ANNUAL REPORT 2011 CORPORATE GOVERNANCE REFINANCING EARNINGS PERFORMANCE CASH FLOW STATEMENTS KEY PERFORMANCE FIGURES COMPARISON INCOME STATEMENTS REFINANCING SEGMENT INFORMATION BALANCE SHEETS FINANCIAL POSITION NOTES TO THE GROUP FINANCIAL STATEMENTS NET ASSETS POSITION NOTES TO STATEMENT OF COMPREHENSIVE INCOME CORPORATE EARNINGS PERFORMANCE GOVERNANCE KEY PERFORMANCE FIGURES TEN-YEAR COMPARISON Contents 4 BMW GROUP IN FIGURES 6 REPORT OF THE SUPERVISORY BOARD 14 STATEMENT OF THE CHAIRMAN OF THE BOARD OF MANAGEMENT 18 COMBINED GROUP AND COMPANY MANAGEMENT REPORT 18 A Review of the Financial Year 20 General Economic Environment 24 Review of Operations 43 BMW Stock and Capital Market in 2011 46 Disclosures relevant for takeovers and explanatory comments 49 Financial Analysis 49 Group Internal Management System 51 Earnings Performance 53 Financial Position 56 Net Assets Position 59 Subsequent Events Report 59 Value Added Statement 61 Key Performance Figures 62 Comments on Financial Statements of BMW AG 66 Internal Control System and explanatory comments 67 Risk Management 73 Outlook 76 GROUP FINANCIAL STATEMENTS 76 Income Statements 76 Statement of Comprehensive Income 78 Balance Sheets 80 Cash Flow Statements 82 Group Statement of Changes in Equity 84 Notes to the Group Financial Statements 84 Accounting Principles and Policies 100 Notes to the Income Statement 107 Notes to the Statement of Comprehensive Income 108 Notes to the Balance Sheet 129 Other Disclosures 145 Segment Information 150 Responsibility Statement by the Company’s Legal Representatives 151 Auditor’s Report 152 STATEMENT ON CORPORATE GOVERNANCE (Part of the Combined Group and Company Management Report) 152 Information on the Company’s Governing Constitution 153 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 154 Members of the Board of Management 155 Members of the Supervisory Board 158 Composition and work procedures of the Board of Management of BMW AG and its committees 160 Composition and work procedures of the Supervisory Board of BMW AG and its committees 165 Compensation Report 173 Information on Corporate Governance Practices Applied Beyond Mandatory Requirements 175 Compliance in the BMW Group 178 OTHER INFORMATION 178 BMW Group Ten-year Comparison 180 BMW Group Locations 182 Glossary 184 Index 190 Financial Calendar 191 Contacts A PORTRAIT OF THE COMPANY Bayerische Motoren Werke G. m. b. H. came into being in 1917, having been founded in 1916 as Bayerische Flugzeugwerke AG (BFW); it became Bayerische Motoren Werke Aktiengesellschaft (BMW AG) in 1918. The BMW Group – one of Germany’s largest industrial companies – is one of the most success- ful car and motorcycle manufacturers in the world. With BMW, MINI and Rolls-Royce, the BMW Group owns three of the strongest premium brands in the automobile industry. The vehicles it manufactures set the highest standards in terms of aesthetics, dynamics, technology and quality, borne out by the company’s leading position in engineering and innovation. In addition to its strong position in the motorcycles market with the BMW and Husqvarna brands, the BMW Group also offers a successful range of financial services. The course towards a successful future was set in 2007 with the adoption of Strategy Number ONE. The business was given a new strategic direction with an emphasis on profitability and long- term value growth. Our activities will remain firmly focused on the premium segments of the inter national car markets. Our mission statement up to the year 2020 is clearly defined: the BMW Group is the world’s leading provider of premium products and premium services for indi- vidual mobility. Long-term thinking and responsible action have long been the cornerstones of our success. Striving for ecological and social sustainability along the entire value-added chain, taking full responsibility for our products and giving an unequivocal commitment to preserving resources are prime objectives firmly embedded in our corporate strategy. For these reasons, the BMW Group has been the most sustainable company in the automotive industry for many years. 4 BMW Group in figures Sales volume of automobiles Revenues in thousand units in € billion 1,700 70 1,600 65 1,500 60 1,400 55 1,300 50 1,200 45 1,100 40 07 08 09 10 11 07 08 09 10 11 1,500.7 1,435.9 1,286.3 1,461.2 1,669.0 56.0 53.2 50.7 60.5 68.8 Profit before financial result Profit before tax in € million in € million 8,400 8,400 7,200 7,200 6,000 6,000 4,800 4,800 3,600 3,600 2,400 2,400 1,200 1,200 07 08 09 10 11 07 08 09 10 11 4,212 921 289 5,111* 8,018 3,873 351 413 4,853* 7,383 * Adjusted for effect of change in accounting policy for leased products as described * Adjusted for effect of change in accounting policy for leased products as described in note 8 in note 8 5 BMW Group in figures 2007 2008 2009 2010 2011 Change in % Sales volume – Automobiles BMW 1,276,793 1,202,239 1,068,770 1,224,280 1,380,384 12.8 MINI 222,875 232,425 216,538 234,175 285,060 21.7 Rolls-Royce 1,010 1,212 1,002 2,711 3,538 30.5 Total 1,500,678 1,435,876 1,286,310 1,461,166 1,668,982 14.2 Sales volume – Motorcycles BMW 102,467 101,685 87,306 98,047 104,286 6.4 Husqvarna – 13,511 13,052 12,066 9,286 – 23.0 Total 102,467 115,196 100,358 110,113 113,572 3.1 Production – Automobiles BMW 1,302,774 1,203,482 1,043,829 1,236,989 1,440,315 16.4 MINI 237,700 235,019 213,670 241,043 294,120 22.0 Rolls-Royce 1,029 1,417 918 3,221 3,725 15.6 Total 1,541,503 1,439,918 1,258,417 1,481,253 1,738,160 17.3 Production – Motorcycles BMW 104,396 104,220 82,631 99,236 110,360 11.2 Husqvarna – 14,232 10,612 13,035 8,505 – 34.8 Total 104,396 118,452 93,243 112,271 118,865 5.9 Workforce at end of year1 BMW Group 107,539 100,041 96,230 95,453 100,306 5.1 Financial figures in € million Revenues 56,018 53,197 50,681 60,477 68,821 13.8 Capital expenditure 4,267 4,204 3,471 3,263 3,692 13.1 Depreciation and amortisation 3,683 3,670 3,600 3,682 3,646 – 1.0 Operating cash flow 6,246 4,471 4,921 8,1492 7,077 –13.2 Profit before financial result 4,212 921 289 5,1112 8,018 56.9 Profit before tax 3,873 351 413 4,8532 7,383 52.1 Net profit 3,134 330 210 3,2432 4,907 51.3 1 Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners. 2 Adjusted for effect of change in accounting policy for leased products as described in note 8 6 Joachim Milberg Chairman of the Supervisory Board 7 REPORT OF THE SUPERVISORY BOARD Ladies and Gentlemen, The BMW Group finished the financial year 2011 with sales volume, results and profitability at record levels and consolidated its position as market leader in the premium car segment. Despite volatile business conditions, the BMW Group experienced the best year of its corporate history in 2011. Throughout the year, the Supervisory Board monitored business performance with great interest, supervised the activities of the Board of Management continuously and diligently, and assisted it in an advisory capacity in the planning of all major undertakings. Discussions with the Board of Management were always conducted constructively and in an atmosphere of trust. Main emphases of the Supervisory Board’s monitoring and advisory activities In a total of five meetings, we deliberated in particular on the BMW Group’s current performance and financial position, corporate strategy and business plans, risk provision and risk management, the Board of Management’s compensation system, and corporate governance issues. The Board of Management informed us regularly and promptly of sales performance, workforce developments and other significant matters, both at scheduled meetings and at other times as the need arose. Furthermore, the Chairman of the Board of Management informed me personally and regularly of important business transactions and projects. As well as at scheduled meetings, Mr Kley, the Chairman of the Audit Committee, was also in regular contact with Mr Eichiner, the Board of Management member responsible for finance and accounting. The Board of Management reported to us regularly on sales volume developments in the Automotive and Motorcycles segments, new business volumes in the Financial Services segment, changes in vehicle residual values on key markets as well as earnings and profitability during the year. We also took the opportunity at meetings with the Board of Management to discuss current challenges such as the impact of the catastrophe in Japan on the BMW Group’s production network. The Board of Management reported in depth on the efforts of the BMW Task Force to guarantee the supply of parts and components to production lines. Together with the Board of Management we also discussed the planning of production capacities as well as the in- creasing difficulties experienced in importing vehicles to certain markets. The Board of Management re- ported on significant transactions for the BMW Group, such as the commencement of the BMW Peugeot Citroën Electrification joint venture, the purchase of the Fleet Management Division from the Dutch bank ING, the acquisition of a strategic investment in SGL Carbon SE, the intention to cooperate with Toyota Motor Corporation in basic research for battery cell technology and the signing of a contract with Toyota Motor Europe SA for the supply of diesel engines from 2014 onwards.