BMW AG
Annual Report 2013

Plain-text annual report

annual RepoRt 2013 s t n e t n o C 3 bmw gRoup in FiguRes 6 RepoRt oF the supeRvisoRy boaRd 14 18 18 24 63 81 82 85 88 88 88 90 92 94 96 statement oF the ChaiRman oF the boaRd oF management Business Model Management System Research and Development Combined management RepoRt General Information on the BMW Group 18 20 23 Report on Economic Position 24 24 27 29 47 Overall Assessment by Management General and Sector-specific Environment Financial and Non-financial Performance Indicators Review of Operations Results of Operations, Financial Position and Net Assets Events after the End of the Reporting Period Outlook Risks Report Report on Opportunities 62 Report on Outlook, Risks and Opportunities 63 68 77 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process Disclosures Relevant forTakeovers BMW Stock and Capital Market in 2013 gRoup FinanCial statements Income Statements for Group and Segments Statement of Comprehensive Income for Group Balance Sheets for Group and Segments Cash Flow Statements for Group and Segments Group Statement of Changes in Equity Notes to the Group Financial Statements 96 114 121 122 145 161 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 166 166 167 168 169 172 174 179 180 185 statement on CoRpoRate goveRnanCe (§ 289 a hgb) (Part of the Combined 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 194 Responsibility Statement by the Company’s Legal Representatives 195 Auditor’s Report 196 196 198 200 202 204 205 otheR inFoRmation BMW Group Ten-year Comparison BMW Group Locations Glossary Index Financial Calendar Contacts 3 BMW Group in figures Automotive segment Sales volume BMW 1 MINI Rolls-Royce Total Production volume BMW 2 MINI Rolls-Royce Total Motorcycles segment Sales volume3 BMW Production volume4 BMW 2009 2010 2011 2012 2013 Change in % 1,068,770 1,224,280 1,380,384 1,540,085 1,655,138 216,538 1,002 234,175 2,711 285,060 3,538 301,526 3,575 305,030 3,630 1,286,310 1,461,166 1,668,982 1,845,186 1,963,798 1,043,829 1,236,989 1,440,315 1,547,057 1,699,835 213,670 918 241,043 3,221 294,120 3,725 311,490 3,279 303,177 3,354 1,258,417 1,481,253 1,738,160 1,861,826 2,006,366 7.5 1.2 1.5 6.4 9.9 – 2.7 2.3 7.8 87,306 98,047 104,286 106,358 115,215 8.3 82,631 99,236 110,360 113,811 110,127 – 3.2 Financial Services segment New contracts with retail customers 1,015,833 1,083,154 1,196,610 1,341,296 1,471,385 Workforce at end of year 5 BMW Group 96,230 95,453 100,306 105,876 110,351 9.7 4.2 1 Including automobiles from the joint venture BMW Brilliance (2009: 43,702 units, 2010: 53,701 units, 2011: 94,400 units, 2012: 141,165 units, 2013: 198,542 units). 2 Including automobiles from the joint venture BMW Brilliance (2009: 35,952 units, 2010: 55,588 units, 2011: 98,241 units, 2012: 150,052 units, 2013: 214,920 units). 3 Excluding Husqvarna, sales volume up to 2013: 59,776 units. 4 Excluding Husqvarna, production up to 2013: 59,426 units. 5 Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners. 4 BMW Group in figures Financial figures in € million Capital expenditure 2009 2010 2011 2012 2013 Change in % 3,471 3,263 3,692 5,240 6,687 27.6 Depreciation and amortisation 3,600 3,682 3,646 3,541 3,739 Operating cash flow 1 4,921 8,149 8,110 9,167 9,450 Revenues Automotive Motorcycles Financial Services Other Entities Eliminations 50,681 43,737 1,069 15,798 3 60,477 54,137 1,304 16,617 4 68,821 63,229 1,436 17,510 5 76,848 70,208 1,490 19,550 5 76,058 70,629 1,504 19,874 6 – 9,926 – 11,585 – 13,359 – 14,405 – 15,955 Profit before financial result (EBIT) Automotive Motorcycles Financial Services Other Entities Eliminations Profit before tax Automotive Motorcycles Financial Services Other Entities Eliminations Income taxes Net profit Earnings per share3 in € 289 – 265 19 355 30 150 413 – 588 11 365 51 574 – 203 210 5,111 4,355 71 1,201 – 41 – 475 4,853 3,887 65 1,214 45 – 358 8,018 7,477 45 1,763 – 19 – 1,248 7,383 6,823 41 1,790 – 168 – 1,103 – 1,610 3,243 – 2,476 4,907 0.31 / 0.33 4.93 / 4.95 7.45 / 7.47 8,2752 7,5992 9 1,558 58 – 949 7,8032 7,1702 6 1,561 32 – 937 – 2,6922 5,1112 7.752 / 7.772 7,986 6,657 79 1,643 44 – 437 7,913 6,561 76 1,639 164 – 527 – 2,573 5,340 5.6 3.1 – 1.0 0.6 0.9 1.7 20.0 – 10.8 – 3.5 – 12.4 – 5.5 – 24.1 54.0 1.4 – 8.5 – 5.0 – 43.8 4.4 4.5 1 Cash inflow from operating activities of the Automotive segment. 2 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 3 Common / preferred stock. In computing earnings per share of preferred stock, earnings to cover the additional dividend of € 0.02 per share of preferred stock are spread over the quarters of the corresponding financial year. 8.10 / 8.12 4.5 / 4.5 5 BMW Group in figures Sales volume of automobiles* in thousand units 1,900 1,800 1,700 1,600 1,500 1,400 1,300 Revenues in € billion 75 70 65 60 55 50 45 09 10 11 12 13 09 10 11 12 13 1,286.3 1,461.2 1,669.0 1,845.2 1,963.8 50.7 60.5 68.8 76.8 76.1 * Includes cars manufactured by the BMW Brilliance joint venture. 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 09 10 11 12 13 09 10 11 12 13 289 5,111 8,018 8,275* 7,986 413 4,853 7,383 7,803* 7,913 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 6 Joachim Milberg Chairman of the Supervisory Board 7 RepoRt of the SupeRviSoRy BoaRd Dear Shareholders and Shareholder Representatives, The BMW Group has again fared extremely well over the past financial year. Throughout the twelve- month period, we diligently supervised the Board of Management’s running of the business and, in joint consultations, supported it in an advisory capacity. Our work within the Supervisory Board and in con- junction with the Board of Management was conducted openly, constructively and in a spirit of trust. Main emphases of the Supervisory Board’s monitoring and advisory activities In a total of five meet- ings, we deliberated on the BMW Group’s current situation. Other matters at the forefront of our consulta- tions were corporate strategy and planning for the BMW Group as a whole, the strategy being pursued for the Financial Services segment in particular, risk management and levels of risk provision. Decisions were also taken with respect to the composition and compensation of the Board of Management and an examination of corporate governance within the enterprise was carried out. In 2013 we paid particular attention to the progress being made in the field of electromobility and to the efforts expended and the challenges arising for the BMW Group regarding the necessity to continue to reduce emissions. We carefully monitored the performance of the BMW Group and were regularly kept informed of sales performance, workforce developments and other significant matters, both at scheduled meetings and at other times as the need arose. Moreover, the Chairman of the Board of Management, Dr Reithofer, informed me directly about major business transactions and projects. In addition to scheduled meetings, Dr Kley, the Chairman of the Supervisory Board’s Audit Committee, and Dr Eichiner, the Board of Management member responsible for Finance and Financial Reporting, remained in direct contact at other times. In its regular reports on the financial condition of the Group, the Board of Management presented its assessment of economic developments in important regions of the world, commented on sales volume and competitive issues within the Automotive and Motorcycles segments and highlighted fluctuations in the size of the workforce. We were also kept informed of the performance of the Financial Services segment, including new retail business volumes, the size of the contract portfolio with dealers and retail customers, total business volume and the development of vehicle residual values on major markets. The business status reports provided by the Board of Management also dealt with important ongoing activities and projects, such as the current status of the realigned strategy adopted for BMW Motorrad as well as the progress of cooperation discussions and projects with Toyota. The Supervisory Board was also informed of any temporary delays affecting spare parts supplies during the summer and deliberated on causes and countermeasures required. One of the Supervisory Board meetings was held at the BMW site in Berlin, where we visited BMW Motorrad’s production facilities. The Board of Management and local management representatives took this opportunity to present their vision of the new strategic direction of the motorcycle line of business, with its focus on the premium segment. As well as receiving an insight into new product concepts, we were also informed of the range of measures currently being implemented in the fields of production, sales and marketing, aimed at attracting new motorcycle customer groups and making inroads on emerging markets with appropriate products. We looked at the regulatory situation on the world’s major markets, particularly in the EU, China, USA and Japan, both for vehicles powered by combustion engines and those with alternative drive systems. The Board of Management elucidated numerous options for achieving further reductions in carbon emission levels for conventional vehicles and the genuine benefits that can be generated by expanding electromobility products 8 and services in various markets. Future emission targets currently being mulled over by policymakers, the various proposals put forward in this context and their likely impact on the BMW Group as a premium manu- facturer and on the competitive situation were also discussed with the Board of Management. We devoted considerable time to deliberating on the expectations and needs of customers with respect to electric mobility. In this context, we gave careful consideration to the production and marketing concepts for the BMW i3, including complementary services and measures, such as the BMW Battery Certificate or Range Extender, both of which have been developed to meet specific customer requirements. At one two-day meeting of the Supervisory Board, corporate and product strategies were considered, the Long-term Business Forecast examined and time set aside for a detailed look at a range of salient technical and marketing topics. During the first part of the meeting we again discussed with the Board of Management the findings of its annual review of the Group’s Strategy Number ONE, including various potential risk scenarios. The Board of Management reported on the distribution of sales volume and added value, focusing in particular on the latest status of projects in China and on plans for building further production sites in Brazil, Russia and the NAFTA region. In conjunction with vehicle presentations, Supervisory Board members also had the opportunity to test-drive a number of BMW, MINI and Rolls-Royce vehicles, including the BMW i3 and BMW i8. Presenta- tions were also made by senior department heads on selected marketing and technical topics related to electromobility. After concluding the Annual Strategy Review, the second part of the meeting included an in-depth dis- cussion of the long-term business forecast drawn up by the Board of Management for the years from 2014 to 2019 and, after thorough examination and deliberation, we gave the required approval. We remain firm in our conviction that the strategic direction set by the Board of Management for the BMW Group is robust and sustainable. The Board of Management reported to us on the performance and strategy of the Financial Services segment, explaining the principal aspects of its internal management and organisation. We deliberated on the role the segment plays within the Group, including a discussion of the impact of increasing regulation in the financial sector. We also thoroughly examined the Annual Budget for the financial year 2014, which was presented by the Board of Management in November 2013. We fully support the focus being placed on growth and quality of earnings. We were also briefed in detail by the Board of Management on the results of regional customer surveys relating to product quality, the perception of quality and the acceptance of concepts. The assurance and improvement of quality processes and measures were explained to us and we were also afforded an interest- ing insight into regional and cultural differences in customer expectations. In all cases, the Board of Manage- ment emphasised its aspiration to maintain the highest level of quality. The Supervisory Board and the Board of Management jointly addressed the topic of corporate governance within the BMW Group on several occasions in 2013. Following the amendment to the variable component of Supervisory Board compensation by the Annual General Meeting in May 2013, the remuneration structure 9 RepoRt of the SupeRviSoRy BoaRd now complies with all relevant recommendations of the German Government Corporate Governance Code Commission. In the most recent Declaration of Compliance, which was issued in December 2013, the Board of Management and the Supervisory Board resolved that the BMW Group should comply with the recommendations of the German Government Corporate Governance Code Commission published on 15 June 2013 (Code version; 15 May 2013), without exception and with effect from the applicable date. Again in 2013, in both the Personnel Committee and the full Supervisory Board we examined both the structure and the amount of the compensation that Board of Management members receive. In order to vali- date the suitability of the system and the appropriateness of results, we reviewed the comparable trends for business performance and Board of Management compensation on a multi-year basis. We also gave general consideration to the development of the remuneration of executive managers and employees of BMW AG within Germany over the course of time. Moreover, we sought the expertise of an external compensation consultant, independent of both Company and Board of Management, and evaluated compensation studies for the DAX. To accommodate the desire for a consistent remuneration model throughout the Group, the Personnel Committee also made enquiries into the structure of management remuneration and the status of any planned changes to that structure. Relevant points were discussed by the full Supervisory Board, where, after deliberation, it was decided that a fundamental change to the Board of Management compensa- tion system is not required. Pension entitlements were also reviewed. Based on a proposal put forward by the Personnel Committee, and after discussion with an independent compensation consultant, with effect from the financial year 2013 we resolved to increase the extent to which contributions for Board of Management members are stag- gered. Future calculations will be based on the length of service on the board as well as previous activities and individual amounts will be increased to take account of benchmark developments in the DAX. For these purposes, we considered the estimated impact on compensation as a whole and on the probable future level of pensions. In the course of implementing the recommendations of the German Government Corporate Governance Code Commission, we set caps for the individual components and the total amount of compensation for Board of Management members with effect from the financial year 2014. The target compensation levels for Board of Management members remain unchanged. The employment contracts of current Board of Manage- ment members were amended, with the agreement of those members, with effect from 1 January 2014. Detailed information with respect to Board of Management compensation, including a summary of remunera- tion caps, is shown in the Compensation Report. 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) on the status of implementation of the diversity concept throughout the BMW Group, a concept which is not merely restricted to a focus on gen- der, but which is aimed at promoting diversity in other areas, particularly in terms of cultural diversity and the international character of the workforce. In this context, the Board of Management informed us regarding the percentage of women occupying management positions and changes thereto, in particular at senior management level and executive level below the Board of Management, as well as the planned measures to increase this percentage. With regard to its own composition, based on a detailed composition profile, the Supervisory Board decided upon specific appointment goals in 2010, which are discussed in detail in the Corporate Governance Report. These appointment goals were not changed in 2013. No conflicts of interest arose during the year under report on the part of members of either of the boards. Significant transactions with Supervisory 10 Board members and other related parties as defined by IAS 24, including close relatives and intermediary entities, are examined on a quarterly basis. We endeavour to assess and continuously improve the efficiency of the work performed by the Super visory Board and its committees. The Chairman of the Audit Committee and myself are therefore always glad to receive comments and suggestions for improvement from Supervisory Board members. The formal examina- tion of the Supervisory Board’s efficiency is also treated once each year as a separate agenda point for dis- cussion, for which preparations are made with the aid of a questionnaire. Each of the five Supervisory Board meetings in 2013 was attended on average by over 95 % of its mem- bers, a fact that can be tied in to the analysis of attendance fees for individual members, as disclosed in the Compensation Report. No member of the Supervisory Board was absent at more than two meetings during their period of office. Presiding Board and committee meetings were fully attended in the vast majority of cases. Description of Presiding Board activities and committee work In order to work more efficiently and prepare complex issues and decisions with greater thoroughness, the Supervisory Board has established a Presiding Board and several committees. A description of the duties, composition and work procedures of these committees is provided in the Corporate Governance Report. The relevant committee chairpersons provided timely and comprehensive accounts of the work of the Presiding Board and committees and I personally brought the representatives of the shareholders up to date about the work of the Nomination Committee. In a total of four meetings, the Presiding Board focused mainly on preparing topics for the meetings 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. The Head of Financial Services, for instance, reported to us on segment strategy, business developments, credit risks and leasing vehicle residual value risks as well as providing us with detailed information on the current status of various strategic projects. The Presiding Board selected further topics of discussion for Supervisory Board meetings and made suggestions to the Board of Management regarding items to be included in its reports to the full Supervisory Board. The Audit Committee held four meetings and three telephone conference calls during 2013. The Interim Financial Reports were discussed with the Board of Management in those telephone conference calls, prior to their publication. Representatives of the external auditors were present during the telephone conference call held to present the Interim Financial Report for the six-month period ended 30 June 2013. The report had been subjected to review by the external auditors. The Audit Committee meeting held in spring 2013 was primarily dedicated to preparing the Supervisory Board meeting at which the financial statements were examined. Prior to proposing KPMG AG Wirt schafts- prüfungs gesellschaft for election as Company and Group auditor at the 2013 Annual General Meeting, we obtained a Declaration of Independence from KPMG. 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, grounds for exclusion or lack of independence on the part of the auditor. 11 RepoRt of the SupeRviSoRy BoaRd The fee proposals for the audit of the year-end Company and Group Financial Statements 2013 and the review of the six-month Interim Financial Report were deemed appropriate by the Audit Committee. Sub- sequent to the Annual General Meeting 2013, the Audit Committee therefore appointed KPMG AG for the relevant engagements and, with due consideration to the suggestions made by the full Supervisory Board, specified audit focus areas, which, in 2013, included the measurement of warranty and pension provisions as well as the recognition of development costs incurred in conjunction with cooperation agreements. The Head of Group Financial Reporting reported to the Audit Committee on risk management processes in place throughout the BMW Group, including an in-depth description of the internal control system (ICS) underlying financial reporting. The procedures for determining the degree of maturity of a unit’s ICS were ex- plained on an illustrative basis for a plant, a sales company and a financial services company. The Chairman of the BMW Group Compliance Committee reported to the Audit Committee on the cur- rent compliance situation, which, as in the previous year, was deemed satisfactory overall. None of the in- formation received relating to potential non-compliance or actual incidences of non-compliance identified in specific cases give any indication of serious or systematic non-compliance with applicable requirements. The Head of Group Internal Audit reported to us in the Audit Committee on the significant findings of audits conducted by Group Internal Audit, on both the industrial and financial services sides of the business, and put forward suggested recommendations for improvement. We concurred in the Audit Committee with the decision of the Board of Management to raise the Com- pany’s share capital in accordance with § 4 (5) of the Articles of Incorporation (Authorised Capital 2009) by €265,570 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 Personnel Committee convened four times during the financial year 2013. In preparation of the full Supervisory Board’s meetings, we reviewed the structure and appropriateness of Board of Management compensation, including pension entitlements. We also worked on proposals to increase the extent to which pension contributions for Board of Management members are staggered and to implement the latest recommendations of the German Government Corporate Governance Code Commis- sion relating to compensation and / or changes in employment contracts. In one case, we also gave our approval for a member of the Board of Management to accept the mandate for membership of the supervisory board of a non-BMW Group entity. The Nomination Committee convened twice during the financial year 2013. At these meetings, we de- liberated on medium and long-term successor planning for the shareholders’ representatives on the Super- visory Board and considered proposals for candidates for the Supervisory Board elections at the 2013 and 2014 Annual General Meetings, taking the composition objectives stipulated for the Supervisory Board into due account. The statutory Mediation Committee (§ 27 (3)) of the Law on Worker Participation) was not required to be convened during the financial year 2013. Composition and organisation of the Board of Management It was with much regret, but also with a great deal of respect and understanding, that we accepted the decision taken by Frank-Peter Arndt to step down from his position as Board of Management member responsible for Production with effect from 31 March 2013 12 for reasons of health. We expressed our deep appreciation to Mr Arndt for his many years of committed and conscientious service and for the personal contribution he made to the success of the BMW Group. Details of the arrangements put in place for Mr Arndt following the termination of his board activities are provided in the Compensation Report. In conjunction with a reassignment of responsibilities within the Board of Management with effect from 1 April 2013, responsibility for Production was entrusted to Harald Krüger, who had been in charge of the MINI, BMW Motorrad, Rolls-Royce and BMW Group Aftersales division since its creation in 2012. With effect from 1 April 2013, the Supervisory Board appointed Peter Schwarzenbauer as member of the Board of Manage- ment. With many years of management experience in the premium segment of the automobile industry behind him, Mr Schwarzenbauer took over responsibility for the MINI, BMW Motorrad, Rolls-Royce, After- sales BMW Group division from Mr Krüger as part of the reallocation of responsibilities within the Board of Management. The appointment of one member of the Board of Management was renewed by the Super- visory Board. Composition of the Supervisory Board, the Presiding Board and Supervisory Board Committees Fol- lowing the resignation of Oliver Zipse as executive staff representative on the Supervisory Board with effect from 31 March 2013, in order to take up a new management position within the BMW Group, the District Court of Munich – based on a proposal made by executive staff – appointed Dr Markus Schramm (Head of Aftersales Business Management and Mobility Services BMW Group) as executive staff representative on the Supervisory Board for the remaining term of office. Maria Schmidt retired on 30 June 2013 and therefore ceased to be a member of the Supervisory Board. The Supervisory Board thanked the members leaving office for their constructive work within the Supervisory Board. The District Court of Munich appointed Brigitte Rödig as employee representative on the Supervisory Board to replace Maria Schmidt for the remaining term of office. Following these changes, the proportion of women in the Supervisory Board remains at 20 %. Following my own re-election to the Supervisory Board at the Annual General Meeting 2013, the Super- visory Board again decided to elect me as its Chairman and member of the Audit Committee. In accordance with the relevant terms of reference, I remained Chairman of the Personnel and Nomination Committees. Following his re-election to the Supervisory Board, Dr Kley was again elected as the 4th Deputy Chairman of the Supervisory Board, as member of the Personnel and Nomination Committees and also Chairman of the Audit Committee. The Corporate Governance Report includes an overview of the composition of the Supervisory Board and its committees. Examination of financial statements and the profit distribution proposal KPMG AG Wirtschaftsprüfungs- gesellschaft conducted a review of the abridged Interim Group Financial Statements and Interim Group Management Report for the six-month period ended 30 June 2013. 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 2013 and the Combined Management Report – as authorised for issue by the Board of Management on 20 February 2014 – were audited by KPMG AG Wirtschaftsprüfungsgesellschaft and given an unqualified audit opinion. The Financial Statements and the Combined 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 13 RepoRt of the SupeRviSoRy BoaRd members of the Supervisory Board in a timely manner. At the meeting held on 5 March 2014, these docu- ments were examined and discussed in detail by the Audit Committee. The Supervisory Board subsequently examined these documents at its meeting on 13 March 2014, after hearing the committee chairman’s report on the meeting of the Audit Committee. In both meetings, the Board of Management gave a detailed expla- nation of the financial reports it had prepared. Representatives of KPMG attended both meetings, reported on significant findings and answered any additional questions raised by the members of the Supervisory Board. They also confirmed that the risk management system established by the Board of Management is capable of identifying any events or developments that might impair the going-concern status of the Com- pany and that no material weaknesses in the internal control system and risk management system were found with regard to the financial reporting process. Similarly, they confirmed that they had not identified any facts in the course of their audit work that were inconsistent with the contents of the Declaration of Compliance issued jointly by the two boards. Based on 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 after 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 2013 prepared by the Board of Management were approved at the Supervisory Meeting held on 13 March 2014. The separate finan- cial statements have therefore 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 € 2.60 per share of common stock and € 2.62 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 appreciation by the Supervisory Board We are well aware that the motivation of our em- ployees and their strong sense of identification with the BMW Group are key factors for its success and future prospects. We wish to express our appreciation to the members of the Board of Management and the entire workforce worldwide for their hard work and valuable contribution towards the successful financial statements for the year ended 31 December 2013. Munich, 13 March 2014 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, Our vision at the BMW Group focuses on long-term thinking, successfully charting our own course and leading the way for our industry. Four straight record years for the BMW Group. For years, we have stood at the pinnacle of the world’s automotive premium segment. Even during the 2008 / 2009 global financial and economic crisis, we reported a profit and paid a dividend. Since then, the BMW Group has enjoyed four consecutive record years. Investors in our Company can look forward to long-term value enhancement and our shareholders can rely on us to achieve profitable growth – even in the face of high volatility and challenges in our business environment. For this reason, we continue to invest in our future, in all areas of individual mobility. For us as a premium manu- facturer, innovation and entrepreneurial spirit are key towards growing and creating new trends. 2013 financial year – the success continues. Our vehicles are more desirable than ever: we delivered more than 1.96 million BMW, MINI and Rolls-Royce cars to customers in 2013, exceeding the previous year’s record by 6.4 %. Individually, our three automobile brands also posted record sales, with more than 1.65 mil- lion BMW, over 305,000 MINI and exactly 3,630 Rolls-Royce motor cars sold. We offer customers a full spectrum of premium products – from MINI in the small car segment to Rolls-Royce in the ultra-luxury class. Our core BMW brand represents sheer driving pleasure: the BMW 3 Series, 5 Series and 6 Series models and the BMW X1 are all leaders in their respective segments. The BMW brand also comprises efficient high-per- formance models from BMW M and the particularly sustainable vehicles of the BMW i family, with the BMW i3 and, from 2014, the BMW i8. BMW Motorrad, which celebrated its 90th anniversary last year, delivered more than 115,200 motorcycles to customers. In the shrinking market segment above 500 cc, BMW Motorrad defied the trend, posting sig- nificant growth and beating the previous year’s sales by 8.3 per cent. The Financial Services segment, with operations in more than 50 countries, also continues to grow and made a significant contribution to our sales and earnings in 2013. Valuable premium brands and desirable products and services are the foundation for our business success. Group profit before tax increased by 1.4 % to around € 7.9 billion in 2013, reaching the same level as our 2012 record year, as forecast. Net profit rose by 4.5 % to more than € 5.3 billion. These results reflect the day-to-day performance, know-how and personal commitment of our employees worldwide. All of us at the BMW Group share a passion for mobility. We identify with our Company and its products. All business areas performed well in 2013. On behalf of the Board of Management, I would like to thank all our employees for their dedication. I would also like to express our sincere gratitude to our retail organisation, suppliers and partners, who all contribute to the success of the BMW Group. Balanced growth a key ingredient for success. Our Company has its roots in Munich and in Germany. But, today, the BMW Group is a global company that sells its products in more than 140 countries. Our vehicles are produced at 28 locations in 13 countries. At all our locations, we take our corporate responsibility seriously. 16 We target balanced growth in the three main economic regions of the world. Thanks to our highly flexible production network, we are able to avoid overdependence on any one region and offset market fluctuations. The flexibility of our production network allows us to quickly adapt to changing external circumstances. In 2013, our sales were evenly distributed between the three main economic regions of Europe, Asia and the Americas. Gains in the Americas and Asia compensated for weak markets in a number of Euro- pean countries. In 2013, our two largest single markets, China and the US, accounted for around 20 and 19 %, respectively, of total Group sales, followed by our domestic market of Germany with around 13 % of sales. When growth markets shift, it is imperative to strengthen our global presence. Since our production follows the market, we currently produce more than 45 % of our vehicles outside of Germany. At the same time, more and more countries are recognising the economic importance of a locally based automotive industry as a driving force for growth and employment. In late 2013, we laid the foundation stone of a new plant in the growth market of Brazil. Entering into e-mobility: we deliver on our promises. The BMW Group confirmed its position as the pacesetter for future mobility in 2013. In late July, the series model of the BMW i3 made its world debut simul- taneously in New York, London, Beijing and Munich. This innovative vehicle was specially designed for electric mobility and has been well-received by the media worldwide. Customer demand is far exceeding our expectations. With the BMW i3, we have adopted a totally new approach to automobile manufacturing, employing new and especially sustainable production processes. This is the first time an entire passenger compartment made of carbon-fibre-reinforced plastics (CFRP) has been mass-produced. E-mobility is realised throughout our competence network with locations in Leipzig, Dingolfing, Landshut, Wackersdorf and Moses Lake, USA. The BMW i3 comes with our comprehensive 360°ELECTRIC service package to ensure that everyday electric driving is easy and convenient for customers – through recharging at home, for example. This will be followed in 2014 by the second model from the BMW i family, the BMW i8 plug-in hybrid sports car. Step by step towards our vision for 2020. Our vision for the year 2020 is to be the leading provider of premium products and premium services for individual mobility. One thing is certain: the Company is already more than just a car manufacturer. Attractive mobility services and digital connectivity also play an increasingly important role. With the realignment of its BMW ConnectedDrive services, BMW is expanding its position as the leading provider of Internet-based in-car services, focusing on driver assistance systems with comfort and safety functions, as well as infotainment and mobility services. For more and more people worldwide, a vehicle is indispensable and desirable at the same time. That is precisely why it is so essential to adapt individual mobility to present and future demands, as well as different customer needs. To do this, we think far beyond the car simply as a means of transport. To us, being the leading premium supplier also means being a leader in the field of sustainability. In every project, we consider environmental and social factors, as well as economic aspects, in our decision-making 17 StateMent of the ChaiRMan of the BoaRd of ManageMent processes. Sustainable development is an investment in our future competitiveness. We have therefore set ourselves ambitious targets for 2020 in the relevant areas, namely products and services, production and value creation, and employees and society. Two examples: first, we aim to reduce resource consumption per vehicle produced by 45 % from 2006 levels by 2020. Second – also by 2020 – we aim to halve the CO2 emis- sions of our European new vehicle fleet from 1995 levels. These currently stand at 133 g / km, but our cus- tomers today can already choose between 39 models with emissions of less than 120 g CO2 / km. In the same way that we earned a competitive edge with Efficient Dynamics, we are now, once again, in- vesting in our future. This applies equally to new models and vehicle concepts, alternative drive technologies, new locations, mobility services and new business fields. Our research and development expenditure therefore increased to around € 4.8 billion in 2013. Our financial strength allows us the necessary room to do this. In this way, we are laying the foundations today for our future success. People shape our future – our strength lies in diversity. It is part of our philosophy as an attractive em- ployer to invest continuously in developing the skills of our employees. In the past seven years alone, we have invested approximately € 1.5 billion in training. Welcoming diverse, complementary talents on board is a further priority for us – because mirroring the diversity of our customers within the Company is another way of optimising customer care. The actions we take together are rooted in our tradition and our culture of cohesion. That is what makes the BMW Group so strong and unique. Being a leader in the premium segment is about more than just good business results. As a global com- pany in a changing world, it is both a challenge and a source of motivation for us to strive for long-term success and profitability, to strike out independently in new directions and still remain true to our values and reliable in our actions. We have worked hard to become the leading premium manufacturer – and we will continue to be a pioneer. We must therefore strive to be bolder, more innovative and simply better than our competitors. We will build on our successful business performance in 2014, once again targeting record sales and Group earnings. The EBIT margin in the Automotive Segment should remain between 8 and 10 %. The main risks and uncertainties we face stem from an ever-increasing competitive environment. We continue to face challenges in some specific markets within Europe. 2014 will be another year of ground-breaking innovations for us, as we add a large number of new models to our portfolio. In early March, we unveiled the BMW 2 Series Active Tourer: this all-new vehicle concept will be the first BMW model with front-wheel drive. In 2016, the Company will celebrate its centenary. We view this milestone not only as an opportunity to reflect on our heritage but also to be a springboard towards the future. We hope we can count on your con- tinued trust and support as we move forward. Norbert Reithofer Chairman of the Board of Management 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 18 Combined management RepoRt General Information on the BMW Group Business Model General information on the BMW Group is provided be- low. There have been no significant changes compared to the previous year. resources are prime objectives firmly embedded in our corporate strategy. Thanks to these endeavours, we have been among the most sustainable companies in the automobile industry for many years. Business model Bayerische Motoren Werke Aktiengesellschaft (BMW AG), which is based in Munich, Germany, is the parent company of the BMW Group. The primary business object of the BMW Group is the development, manufac- ture and sale of engines as well as all vehicles equipped with engines. The BMW Group is subdivided into the Automotive, Motorcycles, Financial Services and Other Entities segments (the latter primarily com- prising holding companies and Group financing com- panies). Bayerische Motoren Werke G. m. b. H. came into being in 1917. Having been originally founded in 1916 as Bayerische Flugzeugwerke AG (BFW), it be- came Bayerische Motoren Werke Aktiengesellschaft (BMW AG) in 1918. The BMW Group comprises BMW AG and all subsidiaries, which BMW AG – either directly or indirectly – has the power to control. BMW AG is also responsible for managing the BMW Group. General conditions on the world’s automobile and motorcycle markets (such as the competitive situa- tion, government policies, statutory regulations), under lying trends within society as well as changes in raw materials prices, exchange rates and interest rates are some of the major external factors that exert an influence over our business. The BMW Group is one of the most successful makers of cars and motorcycles worldwide and among the largest industrial companies in Germany. With BMW, MINI and Rolls-Royce, the BMW Group owns three of the strongest premium brands in the automotive in- dustry. The vehicles it manufactures set the highest standards in terms of aesthetics, dynamics, technology and quality, a fact borne out by the BMW Group’s leading position in engineering and innovation. In addi- tion to its strong position in the motorcycles market, the BMW Group also offers its customers a successful range of financial services. In recent years, the Group has also established itself as a leading provider of pre- mium services for individual mobility. At the end of the reporting period, the BMW Group had a worldwide workforce of 110,351 employees. The BMW Group operates on a global scale and is represented in more than 140 countries. Our research and innovation network is spread over twelve loca- tions in five countries. At 31 December 2013 the pro- duction network comprised a total of 28 locations in 13 countries. BMW 3 Series and 4 Series models as well as petrol and diesel engines are manufactured at the BMW plant in Munich, next to the BMW Group’s headquarters. Models of the BMW 1 Series, 3 Series and 4 Series as well as the Z4 Roadster roll off the production lines at the Regensburg plant. The largest BMW plant is located in Dingolfing, where we build the BMW 3 Series Gran Turismo, models of the BMW 5, 6 and 7 Series and hybrid BMW 5 and 7 Series vehicles. Chassis and drive components are also manufactured at this plant. The BMW Leipzig plant’s production range covers models of the BMW 1 and 2 Series, the BMW X1 and the electri- cally powered BMW i3 as well as the hybrid sportscar BMW i8 (from 2014). The BMW 3 Series Sedan is manu- factured at the plant in Rosslyn (South Africa). The BMW plant in Spartanburg (USA) is responsible for pro- ducing the BMW X3, X4 (from 2014), X5 and X6 models. BMW X1 and models of the BMW 3 and 5 Series are built exclusively for the Chinese market at the two plants operated by the joint venture BMW Brilliance in Shenyang (China). Components for the worldwide production network are manufactured at the BMW plants in Landshut and Wackersdorf. The Eisenach plant is responsible for toolmaking. The two production sites in Moses Lake (USA) and Wackersdorf are operated by the joint venture SGL Automotive Carbon Fibers (ACF) and supply carbon fibre and carbon fibre cores for the production of BMW i models. The BMW Group’s largest engine manu- facturing plant in Steyr (Austria) manufactures petrol and diesel engines for the various BMW plants and die- sel engines for the MINI production. In 2012 the joint venture BMW Brilliance Auto motive opened an engine plant in Shenyang (China), which supplies petrol en- gines to the neighbouring BMW plants. Long-term thinking and responsible action have long been the cornerstones of our success. Striving for eco- logical and social sustainability along the entire value- added chain, taking full responsibility for our products and giving an unequivocal commitment to preserving The primary function of the BMW Group’s assembly plants is to serve nearby regional markets with BMW cars currently being assembled in Chennai (India), Jakarta (Indonesia), Cairo (Egypt), Kaliningrad (Russia), Kulim (Malaysia) and Rayong (Thailand). 19 CoMBined ManageMent RepoRt Five of the MINI models – Hatch, Clubman, Convertible, Coupé and Roadster – are manufactured at the Oxford plant (United Kingdom). The UK production triangle also includes the components plant in Swindon as well as the engine plant at Hams Hall, where petrol engines are manufactured for MINI and BMW. In Graz (Austria), Magna Steyr Fahrzeugtechnik manufactures the MINI Countryman and, since 2012, the MINI Paceman for the BMW Group. The Rolls-Royce Phantom, Ghost and Wraith models are manufactured exclusively at the Goodwood plant (United Kingdom). The BMW plant in Berlin is responsible for the manu- facture of BMW motorcycles as well as brake discs. One additional motorcycle assembly plant is located in Manaus (Brazil) and another, since the end of the year, in Rayong (Thailand). The worldwide automobile distribution network cur- rently consists of around 3,250 BMW, 1,500 MINI and 120 Rolls-Royce dealerships. Products and services are sold in Germany through BMW Group branches and by independent authorised dealers. Sales outside Germany are handled primarily by subsidiary companies and, in a number of markets, by independent import companies. The sales network for BMW motorcycles is organised in a similar way to the automobile business. Currently, there are approximately 1,000 BMW Motorrad dealer- ships worldwide. through and through by the desire for even greater sus- tainability, BMW i epitomises the electric vehicle of the future – with its electric drivetrain, revolutionary light- weight construction, exceptional design and an entirely new range of mobility services. BMW Motorrad is also focused on the premium segment and offers a range of motorcycles for the Tourer, Enduro, Sport and Roadster segments. The Maxi-Scooter for ur- ban mobility was also added to this list in 2012. A wide range of accessories and equipment is also available, providing additional safety and comfort to customers. The Financial Services segment, which works in tan- dem with the sales organisation, is represented in more than 50 countries around the world. Credit financing and the lease of BMW Group brand cars and motor- cycles to retail customers is its largest line of business. The BMW Group’s international multi-brand fleet business, operating under the brand name “Alphabet”, provides fleet financing products and comprehensive management services for corporate car fleets in 19 coun- tries. 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 segment’s range of products is rounded off by pro- viding support to the dealer organisation and offering insurance and banking services. This Combined Management Report combines the management reports of BMW AG and the BMW Group. Our premium brands – BMW, MINI and Rolls-Royce – are well known and highly admired around the globe for their innovative technologies and state-of-the-art design. The BMW Group provides the full spectrum of individual mobility, ranging from premium segment small vehicles through to ultra-luxurious and powerful vehicles. Our entire product range is linked by one characteristic: efficiency. The MINI brand is a veritable icon in the premium small car segment, offering un- rivalled driving pleasure in its class. Rolls-Royce has a long and distinguished tradition in the ultra-luxury segment stretching back over more than 100 years. Our core BMW brand manages to cover a broad spectrum of customer wishes, ranging from fuel-efficient and innovative models equipped with Efficient Dynamics through to high-performance, extremely efficient BMW M sub-brand vehicles, which bring the flair of motor sport onto the roads. All BMW vehicles share one thing in common: their impressive driving dynamics. Our understanding of the term “premium” is now being taken to a new level with the BMW i brand. Inspired 20 General Information on the BMW Group Management System The BMW Group applies a value-based management approach. The key objectives of managing a business are to achieve sustainable, profitable growth, increase the value of the business for capital providers, safeguard jobs and, last but not least, maintain corporate autonomy. These objectives can only be achieved if available equity and debt capital is employed profitably and if the profit generated sustainably exceeds the cost of capital employed. The BMW Group’s internal management system is multi- layered. Operating performance is managed primarily at the level of the segments. In order to assess the suc- cess of the strategies adopted and to manage long-term performance, additional key performance figures are measured at Group level for controlling purposes. The focus at all controlling levels is always on increasing the value of the company. The contribution made to busi- ness value growth during the financial year is measured in terms of “value added”. This approach is translated for operational purposes at both Group and segment level by identifying the main financial and non-financial factors (“value drivers”) which affect the value of the business. The link between value added and the relevant value drivers is shown in simplified form in the follow- ing diagram. Profit + − Expenses Return on sales ÷ Value added − Return on capital (RoCE / RoE) × + Revenues 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Capital turnover ÷ Cost of capital × Capital employed Average weighted cost of capital rate Various value drivers which could have a significant impact on profitability and the value of the company are defined for each controlling level. The financial and non-financial value drivers referred to above take the form of the principal key performance indicators that are generally relevant for business controlling purposes. Due to the high aggregate impact of various factors, it is difficult to manage a business pro-actively and de- cide on the right set of measures simply by focusing on value added. This key figure therefore only serves for intermediate reporting purposes. A corresponding control logic that utilises value-based and return-based performance indicators measured in conjunction with project decisions complements the system. RoCEs / RoEs are fixed as the principal key financial per- formance indicators for each segment. Profitability (return on sales) and capital efficiency (capital turnover) are aggregated in the RoCE together with a whole host of business-relevant information that has an impact on segment performance and changes in the value of the company. Depending on the business model, the segments are managed on the basis of total RoCEs or re- turns on equity capital. Automotive segment The principal key performance indicator for the Auto- motive segment is return on capital employed (RoCE), measured on the basis of segment profit before finan- cial result and the average level of capital employed in operations. The strategic target for the Automotive segment’s RoCE is 26 %. Management of operating performance at segment level Operating performance is managed at segment level on the basis of capital rates of return. Specific target RoCE Automotive = Profit before financial result Capital employed 21 CoMBined ManageMent RepoRt Capital employed corresponds to the sum of all current and non-current operational assets, less liabilities that do not incur interest (e. g. trade payables). attributable to the segment. The target is a sustainable return on equity of at least 18 %. Due to the key importance of the Automotive segment for the Group as a whole, consideration is also given to additional key value drivers which have a significant impact on RoCE and hence on segment performance. The most important of these additional value drivers are deliveries to customers, segment revenues and – as the key performance indicator for profitability – the operat- ing return on sales (i.e. EBIT margin). Average carbon emissions for the fleet are also taken into account, re- flecting their potential impact on earnings in the short term in the form of ongoing development expenses and in the long term due to regulatory requirements. For these purposes “carbon emissions for the fleet” corre- sponds to average emissions of CO2 for new car sales in the EU-27 countries. The use of additional key value drivers makes it easier to identify the reasons for changes in the RoCE and to define measures capable of influencing its development. Motorcycles segment As with the Automotive segment, operating performance for the Motorcycles segment is managed on the basis of RoCE. Capital employed is measured using the same method as in the Automotive segment. The strategic tar- get for the Motorcycles segment’s RoCE is 26 %. RoCE Motorcycles = Profit before financial result Capital employed The number of vehicles delivered to customers is also taken into account as a non-financial value driver. Financial Services segment As is common practice in the banking sector, the per- formance of the Financial Services segment is measured on the basis of return on equity (RoE). RoE for the Finan- cial Services segment is defined as segment profit before taxes, divided by the average amount of equity capital RoE Financial Services = Profit before tax Equity capital Strategic management at Group level Strategic management is performed primarily at Group level, including quantification of the financial impact of strategic issues on long-term forecasting. The most significant performance indicators at Group level are Group profit before tax and the size of the workforce at the year end. Group profit before tax is a good overall measure of the Group’s performance after consolidation procedures, and provides a transparent basis for com- paring performance, particularly over time. The size of the Group’s workforce is monitored as an additional key non-financial performance indicator. The two key performance indicators – Group profit before tax and size of the workforce – are supplemented by a measurement of value added. This highly aggre- gated performance indicator provides an insight into capital efficiency and the (opportunity) cost of capital required to generate Group profit. Value added corre- sponds to the amount of earnings over and above the cost of capital and gives an indication of whether the Group is meeting the minimum requirements for the rate of return expected by capital providers. A positive value added means that a company is creating more ad- ditional value than the cost of capital. Value added Group = earnings amount – cost of capital = earnings amount – (cost of capital rate × capital employed) Capital employed comprises the average amount of Group equity employed during the year as a whole, the financial liabilities of the Automotive and Motorcycles segments and pension provisions. “Earnings amount” for these purposes corresponds to Group profit before tax and after interest expense incurred in conjunction with the pension provision and on the financial liabilities in € million Earnings amount* Cost of capital* (EC + DC) 2013 2012 2013 2012 Value added Group* 2013 2012 BMW Group 8,320 8,113 4,666 4,228 3,654 3,885 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. The criteria used for taking decisions as well as the long- term impact on 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 earn- ings and rates of return over the term of each project. The overall result is a self-contained controlling model. 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 22 of the Automotive and Motorcycles segments (earnings before interest expense and taxes). The cost of capital is the minimum rate of return ex- pected by capital providers in return for the capital em- ployed by the Group. Since capital employed comprises 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, measured using stand- ard market procedures. The pre-tax average weighted cost of capital for the BMW Group in 2013 was 12 %, un- changed from the previous year. Value management used to control projects Operations in the Automotive and Motorcycles segments are shaped, to a large extent, by project work. Projects have a substantial influence on future performance. Project decisions are therefore a crucial component of financial 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 future years in which the project generates cash flows. Project decisions are taken on the basis of the capital value and internal rate of re- turn calculated for the project. 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 company. The internal rate of return of the project corresponds to the average return on capital employed in the project and, in terms of scope, is equivalent to the multi-year average RoCE for an individual project. It is therefore entirely consistent with the principal key per- formance indicator used for the Automotive and Motor- cycles segments. 23 CoMBined ManageMent RepoRt General Information on the BMW Group Research and Development Research and development play a vital role for the BMW Group, given its broad range of products and the high number of new models. Our vehicles and services also set standards in terms of connecting car occupants with the outside world. During 2013, a total of 11,359 employees were engaged throughout the BMW Group’s global research and innovation network at twelve locations spread over five countries, to deliver the best product quality possible and develop innova- tive technologies for customers. Further information on our research and development activities is provided in the relevant section of the Report on Economic Position. Research and development expenditure for the year rose by 21.3 % to € 4,792 million, mostly for projects aimed at securing the Group’s future business (2012: € 3,952 million). The research and development ratio was 6.3 %, 1.2 percentage points higher than in the previous year (2012: 5.1 %). The ratio of capitalised development costs to total re- search and development costs for the period (capitali- sation ratio) was 36.4 % (2012: 27.6 %). Amortisation of capitalised development costs totalled € 1,069 million (2012: € 1,130 million). Further information on research and development expenditure is provided in the section Results of Operations, Financial Position and Net Assets and in note 10 to the Group Financial Statements. As one of the most innovative companies in the auto- mobile industry, suppliers and external providers are also highly involved in our research and development activities. Close collaboration with the parties concerned enables us to offer our customers new technologies more quickly and underscores our aspiration to be inno- vation leader in the sector. It also helps us to ensure that important project-related technological expertise remains within the BMW Group. 24 Report on Economic Position Overall Assessment by Management General and Sector-specific Environment 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Overall assessment by management The BMW Group’s performance in 2013 was positive overall and fully in line with our expectations. Good progress was made in terms of results of operations, financial position and net assets. This statement also takes into account events after the end of the reporting period. General and sector-specific environment General economic environment After the downturn in the two preceding years, the global economy stabilised over the course of 2013, ending with a moderate growth rate of approximately 2.4 %. Once again, the USA and China were the main- stays of growth during the period under report. After six consecutive quarters of recession, the eurozone finally managed to register its first minor positive growth rates in the second half of 2013. Surprisingly strong upturns in Japan and the United Kingdom helped to stabilise the world economy. By contrast, growth in some of the major emerging economies, such as India, Brazil and Russia, slowed significantly. Speculation that the US Reserve Bank is likely to put a brake on its expansionary monetary policy caused inter- est rate expectations to rise on the world’s capital mar- kets. As a consequence, some international investors withdrew capital from emerging economies, reduced in- vestments in commodities and reallocated funds, pri- marily in stock markets in the USA, Europe and Japan. Practically all emerging economies registered drops in growth rates, sometimes significant, as a result. High sovereign debt levels again exerted an influence on economic developments, particularly in Europe. The eurozone’s economy contracted overall by 0.4 % in 2013. With the exception of Germany, where the growth rate edged up to 0.4 %, economic growth remained weak in the remainder of the region. France’s gross domestic product (GDP) practically stagnated at a rate of 0.2 %, while Italy (– 1.8 %) and Spain (– 1.3 %) both suffered an- other year of recession. Whereas positive data coming from Spain towards the end of 2013 suggest the re- cessionary phase may be coming to an end, the eco- nomic position in Italy and France remained tense to the end. The UK economy – Europe’s largest outside the euro- zone which had been flat in the previous year – re- ported an upturn of 1.9 % in 2013, partly benefiting from support for the property market in the form of monetary and fiscal policies. The economy in the USA grew surprisingly well in 2013, registering a growth rate of 1.9 %. This positive perfor- mance was attributable entirely to the private sector, with consumer spending and investments up again, thanks to sharp improvements in the employment and property markets. The public sector, by contrast, had a negative impact on growth, owing firstly to further spending consolidation and secondly to political dis- agreement regarding the federal budget and debt ceiling. Japan’s new government managed to keep the country out of renewed recession by employing heavily expan- sionary monetary and fiscal policies, culminating in GDP growth of 1.7 % for the full year 2013. Despite a small decline in the growth rate, which stood at 7.7 % in 2013, China nevertheless asserted its role as the most dynamic of the world’s major economies. Other emerging economies grew considerably more slowly than expected. India’s growth rate of 4.7 % was only about one half of the long-term prediction. Brazil (2.3 %) and Russia (1.5 %) also fell well short of the growth rates recorded one year earlier. Exchange rates compared to the euro (Index: 31 December 2008 = 100) 120 115 110 105 100 95 90 85 Japanese Yen Russian Rouble US Dollar British Pound Chinese Renminbi 09 10 11 12 13 Chinese Renminbi Japanese Yen US Dollar Russian Rouble British Pound Source: Reuters. 25 CoMBined ManageMent RepoRt Currency markets At an annual average rate of US dollar 1.32 to the euro in 2013, the US dollar exchange rate was slightly higher than one year earlier and fluctuated within a relatively narrow corridor over the twelve-month period. The euro also appreciated slightly against the British pound with an annual average rate of British pound 0.85 to the euro. Even though the European Central Bank (ECB) loosened monetary policy still further during the fourth quarter of 2013 by reducing the reference interest rate to 0.25 %, the perception on the markets is nonetheless that the ECB is following a more restrictive course than the Reserve Bank in the USA and the Bank of Eng- land in the UK. Since the exchange rate of the Chinese renminbi remains more or less coupled to that of the US dollar, its value against the euro fell only marginally in 2013, with an annual average exchange rate of Chinese renminbi 8.14 to the euro. By contrast, the Japanese yen and the currencies of numerous emerging economies, such as India, Brazil and South Africa, lost a good deal of ground against the euro. The annual average exchange rate of the Russian rouble was 42.30 to the euro, making it 6 % weaker than in the previous year. Energy and commodity prices With the situation in the Middle East still unsettled, the price of crude oil stagnated at a high level throughout 2013: the annual average price of Brent and WTI crude oil was US dollar 108 and US dollar 98 per barrel respec- tively. For the most part, metal prices fell slightly during the course of the year, partly reflecting the reduction of funds invested in commodities and partly due to the fact that capacity utilisation rates in the steel and metals industries were relatively poor, particularly in Europe under the pervading influence of the euro crisis. in the premium market in 2013, benefiting from its innovative strength on the one hand and from a well- balanced regional spread of sales on the other. Global diversification means that downturns in individual markets can be compensated to a large degree by faster growth rates in other regions. Automobile markets The number of passenger cars and light commercial vehicles sold worldwide rose by 5.1 % to 76.5 million units in 2013, primarily on the back of increased de- mand in the USA and China. The strongest momentum for growth was generated in China, where the market grew by 2.5 million to 15.8 million units (+ 19.2 %). The next fastest growing market was the USA, where total sales rose by 1.1 million units to 15.6 million units (+ 7.6 %). In Europe, the number of new registrations fell once again in 2013 (12.2 million units; – 1.8 %). With an above-average decrease of 4.2 %, new registrations in Germany – the region’s largest single market – fell to approximately 2.9 million units. The contraction in France (– 5.5 %) and Italy (– 7.8 %) was even more pro- Steel price trend (Index: January 2009 = 100) 150 140 130 120 110 100 90 80 Sector-specific environment Within an increasingly competitive environment, the BMW Group was again able to assert its leading position 09 10 11 12 13 Source: Working Group for the Iron and Metal Processing Industry. Oil price trend Price per barrel of Brent Crude 140 120 100 80 60 40 20 Source: Reuters. Price in US Dollar Price in € 09 10 11 12 13 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 26 Precious metals price trend (Index: 31 December 2008 = 100) 450 400 350 300 250 200 150 100 Source: Reuters. Palladium Platinum Gold 09 10 11 12 13 Within this difficult market environment, the BMW Group’s motorcycles business performed significantly better than the general trend. Financial Services The situation on international financial markets seemed to stabilise during the year under report. Lifting the public debt ceiling in the USA helped to calm capital markets. The Japanese Reserve Bank continued its ex- pansionary monetary policy and kept the economy propped up with massive support. The situation in the eurozone also became more settled in 2013. The Euro- pean Central Bank felt compelled to reduce its reference interest rate to 0.25 % in an endeavour to maintain eco- nomic momentum. Greater worldwide economic stability also had a positive effect on credit losses, with bad debt levels continuing to fall in both the USA and Asia. Some signs of improve- ment were also noticeable in southern Europe. Price levels on international used car markets in 2013 remained more or less stable across all regions, including southern European markets, where prices stabilised at a low level. The BMW Group’s Financial Services business also profited from the general stabilisation of the world’s car and financial markets. nounced. Registration figures in Spain (+ 3.3 %) stabilised at a very low level following the slump experienced in previous years. The UK, by contrast, turned out to be in good shape: boosted by a surprisingly strong economic recovery, the UK car market grew by approximately 10.8 % to 2.3 million units. Japan’s car market consolidated somewhat in 2013 to approximately 5.2 million units. In the previous year, demand had still been exceptionally high, owing to the backlog caused by the natural disaster. Car markets in the major emerging economies felt the effect of the economic slowdown, with the Russian mar- ket contracting by approximately 5.3 % to 2.6 million units and the Brazilian market, at 3.6 million units, also falling slightly short of the previous year (– 1.2 %). The decrease in India was more pronounced, with new registrations down by 7.0 % to 2.5 million units. Despite the continuing weakness of markets in Europe, we came close to achieving the previous year’s sales volume level and were thus able to buck the general trend. Positive market developments in Asia and the Americas also had a positive impact on unit sales of the BMW Group in these regions. Motorcycle markets The world’s 500 cc plus class motorcycle markets were 3.0 % down worldwide on the previous year. Motorcycle registrations in Europe fell by 9.1 %. Germany (– 0.7 %) recorded a relatively moderate decline, in contrast to France (– 11.2 %) and Italy (– 20.1 %), where the drops were again on a double-digit scale. The US motorcycle market remained roughly at the previous year’s level (– 0.2 %). 27 CoMBined ManageMent RepoRt Report on Economic Position Financial and Non-financial Performance Indicators In the following section, as part of our review of operations and the financial condition of the BMW Group, we report on the principal financial and non- financial performance indicators utilised to manage the business. To the extent that the indicators were included in the previous year’s outlook, we compare them with actual outcomes in 2013. We comment on the principal per- formance indicators utilised by the BMW Group and its segments as follows: Comparison of previous year’s forecasts with actual outcomes BMW Group Profit before tax Workforce at end of year1 Automotive segment Sales volume4 Fleet emissions1, 2 Revenues1 EBIT margin Return on capital employed Motorcycles segment Sales volume Return on capital employed1 Financial Services segment Return on equity Forecast for 2013 in 2012 Annual Report Actual outcome in 2013 (change) € million in line with last year’s level 7,913 (+ 1.4 %) – 110,351 (+ 4.2 %) units g CO2 / km € million % % increase in single-digit percentage range 1,963,798 (+ 6.4 %) – – 8 –10 > 26 133 70,629 (+ 0.6 %) 9.4 63.3 units increase 115,215 (+ 8.3 %) % % – > 18 16.4 20.2 BMW Group Profit before tax The BMW Group continued to chart a successful course in 2013 and – thanks to the sharp rise in the number of vehicles sold – recorded its best pre-tax profit to date. Despite increased levels of expenditure for future tech- nologies, intense competition and higher personnel expenses, Group profit before tax rose by 1.4 % to total € 7,913 million (2012: € 7,8033 million). Actual profit before tax was at a similar level to the previous year and therefore in line with expectations. innovation throughout the Group. Qualified staff mem- bers are required in order to meet strong demand for our vehicles and develop new technologies, particularly in the field of electromobility. Automotive segment Sales volume Despite the prevailing volatile environment, deliveries of BMW, MINI and Rolls-Royce brand vehicles rose by 6.4 % to 1,963,7984 units (2012: 1,845,1864 units). All Workforce at end of year1 The workforce increased to 110,351 employees (2012: 105,876; + 4.2 %) over the course of the year, reflecting the dynamic growth in business and the high pace of 1 Not included in the previous year’s outlook. 2 EU-27. 3 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 4 Includes cars manufactured by the BMW Brilliance joint venture. 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 28 three brands proved their underlying strength by post- ing new sales volume records totalling 1,655,1381 units (2012: 1,540,0851 units; + 7.5 %) for the BMW brand, 305,030 units (2012: 301,526 units; + 1.2 %) for the MINI brand and 3,630 units (2012: 3,575 units; + 1.5 %) for the Rolls-Royce brand. These sales figures enabled the BMW Group to retain its pole position in the premium segment worldwide. As forecast for 2013, the number of cars sold climbed at a single-digit percentage level and hence in line with our expectations. Fleet carbon emissions2, 3 The BMW Group is continually reducing fleet carbon emissions by making its drivetrain systems more effi- cient and increasing the scope of electrification, while still setting standards in terms of sporting flair and dynamic driving pleasure. The volume of carbon emissions produced by our vehi- cle fleet sold in Europe3 continued to fall thanks to the rigorous deployment of our Efficient Dynamics tech- nologies, and amounted to 133 g CO2 / km (2012: 138 g CO2 / km; – 3.6 %). Revenues2 Revenues from the sale of BMW, MINI and Rolls-Royce brand cars edged up by 0.6 % to € 70,629 million (2012: € 70,208 million), despite a challenging competitive en- vironment. We put this development down primarily to the expansion and rejuvenation of our model portfolio on the one hand and generally favourable economic conditions on the other. Revenues generated in Asia and the Americas rose sharply, due to the good growth rates enjoyed in these regions. By contrast, our automo- bile business in Europe had to wrestle with challenging conditions, under pressure from the effects of recent crises. EBIT margin and return on capital employed The EBIT margin in the Automotive segment (profit be- fore financial result divided by revenues) came in at 9.4 % (2012: 10.8 %4). This performance was within our forecast target corridor of 8 to 10 % and reflected strong demand for our premium brands. The return on capital employed (RoCE) was 63.3 % (2012: 73.7 %) and thus well ahead of our target return of at least 26 %. Both per- formance indicators were therefore in line with the fore- casts expressed in the previous year’s outlook. Motorcycles segment Sales volume Despite the sharp contraction seen in numerous motor- cycle markets, the Motorcycles segment achieved a new sales volume record in the year under report. In total, 115,215 BMW motorcycles (2012: 106,358 units; + 8.3 %) were sold worldwide. As forecast for 2013, motorcycles sales volume continued to rise and was therefore in line with our expectations. Return on capital employed2 The return on capital employed (RoCE) in the Motorcy- cles segment improved from 1.8 % in 2012 to 16.4 % in 2013, reflecting strong demand for our premium prod- ucts and the good progress made in general by the seg- ment. Moreover, the previous year’s RoCE was affected by the sale of Husqvarna Motorcycles. Financial Services segment Return on equity The Financial Services segment can look back on a highly successful year, with credit and leasing business with retail customers remaining one of the key growth drivers. The return on equity (RoE) of 20.2 % (2012: 21.2 %4) exceeded the target of at least 18 % and was thus in line with expectations. 1 Includes cars manufactured by the BMW Brilliance joint venture. 2 Not included in the previous year’s outlook. 3 EU-27. 4 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 29 CoMBined ManageMent RepoRt Report on Economic Position Review of Operations automotive segment Sales volume at new all-time high The BMW Group sold a total of 1,963,798* BMW, MINI and Rolls-Royce brand vehicles during the year 2013, the best sales volume performance ever achieved in the Company’s history (2012: 1,845,186* units; + 6.4 %). De- spite increasing volatility on many markets, particularly in Europe, the BMW Group retained its pole position in the premium segment worldwide. All three brands set new sales volume records. Sales of BMW brand cars rose by 7.5 % to 1,655,138* units (2012: 1,540,085* units). In addition, 305,030 MINI brand vehicles (2012: 301,526 units; + 1.2 %) and 3,630 Rolls-Royce brand vehicles (2012: 3,575 units; + 1.5 %) were sold. Sharp sales volume rise in Asia In Asia, we sold a total of 578,678* BMW, MINI and Rolls-Royce brand cars in 2013 (+ 17.3 %), easily surpass- ing the 500,000 threshold for the first time. Sales on the Chinese mainland rose by 19.7 % to 391,713* units. The Americas also made a good contribution to the overall performance, with 463,822 units (+ 9.0 %) sold in this region, including 376,636 units sold in the USA (+ 8.1 %). Despite ongoing uncertainties in Europe, sales in this region were almost at the previous year’s level with BMW Group sales volume of vehicles by region and market in 1,000 units 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 BMW Group – key automobile markets 2013 as a percentage of sales volume Other China* Italy Japan France USA Great Britain Germany China* USA Germany Great Britain 19.9 19.2 13.2 9.6 France Japan Italy Other 3.3 3.3 3.0 28.5 a sales volume of 859,546 units (– 0.7 %). In Germany, the BMW Group was unable to escape the steep down- ward market trend, which resulted in sales volume falling by 9.8 % to 259,219 units. It was a very different story in the UK, where the keys to 189,121 BMW, MINI and Rolls-Royce brand cars (+ 8.4 %) were handed over to customers during the twelve-month period under report. Europe thereof Germany Asia* thereof China* Americas thereof USA Other markets 09 10 11 12 13 Europe thereof Germany Asia* thereof China* Americas thereof USA Other markets Total 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 61.1 859.5 259.2 578.7 391.7 463.8 376.6 61.8 1,286.3 1,461.2 1,669.0 1,845.2 1,963.8 * Includes cars manufactured by the BMW Brilliance joint venture. 30 BMW * achieves new sales volume record BMW retained its pole position in the premium segment worldwide in 2013. The BMW X1 as well as the BMW 3, 5 and 6 Series each headed their own segments. 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations Sales volume of BMW vehicles by model variant* in units 2013 2012 Change Proportion of in % BMW sales volume 2013 in % 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability BMW 1 Series Three-door Five-door Coupé 47 Results of Operations, Financial Convertible Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process BMW 3 Series Sedan Touring Coupé 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Convertible Gran Turismo BMW 4 Series 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 BMW i3 31,021 157,163 12,417 13,010 14,462 176,066 20,015 16,286 213,611 226,829 348,560 294,045 96,173 15,240 17,418 22,941 59,144 29,525 24,038 – 500,332 406,752 – – 10.7 – 38.0 – 20.1 – 5.8 18.5 62.6 – 48.4 – 27.5 – 23.0 14,763 – – 295,877 50,820 20,295 366,992 6,278 5,496 15,913 27,687 280,504 57,425 21,087 359,016 8,480 7,880 6,833 23,193 5.5 – 11.5 – 3.8 2.2 – 26.0 – 30.3 – 19.4 56,001 59,184 – 5.4 161,353 147,776 157,303 149,853 9.2 5.0 107,231 108,544 – 1.2 36,688 43,689 – 16.0 12,866 15,249 – 15.6 BMW total 1,655,138 1,540,085 * Includes cars manufactured by the BMW Brilliance joint venture. 311 – – 7.5 12.9 30.2 0.9 22.2 1.7 3.4 9.7 9.5 6.5 2.2 0.8 – 100.0 31 CoMBined ManageMent RepoRt Reflecting the fact that the Coupé and Convertible models are coming to the end of their product life cycles, sales of the BMW 1 Series fell by 5.8 % to 213,611 units. The sales volume of 500,332 units recorded in 2013 for the BMW 3 Series was significantly up on the previous year (+ 23.0 %). Demand for the BMW 5 Series also re- mained high at 366,992 units, surpassing the previous year’s figure by 2.2 %. The various models of the BMW X family again performed extremely well in 2013. Sales of the BMW X1 and the BMW X3 rose by 9.2 % and 5.0 % to 161,353 units and 157,303 units respectively. The BMW X5, with a sales volume of 107,231 units, almost reached the previous year’s high level despite the model change (– 1.2 %). The new X5 has been available to customers since November 2013. MINI brand cars in 2013 – 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) 44.0 MINI One (including One D) 20.3 New sales volume high for MINI MINI achieved a new sales volume record in 2013 with 305,030 units sold (+ 1.2 %). The MINI Paceman (avail- able since March 2013) got off to a good start with 14,687 units sold. With a sales volume of 101,897 units, the MINI Countryman came very close to the previous year’s sales performance (– 0.4 %). The MINI Hatch – now ap- proaching the end of its product life cycle – only just fell short of the previous year’s figure (128,498 units; – 2.3 %). The new generation MINI was announced in November 2013 and will appear on the markets in spring 2014. Sales volume of MINI vehicles by model variant in units 2013 2012 Change Proportion of in % MINI sales volume 2013 in % MINI Hatch MINI Convertible MINI Clubman MINI Countryman MINI Coupé MINI Roadster MINI Paceman 128,498 131,569 – 2.3 21,167 24,474 – 13.5 21,030 22,699 101,897 102,271 – 7.4 – 0.4 8,436 11,311 – 25.4 9,315 9,202 14,687 – 1.2 – 1.2 42.1 6.9 6.9 33.4 2.8 3.1 4.8 100.0 MINI total 305,030 301,526 32 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Sales volume of Rolls-Royce vehicles by model variant in units Rolls-Royce Phantom (including Phantom Extended Wheelbase) Coupé (including Drophead Coupé) Ghost Wraith Rolls-Royce total 2013 2012 631 223 2,284 492 3,630 573 216 2,786 – 3,575 Change in % 10.1 3.2 – 18.0 – 1.5 Rolls-Royce again records all-time high Rolls-Royce Motor Cars remained market leader in the ultra-luxury segment in 2013 and, with sales of 3,630 units, achieved a new sales volume record for the fourth year in succession. The brand’s top model, the Phantom, was handed over to 854 customers (+ 8.2 %) during the year under report. 2,284 units of the Rolls-Royce Ghost were sold worldwide (– 18.0 %). The newest model, the Rolls-Royce Wraith, was launched in autumn 2013 (492 units). Production network running at full capacity In the course of the year under report the BMW Group’s production network implemented numerous model start-ups, commenced series production of the BMW i3 and continued to expand capacities at its various inter- national sites. Despite these diverse challenges, new production volume records were set. Thanks to its high degree of flexibility, the production network was able to even out regional sales volume fluctuations by adapt- ing its production programme wherever necessary to changing conditions. In order to keep pace with ever-growing demand for the broad range of vehicles in its fleet, total produc- tion volume in 2013 was increased by 7.8 %. In total, we manufactured 2,006,366* vehicles, comprising 1,699,835* BMW (+ 9.9 %), 303,177 MINI (– 2.7 %) and 3,354 Rolls-Royce (+ 2.3 %) brand cars. Electromobility production network now completed One of the main focuses at the Leipzig, Dingolfing and Landshut plants during the year under report was prep- aration work for the series production start of the two new BMW i models, both of which are being manufac- tured in a multi-plant effort within the E-Mobility com- petence network. The Leipzig plant in particular plays a major role in the production and assembly of BMW i models and began series production of the BMW i3 in * Includes cars manufactured by the BMW Brilliance joint venture. September 2013. Stringent high standards for both material selection and production processes have been achieved in the areas of lightweight construction, sus- tainability and the careful use of resources. For the first time in the history of the automotive industry, CFRP is being used on an industrialised series production scale to manufacture the bodywork of the BMW i3. The carbon fibre cores produced at the Wackersdorf plant together with our joint venture partner SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, are processed at the BMW Leipzig plant to form CFRP body parts. In autumn, series production of drive module components for the BMW i3 began at the Group’s Dingolfing plant. The Landshut plant not only produces carbon parts, but also electric motors, range extenders and motor transmission units for the BMW i series. Vehicle production of the BMW Group by plant in 2013 in 1,000 units Assembly plants Graz2 Goodwood Rosslyn Tiexi1 Dingolfing Dadong1 Oxford Spartanburg Leipzig Munich Regensburg Dingolfing Spartanburg Regensburg Munich Leipzig Oxford 342.6 297.3 295.5 247.3 186.7 176.0 Dadong1 Tiexi 1 Rosslyn Goodwood Graz (Magna Steyr) 2 Assembly plants 126.9 88.0 65.6 3.4 125.6 51.5 1 Joint venture BMW Brilliance. 2 Contract production. 33 CoMBined ManageMent RepoRt More than one million vehicles produced in Germany for third consecutive year For the third year in a row, the Group manufactured over one million vehicles at its German plants. The pro- duction start-up of the BMW 4 Series Coupé commenced at the Group’s main plant in Munich. In future the plant will be demonstrating its high degree of flexibility by producing three different BMW 3 Series and BMW 4 Se- ries models on one and the same production line. The BMW 4 Series Coupé is the basic model for the BMW M4 Coupé, the production of which was prepared at the Munich main plant over the course of 2013 and is scheduled to start in 2014. During the year under report, 247,330 vehicles were manufactured in Munich – more than ever before. Production of the BMW 4 Series Convertible began at the Regensburg plant in 2013. In addition, the plant celebrated the topping-out ceremony for its new supply centre. The expansion of logistics structures is keeping pace with the increased need for materials and plays a key role in making the supply of parts for assembly even more efficient. In parallel to these changes, further progress was made to increase bodymaking capacity at the plant, a process initiated in the previous year. Pro- duction capacity in the pressing plant was also expanded with the commissioning into service of a new pressing facility based on high-speed servo technology. The BMW Group hired 700 new employees at its pro- duction plant in Leipzig in 2013, mainly to build up expertise and create capacity for its BMW i models, but also in the area of conventional carmaking. More over, two new pressing lines employing high-speed servo pressing technology were taken into service at the BMW Leipzig plant with a view to increasing production depth and flexibility in general. Series production of the BMW 2 Series Coupé began in November. In parallel, staff at the plant also made preparations for manufac- turing the BMW 2 Series Active Tourer from 2014 on- wards, the first BMW model to be produced with front- wheel drive. In autumn the Dingolfing plant celebrated its 40th anni- versary as a BMW production location. We were again able to increase flexibility at the plant over the course of the year. After a ten-year absence, the production start- up of the 3 Series Gran Turisimo in spring heralded the return of a BMW 3 Series model to the Dingolfing plant. Simultaneously, the plant began manufactur- ing the BMW M6 Gran Coupé. The number of vehicles produced per day stood at the record level of some 1,500 units. Further good progress was made in ramping up capacity at the plant, with construction work contin- uing for a new bodymaking facility on a 25-hectare ex- pansion area. One further major construction measure undertaken at the Dingolfing plant was the ground, breaking ceremony for the installation of a new high- speed servo press. At the components plant in Landshut in November, a new die-casting foundry and a new core-moulding plant were taken into operation. As the only BMW produc- tion site to date that produces lightweight die-cast alloy parts, it is now better able to serve the growing demand for these components within the Group. The plant’s production capacity now stands at 69,000 tons, which is equivalent to some five million die-cast parts per year. Global presence strengthened Over 45 % of the BMW Group’s vehicles were manufac- tured abroad during the year under report. The pro- duction of the BMW 3 Series Sedan started at the Tiexi* plant in the Chinese city of Shenyang at the beginning of the year. Operations at this plant had only begun in 2012 and by September 2013, the 100,000th vehicle was rolling off the assembly line. The BMW 5 Series long- wheelbase Sedan is manufactured at the Dadong* plant in China. In July, the 100,000th four-cylinder petrol en- gine made for the Chinese market came off the produc- tion line at the engine manufacturing plant in Shenyang. At the same time, preparations got underway at the site for the construction of a further plant to supply en- gines for local production. In August 2013 the US plant in Spartanburg began manu- facturing the new generation of the BMW X5. Since 2010, production capacity at the plant has practically doubled. In the medium term, the plan is to increase ca- pacity to accommodate up to 350,000 units per annum. As from next year, as competence centre for the BMW X models, the plant will also produce the BMW X4, the latest addition to the X family. Furthermore, since this year the American plant has been operating the world’s largest connected fleet of hydrogen / fuel-cell-driven in- dustrial logistics vehicles. The BMW plant in Rosslyn, South Africa, has been run- ning on a 24-hour basis in three shifts since 2012 and – despite an eight-week strike in the car industry affecting the entire country – manufactured a record volume of 65,646 units in 2013. The BMW Group’s assembly plants in Egypt, India, Indonesia, Malaysia, Russia and Thailand – whose * Joint venture BMW Brilliance. 34 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets primary function is to serve the corresponding regional markets – also remained on growth course in 2013, pro- ducing a total of 51,504 units in all. The BMW Group will also soon be producing BMW motorcycles at its as- sembly plant in Rayong, Thailand, exclusively for the growing local market. The Rayong plant is therefore the only one in the Group’s worldwide production network to manufacture for three brands: the BMW, the MINI and BMW Motorrad. Moreover, in December the BMW Group laid the foundation stone for a new plant in Araquari, Brazil (in the state of Santa Catarina). The plant is scheduled to commence operations in autumn 2014 and produce up to 30,000 units per year. In November, the production of the third generation of MINI models began at the Oxford plant to coincide with the plant’s 100th anniversary. The British production triangle comprising the MINI plant in Oxford, the com- ponents plant in Swindon and the engine production facility in Hams Hall is a key part of the BMW Group’s production network. The pressing plant in Swindon introduced tactile laser welding technology during the reporting period. This highly innovative process offers advantages in terms of corrosion protection and will be utilised for the first time in producing the third MINI model generation. engines for the new Efficient Dynamics engine family deployed in BMW and MINI brand cars. At the Hams Hall plant, measures were implemented to take over pro- duction of drive systems for the BMW i8 as from 2014. The production start-up of the latest generation of modu- lar engines was also high on the agenda at the BMW Group’s largest engine-making plant in Steyr. Since the beginning of series production at the site, no fewer than 16 million engines have been manufactured. Cur- rently, the Steyr plant handles production of the BMW 4- and 6-cylinder diesel engines, 6-cylinder petrol en- gines and MINI diesel engines. Since switching to the use of electricity generated from renewable sources and eco-friendly, climate-neutral process heat from the near by biomass power plant in 2013, the engine plant has reduced its annual carbon emissions by more than 30,000 tons. Due to the strong demand for 4-cylinder petrol engines worldwide during the period under report, engine- building activities at the Munich plant ran at full capacity, with up to 2,000 engines produced per day. In addition, the Munich plant also manufactures 8- and 12-cylinder petrol engines as well as 6-cylinder diesels for our M Performance models. In order to secure further capacities for the planned growth of the MINI, the BMW Group simultaneously made preparations for producing the MINI under con- tract with the Dutch carmaker VDL NedCar bv, Born. Contract production of the MINI will commence in the second half of the coming year. The MINI models Countryman and Paceman are already being produced under contract by the company Magna Steyr Fahr zeug- technik in Graz, Austria. The Rolls-Royce plant in Goodwood, England, celebrated its tenth production anniversary during the year under report. Series production of the Rolls-Royce Wraith began at the plant in summer 2013. Flexible, standardised production system for engines introduced Preparations were made to manufacture a new genera- tion of low-consumption petrol and diesel engines at the Munich, Hams Hall (UK) and Steyr (Austria) plants. For this purpose a highly flexible, demand-oriented production system was introduced at all three locations. In September, production began of the 3- and 4-cylinder 35 CoMBined ManageMent RepoRt motoRCyCles segment BMW Motorrad sets new sales volume record The Motorcycles segment also achieved its best sales volume of all time in 2013, despite persistently difficult market conditions. In total, we sold 115,215 BMW motor- cycles (2012: 106,358 units; + 8.3 %) worldwide. Motorcycle sales up in nearly all markets Motorcycle sales in Europe rose to 68,961 units (+ 4.7 %), despite the fact that a number of markets suffered further contraction. Sales volume in Germany also grew by 4.7 % and reached 21,473 units. Motorcycles busi- ness in Italy stabilised at 10,230 units (+ 0.3 %). The only country in the region with lower sales than one year earlier was France (10,400 units; – 5.0 %). By contrast, at 14,100 units, motorcycle sales in the USA were well above the previous year’s level (+ 16.5 %). Model initiative continued In February, a number of special models (R 1200 R, R 1200 RT and R 1200 GS Adventure) as well as the new F 800 GT were launched to mark BMW Motorrad’s 90th anniversary. These launches were followed in March by the new generation of the R 1200 GS, BMW Motorrad’s most successful motorcycle to date. The latest version of the world’s best-selling long-distance enduro received a number of prestigious awards in 2013. In March, with more than 30 % of the votes, readers of the magazine “Motorrad” voted the new R 1200 GS first in the category “Trial / Enduros”. It also won a num- ber of prestigious design prizes, such as the red dot and the German Design Award. The bike has been excep- tionally well received by customers and enjoyed much acclaim in the motorcycle press, confirming the fact that it sets new standards for long-distance enduros. BMW sales volume of motorcycles* in 1,000 units 140 120 100 80 60 40 20 09 10 11 12 13 87.3 98.0 104.3 106.4 115.2 * Excluding Husqvarna, sales volume up to 2013: 59,776 units. BMW Group – key motorcycle markets 2013 as a percentage of sales volume Germany Other USA France Spain Great Britain Brazil Italy Germany USA France Italy 18.6 12.2 9.0 8.9 Brazil Great Britain Spain Other 6.6 5.5 4.5 34.7 The new F 800 GS Adventure has been available since mid-June. The model revision of the F 800 ST was also launched in a version suitable for use by public authorities. The R nineT, S 1000 R, R 1200 RT, R 1200 GS Adventure, C evolution, K 1600 GTL Exclusive and F 800 GS Adventure models were presented at the major autumn trade fairs and will be launched in the course of 2014. Motorcycle production slightly reduced In total, 110,127 BMW motorcycles were manufactured during the period under report (2012: 113,811; – 3.2 %). The BMW plant in Berlin spent much of the year pre- paring for the production start-up of various motorcycle models, including the fully electrically powered Maxi- Scooter BMW C evolution and the BMW R nineT, which is reminiscent of the brand values of 90 years of BMW Motorrad history. New strategic direction for motorcycles business In line with its new strategic direction, the Motorcycles segment is now fully focused on the BMW Motorrad brand. Following approval by the Austrian Merger Con- trol Authorities, Pierer Industrie AG, Austria, took over Husqvarna Motorcycles on 6 March 2013. 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 36 FinanCial seRviCes segment Financial Services segment achieves best figures to date The Financial Services segment again benefited from its attractive product range in 2013 and reported profitable growth. The portfolio of leasing and credit financing contracts in place with retail customers and dealers grew by 7.4 % to a total of 4,130,002 contracts, the highest figure ever reported by the segment (2012: 3,846,364 contracts). Business volume in balance sheet terms grew by 4.2 % to stand at € 84,347 million at the end of the reporting period (2012: € 80,974 million). Credit financing and the lease of BMW Group brand cars and motorcycles to retail customers is the segment’s largest line of business. In our multi-brand line of busi- ness, which operates under the brand name “Alphera”, we also offer financing for vehicles of other manufac- turers. Moreover, we support our own dealer organisa- tion by providing financing for dealership vehicle inven- tories, real estate and equipment. In its international multi-brand fleet business, which operates under the brand name “Alphabet”, the BMW Group offers a wide range of individualised mobility solutions for corpo- rates, ranging from vehicle financing on the one hand through to bespoke services and full fleet manage- ment on the other. The segment’s range of products is rounded off by a host of individualised insurance products and attractive banking services. Sharp rise in leasing and new credit business The segment’s worldwide lease and credit financing busi- ness with retail customers continued to grow in 2013. With a total of 1,471,385 new contracts, the segment set a new record for the number of new contracts signed in a year, surpassing the previous year’s figure by 9.7 % (2012: 1,341,296 contracts). Lease business and credit financing business contributed equally to this strong growth, in both cases with an in- Contract portfolio of Financial Services segment in 1,000 units 4,200 4,000 3,800 3,600 3,400 3,200 3,000 crease of 9.7 % over the previous year. Leasing accounted for 33.8 % of new business, credit financing for 66.2 %. The proportion of new BMW Group cars leased or financed by the Financial Services segment was 44.0 %, 3.6 percentage points higher than one year earlier. In the used car financing line of business, 315,919 new contracts for BMW and MINI brand cars were signed in 2013, 4.1 % more than in the previous year (2012: 303,490 contracts). The total volume of all new credit financing and leas- ing contracts concluded with retail customers during the twelve-month period amounted to € 39,241 million, an increase of 7.0 % over the previous year (2012: € 36,664 million). This surge in new business had a positive impact on the overall size of the contract portfolio, which grew to a total of 3,793,768 contracts at the end of the reporting period (2012: 3,534,620 contracts; + 7.3 %). Growth was recorded across all regions, with increases in the Europe / Middle East region (+ 8.8 %), the Americas region (+ 5.5 %) and for the EU Bank (+ 2.4 %). The most significant rise was again recorded in the Asia / Pacific region, where the contract portfolio grew by 23.6 %. Expansion of BMW Bank successfully completed The process of turning BMW Bank into a European finan- cial institution was successfully completed, following the formal conversion of the Italian subsidiary to the status of a BMW Bank branch. This process has entailed various European financial services entities of the BMW Group being integrated in BMW Bank GmbH, either in the form of branches or as subsidiaries. As a credit institution operating throughout Europe, the bank is able to enjoy the benefits of greater flexibility in the areas of liquidity and equity capital management, thus increasing the overall stability of the segment. BMW Group new vehicles financed by Financial Services segment in % 50 40 30 20 10 09 10 11 12 13 3,086 3,190 3,592 3,846 4,130 Financing Leasing 24.7 24.3 24.1 24.1 20.0 21.1 20.7 19.7 22.5 21.5 09 10 11 12 13 37 CoMBined ManageMent RepoRt Contract portfolio retail customer financing of Financial Services segment 2013 as a percentage by region Asia / Pacific Europe / Middle East / Africa EU Bank Americas EU Bank Americas 31.3 30.9 Europe / Middle East / Africa 24.9 Asia / Pacific 12.9 With the new structure in place, BMW Bank has its headquarters in Germany, branches in Italy, Spain and Portugal and a subsidiary in France. Fleet business remains on growth course As a fleet management specialist offering a full range of services including leasing and funding, Alphabet is the fourth-largest provider in the European market. The total portfolio of fleet-related contracts climbed by 6.6 % to stand at 535,528 contracts at the end of the reporting period (2012: 502,397 contracts). Multi-brand financing on the rise Demand for multi-brand financing increased again in 2013. In total, 181,605 new contracts were signed in 2013, surpassing the previous year’s equivalent figure by 10.8 % (2012: 163,945 contracts). A portfolio of 452,009 contracts was in place at the end of the reporting period (2012: 417,408 contracts; + 8.3 %). Development of credit loss ratio in % 0.9 0.8 0.7 0.6 0.5 0.4 0.3 09 10 11 12 13 0.84 0.67 0.49 0.48 0.46 Dealer financing up on previous year In addition to retail customer financing, the Financial Services segment also provides financing products for the dealer organisation. The total volume of dealer financing at 31 December 2013 was € 13,110 million, an increase of 3.5 % compared to one year earlier (2012: € 12,669 million). Deposit business decreased Deposit-taking represents an important source of re- financing for the BMW Group. The volume of customer deposits went down by 4.3 % during the twelve-month period to € 12,457 million (2012: € 13,018 million). Insurance business continues to grow In addition to its financing and leasing products, the Financial Services segment also offers a wide range of individually packaged insurance services to customers in 30 countries. There was no let-up in demand for insurance products in 2013. The number of new con- tracts rose worldwide by 6.3 % to 1,041,530 contracts (2012: 979,776 contracts). The insurance contract port- folio expanded by 18.9 % to 2,567,168 contracts (2012: 2,158,892 contracts). Stable risk profile Helped by the positive trend in the global economy and an easing of the euro crisis, the segment’s well-estab- lished risk management procedures again proved their worth. The credit risk situation in southern Europe was also more stable. The loss ratio incurred on the segment’s total credit portfolio was reduced by 2 basis points to 0.46 % (2012: 0.48 %). Reflecting developments on international used car mar- kets, our vehicles’ residual values also improved slightly worldwide over the course of the year. The only excep- tion was in the countries of southern Europe, where, although there was no improvement, prices at least sta- bilised at a low level. Average losses on residual value risks also decreased. Further information with respect to risks and opportuni- ties related to Financial Services can be found in the section “Report on risks and opportunities”. 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 38 ReseaRCh and development Efficient Dynamics The vehicles produced by the BMW Group feature in- telligent lightweight design, optimised aerodynamic characteristics and efficient engines. The well-thought- out mixture of materials used to build our vehicles enables us to continually reduce their weight. The BMW Group is also one of the world’s leaders in the use of CFRP in car production. The lightweight material is at least as strong, but up to 50 % lighter than steel and around 30 % lighter than aluminium. When combined with an aluminium chassis, a thermoplastic outer skin and comprehensive weight optimisation in many other components, the CFRP passenger compartment used in the BMW i3 is currently the most effective implementation of intelligent lightweight carmaking on the market. As from 2014, a completely new family of engines fea- turing BMW TwinPower turbo technology will power the first BMW and MINI models with new 3-, 4- and 6-cylinder in-line engines, ensuring that the best pos- sible Efficient Dynamics technology is available in all segments and performance categories. The EU6 emission standard, which is mandatory for all newly registered automobiles as from autumn 2014, has already been met for most new BMW and MINI models since 2013. BMW Blue Performance technology ensures that the reduction in the percentage of nitrogen oxide in emissions required by the EU6 standard has been ful- filled for BMW’s diesel models. In the field of electromobility, too, the BMW Group is relying on in-house developments for its drive systems. BMW eDrive embraces all of the drive system compo- nents required for fully electric driving, i.e. the electric motor, power electronics, e-transmission and high- voltage battery system. Intelligent energy management ensures that the waste heat generated by the drive system is reduced; kinetic energy is produced as needed and recovered. The BMW Group has done pioneering work in the field of recu- peration technology, which it has gradually been intro- ducing since 2007. The technology generates electrical energy that is fed into the vehicle’s electrical system during acceleration and braking phases. The BMW i3 The fully electrically powered BMW i3 was launched in 2013 and is the first electric car on the market to com- bine the pleasure of driving so typical for BMW with electromobility suitable for daily use. It is based on an innovative vehicle concept, which is tailor-made for electromobility and includes a passenger compartment made of CFRP. Driver assistance systems and mobility services from BMW ConnectedDrive as well as the services of 360° ELECTRIC have been specially developed for the BMW i Series. The BMW i3 uniquely combines dynamic driving (from 0 to 100 km / h in 7.2 seconds) with low electricity consumption (12.9 kWh in the EU test cycle). It is powered by a lithium-ion battery spe- cially developed and produced by the BMW Group, which is integrated in the underbody to save space. The energy storage capacity gives the car a range of 130 to 160 kilometres under everyday driving conditions. Connected mobility With the new orientation of BMW ConnectedDrive ser- vices, BMW continues to extend its outstanding posi- tion as leading provider worldwide of online-based ser- vices for vehicles. BMW ConnectedDrive is based on two key areas, namely driver assistance systems (con- venience and safety functions) and services (infotain- ment and mobility services). Customers can now order mobility services on an individual basis. Moreover, in- dividual services can be ordered for limited periods of time. The individualisation of services is now also avail- able for the first time for a used BMW. As a result, both BMW and BMW i customers can benefit from a broad range of services and far lower entry prices. Since July 2013, many BMW models have been equipped with an integrated SIM card as standard. The aim is, by 2017, to connect around five million BMW vehicles worldwide via Connected Drive by means of the permanently in- stalled SIM card. In future it will be possible to order BMW Connected- Drive services in the newly created BMW Connected- Drive store, an option unique for the market. The store is not only available online, but also when travelling, via the vehicle’s on-board system. With its intelligent emergency call feature, BMW already offers a broader range of functions than that required by EU legislation for 2015. Automatic position-finding and accident severity detection also help to greatly minimise the time between an accident occurring and the arrival of medical and rescue teams. In future, the intelligent emergency call will be offered as standard in practically all markets and models. The range of optional driver assistance systems has also been considerably expanded for the new MINI. 39 CoMBined ManageMent RepoRt Available for the first time are a head-up display above the steering column, the Driving Assistant system in- cluding camera-based, active speed control, collision and pedestrian warning, high beam assistant and traffic sign detection as well as a parking assistant and a re- versing camera. The diversity of the MINI Connected infotainment pro- gramme, which is unique in its competitive environ- ment, has been additionally increased. The new MINI is the first vehicle in its segment that can be perma- nently equipped with a SIM card, which means it has the emergency call service with automatic position- finding and accident severity detection as well as the MINI teleservices at its disposal. The social networks and infotainment functions, which can be integrated in the vehicle via apps, are now available both for Apple iPhones and for smartphones running the Android operating system. With functions such as traffic sign recognition and colli- sion warning technology, BMW Motorrad Connected- Ride is bringing camera-based rider assistance systems that are already standard features in BMW cars to the world of motorcycling. The particular challenge in this case is how to implement the functions to suit motor- cycling conditions: the system still needs to work per- fectly when leaning into corners and in all weathers. For example, based on ultrasound technology, the Side View Assist system warns the motorcycle rider of ob- jects located in blind spots and vehicles approaching from the sides by means of orange warning triangles built into the base of the motorcycle’s mirrors. For a number of years now, the BMW Group has been working on an electronic co-pilot that provides vehicles with highly automated driving capabilities on motor- ways. As early as 2011, a trial vehicle drove from Munich to Nuremburg without assistance from the driver. A highly automated switching from one motorway to an- other at motorway intersections is now also possible, thus managing a further key step in the automated ne- gotiation of motorway networks. After four years of research work, in 2013 one of the largest field trials worldwide for Car-to-X-Communica- tion simTD (Safe Intelligent Mobility – test field Ger- many), involving more than 120 cars, was completed. Numerous companies in the automotive and commu- nications industries as well as research institutes joined forces to test the electronic connectedness of vehicles and traffic infrastructure. The BMW Group concentrated particularly on the cross-traffic assistant and the traffic sign assistant. Via radio signals, the cross-traffic assis- tant registers the data of all road users at any given crossing and, with the help of positioning technology that is already available as standard equipment, can manage to avoid many of the accidents that typically occur at crossings. The second main focus was on the traffic sign assistant, which, alongside a host of other features, informs the driver of current speed limits in traffic guidance systems or of approaching congestion. Awards for technological innovation and design Engines newly developed by the BMW Group were awarded two category prizes at the international “Engine of the Year Awards 2013”. An international jury awarded first prize in its capacity class to the 2.0-litre 4-cylinder TwinPower turbo engine, which powers vehicles such as the BMW 1, 3 and 5 Series models. In its class, the 1.6-litre 4-cylinder MINI Twin- Power turbo engine, which powers the MINI Cooper S, recorded its seventh consecutive award win. The suc- cess is further proof of the dominance of the BMW Group with its globally recognised competence in engine development. No other car manufacturer has managed to gain more titles at the Engine of the Year Awards in recent years. The BMW Group celebrated dual success at the inter- nationally acclaimed “Goldenes Lenkrad” automotive awards. The BMW X5 was voted the most convincing new model of the year in the SUV category – as the first BMW model in this category. In the competition for the “Grünes Lenkrad”, the BMW i3 won hands down against all other brands. The BMW i3 also secured first place in the German Design Award 2014 in the “Trans- portation and Public Space” category. An international jury of experts presented awards not only for the BMW i3, but also for the concept study BMW Pininfarina Gran Lusso Coupé and the BMW R 1200 GS. A total of six models designed by the BMW Group were honoured at the world’s oldest and widely respected “GOOD DESIGNTM” awards. The independent jury awarded prizes to numerous vehicles, including the BMW 6 Series Gran Coupé, the BMW 3 Series Sedan, the BMW M6 Coupé, the BMW M5 and the MINI Roadster. The BMW Group also celebrated receiving four prizes at the red dot award: product design 2013. In the “Automotive and Transport” category the BMW M6 Gran Coupé, the BMW M135i, the BMW 3 Series Touring and the BMW R 1200 GS were each awarded the red dot design award for their high-quality design. 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 40 puRChasing and supplieR netwoRk As the leading provider of premium vehicles, the BMW Group operates the supply chain together with its part- ners. The focus here is on achieving the right balance between quality, innovation, flexible supply structures and competitive costs. This enables us, even in a volatile environment, to react swiftly and flexibly to fluctua- tions in demand and to continue improving the quality of our products and services. of our in-house component production facilities. The expansion of the Landshut production plant for carbon fibre parts emphasises the importance that the BMW Group attaches to it as a competence centre for light- weight construction and electromobility. This invest- ment in CFRP technology provides the basis for the large- scale automated series production of carbon fibre parts in the BMW Group. Numerous model start-ups The year under report saw the launch of ten models in total for the BMW, MINI and Rolls-Royce brands, for which much of the groundwork was performed by the purchasing team. The BMW i3 incorporates a large number of innovations, implemented thanks to the co- ordinated efforts of our suppliers and our own in-house component manufacturing resources. Furthermore, the new generation of the MINI marks the start of front- wheel drive architecture for the BMW Group. Internationalisation of procurement markets In accordance with the basic principle applied that pro- duction follows the market, the BMW Group is increas- ingly shifting value-added processes into its respective sales markets, thus providing a further defence against currency exposures. High level of investment safeguards productivity and technology lead The BMW Group’s Purchasing and Supplier team is also responsible for component production sites and carries out regular comparative analyses to ensure the efficiency Regional mix of BMW Group purchase volumes 2013 in %, basis: production material Africa Asia / Australia NAFTA Central and Eastern Europe Germany Rest of Western Europe Germany 47.2 NAFTA Rest of Western Europe Central and Eastern Europe 18.9 17.0 Asia / Australia Africa 12.1 1.9 1.9 41 CoMBined ManageMent RepoRt sales and maRketing The worldwide sales network currently consists of some 3,250 BMW, 1,500 MINI and 120 Rolls-Royce dealer- ships. In China alone, more than 50 new BMW and MINI dealerships were opened in 2013. The number of dealerships in Europe was adapted to suit the current economic conditions. BMW brings out numerous new models The revised BMW Z4 model was introduced in March 2013. This was followed in June by the launch of the new M6 Gran Coupé, which offers the perfect balance between design, performance and luxury. The new BMW 3 Series Gran Turismo, as the third body variant of this series, came onto the market in June 2013. It combines the Sedan’s sporty, dynamic design with the Touring’s functionality and versatility. The BMW 5 Se- ries revised model has been available in the showrooms since July. In addition to design modifications, a wider selection of engines and additions to its broad choice of features, the new BMW 5 Series offers a more exten- sive range of standard equipment. October saw the market launch of the new BMW 4 Series Coupé. With its low centre of gravity and powerful engine models, the sporty Coupé sets new standards for driving dy- namics in its segment. The third generation of the BMW X5 reached the showrooms in November. The dis- tinguishing features of this successful model are its increased sporting ability and lower fuel consumption. In April 2013, the BMW Group, together with its joint venture partner Brilliance Automotive, announced the launch of an electric vehicle developed specially for China under the brand name ZINORO. Successful market launch of the BMW i3 At the end of July 2013, the BMW i3 was presented to the public in three cities simultaneously: London, New York and Beijing. The European sales launch of the BMW i3 in November 2013 was accompanied by an ex- tensive communication campaign. First successes have already been recorded: the numbers of interested parties, test drive enquiries and orders for the BMW premium electric vehicle are surpassing expectations. The BMW i3 is available directly from 196 European dealerships with BMW i agency agreements (BMW i agents). In selected markets, the sales concept for the BMW i has been extended to include purchase offers by telephone and via the Internet. In addition, BMW i product experts advise interested customers at the BMW i agencies. The coming months will see the launch of the BMW i3 in the USA, China and Japan, among other countries. MINI extends model range In March 2013, the MINI Paceman became the seventh model in the MINI brand range. It is the first Sports Activity Coupé in the premium compact segment. The brand is therefore continuing to extend its model range to include new vehicle concepts. April saw the market launch of the John Cooper Works brand in China. In Shanghai, MINI opened the first Experience Centre for the brand in China. In November, the BMW Group announced the third generation of the MINI, which will be available on mar- kets worldwide in spring 2014. The new MINI redefines the premium small-car segment and offers numerous innovations. Rolls-Royce Wraith extends the brand experience In 2013, Rolls-Royce Motor Cars presented the Wraith, the most potent Rolls-Royce of all time. The Wraith stands out for its unique design and has been available in showrooms since September 2013. The Wraith has received the highest accolades, both in the media and from customers. Rolls-Royce Motor Cars also expanded its global presence in the year under report to include Turkey, the Philippines and Taiwan. Comprehensive range of services centred around BMW i With 360°ELECTRIC, BMW i offers a comprehensive package of services for easy, convenient electromobility. BMW i3 and i8 can be recharged from a domestic power socket. However, customers can charge up even more quickly and conveniently using the BMW i wallbox, which is also available with installation service. A solar car- port is also available as an option. The public ChargeNow network is accessible for customers without private parking facilities. This is a network of public charging infrastructure suppliers who provide access to more than 8,000 charging points located throughout Europe. With ParkNow LongTerm, the customer can rent a long-term parking space with charging station at a car park cooperating in the scheme. BMW Add-on Mobility makes it possible to book a conventional BMW vehicle (e. g. for longer holiday trips) as a further service provided to BMW i customers. Featuring comprehensive driver assistance systems and connectivity solutions, BMW i ConnectedDrive services 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 42 are designed to fulfil our customers’ desire for con- venience. BMW i3 Navigation includes a dynamic range assistant, which provides the customer with reliable information on the location of charging stations along the route or suggests efficient driving styles. The Assis- tance Services package comprises BMW i Connected- Drive functions for smartphone and navigation, which support the driver when charging the vehicle and during the journey. The service package can also include pub- lic transport options in the mobility planning. With a BMW i, the customer is also entitled to the comprehen- sive BMW i Mobile Care package. This includes tele- phone assistance, on-the-spot help and a replacement vehicle if required. As part of the holistic approach of 360°ELECTRIC, a customised maintenance and repair package is also offered in addition. Strong growth in customer service For the BMW Group and its worldwide dealer organisa- tion, the distribution of BMW and MINI spare parts, accessories and services represents a key factor for suc- cess. 2013 was yet another record year in our major markets in Germany, the USA and China. Double-digit growth in revenues was also achieved in Japan, Korea and Russia. New premium experience in showrooms By 2017, the Future Retail programme will be imple- mented worldwide with a view to enhancing the pre- mium experience of our brands and products. Future Retail comprises: – new and additional possibilities for contact with our brands, – comprehensively improved dealerships, which offer a premium experience and – targeted support for dealerships enabling customer needs to be met even more effectively. In 2013, a start was made on implementing the pro- gramme in 22 markets. The use of our 700 Product Geniuses worldwide in some 450 dealerships was par- ticularly successful. woRkFoRCe Workforce increased The BMW Group’s worldwide workforce grew to a to- tal of 110,351 employees at 31 December 2013 (2012: 105,876 employees; + 4.2 %). In order to satisfy the high demand for our vehicles and to be ready to tackle future challenges, skilled staff was recruited specifically for the development and production of new technologies, such as electromobility. The decrease in the Motorcycles segment’s workforce was due to the sale of Husqvarna Motorcycles in March 2013. Training extended internationally 1,363 young people began their vocational training with the BMW Group in 2013. In Germany, the number of 1,200 apprentices remained constant compared to the previous year. At the end of the reporting period, the BMW Group employed 4,445 apprentices worldwide. Investment in employee training Expenditure on basic and further training in the BMW Group rose by 2.1 % to €288 million during the year un- der report (2012: €282 million). This investment focused principally on increasing skills in the field of electro- mobility, the growing internationalisation of the BMW Group and the development of a comprehensive range of seminars in the area of healthcare. Attractive employer Again in 2013, the BMW Group ranged among the most attractive employers in the world, a fact reflected in numerous studies and rankings tables. In “The World’s Most Attractive Employers”, published by the Univer- sum agency, the BMW Group again succeeded in being ranked as the best German employer across all sectors and the best automotive company of all. The BMW Group also managed to rise further in Trendence’s European rankings table compared to the previous year. BMW Group apprentices at 31 December 4,500 4,000 3,500 3,000 2,500 2,000 09 10 11 12 13 3,915 3,798 3,899 4,266 4,445 43 CoMBined ManageMent RepoRt BMW Group employees Automotive Motorcycles Financial Services Other BMW Group In Trendence’s German Young Professional Barometer 2013, the BMW Group occupied first place across all target groups. Furthermore, in the Trendence Graduate Barometer Germany, the BMW Group, with its second place in the fields of business and engineering and its fourth place in IT, achieved its best result since 2007. Productive diversity boosts competitiveness As a result of the specific deployment of varied, com- plementary talents, the BMW Group is able to boost its efficiency, innovative strength and customer orienta- tion by better reflecting the diversity of its customers. In order to attract a broad spectrum of skillsets which en- able us to fully engage the strengths of all our employees, we promote a business culture based on appreciation and mutual respect. The proportion of women in the workforce, both in management positions and in training programmes for young talent, rose further during the year under report. The proportion of women in the BMW Group’s work- force at 31 December 2013 stood at 17.4 % (BMW AG: 14.5 %). Particularly good progress was made regarding the number of women in management positions, with Proportion of non-tariff female employees at BMW AG / BMW Group1 in % 13 12 11 10 9 8 31.12. 2013 31.12. 2012 100,682 96,518 2,726 6,823 120 2,939 6,295 124 110,351 105,876 Change in % 4.3 – 7.2 8.4 – 3.2 4.2 the proportion rising to 13.8 % (BMW AG: 10.9 %). Com- prehensive training and promotional programmes – for both women and men – have been set up 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 al- ready above 35 %. Employee attrition rate at BMW AG1 as a percentage of workforce 7.0 6.0 5.0 4.0 3.0 2.0 1.0 09 10 11 12 13 09 10 11 12 13 BMW AG BMW Group 8.4 8.8 11.1 9.1 11.8 10.0 10.9 12.7 2 13.8 1 Percentage calculated for the BMW Group since 2010. 2 Figure adjusted. 4.592 2.74 2.16 3.87 3.47 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 management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 44 sustainability Economic success, the responsible use of resources and the assumption of our social responsibilities are the cornerstones for long-term growth and a continual rise in the value of the business. For this reason, due con- sideration to ecological and social criteria along the entire value-added chain and a clear commitment to the preservation of resources are values that are firmly em- bedded in the philosophy of the BMW Group. Again in 2013, the Group successfully maintained its leading position among the most sustainable carmakers worldwide – a fact borne out by the top places achieved in prestigious ratings. The BMW share was again included in the Dow Jones Sustainability Indices (DJSI, Europe and World), making the BMW Group the only carmaker to be consecutively listed in the top three for the last 15 years. In the Global 500 Rating of the Carbon Dis- closure Project (CDP), in 2013 we achieved our best re- sult of all time and with 100 out of 100 possible disclo- sure points and a performance assessment in the best ‘A’ ranking, making us leaders in our sector. More- over, the BMW Group was again included in the British FTSE4Good Index in 2013. Clean production The integration of environmental management in all production processes enables us to minimise our use of resources and cushion their environmental impact. Since 2006 we have reduced both the resources utilised and the emissions per vehicle produced by an average of 41.4 %. The individual figures are as follows: In 2013, the utilisation of resources and the emissions per vehicle produced were again reduced by an average of 6.6 % compared with the previous year, thus giving rise to savings of €6.8 million. Despite extensive in-house production (e. g. CFRP manu- facturing) and the construction / commissioning of new structures worldwide (such as the new foundry at the Landshut plant), we managed to further reduce the energy consumption per vehicle produced to 2.36 MWh or 2.1 %. Improved energy efficiency, the utilisation of highly efficient, ecologically sustainable combined heat and power plants (CHPs) and the use of electricity generated from renewable sources enabled us to reduce the carbon emissions per vehicle produced by 5.6 % to 0.68 tons during the period under report. In order to generate sufficient energy at its various pro- duction plants, the BMW Group makes good use of its own combined heat and power plants. The calculation of energy efficiency within the BMW Group’s produc- tion network has been adjusted to allow for increased consumption caused by conversion due to the growing use of CHP plants. The previous year’s figures have been adjusted accordingly. The volume of water required per vehicle produced also fell to 2.18 m3 (– 1.8 %) in 2013. The amount of process wastewater produced decreased by 7.8 % to 0.47 m3 per vehicle produced. Measures implemented due to the continual improvement process and good capacity utili- sation at our plants contributed towards improved efficiency in the use of both energy and water. At the Spartanburg plant in the USA in particular, water con- sumption was lowered by the use of condensed water gained from the cooling system. Energy consumption Water consumption Process wastewater Non-recyclable waste Solvent emissions CO2 emissions – 31.0 % – 33.1 % – 42.7 % – 69.7 % – 36.7 % – 35.2 % The amount of non-recyclable production waste fell significantly by 11.4 % to 5.73 kg per vehicle produced in 2013. A strong contributing factor was the decrease in non-recyclable waste by almost one-quarter (23.3 %) at the Landshut plant. Due to the increasing significance of contract production, only vehicles manufactured at BMW production plants1 are taken into account to calculate environmental per- formance indicators, since, looking forward, this is seen as the best way to ensure a differentiated portrayal of the resource efficiency of the BMW Group’s own produc- tion capacities. Solvent emissions were reduced by an impressive 10.7 % to 1.59 kg per vehicle produced during the period un- der report, an achievement primarily due to the retrofit- ting of the paint shop to include an exhaust air filtering system at the Dadong2 plant in China. 1 Including BMW Brilliance joint venture. 2 Joint venture BMW Brilliance. 45 CoMBined ManageMent RepoRt 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 09 10 11 12 13 09 10 11 12 13 2.84 2.72 2.43 2.41 2.36 2.66 2.40 2.25 2.22 2.18 * Excluding contract production, adjusted for CHP losses. * Excluding contract production. Sustainability in the value-added chain Sustainability criteria also play a major role in the field of transport logistics as well as in the selection and as- sessment of our suppliers. Sustainability requirements apply not only to our suppliers, but also to our transpor- tation service providers. The amount of energy needed for transportation purposes has considerably increased in recent years. In order to keep carbon emissions to an absolute minimum, we work on the principle “produc- tion follows the market”. In addition, we are working on improving our packaging and continually increasing the percentage of low-carbon types of transportation. In total, 60.7 % of all new cars left our plants by rail during the twelve-month period under report. Moreover, in 2013 we introduced measures to reduce the volume of goods transported by airfreight. Carbon emissions reduced across the fleet The Efficient Dynamics technology package has been helping us reduce the amount of CO2 our vehicles emit for many years. The 100 % electrically powered BMW i3 was added to the BMW Group’s vehicle fleet in 2013. With increasing electrification, including that achieved by means of hybrid technology, we will continue to take a leading role in the lowering of carbon emissions and fuel consumption. Looking into the future, these technologies represent an important basis for fulfilling legally mandatory carbon and consumption limits. The average carbon emissions of the vehicles we sold in Europe fell by 37 % from 1995 to 2013. The BMW Group’s fleet of new vehicles sold in Europe consumed an average of 4.8 litres of diesel per 100 km and 6.2 litres of petrol respectively. The average carbon emissions in our cars sold in Europe (EU 27) stood at 133 grams per kilometre during the year under report. We also lead the field among German premium-segment manufacturers with carbon emissions of 139 g / km. In 2013 the BMW Group’s fleet already included 39 models using 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. 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 09 10 11 12 13 09 10 11 12 13 0.94 0.89 0.75 0.72 0.68 0.64 0.60 0.57 0.51 0.47 * Excluding contract production, adjusted for CHP losses. * Excluding contract production. 46 18 Combined management RepoRt 18 General Information on the BMW Group 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 29 Automotive Segment 35 Motorcycles Segment 36 Financial Services Segment 38 Research and Development 40 Purchasing 41 Sales and Marketing 42 Workforce 44 Sustainability 47 Results of Operations, Financial Position and Net Assets 56 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Waste for disposal* per vehicle produced in kg / vehicle 15.0 12.5 10.0 7.5 5.0 2.5 Volatile organic compounds (VOC)* per vehicle produced in kg / vehicle 2.00 1.75 1.50 1.25 1.00 09 10 11 12 13 09 10 11 12 13 11.03 10.49 8.49 6.47 5.73 1.84 1.66 1.75 1.78 1.59 * Excluding contract production. * Excluding contract production. Further information on the subject of sustainability in the BMW Group is available in our online sustainability report at: www.bmwgroup.com /sustainability. The Sustainable Value Report 2012 was prepared in ac- cordance with the guidelines of the Global Reporting Initiative (GRI G3.1). At Level A+ (GRI-tested) it fulfils the highest degree of application laid down by GRI guidelines. 47 CoMBined ManageMent RepoRt Report on Economic Position Results of Operations, Financial Position and Net Assets Earnings performance1 The BMW Group is able to look back on another success- ful year. The number of BMW, MINI and Rolls-Royce brand cars sold rose by 6.4 % to 1,963,7982 units, enabling the BMW Group to retain pole position at the head of the premium segment in the automotive industry. The BMW Group recorded a net profit of € 5,340 million (2012: € 5,111 million) for the financial year 2013. The post-tax return on sales was 7.0 % (2012: 6.7 %). Earnings per share of common and preferred stock were € 8.10 and € 8.12 respectively (2012: € 7.75 and € 7.77 respectively). Group revenues decreased by 1.0 % to € 76,058 million (2012: € 76,848 million). Inter-segment revenue elimi- nations increased as a result of the steep rise in new leasing business. The depreciation of some of the major currencies in which the BMW Group does business – such as the US dollar, the Japanese yen, the Australian dollar and the South African rand – also caused reve- nues to fall slightly, despite the fact that sales volumes were higher than one year earlier. Adjusted for ex- change rate factors, the increase in revenues was 1.9 %. Revenues comprise mainly the sale of cars and motor- cycles (2013: € 56,811 million; 2012: € 58,039 million), lease instalments (2013: € 7,296 million; 2012: € 6,900 million), the sale of products previously leased to cus- tomers (2013: € 6,412 million; 2012: € 6,399 million) and interest income on loan financing (2013: € 2,868 mil- lion; 2012: € 2,954 million). Revenues from the sale of BMW, MINI and Rolls-Royce brand cars were slightly down on the previous year (2.1 %). Adjusted for exchange rate factors, revenues in- creased by 0.9 %. Motorcycles business revenues were 1.2 % up on the previous year. Revenues generated with Financial Services operations grew by 2.3 %. Adjusted for exchange rate factors, revenues of the Motorcycles and Financial Services segments rose by 4.6 % and 4.7 % respectively. Group revenues were spread fairly evenly across all re- gions, with the Europe region (including Germany) accounting for 45.2 % (2012: 45.7 %), the Americas region for 20.7 % (2012: 21.2 %) and the Africa, Asia and Oceania region for 34.1 % (2012: 33.1 %) of business. 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 1 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2 Includes cars manufactured by the BMW Brilliance joint venture. 2013 2012 76,058 – 60,784 15,274 – 7,255 841 – 874 7,986 398 184 – 449 – 206 – 73 7,913 76,848 – 61,354 15,494 – 7,032 829 – 1,016 8,275 271 224 – 375 – 592 – 472 7,803 – 2,573 5,340 – 2,692 5,111 48 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Revenues in the Africa, Asia and Oceania region to- talled € 25,916 million (2012: € 25,420 million) and were up by 2.0 % compared to the previous year. These fig- ures include China, where revenues grew by 6.2 % due to higher volumes within a sound economic environ- ment. Revenues generated in Germany and in the Rest of Europe were respectively 3.2 % and 1.8 % lower than one year earlier. Revenues in the Americas region were also 2.9 % below their previous year’s high level, affected both by the depreciation of the US dollar and the steep rise in new leasing business (the latter resulting in a higher level of inter-segment eliminations). Group cost of sales were 0.9 % lower than in the pre- vious year and comprise mainly manufacturing costs (2013: € 36,572 million; 2012: € 37,648 million), cost of sales directly attributable to financial services (2013: € 14,044 million; 2012: € 13,370 million) and research and development expenses (2013: € 4,117 million; 2012: € 3,993 million). In addition to changes in these items, cost of sales for the year was also affected by the loss in value of a number of major currencies and by inter- segment eliminations. Gross profit fell by 1.4 % to € 15,274 million, resulting in a gross profit margin of 20.1 % (2012: 20.2 %). The gross profit margin recorded by the Automotive segment was 18.2 % (2012: 19.5 %), while that of the Motorcycles segment was 16.7 % (2012: 17.0 %). In the Financial Services segment, the gross profit margin remained stable at 13.1 %. Compared to the previous year, research and develop- ment expenses increased by € 124 million to € 4,117 mil- lion, mirroring increased expenditure on new vehicle projects and technologies. As a percentage of revenues, the research and development ratio increased by 0.2 per- centage points to 5.4 %. Research and development ex- pense includes amortisation of capitalised development costs amounting to € 1,069 million (2012: € 1,130 million). Total research and development expenditure amounted to € 4,792 million (2012: € 3,952 million). This figure com- prises research costs, non-capitalised development costs and capitalised development costs (excluding scheduled amortisation). The research and development expenditure ratio was therefore 6.3 % (2012: 5.1 %). The proportion of development costs recognised as assets was 36.4 % (2012: 27.6 %). Compared to the previous year, selling and administra- tive expenses increased by € 223 million to € 7,255 mil- lion, with the rise in administrative expenses mainly attributable to the higher workforce size and to group- wide IT restructuring. Overall, selling and administra- tive expenses were equivalent to 9.5 % (2012: 9.2 %) 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 € 3,739 million (2012: € 3,541 million). Other operating income and expenses improved from a net expense of € 187 million to one of € 33 million. The main reason for the improvement was that the previous year’s figures had included one-time losses recognised in advance of the planned sale of the Husqvarna Group. The profit before financial result (EBIT) came in at € 7,986 million (2012: € 8,275 million). The financial result for the twelve-month period was a net expense of € 73 million, an improvement of € 399 mil- lion over the previous year. The result from equity ac- counted investments, which improved by € 127 million, comprised 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, and the two DriveNow entities. Other financial result benefited from the better outcome of changes in the market values of interest rate and commodity de- rivatives. Compared to the previous year, write-downs on available-for-sale marketable securities had a lower impact on the financial result. Including all these factors, the profit before tax rose to € 7,913 million (2012: € 7,803 million). The pre-tax return on sales was 10.4 % (2012: 10.2 %). Income tax expense amounted to € 2,573 million (2012: € 2,692 million), resulting in an effective tax rate of 32.5 % (2012: 34.5 %). Lower non-recoverable with- holding taxes, the changed regional earnings mix and intergroup pricing issues contributed to the decrease in the income tax expense for the year. 49 CoMBined ManageMent RepoRt Revenues by segment in € million Profit / loss before tax by segment in € million 2013 2012 2013 2012 Automotive Motorcycles Financial Services Other Entities Eliminations Group 70,629 1,504 19,874 6 – 15,955 76,058 70,208 1,490 19,550 Automotive Motorcycles Financial Services 5 Other Entities – 14,405 76,848 Eliminations Group 6,561 76 1,639 164 – 527 7,913 7,170 6 1,561 3 – 937 7,803 Earnings performance by segment Revenues of the Automotive segment increased by 0.6 % to € 70,629 million. The benefits of higher sales volume figures were held down by the negative impact of the depreciation in value of a number of major currencies (including the US dollar and the Japanese yen). Adjusted for exchange rate factors, segment revenues rose by 3.5 %. At 18.2 %, gross profit margin was down on the pre- vious year’s high level of 19.5 %. Selling and administrative expenses went up by € 250 million to € 6,112 million compared to the pre- vious year, with the rise in administrative expenses mainly attributable to the higher workforce size and to group-wide IT restructuring. Segment selling and administrative expenses were equivalent to 8.7 % (2012: 8.3 %) of revenues. venture BMW Brilliance Automotive Ltd., Shenyang, the joint ventures with the SGL Carbon Group, and the two DriveNow entities. Favourable changes in market prices of commodity derivatives had a positive impact on other financial result. Compared to the previous year, write-downs on available-for-sale marketable securities had a lower impact on the financial result. Overall, the segment profit before tax amounted to € 6,561 million (2012: € 7,170 million) and the effective tax rate was 32.8 % (2012: 34.2 %). In the Motorcycles segment, the number of BMW brand motorcycles handed over to customers increased by 8.3 %, while segment revenues edged up by 0.9 %. Ad- justed for exchange rate factors, segment revenues rose by 4.4 %. The net expense from other operating income and ex- penses improved by € 133 million (2012: net expense of € 222 million), helped by positive foreign currency translation effects in 2013 and the fact that the previous year’s figure had included negative first-time consoli- dation effects. The profit before financial result (EBIT) amounted to € 6,657 million (2012: € 7,599 million), giving an EBIT margin of 9.4 % (2012: 10.8 %). The segment financial result was a net expense of € 96 million, an improvement of € 333 million over the previous year. The result from equity accounted invest- ments, which improved by € 127 million, comprised the segment’s share of results from interests in the joint The pre-tax segment result improved by € 70 million (2012: € 6 million). The previous year’s figure was nega- tively impacted by one-time losses recognised in con- junction with the planned sale of the Husqvarna Group. Financial Services segment revenues increased by 1.7 % to € 19,874 million. Adjusted for exchange rate factors, revenues increased by 4.0 %. The segment’s performance reflects the growth in the contract portfolio. The gross profit margin remained at the previous year’s level of 13.1 %. Selling and administrative expenses went down slightly. The net amount of other operating income and expenses improved by € 20 million. Overall the Financial Services segment reports a profit before tax of € 1,639 million, 5.0 % up on the previous year’s figure of € 1,561 million. 50 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets A profit before tax of € 164 million (2012: € 3 million) was recorded for the Other Entities segment. The positive impact of market value changes of interest rate deriva- tives, recorded in other financial result, was the main reason for the improvement. The negative impact on earnings at the level of profit be- fore tax reported in the Eliminations column decreased from € 937 million in 2012 to € 527 million in 2013, mainly due to lower inter-segment eliminations. This line item in the Eliminations column also includes a positive exceptional impact of € 129 million, resulting from fine-tuning the methodology used to measure leased products. 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 2013 and 2012, classified into cash flows from operating, investing and financing activities. Cash and cash equivalents in the cash flow statements correspond to the amount disclosed in the balance sheet. Cash flows from operating activities are determined indirectly, starting with Group and segment net profit. By contrast, cash flows from investing and financial activities are based on actual payments and receipts. The cash inflow from operating activities in 2013 decreased by € 1,462 million to € 3,614 million (2012: € 5,076 million), mainly due to rises in leased prod- ucts and receivables from sales financing totalling € 6,549 million (2012: € 5,409 million) brought about by sales volume factors. The cash outflow for investing activities amounted to € 6,981 million (2012: € 5,433 million) and was thus 28.5 % higher than in the previous year. The increase primarily reflects investments in property, plant and equipment and intangible assets which went up by € 1,433 million to € 6,669 million. Net investments in marketable securities resulted in a cash outflow of € 381 million (2012: € 175 million). Further information on investments is provided in the section on the net assets position. Cash inflow from financing activities totalled € 2,703 mil- lion (2012: € 952 million). Proceeds from the issue of bonds amounted to € 8,982 million (2012: € 7,977 mil- lion), compared with an outflow of € 7,242 million (2012: € 6,727 million) for the repayment of bonds. Non-cur- 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. 2012 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. 2013 8,370 + 3,614 – 6,981 + 2,703 – 42 7,664 51 CoMBined ManageMent RepoRt rent other financial liabilities resulted in a cash inflow of € 6,626 million (2012: € 7,427 million) and a cash out- flow of € 4,996 million (2012: € 5,498 million). The net cash outflow for current other financial liabilities was € 721 million (2012: net cash inflow of € 230 million). The change in commercial paper gave rise to a net cash in- flow of € 1,812 million (2012: net cash outflow of € 858 mil- lion). By contrast, the payment of dividends resulted in a cash outflow of € 1,653 million (2012: € 1,516 million). The cash outflow for investing activities exceeded cash inflow from operating activities in 2013 by € 3,367 mil- lion, compared to a shortfall of € 357 million in the pre- vious year. After adjusting for the effects of exchange-rate fluctu- ations and changes in the composition of the BMW Group with a total negative amount of € 42 million (2012: negative amount of € 1 million), the various cash flows resulted in a decrease of cash and cash equiva- lents of € 706 million (2012: increase of € 594 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 € 1,962 million (2012: € 3,637 million). Adjusted for net investments in marketable securities amounting to € 537 million (2012: € 172 million), mainly in conjunction with strategic liquidity planning, the excess amount was € 2,499 million (2012: € 3,809 million). Free cash flow of the Automotive segment can be ana- lysed as follows: in € million 31. 12. 2013 31. 12. 2012 Cash inflow from operating activities Cash outflow for investing activities Net investment in marketable securities Free cash flow Automotive segment 9,450 – 7,488 537 2,499 9,167 – 5,530 172 3,809 The cash outflow for operating activities of the Finan- cial Services segment is driven primarily by cash flows relating to leased products and receivables from sales financing and totalled € 5,358 million (2012: € 4,192 million). Investing activities resulted in a cash inflow of € 324 million (2012: cash outflow of € 32 mil- lion). Net financial assets of the Automotive segment com- prise the following: in € million 31. 12. 2013 31. 12. 2012 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. 6,768 2,758 4,460 13,986 – 1,859 12,127 7,484 2,205 5,862 15,551 – 2,224 13,327 52 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Refinancing Operating cash flow provides a stable financial basis for the BMW Group. A broadly based range of instruments transacted on international money and capital markets is used to refinance worldwide operations. Almost all of the funds raised are used to finance the BMW Group’s Financial Services business. The overall objective of Group financing is to ensure the solvency of the BMW Group at all times. Achieving this objective is tackled in three strategic areas: 1. the ability to act at all times by assuring permanent access to strategically important capital markets, 2. autonomy through the diversification of refinancing instruments and investors, and 3. focus on value by optimising financing costs. Financing measures undertaken centrally ensure access to liquidity for the Group’s operating subsidiaries on attractive and consistent conditions. Funds are acquired with a view to achieving a desired structure for the com- position of liabilities, comprising a finely tuned mix of various financing instruments. The use of longer-term financing instruments to finance the Group’s Financial Services business and the maintenance of a sufficiently high liquidity reserve serves to avoid the liquidity risk intrinsic to any large portfolio of contracts. This pru- dent approach to financing also supports BMW AG’s ratings. Further information is provided in the “Liquidity risks” section of the Report on outlook, risks and op- portunities. 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 leas- ing rights and obligations on the other are securitised in the form of asset-backed securities (ABS) financing arrangements. Financing instruments employed by the Group’s in-house 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 the year under report at an attractive level. Thanks to the best rating in the European automobile industry and BMW Group – financial liabilities in € million 35,000 30,000 25,000 20,000 15,000 10,000 5,000 Maturity (years) within 1 between 1 and 5 later than 5 30,854 36,046 3,404 the high level of acceptance it has on capital markets, the BMW Group’s refinancing activities were not negatively affected despite – in some cases – quite high volatility on financial markets. In addition to the issue of bonds and loan notes on the one hand and private placements on the other, commercial paper was also is- sued on good conditions. Additional funds were raised via new securitised instruments and the prolongation of existing instruments. As in previous years, all issues BMW Group – financial liabilities in € million Other Derivative instruments Commercial paper Liabilities to banks Asset backed financing transactions Liabilities from customer deposits (banking) Bonds Liabilities from customer deposits (banking) Asset backed financing transactions Liabilities to banks Commercial paper Derivative instruments Other Bonds 30,370 12,457 10,128 8,590 6,292 1,103 1,364 53 CoMBined ManageMent RepoRt were highly sought after by private and institutional investors. During 2013 the BMW Group issued five euro bench- mark bonds with a total issue volume of € 4 billion on European capital markets. Bonds were also issued in Canadian dollars, British pounds, US dollars, Aus- tralian dollars and other currencies for a total amount of € 5.1 billion. Ten ABS transactions were executed in 2013, including two public transactions in the USA and one each in Germany, Switzerland and South Korea with a total volume equivalent to € 2.5 billion. Further funds were also raised via new ABS conduit transactions in Japan, Canada, Australia and South Africa totalling € 1.7 billion. The regular issue of commercial paper also strengthens the BMW Group’s financial basis. The following table provides an overview of existing money and capital mar- ket programmes of the BMW Group at 31 December 2013: Programme Amount utilised Euro Medium Term Notes Commercial paper €27.6 billion €6.3 billion The BMW Group’s liquidity position is extremely robust, with liquid funds totalling € 10.7 billion on hand at 31 De- cember 2013. The BMW Group also has access to a syndi- cated credit line of € 6 billion, with a term up to October 2018. This credit line, which is being provided on attrac- tive conditions by a consortium of 38 international banks, was not utilised at the end of the reporting period. Further information with respect to financial liabilities is provided in notes 34 and 38 to the Group Financial Statements. Net assets position* The Group balance sheet total increased by € 6,533 mil- lion (+5.0 %) to stand at € 138,368 million at 31 Decem- ber 2013. Adjusted for exchange rate factors, the bal- ance sheet total increased by 8.8 %. The increase in non-current assets on the assets side of the balance sheet related primarily to property, plant and equipment (13.3 %), leased products (5.9 %), intangible assets (18.7 %) and receivables from sales financing (1.0 %). At the same time, deferred tax assets decreased by 17.6 %. Within current assets, increases were registered in par- ticular for financial assets (20.5 %), receivables from sales financing (4.3 %) and other assets (16.4 %). By con- trast, decreases were recorded for inventories (1.4 %), cash and cash equivalents (8.4 %) and trade receivables (3.7 %). Property, plant and equipment increased by € 1,772 mil- lion compared to the previous year. The main focus in 2013 was on product investments for production start- ups (including the BMW 2 Series) and infrastructure im- provements. In total, € 4,470 million was invested, most of which related to the Automotive segment. Depreciation on property, plant and equipment totalled € 2,492 mil- lion (2012: € 2,298 million). At 31 December 2013, prop- erty, plant and equipment accounted for 10.9 % of total assets (2012: 10.1 %). Adjusted for exchange rate factors, property, plant and equipment increased by 14.5 %. Capi- tal commitments for the acquisition of items of property, plant and equipment totalled € 2,661 million at the end of the reporting period. At € 6,179 million, the carrying amount of intangible assets was € 972 million higher than at 31 December 2012. Within intangible assets, capitalised development costs rose by € 675 million. Investments in capitalised development costs totalled € 1,744 million in the year under report and were thus significantly up on the pre- vious year’s figure (€ 1,089 million). Intangible assets also include the acquisition of licences amounting to € 379 million, which are being amortised on a straight- line basis over a period of six years. The proportion of development costs recognised as assets was 36.4 % (2012: 27.6 %). Adjusted for exchange rate factors, in- tangible assets increased by 18.8 %. In total, € 2,217 mil- lion was invested, most of which related to the Auto- motive segment. * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 54 Balance sheet structure – Group Total equity and liabilities in € billion Non-current assets 62 % 26 % 62 % 23 % Equity 40 % 38 % Non-current provisions and liabilities Current assets 38 % 38 % 37 % 36 % Current provisions and liabilities thereof cash and cash equivalents 6 % 6 % 2013 2012 2012 2013 138 132 132 138 Balance sheet structure – Automotive segment Total equity and liabilities in € billion Non-current assets 45 % 44 % 41 % 43 % Equity Current assets 55 % 56 % 16 % 14 % Non-current provisions and liabilities 43 % 43 % Current provisions and liabilities thereof cash and cash equivalents 9 % 11 % 2013 2012 2012 2013 72 69 69 72 Total capital expenditure on intangible assets and prop- erty, plant and equipment as a percentage of revenues increased to 8.8 % (2012: 6.8 %). Capital commitments for intangible assets totalled € 446 million at the end of the reporting period. The growth in business reported by the Financial Services segment is reflected in increases in leased products (€ 1,446 million) as well as in current and non-current receivables from sales financing (€ 896 million and € 307 million respectively). At the end of the reporting 55 CoMBined ManageMent RepoRt period, leased products accounted for 18.7 % of total as- sets, similar to their level one year earlier (18.6 %). Ad- justed for exchange rate factors, they went up by 8.1 %. Non-current receivables from sales financing accounted for 23.6 % (2012: 24.5 %) of total assets, current receiva- bles from sales financing for 15.5 % (2012: 15.6 %). Total receivables from sales financing relate to retail customer and dealer financing (€ 40,841 million) and finance leases (€ 13,276 million). Adjusted for exchange rate factors, non-current receivables from sales financing went up by 7.6 %, while current receivables from sales financing rose by 10.4 %. This includes the negative impact of the depreciation in value of a number of major currencies against the euro. Within current assets, increases were registered for other assets (€ 601 million) and financial assets (€ 947 million). Favourable developments with currency derivatives as well as the purchase of commercial paper and invest- ment certificates caused financial assets to rise. Other assets relate to receivables from other companies in which an investment is held, advance payments to sup- pliers and collateral receivables. Compared to the end of the previous year, inventories decreased by € 140 million (1.4 %) to € 9,585 million and accounted for 6.9 % (2012: 7.4 %) of total assets. The decrease relates primarily to finished goods. Adjusted for exchange rate factors, inventories increased by 1.7 %. Trade receivables were € 94 million lower than at the end of the previous year and accounted for 1.8 % of total assets (2012: 1.9 %). Adjusted for exchange rate factors, trade receivables decreased by 1.2 %. Cash and cash equivalents went down by € 706 million to € 7,664 million. On the equity and liabilities side of the balance sheet, in- creases were recorded for equity (16.5 %), trade payables (16.2 %), non-current financial liabilities (0.9 %) and current financial liabilities (1.5 %). By contrast, pension provisions decreased by 39.6 %. Group equity rose by € 5,037 million to € 35,643 million, mainly due to the profit attributable to shareholders of BMW AG totalling € 5,314 million. Currency translation differences reduced equity by € 635 million. Deferred taxes on items recognised directly in equity had the effect of reducing equity by € 779 million. Group equity increased on account of remeasurements of the net defined benefit liability for pension plans (€ 1,308 mil- lion), primarily as a result of the higher discount rates used in Germany and the USA. Fair value measurement of derivative financial instruments (€ 1,357 million) and marketable securities (€ 8 million) had a positive im- pact on equity. Income and expenses relating to equity accounted investments and recognised directly in equity (before tax) reduced equity by € 7 million. The divi- dend payment decreased equity by € 1,640 million. Mi- nority interests increased by € 81 million. Other changes amounted to € 13 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. An amount of € 17 mil- lion was transferred to capital reserves in conjunction with this share capital increase. The equity ratio of the BMW Group improved overall by 2.6 percentage points to 25.8 %. The equity ratio of the Automotive segment was 43.1 % (2012: 41.0 %) and that of the Financial Services segment was 9.1 % (2012: 8.6 %). Pension provisions decreased from € 3,813 million to € 2,303 million at the two respective year ends, mainly as a result of the higher discount factors used in Ger- many and the USA. Trade payables went up from € 6,433 million to € 7,475 mil- lion, mainly reflecting higher production volumes and increased capital expenditure levels. Trade payables ac- counted for 5.4 % of the balance sheet total at the end of the reporting period (2012: 4.9 %). Adjusted for ex- change rate factors, they increased by 17.9 %. Current and non-current financial liabilities increased from € 69,507 to € 70,304 million over the twelve-month period. Within financial liabilities, commercial paper went up by 37.5 %, ABS transactions by 7.6 % and bonds by 1.7 %. By contrast, liabilities to banks went down by 9.4 % and deposit liabilities by 4.3 %. Adjusted for 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 56 exchange rate factors, both non-current financial liabili- ties and current financial liabilities increased by 4.4 %. 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 Cor- porate Governance”. The Compensation Report is a sub- section of the Combined Management Report. Value added statement* The value added statement shows the value of work performed less the value of work bought in by the BMW Group during the financial year. Depreciation and amortisation, cost of materials and other 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 2013 increased by 1.3 % to € 19,215 million and was once again at a high level. The bulk of the net value added (46.8 %) is applied to employees. The proportion applied to providers of finance fell to 9.3 %, mainly due to the lower refinancing costs on international capital markets for the financial services side of the business. The government / public sector (in- cluding deferred tax expense) accounted for 16.1 %. The proportion of net value added applied to shareholders, at 8.9 %, was higher than in the previous year. Minority interests take a 0.1 % share of net value added. The re- maining portion of net value added (18.8%) will be re- tained in the Group to finance future operations. * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 57 CoMBined ManageMent RepoRt BMW Group value added statement Work performed Revenues Financial income Other income Total output Cost of materials2 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 2013 in € million 2013 in % 20121 in € million 20121 in % Change in % 76,058 455 841 77,354 42,692 8,402 51,094 26,260 7,045 19,215 8,986 1,794 3,094 1,707 3,608 26 98.3 0.6 1.1 100.0 55.2 10.9 66.1 33.9 9.1 24.8 46.8 9.3 16.1 8.9 18.8 0.1 76,848 – 263 829 77,414 41,304 9,194 50,498 26,916 7,955 18,961 8,537 2,030 3,283 1,640 3,445 26 99.2 – 0.3 1.1 100.0 53.3 11.9 65.2 34.8 10.3 24.5 45.1 10.7 17.3 8.6 18.2 0.1 19,215 100.0 18,961 100.0 – 0.1 1.2 – 2.4 1.3 5.3 – 11.6 – 5.8 4.1 4.7 – 1.3 1 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2 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 2013 in % Depreciation and amortisation Other expenses 46.8 % Employees Net value added Cost of materials Net value added Cost of materials 24.8 55.2 Depreciation and amortisation 9.1 Other expenses 10.9 9.3 % Providers of finance 16.1 % Government / public sector 8.9 % 18.8 % Shareholders Group 0.1 % Minority interest 58 Key performance figures 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position Group gross margin Group EBITDA margin Group EBIT margin 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Group pre-tax return on sales Group post-tax return on sales Group pre-tax return on equity Group post-tax return on equity Group equity ratio Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process Automotive equity ratio Financial Services equity ratio Coverage of intangible assets, property, plant and equipment by equity (Group) Return on capital employed Group Automotive Motorcycles 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Return on equity Financial Services Cash inflow from operating activities (Group) Cash outflow from investing activities (Group) Coverage of cash outflow from investing activities by cash inflow from operating activities (Group) Free cash flow of Automotive segment Net financial assets Automotive segment * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2013 2012 * 20.1 15.4 10.5 10.4 7.0 25.9 17.4 25.8 43.1 9.1 20.2 15.4 10.8 10.2 6.7 28.5 18.7 23.2 41.0 8.6 167.4 165.0 21.4 63.3 16.4 20.2 3,614 23.0 73.7 1.8 21.2 5,076 – 6,981 – 5,433 51.8 2,499 12,127 93.4 3,809 13,327 % % % % % % % % % % % % % % % € million € million % € million € million 59 CoMBined ManageMent RepoRt Comments on Financial Statements of BMW AG Bayerische Motoren Werke Aktiengesellschaft (BMW AG), which is based in Munich, Germany, is the parent com- pany of the BMW Group. The comments on the BMW Group and Automotive segment provided in earlier sec- tions are also relevant for BMW AG, unless presented differently in the following section. The Financial State- ments of BMW AG are drawn up in accordance with the provisions of the German Commercial Code (HGB) and the relevant supplementary provisions contained in the German Stock Corporation Act (AktG). The main financial and non-financial performance in- dicators relevant for BMW AG are largely identical and synchronous with those of the Automotive segment of the BMW Group and are described in detail in the “Report on Economic Position” section of the Combined Management Report. Differences between the accounting policies used in the BMW AG Financial Statements (prepared in accordance with HGB) and the BMW Group Financial Statements (prepared in accordance with IFRSs) arise primarily in connection with the accounting treatment of intangible assets, financial instruments and provisions. Business environment and review of operations The general and sector-specific environment in which BMW AG operates is the same as that for the BMW Group and is described in the “Report on economic position” section of the Combined Management Report. BMW AG develops, manufactures and sells cars and motorcycles as well as spare parts and accessories manu- factured by itself, foreign subsidiaries and external sup- pliers. Sales activities are carried out through the Com- pany’s own branches, subsidiaries, independent dealers and importers. In 2013, BMW AG was able to increase its sales volume by 127,745 units to 1,995,903 units. This figure includes 214,949 units relating to series sets sup- plied to the joint venture BMW Brilliance Automotive Ltd., Shenyang, an increase of 64,985 units over the previous year. At 31 December 2013, BMW AG had 77,110 em- ployees, 2,539 more than one year earlier. Results of operations, financial position and net assets Revenues increased by 2.8 % compared to the previous year. The most significant increase was recorded in Asia. Sales to Group sales companies accounted for € 46.1 bil- lion or 76.2 % of total revenues of € 60.5 billion. The in- crease in cost of sales was less pronounced than the increase in revenues, mainly reflecting the lower cost of materials per unit. As a consequence, gross profit in- creased by € 854 million to € 13.4 billion. Administrative expenses were 25.9 % up on the previous year due to the restructuring of IT activities at corporate level and higher expenses for new IT projects. Research and development expenses were 22.1 % higher than in the previous year, driven for the main part by expenses arising in connection with production start-ups for new models as well as expenditure on alternative drive technologies and lightweight construction. The decrease in net other operating income and expenses was attributable mainly to the fact that taxes arising in conjunction with profit and loss transfer agreements were not allocated to the Group entities involved. Work- ing in the opposite direction within other operating income and expenses, fine-tuning of the methodology used to measure warranties resulted in a higher level of income from reversals of provisions. The financial result deteriorated by € 229 million, mainly as a result of the negative impact of the fair value meas- urement of designated plan assets for pension and other non-current personnel-related obligations. The profit from ordinary activities decreased from € 4,797 million to € 3,963 million. The expense for income taxes relates primarily to current tax for the financial year 2013. In addition, the first-time application of IDW Position Statement RS HFA 34 means that income-tax-related expenses are also now included in the expense for income taxes. After deducting the expense for taxes, the Company reports a net profit of € 2,289 million compared to € 3,131 million in the previous year. Capital expenditure on intangible assets and property, plant and equipment in the year under report amounted to € 3,203 million (2012: € 2,776 million), an increase of 15.4 %. The main focus of capital expenditure was on product and infrastructure investments in conjunction with the production start-up of new models as well as the acquisition of licences. Depreciation and amortisation amounted to € 1,732 million (2012: € 1,613 million). Investments went up from € 3,094 million to € 3,377 mil- lion, mainly as a result of a capital increase at the level of BMW Automotive Finance (China) Co., Ltd., Beijing, 60 and a contribution to capital reserves at the level of BMW Bank GmbH, Munich. An impairment loss of € 16 million was recognised in 2013 on the investment in SGL Carbon SE, Wiesbaden. Inventories were slightly higher than one year earlier and stood at € 3,863 million at the end of the reporting period (2012: € 3,749 million), reflecting higher busi- ness volumes generally and stocking up in conjunction with the introduction of new models. BMW AG Balance Sheet at 31 December in € million 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Assets Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Intangible assets Property, plant and equipment Investments Tangible, intangible and investment assets Inventories Trade receivables Receivables from subsidiaries Other receivables and other assets Marketable securities Cash and cash equivalents Current assets Prepayments Surplus of pension and similar plan assets over liabilities Total assets Equity and liabilities Subscribed capital Capital reserves Revenue reserves Unappropriated profit available for distribution Equity Registered profit-sharing certificates Pension provisions Other provisions Provisions Liabilities to banks Trade payables Liabilities to subsidiaries Other liabilities Liabilities Deferred income Total equity and liabilities 2013 2012 474 8,982 3,377 12,833 3,863 659 4,871 3,194 3,429 3,757 178 7,806 3,094 11,078 3,749 858 6,297 2,061 2,514 4,618 19,773 20,097 169 990 118 672 33,765 31,965 656 2,069 6,097 1,707 10,529 32 43 7,299 7,342 1,463 4,818 8,795 285 656 2,053 5,515 1,640 9,864 32 56 7,406 7,462 1,408 3,900 8,451 800 15,361 14,559 501 33,765 48 31,965 61 CoMBined ManageMent RepoRt 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 Income taxes Other taxes Net profit Transfer to revenue reserves Unappropriated profit available for distribution 2013 2012 60,474 – 47,067 13,407 – 3,528 – 2,141 – 4,362 542 373 – 328 3,963 58,805 – 46,252 12,553 – 3,684 – 1,701 – 3,573 703 598 – 99 4,797 – 1,629 – 1,635 – 45 2,289 – 582 1,707 – 31 3,131 – 1,491 1,640 The increase of other receivables and other assets to € 3,194 million (2012: € 2,061 million) was mainly attribut- able to genuine repurchase (repo) transactions and the higher level of receivables from other companies in which an investment is held. Liquidity within the BMW Group is managed centrally by BMW AG on the basis of a group-wide liquidity con- cept, which revolves around the strategy of concentrating a significant part of the Group’s liquidity at the level of BMW AG. One instrument used to achieve this aim is the cash pool headed by BMW AG. The liquidity position reported by BMW AG therefore reflects the global activi- ties of BMW AG and other Group companies. Cash and cash equivalents went down by € 861 million to € 3,757 million, whereby the decrease was more than offset by the increase in funds invested in marketable securities. Financial receivables from subsidiaries went down sharply. Equity rose by € 665 million to € 10,529 million and the equity ratio improved from 30.9 % to 31.2 %. BMW Trust e. V., Munich, in conjunction with Contractual Trust Arrangements (CTA), on a fiduciary basis. The as- sets concerned comprise mainly holdings in investment fund assets and a receivable resulting from a so-called “Capitalisation Transaction” (Kapitalisierungsgeschäft). 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”. Pension provisions, net of designated pension plan as- sets, decreased from € 56 million to € 43 million. Trade payables increased by € 918 million to € 4,818 mil- lion mainly due to higher business volumes. Liabilities to banks and financing liabilities to subsidiaries increased in the year under report. Other liabilities fell from € 800 million to € 285 million, reflecting the fact that all commercial paper outstanding at 31 December 2012 was repaid during the year and no new commercial paper was issued . In order to secure obligations resulting from pre-retire- ment part-time work arrangements and the Company’s pension obligations, assets have been transferred to With effect from the beginning of the year under report, deferred income includes for the first time income relat- ing to service and maintenance contracts, for which all 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 62 Report on Economic Position Events after the End of the Reporting Period related work has not been carried out at the end of the reporting period. In previous years, revenue was recog- nised immediately and a provision recorded for any outstanding obligations under these contracts (reported in “Other provisions”). Events after the end of the reporting period No events have occurred since the end of the reporting period which could have a major impact on the results of operations, financial position and net assets of BMW AG or the BMW Group. Risks and opportunities BMW AG’s performance is highly dependent on the same set of risks and opportunities that affect the BMW Group and which are described in detail in the “Report on Out- look, Risks and Opportunities” section of the Combined Management Report. As a general rule, BMW AG partici- pates in the risks entered into by Group entities on the basis of the relevant shareholding percentage. BMW AG is integrated in the group-wide risk manage- ment system and internal control system of the BMW Group. For further information we refer to the “Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process” sec- tion of the Combined Management Report. Outlook Due to its dominant role in the Group and its close ties with Group entities, expectations for BMW AG with respect to the Company’s financial and non-financial performance indicators correspond largely to the BMW Group’s outlook for the Automotive segment, which is described in detail in the “Report on Outlook, Risks and Opportunities” section of the Combined Management Report. KPMG AG Wirtschaftsprüfungsgesellschaft, Munich, has issued an unqualified audit opinion on the financial statements of BMW AG, of which the balance sheet and the income statement are presented here. The BMW AG financial statements for the financial year 2013 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. 63 CoMBined ManageMent RepoRt Report on Outlook, Risks and Opportunities Outlook The report on outlook, risks and opportunities describes the expected development of the BMW Group, together with associated material risks and opportunities, from the perspective of Group management. The report on outlook, risks and opportunities contains forward-looking assertions, which are based on BMW AG’s expectations and assessments and are, by their nature, subject to uncertainty. As a result, depending on the po- litical and economic situation, actual outcomes could differ substantially – either positively or negatively – from the expectations described below. Further information can be found in the section “Report on risks and opportunities”. Outlook Assumptions used in outlook The following outlook relates to a forward-looking period of one year and is based on the expected composition of the BMW Group during that period. The outlook takes account of all information known up to the date on which the financial statements are authorised for issue and which could have a material impact on the course of business of the BMW Group. The expectations contained in the outlook are based on BMW Group’s forecasts for 2014 and reflect the most recent status. The basis for the preparation of and the principal assumptions used in our forecasts, which take account of consensual opinions of leading organisations, such as economic re- search institutes and banks, are set out below. The BMW Group’s forecast is drawn up on the basis of these assumptions. Our continuous forecasting process ensures that the BMW Group is always ready to take advantage of oppor- tunities as they arise and to react appropriately to un- expected risks. The principal risks and opportunities are described in detail in the section “Report on risks and opportunities”. The risks and opportunities discussed in that section are relevant for all of the BMW Group’s key performance indicators and could result in variances between the outlook and actual outcomes. Economic outlook in 2014 For the purposes of the outlook, it is assumed that the pace of global economic growth, having stabilised in 2013, will quicken slightly in 2014 to approximately 3.0 %. High public debt levels in Europe, the USA and Japan, over-capacities in China and the unresolved con- flicts in the Middle East and East Asia continue to pose risk factors which could have a material, unexpectedly adverse impact on the outlook. Further information can be found in the section “Risks Report”. After two years of recession, we expect the eurozone to grow moderately at a rate of approximately 1.0 %. The German economy, the largest in Europe, should again grow faster than the average for the region at a rate of approximately 1.7 %. The outlook assumes a growth rate of 0.8 % for France, whereby it should be noted that simmering internal political conflicts and the loss of international competitiveness still pose significant risks for the economy in that country. Similarly, we forecast a return to growth for Italy, albeit at a modest rate of 0.5 %. Spain is expected to grow by 0.8 % and therefore escape the recession caused primarily by a weak property market. A growth rate of 2.5 % is pre- dicted for the UK, Europe’s largest market outside the eurozone. In the USA, the consequence of cuts in public spending in 2014 is likely to be less significant, having held down growth quite substantially in 2013. We are therefore working on the basis that the gross domestic product (GDP) will continue to rise in 2014 (by 2.9 %). The dominant issue for Japan’s economy is likely to be the increase in value added tax from 5 to 8 % with effect from 1 April 2014. This may have the effect of bringing some business forward into the first quarter of 2014, at the expense of a temporary downturn in domestic spending in the second quarter. It is generally accepted that the tax hike is unavoidable, however, given the need to fund the new government’s economic stimulus programmes. For 2014 as a whole, the rate of growth is set to slow down slightly to 1.6 %. Economic growth in China should stabilise in the cur- rent year at the level of approximately 7.5 %. The struc- tural shift in economic growth from the construction and heavy industries sectors to stronger domestic con- sumer spending represents the most significant factor for the way the Chinese economy is heading. The new Chinese government is also keen to put economic growth onto a more sustainable footing by increasing the market orientation of the energy and financial sectors and im- proving ecological and social conditions. The growth rate in India should begin to pick up again in the second half of the year, once the “wait-and-see” phase in advance of parliamentary elections in spring has stopped having a negative impact on domestic de- mand. For 2014 as a whole, the growth rate is expected to be in the region of 5.3 %. At 2.2 % in both countries, GDP rates in Brazil and Russia in 2014 are again expected to be lower than their recent past averages. In both of 64 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets these countries, stagnating or falling raw materials prices are likely to have an unfavourable impact on ex- ports. This effect will be exacerbated by the fact that domestic demand will probably suffer from capital out- flows as a consequence of the expected interest rate turnaround in the USA. Currency markets in 2014 Outside the eurozone, the most important currencies for the BMW Group’s international operations are the Chinese renminbi, the US dollar, the Japanese yen, the British pound and the Russian rouble. As in the past year, no fundamental changes are expected on currency markets in 2014. Exchange rate fluctua- tions, sometimes quite substantial ones, have been observed in the past due to high public debt levels in Europe, the USA and Japan. The uncertain economic situation in the eurozone and the continued recovery of the US economy point to a slight appreciation of the US dollar against the euro. This would almost definitely be the case, if – as expected – the US begins to retract from its expansionary monetary policy. In the short term, it is assumed that the Chinese renminbi will remain more or less pegged to the US dollar. In the long term, however, it seems likely that volatility will increase, following the announcement that capital mar- kets in China are to be liberalised. Following on from a sharp devaluation in 2013, the Japanese yen is likely to remain weak, given that an end to Japan’s expansionary monetary policies is not in sight. The British pound is expected to remain relatively stable, due to the current healthy state of the economy. A first move toward restricting its expansionary mone- tary policies was taken by the Bank of England at the end of 2013 and further steps in that direction could fol- low over the course of 2014. Due to the relatively weak growth rates generated by Russia and a slight reduction of pressure on energy markets, the likely trend is that the Russian rouble will lose value against the euro. Car markets in 2014 Overall, the world’s car markets are set to grow by ap- proximately 4.7 % in the current year to an estimated 80.1 million units. Continuing its recovery after a num- ber of weaker years, we forecast that the US market will grow by 3.8 % to 16.2 million units. Passenger car registrations in China are expected to rise by 10.1 % to approximately 17.4 million units, with the country’s interior provinces increasingly contributing to growth due to the catch-up effect. The end of recession in Europe in 2014 should also help the region’s car markets to revive somewhat. The German market is expected to grow by around 1.6 % to 3.0 million units. Registrations in France are forecast to rise by 2.4 % to some 1.8 million units. After the se- vere slump experienced in recent years, the car market in Italy should turn around in 2014 and grow by about 8.7 % to approximately 1.4 million units. The Japanese car market is likely to suffer in 2014 as a consequence of the value added tax increase due in April. Car registrations are forecast to be in the region of 4.5 million units and hence 13.4 % down on the pre- vious year. After dropping back in 2013, we expect the markets in the world’s major emerging economies to rebound in 2014. Russia’s car market is forecast to grow by 4.2 % to approximately 2.7 million units, while registrations in Brazil are expected to rise by 3.3 % to approximately 3.7 million units. The corresponding figures for India are 2.0 % and about 2.6 million units. Motorcycle markets in 2014 The markets for 500 cc plus motorcycles are again only likely to see vestiges of recovery in 2014. We expect the corresponding markets in Europe to stabilise at the current low level, which should also be the case for Ger- many. Of all the outcomes possible, it seems more likely that the markets in Italy and France will continue to contract. The USA is also expected to see a repeat of 2013 levels. Financial Services sector in 2014 Despite improved prospects for the economy in the euro zone, the European Central Bank (ECB) will pre- sumably keep benchmark interest rates at historically low levels through to the end of 2014. The ECB could resort to additional monetary measures to provide added stimulus to the economy. After a year of expan- sionary monetary policies, the Bank of Japan aims to achieve an inflation rate of 2 % for the Japanese econ- omy by the end of 2014. If similar positive progress is made by the US economy as in 2013, the US Reserve Bank could well feel the need to cut back its bond-buying programme. The consequence of such a move could be a sharp rise in interest rates on the capital markets. Although the first steps towards tighter monetary policy 65 CoMBined ManageMent RepoRt have been taken, the benchmark rate is nevertheless likely to persist at a historically low level until at least the end of 2014, thus ensuring that money markets remain more or less stable. Given that the rate of growth of the global economy is forecast to accelerate slightly in 2014, we expect credit risk levels to remain stable in all regions. Used car markets in Asia and Europe in 2014 are fore- cast to perform on a level with the previous year. In the North American market, however, we expect to see a slight drop in price levels. Expected impact on the BMW Group in 2014 Future developments on international automobile mar- kets also have a direct impact on the BMW Group. At the same time that competition is likely to intensify in contracting markets, new opportunities are opening in growth regions of the world. In some countries, sales volumes will be influenced to a great extent by the way we tackle new competitive challenges. The state of health of Europe’s various markets remains the greatest source of uncertainty. By contrast, we expect the mar- kets in North America and China to develop positively. Thanks to our global presence, we are ideally placed to exploit the potential arising in these markets and thus compensate for unfavourable developments in other regions. We are therefore confident that our strong brands will continue to help us steer a successful course. We will be helped in this endeavour by our attractive range of models and services, which are designed to meet the needs of individual mobility. We will also push ahead with our investment in innovation, future tech- nologies and the further internationalisation of our pro- duction network. With our focus on “premium”, we are able – as the world’s leading provider – to benefit to an exceptional extent from high demand for premium segment vehicles. Given all these factors, we forecast that the BMW Group will remain the world’s leading premium manufacturer in 2014. Our highly flexible international production network enables us to compensate for even substantial fluctua- tions in demand. By investing in major growth markets, we are laying the foundation for further growth. In this context, it remains an important factor for us that the global distribution of our sales is balanced, while simultaneously expanding the global presence of the BMW Group. Outlook for the BMW Group in 2014 The BMW Group in 2014 Profit before tax: significant increase expected We forecast that high levels of expenditure for future technologies, intense competition and higher personnel expenses will again have an adverse impact on the pace at which the BMW Group’s earnings rise in 2014. Nevertheless, we forecast another successful year, with Group profit before tax expected to be significantly up on the previous year’s figure (2013: € 7,913 million). The pace at which earnings grow will ultimately reflect the impact of various trends currently shaping the auto- mobile business. Continued difficult competitive condi- tions in some markets are also likely to play a significant role in how sales volumes turn out. The level of uncer- tainty is particularly high in Europe, whereas North America and China could generate additional momen- tum. We expect both the Motorcycles segment and the Financial Services segment to perform solidly in 2014. Workforce at year-end: solid increase expected The BMW Group will continue to hire staff on a targeted basis in 2014. Qualified staff are required in order to meet strong demand for cars and to develop new tech- nologies, particularly in the field of electromobility. The increase of the size of the workforce should rise robustly in 2014 (2013: 110,351 employees). Automotive segment in 2014 Deliveries to customers (cars): significant increase expected We forecast that the Automotive segment will continue to perform well in 2014 on the back of strong sales volume growth. Assuming economic conditions do not deterio- rate, we forecast a significant rise in deliveries to cus- tomers to a new high level (2013: 1,963,798* units) and thus, in all probability, enable the BMW Group to re- main the world’s foremost premium car manufacturer in 2014. We expect positive momentum to be generated by the introduction of new, attractive models and from the generally dynamic market conditions in North America and China. If the economic situation in Europe does not continue to stabilise, new challenges will have to be faced, despite the currently visible slight upwards trend. The BMW Group presented its new BMW M3 Sedan and the BMW M4 Coupé models in February, both from the high-performance segment, which are set to go on sale in June. * Includes cars manufactured by the BMW Brilliance joint venture. 66 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets The new BMW 2 Series Coupé will become available in March 2014 and will set new standards in terms of sporti- ness within the compact segment. The worldwide launch of the new BMW 4 Series Convertible will also take place in the same month. A four-door Gran Coupé will be added to the BMW 4 Series family from June onwards. The BMW 2 Series Active Tourer was presented to the public at the Geneva Motor Show. This new vehicle concept, which is the perfect fusion of dynamism with comfort and functionality, is the first BMW brand model to be equipped with front-wheel drive. Within the BMW X family, the highly successful BMW X3 is cur- rently going through the process of model revision. The BMW X4 will be launched in a new segment, thus starting a new chapter in the BMW X family’s success story. Following on from its launch on a number of European markets towards the end of 2013, over the course of the current year the fully electric-powered BMW i3 will also become available to customers in metropolitan re- gions in the USA, Japan and China. The BMW i8 plug- in hybrid, which will also enter the fray in 2014 as a new-generation sports car, combines the dynamism of a high-performance sports model with the consumption and emission levels of a compact car. The new generation of the MINI will make its first ap- pearance in showrooms from spring 2014 onwards. It will be introduced in March 2014 with a range of three entirely new engines, all featuring MINI’s TwinPower Turbo Technology. In the second half of 2014, the Dutch car manufacturer, VDL NedCar bv, Born, will begin producing MINI models under contract and provide the necessary capacity to further develop the MINI brand. In December 2013 the cornerstone was laid for a new automotive plant in Brazil. Start of production for the BMW plant, with an annual productive capacity of up to 30,000 units, is scheduled for autumn 2014. Carbon fleet emissions*: moderate decrease expected Ever-stricter legislation with respect to vehicle emissions throughout the world is creating new challenges for the automotive industry. Thanks to Efficient Dynamics, the BMW Group has been able to play a pioneering role in reducing fleet consumption and, therefore, carbon fleet emissions. At the same time, we have continued to develop the sporty, dynamic character of our vehicles. Increasing the scope of electrification in our range will reinforce our position as a key player in the pursuit to reduce carbon emissions and fuel consumption. With effect from 2013, our range of products has been ex- panded by the addition of electric powertrains in BMW i vehicles. This strategy will ensure that we continue to meet applicable statutory threshold values in the com- ing years. 2014 will therefore not see any let-up in our efforts to reduce carbon emissions for the fleet as a whole. We forecast that fleet emissions* will be reduced moderately in 2014 (2013: 133 g CO2 / km). Revenues: significant increase expected Strong demand worldwide for BMW, MINI and Rolls-Royce brand cars will have a positive impact on Automotive segment revenues. Accordingly, we ex- pect revenues from automobile business to increase significantly in the period covered by the outlook (2013: € 70,629 million). Currency factors could have a negative impact on revenues. EBIT margin in target corridor between 8 and 10 % expected Despite substantial levels of investment in new tech- nologies, we aim to achieve an EBIT margin in the Auto- motive segment within an unchanged target corridor of between 8 and 10 % (2013: 9.4 %). We expect to see a significant drop in segment RoCE, mainly reflecting the substantial scale of investments necessary to deal with coming challenges and pave the way for future growth. However, the long-term target RoCE of at least 26 % for the Automotive segment will be clearly surpassed (2013: 63.3 %). Motorcycles segment in 2014 Deliveries to customers (motorcycles): slight increase expected Thanks to its attractive and extremely young model range, we forecast a continuation of the Motorcycles segment’s good performance, not least due to the contribution expected from the new motorcycles (the R nineT, S 1000 R, R 1200 RT, R 1200 GS Adventure and K 1600 GTL Exclusive) presented at the autumn trade fairs. Despite difficult conditions on interna- tional motorcycle markets, we expect that deliveries of BMW motorcycles to customers will be slightly up on the previous year (2013: 115,215 units). Another major step in the expansion of the segment’s product range will be the series introduction of the C evolution electric scooter in 2014. Return on capital employed in line with last year’s level expected With market conditions still remaining difficult, we nevertheless forecast that the impetus provided by the * EU-27. 67 CoMBined ManageMent RepoRt new models will help to keep segment RoCE in line with last year’s level (2013: 16.4 %). Financial Services segment in 2014 Return on equity: slight decrease expected Based on the latest forecasts, we expect the BMW Group’s Financial Services business to remain on growth course in 2014. As a consequence of necessary investments, the return on equity is likely to decrease slightly (2013: 20.2 %), but still surpass the minimum target level of 18 %. Overall assessment by Group management for 2014 Based on our assessment, the BMW Group will con- tinue to perform successfully in 2014. Owing to strong demand for our vehicles worldwide, a fresh and attrac- tive vehicle fleet and a leading position in the area of innovation for all aspects of individual mobility, we forecast further profitable growth in 2014. Group profit before tax is expected to rise significantly despite a con- tinuing volatile environment and thus reflect the sig- nificantly higher level of sales volume and revenues generated in the Automotive segment. At the same, we also expect to be able to reduce carbon fleet emissions* moderately. We aim to achieve profitable growth through a further solid  increase in the size of the workforce across the Group. The Automotive segment’s EBIT margin will remain within the target corridor of between 8 and 10 %. In view of the substantial volumes of planned capital expenditure, we expect the RoCE for the Auto- motive segment to be significantly lower and the RoE for the Finan cial Services segment to be slightly lower than in the preceding financial year. Both performance indicators will nevertheless be higher than their long- term targets of 26 % and 18 % respectively. For the Motor- cycles segment, we forecast a slight increase in sales volume  and a RoCE in line with last year’s level. De- pending on the political and economic situation and the outcome of the risks and opportunities described below, actual business performance could differ from our cur- rent forecasts. * EU-27. 68 Report on Outlook, Risks and Opportunities Risks Report 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Report on risks and opportunities In the dynamic environment in which it operates, the BMW Group is constantly confronted with new oppor- tunities and risks. Making full use of the opportunities that present themselves is the basis for its corporate success. In order to achieve growth, profitability, effi- ciency and sustainable levels of business in the future, the BMW Group consciously takes on certain risks. Good management of opportunities and risks is a fundamen- tal prerequisite for the ability to react appropriately to changes in political, legal, technical or economic condi- tions. Identified opportunities and risks are addressed in the Outlook Report if they are likely to materialise. The following sections focus on potential future develop- ments or events, which could result in a positive or negative variance in the BMW Group’s outlook. Posi- tive variances are seen as opportunities, negative variances as risks. As a general rule, risks and opportu- nities are assessed over a medium-term period of two years. In specific cases, for the purposes of additional transparency, the assessment is made separately for a more short-term period of up to one year. All potential risks of losses (individual and accumulated risks) are monitored and managed from a risk management perspective. As a matter of principle, risks that could pose a going-concern threat are not entered into. Unless stated otherwise, the disclosures made relate to the Automotive segment. Report on Risks Risk management system The objective of the risk management system and one of the key functions of risk reporting is to identify, record and actively manage internal and external risks which pose a threat to the attainment of corporate targets. The risk management system covers all risks which are significant to the Group, or those which could pose a threat to its going-concern status. With regard to the structure of the risk management system, risk reporting is the responsibility of each individual member of staff and manager – in their various roles – and not with that of any centralised unit in particular. Each and every member of staff and manager is required to report risks via the available reporting channels. This requirement is set out in guide lines that apply throughout the Group. The Group risk management system comprises a de- centralised network covering all parts of the business, which is steered by a centralised risk management func- tion. Each of the BMW Group’s areas of responsibility is represented within the risk management network by so-called “Network Representatives”. The network’s formal organisational structure helps to strengthen its visibility and underline the importance attached to risk management within the BMW Group. The duties, re- sponsibilities, and tasks of the centralised risk manage- ment unit and the Network Representatives are clearly described, documented and acted on. Risk management in the BMW Group Group-wide risk management Identification Effectiveness Reporting Analysis and Measurement Supervisory Board Usefulness Compliance Committee Risk management Completeness Monitoring Controlling Risk Management Steering Committee Board of Management Group Audit Internal Control System 69 CoMBined ManageMent RepoRt Group risk management is geared towards meeting the following three criteria: effectiveness, usefulness and completeness. One of the principal focuses in 2013 was to ensure completeness. In this context, risk catalogues containing lists of potential risks were drawn up in collaboration with the Network Repre- sentatives in order to facilitate the identification of risks within each area of responsibility and / or each sub-network, thus making a meaningful contribution to ensuring completeness and highlighting any over- arching risk profiles. The various risk catalogues have been integrated in a newly developed IT tool, which enables optimal recording and reporting of the risks and countermeasures relevant for each network. The new tool also helps to promote reciprocal networking and cooperation, ensuring the seamless coordination of the Group risk management system with the Com- pliance Committee, the Internal Control System and the Group Internal Audit. Risk management process The risk management process is applied throughout the Group and comprises the early identification and penetration of risks, comprehensive analysis and risk measurement, the coordinated use of suitable manage- ment tools and also the monitoring and evaluation of measures in the short and medium term of up to two years. Risks reported to the centralised risk management from the network are firstly presented for review to the Risk Management Steering Committee, for which Group Controlling is responsible. After review, the risks are reported to the Board of Management and to the Super- visory Board. Significant and going-concern-related risks are classified on the basis of the potential scale of impact on the Group’s results of operation, financial position and net assets. The level of risk is quantified, taking into account the probability of occurrence and risk mitigation measures. The risk management system is tested regularly by the Internal Audit. By sharing experiences with other com- panies on an ongoing basis, the BMW Group ensures that new insights are incorporated in the risk manage- ment system, thus ensuring continual improvement. Regular basic and further training as well as information events throughout the BMW Group, and in particular within the risk management network, are invaluable ways of preparing people for new or additional chal- lenges with regard to the processes in which they are in- volved. As a supplement to comprehensive risk management, managing the business on a sustainable basis also repre- sents one of the Group’s core corporate principles. Risks and opportunities related to sustainability issues are discussed by the Sustainability Committee. Strate- gic options and measures open to the BMW Group are put forward to the Sustainability Board, to which all members of the Board of Management belong. Risk aspects discussed at this level are integrated in the work of the group-wide risk network. The composition of the Risk Management Steering Committee on the one hand and the Sustainability Committee on the other ensures that risk and sustainability management are closely coordinated. Risk measurement In order to determine which risks can be considered to be significant in relation to the results of operations, financial position and net assets of the BMW Group, to identify changes in key performance indicators and to measure their potential earnings impact, all identified risks are classified on the basis of the following table. The amount of the risks takes account of both its impact (net of appropriate countermeasures) and the likelihood of occurrence in each case. Class Low Medium High Risk amount > €0 – 50 million > €50 – 400 million > €400 million The overall earnings impact based on the assumption that the risk will actually take place is sub-divided into the following categories. Class Low Medium High Earnings impact > €0 – 500 million > €500 – 2,000 million > €2,000 million Risks Political and global economic risks As one of the world’s leading providers of premium products and services, the BMW Group faces a variety of major challenges. The world is changing at great speed, and in a great number of countries individual mobility remains a key issue in terms of political regu- lation and national industrial policy. Changing values in society are constantly calling for new solutions in the field of mobility. Unpredictable disturbances in eco- nomic interdependencies, together with ever-increasing competition, may give rise to knock-on reactions that are practically impossible to predict. The sovereign debt crisis in the euro region and volatile economic con- 70 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets ditions continue to exert an unsettling influence over both markets and consumers. Further risks arise from other potential economic developments, in particular a slowdown of economic momentum in China, one of the BMW Group’s principal markets, which could in turn result in lower demand for the products and services the Group offers. As in the previous year, the risk amounts attached to such an outcome are classified as high. Any escalation of political conflicts and terrorist ac- tivities, natural disasters or possible pandemics could have a negative impact on the world economy and inter- national capital markets in general. The BMW Group counters these risks primarily by internationalising its sales and production structures in order to reduce the potential impact of risk exposures in individual countries. The risk amounts attached to these risks are classified as low. Overall, as in the previous year, the risk amounts at- tached to political and global economic risks are still classified as high. Strategic and sector-specific risks Innovation is the driving force behind the BMW Group’s success. The primary source of innovation is a world- wide global research and innovation network, in which employees work closely with one another to find to- day’s solutions for tomorrow’s mobility issues. At the same time, the technical challenges involved in reduc- ing fuel consumption and emission, are constantly on the rise. These requirements are accompanied by a whole swathe of rules that govern individual mobility in metropolitan areas. New regulations and rising fuel and energy prices also exert an influence on customer behaviour. One sig- nificant risk for the car industry is the possibility that laws and regulations could be tightened at short notice, thus triggering the need for significantly higher levels of investment. In some cases, changes in customer be- haviour are not only brought on by new regulations, but also through changes of opinion, values and environmen- tal issues. Among other factors, global climate change is having an effect on legislation, regulations and con- sumer behaviour. In order to meet structural changes in the demand for individual mobility that no longer necessarily means actually owning a vehicle, the BMW Group is offering corresponding mobility services, such as the DriveNow car sharing model. With its Efficient Dynamics concept, the BMW Group is playing a pioneering role in the premium segment in reducing both fuel consumption and emissions. With effect from 2013, our range of products was expanded by the addition of electric powertrains in BMW i series vehicles. This strategy will also enable us to fulfil legal rules and requirements at the same time. The BMW Group is investing in the development of sustainable drive technologies and materials, with the aim of pro- viding highly efficient vehicles for individual mobility in the premium segment, both now and in the future. The BMW Group is also committed to developing com- prehensive recycling concepts aimed at recycling mate- rials as efficiently as possible, closing material loops and conserving precious resources to the greatest possible extent. Statutory risks stemming from vehicle recycling are minimised by means of a specialised in-house team working in conjunction with regional managers. Medium- and long-term targets have already been put in place in Europe, North America, Japan, China and other countries to minimise 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. EU regulations set targets for CO2 emissions based on ve- hicle weight. For the BMW Group this means a target of under 140 g CO2   /  km per vehicle. The average for new car fleets in Europe has been set for 2020 at 95 g CO2   /  km. Fuel economy targets have now been fixed in the USA up to the year 2025. Beginning with a gradual reduction for 2012 models, the new car fleets of all manu- facturers are required to achieve an average emission value of 250 g CO2   / mile (155 g CO2   /  km) by model year 2016 and by 2025 an average value of 163 g CO2   / mile (101 g CO2   /  km). Japan has also announced ambitious targets for reducing fuel consumption. The regulations for in dividual vehicles and fleets have been implemented jointly in China. The debate on the successor regulation has already begun. The broader market introduction of alternative drive systems presents new challenges and means additional investment for the automotive industry. At the same time the BMW Group also sees the changing situation as an ideal opportunity to put its technological expertise and innovative strengths to good use. Greater fuel economy and the reduction of emissions are fundamen- tal parameters that are automatically integrated in the design of new products. 71 CoMBined ManageMent RepoRt In the short to medium term, the BMW Group is work- ing on achieving additional fuel economy by deploying a wide range of measures from the electrification of the drivetrain through to hybrid solutions. Solutions for sustainable mobility in densely populated areas are also in the process of being developed. 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 Se- ries Coupé has been on the road since 2011. The exten- sive knowledge gained from the trials will be used in the series development of the BMW Group’s electric cars. The BMW i3 came onto the market in 2013 as the first series-produced electric car made by the BMW Group and specially designed for the metropolitan regions of the world. Similar to the statutory requirements being imposed on car manufacturers to reduce fuel consumption and emissions, the rules for car safety are also becoming continuously tougher, such as crash specifications in the USA. The specifications demanded of vehicles are chang- ing so comprehensively that there is no option but to develop new technologies to improve both active and passive safety systems. Active safety systems such as suspension regulation and driver assistance systems make an essential contribution to the prevention of ac- cidents, while passive safety systems help to reduce the consequences of accidents. As in the previous financial year, the amounts of risk attached to strategic and sector-specific risks are classi- fied as low. Operational risks Production Production stoppages and downtimes – in particular due to fire, but also those attributable to manufacturing equipment breakdowns, logistical disruptions or new vehicle production line start-ups – represent risks which the BMW Group counters with a broad range of appro- priate measures. Production structures and processes are designed from the outset with a view to reducing potential damage and the probability of occurrence. In addition to technical fire protection measures, the BMW Group has implemented an array of strategies, includ- ing preventative maintenance, spare parts management on a multi-site basis and back-up plans for alternative transportation. The level of risk is also reduced by the deployment of flexible work-schedule models and em- ployee time accounts, but also by the ability to produce specific models at additional sites if necessary. More- over, risks arising from business interruption and loss of production as a consequence of fire or natural disaster are also insured up to economically reasonable levels with insurance companies of good credit standing. The level of risk attached to production interruptions is classified as medium. There has been no change in this assessment compared to the previous year. Purchasing Close cooperation between carmakers and automotive suppliers generates economic benefits on the one hand, but also raises levels of dependency. The increasing trend towards modular-based production with a set of common architectures covering various models and product lines exacerbates the consequences of the loss of a supplier or failure to supply on time. As part of the supplier preselection process, the BMW Group is careful to ensure that its future business partners come up to the same high ecological, social and corporate governance standards by which the BMW Group is generally measured. Suppliers are assessed on the basis of the BMW Group Sustainability Standard which is applied throughout the worldwide supplier network. This set of fundamental principles and standards covers both production and non-production aspects relevant for the goods and services provided by suppliers, which also includes compliance with internationally recog- nised human rights and applicable labour and social standards. The principal tool for ensuring compliance with the BMW Group Sustainability Standard is a three- stage sustainability and risk management approach comprising a BMW Group-specific sustainability risk fil- ter, a sustainability questionnaire and a sustainability audit. In addition, the technical and financial capabilities of suppliers – especially those supplying for modular- based production – are continuously monitored during both the development and production phases of the Group’s vehicles. Supplier sites are assessed for expo- sure to natural hazards, such as floods or earthquakes, in order to identify supply risks at an early stage and im- plement appropriate countermeasures. Raw materials management procedures are in place to mitigate the risk of a production interruption due to shortages of supplies of critical raw materials. The supply risk is also reduced by developing and implementing systems governing minimum inventory levels. 72 The level of risk attached to supply risks is (in contrast to last year) classified as high, mainly due to the insuffi- cient availability of raw materials in Asia. prehensive income” and hence directly in equity (within revenue reserves). 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets Sales and marketing Changes in global economic con ditions and increas- ingly protectionist trends are among the factors that could result in lower demand as well as fluctuations in the regional spread and the composition of sales of vehicles and mobility services. Risks relating to these developments can be reduced with the aid of flexible selling and production processes. Increased competition on the world’s markets, particularly in Western Europe, the USA and China, requires constant analysis of selling prices and margins. Selling price and margin risks are determined on the basis of past experience and changing global economic conditions, with risk exposures meas- ured using a cash-flow-at-risk model. Selling risks generally entail high levels of risk. This clas- sification remains unchanged from the previous year. Risks relating to pension obligations The BMW Group’s pension obligations to its employees resulting from defined benefit plans are measured on the basis of actuarial reports. Future pension payments are discounted by reference to market yields on high- quality corporate bonds. These yields are subject to mar- ket fluctuation and therefore influence the level of pen- sion obligations. Changes in other parameters, such as rises in inflation and longer life expectancy, also im- pact pension obligations and payments. Most of the BMW Group’s pension obligations are administered in external pension funds or trust arrange- ments and the related assets are kept separate from Company assets. The amount of funds required to finance pension payments out of operations in the future is therefore substantially reduced, since most of the Group’s pension obligations are settled out of pension fund assets. The pension assets of the BMW Group comprise interest-bearing securities, equities, real estate and other investment classes. Pension fund assets are monitored continuously and managed on a risk-and-yield basis. A broad spread of investments also helps to reduce risk. In order to reduce fluctuations in pension funding shortfalls, investments are struc- tured to coincide with the timing of pension payments and the expected pattern of pension obligations. Re- measurements on the obligations and fund asset sides are recognised, net of deferred taxes, in “Other com- As in the previous year, the level of risk attached to pen- sion obligations is classified as high, whereas the poten- tial impact on earnings is classified as medium. Further information on risks in conjunction with pension provisions is provided in note 31 of the Group Finan cial Statements. Information, data protection and IT risks The BMW Group attaches great importance to the protection of business secrets and employee and cus- tomer information against unauthorised access and /  or misuse. Data and information security, based on Inter national Security Standard ISO / IEC 27001, is an integral component of all business processes. Staff, process design and information technology each play a key role in the Group’s overall risk and security concept. Standardised requirements, documented in guidelines and manuals, are applicable group-wide. All employees are required to treat confidential information (such as customer and employee data) in an appropriate way, ensure that information systems are properly used and that risks pertaining to information technology are handled with transparency. Regular communication, awareness-raising activities and training measures pro- mote a high degree of security and risk awareness among the employees involved. A new Web-based data protection training programme shows how prudent handling of personal data can make the BMW Group more attractive as an employer and have a positive im- pact on customer loyalty. Employees receive training from the Group’s Compliance Organisation to ensure compliance with applicable requirements and in-house rules. Potential IT and data protection risks resulting from the use of information technology and the processing of information are systematically documented, monitored on a regular basis and dealt with by the departments responsible. Standard technical data protection procedures in con- stant use include virus scanners, firewall systems, access controls at both operating system and application level, internal testing procedures and the regular backing up of data. Additional measures (e. g. data encryption) are 73 CoMBined ManageMent RepoRt in place to protect highly confidential information, such as corporate strategies. A high level of protection is afforded by regular analyses, detailed up-front controls (such as compliance with mandatory data protection requirements) and rigorous security management. eurozone (particularly in China and the USA) and the procurement of production materials and funding is also organised on a worldwide basis, the currency risk is an extremely important factor for Group earnings. The volume of enquiries with respect to data protection has risen sharply in the wake of the NSA scandal and the public debate regarding a possible new EU directive on data protection. The BMW Group’s well-established data protection network ensures the necessary trans- parency and timely implementation of measures. Re- sponsibility for data protection in each Group entity lies with the Board of Management (of BMW AG) or the relevant Company management. Each entity has one or more Local Data Privacy Protection Officers. In the case of cooperation arrangements and business partner relationships, the BMW Group protects its in- tellectual property as well as its customer and employee data by stipulating clear instructions with regard to data protection and the use of information technology. Information pertaining to key areas of expertise is sub- ject to particularly stringent security measures. The requirements placed on IT facilities – both exter- nally and internally – are changing at a breathtaking pace in the face of technological developments in this area. There is a risk that these requirements will neces- sitate far-reaching changes in IT systems, which could entail a higher level of expenditure than currently forecast. Forward-looking planning procedures are in place to manage and implement new IT requirements on a project basis. Risks identified during the imple- mentation of complex IT applications, routine opera- tions and / or in conjunction with the development of the existing IT landscape are highlighted at an early stage by IT risk management procedures and acted upon accordingly. The levels of risk attached to information, data protec- tion and IT risks are classified as medium. There has been no change in this assessment compared to the previous year. Financial risks and risks relating to the use of financial instruments Currency risks As an internationally operating enterprise, the BMW Group conducts business in a variety of currencies, thus exposing itself to currency risks. Since a substantial portion of Group revenues is generated outside the Cash-flow-at-risk models and scenario analyses are used to measure exchange rate risks. The results of these analyses are regularly fed into the Group’s fore- cast of exposures and serve as the basis for decision- making with respect to operational currency manage- ment. In 2013 the Chinese renminbi, the US dollar, the British pound, the Russian rouble and the Japanese yen constituted approximately 75 % of the total foreign currency exposure of the BMW Group, with the Chinese renminbi and the US dollar accounting for the lion’s share of foreign currency transactions. The BMW Group manages currency risks both at a strategic level (medium and long term) and at an oper- ating level (short and medium term). Medium- and long-term measures include increasing production vol- umes in non-euro-region countries (natural hedging) and increasing purchase volumes denominated in for- eign currencies. Constructing new plants in countries such as the USA, China or Brazil have also helped reduce foreign currency exposures. Currency risks are managed in the short to medium term and for operational pur- poses by means of hedging. Hedging transactions are entered into only with financial partners of good credit standing. A description of the methods applied for risk measurement and hedging is provided in note 42 to the Group Financial Statements. Counterparty risk management procedures are carried out continuously in order to monitor the creditworthiness of business partners. A high level of risk is attached to short-term currency risks. The potential impact on earnings is classified as medium. The level of risk rises in the medium term due to the lower number of hedge transactions entered into for this period. If the relevant recognition criteria are fulfilled, deriva- tives used by the BMW Group are accounted for as hedging relationships. Further information on risks in conjunction with financial instruments is provided in note 42 to the Group Financial Statements. Raw materials price risks The availability of raw materials and the related price risks are monitored on the basis of a set of well-defined management procedures. Price risks relating to precious 74 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets metals (platinum, palladium), non-ferrous metals (alu- minium, copper, lead) and, to some extent, steel and steel ingredients (iron ore, coke / coal) are hedged using financial derivatives. Purchase contracts with fixed pricing arrangements are also in place. A description of the methods applied for risk measurement and hedging is provided in note 42 to the Group Financial Statements. Changes in the price of crude oil, as an important basic material in the manufacture of components, have an indirect impact on production costs. The price of crude oil, combined with exchange rate fluctuations, also has an impact on fuel prices, which, in turn, directly in- fluence the purchasing behaviour of our customers and hence the overall demand for vehicles. The BMW Group counters this risk by developing and selling highly efficient, low-consumption engines and by developing alternative drive technologies. A high level of risk in the short therm is attached to raw material risks. The potential impact on earnings is classified as medium. The level of risk rises in the medium term, due to the lower number of hedge trans- actions entered into for this period. If the relevant recognition criteria are fulfilled, deriva- tives used by the BMW Group are accounted for as hedging relationships. Further information on risks in conjunction with financial instruments is provided in note 42 to the Group Financial Statements. Liquidity risks Based on experience gained during the financial crisis, a target liquidity concept is rigorously adhered to. Solvency is assured at all times throughout the BMW Group by maintaining a liquidity reserve and by the broad diversification of refinancing sources. The liquid- ity position is monitored continuously at a separate entity level and managed by means of a cash flow re- quirements and sourcing forecast system in place throughout the Group. Liquidity risks can arise in the form of rising refinancing costs on the one hand and restricted access to funds on the other. The major part of the Financial Services segment’s credit financing and lease business is refinanced on capital markets. Thanks to its excellent creditworthiness, the BMW Group has good access to financial markets and, as in previous years, was able to raise funds at good con- ditions in 2013, reflecting a diversified refinancing strategy and the solid liquidity base of the BMW Group. Internationally recognised rating agencies have addi- tionally confirmed the BMW Group’s strong creditwor- thiness. Similar to the previous year, both the level of risk and the potential impact of illiquidity on earnings are clas- sified as low – including the risk of the BMW Group’s rating being downgraded and any ensuing deterioration in financing conditions. If the relevant recognition criteria are fulfilled, deriva- tives used by the BMW Group are accounted for as hedging relationships. Further information on risks in conjunction with financial instruments is provided in note 42 to the Group Financial Statements. Risks relating to the provision of 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 / III) and which comply with both national and international standards. A set of strategic principles and rules derived from regu- latory requirements serves as the basis for risk manage- ment within the Financial Services segment. At the heart of the risk management process is a clear division between front- and back-office activities and a compre- hensive internal control system. The key risk management tool employed within the Financial Services segment is aimed at ensuring that the Group’s risk-bearing capacity is not exceeded. In this context, all risks defined as “unexpected losses” must be covered at all times by an appropriate asset cushion in the form of equity capital. Unexpected losses are measured using a variety of value-at-risk techniques, adapted to each relevant risk category. Risks are aggre- gated after taking account of correlation effects. The to- tal sum of risks calculated in this way is then compared with the resources available to cover risks (asset cush- ion). The segment’s risk-bearing capacity is monitored continuously with the aid of an integrated limit system which also differentiates between the various risk cate- gories. The segment’s total risk exposure was covered at all times during the past year by the available risk-cover- age volumes. 75 CoMBined ManageMent RepoRt Credit and counterparty default risk Credit and counterparty default risk arises within the Financial Services segment if a contractual partner (i.  e. a customer or dealer) either becomes unable or only partially able to fulfil its contractual obligations, such that lower income is generated or losses incurred. The Financial Services segment utilises a variety of rating systems in order to assess the creditworthiness of its contractual partners. Credit risks are managed at the time of the initial credit decision, based on a calculation of the present value of standard risk costs and subse- quently, during the term of the credit, by using a range of risk provisioning techniques to cover risks emanat- ing from changes in customer creditworthiness. In this context, individual customers are classified by category each month on the basis of their current contractual status, and appropriate levels of allowance recognised in accordance with that classification. The level of risk attached to credit and counterparty de- fault risks in the short and medium term is high. The potential impact on earnings is classified as medium. Residual value risk A related residual value risk exists if the expected mar- ket value of a vehicle at the end of the contractual term is lower than its residual value calculated at the date the contract is entered into. Each vehicle’s market value is forecast on the basis of historical external and internal data and used to predict the expected market value of the vehicle at the end of the contractual period. As part of the process of managing residual value risks, a calcu- lation is performed at the inception of each contract to determine the present value of risk costs. Market devel- opments are observed throughout the contractual period and the risk assessment updated appropriately. High levels of risk are attached to residual value risks in the short and medium term. The potential impact on earnings for the segments affected in the short and medium term is classified as medium. The potential im- pact on earnings for the Group is classified as medium. Interest rate risks Interest rate risks in the Financial Services segment relate to potential losses caused by changes in market interest rates and can arise when fixed interest rate pe- riods 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 refinanc- ing funds with matching maturities and by employing interest rate derivatives. Interest rate risks are also 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. The level of risk attached to interest rate risks in the short and medium term is medium. The potential im- pact on earnings in the short and medium term is classified as low. Liquidity and operational risks 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 out- flows from transactions in varying maturity cycles and currencies offset each other. The relevant procedures are incorporated in the BMW Group’s target liquidity concept. Operational risks are defined in the Financial Services segment as the risk of losses arising as a consequence of the inappropriateness or failure of internal procedures (process risks), people (personnel-related risks), sys- tems (infrastructure and IT risks) and external events (external risks). These four categories of risk also include related legal and reputation risks. As part of the process of managing operational risks, loss events and risk scenarios are recorded in the Operational Risk Management Suite (OpRisk-Suite) by OpRisk Officers from the various individual units or entities, along with details of probability of occurrence, loss amounts and countermeasures. This comprehen- sive recording and measurement of risk scenarios and loss events in the OpRisk-Suite provides the basis for a systematic analysis of potential and / or actual opera- tional risks. Annual self-assessments are also carried out. In conjunction with the assessment of risk-bearing capacity, operational risks are measured using the standard approach and compared with the correspond- ing limit. The level of risk attached to operational risks is medium. The potential impact on earnings is classified as low. Legal risks Compliance with the law is a basic prerequisite for the success of the BMW Group. Current law provides the binding framework for the BMW Group’s various 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 76 business 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 not being adhered to, simply because they are not known or fully understood. out that existing legal risks, if they materialise, could have a significantly adverse effect on the Group’s finan- cial condition. Likewise, it cannot be ruled out that new legal risks, as yet unidentified, could materialise and have a significant adverse effect on the Group’s financial condition. The BMW Group has established a Compliance Organi- sation 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 internationally operating enterprises, the BMW Group is confronted with legal disputes relating, among other things, to warranty claims, product liability, in- fringements of protected rights, or proceedings initiated by government agencies. Any of these matters could, among other outcomes, have an adverse impact on the Group’s reputation. Such proceedings are typical for the sector and can arise as a consequence of realigning product or purchasing strategies to suit changed market conditions. Particularly in the US market, class action lawsuits and product liability risks can have substantial financial consequences and cause damage to the Group’s public image. The BMW Group recognises 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 completely defy assessment. It cannot be ruled out that losses from damages could arise which are either not covered or not fully covered by insurance policies or provisions. The high quality of the Group’s products, which is ensured by regular quality audits and ongoing improvement measures, helps to reduce this risk. In comparison with competitors, this can also give rise to benefits and op- portunities for the BMW Group. Changes in the regu- latory environment may significantly influence sales volume, revenues and earnings performance in specific markets or economic regions. Further details are pro- vided in the section “Strategic and sector-specific risks”. The BMW Group is not currently involved in any court or arbitration proceedings which, based on the enter- prise’s assessment, could have a significant impact on its financial condition. As in the previous year, the level of risk attached to legal risks is classified as low. However, it cannot be ruled 77 CoMBined ManageMent RepoRt Report on Outlook, Risks and Opportunities Report on Opportunities Management and identification of opportunities New opportunities regularly present themselves in the dynamic business environment in which the BMW Group operates. General economic trends and sector- specific developments – including external regulations, suppliers, customers and competitors – are monitored continuously. Identifying opportunities is an integral part of the process of developing strategies and drawing up forecasts for the BMW Group. The significance of opportunities for the BMW Group is classified in the categories “material” or “not material”. Market, competition and scenario analyses are con- ducted and evaluated and forecasts are drawn up as part of the process of identifying opportunities. The Group’s product portfolio is permanently reviewed in the light of these analyses and, as appropriate, new product projects are presented to the Board of Manage- ment for consideration. Opportunities management also covers regular reviews of cost drivers and other factors critical for success. One of the key areas in this context is to ensure optimal operations within the production and supplier network, which are therefore subject to regular review. Potential areas of improvement can be quickly realised after ap- proval by the Board of Management and the benefits factored into earnings forecasts. The forecasts drawn up by the BMW Group reflect the expected impact of tar- geted efficiency improvements on variable and fixed costs. Efficiency improvement targets take account of past experience as well as the current composition of the product portfolio. Business process optimisation and strict cost control are essential to ensure good profitability and a high return on capital employed. The outlook is drawn up on the assumption that profitability improvement measures will be achieved. One good example of this is the rigor- ous implementation of the so-called “architectural ap- proach”. The new MINI presented in November is the first vehicle to be built on the basis of this approach. Greater communality of features between different models and product lines, made possible by a modular and architectural approach to building vehicles, helps to improve profitability by reducing development costs and investment on the series development of new vehicles, by generating benefits of scale at the level of production cost and by increasing flexibility in produc- tion. The improved cost basis achieved opens up op- portunities to move into additional market segments which would have otherwise been unprofitable. The new generation of engines allows a high degree of flexi- bility in production in terms of the number of cylinders and the choice between diesel and petrol engines, thus maximising market potential. Identified opportunities can be incorporated at short notice into the opportunities management and re- porting system. The implementation of identified op- portunities is undertaken on a decentralised basis and monitored using a variety of suitable instruments. The quarterly forecast report presented to the Board of Management highlights the impact of opportunities that have been realised. Opportunities Political and global economic opportunities Economic conditions influence the operations, financial position, earnings performance and cash flows of the BMW Group. Should the global economy develop sig- nificantly better than reflected in the outlook, revenues and earnings of the BMW Group could be significantly higher than originally predicted. Economic opportuni- ties present themselves in particular from the fact that the BMW Group is fully committed to expanding busi- ness volumes in the world’s growth markets. The BMW Group sees an opportunity for above-average growth in the Chinese market. Potential for recovery is also seen elsewhere, particularly in southern European countries. The outcome could be a sharp increase in sales volumes as well as reduced competitive pressure and improved selling prices. The BMW Group reviews its market fore- casts at frequent intervals, adjusting them when neces- sary to accommodate changed market conditions and make full use of available market potential. In addition to the impact from economic developments, the BMW Group’s earnings can also be positively af- fected in the short to medium term by changes in the le- gal environment. A possible reduction in tariff barriers, in import restrictions or direct excise duties could lower the cost of materials for the BMW Group and also en- able products and services to be offered to the customer at lower prices. Another factor to consider is that regu- latory support for forward-looking technologies, such as electromobility – in the form of incentives – help to make the total cost of ownership more attractive for the customer, thus opening up opportunities for faster mar- ket penetration by means of these technologies. Oppor- tunities of this nature could result in higher sales vol- umes and, all other things being equal, to an improved 78 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets quality of earnings. Changes in the legal environment are monitored continuously at a centralised level. The impact of legislation that has been enacted or that is highly likely to be enacted is incorporated in the out- look. At present, the BMW Group does not see any significant political and / or economic opportunities which could have a positive sustainable impact on the earnings per- formance of the BMW Group. Strategic and sector-specific opportunities Innovation and a strong technological position are the cornerstones of our success. The BMW Group con- tinues to build on this solid basis and to set its sights on putting these to good use in the world’s growth mar- kets. Additions to the product portfolio and expansion in growth regions are seen as the most important op- portunities for growth in the medium to long term. Remaining on growth course depends above all else on the ability to develop innovative products and bring them to market. The launching of the BMW i brand opens up new customer target groups for the BMW Group and consolidates the position of BMW as a sus- tainable and forward-looking brand. The BMW i3 is the first car built from the outset as an electric vehicle for driving in an urban environment: optimally de- signed for intelligent mobility in cities and for com- muting, powered by a zero-emission electric drive sys- tem. Creating the BMW i3 does nothing less than make the whole Group fit for the future. A whole new vista of opportunities has now been opened up. BMW i products can be seen as “empowerment projects” for new technologies and processes, which will also bene- fit other vehicle concepts. With the BMW 3 Series Gran Turismo and the MINI Paceman, 2013 also saw the successful launching of two further crossover products on the market. With all of these new models, the BMW Group has demonstrated its ability to translate identified opportunities into com- mercial reality as well as its proactive commitment to tackling the challenges of the future. These products are the outcome of the early identification of growth oppor- tunities and customer-oriented product development processes stretching over several years. Additional op- portunities for growth can be generated by further addi- tions to the product portfolio. Given the lead time re- quired for product development, these opportunities are built into short- and medium-term forecasts. The accept- ance of, and sales volumes generated with, planned fu- ture product innovations could be better than expected in the outlook. In the short term, however, any potential positive impact is classified as not material. The long-term trend towards greater sustainability pro- vides opportunities to boost sales of sustainable prod- ucts and, under the right circumstances, achieve better selling prices. Innovations – such as the BMW i3 in the field of electromobility or Efficient Dynamics through- out the whole product portfolio – provide excellent plat- forms for future growth. Potential is also seen by engaging in new product and market categories and by tapping new customer target groups. New business models and cooperation arrange- ments with the BMW Group’s growing network of business partners often provide the best means to take advantage of these opportunities. Working together with other business partners helps to increase market coverage, expand the range of solutions on offer and encourage the development of forward-looking tech- nologies. Good examples of this are the partnerships and programmes comprising the 360° ELECTRIC port- folio in the field of electromobility and collaboration with Toyota on a hydrogen fuel cell system. Coopera- tions of this kind generally result in greater availability of a wider range of new technologies for the customer and increase the likelihood of a successful market launch in the long term. The short- to medium-term impact of such activities is generally not material. Given the long lead times involved in developing new products and processes, strategic and sector-specific opportunities are not expected to have a material short- term impact on the earnings performance of the BMW Group. Opportunities from operational activities Employees make a vital contribution to sustainable growth and improved profitability through their inno- vative skills. The BMW Group is constantly refining the tools it uses to recruit employees, encourage career development and bind employees to the enterprise. Within this environment, employees find the optimal environment in which to develop their skills. If these measures generate greater benefits than currently expected, the BMW Group’s revenue, earnings perfor- mance and cash flows could be positively impacted and forecasted figures surpassed. Creating a successful 79 CoMBined ManageMent RepoRt performance culture and the development of the skill- sets of both staff and managers alike throughout the or- ganisation could also have a positive impact on revenues and profitability. Compared to the outlook, the BMW Group’s earnings performance is unlikely to benefit from efficiency improvements to a significantly greater ex- tent than that incorporated in the outlook. Further opportunities may arise due to other technical innovations relating to products and processes and as a result of organisational changes. In the field of light- weight construction, carbon is being put to use in high volumes for the first time in the automobile industry in the construction of the BMW i3. The potential for effi- ciency improvements in this area is quite considerable, including the increased use of this material in other vehi- cle projects, as a result of which the competitiveness of the products involved – both in terms of consumption and driving dynamics – could be improved to a signifi- cantly greater extent than originally planned. The op- portunities presented by these new developments are primarily relevant for the medium to long term and will not have a material short-term impact on the BMW Group’s earnings performance. The BMW Group focuses its selling capacities primarily on markets with the greatest sales volume and revenue potential and fastest growth rates. Investment in exist- ing and new marketing concepts is firmly aimed at in- tensifying relationships with customers. A good exam- ple is the new marketing concept for BMW i products and services, which will be offered in selected markets in the future via an innovative multi-channel model. There will be no let-up in the active search for new op- portunities to create even greater added value for cus- tomers than currently expected, whilst at the same time looking for ways to boost sales volumes and achieve better selling prices. Developments in the field of digital communication are also opening up opportunities for marketing the BMW Group’s various brands. Consumers can meanwhile be reached on a more targeted and individual basis, thus helping to strengthen long-term relationships and brand loyalty. The BMW Group keeps track of the latest developments and trends in communication technology, including the use of social media and networks, in order to extend customer reach. The BMW Group’s brands are present on numerous platforms, such as Facebook, YouTube and Twitter. Thanks to its intensive efforts in this area, the BMW Group is registering faster growth rates on the various platforms than its competitors, measured in terms of the number of fans and visits. The decisive advantage of digital communication is that the brands are able to engage in a direct dialogue with customers and thus create a more intense brand expe- rience. The BMW Group considers that these opportu- nities will not have a material impact compared to the assumptions made in the outlook. Pension benefits represent an important component of the BMW Group’s overall remuneration package, mak- ing it easier to recruit qualified staff and to gain them for the enterprise on a long-term basis. Pension liabili- ties are matched in part by corresponding pension plan assets. Within a favourable capital market environment, the return generated by pension assets may exceed expectations and reduce the deficit of the relevant pen- sion plans. This, in turn, could have a materially favour- able impact on the net assets position and earnings per- formance of the BMW Group. Pension plan assets also help to reduce the interest and inflation risks attached to pension liabilities. Financial opportunities arising from currencies and raw materials The ability to compete on global markets is also signifi- cantly influenced by changes in exchange rates and raw materials prices. Favourable developments in exchange rates (in particular for China and the USA) and in raw materials prices could have a positive impact on the finan cial result of the BMW Group. Developments on the financial markets are closely monitored, in order to identify and make the best use of any opportunities that may arise. Financial opportunities are managed by employing the same processes and methodologies used to manage financial risks. The principal objective of these management processes is to reduce risk by improv- ing forecasting reliability. Currency and raw material price opportunities could have a material impact on the earnings performance of the BMW Group. Further information in conjunction with financial in- struments is provided in note 42 to the Group Financial Statements. Opportunities arising in conjunction with the provision of financial services The principal risks arising in the Financial Services seg- ment, namely credit and residual value risks, are closely 80 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets linked to economic trends. If economies develop more favourably than assumed in the outlook, there is a chance that credit losses may be reduced and earnings improved accordingly. Similarly, higher used car selling prices could result in better-than-forecasted earnings for the Financial Services segment. Positive interest rate developments could reduce interest rate risks and there- fore have a positive impact on forecast earnings. The potential significance of opportunities arising in conjunc- tion with the provision of financial services, in particular opportunities related to residual value risks, are classified by the BMW Group as material. Overall assessment of the risk and opportunities situation No risks have been identified that could jeopardise the BMW Group’s future existence. Based on the risks and opportunities described above, expected probabilities of occurrence and current business prospects, no individ- ual or aggregated risks have been identified that could endanger the BMW Group’s going-concern status. Identified risks are considered to be manageable, but could – just like opportunities – have an impact on the BMW Group’s forecasts. The assessment of the overall risk situation has not changed significantly compared with the previous year. The BMW Group’s liquidity is stable and all cash requirements are currently covered by available funds and accessible credit lines. 81 CoMBined ManageMent RepoRt Internal Control System* and Risk Management System Relevant for the Consolidated Financial Reporting Process 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 requirements relating to the provision of information relevant 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 guide- lines covering internal and external financial reporting issues, in accounting manuals and through training. These instructions, which can be accessed at all levels via the BMW Group’s intranet system, provide the frame- work for ensuring that the relevant rules are applied consistently throughout the Group. The quality and relevance of these instructions are ensured by regular review as well as by continuous communication 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 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). Continuous revision and further development of the internal control system ensures its continued effectiveness. Group entities are required to confirm regularly as part of their reporting duties that the internal control system is functioning properly. Effective measures are implemented when- ever weaknesses are identified and reported. * Disclosures pursuant to § 289 (5) HGB and § 315 (2) no. 5 HGB. 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 82 Disclosures Relevant for Takeovers1 and Explanatory Comments Composition of subscribed capital The subscribed capital (share capital) of BMW AG amounted to € 656,254,983 at 31 December 2013 (2012: € 655,989,413) and, in accordance with Article 4 (1) of the Articles of Incorporation, is sub-divided into 601,995,196 shares of common stock (91.73 %) (2012: 601,995,196; 91.77 %) and 54,259,787 shares of non-voting preferred stock (8.27 %) (2012: 53,994,217;  8.23 %), 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 19 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 83 CoMBined ManageMent RepoRt The voting power percentages disclosed above may have changed subsequent to the stated date if these changes were not required to be reported to the Company. Due to the fact that the Company’s shares are issued to bearer, the Company is generally only aware of changes in 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 € 2,936,375 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- 84 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. shares of the joint ventures from the affected share- 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. 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets – 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 or 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 85 CoMBined ManageMent RepoRt BMW Stock and Capital Markets in 2013 BMW stocks reached a new all-time high during the period under report, when the price of BMW common stock was quoted at € 85.69 per share. The BMW Group has the best rating in the European automobile sector, thus giving it excellent access to international capital markets. Good year for stock markets on account of expansion- ary monetary policies Favourable economic prospects and the expansionary monetary policies applied by the US Federal Bank (FED) and the European Central Bank (ECB) helped to make 2013 a good year for stock markets. Within a highly volatile climate, the German stock index, the DAX, was able to pick up where it left off in 2012 and climbed to new heights in 2013. Having got off to a positive start, the mood on the mar- kets was dampened towards the end of the first quarter by political uncertainties caused by elections in Italy and the threat of state bankruptcy in Cyprus. In April the DAX reached its low for the year at 7,418.36 points. Share prices came under pressure in June following the FED’s announcement of its intention to bring its bond- buying programme to an end over the course of the year and on rumours of a possible credit squeeze in China. Good corporate and employment figures in the USA helped to improve the mood considerably at the begin- ning of the third quarter, only then for concerns about political instability in the Middle East to cause quite large substantial price drops towards the end of August. The on going expansionary monetary policies of the ECB and the FED, combined with more favourable eco- nomic data from Europe and the USA, helped the DAX to reach a new high of 8,770.10 by the end of September. Agreement in the US federal budget dispute and the FED’s decision not to taper its bond-buying programme Development of BMW stock compared to stock exchange indices (Index: 30 December 2008 = 100) Development of BMW stock compared to stock exchange indices since 30 December 2008 in % 500 400 300 200 100 BMW preferred stock BMW common stock Prime Automobile DAX 448.0 394.4 274.1 198.6 resulted in a strong final quarter. Despite some inter- mediate profit-taking, the DAX recorded a new all-time high of 9,594.35 points on 30 December 2013, before closing the stock market year on the same day at 9,552.16 points, marginally below its high for the year, but 1,939.77 points or 25.5 % up over the twelve-month period. The Prime Automobile Performance Index did even better, climbing by 417 points over the year under report to reach 1,393 points, 42.8 % higher than one year earlier. The EURO STOXX 50 finished the stock market year 17.9 % up at 3,109 points. Both categories of BMW stock performed exceedingly well within the volatile stock market environment de- scribed above. After a good start to the year, BMW com- mon stock reached a new high of € 76.16 in January. Partly as a reflection of the sharp rise in 2012, the share price then fell as a result of profit-taking. The low for the year of € 63.27 was recorded in April. It was only in the second half of the year that BMW common stock 450 400 350 300 250 200 150 100 BMW preferred stock BMW common stock Prime Automobile DAX 09 10 11 12 13 BMW preferred stock BMW common stock Prime Automobile DAX 86 returned to profitable ground, finishing the year at € 85.22, a gain of 16.9 % compared to the end of the pre- vious year. A new all-time high of € 85.69 was recorded on the final trading day of the stock market year. BMW preferred stock gained 27.4 % in value year-on- year. Its price at the end of the stock market year was € 62.09. A new all-time high of € 65.00 was recorded on 27 November. 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, 266,152 shares of preferred stock were issued to employees in 2013 as part of this scheme. In this context, and with the approval of the Supervisory Board, BMW AG’s share capital was increased by the Board of Management by €265,570 from €655,989,413 to €656,254,983 by the issue of 265,570 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 and were issued to enable employees to obtain an equity participation in the Company. In addi- tion, 582 shares of preferred stock were bought back via the stock market in order to service the employee share scheme. Dividend proposal envisages increase In view of the 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 € 1,707 million to pay a dividend of € 2.60 for each share of common stock (2012: € 2.50) and a dividend of € 2.62 for each share of preferred stock (2012: € 2.52). These figures correspond to a distribution rate of 32.0 % for 2013, unchanged from the previous year. 18 Combined management RepoRt 18 General Information on the BMW Group 18 Business Model 20 Management System 23 Research and Development 24 Report on Economic Position 24 Overall Assessment by Management 24 General and Sector-specific Environment 27 Financial and Non-financial Performance Indicators 29 Review of Operations 47 Results of Operations, Financial Position and Net Assets 62 Events after the End of the Reporting Period 63 Report on Outlook, Risks and Opportunities 63 Outlook 68 Risks Report 77 Report on Opportunities 81 Internal Control System and Risk Management System Relevant for the Consolidated Financial Reporting Process 82 Disclosures Relevant for Takeovers and Explanatory Comments 85 BMW Stock and Capital Markets 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 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, 6 Earnings per share of preferred stock4, 6 Cash flow 5 Equity 2013 2012 2011 2010 2009 601,995 601,995 601,995 601,995 601,995 85.22 85.42 63.93 72.93 73.76 53.16 51.76 73.52 45.04 58.85 64.80 28.65 31.80 35.94 17.61 54,260 53,994 53,571 53,163 52,665 62.09 64.65 48.69 2.60 2 2.62 2 8.10 8.12 14.41 54.31 48.76 49.23 35.70 2.50 2.52 7.75 7.77 13.98 46.66 6 36.55 45.98 32.01 2.30 2.32 7.45 7.47 12.38 41.34 38.50 41.90 21.45 1.30 1.32 4.91 4.93 12.45 36.53 23.00 24.79 11.05 0.30 0.32 0.31 0.33 7.53 30.42 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 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7.  interest shown in innovation days at the BMW plant in Leipzig, the test driving event in Amsterdam and show- room events in London and Paris, BMW i was a subject of practically all discussions with analysts and investors. 87 CoMBined ManageMent RepoRt Further improvement in rating In December 2013 the rating agency Standard & Poor’s raised BMW AG’s long-term rating from A (stable out- look) to A+ (stable outlook). BMW AG is the only Euro- pean automobile manufacturer with this high rating. The short-term rating remained at A-1, also the highest level for the sector. Following the change in Standard & Poor’s rating criteria in November, the BMW Group received particularly good marks for its financial strength. In terms of finan- cial risk, the BMW Group was given the best classifi- cation (risk category: minimal) thanks to its ability to generate strong cash flows, its leading position in the premium segment and the excellent financial indicators it enjoys on the automotive side of the business. The rating agency Moody’s also set the BMW Group on a pedestal again by giving it the best rating of all Euro- pean automobile manufacturers, unchanged from the previous year. Since July 2011, BMW AG’s long-term and short-term ratings are A2 and P-1 respectively. These rating assessments underline the BMW Group’s robust financial profile and excellent creditworthiness. Thanks to these attributes, it not only has good access to international capital markets, it also benefits from attractive refinancing conditions, which are particularly helpful for the BMW Group’s Financial Services busi- ness. Regular communication with capital markets continued The BMW Group’s investor relations activities again received high praise in the renowned Extel Survey con- ducted by Thomson Reuters and in the specialist pub- lication Institutional Investor. Analysts, institutional in- vestors and rating agencies were kept up to date with regular quarterly and year-end financial reports. Road- shows and numerous one-on-one as well as group dis- cussions were held, sometimes attended by members of the Board of Management. This comprehensive com- munication with relevant capital market participants was supplemented by specialist socially responsible in- vestment (SRI) roadshows for investors who wish to incorporate sustainability criteria in their investment decisions as well as debt roadshows for capital debt in- vestors and credit analysts. The Investor Relations team again handled a great many inquiries from private in- vestors regarding BMW stock and bonds during the period under report. One important focus of communi- cation in 2013 was on the BMW i brand and particularly on BMW i3 and BMW i8 vehicles. In addition to the 88 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 Attributable to minority interest Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic 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 € Note Group Automotive Motorcycles Financial Services Other Entities Eliminations 2013 20121 (unaudited supplementary information) 20121 2013 (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) 2013 20121,2 2013 20121 2013 20121 2013 2012 9 10 11 12 12 13 14 14 15 76,058 76,848 70,629 70,208 1,504 1,490 19,874 19,550 – 60,784 – 61,354 – 57,771 – 56,525 – 1,253 – 1,236 – 17,270 – 16,984 15,274 15,494 12,858 13,683 – 7,255 – 7,032 – 6,112 – 5,862 251 254 – 177 – 181 841 – 874 7,986 398 184 – 449 – 206 – 73 7,913 829 – 1,016 8,275 271 224 – 375 – 592 – 472 7,803 741 – 830 6,657 398 303 – 534 – 263 – 96 6,561 673 – 895 7,599 271 353 – 552 – 501 – 429 7,170 16 – 2,573 – 2,692 – 2,153 – 2,453 4,408 17 4,391 4,717 24 4,693 34 34 17 17 17 17 5,340 26 5,314 8.10 8.12 – 8.10 8.12 5,111 26 5,085 7.75 7.77 – 7.75 7.77 – 15,955 – 14,405 Revenues 15,510 13,391 Cost of sales – 1,014 Gross profit 9 Selling and administrative expenses – 75 Other operating income 131 Other operating expenses – 949 Profit / loss before financial result – Result from equity accounted investments – 1,464 – 1,672 Interest and similar income – 1,279 – 1,499 1,374 1,684 Interest and similar expenses 7 – 2 79 – – – 3 – – 3 76 – 25 51 – 51 8 – 72 9 – – – 3 – – 3 6 – 22 – 16 – – 16 2,604 – 953 57 – 65 1,643 – 5 – 7 – 2 – 4 1,639 – 527 1,112 8 2,566 – 980 101 – 129 1,558 – 1 – 5 7 3 1,561 – 545 1,016 1 1,104 1,015 6 – 6 – 23 115 – 54 44 – 1,340 59 120 164 – 68 96 1 95 5 – 5 – 18 122 – 51 58 – 1,542 – 98 – 55 3 5 8 1 7 – 445 10 – 79 77 – 437 – – – 90 – 527 200 – 327 – – 327 – Other financial result 12 Financial result – 937 Profit / loss before tax 323 Income taxes – 614 Net profit / loss – Attributable to minority interest – 614 Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic 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 € 1 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2 Includes impact of exceptional items relating to the sale of the Husqvarna Group. Statement of Comprehensive Income for Group in € million Net profit Remeasurement of the net defined benefit liability for pension plans Deferred taxes Items not expected to be reclassified to the income statement in the future Available-for-sale securities Financial instruments used for hedging purposes Other comprehensive income from equity accounted investments Deferred taxes Currency translation foreign operations Items expected to be reclassified to the income statement in the future 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 1 Presentation adjusted in accordance with revised IAS 1. 2 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Note 35 20 34 20131 20121, 2 5,340 1,308 – 372 936 8 1,357 – 7 – 407 – 635 316 1,252 6,592 26 6,566 5,111 – 1,914 538 – 1,376 214 1,302 111 – 511 – 123 993 – 383 4,728 26 4,702 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 89 Group Financial StatementS 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 Attributable to minority interest Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic 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 € 1 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2 Includes impact of exceptional items relating to the sale of the Husqvarna Group. 9 10 11 12 12 13 14 14 15 34 34 17 17 17 17 16 – 2,573 – 2,692 – 2,153 – 2,453 741 – 830 6,657 398 303 – 534 – 263 – 96 6,561 4,408 17 4,391 673 – 895 7,599 271 353 – 552 – 501 – 429 7,170 4,717 24 4,693 841 – 874 7,986 398 184 – 449 – 206 – 73 7,913 5,340 26 5,314 8.10 8.12 – 8.10 8.12 829 – 1,016 8,275 271 224 – 375 – 592 – 472 7,803 5,111 26 5,085 7.75 7.77 – 7.75 7.77 Note Group Automotive Motorcycles Financial Services Other Entities Eliminations 2013 20121 2013 20121 2013 20121,2 (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) 20121 2013 (unaudited supplementary information) 20121 2013 (unaudited supplementary information) 2013 2012 76,058 76,848 70,629 70,208 1,504 1,490 19,874 19,550 – 60,784 – 61,354 – 57,771 – 56,525 – 1,253 – 1,236 – 17,270 – 16,984 15,274 15,494 12,858 13,683 – 7,255 – 7,032 – 6,112 – 5,862 251 254 – 177 – 181 7 – 2 79 – – – 3 – – 3 76 – 25 51 – 51 8 – 72 9 – – – 3 – – 3 6 – 22 – 16 – – 16 2,604 – 953 57 – 65 1,643 – 5 – 7 – 2 – 4 1,639 – 527 1,112 8 2,566 – 980 101 – 129 1,558 – 1 – 5 7 3 1,561 – 545 1,016 1 1,104 1,015 6 – 6 – 23 115 – 54 44 – 1,340 5 – 5 – 18 122 – 51 58 – 1,542 – 15,955 – 14,405 Revenues 15,510 13,391 Cost of sales – 445 10 – 79 77 – 437 – – 1,014 Gross profit 9 Selling and administrative expenses – 75 Other operating income 131 Other operating expenses – 949 Profit / loss before financial result – Result from equity accounted investments – 1,464 – 1,672 Interest and similar income – 1,279 – 1,499 1,374 1,684 Interest and similar expenses 59 120 164 – 68 96 1 95 – 98 – 55 3 5 8 1 7 – – 90 – 527 200 – 327 – – 327 – Other financial result 12 Financial result – 937 Profit / loss before tax 323 Income taxes – 614 Net profit / loss – Attributable to minority interest – 614 Attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic 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 € 90 BMW Group Balance Sheets for Group and Segments at 31 December 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 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 22 23 24 25 25 26 27 16 29 30 31 26 27 28 29 32 33 2013 31.12. 2012* (adjusted) 1.1. 2012* (adjusted) 6,179 15,113 25,914 652 553 5,207 13,341 24,468 514 548 5,238 11,685 23,112 302 561 32,616 32,309 29,331 2,593 1,620 954 2,148 1,967 803 1,702 1,881 577 86,194 81,305 74,389 32,584 29,970 9,585 2,449 21,501 5,559 1,151 4,265 7,664 – 9,725 2,543 20,605 4,612 966 3,664 8,370 45 9,638 3,286 20,014 3,751 1,194 3,374 7,776 – 9,259 2,184 – 4,479 1,002 15,480 6,768 – 9,366 2,305 – 2,746 775 16,162 7,484 – Automotive (unaudited supplementary information) 2012* 2013 Motorcycles Financial Services Other Entities Eliminations (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) 2013 2012 2013 2012 2013 2012* 2013 2012 Assets 5,646 14,808 19 652 5,253 – 1,183 2,226 2,797 4,648 13,053 128 514 4,789 – 759 2,217 3,862 30,230 28,060 – 4,335 – 3,720 Leased products 32,616 32,309 – Receivables from sales financing 5,754 5,761 – 10,460 – 10,009 Other investments – Intangible assets – Property, plant and equipment – Investments accounted for using the equity method 469 34 – 6 276 285 1,436 65,352 8 145 826 89 3,530 879 – 486 46 – 7 126 279 1,330 62,643 11 123 813 132 3,573 797 – 21,501 20,605 1 – – – – – – – 936 60 17 – 1,779 290 18,627 26,451 1,730 349 16,995 24,836 – 645 – 1,181 – 467 Financial assets – 878 Deferred tax – 21,906 – 21,384 Other assets – 38,527 – 36,458 Non-current assets 32,775 30,285 – 47,520 – 46,387 Other assets – 682 – 427 Financial assets – Current tax – Inventories – Trade receivables – Receivables from sales financing – Cash and cash equivalents – Assets held for sale 63 271 – – – – – – – – – – – – – 334 318 120 438 772 – 29 141 – – 318 488 57 – – 204 23 – 284 772 72 242 – – – – – – – 314 348 114 – – – 31 – 45 538 852 – 29 135 – – 246 410 114 – – 277 21 30 442 852 1 – – – – – 1 – 1,480 59 89 – 1,338 30 5 18 235 77 13 – – – – – – – – – – – – – 3 – – – 52,174 50,530 49,033 39,172 38,838 26,978 26,054 33,788 31,914 – 48,202 – 46,814 Current assets 138,368 131,835 123,422 71,756 68,808 92,330 88,697 60,239 56,750 – 86,729 – 83,272 Total assets Note Group 2013 31.12. 2012* (adjusted) 1.1. 2012* (adjusted) Automotive (unaudited supplementary information) 2012* 2013 Motorcycles Financial Services Other Entities Eliminations (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) 2013 2012 2013 2012* 2013 2012* 2013 2012 34 34 34 34 34 34 35 36 16 38 39 36 37 38 40 39 33 656 1,990 33,167 – 358 35,455 188 35,643 2,303 3,772 3,554 39,450 3,603 52,682 3,411 1,237 30,854 7,475 7,066 – 656 1,973 28,544 – 674 30,499 107 30,606 3,813 3,441 3,081 39,095 3,404 52,834 3,246 1,482 30,412 6,433 6,792 30 655 1,955 26,343 – 1,674 27,279 65 27,344 1,996 3,081 3,315 37,597 2,911 48,900 3,069 1,363 30,380 5,340 7,026 – 30,909 28,202 8,407 7,633 10,805 8,466 – 14,478 – 13,695 Equity 938 3,075 1,072 1,604 3,584 2,358 3,103 492 1,775 3,394 10,273 11,122 3,039 1,021 725 6,764 19,025 – 2,605 1,269 1,289 5,669 18,652 – 40 257 5,266 14,376 20,084 40,023 309 123 16,006 502 26,960 – 88 173 4,777 14,174 19,653 38,865 289 136 16,830 474 24,470 – 1,296 299 6 68 3 93 5 – 24,115 23,613 – Pension provisions – Other provisions – 2,790 – 645 – 2,193 Deferred tax – 467 Financial liabilities – 20,451 – 19,907 Other liabilities 25,784 25,004 – 23,886 – 22,567 Non-current provisions and liabilities 14,805 12,720 – 682 – 427 Financial liabilities 3 Other provisions – Current tax – Trade payables 8,744 10,235 – 47,686 – 46,586 Other liabilities – Liabilities in conjunction with assets held for sale 50,043 48,395 47,178 30,574 29,484 43,900 42,199 23,650 23,280 – 48,365 – 47,010 Current provisions and liabilities Equity and liabilities Subscribed capital Capital reserves Revenue reserves Accumulated other equity Minority interest Equity attributable to shareholders of BMW AG Total equity and liabilities 138,368 131,835 123,422 71,756 68,808 92,330 88,697 60,239 56,750 – 86,729 – 83,272 Total equity and liabilities * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 91 Group Financial StatementS Note Group Automotive Motorcycles Financial Services Other Entities Eliminations 2013 31.12. 2012* (adjusted) 1.1. 2012* (adjusted) 2013 2012* 2013 2012 2013 2012 (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) (unaudited supplementary information) 2012* 2013 (unaudited supplementary information) 2013 2012 Assets 63 271 – – – – – – – 334 318 120 – – – – – – 438 772 72 242 – – – – – – – 314 348 114 – – – 31 – 45 538 852 469 34 486 46 30,230 28,060 – 6 – 7 32,616 32,309 276 285 1,436 65,352 8 145 126 279 1,330 62,643 11 123 21,501 20,605 826 89 3,530 879 – 813 132 3,573 797 – 1 – – – 5,754 – 1,779 290 18,627 26,451 – – – 936 60 1 – – – 5,761 – 1,730 349 16,995 24,836 – 1 – 1,480 59 – – – Intangible assets – Property, plant and equipment – 4,335 – 3,720 Leased products – – Investments accounted for using the equity method – 10,460 – 10,009 Other investments – – 645 – 1,181 – Receivables from sales financing – 467 Financial assets – 878 Deferred tax – 21,906 – 21,384 Other assets – 38,527 – 36,458 Non-current assets – – – – 682 – – Inventories – Trade receivables – Receivables from sales financing – 427 Financial assets – Current tax 32,775 30,285 – 47,520 – 46,387 Other assets 17 – 89 – – – – Cash and cash equivalents – Assets held for sale 26,978 26,054 33,788 31,914 – 48,202 – 46,814 Current assets 92,330 88,697 60,239 56,750 – 86,729 – 83,272 Total assets Note Group Automotive Motorcycles Financial Services Other Entities Eliminations (unaudited supplementary information) (unaudited supplementary information) 2013 2012* 2013 2012 (unaudited supplementary information) 2012* 2013 (unaudited supplementary information) 2012* 2013 (unaudited supplementary information) 2013 2012 2013 31.12. 2012* (adjusted) 1.1. 2012* (adjusted) Equity and liabilities Subscribed capital Capital reserves Revenue reserves Accumulated other equity Equity attributable to shareholders of BMW AG Minority interest – 29 141 – – 318 488 57 – – 204 23 – 284 772 – 29 135 – – 246 410 114 – – 277 21 30 442 852 8,407 7,633 10,805 8,466 – 14,478 – 13,695 Equity 40 257 5,266 14,376 20,084 40,023 309 123 16,006 502 26,960 – 88 173 4,777 14,174 19,653 38,865 289 136 16,830 474 24,470 – 1,296 299 6 1,338 30 5 24,115 23,613 – – – 2,790 – 645 – Pension provisions – Other provisions – 2,193 Deferred tax – 467 Financial liabilities 68 18 – 20,451 – 19,907 Other liabilities 25,784 25,004 – 23,886 – 22,567 Non-current provisions and liabilities 3 93 14,805 5 8,744 – 235 77 12,720 13 3 – – 682 – 3 Other provisions – Current tax – 427 Financial liabilities – Trade payables 10,235 – 47,686 – 46,586 Other liabilities – – – Liabilities in conjunction with assets held for sale 43,900 42,199 23,650 23,280 – 48,365 – 47,010 Current provisions and liabilities 92,330 88,697 60,239 56,750 – 86,729 – 83,272 Total equity and liabilities 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 Minority interest Equity Pension provisions Other provisions Deferred tax Financial liabilities Other liabilities Other provisions Current tax Financial liabilities Trade payables Other liabilities Equity attributable to shareholders of BMW AG 22 23 24 25 25 26 27 16 29 30 31 26 27 28 29 32 33 34 34 34 34 34 34 35 36 16 38 39 36 37 38 40 39 33 52,174 50,530 49,033 39,172 38,838 138,368 131,835 123,422 71,756 68,808 32,616 32,309 29,331 86,194 81,305 74,389 32,584 29,970 6,179 15,113 25,914 652 553 2,593 1,620 954 9,585 2,449 21,501 5,559 1,151 4,265 7,664 – 656 1,990 33,167 – 358 35,455 188 35,643 2,303 3,772 3,554 39,450 3,603 52,682 3,411 1,237 30,854 7,475 7,066 – 5,207 13,341 24,468 514 548 2,148 1,967 803 9,725 2,543 20,605 4,612 966 3,664 8,370 45 656 1,973 28,544 – 674 30,499 107 30,606 3,813 3,441 3,081 39,095 3,404 52,834 3,246 1,482 30,412 6,433 6,792 30 5,238 11,685 23,112 302 561 1,702 1,881 577 9,638 3,286 20,014 3,751 1,194 3,374 7,776 – 655 1,955 26,343 – 1,674 27,279 65 27,344 1,996 3,081 3,315 37,597 2,911 48,900 3,069 1,363 30,380 5,340 7,026 – 5,646 14,808 19 652 5,253 – 1,183 2,226 2,797 9,259 2,184 – 4,479 1,002 15,480 6,768 – 4,648 13,053 128 514 4,789 – 759 2,217 3,862 9,366 2,305 – 2,746 775 16,162 7,484 – 30,909 28,202 938 3,075 1,072 1,604 3,584 3,039 1,021 725 6,764 19,025 – 2,358 3,103 492 1,775 3,394 2,605 1,269 1,289 5,669 18,652 – Non-current provisions and liabilities 10,273 11,122 Liabilities in conjunction with assets held for sale Current provisions and liabilities 50,043 48,395 47,178 30,574 29,484 Total equity and liabilities 138,368 131,835 123,422 71,756 68,808 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 92 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 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 Proceeds from new non-current other financial liabilities Repayment of non-current other financial liabilities Change in current 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 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information Change in cash and cash equivalents 43 – 706 Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 8,370 7,664 1 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2 Prior year figures have been adjusted in accordance with the change in presentation described in note 43. 3 Interest relating to financial services business is classified as revenues / cost of sales. Note Group Automotive Financial Services (unaudited supplementary information) (unaudited supplementary information) 2013 20121, 2 2013 20121, 2 2013 20122 5,340 5,111 4,408 4,717 1,112 1,016 Net profit 2,435 126 3,830 479 – 2,048 – 4,501 138 – 551 – 22 – 398 983 – 192 22 1,153 453 – 2,787 137 3,614 2,908 – 4 3,716 443 – 1,421 – 3,988 – 216 407 – 16 – 271 1,755 – 108 744 1,119 – 1,065 – 2,462 179 5,076 – 6,669 – 5,236 – 6,575 – 5,074 – 37 Investment in intangible assets and property, plant and equipment 22 – 90 137 – 3,631 3,250 – 6,981 – 17 42 – 171 107 – 1,265 1,090 – 5,433 – 19 – 1,653 – 1,516 – 1,653 – 1,516 Payment of dividend for the previous year – 137 – 104 Current tax Reconciliation between net profit and cash inflow / outflow from operating activities Other interest and similar income / expenses Depreciation and amortisation of other tangible, intangible and investment assets – 2 Gain / loss on disposal of tangible and intangible assets and marketable securities – 2 Change in provisions – 2,256 Change in leased products – 3,988 Change in receivables from sales financing Change in deferred taxes Other non-cash income and expense items 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 – 132 – 3 – 139 Income taxes paid –3 Interest received – 5,358 – 4,192 Cash inflow / outflow from operating activities – 3,445 – 1,167 – 97 Cash payments for the purchase of marketable securities Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investments Proceeds from the disposal of investments –3 38 497 – 13 – 18 – 19 – 1 743 7 – – – – – –3 2,516 153 3,745 373 109 – – 239 – 55 – 22 – 398 1,015 – 226 53 1,188 141 – 2,487 191 9,450 15 – 528 137 2,908 – 7,488 – 582 – 149 – 17 – – 85 – 26 125 – 489 – 2,672 – 53 47 3,026 104 3,679 267 23 – – 391 265 – 14 – 271 1,622 – 54 722 954 – 1,918 – 2,191 249 9,167 – 384 35 65 995 – 5,530 – 19 – 833 – 157 – – 600 – 127 35 – 4 – 1,983 – 11 12 – 3 3 20 153 – 2,895 – 4,501 678 54 – – 24 4 – 25 45 269 – 9 7 – 163 – 179 342 324 – – – 3,844 – 3 1,099 – 1,383 6,015 – 4,940 517 – 5,152 – 36 – 82 797 879 95 Cash proceeds from the sale of marketable securities – 32 Cash inflow / outflow from investing activities Issue / buy-back of treasury shares Payments into equity 1,505 Intragroup financing and equity transactions Interest paid 1,189 Proceeds from the issue of bonds – 842 Repayment of bonds 6,523 Proceeds from new non-current other financial liabilities – 5,101 Repayment of non-current other financial liabilities 231 Change in current other financial liabilities – Change in commercial paper 3,505 Cash inflow / outflow from financing activities – 3 Effect of exchange rate on cash and cash equivalents 1 Effect of changes in composition of Group on cash and cash equivalents – 716 1,655 – 721 Change in cash and cash equivalents 7,484 6,768 5,829 7,484 1,518 Cash and cash equivalents as at 1 January 797 Cash and cash equivalents as at 31 December – – 102 7,977 – 6,727 7,427 – 5,498 230 – 858 952 – 14 13 594 7,776 8,370 – – 122 8,982 – 7,242 6,626 – 4,996 – 721 1,812 2,703 – 89 47 43 43 43 93 Group Financial StatementS Note Group Automotive Financial Services (unaudited supplementary information) (unaudited supplementary information) 2013 20121, 2 2013 20121, 2 2013 2012 2 5,340 5,111 4,408 4,717 1,112 1,016 Net profit 2,516 153 3,745 373 109 – – 239 – 55 – 22 – 398 1,015 – 226 53 1,188 141 – 2,487 191 9,450 3,026 104 3,679 267 23 – – 391 265 – 14 – 271 1,622 – 54 722 954 – 1,918 – 2,191 249 9,167 – 137 – 3 3 20 153 – 2,895 – 4,501 678 54 – – 24 4 – 25 45 269 – 132 – 3 Reconciliation between net profit and cash inflow / outflow from operating activities – 104 –3 38 – 2 Current tax Other interest and similar income / expenses Depreciation and amortisation of other tangible, intangible and investment assets Change in provisions – 2,256 Change in leased products – 3,988 Change in receivables from sales financing 497 – 13 Change in deferred taxes Other non-cash income and expense items – 2 Gain / loss on disposal of tangible and intangible assets and marketable securities – 18 – 19 – 1 743 – 139 –3 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 – 5,358 – 4,192 Cash inflow / outflow from operating activities Investment in intangible assets and property, plant and equipment – 6,669 – 5,236 – 6,575 – 5,074 15 – 528 137 35 – 384 65 – 3,445 – 1,167 2,908 – 7,488 995 – 5,530 – 17 – 19 – 1,653 – 1,516 – 1,653 – 1,516 – 582 – 149 – – 85 – 26 125 – 489 – 2,672 – 53 47 – 833 – 157 – – 600 – 127 35 – 4 – 1,983 – 11 12 – 716 1,655 7,484 6,768 5,829 7,484 – 9 7 – 163 – 179 342 324 – – – 3,844 – 3 1,099 – 1,383 6,015 – 4,940 517 – 5,152 – 36 – 82 797 879 – 37 Investment in intangible assets and property, plant and equipment 7 – – Proceeds from the disposal of intangible assets and property, plant and equipment Expenditure for investments Proceeds from the disposal of investments – 97 Cash payments for the purchase of marketable securities 95 Cash proceeds from the sale of marketable securities – 32 Cash inflow / outflow from investing activities – – – 1,505 –3 1,189 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 – 842 Repayment of bonds 6,523 Proceeds from new non-current other financial liabilities – 5,101 Repayment of non-current other financial liabilities 231 Change in current other financial liabilities – Change in commercial paper 3,505 Cash inflow / outflow from financing activities – 3 Effect of exchange rate on cash and cash equivalents 1 Effect of changes in composition of Group on cash and cash equivalents – 721 Change in cash and cash equivalents 1,518 Cash and cash equivalents as at 1 January 797 Cash and cash equivalents as at 31 December in € million Net profit Current tax Reconciliation between net profit and cash inflow / outflow from operating activities Other interest and similar income / expenses Depreciation and amortisation of other tangible, intangible and investment assets Gain / loss on disposal of tangible and intangible assets and marketable securities Change in provisions Change in leased products Change in receivables from sales financing Change in deferred taxes Other non-cash income and expense items 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 Expenditure for investments 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 Proceeds from new non-current other financial liabilities Repayment of non-current other financial liabilities Change in current other financial liabilities Change in commercial paper Cash inflow / outflow from financing activities Effect of exchange rate on cash and cash equivalents Proceeds from the disposal of intangible assets and property, plant and equipment 2,435 126 3,830 479 – 2,048 – 4,501 138 – 551 – 22 – 398 983 – 192 22 1,153 453 – 2,787 137 3,614 22 – 90 137 – 3,631 3,250 – 6,981 – 17 – – 122 8,982 – 7,242 6,626 – 4,996 – 721 1,812 2,703 – 89 47 8,370 7,664 2,908 – 4 3,716 443 – 1,421 – 3,988 – 216 407 – 16 – 271 1,755 – 108 744 1,119 – 1,065 – 2,462 179 5,076 42 – 171 107 – 1,265 1,090 – 5,433 – 19 – – 102 7,977 – 6,727 7,427 – 5,498 230 – 858 952 – 14 13 594 7,776 8,370 43 43 43 Effect of changes in composition of Group on cash and cash equivalents Change in cash and cash equivalents 43 – 706 Cash and cash equivalents as at 1 January Cash and cash equivalents as at 31 December 1 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2 Prior year figures have been adjusted in accordance with the change in presentation described in note 43. 3 Interest relating to financial services business is classified as revenues / cost of sales. 94 BMW Group Group Statement of Changes in Equity in € million Note Subscribed capital Capital reserves Revenue reserves1, 2 Accumulated other equity Equity attributable to shareholders of BMW AG 2 Minority interest Total 2 Translation differences Securities Derivative financial instruments 1 January 2012, as originally reported Impact of application of revised IAS 19 1 January 2012 (adjusted) 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 (adjusted) 34 34 34 655 – 655 – – – – 1 – – 656 1,955 – 1,955 – – – – – 18 – 26,102 241 26,343 – 1,508 5,085 – 1,376 3,709 – – – – 750 27,038 27,103 1 January 2012, as originally reported – – 750 241 27,279 241 Impact of application of revised IAS 19 27,344 1 January 2012 (adjusted) – – 1,508 – 1,508 Dividends paid 5,111 Net profit – 383 Other comprehensive income for the period after tax 4,728 Comprehensive income 31 December 2012 1 Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock 18 23 Other changes 1,973 28,544 – 984 202 30,499 30,606 31 December 2012 (adjusted) in € million Note Subscribed capital Capital reserves Revenue reserves1, 2 Accumulated other equity Minority interest Total 1 January 2013, as originally reported Impact of application of revised IAS 19 1 January 2013 (adjusted) Dividends paid Net profit Other comprehensive income for the period after tax Comprehensive income 31 December 2013 Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2013 34 34 34 656 – 656 – – – – – – – 656 1,973 – 1,973 – – – – – 17 – 28,340 204 28,544 – 1,640 5,314 936 6,250 – – 13 – – 1,640 – –1,640 Dividends paid 30,402 1 January 2013, as originally reported 204 Impact of application of revised IAS 19 30,606 1 January 2013 (adjusted) 5,340 Net profit 1,252 Other comprehensive income for the period after tax 6,592 Comprehensive income 31 December 2013 Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock – 17 68 Other changes 1,990 33,167 – 1,629 1,136 35,455 35,643 31 December 2013 1 With effect from the first quarter of the financial year 2013, other revenue reserves and the effect of pension obligations recognised directly in equity are presented on a net basis. 2 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. – 863 – – 863 – 128 – 128 – – – – 7 – 984 – – 984 – 645 – 645 – – – – – – 61 – – 61 – – 169 169 – – – 108 108 – 108 – – 27 27 – – – 135 65 – 65 – 26 – 26 – – 16 107 107 – 107 26 – 26 – – 55 188 – 952 952 – – – 202 – 202 – 934 934 – – – Equity attributable to shareholders of BMW AG 5,085 – 383 4,702 1 18 7 30,295 204 30,499 5,314 1,252 6,566 – 17 13 Translation differences Securities Derivative financial instruments 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 95 Group Financial StatementS in € million Note Subscribed capital Capital reserves Revenue reserves1, 2 Accumulated other equity Equity attributable to shareholders of BMW AG 2 Minority interest Total 2 Translation differences Securities Derivative financial instruments – 863 – – 863 – – – 128 – 128 – – 7 – 984 – 61 – – 61 – – 169 169 – – – 108 – 750 27,038 – – 750 241 27,279 – – 1,508 – 952 952 – – – 5,085 – 383 4,702 1 18 7 202 30,499 65 – 65 – 26 – 26 – – 16 107 27,103 1 January 2012, as originally reported 241 Impact of application of revised IAS 19 27,344 1 January 2012 (adjusted) – 1,508 Dividends paid 5,111 Net profit – 383 Other comprehensive income for the period after tax 4,728 Comprehensive income 31 December 2012 1 Subscribed share capital increase out of Authorised Capital 18 23 Premium arising on capital increase relating to preferred stock Other changes 30,606 31 December 2012 (adjusted) in € million Note Subscribed capital Capital reserves Revenue reserves1, 2 Accumulated other equity Equity attributable to shareholders of BMW AG Minority interest Total Translation differences Securities Derivative financial instruments – 984 – – 984 – – – 645 – 645 – – – – 1,629 108 – 108 – – 27 27 – – – 135 202 – 202 30,295 204 30,499 107 – 107 30,402 1 January 2013, as originally reported 204 Impact of application of revised IAS 19 30,606 1 January 2013 (adjusted) – – 1,640 – –1,640 Dividends paid – 934 934 – – – 5,314 1,252 6,566 – 17 13 1,136 35,455 26 – 26 – – 55 188 5,340 Net profit 1,252 Other comprehensive income for the period after tax 6,592 Comprehensive income 31 December 2013 – Subscribed share capital increase out of Authorised Capital 17 68 Premium arising on capital increase relating to preferred stock Other changes 35,643 31 December 2013 34 656 1,973 28,544 1 January 2012, as originally reported 1,955 26,102 34 34 34 34 Impact of application of revised IAS 19 1 January 2012 (adjusted) 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 (adjusted) 1 January 2013, as originally reported Impact of application of revised IAS 19 1 January 2013 (adjusted) Dividends paid Net profit Other comprehensive income for the period after tax Comprehensive income 31 December 2013 Subscribed share capital increase out of Authorised Capital Premium arising on capital increase relating to preferred stock Other changes 31 December 2013 655 – 655 – – – 1 – – – 656 – 656 – – – – – – – 1,955 – – – – – – 18 – 1,973 – 1,973 – – – – – 17 – 241 26,343 – 1,508 5,085 – 1,376 3,709 – – – 28,340 204 28,544 – 1,640 5,314 936 6,250 – – 13 1 With effect from the first quarter of the financial year 2013, other revenue reserves and the effect of pension obligations recognised directly in equity are presented on a net basis. 2 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 34 656 1,990 33,167 96 BMW Group Notes to the Group Financial Statements Accounting Principles and Policies 1 Basis of preparation The consolidated financial statements of Bayerische Motoren Werke Aktiengesellschaft (BMW Group Finan- cial Statements or Group Financial Statements) at 31 December 2013 have been drawn up in accordance with International Financial Reporting Standards (IFRSs) as endorsed by the EU. The designation “IFRSs” also in- cludes all valid International Accounting Standards (IASs). All Interpretations of the IFRS Interpretations Committee (IFRICs) mandatory for the financial year 2013 are also applied. 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 de- scription of the segments is provided in note 49. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information The Group Financial Statements comply with § 315a of the German Commercial Code (HGB). This provision, in conjunction with the Regulation (EC) No. 1606 / 2002 of the European Parliament and Council of 19 July 2002, relating to the application of International Finan- cial Reporting Standards, provides the legal basis for preparing consolidated financial statements in accord- ance 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 (Operating Segments), the Group Financial Statements also include balance sheets and income statements for the Automo- tive, Motorcycles, Financial Services and Other Entities segments. The Group Cash Flow Statement is supple- mented by statements of cash flows for the Automotive and Financial Services segments. This supplementary information is unaudited. In order to facilitate the sale of its products, the BMW Group provides various financial services – mainly loan In conjunction with the refinancing of financial ser- vices business, a significant volume of receivables arising from retail customer and dealer financing is sold. Similarly, rights and obligations relating to leases are sold. The sale of receivables is a well-established instrument used by industrial companies. These trans- actions usually take the form of asset-backed financing transactions involving the sale of a portfolio of receiv- ables to a trust which, in turn, issues marketable se- curities to refinance the purchase price. The BMW Group continues to “service” the receivables and receives an appropriate fee for these services. In accordance with IAS 27 (Consolidated and Separate Financial 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. The balance sheet volume of the assets sold at 31 December 2013 totalled € 10.1 bil- lion (2012: € 9.4 billion). 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 other- wise. 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. 97 Group Financial StatementS All consolidated subsidiaries have the same year-end as BMW AG with the exception of BMW India Private Ltd., Gurgaon, and BMW India Financial Services Private Ltd., Gurgaon, both of whose year-ends are 31 March. The Group Financial Statements, drawn up in accord- ance with § 315a HGB, and the Combined Management Report for the financial year ended 31 December 2013 will be submitted to the operator of the electronic version of the German Federal Gazette and can be ob- tained via the Company Register website. Printed copies will also be made available on request. In addition the Group Financial Statements and the Combined Manage- ment Report can be downloaded from the BMW Group website at www.bmwgroup.com / ir. The Board of Management authorised the Group Finan- cial Statements for issue on 20 February 2014. 2 Consolidated companies The BMW Group Financial Statements include, besides BMW AG, all material subsidiaries, five special purpose securities funds and 32 special purpose trusts (almost all used for asset-backed financing transactions). The number of subsidiaries – including special purpose securities funds and special purpose trusts – consoli- dated in the Group Financial Statements changed in 2013 as follows: Included at 31 December 2012 Included for the first time in 2013 No longer included in 2013 Included at 31 December 2013 Germany Foreign Total 24 1 1 24 164 12 9 167 188 13 10 191 48 subsidiaries (2012: 51), 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 1.0 % (2012: 0.9 %). 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. 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. Six (2012: four) participa- tions 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 No subsidiaries were consolidated for the first time in the financial year 2013. BMW Peugeot Citroën Electrification GmbH, Munich, which was not part of the Group re- porting entity at 31 December 2012, was merged with BMW AG, Munich, with retrospective effect from 1 Janu- ary 2013. In addition, Laja Mobilien Verwaltungs GmbH, Grünwald, which was not part of the Group reporting entity at 31 December 2012, was merged with BMW Finanz Verwaltungs GmbH, Munich, in the fourth quar- ter of 2013. Husqvarna Motorcycles S.r.l., Cassinetta di Biandronno, and Husqvarna Motorcycles NA, LLC, Wilmington, DE, were sold and therefore ceased to be consolidated com- panies. Alphabet International B.V., Amsterdam, was merged with Alphabet Nederland B.V., Breda, with retro- spective effect from 1 January 2013 and hence ceased to be a consolidated company. GVK Gesellschaft für Ver- mietung und Verwaltung von Kraftfahrzeugen mbH, 98 Munich, was merged with BMW Finanz Verwaltungs GmbH, Munich, in the fourth quarter and therefore ceased to be a consolidated company. purpose securities fund and the deconsolidation of six special purpose trusts. The Group reporting entity also changed by comparison to the previous year as a result of the first-time consoli- dation of twelve special purpose trusts and one special The changes to the composition of the Group do not have a material impact on the results of operations, financial position or net assets of the Group. 3 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement 4 of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information Consolidation principles The equity of subsidiaries is consolidated in accordance with IFRS 3 (Business Combinations). IFRS 3 requires that all business combinations are accounted for using the acquisition method, whereby identifiable assets and liabilities acquired are measured at their fair value at acquisition date. An excess of acquisition cost over the Group’s share of the net fair value of identifiable assets, liabilities and contingent liabilities is recognised as good- will 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 (intra-group profits) are eliminated on consolidation. 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 rele- vant 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 in- US Dollar British Pound Chinese Renminbi Japanese Yen Russian Rouble 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 ac- counted for in accordance with the acquisition method. Investments in other companies are accounted for as a general rule using the equity method when significant influence can be exercised (IAS 28 Investments in Asso- ciates). As a general rule, there is a rebuttable assump- tion that the Group has significant influence if it holds between 20 % and 50 % of the associated company’s and  / or joint venture’s voting power. come statement are also offset directly against accumu- lated 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- ment are recognised in the income statement in ac- cordance 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: Closing rate Average rate 31.12. 2013 31.12. 2012 2013 2012 1.38 0.83 8.34 144.55 45.29 1.32 0.81 8.23 114.10 40.41 1.33 0.85 8.16 129.70 42.34 1.29 0.81 8.11 102.63 39.91 99 Group Financial StatementS 5 Accounting policies The financial statements of BMW AG and of its subsidi- aries in Germany and elsewhere have been prepared for consolidation purposes using uniform accounting policies in accordance with IAS 27 (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 probable 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 finan- cial services. Revenues from leasing instalments relate to operating leases and are recognised in the income 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 determinable amount for subsequent services (multiple-component 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 pat- tern 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 addition 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 (including de- preciation of property, plant and equipment and amor- tisation of other intangible assets relating to produc- tion) and write-downs on inventories. Cost of sales also includes freight and insurance costs relating to deliveries to dealers and agency fees on direct sales. Expenses which are directly attributable to financial services busi- ness (including depreciation on leased products) and in- terest expense from refinancing the entire financial ser- vices business, including the expense of risk provisions and write-downs, are reported in cost of sales. In accordance with IAS 20 (Accounting for Government Grants and Disclosure of Government Assistance), pub- lic sector grants are not recognised until there is reason- able 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 neces- sary 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). Basic earnings per share are calculated for common and preferred stock by di- viding the net profit after minority interests, as attribut- able to each category of stock, by the average number of outstanding shares. The net profit is accordingly allo- cated to the different categories of stock. The portion of the Group net profit for the year which is not being dis- tributed is allocated to each category of stock based on the number of outstanding shares. Profits available for distribution are determined directly on the basis of the dividend resolutions passed for common and preferred stock. Diluted earnings per share would have to be dis- closed separately. Share-based remuneration programmes which are ex- pected 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 settle- ment date (and on the settlement date itself). The ex- pense for such programmes is recognised in the income statement (as personnel expense) over the vesting pe- riod 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, 100 this programme is accounted for as a cash-settled share- based transaction. Further information on share-based remuneration programmes is provided in note 19. Purchased and internally-generated intangible assets are recognised as assets in accordance with IAS 38 (Intangible Assets), where it is probable that the use of the asset will generate future economic benefits and where the costs of the asset can be determined 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 six years. 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 contingent liabilities assumed. All items of property, plant and equipment are considered to have finite useful lives. They are recognised at acqui- sition or manufacturing cost less scheduled depreciation based on the estimated useful lives of the assets. De- preciation on property, plant and equipment reflects the pattern of their usage and is generally computed using the straight-line method. Components of items of property, plant and equipment with different useful lives are de- preciated separately. Systematic depreciation is based on the following useful lives, applied throughout the BMW Group: in years Factory and office buildings, residential buildings, fixed installations in buildings and outside facilities Plant and machinery Other equipment, factory and office equipment 8 to 50 3 to 21 2 to 25 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 inception of the lease or at the present value of the lease payments, if lower. The assets are depreciated using the straight- line method over their estimated useful lives or over the lease period, if shorter. The obligations for future lease instalments are recognised as financial liabilities. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 101 Group Financial StatementS 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 expectations are recognised – in situations where the recoverable amount of the lease exceeds the carrying amount of the asset – by adjusting scheduled depreciation pro- spectively over the remaining term of the lease contract. If the recoverable amount is lower than the expected residual value, an impairment loss is recog- nised for the shortfall. A test is carried out at each balance sheet date to determine whether an impair- ment 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 rever- sal may not, however, exceed the rolled-forward amor- tised 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, intan- gible assets with an indefinite useful life and goodwill acquired as part of a business combination – an impair- ment 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 carrying 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 is the price that would be received to sell an asset in an orderly trans- action between market participants at the measurement date. 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 lat- ter 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 derived from long-term forecasts approved by manage- ment. The long-term forecasts themselves are based on detailed forecasts drawn up at an operational level and, based on a planning period of six years, correspond roughly to a typical product’s life-cycle. For the purposes of calculating cash flows beyond the planning period, the asset’s assumed residual value does not take growth into account. Forecasting assumptions are continually brought up to date and regularly compared with exter- nal sources of information. The assumptions used take account in particular of expectations of the profitability of the product portfolio, future market share develop- ments, macro-economic developments (such as currency, interest rate and raw materials) as well as the legal en- vironment and past experience. Cash flows of the Auto- motive and Motorcycles CGUs are discounted using a risk-adjusted pre-tax weighted average cost of capital (WACC) of 12.0 % (2012: 12.0 %). In the case of the Finan- cial Services CGU, a sector-compatible pre-tax cost of equity capital of 13.4 % (2012: 13.4 %) is applied. In con- junction with the impairment tests for CGUs, sensitivity analyses are performed for the main assumptions. Analyses performed in the year under report confirmed, as in the previous year, that no impairment loss was re- quired to be recognised. 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 ap- ply 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. 102 Investments in non-consolidated Group companies and interests in associated companies not accounted for using the equity method are reported as Other invest- ments and measured at cost or, if lower, at their fair value. term are measured at amortised cost using the effective interest method. All financial assets for which published price quotations in an active market are not available and whose fair value cannot be determined reliably are required to be measured at cost. Participations are measured at their fair value. If this value is not available or cannot be determined reliably, participations are measured at cost. Non-current marketable securities are measured ac- cording to the category of financial asset to which they are classified. No held-for-trading financial assets are included 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 finan- cial instrument is recognised either as a financial asset or as a financial liability. Financial assets are accounted for on the basis of the settlement date. On initial recognition, they are meas- ured 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 available at the balance sheet date. Available-for-sale assets include non-current investments, securities and investment fund shares. This category includes all non-derivative financial assets which are not classified as “loans and receivables” or “held-to-maturity investments” or as items measured “at fair value through profit and loss”. Loans and receivables which are not held for trading and held-to-maturity financial investments with a fixed In accordance with IAS 39 (Financial Instruments: Recognition and Measurement), assessments are made regularly as to whether there is any objective evidence that a financial asset or group of assets may be impaired. Impairment losses identified after carrying out an im- pairment test are recognised as an expense. Gains and losses on available-for-sale financial assets are recog- nised directly in equity until the financial asset is dis- posed of or is determined to be impaired, at which time the cumulative loss previously recognised in equity is reclassified to profit or loss for the period. With the exception of derivative financial instruments, all receivables and other current assets relate to loans and receivables which are not held for trading. 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 method- ology that is applied throughout the Group and meets the requirements of IAS 39. This methodology results in the recognition of impairment losses both on indi- vidual assets and on groups of assets. If there is objec- tive evidence of impairment, the BMW Group recog- nises 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- 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 103 Group Financial StatementS 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 ser- vices business. Impairment losses (write-downs and allowances) on receivables are always recorded on sepa- rate accounts and derecognised at the same time the corresponding receivables are derecognised. Items are presented as financial assets to the extent that they relate to financing transactions. Derivative financial instruments are only used within the BMW Group for hedging purposes in order to 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, for- ward currency and forward commodity contracts) are measured in accordance with IAS 39 at their fair value, irrespective of their purpose or the intention for which they are held. If there are no quoted prices on active markets for derivative financial instruments, credit risk is taken into account as an adjustment to the fair value of the financial instrument. The BMW Group applies the option of measuring the credit risk for a group of finan- cial assets and financial liabilities on the basis of its net exposure. Portfolio-based value adjustments to the individual financial assets and financial liabilities are allocated using the relative fair value approach (net method). Derivative financial instruments are measured using market information and recognised valuation tech- niques. In those cases where hedge accounting is ap- plied, changes in fair value are recognised either in in- come or directly in equity under accumulated other equity, depending on whether the transactions are clas- sified 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 in- come statement. In the case of fair value changes in cash flow hedges which are used to mitigate the future cash flow risk on a recognised asset or liability or on forecast transactions, unrealised gains and losses on the hedging instrument are recognised initially directly in accumulated other equity. Any such gains or losses are recognised subsequently in the income statement when the hedged item (usually external revenue) is recog- nised in the income statement. The portion of the gains or losses from fair value measurement not relating to the hedged item is recognised immediately in the in- come statement. If, contrary to the normal case within the BMW Group, hedge accounting cannot be applied, the gains or losses from the fair value measurement of derivative financial instruments are recognised imme- diately 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 available 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. Inventories of raw materials, supplies and goods for re- sale are stated at the lower of average acquisition cost and net realisable value. Work in progress and finished goods are stated at the lower of average manufacturing cost and net realisable value. Manufacturing cost comprises all costs which are directly attributable to the manufacturing process and an appropriate proportion of production-related overheads. This includes production-related depreciation 104 and an appropriate proportion of administrative and social costs. on an independent actuarial valuation which takes into account all relevant biometric factors. Borrowing costs are not included in the acquisition or manufacturing cost of inventories. Remeasurements of the net defined benefit liability for pension plans are recognised, net of deferred tax, directly in equity (revenue reserves). 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 accordance with IFRS 5, if the carrying amount of the relevant as- sets will be recovered principally through a sale trans- action rather than through continuing use. This situa- tion only arises if the assets can be sold immediately in their present condition, the sale is expected to be com- pleted within one year from the date of classification and the sale is highly probable. At the date of classifica- tion, property, plant and equipment, intangible assets and disposal groups which are being held for sale are measured at the lower of their carrying amount and their fair value less costs to sell and scheduled deprecia- tion / 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. Simul- taneously, liabilities directly related to the sale are pre- sented separately on the equity and liabilities side of the balance sheet as “Liabilities in conjunction 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 Net interest expense on the net defined benefit liability and / or net interest income on the net defined benefit asset are presented separately within the financial result. All other costs relating to allocations to pension pro- visions are allocated to costs by function in the income statement. Other provisions are recognised when the BMW Group has a present obligation (legal or constructive) 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 of provisions is based on the best estimate of the expenditure required to settle the present obligation at the end of the reporting period. Non-current provisions with a remaining period of more than one year are discounted to the present value of the expenditures expected to settle the 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 recogni- tion, liabilities are – with the exception of derivative financial instruments – measured at amortised cost using the effective interest method. The BMW Group has no liabilities which are held for trading. Liabilities from finance leases are stated at the present value of the fu- ture lease payments and disclosed under other finan- cial liabilities. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 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 estima- tions that can affect the reported amounts of assets and liabilities, revenues and expenses and contingent liabili- ties. Judgements have to be made in particular when as- sessing whether the risks and rewards incidental 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 continuously 105 Group Financial StatementS checked for their validity. Actual amounts could differ from the assumptions and estimations used if busi- ness conditions develop differently to the Group’s ex- pectations. 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 outflows, involving in particular an assessment of the forecasting period to be used and of developments after that period. For the purposes of determining future cash inflows and outflows, management applies fore- casting assumptions which are continually brought up to date and regularly compared with external sources of information. The assumptions used take account in par- ticular of expectations of the profitability of the product portfolio, future market share developments, macro- economic developments (such as currency, interest rate and raw materials) as well as the legal environment and past experience. 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 incorporates internally available historical data, current market data and forecasts of external institutions into its calculations. Internal back-testing is applied to validate the estima- tions made. Further information is provided in note 24. The valuation technique used to measure leased products was further refined in the year under report at segment level. Data, which can now be collated automatically at a local level for each individual contract, is aggregated at the level of individual entities. The impact of the change, which was recognised in the income statement for the year ended 31 December 2013, was not material. Similarly, the shift in earnings between the Eliminations column and the Financial Services segment in 2013 was also not material. Further information is provided in note 24. The bad debt risk relating to receivables from sales finan cing 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 26. 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 33. Estimations are required for the purposes of recognis- ing and measuring provisions for warranty obligations (statutory, contractual and voluntary). In addition to statutorily prescribed manufacturer warranties, the BMW Group also offers various categories of warranty depending on the product and sales market concerned. Warranty provisions are recognised when the risks and rewards of ownership of the goods are transferred to the dealer or retail customer or when a new category of warranty is introduced. In order to determine the level of the provision, various factors are taken into con- sideration, including estimations based on past experi- ence with the nature and amount of claims. These estimations also involve assessing the future level of po- tential repair costs and price increases per product and market. Provisions for warranties are adjusted regularly to take account of new circumstances and the impact of any changes recognised in the income statement. Fur- ther information is provided in note 36. In the event of involvement in legal proceedings or when claims are brought against a Group entity, provisions 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 liti- gation and liability risks are subject to uncertainty. Fur- ther information is provided in note 36. 106 The calculation of pension provisions requires assump- tions to be made with regard to discount factors, salary trends, employee fluctuation and the life expectancy of employees. As in previous years, discount factors are determined by reference to market yields at the end of the reporting period on high quality corporate bonds. 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. Further information is provided in note 35. The calculation of deferred tax assets requires assump- tions to be made with regard to the level of future taxa- ble income and the timing of recovery of deferred tax assets. These assumptions take account of forecast op- erating results and the impact on earnings of the rever- sal of taxable temporary differences. Since future busi- ness developments cannot be predicted with certainty and to some extent cannot be influenced by the BMW Group, the measurement of deferred tax assets is sub- ject to uncertainty. Further information is provided in note 16. 7 Adjustments as a result of IAS 19 (revised 2011) In June 2011 the IASB published amendments to IAS 19 (Employee Benefits), in particular in relation to post- retirement benefits and pensions. The revised Standard was endorsed by the EU in June 2012. The revised version of IAS 19 is mandatory for annual periods beginning on or after 1 January 2013. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information As a result of the revised Standard, the BMW Group has made amendments mainly in connection with the measurement of obligations for pensions and pre-retire- ment part-time working arrangements. The change in the measurement of pension obligations relates primarily to the treatment of other expected administrative costs, which may no longer be included in the measurement of the obligation. In addition, more extensive disclosure requirements now apply. The requirement to recognise past service cost imme- diately as expense (rather than spread such costs over the term) also results in an adjustment to pension provi- sions. The adjustments to the provision for pre-retirement part- time working arrangements result from a change in the measurement of top-up amounts, which are now required, in accordance with revised IAS 19.8, to be recognised as other long-term employee benefits. Under the new rules, the expense for top-up amounts is re- quired to be recognised in instalments with effect from the contract date up to the end of working phase of such arrangements and then released over the period of the work-free phase (rather than recognising the full amount as a provision at the start of the working phase). The revised version of IAS 19 also changes the presen- tation of financial result in the income statement. As a result of the fact that net interest is now required to be computed on the basis of the net defined benefit liability for pension plans, the expense arising from unwinding the interest on pension obligations is now offset against interest income from plan assets. The statement of total comprehensive income now includes the line item “Remeasurement of the net defined bene- fit liability for pension plans”. In previous financial statements (up to the Group Financial Statements for the year ended 31 December 2012), the corresponding amounts were designated as actuarial gains and losses on defined benefit pension benefits, similar obligations and plan assets. The removal of the corridor method and other amend- ments to IAS 19 do not have any impact on the BMW Group. The new rules are required to be applied retrospectively. For this reason, the opening balance sheet at 1 January 2012, the comparative figures and the opening balance sheet at 1 January 2013 were adjusted and made com- parable. 107 Group Financial StatementS The following tables show the impact on the opening balance sheet at 1 January 2012, on the balance sheet at 31 December 2012, as well as on the income statement and statement of comprehensive income for the finan- cial year 2012: Change in Group Balance Sheet presentation 1 January 2012 in € million Total assets Total non-current assets thereof deferred taxes thereof non-current other assets1 Total current assets thereof current other assets1 Total equity thereof equity attributable to shareholders of BMW AG thereof revenue reserves2 Total non-current provisions and liabilities thereof pension provisions thereof non-current other provisions1 thereof deferred taxes3 Total current provisions and liabilities thereof current other provisions1 As originally reported 123,429 74,425 1,926 568 49,004 3,345 27,103 27,038 26,102 49,113 2,183 3,149 3,273 47,213 3,104 1 Adjustments relating to contracts for pre-retirement part-time working arrangements. 2 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € 98 million. 3 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € 43 million. 31 December 2012 in € million Total assets Total non-current assets thereof deferred taxes thereof non-current other assets1 Total current assets thereof current other assets1 Total equity thereof equity attributable to shareholders of BMW AG thereof revenue reserves2 Total non-current provisions and liabilities thereof pension provisions thereof non-current other provisions1 thereof deferred taxes3 Total current provisions and liabilities thereof current other provisions1 As originally reported 131,850 81,336 2,001 800 50,514 3,648 30,402 30,295 28,340 53,017 3,965 3,513 3,040 48,431 3,282 1 Adjustments relating to contracts for pre-retirement part-time working arrangements. 2 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € 88 million. 3 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € 39 million. Adjustment As reported – 7 – 36 – 45 9 29 29 241 241 241 – 213 – 187 – 68 42 – 35 – 35 123,422 74,389 1,881 577 49,033 3,374 27,344 27,279 26,343 48,900 1,996 3,081 3,315 47,178 3,069 Adjustment As reported – 15 – 31 – 34 3 16 16 204 204 204 – 183 – 152 – 72 41 – 36 – 36 131,835 81,305 1,967 803 50,530 3,664 30,606 30,499 28,544 52,834 3,813 3,441 3,081 48,395 3,246 108 Change in Group Income Statement presentation 1 January to 31 December 2012 in € million Selling and administrative expenses1 Profit before financial result Interest and similar income Interest and similar expenses Financial result Profit before tax Income tax 2 Net profit Profit attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic earnings per share of preferred stock in € Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € As originally reported Adjustment As reported – 7,007 8,300 753 – 913 – 481 7,819 – 2,697 5,122 5,096 7.77 7.79 7.77 7.79 – 25 – 25 – 529 538 9 – 16 5 – 11 – 11 – 0.02 – 0.02 – 0.02 – 0.02 – 7,032 8,275 224 – 375 – 472 7,803 – 2,692 5,111 5,085 7.75 7.77 7.75 7.77 1 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € – 14 million. 2 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € 4 million. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Change in presentation of the Statement of Comprehensive Income* 1 January to 31 December 2012 in € million Net profit Remeasurement of the net defined benefit liability for pension plans Policies Deferred taxes 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information Items not expected to be reclassified to the income statement in the future Other comprehensive income for the period after tax Total comprehensive income Total comprehensive income attributable to shareholders of BMW AG As originally reported Adjustment As reported 5,122 – 1,881 531 – 1,350 – 357 4,765 4,739 – 11 – 33 7 – 26 – 26 – 37 – 37 5,111 – 1,914 538 – 1,376 – 383 4,728 4,702 * Presentation adjusted in accordance with revised IAS 1. The adjustments resulting from revised IAS 19 do not have any cash flow impact. For this reason, there are no changes in the overall operating cash flow for the Group and the segments in the financial year 2012. There are, however, some shifts between individual reconciliation line items within operating activities. 109 Group Financial StatementS The following tables show the impact on the balance sheet at 31 December 2013 and on the income state- ment and statement of comprehensive income for the financial year 2013 of applying IAS 19 in its 2008 version: Impact on the Group Balance Sheet if IAS 19 (2008) were still applied 31 December 2013 in € million Total assets Total non-current assets thereof deferred taxes thereof non-current other assets1 Total current assets thereof current other assets1 Total equity thereof equity attributable to shareholders of BMW AG thereof revenue reserves2 Total non-current provisions and liabilities thereof pension provisions thereof non-current other provisions1 thereof deferred taxes3 Total current provisions and liabilities thereof current other provisions1 IAS 19 (2011) 138,368 86,194 1,620 954 52,174 4,265 35,643 35,455 33,167 52,682 2,303 3,772 3,554 50,043 3,411 Adjustment 39 50 58 – 8 – 11 – 11 – 339 – 339 – 339 334 311 79 – 56 44 44 IAS 19 (2008) 138,407 86,244 1,678 946 52,163 4,254 35,304 35,116 32,828 53,016 2,614 3,851 3,498 50,087 3,455 1 Adjustments relating to contracts for pre-retirement part-time working arrangements. 2 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € – 99 million. 3 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € – 43 million. Impact on the Group Income Statement if IAS 19 (2008) were still applied 1 January to 31 December 2013 in € million Selling and administrative expenses1 Profit before financial result Interest and similar income Interest and similar expenses Financial result Profit before tax Income tax2 Net profit Profit attributable to shareholders of BMW AG Basic earnings per share of common stock in € Basic earnings per share of preferred stock in € Diluted earnings per share of common stock in € Diluted earnings per share of preferred stock in € IAS 19 (2011) Adjustment IAS 19 (2008) – 7,255 7,986 184 – 449 – 73 7,913 – 2,573 5,340 5,314 8.10 8.12 8.10 8.12 – 17 – 17 438 – 435 3 – 14 3 – 11 – 11 – 0.02 – 0.02 – 0.02 – 0.02 – 7,272 7,969 622 – 884 – 70 7,899 – 2,570 5,329 5,303 8.08 8.10 8.08 8.10 1 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € – 15 million. 2 Thereof adjustments relating to contracts for pre-retirement part-time working arrangements € 4 million. 110 Impact on the Group Statement of Comprehensive Income if IAS 19 (2008) were still applied* 1 January to 31 December 2013 in € million Net profit Remeasurement of the net defined benefit liability for pension plans Deferred taxes Items not expected to be reclassified to the income statement in the future Other comprehensive income for the period after tax Total comprehensive income Total comprehensive income attributable to shareholders of BMW AG * Presentation adjusted in accordance with revised IAS 1. IAS 19 (2011) Adjustment IAS 19 (2008) 5,340 1,308 – 372 936 1,252 6,592 6,566 – 11 – 160 36 – 124 – 124 – 135 – 135 5,329 1,148 – 336 812 1,128 6,457 6,431 The amounts shown as adjustments for the current pe- riod also include the impact of the first-time application of IFRS 13. Based on the measurement rules contained in IFRS 13, plan assets are € 136 million higher than they would have been in accordance with IAS 19 (2008). The adjustment relates to pension provisions (negative ad- justment of € 136 million), remeasurements of the net defined benefit liability for pension plans (positive adjustment of € 136 million) and related deferred taxes (negative adjustment of € 27 million). 8 New financial reporting rules (a) Financial reporting rules applied for the first time in the financial year 2013 The following Standards, Revised Standards, Amendments and Interpretations were applied for the first time in the financial year 2013: 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 20. 12. 2010 1. 7. 2011 1. 1. 2013 None Transition Dates and Severe Inflation IFRS 1 Amendments relating to Government 13. 3. 2012 1. 1. 2013 1. 1. 2013 Insignificant Loans at a Below Market Rate of Interest IFRS 7 Notes Disclosures: Offsetting 16. 12. 2011 1. 1. 2013 1. 1. 2013 Insignificant of Financial Assets and Financial Liabilities IFRS 13 Fair Value Measurement 12. 5. 2011 1. 1. 2013 1. 1. 2013 Significant in principle IAS 1 Changes to Presentation of Items in 16. 6. 2011 1. 7. 2012 1. 7. 2012* Significant in principle Other Comprehensive Income (OCI) IAS 12 Amendments to Deferred Taxes: 20. 12. 2010 1. 1. 2012 1. 1. 2013 Insignificant Realisation of Underlying Assets IAS 19 Changes in Accounting for 16. 6. 2011 1. 1. 2013 1. 1. 2013 Significant in principle Employee Benefits, in particular for Termination Benefits and Pensions IAS 36 Impairment of Assets – Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) 29. 5. 2013 1. 1. 2014 1. 1. 2014 Insignificant IFRIC 20 Stripping Costs in the Production Phase of 19. 10. 2011 1. 1. 2013 1. 1. 2013 None a Mine Annual Improvements to IFRS 2009 – 2011 17. 5. 2012 1. 1. 2013 1. 1. 2013 Insignificant * Mandatory application in annual periods beginning on or after 1 July 2012. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 111 Group Financial StatementS IFRS 13 (Fair Value Measurement) provides a uniform definition of fair value which applies across all Stand- ards. The uniform requirements set out in IFRS 13 must now be applied to all fair value measurements re- quired in other Standards. The only Standards to which IFRS 13 does not apply are IFRS 2 (Share-based Payment) and IAS 17 (Leases). The Standard also re- places and supplements disclosures about fair value measurement. Fair value is defined in IFRS 13 as an exit price, in other words as the price that would be received to sell an as- set or paid to transfer a liability. Fair value measurement must take account of the characteristics of the asset or liability and be based on a market perspective. Similar to the approach already taken to the fair value measure- ment of financial instruments, a fair value hierarchy has been introduced that categorises into three levels the inputs to valuation techniques used to measure fair value. Categorisation is determined on the basis of how near the inputs are to the market. The Standard also sets out the rules for selecting appropriate valuation techniques to measure fair value. 7 above, the introduction of IFRS 13 did not have any further material impact on the measurements of assets and liabilities within the BMW Group. The Amendment to IAS 1 changes the presentation of other comprehensive income in the statement of total comprehensive income. Items reported in other com- prehensive income which will subsequently be reclassi- fied to the income statement (“recycling”) are now re- ported separately from those that will never be recycled. If items are presented gross (i. e. without offset of the deferred tax impact), deferred taxes are also allocated to the two groups of items (and not shown as a single amount). The BMW Group has complied with the new disclo- sure requirements and amended comparative figures accordingly. The Amendment to IAS 36 has been applied early, with- out having any impact on the results of operations, finan- cial position and net assets of the BMW Group. In accordance with the transition requirements of IFRS 13, the BMW Group has applied the new rules for fair value measurement prospectively in the financial year 2013 and has not disclosed comparative figures for the previous year. Apart from the adjustments made in conjunction with amended IAS 19, as described in note (b) Financial reporting pronouncements issued by the IASB, but not yet applied The following Standards, Revised Standards, Amend- ments and Interpretations issued by the IASB during previous accounting periods, were not mandatory for the period under report and were not applied in the financial year 2013: Standard / Interpretation IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities Date of issue by IASB 12. 11. 2009 / 28. 10. 2010 / 16. 12. 2011 / 19. 11. 2013 12. 5. 2011 12. 5. 2011 12. 5. 2011 Date of mandatory application IASB Date of mandatory application EU Expected impact on BMW Group Open No Significant in principle 1. 1. 2013 1. 1. 2013 1. 1. 2013 1. 1. 2014 Significant in principle 1. 1. 2014 Significant in principle 1. 1. 2014 Significant in principle Changes in Transitional Regulations 28. 6. 2012 1. 1. 2013 1. 1. 2014 Significant in principle (IFRS 10, IFRS 11 and IFRS 12) Investment Entities (Amendments to 31. 10. 2012 1. 1. 2014 1. 1. 2014 Insignificant IFRS 10, IFRS 12 and IAS 27) IFRS 14 Regulatory Deferral Accounts 30. 1. 2014 1. 1. 2016 No Insignificant 112 Standard / Interpretation Date of issue by IASB Date of mandatory application IASB Date of mandatory application EU Expected impact on BMW Group IAS 19 Defined Benefit Plans: 21. 11. 2013 1. 7. 2014 No Insignificant Employee Contributions (Amendments to IAS 19) IAS 27 IAS 28 Separate Financial Statements Investments in Associates and Joint Ventures 12. 5. 2011 12. 5. 2011 1. 1. 2013 1. 1. 2013 1. 1. 2014 1. 1. 2014 None None IAS 32 Presentation – Offsetting of Financial Assets 16. 12. 2011 1. 1. 2014 1. 1. 2014 Insignificant and Financial Liabilities IAS 39 Novation of Derivatives and Continuation 27. 6. 2013 1. 1. 2014 1. 1. 2014 Insignificant of Hedge Accounting (Amendments to IAS 39) IFRIC 21 Levies 20. 5. 2013 Annual Improvements to IFRS 2010 – 2012 12. 12. 2013 Annual Improvements to IFRS 2011 – 2013 12. 12. 2013 1. 1. 2014 1. 7. 2014 1. 7. 2014 No No No Insignificant Insignificant Insignificant In November 2009 the IASB issued IFRS 9 (Financial Instruments: Classification and Measurement) as part of its project to change the accounting treatment for financial instruments. This Standard marks the first of three phases of the IASB project to replace the exist- ing IAS 39 (Financial Instruments: Recognition and Measurement). The first phase deals initially only with financial assets. IFRS 9 amends the recognition and measurement requirements for financial assets, includ- ing various hybrid contracts. It applies a uniform approach, under which financial assets must be measured either at amortised cost or fair value, thus replacing the various rules contained in IAS 39 as well as reducing the number of valuation cate- gories for financial instruments on the assets side of the balance sheet. The new categorisation is based partly on the entity’s business model and partly on the contractual cash flow characteristics of the financial assets. In October 2010, additional rules for financial liabilities were added to IFRS 9. The requirements for financial liabilities contained in IAS 39 remain unchanged with the exception of new requirements relating to the measurement of an entity’s own credit risk at fair value. A package of amendments to IFRS 9 was announced on 19 November 2013. On the one hand, the amendments overhaul the requirements for hedge accounting by in- troducing a new hedge accounting model. They also enable entities to change the accounting for liabilities they have elected to measure at fair value, before apply- ing any other requirements in IFRS 9, such that fair value changes due to changes in “own credit risk” would not require to be recognised in profit or loss. The man- datory effective date of 1 January 2015 was removed and a new application date left undecided. The BMW Group will not apply IFRS 9 early. The impact of adop- tion 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 and Joint Ventures) 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 applied retrospectively. EU endorsement stipulates a later mandatory date (from 1 January 2014) due to in- creased implementation expense. IFRS 10 replaces the consolidation guidelines contained in IAS 27 and SIC-12 (Consolidation – Special Purpose 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 113 Group Financial StatementS Entities). The requirements for separate financial statements 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 re- lationships arising from other contractual arrangements. Under the control concept established in IFRS 10, an in- vestor 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 returns 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 par- ties 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 arrange- ment whereby the parties that have joint control of the arrangement have rights to the net assets of the arrange- ment. IFRS 11 requires joint operators to account 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 investment using the equity method. The withdrawal of IAS 31 means the re- moval of the option to account for joint ventures using either the proportionate consolidation or the equity method. The equity method must be applied in accord- ance with amended IAS 28. IFRS 12 sets out the requirements for disclosures relat- ing to all types of 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 making it easier for entities to apply the Standards retrospec- tively. The amendments also restrict the requirement to disclose comparative amounts to the immediately preceding reporting period at the date of first-time application. IFRS 10 is not expected to have any significant impact on the BMW Group reporting entity. The removal of the option for accounting for joint ventures (as stipulated by IFRS 11) will not have any impact since the BMW Group accounts for joint ventures using the equity method. There will, however, be a change in the classification of joint arrangements in accordance with IFRS 11. With effect from the first quarter of the financial year 2014, the investments in SGL Automotive Carbon Fibers GmbH & Co. KG, Munich, SGL Automotive Carbon Fibers Ver- waltungs GmbH, Munich, and SGL Automotive Carbon Fibers LLC, Dover, DE – previously accounted for as equity accounted investments – will be classified as joint operations, with the result that the BMW Group will then only account for its own share of assets, liabilities, revenues and expenses of the joint operations. If IFRS 11 were to have been applied in the financial year 2013, changes in presentation of the individual balance sheet line items affected would have resulted in the balance sheet total increasing in a low double-digit range (mil- lion). In the Group Income Statement, there would only have been a shift between the individual line items. Application of IFRS 12 will have an impact on the notes to the BMW Group Financial Statements, in particular as a result of the requirement to disclose more detailed financial information with respect to significant joint ventures. The BMW Group will not adopt the Amend- ments early. 114 BMW Group Notes to the Group Financial Statements Notes to the Income Statement 9 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 2013 2012 56,811 58,039 7,296 6,412 2,868 2,671 6,900 6,399 2,954 2,556 76,058 76,848 An analysis of revenues by business segment and geographical region is shown in the segment information in note 49. 10 Cost of sales Cost of sales comprises: in € million 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information Manufacturing costs Research and development expenses Warranty expenditure Cost of sales directly attributable to financial services Interest expense relating to financial services business Expense for risk provisions and write-downs for financial services business Other cost of sales Cost of sales Cost of sales include € 15,962 million (2012: € 15,987 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 (2012: € 45 million). in € million Research and development expenses Amortisation New expenditure for capitalised development costs Total research and development expenditure 2013 2012 36,572 4,117 1,243 14,044 1,483 435 2,890 60,784 37,648 3,993 1,200 13,370 1,819 798 2,526 61,354 Total research and development expenditure, compris- ing research costs, development costs not recognised as assets on the one hand and capitalised development costs excluding the scheduled amortisation thereof on the other, was as follows: 2013 2012 4,117 – 1,069 1,744 4,792 3,993 – 1,130 1,089 3,952 11 Selling and administrative expenses Selling expenses amounted to € 4,885 million (2012: € 5,147 million) and comprise mainly marketing, adver- tising and sales personnel costs. Administrative expenses amounted to € 2,370 million (2012*: € 1,885 million) and comprise expenses for ad- ministration not attributable to development, produc- tion or sales functions. * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 115 Group Financial StatementS 12 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 assets Sundry operating expenses Other operating expenses 2013 2012 346 183 13 53 246 841 – 323 – 265 – 37 – 27 – 222 – 874 385 114 4 41 285 829 – 386 – 309 – 22 – 38 – 261 – 1,016 Other operating income and expenses – 33 – 187 Other operating income includes public-sector grants of € 73 million (2012: € 19 million). 13 Result from equity accounted investments The profit from equity accounted investments amounted to € 398 million (2012: € 271 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, and SGL Automotive Carbon Fibers LLC, Dover, DE. Similarly, the BMW Group’s share of earnings of the joint ventures DriveNow GmbH & Co. KG, Munich, and DriveNow Verwaltungs GmbH, Munich, is also included in the result from eq- uity accounted investments. 14 Net interest result in € million Net interest income on the net defined benefit liability for pension plans Other interest and similar income thereof from subsidiaries: € 20 million (2012: €19 million) Interest and similar income Net interest expense on the net defined benefit liability for pension plans Expense from reversing the discounting of other long-term provisions Write-downs on current marketable securities Other interest and similar expenses thereof to subsidiaries: € – 6 million (2012: € – 7 million) Interest and similar expenses Net interest result * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2013 2012* – 184 184 – 127 – 5 – 7 – 310 – 224 224 – 90 – 74 – – 211 – 449 – 375 – 265 – 151 116 15 Other financial result in € million Income from investments in subsidiaries and participations thereof from subsidiaries: € 8 million (2012: € 1 million) Impairment losses on investments in subsidiaries and participations Expenses from investments in subsidiaries Result on investments Losses and gains relating to financial instruments Sundry other financial result 2013 2012 12 – 91 – 2 – 81 – 125 – 125 5 – 175 – – 170 – 422 – 422 Other financial result – 206 – 592 The result from investments in 2013 was negatively impacted by an impairment loss on other investments amounting to € 73 million (2012: € 166 million). The improvement in other financial result was pri- marily attributable to fair value gains on interest rate and commodity derivatives. 16 Income taxes Taxes on income comprise the following: in € million Current tax expense Deferred tax expense / income Income taxes 2013 2,435 138 2,573 2012* 2,908 – 216 2,692 Current tax expense includes € 222 million (2012: € 128 mil- lion) relating to prior periods. A deferred tax expense of € 23 million (2012*: income of € 729 million) is attributable to new temporary differ- ences and the reversal of temporary differences brought forward. As in the previous year, tax expense was reduced by € 5 million as a result of utilising tax losses / tax credits brought forward, for which deferred assets had not previously 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 € 7 million (2012: expense of € 3 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 municipal trade tax multiplier rate (Hebesatz) of 420.0 %, the mu- nicipal trade tax rate for German entities is 14.7 %. The overall income tax rate in Germany is therefore 30.5 %. All of these German tax rates are unchanged from the previous year. Deferred taxes for non-German entities are calculated on the basis of the relevant coun- try-specific tax rates and remained in a range of between 12.5 % and 46.9 % once again in the financial year 2013. Changes in tax rates resulted in a deferred tax expense of € 2 million (2012: € 21 million). The actual tax expense for the financial year 2013 of € 2,573 million (2012*: € 2,692 million) is € 160 million (2012*: € 312 million) higher than the expected tax ex- pense of € 2,413 million (2012*: € 2,380 million) which would theoretically arise if the tax rate of 30.5 %, appli- cable for German companies, was applied across the Group. * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 117 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-deductible expenses and tax-exempt income Tax expense (+) / benefits (–) for prior years Other variances Actual tax expense Effective tax rate * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2013 2012* 7,913 30.5 % 2,413 – 131 164 222 – 95 2,573 32.5 % 7,803 30.5 % 2,380 – 56 302 128 – 62 2,692 34.5 % Tax increases as a result of non-deductible expenses were significantly lower than in the previous year, mainly in connection with the impact of non-recoverable with- holding taxes and intragroup transfer pricing issues. Tax reductions due to tax-exempt income amounted to € 117 million (2012: € 89 million). 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 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 tax assets and liabilities to balance sheet line items at 31 December is shown in the following table: Deferred tax assets Deferred tax liabilities 2013 9 26 436 6 1,078 725 3,220 2,928 2,570 2012 * 2013 2012 * 5 37 441 11 1,067 923 3,219 2,984 2,729 1,571 264 5,779 5 3,747 – 47 449 661 1,356 260 5,837 11 3,503 – 95 350 626 10,998 11,416 12,523 12,038 – 409 – 8,969 1,620 – 492 – 8,957 1,967 – – – 8,969 – 8,957 3,554 1,934 3,081 1,114 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Deferred tax assets on tax loss carryforwards and capi- tal losses before allowances totalled € 725 million (2012: € 923 million). After valuation allowances of € 409 mil- lion (2012: € 492 million), their carrying amount stood at € 316 million (2012: € 431 million). Tax losses available for carryforward – for the most part usable without restriction – decreased to € 0.9 billion (2012: € 1.3 billion). This includes an amount of € 42 mil- lion (2012: € 92 million), for which a valuation allowance of € 14 million (2012: € 27 million) was recognised on the 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 2013 amounting to € 192 million (2012: € 204 mil- lion). Deferred tax assets are recognised on the basis of 118 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 pe- riod, unchanged from one year earlier. As in previous years, deferred tax assets recognised on these tax losses – amounting to € 395 million at the end of the reporting period after tax rate changes in 2013 (2012: € 465 mil- lion) – were fully written down since they can only be utilised against future capital gains. Netting relates to the offset of deferred tax assets and lia- bilities 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 € 451 million (2012: € 1,222 million), a decrease of € 771 million (2012*: increase of € 27 million) compared to the previous year. The change includes a reduction in deferred taxes recognised in conjunction with cur- rency translation amounting to € 1 million (2012: reduc- tion of € 3 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 expense / income recognised through income statement Change in deferred taxes recognised directly in equity Exchange rate impact and other changes Deferred taxes at 31 December 2013 1,114 138 770 – 88 1,934 2012* 1,347 – 216 – 30 13 1,114 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. Deferred taxes recog- nised directly in equity increased in total by € 770 mil- lion (2012*: decrease of € 30 million). Of this amount, € 421 million (2012: € 498 million) related to the fair value measurement of derivative financial instruments and marketable securities (recognised directly in equity), shown in the summary above in the line items “Other assets” and “Liabilities”. A further € 349 million (2012*: decrease of € 528 million) related to the remeasurements of the net defined benefit liability for pension plans, shown in the summary above in the line item “Provisions”. * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Deferred taxes are not recognised on retained profits of € 28.0 billion (2012: € 24.8 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. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 119 Group Financial StatementS 17 Earnings per share 2013 2012* Net profit for the year after minority interest € million 5,314.4 5,084.9 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 Basic earnings per share of common stock Basic earnings per share of preferred stock Dividend per share of common stock Dividend per share of preferred stock € million € million 4,876.0 438.4 4,668.4 416.5 number 601,995,196 601,995,196 number 53,993,635 53,571,312 € € € € 8.10 8.12 2.60 2.62 7.75 7.77 2.50 2.52 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Basic earnings per share of preferred stock are com- puted on the basis of the number of preferred stock shares entitled to receive a dividend in each of the rele- vant financial years. As in the previous year, diluted earnings per share correspond to basic earnings per share. 18 Other disclosures relating to the income statement The income statement includes personnel costs as follows: in € million Wages and salaries Social security, retirement and welfare costs thereof pension costs: € 958 million (2012*: € 845 million) Personnel expenses * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 2013 7,396 1,590 2012* 7,100 1,437 8,986 8,537 Personnel costs include € 48 million (2012: € 59 million) of expenditure incurred to adjust the workforce size. The average number of employees during the year was: Employees Apprentices and students gaining work experience 2013 2012 99,961 7,162 107,123 95,748 6,484 102,232 The number of employees at the end of the reporting period is disclosed in the Combined Management Report. 120 The fee expense pursuant to § 314 (1) no. 9 HGB recog- nised in the financial year 2013 for the Group auditors amounted to € 26 million (2012: € 26 million) and con- sists of the following: in € million 2013 2012 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 3 2 7 3 2 1 26 9 14 3 4 2 6 3 2 – 26 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. 19 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 mem- bers of the Board of Management and share-based com- mitments 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 2013 at favourable conditions (see note 34 for the number and price of issued shares). The holding period for these shares is up to 31 December 2016. The BMW Group re- corded a personnel expense of € 5 million (2012: € 5 mil- lion) for the Employee Share Scheme in 2013, corre- sponding to the difference between the market price and the reduced price of the shares of preferred stock pur- chased 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 has added a share-based remuneration com- ponent to the existing compensation system for Board of Management members. Each Board of Management member is required to in- vest 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 addi- tional share of BMW AG common stock for each three held or, at its discretion, pays the equivalent amount in cash (share-based remuneration component) pro- vided 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 de- partment heads are also entitled to opt for a share-based remuneration component, which, in most respects, is comparable to the share-based remuneration arrange- ments 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 2013). The total carrying amount of the provision for the share- based remuneration component of Board of Manage- ment members and department heads at 31 December 2013 was € 1,647,188 (2012: € 657,276). 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 121 Group Financial StatementS BMW Group Notes to the Group Financial Statements Notes to the Statement of Comprehensive Income The total expense recognised in 2013 for the share-based remuneration component of Board of Management members and department heads was € 989,912 (2012: € 542,162). shares (2012: 22,915 shares) of BMW AG common stock or a corresponding cash-based settlement measured at the relevant market share price prevailing on the grant date. The fair value of the two programmes at the date of grant of the share-based remuneration components was € 1,453,500 (2012: € 1,379,723), based on a total of 19,196 Further details on the remuneration of the Board of Management are provided in the 2013 Compensation Re- port, which is part of the Combined Management Report. 20 Disclosures relating to total comprehensive income Other comprehensive income for the period after tax comprises the following: in € million 20131 20121,2 Remeasurement of the net defined benefit liability for pension plans Deferred taxes Items not expected to be reclassified to the income statement in the future Available-for-sale securities thereof gains / losses arising in the period under report thereof reclassifications to the income statement Financial instruments used for hedging purposes thereof gains / losses arising in the period under report thereof reclassifications to the income statement Other comprehensive income from equity accounted investments Deferred taxes Currency translation foreign operations Items expected to be reclassified to the income statement in the future Other comprehensive income for the period after tax 1,308 – 372 936 8 48 – 40 1,357 1,536 – 179 – 7 – 407 – 635 316 1,252 – 1,914 538 – 1,376 214 174 40 1,302 770 532 111 – 511 – 123 993 – 383 1 Presentation adjusted in accordance with revised IAS 1. 2 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Deferred taxes on components of other comprehensive income are as follows: in € million 2013 2012* Before tax Deferred taxes After tax Before tax Deferred taxes After tax Remeasurement of the net defined benefit liability for pension plans 1,308 – 372 Available-for-sale securities Financial instruments used for hedging purposes Other comprehensive income for the period from equity accounted investments Exchange differences on translating foreign operations Other comprehensive income 8 19 1,357 – 425 936 27 932 – 1,914 214 1,302 – 7 – 635 2,031 – 1 – -779 – 8 – 635 1,252 111 – 123 – 410 538 – 45 – 437 – 29 – 27 – 1,376 169 865 82 – 123 – 383 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. The result from equity accounted investments is reported in the Statement of Changes in Equity in the line item “Exchange differences on translating foreign operations” with a negative amount of € 10 million (2012: negative amount of € 5 million) and in the line item “Financial in- struments used for hedging purposes” with a positive amount of € 2 million (2012: positive amount of € 87 mil- lion). 122 BMW Group Notes to the Group Financial Statements Notes to the Balance Sheet 21 Analysis of changes in Group tangible, intangible and investment assets 2013 Acquisition and manufacturing cost in € million 1. 1. 20131 Adjust- ment 2 Translation differences Additions Reclassi- fications Disposals 31. 12. 2013 1. 1. 20131 Adjust- 2 ment 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 Leased products3 8,488 374 1,008 9,870 8,169 26,808 2,314 2,608 39,899 31,412 Investments accounted for using the equity method 514 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 205 571 – 776 – – – – – – – – – – 46 – – – – – – – – 6 – 6 – 124 – 211 – 55 – 37 – 427 1,744 – 473 2,217 485 2,202 178 1,605 4,470 – 734 13,192 – – 1 – – – 1 364 66 6 – 72 – – – – 224 975 15 – 1,214 – – – – – – – 1 Including mergers. 2 Amended for the effect of refining the accounting policy for leased products as described in note 6. 3 This line includes the amendments described in note 24. 4 Including assets under construction of € 2,569 million. Analysis of changes in Group tangible, intangible and investment assets 2012 565 – 22 587 51 961 121 3 9,667 374 1,453 11,494 8,703 28,813 2,331 2,959 1,136 42,806 26,549 – – 259 2,492 1,089 27,693 15,113 13,341 Property, plant and equipment 11,338 32,486 6,944 – 175 – 132 3,215 3,280 6,572 25,914 24,468 Leased products3 226 30 2 – 32 652 240 575 – 815 – – – 16 75 – – – 91 – – – 652 514 Investments accounted for using the equity method Land, titles to land, buildings, including buildings on 4,502 third party land 5,705 Plant and machinery 530 Other facilities, factory and office equipment 2,604 Advance payments made and construction in progress 147 Investments in non-consolidated subsidiaries 401 Participations – Non-current marketable securities 548 Other investments Depreciation and amortisation Current year Changes not effect- ing net income Dis- posals 31. 12. 2013 Carrying amount 31. 12. 2013 31. 12. 2012 4,662 – – 583 5,315 6,179 5,207 Intangible assets 565 4,645 5,022 4,347 Development costs – 18 5 665 369 788 369 Goodwill 491 Other intangible assets Trans- lation differ- ences – – – 11 – 11 – 53 – 166 – 40 – 1,069 – 178 1,247 251 2,082 159 – 1,130 – 113 251 1,886 161 – 2,298 – 9 166 – 175 – – 2 – – – 2 – – 2 – – – – – – – – – – – – – – – – – – 57 – – 57 – – – – – – – – – – – – 68 – – 68 4,141 5 516 3,667 21,098 1,784 – – 58 170 – 228 4,004 5 558 4,567 3,433 19,728 1,706 1 24,868 – 90 72 – 162 – – – – – – – – – – Trans- lation differ- ences – – – 2 – 2 – 9 – 20 – 9 – – 38 – – – – – 34 946 109 – 3,831 22,068 1,794 – – – – – – – 74 188 – 262 993 – 155 11 497 74 – – 41 – – 41 4,141 5 516 3,664 21,097 1,782 1 – 58 170 – 228 4,872 6,745 537 2,9594 166 387 – 553 4,502 5,705 530 2,6043 147 401 – 548 8,488 374 1,007 9,869 8,166 26,802 2,312 2,605 39,885 1,243 2 – 1,148 4,662 5,207 5,238 Intangible assets 4,347 4,388 Development costs 369 491 369 Goodwill 481 Other intangible assets Land, titles to land, buildings, including buildings on 4,335 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 11,883 31,412 6,960 – 10 4,239 4,245 6,944 24,468 23,112 Leased products2 125 117 – – 117 514 205 571 – 776 514 302 Investments accounted for using the equity method 132 Investments in non-consolidated subsidiaries 429 Participations – Non-current marketable securities 561 Other investments Acquisition and manufacturing cost 1. 1. 20121 Translation differences Additions Reclassi- fications Disposals 31. 12. 2012 1. 1. 20121 Depreciation and amortisation Current Reclassi- year fications Changes not effect- ing net income Dis- posals 31. 12. 2012 Carrying amount 31. 12. 2012 31. 12. 2011 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 74 407 21 – 504 – 2 – 1 – 13 13 – – 13 – – 3 994 – 156 3 1,150 24 517 86 8 635 Leased products2 30,073 – 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 This line includes the amendments described in note 24. 3 Including assets under construction of € 2,205 million. 302 221 501 – 722 – – 1 – – – 1 350 89 70 – 159 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 123 Group Financial StatementS Acquisition and manufacturing cost Depreciation and amortisation in € million 1. 1. 20131 Adjust- 2 ment Translation differences Additions Disposals Reclassi- fications 31. 12. 2013 1. 1. 20131 Adjust- ment 2 4,141 5 516 – – – 4,662 – 3,667 21,098 1,784 – – – – – Trans- lation differ- ences – – – 11 – 11 – 53 – 166 – 40 – 1,069 – 178 1,247 251 2,082 159 – – 734 13,192 11,338 32,486 6,944 – 175 – 132 3,215 1,136 42,806 26,549 – – 259 2,492 – 58 170 – 228 – – – – – – – – – 16 75 – – – 91 Development costs Goodwill Other intangible assets Intangible assets third party land Plant and machinery Land, titles to land, buildings, including buildings on Other facilities, factory and office equipment Advance payments made and construction in progress Property, plant and equipment Leased products3 Investments in non-consolidated subsidiaries Participations Non-current marketable securities Other investments 1 Including mergers. 8,488 374 1,008 9,870 8,169 26,808 2,314 2,608 39,899 31,412 205 571 – 776 Investments accounted for using the equity method 514 2 Amended for the effect of refining the accounting policy for leased products as described in note 6. 3 This line includes the amendments described in note 24. 4 Including assets under construction of € 2,569 million. in € million Development costs Goodwill Other intangible assets Intangible assets third party land Plant and machinery Land, titles to land, buildings, including buildings on Other facilities, factory and office equipment Advance payments made and construction in progress Property, plant and equipment 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 This line includes the amendments described in note 24. 3 Including assets under construction of € 2,205 million. – – – – – – – – – – 46 – – – – – 8,393 374 1,040 9,807 7,776 25,625 2,170 992 36,563 302 221 501 – 722 – – – 6 – 6 – 124 – 211 – 55 – 37 – 427 – – 1 – – – 1 – – – 3 – 3 – 26 – 24 – 11 – 8 – 69 – – 1 – – – 1 1,744 – 473 2,217 485 2,202 178 1,605 4,470 364 66 6 – 72 1,089 – 123 1,212 366 1,311 218 2,133 4,028 350 89 70 – 159 – 1,214 – – – – 224 975 15 – – – – – – – – – 3 – 504 74 407 21 – 2 – 1 – 13 13 – – 13 565 – 22 587 51 961 121 3 226 30 2 – 32 994 – 156 24 517 86 8 635 125 117 – – 117 9,667 374 1,453 11,494 8,703 28,813 2,331 2,959 652 240 575 – 815 8,488 374 1,007 9,869 8,166 26,802 2,312 2,605 39,885 514 205 571 – 776 3 1,150 Acquisition and manufacturing cost 1. 1. 20121 Translation differences Additions Disposals Reclassi- fications 31. 12. 2012 1. 1. 20121 4,004 5 558 4,567 3,433 19,728 1,706 1 24,868 Trans- lation differ- ences – – – 2 – 2 – 9 – 20 – 9 – – 38 251 1,886 161 – 2,298 Leased products2 30,073 – 74 13,297 11,883 31,412 6,960 – 10 4,239 – 90 72 – 162 – – – – – – 9 166 – 175 Current year Changes not effect- ing net income Dis- posals 31. 12. 2013 Carrying amount 31. 12. 2013 31. 12. 2012 – – – 565 4,645 5,022 4,347 Development costs – 18 5 665 369 788 369 Goodwill 491 Other intangible assets – 583 5,315 6,179 5,207 Intangible assets – – – – – – – – – 57 – – 57 34 946 109 – 3,831 22,068 1,794 – 4,872 6,745 537 2,9594 4,502 Land, titles to land, buildings, including buildings on third party land 5,705 Plant and machinery 530 Other facilities, factory and office equipment 2,604 Advance payments made and construction in progress 1,089 27,693 15,113 13,341 Property, plant and equipment 3,280 6,572 25,914 24,468 Leased products3 – – – – – – 74 188 – 262 652 514 Investments accounted for using the equity method 166 387 – 553 147 Investments in non-consolidated subsidiaries 401 Participations – Non-current marketable securities 548 Other investments Depreciation and amortisation Current year Reclassi- fications Changes not effect- ing net income Dis- posals 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 – – – 2 – – 2 – – – – – – – – – – – – – – – 68 – – 68 11 497 74 – 3,664 21,097 1,782 1 4,502 5,705 530 2,6043 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 6,944 24,468 23,112 Leased products2 – 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 124 22 Intangible assets Intangible assets mainly comprise capitalised develop- ment costs on vehicle and engine projects as well as subsidies for tool costs, licences, purchased development projects, software and purchased customer bases. Amor- tisation on intangible assets is presented in cost of sales, selling expenses and administrative expenses. Intangible assets amounting to € 43 million (2012: € 44 mil- lion) are subject to restrictions on title. As in the previous year, there was no requirement to recognise impairment losses or reversals of impairment losses on intangible assets in 2013. In addition, intangible assets include a brand-name right amounting to € 43 million (2012: € 44 million), goodwill of € 33 million (2012: € 33 million) allocated to the Auto- motive cash-generating unit (CGU) and goodwill of € 336 million (2012: € 336 million) allocated to the Finan- cial Services CGU. No borrowing costs were recognised as a cost compo- nent of intangible assets during the year under report. An analysis of changes in intangible assets is provided in note 21. 23 Property, plant and equipment No borrowing costs were recognised as a cost compo- nent of property, plant and equipment during the year under report. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information As in the previous year, there was no requirement to recognise impairment losses in 2013. 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 21. Property, plant and equipment include a total of € 42 mil- lion (2012: € 46 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 € 37 million (2012: € 39 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 € 2 million (2012: € 3 million) under a lease with a remaining term of 18 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 2013 (2012: € 2 million). The finance lease contract accounted for at the level of BMW of North America LLC has a remaining term of two years and includes a purchase and a renewal option for the underlying asset which has a carrying amount of € 1 million at the end of the reporting period (2012: € 1 million). Minimum lease payments of the relevant leases are as follows: in € million 31. 12. 2013 31. 12. 2012 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 14 13 44 71 3 7 13 23 11 6 31 48 5 23 52 80 3 8 17 28 2 15 35 52 125 Group Financial StatementS 24 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 € 12,906 million (2012: € 12,797 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. 2013 31. 12. 2012 6,314 6,587 5 12,906 6,215 6,570 12 12,797 Contingent rents of € 171 million (2012: € 166 million), based principally on the distance driven, were recog- nised in income. Some of the agreements contain price adjustment clauses as well as extension and purchase options. Based on data collated at local level for each individual contract, the historical acquisition / manufacturing costs of leased assets and historical depreciation thereon were adjusted, without any impact on carry- ing amounts. Impairment losses recognised on leased products to- talled € 139 million. An analysis of changes in leased products is provided in note 21. 25 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 Automotive Carbon Fibers GmbH & Co. KG, Munich, SGL Automotive Carbon Fibers Verwaltungs GmbH, Munich, SGL Automotive Carbon Fibers LLC, Dover, DE, DriveNow GmbH & Co. KG, Munich, and DriveNow Verwaltungs GmbH, Munich. The Group’s share of results of joint ventures and its accumulated interest in investments accounted for using the equity method are as follows: in € million 31. 12. 2013 31. 12. 2012 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 4,531 – 4,133 398 3,516 – 3,245 271 1,426 1,389 951 169 1,695 2,815 1,018 991 663 117 1,229 2,009 Capital commitments to the joint ventures SGL Auto- motive Carbon Fibers GmbH & Co. KG, Munich, and SGL Automotive Carbon Fibers LLC, Dover, DE, at the end of the reporting period totalled € 139 million (2012: € 95 million). Other investments relate to investments in non-con- solidated subsidiaries, interests in associated companies not accounted for using the equity method, participa- tions and non-current marketable securities. 126 Additions to investments in non-consolidated sub- sidiaries relate primarily to capital increases at the level of BMW Milano S.r.l., Milan, BMW Retail Nederland B.V., Haaglanden, and BMW i Ventures B.V., Rijswijk. Impairment losses on participations – recognised with income statement effect – related mainly to the invest- ment in SGL Carbon SE, Wiesbaden, which was written down on the basis of objective criteria. Additions to participations relate primarily to the pur- chase of available-for-sale marketable securities. The impairment loss of € 16 million on investments in non-consolidated subsidiaries relates mainly to invest- ments in dealerships. Disposals of investments in subsidiaries result primarily from the deconsolidation of the Husqvarna Group. A break-down of the different classes of other investments disclosed in the balance sheet and changes during the year are shown in the analysis of changes in Group tan- gible, intangible and investment assets in note 21. If the Group’s share of the at-equity result of BMW Brilliance Automotive Ltd., Shenyang, were reported as part of the Automotive segment’s EBIT, the EBIT mar- gin would increase by 0.6 percentage points to 10.0 %. 26 Receivables from sales financing Receivables from sales financing, totalling € 54,117 mil- lion (2012: € 52,914 million), comprise € 40,841 million (2012: € 40,650 million) for credit financing for retail customers and dealers and € 13,276 million (2012: € 12,264 million) for finance leases. Finance leases are analysed as follows: 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information in € million 31. 12. 2013 31. 12. 2012 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 4,816 9,748 98 14,662 4,378 8,813 85 13,276 4,580 8,938 118 13,636 4,094 8,060 110 12,264 Unrealised interest income 1,386 1,372 Contingent rents recognised as income (generally relating to the distance driven) amounted to € 3 million (2012: € 3 million). Write-downs on finance leases amounting to € 159 million (2012: € 149 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 € 120 million (2012: € 85 million). Receivables from sales financing include € 32,616 mil- lion (2012: € 32,309 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. 2013 31. 12. 2012 55,697 – 1,580 54,117 54,593 – 1,679 52,914 127 Group Financial StatementS Allowances for impairment on receivables from sales financing developed as follows during the year under report: 2013 in € million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 2012 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 1,268 194 – 302 – 61 1,099 411 104 – 15 – 19 481 Allowance for impairment recognised on a group basis specific item basis 1,355 298 – 314 – 71 1,268 262 113 – 21 57 411 Total 1,679 298 – 317 – 80 1,580 Total 1,617 411 – 335 – 14 1,679 * Including entities consolidated for the first time during the financial year. At the end of the reporting period, impairment allow- ances of € 481 million (2012: € 411 million) were recog- nised on a group basis on gross receivables from sales financing totalling € 30,155 million (2012: € 30,813 mil- lion). Impairment allowances of € 1,099 million (2012: € 1,268 million) were recognised at 31 December 2013 on a specific item basis on gross receivables from sales financing totalling € 12,211 million (2012: € 11,149 mil- lion). Receivables from sales financing which were not over- due at the end of the reporting period amounted to € 13,331 million (2012: € 12,631 million). No impairment losses were recognised for these balances. The estimated fair value of collateral received for re- ceivables on which impairment losses were recognised totalled € 23,689 million (2012: € 21,649 million) at the end of the reporting period. This collateral related pri- marily to vehicles. The carrying amount of assets held as collateral and taken back as a result of payment de- fault amounted to € 30 million (2012: € 37 million). 27 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. 2013 31. 12. 2012 4,013 3,060 32 222 825 8,152 2,593 5,559 2,992 2,655 44 234 835 6,760 2,148 4,612 The increase in derivative instruments was primarily attributable to positive market price developments of currency derivatives. The rise in marketable securities and investment funds mainly reflects an increase in the BMW Group’s strategic liquidity reserve. 128 The amount by which the value of the investment funds exceeds obligations for part-time working arrange- ments (€ 44 million; 2012: € 57 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 a Contractual Trust Arrangement (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 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 31. 12. 2013 31. 12. 2012 87 2,551 422 3,060 52 2,566 37 2,655 31. 12. 2013 31. 12. 2012 73 2,478 422 – 2,973 161 2,405 37 – 2,603 31. 12. 2013 31. 12. 2012 231 – 9 222 247 – 13 234 Allowances for impairment losses on receivables relating to credit card business developed as follows during the year under report: 2013 in € million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 2012 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 13 6 – 10 – 9 – – – – – Allowance for impairment recognised on a group basis specific item basis 18 8 – 13 – 13 – – – – – Total 13 6 – 10 – 9 Total 18 8 – 13 – 13 129 Group Financial StatementS 28 Income tax assets Income tax assets totalling € 1,151 million (2012: € 966 million) include claims amounting to € 530 mil- lion (2012: € 638 million) which are expected to be settled after more than twelve months. Some of the claims may be settled earlier than this depending on the timing of proceedings. 29 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. 2013 31. 12. 2012* 867 779 999 1,074 706 794 5,219 954 4,265 796 738 676 1,043 555 659 4,467 803 3,664 Receivables from subsidiaries include trade receivables of € 102 million (2012: € 189 million) and financial re- ceivables of € 677 million (2012: € 549 million). They in- clude € 253 million (2012: € 178 million) with a remaining term of more than one year. Receivables from other companies in which an invest- ment is held include € 911 million (2012: € 608 million) due within one year. Prepayments of € 1,074 million (2012*: € 1,043 million) re- late mainly to prepaid interest, insurance premiums and commission paid to dealers. Prepayments of € 565 million (2012*: € 588 million) have a maturity of less than one year. Collateral receivables comprise mainly customary collat- eral (banking deposits) arising on the sale of receivables. * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 30 Inventories Inventories comprise the following: in € million 31. 12. 2013 31. 12. 2012 Raw materials and supplies Work in progress, unbilled contracts Finished goods and goods for resale Inventories 843 850 7,892 9,585 786 827 8,112 9,725 At 31 December 2013, inventories measured at their net realisable value amounted to € 592 million (2012: € 639 million) and are included in total inventories of € 9,585 million (2012: € 9,725 million). Write-downs to net realisable value amounting to € 28 million (2012: € 21 million) were recognised in 2013. Reversals of write- downs in the year under report amounted to € 4 million (2012: € – million). 130 31 Trade receivables Trade receivables amounting in total to € 2,449 million (2012: € 2,543 million) include € 47 million due later than one year (2012: € 46 million). Allowance for impairment and credit risk in € million Gross carrying amount Allowance for impairment Net carrying amount 31. 12. 2013 31. 12. 2012 2,555 – 106 2,449 2,654 – 111 2,543 Allowances on trade receivables developed as following during the year under report: 2013 in € million Balance at 1 January Allocated / reversed Utilised Exchange rate impact and other changes Balance at 31 December 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. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information Allowance for impairment recognised on a group basis specific item basis 105 2 – 8 – 2 97 6 4 – – 1 9 Allowance for impairment recognised on a group basis specific item basis 95 20 – 6 – 4 105 7 1 – 2 – 6 Total 111 6 – 8 – 3 106 Total 102 21 – 8 – 4 111 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. 2013 31. 12. 2012 80 30 8 13 17 148 139 55 22 15 16 247 Receivables that are overdue by between one and 30 days do not normally result in bad debt losses since the overdue nature of the receivables is primarily at- tributable to the timing of receipts around the month- end. In the case of trade receivables, collateral is generally held in the form of vehicle documents and bank guarantees so that the risk of bad debt loss is extremely low. 32 Cash and cash equivalents Cash and cash equivalents of € 7,664 million (2012: € 8,370 million) comprise cash on hand and at bank, all with an original term of up to three months. 131 Group Financial StatementS 33 Assets held for sale and liabilities in conjunction with assets held for sale In the financial year 2012 the Board of Management of BMW AG decided to realign the strategic direction of 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-mobility, 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 relevant markets, it was considered a sensible move to sell the Husqvarna Motorcycles brand. In December 2012, BMW Group, 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. Follow- ing approval of the transaction by the Austrian Merger Control Authorities, the Husqvarna Group was sold on 6 March 2013 and is therefore no longer included in the Group reporting entity. A gain of € 4.8 million aris- ing on deconsolidation of the Husqvarna Group was recognised for the Motorcycles segment in the first quar- ter of 2013 (included in Other operating income). 34 Equity Number of shares issued Preferred stock Common stock 2013 2012 2013 2012 Shares issued / in circulation at 1 January 53,994,217 53,571,372 601,995,196 601,995,196 Shares issued in conjunction with Employee Share Scheme 266,152 422,905 Less: shares repurchased and re-issued 582 60 – – – – Shares issued / in circulation at 31 December 54,259,787 53,994,217 601,995,196 601,995,196 At 31 December 2013 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 54,259,787 shares (2012: 53,994,217 shares) with a par- value of € 1. Unlike the common stock, no voting rights are attached to the preferred stock. All of the Compa- ny’s stock is issued to bearer. Preferred stock bears an additional dividend of € 0.02 per share. In 2013, a total of 266,152 shares of preferred stock was sold to employees at a reduced price of € 43.79 per share in conjunction with the Company’s Employee Share Scheme. These shares are entitled to receive dividends with effect from the financial year 2014. 582 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 19. Issued share capital increased by € 0.3 million as a result of the issue to employees of 265,570 shares of non-voting preferred stock. The Authorised Capital of BMW AG amounted to € 2.9 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 € 16.5 million arising on the share capital increase was transferred to capital reserves. Capital reserves Capital reserves include premiums arising from the issue of shares and totalled € 1,990 million (2012: € 1,973 million). The change related to the share capital increase in conjunction with the issue of shares of pre- ferred stock to employees. Revenue reserves Revenue reserves comprise the post-acquisition and non-distributed earnings of consolidated companies. In addition, remeasurements of the net defined benefit liability for pension plans are also presented in revenue reserves along with positive and negative goodwill aris- ing on the consoli dation of Group companies prior to 31 December 1994. In previous years, revenue reserves were reported in the Consolidated Statement of Changes in Equity separately for pension obligations and for other revenue reserves. 132 Revenue reserves increased during the financial year 2013 to € 33,167 million. The opening balance of reve- nue reserves increased as of 1 January 2013 by € 204 mil- lion as a result of the adoption of revised IAS 19*. They were increased by the amount of the net profit at- tributable to shareholders of BMW AG amounting to € 5,314 million (2012*: € 5,085 million) and reduced by the payment of the dividend for 2012 amounting to € 1,640 million (2011: € 1,508 million). Revenue re- serves also increased by € 936 million (2012*: reduced by € 1,376 million) as a result of remeasurements of the net defined benefit liability for pension plans (net of deferred tax recognised directly in equity). The unappropriated profit of BMW AG at 31 December 2013 amounts to € 1,707 million and will be proposed to the Annual General Meeting for distribution. This amount includes € 141 million relating to preferred stock. The amount proposed for distribution represents an amount of € 2.62 per share of preferred stock and € 2.60 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. Accumulated other equity Accumulated other equity comprises all amounts recog- nised directly in equity resulting from the translation of the financial statements of foreign subsidiaries, the effects of recognising changes in the fair value of derivative financial instruments and marketable securities directly in equity and the related deferred taxes recognised di- rectly in equity. minority interest of € 26 million in the results for the year (2012: € 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. The BMW Group is not subject to any external mini- mum equity capital requirements. Within the Finan- cial Services segment, however, there are a num- ber of individual entities which are subject to equity capital requirements set by regulatory banking agencies. 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. Moreover, the BMW Group pro-actively manages debt capital, determining levels of debt capital transactions with a target debt structure in mind. An important aspect of the selection of financial instruments is the objective to achieve matching maturities for the Group’s financing requirements. In order to reduce non-system- atic risk, the BMW Group uses a variety of financial instruments available on the world’s capital markets to achieve optimal diversification. Minority interests Equity attributable to minority interests amounted to € 188 million (2012: € 107 million). This includes a The capital structure at the end of the reporting period was as follows: in € million 31. 12. 2013 31. 12. 2012* 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 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 35,455 33.5 % 39,450 30,854 70,304 66.5 % 30,499 30.5 % 39,095 30,412 69,507 69.5 % 105,759 100,006 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 133 Group Financial StatementS Equity attributable to shareholders of BMW AG in- creased during the financial year by 3.0 percentage points, mainly owing to the high net profit recorded for the year. In December 2013 the rating agency Standard & Poor’s raised BMW AG’s long-term rating by one notch from A to A+ with stable outlook. This means that BMW AG continues to enjoy the best ratings of all European car manufacturers. The improved rating and outlook reflects the financial strength of the BMW Group. Company rating 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+ (Standard & Poor’s) 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 credit- worthiness for short-term debt is also classified by the rating agencies as very good, thus enabling it to obtain refinancing funds on competitive conditions. 35 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, salary and remu- neration 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-retirement medical care are also accounted for as pension provisions in ac- cordance with IAS 19. Post-retirement benefit plans are classified as either defined contribution or defined benefit plans. Under defined contribution plans an enterprise pays fixed con- tributions 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 € 51 million (2012: € 47 million). Employer contributions paid to state pension insurance schemes totalled € 470 million (2012: € 444 million). Under defined benefit plans the enterprise is required to pay the benefits granted to present and past employees. Defined benefit plans may be funded or unfunded, the latter sometimes covered by accounting provisions. Pen- sion commitments in Germany are mostly covered by assets contributed to BMW Trust e. V. (CTA). The main other countries with funded plans were the UK, the USA, Switzerland, the Netherlands, Belgium, South Africa, Japan and Norway. In the case of externally funded plans, the defined bene- fit obligation is offset against plan assets measured at their fair value. Where the plan assets exceed the pension obligations and the BMW Group has a right of reim- bursement or a right to reduce future contributions, it reports an asset (within “Other financial assets”) at an amount equivalent to the present value of the future economic benefits attached to the plan assets. If the plan is externally funded, a liability is recognised under pension provisions where the benefit obligation ex- ceeds fund assets. Remeasurements of the net liability arise from changes in the present value of the defined benefit obligation, the fair value of the plan assets or the asset ceiling. Rea- sons for remeasurements include changes in financial and demographic assumptions as well as changes in the detailed composition of beneficiaries. Remeasurements are recognised immediately in “Other comprehensive income” and hence directly in equity (within revenue reserves). 134 Past service cost arises where a BMW Group company introduces a defined benefit plan or changes the bene- fits payable under an existing plan. These costs are recognised immediately in the income statement. Simi- larly, gains and losses arising on the settlement of a defined benefit plan are recognised immediately in the income statement. The defined benefit obligation is calculated on an actu- arial basis. The actuarial computation requires the use of estimates and assumptions, which depend on the economic situation in each particular country. The most important assumptions applied by the BMW Group are shown below. The following weighted average values have been used for Germany, the United Kingdom and other countries: 31 December in % Discount rate Pension level trend Germany 2013 2012 United Kingdom 2013 2012 Other 2013 2012 3.50 2.00 3.00 2.18 4.40 3.32 4.25 2.31 4.46 0.05 3.82 0.09 The following mortality tables are applied in countries, in which the BMW Group has significant defined benefit plans: Germany Mortality Table 2005 G issued by Prof. K. Heubeck (with invalidity rates reduced by 50 %) United Kingdom S1PA tables weighted accordingly, and S1NA tables minus 2 years, both with a minimum long term annual improvement allowance USA RP2000 Mortality Table Projected with Scale AA In Germany, the so-called “pension entitlement trend” (Fest betragstrend) also represents a significant actuar- ial assumption for the purposes of determining bene- fits payable at retirement and was left unchanged at 2.0 %. The salary level trend is a less sensitive assump- tion within the BMW Group. The calculation of the pension level trend was reviewed in conjunction with the application of the revised IAS 19 and brought onto a standardised footing worldwide. In this context, the assumption applied in the UK now also takes account of restrictions due to caps and floors. For the purposes of calculating the average rate, countries with pension payments not linked to inflation or with one-off pay- ments are also now included. The assumptions applied in the previous year were adjusted accordingly. Based on the measurement principles contained in IAS 19, the following balance sheet carrying amounts apply to the Group’s pension plans: 31 December in € million Germany 2013 2012 United Kingdom 2012 * 2013 Other Total 2013 2012 * 2013 2012 * Present value of defined benefit obligations 7,400 7,974 7,409 7,137 Fair value of plan assets 6,749 6,064 6,076 5,782 Effect of limiting net defined benefit asset to asset ceiling – – – – Carrying amounts at 31 December 651 1,910 1,333 1,355 thereof pension provision thereof assets 652 – 1 1,910 1,333 1,355 – – – * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 949 636 4 317 318 – 1 1,144 15,758 16,255 601 13,461 12,447 4 4 4 547 2,301 3,812 548 2,303 3,813 – 1 – 2 – 1 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 135 Group Financial StatementS The decrease in defined benefit obligations results mainly from the change in the discount rate used for the actu- arial calculations in Germany and the USA. In the UK, the positive impact arising from using a higher discount rate was more than offset by the negative impact of higher expected inflation levels. The maximum future economic benefits relating to the asset ceiling will be available in the form of reimbursements. The provision for pension-like obligations for post-em- ployment medical care in the USA and South Africa amounts to € 45 million (2012*: € 113 million) and is determined on a similar basis to the measurement of pension obligations in accordance with IAS 19. The medical care plan for pensioners in the USA was amended in 2013. Instead of taking over costs, the US entities will in future pay a subsidy, which the plan par- ticipants can use to acquire supplementary insurance coverage from external providers. As a consequence, cost increases no longer have a direct impact on the ob- ligation. In the case of South Africa, however, it was assumed that costs would increase in the long term by 8.1 % (2012: 7.5 %) p. a. Income arising in connection with obligations for post-employment medical care to- talled € 40 million in the year under report (2012*: ex- pense of € 12 million). Numerous defined benefit plans are in place through- out the BMW Group, the most significant of which are described below. * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Germany Both employer- and employee-funded benefit plans are in place in Germany. Benefits paid in conjunction with these plans comprise old-age retirement pensions as well as invalidity and surviving dependants’ benefits. The Deferred Remuneration Retirement Plan is an em- ployee-financed defined contribution plan with a mini- mum rate of return. The fact that the plan involves a minimum rate of return means that it is classified as a defined benefit plan. Employees have the option to waive payment of certain remuneration components in return for a future benefit. Any employer social security contributions saved are credited in the following year to the individual’s benefits account. The converted remu- neration components and the social security contribu- tions saved are invested on capital markets. When the benefit falls due, it is paid on the basis of the higher of the value of the depot account or a guaranteed minimum amount. Defined benefit obligations also remain in Germany, for which benefits are determined either by multiplying a fixed amount by the number of years of service or on the basis of an employee’s final salary. The defined benefit plans have been closed to new entrants. With ef- fect from 1 January 2014, new employees receive a de- fined contribution entitlement with minimum rate of return. The assets of the German pension plans are adminis- tered by BMW Trust e. V. (German registered association) in accordance with a CTA. The representative bodies of BMW Trust e. V. are the Board of Directors and the Members’ General Meeting. BMW Trust e. V. currently has seven members and three Board of Directors mem- bers elected by the Members’ General Meeting. The Board of Directors is responsible for BMW Trust e. V.’s investments, drawing up and deciding on investment guidelines as well as monitoring compliance with those guidelines. The members of the association can be em- ployees, senior executives and members of the Board of Directors. An ordinary Members’ General Meeting takes place once every calendar year, and deals with a range of matters, including receiving and approving the associa- tion’s annual report, ratifying the activities of the Board of Directors and adopting changes to the association’s statutes. United Kingdom In the United Kingdom, the BMW Group has defined benefit plans, which are primarily employer-funded combined with employee-funded components based on the conversion of employee remuneration. These plans are subject to statutory minimum recovery requirements. Benefits paid in conjunction with these plans comprise old-age retirement pensions as well as invalidity and surviving dependants’ benefits. These defined benefit plans have been closed to new entrants, who, with effect from 1 January 2014, will be covered by a defined contribution plan. The pension plans are administered by BMW Pension Trustees Limited and BMW (UK) Trustees Limited, both trustee companies which act independently of the BMW Group. BMW (UK) Trustees Limited is represented by 14 trustees and BMW Pension Trustees Limited by 136 five trustees. A minimum of one third of the trustees must be elected by plan participants. The trustees rep- resent the interests of plan participants and decide on investment strategies and plan amendments. Recovery contributions to the funds are determined in agreement with the BMW Group. USA The BMW Group’s defined benefit plans in the USA are primarily employer-funded and include final salary pension plans and a post-retirement medical care plan. Benefits paid in conjunction with these plans comprise old-age retirement pensions, early retirement benefits, surviving dependants’ benefits as well as post-retire- ment medical care benefits. Statutory minimum funding requirements apply to the final salary pension plans. Plan participants are repre- sented by a committee consisting of six members, which is authorised to take all decisions pertaining to the rele- vant pension plan, including plan structure, invest- ments and selection of investment managers as well as regular and recovery contributions to the plan. The committee members are nominated by the management of the relevant participating US entities. Plan committees act in a fiduciary capacity and are subject to statutory framework conditions. The change in the net defined benefit liability for pen- sion plans* can be derived as follows: * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. in € million Defined benefit obligation Plan assets Total Limitation of the net defined benefit asset to the asset ceiling Net defined benefit liability 1 January 2013 16,255 – 12,447 3,808 Expense / income Current service cost Interest expense (+) / income (–) Past service cost Gains (–) or losses (+) arising from settlements Remeasurements Gains (–) or losses (+) on plan assets, excluding amounts included in interest income Gains (–) or losses (+) arising from changes in demographic assumptions Gains (–) or losses (+) arising from changes in financial assumptions Changes in the limitation of the net defined benefit asset to the asset ceiling Gains (–) or losses (+) arising from experience adjustments Transfers to fund Employee contributions Pensions and other benefits paid Translation differences and other changes 31 December 2013 thereof pension provision thereof assets 362 565 – 53 2 – 4 – 818 – 34 – 64 – 460 – 197 15,758 – – 438 – – 362 127 – 53 2 – 481 – 481 – – – – – 509 – 64 324 154 – 13,461 4 – 818 – 34 – 509 – – 136 – 43 2,297 4 – – – – – – – 1 – – – – – 1 4 3,812 362 127 – 53 2 – 481 4 – 818 1 34 – 509 – – 136 – 44 2,301 2,303 – 2 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 137 Group Financial StatementS in € million Defined benefit obligation Plan assets Total Limitation of the net defined benefit asset to the asset ceiling Net defined benefit liability 1 January 2012 Effect of first-time consolidation Expense / income Current service cost Interest expense (+) / income (–) Past service cost Gains (–) or losses (+) arising from settlements Remeasurements Gains (–) or losses (+) on plan assets, excluding amounts included in interest income Gains (–) or losses (+) arising from changes in demographic assumptions Gains (–) or losses (+) arising from changes in financial assumptions Changes in the limitation of the net defined benefit asset to the asset ceiling Gains (–) or losses (+) arising from experience adjustments Transfers to fund Employee contributions Pensions and other benefits paid Translation differences and other changes 31 December 2012 thereof pension provision thereof assets 13,030 – 11,038 2 – 1,992 2 253 618 – 3 – 1 – 128 2,712 – – 278 – 60 – 434 168 16,255 – – 528 – – 253 90 – 3 – 1 – 671 – 671 – – – – – 313 – 60 320 – 157 – 12,447 128 2,712 – – 278 – 313 – – 114 11 3,808 3 – – – – – – – – 2 – – – – – 1 4 1,995 2 253 90 – 3 – 1 – 671 128 2,712 2 – 278 – 313 – – 114 10 3,812 3,813 – 1 Net interest expense on the net defined benefit liability is presented within the financial result. All other com- ponents of pension expense are presented in the income statement under costs by function. Remeasurements on the obligations side gave rise to a negative amount of € 780 million (2012: positive amount of € 2,562 million) and related mainly to the higher dis- count rates used in Germany and the USA. 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, old-age retirement bene- fits are largely organised in the form of company pen- sions on the one hand and arrangements financed by the in dividual on the other. The pension benefits in the UK therefore contain contributions made by the employee. 138 The net defined benefit liability for pension plans in Germany, the UK and other countries changed as follows: Germany in € million 1 January Expense / income Remeasurements Payments to external funds Employee contributions Payments on account and pension payments Other changes 31 December United Kingdom in € million 1 January Expense / income Remeasurements Payments to external funds Employee contributions Payments on account and pension payments Translation differences and other changes Defined benefit obligation Plan assets Net liability 2013 2012 2013 2012 2013 2012 7,974 5,618 – 6,064 – 5,178 483 414 – 946 2,046 – 42 – 39 – 154 – 143 1 – – 183 – 174 – 301 – 42 15 – – 247 – 466 – 153 – 39 19 – 7,400 7,974 – 6,749 – 6,064 1,910 300 – 1,120 – 301 – 440 167 1,580 – 153 – – 139 – 124 1 – 651 1,910 Defined benefit obligation 2012 * 2013 Plan assets 2013 2012 Net liability 2013 2012 * 7,137 6,499 – 5,782 – 5,376 1,355 1,123 345 330 – 18 368 346 – 17 – 261 – 269 – 160 176 – 233 – 260 – 305 – 135 – 18 269 128 – 170 – 93 – 17 280 – 146 112 25 108 176 – 135 – 93 – 8 – 32 – 11 30 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and 31 December 7,409 7,137 – 6,076 – 5,782 1,333 1,355 Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Other in € million 1 January Effect of first-time consolidation Expense / income Remeasurements Payments to external funds Employee contributions Payments on account and pension payments Translation differences and other changes Defined benefit obligation Plan assets Effect of limiting the net defined benefit asset to the asset ceiling Net liability 2013 2012 * 2013 2012 * 2013 2012 2013 2012 * 1,144 – 48 – 164 – 4 – 45 – 38 913 2 85 170 – 4 – 22 – 8 – 601 – 484 – – 22 – 2 – 73 – 4 40 26 – – 21 – 35 – 67 – 4 21 – 11 4 – – 1 – – – 3 – – 2 – – – – 1 4 – 1 4 547 – 26 – 165 – 73 – – 5 – 13 317 432 2 64 137 – 67 – – 1 – 20 547 31 December 949 1.144 – 636 – 601 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Depending on the cash flow profile and risk structure of the pension obligations involved, pension plan assets are invested in various investment classes. In accordance with the requirements of revised IAS 19, new investment classes were included in the break- down of plan assets. 139 Group Financial StatementS Plan assets in Germany, the UK and other countries comprised the following: Components of plan assets in € million 2013 2012 2013 2012 2013 2012 * 2013 2012 * Germany United Kingdom Other Total Equity instruments Debt instruments thereof investment grade thereof non-investment grade Real estate Money market funds Absolute return funds Other 1,718 4,143 2,987 1,156 – 89 – – 1,462 3,905 3,030 875 – 65 – – 1,030 3,333 3,160 173 3 113 21 26 1,055 3,079 2,901 178 3 191 21 19 133 263 243 20 19 43 – 1 137 251 231 20 6 37 – 2 2,881 7,739 6,390 1,349 22 245 21 27 2,654 7,235 6,162 1,073 9 293 21 21 Total with quoted market price 5,950 5,432 4,526 4,368 459 433 10,935 10,233 Debt instruments thereof investment grade thereof non-investment grade Real estate Cash and cash equivalents Absolute return funds Other Total without quoted market price 177 177 – 99 1 361 161 799 170 170 – 87 18 232 125 632 310 136 174 570 – 454 216 423 383 40 550 3 369 69 1,550 1,414 31 December 6,749 6,064 6,076 5,782 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 12 9 3 64 1 – 100 177 636 19 3 16 58 – – 91 168 601 499 322 177 733 2 815 477 612 556 56 695 21 601 285 2,526 2,214 13,461 12,447 Employer contributions to plan assets are expected to amount to € 415 million in the coming year. Plan assets of the BMW Group include own transferable financial instruments amounting to € 4 million (2012: € 2 million). count in the actuarial assumptions applied. The finan- cial risk of longer-than-assumed life expectancy is hedged for the BMW Group’s largest pension plan in the UK by means of a so-called “longevity hedge”. The BMW Group is exposed to risks arising from defined benefit plans on the one hand and defined contribution plans with a minimum return guarantee on the other. 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 actuarial parameters, such as expected rates of inflation, also have an impact on pension obligations. In order to reduce currency exposures, a substantial portion of plan assets are either invested in the same currency as the underlying plan or hedged by means of currency derivatives. Pension fund assets are monitored continuously and managed from a risk-and-yield perspective. Risk is reduced by ensuring a broad spread of investments. In this context, the BMW Group continuously monitors the degree of coverage of pension plans as well as ad- herence to the stipulated investment strategy. A substantial portion of plan assets is invested in debt instruments in order to minimise the effect of capital market fluctuations on the net liability. The asset port- folio also includes equity instruments, property and alternative investments – asset classes capable of gener- ating the higher rates of return necessary to cover risks (such as changes in mortality tables) not taken into ac- As part of the reporting procedures and for internal management purposes, financial risks relating to the pension plans are reported on using a deficit-value-at- risk approach. The investment strategy is also subjected to regular review together with investment consultants, with the aim of ensuring that investments are structured to coincide with the timing of pension payments and 140 the expected pattern of pension obligations. In their own way, each of these measures helps to reduce fluctuations in pension funding shortfalls. payments out of operations will be substantially re- duced in the future, since most of the Group’s pension obligations are settled out of the assets of pension funds / trust fund arrangements. Most of the BMW Group’s pension assets are adminis- tered separately and kept legally segregated from com- pany assets using trust fund arrangements. As a conse- quence, the level of funds required to finance pension The defined benefit obligation relates to current em- ployees, former employees with vested benefits and pensioners as follows: 31 December in € million Current employees Pensioners Former employees with vested benefits Defined benefit obligation Germany 2013 2012 United Kingdom 2012 * 2013 Other 2013 2012 * 4,715 2,297 388 5,157 2,384 433 7,400 7,974 1,604 3,651 2,154 7,409 1,344 3,752 2,041 7,137 723 141 85 949 872 176 96 1,144 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. The sensitivity analysis provided below shows the ex- tent to which the defined benefit obligation would have been affected by changes in the relevant assump- tions that were reasonably possible at the end of the reporting period, if the other assumptions used in the calculation were kept constant. As permitted in IAS 19.173(b), disclosures for the comparative period are not provided. The defined benefit obligation amounted to € 15,758 million at 31 December 2013. 31 December 2013 Discount rate Pension level trend Average life expectancy Pension entitlement trend Change in defined benefit obligation in € million Change in defined benefit obligation in % increase of 0.75 % decrease of 0.75 % increase of 0.25 % decrease of 0.25 % increase of 1 year decrease of 1 year increase of 0.25 % decrease of 0.25 % – 2,028 2,528 506 – 479 510 – 514 101 – 97 – 12.9 16.0 3.2 – 3.0 3.2 – 3.3 0.6 – 0.6 In the UK, the sensitivity analysis for the pension level trend also takes account of restrictions due to caps and floors. The weighted duration of all pension obligations in Ger- many, the UK and other countries (based on present values of the defined benefit obligation) developed as follows: 31 December in years Germany 2013 2012 United Kingdom 2013 2012 Other 2013 2012 Weighted duration of all pension obligations 19.6 21.0 18.3 18.4 14.9 18.8 Statutory minimum funding and recovery requirements apply in the UK and the USA which may have an effect on future amounts. Valuations are performed regularly to measure the level of funding. In conjunction with these valuations, funding plans are drawn up and the amount of any special allocations determined. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 141 Group Financial StatementS 36 Other provisions Other provisions comprise the following items: in € million 31. 12. 2013 31. 12. 2012* Obligations for personnel and social expenses Obligations for ongoing operational expenses Other obligations Other provisions Total 1,697 3,468 2,018 7,183 thereof due within one year 1,299 1,076 1,036 3,411 Total 1,611 3,177 1,899 6,687 thereof due within one year 1,198 924 1,124 3,246 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 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 expenses relate primarily to warranty obligations and comprise both statutorily prescribed manufacturer war- ranties and other guaranties offered by the BMW Group. Depending on when claims are made, it is possi- ble that the BMW Group may be called upon to fulfil ob- ligations over the whole period of the warranty or guar- antee. 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. 2013 * Translation differences Additions Reversal of discounting Utilised Reversed 31. 12. 2013 Obligations for personnel and social expenses Obligations for ongoing operational expenses Other obligations Other provisions 1,616 3,181 1,879 6,676 – 12 – 117 – 48 – 177 1,310 1,486 854 3,650 – 13 – 8 5 – 1,194 – 1,010 – 450 – 2,654 – 23 – 85 – 209 – 317 1,697 3,468 2,018 7,183 * Prior year figures adjusted in accordance with the revised IAS 19, see note 7, and include mergers. Income from the reversal of other provisions amounting to € 134 million (2012: € 129 million) is included in costs by function in the income statement. 37 Income tax liabilities Current income tax liabilities totalling € 1,237 million (2012: € 1,482 million) include obligations amounting to € 823 million (2012: € 806 million) which are expected to be settled after more than twelve months. Some of the liabilities may be settled earlier than this depending on the timing of proceedings. Current tax liabilities of € 1,237 million (2012: € 1,482 million) comprise € 197 million (2012: € 438 million) for taxes payable and € 1,040 million (2012: € 1,044 mil- lion) for tax provisions. Tax provisions totalling € 44 million were reversed in the year under report (2012: € 23 million). 142 38 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 2013 in € million Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments Other Financial liabilities 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 Maturity within one year Maturity between one and five years Maturity later than five years 7,166 4,326 9,342 6,292 2,579 426 723 20,329 4,146 3,115 – 7,517 632 307 30,854 36,046 2,875 118 – – 32 45 334 3,404 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 30,370 8,590 12,457 6,292 10,128 1,103 1,364 70,304 Total 29,852 9,484 13,018 4,577 9,411 1,790 1,375 30,412 32,756 6,339 69,507 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. Bonds comprise: The main instruments used are corporate bonds, asset- backed financing transactions, liabilities to banks and liabilities from customer deposits (banking). 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information Issuer BMW Finance N. V., The Hague Interest variable variable variable variable variable variable fixed fixed fixed fixed fixed fixed fixed fixed Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in years) Weighted average nominal interest rate (in %) EUR 2,975 million GBP 100 million HKD 300 million JPY 3,500 million SEK 1,800 million USD 605 million AUD 600 million CHF 300 million EUR 13,494 million GBP 1,050 million HKD 836 million JPY 15,000 million NOK 6,400 million NZD 100 million 2.2 1.0 3.0 3.0 2.0 1.7 3.5 6.0 6.4 6.0 3.0 3.0 3.1 3.0 0.5 0.7 1.3 0.8 1.4 0.6 4.9 1.8 3.2 3.0 2.0 0.4 3.7 4.8 143 Group Financial StatementS Issuer BMW Finance N. V., The Hague BMW (UK) Capital plc, Bracknell BMW US Capital, LLC, Wilmington, DE BMW Australia Finance Ltd., Melbourne, Victoria Other Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in years) Weighted average nominal interest rate (in %) Interest fixed fixed fixed variable variable variable variable fixed fixed fixed fixed fixed fixed variable variable fixed fixed SEK 1,000 million CHF 500 million GBP 300 million EUR 305 million GBP 300 million SEK 1,000 million USD 480 million CHF 325 million EUR 3,500 million JPY 6,000 million AUD 200 million NOK 1,500 million USD 1,295 million EUR 150 million USD 335 million AUD 175 million JPY 17,500 million variable JPY 15,000 million fixed fixed fixed fixed INR 8,000 million CAD 1,975 million JPY 38,000 million KRW 220,000 million 3.0 5.0 8.0 2.3 1.0 2.2 4.0 7.0 5.6 2.0 3.2 3.0 7.4 2.3 2.3 3.0 2.0 3.0 3.6 3.7 4.6 4.1 3.8 2.1 5.0 0.3 0.5 0.9 0.2 3.6 3.1 0.3 4.0 2.4 3.8 0.5 0.8 6.5 0.4 0.3 10.1 2.5 0.6 3.6 The following details apply to the commercial paper: Issuer Issue volume in relevant currency (ISO-Code) Weighted average maturity period (in days) Weighted average nominal interest rate (in %) BMW Finance N. V., The Hague BMW Malta Finance Ltd., St. Julians BMW US Capital, LLC, Wilmington, DE EUR 2,127 million GBP 800 million USD 779 million EUR 300 million USD 3,225 million 47.3 50.0 79.8 38.0 27.5 39 Other liabilities Other liabilities comprise the following items: 31 December 2013 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 Maturity within one year Maturity between one and five years Maturity later than five years 729 60 528 274 157 72 1,666 3,580 7,066 1 11 77 93 – – 3,069 121 3,372 15 3 – 14 – – 191 8 231 0.2 0.5 0.2 0.1 0.1 Total 745 74 605 381 157 72 4,926 3,709 10,669 144 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 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 Total 713 76 668 466 236 1 4,512 3,524 10,196 Deferred income comprises the following items: in € million 31. 12. 2013 31. 12. 2012 Deferred income from lease financing Deferred income relating to service contracts Grants Other deferred income Deferred income Total 1,774 2,855 193 104 4,926 thereof due within one year 761 837 20 48 1,666 Total 1,743 2,478 196 95 4,512 thereof due within one year 791 615 28 62 1,496 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 sector 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 2013. In accordance with IAS 20, grant income is recognised over the useful lives of the assets to which they relate. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 40 Trade payables 31 December 2013 in € million Maturity within one year Maturity between one and five years Maturity later than five years Total Trade payables 7,283 192 – 7,475 31 December 2012 in € million Maturity within one year Maturity between one and five years Maturity later than five years Total Trade payables 6,424 9 – 6,433 The total amount of financial liabilities, other liabilities and trade payables with a maturity later than five years amounts to € 3,635 million (2012: € 6,702 million). 145 Group Financial StatementS BMW Group Notes to the Group Financial Statements Other Disclosures 41 Contingent liabilities and other financial commitments Contingent liabilities No provisions were recognised for the following contingent liabilities (stated at estimated amounts), since an out- flow of resources is not considered to be probable: in € million Guarantees Performance guarantees Other Contingent liabilities 31. 12. 2013 31. 12. 2012 33 4 39 76 6 – 60 66 Contingent liabilities relate entirely to non-group entities. Other financial commitments 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 45 years and in some cases contain extension and / or purchase options. In 2013 an amount of € 320 million (2012: € 296 million) was recognised as an expense in conjunction 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. 2013 31. 12. 2012 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 335 852 587 1,774 320 805 585 1,710 Other financial commitments include € 10 million (2012: € 19 million) in respect of obligations to non-consoli- dated subsidiaries and € 1 million (2012: € 2 million) for back-to-back operating leases. Purchase commitments amounted to € 2,661 million (2012: € 3,010 million) for property, plant and equip- ment and € 446 million (2012: € 440 million) for intangi- ble assets. 146 42 Financial instruments The carrying amounts and fair values of financial instruments are assigned to IAS 39 categories and cash funds as follows:1, 2 31 December 2013 in € million Cash funds Loans and receivables Held-to-maturity investments Other liabilities Available- for-sale Fair value option Held for trading Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Carrying amount 3 Carrying amount 3 Carrying amount 3 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 7,664 7,664 – – 55,536 54,117 – – – 250 32 222 825 – – – – 250 32 222 825 – Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other – – – – – – – – – – 2,449 2,449 779 999 382 172 779 999 382 172 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement Total of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 31 December 2013 in € million 7,664 7,664 61,646 60,227 – – – – – 4,013 Total Cash funds Loans and receivables Held-to-maturity investments Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Other liabilities Available- for-sale Fair value option Held for trading Fair value 4 Carrying amount Carrying amount 3 Carrying amount 3 Carrying amount 3 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 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,103 Total 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 Based on the fact that maturities are generally short, it is assumed for some items that fair value corresponds to the carrying amount. 3 Carrying amount corresponds to market value. 4 Optimised system-based fair value measurement for items whose market value differs from their carrying amount. – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 30,860 8,671 12,471 6,292 10,173 – – – 1,364 7,475 157 72 4,126 81,661 30,370 8,590 12,457 6,292 10,128 – – – 1,364 7,475 157 72 4,126 81,031 553 – 2,810 324 – 3,687 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,914 1,050 1,049 – – – – – – – – – – – – – – – – – 317 321 465 – – – – – Assets Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Loans to third parties Credit card receivables Other Cash and cash equivalents Trade receivables Other assets Other derivative instruments Marketable securities and investment funds Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other Liabilities Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments 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 147 Group Financial StatementS 31 December 2013 in € million Cash funds Loans and receivables Held-to-maturity investments Other liabilities Available- for-sale Fair value option Held for trading Fair value Fair value Fair value Carrying amount Carrying amount Carrying amount Fair value Carrying amount Carrying amount 3 Carrying amount 3 Carrying amount 3 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 7,664 7,664 61,646 60,227 – – – – 553 – – – – 2,810 – – – – – – – 324 – 3,687 – – – – – – – – – – – – – – – – – 1,914 1,050 1,049 – – – – – – – – – – 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 – 4,013 Total Cash funds Loans and receivables Held-to-maturity investments Fair value Fair value Fair value Carrying amount Carrying amount Carrying amount Other liabilities Available- for-sale Fair value option Held for trading Fair value 4 Carrying amount Carrying amount 3 Carrying amount 3 Carrying amount 3 30,860 8,671 12,471 6,292 10,173 – – – 1,364 7,475 157 72 4,126 81,661 30,370 8,590 12,457 6,292 10,128 – – – 1,364 7,475 157 72 4,126 81,031 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 – – – – – 317 321 465 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,103 Total Cash and cash equivalents 7,664 7,664 2,449 2,449 Assets Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Loans to third parties Credit card receivables Other Trade receivables Other assets Other derivative instruments Marketable securities and investment funds Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other Total 31 December 2013 in € million 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 Other Total Payables to subsidiaries Payables to other companies in which an investment is held – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 55,536 54,117 – – – 250 32 222 825 – 779 999 382 172 – – – – – – – – – – – – – – – – 250 32 222 825 – 779 999 382 172 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 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 Based on the fact that maturities are generally short, it is assumed for some items that fair value corresponds to the carrying amount. 3 Carrying amount corresponds to market value. 4 Optimised system-based fair value measurement for items whose market value differs from their carrying amount. – – – – – – 148 31 December 2012 1, 2 in € million Cash funds Loans and receivables Held-to-maturity investments Other liabilities Available- for-sale Fair value option Held for trading Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Carrying amount 3 Carrying amount 3 Carrying amount 3 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 – – – – 398 – 8,768 – – – 398 – 2,543 2,543 738 676 – 205 738 676 – 205 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 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 – – – – – – – – – – – – – – – – – 701 320 769 – – – – – Assets Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Loans to third parties Credit card receivables Other Cash and cash equivalents Trade receivables Other assets Other derivative instruments Marketable securities and investment funds Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other Liabilities Financial liabilities Bonds Liabilities to banks Liabilities from customer deposits (banking) Commercial paper Asset backed financing transactions Derivative instruments 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 8,768 59,649 58,189 – – – – – 2,992 Total Cash funds Loans and receivables Held-to-maturity investments Other liabilities Available- for-sale Fair value option Held for trading Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Fair value Carrying amount Carrying amount 3 Carrying amount 3 Carrying amount 3 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 1,790 Total 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information Trade receivables Other assets Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other Total 31 December 2012 in € million 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 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 Based on the fact that maturities are generally short, it is assumed for some items that fair value corresponds to the carrying amount. 3 Carrying amount corresponds to market value. 149 Group Financial StatementS 31 December 2012 1, 2 in € million Cash funds Loans and receivables Held-to-maturity investments Other liabilities Available- for-sale Fair value option Held for trading Fair value Fair value Fair value Carrying amount Carrying amount Carrying amount Fair value Carrying amount Carrying amount 3 Carrying amount 3 Carrying amount 3 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 8,768 59,649 58,189 – – – – 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 Cash funds Loans and receivables Held-to-maturity investments Other liabilities Available- for-sale Fair value option Held for trading Fair value Fair value Fair value Carrying amount Carrying amount Carrying amount Fair value Carrying amount Carrying amount 3 Carrying amount 3 Carrying amount 3 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 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 Cash and cash equivalents 8,370 8,370 2,543 2,543 Assets Other investments Receivables from sales financing Financial assets Derivative instruments Cash flow hedges Fair value hedges Loans to third parties Credit card receivables Other Trade receivables Other assets Other derivative instruments Marketable securities and investment funds Receivables from subsidiaries Receivables from companies in which an investment is held Collateral receivables Other Total 31 December 2012 in € million 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 Other Total Payables to subsidiaries Payables to other companies in which an investment is held 398 – 8,768 398 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 54,374 52,914 – – – – – 44 234 835 – 738 676 – 205 – – – – – – – – – – – – – – – – – – 44 234 835 – 738 676 – 205 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 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 Based on the fact that maturities are generally short, it is assumed for some items that fair value corresponds to the carrying amount. 3 Carrying amount corresponds to market value. – – – – – – 150 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 2013 on the basis of the following in- terest rates: ISO Code in % Interest rate for six months Interest rate for one year Interest rate for five years Interest rate for ten years EUR USD GBP JPY CNY 0.28 0.40 1.27 2.22 0.26 0.31 1.77 3.17 0.54 0.71 2.17 3.09 0.20 0.21 0.40 0.95 5.66 5.80 5.80 5.86 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. default risk and that of counterparties is taken into account in the form of credit default swap (CDS) con- tracts which have matching terms and which can be observed on the market. 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 are taken into account in the measurement of derivative financial instruments. The methodology for collating data used in the fair values computation model was re- fined during the second quarter of 2013, particularly with respect to the way interest rate curves are employed and the use of additional market data (tenor and cur- rency basis spreads), thus helping to minimise differ- ences between the carrying amounts of the instruments and the amounts that can be realised on the financial markets on their disposal. In addition, the Group’s own Financial instruments measured at fair value are allo- cated to different measurement levels in accordance with IFRS 13. This includes financial instruments that are 1. measured at their fair values in an active market for identical financial instruments (Level 1), 2. measured at their fair values in an active market for comparable financial instruments or using measure- ment models whose main input factors are based on observable market data (Level 2) or 3. using input factors not based on observable market data (Level 3). The following table shows the amounts allocated to each measurement level at the end of the reporting period: 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 31 December 2013 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 13 Level 2 Level 3 Level 1 3,134 379 – – – – – – – – 1,914 1,050 1,049 317 321 465 – – – – – – – – 151 Group Financial StatementS 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 13 Level 2 Level 3 Level 1 2,812 391 – – – – – – – – 925 1,457 610 701 320 769 – – – – – – – – Other investments (available-for-sale) amounting to € 174 million (2012: € 157 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 ad- dition, other investments amounting to € 379 million (2012: € 391 million) are measured at fair value since quoted market prices are available. These items are in- cluded in Level 1. As in the previous year, there were no reclassifications within the level hierarchy during the financial year 2013. In situations where a fair value was required to be meas- ured for a financial instrument only for disclosure pur- in € million poses, this was achieved using the discounted cash flow method and taking account of the BMW Group’s own default risk; for this reason, the fair values calculated can be allocated to Level 2. Offsetting of financial instruments In the BMW Group, financial assets and liabilities re- lating to derivative financial instruments would normally be required to be offset. No offsetting takes place for accounting purposes, however, since the necessary criteria are not met. Since legally enforce- able master netting agreements or similar contracts are in place, actual offsetting would be possible in principle, for instance in the case of insolvency. Off- setting would have the following impact on the carry- ing amounts of derivatives: 31. 12. 2013 31. 12. 2012 Reported on assets side Reported on equity and liabilities side Reported on assets side Reported on equity and liabilities side Balance sheet amounts as reported Gross amount of derivatives which can be offset in case of insolvency Net amount after offsetting 4,013 – 710 3,303 1,103 – 710 393 2,992 – 1,004 1,988 1,790 – 1,004 786 152 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 2013 2012 Gains / losses from the use of derivative instruments 571 – 278 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) Net income from participations and investments Accumulated other equity Balance at 1 January Total change during the year thereof 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 – 57 10 108 27 – 40 135 – 310 126 – 145 5 – 61 169 40 108 – 440 – 61 – 235 – 115 Gains / losses from the use of derivatives relate pri- marily to fair value gains or losses arising on stand-alone derivatives. Net interest income from interest rate and interest rate / currency swaps amounted to € 126 million (2012: € 111 million). Impairment losses of € 73 million (2012: € 166 million) on available-for-sale marketable securities, for which fair value changes were previously recognised directly in equity, were recognised as expenses in 2013. Re- versals of impairment losses on marketable securities amounting to € 70 million (2012: € – million) were rec- ognised directly in equity. The disclosure of interest income resulting from the un- winding of interest on future expected receipts would normally only be relevant for the BMW Group where assets have been discounted as part of the process of determining impairment losses. However, as a result of the assumption that most of the income that is subse- quently recovered is received within one year and the fact that the impact is not material, the BMW Group does not discount assets for the purposes of 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 thereof reclassified to the income statement Balance at 31 December 2013 2012 202 934 – 179 1,136 – 750 952 532 202 Fair value gains and losses recognised on derivatives and recorded initially in accumulated other equity are reclassified to cost of sales when the derivatives mature. No gains / losses were recognised in “Financial Result” in 2013 in connection with forecasting errors and the re- sulting over-hedging of currency exposures (2012: net positive amount of € 1 million). In the previous year, the impact arose primarily as a result of changes in sales forecasts in foreign currencies. Gains attributable to the ineffective portion of hedging instruments amounting to € 8 million were recognised in “Financial Result” (2012: € – million). No gains / losses were recognised in 2013 in connection with forecasting errors relating to cash flow hedges for commodities (2012: negative impact of € 8 mil- lion). However, losses attributable to the ineffective por- 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 153 Group Financial StatementS tion of commodity hedges amounting to € 8 million (2012: gain of € 67 million) were recognised in “Financial Result”. At 31 December 2013 the BMW Group held derivative financial instruments (mainly option and forward cur- rency contracts) with terms of up to 60 months (2012: 72 months), as a general rule in order to hedge cur- rency risks attached to future transactions. These de- rivative instruments are intended to hedge forecast sales denominated in a foreign currency over the com- ing 60 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 € 162 million of net gains, recognised in equity at the end of the reporting pe- riod, will be reclassified to the income statement (2012: € 26 million). At 31 December 2013 the BMW Group held derivative financial instruments (mostly interest rate swaps) with terms of up to 13 months (2012: 25 months) to hedge in- terest rate risks. These derivative instruments are in- tended to hedge interest-rate risks arising on financial instruments with variable interest payments over the coming 13 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 the coming financial year (2012: € – million). At 31 December 2013 the BMW Group held derivative financial instruments (mostly commodity swaps) with terms of up to 60 months (2012: 60 months) to hedge raw materials price risks attached to future transactions over the coming 60 months. The income statement im- pact of the hedged cash flows will be recognised as a general rule in the same period in which the derivative instruments mature. It is expected that € 60 million of net losses, recognised in equity at the end of the reporting period, will be reclassified to the income statement in the coming financial year (2012: net gains of € 5 million). 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. 2013 31. 12. 2012 Gains / losses on hedging instruments designated as part of a fair value hedge relationship Gains / loss from hedged items Ineffectiveness of fair value hedges – 525 503 – 22 127 – 140 – 13 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. 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 patterns to date) reviewed in order to minimise the credit risk, all depending on the nature and amount of the exposure that the BMW Group is proposing to enter into. 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 € 943 million (2012: € 969 million). The equivalent figure for dealer financing is € 19,856 mil- lion (2012: € 18,157 million). Within the financial services business, the financed items (e. g. vehicles, equipment and property) in the re- tail customer and dealer lines of business serve as first- ranking collateral with a recoverable value. Security is also put up by customers in the form of collateral asset pledges, asset assignment and first-ranking mortgages, supplemented where appropriate by warranties and guarantees. If an item previously accepted as collateral is acquired, it undergoes a multi-stage process of repos- session and disposal in accordance with the legal situa- 154 tion prevailing in the relevant market. The assets in- volved are generally vehicles which can be converted into cash at any time via the dealer organisation. Impairment losses are recorded as soon as credit risks are identified on individual financial assets, using a methodology specifically designed by the BMW Group. More detailed information regarding this methodology is provided in the section on accounting policies (note 5). 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 vali- dated scoring systems integrated into the purchasing process. In the area of dealer financing, creditworthiness is assessed by means of ongoing credit monitoring and an internal rating system that takes account not only of the tangible situation of the borrower but also of qualita- tive factors such as past reliability in business relations. 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 particu- lar with regard to the amounts of impairment losses recognised – are provided in the explanatory notes to the relevant categories of receivables in notes 26, 27 and 31. Liquidity risk The following table shows the maturity structure of ex- pected contractual cash flows (undiscounted) for finan- cial liabilities: 31 December 2013 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 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 * Previous year’s figures adjusted. Maturity within one year Maturity between one and five years – 7,933 – 4,686 – 9,405 – 6,294 – 2,814 – 426 – 7,283 – 210 – 21,434 – 4,328 – 3,243 – – 7,614 – 659 – 195 – 361 – 39,051 – 37,834 Maturity within one year Maturity between one and five years – 8,482 – 4,866 – 10,139 – 4,578 – 2,170 – 1,146 – 6,424 – 86 – 18,375 – 4,469 – 3,028 – – 7,346 – 1,085 – 9 – 248 – 37,891 – 34,560 Maturity later than five years – 3,043 – 126 – – – 32 – 80 – – 367 – 3,648 Maturity later than five years – 5,071 – 678 – – – 137 – 1 – – 424 – 6,311 Total – 32,410 – 9,140 – 12,648 – 6,294 – 10,460 – 1,165 – 7,478 – 938 – 80,533 Total – 31,928 – 10,013 – 13,167 – 4,578 – 9,653 – 2,232 – 6,433 – 758 – 78,762 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. At 31 December 2013 irrevocable credit commitments to dealers which had not been called upon at the end of 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 155 Group Financial StatementS the reporting period amounted to € 6,760 million (2012: € 6,044 million). 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 structure. The BMW Group has good access to capital markets as a result of its solid financial position and a diversified refinancing strategy. This is underpinned by the longstanding long- and short-term ratings issued by Moody’s and Standard & Poor’s. 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 materials price risks of the BMW Group are managed at a corporate level. Further information is provided in the “Report on out- look, risks and opportunities” section of the Combined Management Report. 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 Standard & Poor’s short-term ratings 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, including a syndicated credit line totalling € 6 billion (2012: € 6 billion). Intra-group cash flow fluctuations are evened out by the use of daily cash pooling arrangements. 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 is generated outside the euro currency region and the procurement of production material and fund- ing is also organised on a worldwide basis, the currency risk is an extremely important factor for Group earnings. At 31 December 2013 derivative financial instruments, mostly in the form of option and forward currency con- tracts, were in place to hedge the main currencies. Market risks The principal market risks to which the BMW Group is exposed are currency risk, interest rate risk and raw materials price risk. A description of the management of this risk is pro- vided in the Combined Management Report. The BMW Group measures currency risk using a cash-flow-at-risk model. Protection against such risks is provided in the first instance through natural hedging which arises when the values of non-derivative financial instruments have matching maturities and amounts (netting). Derivative financial instruments are used to reduce the risk re- 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 / Russian Rouble Euro / Japanese Yen 31. 12. 2013 31. 12. 2012 10,691 4,401 3,852 1,738 1,469 8,429 5,311 3,206 1,638 1,585 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 potential 156 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 con- fidence 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 / Russian Rouble Euro / Japanese Yen 31. 12. 2013 31. 12. 2012 197 65 80 109 44 246 163 65 69 15 15 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 five main currencies were as follows at the end of the reporting period: in € million Euro US Dollar British Pound Chinese Renminbi Japanese Yen 31. 12. 2013 31. 12. 2012 14,265 11,931 3,960 1,787 189 12,736 10,489 3,814 1,179 435 Interest rate risks can be managed by the use of interest rate derivatives. The interest rate contracts used for hedging purposes comprise mainly swaps which are ac- counted for on the basis of whether they are designated as a fair value hedge or as a cash flow hedge. A description of the management of interest rate risks is provided in the Combined Management Report. 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- 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 %. Aggrega- tion of these results creates a risk reduction effect due to correlations between the various port folios. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 157 Group Financial StatementS 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 five main currencies: in € million Euro US Dollar British Pound Chinese Renminbi Japanese Yen 31. 12. 2013 31. 12. 2012 214 246 62 11 6 269 271 44 17 12 Raw materials price risk The BMW Group is exposed to the risk of price fluctua- tions for raw materials. A description of the management of these risks is provided in the Combined 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. 2013 31. 12. 2012 4,550 3,370 In the next stage, these exposures are compared to all hedges that are in place. The net cash flow surplus rep- resents an uncovered risk position. The cash-flow-at- risk approach involves allocating the impact of potential raw materials fluctuations to operating cash flows on the basis of probability distributions. Volatilities and correlations serve as input factors to assess the relevant probability distributions. The potential negative impact on earnings is computed for each raw material category for the following finan- cial year on the basis of current market prices and ex- posure 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 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 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. 2013 31. 12. 2012 405 350 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 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 Combined Management Report. Infor- mation regarding the residual value risk from operating leases is provided in the section on accounting policies in note 5. 43 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 subject 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, 158 the cash flow from operating activities is derived in- directly from the net profit for the year. Under this method, changes in assets and liabilities relating to op- erating activities are adjusted for currency translation effects and changes in the composition of the Group. The changes in balance sheet positions shown in the cash flow statement do not therefore agree directly with the amounts shown in the Group and segment balance sheets. Cash inflows and outflows relating to operating leases, where the BMW Group is the 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 (including finance leases, where the BMW Group is the 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 2013 amounted to € 4 million (2012: € 4 million). The presentation of cash flows from financing activities has been changed in the Group Financial Statements for the year ended 31 December 2013. Previously, changes in financial liabilities were offset on a single line in the Cash Flow Statement. Following the change, cash inflows and outflows for non-current other finan- cial liabilities are shown separately. The change in cur- rent other financial liabilities is also shown separately. The previous year’s figures were restated in the inter- est of comparability. Non-current other financial lia- bilities resulted in the previous year in a cash inflow of € 7,427 million for new debt raised and a cash out- flow of € 5,498 million for repayments. The change in current other financial liabilities was a net cash inflow of € 230 million. 44 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 Statements of BMW AG as consolidated companies. Control is de- fined as ownership of more than one half of the voting power of BMW AG or the power to direct, by statute or agreement, the financial and operating policies of the management of the BMW 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 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. sidiaries, joint ventures and associated companies as well as with members of the Board of Management and Supervisory 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 normal course of business and are conducted on the basis of arm’s length principles. Transactions of BMW Group companies with the joint venture BMW Brilliance Automotive Ltd., Shen- yang, all arise in the normal course of business and are conducted on the basis of arm’s length principles. Group companies sold goods and services to BMW Brilliance Automotive Ltd., Shenyang, during 2013 for an amount of € 3,588 million (2012: € 2,962 million). At 31 December 2013, receivables of Group compa- nies from BMW Brilliance Automotive Ltd., Shenyang, totalled € 898 million (2012: € 608 million). Payables of Group companies to BMW Brilliance Automotive Ltd., Shenyang, amounted to € 66 million (2012: € – million). Group companies received goods and services from BMW Brilliance Automotive Ltd., Shenyang, in 2013 for an amount of € 31 million (2012: € 26 million). In the financial year 2013, the disclosure requirements contained in IAS 24 affect the BMW Group with regard to business relationships with non-consolidated sub- All relationships of BMW Group entities with the joint ventures SGL Automotive Carbon Fibers Verwaltungs GmbH, Munich, SGL Automotive Carbon Fibers GmbH 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 159 Group Financial StatementS & 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 2013 receivables of Group companies for loans dis- bursed to the joint ventures amounted to € 101 million (2012: € 68 million). Realised interest income earned on these intragroup loans amounted to € 3 million (2012: € 2 million). Goods and services received by Group com- panies from the joint ventures during the period under report totalled € 36 million (2012: € 9 million). Payables of Group companies to the joint ventures at the end of the reporting period amounted to € 6 million (2012: € 1 million). All relationships of BMW Group entities with the joint ventures DriveNow GmbH & Co. KG, Munich, and DriveNow Verwaltungs GmbH, Munich, are conducted on the basis of arm’s length principles. Transactions with these entities arise in the normal course of business and are small in scale. GmbH, Dresden. Cooperation arrangements within the field of electromobility have been in place between BMW AG and Solarwatt GmbH, Dresden, since the second quarter 2013. The focus of this collaboration is on providing complete photovoltaic solutions for roof- top systems and carports to BMW i customers. Solarwatt GmbH leased vehicles from the BMW Group in 2013. The service, cooperation and lease contracts referred to above are not material for the BMW Group. They all arise in the normal course of business and are conducted on the basis of arm’s length principles. Susanne Klatten is a shareholder and member of the 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 from the BMW Group during the financial year 2013, 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. 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. 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. Stefan Quandt is a shareholder and Deputy Chairman of the Supervisory Board of BMW AG. He is also the sole shareholder and Chairman of the Supervisory Board of DELTON AG, Bad Homburg v.d.H., which, via its subsidiaries, performed logistic-related services for the BMW Group during the financial year 2013. In addition, companies of the DELTON Group acquired vehicles from the BMW Group on the basis of arm’s length prin- ciples, mostly in the form of leasing contracts. Stefan Quandt is also the majority shareholder of Solarwatt 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 regis- tered 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 re- port. BMW AG bears expenses on a minor scale and ren- ders services on behalf of BMW Trust e. V., Munich. 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 re- produced in the Annual Report 2013 of the BMW Group and is also available to shareholders on the BMW Group website at www.bmwgroup.com / ir. 46 Shareholdings of members of the Board of Management and Supervisory Board The members of the Supervisory Board of BMW AG hold in total 27.62 % (2012: 27.63 %) of the issued common and preferred stock shares, of which 16.07 % (2012: 16.08 %) relates to Stefan Quandt, Bad Homburg v. d. H. and 11.55 % (2012: 11.55 %) to Susanne Klatten, Munich. As at the end of the previous financial year, shareholdings of members of the BMW AG Board of Management ac- count, in total, for less than 1 % of issued shares. 160 47 Compensation of members of the Board of Management and Supervisory Board The total compensation of the current members of the Board of Management and the Supervisory Board of BMW AG amounted to € 40.6 million (2012: € 36.4 mil- lion) and comprised the following: in € million Short-term employment benefits Post-employment benefits Compensation 2013 2012 38.4 2.2 40.6 35.2 1.2 36.4 The total compensation of the current Board of Manage- ment members for 2013 amounted to € 34.5 million (2012: € 31.4 million). This comprised fixed components of € 7.9 million (2012: € 7.5 million), variable compo- nents of € 25.9 million (2012: € 23.2 million) and a share- based compensation component totalling € 0.7 million (2012: € 0.7 million). In addition, an expense of € 2.2 million (2012: € 1.2 mil- lion) was recognised for current members of the Board of Management for the period after the end of their em- ployment relationship. This relates to the expense for allocations to pension provisions. Pension obligations to current members of the Board of Management are covered by pension provisions amounting to € 24.8 mil- lion (2012: € 29.4 million), computed in accordance with IAS 19 (Employee Benefits). The remuneration of former members of the Board of Management and their dependants amounted to € 4.7 million (2012: € 3.8 million). Pension obligations to former members of the Board of Management and their surviving dependants are fully covered by pension provisions amounting to € 58.0 mil- lion (2012: € 61.2 million), computed in accordance with IAS 19. The compensation of the members of the Supervisory Board for the financial year 2013 amounted to € 4.6 mil- lion (2012: € 4.5 million). This comprised fixed compo- nents of € 2.0 million (2012: € 1.6 million) and variable components of € 2.6 million (2012: € 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 market conditions, no advances or 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 Management Report. 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 48 Application of exemptions pursuant to § 264 (3) and § 264b HGB A number of companies and incorporated partnerships (as defined by § 264 a HGB) which are consolidated subsidiaries of BMW AG and for which the Group Finan- cial Statements of BMW AG represent exempting con- solidated financial statements, apply the exemptions available in § 264 (3) and § 264b HGB with regard to the drawing up of a management report. The exemptions have been applied by: – Bavaria Wirtschaftsagentur GmbH, Munich – BMW Fahrzeugtechnik GmbH, Eisenach – BMW Hams Hall Motoren GmbH, Munich – BMW M GmbH Gesellschaft für individuelle Automobile, Munich – Rolls-Royce Motor Cars GmbH, Munich In addition, the following entities apply the exemption available in § 264 (3) and § 264b HGB with regard to publication: – Bavaria Wirtschaftsagentur GmbH, Munich – Alphabet International GmbH, Munich – BMW Hams Hall Motoren GmbH, Munich – BMW M GmbH Gesellschaft für individuelle Automobile, Munich – BMW INTEC Beteiligungs GmbH, Munich – BMW Verwaltungs GmbH, Munich – Rolls-Royce Motor Cars GmbH, Munich 161 Group Financial StatementS BMW Group Notes to the Group Financial Statements Segment Information 49 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 oper- ating segments in accordance with IFRS 8 (Operating Segments). Operating segments are identified on the same basis that is used internally to manage and report on performance and takes account of the organisa- tional structure of the BMW Group based on the various products and services of the reportable segments. The activities of the BMW Group are broken down into the operating segments 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 compa- nies and, in a number of markets, by independent im- port companies. Rolls-Royce brand vehicles are sold in the USA, China and Russia via subsidiary companies and elsewhere by independent, authorised dealers. The BMW Motorcycles segment develops, manufactures, assembles and sells 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 segments. Internal management and reporting Segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the Group Financial Statements. The only exception to this general principle is the treatment of inter-segment warranties, the earnings impact of which is allocated to the Automotive and Financial Services segments on the basis used internally to manage the business. Inter-segment receivables and payables, pro- visions, 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 respect to resource allocation and performance assessment of the reportable segment is embodied in the full Board of Management. In order to assist the decision-taking pro- cess, various measures of segment performance as well as segment assets have been set for the various operating segments. The performance of the Automotive and Motorcycles segments is managed on the basis of return on capital employed (RoCE). The measure of segment results used is therefore profit before financial result. Capital em- ployed is the corresponding measure of segment assets used to determine how to allocate resources and com- prises all current and non-current operational assets after deduction of liabilities used operationally which are not subject to interest (e. g. trade payables). The performance of the Financial Services segment is measured on the basis of return on equity (RoE), with profit before tax therefore representing the most im- portant measure of segment earnings. For this reason the measure of segment assets in the Financial Services segment corresponds to net assets, defined as total as- sets less total liabilities. The performance of the Other Entities segment is assessed on the basis of profit or loss before tax. The corresponding measure of segment assets used to manage the Other Entities segment is total assets less tax receivables and investments. 162 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 Financial Services Other Entities Reconciliation to Group figures Group 2013 2012* 2013 2012 2013 2012 2013 2012* 2013 2012* 2013 2012* 56,285 14,344 70,629 6,657 6,635 3,655 57,499 12,709 70,208 7,599 5,325 3,437 1,495 9 1,504 79 85 65 1,478 12 1,490 9 125 69 18,276 1,598 19,874 1,639 17,484 7,021 17,869 1,681 19,550 1,561 15,988 6,112 2 4 6 164 – – 2 3 3 – – – – 76,058 76,848 External revenues – 15,955 – 14,405 – – Inter-segment revenues 5 – 15,955 – 14,405 76,058 76,848 Total revenues – 626 – 4,325 – 3,787 – 1,369 – 2,901 – 1,838 7,913 19,879 6,954 7,803 Segment result 18,537 Capital expenditure on non-current assets 7,780 Depreciation and amortisation on non-current assets in € million Segment assets * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Automotive Motorcycles Financial Services Other Entities Reconciliation to Group figures Group 31. 12. 2013 31. 12. 2012* 31. 12. 2013 31. 12. 2012 31. 12. 2013 31. 12. 2012* 31. 12. 2013 31. 12. 2012 31. 12. 2013 31. 12. 2012* 31. 12. 2013 31. 12. 2012* 10,265 10,991 488 405 8,407 7,633 54,250 50,685 64,958 62,121 138,368 131,835 Segment assets 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 163 Group Financial StatementS 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 Financial Services Other Entities Reconciliation to Group figures Group 2013 2012* 2013 2012 2013 2012 2013 2012* 2013 2012* 2013 2012* 56,285 14,344 70,629 6,657 6,635 3,655 57,499 12,709 70,208 7,599 5,325 3,437 1,495 9 1,504 79 85 65 1,478 12 1,490 9 125 69 18,276 1,598 19,874 1,639 17,484 7,021 17,869 1,681 19,550 1,561 15,988 6,112 2 4 6 164 – – 2 3 – – 76,058 76,848 External revenues – 15,955 – 14,405 – – Inter-segment revenues 5 – 15,955 – 14,405 76,058 76,848 Total revenues 3 – – – 626 – 4,325 – 3,787 – 1,369 – 2,901 – 1,838 7,913 19,879 6,954 7,803 Segment result 18,537 Capital expenditure on non-current assets 7,780 Depreciation and amortisation on non-current assets in € million Segment assets * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. Automotive Motorcycles Financial Services Other Entities Reconciliation to Group figures Group 31. 12. 2013 31. 12. 2012* 31. 12. 2013 31. 12. 2012 31. 12. 2013 31. 12. 2012* 31. 12. 2013 31. 12. 2012 31. 12. 2013 31. 12. 2012* 31. 12. 2013 31. 12. 2012* 10,265 10,991 488 405 8,407 7,633 54,250 50,685 64,958 62,121 138,368 131,835 Segment assets 164 The segment result of the Motorcycles segment in the previous year was negatively impacted by an impair- ment loss of € 13 million on property, plant and equip- ment in accordance with IFRS 5 and by an expense of € 57 million for an allocation to provisions at 31 Decem- ber 2012. amounting to € 1,279 million (2012*: € 1,499 million). As in the previous year, the result from equity accounted investments did not have any impact on the segment result of the Other Entities segment. The segment result is stated after an impairment loss on other investments amounting to € 7 million (2012: € 7 million). Interest and similar income of the Financial Services segment is included in segment result and totalled € 5 million (2012*: € 1 million). Interest and similar ex- penses of the Financial Services segment amounted to € 7 million (2012*: € 5 million). Financial Services segment result was negatively impacted by impair- ment losses totalling € 139 million recognised on leased products. As in the previous year, segment assets of the Other Entities segment do not contain any investments ac- counted for using the equity method. The information disclosed for capital expenditure and depreciation and amortisation relates to non-current property, plant and equipment, intangible assets and leased products. The Other Entities segment result includes interest and similar income amounting to € 1,340 million (2012*: € 1,542 million) and interest and similar expenses Segment figures can be reconciled to the corresponding Group figures as follows: 88 Group Financial StatementS 88 Income Statements 88 Statement of Comprehensive Income 90 Balance Sheets 92 Cash Flow Statements 94 Group Statement of Changes in Equity 96 Notes 96 Accounting Principles and Policies 114 Notes to the Income Statement 121 Notes to the Statement of Comprehensive Income 122 Notes to the Balance Sheet 145 Other Disclosures 161 Segment Information 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 2013 2012* 8,539 – 99 – 527 7,913 24,204 – 4,325 19,879 10,741 – 3,787 6,954 9,172 – 432 – 937 7,803 21,438 – 2,901 18,537 9,618 – 1,838 7,780 in € million 31. 12. 2013 31. 12. 2012 * 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 * Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 73,410 5,989 83,923 37,364 24,411 – 86,729 138,368 69,714 6,065 81,064 36,321 21,943 – 83,272 131,835 165 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 equipment, intangible assets and leased products. The reconciling item disclosed for non-current assets relates to leased products. External revenues Non-current assets 2013 2012 2013 2012 11,796 12,691 15,348 22,552 3,103 10,568 – 12,186 13,447 14,448 22,971 2,824 10,972 – 76,058 76,848 25,309 12,867 21 10,651 1,668 1,025 – 4,335 47,206 22,954 11,195 15 9,887 1,548 1,137 – 3,720 43,016 Information by region in € million Germany USA China Rest of Europe Rest of the Americas Other Eliminations Group Munich, 20 February 2014 Bayerische Motoren Werke Aktiengesellschaft The Board of Management Dr.-Ing. Dr.-Ing. E. h. Norbert Reithofer Milagros Caiña Carreiro-Andree Dr.-Ing. Herbert Diess Dr.-Ing. Klaus Draeger Dr. Friedrich Eichiner Harald Krüger Dr. Ian Robertson (HonDSc) Peter Schwarzenbauer 166 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”. 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 167 Statement on corporate Governance Declaration by the Board of Management and the Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft with respect to the Recommen dations of the “Government Commission on the German Corporate Governance Code” in accordance with § 161 German Stock Corporation Act The Board of Management and the Supervisory Board of Bayerische Motoren Werke Aktiengesellschaft (“BMW AG”) declare the following regarding the recom- mendations of the “Government Commission on the German Corporate Governance Code”: 1. Since filing the last declaration of 14 May 2013, BMW AG has complied with all of the recommen- dations officially published on 15 June 2012 in the Federal Gazette (Code version of 15 May 2012). 2. BMW AG will in future comply with all of the recom- mendations officially published on 10 June 2013 in the Federal Gazette (Code version of 13 May 2013) as of the date when they apply. Munich, December 2013 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 168 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 Frank-Peter Arndt (born 1956) (until 31. 03. 2013) Production Mandates BMW Motoren GmbH (Chairman) (until 31. 03. 2013) TÜV Süd AG BMW (South Africa) (Pty) Ltd. (Chairman) (until 31. 03. 2013) Leipziger Messe GmbH Milagros Caiña Carreiro-Andree (born 1962) Human Resources, Industrial Relations Director Dr.-Ing. Herbert Diess (born 1958) Development Dr.-Ing. Klaus Draeger (born 1956) Purchasing and Supplier Network Mandates Allianz Deutschland AG FESTO Aktiengesellschaft (since 30. 07. 2013) BMW Brilliance Automotive Ltd. (Deputy Chairman) FESTO Management Aktiengesellschaft (since 30. 07. 2013) Harald Krüger (born 1965) MINI, Motorcycles, Rolls-Royce, Aftersales BMW Group (until 31. 03. 2013) Production (since 01. 04. 2013) Mandates Rolls-Royce Motor Cars Limited (Chairman) (until 31. 03. 2013) BMW (South Africa) (Pty) Ltd. (Chairman) (since 01. 04. 2013) BMW Motoren GmbH (since 01. 04. 2013) (Chairman since 07. 06. 2013) Dr. Ian Robertson (HonDSc) (born 1958) Sales and Marketing BMW, Sales Channels BMW Group Mandates Dyson James Group Limited Peter Schwarzenbauer (born 1959) (since 01. 04. 2013) MINI, Motorcycles, Rolls-Royce, Aftersales BMW Group Mandates Rolls-Royce Motor Cars Limited (Chairman) (since 01. 04. 2013) General Counsel: Dr. Dieter Löchelt Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 169 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 (Deputy Chairman) Bertelsmann SE & Co. KGaA (Deputy Chairman) FESTO Aktiengesellschaft (Chairman until 19. 04. 2013) (Deputy Chairman since 19. 04. 2013) Deere & Company FESTO Management Aktiengesellschaft (Chairman until 19. 04. 2013) (Deputy Chairman since 19. 04. 2013) 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. 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 Bertelsmann SE & Co. KGaA Deutsche Lufthansa Aktiengesellschaft (since 07. 05. 2013) 1. FC Köln GmbH & Co. KGaA (Chairman) (until 30. 06. 2013) Bertin Eichler 2 (born 1952) Former Executive Member of the Executive Board of IG Metall Mandates BGAG Beteiligungsgesellschaft der Gewerkschaften GmbH (Chairman) Luitpoldhütte AG (since 03. 12. 2013) ThyssenKrupp AG (Deputy Chairman) (until 17. 01. 2014) 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. 170 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 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 (Chairman since 30. 04. 2013) UnternehmerTUM GmbH (Chairman) 1 Employee representatives (company employees). 2 Employee representatives (union representatives). 3 Employee representative (member of senior management). Membership of other statutory supervisory boards. Membership of equivalent national or foreign boards of business enterprises. 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 Robert Bosch GmbH 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) Chairman of the Supervisory Board of Deutsche Lufthansa Aktiengesellschaft Mandates Deutsche Lufthansa Aktiengesellschaft (Chairman) (since 07. 05. 2013) Infineon Technologies AG (Chairman) Lufthansa Technik Aktiengesellschaft (until 30. 06. 2013) Münchener Rückversicherungs-Gesellschaft Aktiengesellschaft in München Austrian Airlines AG (until 27. 06. 2013) HEICO Corporation Österreichische Luftverkehrs-Holding-GmbH (Chairman) (until 27. 06. 2013) UBS AG (until 02. 05. 2013) 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 171 Statement on corporate Governance Dr. Dominique Mohabeer1 (born 1963) Member of the Works Council, Munich Brigitte Rödig1 (born 1963) (since 10. 07. 2013) Member of the Works Council, Dingolfing Maria Schmidt1 (born 1954) (until 30. 06. 2013) Member of the Works Council, Dingolfing Dr. Markus Schramm3 (born 1963) (since 01. 04. 2013) Head of Development Aftersales Business Management and Mobility Services BMW Group 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) (until 31. 03. 2013) Head of Corporate Planning and Product Strategy 172 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 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 173 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. A secretariat for Board of Management matters has been established to assist the Chairman and other board members with the preparation and follow-up work con- nected 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 Executive 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. 174 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. 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 stra tegic and technological matters. The main emphases of meetings in the period under report are described in the Report of the Supervisory Board. As a general rule, the shareholder representatives and employee representatives prepare the Supervisory Board meetings separately and, if necessary, together with members of the Board of Management. Members of the Supervisory Board are in particular le- gally bound to maintain confidentiality with respect to any confidential reports they receive and any confiden- tial discussions in which they partake. 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. 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 175 Statement on corporate Governance Following the election of a new Supervisory Board mem- ber, the BMW Corporate Governance Officer informs the new member of the principal issues affecting his or her duties – in particular those enshrined in the BMW Group Corporate Governance Code – including the duty to cooperate when a transaction or event triggers reporting requirements or is subject to the approval of the Supervisory Board. 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 the period under report). In line with the terms of reference for the activities of the plenum, the Supervisory Board has also set terms of reference for the Presiding Board and the various com- mittees. The committees are only quorate if all members are present. Resolutions taken by the committees are passed by simple majority unless stipulated otherwise by law. Minutes are also taken at the meetings and for 176 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 audit focus 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 committee are required by the German Co-determina- tion Act. The Mediation Committee has the task of making proposals to the Supervisory Board if a resolu- tion for the appointment of a member of the Board of Management has not been carried by the necessary two-thirds majority of members’ votes. In accordance with statutory requirements, the Mediation Commit- tee comprises the Chairman and the Deputy Chairman of the Supervisory Board and one member each se- lected by shareholder representatives and employee representatives. 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 177 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 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 – 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 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 2013 Average attendance 4 4 95 % 95 % Karl-Ludwig Kley 1, 2 Joachim Milberg Manfred Schoch Stefan Quandt Stefan Schmid 94 % 4 plus 3 telephone conferences 2 87.5 % 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. 178 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 enterprise. 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 or large-sized 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 proportion of women in the workforce at 31 Decem- ber 2013 (BMW AG: 14.5 %; BMW Group 17.4 %), the Supervisory Board is of the opinion that a pro- portion of three female members out of a total of 20 members (15 %) is satisfactory as far as gender mix is concerned, but that the inclusion of at least four female members (20 %) is desirable. The Supervisory Board therefore considers it appropriate that op- portunities 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 20 members of the Super visory Board should be independent members within the meaning of section 5.4.2 of the German Corporate Governance Code, including at least six members representing the Company’s shareholders. Two inde- pendent members in the Supervisory Board should have expert knowledge 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- 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 179 Statement on corporate Governance sition are therefore not intended to be instructions to those entitled to vote or restrictions on their freedom to vote. More to the point, they reflect the 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. 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. In the Supervisory Board’s opinion, its own composition at 31 December 2013 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- 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. Details 180 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, 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 Combined Manage- ment 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 and further training on recent developments in this area. Two dedicated helplines – the “Human Rights Contact” and the “BMW Group SpeakUP Line” – are available to employees wishing to raise queries or com- plaints relating to human rights issues. The UN Guiding Principles provide a framework for critical reflection and continuous improvement in our endeavours to ensure that human rights are respected throughout the organisation. Activities can only be sustainable, however, if they encompass 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 as- pects of our purchasing terms and conditions as well as for the purposes of evaluating suppliers. Potential suppliers must submit a full disclosure when com- pleting BMW’s modularly structured sustainability questionnaire, an inherent component of the accept- ance procedure for potential new suppliers. The BMW Group expects suppliers to ensure that the BMW Group’s sustainability criteria are also adhered to by sub-suppliers. Purchasing terms and conditions 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 inter- ested in wishing to make progress in the area of sustain- ability. 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 protect itself systematically against compliance-related and reputational risks, the Board of Management created a Compliance Committee several years ago, mandated to establish a worldwide Compliance Management System throughout 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 activi- ties necessary to avoid non-compliance with the law (Legal Com pliance). These activities include training, 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 181 Statement on corporate Governance information and communication measures, com- pliance controls and following up cases of non-com- pliance. The BMW Group Compliance Committee reports regu- larly to the Board of Management on all compliance-re- lated issues, including the progress made in developing the BMW Group Compliance Organisation, details of investigations performed, known infringements of the law, sanctions imposed and corrective / preventative 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 Com- pliance Committee Office comprises ten employees and is allocated in organisational terms to the Chairman of the Board of Management. 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 Compliance Risk Analysis Legal Compliance Code and Regulations The Chairman of the BMW Group Compliance Com- mittee keeps the Audit Committee 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 the Compliance Management System are in- itiated on the basis of identified requirements. A coordinated set of instruments and measures are employed to ensure that the BMW Group, its repre- sentative bodies, its managers and its staff act in a law- ful manner. Particular emphasis has been placed on compliance with antitrust legislation and the avoidance of corruption risks. Compliance measures are supple- mented by a whole range of internal policies, guidelines and instructions, which in part reflect applicable legisla- tion. The BMW Group Policy “Corruption Prevention” deserves particular mention: this document deals with lawful handling of gifts and benefits and defines appro- priate assessment criteria and approval procedures for specified actions. Compliance measures are determined and prioritised on the basis of a group-wide compliance risk assessment covering all 276 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 170 Compliance Responsibles. Compliance Investigations and Controls Compliance Reporting Compliance Instruments and Measures of the BMW Group Compliance Communication Compliance Trainings 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. Compliance Contact and SpeakUP Line Compliance Governance and Processes 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 182 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 download in German and English. In addition, translations into eleven other languages are available (Dutch, French, Italian, Japanese, Korean, Mandarin, 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 20,300 managers and staff worldwide have received training in compliance basics since the intro- duction 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 the training programme, which is documented by a certificate, is mandatory for all BMW Group managers. Appro- priate processes are in place to ensure that all newly recruited managers and promoted staff undergo com- pliance 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), which was expanded in 2013 and is aimed at em- ployees who come into contact with antitrust-related issues as a result of their functions within sales, pur- chasing, production or development. Anti-trust law training has also been mandatory for all BMW AG em- ployees delegated to work abroad since the start of 2013. A total of 2,300 employees have already completed this training. The relevant divisions also introduced further measures and processes in 2013 to make em- ployees who participate in meetings with competitors sufficiently aware of anti-trust risks. Additional Compliance Market Coachings have also been implemented in local markets since late 2012. These multi-day classroom seminars strengthen the understanding of compliance in selected units and enhance cooperation between the central BMW Group Compliance Committee Office and decentralised compliance offices. In 2013, market coaching was per- formed for Financial Services and national sales companies in Argentina, Brazil, China, Mexico and Singapore. In order to avoid legal risks, all members of staff are expected to discuss compliance matters with their managers and with the relevant departments within the BMW Group, in particular Legal Affairs, Corporate Audit and Corporate Security. The BMW Group Com- pliance Contact serves as a further point of contact for both employees and non-employees for any questions regarding compliance. Employees also have the opportunity to submit infor- mation – 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 toll-free numbers in all countries in which BMW Group employees carry out activities. Compliance-related queries and concerns are docu- mented and followed up by the BMW Group Com- pliance Committee Office using an electronic Case Management System. If necessary, Corporate Audit, Corporate Security, the Works Council and Legal Affairs may be called upon to assist in the investigation process. Through the group-wide reporting system, Compliance Responsibles throughout the BMW Group report on compliance-relevant issues to the Compliance Commit- tee on a regular basis, and, if necessary, on an ad hoc 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 183 Statement on corporate Governance 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 implemented. Compliance with and implementation of the Legal Com- pliance 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 checks. In addition, sample checks (BMW Group Compliance Spot Checks) specifically designed to iden- tify potential corruption risks are carried out. In 2013, three Compliance Spot Checks were performed in different units. Compliance control activities are coordi- nated by the BMW Group Panel Compliance Controls. Any necessary follow-up measures are organised by the BMW Group Compliance Committee Office. In the same way that the BMW Group is committed to lawful and responsible conduct, it also expects no less from its business partners. During 2012 the BMW Group developed 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 compliance risks. These procedures are particularly relevant for relations with sales partners and service providers, such as agencies and consultants. Depending on the results of the evaluation, appropriate measures – such as com- munication measures, training and possible monitor- ing – are implemented to manage compliance risks. The Business Relations Compliance programme has already been launched in 12 units since 2012 and, over the com- ing years, will be rolled out successively throughout the BMW Group’s worldwide sales organisation. In 2013, the company also began introducing compliance clauses to protect contractual relationships into dealer and im- porter contracts. It is essential that employees are aware of and comply with applicable legal regulations. The BMW Group does not tolerate violations of the law by its employees. Culpable violations of the law result in employment-con- tract sanctions and may involve personal liability con- sequences for the employee involved. To avoid this, BMW Group employees are kept fully in- formed 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 em- ployees can find compliance-related information and have access to training materials in both German and English. The website contains a special service area where various practical tools and aids are made available to employees, which help them deal with typical com- pliance-related matters. BMW Group employees also have access on the website to an electronically supported approval process for invitations in connection with busi- ness partners. The results of the group-wide employee survey in 2013 showed that, thanks to extensive com- munications activities, BMW Group employees have an excellent understanding of the topic of compliance and its significance to the Company. 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 have agreed on a binding set of Joint Principles for Lawful Conduct. In doing so, all parties involved gave a commitment to the principles contained in the BMW Group Legal Compliance Code and to trustful cooperation in all matters relating to compliance. Employee representatives are therefore reg- ularly involved in the process of developing compliance measures within the BMW Group. In the interest of investor protection and 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, con- sisting of representatives of various specialist depart- ments, whose members examine the relevance of issues for ad hoc disclosure purposes. All persons working on behalf of the company who have access to insider infor- mation 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 in- sider rules. investment amount as a net subsidy . Once the four- year holding period requirement has been fulfilled, the participants receive – for each three shares of common stock held and at the Company’s option – one further share of common stock or the equivalent amount in cash. Under the terms of the Employee Share Scheme, em- ployees were able in 2013 to acquire packages of be- tween five and 13 shares of non-voting preferred stock with a discount of € 19.23 (2012: € 12.50) per share compared to the market price (average closing price in Xetra trading during the period from 7 November to 13 November 2013: € 63.02). 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 relation- ship 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 acquired the shares. A total of 266,152 (2012: 422,905) shares of preferred stock were acquired by employees under the scheme in 2013; 265,570 (2012: 422,845) of these shares were drawn from the Authorised Capital 2009, the re- mainder were bought back via the stock exchange. Every year the Board of Management of BMW AG de- cides whether the scheme is to be continued. Further in- formation is provided in notes 19 and 34 to the Group Financial Statements. 184 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 mem- bers are required to give notice to BMW AG and the Federal Agency for the Supervision of Financial Services of transactions with BMW stock or related financial in- struments if the total sum of such transactions reaches or exceeds an amount of € 5,000 during any given calen- dar year. No securities transactions pursuant to § 15 a WpHG were notified to the Company during the 2013 financial year. Shareholdings of members of the Board of Management and the Supervisory Board The members of the Supervisory Board of BMW AG hold in total 27.62 % of the Company’s shares of common and preferred stock (2012: 27.63 %), of which 16.07 % (2012: 16.08 %) relates to Stefan Quandt, Bad Homburg v. d. H. and 11.55 % (2012: 11.55 %) 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 have been able to participate in the enterprise’s success since 1989 in the form of non- voting shares of preferred stock) and two share-based remuneration schemes for Board of Management mem- bers and for department heads (relating to shares of common stock). The share-based remuneration scheme for Board of Management members is described in de- tail in the Compensation Report (see also the Com- pensation Report and note 19 to the Group Financial Statements). The share-based remuneration scheme for qualifying department heads, introduced with effect for financial years beginning after 1 January 2012, is closely based on the scheme for Board of Management members and is aimed at rewarding a long-term, entrepreneurial ap- proach to running the business on a sustainable basis. Under the terms of this scheme, participants give a commitment to invest an amount equivalent to 20 % of their performance-based bonus in BMW common stock and to hold the shares so acquired for four years. In return for this commitment, BMW AG pays 100 % of the 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 185 Statement on corporate Governance 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 2013 is disclosed by individual and analysed into components. 1. Board of Management compensation Responsibilities 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. 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 na- ture of the tasks allocated to each member of the Board of Management, the economic situation and the per- formance 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 positive 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 com- paring compensation paid by DAX companies and in vertical terms by comparing board compensation with the salaries of executive managers and with the average salaries of employees of BMW AG in Germany, in both cases in terms of level and changes over time. Recom- mendations 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 comprises 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 is unchanged from the previous year, namely € 750,000 p. a. for a board member during the first period of office, € 900,000 p. a. for a board member from the second period or fourth year of office onwards and € 1,500,000 p. a. 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 a share-based remuneration component on the other. Variable cash remuneration, in particular bonuses Variable cash remuneration consists of a cash bonus and share-based remuneration component equivalent to 20 % of a board member’s total bonus after taxes, 186 which the board member is required to invest in BMW AG common stock. Taxes and social insurance relating to the share-based remuneration are also borne by the Company. In substantiated cases, the Supervisory Board also has the option of paying an additional spe- cial 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 %) for a Board of Management member, for both components of variable compensation, totals € 1.5 million p. a., rising to € 1.75 million p. a. with effect from the second term of appointment or the fourth year in office. The equivalent figure for the Chairman of the Board of Management is € 3 million p. a. The amount of bonus is capped for all Board of Management members. For the financial year 2013, the upper limits were 250 % of the relevant target bonus. For financial years com- mencing after 1 January 2014, the upper limits are 200 % 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 would give rise to an earnings-based bonus of € 0.75 million for the financial year 2013 for a member of the Board of Management during the first period of office and one of € 0.875 million during the second term of appoint- ment or from the fourth year in 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 return on sales is less than 2 %, the earnings factor for the financial year 2013 would be zero. In this case, no corporate earnings-re- lated bonus would be paid. Based on the principle of consistency at all levels, this rule is also applicable in de- termining the corporate earnings-related variable com- pensation 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 rele- vant Board of Management member to sustainable and long-term oriented business development. In setting the factor, consideration is given equally to personal performance and decisions taken in previous forecast- ing periods, key decisions affecting the future develop- ment 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 di- rectly in the basis of measurement. Performance factor criteria include innovation (economic and ecological, e. g. reduction of carbon emissions), customer focus, ability to adapt, leadership accomplishments, contribu- tions to the Company’s attractiveness as an employer, progress in implementing the diversity concept and ac- tivities that foster corporate social responsibility. The target bonus and the key figures used to determine the cor porate earnings-related bonus are fixed in advance 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 incen- tives 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 remunera- tion component / matching component), unless the 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 187 Statement on corporate Governance employment 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 Board of Management members was changed to a defined contribution system with a guar- anteed minimum return with effect from 1 January 2010. However, given the fact that board members ap- pointed 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 ex- tended, to members who have either reached the age of 60 or who are unable to work due to ill health or acci- dent, or who have entered into early retirement in ac- cordance with a special arrangement. The amount of the pension is unchanged from the previous year and com- prises 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 approximately € 75 for each year of service in the Company before be- coming 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 pay- ments are adjusted by analogy to the rules applicable for the adjustment of civil servants’ pensions: the pensions of members of the Board of Management are adjusted when the civil servants remuneration level B6 (excluding allowances) is increased by more than 5 % or in accord- ance with the Company Pension Act. When a mandate is terminated, the new defined con- tribution system provides entitlements which can be paid either (a) in the case of death or invalidity as a one- off amount or over a maximum of ten years or (b) on retirement – depending on the wish of the ex-board member concerned – in the form of a lifelong monthly pension, as a one-off amount, in a maximum of ten annual instalments, or in a combined form (e. g. a com- bination of a one-off payment and a proportionately reduced lifelong monthly pension). Pensions are paid to former members of the Board of Management who have either reached the statutory retirement age for the state pension scheme in Germany or, if their mandate had terminated earlier and had not been extended, to members who have either reached the age of 60 or are permanently unable to work, or who have entered into early retirement in accordance with a special arrange- ment. In addition, following the death of a retired board member 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 de- termined on the basis of the amount accrued in each board member’s individual pension savings account. The amount on this account arises from annual contri- butions paid in plus interest earned depending on the type of investment. Depending on the length of membership in the Board of Management and previous activities, the annual con- tribution to be paid amounts to between €350,000 and €400,000 (2012: €300,000) for each member of the Board of Management and €700,000 (2012: €525,000) for the Chairman of the Board of Management. The contribu- tions are credited, along with interest earned, to the per- sonal savings accounts of board members in monthly amounts. The guaranteed minimum rate of return p. a. corresponds to the maximum interest rate used to cal culate insurance reserves for life insurance policies (guaranteed interest on life insurance policies). A Board of Management member entering office at 50 years of age and serving as member of the Board of Manage- ment to the age of 60 can reckon on a retirement savings capital of €4.2 million. In the case of invalidity or death, a minimum contribu- tion of the potential 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 188 Overview of compensation system and compensation components Component Salary p. a. Variable compensation Bonus a) Corporate earnings-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 (first term of appointment) – € 0.90 million (from second term of appointment onwards or fourth year in office) Chairman of the Board of Management: – € 1.50 million Target bonuses p. a. (if target is 100 % achieved): – € 1.50 million (first term of appointment) – € 1.75 million (from second term of appointment onwards or fourth year in office) – € 3.00 million (Chairman of the Board of Management) – Upper limit: 250 % (until 31 December 2013) – 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 b) Performance-related bonus – Primarily qualitative criteria, expressed in terms of a performance factor aimed at (corresponds to 50 % of target bonus if target is 100 % achieved) measuring the board members’ contribution to sustainable and long-term performance and the future viability of the business Special bonus payments – 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 May be paid in justified circumstances on an 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 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 to 20 % of their total bonus (after tax) in BMW AG common stock (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 Retirement and surviving dependants’ benefits Model 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)) No contractual entitlements Principal features 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, various forms of disbursement Remuneration caps since 1 January 2014 in € p. a. Member of the Board of Management in the first term of appointment Member of the Board of Management in the second term of appointment or from fourth year in office Chairman of the Board of Management Pension contributions p. a.: Member of the Board of Management: € 350,000 – € 400,000 Chairman of the Board of Management: €700,000 Bonus Cash remuneration for share acquisition Share-based remuneration programme Monetary value of matching component Possible special bonus Total* 3,000,000 700,000 700,000 1,000,000 4,925,000 3,500,000 6,000,000 800,000 1,400,000 800,000 1,400,000 1,200,000 1,500,000 5,500,000 9,850,000 * Including basic remuneration, other fixed remuneration elements and pension contribution. The overall cap is lower than the sum of the maximum amounts for each of the individual components. 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 189 Statement on corporate Governance en titlement. 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. caps for all variable remuneration components and for the remuneration of Board of Management members in total. The caps are shown in the overview of the com- pensation system and compensation components. 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. Termination benefits on premature termination of board activities, benefits paid by third parties In connection with the premature termination of Mr Arndt’s activities on the Board of Management with effect from 31 March 2013 due to health reasons, it was decided to continue his contract of employment through to its scheduled end on 31 August 2014 and to honour all fixed remuneration components, i. e. basic remuneration of € 900,000 p. a. on a pro rata basis and other fixed remuneration elements contained in the contract of employment, including company car usage and pension contributions, also on a pro rata basis. Accordingly, for the period from April to December 2013, Mr Arndt received pro rata basic remuneration of € 675,000 and other remuneration amounting to € 24,197. No entitlement to variable remuneration arose for the period between the premature termination of board mandate and contract expiry. This does not apply, however, to entitlements already earned in relation to the matching component payable in conjunction with the share-based remuneration scheme (subject to ful- filment of the stipulated holding period requirement). In view of the agreed curtailment of contractual retire- ment benefits, and in settlement of all other contrac- tual entitlements arising from Mr Arndt’s service contract, the Company gave a commitment to make a one-off payment of € 800,000 on contract expiry in 2014. Apart from this, there are no contractual commitments to pay compensation if a board member’s mandate is terminated prematurely. Similarly, there are no commit- ments to pay compensation for premature termination in the event of a change of control or a takeover offer. No members of the Board of Management received any payments or benefits from third parties in 2013 on account of their activities as members of the Board of Management of BMW AG. Remuneration caps In 2013, and with effect for financial years beginning after 1 January 2014, the Supervisory Board stipulated Compensation of the Board of Management for the financial year 2013 (2012) (total) The total compensation of the current members of the Board of Management of BMW AG for the financial year 2013 amounted to € 34.5 million (2012: € 31.4 million), of which € 7.9 million (2012: € 7.5 million) relates to fixed components (including other remuneration). Variable components amounted to € 25.9 million (2012: € 23.2 mil- lion) and share-based remuneration components to € 0.7 million (2012: € 0.7 million). In addition, an expense of € 4.3 million (2012: € 1.2 mil- lion) was recognised in the financial year 2013 for cur- rent members of the Board of Management, including Mr Arndt, for the period after the end of their service relationship. This relates to the expense for allocations to pension provisions and for benefits relating to the ter- mination of activity of a Board of Management member. in € million 2013 2012 Amount Proportion in % Amount Proportion in % Fixed compensation 7.9 22.9 7.5 23.9 Variable cash compensation Share-based compen- sation component* Total compensation 25.9 75.1 23.2 73.9 0.7 34.5 2.0 100.0 0.7 31.4 2.2 100.0 * 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. The amount paid to former members of the Board of Management and their dependants for the financial year 2013 was € 4.7 million (2012: € 3.8 million). The figure for 2013 includes continued payment of the fixed remuneration of Mr Arndt after leaving the Board of Management amounting to € 699,197. Pension obliga- tions to former members of the Board of Management, including Mr Arndt, and their surviving dependants are fully covered by pension provisions amounting to € 58.0 million (2012: € 61.2 million), computed in accord- ance with IAS 19. 190 Compensation of the individual members of the Board of Management for the financial year 2013 (2012) in € or number of matching shares Fixed compensation Basic compen- sation Other compen- sation Total Variable cash 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. 2013 for share-based remuneration component in accordance with HGB and IFRS2 Norbert Reithofer 1,500,000 (1,500,000) 119,232 (112,835) 1,619,232 (1,612,835) Frank-Peter Arndt3 Milagros Caiña Carreiro-Andree Herbert Diess Klaus Draeger Friedrich Eichiner Harald Krüger Ian Robertson Peter Schwarzenbauer4 225,000 (900,000) 750,000 (375,000) 900,000 (900,000) 900,000 (900,000) 900,000 (900,000) 900,000 (900,000) 900,000 (900,000) 562,500 (–) 10,434 (27,336) 98,213 (11,526) 19,210 (22,007) 26,374 (22,948) 24,225 (27,366) 18,588 (19,036) 14,401 (14,881) 13,424 (–) 235,434 (927,336) 848,213 (386,526) 919,210 (922,007) 926,374 (922,948) 924,225 (927,366) 918,588 (919,036) 914,401 (914,881) 575,924 (–) 5,270,400 (4,881,600) 640,500 (2,847,600) 2,635,200 (1,220,400) 3,074,400 (2,847,600) 3,074,400 (2,847,600) 3,074,400 (2,847,600) 3,074,400 (2,847,600) 3,074,400 (2,847,600) 1,976,400 (–) 1,886 (2,495) 0 (1,455) 1,012 (514) 1,181 (1,563) 1,181 (1,563) 1,181 (1,563) 1,100 (1,455) 1,181 (1,563) 812 (–) 143,204 (132,634) 7,032,836 (6,627,069) 0 (77,348) 76,841 (35,569) 89,673 (83,089) 89,673 (83,089) 89,673 (83,089) 83,523 (77,348) 89,673 (83,089) 57,603 (–) 875,934 (3,852,284) 3,560,254 (1,642,495) 4,083,283 (3,852,696) 4,090,447 (3,853,637) 4,088,298 (3,858,055) 4,076,511 (3,843,984) 4,078,474 (3,845,570) 2,609,927 (–) 122,700 (75,826) 69,008 (70,099) 49,469 (6,248) 91,437 (55,238) 125,097 (71,283) 104,017 (61,522) 60,843 (37,608) 79,152 (48,583) 10,380 (–) 219,970 (97,269) 157,864 (88,856) 55,717 (6,248) 162,052 (70,615) 215,602 (90,505) 182,455 (78,437) 108,375 (47,532) 141,210 (62,058) 10,380 (–) Total 7,537,500 344,101 7,881,601 25,894,500 9,534 719,863 34,495,964 712,103 1,253,625 (7,275,000) (257,935) (7,532,935) (23,187,600) (12,171) (655,255) (31,375,790) (426,407) (541,520) 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 19 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 31 December 2013 (€ 85.22) (fair value at reporting date). 3 Member of the Board of Management until 31 March 2013. 4 Member of the Board of Management since 1 April 2013. 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 191 Statement on corporate Governance Pension benefits of the individual members of the Board of Management in € Service cost IFRS1 Service cost HGB1 Present value of pension obligations (defined benefit plans), in accordance with IFRS2 Present value of pension obligations (defined benefit plans), in accordance with HGB2 Norbert Reithofer Milagros Caiña Carreiro-Andree Herbert Diess Klaus Draeger Friedrich Eichiner Harald Krüger Ian Robertson Peter Schwarzenbauer3 Total4 Frank-Peter Arndt5 313,038 (217,462) 369,827 (150,000) 211,774 (145,829) 162,426 (114,531) 174,279 (127,028) 143,734 (88,004) 395,507 (281,416) 262,500 (–) 2,033,085 (1,233,039) 149,808 (108,769) 233,100 (204,520) 372,277 (168,361) 407,705 (260,723) 407,482 (227,386) 407,482 (183,671) 358,325 (346,582) 274,357 (283,003) 262,500 (–) 2,723,228 (1,947,143) 307,482 (272,897) 7,234,887 (7,770,956) 555,847 (169,119) 3,294,607 (3,459,608) 4,086,628 (4,357,273) 4,683,637 (4,443,313) 2,648,384 (2,911,534) 2,025,994 (1,872,190) 289,681 (–) 24,819,665 (29,374,854) 4,153,128 (4,390,861) 6,036,606 (5,263,483) 555,190 (168,608) 3,062,183 (2,407,993) 3,694,976 (3,078,164) 3,827,095 (3,203,857) 2,516,021 (1,934,608) 1,771,848 (1,274,502) 289,308 (–) 21,753,227 (20,589,637) 3,783,361 (3,258,422) 1 Service cost differs due to the different valuation bases used to measure pension obligations for HGB purposes (expected settlement amount) and for IFRS purposes (present value of the defined benefit obligation). 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 Member of the Board of Management since 1 April 2013. The pension expense for Peter Schwarzenbauer in the financial year 2013 corresponds to the defined contribution amount. 4 The previous year’s figures include amounts relating to Frank-Peter Arndt. 5 Member of the Board of Management until 31 March 2013. 2. Supervisory Board compensation Responsibilities, regulation pursuant to Articles of Incorporation The compensation of the Supervisory Board is specified by resolution of the shareholders at the Annual General Meeting or in the Articles of Incorporation. The com- pensation regulation valid for the financial year 2013 was resolved by shareholders at the Annual General Meeting on 14 May 2013 and is set out in Article 15 of BMW AG’s Articles of Incorporation, which can be viewed and / or downloaded at www.bmwgroup.com\ir under the menu items “Corporate Facts” and “Corporate Governance”. Compensation principles, compensation components The Supervisory Board of BMW AG receives a fixed compensation component as well as a corporate per- formance-related compensation component which is oriented toward sustainable growth, based on a multi- year assessment. The corporate performance-related component is based on average earnings per share of common stock for the remuneration year and the two preceding financial years. These two interacting components are intended to ensure that the compensation of Supervisory Board members is commensurate overall in relation to the 192 tasks performed and the Company’s financial condition and also takes account of business performance over several years. In accordance with the rule contained in BMW AG’s Articles of Incorporation since the beginning of the 2013 financial year, each member of the Supervisory Board receives, in addition to the reimbursement of reasonable expenses, a fixed amount of €70,000 (payable at the end of the year) as well as a corporate performance-related compensation of €170 for each full € 0.01 by which the average amount of (basic) earnings per share (EPS) of common stock reported in the Group Financial State- ments for the remuneration year and the two preceding financial years exceeds a minimum amount of € 2.00 (payable after the Annual General Meeting held in the following year). An upper limit corresponding to twice the amount of the fixed compensation (€140,000) is in place for the corporate performance-related com- pensation. With this combination of fixed compensation elements and a corporate performance-related compensation component oriented toward sustainable growth, the compensation structure in place for BMW AG’s Super- visory Board complies with the recommendation on super visory board compensation contained in section 5.4.6 paragraph 2 sentence 2 of the German Corporate Governance Code (version dated 13 May 2013). The German Corporate Governance Code also recom- mends in section 5.4.6 paragraph 1 sentence 2 that the exercising of chair and deputy chair positions in the Super visory Board as well as the chair and membership of committees should also be considered when deter- mining the level of compensation. Accordingly, the Articles of Incorporation of BMW AG stipulate that the Chairman of the Supervisory Board receives 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 166 Statement on corporate Governance (Part of Management Report) 166 Information on the Company’s Governing Constitution 167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 168 Members of the Board of Management 169 Members of the Supervisory Board 172 Work Procedures of the Board of Management 174 Work Procedures of the Supervisory Board 179 Information on Corporate Governance Practices 180 Compliance in the BMW Group 185 Compensation Report 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. In addition, each member of the Supervisory Board re- ceives an attendance fee of € 2,000 for each full meeting of the Supervisory Board (Plenum) which the member has attended (payable at the end of the financial year). Attendance at more than one meeting on the same day is not remunerated separately. The Company also reimburses to each member of the Supervisory Board 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 2013 (total) In accordance with § 15 of the Articles of Incorporation, the compensation of the Supervisory Board for activities during the financial year 2013 amounted to € 4.6 million (2012: € 4.5 million). This comprises fixed compensation of € 2.0 million (2012: € 1.6 million) and variable compen- sation of € 2.6 million (2012: € 2.9 million). in € million 2013 2012 Amount Proportion in % Amount Proportion Fixed compensation Variable compensation Total compensation 2.0 2.6 4.6 43.5 56.5 100.0 1.6 2.9 4.5 in % 35.6 64.4 100.0 Supervisory Board members did not receive any further compensation or benefits from the BMW Group for advisory and agency services personally rendered. 193 Statement on corporate Governance Compensation of the individual members of the Supervisory Board for the financial year 2013 (2012) 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 Dominique Mohabeer 1 Brigitte Rödig1, 2 Maria Schmidt1, 3 Markus Schramm4 Jürgen Wechsler 1 Werner Zierer1 Oliver Zipse5 Total6 210,000 (165,000) 140,000 (110,000) 140,000 (110,000) 140,000 (110,000) 140,000 (110,000) 70,000 (55,000) 70,000 (55,000) 70,000 (55,000) 70,000 (55,000) 70,000 (55,000) 70,000 (55,000) 70,000 (55,000) 70,000 (55,000) 70,000 (55,000) 70,000 (55,000) 70,000 (32,158) 33,370 (–) 34,712 (55,000) 52,740 (–) 70,000 (55,000) 70,000 (55,000) 17,260 (9,167) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 8,000 (8,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (10,000) 10,000 (8,000) 10,000 (8,000) 10,000 (6,000) 10,000 (10,000) 10,000 (10,000) 8,000 (8,000) 10,000 (6,000) 6,000 (–) 4,000 (8,000) 8,000 (–) 6,000 (10,000) 10,000 (10,000) 2,000 (2,000) 294,270 (330,000) 196,180 (220,000) 196,180 (220,000) 196,180 (220,000) 196,180 (220,000) 98,090 (110,000) 98,090 (110,000) 98,090 (110,000) 98,090 (110,000) 98,090 (110,000) 98,090 (110,000) 98,090 (110,000) 98,090 (110,000) 98,090 (110,000) 98,090 (110,000) 98,090 (64,317) 46,761 (–) 48,642 (110,000) 73,903 (–) 98,090 (110,000) 98,090 (110,000) 24,187 (18,333) 514,270 (505,000) 346,180 (340,000) 346,180 (340,000) 346,180 (340,000) 344,180 (338,000) 178,090 (175,000) 178,090 (175,000) 178,090 (175,000) 178,090 (175,000) 178,090 (173,000) 178,090 (173,000) 178,090 (171,000) 178,090 (175,000) 178,090 (175,000) 176,090 (173,000) 178,090 (102,475) 86,131 (–) 87,354 (173,000) 134,643 (–) 174,090 (175,000) 178,090 (175,000) 43,447 (29,500) 1,818,082 (1,430,000) 192,000 (186,000) 2,547,653 (2,860,000) 4,557,735 (4,476,000) 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 10 July 2013. 3 Member of the Supervisory Board until 30 June 2013. 4 Member of the Supervisory Board since 1 April 2013. 5 Member of the Supervisory Board until 31 March 2013. 6 Figures for the previous year include the remuneration of members of the Supervisory Board who left office during the financial year 2012. 3. Other Apart from vehicle lease contracts entered into on cus- tomary market conditions, no advances or 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. 194 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 4 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, 20 February 2014 Bayerische Motoren Werke Aktiengesellschaft The Board of Management Dr.-Ing. Dr.-Ing. E. h. Norbert Reithofer Milagros Caiña Carreiro-Andree Dr.-Ing. Herbert Diess Dr.-Ing. Klaus Draeger Dr. Friedrich Eichiner Harald Krüger Dr. Ian Robertson (HonDSc) Peter Schwarzenbauer 166 Statement on Corporate GovernanCe (Part of Management Report)166 Information on the Company’s Governing Constitution167 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG168 Members of the Board of Management169 Members of the Supervisory Board172 Work Procedures of the Board of Management174 Work Procedures of the Supervisory Board179 Information on Corporate Governance Practices180 Compliance in the BMW Group185 Compensation Report195 Statement on corporate Governance 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 2013. 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, 5 March 2014 KPMG AG Wirtschaftsprüfungsgesellschaft Pastor Wirtschaftsprüfer Huber-Straßer Wirtschaftsprüferin 196 other inFormation BMW Group Ten-year Comparison 2013 2012 2011 2010 2009 2008 2007 2006 2005 20041 Sales volume Automobiles Motorcycles2 Production volume Automobiles Motorcycles2 Financial Services units units units units 1,963,798 1,845,186 1,668,982 1,461,166 1,286,310 1,435,876 1,500,678 1,373,970 1,327,992 1,208,732 Automobiles 115,215 106,358 104,286 98,047 87,306 101,685 102,467 100,064 97,474 92,266 Motorcycles2 2,006,366 1,861,826 1,738,160 1,481,253 1,258,417 1,439,918 1,541,503 1,366,838 1,323,119 1,250,345 Automobiles 110,127 113,811 110,360 99,236 82,631 104,220 104,396 103,759 92,012 93,836 Motorcycles2 Sales volume Production volume Financial Services Contract portfolio Business volume (based on balance sheet carrying amounts) 3 contracts 4,130,002 3,846,364 3,592,093 3,190,353 3,085,946 3,031,935 2,629,949 2,270,528 2,087,368 1,843,399 Contract portfolio € million 84,347 80,974 75,245 66,233 61,202 60,653 51,257 44,010 40,428 32,556 Business volume (based on balance sheet carrying amounts) 3 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 6 Capital expenditure Capital expenditure ratio (capital expenditure / revenues) Personnel Workforce at the end of year 8 Personnel cost per employee Dividend Dividend total € million 76,058 76,848 68,821 60,477 50,681 53,197 56,018 48,999 46,656 44,335 Revenues % € million € million % € million % € million € million € million € million % € million € million € million € million € million € million % 20.1 7,986 7,913 10.4 2,573 32.5 5,340 86,194 52,174 35,643 25.8 52,682 50,043 138,368 7,664 9,450 6,687 8.8 20.2 8,275 5 7,803 5 10.2 2,692 5 34.5 5,111 5 81,305 5 50,530 5 30,606 5 23.2 5 52,834 5 48,395 5 131,835 5 8,370 9,167 5,240 6.8 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 40,134 123,429 110,164 101,953 101,086 7,776 8,110 7 3,692 5.4 7,432 8,149 3,263 5.4 110,351 89,895 105,876 89,161 5 100,306 84,887 95,453 83,141 € 96,230 72,349 100,041 75,612 107,539 76,704 106,575 76,621 105,798 75,238 105,972 Workforce at the end of year 8 73,241 Personnel cost per employee € million 1,707 1,640 1,508 852 197 197 694 458 419 9 419 Dividend total 10.5 289 413 0.8 203 49.2 210 62,009 39,944 19,915 19.5 45,119 36,919 7,767 4,921 3,471 6.8 11.4 921 351 0.7 21 6.0 330 62,416 38,670 20,273 20.1 41,526 39,287 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 Income Statement 23.2 Gross profit margin Group4 3,774 Profit before financial result 3,583 Profit before tax 8.1 Return on sales (earnings before tax / revenues) 1,341 Income taxes 37.4 Effective tax rate 2,242 Net profit for the year Balance Sheet 40,822 Non-current assets 26,812 Current assets 16,534 Equity 24.4 Equity ratio Group 26,517 Non-current provisions and liabilities 24,583 Current provisions and liabilities 67,634 Balance sheet total Cash Flow Statement 2,128 Cash and cash equivalents at balance sheet date 6,157 Operating cash flow 6 4,347 Capital expenditure 9.8 Capital expenditure ratio (capital expenditure / revenues) Personnel Dividend Dividend per share of common stock / preferred stock € 2.60 / 2.62 2.50 /2.52 2.30 / 2.32 1.30 /1.32 0.30 / 0.32 0.30 / 0.32 1.06 / 1.08 0.70 / 0.72 0.64 / 0.66 0.62 / 0.64 Dividend per share of common stock / preferred stock 1 Adjusted for the new accounting treatment of pension obligations. 2 Excluding Husqvarna, sales volume up to 2013: 59,776 units; production up to 2013: 59,426 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 expenses included in cost of sales with the effect from 2008. 5 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 6 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. 7 Adjusted for reclassifications as described in note 42 of the Financial Statements 2012. 8 Figures exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time arrangements and low wage earners. 9 Adjustment to dividend due to buy-back of treasury shares. 196 other inFormation 196 BMW Group Ten-year Comparison 198 BMW Group Locations 200 Glossary 202 Index 203 Index of Graphs 204 Financial Calendar 205 Contacts 197 other inFormation Sales volume Automobiles Motorcycles2 Production volume Automobiles Motorcycles2 Financial Services Contract portfolio Income Statement Revenues Gross profit margin Group4 Profit before financial result Profit before tax Income taxes Effective tax rate Net profit for the year Balance Sheet Non-current assets Current assets Equity Equity ratio Group Return on sales (earnings before tax / revenues) Non-current provisions and liabilities Current provisions and liabilities Balance sheet total Cash Flow Statement Cash and cash equivalents at balance sheet date Operating cash flow 6 Capital expenditure Capital expenditure ratio (capital expenditure / revenues) Personnel Workforce at the end of year 8 Personnel cost per employee Dividend Dividend total units units units units € million € million € million % % % € million € million € million € million % € million € million € million € million € million € million % 2013 2012 2011 2010 2009 2008 2007 2006 2005 20041 1,963,798 1,845,186 1,668,982 1,461,166 1,286,310 1,435,876 1,500,678 1,373,970 1,327,992 1,208,732 115,215 106,358 104,286 98,047 87,306 101,685 102,467 100,064 97,474 92,266 2,006,366 1,861,826 1,738,160 1,481,253 1,258,417 1,439,918 1,541,503 1,366,838 1,323,119 1,250,345 110,127 113,811 110,360 99,236 82,631 104,220 104,396 103,759 92,012 93,836 Sales volume Automobiles Motorcycles2 Production volume Automobiles Motorcycles2 Financial Services Business volume (based on balance sheet carrying amounts) 3 € million 84,347 80,974 75,245 66,233 61,202 60,653 51,257 44,010 40,428 32,556 contracts 4,130,002 3,846,364 3,592,093 3,190,353 3,085,946 3,031,935 2,629,949 2,270,528 2,087,368 1,843,399 Contract portfolio Business volume (based on balance sheet carrying amounts) 3 € million 76,058 76,848 68,821 60,477 50,681 53,197 56,018 48,999 46,656 10.5 289 413 0.8 203 49.2 210 62,009 39,944 19,915 19.5 45,119 36,919 11.4 921 351 0.7 21 6.0 330 62,416 38,670 20,273 20.1 41,526 39,287 138,368 131,835 5 123,429 110,164 101,953 101,086 7,767 4,921 3,471 6.8 7,454 4,471 4,204 7.9 20.1 7,986 7,913 10.4 2,573 32.5 5,340 86,194 52,174 35,643 25.8 52,682 50,043 7,664 9,450 6,687 8.8 20.2 8,275 5 7,803 5 10.2 2,692 5 34.5 5,111 5 81,305 5 50,530 5 30,606 5 23.2 5 52,834 5 48,395 5 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 8,370 9,167 5,240 6.8 7,776 8,110 7 3,692 5.4 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 7,432 8,149 3,263 5.4 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 8.6 110,351 89,895 105,876 89,161 5 100,306 84,887 95,453 83,141 € 96,230 72,349 100,041 75,612 107,539 76,704 106,575 76,621 105,798 75,238 Income Statement 44,335 23.2 Revenues Gross profit margin Group4 3,774 Profit before financial result 3,583 Profit before tax 8.1 Return on sales (earnings before tax / revenues) 1,341 Income taxes 37.4 Effective tax rate 2,242 Net profit for the year Balance Sheet 40,822 Non-current assets 26,812 Current assets 16,534 Equity 24.4 Equity ratio Group 26,517 Non-current provisions and liabilities 24,583 Current provisions and liabilities 67,634 Balance sheet total Cash Flow Statement 2,128 6,157 Cash and cash equivalents at balance sheet date Operating cash flow 6 4,347 Capital expenditure 9.8 Capital expenditure ratio (capital expenditure / revenues) 105,972 Personnel Workforce at the end of year 8 73,241 Personnel cost per employee Dividend Dividend per share of common stock / preferred stock € 2.60 / 2.62 2.50 /2.52 2.30 / 2.32 1.30 /1.32 0.30 / 0.32 0.30 / 0.32 1.06 / 1.08 0.70 / 0.72 0.64 / 0.66 0.62 / 0.64 Dividend per share of common stock / preferred stock € million 1,707 1,640 1,508 852 197 197 694 458 419 9 419 Dividend total 1 Adjusted for the new accounting treatment of pension obligations. 2 Excluding Husqvarna, sales volume up to 2013: 59,776 units; production up to 2013: 59,426 units. 4 Research and development expenses included in cost of sales with the effect from 2008. 5 Prior year figures have been adjusted in accordance with the revised version of IAS 19, see note 7. 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. 6 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. 7 Adjusted for reclassifications as described in note 42 of the Financial Statements 2012. 8 Figures exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time arrangements and low wage earners. 9 Adjustment to dividend due to buy-back of treasury shares. 198 BMW Group Locations — P — R — R — R — S — S — S — R — P — S — A — A — S — S — P — S The BMW Group is present in the world markets with 28 production and assembly plants, 42 sales subsidiaries and a research and development network. — H Headquarters — R Research and Development — R — S — S — S — R — P — R — S — A — S — A — S — A — S — A — S — S — S — S — S — S — S — A — S — S — P — P — P — P — S — S — S — S — P — P — S — P — S — R — H — P — P — R — P — P — P — S — C — P — R — S — S — S — S — S — S — S — S — S — S — S — S 196 other inFormation 196 BMW Group Ten-year Comparison 198 BMW Group Locations 200 Glossary 202 Index 203 Index of Graphs 204 Financial Calendar 205 Contacts 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 Engineering China, Beijing, China BMW Group Engineering Japan, Tokyo, Japan BMW Group Engineering USA, Woodcliff Lake, USA 199 other inFormation — P — P — P — S — S — S — S — S — S — S — S — S — R — S — R — S — S — S — S — R — S — S — S — S — R — R — S — S — S — A — A — A — R — R — R — S — S — S — S — S — S — P — P — P — P — P — P — P — P — P — P — P — P — S — S — S — S — S — S — S — S — S — S — P — P — P — P — S — S — S — P — P — P — S — S — P — P — S — S — S — S — S — S — S — S — S — S — S — S — P — R — R — H — P — P — P — R — R — P — P — P — P — S — P — P — P — P — C — P — P — R — S — R — P — P — S — S — C — C — R — P — S — S — R — S — R — H — P — H — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — S — P — P — P — R — R — R — R — R — R — R — R — R — S — S — S — S — S — S — S — S — S — R — R — R — P — P — P — S — S — S — A — A — A — R — S — S — S — A — A — A — S — S — S — A — A — A — S — A — S — S — S — A — A — S — S — A — A — A — S — S — S — S — S — S — P — P — P — S — S — S — A — A — A — S — S — S — S — S — S — S — S — S — P Production — C Contract production — S Sales subsidiary markets / Locations Financial Services Berlin plant Dingolfing plant Eisenach plant Goodwood plant, GB (headquarters of Rolls-Royce Motor Cars Limited) Hams Hall plant, GB Landshut plant Leipzig plant Munich plant Oxford plant, GB Regensburg plant Rosslyn plant, South Africa BMW Brilliance Automotive Ltd., Shenyang, China (joint venture with Brilliance China Automotive Holdings – 3 plants) Spartanburg plant, USA Steyr plant, Austria Swindon plant, GB Wackersdorf plant BMW – SGL joint venture (2 plants) Magna Steyr Fahrzeugtechnik, Austria — A Assembly plants CKD production Cairo, Egypt CKD production Chennai, India CKD production Jakarta, Indonesia CKD production Kaliningrad, Russia CKD production Kulim, Malaysia CKD production Manaus, Brazil CKD production Rayong, Thailand Argentina Australia Austria Belgium Brazil Bulgaria* China Canada Czech Republic* Denmark Finland France Germany Great Britain Greece Hungary* India Indonesia* Ireland Italy Japan Luxembourg Malaysia Malta* Mexico Netherlands New Zealand Norway Poland Portugal Romania* Russia Singapore Slovakia* Slovenia* South Africa South Korea Spain Sweden Switzerland Thailand USA * Sales locations only. 200 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. 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. Combined heat and power Combined heat and power (CHP) or cogeneration is the simultaneous conversion of energy sources into electricity and useful heating. In comparison to separate generation of electricity in conventional power plants, energy is converted more efficiently and with greater flexibility. As a result, this technology helps to reduce CO2 emissions. Common stock Stock with voting rights (cf. preferred stock). EBIT Abbreviation for “Earnings Before Interest and Taxes”. The profit before income taxes, minority interest and financial result. EBITDA Abbreviation for “Earnings Before Interest, Taxes, Depre- ciation and Amortisation”. The profit before income taxes, minority interest, financial result and depreciation / amortisation. 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. Effectiveness The degree to which offsetting changes in fair value or cash flows attributable to a hedged risk are achieved by the hedging instrument. Cost of materials Comprises all expenditure to purchase raw materials and supplies. DAX Abbreviation for “Deutscher Aktienindex”, the German Stock Index. The index is based on the weighted market prices of the 30 largest German stock corporations (by stock market capitalisation). Deferred taxes Accounting for deferred taxes is a method of allocating tax expense to the appropriate accounting period. Derivatives Financial products, whose measurement is derived principally from market price, market price fluctuations and expected market price changes of the underlying instrument (e.  g. indices, stocks or bonds). 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. 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. 196 other inFormation 196 BMW Group Ten-year Comparison 198 BMW Group Locations 200 Glossary 202 Index 203 Index of Graphs 204 Financial Calendar 205 Contacts 201 other inFormation 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. 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. 202 Index A Accounting policies Apprentices Automotive segment 42 99 et seq. 29 et seq. G Group tangible, intangible and investment assets 122 et seq. 4, 48, 50 et seq. 50 et seq., 53 et seq., 4, 50 et seq., 92 et seq.,175 et seq. 50 et seq., 92 et seq., 157 et seq. B Balance sheet structure Bonds 52 et seq., 142 et seq. 54 C Capital expenditure Cash and cash equivalents 104, 130 Cash flow Cash flow statement CFRP 32, 38, 40, 44 CO2 emissions Compensation Report Compliance Connected Drive Consolidated companies entity Consolidation principles Contingent liabilities Corporate Governance Cost of materials Cost of sales 180 et seq. 38 48, 99, 114 56 et seq. 145 98 28, 44 et seq., 66, 70 185 et seq. 97 et seq. 166 et seq. D Dealer organisation /dealerships Declaration with respect to the Corporate Governance Code Dividend Dow Jones Sustainability Index World 86, 119 19, 41 167 44 E Earnings per share Efficient Dynamics Employees Equity Exchange rates 42 et seq. 99, 119 38 53 et seq., 131 et seq. 25, 64, 98, 155 et seq. 53, 103, 127 et seq. 102 et seq., 146 et seq. 51 et seq., 55 et seq., 104, F Financial assets Financial instruments Financial liabilities 142 et seq. Financial result Financial Services segment Fleet emissions 48 et seq., 59, 116 36 et seq. 27 et seq., 45, 66 196 other inFormation 196 BMW Group Ten-year Comparison 198 BMW Group Locations 200 Glossary 202 Index 203 Index of Graphs 204 Financial Calendar 205 Contacts 47, 88 et seq., 114 et seq. I Income statement Income taxes Intangible assets Inventories 53, 55, 60, 103 et seq., 129 Investments accounted for using the equity method and other investments 48, 103, 116 et seq., 141 48, 50, 54, 100, 124 101, 125 K Key data per share 86 L Lease business Leased products Locations 125 198 et seq. 36 et seq. M Mandates of members of the Board of 168 Management Mandates of members of the Supervisory Board Marketable securities Motorcycles segment 102, 127 et seq. 35 169 et seq. N Net profit New financial reporting rules 4, 47 et seq. 110 et seq. O Other financial result Other investments Other operating income and expenses Other provisions Outlook 116 125 et seq. 63 et seq. 141 115 55, 61, 104, 133 et seq. 20 et seq., 27 et seq., 59, 119 P Pension provisions Performance indicators 62, 65 et seq. Personnel costs Production Production network Profit before financial result Profit before tax Property, plant and equipment 100, 124 Purchasing 32 et seq. 40 32 et seq. 4, 47 et seq. 4, 27 et seq., 48 et seq., 65 48, 50, 53 et seq., 203 other inFormation Index of Graphs 50 et seq., 158 et seq. 52, 74 et seq., 87, 133 R Rating Receivables from sales financing 53 et seq., 102 et seq., 126 Related party relationships Remuneration system 6 et seq. Report of the Supervisory Board 23, 38 et seq. Research and development Result from equity accounted investments Return on sales Revenue reserves Revenues Risks report 131 et seq. 28, 47 et seq., 59, 66, 99, 114 20 et seq., 47 et seq. 185 et seq. 68 et seq. 115 114 3, 27, 29 et seq., 65 et seq. 161 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 Sustainability 44 et seq. 85 et seq. 159 88, 121 100 et seq., 122 et seq. T Tangible, intangible and investment assets Trade payables Trade receivables 126 et seq. 55, 61, 144 50 et seq., 53 et seq., 102 et seq., 24 25 26 20 3 et seq. Finances BMW Group in figures Value drivers Exchange rates compared to the euro Oil price trend 25 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 Financial Services segment 37 Development of credit loss ratio Regional mix of purchase volumes Change in cash and cash equivalents Financial liabilities 52 Balance sheet structure – Automotive segment Balance sheet structure – Group BMW Group value added Risk management in the BMW Group 40 57 50 68 36 54 37 36 54 Production and sales volume BMW Group – key automobile markets BMW Group sales volume by region MINI brand cars – analysis by model variant Vehicle production by plant BMW Group – key motorcycle markets 35 BMW sales volume of motorcycles 35 29 32 29 31 Workforce BMW Group apprentices at 31 December Employee attrition rate at BMW AG Proportion of non-tariff female employees 43 42 43 Environment 45 CO2 emissions per vehicle produced Energy consumed per vehicle produced Process wastewater per vehicle produced Water consumption per vehicle produced Volatile organic compounds per vehicle produced Waste for disposal per vehicle produced 45 45 45 46 46 Stock Development of BMW stock 85 Compliance BMW Group Compliance Organisation 181 This version of the Annual Report is a translation from the German version. Only the original German version is binding. 204 Financial Calendar 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 Annual Report 2014 Annual Accounts Press Conference Analyst and Investor Conference Quarterly Report to 31 March 2015 Annual General Meeting Quarterly Report to 30 June 2015 Quarterly Report to 30 September 2015 19 March 2014 20 March 2014 6 May 2014 15 May 2014 5 August 2014 4 November 2014 18 March 2015 18 March 2015 19 March 2015 6 May 2015 13 May 2015 4 August 2015 3 November 2015 196 other inFormation 196 BMW Group Ten-year Comparison 198 BMW Group Locations 200 Glossary 202 Index 203 Index of Graphs 204 Financial Calendar 205 Contacts 205 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. www.annual-report2013.bmwgroup.com A FURTHER CONTRIBUTION TOWARDS PRESERVING RESOURCES BmW Group annual report 2013 was awarded the Blue angel eco-label. the paper used was produced, climate-neutrally and without optical brighteners and chlorine bleach, from recycled waste paper. all other production materials used also comply with the requirements of the Blue angel eco-label (raL-UZ 14). the Blue angel is con sidered to be one of the most stringent eco-labels in the world. the CO2 emissions generated through print and production were neutralised by the BmW Group. to this end, the corresponding amount of emissions allowances was erased, with the transaction identifications eU152502 and eU152504 on 14 february 2014. PUBLISHED BY Bayerische motoren Werke aktiengesellschaft 80788 munich Germany tel. +49 89 382-0 

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