ANNUAL REPORT 2012 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 21 General Economic Environment 24 Review of Operations 44 BMW Stock and Capital Market in 2012 47 Disclosures relevant for takeovers and explanatory comments 50 Financial Analysis 50 Group Internal Management System 52 Earnings Performance 54 Financial Position 57 Net Assets Position 59 Subsequent Events Report 59 Value Added Statement 61 Key Performance Figures 62 Comments on Financial Statements of BMW AG 65 Internal Control System and explanatory comments 66 Risk Management 74 Outlook 78 GROUP FINANCIAL STATEMENTS 78 Income Statements 78 Statement of Comprehensive Income 80 Balance Sheets 82 Cash Flow Statements 84 Group Statement of Changes in Equity 86 Notes to the Group Financial Statements 86 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 Information on Corporate Governance Practices Applied Beyond Mandatory Requirements 166 Compliance in the BMW Group 170 Compensation Report 178 OTHER INFORMATION 178 BMW Group Ten-year Comparison 180 BMW Group Locations 182 Glossary 184 Index 186 Financial Calendar 187 Contacts A PORTRAIT OF THE COMPANY Bayerische Motoren Werke G. m. b. H. came into being in 1917, having been founded in 1916 as Bayerische Flugzeugwerke AG (BFW); it became Bayerische Motoren Werke Aktiengesellschaft (BMW AG) in 1918. The BMW Group – one of Germany’s largest industrial companies – is one of the most success- ful car and motorcycle manufacturers in the world. With BMW, MINI and Rolls-Royce, the BMW Group owns three of the strongest premium brands in the automobile industry. The vehicles it manufactures set the highest standards in terms of aesthetics, dynamics, technology and quality, borne out by the Company’s leading position in engineering and innovation. In addition to its strong position in the motorcycles market, the BMW Group also offers a successful range of financial services. The course towards a successful future was set in 2007 with the adoption of Strategy Number ONE. The business was given a new strategic direction with an emphasis on profitability and long- term value growth. Our activities will remain firmly focused on the premium segments of the international 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 1,800 75 1,700 70 1,600 65 1,500 60 1,400 55 1,300 50 1,200 45 08 09 10 11 12 08 09 10 11 12 1,435.9 1,286.3 1,461.2 1,669.0 1,845.2 53.2 50.7 60.5 68.8 76.8 * Including automobiles from the joint venture BMW Brilliance. Profit before financial result 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 08 09 10 11 12 08 09 10 11 12 921 289 5,111 8,018 8,300 351 413 4,853 7,383 7,819 5 BMW Group in figures 2008 2009 2010 2011 2012 Change in % Sales volume – Automobiles1 BMW 1,202,239 1,068,770 1,224,280 1,380,384 1,540,085 11.6 MINI 232,425 216,538 234,175 285,060 301,526 5.8 Rolls-Royce 1,212 1,002 2,711 3,538 3,575 1.0 Total 1,435,876 1,286,310 1,461,166 1,668,982 1,845,186 10.6 Sales volume – Motorcycles BMW 101,685 87,306 98,047 104,286 106,358 2.0 Husqvarna 13,511 13,052 12,066 9,286 10,751 15.8 Total 115,196 100,358 110,113 113,572 117,109 3.1 Production – Automobiles1 BMW 1,203,482 1,043,829 1,236,989 1,440,315 1,547,057 7.4 MINI 235,019 213,670 241,043 294,120 311,490 5.9 Rolls-Royce 1,417 918 3,221 3,725 3,279 – 12.0 Total 1,439,918 1,258,417 1,481,253 1,738,160 1,861,826 7.1 Production – Motorcycles BMW 104,220 82,631 99,236 110,360 113,811 3.1 Husqvarna 14,232 10,612 13,035 8,505 11,473 34.9 Total 118,452 93,243 112,271 118,865 125,284 5.4 Workforce at end of year 2 BMW Group 100,041 96,230 95,453 100,306 105,876 5.6 Financial figures in € million Revenues 53,197 50,681 60,477 68,821 76,848 11.7 Capital expenditure 4,204 3,471 3,263 3,692 5,240 41.9 Depreciation and amortisation 3,670 3,600 3,682 3,646 3,541 – 2.9 Operating cash flow 3 4,471 4,921 8,149 8,1104 9,167 13.0 Profit before financial result 921 289 5,111 8,018 8,300 3.5 Profit before tax 351 413 4,853 7,383 7,819 5.9 Net profit 330 210 3,243 4,907 5,122 4.4 1 Including automobiles from the joint venture BMW Brilliance. 2 Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners. 3 Cash inflow from operating activities of the Automotive segment. 4 Adjusted for reclassifications as described in note 42. 6 Joachim Milberg Chairman of the Supervisory Board 7 REPORT OF THE SUPERVISORY BOARD Dear Shareholders and Shareholder Representatives, Despite the persisting sovereign debt crisis in the eurozone and the volatile economic conditions prevail- ing in several of our major markets, the BMW Group finished yet another financial year with an outstanding overall result. In our capacity as Supervisory Board, we closely monitored the performance of the BMW Group and developments on specific markets throughout the financial year 2012. We duly advised the Board of Manage- ment in matters of governance and continuously supervised its running of the business with great diligence. In this endeavour we laid great store on an open, trusting and constructive exchange of information and opinions. Main emphases of the Supervisory Board’s monitoring and advisory activities We deliberated regularly on the current performance and financial position of the BMW Group in a total of five meetings. Other areas reported on and discussed extensively during the year were corporate strategy and planning, risk provision and risk management, and corporate governance. We also made decisions with respect to the composition of the Board of Management and the allocation of duties to Board of Management members. The Board of Management informed us regularly and promptly of sales performance, workforce developments and other significant matters, both at scheduled meetings and at other times as the need arose. In addition, the Chair- man of the Board of Management, Dr. Reithofer, informed me directly about major business transactions and projects. Dr. Kley, the Chairman of the Supervisory Board’s Audit Committee, regularly exchanged informa- tion with Dr. Eichiner, the Board of Management member responsible for Finance and Financial Reporting. In its regular reports on the financial condition of the Group, the Board of Management provided us with detailed descriptions of sales volume performance and market developments for each of the Automotive and Motorcycles segments as well as the performance of Financial Services, including new business volumes and the development of vehicle residual values on key markets. The Board of Management also regularly reported on the Group’s business activities in China, in particular on the sales situation there, the further expansion of production capacities at the BMW Brilliance joint venture’s manufacturing sites in Dadong and Tiexi, and on engine production at the Foresight engine plant opened in Shenyang in April 2012. Further- more, the Board of Management reported to us regularly on current earnings, profitability and major changes in the workforce size. Its business status reports also dealt with major current activities and projects, such as ongoing developments in the BMW Peugeot Citroën Electrification joint venture, the status of cooperation negotiations and agreements with Toyota in the fields of fuel cells, lightweight-construction, development of sports cars as well as in the field of battery technology research. After presentation of reports by the Board of Management, the two boards also discussed current challenges such as current economic developments and the increasing degree of regulation on a number of markets.