Ltd., Shenyang, at the end of the reporting period. Business transactions of the BMW Group with participa- tions all arise in the normal course of business and are conducted on the basis of arm’s length principles. With the exception of Cirquent GmbH, Munich, business rela- tionships with such entities are on a small scale. Group companies did not provide any services to Cirquent GmbH, Munich, during the fourth quarter 2008. During the final three months of 2008 Group entities purchased services and goods from Cirquent GmbH, Munich, for euro 45 mil- lion. At 31 December 2008, receivables of Group compa- nies from Cirquent GmbH, Munich, totalled euro 1 million. Payables of Group companies to Cirquent GmbH, Munich, amounted to euro 28 million. Stefan Quandt is a shareholder and Deputy Chairman of the Supervisory Board of BMW AG. He is also sole shareholder and Chairman of the Supervisory Board of DELTON AG, Bad Homburg v. d. H., which, via its sub- sidiaries, performed logistics services for the BMW Group during the financial year 2008. In addition, companies of the DELTON Group purchased vehicles from the BMW Group. These service and sales contracts are not material for the BMW Group, arise in the course of ordinary activi- ties and are made, without exception, on the basis of arm’s length principles. Susanne Klatten is a shareholder and member of the Su- pervisory 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 2008. These sale contracts are not material for the BMW Group, arise in the course of ordinary activities and are made, without exception, on the basis of arm’s length principles. With the exception of these related party transactions, BMW Group companies did not enter into any significant contracts with members of the Board of Management or Supervisory Board of BMW AG. The same applies to close members of the families of those persons. 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 127 Group Financial Statements 42 43 Declaration with respect to the Corporate Governance Code The Board of Management and the Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft have issued the Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act. The Declaration of Compliance is reproduced on page 147 and is also available to shareholders on the BMW Group website at www.bmwgroup.com/ir. 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 shareholdings of the members of the Board of Management of BMW AG is, in total, less than 1 % of the issued stock shares. 44 Compensation of members of the Board of Management and Supervisory Board The compensation of current members of the Board of Management and Supervisory Board amounted to euro 13.3 mil- lion (2007: euro 18.7 million) and comprised the following: in euro million Short-term employment benefits Post-employment benefits Compensation 2008 2007 12.5 0.8 13.3 18.0 0.7 18.7 The remuneration of the members of the Board of Manage- ment for the financial year 2008 amounted to euro 10.9 mil- lion (2007: euro 15.2 million). This comprised fixed compo- nents of euro 3.1 million (2007: euro 2.7 million) and variable components of euro 7.8 million (2007: euro 12.5 million). Further details about the remuneration of current mem- bers of the Board of Management and the Supervisory Board can be found in the Compensation Report on pages 141 – 146. The Compensation Report is part of the Group Management Report. In addition, an amount of euro 0.8 million (2007: euro 0.7 mil- lion) has been granted to current members of the Board of Management after the end of their employment relation- ship. This relates to the expense for allocations to pension provisions. The compensation of the members of the Supervisory Board for the financial year 2008 amounted to euro 1.6 mil- lion (2007: euro 2.8 million), comprising only fixed compo- nents (2007: euro 0.1 million for fixed components and euro 2.7 million for variable components). The compensation system for members of the Board of Management and the Supervisory Board does not include any stock options, value appreciation rights comparable to stock options or any other stock-based compensation components. The remuneration of former members of the Board of Management and their surviving dependants amounted to euro 3.1 million (2007: euro 4.3 million). Pension obligations to former members of the Board of Management and their surviving dependants are fully cov- ered by pension provisions amounting to euro 44.3 million (2007: euro 38.3 million), computed in accordance with IAS 19. Members of the Board of Management and the Super visory Board holding a credit card issued by BMW Bank GmbH, Munich, during the financial year 2008 had a credit line of up to euro 7,500 (2007: euro 25,565). The amounts arising 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 disclosed on pages 134 – 137. 128 45 Application of § 264 (3) and § 264 b HGB A number of companies and incorporated partnerships (as defined by § 264 a HGB) which are affiliated, consolidated entities of BMW AG and for which the consolidated financial statements of BMW AG represent exempting consolidated financial statements, apply the exemptions available in § 264 (3) and § 264 b HGB with regard to the drawing up of a management report. The exemptions have been applied by: – 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 M GmbH Gesellschaft für individuelle Automobile, Munich – BMW Vertriebs GmbH & Co. oHG, Dingolfing – Rolls-Royce Motor Cars GmbH, Munich In addition, the following entities apply the exemption avail- able in § 264 (3) and § 264 b HGB with regard to publication: – 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 Vertriebs GmbH & Co. oHG, Dingolfing – Rolls-Royce Motor Cars GmbH, Munich 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 129 Group Financial Statements BMW Group Notes to the Group Financial Statements Segment Information 46 Explanatory notes to segment information Information on reportable segments For the purposes of presenting segment information, the activities of the BMW Group are divided into operating segments in accordance with the rules contained in IFRS 8 (Operating Segments). Operating segments are identified on the same basis that is used internally to manage and report on performance and takes account of the organisa- tional structure of the BMW Group based on the various products and services of the reportable segments. The activities of the BMW Group are broken down into the operating segments Automobiles, Motorcycles, Financial Services and Other Entities. The Automobiles segment develops, manufactures, as- sembles and sells cars and off-road vehicles, under the brands BMW, MINI and Rolls-Royce as well as spare parts and accessories. BMW and MINI brand products are sold in Germany through branches of BMW AG and by independent, authorised dealers. Sales outside Germany are handled primarily by subsidiary companies and, in a number of mar- kets, by independent import companies. Rolls-Royce brand vehicles are sold in the USA via a subsidiary company and elsewhere by independent, authorised dealers. The Motorcycles segment develops, manufactures, as- sembles and sells BMW brand motorcycles as well as spare parts and accessories. Eliminations comprise the effects of eliminating business relationships between the operating segments. Internal management and reporting Segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the Group Financial Statements. There were no changes in accounting policies compared to previous periods. Inter-segment receivables and payables, provisions, in- come, expenses and profits are eliminated in the column “Eliminations”. Inter-segment sales take place at arm’s length prices. The role of “chief operating decision maker” with re- spect to resource allocation and performance assess- ment of reportable segments is embodied in the full Board of Management. In order to assist the decision- taking process, various measures of segment result and of segment assets have been set for the different operat- ing segments. The Automobiles and Motorcycles segments are man- aged on the basis of the profit before financial result. Capi- tal employed is the corresponding measure of segment assets used to determine how to allocate resources. Capi- tal employed comprises all current and non-current opera- tional assets of the segment, adjusted for liabilities used operationally which are not subject to interest. The Financial Services segment focuses primarily on car leasing, fleet business, retail customer and dealer financing, customer deposit business and insurance activities. The performance of the Financial Services segment is measured on the basis of profit or loss before tax. Net assets, defined as all assets less all liabilities, are used as the basis for assessing the allocation of resources. Holding and Group financing companies are included in the Other Entities segment. This segment also includes the operating companies (BMW Services Ltd., Bracknell, and BMW (UK) Investments Ltd., Bracknell) which are not allocated to one of the other segments. It also includes the income and expenses recorded by the Cirquent Group in the first nine months of 2008. The performance of the Other Entities segment is assessed on the basis of profit or loss before tax. The corresponding measure of segment assets used to manage the Other Entities segment is total assets less tax-related assets and investments. 130 Segment information by operating segment is as follows: Segment information by operating segment in euro million External revenues Inter-segment revenues Total revenues Segment result Segment assets Capital expenditure on non-current assets Depreciation and amortisation on non-current assets * including impairment losses of euro 3 million (2007: euro 17 million) Interest and similar income of the Financial Services seg- ment totalling euro 2 million (2007: euro 2 million) are in- cluded in segment result. Interest and similar expenses of the Financial Services segment amounted to euro 8 mil- lion (2007: euro 2 million). The Other Entities segment result includes interest and similar income amounting to euro 2,102 million (2007: euro 1,768 million) and interest and similar expenses amounting to euro 1,927 million (2007: euro 1,591 million). Automobiles Motorcycles Financial Services Other Entities Group Reconciliation to Group figures 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 13,952 1,773 15,725 – 292 3,752 14,842 6,339 12,146 1,794 13,940 743 4,139 13,012 4,124 146 45 191 295 4 13 214 76 290 168 9 11 38,548 33,419 – – 53,197 56,018 –12,731 –13,258 –12,731 –13,258 – 402 43,996 – 568 35,891 – 2,788 – 2,223 – 2,344 –1,629 – – 53,197 56,018 351 3,873 101,086 88,997 16,580 15,305 7,645 6,158 37,877 10,905 48,782 690 14,367 4,467 3,567 42,435 11,383 53,818 3,450 15,108 4,462 3,566 1,222 1,223 8 5 1,230 1,228 60 423 55 70 * 80 440 45 86 * the Other Entities segment profit is the result from equity accounted investments amounting to euro 1 million in 2008. In the previous year, the Other Entities segment did not record any profit / loss from equity accounted investments. Segment assets of the Other Entities segment at 31 De- cember 2008 included investments accounted for using the equity method amounting to euro 29 million (2007: –). The information disclosed for capital expenditure and depreciation and amortisation relates to property, plant and equipment, intangible assets and leased products. The profit of the “Other Entities” segment was influenced above all by the partial sale of the Cirquent Group and the reversal of a provision no longer required. Also included in Segment figures can be reconciled to the corresponding Group figures as follows: in euro million Reconciliation of segment result Total for reportable segments Financial result of Automobiles segment and Motorcycles segment Elimination of inter-segment items Group profit before tax Reconciliation of segment assets Total for reportable segments Non-operating assets – Other Entities segment Operating liabilities – Financial Services segment Interest-bearing assets – Automobiles segment Liabilities of Automobiles and Motorcycles segments subject to interest Elimination of inter-segment items Total Group assets Reconciliation of capital on non-current assets Total for reportable segments Elimination of inter-segment items Total Group capital expenditure on non-current assets Reconciliation of depreciation and amortisation on non-current assets Total for reportable segments Elimination of inter-segment items Total Group depreciation and amortisation on non-current assets 2008 2007 753 – 381 – 21 351 57,090 5,616 66,040 24,849 14,174 – 66,683 101,086 19,368 – 2,788 16,580 9,989 – 2,344 7,645 4,441 – 227 – 341 3,873 53,106 5,482 55,517 23,899 13,637 – 62,644 88,997 17,528 – 2,223 15,305 7,787 –1,629 6,158 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 Segment information by operating segment in euro million External revenues Inter-segment revenues Total revenues Segment result Segment assets Capital expenditure on non-current assets Depreciation and amortisation on non-current assets * including impairment losses of euro 3 million (2007: euro 17 million) 37,877 10,905 48,782 690 14,367 4,467 3,567 42,435 11,383 53,818 3,450 15,108 4,462 3,566 1,222 1,223 8 5 1,230 1,228 60 423 55 70 * 80 440 45 86 * 131 Group Financial Statements Automobiles Motorcycles Financial Services Other Entities Reconciliation to Group figures Group 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 2008 2007 13,952 1,773 15,725 – 292 3,752 14,842 6,339 12,146 1,794 13,940 743 4,139 13,012 4,124 146 45 191 295 214 76 290 168 38,548 33,419 4 13 9 11 – – 53,197 56,018 –12,731 –13,258 –12,731 –13,258 – 402 43,996 – 568 35,891 – 2,788 – 2,223 – 2,344 –1,629 – – 53,197 56,018 351 3,873 101,086 88,997 16,580 15,305 7,645 6,158 In the case of segment information by geographical region, external sales are based on the location of the customer’s registered office. Revenues with major customers were not material overall. The information disclosed for non- current assets relates to property, plant and equipment, intangible assets and leased products. The reconciling item disclosed for non-current assets relates to leased products. Information by region in euro million Germany USA United Kingdom Rest of Europe Africa / Asia / Oceania Rest of America Eliminations Group External revenues 2008 2007 10,739 11,918 11,349 11,110 4,913 5,945 15,780 16,450 8,471 8,691 1,945 1,904 Non-current assets 2008 2007 21,916 18,111 11,081 11,549 1,739 2,302 3,337 3,101 549 498 1,169 1,382 – – – 3,334 – 3,152 53,197 56,018 36,457 33,791 IFRS 8 was applied early with effect from 1 January 2008. The comparative figures for 2007 have been adjusted accordingly. Munich, 18 February 2009 Bayerische Motoren Werke Aktiengesellschaft The Board of Management 132 Responsibility Statement by the Company’s Legal Representatives Statement pursuant to § 37y No. 1 of the Securities Trading Act (WpHG) in conjunction with § 297 (2) sentence 3 and § 315 (1) sentence 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 develop- ment and performance of the business and the position of the Group, together with a description of the principal op- portunities and risks associated with the expected develop- ment of the Group.” Munich, 18 February 2009 Bayerische Motoren Werke Aktiengesellschaft The Board of Management 72 72 74 76 78 79 Group Financial Statements Income Statements Balance Sheets Cash Flow Statements Statement of Income and Expenses recognised in Equity Notes 79 Accounting Principles and Policies Notes to the Income Statement Notes to the Balance Sheet Other Disclosures Segment Information 88 94 115 129 133 Group Financial Statements BMW Group Auditors’ Report We have audited the consolidated financial statements prepared by Bayerische Motoren Werke Aktien gesell- schaft, comprising the income statement, the balance sheet, statements of changes in equity, cash flow state- ment and the notes to the consolidated financial state- ments and its report on the position of the Company and the Group for the business year from 1 January to 31 December 2008. The preparation of the consolidated finan cial statements and Group Management Report in accordance with IFRS, as adopted by the EU, and the additional requirements of German commercial law pur suant to § 315a (1) HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the consolidated financial state- ments 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 Wirtschafts- prüfer (IDW). Those standards require that we plan and perform the audit such that material misstatements materially affecting the presentation of the net assets, financial position and results of operations in the con- solidated financial statements in accordance with the ap- plicable financial reporting framework and in the Group Management Report are detected with reasonable assur- ance. Knowledge of the business activities and the eco- nomic and legal environment of the Group and expecta- tions as to possible misstatements are taken into account in the determination of audit procedures. The effective- ness of the accounting-related internal control system and the evidence supporting the disclosures in the con- solidated financial statements and in the Group Manage- ment Report are examined primarily on a test basis within the framework of the audit. The audit also includes as- sessing 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 presen- tation of the consolidated financial statements and Group Management Report. We believe 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 con- solidated financial statements comply with IFRSs, as adopted by the EU, the additional requirements 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 po- sition and suitably presents the opportunities and risks of future development. Munich, 27 February 2009 KPMG AG Wirtschaftsprüfungsgesellschaft (formerly KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft) Dr. Schindler Wirtschaftsprüfer Pastor Wirtschaftsprüfer 134 Corporate Governance Members of the Supervisory Board 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 and Nomination Committee; member of Audit Committee and the Mediation Committee Mandates Bertelsmann AG FESTO AG SAP AG ZF Friedrichshafen AG (since 15. 04. 2008) 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) DataCard Corp. Stefan Schmid * Deputy Chairman Chairman of the Works Council, Dingolfing Member of the Presiding Board, Personnel Committee, Audit Committee and Mediation Committee * Employee representative Membership of other statutory supervisory boards Membership of equivalent national or foreign boards of business enterprises 134 134 137 138 140 141 147 Corporate Governance Members of the Supervisory Board Members of the Board of Management Corporate Governance in the BMW Group Compliance in the BMW Group Compensation Report Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 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 Prof. Dr. Jürgen Strube Deputy Chairman Chairman of the Supervisory Board of BASF SE Chairman of the Audit Committee; member of the Presiding Board, Personnel Committee and Mediation Committee Mandates Allianz Deutschland AG BASF SE (Chairman) Bertelsmann AG (Deputy Chairman) Commerzbank AG (until 15. 05. 2008) Fuchs Petrolub AG (Chairman) Hapag-Lloyd AG Linde AG (until 03. 06. 2008) Dr. Hans-Dietrich Winkhaus (until 08. 05. 2008) Deputy Chairman Former Chairman of the Board of Henkel AG & Co. KGaA Member of the Presiding Board, Personnel Committee, Audit Committee and Nomination Committee Mandates Deutsche Lufthansa AG (until 29. 04. 2008) ERGO Versicherungsgruppe AG (until 05. 05. 2008) Henkel AG & Co. KGaA (until 14. 04. 2008) 135 Corporate Governance Ulrich Eckelmann* Head of the Industry, Technology and Environment section IG Metall Executive Board Mandates VOITH AG (since 11. 03. 2008) Bertin Eichler* Executive Member of the Executive Board of IG Metall Mandates ThyssenKrupp AG (Deputy Chairman) BGAG Beteiligungsgesellschaft der Gewerkschaften GmbH (Chairman) Franz Haniel Engineer, MBA Mandates DELTON AG (Deputy Chairman) Franz Haniel & Cie. GmbH (Chairman) Heraeus Holding GmbH Metro AG (Chairman) secunet Security Networks AG Giesecke & Devrient GmbH Prof. Dr. rer. nat. Dr. h. c. Reinhard Hüttl (since 08. 05. 2008) Chairman of the Executive Board of Helmholtz-Zentrum Potsdam Deutsches GeoForschungsZentrum – GFZ University professor Arthur L. Kelly (until 08. 05. 2008) Managing Partner of KEL Enterprises L. P. Mandates BASF SE (until 14. 01. 2008) DataCard Corp. (until 30. 06. 2008) 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 (Chairman) Dr. jur. Karl-Ludwig Kley (since 08. 05. 2008) Chairman of the Executive Management of Merck KGaA Mandates Bertelsmann AG WestLB AG (until 31. 12. 2008) Prof. Dr. rer. pol. Renate Köcher (since 08. 05. 2008) Director of Institut für Demoskopie Allensbach Gesellschaft zum Studium der öffentlichen Meinung mbH Mandates Allianz SE BASF SE (until 14. 01. 2008) Infineon Technologies AG MAN AG 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. (until 14. 05. 2008) 136 Wolfgang Mayrhuber Chairman of the Board of Management of Deutsche Lufthansa AG Mandates Eurowings Luftverkehrs AG (until 31. 12. 2008) Fraport AG LSG Lufthansa Service Holding AG (until 30. 09. 2008) Lufthansa Cargo AG (until 30. 09. 2008) Lufthansa Technik AG Münchener Rückversicherungs-Gesellschaft AG HEICO Corp. SWISS International Air Lines AG Heinz-Joachim Neubürger (until 08. 05. 2008) Senior Advisor of Kohlberg Kravis Roberts & Co. Managing Director of Kohlberg Kravis Roberts & Co. Ltd. Export Merchant, MBA Mandates Allianz Versicherungs-AG (until 24. 04. 2008) ProSiebenSat.1 Media AG (until 05. 09. 2008) Werner Neugebauer* Regional Executive Officer of IG Metall Bavaria Mandates ZF Sachs AG (since 11. 09. 2008) Franz Oberländer* Member of the Works Council, Munich Anton Ruf * Director Product Line L7 Maria Schmidt* (since 25. 03. 2008) Member of the Works Council, Dingolfing Werner Zierer* Chairman of the Works Council, Regensburg 134 134 137 138 140 141 147 Corporate Governance Members of the Supervisory Board Members of the Board of Management Corporate Governance in the BMW Group Compliance in the BMW Group Compensation Report Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG * Employee representative Membership of other statutory supervisory boards Membership of equivalent national or foreign boards of business enterprises 137 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 Dr. Michael Ganal († 04. 12. 2008) Finance (until 02. 12. 2008) Stefan Krause (until 13. 03. 2008) Sales and Marketing Mandates Allianz Deutschland AG (until 25. 04. 2008) Ernst Baumann (until 30. 11. 2008) Harald Krüger (since 01. 12. 2008) Human Resources, Industrial Relations Director Human Resources, Industrial Relations Director Mandates Krones AG Mandates BMW Brilliance Automotive Ltd. Dr.-Ing. Herbert Diess Purchasing and Supplier Network Dr.-Ing. Klaus Draeger Development Ian Robertson (since 13. 03. 2008) Sales and Marketing Mandates Rolls-Royce Motor Cars Limited (Chairman) Dr. Friedrich Eichiner Corporate and Brand Development (until 02. 12. 2008) Finance (since 02. 12. 2008) Mandates Allianz Deutschland AG (since 25. 04. 2008) BMW Brilliance Automotive Ltd. (Deputy Chairman) BMW (US) Holding Corp. General Counsel: Dr. Dieter Löchelt Membership of other statutory supervisory boards Membership of equivalent national or foreign boards of business enterprises 138 Corporate Governance in the BMW Group Corporate governance – in other words ensuring that ac- tions are taken in accordance with the principles of re- sponsible management in order to increase the value of the business on a sustainable basis – is an all-embracing issue for the BMW Group which affects all areas of the enterprise. The corporate culture within the BMW Group is founded on transparent reporting and internal commu- nication, a policy of corporate governance aimed at the in- terests of stakeholders, a fair and open approach towards employees and between Board of Management and Super- visory Board and compliance with the law. Information on the Company’s governing constitution Bayerische Motoren Werke Aktiengesellschaft (BMW AG) is a stock corporation (Aktiengesellschaft) based on the German Stock Corporation Act (Aktiengesetz). It has three representative bodies, namely Annual General Meeting, Supervisory Board and Board of Management. The duties and authorities of those bodies derive from the Stock Cor- poration Act and the Articles of Incorporation of BMW AG, the full text of which is published on the BMW Group’s website. Shareholders – the owners of the business – exercise their rights at the Annual General Meeting. The Annual General Meeting decides in particular on the utili- sation of unappropriated profit, the ratification of the acts of the members of the Board of Management and of the Supervisory Board, the appointment of the external auditor, changes to the Articles of Incorporation, specified capital measures and – in accordance with legislation applicable to BMW AG relating to co-determination by employees – on the composition of one half of the Supervisory Board. The Board of Management manages the enterprise under its own responsibility. Within this framework, it is monitored and advised by the Supervisory Board. The Supervisory Board appoints the members of the Board of Management and can, at any time, revoke an appointment if there is an important reason. The Board of Management keeps the Supervisory Board informed of all significant matters regu- larly, without delay and comprehensively, following the principles of conscientious and faithful accountability and in accordance with prevailing law and reporting duties allo- cated to it by the Supervisory Board. The Board of Manage- ment requires the approval of the Supervisory Board for certain major transactions. The Supervisory Board is not, however, authorised to undertake management meas- ures itself. by the Annual General Meeting) and ten em ployee re- presentatives (elected by employees). The close inter ac- tion between Board of Management and Super visory Board in the interests of the enterprise as described above is also known as a “two-tier board structure”. The com- position of the Board of Management and the Supervisory Board and of sub-committees set up by the Supervisory Board is disclosed on pages 134 to 137 of the Annual Report. Core principles Within the BMW Group, the Board of Management, the Supervisory Board and employees base their actions on twelve core principles which create the cornerstone of the success of the BMW Group: Customer focus The success of our company is determined by our cus- tomers. They are at the heart of everything we do. The results of all our activities must be valued in terms of the benefits they will generate for our customers. Peak performance We aim to be the best – a challenge to which all of us must rise. Each and every employee must be prepared to deliver peak performance. We strive to be among the elite, but without being arrogant. For us, it is the company and our products that count – nothing else. Responsibility Every BMW Group employee has the personal responsi- bility to ensure the company’s success. In team work, every employee must assume personal responsibility. We are fully aware that as we work to achieve our corporate tar- gets, we have responsibility to each other – in the interests of the company. Effectiveness For our company, the only results that count are those with a lasting effect. In evaluating leadership, we must consider the effect of performance on improving results. Adaptability To ensure our long-term success, we must adapt to new challenges with speed and flexibility. We see change as an opportunity – and in order to capitalise on it, we need to be adaptable. In accordance with the regulations contained in the German Co-determination Act, BMW AG’s Supervisory Board comprises ten shareholder representatives (elected Dissent (frankness) As we strive to find the best solution, our employees are encouraged to express opposing opinions, if they wish. 134 134 137 138 140 141 147 Corporate Governance Members of the Supervisory Board Members of the Board of Management Corporate Governance in the BMW Group Compliance in the BMW Group Compensation Report Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 139 Corporate Governance However, the solutions we agree upon will then be imple- mented without exception by everybody involved. Respect, trust, fairness We trust each other with respect. Leadership is based on mutual trust. Trust is rooted in fairness and reliability. Employees People make companies. Our employees are the strongest factor in our success – which means our personnel deci- sions will be among the most important we ever make. Leading by example Every manager must lead by example. Sustainability In our view, sustainability refers to our business success which is the basis for the fulfillment of our ecological and social responsibility. Society Social responsibility is an integral part of our corporate self-image. Independence We are securing the corporate independence of the BMW Group through sustained profitable growth. 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 Cor- poration Act) to report once a year whether the officially published and relevant recommendations issued by the “German Government Corporate Governance Code Com- mission”, as valid at the date of the declaration, have been, and are being, complied 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 BMW AG believe that the recommendations and sugges- tions contained in the German Corporate Governance Code (GCGC) contribute to an enhancement of the financial markets in Germany, in particular for international investors. At the joint meeting held in December 2008, the Board of Management and Supervisory Board of BMW AG issued the current year’s declaration of compliance with the new version of the GCGC valid from 8 August 2008 and posted to the BMW Group’s website. The full text of the declaration is also provided on page 147 of the Annual Report. BMW AG continues to comply with the recommendations of the GCGC with only one exception: The Supervisory Board has delegated the task of determining the remuneration and remuneration system (including the principal con- tractual components and the regular review of the system) to the Personnel Committee. The full Supervisory Board is, however, informed regularly and in great detail of the work of the Personnel Committee. From the perspective of the Supervisory Board, this division of duties has proved its worth and increases the efficiency of the Supervisory Board’s work. All other recommendations are being com- plied with. In addition, the Board of Management and the Supervisory Board have, in past years, developed the BMW Group’s own Corporate Governance Code based on the GCGC in order 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 Governance 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. A coordinator responsible for all corporate governance issues reports directly and on a regular basis to the Board of Management and the Supervisory Board. Reportable securities transactions (“Directors’ Dealings”) Members of the Board of Management and the Super- visory Board and related persons of those members, are required, pursuant to § 15 a of the German Securities Trading Act, to give notice of any of their transactions with BMW stock or related financial instruments, when the total sum of such transactions exceeds an amount of euro 5,000 during the calendar year. BMW AG gives notice of any transaction reported to it on its website at the address www.bmwgroup.com/ir and in its Annual Document pur- suant to § 10 (1) of the German Securities Prospectus Act. 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 Company’s issued common and pre- ferred stock shares of the Company, of which 16.12 % re- lates 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. 140 Compliance in the BMW Group Responsible and lawful conduct provides the basis for the success of the BMW Group. This approach is integral to the Group’s corporate culture and it is the reason why cus- tomers, shareholders, business partners and the general public place their trust in the BMW Group. The Board of Management and the employees of the BMW Group are obliged to act responsibly and in compliance with the law. This principle has been embedded in the Group’s internal guidelines for many years now. All departments can avail themselves of assistance from designated experts from the relevant Legal and Patents, Group Internal Audit and Group Security departments to ensure that legal provisions are complied with. In order to ensure better protection against compliance- related and reputational risks, the Board of Management created a Compliance Committee in 2007 which is man- dated to establish a worldwide Compliance Organisation throughout the BMW Group. The BMW Group Compliance Committee comprises the heads of the following departments: Legal and Patents, Corporate Communication and Governmental Affairs, Group Internal Audit, Group Financial Reporting, Organisation / In-house Consulting and Group Human Resources. It manages and monitors activities necessary to avoid non- compliance with the law (Legal Compliance). These ac- tivities include training, information and communication measures, following up potential cases of non-compliance and implementing compliance requirements. The Com- pliance Committee reports regularly to the Board of Management on all compliance-related issues, including the progress made in setting up the Compliance Organi- sation, details of investigations performed, identified cases of non-compliance, sanctions imposed and correc- tive / preventative measures implemented. The BMW Group Compliance Committee operates through the newly established Compliance Committee Office which is in organisation terms to the Chairman of the Board of Management. The Board of Management keeps the Audit Committee (i. e. a part of the Supervisory Board) informed on the up- to-date status of compliance activities within the BMW Group – both on a regular basis and on a case-by-case basis where necessary. The Compliance Organisation was implemented at BMW AG and a number of German sub- sidiaries in 2008 and will be rolled out internationally in 2009. A whole new landscape of principles, guidelines and in- structions was also put in place in 2008. To some extent, these internal rules stipulate processes that reflect current legislation and thus supplement the Group’s compliance activities. The Compliance Organisation comprises the whole set of measures taken to ensure that the BMW Group, its representative bodies, its managers and its staff act lawfully. The various elements of the Compliance Organisation are shown in the diagram below and are valid throughout the BMW Group. To the extent that additional compliance re- quirements apply to individual countries or for specific lines of business, this is covered by local compliance measures. The BMW Group Legal Compliance Code (“LCC”) forms the centre of the Compliance Organisation. This document explains the significance of legal compliance and provides an overview of the various legal areas that are relevant for the BMW Group. The LCC is available for download to employees in German and English. Translations into seven other languages will be available from 2009 onwards. Managers in particular bear a high degree of responsibility and must set a good example in the process of avoiding incidences of non-compliance. All managers are required to inform the staff working for them of the content and significance of the LCC and to draw attention to legal risks. Managers must, at regular intervals and on their Compliance Committee BMW AG Board of Management Annual Status Report Compliance Committee Identification and monitoring Code of conduct Reporting Compliance Committee Office Communi- cation Compliance contact Training Implementation with appropriate personnel 134 134 137 138 140 141 147 Corporate Governance Members of the Supervisory Board Members of the Board of Management Corporate Governance in the BMW Group Compliance in the BMW Group Compensation Report Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 141 Corporate Governance own initiative, check compliance with the law and commu- nicate regularly with staff on this issue. Any indications of non-compliance with the law must be rigorously investi- gated. As part of the first implementation phase, more than 4,500 managers received training in essential compliance matters in 2008. This training is obligatory for all managers working for the BMW Group and is available in the form of web- based training sessions in either German or English. Suc- cessful participation in the relevant training sessions is documented in a certificate. This basic training is also sup- plemented by training sessions for specific target groups covering specific compliance issues. In order to avoid legal risks, all members of staff are ex- pected to discuss matters with their managers and with the relevant departments within the BMW Group, in par- ticular the Legal Department, the Group Internal Audit Department and the Group Security Department. As a fur- ther point of contact (telephone or e-mail), the BMW Group Compliance Contact was set up in 2008 for employees and non-employees with questions regarding compliance. This also applies if weaknesses or circumstances have been identified which could result in non-compliance with the law. Information can also be provided anonymously if so desired. Compliance-related queries and all matters to which atten- tion has been drawn are documented and followed up by the Compliance Committee Office, where necessary with the assistance of Group Internal Audit, Group Security and legal advisory departments. A reporting system is cur- rently being established for the Compliance Organisation which will enable compliance-relevant issues to be reported to the Compliance Committee on a regular basis, and – where necessary – on an ad hoc basis. This includes re- porting on the status and the progress made in setting up the Compliance Organisation, identified legal risks and incidences of non-compliance as well as corrective / pre- ventative measures implemented. Compliance with, and the implementation of, the LCC is reviewed regularly by the Group Internal Audit and Group Security departments. For this purpose, the Group Internal Audit Department also performs on-site audits and inter- views employees. In order to avoid this situation, the BMW Group’s employ- ees are – via various internal channels – kept fully informed of the tools and measures used by the Compliance Organi- sation. The central channel of communication is the Com- pliance website within the BMW Group Intranet where employees can find compliance-related information and also have access to training materials, in both German and English. Employees can use the website to access fre- quently asked questions (and related answers) on compli- ance-related issues. In the interest of investor protection and in order to ensure that the BMW Group complies with regulations relating to potential insider information, the Board of Management appointed – as early as 1994 – an Ad-hoc Committee which is made up from representatives of various specialist de- partments and whose members examine the relevance of issues for ad-hoc disclosure purposes. All persons work- ing 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 – which is regularly updated – and informed of the duties arising from insider rules. Compensation Report The BMW Group supports the endeavours of the German Corporate Governance Code (GCGC) to increase trans- parency in the disclosure of the components of compen- sation. The following section therefore describes 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 com- ponents 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 In order to increase the efficiency of the Supervisory Board’s work in personnel-related matters, the task of determining the remuneration of the Board of Management has been delegated to the Personnel Committee. The Supervisory Board is informed regularly and in detail of the work of the Personnel Committee. It is essential that employees are aware of, and comply with applicable legal regulations. The BMW Group does not tol- erate violations of law by its employees. Culpable violations of law may result in employment-contract sanctions and personal liability consequences for the employee involved. Overall objectives The compensation model used for the Board of Manage- ment should be attractive in the context of the competitive environment for highly qualified executives. The objective of the variable component of compensation is to create 142 an incentive for exceptional individual performance, linked to the performance 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 fixed and variable components. In addition, benefits are also payable at the end of members’ mandates, primarily in the form of pension benefits. For the purposes of deter- mining the overall compensation of the Board of Manage- ment, the Personnel Committee, having considered the overall position and forecasts of the BMW Group, decides on an overall remuneration framework, which will include a high variable proportion. The Personnel Committee reviews the compensation system at regular intervals, with regard to the structure and amount of the remuneration of the Board of Manage- ment. Fixed remuneration comprises a base remunera- tion amount, which is paid as monthly salary, and other remuneration elements. Other remuneration elements comprise mainly the use of company cars as well as the payment of insurance premiums, contributions towards relocation costs and security systems. The measures used to determine the variable component of compensation are the BMW Group’s net profit and the dividend level for the relevant year, the return on sales and the individual performance of the Board of Management members as evaluated by the Personnel Committee of the Supervisory Board. Upper limits are in place for all Board of Management members. The compensation system does not include any stock options, value appreciation rights comparable to stock op- tions, other share-based compensation components or other long-term incentives. No compensation agreements were concluded with members of the Board of Manage- ment for situations involving a takeover offer. Similarly, they did not receive any payments or benefits from third parties in 2008 on account of their activities as the members of the Board of Management. Pension agreements are in place for the event of the ter- mination 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, unchanged from the previous year, 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 approximate- ly euro 75 for each year of service in the company before becoming a member of the Board of Management plus between euro 153 and euro 600, for each full year of service on the board (up to a maximum of 15 years). Pension pay- ments 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 allowances) 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 pay- ment 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 member of the Board of Management, this is considered appropriate on the basis of an objective evalu- ation of all circumstances. Arrangements are in place con- cerning the offsetting of other income against pensions and transitional payments. No performance-based or compensatory payments have been agreed for the event of the termination of members’ mandates. The amounts disclosed below as the annual pension pro- vision allocation for each member corresponds to the pension service cost. Members of the Board of Management holding a credit card issued by BMW Bank GmbH, Munich, during the financial year 2008 had a credit line of up to euro 7,500 (2007: euro 25,565). The amounts arising from credit card usage were all within the agreed limits. Compensation of the Board of Management for the financial year 2008 (total) The total remuneration of the current members of the Board of Management of BMW AG for the financial year 2008 amounted to euro 10.9 million (2007: euro 15.2 million). This comprises fixed components (including other remunera- tion) of euro 3.1 million (2007: euro 2.7 million) and variable components of euro 7.8 million (2007: euro 12.5 million). in euro million 2008 2007 Amount Proportion in % Amount Proportion in % Fixed remuneration Variable remuneration 3.1 7.8 28.4 71.6 2.7 12.5 * 17.8 82.2 Total remuneration 10.9 100.0 15.2 100.0 * calculated on the basis of an agreed upper limit. 134 134 137 138 140 141 147 Corporate Governance Members of the Supervisory Board Members of the Board of Management Corporate Governance in the BMW Group Compliance in the BMW Group Compensation Report Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Corporate Governance The fixed remuneration of board members remained un- changed for the financial year 2008. The increase in the total amount of fixed remuneration for all members was primarily due to the fact that the Board of Management comprised eight members for practically the whole of the financial year 2008, whereas this had only been the case during the fourth quarter of the financial year 2007. In addition, an expense of euro 0.8 million (2007: euro 0.7 mil- lion) was recognised for current members of the Board of Management for post-employment benefits. 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 3.1 million (2007: euro 4.3 million). Pension obligations to former members of the Board of Management and their depend- ants are fully covered by pension provisions amounting to euro 44.3 million (2007: euro 38.3 million), computed in accordance with IAS 19. Compensation of the individual members of the Board of Management for the financial year 2008 (2007) Fixed compensation Salary Other compensation Variable compensation Compensation Total Allocation for year to pension provision in euro Norbert Reithofer Frank-Peter Arndt Ernst Baumann1 Herbert Diess Klaus Draeger Friedrich Eichiner Michael Ganal2 Stefan Krause 3 Harald Krüger 4 Ian Robertson 5 Total 600,000 (600,000) 300,000 (300,000) 330,000 (360,000) 300,000 (75,000) 300,000 (300,000) 300,000 (75,000) 333,871 (360,000) 72,581 (360,000) 25,000 (–) 240,323 (–) 2,801,775 (2,430,000) 16,271 (15,222) 19,708 (98,199) 17,725 (15,737) 29,762 (9,662) 26,276 (55,900) 23,516 (11,068) 61,464 (14,220) 3,697 (16,222) 2,777 (–) 102,938 (–) 304,134 Total 616,271 (615,222) 319,708 (398,199) 347,725 (375,737) 329,762 (84,662) 326,276 (355,900) 323,516 (86,068) 395,335 (374,220) 76,278 (376,222) 27,777 (–) 343,261 (–) 1,650,000 (3,139,200) 825,000 (1,569,600) 882,292 (1,818,300) 825,000 (392,400) 825,000 (1,569,600) 825,000 (392,400) 892,641 (1,818,300) 360,000 (1,818,300) 68,750 (–) 660,887 (–) 2,266,271 (3,754,422) 1,144,708 (1,967,799) 1,230,017 (2,194,037) 1,154,762 (477,062) 1,151,276 (1,925,500) 1,148,516 (478,468) 1,287,976 (2,192,520) 436,278 (2,194,522) 96,527 (–) 1,004,148 (–) 124,912 (161,124) 69,327 (84,851) 86,079 (95,394) 89,930 (28,909) 70,871 (85,602) 81,547 (25,157) 102,093 (122,013) 56,423 (72,557) 4,616 (–) 133,533 (–) 819,331 (675,607) 3,105,909 7,814,570 10,920,479 (236,230) (2,666,230) (12,518,100) (15,184,330) 1 Member of the Board of Management until 30 November 2008 2 Member of the Board of Management until 4 December 2008 3 Member of the Board of Management until 13 March 2008 4 Member of the Board of Management from 1 December 2008 5 Member of the Board of Management from 13 March 2008 2. Compensation of the Supervisory Board Responsibilities, regulation pursuant to the Articles of Incorporation The compensation of the Supervisory Board is deter- mined by shareholders’ resolution at the Annual General Meeting. The compensation regulation valid for the finan- cial year 2008 is the result of the shareholders’ resolutions taken at the Annual General Meeting on 8 May 2008 and § 15 of the Articles of Incorporation of BMW AG. The Arti- cles of Incorporation of BMW AG can be accessed via the Internet. Components of compensation In line with the recommendations of the German Corpo- rate Governance Code (section 5.4.6 paragraph 2 GCGC), the members of the Supervisory Board receive fixed as well as performance-related compensation. Each member of the Supervisory Board receives, in addi- tion to the reimbursement of expenses, a fixed amount of euro 55,000 (payable at the end of the year) as well as a profit-oriented compensation of euro 220 for each full euro 0.01 by which the earnings per share (EPS) of common 144 stock reported in the Group Financial Statements for the relevant financial year (compensation year) exceeds a mini- mum amount of euro 2.30 (payable after the Annual General Meeting held in the following year). An upper limit of euro 110,000 is in place for the performance-related compensa- tion. Since the minimum EPS was not achieved in 2008, no performance-related compensation is payable for the financial year 2008. The German Corporate Governance Code also recom- mends that the exercising of chair and deputy chair posi- tions in the Supervisory Board as well the chair and mem- bership of committees should also be considered when determining the level of compensation (section 5.4.6 para- graph 1 GCGC). Accordingly, the Articles of Incorporation of BMW AG stip- ulate that the Chairman of the Supervisory Board shall re- ceive three times the amount and each Deputy Chairman shall receive twice the amount of the remuneration of a Supervisory Board member. Provided the relevant commit- tee convened for meetings on at least three days during the financial year, each chairman of the Supervisory Board’s committees receives twice the amount and each member of a committee receives one and a half times the amount of the remuneration of a Supervisory Board member. If a member of the Supervisory Board exercises more than one of the functions referred to above, the compensation is measured only on the basis of the function which is remu- nerated with the highest amount, thus avoiding amounts accumulating when more than one function is exercised. In addition, each member of the Supervisory Board re- ceives an attendance fee of euro 2,000 for each full meeting of the Supervisory Board (Plenum) which the member has attended (payable at the end of the financial year). Attendance at more than one meeting on the same day is not remunerated separately. The Company also reimburses to each member of the Supervisory Board any value added tax arising on their remuneration. The amounts disclosed below are net amounts. Compensation of the Supervisory Board for the financial year 2008 (total) In accordance with § 15 of the Articles of Incorporation, the compensation of the Supervisory Board for activities during the financial year 2008 amounted to euro 1.6 million (2007: euro 2.8 million). This includes fixed compensation of euro 1.6 million (2007: euro 0.1 million). No variable compen- sation is payable for 2008 (2007: euro 2.7 million) since the conditions stipulated in the Articles of Incorporation (mini- mum EPS of euro 2.30) were not met. in euro million 2008 2007 Amount Proportion in % Amount Proportion in % Fixed compensation 1.6 100.0 Variable compensation – – 0.1 2.7 * 3.6 96.4 Total compensation 1.6 100.0 2.8 100.0 * calculated on the basis of an agreed upper limit. 134 134 137 138 140 141 147 Corporate Governance Members of the Supervisory Board Members of the Board of Management Corporate Governance in the BMW Group Compliance in the BMW Group Compensation Report Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 145 Corporate Governance Compensation of the individual members of the Supervisory Board for the financial year 2008 (2007)1 in euro Fixed compensation Attendance fee Variable compensation Joachim Milberg (Chairman) Manfred Schoch (Deputy Chairman) Stefan Quandt (Deputy Chairman) Konrad Gottinger (Deputy Chairman) 2 Stefan Schmid (Deputy Chairman) 3 Jürgen Strube (Deputy Chairman) 4 Hans-Dietrich Winkhaus (Deputy Chairman) 5 Ulrich Eckelmann Bertin Eichler Franz Haniel Reinhard Hüttl 6 Arthur L. Kelly 7 Susanne Klatten Karl-Ludwig Kley 8 Renate Köcher 9 Willibald Löw Hubert Markl Wolfgang Mayrhuber Heinz-Joachim Neubürger 10 Werner Neugebauer Franz Oberländer Anton Ruf Maria Schmidt 11 Werner Zierer Total 165,000 (18,000) 110,000 (12,000) 110,000 (12,000) 13,825 (12,000) 99,180 (5,967) 90,765 (6,000) 38,770 (12,000) 55,000 (6,000) 55,000 (6,000) 55,000 (6,000) 35,765 (–) 19,385 (6,000) 55,000 (6,000) 35,765 (–) 35,765 (–) 55,000 (6,000) 55,000 (6,000) 55,000 (6,000) 19,385 (6,000) 55,000 (6,000) 55,000 (6,000) 55,000 (6,000) 42,377 (–) 55,000 (6,000) 1,420,982 (155,967) 10,000 (–) 10,000 (–) 10,000 (–) (–) (–) 10,000 (–) 10,000 (–) 2,000 (–) 10,000 (–) 8,000 (–) 8,000 (–) 8,000 (–) 2,000 (–) 8,000 (–) 4,000 (–) 8,000 (–) 10,000 (–) 8,000 (–) 10,000 (–) 2,000 (–) 8,000 (–) 10,000 (–) 10,000 (–) 8,000 (–) 10,000 (–) 184,000 (–) (310,680) (–) (207,120) (–) (207,120) (–) (207,120) (–) (102,993) (–) (103,560) (–) (207,120) (–) (103,560) (–) (103,560) (–) (103,560) (–) (–) (–) (103,560) (–) (103,560) (–) (–) (–) (–) (–) (103,560) (–) (103,560) (–) (103,560) (–) (103,560) (–) (103,560) (–) (103,560) (–) (103,560) (–) (–) (–) (103,560) (–) (–) (2,691,993) 1 Fixed and variable compensation are calculated on a time-apportioned basis, i.e. based on the actual period of office during the financial year. 2 Member of the Supervisory Board until 15 February 2008 3 Deputy Chairman of the Supervisory Board from 13 March 2008 4 Deputy Chairman of the Supervisory Board from 8 May 2008 5 Member of the Supervisory Board until 8 May 2008 6 Member of the Supervisory Board from 8 May 2008 7 Member of the Supervisory Board until 8 May 2008 8 Member of the Supervisory Board from 8 May 2008 9 Member of the Supervisory Board from 8 May 2008 10 Member of the Supervisory Board until 8 May 2008 11 Member of the Supervisory Board from 25 March 2008 Total 175,000 (328,680) 120,000 (219,120) 120,000 (219,120) 13,825 (219,120) 109,180 (108,960) 100,765 (109,560) 40,770 (219,120) 65,000 (109,560) 63,000 (109,560) 63,000 (109,560) 43,765 (–) 21,385 (109,560) 63,000 (109,560) 39,765 (–) 43,765 (–) 65,000 (109,560) 63,000 (109,560) 65,000 (109,560) 21,385 (109,560) 63,000 (109,560) 65,000 (109,560) 65,000 (109,560) 50,377 (–) 65,000 (109,560) 1,604,982 (2,847,960) 146 Members of the Supervisory Board holding a credit card issued by BMW Bank GmbH, Munich, during the financial year 2008 had a credit line of up to euro 7,500 (2007: euro 25,565). The amounts arising 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 2008. 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 pro- vide personal services, in particular advisory and agency services, in return for compensation (cf. Section 4.4 of the BMW Group Corporate Governance Code). In addition to the BMW Group Corporate Governance Code, the Legal Compliance Code and the Articles of Incorpora- tion, further information on the BMW Group’s business (in- cluding financial publications) is available on the Group’s website at www.bmwgroup.com/ir. 134 134 137 138 140 141 147 Corporate Governance Members of the Supervisory Board Members of the Board of Management Corporate Governance in the BMW Group Compliance in the BMW Group Compensation Report Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 147 Corporate Governance 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 I. Declaration of compliance 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 Corpo- rate Governance Code”: 1. During the period since filing the most recent declaration on 4 December 2007, BMW AG has complied with all rec- ommendations published on 20 July 2007 in the official section of the electronic Federal Gazette (Code version dated 14 June 2007), except for the divergence from sec- tion 4.2.2 paragraph 1 GCGC already declared on 4 Decem- ber 2007, namely that the discussion and regular review of the structure of the compensation system of the Board of Management is performed by the Personnel Commit- tee and not, additionally, by the full Super visory Board. 2. BMW AG will comply with all recommendations published on 8 August 2008 in the official section of the electronic Federal Gazette (Code version dated 6 June 2008) except for only one divergence, namely that the Super visory Board has delegated the task of taking resolutions re- garding the Management Board remu neration system, including the principal contractual com ponents and the regular review of that system, to the Personnel Commit- tee (section 4.2.2 paragraph 1 GCGC). II. Explanatory notes The task of determining the Management Board compen- sation system, including the principal contractual compo- nents and the regular review of that system has been dele- gated to the Personnel Committee in order to increase the efficiency of the Supervisory Board’s work in personnel- related matters. The Supervisory Board is informed regu- larly and in detail of the work of the Personnel Committee. Munich, December 2008 Bayerische Motoren Werke Aktiengesellschaft Supervisory Board Board of Management 148 Other Information BMW AG Principal Subsidiaries Principal subsidiaries of BMW AG at 31 December 2008 Domestic1 BMW INTEC Beteiligungs GmbH, Munich 3 BMW Bank GmbH, Munich 3 BMW Finanz Verwaltungs GmbH, Munich BMW Ingenieur-Zentrum GmbH + Co., Dingolfing BMW Maschinenfabrik Spandau GmbH, Berlin BMW Leasing GmbH, Munich 3 BMW Hams Hall Motoren GmbH, Munich 4 BMW Fahrzeugtechnik GmbH, Eisenach 3 BMW M GmbH Gesellschaft für individuelle Automobile, Munich 3 Equity in euro million Net result in euro million Capital investment in % 3,769 268 247 47 42 16 15 11 5 – – 117 – 4 1 – – – – 100 100 100 100 100 100 100 100 100 1 In the case of German subsidiaries, based on financial statements drawn up in accordance with HGB. 2 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. 3 profit and loss transfer agreement with BMW AG 4 profit and loss transfer agreement with a subsidiary of BMW AG 5 below euro 500,000 Other Information BMW AG Principal Subsidiaries BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of graphs Financial Calendar 148 148 150 152 154 156 158 159 160 Contacts 149 Other Information Principal subsidiaries of BMW AG at 31 December 2008 Foreign 2 BMW Österreich Holding GmbH, Steyr BMW Motoren GmbH, Steyr BMW China Automotive Trading Ltd., Beijing BMW Russland Trading OOO, Moscow BMW Austria Gesellschaft m. b. H., Salzburg BMW Holding B. V., The Hague BMW Italia S. p. A., Milan BMW (Schweiz) AG, Dielsdorf BMW Australia Finance Ltd., Melbourne, Victoria BMW (South Africa) (Pty) Ltd., Pretoria BMW Finance N. V., The Hague BMW Overseas Enterprises N. V., Willemstad BMW Japan Corp., Tokyo BMW Japan Finance Corp., Tokyo BMW Belgium Luxembourg S. A. / N. V., Bornem BMW France S. A., Montigny le Bretonneux BMW Canada Inc., Whitby BMW Australia Ltd., Melbourne, Victoria BMW Portugal Lda., Lisbon BMW Hellas Trade of Cars SA, Athens BMW Korea Co., Ltd., Seoul BMW Automotive (Ireland) Ltd., Dublin BMW Sverige AB, Stockholm BMW New Zealand Ltd., Auckland BMW Nederland B. V., The Hague 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 Manufacturing, LLC, Wilmington, Del. BMW Financial Services NA, LLC, Wilmington, Del. BMW of North America, LLC, Wilmington, Del. BMW US Capital, LLC, Wilmington, Del. Equity in euro million Net result in euro million Capital investment in % 1,950 740 136 127 63 3,688 414 381 370 342 341 64 297 347 213 175 153 118 53 46 25 24 24 22 19 1,084 868 805 168 105 972 833 592 360 262 – 3 1,206 690 577 242 233 394 144 130 3 10 906 58 45 21 45 – 64 2 7 26 22 61 – 91 26 15 14 9 9 – 9 5 7 –10 – 21 90 – 89 –18 107 58 – 2 21 32 –14 5 135 –106 – 60 20 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 150 BMW Group Ten-year Comparison Deliveries to customers Automobiles 3 Motorcycles 4 Production Automobiles 3 Motorcycles 5 Financial Services Contract portfolio Business volume (based on balance sheet carrying amounts) Income Statement Revenues Gross profit margin Group 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 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 flow7 Capital expenditure Capital expenditure ratio (capital expenditure / revenues) Personnel Workforce at the end of year 8 Personnel cost per employee Dividend Dividend total Dividend per share of common stock / preferred stock 2008 IASs / IFRSs 2007 IASs / IFRSs 2006 2005 2004 2003 2002 2001 2000 IASs / IFRSs IASs / IFRSs IASs / IFRSs, IASs / IFRSs IASs / IFRSs, IASs / IFRSs IASs / IFRSs 2000 HGB 1999 HGB adjusted 1 adjusted 2 units units 1,435,876 1,500,678 101,685 102,467 1,373,970 1,327,992 1,208,732 1,104,916 1,057,344 905,657 1,011,874 1,011,874 1,180,429 100,064 97,474 92,266 92,962 92,599 84,713 74,614 74,614 65,168 units units 1,439,918 1,541,503 104,220 104,396 1,366,838 1,323,119 1,250,345 1,118,940 1,090,258 946,730 1,026,775 1,026,775 1,147,420 103,759 92,012 93,836 89,745 93,010 90,478 74,397 74,397 69,157 contracts 3,031,935 2,629,949 euro million 57,587 51,257 2,270,528 2,087,368 1,843,399 1,623,425 1,443,236 1,297,702 1,317,150 970,747 1,010,839 44,010 40,428 32,556 28,647 26,505 25,306 24,958 17,578 16,859 euro million 53,197 56,018 48,999 46,656 44,335 41,525 42,411 38,463 37,226 35,356 34,402 % euro million euro million % euro million % euro million euro million euro million euro million % euro million euro million 16.7 921 351 0.7 21 6.0 330 62,416 38,670 20,273 20.1 41,526 39,287 euro million 101,086 euro million euro million euro million % 7,454 4,471 4,204 7.9 21.8 4,212 3,873 6.9 739 19.1 3,134 56,619 32,378 21,744 24.4 33,469 33,784 88,997 2,393 6,246 4,267 7.6 23.1 4,050 4,124 8.4 1,250 30.3 2,874 50,514 28,543 19,130 24.2 31,372 28,555 79,057 1,336 5,373 4,313 8.8 22.9 3,793 3,287 7.0 1,048 31.9 2,239 47,556 27,010 16,973 22.8 29,509 28,084 74,566 1,621 6,184 3,993 8.6 23.2 3,774 3,583 8.1 1,341 37.4 2,242 40,822 26,812 16,534 24.4 26,517 24,583 67,634 2,128 6,157 4,347 9.8 22.7 3,353 3,205 7.7 1,258 39.3 1,947 36,921 24,554 16,150 26.3 22,090 23,235 61,475 1,659 4,970 4,245 10.2 22.8 3,505 3,297 7.8 1,277 38.7 2,020 34,667 20,844 13,871 25.0 20,028 21,612 55,511 2,333 4,553 4,042 9.5 25.3 3,356 3,242 8.4 1,376 42.4 1,866 31,282 19,977 10,770 21.0 19,223 21,266 51,259 2,437 4,304 3,516 9.1 22.8 2,065 2,032 5.5 823 40.5 1,209 30,079 19,261 9,432 19.1 17,386 22,522 49,340 2,927 3,966 2,781 7.5 18.1 1,578 1,663 4.7 637 38.3 1,026 20,056 15,819 4,896 13.6 13,457 17,522 35,875 2,879 – 2,138 6.0 16.4 931 1,111 3.2 448 40.3 – 2,487 6 19,857 17,650 3,932 10.5 14,785 18,790 37,507 2,055 – 2,155 6.3 euro 100,041 75,612 107,539 76,704 106,575 76,621 105,798 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 euro million 197 694 euro 0.30 / 0.32 1.06 / 1.08 458 419 9 419 392 351 350 310 310 269 0.70 / 0.72 0.64 / 0.66 0.62 / 0.64 0.58 / 0.60 0.52 / 0.54 0.52 / 0.54 0.46 / 0.48 0.46 / 0.48 0.40 / 0.42 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 and Land Rover up to 30 June 2000 4 excluding C1, sales volume to 2003: 32,859 units, excluding Husqvarna Motorcycles (13,511 motorcycles) 5 up to 1999 including BMW F 650 assembly by Aprilia S. p. A., from 2006 including BMW G 650 X assembly by Piaggio S. p. A. / excluding C1 production by Bertone, production volume C1 up to 2002: 33,489 units, excluding Husqvarna Motorcycles (14,232 motorcycles) 6 The net profit before exceptional items amounted to euro 663 million. 7 Figures (available since 2000) are reported in the cash flow statement up to 2006 as cash inflow from operating activities of Industrial Operations and from 2007 as cash inflow from operating activities of the Automobiles segment. 8 Figures exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time arrangements and low wage earners. 9 adjustment to dividend due to buy-back of treasury shares Other Information BMW AG Principal Subsidiaries BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of graphs Financial Calendar 148 148 150 152 154 156 158 159 160 Contacts 151 Other Information 2008 2007 IASs / IFRSs IASs / IFRSs 2006 IASs / IFRSs 2005 IASs / IFRSs 2004 IASs / IFRSs, adjusted 1 2003 IASs / IFRSs 2002 IASs / IFRSs, adjusted 2 2001 IASs / IFRSs 2000 IASs / IFRSs 2000 HGB 1999 HGB units units 1,435,876 1,500,678 101,685 102,467 1,373,970 1,327,992 1,208,732 1,104,916 1,057,344 905,657 1,011,874 1,011,874 1,180,429 100,064 97,474 92,266 92,962 92,599 84,713 74,614 74,614 65,168 units units 1,439,918 1,541,503 104,220 104,396 1,366,838 1,323,119 1,250,345 1,118,940 1,090,258 946,730 1,026,775 1,026,775 1,147,420 103,759 92,012 93,836 89,745 93,010 90,478 74,397 74,397 69,157 Business volume (based on balance sheet carrying amounts) contracts 3,031,935 2,629,949 euro million 57,587 51,257 2,270,528 2,087,368 1,843,399 1,623,425 1,443,236 1,297,702 1,317,150 970,747 1,010,839 44,010 40,428 32,556 28,647 26,505 25,306 24,958 17,578 16,859 euro million 53,197 56,018 48,999 46,656 44,335 41,525 42,411 38,463 37,226 35,356 34,402 % % % euro million euro million euro million euro million euro million euro million euro million % euro million euro million 16.7 921 351 0.7 21 6.0 330 62,416 38,670 20,273 20.1 41,526 39,287 euro million 101,086 euro million euro million euro million % 7,454 4,471 4,204 7.9 21.8 4,212 3,873 6.9 739 19.1 3,134 56,619 32,378 21,744 24.4 33,469 33,784 88,997 2,393 6,246 4,267 7.6 23.1 4,050 4,124 8.4 1,250 30.3 2,874 50,514 28,543 19,130 24.2 31,372 28,555 79,057 1,336 5,373 4,313 8.8 22.9 3,793 3,287 7.0 1,048 31.9 2,239 47,556 27,010 16,973 22.8 29,509 28,084 74,566 1,621 6,184 3,993 8.6 23.2 3,774 3,583 8.1 1,341 37.4 2,242 40,822 26,812 16,534 24.4 26,517 24,583 67,634 2,128 6,157 4,347 9.8 22.7 3,353 3,205 7.7 1,258 39.3 1,947 36,921 24,554 16,150 26.3 22,090 23,235 61,475 1,659 4,970 4,245 10.2 22.8 3,505 3,297 7.8 1,277 38.7 2,020 34,667 20,844 13,871 25.0 20,028 21,612 55,511 2,333 4,553 4,042 9.5 25.3 3,356 3,242 8.4 1,376 42.4 1,866 31,282 19,977 10,770 21.0 19,223 21,266 51,259 2,437 4,304 3,516 9.1 22.8 2,065 2,032 5.5 823 40.5 1,209 30,079 19,261 9,432 19.1 17,386 22,522 49,340 2,927 3,966 2,781 7.5 18.1 1,578 1,663 4.7 637 38.3 1,026 20,056 15,819 4,896 13.6 13,457 17,522 35,875 2,879 – 2,138 6.0 16.4 931 1,111 3.2 448 40.3 – 2,487 6 19,857 17,650 3,932 10.5 14,785 18,790 37,507 2,055 – 2,155 6.3 euro 100,041 75,612 107,539 76,704 106,575 76,621 105,798 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 euro million 197 694 euro 0.30 / 0.32 1.06 / 1.08 458 419 9 419 392 351 350 310 310 269 0.70 / 0.72 0.64 / 0.66 0.62 / 0.64 0.58 / 0.60 0.52 / 0.54 0.52 / 0.54 0.46 / 0.48 0.46 / 0.48 0.40 / 0.42 Deliveries to customers Automobiles 3 Motorcycles 4 Production Automobiles 3 Motorcycles 5 Financial Services Contract portfolio Income Statement Revenues Gross profit margin Group Profit before financial result Profit before tax Income taxes Effective tax rate Net profit / – loss for the year Balance Sheet Non-current assets Current assets Equity Equity ratio Group Return on sales (earnings before tax / revenues) 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 flow7 Capital expenditure Capital expenditure ratio (capital expenditure / revenues) Personnel Workforce at the end of year 8 Personnel cost per employee Dividend Dividend total Dividend per share of common stock / preferred stock 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 and Land Rover up to 30 June 2000 4 excluding C1, sales volume to 2003: 32,859 units, excluding Husqvarna Motorcycles (13,511 motorcycles) 5 up to 1999 including BMW F 650 assembly by Aprilia S. p. A., from 2006 including BMW G 650 X assembly by Piaggio S. p. A. / excluding C1 production by Bertone, production volume C1 up to 2002: 33,489 units, excluding Husqvarna Motorcycles (14,232 motorcycles) 6 The net profit before exceptional items amounted to euro 663 million. 7 Figures (available since 2000) are reported in the cash flow statement up to 2006 as cash inflow from operating activities of Industrial Operations and from 2007 as cash inflow from 8 Figures exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time arrangements and low wage earners. operating activities of the Automobiles segment. 9 adjustment to dividend due to buy-back of treasury shares 152 BMW Group Locations — S — S — R — P — R — R — R — S — S — S — S — A — P — S — P — R — S — S — S — R — S — A — S — S — A — S — A — A — S — S — S — S — S — S — S — A — P — P — S — P — S — P — R — P — P — P — S — C — R — P — P — R — S — S — S — S — H — S — P — S — S — S — S — S — S — S — P — P — P — P — S — S — S — S — S Other Information BMW AG Principal Subsidiaries BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of graphs Financial Calendar 148 148 150 152 154 156 158 159 160 Contacts The BMW Group is present in the world markets with 24 production and assembly plants, 41 sales subsidiaries and a research and development network. — H Headquarters — R 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 BMW Group Entwicklung USA, Woodcliff Lake, USA — S — S — S — S — R — R — P — P — R — R — R — R — R — R — S — S — S — S — A — A — S — S — P — P — S — S — S — S 153 Other Information — P — P — R — R — S — S — S — S — S — R — S — R — S — S — S — S — S — S — S — S — P — P — P — P — P — P — P — P — S — S — S — S — S — S — A — A — S — S — A — A — S — A — S — A — A — A — S — S — S — S — S — S — S — S — S — S — A — A — P — P — S — S — P — S — P — P — S — P — S — S — P — R — R — P — P — R — P — S — P — P — C — S — C — P — P — P — P — P — R — R — S — S — S — R — P — H — H — S — S — S — S — S — S — S — S — P — P — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — P Production — C Contract production — S Sales subsidiary markets 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 Husqvarna Motorcycles S. r. l., Cassinetta di Biandronno, Italy Magna Steyr Fahrzeugtechnik, Austria — A Assembly plants CKD production Cairo, Egypt CKD production Chennai, India CKD production Jakarta, Indonesia CKD production Kaliningrad, Russia CKD production Kulim, Malaysia CKD production Rayong, Thailand South Africa South Korea Spain Sweden Switzerland Thailand USA Argentina Australia Austria Belgium Brazil Bulgaria China Canada Czech Republic Denmark Finland France Germany Great Britain Greece Hungary India Indonesia Ireland Italy Japan Malaysia Malta Mexico Netherlands New Zealand Norway Philippines Poland Portugal Romania Russia Slovakia Slovenia 154 Glossary ACEA Abbreviation for “Association des Constructeurs Européens d’Automobiles” (European Automobile Manufacturers Association). Effectiveness The degree to which offsetting changes in fair value or cash flows attributable to a hedged risk are achieved by the hedging instrument. 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 Aktienindex”, the German Stock Index. The index is based on the weighted market prices of the 30 largest German stock corporations (by stock market capitalisation). Deferred taxes Accounting for deferred taxes is a method of allocating tax expense to the appropriate accounting period. Derivatives Financial products, whose measurement is derived princi- pally from market price, market price fluctuations and ex- pected market price changes of the underlying instrument (e. g. indices, stocks or bonds). DJSI World Abbreviation for “Dow Jones Sustainability Index World”. A family of indexes created by Dow Jones and the Swiss investment agency SAM Sustainability Group for com- panies with strategies based on a sustainability concept. The BMW Group has been one of the leading companies in the DJSI since 1999. EBIT Abbreviation for “Earnings Before Interest and Taxes”. The profit before income taxes, minority interest and financial result. EBITDA Abbreviation for “Earnings Before Interest, Taxes, Depre- ciation and Amortisation”. The profit before income taxes, minority interest, financial result and depreciation / amor- tisation. Efficient Dynamics The aim of Efficient Dynamics is to reduce consumption and emissions whilst simultaneously increasing dynamics and performance. This involves a holistic approach to achieving optimum automobile potential, ranging from efficient engine technologies, lightweight construction and comprehensive 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. Free cash flow Free cash flow corresponds to the cash inflow from operat- ing activities of the Automobiles segment less the cash outflow for investing activities of the Automobiles segment. 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 con- sistent 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. ISO 14001 An internationally recognised standard for environmental management systems. Operating cash flow Cash inflow from the Automobiles segment. Preferred stock Stock which receives a higher dividend than common stock, but without voting rights. Other Information BMW AG Principal Subsidiaries BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of graphs Financial Calendar 148 148 150 152 154 156 158 159 160 Contacts Supplier relationship management Supplier relationship management (SRM) uses focused procurement strategies to organise networked 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. Sustainability Sustainability, or sustainable development, gives equal consideration to ecological, social and economic develop- ment. In 1987 the United Nations “World Commission on Environment and Development” defined sustainable de- velopment as development that meets the needs of the present without compromising the ability of future genera- tions to meet their own needs. The economic relevance of corporate sustainability to the BMW Group is evident in three areas: resources, reputation and risk. 155 Other Information Production network The BMW Group production network consists worldwide of 17 plants, six assembly plants and one contract produc- tion plant. Within this network, the plants supply one an- other with systems and components and are all character- ised by a high level of productivity, agility and flexibility. Rating Standardised evaluation of a company’s credit standing which is widely accepted on the global capital markets. Ratings are published by independent rating agencies, e. g. Standard & Poor’s or Moody’s, based on their analysis of a company. Return on sales Pre-tax: Post-tax: Profit as a percentage of revenues. Profit before tax as a percentage of revenues. Risk management An integral component of all business processes. Follow- ing 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 signifi- cant adverse effect on the assets, liabilities, financial posi- tion 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 appro- priate system, to document that system and monitor it reg- ularly with the aid of the internal audit department. Subscribed capital The share capital of a company is computed by multiplying the nominal value of the shares by the number of shares. Subsidiaries Subsidiaries are those enterprises which, either directly or indirectly, are under the uniform control of the manage- ment 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 shareholder – has control (directly or indirectly) over another enterprise on the basis of a control agreement or a provision in the statutes of that enterprise. 156 Index 58 A Accounting principles Annual General Meeting 143 – 144, 159 Application of § 264 (3) and § 264b of the German Commercial Code (HGB) 29 – 30, 93 Apprentices 128 11 – 12, 15, 42, 45 – 46, 104, 138, B Balance sheet structure Board of Management 126 – 127, 131 – 132, 136 – 143, 147, 155 Bonds 54 42 – 43, 52, 55, 66, 77, 107, 121, 154 09 – 13, 15, 42, 46, 55, 62, 80, 104, 15, 24, 52 – 53, 130, 151 52 – 54, 77, 80, 125 07, 15, 43, 47, 51 – 52, 63, 79, 85 – 86, 116 – 117, 07, 15, 51 – 52, 76, 79, 125, 133, 151 18, 32 – 33, 35 – 36, 40, 64, 70, 161 55, 127, 141 – 146 10 – 11, 32, 39, 65 – 67, 127, 138 – 141, 146 – 147 53, 80 – 82, 104, 126 82, 133 10, 12, 55, 127, 134, 138 – 139, 141, C Capital expenditure Cash and cash equivalents Cash flow 119 – 121, 123 – 125, 133, 151, 154 – 155 Cash flow statement CO2 emissions Compensation Report Compliance Consolidated companies Consolidation principles Contingent liabilities Corporate Governance 143 – 144, 146 – 147 Cost of materials Cost of sales Current assets 130 – 131, 151 Current provisions and liabilities Current taxes 55 – 56, 154 86, 115 49 – 50, 58, 60, 73, 77, 79, 83, 88 – 89, 96 51, 54, 59, 75, 77, 84 – 85, 91, 97, 101, 74, 90, 76 – 77, 101, 110 – 111 54, 75, 151 11, 42, 154 28, 40 – 41, 65, 69, 121 D DAX Dealer organisation Declaration to Corporate Governance Code Deferred taxes Development 60, 63 – 64, 66 – 67, 70 – 71, 73, 83 – 84, 89, 95 – 96, 101, 106, 132 – 133, 137, 152, 155 Dividend 151, 155 Dow Jones Sustainability Index World 53, 77, 86, 91 – 92, 104, 154 12, 15, 25, 30, 35 – 39, 42, 46 – 47, 49 – 50, 53, 15, 31, 43, 45 – 46, 52, 77, 83, 92 – 93, 104, 125, 142, 44, 154 147 Other Information BMW AG Principal Subsidiaries BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of graphs Financial Calendar 148 148 150 152 154 156 158 159 160 Contacts 07, 12 – 13, 24, 29 – 31, 33, 37, 41 – 42, 45 – 46, 43, 50, 73, 83, 92 – 93, 143 09, 13, 21, 25, 34 – 36, 38, 40, 63 – 64, E Earnings per share Efficient Dynamics 70, 154 Employees 55 – 56, 58, 65 – 66, 69, 93, 104 – 106, 138 – 142, 151 Equity 43, 46 – 50, 53 – 54, 57 – 59, 73, 75, 77 – 78, 80 – 82, 84 – 86, 90 – 91, 95, 97, 103 – 105, 107, 109, 120 – 121, 130, 133, 148 – 149, 151, 154 Exchange rates Explanatory notes to the cash flow statements 16, 50, 52 – 53, 62, 82, 124 125 53, 57, 75, 84 – 85, 99, 100, 117, 119, 121 – 122 46, 50, 52 – 53, 55, 58, 62 – 63, 78, 47 – 48, 52 – 53, 55, 75, 77, 81, 84, 86, 105, F Financial assets Financial instruments 85 – 87, 90 – 91, 103 – 104, 114, 116, 120 – 125, 139 Financial liabilities 111, 114, 117, 119, 121 – 122 Financial result 151, 154 Financial Services 63, 65, 70, 73, 75, 77, 79, 81, 125, 129 – 130, 149, 151 Fleet consumption 35 Foreign currency translation 82 06 – 07, 48 – 50, 60, 73, 86, 90, 107, 129 – 130, 09, 11, 14, 27 – 29, 42, 47 – 49, 51, 53, 57, G Group tangible, intangible and investment assets 96 – 97 94, 110 101 49, 60 – 61, 72, 79, 82, 85 – 88, 93, 97, 107, 49, 60, 73, 77, 86, 90 – 91, 151, 154 I Income statement 110, 120 – 121, 133, 151 Income tax assets Income taxes Income tax liabilities Intangible assets 91, 95 – 96, 130 – 131 Internal financing Inventories Investments 77 – 78, 80, 82, 84 – 85, 90 – 91, 95, 97, 107, 115, 117, 119 – 120, 124, 129 – 130 Investments accounted for using the equity method and other investments 15 – 16, 49 – 50, 52 – 53, 58 – 60, 66, 73, 75, 15, 50 – 51, 53, 57 – 59, 75, 77, 83 – 84, 89, 53, 59, 75, 77, 83, 86, 102 97 55 K Key data per share 43 L Lease business Leased products Locations 27 – 28, 63 52 – 53, 75, 77, 84, 91, 95, 97, 130 – 131 30, 32 – 34, 37, 41, 152 157 Other Information M Mandates of members of the Board of Management Mandates of members of the Supervisory Board Marketable securities 97, 99 – 100, 104, 117, 119 – 120 Motorcycles 68, 70, 73, 75, 79, 97, 129 – 131, 151, 153 137 134 – 136 50, 52 – 53, 59, 77, 79, 84, 90 – 91, 95, 07, 14, 18, 25 – 26, 29, 38, 40 – 41, 47 – 51, 57 – 58, 07, 14, 31, 49 – 51, 60, 73, 77 – 78, 81, 83, 85, 92, N Net profit 103 – 104, 125, 142, 151 New financial reporting rules Non-current assets Non-current provisions and liabilities 87 – 88 54, 75, 77, 84, 97, 101, 130 – 131, 151 54, 75, 151 49 – 50, 73, 89 14, 20 – 23, 25 – 26, 51, 66, 69 – 70, 151 79, 87 – 88, 129 – 131 127 15, 42 – 43, 45 – 46, 50, 58, 73, 83, 92 – 93, 104, 127, S Sales and administrative costs Sales volume Segment information Shareholdings of members of the Board of Management and the Supervisory Board Stock 138 – 139, 142, 144, 147, 151, 154 – 155 Subscribed capital Subsidiaries 101, 104 – 105, 113, 115, 117, 119, 121, 126, 140, 148 – 149, 152, 155 Supervisory Board 138 – 147 Suppliers Sustainability 53, 58 – 59, 78, 80 – 82, 84, 90 – 91, 93, 95 – 97, 08 – 13, 15, 46, 62, 126 – 127, 134, 39, 43 – 44, 139, 154 – 155 59, 75, 154 – 155 39, 43, 64 93 T Tangible, intangible and investment assets 96 – 97, 130 – 131 Trade payables Trade receivables 48, 55, 59, 75, 114, 117, 119, 122 53, 59, 75, 101 – 103, 117, 119 59, 77, 94, 49 – 50, 73, 90 O Other disclosures relating to the income statement Other financial result Other investments Other operating expenses Other operating income Other provisions Outlook 53, 75, 80, 84, 95, 97, 117, 119 49, 73, 89, 96 49 – 50, 60, 73, 89 54, 59, 75, 86, 110 68 – 71, 105 47 – 48, 53, 58 – 59, 75, 86, 105 – 107, 109, 89, 93 59, 101 148 – 149 P Pension provisions 127, 143 Personnel costs Prepayments Principal subsidiaries Production 69, 83 – 84, 86, 89, 96, 114, 123, 151 – 153, 155, 161 Production network Profit before financial result Profit before tax Property, plant and equipment 77, 83 – 84, 89, 91, 95 – 96, 115, 130 – 131 39 – 40, 63 Purchases 23 – 24, 30, 32 – 33, 64, 69, 155 06 – 07, 48 – 50, 73, 129, 151 06 – 07, 14, 48 – 51, 73, 130, 151, 154 – 155 15, 50 – 51, 53, 57 – 59, 75, 07, 10, 15, 23 – 26, 30 – 34, 36, 39, 46, 53, 63 – 64, 52 – 53, 75, 77, 81, 85, 98, 42, 63, 105, 123, 155 R Rating Receivables from sales financing 99, 117, 119, 122 Related party relationships 126 Report of the Supervisory Board Research Research and development costs 89 – 90, 96 Result from equity accounted investments Return on sales Revenue reserves Risk management 59, 75, 104 09, 11, 62, 65, 123, 155 09, 11, 13 31, 50, 57, 70 – 71, 142, 151, 155 49 – 50, 60, 73, 77, 50, 130 27, 37 – 38, 49 – 50, 60, 70, 73, 83, 89, 96, 152, 155 W Workforce 07, 14, 29 – 31, 50, 56, 58, 66, 69, 89, 93, 151 This version of the Annual Report is a translation from the German version. Only the original German version is binding. 158 Index of graphs 17 15 16 06 06 Finances Profit before financial result Profit before tax Revenues 06 BMW Group Capital expenditure and operating cash flow BMW Group Revenues by region 15 Exchange rates compared to the Euro Oil price trend Precious metals price trend Steel price trend Contract portfolio of BMW Group Financial Services 2008 Contract portfolio retail customer financing of BMW Group Financial Services 2008 Regional mix of BMW Group purchase volumes 2008 Change in cash and cash equivalents Balance sheet structure – Automobiles segment Balance sheet structure Group BMW Group Value added 2008 54 55 28 39 52 27 17 17 54 20 Production and sales volume 06 Deliveries of automobiles BMW Group Deliveries of automobiles by region and market BMW Group – key automobile markets 2008 Deliveries of BMW diesel automobiles 22 Automobile production of the BMW Group by plant in 2008 MINI brand cars in 2008 – analysis by model variant BMW motorcycles delivered BMW Group – key motorcycle markets 2008 BMW motorcycles in 2008 – analysis by series 20 26 26 23 25 23 Workforce BMW Group Apprentices at 31 December Employee fluctuation ratio BMW AG 30 Compliance Committee 140 29 32 Environment CO2 emissions per automobile produced 32 Energy consumed per automobile produced Process wastewater per automobile produced Water consumption per automobile produced Roadmap of the BMW Group for sustainable mobility Volatile organic compounds (VOC) per automobile produced Waste for removal per automobile produced Development of CO2 emissions of BMW Group cars in Europe (EU-15) 33 33 34 34 35 34 Stock Development of BMW stock compared to stock exchange indices 42 Other Information BMW AG Principal Subsidiaries BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of graphs Financial Calendar 148 148 150 152 154 156 158 159 160 Contacts 159 Other Information Financial Calendar Annual Accounts Press Conference Financial Analysts’ Meeting Quarterly Report to 31 March 2009 Annual General Meeting Quarterly Report to 30 June 2009 Quarterly Report to 30 September 2009 Annual Report 2009 Annual Accounts Press Conference Financial Analysts’ Meeting Quarterly Report to 31 March 2010 Annual General Meeting Quarterly Report to 30 June 2010 Quarterly Report to 30 September 2010 18 March 2009 19 March 2009 6 May 2009 14 May 2009 4 August 2009 3 November 2009 17 March 2010 17 March 2010 18 March 2010 5 May 2010 18 May 2010 3 August 2010 3 November 2010 160 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 148 148 150 152 154 156 158 159 160 Other Information BMW AG Principal Subsidiaries BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of graphs Financial Calendar Contacts 161 Other Information The manufacture of, and the paper used for, the BMW Group’s Annual Report 2008, 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 FSC chain of custody certification rules are also applied to enterprises which process paper e. g. printing companies. The CO2 emissions generated through the production of paper for this report, as well as through print and production, were neutralized by the BMW Group. To this end, the corresponding amount of emission allowances was erased, with the transaction identification DE75016 on 3 March 2009. Number ONE Future Growth Customers Profitability The challenge of the future 03 Future Growth Customers Profitability The time has come not only to define mobility in the 21st century, but to realise it. Only the best ideas and concepts will succeed: concepts which align our own needs with those of our customers and with the challenges society faces – and in doing so create a new state of balance that will benefit us all. The challenge of the future 04 Norbert Reithofer Chairman of the Board of Management The challenge of the future Preface Norbert Reithofer Chairman of the Board of Management 05 Ladies and Gentlemen, 2008 has not been an easy year for any of us – and that applies equally to the BMW Group. Who would have thought, at the start of the year, that we would see so much turmoil in the international finance markets within a matter of months? That within a few short weeks a whole series of reputable banking institutions would vanish from the market? Or that entire countries would find themselves in financial difficulties? During the course of the year, developments in the financial markets began to affect the real economy. More than that, they shook the very framework and the mechanisms of the global economic and financial system. Within the space of weeks, much valu- able trust was lost. Consumers are naturally concerned – and their lack of confidence is reflected in sales of automobiles. Although most markets saw a major drop in sales from the previous year, the BMW Group brands BMW, MINI and Rolls-Royce performed comparatively well under the circumstances. Our company’s global automotive sales were 4.3 % lower than the previous year, but despite this decrease we were still able to achieve the second-best sales figures in our company’s history. In fact, MINI was one of the few automotive brands that reported growth in 2008. Our motorcycle business also performed well and almost matched the previous year’s high level, with sales of 101,685 BMW motor- cycles. Nevertheless, the situation remains challenging and there is currently no improvement in sight. The BMW Group will be confronted by economic developments no less 06 than other automobile manufacturers. Consumers’ reluctance to buy new vehicles; the poor state of the pre-owned vehicle market and the resulting residual value problems; and, not least, much higher refinancing costs – are all factors which have affected our business and had a negative impact on earnings. However, although we revised our forecasts for 2008, we were still able to close the year with positive earnings. At the same time, we also achieved a great deal during 2008: We made great strides in implementing Strategy Number ONE, which gives us a significant competitive edge and provides a clearly formulated vision. We took decisive action early on – which has proved to be the right course in the current challenging circumstances. You will find many examples of this in our annual report. Strategy Number ONE is our compass out of this crisis and we will be stronger than before. And we will follow this strategic path consistently. We have continued to invest in Efficient Dynamics and other technologies – and thus in our future. That future can be seen in the many new models which we introduced in 2008. We presented a new version of the BMW brand’s flagship 7 Series. From the positive response it received in the media and particularly among our customers, it looks like we truly hit the mark. We were also able to offer our customers exciting new products in other segments: including the BMW 1 Series Convertible; revised models of the BMW 3 Series Sedan and Touring; the BMW X6 and the BMW M3; through to the Rolls-Royce Phantom Coupé. The challenge of the future Preface Norbert Reithofer Chairman of the Board of Management 07 We also remain the world’s most sustainable automotive company. For the fourth consecutive year we headed the Dow Jones Sustainability Index for our industry. At the BMW Group, sustainability is deeply anchored within the company. This can be seen most clearly in our products. For instance, by the end of 2008 we could already boast claim to 27 models with emissions of less than 140 grams of CO2 per kilometre. Many of our vehicles are already “best-in-class” when it comes to fuel economy. Our Clean Production philosophy makes sustainability an integral part of vehicle production. Our aim is for the BMW Group to use resources more efficiently than any other company in the industry. Because we know that companies who practice corporate sustainability shape their own future. And we want our future to be a successful one! We have substantially increased productivity in manufacturing our vehicles. In the process we also cooperated with the BMW Group Works Council in the reduction of our workforce. We took important steps in this direction at an early stage, and – what is particularly important to me – by mutual agreement with employee representatives. Rest assured that the Board of Management and I do not take such decisions lightly, and that we are well aware of what it means for the people concerned. But today, more than ever, we can see that this was an important and necessary step towards securing the future of our plants and of the company as a whole. We were also able to make substantial cost reductions and leverage potential effi- ciencies in other key areas. And so, we start 2009 with a whole range of competitive advantages, exciting products and sound liquidity. One thing is clear: This will be a 08 challenging year for our entire industry. It will be a year of transition in which every auto- mobile manufacturer will be put to the test. But it should also be clear that, despite all the challenges it faces, the BMW Group is still a company that delivers a strong operating performance. The foundation of that strength lies in the passion and dedication of all our employees. And so I would like to take this opportunity to express my sincerest gratitude to all our employees for their commitment over the past year. I know that we will continue to work extremely hard this year and to use every means available to emerge as a winner from the crisis in our industry. There is no denying that the crisis has filtered into people’s minds, but we at the BMW Group like to think differently: We will look to the future, and that will assure our position as a leader in our industry. Yours Norbert Reithofer Chairman of the Board of Management Everything we do, we do with con- viction. We firmly believe that the future of mobility demands a new equilibrium. A balance between individual de- mands and ecological necessities; between familiar approaches and new ideas; between success and responsibility. All of our future decisions will be measured against these standards – that is how we will create the mobility of tomorrow. The challenge of the future The challenge of the future An age is dawning in which sustainability will shape our values. In which a paradigm shift will redefine the future of individual mobility. Our goals are clear. And we will consistently realise them. Strategy Number ONE MINI E Target Shaping future mobility project i Focussing on solutions Challenges: Megacities More than 3,000 dealers worldwide Innovative service products Target 20% increase from after-sales business by 2014 Service that spans a vehicle’s lifetime Potential: over 14 million BMW Group vehicles on the road Active safety systems Integrated safety: so that accidents don’t have to happen Driver assistance systems Passive safety systems Wastewater-free production Waste prevention Target – 30% resource consumption per vehicle produced by 2012 CO2 reduction Clean Production Energy efficiency The challenge of the future Re-evaluating past ideas. One thing is certain: Premium will always be premium. And yet still reinvent itself. The challenge of the future This is how we create vehicles that redefine the premium concept. Based on technological innovation – and the efficient and responsible use of resources. Redefining premium Visionary thinking Focussing on individuals Making efficiency key Going our own way Promoting creativity Act responsibly Recognise mobility needs Rethink mobility Living sustainability Demonstrate leadership Master future challenges Create fascination Safeguard profitability Keep thinking The challenge of the future Our vision: to be the leading supplier of premium products and premium services for individual mobility. The challenge of the future Contents 23 Preface Norbert Reithofer Introduction The challenge of the future 04 09 Topic Future one project i – reinventing urban mobility Topic two Growth Service that spans a vehicle’s lifetime Topic three Customers Integrated safety Topic four Profitability Clean Production Topic five New products Topic six The year 2008 24 32 46 56 68 80 24 Topic one Ensuring individual mobility in the major cities of tomorrow requires setting totally new solutions in motion today. It means developing not only fuel-saving drive technologies, but also new vehicles and mobility services. It means being prepared to question everything, even our own way of thinking. Welcome to project i. Reinventing urban mobility. project i. The challenge of the future Topic one Future project i 25 Autumn 2007 Strategy Number ONE adopted Example: Bangkok. Traffic researchers have found that drivers in Thailand’s capital city now travel at no more than 15 kilometres an hour during rush hour. Traffic jams are so common in this city of seven million that its traffic police recently had to be trained in basic obstetrics – because more and more women were giving birth in their cars. On the streets of Mexico City, on the other hand, one of 30 megacities around the world with more than ten million inhabitants, today’s 4.2 million vehicles create their own microclimate. 99 percent of the carbon monoxide and 80 percent of the nitrogen oxides in the city’s air come from the exhausts of cars, buses and motorcycles. The roads are just as congested in Los Angeles. This city currently has the world’s highest density of cars. The average com- mute to and from work takes two hours – which means commuters spend about three weeks out of every year stuck in traffic. In major conurbations the original concept of mobility – easily getting from A to B within a certain amount of time – is rapidly becoming a dream. At the same time more and more people are flooding into the mega-metro polises. Over 280 million city dwellers already live in mega-cities. And people keep on coming. The influx is growing. Space is getting scarcer. There is less and less room to move around. 26 December 2007 Launch of project i But what is the point of individual mobility if you are moving no faster than a well-trained jogger? Or, to put it another way: What kind of future urban mobility would enable people to reach their destination reliably and without hassle once again? Which vehicles would be needed, with which cli- mate-neutral drive technologies – and how could we find new ways of integrating them with other means of trans- port? How many wheels should the ideal urban mobility concept have? And which factors that nobody has even thought of should planning take into account? All these questions have been the subject of a radically open discussion taking place in a plain factory building at the heart of the BMW plant in Munich that began in spring 2008. From the outside one would never guess that a revolution is being planned right here. A grey-painted stair- way leads through a restricted access area to a buzzing open-plan office. The walls are covered with city maps, charts, flow diagrams and hand-drawn sketches. Tele- phones ring non-stop; engineers dash from one desk to another. Standing right next to the doorway is a prototype of a BMW electric bicycle with a sign reading “E-Parking Only” hanging over it. March 2008 Megacity analysis completed All this brings to mind the excitement of the days when start-ups were springing up all over the place; and, at first glance, the project does indeed appear to have a lot in common with a start-up. Set up as a largely autonomous company within the company, project i is probably the most far-reaching future project launched as part of the Group’s corporate strategy Number ONE. Its mission is nothing less than to completely rethink mobility for people who live in the world’s metropolitan areas – and that in- cludes everything from vehicle concepts to production structures through to branding and service strategies. The “i” in the project name ambitiously stands for intelligent, innovative and international. “We have tremendous free- dom,” says Inga Jürgens (40), a graduate in management information systems who joined project i from the BMW Group’s strategy department. “Not just for the sake of it,” she adds, “but because we strongly believe that the premium mobility of the future cannot be developed from the concepts of the past.” The challenge of the future Topic one Future project i 27 Challenge: London City centre toll: 8 pounds / day Inhabitants: 7.5 million Inhabitants per square kilometre: 4,800 Vehicles in the toll zone: 130,000 / day April 2008 First prototype of the MINI E Inga Jürgens Head of Planning and Control project i Munich 28 Challenge: Los Angeles Average commute: 60 minutes Inhabitants LA metropolitan area: 13 million Percentage of commuter traffic comprised by cars: 90 % Inhabitants per square kilometre: 3,330 November 2008 MINI E debuts at Los Angeles Motorshow Kolling has spent the past few months fleshing out the details of a climate-neutral vehicle of this kind together with partners from the BMW Group’s global design net- work. The first full-sized models are already parked in the project i team’s office. “We are thinking about launching a whole range of models in the first half of the next decade,” confides Kolling. “Some with two wheels, some with four. Obviously, a densely-built city like Barcelona needs com- pletely different vehicles than the greater Los Angeles area with its eight-lane highways and extensive network of sprawling suburbs.” The prototypes are still under wraps and can only be accessed by team members. But out on the roads electric mobility in its current form is already a reality. July 2008 Announcement of field trial in the USA 2009 For the 30-strong core team nothing is off-limits – apart from conventional thinking, that is. They welcome ideas that would be tossed out as impractical anywhere else and relish questions that challenge conventional wisdom. They discuss unexpected approaches that open up new possibilities. According to Jürgens, the biggest surprise has been “how remarkably open the BMW Group has been about taking risks. Not to mention the unusual way we are allowed to work – and the speed with which our unconven- tional ideas are turned into solutions for the future.” Because, unlike a regular start-up, the project i team has access to the combined know-how, resources and cutting- edge technologies of a global company. And so it can also deliver highly sophisticated answers to some extremely complex challenges within a very short space of time. In less than eight months project leader Ulrich Kranz’s team developed a comprehensive vision of future mobility that is as remarkable as it is persuasive. The team conducted interviews with mobility researchers, urban planners and architects from around the world. They also negotiated with battery manufacturers and energy providers, because any city vehicle of the future would be sure to incorporate at least an electric motor. “Not only is an electric-powered vehicle climate-neutral to drive,” explains Joachim Kolling (44), the project i team’s design head, “when you drive right into the city centre, it also produces zero emissions. And, in the future, that will be increasingly necessary to enter mega-cities at all.” The challenge of the future Topic one Future project i 29 Challenge: Mexico City square kilometre: 5,800 Average age of vehicles: 15 years Inhabitants in the metropolitan area: 20 million Inhabitants per Annual growth in inhabitants: up to 1 million Minibus traffic: 55 % CO2 emissions from road traffic: 99 % Dr. Joachim Kolling Head of Design and Creative Processes project i Munich 30 Challenge: New York Inhabitants per square kilometre: 9,600 Inhabitants: 8.1 million Inhabitants NY metropolitan area: 21.2 million Parking costs per day: 20 – 40 US-$ Spring 2009 Delivery of 500 MINI E test vehicles Just last December test drivers were out on the roads all over Bavaria in a remodelled version of the MINI Cooper, testing its performance in winter conditions. The MINI E, as it is known, was developed exclusively as a test vehicle. It was built at the MINI plant in Oxford and fitted with an electric drive in Munich. It features a 204-hp electric motor, a top speed of 152 km / h and has a high-performance lithium-ion battery where the rear seat would be. The energy storage unit allows the car to drive a distance of up to 250 kilometres (156 miles). It recharges within 2.5 hours and runs perfectly when put to the test in snow at minus 12 de- grees Celsius. Anyone who spotted the zero-emission car driving around Bavaria would hardly have noticed anything different from the regular MINI. In fact, the only visible dif- ference is that there is no exhaust pipe – and, of course, no engine noise either. Once road trials have been completed, around 500 of these 100-percent emission-free MINI cars will be delivered to customers in New York, Los Angeles and Berlin for testing. This makes the BMW Group the first manufacturer world- wide to put a vehicle with lithium-ion technology on the roads in large numbers. The excitement the test vehicles generated in the market surprised even the enthusiastic project i members. Several thousand Americans applied to drive a MINI E despite the relatively high lease rate of 850 dollars a month. The MINI E is an extremely valuable “trial balloon on four wheels” for the project i team. “We hope this project will provide us with important insight as to how customers use an electric car,” explains Jürgens. “And, of course, tell us what we need to improve.” For this purpose MINI E drivers will be monitored by market researchers during the twelve-month field trial and regu- larly surveyed about their driving experience. Also in Berlin, where more MINI E cars will take to the roads in the spring as part of a cooperative venture with the energy provider Vattenfall Europe, researchers from the universities of Chemnitz and Berlin will provide the pilot project with scien- tific support. The goal here is also to find out more about electric car drivers’ habits. The MINI E will also help re- searchers explore electric cars’ potential for energy storage. Many energy providers experience major difficulties with fluctuations in the availability of energy from regenerative sources depending on the weather: For instance, if it is windy at night, the CO2-free energy produced is rarely needed at that time. On the other hand, wind power is The challenge of the future Topic one Future project i 31 Challenge: Shanghai Inhabitants per square kilometre: 12,946 Inhabitants in the urban area: 9.7 million Inhabitants by 2015: 13.25 million Spring 2010 Evaluation of MINI E field trial not always available at peak times. But if, in the future, you could hook up a large number of electric cars to battery-charging stations for recharging at night, the fleet of E- vehicles would work as a kind of gigantic, networked battery. Electric vehicles would store the green energy as soon as it was generated – helping to solve one of the central problems of regenerative power generation and meeting the challenges of urban mobility at the same time. For now, those remain visions of the future. “But we are making such tremendous progress on completely new concepts for vehicles with electric drives within such a short space of time,” Kolling points out, “that we don’t even know what else is possible yet!” A lot of questions still need to be answered – but that is precisely what project i is all about. But what does such a vehicle need to be able to do? What could it potentially do without? What does mobility mean for people in megacities? These are the questions project i market researchers put to dozens of traffic plan- ners, architects, environmentalists and creative types from all over the world at the very outset of the project. They travelled round the globe twice to interview people in Lon- don and Paris, Los Angeles, Mexico City and Shanghai. “Many of them,” Kolling recalls, “were totally surprised how openly we listened to what they had to say. And they are now very keen to see what kind of solutions we will be able to offer them.” However, the key question is one the project team has asked itself again and again, in every phase of the project. And it is still heard every day in the office at the heart of the BMW plant in Munich. The question is: “Which of our customers’ problems does this solve?” Every aspect of project i developments is measured against this pivotal question. “Need-Offer-Fit” is what designer Kolling calls this approach. It simply means that every prod- uct and the services that go with it have to be developed in ongoing dialogue with future users. This approach sub- stantially improves its chances of success. “We want this discussion to be as long and as intensive as possible,” says Kolling, “because our future customers’ needs are chang- ing just as dramatically as the cities themselves: We will keep on adjusting and improving our vehicle concepts right up until production starts.” The first project i vehicles will roll off the assembly line be- fore the middle of the next decade. Until then, there is plenty of time for all those questions. And plenty of scope for unconventional answers: answers which are sure to get – and keep – tomorrow’s urbanites on the move. 32 Topic two There are more than 14 million BMW Group vehicles on the roads today – which means there are more than 14 million potential service customers. For this reason the company is launching a global initiative which will systematically exploit the huge sales potential of the service and parts business – and at the same time reach out to entirely new customer groups. Customer service Growth driver The challenge of the future Topic two Growth Customer service 33 Closing the driver’s door behind you for the first time; starting the engine; slipping it into gear. For a BMW Group customer, driving away in a new car is always a very special moment. It is also the beginning of a relationship between customer and manufacturer that often lasts for years. There are more than 14 million BMW Group vehicles on the roads today – that means there are 14 million potential service customers out there, all looking for the best available long-term care. Quality of service is one of the main criteria customers take into account when buying a new vehicle. According to industry re- ports, one in three automotive customers would be prepared to switch providers to experience a more innovative approach to service. From the BMW Group’s point of view, after-sales service not only means satisfied customers, but also translates directly into sales and profitability, since parts, accessories and services have such tremendous growth potential. To make better use of this potential, the BMW Group has launched a global initiative to expand its after-sales offering. 34 Percentage of automotive customers who would switch to a more innovative service provider 30 % Projected growth in the automotive parts and service business over the next five years 20 % The aim is to provide BMW Group customers with a comprehen- sive range of services throughout the entire life of their vehicle – improving customer loyalty and winning new customers in the process. That is why one of the steps currently being taken is to set up highly modernised “Dealer Metro Distribution Centres” in 43 major cities around the world, where dealers in that region will be able to access the 10,000 to 15,000 most essential BMW and MINI parts within a few hours. They offer customers fast and com- prehensive service – including owners of older vehicles, many of whom currently use independent garages they believe to be cheaper. The challenge of the future Topic two Growth Customer service 35 Percentage of after-sales customers who would be prepared to switch service providers 40 % Some people are loyal to one brand of car their whole life. Meet some of our long-time BMW and MINI drivers with their vehicles in everyday situations on the following pages. At the same time, the range of products offered – as well as the positioning and advertising of the parts and services business – will be systematically expanded. The goal is to generate at least 20 percent more sales over the next five years. In this way, the BMW Group will also strengthen the profitability and stability of its extensive dealer network: For the 3,000-plus BMW Group dealerships worldwide, the service and parts business represents a reliable source of revenue which is immune to economic fluc- tuations. Customers, on the other hand, benefit from receiving the best possible on-site service – from that first special moment to the end of their vehicle’s lifetime. 36 BMW 3 Series Touring Vehicle Purchased 2008 Total distance travelled Longest route BMW Welt Munich–Walldorf 1,750 km The challenge of the future Topic two Growth Customer service 37 Percentage of automotive customers who already changed their brand of car because of poor service 15 % Dr. Lutz Bergau Aviation doctor Dr. Maren Rehfeld-Bergau Paediatrician Alaska fan BMW drivers since First BMW BMW 2002 Alaska fan 1977 38 Jan Hendrik Schönfeld MINI driver since First MINI MINI Cooper Real estate agent 2001 The challenge of the future Topic two Growth Customer service 39 MINI Cooper S Convertible Vehicle Purchased Total distance travelled Longest route 2007 Hanover–Milan–Hanover 43,000 km 40 Vehicle Purchased 2008 Total distance travelled Longest route BMW 3 Series 9,000 km Muelheim–Tuscany–Muelheim The challenge of the future Topic two Growth Customer service 41 Percentage of sales generated by after-sales business in the German automotive industry 50 % Ghias Al-Tinawi BMW driver since First BMW BMW 316 Internist 1983 42 Alice Fiedler MINI driver since First MINI Marketing 2001 MINI Cooper The challenge of the future Topic two Growth Customer service 43 MINI Cooper S Vehicle Pina Passenger Purchased 2007 Total distance travelled Longest route 22,000 km Frankfurt–Meran–Frankfurt 44 BMW X5 Vehicle Purchased 2008 Total distance travelled Longest route 12,000 km Bremen–Gibraltar Percentage of sales generated by after-sales business in the German automotive industry 23 % The challenge of the future Topic two Growth Customer service 45 Thomas Greppmair BMW driver since First BMW of 14 Overall distance travelled BMW 316 1977 Currency trader 1 million kilometres 46 Topic three Intelligent brakes. Adaptive headlights. Systems that can see in the dark. Vehicles that can detect a collision before it happens: Active safety systems in BMW Group vehicles open up a whole new dimension in automotive safety. A new concept of safety. Smart prevention. Saving lives. Active and passive safety. The challenge of the future Topic three Access to technologies and customers Safety 47 a b Image a b Klaus Kompaß After the crash Head of vehicle safety at the BMW Group. The new BMW 7 Series after a side impact at more than 56 km / h. 14 million passenger cars in Germany 46 million passenger cars in Germany 1970 2007 48 Image a b Preparations Proper seating A dummy is lifted into the vehicle by a crane. The dummy weighs more than 80 kilograms. The dummy’s exact seating position is crucial to readings. A dummy can record 10,000 measurements per second. 201 billion kilometres driven by cars in Germany 1970 692 billion kilometres driven by cars in Germany a b 2007 692 The challenge of the future Topic three Access to technologies and customers Safety 49 2007 Off to a spectacular start. The shriek of a siren warns of an imminent impact. Almost immediately the building is rocked by an ominous thud, and then – silence. The vehi- cle’s tail-end has been severely crushed by the impact – under glaring spotlights, with high-speed cameras cap- turing every thousandth of a second of the crash. Just another day at the largest of the BMW Group’s three crash test facilities. The elongated cement-encased building on the grounds of the Research and Innovation Centre (FIZ) in Munich is sort of like an ultramodern scrap- ping plant – only for research purposes. Every day the technicians here send brand new automobiles fitted with dozens of test sensors hurtling into a concrete block. Or they have them rammed by a high-speed barrier. Or else they find some other way to deliberately deform them. And they do it all in the name of maximum and precision safety. Before an automobile can be sold worldwide it has to pass at least 30 different crash tests. Then there are additional tests to make sure it meets the BMW Group’s own high safety standards. The company has been researching the causes of accidents and the most effective ways of dealing with them for more than 30 years. Developers have en- dowed the Group’s vehicles with energy-absorbing defor- mation zones, reinforced passenger compartments, re- straint systems, airbags and many other “passive safety systems” which save lives and protect drivers from injury on a daily basis. The side head airbag alone, which the BMW Group was the first automobile manufacturer world- wide to offer as a standard feature back in 1997, has drasti- cally reduced the number and severity of head injuries in the event of a side impact. The combined effectiveness of these and other safety technologies is reflected in acci- dent statistics: Although the total number of kilometres driven on German roads more than tripled between 1970 and 2007, the number of road casualties fell by around 77 percent over the same period. Ironically, that has be- come something of a problem. It has now become virtually impossible to make drivers and their passengers any safer – even with the most so- phisticated passive safety systems. “Of course we could add even more airbags to our vehicles or make the body even more rigid,” says Klaus Kompaß, head of vehicle safety at the BMW Group, “but these days we have pretty much exhausted the potential of passive systems.” That is why for some time now Kompaß and his colleagues have been focussing their attention more on active safety, where the primary goal is not to mitigate accidents and their consequences but to avoid them altogether. This requires developers to take a much broader view – and to look beyond the vehicle to the surroundings in which it is driving. 50 Image a b c / d Lights on On your marks Test in progress One-and-a-half times brighter than the desert at noon – 14 high-speed cameras need plenty of light. Measuring acceleration over a 130-metre track (longer than a football pitch). Heading straight for the “tree” at 56 km / h – the standards for passive safety are extremely high. b a c The challenge of the future Topic three Access to technologies and customers Safety 51 11.7 minutes average rescue time 21.2 minutes average rescue time outside of town outside of town with BMW ConnectedDrive without BMW ConnectedDrive d 52 91 percent of all road fatalities fall into one of four categories. For all four types of accidents the BMW Group already has effective driver assistance systems on the market or in development. Accident type 1: 41percent = driving accidents. Standard features: – lane departure warning – high beam assistant – adaptive cornering lights – active steering In research or development phase: – curve info In this they are assisted by engineers from the BMW Group’s accident research team who analyse real-life acci- dents and reconstruct the entire course of events using computer models. For this purpose they evaluate their own accident data as well as data from the German Federal Statistical Office, the German In-Depth Accident Study project GIDAS and the renowned William Lehman Injury Research Center in Miami in the United States which works closely with BMW safety experts. By meticulously sifting through all the data, accident researchers discover more about what happens on the roads and how dan- gerous situations arise. For instance, they established that in 41 percent of all fatal road accidents the driver loses control of the vehicle on a straight road. This is followed in second place by accidents in longitudinal traffic – that is, collisions with oncoming traffic or vehicles ahead. Colli- sions while turning or crossing traffic account for 18 percent of all road fatalities, and those involving pedestrians cross- ing the road make up 10 percent. The details are even more revealing: 30 percent of acci- dents in longitudinal traffic are rear-end collisions, often as a result of lack of concentration, driving too closely or a combination of both. We know today that in 42 percent of collisions at intersections the driver responsible for causing the accident made no attempt to brake before the impact and 60 percent did not attempt a steering manoeuvre. Ac- cording to official German statistics only about two percent of accidents can be traced to technical defects – and those are largely the result of poor vehicle maintenance. That means accidents are nearly always due to drivers failing to see things, driving inappropriately or misjudging the situation. These are shocking figures. But they reveal to engineers like Klaus Kompaß where the remaining potential for pre- vention lies. According to the BMW safety chief, “The person driving the car is the decisive factor. Humans have definite strengths when it comes to driving, and there are lots of things they do better than any technology. But there are also areas where technology is superior to human beings and where we can use it to help the driver either avoid accidents – or at least mitigate the consequences.” Sophisticated driver assistance systems installed in BMW Group vehicles today already monitor the driver’s sur- roundings and provide the information needed to make fast and responsible decisions. The active cruise control system and the lane departure warning help the driver manoeuvre safely. Intervention systems such as integral active steering and the Dynamic Drive active stabiliser system steady the car in dangerous situations and help drivers perform their intended manoeuvres in the best way possible. Intelligent navigation systems and the speed- limit display supply the driver with relevant data on traffic conditions and the maximum speed allowed. The challenge of the future Topic three Access to technologies and customers Safety 53 a b Image a b Always on track Safety begins in normal driving with lane departure warning. Intelligent suspension control functions help avoid accidents. Accident type 2: 22 percent = accidents in longitudinal traffic. Standard features: – lane change warning – lane departure warning – adaptive brake assistant – Night Vision – high beam assistant – ACC – 2-phase brake light – brake assistant – ABS, DSC, ASC In research or development phase: – signal warning driver of motorists heading in the wrong direction on highways But none of these systems will ever take the steering wheel out of the driver’s hands. “Drivers will always have to make the final call,” says Kompaß. “We can only enable them to make the best possible decision.” Many safety systems within the vehicle are efficiently networked for that pur- pose: A camera in the rear view mirror of the new BMW 7 Series provides data needed to display the applicable speed limit as well as for the lane departure warning and the high beam assistant. The 7 Series’ integrated chassis management also interfaces with the transmission shift characteristics, power-steering assist, integral active steering, accelerator pedal response and dynamic damp- ing control as well as the DSC and Dynamic Drive re- sponse. Highly complex applications such as these, which encompass the entire vehicle architecture, require quite different development capabilities – and these cannot be fully realised by external suppliers. “Our development work gives the BMW Group access to future technologies in-house and also from our suppliers,” explains Kompaß. That work is also economically advantageous. Innovations such as active steering, lane departure warning, Dynamic Drive and adaptive cornering lights have all been patented. The fact that more and more people are opting for safety features shows that customers increasingly consider road safety a crucial part of their driving experience. “What is typical about the BMW Group,” adds Kompaß, “is our integrated approach to the topic. We analyse the en- tire process chain – from accident prevention through to what happens after the impact. That is how we ensure maximum safety.” For instance, BMW Group engineers know, from their study of accidents, that more than half of all fatal pedestrian accidents take place at dusk or during the night – in other words, in poor visibility. And although only around 20 per- cent of all driving is done at night, about 40 percent of all road fatalities occur in the dark. In response to this chal- lenge BMW safety experts developed a uniquely intelligent infrared system to warn the driver of pedestrians or ani- mals on the road in the dark. “Night Vision,” as the technol- ogy is called, uses an infrared camera to transmit moving video images of the surroundings. The difference in tem- perature allows its sensor to detect people and animals up to 300 metres away, even in complete darkness beyond the range of the headlights. If Night Vision identifies a per- son or animal moving along the roadside, the image is shown on the control display; if there is any immediate dan- ger the driver is also given a warning signal. 54 a Image a b c b Looking around the corner with Side View. Preventive safety for pedestrians and cyclists The new BMW Night Vision detects pedestrians. Research for the future The crossroads assistant uses vehicle-to-vehicle communications. Accident type 3: 18 percent = crossing accidents. Standard features: – Side View – bending light – ABS, brake assistant In research or development phase: – cross traffic assistant – traffic light info BMW developers are always looking ahead in their own work, too. That is how they find answers today to challenges which won’t fully emerge until farther down the road. One such example is the expected increase in the number of crossing accidents. Studies confirm that accidents that occur when turning or crossing traffic are often caused by obstructed visibility – for instance, when a driver is un- able to see approaching cross traffic due to parked cars. That is why BMW developers are already working on the ultimate in assistance systems: vehicle-to-vehicle commu- nication. Intelligent communication between vehicles could, for instance, allow a car to alert traffic behind it to patches of black ice. A vehicle approaching an intersection could warn cross traffic of its approach, even though it might still be concealed by a building. “Vehicle-to-vehicle communication is still a long way off; and then, it would only work if all brands could communicate with each other,” explains Kompaß. “At the end of the day a system like this can only be effective if as many vehicles as possible have communications systems of this kind.” Nonetheless, last summer the EU reserved standardised radio frequencies for all member countries for Car2Car communications. A research project sponsored by the German federal govern- ment will soon explore the potential for this type of com- munications between vehicles made by different manu- facturers: The BMW Group has had concepts ready for technical implementation for a long time. The challenge of the future Topic three Access to technologies and customers Safety 55 c Accident type 4: 10 percent = accidents involving pedestrians. Standard features: – pedestrian detection – Night Vision – ABS, brake assistant In research or development phase: – active emergency braking Of course, even the most visionary safety systems will never be able to prevent all accidents. That is why the BMW Group’s integrated safety concept includes not only normal driving situations, but also the phase before, during and after a collision. Just milliseconds before a crash, the impact warning apparatus positions the brake pads and primes the braking system. Then as soon as the driver touches the brake, the brake action is optimised according to the distance and relative speed data provided by the ACC. Even before the impact occurs, an electric motor reels in the seat belt to tighten it. After the crash the warning lights automatically switch on to warn other road users. At the same time the vehicle control system activates the in- terior lights and unlocks the central locking to allow rescue services to get in. In parallel the BMW ConnectedDrive communications network automatically alerts the local emergency dispatch centre and provides essential informa- tion about the accident within seconds. This unique system was jointly developed with traumatol- ogists from the William Lehman Injury Research Center at the University of Miami. At the core of the system is an intelligent algorithm that calculates the likelihood of sus- taining severe injuries using accident and vehicle data. It is based on biomechanical accident analyses conducted by doctors at the Lehman Center to establish connections between different types of accidents and the probability of serious or life-threatening injuries. The instant one of the 600,000 vehicles fitted with the emergency call system is involved in an accident the system calculates the risk of injury to the passengers from parameters such as type, severity and direction of the impact and relays the data to the dispatch centre, along with the vehicle’s exact GPS position. At the same time the extended emergency call system establishes a phone connection that allows the BMW Call Centre and the emergency services to make contact with the driver. This is the only system of its kind in the world. In this way the BMW emergency call system has ensured a fast response to more than 30,000 incidents. Just recently Klaus Kompaß read a report about a BMW driver who had crashed his vehicle through the guardrail on a remote US highway and rolled over. “The man was lying severely injured off the side of the highway where he couldn’t be seen,” explains Kompaß. “Under normal circumstances it could have been hours or even days before anyone found him there.” But the car’s BMW ConnectedDrive system alerted the dispatch centre and an ambulance was rushed directly to the scene of the accident. The man survived. Before all these safety features become standard equip- ment they undergo extensive and rigorous testing at the BMW Group’s crash facilities. All this involves a tremen- dous amount of time, effort, and also money. But it gives the BMW Group access to future technologies which will directly benefit the Group’s customers. And even though it is heartbreaking to see all those new vehicles knocked out of shape at the crash facility, every crash under test con- ditions helps prevent real injuries on the roads. 56 Topic four The BMW Group is systematically improving resource efficiency throughout its global production network: year after year, plant by plant. From 2006 to 2012 water, energy, CO2 emissions, waste and solvent emissions will all be reduced by no less than 30 percent – with tangible benefits for the environ- ment as well as for the company’s earnings. Reduce costs. Save resources. Clean Production. The challenge of the future Topic four Profitability Clean Production 57 Target: minus 30 % until 2012 Continually improve the environmental performance 5 % per annum starting in 2006 More performance. Less consumption. Since the BMW Group became the first auto- mobile manufacturer to appoint an environmental officer back in the early seventies, it has continually improved its environmental performance. Its progress has also been reflected in its ranking in the Dow Jones Sustainability Index World: The BMW Group is the only automobile manufacturer to have been highly rated in this definitive global sustainability index from the very start. In fact, over the past four years the company has consistently ranked number one in its sector. This makes the BMW Group the world’s most sustainable automobile manufacturer. The innovations implemented as part of the Efficient Dynamics programme combine lower CO2 emissions with optimised driving dynamics throughout the model range. The BMW Group has also established a systematic approach across its entire worldwide production network which controls resource consumption and emissions just as rigorously as, say, the use of financial resources. From the start of the project in 2006 through to 2012, this will reduce energy and water consumption, solvent and carbon dioxide emissions as well as waste and wastewater by an impressive 30 percent. 58 What is particularly attractive about this approach is that the key to continuous improvement lies within the production network itself. Because each plant constantly scrutinises the efficiency of its production processes, there are always certain locations which lead the way with their ideas, technologies and processes. Thanks to the ongoing exchange of information and experience the plants systematically benefit from what others have already achieved. For instance, American production engineers in the body shop at the Spartanburg plant developed an adhesive that works without the previously necessary 120-degree Celsius heat drying process. Hence Spartanburg was able to avoid not only investing in a body shop dryer but also made huge energy savings in its manufacturing operations. Following the example of Regensburg, the plants in Leipzig, Munich and Rosslyn in South Africa are now switching to this resource and cost-saving technology. One-time investment costs: around 400,000 euros. Savings: 1.5 million euros in energy costs and around 8,150 tons fewer CO2 emissions per year. Moreover, at the Landshut plant’s light-metal foundry production experts have been re- placing the previously used synthetic resin binders with odourless, low-emission mineral binders since late 2006. The new mineral binder will be used in the manufacture of new products in the future. This will reduce the percentage of organic components in the exhaust air by an impressive 98 percent. The whole foundry is slated to switch to this in- organic binder system by 2010. “It is often possible to make extensive improvements just by completely rethinking estab- lished processes,” says Herbert Höltschl, the BMW Group’s corporate officer for sustain- ability and environmental protection and one of the originators of the project. “Sometimes you even have to invest less to save more: We profit from doing less.” The challenge of the future Topic four Profitability Clean Production 59 The automotive industry’s body pressing plants traditionally use tensile oil to make sheet metal easier to process. This procedure inevitably releases tiny oil particles into the air, making elaborate filtering necessary. However, production planners at the Leipzig plant found a way to dispense with tensile oils altogether by using better tools and press panels. This not only cut investments in ventilation systems by more than half, it also reduced running expenses for ventilation and heating by no less than 70 percent. To identify potential efficiencies of this kind in the early stages, and avoid often costly modifications later on, the BMW Group’s environmental officers are consulted on all in- vestment decisions near the outset. Plant managers have also made a binding commitment to reduce resource consumption by an average of five percent per year. A global bench- marking system allows all plant managers to see how well they are managing resources at any time compared with other BMW Group sites. Most importantly, they can call upon the experience and expertise of the best-performing location to help optimise their own plant. In this way the BMW Group’s production network practically has its own built-in Savings from lower resource consumption over the previous year more than euro 36 million in 2008 “turbocharger” to drive improvements and constantly provide fresh momentum – thus pre-empting predictable but inevitable price increases for resources and emissions. Once you have a turbocharger like that up and running, there is no turning it off. And even though the project’s goal of “minus 30 percent” is initially for a six-year period, its ambitions stretch much further. “As a company we have set ourselves the goal of one day building emission-free vehicles,” says Höltschl, “so of course we are also thinking about how we can build those same vehicles emission-free.” From that point of view, things are off to an ambitious start with a five percent optimisation per year. But that is also just the beginning. 60 Image a b c d Turbines installed on the grounds of the BMW plant in Spartanburg use methane gas to produce electricity and hot water. A pipeline more than 15 km long supplies the BMW plant in Spartanburg with methane gas. The power supply centre constantly monitors whether all systems are generating energy properly. Waste materials at the Palmetto landfill decompose to produce the methane gas needed to generate energy. a b Example 01 Topic: Energy and CO2 Location: Spartanburg, USA Energy provided by methane gas: 63 % CO2 emissions: 59,000 tons less per year The challenge of the future Topic four Profitability Clean Production 61 c d Reduction in the BMW Group’s energy consumption more than 650,000 MWh in 2008 Energy for next to nothing in Spartanburg in the U.S. That is, as long as you have the smart technology to take advantage of it. Since 2003 the BMW plant in Spartanburg has been using methane gas from a nearby landfill to supply its paint shop with power. Today the plant uses methane to meet around 63 percent of its energy requirements, cutting CO2 emissions by an amount equal to the energy needed to heat and cool about 15,000 American households over a year. The BMW Group’s European plants are just as resourceful, albeit using a completely different technology: So-called heat wheels built into the ventilation systems recover heat from the exhaust air. This free energy source meets up to 70 percent of heat energy requirements. At the Research and Innovation Centre (FIZ) in Munich surface groundwater is used to cool buildings in a way that conserves resources. Thanks to clever innovations like these, today’s energy consumption is 18 percent lower than ten years ago at 2.80 MWh per vehicle produced. 62 Image a b c Up until a few months ago equipment used to protect the surface of new vehicles stood here. The vehicles are delivered to their new owners worldwide in closed freight cars. Today more than half of all the BMW Group’s new vehicles leave the plant by rail. a Example 02 Topic: Surface protection Plant: Regensburg, Germany Solvent emissions: 70 tons less in 2008 The challenge of the future Topic four Profitability Clean Production 63 b c Reduction in solvent emissions used in the BMW Group more than 800 tons in 2008 Paint is as much a part of car building as sheet steel and engines. Many paints contain solvents that pose health and environmental concerns. That is why the BMW Group uses water-based paints with low solvent content or completely solvent-free powder-based paint technology at all company sites. The company has now largely done away with the common methods of surface protection used to protect new cars from the elements during transport, such as wax, protective films and covers. After a BMW Group study showed that new vehicles could be transported in closed freight cars or cleaned after transport without compromising quality, the last remaining surface protection systems to use wax were switched off in 2008. In this way the plants in Regensburg, Dingolfing, Munich and Rosslyn in South Africa not only use five grams less solvent per vehicle, but also cut material, energy and labour costs. In 2008 alone solvent emissions were reduced by more than 800 tons company-wide. Overall the BMW Group reduced its solvent emissions by almost half between 1999 and 2008, to less than two kilograms per vehicle. 64 Image a b c d a Certain body seams have to be sealed off using PVC before painting. In the past up to 70 masking plugs – plastic parts used only once – protected the body from getting an unwanted coat of PVC. Superfine nozzles apply the PVC in such a precise, fine coating that only a single masking plug is needed. Every single part is perfectly packed – and the same packaging can be used over and over again. 13,5 million reusable containers are in circulation between the BMW Group and its suppliers. b Example 03 Topic: PVC waste Plant: Munich, Germany PVC waste: minus 80 % Waste for disposal: 100 tons less in 2008 The challenge of the future Topic four Profitability Clean Production 65 c d Reduction in the total volume of waste produced in the BMW Group more than 60,000 tons in 2008 Reduce. Reuse. Recycle. When it comes to waste, the BMW Group follows a consistent, three-phase strategy. Waste is avoided or reused as a resource wherever possible. Only what cannot be reused without compromising quality is ultimately recycled. Finally, if recycling is not an option, it is then disposed of as waste. The proportion of “waste for dis- posal” fell from more than 16 kg per vehicle to 14.8 kg per vehicle between 2007 and 2008 alone. In the Munich plant’s paint shop, for instance, the pre-treatment process for bodies awaiting painting has been optimised to eliminate 80 % of the PVC waste from the under- body coating process. But even residual waste can perform a useful function: As fuel for heat and power plants it helps conserve fossil energy resources. 66 Image a b c a As drilling emulsion, cooling fluid for milling and lathing, for washing and rinsing – water is indispensable for machining cylinder heads, crankcases, crankshafts and connecting rods. The BMW engine plant in Steyr, Austria builds around 60 percent of all BMW engines. Using a completely new combination of different membrane technologies all of the plant’s process wastewater is processed and fed back into production. b Example 04 Topic: Water and wastewater Plant: Steyr, Austria Wastewater: zero litres Savings: up to 30 million litres per year The challenge of the future Topic four Profitability Clean Production 67 c Reduction in the water consumption of the BMW Group more than 335,000 m3 in 2008 Wastewater as an inexhaustible source of water. Wherever possible the BMW Group taps into the most sustainable source of water there is: its own wastewater. For instance, the BMW engine plant in Steyr, Austria has a closed water cycle for mechanical production that uses a series of filters to purify drain water until it becomes fresh water again. Since the outlet to the local sewer system was closed off in late 2006, the plant has only drawn fresh water to compensate evaporation losses. It means the plant uses up to 30 million litres less water annually – about the same amount a small town of about 750 people uses. Across the BMW Group the quantity of process wastewater per vehicle has fallen by more than a quarter since 2004. 68 Topic five The BMW Group’s three brands, BMW, MINI and Rolls-Royce, are among the automotive industry’s strongest premium brands. A wide range of new models released in 2008 once again illustrates the innovative power and performance of the BMW Group. Setting milestones. Creating fascination. New products in 2008. The challenge of the future Topic five New products 69 BMW 1 Series Convertible The BMW 1 Series Convertible combines the pleasure of open-top driving with unbeatable fuel efficiency. To take an example: The 118d Convertible has an average fuel consumption of 4.9 litres per 100 kilometres in the EU Test Cycle and CO2 emissions of 129 grams per kilometre. 70 BMW M3 Convertible The BMW M3 Convertible combines outstanding driving dynamics with aesthetic looks to offer a unique driving experience – in a car that is ideally suited to everyday driving. This fourth generation of the M3 Convertible made its world debut at the Geneva Motor Show in March 2008. The challenge of the future Topic five New products 71 BMW 3 Series Touring The BMW 3 Series is the epitome of sportiness in its class and has occupied the top slot as the world’s bestselling premium vehicle for years. The BMW 3 Series is set to increase its lead with revised versions of the Sedan and Touring. 72 BMW 7 Series Redefining the benchmark: The fifth generation of the BMW 7 Series luxury sedan shows how to combine driving pleasure with spacious opulence. The new BMW 7 Series is the product of stylish design and exceptional engineering in drive train, chassis, safety, driver assistance systems and comfort functions. The challenge of the future Topic five New products 73 BMW 7 Series Redefining the benchmark: The fifth generation of the BMW 7 Series luxury sedan shows how to combine driving pleasure with spacious opulence. The new BMW 7 Series is the product of stylish design and exceptional engineering in drive train, chassis, safety, driver assistance systems and comfort functions. 74 BMW X6 The BMW X6, the world’s first Sports Activity Coupé, draws its fascination from characteristics and abilities no other vehicle offers in a format of this kind. Its design unites the sporty elegance of a large BMW Coupé with the strength and presence of the BMW X models. The challenge of the future Topic five New products 75 BMW X6 The BMW X6, the world’s first Sports Activity Coupé, draws its fascination from characteristics and abilities no other vehicle offers in a format of this kind. Its design unites the sporty elegance of a large BMW Coupé with the strength and presence of the BMW X models. 76 BMW F 800 R K 1300 S The new F 800 R is the first BMW in the high-volume segment for medium-category roadsters. It boasts a sporty, dynamic design and an overall concept consistently geared towards riding pleasure. The new K 1300 S is currently the fastest, most powerful BMW series-production motorcycle available. It com- bines top performance with outstanding allround charac- teristics and active safety features such as BMW Integral ABS, Anti-Slip Control (ASC) and ESA II Electronic Sus- pension Adjustment as standard. The challenge of the future Topic five New products 77 MINI John Cooper Works A big name backed by a long tradition, excellent performance data and an unforgettable driving experience: The MINI John Cooper Works is sporty to the extreme and takes the passion for motor sports beyond the racetrack. 78 Rolls-Royce Phantom Coupé The Rolls-Royce Phantom Coupé is the fourth and most recent addition to the Rolls-Royce Motor Cars product range. A particularly light and extremely rigid aluminium chassis guarantees optimum safety, while the tried-and-tested 6.5-litre V12 engine supplies its high-performance drive train. The challenge of the future Topic five New products 79 Rolls-Royce Phantom Coupé The Rolls-Royce Phantom Coupé is the fourth and most recent addition to the Rolls-Royce Motor Cars product range. A particularly light and extremely rigid aluminium chassis guarantees optimum safety, while the tried-and-tested 6.5-litre V12 engine supplies its high-performance drive train. 80 Topic six In review. The pulsation of the BMW Group. The year 2008. The challenge of the future Topic six The year 2008 81 Five is a charm – five million BMW 5 Series On January 29, over five generations 2008 the five-millionth BMW 5 Series rolls off the assembly line at the Dingolfing plant: a carbon black metallic 530d Sedan. It all started back in 1972, when the very first generation of the BMW 5 Series made its debut at the Inter- national Motor Show in Frankfurt. The early vehicles were initially built at the company’s first plant in Munich, before production moved to the newly opened BMW plant in Dingolfing in the autumn of 1973. New generations came along in 1981, 1988 and 1995, and in 2003 the current generation was born. Top German Design Award for the BMW Group The BMW Group receives the Federal Republic of Germany’s Design Award for its G 650 Xcountry. The one- cylinder motorcycle earned a gold award for its sporty and lightweight design. The Design Award of the Federal Republic of Germany has been pre sented by the Ger- man Design Council on behalf of the Federal Ministry of Economics every year since 1969. BMW 118d voted “World Green Car of the Year” The BMW 118d is named “World Green Car of the Year” at the opening of the New York International Auto Show 2008. The title, which is awarded by a jury of 47 automotive journalists from 24 countries, recognises vehicles and technologies that are specially designed to reduce emissions, and reflect their manufacturers’ exceptional environmental awareness. JAN 29, 2008 FEB 08, 2008 MAR 20, 2008 82 Premiere of 16th BMW Art Car by Olafur The 16th Eliasson BMW Art Car premieres at the Pinakothek der Moderne in Munich, mak- ing artist Olafur Eliasson’s exhibit the newest addi- tion to the long-standing BMW Art Car Collection. Eliasson’s work, titled “Your mobile expecta- tions – BMW H2R project” replaced the outer shell of the hydrogen-powered H2R prototype with an equally complex and fragile skin made of two reflective layers of super- imposed metal. These form a mesh over the chassis which is then cov- ered with multiple layers of ice. One-two finish for BMW F1 Sauber Team in Canada The BMW Sauber Formula 1 team scores the first win in its short career at the Canadian Grand Prix. In the one-two victory in Montreal, Robert Kubica finishes ahead of teammate Nick Heidfeld. Kubica takes the lead in the drivers’ cham- pionship, with the BMW Sauber F1 team in second place in the con- structors’ championship. The sea- son ended with the team placed third in the constructors’ cham- pionship; Robert Kubica came in fourth and Nick Heidfeld finished sixth in the drivers’ competition. To mark the 30th anniver- BMW M1 Hommage at the Concorso d’Eleganza sary of the BMW M1 super sports car, the BMW Group unveils a design study that pays tribute to this legendary model at the Concorso d’Eleganza Villa d’Este 2008. The BMW M1 was a superlative car, and a highly emotive vehicle that was uncompromisingly primed for the race track. This development originated from the BMW Turbo, a concept car which boasted a host of technical innovations in ad- dition to its groundbreaking functional design. APR 25, 2008 MAY 27, 2008 JUNE 08, 2008 The challenge of the future Topic six The year 2008 83 BMW Museum reopens after remodel- The BMW Museum reopens in June ling after two and a half years of construction. The completely redesigned 5,000-square-metre exhibition area houses 120 exhibits for visitors to explore. The rotunda located next door to the BMW Group headquarters remains the museum’s hallmark. A single-storey building directly adjacent to the “Bowl”, as the building has been known since it opened in 1973, adds further exhibition space. The new museum is true to the original con- cept of bringing the road inside the building. “Roads” and ramps connect seven separate exhibition “houses”, each focussing on a specific theme. The museum is designed not only to showcase exceptional automobiles and motorcycles from past decades, but also to reflect the dynamism and innovative power of the BMW brand and the company. Between the museum’s reopening and the end of the year the BMW Group welcomed no less than 230,000 visitors. 19, 2008 84 “Let’s MINI 2008” – more than 3,000 MINI fans in On the Hildesheim first weekend in July more than 3,000 MINI fans flock to Hildesheim Airport to experience the MINI brand. One of the event’s high- lights was a rather unequal race that pitted the Classic Mini, driven by rally legend Rauno Aaltonen, against the MINI John Cooper Works CHALLENGE. State Opera for All in Berlin What began in Munich in 1996 with the Bavarian State Opera is now taking Berlin by storm: In 2007, the “Staatsoper Unter den Linden” opera house and the BMW branch in Berlin created a groundbreaking cultural format to allow the general public to enjoy free open-air opera and con- certs under the motto “State Opera for All”. This year a live broadcast of Ludwig van Beethoven’s opera “Fidelio” and his ninth symphony conducted by Daniel Barenboim opens the new season to an appre- ciative audience of 45,000. BMW Group still number one for sustainability The SAM Group publishes its latest evaluation for the Dow Jones Sustainability Indexes (DJSI). For the fourth consecutive year the BMW Group leads its sector, and, as such, is the world’s most sustainable automobile manufacturer. The BMW Group is the only company in its industry to have been listed in this important collec- tion of corporate sustainabil- ity indexes every year since they were established in 1999. The SAM Group analyses the economic, environmental and social performance of approximately 2,500 compa- nies and selects the best in each sector for the Dow Jones Sustainability Indexes. General sustainability criteria are considered as well as industry-specific challenges. JULY 04, 2008 AUG 30, 2008 SEPT 04, 2008 The challenge of the future Topic six The year 2008 85 Paris: BMW Group unveils three The BMW Group concept cars presents no fewer than three concept vehicles at the Paris Motor Show: the BMW Concept X1, the BMW Con- cept 7 Series ActiveHybrid and the MINI Crossover Concept. The BMW Concept X1 combines the function- ality of a Sports Activity Vehicle and the advantages of the premium com- pact class in a vehicle that is both modern and innovative. The BMW Concept 7 Series ActiveHybrid is a further step in the implementation of Efficient Dynamics. This vehicle com- bines a highly-efficient V8 cylinder petrol engine with an electric drive in this mild-hybrid concept. The MINI Crossover Concept brings an entirely new vehicle concept to the MINI model range, offering more space and versatility as well as a four-wheel drive. MINI E – the BMW Group’s first electric car for a cus- The BMW Group tomer introduces a fully electric- powered vehicle, the MINI E. Already in 2009, 500 MINI E cars will be driving on the roads in everyday traffic situa- tions. Anyone living in the metropolitan areas of Califor- nia or New York interested in driving a MINI E was able to apply online. Feedback from the field trial will be incorpo- rated in series development projects at a later stage. By The BMW Group’s 140-gram fleet the end of 2008 the BMW Group’s product range includes 27 models that produce 140 grams of CO2 per kilometre or less. This corresponds to a fuel consumption of less than 5.1 litres diesel or 5.8 litres petrol over 100 kilo- metres. The BMW Group will continue to work tirelessly to develop inno- vative drive solutions in the future. You will find an overview about the product range on the next pages. OCT 04, 2008 NOV 18, 2008 DEC 31, 2008 86 BMW 520d Sedan BMW 520d Touring BMW 320d Sedan Fuel consumption 5.1 l Fuel consumption 5.3 l Fuel consumption CO2 emissions 136 g CO2 emissions 140 g CO2 emissions 4.8 l 128 g BMW 318d Touring BMW 123d 5-door BMW 123d 3-door Fuel consumption 4.8 l Fuel consumption 5.2 l Fuel consumption CO2 emissions 125 g CO2 emissions 138 g CO2 emissions 5.2 l 138 g BMW 120d Coupé BMW 118d 5-door BMW 118d 3-door Fuel consumption 4.8 l Fuel consumption 4.5 l Fuel consumption CO2 emissions 128 g CO2 emissions 119 g CO2 emissions 4.5 l 119 g MINI Cooper MINI Cooper D MINI One Clubman Fuel consumption 5.4 l Fuel consumption 3.9 l Fuel consumption CO2 emissions 129 g CO2 emissions 104 g CO2 emissions 5.4 l 130 g Consumption and emission data The 140-gram fleet for the BMW Group 87 BMW 320d Touring BMW 320d Coupé BMW 320d Convertible BMW 318d Sedan Fuel consumption 4.9 l Fuel consumption 4.8 l Fuel consumption 5.3 l Fuel consumption CO2 emissions 130 g CO2 emissions 128 g CO2 emissions 140 g CO2 emissions 4.7 l 123 g BMW 123d Coupé BMW 120d 5-door BMW 120d 3-door BMW 120d Convertible Fuel consumption 5.2 l Fuel consumption 4.8 l Fuel consumption 4.8 l Fuel consumption CO2 emissions 138 g CO2 emissions 128 g CO2 emissions 128 g CO2 emissions BMW 118d Convertible BMW 116d 5-door BMW 116d 3-door MINI One Fuel consumption 4.9 l Fuel consumption 4.4 l Fuel consumption 4.4 l Fuel consumption CO2 emissions 129 g CO2 emissions 118 g CO2 emissions 118 g CO2 emissions 5.1 l 134 g 5.3 l 128 g MINI Cooper D Clubman MINI Cooper Clubman MINI Cooper Convertible Fuel consumption 4.1 l Fuel consumption 5.5 l Fuel consumption CO2 emissions 109 g CO2 emissions 132 g CO2 emissions 5.7 l 137 g Consumption data in litres / 100 km in the EU test cycle, CO2 emissions in g / km 88 Model Urban (l / 100 km) Extraurban (l / 100 km) Combined (l / 100 km) CO2 emis- sions [g / km] Model Urban (l / 100 km) Extraurban (l / 100 km) Combined (l / 100 km) CO2 emis- sions [g / km] BMW 116i 3-door 6 118i 3-door 6 120i 3-door 6 130i 3-door 116d 3-door1 118d 3-door 4, 7 120d 3-door 4, 7 123d 3-door 4 116i 5-door 6 118i 5-door 6 120i 5-door 6 130i 5-door 116d 5-door1 118d 5-door 4, 7 120d 5-door 4, 7 123d 5-door 4 125i Coupé 135i Coupé 120d Coupé 4, 7 123d Coupé 4 118i Convertible 6 120i Convertible 6 125i Convertible 135i Convertible 118d Convertible 4, 7 120d Convertible 4, 7 123d Convertible 4 316i Sedan 318i Sedan 6 320i Sedan 6 325i Sedan 7.5 (8.3) 7.9 (8.2) 8.7 (8.4) 12.2 (12.3) 5.3 5.4 (7.0) 6.1 (7.3) 6.5 (7.3) 7.5 (8.3) 7.9 (8.2) 8.7 (8.4) 12.2 (12.3) 5.3 5.4 (7.0) 6.1 (7.3) 6.5 (7.3) 11.4 (11.4) 13.0 (13.2) 6.1 (7.3) 6.5 (7.3) 8.5 (8.9) 8.9 (9.1) 11.7 (11.6) 13.3 (13.5) 5.8 (7.3) 6.4 (7.6) 6.7 (7.6) 7.7 (8.5) 7.9 (8.5) 8.4 (8.9) 9.8 (9.7) 325i xDrive Sedan 10.9 (10.8) 9.9 (9.9) 11.0 (11.0) 13.2 (13.1) 14.1 (13.8) 5.7 (7.3) 6.0 (7.3) 6.7 (7.9) 7.6 (8.1) 7.3 (8.0) 8.3 (8.8) 9.1 330i Sedan 330i xDrive Sedan 335i Sedan 335i xDrive Sedan 318d Sedan 4, 7 320d Sedan 4, 7 320d xDrive Sedan 325d Sedan 330d Sedan 4 330d xDrive Sedan4 335d Sedan2 M3 Sedan 3 316i Touring1 318i Touring6 4.8 (5.3) 4.7 (5.0) 5.1 (5.1) 6.0 (6.0) 3.9 4.0 (4.6) 4.1 (4.5) 4.4 (4.6) 4.8 (5.3) 4.7 (5.0) 5.1 (5.1) 6.0 (6.0) 3.9 4.0 (4.6) 4.1 (4.5) 4.4 (4.6) 5.9 (5.9) 7.0 (6.9) 4.1 (4.5) 4.4 (4.6) 5.0 (5.6) 5.2 (5.5) 6.0 (6.1) 7.1 (7.0) 4.4 (4.9) 4.3 (4.7) 4.6 (4.9) 4.9 (5.2) 4.8 (5.2) 4.8 (5.1) 5.5 (5.6) 6.1 (6.2) 5.6 (5.6) 6.2 (6.2) 6.7 (6.9) 7.1 (7.3) 4.1 (4.6) 4.1 (4.6) 4.6 (4.8) 4.6 (5.1) 4.8 (5.2) 5.5 (5.7) 5.3 5.8 (6.4) 139 (152) 5.9 (6.2) 140 (148) BMW 320i Touring6 325i Touring 6.4 (6.3) 152 (150) 325i xDrive Touring 8.3 (8.3) 197 (198) 330i Touring 4.4 118 330i xDrive Touring 4.5 (5.5) 119 (146) 335i Touring 4.8 (5.5) 128 (146) 335i xDrive Touring 5.2 (5.6) 138 (148) 318d Touring4, 7 320d Touring4, 7 5.8 (6.4) 139 (152) 320d xDrive Touring 5.9 (6.2) 140 (148) 6.4 (6.3) 152 (150) 325d Touring 330d Touring4 8.3 (8.3) 197 (198) 330d xDrive Touring4 4.4 118 335d Touring2 4.5 (5.5) 119 (146) 4.8 (5.5) 128 (146) 5.2 (5.6) 138 (148) 316i Coupé1 320i Coupé6 325i Coupé 8.5 (9.1) 9.9 (9.8) 11.0 (10.9) 10.0 (10.1) 11.1 (11.1) 13.4 (13.2) 14.2 (13.9) 5.8 (7.5) 6.1 (7.5) 6.9 (8.0) 7.8 (8.2) 7.5 (8.1) 8.4 (8.9) 9.2 7.7 8.7 (8.9) 9.8 (9.7) 7.9 (7.9) 190 (190) 325i xDrive Coupé 10.9 (10.8) 9.2 (9.2) 220 (221) 330i Coupé 4.8 (5.5) 128 (146) 330i xDrive Coupé 5.2 (5.6) 138 (148) 335i Coupé 335i xDrive Coupé 6.3 (6.8) 149 (161) 320d Coupé 4, 7 6.6 (6.8) 158 (163) 320d xDrive Coupé 8.1 (8.1) 195 (195) 9.4 (9.4) 224 (225) 325d Coupé 330d Coupé 4 4.9 (5.8) 129 (152) 330d xDrive Coupé 4 5.1 (5.8) 134 (152) 5.4 (5.9) 144 (154) 335d Coupé2 M3 Coupé3 9.9 (9.9) 11.0 (11.0) 13.2 (12.5) 14.1 (13.8) 6.0 (7.4) 6.7 (7.9) 7.6 (8.1) 7.3 (8.0) 8.3 (8.8) 9.1 4.9 (5.3) 5.6 (5.7) 6.2 (6.3) 5.7 (5.8) 6.3 (6.3) 6.9 (7.0) 7.2 (7.4) 4.2 (4.8) 4.2 (4.8) 4.8 (4.9) 4.8 (5.2) 5.0 (5.3) 5.6 (5.8) 5.4 4.9 4.9 (5.1) 5.5 (5.6) 6.1 (6.2) 5.6 (5.6) 6.2 (6.2) 6.7 (6.7) 7.1 (7.3) 4.1 (4.7) 4.6 (4.8) 4.6 (5.1) 4.8 (5.2) 5.5 (5.7) 5.3 6.2 (6.7) 148 (160) 7.2 (7.2) 173 (173) 8.0 (8.0) 193 (191) 7.3 (7.4) 175 (178) 8.1 (8.1) 194 (194) 9.3 (9.3) 222 (223) 9.8 (9.8) 235 (235) 4.8 (5.8) 125 (150) 4.9 (5.8) 130 (150) 5.6 (6.0) 146 (159) 5.9 (6.3) 155 (165) 5.9 (6.3) 155 (165) 6.6 (6.9) 174 (181) 6.8 5.9 178 142 6.3 (6.5) 151 (156) 7.1 (7.1) 170 (170) 7.9 (7.9) 189 (189) 7.2 (7.2) 173 (173) 8.0 (8.0) 193 (193) 9.1 (8.8) 218 (210) 9.7 (9.7) 232 (232) 4.8 (5.7) 128 (149) 5.4 (5.9) 143 (156) 5.7 (6.2) 153 (164) 5.7 (6.2) 152 (164) 6.5 (6.8) 171 (178) 6.7 177 17.9 (17.0) 9.2 (9.0) 12.4 (11.9) 295 (285) 5.9 (6.4) 142 (154) 320i Convertible 6 5.9 (6.4) 142 (152) 6.1 (6.5) 146 (156) 7.1 (7.1) 170 (170) 325i Convertible 330i Convertible 335i Convertible 7.9 (7.9) 189 (189) 320d Convertible 4, 7 7.2 (7.2) 173 (173) 325d Convertible 8.0 (8.0) 193 (193) 330d Convertible 4 9.0 (9.4) 10.4 (10.6) 10.5 (10.6) 13.6 (12.8) 6.9 (7.7) 8.0 (8.3) 7.7 (8.2) 5.2 (5.4) 5.9 (6.1) 6.0 (6.1) 7.1 (7.0) 4.3 (5.0) 5.0 (5.3) 5.2 (5.4) 6.6 (6.9) 157 (165) 7.6 (7.8) 181 (187) 7.7 (7.8) 185 (187) 9.5 (9.1) 226 (217) 5.3 (6.0) 140 (157) 6.1 (6.4) 162 (170) 6.1 (6.4) 162 (170) 9.1 (9.2) 218 (221) M3 Convertible 3 18.7 (17.3) 9.6 (9.4) 12.9 (12.3) 309 (293) 9.7 (9.7) 232 (232) 4.7 (5.6) 123 (148) 4.8 (5.6) 128 (148) 5.4 (5.9) 143 (156) 520i Sedan 523i Sedan 525i Sedan 5.7 (6.2) 153 (164) 525i xDrive Sedan 5.7 (6.2) 152 (164) 530i Sedan 6.5 (6.8) 171 (178) 530i xDrive Sedan 6.7 177 17.9 (17.0) 9.2 (9.0) 12.4 (11.9) 295 (285) 7.9 5.1 6.1 146 540i Sedan 550i Sedan 520d Sedan 5 525d Sedan 8.0 (8.6) 4.9 (5.3) 6.0 (6.5) 144 (156) 525d xDrive Sedan 9.2 (9.4) 10.1 (10.3) 10.3 (10.4) 11.3 (11.2) 10.9 (10.8) 11.5 (11.6) 5.4 (5.4) 5.7 (5.9) 5.7 (5.8) 6.2 (6.3) 5.8 (5.6) 6.2 (6.0) 6.7 (6.9) 162 (164) 7.3 (7.5) 174 (178) 7.4 (7.5) 176 (178) 8.1 (8.1) 193 (193) 7.7 (7.5) 182 (178) 8.2 (8.1) 194 (193) 15.8 (14.4) 7.4 (6.9) 10.5 (9.7) 250 (232) 16.6 (15.5) 7.6 (7.2) 10.9 (10.3) 260 (246) 6.5 (7.5) 8.2 (8.5) 8.8 (9.1) 4.3 (4.6) 5.0 (5.3) 5.4 (5.6) 5.1 (5.6) 136 (149) 6.2 (6.5) 165 (172) 6.7 (6.9) 179 (183) Vehicle fleet Consumption and emission data for the BMW Group 89 Model BMW Urban (l / 100 km) Extraurban (l / 100 km) Combined (l / 100 km) CO2 emis- sions [g / km] Model Urban (l / 100 km) Extraurban (l / 100 km) Combined (l / 100 km) CO2 emis- sions [g / km] BMW 530d Sedan 530d xDrive Sedan 535d Sedan 2 M5 Sedan 3 520i Touring 523i Touring 525i Touring 525i xDriveTouring 530i Touring 530i xDrive Touring 550i Touring 520d Touring 5 525d Touring 525d xDrive Touring 530d Touring 530d xDrive Touring 535d Touring 2 M5 Touring 3 630i Coupé 650i Coupé 635d Coupé 2 630i Convertible 650i Convertible 635d Convertible 2 M6 Coupé3 M6 Convertible 3 740i 2, 4 740Li 2, 4 750i 2, 4 750Li 2, 4 730d 2, 4 730Ld 2, 4 X3 xDrive20i 1 X3 xDrive25i X3 xDrive30i X3 xDrive20d 4 X3 xDrive30d X3 xDrive35d 2 X5 xDrive30si 2 X5 xDrive48i 2 X5 xDrive30d 2 X5 xDrive35d 2 X6 xDrive35i 2, 4 X6 xDrive50i 2, 4 X6 xDrive30d2 8.6 (9.1) 9.2 (9.6) 5.1 (5.2) 5.5 (5.5) 9.0 21.7 5.4 10.2 9.4 (9.5) 10.6 (10.6) 10.8 (10.7) 11.8 (11.7) 11.1 (11.0) 12.0 (12.1) 5.6 (5.5) 6.0 (6.0) 5.9 (6.0) 6.4 (6.5) 6.0 (5.8) 6.4 (6.3) 6.7 (7.7) 8.4 (8.6) 9.1 (9.2) 8.8 (9.3) 9.6 (9.9) 9.2 21.7 4.5 (4.7) 5.2 (5.4) 5.6 (5.7) 5.3 (5.3) 5.8 (5.6) 5.6 10.5 6.4 (6.6) 170 (176) X6 xDrive35d 2 10.5 7.1 8.3 220 6.9 (7.0) 183 (186) 6.7 14.4 178 344 6.9 (7.0) 166 (167) 7.7 (7.7) 183 (184) 7.7 (7.7) 183 (184) Z4 sDrive23i 4 Z4 sDrive30i 4 Z4 sDrive35i 4 MINI MINI One 8.4 (8.4) 201 (201) MINI Cooper 7.9 (7.7) 187 (184) 8.5 (8.4) 203 (201) MINI Cooper D MINI Cooper S 12.4 (11.8) 12.4 (11.9) 13.5 (12.6) 6.2 (6.1) 6.2 (6.2) 7.0 (6.9) 8.5 (8.2) 199 (192) 8.5 (8.3) 199 (195) 9.4 (9.0) 219 (210) 6.8 (9.0) 6.9 (9.1) 4.7 (6.5) 7.9 (9.7) 4.4 (5.0) 4.5 (5.0) 3.5 (4.2) 5.2 (5.3) 5.6 5.3 (6.5) 128 (155) 5.4 (6.5) 129 (156) 3.9 (5.0) 104 (134) 6.2 (6.9) 149 (165) 6.9 165 17.0 (16.1) 7.8 (7.5) 11.2 (10.7) 267 (254) MINI John Cooper Works1 9.2 5.3 (5.8) 140 (154) 6.4 (6.6) 171 (176) MINI Cooper Convertible 7.4 (9.3) 6.9 (7.0) 184 (187) MINI Cooper S Convertible 8.1 (9.9) 4.7 (5.2) 5.4 (5.4) 5.7 (6.7) 137 (161) 6.4 (7.1) 153 (170) 6.6 (6.8) 176 (180) MINI John Cooper Works 7.2 (7.2) 192 (192) Convertible1 9.3 5.8 7.1 169 6.9 14.6 182 348 MINI One Clubman MINI Cooper Clubman 6.9 (9.1) 7.1 (9.2) 11.2 (11.0) 6.0 (5.8) 7.9 (7.7) 188 (184) MINI Cooper D Clubman 4.9 (6.6) 17.8 (15.9) 8.1 (7.4) 11.7 (10.5) 279 (249) MINI Cooper S Clubman 8.0 (9.8) 9.2 5.6 6.9 183 MINI John Cooper Works 4.5 (5.1) 4.5 (5.1) 3.6 (4.2) 5.3 (5.4) 5.4 (6.6) 130 (158) 5.5 (6.6) 132 (159) 4.1 (5.1) 109 (136) 6.3 (7.0) 150 (168) 11.8 (11.6) 6.3 (6.0) 8.3 (8.1) 198 (192) Clubman1 9.3 5.7 7.0 167 19.2 (16.5) 8.8 (7.7) 12.6 (10.9) 299 (258) 9.6 21.4 22.0 13.8 14.0 16.4 16.4 9.5 9.6 12.6 12.8 (13.1) 13.4 (13.3) 8.2 (8.3) 9.7 (9.9) 9.7 13.8 17.0 10.4 10.5 14.9 17.7 10.4 5.8 10.2 10.6 7.6 7.7 8.5 8.5 5.9 6.0 6.9 7.3 (7.4) 7.3 (7.6) 5.5 (5.8) 6.0 (6.4) 6.7 8.3 9.3 7.0 7.1 8.9 9.9 7.0 7.2 14.3 14.7 9.9 10.0 11.4 11.4 7.2 7.3 190 342 352 232 235 266 266 192 194 9.0 215 9.3 (9.5) 224 (228) 9.5 (9.7) 229 (233) 6.5 (6.7) 172 (178) 7.4 (7.7) 196 (206) 7.8 208 10.3 12.1 8.2 8.3 11.1 12.8 8.2 247 289 217 220 259 299 217 Rolls-Royce Rolls-Royce Phantom2 23.2 11.3 15.7 377 Rolls-Royce Phantom extended Wheelbase2 23.3 11.4 15.8 380 Rolls-Royce Phantom Drophead Coupé2 23.2 Rolls-Royce Phantom Coupé2 23.2 11.3 11.3 15.7 15.7 377 377 Figures in brackets only valid for automatic transmissions. 1 only available with manual transmission 2 only available with automatic transmission 3 only available with SMG Drivelogic, 7-gear M transmission 4 EU5 comes as standard 5 EU5 comes as standard for left-hand drive vehicles 6 also available as EU5 in selected markets from April 2009 7 Consumption figures for automatic transmission on right-hand drive vehicles vary. 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. as of March 2009 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. 90 The manufacture of, and the paper used for, the BMW Group’s Annual Report 2008, 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 FSC chain of custody certification rules are also applied to enterprises which process paper e. g. printing companies. The CO2 emissions generated through the production of paper for this report, as well as through print and production, were neutralized by the BMW Group. To this end, the corresponding amount of emission allowances was erased, with the transaction identification DE75016 on 3 March 2009. 

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