Annual Report 2006 Rolls-Royce Motor Cars Limited Facts and figures 2006 BMW Group in figures 02 Report of the Supervisory Board 04 Group Management Report 10 A Review of the Financial Year 10 General Economic Environment 12 Review of operations 15 BMW Stock and Bonds in 2006 38 Disclosures pursuant to §289 (4) and §315 (4) HGB 41 Financial Analysis 43 – Group Internal Management System 43 – Earnings performance 44 – Financial position 46 – Net assets position 48 – Subsequent events report 50 – Value added statement 50 – Key performance figures 53 – Comments on Financial Statements of BMW AG 54 Risk Management 58 Outlook 62 Group Financial Statements 65 Group and sub-group Income Statements 65 Group and sub-group Balance Sheets 66 Group and sub-group Cash Flow Statements 68 Group Statement of Changes in Equity 70 Statement of Income and Expenses recognised directly in Equity 71 Notes to the Group Financial Statements 72 – Accounting Principles and Policies 72 – Notes to the Income Statement 79 – Notes to the Balance Sheet 86 – Other Disclosures 104 – Segment Information 111 Auditors’ Report 115 Corporate Governance 116 Members of the Supervisory Board 116 Members of the Board of Management 119 Corporate Governance in the BMW Group 120 Compensation Report (Sub-section of Management Report) 121 Directors’ Dealings 124 Shareholdings of members of the Board of Management and the Supervisory Board 124 Declaration of the Board of Management and of the Supervisory Board pursuant to §161 AktG 125 Other Information 126 BMW AG Principal Subsidiaries 126 BMW Group 10-year Comparison 128 BMW Group Locations 130 Glossary 132 Index 136 Contacts 138 Financial Calendar 139 BMW Group Revenues BMW Group Capital expenditure in euro billion in euro million 50 5,000 45 4,500 40 4,000 35 3,500 30 3,000 25 2,500 02* 03 04 05 06 02 03 04 05 06 42.4 41.5 44.3 46.7 49.0 4,042 4,245 4,347 3,993 4,313 * reclassified after harmonisation of internal and external reporting systems BMW Group Deliveries of automobiles BMW Group Profit before tax in thousand in euro million 1,400 4,000 1,300 3,500 1,200 3,000 1,100 2,500 1,000 2,000 900 1,500 02 03 04 05 06 02 03 04* 05 06 1,057.3 1,104.9 1,208.7 1,328.0 1,374.0 3,297 3,205 3,583 3,287 4,124 * adjusted for new accounting treatment of pension obligations A portrait of the Company Bayerische Motoren Werke G.m.b.H. came into The BMW Group aims to generate profitable being in 1917, having been founded in 1916 as growth and above-average returns by focusing on “Bayerische Flugzeugwerke AG” (BFW); it became the premium segments of the international auto- a stock corporation (Aktiengesellschaft) in 1918. mobile markets. With this in mind, a wide-ranging Today, the BMW Group is one of the ten largest product and market offensive was initiated back in car manufacturers in the world and possesses, with 2001, which has resulted, over the past years, in its BMW, MINI and Rolls-Royce brands, three of the the BMW Group expanding its product range con- strongest premium brands in the car industry. The siderably and strengthening its worldwide market BMW Group also has a strong market position in the position. The BMW Group will continue in this vein motorcycle sector and operates successfully in the in the coming years. area of financial services. 03 BMW Group in figures 2002 2003 2004 2005 2006 Change in % Vehicle production BMW 930,221 944,072 1,059,978 1,122,308 1,179,317 5.1 MINI 160,037 174,366 189,492 200,119 186,674 – 6.7 Rolls-Royce – 502 875 692 847 22.4 Motorcycles1] 93,010 89,745 93,836 92,012 103,759 12.8 Deliveries to customers BMW 913,225 928,151 1,023,583 1,126,768 1,185,088 5.2 MINI 144,119 176,465 184,357 200,428 188,077 – 6.2 Rolls-Royce – 300 792 796 805 1.1 Motorcycles 2] 92,599 92,962 92,266 97,474 100,064 2.7 Workforce at end of year 3] 101,395 104,342 105,972 105,7984] 106,575 0.7 in euro million 2002 2003 2004 2005 2006 Change in % Revenues 42,4115] 41,525 44,335 46,656 48,999 5.0 Capital expenditure 4,042 4,245 4,347 3,993 4,313 8.0 Depreciation and amortisation 2,143 2,370 2,672 3,025 3,272 8.2 Operating cash flow 7] 4,553 4,970 6,157 6,184 5,373 –13.1 Profit before tax 3,297 3,205 3,5836] 3,287 4,124 25.5 Net profit 2,020 1,947 2,2426] 2,239 2,874 28.4 1] excluding C1, total production of the C1 to 2002: 33,489 units, from 2006 including BMW G 650 X assembly by Piaggio S.p.A. 2] excluding C1, sales volume to 2003: 32,859 units 3] Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners. 4] Including acquired entities, the comparable number of employees was 106,174 employees at 31 December 2005. 5] reclassified after harmonisation of internal and external reporting systems 6] adjusted for new accounting treatment of pension obligations 7] In its financial statements for 2005, the BMW Group brought the cash flow computation into line with standards normally applied on the financial markets. Since then, the BMW Group discloses the figures for the cash flow from operating activities (operating cash flow), corresponding to the cash flow from Industrial Operations reported in the cash flow statement. 04 Report of the Supervisory Board Ladies and Gentlemen, Over the course of the financial year 2006, the most successful year ever recorded in the history of the BMW Group, the Supervisory Board closely monitored the company’s management with the aid of extensive written and oral reports pro- vided by the Board of Management and continuously supported it in an advisory capacity through regular discussions. In a total of five meetings, the Supervisory Board considered the business and financial position of the BMW Group, its risk analysis and risk management systems, selected topics of strategic interest as well as the composition of the Board of Management. The Board of Management also kept the Supervisory Board informed of current business developments and matters of particular significance, either at scheduled meetings or at other times when the need arose. Decisions concerning changes in the Board of Management stood at the fore- front of the July 2006 Supervisory Board meeting. Dr. Norbert Reithofer, at that stage the Board of Management member respon- sible for Production, was named to succeed Dr. Helmut Panke as Chairman of the Board of Management with effect from 1 September 2006. Joachim Milberg Chairman of the Supervisory Board In his capacity as Chairman of the Board of Management from 2002 to 2006, Dr. Panke was responsible for leading the BMW Group to unprecedented suc- cess and the positive image of the BMW Group was indelibly shaped by his personality. On 31 August 2006, Dr. Panke left the Board of Management after a total of 24 years in the service of the company, including six years of board membership and a further four years as Chairman of the Board of Management. He handed over the helm at a time where the BMW Group is able to present itself in a position of both inward and outward strength. The Supervisory Board would like to take this opportunity to express its great respect for, and apprecia- tion of, this achievement. Also at the Supervisory Board meeting in July 2006, Frank-Peter Arndt, at that stage Head of the Dingolfing Plant, was appointed Board of Management mem- ber with responsibility for Production with effect from 1 September 2006. Prof. Dr. Burkhard Göschel, who had been responsible for Development and Purchasing since 2000, left the Board of Management with effect from 31 Octo- ber 2006. The Supervisory Board would like to thank Prof. Dr. Göschel for his outstanding accomplishments in the service of the BMW Group (since 1978) and as a member of the Board of Management (since 2000). 05 Dr. Klaus Draeger was appointed to succeed Prof. Dr. Göschel as member of the Board of Management with effect from 1 November 2006. Dr. Draeger had previously occupied the post of Head of Department with responsibility for the Group’s large-size model series (the BMW 7, 6 and 5 Series). Deliberations on the future strategic orientation of the BMW Group constituted another key area of activity for the Supervisory Board during 2006. Based on writ- ten and oral reports received from the Board of Management, the Supervisory Board intensively considered the premium strategy, currently being followed by the Board of Management, aimed at sustainable growth and long-term corpo- rate appreciation in value. This strategic orientation is also the subject of a con- tinuing exchange of views between the Chairman of the Supervisory Board on the one side and the Chairman of the Board of Management on the other. The Supervisory Board supports the strategy pursued by the Board of Management, namely continuing the new model product initiative implemented over recent years, remaining committed to the premium car and motorcycle markets and ex- panding the BMW Group’s financial service activities. The two boards also discussed the market opportunities available to the group, especially in Asia, as well as other measures aimed at expanding the BMW Group’s market presence.