ANNUAL REPORT 2010 FACTS AND FIGURES Contents 04 BMW GROUP IN FIGURES 06 REPORT OF THE SUPERVISORY BOARD 12 GROUP MANAGEMENT REPORT 12 A Review of the Financial Year 14 General Economic Environment 18 Review of Operations 41 BMW Group – Capital Market Activities in 2010 44 Disclosures relevant for takeovers and explanatory comments 47 Financial Analysis 47 Group Internal Management System 49 Earnings Performance 51 Financial Position 53 Net Assets Position 55 Subsequent Events Report 55 Value Added Statement 57 Key Performance Figures 58 Comments on Financial Statements of BMW AG 62 Internal Control System and explanatory comments 63 Risk Management 70 Outlook 74 GROUP FINANCIAL STATEMENTS 74 Income Statements 74 Statement of Comprehensive Income 76 Balance Sheets 78 Cash Flow Statements 80 Group Statement of Changes in Equity 81 Notes to the Group Financial Statements 81 Accounting Principles and Policies 89 Notes to the Income Statement 95 Notes to the Statement of Comprehensive Income 96 Notes to the Balance Sheet 117 Other Disclosures 133 Segment Information 138 Responsibility Statement by the Company’s Legal Representatives 139 Auditor’s Report 140 STATEMENT ON CORPORATE GOVERNANCE (Part of Management Report) 140 Information on the Company’s Governing Constitution 142 Declaration of the Board of Management and of the Supervisory Board pursuant to § 161 AktG 143 Members of the Board of Management 144 Members of the Supervisory Board 147 Information on Work Procedures of the Management Board and Supervisory Board and on the Composition and Work Procedures of its Committees 154 Compensation Report 162 Information on Corporate Governance Practices Applied Beyond Mandatory Requirements 163 Compliance in the BMW Group 166 OTHER INFORMATION 166 BMW Group Ten-year Comparison 168 BMW Group Locations 170 Glossary 172 Index 175 Financial Calendar 176 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 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 sector leader in the Dow Jones Sustainability Indices for the last six years. 04 BMW Group in figures Sales volume of automobiles Revenues in thousand units in euro billion 1,600 60 1,500 55 1,400 50 1,300 45 1,200 40 1,100 35 1,000 30 06 07 08 09 10 06 07 08 09 10 1,374.0 1,500.7 1,435.9 1,286.3 1,461.2 49.0 56.0 53.2 50.7 60.5 Profit before financial result Profit before tax in euro million in euro million 5,250 5,250 4,500 4,500 3,750 3,750 3,000 3,000 2,250 2,250 1,500 1,500 750 750 06 07 08 09 10 06 07 08 09 10 4,050 4,212 921 289 5,094 4,124 3,873 351 413 4,836 05 BMW Group in figures 2006 2007 2008 2009 2010 Change in % Sales volume – Automobiles BMW 1,185,088 1,276,793 1,202,239 1,068,770 1,224,280 14.6 MINI 188,077 222,875 232,425 216,538 234,175 8.1 Rolls-Royce 805 1,010 1,212 1,002 2,711 – Total 1,373,970 1,500,678 1,435,876 1,286,310 1,461,166 13.6 Sales volume – Motorcycles BMW 100,064 102,467 101,685 87,306 98,047 12.3 Husqvarna – – 13,511 13,052 12,066 – 7.6 Total 100,064 102,467 115,196 100,358 110,113 9.7 Production – Automobiles BMW 1,179,317 1,302,774 1,203,482 1,043,829 1,236,989 18.5 MINI 186,674 237,700 235,019 213,670 241,043 12.8 Rolls-Royce 847 1,029 1,417 918 3,221 – Total 1,366,838 1,541,503 1,439,918 1,258,417 1,481,253 17.7 Production – Motorcycles BMW 103,759 104,396 104,220 82,631 99,236 20.1 Husqvarna – – 14,232 10,612 13,035 22.8 Total 103,759 104,396 118,452 93,243 112,271 20.4 Workforce at end of year1 BMW Group 106,575 107,539 100,041 96,230 95,453 – 0.8 Financial figures in euro million Revenues 48,999 56,018 53,197 50,681 60,477 19.3 Capital expenditure 4,313 4,267 4,204 3,471 3,263 – 6.0 Depreciation and amortisation 3,272 3,683 3,670 3,600 3,682 2.3 Operating cash flow 2 5,373 6,246 4,471 4,921 8,150 65.6 Profit before financial result 4,050 4,212 921 289 5,094 – Profit before tax 4,124 3,873 351 413 4,836 – Net profit 2,874 3,134 330 210 3,234 – 1 Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners. 2 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 Auto- mobiles segment 06 Joachim Milberg Chairman of the Supervisory Board 07 REPORT OF THE SUPERVISORY BOARD Dear Ladies and Gentlemen, The fi nancial year 2010 marked an upswing for the BMW Group after the global fi nancial crisis. Together with the Board of Management and the entire workforce, we are delighted with the way business has developed, enabling us to report the best result to date in the BMW Group’s corporate history. During the year under report, we continuously and carefully monitored the running of the business and its perform- ance with the aid of regular written and oral reports provided by the Board of Management. Joint discussions were also held in which we advised the Board of Management on important aspects of projects and planning. These 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 fi ve meetings, one of them held over a two-day period, we deliberated in particular on the BMW Group’s current performance and fi nancial position, the corporate plan and strategy, risk management and risk provision, personnel decisions, the further develop- ment of the Board of Management’s compensation system and corporate governance. In addition to the scheduled meetings, the Board of Management also kept us informed of current business and economic developments, particularly sales volume performance, personnel fi gures and other signifi cant matters. The Chairman of the Board of Manage- ment informed me personally and on a regular basis about major business transactions and projects. Again in 2010 the Supervisory Board examined the management and organisation of the Financial Services segment. In preparation for the full Supervisory Board meeting, we discussed with the Presiding Board the current organisation of the Financial Services segment, which falls under the remit of the “Finances” management portfolio. We received a detailed status report on various projects aimed at improving liquidity and risk management, maximising the benefi ts from sales support given to the Automobiles segment and optimising legal entity and management structures. The framework conditions and organisational implications of the planned changes in the segment were also discussed at length. The Supervisory Board is in favour of enhancing the segment‘s legal and organisational structure in a way that ensures that suitable control and balancing mechanisms are in place in the relationship between the core industrial segments and the Financial Services segment. One meeting of the Supervisory Board took place at the Regensburg plant, where vehicles such as the BMW 1 Series, the BMW 3 Series and the BMW Z4 are manufactured. During our visit, we took the opportunity to look for ourselves at the preparations being made for the scheduled model start-ups in 2011. Using examples from the pressing plant, body construction and assembly areas, the members of the Supervisory Board were given a demonstration of how the prin- ciples of a value-added production system (VPS) can be applied to achieve further process improvements. In September, another two-day meeting was held, providing us with the opportunity for an in-depth discussion with the Board of Management regarding technical innovations and new vehicle concepts.