BMW AG Annual Report 2010

Plain-text annual report

ANNUAL REPORT 2010 FACTS AND FIGURES s t n e t n o C 04 BMW GROUP IN FIGURES 06 REPORT OF THE SUPERVISORY BOARD 12 12 14 18 41 44 47 62 63 70 74 74 74 76 78 80 81 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities in 2010 Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 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 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes to the Group Financial Statements 81 89 95 96 117 133 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 138 Responsibility Statement by the Company’s Legal Representatives 139 Auditor’s Report 140 140 142 143 144 147 154 162 163 166 166 168 170 172 175 176 STATEMENT ON CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG Members of the Board of Management Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board and on the Composition and Work Procedures of its Committees Compensation Report Information on Corporate Governance Practices Applied Beyond Mandatory Requirements Compliance in the BMW Group OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Financial Calendar Contacts 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. The BMW Group – one of Germany’s largest industrial companies – is one of the most success- ful car and motorcycle manufacturers in the world. With BMW, MINI and Rolls-Royce, the BMW Group owns three of the strongest premium brands in the automobile industry. The vehicles it manufactures set the highest standards in terms of aesthetics, dynamics, technology and quality, borne out by the company’s leading position in engineering and innovation. In addition to its strong position in the motorcycles market with the BMW and Husqvarna brands, the BMW Group also offers a successful range of financial services. The course towards a successful future was set in 2007 with the adoption of Strategy Number ONE. The business was given a new strategic direction with an emphasis on profitability and long- term value growth. Our activities will remain firmly focused on the premium segments of the inter national car markets. Our mission statement up to the year 2020 is clearly defined: the BMW Group is the world’s leading provider of premium products and premium services for indi- vidual mobility. Long-term thinking and responsible action have long been the cornerstones of our success. Striving for ecological and social sustainability along the entire value-added chain, taking full responsibility for our products and giving an unequivocal commitment to preserving resources are prime objectives firmly embedded in our corporate strategy. For these reasons, the BMW Group has been sector leader in the Dow Jones Sustainability Indices for the last six years. 04 BMW Group in figures Sales volume of automobiles in thousand units 1,600 1,500 1,400 1,300 1,200 1,100 1,000 Revenues in euro billion 60 55 50 45 40 35 30 06 07 08 09 10 06 07 08 09 10 1,374.0 1,500.7 1,435.9 1,286.3 1,461.2 49.0 56.0 53.2 50.7 60.5 Profit before financial result in euro million Profit before tax in euro million 5,250 4,500 3,750 3,000 2,250 1,500 750 5,250 4,500 3,750 3,000 2,250 1,500 750 06 07 08 09 10 06 07 08 09 10 4,050 4,212 921 289 5,094 4,124 3,873 351 413 4,836 05 BMW Group in figures Sales volume – Automobiles BMW MINI Rolls-Royce Total Sales volume – Motorcycles BMW Husqvarna Total Production – Automobiles BMW MINI Rolls-Royce Total Production – Motorcycles BMW Husqvarna Total Workforce at end of year1 2006 2007 2008 2009 2010 Change in % 1,185,088 1,276,793 1,202,239 1,068,770 1,224,280 188,077 805 222,875 1,010 232,425 1,212 216,538 234,175 1,002 2,711 1,373,970 1,500,678 1,435,876 1,286,310 1,461,166 100,064 102,467 – – 100,064 102,467 101,685 13,511 115,196 87,306 13,052 100,358 98,047 12,066 110,113 1,179,317 1,302,774 1,203,482 1,043,829 1,236,989 186,674 847 237,700 1,029 235,019 1,417 213,670 241,043 918 3,221 1,366,838 1,541,503 1,439,918 1,258,417 1,481,253 103,759 104,396 – – 103,759 104,396 104,220 14,232 118,452 82,631 10,612 93,243 99,236 13,035 112,271 14.6 8.1 – 13.6 12.3 – 7.6 9.7 18.5 12.8 – 17.7 20.1 22.8 20.4 BMW Group 106,575 107,539 100,041 96,230 95,453 – 0.8 Financial figures in euro million Revenues Capital expenditure Depreciation and amortisation Operating cash flow 2 Profit before financial result Profit before tax Net profit 48,999 56,018 53,197 50,681 60,477 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 3,471 3,600 4,921 289 413 210 3,263 3,682 8,150 5,094 4,836 3,234 19.3 – 6.0 2.3 65.6 – – – 1 Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners. 2 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 Auto- mobiles segment 06 Joachim Milberg Chairman of the Supervisory Board 07 REPORT OF THE SUPERVISORY BOARD Dear Ladies and Gentlemen, The ﬁ nancial year 2010 marked an upswing for the BMW Group after the global ﬁ nancial crisis. Together with the Board of Management and the entire workforce, we are delighted with the way business has developed, enabling us to report the best result to date in the BMW Group’s corporate history. During the year under report, we continuously and carefully monitored the running of the business and its perform- ance with the aid of regular written and oral reports provided by the Board of Management. Joint discussions were also held in which we advised the Board of Management on important aspects of projects and planning. These discussions with the Board of Management were always conducted constructively and in an atmosphere of trust. Main emphases of the Supervisory Board’s monitoring and advisory activities In a total of ﬁ ve meetings, one of them held over a two-day period, we deliberated in particular on the BMW Group’s current performance and ﬁ nancial position, the corporate plan and strategy, risk management and risk provision, personnel decisions, the further develop- ment of the Board of Management’s compensation system and corporate governance. In addition to the scheduled meetings, the Board of Management also kept us informed of current business and economic developments, particularly sales volume performance, personnel ﬁ gures and other signiﬁ cant matters. The Chairman of the Board of Manage- ment informed me personally and on a regular basis about major business transactions and projects. Again in 2010 the Supervisory Board examined the management and organisation of the Financial Services segment. In preparation for the full Supervisory Board meeting, we discussed with the Presiding Board the current organisation of the Financial Services segment, which falls under the remit of the “Finances” management portfolio. We received a detailed status report on various projects aimed at improving liquidity and risk management, maximising the beneﬁ ts from sales support given to the Automobiles segment and optimising legal entity and management structures. The framework conditions and organisational implications of the planned changes in the segment were also discussed at length. The Supervisory Board is in favour of enhancing the segment‘s legal and organisational structure in a way that ensures that suitable control and balancing mechanisms are in place in the relationship between the core industrial segments and the Financial Services segment. One meeting of the Supervisory Board took place at the Regensburg plant, where vehicles such as the BMW 1 Series, the BMW 3 Series and the BMW Z4 are manufactured. During our visit, we took the opportunity to look for ourselves at the preparations being made for the scheduled model start-ups in 2011. Using examples from the pressing plant, body construction and assembly areas, the members of the Supervisory Board were given a demonstration of how the prin- ciples of a value-added production system (VPS) can be applied to achieve further process improvements. In September, another two-day meeting was held, providing us with the opportunity for an in-depth discussion with the Board of Management regarding technical innovations and new vehicle concepts. The Supervisory Board members were able to test several of the vehicles that are now already capable of fulﬁ lling customer requirements for forward- looking mobility in various vehicle categories. These included a next-generation BMW 5 Series ActiveHybrid prototype, but also production models such as the BMW 320d Effi cientDynamics Edition. We were also able to test vehicles such as the BMW X3 xDrive 20d that will soon be going into series production. A further part of the meeting was dedicated to the strategy review. The Board of Management provided us with an insight into the progress made over the last twelve months in implementing Strategy Number ONE, based on the four pillars “Growth”, “Shaping the Future”, “Proﬁ tability” and “Access to Technologies and Customers”. Market and volume forecasts for the Automobiles segment were discussed at great length, with certain markets also successfully being subjected to a stress test. The Supervisory Board supports the Board of Management in its endeavours to achieve a balanced relationship in its sales activities between the major markets of Europe, Asia and America. Furthermore, we discussed a number of selected issues relating to product and brand strategy, such as plans to establish a new BMW sub-brand in the ﬁ eld of electromobility. In the opinion of the Supervisory Board, Strategy Number ONE has proved to be robust in times of crisis: we believe that the Board of Manage- ment remains on the right track in strategic terms. Before giving our go-ahead, we carefully reviewed the long-term business plan presented to us for approval by the Board of Management, which forecasts highly positive and rising economic added value for the years from 2011 to 2016. The Board of Management explained changes from previous forecasts and targets. The most important external risk factors, such as regulatory requirements and potential challenges caused by a repeat of the ﬁ nancial crisis, were also dealt with in both written reports and joint discussions. We stressed the importance to the Board of Management of planning ﬁ xed costs and personnel requirements prudently, despite the current economic recovery. The Supervisory Board gave appreciative recognition to the fact that, despite the ﬁ nancial crisis, the eff orts expended in recent years have brought 08 about improved transparency in the Financial Services segment, driven progress in product strategy and electromobility and encouraged new, positive approaches to marketing. We also deliberated with the Board of Management on the BMW Group’s situation and positioning in the areas of personnel marketing, programmes for new recruits, further training and vocational training. We fully agree with the Board of Management that, even though BMW is generally seen as a highly attractive employer, it is imperative that we continue to build up and maintain expertise and acknowledge the importance of further training. These issues repre- sent a major challenge for the future, not least because of the demographic aging of society. The Board of Management also presented and explained its diversity concept for the BMW Group to the Supervisory Board. We carefully considered the annual budget for the ﬁ nancial year 2011 and discussed earnings opportunities and risks with the Board of Management. The underlying plans give good reason to believe it will be possible, at the very least, to achieve the targets set in conjunction with Strategy Number ONE, despite the intervening ﬁ nancial crisis. As part of a special review, the Board of Management presented an in-depth report on the activities, organisational structure and strategic direction of the board portfolio “Purchasing and Supplier Network”. This network was set up in 2007 as a result of Strategy Number ONE and aims to create the world’s most effi cient car manufacturer supply chain in terms of quality, innovation, compliance with deadlines and cost. The presentation also included an explanation of the instruments with which the BMW Group intends to compensate for beneﬁ ts of scale enjoyed by larger-scale manufacturers. In regular reports, the Board of Management kept us informed of sales volume performance in the Automobiles and Motorcycles segments, new business developments in the Financial Services segment and vehicle residual values on key markets as well as developments in earnings and proﬁ tability during the year. The Board of Management and the Supervisory Board use the reports to keep abreast of and discuss current issues aff ecting the automobile sector. In this context, the Board of Management provided information to the Supervisory Board on a number of issues, including BMW internal rules and processes relating to quality assurance and the management of product defects, should they arise. The Board of Management also addressed major developments in China of signiﬁ cance for the BMW Group, such as the progress being made in expanding production capacities at the Tiexi and Dadong sites in Shenyang and the BMW Group’s involvement in the joint venture with Brilliance. The Supervisory Board again conducted a thorough review of the structure and level of Board of Management com- pensation in 2010. For this purpose, advice was obtained from an independent external ﬁ rm of compensation consultants. In July – after the Board of Management’s decision to approve payment of a special bonus to employees of BMW AG – the Supervisory Board decided to approve a special bonus for members of the Board of Management, based on the prin- ciple of consistency and taking into account senior management compensation (below board level). The payment was made in recognition of the fact that the Board of Management had undertaken structural measures that helped the BMW Group overcome the ﬁ nancial crisis. In December the Supervisory Board decided to add a stock-based compen- sation element to the Board of Management’s compensation system for ﬁ nancial years commencing after 1 January 2011. Further information on this matter is included in the detailed Compensation Report within the Corporate Governance Report section of the Annual Report (pages 154 et seq.). Corporate governance and Declaration of Compliance In their joint meeting in December, the two boards delib- erated on corporate governance within the BMW Group and took a number of decisions on ways in which it could be further improved. The joint Declaration of Compliance and other explanatory comments can be found in the Corporate Governance Report. The recommendations of the Government Commission on German Corporate Governance con- tained in the revised Code issued on 2 July 2010 (Code version dated 26 May 2010) will be complied with without exception in the future. This also includes recommendations on succession planning for the Board of Management. Together with the Board of Management, the Personnel Committee and full Supervisory Board will ensure that long- term succession planning is in place. In their assessment of candidates for a post on the Board of Management, the underlying criteria applied by the Supervisory Board for determining the suitability of candidates are their professional expertise in the relevant area of board responsibility, outstanding leadership qualities, a proven track record and a pro- found understanding of the BMW Group’s business. We also take diversity into account when assessing, on balance, which individual will best complement the Board of Management as a representative body. In the context of the decision process, we understand “diversity” to encompass various complementary individual proﬁ les, work and life experience, at both national and international levels, as well as appropriate representation of both sexes. When making new appointments, our aim in the medium and long term is to achieve an appropriate representation of women on the Board of Management of BMW AG. The Board of Management will accordingly report to the Personnel Committee – at regular intervals and, on request, prior to personnel decisions being taken by the Supervisory Board – on the proportion of, and 09 REPORT OF THE SUPERVISORY BOARD changes in, management positions held by women, in particular below senior executive level and at uppermost manage- ment level. When actually selecting an individual for a post on the Board of Management, the Supervisory Board will decide in the best interests of the Company and after taking account of all relevant circumstances. For its own composition, the Supervisory Board has drawn up speciﬁ c criteria, which are described in the Corporate Governance Report (pages 153 et seq.). A conscious decision has been taken to set out a detailed composition proﬁ le for the Supervisory Board based on a proﬁ le previously drawn up and used by the Nomination Committee, which has now been expanded and applied to the entire Supervisory Board. Examining and improving the effi ciency of the Supervisory Board’s work is seen as an ongoing task, one key element of which is to engage in open and constructive dialogue within the Supervisory Board and in dealings with the Board of Management. In a separate discussion, the full Supervisory Board also discussed its own effi ciency. Our preparations for the discussion were based on the results of a questionnaire previously devised and distributed by the members of the Supervisory Board in advance of the meeting. There was no indication of any conﬂ icts of interest on the part of members of the Supervisory Board or the Board of Management during the past year. The nature and scale of signiﬁ cant transactions with related parties as deﬁ ned by IAS 24 is tested with the aid of a questionnaire which members of both boards are required to complete on a quarterly basis. The questionnaire also covers transactions with close family members and intermediary entities (see pages 128 et seq.). Each of the ﬁ ve Supervisory Board meetings in 2010 was attended by at least 90% of its members (18 out of 20), a fact that can be tied in to the analysis of attendance fees for individual members disclosed in the Compensation Report (see pages 154 et seq.). One member was unable to attend three meetings during the ﬁ nancial year 2010 due to illness. Presiding Board and committee meetings were fully attended (see page 152). Description of Presiding Board activities and committee work In a total of four meetings, the Presiding Board fo- cused mainly on the preparation of speciﬁ c topics for the meetings of the full Supervisory Board unless such preparation fell under the remit of one of the committees. The Presiding Board selected additional topics for Supervisory Board meetings and made suggestions to the Board of Management regarding items to be included in its reports to the full Supervisory Board. The Audit Committee convened four times during the reporting period 2010. In accordance with a recommendation by the German Corporate Governance Code, the Group’s three interim reports in 2010 were discussed (in telephone conferences) with the Board of Management prior to publication. Representatives of the external auditors were present for part of the time at the telephone conference held to present the Half-Year Financial Report. The report had been subjected to review by the external auditors. One meeting of the Audit Committee dealt in particular with preparations for the Supervisory Board meeting at the be- ginning of 2010 at which the ﬁ nancial statements were examined. Before giving the full Supervisory Board its recommenda- tions for nominations for election at the Annual General Meeting and engaging the external auditor for the ﬁ nancial year 2010, the Audit Committee obtained a Declaration of Independence from the proposed external auditor. The fee proposals for the audit of the year-end ﬁ nancial statements and for the review of the half-year ﬁ nancial report were deemed appropriate by the Audit Committee. After the Annual General Meeting 2010, the Audit Committee appointed the external auditor for the ﬁ nancial year 2010 and, taking the suggestions of the full Supervisory Board into account, speciﬁ ed areas of audit emphasis, including accounting policy changes in the HGB ﬁ nancial statements as a result of the German Accounting Law Modernisa- tion Act (BilMoG), the measurement of warranty provisions and the accounting treatment of derivative ﬁ nancial instruments. With a view to ensuring the independence of the external auditor, the Audit Committee had previously considered the scope of non-audit services provided by KPMG entities to the BMW Group and set out guidelines for the future with re- spect to non-audit and audit-related services. There were no indications of lack of independence or grounds for exclusion. Other areas of emphasis covered by the Audit Committee were the risk management system (including additional notiﬁ cation requirements as part of the internal reporting process), the current risk proﬁ le and the level of risk provision. In this context, the Board of Management also reported to the Audit Committee on changes in the internal control system within the Group, in particular with respect to ﬁ nancial reporting processes. The Chairman of the BMW Group Compliance Committee reported to the Audit Committee on the current com- pliance situation, which was deemed satisfactory. The Audit Committee took a particular interest in the ﬁ rst full set of compliance reports for the 2009 ﬁ nancial year, which included feedback from 132 BMW Group compliance offi cers, as 10 well as in the analysis of compliance enquiries and information received with respect to non-compliance and suspicious cases dealt with in the Group’s case management system. At the same meeting, the Audit Committee also considered the BMW Group Compliance Committee’s plans to introduce additional control procedures and devote more attention to procedures aimed at identifying corruption. The Head of Group Internal Audit reported to the Audit Committee on the main areas of emphasis of Group internal audit activities, the results of audits performed and forthcoming plans. In line with the authority given to it by the full Supervisory Board, the Audit Committee approved the decision taken by the Board of Management to increase BMW AG’s share capital pursuant to Article 4 section 5 of the Articles of Incor- poration (Authorised Capital 2009) by euro 498,050 and, in conjunction with the employee share scheme, to issue a corresponding number of new non-voting shares of preferred stock, each with a par value of euro 1, at favourable con- ditions to employees. The Personnel Committee convened four times during the ﬁ nancial year 2010, with the emphasis of activities on the preparation of personnel- and compensation-related decisions. In a small number of cases, the Personnel Committee also approved the assumption of external mandates by members of the Board of Management in non-Group supervisory or equivalent boards and approved contracts falling under its terms of reference. The Nomination Committee, which is charged with the task of ﬁ nding suitable candidates for the Supervisory Board for inclusion in the Supervisory Board’s proposals for election at the Annual General Meeting, met once during the ﬁ nancial year under report to consider proposals for candidates and make recommendations for the election of Super- visory Board members at the Annual General Meeting. The statutory Mediation Committee (§ 27 (3) of the Law on Worker Participation) was not required to convene during the ﬁ nancial year 2010. The relevant chairmen reported regularly and in depth at Supervisory Board meetings on the status of Presiding Board and committee work. A description of work procedures of the Supervisory Board is provided in the Corporate Governance Report. Composition and organisation of the Board of Management The Board of Management, with its team of seven persons, remained unchanged in 2010 in terms of composition and portfolio responsibilities. The mandates of three members of the Board of Management were extended by the Supervisory Board. Changes in the composition of the Supervisory Board, Presiding Board and committees The mandate of Prof. Dr. Jürgen Strube came to an end at the conclusion of the Annual General Meeting on 18 May 2010. In view of the agreed age limit for Supervisory Board members, he decided not to stand for re-election. Prof. Strube had been a shareholder representative on the Supervisory Board for nine years. During that time he served for two years as mem- ber of the Presiding Board, the Personnel Committee, the Nomination Committee and the Audit Committee, taking over the chair of the latter in 2008 and performing that role with great skill and vision during the challenging times of the economic and ﬁ nancial crisis. On behalf of the Supervisory Board I would like to take this opportunity once again to thank Prof. Strube very warmly for his many years of valued work as a member of the Supervisory Board and its com- mittees, in particular the Audit Committee, and for his steadfast, valuable contribution in the interests of the BMW Group. On 18 May 2010 Prof. Henning Kagermann was elected to the Supervisory Board at the Annual General Meeting. After the Annual General Meeting, the Supervisory Board appointed Dr. Karl-Ludwig Kley as additional Deputy Chair- man of the Supervisory Board. As an independent member, he was also appointed to the Personnel and Nomination committees and – in acknowledgement of his expertise in the ﬁ eld of ﬁ nancial reporting gained as management board member for ﬁ nances of another DAX company – as member and Chairman of the Audit Committee. Werner Neugebauer resigned his mandate as employee representative on the Supervisory Board on 31 December 2010 after more than ten years of service. On behalf of the Supervisory Board, I would like to thank Mr. Neugebauer most warmly for his dedicated and commendable work in the interests of the company. In place of Mr. Neugebauer, the District Court of Munich appointed Jürgen Wechsler, Regional Executive Offi cer of IG Metall Bavaria Region, on 10 February 2011 as employee representative on the Supervisory Board for the remaining term of offi ce. In his place, on 10 February 2011 the District Court of Munich appointed Jürgen Wechsler, Regional Executive Offi cer of IG Metall Bavaria Region, as employee representative on the Supervisory Board for the remaining term of offi ce. The Corporate Governance Report includes an overview of the composition of the Supervisory Board and its committees. 11 REPORT OF THE SUPERVISORY BOARD Examination of ﬁ nancial statements and the proﬁ t distribution proposal KPMG AG Wirtschaftsprüfungsgesell- schaft conducted a review of the abridged Interim Group Financial Statements and Interim Group Management Report for the six-month period ended 30 June 2010. The results of the review were reported orally to the Audit Committee. No issues were identiﬁ ed that might indicate that the abridged Interim Group Financial Statements and Interim Group Management Report had not been prepared, in all material respects, in accordance with the applicable provisions. The Company and Group Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the year ended 31 December 2010 and the combined Company and Group Management Report were audited by KPMG AG Wirtschafts- prüfungs gesellschaft and given an unqualiﬁ ed audit opinion on 15 February 2011. The Audit Committee examined these documents in detail at its meeting on 25 February 2011. At its meeting on 10 March 2011 and after hearing the committee chairman’s report on the meeting of the Audit Committee, the Supervisory Board deliberated on and examined the relevant drafts drawn up by the Board of Management. Representatives of the external auditors attended both meetings, reported on signiﬁ cant ﬁ ndings and answered any additional questions raised by the members of the Supervisory Board. The representatives of the external auditors con- ﬁ rmed that the risk management system established by the Board of Management is capable of identifying events or developments impairing the going-concern status of the Company and that no material weaknesses in the internal con- trol system and risk management system were found with regard to the ﬁ nancial reporting process. In the course of their audit work, the external auditors did not identify any facts inconsistent with the contents of the Declaration of Compliance issued jointly by the two boards. Documents relating to the Company and Group Financial Statements, the combined Management Report, the long- form audit reports of the external auditors and the Board of Management’s proﬁ t distribution proposal were made available to all members of the Supervisory Board in a timely manner. Based on our own examination, we concurred with the results of the external audit and approved the Company and Group Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the ﬁ nancial year 2010 prepared by the Board of Management. The Company Financial Statements are therefore adopted. We also reviewed the Board of Management’s proﬁ t distribution proposal at meetings of the Audit Committee and the full Supervisory Board. We con- sider the proposal appropriate and therefore concur with it. In accordance with the conclusion reached on the examina- tion by the Audit Committee and Supervisory Board, no objections were raised. Expression of thanks by the Supervisory Board 2010 was a very successful year for the BMW Group. The Group earnings performance in 2010 was achieved as a result of hard work on the part of the Board of Management and the workforce as a whole. Measures introduced since 2007 in conjunction with Strategy Number ONE – in particular the decisions to incorporate Effi cient Dynamics throughout the whole range of products and to implement measures aimed at im proving proﬁ tability – have become the cornerstone of the BMW Group’s successful performance. In recent years both the Board of Management and the workforce have proved their commitment to excellence and amply demon- strated their innovative skills. Their ability to adapt to new circumstances will be put even more to the test in future by changing expectations for individual mobility on the part of customers and other developments in that direction, and not least as a result of own aspirations as a premium manufacturer. In order to rise to the various challenges that face us, we are committed to working closely and constructively with employee representatives. On behalf of the Supervisory Board, I would like to express my gratitude to the members of the Board of Manage- ment and all employees worldwide, not only for their performance in 2010, but also for their contribution to the long- term increase in the value of the business and to the future viability of the BMW Group. Munich, 10 March 2011 On behalf of the Supervisory Board Joachim Milberg Chairman of the Supervisory Board 12 GROUP MANAGEMENT REPORT A Review of the Financial Year 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG Highly successful financial year 2010 for the BMW Group With the global economic and financial crisis now coming to an end, the global economy found itself well on the road to recovery in 2010. Against this background, inter- national car markets also stabilised to a large extent. Demand for premium vehicles grew strongly, particularly in Asia and to a slightly lesser degree in the USA. The BMW Group benefited from these developments and strengthened its role as a leading provider in the premium car segment with a range of new and attractive models. The situation on international capital markets also con- tinued to ease generally in 2010, and thus had a positive impact on our Financial Services business. With the economy recovering on a broad footing, we were able to record a sharp rise in the number of cars sold. Sales volume growth gathered even more momen- tum during the second half of the year. In total we sold 1,461,166 BMW, MINI and Rolls-Royce cars worldwide during the year under report (+13.6%), and thus achieved one of the best sales volume performances in the history of the Group. Our Motorcycles business performed well in 2010 de- spite continuing unfavourable market conditions. A total of 110,113 BMW and Husqvarna brand motorcycles was sold worldwide, 9.7% up on the previous year’s figure. The Financial Services segment also made an important contribution to the success of the BMW Group and 3,190,353 credit financing and lease contracts were in place with dealers and retail customers at 31 December 2010 (+ 3.4%). Record figures for both revenues and earnings The sharp rise in sales volumes enabled the BMW Group to achieve new records for Group revenues and earnings. Revenues in 2010 amounted to euro 60,477 million, 19.3% higher than in the previous year. Earnings performed similarly well: the profit before financial result (EBIT) rose steeply to euro 5,094 million (2009: euro 289 million) and the profit before tax amounted to euro 4,836 million (2009: euro 413 million). Revenues in the Automobiles segment increased by al- most a quarter to euro 54,137 million (+ 23.8%). Segment EBIT turned around from a negative euro 265 million in 2009 to a positive euro 4,355 million in 2010. The seg- ment recorded profit before tax of euro 3,887 million for the year (2009: loss before tax of euro 588 million). The good sales volume performance recorded by the Motorcycles segment was also reflected in a sharp rise in revenues in 2010. Compared to the previous year, seg- ment revenues increased by 22.0% to euro 1,304 million. Segment EBIT amounted to euro 71 million (2009: euro 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 Asia / Oceania North America Germany Other markets 06 07 08 09 10 Rest of Europe Asia / Oceania North America Germany Other markets Total 18,440 6,200 11,779 10,601 1,979 48,999 22,395 7,353 12,161 11,918 2,191 56,018 20,693 7,523 12,461 10,739 1,781 53,197 16,989 8,495 11,724 11,436 2,037 50,681 18,581 14,776 12,966 11,207 2,947 60,477 BMW Group Capital expenditure and operating cash flow in euro million 8,000 7,000 6,000 5,000 4,000 3,000 2,000 06 07 08 09 10 Capital expenditure Operating cash flow* 4,313 4,267 4,204 3,471 3,263 5,373 6,246 4,471 4,921 8,150 * 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 13 GROUP MANAGEMENT REPORT 19 million) and the profit before tax totalled euro 65 mil- lion (2009: euro 11 million). Financial Services business also benefited from the eco- nomic recovery, with segment revenues rising to euro 16,617 million (+ 5.2%). At euro 1,201 million, segment EBIT was well up on the previous year (2009: euro 355 mil- lion), while pre-tax segment profit rose to euro 1,214 mil- lion (2009: euro 365 million). The tax expense for 2010 totalled euro 1,602 million (2009: euro 203 million). The effective tax rate for the year de- creased by 16.1 percentage points to 33.1%. The Group reported a net profit for the year of euro 3,234 million, a significant improvement on the previous year (2009: euro 210 million). Dividend raised sharply Reflecting the very strong earnings performance, the Board of Management and Supervisory Board propose to the Annual General Meeting to use the unappropriated profit available for distribution in BMW AG totalling euro 852 million to pay a dividend of euro 1.30 for each share of common stock (2009: euro 0.30) and euro 1.32 for each share of preferred stock (2009: euro 0.32). The distribution rate for 2010 would then be 26.5%. Capital expenditure reduced Capital expenditure in 2010 amounted to euro 3,263 mil- lion, 6.0% below the previous year’s figure (2009: euro 3,471 million). The two main focal points were product investments for the start-up of new models such as the BMW X3, the 5 Series, the 6 Series Convertible and the MINI Countryman on the one hand and investments in infrastructure on the other. In 2010 we invested euro 2,312 million in property, plant and equipment and other intangible assets (2009: euro 2,384 million; – 3.0%). In addition, development expend- iture of euro 951 million was recognised as assets (2009: euro 1,087 million; –12.5%). The percentage of develop- ment costs capitalised decreased to 34.3% (2009: 44.4%). The capital expenditure ratio (capital expenditure as a percentage of Group revenues) fell to 5.4% in 2010 (2009: 6.8%). Due to development-related factors and despite our investment in innovative products and technologies, the ratio remained below 7% of Group revenues and thus within the target range set in conjunction with the Group’s Strategy Number ONE. 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 14 General Economic Environment Strong recovery after crisis The global economy recovered well in 2010 from the economic collapse caused by the international economic and financial crisis. The principal factors driving the up- swing out of the deepest recession since the Second World War were massive state-funded stimulus programmes and the highly expansionary monetary policies pursued by the world’s major central banks. The situation was also aided by the fact that most of the emerging markets in Asia and Latin America had suffered significantly lower drops in growth than the industrial- ised countries during the crisis and therefore propped up the global economy as it swiftly returned to its previous growth pattern. One of the overall effects of the crisis was therefore a further shift in economic power towards Asia. China’s economy grew very strongly again at a rate of 10.3% in 2010. Against this background, many asset prices continued to rise and there is still a danger of overheating, particularly on certain regional property markets. In the USA, the economy recovered from the contraction experienced in 2009, although by American standards the upswing was relatively modest at 2.9%. One reason for this was low consumer spending in the USA, primarily at- tributable to high unemployment, the faltering property market and high levels of private debt (albeit falling some- what). Markets in the euro zone developed highly diversely in 2010 and the average growth rate was 1.7%. With the ex- ception of Germany, most major countries were unable to achieve more than moderate growth. The southern European countries and Ireland fared poorly after a loss of confidence in their state bonds and the resulting politi- cal turmoil. While Spain and Ireland stagnated, Greece was forced to go through yet another year of recession. Germany was the only country that really took off, record- ing strong economic growth of 3.6%. The upturn was largely attributable to improved export figures, but also assisted by increasingly robust domestic demand driven by investment expenditure. Although unemployment dropped to it lowest level for almost 20 years, consumer spending remained moderate. The British economy climbed somewhat more slowly out of recession, with the property market stabilising at a low level. The sharp rise in unemployment, high levels of private debt and the resulting weak domestic demand only allowed a moderate growth rate of 1.7%. Japan registered very robust growth in 2010, equalling that of Germany. The economy profited enormously from the global economic upswing on the one hand (despite the strong yen), and a return to greater consumer spending on the other, enabling Japanese gross national product (GNP) to rise by 4.1%. Asian and Latin American emerging markets, which had stood up well during the crisis, were mostly able to match or even exceed their long-term growth rates in 2010. India and Brazil, for example, recorded growth rates of 8.7% and 7.6% respectively. By contrast, most Eastern European countries grew at significantly lower rates than in the years prior to the financial crisis. This was particularly true for Russia with a growth rate of 4.0%. US dollar and yen stronger, British pound remains weak The value of the US dollar against the euro increased significantly over the course of the year, with wide fluctu- ations along the way. After standing at US dollar 1.44 to Exchange rates compared to the Euro (Index: 30 December 2005 = 100) 140 130 120 110 100 90 80 Source: Reuters 06 07 08 09 10 British Pound US Dollar Chinese Renminbi Japanese Yen 15 GROUP MANAGEMENT REPORT Oil price trend Price per barrel of Brent Crude 160 140 120 100 80 60 40 20 Source: Reuters Price in US Dollar Price in Euro 06 07 08 09 10 the euro at the beginning of the year, partly as a result of the zero interest policy pursued by the US Federal Reserve Bank, the US currency appreciated at one stage to US dol- lar 1.19 during the confidence crisis in the euro zone. At the end of 2010 the exchange rate stood at US dollar 1.34, thus making the US dollar 7.4% stronger than one year earlier. Due to the ongoing weakness of the British economy, the British pound remained weak against the euro through- out 2010, hovering at around British pound 0.85 to the euro. The Japanese yen gained further ground against the euro during 2010, ending the year at yen 109 to the euro. Massive capital inflows meant that the currencies of practically all emerging market countries gained in value in 2010 after suffering losses during the financial crisis, in some cases quite significant ones. on the previous highest levels recorded in summer 2008. On the one hand the development reflects the ongoing global economic recovery, with demand from China re- maining at a very high level. However, it also results from surplus liquidity and the worldwide search for invest- Steel price trend (Index: January 2006 = 100) 140 130 120 110 100 90 80 70 60 Raw materials prices continue to rise Raw material prices continued to rise over the course of 2010. Prices of non-energy raw materials were even up 06 07 08 09 10 Source: Working Group for the Iron and Metal Processing Industry Precious metals price trend (Index: 30 December 2005 = 100) 400 350 300 250 200 150 100 Source: Reuters Palladium Gold Platinum 06 07 08 09 10 16 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG ment opportunities. Prices of both non-ferrous and pre- cious metals also rose, in some cases substantially. The price of oil increased from US dollar 80 per barrel at the start of the year to US dollar 92 on the last day of trading. Car markets in 2010 Thanks to the worldwide recovery, the market for pas- senger cars and light commercial vehicles again grew sharply in 2010, rising from 63.8 million to 69.6 million units (+ 9.2%). China increasingly confirmed its position the as largest car market, the designation it had gained in 2009. The Chinese market as a whole leapt from 13.6 million to 18.1 million units (+ 32.4%), while the USA, formerly the world’s largest car market, grew by a robust but still significantly lower rate of 11.1% with sales up from 10.4 million units to 11.6 million units. The differing expiry times of the various stimulus pro- grammes previously in place across the European Union created a very diverse picture on national markets. Overall, demand fell throughout the region by a further 5.5% in 2010 to 13.4 million vehicles, mainly due to the slump in passenger car sales in Germany following the expiry of the scrappage bonus scheme at the end of 2009. Despite positive economic developments, the number of newly registered passenger vehicles fell by about one quarter to 2.9 million units. The French and Italian car markets also contracted for the same reason. Sales of passenger cars in France fell by 2.2% to 2.3 million units and in Italy by 9.2% to 2.0 million units. Most of the other countries managed to record slight growth. New vehicle sales in the UK, for instance, rose by 1.8% to 2.0 million units and in Spain by 3.1% to almost 1 million units. On the other hand, Eastern European EU countries recorded a further decline, with vehicle sales down by 3.2% to 0.8 million units. The Japanese car market benefited from the scrappage scheme that remained in place into 2010, with vehicle sales up by 7.5% to 5.0 million. Emerging markets performed very positively in 2010, albeit at different rates. In Russia, the market grew by one- third to reach 1.8 million vehicles, partially offsetting the slump experienced in 2009. The Indian market also registered a similar high growth rate (2.8 million units; +35.7%). By contrast, the car market in Brazil grew by only 8% to 3.2 million units. Motorcycle markets in 2010 The world’s motorcycle markets in the 500 cc plus class relevant for the BMW Group were 11.7% down on the previous year. In Europe most markets registered lower figures than those of the previous year (– 10.3%). The German market for 500 cc plus motorcycles fell by 7.2%. Shortfalls against the previous year were also recorded in Italy (–14.8%), France (–7.1%) and the UK (–17.8%). Spain was the only market to show an upward trend, re- bounding with a 3.0% increase in response to the ex- tremely steep drop recorded the previous year. The mar- kets for 500 cc plus motorcycles also failed to recover in the USA (– 14.2%) and Japan (– 6.3%) in 2010. There are no reliable figures available for the engine-capacity seg- ments relevant for the Husqvarna brand, as most of these motorcycles are used for sporting and off-road activities and therefore not included in registration statistics. Financial Services market in 2010 The financial services sector also benefited from the relatively speedy end to the worldwide recession. Even so, the effects of the crisis could still be felt in 2010. Substantial write-downs by banks and more rigorous equity and liquidity requirements due to Basel III regula- tions dominated the financial system. Greece and Ireland were obliged to accept financial support from the EU and the International Monetary Fund. Although the money and capital markets reacted nervously to these develop- ments, risk spreads only widened for a short period of time. Overall, risk spreads narrowed slightly in 2010, with- out returning to the levels prevailing before the crisis. Reference interest rates in most industrial countries re- mained at historically low levels during 2010. The Bank of Japan lowered its overnight interest rate in October by a further 20 basis points, thus ranging from 0% to 0.10%. China, on the other hand, raised its reference rate during the year by 25 basis points, to 5.81% and has implemented further measures to subdue inflationary pressures. Similarly, the central banks of Canada and Australia raised their reference rates in autumn by 25 ba- sis points to 1.00% and 4.75% respectively. In contrast, the prospect of continuing low reference rates in the euro region caused interest rates for contracts with medium- term maturities to fall slightly. 17 GROUP MANAGEMENT REPORT Used car markets generally continued to stabilise in 2010, despite remaining below pre-crisis levels in North America and the UK. In Continental Europe, the eco- nomic recovery and lower inventory levels resulted in a sharp increase in used car prices during the second half of the year. Prices nevertheless remained below pre-crisis levels. 18 Review of Operations 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG Sharp rise in car sales volume The worldwide economic recovery, our strong competi- tive position in Europe and North America and dynamic growth in Asia all contributed to the fact that we were able to record-double-digit growth in car sales volume in 2010; thanks to our attractive model range we sold a total of 1,461,166 BMW, MINI and Rolls-Royce brand cars (+ 13.6%). Sales of the BMW brand grew by 14.6% (1,224,280 units). MINI brand sales totalled 234,175 units worldwide in 2010 (+ 8.1%) while Rolls-Royce grew particularly strongly with sales figures more than doubling to 2,711 units (2009: 1,002 units). Higher sales volumes in most markets While sales growth in some of our markets was particu- larly dynamic in 2010, especially in Latin America and Asia, sales volume in Europe developed inconsistently, although up on the previous year. In total, we sold 791,220 BMW, MINI and Rolls-Royce brand cars (+ 3.9%) in this region. In Germany, currently the largest single market for the BMW Group, we sold a total of 267,160 cars in 2010, similar to the previous year’s level. Sales in Great Britain rose considerably (+12.9%) to 154,750 units. The previous year’s sales figures were also exceeded in France (64,854 units; + 2.4%) and Spain (41,289 units; + 1.4%). The only country in which sales were down on the previous year was Italy (69,161 units; – 8.6%) where the overall market contracted sharply. The market for premium cars also recovered in North America in 2010, where we sold a total of 298,316 cars BMW Group Sales volume of vehicles by region and market in 1,000 units BMW Group – key automobile markets 2010 as a percentage of sales volume Other Germany USA Japan France Italy United Kingdom China Germany USA China United Kingdom 18.3 18.2 12.5 10.6 Italy France Japan Other 4.7 4.4 3.0 28.3 during the period under report, 10.1% up on the previous year. The number of cars handed over to customers in the USA increased to 266,580 units (+ 10.1%). The sales volume recorded in Asia increased dynamically in 2010 to 286,297 units, outstripping the previous year’s figure by 56.3%. The Chinese markets (China, Hong Kong, Taiwan) made a major contribution to this notable per- formance. The rate of growth on these markets surged by 85.3%, with 183,328 units sold. In Japan, sales were up by 6.1% to 43,644 units. 1,600 1,400 1,200 1,000 800 600 400 200 Rest of Europe North America Asia Germany United Kingdom Other markets Rest of Europe North America Asia Germany United Kingdom Other markets 06 375.0 337.4 142.2 285.3 154.1 80.0 07 443.6 364.0 159.5 280.9 173.8 78.9 08 09 10 432.2 331.8 165.7 280.9 151.5 73.8 357.3 271.0 183.1 267.5 137.1 70.3 369.3 298.3 286.3 267.2 154.8 85.3 Total 1,374.0 1,500.7 1,435.9 1,286.3 1,461.2 19 GROUP MANAGEMENT REPORT BMW remains leading premium brand Now approaching the end of its life cycle, sales of the BMW 1 Series were 9.7% down on the previous year’s level with a total of 196,004 units sold in 2010. The BMW 3 Series, with a sales volume of 399,009 units, re- mained at a similar level to the previous year (+ 0.5%). Following the successful launch of the BMW 5 Series Sedan in spring, the new BMW 5 Series Touring has also been available since autumn 2010. The rejuvenation of the 5 Series models resulted in a 35.5% sale volume in- crease, with 238,454 units sold. This performance enabled the BMW 5 Series to take over worldwide market leader- ship in its segment in the fourth quarter 2010. In the final year of its life cycle, sales of the BMW 6 Series models were, as expected, down on the previous year: 5,848 units of the BMW 6 Series were handed over to customers (– 32.4%) during the period. In January 2011 the new BMW 6 Series Convertible celebrated its world debut at the Detroit Motor Show. 65,814 units of the BMW 7 Se- ries were sold in 2010, a 24.9% rise on the previous year’s figure. Sales volume of BMW vehicles by model variant in units 2010 2009 Change Proportion of in % BMW sales volume 2010 in % BMW 1 Series Three-door Five-door Coupé Convertible BMW 3 Series Sedan Touring Coupé Convertible BMW 5 Series Sedan Touring Gran Turismo BMW 6 Series Coupé Convertible BMW 7 Series BMW X1 BMW X3 BMW X5 BMW X6 BMW Z4 31,980 113,030 26,191 24,803 196,004 44,034 120,323 24,081 28,506 216,944 242,831 219,850 74,008 46,358 35,812 84,601 54,852 37,800 399,009 397,103 179,680 32,288 26,486 238,454 3,050 2,798 5,848 135,944 36,987 3,052 175,983 4,501 4,147 8,648 65,814 52,680 99,990 8,499 – 27.4 – 6.1 8.8 –13.0 – 9.7 10.5 –12.5 –15.5 – 5.3 0.5 32.2 –12.7 – 35.5 – 32.2 – 32.5 – 32.4 24.9 – 46,004 55,634 –17.3 102,178 88,851 46,404 41,667 24,575 22,761 15.0 11.4 8.0 14.6 16.0 32.6 19.5 0.5 5.4 8.2 3.7 8.3 3.8 2.0 100.0 BMW total 1,224,280 1,068,770 20 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG The BMW X1 has performed extremely well since its market launch, with 99,990 units sold worldwide during the year under report, bringing the sales volume since its market launch in October 2009 to over 100,000 units. Due to the model change, sales of the BMW X3 for the year dropped by 17.3% to 46,004 units. The new BMW X3 has been available worldwide since November. It has received an enthusiastic response from customers and the media alike and will provide a strong impetus for sales. The BMW X5 also remained market leader in its segment during the year under report, with sales up by 15.0% to 102,178 units. The sales volume performance of the BMW X6 was similarly impressive and 46,404 units (+ 11.4%) were handed over to customers. Altogether, 24,575 units of the BMW Z4 were sold in 2010, an 8.0% increase on the previous year. Small increase in proportion of diesel-powered BMW brand cars The proportion of diesel-powered vehicles increased further in 2010, accounting for 44.0% of BMW brand cars sold worldwide. The proportion is particularly high in Europe, exceeding 90% in a number of countries, includ- ing Spain (90.9%), Belgium and Luxembourg (91.4%), Italy (92.9%), France (95.0%) and Portugal (97.1%). In Sales volume of MINI vehicles by model variant in units Sales volume of BMW diesel automobiles in 1,000 units and as a percentage of total volume 550 500 450 400 350 300 06 07 08 09 10 units 472.7 525.9 511.2 464.2 538.2 as a percentage of total volume 39.9 41.2 42.5 43.4 44.0 Germany, the proportion of BMW brand cars powered by diesel engines increased by 6.1 percentage points to 68.6% in 2010. MINI sales volume well up on previous year MINI sales in 2010 were positively influenced by revi- sions to existing models and the market launch of the Countryman, which was also reflected in increased sales volumes. We sold 234,175 MINI brand cars worldwide 2010 2009 Change Proportion of in % MINI sales volume 2010 in % MINI One Cooper Cooper S MINI Convertible One Cooper Cooper S MINI Clubman One Cooper Cooper S MINI Countryman One Cooper Cooper S MINI total 44,268 76,520 35,053 41,180 75,213 33,650 155,841 150,043 4,525 16,613 11,542 32,680 2,973 19,551 8,793 31,317 1,733 7,770 4,834 14,337 186 16,565 11,552 28,303 2,291 24,265 11,636 38,192 – – – – 234,175 216,538 7.5 1.7 4.2 3.9 – 0.3 – 0.1 15.5 29.8 –19.4 – 24.4 –18.0 – – – – 8.1 66.5 14.0 13.4 6.1 100.0 21 GROUP MANAGEMENT REPORT MINI brand cars in 2010 – analysis by model variant as a percentage of total MINI brand sales volume MINI One (including One D) MINI Cooper S MINI Cooper (including Cooper D) MINI Cooper MINI Cooper S (including Cooper D) 51.4 MINI One (including One D) 25.7 22.9 (+ 8.1%), a new sales record for a 12-month period. The MINI brand again generated an extremely high-value product mix in 2010, with 51.4% of customers opting for the MINI Cooper, 25.7% for the MINI Cooper S and 22.9% for the MINI One. The new Countryman has per- formed very successfully so far, with 14,337 units sold during the two-month period since its market launch. Rolls-Royce records strong growth Rolls-Royce also enjoyed a highly successful year in the luxury car segment. We handed over 2,711 Rolls-Royce cars worldwide, easily doubling the previous year’s sales volume figure (2009: 1,002 units). One of the strongest contributing factors behind this outstanding performance was the level of business transacted on Asian markets. MINI and Rolls-Royce brand cars left our production network (+ 17.7%) during the year. The number of BMW brand cars produced rose by 18.5% to 1,236,989 units. MINI production rose by 12.8% to 241,043 units. Rolls-Royce Motor Cars increased production three- fold to 3,221 units (2009: 918 units). Production in full swing The production network again displayed great flexibility in 2010. The process of internationalisation proceeded with plant expansions both in China and the USA. The Group’s production sites proved their strength yet again with 14 production start-ups successfully implemented at a consistently high standard worldwide. At the same time, the shift from below-capacity utilisation in the cri- sis year 2009 back to full capacity in 2010 was mastered seamlessly. Most manufacturing sites registered pro- duction volume records in the fourth quarter 2010. In 2009 and 2010 we invested some euro 1.5 billion in the German plants alone. The BMW plant in Munich achieved the second-highest production output in its almost 90-year history, manu- facturing a total of 205,000 units of the BMW 3 Series Sedan and the 3 Series Touring in the course of 2010. Pro- duction ran at full swing, particularly during the fourth quarter 2010, and the Munich plant set a new record with some 56,000 units manufactured over the three-month period. Simultaneously, the BMW Group has also in- vested heavily in various production facilities at the Mu- nich plant, particularly in pressing equipment and chas- sis construction, to pave the way for the introduction of future model generations. Production of the new BMW four-cylinder combustion engine also commenced at the Munich engine plant at the beginning of December 2010. Sharp increase in automobile production Automobile production was raised sharply in 2010 in response to greater demand. In total, 1,481,253 BMW, At the BMW Dingolfing plant, production of the new BMW 5 Series Sedan started successfully in January 2010, Sales volume of Rolls-Royce vehicles by model variant in units Rolls-Royce Phantom (including Phantom Extended Wheelbase) Coupé (including Drophead Coupé) Ghost Rolls-Royce total 2010 2009 351 186 2,174 2,711 376 459 167 1,002 Change in % – 6.6 – 59.5 – – 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 22 Vehicle production of the BMW Group by plant in 2010 in 1,000 units Assembly plants Graz2 Shenyang1 Goodwood Rosslyn Dingolfing Spartanburg Leipzig Regensburg Munich Oxford Dingolfing Regensburg Oxford Munich Leipzig Spartanburg 1 Joint venture 2 Contract production 287.4 244.0 216.3 205.7 186.8 159.3 Rosslyn Goodwood Shenyang1 Graz (Magna Steyr) 2 Assembly plants 49.0 3.2 55.6 54.9 19.1 followed by the new BMW 5 Series Touring in June. These two models together account for some two-thirds of the Dingolfing plant’s output. In response to increased de- mand, we raised the daily production volume from Octo- ber onwards from 1,200 to 1,400 units, a new record for a BMW Group plant. In February 2010, the foundation stone was laid at the Dingolfing component plant for a factory building destined to house the production of axle drives. This new facility will come on line in early summer 2011. The project has been planned with a strong em- phasis on sustainability. For example, energy consump- tion in the new building will be 25% lower than the level prescribed by the relevant energy-saving regulations. Energy requirements for welding processes will also be reduced by 20%. Moreover, the design of the new axle drive assembly will comply in all respects with the prin- ciples of the BMW Group’s “Today for Tomorrow” pro- gramme, which takes appropriate account of the demo- graphic aging of the population. At the beginning of December, the 50,000th BMW Z4 since production of this vehicle was transferred to Ger- many came off the production line at the BMW plant in Regensburg. The building expansion and equipment modernisation measures that began in 2009 were also continued, involving expenditure of approximately euro 300 million. The expansion will be completed in the course of 2011 and includes the construction and com- missioning of new and expanded assembly finishing facilities, new robot equipment for chassis construction as well as process changes and modernisation in the paint shop. Thus the foundation has been laid for re- fitting production facilities to accommodate the manu- facture of future models. Mid-July saw the official start of production of SGL Carbon Automotive Carbon Fibers GmbH, a joint ven- ture between the BMW Group and the SGL Group at the BMW plant in Wackersdorf. Composite layers used in carbon-fibre reinforced plastics (CFRP) produc- tion will be produced there for the planned Megacity Vehicle. Due to very high demand for the BMW X1 worldwide, the BMW plant in Leipzig raised the production volume for this model by more than 26% to over 475 units per day, bringing total production up to more than 720 units per day. As a result of the strong order-book situation, we gave approximately 100 temporary staff at the Leipzig plant permanent employment contracts with effect from the beginning of 2011. Under the motto “We are building the future”, on 5 November 2010 the go-ahead was given to expand the Leipzig plant as the production location for the future Megacity Vehicle. In the period up to 2013, the BMW Group will invest some euro 400 million on new buildings and equipment in Leipzig for the large- scale series manufacture of this electric vehicle with a CFRP-constructed passenger compartment. We are currently expanding the existing CFRP production facilities at the BMW plant in Landshut. On an area covering approximately 7,000 square metres, up to 100 employees will process carbon-fibre layers to form CFRP components for the Megacity Vehicle in the future. The BMW Group can boast more than ten years of CRFP- related process know-how and materials expertise gained through experience at the Landshut site. The material is presently being used to construct components for BMW M models. In 2010 the light-metal foundry at the Landshut plant won the prestigious “Automotive Lean Production Award” in the category “Overall System Excellence”. The prize is one of the most important in the automobile industry. The “Overall System Excellence” award pays tribute to the focus of production systems on value created by the production workforce across all areas and levels. Since the beginning of 2010, plastic components have been cleaned in the exterior production at the BMW plant in Landshut using the new and innovative resource- saving “snow cleaning” system. The BMW Group is one of the first companies in the world to employ this inno- vative system for large-surface parts such as bumpers or side panels. Under this system, the plastic components are no longer cleaned in a conventional washing plant More than 385,000 engines were manufactured for BMW and MINI at the Hams Hall engine plant in Eng- land during the year under report, a new record. The Rolls-Royce plant in Goodwood, England, also set a new production record with 3,221 Rolls-Royce cars manufactured during the year. Strong demand for the Rolls-Royce Ghost introduced in December 2009 con- tributed to this performance. In order to meet demand in the future we have expanded the leather workshop at the Goodwood plant. 23 GROUP MANAGEMENT REPORT before the primer is applied, but with the aid of CO2 snow. The Landshut plant has been able to cut its an- nual energy consumption substantially and reduce the amount of water used by approximately 4,000 cubic metres per annum. Activities at our plant in Spartanburg, USA in 2010 were dominated in particular by the plant expansion and pro- duction start of the new BMW X3. Capacities were signifi- cantly increased, enabling the production of up to 1,000 vehicles per day or up to 240,000 vehicles per year. A new coating system was also introduced in Spartanburg at the same time. The new technology eliminates three stages from the coating process, saving energy and water and thereby reducing emissions. Production of the BMW 3 Series xDrive started in 2010 at the Rosslyn plant in South Africa. The plant also began supplying painted car bodies to our assembly plant in Chennai, India, in November 2010. Production of the extended wheelbase version of the new BMW 5 Series Sedan, developed especially for the Chinese market, commenced at the Shenyang plant in China in autumn 2010. Construction of the new plant in Shenyang, where the BMW X1 will also be manufac- tured in future, started in June. Once completed, pro- duction capacity in China will rise to well over 150,000 units per annum. A new production record was set at the BMW Group’s largest engine plant in Steyr, Austria, in 2010, with more than one million units produced for the first time in a single year. The figure was significantly higher than the previous annual record of 817,000 units. Series produc- tion of the new 4-cylinder diesel engine for the MINI also started. The Steyr plant again set standards in the automobile sector in 2010, winning two top places in the international “Engine of the Year Award”. The BMW 6-cylinder petrol engine with TwinPower Turbo and the BMW 4-cylinder diesel engine with TwinPower Turbo were both voted winners in their categories by the jury. In June 2010, the Steyr plant also won the award “Fabrik2010” as the most efficient production company in Austria. More than 216,000 MINIs were produced at the MINI plant in Oxford in 2010 (all models except the MINI Countryman). Almost 25,000 MINI Countryman vehi- cles were manufactured by Magna Steyr in Graz during the year under report. Preparations for series produc- tion of the MINI Coupé and MINI Roadster also began in Oxford in 2010. Production is due to start in 2011. In the Initial Quality Survey (IQS) organised by J. D. Power, more than 1,000 US customers voted the MINI brand as best developed brand. 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 24 Motorcycle sales volume increased significantly The number of BMW and Husqvarna motorcycles sold worldwide in 2010 rose by 9.7% to a total of 110,113 units, bucking the general market trend. The BMW brand ac- counted for 98,047 units (+12.3%) and the Husqvarna brand for 12,066 units (– 7.6%). With most international motor cycle markets actually contracting, we were able to increase market share and are now market leaders in the 500 cc plus segment in countries such as Germany, Italy, Spain, the Netherlands, Belgium, Austria and South Africa. Sales increased in most markets Sales of motorcycles in Europe rose by 9.6% to 74,334 units in 2010. In Germany, we achieved a sharp sales volume increase of 10.0% (18,260 units). The number of motor- cycles handed over to customers in Italy went up by 3.6% to 16,959 units. Increases were also registered in 2010 in Spain (7,215 units; + 4.8%), France (9,744 units; +18.0%) and Great Britain (6,801 units; +11.1%). In contrast, mo- torcycles sales volume in the USA fell by 3.6% to 11,154 units. 3,392 motorcycles were sold to customers in Japan (+ 5.5%). In December we expanded our sales network to include India. Expansion of the model range continued In terms of the BMW brand, the R 1200 GS and the R 1200 GS Adventure were technically upgraded and the revised R 1200 RT was brought onto the markets in 2010. At Husqvarna, we launched a total of eleven new models and model variants as well as two model revisions. To mark the 30th anniversary, limited editions of the R 1200 GS, R 1200 GS Adventure, F 800 GS and F 650 GS Enduro models featuring special paintwork and high- quality equipment were launched during the early part of the summer. At the beginning of October we presented the new K 1600 GT and K 1600 GTL models to the public. BMW Group Sales volume of motorcycles in 1,000 units 140 120 100 80 60 40 20 06 07 08 09 10 BMW 100.1 102.5 101.7 Husqvarna 13.5 87.3 13.1 98.0 12.1 BMW Group – key motorcycle markets 2010 as a percentage of sales volume Germany Italy USA Other United Kingdom Spain France Germany Italy USA France 16.6 15.4 10.1 8.8 Spain United Kingdom Other 6.6 6.2 36.3 This is the first time in BMW’s history that we have engi- neered motorcycles fitted with six-cylinder in-line engines. At the beginning of November we also presented the new G 650 GS, R 1200 R and R 1200 R Classic models as well as the BMW Concept C. The G 650 GS is an ideal entry-level motorcycle. Both the sporty, modern roadster R 1200 R and the timeless motorcycle design of the R 1200 R Classic have one thing in common – vastly im- proved riding dynamics. The BMW Concept C is the outcome of a near-production study aimed at the large- sized scooters segment. Motorcycle production increased Motorcycle production was brought into line with signifi- cantly higher demand and a total of 112,271 BMW and Husqvarna brand motorcycles was produced. 99,236 BMW brand motorcycles came off the production lines during 2010 (+ 20.1%), including 2,160 construction kits for the assembly plant in Manaus, Brazil, which started operations at the end of 2009. The number of Husqvarna brand motorcycles produced was increased by 22.8% to 13,035 units. In November the BMW Group won the European Supply Chain Excellence Award 2010 for the best value-added chain. This award pays tribute to innovative solutions in supply chain management which contribute to sub- stantially increased competitiveness and which are groundbreaking for other entities. 25 GROUP MANAGEMENT REPORT Successful financial year for Financial Services segment With its range of attractive products, the Financial Services segment also benefited from the worldwide economic recovery and grew profitably in 2010. The business vol- ume in balance sheet terms stood at euro 66,233 million at the end of the reporting period, 8.2% higher than one year earlier. 3,190,353 credit financing and lease con- tracts were in place with dealers and retail customers at 31 December 2010 (+ 3.4%). The Financial Services segment is represented in more than 50 countries, serves as a strong, reliable partner for the dealer organisation and offers customers a coordi- nated range of products. The segment comprises the fol- lowing six lines of business: lease and credit financing of BMW Group vehicles for retail customers, multi-brand financing, dealer financing, lease and credit financing for fleet customers, insurance and banking. Credit financing and the lease of BMW, MINI and Rolls- Royce brand cars and motorcycles to retail customers is the largest line of business. The multi-brand financing line of business involves the financing of other brands alongside BMW Group brands. The Financial Services segment also supports the dealer organisation by provid- ing financing for dealership vehicle inventories, real estate and equipment. Fleet business involves managing vehicle fleets, comprising BMW, MINI and Rolls-Royce brand cars as well as other brands, for major customers. Operating under the brand name “Alphabet”, vehicle financing and a range of other services are also provided to customers, including full fleet management. As a sup- plement to lease and financing contracts, the segment also offers its customers selected insurance and banking services. New retail customer business performing strongly Finance and lease business with retail customers was further expanded in 2010. The number of new contracts signed rose sharply (+6.6%) to 1,083,154 units. Lease busi- ness grew by 3.2% and credit financing increased by 8.1% compared to the previous year. Leasing accounted for 28.8% of new business, credit financing for 71.2%. The proportion of new BMW Group vehicles leased or financed by the Financial Services segment was 48.2%, marginally lower (0.8 percentage points) than one year earlier. In the used car financing line of business, a total of 317,742 contracts were signed during the year under report. The number of new contracts for BMW and MINI was therefore 1.5% up on the previous year. The total volume of all new credit and leasing contracts concluded with retail customers amounted to euro 28,045 million, an increase of 13.5%. The growth in new retail customer business also had an impact on the overall portfolio. In total, 2,935,541 con- tracts were in place with retail customers at 31 December 2010 (+ 3.3%). As in the past, this growth was achieved across all regions. For example, the contract portfolio for the European markets increased by 2.2% while that for the Asia /Oceania /Africa region grew by 3.0%. The sharpest increase was again recorded in the Americas re- gion (+ 5.2%). Top places won for quality of service The BMW Group’s Financial Services segment again won numerous international awards in 2010. In the annual survey on quality of service (Dealer Financing Satisfac- tion StudySM) carried out by the well-known market re- search institute, J. D. Power and Associates, our financial services operations in the USA came first for the seventh time in succession in the category “Retail Customer Leas- ing”. First places were also won in the categories “Dealer Financing” as well as “Retail Customer Credit Business – Multi-brand Financing”. In Canada, the Financial Services segment took first place amongst manufacturer-related Contract portfolio of Financial Services segment in 1,000 units BMW Group new vehicles financed by Financial Services segment 3,200 3,000 2,800 2,600 2,400 2,200 2,000 in % 50 40 30 20 10 06 07 08 09 10 2,271 2,630 3,032 3,086 3,190 Financing Leasing 17.2 25.2 17.4 27.2 20.9 27.6 24.7 24.3 24.1 24.1 06 07 08 09 10 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 26 Contract portfolio retail customer financing of BMW Group Financial Services 2010 as a percentage by region Asia / Oceania / Africa Americas Europe Europe Americas 52.8 34.5 Asia / Oceania / Africa 12.7 financial service providers in the category “Retail Cus- tomer Credit Business”. These awards are the visible result of our rigorous focus on providing our customers with the best possible service. Expansion of BMW Bank continued in line with plan By expanding the BMW Bank into a credit institution with operations across Europe, the Financial Services seg- ment is increasing the flexibility with which it can manage liquidity. In conjunction with the BMW Group EU pass- port project, the previously legally separate segment en- tity in Spain was transformed into a branch of the BMW Bank in 2009. During the year under report, integration of the Group’s Italian financial services entity was suc- cessfully completed with the creation of a banking group. The BMW Bank had previously taken the EU passport route to set up a branch in Portugal. Further entities will be integrated in the BMW Bank in coming years. Operations started in growth markets Regional expansion in the BMW Group’s principal growth markets was continued during the year under report. In September the Chinese Banking Regulatory Commis- sion granted a licence to the BMW Group, entitling a joint venture to commence business operations in China. Operational activities commenced in India in October. Cooperation arrangements were also put in place with lo- cal financial services providers in selected markets. managed at the end of the reporting period, 7.7% fewer than one year earlier. The number of financing contracts was slightly up on the previous year. The number of service contracts without a financing element was strate- gically reduced. By contrast, targeted measures were undertaken to grow multi-brand financing business which consequently surged by 45.4% with a total of 122,840 new contracts. Europe accounted for the largest proportion of these ad- ditions. This line of business was also expanded to in- clude the Russian Federation in 2010. Following this move, credit financing, leasing and other products are now mar- keted to retail customers via dealerships in 22 markets under the brand name “Alphera”. Increase in dealer financing The Financial Services segment is a strong and reliable partner, providing a well-designed range of financing products to the dealer organisation. Dealer financing ac- counted for a business volume of euro 10,154 million at 31 December 2010, 7.7% up on the previous year. Deposit business expanded One aspect of the expansion of the BMW Bank is that increased deposit volumes will serve as an additional re- financing source for the Financial Services segment. The volume of deposits worldwide rose by 7.6% during the year under report to stand at euro 10,688 million. The number of securities custodian accounts under manage- ment decreased to 24,471 at the end of the reporting period (– 9.4%). Credit card business was slightly down by 0.7% on the previous year to 293,266 contracts. Sharp rise in insurance business As a supplement to our credit financing and leasing products, we also offer a range of car, residual liability, warranty and other vehicle-related insurance policies to customers in more than 30 markets. Demand for insur- ance products remains high, reflected in an 18.1% rise in the number of new contracts signed (689,928 contracts). At 31 December 2010 a total of 1,571,708 insurance con- tracts were in place (+ 12.8%). This growth was partially a result of the new strategic direction pursued for this line of business in the USA. Further growth opportunities are being opened up, particularly in the emerging mar- kets of Asia and in the form of cooperation arrangements with Allianz SE. Fleet business volumes slightly down, dynamic growth for multi-brand financing The BMW Group operates its international multi-brand fleet business under the brand name “Alphabet”. In total, a portfolio of 301,284 fleet vehicle contracts were being Risk situation significantly eased The improved economic situation on the markets also helped to ease the risk situation significantly. Risk-mitigat- ing measures taken in the area of receivables manage- 27 GROUP MANAGEMENT REPORT Development of credit loss ratio in % 1.0 0.9 0.8 0.7 0.6 0.5 0.4 06 07 08 09 10 0.41 0.46 0.59 0.84 0.67 ment, a more restrictive policy applied to the purchase of receivables and higher collateral levels resulted in the loss ratio incurred on the segment’s total credit portfolio being reduced to 0.67%, an improvement of 17 basis points against the previous year (2009: 0.84%). The interest rate risk is managed using a risk-return ap- proach and measured using Value at Risk (VaR) tech- niques. At a 99% confidence level for a holding period of ten days, the aggregate VaR for all financial services entities amounted to euro 58.5 million. Size of workforce slightly reduced The size of the BMW Group workforce decreased slightly in 2010 by a net total of 777 persons (– 0.8%) to 95,453 employees at 31 December 2010. The primary reasons were natural fluctuation, pre-retirement part-time work- ing arrangements and voluntary employment contract termination agreements. As part of the process of build- ing up and retaining expertise within the Group, ensuring access to new talent and strengthening long-term com- petitiveness, the BMW Group recruited more than 1,300 employees worldwide in 2010 as well as taking on more than 1,100 new apprentices. Temporary employment contracts as basis for flexibility Against a background of rapidly changing business con- ditions, the BMW Group employs a range of measures to ensure flexibility, including cross-site deployment of staff, time accounts, flexible working time modules and temporary employment contracts. The employment of temporary staff is a particularly effective way of raising flexibility and handling short- and medium-term work- load fluctuations. The BMW Group has made a voluntary commitment to base the remuneration of temporary workers on the more generous tariff agreements that apply to the BMW Group rather than on those otherwise relevant for the temporary employment sector. Number of apprenticeships remains at high level The BMW Group offers a wide range of vocational training which provides the basis for covering future staffing requirements at our locations, both in Germany and abroad. At the beginning of the new training year, a total of 1,124 young people, 1,080 of them in Germany, com- menced their working life in apprenticeships with the BMW Group. Trainees are offered a wide range of oppor- tunities. The conventional training route to becoming a skilled worker can also be combined with qualifying for subsequent entry to university. In particular, promising graduates with middle school qualifications (i.e. Realschule in Germany) have the opportunity to study for a Bachelor’s degree under the auspices of the company after completing their appren- ticeships. The best performers receive scholarships and are able to take part in additional training courses as part of our “SpeedUp” training programme. This arrange- ment also helps us cover our long-term need for qualified engineers. Our social responsibilities include a commitment to offering opportunities to under-achieving school leavers. The BMW Group is therefore creating more places for the so-called starter qualification, which aims to prepare 28 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG BMW Group Apprentices at 31 December Proportion of non-tariff female employees at BMW AG 4,500 4,000 3,500 3,000 2,500 2,000 in % 9.0 8.5 8.0 7.5 7.0 6.5 06 07 08 09 10 06 07 08 09 10 4,359 4,281 4,102 3,915 3,798 7.8 8.1 8.4 8.4 8.8 school leavers for subsequent entry into apprenticeships. This strategy has proved highly successful – approxi- mately 64% of these young people go on to receive regu- lar training contracts. The BMW Group is also closely involved with JOBLINGE, an initiative aimed at combating youth unemployment in Germany. In a six-month programme, disadvantaged young people are given personal and practical support to enable them to take up training or work. In addition to helping the scheme with financial and material support, so far the BMW Group has provided 19 practical placements, two starter qualification positions and five apprentice- ships in Munich and Berlin. The varied range of vocational training courses helps fulfil the BMW Group’s future re- quirements for specialist staff both within Germany and abroad. The range of further training activities available to all groups of employees has therefore been expanded con- siderably. New programmes are constantly being added to the proven and tested range of further training on of- fer to those who have already completed their vocational training. As well as preparing them for carrying out inter- esting tasks, these programmes also help to improve em- ployees’ personal skills. Employee training as an investment for the future Building up and maintaining skills expertise within the Group’s workforce are key aspects of strategic corporate governance. With this aim in mind, the BMW Group increased expenditure on basic and further training by approximately one-quarter to euro 179 million (+ 25.2%) in 2010. Range of basic and further training expanded Basic and further training programmes are of major im- portance to the BMW Group as they provide the key skills essential for meeting future competitive challenges. As well as training along traditional lines, we also offer an extended range of educational measures aimed at meeting the foreseeable need for qualified staff. In this context, the BMW Group is working closely with a number of higher education establishments. Courses BMW Group Employees Automobiles Motorcycles Financial Services Other BMW Group 31.12. 2010 31.12. 2009 88,468 2,814 4,053 118 95,453 89,457 2,796 3,882 95 96,230 Change in % –1.1 0.6 4.4 24.2 – 0.8 29 GROUP MANAGEMENT REPORT Employee attrition ratio at BMW AG1 as a percentage of workforce Student” programme, designed to establish contact with interested students. 6.0 5.0 4.0 3.0 2.0 1.0 06 07 08 09 10 2.68 2.66 5.85 2 4.59 2 2.74 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 (voluntary employment contract termination agreements) combining work with study have been designed both for graduate employees and those with technical qualifica- tions. Further opportunities aimed at other areas are also currently being prepared. Effective measures to counter the shortage of skilled workers The BMW Group has been working for many years now on ways to counter the threat of a shortage of skilled workers. Two issues play a particularly important role in a forward-looking strategy for recruiting new staff. Firstly, we are determined to remain one of the most at- tractive employers in the world. Our excellent reputation quite clearly facilitates the recruitment of suitably qualified employees. Our success in this endeavour is confirmed by the excellent results we achieve in international sur- veys, such as the Top Global 50 Study conducted by Uni- versum. The BMW Group was once again found to be the most attractive employer in Germany as well as the most highly rated automobile company. Secondly, existing recruitment measures have been enhanced and new programmes initiated, including new programmes for management trainees (BMW Group Graduate Programme) and school leavers (SpeedUp – the BMW Bachelor programme) during the year under re- port. The new doctorate programme, ProMotion, was also developed and is due to commence in 2011 with roughly 200 participants. The programme encourages highly talented young people to work on innovative projects, either in close conjunction with universities or within the company. Other measures complement the range of programmes; one example of this is the “Formula Workforce diversity as key factor for future We believe it is essential to aim for social diversity within the workforce to ensure future competitiveness. With this in mind, the BMW Group’s Diversity Concept has an important part to play in the company’s new strategic direction. The concept of diversity is not just a matter of providing opportunities for women. Only when we have successfully combined the following three factors – an international workforce, a mixture of ages and an ade- quate representation of women – will we have access to the knowledge and skills needed to service existing sales markets and engage in new ones. Achieving this aim is seen as a prerequisite for a strong business both now and in the future. We have identified gender, cultural background and age as key diversity criteria in the face of challenges such as demographic change and gaining access to new sales markets. These criteria will be applied in future through- out the BMW Group to the extent that local conditions permit. Since we consider the aptitude of an employee as the paramount consideration, we are not aiming to have a strict quota for female employees, but rather to recruit the best candidate for the business in each individual case. Visible progress has been achieved in the past in terms of the proportion of female employees. Between 2005 and 2010 the number of female non-tariff employees rose from 7.4% to 8.8%. The proportion of women in manage- ment positions worldwide in the BMW Group exceeds 10%. With regard to endeavours to increase the propor- tion of women working for the BMW Group, particularly in programmes offered for new recruits, it is important to bear in mind that women are extremely poorly repre- sented on engineering courses at universities and in technical fields. Managing demography – Today for Tomorrow As a result of demographic change, the future performance of the BMW Group will depend on a workforce with a much higher average age than at present. In order to remain ahead of competitors, the BMW Group must strengthen the health and skills of its workforce and adapt the working environment to accommodate the changing age structure. In order to achieve this, we have developed an integrated operational concept called Health Management 2020. The aim is to create a concept which brings together the main issues relevant for promoting the general health of the workforce. Our integrated health management programme is therefore an important aspect of sustain- able governance within the BMW Group. 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 30 The “Today for Tomorrow” project is one of the ways the situation is being addressed. The project aims at carrying out preventive measures to maintain a stable and pro- ductive workforce. Designing competitive remuneration systems Maintaining a competitive level of personnel expense plays a major role in the success of the BMW Group. In addition to focusing on cost, the aim is also to increase efficiency at all levels of the business. The high degree of motivation amongst employees and the positive corpo- rate approach towards staff are maintained and under- lined by a combination of rewards determined individu- ally on the basis of performance and success. Flexible and individually designed working time models repre- sent a further important aspect. Remuneration, working time rules and other benefits are reviewed and adjusted as the need arises in close cooperation with employee representatives. Competitive advantages through excellent leadership The BMW Group’s leading market position is largely attributable to its workforce. In times of great complexity and rapid change, outstanding leadership is of the high- est importance in achieving the ambitious targets set out in our Strategy Number ONE. Excellence in leader- ship relies on a common understanding of the concept of leadership. In 2010 we endeavoured to entrench this common understanding at all levels of management. Open dialogue between managers and staff is encouraged and seen as an important aspect of our success. This is exemplified by the E Change LIFE project, in which man- agers design and organise workshops for all employees engaged in development, encouraging managers and staff to tackle the change process together. Health management The performance of the workforce depends on its skill, motivation and, above all, its health. This fact will become increasingly relevant in future, as the average working life will have to be extended to allow for the anticipated shortage of skilled workers as well as demographic change. The situation will be exacerbated by increasing demands being placed on the workforce in an ever-chang- ing working environment. We endeavour to maintain and promote the health of our employees by encouraging health awareness and a healthy lifestyle. We also attach great importance to ful- filling health and safety requirements in the workplace. 31 GROUP MANAGEMENT REPORT Implementing sustainable management throughout the Group Following on from 2009, when the BMW Group’s sustain- ability strategy underwent further comprehensive devel- opment, a number of measures and assessment criteria, derived from groupwide strategic plans, were established in 2010 for the various areas of management responsibil- ity. Driving these measures was the objective of remain- ing the most sustainable car manufacturer in the world. This was achieved again in 2010 and confirmed by an in- dependent source: the BMW Group remains the auto- mobile sector leader for the sixth consecutive year in the Dow Jones Sustainability Index family. Our primary objective is to instil the concept of sustaina- bility throughout the entire value-added chain and its underlying processes. We will therefore continue to de- velop our innovative drive train technologies and imple- ment concepts for sustainable mobility in metropolitan areas. At production level, we will continue to cut down on the volume of resources used, reduce the impact that production processes have on the environment and en- deavour to include ecological and social requirements in the supply chain. Furthermore, we wish to remain an attractive employer for our staff in the future. As an inte- gral part of society, we will continue to be involved in finding solutions for social challenges. Sustainable management based on a “balanced score- card” is a corporate objective which is now integrated in processes throughout the BMW Group. Every project is now required to be assessed in terms of this objective. This involves measuring the consumption of resources, emissions and also the social and socio-political impacts. Key elements in our sustainability management are the continual and systematic analysis of external develop- ments, ongoing dialogue with our stakeholders and the consideration of both social and ecological aspects when making decisions. A sustainability structure has been established to en- sure that our sustainability efforts are continuously man- aged and further developed. At the highest level in the Group is the Sustainability Board which makes all deci- sions of strategic relevance. All members of the Board of Management are automatically members of this board. The Sustainability Circle, consisting of representatives from the various divisions and headed by the Group Officer for Sustainability and Environmental Protection, is responsible for implementing sustainability activities across the Group. Clear targets for clean production It is our intention to reduce the environmental impact of production to the greatest extent possible. Items meas- ured in this context include energy and water consump- tion, process wastewater, solvent emissions and waste for disposal – expressed in terms of “waste per vehicle produced”. We also measure carbon dioxide emissions caused by the consumption of energy. The target is, by 2012, to reduce resource consumption and emissions levels per vehicle produced by 30% compared with 2006. Using an environmental efficiency figure as an indicator, changes in resource consumption and emissions are analysed across all items being measured. The environ- mental efficiency figure for 2010 was improved by 6 per- centage points during the period under report. The im- provement since 2006 is 26%, surpassing the original target of 20% set for 2010. Energy consumption and emissions reduced Total energy consumption in 2010 was reduced by 380,000 MWh and energy efficiency improved at the same time. Energy consumed per vehicle produced in 2010 was 2.75 MWh (– 4.8%), in part helped by im- proved capacity utilisation of equipment. As a result of the lower amount of energy used in production, CO2 emissions were reduced by 74,700 tons. At 0.86 tons of CO2 per vehicle produced, this was the equivalent of a 5.5% cut in emissions. Rigorous implementation of savings measures is bringing us ever closer to our objec- tive of improving energy efficiency by 30% between 2006 and 2012, in line with schedule. Significant amounts of energy were saved through the implementation of the “best practice” approach for inno- vative production technologies. One example of this is the new Integrated Paint Process (IPP) technology which was initially developed at the Oxford plant and intro- duced at the Spartanburg plant in 2010. The technology ensures considerably lower environmental pollution and higher productivity at the same time. After full conver- sion, energy consumption in the paint shop will be re- duced by 30%, CO2 emissions by 43% and solvent emis- sions (VOC) by 7%. IPP has also reduced the processing time per vehicle and will ultimately facilitate a produc- tivity improvement of approximately 40%. The aim is for each production site in the BMW Group to be powered by the most ecologically and economically sustainable energy resource available. The US plant in Spartanburg, for example, covers around 50% of its energy needs using gas recovered from a nearby landfill site and 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 32 powers its fleet of forklift trucks by hydrogen. A solar thermal plant installed at the BMW plant in Rosslyn heats the water needed for the paint shop. At the Research and Innovation Centre (FIZ) in Munich, the low tempera- ture of the groundwater is used for air conditioning pur- poses. Furthermore, at certain production sites the BMW Group operates its own combined heat and power plants that make particularly efficient use of resources. Less water, less wastewater Despite higher production volumes, the BMW Group has reduced its water consumption by 370,000 m3 compared with the previous year. 2.31 m3 of water were consumed per vehicle produced (–9.8%). The total amount of process water used was reduced by 60,000 m3 (–6.5%). New technologies have contributed towards the improve- ment, such as “snow cleaning”, an innovative process developed at the BMW Landshut plant, in which plastic parts such as bumpers and wing mirrors are no longer cleaned with water and detergents during production but with snow made from frozen carbon dioxide. The CO2 is completely recovered and reused. Waste and solvent emissions further reduced The amount of non-recyclable production waste was de- creased by a further 5.1% in 2010, as a result of which only 10.09 kg of non-recyclable waste accumulated per vehicle produced (2009: 10.63 kg). After successfully de- creasing the amount by 28% the previous year, we have meanwhile developed better ways of recycling waste and using materials more efficiently. reduction was partly achieved through the use of low- solvent and solvent-free rinsing and cleaning processes in the painting pre-treatment process. Optimised colour- change cycles in the paint shop further reduced the number of cleaning processes required. Solvent emis- sions have been reduced by more than 30% since 2006, so that we have already reached the target set for 2012. Clean production in Shenyang We are currently building a further plant in Shenyang, China. Numerous ecological and social criteria were taken into account when selecting the site of the new plant. At the planning stage the location of the plant on high ground was also chosen to compensate for any future climatic changes and thus protect it from possible flooding. A further criterion when deciding for the lo- cation was the basic availability of renewable energy sources. The paint shop will be the most sustainable fa- cility in the entire BMW Group production network. Eco-friendly transportation solutions We also reduced the environmental impact of our freight transportation in 2010 by optimising transportation net- works. Regional shifts in sales volume resulted in changes in the proportion of goods transported by each mode. At 0.5%, the percentage of goods transported by air freight during the reporting year again remained very low (2009: 0.2%). Growth in China caused an increase in the per- centage of sea freight to 79.9% (2009: 78.0%). The pro- portion of goods transported by rail rose slightly to 6.3% in 2010 (2009: 6.0%). Conversely, the percentage trans- ported by road fell to 13.3% (2009: 15.8%). The BMW Group was able to reduce its solvent emissions (VOC) by around 10% in 2010, bringing emissions per vehicle produced down to 1.60 kg (2009: 1.77 kg). This Sales volume performance is also reflected in the distri- bution of transportation methods for our new cars: in Energy consumed per vehicle produced in MWh / vehicle CO2 emissions per vehicle produced in t / vehicle 3.40 3.20 3.00 2.80 2.60 2.40 1.00 0.95 0.90 0.85 0.80 0.75 06 * 07 08 09 10 06 * 07 08 09 10 3.28 2.78 2.80 2.89 2.75 0.96 0.84 0.82 0.91 0.86 * Value extrapolated for 17 locations. Actual reporting covered ten locations. * Value extrapolated for 17 locations. Actual reporting covered ten locations. 33 GROUP MANAGEMENT REPORT total, 49.5% of all new cars left the Group’s plants by rail, 2.5 percentage points up on the previous year (2009: 47.0%). Sustainability of value-added chains Our suppliers, too, are required to maintain the high eco- logical and social standards set by the BMW Group. For this reason we have drawn up more specific sustainability criteria for the selection of suppliers and intensified su- pervision of existing suppliers. The major focus was on the evaluation and supervision of production locations of our suppliers worldwide. Consistent CO2 reduction with Efficient Dynamics At an early stage the BMW Group adopted a development strategy that is now generating tangible benefits for climate, resources and customers alike. At the centre of these endeavours is our Efficient Dynamics technology package. Since March 2007 we have been introducing consumption- and emissions-reducing technologies step by step in all of our models as standard. Their positive impact is now coming to fruition with every car sold and not just for special models. The Efficient Dynamics tech- nologies comprise: – optimised engine and drive train engineering (e.g. petrol engines featuring High Precision Injection, TwinPower Turbo technology and particularly efficient diesel engines) – lightweight construction and optimised aerodynamics (e.g. through the intelligent use of aluminium and high-tensile steels) – intelligent energy management (e.g. through Brake Energy Regeneration and the Auto Start Stop function) Our main guiding principle in all our endeavours is: greater dynamism, less fuel consumption and fewer emis- sions. These developments have enabled us to reduce the CO2 emissions of our newly sold cars in Europe (EU-15) by 30% between 1995 and 2010, thereby more than fulfilling the commitment given by the European auto- motive industry to reduce average CO2 emissions for new fleets of cars by 25% between 1995 and 2008 (ACEA self-commitment). In 2010 our fleet achieved an average fuel consumption of 5.4 litres of diesel /100 km, 6.6 litres of petrol /100 km and average emissions of 148 g / km of CO2 in Europe (EU-27). We also lead the field among German manufac- turers with CO2 emissions of approximately 154 g / km. These figures have confirmed our leading role in the premium segment in Germany. Our progress in this field is also receiving recognition from customers. Efficient Dynamics have given us a competitive edge, particularly in markets where a CO2-based vehicle tax is in place. The running cost of cars fitted with Efficient Dynamics is significantly lower than that of our competitors. We have set ourselves a clear goal for the coming years: reduction by at least a further 25% in the carbon dioxide emissions of our cars during the period from 2008 to 2020. We are proceeding in a three-step strategy in or- der to achieve this goal and move towards sustainable mobility: 1. We will continue unswervingly to develop our Efficient Dynamics technology package. 2. We will increasingly exploit the potential of electrify- ing the drive train to reduce fuel consumption and include these developments in a broad range of models. Water consumption1 per vehicle produced in m3 / vehicle Process wastewater per vehicle produced in m3 / vehicle 3.20 3.00 2.80 2.60 2.40 2.20 0.90 0.80 0.70 0.60 0.50 0.40 06 2 07 08 09 10 06 * 07 08 09 10 2.99 2.61 2.56 2.56 2.31 0.75 0.64 0.64 0.62 0.58 1 The indicators for water consumption refer to the production sites of the BMW Group. * Value extrapolated for 17 locations. Actual reporting covered ten locations. The water consumption includes the process water input for the production as well as the general water consumption e.g. for sanitation facilities. 2 Value extrapolated for 17 locations. Actual reporting covered ten locations. 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 2.50 2.25 2.00 1.75 1.50 07 08 09 10 16.17 14.84 10.63 10.09 06 * 07 08 09 10 2.30 2.36 1.96 1.77 1.60 * Value extrapolated for 17 locations. Actual reporting covered ten locations. * “Waste for disposal per vehicle produced” became a performance indicator in 2007 and has been reported since then. 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 3. Our long-term aim is to produce emissions-free mobil- ity with vehicles powered by electricity and hydrogen. Building up expertise for the mobility of the future Back in 2007 we initiated the forward-looking “project i” for the purpose of developing alternative concepts for individual mobility. By that we do not just mean the de- velopment of alternative drive systems, but also the use of completely new materials such as composites. In “project i” we do not merely work on electrically driven cars, but also on concepts designed to significantly reduce the environmental impact of the car all the way along the value-added chain. The first publicly visible result of “project i” was the largest electromobility field trial to date: around 600 fully electric MINI cars were handed over to private and busi- ness customers in the USA, Great Britain, Germany, France, Japan and China. After well over 10 million kilo- metres of electromobility in daily use, we have gained a great deal of useful information that can be directly used to help develop the first fully electric production car for the BMW Group. Tomorrow’s sustainable mobility produced in Leipzig Under the working name of “Megacity Vehicle” (MCV) we are currently developing the first large-scale series- produced vehicle in the car industry exclusively designed to meet the requirements of future electromobility in metropolitan areas. Construction of the plant was started in Leipzig in November 2010; the MCV will be launched on the market in 2013. The BMW Group is placing great emphasis on sustain- ability throughout the entire value-added chain of the Megacity Vehicle. This approach involves far more than just the powering of an emissions-free vehicle. As far as production is concerned, the BMW Group has again set its sights very high in terms of environmental protection and the preservation of natural resources. The amount of energy used for assembly at the Leipzig plant is to be reduced by 50% and the water consumption by 70% per vehicle. The aim is to cover energy requirements for MCV production completely from regenerative sources. The BMW ActiveE (based on the BMW 1 Series Coupé) is scheduled to roll off the production lines in Leipzig in 2011. Following on from the MINI E, this vehicle repre- sents the second step made by the BMW Group towards the series production of the emissions-free electric car. The experience gained with the MINI E and the BMW ActiveE will be incorporated directly into the series de- velopment of the Megacity Vehicle. By 2011, Leipzig will therefore be a centre of expertise for the production of electric cars within the BMW Group network. Social commitment as an integral part of corporate philosophy Social commitment has long been an integral part of the corporate philosophy and sustainability strategy of the BMW Group. True to this principle, the BMW Group is involved worldwide with projects such as the Award for Intercultural Engagement aimed at achieving a better understanding between different nations, ethnic groups, religions and cultures. The main focus is on long-term partnerships and activities that create a long-term basis 35 GROUP MANAGEMENT REPORT Development of CO2 emissions of BMW Group cars in Europe (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 self-commitment) 105 100 95 90 85 80 75 70 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 * 10 100.0 101.0 102.4 101.0 98.6 96.7 96.7 92.9 92.9 94.8 90.0 88.6 80.0 73.3 71.4 70.0 * measured only on EU-27 basis with effect from 2009 for constructive coexistence in a modern society through the spirit of innovation and foresight. The BMW Group has been engaged in numerous cultural projects worldwide for 40 years. From the biggest street festival in Mexico City to “State Opera for Everyone” in Berlin, the BMW Group always acts in the long-term in- terest and with sustainability in mind. As a cooperation partner in the world of culture, the BMW Group leaves both the creative freedom and the curatorial decision- making completely up to the cultural institutions them- selves. The BMW Guggenheim Lab was initiated in 2010. In numerous European, American and Asian cities this project provides temporary, multidisciplinary platforms that invite international dialogue aimed at meeting the challenges of the future. 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 36 Research and development expenditure increased The BMW Group employed over 9,000 people in its research and innovation network at eleven sites in five countries during the year under report. Expenditure for research and development in 2010 rose by 13.3% to euro 2,773 million. The research and development ra- tio of 4.6% was 0.2 percentage points lower than in the previous year. Further information on research and development activities is provided in the notes to the Group Financial Statements (Note 8). Innovative and sustainable The continuous search for efficient solutions to reduce the emissions levels of our fleet is an essential driving force for our research and development activities. For this reason, we are committed to achieving maximum improvements with our Efficient Dynamics package of measures. Above all, a switch to electrically powered cars will have a positive impact on the carbon footprint as soon as the energy used is also generated on a renewable basis. New drive concepts based on hybrid and electric power, and in the long term hydrogen power, will become increas- ingly important. We are currently developing a completely new concept for sustainable mobility in urban areas. The electrically powered Megacity Vehicle (MCV) is equipped with a newly developed drive system as well as a revolutionary vehicle architecture that combines consistent lightweight construction, optimal space functionality and the highest standard of safety. The MCV will be launched as a series- manufactured vehicle in the premium segment in 2013. Focus on benefits for the customer One of the key aspects of our strong competitive position is our ability to offer customers recognisable added value with innovative technologies, including, first and fore- most, our innovative Efficient Dynamics package of meas- ures. Efficient Dynamics, which combines all of the effi- ciency measures we have achieved in engine technology, energy management, lightweight construction and aero- dynamics, has enabled us to win pole position in the pre- mium segment in recent years in terms of fuel economy. Connected Drive is the second core theme in the develop- ment of innovative technologies and incorporates all aspects of information flows relating to the vehicle. Its range of features not only includes the services BMW Assist and BMW Online, but numerous other systems that provide additional convenience, information and entertainment as well as safety through interconnected- ness. The Lane Change Warning and Lane Departure Warning systems, speed limit information, BMW Night Vision with pedestrian recognition, reversing camera including Top View and the parking assistant are some of the features that are offered. We also optimise the inte- gration of innovative end devices, such as smart phones and music players. Alongside access to the Internet, Connected Drive also enables the display of e-mails received by smart phone as well as the use of Internet- based services for navigation and infotainment. In the new BMW 6 Series Convertible, available from spring 2011, the new generation of Head-Up Display will be a feature for the first time. The system projects key information onto the windscreen directly in the driver’s field of vision. The presentation of the three-dimension- ally displayed graphics covers the entire colour spectrum, enabling traffic signs to be realistically displayed. Energy and environmental technology test centre opened In May 2010 we opened the new Energy and Environ- mental Test Centre (EVZ) in Munich. Right from the planning stage the centre was designed to operate in an ecologically sustainable way. In this completely new simulation centre, innovations are tested in a wide range of varying climatic conditions prior to their use in se- ries production. The new facility enables us to recreate realistic simulations of key environmental conditions such as temperature fluctuations, air humidity, air pres- sure, precipitation and wind, thereby avoiding costly and elaborate testing in countries with hot and cold climates. The strategy reduces both time and costs for transpor- tation and also means that fewer prototypes can be used for a greater number of trials. Furthermore, the concen- tration of the various test series under one roof regard- less of seasonal weather conditions makes test results far more quickly available. Taking opportunities together In 2010 the BMW Group and the PSA Group decided to extend the long-standing cooperation arrangements already in place for the development and production of hybrid systems. The BMW Group and PSA Peugeot Citroën additionally signed an agreement to establish a joint venture in February 2011. The first priority of the initiative entered into by the two companies is to de- velop standardised components for use in the electrifica- tion of the respective vehicle fleets. Joint research, de- velopment, production and component procurement will mean significant cost benefits for both groups. engines were the V8 engine of the BMW M3, the in-line six-cylinder petrol engine featuring BMW TwinPower Turbo direct fuel injection and VALVETRONIC used in the BMW 1 Series, 3 Series and 5 Series, the four-cylinder diesel featuring the BMW TwinPower Turbo that powers the BMW X1 xDrive23d and the BMW 123d and the four- cylinder twin-scroll turbo engine of the MINI Cooper S. In the ADAC EcoTest the BMW 320d EfficientDynamics Edition achieved the highest possible evaluation of five stars and thus the best ever recorded result achieved by a conventionally powered vehicle. With 92 out of a possi- ble 100 points, the four-door sedan has proven to be the most economical diesel-powered vehicle in the medium class. In the same test, the BMW 320d EfficientDynamics Edition achieved fuel economy of 4.4 litres per 100 kilo- metres driven and CO2 emissions of a mere 116 grams per kilometre. The safety testing institute Euro NCAP (European New Car Assessment Programme) presented the BMW Group with a special award for the BMW Assist Advanced eCall extended emergency call that features automatic location pinpointing and an injury risk forecast. The Euro NCAP Advanced Award, which was presented for the first time, honours groundbreaking technologies in the fields of vehicle safety and passenger protection over and above the requirements of crash tests recognised throughout Europe. 37 GROUP MANAGEMENT REPORT Research for the future continued In 2010 we presented a fuel-cell-powered hybrid vehicle to the public for the first time. Based on the BMW 1 Se- ries, this research vehicle is fitted with an innovative form of hybrid technology which uses hydrogen as a source of energy. In addition to a four-cylinder petrol engine, the prototype is also equipped with an electric drive system for city use. The vehicle is highly effective in city traffic due to the use of a comparatively small fuel cell that gen- erates electricity from hydrogen. The combustion engine is only used for driving at higher speeds. This combina- tion could in future provide an emissions-free range of several hundred kilometres in city traffic and recharging within a few minutes. The Emergency Stop Assistant developed as part of our research projects considerably raises the level of road safety. If the system detects an emergency situation re- lated to the driver’s health, it switches to an autonomous driving mode and then proceeds to carry out a safe emer- gency stop manoeuvre. The basis for the precise, safe execution of the manoeuvre is not only the localisation of the vehicle within its own driving lane but also the re- liable and complete recognition of all vehicles in the im- mediate vicinity. The prototype of a multifunctional car key has been de- veloped as a way of networking mobility with the driver’s environment. The so-called BMW Key is fitted with a security chip capable of providing such amenities as cashless shopping or the booking of a hotel room. Fur- thermore, the BMW key with its integrated credit card function will enable the driver to purchase electronic tickets for buses and trains as well as book flight tickets straight from the car and store them on the key. Numerous awards for the BMW Group The Rolls-Royce Ghost, BMW 5 Series Sedan, BMW X1, BMW 5 Series Gran Turismo, BMW F 800 R and BMW S 1000 RR as well as five innovative developments by BMW Group DesignworksUSA received red dot awards for outstanding product design. The new Rolls-Royce Ghost received the special prize “red dot: best of the best” for the highest quality design. The new BMW 5 Series Sedan was additionally awarded the silver design prize of the Federal Republic of Germany by the German Design Council. The BMW Group was also highly successful at the “Inter- national Engine of the Year Award” in 2010: the Group dominated the competition by winning first prize in four out of a total of eight cubic capacity classes. The successful 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 38 Reorientation of purchasing and supplier network functions Increasing internationalisation and the growing com- plexity prevailing on procurement markets as well as within the production network prompted us to reor- ganise the purchasing function in 2010 along the lines of technological product groups. The main focuses of this strategy are to concentrate responsibilities world- wide and further improve our understanding of market and technological developments. Numerous model start-ups in 2010 The year 2010 saw a large number of model start-ups within our worldwide production network. The BMW Group again rose to the challenge of the various produc- tion start-ups (the new BMW 5 Series, the new BMW 6 Series in Germany, the 5 Series extended wheelbase ver- sion in China and the new BMW X3 in the USA as well as the revised MINI in the UK) by involving the supplier network at a very early stage. For the BMW 5 Series ex- tended wheelbase version and the X3, local suppliers were increasingly trained in advance in order to guaran- tee the exacting quality requirements and standards de- manded by the BMW Group right from the commence- ment of production. Activities on international procurement markets Throughout 2010 we continued to expand our global procurement activities for future vehicle projects. Apart from Europe, our major sales markets in the NAFTA re- gion and in Asia were the main areas of focus. As part of the process of selecting suppliers, we have specifically given priority to increasingly obtaining supplies for fu- ture models (BMW X Series, MINI, BMW 1 Series) from locally based suppliers in each of the production markets. This strategy allows us to make better use of the inno- vation potential, but also to generate cost benefits. At the same time, purchasing in the relevant foreign currency reduces the currency risk for both the BMW Group and the supplier. The application of multi-currency ordering across all regions is also helpful. This is a new approach in the car industry, with ordering and invoicing of pro- duction material executed in various currencies depend- ing on the percentage of added value in each case. Leader in productivity and technology in CFRP production The closer coordination of production and purchasing activities for the plastic outer skin of the Megacity Vehicle has enabled us to generate significant synergies within the process chain. This enables us to decide, Regional mix of BMW Group purchase volumes 2010 in %, basis: production material Asia / Australia Africa NAFTA Central and Eastern Europe Rest of Western Europe Germany Germany Rest of Western Europe Central and Eastern Europe 47 20 13 NAFTA Asia / Australia Africa 12 5 3 quickly and competently, whether components should be produced in-house or externally ordered. Expertise in the areas of production, quality management and pur- chasing are bundled appropriately, enabling us to achieve better coordination with our suppliers. The expansion of the CFRP production at the BMW Landshut plant and the simultaneous commissioning of facilities to produce carbon fibre layers marked the beginning of preparations for the series production of the Megacity Vehicle, scheduled for launch in 2013. The Wackersdorf plant also supplies the textile carbon fibre layers which are processed to make lightweight CFRP body components at the Landshut plant. The vehicle will be produced at the BMW Group’s Leipzig plant. Cooperation arrangements expanded The cooperation talks between BMW AG and Daimler AG concerning the joint purchasing of components are making good progress. We have identified a double-digit number of components that could be jointly purchased. The cooperation arrangements only involve components that do not contribute towards differentiating between the two brands and which therefore have no impact on competition. Plans are underway to extend the coopera- tion arrangements step by step to cover a larger number of parts and components. Joint purchasing in China also presents excellent oppor- tunities. The two companies intend to work together in evaluating audit results and checking the qualifications of suppliers. 39 GROUP MANAGEMENT REPORT Sustainability of value-added chains Adherence to the high ecological and social standards of the BMW Group was again a key criterion for selecting suppliers in 2010. Our main focus of attention was on the intensive evaluation and supervision of the production locations of our suppliers worldwide. The same princi- ples are applied for observing in-house components and bought-in parts over the complete product life cycle, from the acquisition of raw materials to the recycling of waste material. Model range expanded We continued our new product initiative throughout the course of 2010. After its introduction on European markets at the end of 2009, the worldwide launch of the highly successful BMW X1 was continued in 2010. The new BMW 5 Series Sedan was launched on selected mar- kets in spring 2010 and has been available worldwide since June. Sales of the new BMW 5 Series Touring com- menced in September. The extended wheelbase version of the BMW 5 Series Sedan, specially designed for the Chinese market, has been available there since the be- ginning of September. The new BMW X3 was presented at the Paris Motor Show at the beginning of October. The second generation of this successful model had been available on the markets since the end of November. We also presented various concept studies to the public. In April 2010, in Beijing, we presented the BMW Concept Gran Coupé as an example of the new generation of large BMW Coupés. In October, the BMW Concept 6 Series Coupé was presented at the Paris Motor Show as a pre- view of the new BMW 6 Series Coupé. In mid-November we announced that a new BMW 6 Series Convertible would be available in spring 2011. Countryman added to MINI family The year 2010 marked the introduction of the fourth member of the MINI family. The unveiling of the MINI Countryman at the Geneva International Motor Show at the beginning of 2010 was followed by the sales launch on European markets in September 2010 and introduction in Asia and the Americas at the beginning of 2011. The MINI Countryman represents a significant addition to the MINI portfolio. With its four doors and four- wheel drive, the model is designed to appeal to a new target group. This represents another step on the way to MINI becoming a multi-product brand. The exist- ing model range had been revised during the previous year. With three victories at the Monte Carlo Rally, the MINI had already become an inherent part of rally sport back in the sixties. We intend to continue in this tradition. The rally version of the new MINI Countryman will take part in the FIA World Rally Championship (WRC) as from 2011. Range of mobility services broadened In its Strategy Number ONE, the BMW Group set itself the task of becoming the world’s leading provider of 40 premium products and premium services for individual mobility. An additional, profitable line of business has been created by offering innovative mobility services. MINI sales organisation. A total of 32 metro delivery centres have now been established worldwide since 2008. Rolls-Royce launches “21st Century Legends” campaign In October 2010 Rolls-Royce Motor Cars launched a worldwide image campaign entitled “21st Century Legends”. In a series of five films the campaign provides an unusual insight into the world of the Rolls-Royce brand. 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG For many years we have successfully been providing car- related services for BMW and MINI customers under the name BMW ConnectedDrive. This range of services will be significantly expanded in future. The strategy is in line with our full-coverage approach, which includes vehicle- related and non-vehicle-related mobility services de- signed to cover the whole spectrum of premium mobility services. Expansion of distribution network In order to meet the demands of the emerging markets, we have expanded our distribution network in China and the other BRIC markets. In total, some 100 new dealer- ships have been opened in these markets. The worldwide distribution network consists of around 3,100 BMW, 1,300 MINI and 80 Rolls-Royce dealerships. Strengthening the sales organisation More than 800 dealers in 14 markets had been individu- ally trained up to the end of 2010 under the dealer quali- fication programme started in 2009. The main objective was to promote the sale of new cars. It was also a way of helping to shore up the profitability of the dealership network in difficult times. Based on the results achieved as well as the highly positive response from the sales organisation we have decided to expand the methodol- ogy and contents of the programme to other sales areas. This is seen as a long-term instrument to strengthen the dealer organisation. After-sales service as important success factor After-sales service plays a key role in achieving customer satisfaction. For the BMW Group and its worldwide dealer network, the sale of BMW and MINI parts, acces- sories and services represents an important factor in the Group’s success. Sales generally performed very well in this line of business, with the German and Chinese mar- kets recording particularly dynamic growth during the period under report. The existing distribution network was expanded in 2010. Ten additional metro delivery centres commenced oper- ations in various metropolitan areas around the world. These centres enable the same-day multiple delivery of original spare parts and accessories to the BMW and 41 GROUP MANAGEMENT REPORT BMW Group – Capital Market Activities in 2010 Automobile stocks boost DAX Against the background of the sovereign debt crisis in the euro zone and concerns about the economy in the USA, the world’s stock exchanges developed inconsistently in 2010. The German stock index, the DAX, benefited from robust economic growth in Germany and rose signifi- cantly. Much of the impetus for this development came from automobile stocks. The index therefore climbed by 956.76 points over the course of the year, finishing the stock exchange year at 6,914.19 points (+ 16.1%). The highest level for the year was recorded in December when it climbed to 7,087.84 points. The sharp rise in prices of German automobile stocks was also reflected in the performance of the Prime Automobile Index, which rose by 306.51 points to 849.29 points. This represented an increase of 56.5% over its closing level at the end of the previous financial year. In contrast, the EURO STOXX 50 lost value in 2010, finish- ing the stock exchange year 2010 at 2,792.82 points (– 5.8%). BMW stock also performed exceptionally well in 2010. BMW common stock closed at euro 58.85 on the last day of trading, an increase of 85.1% over its closing price one year earlier. BMW common stock was therefore the DAX 30’s best-performing share in 2010. Reflecting its market significance, BMW common stock was taken into the EURO STOXX 50 index in September 2010. The EURO STOXX 50 index comprises the 50 largest listed companies in the euro zone. BMW preferred stock also performed well during the period under report, finishing the year 2010 at euro 38.50, 67.4% ahead of its closing price one year earlier. Employee share scheme continued BMW AG has enabled its employees to participate in its success for more than 35 years. Since 1989 this participa- tion has taken the form of an employee share scheme. In total, 499,590 shares of preferred stock were issued to employees in 2010 in conjunction with this scheme. These include 498,050 shares drawn from Authorised Capital 2009, with the remainder bought back via the stock exchange. The new shares of preferred stock carry the same rights as existing shares of preferred stock. Attractive conditions on volatile financial markets International debt capital markets also made a significant recovery in 2010. As a result, the BMW Group was also able to benefit from favourable refinancing conditions. The European debt crisis did, however, cause phases of increased volatility on the debt capital market during the year. The BMW Group was again active on the markets as an issuer of bonds, notes and ABS instruments in order to refinance its Financial Services activities. In 2010, two euro-benchmark bonds with a total issue volume of euro 2.5 billion were issued on European capital markets. We also issued Canadian dollar, South African rand and Swiss franc denominated bonds for a total amount of euro 1.4 billion. Private placements in various currencies raised a total of euro 2.7 billion. In 2010 we were able once again to demonstrate our refinancing strength. Is- sues of public ABS bonds raised US dollar 1.75 billion in the USA and euro 800 million in Germany. Amounts were also securitised in Germany (euro 400 million), Japan (yen 25 billion) and Canada (Canadian dollar 428 million) and placed as private ABS transactions. As Development of BMW stock compared to stock exchange indices (Index: 29.12.2000 = 100) 350 300 250 200 150 100 50 01 02 03 04 BMW preferred stock BMW common stock Prime Automobile 05 DAX 06 07 08 09 10 42 in previous years, all issues were highly sought after by both institutional and private investors. depth at conferences on Socially Responsible Investment and in numerous discussions held with investors. 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG Rating outlook raised In September 2010, the rating outlook for BMW AG was raised by the rating agencies Moody’s and S & P, in each case from “negative” to “stable”. The improved outlook comes as a result of higher demand for premium cars worldwide, a development which particularly benefits the BMW Group. Reporting on sustainability In 2010 we continued to communicate our sustainability strategy and the way it is being implemented throughout the BMW Group in the form of an intensive dialogue with investors and analysts. In addition to the now well-estab- lished annual stakeholders’ round table held in Munich, this two-way dialogue was also continued in greater BMW Group sector leader in Dow Jones Sustainability Index for sixth time In September 2010 the rating agency SAM named the BMW Group as sector leader in the Dow Jones Sustain- ability Index World and Europe for the sixth time. The SAM analysts stressed that the BMW Group stands out with its clear sustainability strategy and for the way it implements that strategy rigorously along the whole added-value chain. They also drew particular attention to the BMW Group’s great achievements in reducing vehicle fleet fuel consumption and CO2 emissions. The BMW Group is the only enterprise in the automobile sector to have been represented continuously in this im- portant group of sustainability indices since their crea- tion in 1999. BMW stock Common stock Number of shares in 1,000 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 stock3 Earnings per share of preferred stock4 Cash flow5 Equity 2010 2009 2008 2007 2006 601,995 601,995 601,995 601,995 601,995 58.85 64.80 28.65 53,163 – 38.50 41.90 21.45 1.30 2 1.32 2 4.91 4.93 12.45 35.26 31.80 35.94 17.61 52,665 – 23.00 24.79 11.05 0.30 0.32 0.31 0.33 7.53 21.61 42.73 17.04 52,196 363 13.86 36.51 13.00 0.30 0.32 0.49 0.51 6.84 42.35 50.73 39.81 52,196 – 36.30 47.52 33.64 1.06 1.08 4.78 4.80 9.70 43.51 46.47 35.52 52,196 – 43.52 45.91 31.80 0.70 0.72 4.38 4.40 8.21 30.42 30.99 33.24 29.24 1 Xetra closing prices 2 proposed by management 3 annual average weighted amount 4 stock weighted according to dividend entitlements 5 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 43 GROUP MANAGEMENT REPORT The BMW Group was also included in the prestigious FTSE4Good Index and FTSE4Good Environmental Index in both halves of 2010. In conjunction with the annual evaluation of the Carbon Disclosure Projects (CDP) – a co-operative initiative of 534 globally active institutional investors – the BMW Group once again achieved a leading position thanks to its transparent reporting and exemplary contribution to environmental protection. In 2010 the Carbon Disclosure Project not only assessed reporting transparency, for the first time, it also took account of the efficiency of environ- mental protection management and the extent to which companies succeeded in reducing greenhouse gases. The Carbon Performance Leadership Index was initially set up in this context. The BMW Group was one of just 48 companies to be included in this index. Investor relations activities successfully expanded Extensive communication with the capital markets was expanded in 2010, on the one hand to facilitate refinanc- ing activities and on the other to keep investors and analysts fully informed. The number of roadshows held in the world’s major financial centres and our participa- tion in international investors’ conferences were in- creased significantly. The number of investors’ meetings in Munich and conference calls also rose considerably. These endeavours were seen in a very positive light by the capital market and duly rewarded. In conjunction with the Thomson Extel Survey – which has over 1,800 partici- pants and is Europe’s most important survey for invest- ment professionals – the BMW Group’s Investor Rela- tions Team was named the best IR team in the European automobile sector. This result was also confirmed by “Institutional Investor” magazine. A survey of more than 1,700 investors and analysts also found our team to be the best IR team in the automobile sector. 12 12 14 18 41 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities 44 Disclosures relevant for takeovers Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 47 62 63 70 44 Disclosures relevant for takeovers1 and explanatory comments Composition of subscribed capital The subscribed capital (share capital) of BMW AG amounted to euro 655,158,608 at 31 December 2010 (2009: euro 654,660,558) and, in accordance with Arti- cle 4 (1) of the Articles of Incorporation, is subdivided into 601,995,196 shares of common stock (91.89%) (2009: 601,995,196; 91.96%) and 53,163,412 shares of non-voting preferred stock (8.11%) (2009: 52,665,362; 8.04%), each with a par value of euro 1. The Company’s shares are issued to bearer. The rights and duties of shareholders derive from the German Stock Corpora- tion Act (AktG) in conjunction with the Company’s Arti- cles of Incorporation, the full text of which is available at www.bmwgroup.com. The right of shareholders to have their shares evidenced in writing is excluded in ac- cordance with the Articles of Incorporation. The voting power attached to each share corresponds to its par value. Each euro 1 of par value of share capital represented in a vote is entitled to one vote (Article 18 (1) of the Articles of Incorporation). The Company’s shares of preferred stock are non-voting within the meaning of § 139 et seq. AktG, i.e. they only confer voting rights in exceptional cases stipulated by law, in particular 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 alongside the full preference amount due for that year. With the exception of voting rights, holders of shares of preferred stock are entitled to the same rights as holders of 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 1 disclosures pursuant to § 289 (4) HGB and § 315 (4) HGB the appropriation of the Company’s unappropriated profit. Accordingly, the unappropriated profit is required to be appropriated in the following order: (a) subsequent payment of any arrears on dividends on non-voting preferred shares in the order of accruement, (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. Restrictions affecting voting rights or the transfer of shares As well as shares of common stock, the Company has also issued non-voting shares of preferred stock. Further information relating to this can be found above in the section “Composition of subscribed capital”. When the Company issues non-voting shares of preferred stock to employees in conjunction with its employee share scheme, these shares are subject to a company-im- posed vesting period of four years, measured from the beginning of the calendar year in which the shares are is- sued. During this time the shares may not be sold. Direct or indirect investments in capital exceeding 10 % of voting rights Based on the information available to the Company, the following direct or indirect holdings exceeding 10% of the voting rights at the end of the reporting period were held at the date stated:2 Stefan Quandt, Bad Homburg v. d. Höhe, Germany AQTON SE, Bad Homburg v. d. Höhe, 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 2 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 45 GROUP MANAGEMENT REPORT The voting power percentages disclosed above may have changed subsequent to the stated date if these changes were not required to be reported to the Company. Due to the fact that the Company’s shares are issued to bearer, the Company is generally only aware of changes in share- holdings if such changes are subject to mandatory notifi- cation rules. Shares with special rights which confer control rights There are no shares with special rights which confer con- trol rights. Nature of control over voting rights when employees participate in capital and do not exercise their control rights directly The shares issued in conjunction with the employee share scheme are shares of non-voting preferred stock which are transferred solely and directly to employees. Like all other shareholders, employees exercise their control rights over these shares on the basis of relevant legal provisions and the Company’s Articles of Incor- poration. Statutory regulations and Articles of Incorporation provisions with regard to the appointment and removal of members of the Board of Management and changes to the Articles of Incorporation The appointment or removal of members of the Board of Management is based on the rules contained in § 84 et seq. AktG in conjunction with § 31 of the German Co- Determination Act (MitbestG). Amendments to the Articles of Incorporation must comply with § 179 et seq. AktG. All amendments must be resolved by the shareholders at the Annual General Meeting (§ 119 (1) no. 5, § 179 (1) AktG). The Super- visory 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); it is also authorised to change Article 4 of the Articles of Incorporation in line with the relevant utilisation of Authorised Capital 2009. Resolutions are passed at the Annual General Meeting by simple majority of shares unless otherwise explicitly required by binding provisions of law or, when a majority of share capital is required, by simple majority of shares represented in the vote (Arti- cle 20 of the Articles of Incorporation). Authorisations given to the Board of Management in particular with respect to the issuing or buying back of shares In accordance with the resolution passed at the Annual General Meeting on 14 May 2009, the Board of Manage- ment was authorised, up to 12 November 2010 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. This authorisation was not made use of during the finan- cial year 2010. The Board of Management is authorised to buy back shares and sell repurchased shares in situa- tions specified in § 71 AktG, e.g. to avert serious and imminent damage to the Company. In accordance with Article 4 (5) of the Articles of Incorporation, the Board of Management is authorised – with the approval of the Supervisory Board – to increase BMW AG’s share capi- tal during the period until 13 May 2014 by up to euro 4,032,750 for the purposes of an employee share scheme by issuing new non-voting shares of preferred stock, which carry the same rights as existing non-voting pre- ferred stock, in return for cash contributions (Authorised Capital 2009). Existing shareholders may not subscribe to the new shares. There is no conditional capital in place at the reporting date. Significant agreements entered into by the Company subject to control change clauses in the event of a takeover bid The BMW AG is party to the following major agreements which contain provisions for the event of a change in control or the acquisition of control as a result of a take- over bid: – 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 out- standing amounts, including interest, would fall due immediately) if one or more parties jointly acquire di- rect 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 dividend or the right to direct the af- fairs of the Company or appoint the majority of mem- bers of the Supervisory Board. 46 12 12 14 18 41 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities 44 Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 62 63 70 – A cooperation agreement concluded with Peugeot SA relating to the joint development and production of a new range of small (1 to 1.6 litre) petrol-driven en- gines entitles each of the cooperation partners to give extraordinary notification of termination in the event of a competitor acquiring control over the other con- tractual party and if any concerns of the other contrac- tual party concerning the impact of the change of con- trol on the cooperation arrangements are not allayed during the subsequent 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 agree- ment grants an extraordinary right of termination to either joint venture partner in the event that, either directly or indirectly, more than 25% of the shares of the other party are acquired by a third party or the other party is merged with another legal entity. The termination of the joint venture agreement may re- sult 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 instru- ments, framework agreements are in place with finan- cial institutions and banks (ISDA Master Agreements), each of which contain extraordinary rights of termi- nation which trigger the immediate settlement of all current transactions, in the event that the creditwor- thiness of the respective party is materially weaker fol- lowing the direct or indirect acquisition of beneficial ownership of equity securities having the power to elect a majority of the Supervisory Board of a contrac- tual party or any other ownership interest enabling the acquirer to exercise control of a contractual party or a merger or transfer of assets. – Financing agreements in place with the European In- vestment Bank (EIB) entitle the EIB to request early repayment of the loans in the event of an imminent or actual change in control at the level of BMW AG (which is in most cases the guarantor, in one case, however, the borrower), if the EIB has reason to assume – either after the change of control has taken place or 30 days after it has requested to discuss the situation – that the change in control could have a significantly adverse impact, or if – as stated in two of the contracts – the borrower refuses to hold such discussions. A change in control of BMW AG arises if one or more individuals take over or lose control of BMW AG, with control being defined in the above-mentioned financing agree- ments as (i) holding or having control over more than 50% of the voting rights, (ii) the right to stipulate the majority of the members of the Board of Management or Supervisory Board, or (iii) the right to receive more than 50% of dividends payable, and, in one case as additional alternative (iv) other comparable controlling influence over BMW AG. – BMW AG is party to an agreement with SGL Carbon SE, Wiesbaden, relating to the joint ventures SGL Auto- motive Carbon Fibers LLC, Delaware, USA, and SGL Automotive Carbon Fibers GmbH & Co. KG, Munich. The agreement includes call and put rights in the event that 50% or more of the voting rights relating to the relevant other shareholder of the joint venture are either directly or indirectly acquired by a third party, or in the event that 25% of such voting rights are ac- quired by a third party who is a competitor of the party not affected by the acquisition of voting rights. In the event of such acquisitions of voting rights by a third party, the non-affected shareholder has the right to purchase the affected shareholder’s shares in the joint venture or to demand the sale of its own shares in the joint venture to the affected shareholder. – BMW AG is party to an agreement with Peugeot SA, Paris, relating to the joint venture BMW Peugeot Citroën Electrification B. V., the Netherlands. The agree- ment includes call and put rights in the event that 50% or more of the voting rights relating to the relevant other shareholder of the joint venture are either directly or indirectly acquired by a third party, or in the event that one-third of such voting rights are acquired by a third party who is a competitor of the party not affected by the acquisition of voting rights. In the event of such acquisitions of voting rights by a third party, the non-affected shareholder has the right to purchase the affected shareholder’s shares in the joint venture or to demand the sale of its own shares in the joint venture to the affected shareholder. The validity of the agreement between BMW AG and Peugeot SA is sub- ject to the condition precedent that the transaction is authorised by the relevant cartel authorities. Compensation agreements with members of the Board of Management or with employees in the event of a takeover bid The BMW Group has not concluded any compensation agreements with members of the Board of Management or with employees for situations involving a takeover bid. 47 GROUP MANAGEMENT REPORT Analysis of the Group Financial Statements Group Internal Management System Taking into account the interests and rights of capital pro- viders represents the basis for value-based management within the BMW Group. Only companies generating profits on a sustainable basis that exceed the cost of equity and debt capital employed are capable of ensuring con- tinuous growth, an increase in value for capital providers, jobs and, in the final analysis, corporate independence. As part of the process of developing the Group’s manage- ment system, “economic value added” has been intro- duced at Group level as a new key performance indicator. Value created represents a logical development of the method currently in use for managing the efficient use of capital based on the “return on capital employed” (ROCE). Economic value added Group = (ROCE Group – cost of capital rate) x capital employed The economic value added can also be presented as earnings less the cost of capital. Economic value added Group = earnings amount – cost of capital = earnings amount – (cost of capital rate x capital employed) in euro million Earnings amount Cost of capital (EC + DC) Economic value added Group 2010 2009 2010 2009 2010 2009 BMW Group 5,203 922 3,187 3,351 2,016 – 2,429 A positive value contribution means that a company is earning more than its cost of capital. An increase or de- crease in value contribution is an important measure of financial success. Cost of capital percentage for capital employed The cost of capital percentage is calculated as a weighted average of equity and debt capital costs using the standard weighted average cost of capital (WACC) approach. Equity capital costs are determined using the capital asset pric- ing model (CAPM) and are based on the risk-free interest rate plus the risk premium required by investors. The risk premium is calculated on the basis of the market risk premium and a beta factor. The beta factor is a measure of a stock’s volatility in relation to the market. Interest rates on debt capital are calculated as the average inter- est rates relevant for long-term debt and pension obliga- tions. The average cost of capital is calculated on the basis of a long-term targeted capital structure, thus en- suring stability in the way the business is managed in the long term. Cost of capital rate (before tax) in % 2010 2009 Return on capital used to measure value on a periodic basis Specific earnings and rate of return indicators are used to manage operational performance at segment and Group level and measure performance by reporting period. The period-related targets are monitored and managed on a long-term basis in order to ensure that earnings can develop at a steady pace. In line with the method applied at Group level, the return on capital employed is used as a profitability indicator for the Auto- mobiles and Motor cycles segments. The Financial Services segment is managed on the basis of the return on equity (ROE). The ROE performance indicator is important for the value-based management of the Finan- cial Services segment because it focuses on equity as a resource with limited availability and prioritises the effi- cient utilisation of capital. ROCE Group Profit before interest expense and tax = Capital employed ROCE Automobiles and Motorcycles = Profit before financial result Capital employed BMW Group 12 12 ROE Financial Services = Profit before tax Equity capital 48 12 12 14 18 41 44 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 62 63 70 Group ROCE is measured by dividing earnings for ROCE purposes by the average amount of capital employed. For these purposes, capital employed comprises group equity, pension provisions and the financial liabilities of the Automobiles and Motorcycles segments. Capital employed by Automobiles segment in euro million 2010 2009 Operational assets less: Non-interest-bearing liabilities Capital employed 27,787 16,948 10,839 27,659 14,516 13,143 The average level of capital employed for a particular year is measured as the average capital employed at the Return on capital employed beginning of the year, at quarter-ends and at the end of the year. In line with the computation of employed capital, earnings for ROCE purposes are defined as profit before interest expense incurred in conjunction with the pension provision and the financial liabilities of the Automobiles and Motorcycles segments (profit before interest expense and taxes). The ROCE of the Automobiles and Motorcycles seg- ments is measured on the basis of the profit before finan- cial result and the average level of capital employed. The latter comprises all current and non-current opera- tional assets less liabilities that do not incur interest e.g. trade payables. Based on the cost of capital as a mini- mum rate of return and comparisons with competitive market returns, the target ROCE for the Automobiles and Motorcycles segments has been set at a minimum of 26%. Earnings for ROCE purposes in euro million Capital employed in euro million Return on capital employed in % 2010 2009 2010 2009 2010 2009 BMW Group Automobiles Motorcycles 5,203 4,355 71 922 – 265 19 26,555 27,923 10,839 13,143 394 405 19.6 40.2 18.0 3.3 – 4.7 ROE is defined as the profit before taxes divided by the average amount of equity capital allocated to the Financial Services segment. The target is a sustainable return on equity of at least 18%. Return on equity Profit before tax in euro million Equity in euro million Return on equity in % 2010 2009 2010 2009 2010 2009 Financial Services 1,214 365 4,654 3,978 26.1 9.2 Value management in the context of project management The Automobiles and Motorcycles segments are managed on the basis of specific product projects on the one hand and process and infrastructure projects on the other, all of which are subject to the framework set by the Group’s forecasts by period. The project decision and related project selection are important aspects of our value-based management approach. Project decisions are taken on the basis of rates of return and net present values (NPVs), supplemented by a standardised approach to assessing 49 GROUP MANAGEMENT REPORT opportunities and risks. Internal project rates of return and capital values (model rates of return in the case of vehicle projects) are measured on the basis of cash flows. Model rates of return are also compared with competi- tive market values. In this way, the amount 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 on the basis of individual cash-flow-related parameters. Long-term creation of value The overall target set for earnings is continuous growth. The minimum rate of return set for each line of busi- ness is used as the relevant parameter. These periodic targets are supplementary to project and programme targets. For all project decisions reached, the impact of cash flows 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 are also taken into account ensures consistency within the target and management model. This approach allows an analysis of the effect of each project decision on earnings and rates of return. Multi-project planning data resulting from these procedures allows ongoing comparison between multi-period and single-period performance. Earnings performance The recovery on international car markets had a positive impact on earnings in 2010. The BMW Group benefited from its strong competitive position on international markets, driven in particular by attractive new vehicle models offered by the Automobiles segment. The easing of pressure on international capital markets in 2010 also helped to improve margins generated in the Financial Services segment. The BMW Group recorded a net profit of euro 3,234 mil- lion (2009: euro 210 million) for the financial year 2010. The post-tax return on sales was 5.3% (2009: 0.4%). Earnings per share of common and preferred stock were euro 4.91 and euro 4.93 respectively (2009: euro 0.31 for common stock and euro 0.33 for preferred stock). Group revenues rose by 19.3% to euro 60,477 million (2009: euro 50,681 million). Adjusted for exchange rate factors, the increase would have been 14.4%. Revenues from the sale of BMW, MINI and Rolls-Royce brand cars climbed by 24.2% due to higher sales volumes. Motor- Group Income Statement in euro million Revenues Cost of sales Gross profit Sales and administrative 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 2010 2009 60,477 – 49,562 10,915 – 5,529 766 –1,058 5,094 98 685 – 966 – 75 – 258 4,836 – 1,602 3,234 50,681 – 45,356 5,325 – 5,040 808 – 804 289 36 856 –1,014 246 124 413 – 203 210 12 12 14 18 41 44 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 62 63 70 50 cycles business revenues were 21.9% up on the previous year. Revenues generated with Financial Services activities rose by 6.8%. Revenues attributable to “Other Entities” amounted to euro 1 million, similar to the previous year. euro 296 million compared to the previous year. The main reasons for this were the higher level of allocations to provisions and the lower result on currency trans- actions. Total revenues grew in the Africa, Asia and Oceania regions by 68.2%. The figure includes China, where rev- enues jumped by 109.1%. Revenues in Europe and the Americas region grew by 9.4% and 14.0% respectively, whereas they fell in Germany by 2.0%. Group cost of sales increased by 9.3% to euro 49,562 mil- lion (2009: euro 45,356 million), rising therefore at a slower rate than revenues. The main factors responsible for the improvement were reduced material costs and lower refinancing costs. As a result, the gross profit jumped by 105.0% to euro 10,915 million. The gross profit mar- gin was 18.0% (2009: 10.5%). The gross profit margin recorded by the Automobiles segment was 17.4% (2009: 9.4%) and that of the Motor- cycles segment was 16.0% (2009: 13.5%). The Finan- cial Services segment’s gross profit margin improved by 5.1 percentage points to 10.9%. Research and development costs rose by 19.1% to euro 3,082 million and represented 5.1% of revenues, un- changed compared to the previous year. Research and development costs include amortisation of capitalised development costs amounting to euro 1,260 million (2009: euro 1,226 million). Total research and development expenditures amounted to euro 2,773 million (2009: euro 2,448 million). This figure comprises research costs, development costs not recognised as assets and capital- ised development costs. The research and development expenditure ratio for 2010 was 4.6% (2009: 4.8%). The proportion of development costs recognised as assets in 2010 was 34.3% (2009: 44.4%). As a result of the positive factors referred to above, the profit before financial result amounted to euro 5,094 mil- lion (2009: euro 289 million). The financial result was a net expense of euro 258 mil- lion, a deterioration of euro 382 million against the pre- vious year (2009: net income of euro 124 million). The change was mainly attributable to the fact that net in- come from investments was euro 172 million lower due to impairment losses recognised on investments in sub- sidiaries. Sundry other financial result deteriorated by euro 149 million to euro 96 million, reflecting lower net gains on stand-alone commodities derivatives. Within the financial result, net interest expense increased by euro 123 million. By contrast, the result from equity-accounted investments improved by euro 62 million to euro 98 mil- lion. In addition to the Group’s share of results from its equity-accounted investments in BMW Brilliance Auto- motive Ltd., Shenyang, and the Cirquent Group, this also includes for the first time the Group’s share of results from joint ventures with the SGL Carbon Group. Taking all these factors into consideration, the profit be- fore tax improved to euro 4,836 million (2009: euro 413 million). The pre-tax return on sales was 8.0% (2009: 0.8%). The tax expense amounted to euro 1,602 million (2009: euro 203 million), resulting in an effective tax rate of 33.1% (2009: 49.2%). The previous year’s high effective tax rate was primarily attributable to tax expenses in- curred in conjunction with a tax field audit at the level of BMW AG. Sales and administrative costs increased by 9.7% com- pared to the previous year, equivalent to 9.1% of revenues and therefore 0.8 percentage points lower on a year-to- year comparison. Overall, the BMW Group recorded a net profit of euro 3,234 million (2009: euro 210 million) for the financial year 2010. The post-tax return on sales was 5.3% (2009: 0.4%). Depreciation and amortisation on property, plant and equipment and intangible assets recorded in cost of sales and in sales and administrative costs amounted to euro 3,682 million (2009: euro 3,600 million). The net expense from other operating income and ex- penses amounted to euro 292 million, a deterioration of Revenues of the Automobiles segment rose by 23.8%. The pre-tax segment result turned round from a seg- ment loss before tax of euro 588 million in 2009 to a seg- ment profit before tax of euro 3,887 million in 2010. The number of cars sold increased by 13.6%, reflecting the gradual expansion and rejuvenation of our model port- folio as well as dynamic growth in Asia. 51 GROUP MANAGEMENT REPORT Revenues by segment in euro million Profit / loss before tax by segment in euro million 2010 2009 2010 2009 Automobiles Motorcycles Financial Services Other Entities Eliminations Group 54,137 1,304 16,617 4 –11,585 60,477 43,737 1,069 15,798 Automobiles Motorcycles Financial Services 3 Other Entities – 9,926 50,681 Eliminations Group 3,887 65 1,214 45 – 375 4,836 – 588 11 365 51 574 413 In the Motorcycles segment, the number of BMW motor- cycles handed over to customers increased by 12.3%, compared with a 22.0% increase in segment revenues. The pre-tax segment result increased by euro 54 million to euro 65 million. Financial Services segment revenues grew by 5.2% to euro 16,617 million. The pre-tax segment result climbed to euro 1,214 million (2009: euro 365 million). The im- provement mainly reflected lower expense for risk pro- vision in the areas of credit financing and residual values on the one hand and lower refinancing costs on the other. The Other Entities segment recorded a pre-tax profit of euro 45 million (2009: euro 51 million). The result from inter-segment eliminations was a net expense of euro 375 million (2009: net income of euro 574 million), mainly reflecting the higher volume of new leasing business and lower Group production costs. Financial position The cash flow statements of the BMW Group and the Automobiles and Financial Services segments show the sources and applications of cash flows for the financial years 2009 and 2010, classified into cash flows from oper- ating, investing and financing activities. Cash and cash equivalents in the cash flow statements correspond to the amount disclosed in the balance sheet. Cash flows from operating activities are determined indi- rectly, starting with Group and segment net profit. By contrast, cash flows from investing and financing activities are based on actual payments and receipts. of euro 3,380 million or 32.9% compared to the previous year. The higher net profit in 2010 accounted for euro 3,024 million of the increased cash inflow. Changes in working capital reduced cash flows from operating activi- ties by euro 2,205 million. This compared with changes in other operating assets and liabilities (up by euro 1,466 million) and provisions (up by euro 910 million), which resulted in an increase in the cash flow from oper- ating activities. The cash outflow for investing activities amounted to euro 14,522 million and was therefore euro 3,194 million higher than in 2009. Capital expenditure for intangible assets and property, plant and equipment resulted in the cash outflow for investing activities decreasing by euro 208 million compared to the corresponding period last year. The cash outflow for the net investment in leased products and receivables from sales financing increased by euro 3,632 million to euro 9,332 million, primarily re- flecting the higher level of new business recorded in the Financial Services segment. The change in marketable securities resulted in a euro 363 million decrease in cash outflow. Financing activities generated a cash inflow of euro 510 million in 2010, euro 842 million lower than in the previous year (2009: cash inflow of euro 1,352 million). Cash inflows from the issue of bonds totalled euro 4,578 million (2009: euro 9,762 million), while euro 3,406 million (2009: euro 6,440 million) was used to repay bonds. The dividend payment for the financial year 2010 amounted to euro 197 million. The cash out- flow for other financial liabilities and commercial paper was euro 260 million (2009: cash outflow of euro 1,562 million). Operating activities of the BMW Group generated a posi- tive cash flow of euro 13,651 million in 2010, an increase 94.0% (2009: 90.7%) of the cash outflow for investing activities was covered by the cash inflow from operating 52 Change in cash and cash equivalents in euro million 12 12 14 18 41 44 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 62 63 70 22,500 21,000 19,500 18,000 16,500 15,000 13,500 12,000 10,500 9,000 7,500 6,000 4,500 3,000 1,500 Cash and cash equivalents 31.12. 2009 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. 2010 7,767 + 13,651 – 14,522 + 510 + 26 7,432 activities. The cash flow statement for the Automobiles segment shows that the cash inflow from operating activities exceeded the cash outflow for investing activi- ties by euro 2,608 million (2009: shortfall of euro 754 mil- lion) or 147.1%. Adjusted for net investments in mar- ketable securities amounting to euro 1,863 million (2009: euro 2,210 million), mainly in connection with the further externalisation of pension obligations, coverage in 2010 amounted to euro 4,471 million (2009: coverage of euro 1,456 million) or 221.5% (2009: 142.0%). Free cash flow of the Automobiles segment can be analysed as follows: in euro million 31. 12. 2010 31. 12. 2009 Cash inflow from operating activities Cash outflow for investing activities Net investment in marketable securities Free cash flow Automobiles segment 8,150 – 5,542 1,863 4,471 4,921 – 5,675 2,210 1,456 Due to the higher level of investment in leased products and receivables from sales financing, the cash flow state- ment of the Financial Services segment shows a shortfall of 59.1% of cash outflow for investing activities against cash inflows from operating activities (2009: coverage of 115.8%). After adjustment for the effects of exchange-rate fluctua- tions and changes in the composition of the BMW Group amounting to a net positive amount of euro 26 million (2009: euro 18 million), the various cash flows resulted in a decrease in cash and cash equivalents of euro 335 mil- lion (2009: increase of euro 313 million). 53 GROUP MANAGEMENT REPORT Net financial assets of the Automobiles segment comprise the following: in euro million 31. 12. 2010 31. 12. 2009 Cash and cash equivalents Marketable securities and investment funds Intragroup net financial receivables Financial assets Less: external financial liabilities* Net financial assets * excluding derivative financial instruments 5,585 1,134 5,690 12,409 –1,123 11,286 4,331 1,129 8,272 13,732 – 4,770 8,962 Net assets position The Group balance sheet total increased by euro 6,914 million (+ 6.8%) to stand at euro 108,867 million at 31 December 2010. Adjusted for changes in exchange rates, the balance sheet total would have increased by 1.7%. The main factors behind the increase on the assets side of the balance sheet were receivables from sales financing (+ 11.8%), inventories (+ 18.5%), other assets (+ 16.8%) and trade receivables (+25.4%). By contrast, decreases were recorded for intangible assets (– 6.5%) as well as for cash and cash equivalents (– 4.3%). On the equity and liabili- ties side of the balance sheet, the increase was due to the rise in equity (+ 16.0%), other liabilities (+ 25.2%), trade payables (+39.4%) and financial liabilities (+1.7%). Pen- sion provisions decreased by 47.4%. At euro 5,031 million, intangible assets were euro 348 mil- lion lower than at the end of the previous reporting period. Within intangible assets, capitalised development costs decreased by euro 309 million to euro 4,625 mil- lion. Development costs recognised as assets during the year under report amounted to euro 951 million (–12.5%), equivalent to a capitalisation ratio of 34.3% (2009: 44.4%). The lower level of additions to capitalised development costs in 2010 was due to cost and process efficiencies during the series development phase. The corresponding amortisation expense was euro 1,260 million (2009: euro 1,226 million). ments for production start-ups and infrastructure improve- ments. Depreciation on property, plant and equipment totalled euro 2,303 million (+ 1.9%). Balances brought forward for subsidiaries being consolidated for the first time amounted to euro 14 million. Total capital expendi- ture as a percentage of revenues was 5.4% (2009: 6.8%). Leased-out products decreased by euro 182 million or 1.0%. Excluding the effect of exchange rate fluctuations, leased-out products would have decreased by 4.8 %. Other investments fell by 23.7% to euro 177 million, mainly as a result of impairment losses recognised on investments in non-consolidated subsidiaries. Receivables from sales financing were up by 11.8% to euro 45,365 million due to higher business volumes. Of this amount, customer and dealer financing accounted for euro 35,460 million (+ 10.9%) and finance leases ac- counted for euro 9,905 million (+ 14.9%). Inventories rose by euro 1,211 million or 18.5% to euro 7,766 million. Adjusted for exchange rate factors, the increase would have been 13.1%. The increase reflects the effect of stocking-up in conjunction with the intro- duction of new models and the expansion of business operations. Trade receivables were 25.4% higher than at 31 Decem- ber 2009. Property, plant and equipment increased slightly (+ 0.4%) to euro 11,427 million. Capital expenditure of euro 2,235 million was 4.2% lower than in the previous year (2009: euro 2,334 million). The main focus was on product invest- Financial assets increased by 8.3% to euro 5,129 million, mainly as a result of the higher fair values of derivative portfolios. 12 12 14 18 41 44 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 62 63 70 54 Balance sheet structure – Group in euro billion Non-current assets 60 % 61 % 20 % 44 % 21 % 42 % Equity Non-current provisions and liabilities Current assets 40 % 39 % 36 % 37 % Current provisions and liabilities thereof cash and cash equivalents 7 % 8 % 2010 2009 2009 2010 109 102 102 109 Balance sheet structure – Automobiles segment in euro billion Non-current assets 42 % 41 % Equity Current assets 58 % 44 % 42 % 56 % 18 % 40 % 14 % 45 % Non-current provisions and liabilities Current provisions and liabilities thereof cash and cash equivalents 10 % 8 % 2010 2009 2009 2010 59 53 53 59 Liquid funds decreased by 4.4% to euro 8,998 million. Liquid funds comprise cash and cash equivalents as well as marketable securities and investment fund shares (the last two items reported as financial assets). Within that item, marketable securities and investment fund shares decreased by euro 82 million. Cash and cash equivalents went down by euro 335 mil- lion to euro 7,432 million. On the equity and liabilities side of the balance sheet, equity increased by euro 3,185 million (+ 16.0%) to euro 23,100 million, due to the net profit for the year (+ euro 3,234 million) and translation differences (+ euro 683 mil- lion). Deferred taxes on fair value gains and losses recog- nised directly in equity increased equity by euro 263 mil- lion. Group equity decreased as a result of actuarial losses on pension obligations resulting from lower inter- est rates (– euro 277 million) and in conjunction with the 55 GROUP MANAGEMENT REPORT fair value measurement of derivative financial instru- ments (– euro 520 million) and marketable securities (– euro 16 million). The dividend payment reduced Group equity by euro 197 million. The Authorised Capital created at the Annual General Meeting held on 14 May 2009 in conjunction with the employee share scheme was partially used during the financial year under report to issue shares of preferred stock to employees, increasing subscribed capital by euro 0.5 million. An amount of euro 18 million was transferred to capital reserves in conjunction with this share capital increase. Other items reduced equity by euro 3 million. The equity ratio of the BMW Group improved overall by 1.7 percentage points to 21.2%. The equity ratio of the Automobiles segment was 40.9% (2009: 41.7%) and that of the Financial Services segment was 7.1% (2009: 6.0%). Pension provisions decreased by 47.4% to euro 1,563 mil- lion. In the case of pension plans with fund assets, the fair value of fund assets is offset against the defined benefit obligation. The decrease was mainly due to the transfer of a further tranche of pension obligations to BMW Trust e.V., Munich, in conjunction with Contractual Trust Arrangements (CTAs). Lower interest rates in Ger- many had the effect of increasing the provision. Other provisions increased by euro 783 million (+ 16.4%) to euro 5,547 million. Within other provisions, provisions for personnel-related expenses went up by euro 432 mil- lion, provisions for other obligations by euro 207 million and provisions for on-going operational expenses by euro 144 million. Financial liabilities increased by 1.7% to euro 62,353 mil- lion, mostly due to exchange rate factors. Within financial liabilities, derivative instruments increased by 83.9% to euro 2,010 million, liabilities from customer deposits by 7.6% to euro 10,689 million and bonds by 2.0% to euro 27,568 million. Working in the opposite direction, liabili- ties to banks decreased by 15.6% to euro 7,740 million and asset-backed-financing liabilities were down by 3.9% to euro 7,506 million. Trade payables amounted to euro 4,351 million and were thus 39.4% higher than one year earlier. Other liabilities increased by euro 1,572 million to euro 7,822 million. Overall, the earnings performance, financial position and nets assets of the BMW Group improved significantly dur- ing the financial year under report. Compensation report The compensation of the Board of Management com- prises both a fixed and a variable component. In addi- tion, benefits are also payable at the end of members’ mandates, primarily in the form of pension benefits. Further details, including an analysis of remuneration by individual, are disclosed in the Compensation Report, which can be found in the Corporate Governance sec- tion of the Annual Report on pages 140 et seq. The Compensation Report is a sub-section of the Manage- ment Report. Subsequent events report No events have occurred after the balance sheet date which could have a major impact on the earnings performance, financial position and nets 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 amor- tisation, 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 amount treats depreciation as a component of value added which, in the allocation statement, is treated as internal financing. Net value added by the BMW Group in 2010 increased by 42.7% to euro 14,902 million, reflecting the fact that the value of work performed rose significantly faster than the value of work bought in. The bulk of the net value added (48.8%) is applied to em- ployees. The proportion applied to providers of finance fell to 15.9%, mainly due to the further easing of pressure on international capital markets. The government / pub- lic sector (including deferred tax expense) accounted for 13.6%. The proportion of net value added applied to shareholders, at 5.7%, was higher than in the previous year. Other shareholders take a 0.1% share of net value added. The remaining proportion of net value added (15.9%) will be retained in the Group to finance future operations. 56 12 12 14 18 41 44 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 62 63 70 BMW Group Value added statement 2010 in euro million 2010 in % 2009 in euro million 2009 in % Change in % 60,477 – 7 766 61,236 32,108 7,548 39,656 21,580 6,678 14,902 7,278 2,363 2,027 852 2,366 16 98.7 – 1.3 100.0 52.4 12.4 64.8 35.2 10.9 24.3 48.8 15.9 13.6 5.7 15.9 0.1 50,681 488 808 51,977 27,399 6,845 34,244 17,733 7,292 10,441 6,395 3,243 593 197 7 6 97.5 0.9 1.6 100.0 52.7 13.2 65.9 34.1 14.0 20.1 61.2 31.1 5.7 1.9 0.1 – 17.8 15.8 21.7 42.7 13.8 – 27.1 – – – – 14,902 100.0 10,441 100.0 42.7 Work performed Revenues Financial income and expenses 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 * including expenses incurred to downsize the workforce BMW Group Value added 2010 in % Depreciation and amortisation Other expenses 48.8 % Employees Net value added Cost of materials Net value added Cost of materials 24.3 52.4 Depreciation and amortisation 10.9 Other expenses 12.4 15.9 % Providers of finance 13.6 % Government / public sector 5.7 % 15.9 % Shareholders Group 0.1 % Other shareholders 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 Coverage of cash outflow from investing activities by cash inflow from operating activities Free cash flow of Automobiles segment Net financial assets Automobiles segment 2010 2009 % % % % % % % % % % % % % % % euro million euro million % euro million euro million 18.0 14.5 8.4 8.0 5.3 24.3 16.2 21.2 40.9 7.1 140.4 19.6 40.2 18.0 26.1 13,651 14,522 94.0 4,471 11,286 10.5 7.7 0.6 0.8 0.4 2.0 1.0 19.5 41.7 6.0 118.8 3.3 – 4.7 9.2 10,271 11,328 90.7 1,456 8,962 12 12 14 18 41 44 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 62 63 70 58 Comments on Financial Statements of BMW AG The financial statements of BMW AG are drawn up in accordance with the German Commercial Code (HGB) and the German Stock Corporation Act (AktG). The pro- visions of the German Accounting Law Modernisation Act (BilMoG) were applied for the first time in the finan- cial year 2010. Prior year figures have not been restated. Application of the BilMoG requirements had an impact on extraordinary items in the income statement and revenue reserves in the balance sheet. BMW AG develops, manufactures and sells cars and motorcycles manufactured by itself and foreign sub- sidiaries. These vehicles are sold through the Company’s own branches, independent dealers, subsidiaries and importers. The number of cars manufactured at German and foreign plants in 2010 rose by 17.7% to 1,481,253 units. The workforce of BMW AG decreased by 705 to 69,518 employees at 31 December 2010, primarily as a result of natural employee fluctuation, pre-retirement part-time working arrangements and voluntary employ- ment contract termination agreements. Widespread economic recovery and model life cycle fac- tors resulted in strong sales volume growth, which was reflected in a 20.5% growth in revenues. The most sig- nificant increase was recorded in Asia. Sales to Group sales companies accounted for euro 32.6 billion or ap- proximately 71.2% of total revenues of euro 45.8 billion. The increase in cost of sales was less pronounced than the increase in revenues, mainly due to reduced material costs. As a consequence, gross profit increased by euro 3.3 billion to euro 8.6 billion. The decrease in other operating income and expenses and in the result on investments was attributable to re- duced income from Group companies and the lower level of income from the reversal of provisions. The profit from ordinary activities increased from euro 605 million to euro 2,337 million. Extraordinary income and expenses mainly contain items relating to the first-time application of BilMoG: this gave rise to net extraordinary income of euro 274 mil- lion in 2010. Further information on the impact of BilMoG is provided in the notes to the financial statements of BMW AG. The tax expense in 2010 comprises current year tax and adjustments for previous years arising in connection with intra-group transfer pricing arrangements. The re- sulting threat of a double taxation charge at Group level is being avoided primarily by instigating bilateral appeal proceedings. After deducting the expense for taxes, the Company reports a net profit of euro 1,506 million (2009: euro 202 million). Investments went up from euro 1,303 million at the end of 2009 to euro 1,875 million at 31 December 2010, mainly as a result of capital increases made at the level of BMW Bank GmbH, Munich, following a cash contribution from BMW AG and the transfer of an investment by way of non-cash contribution. The merger of BMW Ingenieur- Zentrum GmbH, Dingolfing, and hence the automatic transfer of assets and liabilities of BMW Ingenieur-Zen- trum GmbH + Co oHG, Dingolfing, to BMW AG, Munich, had the effect of reducing investments. Capital expenditure on intangible assets and property, plant and equipment amounted to euro 1,582 million (2009: euro 1,667 million), 5.1% lower than in the pre- vious year. The main focus in 2010 was on product in- vestments for production start-ups. In addition, property, plant and equipment with a carrying amount of euro 703 million was transferred to BMW AG in conjunction with the restructuring measure referred to above. Depreci- ation and amortisation amounted to euro 1,540 million. In order to secure obligations resulting from pre-retire- ment part-time work arrangements and a part of the Company’s pension obligations, assets were transferred to BMW Trust e.V., Munich, in conjunction with Contrac- tual Trust Arrangements (CTA). The assets concerned comprise mainly holdings in investment fund assets and a receivable resulting from a so-called “Capitalisation Transaction” (Kapitalisierungs geschäft). A further tranche of pension obligations was externalised in 2010. Follow- ing the implementation of BilMoG, fund assets have been offset for the first time against the related guaran- teed obligations. The resulting surplus of assets over liabilities is reported in the BMW AG balance sheet on the line “Surplus of pension and similar plan assets over liabilities”. Equity rose by euro 1,734 million to euro 7,088 million. The first-time application of BilMoG resulted in a euro 407 million increase in reserves. The equity ratio im- proved from 21.7% to 29.1%. The amount recognised in the balance sheet for pension provisions fell to euro 24 million. This was attributable to the first-time offsetting of pension obligations against assets transferred to BMW Trust e.V., Munich, as part of the process of externalising pension obligations. External liabilities to banks and from commercial paper programmes were reduced during the financial year. In the opposite direction, liabilities to subsidiaries in conjunction with intra-group financing arrangements increased. 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 Surplus of pension and similar plan assets over liabilities Total assets Equity and liabilities Subscribed capital Capital reserves Revenue reserves Unappropriated profit available for distribution Equity Registered profit-sharing certificates Pension provisions Other provisions Provisions Liabilities to banks Trade payables Liabilities to subsidiaries Other liabilities Liabilities Deferred income Total equity and liabilities 2010 2009 141 6,257 1,875 8,273 3,259 667 6,448 1,122 2,556 1,574 145 5,536 1,303 6,984 2,620 690 6,197 882 4,987 2,195 15,626 17,571 106 341 92 – 24,346 24,647 655 2,019 3,562 852 7,088 33 24 6,613 6,637 512 2,384 7,366 322 10,584 655 2,001 2,501 197 5,354 34 4,586 6,323 10,909 2,488 1,548 2,409 1,902 8,347 4 3 24,346 24,647 60 12 12 14 18 41 44 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook 62 63 70 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 Extraordinary income Extraordinary expenses Income taxes Other taxes Net profit Transfer to revenue reserves Unappropriated profit available for distribution 2010 2009 45,773 – 37,125 8,648 – 2,783 – 1,345 – 2,537 567 152 – 365 2,337 314 – 39 –1,088 –18 1,506 – 654 852 37,980 – 32,679 5,301 – 3,105 –1,379 – 2,451 1,243 1,084 – 88 605 – – – 393 – 10 202 – 5 197 61 GROUP MANAGEMENT REPORT KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, has issued an unqualified audit opinion on the financial statements of BMW AG, of which the balance sheet and the income statement are presented here. The BMW AG financial statements for the financial year 2010 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. 12 12 14 18 41 44 47 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 62 Internal Control System and explanatory comments 63 70 Risk Management Outlook 62 Internal Control System* and explanatory comments The internal control system in place throughout the BMW Group is aimed at ensuring the effectiveness of operations. It makes an important contribution towards ensuring compliance with the laws that apply to the BMW Group as well as providing assurance on the pro- priety and reliability of internal and external financial reporting. The internal control system is therefore a sig- nificant factor in the management of process risks. The principal features of the internal control system and the risk management system, as far as they relate to individ- ual entity and Group financial reporting processes, are described below. Information and communication One component of the internal control system is that of “Information and Communication”. It ensures that all the information needed to achieve the objectives set for the internal control system is made available to those responsible in an appropriate and timely manner. The re- quirements relating to the provision of information rele- vant for financial reporting at the level of BMW AG, other consolidated Group entities and the BMW Group are primarily set out in organisational manuals, in guidelines covering internal and external financial reporting issues and in accounting manuals. These instructions, which can be accessed at all levels via the BMW Group’s intranet system, provide the framework for ensuring that the rele- vant rules are applied consistently throughout the Group. The quality and relevance of these instructions is en- sured by regular review as well as by continuous commu- nication between the relevant departments. Organisational measures All financial reporting processes (including Group finan- cial reporting processes) are structured in organisational terms in accordance with the principle of segregation of duties. In combination with the rigorous application of the principle of dual control, these structures allow errors to be identified at an early stage and prevent potential wrongdoing. Regular comparison of internal forecasts and external financial reports improves the quality of finan- cial reporting. The internal audit department serves as a process-independent function, testing and assessing the effectiveness of the internal control system and pro- posing improvements when appropriate. Controls Extensive controls are carried out by management in all financial reporting processes at an individual entity and * disclosures pursuant to § 289 (5) HGB and § 315 (2) no. 5 HGB Group level, thus ensuring that legal requirements and internal guidelines are complied with and that all business transactions are properly executed. Controls are also car- ried out with the aid of IT applications, thus reducing the incidence of process risks. IT authorisations All IT applications used in financial reporting processes throughout the BMW Group are subject to access restric- tions, allowing only authorised persons to gain access to systems and data in a controlled environment. Access authorisations are allocated on the basis of the nature of the duties to be performed. In addition, IT processes are designed and authorisations allocated using the dual control principle, as a result of which, for instance, re- quests cannot be submitted and approved by the same person. Internal control training for employees All employees are appropriately trained to carry out their duties and kept informed of any changes in regulations or processes that affect them. Managers and staff also have access to detailed best-practice descriptions relating to risks and controls in the various processes, thus in- creasing risk awareness at all levels. As a consequence, the internal control system can be evaluated regularly and further improved as necessary. Employees can, at any time and independently, deepen their understanding of control methods and design using an information plat- form that is accessible throughout the entire Group. Evaluating the effectiveness of the internal control system Responsibilities for ensuring the effectiveness of the in- ternal control system in relation to individual entity and Group financial reporting processes are clearly de- fined and allocated to the relevant managers and process owners. The BMW Group assesses the design and effec- tiveness of the internal control system on the basis of in- ternal review procedures (e.g. management self-audits, internal audit findings). Audits performed at regular in- tervals show that the internal control system in place throughout the BMW Group is both appropriate and ef- fective. Continuous revision and further development of the internal control system ensures its continued effec- tiveness. Group entities are required to confirm regu- larly as part of their reporting duties that the internal control system is functioning properly. Effective measures are implemented whenever weaknesses are identified and reported. 63 GROUP MANAGEMENT REPORT Risk Management Risk management in the BMW Group The BMW Group’s risk management system comprises a wide range of finely tuned organisational and meth- odological components. It is based on a decentralised structure and supported by a network of risk managers. The risk management system is aimed at encouraging a balanced approach to risks at all organisational levels. The risk management process is applied throughout the Group and comprises the early identification and analysis of opportunities and risks, their measurement and the use of suitable instruments to manage and monitor risks. As part of the risk reporting system, deci- sion makers are regularly informed about risks that could have a significant impact on business performance. Business decisions are reached after consideration of in- depth project analyses which show both potential risks and potential opportunities. In conjunction with the Group’s monthly and medium- and long-term forecasting systems, opportunities and risks attached to specific business activities are evaluated and used as the basis for implementing measures to mitigate risks and achieve targets. Important success factors are monitored con- tinuously to ensure that unfavourable developments are identified at an early stage and appropriate counter- measures implemented. Changes in the legal, economic or regulatory environ- ment or within the Company itself can only be assessed in good time by means of ongoing processes. Standard- ised rules and procedures consistently applied through- out the BMW Group form the basis for an organisation that is permanently learning. By regularly sharing expe- riences with other companies, we ensure that innovative ideas and approaches are incorporated in the risk manage- ment system and that risk management is subjected to continual improvement. Regular basic and further train- ing as well as information events are invaluable ways of preparing staff for new or additional requirements with regard to the processes in which they are involved. Risk management is performed centrally and reviewed regularly for appropriateness and effectiveness by inter- nal auditors. Knowledge gained from these audits serves as the basis for further improvements. Consciously tak- ing calculated risks and making full use of the opportu- nities relating to them has long been the basis for our cor- porate success. As a globally operating organisation, the BMW Group is exposed to a variety of risks, arising in part from the in- creasing internationalisation of business activities and ever-greater competition. Price fluctuations on the global currency, money, capital and commodities markets as well as shorter innovation cycles result in increasing com- plexity, all of which place great demands on enterprises with international operations. In risk management terms, the financial year 2010 can be sub-divided into two principal phases. During the first half of the year, the knock-on effect of the international economic and financial crisis was still highly evident and the main focus was to manage related risks. The euro /US dollar exchange rate stood at approximately 1.45 at the beginning of the year, in retrospect its highest level for the year. Some sales markets, particularly the USA, did not recover quickly from the consequences of the crisis. More to the point, the worry of renewed recession emerged. It was only over the course of the year that op- portunities gained the upper hand as some of the world’s economies picked up perceptibly. In this situation, pro- active management helped us make the most of the op- portunities that arose. At present, no risks have been identified which could threaten the going-concern status of the BMW Group or which could have a materially adverse impact on the net assets, financial position or results of operations of the Group. However, risks can never be entirely ruled out. The main aspects of risk management activities are de- scribed below. Additional comments on risks in conjunc- tion with financial instruments are provided in the notes to the Group Financial Statements. Risks relating to the general economic environment Global conditions were subject to a great deal of change during the past year. Regional economic growth differ- ences and various measures designed to revive the economy in the wake of the worldwide economic and financial crisis were significant for Group revenues and earnings. The sale of vehicles outside the European Currency Union gives rise to exchange risks, in particular in rela- tion to the Chinese renminbi, the US dollar, the British pound and the Japanese yen. These four currencies accounted for over two-thirds of our total foreign cur- rency exposure in 2010. Cash-flow-at-risk models and scenario analyses are used to measure exchange rate 12 12 14 18 41 44 47 62 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 63 70 Risk Management Outlook 64 risks. These instruments also serve as part of the process of currency management for the purpose of taking busi- ness decisions. We manage currency risks both at a strategic and at an operating level. At a strategic level (medium and long term), foreign exchange risks are managed by “natural hedging”, in other words by increasing the volume of purchases denominated in foreign currency or increas- ing the volume of local production. In this context, the completed expansion of the plant in Spartanburg, USA, and the new factory in Shenyang, China (under con- struction), will help to reduce foreign exchange risks in two major sales markets. For operating purposes (short and medium term), currency risks are hedged on the financial markets. Hedging transactions are entered into only with financial partners that have a good credit standing. Counterparty risk management procedures are carried out continuously to monitor creditworthiness. The relevant procedures are set out in mandatory work instructions. Interest-rate risks are managed by raising refinancing funds with matching maturities and by employing de- rivative financial instruments. Interest-rate risks are measured and limited both at country and Group level on the basis of a value-at-risk approach. Limits are meas- ured and interest-rate risks assessed on the basis of the risk-bearing concept, combined with targets defined in conjunction with the benchmark approach. 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 impact of interest-rate changes on earnings, are also used as tools to manage interest-rate risks. Access to liquid funds across the Group is ensured by a broad diversification of refinancing sources. The use of a wide range of capital market instruments has proven its worth, particularly in the midst of the difficult business environment caused by the banking and financial crisis. Knowledge gained from the financial crisis has been incorporated into a so-called “target liquidity concept”. Liquidity risk is continuously monitored at a separate entity level. A cash flow requirements and sourcing fore- cast system is also implemented throughout the Group to document and manage liquidity risk. Most of the Finan- cial Services segment’s credit and lease business is re- financed on the capital markets. The BMW Group has good access to the capital markets, thanks on the one hand to a diversified refinancing strategy and a solid liquidity base on the other, as con- firmed by internationally recognised rating agencies. The Group’s good creditworthiness is reflected in the long- standing first-class short-term ratings issued by Moody’s (P-2) and Standard & Poor’s (A-2), a good basis for obtain- ing competitive refinancing conditions for short-term debt. The outlook issued by the agencies alongside the ratings was also lifted thanks to the recovery of sales markets and the generally improved economic situation. In Sep- tember 2010, Moody’s (long-term rating: A3) and Stand- ard & Poor’s (long-term rating: A–) both raised their outlook from negative to stable. During the financial year under report, we were once again able to raise funds at good conditions. Major factors contributing to this were our diversified refinancing strategy, solid liquidity and strong free cash flows. If this trend continues, the rating agencies may also raise credit- worthiness assessments for companies in the automobile sector. Business performance is also influenced by conditions prevailing on the international commodities markets. In order to safeguard the supply of production materials and minimise the cost risk, all relevant commodities mar- kets are closely monitored. Raw material prices rose steadily as a consequence of high market liquidity and the revival of the global economy. Over the course of 2010, we reaped the benefits of hedging contracts previ- ously put in place. We took advantage of the favourable market situation at the end of 2009 and beginning of 2010 to hedge the prices of precious metals (such as plat- inum, palladium and rhodium) and of non-ferrous metals for the current and future years using derivative instru- ments. Changes in the price of crude oil, which is an im- portant basic material in the manufacture of components, have an indirect impact on our production costs. The price of crude oil also directly influences the purchasing behaviour of motorists when fuel prices change. An escalation of political tensions and terrorist activi- ties, natural catastrophes or possible pandemics could cause raw material shortages on the one hand and, if materials and parts fail to be delivered, could result di- rectly in lost production. Such factors could, however, also impact business performance indirectly if they affect the economy and the international capital markets. 65 GROUP MANAGEMENT REPORT Sector risks The future price of fuel – influenced both by market fac- tors and governmental fiscal policies – as well as in- creasingly stringent requirements to reduce vehicle fuel consumption and emissions remain the primary chal- lenges for our engine and product development activities. Our Efficient Dynamics concept is generating visible benefits in terms of cutting consumption and emissions. Medium- to long-term requirements have been put in place in Europe, North America, Japan, China and other countries with respect to vehicle fuel consumption and CO2 emissions. More than 90% of the BMW Group’s sales are covered by these requirements. Europe has set a tar- get of achieving an average of 130 g / km for all new vehi- cles by 2015. EU regulations set targets for CO2 emissions based on vehicle weight. For our product range, a target of below 140 g / km has been derived on the basis of the new rules. A uniform consumption and CO2 regulation will apply for the model years 2012 to 2016 in the USA. Starting with a step-by-step reduction in model year 2012, the new vehicle fleets of all manufacturers are expected to come down to an average value of 250 g of CO2 per mile in model year 2016. The Japanese government has also set ambitious targets to reduce consumption, includ- ing statutory regulations for 2010 and 2015. The govern- ment in China is currently discussing the introduction of fuel consumption requirements (more stringent than current ones) planned to come into force in 2012. Political discussions are currently being held worldwide regarding potential new legislation for the period up to 2020 and beyond. Increased expectations for alternative drive systems and fuels pose new challenges. We are addressing these challenges with our technological ex- pertise and innovative strength to achieve significant and consistent reductions in CO2 emissions. The need to reduce both consumption and emissions is an integral part of the Group’s product innovation process. We are therefore carrying out studies into the interplay of energy management, aerodynamics, lightweight construction, performance and CO2 emissions. The Efficient Dynamics concept was adopted some years ago: a combination of highly efficient engines, improved aerodynamics, light- weight construction and energy management reduces the average fuel consumption and emissions across the vehicle fleet. In the medium term we will achieve greater fuel economy through electrifying the drive train and developing comprehensive hybrid systems. We are also working on solutions for sustainable mobility in densely populated areas. For example, large-scale field trials are currently being carried out with the MINI E in the UK, Germany, France, the USA, China and Japan. The BMW ActiveE, an electrically powered vehicle based on the BMW 1 Series Coupé, will be on the roads from 2011. The practical experience gained from these two trials is con- tinually being incorporated in the ongoing series devel- opment of our electric vehicles. The Megacity Vehicle will be launched as a series production electric vehicle as from 2013. The use of hydrogen gained from various renewable sources to power engines also remains an important component in our long-term strategy towards sustainable mobility. The BMW Group’s Efficient Dynamics strategy enables it to comply with legal standards. There is a risk that these standards will be further raised. Operating risks The flexible nature of our production network and work- ing time models generally helps to reduce operating risks. In addition, risks arising from business interruptions and loss of production are also insured up to economi- cally reasonable levels with insurance companies of good credit standing. An evaluation of technical competence and financial strength is taken into account as part of the process of selecting suppliers. Before a contractual relationship comes into being, supplier relationship management procedures, which also cover social and ecological as- pects, help to reduce risk exposure. We continue to as- sess and manage supplier performance during the series production phase, thus creating the basis for enduring and stable working relationships with our suppliers. Close cooperation between manufacturers and suppliers is usual in the automotive sector, and although this pro- vides economic benefits, it also creates a certain degree of mutual dependence. Delivery delays and cancellations due to strikes, natural catastrophes, fire or insolvencies can lead to production stoppages and thus have a negative impact on profitability. A consistent strategy of interven- tion management enabled all supplier-related crises to be successfully mastered. Risks relating to the provision of financial services The economic recovery seen over the past year has had a favourable impact on the overall risk situation. Risks 12 12 14 18 41 44 47 62 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 63 70 Risk Management Outlook 66 are identified, measured, monitored, evaluated and managed in the BMW Group on the basis of recognised standards and regulations that generally apply world- wide in this line of business. Risk management is based on concepts, methods and procedures developed and continuously being updated within the regulated bank- ing sector, e.g. the “Minimum Requirements for Risk Management” (MaRisk) applicable in Germany. The main categories of risk relating to the provision of financial services are credit and counterparty risk, residual value risk, interest rate risk, liquidity risk and operating risks. We have developed internal methodologies and techniques that comply with national and international standards and regulatory requirements such as Basel II to measure credit, residual value and interest rate risks on the one hand and operational risks on the other. Internal guidelines are also in place to manage liquidity risk and ensure compliance with regulatory requirements. Credit risks arise in conjunction with lending to retail customers (leasing, credit financing) and commercial customers (dealers, fleet customers, importers). Counter- party risks arise on financial transactions with banks and financial institutions entered into to refinance business and manage risk. Advanced scoring and rating models are employed to assess customers’ creditworthiness as part of the risk management process for lending. Lending is based on a conservative evaluation of col lateral (nor- mally the financed vehicle or object). The recoverability of the value of collateral is continu- ously checked and measured in order to assess the level of unsecured risks. Stress tests and back-testing proce- dures ensure that the measurement of our portfolios is up to date. Modern credit-value-at-risk methods, incorpo- rating binding and fixed limits for credit risks, are used for measurement purposes. These limits are regularly reviewed every quarter. In order to minimise risk, we em- ploy typical banking instruments such as retrospective collateral, multiple collateral, retention of vehicle docu- ments and higher upfront payments. In addition, close and regular contact with borrowers, a good understanding of the leased or financed vehicles involved (including subsequent disposal of the asset) and prudent measurement of collateral all help to mini- mise risk substantially. Lending based on typical bank- ing sector criteria and guidelines together with principles derived from MaRisk, such as segregation of duties be- tween front-office and back-office functions, dual control at all stages of the credit decision, risk-based upfront payments and mandatory authorisation matrices, are integral components of the Group’s risk-based credit processes. All process steps, such as segregation of duties, or the use of techniques to recognise risks at an early stage, are required to be applied worldwide. Appropriate testing is carried out to ensure that the systems are up to date and working properly. Local, regional and centralised credit audits are regularly performed to test compliance with lending guidelines applicable throughout the Group, credit processes and the underlying IT systems. We continue to develop standardised credit decision processes for the BMW Group worldwide and are con- stantly endeavouring to improve the quality of credit applications, the Group’s rating methodology and pro- cedures used to select employees within the worldwide counterparty risk network. Risk criteria with worldwide applicability, such as retail customer arrears, bad debt ratios, the expense for allo- cations to bad debt allowances and the proportion of dealer financing volumes subject to problems are calcu- lated and analysed on a monthly or quarterly basis and used in the context of proactive risk management. This information is provided to local, regional and centralised management along with appropriate recommendations for action as the basis for decision-making. The measures taken enabled us to present, measure and manage credit risk more transparently in 2010 and to reduce its level accordingly. The provision for credit risks in the field of dealer financing was raised in 2010 as a consequence of the delayed effect of the financial crisis. This field is only likely to return to anywhere near normal levels after a delay of one to three years. All credit risk decisions relating to international dealers, importers and fleet customers are made in a three-stage credit decision process. Alongside the total credit amount (before and after deduction of collateral), the credit rat- ing allocated and the requirement to comply with stipu- lated credit risk guidelines provide the basis for this process. The final decision is made by the national, re- gional or global credit committee, and the back-office input to the relevant committees cannot be overruled. Specific and general allowances are recognised at the ap- propriate amounts to cover identified risks. 67 GROUP MANAGEMENT REPORT In the case of vehicles which remain with the BMW Group at the end of a lease (leases and credit financing arrangements with option of return), there is a risk that the originally calculated residual value may not be recovered when the vehicle is sold (residual value risk). The vola tility of pre-owned car prices on the major sales markets has intensified as a consequence of the financial crisis. The risk of incurring residual value losses in the Financial Services segment has increased accordingly. Residual values are calculated uniformly throughout the BMW Group in accordance with mandatory guidelines. The residual values of our vehicles on used car markets are continuously monitored over long periods and future developments projected. External market observations are also used in this context. The overall risk position is measured by comparing forecasted market values and contractual residual values by model and market. We also compute the return ratio for leased vehicles. The risk of unexpected loss is measured using a value-at-risk ap- proach. The resulting revaluation of the portfolio of vehi- cles exposed to residual value risks and losses incurred selling pre-owned cars had an additional negative im- pact on the earnings of the Financial Services and Auto- mobiles segments. Expected risks are covered in the balance sheet either by provisions or by write-downs on the lease vehicles concerned. The situation on used car markets stabilised during the financial year 2010. For this reason, the level of provision did not need to be raised further in this area. We counteract declining residual values by actively managing the life cycles of current models, optimising reselling processes on international markets and implementing targeted price and volume measures. Residual values in the leasing business are reviewed regularly and adjusted to take account of the latest market conditions and expected future develop- ments. Interest rate risks are measured initially at country level and then aggregated at Group level. Maximum risk ex- posures are also initially managed at country level in the form of risk limits. The overall exposure from interest rate risks is managed at Group level. Operational risks relating to Financial Services business include 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 re- quirements of Basel II. This manual stipulates the rules for identifying and measuring potential risk scenarios and for computing key risk indicators on an ongoing basis. It also sets out the Group’s systematic approach to recording losses and the nature of any agreed risk-miti- gation measures. We take account of qualitative as well as quantitative aspects in the decision process. The latter is backed up by various system-based solutions, all of which follow the principles of operational risk manage- ment, such as segregation of duties, dual control, the documentation of system changes and transparency. In addition, the effectiveness and efficiency of the internal control system are tested regularly. Legal risks Compliance with the law is one of the basic prerequisites for our success. Current law provides the binding frame- work for our wide range of activities around the world. The growing international scale of business and the huge number of complex legal regulations increase the risk of laws being broken, simply because they are not known or fully understood. We therefore take all necessary measures to ensure that our management bodies, man- agers and staff always act in compliance with the law. It is essential for all employees to know and to comply with current legal regulations. The extent of those regula- tions is set out in corporate guidelines and in the BMW Group’s stated set of core principles. However, wrong- doing by individuals can never be entirely ruled out. Our objective is to keep such risks to a minimum and to systematically uncover any cases of corruption, brib- ery or blackmail. Further information on compliance within the BMW Group is included in the “Compliance Report”. Like all enterprises, we are exposed to the risk of war- ranty claims, product liability claims and other legal dis- putes which are typical for the sector or which arise as a con sequence of realigning our product or purchasing strategy to suit changed market conditions. Adequate provisions have been recognised in the balance sheet to cover any such claims. Part of the risk, especially where the US market is concerned, has been insured ex ternally up to economically acceptable levels. The high quality of our products, additionally ensured by regular quality audits and ongoing improvement measures, helps to reduce this risk. In comparison with competitors, this can give rise to benefits and opportunities for the BMW Group. 68 12 12 14 18 41 44 47 62 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 63 70 Risk Management Outlook Apart from the issues discussed above, the BMW Group is not currently involved in any court or arbitration pro- ceedings that could have a significant impact on its finan- cial condition. Changes in the regulatory environment may impair our sales volume, revenues and earnings performance in specific markets or economic regions. Further informa- tion is provided in the section on sector-specific risks. Personnel risks As an attractive employer, for many years we have enjoyed a favourable position in the intense competition for qualified technical and management staff. A high level of employee satisfaction helps to minimise the risk of know-how drift. The further development of programmes for new recruits from specific target groups also plays an important part in both recruiting and furthering the careers of highly qualified staff. In 2010, various programmes for manage- ment trainees and school leavers were revised and started afresh. Further progress was made in the programme set up for doctoral postgraduates to encourage highly motivated recruits to engage in innovative activities for the BMW Group. The ageing and shrinking population in Germany will have a lasting impact on the conditions prevailing in the labour, product, services and financial markets. Demo- graphic change will give rise to risks and opportunities which will affect businesses to an increasing degree in the coming years. We see demographic change as one of our main challenges and we are taking a proactive ap- proach to 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 responsi- bility to make personal provisions for their future and (5) Individual employee working life-time models. Our diversity strategy is also increasing our ability to per- form well in the long term. Thanks to the diverse structure of our workforce, we have access to a body of knowledge which ensures that existing sales markets are optimally served, new markets tapped and the inherent strength of the business maintained. 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 rising inflation or longer life expect- ancies can also have an impact on pension obligations. The final tranche of pension obligations in Germany was transferred to an external fund in 2010. The corre- sponding level of assets was transferred to BMW Trust e. V. In the UK, the USA and a number of other countries, funds intended to cover the pension benefits of our employees are also held in pension funds which are kept separate from corporate assets. As a consequence, the level of funds required to finance pension pay- ments out of operations will be substantially reduced in the future. Pension assets of the BMW Group com- prise in terest-bearing securities with a high level of creditworthiness, equities, property and other invest- ment classes. Risk indicators (e.g. value-at-risk) are regularly computed in order to identify risks at an early stage and used to develop measures to mitigate risk. 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 in- terest-generating investments with future pension pay- ments, thereby reducing the interest rate risk relating to pensions. Investments are broadly spread in order to reduce risk. In addition, risk limits for asset management have been defined for each pension fund and are moni- tored continuously. Information and IT risks We attach great importance to the protection of data, busi- ness secrets and innovative development to safeguard against unauthorised access, damage and misuse. The protection of information and data is an integral com- ponent of our business processes and based on Interna- tional Security Standard ISO / IEC 27001. Staff, process design and information technology each play a role in our comprehensive risk and security concept. 69 GROUP MANAGEMENT REPORT The requirement to apply uniform standards across the Group is embedded in our core principles and docu- mented in detailed working instructions. These instruc- tions require employees to handle information appro- priately, ensure that information systems are properly used and that risks pertaining to information technology (IT risks) are dealt with transparently. Purposeful com- munication and training measures create a high degree of security and risk awareness on the part of the employees involved. Employees also receive training from the Group’s Compliance Organisation to ensure compliance with legal and regulatory requirements. Potential IT risks resulting from the use of information technology and from the processing of information are regularly documented and reported on as part of the risk management process. Senior management is respon- sible for all decisions involving the assumption, mitiga- tion or avoidance of risks. The technical data protection procedures we use prima- rily involve process-specific security measures. Standard activities such as virus scanners, firewall systems, access controls at both operating system and application level, internal testing procedures and the regular backing up of data are also employed. A security network is in place Group-wide to ensure compliance with security specifi- cations. Regular analyses and rigorous security manage- ment ensure high-quality protection. This includes the activities of our centralised IT Security Operation Centre, which is responsible for the security of internal network communications. Protecting BMW Group-specific know-how is also treated as a major issue as far as cooperation arrangements and relationships with partner companies are concerned. We protect our intellectual property by stipulating clear in- structions with regard to data protection and the use of information technology. Information underlying key areas of expertise is subject to particularly stringent secu- rity measures. 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 70 Outlook The economic environment in 2011 We think it likely that the global economic upswing that began in the second half of 2009 will continue during 2011, albeit with a significantly lower rate of growth. Some persisting risks could, however, result in temporary set- backs for the global economy. countries are set to expand similarly in 2011. The econ- omy in Brazil is also set to cool down slightly in 2011 after an exceedingly good performance over the past year. Russia, too, will probably grow at a marginally lower rate than in the years prior to the financial crisis. Economic growth in the USA is again predicted to be moderate in 2011. The slow recovery of the employment and real estate markets as well as the high level of debt in private households is likely to dampen consumer spending in the USA in 2011 compared with the years before the crisis. The strongest contribution to growth is more likely to come from private investment, while ex- ports are set to drop slightly. Economic growth in Europe as a whole will remain lower than in the USA. Germany will again be the economic driving force in the region, although to a far lesser degree than in 2010. Whereas exports are being affected by the slowing down of the global economy, domestic demand is proving to be quite robust thanks to positive trends on the employment market. The French economy will continue to grow at a similar pace and hence somewhat slower than in Germany. In Italy growth is likely to remain modest, whereas Spain’s economy should grow in 2011 for the first time in four years, even if the situa- tion as a whole remains weak in the face of high unem- ployment and downward adjustments on the property market. In contrast, markets in the UK are likely to grow robustly again in 2011, despite the government’s drastic saving plans. The slow-down of the global economy and the strong yen could well hold down Japan’s exports compared with the past year. Consumer spending will also rise only moderately after the strong performance in 2010, which could well lead to significant slowing down, thus fuelling deflation. The prime drivers of global economic growth will again be the emerging markets in Asia, Latin America and Eastern Europe, with China and India at the forefront. China’s government is likely to undertake massive efforts in 2011 to keep the lid on the economic growth rate, particularly for investment activities, while simultane- ously attempting to encourage private spending. Al- though still at a high level, growth in China could well see a slowing down in 2011. With the pace of growth in India continuing unabated, the economies of the two Euro set to remain strong The US dollar is expected to remain slightly undervalued in 2011. The loss in confidence in the euro caused by the turmoil on European state bond markets should pre- vent another collapse of the US dollar. Low interest rates, public budget and current account deficits are all likely to have a negative impact on the US currency. The British pound continues to be weak against the euro. However, as the economy recovers, it could well gain in value in the long term. The Japanese yen should re- main strong against the euro in 2011 due to the fact that it continues to be seen as a safe investment and to bene- fit from Japan’s current account surplus. Bearing in mind the high liquidity surpluses still being generated on emerging markets, it is likely that currencies here will remain strong against the US dollar and the euro. Car markets in 2011 International car markets should continue to expand in 2011, although somewhat less dynamically than in the past year. China, currently the world’s largest car market, is forecast to grow somewhat more slowly than in the past two years. Recovery in the USA is set to continue gradually in 2011, similar to the rate recorded in 2010. In the European Union, the situation is expected to return to a normal level, now that the effects of state-funded stimulus programmes are coming to an end. Overall, the region’s economy should grow slightly, largely on the back of economic recovery in Eastern Europe. The picture in Western Europe still varies greatly from country to country. Whereas Germany is expected to grow again after the setback caused by the expiry of the scrappage bonus scheme, the car market in France is expected to con- tract again in 2011. Markets in the UK, Italy and Spain are forecast to tread water to a large extent. The Japanese market is also likely to stagnate after two years of sales being driven by the state-sponsored stimu- lus programme. India could well see the fastest rate amongst the major emerging markets, while growth in Brazil and Russia is expected to be more moderate. 71 GROUP MANAGEMENT REPORT Motorcycle markets in 2011 Despite the economic recovery in many countries, motor- cycle markets contracted sharply again in 2010. We ex- pect the situation to stabilise in some regions in 2011 and market performance as a whole is likely to display a lateral movement. For the 500 cc plus segment, however, we forecast a low single-digit growth rate. Financial Services market in 2011 There are favourable signs that the global economic up- swing will continue in 2011, although probably at a less pronounced rate than in 2010. Given the substantial spare capacities and moderate inflation rates currently prevail- ing in the major industrial countries, central banks are likely to continue their expansionary monetary policies for the time being. The US Reserve Bank has extended the range of expan- sionary monetary policy measures taken. Given the over- cast economic outlook, the zero-interest-rate policy being pursued in the USA is unlikely to be abandoned before the beginning of 2012. The European Central Bank will not raise its refinancing interest rate before the fourth quarter 2011 as long as there is a risk of a renewed debt crisis. During the first half of the year the European Central Bank could reduce excess liquidity step by step, which could well cause interest rates in the medium-term maturity segment to rise. Providers of financial services are exposed on the one hand to risks arising from uncertainties and volatility on financial markets. On the other hand, however, measures to reduce public spending could result in tax increases worldwide and hence force down domestic demand. The process of consolidating dealer organisations will continue in a number of markets in 2011. As a result of the related increase in risk, further credit-related losses for the sector cannot be entirely ruled out for 2011. It is currently very difficult to predict how used car markets will develop. Prices for pre-owned cars are likely to stagnate during the coming twelve months. If the economy falters, prices could fall again. Outlook for the BMW Group in 2011 We expect macro-economic conditions to remain stable in 2011. However, the threat of temporary setbacks caused by knock-on effects from the recent crisis cannot be ignored. International car markets are likely to con- tinue performing well and the Group’s growth markets are expected to expand rapidly. Economic recovery should continue to make progress in the USA and give our sales volumes another boost. Taking all of these factors into consideration, the BMW Group will continue to perform well in 2011. Over the past year new models, innovative technologies and attractive design have additionally driven customer demand, which was already at a high level. Following on from the introduction of new BMW 5 Series Sedan, the new BMW 5 Series Touring has been available since mid- autumn 2010. The BMW X1 is proving to be exceedingly popular worldwide. The MINI range has been expanded since autumn 2010 to include a fourth model, the MINI Countryman. The Rolls-Royce Ghost is also experiencing a high level of customer demand. On the heels of the models introduced over the past year, we will be continu- ing our new product initiative throughout 2011. In this context we are currently rejuvenating the BMW 6 Series: the Convertible will be available in Europe and Asia in the spring, followed by the USA and other markets at the beginning of May. The 6 Series Coupé will be launched in autumn 2011. The new BMW X3, currently enjoying great success in its class, will be launched worldwide over the course of the year. The BMW 1 Series M Coupé will come on to the markets in May, followed by the new BMW M5 in autumn after its world debut at the IAA. The new generation of the BMW 1 Series will also go on sale from autumn 2011 onwards. The MINI Coupé will become the fifth MINI model variant to join the family. Engagement on growth markets, particularly Latin America and Asia, and a wider international production network resulting from the expansion of our plants in the USA and China are helping us strengthen the BMW Group in competitive terms. We are therefore laying the foundation for profitable growth in the future. We will continue to pursue a policy of rigorous cost management in 2011, centred on the management of fixed costs and working capital. The strategy also includes the efficient utilisation of resources. The use of modular and industrial standards is helping us to generate bene- fits of scale and reduce production costs, an important element in our new efficient development strategy, and reflected in our R & D ratio of 4.6% (2009: 4.8%). Our Strategy Number ONE remains the basis for the BMW Group’s strategic realignment. Improvements 12 12 14 18 41 44 47 62 63 70 GROUP MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Group – Capital Market Activities Disclosures relevant for takeovers and explanatory comments Financial Analysis 47 49 51 53 55 55 57 58 Internal Control System and explanatory comments Risk Management Outlook Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 72 achieved in efficiency and profitability are opening up new opportunities for us. We will therefore continue to invest in the technologies of the future and foster our ability to innovate. The strategy includes the con- tinued optimisation of the combustion engine and intel- ligent lightweight construction in conjunction with the Efficient Dynamics technology package as well as the development of alternative drive systems and new mo- bility concepts resulting from our forward-looking “project i”. Environmental protection legislation in place around the world provides the necessary institutional framework conditions. We also remain committed to the use of innovative tech- nologies to reduce the fuel consumption and emission levels of combustion engines. Our Efficient Dynamics concept combines technological innovations in the area of lightweight construction and drive systems, improved aero dynamics and intelligent management of energy flows within the vehicle. Efficient Dynamics is a global strategy across all models. It is incorporated as a standard feature of all the vehicles we produce and therefore im- pacts the whole model range. Ongoing field trials being conducted in the USA and Europe with more than 600 MINI E vehicles are providing an important insight into the requirements of future se- ries of electrically powered vehicles. We are using the BMW ActiveE to intensify our research into electromobility for every-day operation and ex- tending field trials to determine the feasibility of produc- ing electric cars on a large-series scale. With a test fleet of over 1,000 vehicles in the USA, Europe and China, the BMW ActiveE will provide further useful information regarding daily usage as from 2011. At the same time, drive components and energy storage systems to be used in the Megacity Vehicle (MCV) will be tested at the pre- series stage. The knowledge thus gained will be subse- quently incorporated directly in the series development of the MCV. After its launch in 2013, the MCV will be the BMW Group’s first series-built electrically driven car. This innovative vehicle, specifically developed for use in the world’s major metropolitan regions, will have zero emissions and set new standards in terms of sustainability. The up-front expenditure incurred will also put us in good stead to take advantage of any new medium- or long-term opportunities that present themselves in a changing environment. Our premium products and services will continue to meet our customers’ needs in the best pos- sible way. In 2011 we aim to achieve a higher full-year Group profit before tax than in 2010. The forecast earnings level represents a further key step towards achieving the tar- gets set out in our Strategy Number ONE. Automobiles segment Sales volume performance in 2011 will benefit from the impetus provided by our new and attractive models. Sales volumes are therefore likely to grow at a faster pace in the first half of the year than in the second. If macro- economic conditions remain stable and demand on major car markets continues to revive as expected, we forecast a sales volume of more than 1.5 million BMW, MINI and Rolls-Royce brand vehicles in 2011. New record sales levels are being targeted for all three brands. Thanks to the competitive strength of the BMW Group, we are confident of being able to confirm our position as the world’s leading premium car manufacturer. The progress being made in the areas of efficiency and profitability also provides a sound foundation for the future success of the business. We therefore aim to achieve an EBIT margin of over 8% and a ROCE of more than 26% for the Automobiles segment. Motorcycles segment We forecast a further sales volume increase for the Motor- cycles segment in 2011, albeit less pronounced than the rise seen in 2010. The new K 1600 GT and K 1600 GTL models in particular and the segment’s highly attractive model range in general will provide the basis for another fine performance in 2011. Financial Services segment The Financial Services segment is set to remain in good shape in 2011. A noticeably less tense situation on used car markets, an improved risk profile in the credit line of business as well as excellent liquidity and refinancing conditions will also make a major contribution to busi- ness performance. We will continue our strategy of ex- panding business on a targeted basis on growth markets. Building BMW Bank Germany into a credit institution operating throughout Europe will make us more flexible in terms of liquidity and equity allocation. In addition to the entities in Spain, Portugal and Italy which have 73 GROUP MANAGEMENT REPORT already been integrated in the BMW Bank, further enti- ties will be converted into branch offices in the future. At the same time, the strategic reorientation of the vari- ous lines of business will provide a boost to earnings. Assuming the risk profile remains stable, we again aim to achieve a return on equity of over 18 % for the Financial Services segment. Profitability targets for 2012 confirmed We are also working on the basis that macro-economic conditions will remain stable in 2012. Against this back- ground we will continue the process of rejuvenating our product portfolio as planned. Attractive new models will provide further momentum for increases in sales volumes, revenues and earnings. We are also working with great determination to achieve the challenging targets resulting from the BMW Group’s strategic realign- ment. These include the profitability targets already announced for the year 2012. We continue to target a re- turn on capital employed (ROCE) in excess of 26% and an EBIT margin of between 8% and 10% for the Auto- mobiles segment. By applying a rigorous value-added approach to business, we will succeed in achieving the challenging targets we have set ourselves. 74 GROUP FINANCIAL STATEMENTS BMW Group Income Statements for Group and Segments Statement of Comprehensive Income for Group Income Statements for Group and Segments in euro million Revenues Cost of sales Gross profit Sales and administrative costs Other operating income Other operating expenses Profit / loss before financial result Result from equity accounted investments Interest and similar income Interest and similar expenses Other financial result Financial result Profit / loss 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 Dilutive effects Diluted earnings per share of common stock in euro Diluted earnings per share of preferred stock in euro Statement of Comprehensive Income for Group in euro million 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 7 8 9 10 10 11 12 12 13 14 15 15 15 15 Note Group Automobiles 2010 2009 2010 2009 60,477 50,681 54,137 43,737 – 49,562 – 45,356 – 44,703 – 39,616 10,915 5,325 9,434 4,121 – 5,529 – 5,040 – 4,778 – 4,329 766 –1,058 5,094 98 685 – 966 – 75 – 258 4,836 –1,602 3,234 16 3,218 4.91 4.93 – 4.91 4.93 808 – 804 289 36 856 –1,014 246 124 413 – 203 210 6 204 0.31 0.33 – 0.31 0.33 Note 508 – 809 4,355 98 556 – 871 – 251 – 468 443 – 500 – 265 42 560 –1,055 130 – 323 3,887 – 588 –1,280 2,607 15 2,592 149 – 439 6 – 445 2010 2009 3,234 210 –16 – 520 683 – 277 263 133 4 295 318 –1,198 190 – 391 3,367 –181 16 3,351 6 –187 Net profit Available-for-sale securities Financial instruments used for hedging purposes Exchange differences on translating foreign operations Actuarial gains / losses relating to defined benefit pension and similar plans Deferred taxes relating to components of other comprehensive income Other comprehensive income for the period after tax 17 Total comprehensive income Total comprehensive income attributable to minority interests Total comprehensive income attributable to shareholders of BMW AG 75 GROUP FINANCIAL STATEMENTS Motorcycles Financial Services Other Entities Eliminations 2010 2009 2010 2009 2010 2009 2010 2009 1,304 –1,095 209 1,069 – 925 144 16,617 15,798 –14,798 –14,880 1,819 918 –140 –126 3 –1 71 – 7 –13 – – 6 65 – 20 45 – 45 2 –1 19 – 3 –11 – – 8 11 – 3 8 – 8 – 589 72 –101 1,201 – 4 – 7 16 13 1,214 – 446 768 1 767 – 560 41 – 44 355 – 3 – 8 15 10 365 –147 218 – 218 4 – 4 –16 224 – 253 – 41 – 1,984 3 – 3 –16 352 – 309 30 – 6 1,778 –11,585 – 9,926 Revenues 11,034 10,065 Cost of sales – 551 139 Gross profit – 6 – 41 106 – 492 – 9 Sales and administrative costs – 30 Other operating income 50 Other operating expenses 150 Profit / loss before financial result – – Result from equity accounted investments –1,866 – 1,488 Interest and similar income – 2,058 –1,852 1,983 1,912 Interest and similar expenses 160 86 45 22 67 – 67 101 21 51 13 64 – 64 – 117 – 424 Other financial result Financial result – 375 574 Profit / loss before tax 122 – 253 – – 253 – 215 Income taxes 359 Net profit / loss – 359 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 Dilutive effects Diluted earnings per share of common stock in euro Diluted earnings per share of preferred stock in euro 76 BMW Group Balance Sheets for Group and Segments at 31 December 74 74 74 76 78 80 81 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 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Financial assets Current tax Other assets Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 Cash and cash equivalents Current assets Total assets Equity and liabilities in euro million Subscribed capital Capital reserves Revenue reserves Accumulated other equity 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 Note Group Automobiles 2010 2009 2010 2009 19 20 21 22 22 23 24 25 26 27 28 23 24 25 26 29 5,031 11,427 17,791 212 177 5,379 11,385 17,973 137 232 27,126 23,478 1,867 1,393 692 1,519 1,266 640 65,716 62,009 7,766 2,329 18,239 3,262 1,166 2,957 7,432 6,555 1,857 17,116 3,215 950 2,484 7,767 43,151 39,944 4,892 11,216 182 189 3,263 – 662 1,888 2,473 24,765 7,468 1,983 – 1,911 1,068 15,871 5,585 33,886 5,230 11,181 187 114 2,678 – 475 1,514 2,114 23,493 6,289 1,608 – 1,666 789 14,863 4,331 29,546 108,867 101,953 58,651 53,039 Note Group Automobiles 2010 2009 2010 2009 30 30 30 30 30 31 32 33 34 35 32 33 34 36 35 655 1,939 23,447 – 2,967 26 655 1,921 20,426 – 3,100 13 23,100 19,915 23,993 22,101 1,563 2,721 2,933 35,833 2,583 45,633 2,826 1,198 2,972 2,706 2,769 34,391 2,281 45,119 2,058 836 26,520 26,934 4,351 5,239 40,134 3,122 3,969 36,919 349 2,348 1,726 1,164 2,873 8,460 2,336 1,026 961 3,713 18,162 26,198 1,652 2,295 1,694 259 3,401 9,301 1,759 650 4,736 2,556 11,936 21,637 Total equity and liabilities 108,867 101,953 58,651 53,039 77 GROUP FINANCIAL STATEMENTS Motorcycles Financial Services Other Entities Eliminations Assets 2010 2009 2010 2009 2010 2009 2010 2009 42 192 – – – – – 1 – 235 290 114 – – – 44 4 452 687 39 184 – – – – – – – 223 258 123 – – – – – 381 604 97 19 110 20 20,868 20,608 – 8 – 8 27,126 23,478 7 603 1,176 49,904 8 231 28 575 1,375 46,202 9 123 18,239 17,116 815 31 3,248 1,227 23,799 924 28 4,071 2,803 25,074 – – – 23 5,134 – 1,622 320 12,538 19,637 – 1 – 854 67 – – – 23 – – – – Intangible assets Property, plant and equipment – 3,259 – 2,822 Leased products – – Investments accounted for using the equity method 5,380 – 8,228 – 7,834 Other investments – 1,186 355 10,389 17,333 – 3 – 916 133 – – 424 –1,419 – Receivables from sales financing –170 Financial assets –1,178 Deferred tax –15,495 –13,238 Other assets – 28,825 – 25,242 Non-current assets – – – – 318 – –1 Inventories – – Trade receivables Receivables from sales financing – 291 Financial assets – Current tax 29,224 27,179 – 45,430 – 43,629 Other assets 616 633 – – Cash and cash equivalents 30,762 28,864 – 45,748 – 43,921 Current assets 73,703 71,276 50,399 46,197 – 74,573 – 69,163 Total assets Motorcycles Financial Services Other Entities Eliminations 2010 2009 2010 2009 2010 2009 2010 2009 Equity and liabilities Subscribed capital Capital reserves Revenue reserves Accumulated other equity Minority interest – 18 93 2 – 314 427 47 – – 199 14 260 687 – 5,216 4,268 5,261 4,118 –11,370 –10,572 Equity 74 68 2 – 257 401 21 – – 167 15 203 604 32 250 3,691 12,202 13,619 29,794 337 121 13,746 433 24,056 38,693 24 311 3,191 10,848 10,455 24,829 274 85 13,673 385 27,762 42,179 1,164 1,222 30 3 32 9 – – – – Pension provisions Other provisions – 2,489 – 2,127 Deferred tax 22,891 23,454 – 424 –170 Financial liabilities 22 133 –14,245 –11,965 Other liabilities 24,110 24,850 –17,158 –14,262 Non-current provisions and liabilities 103 51 12,131 6 8,737 21,028 1 101 8,816 14 8,297 17,229 3 – – 318 – 3 Other provisions – Current tax – 291 Financial liabilities – Trade payables – 45,730 – 44,041 Other liabilities – 46,045 – 44,329 Current provisions and liabilities 73,703 71,276 50,399 46,197 – 74,573 – 69,163 Total equity and liabilities 78 BMW Group Cash Flow Statements for Group and Segments in euro million Net profit / loss Reconciliation between net profit / loss and cash inflow from operating activities Current tax Other interest and similar income / expenses Depreciation of leased products Depreciation and amortisation of other tangible, intangible and investment assets Change in provisions Change in deferred taxes Other non-cash income and expense items Gain / loss on disposal of tangible, intangible and investment assets Result from equity accounted investments Changes in working capital Change in inventories Change in trade receivables Change in trade payables Change in other operating assets and liabilities Income taxes paid Interest received 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 Cash payments for the purchase of marketable securities Cash proceeds from the sale of marketable securities Cash outflow from investing activities Issue of treasury shares Payments into equity 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 39 Effect of exchange rate and changes in composition of Group on cash and cash equivalents 39 Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 39 1 Previous year’s figures adjusted as a result of a change in presentation of other operating assets and liabilities 2 Interest relating to financial services business is classified as revenues / cost of sales. Note Group 2010 20091 3,234 210 1,430 422 5,381 3,861 911 340 – 454 5 – 98 – 403 – 1,170 – 427 1,194 572 – 1,318 1482 13,651 338 –1132 5,476 3,603 1 – 95 17 – 35 – 36 1,802 855 506 441 – 894 – 349 3462 10,271 – 3,263 – 3,471 55 – 80 23 169 – 53 15 – 11,898 –10,433 7,422 6,515 – 61,120 – 49,629 56,264 – 2,723 798 47,847 – 2,908 620 – 18 – 197 – 2232 4,578 6 7 –197 – 2242 9,762 – 3,406 – 6,440 – – – 292 –1,307 32 510 26 – 335 7,767 7,432 – 255 1,352 18 313 7,454 7,767 39 – 14,522 –11,328 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 Cash inflow from operating activities 39 Investment in intangible assets and property, plant and equipment Proceeds from the disposal of intangible assets and property, plant and equipment 79 GROUP FINANCIAL STATEMENTS Automobiles Financial Services 2010 20091 2010 20091 2,607 – 439 768 218 Net profit / loss 1,145 150 6 3,762 869 27 116 4 – 98 – 374 – 1,163 – 364 1,153 999 – 1,199 136 8,150 251 255 7 3,502 42 – 448 –170 – 29 – 43 1.806 871 513 422 214 – 369 342 4,921 277 22 4,823 22 – 49 440 – 408 1 – 5 1 – 43 47 – 176 – 147 – 2 5,558 Reconciliation between net profit / loss and cash inflow from operating activities 152 42 Current tax Other interest and similar income / expenses 5,732 Depreciation of leased products 25 93 69 307 1 – 6 – – 6 309 – 99 – 2 Depreciation and amortisation of other tangible, intangible and investment assets Change in provisions Change in deferred taxes Other non-cash income and expense items Gain / loss on disposal of tangible, intangible and investment assets Result from equity accounted investments Changes in working capital Change in inventories Change in trade receivables Change in trade payables Change in other operating assets and liabilities Income taxes paid Interest received 6,817 Cash inflow from operating activities – 3,183 – 3,409 – 10 –10 Investment in intangible assets and property, plant and equipment 59 – 577 23 – 172 171 – – 98 – 261 33 –197 271 – – – 2,620 – 2,787 757 – 5,542 577 – 5,675 – 18 – 197 – 212 – – 52 2,703 – 2,117 – 1,519 – 1,376 22 6 7 –197 – 76 – – 180 – 874 964 10 2 1 – – 2 Proceeds from the disposal of intangible assets and property, plant and equipment – – Expenditure for investments Proceeds from the disposal of investments – 11,726 –10,236 Investment in leased products 7,251 6,215 Disposals of leased products – 61,120 – 49,629 Additions to receivables from sales financing 56,264 – 103 41 47,847 Payments received on receivables from sales financing –121 Cash payments for the purchase of marketable securities 43 Cash proceeds from the sale of marketable securities – 9,402 – 5,889 Cash outflow from investing activities – – – – 2 2,361 – 364 204 68 – – – – – 2 Issue of treasury shares Payments into equity Payment of dividend for the previous year Interest paid 658 Proceeds from the issue of bonds –1,230 Repayment of bonds 722 Internal financing – 351 Change in other financial liabilities – Change in commercial paper 2,269 – 201 Cash inflow / outflow from financing activities 1,254 – 742 – 1,576 – 1 23 750 Effect of exchange rate and changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents 4,331 5,585 5,073 4,331 2,803 1,227 2,053 Cash and cash equivalents as at 1 January 2,803 Cash and cash equivalents as at 31 December 80 BMW Group Group Statement of Changes in Equity in euro million Subscribed capital Capital reserves Revenue reserves Accumulated other equity Treasury shares Minority interest Total lation dif- ferences Trans- Securities Derivative financial instru- ments Pension obliga- tions 31 December 2008 654 1,911 20,419 – 2,065 17 45 – 706 –10 8 20,273 Issue of treasury shares Subscribed share capital increase out of authorised capital Premium arising on capital increase relating to preferred stock Dividends paid Comprehensive income 2009 Other changes – 1 – – – – – – 10 – – – – – – –197 204 – – – – – 318 – – – – – 3 – – – – – – – – – 164 – 876 – – 10 – – – – – 31 December 2009 655 1,921 20,426 –1,747 20 209 –1,582 – Premium arising on capital increase relating to preferred stock Dividends paid Comprehensive income 2010 Other changes – – – – 18 – – – – –197 3,218 – – – 683 – 31 December 2010 655 1,939 23,447 –1,064 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 – – – – – – –11 – 336 – 203 – – – 9 –127 –1,785 – – – – – – – – – 6 – 1 13 – – 16 – 3 26 10 1 10 –197 –181 – 1 19,915 18 –197 3,367 – 3 23,100 81 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 2010 have been drawn up in accordance with International Financial Reporting Standards (IFRSs) as endorsed by the EU. The designation “IFRSs” also includes all valid International Accounting Standards (IASs). All Interpretations of the IFRS Interpretations Committee (IFRICs) mandatory for the financial year 2010 are also applied. 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 Re- porting Standards, provides the legal basis for preparing consolidated financial statements in accordance with international standards in Germany and applies to finan- cial 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. A Statement of Comprehensive Income is presented at Group level reconciling the net profit to comprehensive income for the year. In order to facilitate the sale of its products, the BMW Group provides various financial services – mainly loan and lease financing – to both retail customers and dealers. The inclusion of the financial services activities of the Group therefore has an impact on the Group Financial Statements. In order to provide a better insight into the net assets, financial position and performance of the BMW Group and going beyond the requirements of IFRS 8 (Operating Segments), the Group Financial Statements also include balance sheets and income statements for the Automo- biles, Motorcycles, Financial Services and Other Entities segments. The Group Cash Flow Statement is supple- mented by statements of cash flows for the Automobiles and Financial Services segments. Inter-segment transactions – relating primarily to inter- nal sales of products, the provision of funds and the re- lated interest – are eliminated in the “Eliminations” column. Further information regarding the allocation of activities of the BMW Group to segments and a descrip- tion of the segments is provided in the explanatory notes to segment information on pages 133 et seq. 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 usually take 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 Fi- nancial Statements) and Interpretation SIC-12 (Consoli- dation – 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 2010 totalled euro 7.5 bil- lion (2009: euro 7.8 billion). In addition to credit financing and leasing contracts, the Financial Services segment also brokers insurance busi- ness via cooperation arrangements entered into with 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 dis- closed in millions of euros (euro million) unless stated otherwise. Bayerische Motoren Werke Aktiengesellschaft has its seat in Munich, Petuelring 130, and is registered in the Commercial Register of the District Court of Munich under the number HRB 42243. All consolidated subsidiaries have the same year-end as BMW AG with the exception of BMW India Private Limited, New Delhi (year-end: 31 March). The Group Financial Statements, drawn up in accordance with § 315 a HGB, and the Management Report for the financial year 2010 will be submitted to the operator of 82 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 the electronic version of the German Federal Gazette and can be obtained via the Company Register website. Printed copies will also be made available on request. In addition the Group Financial Statements and the Group Management Report can be downloaded from the BMW Group website at www.bmwgroup.com/ir. The Board of Management authorised the Group Finan- cial Statements for issue on 15 February 2011. 2 Consolidated companies The BMW Group Financial Statements include, besides BMW AG, all material subsidiaries, six special purpose securities funds and 19 special purpose trusts (almost all used for asset-backed financing transactions). The number of subsidiaries, special purpose securities funds and other special purpose entities included in the Group Financial Statements changed in 2010 as follows: Included at 31 December 2009 Included for the first time in 2010 No longer included in 2010 Included at 31 December 2010 Germany Foreign Total 32 – 2 30 149 4 7 146 181 4 9 176 51 subsidiaries (2009: 53), either dormant or generat- ing a negligible volume of business, are not consoli- dated on the grounds that their inclusion would not influence the economic decisions of users of the Group Financial Statements. Non-inclusion of operating subsidiaries reduces total Group revenues by 0.3% (2009: 0.6%). The joint venture BMW Brilliance Automotive Ltd., Shen- yang, and the investment in Cirquent GmbH, Munich, are accounted for using the equity method. The entities SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, SGL Automotive Carbon Fibers Verwaltungs GmbH, Munich, and SGL Automotive Carbon Fibers LLC, Dover, DE, (all joint ventures with the SGL Carbon Group), are also accounted for using the equity method. 13 (2009: 15) participations are not consolidated using the equity method on the grounds of immateriality. They are in- cluded in the balance sheet in the line “Other investments”, measured at cost less, where applicable, accumulated impairment losses. A “List of Group Investments” pursuant to § 313 (2) HGB will be submitted to the operator of the electronic version of the German Federal Gazette. This list, along with the “List of Third Party Companies which are not of Minor Im- portance for the Group”, will also be posted on the BMW Group website at www.bmwgroup.com/ir. Husqvarna Motorcycles North America LLC, Wilmington, DE, and Husqvarna Motorcycles S. r. l., Cassinetta di Biandronno, were consolidated for the first time at 31 De- cember 2010. BMW Ingenieur-Zentrum Verwaltungs GmbH, Dingolfing, was merged with BMW Ingenieur-Zentrum GmbH+ Co oHG, Dingolfing, (until 16 July 2010: BMW Ingenieur- Zentrum GmbH+Co., Dingolfing) with retrospective ef- fect from 1 January 2010. As a result, by dint of German law, BMW Ingenieur-Zentrum GmbH+ Co oHG, Dingol- fing, automatically became a part of BMW AG, Munich. BMW Ingenieur-Zentrum Verwaltungs GmbH, Dingol- fing, and BMW Ingenieur-Zentrum GmbH+Co oHG, Dingol fing, therefore both ceased to be consolidated companies. In addition, BMW Polska Sp. z o. o., Warsaw, was merged with BMW Vertriebs GmbH, Salzburg, and therefore also ceased to be a consolidated company. The Group reporting entity also changed by comparison to the previous year as a result of the first-time consoli- dation of two special purpose entities and the deconsoli- dation of six special purpose entities. The changes are not material because the resulting im- pact on the Group Financial Statements would not influ- ence the economic decisions of users taken on the basis of the financial statements. 83 GROUP FINANCIAL STATEMENTS 3 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 acquisition method under which identifiable assets and liabilities acquired are measured at the acquisition date 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 sub- jected to a regular review for impairment. Goodwill of euro 91 million which arose prior to 1 January 1995 re- mains netted against reserves. Receivables, liabilities, provisions, income and expenses and profits between consolidated companies (intra-group 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. Any difference be- tween the cost of investment and the Group’s share of equity is accounted for in accordance with the acquisition method. Investments in other companies are accounted for as a general rule using the equity method when signifi- cant influence can be exercised (IAS 28, Investments in Associates). This is normally the case when voting rights of between 20% and 50% are held (associated companies). 4 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 of the basis on 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 exchange rate for the year, and assets and liabilities are translated at the closing rate. Exchange differences arising from the translation of shareholders’ equity are offset directly against accumulated other equity. Exchange differences arising from the use of different exchange rates to trans- late the income statement are also offset directly against accumulated other equity. Foreign currency receivables and payables in the single entity accounts of BMW AG and subsidiaries are re- corded, at the date of the transaction, at cost. Exchange gains and losses computed at the balance sheet date 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: US Dollar British Pound Chinese Renminbi Japanese Yen Closing rate Average rate 31.12. 2010 31.12. 2009 2010 2009 1.34 0.86 8.80 1.43 0.89 9.78 1.33 0.86 8.97 1.39 0.89 9.52 108.61 133.17 116.29 130.37 5 Accounting policies The financial statements of BMW AG and of its subsidi- aries 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 transferred to the customer, the sales price is agreed or determinable and receipt of payment can be assumed. Revenues are stated net of discounts, allowances, settle- ment discount and rebates. 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 recognised as income by reference to the pat- tern of related expenditure. 84 Profits arising on the sale of vehicles for which a Group company retains a repurchase commitment (buy-back contracts) are not recognised until such profits have been realised. The vehicles are included in inventories and stated at cost. Cost of sales comprises the cost of products sold and the acquisition cost of purchased goods sold. In addition to directly attributable material and production costs, it also includes research costs and development costs not recog- nised as assets, the amortisation of capitalised develop- ment costs as well as overheads (including depreciation of property, plant and equipment and amortisation of other intangible assets relating 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 ex- pense from refinancing the entire financial services busi- ness, including the expense of risk provisions and write- downs, are reported in cost of sales. 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 in- tended 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 attribut- able to each category of stock, by the average number of outstanding shares. The net profit is accordingly allo- cated to the different categories of stock. The portion of the Group net profit for the year which is not being dis- tributed 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 in years Factory and office buildings, distribution facilities and residential buildings Plant and machinery Other equipment, factory and office equipment stock. Diluted earnings per share would have to be dis- closed separately. Purchased and internally-generated intangible assets are recognised as assets in accordance with IAS 38 (Intan- gible Assets), where it is probable that the use of the as- set 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, amor- tised on a straight-line basis over their estimated useful lives. With the exception of capitalised development costs, intangible assets are generally amortised over their esti- mated useful lives of between three and five years. Intangi- ble assets with indefinite useful lives are assessed regularly for recoverability and their carrying amounts are reduced to the recoverable amount in the event of impairment. Development costs for vehicle and engine projects are capitalised at manufacturing cost, to the extent that costs can be allocated reliably and both technical feasibility and successful marketing are assured. It must also be probable that the development expenditure will generate future economic benefits. Capitalised development costs comprise all expenditure that can be attributed directly to the development process, including development- related overheads. Capitalised development costs are amortised on a systematic basis, following the com- mencement of production, over the estimated product life which is generally seven years. All items of property, plant and equipment are con- sidered to have finite useful lives. They are recognised at acquisition or manufacturing cost less scheduled depre- ciation based on the estimated useful lives of the assets. Depreciation on property, plant and equipment reflects the pattern of their usage and is generally computed using the straight-line method. Components of items of property, plant and equipment with different useful lives are depreciated separately. Systematic depreciation is based on the following useful lives, applied throughout the BMW Group: 8 to 50 4 to 21 3 to 10 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 85 GROUP FINANCIAL STATEMENTS 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 proportion of production-related overheads. This includes produc- tion-related depreciation and an appropriate proportion of administrative and social costs. As a general rule, borrowing costs are not included in acquisition or manufacturing cost. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are recognised as a part of the cost of that asset in accordance with IAS 23 (Borrowing Costs). 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 the contrac- tual value. Residual value provisions are treated as write- downs and offset against leased products on the assets side of the balance sheet. realised market values. Measurement also takes account of other relevant up-to-date information. The underlying assumptions are validated regularly in conjunction with internal back-testing procedures. The recoverability of the carrying amount of intangible assets (including capitalised development costs and goodwill) and property, plant and equipment is tested regularly for impairment in accordance with IAS 36 (Im- pairment of Assets) on the basis of cash generating units. If there is no indication of impairment during the year, an annual impairment test is carried out at the year-end for intangible assets not yet available for use, for intan- gible assets with an indefinite useful life and for goodwill acquired as part of a business combination. In all other cases, an impairment test is carried out when changed circumstances or events indicate that the asset may be impaired. 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 impairment loss is reversed up to the level of its rolled-forward depreciated or amortised cost. This does not, however, apply to goodwill: previously recog- nised impairment losses on goodwill are not reversed. Investments accounted for using the equity method are (except when the investment is impaired) measured at the Group’s share of equity taking account of fair value adjustments on acquisition. Investments in non-consolidated Group companies re- ported 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, participa- tions are measured at cost. Non-current marketable securities are measured accord- ing to the category of financial asset to which they are classified. No held-for-trading financial assets are included under this heading. The imputed residual value of leased products is com- puted by the BMW Group on the basis of forecasts issued by external institutes (e.g. EurotaxSchwacke) or actual A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or 86 equity instrument of another entity. Once the BMW Group becomes party to such a contract, the financial instru- ment is recognised either as a financial asset or as a finan- cial liability. Financial assets are accounted for on the basis of the settlement date. On initial recognition, they are measured at acquisition cost, including transaction costs. Subsequent to initial recognition, available-for-sale and held-for-trading financial assets are measured at their fair value. When market prices are not available, the fair value of available-for-sale financial assets is measured using appropriate valuation techniques e.g. discounted cash flow analysis based on market information avail- able at the balance sheet date. Available-for-sale assets include financial assets, securi- ties and investment fund shares. This category includes all non-derivative financial assets which are not classified as “loans and receivables” or “held-to-maturity invest- ments” 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 regu- larly as to whether there is any objective evidence that a financial asset or group of assets may be impaired. Im- pairment losses identified after carrying out an impair- ment test are recognised as an expense. Gains and losses on available-for-sale financial assets are recognised di- rectly in equity until the financial asset is disposed of or is determined to be impaired, at which time the cumula- tive 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 matu- rities of over one year which bear no or a lower-than-mar- ket interest rate are discounted. Appropriate impairment losses are recognised to take account of all identifiable risks. Receivables from sales financing comprise receiv- ables from retail customer, dealer and lease financing. Impairment losses on receivables relating to 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 im- pairment, the BMW Group recognises impairment losses on the basis of individual assets. Within the customer retail business, the existence of overdue balances or the incidence of similar events in the past are examples of such objective evidence. In the event of overdue receiv- ables, impairment losses are always recognised individu- ally based on the length of period of the arrears. In the case of dealer financing receivables, the allocation of the dealer to a corresponding 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 probabilities and loss ratios, derived from historical data, are used to measure impairment losses on similar groups of assets. The recognition of impairment losses on receivables relating 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 derecognised at the same time the corresponding receiv- ables are dercognised. 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 currency, interest rate, fair value and market price risks from operating activities and related financing require- ments. All derivative financial instruments (such as inter- est, currency and combined interest /currency swaps as well as forward currency and forward commodities con- tracts) 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 finan- cial instruments are measured using market information and recognised valuation techniques. In those cases where hedge accounting is applied, changes in fair value are recognised either in income or directly in equity un- 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 87 GROUP FINANCIAL STATEMENTS der accumulated other equity, depending on whether the transactions 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 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 transactions, unrealised gains and losses on the hedging instrument are recognised initially directly in accumulated other equity. Any such gains or losses are recognised subsequently in the income statement when the hedged item (usually external revenue) is recog- nised in the income statement. The portion of the gains or losses from fair value measurement not relating to the hedged item is recognised immediately in the income statement. If, contrary to the normal case within the BMW Group, hedge accounting cannot be applied, the gains or losses from the fair value measurement of derivative financial instruments are recognised 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 re- sale 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 appro- priate proportion of production-related overheads. This includes production-related depreciation and an appro- priate proportion of administrative and social costs. Borrowing costs are not included in the acquisition or manufacturing cost of inventories. Provisions for pensions and similar obligations are recognised using the projected unit credit method in ac- cordance 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 calculation is based on an independent actuarial valuation which takes into account all relevant biometric factors. Actuarial gains and losses arising on defined benefit pension and similar obligations are recognised, net of deferred tax, directly in equity. The expense related to the reversal of discounting on 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 allocations to pension provisions are allocated to costs by function 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 recogni- tion at cost, which is equivalent to the fair value of the consideration given. Transaction costs are included in this initial measurement. Subsequent to initial recognition, liabilities are, with the exception of derivative financial instruments, 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 finan- cial liabilities. 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 esti- mates relate principally to the groupwide determination of economic useful lives, the measurement of invento- ries, 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 develop- ments. This includes the situation in the automotive sec- tor and the general business environment. Estimates and underlying assumptions are checked regularly. Actual 88 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies 89 Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 95 96 117 133 amounts could differ from those assumptions and esti- mates 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. In addition, estimates used to measure warranty provisions were refined on the basis of current information. The positive impact of this change in estimate amounted to euro 201 million and has been recognised in cost of sales in 2010. 6 New financial reporting rules (a) Financial reporting rules applied for the first time in the financial year 2010 The following Standards and Revised /Amended Standards and Interpretations were applied for the first time in the financial year 2010: Standard / Interpretation Date of mandatory application Endorsed by EU at 31.12. 2010 Impact on BMW Group IFRS 1 IFRS 1 IFRS 2 IFRS 3 / IAS 27 IAS 39 Additional Exceptions for First-time Adopters First-time Adoption of IFRS Accounting for Cash-settled Share-based and Separate Financial Statements Business Combinations / Consolidated and Separate Financial Statements Exposures Qualifying for Hedge Accounting Annual Improvements to IFRS* IFRIC 17 IFRIC 18 Distributions of Non-cash Assets to Owners Transfers of Assets from Customers 1. 1. 2010 1. 1. 2010 1. 1. 2010 1. 1. 2010 1. 1. 2010 1. 1. 2010 1. 1. 2010 1. 1. 2010 Yes Yes Yes Yes Yes Yes Yes Yes * Unless otherwise specified, the amendments are effective for annual periods beginning on or after 1 January 2010. None None None Significant in principle: Revised accounting treatment for business combinations None Insignificant None None (b) New financial reporting rules issued in 2010 The following Standards and Revised /Amended Standards, which had been issued by the IASB by the end of the financial year 2010, but which were not mandatory for the reporting period, have not been applied by the BMW Group in the financial year 2010: Standard IFRS 1 IFRS 1 IFRS 7 IFRS 9 IAS 12 Exemption from Comparative IFRS 7 Disclosures Amendments with Respect to Transition Dates and Severe Inflation Financial Instruments: Disclosures Additions to IFRS 9 for Financial Liabilities Accounting Recovery of Underlying Assets Annual Improvements to IFRS* Published by IASB Date of mandatory application Endorsed by EU at 31.12. 2010 Expected impact on BMW Group 28. 1. 2010 1. 1. 2011 20. 12. 2010 1. 1. 2012 7. 10. 2010 28. 10. 2010 20. 12. 2010 6. 5. 2010 1. 1. 2012 1. 1. 2013 1. 1. 2012 1. 1. 2011 Yes No No No No No None None Insignificant Insignificant Insignificant Insignificant * Unless otherwise specified, the amendments are effective for annual periods beginning on or after 1 January 2011. 89 GROUP FINANCIAL STATEMENTS BMW Group Notes to the Group Financial Statements Notes to the Income Statement 7 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 2010 2009 44,838 5,181 6,139 2,604 1,715 60,477 36,126 5,641 5,294 2,582 1,038 50,681 An analysis of revenues by business segment and geographical region is shown in the segment information on pages 133 et seq. 8 Cost of sales Cost of sales comprises: in euro million Manufacturing costs Research and development 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 2010 2009 29,173 3,082 928 11,110 2,112 893 2,264 49,562 24,930 2,587 996 10,092 2,879 1,310 2,562 45,356 Cost of sales include euro 14,115 million (2009: euro 14,281 million) relating to financial services business. on assets and reduced consumption-based taxes amounting to euro 36 million (2009: euro 27 million). As in the previous year, manufacturing costs do not con- tain any impairment losses on intangible assets and property, plant and equipment. Cost of sales is reduced by public-sector subsidies in the form of reduced taxes Total research and development expenditure compris- ing 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 expenditure 2010 2009 3,082 –1,260 951 2,773 2,587 –1,226 1,087 2,448 9 Sales and administrative costs Sales costs amounted to euro 4,020 million (2009: euro 3,647 million) and comprise mainly marketing, advertis- ing and sales personnel costs. Administrative costs amounted to euro 1,509 million (2009: euro 1,393 million) and comprise expenses for administration not attributable to development, produc- tion or sales functions. 90 10 Other operating income and expenses in euro million Exchange gains Income from the reversal of provisions Income from the reversal of impairment losses and 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 and write-downs Sundry operating expenses Other operating expenses 2010 2009 547 69 38 15 97 766 – 677 –186 – 40 –155 –1,058 455 84 16 84 169 808 – 482 – 78 – 85 –159 – 804 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies 89 Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 95 96 117 133 Other operating income and expenses – 292 4 Other operating income includes public-sector grants of euro 30 million (2009: euro 14 million). 11 Result from equity accounted investments The profit from equity accounted investments of euro 98 million (2009: euro 36 million) includes the Group’s share of the results of the joint venture BMW Brilliance Automotive Ltd., Shenyang, and the investment in Cirquent GmbH, Munich. It also includes for the first time the Group’s share of the results of the joint ventures SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, SGL Automotive Carbon Fibers Verwaltungs GmbH, Munich, and SGL Automotive Carbon Fibers, LLC, Dover, DE. 12 Net interest result in euro million Expected return on plan assets Other interest and similar income thereof from subsidiaries: euro 13 million (2009: euro 6 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 – million (2009: euro – million) Interest and similar expenses Net interest result 2010 2009 476 209 685 – 588 –124 – 3 – 251 379 477 856 – 532 –115 – 3 – 364 – 966 –1,014 – 281 –158 The expected return on plan assets includes the expected income on assets held to secure obligations relating to pensions and pre-retirement part-time work arrange- ments. 91 GROUP FINANCIAL STATEMENTS 13 Other financial result in euro million Income from investments thereof from subsidiaries: euro 5 million (2008: euro 4 million) Impairment losses on investments in subsidiaries Income from reversal of impairmant losses on investments in subsidiaries Result on investments Losses and gains relating to financial instruments Sundry other financial result Other financial result 2010 2009 5 –179 3 –171 96 96 – 75 4 – 3 – 1 245 245 246 The result on investments in 2010 arose mainly as a re- sult of the impairment loss recognised on the investment in the Husqvarna Group. The positive sundry other financial result was largely at- tributable to fair value gains on stand-alone commodities derivatives. 14 Income taxes Taxes on income comprise the following: in euro million Current tax expense Deferred tax income / expense Income taxes 2010 2009 1,430 172 1,602 338 –135 203 Deferred taxes are recognised on temporary differences between the carrying amount of assets and liabilities for IFRS purposes and their tax bases. The deferred tax expense of euro 172 million (2009: deferred tax income of euro 135 million) is stated after offsetting deferred tax income of euro 212 million (2009: deferred tax ex- pense of euro 228 million) arising on new or reversed temporary differences. 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. After taking account of the average multiplier rate (Hebesatz) of 410.0% for mu- nicipal trade tax and the solidarity charge of 5.5%, the overall tax rate for BMW companies in Germany is 30.2%, unchanged from the previous year. The tax rates for companies outside Germany also remained in an unchanged range of between 12.5% and 46.9%. A valua- tion allowance is recognised on deferred tax assets when recoverability is uncertain. In determining the level of the valuation allowance, all positive and negative factors concerning the likely existence of sufficient taxable profit in the future are taken into account. These estimates can change depending on the actual course of events. 92 An analysis of deferred taxes tax assets and liabilities by position at 31 December is shown below: in euro million Intangible assets Property, plant and equipment Leased products Investments Other current assets Tax loss carryforwards Provisions Liabilities Consolidations Valuation allowance Netting Deferred taxes Net Deferred tax assets Deferred tax liabilities 2010 2009 2010 2009 2 33 415 6 2,672 1,453 1,950 3,113 1,870 1 38 443 5 2,175 1,838 1,388 3,316 1,564 11,514 10,768 – 549 – 9,572 1,393 – 550 – 8,952 1,266 1,338 281 4,651 3 4,007 – 46 1,613 566 12,505 1,490 410 4,281 8 3,559 – 47 1,444 482 11,721 – – – 9,572 – 8,952 2,933 1,540 2,769 1,503 “Netting” relates to the offset of deferred tax assets and liabilities within individual entities or tax groups. 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 on tax losses available for carryforward and on capital losses decreased on a net basis. Tax losses available for carryforward – for the most part usable without restriction – decreased to euro 2.6 billion (2009: euro 5.2 billion) mainly as a result of a tax field audit at the level of BMW AG. A valuation allowance of euro 33 million (2009: euro 31 million) was recognised at 31 December 2010 on deferred tax assets relating to these tax losses. In the entities affected, a net surplus of de- ferred tax assets over deferred tax liabilities is reported amounting to euro 587 million (2009: euro 618 million). Capital losses in the United Kingdom were unchanged at the end of the reporting period at euro 1.9 billion. As in previous years, deferred tax assets recognised on these tax losses – amounting to euro 516 million at the end of the reporting period (2009: euro 519 million) – were in euro million Deferred taxes at 1 January Deferred tax expenses recognised through income statement Change in deferred taxes recognised directly in equity Exchange rate impact and other changes* Deferred taxes at 31 December * including effect of first-time consolidations Deferred tax assets are recognised on the basis of manage- ment’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 756 million (2009: euro 493 million), an increase of euro 263 million (2009: euro 190 million) compared to the previous year. The change also includes a euro 6 mil- lion (2009: euro 12 million) reduction in deferred taxes arising on foreign currency translation. Changes in deferred tax assets and liabilities during the reporting period can be summarised as follows: 2010 2009 1,503 172 – 269 134 1,540 1,891 –135 – 202 – 51 1,503 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies 89 Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 95 96 117 133 93 GROUP FINANCIAL STATEMENTS Deferred taxes are not recognised on retained profits of euro 16.2 billion (2009: euro 15.9 billion) of foreign sub- sidiaries, as it is intended to invest these profits to main- tain 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 dispropor- tionate expense. The tax returns of BMW Group entities are checked re- gularly by German and foreign tax authorities. Taking account of a variety of factors – including existing inter- pretations, commentaries and legal decisions taken relating to the various tax jurisdictions and the BMW Group’s past experience – adequate provision has, as far as identifiable, been made for potential future tax ob- ligations. The actual tax expense for the financial year 2010 of euro 1,602 million (2009: euro 203 million) is euro 142 million (2009: euro 79 million higher) higher than the expected tax expense of euro 1,460 million (2009: euro 124 mil- lion) which would theoretically arise if the tax rate of 30.2% applicable for German companies, and unchanged from the previous year, was applied across the Group. The difference between the expected and actual tax ex- pense is attributable to the following: in euro million Expected tax expense Variances due to different tax rates Tax increases (+) / tax reductions (–) as a result of non-taxable income and non-deductible expenses Tax expense (+) / benefits (–) for prior periods Other variances Actual tax expense 2010 2009 1,460 – 50 105 141 – 54 1,602 124 38 68 – 26 –1 203 Tax increases as a result of non-deductible expenses relate mainly to the impact of non-recoverable withholding taxes on intra-group dividends. This line also includes write-downs recorded in the current year on investments. The line “Tax expense (+ ) / benefits (–) for prior years” mainly reflects the impact of tax field audits in Germany and abroad. The item “Other variances” includes the impact of the reduction in tax expense as a result of utilising tax losses brought forward for which deferred assets had not pre- viously been recognised and tax credits, also not pre- viously recognised, amounting to euro 7 million (2009: euro 3 million). The tax income for the valuation allow- ance on deferred tax assets relating to tax losses available for carryforward and temporary differences and their reversal amounted to euro 18 million (2009: euro 10 mil- lion). 15 Earnings per share Net profit for the year after minority interest euro million 3,218.1 203.6 2010 2009 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 2,958.3 259.8 186.5 17.1 number 601,995,196 601,995,196 number 52,663,822 51,833,937 euro euro euro euro 4.91 4.93 1.30 1.32 0.31 0.33 0.30 0.32 94 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 correspond to undi- luted earnings per share. 16 Other disclosures relating to the income statement The income statement includes personnel costs as follows: in euro million Wages and salaries Social security, retirement and welfare costs thereof pension costs: euro 740 million (2008: euro 744 million) Personnel costs 2010 2009 6,109 1,285 5,299 1,267 7,394 6,566 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies 89 Notes to the Income Statement 95 Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 96 117 133 Personnel costs include euro 116 million (2009: euro 171 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 2010 2009 88,933 5,513 94,446 90,755 5,452 96,207 For information regarding the number of employees at the year-end, reference is made to pages 27 et seq. in the Group Management Report. The fee expense pursuant to § 314 (1) no. 9 HGB recog- nised in the financial year 2010 for the Group auditors amounted to euro 19 million (2009: euro 20 million) and consists of the following: in Mio. Euro Audit of financial statements thereof KPMG Europe LLP Other attestation services thereof KPMG Europe LLP Tax advisory services thereof KPMG Europe LLP Other services thereof KPMG Europe LLP Fee expense thereof KPMG Europe LLP 2010 2009 11 5 1 – 5 4 2 1 19 10 10 4 1 – 6 4 3 3 20 11 The total fee comprises expenses recorded by BMW AG and consolidated subsidiaries. Fee expense relating to KPMG Europe LLP comprise serv- ices provided by KPMG AG Wirtschaftsprüfungs- gesellschaft and its affiliated companies in the United Kingdom, Switzerland, Spain, Belgium, the CIS (former USSR) countries and the Netherlands. The prior year ex- pense incurred by the subsidiary in the CIS countries (which did not entail a significant amount) was not re- ported in the previous year. 95 GROUP FINANCIAL STATEMENTS BMW Group Notes to the Group Financial Statements Notes to the Statement of Comprehensive Income 17 Disclosures relating to total comprehensive income Other comprehensive income for the period after tax comprises the following: in euro million 2010 2009 Available-for-sale securities Gains / losses in the period Amounts reclassified to income statement Financial instruments used for hedging purposes Gains / losses in the period Amounts reclassified to income statement Exchange differences on translating foreign operations Actuarial gains / losses relating to defined benefit pension and similar plans Deferred taxes relating to components of other comprehensive income Other comprehensive income for the period after tax –19 3 –16 – 794 274 – 520 683 – 277 263 133 Deferred taxes on components of other comprehensive income are as follows: in euro million Available-for-sale securities Financial instruments used for hedging purposes Exchange differences on translating foreign operations Actuarial gains / losses relating to defined benefit pension and similar plans Other comprehensive income 2010 Deferred taxes 2009 After tax Before tax Deferred taxes 5 184 – 74 263 –11 – 336 683 4 295 318 – 203 –1,198 133 – 581 –1 –131 – 322 190 Before tax –16 – 520 683 – 277 –130 11 – 7 4 358 – 63 295 318 – 1,198 190 – 391 After tax 3 164 318 – 876 – 391 96 BMW Group Notes to the Group Financial Statements Notes to the Balance Sheet 18 Analysis of changes in Group tangible, intangible and investment assets 2010 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 Property, plant and equipment 1. 1. 20101 Translation differences Additions Reclassi- fications Disposals 31. 12. 2010 Acquisition and manufacturing cost 8,695 859 9,554 7,353 22,715 2,056 567 32,6911 – 12 12 118 221 54 21 414 951 77 1,028 94 1,422 109 610 2,235 – – – 52 430 14 – 496 – 499 38 537 46 622 91 2 761 9,147 910 10,057 7,571 24,166 2,142 700 34,579 Leased products 24,417 982 9,334 – 10,776 23,957 Investments accounted for using the equity method 137 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 307 8 4 319 – 2 – – 2 103 120 4 – 124 – – – – – 28 178 – 4 182 212 251 12 – 263 1 including the acquisition cost of property, plant and equipment in conjunction with the first-time consolidation of the Husqvarna Group totalling euro 14 million 2 including assets under construction of euro 582 million Analysis of changes in Group tangible, intangible and investment assets 2009 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 1. 1. 20091 Translation differences Additions Reclassi- fications Disposals 31. 12. 2009 Acquisition and manufacturing cost 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 Property, plant and equipment Leased products 8,855 972 9,827 6,939 21,672 2,075 1,121 31,807 25,407 Investments accounted for using the equity method 111 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 375 8 23 406 – 3 3 36 85 11 – 4 128 3 – – – – – 1,087 50 1,137 154 1,662 77 441 2,334 8,646 41 38 – – 38 – – – 287 676 23 – 986 – – – – – – – 1,247 166 1,413 76 1,380 130 6 1,592 8,695 859 9,554 7,340 22,715 2,056 566 32,677 9,639 24,417 15 106 – 19 125 137 307 8 4 319 1 including gross balances brought forward for entities consolidated for the first time in the financial year 2 including assets under construction of euro 418 million 97 GROUP FINANCIAL STATEMENTS Depreciation and amortisation Carrying amount 1. 1. 20101 Translation differences Current year Disposals Reversal of impair- ment losses 31. 12. 2010 31. 12. 2010 31. 12. 2009 3,761 414 4,175 2,936 16,732 1,623 1 21,292 – 7 7 47 165 43 – 255 1,260 119 1,379 226 1,933 144 – 2,303 499 36 535 23 595 80 – 698 – – – – – – – 4,522 504 5,026 3,186 18,235 1,730 1 4,625 406 5,031 4,385 5,931 412 6992 4,934 Development costs 445 Other intangible assets 5,379 Intangible assets 4,404 Land, titles to land, buildings, including buildings on third party land 5,983 Plant and machinery 433 Other facilities, factory and office equipment 565 Advance payments made and construction in progress – 23,152 11,427 11,385 Property, plant and equipment 6,444 259 2,817 3,354 – 6,166 17,791 17,973 Leased products – 82 5 – 87 – 1 –1 – – – – – 179 – – 179 177 – – 177 3 – – 3 – 82 4 – 86 212 169 8 – 177 137 Investments accounted for using the equity method 225 Investments in non-consolidated subsidiaries 3 4 Participations Non-current marketable securities 232 Other investments Depreciation and amortisation 1. 1. 20091 Translation differences Current year Disposals Reversal of impair- ment losses 31. 12. 2009 31. 12. 2009 31. 12. 2008 Carrying amount 3,782 401 4,183 2,745 16,150 1,574 1 20,470 – – – 19 58 10 – 87 1,226 114 1,340 213 1,885 162 – 1,247 101 1,348 41 1,361 123 – – – – – – – – 3,761 414 4,175 2,936 16,732 1,623 1 4,934 445 5,379 4,404 5,983 433 5652 5,073 Development costs 568 Other intangible assets 5,641 Intangible assets 4,157 Land, titles to land, buildings, including buildings on third party land 5,518 Plant and machinery 497 Other facilities, factory and office equipment 1,120 Advance payments made and construction in progress 2,260 1,525 – 21,292 11,385 11,292 Property, plant and equipment 5,883 – 5 3,689 3,123 – 6,444 17,973 19,524 Leased products – – – – – 79 5 – 84 – – – – 3 – – – – – – – – 3 – – – 82 5 – 87 137 111 Investments accounted for using the equity method 225 3 4 232 296 Investments in non-consolidated subsidiaries 3 Participations 23 Non-current marketable securities 322 Other investments 98 19 Intangible assets Intangible assets mainly comprise capitalised develop- ment costs on vehicle and engine projects as well as sub- sidies for tool costs, licences, purchased development projects and software. Amortisation on intangible assets is presented in cost of sales, sales costs and administra- tive costs. In addition, intangible assets include a brand-name right amounting to euro 41 million (2009: euro 40 million) and goodwill with an indefinite useful life of euro 111 mil- lion, unchanged from the previous year. The latter com- prises 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 sepa- rately in the BMW Group balance sheet since the amount is not significant in relation 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. No borrowing costs were recognised as a cost component of intangible assets during the year under report. Changes in intangible assets during the year are shown in the analysis of changes in Group tangible, intangible and investment assets on pages 96 et seq. 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 20 Property, plant and equipment No borrowing costs were recognised as a cost component of property, plant and equipment during the year under report. A break-down of the different classes of property, plant and equipment disclosed in the balance sheet and changes during the year are shown in the analysis of changes in Group tangible, intangible and investment assets on pages 96 et seq. Property, plant and equipment include a total of euro 55 million (2009: euro 57 million) relating to operational buildings used by BMW AG as well as leased plant, ma- chinery and other facilities, factory and office equipment used primarily at the Oxford and Hams Hall production plants. Due to the nature of the lease arrangements (finance leases), economic ownership of these assets is attributable to the BMW Group. The leases for buildings, with a carrying amount of euro 46 million (2009: euro 48 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 equipment at the Oxford plant, with a carrying amount of euro 3 million (2009: euro 4 million) at 31 December, run until 2011. For each of the leases, there is a recur- ring option to extend the leases by one year. A purchase option was not agreed. The lease for plant and ma- chinery and other equipment at the Hams Hall plant, with a carrying amount of euro 3 million (2009: euro 1 million) at 31 December, runs until 2018. Neither a lease extension option nor a purchase option has been agreed. Minimum lease payments of the relevant leases are as follows: in euro million 31. 12. 2010 31. 12. 2009 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 89 116 95 300 5 25 28 58 84 91 67 242 75 166 117 358 7 25 36 68 68 141 81 290 99 GROUP FINANCIAL STATEMENTS 21 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 8,070 million (2009: euro 7,686 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. 2010 31. 12. 2009 4,303 3,766 1 8,070 4,257 3,428 1 7,686 Contingent rents of euro 47 million (2009: euro 39 mil- lion), based principally on the distance driven, were recognised in income. The agreements have, in part, ex- tension 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 96 et seq. 22 Investments accounted for using the equity method and other investments Investments accounted for using the equity method in- clude the BMW Group’s interests in BMW Brilliance Automotive Ltd., Shenyang, SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, SGL Automotive Carbon Fibers Verwaltungs GmbH, Munich, and SGL Auto- motive Carbon Fibers LLC, Dover, DE (all joint ventures) and in Cirquent GmbH, Munich. The aggregated inter- ests of the Group are as follows: in euro million 31. 12. 2010 31. 12. 2009 Disclosures relating to the income statement Income Expenses Profit Disclosures relating to the balance sheet Non-current assets Current assets Equity Non-current liabilities Current liabilities Balance sheet total 1,240 –1,142 98 318 572 271 36 583 890 835 – 797 38 222 287 164 15 330 509 Other investments relate primarily to investments in non-consolidated subsidiaries, investments in other companies and non-current marketable securities. Additions to investments in non-consolidated sub- sidiaries relate primarily to the foundation of BMW India Financial Services Pvt. Ltd., New Delhi, and to a capital increase at the level of Husqvarna Motorcycles S. r. l., Cassinetta di Biandronno. in use) was lower than the relevant carrying amounts. Most of this expense was recorded by the Automobile segment. Fair values were calculated by discounting future cash flows using a risk-adjusted interest rate of 12.0% (unchanged from the previous year). Changes in investments in non-consolidated subsidiar- ies also reflect the capital increase, impairment and first- time consolidation of the Husqvarna Group. The write-downs on investments in affiliated companies relates primarily to investments in the Husqvarna Group. The new strategic direction being taken for these invest- ments gave rise to an impairment loss of euro 178 mil- lion, reflecting the fact that the recoverable amount (value A break-down of the different classes of other invest- ments disclosed in the balance sheet and changes during the year are shown in the analysis of changes in Group tangible, intangible and investment assets on pages 96 et seq. 100 23 Receivables from sales financing Receivables from sales financing, totalling euro 45,365 mil- lion (2009: euro 40,594 million), comprise euro 35,460 million (2009: euro 31,971 million) for credit financing for retail customers and dealers and euro 9,905 million (2009: euro 8,623 million) for finance leases. Finance leases are analysed as follows: in euro million 31. 12. 2010 31. 12. 2009 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 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 3,922 7,185 56 11,163 3,409 6,446 50 9,905 3,477 6,269 28 9,774 3,056 5,542 25 8,623 Unrealised interest income 1,258 1,151 Contingent rents recognised as income (generally re- lating to the distance driven) amounted to euro 3 mil- lion (2009: euro 3 million). Write-downs on finance leases amounting to euro 68 million (2009: euro 58 mil- lion) were measured and recognised on the basis of specific credit risks. There are no guaranteed residual values that fall to the benefit of the lessor (2009: euro 3 million). Receivables from sales financing include euro 27,126 mil- lion (2009: euro 23,478 million) with a remaining term of more than one year. Allowance for impairment and credit risk in euro million Gross carrying amount Allowance for impairment Net carrying amount 31. 12. 2010 31. 12. 2009 46,961 –1,596 45,365 41,950 –1,356 40,594 Allowances for impairment on receivables from sales financing developed as follows during the year under report: 2010 in euro million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 2009 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 1,195 489 – 365 74 1,393 161 45 –15 12 203 Allowance for impairment recognised on a group basis specific item basis 938 682 – 444 19 1,195 115 50 –10 6 161 Total 1,356 534 – 380 86 1,596 Total 1,053 732 – 454 25 1,356 101 GROUP FINANCIAL STATEMENTS At the end of the reporting period, impairment allowances of euro 203 million (2009: euro 161 million) were recog- nised on a group basis on gross receivables from sales financing totalling euro 24,477 million (2009: euro 19,509 million). Impairment allowances of euro 1,393 million (2009: euro 1,195 million) were recognised at 31 Decem- ber 2010 on a specific item basis on gross receivables from sales financing totalling euro 10,722 million (2009: euro 10,581 million). Receivables from sales financing which were not over- due at the end of the reporting period amounted to euro 11,762 million (2009: euro 11,860 million). No impair- ment losses were recognised for these balances. The estimated fair value of collateral received for receiv- ables on which impairment losses were recognised to- talled euro 19,282 million (2009: euro 15,600 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 35 million (2009: euro 40 mil- lion). As at the end of the previous year, there were no receivables from sales financing at the balance sheet date which have been renegotiated and which were other- wise overdue or otherwise required recognition of an impairment loss. 24 Financial assets Financial assets comprise: in euro million Derivative instruments Marketable securities and investment funds Loans to third parties Credit card receivables Other Financial assets thereof non-current thereof current 31. 12. 2010 31. 12. 2009 2,781 1,566 58 262 462 5,129 1,867 3,262 2,433 1,648 23 266 364 4,734 1,519 3,215 The change in derivative instruments mainly reflects the positive development of fair values of commodity de- rivatives. Marketable securities and investment funds decreased mainly as a result of the maturing of fixed-interest securi- ties, the funds from which were not fully reinvested. were transferred to BMW Trust e. V., Munich, as part of Contractual Trust Arrangements (CTAs) and are therefore netted against the corresponding settlement arrears for pre-retirement part-time work arrangements. The amount by which the value of the investment funds exceeds these obligations amounting to euro 50 million (2009: euro 28 million) is reported under other financial assets. Investment funds are held to secure obligations relating to pre-retirement part-time work arrangements. These funds Marketable securities and investment funds relate to available-for-sale financial assets and comprise: in euro million Stocks Fixed income securities Sundry marketable securities Marketable securities and investment funds 31. 12. 2010 31. 12. 2009 1 1,565 – 1,566 – 1,647 1 1,648 102 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 Allowance for impairment and credit risk Receivables relating to credit card business comprise the following: in euro million Gross carrying amount Allowance for impairment Net carrying amount 31. 12. 2010 31. 12. 2009 282 1,283 – – 302 1,345 – 1 1,565 1,648 31. 12. 2010 31. 12. 2009 277 –15 262 283 –17 266 Allowances for impairment losses on receivables relating to credit card business developed as follows during the year under report: 2010 in euro million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 2009 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 17 27 – 30 1 15 – – – – – Allowance for impairment recognised on a group basis specific item basis 15 35 – 32 –1 17 – – – – – Total 17 27 – 30 1 15 Total 15 35 – 32 – 1 17 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 103 GROUP FINANCIAL STATEMENTS 25 Income tax assets Income tax assets can be analysed as follows: 31 December 2010 in euro million Deferred tax Current tax Income tax assets 31 December 2009 in euro million Deferred tax Current tax Income tax assets 26 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 – 302 302 1,393 864 2,257 Maturity within one year Maturity later than one year – 452 452 1,266 498 1,764 Total 1,393 1,166 2,559 Total 1,266 950 2,216 31. 12. 2010 31. 12. 2009 564 688 258 847 474 818 445 485 171 898 507 618 3,649 3,124 692 2,957 640 2,484 Receivables from subsidiaries include trade receivables of euro 89 million (2009: euro 70 million) and financial receivables of euro 599 million (2009: euro 415 million). They include euro 259 million (2009: euro 145 million) with a remaining term of more than one year. Prepayments of euro 847 million (2009: euro 898 million) relate mainly to prepaid interest, development costs not eligible for capitalisation as non-current assets, insurance premiums and rent. Prepayments of euro 542 million (2009: euro 568 million) have a maturity of less than one year. Receivables from other companies in which an investment is held include euro 251 million (2009: euro 171 million) due within one year. Collateral receivables comprise mainly customary col- lateral arising on the sale of receivables. 104 27 Inventories Inventories comprise the following: in euro million 31. 12. 2010 31. 12. 2009 Raw materials and supplies Work in progress, unbilled contracts Finished goods and goods for resale Inventories 663 683 6,420 7,766 536 542 5,477 6,555 At 31 December 2010, inventories measured at their net realisable value amounted to euro 416 million (2009: euro 355 million) and are included in total inventories of euro 7,766 million (2009: euro 6,555 million). Write- downs to net realisable value amounting to euro 18 mil- lion (2009: euro 58 million) were recognised in 2010. 28 Trade receivables Trade receivables amounting in total to euro 2,329 million (2009: euro 1,857 million) include euro 41 million due later than one year (2009: euro 40 million). 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 Allowance for impairment and credit risk in euro million Gross carrying amount Allowance for impairment Net carrying amount 31. 12. 2010 31. 12. 2009 2,424 – 95 2,329 1,942 – 85 1,857 Allowances on trade receivables developed as follows during the year under report: 2010 in euro million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 2009 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 76 17 –12 2 83 9 3 –1 1 12 Allowance for impairment recognised on a group basis specific item basis 62 31 –17 – 76 7 3 – 2 1 9 Total 85 20 –13 3 95 Total 69 34 –19 1 85 As at the end of the previous year, there were no trade receivables at the balance sheet date which have been re- negotiated and which were otherwise overdue or required recognition of an impairment loss. 105 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. 2010 31. 12. 2009 148 41 15 11 39 254 149 49 26 28 69 321 Receivables that are overdue by between 1 and 30 days do not normally result in bad debt losses since the over- due 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 vehicle documents and bank guarantees so that the risk of bad debt loss is extremely low. 29 Cash and cash equivalents Cash and cash equivalents of euro 7,432 million (2009: euro 7,767 million) comprise cash on hand and at bank, all with a maturity of under three months. 30 Equity Number of shares issued At 31 December 2010 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 53,163,412 shares with a par value of one euro. Un- like 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. In 2010, a total of 499,590 shares of preferred stock was sold to employees at a reduced price of euro 26.99 per share in conjunction with an employee share scheme. These shares are entitled to receive dividends with effect from the financial year 2011. 1,540 shares of preferred stock were bought back via the stock exchange in order to service the Company’s employee share scheme. Issued share capital increased by euro 0.5 million as a result of the issue to employees of 498,050 shares of non- voting preferred stock. The Authorised Capital of BMW AG amounted to euro 4 million at the end of the report- ing period. The Company is authorised to issue shares of non-voting preferred stock amounting to nominal euro 5 million prior to 13 May 2014. The share premium of euro 18 million arising on the share capital increase in 2010 was transferred to capital reserves. The effect of applying IFRS 2 (Share-Based Payments) to the employee share scheme is not material for the Group. Capital reserves Capital reserves include premiums arising from the issue of shares and totalled euro 1,939 million (2009: euro 1,921 million). The change related to the share capital increase in conjunction with the issue of shares of pre- ferred stock to employees. Revenue reserves Revenue reserves comprise the post-acquisition and non-distributed earnings of consolidated companies. In addition, revenue reserves include both positive and negative goodwill arising on the consolidation of Group companies prior to 31 December 1994. Revenue reserves increased during the year to euro 23,447 million. The figure was increased by the amount of the net profit attributable to shareholders of BMW AG (euro 3,218 million) and reduced by the payment of the dividend for 2009 (euro 197 million). The unappropriated profit of BMW AG of euro 852 mil- lion for 2010 will be proposed to the Annual General Meeting for distribution. The proposed distribution must be authorised by the shareholders at the Annual General 106 Meeting of BMW AG. It is therefore not recognised as a liability in the Group Financial Statements. concern in the long-term and to provide an adequate return to shareholders. Accumulated other equity Accumulated other equity consists of all amounts recog- nised directly in equity resulting from the translation of the financial statements of foreign subsidiaries, the ef- fects of recognising changes in the fair value of derivative financial instruments and marketable securities directly in equity, and actuarial gains and losses relating to de- fined benefit pension plans and similar obligations. It also includes deferred taxes on items recognised directly in equity. Minority interests Equity attributable to minority interests amounted to euro 26 million (2009: euro 13 million). This includes a minority interest of euro 16 million (2009: euro 6 mil- lion) in the results for the year. 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 diversification. Capital management disclosures The BMW Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going The capital structure at the end of the reporting period was as follows: in euro million 31. 12. 2010 31. 12. 2009 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 23,074 27.0 % 35,833 26,520 62,353 73.0 % 85,427 19,902 24.5 % 34,391 26,934 61,325 75.5 % 81,227 Equity attributable to shareholders of BMW AG in- creased during the financial year by 2.5 percentage points, mainly reflecting the increase in revenue reserves com- pared to the previous year. The decrease in the proportion of financial liabilities mainly reflects the fact that financ- ing requirements for financial services business only in- creased slightly. BMW AG is officially rated by the international rating agencies, Standard & Poor’s (S & P) and Moody’s, and ad- judged to be highly creditworthy. The long-term and short-term ratings issued to BMW AG by the two rating agencies have been robust for many years now. In September 2010 Moody´s and S & P raised their ratings for the Company’s outlook from negative to stable as a result of the recovery of sales markets and improved macro-economic conditions. Non-current financial liabilities Current financial liabilities Outlook Moody’s Standard & Poor’s A3 P-2 stable A – A -2 stable 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 107 GROUP FINANCIAL STATEMENTS With their current long-term ratings of A– (S & P) and A3 (Moody’s), the agencies continue to confirm BMW AG’s robust creditworthiness for debt with a term of more than one year. BMW AG’s creditworthiness for short-term debt is also classified by the rating agencies as good, thus enabling it to obtain refinancing funds on competitive conditions. 31 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, economic and tax circumstances prevailing in each coun- try, various pension plans are used, based generally on the length of service, final salary and remuneration struc- ture of the employees involved. Due to similarity of na- ture, the obligations of BMW Group companies in the USA and of BMW (South Africa) (Pty) Ltd., Pretoria, for post-employment medical care are also disclosed as pen- sion provisions. The provision for these pension-like ob- ligations amounts to euro 93 million (2009: euro 70 mil- lion) and is measured, similar to pension obligations, in accordance with IAS 19. In the case of post-employment medical care, it is assumed that 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 2010 was euro 10 million (2009: euro 7 million). The provisions for the medical care of employees in the USA compare with reimbursement claims of euro 8 million recognised in accordance with IAS 19.104A. Post-employment benefit plans are classified as either defined contribution or defined benefit plans. Under de- fined contribution plans, an enterprise pays fixed con- tributions into a separate entity or fund and does not as- sume any other obligations. The total pension expense for defined contribution plans within the BMW Group amounted to euro 30 million (2009: euro 31 million). Employer contributions paid to state pension insurance schemes totalled euro 406 million (2009: euro 356 mil- lion). Under defined benefit plans, the enterprise is required to pay the benefits granted to present and past employees. Defined benefit plans may be funded or unfunded, the latter sometimes covered by accounting provisions. Most of the pension commitments of the BMW Group in Ger- many relate to BMW AG. In the financial year 2010, as previously planned, BMW AG transferred a further por- tion of its pension obligations to BMW Trust e. V., Munich, in conjunction with Contractual Trust Agreements (CTAs). As a result, almost all of the obligations in Germany are now covered by fund assets. Obligations not covered by assets held by the fund are covered by pension provi- sions. The main other countries with funded plans were the UK, the USA, Switzerland, the Netherlands, Belgium, South Africa and Japan. Pension obligations are computed on an actuarial basis at the level of the defined benefit obligation. The actuarial computation requires the use of estimates, based on as- sumptions relating to life expectancy and the parameters stated below that depend on the economic situation in each particular country. The following weighted average values have been used for Germany, the UK and other countries: 31 December in % Discount rate Salary level trend Pension level trend Germany 2010 2009 United Kingdom 2010 2009 Other 2010 2009 4.75 3.25 2.25 5.30 3.25 2.30 5.30 4.10 3.60 5.40 4.00 3.38 5.32 3.89 2.12 5.54 3.45 1.96 108 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 bene- fit obligation is offset against plan assets measured at their fair value. Where the plan assets exceed the pension obligations and the enterprise has a right of reimburse- ment or a right to reduce future contributions, the surplus amount is recognised as an asset in accordance with IAS 19 and presented within other financial 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 decreases in either the present value of the defined bene- fit obligation or the fair value of the plan assets. Causes of actuarial gains or losses include the effect of changes in the measurement parameters, changes in estimates caused by the actual development of risks impacting on pension obligations and differences between the actual and expected return on plan assets. Past service cost arises where a BMW Group company introduces a de- fined 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: 31 December in euro million Germany United Kingdom Other Total 2010 2009 2010 2009 2010 2009 2010 2009 Present value of pension benefits covered by accounting provisions Present value of funded pension benefits Defined benefit obligations Fair value of plan assets Net obligation Past service cost not yet recognised Amount not recognised as an asset because of the limit in IAS 19.58 3 3 – – 5,289 4,616 6,014 5,743 5,292 4,619 6,014 5,743 5,207 3,144 4,812 4,487 85 – – 1,475 1,202 1,256 – – – – – 3 86 616 702 436 266 6 3 70 89 73 499 11,919 10,858 569 12,008 10,931 346 10,455 7,977 223 1,553 2,954 4 7 6 3 4 10 Balance sheet amounts at 31 December 85 1,475 1,202 1,259 275 234 1,562 2,968 thereof pension provision thereof pension assets (–) 85 – 1,475 1,202 1,259 – – – 276 –1 238 1,563 2,972 – 4 –1 – 4 Pension provisions relating to pension plans in other countries amounted to euro 276 million (2009: euro 238 million). This includes euro 190 million (2009: euro 168 million) relating to externally funded plans. The increase in defined benefit obligations results mainly from the change in the discount rate used in Germany for the actuarial computation. The impact of this on pension provisions was, however, more than offset by a further transfer of assets to BMW Trust e.V., Munich, in Germany and by positive fair value changes in fund assets. 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 109 GROUP FINANCIAL STATEMENTS The changes in the pension provision and the pension asset (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 2010 2009 2010 2009 2010 2009 2010 2009 Germany United Kingdom Other Total Balance sheet amounts at 1 January Effect of first-time consolidation Expense from pension obligations 1,475 2,693 1,259 345 234 273 2,968 3,311 – 119 – 237 – 135 – 77 1 50 – 43 1 304 – 357 Pension payments or transfers to external funds –1,851 –1,746 –112 – 99 – 38 – 58 – 2,001 –1,903 Actuarial gains (–) and losses (+) on defined benefit obligations Actuarial gains (–) and losses (+) on plan assets Employee contributions Translation differences and other changes 441 522 – 7 –102 – 234 –110 2 1 2 1 – 37 946 – 40 – 30 Balance sheet amounts at 31 December 85 1,475 1,202 1,259 thereof pension provision thereof pension assets (–) 85 – 1,475 1,202 1,259 – – – 25 –15 – 18 275 276 –1 – 4 459 1,464 –15 –227 – 289 – – 5 234 2 56 2 26 1,562 2,968 238 1,563 2,972 – 4 –1 – 4 The defined benefit plans of the BMW Group gave rise to an expense from pension obligations in the financial year 2010 of euro 304 million (2009: euro 357 million), comprising the following components: in euro million Current service cost Expense from reversing the discounting of pension obligations Past service cost Expected return on plan assets (–) Expense from pension obligations Germany United Kingdom Other Total 2010 2009 2010 2009 2010 2009 2010 2009 122 241 – 42 103 228 – 57 315 9 52 275 7 – 202 – 94 – 246 – 257 119 237 135 77 38 32 – –20 50 33 29 – 217 588 – 33 188 532 7 –19 – 468 – 370 43 304 357 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 func- tion. Depending on the risk structure of the pension obli ga- tions involved, pension plan assets are invested in various investment classes, the most predominant one being bonds. The asset portfolio also includes equity instruments, property and alternative investments. The expected rate of return is derived on the basis of 110 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): in % Germany 2010 2009 United Kingdom 2010 2009 Other 2010 2009 Expected rate of return on plan assets 5.30 6.12 5.40 6.03 5.51 6.55 Compared to the expected return of euro 468 million (2009: euro 370 million), fund assets actually increased in the financial year 2010 by euro 695 million (2009: increase in fund assets of euro 659 million) as a result of positive market price developments, giving rise to actuarial gains on fund assets of euro 227 million (2009: actuarial gains of euro 289 million). The actuarial gains on fund assets compare with actuarial losses of euro 459 million (2009: actuarial losses of euro 1,464 million) on benefit obliga- tions. The actuarial losses in 2010 arose mainly as a result of the application of a lower discount rate in Germany. 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 provides a basic fixed amount benefit, retirement bene- fits are largely organised in the form of company pen- sions and arrangements financed by the individual. The pension benefits in the United Kingdom therefore con- tain 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 1 January Expense from pension obligations and expected return on plan assets Payments to external funds Employee contributions Payments on account and pension payments Actuarial gains (–) and losses (+) Translation differences and other changes Defined benefit obligation Plan assets Net obligation 2010 2009 2010 2009 2010 2009 4,619 3,848 – 3,144 –1,155 1,475 2,693 321 – 29 331 – 27 –119 –111 441 1 522 2 – 202 – 94 119 237 –1,740 –1,642 –1,740 –1,642 – 27 – 25 2 2 8 7 –111 –104 –102 – 234 – –1 339 1 288 1 31 December 5,292 4,619 – 5,207 – 3,144 85 1,475 United Kingdom in euro million 1 January Expense from pension obligations and expected return on plan assets Payments to external funds Employee contributions Payments on account and pension payments Actuarial gains (–) and losses (+) Translation differences and other changes Defined benefit obligation Plan assets Net obligation 2010 2009 2010 2009 2010 2009 5,743 4,403 – 4,487 – 4,059 1,256 344 381 334 – 246 – 257 – 1 – 1 – 282 – 264 – 7 178 946 323 –112 –1 282 –110 –138 – 99 –1 264 – 40 – 295 135 –112 – – –117 40 77 – 99 – – 906 28 31 December 6,014 5,743 – 4,812 – 4,487 1,202 1,256 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 111 GROUP FINANCIAL STATEMENTS Other in euro million 1 January Effect of first-time consolidation Expense from pension obligations and expected return on plan assets Payments to external funds Employee contributions Payments on account and pension payments Actuarial gains (–) and losses (+) Translation differences and other changes 31 December Defined benefit obligation Plan assets Net obligation 2010 2009 2010 2009 2010 2009 569 1 70 – 2 –18 25 53 702 537 – 62 – 2 –19 – 4 – 9 569 – 346 – 277 – – – 20 – 35 – 2 15 –15 – 33 – 436 –19 – 54 – 2 15 –15 6 – 346 223 1 50 – 35 – – 3 10 20 266 260 – 43 – 54 – – 4 –19 – 3 223 Plan assets in Germany, the UK and other countries comprised the following: Components of plan assets in euro million 2010 2009 2010 2009 2010 2009 2010 2009 Germany United Kingdom Other countries Total Equity instruments Debt securities Real estate Other 31 December 1,368 3,167 – 672 1,020 1,835 – 289 1,082 823 2,843 2,951 430 457 315 398 5,207 3,144 4,812 4,487 197 153 26 60 436 165 142 20 19 346 2,647 6,163 456 1,189 2,008 4,928 335 706 10,455 7,977 A substantial portion of plan assets is invested in debt s ecurities in order to minimise the effect of capital market fluctuations. Other investment classes, such as stocks and shares, serve to generate higher rates of return. This is necessary to cover risks (such as changes in morbidity tables) not taken into account in the actuarial assumptions applied. The financial risk of pension payments having to be made for longer than the calculated period is also hedged for pensioners in the UK by a so-called “longevity hedge”. The present value of the defined benefit obligations and the fair values of fund assets – as well as the actuarial adjustments made for those two items – have developed as follows over the last five years: in euro million 2010 2009 2008 2007 2006 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 12,008 10,455 1,553 459 – 227 10,931 7,977 2,954 1,464 – 289 8,788 5,491 3,297 – 919 868 10,631 11,430 6,029 4,602 – 557 44 6,432 4,998 – 400 –117 Actuarial gains on benefit obligations, mostly attributable to experience adjustments, amounted to euro 76 million (2009: euro 22 million). Experience adjustments relating to fund assets also re- sulted in actuarial gains of euro 221 million in the finan- cial year under report (2009: euro 289 million). 112 32 Other provisions Other provisions comprise the following items: in euro million 31. 12. 2010 31. 12. 2009 Obligations for personnel and social expenses Obligations for ongoing operational expenses Other obligations Other provisions Total 1,392 2,960 1,195 5,547 thereof due within one year 941 1,233 652 2,826 Total 960 2,816 988 4,764 thereof due within one year 445 1,031 582 2,058 Provisions for obligations for personnel and social ex- penses comprise mainly performance-related remunera- tion components, early retirement part-time working arrangements and employee long-service awards. Pro- visions for obligations for on-going operational expenses comprise primarily warranty obligations. Provisions for other obligations cover numerous specific risks and obliga- tions of uncertain timing and amount. Other provisions changed during the year as follows: in euro million 1.1. 2010* Translation differences Additions Reversal of discounting Utilised Reversed 31. 12. 2010 Obligations for personnel and social expenses Obligations for ongoing operational expenses Other obligations Other provisions 961 2,826 991 4,778 9 59 34 916 944 605 102 2,465 1 108 8 117 468 874 336 1,678 27 103 107 237 1,392 2,960 1,195 5,547 * including entities consolidated for the first time during the financial year Income from the reversal of other provisions amounting to euro 168 million (2009: euro 509 million) is included in costs by function in the income statement. 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 33 Income tax liabilities 31 December 2010 in euro million Deferred tax Current tax Income tax liabilities 31 December 2009 in euro million Deferred tax Current tax Income tax liabilities Maturity within one year Maturity later than one year – 649 649 2,933 549 3,482 Maturity within one year Maturity later than one year – 595 595 2,769 241 3,010 Total 2,933 1,198 4,131 Total 2,769 836 3,605 113 GROUP FINANCIAL STATEMENTS Current tax liabilities of euro 1,198 million (2009: euro 836 million) comprise euro 189 million (2009: euro 197 million) for taxes payable and euro 1,009 million (2009: euro 639 million) for tax provisions. There was no income from the reversal of tax provisions in the period under report (2009: euro 60 million). 34 Financial liabilities Financial liabilities include all liabilities of the BMW Group at the relevant balance sheet dates relating to financing activities. Financial liabilities comprise the following: 31 December 2010 in euro million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Other Financial liabilities 31 December 2009 in euro million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Other Financial liabilities Maturity within one year Maturity between one and five years Maturity later than five years 6,681 3,514 7,590 5,242 1,793 944 756 17,883 3,676 3,076 – 5,713 1,033 454 3,004 550 23 – – 33 388 26,520 31,835 3,998 Maturity within one year Maturity between one and five years Maturity later than five years 4,483 6,534 7,212 5,213 2,086 549 857 18,320 1,840 2,700 – 5,726 532 145 4,214 800 21 – – 12 81 Total 27,568 7,740 10,689 5,242 7,506 2,010 1,598 62,353 Total 27,017 9,174 9,933 5,213 7,812 1,093 1,083 26,934 29,263 5,128 61,325 114 Bonds comprise: Issuer BMW Finance N. V., The Hague BMW (UK) Capital plc, Bracknell BMW US Capital, LLC, Wilmington, DE BMW Australia Finance Ltd., Melbourne, Victoria Other Interest variable variable fixed fixed fixed fixed fixed fixed fixed variable variable variable variable variable fixed fixed fixed variable variable variable fixed fixed fixed fixed variable variable variable variable variable fixed fixed fixed fixed fixed variable variable variable fixed fixed Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in years) Weighted average effective interest rate (in %) EUR 874 million USD 90 million AUD 250 million EUR 12,820 million GBP 300 million NOK 450 million RON 44 million SEK 1,000 million USD 1,250 million CZK 1,080 million EUR 550 million JPY 33,900 million SEK 300 million USD 100 million CHF 500 million GBP 300 million JPY 27,000 million EUR 75 million MXN 405 million USD 633 million CHF 700 million EUR 4,000 million MXN 1,725 million USD 1,416 million AUD 180 million EUR 285 million JPY 4,000 million SEK 2,600 million USD 375 million AUD 85 million CHF 450 million EUR 150 million JPY 8,000 million USD 100 million JPY 14,600 million USD 200 million ZAR 2,500 million CAD 750 million JPY 33,600 million 1.9 2.1 4.0 5.8 7.0 4.0 3.0 2.0 4.5 3.0 1.6 4.1 1.5 1.5 5.0 8.0 4.7 1.0 5.0 2.4 4.9 6.3 4.4 7.0 1.2 1.5 2.0 1.5 1.9 2.6 4.1 1.3 2.0 2.5 1.3 3.0 1.8 3.0 3.5 3.1 0.8 7.3 4.8 5.3 5.8 11.4 5.0 4.9 1.6 1.0 0.2 2.0 0.3 2.1 5.0 2.5 1.0 4.9 0.3 3.3 5.5 7.8 5.1 5.8 1.6 0.7 2.0 1.1 5.8 2.1 1.5 0.9 1.1 0.2 1.8 6.7 3.2 1.1 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 115 GROUP FINANCIAL STATEMENTS The following details apply to the commercial paper: Issuer BMW AG, Munich BMW Finance N. V., The Hague BMW Malta Finance Ltd., St. Julians BMW US Capital, LLC, Wilmington, DE 35 Other liabilities Other liabilities comprise the following items: 31 December 2010 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 2009 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 Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in days) Weighted average nominal interest rate (in %) EUR 40 million GBP 30 million JPY 5,100 million USD 97 million EUR 3,009 million EUR 505 million EUR 2,055 million 26.0 108.0 62.5 31.8 47.0 42.1 27.0 Maturity within one year Maturity between one and five years Maturity later than five years 560 40 738 120 57 4 1,130 2,590 5,239 – 17 35 82 1 – 2,115 54 2,304 – 7 – – – – 265 7 279 Maturity within one year Maturity between one and five years Maturity later than five years 473 44 395 124 34 11 1,109 1,779 3,969 22 18 22 78 1 – 1,795 101 2,037 – 7 – – – – 230 7 244 1.0 1.0 0.2 0.5 0.9 1.0 0.4 Total 560 64 773 202 58 4 3,510 2,651 7,822 Total 495 69 417 202 35 11 3,134 1,887 6,250 116 Deferred income comprises the following items: in euro million 31. 12. 2010 31. 12. 2009 Deferred income from lease financing Deferred income relating to service contracts Grants Other deferred income Deferred income Total 1,273 1,928 241 68 3,510 thereof due within one year 720 307 38 65 1,130 Total 1,082 1,602 276 174 3,134 thereof due within one year 658 345 46 60 1,109 Deferred income relating to service contracts relates to service and repair work to be provided under commit- ments given at the time of the sale of a vehicle (multi- component arrangements). Grants comprise primarily public funds to promote regional structures and which have been invested in the production plant in Leipzig. In accordance 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. GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity 36 Trade payables 31 December 2010 in euro million Maturity within one year Maturity between one and five years Maturity later than five years Total Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 Trade payables 4,327 24 – 4,351 31 December 2009 in euro million Maturity within one year Maturity between one and five years Maturity later than five years Total Trade payables 3,106 16 – 3,122 The total amount of financial liabilities, other liabilities and trade payables with a maturity later than five years amounts euro 4,277 million (2009: euro 5,372 million). 74 74 74 76 78 80 81 117 GROUP FINANCIAL STATEMENTS BMW Group Notes to the Group Financial Statements Other Disclosures 37 Contingent liabilities and other financial commitments Contingent liabilities No provisions were recognised for the following contingent liabilities (stated at their nominal amount), since an out- flow of resources is not considered to be probable: in euro million Guarantees Performance guarantees Other Contingent liabilities 31. 12. 2010 31. 12. 2009 13 11 66 90 158 10 64 232 Contingent liabilities relate entirely to non-group entities. In the previous year, guarantees included an amount of euro 8 million 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 re- lation to the sale of Rover Cars and Land Rover activities. Other financial obligations In addition to liabilities, provisions and contingent lia- bilities, the BMW Group also has other financial commit- ments, primarily under lease contracts for land, buildings, plant and machinery, tools, office and other facilities. The leases run for periods of one to 92 years and in some cases contain extension and /or purchase options as well as price escalation clauses. In 2010 an amount of euro 200 million (2009: euro 199 million) was recog- nised as expense in conjunction with other financial commitments. The total of future minimum lease payments under non-cancellable leases can be analysed by maturity as follows: in euro million 31. 12. 2010 31. 12. 2009 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 205 609 589 1,403 208 598 697 1,503 The above amounts include euro 4 million (2009: euro 1 million) in respect of non-consolidated subsidiaries and, as in the previous year, euro 1 million for back-to-back operating leases. Purchase commitments for property, plant and equip- ment amount to euro 1,193 million (2009: euro 1,697 mil- lion). 118 38 Financial instruments The carrying amounts and fair values of financial instruments are assigned to IAS 39 categories and cash funds as follows1: 31 December 2010 in euro million Cash funds Loans and receivables Held-to-maturity investments Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Assets Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Marketable securities and investment funds Loans to third parties Credit card receivables Other – – – – – – – – – – – – – – – – – – Cash and cash equivalents 7,432 7,432 – – 46,416 45,365 – – – – 58 262 462 – – – – – 58 262 462 – Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other Total Liabilities Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Other Trade payables Other liabilities Payables to subsidiaries Payables to other companies in which an investment is held Other Total – – – 474 – 7,906 – – – – – – – – – – – – – – – – 474 – 2,329 2,329 688 258 – 274 688 258 – 274 7,906 50,747 49,696 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1 For reasons of clarity, the carrying amounts of cash flow and fair value hedges are assigned to the category “Held for trading”. 2 Carrying amount corresponds to fair value. – – – – – – 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 119 GROUP FINANCIAL STATEMENTS Other liabilities Available- for-sale Fair value option Held for trading Fair value Carrying amount Carrying amount 2 Carrying amount 2 Carrying amount 2 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 177 – – – – 1,566 – – – – – – – – – – – – – – – – – – – – – – – – – – 900 1,102 779 – – – – – – – – – – Assets Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Marketable securities and investment funds Loans to third parties Credit card receivables Other Cash and cash equivalents Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other – – 1,743 – 2,781 Total 27,655 7,726 10,723 5,240 7,464 – – – 1,598 4,351 58 4 3,137 67,956 27,568 7,740 10,689 5,242 7,506 – – – 1,598 4,351 58 4 3,137 67,893 Liabilities Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Other Trade payables Other liabilities Payables to subsidiaries Payables to other companies in which an investment is held Other – – – – – 921 375 714 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2,010 Total 120 31 December 2009 in euro million Cash funds Loans and receivables Held-to-maturity investments Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Assets Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Marketable securities and investment funds Loans to third parties Credit card receivables Other – – – – – – – – – – – – – – – – – – Cash and cash equivalents 7,767 7,767 – – 41,177 40,594 – – – – 23 266 364 – – – – – 23 266 364 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other Total Liabilities Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Other Trade payables Other liabilities Payables to subsidiaries Payables to other companies in which an investment is held Other Total * Carrying amount corresponds to fair value. – – – 507 – 8,274 – – – – – – – – – – – – – – – – 507 – 1,857 1,857 485 171 – 325 485 171 – 325 8,274 44,668 44,085 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 121 GROUP FINANCIAL STATEMENTS Other liabilities Available- for-sale Fair value option Held for trading Fair value Carrying amount Carrying amount* Carrying amount* Carrying amount* – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 232 – – – – 1,648 – – – – – – – – – – – – – – – – – – – – – – – – – – 619 1,080 734 – – – – – – Assets Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Marketable securities and investment funds Loans to third parties Credit card receivables Other Cash and cash equivalents Trade receivables Other assets – Receivables from subsidiaries Receivables from companies in which – – – an investment is held Collateral receivables Other – – 1,880 – 2,433 Total 27,246 27,017 9,165 9,946 5,214 7,803 – – – 1,082 3,122 35 11 2,081 65,705 9,174 9,933 5,213 7,812 – – – 1,083 3,122 35 11 2,081 65,481 Liabilities Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Cash flow hedges Fair value hedges Other derivative instruments Other Trade payables Other liabilities Payables to subsidiaries Payables to other companies in which an investment is held Other – – – – – 321 282 490 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,093 Total 122 Fair value measurement of financial instruments The fair values shown are computed using market infor- mation available at the balance sheet date, on the basis of prices quoted by the contract partners or using appro- priate measurement methods, e.g. discounted cash flow models. In the latter case, amounts were discounted at 31 December 2010 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 Interest rates taken from interest rate curves were adjusted, where necessary, to take account of the credit quality and risk of the underlying financial instrument. Derivative financial instruments are measured at their fair value. The fair values of derivative financial instruments are determined using measurement models, as a consequence of which there is a risk that the amounts calculated could differ from realisable market prices on disposal. The supply of data to the model used to calculate fair values was refined in 2010. Observable financial market price spreads (e.g. for liquidity risks) are now taken into account in the measure- ment of derivative financial instruments, thus helping to minimise differences between the carrying amounts of the instruments and the amounts that can be realised on the financial markets on the disposal of those instruments. 31 December 2010 in euro million EUR USD GBP JPY 0.85 0.94 2.51 3.39 0.31 0.39 2.22 3.55 0.63 0.71 2.69 3.69 0.23 0.30 0.56 1.18 Financial instruments measured at fair value are allocated to different measurement levels in accordance with IFRS 7. This includes financial instruments that are 1 measured at their fair values in an active market for identical financial instruments (level 1), 2 measured at their fair values in an active market for comparable financial instruments or using measure- ment models whose main input factors are based on observable market data (level 2) or 3 using input factors not based on observable market data (level 3). The following table shows the amounts allocated to each measurement level at 31 December 2010: Level hierarchy in accordance with IFRS 7 Level 2 Level 3 Level 1 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 Marketable securities and investment fund shares – available-for-sale 1,566 – Derivative instruments (assets) Cash flow hedges Fair value hedges Other derivative instruments Derivative instruments (liabilities) Cash flow hedges Fair value hedges Other derivative instruments 31 December 2009 in euro million – – – – – – 900 1,102 779 921 375 714 – – – – – – – Level hierarchy in accordance with IFRS 7 Level 2 Level 3 Level 1 Marketable securities and investment fund shares – available-for-sale 543 1,105 Derivative instruments (assets) Cash flow hedges Fair value hedges Other derivative instruments Derivative instruments (liabilities) Cash flow hedges Fair value hedges Other derivative instruments – – – – – 1 619 1,080 734 321 282 489 – – – – – – – 123 GROUP FINANCIAL STATEMENTS Other investments (available-for-sale) amounting to euro 177 million (2009: euro 232 million) are measured at amortised cost since quoted market prices are not avail- able or cannot be determined reliably. These are therefore not included in the level hierarchy shown above. As in the previous year, there were no significant reclassi- in euro million Held for trading fications within the level hierarchy during the financial year 2010. 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: 2010 2009 Gains / losses from the use of derivative instruments 15 338 Available-for-sale Gains and losses on sale and fair value measurement of marketable securities held for sale (including investments in subsidiaries and participations measured 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 –175 5 20 –11 3 9 – 581 – 69 – 23 4 17 3 – 7 20 – 801 – 49 – 90 –113 Gains / losses from the use of derivatives relate primarily to fair value gains or losses arising on stand-alone deriva- tives. Interest income and expense from interest rate and inter- est rate /currency swaps amounted to a net expense of euro 178 million (2009: net expense of euro 294 million). Write-downs of euro 3 million (2009: euro 3 million) on available-for-sale securities, for which fair value changes were previously recognised directly in equity, were rec- ognised as expense in 2010. As in the previous year, there were no reversals of write-downs on current marketable securities recognised directly in equity. The disclosure of interest income resulting from the un- winding of interest on future expected receipts would normally only be relevant for the BMW Group where as- sets have been discounted as part of the process of deter- mining impairment losses. However, as a result of the as- sumption 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 dis- count assets for the purposes of determining impairment losses. 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 2010 2009 209 – 336 274 –127 45 164 – 63 209 During the period under report, an expense of euro 24 mil- lion (2009: euro 44 million) was recognised in the in- come statement to reflect forecasting errors and conse- quent over-hedging of currency exposures. In addition, the ineffective portion of cash flow hedges relating to raw materials expensed in the income statement amounted to euro 3 million (2009: –). At 31 December 2010 the BMW Group held derivative instruments with terms of up to 60 months (2009: 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 124 46 months) to hedge currency risks attached to future transactions. It is expected that euro 110 million of net losses, recognised in equity at the end of the reporting period, will be recognised in the income statement in 2011. At 31 December 2010 the BMW Group held derivative instruments with terms of up to 72 months (2009: 84 months) to hedge interest rate risks. It is expected that euro 42 million of net losses, recognised in equity at the end of the reporting period, will be recognised in the income statement in 2011. At 31 December 2010 the BMW Group held derivative instruments with terms of up to 35 months (2009: 35 months) to hedge raw material price risks attached to future transactions. It is expected that euro 88 million of net gains, recognised in equity at the end of the reporting period, will be recognised in the income statement in 2011. Cash flow hedges are generally used to hedge cash flows arising in conjunction with the supply of vehicles to sub- sidiaries and to hedge raw material price fluctuations. 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. 2010 31. 12. 2009 Gains / losses on hedging instruments designated as part of a fair value hedge relationship Gains / loss from hedged items – 808 763 – 45 – 398 446 48 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 the market prices of bonds, other financial liabilities and receivables from sales financing. where appropriate by warranties and guarantees. If an item previously accepted as collateral is acquired, it under- goes a multi-stage process of repossession and disposal in accordance with the legal situation prevailing in the relevant market. The assets involved are generally vehi- cles which can be converted into cash at any time via the dealer organisation. 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 fulfil their con- tractual obligations. The maximum credit risk for irrevo- cable credit commitments relating to credit card business amounts to euro 1,020 million (2009: euro 1,513 mil- lion). The equivalent figure for dealer financing is euro 14,388 million (2009: euro 12,634 million). Impairment losses are recorded as soon as credit risks are identified on individual financial assets, using a methodology specifically designed by the BMW Group. More detailed information regarding this methodology is provided in the section on accounting policies. The use of comprehensive rating and scoring techniques and credit monitoring procedures ensures the recovera- bility of the value of receivables from sales financing which are neither overdue nor impaired. In the case of performance relationships underlying non-derivative financial instruments, collateral will be re- quired, information on the credit-standing of the coun- terparty obtained or historical data based on the existing business relationship (i.e. payment patterns to date) re- viewed in order to minimise the credit risk, all depending on the nature and amount of the exposure that the BMW Group is proposing to enter into. Within the financial services business, the financed items (e.g. vehicles, equipment and 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 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 instru- ments utilised by the BMW Group is therefore not con- sidered to be significant. A concentration of credit risk with particular borrowers or groups of borrowers has not been identified in conjunc- tion with financial instruments. Further disclosures relating to credit risk, in particular impairment losses recognised, are provided in the notes to the relevant category of receivables on page 102 and pages 104 et seq. 125 GROUP FINANCIAL STATEMENTS Liquidity risk The following table shows the maturity structure of expected contractual cash flows (undiscounted) for financial lia- bilities: 31 December 2010 in euro million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Trade payables Other financial liabilities 31 December 2009 in euro million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments* Trade payables Other financial liabilities * previous year’s figures restated Maturity within one year Maturity between one and five years Maturity later than five years Total – 7,812 – 3,594 – 8,089 – 5,246 –1,810 –1,244 – 4,327 – 771 – 19,567 – 4,029 – 3,210 – – 5,811 –1,375 – 24 – 532 – 32,893 – 34,548 Maturity within one year Maturity between one and five years – 5,694 – 6,882 –7,834 – 5,251 – 2,246 – 690 – 3,106 – 859 – 22,951 – 2,075 – 2,759 – – 6,278 – 447 –16 –162 – 32,562 – 34,688 – 3,197 – 30,576 – 587 – 25 – – – 35 – – 525 – 4,369 Maturity later than five years – 4,488 – 841 – 24 – – – 240 – –118 – 5,711 – 8,210 – 11,324 – 5,246 – 7,621 – 2,654 – 4,351 –1,828 – 71,810 Total – 33,133 – 9,798 –10,617 – 5,251 – 8,524 –1,377 – 3,122 –1,139 –72,961 The cash flows shown comprise principal repayments and the related interest. The amounts disclosed for de- rivatives comprise only cash flows relating to derivatives that have a negative fair value at the balance sheet date. Solvency is assured at all times by managing and moni- toring 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 require- ments within the framework of the target debt ratio. The BMW Group has good access to capital markets as a result of its solid financial position and a diversified refinancing strategy. This is underpinned by the longstanding long- and short-term ratings issued by Moody’s and S & P. Short-term liquidity is managed primarily by issuing money market instruments (commercial paper). In this area too, competitive refinancing conditions can be achieved thanks to Moody’s und S & P short-term ratings of A-2 and P-2 respectively. Also reducing liquidity risk, additional secured and unse- cured lines of credit are in place with first-class interna- tional banks. Intra-group cash flow fluctuations are evened out by the use of daily cash pooling arrange- ments. 126 Market risks The principal market risks to which the BMW Group is exposed are currency risk and interest rate risk. Protection against such risks is provided in the first in- stance though natural hedging which arises when the values of non-derivative financial instruments have matching maturities and amounts (netting). Derivative financial instruments are used to reduce the risk remain- ing 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 internal guidelines. This includes, above all, a clear separation of duties between trading and processing. Currency and interest rate risks are managed at a corporate level. Further disclosures relating to risk management are 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 organised on a worldwide basis, the currency risk is an extremely important factor for Group earnings. At 31 December 2010 derivative financial instruments were in place to hedge exchange rate risks, in particular for the currencies Chinese renminbi, US dollar, British pound 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 pages 63 et seq. 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, the principal exposures for the coming year were as follows: in euro million Euro / Chinese Renminbi Euro / US Dollar Euro / British Pound Euro / Japanese Yen 31. 12. 2010 31. 12. 2009 6,256 3,888 3,056 1,086 3,119 3,696 2,446 902 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 exchange rate fluctuations to operating cash flows on the basis of probability distributions. Volatilities and corre- lations 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% and a holding period of up to one year for each currency. Aggregation of these results creates a risk reduction effect due to corre- lations 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 principal currencies. in euro million Euro / Chinese Renminbi Euro / US Dollar Euro / British Pound Euro / Japanese Yen 31. 12. 2010 31. 12. 2009 265 103 184 30 201 174 188 17 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 127 GROUP FINANCIAL STATEMENTS The BMW Group’s currency risk relates primarily to the 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 exposed to risks resulting from changes in interest rates. These risks arise when funds with differing fixed-rate periods or differing terms are borrowed and invested. All items subject to, or bearing, interest are exposed to inter- est 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. 2010 31. 12. 2009 4,290 7,429 2,599 5,514 6,628 2,031 Interest rate risks can be managed by the use of interest rate derivatives. The interest rate contracts used for hedging purposes comprise mainly swaps which are ac- counted 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 Management Report on page 67. 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 variance-covariance method, 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 ten days and a confidence level of 99%. Aggregation of these results creates a risk reduction effect due to correlations between the various portfolios. 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. 2010 31. 12. 2009 11 27 4 47 139 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 page 64. In order to reduce these risks, derivative financial instruments are used that serve to hedge purchase price fluctuations agreed with suppliers with respect to the raw material content of purchases. Changes in the fair values of these derivatives, which generally track the quoted market prices of the raw material being hedged, gives rise to mar- ket price risks for the Group. If the market prices of hedged raw materials had been 10% higher (lower) at 31 December 2010, the Group profit before tax would have been euro 50 million higher (euro 50 million lower). 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 page 67. Information regarding the residual value risk from operating leases is provided on pages 83 et seq. 128 39 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 (Statement of Cash Flows), cash flows are classified into cash flows from operating, investing and financing activities. The Group and segment cash flow statements are presented on pages 78 et seq. Cash and cash equivalents included in the cash flow statement comprise cash in hand, cheques, and cash at bank, to the extent that they are available within three months from the end of the reporting period and are subject to an insignificant risk of changes in value. The positive impact of changes in cash and cash equivalents due to the effect of exchange rate fluctuations in 2010 was euro 22 million (2009: euro 40 million). 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 state- ments 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 oper- ating 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. The cash flows from investing and financial activities are based on actual payments and receipts. By contrast, the cash flow from operating activities is derived indirectly from the net profit / loss for the year. Under this method, changes in assets and liabilities relating to operating ac- tivities are adjusted for currency translation effects and changes in the composition of the Group. The changes in 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 5 million (2009: euro 4 million). 40 Related party relationships In accordance with IAS 24 (Related Party Disclosures), related individuals or entities which have the ability to control the BMW Group or which are controlled by the BMW Group, must be disclosed unless such parties are not already included in the consolidated financial state- ments 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 individuals that have the ability to exercise significant influence over the financial and operating policies of the BMW Group. This also includes close relatives and inter- mediary entities. Significant influence over the financial and operating policies of the BMW Group is presumed when a party holds 20% or more of the voting power of BMW AG. In addition, the requirements contained in IAS 24 relating to key management personnel and close members of their families or intermediary entities are also applied. In the case of the BMW Group, this applies to members of the Board of Management and Supervisory Board. For the financial year 2010, the disclosure requirements contained in IAS 24 only affect the BMW Group with regard to business relationships with affiliated, non- consolidated entities, joint ventures and participations as well as members of BMW AG’s Board of Management and Supervisory Board. The BMW Group maintains normal business relation- ships with affiliated, non-consolidated entities. Trans- actions 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 venture, 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 2010 for an amount of euro 1,046 million (2009: euro 532 million). At 31 December 2010, receivables of Group companies from BMW Brilliance 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 129 GROUP FINANCIAL STATEMENTS Automotive Ltd., Shenyang, amounted to euro 260 mil- lion (2009: euro 170 million). In the financial year 2010, Group entities disbursed loans to the joint ventures, SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, und SGL Automotive Carbon Fibers LLC, Dover, DE. As a result, loans receivable amounting to euro 20 million were owed by joint ventures to Group entities at 31 December 2010 (2009: -). The loans were disbursed on the basis of arm’s length prin- ciples. All other business transactions with the afore- said joint ventures were concluded on the basis of arm’s length principles and are not material for the BMW Group. Business transactions between BMW Group entities and participations 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 relationships with such entities are on a small scale. In 2010 Group entities purchased services and goods from Cirquent GmbH, Munich, amounting to euro 56 million (2009: euro 52 million). At 31 December 2010 payables of Group entities to Cirquent GmbH, Munich, totalled euro 4 million (2009: euro 10 million). There were no re- ceivables from Cirquent GmbH, Munich at the end of the reporting period (2009: euro 1 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 subsid- iaries, performed logistics services for the BMW Group during the financial year 2010. In addition, companies of the DELTON Group acquired vehicles on the basis of arm’s length principles from the BMW Group, mostly in the form of leasing contracts. These service and sales con- tracts, which are not material for the BMW Group, all arise in the normal course of business and are conducted 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 2010. Susanne Klatten is also a shareholder and a member of the Supervisory Board of SGL Carbon SE, Wiesbaden, subsidiaries of which supplied components to the BMW Group in 2010. Susanne Klatten also holds shares in Nordex AG, Norderstedt. The corre- sponding sales 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. Apart from the transactions referred to above, companies of the BMW Group did not enter into any 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. BMW Trust e.V., Munich, administers assets on a trustee basis to secure obligations relating to pensions and pre-retirement part-time work arrangements in Germany and is therefore a related party of the BMW Group in accordance with IAS 24. This entity, which is a registered association (eingetragener Verein) under German law, does not have any assets of its own. It did not have any income or expenses during the year under report. BMW AG bears expenses incurred by BMW Trust e.V., Munich, on a minor scale and renders services on the association’s behalf. 41 Principal subsidiaries of BMW AG Domestic1 BMW INTEC Beteiligungs GmbH, Munich2 BMW Bank GmbH, Munich2 BMW Finanz Verwaltungs GmbH, Munich BMW Maschinenfabrik Spandau GmbH, Berlin BMW Leasing GmbH, Munich2 BMW Hams Hall Motoren GmbH, Munich3 BMW Fahrzeugtechnik GmbH, Eisenach2 BMW M GmbH Gesellschaft für individuelle Automobile, Munich2 1 In the case of German subsidiaries, based on financial statements drawn up in accordance with HGB. 2 profit and loss transfer agreement with BMW AG 3 profit and loss transfer agreement with a subsidiary of BMW AG 4 below euro 500,000 Equity in euro million Net result in euro million Capital investment in % 3,554 1,016 212 45 16 15 11 –4 – – 1 1 – – – – 100 100 100 100 100 100 100 100 130 Foreign* BMW Österreich Holding GmbH, Steyr BMW China Automotive Trading Ltd., Beijing BMW Motoren GmbH, Steyr BMW Russland Trading OOO, Moscow BMW Austria Gesellschaft m.b.H., Salzburg BMW Holding B. V., The Hague BMW (South Africa) (Pty) Ltd., Pretoria BMW Finance N. V., The Hague BMW Overseas Enterprises N. V., Willemstad BMW (Schweiz) AG, Dielsdorf BMW Japan Corp., Tokyo BMW Japan Finance Corp., Tokyo BMW Italia S. p. A., Milan BMW Australia Finance Ltd., Melbourne, Victoria BMW Belgium Luxembourg S. A. / N. V., Bornem BMW Canada Inc., Whitby BMW France S. A., Montigny-le-Bretonneux BMW Sverige AB, Stockholm BMW Korea Co., Ltd., Seoul BMW Portugal Lda., Lisbon BMW Automotive (Ireland) Ltd., Dublin BMW Hellas Trade of Cars SA, Athens BMW New Zealand Ltd., Auckland BMW Nederland B. V., The Hague BMW Australia Ltd., Melbourne, Victoria BMW (UK) Holdings Ltd., Bracknell BMW (UK) Manufacturing Ltd., Bracknell BMW (UK) 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 Corporation, Wilmington, DE BMW Financial Services NA, LLC, Wilmington, DE BMW Manufacturing, LLC, Wilmington, DE BMW of North America, LLC, Wilmington, DE BMW US Capital, LLC, Wilmington, DE Equity in euro million Net result in euro million Capital investment in % 1,168 1,051 764 199 49 6,072 628 398 66 364 362 292 354 223 216 128 126 52 44 44 19 13 10 – 2 –100 537 1,037 738 341 218 1,038 882 592 369 305 12 1,264 732 683 362 309 538 947 123 117 –1 907 144 43 – 62 265 31 – 36 35 5 67 – 65 34 31 1 – 2 –13 1 4 17 – 30 24 31 107 61 84 42 – 4 2 16 – 6 261 63 25 12 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 * 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. 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 131 GROUP FINANCIAL STATEMENTS 42 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 142 and is also available to shareholders on the BMW Group website at www.bmwgroup.com/ir. 43 Shareholdings of members of the Board of Manage- ment and Supervisory Board The members of the Supervisory Board of BMW AG hold in total 27.66% of the issued common and preferred stock shares, of which 16.10% relates to Stefan Quandt, Bad Homburg v.d.H. and 11.56% to Susanne Klatten, Munich. The shareholding of the members of the Board of Manage- ment 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 22.2 mil- lion (2009: euro 13.0 million) and comprised the following: in euro million Short-term employment benefits Post-employment benefits Compensation 2010 2009 21.3 0.9 22.2 12.3 0.7 13.0 The total remuneration of the members of the Board of Management for the financial year 2010 amounted to euro 18.2 million (2009: euro 10.7 million). This comprised fixed components of euro 3.7 million (2009: euro 3.7 mil- lion) and variable components of euro 14.5 million (2009: euro 7.0 million). In addition, an expense of euro 0.9 million (2009: euro 0.7 million) has been granted to current members of the Board of Management for the period after the end of their employment relationship. This relates to the expense for allocations to pension provisions (service cost). Provi- sions for pension obligations to current members of the Board of Management in accordance with IAS 19 stood at euro 17.4 million (2009: euro 13.8 million). The remuneration of former members of the Board of Management and their surviving dependants amounted to euro 3.7 million (2009: euro 3.8 million). Pension obligations to former members of the Board of Management and their dependants are fully covered by pension provisions amounting to euro 49.7 million (2009: euro 46.7 million), computed in accordance with IAS 19. The compensation of the members of the Supervisory Board for the financial year 2010 amounted to euro 3.1 mil- lion (2009: euro 1.6 million). This comprised fixed com- ponents of euro 1.6 million (2009: euro 1.6 million) and variable components of euro 1.5 million (2009: –). The compensation system for members of the Board of Management and the Supervisory Board does not in- clude any stock options, value appreciation rights com- parable to stock options or any other stock-based com- pensation components. No advances or loans were granted by the Company to members of the Board of Management and the Super- visory Board, nor were any contingent liabilities entered into on their behalf. Further details about the remuneration of current mem- bers of the Board of Management and of the Supervisory Board can be found in the Compensation Report on pages 154 to 161. The compensation report is part of the Group Management Report. The names of the members of the Supervisory Board and of the Board of Management are disclosed on pages 143 to 146. 132 45 Application of exemptions pursuant to § 264 (3) and § 264 b HGB A number of companies and incorporated partnerships (as defined by § 264 a HGB) which are affiliated, con- solidated entities of BMW AG and for which the Group 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 Hams Hall Motoren GmbH, Munich – 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 available in § 264 (3) and § 264 b HGB with regard to pub- lication: – Bavaria Wirtschaftsagentur GmbH, Munich – BMW Fuhrparkmanagement Beteiligungs GmbH, Munich – BMW Hams Hall Motoren GmbH, Munich – BMW INTEC Beteiligungs GmbH, Munich – BMW Vertriebs GmbH & Co. oHG, Dingolfing – Rolls-Royce Motor Cars GmbH, Munich 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 133 GROUP FINANCIAL STATEMENTS BMW Group Notes to the Group Financial Statements Segment Information 46 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 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 organisational 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, Finan- cial Services and Other Entities. The Automobiles segment develops, manufactures, assembles 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 markets, 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 and Husqvarna brand motor- cycles as well as spare parts and accessories. Mikrotechnik Informatik GmbH, Dingolfing – which are not allocated to one of the other segments. 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, income, ex- penses and profits are eliminated in the column “Elimina- tions”. Inter-segment sales take place at arm’s length prices. The role of “chief operating decision maker” with respect to resource allocation and performance assessment of the reportable segment is embodied in the full Board of Man- agement. In order to assist the decision-taking process, various measures of segment profit or loss and of segment assets have been set for the various operating segments. The Automobiles and Motorcycles segments are managed on the basis of the profit before financial result. Capital employed is the corresponding measure of segment as- sets used to determine how to allocate resources. Capital employed comprises all current and non-current opera- tional assets of the segment, after deduction of liabilities used operationally which are not subject to interest e.g. trade payables. The principal lines of business of the Financial Services segment are car leasing, fleet business, retail customer and dealer financing, customer deposit business and in- surance 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 operating companies – BMW Services Ltd., Bracknell, BMW (UK) Investments Ltd., Bracknell, Bavaria Lloyd Reisebüro GmbH, Munich, and MITEC Mikroelektronik The performance of the Other Entities segment is as- sessed on the basis of profit or loss before tax. The corre- sponding measure of segment assets used to manage the Other Entities segment is total assets less tax receiv- ables and investments. 134 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 Capital expenditure on non-current assets Depreciation and amortisation on non-current assets Automobiles Motorcycles 2010 2009 2010 2009 44,221 9,916 54,137 4,355 3,355 3,592 35,613 8,124 43,737 – 265 3,606 3,509 1,291 13 1,304 71 70 74 1,059 10 1,069 19 52 73 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity in euro million Segment assets Automobiles Motorcycles 31. 12. 2010 31. 12. 2009 31. 12. 2010 31. 12. 2009 9,665 11,887 402 389 Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 74 74 74 76 78 80 81 135 GROUP FINANCIAL STATEMENTS Financial Services Other Entities Reconciliation to Group figures Group 2010 2009 2010 2009 2010 2009 2010 2009 14,964 1,653 16,617 1,214 11,736 4,845 14,008 1,790 15,798 365 10,246 5,757 1 3 4 45 – – 1 2 3 51 – – – – 60,477 50,681 External revenues –11,585 –11,585 – 849 – 2,564 – 2,012 – 9,926 – 9,926 243 – 1,787 – 2,050 – – Inter-segment revenues 60,477 50,681 Total revenues 4,836 12,597 6,499 413 Segment result 12,117 Capital expenditure on non-current assets 7,289 Depreciation and amortisation on non-current assets Financial Services Other Entities Reconciliation to Group figures Group 31. 12. 2010 31. 12. 2009 31. 12. 2010 31. 12. 2009 31. 12. 2010 31. 12. 2009 31. 12. 2010 31. 12. 2009 5,216 4,268 44,985 40,400 48,599 45,009 108,867 101,953 Segment assets 136 Interest and similar income of the Financial Services seg- ment totalling euro 4 million (2009: euro 3 million) are included in segment result. Interest and similar expenses of the Financial Services segment amounted to euro 7 mil- lion (2009: euro 8 million). The Other Entities segment result includes interest and similar income amounting to euro 1,984 million (2009: euro 1,778 million) and inter- est and similar expenses amounting to euro 2,058 million (2009: euro 1,852 million). Also included in the Other Entities segment result is the result from equity accounted investments amounting to euro zero million in 2010 (2009: negative result of euro 6 million). 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 capital expenditure 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 Reconciliation of segment assets Total for reportable segments Non-operating assets – Other Entities segment Operating liabilities – Financial Services segment Interest-bearing assets – Automobiles and Motorcycles segments Liabilities of Automobiles and Motorcycles segments not subject to interest Elimination of inter-segment items Total Group assets Segment assets of the Other Entities segment at 31 De- cember 2010 included investments accounted for using the equity method amounting to euro 23 million (2009: euro 23 million). The information disclosed for capital expenditure and depreciation and amortisation relates to property, plant and equipment, intangible assets and leased products. Segment figures can be reconciled to the corresponding Group figures as follows: 2010 2009 5,685 – 474 – 375 4,836 15,161 – 2,564 12,597 8,511 – 2,012 6,499 60,268 5,414 68,487 30,300 18,971 – 74,573 108,867 170 – 331 574 413 13,904 –1,787 12,117 9,339 – 2,050 7,289 56,944 5,797 67,008 25,826 15,541 – 69,163 101,953 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 137 GROUP FINANCIAL STATEMENTS In the case of information by geographical region, exter- nal sales are based on the location of the customer’s reg- istered office. Revenues with major customers were not material overall. The information disclosed for non-cur- rent assets relates to property, plant and equipment, in- tangible assets and leased products. The reconciling item disclosed for non-current assets relates to leased products. External revenues Non-current assets 2010 2009 2010 2009 11,207 11,638 8,444 18,581 2,530 8,077 – 11,436 10,628 4,039 16,989 1,805 5,784 – 60,477 50,681 21,257 9,380 9 4,784 1,273 805 – 3,259 34,249 21,136 9,836 9 4,751 1,246 581 – 2,822 34,737 Information by region in euro million Germany USA China Rest of Europe Rest of the Americas Other Eliminations Group Munich, 15 February 2011 Bayerische Motoren Werke Aktiengesellschaft The Board of Management Dr.-Ing. Norbert Reithofer Frank-Peter Arndt Dr.-Ing. Herbert Diess Dr.-Ing. Klaus Draeger Dr. Friedrich Eichiner Harald Krüger Ian Robertson 138 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 opportunities and risks associated with the expected de- velopment of the Group.” Munich, 15 February 2011 Bayerische Motoren Werke Aktiengesellschaft The Board of Management Dr.-Ing. Norbert Reithofer Frank-Peter Arndt Dr.-Ing. Herbert Diess Dr.-Ing. Klaus Draeger Dr. Friedrich Eichiner Harald Krüger Ian Robertson 74 74 74 76 78 80 81 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 81 Accounting Principles and Policies Notes to the Income Statement Notes to the Statement of Comprehensive Income Notes to the Balance Sheet Other Disclosures Segment Information 89 95 96 117 133 139 GROUP FINANCIAL STATEMENTS BMW Group Auditor’s Report We have audited the consolidated financial statements prepared by Bayerische Motoren Werke Aktiengesell- schaft, comprising the income statement and statement of comprehensive income, the balance sheet, cash flow statement, statements of changes in equity and the notes to the consolidated financial statements and its report on the position of the Company and the Group for the business year from 1 January to 31 December 2010. 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 pursuant to § 315 a (1) HGB are the responsibility of the parent company’s management. Our responsibility is to express an opinion on the con- solidated financial statements and on the Group Manage- ment Report based on our audit. 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 with in 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 the Board of Management, as well as evaluating the overall presentation of the consolidated finan cial state- ments and Group Management Report. We believe that our audit provides a reasonable basis for our opinion. 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 consol- idated financial statements in accordance with the appli- cable financial reporting framework and in the Group Management Report are detected with reasonable assur- ance. Knowledge of the business activities and the eco- Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of Ger- man commercial law pursuant to § 315 a (1) HGB and give a true and fair view of the net assets, financial posi- tion 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 position and suitably presents the opportunities and risks of future development. Munich, 25 February 2011 KPMG AG Wirtschaftsprüfungsgesellschaft Prof. Dr. Schindler Wirtschaftsprüfer Pastor Wirtschaftsprüfer 140 STATEMENT ON CORPORATE GOVERNANCE Corporate governance – acting in accordance with the principles of responsible management aimed at increasing the value of the business on a sustainable basis – is a comprehensive issue for the BMW Group embracing all areas of the enterprise. Corporate culture within the BMW Group is founded on transparent reporting and internal communication, a policy of corporate govern- ance aimed at the interests of stakeholders, fair and open dealings between the Board of Management, the Super- visory Board and employees and compliance with the law. The Board of Management reports in this declaration, also on behalf of the Supervisory Board, on important aspects of corporate governance pursuant to § 289 a HGB and section 3.10 of the German Corporate Governance Code (GCGC). Information on the Company’s Governing Constitution The designation “BMW Group” comprises Bayerische Motoren Werke Aktiengesellschaft (BMW AG) and its group entities. BMW AG is a stock corporation (Aktien- gesellschaft) based on the German Stock Corporation Act (Aktiengesetz). It has three representative bodies: the Annual General Meeting, the Supervisory Board and the Board of Management. The duties and authorities of those bodies derive from the Stock Corporation Act and the Articles of Incorporation of BMW AG. Shareholders, as the owners of the business, exercise their rights at the Annual General Meeting. The Annual General Meeting decides in particular on the utilisation 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 elects the shareholders’ representatives to the Supervi- sory Board. The Board of Management manages the en- terprise under its own responsibility. Within this frame- work, 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 regularly, promptly and compre- hensively, following the principles of conscientious and faithful accountability and in accordance with prevailing law and the reporting duties allocated to it by the Super- visory Board. The Board of Management requires the approval of the Supervisory Board for certain major trans- actions. The Supervisory Board is not, however, author- ised to undertake management measures itself. In accordance with the requirements of the German Co-determination Act for companies that generally em- ploy more than 20,000 people, the Supervisory Board of BMW AG is required to comprise ten shareholder repre- sentatives elected at the Annual General Meeting (Super- visory Board members representing equity or share- holders) and ten employees elected in accordance with the provisions of the Co-determination Act (Supervisory Board members representing employees). The ten Super- visory Board members representing employees comprise seven Company employees, including one senior staff representative, and three members elected following nomination by unions. The close interaction between Board of Management and Supervisory Board in the interests of the enterprise as described above is also known as a “two-tier board structure”. The composition of the Board of Management the Su- pervisory Board and of any sub-committees established by the Supervisory Board is disclosed on pages 143 et seq. of the Annual Report. Further information on the work procedures of the Board of Management and the Supervisory Board can be found on pages 147 et seq. Declaration of Compliance and the BMW Group Corporate Governance Code Management and supervisory boards of companies listed in Germany are required by law (§ 161 German Stock Corporation Act) to report once a year on whether the officially published and relevant recommendations is- sued by the “German Government Corporate Govern- ance Code Commission”, as valid at the date of the de- claration, 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, stating the reason or reasons. At the joint meeting held in December 2010, the Board of Management and Supervisory Board of BMW AG issued the annual Declaration of Compliance and posted it on the BMW Group’s website. In accordance with that decla- ration, in future BMW AG will comply with the recom- mendations published on 2 July 2010 in the electronic Federal Gazette (Code version dated 26 May 2010) with- out exception. In the past the Board of Management and the Super- visory Board have adopted the Group’s own Corporate Governance Code based on the GCGC in order to pro- vide interested parties with a comprehensive and stand- alone document covering the corporate governance practices applied by the BMW Group. The BMW Group’s 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 141 STATEMENT ON CORPORATE GOVERNANCE Corporate Governance Code has been revised in con- junction with the new version of the GCGC. A coordi- nator responsible for all corporate governance issues reports directly and on a regular basis to the Board of Management and Supervisory Board. The Corporate Governance Code for the BMW Group, together with the Declaration of Compliance, Articles of Incorporation and other information, can be viewed and /or downloaded from the BMW Group’s website at www.bmwgroup.com/ir under the menu item “Corpo- rate Facts” and “Corporate Governance”. The full text of the declaration is also provided on page 142 of this Annual Report. 142 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 on the German Corporate Governance Code” pursuant to § 161 German Stock Corporation Act The Board of Management and Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft (“BMWAG”) declare the following regarding the recom- mendations of the “Government Commission on the German Corporate Governance Code”: 1. BMW AG will in future comply with all of the recom- mendations published on 2 July 2010 in the electronic Federal Gazette (Code version dated 26 May 2010). 2. During the period since filing the most recent declara- tion in December 2009, BMW AG complied with all of the recommendations published on 5 August 2009 in the electronic Federal Gazette (Code version dated 18 June 2009), except for the divergence from sec- tion 3.8 paragraph 3 GCGC referred to in that declara- tion: as stated there, the amount of excess agreed for the members of the Supervisory Board under a D & O liability insurance policy was not changed at that stage in view of the differing financial circumstances and in- comes of board members. This recommendation will also be complied with in future. Munich, December 2010 Bayerische Motoren Werke Aktiengesellschaft Supervisory Board Board of Management Prof. Dr.-Ing. Joachim Milberg Chairman Dr.-Ing. Norbert Reithofer Chairman 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 143 STATEMENT ON CORPORATE GOVERNANCE Members of the Board of Management Dr.-Ing. Norbert Reithofer (born 1956) Chairman Frank-Peter Arndt (born 1956) Production Mandates BMW Motoren GmbH (Chairman) TÜV Süd AG (since 16. 04. 2010) BMW (South Africa) (Pty) Ltd. (Chairman) Leipziger Messe GmbH Dr.-Ing. Herbert Diess (born 1958) Purchasing and Supplier Network Dr.-Ing. Klaus Draeger (born 1956) Development Dr. Friedrich Eichiner (born 1955) Finance Mandates Allianz Deutschland AG BMW Brilliance Automotive Ltd. (Deputy Chairman) Harald Krüger (born 1965) Human Resources, Industrial Relations Director Ian Robertson (born 1958) Sales and Marketing Mandates Rolls-Royce Motor Cars Limited (Chairman) General Counsel: Dr. Dieter Löchelt Membership of other statutory supervisory boards Membership of equivalent national or foreign boards of business enterprises 144 Members of the Supervisory Board Prof. Dr.-Ing. Dr. h. c. Dr.-Ing. E. h. Joachim Milberg (born 1943) 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 Deere & Company Manfred Schoch1 (born 1955) Deputy Chairman Chairman of the European and General Works Council Industrial Engineer Stefan Schmid1 (born 1965) Deputy Chairman Chairman of the Works Council, Dingolfing Member of the Presiding Board, Personnel Committee, Audit Committee and Mediation Committee Dr. jur. Karl-Ludwig Kley (born 1951) Deputy Chairman (since 18. 05. 2010) Chairman of the Executive Management of Merck KGaA Chairman of the Audit Committee and Independent Finance Expert; member of the Presiding Board, Personnel Committee and Nomination Committee (in each case from 18. 05. 2010) Mandates Bertelsmann AG 1. FC Köln GmbH & Co. KGaA (Chairman) Member of the Presiding Board, Personnel Committee, Audit Committee and Mediation Committee (until 18. 05. 2010) Deputy Chairman Prof. Dr. Jürgen Strube (born 1939) Stefan Quandt (born 1966) Deputy Chairman Entrepreneur Former Chairman of the Supervisory Board of BASF SE Chairman of the Audit Committee and Independent Finance Expert; member of the Presiding Board, Personnel Committee and Nomination Committee Member of the Presiding Board, Personnel Committee, Audit Committee, Nomination Committee and Mediation Committee Mandates Bertelsmann AG (Deputy Chairman) Fuchs Petrolub AG (Chairman) Mandates DELTON AG (Chairman) Karlsruher Institut für Technologie (KIT) AQTON SE (Chairman) DataCard Corp. Bertin Eichler 2 (born 1952) Executive Member of the Executive Board of IG Metall Mandates BGAG Beteiligungsgesellschaft der Gewerkschaften GmbH (Chairman) ThyssenKrupp AG (Deputy Chairman) 1 Employee representatives (company employees). 2 Employee representatives (union representatives). 3 Employee representative (member of senior management). Membership of other statutory supervisory boards Membership of equivalent national or foreign boards of business enterprises 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 145 STATEMENT ON CORPORATE GOVERNANCE Franz Haniel (born 1955) Engineer, MBA Mandates DELTON AG (Deputy Chairman) Franz Haniel & Cie. GmbH (Chairman) Heraeus Holding GmbH Metro AG (Chairman) (until 15. 05. 2010) secunet Security Networks AG Giesecke & Devrient GmbH TBG Limited Prof. Dr. rer. nat. Dr. h. c. E. h. Reinhard Hüttl (born 1957) Chairman of the Executive Board of Helmholtz-Zentrum Potsdam Deutsches GeoForschungsZentrum – GFZ University professor Prof. Dr. rer. nat. Dr.-Ing. E. h. Henning Kagermann (born 1947) (since 18. 05. 2010) President of acatech – Deutsche Akademie der Technikwissenschaften e. V. Mandates Deutsche Bank AG Deutsche Post AG Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München Nokia Corporation Wipro Limited Susanne Klatten (born 1962) Entrepreneur Mandates ALTANA AG (Deputy Chairman) SGL Carbon SE UnternehmerTUM GmbH (Chairman) Prof. Dr. rer. pol. Renate Köcher (born 1952) Director of Institut für Demoskopie Allensbach Gesellschaft zum Studium der öffentlichen Meinung mbH Mandates Allianz SE Infineon Technologies AG MAN SE Dr. h. c. Robert W. Lane (born 1949) Former Chairman and Chief Executive Officer of Deere & Company Mandates Deere & Company (Chairman) (until 24. 02. 2010) General Electric Company Northern Trust Corporation Verizon Communications Inc. Horst Lischka2 (born 1963) General Representative of IG Metall Munich Mandates KraussMaffei AG MAN Nutzfahrzeuge AG Willibald Löw1 (born 1956) Chairman of the Works Council, Landshut 146 Wolfgang Mayrhuber (born 1947) Chairman of the Board of Management of Deutsche Lufthansa AG (until 31. 12. 2010) Mandates Fraport AG (until 30. 06. 2010) Lufthansa Technik AG Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München Austrian Airlines AG HEICO Corporation SN Airholding NV (until 31. 12. 2010) UBS AG (since 14. 04. 2010) Werner Neugebauer 2 (born 1950) (until 31. 12. 2010) General Representative of the Executive Board of IG Metall Bavaria Mandates ZF Sachs AG Franz Oberländer1 (born 1952) Member of the Works Council, Munich Anton Ruf3 (born 1953) Head of Development “Small Model Series” Maria Schmidt1 (born 1954) Member of the Works Council, Dingolfing Jürgen Wechsler 2 (born 1955) (since 10. 02. 2011) Regional Head of IG Metall Bavaria Mandates Schaeffler GmbH (Deputy Chairman) Werner Zierer1 (born 1959) Chairman of the Works Council, Regensburg 1 Employee representatives (company employees). 2 Employee representatives (union representatives). 3 Employee representative (member of senior management). Membership of other statutory supervisory boards Membership of equivalent national or foreign boards of business enterprises 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 154 162 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 147 STATEMENT ON CORPORATE GOVERNANCE Information on Work Procedures of the Board of Management and the Supervisory Board and on the Composition and Work Procedures of its Committees The Board of Management of BMW AG A summary of the seven members of the Board of Man- agement and their areas of responsibility (portfolios) is shown on page 143. The Board of Management governs the enterprise under its own responsibility, acting in the interests of the BMW Group with the aim of achieving sustainable growth in value. The interests of shareholders, employees and other stakeholders are also taken into account in the pur- suit of this aim. The Board of Management determines the strategic orien- tation of the enterprise, agrees upon it with the Super- visory Board and ensures its implementation. The Board of Management is responsible for ensuring that all pro- visions of law and internal regulations are complied with. Further information relating to compliance within the BMW Group can be found on pages 163 et seq. The Board of Management is also responsible for ensuring that appropriate risk management and risk controlling systems are in place throughout the Group. During their period of employment for BMW AG, mem- bers of the Board of Management are bound by a com- prehensive non-competition clause. They are required to act in the enterprise’s best interests and may not pursue personal interests in their decisions or take advantage of business opportunities intended for the enterprise. They may only undertake ancillary activities, in particular su- pervisory board mandates outside the BMW Group, with the approval of the Supervisory Board’s Personnel Com- mittee. Each member of the Board of Management of BMW AG is obliged to disclose conflicts of interest to the Supervisory Board without delay and inform the other members of the Board of Management accordingly. Following the appointment of a new member to the Board of Management, the BMW Corporate Governance Officer informs the new member of the framework con- ditions under which the board member’s duties are to be carried out – in particular those enshrined in the BMW Group’s Corporate Governance Code – as well as the duty to cooperate when a transaction or event triggers reporting requirements or requires the approval of the Supervisory Board. The Board of Management consults and takes decisions as a collegiate body at the following types of board meet- ing; General Board, Product Board, Sustainability Board, Operations Committee and Committee for Executive Management Matters. At its general meetings, the Board of Management defines the overall framework for busi- ness strategies and the use of resources, takes decisions regarding the implementation of strategies and deals with issues of particular importance to the BMW Group which are not directly related to a specific product or product line. The Board of Management and its commit- tees may, as required and depending on the subject mat- ter being discussed, invite non-voting advisers to par- ticipate at meetings. Terms of reference approved by the Board of Manage- ment contain a planned allocation of divisional responsi- bilities between the individual board members. These terms of reference also incorporate the principle that the full Board of Management bears joint responsibility for all matters of particular importance and scope. In addition, each member of the Board of Management manages the relevant portfolio of duties under their responsibility, whereby case-by-case rules can be put in place for cross- divisional projects. Board members continually provide the Chairman of the Board of Management with all in- formation regarding major transactions and develop- ments within their area of responsibility. The Chairman of the Board of Management coordinates cross-divisional matters with the overall targets and plans of the BMW Group, involving other board members to the extent that divisions within their area of responsibility are affected. The Board of Management takes its decisions at meetings generally held on a weekly basis which are convened, coordinated and headed by the Chairman of the Board of Management. At the request of the Chairman, decisions can also be taken outside of board meetings if none of the board members object to this procedure. A meeting is quorate if all Board of Management members are invited to the meeting in good time. Members unable to attend any meeting are entitled to vote in writing, by fax or by telephone. Votes cast by phone must be subsequently confirmed in writing. Except in urgent cases, matters re- lating to a di vision for which the responsible board mem- ber is not present will only be discussed and decided upon with that member’s consent. Unless stipulated otherwise by law or in BMW AG’s statutes, the Board of Management makes decisions on the basis of a simple majority of votes cast at meetings. Outside of board meetings, decisions are taken on the basis of a simple majority of board members. In the event of a tied vote, the Chairman of the Board of Management has the casting vote. Any changes to the board’s terms of reference must be passed unanimously. A board meeting may only be held if more than half of the board members are present. 148 In the event that the Chairman of the Board of Manage- ment is not present or is unable to attend a meeting, the Member of the Board responsible for Finances will repre- sent him. Minutes are taken of all meetings and the Board of Management’s resolutions and signed by the Chairman. Decisions taken by the Board of Management are bind- ing for all employees. The rules relating to meetings and resolutions adopted by the full Board of Management are also applicable for its committees. Members of the Board of Management not represented in a committee are provided with the agendas and min- utes of committee meetings. Committee matters are dealt with in full board meetings if the committee considers it necessary or at the request of a member of the Board of Management. The secretariat for Board of Management matters assists the Chairman and other board members with the preparation and follow-up work connected with board meetings. At Product Board meetings (generally held twice a month), the full board takes decisions at basic policy level relating to the Group’s automobile product strategies and product projects inasmuch as these are relevant for all brands. Resources are authorised and approved at Product Board meetings. At meetings of the Operations Committee (generally held twice a month), decisions are reached in connection with automobile product projects, based on the strategic orientation and decision framework stipulated at Product Board meetings. The Operations Committee comprises the members of the Board of Management responsible for Development (Dr.-Ing. Klaus Draeger, who also chairs the meetings), Purchasing and Supplier Network (Dr.-Ing. Herbert Diess), Production (Frank-Peter Arndt), and Sales and Marketing (Ian Robertson). If the committee chairman is not present or unable to attend a meeting, the Member of the Board responsible for Production rep- resents him. Resolutions taken at meetings of the Opera- tions Committee are made online. The full board usually convenes twice a year in its func- tion as Sustainability Board in order to define strategy with regard to sustainability and decide upon measures to implement that strategy. The Head of Group Com- munication and the Group Representative for Sustaina- bility and Environmental Protection participate in these meetings in an advisory capacity. The Board’s Committee for Executive Management Mat- ters deals with enterprise-wide issues affecting executive managers of the BMW Group, either in their entirety or individually (such as the executive management struc- ture, potential candidates for executive management, nominations for or promotions to senior management positions). This committee has, on the one hand, an advi- sory and preparatory role (e.g. making suggestions for promotions to the two remuneration groups below board level and preparing decisions to be taken at board meet- ings with regard to human resources principles with the emphasis on executive management issues) and a deci- sion-taking function on the other (e.g. deciding on ap- pointments to senior management positions and pro- motions to higher remuneration groups or the wording of human resources principles decided on by the full board). The Committee has two members who are enti- tled to vote at meetings, namely the Chairman of the Board of Management, Dr.-Ing. Norbert Reithofer (who also chairs the meetings) and the board member respon- sible for Human Resources, Harald Krüger. The Head of Human Resources, Personnel Network and Human Resources International and the Head of Human Re- sources Senior Management also participate in an advi- sory function. At the request of the Chairman, resolu- tions may also be passed outside of committee meetings by casting votes in writing, by fax or by telephone if the other member entitled to vote does not object imme- diately. As a general rule, between five and ten meetings are held each year. The Board of Management is represented by its Chair- man in its dealings with the Supervisory Board. The Chairman of the Board of Management maintains regu- lar contact with the Chairman of the Supervisory Board and keeps him informed of all important matters. The Supervisory Board has passed a resolution specifying the information and reporting duties of the Board of Management. As a general rule, in the case of reports required by dint of law, the Board of Management sub- mits its reports to the Supervisory Board in writing. To the extent possible, documents required as a basis for taking decisions are sent to the members of the Super- visory Board in good time before the relevant meeting. Regarding transactions of fundamental importance, the Supervisory Board has stipulated specific transactions which require the approval of the Supervisory Board. Whenever necessary, the Chairman of the Board of Man- agement obtains the approval of the Supervisory Board and ensures that reporting duties to the Supervisory Board are complied with. In order to fulfil these tasks, the Chairman is supported by all members of the Board of Management. The fundamental principle followed when reporting to the Supervisory Board is that the latter should be kept informed regularly, without delay and 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 154 162 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 149 STATEMENT ON CORPORATE GOVERNANCE comprehensively of all significant matters relating to planning, business performance, risk exposures, risk management and compliance, as well as any major variances between actual and budgeted figures. The Supervisory Board of BMW AG Overviews of members of the Supervisory Board, the Presiding Board and committees can be found on pages 144 et seq. (members of the Supervisory Board and their mandates) and on page 152 (Supervisory Board committees, meetings). BMW AG’s Supervisory Board, comprising ten share- holder representatives (elected by the Annual General Meeting) and ten employee representatives (elected by employees in accordance with the German Co-deter- mination Act), has the task of advising and supervising the Board of Management in its governance of the BMW Group. It is involved in all decisions of fundamental importance for the BMW Group. The Supervisory Board appoints the members of the Board of Management and decides upon the level of compensation they are to re- ceive. The Supervisory Board can revoke appointments for important reasons. Together with the Personnel Com- mittee and Board of Management, it ensures that long- term successor planning is in place. The Supervisory Board holds a minimum of two meet- ings per calendar year. Normally, five plenary meetings are held per calendar year, as was the case in 2010. One meeting each year is planned to cover a number of days and is used, amongst other things, to enable an in- depth exchange on strategic and technological matters. The main emphases of meetings in 2010 are described in the Report of the Supervisory Board (pages 06 et seq.). In line with the suggestion contained in the German Corporate Governance Code, the shareholder represent- atives and employee representatives prepare the Super- visory Board meetings separately and, if necessary, together with members of the Board of Management. The Chairman of the Supervisory Board coordinates work within the Supervisory Board, chairs its meetings, handles the external affairs of the Supervisory Board and repre- sents it in its dealings with the Board of Management. The Supervisory Board is quorate if all members have been invited to the meeting and at least half of its mem- bers participate in the vote on a particular resolution. A resolution relating to an agenda item not included in the invitation is only valid if none of the members of the Supervisory Board present at the meeting object to the resolution and a minimum of two-thirds of the members are present. As a basic rule, resolutions are passed by the Supervisory Board by simple majority. The German Co-determination Act contains specific requirements with regard to major- ity voting and technical procedures, particularly with re- gard to the appointment and revocation of appointment of management board members and the election of a supervisory board chairman or deputy chairman. In the event of a tied vote in the Supervisory Board, the Chair- man of the Supervisory Board has two votes in a renewed vote, even if this also results in a tie. In practice, resolutions are taken by the Supervisory Board and its committees at the relevant meetings. A Super- visory Board member who is not present at a meeting can have their vote cast by another Supervisory Board mem- ber if an appropriate request has been made in writing, by fax or in electronic form. This rule also applies to the casting of the second vote by the Chairman of the Super- visory Board. The Chairman of the Supervisory Board can also accept the retrospective casting of votes by any members not present at a meeting if this is done within the time limit previously set. In special cases, resolutions may also be taken outside of meetings, i.e. in writing, by fax or by electronic means. Minutes are taken of each meeting and any resolutions made are signed by the Chairman of the Supervisory Board. After its meetings, the Supervisory Board is generally provided with information on new vehicle models in the form of a short presentation. Following the election of a new Supervisory Board mem- ber, the BMW Corporate Governance Officer informs the new member of the principal issues affecting his or her duties – in particular those enshrined in the BMW Group Corporate Governance Code – including the duty to co- operate when a transaction or event triggers reporting requirements or is subject to the approval of the Supervi- sory Board. New Supervisory Board members are also given the opportunity to become better acquainted with the business outside of Supervisory Board meetings by means of an information programme. All members of the Supervisory Board of BMW AG are re- quired to ensure that they have sufficient time to perform their mandate. If members of the Supervisory Board of BMW AG are also members of the management board of a listed company, they may not accept more than a to- tal of three mandates on non-BMW Group supervisory boards of listed companies or in other bodies with com- parable requirements. The Supervisory Board examines the efficiency of its activities on a regular basis. Joint discussions are also held at plenum meetings, prepared on the basis of a 150 questionnaire previously devised by and distributed to the members of the Supervisory Board. The Chairman of the Supervisory Board is open to suggestions for improve- ment at all times. Each member of the Supervisory Board of BMW AG is bound to act in the enterprise’s best interests. Members of the Supervisory Board may not pursue personal inter- ests in their decisions or take advantage of business opportunities intended for the benefit of the enterprise. Members of the Supervisory Board are obliged to inform the full Supervisory Board of any conflicts of interest which may result from a consultant or directorship func- tion with clients, suppliers, lenders or other business partners, enabling the Supervisory Board to report to the shareholders at the Annual General Meeting on how it has dealt with such issues. Material conflicts of interest and those not merely temporary in nature result in the termination of the mandate of the relevant Supervisory Board member. With regard to nominations for the election of members of the Supervisory Board, care is taken that the Super- visory Board in its entirety has the required knowledge, skills and expert experience to perform its tasks in a proper manner. The Supervisory Board has set out specific targets for its own composition. Further information about these ob- jectives and their implementation status can be found on page 153. The members of the Supervisory Board are responsible for undertaking appropriate basic and further training measures such as may be necessary to carry out the tasks assigned to them. The Company provides appropriate assistance to members of the Supervisory Board in this respect. The ability of the Supervisory Board to supervise and ad- vise the Board of Management independently is also as- sisted by the fact that the Supervisory Board of BMW AG is required, based on its own assessment, to have a suf- ficient number of independent members. Prof. Dr.-Ing. Dr. h. c. Dr.-Ing. E. h. Joachim Milberg is the only person on the Supervisory Board to have previously served on the Board of Management, of which he ceased to be a mem- ber in 2002. Supervisory Board members do not exercise directorships or similar positions or undertake advisory tasks for important competitors of the BMW Group. Taking into account the specific circumstances of the BMW Group and the number of board members, the Su- pervisory Board has set up a Presiding Board and four committees, namely the Personnel Committee, the Audit Committee, the Nomination Committee and the Media- tion Committee (see overview on page 152). Such com- mittees serve to raise the efficiency of the Supervisory Board’s work and facilitate the handling of complex is- sues. The establishment and function of a Mediation Committee is prescribed by law. The person chairing a committee reports in detail on its work at each plenum meeting. The composition of the Presiding Board and the various committees is based on legal requirements, BMW AG’s Articles of Incorporation, terms of reference and corpo- rate governance principles. The expertise and technical skills of its members are also taken into account. According to the relevant terms of reference, the Chair- man of the Supervisory Board is, in this capacity, auto- matically a member of the Presiding Board, the Personnel Committee and the Nomination Committee, and also chairs these committees. The number of meetings held by the Presiding Board and the committees depends on current requirements. The Presiding Board, the Personnel Committee and the Audit Committee normally hold several meetings in the course of the year (further information regarding the number of meetings held in 2010 can be found on page 152 and in the Report of the Supervisory Board, page 06). In line with the terms of reference for the activities of the plenum, the Supervisory Board has also set terms of reference for the Presiding Board and the various com- mittees. The committees are only quorate if all members are present. Resolutions taken by the committees are passed by simple majority unless stipulated otherwise by law. Minutes are also taken at the meetings and for the resolutions of the committees and the Presiding Board, and signed by the person chairing the particular meeting. This person also represents the committee in any dealings it may have with the Board of Management or third parties. Members of the Supervisory Board may not delegate their duties. The Supervisory Board, the Presiding Board and the various committees may call on experts and other suitably informed persons to attend meetings to give ad- vice on specific matters. 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 154 162 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 151 STATEMENT ON CORPORATE GOVERNANCE The Supervisory Board, the Presiding Board and the com- mittees also meet without the Board of Management if necessary. BMW AG ensures that the Supervisory Board and its com- mittees are sufficiently equipped to carry out their duties. This includes the services provided by a centralised sec- retariat to support the chairmen in coordinating the work of the Supervisory Board. In accordance with the relevant terms of reference, the Presiding Board comprises the Chairman of the Super- visory Board and board deputies. The Presiding Board prepares Supervisory Board meetings to the extent that the subject matter to be discussed does not fall within the remit of a committee. This includes, for example, pre- paring the annual Declaration of Compliance with the German Corporate Governance Code and the Supervisory Board’s efficiency examination. The Personnel Committee prepares the decisions of the Supervisory Board with regard to the appointment and revocation of appointment of members of the Board of Management and, together with the full Supervisory Board and the Board of Management, ensures that long- term successor planning is in place. For information regarding the criteria applied, see pages 08 et seq. The Personnel Committee also prepares the decisions of the Supervisory Board with regard to the Board of Manage- ment’s compensation and the Supervisory Board’s regu- lar review of the Board of Management’s compensation system. In conjunction with the resolutions taken by the Supervisory Board regarding the compensation of the Board of Management, the Personnel Committee is responsible for drawing up, amending and revoking service /employment contracts or, when necessary, other relevant contracts with members of the Board of Manage- ment. In specified cases, the Personnel Committee also has the authority to give the necessary approval for a particular transaction (instead of the Supervisory Board). This includes loans to members of the Board of Manage- ment or Supervisory Board, specified contracts with members of the Supervisory Board (in each case taking account of the consequences of related party transac- tions), as well as other activities of members of the Board of Management, including the acceptance of non-BMW Group supervisory mandates. The Audit Committee deals in particular with issues re- lating to the supervision of the financial reporting process, the effectiveness of the internal control system, the risk management system, internal audit arrangements and compliance. It also monitors the external audit, auditor independence and any additional work performed by the external auditor. It prepares the proposal for the elec- tion of the external auditor at the Annual General Meet- ing, issues the audit engagement letter and agrees on points of emphasis as well as the auditor’s fee. The Audit Committee prepares the Supervisory Board’s resolution relating to the Company and Group Financial Statements and discusses interim reports with the Board of Manage- ment before publication. The Audit Committee also de- cides on the Supervisory Board’s agreement to use the Authorised Capital 2009 (Article 4 point 5 of the Articles of Incorporation) and on amendments to the Articles of Incorporation which only affect their wording. In line with the recommendations of the German Corpo- rate Governance Code, the Chairman of the Audit Com- mittee is independent and not a former Chairman of the Board of Management. He or she is required to have specific know-how and experience in applying financial reporting standards and internal control procedures. Alongside other members of the Supervisory Board, he also fulfils the requirements of being an independent financial expert as defined by § 100 (5) and § 107 (4) AktG. The Nomination Committee is charged with the task of finding suitable candidates for election to the Supervisory Board (as shareholder representatives) and for inclusion in the Supervisory Board’s proposals for election at the Annual General Meeting. In line with the recommenda- tions of the German Corporate Governance Code, the Nomination Committee comprises only shareholder rep- resentatives. The establishment and composition of a Mediation Com- mittee are required by the German Co-determination Act. The Mediation Committee has the task of making proposals to the Supervisory Board if a resolution for the appointment of a member of the Board of Management has not been carried by the necessary two-thirds majority of members’ votes. In accordance with statutory require- ments, the Mediation Committee comprises the Chair- man and Deputy Chairman of the Supervisory Board and one member each selected by shareholder representatives and employee representatives. 152 Overview of Supervisory Board Committees, Meetings Principal duties, basis for activities Presiding Board – preparation of Supervisory Board meetings to the extent that the subject matter to be discussed does not fall within the remit of a committee – activities based on terms of reference Personnel Committee – preparation of decisions relating to the appointment and revocation of appointment of members of the Board of Management, the compen- sation and the regular review of the Board of Management‘s compensation system – conclusion, amendment and revocation of employment contracts (in conjunction with the resolutions taken by the Supervisory Board regarding the compensation of the Board of Management) and other contracts with members of the Board of Management – decisions relating to the approval of ancillary activities of Board of Man- agement members, including acceptance of non-BMW Group supervisory mandates as well as the approval of transactions requiring Supervisory Board approval by dint of law (e.g. loans to Board of Management or Super- visory Board members) – set up in accordance with the recommendation contained in the German Corporate Governance Code, activities based on terms of reference Members Joachim Milberg1 Manfred Schoch Stefan Quandt Stefan Schmid Karl-Ludwig Kley Joachim Milberg1 Manfred Schoch Stefan Quandt Stefan Schmid Karl-Ludwig Kley Number of meetings 2010 Average attendance 4 4 100 % 100 % Audit Committee – supervision of the financial reporting process, effectiveness of the internal control system, risk management system, internal audit arrangements and compliance – supervision of external audit, in particular auditor independence and addi- tional work performed by external auditor Karl-Ludwig Kley 1, 2 Joachim Milberg Manfred Schoch Stefan Quandt Stefan Schmid 100 % 4 plus 3 telephone conferences – preparation of proposals for election of external auditor at Annual General Meeting, engagement of external auditor and compliance of audit engage- ment, determination of areas of audit emphasis and fee agreements with external auditor – preparation of Supervisory Board’s resolution on Company and Group Financial Statements – discussion of interim reports with Board of Management prior to publication – decision on approval for utilisation of Authorised Capital 2009 – amendments to Articles of Incorporation only affecting wording – establishment in accordance with the recommendation contained in the German Corporate Governance Code, activities based on terms of reference Nomination Committee – identification of suitable candidates (male / female) as shareholder repre- sentatives on the Supervisory Board, to be put forward for inclusion in the Supervisory Board’s proposals for election at the Annual General Meeting Joachim Milberg1 Stefan Quandt Karl-Ludwig Kley 1 100 % – establishment in accordance with the recommendation contained in the German Corporate Governance Code, activities based on terms of reference (In line with the recommendations of the German Corporate Governance Code, the Nomination Committee comprises only shareholder represen- tatives.) Mediation Committee – proposal to Supervisory Board if resolution for appointment of Board of Management member has not been carried by the necessary two-thirds majority of Supervisory Board members’ votes – committee required by law Joachim Milberg Manfred Schoch Stefan Quandt Stefan Schmid – – (In accordance with statutory require- ments, the Mediation Committee comprises the Chairman and Deputy Chairman of the Supervisory Board and one member each selected by share- holder representatives and employee representatives.) 1 Chair 2 Independent financial expert within the meaning of § 100 (5) AktG and § 107 (4) AktG 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 154 162 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 153 STATEMENT ON CORPORATE GOVERNANCE Composition of the Supervisory Board The Supervisory Board must be composed in such a way that its members as a group possess the knowledge, skills and experience required to properly complete its tasks. To this end, a resolution has been passed by BMW AG’s Supervisory Board specifying the following concrete objectives regarding its composition: – At least four of the members of the Supervisory Board should have international experience or specialist knowledge with regard to one or more of the non-Ger- man markets important to the company. – If possible, the Supervisory Board should include seven members who have acquired in-depth knowledge and experience from within the company. The Supervisory Board should not, however, include more than two former members of the Board of Management. – At least three of the shareholder representatives in the Supervisory Board should be entrepreneurs or persons who have already gained experience in the manage- ment or supervision of another medium-sized or large company. – Ideally, three members of the Supervisory Board should be figures from the worlds of business, science or re- search who have gained experience in areas relevant to the BMW Group – e.g. chemistry, energy supply, information technology, or who have acquired special- ist knowledge in subjects relevant for the future of the BMW Group e.g. customer requirements, mobility, resources and sustainability. – When seeking suitably qualified individuals for the Supervisory Board whose specialist skills and leader- ship qualities are most likely to strengthen the Board as a whole, consideration should also be given to diver- sity. When preparing nominations, the extent to which the work of the Supervisory Board would benefit from diversified professional and personal backgrounds (in- cluding international aspects) and from an appropriate representation of both genders should also be taken into account. In view of the proportion of women in the workforce of BMW AG (31 December 2010: 13.2%), the Supervisory Board is of the opinion that the cur- rent proportion of three female members out of a total of twenty members (15%) is satisfactory as far as gen- der mix is concerned, but that an increase would be desirable. If possible, the selection process in the near future will therefore be carried out with the aim of having four female members (20%) by the Annual General Meeting in 2015. – No persons carrying out directorship functions or ad- visory tasks for important competitors of the company may belong to the Supervisory Board. In compliance with prevailing legislation, the members of the Super- visory Board will strive to ensure that no persons will be nominated for election with whom a serious con- flict of interests could arise (other than temporarily) due to other activities and functions carried out by them outside the BMW Group; this includes in particu- lar advisory activities or directorships with customers, suppliers, creditors or other business partners. – As a general rule, the age limit for membership of the Supervisory Board should be set at 70 years. In excep- tional cases, members may be allowed to remain on the Board up until the Annual General Meeting follow- ing their 73rd birthday in order to fulfil legal require- ments or to facilitate smooth succession in the case of persons with key roles or specialist qualifications. The time schedule set by the Supervisory Board for achiev- ing the above-mentioned composition targets is the Annual General Meeting 2015, by which time elections will have taken place for all positions on the Supervisory Board. Future proposals for nomination made by the Supervisory Board at the Annual General Meeting – insofar as they apply to shareholder Supervisory Board members – should take account of these objectives in such a way that they can be achieved with the support of the appropriate resolutions at the Annual General Meeting. The Annual General Meeting is not bound by nominations for elec- tion proposed by the Supervisory Board. The freedom of employees to vote for the employee members of the Su- pervisory Board is also protected (for information on the legal conditions relating to the composition of the Super- visory Board please refer to page 140). Under the proce- dural rules stipulated by the German Co-Determination Act, the Supervisory Board does not have the right to nominate employee representatives for election. The ob- jectives which the Supervisory Board has set itself with regard to its composition are therefore not intended to be instructions to those entitled to vote or restrictions on their freedom to vote. More to the point, they reflect the composition which the current Supervisory Board be- lieves should be striven for in future by those entitled to nominate and elect board members, in view of the advisory and supervisory needs of BMW AG’s Supervisory Board. – The Supervisory Board should have at least seven in- dependent members, two of whom must be independ- ent individuals with expert knowledge of accounting or auditing. Apart from the desired increase in the number of female Supervisory Board members, the present composition of the Supervisory Board (see pages 144 et seq.) fulfils the composition objectives detailed above. 154 Compensation Report The following section describes the principles relating to the compensation of the Board of Management and the stipulations set out in the statutes relating to the com- pensation of the Supervisory Board. In addition to dis- cussing the compensation system, the com ponents of compensation are also disclosed in absolute figures. Furthermore, the compensation of each member of the Board of Management and the Supervisory Board for the financial year 2010 is disclosed by name and analysed into components. 1. Compensation of the Board of Management Responsibilities; approval by shareholders in 2010 The Supervisory Board is responsible for determining and regularly reviewing the Board of Management’s compen- sation. The Personnel Committee plays a preparatory role in this process. The compensation system in place for the Board of Management for the financial year 2010 was approved by shareholders at the Annual General Meeting 2010 as part of a consultative process (“Say on Pay”) with a majority vote of 97.66%. Principles of compensation The compensation structure is designed to promote sus- tainable business development. At the same time, the compensation model used for the Board of Management should be attractive in the context of the competitive en- vironment for highly qualified executives. All compensa- tion components should be appropriate, both individually and in total, and should not encourage the Board of Man- agement to take on inappropriate risks for the company. The compensation of members of the Board of Manage- ment is determined by the full Supervisory Board on the basis of performance criteria and after taking into ac- count any remuneration received from Group compa- nies. The Supervisory Board sets demanding and relevant targets as the basis for variable compensation. The prin- cipal criteria for determining the appropriateness of com- pensation are the nature of the tasks allocated to each member of the Board of Management, an assessment of the performance of those tasks, the economic situation, the performance and future prospects of the BMW Group as well as comparable levels of compensation in the relevant sector and the compensation structure in place elsewhere within the organisation. Variable compensation in the form of corporate related earnings- and performance-related bonus is based on a period stretching over several years, during which both positive and negative developments are taken into ac- count. The Personnel Committee and the Supervisory Board engaged external experts to test the compatibility of the compensation system in place in 2009 with the Act on the Appropriateness of Management Board Remunera- tion (VorstAG). The understanding gained in that process was taken into account in amended contracts agreed on mutual terms with all members of the Board of Manage- ment with effect from 1 January 2010. The Supervisory Board reviews the compensation system at regular intervals, with regard to both the structure and amount of the compensation of the Board of Manage- ment. The Personnel Committee also makes use of remu- neration studies. Recommendations made by an inde- pendent external remuneration expert and suggestions made by investors and analysts are also considered in the consultative process. The Supervisory Board also con siders the compensation structures and the levels of compensation of staff and managers within the BMW Group. Compensation system, compensation components The compensation of the Board of Management com- prises both fixed and variable remuneration. In terms of the overall compensation of current members of the Board of Management, the Supervisory Board sets a com- pensation target and a compensation framework with a high variable proportion, taking into account the overall situation and forecasts of the BMW Group. Contracts with members of the Board of Management signed be- fore 1 January 2010 contain a performance-related fixed amount (defined benefit). In certain circumstances, Board of Management members are entitled under contracts signed before 1 January 2010 to receive so-called “transi- tional payments” until their retirement. Fixed remuneration comprises a base salary (paid monthly) and other remuneration elements. Other remuneration elements comprise mainly the use of com- pany cars as well as the payment of insurance premiums, contributions towards security systems and an annual medical check-up. The salary of each member of the Board of Management is euro 420,000 p. a. during the first term of appointment and euro 480,000 p. a. from the beginning of the second term. The salary of the Chairman of the Board of Manage- ment is euro 840,000 p. a. The variable compensation of the Board of Management (bonus) is made up of two components, each equally weighted, namely a corporate earnings-related bonus and a personal performance-related bonus. The Super- visory Board may also, in justified cases, decide to pay an additional special bonus on a voluntary basis. The target 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 155 STATEMENT ON CORPORATE GOVERNANCE bonus (100%) for a Board of Management member (i.e. covering both components of variable compensation) totals euro 1.5 million p. a. for the first term of appoint- ment and euro 1.75 million p. a. with effect from the sec- ond. The equivalent figure for the Chairman of the Board of Management is euro 3 million p. a. Upper limits for the amount of the bonus are in place for all Board of Management members (150% of the relevant target bonus). The total target compensation for a Board of Management member (i.e. salary and target bonus) is therefore euro 1.92 million p. a. for the first term of ap- pointment and euro 2.23 million p. a. with effect from the second. The equivalent figure for the Chairman of the Board of Management is euro 3.84 million p. a. If the target bonus is fully achieved, the ratio of salary and variable compensation (bonus) is approximately 20: 80%. The corporate earnings-related bonus is based on the BMW Group’s net profit and post-tax return on sales (which are combined in a single earnings factor) and the level of the dividend (common stock). The corporate earnings-related bonus is derived by multiplying the target amount fixed for each member of the Board of Management by the earnings factor and by the dividend factor. In exceptional circumstances, for instance when there have been major acquisitions or disposals, the Supervisory Board may adjust the level of the corporate earnings-related bonus. An earnings and dividend factor of 1.00 gives rise to an earnings-based bonus of euro 0.75 million for a member of the Board of Management during the first period of appointment and one of euro 0.875 million during the second period of appointment. The equivalent bonus for the Chairman of the Board of Management is euro 1.5 million. The earnings factor is 1.00 in the event of a Group net profit of euro 3.1 billion and a post-tax return on sales of 5.6%. The dividend factor is 1.00 in the event that the dividend paid on the shares of common stock is between 100 and 110 cents. If the Group net profit is below euro 1 billion or if the post-tax return on sales is less than 2%, the earnings factor will be zero. In these cases, no corporate earnings- related bonus will be paid. Based on the principle of con- sistency, this rule is also applicable in determining the corporate earnings-related variable compensation com- ponents of all managers and staff of BMW AG. The personal performance-related bonus is derived by multiplying the target amount set for each member of the Board of Management by a performance factor. The Supervisory Board sets the performance factor on the basis of its assessment of the contribution of the relevant Board of Management member to sustainable and long- term oriented business development. In setting the factor, consideration is given equally to personal per- formance and decisions taken in previous forecasting periods, key decisions affecting the future development of the business and the effectiveness of measures taken in response to changing external conditions as well as other activities aimed at safeguarding the future viability of the business to the extent not included directly in the basis of measurement. The target bonus and the key figures used to determine the corporate earnings-related bonus, have been fixed for a period of three financial years, during which time target bonus and the key figures may not be amended retrospectively. As in previous years, the compensation system for 2010 does not include any stock options, value appreciation rights or other share-based components incorporating other long-term incentives. The Supervisory Board did, however, decide in December 2010 to add a further com- ponent to the compensation system for financial years from 1 January 2011 onwards, requiring Board of Manage- ment members to invest the equivalent of 20% of their total bonuses (after tax) for financial years from 2011 on- wards in BMW common stock and to hold these shares for a minimum of four years. One half of the amount required to finance this investment will be provided by the Company. As part of a matching plan, the Board of Management members will, at the end of the holding period, receive from the Company either one additional share of common stock or an equivalent cash amount for three shares of common stock held, to be decided at the discretion of the Company. The new requirement is aimed at creating further long-term incentives to en- courage sustainable governance. The Supervisory Board carries out an annual review of the appropriateness of the total compensation of the Board of Management. In horizontal terms, this is done by comparing compensation paid by DAX-30 companies and, in vertical terms, by comparing board compensa- tion with the salaries of senior management (below board level) and with the average salaries of employees. With effect from financial years beginning on or after 1 January 2010, the provision of retirement and surviving dependants’ benefits for existing and future members of the Board of Management was changed to a defined contribution system with a guaranteed minimum return (similar to the switch to a defined contribution system for middle and senior management in 2009). Given the fact that board members already have a legal right to 156 receive the benefits already promised to them, they have been given the option to choose between the previous system and the new one. No changes were made to exist- ing arrangements in 2010. In the event of the termination of mandate, current mem- bers of the Board of Management are entitled to receive certain defined benefits in accordance with the pension scheme rules. Pensions are paid to former members of the Board of Management who have either reached the age of 65 or, if their mandate was terminated earlier and not 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 is unchanged from the previous year and comprises a basic monthly amount of euro 10,000 or euro 15,000 (Chairman of the Board of Management) plus a fixed amount. The fixed amount is made up of approximately euro 75 for each year of service in the company before becoming a member of the Board of Management plus between euro 400 and euro 600 for each full year of service on the board (up to a maximum of 15 years). Pension payments are adjusted by analogy to the rules applicable for the adjustment of civil serv- ants’ pensions: the pensions of members of the Board of Management are adjusted when the civil servants remu- neration level B6 (excluding allowances) is increased by more than 5% or in accordance with the Company Pension Act. If a mandate is ended early, before the member of the Board of Management reaches the age of 60, a transi- tional payment amounting to two-thirds of the pension theoretically earned up to the date when a full pension can be drawn may become payable if, after a minimum of three years of service as a member of the Board of Management, this is considered appropriate on the basis of an objective evaluation of all circumstances. Arrange- ments are in place concerning the offsetting of other in- come against pensions and transitional payments. If a mandate is terminated after 1 January 2010, the new system provides entitlements which can be paid either (a) in the case of death or invalidity as a one-off amount or over a maximum of ten years or (b) on retirement – depending on the wish of the ex-board member con- cerned – in the form of a life-long monthly pension, as a one-off amount, over a maximum of ten years, or in a combined form (e.g. a combination of a one-off payment and a proportionately reduced life-long monthly pen- sion). Pensions are paid to former members of the Board of Management who have either reached the statutory retirement age for the state pension scheme in Germany or, if their mandate had terminated earlier and had not been extended, to members who have either reached the age of 60 or are permanently unable to work, or who have entered into early retirement in accordance with a special arrangement. In addition, following the death of a retired board member who has elected to receive a life- long pension, 60% of that amount is paid as a life-long widow’s pension. The amount of the retirement pension to be paid is de- termined on the basis of the amount accrued in each board member’s individual pension savings account. The amount on this account arises from annual contribu- tions paid by the Company plus interest earned based on the type of investment. The annual contribution to be paid for each member of the Board of Management amounted to euro 240,000 for 2010, euro 270,000 for 2011 and euro 300,000 from 2012 onwards. The equivalent figures for the Chairman of the Board of Management are euro 425,000, euro 475,000 and euro 525,000. The contributions are credited, along with interest earned, to the personal savings accounts of board members in monthly amounts. The guaranteed minimum rate of return p. a. corresponds to the maximum interest rate used to calculate insurance reserves for life insurance policies (guaranteed interest on life insurance policies). In the case of invalidity or death, a minimum of 60% of the potential annual contributions will be paid until the person concerned would have reached the age of 60. At the changeover to the new system, current members of the Board of Management were credited with a starting balance of equivalent value to any entitlements already vested. The starting balance and all contributions subsequently credited to board members under the new scheme have been externally financed in conjunction with a trust model that is also used to fund pension obligations to employees. Pensions are increased annually by an amount of at least 1%. Income earned on an employed or a self-employed basis up to the age of 63 is offset against the pension entitle- ment. In addition, certain circumstances have been speci- fied, in the event of which, the Company no longer has any obligation to pay benefits. In such cases, no transitional payments will be made either. Retired board members are entitled to use company and lease vehicles in line with the rules applicable for senior heads of departments. 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 157 STATEMENT ON CORPORATE GOVERNANCE If a board member’s mandate is terminated early without important reason, there are no contractual commitments to pay compensation. Similarly, there are no commitments to pay compensation for early termination in the event of a change of control or a takeover offer. No members of the Board of Management received any payments or benefits from third parties in 2010 on account of their activities as members of the Board of Manage- ment of BMW AG. Overview of compensation system and compensation components Component Salary Variable compensation Bonus: (if target is 100% achieved, the ratio of salary and bonus will be approximately 20 : 80) Parameter / measurement base Member of the Board of Management: – euro 420,000 p. a. (first term of appointment) – euro 480,000 p. a. (from second term of appointment onwards) Chairman of the Board of Management: – euro 840,000 p. a. Target bonuses (if target is 100 % achieved): – euro 1.5 million (first term of appointment) – euro 1.75 million (from second term of appointment onwards) – euro 3.00 million (Chairman of the Board of Management) a) Corporate earnings-related bonus (corresponds to 50 % of target bonus if target is 100 % achieved) – Quantitative criteria fixed in advance for a period of three financial years – Formula: 50 % of target bonus x earnings factor x dividend factor (common stock) – the earnings factor is derived from the Group net profit and the Group post-tax return on b) Performance-related bonus sales – Corridor: 0 –150 %* (fixed upper limit) – Primarily qualitative criteria, expressed in terms of a performance factor aimed at (corresponds to 50 % of target bonus if target is 100 % achieved) measuring the board members contribution to sustainable and long-term performance and the future viability of the business Share-based compensation components Special bonus payments Other remuneration – Formula: 50 % of target bonus x performance factor – Other criteria for performance factor: innovation (economic and ecological, e.g. reduc- tion of CO2 emissions), leadership skills and attractiveness as employee, corporate social responsibility, progress in implementing diversity concept – Corridor: 0 –150 %* (fixed upper limit) – introduction planned for financial years from 1 January 2011 onwards – requirement for board members to invest 20 % of their total bonuses (after tax) for finan- cial years from 1 January 2011 onwards in BMW AG common stock – one half of the amount required to finance this investment to be provided by Company. – minimum holding period of four years – at the end of the holding period, board member receives either one additional share or an equivalent cash amount (at option of Company) May be paid in justified circumstances on appropriate basis, no entitlement Contractual agreement, main points: use of company cars, insurance premiums, contributions towards security systems, medical check-up Compensation entitlements on termination of contract, compensation entitlements in event of change of control or takeover bid No contractual entitlements Retirement and surviving dependants’ benefits Model Principal features a) Defined benefits (only applies to board members appointed for the first time before 1 January 2010; based on legal right to receive the benefits already promised to them, this group of persons is entitled to opt between (a) and (b)) Pension of base amount of euro 10,000 (Chairman: euro 15,000) plus fixed amounts based on length of company and board service, in certain circumstances transitional payments b) Defined contribution system since 1 January 2010 with guaranteed minimum rate of return Pension based on amounts credited to individual savings accounts for contributions paid and interest earned Annual contribution for board member (Chairman) for 2010: euro 240,000 (euro 425,000) for 2011: euro 270,000 (euro 475,000) for financial year 2012 and thereafter: euro 300,000 (euro 525,000) Various forms of disbursement No transitional payments * Upper limit for financial year 2011 and thereafter will increase to 250 %. 158 Compensation of the Board of Management for the financial year 2010 (total) The total remuneration of the current members of the Board of Management of BMW AG amounted to euro 18.2 million (2009: euro 10.7 million). The amount com- prises fixed components (including other remuneration) of euro 3.7 million (2009: euro 3.7 million) and variable components of euro 14.5 million (2009: euro 7.0 mil- lion). The composition of the Board of Management was unchanged in 2010 compared to the previous year. The rules determining the level of board members’ salaries remained unchanged during the financial year 2010; differences in salaries compared to the previous year re- sulted from the timing of appointment periods. Other remuneration decreased due to the lower level of fringe benefits paid in the year under report. Variable remu- neration includes special bonus payments amounting to euro 770,000 (2009: –) (euro 100,000 per board member, euro 170,000 to the Chairman). The Supervisory Board authorised these amounts in the context of the special bonus payments to employees of BMW AG, based on the principle of consistency and taking into account senior management compensation (below board level). This was in recognition of the fact that the Board of Manage- ment has undertaken structural measures that have made it easier for the BMW Group to overcome the economic and financial crisis. in euro million 2010 2009 Amount Proportion in % Fixed compensation Variable compensation Total compensation 3.7 14.5 18.2 20.3 79.7 100.0 Amount Proportion in % 34.6 65.4 3.7 7.0 10.7 100.0 In addition, an expense of euro 0.9 million (2009: euro 0.7 million) was recognised in the financial year 2010 for current members of the Board of Management for the period after the end of their service relationship. This re- lates to the expense for allocations to pension provisions (service cost). Compensation of the individual members of the Board of Management for the financial year 2010 (2009) in euro Norbert Reithofer Frank-Peter Arndt Herbert Diess Klaus Draeger Friedrich Eichiner Harald Krüger Ian Robertson Total Fixed compensation Salary Other compensation 840,000 (840,000) 480,000 (440,000) 435,000 (420,000) 480,000 (430,000) 435,000 (420,000) 420,000 (420,000) 420,000 (420,000) 17,716 (16,215) 21,529 (23,591) 18,944 (13,773) 20,016 (74,237) 24,747 (93,785) 20,473 (78,028) 13,987 (54,993) Variable Compensation Total compensation* 3,438,500 (1,725,000) 2,006,625 (910,417) 1,802,344 (862,500) 2,006,625 (886,458) 1,802,344 (862,500) 1,734,250 (862,500) 1,734,250 (862,500) 4,296,216 (2,581,215) 2,508,154 (1,374,008) 2,256,288 (1,296,273) 2,506,641 (1,390,695) 2,262,091 (1,376,285) 2,174,723 (1,360,528) 2,168,237 (1,337,493) Total 857,716 (856,215) 501,529 (463,591) 453,944 (433,773) 500,016 (504,237) 459,747 (513,785) 440,473 (498,028) 433,987 (474,993) 3,510,000 137,412 3,647,412 14,524,938 18,172,350 (3,390,000) (354,622) (3,744,622) (6,971,875) (10,716,497) * Variable remuneration for the financial year 2010 includes special bonus payments of euro 100,000 per board member (Chairman: euro 170,000). 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 159 STATEMENT ON CORPORATE GOVERNANCE Pension benefits in euro Norbert Reithofer Frank-Peter Arndt Herbert Diess Klaus Draeger Friedrich Eichiner Harald Krüger Ian Robertson Gesamt2 Allocated to pension provisions in financial year 20101 Present value of pension obligations (defined benefit plans), in accordance with IFRS2, 3 Present value of pension obligations (defined benefit plans), in accordance with HGB2 Balance on pension accounts at 31.12. 2010 (defined benefit plans)2 168,018 (131,815) 94,937 (73,233) 123,733 (93,685) 95,435 (74,495) 109,474 (86,612) 70,062 (51,300) 238,584 (189,682) 900,243 (700,822) 4,393,600 (3,583,214) 2,972,820 (2,440,806) 2,079,474 (1,619,404) 2,736,323 (2,223,687) 2,931,281 (2,406,328) 1,570,426 (1,187,492) 714,664 (381,011) 17,398,588 (13,841,942) 4,092,763 (3,583,214) 2,769,243 (2,440,806) 1,915,385 (1,619,404) 2,539,567 (2,223,687) 2,741,092 (2,406,328) 1,408,702 (1,187,492) 660,951 (381,011) 16,127,703 (13,841,942) 3,493,226 (–) 2,389,511 (–) 1,646,141 (–) 2,226,217 (–) 2,340,081 (–) 1,213,803 (–) 532,713 (–) 13,841,692 (–) 1 Corresponds to service cost in accordance with IFRS. 2 Based on legal right to receive the benefits already promised to them, current board members were given the option of choosing between the old and new models at the time the Company changed from a defined benefit to a defined contribution system. 3 Defined benefit obligations (DBO) The amount paid to former members of the Board of Management and their dependants was euro 3.7 million (2009: euro 3.8 million). Pension obligations to former members of the Board of Management and their depend- ants are fully covered by pension provisions amounting to euro 49.7 million (2009: euro 46.7 million), computed in accordance with IAS 19. 2. Compensation of the Supervisory Board Responsibilities, regulation pursuant to Articles of Incorporation The compensation of the Supervisory Board is determined by shareholders’ resolution at the Annual General Meet- ing. The compensation regulation valid for the financial year 2010 was resolved by shareholders at the Annual General Meeting on 8 May 2008 and is set out in Article 15 of BMW AG’s Articles of Incorporation, which can be viewed and /or downloaded at www.bmwgroup.com\ir under the menu items “Corporate Facts” and “Corporate Governance”. Compensation principles, compensation components The Supervisory Board of BMW AG receives both fixed and corporate performance-related compensation. Earnings per share of common stock form the basis for corporate 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 corporate performance-related compensation of euro 220 for each full euro 0.01 by which the earnings per share (EPS) of common stock reported in the Group Financial Statements for the relevant financial year (remuneration year) exceed a minimum 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 compensation. With this combination of fixed and corporate perform- ance-related compensation, the compensation structure in place for BMW AG’s Supervisory Board complies with the recommendation contained in section 5.4.6 of the German Corporate Governance Code. The German Corporate Governance Code also recommends that the exercising of chair and deputy chair positions in the Supervisory Board as well the chair and membership of committees should also be considered when determin- ing the level of compensation. Accordingly, the Articles of Incorporation of BMW AG stipulate that the Chairman of the Supervisory Board shall receive three times the amount and each Deputy Chairman shall receive twice the amount of the remu- neration of a Supervisory Board member. Provided the relevant committee convened for meetings on at least three days during the financial year, each chairman of the Supervisory Board’s committees receives twice the 160 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 Super- visory Board exercises more than one of the functions re- ferred to above, the compensation is measured only on the basis of the function which is remunerated with the highest amount, thus avoiding amounts accumulating when more than one function is exercised. 3.1 million (2009: euro 1.6 million). This comprised a fixed component of euro 1.6 million (2009: euro 1.6 mil- lion) and a variable component of euro 1.5 million (2009: –), reflecting the fact that the relevant criteria stipulated in the Articles of Incorporation were satisfied again for the first time in two years (minimum EPS of euro 2.30). in euro million 2010 2009 Amount Proportion in % Amount Proportion in % 100.0 – Fixed compensation Variable compensation 1.6 1.5 51.6 48.4 1.6 – Total compensation 3.1 100.0 1.6 100.0 Supervisory Board members did not receive any further compensation or benefits from the BMW Group for services performed by them, in particular advisory and agency services. Market research into the premium segment for cars in Germany, for which the Institut für Demoskopie Allensbach had been engaged in 2009, was completed in 2010 as agreed. Of the total fee of euro 79,600, the final instalment of euro 26,533 was incurred in 2010. Since Prof. Dr. Renate Köcher is a member of BMW AG’s Supervisory Board and a Director of the Allensbach Institute, the Board of Management obtained approval for the contract from the Supervisory Board’s Personnel Committee in 2009 prior to signing the contract. In addition, each member of the Supervisory Board re- ceives an attendance fee of euro 2,000 for each full meet- ing of the Supervisory Board (Plenum) which the mem- ber 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. In order to be able to perform his duties, the Chairman of the Supervisory Board is provided with secretariat and chauffeur services. Compensation of the Supervisory Board for the financial year 2010 (total) In accordance with Article 15 of the Articles of Incorpora- tion, the compensation of the Supervisory Board for ac- tivities during the financial year 2010 amounted to euro 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 161 STATEMENT ON CORPORATE GOVERNANCE Compensation of the individual members of the Supervisory Board for the financial year 2010 (2009) in euro Fixed compensation Attendance fee Variable compensation Joachim Milberg (Chairman) Manfred Schoch (Deputy Chairman) Stefan Quandt (Deputy Chairman) Stefan Schmid (Deputy Chairman) Jürgen Strube (Deputy Chairman)1 Karl-Ludwig Kley (Deputy Chairman2) Bertin Eichler Franz Haniel Reinhard Hüttl Henning Kagermann3 Susanne Klatten Renate Köcher Robert W. Lane Horst Lischka Willibald Löw Wolfgang Mayrhuber Werner Neugebauer Franz Oberländer Anton Ruf Maria Schmidt Werner Zierer Total 165,000 (165,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 41,589 (110,000) 89,356 (55,000) 55,000 (55,000) 55,000 (55,000) 55,000 (55,000) 34,356 (–) 55,000 (55,000) 55,000 (55,000) 55,000 (34,959) 55,000 (34,959) 55,000 (55,000) 55,000 (55,000) 55,000 (55,000) 55,000 (55,000) 55,000 (55,000) 55,000 (55,000) 55,000 (55,000) 1,430,301 (1,430,302) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 2,000 (10,000) 10,000 (8,000) 10,000 (10,000) 10,000 (8,000) 8,000 (10,000) 6,000 (–) 10,000 (10,000) 10,000 (10,000) 10,000 (6,000) 10,000 (8,000) 10,000 (10,000) 6,000 (8,000) 4,000 (8,000) 8,000 (4,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 184,000 (184,000) 172,260 (–) 114,840 (–) 114,840 (–) 114,840 (–) 43,419 (–) 93,288 (–) 57,420 (–) 57,420 (–) 57,420 (–) 35,868 (–) 57,420 (–) 57,420 (–) 57,420 (–) 57,420 (–) 57,420 (–) 57,420 (–) 57,420 (–) 57,420 (–) 57,420 (–) 57,420 (–) 57,420 (–) Total 4 347,260 (175,000) 234,840 (120,000) 234,840 (120,000) 234,840 (120,000) 87,008 (120,000) 192,644 (63,000) 122,420 (65,000) 122,420 (63,000) 120,420 (65,000) 76,224 (–) 122,420 (65,000) 122,420 (65,000) 122,420 (40,959) 122,420 (42,959) 122,420 (65,000) 118,420 (63,000) 116,420 (63,000) 120,420 (59,000) 122,420 (65,000) 122,420 (65,000) 122,420 (65,000) 1 Member and Deputy Chairman of the Supervisory Board until 18 May 2010 2 Deputy Chairman of the Supervisory Board since 18 May 2010 3 Member of the Supervisory Board since 18 May 2010 4 Figures for the previous year include the remuneration of members of the Supervisory Board who left office during the financial year 2009. 1,493,235 (–) 3,107,536 (1,614,302) 162 3. Other No advances or loans were granted by the Company to Members of the Board of Management and the Super- visory Board, nor were any contingent liabilities entered into on their behalf. Reportable securities transactions (“Directors Dealings”) Pursuant to § 15 a of the German Securities Trading Act (WpHG), members of the Board of Management and the Supervisory Board any persons related to those members, are required to give notice to BMW AG and the Federal Agency for the Supervision of Financial Services of trans- actions with BMW stock or related financial instruments if the total sum of such transactions exceeds an amount of euro 5,000 during any given calendar year. All trans- actions notified to BMW AG are disclosed on its website at www.bmwgroup.com/ir and in its Annual Document pursuant to § 10 (1) of the German Securities Prospectus Act. During the financial year 2010, Dr. Karl-Ludwig Kley gave notice of the sale of 1,320 shares of common stock at an average selling price of euro 62.94. Shareholdings of members of the Board of Manage- ment and the Supervisory Board The members of the Supervisory Board of BMW AG hold in total 27.66% of the Company’s shares of common and preferred stock, of which 16.10% relates to Stefan Quandt, Bad Homburg v. d. H. and 11.56% to Susanne Klatten, Bad Homburg v. d. H. The shareholding of the members of the Board of Management totals less than 1% of the issued shares. Employee share scheme Since 1989 BMW AG has also allowed its employees to participate in the success of the business in the form of an employee share scheme. In 2010 employees were able, at their own discretion, to acquire packages of be- tween 5 and 25 shares of non-voting preferred stock at a discounted price. All employees of BMW AG and its wholly owned German subsidiaries (if agreed to by the directors of those entities) were entitled to participate in the scheme. Employees were required to have been in an uninterrupted employment relationship with BMW AG or the relevant subsidiary for at least one year at the date on which the allocation for the year was announced. Shares of preferred stock acquired in conjunction with the employee share scheme are subject to a vesting period of four years, starting from 1 January of the year in which the shares were acquired. A total of 499,590 shares of preferred stock were acquired by employees under the scheme in 2010; 498,050 of these shares were drawn from the Authorised Capital 2009, the remainder were bought back via the stock exchange. Every year the Board of Management of BMW AG decides whether the scheme is to be continued. Information on corporate governance practices applied beyond mandatory requirements Core principles Within the BMW Group, the Board of Management, the Supervisory Board and the employees base their actions on twelve core principles which are 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 re- sults 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. It is the company and its products that count – and nothing else. Responsibility Every BMW Group employee takes personal responsi- bility for the company’s success. When working in a team, each employee must assume personal responsi- bility for his or her actions. In doing so we are fully aware that we are working towards achieving the company’s goals. For this reason, we work together in the best inter- ests of the company. Effectiveness The only results that count for the company are those which have a sustainable impact. In assessing leadership, we must consider the effectiveness of performance on results. Adaptability In order to ensure our long-term success we must adapt to new challenges with speed and flexibility. We therefore see change as an opportunity – adaptability as essential to be able to capitalise on it. Frankness As we strive to find the best solution, it is each employee’s duty to express any opposing opinions they may have. The solutions we agree upon will then be consistently im- plemented by all those involved. 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 163 STATEMENT ON CORPORATE GOVERNANCE Respect, trust, fairness We treat 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. the prohibition of child labour, the right to appropriate remuneration, regulated working times and compliance with work and safety regulations. The complete text of the UN Global Compact and the recommendations of the ILO and other relevant information can be found at www.unglobalcompact.org and www.ilo.org. The Joint Declaration on Human Rights and Working Conditions in the BMW Group can be found at www.bmwgroup.com under the menu item “Responsibility”. Leading by example Every manager must lead by example. Sustainability In our view, sustainability constitutes a lasting contribu- tion to the success of the company. This is the basis upon which we assume ecological and social responsibility. Society Social responsibility is an integral part of our corporate self-image. Independence We secure the corporate independence of the BMW Group through sustained profitable growth. The core principles are also available at www.bmwgroup. com under the menu items “Responsibility” and “Em- ployees”. Social responsibility towards employees and along the supplier chain The BMW Group stands by its social responsibilities. Our corporate culture combines the drive for success with a willingness to be open, trustworthy and transparent. We are well aware of our responsibility towards society. Our models for sustainable social responsibility towards em- ployees and for ensuring compliance with international social standards are based on various internationally recognised guidelines. The BMW Group is committed to adhering to the OECD’s guidelines for multinational companies and the contents of the ICC Business Charter for Sustainable Development. Details of the contents of these guidelines and other relevant information can be found under www.oecd.org und www.iccwbo.org. The Board of Management signed the United Nations Global Compact in 2001 and, in 2005, together with employee representatives, issued a Joint Declaration on Human Rights and Working Conditions in the BMW Group. With these two documents, we have given our commitment to abide worldwide by the International Labour Organi- zation’s (ILO) fundamental working standards, principles and labour rights. The most important of these are free- dom of employment, the prohibition of discrimination, It goes without saying that the BMW Group abides by these fundamental principles and rights worldwide. Ac- tivities can only be sustainable, however, if they encom- pass the entire value-added chain. That is why the BMW Group not only makes high demands of itself but also expects its suppliers and partners to meet the ecological and social standards it sets. The relevant sustainability criteria therefore play an integral part in all aspects of purchasing terms and conditions as well as for the pur- poses of evaluating suppliers. Potential suppliers must submit a full disclosure when completing BMW’s sus- tainability questionnaire, an inherent component of the acceptance procedure for potential new suppliers. The BMW Group also insists that its suppliers ensure that their sub-contractors comply with set standards. Purchasing terms and conditions and other informa- tion relating to purchasing can be found in the publicly available section of the BMW Group Partner Portal at https://b2b.bmw.com. Compliance in the BMW Group Responsible and lawful conduct is fundamental to the success of the BMW Group. This approach is an integral part of our corporate culture and is the reason why cus- tomers, shareholders, business partners and the general public place their trust in us. The Board of Management and the employees of the BMW Group are obliged to act responsibly and in compliance with applicable laws and regulations. This principle has been embedded in BMW’s internal “Rules of Conduct” for many years now. In order to ensure protection against compliance-related risks and repu- tational risk, the Board of Management created a Com- pliance Committee in 2007, mandated 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, Organisational Development and Group Human 164 Resources. It manages and monitors activities neces- sary to ensure compliance with the law (Legal Com- pliance). These activities include training, information and communication measures, following up cases of non-compliance and implementing compliance re- quirements. The Compliance Committee reports regularly to the Board of Management on all compliance-related issues, including the progress made in setting up and develop- ing the Compliance Organisation, details of investiga- tions performed, known infringements of the law, sanc- tions imposed and corrective /preventative measures implemented. The BMW Group Compliance Committee operates through the Compliance Committee Office, which is allocated in organisational terms to the Chair- man of the Board of Management. The Chairman of the Compliance Committee keeps the Audit Committee (i.e. a part of the Supervisory Board) informed on the current status of compliance activities within the BMW Group, both on a regular and a case-by- case basis as the need arises. The implementation of the BMW Group Compliance Organisation began in 2008 and was completed in November 2009. The BMW Group Compliance Organi- sation comprises the entire set of measures taken to ensure that the BMW Group, its representative bodies, its managers and its staff act in a lawful manner. It is supplemented by a whole range of internal principles, guidelines and instructions, which in part reflect the applicable law. The various elements of the BMW Group Compliance Or- ganisation are shown in the diagram on the right and are applicable for all BMW Group entities worldwide. To the extent that additional compliance requirements apply to individual countries or specific lines of business, these are covered by supplementary compliance measures. The BMW Group Legal Compliance Code is at the core of the Compliance Organisation. This document explains the significance of legal compliance and provides an over- view of the various areas relevant for the BMW Group. The Legal Compliance Code is available both as a printed brochure and to download in German and English. In addition, translations into nine other languages (French, Spanish, Italian, Portuguese, Russian, Mandarin, Japa- nese, Thai and Korean) have been available since 2009. Managers in particular bear a high degree of responsi- bility and must set a good example in the process of preventing infringements. All managers are required to inform the staff working for them of the content and significance of the Legal Compliance Code and to make them aware of legal risks. Managers must, at regular in- tervals and on their own initiative, check compliance with the law and communicate regularly with staff on this issue. Any indication of non-compliance with the law must be rigorously investigated. More than 11,000 managers and staff have received train- ing worldwide in essential compliance matters since the introduction of the BMW Group Compliance Organi- sation. The training material is available on an internet- based training platform in German and English and in- cludes a final test. Successful participation in the training programme, which is documented by a certificate, is mandatory for all BMW Group managers. Appropriate processes are in place to ensure that all newly recruited managers and promoted staff undergo compliance training. In addition to this basic training, in-depth training is also provided to certain groups of staff on specific com- Compliance Committee BMW AG Supervisory Board Annual Status Report 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 140 STATEMENT ON 140 142 CORPORATE GOVERNANCE (Part of Management Report) Information on the Company’s Governing Constitution Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 147 Members of the Supervisory Board Information on Work Procedures of the Management Board and Supervisory Board 154 162 Compensation Report Information on Corporate Governance Practices 163 Compliance in the BMW Group 165 STATEMENT ON CORPORATE GOVERNANCE pliance issues. In 2010, for example, a European Union- related training programme was prepared (“Compliance Advanced – Competition and Antitrust Law”) aimed at employees who come into contact with antitrust- related issues as a result of their functions within sales or pur- chasing. 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 further point of contact (telephone or e-mail), the BMW Group Compliance Contact has also been set up for both employees and non-employees to answer any questions that may arise 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 at- tention has been drawn are documented and followed up by the BMW Group Compliance Committee Office using an electronic case management system. If neces- sary, the Group Internal Audit Department, the Group Security Department and legal departments may be called upon to assist in the investigation process. A reporting system has been established for the Com- pliance Organisation which enables compliance-relevant issues to be reported to the Compliance Committee on a regular basis, and, if necessary, on an ad hoc basis. To this end, a current total of 132 Compliance Managers (at 31 December 2010) report on compliance matters covering all areas of the BMW Group. The first full set of compliance reporting was completed in 2010. This in- cluded reporting on the compliance status of the relevant entities, identified legal risks and incidences of non- compliance as well as the corrective and preventative measures implemented. Both the compliance with and the implementation of the Legal Compliance Code are reviewed regularly by Group Internal Audit and Group Security. For this purpose, the Group Internal Audit Department performs on-site audits and interviews employees. The Board of Management keeps track of and analyses compliance-related developments and trends on the basis of the Group’s compliance reporting and input from the BMW Group Compliance Committee. Against the background of rising expectations placed on the system- atic approach and effectiveness of compliance organisa- tions, in autumn 2010 the Board of Management decided to expand the existing range of compliance measures. This included additional measures aimed at avoiding cor- ruption, strengthening controls and introducing region- ally structured compliance management. It is essential that employees are aware of and comply with applicable regulations. The BMW Group does not tolerate violations of law by its employees. Culpable violations of law result in employment-contract sanc- tions and may involve personal liability consequences for the employee involved. In order to avoid this, the BMW Group’s employees are kept fully informed of the tools and measures used by the Compliance Organisation via various internal chan- nels. The central means of communication is the Com- pliance website within the BMW Group’s 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 frequently asked questions (and answers) on compli- ance-related issues. The website contains a special service area where various practical tools and aids are made available to employees, which help them deal with typi- cal compliance-related matters. With effect from the beginning of 2010, employees also have access on the website to an electronically supported authorisation process for invitations in connection with business partners. Compliance is also an important factor in terms of safe- guarding the future of the BMW Group’s workforce. With this in mind, in 2009 the Board of Management and the national and international employee representative bodies of the BMW Group signed a set of Joint Principles for Lawful Conduct. In doing so, all parties involved gave a commitment to the principles contained in the BMW Group Legal Compliance Code and to trustful cooperation in all matters relating to compliance. In the interest of investor protection and in order to en- sure that the BMW Group complies with regulations relating to potential insider information, as early as 1994 the Board of Management appointed an Ad-hoc Com- mittee consisting of representatives of various specialist departments and whose members examine the relevance of issues for ad-hoc disclosure purposes. All persons working on behalf of the enterprise who have access to insider information in accordance with existing rules have been, and continue to be, included in a correspond- ing, regularly updated list and informed of the duties arising from insider rules. 166 OTHER INFORMATION BMW Group Ten-year Comparison Deliveries to customers Automobiles Motorcycles3 Production Automobiles Motorcycles4 Financial Services 2010 2009 2008 2007 units units units units 1,461,166 1,286,310 1,435,876 1,500,678 110,113 100,358 115,196 102,467 1,481,253 1,258,417 1,439,918 1,541,503 112,271 93,243 118,452 104,396 Contract portfolio Business volume (based on balance sheet carrying amounts)5 contracts 3,190,353 3,085,946 3,031,935 2,629,949 euro million 66,233 61,202 60,653 51,257 Income Statement Revenues Gross profit margin Group6 Profit before financial result Profit before tax Return on sales (earnings before tax / revenues) Income taxes Effective tax rate Net profit 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 flow 7 Capital expenditure Capital expenditure ratio (capital expenditure / revenues) Personnel Workforce at the end of year8 Personnel cost per employee Dividend Dividend total euro million 60,477 50,681 53,197 56,018 % euro million euro million % euro million % euro million euro million euro million euro million % euro million euro million 18.0 5,094 4,836 8.0 1,602 33.1 3,234 65,716 43,151 23,100 21.2 45,633 40,134 10.5 289 413 0.8 203 49.2 210 62,009 39,944 19,915 19.5 45,119 36,919 11.4 921 351 0.7 21 6.0 330 62,416 38,670 20,273 20.1 41,526 39,287 euro million 108,867 101,953 101,086 euro million euro million euro million % 7,432 8,150 3,263 5.4 7,767 4,921 3,471 6.8 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 euro 95,453 83,141 96,230 72,349 100,041 75,612 107,539 76,704 euro million 852 197 197 694 Dividend per share of common stock / preferred stock euro 1.30 /1.32 0.30 / 0.32 0.30 / 0.32 1.06 / 1.08 166 166 168 170 172 174 175 176 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts 1 adjusted for new accounting treatment of pension obligations 2 reclassified after harmonisation of internal and external reporting systems 3 excluding C1, sales volume to 2003: 32,859 units, including Husqvarna Motorcycles 4 excluding C1 production by Bertone, production volume C1 up to 2002: 33,489 units, including Husqvarna Motorcycles 5 amount computed on the basis of balance sheet figures: until 2007 from the Group balance sheet, from 2008 onwards from the Financial Services segment balance sheet 6 research and development costs included in cost of sales with the effect from 2008 7 Figures 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 167 OTHER INFORMATION 2006 2005 20041 2003 20022 2001 1,373,970 1,327,992 1,208,732 1,104,916 1,057,344 100,064 97,474 92,266 92,962 92,599 905,657 84,713 Automobiles Motorcycles3 Deliveries to customers 1,366,838 1,323,119 1,250,345 1,118,940 1,090,258 103,759 92,012 93,836 89,745 93,010 946,730 90,478 Production Automobiles Motorcycles4 Financial Services 2,270,528 2,087,368 1,843,399 1,623,425 1,443,236 1,297,702 44,010 40,428 32,556 28,647 26,505 25,306 Contract portfolio Business volume (based on balance sheet carrying amounts)5 48,999 46,656 44,335 41,525 42,411 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 9.5 106,575 76,621 105,798 75,238 105,972 73,241 104,342 73,499 101,395 69,560 Income Statement 38,463 25.3 Revenues Gross profit margin Group6 3,356 Profit before financial result 3,242 Profit before tax 8.4 Return on sales (earnings before tax / revenues) 1,376 Income taxes 42.4 Effective tax rate 1,866 Net profit for the year Balance Sheet 31,282 Non-current assets 19,977 Current assets 10,770 Equity 21.0 Equity ratio Group 19,223 Non-current provisions and liabilities 21,266 Current provisions and liabilities 51,259 Balance sheet total Cash Flow Statement 2,437 4,304 Cash and cash equivalents at balance sheet date Operating cash flow 7 3,516 Capital expenditure 9.1 Capital expenditure ratio (capital expenditure / revenues) 97,275 Personnel Workforce at the end of year8 66,711 Personnel cost per employee Dividend 458 4199 419 392 351 350 Dividend total 0.70 / 0.72 0.64 / 0.66 0.62 / 0.64 0.58 / 0.60 0.52 / 0.54 0.52 / 0.54 Dividend per share of common stock / preferred stock 168 BMW Group Locations — R — R — R — S — S — S — R — P — S — S — A — S — S — A — A — S — S — P — S The BMW Group is present in the world markets with 25 production and assembly plants, 43 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 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 Entwicklung Japan, Tokyo, Japan BMW Group Entwicklung China, Beijing, China BMW Group Entwicklung USA, Woodcliff Lake, USA 166 166 168 170 172 174 175 176 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts 169 OTHER INFORMATION — P — R — S — S — S — R — S — A — S — A — S — A — S — S — S — S — S — A — S — S — P — P — P — P — S — S — S — P — P — S — P — S — R — H — P — P — R — P — P — P — S — C — P — R — S — S — P — S — S — S — S — S — S — S — S — S — S — S — S — P Production — C Contract production — S Sales subsidiary markets / Locations Financial Services 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 Manaus, Brazil CKD production Rayong, Thailand Argentina Australia Austria Belgium Brazil Bulgaria China Canada Czech Republic Denmark Dubai* Finland France Germany Great Britain Greece Hungary India Indonesia* Ireland Italy Japan Malaysia Malta* Mexico Netherlands New Zealand Norway Panama* Poland Portugal Romania Russia Singapore Slovakia Slovenia South Africa South Korea Spain Sweden Switzerland Thailand USA * sales locations only 170 Glossary ACEA Abbreviation for “Association des Constructeurs Euro- péens d’Automobiles” (European Automobile Manufac- turers Association). EBIT Abbreviation for “Earnings Before Interest and Taxes”. The profit before income taxes, minority interest and financial result. CFRP Abbreviation for carbon-fibre reinforced polymer. CFRP is a composite material, consisting of carbon-fibres sur- rounded by a plastic matrix (resin). On a comparative basis, CFRP is approximately 50% lighter than steel and 30% lighter than aluminium. Common stock Stock with voting rights (cf. preferred stock). Connected Drive Under the term Connected Drive, the BMW Group al- ready unites a unique portfolio of innovative features that enhance comfort, raise infotainment to new levels and significantly boost safety in BMW Group vehicles. Cost of materials Comprises all expenditure to purchase raw materials and supplies. EBITDA Abbreviation for “Earnings Before Interest, Taxes, Depre- ciation and Amortisation”. The profit before income taxes, minority interest, financial result and depreciation / amortisation. Effectiveness The degree to which offsetting changes in fair value or cash flows attributable to a hedged risk are achieved by the hedging instrument. 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 and lightweight construc- tion to comprehensive energy and heat management in- side the vehicle. 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). Equity ratio The proportion of equity (= subscribed capital, reserves, accumulated other equity and minority interest) to the balance sheet total. 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 compa- nies with strategies based on a sustainability concept. The BMW Group has been one of the leading companies in the DJSI since 1999. Free cash flow Free cash flow corresponds to the cash inflow from oper- ating activities of the Automobiles segment less the cash outflow for investing activities of the Automobiles seg- ment adjusted for net investment in marketable securities. Gross margin Gross profit as a percentage of revenues. IFRSs International Financial Reporting Standards, intended to ensure global comparability of financial reporting and consistent presentation of financial statements. The IFRSs are issued by the International Accounting Standards Board and include the International Accounting Standards (IASs), which are still valid. ISO 14001 An internationally recognised standard for environmental management systems. 166 166 168 170 172 174 175 176 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts 171 OTHER INFORMATION Operating cash flow Cash inflow from the operating activities of the Automo- biles segment. Preferred stock Stock which receives a higher dividend than common stock, but without voting rights. Production network The BMW Group production network consists worldwide of 17 plants, seven assembly plants and one contract pro- duction plant. Within this network, the plants supply one another with systems and components and are all charac- terised 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: Profit before tax as a percentage of revenues. Post-tax: Profit as a percentage of revenues. Risk management An integral component of all business processes. Following enactment of the German Law on Control and Transpar- ency within Businesses (KonTraG), all companies listed on a stock exchange in Germany are required to set up a risk management system. The purpose of this system is to identify risks at an early stage which could have a significant adverse effect on the assets, liabilities, financial position and results of operations, and which could endanger the continued existence of the company. This applies in partic- ular 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. Sales locations Sales locations include separate legal entities, non-sepa- rate entities and regional offices. In addition, 105 markets are serviced by 97 importers. 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 enter- prise on the basis of a control agreement or a provision in the statutes of that enterprise. 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 devel- opment. In 1987 the United Nations “World Commis- sion on Environment and Development” defined sus- tainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. The eco- nomic relevance of corporate sustainability to the BMW Group is evident in three areas: resources, reputation and risk. 172 Index 83 et seq. A Accounting policies Annual General Meeting 149 et seq., 159 et seq. Application of § 264 (3) and § 264 b of the German Commercial Code (HGB) Apprentices Automobiles segment 27 et seq., 94 18 et seq. 132 09 et seq., 13, 44 et seq., 140, B Balance sheet structure Board of Management 147 et seq., 156 et seq., 162 et seq. 41, 51, 55, 78 et seq., 114 Bonds 54 45 et seq., 82, 131, 140 et seq., 05, 13, 50 et seq., 136 52, 54 et seq., 105, 128 et seq. 13, 52, 128 et seq., 170 et seq. 51 et seq., 78 et seq., 81 55, 131, 154 et seq. 09 et seq., 163 et seq. 22, 38, 170 31, 33, 35, 65 C Capital expenditure Cash and cash equivalents Cash flow Cash flow statement CFRP CO2 emissions Compensation Report Compliance Connected Drive Consolidated companies Consolidation principles Contingent liabilities Corporate Governance 149 et seq., 162 Cost of materials Cost of sales Current assets Current provisions and liabilities 50, 84, 98 36, 170 55, 170 82 83 117 54 07 et seq., 131, 140 et seq., 147, 27 et seq., 36, 41, 55 , 58, 62, 68 et seq., 105, 84, 93 et seq. 33, 36, 65, 72, 170 E Earnings per share Efficient Dynamics Employees 107, 148, 162 et seq. Equity 170 Exchange rates 14, 54, 83 Explanatory notes to the cash flow statements 128 47 et seq., 53 et seq., 58, 76 et seq., 80, 105 et seq., F Financial assets Financial instruments 122 et seq., 126 et seq. Financial liabilities Financial result Financial Services segment Fleet consumption 50, 91 35 53 et seq., 86, 101 46, 86 et seq., 106, 118 et seq., 52 et seq., 55, 87, 106, 113 et seq. 25 et seq. G Group tangible, intangible and investment assets seq. 96 et 13, 49 et seq., 74 et seq., 87, 91 et seq., 103, 49, 60 , 74 et seq., 81, 89 et seq., 166 I Income statement et seq. Income taxes 112 et seq., 166 et seq. Intangible assets Inventories Investments accounted for using the equity method and other investments 13, 50 et seq., 84, 98, 136 53, 84, 87, 104 85, 99 54 K Key data per share 42 D DAX 41, 170 Dealer organisation Declaration with respect to the Corporate Governance Code Dividend Dow Jones Sustainability Index World 25 et seq., 40 31, 42, 170 13, 42, 51 131, 142 166 166 168 170 172 174 175 176 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts L Lease business Leased products Locations 168 et seq. 25 et seq., 64, 67 51 et seq., 99 143 M Mandates of members of the Board of Manage- ment Mandates of members of the Supervisory Board seq. Marketable securities 123 Motorcycles segment 24 51 et seq., 81, 85 et seq., 99, 101, 144 et 173 OTHER INFORMATION 05, 13, 49 et seq., 58, 128, 155 N Net profit New financial reporting rules Non-current assets Non-current provisions and liabilities 54 88 O Other financial result Other investments Other operating income and expenses Other provisions Outlook 91 99, 123 70 et seq. 112 54 90 53, 55, 58, 87, 107 et seq. 129 et seq. 30, 94 P Pension provisions Personnel costs Principal subsidiaries Production Production network Profit before financial result et seq., 166 et seq. Profit before tax seq., 127, 133, 136, 166 et seq., 170 Property, plant and equipment Purchases 38 et seq., 163 05, 21 et seq., 31 et seq., 58 21 et seq., 65, 71, 171 04 et seq., 12, 47 et seq., 74 04 et seq., 12 et seq., 47 et seq., 74 et 13, 50 et seq., 58, 98, 117 89 81, 89, 133 et seq. 04, 12, 18 et seq., 24, 50 et seq., 71 et seq., S Sales and administrative costs Sales volume 166 et seq. Segment information Shareholdings of members of the Board of Management and the Supervisory Board Statement of Comprehensive Income Stock Subscribed capital Subsidiaries 82 Supervisory Board seq., 159 et seq. Suppliers Sustainability seq., 163, 171 41 et seq., 44 et seq., 84, 93 et seq., 105, 162, 171 22, 31 et seq., 39, 42 et seq., 72, 147 et 31, 33, 38 et seq., 65, 163 06 et seq., 45, 128 et seq., 131, 140 et 74, 81, 95 44, 55 131 T Tangible, intangible and investment assets 59, 85 Trade payables Trade receivables 53, 104 et seq. 53, 55, 116 51 et seq., 86, 100 et 36 et seq., 41, 50, 72, 84, 89 128 et seq. 154 et seq. 42, 64, 106 et seq., 125, 171 R Rating Receivables from sales financing seq., 124 Related party relationships Remuneration System Report of the Supervisory Board Research and development et seq., 168 Result from equity accounted investments Return on sales Revenue reserves Revenues Risk management 49 et seq., 155, 171 58, 105 et seq. 12, 49 et seq., 58, 83, 89 62 et seq., 147, 171 06 et seq. 90, 136 This version of the Annual Report is a translation from the German version. Only the original German version is binding. 174 Index of Graphs 14 15 13 04 04 Finances Profit before financial result Profit before tax Revenues 04 BMW Group Revenues by region 12 BMW Group Capital expenditure and operating cash flow Exchange rates compared to the Euro Oil price trend 15 Precious metals price trend Steel price trend Contract portfolio of Financial Services segment BMW Group new vehicles financed by Financial Services segment Contract portfolio retail customer financing of BMW Group Financial Services 2010 Development of credit loss ratio 27 Regional mix of BMW Group purchase 38 volumes 2010 Change in cash and cash equivalents Balance sheet structure – Automobiles segment Balance sheet structure – Group BMW Group Value added 2010 54 56 26 25 52 15 32 Environment CO2 emissions per vehicle produced 32 Energy consumed per vehicle produced 33 Process wastewater per vehicle produced Water consumption per vehicle produced 33 Volatile organic compounds (VOC) per vehicle produced Waste for disposal per vehicle produced Development of CO2 emissions of BMW Group cars in Europe 35 34 34 25 Stock Development of BMW stock compared to stock exchange indices 41 54 18 04 Production and sales volume Sales volume of automobiles BMW Group Sales volume of vehicles by region and market BMW Group – key automobile markets 2010 Sales volume of BMW diesel automobiles MINI brand cars in 2010 – analysis by model variant Vehicle production of the BMW Group by plant in 2010 BMW Sales volume of motorcycles BMW Group – key motorcycle markets 2010 22 24 20 24 18 21 Workforce BMW Group Apprentices at 31 December Proportion of non-tariff female employees at BMW AG Employee attrition ratio at BMW AG Compliance Committee 164 28 29 28 166 166 168 170 172 174 175 176 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts 175 OTHER INFORMATION Financial Calendar Annual Accounts Press Conference Financial Analysts’ Meeting Quarterly Report to 31 March 2011 Annual General Meeting Quarterly Report to 30 June 2011 Quarterly Report to 30 September 2011 Annual Report 2011 Annual Accounts Press Conference Financial Analysts’ Meeting Quarterly Report to 31 March 2012 Annual General Meeting Quarterly Report to 30 June 2012 Quarterly Report to 30 September 2012 15 March 2011 16 March 2011 4 May 2011 12 May 2011 2 August 2011 3 November 2011 13 March 2012 13 March 2012 14 March 2012 3 May 2012 16 May 2012 1 August 2012 6 November 2012 176 Contacts Business Press Telephone Fax E-mail Investor Relations Telephone Fax E-mail + 49 89 382-2 23 32 + 49 89 382-2 41 18 + 49 89 382-2 44 18 presse@bmwgroup.com + 49 89 382-2 42 72 + 49 89 382-2 53 87 + 49 89 382-1 46 61 ir@bmwgroup.com 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 The Annual Report 2010 as an iPad app 166 166 168 170 172 174 175 176 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts NUMBER ONE FUTURE A high-tech material for tomorrow’s mobility GROWTH From the ﬁ rst BMW 5 Series to an impressive global family PROFITABILITY CUSTOMERS Intelligent communication for individual mobility Stable performance in an age of global market ﬂ uctuations 15 11 65 58 58 38 43 83 37 57 58 NUMBER ONE 63 35 02 PREFACE NUMBER ONE With our corporate Strategy Number ONE, we are syste- matically unlocking the future – opening up access to new customers, new technologies and new markets. Number ONE stands for dynamic growth and strong proﬁ tability in equal measure. 03 What does premium stand for? What does it really mean? And how can it be translated into ideas, action and, not least, products? For us, one of the things premium means is leader- ship in the development of sustainable mobility. We are achieving this with dedicated employees and a production network that sets standards worldwide. We deﬁ ne sustainable mobility with groundbreaking vehicles and mobility concepts. We are inventing the future by deﬁ ning it for ourselves. One example of this is the high-tech material carbon, which we will be using on a large scale for new vehicle concepts of the future – creating a new dimension in individual mobility. Another example is intelligent networking between drivers, their vehicles and the world around them. Natural hedging and the diver- siﬁ cation of the globally successful BMW 5 Series further illustrate our understanding of premium. Premium sets innovative standards. Premium is visionary. Premium is being responsible. The Annual Report 2010 as an iPad app 03 CONTENTS Preface Norbert Reithofer 04 Topic one Future MEGACITY VEHICLE Topic two Growth A MODEL OF SUCCESS Topic three Customers CONNECTED DRIVE Topic four Profitability GLOBAL BALANCE HIGHLIGHTS OF 2010 Moments of sheer pleasure Auto China 2010 in Beijing Building the future 50 years of independence 09 23 41 51 61 62 80 81 82 04 PREFACE Norbert Reithofer Chairman of the Board of Management Dear Ladies and Gentlemen, A year of new beginnings – what better way to sum up the 2010 ﬁ nancial year from the BMW Group’s perspective? Just one year after the global ﬁ nancial crisis, we achieved the best Group earnings in our company’s history. The BMW Group remains the world’s top-selling manufacturer of premium automobiles – and one that operates more sustainably than any other company in its industry. This was conﬁ rmed by the Dow Jones Sustain- ability Index, which ranked the BMW Group ﬁ rst in its sector for the sixth consecutive year. This is also part of what we understand premium to be. We accept responsibility – for the environment, for society and for our employees at all locations around the world. 2010 was a successful year for the BMW Group – a success made possible by our customers around the world. More than 1.46 million customers pur- chased a BMW, MINI or Rolls-Royce vehicle, and another 110,000 bought a BMW or Husqvarna brand motorcycle. This shows how much trust con- sumers place in the BMW Group and its brands, its performance and its inno- vative strength. For this, I sincerely thank all of our customers. We think and act with a long-term perspective. It is embedded in our DNA. We set the right course back in 2007 with our Strategy Number ONE, when we deﬁ ned clear proﬁ tability targets for the year 2012 and developed our vision we intend to realise by 2020. In this annual report, we highlight the measures that form the four pillars of our strategy: “Growth”, “Shaping the future”, “Proﬁ tability” and “Access to technologies and customers”. You will be able to meet people we encounter in our day-to-day business and read their stories in four photo articles. 04 PREFACE The Megacity Vehicle – creating sustainable mobility for urban centres. To realise mobility, you must be mobile and innovative yourself. Our road to e-mobility is clearly deﬁ ned. Step one: Our customers are testing the MINI E. Step two: In 2011, they will test the BMW ActiveE, providing further valuable insights into the use of electro mobility. Step three: In 2013, we will bring the Megacity Vehicle onto the market. No other manufacturer has designed an entire vehicle speciﬁ cally for electric propulsion. Ours will be the ﬁ rst vehicle with a passenger com- partment made of carbon and a unique architecture, comprising separate Life and Drive modules. We will build this highly innovative vehicle in Germany as part of an international network that will manufacture carbon-ﬁ bres, and with competent partners such as the SGL Group. Together with the Federal German Chancellor, we marked the start of Germany’s ﬁ rst electric-car production facility in autumn 2010 in Leipzig. The Megacity Vehicle will not be alone. It will be part of a new BMW family marketed under the sub-brand BMW i. In the same way that BMW M off ers exceptional performance and individuality, BMW i will stand for highly effi cient and sustainable mobility, and will open up many more oppor- tunities for sheer driving pleasure in the future. The new BMW 5 Series – setting new standards. The sixth generation of the BMW 5 Series shows just how progressive today’s premium mobility can be. The new 5 Series Sedan is a huge success and has already won many awards worldwide. Its holistic safety concept earned a ﬁ ve-star rating from Europe’s top crash test organisation, the Euro NCAP crash test, as well as from its American counterpart, the US NCAP crash test. Readers of the ADAC motor club magazine also named the new BMW 5 Series Sedan Germany’s favourite car in early 2011. The new BMW 5 Series is the ﬁ rst large series-produced model we have developed strictly according to our modular concept. It also demonstrates how we are continuing to reﬁ ne our fuel effi ciency programme Effi cient Dynamics. We will be setting ourselves further ambitious targets in the future: We aim to reduce the CO2 emissions of our vehicle ﬂ eet by at least another 25 percent from 2008 to 2020. BMW ConnectedDrive – taking a new approach to networking. For all of us, digitalisation and networking are increasingly becoming part of everyday life, including our cars. Today, with BMW ConnectedDrive, we already off er intelligent driver assistance systems, such as extended emer gency call function, Night Vision with pedestrian recognition, e-mail and Internet access. We are continuing to expand this off ering to link drivers, passengers, their vehicles and the world around them even more closely. Learn what happens – or rather, what doesn’t happen – when the Emergency Stop Assistant takes over. You can also read about how children discover and experience individual mobility. We asked our young Junior Campus guests to capture the world of BMW ConnectedDrive in their own words. Their answers may surprise you. Global markets – aiming for balanced growth. The ﬁ nancial crisis clearly demonstrated how volatile markets can be and how diffi cult it is to predict economic trends. We aim for a good balance between Europe, Asia and the Americas in our business and sales activities. This supports our long-term positioning and makes us more resilient to market and exchange rate ﬂ uctuations. Against this background, we invested in our sites once again in 2010 – particularly in Germany, China, India and the US. This report features our US plant in Spartanburg as an example. The decisive factor is that wherever our associates work in our interna- tional production network, they all share a passion for mobility and a strong 04 PREFACE identiﬁ cation with our company. Teamwork is part of our culture. I would like to thank all of our associates worldwide for their hard work and dedication in 2010 – also on behalf of my fellow members of the Board of Management. Our thanks also extend to our entire retail network, our suppliers and our partners. 2011 – taking advantage of this year’s opportunities for long-term success. We will continue to chart our own course. We will create new and innovative solutions for our customers. Our BMW, MINI and Rolls-Royce vehicles are not just automobiles – for many people they reﬂ ect their whole attitude to life. Read how our customers feel when they ﬁ rst get the keys to their new BMW, MINI or Rolls-Royce, or their BMW motorcycle. Such “moments of sheer delight” are the best reward for our work we could possibly imagine. Rethinking mobility and putting it on the road is an incredibly exciting process that challenges and inspires us on a daily basis. That is why we aim to recruit the best experts and managerial staff worldwide, women and men, to work for our company in the future. We start the 2011 ﬁ nancial year full of drive and conﬁ dence. We see it as a “year of opportunity”. We will take advantage of this to secure the long-term success of the BMW Group. I would also like to thank our shareholders and investors for their conﬁ dence in all of our BMW Group associates. Our com- pany is well positioned to create a promising future for itself and for all of its stakeholders worldwide. Norbert Reithofer FUTURE MEGACITY VEHICLE PROFITABILITY CUSTOMERS GROWTH A high-tech material for tomorrow’s mobility The heavier the vehicle, the more kinetic energy it uses. The higher its energy con- sumption, the more power it needs to store. But larger storage units also add to a vehicle’s weight. This is the dilemma that has plagued the development of cars with electric batteries and drive trains until now. It is also the reason why the BMW Group has opted for a totally new approach. For the past ten years or so, the company has been working with carbon-ﬁ bre rein- forced plastic (CFRP) to make future vehicles much lighter, without compromising safety. This is sure to give sustainable mobility an enormous boost. 11 A NEW ERA OF MOBILITY Moses Lake Wackersdorf Landshut Leipzig When series production of the electric-powered Megacity Vehicle (MCV) ramps up in 2013, it will be the ﬁ rst volume-production vehicle built with a passenger compartment made of CFRP. This high-tech material is also set to open up a whole new dimension in vehicle design and manufacture. 12 FUTURE Megacity Vehicle Johann Wolf –– Technology manager for CFRP and Exterior As technology manager for plastics, Johann Wolf, 50, is responsible for obtaining the materials for, and actually building, the Megacity Vehicle’s passenger compartment – key elements of what make this vehicle stand out among other electric cars. 13 JOHANN WOLF ON THE COUNTDOWN TO THE MEGACITY VEHICLE Test production of some of the Megacity Vehicle’s CFRP components is due to start in just a few months. Aren’t you nervous? Not at all. We’ve been testing, im- plementing and continuously optimising the innovative production processes we’ll be launching in series volumes next year on a smaller scale for quite some time now. We’ve slashed cycle times for CFRP components from several hours to just a few minutes, for instance. One of the good things about the MCV is that it can be built in a relatively small space. We are quite certain that series production and our new processes will get off to a smooth start. There are quite a few e-mobility concepts out there now. What is so special about the Megacity Vehicle? Everything. Our mission is to reﬁ ne the concept of sus- tainable mobility in all of its ecological, economical and social components. We de- signed the Megacity Vehicle not just with clean production in mind, but also speciﬁ cally with regard to its recyclability. We always think in complete cycles. The result is a car that is unmatched, whether you look at the details or the big picture. What part does the high-tech material CFRP play in all this? An essential, and therefore decisive, factor in achieving broad acceptance for electro mobility will be range. One thing is certain: vehicles with a conventional aluminium or steel body, where the combustion engine has simply been switched for an electric motor, are not a real solution. That is why we have opted for an entirely new concept. The Megacity Vehicle is the ﬁ rst electric car worldwide that is specially designed for this kind of drive tech- nology. With its LifeDrive architecture and passenger compartment made of CFRP, the Megacity Vehicle has two unique components which make it vastly more effi cient. But, like any electric car, there is no engine noise or gear changes in the MCV. What does that mean for BMW’s “sheer driving pleasure”? Don’t worry – our MCV will be a true BMW. It will still deliver our brand’s signature “driving pleasure”. Electric motors produce their maximum torque right away – combined with its innovative lightweight construction, this guarantees extreme responsiveness and a high fun factor. The car also accelerates continuously up to its top speed. The Megacity Vehicle does not mean giving up “sheer driving pleasure” – it’s just an exciting new way to experience it. 14 FUTURE Megacity Vehicle Making CFRP needs a lot of energy. Nature provides an abundant supply at the Moses Lake location. Sometimes it is the little things that make the biggest diff erence. This particular detail is tiny, in fact, but its potential to change things may well be huge. The diameter of a carbon-ﬁ bre measures just 0.007 millimetres – just a seventh of that of a human hair – but the possibilities it opens up are astounding. This ultra-modern composite material, made from a combination of carbon-ﬁ bres and synthetic resin, boasts some very impressive properties. Carbon-ﬁ bre reinforced plastic, or CFRP, is more robust than steel, but less than half its weight; resistant but highly malleable; versatile and relatively easy to work with. Up until now, CFRP was mostly used in the aerospace industry, in racing cars and wind rotors – wherever heavy-duty, lightweight materials with high rigidity and strength are needed. These properties also make CFRP the ideal material for the body of the Megacity Vehicle, a car which will mark the beginning of a brand new chapter in sustainable automobile design and production. This may seem surprising, since the initial stages in the life of a CFRP are fairly complex. Producing car- bon-ﬁ bre reinforced plastic entails chemically modi- fying polyacrylnitrile ﬁ bres at diff erent temperatures to make a stable ﬁ bre of substantially pure carbon. This is a relatively energy-intensive process. That is why, early in the development process, the Megacity Vehicle project team started looking for a production loca- tion with a steady, competitively priced supply of sus- tainable energy. They found what they were looking for in Moses Lake, in the US state of Washington, where the hydroelectric power plants of the Columbia Human hair in relation to carbon-fibre Diameter in mm 0.007 0.050 Carbon fibre Human hair 3 15 2 1 1 2 3 Looks like dressmaking, but is really high-tech: materials testing for CFRP production in Wackersdorf. CFRP production waste can even be reused. Here it is being prepared for lab analysis. At the Wackersdorf plant, four knitting machines the size of railway wagons produce the CFRP used as the basic material for car bodies. 16 FUTURE Megacity Vehicle 1 2 3 4 1 2 3 4 Analysing ﬁ bre components in the standards laboratory Fibre mats are still tested by hand. Waste carbon-ﬁ bre fabric can be fed back into the pro- duction chain. The high-tech material up close 17 We are building the car bodies of tomorrow right here on highly effi cient knitting machines. River generate practically inexhaustible quantities of regenerative power. At the brand-new carbon-ﬁ bre plant operated by SGL Automotive Carbon Fibers, a joint venture between the BMW Group and the SGL Group, textile ﬁ bres are reﬁ ned into carbon-ﬁ bres. 50,000 of these individual ﬁ laments are condensed into ﬁ bre bundles at the Moses Lake facility, wound onto coils and shipped to Wackersdorf in Bavaria. It is in Wackersdorf that the BMW Group and its joint-venture partner, the SGL Group, have built a one-of-a-kind textile plant to supply the body con- struction process. Here the ﬁ bre bundles are woven together into textile sheets (so-called fabrics) and wound into rolls. Once diff erent fabrics with diff erent ﬁ bre alignments are combined, highly integrated large-surface body panels with completely diff erent strengths and thicknesses can be customised. This al- ready represents one of the outstanding features of CFRP – the properties of aluminium or steel components, in contrast, can only be customised with great diffi culty. The body of the Megacity Vehicle will therefore use much fewer components than a steel body. This not only simpliﬁ es the production process, but also reduces vehicle mass. Lower weight also extends electric vehicles’ potential range – which makes the use of CFRP an important factor in jump- starting e-mobility. However, there are several reasons why this high- tech material has so far been used almost exclusively in small-series production and prototype construction. CFRP components for motor racing and aerospace have mostly been produced by hand in a time-con- suming and cost-intensive procedure. After soaking Individual filaments of a carbon-fibre bundle Bundled together, carbon-fibres provide tremendous strength. 50,000 18 FUTURE Megacity Vehicle 2 3 1 19 CFRP is considered to be a high-tech material of the future. Here in Landshut we’ve been working with it for years. in synthetic resin, the material is left to harden in a closed furnace at temperatures of over 100 degrees Celsius for several hours. This elaborate procedure is the main reason why the material costs so much more than steel. Things are done diff erently at the BMW Group, which has been making CFRP components in pro- gressively larger quantities in a high-volume indus- trialised production process since 2003. At the plant in Landshut – the next stop in the CFRP produc- tion process – roofs are already been built for the BMW M3 and M6 models. To accomplish this, the BMW Group has, in recent years, reﬁ ned processes, systems, materials and tools to the point where an economical, high-quality volume production of CFRP car body parts is now possible. One example is the specially developed press tools used at the Landshut plant: instead of “baking” at over 100 degrees Celsius, the resin-soaked carbon fabrics harden at no more than 100 degrees Celsius within just a few minutes. Another example is the BMW Group’s one-of-a-kind recycling concept, which allows CFRP waste to be reused in the production process. “We control and optimise every stage of the manufacturing process, from textile ﬁ bres to the ﬁ nished body,” explains Jochen Töpker, CFRP expert at the BMW Group. “Applied to conventional automo- tive engineering, it’s almost like a carmaker getting involved in making and recycling steel, besides build- ing cars. But that’s how we are gaining such a strong lead in the volume production of CFRP.” 1 2 3 Changing rolls during CFRP production. Carbon ﬁ bre fabrics are combined to make highly integrated car body parts with totally diﬀ erent strengths and thicknesses. Innovative press tools harden the resin-soaked carbon fabrics within minutes at a temperature of 100 degrees Celsius. 20 FUTURE Megacity Vehicle No other body material is this light and stable. It is true that the key to economical and ecological volume production of CFRP lies in complete pene- tration of the value chain. It also explains why the BMW Group is now able to exploit the potential of a material many consider uniquely superior but too diffi cult and costly for volume production. CFRP is not only resistant to temperature ﬂ uctua- tions, acids and corrosion (and therefore much more durable than metal), it is also 30 percent lighter than aluminium and 50 percent lighter than steel. “CFRP is the lightest material that can be used in car-making without compromising safety,” according to Nils Borchers of the MCV development team. Crash tests have proved that the Megacity Vehicle can withstand a collision at least as well as conventional steel- body vehicles. This is primarily due to the LifeDrive architecture, a revolutionary combination of a CFRP passenger compartment and a chassis made of alu- minium. While the aluminium frame known as the drive module absorbs the collision energy in a crash, the high-strength, carbon-ﬁ bre reinforced life module provides comprehensive protection for the Megacity Vehicle’s occupants. Since all of the drive units are located in the crash- Leipzig plant where the Megacity Vehicle proof drive module, there is no need for a transmis- sion tunnel, which typically relays engine power to the rear wheels. This leaves the Megacity Vehicle much more space for passengers – and gives the BMW Group’s vehicle designers new scope for interior de- sign. Last but not least, the brilliant two-module de- sign also has consequences for the vehicle’s production. At the will be assembled, the frame construction means that complex conveyor technology is no longer needed. This makes building a Megacity Vehicle less of an in- vestment, much easier for employees to work with and more ﬂ exible than conventional production processes. “We can ramp up MCV production quickly with re- latively low outlay,” adds Martin Arlt of the develop- ment team. Its production will use 70 percent less water and 50 percent less energy than the BMW Group’s current plant average. Its total energy needs will also be met completely from renewable sources. Body weight in comparison in percent Carbon Aluminium Steel 50 70 100 1 21 2 3 1 2 3 Actually much too light for three people to carry: body side panel made out of carbon. One of the few jobs performed by hand: adding the ﬁ nal touches to ﬁ nished CFRP components. Synthetic resin gives carbon-ﬁ bres all the rigidity they need. 22 FUTURE Megacity Vehicle The future of vehicle construction. The use of microscopic CFRP ﬁ bres is about so much more than just substituting materials. It allows the BMW Group to adopt a radical new approach, explore unique design concepts and realise a new kind of car- building. Over the years and decades ahead, elements of this will be found not only in the Megacity Vehicle, but also in many other BMW Group models. The use of CFRP in volume production marks the beginning of a whole new era in automotive development and manufacture. For vehicle developers, it represents the most exciting challenge imaginable. For the BMW Group, more than anything else, it represents fascinating prospects for the future. The Annual Report 2010 as an iPad app GROWTH A MODEL OF SUCCESS PROFITABILITY CUSTOMERS FUTURE From the ﬁ rst BMW 5 Series to an impressive global family It always starts out with an idea. The idea becomes a concept, the concept becomes a totally new kind of vehicle, and the car ultimately becomes a class of its own. Time and again, the BMW Group has taken new vehicle concepts like the BMW 5 Series and diversiﬁ ed them to create families with a variety of popular model variants. The sixth generation of this highly successful model is now on the roads – and setting new standards the world over. THE BMW 5 SERIES SUCCESS STORY The number 5 has stood for unmistakable driving pleasure in the upper mid-range segment for almost 40 years. Over those past four decades, the 5 Series has brought driving pleasure to more than 5.5 million customers across ﬁ ve continents. Touring Sedan Sedan Sedan 1970 1980 1990 1987 – 1996 3rd generation 1981 – 1988 2nd generation 1972 – 1981 1st generation Gran Turismo Touring Touring Touring Long Wheelbase Sedan, China Long Wheelbase Sedan, China Sedan Sedan Sedan 2000 2010 since 2009 6th generation 2003 – 2010 5th generation 1995 – 2004 4th generation Diversiﬁ cation How an exceptional car became a popular model family The beginning of a global success story. The launch of the BMW 520 and BMW 520i models at the IAA Inter- national Motor Show in 1972 ushered in a new era in the upper mid-range segment. The successors to BMW’s so- called “New Class” quickly came to deﬁ ne the perfect balance between sporting performance and elegance in their segment. A year later, the model range was joined by the BMW 525, with its powerful six-cylinder engine – BMW’s response to customers’ desire for sheer perform- ance. With sales of almost 700,000 BMW 5 Series, the ﬁ rst generation was already a spectacular success, the very essence of aesthetics and driving pleasure in the upper mid-range segment. Innovation How a model series can win customers on all continents with a constant stream of new ideas The story continues. The second generation of the 5 Series family gave rise to the epitome of the dynamic sports sedan, the BMW M5, and the very ﬁ rst 5 Series diesel. Third-generation highlights included a completely new design, the ﬁ rst eight-cylinder models and the ﬁ rst BMW 5 Series Touring. The fourth-generation BMW 5 Se- ries was the ﬁ rst with a light alloy chassis. As the model portfolio continued to grow and new markets were de- veloped, each new generation of the BMW 5 Series could be relied upon to raise the standard over its previous generation. 29 Americas p. 30 Ron Yaworsky Europe p. 32 Dr. Jesus Rodriguez Asia p. 34 He Xialong Meet 5 of our 5.5 million customers. From 5 diﬀ erent continents. Start Africa p. 36 Abdul Tayob Australia p. 38 Martin Carolan The next chapter. The ﬁ fth generation of the BMW 5 Series impressed once more with its progressive design and innovative technology. From 2007 on, all versions came with Effi cient Dynamics features such as Brake Energy Regeneration and active air vent control as standard, to achieve an optimum ratio between performance and fuel consumption. 30 GROWTH A model of success A Totem poles in Stanley Park, Vancouver, Canada B BMW 5 Series and admirers at the Granville Island ferry dock C Ron Yaworsky at home in the house he designed himself A Americas 49° 17' N, 123° 7' W Vancouver BMW 5 Series Sedan C 31 B “This is the fourth BMW 5 Series I’ve owned out of the last three generations – and each one brought unexpected improvements. The BMW 5 Series is the perfect com- bination of luxury, good size, excellent performance, reasonable fuel economy and the reassurance of xDrive’s all-weather capabilities.” Ron Yaworsky, Vancouver, Canada “Generation after generation, there’s always something new.” 32 GROWTH A model of success “Pure dynamics. There’s nothing like it.” “60 kilometres to work and back every weekday. Trips out to the country on the weekends. Family visits once a month, with a long drive to Asturias along winding mountain roads: I need a car that is comfortable, dynamic and effi cient all in one. At the end of the day, there was only one real option.” Dr. Jesus Rodriguez, Madrid, Spain 33 B A Europe 40° 25' N, 3° 42' W Madrid BMW 5 Series Sedan A Dr. Jesus Rodriguez sitting in the “Café de Oriente” near the Madrid Opera. B BMW 5 Series at Plaza Santa Ana in Madrid C Traditional advertising in a Madrid bar C 34 GROWTH A model of success A BMW 5 Series Long Wheelbase Sedan, China 39° 56' N, 116° 23' E C A Enthusiastic BMW 5 Series customer He Xialong B Lanterns in the Gui Jie district not far from the Forbidden City in Beijing C BMW 5 Series Long Wheelbase version and New Year’s decorations over the Forbidden City 35 B Beijing Asia “What does a businessman want from a premium vehicle? Besides exclusivity, comfort and exceptional performance, the main thing is the space inside: the kind of space that makes the BMW 5 Series Long Wheelbase version so very comfort- able. And that is something not only I truly appreciate, but also my business friends.” He Xialong, Beijing, China “The moveable office.” 36 GROWTH A model of success “Bold performance and a relaxed way to travel.” “The BMW 5 Series represents the perfect symbiosis between excellent handling and comfort. In this car, I can enjoy trips into the hills of KwaZulu-Natal as well as driving a cool professional business sedan.” Abdul Tayob, Pietermaritzburg, South Africa B A A Ready for the road: Abdul Tayob and his son, Mas’ood B The Tayobs’ home in the Mountain Rise area of the city C Abdul Tayob with three of his four children 29° 36' S, 30° 23' E Africa Pietermaritzburg BMW 5 Series Sedan 37 C 38 GROWTH A model of success Australia 33° 51' S, 151° 12' E Sydney BMW 5 Series Sedan A A The Olympic swimming pool under Sydney Harbour Bridge … B … where Martin Carolan regularly trains before work. C Carolan’s BMW 5 Series driving towards the Sydney Opera House. C 39 B “I was actually interested in the BMW X5, but when I saw the new 5 Series and took it for a test drive I made up my mind within ﬁ ve minutes to get the BMW 5 Series M Sport diesel version. My car is a real eye-catcher. It is a real pleasure to be able to drive 900 kilometres on a single tank.” Martin Carolan, Sydney, Australia “It’s a real eye-catcher. With the stamina of an athlete.” 40 GROWTH A model of success To be continued. With its sporty, elegant design and the brand’s signature driving dynamics and effi ciency, as well as innovative comfort and safety features, the sixth generation of the BMW 5 Series business sedan show- cases the multifaceted development skills of the world’s most successful premium automobile manufacturer. Once again, the BMW Group is deﬁ ning a whole new vehicle segment with its BMW 5 Series Gran Turismo – and writing the next chapter in a story full of fascinating highlights. Driving pleasure is anticipated pleasure – now and in the future. Like all success stories, this one is built around a strong central theme. In the case of the BMW 5 Series, this is the unique combination of aesthetics and driving pleasure, which wins each generation and each model version of the BMW 5 Series more and more enthusiastic customers. The Annual Report 2010 as an iPad app CUSTOMERS CONNECTED DRIVE PROFITABILITY GROWTH FUTURE Intelligent communication for individual mobility People have never been as mobile as they are today. And they have never had access to a range of in-car digital services as comprehensive as those oﬀ ered by BMW ConnectedDrive in all series. Driving a car is safer, more efﬁ cient and more convenient than ever before, thanks to the BMW Group’s portfolio of intelligent communication technologies – all of which make our vehicles increasingly attractive to drive in. 43 INTELLIGENT MOBILITY [01] [02] [03] People have never been as mobile as they are today. And they have never had access to a range of in-car digital services as comprehensive as those oﬀ ered by BMW ConnectedDrive in all series. Driving a car is safer, more efﬁ cient and more convenient than ever before, thanks to the BMW Group’s portfolio of intelligent communication technologies – all of which make our vehicles increasingly attractive to drive in. They will keep traffic flowing and prevent road congestion. They will make driving a car safer and more convenient. They will save fuel and help protect the climate. One thing is certain: the intelligent technologies that connect drivers with their vehicles and the world around them have a very promising future ahead of them. The same applies to the road users of tomorrow. At the Junior Campus at BMW Welt in Munich, children discover mobility with all their senses. We asked three of them to describe the functions of the Connected Drive portfolio in their own words. This is what they had to say. Junior Campus BMW Welt Munich, 26 January 2011 43 INTELLIGENT MOBILITY [01] [02] [03] People have never been as mobile as they are today. And they have never had access to a range of in-car digital services as comprehensive as those oﬀ ered by BMW ConnectedDrive in all series. Driving a car is safer, more efﬁ cient and more convenient than ever before, thanks to the BMW Group’s portfolio of intelligent communication technologies – all of which make our vehicles increasingly attractive to drive in. 4543 INTELLIGENT MOBILITY [01] [02] [03] [01] Emergency Stop Assistant [02] Customer Support Centre [03] MINIMALISM Analyser It all started more than thirty years ago with an onboard com- puter that displayed the outside temperature. Milestones along the way included the world’s ﬁ rst park distance control and its ﬁ rst fully integrated mobile navigation system. Today, the BMW Group is once again setting the standard for in- telligent networking between the driver, the vehicle and the world around them. And that is all just the beginning. 44 CUSTOMERS Connected Drive STEERING SAFELY THROUGH AN EMERGENCY One minute, the BMW 528i is overtaking in the fast lane at 130 km/h. The next, it slows to 80 km/h and safely exits the out- side lane to pull in between two vehicles driving in the right-hand lane. The car continues to slow, indicates and changes lanes once more before coming to a gradual standstill on the hard shoulder. Less than one-and-a-half minutes have elapsed between the overtaking manoeuvre at 130 km/h and the vehicle making a con- trolled stop. What is remarkable about this driving manoeuvre is that it did not involve the driver at all. The person behind the wheel of the BMW 5 Series suff ered a heart attack and lost consciousness as the individual was in the process of passing. Or at least that was the emergency simulated on a test drive on the high-speed track at the BMW testing facility in Aschheim, near Munich in October 2010 – one that occurs for real, time and again, on the roads, often with disastrous consequences. Intelligent technologies like the Emer- gency Stop Assistant are set to further reduce the number and severity of such traffi c accidents. [01] The prototype of the Emergency Stop Assistant provides a fasci- nating glimpse of the tremendous opportunities off ered by Con- nected Drive. The BMW Group has been considered the pacemaker for the automotive industry in this ﬁ eld for many years. From the ﬁ rst radar-based distance warning device the company implemented in a concept car back in the seventies, to innovations such as Park Distance Control (PDC) and the ﬁ rst-ever integrated navigation system, BMW Group series models have continually incorporated pioneering technologies to connect drivers, vehicles and their en- vironment. Today, Connected Drive comprises the widest and most sophisticated off ering of in-car telematics services in the world. Connected Drive stands for a package of intelligent technologies designed to network driver, passengers, the vehicle and the world around them for greatly enhanced safety, infotainment and convenience. An overview of current options can be found at http://bmw.connecteddrive.info 4545 [01] “The Emergency Stop Assistant guides me to safety.” 44 CUSTOMERS Connected Drive “It’s as if the car can see. If you have a heart attack or something, the car can drive to the side of the road and park all on its own. Then it calls the ambulance.” Vanessa Meyer, 9 years old, explains how the Emergency Stop Assistant works. 45 [01] “The Emergency Stop Assistant guides me to safety.” Behind the Emergency Stop Assistant is a complex system of sensors, a high-precision, satellite-based navigation system and special algorithms which allow it to safely take control of the vehicle in an emergency. To do so, the Emergency Stop Assistant automatically analyses the driving and trafﬁ c situation and calculates the optimum driving manoeuvre necessary to bring the vehicle safely to a halt. It then triggers the hazard warning lights and places an emergency call to the BMW ConnectedDrive Call Center. 46 CUSTOMERS Connected Drive STAYING UP-TO-DATE ON THE GO Although a few more years of development will be needed before the Emergency Stop Function is ready for series production, other driver assistance systems are already making driving more safe and convenient. Connected Drive allows driving time to be used much more eff ectively. However, driver and traffi c safety is always top priority. The integrated mail function, for instance, enables drivers to manage their schedule, organise tasks and access email. Incoming emails or text messages are displayed and read aloud in real time, while the forthcoming Message Dictation function will also allow messages to be dictated and sent without drivers having to take their hands off the wheel or their eyes off the road. The BMW Customer Support Centre also ensures all relevant phone numbers, addresses and travel data are at the driver’s ﬁ ngertips. “Your car will increasingly become your mobile offi ce, so you can use your driving time more effi ciently as work time,” says Eckhard Steinmeier, the manager responsible for Connected Drive. “Our market research has shown that business people and managers in particular really appreciate this added bene- ﬁ t.” Searching is a thing of the past: with the Connected Drive Customer Support Centre, drivers will always have access to all the information they need on the go. [02] The mail function becomes even more attractive when combined with other functions, such as those of the navigation system or a stationary computer. Connected Drive can be used to send addresses from Google Maps or hotel bookings directly from a desktop PC to the vehicle; routes can be planned according to calendar appoint- ments or addresses imported into the navigation system from an Outlook address book. This saves time, since manual data input from the PC into the onboard system through a human-machine inter- face is no longer required. Driver assistance systems further enhance control and safety when driving. Model-speciﬁ c options range from Adaptive Headlights to the Lane Change Warning System, Lane Departure Warning System, BMW Night Vision with pedestrian recognition and Speed Limit Info, all the way to Active Cruise Control with Stop & Go function including proximity warning with braking function. 47 [02] “ The Customer Support Centre knows where to ﬁ nd the nearest pizzeria.” 46 CUSTOMERS Connected Drive “If you are driving in an area you don’t know very well, you can talk to the BMW Customer Support Centre. They can tell you where the next pizzeria is and things like that. And there’s always some- one there if you need help.” Flynn Traenckner, 10 years old, explains how the BMW Customer Support Centre works. 47 [02] “ The Customer Support Centre knows where to ﬁ nd the nearest pizzeria.” BMW Customer Support Centre operators can also help ﬁ nd 24-hour pharmacies, ATMs or golf courses, for example, reserve a table at the best Italian restaurant or book a hotel room at your destination – at up to 30 percent oﬀ the online rate. The address is sent straight to the vehicle. The driver does not need to enter any further informa- tion and can simply follow the navigation system’s directions. An added bonus is that the BMW Customer Support Centre is available round-the-clock, 365 days a year, and will respond in the driver’s own language throughout Europe. 48 CUSTOMERS Connected Drive EFFICIENT, NETWORKED TRAVEL After becoming the ﬁ rst carmaker to enable Internet, iPod and iPhone integration in its vehicles, the BMW Group is now creating another innovative highlight with its visionary Concept BMW Application Store. It will be possible in the future to download and store individual “apps” (applications) from the car at any time or from a PC at home. The iPhone can already be used to activate the horn and parking lights, switch on the auxiliary heating and unlock the car. Furthermore, the iPhone application MINI Connected transforms any MINI into a social network on wheels with Internet access and Web radio – by the way, another BMW Group innovation. [03] Similarly, it will be possible in the future to download regular software updates to run engines even more fuel-effi ciently, for instance. “Connected Drive is a fully comprehensive approach de- signed to maximise the beneﬁ ts of seamlessly connecting the driver, the vehicle and the world around them,” according to Dr. Klaus Draeger, member of the Board of Management of the BMW Group, responsible for Development. “We believe that networking – alongside drive technologies and new materials – will become one of the key forces driving future innovation in the automotive industry.” Individual drivers are not the only ones to gain from this intelli- gent exchange of data – it also beneﬁ ts the environment and the overall traffi c situation. “Cooperative traffi c systems will play an increasingly important role in the future,” says traffi c expert Dr. Klaus Bogenberger of the Munich-based research institute, Transver. “By the start of the next decade, networking between vehicles and traffi c infrastructure will automatically warn of road congestion, icy roads or traffi c obstructions and use all data available to help direct traffi c more safely and effi ciently than at present.” Concept BMW Application Store. The BMW Group is the world’s ﬁ rst carmaker to present its vision of vehicle-compatible application stores – so that cars, like mobile phones, can be adapted to meet today’s needs and oﬀ er almost limitless personalisation in the future. 49 [03] “ The MINIMALISM Analyser helps you drive greener.” 48 CUSTOMERS Connected Drive “There’s an app for the iPhone that shows how green your driving is. That earns you stars. If you drive in a really environmentally friendly way, and don’t use much petrol, you get lots of stars.” Dominik Meyer, 11 years old, explains how the MINIMALISM Analyser works. 49 [03] “ The MINIMALISM Analyser helps you drive greener.” The MINIMALISM Analyser keeps drivers constantly updated on how economically they are driving and how much power they are using. The MINI Connected system stores fuel consumption data and analyses it at the end of the trip to highlight the roads where the MINI was driven most efﬁ ciently. It also oﬀ ers tips on how to get even better mileage. Points are earned for particularly fuel-thrifty driving and can be posted via iPhone to share with other members of the MINI community. 50 CUSTOMERS Connected Drive THE LEADER IN INTELLIGENT AUTOMOBILITY Communication between the driver, the vehicle and the world around them has become more than just a convenient add-on. As a technology package, it off ers tremendous beneﬁ ts, today and for the future. The sensor data and information from Connected Drive perfectly complement the fuel-saving features of the Effi cient Dynamics technology package. With these and its many other applications, Connected Drive helps save both time and fuel, creates smarter traffi c ﬂ ows, makes mobility more effi cient, more pleasant and more entertaining – and even saves lives. It is likely to change automobility in the way that the introduction of electric drive trains has. Efﬁ cient Dynamics. The navigation system’s “Green Driving Assistant”, for instance, displays typical fuel consumption for diﬀ erent routes. This allows an individual time and fuel-opti- mised route to be calculated for each destination. Car drivers are increasingly coming to appreciate all of these beneﬁ ts. In this way, Connected Drive is also strengthening connections between the company and existing and potential customers. The Annual Report 2010 as an iPad app PROFITABILITY GLOBAL BALANCE FUTURE GROWTH CUSTOMERS Stable performance in an age of global market ﬂ uctuations For a globally successful automobile manu- facturer like the BMW Group, exchange rate ﬂ uctuations clearly have a substantial im- pact on results. However, to make the value creation process as independent as possible from market and exchange rate cycles, we rely on instruments such as natural hedging, besides ﬁ nancial hedging. From that per- spective, the expansion of the BMW plant in Spartanburg in the US represents an impor- tant strategic step towards value creation and proﬁ tability. 53 January morning in sunny South Carolina SPARTANBURG PLANT EXPANSION With an annual capacity of 240,000 vehicles, Spartanburg in the US state of South Carolina is one of the most important sites in the BMW Group’s production network. To manufacture the new BMW X3, the plant recently underwent a roughly 750-million-dollar expansion. In this way, the BMW Group is using natural hedging to provide even ﬂ exibility regarding exchange rate ﬂ uctuations. 54 PROFITABILITY Global balance 2° Celsius in the morning 10:21 a.m. BMW plant Spartanburg, Entrance West The last of the machines are still being installed in the new, 1.6-kilometre- long production hall, but production of the new BMW X3 is already in full swing. The Spartanburg plant is already working at its full, extended capacity to turn out a total of 1,000 vehicles per day, including BMW X5 and X6 models. Plant manager Josef Kerscher certainly has his work cut out. Spartanburg, South Carolina, USA, 20 January 2011 10:33 a.m. Access control at the gates to the plant “No country has felt the recent ups and downs in the markets and whole economies more acutely than the United States. Just about everyone here has friends or relatives who lost their jobs or their homes – sometimes both – during the economic crisis. The BMW Group couldn’t escape the fallout from the global recession completely, of course. But we have tools to mitigate the effects. One of which is being created right here in front of us.” Every millimetre counts Precision workmanship BMW style 55 US dollar in relation to the euro 1.50 1.00 0.50 1990 2000 2010 Ups and downs. The US dollar / euro exchange rate fluctuates dramatically. Fluctuations of this kind pose a serious risk for global players. 11:14 a.m. Component testing at the Analysis Centre “We have been building cars in Spartanburg since 1994 – which has always helped us to optimise our global value creation process. The decision to transfer production of the BMW X3, and to invest 750 million dollars in expanding our capacity from 150,000 to 240,000 vehicles per year, is another important step. We have taken advantage of the plant expansion over the past two years to modernise our production capacity. Thanks to innovations such as an extremely low-emissions paint finishing line, one of the largest existing fleets of hydrogen forklift trucks, energy generation from methane gas from a nearby landfill and a highly flexible assembly architecture, Spartanburg is one of the most sustainable auto plants in the world today. It’s truly world class.” 56 PROFITABILITY Global balance Bustling activity at the materials depot Local value creation. The BMW X family models manufactured at the BMW plant in Spartanburg involve a high percentage of local value creation. This includes purchasing in the NAFTA countries, the US, Canada and Mexico, as well as wage and manufacturing costs in the local currency. Approx. 70% US dollar Approx. 30% euro (and other currencies) 12:14 p.m. Component delivery by the material train fleet “One of the things we have mastered to perfection is how to build exceptional premium vehicles. There are other things, of course, that we don’t have much con- trol over – such as economic cycles and fluctuations in the exchange rate – but they still have a definite impact on our results. What could be better than minimising such effects of the one so that we can focus our resources and strengths on the other, more crucial matters – building premium cars for our customers?” Clean air thanks to innovative “integrated paint” paint shops 57 3:14 p.m. Brief stop at the low-emissions paint finishing line “We believe production should follow the market. But we have also seen it work the other way around: local manufacturing also helps develop a market. With the 7,000 jobs we have created here and a total investment of 4.6 billion dollars in the Spartanburg plant, we are now considered to be an American company, and one that is highly respected by the American people. We sell a third of the vehi- cles we build in Spartanburg here in the US. Today, BMW is the best- selling European premium brand in the country. And with all the buzz surrounding the new BMW X3, we should probably be able to expand that lead in the future.” 4:12 p.m. Chassis and brake control test bench “Some of our employees from Spartanburg are currently assisting with the expansion of the plant in Shenyang; others are helping their colleagues in Chennai in India, where the demand for BMW Group automobiles is also growing steadily. The challenges, production conditions and markets are very different from one place to another, of course. But, at the end of the day, we are all working on the same project: optimising our global value creation.” 58 PROFITABILITY Global balance A smile means this car passes the test. 4:05 p.m. Final vehicle inspection “It’s been more than four years since I took over as manager of the Spartanburg plant. Back then, the euro was worth about 1.30 US dollars. Since, it’s been up to about 1.60 and fallen back to 1.20 US dollars. Historically, those fluctuations are actually quite moderate. But they make a huge difference to our profitability.” Winter sunshine in the loading area 59 gbp usd cny jpy Global balance. The BMW Group uses its world- wide production and purchasing network to balance out economic and currency fluctuations. zar 5:35 p.m. BMWs on their way to market “Sound insulation from South Carolina; injection moulded components from Tennessee; tank systems from Georgia; cable harnesses, control units and headlights from Mexico – the list of parts made somewhere in North America and delivered directly to our assembly line by truck goes on. About two- thirds of our components come from countries across the NAFTA region and are paid for in US dollars. That means we can always stay competitive in North America – regardless of how the dollar performs against the euro. We have increased our total purchasing volume in the NAFTA region by another 60 percent in readiness for the start of production of the BMW X3. And our purchasing office in Mexico City is working to boost the percentage of local value creation even further.” 60 PROFITABILITY Global balance china germany north america Ready for the road 298,316 267,160 183,328 BMW Group sales volumes in 2010 Key markets. BMW is the most popular Euro- pean premium brand in the United States. The US is the BMW Group’s second-largest market after Germany. Worldwide, the company sold almost 1.5 million vehicles last year. Like all natural hedging instruments, it will take time for the Spartanburg plant to reach its full eﬀ ect. But it will then provide the BMW Group with much greater, long-term security against currency risks. The Annual Report 2010 as an iPad app HIGHLIGHTS OF 2010 The joy of charting a new course MOMENTS OF SHEER PLEASURE More than 1.46 million customers became the proud owners of one of our new vehicles last year. BMW 5 Series Sedan BMW X3 BMW 5 Series Touring MINI Countryman BMW ActiveHybrid 7 BMW R 1200 RT Motorcycle AUTO CHINA 2010 IN BEIJING BUILDING THE FUTURE 50 YEARS OF INDEPENDENCE 63 MOMENTS OF SHEER PLEASURE Our vehicles are as diﬀ erent as the people who drive them. But all of our customers share a very special moment full of joy: the moment they get to experience their vehicle for the ﬁ rst time. 64 HIGHLIGHTS Moments of sheer pleasure What are you most looking forward to? “ The perfect design of the new BMW 5 Series. Cool details like the BMW ConnectedDrive package. Knowing we made exactly the right choice.” Florian Körner and Christina Middrup, 14 December 2010, BMW Welt Munich 1:55 p.m. – BMW Welt Munich: the joy of anticipation BMW 5 Series Sedan Sheer driving pleasure comes in many forms. In the new BMW 5 Series Sedan, the epitome of aesthetics and driving dynamics in the upper mid-range segment, it ﬁ nds its purest expression. 65 2:53 p.m. – BMW Welt Munich: the joy of driving 2:22 p.m. – BMW Welt Munich: the joy of perfection 66 HIGHLIGHTS Moments of sheer pleasure 9:55 a.m. – BMW Welt Munich: bright prospects 67 What are you most looking forward to? “ Reliability in all weathers. As well as the xDrive drive train – which can withstand any conditions.” Reiner and Heike Haselhorst, 14 December 2010, BMW Welt Munich 11:23 a.m. – BMW Welt Munich: new beginnings BMW X3 Wherever the road takes you: With xDrive, the BMW X3 can handle the toughest road and weather conditions, and totally redeﬁ nes the relationship between performance and elegance at the same time. 10:45 a.m. – BMW Welt Munich: proud owners 68 HIGHLIGHTS Moments of sheer pleasure What are you most looking forward to? “ Travelling in a car that’s not just elegant, but roomy enough for passengers and luggage – plus my Labrador.” Ute Kleine and Klaus Trompeter, 15 December 2010, BMW Welt Munich 10:04 a.m. – BMW Welt Munich: a look of anticipation 10:55 a.m. – BMW Welt Munich: a look inside 69 BMW 5 Series Touring Convenient mobility means having exactly the type of vehicle the situation demands. You might need space for all your luggage for a longer journey or just room for a quick trip to the supermarket, perhaps with two- or four-legged friends as passengers – either way, the BMW 5 Series Touring is always elegant and ﬂ exible, with maximum versatility practically built in. 10:30 a.m. – BMW Welt Munich: a look of joy 70 HIGHLIGHTS Moments of sheer pleasure What are you most looking forward to? “ To having a car that doesn’t just carry all my gear but also makes a statement about my lifestyle as a professional sportsman: young, dynamic – always on the go.” Michi Halilovic, 12 November 2010, MINI Munich 1:28 p.m. – MINI Munich: big moment 3:25 p.m. – MINI Munich: big space 71 2:05 p.m. – MINI Munich: big fun MINI Countryman The ﬁ rst four-door MINI is over four metres long – and yet still unmistakably MINI. 72 HIGHLIGHTS Moments of sheer pleasure 1:24 p.m. – BMW Hamburg: hands-on happiness BMW ActiveHybrid 7 The BMW ActiveHybrid 7 goes its own way – in design, driving dynamics, comfort, safety and effi ciency. With its high-performance ActiveHybrid drive train, it brings luxury to the roads in its most responsible form. 73 1:44 p.m. – BMW Hamburg: preferred seating What are you most looking forward to? “ To the kind of comfortable motoring I already know and appreciate from many years of driving BMW cars. And having the opportunity to now drive more fuel-efficiently with the innovative ActiveHybrid drive train.” Bernd Schymetzki and Janine Klitz-Schymetzki, 17 December 2010, BMW Hamburg 1:10 p.m. – BMW Hamburg: shared excitement 74 HIGHLIGHTS Moments of sheer pleasure What are you most looking forward to? “ To total driving fun and 211 horsepower. To having the roof down in the summer. To trips across the Alps down to Lake Garda.” Birgit Kahnes, 24 February 2011, MINI Munich 10:12 a.m. – MINI Munich: First impressions MINI John Cooper Works Cabrio It’s agile. It’s fast. It is all about sporty driving fun with a modiﬁ ed 6-speed transmission and a high-performance engine. In other words, the MINI John Cooper Works Convertible is the ideal partner for anyone looking for a dynamic but elegant ride. 75 11:05 a.m. – MINI Munich: First-class driving fun! 10:21 a.m. – MINI Munich: First encounter 76 HIGHLIGHTS Moments of sheer pleasure Distinguished design Rolls-Royce Ghost Rolls-Royce is the best in this segment, and it’s engaging, too. Everything is simple but functional, which is what modern means to me. 77 Exquisite elegance Why a Rolls-Royce? “ I feel like I’m at home when I drive my Ghost.” Simone Ceruti, Florence, Italy Reﬁ ned ride 78 HIGHLIGHTS Moments of sheer pleasure 3:02 p.m. – BMW Motorcycle Centre Munich: all keyed up BMW R 1200 RT Motorcycle A sporty yet comfortable R 1200 RT touring bike clocks up tens of thousands of miles. But its fascination begins with the very ﬁ rst one. 79 What are you most looking forward to? “ To a bike with a sporty design, powerful Boxer engine and optimum wind and weather protection. A bike that automatically guarantees a longer motorcycling season.” Paul Sedlmaier, 26 November 2010, BMW Motorcycle Centre Munich 3:55 p.m. – BMW Motorcycle Centre Munich: all ready to go 3:28 p.m. – BMW Motorcycle Centre Munich: all about the bike 80 HIGHLIGHTS Auto China 2010 in Beijing Building the future AUTO CHINA 2010 IN BEIJING 23 April – 2 May 2010 China International Exhibition Centre, Beijing 2 1 1 2 CEO Norbert Reithofer writes the Chinese symbol for electricity together with local partners in the MINI E project. Presentation of the BMW 5 Series Long Wheelbase version with electric motor, developed in collaboration with Tongji University and local partners, on the evening before the show Made in China for China. The BMW Group worked with Tongji University to develop an electric-powered BMW 5 Series Long Wheelbase version for research purposes as part of the ECHO project. The main components for this ﬁ rst German-Chinese development cooperation on battery electric vehicles were built in collaboration with Chinese suppliers and demonstrate local technology potential. The BMW Group has also joined forces with the Chinese energy partners, State Grid and Southern Grid, and the China Automotive Technology and Research Centre (CATARC) to bring a ﬂ eet of MINI E cars to China and announced that it would make the BMW ActiveE available to local customers in 2011. 81 BUILDING THE FUTURE 5 November 2010 BMW plant, Leipzig 1 2 German Chancellor Angela Merkel and CEO Norbert Reithofer set the ball rolling for the plant expansion. German Chancellor Angela Merkel talks to the BMW Group’s Board Member for Development, Klaus Draeger. 1 Tomorrow’s mobility will be made in Leipzig. The BMW Group is transforming its Leipzig plant into Germany’s ﬁ rst site for the production of emissions-free electric vehicles. Roughly 400 million euros will be invested in new buildings and plant by 2013, creating about 800 jobs. 2 82 HIGHLIGHTS 50 years of independence 50 YEARS OF INDEPENDENCE 30 November 2010, Gala at the Theresienhöhe Congress Hall in Munich 1 2 Declaration of independence. Fifty years ago, at an historic Annual General Meeting, BMW shareholders chose independence. Fifty years on, a special ceremony celebrates this momentous decision. The meaning of independence What people say about BMW BMW customer from the US “ For me, once you’ve driven a BMW, you never want to drive any other car.” 83 1+2 Hostesses in petticoats, historic BMW cars and the slogan 3 4 “Milestones of Joy” greet guests arriving at the gala event held at Munich’s Theresienhöhe Congress Hall. Fifty years ago, BMW shareholders made a historic decision – that decision was celebrated on the same spot in 2010. BMW Chairman of the Board of Management Norbert Reithofer, Chairman of the General Works Council Manfred Schoch, Chairman of the Supervisory Board Joachim Milberg and Super- visory Board member Stefan Quandt. 4 3 BMW employee from Munich “ BMW is more than an employer to me, it’s my home.” 84 HIGHLIGHTS 50 years of independence Independence means constantly thinking beyond the now. The prototype of the BMW Vision Efﬁ cientDynamics oﬀ ers a glimpse of the automotive future – BMW style. Setting the course. The bold decision in favour of independence still shapes and drives the company to this day. This was seen clearly at the gala event held at Munich’s Theresienhöhe Congress Hall: The BMW Group remains true to itself by continuing to evolve, as it has done since its foundation. Apprentice at the Landshut plant “ ... vehicles that are ahead of their time.” A promising future lies ahead for the BMW Group. Our three brands, BMW, MINI and Rolls-Royce, are among the strongest, most desirable premium brands in the world. We will continue to pursue our Strategy Number ONE. Our vision is to be the leading provider of premium products and premium services for individual mobility. Over the next years, we will continue to follow this path: developing innovative technologies, targeting new customer groups and actively shaping the future of individual mobility. This will build the foundation for long-term, proﬁ table growth. We strive to be the best. That’s what drives us, day after day. The Annual Report 2010 as an iPad app a t a d n o i t p m u s n o C A FURTHER CONTRIBUTION TOWARDS PRESERVING RESOURCES BMW Group Annual Report 2010 awarded the Blue Angel eco-label. The paper used (Enviro Top and Nanoo Color) was produced, climate-neutrally and without optical bright- eners and chlorine bleach, from recycled waste paper. All other production materials used also comply with the requirements of the Blue Angel eco-label (RAL-UZ 14). The Blue Angel is con sidered to be one of the most stringent eco-labels in the world. The CO2 emissions generated through print and production were neutralised by the BMW Group. To this end, the corresponding amount of emissions allowances was erased, with the transaction identification DE-102771 on 4 March 2011. VEHICLE FLEET Consumption and emissions data of BMW Group vehicles Values measured in accordance with the New European Driving Cycle (EU Directive: 80 / 1268 / EEC in the relevant applicable version). Valid for vehicles with a European country specification. Vehicles with average CO2 emissions of below / maximum 140 grams CO2 / km are highlighted. Model BMW 116i 3-door 116i 3-door 3 118i 3-door 120i 3-door 130i 3-door 116d 3-door 1 118d 3-door 120d 3-door 123d 3-door 116i 5-door 116i 5-door 3 118i 5-door 120i 5-door 130i 5-door 116d 5-door 1 118d 5-door 120d 5-door 123d 5-door 120i Coupé 125i Coupé 135i Coupé 118d Coupé 120d Coupé 123d Coupé 1er M Coupé 1 118i Convertible 120i Convertible 125i Convertible 135i Convertible 118d Convertible 120d Convertible 123d Convertible 316i Sedan 4 318i Sedan 320i Sedan 325i Sedan 325i xDrive Sedan 330i Sedan 330i xDrive Sedan 335i Sedan 335i xDrive Sedan 316d Sedan 1 318d Sedan 320d Sedan 320d xDrive Sedan 320d EfficientDynamics Edition Sedan 1 325d Sedan 330d Sedan 330d xDrive Sedan 335d Sedan 2 M3 Sedan 316i Touring 1, 4 318i Touring 320i Touring 325i Touring Urban (l / 100 km) Extra-urban (l / 100 km) Combined (l / 100 km) CO2 emis- sions (g / km) Model Urban (l / 100 km) Extra-urban (l / 100 km) Combined (l / 100 km) CO2 emis- sions (g / km) 7.9 (8.7) 8.1 (8.9) 7.9 (8.7) 8.6 (8.9) 12.4 (12.5) 5.4 5.4 (6.7) 5.9 (6.7) 6.4 (6.9) 7.9 (8.7) 8.1 (8.9) 7.9 (8.7) 8.6 (8.9) 12.4 (12.5) 5.4 5.4 (6.7) 5.9 (6.7) 6.4 (6.9) 8.5 (8.9) 11.8 (11.6) 12.1 (11.7) 5.3 (6.7) 5.9 (6.7) 6.4 (6.9) 13.6 8.4 (9.1) 8.8 (9.4) 12.0 (11.8) 12.2 (11.8) 5.7 (6.9) 6.2 (6.9) 6.6 (7.1) 8.1 (8.9) 8.1 (8.7) 8.3 (9.3) 9.8 (10.0) 11.0 (11.1) 10.0 (10.2) 11.1 (11.2) 12.0 (12.6) 12.4 (13.1) 5.4 5.4 (6.8) 5.9 (6.8) 6.4 (7.2) 5.0 7.3 (7.9) 7.3 (8.0) 8.3 (8.8) 9.0 17.7 (15.9) 8.1 8.1 (8.9) 8.3 (9.5) 9.9 (10.2) 5.1 (5.4) 5.3 (5.5) 5.1 (5.4) 5.4 (5.3) 6.3 (6.2) 4.0 4.0 (4.5) 4.1 (4.5) 4.4 (4.7) 5.1 (5.4) 5.3 (5.5) 5.1 (5.4) 5.4 (5.3) 6.3 (6.2) 4.0 4.0 (4.5) 4.1 (4.5) 4.4 (4.7) 5.3 (5.3) 5.9 (6.1) 6.4 (6.7) 4.0 (4.5) 4.0 (4.5) 4.3 (4.7) 7.3 5.4 (5.6) 5.6 (5.6) 6.2 (6.3) 6.5 (6.8) 4.3 (4.7) 4.3 (4.7) 4.5 (4.8) 5.3 (5.5) 5.3 (5.4) 5.3 (5.3) 5.7 (5.9) 6.4 (6.5) 5.9 (5.9) 6.5 (6.6) 6.3 (6.5) 6.7 (6.8) 4.0 4.0 (4.4) 4.0 (4.4) 4.5 (4.8) 6.1 (6.6) 6.3 (6.8) 6.1 (6.6) 6.6 (6.6) 8.5 (8.5) 4.5 4.5 (5.3) 4.7 (5.3) 5.1 (5.5) 6.1 (6.6) 6.3 (6.8) 6.1 (6.6) 6.6 (6.6) 8.5 (8.5) 4.5 4.5 (5.3) 4.7 (5.3) 5.1 (5.5) 6.5 (6.6) 8.1 (8.1) 8.5 (8.5) 4.5 (5.3) 4.7 (5.3) 5.1 (5.5) 9.6 6.5 (6.9) 6.8 (7.0) 8.3 (8.3) 8.6 (8.6) 4.8 (5.5) 5.0 (5.5) 5.3 (5.7) 6.3 (6.8) 6.3 (6.6) 6.4 (6.8) 7.2 (7.4) 8.1 (8.2) 7.4 (7.5) 8.2 (8.3) 8.4 (8.7) 8.8 (9.1) 4.5 4.5 (5.3) 4.7 (5.3) 5.2 (5.7) 3.6 4.8 (5.1) 4.8 (5.2) 5.5 (5.7) 5.2 9.3 (8.5) 4.1 5.7 (6.1) 5.7 (6.2) 6.5 (6.8) 6.6 12.4 (11.2) 143 (154) 147 (158) 143 (154) 153 (155) 199 (199) 118 119 (140) 125 (140) 135 (145) 143 (154) 147 (158) 143 (154) 153 (155) 199 (199) 118 119 (140) 125 (140) 135 (145) 152 (154) 189 (189) 198 (198) 118 (140) 124 (140) 134 (145) 224 152 (162) 158 (163) 194 (194) 200 (200) 127 (145) 132 (145) 139 (149) 146 (159) 146 (155) 148 (159) 168 (174) 188 (192) 173 (175) 191 (193) 196 (202) 205 (212) 118 119 (140) 125 (140) 137 (150) 109 151 (160) 152 (164) 171 (178) 174 290 (263) 5.3 5.3 (5.6) 5.3 (5.5) 5.8 (6.1) 6.3 6.3 (6.8) 6.4 (7.0) 7.3 (7.6) 147 147 (159) 149 (164) 170 (178) BMW 325i xDrive Touring 330i Touring 330i xDrive Touring 335i Touring 335i xDrive Touring 316d Touring 1 318d Touring 320d Touring 320d xDrive Touring 320d EfficientDynamics Edition Touring 1 325d Touring 330d Touring 330d xDrive Touring 335d Touring 2 316i Coupé 1, 4 318i Coupé 1 320i Coupé 325i Coupé 325i xDrive Coupé 330i Coupé 330i xDrive Coupé 335i Coupé 335i xDrive Coupé 320d Coupé 320d xDrive Coupé 325d Coupé 330d Coupé 330d xDrive Coupé 335d Coupé 2 M3 Coupé M3 GTS Coupé 318i Convertible 1 320i Convertible 325i Convertible 330i Convertible 335i Convertible 320d Convertible 325d Convertible 330d Convertible M3 Convertible 523i Sedan 528i Sedan 535i Sedan 535i xDrive Sedan 2 550i Sedan 2 550i xDrive Sedan 2 520d Sedan 525d Sedan 530d Sedan 530d xDrive Sedan 2 535d Sedan 2 523i Touring 528i Touring 535i Touring 520d Touring 525d Touring 11.1 (11.2) 10.2 (10.7) 11.2 (11.3) 12.1 (12.6) 12.4 (13.2) 5.4 5.4 (6.9) 6.0 (6.9) 6.5 (7.3) 5.2 7.4 (8.0) 7.5 (8.1) 8.4 (8.9) 9.1 8.1 8.1 8.6 (9.3) 9.8 (10.0) 11.0 (11.1) 10.0 (10.2) 11.1 (11.2) 12.0 (11.8) 12.4 (13.1) 5.9 (6.8) 6.4 (7.2) 7.3 (7.9) 7.3 (8.0) 8.3 (8.8) 9.0 17.7 (15.9) 18.4 8.4 8.8 (9.8) 10.2 (10.6) 10.5 (11.1) 12.4 (12.2) 6.3 (7.1) 7.7 (8.2) 7.7 (8.2) 18.0 (16.0) 10.5 (10.5) 10.4 (10.4) 11.8 (11.9) 10.9 15.4 16.4 5.9 (6.4) 8.1 (7.7) 8.0 (7.7) 6.6 7.9 10.9 (10.8) 10.8 (10.6) 11.9 (11.9) 6.2 (6.5) 8.0 (7.8) 6.5 (6.6) 6.1 (6.2) 6.6 (6.7) 6.4 (6.5) 6.7 (6.9) 4.0 4.0 (4.5) 4.1 (4.5) 4.6 (4.9) 3.8 4.9 (5.2) 5.0 (5.3) 5.6 (5.8) 5.3 5.3 5.3 5.4 (5.3) 5.7 (5.9) 6.4 (6.5) 5.9 (5.9) 6.5 (6.6) 6.3 (6.4) 6.7 (6.8) 4.0 (4.4) 4.5 (4.8) 4.8 (5.1) 4.8 (5.2) 5.5 (5.7) 5.2 9.3 (8.5) 9.3 5.6 5.6 (5.8) 5.9 (6.3) 6.2 (6.5) 6.7 (6.8) 4.4 (4.7) 5.2 (5.4) 5.2 (5.4) 9.6 (8.9) 5.9 (5.9) 6.3 (6.0) 6.6 (6.4) 6.5 7.5 7.9 4.3 (4.5) 5.1 (5.1) 5.3 (5.2) 5.2 5.1 6.2 (6.1) 6.4 (6.2) 6.7 (6.5) 4.5 (4.6) 5.3 (5.2) 8.2 (8.3) 7.6 (7.9) 8.3 (8.4) 8.5 (8.7) 8.8 (9.2) 4.5 4.5 (5.4) 4.8 (5.4) 5.3 (5.8) 4.3 5.8 (6.2) 5.9 (6.3) 6.6 (6.9) 6.7 6.3 6.3 6.6 (6.8) 7.2 (7.4) 8.1 (8.2) 7.4 (7.5) 8.2 (8.3) 8.4 (8.4) 8.8 (9.1) 4.7 (5.3) 5.2 (5.7) 5.7 (6.1) 5.7 (6.2) 6.5 (6.8) 6.6 12.4 (11.2) 12.7 6.6 6.8 (7.3) 7.5 (7.9) 7.8 (8.2) 8.8 (8.8) 5.1 (5.6) 6.1 (6.4) 6.1 (6.4) 12.7 (11.5) 7.6 (7.6) 7.8 (7.6) 8.5 (8.4) 8.1 10.4 11.0 4.9 (5.2) 6.2 (6.1) 6.3 (6.1) 5.7 6.1 7.9 (7.8) 8.0 (7.8) 8.6 (8.5) 5.1 (5.3) 6.3 (6.2) 190 (194) 177 (184) 193 (195) 199 (203) 206 (215) 119 120 (142) 128 (142) 140 (153) 114 153 (163) 155 (165) 174 (181) 176 146 146 154 (159) 168 (174) 188 (192) 173 (175) 191 (193) 196 (196) 205 (212) 125 (140) 137 (150) 151 (160) 152 (164) 171 (178) 174 290 (263) 295 154 159 (169) 176 (185) 182 (190) 205 (205) 135 (149) 160 (168) 162 (170) 297 (269) 177 (178) 182 (178) 199 (195) 189 243 257 129 (137) 162 (160) 166 (160) 150 162 185 (182) 188 (182) 201 (197) 135 (139) 164 (162) Model Urban (l / 100 km) Extra-urban (l / 100 km) Combined (l / 100 km) CO2 emis- sions (g / km) Model Urban (l / 100 km) Extra-urban (l / 100 km) Combined (l / 100 km) CO2 emis- sions (g / km) BMW 530d Touring 530d xDrive Touring 2 535d Touring 2 535i Gran Turismo 2 535i xDrive Gran Turismo 2 550i Gran Turismo 2 550i xDrive Gran Turismo 2 530d Gran Turismo 2 530d xDrive Gran Turismo 2 535d Gran Turismo 2 535d xDrive Gran Turismo 2 640i Convertible 2 650i Convertible 2 740i 2 740Li 2 750i 2 750i xDrive 2 750Li 2 750Li xDrive 2 760i 2 760Li 2 730d 2 730Ld 2 740d 2 740d xDrive 2 ActiveHybrid 7 2 ActiveHybrid 7L 2 X1 sDrive18i X1 xDrive28i X1 sDrive18d X1 xDrive18d X1 sDrive20d X1 xDrive20d X1 xDrive23d X3 xDrive28i 2 X3 xDrive35i 2 X3 xDrive20d X3 xDrive30d 2 X5 xDrive35i 2 X5 xDrive50i 2 X5 xDrive30d 2 X5 xDrive40d 2 X5 M 5 X6 xDrive35i 2 X6 xDrive50i 2 X6 xDrive30d 2 X6 xDrive40d 2 ActiveHybrid X6 2 X6 M 5 Z4 sDrive23i Z4 sDrive30i Z4 sDrive35i Z4 sDrive35is 2 8.1 (8.0) 6.8 8.1 5.4 (5.3) 5.3 5.3 6.4 (6.3) 5.8 6.3 169 (165) 154 165 12.3 12.8 16.2 16.9 8.1 8.5 8.3 8.9 10.9 15.5 13.8 14.0 16.4 17.1 16.4 17.1 18.8 18.9 9.0 9.1 9.0 8.8 12.6 12.6 6.9 7.2 8.3 8.8 5.6 6.0 5.8 6.1 6.2 7.9 7.6 7.7 8.5 8.9 8.5 8.9 9.5 9.6 5.5 5.6 5.7 5.9 7.6 7.6 8.9 9.3 11.2 11.8 6.5 6.9 6.7 7.1 7.9 10.7 9.9 10.0 11.4 11.9 11.4 11.9 12.9 13.0 6.8 6.9 6.9 7.0 9.4 9.4 209 216 263 275 173 183 175 187 185 249 232 235 266 278 266 278 299 303 178 180 181 183 219 219 11.3 (11.5) 9.9 (10.4) 6.1 (7.1) 6.7 (7.7) 6.4 (7.1) 7.0 (7.7) 7.3 (7.8) 12.3 11.2 6.7 (6.1) 6.8 6.4 (6.6) 6.7 (6.4) 4.7 (5.2) 5.1 (5.4) 4.7 (5.2) 5.1 (5.4) 5.2 (5.5) 7.1 7.4 5.0 (5.3) 5.6 8.2 (8.4) 7.9 (7.9) 5.2 (5.9) 5.7 (6.2) 5.3 (5.9) 5.8 (6.2) 6.0 (6.3) 9.0 8.8 5.6 (5.6) 6.0 191 (195) 183 (183) 136 (155) 150 (164) 139 (155) 153 (164) 158 (167) 210 204 149 (147) 159 13.2 17.5 8.7 8.8 19.3 13.2 17.5 8.7 8.8 10.8 19.3 8.3 9.6 6.7 6.8 10.8 8.3 9.6 6.7 6.8 9.4 10.8 10.1 12.5 7.4 7.5 13.9 10.1 12.5 7.4 7.5 9.9 13.9 236 292 195 198 325 236 292 195 198 231 325 MINI MINI One MINI One MINIMALIST 1 MINI Cooper MINI Cooper S MINI One D 1 MINI Cooper D MINI Cooper SD MINI John Cooper Works 1 7.2 (8.7) 6.5 6.9 (8.7) 7.3 (8.9) 4.2 4.2 (6.8) 5.1 (6.9) 9.4 7.6 (8.9) MINI One Convertible 7.2 (8.9) MINI Cooper Convertible 7.5 (9.1) MINI Cooper S Convertible MINI Cooper D Convertible 4.5 (7.0) MINI Cooper SD Convertible 5.3 (7.1) MINI John Cooper Works Convertible 1 9.6 4.4 (5.1) 4.3 4.6 (5.1) 5.0 (5.0) 3.5 3.5 (4.1) 3.9 (4.3) 5.8 4.6 (5.3) 4.9 (5.3) 5.1 (5.1) 3.7 (4.3) 4.0 (4.4) 5.4 (6.4) 5.1 5.4 (6.4) 5.8 (6.4) 3.8 3.8 (5.1) 4.3 (5.3) 7.1 5.7 (6.6) 5.7 (6.6) 6.0 (6.6) 4.0 (5.3) 4.5 (5.4) 127 (150) 119 127 (150) 136 (149) 99 99 (135) 114 (139) 165 133 (154) 133 (154) 139 (153) 105 (140) 118 (143) 5.9 7.3 169 MINI One Clubman MINI Cooper Clubman MINI Cooper S Clubman MINI One D Clubman 1 MINI Cooper D Clubman MINI Cooper SD Clubman MINI John Cooper Works Clubman 1 7.3 (8.8) 7.0 (8.8) 7.4 (8.9) 4.4 4.4 (6.9) 5.2 (7.0) 4.5 (5.2) 4.7 (5.2) 5.0 (5.0) 3.6 3.6 (4.2) 3.9 (4.3) 5.5 (6.5) 5.5 (6.5) 5.9 (6.4) 3.9 3.9 (5.2) 4.4 (5.3) 129 (152) 129 (152) 137 (150) 103 103 (138) 115 (141) 9.5 5.8 7.2 167 7.4 (9.3) 7.4 (9.3) 7.5 (9.5) MINI One Countryman MINI Cooper Countryman MINI Cooper S Countryman MINI Cooper S 8.2 (10.3) Countryman ALL 4 MINI One D Countryman 1 4.7 MINI Cooper D Countryman 4.7 (7.2) MINI Cooper SD Countryman 5.2 (7.3) MINI Cooper D Countryman ALL 4 MINI Cooper SD Countryman ALL 4 5.3 (7.6) 5.3 (7.7) 5.2 (6.0) 5.2 (6.0) 5.4 (5.7) 5.8 (6.2) 4.2 4.2 (4.7) 4.3 (4.8) 6.0 (7.2) 6.0 (7.2) 6.1 (7.1) 139 (168) 140 (168) 143 (166) 6.7 (7.7) 4.4 4.4 (5.6) 4.6 (5.7) 157 (180) 115 115 (149) 122 (150) 4.7 (5.0) 4.9 (6.0) 129 (158) 4.7 (5.1) 4.9 (6.1) 130 (160) Rolls-Royce Rolls-Royce Ghost 2 Rolls-Royce Phantom 2 Rolls-Royce Phantom EWB 2 Rolls-Royce Phantom Coupé 2 Rolls-Royce Phantom Drophead Coupé 2 20.5 25.0 25.1 25.0 9.6 11.5 11.7 11.5 13.6 16.5 16.6 16.5 317 385 388 385 25.0 11.5 16.5 385 Figures in brackets only valid for automatic transmissions. 1 only available with manual transmission 2 only available with automatic transmission 3 variant with 1.6-litre cubic capacity 4 only available in selected EU countries 5 comes as standard with 6-gear M Sport automatic transmission 12.4 (11.8) 12.4 (11.9) 13.5 (12.6) 12.6 6.2 (6.1) 6.2 (6.2) 7.0 (6.9) 6.9 8.5 (8.2) 8.5 (8.3) 9.4 (9.0) 9.0 199 (192) 199 (195) 219 (210) 210 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 model year 2011 Published by Bayerische Motoren Werke Aktiengesellschaft 80788 Munich Germany Tel. +49 89 382-0

Continue reading text version or see original annual report in PDF format above