BMW AG
Annual Report 2012

Plain-text annual report

ANNUAL REPORT 2012 s t n e t n o C 4 BMW GROUP IN FIGURES 6 REPORT OF THE SUPERVISORY BOARD 14 STATEMENT OF THE CHAIRMAN OF THE BOARD OF MANAGEMENT 18 18 21 24 44 47 50 65 66 74 78 78 78 80 82 84 86 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market in 2012 Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 86 100 107 108 129 145 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 150 Responsibility Statement by the Company’s Legal Representatives 151 Auditor’s Report 152 152 153 154 155 158 160 165 166 170 178 178 180 182 184 186 187 STATEMENT ON CORPORATE GOVERNANCE (Part of the Combined Group and Company 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 Composition and work procedures of the Board of Management of BMW AG and its committees Composition and work procedures of the Supervisory Board of BMW AG and its committees Information on Corporate Governance Practices Applied Beyond Mandatory Requirements Compliance in the BMW Group Compensation Report 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, 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 the most sustainable company in the automotive industry for many years. 4 BMW Group in figures Sales volume of automobiles* in thousand units 1,800 1,700 1,600 1,500 1,400 1,300 1,200 Revenues in € billion 75 70 65 60 55 50 45 08 09 10 11 12 08 09 10 11 12 1,435.9 1,286.3 1,461.2 1,669.0 1,845.2 53.2 50.7 60.5 68.8 76.8 * Including automobiles from the joint venture BMW Brilliance. Profit before financial result in € million Profit before tax in € million 8,400 7,200 6,000 4,800 3,600 2,400 1,200 8,400 7,200 6,000 4,800 3,600 2,400 1,200 08 09 10 11 12 08 09 10 11 12 921 289 5,111 8,018 8,300 351 413 4,853 7,383 7,819 5 BMW Group in figures Sales volume – Automobiles1 BMW MINI Rolls-Royce Total Sales volume – Motorcycles BMW Husqvarna Total Production – Automobiles1 BMW MINI Rolls-Royce Total Production – Motorcycles BMW Husqvarna Total Workforce at end of year 2 2008 2009 2010 2011 2012 Change in % 1,202,239 1,068,770 1,224,280 1,380,384 1,540,085 232,425 1,212 216,538 1,002 234,175 2,711 285,060 3,538 301,526 3,575 1,435,876 1,286,310 1,461,166 1,668,982 1,845,186 101,685 13,511 115,196 87,306 13,052 98,047 12,066 100,358 110,113 104,286 9,286 113,572 106,358 10,751 117,109 1,203,482 1,043,829 1,236,989 1,440,315 1,547,057 235,019 1,417 213,670 918 241,043 3,221 294,120 3,725 311,490 3,279 1,439,918 1,258,417 1,481,253 1,738,160 1,861,826 104,220 14,232 118,452 82,631 10,612 93,243 99,236 13,035 112,271 110,360 8,505 118,865 113,811 11,473 125,284 11.6 5.8 1.0 10.6 2.0 15.8 3.1 7.4 5.9 – 12.0 7.1 3.1 34.9 5.4 BMW Group 100,041 96,230 95,453 100,306 105,876 5.6 Financial figures in € million Revenues Capital expenditure Depreciation and amortisation Operating cash flow 3 Profit before financial result Profit before tax Net profit 53,197 50,681 60,477 68,821 76,848 4,204 3,670 4,471 921 351 330 3,471 3,600 4,921 289 413 210 3,263 3,682 8,149 5,111 4,853 3,243 3,692 3,646 8,1104 8,018 7,383 4,907 5,240 3,541 9,167 8,300 7,819 5,122 11.7 41.9 – 2.9 13.0 3.5 5.9 4.4 1 Including automobiles from the joint venture BMW Brilliance. 2 Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners. 3 Cash inflow from operating activities of the Automotive segment. 4 Adjusted for reclassifications as described in note 42. 6 Joachim Milberg Chairman of the Supervisory Board 7 REPORT OF THE SUPERVISORY BOARD Dear Shareholders and Shareholder Representatives, Despite the persisting sovereign debt crisis in the eurozone and the volatile economic conditions prevail- ing in several of our major markets, the BMW Group finished yet another financial year with an outstanding overall result. In our capacity as Supervisory Board, we closely monitored the performance of the BMW Group and developments on specific markets throughout the financial year 2012. We duly advised the Board of Manage- ment in matters of governance and continuously supervised its running of the business with great diligence. In this endeavour we laid great store on an open, trusting and constructive exchange of information and opinions. Main emphases of the Supervisory Board’s monitoring and advisory activities We deliberated regularly on the current performance and financial position of the BMW Group in a total of five meetings. Other areas reported on and discussed extensively during the year were corporate strategy and planning, risk provision and risk management, and corporate governance. We also made decisions with respect to the composition of the Board of Management and the allocation of duties to Board of Management members. The Board of Management informed us regularly and promptly of sales performance, workforce developments and other significant matters, both at scheduled meetings and at other times as the need arose. In addition, the Chair- man of the Board of Management, Dr. Reithofer, informed me directly about major business transactions and projects. Dr. Kley, the Chairman of the Supervisory Board’s Audit Committee, regularly exchanged informa- tion with Dr. Eichiner, the Board of Management member responsible for Finance and Financial Reporting. In its regular reports on the financial condition of the Group, the Board of Management provided us with detailed descriptions of sales volume performance and market developments for each of the Automotive and Motorcycles segments as well as the performance of Financial Services, including new business volumes and the development of vehicle residual values on key markets. The Board of Management also regularly reported on the Group’s business activities in China, in particular on the sales situation there, the further expansion of production capacities at the BMW Brilliance joint venture’s manufacturing sites in Dadong and Tiexi, and on engine production at the Foresight engine plant opened in Shenyang in April 2012. Further- more, the Board of Management reported to us regularly on current earnings, profitability and major changes in the workforce size. Its business status reports also dealt with major current activities and projects, such as ongoing developments in the BMW Peugeot Citroën Electrification joint venture, the status of cooperation negotiations and agreements with Toyota in the fields of fuel cells, lightweight-construction, development of sports cars as well as in the field of battery technology research. After presentation of reports by the Board of Management, the two boards also discussed current challenges such as current economic developments and the increasing degree of regulation on a number of markets. We again gave careful consideration to matters concerning the performance, management and future prospects of the Financial Services segment. One of the main focuses of reporting and discussion was the segment’s financing model. The Board of Management described the current status of projects and the various measures employed to ensure access to financial resources, including, for example, the use of asset-backed securities and the expansion of BMW Bank GmbH in Europe. One of the 2012 Supervisory Board meetings was held at the BMW plant in Leipzig, where we took the opportunity to obtain information on the use of carbon-fibre-reinforced plastics (CFRP) in the BMW i family of electrically powered vehicles and enquire into the state of preparations for production start-up later this year. In the new pressing plant specially constructed for this work, we were treated to a practical demonstration of how CFRP mats are processed to form CFRP components. 8 In preparation for our deliberations on the Long-term Business Forecast, the Board of Management explained the principles applied for planning global added value within the Group in the period up to 2024 as well as the targets set for the configuration and production capacities of the Group’s plants during this period. Additionally, a raft of measures was presented designed to help limit the scale of investment expenditure to be incurred in connection with the expansion of production capacities. Again in 2012, in both the Personnel Committee and the full Supervisory Board, we examined the com- pensation of Board of Management members for appropriateness. In doing so, we also evaluated compensation studies for the DAX and sought the expertise of an external compensation advisor who was independent of both the BMW Group and the members of the Board of Management. Adopting a proposal of the Personnel Committee, no changes were made to the Board of Management compensation system in 2012. The rules governing the purchase of vehicles and other Group products and the use of vehicles by Board of Management members were brought into line with those already in place for top-level department heads. Detailed infor- mation on the compensation of Board of Management members can be found in the Compensation Report (page 170 et seq.). In the second half of the year we again convened for a two-day meeting primarily devoted to corporate and product strategy on the one hand and to the Long-term Business Forecast on the other. In the first part of the meeting we discussed with the Board of Management the findings of its annual review of the Group’s Strategy Number ONE. In light of current developments, this review included a renewed examination and assessment of the impact that could potentially arise from various crisis scenarios of varying intensity in regions significant for sales performance. In its report, the Board of Management also considered the strategic planning of worldwide production capacities. In addition to the expansion of production capacities at the Spartanburg and Leipzig plants, the Board of Management also presented its plans for future production facility and capacity expansion at other locations. The Supervisory Board fully supports the Board of Management in its endeavours to exploit growth opportunities in specific regions, whilst at the same time maintaining a well-balanced distribution of sales and value added across the world’s markets. In conjunction with our deliberations on product strategy, the Board of Management and the Head of Design for the BMW Group presented and elaborated on selected vehicle projects. Furthermore, in a dis- cussion with the head of the i product line, we were informed of the Group’s current activities and the needs of customers in the field of electromobility and given an insight into some of the solutions arrived at so far, such as for the charging of batteries at home and on the road. At our request, other related service concepts currently being developed by the BMW Group were explained to us. We also took a close look at the latest advances being made in the field of emission reduction and avidly discussed, together with the Board of Management both the technical and the entrepreneurial challenges that need to be mastered, particularly those ensuing from regulatory provisions or customer expectations with regard to urban mobility. The Supervisory Board remains firm in its conviction that the strategic direction set by the Board of Management for the BMW Group is robust and sustainable. In conjunction with vehicle presentations, Supervisory Board members also had the opportunity to drive a number of BMW, MINI and Rolls-Royce vehicles, including some BMW models equipped with hybrid and electric drive systems. 9 REPORT OF THE SUPERVISORY BOARD After concluding the Annual Strategy Review, the second part of the meeting included an in-depth discussion of the Long-term Business Forecast drawn up by the Board of Management for the years from 2013 to 2018 and, after thorough examination, we gave the required approval. The Board of Manage- ment elucidated changes in sales and financing volumes compared with the previous year’s forecast and also explained the potential impact of volume and earnings risks associated with specific scenarios. We encouraged the Board of Management in its strategy of maintaining flexibility in terms of cost planning. We also thoroughly examined the Annual Budget presented by the Board of Management in November 2012 for the financial year 2013 and discussed the impact of potential economic developments. We concurred with the decision of the Board of Management to raise the share capital of the Company in accordance with Article 4 no. 5 of the Articles of Incorporation (Authorised Capital 2009) by € 422,845 and to issue a corresponding number of new non-voting bearer shares of preferred stock, each with a par value of € 1, at favourable conditions to employees. The Board of Management and Supervisory Board jointly examined corporate governance within the BMW Group and issued a new Declaration of Compliance, the wording of which is included in the Corporate Governance Report (page 153). The BMW Group currently complies with the recommendations of the Govern- ment Commission on the German Corporate Governance Code (code version dated 15 May 2012, “Code”) published on 15 June 2012 with one exception, namely the revised recommendation on the structure of super- visory board compensation contained in section 5.4.6 paragraph 2 sentence 2 of the Code (“If members of the Supervisory Board are promised performance-related compensation, it shall be oriented toward sustain- able growth of the enterprise”). In this context, and following preparatory work carried out by the Presiding Board, we examined various models with the Board of Management with respect to the future compensation of the Supervisory Board. A proposed change to the Articles of Incorporation will be put to the shareholders at the 2013 Annual General Meeting. With regard to its own composition, based on a detailed composition profile, the Supervisory Board de- cided upon specific appointment goals in 2010, which are discussed in detail in the Corporate Governance Report (page 164 et seq.). In 2012, in line with section 5.4.1 paragraph 2 of the Code, we set what we consider to be an appropriate target for the number of independent members in the Supervisory Board (at least twelve of which at least six should represent the shareholders). On the basis of a self-assessment of the full Super- visory Board and its individual members, we were able to conclude that the composition of the Supervisory Board at 31 December 2012 meets that target. No conflicts of interest arose during the year under report on the part of members of either the Supervisory Board or the Board of Management. Significant transactions with Supervisory Board members and other related parties as defined by IAS 24, including close relatives and intermediary entities, are scrutinised on a quarterly basis. In conjunction with the joint examination of corporate governance, the Board of Management informed us (both in the Personnel Committee and in the full Supervisory Board) of the progress made in imple- menting the BMW Group’s diversity concept, with its focus on gender, cultural background and age / experience. In this context, we obtained information from the Board of Management with regard to the proportion of, and changes in, management positions held by women, in particular at senior management level and at execu- tive level below the Board of Management. We concluded that the Code’s requirements for the promotion of diversity are also being complied with in terms of management functions, and concur with the Board of Management that, in addition to the efforts to improve gender diversity, even more should be done to promote cultural diversity and the international character of the workforce. 10 We endeavour to assess and improve continuously on the effectiveness of the work performed in the Supervisory Board and its committees, not least in consideration of the broader range of tasks for which the Supervisory Board now finds itself responsible. The Chairman of the Audit Committee and myself are therefore always pleased to receive comments and suggestions for improvement from Supervisory Board members. The formal examination of the Supervisory Board’s efficiency is also treated once each year as a separate agenda point which is prepared by means of a questionnaire required to be completed by all Super- visory Board members. Each of the five Supervisory Board meetings in 2012 was attended on average by over 90 % of its members, a fact that can be tied in to the analysis of attendance fees for individual members disclosed in the Compen- sation Report. No member of the Supervisory Board missed more than two meetings in his / her period of office during the year. Presiding Board and committee meetings were fully attended in the vast majority of cases (page 163). Description of Presiding Board activities and committee work In order to work more efficiently and prepare complex issues and decisions more thoroughly, the Supervisory Board has established a Presiding Board and several committees. A description of the duties, composition and work procedures of these com- mittees is provided in the Corporate Governance Report (page 160 et seq.). The relevant committee chairmen provided timely and comprehensive accounts of the work of the Presiding Board and other committees to the full Supervisory Board, as did the chairman of the Nomination Committee to the shareholder representatives on the full Supervisory Board. In a total of four meetings, the Presiding Board focused mainly on the preparation of topics for the meet- ings of the full Supervisory Board unless this fell under the remit of one of the committees. Complex issues, such as the Long-term Business Forecast and the Annual Strategic Review, were dealt with on the basis of written and oral reports provided by Board of Management members and senior department heads. In the case of financial planning, for example, we arranged for the Board of Management member responsible for Finances to brief us in advance on detailed aspects of the Long-term Business Forecast. The Head of Group Strategy and Planning, Environment provided us with facts, assumptions and principles relevant for global value added within the Group in the period up to 2024, including the targets and distribution of production capacities built into the forecasts, and discussed analyses from the Annual Strategy Review with us. The Presiding Board selected further 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. Two telephone conference calls were also conducted by the Presiding Board in conjunction with current activities and projects. In one of those conference calls, the Board of Management and the Head of Product and Brand Strategy reported on the current status of cooperation arrangements, in particular the planned extension of collaboration with Toyota Motor Corporation. In another telephone conference call, the Board of Management explained the plans to sell Husqvarna Motorcycles. The Audit Committee held three meetings and three telephone conference calls during 2012. In accordance with the recommendation of the German Corporate Governance Code, we discussed each of the interim finan- cial reports with the Board of Management prior to publication. Representatives of the external auditors were present for part of the time during the telephone conference call held to present the Interim Financial Report for the six-month period to 30 June 2012. The report had been subjected to review by the external auditors. One meeting of the Audit Committee was primarily dedicated to preparing the Supervisory Board’s meet- ing in spring 2012 at which the financial statements were examined. In order to prepare its recommendation 11 REPORT OF THE SUPERVISORY BOARD to the full Supervisory Board regarding the proposed election of external auditors at the Annual General Meeting 2012, the Audit Committee obtained a Declaration of Independence from the proposed external auditor. The Audit Committee also considered the scope and composition of non-audit services, including tax advisory services, provided by KPMG entities to the BMW Group. There were no indications of conflicts of interest or grounds for exclusion or lack of independence on the part of the auditor. The fee proposals for the audit of the year-end Company and Group Financial Statements 2012 and the review of the six-month Interim Financial Report were deemed appropriate by the Audit Committee. Subsequent to the Annual General Meeting 2012 the Audit Committee appointed the external auditor for the relevant engagements and, with due consideration to the suggestions made by the full Supervisory Board, specified audit focus areas. In relation to the audit of the Company Financial Statements, for example, this included the accounting treatment of commodity derivatives and in relation to the audit of the Group Financial Statements this in- cluded the measurement of interest rate derivatives. The Head of Group Financial Reporting reported to the Audit Committee on risk management processes in place throughout the BMW Group, focusing on the internal control system (ICS) as the basis for financial reporting. We were also provided with a description of planned areas of action and further developments in this field. The Audit Committee considered the set of measures undertaken by the Board of Management in 2012 to ensure that “compliance” as a concept is fully embedded in the principles of conduct valid for all Group employees. The Chairman of the BMW Group Compliance Committee reported to the Audit Committee on the current compliance situation, which, as in the previous year, was deemed satisfactory. The Audit Com- mittee also enquired into the implementation of anti-corruption measures resolved in the previous year, the enlargement of the BMW Group Compliance Organisation -- in particular within the Financial Services segment -- and the results of sample testing carried out in Germany and abroad. The Head of Group Internal Audit reported to us in the Audit Committee on the significant findings of audits conducted by Group Internal Audit and on the planned areas of focus on the industrial and financial services sides of the business. The Personnel Committee convened four times during the financial year 2012. In preparation for a meet- ing of the full Supervisory Board, the Personnel Committee reviewed the compensation of Board of Manage- ment members (including pension benefits) for appropriateness in comparison with other DAX companies. Other specific issues relating to employment contracts were also addressed by the Personnel Committee. The Personnel Committee gave its approval in one case for a member of the Board of Management to accept a mandate for membership of the supervisory board of a non-BMW Group entity. The Nomination Committee convened once during the financial year 2012, on which occasion it de- liberated on proposals for candidates for the Supervisory Board elections at the 2013 Annual General Meeting, taking account of the composition objectives stipulated for the Supervisory Board. The statutory Mediation Committee (§ 27 (3) of the Law on Worker Participation) was not required to convene during the financial year 2012. Composition and organisation of the Board of Management We deliberated with the Board of Manage- ment on changes to the structure and allocation of portfolio responsibilities with the objective of making the best use of individual members’ expertise and strengthening the overall responsibility of the Board of Manage- ment. In this context, it was decided to establish separate areas of responsibility for the BMW brand on the one hand and for the MINI brand, Rolls-Royce Motor Cars and motorcycles business on the other. The new 12 structure and allocation of responsibilities resolved by the Board of Management in agreement with the Supervisory Board is depicted in detail in the Corporate Governance Report (page 154). In view of the fact that Mr. Krüger was set to take over responsibility for the newly created board portfolio comprising MINI, Motorcycles, Rolls-Royce and Aftersales BMW Group, we appointed Milagros Caiña Carreiro-Andree as member of the Board of Management and as successor to Mr. Krüger with responsibility for Human Resources and as Industrial Relations Director with effect from 1 July 2012. The composition of the Board of Manage- ment team was otherwise unchanged during the financial year 2012. No decisions needed to be made in 2012 with respect to the reappointment of Board of Management members. Composition of the Supervisory Board, the Presiding Board and Supervisory Board committees The mandate of Franz Oberländer as employee representative on the Supervisory Board ended on 31 May 2012 when he entered into retirement. On 1 June 2012 the Munich District Court appointed Dr. Dominique Mohabeer, member of the Works Council of BMW AG at the Munich site, to the position of employee repre- sentative on the Supervisory Board for the remaining term of office. As a result, the proportion of women in the Supervisory Board increased to 20 %, in line with the composition objectives set by the Supervisory Board. Anton Ruf, executive staff representative on the Supervisory Board, retired on 31 October 2012, at which date he also ceased to be a member of the Supervisory Board. He was succeeded on 1 November 2012 by Oliver Zipse, Head of Brand and Product Strategies, who took over the role of executive staff representative on the Supervisory Board for the remaining term of office as elected substitute member. In view of a new management position he will have within the BMW Group from 1 April 2013 onwards, Mr. Zipse has resigned his mandate on the Supervisory Board with effect from 31 March 2013. On 29 November 2012 the shareholder representatives in the Supervisory Board elected Susanne Klatten as a further member of the Nomination Committee. The composition of the Presiding Board and other committees of the Supervisory Board remained unchanged during the financial year 2012. The Corporate Governance Report includes an overview of the composition of the Supervisory Board and its committees (page 155 et seq., page 163). Examination of financial statements and the profit distribution proposal KPMG AG Wirtschafts- prüfungs gesellschaft conducted a review of the abridged Interim Group Financial Statements and Interim Group Management Report for the six-month period ended 30 June 2012. The results of the review were also reported orally to the Audit Committee. No issues were identified 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 Group and Company Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the year ended 31 December 2012 and the Combined Group and Company Management Report – as authorised for issue by the Board of Management on 19 February 2013 – were audited by KPMG AG Wirtschafts prüfungs- gesell schaft and given an unqualified audit opinion. The Financial Statements and Combined Group and Company Management Report, the long-form audit reports of the external auditors and the Board of Management’s profit distribution proposal were made available to all members of the Supervisory Board in good time. At the meeting held on 1 March 2013 these documents were examined and discussed in detail by the Audit Committee. The Supervisory Board subse- quently examined these documents at its meeting on 14 March 2013, after hearing the committee chairman’s report on the meeting of the Audit Committee. In both meetings, the Board of Management gave a detailed explanation of the financial reports it had prepared. Representatives from KPMG attended both meetings, 13 REPORT OF THE SUPERVISORY BOARD reported on significant audit findings and answered any additional questions raised by the members of the Supervisory Board. The representatives of the external auditors confirmed that the risk management system established by the Board of Management is capable of identifying events or developments that might impair the going-concern status of the Company and that no material weaknesses in the internal control system and risk management system were found with regard to the financial reporting process. Similarly, the external auditors confirmed that they had not identified any facts in the course of their work that were inconsistent with the contents of the Declaration of Compliance issued jointly by the two boards. Based on own thorough examination by the Audit Committee and the full Supervisory Board, we concurred with the results of the external audit. In accordance with the conclusion reached as a result of the examination by the Audit Committee and Supervisory Board, no objections were raised. The Group and Company Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the financial year 2012 prepared by the Board of Management were approved at the Supervisory Board Meeting held on 14 March 2013. The separate financial statements have thus been adopted. Both in the Audit Committee and in the full Supervisory Board, we examined the proposal of the Board of Management to use the unappropriated profit to pay a dividend of € 2.50 per share of common stock and € 2.52 per share of non-voting preferred stock. Taking account of the financial condition of the BMW Group, we consider the proposal appropriate and concur with it. Expression of thanks by the Supervisory Board We would like to express our gratitude to the members of the Board of Management and all employees worldwide for their commitment and contribution to another set of excellent financial statements for the year ended 31 December 2012. We also wish to extend a special word of thanks to Mr. Oberländer and Mr. Ruf, both of whom left the Supervisory Board in 2012 after many years of dedicated and constructive work in the Supervisory Board. In addition to achieving success in their chosen fields of activity, they spent most of their working lives diligently serving both the Company and the employees they represented. Munich, 14 March 2013 On behalf of the Supervisory Board Joachim Milberg Chairman of the Supervisory Board 14 Norbert Reithofer Chairman of the Board of Management 15 STATEMENT OF THE CHAIRMAN OF THE BOARD OF MANAGEMENT Dear Shareholders, Your Company has once again demonstrated a strong performance with new sales volumes, revenues and earnings highs for the 2012 financial year. At the BMW Group, we look to the future and are prepared to go against the trend, if need be; we have the stamina to stick to our chosen path. For us, it is always the customer who comes first – that is why we offer innovative products and services and what makes us the world’s top-selling premium car manufacturer. But we aim to do even better – which means continuing to grow at a profitable rate and acting in a responsible manner as a member of society. Our actions are based on our tradition, our values and our Company’s unique corporate culture and team spirit. At the BMW Group, we all share a passion for mobility. It is our common purpose to make individual mobility viable for the future, as the demands on cars continue to evolve. Our industry is in a period of transi- tion – what we refer to as “iconic change”. We are driving and shaping this technological shift towards sus- tainable mobility. It will require all our powers of innovation in the development of new products and attrac- tive mobility services, as well as constant review of our structures and processes and how we work together. 2012 – the most successful year in the history of the Company. Our success is built on the desirability of our products. More than 1.84 million BMW, MINI and Rolls-Royce vehicles were delivered to customers in 2012, beating the previous year’s record by more than 10 %. All three of our automobile brands set new re- cords. In addition, more than 117,000 customers purchased a BMW or Husqvarna motorcycle. Our Financial Services business also continued to grow and contributed to the positive performance in sales figures. Thanks to strong demand for our premium vehicles, revenues rose to more than € 76.8 billion and profit before tax increased to around € 7.8 billion in the 2012 financial year – both new highs for the Group. The net profit of more than € 5.1 billion also represented a new record. Our financial success allows us the necessary freedom to continue investing in our future. In 2012, our research and development expenses rose to more than € 3.9 billion, mostly in connection with projects to secure our future growth. Our figures for 2012 are the result of an outstanding collective performance. On behalf of the Board of Management, I would like to thank all of our employees for their efforts, determination and achievements in 2012. I would also like to thank our retail organisation, our suppliers and our business partners, who play such an important part in the Company’s success. Five years of Strategy Number ONE: interim targets for 2012 fulfilled. The success of the 2012 financial year is also the result of the long-term decisions we made as part of our Strategy Number ONE. We presented our strategy to the public back in autumn 2007 – with a vision for the year 2020. The aim is to prepare the BMW Group for the future, as it faces a wide range of different challenges in a changing environ- ment for individual mobility. Specific measures were implemented in the four strategic areas of “Growth”, “Shaping the future”, “Profitability” and “Access to technology and customers”. We also set ourselves ambitious 16 interim targets for 2012, including much greater efficiency and higher profitability. For the Automotive seg- ment, we defined an EBIT margin target of between 8 % and 10 %. What have we achieved during the first five years of Number ONE? – We have become more profitable, and doubled our profit before tax between 2007 and 2012. At the end of 2012, our EBIT margin in the Automotive segment was above our 8 % and 10 % target range. – The price of BMW common stock climbed more than 70 % from the end of 2007 to the end of 2012, while Germany’s DAX fell by 5.6 % over the same period. – We have leveraged much more than the € 6 billion in efficiency potential originally targeted. – In 2007, Efficient Dynamics was already the best technology on the market for lowering fuel consumption and CO2 emissions. Back then, we had 27 BMW and MINI models with 140 grams of CO2 per kilometre or less. By the end of 2012, the BMW Group fleet included 73 models at or below this level. Our core model series – the BMW 3 Series, the BMW 5 Series and the BMW 7 Series – are also available as full hybrids. Efficient Dynamics continues: we aim to reduce the CO2 emissions of our vehicle fleet by at least another 25 % between 2008 and 2020. – We have systematically expanded our global production network since 2007 – from 23 production facilities in twelve countries to 29 locations in 14 countries by the end of 2012. The most recent example is our new Tiexi plant in Shenyang, which we have been operating with our joint venture partner, Brilliance, since 2012. When we plan a site, we ensure that it sets new standards: Tiexi is the most sustainable vehicle plant in China today and one of the most advanced in the world. Over the past five years, our strategy has proven robust, and shown the way forward under changing external conditions: during the global financial and economic crisis of 2008 and 2009, the BMW Group still showed a profit and paid a dividend. In 2010 and 2011, we steered our Company back on track for success – initially helped by an economic tailwind, but then maintaining our performance in a challenging and volatile environment in 2012. This clearly shows that we have reached the first major milestone in our strategy. We have fulfilled all the interim targets of our Strategy Number ONE for the year 2012 – and, in some cases, exceeded them. We de- livered on our promises. Today, the BMW Group is a stronger, more international and more future-oriented company than it was when we embarked on our Strategy Number ONE. Above all else, the BMW Group is an attractive investment – and I would like to thank you, our shareholders, for supporting us on this journey. It is in all our interests that the BMW Group not only has a successful present, but, even more impor- tantly, a promising future. For that reason, we are now working towards the next major milestone in our strategy. Number ONE still our corporate compass – next milestone in 2016. In 2016, we will celebrate 100 years of BMW. By then, we aim to sell well over two million BMW, MINI and Rolls-Royce brand vehicles – with BMW Motorrad and Financial Services also continuing to contribute to our success. Profitability is, and will remain, the foundation upon which we build and shape our future. 17 STATEMENT OF THE CHAIRMAN OF THE BOARD OF MANAGEMENT In the 2013 financial year, we aim to continue on our successful course, targeting record sales at Group level. The main risks and uncertainties for our business stem from the volatility in our environment, the high level of public-sector debt and the uneven performance of the automobile markets. We remain confident. In 2013, all three automobile brands and BMW Motorrad will bring new and revised models onto the market. In addition to that: We are putting electromobility on the road. Late 2013 heralds a new era of premium mobility: we will launch the pure electric BMW i3, our solution for emissions-free driving in urban areas. At the same time, customers will be able to purchase their charging current from renewable energies. Production of the BMW i family sets new standards for resource conservation and the use of innovative materials, such as carbon fibre, in automobile manufacturing. In 2012, the BMW Group was named industry leader in the Dow Jones Sustainability Index for the eighth consecutive year – and therefore remains the world’s most sustainable car company. At Bayerische Motoren Werke, we have a clear vision: to be a leader in the future development of individual mobility. We believe in the potential of electromobility – not least in order to meet ambitious CO2 emissions reduction targets in the EU and worldwide. In this regard, we are collaborating with Toyota Motor Corporation in the field of sustainable mobility. In early 2013, we signed an agreement to establish cooperation on fuel cells, lightweight construction technologies and the development of a sports car. Employees are our most important success factor. The most important requirement for a successful future is our motivated and dedicated employees – and, not least, our young talents. For this reason, we increased the number of apprentices in Germany by about 10 % last year. No fewer than 1,376 young people embarked on a career with the BMW Group at the start of the 2012 training year, and the total number of apprentices reached 4,266 at the end of 2012. Last year alone, we invested more than € 280 million in vocational and professional training to provide our employees with the qualifications they need for technological change. We are convinced that our investments in all areas today will enable your Company to be well positioned to face the future. We hope we can count on your continued trust and support as we move forward. Norbert Reithofer Chairman of the Board of Management 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT 18 21 24 44 47 50 65 66 74 A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 finishes financial year with record figures The BMW Group remained firmly on the road to success in 2012 with record figures. Despite an increasingly volatile market environment, sales of BMW, MINI and Rolls-Royce brand cars increased by 10.6 % to 1,845,186* units (2011: 1,668,982*), ensuring that the BMW Group retained pole position in the premium segment. All three automobile brands performed exceedingly well, each contributing in their own measure towards this resounding success. Record sales volume figures were registered across the board with 1,540,085* BMW (2011: 1,380,384* units; + 11.6 %), 301,526 MINI (2011: 285,060 units; + 5.8 %) and 3,575 Rolls-Royce cars (2011: 3,538 units; + 1.0 %) sold during the 12-month period. The new BMW 3 Series, 5 Series, 6 Series and BMW X models were particularly successful within a portfolio of models brimming with attractive cars. The MINI Countryman, the MINI Coupé and the new MINI Roadster also played an important role in making 2012 another highly successful year for the BMW Group. Although the majority of motorcycle markets contracted considerably during the reporting period, our Motor- cycles segment also broke its previous sales volume re- cord. We handed over 117,109 BMW and Husqvarna motorcycles to customers in various markets worldwide, 3.1 % more than in the previous year (2011: 113,572 units). The number of BMW brand motorcycles sold in 2012 climbed by 2.0 % to 106,358 units (2011: 104,286 units). Husqvarna recorded a sales volume of 10,751 units (2011: 9,286 units; + 15.8 %). The Financial Services segment can also look back on a successful year. The number of new contracts signed with retail customers worldwide rose by 12.1 % to 1,341,296 for the 12-month period (2011: 1,196,610 contracts). The number of leasing and financing con- tracts in place with retail customers and dealerships totalled 3,846,364 units at the end of the reporting pe- riod (2011: 3,592,093 contracts; + 7.1 %). Revenues and earnings attain new heights The dynamic rise in new car sales in 2012 enabled the BMW Group to attain new heights in terms of both reve- nues and earnings. Group revenues grew dynamically, rising by 11.7 % to reach € 76,848 million for the year (2011: € 68,821 million). Despite greater investment in tech- nologies of the future, increased intensity of competi- tion and higher personnel costs, earnings also climbed to new heights in 2012. EBIT rose to € 8,300 million (2011: € 8,018 million; + 3.5 %) and earnings before tax improved by 5.9 % to € 7,819 million (2011: € 7,383 mil- lion). It should be noted that the previous year’s figures include a positive exceptional factor of € 524 million BMW Group revenues by region in € million 75,000 67,500 60,000 52,500 45,000 37,500 30,000 22,500 15,000 7,500 Europe thereof Germany Asia thereof China Americas thereof USA Other markets 08 09 10 11 12 Europe thereof Germany Asia thereof China Americas thereof USA Other markets Total 31,432 10,739 6,320 2,763 13,294 11,349 2,151 53,197 28,425 11,436 7,364 4,039 12,433 10,628 2,459 50,681 29,788 11,207 13,384 8,444 14,168 11,638 3,137 60,477 33,815 12,859 17,768 11,591 14,287 11,516 2,951 68,821 35,157 12,186 22,159 14,448 16,271 13,447 3,261 76,848 * Including automobiles from the joint venture BMW Brilliance. 19 COMBINED GROUP AND COMPANY MANAGEMENT REPORT arising on the reductions of provision for residual value and credit loss risks. Business with end-of-contract leasing vehicles gave rise to an exceptional gain of € 124 million in 2012. Income tax expense for the year under report totalled € 2,697 million (2011: € 2,476 mil- lion; + 8.9 %), resulting in a slightly higher effective tax rate of 34.5 % (2011: 33.5 %). At € 5,122 million, Group net profit marked a new record, surpassing the high level reached the previous year by 4.4 % (2011: € 4,907 million). Automotive business also achieved new record figures in terms of both revenues and earnings. At € 70,208 mil- lion, revenues were 11.0 % up on the previous year (2011: € 63,229 million). EBIT rose to € 7,624 million (2011: € 7,477 million; + 2.0 %), while segment profit before tax totalled € 7,195 million (2011: € 6,823 million; + 5.5 %). In the Motorcycles segment revenues reflected the good sales volume performance and rose by 3.8 % to € 1,490 million. EBIT, however, was below that of the previous year (€ 9 million; – 80.0 %) due to the sale of Husqvarna Motorcycles. Segment profit before tax fell accordingly by 85.4 % to € 6 million. The Financial Services segment remained on its growth course and made another excellent contribution to the BMW Group’s performance in 2012. Segment reve- nues rose sharply (+ 11.7 %) to € 19,550 million (2011: € 17,510 million). Segment EBIT, however, declined to € 1,558 million (2011: € 1,763 million; – 11.6 %), while profit before tax dropped to € 1,561 million (2011: € 1,790 million; – 12.8 %). Lower earnings for the seg- ment must be seen in the light of the figure reported for the previous year, which included a positive excep- tional factor of € 439 million arising on the reduction of residual value and credit loss risks. Business with end-of-contract leasing vehicles gave rise to an excep- tional gain of € 124 million in 2012. Increase in proposed dividend In view of the very strong earnings performance for the year, the Board of Management and the Supervisory Board will propose to the Annual General Meeting to use BMW AG’s unappropriated profit of € 1,640 million (2011: € 1,508 million) to pay a dividend of € 2.50 for each share of common stock (2011: € 2.30) and a divi- dend of € 2.52 for each share of preferred stock (2011: € 2.32). These figures correspond to a distribution rate of 32.0 % for 2012 (2011: 30.7 %). BMW Group Capital expenditure and operating cash flow in € million 9,000 8,000 7,000 6,000 5,000 4,000 3,000 08 09 10 11 12 Capital expenditure Operating cash flow1 4,204 3,471 3,263 3,692 5,240 4,471 4,921 8,149 8,1102 9,167 1 Cash inflow from operating activities of the Automotive segment. 2 Adjusted for reclassifications as described in note 42. 2012 and was therefore 41.9 % above that of the previous year (2011: € 3,692 million). During the year under report, investments in property, plant and equipment amounted to € 4,028 million (2011: € 2,598 million; + 55.0 %). Capi- talised development costs totalled € 1,089 million (2011: € 972 million; + 12.0 %). The capitalisation ratio for devel- opment expenditure decreased compared to the pre- vious year to 27.6 % (2011: 28.8 %). The capital expendi- ture ratio for the year rose to 6.8 % of Group revenues (2011: 5.4 %; + 1.4 percentage points), close to the tar- geted level of 7 %. As in previous years, capital expendi- ture was covered by operating cash flow1. We again invested primarily in the introduction of new models such as the BMW 6 Series Gran Coupé, the derivatives of the BMW 3 Series, the MINI Roadster and the revised models of both the BMW 7 Series and the X1. Moreover, preparations for the manufacture of elec- tric cars under the sub-brand BMW i progressed apace during the period under report. BMW Group and Toyota Motor Corporation sign cooperation agreement The BMW Group and the Toyota Motor Corporation (TMC) continue to work together in the field of sustain- able mobility. The two entities signed a contract at the end of January 2013 with respect to cooperation in the fields of fuel cells, lightweight-construction tech- nologies and the development of sports cars. Numerous model start-ups – level of investment raised The volume of investment for intangible assets and property, plant and equipment rose to € 5,240 million for The BMW Group and TMC also signed an agreement on the joint research of lithium-air batteries, a post-lithium battery technology. With the signing of this agreement, the joint research on the next generation of lithium-ion 20 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT 18 21 24 44 47 50 65 66 74 A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 batteries initiated in March 2012 has now entered the second phase. BMW Group incorporated BMW Peugeot Citroën Electrification The BMW Group and PSA Peugeot Citroën mutually agreed to terminate cooperation in the BMW Peugeot Citroën Electrification joint venture. The BMW Group is taking over the company and will carry on with the work that has been begun. The decision of the two part- ners does not have any impact on the current engine- producing cooperation arrangements between PSA Peugeot Citroën and the BMW Group. New strategy in Motorcycles segment A new strategy developed for the Motorcycles segment means that the BMW Group will be concentrating in future solely on its BMW brand. Against this background, the takeover of Husqvarna Motorcycles has been agreed upon with Pierer Industrie AG, Austria. The transaction is due to be completed during the first six months of 2013, subject to approval by the Austrian merger control authorities. 21 COMBINED GROUP AND COMPANY MANAGEMENT REPORT General Economic Environment Significant downturn in global economy As expected, the global economy suffered a perceptible downturn in 2012. The source of the downward trend lay clearly in Europe, where economic output fell dur- ing the period under report in both the eurozone and the United Kingdom. By contrast, the US economy remained relatively stable throughout 2012 despite the fact that the growth rate was still down on the historic average. Growth rates in the major emerging markets fell short of expectations. High sovereign debt levels in industrial countries con- tinue to pose a structural risk for the worldwide economy. The future course of the debt crisis in Europe will de- pend partly on the course of action taken by policy- makers, but also on the way the situation is perceived on the world’s capital markets. In view of early elections in Italy, Spain’s outstanding decision to apply for support from the European Stability Mechanism (ESM), dis- cussions on a further debt cut for Greece and the per- formance of the French economy, renewed turbulence cannot be ruled out. Economic performance is also being held down by high debt levels in the USA, Japan and the UK. The two po- litical sides in the USA reached a compromise at the turn of the new year, reducing the looming threat of a drop in consumer spending due to tax increases and expenditure cuts in 2013 to approximately one third of the originally planned magnitude, equivalent to some 1.5 % of economic output. In December 2012, the newly elected government in Japan announced the initiation of further government-funded stimulus programmes, despite the high level of state debt. Central banks worldwide have reacted to the risk of an impending economic downturn by continuing their expansive monetary policies on a massive scale. So far, however, only share and raw material prices have really benefited and been propped up at a high level. Despite these moves, there is still no sign of a genuine revival in demand in industrial countries. The eurozone’s economy contracted overall by 0.4 % in 2012. Germany was the only major country in the euro- zone that managed to register any real growth (+ 0.7 %). France’s gross domestic product (GDP) practically stag- nated at a rate of + 0.1 %. By contrast, Italy (– 2.2 %) and Spain (– 1.4 %) slipped into recession. The UK economy – Europe’s largest outside the eurozone – reached the pre- vious year’s level. The USA recorded a growth rate of 2.2 % in 2012, thanks to the recovery of the employment and property mar- kets. Despite uncertainties about possible fiscal changes in 2013, domestic demand remained stable up to the year-end. The Japanese economy grew by 1.8 % as a result of the high level of investment and the production catch-up effect caused by the previous year’s catastrophe. Even here, however, the growth rate slowed down sharply over the course of the year. China, too, lost some momentum in 2012, growing by only 7.8 % compared to the previous year’s 9.3 %, but nevertheless remained the most dynamic of the world’s major economies. The growth rate in India fell from 6.9 % in 2011 to 5.1 % in 2012. The most pro- nounced slow-down was registered in Brazil, where growth dropped to 1.1 % and hence to a mere quar- ter of the previous year’s rate (2011: + 4.4 %). Russia’s GDP also grew more slowly than one year earlier (+ 3.4 %). Exchange rates compared to the euro (Index: 31 December 2007 = 100) 140 130 120 110 100 90 80 70 Source: Reuters 08 09 10 11 12 British Pound US Dollar Chinese Renminbi Japanese Yen 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 18 21 24 44 47 50 65 66 74 22 Exchange rates remain volatile, but only marginally changed on a year-end comparison The world’s currency markets were heavily influenced again in 2012 by the impact of the sovereign debt crisis. Although the US dollar exchange rate was practically unchanged on a year-end comparison (US dollar 1.30 to the euro), the escalation of the euro crisis in summer 2012 temporarily caused a sharp rise in the value of the US dollar. Since the rate of the Chinese renminbi is more or less coupled to that of the US dollar, the volatility of the Chinese currency generally reflects that of the US dollar to the euro. A continuation of the gradual appreciation of the renminbi of 1 % to 2 % was also noticeable in 2012. The British pound increased moderately in value against the euro and finished the year at GBP 0.81 to the euro, thus continuing to recover from its low point during the financial crisis. The Japanese yen fell to a rate of 114 yen to the euro, in advance of the expansionary monetary and fiscal policies expected to be adopted by the new government. Higher prices for major raw materials Political uncertainties regarding further developments in various conflicts in the Middle East kept the price of Brent oil – the most relevant for Europe – at a high level, namely US dollar 112 per barrel on average for the year. By contrast, the price of WTI oil – the most relevant parameter for the USA – was somewhat lower in 2012 (average price of US dollar 94 per barrel). The upshot was a further rise in energy prices, particularly in Europe. By contrast, the price of steel decreased worldwide, re- flecting the economic downturn. Prices of non-ferrous and precious metals continued to be highly volatile, generally in an upward direction. Car markets in 2012 The number of passenger cars and light commercial ve- hicles sold worldwide rose to 72.6 million units (+ 5.7 %) in 2012, primarily on the back of increased demand in the USA and China. This time, however, demand in the USA provided the strongest momentum, with the mar- ket growing by 13.4 % to 14.5 million units. After a pe- riod of exceptionally rapid growth in China, including several years of double-digit growth, the passenger car market expanded by a relatively moderate 9.4 % in 2012 to approximately 13.3 million units. In Europe, the number of new registrations fell once again in 2012 (12.5 million units; – 7.8 %). The decrease in Germany was less pronounced, with new registra- tions down by 2.9 % to approximately 3.1 million units. Steel price trend (Index: January 2008 = 100) 170 160 150 140 130 120 110 100 90 80 08 09 10 11 12 Source: Working Group for the Iron and Metal Processing Industry Price in US Dollar Price in € Oil price trend Price per barrel of Brent Crude 140 120 100 80 60 40 20 Source: Reuters 08 09 10 11 12 23 COMBINED GROUP AND COMPANY MANAGEMENT REPORT Precious metals price trend (Index: 31 December 2007 = 100) 300 250 200 150 100 50 Source: Reuters 08 09 10 11 12 Gold Palladium Platinum market in Japan continued to steer a course of recovery in 2012, growing strongly by 18 %. The financial services market in 2012 All of the world’s major central banks adhered to their adopted course, ensuring that commercial banks had access to large volumes of liquidity. Marked rises in refinancing costs in a number of countries within the eurozone triggered various political measures that helped to stabilise the financial markets. Price levels on international used car markets continued to develop inconsistently in 2012. While North America, Germany and Great Britain were largely stable, adverse economic developments in some southern European countries caused used car prices to fall in the region. Despite the debt crisis in Europe and the resulting nega- tive impact on unemployment figures, credit risk levels for retail, dealer and importer financing business did not worsen overall. By contrast, the situation in southern Europe continues to be difficult in the face of adverse economic conditions. The percentage drops in France (– 14.0 %), Italy (– 20.0 %) and Spain (– 13.4 %) reached double figures in each case. Of the major car markets in Europe, only Great Britain was able to buck the trend, with the number of new vehicles registered up by 5.3 % to approximately 2 million units. Japan’s car market grew exceptionally strongly in 2012, jumping by 28 % to 5.2 million units, mainly due to eco- nomic revival in the wake of the Fukushima catastrophe in the previous year, manifested in a production catch- up effect and increased demand for spare parts. The Russian market demonstrated its generally robust state of health with new registrations up by around 9 % to 2.7 million units. India’s car market also continued to display an upward trend (2.8 million units; + 10 %). Brazil saw its car market climb by 3.4 % to 3.6 million units, largely due to the initiation of a new state-funded stimulus programme. Motorcycle markets in 2012 International motorcycle markets in the 500 cc plus class continued to fare divergently in 2012. Overall this mar- ket segment contracted worldwide by 1 % compared to the previous year. In Europe (– 9 %), the impact of the sovereign debt crisis was felt most sharply in the region’s southern countries, including sharp market downturns in Italy (– 20 %) and Spain (– 22 %). Great Britain (– 5 %) and France (– 2 %) recorded more moderate declines. In a contrasting trend, the 500 cc plus class market in Germany grew by 4 % compared to one year earlier. The corresponding segment in the USA also registered a moderate increase (+ 2 %) in the period under report. Brazil was 6 % up on the previous year. The motorcycle 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 24 Review of Operations AUTOMOTIVE SEGMENT Car sales volume at new all-time high The BMW Group sold a total of 1,845,186* BMW, MINI and Rolls-Royce brand vehicles during the year 2012, the best sales volume performance ever achieved in the company’s history (+ 10.6 %). Despite increasing uncer- tainties on many markets, particularly in Europe, the BMW Group retained its pole position in the premium segment worldwide. This strong performance was underlined by the fact that all three brands broke their previous sales volume records. Sales of BMW brand cars rose by 11.6 % to 1,540,085* units. Both MINI (301,526 units; + 5.8 %) and Rolls-Royce (3,575 units; + 1.0 %) also registered sales volume growth. Double-digit growth in Asia and the Americas Sales of BMW, MINI and Rolls-Royce brand cars in Asia rose by almost one third to 493,393* units (+ 31.4 %). The number of cars sold in China jumped by 40.1 % to 327,341* units, surpassing the 300,000 threshold for the first time with ease. Strong growth was also recorded in Japan (56,701 units; + 19.0 %). The Americas region also made a good contribution to the overall performance, with 425,382 units (+ 11.8 %) sold in this region, including 348,532 units sold in the USA (+ 13.8 %). These figures enabled us to maintain our pole position amongst premium manufacturers. BMW Group sales volume of vehicles by region and market in 1,000 units 1,800 1,600 1,400 1,200 1,000 800 600 400 200 BMW Group – key automobile markets 2012 as a percentage of sales volume Other USA China* Japan Italy France Great Britain Germany USA China* Germany Great Britain 18.9 17.7 15.6 9.5 France Italy Japan Other 3.7 3.3 3.1 28.2 BMW Group car sales in Europe were marginally higher in a year-on-year comparison, despite somewhat difficult business conditions. Overall, we sold 865,417 vehicles in this region (+ 0.8 %). Sales volume in Germany edged up by 0.7 % to 287,362 units. We also convincingly beat the previous year’s performance in Great Britain, with sales volume up by 4.2 % to 174,530 units. France failed to match the previous year’s level (67,364 units; – 4.4 %), Europe thereof Germany Asia* thereof China* Americas thereof USA Other markets 08 09 10 11 12 Europe thereof Germany Asia* thereof China* Americas thereof USA Other markets Total 864.6 280.9 165.7 65.9 355.4 303.6 50.2 761.9 267.5 183.2 90.6 294.2 242.1 47.0 791.2 267.2 286.3 169.6 329.7 266.6 54.0 858.4 285.3 375.5 233.6 380.3 306.3 54.8 865.4 287.4 493.4 327.3 425.3 348.5 61.1 1,435.9 1,286.3 1,461.2 1,669.0 1,845.2 * Including automobiles from the joint venture BMW Brilliance. 25 COMBINED GROUP AND COMPANY MANAGEMENT REPORT while sales in Italy dropped to 60,520 units (– 16.5 %) due to the impact of the sovereign debt crisis. By contrast, sales in the growing Russian market rose by almost one third to 40,230 units (+ 33.0 %). their leading positions in their respective segments of the market. The BMW X1 was again the best-selling model in its segment. The new BMW 3 Series Sedan, which has been on the market since February 2012, accelerated straight into first place in the mid-range segment. BMW brand exceeds 1.5 million threshold for first time* In addition to retaining the top position for the BMW brand in the premium segment as a whole, the BMW 1 Series, 5 Series and 6 Series each consolidated The BMW 1 Series performed extremely well with sales up by 28.6 % on the previous year to 226,829 units. During the year ended 31 December 2012 we sold 406,752 units Sales volume of BMW vehicles by model variant* in units 2012 2011 Change Proportion of in % BMW sales volume 2012 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 Gran Coupé BMW 7 Series BMW X1 BMW X3 BMW X5 BMW X6 BMW Z4 14,462 176,066 20,015 16,286 226,829 20,328 111,898 24,357 19,835 176,418 294,045 240,279 59,144 29,525 24,038 72,054 39,332 32,799 406,752 384,464 280,504 57,425 21,087 359,016 8,480 7,880 6,833 23,193 248,835 61,215 22,451 332,501 2,937 6,459 – 9,396 – 28.9 57.3 – 17.8 – 17.9 28.6 22.4 – 17.9 – 24.9 – 26.7 5.8 12.7 – 6.2 – 6.1 8.0 – 22.0 – – 59,184 68,774 – 13.9 147,776 126,429 149,853 117,944 108,544 104,827 43,689 40,822 16.9 27.1 3.5 7.0 15,249 18,809 – 18.9 14.7 26.4 23.3 1.5 3.9 9.6 9.7 7.1 2.8 1.0 BMW total 1,540,085 1,380,384 11.6 100.0 * Including automobiles from the joint venture BMW Brilliance. 26 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 (+ 5.8 %) of the BMW 3 Series. Demand for the BMW 5 Se- ries was also strong again in 2012, with sales up by 8.0 % to 359,016 units. Sales of the BMW 6 Series more than doubled in 2012 to reach 23,193 units (2011: 9,396 units). Only the BMW 7 Series (59,184 units; – 13.9 %) and the BMW Z4 (15,249 units; – 18.9 %) fell short of their previ- ous year’s sales volume figures. The various models of the BMW X family also performed extremely well in 2012. The BMW X1 was handed over to 147,776 customers, an increase of 16.9 % on one year earlier. Even faster growth was achieved by the BMW X3, with sales volume of 149,853 units (+ 27.1 %). Sales of the BMW X5 and the BMW X6 totalled 108,544 units (+ 3.5 %) and 43,689 units (+ 7.0 %) respectively. MINI brand with new record sales volume MINI surpassed the sales volume threshold of 300,000 units for the first time in a single year by achieving a new record of 301,526 units (+ 5.8 %). Sales of the MINI Countryman rose sharply to 102,271 units (+ 14.9 %), while sales of the MINI Coupé practically tripled to 11,311 units (2011: 3,799 units). The new MINI Roadster recorded sales volume of 9,202 units in the period since its market launch. In a contrasting trend, however, sales were down on last year’s levels for the MINI Hatch (131,569 units; Sales volume of MINI vehicles by model variant in units MINI brand cars in 2012 – analysis by model variant as a percentage of total MINI brand sales volume MINI One (including One D) MINI Cooper S (including Cooper SD) MINI Cooper (including Cooper D) MINI Cooper MINI Cooper S (including Cooper SD) 35.7 (including Cooper D) 44.5 MINI One (including One D) 19.8 – 4.1 %), the MINI Convertible (24,474 units; – 16.5 %) and the MINI Clubman (22,699 units; – 11.8 %). The MINI brand continued to generate a very high-value product mix in 2012, with 44.5 % of customers opting for the MINI Cooper, 35.7 % for the MINI Cooper S and 19.8 % for the MINI One. 2012 2011 Change Proportion of in % MINI sales volume 2012 in % MINI Hatch MINI Convertible MINI Clubman MINI Countryman MINI Coupé MINI Roadster 131,569 137,155 – 4.1 24,474 29,325 – 16.5 22,699 25,745 – 11.8 102,271 89,036 14.9 11,311 3,799 9,202 – – – 5.8 43.6 8.1 7.5 33.9 3.8 3.1 100.0 MINI total 301,526 285,060 27 COMBINED GROUP AND COMPANY MANAGEMENT REPORT 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 2012 2011 573 216 2,786 3,575 537 281 2,720 3,538 Change in % 6.7 – 23.1 2.4 1.0 Rolls-Royce again records all-time high Rolls-Royce Motor Cars remained market leader in the ultra-luxury segment in 2012. The new Phantom Series II models have been available since September and re- ceived a thoroughly positive response from customers. The brand’s top model, the Phantom, was handed over to 573 customers (+ 6.7 %) during the year under report. The Coupé (including Drophead Coupé) registered a 23.1 % drop in sales to 216 units. Sales of the Rolls-Royce Ghost totalled 2,786 units, surpassing the previous year’s already high figure by 2.4 %. Car production increased Production of BMW, MINI and Rolls-Royce Motor Cars brand vehicles was increased by 7.1 % to 1,861,826* units in 2012 in order to meet the continually growing de- mand for BMW Group vehicles. Of this total, 1,547,057* units (+ 7.4 %) related to BMW, 311,490 units (+ 5.9 %) to MINI and 3,279 units (– 12.0 %) to Rolls-Royce. Production network running at full capacity The BMW Group’s production network was dominated in 2012 by numerous model start-ups, preparation work for the series production of the BMW i3 and con- tinued expansion of its international sites. Despite these challenges, new production volume records were set. Its high degree of flexibility enabled the production net- work to even out regional sales volume fluctuations by adapting its production programme wherever neces- sary. For the second consecutive year we manufactured over one million vehicles at our German plants. Even so, the percentage of vehicles produced at plants outside Germany grew to over 46 %. The BMW plant in Munich saw the start-ups of the BMW ActiveHybrid 3 and the BMW 3 Series Touring in 2012. Employees from the Munich plant were also on hand to support the production start-ups of the new BMW 3 Series in other plants, such as at Tiexi in China * Including automobiles from the joint venture BMW Brilliance. and in Rosslyn in South Africa. Work is also in full swing to integrate a further model at the plant in Munich – the BMW 4 Series Coupé. At the same time, a record num- ber of over 214,000 units were manufactured in Munich during the period under report. In summer, a family day attended by 80,000 employees and their families was held to celebrate 90 years of production and 60 years of automotive manufacture at the Munich plant. Summer 2012 also saw the production start-up of the three-door BMW 1 Series in Regensburg. The new BMW 3 Series Sedan had already been integrated in the plant’s production with equal success in March 2012. The range of vehicles manufactured at this plant includes the BMW 1 Series, the BMW 3 Series and the BMW Z4. Vehicle production of the BMW Group by plant in 2012 in 1,000 units Assembly plants Graz2 Tiexi 1 Dadong1 Dingolfing Goodwood Rosslyn Leipzig Oxford Spartanburg Munich Regensburg Dingolfing Spartanburg Regensburg Munich Oxford Leipzig 332.7 301.5 300.3 214.1 207.8 164.3 Rosslyn Goodwood Dadong1 Tiexi1 Graz (Magna Steyr) 2 Assembly plants 45.7 3.3 108.9 41.1 103.7 38.4 1 Joint venture BMW Brilliance 2 Contract production 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 28 Also in summer 2012, the five-millionth car rolled off the production line since manufacturing at the Regensburg plant began in 1986. The plant has been undergoing extensive expansion work since the pre- vious autumn. The pressing plant has been enlarged and a second main production line set up for making car bodies. We have also built an additional logistics centre to handle increased material volumes. These measures all contributed towards boosting the efficiency, flexibility and start-up expertise at the Regensburg plant, which is borne out by the numerous awards won in 2012. Electromobility production network almost completed Preparations for the series production of the BMW i models represented an important focal point of activi- ties at the Leipzig, Dingolfing and Landshut plants during the year under report. These plants are being built into a competence network for e-mobility, in which the BMW i models will be produced in a multi-plant system. Lightweight construction using carbon-fibre- reinforced plastics (CFRP) plays a key role in the pro- duction process. The Leipzig plant is destined to play a major role in the production and assembly of the BMW i models. The building phase, as well as the enlargement of the body- making and pressing plant, are proceeding according to plan. In spring 2013, four wind turbines installed at the plant’s premises will be put into operation to supply the production of BMW i models with clean, renewable energy. A total of 400 new employees have been recruited to manufacture the BMW i models and also take up con- ventional production duties. Series production of the new five-door BMW 1 Series also commenced with great success in Leipzig. In summer, the first assembly line for high-voltage bat- teries designed for use in the new BMW i models went into operation at the Dingolfing plant, thus signalling a further milestone on the road to the series production of BMW electric vehicles. The battery, the e-transmis- sion and the aluminium chassis for the BMW i3 will all be built in Dingolfing. Various components for the BMW i8 will also be produced at the plant. Parallel to preparations for the BMW i vehicles, the Dingolfing plant also mastered the successful start-ups of the BMW 6 Series Gran Coupé and the BMW M6 Convertible. In addition to all these activities, the BMW 6 Series as well as various 5 and 7 Series models continue to be manufactured at the plant. A new production system for ultra-lightweight, high- strength carbon parts went into operation at the Lands- hut component plant in spring 2012. The carbon fibre cores produced at the Wackersdorf plant are processed in Landshut and Leipzig to form CFRP body parts and subsequently delivered to the CFRP body making unit at the BMW plant in Leipzig. The new, highly innova- tive CFRP production set-up in the two plants makes it possible for the first time to manufacture vehicle body sections from carbon fibre parts in an automated, large- scale production system. The ceremony to celebrate the start of construction of an expanded high-pressure die-casting foundry as well as a core-moulding plant also took place in Lands hut in April 2012. As the demand for die-cast lightweight alloy parts is continually growing, production capacity will be boosted from the current 58,000 tonnes to 69,000 tonnes per year in future. In addition, a new resource-saving smelting plant was commissioned in Landshut in the autumn. The BMW Group is thereby demonstrating how economically viable production can be successfully combined with ecological sustain ability. Conversion from liquid to solid metal delivery is helping to achieve a 10 % reduction in the total volume of CO2 emitted from the aluminium smelter through to completion of the die-cast part. Global presence being strengthened The BMW Group’s production network has meanwhile grown to a total of 29 sites located in 14 countries. In May the second carmaking plant of the BMW Brilliance Automotive joint venture was opened at the Tiexi* site in Shenyang (China) and a local engine production plant was also commissioned. The extended-wheelbase ver- sions of both the BMW X1 and of the BMW 3 Series Se- dan for the Chinese market are being built exclusively in Tiexi*. The new plant sets standards in terms of tech- nology and sustainability. Over 41,000 BMW vehicles rolled off the production lines there in 2012. The ex- tended-wheelbase version of the BMW 5 Series Sedan is produced at the Dadong* plant in China. The BMW Group’s global production presence has also been reinforced by the enlargement of the plant at Spartanburg in the USA. At the beginning of 2012 we announced that the plant’s capacity would be extended to up to 350,000 units by 2014. The BMW X models X3, X5 and X6 as well as the X5 M and X6 M are currently manufactured at the plant. During the year under report the BMW Group decided that the BMW X4 will also be * Joint venture BMW Brilliance 29 COMBINED GROUP AND COMPANY MANAGEMENT REPORT built in Spartanburg as the latest member of the X Series family. For the first time, more than 300,000 vehicles were produced at the Spartanburg plant during a single year. The production start-up of the new BMW 3 Series Sedan commenced at our plant in Rosslyn, South Africa, at the beginning of 2012. Among other improvements, the plant’s IT and logistics infrastructure was renewed in ad- vance, in order to accommodate a capacity of 90,000 units in the medium term and further raise the efficiency of the plant. The assembly plants that mainly serve regional markets are also steadily growing. The BMW Group manufac- tured over 38,000 units at its production sites in Egypt, India, Indonesia, Malaysia, Russia and Thailand. The production start-up of new models such as the BMW X3 and the 3 Series Sedan has also begun successfully. A further member of the BMW Group’s production network is planned for Brazil, where the market shows great promise for the future. Following the receipt of approval from the Brazilian government at the begin- ning of 2013, we now plan to manufacture up to 30,000 vehicles there per annum. Expansion of MINI and Rolls-Royce production The British production triangle comprising the MINI plant in Oxford, the component plant in Swindon and engine production in Hams Hall is an important element of the BMW Group’s production network. The focal point of MINI production is in Oxford, where not only the MINI Hatch, the Convertible and the Clubman are manufactured, but also the Coupé and the Roadster. In order to secure further capacity for the intended growth of the MINI brand, the BMW Group entered into an agreement in 2012 with the Dutch VDL NedCar bv involving the contract production of MINI automobiles in the Netherlands as from 2014. The MINI models Countryman and Paceman are already being produced under contract by the company Magna Steyr Fahrzeugtechnik in Austria. After the successful start-up of the MINI Paceman, over 100,000 vehicles were again produced at the plant for the BMW Group in 2012. Capacity at the Rolls-Royce manufacturing plant in Goodwood, England, was also raised during the year under report. We enlarged both the production facilities and the paint shop in preparation for future models and to meet high demand, particularly for bespoke vehicles. Engine production network becoming increasingly globalised The engine production network is also constantly grow- ing and, parallel to the vehicle manufacturing plant in Tiexi, the BMW Brilliance Automotive joint venture opened a new engine plant in Shenyang in 2012, which supplies the two Chinese carmaking plants with the latest generation of 4-cylinder combustion engines. The new engine plant, of which there are now four in the BMW Group’s network, was opened after only a 12-month construction period. More than 42,000 engines were manufactured at the plant in 2012. Due to the strong demand for 4-cylinder petrol-driven engines worldwide, engine-building capacities at the Munich plant were fully utilized, with a daily manufac- ture of up to 1,600 engines in 2012. Almost 388,000 en- gines were manufactured at the plant. The range of products manufactured at the Munich plant also includes 8- and 12-cylinder petrol engines as well as 6-cylinder diesel engines for the new M Performance models. In future, the new BMW Efficient Dynamics family of engines will also be built there and the task of setting up production, logistics and assembly lines began dur- ing the year under report. The 3-cylinder engine is the first representative of a new modular engine that ena- bles production to be managed with even greater flexi- bility. It will be produced in close cooperation with the engine plants in Hams Hall and Steyr. The largest engine plant in the BMW Group in Steyr celebrated its 30th year of production in 2012. Prepara- tions are currently underway for the start-up of the new generation of modular engines. In 2012 over one mil- lion (1,035,902) engines were produced in Steyr, bring- ing the total number of engines manufactured since commencement of series production at the plant to over 15 million. Currently BMW 4- and 6-cylinder diesel en- gines, 6-cylinder petrol engines and MINI diesel engines are manufactured in Steyr. More than 3 million engines have been manufactured at the Hams Hall plant since production commenced in 2001, almost 400,000 (395,854) of which were built in 2012. Preparations for the production of future genera- tions of engines at the plant also include the propulsion unit for the new BMW i8, which is scheduled to be pro- duced exclusively in Hams Hall. 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 30 MOTORCYCLES SEGMENT Record year for Motorcycles segment The Motorcycles segment achieved its best sales volume to date in 2012, despite a difficult market environment. A total of 117,109 BMW and Husqvarna brand motor- cycles was sold worldwide (+ 3.1 %). Sales of BMW brand motorcycles increased by 2.0 % to reach a new record of 106,358 units. In addition, a total of 10,751 Husqvarna brand motorcycles was handed over to customers (+ 15.8 %). Sharp increase in motorcycle sales overseas Motorcycle sales in the USA jumped by 20.6 % to 14,455 units in 2012. Even faster growth was achieved in Brazil, where sales volume of 7,446 units (+ 36.8 %) was recorded. 3,410 motorcycles were sold to customers in Japan (+ 22.4 %). Continued market uncertainties in Europe were responsi- ble for a decrease to 71,256 units (– 5.1 %). Sales in Ger- many, by contrast, rose to 22,363 units, surpassing the previous year’s already high figure by 5.9 %. Good sales performance was also recorded in France, with 11,441 mo- torcycles handed over to customers (+ 11.7 %). By contrast, sales volume in Great Britain (5,905 units; – 5.9 %) fell short of the figure achieved one year earlier. The negative impact of the sovereign debt crisis on consumer spending was felt very clearly on the Spanish (5,317 units; – 16.2 %) and Italian (11,403 units; – 25.5 %) motorcycle markets. Model offensive continued The G 650 GS Sertão, the revised models of the S 1000 RR and the F 800 R, the special R 1200 GS Rallye model and the special K 1300 R and K 1300 S models all came onto the markets at the end of March 2012, in good time for the start of the motorcycle season. The market launch of the C 650 GT and C 600 SPORT scooters followed in July, ini- tially in Europe. The new BMW F 700 GS and F 800 GS motorcycles were first presented in July 2012 and came onto the markets in September. The fifth generation of the successful R 1200 GS model, with its newly developed boxer engine, was showcased by BMW Motorrad at the INTERMOT International Motorcycle Exhibition in Co- logne. The new BMW HP4 was also unveiled to the public for the first time in Cologne. This high-performance model, which is equipped with features and technical highlights that make it extremely agile and ensure an ex- tremely dynamic riding performance, has been available since December 2012. A number of special models were presented during the EICMA International Motorcycle Fair in Milan and will become available to customers in 2013 to mark the 90th anniversary of BMW’s motorcycle business. The C evolution – a close-to-production proto- type of an electric scooter – was presented at the end of July and is expected to make its market debut in 2014. The Husqvarna brand expanded its range of products with the launch of various new on-road bikes (TR 650 Strada, BMW Group – key motorcycle markets 2012 as a percentage of sales volume Germany USA France Other Spain Great Britain Brazil Italy Germany USA France Italy 19.1 12.3 9.8 9.7 Brazil Great Britain Spain Other 6.4 5.0 4.5 33.2 TR 650 Terra, Nuda 900 and 900R ABS) and off-road bikes (TE250R and TE310R). In January 2012, the BMW K 1600 GT won first prize in the International Bike Of The Year 2011 Awards. The K 1600 GT delighted the motorcycle press with its unique combination of comfort, performance and use of innovative technologies. Motorcycle production increased In total, 125,284 BMW and Husqvarna brand motor- cycles were manufactured during the year under report (+ 5.4 %), with 113,811 BMW brand motorcycles built at the motorcycle plant in Berlin (+ 3.1 %) and 11,473 Husqvarna brand motorcycles built in Italy (+ 34.9 %). BMW Group sales volume of motorcycles in 1,000 units 140 120 100 80 60 40 20 08 09 10 11 12 BMW Husqvarna 101.7 13.5 87.3 13.1 98.0 104.3 106.4 12.1 9.3 10.7 Total 115.2 100.4 110.1 113.6 117.1 31 COMBINED GROUP AND COMPANY MANAGEMENT REPORT FINANCIAL SERVICES SEGMENT Financial Services segment remains on growth course Despite fluctuations on international capital markets, the Financial Services segment achieved another good performance in 2012 with its attractive range of products and continued to grow. Overall 3,846,364 credit financing and lease contracts were in place with dealers and retail customers at the end of the reporting period (2011: 3,592,093 contracts; + 7.1 %). In balance sheet terms, the segment’s business volume rose by € 5,729 million to € 80,974 million (2011: € 75,245 mil- lion; + 7.6 %). The Financial Services segment operates in more than 50 countries worldwide as partner to the sales organi- sation, with activities comprising the following six lines of business: 1. Lease and credit financing of BMW Group vehicles for retail customers 2. Lease and credit financing for fleet customers / fleet ing for inventories, real estate and equipment. The segment’s range of products is rounded off by the pro- vision of insurance and banking services. Significant growth in new business Credit and leasing business with retail customers saw further dynamic growth in 2012, with 1,341,296 new contracts signed worldwide, 12.1 % more than last year (2011: 1,196,610 contracts). Double-digit growth rates were achieved in both lines of financing, with lease business up by 16.3 % and credit financing by 10.0 % compared to the previous year. Leas- ing accounted for 33.8 % of total new business, credit financing for 66.2 %. The proportion of new BMW Group cars leased and financed by the Financial Services segment was 40.4 %, marginally lower than one year earlier (2011: 41.1 %; – 0.7 percentage points). management 3. Multi-brand financing 4. Dealer financing 5. Insurance 6. Banking In the used car financing line of business, a total of 303,490 new contracts were signed during 2012, marginally up (+ 0.6 %) on the previous year (2011: 301,539 contracts). Credit financing and the lease of BMW Group brand cars and motorcycles to retail customers is the largest line of business. The BMW Group operates its inter- national multi-brand fleet business under the brand name “Alphabet International”, providing mobility solutions in 19 countries. This includes first and fore- most the financing of corporate car requirements as well as the comprehensive management of corporate car fleets. Within the multi-brand financing line of business, credit financing, leasing and other services are marketed to retail customers under the brand name “Alphera”. The Financial Services segment also supports the dealer organisation by providing financ- The total volume of all new credit and leasing contracts concluded with retail customers during the period under report amounted to € 36,664 million, 15.4 % up on the preceding year (2011: € 31,779 million). A total of 3,534,620 retail customer contracts was in place at 31 December 2012, 6.7 % more than one year earlier (2011: 3,311,809 contracts). All regions con- tributed to the increase in business volume, with the contract portfolio rising by 9.8 % in the Europe / Middle East region, 5.2 % in the Americas region and 1.1 % in the EU-Bank region. The sharpest increase was recorded in the Asia / Pacific region (+ 24.2 %). Contract portfolio of Financial Services segment in 1,000 units BMW Group new vehicles financed by Financial Services segment 3,800 3,600 3,400 3,200 3,000 2,800 2,600 in % 50 40 30 20 10 08 09 10 11 12 3,032 3,086 3,190 3,592 3,846 Financing Leasing 20.9 27.6 24.7 24.3 24.1 24.1 20.0 21.1 20.7 19.7 08 09 10 11 12 32 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 Contract portfolio retail customer financing of Financial Services segment 2012 as a percentage by region Asia / Pacific Europe / Middle East / Africa EU-Bank Americas EU-Bank Americas 32.8 31.4 Europe / Middle East / Africa 24.6 Asia / Pacific 11.2 Awards for quality of service The BMW Group’s Financial Services segment was again the recipient of numerous international awards in 2012. In the annual survey carried out by the market research institute J. D. Power and Associates, our Finan- cial Services business in the USA came first for the ninth time in succession in the category “Dealer Financing Satisfaction StudySM”. The award presented by this in- ternationally renowned market research institute is acknowledgement of the high level of dealer satisfaction achieved with our leasing and financing products. Expansion of BMW Bank continued in line with plan Further progress was made in 2012 to expand the BMW Bank. With effect from August 2012, financial services business in France was integrated directly with the BMW Bank by means of a subsidiary. Financial Services business in Germany now covers entities in Germany, France, Italy, Portugal and Spain. Strong growth for fleet business Alphabet International, with its wide range of multi- brand products, is one of the top four fleet service pro- viders in Europe. At the end of the reporting period, Alphabet was managing a portfolio of 502,397 fleet contracts, up 5.8 % on the previous year (2011: 474,717 contracts). Multi-brand financing up sharply Demand for multi-brand financing grew sharply in 2012 with a total of 163,945 new contracts signed (+ 17.3 %). At the end of the reporting period, the multi- brand financing line of business covered 417,408 con- tracts (2011: 370,999 contracts: + 12.5 %). Increased dealer financing volumes The total volume of financing disbursed to the dealer organisation amounted to € 12,669 million at 31 Decem- ber 2012, an increase of 11.0 % compared to one year earlier (2011: € 11,417 million). Deposit volume again higher than at the end of the previous year Deposit business represents a significant component of the BMW Group’s refinancing strategy. The Financial Services segment’s deposit volume totalled € 13,018 mil- lion (+ 8.1 %) at the end of the reporting period. By con- trast, decreases were recorded for securities and credit card business, with the number of securities custodian accounts falling by 5.5 % to 23,042 and credit card con- tracts down by 2.4 % to 281,464. Dynamic growth for insurance business In addition to its leasing and financing products, the Financial Services segment also offers a wide range of insurance services relating to individual mobility. New business grew by 15.7 % to 979,776 contracts in 2012. The insurance contract portfolio expanded by 7.6 % compared to last year’s figure to stand at 2,158,892 con- tracts (2011: 2,007,268 contracts). Risk profile largely unchanged The BMW Group’s credit and residual value risk profile remained largely unchanged. The loss ratio on lending decreased further in the year under report, falling by one basis point from 0.49 % in 2011 to 0.48 %. Average losses on residual value risks also decreased slightly. The Financial Services segment uses the value at risk (VaR) methodology to measure the amount of unex- pected loss for major risk categories (credit, residual value and interest rate risks, operational risks and in- surance business-related risks), based on a confidence level of 99.98 % and a holding period of one year. 33 COMBINED GROUP AND COMPANY MANAGEMENT REPORT Development of credit loss ratio in % 0.9 0.8 0.7 0.6 0.5 0.4 0.3 08 09 10 11 12 0.59 0.84 0.67 0.49 0.48 Losses are managed using an integrated limit system based on a limit determined and set at the beginning of each financial year by reference to available risk coverage equity. The stipulated limit was not exceeded in 2012, which means that the segment’s risk-bearing capacity was ensured at all times (see also section “Risk Management”). RESEARCH AND DEVELOPMENT Research and development expenditure increased In 2012 our Research and Innovation network employed a workforce of more than 10,900 people based in 13 lo- cations spread over five countries. Research and devel- opment expenditure for the year rose by 17.2 % to € 3,952 million, mostly on projects aimed at securing the Group’s future (2011: € 3,373 million). The research and development ratio was 5.1 %, 0.2 percentage points higher than in the previous year (2011: 4.9 %). Further information on research and development activities is provided in note 9 to the Group Financial Statements. New Efficient Dynamics engine family under development Efficient Dynamics is one of the most effective strate- gies for reducing both fuel consumption and CO2 emis- sions. During the period under report the efficiency of our combustion engines was further improved while maintaining or even boosting engine performance. Fur- thermore, full hybrid drive systems were developed for the BMW 3 Series and 7 Series and additional pro- gress was made in the fields of energy management and lightweight construction. In 2012 we presented a 1.5-litre engine based on the BMW TwinPower Turbo technology. This 3-cylinder en- gine is one of the first power units of the new Efficient Dynamics engine family. It is based on a standardised design principle and uses a higher number of common components both for petrol and diesel engines. It is thus possible to effectively develop 3-, 4- and 6-cylinder engines of varying capacities using one common tech- nological concept. Since 2011 we have been offering the ECO PRO Driving Experience Control, which enables drivers to select between various driving modes from sporty to highly economical. The latest ECO PRO mode is connected to the navigation system. With the help of navigation data, the vehicle anticipates the road ahead and provides the driver with information that promotes efficient driving. For instance, the vehicle’s energy management system knows it is approaching a town and gives the driver an appropriate early warning. In combination with the ECO PRO coasting function, the engine is de- coupled and the vehicle is then only slowed by the aero- dynamic drag and rolling resistance. Consistent use of the ECO PRO mode can reduce fuel consumption signifi- cantly. 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 34 We have also made improvements to our hybrid tech- nology and are currently offering BMW ActiveHybrid technology for the models BMW ActiveHybrid 7, BMW ActiveHybrid 5 and BMW ActiveHybrid 3. The power for the electrically driven features in these vehicles is largely generated by the Brake Energy Re- generation system. Further progress was also made in the field of light- weight construction during the period under report. Current examples are bumper brackets made of aluminium and instrument panel supports of magne- sium. In order to offer customers the BMW i3 and i8 complete with electricity from fully renewable sources, in 2012 the BMW Group entered into a strategic cooperation with NATURSTROM AG. In a further step towards the complete automation of CFRP production, cooperation arrangements with the aircraft manufacturer Boeing were announced in December 2012, the main points of which are research into the recycling of carbon fibres and the automation of production processes. We also entered into strategic partnerships during the year un- der report with a view to establishing efficient, cus- tomer-friendly wallboxes in the garages of BMW i3 and i8 owners. BMW ConnectedDrive: innovations for connected mobility Connected Drive stands for forward-looking vehicle concepts and technologies. New functions demon- strate the innovation leadership of the BMW Group when it comes to the connectedness of the driver, the vehicle and the environment. The latest generation of our navigation system is equipped with a three-dimensional graphic visualisation that includes additional functions as well as an optimised display and operating concept. The new dictation func- tion with speech-text entry enables the driver to dictate texts for e-mails and SMS text messages. Moreover, in 2012 the BMW Group became the first carmaker world- wide to offer high-speed Internet functionality in a vehicle. The LTE standard forms the interface between the user’s mobile end device and the Internet. Since August 2012 the My BMW Remote app has also been available for smartphones with Android operating systems. My BMW Remote enables BMW owners to ac- tivate numerous practical functions of their vehicle re- motely, such as doors to be locked and unlocked. In addi- tion, users of BMW ConnectedDrive and MINI Connected now have new apps designed to enhance the range of in- formation and entertainment available within the vehicle. BMW i3 Concept Coupé and i8 Concept Spyder celebrate world premiere In April 2012 the BMW i8 Concept Spyder celebrated its world premiere at the Shanghai Motor Show. In June we demonstrated the use of regenerative materials for vehicle interiors based on the BMW i3 Concept. The BMW i3 Concept Coupé was presented in Los Angeles in November. As well as providing an opportunity to preview the design of a model nearing series production, the complete connectedness of this vehicle with the outside world was in the spotlight. Research project enables cars and motorcycles to communicate with each other Numerous companies from the automotive and tele- communications industries, the government of the Ger- man state of Hesse and the city of Frankfurt am Main as well as various universities and scientific institutions have united in the research project “Sichere Intelligente Mobilität – Testfeld Deutschland (simTD)”. Their joint aim is to test the functionality, suitability for everyday use and effectiveness of car-to-X communication for the first time under real conditions. After four years of re- search work, the field trial commenced in October 2012 with over 120 vehicles. The BMW Group is the only pro- ject partner taking part in the field trial with both cars and motorcycles. The simTD project is testing various driver assistance systems based on car-to-X communi- cation methods for BMW Group cars and motorcycles. For example, traffic light systems can transmit informa- tion about their switching times to enable a driver assis- tance system to either pass on information regarding the optimum speed for a personal “green wave” or warn about the imminent danger of going through a red light (traffic light phase assistant). A specific transfer of data describing the traffic situation, the condition of the road surface and further factors makes it possible to relay early warnings of accidents (obstacle warning), traffic jams (end-of-jam warning) or the formation of black ice (road weather warning) from one vehicle to other motorists in the vicinity. Additionally, based on the vehicle data transferred, it is possible to calculate the risk of a collision, enabling warnings to be transmitted about the risk of collision at crossings (cross-traffic as- sistant). Further car-to-X functions in the simTD re- search project are the warning for emergency vehicles, the electronic brake light and the road sign assistant. Moreover, the test vehicles supply the data necessary to improve traffic management. In this way, traffic jams can be anticipated, CO2 emissions can be reduced and waiting times at traffic lights minimised. 35 COMBINED GROUP AND COMPANY MANAGEMENT REPORT Numerous awards received once again for achievements in the field of development Alongside the BMW 6 Series Convertible, the BMW 6 Se- ries Coupé, the BMW 1 Series M Coupé and the BMW ActiveE, in January 2012 two of the Group’s mo- torcycles, the BMW K 1600 GT / GTL and the BMW G 650 GS received the 2011 GOOD DESIGNTM Award. For over 60 years the world’s oldest design award has been given to manufacturers and designers for especially innovative, visionary products, concepts and ideas. The awards are given according to the criteria of func- tionality and aesthetics and are supplemented by a contemporary ecological standard of sustainable design. In July the Group additionally received the GREEN GOOD DESIGNTM Award for the BMW i8 Concept, the BMW i3 Concept and the MINI Rocketman Concept. Cri- teria such as low energy consumption and reduced de- pendency on fossil fuels are particularly focused on. In February 2012 the new BMW 6 Series Coupé re- ceived the iF Gold Award for outstanding design. The special prize is the highest award that the renowned International Forum Design can bestow. In addition, the BMW 1 Series, the BMW 1 Series M Coupé, the BMW 6 Series Convertible and the BMW G 650 GS motorcycle received iF Product Design Awards. The iF Design Award of the International Forum Design has established itself over the last 60 years or so as one of the most highly regarded seals of quality for out- standing design work. When it came to the red dot awards, the BMW Group was proud to receive a total of eleven of these internationally coveted prizes, including two with the highest seal of quality “best of the best” for the BMW AirFlow 2 helmet and the Husqvarna Nuda 900R. The red dot award was also given to the BMW 6 Series Gran Coupé, the BMW 6 Series Coupé, the BMW M5, the BMW 1 Series M Coupé, the BMW C 600 SPORT, the BMW C 650 GT, the BMW K 1600 GT and the BMW G 650 GS. The BMW 3 Series Sedan also earned an Honourable Mention. The red dot award, which was first presented in 1955, is one of the world’s most prestigious awards in the field of product design. With this award, the jury, which consists of 30 international design experts, honours extraordinary design achievements in a wide range of fields. In October 2012 the jury of experts of the German Design Council announced the winner of the German Design Awards 2013. At this year’s competition, the BMW 6 Se- ries Convertible was among the winners in the Trans- portation and Public Space category. The BMW 1 Series and the Husqvarna Nuda 900R also received recognition. The two vehicles earned a Special Mention for their particularly outstanding design features. The 30-person jury of the German Design Award 2013 comprises de- sign experts from commerce, science and the design in- dustry. The competition pays tribute to innovative and international design trends. The sixth generation of the BMW 3 Series received the internationally prestigious “Goldenes Lenkrad” auto- motive prize, which is already the fifth success for this series. The BMW 3 Series Sedan came out top in the medium- and luxury-class category. The award is given to the most convincing new car of the year on the mar- ket in each category. With victories in four classes as well as four second and two third places in the “International Engine of the Year Award” we repeated the success of the previous year and simultaneously underscored our leading position as the dominant manufacturer in this competition. Win- ners in their classes were the 1.6-litre turbo engine of the MINI Cooper S, the 4-cylinder engine featuring BMW TwinPower Turbo technology that currently powers the new BMW 328i, the in-line 6-cylinder with M TwinPower Turbo engine from the BMW 1 Series M Coupé and the V8 propulsion unit under the bonnet of the BMW M3. BMW crowns DTM comeback with all three titles BMW Motorsport celebrated its first season back in the German Touring Car Masters (DTM) championship with a clean sweep in all three categories. Not only the drivers’ title, but also the teams’ and manufacturers’ titles all went to BMW. With this triple success, BMW Motorsport can look back at a DTM season in which its three teams and six drivers greatly exceeded all expec- tations with the BMW M3 DTM. Apart from four victo- ries, we also managed an additional seven placings. 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 36 PURCHASING Purchasing and Supplier Network functions further enhanced As the leading provider of premium automobiles, to- gether with its partners the BMW Group operates the most efficient supply chain in the automotive industry. In today’s volatile environment this means being able at all times to react swiftly and flexibly to fluctuations in demand while maintaining a consistently high quality of parts and competitive costs. Moreover, we have made it a key aim to promote our own innovative strengths and those of our suppliers to enhance our position as the leading provider of innovations in the premium segment. In advance of the introduction of the BMW i3 in 2013 we drew up an extensive sustainability programme dur- ing the period under report, aimed at generating yet further improvements in the field of resource efficiency. Numerous model start-ups during the reporting year Numerous new models were launched in 2012 for the BMW, MINI and Rolls-Royce brands. BMW success- fully launched six new derivatives of the 1, 3, 5 and 6 Series. MINI successfully introduced its Coupé, while Rolls-Royce Motor Cars brought its Phantom Series II onto the market. Particularly worthy of mention are the launch in 2012 of the BMW 6 Series Gran Coupé and the two hybrid vehicles, the BMW ActiveHybrid 3 and BMW ActiveHybrid 5. The BMW Group also introduced the extended-wheelbase version of the BMW 3 Series Sedan to the Chinese market and brought out revised versions of the BMW 7 Series and the X1 in order to satisfy rising demand in the fast-growing markets of China, India, Brazil and Russia. Further internationalisation of procurement markets The BMW Group continued to focus in 2012 on increas- ing the international scale of its purchasing activities. One example of this was the success achieved with the newly launched BMW 1 Series and 3 Series models. The opening of our new plant in Tiexi*, China, for instance, enabled us to significantly increase the volume of mate- rial purchased locally. This is a good example of how we are increasingly shifting added value along the sup- ply chain and into our sales markets, thus helping us to hedge currency exposures. Multi-currency ordering also enables us to pay for purchasing volumes in the currency in which added value is generated. High level of investment safeguards productivity and technology lead In addition to its purchasing, quality assurance and logistics functions, the BMW Group’s Purchasing and * Joint venture BMW Brilliance Regional mix of BMW Group purchase volumes 2012 in %, basis: production material Africa Asia / Australia NAFTA Central and Eastern Europe Germany Rest of Western Europe Germany 50.3 NAFTA Rest of Western Europe Central and Eastern Europe 17.3 14.8 Asia / Australia Africa 13.4 3.1 1.1 Supplier team is also responsible for component pro- duction sites, an arrangement that is unique in the auto- motive industry. Regular comparative analyses help to guarantee that processes are efficient and effective. The sites concerned are regularly required to prove their competitiveness against external providers. The high level of efficiency achieved was again borne out in 2012 by the bestowal of numerous industry awards. The significance of Landshut as the competence cen- tre for lightweight construction and electromobility within the BMW Group was underlined by the com- missioning of the production plant for ultra-light- weight carbon-fibre parts. The carbon fibre cores pro- duced at the Wackersdorf plant are processed in Landshut to form CFRP body parts and subsequently delivered to the BMW plant in Leipzig, where produc- tion of the BMW i3 and BMW i8 will commence dur- ing the course of 2013. This investment in CFRP tech- nology provides the basis for large-scale automated series production of carbon-fibre parts and is an important aspect of the BMW Group’s long-term light- weight construction strategy. For the time being at least, the BMW Group is in a unique position within the automotive industry. In addition to the manufacturing of carbon-fibre cores and cockpits for the BMW 1 Series and 3 Series, the Wackersdorf plant handles packaging and distribution of small parts for CKD / SKD production worldwide. As such, the plant constitutes a key element of the Group’s logistics arrangements. 37 COMBINED GROUP AND COMPANY MANAGEMENT REPORT Sustainability within the value-added chains Sustainability criteria are a fundamental part of our pur- chasing terms and conditions and supplier assessments. Among other requirements, we expect our suppliers to guarantee that sub-suppliers also comply with our ex- acting standards. Our Top Two position in the Supply Chain category of the Dow Jones Sustainability Index in 2012 is testament to the high standards we set. Further information on risk management procedures applied within the Purchasing and Supplier network is pro- vided in the risk report. SALES AND MARKETING Sixth generation of the BMW 3 Series successfully launched The new BMW 3 Series Sedan has been available on markets worldwide since February 2012. Now in its sixth generation, the latest model is again setting standards in its class and has received broad acclaim inter nationally from customers and the media alike. The BMW Active- Hybrid 5 came onto the market in March. The BMW M6 Convertible as well as the new M Performance models, M550d xDrive (as Sedan and Touring) have all been avail- able since May. June saw the launch of the BMW 6 Series Gran Coupé, the first four-door Coupé in the brand’s his- tory, as well as those of the BMW X5 M50d, the BMW X6 M50d and the BMW X6 (the latter as a model revision). The BMW M 135i plus model revisions of the BMW 7 Se- ries and the BMW X1 reached the showrooms in July. The extended-wheelbase version of the BMW 3 Series Se- dan for China and the M6 Coupé became avail able in Au- gust. The new BMW 3 Series Touring and the new BMW 1 Series three-door version were introduced in Septem- ber, the latter incorporating the xDrive four-wheel-drive system in a 1 Series vehicle for the first time. September also saw the launch of the BMW ActiveHybrid 3. The BMW Concept Active Tourer celebrated its world debut at this year’s Automobile Show in Paris, providing an initial in- sight into a whole array of groundbreaking innovations. MINI family grows The MINI Roadster was introduced as the sixth member of the MINI family in March 2012. The brand’s seventh model, the MINI Paceman, was presented in Paris, the world’s first Sports Activity Coupé to appear in the premium compact segment. The Countryman John Cooper Works became the sixth model to be sold under the umbrella of the sports- oriented John Cooper Works sub-brand. The MINI John Cooper Works GP, the fastest MINI ever built, celebrated its world debut in Paris. MINI customers can now choose between 43 different models. Rolls-Royce Phantom Series II launched Rolls-Royce Motor Cars launched the new Phantom Series II in September. As well as an enhancement to its timeless design, a whole host of technical innovations were incorporated in the Phantom Series II. Both cus- tomer and media reactions to the new series have been extremely positive. Rolls-Royce Motor Cars also expanded the scope of its Bespoke Programme for the Phantom family and for the Ghost. Entire BMW Group brand spectrum now housed at the BMW Welt In October 2012 the BMW Group presented its expanded brand exhibition at the BMW Welt, which now displays 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 38 the entire spectrum of BMW Group brands (BMW, BMW Motorrad, MINI, Rolls-Royce and Husqvarna Mo- torcycles) and sub-brands (BMW i, BMW M and MINI John Cooper Works). For the first time the BMW Group is now also presenting itself as a company in its own display area in the Double Cone, highlighting the role that our employees can play as company ambassadors. In the BMW area, both design and technological aspects are showcased alongside the vehicles themselves. The BMW i presentation provides comprehensive informa- tion on the subject of electromobility. The BMW M area provides many insights into the world of motor sport. Visitors to the MINI area are welcomed with an array of surprising and unconventional ideas. The Rolls-Royce presentation is stylish and modern as befits the brand. The BMW Motorrad area features besides motorcycles a Biker’s Lodge, which serves as a platform for the motor- cycle community. The Husqvarna brand focuses on the sporty nature of the off-road segment. BMW i establishes its worldwide credentials BMW i stands for visionary electric vehicles, revolution- ary lightweight construction, inspiring design and inno- vative mobility services. It also stands for a new under- standing of the term “premium” that is strongly defined by sustainability. The international BMW i Born Electric Tour, which commenced in June 2012, is scheduled to stage visits in seven megacities in Europe, Asia and the USA in the period up to mid-2013. These events provide an opportunity for interested parties and potential cus- tomers to experience the BMW i3 Concept and BMW i8 Concept at first hand and find out about the sustaina- bility aspects, innovative technologies and services that BMW i offers. BMW i’s 360° Electric concept provides comprehensive solutions in the fields of battery-charg- ing infrastructure and mobility guarantees. Range of mobility services broadened The car-sharing service, DriveNow, launched in 2011, was expanded during the year under report to the cities of Cologne, Düsseldorf and San Francisco, and is now being used by more than 75,000 customers. DriveNow’s fleet in San Francisco includes BMW ActiveE electric cars, making it the first car-sharing provider in the world to operate with electrically powered premium vehicles. The ParkNow service was also launched in San Francisco, providing a comprehensive parking service enabling drivers to make reservations, use parking spaces without a ticket and pay online. Over the course of 2012, three new mobility services were added to the MyCityWay and ParkatmyHouse ser- vices already launched in the previous year. Parkopedia provides information on hundreds of thousands of park- ing and garage spaces worldwide. Chargepoint is cur- rently the world’s leading provider for charging stations for electric vehicles and allows future BMW i customers to obtain up-to-date information about available stations at any time. Embark is a mobile app that shows the best way of getting around cities on foot or by public transport. New premium experience The BMW Group launched a new worldwide programme called “Future Retail” in 2012 aimed at improving the premium experience when customers come into contact with the Group’s brands. The stated objectives of the programme are: – to create new and additional points of contact for our brands, – to achieve an even more exclusive ambience in dealerships, – to provide targeted support to dealerships that help them focus even more effectively on customers’ requirements. In this context, so-called “Experience Centres” were opened in Paris, Amsterdam and London for the BMW and MINI brands. Sales network expanded As sales volumes continued to rise, more than 100 sales outlets were added to the worldwide dealer network in 2012. Similar to the previous year, the main thrust of the expansion was in China, where an additional 82 BMW and 25 MINI dealerships were opened. The MINI sales network was strengthened in par ticular in Asia and South America. The number of dealerships in southern Europe was reduced in response to the economic con- ditions prevailing in this region. Overall, the BMW Group’s car sales network comprises some 3,300 BMW, 1,550 MINI and 110 Rolls-Royce dealerships worldwide. Another record year for customer service Worldwide revenues generated with customer services again reached record levels in 2012. This was the case in Germany as well as in the main growth markets. Spare parts revenues also grew strongly in the year un- der report, repeating the fine performance recorded in the previous year. BMW Group as official partner to the Olympic Games in London As Official Automotive Partner of the London 2012 Olympic and Paralympic Games, the BMW Group made available a fleet of some 4,000 low-emissions vehicles for athletes, officials and the organising committee. This also included the important contribution made by the 160 BMW ActiveE and 40 MINI E vehicles that escorted the Olympic Flame across the United Kingdom prior to the Games themselves. 39 COMBINED GROUP AND COMPANY MANAGEMENT REPORT WORKFORCE Workforce increased The BMW Group’s worldwide workforce grew to a total of 105,876 employees at 31 December 2012 (2011: 100,306 employees; + 5.6 %). The major part of the increase was attributable to strong demand for cars on the one hand and the development of new technologies (such as electromobility) on the other. Number of apprentices increased 1,376 young people started their vocational training with the BMW Group at the beginning of the new training year. In Germany alone, the BMW Group increased the number of apprentices by more than 10 % to 1,200. At the end of the reporting period, the BMW Group employed 4,266 apprentices world- wide (+ 9.4 %). The BMW Group introduced a new training concept in Germany during the year under report, focusing on individual talents and strengths. Alongside the conven- tional training route, the BMW Group continues to offer training courses that can lead to entrance qualifi- cation for university. Our training programme at the Spartanburg plant in the USA, based on the principles of the German dual training system, proceeded into its second year. In cooperation with our joint venture partner, Brilliance Automotive, we also offer young people employed at the Shenyang site in China a com- parable route for embarking on a professional career. Increased investment for employee training Expenditure on basic and further training rose by 14.6 % in the period under report to € 282 million, indicative of the high pace of innovation within the enterprise. The range of courses on offer was expanded significantly, particularly for new technologies, but also in the field of healthcare. Further emphasis was placed on broadening the international scope of our training courses. Greater promotion of young talent A well-coordinated system of promoting talented em- ployees has been adopted to ensure that the BMW Group BMW Group apprentices at 31 December 4,500 4,000 3,500 3,000 2,500 2,000 08 09 10 11 12 4,102 3,915 3,798 3,899 4,266 remains competitive in the future. A potential career with the BMW Group is made even more attractive by offer- ing bachelor, master and Ph.D. programmes to all aca- demic target groups, thus combining technical training and practical experience with the provision of financial support. Internationally oriented programmes aimed at securing management-level staff supplement the promo- tion of talented young people in the BMW Group. BMW Group highly rated as an attractive employer The BMW Group remains one of the most attractive employers in the world. This is based on numerous up- to-date studies and rankings tables. In the most recent edition of “The World’s Most Attractive Employers” published by the Universum agency, the BMW Group asserted its position as the most attractive German employer, achieving top spot in both the en gineering and business categories. We also came out on top among manufacturers in a student survey conducted in China by Trendence. Similarly, we came first in that agency’s German Young Professional Barometer 2012 across all sectors. The BMW Group was able to repeat the excellent results achieved a year ago in the Universum Professional Barometer Ger- many and took first place in the Business and Engineer- ing categories as well as third place in the Information Technology category. BMW Group employees Automotive Motorcycles Financial Services Other BMW Group 31.12. 2012 31.12. 2011 96,518 2,939 6,295 124 91,517 2,867 5,801 121 105,876 100,306 Change in % 5.5 2.5 8.5 2.5 5.6 40 Proportion of non-tariff female employees at BMW AG / BMW Group* in % 13 12 11 10 9 8 Employee fluctuation ratio at BMW AG1 as a percentage of workforce 7.0 6.0 5.0 4.0 3.0 2.0 1.0 08 09 10 11 12 08 09 10 11 12 BMW AG BMW Group 8.4 8.4 8.8 9.1 10.0 11.1 11.8 12.9 * Percentage calculated for the BMW Group since 2010 5.852 4.59 2 2.74 2.16 3.87 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) 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 spectrum of social engagement. They include an educa- tion centre for children in Peru, support for orphans in Panama, educational projects for children and youths in South Africa and initiatives for combating illiteracy in Ethiopia. Diversity as a competitive factor Social diversity is one of the principal components of our personnel and sustainability strategies. Diversity is encouraged throughout the BMW Group on the basis of the following criteria: gender, origin / cultural back- ground and age / experience. The clear goal is to secure long-term success for the enterprise through the deploy- ment of diverse and complementary talents. The proportion of women in the workforce, in manage- ment positions and in training programmes for young talent was further increased during the year under re- port. Particularly good progress was made in the num- ber of women in management positions, with the proportion rising to 12.9 % for the BMW Group and 10.0 % for BMW AG. Specific training and promotion programmes – for both women and men – have been expanded and rolled out worldwide as part of the strategy of bringing the proportion of women in manage- ment positions up to our target corridor of between 15 % and 17 % by the year 2020. Female representation in trainee programmes throughout the BMW Group is already above 35 %. Employees from 16 countries partici- pated in the international trainee programme in 2012. International awards for social engagement For the first time in 2012, the BMW Group presented awards for the social commitment of its employees on a worldwide basis, thereby acknowledging the wide range of voluntary work they carry out for other people in their own free time. Out of numerous projects submit- ted from a total of 14 countries, awards were ultimately given to four outstanding projects spanning a broad 41 COMBINED GROUP AND COMPANY MANAGEMENT REPORT SUSTAINABILITY Safeguarding the future of the BMW Group with sustainable business practices Commercial success, the responsible use of resources and the assumption of social responsibility form the basis for long-term growth and a steady rise in corpo- rate value. Sustainability is therefore a key element in our Strategy Number ONE. The BMW Group’s sustainability strategy is valid through- out the organisation and is incorporated in the Group Balanced Scorecard as a strategic corporate goal. In 2012 we again asserted our position as most sustainable pre- mium provider in the field of individual mobility, a fact also confirmed by an independent source: in the Dow Jones Sustainability Index (DJSI) rankings published in September 2012, the BMW Group was listed as the most sustainable automobile manufacturer in the world for the eighth time in succession. The Sustainability Board, which includes all members of the BMW Board of Management, continually develops the Group’s sustainability strategy and manages sustain- ability initiatives group-wide. The Sustainability Board meets twice a year and is supported by the Sustainability Committee, comprising representatives from the various fields of responsibility. The principal task of this body is to ensure implementation of the sustainability strategy across the Group. As well as paying due attention to social and ecological aspects in decision-making, the BMW Group’s sustain- ability management strategy encompasses the system- atic analysis of external framework conditions and a continual dialogue with our stakeholders. The stake- holder dialogues held in Berlin and San Francisco in 2012 provided us with important input for the further enhancement of our sustainability strategy. Clean production: key milestone reached The integration of environmental management in all production processes enables us to reduce our use of resources and minimise environmental impact. We see this as an ongoing process. At an early stage we set our- selves the goal of a 30 % reduction in average resource consumption and emissions per vehicle produced for the period 2006 to 2012, using the measurable parame- ters energy, water, process wastewater, non- recyclable waste and solvents. We also check the level of CO2 emis- sions resulting from energy consumption. In actual fact, we improved efficiency by more than a third (35.7 %), thus surpassing our ambitious target. A more detailed look at the fundamental parameters over the six-year period shows the following picture: Energy consumption Water consumption Process wastewater Non-recyclable waste Solvent emissions – 26 % – 30 % – 36 % – 65 % – 27 % During the same period the CO2 emissions per vehicle produced also fell by 30 %. We have now set ourselves new targets to be reached by 2020: we aim to reduce resource consumption and emissions per vehicle pro- duced by an average of 45 % compared to 2006. Conserving resources in production During the period under report, resource consumption and emissions per vehicle produced were reduced by an average of 11.6 %, equivalent to cost savings of more than €9 million on the previous year. Energy consumed per vehicle produced in MWh / vehicle Water consumption per vehicle produced in m3 / vehicle 3.00 2.80 2.60 2.40 2.20 2.00 2.80 2.60 2.40 2.20 2.00 1.80 08 09 10 11 12 08 09 10 11 12 2.80 2.89 2.75 2.46 2.44 2.56 2.56 2.31 2.12 2.10 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations 18 21 24 Automotive segment Motorcycles segment Financial Services segment Research and development Purchasing Sales and Marketing Workforce Sustainability 24 30 31 33 36 37 39 41 BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis Internal Control System and explanatory comments Risk Management Outlook 44 47 50 65 66 74 42 CO2 emissions per vehicle produced in t / vehicle Process wastewater per vehicle produced in m3 / vehicle 0.90 0.85 0.80 0.75 0.70 0.65 0.70 0.60 0.50 0.40 0.30 0.20 08 09 10 11 12 08 09 10 11 12 0.82 0.91 0.86 0.71 0.68 0.64 0.62 0.58 0.54 0.48 The high number of model start-ups, the increasing number of models being launched and the greater verti- cal range of manufacture, such as with CFRP, were the main challenges in our endeavours to improve energy efficiency. Expansion of our highly efficient and ecologi- cally sustainable combined heat and power plants led to higher consumption due to conversion factors. Despite this fact we managed to reduce the energy consumed per vehicle produced in 2012 to 2.44 MWh (– 0.8 %). This improvement was achieved by means of a number of measures such as the use of waste heat from the paint shop at the Leipzig plant and the use of energy-efficient motors for cooling the computer centre at our Oxford plant. Greater energy efficiency and the use of electric- ity produced from regenerative sources helped to re- duce the CO2 emissions per vehicle produced by 4.2 % to 0.68 tonnes during the period under report. The volume of water required per vehicle produced also fell to 2.10 m3 (– 0.9 %) in 2012. The amount of process wastewater produced decreased by 11.1 % to 0.48 m3 per vehicle produced. The conversion of the paint shop in Spartanburg to a water-free paint process and the re- use of water in the paint shops at the Dingolfing and Munich plants were the main contributing factors to this reduction. The volume of non-recyclable production waste was re- duced by a further 23.5 % to 6.11 kg per vehicle pro- duced in 2012. The primary reason for the improvement was the conversion from waste disposal to recycling at all plants in the UK. Solvent emissions increased slightly by 1.8 % to 1.68 kg per vehicle produced during the period under report, largely due to increased production volumes in China. New, eco-friendly painting processes will come on line at the Tiexi* plant by the end of 2013. The paint shop at the Dadong* plant is also scheduled for retrofitting with a view to minimising solvent emissions in years to come. * Joint venture BMW Brilliance Eco-friendly transportation solutions The general increase in production volume combined with regional shifts in demand had an impact on the 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 08 09 10 11 12 08 09 10 11 12 14.84 10.63 10.09 7.99 6.11 1.96 1.77 1.60 1.65 1.68 43 COMBINED GROUP AND COMPANY MANAGEMENT REPORT percentages of various modes of transportation used. The percentage of air freight used edged up to 1.2 %. The percentage of sea freight also rose slightly to 79.2 %. Rail transportation went up to 8.9 %, whereas the amount of goods transported by road fell to 10.7 %. Overall, 56.9 % of all new vehicles left the Group’s plants by rail (+ 3.8 percentage points). tation of innovative car-sharing strategies, also with purely electrically powered vehicles under the DriveNow brand, we are consciously addressing changing needs in the field of individual mobility. Further information on this topic can be found in the sections “Research and Development” and “Sales and Marketing”. Sustainability also demanded in supplier network Sustainability aspects also play a key role in the selec- tion and assessment of our suppliers. More information on this topic is available in the section “Purchasing”. Top position in premium segment for reduction of CO2 emissions Increasingly strict legislation governing vehicle emissions worldwide is presenting new challenges for the auto- motive industry. The BMW Group took measures at an early stage aimed at achieving significant reductions in the fuel consumption and emission levels of its vehicle fleet. Efficient Dynamics innovations are having a bene- ficial impact on the entire fleet and are subject to con- tinual improvement. As from 2013 the electric drive systems in products of the sub-brand BMW i will be in- creasingly supplementing our range of models. With the growing use of electricity to power vehicles and the rise of hybrid technology, we will continue to play a ma- jor role in reducing CO2 emissions and improving fuel economy. All of these factors taken together will enable us to meet applicable CO2 and fuel consumption thresholds in the future. Between 1995 and 2012 we reduced the CO2 emissions levels of our newly sold cars in Europe by more than 30 %. In 2012 the BMW Group’s vehicle fleet recorded average fuel consumption of 5.0 litres of diesel / 100 km, 6.3 litres of petrol / 100 km and average CO2 emissions of 138 g / km in Europe (EU-27). We also lead the field among German premium-segment manufacturers with CO2 emissions of 143 g / km. In 2012 the BMW Group’s fleet already included 34 models with emissions of less than 120 g CO2 / km. Our efficient technologies have given us a competitive edge, particularly in markets governed by a CO2-based vehicle tax. It remains our goal to reduce the CO2 emissions of our vehicle fleet by at least another 25 % between 2008 and 2020. Strategic orientation towards sustainable individual mobility of the future We think the term “premium” will be increasingly defined by reference to sustainability in years to come. With our own BMW i sub-brand and the implemen- 44 BMW Stock and Capital Market in 2012 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 18 21 24 44 47 50 65 66 74 Overview of capital markets in 2012 BMW stock significantly outperformed the market as a whole within a generally volatile environment during 2012. Helped by the best ratings in the European auto- mobile sector, the BMW Group was again able to refi- nance its operations at attractive conditions. The BMW Group was index leader in the Dow Jones Sustainability Index World for the eighth time in succession. Stock markets record sharp gains despite debt crisis The debt crisis in the eurozone once again had a signifi- cant impact on the performance of stock markets in 2012. In contrast to the previous year, the German stock index, the DAX, was able to avoid these negative in- fluences, particularly towards the end of the year, and – against a background of high volatility – recorded its biggest gain since 2003. After a good start to the year, the DAX reached more than 7,100 points in the first quarter. The initial failure to form a government in Greece and concerns about Spanish banks pushed down the DAX to its low for the year of 5,900 points in June. The European Central Bank’s plan to purchase an unlimited volume of bonds initially provided a sharp boost to stock markets. By the time November came, however, increasing uncer- tainties caused by the “fiscal cliff” in the USA again took their toll on the DAX, pushing the index back under the mark of 7,000 points. After some substantial gains in the following weeks, the DAX registered its high for the year of 7,683 points on 19 December and finished the stock exchange year at 7,612 points, 29.1 % above its closing level at the end of the previous financial year. the last day of trading, thus achieving a gain of 13.8 % for the year as a whole. BMW stock was not fully able to entirely escape the in- fluence of these stock exchange developments. After a good start to the year, BMW common stock registered its initial high for the year of € 73.95 in March. The price slid back to approximately € 53 over the course of the year, only then to complete a catch-up race to the actual high for the year of € 74.00 on 28 December 2012. The price of BMW common stock finished the stock ex- change year at € 72.93. BMW preferred stock finished on 31 December 2012 at € 48.76, thus gaining more than one-third in value over the year as a whole (+ 33.4 %). Both categories of BMW stock therefore outperformed the DAX in 2012. At the beginning of January 2013, the BMW Group was presented with the Global Shareholder Value Award for the best performance in the automobile manufacturer category over a three-year period. This accolade was awarded by PriceWaterhouseCoopers in conjunction with Automotive News. In June 2012, the BMW Group had already won the European Shareholder Value Award for the best performance in the automobile manufacturer category over one- and three-year periods. Employee Share Scheme BMW AG has enabled its employees to participate in its success for more than 30 years. Since 1989 this partici- pation has taken the form of an Employee Share Scheme. In total, 422,905 shares of preferred stock were issued to employees in 2012 as part of this scheme. The Prime Automobile Index developed similarly, clos- ing at 976 points (+ 41.9 %) after putting on 288 points over a generally volatile twelve-month period. The EURO STOXX 50 index reached the level of 2,636 points on In accordance with a resolution taken by the Board of Management on 20 November 2012 and with the approval of the Supervisory Board, the share capital was increased by € 422,845 from € 655,566,568 to Development of BMW stock compared to stock exchange indices (Index: 30 December 2002 = 100) 400 350 300 250 200 150 100 50 03 04 05 06 07 08 09 10 11 12 BMW preferred stock BMW common stock Prime Automobile DAX 45 COMBINED GROUP AND COMPANY MANAGEMENT REPORT € 655,989,413 by the issue of 422,845 new non-voting shares of preferred stock. This increase was executed on the basis of Authorised Capital 2009 in Article 4 (5) of the Articles of Incorporation. The new shares of pre- ferred stock carry the same rights as existing shares of preferred stock. In addition, 60 shares of preferred stock were also bought back via the stock market. Top-level ratings In April 2012 the rating agency Standard & Poor’s raised BMW AG’s long-term rating from A– (positive outlook) to A (stable outlook). At the same time, the short-term rating was also raised by one level from A-2 to A-1. The main reasons for the upgrade were strong demand for premium vehicles, the sharp rise in profitability and the successful implementation of Strategy Number ONE. The BMW Group therefore has the best ratings of all European car manufacturers. BMW AG’s long-term and short-term ratings had al- ready been raised by one level in July 2011 by the rating agency Moody’s from A3 / P-2 to A2 / P-1 with a stable outlook. BMW Group is sector leader in the Dow Jones Sustain ability Index for the eighth year in succession As in previous years, the BMW Group was included in numerous sustainability funds and indices in 2012. In September 2012 the BMW Group was named Sector Leader in the Dow Jones Sustainability Index World and Europe for the eighth time in succession. The rating agency, SAM, which analyses the sustainability per- formance of companies on behalf of Dow Jones, praised our state-of the-art innovation management as well as our clear commitment to reducing negative environ- mental impact along the entire value chain. The BMW Group is the only enterprise in the carmaking sector to have been represented continuously since the inception of this family of sustainability indices in 1999. In June BMW stock Common stock Number of shares in 1,000 Stock exchange price in €1 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 €1 Year-end closing price High Low Key data per share in € Dividend Common stock Preferred stock Earnings per share of common stock3 Earnings per share of preferred stock4 Cash flow 5 Equity 1 Xetra closing prices 2 Proposed by management 3 Annual average weighted amount 4 Stock weighted according to dividend entitlements 5 Cash inflow from operating activities of the Automotive segment. 6 Adjusted for reclassifications as described in note 42. 2012 2011 2010 2009 2008 601,995 601,995 601,995 601,995 601,995 72.93 73.76 53.16 53,994 – 48.76 49.23 35.70 2.50 2 2.52 2 7.77 7.79 13.97 46.35 51.76 73.52 45.04 53,571 – 36.55 45.98 32.01 2.30 2.32 7.45 7.47 12.37 6 41.34 58.85 64.80 28.65 53,163 – 38.50 41.90 21.45 1.30 1.32 4.91 4.93 12.45 36.53 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 30.42 30.99 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 18 21 24 44 47 50 65 66 74 46 2012, the BMW Group received the SAM Group’s Sustainability Award for its commitment to sustain- ability. The BMW Group was also included in the British FTSE4Good Index again in 2012. In the Global 500 Ranking of the Carbon Disclosure Project (CDP) published in September, the BMW Group achieved its best performance to date. With a score of 99 out of a possible 100 points, we were crowned Sector Leader and were in the TOP 3 of all participating com- panies. As a result of this performance, the BMW Group is listed in the CDP’s Carbon Disclosure Leadership Index (CDLI) and the Carbon Performance Leadership Index (CPLI). Regular communication with capital markets In addition to information provided in quarterly and year-end financial reports, interested parties such as an- alysts, institutional investors, and rating agencies are kept informed of developments in one-to-one discussions and in roadshows, sometimes attended by members of the Board of Management. A second Capital Markets Day was held in China and attracted a great deal of interest. As in previous years, dialogue with capital markets was supplemented by SRI (Socially Responsible Investment) roadshows and participation in conferences held for investors with investment strategies based on sustain- ability criteria. These events were used to keep investors and analysts informed of our sustainability-oriented activities. Debt IR roadshows were also held to commu- nicate specifically with credit analysts and debt capital investors. The scope of information available to private investors in the “Investor Relations” section of the BMW Group website was also expanded and complemented by a dedicated app. The Investor Relations team again handled a great many inquiries from private investors regarding BMW stock and bonds. The BMW Group’s investor relations activities again received praise in the renowned Extel Survey conducted by Thomson Reuters (first place in the automobile sec- tor) and in specialist publications such as Institutional Investor and IR Magazine. 47 COMBINED GROUP AND COMPANY MANAGEMENT REPORT Disclosures relevant for takeovers1 and explanatory comments Composition of subscribed capital The subscribed capital (share capital) of BMW AG amounted to € 655,989,413 at 31 December 2012 (2011: € 655,566,568) and, in accordance with Article 4 (1) of the Articles of Incorporation, is sub-divided into 601,995,196 shares of common stock (91.77 %) (2011: 601,995,196; 91.83 %) and 53,994,217 shares of non-voting preferred stock (8.23 %) (2011: 53,571,372; 8.17 %), each with a par value of € 1. The Company’s shares are issued to bearer. The rights and duties of shareholders derive from the German Stock Corporation Act (AktG) in con- junction with the Company’s Articles of Incorporation, the full text of which is available at www.bmwgroup.com. The right of shareholders to have their shares evidenced is excluded in accordance with the Articles of Incor- poration. The voting power attached to each share cor- responds to its par value. Each € 1 of par value of share capital represented in a vote entitles the holder to one vote (Article 18 (1) of the Articles of Incorporation). The Company’s shares of preferred stock are shares within the meaning of § 139 et seq. AktG, which carry a cumulative preferential right in terms of the allocation of profit and for which voting rights are normally ex- cluded. These shares only confer voting rights in excep- tional 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 con- fers preferential treatment to the non-voting shares of preferred stock with regard to the appropriation of the Company’s unappropriated profit. Accordingly, the unappropriated profit is required to be appropriated in the following order: 1 Disclosures pursuant to § 289 (4) HGB and § 315 (4) HGB (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 € 0.02 per € 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 shareholders 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 pre- ferred stock to employees in conjunction with its Em- ployee Share Scheme, these shares are subject as a general rule to a company-imposed vesting period of four years, measured from the beginning of the calen- dar year in which the shares are issued. Contractual holding period arrangements also apply to shares of common stock required to be acquired by Board of Management members and certain senior department heads in conjunction with share-based remuneration programmes (Compensation Report of the Corporate Governance section; note 18 to the Group Financial Statements). 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 AQTON SE, Bad Homburg v. d. Höhe, Germany Stefan Quandt, 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 2 Based on voluntary balance notifications provided by the listed shareholders at 31 December 2012 Direct share of voting rights (%) Indirect share of voting rights (%) 17.4 0.4 16.3 12.6 17.4 16.3 16.3 12.6 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 18 21 24 44 47 50 65 66 74 48 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 shareholdings if such changes are subject to manda- tory notification rules. Shares with special rights which confer control rights There are no shares with special rights which confer control rights. System 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 decided upon by the shareholders at the Annual General Meeting (§ 119 (1) no. 5, § 179 (1) AktG). The Supervisory Board is authorised to approve amend- ments to the Articles of Incorporation which only affect its wording (Article 14 no.3 of the Articles of Incor- poration); 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 (Article 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 The Board of Management is authorised to buy back shares and sell repurchased shares in situations spe- cified in § 71 AktG, e. g. to avert serious and imminent damage to the Company and / or to offer shares to persons employed or previously employed by BMW AG or one of its affiliated companies. In accordance with Article 4 no. 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 capital during the period until 13 May 2014 by up to € 3,201,945 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 preferred stock, in return for cash contributions (Authorised Capital 2009). Existing shareholders may not subscribe to the new shares. No conditional capital is in place at the reporting date. Significant agreements entered into by the Company subject to control change clauses in the event of a take- over 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 direct or indirect control of BMW AG. The term “con- trol” 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 affairs of the Company or appoint the majority of members of the Supervisory Board. – A cooperation agreement concluded with Peugeot SA relating to the joint development and production of a new family of small (1 to 1.6 litre) petrol-driven engines entitles each of the cooperation partners to give ex- traordinary notification of termination in the event of a competitor acquiring control over the other contrac- tual party and if any concerns of the other contractual party concerning the impact of the change of control on the cooperation arrangements are not allayed during the subsequent discussion process. – BMW AG acts as guarantor for all obligations arising from the joint venture agreement relating to BMW Brilliance Automotive Ltd. in China. This agreement grants an extraordinary right of termination to either joint venture partner in the event that, either directly or 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 termi- holder or to require the affected party to acquire the other shareholder’s shares. – An engine supply agreement between BMW AG and Toyota Motor Europe SA relating to the sale of diesel engines entitles each of the contractual parties to give extraordinary notification of termination in the event that one of the contractual parties merges with an- other company or is taken over by another company. 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 Manage- ment or with employees for situations involving a take- over offer. 49 COMBINED GROUP AND COMPANY MANAGEMENT REPORT nation of the joint venture agreement may result in the sale of the shares to the other joint venture partner or in the liquidation of the joint venture entity. – Framework agreements are in place with financial in- stitutions and banks (ISDA Master Agreements) with respect to trading activities with derivative financial instruments. Each of these agreements includes an extraordinary right of termination which triggers the immediate settlement of all current transactions in the event that the creditworthiness of the party in- volved is materially weaker following a direct or in- direct acquisition of beneficially owned equity capital which confers the power to elect a majority of the Supervisory Board of a contractual party or any other ownership interest that enables the acquirer to exer- cise control over a contractual party or which consti- tutes a merger or a transfer of net assets. – Financing agreements in place with the European Investment Bank (EIB) entitle the EIB to request early repayment of the loan in the event of an imminent or actual change in control at the level of BMW AG (partially in the capacity of guarantor and partially in the capacity of borrower), if the EIB has reason to assume – after the change of control has taken place or 30 days after it has requested to discuss the situa- tion – that the change in control could have a mate- rial adverse effect, or, in all but two cases as an addi- tional alternative, if 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 agreements as (i) holding or hav- ing 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, (iii) the right to receive more than 50 % of dividends payable, or, in all but two cases as an additional alter- native (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 Automotive Carbon Fibers LLC, Delaware, USA and SGL Automotive Carbon Fibers GmbH & Co. KG, Munich. The agreement includes call and put rights in case – directly of indirectly – 50 % or more of the voting rights relating to the relevant other share- holder of the joint ventures are acquired by a third party, or if 25 % of such voting rights have been ac- quired by a third party if that third party is a com- petitor of the party that has not been affected by the acquisition of the 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 shares of the joint ventures from the affected share- 50 Analysis of the Group Financial Statements 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments 50 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 65 66 74 Group Internal Management System Taking into account the interests and expectations of capital providers is an important aspect of 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 long-term growth, an increase in value for capi- tal providers, jobs and, ultimately, corporate autonomy. The BMW Group’s internal management system is multi- layered. The principal key financial performance indica- tor at Group level is value added. Business is managed at segment level on the basis of segment-specific rates of return. The system is complemented by value-based and return-based performance indicators measured in conjunction with project decisions. Value added as top-level key financial performance indicator Value added reflects the amount of earnings over and above the cost of capital, and gives an indication of whether the Group is meeting the minimum require- ments for the rate of return expected by capital pro- viders. A positive value added means that a company is creating more additional value than the cost of capital and it is therefore an important measure of financial success. Value added Group = earnings amount – cost of capital = earnings amount – (cost of capital rate × capital employed) in € million Earnings amount Cost of capital (EC + DC) 2012 2011 2012 2011 Value added Group 2012 2011 BMW Group 8,128 7,637 4,221 3,575 3,907 4,062 Capital employed comprises Group equity, the financial liabilities of the Automotive and Motorcycles segments and pension provisions. Value added is determined on the basis of the average level of capital employed for a particular year, measured as the average capital employed at the beginning of the year, at quarter-ends and at the end of the year. In line with employed capital, earnings for RoCE pur- poses corresponds to Group earnings before tax and interest expense incurred in conjunction with the pen- sion provision and on the financial liabilities of the Automotive and Motorcycles segments (earnings before interest and taxes). The cost of capital rate is the minimum rate of return expected by capital providers in return for the capital employed by the Group. Since capital employed com- prises an equity capital element (e. g. share capital) and a debt capital element (e. g. bonds), the overall cost of capital rate is determined on the basis of the weighted average rates for equity and debt capital. The cost of equity capital corresponds to the minimum rate of return expected by an equity capital provider investing in BMW stock. This minimum rate of return is determined using the Capital Asset Pricing Model (CAPM) and corresponds to the interest rate on long- term, risk-free securities (e. g. German federal bonds) plus a risk premium for the specific risk involved in in- vesting in BMW AG. The cost of debt capital is calculated on the basis of the average interest rates relevant for long-term financial liabilities and pension obligations. For the purposes of measuring the average cost of capi- tal rate, equity and debt cost rates are weighted on the basis of a notional ratio derived from fixed, targeted market values for equity and debt capital. Stability in managing the business over time is ensured by keeping the cost of capital rate within a pre-defined range and by refraining from revising it unless there have been significant changes in circumstances. Cost of capital rate (before tax) in % 2012 2011 BMW Group 12 12 51 COMBINED GROUP AND COMPANY MANAGEMENT REPORT The return on capital employed for the Group (RoCE Group) is also important, as – in addition to providing the basis for measuring value added – the RoCE also gives an indication of how efficiently the Group has em- ployed funds made available by capital providers in a particular year. RoCE Group Profit before interest expense and tax = Capital employed Segments managed based on capital rates of return Complementing the value added approach taken to manage business at Group level, segments are managed on the basis of rates of return on capital. RoCE is used as a rate-of-return indicator for the Automotive and Motorcycles segments. As is common practice in the banking sector, the performance of the Financial Services segment is measured on the basis of the re- turn on equity (RoE). RoCE Automotive and Motorcycles = Profit before financial result Capital employed Return on capital employed RoE Financial Services = Profit before tax Equity capital The RoCE measured for the Automotive and Motorcycles segments is an indicator of the profitability of operations. It is measured as the ratio of the segment profit before financial result and the average amount of capital em- ployed in operations. Capital employed corresponds to the sum of all current and non-current operational as- sets less liabilities that do not incur interest (e. g. trade payables). Based on the Group’s cost of capital as a mini- mum rate of return and comparisons with competitive market values, the long-term target RoCE for the Auto- motive and Motorcycles segments has been set at a mini- mum of 26 %. Capital employed by Automotive segment in € million 2012 2011 Operational assets less: non-interest-bearing liabilities Capital employed 31,613 21,448 10,165 29,323 19,651 9,672 Earnings for RoCE purposes in € million Capital employed in € million Return on capital employed in % 2012 2011 2012 2011 2012 2011 BMW Group Automotive Motorcycles 8,128 7,624 9 7,637 7,477 45 35,178 29,788 10,165 511 9,672 442 23.1 75.0 1.8 25.6 77.3 10.2 RoE for the Financial Services segment is defined as segment profit before taxes divided by the average amount of equity capital allocated to the segment. The target is a sustainable return on equity of at least 18 %. Return on equity Profit before tax in € million Equity in € million Return on equity in % 2012 2011 2012 2011 2012 2011 Financial Services 1,561 1,790 7,347 6,084 21.2 29.4 52 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments 50 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 65 66 74 Value management used to control projects Operations of the Automotive and Motorcycles seg- ments are shaped to a large extent by project work, which have a substantial influence on future performance. Project decisions are therefore a crucial component of value-based management for the BMW Group. Decisions are taken on the basis of project calculations measured in terms of the cash flows a project is ex- pected to generate. Calculations are made for the full term of a project, i.e. for all years in which cash flows are expected to arise. Project decisions are taken on the basis of the capital value and internal rate of return calculated for the project. These two measures are con- sistent with the performance indicators employed in the Group’s financial target system. The capital value of a project indicates the extent to which a project will be able to generate a positive con- tribution to earnings over and above the cost of capital. A project with a positive capital value enhances value added and therefore results in an increase in the value of the business. The internal rate of return corresponds to the average RoCE of a project over its entire term. It therefore provides a basis for assessing the extent to which a project will be able to help the segment achieve its targeted RoCE. Project calculations are supplemented by a standardised assessment of opportunities and risks. The criteria used for taking decisions as well as the long-term impact of periodic earnings is documented for all project decisions and incorporated in the long-term Group forecast. This system enables an analysis of the periodic reporting impact of project decisions on earnings and rates of re- turn over the term of each project. The overall result is a self-contained controlling model. Earnings performance The BMW Group continued on its successful course in 2012 and posted another record year. The number of BMW, MINI and Rolls-Royce brand cars sold rose by 10.6 % to 1,845,186 units, enabling the BMW Group to retain pole position at the head of the premium segment. The BMW Group recorded a net profit of € 5,122 mil- lion (2011: € 4,907 million) for the financial year 2012. The post-tax return on sales was 6.7 % (2011: 7.1 %). Earnings per share of common and preferred stock were € 7.77 and € 7.79 respectively (2011: € 7.45 and € 7.47 respectively). Group revenues rose by 11.7 % to € 76,848 million (2011: € 68,821 million), reflecting in particular the expan- Group Income Statement in € million Revenues Cost of sales Gross profit Selling and administrative expenses 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 2012 2011 76,848 – 61,354 15,494 – 7,007 829 – 1,016 8,300 271 753 – 913 – 592 – 481 7,819 68,821 – 54,276 14,545 – 6,177 782 – 1,132 8,018 162 763 – 943 – 617 – 635 7,383 – 2,697 5,122 – 2,476 4,907 53 COMBINED GROUP AND COMPANY MANAGEMENT REPORT sion and rejuvenation of the model portfolio, dynamic growth in Asia and the Americas and revenues of the ICL Group (2011: consolidated with effect from 30 Sep- tember 2011). Adjusted for exchange rate factors, the increase was 7.1 %. Revenues from the sale of BMW, MINI and Rolls-Royce brand cars climbed by 11.3 % on the back of higher sales volumes. Motorcycles busi- ness revenues were 3.6 % up on the previous year. Reve- nues generated with Financial Services operations rose by 13.8 %. Revenues attributable to “Other Entities” amounted to € 2 million (2011: € 1 million). increase in administrative expenses was attributable to the higher number of employees on the one hand and increased non-personnel costs on the other. Over- all, selling and administrative expenses rose by 13.4 % compared to the previous year and represented 9.1 % (2011: 9.0 %) of revenues. Depreciation and amortisation on property, plant and equipment and intangible assets recorded in cost of sales and in selling and administrative expenses amounted to € 3,541 million (2011: € 3,646 million). Revenues generated by the BMW Group in the Africa, Asia and Oceania regions increased overall by 22.7 %. The figure includes China, where revenues jumped by 24.6 % thanks to the growth of business on this mar- ket. Revenues in Europe (excluding Germany) and the Americas region grew by 9.6 % and 13.9 % respec- tively. By contrast, revenues generated in Germany fell by 5.2 %. Cost of sales went up by € 7,078 million to € 61,354 mil- lion, partly influenced by expenditure for future tech- nologies. Gross profit improved by 6.5 % to € 15,494 mil- lion, giving a gross profit margin of 20.2 % (2011: 21.1 %). The gross profit margin recorded by the Automotive seg- ment was 19.5 % (2011: 20.7 %) and that of the Motor- cycles segment was 17.0 % (2011: 15.9 %). The gross profit margin of the Financial Services segment fell from 14.3 % to 13.1 %. Research and development costs increased by 10.6 % to € 3,993 million, mostly due to activities related to the electrification of the future product range. As a percentage of revenues, the research and development ratio remained stable at 5.2 %. Research and develop- ment expense includes amortisation of capi talised development costs amounting to € 1,130 million (2011: € 1,209 million). Total research and development ex- penditure amounted to € 3,952 million (2011: € 3,373 million). This figure comprises research costs, non-capi- talised development costs, capitalised de velopment costs and systematic amortisation of capi talised devel- opment costs. The research and development ex- penditure ratio for 2012 was therefore 5.1 % (2011: 4.9 %). The proportion of development costs recognised as as- sets in 2012 was 27.6 % (2011: 28.8 %). Selling expenses went up as a result of volume rises and inclusion of the ICL Group for the full year. The The net expense reported for other operating income and other operating expenses amounted to € 187 mil- lion, an improvement of € 163 million compared to the previous year. The main reason for the change was the lower level of allocations to provisions. As a result of the progress made, the profit before financial result amounted to € 8,300 million (2011: € 8,018 million). The financial result was a net expense of € 481 million, which represented an improvement of € 154 million compared to the previous year (2011: net expense of € 635 million). This includes the result from equity accounted investments totalling € 271 million (2011: € 162 million), comprising the Group’s share of results from interests in the joint venture BMW Brilliance Automotive Ltd., Shenyang, the joint ventures with the SGL Carbon Group, the two new DriveNow enti- ties as well as the joint venture BMW Peugeot Citroën Electrification B.V., the Hague, up to the date of the termination of joint venture arrangements. Other financial result was positively impacted in 2012 by improved market values on commodity derivatives and negatively impacted by impairment losses on in- vestments. Overall, other financial result improved from a net expense of € 617 million in 2011 to a net expense of € 592 million in 2012. Taking all these factors into consideration, the profit before tax improved to € 7,819 million (2011: € 7,383 mil- lion). The figure for the previous year included an ex- ceptional gain of € 524 million arising on the reduction of allowances / provisions for residual value and bad debt risks. Business with end-of-contract leasing vehicles gave rise to an exceptional gain of € 124 mil- lion in 2012. The pre-tax return on sales was 10.2 % (2011: 10.7 %). 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments 50 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 65 66 74 54 Revenues by segment in € million Profit / loss before tax by segment in € million 2012 2011 2012 2011 Automotive Motorcycles Financial Services Other Entities Eliminations Group 70,208 1,490 19,550 5 – 14,405 76,848 63,229 1,436 17,510 Automotive Motorcycles Financial Services 5 Other Entities – 13,359 68,821 Eliminations Group 7,195 6 1,561 – 6 – 937 7,819 6,823 41 1,790 – 168 – 1,103 7,383 Income tax expense for the year totalled € 2,697 million (2011: € 2,476 million), giving an effective tax rate of 34.5 % (2011: 33.5 %). Tax increases as a result of non- deductible expenses relate mainly to the impact of non- recoverable withholding taxes on intra-group dividends and transfer price issues. Revenues of the Automotive segment grew by 11.0 % to € 70,208 million (2011: € 63,229 million) due to increased sales volumes. The strong sales volume performance is also reflected in the profit before tax figure, which de- spite higher personnel and non-personnel expenses, improved from € 6,823 million in 2011 to € 7,195 million in 2012. In the Motorcycles segment, the number of BMW and Husqvarna brand motorcycles sold increased by 3.1 %, while segment revenues rose by 3.8 %. The pre-tax seg- ment result fell by € 35 million to € 6 million. This dete- rioration includes the negative impact of the planned sale of the Husqvarna Group entities to Pierer Industrie AG. For further information see note 32 of the Group Financial Statements. Financial Services segment revenues grew by 11.7 % to € 19,550 million. The pre-tax segment result fell by € 229 million to € 1,561 million (2011: € 1,790 million). The previous year’s result included exceptional income of € 439 million arising on the reduction of provisions for residual value and bad debt risks. Business with end-of-contract leasing vehicles gave rise to an excep- tional gain of € 124 million in 2012. The Other Entities segment recorded a pre-tax loss of € 6 million compared to one of € 168 million in the pre- vious year. The main reason for the improvement in earnings is the lower expense for allocations to provi- sions in 2012. Inter-segment eliminations down to the level of profit before tax gave rise to a net expense of € 937 million (2011: net expense of € 1,103 million). Financial position* The consolidated cash flow statements for the Group and the Automotive and Financial Services segments show the sources and applications of cash flows for the financial years 2011 and 2012, classified into cash flows from operating, investing and financing ac- tivities. 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 in- directly, starting with Group and segment net profit. By contrast, cash flows from investing and financial ac- tivities are based on actual payments and receipts. The BMW Group used various sources of funds for in- ternal financing purposes. In addition to the issue of interest-bearing debt, cash funds are also allocated in- ternally in line with business requirements, including the use of dividends and similar transactions. In this context, it is possible that cash funds may be transferred from one segment to another. Up to the first quarter 2012, these cash inflows and outflows were reported in the Cash Flow Statements of the Automotive and Finan- cial Services segments as part of cash flows from oper- ating activities. Due to the increasing importance of inter-segment transactions, the method of presentation was changed with effect from the second quarter 2012. Intragroup inter-segment dividends and similar trans- actions are now reported as part of cash flows from financing activities. The reclassification from operating activities to financing activities resulted in the previous year in an increase in the operating cash flow. The pre- * Previous year’s figures adjusted 55 COMBINED GROUP AND COMPANY MANAGEMENT REPORT vious year’s figures were adjusted accordingly (impact in 2011 on the Automotive segment: increase in operating cash flow of € 1,033 million / Financial Services segment: € 411 million). The Group’s operating activities generated a positive cash flow of € 5,076 million (2011: € 5,713 million), which includes net profit for the year of € 5,122 million (2011: € 4,907 million). Changes in working capital resulted in a net cash inflow of € 1,755 million (2011: net cash outflow of € 1,615 million), reflecting stable inventory levels on the one hand and a reduction in trade receiv- ables on the other. The increase in receivables from sales financing and leased products resulted in a cash outflow from operating activities of € 5,409 million (2011: € 3,216 million). The cash outflow for investing activities amounted to € 5,433 million, (2011: € 5,499 million) and was thus 1.2 % lower than one year earlier. Investment in property, plant and equipment and intangible assets resulted in a cash outflow of € 5,236 million (2011: € 3,679 million), while disbursements for financial assets amounted to € 171 million (2011: € 543 million). Cash inflow from financing activities totalled € 952 mil- lion (2011: € 87 million). Proceeds from the issue of bonds amounted to € 7,977 million (2011: € 5,899 million), compared with an outflow of € 6,727 million (2011: € 5,333 million) for the repayment of bonds. Dividend payments made in 2012 totalled € 1,516 million, of which € 1,508 million was disbursed by BMW AG and € 8 million by a subsidiary to minority shareholders. The change in other financial liabilities and commercial paper gave rise to a cash inflow of € 1,301 million (2011: € 439 million). The cash outflow for investing activities exceeded cash inflow from operating activities in 2012 by € 357 million. In the previous year, there had been a surplus of € 214 million. After adjustment for the effects of exchange-rate fluc- tuations and changes in the composition of the BMW Group for a net negative amount of €1 million (2011: net positive amount of € 43 million), the various cash flows resulted in an increase in cash and cash equiva- lents of € 594 million (2011: € 344 million). The cash flow statement for the Automotive segment shows that the cash inflow from operating activities exceeded the cash outflow for investing activities by € 3,637 million (2011: € 2,385 million). Adjusted for net investments in marketable securities amounting to € 172 million (2011: € 781 million), mainly in conjunction with strategic liquidity planning, the surplus of the cash inflow from operating activities over the cash out- flow for investing activities was € 3,809 million (2011: € 3,166 million). Change in cash and cash equivalents in € million 13,000 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 Cash and cash equivalents 31.12. 2011 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. 2012 7,776 + 5,076 – 5,433 + 952 – 1 8,370 56 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments 50 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 65 66 74 Free cash flow of the Automotive segment can be analysed as follows: in € million 31. 12. 2012 31. 12. 2011 Cash inflow from operating activities Cash outflow for investing activities Net investment in marketable securities Free cash flow Automotive segment 9,167 – 5,530 172 3,809 8,110 – 5,725 781 3,166 The cash outflow for operating activities of the Financial Services segment is influenced primarily by cash flows relating to leased products and receivables from sales financing and totalled € 4,192 million in 2012 (2011: € 1,897 million). Cash outflow for investing activities to- talled € 32 million (2011: cash inflow of € 204 million). Net financial assets of the Automotive segment com- prise the following: in € million 31. 12. 2012 31. 12. 2011 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 7,484 2,205 5,862 15,551 – 2,224 13,327 5,829 1,801 6,404 14,034 – 1,747 12,287 Refinancing Operating cash flow provides a solid financial basis for the BMW Group. We are also able to call on a broadly based range of instruments to refinance our world- wide operations via international money and capital markets. Almost all of the funds raised are used to finance the BMW Group’s Financial Services business. Apart from issuing commercial paper on the money market, the BMW Group’s financing companies also issue bearer bonds. In addition, retail customer and dealer financing receivables on the one hand and leasing rights and obligations on the other are secu- ritised in the form of asset-backed securities (ABS) financing arrangements. Financing instruments em- ployed by our banks in Germany and the USA (e. g. customer deposits) are also used as a supplementary source of financing. Owing to the increased use of inter- national money and capital markets to raise funds, the scale of funds raised in the form of loans from interna- tional banks is relatively small. As in previous years, operations were refinanced in 2012 at an attractive level. Thanks to the best rating in the European automobile industry and the high level of ac- ceptance it enjoys on capital markets, the BMW Group’s refinancing activities were not affected by financial mar- ket volatility in 2012. In addition to the issue of bonds and loan notes on the one hand and private placements on the other, we were also able to issue commercial paper at good conditions. Additional funds were also raised via new securitised instruments and the prolon- gation of existing instruments. As in previous years, all issues were highly sought after by private and institu- tional investors. During the year, the BMW Group issued four bench- mark bonds with a total issue volume of € 4 billion on 57 COMBINED GROUP AND COMPANY MANAGEMENT REPORT European capital markets. Bonds were also issued in Canadian dollars, British pounds, Norwegian krone, In- dian rupees, South Korean won and other currencies for a total amount of € 5.1 billion. visions (81.6 %), trade payables (20.5 %), non-current financial liabilities (4.0 %) and other provisions (8.7 %). Deferred tax liabilities (7.1 %) and current other lia- bilities (3.3 %) decreased. A total of eight ABS transactions were executed in 2012, including two public transactions in the USA and one each in Germany and South Africa with a total volume equivalent to € 2.3 billion. Further funds were also raised via new ABS conduit transactions in Japan, Australia and the UK totalling € 1.7 billion. The regular issue of commercial paper also strengthens our financial base. The following table provides an over- view of existing money and capital market programmes of the BMW Group at 31 December 2012: At € 5,207 million, the carrying amount of intangible as- sets was € 31 million lower than at the end of the pre- vious year. Within intangible assets, capitalised develop- ment costs decreased by € 41 million to € 4,347 million. Development costs recognised as assets during the year under report totalled € 1,089 million (+12.0 %) and were therefore higher than one year earlier. The propor- tion of research and development costs recognised as assets was 27.6 % (2011: 28.8 %). The corresponding am- ortisation expense was € 1,130 million (2011: € 1,209 mil- lion). Goodwill was unchanged from the previous year and stood at € 369 million. Programme Amount utilised Euro Medium Term Notes Commercial paper € 25.5 billion € 4.7 billion The BMW Group’s liquidity position is extremely robust, with cash funds totalling € 11.0 billion on hand at 31 De- cember 2012. A syndicated credit line of € 6 billion is also in place. The credit line, which is being made avail- able at attractive conditions by a consortium of 39 inter- national banks, has a term up to October 2017 and can be extended by one year. Further information with respect to financial liabilities is provided in the notes to the Group Financial State- ments 33 and 37. Net assets position The Group balance sheet total increased by € 8,421 mil- lion to stand at € 131,850 million at 31 December 2012. Adjusted for changes in exchange rates, the balance sheet total increased by 7.5 %. The main factors behind the increase on the assets side of the balance sheet were receivables from sales financing (7.2 %), property, plant and equipment (14.2 %), leased products (5.9 %) and financial assets (24.0 %). By contrast, trade receivables went down by 22.6 % thanks to proactive receivables management. Inventories increased marginally (0.9 %) compared to the previous year. On the equity and liabilities side of the balance sheet, the increase related to equity (12.2 %), pension pro- Property, plant and equipment rose sharply to € 13,341 million. Capital expenditure of € 4,028 mil- lion was 55.0 % higher than in the previous year (2011: € 2,598 million). The main focus was on product invest- ments for production start-ups and infrastructure improvements. Depreciation on property, plant and equipment totalled € 2,298 million. Total capital ex- penditure on intangible assets and property, plant and equipment as a percentage of revenues increased to 6.8 % (2011: 5.4 %). Leased products climbed by € 1,356 million or 5.9 % as a result of increased business volumes. Adjusted for ex- change rate factors, the increase was 6.1 %. Receivables from sales financing increased by 7.2 % to € 52,914 million due to higher business volumes. Of this amount, customer and dealer financing accounted for € 40,650 million (6.1 %) and finance leases for € 12,264 million (11.0 %). Compared to the end of the previous financial year, in- ventories went up only marginally by € 87 million (+0.9 %) to € 9,725 million. Adjusted for exchange rate factors, the increase was 1.3 %. Financial assets went up by 24.0 % to € 6,760 million, largely due to higher levels of marketable securities and investment fund shares as well as increases in fair values of currency derivatives. Liquid funds went up by 9.1 % to € 11,025 million and comprise cash and cash equivalents, marketable securi- ties and investment fund shares (the last two items re- ported as financial assets). 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments 50 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 65 66 74 58 Balance sheet structure – Group Total equity and liabilities in € billion Non-current assets 62 % 60 % 22 % 40 % 23 % 40 % Equity Non-current provisions and liabilities Current assets 38 % 40 % 38 % 37 % Current provisions and liabilities thereof cash and cash equivalents 6 % 6 % 2012 2011 2011 2012 132 123 123 132 Balance sheet structure – Automotive segment Total equity and liabilities in € billion Non-current assets 44 % 41 % Equity 42 % 41 % Current assets 56 % 58 % 15 % 44 % 16 % 43 % Non-current provisions and liabilities Current provisions and liabilities thereof cash and cash equivalents 11 % 9 % 2012 2011 2011 2012 69 64 64 69 Cash and cash equivalents went up by € 594 million to € 8,370 million. On the equity and liabilities side of the balance sheet, equity rose overall by € 3,299 million (+12.2 %) to € 30,402 million. The main reason for the increase was the profit attributable to shareholders of BMW AG to- talling € 5,096 million. Translation differences arising on currency translation reduced equity by € 123 million. Deferred taxes on items recognised directly in equity increased equity by € 49 million. Actuarial losses on pen- sion obligations mainly due to lower interest rates caused Group equity to reduce by € 1,881 million. Changes in fair value gains and losses of derivative financial in struments (€ 1,302 million) and marketable securities (€ 214 million) had a positive impact on equity. Income 59 COMBINED GROUP AND COMPANY MANAGEMENT REPORT and expenses relating to equity accounted investments and recognised directly in equity, net of deferred tax, increased equity by € 82 million. The dividend payment decreased equity by € 1,508 million. Minority interests went up by € 42 million. Other changes amounted to € 7 million. A portion of the Authorised Capital created at the Annual General Meeting held on 14 May 2009 in con- junction with the Employee Share Scheme was used during the financial year under report to issue shares of preferred stock to employees, thereby increasing sub- scribed capital to € 656 million. An amount of € 18 mil- lion was transferred to capital reserves in conjunction with this share capital increase. The equity ratio of the BMW Group improved overall by 1.1 percentage points to 23.1 %. The equity ratio of the Automotive segment was 40.9 % (2011: 41.1 %) and that of the Financial Ser- vices segment was 8.6 % (2011: 8.7 %). Pension provisions increased by 81.6 % to € 3,965 million mainly as a result of lower discount factors used in Ger- many, the UK and the USA. In the case of pension plans with fund assets, the fair value of fund assets is offset against the defined benefit obligation. Current and non-current other provisions increased by € 542 million to € 6,795 million. Current and non-current financial liabilities went up by € 1,530 million to € 69,507 million. Within financial liabilities, there were increases in bonds (+4.5 %), cus- tomer deposits (banking) (+8.1 %) and liabilities to banks (+12.9 %). By contrast, liabilities for commercial paper decreased by € 901 million. Trade payables amounted to € 6,433 million and were thus 20.5 % higher than one year earlier, mainly attributable to the expansion of business operations. Other liabilities increased by 2.6 % to € 10,196 million. Overall, the earnings performance, financial position and net assets position of the BMW Group continued to develop very positively during the financial year under report. Compensation report The compensation of the Board of Management com- prises both a fixed and a variable component. Benefits are also payable – primarily in the form of pension benefits – at the end of members’ mandates. Further details, including an analysis of remuneration by each individual, are disclosed in the Compensation Report, which can be found in the section “Statement on Corporate Governance”. The Compensation Report is a sub-section of the Combined Group and Company Management Report. Events after the end of the reporting period No events have occurred after the balance sheet date which could have a major impact on the earnings performance, financial position and net assets of the BMW Group. Value added statement The value added statement shows the value of work per- formed less the value of work bought in by the BMW Group during the financial year. Depreciation and amortisation, cost of materials and other expenses are treated as bought-in costs in the value added calcula- tion. 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 valued added by the BMW Group in 2012 rose by 6.8 % to € 18,975 million. The increase over the previous year was attributable to the higher level of revenues. The bulk of the net value added (45.0 %) is applied to em- ployees. The proportion applied to providers of finance fell to 10.7 %, mainly due to the lower refinancing costs on international capital markets for the financial ser- vices side of the business. The government / public sector (including deferred tax expense) accounted for 17.3 %. The proportion of net value added applied to share- holders, at 8.7 %, was higher than in the previous year. Minority interests take a 0.1 % share of net value added. The remaining proportion of net value added (18.2 %) will be retained in the Group to finance future operations. 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments 50 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 65 66 74 60 BMW Group value added statement Work performed Revenues Financial income Other income Total output Cost of materials* Other expenses Bought-in costs Gross value added Depreciation and amortisation Net value added Applied to Employees Providers of finance Government / public sector Shareholders Group Minority interest Net value added 2012 in € million 2012 in % 2011 in € million 2011 in % Change in % 76,848 – 270 829 77,407 41,304 9,173 50,477 26,930 7,955 18,975 8,535 2,030 3,288 1,640 3,456 26 99.3 – 0.4 1.1 100.0 53.4 11.8 65.2 34.8 10.3 24.5 45.0 10.7 17.3 8.7 18.2 0.1 68,821 – 400 782 69,203 36,753 7,261 44,014 25,189 7,424 17,765 7,739 2,149 2,970 1,508 3,373 26 99.5 – 0.6 1.1 100.0 53.1 10.5 63.6 36.4 10.7 25.7 43.6 12.1 16.7 8.5 19.0 0.1 18,975 100.0 17,765 100.0 11.9 14.7 6.9 6.8 10.3 – 5.5 10.7 8.8 2.5 – 6.8 * Cost of materials comprises all primary material costs incurred for vehicle production plus ancillary material costs (such as customs duties, insurance premiums and freight). BMW Group value added 2012 in % Depreciation and amortisation Other expenses Net value added Cost of materials Net value added Cost of materials 24.5 53.4 Depreciation and amortisation 10.3 Other expenses 11.8 45.0 % Employees 10.7 % Providers of finance 17.3 % Government / public sector 8.7 % 18.2 % Shareholders Group 0.1 % Minority interest 61 COMBINED GROUP AND COMPANY 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 Automotive Financial Services Coverage of intangible assets, property, plant and equipment by equity Return on capital employed Group Automotive 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 Automotive segment Net financial assets Automotive segment * Previous year’s figure adjusted 2012 2011 20.2 15.4 10.8 10.2 6.7 28.8 18.9 23.1 40.9 8.6 21.1 16.9 11.7 10.7 7.1 30.9 20.5 22.0 41.1 8.7 163.9 160.2 23.1 75.0 1.8 21.2 5,076 – 5,433 93.4 3,809 13,327 25.6 77.3 10.2 29.4 5,713 – 5,499 103.9 3,166* 12,287 % % % % % % % % % % % % % % % € million € million % € million € million 62 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments 50 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 50 52 54 57 59 59 61 62 Internal Control System and explanatory comments Risk Management Outlook 65 66 74 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). BMW AG develops, manufactures and sells cars and motorcycles manufactured by itself, foreign subsidiaries and Magna Steyr. Sales activities are carried out through the Company’s own branches, independent dealers, subsidiaries and importers. The number of cars manu- factured at German and foreign plants in 2012 rose by 7.1 % to 1,861,826 units. At 31 December 2012, BMW AG had 74,571 employees, 2,941 more than one year earlier. Sales volume went up again in 2012, as a result of which revenues grew by 6.9 % compared to the previous year. The most significant increase was recorded in Asia. Sales to Group sales companies accounted for € 43.9 bil- lion or approximately 74.7 % of total revenues of € 58.8 billion. The increase in cost of sales was slightly less pronounced than the increase in revenues. As a consequence, gross profit increased by € 866 million to € 12.6 billion. Research and development expenses were 17.3 % higher than in the previous year, driven primarily by activities related to the electrification of the future product range. The increase in net other operating income and expenses in 2012 was attributable mainly to exceptional factors in 2011 (income from retrospective changes to transfer prices and from the reversal of warranty provisions) and lower expenses for allocations to onerous commodity and currency hedging contracts in 2012. The financial result improved by € 566 million, mainly as a result of the positive impact of fair value changes in designated plan assets for pension and other long-term personnel-related provisions and the offsetting nega- tive effect of impairment losses recognised on financial assets. The profit from ordinary activities increased from € 4,037 million to € 4,797 million. The expense for income taxes relates primarily to current tax for the financial year 2012, and is lower than in the previous year mainly as a result of a reduced amount of expense recorded in conjunction with provisions for tax field audit risks. After deducting the expense for taxes, the Company re- ports a net profit of € 3,131 million (2011: € 1,970 million). Capital expenditure on intangible assets and property, plant and equipment amounted to € 2,776 million (2011: € 2,032 million), an increase of 36.6 % over the previous year. The main focus was on product investments for production start-ups and infrastructure improvements. Depreciation and amortisation amounted to € 1,613 mil- lion (2011: € 1,578 million). Investments went up from € 2,823 million to € 3,094 mil- lion, mainly as a result of transfers to capital reserves at the level of BMW Bank GmbH, Munich, and the acqui- sition of shares in BMW Finance S.N.C., Guyancourt, which were subsequently contributed to BMW Bank. An impairment loss of € 143 million was recognised in 2012 on the investment in SGL Carbon SE, Wiesbaden. At € 3,749 million, inventories remained at a similar level to the previous year despite the expansion of business operations during the year. Cash and cash equivalents rose by € 1,754 million to € 4,618 million, reflecting good earnings, the concen- tration of liquidity at the level of BMW AG and a re duction in investments in marketable securities in favour of liquid funds. Financial receivables from sub- sidiaries decreased. Equity rose by € 1,642 million to € 9,864 million and the equity ratio improved from 29.9 % to 30.9 %. In order to secure obligations resulting from pre-retire- ment part-time work arrangements and a part of the Company’s pension obligations, assets have been trans- ferred to BMW Trust e.V., Munich, in conjunction with Contractual Trust Arrangements (CTA), on a trustee basis. The assets concerned comprise mainly holdings in investment fund assets and a receivable resulting from a so-called “Capitalisation Transaction” (Kapitalisierungs- geschäft). Fund assets are offset against the related guaranteed 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”. 63 COMBINED GROUP AND COMPANY MANAGEMENT REPORT Pension provisions, net of designated plan assets, de- creased from € 84 million to € 56 million. External liabilities to banks and financing via subsidiar- ies increased in 2012. BMW AG Balance Sheet at 31 December in € 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 2012 2011 178 7,806 3,094 11,078 3,749 858 6,297 2,061 2,514 4,618 161 6,679 2,823 9,663 3,755 729 5,827 1,479 3,028 2,864 20,097 17,682 118 672 120 43 31,965 27,508 656 2,053 5,515 1,640 9,864 655 2,035 4,024 1,508 8,222 Registered profit-sharing certificates 32 32 Pension provisions Other provisions Provisions Liabilities to banks Trade payables Liabilities to subsidiaries Other liabilities Liabilities Deferred income Total equity and liabilities 56 7,406 7,462 1,408 3,900 8,451 800 14,559 48 31,965 84 7,651 7,735 911 2,940 6,923 741 11,515 4 27,508 64 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments 50 Financial Analysis 50 52 54 57 59 59 61 62 Internal Management System Earnings Performance Financial Position Net Assets Position Subsequent Events Report Value Added Statement Key Performance Figures Comments on BMW AG 65 Internal Control System and explanatory comments Risk Management Outlook 66 74 BMW AG Income Statement in € million Revenues Cost of sales Gross profit Selling expenses Administrative expenses Research and development expenses Other operating income and expenses Result on investments Financial result Profit from ordinary activities Extraordinary income Income taxes Other taxes Net profit Transfer to revenue reserves Unappropriated profit available for distribution 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 2012 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. 2012 2011 58,805 55,007 – 46,252 – 43,320 12,553 11,687 – 3,684 –1,701 – 3,573 703 598 – 99 4,797 – 3,381 –1,410 – 3,045 670 181 – 665 4,037 – 29 –1,635 – 2,073 – 31 3,131 –1,491 1,640 – 23 1,970 – 462 1,508 65 COMBINED GROUP AND COMPANY MANAGEMENT REPORT 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. These structures allow errors to be identified at an early stage and prevent potential wrongdoing. Regu- lar comparison of internal forecasts and external financial reports improves the quality of financial reporting. The internal audit department serves as a process-inde- pendent function, testing and assessing the effectiveness of the internal control system and proposing improve- ments when appropriate. Controls Extensive controls are carried out by management in all financial reporting processes at an individual entity and Group level, thus ensuring that legal requirements and * Disclosures pursuant to § 289 (5) HGB and § 315 (2) no. 5 HGB internal guidelines are complied with and that all busi- ness transactions are properly executed. Controls are also carried out with the aid of IT applications, thus re- ducing 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 regu- lations or processes that affect them. Managers and staff also have access to detailed best-practice descrip- tions relating to risks and controls in the various pro- cesses, thus increasing 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 platform that is accessible through- out the entire Group. Evaluating the effectiveness of the internal control system Responsibilities for ensuring the effectiveness of the internal control system in relation to individual entity and Group financial reporting processes are clearly de- fined and allocated to the relevant managers and pro- cess owners. The BMW Group assesses the design and effectiveness of the internal control system on the basis of internal review procedures (e. g. management self- audits, internal audit findings). Audits performed at regular intervals show that the internal control system in place throughout the BMW Group is both appropriate and effective. Continuous revision and further develop- ment of the internal control system ensures its continued effectiveness. Group entities are required to confirm regularly as part of their reporting duties that the in- ternal control system is functioning properly. Effective measures are implemented whenever weaknesses are identified and reported. 66 Risk Management 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 50 65 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 66 74 Risk Management Outlook Risk management within the BMW Group The growing internationalisation of business activities, the increasing pressure of competition and the rapid pace of technological change entail opportunities and risks for the BMW Group. Making full use of the oppor- tunities that present themselves is the basis for our corporate success and reflected in our Strategy Number ONE (see section “Outlook for the BMW Group in 2013”). In order to achieve growth, profitability, efficiency and sustainable levels of business in the future, the BMW Group consciously exposes itself to a wide variety of risks. Managing risks is a fundamental prerequisite for being able to deal successfully with the constant flow of changes in the relevant political, legal, technical and economic landscapes. Risk management is a permanent process for the BMW Group, covering all aspects of the Group’s business worldwide. Its key elements are the early identification, analysis and measurement of opportunities and risks, the coordinated use of suitable management tools and monitoring. Although managed from the centre, the risk management system is based on a decentralised structure, supported by a network of risk managers. This approach raises awareness and encourages a balanced approach to risks at all levels throughout the organi- sation. The risk management network is formally em- bedded in the organisational structure of the BMW Group. Duties, responsibilities and tasks are assigned to the network. The integration of risk management functions in the overall management of the enterprise serves to improve transparency and underlines the im- portance of risk management within the BMW Group. The risk management process is geared towards meeting the criteria effectiveness, usefulness and completeness. Seamless coordination with the Compliance Commit- tee, the Internal Control System and the Group Internal Audit is also ensured. Risks identified at a decentralised level are initially reported to a steering committee. Risks deemed by that committee to be significant or potentially capable of jeopardising the entity’s going-concern status are re- ported to the Board of Management and the Supervisory Board, classified on the basis of the potential scale of impact on earnings and cash flows on the one hand and qualitative criteria on the other. The risk is quantified, taking account of the probability of occurrence and risk mitigation measures. Decisions are reached after consideration of detailed project analyses that show both potential risks and po- tential opportunities. In conjunction with the Group’s monthly and long-term forecasting systems, opportu- nities and risks attached to specific business activities are evaluated and used as the basis for implementing measures to mitigate risks and achieve targets. Impor- tant success factors – such as financial market develop- ments or the competitive situation – are monitored continuously to ensure that unfavourable developments are identified at an early stage and appropriate counter- measures implemented. Risk Management within the BMW Group Effectiveness Identification Usefulness Compliance Committee Risk Management Risk Management Reporting Analysis and Measurement Supervisory Board Completeness Monitoring Controlling Board of Management Group Audit Internal Control System 67 COMBINED GROUP AND COMPANY MANAGEMENT REPORT The risk management system is tested regularly by the Internal Audit. By regularly sharing experiences with other companies, the BMW Group ensures that new in- sights flow into the risk management system, thus con- tributing to continual improvement. Regular basic and further training as well as information events are invalu- able ways of preparing people for new or additional re- quirements with regard to the processes in which they are involved. Managing the business on a sustainable basis is a core corporate strategy (see “Sustainability” section in the Combined Group and Company Management Report). Opportunities and risks related to sustainability issues are discussed in a sustainability committee. Strategic options and measures open to the BMW Group are put forward to the Sustainability Board, to which all mem- bers of the Board of Management belong. The emer- gence of new risks is also monitored closely throughout the group-wide risk network. The close ties between steering and sustainability committees ensure that risk and sustain ability management are closely coordinated. The principal risk factors facing the BMW Group are de- scribed below. Additional disclosures on risks relating to financial instruments are provided in note 41 of the Group Financial Statements. Political and global economic risks The ever-growing complexity and intensity of world- wide competition is constantly increasing the danger of incalculable chain reactions and their consequences. General anxiety regarding the stability of the finance system and further developments in the sovereign debt crisis currently constitute risk factors for business per- formance. The slow-down of economic momentum in China, political instability in the Middle East and parts of Asia as well as market regulations in various coun- tries pose further risks. The escalation of political tension, terrorist activities, natural disasters or possible pandemics could all have a negative impact on the world economy and interna- tional capital markets that can lead to a scarcity of raw materials and the possible breakdown of material or parts deliveries. The BMW Group counters these risks primarily by internationalising its purchasing, sales and production structures in order to reduce the potential impact of risk exposures in individual countries. Strategic and sector-specific risks The car manufacturing industry worldwide is faced with the constant challenge of having to reduce fuel con- sumption and emissions and raise safety standards at the same time. These requirements are increasingly accompanied by rules governing individual mobility in metropolitan areas. Changing regulations and rising fuel and energy prices also influence customer behaviour. One of the main risks the industry faces is the possible threat of short-term tightening of laws and regulations that can trigger the requirement for significantly higher levels of investment. In some cases, changes in customer behaviour are not only brought on by new regulations, but also through changes of opinion, values and envi- ronmental issues. Among other factors, global climate change is having an effect on legislation, regulations and consumer behaviour. In order to meet structural changes in the demand for individual mobility that no longer necessarily means actually owning a vehicle, we are offering corresponding mobility services, such as the DriveNow car-sharing model. With its Efficient Dynamics concept, the BMW Group has a pioneering role in reducing both fuel consump- tion and emissions and fulfilling legal rules and require- ments at the same time. In addition, the BMW Group is investing in the development of sustainable drive tech- nologies and materials, with the aim of providing highly efficient vehicles for individual mobility in the premium segment well into the future. Risks emanating from statutory requirements to take back and recycle end-of-life vehicles are minimised by ensuring that “designing for recycling” is fully con- sidered during the product development stage. All ef- forts are taken to ensure that the raw materials gained from recycling end-of-life vehicles can be reused in the production process. Statutory risks stemming from vehicle recycling in various markets are minimised by means of a specialised in-house team working in con- junction with regional managers. Medium- and long-term targets have already been put in place in Europe, North America, Japan, China and other countries to reduce fuel consumption and CO2 emissions. Europe has set a target of achieving an aver- age of 130 g CO2 / km for all new vehicles by 2015. The EU Regulation defines rules for CO2 emissions based on the weight of each particular vehicle. For the BMW Group this means a target of under 140 g CO2 / km per vehicle. In the USA fuel economy targets have now been defined up to the year 2025. Beginning with a gradual reduction for 2012 models, the new car fleets of all manufac- turers are to achieve an average emission value of 250 g CO2 / mile (155 g CO2 / km) by model year 2016 and an average value of 163 g CO2 / mile (101 g CO2 / km) by 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 50 65 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 66 74 Risk Management Outlook 68 model year 2025. Japan has also set ambitious targets for reducing fuel consumption. Authorities in China are currently discussing new, stricter regulations to tighten up the existing individual vehicle fuel consumption rules for the years 2013 to 2015. The broader market introduction of alternative drive systems means new challenges and additional investment for the automotive industry. At the same time we also see this as an opportunity to put our technological exper- tise and innovative strengths to use. Greater fuel econ- omy and the reduction of emissions are fundamental parameters that we automatically include when designing new products. In the short and medium term we will achieve greater fuel economy by electrifying the drivetrain and developing comprehensive hybrid systems. We are also working on solutions for sustainable mobility in densely populated areas. Large-scale field trials with the MINI E have been carried out in the UK, Germany, France, the USA, China and Japan. A test fleet of BMW ActiveE electric cars based on the BMW 1 Series Coupé has been on the road since 2011. The extensive knowledge gained from the trials will be used in the series development of the BMW Group’s electric cars. The BMW i3 will come onto the market at the end of 2013 as the first series-produced electric car made by the BMW Group for the metro- politan regions of the world. Not only the safety of our customers, but that of all other road users is an essential component of our product re- sponsibility. The BMW Group analyses the entire pro- cess chain from accident prevention to post-crash appli- cations, such as the extended emergency call integrated in Connected Drive, which is a unique innovation. In order to minimise injury and damage caused by acci- dents we are employing both active and passive safety technologies. Active safety measures such as suspen- sion regulation and driver assistance systems make an essential contribution to the prevention of accidents. Our enhanced technology in passive vehicle safety has also led to the latest BMW 3 Series and 5 Series sedans achieving top marks in consumer tests world- wide, thereby setting new standards in their classes. Moreover, the BMW Group is already researching topics for which we are only likely to receive answers in the longer term. These include, for instance, safety questions that may only present themselves when a far greater number of hybrid and electric cars are on the road. Operational risks Production Production interruptions represent a major risk for the BMW Group, due to the potential scale of their impact. Apart from hazards posed by the elements (such as fire or flooding), power supply and IT breakdowns, pro- duction interruptions can also be caused by logistical problems (such as the failure of a supplier to deliver). Precautionary measures are therefore incorporated in production and logistics structures to make provision for such eventualities, both in terms of likelihood of oc- currence and loss impact. These measures include the use of firewalls, sprinkler systems and auxiliary power supplies. The flexible nature of our production network and working time models also generally help to reduce opera- tional risks. The assessment of both environmental and social risks when selecting new production sites is also an important factor in minimising risk. Risks aris- ing from business interruption and loss of produc- tion due to acts of God are insured up to economically reasonable levels with insurance companies that enjoy a good credit standing. Purchasing The customary distribution of tasks between manufac- turers and suppliers within the automotive sector creates economic benefits, but also exposes contracting parties to a certain degree of mutual dependence. As part of a policy of preventative risk management imple- mented within the purchasing function, suppliers are assessed for technical competence on the one hand and financial strength on the other, during both the develop- ment and production phases of our vehicles. Suppliers’ risks at a local level also play an increasingly important role in the context of decision-making. As part of our catalogue of procedures, for instance, we also assess the extent to which supplier sites are exposed to natural hazards, such as floods or earthquakes, thus reducing our exposure to parts supply risks. Sustainability plays a crucial role in all of our purchas- ing activities and is taken into consideration when developing environmental, social and governance standards. In this context, we manage sustainability risks using a systematic three-stage risk management approach, comprising risk filters, modularly designed 69 COMBINED GROUP AND COMPANY MANAGEMENT REPORT supplier risk evaluation questionnaires and external sustainability audits. In addition to managing risk, we are also constantly on the alert to identify oppor- tunities, including options for using resources more efficiently. The risk of certain suppliers suffering capacity bottle- necks rose during the period under report, mainly reflecting the growth in volumes that needed to be handled in 2012. Material supplies were nevertheless fully assured at all times by means of appropriate early- intervention measures. Sales and marketing The regional spread of sales, the composition of the model mix, and hence the volume of related services, is constantly changing. Sales and production processes within the BMW Group are flexible enough to allow new opportunities to be exploited at short notice. We also offer new and attractive services whenever changes in demand patterns warrant it. Personnel As an attractive employer, for many years we have en- joyed a favourable position in the intense competition for qualified technical and management staff. Having a satisfied and motivated workforce is a key factor for success. Training programmes for new employees re- cruited from specific target groups and attractive per- sonnel development programmes make it easier to re- cruit and further the careers of highly qualified staff and protect the Group from the risk of know-how drift. Demographic change will have a lasting impact on con- ditions prevailing on employment markets, giving rise to risks and opportunities that are likely to affect busi- nesses to an increasing degree in the coming years. We see demographic change as one of our main challenges and we are taking a proactive approach to softening the impact it is likely to have on operational processes. Our key focus is on creating an optimal working envi- ronment for the future, promoting and maintaining the workforce’s ability to perform with the appropriate set of skills, increasing employees’ awareness of health is- sues and the development of individual employee work- ing life-time models aimed at retaining a motivated workforce in the long term. We encourage diversity within the BMW Group’s work- force. Heterogeneous teams comprising men and women from a variety of cultural backgrounds and differing age groups are often more productive and show greater innovative skill. Risks relating to pension obligations Risks arise for the BMW Group in conjunction with obligations relating to defined-benefit pension plans. Pension obligations to employees under such plans are measured on the basis of actuarial reports. Future pen- sion 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 parameters, such as rising inflation, also have an impact on pension obligations. Most of the BMW Group’s pension obligations are ad- ministered in external pension funds and the assets of those funds kept separate from Company assets. As a consequence, the level of funds required to finance pen- sion payments out of operations will be substantially reduced in the future, since most of the Group’s pension obligations are settled out of pension fund assets. In the case of the UK pension fund, the risk of the rising life expectancy of pensioners has also been hedged. The pension assets of the BMW Group comprise interest- bearing securities with a high level of creditworthiness, equities, property and other investment classes. Pension fund assets are monitored continuously and managed from a risk-and-yield perspective. Risk is reduced by ensuring a broad spread of investments which are struc- tured to coincide with the timing of pension payments and the expected pattern of pension obligations. In their own way, each of these measures helps to reduce fluc- tuations in pension funding shortfalls. Information, data protection and IT risks We attach great importance to protecting individual rights, business secrets, innovation and process infor- mation from unauthorised access, damage and / or mis- use. The protection of information and data is an inte- gral component of our business processes and based on International Security Standard ISO / IEC 27001. Staff, process design and information technology each play a role in our comprehensive risk and security concept. The requirement to apply uniform standards across the Group is embedded in the BMW Group’s core princi- ples and documented in detailed working instructions. These instructions require employees to handle all in- formation (such as customer and employee data) appro- priately, ensure that information systems are properly 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 50 65 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 66 74 Risk Management Outlook 70 used and that risks pertaining to information technol- ogy (IT risks) are dealt with transparently. Regular com- munication, awareness-raising activities and training measures (e. g. online training on information and data protection issues) create a high degree of security and risk awareness among the employees involved. Employees also receive training from the Group’s Compliance Organisation to ensure compliance with legal and regu- latory requirements. Potential IT and data protection risks resulting from the use of information technology and the processing of information are monitored on a regular basis and managed by the departments responsible. The technical data protection procedures used primarily 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 that stipulated requirements are complied with. A high level of protection is afforded by regular analyses, detailed up-front controls (such as compliance with mandatory data protection require- ments) and rigorous security management (for instance in the form of our centralised Security Operation Cen- tre, which is responsible for monitoring internal net- work traffic). The IT data protection and security strategy adopted in 2011 has not only tightened security within the BMW Group, it also helps to identify IT risks and enables appropriate action to be taken. At the same time, the Group’s data protection strategy was adopted and a set of data protection rules published, which apply for all of the Group’s employees. In the case of cooperation arrangements and business partner relationships we protect our intellectual property as well as customer and employee data by stipulating clear instructions with regard to data protection and the use of information technology. Information underlying key areas of expertise is subject to particularly stringent security measures. Financial risks and those relating to the provision of financial services Currency risks The sale of vehicles outside the eurozone gives rise to exchange risks. The BMW Group’s currency risk in 2012 was dominated by the US dollar, the Chinese renminbi, the British pound, the Russian rouble and the Japanese yen. Foreign currency risks are determined for forecast exposures measured using cash flow-at- risk models and scenario analyses. Operational currency management is based on the results provided by these tools. The BMW Group manages currency risks both at a stra- tegic (medium and long term) and at an operating level (short and medium term). In the 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 expansion of the plant in Spartanburg, USA, and the opening of the BMW Brilliance joint venture’s new plant in Tiexi in 2012 at the Shenyang site, China, are helping to reduce foreign exchange risks in two major sales markets. For operating purposes (short and medium term), cur- rency risks are hedged on the financial markets. Hedging transactions are entered into only with finan- cial partners of good credit standing. A description of the methods applied for risk measurement and hedging is provided in the notes to the Group Financial State- ments. Counterparty risk management procedures are carried out continuously to monitor the creditworthi- ness of business partners. Raw material risks The availability of specific groups of raw materials and changes in raw materials prices both represent signifi- cant risks for the BMW Group. In order to safeguard the supply of production materials and reduce cost risks, commodities markets are closely monitored and analysed. Financial derivatives are employed to hedge against price risks arising for precious metals (i. e. platinum, palladium and rhodium) and non-ferrous metals (i. e. aluminium, copper and lead) and, to some extent, steel and steel ingredients such as iron ore. Medium and long-term purchase contracts with fixed pricing arrangements for raw materials such as steel and plas- tics are also in place. A description of the methods applied for risk measurement and hedging is provided in the notes to the Group Financial Statements. Changes in the price of crude oil (as a basic ingredient in many of our components) have an indirect impact on our production costs. Crude oil prices (and exchange 71 COMBINED GROUP AND COMPANY MANAGEMENT REPORT rates) also influence fuel prices, which, in turn, directly influence the purchasing behaviour of our customers. The BMW Group counters this by developing and selling efficient and economical engines and by developing al- ternative drive technologies. Liquidity risks Good liquidity management ensures the BMW Group’s solvency at all times. Were strategic and sector-spe- cific risks, operational risks and financial risks to oc- cur, this could have an adverse impact on the Group’s liquidity. A target liquidity concept was put in place several years ago, drawing on the experience gained during the financial crisis, and is adhered to rigorously. As well as maintaining a liquidity reserve, access to liquid funds by Group entities is ensured by a broad diversification of refinancing sources. The liquidity position is moni- tored continuously at a separate entity level and managed by means of a cash flow requirements and sourcing forecast system in place throughout the Group. Liquidity risks can arise in the form of rising refinanc- ing costs on the one hand and restricted access to funds on the other. Most of the Financial Services segment’s credit financing and lease business is refinanced on capital markets. The BMW Group has good access to financial markets thanks to its excellent creditworthi- ness and, as in previous years, was able to raise funds at good conditions in 2012, reflecting a diversified refinancing strategy and the solid liquidity base of the BMW Group. Internationally recognised rating agencies have confirmed the BMW Group’s strong creditwor- thiness. There is a general risk that ratings could be downgraded, in which case the cost of refinancing con- ditions would increase; at present this risk is deemed to be low. Risks relating to Financial Services The main categories of risk relating to the provision of financial services are credit and counterparty risk, re- sidual value risk, interest rate risk, liquidity risk and operational risk. In order to evaluate and manage these risks, a variety of internal methods has been developed based on regulatory environment requirements (such as Basel II) and which comply with national and inter- national standards. A set of strategic principles and rules derived from regulatory requirements serves as the basis for risk management within the Financial Services segment. At the heart of the risk management process is a clear division into front- and back-office activities and a com- prehensive internal control system. In order to ensure that the segment is capable of bear- ing the risks to which it is exposed (i.e. its “risk-bearing capacity”), we monitor the segment’s total exposure to major risks. This involves measuring unexpected losses using a variety of value-at-risk techniques adapted to each relevant risk category. These losses are aggregated (after factoring in correlation effects) and compared with resources available to cover risks (i.e. equity). The segment’s risk-bearing capacity is monitored continu- ously with the aid of an integrated limit system which also differentiates between the various risk categories. The segment’s total risk exposure was covered at all times during the past year by the available risk-coverage volumes. Use of the “matched funding principle” to finance the Financial Services segment’s operations eliminates liquidity risks to a large extent. Regular measurement and monitoring ensure that cash inflows and outflows from transactions in varying maturity cycles and cur- rencies will offset each other. The relevant procedures are incorporated in the BMW Group’s target liquidity concept. Interest rate risks relate to potential losses caused by changes in market interest rates and can arise when fixed interest rate periods for assets and liabilities recognised in the balance sheet do not match. Interest- rate risks in the Financial Services line of business are managed by raising refinancing funds with matching maturities and by employing interest rate derivatives. For risk management purposes, all interest-related asset or liability exposures are aggregated on a cash flow basis taking account of subsequent changes, e. g. in the case of early termination of a contract. Interest rate risks are managed on the basis of a value-at-risk approach and stipulated limits. Limits are set using a benchmark- oriented approach that focuses on interest rate arrange- ments contained in the original contracts. Compliance with prescribed limits is tested regularly. Sensitivity analyses and stress scenarios showing the potential im- pact of interest rate changes on earnings are also used as tools to manage interest rate risks. These interest rate positions are aggregated for the BMW Group as a whole and measured with a value-at-risk methodology and taking other Group positions into account (structured as far as possible on a risk-neutral basis). 18 COMBINED GROUP AND COMPANY 18 21 24 44 47 50 65 MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 66 74 Risk Management Outlook 72 Credit risks arise in conjunction with lending to retail customers and major corporate customers, the latter relating primarily to the dealer, fleet and importer financing / leasing lines of business. Counterparty de- fault risk, by contrast, refers to the risk that banks or financial institutes with which financial instruments have been transacted are unable to meet their payment obligations. Lending to retail customers is largely based on auto- mated scoring techniques. In the case of major cor- porate customers, creditworthiness is checked using internal rating models, which take account of financial statement data and supplementary qualitative evalua- tions. Customer creditworthiness is tested at least once a year and revised accordingly. The approval for lend- ing to major corporate customers is primarily based on a standardised method of measuring the value of the vehicle(s) or other object(s) serving as collateral. The re- coverability of the value of items accepted as collateral is regularly reviewed, measured and evaluated with a view to assessing the impact on the level of risk not covered by collateral. In order to minimise risk from lending, we employ standardised instruments such as subsequent security, additional collateral, retention of vehicle documents or higher upfront payments. In addition, the levels of authority and responsibility of those involved in the lending process are clearly defined. Local, regional and centralised credit audits are also regularly performed by Internal Audit to check compliance with lending approval and authorisation rules procedures as well as the processes and IT systems involved. We continue to develop standardised credit decision pro- cesses for the BMW Group worldwide. The focus here is on improving the quality of credit applications, the Group’s rating methodology and procedures used to se- lect employees within the worldwide credit and coun- terparty risk network. In the case of vehicles which remain with the Financial Services segment at the end of a contract (leases and credit financing arrangements with option of return), there is a residual value risk if the residual value calcu- lated at the inception of the contract is not recovered when the vehicle is sold (residual value risk). Residual values are calculated uniformly throughout the BMW Group in accordance with mandatory guidelines. For risk management purposes, the expected risk-free residual value of a vehicle is measured on the basis of external and internal information. These amounts are checked regularly and adjusted as appropriate. Residual values of vehicles on used car markets are continuously moni- tored and reported on. In addition to internal informa- tion, our assessments also take account of external mar- ket data. The BMW Group strives to mitigate effectively against 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. Potential losses are measured by comparing forecasted market values and contractual residual values by model and market. The scope of procedures applied to manage operational risks is based on Basel II requirements. This includes identifying and measuring potential risk scenarios, com- puting and monitoring key risk indicators on an ongoing basis, the systematic recording of loss claims and a range of coordinated measures aimed at mitigating risk. Both qualitative and quantitative aspects are taken into account in the decision-making process. The latter is backed up by various system-based solutions, all of which follow the principles of operational risk manage- ment, such as the segregation of duties, dual control, documentation and transparency. In addition, both the effectiveness and efficiency of the internal control system are tested regularly. Legal risks Acting responsibly and complying with the law are the basic prerequisites for our success. Current legislation provides the binding framework for our wide range of activities around the world. The growing international scale of operations of the BMW Group, the complexity of the business world and the whole gamut of complex legal regulations increase the risk of laws being broken, simply because they are not known or fully understood. The BMW Group has established a Compliance Or- ganisation aimed at ensuring that its representative bodies, managers and staff act in a lawful manner at all times. Further information on the BMW Group’s Compliance Organisation can be found in the section “Corporate Governance”. Like all enterprises, the BMW Group is, or could be, confronted with the risk of legal disputes relating, among other things, to warranty claims, product liability, in- fringement of protected rights or proceedings initiated by government agencies. Any of these matters could 73 COMBINED GROUP AND COMPANY MANAGEMENT REPORT have an adverse impact on the Group’s reputation. Such proceedings are typical for the sector or arise as a con- sequence of realigning our product or purchasing strategy to suit changed market conditions. Particularly in the US market, class action lawsuits and product liability risks can give rise to substantial financial consequences and cause reputational damage. The BMW Group recog- nises appropriate levels of provision for lawsuits. A part of these risks, especially where the American market is concerned, is insured where this makes business sense. Some risks, however, cannot be assessed in full or can- not be assessed at all. It cannot be ruled out that losses from damages could arise which are not, or which are not fully, covered by insurance policies or provisions. The high quality of our products, which is ensured by regular quality audits and ongoing improvement meas- ures, helps to reduce this risk. In comparison with com- petitors, this can give rise to benefits and opportunities for the BMW Group. The BMW Group is not currently involved in any court or arbitration proceedings which could have a signifi- cant impact on its financial condition. Changes in the regulatory environment may impair our sales volume, revenues and earnings performance in specific markets or economic regions. Further details are provided in the section “Strategic and sector-specific risks”. 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 18 21 24 44 47 50 65 66 74 74 Outlook The assessments contained in the “Outlook” section are based on the forecasts made by BMW AG for the years 2013 and 2014 and reflect the most recent status. The basis of preparation of our forecasts, which take ac- count of consensual opinions of leading organisations, such as banks and economic research institutes, is set out below. These assumptions flow into the targets set for the segments. Our continuous forecasting process ensures that the BMW Group is always ready to take advantage of oppor- tunities as they arise. The principle risks facing the busi- ness are described in detail in the risk report. only modest growth of some 0.8 % in 2013, even with the help of generous expansionary monetary and fiscal policies. The Chinese economy is likely to gather pace again in the course of the current year. Positive early indicators as well as the announcement made by the Chinese government of further programmes to stimulate the economy give reason to believe that GDP in China will rise by 8.0 %. High property price levels and over- capacities in the construction and heavy industries sec- tor, could, however, hold down the growth rate in the region. Economic outlook for 2013 The global economy is expected to stabilise at a slower growth rate of approximately 2 % in 2013. However, in view of burgeoning public-sector debt in Europe, the USA and Japan, substantial over-capacities in China and conflict hot spots in the Middle East, the outlook is over- shadowed by a number of major risks. Output in the eurozone is set to stagnate in 2013 at the previous year’s level. The German economy, the largest in Europe, is forecast to grow again in 2013, albeit at the modest rate of 0.7 %. The French economy is expected to remain flat for the time being, a prediction fraught with major uncertainty in view of the prevailing risks. Based on forecasts, Italy’s gross domestic product (GDP) is set to contract by approximately 1.0 %. In Spain the downward trend is likely to continue, with economic output down by a further 1.6 %. A growth rate of 0.9 % is predicted for the UK, Europe’s largest market outside the eurozone. Again this year the recovery in the USA looks set to continue and growth in the region is predicted to run at around 2.0 %. The looming tax rises and expenditure cuts previously planned for the turn of the financial year 2013 were reduced. However, the negative impact on purchasing power should be offset by growing vitality on the job and property markets. Overall, how- ever, growth is likely to remain at roughly the previous year’s level and the US economy is set to continue its upward trend. The economies of India and Brazil are expected to grow by 6.0 % and 3.5 % respectively. Russia’s GDP is likely to expand by about 3.4 %, roughly in line with the previous year. Fluctuations on currency markets High public-sector debt in Europe, the USA and Japan are likely to cause continued fluctuations on the world’s currency markets. The US dollar / euro exchange rate is expected to average out at previous year’s levels. The Chinese renminbi will probably remain coupled to the US dollar, with only minor fluctuations between the two currencies. The budget situation and greater expansion- ary monetary policies in Japan could cause the Japanese yen to drop further in value. The British pound is fore- cast to appreciate modestly against the euro, assuming the UK can maintain stable economic growth. Car markets in 2013 Taken as a whole, the world’s car markets are expected to grow by some 4.0 % in the current year to a total of 75.5 million units. High demand for replacement vehicles after a number of weak years should boost volumes sold in the USA by approximately 2.1 % to 14.8 million units. The Chinese passenger car market is forecast to grow by approximately 8.5 % to 14.4 million units. The regional spread of sales in China is likely to shift increasingly in- land, away from the coast towards the interior provinces, which are now entering a catch-up phase. The performance of the Japanese economy in 2013 will depend largely on the policymaking skills of the newly elected government. Having slipped back into recession at the end of 2012, Japan is at best likely to achieve The downward trend seen in Europe in recent years is set to continue, with the market as a whole contracting by 1.8 % to 12.3 million units. Following a period of drastic decreases, however, the market could well now consolidate at approximately this level. Sales volumes 75 COMBINED GROUP AND COMPANY MANAGEMENT REPORT are forecast to remain flat in Germany, France and Spain and decrease marginally in the UK and Italy. The car market in Japan could see a drop of 4 % to 5.0 mil- lion units as the catch-up effect begins to wane. A growth rate of around 10 % is forecast for the Russian car market in 2013, which would entail a volume of some 3.0 million units. Demand for cars in India is pre- dicted to rise by 7 % to 2.9 million units in 2013. The corresponding figures for Brazil are 9 % and 3.95 million units respectively. Motorcycle markets in 2013 Overall, we expect the world’s motorcycle markets in the 500 cc plus class to grow slightly in 2013. In Europe, however, the negative trend is quite likely to continue, with only the German market looking set to remain stable. Modest growth is forecast for the USA and Japan. The motorcycle market in Brazil is also likely to con- tinue expanding, even if not quite as dynamically as in recent years. The financial services market in 2013 The forecast of moderate growth for the global econ- omy in the current year is likely to be achieved – among other factors – on the back of looser monetary policies in the USA, China and some growth markets. Down- beat economic prospects will probably ensure that in- flationary pressures in industrialised countries do not rise further. We are assuming that the world’s major central banks continue their expansionary monetary policies throughout the current year. Both the European Central Bank (ECB) and the US Reserve Bank have an- nounced their intention to keep interest rates at their current low level during 2013. Refinancing conditions for the whole sector are likely to remain volatile for the foreseeable future given the pervading nervousness on the world’s capital markets. There is also unlikely to be any change in the divergent development of vehicle residual values over the course of 2013. The economic situation will remain particularly tense in southern Europe. At present, it is difficult to assess the extent to which the sovereign debt crisis will affect other European countries. For the time being, it seems reasonable to assume that used car markets out- side Europe will remain more or less stable in average terms. A similarly heterogeneous picture is also likely to apply for the credit risk situation over the course of 2013. Compared to the ongoing tenseness in southern Europe, the overall situation elsewhere is expected to improve marginally. Outlook for the BMW Group in 2013 High public-sector debt levels and the prospect of con- solidation in spending, particularly in Europe, remain a source of uncertainty in 2013. Other concerns for the global economy have been kindled by slower growth in China and political instability in a number of regions. The situation is exacerbated by the fact that greater vola- tility in forecasting parameters currently makes it more difficult for the BMW Group to predict future perfor- mance with any degree of accuracy. Our answer to uncertainties in a volatile environment is to follow our Strategy Number ONE, which we have been actively implementing for several years now. The strategic aim we are pursuing is clearly reflected in the excellent figures reported for the past year and en ables us to look forward with confidence to 2013. We intend to continue the success story with our strong brands, all of which enjoy a global presence. We will be aided in this endeavour by our attractive range of models and services, comprehensively designed to meet the needs of individual mobility. With our focus on “premium”, as the world’s leading provider we benefit to an excep- tional extent from the high demand for premium seg- ment vehicles. We forecast that vehicle sales will again rise to new re- cord levels in 2013, enabling the BMW Group to remain the world’s foremost premium car manufacturer. Demand for our models remains high, particularly for the BMW 1, 3, 5 and 6 Series and the BMW X family. The launches of the BMW 3 Series Touring on European markets and the BMW 3 Series Sedan (with xDrive four- wheel-drive system) in the USA have also driven sales momentum, right from the outset. Further impetus will come from the BMW X1, which is now also available in China and the USA. Our exceptionally strong sales per- formance in some parts of the world, such as in China and the USA, is more than compensating the market weakness a number of European countries are currently experiencing. Even here, however, we are still achieving good growth in a host of countries. 76 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT A Review of the Financial Year General Economic Environment Review of Operations BMW Stock and Capital Market Disclosures relevant for takeovers and explanatory comments Financial Analysis 50 52 54 57 59 59 61 62 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 18 21 24 44 47 50 65 66 74 We will again be introducing numerous new and revised models to the market in 2013 and these will give a boost to sales. The new BMW 3 Series Gran Turismo will be launched in June to become the third body variant of the current model family and represent an innovative, fully autonomous concept within the highly successful BMW 3 Series model range. The M6 Gran Coupé, due to be launched in the same month, is the third body variant of the M6 sports car and combines high per formance with elegant design. The new BMW 4 Se- ries Coupé, which again sets standards in terms of design, dynamic performance and efficiency in the sporty medium-class coupé segment, is set to follow in September. At the end of the year, the BMW i3 will be launched as the first series-built electric vehicle made by the BMW Group for the metropolitan regions of the world. The MINI brand continues to enjoy great popularity. In March, MINI will be adding a seventh vehicle to its family of models in the form of the Paceman. Rolls-Royce recently launched its new top model, the Phantom Series II. The Rolls-Royce Wraith celebrated its world premiere at the Geneva International Auto mobile Show. We will continue giving careful consideration to achiev- ing a balanced distribution in terms of global sales volumes. The BMW Group remains committed to the principle that “production follows the market”. The opening of the new plant in Tiexi*, China, in 2012 is an- other important step in our unbroken endeavour to service this emerging market successfully. Production capacity in China currently stands at a total of 200,000 vehicles per year. In the medium term, we plan to in- crease the capacities of our two Chinese plants to pro- duce up to 300,000 units per annum. We are already taking steps to ensure our ability to ultimately expand production volume on a flexible basis to accommodate up to 400,000 units per annum. Even with its high pro- duction levels, the new plant in Tiexi* is setting new standards in the field of emission reduction and efficient use of resources. The BMW Group’s global production capability has also been additionally strengthened by the expansion of the Spartanburg plant in the USA. Capacity here will be increased to manufacture up to 350,000 units by 2014. * Joint venture BMW Brilliance We also intend to bolster our presence in growth mar- kets, such as Brazil. Following the receipt of approval from the Brazilian government at the beginning of 2013, we now plan to manufacture up to 30,000 vehicles there per annum. Compared to the rest of the sector, our global produc- tion network is extremely flexible. Revised shift models, working-time accounts for employees and a whole range of other measures enable us to compensate for fluctuations in demand. High levels of capacity utili- sation are an important factor in maintaining the Group’s profitability. The efficiency of our drive systems has enabled us to play a pioneering role in reducing fleet consumption and CO2 emissions, whilst simultaneously enhancing the sporty and dynamic character of our vehicles. The combustion engine is going to remain the world’s foremost drive technology in the foreseeable future. We are therefore developing a new generation of combus- tion engines as part of our Efficient Dynamics initiative. In future we will be able to offer both petrol- and diesel- powered vehicles with three-, four- and six-cylinder engines of varying capacities. BMW’s TwinPower Turbo Technology will be deployed, ensuring a high level of efficiency and enabling further improvements to be made across the fleet in terms of consumption and emissions. In combination with the electric-drive components of our ActiveHybrid or plug-in hybrid vehicles, this new generation of combustion engines will make a signifi- cant contribution towards attaining our consumption and emissions targets. The completely newly developed electric vehicle, the BMW i3, is due to be launched at the end of 2013. This premium car of the future features an absolutely new drivetrain concept and the consistent use of CFRP in its design. The innovative BMW i3 is a striking demonstra- tion of the BMW Group’s expertise in the field of light- weight construction. Connected Drive has been setting standards for many years now in the development of forward-looking con- cepts and technologies aimed at connecting driver, vehicle and surroundings. These innovations increase road safety levels, offer greater convenience and create new opportunities for information and entertainment. Residual value risks are expected to develop differently from region to region, remaining stable in growth markets and a source of concern in southern Europe. We also expect a small decline in market prices in the USA, Great Britain and Germany. An improvement in the credit risk situation will have a positive effect on business performance. Outlook for 2014 Assuming economic conditions remain stable, the BMW Group will continue to grow in 2014. The finan- cial position should also be very solid. New models will provide a further boost to sales volumes, producing a correspondingly favourable impact on revenues and earnings. We expect the Automotive segment will again achieve an EBIT margin within the desired target corri- dor of between 8 % and 10 % and a RoCE above 26 %. The Financial Services segment should continue to grow apace and continue increasing the size of its con- tract portfolio. The RoE target for the segment will re- main unchanged at 18 %. However, actual returns will partially depend on political and economic develop- ments worldwide. 77 COMBINED GROUP AND COMPANY MANAGEMENT REPORT The BMW Group continues to enjoy a solid financial base. Strong cash flows and straightforward access to capital markets also provide us with additional room to manoeuvre, which we are using to hone our leading competitive edge and pursue our declared strategy of ensuring that the BMW Group remains the world’s leading provider of premium products and premium services. Group profit before tax in 2013 should be on a similar scale to that reported for 2012. Automotive segment in 2013 We forecast that the Automotive segment will continue to perform well in 2013 on the back of strong sales vol- ume growth. We intend to forge ahead with continued investment in innovation, future technologies and the consistent internationalisation of our production net- work. Assuming economic conditions remain stable, we forecast single-digit sales volume growth for the Group and hence a new record for the current year. We are again striving to achieve an EBIT margin within the target corridor of between 8 % and 10 % and a RoCE above 26 %. Depending on political and economic de- velopments, however, results may be above or below the targeted levels. The financial position of our Automotive segment is also set to remain very strong in 2013. Motorcycles segment in 2013 Thanks to its attractive and extremely youthful model range, we forecast further growth in sales volume for the BMW brand in 2013, with impetus also being gen- erated by the full availability of the Scooter and the new R 1200 GS. Increased sales volumes in 2013 should re- sult in higher revenues and earnings, compared to the situation in 2012 where earnings were negatively im- pacted by one-off higher expenses incurred in realigning the Group’s motorcycle business. Financial Services segment in 2013 We expect the Financial Services segment to continue growing and deliver another strong performance in 2013. Despite the positive impact of various measures taken to ease the debt crisis in Europe, the situation in southern Europe remains tense and uncertain. We are actively reducing our exposure to risks in these countries by rigorously applying appropriate risk management procedures. Based on the segment’s performance at the beginning of the year, we forecast a further increase in the contract portfolio and a RoE of at least 18 %. 78 GROUP FINANCIAL STATEMENTS BMW Group Income Statements for Group and Segments Statement of Comprehensive Income for Group Income Statements for Group and Segments in € million Revenues Cost of sales Gross profit Selling and administrative expenses 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 Note Group Automotive (unaudited supplementary information) 2012 2011 2012 2011 8 9 10 11 11 12 13 13 14 76,848 68,821 70,208 63,229 – 61,354 – 54,276 – 56,525 – 50,164 15,494 14,545 13,683 13,065 – 7,007 – 6,177 – 5,837 – 5,260 829 – 1,016 8,300 271 753 – 913 – 592 – 481 782 – 1,132 8,018 162 763 – 943 – 617 – 635 673 – 895 7,624 271 620 – 819 – 501 – 429 528 – 856 7,477 164 680 – 889 – 609 – 654 7,819 7,383 7,195 6,823 15 – 2,697 – 2,476 5,122 4,907 Attributable to minority interest Attributable to shareholders of BMW AG Earnings per share of common stock in € Earnings per share of preferred stock in € Dilutive effects Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € 33 33 16 16 16 16 26 5,096 7.77 7.79 – 7.77 7.79 * Includes impact of exceptional items relating to the sale of the Husqvarna Group. Statement of Comprehensive Income for Group in € million Net profit 26 4,881 7.45 7.47 – 7.45 7.47 Note Available-for-sale securities Financial instruments used for hedging purposes Exchange differences on translating foreign operations 214 1,302 – 123 Actuarial losses on defined benefit pension obligations, similar obligations and plan assets 34 – 1,881 Deferred taxes relating to components of other comprehensive income Other comprehensive income for the period (after tax) from equity accounted investments Other comprehensive income for the period after tax Total comprehensive income Total comprehensive income attributable to minority interests Total comprehensive income attributable to shareholders of BMW AG 19 33 33 – 2,458 4,737 24 4,713 – 1,832 4,991 25 4,966 2012 2011 5,122 4,907 – 72 – 801 168 – 586 421 – 41 – 911 49 82 – 357 4,765 3,996 26 4,739 26 3,970 78 78 78 GROUP FINANCIAL STATEMENTS Income Statements Statement of 80 82 84 86 Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 79 GROUP FINANCIAL STATEMENTS Motorcycles Financial Services Other Entities Eliminations (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) 2012* 2011 2012 2011 2012 2011 2012 2011 1,490 1,436 19,550 17,510 – 1,236 – 1,207 – 16,984 – 15,013 254 229 2,566 2,497 – 181 – 176 8 – 72 9 – 8 – 11 – – 3 6 – 22 – 16 – – 16 2 – 10 45 – 8 – 12 – – 4 41 – 12 29 – 29 – 980 101 – 129 1,558 – 5 – 9 7 3 – 719 74 – 89 1,763 – 5 – 15 37 27 1,561 1,790 – 545 1,016 1 1,015 – 1,053 737 – 737 5 – 5 – 18 122 – 51 58 – 1,792 5 – 5 – 27 249 – 246 – 19 – 2 1,739 – 14,405 – 13,359 Revenues 13,391 – 1,014 12,108 Cost of sales – 1,251 Gross profit 9 – 75 131 – 949 5 Selling and administrative expenses – 71 Other operating income 69 Other operating expenses – 1,248 Profit / loss before financial result – – Result from equity accounted investments – 1,672 – 1,669 Interest and similar income – 1,758 – 1,841 1,684 1,814 Interest and similar expenses – 98 – 64 – 6 5 – 1 1 – 2 – 45 – 149 – 168 37 – 131 1 – 132 – 12 – Other financial result 145 Financial result – 937 – 1,103 Profit / loss before tax 323 – 614 – – 614 384 Income taxes – 719 Net profit / loss – Attributable to minority interest – 719 Attributable to shareholders of BMW AG Earnings per share of common stock in € Earnings per share of preferred stock in € Dilutive effects Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 80 BMW Group Balance Sheets for Group and Segments at 31 December Assets in € million Intangible assets Property, plant and equipment Leased products Investments accounted for using the equity method Other investments Receivables from sales financing Financial assets Deferred tax Other assets Non-current assets Inventories Trade receivables Receivables from sales financing Financial assets Current tax Other assets Cash and cash equivalents Assets held for sale Current assets Total assets Equity and liabilities in € million Subscribed capital Capital reserves Revenue reserves Accumulated other equity Equity attributable to shareholders of BMW AG 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 Liabilities in conjunction with assets held for sale Current provisions and liabilities Note Group Automotive (unaudited supplementary information) 2012 2011 2012 2011 21 22 23 24 24 25 26 15 28 29 30 25 26 27 28 31 32 5,207 13,341 24,468 514 548 5,238 11,685 23,112 302 561 32,309 29,331 2,148 2,001 800 1,702 1,926 568 81,336 74,425 9,725 2,543 20,605 4,612 966 3,648 8,370 45 9,638 3,286 20,014 3,751 1,194 3,345 7,776 – 4,648 13,053 128 514 4,789 – 759 2,219 3,859 29,969 9,366 2,305 – 2,746 775 16,146 7,484 – 4,682 11,444 151 281 4,520 – 287 2,276 3,139 26,780 9,309 3,014 – 2,307 1,065 15,333 5,829 – 50,514 49,004 38,822 36,857 131,850 123,429 68,791 63,637 Note Group Automotive (unaudited supplementary information) 2012 2011 2012 2011 33 33 33 33 33 33 34 35 15 37 38 35 36 37 39 38 32 656 1,973 28,340 – 674 30,295 655 1,955 26,102 – 1,674 27,038 107 65 30,402 27,103 28,105 26,154 3,965 3,513 3,040 39,095 3,404 53,017 3,282 1,482 30,412 6,433 6,792 30 2,183 3,149 3,273 37,597 2,911 49,113 3,104 1,363 30,380 5,340 7,026 – 2,371 3,175 451 1,775 3,394 11,166 2,641 1,269 1,289 5,669 811 2,840 893 1,822 3,289 9,655 2,519 1,188 1,468 4,719 18,652 17,934 – – 48,431 47,213 29,520 27,828 Total equity and liabilities 131,850 123,429 68,791 63,637 81 GROUP FINANCIAL STATEMENTS Motorcycles Financial Services Other Entities Eliminations (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) 2012 2011 2012 2011 2012 2011 2012 2011 Assets 72 242 – – – – – – – 314 348 114 – – – 31 – 45 538 852 56 202 – – – – – – – 258 318 128 – – – 33 3 – 482 740 486 46 499 39 28,060 25,900 – 7 – 8 32,309 29,331 126 279 1,330 62,643 11 123 67 216 1,185 57,245 11 143 20,605 20,014 813 132 3,573 797 – 877 78 2,823 1,518 – 1 – – – 5,761 – 1,730 381 16,995 24,868 – 1 – 1,480 59 1 – – 21 5,727 – 1,883 373 15,384 23,389 – 1 – 955 51 – – – Intangible assets – Property, plant and equipment – 3,720 – 2,939 Leased products – – Investments accounted for using the equity method – 10,009 – 9,694 Other investments – – 467 – 878 – Receivables from sales financing – 535 Financial assets – 939 Deferred tax – 21,384 – 19,140 Other assets – 36,458 – 33,247 Non-current assets – – – – 427 – – Inventories – Trade receivables – Receivables from sales financing – 388 Financial assets – Current tax 30,285 29,098 – 46,387 – 43,942 Other assets 89 – 426 – – – – Cash and cash equivalents – Assets held for sale 26,054 25,464 31,914 30,531 – 46,814 – 44,330 Current assets 88,697 82,709 56,782 53,920 – 83,272 – 77,577 Total assets Motorcycles Financial Services Other Entities Eliminations (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) 2012 2011 2012 2011 2012 2011 2012 2011 Equity and liabilities Subscribed capital Capital reserves Revenue reserves Accumulated other equity Equity attributable to shareholders of BMW AG Minority interest – 29 135 – – 246 410 114 – – 277 21 30 442 852 – 44 114 – – 383 541 57 – – 125 17 – 199 740 7,631 7,169 8,361 6,576 – 13,695 – 12,796 Equity 90 173 4,777 14,174 19,653 38,867 289 136 16,830 474 24,470 – 52 164 4,302 13,251 17,172 34,941 297 78 16,160 481 23,583 – 1,475 1,276 30 5 31 10 23,613 23,059 – – – 2,193 – 467 – Pension provisions – Other provisions – 1,932 Deferred tax – 535 Financial liabilities 18 27 – 19,907 – 17,960 Other liabilities 25,141 24,403 – 22,567 – 20,427 Non-current provisions and liabilities 235 77 228 97 12,720 13,141 13 15 3 – – 427 – 3 Other provisions – Current tax – 389 Financial liabilities – Trade payables 10,235 9,460 – 46,586 – 43,968 Other liabilities – – – – Liabilities in conjunction with assets held for sale 42,199 40,599 23,280 22,941 – 47,010 – 44,354 Current provisions and liabilities 88,697 82,709 56,782 53,920 – 83,272 – 77,577 Total equity and liabilities 82 BMW Group Cash Flow Statements for Group and Segments in € million Net profit Reconciliation between net profit and cash inflow / outflow from operating activities Current tax Other interest and similar income / expenses Depreciation and amortisation of other tangible, intangible and investment assets Change in provisions Change in leased products Change in receivables from sales financing Change in deferred taxes Other non-cash income and expense items Gain / loss on disposal of tangible and intangible assets and marketable securities 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 Cash inflow / outflow from operating activities Investment in intangible assets and property, plant and equipment Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investments Net cash in acquiring ICL Group Proceeds from the disposal of investments Cash payments for the purchase of marketable securities Cash proceeds from the sale of marketable securities Cash inflow / outflow from investing activities Issue / Buy-back of treasury shares Payments into equity Payment of dividend for the previous year Intragroup financing and equity transactions Interest paid Proceeds from the issue of bonds Repayment of bonds Change in other financial liabilities Change in commercial paper Cash inflow / outflow from financing activities Effect of exchange rate on cash and cash equivalents Effect of changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 1 Adjusted for reclassifications as described in note 42. 2 Interest relating to financial services business is classified as revenues / cost of sales. Note Group 2012 2011 5,122 4,907 2,908 – 4 3,716 446 – 1,421 – 3,988 – 211 407 – 16 – 271 1,755 – 108 744 1,119 – 1,084 – 2,462 179 5,076 2,868 1 3,654 779 – 379 – 2,837 – 338 148 – – 162 – 1,615 – 1,715 – 800 900 1,175 – 2,701 213 5,713 – 5,236 – 3,679 42 – 171 – 107 – 1,265 1,090 – 5,433 – 19 – 1,516 – – 102 7,977 53 – 543 – 595 21 – 2,073 1,317 – 5,499 – 16 – 852 – – 82 5,899 – 6,727 – 5,333 2,159 – 858 952 – 14 13 594 191 248 87 – 13 56 344 7,776 8,370 7,432 7,776 42 42 42 42 42 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 83 GROUP FINANCIAL STATEMENTS Automotive Financial Services (unaudited supplementary information) (unaudited supplementary information) 2012 20111 (changed) 2012 20111 (changed) 4,737 4,991 1,016 737 Net profit 3,026 104 3,679 261 23 – – 386 265 – 14 – 271 1,622 – 54 722 954 – 1,937 – 2,191 249 9,167 2,726 95 3,564 577 29 – – 707 – 79 – – 164 – 1,590 – 1,685 – 886 981 887 – 2,453 234 8,110 – 104 –2 38 – 2 – 2,256 – 3,988 497 – 13 – 2 – 18 – 19 – 1 743 Reconciliation between net profit and cash inflow / outflow from operating activities 86 102 20 Current tax Other interest and similar income / expenses Depreciation and amortisation of other tangible, intangible and investment assets – 156 Change in provisions – 1,311 Change in leased products – 2,837 Change in receivables from sales financing 804 – 9 1 – 83 – 2 101 – 16 846 Change in deferred taxes Other non-cash income and expense items Gain / loss on disposal of tangible and intangible assets and marketable securities Result from equity accounted investments Change in inventories Change in trade receivables Change in trade payables Change in other operating assets and liabilities – 139 –2 – 171 –2 Income taxes paid Interest received – 4,192 – 1,897 Cash inflow / outflow from operating activities – 5,074 – 3,565 – 37 – 25 Investment in intangible assets and property, plant and equipment 35 – 384 – 65 – 1,167 995 – 5,530 – 19 – 1,516 – 833 – 157 – – 508 – 4 50 – 1,201 – 249 21 – 1,866 1,085 – 5,725 – 16 – 852 – 1,666 – 244 – – 316 299 – 1,983 – 2,131 – 11 12 1,655 5,829 7,484 – 10 – 244 5,585 5,829 7 – – – – 97 95 – 32 – – – 1,505 –2 1,189 – 842 1,653 – 3,505 – 3 1 – 721 1,518 797 6 – Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investments 104 Net cash in acquiring ICL Group – Proceeds from the disposal of investments – 113 Cash payments for the purchase of marketable securities 232 Cash proceeds from the sale of marketable securities 204 Cash inflow / outflow from investing activities – – – – 1,021 –2 Issue / Buy-back of treasury shares Payments into equity Payment of dividend for the previous year Intragroup financing and equity transactions Interest paid 653 Proceeds from the issue of bonds – 925 Repayment of bonds 3,229 Change in other financial liabilities – Change in commercial paper 1,936 Cash inflow / outflow from financing activities – 6 Effect of exchange rate on cash and cash equivalents 54 291 Effect of changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents 1,227 Cash and cash equivalents as at 1 January 1,518 Cash and cash equivalents as at 31 December 84 BMW Group Group Statement of Changes in Equity in € million Note Subscribed capital Capital reserves Revenue reserves 31 December 2010 33 Dividends paid Net profit Other comprehensive income for the period after tax Comprehensive income 31 December 2011 Premium arising on capital increase relating to preferred stock Other changes 31 December 2011 33 655 – – – – – – 655 Pension obligations Other revenue reserves 1,939 –1,785 24,277 – – – – 16 – – – – 419 – 419 – – – 852 4,881 – 4,881 – – 1,955 – 2,204 28,306 in € million Note Subscribed capital Capital reserves Revenue reserves 31 December 2011 33 Dividends paid Net profit Other comprehensive income for the period after tax Comprehensive income 31 December 2012 Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2012 Pension obligations Other revenue reserves 1,955 – 2,204 28,306 – – – – – 18 – – – – 1,350 – 1,350 – – – – 1,508 5,096 – 5,096 – – – 655 – – – – 1 – – 33 656 1,973 – 3,554 31,894 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 85 GROUP FINANCIAL STATEMENTS Accumulated other equity Treasury shares Equity attributable to shareholders of BMW AG Minority interest Total Translation differences Securities Derivative financial instruments Pension obligations –1,064 – – 201 201 – – – 863 9 – – – 70 –70 – – – 61 –127 – – – 623 – 623 – – –750 – – – – – – – – – 23,904 26 23,930 31 December 2010 – – – – – – – – 852 4,881 – 911 3,970 16 – – 26 – 26 – 13 – 852 Dividends paid 4,907 Net profit – 911 Other comprehensive income for the period after tax 3,996 Comprehensive income 31 December 2011 16 13 Premium arising on capital increase relating to preferred stock Other changes 27,038 65 27,103 31 December 2011 Accumulated other equity Treasury shares Equity attributable to shareholders of BMW AG Minority interest Total Translation differences Securities Derivative financial instruments Pension obligations – 863 – 61 – 750 – – – 128 – 128 – – 7 – – 169 169 – – – – – 952 952 – – – – 984 108 202 – – – – – – – – – – 27,038 65 27,103 31 December 2011 – – – – – – – – 1,508 5,096 – 357 4,739 1 18 7 – 26 – 26 – – 16 – 1,508 Dividends paid 5,122 Net profit – 357 Other comprehensive income for the period after tax 4,765 Comprehensive income 31 December 2012 1 18 23 Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes – 30,295 107 30,402 31 December 2012 86 BMW Group Notes to the Group Financial Statements Accounting Principles and Policies 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 1 Basis of preparation The consolidated financial statements of Bayerische Motoren Werke Aktiengesellschaft (BMW Group Finan- cial Statements or Group Financial Statements) at 31 December 2012 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 2012 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 Reporting Standards, provides the legal basis for pre- paring consolidated financial statements in accordance with international standards in Germany and applies to financial years beginning on or after 1 January 2005. The BMW Group and segment income statements are presented using the cost of sales method. The Group and segment balance sheets correspond to the classifi- cation 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 provide a better insight into the net assets, financial position and performance of the BMW Group and going beyond the requirements of IFRS 8 (Operat- ing Segments), the Group Financial Statements also include balance sheets and income statements for the Automotive, Motorcycles, Financial Services and Other Entities segments. The Group Cash Flow Statement is supplemented by statements of cash flows for the Auto- motive and Financial Services segments. This supple- mentary information is unaudited. 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. Inter-segment transactions – relating primarily to inter- nal sales of products, the provision of funds and the related interest – are eliminated in the “Eliminations” column. Further information regarding the allocation of activities of the BMW Group to segments and a description of the segments is provided in note 48. In conjunction with the refinancing of financial services business, a significant volume of receivables arising from retail customer and dealer financing is sold. Simi- larly, 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 trans- actions 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 con- tinues to “service” the receivables and receives an appropriate fee for these services. In accordance with IAS 27 (Consolidated and Separate Financial State- ments) and Interpretation SIC-12 (Consolidation – Spe- cial 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 sig- nificant risks and rewards. At € 9.4 billion, the balance sheet value of assets sold at 31 December 2012 was un- changed from one year earlier. In addition to credit financing and leasing contracts, the Financial Services segment also brokers insurance business via cooperation arrangements entered into with local insurance companies. These activities are not material to the BMW Group as a whole. The Group currency is the euro. All amounts are dis- closed in millions of euros (€ 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. 87 GROUP FINANCIAL STATEMENTS All consolidated subsidiaries have the same year-end as BMW AG with the exception of BMW India Private Ltd., New Delhi, and BMW India Financial Services Private Ltd., New Delhi, both of whose year-ends are 31 March. The Group Financial Statements, drawn up in accord- ance with § 315 a HGB, and the Combined Group and Company Management Report for the financial year ended 31 December 2012 will be submitted to the oper- ator of the electronic version of the German Federal Gazette and can be obtained via the Company Register website. Printed copies will also be made available on request. In addition the Group Financial Statements and the Combined Group and Company Management Report can be downloaded from the BMW Group web- site at www.bmwgroup.com/ir. The Board of Management authorised the Group Finan- cial Statements for issue on 19 February 2013. 2 Consolidated companies The BMW Group Financial Statements include, besides BMW AG, all material subsidiaries, four special pur- pose securities funds and 26 special purpose trusts (al- most all used for asset-backed financing transactions). The number of subsidiaries – including special purpose securities funds and other special purpose trusts – con- solidated in the Group Financial Statements changed in 2012 as follows: Germany Foreign Total Included at 31 December 2011 Included for the first time in 2012 No longer included in 2012 Included at 31 December 2012 26 1 3 24 160 13 9 164 186 14 12 188 51 subsidiaries (2011: 48), either dormant or generating a negligible volume of business, are not consolidated on the grounds that their inclusion would not influence the economic decisions of users of the Group Financial Statements. Non-inclusion of operating subsidiaries re- duces total Group revenues by 0.9 % (2011: 0.7 %). The joint ventures SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, SGL Automotive Carbon Fibers Verwaltungs GmbH, Munich, and SGL Auto- motive Carbon Fibers LLC, Dover, DE, as well as BMW Brilliance Automotive Ltd., Shenyang, are accounted for using the equity method. Similarly, the joint ven- tures DriveNow GmbH & Co. KG, Munich, and Drive- Now Verwaltungs GmbH, Munich, are accounted for using the equity method. In accordance with an agree- ment dated 24 October 2012, BMW Holding B. V., The Hague, acquired from Peugeot Citroën Automobiles S. A., Vélizy-Villacoublay, that entity’s investment in BMW Peugeot Citroën Electrification B. V., The Hague, with effect from 30 November 2012 and the joint venture arrangements accordingly terminated. BMW Peugeot Citroën Electrification B. V., The Hague, and its subsidiary, BMW Peugeot Citroën Electrification GmbH, Munich, are not consolidated on the grounds of immateriality. Cirquent GmbH, Munich, which had previously been accounted for using the equity method, was sold in 2012. Four (2011: 18) participations are not consolidated using the equity method on the grounds of immateriality. They are included in the balance sheet in the line “Other investments”, measured at cost less, where applicable, accumulated impairment losses. A “List of Group Investments” pursuant to § 313 (2) HGB will be submitted to the operator of the electronic ver- sion of the German Federal Gazette. This list, along with the “List of Third Party Companies which are not of Minor Importance for the Group”, will also be posted on the BMW Group website at www.bmwgroup.com/ir. The List of Group Investments, the List of Third Party Companies which are not of Minor Importance for the Group and the full list of consolidated companies are also posted as appendices on the BMW Group website. PT BMW Indonesia, Jakarta, BMW China Services Ltd., Beijing, BMW India Financial Services Private Ltd., New 88 Delhi, BMW Osaka Corp., Osaka, BMW Receivables 1 Inc., Whitby, BMW Receivables 2 Inc., Whitby, and BMW Receivables Limited Partnership, Whitby, were consolidated for the first time in the financial year 2012. The following mergers took place during the financial year 2012: Alphabet B.V., Rijswijk, with Alphabet Nederland B. V., Breda; Alphabet Belgium Short Term Rental N. V., Aartselaar, with Alphabet Belgium Long Term Rental N. V., Aartselaar; ETS Garcia S. A., Paris, with BMW France S. A., Montigny-le-Bretonneux; Alphabet Italia S. p. A., Milan with Alphabet Italia Fleet Management S. p. A., Rome; and Alphabet Fleet Ser- vices España S. L., Madrid, with Alphabet España Fleet Management S. A. U., Madrid. As a result of these mergers Alphabet B. V., Rijswijk, Alphabet Belgium Short Term Rental N. V., Aartselaar, ETS Garcia S. A., Paris, Alphabet Italia S. p. A., Milan, and Alphabet Fleet Services España S. L., Madrid, ceased to be consoli- dated companies. Furthermore, BMW Overseas Enter- prises N. V., Willemstad, was wound up and 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 con- solidation of six special purpose trusts and one special purpose securities fund and the deconsolidation of three special purpose trusts and three special purpose securities funds. Consolidation principles The equity of subsidiaries is consolidated in accord- ance with IFRS 3 (Business Combinations). IFRS 3 requires that all business combinations are accounted for using the acquisition method, whereby identifia- ble assets and liabilities acquired are measured at their fair value at acquisition date. An excess of acqui- sition cost over the Group’s share of the net fair value of identifiable assets, liabilities and contingent lia- bilities is recognised as goodwill as a separate balance sheet line item and allocated to the relevant cash- generating unit (CGU). Goodwill of € 91 million which arose prior to 1 January 1995 remains netted against reserves. Receivables, payables, provisions, income and expenses and profits between consolidated companies (intragroup profits) are eliminated on consolidation. Under the equity method, investments are measured at the BMW Group’s share of equity taking account of fair value adjustments. Any difference between 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 ac- counted for as a general rule using the equity method when significant influence can be exercised (IAS 28 Investments in Associates). As a general rule, there is a rebuttable assumption that the Group has signifi- cant influence if it holds between 20 % and 50 % of the associated company’s voting power. 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 subsidiary is determined as a general rule on the basis of the primary economic environment in which it operates and corresponds therefore usually to the relevant local currency. Income and expenses of foreign subsidiaries are translated in the Group Financial State- ments 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 accumu- lated other equity. Exchange differences arising from the use of different exchange rates to translate the income statement are also offset directly against accu- mulated other equity. Foreign currency receivables and payables in the single entity accounts of BMW AG and subsidiaries are re- corded, at the date of the transaction, at cost. At the end of the reporting period, foreign currency receivables and payables are translated at the closing exchange rate. The resulting unrealised gains and losses as well as the subsequent realised gains and losses arising on settle- 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 3 4 89 GROUP FINANCIAL STATEMENTS ment are recognised in the income statement in accord- ance with the underlying substance of the relevant transactions. 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 Russian Rouble Closing rate Average rate 31.12. 2012 31.12. 2011 2012 2011 1.32 0.81 8.23 114.10 40.41 1.30 0.84 8.17 100.15 41.69 1.29 0.81 8.11 102.63 39.91 1.39 0.87 9.00 111.00 40.88 5 Accounting policies The financial statements of BMW AG and of its subsid- iaries in Germany and elsewhere have been prepared for consolidation purposes using uniform accounting policies in accordance with IAS 27 (Consolidated and Separate Financial Statements). Revenues from the sale of products are recognised when the risks and rewards of ownership of the goods are transferred to the dealer or customer, provided that the amount of revenue can be measured reliably, it is prob- able that the economic benefits associated with the transaction will flow to the entity and costs incurred or to be incurred in respect of the sale can be measured reliably. Revenues are stated net of settlement discount, bonuses and rebates. Revenues also include lease rentals and interest income earned in conjunction with financial services. Revenues from leasing instalments relate to operating leases and are recognised in the in- come statement on a straight line basis over the relevant term of the lease. Interest income from finance leases and from customer and dealer financing are recognised using the effective interest method and reported as revenues within the line item “Interest income on loan financing”. If the sale of products includes a determi- nable amount for subsequent services (multiple-compo- nent contracts), the related revenues are deferred and recognised as income over the relevant service period. Amounts are normally recognised as income by reference to the pattern of related expenditure. Profits arising on the sale of vehicles for which a Group company retains a repurchase commitment (buy-back contracts) are not recognised until such profits have been realised. The vehicles are included in inventories and stated at cost. Cost of sales comprises the cost of products sold and the acquisition cost of purchased goods sold. In addi- tion to directly attributable material and production costs, it also includes research costs and development costs not recognised as assets, the amortisation of capitalised development costs as well as overheads (in- cluding 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 expense from refinancing the entire financial services business, including the ex- pense 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 intended to compensate. Basic earnings per share are computed in accordance with IAS 33 (Earnings per Share). Undiluted earnings per share are calculated for common and preferred stock by dividing the net profit after minority interests, as attributable to each category of stock, by the average 90 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 number of outstanding shares. The net profit is accord- ingly allocated to the different categories of stock. The portion of the Group net profit for the year which is not being distributed is allocated to each category of stock based on the number of outstanding shares. Profits available for distribution are determined directly on the basis of the dividend resolutions passed for common and preferred stock. Diluted earnings per share would have to be disclosed separately. the asset will generate future economic benefits and where the costs of the asset can be determined relia- bly. Such assets are measured at acquisition and / or manufacturing cost and, to the extent that they have a finite useful life, amortised over their estimated use- ful lives. With the exception of capitalised develop- ment costs, intangible assets are generally amortised over their estimated useful lives of between three and five years. Share-based remuneration programmes which are expected to be settled in shares are, in accordance with IFRS 2 (Share-based Payments), measured at their fair value at grant date. The related expense is recognised in the income statement (as personnel expense) over the vesting period, with a contra (credit) entry recorded against capital reserves. Share-based remuneration programmes expected to be settled in cash are revalued to their fair value at each balance sheet date between the grant date and the set- tlement date (and on the settlement date itself). The expense for such programmes is recognised in the in- come statement (as personnel expense) over the vesting period of the programmes and recognised in the balance sheet as a provision. The share-based remuneration programme for Board of Management members and senior heads of depart- ment entitles BMW AG to elect whether to settle its commitments in cash or with shares of BMW AG com- mon stock. Following the decision to settle in cash, this programme is accounted for as a cash-settled share- based transaction. Further information on share-based remuneration pro- grammes is provided in note 18. Purchased and internally-generated intangible assets are recognised as assets in accordance with IAS 38 (Intangible Assets), where it is probable that the use of in years Factory and office buildings, distribution facilities and residential buildings Plant and machinery Other equipment, factory and office equipment Development costs for vehicle and engine projects are capitalised at manufacturing cost, to the extent that attributable costs can be measured reliably and both technical feasibility and successful marketing are as- sured. It must also be probable that the development expenditure will generate future economic benefits. Capitalised development costs comprise all expendi- ture that can be attributed directly to the development process, including development-related overheads. Capitalised development costs are amortised system- atically over the estimated product life (usually four to eleven years) following start of production. Goodwill arises on first-time consolidation of an ac- quired business when the cost of acquisition exceeds the Group’s share of the fair value of the individually identifiable assets acquired and liabilities and contin- gent liabilities assumed. 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 depreciation based on the estimated useful lives of the assets. Depreciation on property, plant and equip- ment reflects the pattern of their usage and is generally computed using the straight-line method. Components of items of property, plant and equipment with differ- ent 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 91 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 on the one hand and leases out vehicles pro- duced by the Group and other brands as lessor on the other. 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 incep- tion of the lease or at the present value of the lease pay- ments, 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 entities as leased products under operating leases, they are measured at manufacturing cost. All other leased products are measured at acquisition cost. All leased products are depreciated over the period of the lease using the straight-line method down to their expected residual value. Changes in residual value ex- pectations are recognised – in situations where the recoverable amount of the lease exceeds the carrying amount of the asset – by adjusting scheduled depre- ciation prospectively over the remaining term of the lease contract. If the recoverable amount is lower than the expected residual value, an impairment loss is recognised for the shortfall. A test is carried out at each balance sheet date to determine whether an im- pairment loss recognised in prior years no longer exists or has decreased. In these cases, the carrying amount of the asset is increased to the recoverable amount. The higher carrying amount resulting from the reversal may not, however, exceed the rolled- forward amortised cost of the asset. If there is any evidence of impairment of non-financial assets (except inventories and deferred taxes), or if an annual impairment test is required to be carried out – i.e. for intangible assets not yet available for use, in- tangible assets with an indefinite useful life and good- will acquired as part of a business combination – an impairment test pursuant to IAS 36 (Impairment of Assets) is performed. Each individual asset is tested separately unless the asset generates cash flows that are largely independent of the cash flows from other assets or groups of assets (cash-generating units / CGUs). For the purposes of the impairment test, the asset’s carry- ing amount is compared with its recoverable amount, the latter defined as the higher of the asset’s fair value less costs to sell and its value in use. An impairment loss is recognised when the recoverable amount is lower than the asset’s carrying amount. Fair value less costs to sell corresponds to the amount obtainable from the sale of an asset or groups of assets, less the costs of disposal. The value in use corresponds to the present value of future cash flows expected to be derived from an asset or groups of assets. The first step of the impairment test is to determine the value in use of an asset. If the calculated value in use is lower than the carrying amount of the asset, then its fair value less costs to sell are also determined. If the latter is also lower than the carrying amount of the asset, then an impairment loss is recorded, reducing the car- rying amount to the higher of the asset’s value in use or fair value less costs to sell. The value in use is deter- mined on the basis of a present value computation. Cash flows used for the purposes of this calculation are 92 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 derived from long-term forecasts approved by manage- ment and which cover a planning period of six years. The long-term forecasts themselves are based on detailed forecasts drawn up at an operational level. For the pur- poses of calculating cash flows beyond the planning period, the asset’s assumed residual value does not take growth into account. Forecasting assumptions are con- tinually brought up to date and take account of eco- nomic developments and past experience. Cash flows of the Automotive and Motorcycles CGUs are discounted using a risk-adjusted pre-tax cost of capital (WACC) of 12.0 % (2011: 12.0 %). In the case of Financial Services CGU, a sector-compatible pre-tax cost of equity capital of 13.4 % (2011: 12.7 %) is applied. If the reason for a previously recognised impairment loss no longer exists, the impairment loss is reversed up to the level of the recoverable amount, capped at the level of rolled-forward amortised cost. This does not apply to goodwill: previously recognised 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 accounted for using the equity method comprise joint ventures and significant associated companies. Investments in non-consolidated Group companies and interests in associated companies not accounted for using the equity method are reported as Other investments and 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, par- ticipations 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 in- cluded under this heading. A financial instrument is a contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Once the BMW Group becomes party to such to a contract, the financial instrument is recognised either as a financial asset or as a financial liability. Financial assets are accounted for on the basis of the set- tlement date. On initial recognition, they are measured at their fair value. Transaction costs are included in the fair value unless the financial assets are allocated to the category “financial assets measured at fair value through profit or loss”. 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 non-current invest- ments, securities and investment fund shares. This cate- gory includes all non-derivative financial assets which are not classified as “loans and receivables” or “held- to-maturity investments” or as items measured “at fair value through profit and loss”. Loans and receivables which are not held for trading and held-to-maturity financial investments with a fixed term are measured at amortised cost using the effective interest method. All financial assets for which pub- lished price quotations in an active market are not avail- able and whose fair value cannot be determined reliably are required to be measured at cost. In accordance with IAS 39 (Financial Instruments: Recognition and Measurement), assessments are made regularly as to whether there is any objective evidence that a financial asset or group of assets may be im- paired. Impairment losses identified after carrying out an impairment test are recognised as an expense. Gains and losses on available-for-sale financial assets are recognised directly in equity until the financial asset is disposed of or is determined to be impaired, at which time the cumulative loss previously recog- nised in equity is reclassified to profit or loss for the period. 93 GROUP FINANCIAL STATEMENTS With the exception of derivative financial instruments, all receivables and other current assets relate to loans and receivables which are not held for trading. All such items are measured at amortised cost. Receivables with maturities of over one year which bear no or a lower- than-market interest rate are discounted. Appropriate impairment losses are recognised to take account of all identifiable risks. Receivables from sales financing comprise receivables from retail customer, dealer and lease financing. Impairment losses on receivables relating to financial services business are recognised using a uniform methodology that is applied throughout the Group and meets the requirements of IAS 39. This methodology results in the recognition of impairment losses both on individual assets and on groups of assets. If there is objective evidence of impairment, the BMW Group rec- ognises impairment losses on the basis of individual assets. Within the retail customer 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 receivables, impairment losses are always recognised individually based on the length of period of the arrears. In the case of dealer financing receivables, the allocation of the dealer to a correspond- ing rating category is also deemed to represent objec- tive evidence of impairment. If there is no objective evi- dence of impairment, impairment losses are recognised on financial assets using a portfolio approach based on similar groups of assets. Company-specific loss proba- bilities and loss ratios, derived from historical data, are used to measure impairment losses on similar groups of assets. The recognition of impairment losses on receivables relating to industrial business is also, as far as possible, based on the same procedures 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 re- ceivables are derecognised. Items are presented as financial assets to the extent that they relate to financing transactions. Derivative financial instruments are only used within the BMW Group for hedging purposes in order to re- duce currency, interest rate, fair value and market price risks from operating activities and related financing requirements. All derivative financial instruments (such as interest, currency and combined interest / currency swaps, forward currency and forward commodity 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 financial instruments are measured using market infor- mation and recognised valuation techniques. In those cases where hedge accounting is applied, changes in fair value are recognised either in income or directly in equity under accumulated other equity, depending on whether the transactions are 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 recog- nised asset or liability or on forecast transactions, unre- alised 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 recognised in the income state- ment. The portion of the gains or losses from fair value measurement not relating to the hedged item is recog- nised immediately in the income statement. If, con- trary 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 in- struments 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 lia- bilities and on consolidation procedures. Deferred tax assets also include claims to future tax reductions which arise from the expected usage of existing tax losses avail- able for carryforward to the extent that 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. 94 Inventories of raw materials, supplies and goods for resale are stated at the lower of average acquisition cost and net realisable value. Work in progress and finished goods are stated at the lower of average manufacturing cost and net realisable value. Manufacturing cost comprises all costs which are directly attributable to the manufacturing process and an appropriate proportion of production-related overheads. This includes production-related deprecia- tion and an appropriate proportion of administrative and social costs. Borrowing costs are not included in the acquisition or manufacturing cost of inventories. Cash and cash equivalents comprise mainly cash on hand and cash at bank with an original term of up to three months. Assets held for sale and disposal groups held for sale are presented separately in the balance sheet in accord- ance with IFRS 5, if the carrying amount of the rele- vant assets will be recovered principally through a sale transaction rather than through continuing use. This situation only arises if the assets can be sold immediately in their present condition, the sale is expected to be completed within one year from the date of classifica- tion and the sale is highly probable. At the date of classification, property, plant and equipment, intangi- ble assets and disposal groups which are being held for sale are written down to the lower of their carrying amount and their fair value less costs to sell and sched- uled depreciation / amortisation ceases. This does not apply, however, to items within the disposal group which are not covered by the measurement rules contained in IFRS 5. Simultaneously, liabilities directly related to the sale are presented separately on the equity and liabilities side of the balance sheet as “Liabilities in con- junction with assets held for sale”. Provisions for pensions and similar obligations are rec- ognised 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 bio- metric factors. Actuarial gains and losses arising on defined benefit pension and similar obligations and on plan assets are recognised, net of deferred tax, directly in equity (revenue reserves). This accounting treatment is meant to make it clear that these amounts will not be reclas- sified to the income statement in future periods. 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 a present obligation arising from past events, the settlement of which is probable and when a reliable estimate can be made of the amount of the obligation. Measurement is computed on the basis of fully attribut- able costs. Non-current provisions with a remaining period of more than one year are discounted to the pre- sent value of the expenditures expected to settle the obligation at the end of the reporting period. Financial liabilities are measured on first-time recogni- tion at cost which corresponds to the fair value of the consideration given. Transaction costs are also taken into account except for financial liabilities allocated to the category “financial liabilities measured at fair value through profit or loss”. Subsequent to initial recognition, liabilities are – with the exception of derivative financial instruments – measured at amortised cost using the effective interest method. The BMW Group has no 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 95 GROUP FINANCIAL STATEMENTS 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. 6 Assumptions, judgements and estimations The preparation of the Group Financial Statements in accordance with IFRSs requires management to make certain assumptions and judgements and to use esti- mations that can affect the reported amounts of assets and liabilities, revenues and expenses and contingent liabilities. Judgements have to be made in particular when assessing whether the risks and rewards inciden- tal to ownership of a leased asset have been transferred and, hence, the classification of leasing arrangements. Major items requiring assumptions and estimations are described below. The assumptions used are continu- ously checked for their validity. Actual amounts could differ from the assumptions and estimations used if business conditions develop differently to the Group’s expectations. Estimations are required to assess the recoverability of a cash-generating unit (CGU). If the recoverability of an asset is being tested at the level of a CGU, assumptions must be made with regard to future cash inflows and out- flows, involving in particular an assessment of the fore- casting period to be used and of developments after that period. Forecasting assumptions are determined by management in order to calculate future cash flows, in- cluding assumptions about future macroeconomic de- velopments, market developments relevant for the auto- motive sector and the legal environment. The BMW Group regularly checks the recoverability of its leased products. One of the main assumptions re- quired for leased products relates to their residual value since this represents a significant portion of future cash inflows. In order to estimate the level of prices likely to be achieved in the future, the BMW Group in- corporates internally available historical data, current market data and forecasts of external institutions into its calculations. Internal back-testing is applied to validate the estimations made. Further information is provided in note 23. The bad debt risk relating to receivables from sales financing is assessed regularly by the BMW Group. For these purposes, the main factors taken into considera- tion are past experience, current market data (such as the level of financing business arrears), rating classes and scoring information. Further information is provided in note 25. The disposal of an asset or of a disposal group pursuant to IFRS 5 is considered to be highly probable by the BMW Group if management is committed to a sales plan, an active programme to locate a buyer has begun, the price offered is reasonable in relation to the fair value of the asset / disposal group concerned and it is expected at the date of classification that the final negotiations with the buyer and completion of the sale will take place within one year. Further details can be found in note 32. Estimations are required for the purposes of recognising and measuring provisions for guarantee and warranty obligations. In addition to statutorily prescribed manu- facturer warranties, the BMW Group also offers various categories of guarantee depending on the product and sales market concerned. Provisions for guarantee and warranty obligations are recognised at the beginning of a lease or sales contract or when a new category of guarantee is introduced. Various factors are taken into consideration when estimating the level of the provision, including past experience with the nature and amount of claims as well as an assessment of future potential repair and maintenance costs. Further information is provided in note 35. In the event of involvement in legal proceedings or when claims are brought against a Group entity, provisions 96 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 for litigation and liability risks are recognised when an outflow of resources is probable and a reliable estimate can be made of the amount of the obligation. Manage- ment is required to make assumptions with respect to the probability of occurrence, the amount involved and the duration of the legal dispute. For these reasons, the recognition and measurement of provisions for litiga- tion and liability risks are subject to uncertainty. Fur- ther information is provided in note 35. The calculation of pension provisions requires assump- tions to be made with regard to discount factors, salary trends, employee fluctuation, the life expectancy of employees and the expected rate of return on plan assets. Discount factors are determined annually by reference to market yields at the end of the reporting period on high quality corporate bonds. A company-specific default risk is not taken into account. The salary level trend re- fers to the expected rate of salary increase which is esti- mated annually depending on inflation and the career development of employees within the Group. The ex- pected rate of return on plan assets is based on market expectations prevailing at the beginning of the report- ing period for investment income over the remaining period of the obligation and is determined for the relevant asset classes in which plan assets are invested, taking account of costs and unplanned risks. Further information is provided in note 34. The calculation of deferred tax assets requires assump- tions to be made with regard to the level of future taxable income and the timing of recovery of deferred tax assets. These assumptions take account of forecast operating results and the impact on earnings of the reversal of taxable temporary differences. Since future business developments cannot be predicted with cer- tainty and to some extent cannot be influenced by the BMW Group, the measurement of deferred tax assets is subject to uncertainty. Further information is pro- vided in note 15. 7 New financial reporting rules (a) Financial reporting rules applied for the first time in the financial year 2012 The following revised Standard was applied for the first time in the financial year 2012. Standard IFRS 7 Disclosure Requirements in the Event of the Transfer of Financial Assets * Mandatory application in annual periods beginning on or after 1 July 2011. Date of issue by IASB Date of mandatory application IASB Endorsed by the EU Expected impact on BMW Group 7. 10. 2010 1. 7. 2011* 1. 7. 2011* Insignificant (b) Financial reporting pronouncements issued by the IASB, but not yet applied The following Standards, Revised Standards and Amend- ments issued by the IASB during previous accounting periods, were not mandatory for the period under report and were not applied in the financial year 2012: Standard / Interpretation Date of issue by IASB Date of mandatory application IASB Date of mandatory application EU Expected impact on BMW Group IFRS 1 Amendments with Respect to Fixed Transition Dates and Severe Inflation 20. 12. 2010 1. 7. 2011 1. 1. 2013 Amendments relating to Government Loans at a Below Market Rate of Interest 13. 3. 2012 1. 1. 2013 No None None 97 GROUP FINANCIAL STATEMENTS Standard / Interpretation IFRS 7 Notes Disclosures: Offsetting of Financial Assets and Financial Liabilities IFRS 9 Financial Instruments Date of issue by IASB Date of mandatory application IASB Date of mandatory application EU Expected impact on BMW Group 16. 12. 2011 1. 1. 2013 1. 1. 2013 Insignificant 1. 1. 2015 No Significant in principle 12. 11. 2009 / 28. 10. 2010 / 16. 12. 2011 IFRS 10 Consolidated Financial Statements 12. 5. 2011 1. 1. 2013 1. 1. 2014 Significant in principle IFRS 11 Joint Arrangements 12. 5. 2011 1. 1. 2013 1. 1. 2014 Significant in principle IFRS 12 Disclosure of Interests in Other Entities Changes in Transitional Regulations (IFRS 10, IFRS 11 and IFRS 12) Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) 12. 5. 2011 1. 1. 2013 1. 1. 2014 Significant in principle 28. 6. 2012 1. 1. 2013 31. 10. 2012 1. 1. 2014 No No Significant in principle Insignificant IFRS 13 Fair Value Measurement 12. 5. 2011 1. 1. 2013 1. 1. 2013 Significant in principle Changes to Presentation of Items in Other Comprehensive Income (OCI) Amendments to Deferred Taxes: Realisation of Underlying Assets Changes in Accounting for Employee Benefits, in particular for Termination Benefits and Pensions 16. 6. 2011 1. 7. 2012 1. 7. 2012* Significant in principle 20. 12. 2010 1. 1. 2012 1. 1. 2013 Insignificant 16. 6. 2011 1. 1. 2013 1. 1. 2013 Significant in principle Separate Financial Statements 12. 5. 2011 1. 1. 2013 1. 1. 2014 12. 5. 2011 1. 1. 2013 1. 1. 2014 None None IAS 1 IAS 12 IAS 19 IAS 27 IAS 28 IAS 32 16. 12. 2011 1. 1. 2014 1. 1. 2014 Insignificant Investments in Associates and Joint Ventures Presentation – Offsetting of Financial Assets and Financial Liabilities IFRIC 20 Stripping Costs in the Production Phase of a Mine 19. 10. 2011 1. 1. 2013 1. 1. 2013 None Annual Improvements to IFRS 2009 – 2011 17. 5. 2012 1. 1. 2013 No Insignificant * Mandatory application in annual periods beginning on or after 1 July 2012. In November 2009 the IASB issued IFRS 9 (Financial Instruments: Disclosures) as the first part of its project to change the accounting treatment for financial instru- ments. This Standard marks the first of three phases of the IASB project to replace the existing IAS 39 (Finan- cial Instruments: Recognition and Measurement). The first phase deals with financial assets. IFRS 9 amends the recognition and measurement requirements for financial assets, including various hybrid contracts. It applies a uniform approach to accounting for a finan- cial asset either at amortised cost or fair value and replaces the various rules contained in IAS 39. Under the new rules, there will only be two, instead of four, measurement categories for financial instruments rec- ognised on the assets side of the balance sheet. The new categorisation is based partly on the entity’s busi- ness model and partly on the contractual cash flow characteristics of the financial assets. 98 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 In October 2010, additional rules for financial liabilities were added. The requirements for financial liabilities contained in IAS 39 remain unchanged with the excep- tion of new requirements relating to an entity’s own credit risk when it exercises the fair value option. IFRS 9 is mandatory for financial years beginning on or after 1 January 2015. The BMW Group will not apply IFRS 9 early. The impact of adoption of the Standard on the Group Financial Statements is currently being assessed. In May 2011 the IASB issued three new Standards – IFRS 10 (Consolidated Financial Statements), IFRS 11 (Joint Arrangements), IFRS 12 (Disclosure of Interests in Other Entities) – as well as amendments to IAS 27 (Consolidated and Separate Financial Statements) and to IAS 28 (Investments in Associates) all relating to accounting for business combinations. The Standards are mandatory for the first time for annual periods beginning on or after 1 January 2013. Early adoption is permitted. The new Standards are required to be ap- plied retrospectively. EU endorsement stipulates a later mandatory date (from 1 January 2014) due to increased implementation expense. IFRS 10 replaces the consolidation guidelines contained in IAS 27 and SIC-12 (Consolidation – Special Purpose Entities). The requirements for separate financial state- ments remain unchanged in the revised version of IAS 27. IFRS 10 introduces a uniform model which establishes control as the basis for consolidation – control of a subsidiary entity by a parent entity – and which can be applied to all entities. The control concept must there- fore be applied both to parent-subsidiary relationships based on voting rights as well as to parent-subsidiary relationships arising from other contractual arrange- ments. Under the control concept established in IFRS 10, an investor controls another entity when it is exposed to or has rights to variable returns from its involvement with the investee and has the ability to affect those re- turns through its power over the investee. IFRS 11 supersedes IAS 31 (Interests in Joint Ventures) and SIC-13 (Jointly Controlled Entities – Non-Monetary Contributions by Ventures). This Standard sets out the requirements for accounting for joint arrangements and places the emphasis on the rights and obligations that arise from such arrangements. IFRS 11 distinguishes between two types of joint arrangements, namely joint operations and joint ventures, and therefore results in a change in the classification of joint arrangements. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. IFRS 11 requires joint operators to ac- count for their share of assets and liabilities in the joint operation (and their share of income and expenses). Joint venturers are required to account for their invest- ment using the equity method. The withdrawal of IAS 31 means the removal of the option to account for joint ventures using either the proportionate consoli- dation or the equity method. The equity method must be applied in accordance with amended IAS 28. IFRS 12 sets out the requirements for disclosures relating to all types on interests in other entities, including joint arrangements, associated companies, structured entities and unconsolidated entities. The amendments to the transitional regulations in IFRS 10, IFRS 11 and IFRS 12 have the objective of mak- ing it easier for entities to apply the Standards retro- spectively. The amendments also restrict the requirement to disclose comparative amounts to the immediately preceding reporting period at the date of first-time ap- plication. The BMW Group is currently investigating the impact on the Group Financial Statements of applying IFRS 10, IFRS 11, IFRS 12, IAS 27 and IAS 28. The removal of the option for accounting for joint ventures does not have any impact since the BMW Group accounts for joint ventures using the equity method. It is currently being investigated whether any joint ventures will be required to be reclassified as joint operations as a result of the introduction of IFRS 11. The BMW Group does not in- tend to adopt the Standard early. In May 2011 the IASB published IFRS 13 (Fair Value Measurement). IFRS 13 defines the term fair value, sets The IASB has published various other Standards and Interpretations. None of these, whether adopted or not yet adopted by the BMW Group, will have a significant impact on the Group Financial Statements. 99 GROUP FINANCIAL STATEMENTS out the requirements for measuring fair value where another IFRS prescribes fair value measurement (or fair value disclosure) and stipulates uniform disclosure re- quirements with respect to fair value measurement. IFRS 13 is mandatory for financial years beginning on or after 1 January 2013. The Standard is required to be applied prospectively. Early adoption is permitted but will not be applied by the BMW Group. IFRS 13 is of relevance for the BMW Group in particular for the measurement of derivatives. The IASB published IAS 1 (Presentation of Financial Statements) in June 2011. The amendments to IAS 1 re- quire that items reported in accumulated other equity (other comprehensive income or OCI) are sub-divided into elements that will be “recycled” in the income statement and those which will not. Tax associated with items presented before tax are also required to be shown separately for each of the two groups of OCI items. The recognition of these items is regulated in separate Standards. The amendments to IAS 1 are mandatory for annual periods beginning on or after 1 July 2012. The amendments are required to be applied retrospectively. Early adoption is permitted but will not be applied by the BMW Group. It is not expected that the change in presentation of items in OCI will have a significant im- pact on the Group Financial Statements. In June 2011 the IASB published amendments to IAS 19 (Employee Benefits), in particular in relation to post- retirement benefits and pensions. The main amendments involve the removal of the option to defer actuarial gains and losses (the so-called “corridor method”) and the requirement to recognise actuarial gains and losses in OCI. The amended IAS 19 also requires plan assets to be discounted using the same rate that is applied to discount pension obligations. It also results in changes in the treatment of termination benefits and expands dis- closure requirements compared to the previous IAS 19. The amended IAS 19 is mandatory for annual periods beginning on or after 1 January 2013. Early adoption is permitted. The BMW Group does not expect that the amendments to IAS 19 will have a significant impact on the Group Financial Statements, since the BMW Group does not apply the corridor method and actuarial gains and losses are already recognised in OCI. The BMW Group does not intend to adopt the Standard early. 100 BMW Group Notes to the Group Financial Statements Notes to the Income Statement 8 Revenues Revenues by activity comprise the following: in € 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 2012 2011 58,039 52,331 6,900 6,399 2,954 2,556 5,628 6,226 2,774 1,862 76,848 68,821 An analysis of revenues by business segment and geographical region is shown in the segment information in note 48. 78 78 78 80 82 84 86 9 Cost of sales Cost of sales comprises: in € million Manufacturing costs Research and development expenses Warranty expenditure GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 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 Cost of sales include € 15,987 million (2011: € 14,068 mil- lion) relating to financial services business. 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 on assets and reduced consumption-based taxes amount- ing to € 45 million (2011: € 47 million). in € million Research and development expenses Amortisation New expenditure for capitalised development costs Total research and development expenditure 2012 2011 37,648 3,993 1,200 13,370 1,819 798 2,526 61,354 33,594 3,610 918 11,723 1,914 431 2,086 54,276 Total research and development expenditure, com- prising research expenses, development costs not recognised as assets on the one hand and capitalised de velopment costs and the scheduled amortisation thereof on the other, was as follows: 2012 2011 3,993 – 1,130 1,089 3,952 3,610 – 1,209 972 3,373 10 Selling and administrative expenses Selling expenses amounted to € 5,147 million (2011: € 4,554 million) and comprise mainly marketing, adver- tising and sales personnel costs. Administrative expenses amounted to € 1,860 million (2011: € 1,623 million) and comprise expenses for administration not attributable to development, pro- duction or sales functions. 101 GROUP FINANCIAL STATEMENTS 11 Other operating income and expenses in € 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 Losses on the disposal of fixed assets Sundry operating expenses Other operating expenses 2012 2011 385 114 4 41 285 829 – 386 – 309 – 22 – 38 – 261 – 1,016 535 71 14 14 148 782 – 537 – 391 – 36 – 17 – 151 –1,132 Other operating income and expenses – 187 – 350 Other operating income includes public-sector grants of € 19 million (2011: € 13 million). 12 Result from equity accounted investments The profit from equity accounted investments amounted to € 271 million (2011: € 162 million) and in- cludes the results from the BMW Group’s interests in the joint ventures BMW Brilliance Automotive Ltd., Shenyang, SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, SGL Automotive Carbon Fibers Ver- waltungs GmbH, Munich, SGL Automotive Carbon Fibers LLC, Dover, DE, DriveNow GmbH & Co. KG, Munich, and DriveNow Verwaltungs GmbH, Munich. Similarly, the BMW Group’s share of the joint venture BMW Peugeot Citroën Electrification B. V., The Hague, are also included in the result from equity accounted investments up to the date of termination of the joint venture arrangements. 13 Net interest result in € million Expected return on plan assets relating to pension plans and pre-retirement part-time work arrangements Other interest and similar income thereof from subsidiaries: € 19 million (2011: € 13 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: € – 7 million (2011: € – 5 million) Interest and similar expenses Net interest result 2012 2011 539 214 753 – 628 – 74 – – 211 531 232 763 – 594 – 110 – 4 – 235 – 913 – 943 – 160 – 180 The expected return on plan assets includes the expected income on assets used to secure obligations relating to pension plans and pre-retirement part-time work arrangements. 102 14 Other financial result in € million Income from investments thereof from subsidiaries: € 1 million (2011: € 1 million) Impairment losses on investments in subsidiaries and participations Income from reversal of impairment losses on investments in subsidiaries and participations Result on investments Losses and gains relating to financial instruments Sundry other financial result 2012 2011 5 – 175 – – 170 – 422 – 422 1 – 8 – – 7 – 610 – 610 Other financial result – 592 – 617 The result on investments in 2012 was negatively impacted by an impairment loss recognised on invest- ments amounting to € 166 million. The negative sundry other financial result was largely attributable to net fair value losses on stand-alone commodity and currency derivatives. 15 Income taxes Taxes on income comprise the following: in € million Current tax expense Deferred tax income Income taxes 2012 2011 2,908 – 211 2,697 2,868 – 392 2,476 Current tax expense includes € 128 million (2011: € 201 million) relating to prior periods. Deferred tax income of € 724 million (2011: income of € 352 million) is attributable to new temporary dif- ferences arising in 2012 and the reversal of temporary differences brought forward. Tax expense was reduced by € 5 million (2011: € 12 mil- lion) as a result of utilising tax losses / tax credits brought forward for which deferred assets had not pre- viously been recognised. The change in the valuation allowance on deferred tax assets relating to tax losses available for carryforward and temporary differences resulted in a tax expense of € 3 million (2011: expense of € 6 million). 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 % plus solidarity surcharge of 5.5 % applies in Germany, giving a tax rate of 15.8 %. After taking account of an average mu- nicipal trade tax multiplier rate (Hebesatz) of 420.0 %, the municipal trade tax rate for German entities is 14.7 %. The overall income tax rate in Germany is there- fore 30.5 %. All of these German tax rates are unchanged from the previous year. Deferred taxes for non-Ger- man entities are calculated on the basis of the relevant country-specific tax rates and remained in a range of between 12.5 % and 46.9 % in the financial year 2012. Changes in tax rates resulted in a deferred tax expense of € 21 million in 2012 (2011: € 36 million). The actual tax expense for the financial year 2012 of € 2,697 million (2011: € 2,476 million) is € 312 million (2011: € 224 million) higher than the expected tax ex- pense of € 2,385 million (2011: € 2,252 million) which would theoretically arise if the tax rate of 30.5 %, appli- cable for German companies, was applied across the Group. 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 103 GROUP FINANCIAL STATEMENTS The difference between the expected and actual tax expense is explained in the following reconciliation: in € million Profit before tax Tax rate applicable in Germany 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 Effective tax rate 2012 2011 7,819 30.5 % 2,385 – 56 302 128 – 62 2,697 34.5 % 7,383 30.5 % 2,252 – 70 59 201 34 2,476 33.5 % Tax increases as a result of non-tax-deductible expenses relate mainly to the impact of non-recoverable with- holding taxes on intragroup dividends and transfer price issues. Decreases in taxes due to tax-exempt income amounted to € 89 million (2011: € 104 million). The net expense shown in the line “Tax expense / benefits for prior periods” relates primarily to appropriate pro- vision recognised for tax field audit issues and is lower than the net expense reported in the previous year. The line “Other variances” comprises primarily recon- ciling items relating to the Group’s share of results of equity accounted investments. The allocation of deferred taxes tax assets and liabilities to balance sheet line items at 31 December is shown in the following table: in € million Intangible assets Property, plant and equipment Leased products Investments Other assets Tax loss carryforwards Provisions Liabilities Eliminations Valuation allowance Netting Deferred taxes Net Deferred tax assets Deferred tax liabilities 2012 2011 2012 2011 5 37 441 11 1,067 923 3,253 2,984 2,729 2 44 476 6 1,098 1,452 2,601 2,714 2,389 1,356 260 5,837 11 3,497 – 60 350 626 1,341 273 5,794 1 3,186 – 46 389 590 11,450 10,782 11,997 11,620 – 492 – 8,957 2,001 – 509 – 8,347 1,926 – – – 8,957 – 8,347 3,040 1,039 3,273 1,347 Deferred tax assets on tax loss carryforwards and capi- tal losses before allowances totalled € 923 million (2011: € 1,452 million). After valuation allowances of € 492 mil- lion (2011: € 509 million), their carrying amount stood at € 431 million (2011: € 943 million). Tax losses available for carryforward – for the most part usable without restriction – decreased to € 1.3 billion (2011: € 2.6 billion). This includes an amount of € 92 mil- lion (2011: € 58 million), for which a valuation allowance of € 27 million (2011: € 17 million) was recognised on the 104 related deferred tax asset. For entities with tax losses available for carryforward, a net surplus of deferred tax assets over deferred tax liabilities is reported at 31 De- cember 2012 amounting to € 204 million (2011: € 568 mil- lion). Deferred tax assets are recognised on the basis of management’s assessment of whether it is probable that the relevant entities will generate sufficient future taxable profits, against which deductible temporary differences can be offset. Capital losses available for carryforward in the United Kingdom which do not relate to ongoing operations amounted to €2.0 billion at the end of the reporting period, unchanged from one year earlier. As in previous years, deferred tax assets recognised on these tax losses – amounting to € 465 million at 31 December 2012 after tax rate changes in 2012 (2011: € 492 million) – were fully written down since they can only be utilised against future capital gains. “Netting” relates to the offset of deferred tax assets and liabilities within individual separate entities or tax groups to the extent that they relate to the same tax authorities. Deferred taxes recognised directly in equity amounted to € 1,222 million (2011: € 1,202 million), an increase of € 20 million (2011: € 446 million) compared to the end of the previous year. The change in 2012 includes a reduction in deferred taxes recognised in conjunction with currency translation amounting to € 3 million (2011: increase of € 17 million). Changes in deferred tax assets and liabilities during the reporting period can be summarised as follows: in € million Deferred taxes at 1 January Deferred tax income / expense recognised through income statement Change in deferred taxes recognised directly in equity Exchange rate impact and other changes1, 2 Deferred taxes at 31 December 1 2011: including € 87 million resulting from the purchase of the ICL Group 2 Including impact of first-time consolidations 2012 2011 1,347 – 211 – 23 – 74 1,039 2,007 – 392 – 429 161 1,347 Changes in deferred taxes include changes relating to items recognised either through the income statement or directly in equity as well as the impact of exchange rate and first-time consolidations. Net deferred liabili- ties decreased overall by € 23 million (2011: € 429 mil- lion). On the one hand they were increased by € 498 mil- lion (2011: decreased by € 274 million) due to the fair value measurement of derivative financial instruments and marketable securities, shown in the summary above in the line items “Other assets” and “Liabilities”. They were reduced on the other hand by € 521 mil- lion (2011: € 155 million) due to changes in actuarial gains and losses on defined pension obligations and plan assets recognised directly in equity. These amounts are shown in the summary above in the line item “Pro- visions”. Deferred taxes are not recognised on retained profits of € 24.8 billion (2011: € 20.7 billion) of foreign subsidiaries, as it is intended to invest these profits to maintain and expand the business volume of the relevant companies. A computation was not made of the potential impact of income taxes on the grounds of disproportionate expense. The tax returns of BMW Group entities are checked regularly by German and foreign tax authorities. Taking account of a variety of factors – including existing in- terpretations, 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 obligations. 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 105 GROUP FINANCIAL STATEMENTS 16 Earnings per share Net profit for the year after minority interest € million 5,096.2 4,880.9 2012 2011 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 € million € million 4,678.8 417.4 4,483.9 397.0 number 601,995,196 601,995,196 number 53,571,312 53,163,232 € € € € 7.77 7.79 2.50 2.52 7.45 7.47 2.30 2.32 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. As in the previous year, diluted earn- ings per share correspond to undiluted earnings per share. 17 Other disclosures relating to the income statement The income statement includes personnel expenses as follows: in € million Wages and salaries Social security, retirement and welfare costs thereof pension costs: € 857 million (2011: € 789 million) Personnel expenses 2012 2011 7,086 1,449 6,399 1,340 8,535 7,739 Personnel expenses include € 59 million (2011: € 70 mil- lion) of expenditure incurred to adjust the workforce size. The average number of employees during the year was: Employees Apprentices and students gaining work experience 2012 2011 95,748 6,484 102,232 91,168 5,942 97,110 The number of employees at the end of the reporting period is disclosed in the Combined Group and Company Management Report. 106 The fee expense pursuant to § 314 (1) no. 9 HGB recog- nised in the financial year 2012 for the Group auditors amounted to € 26 million (2011: € 22 million) and con- sists of the following: in € million 2012 2011 Audit of financial statements thereof KPMG AG Wirtschaftsprüfungsgesellschaft Other attestation services thereof KPMG AG Wirtschaftsprüfungsgesellschaft Tax advisory services thereof KPMG AG Wirtschaftsprüfungsgesellschaft Other services thereof KPMG AG Wirtschaftsprüfungsgesellschaft Fee expense thereof KPMG AG Wirtschaftsprüfungsgesellschaft 14 3 4 2 6 3 2 – 26 8 13 3 2 1 5 3 2 1 22 8 The total fee comprises expenses recorded by BMW AG, Munich, and all consolidated subsidiaries. The fee expense shown for KPMG AG Wirtschafts- prüfungsgesellschaft, Berlin, relates only to services provided on behalf of BMW AG, Munich, and its German subsidiaries. 18 Share-based remuneration The BMW Group operates three share-based remunera- tion schemes, namely the Employee Share Scheme (for entitled employees), share-based commitments to members of the Board of Management members and share-based commitments to senior heads of department. In the case of the Employee Share Scheme, non-voting shares of preferred stock in BMW AG were granted to qualifying employees during the financial year 2012 at favourable conditions (see note 33 for the number and price of issued shares). The holding period for these shares is up to 31 December 2015. The BMW Group re- corded a personnel expense of € 5 million (2011: € 5 mil- lion) for the Employee Share Scheme in 2012, correspond- ing to the difference between the market price and the reduced price of the shares of preferred stock purchased by employees. The Board of Management reserves the right to decide anew each year with respect to an Employee Share Scheme. For financial years beginning after 1 January 2011, BMW AG added a share-based remuneration component to the compensation system for Board of Management members. Each Board of Management member is required to invest 20 % of his / her total bonus (after tax) in shares of BMW AG common stock, which are recorded in a sepa- rate custodian account for each member concerned (annual tranche). Each annual tranche is subject to a holding period of four years (vesting period). Once the holding period is fulfilled, BMW AG grants one additional share of BMW AG common stock for each three held or, at its discretion, pays the equivalent amount in cash (share-based remuneration component) provided that the term of office has not been terminated before the end of the agreed contract period (except in the case of death or invalidity). With effect from the financial year 2012, qualifying senior heads of department are also entitled to opt for a share-based remuneration component, which, in most respects, is comparable to the share-based remuneration arrangements for Board of Management members. The share-based remuneration component is measured at its fair value at each balance sheet date between grant and settlement date, and on the settlement date itself. The appropriate amounts are recognised as personnel expense on a straight-line basis over the vesting period and reported in the balance sheet as a provision. The cash-settlement obligation for the share-based re- muneration component is measured at its fair value at the balance sheet date (based on the closing price of BMW AG common stock in Xetra trading at 31 Decem- ber 2012). The total carrying amount of the provision for the share- based remuneration component of Board of Management members and senior heads of department at 31 Decem- ber 2012 was € 657,276 (2011: € 115,114). 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 107 GROUP FINANCIAL STATEMENTS BMW Group Notes to the Group Financial Statements Notes to the Statement of Comprehensive Income The total expense recognised in 2012 for the share- based remuneration component of Board of Manage- ment members and senior heads of department was € 542,162 (2011: € 115,114). The fair value of the two programmes at the grant date of the share-based remuneration components was € 1,379,723 (2011: € 668,854), based on a total of 22,915 shares (2011: 11,945 shares) of BMW AG com- mon stock or a corresponding cash-based settlement measured at the relevant market shares price prevailing on the grant date. Further details on the remuneration of the Board of Management are provided in the 2012 Compensation Report, which is part of the Combined Group and Company Management Report. 19 Disclosures relating to total comprehensive income Other comprehensive income for the period after tax comprises the following: in € million 2012 2011 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 losses on defined benefit pension obligations, similar obligations and plan assets Deferred taxes relating to components of other comprehensive income Other comprehensive income for the period after tax from equity accounted investments Other comprehensive income for the period after tax 174 40 214 770 532 1,302 – 123 – 1,881 49 82 – 357 – 64 – 8 –72 – 733 – 68 – 801 168 – 586 421 – 41 – 911 Deferred taxes on components of other comprehensive income are as follows: in € million Available-for-sale securities Financial instruments used for hedging purposes Exchange differences on translating foreign operations Actuarial losses on defined benefit pension obligations, similar obligations and plan assets Other comprehensive income relating to equity accounted investments Other comprehensive income 2012 Deferred taxes 2011 After tax Before tax Deferred taxes After tax – 45 – 437 169 865 – – 123 – 72 – 801 168 2 252 – – 70 – 549 168 Before tax 214 1,302 – 123 – 1,881 531 – 1,350 – 586 167 – 419 111 -377 – 29 20 82 – 66 -357 –1,357 25 446 – 41 – 911 108 BMW Group Notes to the Group Financial Statements Notes to the Balance Sheet 20 Analysis of changes in Group tangible, intangible and investment assets 2012 in € million Development costs Goodwill 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 8,393 374 1,040 9,807 7,776 25,625 2,170 992 36,563 – – – 3 – 3 – 26 – 24 – 11 – 8 – 69 1,089 – 123 1,212 366 1,311 218 2,133 4,028 Acquisition and manufacturing cost 1. 1. 20121 Translation differences Additions Reclassi- fications Disposals 31. 12. 2012 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 Leased products 31,956 – 74 13,297 Investments accounted for using the equity method Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 1 Including impact of first-time consolidations 2 Including assets under construction of € 2,205 million 302 221 501 – 722 – – 1 – – – 1 350 89 70 – 159 Analysis of changes in Group tangible, intangible and investment assets 2011 1. 1. 20111 Acquisition ICL Group Translation differences Additions Reclassi- fications Disposals 31. 12. 2011 Acquisition and manufacturing cost in € million Development costs Goodwill 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 9,147 116 796 10,059 7,571 24,166 2,143 700 34,580 – 258 153 411 19 – 16 – – – 5 972 – 122 5 1,094 47 79 9 3 90 1,483 163 862 35 138 2,598 Leased products 26,449 5,072 343 11,252 Investments accounted for using the equity method 212 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 251 12 – 263 – – – – – – 2 – – 2 113 54 489 – 543 1 Including the net cost of property, plant and equipment of entities consolidated for the first time (excluding the ICL Group) 2 Including assets under construction of € 718 million – – 3 994 – 156 3 1,150 8,488 374 1,007 9,869 8,166 26,802 2,312 2,605 39,885 24 517 86 8 635 11,883 33,295 125 117 – – 117 514 205 571 – 776 74 407 21 – 504 – 2 – 1 – 13 13 – – 13 – – 41 41 48 464 12 – 565 – 41 – – – – – – 1,727 – 78 1,805 17 567 183 8 775 8,392 374 1,039 9,805 7,758 25,625 2,160 992 36,535 11,160 31,956 23 85 – – 85 302 222 501 – 723 109 GROUP FINANCIAL STATEMENTS 1. 1. 20121 4,004 5 558 4,567 Trans- lation differ- ences – – – 2 – 2 Depreciation and amortisation Current year Reclassi- Changes fications not effect- ing net income Dis- posals Reversal of impair- ment losses 31. 12. 2012 Carrying amount 31. 12. 2012 31. 12. 2011 1,130 – 113 – – 2 – – – 993 – 155 – – – 4,141 5 516 4,347 4,388 Development costs 369 491 369 Goodwill 481 Other intangible assets 1,243 2 – 1,148 – 4,662 5,207 5,238 Intangible assets 3,433 – 9 251 19,728 – 20 1,886 1,706 1 – 9 – 161 – 24,868 – 38 2,298 8,843 – 10 4,239 – – 90 72 – – – – 162 – – 9 166 – 175 – – – 2 – – 2 – – – – – – – – – – 11 497 74 – – – – – 3,664 21,097 1,782 1 4,502 5,705 530 2,6042 4,335 Land, titles to land, buildings, including buildings on third party land 5,896 Plant and machinery 463 Other facilities, factory and office equipment 991 Advance payments made and construction in progress – 582 – 26,544 13,341 11,685 Property, plant and equipment – 4,245 – 8,827 24,468 23,112 Leased products – – – – – 68 – – 68 41 – – 41 – – – – – 58 170 – 228 514 302 Investments accounted for using the equity method 147 401 – 548 132 Investments in non-consolidated subsidiaries 429 Participations – Non-current marketable securities 561 Other investments Depreciation and amortisation 1. 1. 2011 Acquisition ICL Group Current year Trans- lation differ- ences Reclassi- Changes fications not effect- ing net income Dis- posals Reversal of impair- ment losses 31. 12. 2011 Carrying amount 31. 12. 2011 31. 12. 2010 4,522 5 501 – – 10 – – 4 1,209 – 113 – – 8 – – – 1,727 – 78 – – – 4,004 4,388 4,625 Development costs 5 558 369 481 111 Goodwill 295 Other intangible assets 5,028 10 4 1,322 8 – 1,805 – 4,567 5,238 5,031 Intangible assets 3,186 18,235 1,731 1 4 – 8 – 20 62 9 – 224 1,961 139 – 23,153 12 91 2,324 7,361 1,687 83 3,770 – 82 4 – 86 – – – – – – – – – 8 – – 1 4 – 13 – – 8 – – – – – – – – – – 12 533 177 – 722 – – – – 3,423 19,729 1,697 1 4,335 5,896 463 9912 4,385 Land, titles to land, buildings, including buildings on third party land 5,931 Plant and machinery 412 Other facilities, factory and office equipment 699 Advance payments made and construction in progress – 24,850 11,685 11,427 Property, plant and equipment – 4,056 1 8,844 23,112 19,088 Leased products – – – – 68 – – – – – – – – 90 72 – 162 302 212 Investments accounted for using the equity method 132 429 – 561 169 Investments in non-consolidated subsidiaries 8 Participations – Non-current marketable securities 177 Other investments – – 8 – 68 – – 110 21 Intangible assets Intangible assets mainly comprise capitalised develop- ment costs on vehicle and engine projects as well as subsidies for tool costs, licences, purchased develop- ment projects, software and purchased customer bases. Amortisation on intangible assets is presented in cost of sales, selling expenses and administrative expenses. In addition, intangible assets include a brand-name right amounting to € 44 million (2011: € 43 million), goodwill of € 33 million (2011: € 33 million) allocated to the Auto- motive cash-generating unit (CGU) and goodwill of € 336 million (2011: € 336 million) allocated to the Finan- cial Services CGU. Intangible assets amounting to € 44 million (2011: € 43 million) are subject to restrictions on title. As in the previous year, there was no requirement to recognise impairment losses or reversals of impair- ment losses on intangible assets in 2012. No borrowing costs were recognised as a cost com- ponent of intangible assets during the year under report. An analysis of changes in intangible assets is provided in note 20. 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 22 Property, plant and equipment No borrowing costs were recognised as a cost compo- nent of property, plant and equipment during the year under report. As in the previous year, there was no requirement to recognise impairment losses in 2012. 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 in note 20. Property, plant and equipment include a total of € 46 mil- lion (2011: € 45 million) relating to land and operational buildings used by BMW AG, BMW Tokyo Corp., BMW Osaka Corp., and BMW of North America LLC, for which economic ownership is attributable to the BMW Group due to the nature of the lease arrangements (finance leases). The leases to which BMW AG is party, with a carrying amount of € 39 million (2011: € 41 mil- lion) run for periods up to 2028 at the latest and contain price adjustment clauses as well as extension and pur- chase options. The asset leased by BMW Tokyo Corp. has a carrying amount of € 3 million (2011: € – million) under a lease with a remaining term of 19 years. BMW Osaka Corp. is party to finance leases running until 2022 for operational buildings with a carrying amount of € 2 million at 31 December 2012 (2011: € – million). The finance lease contract accounted for at the level of BMW of North America LLC has a remaining term of three years and includes a purchase option for the un- derlying asset which has a carrying amount of € 1 mil- lion at 31 December 2012 (2011: € 1 million). Minimum lease payments of the relevant leases are as follows: in € million 31. 12. 2012 31. 12. 2011 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 5 23 52 80 3 8 17 28 2 15 35 52 25 171 49 245 8 47 17 72 17 124 32 173 The decrease in minimum lease payments is primarily due to the early termination of finance leases relating to the Hams Hall production plant. 111 GROUP FINANCIAL STATEMENTS 23 Leased products The BMW Group, as lessor, leases out its own products and those of other manufacturers as part of its finan- cial services business. Minimum lease payments of € 12,797 million (2011: € 11,658 million) from non-can- cellable operating leases fall due as follows: in € million within one year between one and five years later than five years Minimum lease payments 31. 12. 2012 31. 12. 2011 6,215 6,570 12 12,797 5,749 5,900 9 11,658 Contingent rents of € 166 million (2011: € 174 million), based principally on the distance driven, were recognised in income. Some of the agreements contain price adjust- ment clauses as well as extension and purchase options. An analysis of changes in leased products is provided in note 20. 24 Investments accounted for using the equity method and other investments Investments accounted for using the equity method comprise the Group’s investments in the joint ventures BMW Brilliance Automotive Ltd., Shenyang, SGL Auto- motive Carbon Fibers GmbH & Co. KG, Munich, SGL Automotive Carbon Fibers Verwaltungs GmbH, Munich, SGL Automotive Carbon Fibers LLC, Dover, DE, Drive- Now GmbH & Co. KG, Munich, and DriveNow Verwal- tungs GmbH, Munich. The joint venture BMW Peugeot Citroën Electrification B.V., The Hague, was terminated at the end of November 2012, with the consequence that only the Group’s share of earnings up to the date of termination are included in the result from equity ac- counted investments. In contrast to the end of the pre- vious year, the joint venture BMW Peugeot Citroën Electrification B.V., The Hague, is not included in the balance sheet at 31 December 2012. The Group’s share of results of joint ventures in 2012 and its accumulated interest in investments accounted for using the equity method are as follows: in € million 31. 12. 2012 31. 12. 2011 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 3,516 – 3,245 271 2,142 – 1,980 162 1,018 991 663 117 1,229 2,009 636 906 392 126 1,024 1,542 Capital commitments to the joint ventures SGL Auto- motive Carbon Fibers GmbH & Co. KG, Munich, and SGL Automotive Carbon Fibers LLC, Dover, DE, at 31 December 2012 totalled € 95 million. Other investments relate to investments in non-con- solidated subsidiaries, interests in associated companies not accounted for using the equity method, participations and non-current marketable securities. 112 Additions to investments in non-consolidated subsidiar- ies relate primarily to a capital increase at the level of, and purchase of the remaining shares of, BMW Peugeot Citroën Electrification B. V., The Hague, on the one hand and to a capital increase at the level of BMW Dis- tribution S. A. S., Montigny-le-Bretonneux on the other. Additions to participations relate primarily to the pur- chase of available-for-sale marketable securities. Disposals of investments in non-consolidated subsidiar- ies primarily result from the first-time consolidation of BMW India Financial Services Private Ltd., New Delhi, and PT BMW Indonesia, Jakarta. Impairment losses on participations – recognised with income statement effect – related mainly to the invest- ment in SGL Carbon SE, Wiesbaden, which was written down after being tested for impairment. The impairment loss of € 9 million on investments in non- consolidated subsidiaries relates mainly to an invest- ment in a dealership which was written down after being tested for impairment. 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 in note 20. 25 Receivables from sales financing Receivables from sales financing, totalling € 52,914 mil- lion (2011: € 49,345 million), comprise € 40,650 million (2011: € 38,295 million) for credit financing for retail customers and dealers and € 12,264 million (2011: € 11,050 million) for finance leases. Finance leases are analysed as follows: in € million 31. 12. 2012 31. 12. 2011 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 4,580 8,938 118 13,636 4,094 8,060 110 12,264 4,217 7,933 102 12,252 3,725 7,233 92 11,050 Unrealised interest income 1,372 1,202 Contingent rents recognised as income (generally relating to the distance driven) amounted to € 3 million (2011: € 2 million). Write-downs on finance leases amounting to € 149 million (2011: € 77 million) were measured and recognised on the basis of specific credit risks. Non-guaranteed residual values that fall to the benefit of the lessor amounted to € 85 million (2011: € – million). Receivables from sales financing include € 32,309 mil- lion (2011: € 29,331 million) with a remaining term of more than one year. Allowance for impairment and credit risk in € million Gross carrying amount Allowance for impairment Net carrying amount 31. 12. 2012 31. 12. 2011 54,593 – 1,679 52,914 50,961 – 1,616 49,345 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 113 GROUP FINANCIAL STATEMENTS Allowances for impairment on receivables from sales financing developed as follows during the year under report: 2012 in € 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 2011 in € 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 At the end of the reporting period, impairment allow- ances of € 411 million (2011: € 262 million) were recog- nised on a group basis on gross receivables from sales financing totalling € 30,813 million (2011: € 28,991 mil- lion). Impairment allowances of € 1,268 million (2011: € 1,354 million) were recognised at 31 December 2012 on a specific item basis on gross receivables from sales financing totalling € 11,149 million (2011: € 10,981 million). Receivables from sales financing which were not over- due at the end of the reporting period amounted to Allowance for impairment recognised on a group basis specific item basis 1,355 298 – 314 – 71 1,268 262 113 – 21 57 411 Allowance for impairment recognised on a group basis specific item basis 1,455 233 – 315 – 19 1,354 208 67 – 14 1 262 Total 1,617 411 – 335 – 14 1,679 Total 1,663 300 – 329 – 18 1,616 € 12,631 million (2011: € 10,989 million). No impairment losses were recognised for these balances. The estimated fair value of collateral received for receiv- ables on which impairment losses were recognised to- talled € 21,649 million (2011: € 19,916 million) at the end of the reporting period. This collateral related primarily to vehicles. The carrying amount of assets held as col- lateral and taken back as a result of payment default amounted to € 37 million (2011: € 41 million). 26 Financial assets Financial assets comprise: in € 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. 2012 31. 12. 2011 2,992 2,655 44 234 835 6,760 2,148 4,612 2,358 2,330 23 249 493 5,453 1,702 3,751 The increase in derivative instruments was primarily attributable to positive market price developments of currency derivatives. The rise in marketable securities and investment funds reflects primarily an increase in the BMW Group’s strategic liquidity reserve. 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 114 The amount by which the value of the investment funds exceeds obligations for pre-retirement part-time work arrangements (€ 57 million; 2011: € 30 million) is reported under Other financial assets. Investment funds are held to secure these obligations. These funds are managed by BMW Trust e.V., Munich, as part of Contractual Trust Arrangements (CTA) and are therefore netted against the corresponding settlement arrears for pre-retirement part-time work arrangements. Marketable securities and investment funds relate to available-for-sale financial assets and comprise: in € million Stocks Fixed income securities Other debt securities Marketable securities and investment funds The contracted maturities of debt securities are as follows: in € million Fixed income securities due within three months due later than three months Other debt 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 € million Gross carrying amount Allowance for impairment Net carrying amount 31. 12. 2012 31. 12. 2011 52 2,566 37 2,655 1 2,329 – 2,330 31. 12. 2012 31. 12. 2011 161 2,405 37 – 241 2,088 – – 2,603 2,329 31. 12. 2012 31. 12. 2011 247 – 13 234 267 – 18 249 Allowances for impairment losses on receivables relating to credit card business developed as follows during the year under report: 2012 in € million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 2011 in € 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 18 8 – 13 – 13 – – – – – Allowance for impairment recognised on a group basis specific item basis 15 20 – 18 1 18 – – – – – Total 18 8 – 13 – 13 Total 15 20 – 18 1 18 115 GROUP FINANCIAL STATEMENTS 27 Income tax assets Income tax assets totalling € 966 million (2011: € 1,194 mil- lion) include claims amounting to € 638 million (2011: € 872 million) which are expected to be settled after more than 12 months. Some of the claims may be settled earlier than this depending on the timing of proceed- ings. 28 Other assets Other assets comprise: in € 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 31. 12. 2012 31. 12. 2011 796 738 676 1,024 555 659 4,448 800 3,648 740 714 393 945 292 829 3,913 568 3,345 Receivables from subsidiaries include trade receivables of € 189 million (2011: € 129 million) and financial re- ceivables of € 549 million (2011: € 585 million). They in- clude € 178 million (2011: € 116 million) with a remain- ing term of more than one year. Prepayments of € 1,024 million (2011: € 945 million) re- late mainly to prepaid interest, insurance premiums and commission paid to dealers. Prepayments of € 572 mil- lion (2011: € 609 million) have a maturity of less than one year. Receivables from other companies in which an invest- ment is held include € 608 million (2011: € 380 million) due within one year. Collateral receivables comprise mainly customary collateral (bank deposits) arising on the sale of receivables. 29 Inventories Inventories comprise the following: in € million 31. 12. 2012 31. 12. 2011 Raw materials and supplies Work in progress, unbilled contracts Finished goods and goods for resale Inventories 786 827 8,112 9,725 704 908 8,026 9,638 At 31 December 2012, inventories measured at their net realisable value amounted to € 639 million (2011: € 616 mil- lion) and are included in total inventories of € 9,725 mil- lion (2011: € 9,638 million). Write-downs to net realisable value amounting to € 21 million (2011: € 28 million) were recognised in 2012. There were no reversals of write-downs in the year under report (2011: € 1 million). 116 30 Trade receivables Trade receivables amounting in total to € 2,543 million (2011: € 3,286 million) include € 46 million due later than one year (2011: € 37 million). Allowance for impairment and credit risk in € million Gross carrying amount Allowance for impairment Net carrying amount 31. 12. 2012 31. 12. 2011 2,654 – 111 2,543 3,387 – 101 3,286 Allowances on trade receivables developed as following during the year under report: 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 2012 in € 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 2011 in € 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 95 20 – 6 – 4 105 7 1 – 2 – 6 Allowance for impairment recognised on a group basis specific item basis 83 18 – 8 1 94 12 2 – 5 – 2 7 Total 102 21 – 8 – 4 111 Total 95 20 – 13 – 1 101 Some trade receivables were overdue for which an impairment loss was not recognised. Overdue balances are analysed into the following time windows: in € million 1 – 30 days overdue 31 – 60 days overdue 61 – 90 days overdue 91 – 120 days overdue More than 120 days overdue 31. 12. 2012 31. 12. 2011 139 55 22 15 16 247 140 40 22 15 25 242 Receivables that are overdue by between one 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. 31 Cash and cash equivalents Cash and cash equivalents of € 8,370 million (2011: € 7,776 million) comprise cash on hand and at bank, all with an original term of up to three months. 117 GROUP FINANCIAL STATEMENTS 32 Assets held for sale and liabilities in conjunction with assets held for sale In the fourth quarter of the financial year 2012 the Board of Management of BMW AG decided to realign its stra- tegic direction for the Motorcycles segment in view of the changing nature of motorcycle markets, demographic developments and stricter environmental requirements. The BMW Group intends to broaden its product range, in particular in the fields of urban mobility and e-mo- bility, in order to open up future growth opportunities. In line with the decision to focus on the BMW Motorrad brand, and considering the declining size of the rele- vant markets, it is considered a sensible move to sell the Husqvarna Motorcycles brand. In December 2012, BMW AG, Munich, and Pierer Industrie AG, Wels, reached agreement with regard to the sale of Husqvarna Motorcycles S.r.l., Cassinetta di Biandronno, and Husqvarna Motorcycles NA, LLC, Wilmington, DE, to Pierer Industrie AG, Wels. Subject to approval of the transaction by the Austrian Merger Control Authorities, the sale will be completed during the first half of 2013. At 31 December 2012, the Husqvarna Group accordingly meets the criteria for classification as a “disposal group” in accordance with IFRS 5. The carrying amount of prop- erty, plant and equipment and intangible assets attribut- able to the Husqvarna Group has been written down to fair value less costs to sell. All assets of the Husqvarna Group are reported separately in the balance sheet on the line “Assets held for sale” within the Motorcycles seg- ment. Similarly, its liabilities are reported separately in the balance sheet on the line “Liabilities in conjunction with assets held for sale” within the Motorcycles segment. The remeasurement of assets in accordance with IFRS 5 resulted in the recognition of an impairment loss of € 13 million on property, plant and equipment which is reported in “Other operating expenses”. Assets held for sale comprise mainly inventories (€ 24 mil- lion), other assets (€ 10 million) and trade receivables (€ 11 million). Liabilities in conjunction with assets held for sale comprise mainly pension provisions (€ 2 million), other provisions (€ 7 million), trade payables (€ 16 mil- lion) and other liabilities (€ 3 million). 33 Equity Number of shares issued Preferred stock Common stock 2012 2011 2012 2011 Shares issued / in circulation at 1 January 53,571,372 53,163,412 601,995,196 601,995,196 Shares issued in conjunction with Employee Share Scheme 422,905 408,140 less: shares repurchased and re-issued 60 180 – – – – Shares issued / in circulation at 31 December 53,994,217 53,571,372 601,995,196 601,995,196 At 31 December 2012 common stock issued by BMW AG was divided, as at the end of the previous year, into 601,995,196 shares of common stock with a par-value of € 1. Preferred stock issued by BMW AG was divided into 53,994,217 shares (2011: 53,571,372 shares) with a par- value of € 1. Unlike the common stock, no voting rights are attached to the preferred stock. All of the Company’s stock is issued to bearer. Preferred stock bears an addi- tional dividend of € 0.02 per share. In 2012, a total of 422,905 shares of preferred stock was sold to employees at a reduced price of € 31.45 per share in conjunction with an Employee Share Scheme. These shares are entitled to receive dividends with effect from the financial year 2013. 60 shares of preferred stock were bought back via the stock exchange in conjunction with the Company’s Employee Share Scheme. Further information on share-based remuneration is pro- vided in note 18. Issued share capital increased by € 0.4 million as a result of the issue to employees of 422,845 shares of non-voting preferred stock. The Authorised Capital of BMW AG amounted to € 3.2 million at the end of the reporting period. The Company is authorised to issue shares of non-voting preferred stock amounting to nominal € 5.0 million prior to 13 May 2014. The share premium of € 18.2 million arising on the share capital increase in 2012 was transferred to capital reserves. Capital reserves Capital reserves include premiums arising from the issue of shares and totalled € 1,973 million (2011: € 1,955 million). The change related to the share capital 118 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, actuarial gains and losses relating to defined benefit pension obligations, similar obligations and plan assets (as well as deferred taxes recognised directly in equity on these items) are also reported here, along with positive and negative goodwill arising on the consoli- dation of Group companies prior to 31 December 1994. Revenue reserves increased during the year to € 28,340 million. They were increased by the amount of the net profit attributable to shareholders of BMW AG for the financial year 2012 amounting to € 5,096 million (2011: € 4,881 million) and reduced by the payment of the dividend for 2011 amounting to € 1,508 million (2011: € 852 million). Actuarial losses relating to defined bene- fit pension obligations, similar obligations and plan assets (and related deferred taxes) reduced revenue re- serves in 2012 by € 1,350 million (2011: € 419 million). The unappropriated profit of BMW AG at 31 December 2012 amounts to € 1,640 million and will be proposed to the Annual General Meeting for distribution. This amount includes € 135 million relating to preferred stock. The amount proposed for distribution represents an amount of € 2.52 per share of preferred stock and € 2.50 per share of common stock. The proposed distribution must be authorised by the shareholders at the Annual General Meeting of BMW AG. It is therefore not recog- nised as a liability in the Group Financial Statements. the financial statements of foreign subsidiaries, the effects of recognising changes in the fair value of deriva- tive financial instruments and marketable securities directly in equity and the related deferred taxes recog- nised directly in equity. Minority interests Equity attributable to minority interests amounted to € 107 million (2011: € 65 million). This includes a mi- nority interest of € 26 million in the results for the year (2011: € 26 million). Capital management disclosures The BMW Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in the long-term and to provide an ade- quate return to shareholders. The BMW Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk profile of the under- lying 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 financ- ing requirements. In order to reduce non-systematic risk, the BMW Group uses a variety of financial instruments available on the world’s capital markets to achieve opti- mal diversification. Accumulated other equity Accumulated other equity comprises all amounts recog- nised directly in equity resulting from the translation of The capital structure at the end of the reporting period was as follows: in € million 31. 12. 2012 31. 12. 2011 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 30,295 30.4 % 39,095 30,412 69,507 69.6 % 99,802 27,038 28.5 % 37,597 30,380 67,977 71.5 % 95,015 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 119 GROUP FINANCIAL STATEMENTS Equity attributable to shareholders of BMW AG in- creased during the financial year by 1.9 percentage points, mainly owing to the high net profit recorded for the year. BMW AG’s long-term and short-term ratings were raised by one level in April 2012 by the rating agency Standard & Poor’s from A– /A-2 to A /A-1 with a stable outlook. This means that BMW AG currently enjoys the best rat- ings of all European car manufacturers. The improved rating and outlook reflect the worldwide rise in demand for premium cars, the successful im- plementation of measures in conjunction with Strategy Number ONE and the stable financial position of the BMW Group. Non-current financial liabilities Current financial liabilities Outlook Moody’s Standard & Poor’s A2 P-1 stable A A-1 stable With their current long-term ratings of A (S & P) and A2 (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 competi- tive conditions. 34 Pension provisions Pension provisions are recognised as a result of com- mitments 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 country, various pension plans are used, based generally on the length of service, final salary and re- muneration structure of the employees involved. Due to similarity of nature, 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 pension provisions in accordance with IAS 19. Post-employment benefit plans are classified as either defined contribution or defined benefit plans. Under defined contribution plans, an enterprise pays fixed contributions into a separate entity or fund and does not assume any other obligations. The total pension expense for defined contribution plans of the BMW Group amounted to € 47 million (2011: € 40 million). Employer contributions paid to state pension insur- ance schemes totalled € 444 million (2011: € 400 mil- lion). Under defined benefit plans, the enterprise is required to pay the benefits granted to present and past em- ployees. Defined benefit plans may be funded or un- funded, the latter sometimes covered by accounting provisions. Pension commitments in Germany are mostly covered by assets contributed to a separate fund in conjunction with a Contractual Trust Arrange- ment (CTA). The main other countries with funded plans were the UK, the USA, Switzerland, the Nether- lands, Belgium, South Africa and Japan. Obligations not covered by assets held by the fund are covered by pension provisions. 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 assumptions relating to life expectancy and the parame- ters stated below that depend on the economic situation 120 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 2012 2011 United Kingdom 2012 2011 Other 2012 2011 3.00 3.18 2.18 4.75 3.35 2.35 4.25 3.50 2.92 4.75 3.65 3.09 3.82 3.57 1.84 4.57 3.43 1.59 The salary level trend refers to the expected rate of salary increase which is estimated annually depending on inflation and the 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 pen- sion obligations and the enterprise has a right of reim- bursement 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 rec- ognised under pension provisions where the benefit ob- ligation exceeds fund assets. Actuarial gains or losses may result from increases or decreases in either the present value of the defined ben- efit 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. Actuarial gains or losses are recognised directly in revenue reserves within equity. Past service cost arises where a BMW Group com- pany introduces a defined benefit plan or changes the benefits payable under an existing plan. Based on the measurement principles contained in IAS 19, the following funding status applies to the Group’s pension plans: 31 December in € million Germany United Kingdom Other Total 2012 2011 2012 2011 2012 2011 2012 2011 Present value of pension benefits covered by accounting provisions 3 2 – – 110 93 113 95 Present value of funded pension benefits 7,971 5,616 7,280 6,676 1,038 825 16,289 13,117 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 7,974 5,618 7,280 6,676 1,148 918 16,402 13,212 6,064 5,178 5,782 5,376 1,910 440 1,498 1,300 – – – – – – – – 602 546 6 4 485 12,448 11,039 433 3,954 2,173 6 3 6 4 6 3 Balance sheet amounts at 31 December 1,910 440 1,498 1,300 556 442 3,964 2,182 thereof pension provision thereof assets 1,910 440 1,498 1,300 – – – – 557 – 1 443 3,965 2,183 – 1 – 1 – 1 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 121 GROUP FINANCIAL STATEMENTS Pension provisions relating to pension plans in other countries amounted to € 557 million (2011: € 443 million). This includes € 447 million (2011: € 350 million) relating to externally funded plans. The provision for pension- like obligations for post-employment medical care in the USA and South Africa amounts to € 119 million (2011: € 120 million) and is measured, similar to pension obli- gations, in accordance with IAS 19. In the case of post- employment medical care, it is assumed that the costs will increase on a long-term basis by 6 % p. a. (unchanged from the previous year). The expense for medical care obligations in the financial year 2012 was € 12 million (2011: € 9 million). The increase in defined benefit obligations results mainly from the change in the discount rate used for the actu- arial computation in Germany, the UK and the USA. The impact of this on pension provisions was not fully offset by the better-than-expected return on fund assets in these countries. 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 € million 2012 2011 2012 2011 2012 2011 2012 2011 Germany United Kingdom Other Total Balance sheet amounts at 1 January Effect of first-time consolidation Expense from pension obligations 440 – 167 85 – 189 1,300 1,202 442 275 2,182 1,562 – 133 – 113 2 66 1 47 2 1 366 349 Pension payments or transfers to external funds – 277 – 153 – 109 – 101 – 71 – 61 – 457 – 315 Actuarial gains (–) and losses (+) on defined benefit obligations Actuarial gains (–) and losses (+) on plan assets Employee contributions Translation differences and other changes 2,046 – 466 – – – 18 309 376 334 – 170 – 328 3 – – 35 – 38 Balance sheet amounts at 31 December 1,910 440 1,498 1,300 thereof pension provision thereof assets 1,910 440 1,498 1,300 – – – – 166 – 33 – – 16 556 557 – 1 135 2,521 493 31 – 14 – 669 – 19 37 3 52 442 3,964 2,182 443 3,965 2,183 – 1 – 1 – 1 The defined benefit plans of the BMW Group gave rise to an expense from pension obligations in the financial year 2012 of € 366 million (2011: € 349 million), compris- ing the following components: in € million Current service cost Expense from reversing the discounting of pension obligations Past service cost Expected return on plan assets Germany United Kingdom Other Total 2012 2011 2012 2011 2012 2011 2012 2011 148 264 2 142 248 48 71 321 1 63 311 – 12 48 43 – 3 35 35 1 267 628 – 240 594 37 – 247 – 249 – 260 – 249 – 22 – 24 – 529 – 522 Expense from pension obligations 167 189 133 113 66 47 366 349 122 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 income statement under costs by function. Depending on the cash flow profile and risk structure of the pension obligations 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 the specific investment strategy applied to each individual pension fund. This is determined on the basis of the rates of return from the individual in- vestment classes taking account of costs and unplanned risks. This approach resulted in the following expected rates of return on plan assets (disclosed on the basis of weighted averages): in % Germany 2012 2011 United Kingdom 2012 2011 Other 2012 2011 Expected rate of return on plan assets 4.75 4.75 4.75 5.30 4.48 5.35 Compared to the expected return of € 529 million (2011: € 522 million), fund assets actually increased in the financial year 2012 by € 1,198 million (2011: increase in fund assets of € 485 million), giving rise to actuarial gains on fund assets of € 669 million (2011: actuarial losses of € 37 million). Actuarial losses on obligations amounted to € 2,521 million in 2012 (2011: actuarial losses of € 493 million) and related mainly to the lower discount rates used in Germany, the UK and the USA. At 31 December 2012, accumulated actuarial gains and losses arising on defined benefit pension and similar obligations and on plan assets totalled € 4,976 million (2011: € 3,095 million). The level of the pension obligations differs depending on the pension system applicable in each country. Since the state pension system in the UK only provides a low fixed amount benefit, retirement benefits are largely organised in the form of company pensions on the one hand and arrangements financed by the individual on the other. The pension benefits in the UK therefore con- tain contributions made by the employee. The net obligation from pension plans in Germany, the UK and other countries changed as follows: Germany in € 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 2012 2011 2012 2011 2012 2011 5,618 5,292 – 5,178 – 5,207 440 85 414 – 39 – 143 2,046 – 438 – 37 – 131 – 18 – – 247 – 249 – 153 – 39 19 – 466 – – 32 – 34 10 334 – 167 – 153 – – 124 1,580 – 1,910 189 – 32 3 – 121 316 – 440 31 December 7,974 5,618 – 6,064 – 5,178 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 123 GROUP FINANCIAL STATEMENTS United Kingdom in € 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 2012 2011 2012 2011 2012 2011 6,676 6,014 – 5,376 – 4,812 1,300 1,202 393 362 – 1 – 1 – 280 – 276 309 181 376 199 – 260 – 249 – 109 – 101 – 1 280 – 170 – 146 – 1 276 – 328 – 161 133 113 – 109 – 101 – – 139 35 – – 48 38 31 December 7,280 6,676 – 5,782 – 5,376 1,498 1,300 Other in € million 1 January Effect of first-time consolidation Expense from pension obligations and expected return on plan assets Payments to external funds Employee contributions Defined benefit obligation Plan assets Net obligation 2012 2011 2012 2011 2012 2011 918 2 88 – 4 702 4 71 – 2 – 485 – 436 – – 3 – 22 – 67 – 4 18 – 33 – 9 – 602 – 24 – 56 – 2 18 31 – 13 – 485 433 2 66 – 67 – – 4 133 – 17 546 266 1 47 – 56 – – 5 166 14 433 Payments on account and pension payments – 22 – 23 Actuarial gains (–) and losses (+) Translation differences and other changes 31 December 166 – 8 1,148 135 27 918 Plan assets in Germany, the UK and other countries comprised the following: Components of plan assets in € million 2012 2011 2012 2011 2012 2011 2012 2011 Germany United Kingdom Other countries Total Equity instruments Debt securities Real estate Other 31 December 1,447 4,277 84 256 1,384 3,556 76 162 1,091 3,441 532 718 1,055 2,927 501 893 6,064 5,178 5,782 5,376 184 268 64 86 602 211 183 40 51 485 2,722 7,986 680 2,650 6,666 617 1,060 1,106 12,448 11,039 A substantial portion of plan assets is invested in debt securities 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 ac- tuarial assumptions applied. The financial risk of pen- sion 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. 124 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 € million 2012 2011 2010 2009 2008 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 16,402 12,448 3,954 2,521 – 669 13,212 11,039 2,173 493 37 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 Actuarial gains on benefit obligations, mostly attribut- able to experience adjustments, amounted to € 279 mil- lion (2011: actuarial gains of € 60 million). Experience adjustments relating to fund assets also resulted in actu- arial gains of € 669 million in the financial year under re- port (2011: actuarial losses of € 23 million). 35 Other provisions Other provisions comprise the following items: in € million 31. 12. 2012 31. 12. 2011 Obligations for personnel and social expenses Obligations for ongoing operational expenses Other obligations Other provisions Total 1,719 3,177 1,899 6,795 thereof due within one year 1,234 924 1,124 3,282 Total 1,632 2,953 1,668 6,253 thereof due within one year 1,190 1,023 891 3,104 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. Obli- gations for performance-related remuneration compo- nents are normally settled in the following financial year. Provisions for obligations for on-going operational ex- penses comprise primarily warranty obligations and com- prise both statutorily prescribed manufacturer warran- ties and other guaranties offered by the BMW Group. Depending on when claims are made, it is possible that the BMW Group may be called upon to fulfil obligations over the whole period of the warranty or guarantee. Provisions for other obligations cover numerous specific risks and obligations of uncertain timing and amount, in particular for litigation and liability risks. Other provisions changed during the year as follows: in € million 1.1. 2012* Translation differences Additions Reversal of discounting Utilised Reversed 31. 12. 2012 Obligations for personnel and social expenses Obligations for ongoing operational expenses Other obligations Other provisions 1,632 2,953 1,677 6,262 – 3 – 26 – 16 – 45 1,346 1,119 626 3,091 1 39 18 – 1,226 – 848 – 254 58 – 2,328 – 31 – 60 – 152 – 243 1,719 3,177 1,899 6,795 * including entities consolidated for the first time during the financial year Income from the reversal of other provisions amounting to € 129 million (2011: € 308 million) is included in costs by function in the income statement. 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 125 GROUP FINANCIAL STATEMENTS 36 Income tax liabilities Current income tax liabilities totalling € 1,482 million (2011: € 1,363 million) include claims amounting to € 806 million (2011: € 807 million) which are expected to be settled after more than twelve months. Some of the lia- bilities may be settled earlier than this depending on the timing of proceedings. Current tax liabilities of € 1,482 million (2011: € 1,363 million) comprise € 438 million (2011: € 122 million) for taxes payable and € 1,044 million (2011: € 1,241 million) for tax provisions. In 2012, tax provisions of € 23 million were reversed (2011: € 27 million). 37 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 2012 in € million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Other Financial liabilities 31 December 2011 in € 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 7,427 4,595 10,076 4,577 2,097 865 775 17,234 4,232 2,942 – 7,212 903 233 5,191 657 – – 102 22 367 Total 29,852 9,484 13,018 4,577 9,411 1,790 1,375 30,412 32,756 6,339 69,507 Maturity within one year Maturity between one and five years Maturity later than five years 8,009 2,983 8,928 5,478 3,152 999 831 16,069 5,166 3,090 – 6,233 1,456 397 30,380 32,411 4,495 249 23 – – 24 395 5,186 Total 28,573 8,398 12,041 5,478 9,385 2,479 1,623 67,977 The BMW Group uses various short-term and long-term refinancing instruments on money and capital markets to finance its operations. This diversification enables it to obtain attractive market conditions. Customer deposit liabilities arise in the BMW Group’s banks in Germany and the USA, both of which offer a range of investment products. The main instruments used are corporate bonds, asset- backed financing transactions, liabilities to banks and liabilities from customer deposits (banking). 126 Bonds comprise: Issuer BMW Finance N. V., The Hague GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity BMW (UK) Capital plc, Bracknell Notes 86 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 100 107 108 129 145 BMW US Capital, LLC, Wilmington, DE BMW Australia Finance Ltd., Melbourne, Victoria Other 78 78 78 80 82 84 86 Interest variable variable variable variable variable variable fixed fixed fixed fixed fixed fixed fixed fixed fixed fixed variable variable fixed fixed fixed variable variable variable variable fixed fixed fixed fixed fixed variable variable variable fixed fixed fixed fixed variable variable fixed fixed fixed fixed Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in years) Weighted average nominal interest rate (in %) AUD 200 million EUR 1,240 million HKD 300 million JPY 12,500 million SEK 2,640 million USD 530 million AUD 550 million CAD 125 million CHF 300 million EUR 13,357 million GBP 1,050 million HKD 836 million JPY 22,500 million NOK 6,850 million NZD 100 million SEK 1,000 million EUR 100 million JPY 18,900 million CHF 500 million GBP 300 million JPY 24,000 million EUR 372 million MXN 405 million SEK 1,350 million USD 355 million CHF 325 million EUR 3,250 million MXN 725 million NOK 1,500 million USD 795 million EUR 202 million SEK 600 million USD 175 million AUD 230 million CHF 200 million JPY 11,000 million USD 100 million JPY 29,200 million ZAR 600 million INR 8,000 million CAD 2,275 million JPY 10,000 million KRW 100,000 million 1.5 2.1 3.0 1.8 1.8 1.7 3.6 2.0 6.0 6.0 6.9 3.0 1.4 3.2 3.0 3.0 3.0 5.0 5.0 8.0 5.0 1.8 0.1 1.7 1.7 2.2 2.2 0.1 2.9 4.6 1.4 2.8 1.7 3.0 3.0 2.0 2.5 2.5 3.0 3.6 3.6 8.5 3.0 4.2 0.6 1.3 0.8 2.3 0.9 6.3 2.2 1.8 4.0 3.9 2.0 0.9 3.8 4.8 3.8 0.2 0.2 2.1 5.0 2.5 0.5 4.8 2.0 0.9 3.6 4.1 7.9 2.4 5.3 0.2 1.4 0.4 6.3 1.0 0.5 1.1 0.4 6.6 10.1 2.8 1.4 3.9 127 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 38 Other liabilities Other liabilities comprise the following items: 31 December 2012 in € 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 2011 in € 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 %) GBP 275 million USD 200 million EUR 2,175 million EUR 100 million USD 2,395 million 92.4 74.5 34.2 59.0 36.2 Maturity within one year Maturity between one and five years Maturity later than five years 697 46 603 355 236 1 1,496 3,358 6,792 1 23 65 91 – – 2,704 157 3,041 15 7 – 20 – – 312 9 363 Maturity within one year Maturity between one and five years Maturity later than five years 545 39 1,810 155 177 25 1,411 2,864 7,026 1 21 48 76 1 – 2,377 87 2,611 2 7 – – – – 280 11 300 0.5 0.3 0.1 0.1 0.2 Total 713 76 668 466 236 1 4,512 3,524 10,196 Total 548 67 1,858 231 178 25 4,068 2,962 9,937 128 Deferred income comprises the following items: in € million 31. 12. 2012 31. 12. 2011 Deferred income from lease financing Deferred income relating to service contracts Grants Other deferred income Deferred income Total 1,743 2,478 196 95 4,512 thereof due within one year 791 615 28 62 1,496 Total 1,564 2,203 223 78 4,068 thereof due within one year 731 570 35 75 1,411 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 plants in Leipzig and Berlin. The grants are subject to holding periods for the assets concerned of up to five years and minimum employment figures. All conditions attached to the grants were complied with at 31 December 2012. In ac- cordance with IAS 20, grant income is recognised 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. Maturity within one year Maturity between one and five years Maturity later than five years Total Trade payables 6,424 9 – 6,433 31 December 2011 in € million Maturity within one year Maturity between one and five years Maturity later than five years Total Trade payables 5,295 43 2 5,340 The total amount of financial liabilities, other liabilities and trade payables with a maturity later than five years amounts to € 6,702 million (2011: € 5,488 million). 39 Trade payables 31 December 2012 in € million 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 129 GROUP FINANCIAL STATEMENTS BMW Group Notes to the Group Financial Statements Other Disclosures 40 Contingent liabilities and other financial commitments Contingent liabilities No provisions were recognised for the following contingent liabilities (stated at their nominal amount), since an outflow of resources is not considered to be probable: in € million Guarantees Performance guarantees Other Contingent liabilities 31. 12. 2012 31. 12. 2011 6 – 60 66 16 23 99 138 Contingent liabilities relate entirely to non-group entities. 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 com- mitments, primarily under lease contracts for land, buildings, plant and machinery, tools, office and other facilities. The leases run for periods of one to 46 years and in some cases contain extension and / or purchase options. In 2012 an amount of € 296 million (2011: € 208 million) was recognised as an expense in conjunc- tion with operating leases. All of these amounts relate to minimum lease payments. The total of future minimum lease payments under non- cancellable and other operating leases can be analysed by maturity as follows: in € million 31. 12. 2012 31. 12. 2011 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 320 805 585 1,710 297 704 663 1,664 Other financial obligations include € 19 million (2011: € 10 million) in respect of non-consolidated subsidiaries and € 2 million (2011: € 1 million) for back-to-back operating leases. Purchase commitments amounted to € 3,010 million (2011: € 1,654 million) for property, plant and equip- ment and to € 440 million (2011: € 186 million) for intangible assets. 130 41 Financial instruments The carrying amounts and fair values of financial instruments are assigned to IAS 39 categories and cash funds1 as follows: 31 December 2012 in € 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 8,370 8,370 – – 54,374 52,914 – – – – 44 234 835 – – – – – 44 234 835 – 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 – – – 398 – 8,768 – – – – – – – – – – – – – – – – 398 – 2,543 2,543 738 676 – 205 738 676 – 205 8,768 59,649 58,189 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1 The carrying amounts of cash flow and fair value hedges are allocated to the category “Held for trading” for the sake of clarity. 2 Carrying amount corresponds to fair value. – – – – – – 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 131 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 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 29,966 9,484 13,098 4,577 9,369 – – – 1,375 6,433 29,852 9,484 13,018 4,577 9,411 – – – 1,375 6,433 236 236 1 4,084 78,623 1 4,084 78,471 548 – – – – 2,655 – – – – – – – 157 – 3,360 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 925 1,457 610 – – – – – – – – – – 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 – 2,992 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 – – – – – 701 320 769 – – – – – – – – – – – – – – – – – – – – 1,790 Total 132 31 December 2011 in € 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 7,776 7,776 – 50,969 – 49,345 – – – – 23 249 493 – – – – – 23 249 493 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Notes 86 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 100 107 108 129 145 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. – – – 292 – 8,068 – – – – – – – – – – – – – – – – 292 – 3,286 3,286 714 393 – 282 714 393 – 282 8,068 56,409 54,785 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 133 GROUP FINANCIAL STATEMENTS Other liabilities Available- for-sale Fair value option Held for trading Fair value Carrying amount Carrying amount * Carrying amount * Carrying amount * – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 561 – – – – 2,330 – – – – – – – – – – – – – – – – – – – – – – – – – – 281 1,230 847 – – – – – – – – – – 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 – – 2,891 – 2,358 Total 28,686 8,398 12,127 5,478 9,337 – – – 1,623 5,340 178 25 4,497 75,689 28,573 8,398 12,041 5,478 9,385 – – – 1,623 5,340 178 25 4,497 75,538 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 – – – – – 1,259 347 873 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 2,479 Total 134 Fair value measurement of financial instruments The fair values shown are computed using market in- formation available at the balance sheet date, on the basis of prices quoted by the contract partners or using appropriate measurement methods, e. g. discounted cash flow models. In the latter case, amounts were discounted at 31 December 2012 on the basis of the fol- lowing interest rates: in % Interest rate for six months Interest rate for one year Interest rate for five years Interest rate for ten years EUR USD GBP JPY 0.10 0.10 0.77 1.61 0.21 0.23 0.84 1.82 0.49 0.49 1.03 1.92 0.16 0.24 0.30 0.84 Interest rates taken from interest rate curves were ad- justed, where necessary, to take account of the credit quality and risk of the underlying financial instrument. Financial instruments measured at fair value are allo- cated to different measurement levels in accordance with IFRS 7. This includes financial instruments that are Derivative financial instruments are measured at their fair value. The fair values of derivative financial instru- ments 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. Observable financial market price spreads (e. g. for liquidity risks) are taken into account in the measurement 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. 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 2012: 31 December 2012 in € million Marketable securities, investment fund shares and collateral assets – available-for-sale Other investments – available-for-sale Derivative instruments (assets) Cash flow hedges Fair value hedges Other derivative instruments Derivative instruments (liabilities) Cash flow hedges Fair value hedges Other derivative instruments Level hierarchy in accordance with IFRS 7 Level 2 Level 3 Level 1 2,812 391 – – – – – – – – 925 1,457 610 701 320 769 – – – – – – – – 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 135 GROUP FINANCIAL STATEMENTS 31 December 2011 in € million Marketable securities, investment fund shares and collateral assets – available-for-sale Other investments – available-for-sale Derivative instruments (assets) Cash flow hedges Fair value hedges Other derivative instruments Derivative instruments (liabilities) Cash flow hedges Fair value hedges Other derivative instruments Level hierarchy in accordance with IFRS 7 Level 2 Level 3 Level 1 2,330 419 – – – – – – – – 281 1,230 827 1,259 347 873 – – – – 20 – – – Other investments (available-for-sale) amounting to € 157 million (2011: € 142 million) are measured at amor- tised cost since quoted market prices are not available or cannot be determined reliably. These are therefore not included in the level hierarchy shown above. In addition, other investments amounting to € 391 million (2011: € 419 million) are measured at fair value since quoted market prices are available. These items are included in Level 1. The option to an equity instrument classified to Level 3 in 2011 was converted to cash in 2012. As in the previous year, there were no significant reclas- sifications within the level hierarchy during the financial year 2012. Gains and losses on financial instruments The following table shows the net gains and losses arising for each of the categories of financial instrument defined by IAS 39: in € million Held for trading 2012 2011 Gains / losses from the use of derivative instruments – 278 – 565 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 – 145 5 – 61 169 40 108 – 440 – 61 – 13 1 9 – 70 – 8 – 61 – 340 – 101 – 115 – 91 Gains / losses from the use of derivatives relate pri- marily to fair value gains or losses arising on stand- alone derivatives. equity, were recognised as expenses in 2012. No rever- sals of impairment losses on marketable securities were recognised directly in equity (2011: € 2 million). Net interest income from interest rate and interest rate / currency swaps amounted to € 111 million (2011: € 57 million). Impairment losses of € 166 million (2011: € 4 million) on available-for-sale marketable securities, for which fair value changes were previously recognised directly in 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 assets have been discounted as part of the process of de- termining impairment losses. However, as a result of the assumption that most of the income that is subse- quently recovered is received within one year and the 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 136 fact that the impact is not material, the BMW Group does not discount assets for the purposes of determin- ing impairment losses. Cash flow hedges The effect of cash flow hedges on accumulated other equity was as follows: in € 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 2012 2011 – 750 952 532 202 – 127 – 623 – 68 – 750 Fair value gains and losses recognised on derivatives and recorded initially in accumulated other equity are re- classified to cost of sales when the derivatives mature. A net positive amount of € 1 million (2011: net negative amount of € 2 million) attributable to forecasting errors (and the resulting over-hedging of currency exposures) was recognised within the line item “Financial Result” in the financial year 2012. These forecasting errors, which all related to the year under report, arise primarily as a result of changes in sales forecasts in foreign currencies. In addi- tion, cash flow hedges of raw materials gave rise to a net expense of € 8 million (2011: € – million) from forecasting errors and net income of € 67 million (2011: net expense of € 52 million) from ineffectiveness, which were also rec- ognised within the line item “Financial Result”. At 31 December 2012 the BMW Group held derivative instruments (mainly option and forward currency con- tracts) with terms of up to 72 months (2011: 54 months), as a general rule in order to hedge currency risks at- tached to future transactions. These derivative instru- ments are intended to hedge forecast sales denominated in a foreign currency over the coming 72 months. The income statement impact of the hedged cash flows will be recognised as a general rule in the same periods in which external revenues are recognised. It is expected that € 26 million of net gains, recognised in equity at the end of the reporting period, will be recognised in the income statement in 2013. At 31 December 2012 the BMW Group held derivative instruments (mostly interest rate swaps) with terms of up to 25 months (2011: 60 months) to hedge interest rate risks. These derivative instruments are intended to hedge interest rate risks arising on financial instru- ments with variable interest payments over the coming 25 months. The income statement impact of the hedged cash flows will be recognised as a general rule in the same periods over which the relevant interest rates are fixed. It is not expected that any net gains or net losses, recognised in equity at the end of the reporting period, will be reclassified to the income statement in 2013. At 31 December 2012, the BMW Group held derivative instruments (mostly commodity swaps) with terms of up to 60 months (2011: 55 months) to hedge raw mate- rials price risks attached to future transactions over the coming 60 months. The income statement impact of the hedged cash flows will be recognised as a general rule in the same period in which the derivative instru- ment matures. It is expected that € 5 million of net gains, recognised in equity at the end of the reporting period, will be recognised in the income statement in 2013. 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 € million 31. 12. 2012 31. 12. 2011 Gains / losses on hedging instruments designated as part of a fair value hedge relationship Gains / loss from hedged items Ineffectiveness of fair value hedges 127 – 140 – 13 213 – 225 –12 The difference between the gains / losses on hedging instruments (mostly interest rate swaps) and the results 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. Bad debt 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 contractual obligations. The maximum credit risk for irrevocable credit commitments relating to credit card business amounts to € 969 million (2011: 137 GROUP FINANCIAL STATEMENTS € 1,031 million). The equivalent figure for dealer financ- ing is € 18,157 million (2011: € 16,699 million). In the case of performance relationships underlying non-derivative financial instruments, collateral will be required, information on the credit-standing of the counterparty obtained or historical data based on the existing business relationship (i.e. payment pat- terns to date) reviewed in order to minimise the credit risk, all depending on the nature and amount of the exposure that the BMW Group is proposing to enter into. Creditworthiness testing is an important aspect of the BMW Group’s credit risk management. Every borrower’s creditworthiness is tested for all credit financing and lease contracts entered into by the BMW Group. In the case of retail customers, creditworthiness is assessed using validated scoring systems integrated into the pur- chasing process. In the area of dealer financing, credit- worthiness is assessed by means of ongoing credit moni- toring and an internal rating system that takes account not only of the tangible situation of the borrower but also of qualitative factors such as past reliability in busi- ness relations. Within the financial services business, the financed items (e. g. vehicles, equipment and property) in the retail customer and dealer lines of business serve as first-ranking collateral with a recoverable value. Secu- rity is also put up by customers in the form of collat- eral asset pledges, asset assignment and first-ranking mortgages, supplemented where appropriate by war- ranties and guarantees. If an item previously accepted as collateral is acquired, it undergoes a multi-stage process of repossession and disposal in accordance with the legal situation prevailing in the relevant mar- ket. The assets involved are generally vehicles which can be converted into cash at any time via the dealer organisation. 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 con- junction with financial instruments. Further disclosures relating to credit risk – in particular with regard to the amounts of impairment losses recog- nised – are provided in the explanatory notes to the relevant categories of receivables in notes 25, 26 and 30. 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 note 5 in the section on accounting policies. Liquidity risk The following table shows the maturity structure of ex- pected contractual cash flows (undiscounted) for finan- cial liabilities: 31 December 2012 in € million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Trade payables Other financial liabilities Total Maturity within one year Maturity between one and five years – 8,482 – 4,866 – 10,139 – 4,578 – 2,170 – 1,146 – 6,424 – 787 – 18,375 – 4,469 – 3,028 – – 7,346 – 1,085 – 9 – 249 – 38,592 – 34,561 Maturity later than five years – 5,071 – 678 – – – 137 – 1 – – 424 – 6,311 Total – 31,928 – 10,013 – 13,167 – 4,578 – 9,653 – 2,232 – 6,433 – 1,460 – 79,464 138 31 December 2011 in € million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Trade payables Other financial liabilities Total Maturity within one year Maturity between one and five years Maturity later than five years Total – 9,100 – 3,197 – 8,968 – 5,486 – 3,191 – 1,410 – 5,295 – 847 – 17,430 – 5,449 – 3,254 – – 6,474 – 2,218 – 43 – 483 – 37,494 – 35,351 – 4,509 – 31,039 – 268 – 24 – – – 7 – 2 – 488 – 5,298 – 8,914 – 12,246 – 5,486 – 9,665 – 3,635 – 5,340 – 1,818 –78,143 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. Irrevocable credit commitments to dealers which had not been called upon at the end of the reporting period amounted to € 6,044 million (2011: € 5,764 million). values of non-derivative financial instruments have matching maturities and amounts (netting). Derivative financial instruments are used to reduce the risk re- maining after netting. Financial instruments are only used to hedge underlying positions or forecast trans- actions. 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 requirements within the framework of the target debt ratio. The BMW Group has good access to capital mar- kets as a result of its solid financial position and a diver- sified 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 and S & P short-term rat- ings of P-1 and A-1 respectively. Also reducing liquidity risk, additional secured and unsecured lines of credit are in place with first-class in- ternational banks. Intragroup cash flow fluctuations are evened out by the use of daily cash pooling arrange- ments. Market risks The principal market risks to which the BMW Group is exposed are currency risk, interest rate risk and raw materials price risk. Protection against such risks is provided in the first in- stance through natural hedging which arises when the 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, interest rate and raw material price risks of the BMW Group are managed at a corporate level. Further information is provided in the Combined Group and Company Management Report (“Risk management” section). Currency risk As an enterprise with worldwide operations, business is conducted in a variety of currencies, from which cur- rency risks arise. Since a significant portion of Group revenues are generated outside the euro currency region and the procurement of production material and fund- ing is also organised on a worldwide basis, the cur- rency risk is an extremely important factor for Group earnings. At 31 December 2012 derivative financial instruments were in place to hedge exchange rate risks, in particular for the currencies Chinese renminbi, US dollar, British pound, Japanese yen and Russian rouble. The currency hedging contracts comprise mainly option and forward currency contracts. A description of the management of this risk is provided in the Combined Group and Company Management Report. The BMW Group measures currency risk using a cash-flow-at-risk model. 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 139 GROUP FINANCIAL STATEMENTS 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 relevant coming year were as follows: in € million Euro / Chinese Renminbi Euro / US Dollar Euro / British Pound Euro / Japanese Yen Euro / Russian Rouble 31. 12. 2012 31. 12. 2011 8,429 5,311 3,206 1,585 1,638 7,114 4,281 3,266 1,334 1,330 In the next stage, these exposures are compared to all hedges that are in place. The net cash flow surplus represents an uncovered risk position. The cash-flow-at- risk approach involves allocating the impact of poten- tial exchange rate fluctuations to operating cash flows on the basis of probability distributions. Volatilities and correlations serve as input factors to assess the rele- vant probability distributions. The potential negative impact on earnings is computed for each currency for the following financial year on the basis of current market prices and exposures to a confidence level of 95 % and a holding period of up to one year. Correlations between the various currencies are taken into account when the risks are aggregated, thus reducing the overall risk. The following table shows the potential negative impact for the BMW Group – measured on the basis of the cash- flow-at-risk approach – attributable to unfavourable changes in exchange rates. The impact for the principal currencies, in each case for the following financial year, is as follows: in € million Euro / Chinese Renminbi Euro / US Dollar Euro / British Pound Euro / Japanese Yen Euro / Russian Rouble 31. 12. 2012 31. 12. 2011 246 163 65 15 69 180 121 182 23 97 Currency risk for the BMW Group is concentrated on the currencies referred to above. Interest rate risk The BMW Group’s financial management system in- volves 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 interest rate risk. Interest rate risks can affect either side of the balance sheet. The fair values of the Group’s interest rate portfolios for the three principal currencies were as follows at the end of the reporting period: in € million Euro US Dollar British Pound 31. 12. 2012 31. 12. 2011 12,736 10,489 3,814 6,066 8,684 3,278 140 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 accounted for on the basis of whether they are desig- nated as a fair value hedge or as a cash flow hedge. A description of the management of interest risk is provided in the Combined Group and Company Management Report. folios are compared across the Group with expected amounts measured on the basis of a holding period of 250 days and a confidence level of 99.98 %. Aggregation of these results creates a risk reduction effect due to correlations between the various portfolios. The meth- odology applied was refined during the year under report, primarily in order to take account of new regula- tory requirements. As stated there, the BMW Group applies a group-wide value-at-risk approach for internal reporting purposes and to manage interest rate risks. This is based on a state-of-the-art historical simulation, in which the po- tential future fair value losses of the interest rate port- In the following table the potential volumes 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 € million Euro US Dollar British Pound 31. 12. 2012 31. 12. 2011 269 271 44 38 24 3 Raw materials price risk The BMW Group is exposed to the risk of price fluctua- tions for raw materials. A description of the manage- ment of these risks is provided in the Combined Group and Company Management Report. The first step in the analysis of the raw materials price risk is to determine the volume of planned purchases of raw materials (and components containing those raw materials). These amounts, which represent the gross exposure, were as follows at each reporting date for the following financial year: in € million Raw materials price exposures 31. 12. 2012 31. 12. 2011 3,370 3,300 In the next stage, these exposures are compared to all hedges that are in place. The net cash flow amount represents an uncovered risk position. The cash-flow-at- risk approach now applied – which should generate a more accurate picture than the sensitivity analysis approach previously used – involves allocating the im- pact of potential fluctuations in raw materials prices to operating cash flows on the basis of probability distri- butions. Volatilities and correlations serve as input fac- tors to assess the relevant probability distributions. The potential negative impact on earnings is computed for each raw material category for the following financial year on the basis of current market prices and expo- sure to a confidence level of 95 % and a holding period of up to one year. Correlations between the various categories of raw materials are taken into account when the risks are aggregated, thus reducing the over- all risk. The following table shows the potential negative impact for the BMW Group – measured on the basis of the cash- flow-at-risk approach – attributable to fluctuations in prices across all categories of raw materials. The risk at each reporting date for the following financial year was as follows: in € million Cash flow at risk 31. 12. 2012 31. 12. 2011 350 305 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 141 GROUP FINANCIAL STATEMENTS Other risks A further exposure relates to the residual value risk on vehicles returned to the BMW Group at the end of lease contracts. The risk from financial instruments used in this context was not material to the Group in the past and /or at the end of the reporting period. A description of the management of this risk is provided in the Com- bined Group and Company Management Report. Infor- mation regarding the residual value risk from operating leases is provided in the section on accounting policies in note 5. 42 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 Automotive and Financial Services segments have changed in the course of the year as a result of cash inflows and cash outflows. In accordance with IAS 7 (Statement of Cash Flows), cash flows are classified into cash flows from operating, investing and financing activities. 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 sub- ject to an insignificant risk of changes in value. The cash flows from investing and financing activities are based on actual payments and receipts. By contrast, the cash flow from operating activities is derived indirectly from the net profit 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 balance sheet positions shown in the cash flow state- ment do not therefore agree directly with the amounts shown in the Group and segment balance sheets. Cash inflows and outflows relating to operating leases, where the BMW Group is either lessee or lessor, are aggregated and shown on the line “Change in leased products” within cash flows from operating activities. The net change in receivables from sales financing (in- cluding finance leases, where the BMW Group is either lessee or lessor) is also reported within cash flows from operating activities. Income taxes paid and interest received are classified as cash flows from operating activities in accordance with IAS 7.31 and IAS 7.35. Interest paid is presented on a separate line within cash flows from financing activities. Dividends received in the financial year 2012 amounted to € 4 million (2011: € 1 million). The BMW Group used various sources of funds for internal financing purposes. In addition to the issue of interest-bearing debt, cash funds are also allocated internally in line with business requirements, including the use of dividends and similar transactions. In this context, it is possible that cash funds may be trans- ferred from one segment to another. Up to the first quarter 2012, these cash inflows and outflows were reported in the Cash Flow Statements of the Automo- tive and Financial Services segments as part of cash flows from operating activities. Due to the increasing importance of inter-segment transactions, the method of presentation was changed with effect from the sec- ond quarter 2012. Intragroup inter-segment dividends and similar transactions are now reported as part of cash flows from financing activities. The reclassifi- cation from operating activities to financing activities resulted in an increase in the operating cash flow. The previous year’s figures were restated accordingly (impact in 2011: € 1,033 million for the Automotive segment, € 411 million for the Financial Services seg- ment). 43 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 Group 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 agree- ment, the financial and operating policies of the man- agement of the Group. In addition, the disclosure requirements of IAS 24 also cover transactions with associated companies, 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 rela- tives and intermediary entities. Significant influence 142 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 require- ments contained in IAS 24 relating to key management personnel and close members of their families or inter- mediary entities are also applied. In the case of the BMW Group, this applies to members of the Board of Management and Supervisory Board. In the financial year 2012, the disclosure requirements contained in IAS 24 affect the BMW Group with regard to business relationships with non-consolidated sub- sidiaries, joint ventures and associated companies as well as with members of the Board of Management and Super- visory Board of BMW AG. The BMW Group maintains normal business relation- ships with non-consolidated subsidiaries. Transactions with these companies are small in scale, arise in the nor- mal 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 con- ducted on the basis of arm’s length principles. Group companies sold goods and services to BMW Brilliance Automotive Ltd., Shenyang, during 2012 for an amount of € 2,962 million (2011: € 1,729 million). At 31 Decem- ber 2012, receivables of Group companies from BMW Brilliance Automotive Ltd., Shenyang, totalled € 608 mil- lion (2011: € 381 million). There were no payables from Group companies to BMW Brilliance Automotive Ltd., Shenyang, at the end of the reporting period (2011: € 89 million). Group companies received goods and ser- vices from BMW Brilliance Automotive Ltd., Shenyang, during the financial year under report for an amount of € 26 million (2011: € 15 million). All relationships of BMW Group entities with the joint ventures SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, and SGL Automotive Carbon Fibers LLC, Dover, DE, arise in the normal course of business. All transactions with these entities were conducted on the basis of arm’s length principles. At 31 December 2012 receivables of Group companies for loans dis- bursed to the joint ventures amounted to € 68 million (2011: € 61 million). Realised interest income earned on these intragroup loans in 2012 amounted to € 2 mil- lion (2011: € 1 million). Goods and services received by Group companies from the joint ventures during the period under report totalled € 9 million (2011: € 4 mil- lion). At 31 December 2012 payables of Group compa- nies to the joint ventures amounted to € 1 million (2011: € 1 million). Transactions of BMW Group companies with the joint venture, BMW Peugeot Citroën Electrification B. V., The Hague, all arose in the normal course of business and were conducted on the basis of arm’s length princi- ples. Up to the date of termination of the joint venture arrangements, Group companies sold goods and ser- vices to the joint venture amounting to € 4 million (2011: € – million). During the first eleven months of the year, the joint venture sold goods and services to Group com- panies amounting to € 82 million (2011: € – million). All relationships of BMW Group companies with the joint ventures DriveNow GmbH & Co. KG, Munich, and DriveNow Verwaltungs GmbH, Munich, are con- ducted on the basis of arm’s length principles. Trans- actions with these entities arise in the normal course of business and are small in scale. The BMW Group maintains normal business relation- ships with associated companies. Transactions with these companies are small in scale, arise in the normal course of business and are conducted on the basis of arm’s length principles. Stefan Quandt is a shareholder and member of the Supervisory Board of BMW AG. He is also the sole share- holder and Chairman of the Supervisory Board of DELTON AG, Bad Homburg v. d. H., which, via its sub- sidiaries, performed logistic-related services for the BMW Group during the financial year 2012. 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 lease contracts, which are not material for the BMW Group, all arise in the normal course of busi- ness and are conducted on the basis of arm’s length principles. Susanne Klatten is a shareholder and member of the Supervisory Board of BMW AG and also a shareholder and Deputy Chairman of the Supervisory Board of Altana AG, Wesel. Altana AG, Wesel, acquired vehicles 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 143 GROUP FINANCIAL STATEMENTS from the BMW Group during the financial year 2012, mostly in the form of lease contracts. These 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, compa- nies of the BMW Group did not enter into any contracts with members of the Board of Management or Super- visory Board of BMW AG. The same applies to close mem- bers 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 period under report. BMW AG bears expenses on a minor scale and renders services on behalf of BMW Trust e.V., Munich. 44 45 Declaration with respect to the Corporate Governance Code The Board of Management and the Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft have is- sued the prescribed Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act. It is repro- duced in the Annual Report 2012 of the BMW Group and is also available to shareholders on the BMW Group web- site at www.bmwgroup.com/ir. Shareholdings of members of the Board of Management and Supervisory Board The members of the Supervisory Board of BMW AG hold in total 27.63 % (2011: 27.65 %) of the issued common and preferred stock shares, of which 16.08 % (2011: 16.09 %) relates to Stefan Quandt, Bad Homburg v. d. H. and 11.55 % (2011: 11.56 %) to Susanne Klatten, Munich. As at the end of the previous financial year, sharehold- ings of members of the BMW AG Board of Management account, in total, for less than 1 % of issued shares. 46 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 € 36.4 million (2011: € 32.1 million) and comprised the following: in € million Short-term employment benefits Post-employment benefits Compensation 2012 2011 35.2 1.2 36.4 31.0 1.1 32.1 The total compensation of the current Board of Manage- ment members for 2012 amounted to € 31.4 million (2011: € 27.3 million). This comprised fixed components of € 7.5 million (2011: € 4.7 million), variable compo- nents of € 23.2 million (2011: € 21.9 million) and a share- based compensation component totalling € 0.7 million (2011: € 0.7 million). In addition, an expense of € 1.2 million (2011: € 1.1 mil- lion) was recognised for current members of the Board of Management for the period after the end of their employment relationship. This relates to the ex- pense for allocations to pension provisions. Pension ob- ligations to current members of the Board of Manage- ment are covered by pension provisions amounting to € 29.4 million (2011: € 19.0 million), computed in accord- ance with IAS 19 (Employee Benefits). The remuneration of former members of the Board of Management and their dependants amounted to € 3.8 mil- lion (2011: € 3.7 million). Pension obligations to former members of the Board of Management and their surviving dependants are fully 144 covered by pension provisions amounting to € 61.2 mil- lion (2011: € 51.6 million), computed in accordance with IAS 19. The compensation of the members of the Supervisory Board for the financial year 2012 amounted to € 4.5 mil- lion (2011: € 4.5 million). This comprised fixed com- ponents of € 1.6 million (2011: € 1.6 million) and variable components of € 2.9 million (2011: € 2.9 million). The compensation systems for members of the Super- visory Board do not include any stock options, value appreciation rights comparable to stock options or any other stock-based compensation components. Apart from vehicle lease contracts entered into on customary mar- ket conditions, no advances and loans were granted 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 the Supervisory Board can be found in the Compensation Report, which is part of the Combined Group and Company Manage- ment Report. 47 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 consolidated sub- sidiaries of BMW AG and for which the Group Financial Statements of BMW AG represent exempting consoli- dated financial statements, apply the exemptions availa- ble in § 264 (3) and § 264 b HGB with regard to the draw- ing 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 Auto- mobile, Munich – 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 publication: – Bavaria Wirtschaftsagentur GmbH, Munich – Alphabet International GmbH, Munich – BMW Hams Hall Motoren GmbH, Munich – BMW M GmbH Gesellschaft für individuelle Auto- mobile, Munich – BMW INTEC Beteiligungs GmbH, Munich – BMW Verwaltungs GmbH, Munich – Rolls-Royce Motor Cars GmbH, Munich 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 145 GROUP FINANCIAL STATEMENTS BMW Group Notes to the Group Financial Statements Segment Information 48 Explanatory notes to segment information Information on reportable segments For the purposes of presenting segment information, the activities of the BMW Group are divided into operating segments in accordance with IFRS 8 (Operating Seg- ments). Operating segments are identified on the same basis that is used internally to manage and report on per- formance and takes account of the organisational struc- ture 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 Automotive, Motorcycles, Finan- cial Services and Other Entities. The Automotive segment develops, manufactures, as- sembles and sells cars and off-road vehicles, under the brands BMW, MINI and Rolls-Royce as well as spare parts and accessories. BMW and MINI brand products are sold in Germany through branches of BMW AG and by independent, authorised dealers. Sales outside Germany are handled primarily by subsidiary com- panies 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 BMW Motorcycles segment develops, manufac- tures, assembles and sells BMW and Husqvarna brand motorcycles as well as spare parts and accessories. 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. 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 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 seg- ments. Internal management and reporting Segment information is prepared in conformity with the accounting policies adopted for preparing and pre- senting the Group Financial Statements. The only ex- ception to this general principle is the treatment of in- ter-segment warranties, the earnings impact of which is allocated to the Automotive and Financial Services seg- ments on the basis used internally to manage the busi- ness. Inter-segment receivables and payables, provi- sions, income, expenses and profits are eliminated in the column “Eliminations”. Inter-segment sales take place at arm’s length prices. The role of “chief operating decision maker” with re- spect to resource allocation and performance assess- ment of the reportable segment is embodied in the full Board of Management. 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 Automotive and Motorcycles segments are managed on the basis of the profit before financial result. Capital employed is the corresponding measure of segment assets used to determine how to allocate resources. Cap- ital employed comprises all current and non-current operational assets of the segment, after deduction of lia- bilities used operationally which are not subject to inter- est (e. g. trade payables). 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. The performance of the Other Entities segment is as- sessed on the basis of profit or loss before tax. The corresponding measure of segment assets used to manage the Other Entities segment is total assets less tax assets and investments. 146 Segment information by operating segment is as follows: Segment information by operating segment in € million External revenues Inter-segment revenues Total revenues Segment result Capital expenditure on non-current assets Depreciation and amortisation on non-current assets Automotive Motorcycles 2012 2011 2012 2011 57,499 12,709 70,208 7,624 5,325 3,437 51,684 11,545 63,229 7,477 3,728 3,568 1,478 12 1,490 9 125 69 1,427 9 1,436 45 88 62 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity in € million Segment assets Automotive Motorcycles 31. 12. 2012 31. 12. 2011 31. 12. 2012 31. 12. 2011 10,864 10,016 405 551 Notes 86 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 100 107 108 129 145 78 78 78 80 82 84 86 147 GROUP FINANCIAL STATEMENTS Financial Services Other Entities Reconciliation to Group figures Group 2012 2011 2012 2011 2012 2011 2012 2011 17,869 1,681 19,550 1,561 15,988 6,112 15,709 1,801 17,510 1,790 13,493 4,972 2 3 5 – 6 – – 1 4 – – 76,848 68,821 External revenues – 14,405 – 13,359 – – Inter-segment revenues 5 – 14,405 –13,359 76,848 68,821 Total revenues – 168 1 – – 1,369 – 2,901 – 1,838 – 1,761 – 2,366 – 1,186 7,819 18,537 7,780 7,383 Segment result 14,944 Capital expenditure on non-current assets 7,416 Depreciation and amortisation on non-current assets Financial Services Other Entities Reconciliation to Group figures Group 31. 12. 2012 31. 12. 2011 31. 12. 2012 31. 12. 2011 31. 12. 2012 31. 12. 2011 31. 12. 2012 31. 12. 2011 7,631 7,169 50,685 47,875 62,265 57,818 131,850 123,429 Segment assets 148 The segment result of the Motorcycles segment was negatively impacted by an impairment loss of € 13 mil- lion (2011: € – million) on property, plant and equip- ment in accordance with IFRS 5 and by an expense of € 57 million (2011: € – million) for an allocation to pro- visions at 31 December 2012. Interest and similar income of the Financial Services segment is included in the segment result and totalled € 5 million in both 2011 and 2012. Interest and similar expenses of the Financial Services segment amounted to € 9 million (2011: € 15 million). The Other Entities segment result includes interest and similar income amounting to € 1,792 million (2011: € 1,739 million) and interest and similar expenses amounting to € 1,758 mil- lion (2011: € 1,841 million). The result from equity accounted investments did not have any impact on the segment result of the Other in € million Reconciliation of segment result Total for reportable segments Financial result of Automotive 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 Entities segment in 2012 (2011: negative impact of € 2 million). The segment result is stated after an im- pairment loss on other investments amounting to € 7 million (2011: € 8 million). Segment assets of the Other Entities segment at 31 De- cember 2012 do not contain any investments accounted for using the equity method (2011: € 21 million). The information disclosed for capital expenditure and depreciation and amortisation relates to non-current property, plant and equipment, intangible assets and leased products. Segment figures can be reconciled to the corresponding Group figures as follows: 2012 2011 9,188 – 432 – 937 7,819 21,438 – 2,901 18,537 9,618 – 1,838 7,780 9,144 – 658 – 1,103 7,383 17,310 – 2,366 14,944 8,602 – 1,186 7,416 in € million 31. 12. 2012 31. 12. 2011 Reconciliation of segment assets Total for reportable segments Non-operating assets – Other Entities segment Operating liabilities – Financial Services segment Interest-bearing assets – Automotive and Motorcycles segments Liabilities of Automotive and Motorcycles segments not subject to interest Elimination of inter-segment items Total Group assets 69,585 6,097 81,066 36,323 22,051 – 83,272 131,850 65,611 6,045 75,540 32,584 21,226 – 77,577 123,429 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 149 GROUP FINANCIAL STATEMENTS In the case of information by geographical region, ex- ternal sales are based on the location of the customer’s registered office. Revenues with major customers were not material overall. The information disclosed for non- current assets relates to property, plant and equip- ment, intangible assets and leased products. The reconciling item disclosed for non-current assets re- lates to leased products. External revenues Non-current assets 2012 2011 2012 2011 12,186 13,447 14,448 22,971 2,824 10,972 – 12,859 11,516 11,591 20,956 2,771 9,128 – 76,848 68,821 22,954 11,195 15 9,887 1,548 1,137 – 3,720 43,016 21,519 10,073 10 9,066 1,345 961 – 2,939 40,035 Information by region in € million Germany USA China Rest of Europe Rest of the Americas Other Eliminations Group Munich, 19 February 2013 Bayerische Motoren Werke Aktiengesellschaft The Board of Management Dr.-Ing. Dr.-Ing. E. h. Norbert Reithofer Frank-Peter Arndt Milagros Caiña Carreiro-Andree Dr.-Ing. Herbert Diess Dr.-Ing. Klaus Draeger Dr. Friedrich Eichiner Harald Krüger Dr. Ian Robertson (HonDSc) 150 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 development and performance of the business and the position of the Group, together with a description of the principal opportunities and risks associated with the expected development of the Group.” Munich, 19 February 2013 Bayerische Motoren Werke Aktiengesellschaft The Board of Management Dr.-Ing. Dr.-Ing. E. h. Norbert Reithofer Frank-Peter Arndt Milagros Caiña Carreiro-Andree Dr.-Ing. Herbert Diess Dr.-Ing. Klaus Draeger Dr. Friedrich Eichiner Harald Krüger Dr. Ian Robertson (HonDSc) 78 78 78 80 82 84 86 GROUP FINANCIAL STATEMENTS Income Statements Statement of Comprehensive Income Balance Sheets Cash Flow Statements Group Statement of Changes in Equity Notes 86 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 100 107 108 129 145 151 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 for group and statement of comprehensive income for group, the balance sheet for group, cash flow statement for group, group statement of changes in equity and the notes to the group financial statements and its report on the position of the Company and the Group for the business year from 1 January to 31 December 2012. The prepara- tion of the consolidated finan cial statements and Group Management Report in accordance with IFRSs, as adopted by the EU, and the additional requirements of German commercial law pur suant to § 315 a (1) HGB (Handelsgesetzbuch “German Commercial Code”) 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. 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 (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial state- ments in accordance with the applicable financial report- ing framework and in the Group Management Report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possi- ble misstatements are taken into account in the deter- mination of audit procedures. The effectiveness of the accounting-related internal control system and the evi- dence supporting the disclosures in the consolidated financial statements and in the Group Management Report are examined primarily on a test basis with in the framework of the audit. The audit also includes assess- ing the annual financial statements of those entities included in consolidation, the determination of entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the management, as well as evaluating the overall presentation of the con solidated finan cial state- ments and Group Management Report. We believe that our audit provides a reasonable basis for our opinion. Our audit has not led to any reservations. In our opinion, based on the findings of our audit, the consolidated financial statements comply with IFRSs, as adopted by the EU, the additional requirements of German commercial law pursuant to § 315 a (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in ac- cordance with these requirements. The Group Manage- ment Report is consistent with the consolidated finan- cial 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, 1 March 2013 KPMG AG Wirtschaftsprüfungsgesellschaft Prof. Dr. Schindler Wirtschaftsprüfer Huber-Straßer Wirtschaftsprüferin 152 STATEMENT ON CORPORATE GOVERNANCE Good corporate governance – acting in accordance with the principles of responsible management aimed at in- creasing the value of the business on a sustainable basis – is an essential requirement for the BMW Group em- bracing all areas of the business. Corporate culture within the BMW Group is founded on transparent reporting and internal communication, a policy of corporate governance aimed at the interests of stakeholders, fair and open dealings between the Board of Management, the Supervisory 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) and has its registered office in Munich, Germany. It has three representative bodies: the Annual General Meeting, the Supervisory Board and the Board of Management. The duties and authori- ties 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 also provides an opportunity to shareholders to engage in dialogue with the Board of Management and the Supervisory Board. 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, speci- fied capital measures and elects the shareholders’ re- presentatives to the Supervisory Board. The Board of Management manages the enterprise under its own responsibility. Within this framework, it is monitored and advised by the Supervisory Board. The Supervisory Board appoints the members of the Board of Manage- ment 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 signifi- cant matters regularly, promptly and comprehensively, following the principles of conscientious and faithful accountability and in accordance with prevailing law and the reporting duties allocated to it by the Supervisory Board. The Board of Management requires the approval of the Supervisory Board for certain major transactions. The Supervisory Board is not, however, authorised 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 representatives elected at the Annual General Meeting (Supervisory Board members representing equity or shareholders) and ten employees elected in accordance with the provisions of the Co-determination Act (Super- visory Board members representing employees). The ten Supervisory Board members representing employees comprise seven Company employees, including one executive staff representative, and three members elected following nomination by unions. The close interaction between the Board of Management and the Supervisory Board in the interests of the enter- prise as described above is also known as a “two-tier board structure”. Declaration of Compliance and the BMW Group Corporate Governance Code Management and supervisory boards of companies listed in Germany are required by law (§ 161 German Stock Corporation Act) to report once a year whether the offi- cially published and relevant recommendations issued by the “German Government Corporate Governance Code Commission”, as valid at the date of the declara- tion, have been, and are being, complied with. Com- panies 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. The full text of the declaration, together with explanatory com- ments, is shown on the following page of this Annual Report. The Board of Management and the Supervisory Board approved the Group’s own Corporate Governance Code based on the GCGC in previous years in order to pro- vide interested parties with a comprehensive and stand- alone document covering the corporate governance practices applied by the BMW Group. A coordinator responsible for all corporate governance issues reports directly and on a regular basis to the Board of Manage- ment 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 items “Corpo- rate Facts” and “Corporate Governance”. 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 153 STATEMENT ON CORPORATE GOVERNANCE Declaration of the Board of Management and of the Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft with respect to the recommendations of the “Government Commission 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 (“BMW AG”) declare the following regarding the recommendations of the “Government Commission on the German Corporate Governance Code”: Since issuance of the last Declaration in December 2011, BMW AG has complied with all of the recommenda- tions published officially on 2 July 2010 in the electronic Federal Gazette (Code version dated 26 May 2010). BMW AG will comply with all of the recommendations published officially on 15 June 2012 in the electronic Federal Gazette (Code version dated 15 May 2012), with the exception of the amended recommendation contained in section 5.4.6 paragraph 2 sentence 2 (“If members of the Supervisory Board are promised performance-related compensation, it shall be oriented toward sustainable growth of the enterprise.”). The Articles of Incorporation of BMW AG provide for the members of the Supervisory Board to receive, in addi- tion to a fixed compensation component, a performance- related compensation component which is subject to a cap and which is based on earnings per share of common stock in the past financial year. This regulation in the Articles of Incorporation, which was resolved by the share- holders at the Annual General Meeting in 2008, complied with the previous recommendation of the Government Commission contained in section 5.4.6 paragraph 2 sen- tence 1 (“Members of the Supervisory Board shall receive fixed as well as performance-related compensation.”, Code version dated 26 May 2010). The Board of Management and Supervisory Board will sub- mit a proposal at the Annual General Meeting 2013 to amend the Articles of Incorporation with a view to changing the basis for Supervisory Board compensation. In line with the Code’s revised recommendation on supervisory board compensation, the performance-related compensa- tion component will in future take more than one financial year into account and will be oriented toward sustainable growth of the enterprise. Munich, December 2012 Bayerische Motoren Werke Aktiengesellschaft On behalf of the Supervisory Board On behalf of the Board of Management Prof. Dr.-Ing. Dr. h. c. Dr.-Ing. E. h. Joachim Milberg Chairman Dr.-Ing. Dr.-Ing. E. h. Norbert Reithofer Chairman 154 Members of the Board of Management Dr.-Ing. Dr.-Ing. E. h. Norbert Reithofer (born 1956) Chairman Dr. Friedrich Eichiner (born 1955) Finance Mandates Henkel AG & Co. KGaA Mandates Allianz Deutschland AG BMW Brilliance Automotive Ltd. (Deputy Chairman) Frank-Peter Arndt (born 1956) Production Mandates BMW Motoren GmbH (Chairman) TÜV Süd AG BMW (South Africa) (Pty) Ltd. (Chairman) Leipziger Messe GmbH Milagros Caiña Carreiro-Andree (born 1962) (since 01. 07. 2012) Human Resources, Industrial Relations Director Dr.-Ing. Herbert Diess (born 1958) Purchasing and Supplier Network (until 31. 03. 2012) Development (since 01. 04. 2012) Dr.-Ing. Klaus Draeger (born 1956) Development (until 31. 03. 2012) Purchasing and Supplier Network (since 01. 04. 2012) Harald Krüger (born 1965) Human Resources, Industrial Relations Director (until 30. 06. 2012) MINI, Motorcycles, Rolls-Royce, After Sales BMW Group (since 01. 04. 2012) Mandates Rolls-Royce Motor Cars Limited (Chairman) (since 01. 05. 2012) Dr. Ian Robertson (HonDSc) (born 1958) Sales and Marketing (until 31. 03. 2012) Sales and Marketing BMW, Sales Channels BMW Group (since 01. 04. 2012) Mandates Rolls-Royce Motor Cars Limited (Chairman) (until 30. 04. 2012) Dyson James Group Limited (since 20. 07. 2012) 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report General Counsel: Dr. Dieter Löchelt Membership of other statutory supervisory boards Membership of equivalent national or foreign boards of business enterprises  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 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 Mandates Bertelsmann Management SE (since 04. 05. 2012) Bertelsmann SE & Co. KGaA 1. FC Köln GmbH & Co. KGaA (Chairman) 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) 155 STATEMENT ON CORPORATE GOVERNANCE 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 Management SE (since 04. 05. 2012) (Deputy Chairman since 11. 05. 2012) Bertelsmann SE & Co. KGaA (Deputy Chairman) FESTO Aktiengesellschaft (Chairman) SAP AG (until 23. 05. 2012) Deere & Company FESTO Management Aktiengesellschaft (Chairman) Manfred Schoch1 (born 1955) Deputy Chairman Chairman of the European and General Works Council Industrial Engineer Member of the Presiding Board, Personnel Committee, Audit Committee and Mediation Committee Stefan Quandt (born 1966) Deputy Chairman Entrepreneur Member of the Presiding Board, Personnel Committee, Audit Committee, Nomination Committee and Mediation Committee Mandates DELTON AG (Chairman) AQTON SE (Chairman) DataCard Corp. 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 156 Franz Haniel (born 1955) Engineer, MBA Mandates DELTON AG (Deputy Chairman) Franz Haniel & Cie. GmbH (Chairman) Heraeus Holding GmbH Metro AG (Chairman) secunet Security Networks AG Giesecke & Devrient GmbH TBG Limited Prof. Dr. rer. nat. Dr. h. c. 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) President of acatech – Deutsche Akademie der Technikwissenschaften e. V. Mandates Deutsche Bank AG Deutsche Post AG Franz Haniel & Cie GmbH (since 27. 11. 2012) Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München Nokia Corporation Wipro Limited Susanne Klatten (born 1962) Entrepreneur Member of the Nomination Committee Mandates ALTANA AG (Deputy Chairman) SGL Carbon SE (Deputy Chairman since 16. 08. 2012) 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 Nestlé Deutschland AG (since 25. 05. 2012) Robert Bosch GmbH (since 30. 03. 2012) Dr. h. c. Robert W. Lane (born 1949) Former Chairman and Chief Executive Officer of Deere & Company Mandates General Electric Company Northern Trust Corporation Verizon Communications Inc. Horst Lischka2 (born 1963) General Representative of IG Metall Munich Mandates KraussMaffei GmbH MAN Truck & Bus AG Willibald Löw1 (born 1956) Chairman of the Works Council, Landshut Wolfgang Mayrhuber (born 1947) Former Chairman of the Board of Management of Deutsche Lufthansa Aktiengesellschaft Mandates Infineon Technologies AG (Chairman) Lufthansa Technik Aktiengesellschaft Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München Austrian Airlines AG HEICO Corporation UBS AG 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 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 157 STATEMENT ON CORPORATE GOVERNANCE Dr. Dominique Mohabeer1 (born 1963) (since 01. 06. 2012) Member of the Works Council, Munich Franz Oberländer1 (born 1952) (until 31. 05. 2012) Member of the Works Council, Munich Anton Ruf3 (born 1953) (until 31. 10. 2012) Head of Development “Small Model Series” Maria Schmidt1 (born 1954) Member of the Works Council, Dingolfing Jürgen Wechsler 2 (born 1955) Regional Head of IG Metall Bavaria Mandates Schaeffler AG (Deputy Chairman) Werner Zierer1 (born 1959) Chairman of the Works Council, Regensburg Oliver Zipse3 (born 1964) (since 01. 11. 2012) Head of Brand and Product Strategies 158 Composition and work procedures of the Board of Management of BMW AG and its committees 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 pursuit of this aim. The Board of Management determines the strategic orientation of the enterprise, agrees upon it with the Supervisory Board and ensures its implementation. The Board of Management is responsible for ensuring that all provisions of law and internal regulations are complied with. Further details about compliance within the BMW Group can be found in the “Corporate Governance” section of the Annual Report. The Board of Management is also responsible for ensuring that appropriate risk management and risk controlling sys- tems 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 ad- vantage of business opportunities intended for the enterprise. They may only undertake ancillary activities, in particular supervisory board mandates outside the BMW Group, with the approval of the Supervisory Board’s Personnel Committee. 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 conditions 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 in meetings of the Board of Manage- ment, the Sustainability Board, the Operations Com- mittee and the Committee for Executive Management Matters. At its meetings, the Board of Management defines the overall framework for business strategies and the use of resources, takes decisions regarding the implementation of strategies and deals with issues of particular importance to the BMW Group. The full board also takes decisions at a basic policy level relating to the Group’s automobile product strategies and product projects inasmuch as these are relevant for all brands. The Board of Management and its committees may, as required and depending on the subject matters being discussed, invite non-voting advisers to participate at meetings. Terms of reference approved by the Board of Manage- ment contain a planned allocation of divisional respon- sibilities 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, members of the Board of Management man- age the relevant portfolio of duties under their responsi- bility, 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 information regarding major transactions and developments 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 responsi- bility 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, de- cisions 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 sub- sequently confirmed in writing. Except in urgent cases, matters relating to a division for which the responsible board member 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. In the event that the Chairman of the Board of Manage- ment is not present or is unable to attend a meeting, the 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 159 STATEMENT ON CORPORATE GOVERNANCE Member of the Board responsible for Finances will represent 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 binding for all employees. The rules relating to meetings and resolutions taken 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 minutes of committee meetings. Committee matters are dealt with in full board meetings if the committee con- siders 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 meetings of the Operations Committee (generally held three times a month), decisions are reached in connec- tion with automobile product projects, based on the strategic orientation and decision framework stipulated at Board of Management meetings. The Operations Committee comprises the Board of Management mem- ber responsible for Development (who also chairs the meetings), together with the board members responsible for the following areas: Purchases and Supplier Network; Production; Sales and Marketing BMW, Sales Channels BMW Group; and MINI, Motorcycles, Rolls-Royce, Aftersales BMW Group. If the committee chairman is not present or unable to attend a meeting, the Member of the Board responsible for Production represents him. Resolutions taken at meetings of the Operations 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 Sustain- ability and Environmental Protection participate in these meetings in an advisory capacity. The Board’s Committee for Executive Management Matters deals with enterprise-wide issues affecting ex- ecutive managers of the BMW Group, either in their entirety or individually (such as the executive manage- ment structure, potential candidates for executive management, nominations for or promotions to senior management positions). This committee has, on the one hand, an advisory and preparatory role (e. g. making suggestions for promotions to the two remu- neration groups below board level and preparing decisions to be taken at board meetings with regard to human resources principles with the emphasis on executive management issues) and a decision-taking function on the other (e. g. deciding on appointments to senior management positions and promotions to higher remuneration groups or the wording of human resources principles decided on by the full board). The Committee has two members who are entitled to vote at meetings, namely the Chairman of the Board of Management (who also chairs the meetings) and the board member responsible for Human Resources. The Head of Human Resources, Personnel Network and Human Resources International and the Head of Human Resources Senior Management also partici- pate in an advisory function. At the request of the Chairman, resolutions 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 immediately. 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 regular contact with the Chairman of the Supervisory Board and keeps him informed of all important mat- ters. 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 Manage- ment submits 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 Supervisory Board in good time before the relevant meeting. Regarding transactions of fundamental im- portance, the Supervisory Board has stipulated specific transactions which require the approval of the Super- visory Board. Whenever necessary, the Chairman of the Board of Management 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 fundamen- tal principle followed when reporting to the Supervi- sory Board is that the latter should be kept informed regularly, without delay and comprehensively of all significant matters relating to planning, business per- formance, risk exposures, risk management and com- pliance, as well as any major variances between actual and budgeted figures. 160 Composition and work procedures of the Supervisory Board of BMW AG and its committees 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 fundamen- tal importance for the BMW Group. The Supervisory Board appoints the members of the Board of Manage- ment and decides upon the level of compensation they are to receive. The Supervisory Board can revoke appointments for important reasons. Together with the Personnel Committee and the Board of Management, the Supervisory Board ensures that long-term successor planning is in place. In their assess- ment of candidates for a post on the Board of Manage- ment, the underlying criteria applied by the Supervisory Board for determining the suitability of candidates are their expertise in the relevant area of board responsi- bility, outstanding leadership qualities, a proven track record and an understanding of the BMW Group’s busi- ness. The Supervisory Board takes diversity into ac- count when assessing, on balance, which individual will best complement the Board of Management as a repre- sentative body of the Company. “Diversity” in the con- text of the decision process is understood by the Super- visory Board to encompass different, complementary individual profiles, work and life experiences, at both a national and international level, as well as appropriate representation of both genders. The Supervisory Board strives to ensure appropriate female representation on the Board of Management. The Board of Management reports accordingly 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 changes in, management positions held by women, in particular below senior executive level and at uppermost management level. When actu- ally selecting an individual for a post on the Board of Management, the Supervisory Board decides in the best interests of the Company and after taking account of all relevant circumstances. The Supervisory Board holds a minimum of two meet- ings in each of the first and second six-month periods of the calendar year. Normally, five plenary meetings are held per calendar year, as was the case in 2012. One meeting each year is planned to cover a number of days and is used, among other things, to enable an in-depth exchange on strategic and technological matters. The main emphases of meetings in 2012 are described in the Report of the Supervisory Board. As a general rule, the shareholder representatives and employee representa- tives prepare the Supervisory Board meetings sepa- rately 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 meet- ings, handles the external affairs of the Supervisory Board and represents 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 members participate in the vote on a particular resolu- tion. A resolution relating to an agenda item not in- cluded in the invitation is only valid if none of the mem- bers of the Supervisory Board who were not 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 Super- visory Board by simple majority. The German Co-deter- mination Act contains specific requirements with regard to majority voting and technical procedures, particu- larly with regard 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 Chairman of the Supervisory Board has two votes in a renewed vote, even if this also results in a tied vote. In practice, resolutions are taken by the Supervisory Board and its committees at the relevant meetings. A Supervisory Board member who is not present at a meeting can have his / her vote cast by another Super- visory Board member 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 Supervisory Board. The Chairman of the Supervisory Board can also accept the retrospec- tive 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 elec- tronic 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 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 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 161 STATEMENT ON CORPORATE GOVERNANCE 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 cooperate when a transaction or event triggers reporting requirements or is subject to the approval of the Supervisory Board. New Supervisory Board mem- bers are also given the opportunity to become better ac- quainted with the business outside of Supervisory Board meetings by means of an information programme. All members of the Supervisory Board of BMW AG are required 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 total of three mandates on non-BMW Group super- visory boards of listed companies or in other bodies with comparable 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 questionnaire previously devised by and distributed to the members of the Supervisory Board. The Chairman of the Supervisory Board is open to suggestions for improvement 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 in- terests in their decisions or take advantage of business opportunities intended for the benefit of the enterprise. Members of the Supervisory Board are obliged to in- form the full Supervisory Board of any conflicts of inter- est which may result from a consultant or directorship function with clients, suppliers, lenders or other busi- ness 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 which are 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 (see section “Composition targets for the Supervisory Board”). The members of the Supervisory Board are responsible for undertaking appropriate basic and further training measures such as that 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 advise the Board of Management independently is also assisted by the fact that the Supervisory Board is required, based on its own assessment, to have an appropriate 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 Supervisory Board has set up a Presiding Board and four committees, namely the Personnel Committee, the Audit Committee, the Nomination Committee and the Mediation Committee (see Overview of Supervisory Board committees, meetings). Such committees serve to raise the efficiency of the Supervisory Board’s work and facilitate the handling of complex issues. The estab- lishment and function of a mediation committee is pre- scribed 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 (see Overview of Supervisory Board committees, meetings for details of the number of meetings held in 2012). 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 162 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 committees may call on experts and other suitably informed persons to attend meetings to give advice on specific matters. The Supervisory Board, the Presiding Board and the committees also meet without the Board of Management if necessary. BMW AG ensures that the Supervisory Board and its committees are sufficiently equipped to carry out their duties. This includes the services provided by a cen- tralised secretariat to support the chairmen in coordi- nating 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, preparing the annual Declaration of Compliance with the German Corporate Governance Code and the Super- visory 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. The Personnel Committee also prepares the decisions of the Super- visory Board with regard to the Board of Management’s compensation and the Supervisory Board’s regular 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 Management. In specified cases, the Personnel Com- mittee also has the authority to give the necessary ap- proval for a particular transaction (instead of the Super- visory Board). This includes loans to members of the Board of Management or Supervisory Board, specified contracts with members of the Supervisory Board (in each case taking account of the consequences of related party transactions), as well as other activities of mem- bers of the Board of Management, including the accept- ance of non-BMW Group supervisory board mandates. The Audit Committee deals in particular with issues relating to the supervision of the financial reporting process, the effectiveness of the internal control system, the risk management system, internal audit arrange- ments and compliance. It also monitors the external audit, auditor independence and any additional work performed by the external auditor. It prepares the pro- posal for the election of the external auditor at the An- nual General Meeting, makes a recommendation re- garding the election of the external auditor, issues the audit engagement letter and agrees on points of em- phasis 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 decides on the Supervisory Board’s agreement to use the Authorised Capital 2009 (Article 4 no. 5 of the Articles of Incorporation) and on amendments to the Articles of Incorporation which only affect its wording. In line with the recommendations of the German Cor- porate Governance Code, the Chairman of the Audit Committee is independent and not a former Chairman of the Board of Management and has specific know-how and experience in applying financial reporting stand- ards and internal control procedures. 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 Super- visory Board (as shareholder representatives) and for inclusion in the Supervisory Board’s proposals for elec- tion at the Annual General Meeting. In line with the recommendations of the German Corporate Governance Code, the Nomination Committee comprises only share- holder representatives. 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 Manage- ment has not been carried by the necessary two-thirds majority of members’ votes. In accordance with statu- tory requirements, the Mediation Committee comprises the Chairman and the Deputy Chairman of the Super- visory Board and one member each selected by share- holder representatives and employee representatives. 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 163 STATEMENT ON CORPORATE GOVERNANCE Overview of Supervisory Board Committees, Meetings Principal duties, basis for activities Presiding Board – preparation of Supervisory Board meetings to the extent that the subject mat- ter 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 appoint- ment 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 conjunc- tion with the resolutions taken by the Supervisory Board regarding the com- pensation 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 Manage ment 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 Supervisory 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 2012 Average attendance 97 % 4 plus 2 telephone conferences 4 95 % 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 97 % 3 plus 3 telephone conferences – preparation of proposals for election of external auditor at Annual General Meet- ing, engagement of external auditor and compliance of audit engagement, de- termination of areas of audit emphasis and fee agreements with external auditor – preparation of Supervisory Board’s resolution on Company and Group Finan- cial 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 representa- tives on the Supervisory Board, to be put forward for inclusion in the Super- visory Board’s proposals for election at the Annual General Meeting – establishment in accordance with the recommendation contained in the German Corporate Governance Code, activities based on terms of reference 1 100 % Joachim Milberg1 Susanne Klatten Karl-Ludwig Kley Stefan Quandt (In line with the recommendations of the German Corporate Governance Code, the Nomination Committee comprises only shareholder representatives.) 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 164 Composition objectives 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, the Supervisory Board has formally specified the following concrete objectives regarding its composition, taking into account the recommenda- tions contained in the German Corporate Governance Code: – At least four of the members of the Supervisory Board should have international experience or spe- cialist knowledge with regard to one or more of the non-German markets important to the Company. – If possible, the Supervisory Board should include seven members who have acquired in-depth knowl- edge 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 management 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 research who have gained experience in areas relevant to the BMW Group, e. g. chemistry, energy supply, information technology, or who have acquired specialist knowledge in subjects relevant for the fu- ture 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 diversity. When preparing nominations, the extent to which the work of the Supervisory Board would benefit from diversified professional and personal backgrounds (including international aspects) and from an appropriate representation of both genders should also be taken into account. In view of the pro- portion of women in the workforce at 31 December 2012 (BMW AG: 14.2 %; BMW Group 17.3 %), the Supervisory Board is of the opinion that a propor- tion of three female members out of a total of twenty members (15 %) is satisfactory as far as gender mix is concerned, but that an increase to at least four fe- male members (20 %) would be desirable. The Super- visory Board therefore considers it appropriate that opportunities available in conjunction with selec- tion pro cedures through to the end of the ordinary Annual General Meeting in 2015 should be used to maintain the current proportion of 20 % female repre- sentation. The Supervisory Board believes it is the joint responsibility of all persons and groupings participating in the nomination and election process to ensure that the Supervisory Board comprises an appropriate number of qualified women. – At least twelve of the twenty members of the Super- visory Board should be independent members within the meaning of section 5.4.2 of the German Corpo- rate Governance Code in the version dated 15 June 2012, including at least six members representing the Company’s shareholders. Two independent members in the Supervisory Board should have expert knowl- edge of accounting or auditing. – No persons carrying out directorship functions or ad- visory tasks for important competitors of the BMW Group may belong to the Supervisory Board. In com- pliance with prevailing legislation, the members of the Supervisory Board will strive to ensure that no persons will be nominated for election with whom serious conflicts of interest could arise (other than temporarily) due to other activities and functions car- ried out by them outside the BMW Group; this in- cludes in particular 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 exceptional cases, members may be allowed to remain on the Board up until the end of the Annual General Meeting following their 73rd birthday in order to fulfil legal requirements or to facilitate smooth succes- sion in the case of persons with key roles or specialist qualifications. The time schedule set by the Supervisory Board for achieving the above-mentioned composition targets is the Annual General Meeting in 2015, by which time elections will have taken place for all positions on the Supervisory Board. Future proposals for nomination made by the Super visory Board at the Annual General Meeting – insofar as they apply to shareholder Super- visory 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 An- nual General Meeting. The Annual General Meeting is not bound by nominations for election proposed by the Supervisory Board. The freedom of employees to vote for the employee members of the Supervisory Board is also protected. Under the procedural rules stipulated by the German Co- Determination Act, the Supervisory Board does not have the right to nominate employee representatives for election. The objectives which the Supervisory Board has set itself with regard to its compo- sition are therefore not intended to be instructions to 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 165 STATEMENT ON CORPORATE GOVERNANCE those entitled to vote or restrictions on their freedom to vote. More to the point, they reflect the compo- sition which the current Supervisory Board believes 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 Super- visory Board. In the Supervisory Board’s opinion, its own composition at 31 December 2012 fulfils the composition objectives detailed above. Brief curricula vitae of the current mem- bers of the Supervisory Board can be found on the Com- pany’s website at www.bmwgroup.com. 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 results of all our activities must be valued in terms of the benefits they will generate for our customers. Peak performance We aim to be the best – a challenge to which all of us must rise. Each and every employee must be prepared to deliver peak performance. We strive to be among the elite, but without being arrogant. It is the Company and its products that count – and nothing else. Responsibility Every BMW Group employee has the personal responsi- bility for the Company’s success. When working in a team, each employee must assume personal responsibility for his or her actions. We are fully aware that we are working to achieve the Company’s goals. For this reason, we work together in the best interests of the Company. Effectiveness The only results that count for the Company are those which have a sustainable impact. In assessing leader- ship, 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 there- fore see change as an opportunity – adaptability is essen- tial to be able to capitalise on it. Frankness As we strive to find the best solution, it is each em- ployee’s duty to express any opposing opinions they may have. The solutions we agree upon will then be consistently implemented by all those involved. 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 strong- est factor in our success, which means our personnel decisions will be among the most important we ever make. Leading by example Every manager must lead by example. Sustainability In our view, sustainability constitutes a lasting con- tribution 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.bmw- group.com under the menu items “Responsibility” and “Employees”. 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 employees and for ensuring compliance with inter- national social standards are based on various inter- nationally 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. De- tails of the contents of these guidelines and other rele- vant information can be found at www.oecd.org and www.iccwbo.org. The Board of Management signed the United Nations Global Compact in 2001 and, in 2005, 166 together with employee representatives, issued a “Joint Declaration on Human Rights and Working Conditions in the BMW Group”. This Joint Declaration was recon- firmed in 2010. With the signature of these documents, we have given our commitment to abide worldwide by internationally recognised human rights and with the fundamental working standards of the International Labour Organization (ILO). The most important of these are freedom of employment, the prohibition of discrimi- nation, the freedom of association and the right to col- lective bargaining, 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 infor- mation 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 “Respon- sibility” (Services / downloads / topics: “Employees and Society”). Further information regarding employees is provided in the “Personnel” section of the Group Management Report. It goes without saying that the BMW Group abides by these fundamental principles and rights worldwide. Employees have therefore been sensitised to this issue since 2005 by means of regular internal communica- tions. Further training was provided again in 2012 on recent developments in this area. A dedicated helpline – the “Human Rights Contact” – is available to employees wishing to raise queries or complaints relating to hu- man rights issues. The BMW Group also conducted its own “Human Rights Impact Assessment” in 2012 with a view to ensuring that human rights are respected throughout the organisation. Activities can only be sustainable, however, if they en- compass 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 and strives con- tinually to improve the efficiency of processes, measures and activities. Sustainability criteria play an integral part in all aspects of our purchasing terms and conditions as well as for the purposes of evaluating suppliers. Potential suppliers must submit a full disclosure when completing BMW’s modularly structured sustainability 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 com- ply with set standards. Purchasing terms and condi- tions and other information relating to purchasing can be found in the publicly available section of the BMW Group Partner Portal at https://b2b.bmw.com. We foster close relations with our suppliers, providing encouragement and practical assistance to those interested in wishing to make progress in the area of sustainability. 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. In order to ensure to protect itself systematically against compliance-related and reputational risks, the Board of Management created a Compliance Committee back in 2007, mandated to establish a worldwide Compliance Organisation through- out the BMW Group. The BMW Group Compliance Committee comprises the heads of the following departments: Legal Affairs, Corporate and Governmental Affairs, Corporate Audit, Organisational Development and Corporate Human Resources. It manages and monitors activities necessary to avoid non-compliance with the law (Legal Compli- ance). These activities include training, information and communication measures, compliance controls and fol- lowing up cases of non-compliance. The BMW Group Compliance Committee reports reg- ularly to the Board of Management on all compliance- related issues, including the progress made in develop- ing the BMW Group Compliance Organisation, details of investigations performed, known infringements of the law, sanctions imposed and corrective / preventa- tive measures implemented. The decisions taken by the BMW Group Compliance Committee are drafted in concept, and implemented operationally, by the BMW Group Compliance Committee Office. The BMW Group Compliance Committee Office is allocated in organisa- tional terms to the Chairman of the Board of Manage- ment. 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 167 STATEMENT ON CORPORATE GOVERNANCE The Chairman of the BMW Group Compliance Com- mittee 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 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. Measures to improve compliance systems are initiated on the ba- sis of identified requirements. A coordinated set of instruments and measures are em- ployed to ensure that the BMW Group, its representative bodies, its managers and its staff act in a lawful manner. Particular emphasis has been placed on compliance with antitrust legislation and the avoidance of corrup- tion risks. Compliance measures are supplemented by a whole range of internal policies, guidelines and in- structions, which in part reflect applicable legislation. The BMW Group Policy “Corruption Prevention” de- serves particular mention: this document sets out the BMW Group Compliance Organisation Supervisory Board BMW AG Board of Management BMW AG BMW Group Compliance Committee BMW Group Compliance Committee Office Compliance Operations Network of all BMW Group Compliance Responsibles Annual Report Annual Report Annual Compliance Reporting Run Compliance Risk Analysis Legal Compliance Code and Regulations Compliance Investigations and Controls Compliance Reporting Compliance Instruments and Measures of the BMW Group Compliance Communication Compliance Trainings Compliance Contact and SpeakUP Line Compliance Governance and Processes framework for dealing with gifts, hospitalities and other benefits in compliance with the law and defines appro- priate value limits and approval procedures for specified actions. Compliance measures are determined and prioritised on the basis of a group-wide compliance risk assessment covering 250 business units and functions worldwide within the BMW Group. The assessment of compliance risks is updated annually. Measures are realised with the aid of a regionally structured compliance manage- ment team covering all parts of the BMW Group and overseeing more than 200 Compliance Responsibles. The various elements of the BMW Group Compliance Organisation are shown in the diagram on the left and are applicable for all BMW Group entities worldwide. To the extent that additional compliance requirements apply to individual countries or specific lines of busi- ness, these are covered by supplementary compliance measures. The BMW Group Legal Compliance Code is the corner- stone of the Group’s Compliance Organisation, spelling out the Board of Management’s acknowledgement of the fact that compliance is a joint responsibility (“Tone from the Top”). This document, which explains the significance of legal compliance and provides an over- view of the various areas relevant for the BMW Group, is available both as a printed brochure and to down- load in German and English. In addition, translations into eleven other languages are available (French, Italian, Japanese, Korean, Mandarin, Dutch, Polish, Portuguese, Russian, Spanish and Thai). Managers in particular bear a high degree of responsi- bility and must set a good example in the process of preventing infringements. Managers throughout the BMW Group accept this principle by signing a written declaration, in which they also undertake to inform staff working for them of the content and significance of the Legal Compliance Code and to make staff aware of legal risks. Managers must, at regular intervals 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 16,500 managers and staff have received training worldwide in essential compliance matters since the introduction of the BMW Group Compliance Organisation. The training material is available on an internet-based training platform in German and English and includes a final test. Successful participation in 168 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 this way, the BMW Group ensures full training coverage for its managers in com- pliance matters. In addition to this basic training, in-depth training is also provided to certain groups of staff on specific compliance issues. This includes a training programme (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, purchasing or development. Compliance with and the implementation of the Legal Compliance Code are audited regularly by Corporate Audit and subjected to control checks by Corporate Security and the BMW Group Compliance Committee Office. As part of its regular activities, Corporate Audit carries out on-site audits. The BMW Group Compliance Committee also engages Corporate Audit to perform compliance-specific tests. In addition, sample checks (BMW Group Compliance Spot Checks) specifically de- signed to identify potential risks of corruption are car- ried out. Compliance control activities are coordinated by the BMW Group Panel Compliance Controls estab- lished in 2011. Any necessary follow-up measures are organised by the BMW Group Compliance Committee Office. 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 particular Legal Affairs, Corporate Audit and Corporate Security. As a further point of contact, the BMW Group Com pliance Contact has also been set up both for em- ployees and non-employees to answer any questions that may arise regarding compliance. Employees also have the opportunity to submit informa- tion – anonymously and confidentially – via the BMW Group SpeakUP Line about possible breaches of the law within the company. The BMW Group SpeakUP Line is available in a total of 34 languages and can be reached via local free-of-charge telephone numbers in all of the countries in which BMW Group employees carry out activities. Compliance-related queries and all matters to which attention has been drawn are documented and followed up by the BMW Group Compliance Committee Office using an electronic Case Management System. If neces- sary, Corporate Audit, Corporate Security, the Works Council and Legal Affairs may be called upon to assist in the investigation process. A group-wide reporting system ensures the systematic re- cording of compliance-relevant information. Through this system, Compliance Responsibles throughout the BMW Group report on compliance-relevant issues to the Compliance Committee on a regular basis, and, if necessary, on an ad hoc basis. This includes reporting on the compliance status of the relevant entities, on identified legal risks and incidences of non-compliance as well as on corrective / preventative measures imple- mented. It is essential that employees are aware of and comply with applicable legal 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 instruments and measures used by the Compliance Organisation via various internal channels. The central means of communication is the Compliance website within the BMW Group’s intranet where employees can find compliance-related informa- tion 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 compliance-related issues. The website contains a spe- cial service area where various practical tools and aids are made available to employees, which help them deal with typical compliance-related matters. BMW Group employees also have access on the website to an elec- tronically supported approval process for invitations in connection with business partners. In the same way that the BMW Group is committed to acting responsibly and conducting business in full com- pliance with the law, it also expects no less from its business partners. During 2012 the BMW Group de- veloped a new Business Relations Compliance pro- gramme aimed at ensuring the reliability of its business relations. Relevant business partners are checked and evaluated with a view to identifying potential compli- ance risks. These procedures are particularly relevant for relations with sales partners and service providers, such as agencies and advisers / consultants. Depending on the results of the evaluation, appropriate measures – 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 169 STATEMENT ON CORPORATE GOVERNANCE such as communication measures, training and possible monitoring – are implemented to manage compliance risks. The Business Relations Compliance programme was introduced in selected pilot markets in 2012 and, over the coming years, will be rolled out successively through- out the BMW Group’s worldwide sales organisation. Compliance is also an important factor in terms of safe- guarding the future of the BMW Group’s workforce. With this in mind, 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 2009. In doing so, all parties in- volved gave a commitment to the principles contained in the BMW Group Legal Compliance Code and to trust- ful cooperation in all matters relating to compliance. Employee representatives are therefore regularly involved in the process of developing compliance systems within the BMW Group. In the interest of investor protection and in order to ensure that the BMW Group complies with regulations relating to potential insider information, as early as 1994 the Board of Management appointed an Ad-hoc Committee 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 corresponding, regularly updated list and informed of the duties arising from insider rules. 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 and any persons related to those members, are required to give notice to BMW AG and the Federal Agency for the Supervision of Financial Ser- vices of transactions with BMW stock or related finan- cial instruments if the total sum of such transactions exceeds an amount of € 5,000 during any given calendar year. BMW AG gives notice of any transaction reported to it on its website at www.bmwgroup.com/ir and in its Annual Document pursuant to § 10 (1) of the German Securities Prospectus Act. No securities transactions pursuant to § 15 a WpHG were notified to the Company during the 2012 financial year. The acquisition of finan- cial instruments based on employment contracts or as a compensation component is excepted from the report- ing requirement pursuant to § 15 a WpHG. 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 27.63 % of the Company’s shares of common and preferred stock (2011: 27.65 %), of which 16.08 % (2011: 16.09 %) relates to Stefan Quandt, Bad Homburg v. d. H. and 11.55 % (2011: 11.56 %) to Susanne Klatten, Munich. The shareholding of the members of the Board of Management totals less than 1 % of the issued shares. Share-based remuneration schemes for employees and Board of Management members Three share-based remuneration schemes were in place at BMW AG during the year under report, namely the Employee Share Scheme (under which entitled employees of BMW AG participate in the enterprise’s success), share-based commitments to members of the Board of Management members and share-based commitments to department heads (see also page 171 of the Com- pensation Report and note 18 to the Group Financial Statements). As in the previous year, employees were able in 2012 under the terms of the Employee Share Scheme to acquire packages of between five and 20 shares of non- voting preferred stock with a discount of € 12.50 per share compared to the market price (average closing price in Xetra trading during the period from 8 Novem- ber to 14 November 2012: € 43.95). 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 employees ac- quired the shares. In total, 422,905 (2011: 408,140) shares of preferred stock were issued to employees in 2012, with 422,845 (2011: 407,960) drawn from the Authorised Capital 2009 and the remainder bought back via the stock exchange. Every year the Board of Management of BMW AG decides whether the scheme is to be contin- ued. Further information is provided in notes 18 and 33 to the Group Financial Statements. 170 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 compensation of the Supervisory Board. In addition to discussing the compensation system, the components 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 2012 is disclosed by individual and analysed into components. 1. Management Board compensation Responsibilities; approval by shareholders in 2012 The Supervisory Board is responsible for determining and regularly reviewing the Board of Management’s compensation. The Personnel Committee plays a pre- paratory role in this process. The compensation system applicable to the Board of Management was presented most recently for approval by shareholders at the Annual General Meeting on 16 May 2012 as part of a voluntary consultative process (“Say on Pay”). The compensation system was approved with a majority vote of 95.45 %. Principles of compensation The compensation system for the Board of Management at BMW AG is designed to encourage a management approach focused on sustainable development. One im- portant principle applied when designing remuneration systems at BMW is that of consistency at different levels. In other words, compensation systems for the Board of Management, senior management and employees of BMW AG should all have a similar structure and contain similar components. The Supervisory Board carries out regular checks to ensure that all Board of Management compensation components are appropriate, both indi- vidually and in total, and do not encourage the Board of Management to take inappropriate risks for the BMW Group. At the same time, the compensation model used for the Board of Management should be attractive in the context of the competitive environment for highly qualified executives. 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 account any remuneration received from Group com- panies. The principal performance criteria are the nature of the tasks allocated to each member of the Board of Management, the economic situation and the perfor- mance and future prospects of the BMW Group. The Supervisory Board sets demanding and relevant pa- rameters as the basis for variable compensation. It also takes care to ensure that variable components based on multi-year assessment criteria take account of both pos- itive and negative developments and that the package as a whole encourages a long-term approach to business performance. Targets and other parameters may not be changed retrospectively. The Supervisory Board reviews the appropriateness of the compensation system annually. The Personnel Committee also makes use of remuneration studies. The Supervisory Board reviews the appropriateness of the compensation system in horizontal terms by comparing compensation paid by DAX companies and in vertical terms by comparing board compensation with the sala- ries of the two top levels of management below board level and with the average salaries of employees. Rec- ommendations made by an independent external remu- neration expert and suggestions made by investors and analysts are also considered in the consultative process. Compensation system, compensation components The compensation of the Board of Management com- prises both fixed and variable remuneration as well as a share-based component. Retirement and surviving dependants’ benefit entitlements are also in place. Fixed compensation Fixed remuneration consists of a base salary (paid monthly) and other remuneration elements. Other re- muneration elements comprise mainly the use of com- pany and lease cars as well as the payment of insurance premiums, contributions towards security systems and an annual medical check-up. Members of the Board of Management are also entitled to purchase vehicles and other services of the BMW Group at conditions that also apply in each relevant case for employees. The basic remuneration of members of the Board of Management were set in 2011 for financial years beginning after 1 January 2012 at € 750,000 p. a. (2011: € 510,000) for a board member during the first period of office, at € 900,000 p. a. (2011: € 590,000) for a board member during the second period of office and at € 1,500,000 p. a. (2011: € 1,020,000) for the Chairman of the Board of Management. Variable remuneration The variable remuneration of Board of Management members comprises variable cash remuneration on the one hand and share-based remuneration components on the other. Variable cash remuneration, in particular bonuses Variable cash remuneration consists of a cash bonus and a share-based remuneration component equivalent 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 171 STATEMENT ON CORPORATE GOVERNANCE to 20 % of the board member’s total bonus after taxes, which the board member is required to invest in BMW AG common stock. Taxes and social insurance relating to the share-based remuneration component are also borne by the Company. In substantiated cases, the Super visory Board also has the option of paying an additional special bonus. The bonus is made up of two components, each equally weighted, namely a corporate earnings-related bonus and a personal performance-related bonus. The target bonus (100 %) of a Board of Management member, for both components of the variable compensation, totals € 1.5 million p. a. and € 1.75 million p. a. with effect from the second term of appointment. The equivalent figure for the Chairman of the Board of Management is € 3 mil- lion p. a. Upper limits for the amount of the bonus are in place for all Board of Management members (250 % of the relevant target bonus). 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 a corporate earnings-based bonus of € 0.75 million for the relevant financial year for a member of the Board of Management during the first period of office and one of € 0.875 million during the second period of office. The equivalent bonus for the Chairman of the Board of Management is € 1.5 million. The earnings factor is 1.00 in the event of a Group net profit of € 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 101 and 110 cents. If the Group net profit is below € 1 billion or if the post-tax re- turn 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 consist- ency at all levels, this rule is also applicable in determin- ing the corporate earnings-related variable compensa- tion components 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 perfor- mance 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. Performance factor criteria include innovation (economic and ecological, e. g. reduc- tion of CO2 emissions), customer focus, ability to adapt, leadership accomplishments, contributions to the Com- pany’s attractiveness as an employer, progress in imple- menting the diversity concept and activities that foster corporate social responsibility. The target bonus and the key figures used to determine the corporate earn- ings-related bonus have been fixed for a period of three financial years, during which time they may not be amended retrospectively. Share-based remuneration programme The compensation system includes a share-based remu- neration programme, in which the level of share-based remuneration is based on the amount of the bonus paid. The system is aimed at creating further long-term incentives to encourage sustainable governance. This programme envisages a share-based remuneration component equivalent to 20 % of the board member´s total bonus after taxes, which the board member is re- quired to invest in BMW AG common stock. Taxes and social insurance relating to the share-based remunera- tion component are also borne by the Company. As a general rule, the shares must be held for a minimum of four years. 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 (share-based remuneration component / matching component), unless the employ- ment relationship was ended before expiry of the agreed contractual period (except where caused by death or invalidity). Special rules apply in the case of death or invalidity of a Board of Management member before fulfilment of the holding period. Retirement and surviving dependants’ benefits 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 with effect from 1 January 2010. However, given the fact that board 172 members appointed for the first time prior to 1 January 2010 had a legal right to receive the benefits already promised to them, these board members were given the option to choose between the previous system and the new one. In the event of the termination of mandate, Board of Management members appointed for the first time prior to 1 January 2010 are entitled to receive certain defined benefits in accordance with the old 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 € 10,000 or € 15,000 (Chairman of the Board of Management) plus a fixed amount. The fixed amount is made up of approxi- mately € 75 for each year of service in the Company be- fore becoming a member of the Board of Management plus between € 400 and € 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 servants’ pensions: the pen- sions of members of the Board of Management are adjusted when the civil servants remuneration level B6 (excluding allowances) is increased by more than 5 % or in accordance with the Company Pension Act. When a mandate is terminated, the new defined contri- bution 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 retire- ment – depending on the wish of the ex-board member concerned – in the form of a lifelong monthly pension, as a one-off amount, in a maximum of ten annual instal- ments, or in a combined form (e. g. a combination of a one-off payment and a proportionately reduced life- long monthly pension). Pensions are paid to former members of the Board of Management who have either reached the statutory retirement age for the state pen- sion scheme in Germany or, if their mandate had termi- nated earlier and had not been extended, to members who have either reached the age of 60 or are perma- nently 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 mem- ber who has elected to receive a lifelong pension, 60 % of that amount is paid as a lifelong widow’s pension. Pensions are increased annually by an amount of at least 1 %. The amount of the retirement pension to be paid is determined on the basis of the amount accrued in each board member’s individual pension savings account. The amount on this account arises from annual con- tributions paid in plus interest earned depending on the type of investment. The annual contribution to be paid amounts to € 300,000 (2011: € 270,000) for each member of the Board of Management and € 525,000 (2011: € 475,000) for the Chair- man of the Board of Management. 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. corre- sponds 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 the po- tential annual contributions will be paid until the person concerned would have reached the age of 60. Contributions falling due under the defined contribution scheme are paid into an external fund in conjunction with a trust model that is also used to fund pension ob- ligations to employees. 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 specified, 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. Board of Management members who retire immediately after their service on the board and who draw a retire- ment pension are entitled to purchase vehicles and other services of the BMW Group at conditions that also apply in each relevant case for pensioners and to lease BMW Group vehicles in accordance with the guidelines applicable to senior heads of departments. Compensation claims, entitlements to receive amounts from third parties If a board member’s mandate is terminated early with- out important reason, there are no contractual commit- ments to pay compensation. Similarly, there are no com- mitments to pay compensation for early termi nation in the event of a change of control or a takeover offer. 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 173 STATEMENT ON CORPORATE GOVERNANCE No members of the Board of Management received any payments or benefits from third parties in 2012 on ac- count of their activities as members of the Board of Management of BMW AG. Overview of compensation system and compensation components Component Salary Variable compensation Bonus a) Corporate earnings-related bonus (corresponds to 50 % of target bonus if target is 100 % achieved) b) Performance-related bonus (corresponds to 50 % of target bonus if target is 100 % achieved) Parameter / measurement base Member of the Board of Management: – € 0.75 million p. a. (first term of appointment) – € 0.90 million p. a. (from second term of appointment onwards) Chairman of the Board of Management: – € 1.50 million p. a. Target bonuses (if target is 100 % achieved): – € 1.50 million p. a. (first term of appointment) – € 1.75 million p. a. (from second term of appointment onwards) – € 3.00 million p. a. (Chairman of the Board of Management) – Upper limit: 250 % – 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 sales – Primarily qualitative criteria, expressed in terms of a performance factor aimed at measuring the board members contribution to sustainable and long-term performance and the future viability of the business – Formula: 50 % of target bonus x performance factor – Criteria for the performance factor also include: innovation (economic and ecological, e. g. reduction of CO2 emissions), customer orientation, ability to adapt, leadership ac- complishments and attractiveness as employer, progress in implementing the diversity concept and activities that foster corporate social responsibility Special bonus payments May be paid in justified circumstances on appropriate basis, contractual basis, no entitlement Share-based remuneration programme – Requirement for Board of Management members to each invest an amount equivalent a) Cash remuneration component – Earmarked cash remuneration equivalent to the amount required to be invested in to 20 % of their total bonus (after tax) in BMW AG common stock b) Share-based remuneration component – Once the four-year holding period requirement is fulfilled, Board of Management BMW AG shares, plus taxes and social insurance contributions (matching component) Other remuneration members receive for each three common stock shares held either – at the Company’s option – one further share of common stock or the equivalent amount in cash, unless the employment relationship was ended before expiry of the agreed contractual period (except where caused by death or invalidity). 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 € 120,000 (Chairman: € 180,000) p. a. plus fixed amounts based on length of Company and board service b) Defined contribution system 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) € 300,000 (€ 525,000) Various forms of disbursement 174 Compensation of the Board of Management for the financial year 2012 (total) With effect from 1 July 2012, the Board of Management was expanded by one to a total of eight members. The total compensation of the eight current members of the Board of Management of BMW AG for 2012 amounted to € 31.4 million (2011: € 27.3 million), of which € 7.5 mil- lion (2011: € 4.7 million) relates to fixed components (including other remuneration). These figures include the impact of the rise in basic remuneration resolved in 2011 for financial years commencing after 1 January 2012. Variable components amounted to € 23.2 million (2011: € 21.9 million) and share-based remuneration component to € 0.7 million (2011: € 0.7 million). members of the Board of Management for the period after the end of their service relationship. This relates to the expense for allocations to pension provisions. in € million 2012 2011 Amount Proportion in % Amount Proportion in % Fixed compensation 7.5 23.9 4.7 17.2 Variable cash compensation Share-based compen- sation component* Total compensation 23.2 73.9 21.9 80.2 0.7 31.4 2.2 100.0 0.7 27.3 2.6 100.0 In addition, an expense of € 1.2 million (2011: € 1.1 mil- lion) was recognised in the financial year 2012 for current * Matching component; provisional number or provisional monetary value calculated at grant date (date on which the entitlement became binding in law). The final number of matching shares is determined in each case when the requirement to invest in BMW AG common stock has been fulfilled. Compensation of the individual members of the Board of Management for the financial year 2012 (2011) in € or number of matching shares Fixed compensation Basic compen- sation Other compen- sation Total Variable com- pensation Share-based compensation component (matching component)1 Com- pensation Total Number Monetary value Expense for share-based compensation component in year under report in accordance with HGB and IFRS Provision at 31.12. 2012 for share-based remuneration component in accordance with HGB and IFRS2 Norbert Reithofer 1,500,000 (1,020,000) 112,835 (22,455) 1,612,835 (1,042,455) Frank-Peter Arndt Milagros Caiña Carreiro-Andree3 Herbert Diess Klaus Draeger Friedrich Eichiner Harald Krüger Ian Robertson 900,000 (590,000) 375,000 (–) 900,000 (590,000) 900,000 (590,000) 900,000 (590,000) 900,000 (518,333) 900,000 (578,065) 27,336 (22,081) 11,526 (–) 22,007 (72,190) 22,948 (16,008) 27,366 (26,842) 19,036 (20,148) 14,881 (14,106) 927,336 (612,081) 386,526 (–) 922,007 (662,190) 922,948 (606,008) 927,366 (616,842) 919,036 (538,481) 914,881 (592,171) 4,881,600 (4,971,600) 2,847,600 (2,900,100) 1,220,400 (–) 2,847,600 (2,900,100) 2,847,600 (2,900,100) 2,847,600 (2,900,100) 2,847,600 (2,520,325) 2,847,600 (2,817,686) 2,495 (2,610) 1,455 (1,522) 514 (–) 1,563 (1,634) 1,563 (1,634) 1,563 (1,634) 1,455 (1,323) 1,563 (1,588) 132,634 (142,480) 6,627,069 (6,156,535) 77,348 (87,302) 35,569 (–) 83,089 (88,710) 83,089 (95,998) 83,089 (90,311) 77,348 (73,347) 83,089 (90,707) 3,852,284 (3,599,483) 1,642,495 (–) 3,852,696 (3,651,000) 3,853,637 (3,602,106) 3,858,055 (3,607,253) 3,843,984 (3,132,153) 3,845,570 (3,500,564) 75,826 (21,443) 70,099 (18,757) 6,248 (–) 55,238 (15,377) 71,283 (19,222) 61,522 (16,915) 37,608 (9,924) 48,583 (13,475) 97,269 (21,443) 88,856 (18,757) 6,248 (–) 70,615 (15,377) 90,505 (19,222) 78,437 (16,915) 47,532 (9,924) 62,058 (13,475) Total 7,275,000 257,935 7,532,935 23,187,600 12,171 655,255 31,375,790 (4,476,398) (193,830) (4,670,228) (21,910,011) (11,945) (668,855) (27,249,094) 426,407 (115,113) 541,520 (115,113) 1 Provisional number or provisional monetary value calculated at grant date (date on which the entitlement became binding in law). The final number of matching shares is determined in each case when the requirement to invest in BMW AG common stock has been fulfilled. See note 18 to the Group Financial Statements for a description of the accounting treatment of the share-based compensation component. 2 Monetary value calculated on the basis of the closing price of BMW common stock in the XETRA trading system on 28 December 2012 (€ 72.93) (fair value at reporting date). 3 Member of the Board of Management since 1 July 2012 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 175 STATEMENT ON CORPORATE GOVERNANCE Pension benefits of the individual members of the Board of Management in € Allocated to pension provisions in financial year 20121 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 accounts at 31.12. 2012 (defined benefit plans)2 Norbert Reithofer Frank-Peter Arndt Milagros Caiña Carreiro-Andree4 Herbert Diess Klaus Draeger Friedrich Eichiner Harald Krüger Ian Robertson Total2 217,462 (196,016) 108,769 (110,826) 150,000 (–) 145,829 (147,280) 114,531 (112,163) 127,028 (127,016) 88,004 (87,282) 281,416 (278,587) 1,233,039 (1,059,170) 7,770,956 (5,093,510) 4,390,861 (3,027,171) 169,119 (–) 3,459,608 (2,201,981) 4,357,273 (2,908,811) 4,443,313 (3,058,014) 2,911,534 (1,669,436) 1,872,190 (994,200) 29,374,854 (18,953,123) 5,263,483 (4,733,729) 3,258,422 (2,839,571) 168,608 (–) 2,407,993 (2,041,544) 3,078,164 (2,711,411) 3,203,857 (2,872,538) 1,934,608 (1,508,167) 1,274,502 (924,011) 20,589,637 (17,630,971) 4,960,974 (3,858,278) 3,268,852 (2,584,455) 151,882 (–) 2,402,944 (1,817,002) 3,088,017 (2,426,238) 3,214,112 (2,536,562) 1,911,397 (1,382,823) 1,197,553 (768,936) 20,195,731 (15,374,294) 1 With the exception of Milagros Caiña Carreiro-Andree, the amount disclosed corresponds to service cost in accordance with IFRS 2 Based on legal right to receive the benefits already promised to them, Board of Management members appointed for the first time prior to 1 January 2010 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 4 Member of the Board of Management since 1 July 2012. The pension expense for Milagros Caiña Carreiro-Andree in the financial year 2012 corresponds to the defined contribution amount The amount paid to former members of the Board of Management and their dependants was € 3.8 million (2011: € 3.7 million). Pension obligations to former mem- bers of the Board of Management and their surviving dependants are fully covered by pension provisions amounting to € 61.2 million (2011: € 51.6 million), com- puted in accordance with IAS 19. The increase in the present value of defined benefit obligations for current Board of Management and pension obligations to for- mer Board of Management members and their surviving dependants, measured in accordance with IFRS, was primarily attributable to interest rate factors. 2. Supervisory Board compensation Responsibilities, regulation pursuant to Articles of Incorporation The compensation of the Supervisory Board is deter- mined by shareholders’ resolution at the Annual General Meeting. The compensation regulation valid for the financial year 2012 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 Incor- poration, which can be viewed and / or downloaded at www.bmwgroup.com/ir under the menu items “Cor- porate 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. In accordance with rules contained in BMW AG’s Arti- cles of Incorporation, each member of the Supervisory Board receives, in addition to the reimbursement of reasonable expenses, a fixed amount of € 55,000 (payable at the end of the year) as well as a performance-related compensation of € 220 for each full € 0.01 by which the earnings per share (EPS) of common stock reported in the Group Financial Statements for the financial year (remuneration year) exceed a minimum amount of € 2.30 (payable after the Annual General Meeting held in the following year). An upper limit corresponding to twice the amount of the fixed compensation (€ 110,000) is in place for the corporate performance-related com- pensation. With this combination of fixed and corporate perfor- mance-related compensation, the compensation struc- ture in place for BMW AG’s Supervisory Board has complied up to now with the recommendation con- 176 tained in paragraph 2 of section 5.4.6 of the German Corporate Governance Code (version dated 26 May 2010). The Supervisory Board and Board of Management intend to submit a proposal to the Annual General Meeting 2013 to change Supervisory Board compensa- tion for financial years beginning after 1 January 2013 by way of an amendment to the Articles of Incorpora- tion. In line with the revised recommendation on super- visory board compensation contained in section 5.4.6 paragraph 2 sentence 2 of the Code (version dated 15 May 2012), the corporate performance-related compen- sation component will in future take more than one financial year into account and be oriented toward sus- tainable growth of the enterprise. The German Corporate Governance Code also recom- mends that the exercising of chair and deputy chair positions in the Supervisory Board as well as the chair and membership of committees should also be con- sidered when determining 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 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 referred to above, the compensation is measured only on the basis of the function which is remunerated with the highest amount. of the Supervisory Board (Plenum) which the member has attended (payable at the end of the financial year). Attendance at more than one meeting on the same day is not remunerated separately. The Company also reimburses to each member of the Supervisory Board reasonable expenses and any value- added tax arising on the member’s 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 2012 (total) In accordance with § 15 of the Articles of Incorporation, the compensation of the Supervisory Board for activities during the financial year 2012 amounted to € 4.5 million (2011: € 4.5 million). This includes fixed compensation of € 1.6 million (2011: € 1.6 million) and variable compen- sation of € 2.9 million (2011: € 2.9 million). As a result of the earnings per share of € 7.77 (see note 16 to the Group Financial Statements) (2011: € 7.45), the stipu- lated upper limits for Supervisory Board variable com- pensation were again applied for the financial year ended 31 December 2012. in € million 2012 2011 Amount Proportion in % Amount Proportion Fixed compensation Variable compensation Total compensation 1.6 2.9 4.5 35.6 64.4 100.0 1.6 2.9 4.5 in % 35.6 64.4 100.0 In addition, each member of the Supervisory Board re- ceives an attendance fee of € 2,000 for each full meeting Supervisory Board members did not receive any fur- ther compensation or benefits from the BMW Group for advisory and agency services personally rendered. 152 STATEMENT ON 152 153 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 154 Members of the Board of Management 155 158 160 Members of the Supervisory Board Work Procedures of the Board of Management Work Procedures of the Supervisory Board 165 Information on Corporate Governance Practices 166 170 Compliance in the BMW Group Compensation Report 177 STATEMENT ON CORPORATE GOVERNANCE Compensation of the individual members of the Supervisory Board for the financial year 2012 (2011) in € Fixed compensation Attendance fee Variable compensation Total Joachim Milberg (Chairman) Manfred Schoch (Deputy Chairman)1 Stefan Quandt (Deputy Chairman) Stefan Schmid (Deputy Chairman)1 Karl-Ludwig Kley (Deputy Chairman) Bertin Eichler1 Franz Haniel Reinhard Hüttl Henning Kagermann Susanne Klatten Renate Köcher Robert W. Lane Horst Lischka1 Willibald Löw1 Wolfgang Mayrhuber Dr. Dominique Mohabeer 1, 2 Franz Oberländer1, 3 Anton Ruf 4 Maria Schmidt1 Jürgen Wechsler 1 Werner Zierer1 Oliver Zipse5 Total 165,000 (165,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 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 (55,000) 55,000 (55,000) 55,000 (55,000) 55,000 (55,000) 32,158 (–) 22,842 (55,000) 45,833 (55,000) 55,000 (55,000) 55,000 (48,973) 55,000 (55,000) 9,167 (–) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 8,000 (10,000) 10,000 (8,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 8,000 (8,000) 8,000 (10,000) 6,000 (8,000) 10,000 (10,000) 10,000 (10,000) 8,000 (8,000) 6,000 (–) 4,000 (8,000) 8,000 (8,000) 8,000 (10,000) 10,000 (6,000) 10,000 (10,000) 2,000 (–) 330,000 (330,000) 220,000 (220,000) 220,000 (220,000) 220,000 (220,000) 220,000 (220,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 110,000 (110,000) 64,317 (–) 45,683 (110,000) 91,667 (110,000) 110,000 (110,000) 110,000 (97,045) 110,000 (110,000) 18,333 (–) 505,000 (505,000) 340,000 (340,000) 340,000 (340,000) 340,000 (340,000) 338,000 (340,000) 175,000 (173,000) 175,000 (175,000) 175,000 (175,000) 175,000 (175,000) 173,000 (173,000) 173,000 (175,000) 171,000 (173,000) 175,000 (175,000) 175,000 (175,000) 173,000 (173,000) 102,475 (–) 72,525 (173,000) 145,500 (173,000) 173,000 (175,000) 175,000 (152,018) 175,000 (175,000) 29,500 (–) 1,430,000 (1,423,973) 186,000 (184,000) 2,860,000 (2,847,045) 4,476,000 (4,455,018) 1 These employee representatives have – in line with the guidelines of the Deutsche Gewerkschaftsbund – requested that their remuneration be paid into the Hans-Böckler-Foundation. 2 Member of the Supervisory Board since 1 June 2012 3 Member of the Supervisory Board until 31 May 2012 4 Member of the Supervisory Board until 31 October 2012 5 Member of the Supervisory Board since 1 November 2012 3. Other Apart from vehicle lease contracts entered into on customary market conditions, no advances and loans were granted by the Company to members of the Board of Management and the Supervisory Board, nor were any contingent liabilities entered into on their behalf. 178 OTHER INFORMATION BMW Group Ten-year Comparison Deliveries to customers Automobiles Motorcycles2 Production Automobiles Motorcycles Financial Services 2012 2011 2010 2009 units units units units 1,845,186 1,668,982 1,461,166 1,286,310 117,109 113,572 110,113 100,358 1,861,826 1,738,160 1,481,253 1,258,417 125,284 118,865 112,271 93,243 Contract portfolio Business volume (based on balance sheet carrying amounts) 3 contracts 3,846,364 3,592,093 3,190,353 3,085,946 € million 80,974 75,245 66,233 61,202 Income Statement Revenues Gross profit margin Group4 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 5 Capital expenditure Capital expenditure ratio (capital expenditure / revenues) Personnel Workforce at the end of year 7 Personnel cost per employee Dividend Dividend total € million 76,848 68,821 60,477 50,681 % € million € million % € million % € million € million € million € million % € million € million € million € million € million € million % 20.2 8,300 7,819 10.2 2,697 34.5 5,122 81,336 50,514 30,402 23.1 53,074 48,374 21.1 8,018 7,383 10.7 2,476 33.5 4,907 74,425 49,004 27,103 22.0 49,113 47,213 18.1 5,111 4,853 8.0 1,610 33.1 3,243 67,013 43,151 23,930 21.7 46,100 40,134 10.5 289 413 0.8 203 49.2 210 62,009 39,944 19,915 19.5 45,119 36,919 131,850 123,429 110,164 101,953 8,370 9,167 5,240 6.8 7,776 8,110 6 3,692 5.4 7,432 8,149 3,263 5.4 7,767 4,921 3,471 6.8 105,876 89,140 100,306 84,887 € 95,453 83,141 96,230 72,349 € million 1,640 1,508 852 197 Dividend per share of common stock / preferred stock € 2.50 /2.52 2.30 / 2.32 1.30 /1.32 0.30 / 0.32 178 178 180 182 184 185 186 187 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 Excluding C1, sales volume to 2003: 32,859 units 3 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 4 Research and development costs included in cost of sales with the effect from 2008 5 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 Automotive segment. 6 Adjusted for reclassifications as described in note 42. 7 Figures exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time arrangements and low wage earners. 8 Adjustment to dividend due to buy-back of treasury shares 179 OTHER INFORMATION 2008 2007 2006 2005 20041 2003 1,435,876 1,500,678 1,373,970 1,327,992 1,208,732 1,104,916 115,196 102,467 100,064 97,474 92,266 92,962 Deliveries to customers Automobiles Motorcycles2 Production 1,439,918 1,541,503 1,366,838 1,323,119 1,250,345 1,118,940 Automobiles 118,452 104,396 103,759 92,012 93,836 89,745 Motorcycles 3,031,935 2,629,949 2,270,528 2,087,368 1,843,399 1,623,425 60,653 51,257 44,010 40,428 32,556 28,647 Contract portfolio Business volume (based on balance sheet carrying amounts) 3 Financial Services 53,197 56,018 48,999 46,656 44,335 11.4 921 351 0.7 21 6.0 330 62,416 38,670 20,273 20.1 41,526 39,287 101,086 7,454 4,471 4,204 7.9 21.8 4,212 3,873 6.9 739 19.1 3,134 56,619 32,378 21,744 24.4 33,469 33,784 88,997 2,393 6,246 4,267 7.6 23.1 4,050 4,124 8.4 1,250 30.3 2,874 50,514 28,543 19,130 24.2 31,372 28,555 79,057 1,336 5,373 4,313 8.8 22.9 3,793 3,287 7.0 1,048 31.9 2,239 47,556 27,010 16,973 22.8 29,509 28,084 74,566 1,621 6,184 3,993 8.6 23.2 3,774 3,583 8.1 1,341 37.4 2,242 40,822 26,812 16,534 24.4 26,517 24,583 67,634 2,128 6,157 4,347 9.8 100,041 75,612 107,539 76,704 106,575 76,621 105,798 75,238 105,972 73,241 Income Statement 41,525 22.7 Revenues Gross profit margin Group4 3,353 Profit before financial result 3,205 Profit before tax 7.7 Return on sales (earnings before tax / revenues) 1,258 Income taxes 39.3 Effective tax rate 1,947 Net profit for the year Balance Sheet 36,921 Non-current assets 24,554 Current assets 16,150 Equity 26.3 Equity ratio Group 22,090 Non-current provisions and liabilities 23,235 Current provisions and liabilities 61,475 Balance sheet total Cash Flow Statement 1,659 4,970 Cash and cash equivalents at balance sheet date Operating cash flow 5 4,245 Capital expenditure 10.2 Capital expenditure ratio (capital expenditure / revenues) 104,342 Personnel Workforce at the end of year 7 73,499 Personnel cost per employee Dividend 197 694 458 4198 419 392 Dividend total 0.30 / 0.32 1.06 / 1.08 0.70 / 0.72 0.64 / 0.66 0.62 / 0.64 0.58 / 0.60 Dividend per share of common stock / preferred stock 180 BMW Group Locations — P — R — R — R — S — S — R — P — S — A — S — S — S — A — S — A — S — S — P — S The BMW Group is present in the world markets with 29 production and assembly plants, 43 sales subsidiaries and a research and development network. 178 178 180 182 184 185 186 187 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts — H Headquarters — R Research and Development BMW Group Research and Innovation Centre (FIZ), Munich, Germany BMW Group Research and Technology, Munich, Germany BMW Car IT, Munich, Germany BMW Innovation and Technology Centre, Landshut, Germany BMW Diesel Competence Centre, Steyr, Austria BMW Group Designworks, Newbury Park, USA BMW Group Technology Office USA, Mountain View, USA BMW Group Engineering and Emission Test Center, Oxnard, USA BMW Group ConnectedDrive Lab China, Shanghai, China BMW Group Designworks USA, Shanghai, China BMW Group Engineering China, Beijing, China BMW Group Engineering Japan, Tokyo, Japan BMW Group Engineering USA, Woodcliff Lake, USA 181 OTHER INFORMATION — P — R — S — S — S — R — R — S — S — A — S — A — S — A — S — S — S — S — S — S — S — A — 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 — P Production — C Contract production — S Sales subsidiary markets / Locations Financial Services 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 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 – 3 plants) Spartanburg plant, USA Steyr plant, Austria Swindon plant, GB Wackersdorf plant BMW – SGL joint venture (2 plants) Husqvarna Motorcycles S. r. l., Cassinetta di Biandronno, Italy 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 182 Glossary 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 already 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 inside 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. Free cash flow Free cash flow corresponds to the cash inflow from oper- ating activities of the Automotive segment less the cash outflow for investing activities of the Automotive 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. 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 principally from market price, market price fluctuations and expected market price changes of the underlying instrument (e.  g. indices, stocks or bonds). DJSI World Abbreviation for “Dow Jones Sustainability Index World”. A family of indexes created by Dow Jones and the Swiss investment agency SAM Sustainability Group for com- panies with strategies based on a sustainability concept. The BMW Group has been one of the leading companies in the DJSI since 1999. EBIT Abbreviation for “Earnings Before Interest and Taxes”. The profit before income taxes, minority interest and financial result. 178 178 180 182 184 185 186 187 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts 183 OTHER INFORMATION Indicator for water consumption The indicators for water consumption refer to the pro- duction sites of the BMW Group. The water consumption includes the process water input for the production as well as the general water consumption, e. g. for sani- tation facilities. Operating cash flow Cash inflow from the operating activities of the Auto- motive segment. Preferred stock Stock which receives a higher dividend than common stock, but without voting rights. Production network The BMW Group production network consists world- wide of 17 plants, seven assembly plants and one con- tract production plant. Within this network, the plants supply one another with systems and components and are all characterised 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 Trans- parency within Businesses (KonTraG), all companies listed on a stock exchange in Germany are required to set up a risk management system. The purpose of this system is to identify risks at an early stage which could have a significant adverse effect on the assets, liabilities, financial position and results of operations, and which could endanger the continued existence of the Company. This applies in particular to transactions involving risk, errors in accounting or financial reporting and violations of legal requirements. The Board of Management is required to set up an appropriate system, to document that system and monitor it regularly 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 management of BMW AG or in which BMW AG, either directly or indirectly – holds the majority of the voting rights – has the right to appoint or remove the majority of the members of the Board of Management or equivalent governing body, and in which BMW AG is at the same time (directly or indirectly) a 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 qualifica- tion and selection, ensure the application of uniform standards throughout the Group and create efficient sourcing and procurement processes along the whole value added chain. Sustainability Sustainability, or sustainable development, gives equal consideration to ecological, social and economic develop- ment. In 1987 the United Nations “World Commission on Environment and Development” defined sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. The economic relevance of corporate sustainability to the BMW Group is evident in three areas: resources, reputation and risk. 184 Index A Accounting policies 39, 105 Apprentices Automotive segment 89 et seq. 24 et seq. B Balance sheet structure 126 Bonds 58 5, 19, 53 et seq. 55 et seq., 94, 116, 141 41 et seq., 67 et seq. 143 et seq., 170 et seq. 5, 19, 54 et seq., 82, 141 54 et seq., 82, 141 28, 34, 36, 42, 76 C Capital expenditure Cash and cash equivalents Cash flow Cash flow statement CFRP CO2 emissions Compensation Report Compliance Connected Drive Consolidated companies entity Consolidation principles Contingent liabilities Corporate Governance Cost of materials Cost of sales 166 et seq. 34 53, 89, 100 59 et seq. 129 88 87 152 et seq. D Dealer organisation /dealerships Declaration with respect to the Corporate Governance Code Dividend Dow Jones Sustainability Index World 37, 41, 45 19, 105 153 38 E Earnings per share Efficient Dynamics Employees Equity Exchange rates 39 et seq. 45, 89 et seq., 105 33, 76 50 et seq., 57 et seq., 62 et seq., 80, 117 et seq. 22, 74, 88 et seq., 138 et seq. G Group tangible, intangible and investment assets 108 52, 64, 78, 100 et seq. 19, 54, 93, 102 et seq., 125 19, 53 et seq., 90, 110 I Income statement Income taxes Intangible assets Inventories Investments accounted for using the equity method and other investments 55, 62, 94, 115 92, 111 K Key data per share 45 L Lease business Leased products Locations 111 180 et seq. 31 et seq., 71 M Mandates of members of the Board of 154 Management Mandates of members of the Supervisory Board Marketable securities Motorcycles segment 56 et seq., 114 30 155 et seq. N Net profit New financial reporting rules 5, 19, 52 et seq. 96 et seq. 102 O Other financial result Other investments Other operating income and expenses Other provisions Outlook 111 et seq., 135 74 et seq. 124 101 57, 93, 113 F Financial assets Financial instruments Financial liabilities 118 et seq., 125 et seq. 53, 62, 102 Financial result Financial Services segment 43, 76 Fleet consumption 93, 130 et seq. 50, 57 et seq., 94 et seq., 57 et seq., 63, 94, 119 et seq. 105 5, 27 et seq., 62 P Pension provisions Personnel costs Production Production network Profit before financial result Profit before tax Property, plant and equipment 110 Purchasing 36 et seq. 5, 19, 54 27, et seq., 76 5, 19, 54 31 et seq. 19, 57, 62, 90 et seq., 178 178 180 182 184 185 186 187 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts 185 OTHER INFORMATION Index of Graphs 57, 93, 112 et seq. 141 et seq. 170 et seq. R 45, 119, 138 Rating Receivables from sales financing Related party relationships Remuneration System Report of the Supervisory Board Research and development Result from equity accounted investments Return on sales Revenue reserves Revenues Risk management 5, 18, 52 et seq., 62, 89, 100 52 et seq. 118 66 et seq., 138 et seq. 33 et seq. 6 et seq. 101 53, 100 5, 18, 24 et seq., 77 145 et seq. S Selling and administrative expenses Sales volume Segment information Shareholdings of members of the Board of Management and the Supervisory Board Statement of Comprehensive Income Stock Suppliers Sustainability 36 et seq., 166 44 et seq. 37, 41 et seq., 45 et seq., 159 78, 107 143, 169 T Tangible, intangible and investment assets 59, 128 Trade payables Trade receivables 57, 116 108 22 21 23 04 19 Finances BMW Group in figures BMW Group revenues by region 18 BMW Group Capital expenditure and operating cash flow Exchange rates compared to the euro Oil price trend 22 Steel price trend Precious metals price trend BMW Group new vehicles financed by Financial Services segment Contract portfolio of Financial Services segment Contract portfolio retail customer financing of 32 Financial Services segment Development of credit loss ratio Regional mix of purchase volumes Change in cash and cash equivalents Balance sheet structure – Automotive segment Balance sheet structure – Group BMW Group value added Risk Management within the BMW Group 58 66 60 31 36 33 55 31 58 24 Production and sales volume BMW Group – key automobile markets BMW Group sales volume of vehicles by region and market MINI brand cars – analysis by model variant Vehicle production by plant BMW Group – key motorcycle markets 30 BMW sales volume of motorcycles 30 27 24 26 Workforce BMW Group apprentices at 31 December Employee fluctuation ratio at BMW AG 40 Proportion of non-tariff female employees 39 40 Environment Energy consumed per vehicle produced Water consumption per vehicle produced 42 CO2 emissions per vehicle produced Process wastewater per vehicle produced Volatile organic compounds per vehicle produced Waste for disposal per vehicle produced 41 42 41 42 42 Stock Development of BMW stock 44 Compliance BMW Group Compliance Organisation 167 This version of the Annual Report is a translation from the German version. Only the original German version is binding. 186 Financial Calendar Annual Accounts Press Conference Analyst and Investor Conference Quarterly Report to 31 March 2013 Annual General Meeting Quarterly Report to 30 June 2013 Quarterly Report to 30 September 2013 Annual Report 2013 Annual Accounts Press Conference Analyst and Investor Conference Quarterly Report to 31 March 2014 Annual General Meeting Quarterly Report to 30 June 2014 Quarterly Report to 30 September 2014 19 March 2013 20 March 2013 2 May 2013 14 May 2013 1 August 2013 5 November 2013 19 March 2014 19 March 2014 20 March 2014 6 May 2014 15 May 2014 5 August 2014 4 November 2014 178 178 180 182 184 185 186 187 OTHER INFORMATION BMW Group Ten-year Comparison BMW Group Locations Glossary Index Index of Graphs Financial Calendar Contacts 187 OTHER INFORMATION Contacts Business and Finance Press Telephone Fax E-mail Investor Relations Telephone Fax E-mail +49 89 382-2 45 44 +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. Scan the QR code to go directly to the online Annual Report for tablets. http://annual-report2012.bmwgroup.com PUBLISHED BY Bayerische Motoren Werke Aktiengesellschaft 80788 Munich Germany Tel. +49 89 382-0 VIEWS 2012 CONNECTING The BMW Group’s global production network combines groundbreaking new approaches and production concepts to create an increasingly high-performance manufacturing organisation. Flexibility, efficiency and effectiveness are the primary targets. As the world’s most sustainable car company, we have reduced resource con- sumption and emissions in this way by more than a third since 2006. The mobility of the future will be determined not by premium products and premium services alone, but also by flexible and sustainable production. Read how Clean Production brings together associates and partners from around the world. United by premium standards. Every year, “Views” as part of our Annual Report provides information on selected BMW Group topics. But more than that, our aim is to generate discussion and present our view of matters. Because it is important to us. For the success of the BMW Group. For the society. For the future of mobility. W E I V R E T N I N A TALKING WITH OUR FUTURE. We connect the ideas of today and tomorrow. Recognising society’s needs and thinking ahead. Dr. Norbert Reithofer talks to BMW Group apprentices about the future of individual mobility. 2 31 January 2013, Double cone at BMW Welt, Munich 3 “ Our Strategy Number ONE will enable us to maintain our success.” Dr. Norbert Reithofer Dr. Norbert Reithofer 1 2 Carola Hensel We sold more cars in 2012 than ever before. But there is also a lot in the news about the euro crisis. How will future crises affect us? Does this mean we will sell fewer cars? Dr. Norbert Reithofer We have every reason to be confident about the future. We have great vehicles, a highly flexible production system and will be bringing innova- tive cars like the BMW i3 onto the market this year. Of course, we have to keep a close eye on developments in Europe and around the globe because of the increasing volatility worldwide. Our Strategy Number ONE will enable us to maintain our success. It is also important to keep costs under control – that is the only way we can steer successfully through crises and invest in the future. 4 3 4 “ We have great vehicles, a highly fl exible production system and will be bringing innovative cars like the BMW i3 onto the market this year.” Dr. Norbert Reithofer 5 5 “ I believe that everyone should con tribute to greater sustainability.” Dr. Norbert Reithofer 6 6 Simon Huber and Cennet Sahin You already mentioned that the BMW i3 will be coming out this year. When do you think we will stop seeing cars with com bustion engines and all just drive electric? Dr. Norbert Reithofer You have to look far into the future for that. We will be driving mostly combustion engines for many years to come. But those engines will have to be even more efficient in the future. We need new approaches, like the three-cylinder engine, as well as new technologies, such as electromobility. We have already made tremendous progress in re- ducing CO2 emissions, but we cannot afford to take it easy. We will only be able to meet ambitious CO2 legislation in the future if we have efficient combustion engines and electric motors. Albian Ibraimi This shows how much sustainability means to the BMW Group. But why is sustainability so important to the company? Dr. Norbert Reithofer I believe that everyone – individuals and companies alike – should con- tribute to greater sustainability. And that applies to us as an automobile company, in particular. With all our improvements in production, such as the reduction of energy and water consumption at our plants, the BMW i3 and the i8 capture exactly our direction. “ We have already made tremendous progress in re ducing CO2 emissions.” Dr. Norbert Reithofer 7 7 “ Our high sustainability standards apply to all our plants, wherever they are built.” Dr. Norbert Reithofer Sebastian Forster and Duc Huy Cao Now that we’re also building a plant in Brazil, will the same standards apply there, too? Will young associates be able to go to Brazil in the future? People are the BMW Group’s capital, after all. Dr. Norbert Reithofer Our high sustainability standards apply to all our plants, wherever they are built. And we would certainly like to see young people go abroad to help set up the plant or develop the market, and gain work experience. That is something I can recommend to anyone. I learned a lot myself from my time abroad. That is the kind of experience that enriches our lives and helps us grow into global citizens. Miriam Wittmann If you look ahead 20 years from now, where do you see BMW? Will we still be number one? Dr. Norbert Reithofer Yes, I am sure we will. But we will have to keep on working hard to stay ahead. Highly motivated people and innovation are the key. That is what makes cars like the i3 and the 6 Series Gran Coupé so important. They are icons with a positive impact on all our vehicles. Representing all BMW Group apprentices, seven young men and women interviewed Chairman of the Board of Management Dr. Norbert Reithofer about the future of the BMW Group: [1] Carola Hensel, Munich [2] Duc Huy Cao, Munich [3] Miriam Wittmann, Munich [4] Sebastian Forster, Munich [5] Simon Huber, Dingolfing [6] Albian Ibraimi, Munich [7] Cennet Sahin, Munich 8 Contents S T N E T N O C AN INTERVIEW Talking to our future. We connect the ideas of today and tomorrow. Page 1 PASSION UNITES US Clean Production at Leipzig plant / Germany. Page 11 PARTNERSHIP UNITES US Clean Production at Spartanburg plant / USA. Page 27 KNOW-HOW UNITES US Clean Production at Tiexi plant / China. Page 45 JOY BRINGS PEOPLE TOGETHER Creating moments of sheer pleasure for our customers. Page 59 Key technical data, fuel consumption and CO2 emission ratings for the presented vehicles referred to in this report can be found on page 85. 9 Experience the BMW Group online. OUR COMPANY www.bmwgroup.com OUR BRANDS www.bmw.com www.mini.com www.rolls-roycemotorcars.com www.bmw-motorrad.com THE PLANTS PRESENTED www.bmw-werk-leipzig.de (Germany) www.bmwusfactory.com (USA) www.bmw-brilliance.cn (China) FURTHER INFORMATION www.press.bmwgroup.com (PressClub) www.bmwgroup.com/IR (Investor Relations) www.bmwgroup.com/careers (Carreers) www.bmwgroup.com/responsibility (Sustainability) www.bmwgroup.com/production (Production) www.bmw-welt.com/de (BMW Welt / BMW Museum) THE BMW GROUP ON SOCIAL NETWORKS Facebook www.facebook.com/BMWGroup Twitter www.twitter.com/BMWGroup YouTube www.youtube.com/BMWGroupview Google+ www.google.com/+BMWGroup Scan the QR code to go directly to the online Annual Report for tablets. http://annual-report2012.bmwgroup.com 10 PASSION UNITES US – CLEAN PRODUCTION A S U / g r u b n a t r a p S t n a P l LEIPZIG Germany 51° 20' N, 12° 22' E Evolution and revolution in automobile manufacturing i a n h C / i i x e T t n a P l Energy-optimised body shop Lowers energy consumption and costs Page 18 Efficient paint shop Utilises its own thermal energy Page 16 Intelligent energy supply Anticipates energy price fl uctuations and production data Page 20 Leipzig plant profile Construction: Vehicle production (2012): BMW vehicles: 2005 164,282 BMW X1, 1 Series five-door, 1 Series Coupé, 1 Series Convertible, BMW i3 (from late 2013 onwards) Associates: Plant grounds: over 3,000 229 ha New buildings for BMW i production: 4 production halls Investment in BMW i production: € 400 million Energy savings from current efficiency projects: 6.4 GWh / year High-performance wind turbines Generate 100 % renewable energy Page 25 The BMW Leipzig plant has achieved something no other car plant has attempted before: automotive evolution and revolu- tion under the same roof. Passion unites us. The mobility of the future comes from Leipzig. Teams of process and air-conditioning engineers work together to boost plant efficiency and lower energy consumption significantly. At the same time, this is where the mobility and automobile manufacturing of the future are being created. The production of our revolutionary BMW i models uses 70 per cent less water and 50 per cent less energy per vehicle produced than the average for our already efficient production network. The electricity required for BMW i production is generated in a resource-efficient and climate-neutral process by four specially built wind turbines situated on the plant grounds. Scan the QR code to go directly to the online Annual Report for tablets. http://annual-report2012.bmwgroup.com/leipzig/ 13 Path-breaking production solutions developed by specialist project teams throughout the BMW Group’s worldwide production network Team Heat Recovery Page 16 Efficiency Olaf Merboth Control of paint shop heating and electrical systems Robert Hache Paint shop control technology Sylvia Arlt Paint shop installation planning Analysis Jeannine Sagner BMW i assembly Joy Evolution Pilot projects BMW GROUP PRODUCTION NETWORK Great ideas are born when the best brains come together – at the Leipzig plant, and at the BMW Group’s 28 other production locations in 14 countries worldwide. Ambition Benchmark solutions Know-how BMW plant Leipzig 14 Synergies Team Production BMW i Page 22 Intelligent cooperation Revolution Jürgen Laube BMW i production project manager Hanne Dinkel Production control and structural planning Mutual learning Alexandra Pfeifer BMW i assembly Curiosity Veit Melzer Building management, Leipzig plant Networking Drive Page 18 Team Energy Efficiency Stefan Köhn Energy and object management Stefan Thalheim Body shop control technology Dr. Rainer Angerhöfer Energy monitoring and management Frank Böttger Energy supply Dialogue Leadership 15 Following the success of the Leipzig pilot project, the team is now looking to capitalise on similar potential at other paint shops in the production network. – 55 % Paint shop heat recovery project. Sylvia Arlt and her co-workers have accomplished in rudimentary form a feat that has eluded physicists since time immemorial: the creation of per- petual motion. On the roof of the paint shop, the process engineer has installed a powerful heat exchanger, which collects thermal energy from exhaust air systems and feeds it back into the paint shop’s drying plant as warm fresh air. Although this pilot installation does not capture all of the waste heat, it still reduces carbon dioxide emissions by 300,000 kilogrammes a year and lowers the amount of natural gas previously required by 55 per cent – enough to heat up to 100 households. Exhaust gas Energy recycling using heat exchangers Warming fresh air to 150 °C using the plant’s own exhaust gas A vehicle paint shop inevitably needs a substantial amount of heat for drying and exhaust air treatment. The Leipzig plant uses a heat exchanger to recover a signifi cant percentage (far left). BMW plant Leipzig 16 fossil energy “ The most efficient kind of energy doesn’t need to be generated in the first place.” Sylvia Arlt (left), installation planner at BMW plant Leipzig — — — — — — Sylvia Arlt – Process engineer responsible for the paint shop waste heat utilisation project has worked for the BMW Group production network since 2010 “Free, climate-neutral energy from waste heat – for me, that’s the most intelligent resource possible.” Robert Hache – Electrical engineer responsible for paint shop control technology has worked for the BMW Group production network since 2003 “Retrofitting a well-running paint shop is no trivial matter. The solution we have developed here will benefit other paint shops in the BMW production network.” 17 – 21 % energy require “ Lower power consumption. Same performance. Perfect balance.” Frank Böttger (left), energy supply, BMW plant Leipzig Frank Böttger – Air-conditioning and drying technology engineer — responsible for energy supply — — has worked for the BMW Group produc- tion network since 2004 “Planning is one thing. But you only see the real energy requirements – and the corresponding savings potential – when the plant comes on stream.” Stefan Thalheim – Control technology engineer — — — responsible for body shop control technology has worked for the BMW Group produc- tion network since 2005 “It’s hard to uncover energy reserves in an efficient plant, of course. But we still manage to find some.” BMW plant Leipzig 18 ments Intelligent robot control also lowers energy costs at the Tiexi plant. Page 54 Every stage in the body construction process was evaluated in detail by energy analysts – including welding robots (right), which assemble the car bodies in a fully automated process. Body shop energy efficiency project. Over a period of three years, the Leipzig plant’s energy experts worked side-by-side with scientists, industrial partners and energy management con- sultants on the energy efficiency controlling project. They analysed the motion sequence of welding robots, simulated the flow configuration of the ventilation system and measured waste heat from compressors at the energy headquarters. The pilot project found that energy requirements could be reduced by almost a quarter in the body shop alone – with invest- ments that would pay for themselves within a year and a half. 19 – 5,000, A plant only operates at full capacity in certain phases. In partial load operation, the new, more effi cient heat pumps (right) are fully adequate. Energy supply efficiency controlling project. In the final analysis, a vehicle plant is little more than a highly active organism that works and breathes, with some periods of rest and other periods where it operates at full tilt. The trick is to adjust its energy supply accordingly. Intelligent control systems developed at the Leipzig plant ensure that weather and production data, electricity prices and many other factors are evaluated to manage production and energy supply. This not only saves five million kilowatt hours of electricity per year, but also enables the power required to be used more efficiently and purchased more cheaply. Similar energy efficiency projects are also in progress at the Munich Research and Innovation Centre (FIZ) and the BMW Group’s Steyr plant. BMW plant Leipzig 20 000 kilowatt hours “ We use intelligence and know-how to reduce our energy usage.” Stefan Köhn (left), energy and installation management at BMW plant Leipzig — — — — — — Stefan Köhn – Mechanical engineer responsible for energy and facility management has worked for the BMW Group production network since 1998 “The issue of energy has become incredibly important in recent years. It is amazing what I am able to achieve here today.” Dr. Rainer Angerhöfer – Supply engineer responsible for energy monitoring and management has worked for the BMW Group production network since 2001 “We analysed our energy supply in detail with partners from the fields of science and industry – with a fresh perspective, we were able to discover new savings potential.” 21 BMW i “ A new kind of production concept for a new kind of mobility.” Jürgen Laube, BMW i production project manager 1 BMW plant Leipzig 22  3 Series production of the BMW i3 and BMW i8 Four 2.5 MW wind power stations located at the plant 100% renewable energy for BMW i production Resource-effi cient automobile production 2 1 The entire production concept for the BMW i Series is designed for sustainability. 2 The four wind turbines reach almost 200 metres into the sky to harness power for the plant. 3 Structural planner Hanne Dinkel and production project manager Jürgen Laube with a model of a wind turbine. Renewable energy for BMW i. When the first electric BMW i3 rolls off the assembly line at the Leipzig plant later this year, it will mark the beginning of a new era of auto- mobile manufacturing: production of the BMW i3 and the BMW i8 is designed to be just as sustainable as the vehicles themselves. Thanks to totally new materials, tech- nologies and manufacturing processes, production uses 70 per cent less water and 50 per cent less energy. The remaining electricity is generated by four 2.5 MW wind turbines located directly on our plant grounds. 25 4 The carbon fibre used as a raw material for passenger cells is also produced using only renewable energy. 5 6 4 Before the start of series production, the team examines the first production prototype from Leipzig. 5 Formula for the future of electromobility: BMW i3. 6 At least as stable as steel and aluminium, but even lighter: a car roof made of high-performance carbon fi bre. 23  8 7 7 Checking the details before production ramp-up. 8 Sustainable from the start: the fi rst BMW i3 models. Freedom for ideas. From the manufacture of carbon fibres using renewable hydrogen to highly efficient assembly at the Leipzig plant, we have taken a completely new approach to the entire BMW i Series production chain. Four new production halls were designed to meet the high standards required for American LEED certification. With its resource-efficient architecture and highly efficient production processes, the Leipzig plant sets new standards for automobile production. As a result, the pure electric BMW i3 and the BMW i8 hybrid sports car are already paragons of sustainability – even before they drive their first mile. 24 The start of production of the BMW i Series at the Leipzig plant marks a new chapter in automotive history: com- bining a totally new vehicle concept with revolutionary progress in clean production technology and sustain- ability to bring us closer to our goal of emission-free automobile production. United by a shared vision. BMW plant Leipzig 26 PARTNERSHIP UNITES US – CLEAN PRODUCTION SPARTANBURG USA 34° 57' N, 81° 56' W Dynamic growth with steadily decreasing emissions i a n h C / i i x e T t n a P l y n a m r e G / i g i z p e L t n a P l Recycling Center (Zero Waste Center) Gives waste a second life Page 40 Hydrogen store Supplies virtually emission-free fuel Page 36 Spartanburg plant profile Construction: Vehicle production (2012): BMW vehicles: Associates: 1994 301,519 X3, X5, X6, X5 M, X6 M around 5,000 Sustainable energy from landfill gases: around 50 % Reduction in CO2 emissions: 92,000 tons / year Energy headquarters Burns environmentally friendly landfi ll gas – instead of natural gas Page 32 Resource-efficient production using environmentally friendly energy sources and knowledge transfer with local institutions. Partnership unites us. BMW plant Spartanburg has not only grown dynamically, but also developed an extensive network. Through projects with local partners, we are able to continually reduce the plant’s dependence on fossil fuels and enhance our flexibility and efficiency, as well as our sustainability balance sheet. The plant’s capacity expansion to around 350,000 vehicles per year goes hand in hand with higher productivity and lower emissions per vehicle. Scan the QR code to go directly to the online Annual Report for tablets. http://annual-report2012.bmwgroup.com/spartanburg/ 29 The State House in the heart of Columbia is home to the government of South Carolina. BMW plant Spartanburg 30 PARTNERSHIP UNITES US: BMW PLANT SPARTANBURG AND LOCAL PARTNERS IN SOUTH CAROLINA, USA With a large number of research institutes, highly qualifi ed skilled workers and active citizens, South Carolina is the ideal location for the BMW Group’s US plant. In consultation with them, we continue to evolve and refi ne our plant. Three of the many local partners discuss their reasons and goals for collaboration: Robert M. Hitt South Carolina Secretary of Commerce Page 32 Russ Keller South Carolina Research Authority Page 36 Shelley Robbins Environmental organisation Upstate Forever Page 40 CLEAN PRODUCTION MILESTONES AT BMW PLANT SPARTANBURG The BMW Group was the fi rst German premium automobile manufacturer to launch its own production operations in the US back in 1994. Since then, the number of pioneering Clean Production projects has continued to increase in line with our production fi gures. 85 logistics vehicles powered by fuel cells Solar power for visitors’ centre Expansion of methane gas usage Recycling project (Zero Waste Project) Energy generation from methane gas Hydrogen generation field trial 230 logistics vehicles powered by fuel cells 301,519 vehicles Production start 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Automobile production at plant Spartanburg The Spartanburg plant has plenty of room for ideas and sustainable innovations. 31 BMW plant Spartanburg 32 METHANE GAS SUPPLIES SUSTAINABLE ENERGY Robert M. Hitt South Carolina Secretary of Commerce “ We should think more about which sustainable resources we can utilise, rather than depleting fossil fuels.” Our answer METHANE GAS SUPPLIES SUSTAINABLE ENERGY Beth Phillips Energy manager at BMW plant Spartanburg “ By using excess landfi ll gas, we are tapping into one of the most sustainable energy sources.” Our challenge 33 METHANE GAS SUPPLIES SUSTAINABLE ENERGY The plant obtains around half of its energy from waste landfi ll gases. CH4 H2 Pilot system generates hydrogen from methane gas Palmetto Landfill Extraction of methane gas BMW plant energy headquarters Conversion into electricity and heat BMW plant Usage of electricity and heat Microorganisms produce methane gas from old waste at the Palmetto Landfi ll. Wellheads extract the gas, which is then pumped to the Spartanburg plant through a 15-kilometre pipeline. BMW plant Spartanburg 34 Beth Phillips and her co-workers at the energy headquarters convert the greenhouse gas into renewable electricity and heat. This spares the environment about 92,000 tons of greenhouse gas emissions annually – and saves the BMW Group almost seven million US dollars a year in energy costs. 35 BMW plant Spartanburg 36 HYDROGEN FOR SUSTAINABLE LOGISTICS Russ Keller Vice President South Carolina Research Authority “ Our primary goal is mobility that uses emission-free, renewable energy.” Our answer HYDROGEN FOR SUSTAINABLE LOGISTICS Cleve Beaufort Energy manager at BMW plant Spartanburg “ Hydrogen-powered fuel cells turn the vision of zero-emission driving into reality.” Our challenge 37 HYDROGEN FOR SUSTAINABLE LOGISTICS Forklift trucks and trailers powered by environment-friendly hydrogen. The use of hydrogen in fuel cells generates only steam and heat. Hydrogen provides the fuel for 85 fuel-cell vehicles, which not only operate emission-free, but are also much faster to refuel. Over the course of this year, the plant fl eet will expand to 230 vehicles. At the same time, Cleve Beaufort and his co-workers are exploring how to obtain renewable hydrogen from methane gas at the Palmetto Landfi ll – a groundbreaking experi- ment that the US Department of Energy has classifi ed as the most important of its kind. BMW plant Spartanburg 38 2013 230 85 2011 Fleet expands to 230 vehicles plant vehicles powered by hydrogen-fed fuel cells Hydrogen station 39 BMW plant Spartanburg 40 EASING THE BURDEN ON LANDFILLS AND THE SOUTH CAROLINA ENVIRONMENT Shelley Robbins of the environmental organisation Upstate Forever “ Today, we need smarter solutions than landfi ll for our waste materials.” Our answer EASING THE BURDEN ON LANDFILLS AND THE SOUTH CAROLINA ENVIRONMENT Veronica Taylor Production planner at BMW plant Spartanburg “ We are already feeding almost all of our waste back into the raw materials cycle.” Our challenge 41 EASING THE BURDEN ON LANDFILLS AND THE SOUTH CAROLINA ENVIRONMENT The Zero Waste Project gives waste a second life. 491 tons of paper waste per month 217,000 tons of metal residues per month 100 % recycling 62 tons of plastic waste per month BMW plant Spartanburg 42 Where others see waste, Veronica Taylor and her co-worker, Wes Westbrooks, see valuable resources. They spent months analysing the amount of waste generated by the plant, training co-workers and fi nding suitable customers for everything left over from production, administration and even the canteen. Finally, in August 2012, the last truck with reusable waste headed to the landfi ll. Since then, all waste has been collected, sorted and reused. With its zero waste policy, the Spartanburg plant is recognised as a pioneer nationwide. 43 Our plants also collaborate with one another, as well as local partners, on new approaches for resource-efficient vehicle production. In this way, Clean Production innovations become worldwide standards – and solu- tions become the new point of reference. Using this approach, we aim to lower resource consump- tion and emissions per vehicle produced by an ambitious 45 per cent from 2006 levels by 2020. United by common standards. BMW plant Spartanburg 44 KNOW-HOW UNITES US – CLEAN PRODUCTION y n a m r e G / i g i z p e L t n a P l A S U / g r u b n a t r a p S t n a P l TIEXI CHINA 41° 48' N, 123° 21' E A leader in effi ciency and sustainability Regional suppliers For cooperation and reliability Page 56 Integrated production For fl exibility and climate protection Page 54 Tiexi plant profile Construction: Vehicles per year (2013): Vehicles per year (2015): Associates: Plant grounds: Plant building: 2011 / 2012 100,000 200,000 around 4,000 2.07 square kilometres 220,000 square metres High-speed servo press For speed and effi ciency Page 50 Smart plant architecture. Highly efficient pressing machines. Local suppliers. The cleanest paint shop in the world – and almost five dozen other sustainability measures: the newest plant in the BMW Group production network sets a new global benchmark. Know-how unites us. The highest standards of sustainability in a highly dynamic market: With the opening of its Tiexi plant in northern China, the BMW Group and its partner, Brilliance China Automotive, have built one of the most sustainable vehicle production sites in China and one of the best examples of environ- mentally conscious manufacturing world wide. Here, in the world’s largest automobile market, the company demonstrates how to deliver maximum productivity with unbeatably low environmental impact. Scan the QR code to go directly to the online Annual Report for tablets. http://annual-report2012.bmwgroup.com/tiexi/ 47 “What do we do when we plan a new plant? We bring the best ideas in the world together in one place.” Fiona Zhang, environmental expert at BMW Brilliance Automotive (BBA) Shenyang, a 90-minute flight northeast of Beijing, is a place of extremes. In winter, temperatures drop as low as 35 below freezing; in summer, they soar to a tropical 40 degrees Celsius. Not so long ago, this industrial city used to belong to China’s notorious north-eastern “rust belt” of mines and steelworks, coal-polluted air and natural devastation. Today, it is home to a world-class example of resource-efficient production. To the north-east of this city of eight million people, the BMW Group and its joint venture partner, Brilliance China Automotive Holdings, have built the most sustainable automotive manufacturing facility in China. The ultra- modern car plant, with an annual capacity of 200,000 vehi- cles, was raised from the ground in just two years on a plot of land roughly two square kilometres, located in the district of Tiexi. Environmental experts like Fiona Zhang from China and her South-African colleague, Sean Dempsey, brought fresh ideas and tried-and-tested approaches from around the world to Tiexi. At the same time, BMW Brilliance Automotive’s (BBA) newest plant also took local factors into account, choosing an architecture to fit the surroundings and bringing in regional suppliers. “We were pretty much able to give the plant the best of both worlds from the beginning,” says Dempsey, “which is a lot easier than optimising a production facility further down the line.” A tour of the plant with Zhang and Dempsey reveals no fewer than five dozen measures, small and large, to reduce energy and water consumption, solvent emissions, process wastewater and waste for disposal. Many of them involve smart optimisation of details – but together they make a huge difference. In this respect also, Shenyang is a city of extremes – in the most sustainable sense. The work day begins at what is currently China’s most sustainable car plant. Rush hour in Shenyang, a city which has rapidly grown to eight million inhabitants. The Tiexi plant uses proven Clean Production technologies from many other BMW Group plants. Fiona Zhang is amazed how quickly her country is catch- ing up in the field of environ- mental protection. “What takes much longer, though, is changing people’s mind- set,” explains the environ- mental expert. Nevertheless, she hopes to speed up progress here, too, through compulsory environmental training for all associates. Sean Dempsey worked as an industrial engineer at the BMW plant in Rosslyn, South Africa, for 14 years. Almost two years ago, the environ- mental expert moved with his family from Rosslyn to Shenyang to assist with con- struction of the Tiexi plant. While his children are enjoy- ing their very first ex perience of snow, Dempsey himself is relishing the unique chal- lenge of “helping design and build a completely new pro- duction site.” Two of around 4,000 experts: Sean Dempsey and Fiona Zhang 49 The high-speed servo press is undeniably worthy of its name: while the press line itself works at record-break- ing speed, a new equipment architecture also enables tools to be changed within minutes. In this way, body panels for totally different BMW models can be pro- duced within a very short time. – 67 % production time at the press line Six generators in the base- ment recapture some of the energy released by pressing processes. Overall, the new pressing machine cuts energy consumption by more than half. – 60 % energy consumption per work step One of the fastest, most effi cient press shops today. Low-emission dry separation is used at the Leipzig plant, among others. BMW plant Tiexi 50 HIGH-SPEED SERVO PRESS A powerful crane peeps a warning as it hovers over Sean Dempsey’s head; a press line with the dimensions of a substantial apartment building towers in front of him, while, at the other end of the enormous hall, an army of pressing tools weighing several tons awaits. “Small” is the last word anyone would use to describe the brand-new press shop. And yet, as the BBA environmental expert explains, many aspects here have been minimised: shorter tool change times and ultra-high-speed stroke rhythms ensure faster production cycles. Economical warehousing takes up less space and therefore reduces the area to be cooled, heated, cleaned and maintained. “This giant here,” says Dempsey, pointing at the huge press line, “is something of a miracle when it comes to flexibility and efficiency.” In fact, the so-called high-speed servo press technology used at the plants in Leipzig, Regensburg and Munich, and now also in Tiexi, is capable of up to 17 strokes per minute. Compared with conventional hydraulic presses, this not only reduces space requirements and production time per unit (– 67 %), but also power consumption per work step (– 60 %) and noise emissions (– 13 %). In other words: the “titan of Tiexi” is much faster, more efficient, more flexible and therefore more economical than conventional presses – and quieter, too. No less impressive are the performance figures for the paint shop – the most resource-intensive section of any car plant. Sean Dempsey explains how resources are conserved and emissions prevented through use of an integrated paint process developed at the Oxford plant, so-called dry separation (used in the Leipzig, Regensburg and Spartanburg plants) and the RoDip dip-painting process for corrosion protection. The environmental expert is proud to point out that, all in all, Tiexi currently boasts one of the most sustainable paint shop in the auto- motive industry. Every body part is re-examined at the end of the pressing process. Environmental experts in the pressing tool store. “Higher speed and efficiency ensure low energy consumption and increased productivity.” Sean Dempsey on the high-speed servo press installed at the Tiexi plant 51 Resource-efficient production through consistent best-practice implementation S C I T S G O L I 100 % reusable packaging for locally manufactured goods. Container warehouses on plant grounds and a rail link between port and plant reduce truck transportation. Location of high-volume suppliers on plant grounds reduces transportation distances. P O H S T N A P I Dry separation uses a stone dust-coated filter to eliminate paint mist and save water. RoDip dip-painting rotates the car body on its own axis in an immersion tank to apply corrosion protection. Integrated Paint Process using wet-on-wet cycles allows car bodies to be painted without applying primer. Highly efficient electric motors supply the building with economical and efficient energy. Integrated production houses assembly, body shop and logistics under one roof. The building’s limited exterior surface area helps optimise temperature regulation. District heating plants and thermal insulation contribute to low-resource energy usage and efficient temperature regulation. P O H S Y D O B Optimised robot control reduces energy consumption by switching on and off as demand requires. Cooled welding guns save energy through warm water exchange between building and technology. BMW plant Tiexi 52 I G N N N A L P G N D L I U B I Cold aisle containment saves energy and reduces CO2 emissions through strict separation of heated and cooled zones. E R T N E C T I Water cycles in car wash facilities and leak tests are designed to allow 90 % of the water to be recycled. Y L B M E S S A Ground collectors and aquifers conduct the summer heat from the main building into the ground for storage. The BMW Group has brought technologies and experience from many different sites in its global production network to the Tiexi plant. The overview below lists the most important elements of resource- friendly production. I X E I T W M B T N A L P Shenyang Beijing Shanghai Hong Kong P O H S S S E R P High-speed servo presses simultaneously reduce energy consumption, production time and noise. Scan the QR code to go directly to the Tiexi plant. 53 In Tiexi, for the first time, assembly, body shop and logistics are all located in one production hall. Highly efficient heating and cooling technologies ensure resource- efficient temperature control. – 32 % CO2 emissions through sustainable architecture 355 latest-generation pro- duction robots weld together body parts at the Tiexi plant. Their waste heat will be used in future to heat the plant. They already revert to an especially energy-efficient standby mode as soon as they are no longer in use – lowering their power consumption by one quarter. – 25 % electrical power through efficient standby mode Employees and vehicles under one roof Intelligent plant architecture For the fi rst time 4 production areas under one roof press shop body shop assembly logistics “The compact building more or less protects itself from the climate.” Sean Dempsey INTEGRATED PRODUCTION The most striking feature of the new vehicle plant is the 220,000-square-metre building, which, for the first time in the BMW Group production network, houses press shop, body shop, assembly and logistics under one roof. The integration of all these areas under one roof provides a kind of natural climate protection for the BBA plant. The building’s limited exterior surface area, second front of permanently installed slats, mostly north-facing windows and a white, sunlight-reflecting roof minimise exposure to sun and wind. Inside the building, a slew of resource-efficient measures maintain a constant indoor climate, despite outdoor temperature differences of more than 70 degrees. Produc- tion halls are naturally ventilated through strategically placed skylights. One method of cooling uses ground- water that is pumped back into its natural reservoirs after it has done its job – an environmentally compatible concept that has been used successfully for years at the BMW Group’s “Project House” in Munich. “For heating, besides district heating, we mostly use the energy- efficient low-temperature and high-temperature systems familiar from the Munich and Leipzig plants,” explains Fiona Zhang. Besides the primacy of efficiency, the main paradigm for the plant’s architecture is maximum flexibility. The new manufacturing facility is designed in such a way that the planned capacity expansion from 100,000 vehicles per year initially to up to 200,000 units can be completed without disrupting on-going operations. The plant will then be able to produce any additional BMW model re- quired at any time alongside the BMW X1 and the BMW 3 Series Sedan long-wheelbase version – with everything still under the same roof. The Tiexi plant is already a model for others. 55 A network of local suppliers ensures that the Tiexi plant is supplied with parts in a reliable, fast and resource- efficient manner. Partners from the region were also in- volved in developing and building the production fa- cilities. In a first for China, four suppliers with 500 asso- ciates currently operate directly on site at the plant. For the first time in the BMW Group production network, only reusable packaging is used for local cargo han- dling. This means 100 per cent protection for products and material, and zero per cent waste. 100 % reusable packaging for locally manufactured goods Key suppliers are also located on-site at other BMW Group plants. Effi cient logistics Suppliers with 500  associates operate directly on-site at the plant REGIONAL SUPPLIERS Every 20 minutes, on the dot, a heavily laden tugger train jolts to a start at the Tiexi plant’s supplier building. Materials are transported through a 300-metre tunnel directly to the assembly lines, where the supplied parts are immediately built into new BMW vehicles. The parts are manufactured right next door in the plant’s supplier hall, where four partner companies with around 500 as- sociates currently produce car seats, axles, roof liners and shock absorbers for BBA. The concept of housing major volume suppliers directly on-site, unique in China, gen- erates a whole range of benefits, both for BBA and the regional partners themselves. “It gives us a real home ad- vantage,” says Sherman Du, general manager of a seat manufacturer based at the plant. “Because our produc- tion is here on-site, we are able to meet demand from the plant straight away – and, if problems arise, we can fix them right on the assembly line.” Many of the materials and vehicle parts that have to be shipped from farther afield will be delivered to the Tiexi plant by rail in the future. The completion of a direct train link between port and plant will allow a significant percentage of transport volumes to be switched to rail, largely eliminating the need for truck delivery. This will not only improve the plant’s CO2 balance sheet, but also its supply security. In icy temperatures and difficult road conditions, truck delivery is much riskier than rail. Material carriers deliver supplier parts directly to the assembly line just in time. Sherman Du’s company builds car seats. “The plant and the region strengthen each other through jobs, advanced technology and constant learning from one another.” Fiona Zhang 57 Incorporating a large number of pioneering concepts from all over the world, the Tiexi plant is currently con- sidered best practice. For us, however, it is just one more step on the road towards increasingly resource-friendly production of our vehicles. The BMW Group’s global production network constantly generates new ideas for this. For one another and with one another. United by common goals. BMW plant Tiexi 58 JOY BRINGS PEOPLE TOGETHER Creating moments of sheer pleasure for our customers Moments of sheer pleasure 2012 Our latest models presented to their new owners Klaus Schulten / BMW 640d Gran Coupé Petra Bräuhauser / MINI Cooper Roadster Dr. Klaus-Peter Fritzsche / BMW 750i Linda Bätz / BMW X1 xDrive28i Patrick Shuao-Fong Chung / BMW ActiveHybrid 5 Page 70 Page 72 Page 64 Page 68 Page 74 Helmut Berner / BMW C 650 GT Fabrice Rustler and Enrico Lepschi / BMW 318d Touring Manuela Gruschwitz / MINI John Cooper Works Herbert Geiss / Rolls-Royce Phantom Series II Page 76 Page 82 Page 80 Page 78 Scan the QR code to go directly to the online Annual Report for tablets. http://annual-report2012.bmwgroup.com/moments-of-sheer-pleasure/ Final preparations for the big moment – ten stages before presentation of a BMW 640d Gran Coupé 9 October 2012, BMW plant in Dingolfi ng 02 01 The new BMW 640d Gran Coupé receives a fi nal polish. Johannes Schütz [01] smiles at his refl ection in the gleaming paintwork. Muhammet Asik [02] checks that everything is exactly as it should be. He is proud of his role in bringing the vehicle to life. 61 Only a few more hours at the plant – Finishing touches at BMW Welt 9 October 2012, BMW plant in Dingolfi ng | 19 November 2012, BMW Welt vehicle storage facility 03 05 04 Moments of sheer pleasure 62 06 07 The car is only allowed to leave the plant once Renate Hauer [03 / 04] has performed an expert check of its technology. The fi nal detail is complete when Daileen Böhme [05] mounts the BMW logo on the Gran Coupé. From that moment on, everything is ready for the customer. The excitement grows as the new car arrives at BMW Welt. Sascha Zahreddin [06 / 07] is the man in charge of the fi ner details. Every inch of the car is carefully scrutinised one last time – until not a speck of dust remains. [08] The new BMW 640d Gran Coupé is now ready for its entrance and its ultimate premiere at BMW Welt. 63 08  10 09 Klaus Schulten [09] will get to see his new car for the fi rst time in just a few moments. He took his time carefully choosing equipment options as well as the colour. Full of anticipation, he tries to catch a glimpse of his new car. [10] And then, there it is. Moments of sheer pleasure 64 Moments of sheer pleasure for our customers – the fascination of the fi rst encounter 20 November 2012, BMW Welt vehicle delivery 65 Attributes that impressed me right away … dynamic great acoustics superior sporty Klaus Schulten, BMW Welt, Munich, 20 November 2012 Moments of sheer pleasure 66 BMW 640d Gran Coupé A design that perfectly combines sportiness with comfort, inside and out. For those who like to express their individuality. Resource-effi cient production The BMW 640d Gran Coupé is produced at the BMW plant in Dingolfing. Almost 70 % of new vehicles leaving the Dingolfing plant are shipped by emission-friendly rail. As a result, over 100 fewer trucks are needed per day. Scan the QR code to go directly to the BMW 640d Gran Coupé website. What I am most looking forward to … “ Listening to the Vienna Philhar- monic New Year’s concert with Mariss Jansons on the drive home and enjoying the unique sound in this fantastic interior. And, of course, trying out everything else right away.” 67 MINI Cooper Roadster Powerful, aerodynamic and impressively agile. For those who like to combine adventure with comfort. With its spacious design, the new MINI Roadster is the perfect choice. Resource-effi cient production The MINI Cooper Roadster is produced at the MINI plant in Oxford. Thanks to a new painting technology, the paint shop uses 8,000 MWh less energy and generates 1,600 tons less CO2. What I am most looking forward to … “ Driving through Italy for the fi rst time with the top down. But mostly, I’m happy to own a MINI again. It has been a cult car to me for more than 20 years.” Petra Bräuhauser, MINI Munich, 6 December 2012 Moments of sheer pleasure 68 Scan the QR code to go directly to the MINI Cooper Roadster website. Attributes that impressed me right away … smooth-running responsive free pure agile 69 What I am most looking forward to … “ My next business trip, when I’ll be driving for several hours again. It should be nice and relaxed in this model. The 7 Series is such a quiet ride, you hardly hear any noise at all. No stress or strain for me or my body. So I’ll arrive as fresh as I left.” BMW 750i For visionaries who seek the ideal combination of luxurious comfort and the ultimate in intelligent safety for a unique driving experience. Resource-effi cient production The BMW 750i is produced at the BMW plant in Dingolfing. More than half of the plant’s water requirements are met by groundwater that is unsuitable for drinking. This conserves valuable resources. Dr. Klaus-Peter Fritzsche, BMW Welt, Munich, 8 November 2012 Scan the QR code to go directly to the BMW 750i website. Moments of sheer pleasure 70 Attributes that impressed me right away … safe powerful  innovative luxurious 71 Attributes that impressed me right away … fl exible convenient Linda Bätz, BMW Welt, Munich, 9 November 2012 BMW X1 xDrive28i The perfect car for anyone who likes to add their own personal touch and appreciates functional versatility. Resource-effi cient production The BMW X1 xDrive28i is produced at the BMW plant in Leipzig. Heat recovery in the paint shop: reclaimed waste heat is reused at other stages of the production process. This lowers gas consumption and demand for electrical power by 32 %. Moments of sheer pleasure 72  athletic nimble strong Scan the QR code to go directly to the BMW X1 xDrive28i website. What I am most looking forward to … “ I am going to drive straight to my daughter’s and take her on a shopping trip. I decided on a smaller car, because my children are grown up – but there is still plenty of space in the luggage compartment.” 73 Scan the QR code to go directly to the BMW ActiveHybrid 5 website. Patrick Shuao-Fong Chung, BMW Welt, Munich, 21 November 2012 Attributes that impressed me right away … connected reliable  uncompromising environmentally friendly Moments of sheer pleasure 74 What I am most looking forward to … “ The fi rst time I drive in California, I want to open the sun roof and cruise along the roads silently and emission-free – just so I can be at one with nature.” BMW ActiveHybrid 5 With its highly intelligent drive concept, this hybrid is the right choice for anyone looking for an environmentally friendly car with the ideal dimensions of a sedan, but unwilling to compromise on dynamic performance. Resource-effi cient production The BMW ActiveHybrid 5 is produced at the BMW plant in Dingolfing. The paint shop reconditions up to 40,000 litres of water per hour, which it then feeds back into the production processes. 75 Scan the QR code to go directly to the BMW C 650 GT website. BMW C 650 GT For sprints and long distances: the new Maxi-Scooter conveys an amazing feeling of freedom and independence. It is extremely economical and features many practical details, such as LED daytime running lights for added safety. Resource-effi cient production The BMW C 650 GT is produced at the BMW plant in Berlin. Electrostatic coating of plastic parts significantly reduces emissions. What I am most looking forward to … “ When I get to ride my new scooter in the mountains for the fi rst time, or cruise past all those RVs during the summer holidays. Now I have the driving performance of a motorcycle with all the comfort of a scooter.” Moments of sheer pleasure 76 Attributes that impressed me right away … comfortable mobile outdoorsy efficient independent Helmut Berner, Karl Maier Motorrad, Neufinsing near Munich, 5 December 2012 77 What we are most looking forward to … “ We are going snowboarding in just a few days. It should be a nice, smooth drive in this car and we’ll have plenty of room for all our equipment. And for our dog, Nika, too.” BMW 318d Touring Consistently smart design for maximum fl exibility. The authentic feel of the new BMW 318d Touring is also part of its appeal. Resource-effi cient production The BMW 318d Touring is produced at the BMW plant in Munich. 99.8 % of the waste generated at the BMW plant in Munich is recycled. Scan the QR code to go directly to the BMW 318d Touring website. Moments of sheer pleasure 78 Fabrice Rustler and Enrico Lepschi, BMW Welt, Munich, 19 December 2012 Attributes that impressed us right away… spacious  harmonious smooth dependable fuel-effi cient 79 Scan the QR code to go directly to the MINI John Cooper Works website. Manuela Gruschwitz, MINI Munich, 20 December 2012 Attributes that impressed me right away … bold unusual likeable thrilling clever Moments of sheer pleasure 80 What I am most looking forward to … “ We have set up a whole fl eet of MINI for our company. MINI is a way of life for me – a holiday I can look forward to every day.” MINI John Cooper Works The fastest MINI on the road today, with exceptional traction control combined with intelligent technology for top performance. Resource-effi cient production The MINI John Cooper Works is produced at the MINI plant in Oxford. The paint shop ventilation system recycles heated air back into the system to supply the main paint spraying unit. This saves 6,000 MWh of energy and 1,250 tons of CO2 per year. 81 What I am most looking forward to … “ I’m going to drive all the way down to Nuremberg this weekend, so I can enjoy the car to the full. Normally, I only drive a car for a short while. But I want to drive my new Rolls-Royce for longer. There’s no alternative to the Phantom for me anymore.” Rolls-Royce Phantom Series II A combination of the latest technology and engineering expertise with timeless, con- temporary design: for all those who seek to redefi ne luxury. Resource-effi cient production The Rolls-Royce Phantom Series II is produced at the Rolls-Royce plant in Goodwood. The Goodwood plant pursues a rigorous recycling and waste prevention policy. Parts are delivered in recyclable packaging to avoid waste. Scan the QR code to go directly to the Rolls-Royce Phantom Series II website. Moments of sheer pleasure 82 Herbert Geiss, Rolls-Royce, Cologne, 4 February 2013 Attributes that impressed me right away … quiet top-quality workmanship refined exclusive 83 Contacts BUSINESS AND FINANCE PRESS Telephone Fax E-mail INVESTOR RELATIONS Telephone Fax E-mail +49 89 382-2 45 44 +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 Scan the QR code to go directly to the online Annual Report for tablets. http://annual-report2012.bmwgroup.com 84 A T A D N O I T P M U S N O C Consumption data Model BMW BMW X1 xDrive28i BMW 750i BMW 640d Gran Coupé BMW ActiveHybrid 5 BMW 318d Touring MINI MINI Cooper Roadster MINI John Cooper Works (Hatch) Urban (l / 100 km) Extra-urban (l / 100 km) Combined (l / 100 km) CO2 emissions (g / km) combined Manual transmission Automatic transmission Automatic transmission Automatic transmission Automatic transmission Manual transmission Automatic transmission Manual transmission Automatic transmission Manual transmission Automatic transmission 9.9 – 9.7 9.3 – 9.1 11.9 6.9 – 6.8 6.2 – 5.7 5.8 – 5.6 5.7 – 5.5 7.2 8.9 8.8 10.1 6.6 – 6.4 6.2 – 6.1 6.6 4.9 – 4.8 7.4 – 6.7 4.1 – 3.9 4.1 – 4.0 4.9 5.3 5.3 5.3 10.2 7.8 – 7.7 7.3 – 7.2 8.6 5.7 – 5.5 7.0 – 6.4 4.7 – 4.5 4.7 – 4.5 5.7 6.6 6.6 7.1 14.8 182 –179 171 –168 199 149 –146 163 –149 123 –119 123 –119 133 154 153 165 347 Rolls-Royce Rolls-Royce Phantom Series II Automatic transmission 22.8 Fuel consumption and CO2 emissions are dependent on wheel and tyre size. Further, regularly updated information on vehicles can be found on the www.bmw.com, www.mini.com and www.rolls-roycemotorcars.com websites. Fuel consumption is determined in accordance with the ECE driving cycle. Valid for vehicles with a European country specification. All engines comply with Euro-5 emissions standards. 85 PUBLISHED BY Bayerische Motoren Werke Aktiengesellschaft 80788 Munich Germany Tel. +49 89 382-0 

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