BMW AG | Annual Report 2006

Facts and figures 2006

BMW Group in figures

02

04

Report of the Supervisory Board

Group Management Report

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds in 2006

Disclosures pursuant to §289 (4) and §315 (4) HGB

Financial Analysis

10

12

15

38

41

43

44

46

48

50

53

54

58

62

–

Group Internal Management System

Earnings performance

Financial position

Net assets position

Subsequent events report

Value added statement

Key performance figures

Comments on Financial Statements of BMW AG

Risk Management

Outlook

Group Financial Statements

65

66

68

70

Group and sub-group Income Statements

Group and sub-group Balance Sheets

Group and sub-group Cash Flow Statements

Group Statement of Changes in Equity

Statement of Income and Expenses

recognised directly in Equity

71

72

Notes to the Group Financial Statements

–

Accounting Principles and Policies

Notes to the

Income Statement

Notes to the Balance Sheet

Other Disclosures

Segment Information

Auditors’ Report

79

86

104

111

115

–

Corporate Governance

116

119

120

Members of the Supervisory Board

Members of the Board of Management

Corporate Governance in the BMW Group

Compensation Report (Sub-section of Management Report) 121

Directors’ Dealings

124

125

Shareholdings of members of the Board of

Management and the Supervisory Board

Declaration of the Board of Management and of

the Supervisory Board pursuant to §161 AktG

Other Information

BMW AG Principal Subsidiaries

BMW Group 10-year Comparison

BMW Group Locations

Glossary

Index

Contacts

Financial Calendar

126

128

130

132

136

138

139

BMW Group Reve nue s

BMW Group Capital expe nditure

in euro billion

in euro million

5

4

3

2

0

5

0

5

0

5

5,000

4,500

4,000

3,500

3,000

2,500

*

0

2

03

04

05

06

02

03

04

05

06

4

2.4

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 De live rie s of automobile s

BMW Group P rofit be fore tax

in thousand

in euro million

1

,400

,300

,200

,1 00

,000

4,000

3,500

3,000

2,500

2,000

1,500

9

00

*

0

2

03

04

05

06

02

03

3,205

04

05

06

1

,057.3 1,104.9 1,20 8.7 1,328.0

1,374.0

3,297

3,583

3,287

4 ,1 24

*

adjusted for new accounting treatment of pension obligations

A portrait of the Company

Bayerische Motoren Werke G.m.b.H. came into

being in 1917, having been founded in 1916 as

The BMW Group aims to generate profitable

growth and above-average returns by focusing on

the premium segments of the international auto-

mobile markets. With this in mind, a wide-ranging

product and market offensive was initiated back in

2001, which has resulted, over the past years, in

the BMW Group expanding its product range con-

siderably and strengthening its worldwide market

position. The BMW Group will continue in this vein

in the coming years.

“Bayerische Flugzeugwerke AG” (BFW); it became

a stock corporation (Aktiengesellschaft) in 1918.

Today, the BMW Group is one of the ten largest

car manufacturers in the world and possesses, with

its BMW, MINI and Rolls-Royce brands, three of the

strongest premium brands in the car industry. The

BMW Group also has a strong market position in the

motorcycle sector and operates successfully in the

area of financial services.

0

3

BMW Group in figure s

2

002

2003

2004

2005

2006

Change

in %

Vehicle production

BMW

930,221

160,037

–

944,072

174,366

502

1,059,978

189,492

875

1 ,1 22,308

200 ,1 19

692

1 ,1 79,317

186,674

847

5.1

– 6.7

22.4

12.8

MINI

Rolls-Royce

Motorcycles ^]

1

93,010

89,745

93,836

92,012

103,759

Deliveries to customers

BMW

913,225

144 ,1 19

–

928 ,1 51

176,465

300

1,023,583

184,357

792

1 ,1 26,768

200,428

796

1 ,1 85,088

188,077

805

5.2

– 6.2

1.1

MINI

Rolls-Royce

Motorcycles ²

]

92,599

92,962

92,266

97,474

100,064

2.7

Workforce at end of year ^]

3

101,395

2002

104,342

2003

105,972

2004

105,798⁴^]

2005

106,575

2006

0.7

in euro million

Change

in %

5

Revenues

42,411 ^]

4,042

2 ,1 43

41,525

4,245

2,370

4,970

3,205

1,947

44,335

4,347

2,672

6 ,1 57

3,583 ^]

2,242 ^]

46,656

3,993

3,025

6 ,1 84

3,287

2,239

48,999

4,313

3,272

5,373

4 ,1 24

2,874

5.0

8.0

Capital expenditure

Depreciation and amortisation

Operating cash flow ^]

Profit before tax

8.2

7

4,553

3,297

2,020

–13.1

25.5

28.4

6

Net profit

1

2

3

4

5

6

7

] 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.

] excluding C1, sales volume to 2003: 32,859 units

] Figures exclude suspended contracts of employment, employees in the non-work phases of pre-retirement part-time arrangements and low income earners.

] Including acquired entities, the comparable number of employees was 106 ,1 74 employees at 31 December 2005.

] reclassified after harmonisation of internal and external reporting systems

] adjusted for new accounting treatment of pension obligations

] 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).

0

5

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. In this context, the members of the Supervisory Board were

shown the extended version of the BMW 5 Series Sedan, a vehicle specifically

designed for the Chinese market and on sale there since December 2006.

The Supervisory Board was also kept informed about the construction of a new

plant in India and the current progress of a new production and sales company

which is being set up for that market.

The Supervisory Board also followed with great interest the Board of Manage-

ment’s activities regarding the continuing expansion of the BMW Group’s pro-

duction network. The Supervisory Board obtained information about significant

areas of capital expenditure in 2006 which are aimed at reinforcing the under-

lying strength of the production network and, at the same time, creating the ba-

sis for further sales volume growth. Particularly noteworthy developments in

this respect have been the expansion of production capacities for the MINI in the

United Kingdom and modifications at the BMW Spartanburg plant in the USA for

the manufacture of the new BMW X5.

In the view of the Supervisory Board, the on-going efficiency improvement

measures implemented in all lines of business have further strengthened the

competitiveness of the BMW Group. The Supervisory Board was kept informed

by the Board of Management of the nature and the progress of measures taken

and their successful implementation.

0

6

Re port of the S upe rvis ory Board

The Supervisory Board used the business status reports prepared by the Board

of Management for each Supervisory meeting to keep abreast of business per-

formance, including that of the Financial Services and Motorcycles segments.

These business status reports also provided information about the situation of

competitors in the major markets, the fluctuation of the euro against the US dol-

lar and other important currencies, the BMW Group’s currency management

strategy and, in particular, its sales volume performance.

The Board of Management also informed the Supervisory Board of the progress

of the share buy-back programme and the decision to withdraw these shares

from circulation with a view to reducing the company’s outstanding share capital.

The Supervisory Board subsequently amended the wording of the Articles of

Incorporation to take account of the reduced share capital.

As a special topic, the Supervisory Board deliberated intensively in 2006 on the

Motorcycles segment, including a review of the renewal of production structures

at the Berlin plant and the Board of Management’s continued model range ex-

pansion, intended to attract new target groups.

The Supervisory Board discussed in detail with the Board of Management both

the annual budget for the financial year 2007 and the long-term business plan for

the BMW Group presented to it for authorisation. The long-term business plan

was approved as necessary.

During the financial year 2006, the Supervisory Board and the Board of Manage-

ment again discussed the subject of corporate governance in great detail and

issued a joint Declaration of Compliance with the German Corporate Governance

Code pursuant to §161 AktG. Having been satisfied that the Code’s recom-

mendations had been fulfilled in accordance with the previous Declaration of

Compliance (subject to a small number of exceptions stated therein), the Board

of Management and the Supervisory Board took the decision to fulfil all of the

recommendations contained in the revised version of the Code on 24 J uly

2

006, with a single exception, namely that the discussion and regular review of

the structure of the compensation system of the Board of Management is per-

formed by the Personnel Committee. The Chairman of that committee informs

the members of the Supervisory Board at its next meeting.

In conjunction with the Disclosure of Management Board Compensation Act

(VorstOG), listed companies in Germany are now required to disclose details of

the remuneration of Board of Management members, analysed individually. In

advance of the Annual General Meeting in 2006, the two boards had decided

not to apply the option of proposing an exception to the Annual General Meeting

2

006, but rather to comply with the legal requirements. BMW AG is thus required

0

7

to meet the disclosure requirements for the first time for the financial year 2006.

A detailed report on the amount and structure of the compensation of the

Board of Management and the Supervisory Board can be found in the Corporate

Governance Report.

The Supervisory Board also questioned the effectiveness of its own work and

perceives improvements in cooperation to be part of an on-going process.

The composition of the Presiding Board and the three committees of the Super-

visory Board (see page 116) again remained unchanged during the financial year

2

006. The Chairman reported regularly at Supervisory Board meetings on the

status of committee work.

The focus of each of the four meetings held by the Presiding Board was to pre-

pare the plenum meetings, in particular the selection of special topics of report

and to hold preparatory discussions on the more complex topics with members

of the Board of Management. The Presiding Board also requested the new Chair-

man of the Board of Management to report on the main focuses of the group’s

future orientation. Information was also acquired about new legislation in Ger-

many, such as the Takeover Guidelines Implementation Act, affecting the duties

of the Supervisory Board.

The Audit Committee convened three times during the period under report. One

of these meetings served primarily to prepare for the Supervisory Board meeting

in spring 2006, the main purpose of which was to consider the drafts of the

Company and Group financial statements. Apart from scrutinising the drafts, the

Audit Committee also obtained a Declaration of Independence from the external

auditors and determined the areas of audit emphasis to be incorporated into the

audit engagement letter. The Audit Committee also enquired into the impact of

settling the exchangeable bond on shares in Rolls-Royce plc, London. A further

Audit Committee meeting was dedicated to the consideration of risk manage-

ment issues, including the evaluation of currency risks and anti-fraud management.

The Audit Committee also gathered information about forthcoming changes

in law, such as the new Transparency Guidelines Implementation Act that came

into force on 20 J anuary 2007.

The main activity of the six meetings of the Personnel Committee in 2006 in-

volved the preparation of decisions relating to the composition of the Board

of Management, in particular determining the short-list of candidates for the

positions of Chairman of the Board of Management and other board positions.

The Personnel Committee also reviewed the appropriateness of the compen-

sation of the members of the Board of Management, in comparison with the

automotive industry and other DAX-listed companies, drafted resolutions re-

0

8

Re port of the S upe rvis ory Board

garding the employment contracts of Board of Management members and, in

a number of cases, approved the assumption of external mandates by Board

members.

The statutory Mediation Committee (§ 27 (3) of the German Co-Determination

Law) was not required to convene during the financial year 2006.

The Company and Group financial statements of Bayerische Motoren Werke

Aktiengesellschaft for the year ended 31 December 2006 and the combined

Company and Group Management Report were audited by KPMG Deutsche

Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft,

Munich, and given an unqualified audit opinion. First, the Audit Committee on

2

March 2007 and then, the Supervisory Board on 8 March 2007, examined and

considered the above-mentioned statements prepared by the Board of Manage-

ment. The external auditors were present at both meetings to report on the main

findings of their audit and to provide additional information. The long-form audit

reports of the external auditors were made available to all members of the Super-

visory Board. The Supervisory Board concurred with the results of the external

audit and approved the Company and Group Financial Statements of Bayerische

Motoren Werke Aktiengesellschaft for the financial year 2006 prepared by the

Board of Management. The Company financial statements are therefore adopted.

In accordance with the Takeover Guidelines Implementation Act that came into

force in mid-2006, the combined Company and Group management report also

contains additional information. Detailed disclosures, to which reference is

made here, are provided on pages 41 et seq. of the Annual Report.The principal

agreements to which BMW AG is party and which contain specific clauses that

are triggered in the event of a change of control or the acquisition of control

(e.g. as a consequence of a takeover bid) are disclosed there. Some of these

relate to cooperation or joint venture contracts with mutual change of control

clauses (i.e. which also confer rights on BMW AG) as well as specific financing

agreements with change of control clauses which take account of the legitimate

interests of the lender. The BMW Group has not concluded any compensation

agreements with members of the Board of Management or with employees for

situations involving a takeover offer.

The Board of Management’s proposal to use the unappropriated profit available

for distribution was reviewed by the Supervisory Board. The Supervisory Board

concurs with the proposal submitted by the Board of Management to pay a

dividend of euro 0.70 for each share of common stock entitled to receive a divi-

09

dend and to pay a dividend of euro 0.72 for each share of non-voting preferred

stock entitled to receive a dividend.

In accordance with the conclusion reached on the Supervisory Board’s examina-

tion, no objections were raised.

As announced in the previous year Annual Report, Mr. Volker Doppelfeld’s term

of office in the Supervisory Board came to an end of the close of the Annual

General Meeting on16 May 2006 after many years of highly distinguished service.

Having reached the age of retirement, Mr. Doppelfeld did not stand for re-

election. The Supervisory Board took the opportunity of paying tribute to

Mr. Doppelfeld in the presence of shareholders at the last Annual General Meeting.

Two further changes took place to the composition of the Supervisory Board

during or at the end of the financial year 2006. Heinz-Joachim Neubürger was

appointed member of the Supervisory Board at the Annual General Meeting on

16 May 2006. Werner Eisgruber took the decision, with the full understanding

of the Supervisory Board, to resign from his office as employee representative

on the Supervisory Board at the end of the financial year. The Supervisory Board

would like to thank Mr. Eisgruber for his trustworthy and excellent cooperation.

The premature departure of Mr. Eisgruber left the Supervisory Board incom-

plete. Stefan Schmid, Chairman of the Works Council at the Dingolfing plant,

was thereupon appointed to the Supervisory Board by court decision as employee

representative on 3 January 2007.

The Supervisory Board would like to thank the board members leaving office

and those still in office as well as all BMW Group employees for their concerted

performance and congratulate them on the success achieved in the financial

year 2006.

Munich, March 2007

The Supervisory Board

Yours,

Joachim Milberg

Chairman of the Supervisory Board

1

0

Group Manage me nt Re port

A Revie w of the Financial Ye ar

BMW Group re ports the mos t s ucce s s ful ye ar

in its corporate his tory

plc, London, profit before tax improved by 3.0 % com-

pared to the previous year.

The BMW Group achieved record levels for sales

The adverse effects from foreign exchange and

volume, revenues and earnings in 2006.The past year high raw material prices were felt most by the Auto-

has therefore been the most successful in the Group’s mobiles segment. The segment profit, at euro

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

corporate history. In spite of adverse effects from

foreign exchange and high raw material prices hold-

ing down the increase in reported results, the BMW

Group was able to achieve, and in some areas do

3,012 million, was nevertheless up by 1.2 % over

the previous year.

The profit before tax of the Motorcycles seg-

ment rose by 10.0 % to euro 66 million. The main

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

even better than the targets it had set itself for 2006. factors behind this positive development were the

Within the automobile line of business, the total

number of BMW, MINI and Rolls-Royce brand cars

sold increased by 3.5 % to a total of 1,373,970 vehi-

cles. The anticipated seasonal effect, caused by

base effects during the first half of the year and by

numerous model life-cycle factors over the course

of the year, was evident. This caused the sales

volume to increase significantly more sharply during

the first half of year than in the second half.

Within the motorcycles line of business, the

efficiency improvement measures initiated in 2005

started taking effect, bringing about the desired

improvement in competitiveness. For the first time

in its corporate history, more than 100,000 BMW

motorcycles were manufactured and sold in a single

year.

process optimisation and efficiency improvement

measures initiated in the previous year.

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Earnings of the Financial Services segment

continued to develop well on the back of unabated

growth. Segment profit before tax amounted to euro

685 million, surpassing the previous year’s figure by

13.2 %.

As a result of various positive tax factors, in

particular in Germany, the effective tax rate of the

BMW Group in 2006, at 30.3 %, was just below the

previous year’s level (31.9 %).

Outlook

The group net profit for 2006, at euro 2,874 mil-

lion, was also at a new high level.The previous year’s

figure was surpassed by 28.4 %.

Incre as e d divide nd propos e d

The financial services business remained on

growth course in 2006. On the one hand, higher

interest rates and the related increase in refinancing

costs had the expected adverse impact on reported

results. However, by optimising processes, expanding

the range of products and increasing regional cover-

age, it was possible to implement suitable measures

to counter the adverse impact.

Reconciliations to group profit were again in-

fluenced significantly by external factors in 2006, in

particular by the impact of the exchangeable bond

option relating to the BMW Group investment in

Rolls-Royce plc, London. In 2005, the bond had

given rise to fair value losses of euro 356 million. By

contrast, the exchangeable bond gave rise to an

accounting gain of euro 372 million in 2006, which

had a positive impact on reconciliations to group

profit and thus to the earnings of the BMW Group

for the year.

The Board of Management and Supervisory Board

propose to the Annual General Meeting to use the

unappropriated profit available for distribution in

BMW AG amounting to euro 458 million, to pay a

dividend of euro 0.70 for each share of common

stock (2005: euro 0.64), an increase of 9.4 % over

the previous year and euro 0.72 for each share of

preferred stock, an increase of 9.1% over the pre-

vious year (2005: euro 0.66).

Reve nue s at ne w high leve l

The good sales volume performance and the con-

tinued strong growth of financial services business

resulted in a sharp increase in group revenues.

These rose in 2006 by 5.0 % to euro 48,999 million.

Excluding currency fluctuations, group revenues

would have increased by 5.5 %.

Revenues generated by the Automobiles seg-

ment grew by 4.2 % in 2006 to reach euro 47,767

million, therefore increasing marginally faster than

sales volume.

S harp incre as e in e arnings

Profit before tax surpassed the euro 4 billion level

for the first time in 2006. At euro 4 ,1 24 million, the

Revenues generated by the Motorcycles seg-

ment in 2006 were up by 3.4 % compared to the

previous year’s figure was exceeded by 25.5 %. Even previous year, reaching a total of euro 1,265 million.

excluding the impact of the exchangeable bond re-

lating to the BMW Group investment in Rolls-Royce

The current product initiative again had a positive

impact on segment revenues.

1

BMW Group Reve nue s by re gion

in euro million

1

6,000

4,000

2,000

0,000

Rest of Europe

North America

Germany

8

6

4

2

,000

Asia/Oceania

United Kingdom

Other markets

0

2

03

8,728

04

05

06

Rest of Europe

North America

Germany

8,481

10,574

10,205

11,961

4,915

5,249

1,431

12,141

10,957

11,001

5,538

5,125

1,894

13,226

11,779

10,601

6,200

13,085

10,404

4,594

4,687

1,160

11,252

10,590

5,130

Asia/Oceania

United Kingdom

Other markets

4,661

1,164

5,214

1,979

Revenues generated by the Financial Services

of euro 1,536 million (2005: euro 1,396 million;

segment rose by17.8 % in 2006 to euro 11,079 million. +10.0 %) was recognised as assets in accordance

with IAS 38 so that total additions in 2006 amounted

Incre as e d capital expe nditure

to euro 4,313 million. Overall, total capital expendi-

ture of the BMW Group in 2006 was therefore up by

8.0 %.

As in the previous year, increased capitalised

development costs resulted from the higher volume

of series development projects carried out during

the year under report.The proportion of development

costs recognised as assets in 2006 was 47.9 %

(2005: 44.8 %).

In 2006, the BMW Group invested primarily in the

further expansion of its production and sales net-

works. Important areas of capital expenditure in-

cluded expansion of the MINI Production Triangle,

modification work at the BMW plant in Spartanburg,

refurbishment of the group’s headquarters and con-

struction of “BMW Welt”, the new brand experience

centre in Munich.

In 2006, the BMW Group invested euro 2,777

million in property, plant and equipment and other

intangible assets, 6.9 % more than in the previous

year. In addition to this, development expenditure

The capital expenditure ratio in 2006 (i.e. the

ratio of capital expenditure to group revenues) in-

creased slightly in 2006 and stood at 8.8 % (2005:

8.6 %).

BMW Group Capital expe nditure and ope rating cas h flow

in euro million

8

7

6

5

4

3

2

1

,000

0

2

03

4,245

4,970

04

4,347

6,157 ^*

05

3,993

6,184

06

4,313

5,373

Capital expenditure

4,042

4,553

Operating cash flow

*

adjusted for new accounting treatment of pension obligations

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.

1

2

Group Manage me nt Re port

Ge ne ral Economic Environme nt

Bus ine s s e nvironme nt

Economic deve lopme nts in 2006

forward into 2006 in the light of the value added tax

increase at the beginning of 2007. On top of that,

the construction industry was able to overcome the

crisis it has been facing ever since reunification and,

once again, make a positive contribution to growth.

The economies of new EU member states

again performed well in 2006. This was under-

pinned in all of the countries involved by very

dynamic export performances and robust domes-

tic economies.

The global economy grew strongly again in 2006.

For the most part, growth rates were even higher

than in the previous year despite the greater impact

of adverse factors. Higher interest rates worldwide

and further hikes in the price of crude oil and other

raw materials were the main reasons for higher

costs for businesses and the further reduction in

consumer buying power.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

The US economy grew at a rate of 3.3 % in

006. It was initially able to maintain its role as the

In 2006, the J apanese economy grew at

about 2 %, matching the previous year’s growth

rate and confirming the end of a long weak phase.

The sources of growth in 2006 were well-balanced,

driven by both domestic and export factors; gradu-

ally, deflationary trends also appear to have been

overcome.

– Net assets position

2

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

motor for the global economy but, since the sum-

mer, there has been a noticeable deceleration in the

pace of growth. Amongst other factors, the sharp

rise in interest rate levels slowed down the property

boom. By contrast, the unemployment situation

had improved by the end of the year. In general, pri-

Outlook

The emerging Asian countries again registered

vate consumption continued to provide momentum, the strongest growth rates in 2006. While the Indian

whereas investments were significantly down. Ex-

ports again failed to contribute to growth, with the

current account deficit refusing to shift from a level

of well over 6 % of gross domestic product.

economy expanded by more than 8 %, the Chinese

gross domestic product again grew at a rate in ex-

cess of 10 %. South-East Asian economies grew

on average by approximately 5.5 %.

In the euro region, gross domestic product grew

strongly by 2.7 % in 2006, performing dynamically

again for the first time in years. The main factors

contributing to this development were continuing

high investment levels and rising private consumer

expenditure. Overall, however, despite the sharp

growth in exports, the current account for the euro

region was still negative.The improved performance

tailed off slightly towards the year-end.

US dollar los e s value ove r cours e of ye ar

The US dollar again lost value against the euro over

the course of 2006. Compared to an exchange rate

of US dollar 1.18 to the euro at the beginning of the

year, the US currency slipped to a rate of over US

dollar 1.33 to the euro over the course of the year,

finishing at US dollar 1.32 to the euro and therefore

11.9 % weaker than at the beginning of the year.

Although the British pound remained within its

longstanding range of GBP 0.70 and 0.67 to the

The German economy grew by 2.5 % in 2006.

In addition to the continuing boom in investments

and exports, after a considerable absence, consumer euro, it has shown signs of strengthening since the

expenditure edged up, to a large extent brought

middle of the year.

Exchange rate s compare d to the Euro

(Index: 31 December 2001 = 100)

1

70

60

50

40

30

20

10

00

9

0

2

03

04

05

06

US Dollar

Source : Reuters

J apanese Yen

British Pound

1

3

Oil price

Price per barrel of Brent Crude

Euro

US Dollar

8

7

6

5

4

3

2

1

0

80

70

60

50

40

30

20

10

0

2

03

04

05

06

Price in US Dollar

Source: Reuters

Price in Euro

The J apanese yen has significantly lost in

value since mid-2005, standing at Yen 157 to the

euro at the end of 2006. In view of the robust per-

formance of the J apanese economy, the end of

The price of precious metals has been rising

for several years. During the first half of 2006, the

pace of increase accelerated even faster in some

cases. Market prices dipped a little during the sum-

deflation and the fact that interest rates are again on mer months before stabilising at a high level towards

the rise, the J apanese currency is distinctly under-

valued.

the end of the year. Despite the slowdown of the

global economy towards the end of 2006, demand

for commodities remained strong, even as an in-

vestment.

Raw mate rial price s : furthe r incre as e s ove r

cours e of 2006

Initially, oil prices continued to rise in 2006. This was

caused as much by persisting shortages in oil pro-

duction and processing capacities as by increased

demand for oil. After peaking in the summer at prices

in the region of US dollar 80 per barrel, oil prices

then decreased sharply, settling towards the year-

end, partly as a result of the slow-down in the rise

of demand, at approximately US dollar 60 per barrel.

On the steel market, the 2005 price reductions

were completely reversed. In fact, prices even

moved above the high levels seen at the beginning

of 2005.

S te e l price tre nd

(Index: J anuary 2002 = 100)

1

80

70

60

50

40

30

120

110

1

00

0

2

03

04

05

06

Source: German Federal Statistical Agency

P re cious me tals price tre nd

(Index: 31 December 2001 = 100)

3

2

1

40

00

60

20

80

40

00

6

2

0

2

03

04

05

06

Palladium

Source : Reuters

Silver

Gold

Platinum

1

4

Group Manage me nt Re port

Automobile marke ts in 2006

good economic outlook, sales here contracted

by 2 %.

As in previous years, the demand for cars again

grew strongly in 2006. The premium segments

relevant for the BMW Group also expanded in 2006,

with the segment relevant for the BMW and MINI

brands growing by 2.8 % and 5.7 % respectively.

This development was influenced once again by

dynamic growth in the emerging economies of Asia

and Latin America, whereas the traditional car mar-

kets (USA, J apan and Western Europe) recorded

zero or even negative growth.

The growth rate in Latin America stabilised at a

high level. Automobile markets in this part of the

world benefited from the current robust economic

situation.The sales volume in both Argentina and

Brazil grew sharply.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

Motorcycle marke ts in 2006

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

The motorcycle markets relevant for the BMW Group

again developed divergently in 2006. The 500 cc

plus motorcycles segment relevant for the BMW

Group grew by 8.6 % compared to one year earlier.

The USA, the world’s largest market for motorcycles,

recorded a 5.5 % increase in the 500 cc plus seg-

ment. In Germany, the BMW Group’s largest single

market, demand for motorcycles contracted for the

seventh year in succession. However, a decrease of

2.4 % represented a significant slow-down in the trend.

In the rest of Europe, and in Southern Europe

– Net assets position

The number of cars sold in the USA decreased

by approximately 2.6 % in 2006 to 16.5 million units

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

(light vehicles). Light trucks in particular experienced

a sharp volume drop as a consequence of the

sharp rise in fuel prices. The market share held by

US manufacturers declined once again in 2006.

The number of new registrations in Western

Europe climbed slightly to 14.6 million passenger

cars. This was mainly attributable to the sharp in-

Outlook

crease recorded in Germany, which can be put down in particular, motorcycle markets developed well. In

to the effect of the value added tax increase from

the beginning of 2007. Overall, the German market

Italy, the 500 cc plus motorcycle market grew by

10.2 % and in Spain, the same market expanded by

expanded by almost 4 %. Whilst Italy, and above all a remarkable 45.5 %. After four years of consoli-

the Benelux and Northern European countries de-

veloped positively, most other southern European

countries, in particular Portugal, saw volumes falling,

in some cases quite sharply. The number of cars

sold in the United Kingdom and France fell by almost

dation, the J apanese market for the motorcycle seg-

ment relevant to the BMW Group finally grew again,

picking up by 10.3 %.

Bus ine s s e nvironme nt for financial s e rvice s

in 2006

4

% and 3 % respectively, once again well below the

previous year’s figures.

Financial services business in 2006 was influenced

by an increase in interest rates on the money and

capital markets, particularly in the USA and the euro

region, and by the tighter monetary policies pursued

In Eastern Europe, the automobile market was

once again able to register a small increase, ex-

panding by more than 2 % in 2006. The main factor

here was the stabilisation of the Polish market which, by the world’s main central banks. During 2006,

due to the high volume of imported used cars, had

slumped in recent years. The Russian automobile

market continued to enjoy a strong upturn, growing

at a double-digit rate of 12 %.

The automobile markets in emerging Asian

economies again expanded rapidly in 2006. Strong

momentum came from the Chinese market, which

grew by more than a quarter. Sales in India again in-

creased more strongly, rising by approximately 17 %.

South Korea was able to follow up the previous

year’s good performance with a similar growth rate

of 5 %. In J apan, the automobile market remained

out of line with the economic cycle. Despite the

the US Federal Reserve Bank increased key lending

rates in small steps from 4.25 % to 5.25 %. The Euro-

pean Central Bank continued to pursue its policy of

tighter monetary control, increasing the key lending

rate over the course of the year by a total of 125 basis

points to 3.5 % at 31 December 2006. In addition,

the market for automobile-related financial services

is still characterised by intense competition. This

is particularly due to the fact that banks are now

focusing more on private consumer business and

because other manufacturer-related financial service

providers are also more willing to finance other

manufacturers’ brands.

1

5

Revie w of ope rations

Ne w re cord car s ale s volume figure

In 2006, the BMW Group achieved a new record car

BMW Group – key automobile marke ts 2006

as a percentage of sales volume

sales volume figure for its BMW, MINI and Rolls-Royce

brands. With 1,373,970 vehicles sold, the total sales

volume was 3.5 % higher than one year earlier.

The BMW brand’s contribution to this achieve-

ment was a sales volume of 1 ,1 85,088 units, 5.2 %

more than in the previous year. Due to restricted

availability caused by capacity extension measures

at the Oxford plant and preparations for the launch

of the second MINI generation, the sales volume

for the MINI brand fell by 6.2 % to 188,077 units in

USA

22.8

20.9

Germany

United Kingdom

Italy

11.2

.0

Spain

2

5.0

J apan

7

France

Other

4

.6

4.5

3.8

2

006. A total of 805 Rolls-Royce Phantom was

handed over to customers in the course of 2006,

.1% more than in the previous year.

BMW Group sold 96,462 units, 6.8 % more than in the

previous year. The total number of cars sold in Spain

(63,043 units), increased by 12.6 %. At 52,884 units,

the sales volume in France remained at a similar

level to the previous year (– 0.1%).

The BMW Group achieved its highest growth

rates in 2006 on the Asian markets. With 142,084

vehicles sold, the total sales volume was 13.0 %

higher than one year earlier. In J apan, the BMW

Group’s largest single market in Asia, the increase

was 5.6 %, with 62 ,1 15 units handed over to cus-

1

S ale s volume incre as e s in ne arly all marke ts

The BMW Group sold 337,354 BMW, MINI and

Rolls-Royce automobiles in North America in 2006,

2

.6 % above the previous year’s figure. 313,921

vehicles were sold in the USA, the BMW Group’s

largest single market, representing an increase of

2

.1% compared to the previous year.

In Europe, where a sales volume of 816,829 units tomers. The Chinese markets (China, Hong Kong,

was recorded, the BMW Group sold 1.7 % more cars

than in 2005. In the two largest markets in Europe

Taiwan) recorded the highest growth rate. 44,766

units were sold here, up by 35.4 % against the pre-

(Germany and the United Kingdom), model life-cycle vious year’s figure.

factors relating to the BMW brand and restricted

availability of the MINI both had a major impact on

The BMW brand re mains the world’s mos t

sales volumes. In Germany, the sales volume recorded s ucce s s ful pre mium car brand

by the BMW Group fell by 2.8 % to 287,715 units.

In the United Kingdom, it edged down by 1.4 % to

With 1 ,1 85,088 units sold, the sales volume of

BMW brand cars in 2006 beat the previous year’s

high level by 5.2 %. This enabled the BMW brand

1

54,069 units. The number of cars sold on the re-

maining major European markets either remained at, to recapture the top position at the head of the pre-

or surpassed, the previous year’s level. In Italy, the

mium segment.

BMW Group De live rie s of automobile s ^*by re gion and marke t

in 1,000 units

4

3

2

1

00

50

00

50

00

50

00

Rest of Europe

North America

Germany

United Kingdom

Asia

Other markets

5

0

2

03

04

05

06

Rest of Europe

North America

Germany

261.6

273.2

258.2

120.9

89.3

264.6

294.9

255.8

134.5

103.5

51.6

299.7

315.9

283.6

145 .3

106 .4

57.9

350.8

329.0

295.9

156.2

125.7

70.4

375.0

337 .4

287.7

154.1

142.1

77 .7

United Kingdom

Asia

Other markets

54.2

*

including Rolls-Royce from 2003 onwards

1

6

Group Manage me nt Re port

The sales volume of the BMW 1 Series in 2006,

with 151,918 cars handed over to customers during

the year, was 1.6 % ahead of the previous year. The

revised BMW 1 Series becomes available from March

onwards and will be followed by the new three-door

version from May onwards.

ries Coupé decreased by 4 .1 % to 11,941 units, and

that of the BMW 6 Series Convertible by 8 .1 % to

10,006 units.

With 50,227 Sedans sold, the sales volume of

the BMW 7 Series reached the previous year’s level

(+ 0.3 %). The sales performance of the BMW 7

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

The number of BMW 3 Series vehicles delivered Series in China (Mainland) was particularly encour-

to customers rose sharply in 2006. In total, 508,479

BMW 3 Series cars were sold, representing an in-

crease of 17.1% over the previous year. Since the

market introduction of the new BMW 3 Series Coupé

in September 2006, sales of this model have de-

veloped exceptionally well. 22 ,1 05 units were sold in

the fourth quarter 2006 alone, more than three

aging; with a sales volume of 7,522 units, this

model managed to achieve market leadership in

its segment.

The updated Sports Activity Vehicle BMW X3

has been available to customers since September.

Compared to the previous year, the sales volume of

the BMW X3 increased by 3.0 % in 2006 to a total

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

times the number of cars (+244.5 %) sold in the cor- of 114,000 units.

Outlook

responding prior year quarter. Over the course of the

whole year, the sales volume of the BMW 3 Series

Coupé rose by 29.3 % to 41 ,1 85 units.

Seven years on from the market introduction of

the first BMW X5, the second generation of this

highly successful model has been available since

November 2006, initially on the American market.

The fact that this model only became available so

late in the year meant that it has not yet had a great

impact on the annual sales volume. As a result of

model life-cycle factors, 75,321 units were sold in

2006, 25.8 % fewer than in the previous year. The

BMW X5 will become available in Europe from March

2007 onwards, which is expected to cause a sharp

increase in sales volume.

3

36,232 BMW 3 Series Sedan were delivered

to customers in 2006, 12.0 % more than one year

earlier. In its first full year on the markets, the sales

volume of the BMW 3 Series Touring took a 64 .1 %

leap to 105,483 deliveries. Due to model life-cycle

factors, the sales volume of the BMW 3 Series

Convertible fell by 20.3 % to 25,235 units. Demand

will be revived by the market introduction of the suc-

cessor model in March 2007.

The BMW 5 Series recorded a sales volume

of 232 ,1 93 units, edging up 1.7 % compared to the

previous year. This includes 182,539 units (+2.7 %)

New models and model improvement meas-

ures made to the BMW Z4 had a positive impact on

sales volume. The updated BMW Z4 Roadster and

of the BMW 5 Series Sedan and 49,654 units (– 2.0 %) BMW Z4 M Roadster models have been available

of the BMW 5 Series Touring. An extended version

of the BMW 5 Series has been developed specifi-

cally for the Chinese markets and has been available

there since December.

on the markets since March and the new BMW Z4

Coupé and BMW Z4 M Coupé models since J une.

In total, the sales volume of the various BMW Z4

models increased by 7.5 % in 2006 to 30,981 cars.

Sales of the BMW 6 Series were down by 6.0 %

to 21,947 units.The sales volume of the BMW 6 Se-

P roportion of cars with die s e l e ngine s

s lightly highe r

The proportion of diesel-powered BMW cars is

steadily increasing. Altogether 40 % of BMW cars

sold in 2006 were equipped with a diesel engine.

The percentages for 2005 and 2004 were 39 %

and 34 % respectively. In many European markets,

the number of diesel cars sold well exceeds the

number of petrol cars sold. The highest proportion

in Europe is in Portugal where 91% of all BMW

vehicles sold were diesel-driven. The proportion of

diesel-powered BMW cars is also very high in

France (90 %) and Italy (89 %). In absolute terms, the

highest numbers of BMW cars with diesel engines

BMW brand cars in 2006 – analys is by s e rie s

as a percentage of total BMW brand sales volume

1

2.8

1

3

5

6

7

Series

2

.6

6

.4

42.9

9

.6

X3

X5

Z4

4.2

1

.9

19.6

1

7

De live rie s of BMW die s e l automobile s

in 1,000 units and as a percentage of total volume

The MINI brand continues to generate a very

high-value product mix. Including the convertible

versions, almost 44 % of customers opted for a MINI

Cooper, more than 30 % purchased the MINI model

with the most powerful engine (the MINI Cooper S)

and almost 26 % opted for the MINI One.

5

4

3

2

00

50

00

50

00

50

00

Rolls -Royce P hantom is s e gme nt le ade r

The Rolls-Royce Phantom remains the most

successful motor vehicle in its price segment.

Customers took delivery of 805 Phantom during

2006, 1 .1 % more than in the previous year.

Development of the Rolls-Royce Convertible,

which will be launched in 2007, is progressing in line

with schedule. The very first Phantom Drophead

Coupé, the name by which the new model will be

known, will be handed over to its new owner in J uly

2007.

0

2

03

04

05

06

units

245.9

273.7 352.5 438.3

472.7

as a percentage of

total volume

27

29

34

39

40

are sold in Germany. 153,940 diesel-powered

BMW cars were sold in 2006, equivalent to 59 % of

the total sales volume on this market.

Prior to the Los Angeles Auto Show, the BMW

Group announced in November that it would also

be offering diesel-powered BMW brand cars from

In September 2006, Rolls-Royce Motor Cars

announced the development of a further model

series which, in terms of both size and price, will be

positioned below the Phantom.

2

008 onwards to customers in the USA, resulting in

an even higher proportion of this type of car in the

overall fleet.

S econd MINI generation continues s ucces s s tory

The second generation of the MINI has been available

on the markets since November 2006 in the form

of the MINI Cooper and MINI Cooper S versions and

is already setting new trends.

As a result of measures aimed at increasing the

MINI production capacity and preparations for the

launch of the second generation of the MINI, avail-

ability of MINI cars was restricted over the course of

the year. On a full year basis, the sales volume of the

MINI brand therefore dropped by 6.2 %, reaching

1

88,077 units.

MINI brand cars in 2006 – analys is by e ngine and mode l variant

as a percentage of total MINI brand sales volume

MINI Cooper

34.5

22.3

MINI Cooper S

MINI One (including One D)

MINI Cooper Convertible

MINI Cooper S Convertible

MINI One Convertible

2

1.8

3

.7

8

.2

9

.4

1

8

Group Manage me nt Re port

Car production volume at all-time high leve l

The BMW Group manufactured a total of 1,366,838

cars in 2006, 3.3 % above the previous year’s level

and thus an all-time high.

This includes 1 ,1 79,317 BMW brand cars, 5 .1 %

more than in the previous year. Capacity expansion

measures at the Oxford plant resulted in a reduc-

tion in the production volume of MINI brand cars.

Automobile production of the BMW Group by plant in 2006

in 1,000 units

Dingolfing

Regensburg

1

0

Group Management Report

286.6

269.9

Munich

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

Oxford

Leipzig

114.3

1

96.6

Spartanburg

31.1

0.8

Rosslyn

1

86,674 units were manufactured in 2006, 6.7 %

5

4.8

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

Goodwood

1

86.7

– Internal Management System

– Earnings performance

– Financial position

fewer than in the previous year. 847 Rolls-Royce

Phantom left the Rolls-Royce plant in Goodwood in

Shenyang (joint venture)

Contract production Magna Steyr

105.2

120.8

– Net assets position

2

006, 22.4 % more than one year earlier.

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

P roduction ne twork unde rline s high leve l of

e fficie ncy

Furthermore, the BMW Dingolfing plant also

saw the production start of several new models

Outlook

In 2006, the BMW Group worldwide production

network once again demonstrated its high level of

efficiency by its handling of eleven production start-

ups. The planned daily production volume was

reached within an average period of three months

following production process changeover to a new

model, thus ensuring fast availability of new products

on the market.

The BMW 3 Series Sedan and Touring models

are both manufactured at the BMW Munich plant.

Due to high demand for the BMW 3 Series Touring,

which is manufactured exclusively in Munich, daily

production of this model was increased from 450 to

spread over the course of 2006. In May, the produc-

tion of parts sets for the BMW 5 Series extended

version began. This vehicle is being developed ex-

clusively for the Chinese market. Series production

of the BMW M6 Convertible commenced in Sep-

tember. Shortly after that, in October, production of

the BMW M5 started, equipped with a manual gear

shift to cater to the US market. Towards the end

of the year, the BMW Hydrogen 7 went into small

series production at the Dingolfing plant.

At the BMW Regensburg plant, a one-line pro-

duction system is used to manufacture vehicles

for all of the following models: the BMW 1 Series;

the Sedan, Coupé and Convertible models of

the BMW 3 Series; and the BMW M3 Coupé and

BMW M3 Convertible.

5

30 vehicles.

It is especially worth mentioning that the inte-

grated series production of a limited edition of the

BMW 320si (2,600 units) was also carried out at

the Munich plant during 2006. Based on this special

model, BMW Motorsport GmbH went on to develop

a powerful 275 bhp racing car for the FIA World

Touring Car Championship (WTCC). Andy Priaulx of

the BMW Team UK subsequently became touring

In 2006, the main focus of attention was placed

on production start-ups for the various BMW 3 Series

models. Series production of the new BMW 3 Series

Coupé began in J une, and that of the new BMW 3

Series Convertible in December. For the first time

car world champion in this competition for the second in the history of the BMW Group, a convertible fea-

time in succession.

In addition the assembly of V-engines at the

BMW Munich plant was completely redesigned in

turing a retractable hardtop is being manufactured in

Regensburg. Special engineering systems and testing

procedures have been put in place in this context.

In 2006, the BMW Regensburg plant celebrated

20 years of production and marked this historic

event by opening its doors to the public at an open

day held in the summer. Since production began in

1986, more than 3.5 million BMW brand vehicles

have come off the production line at the Regensburg

plant.

Following the series production start of the

BMW 3 Series at the BMW Leipzig plant, production

volumes increased continually during 2006. By the

end of the year, more than 600 vehicles were being

manufactured each day. Halfway through 2006, the

2

006 with a view to optimising efficiency, added-

value and flexibility. The highly flexible assembly line

enables all types of V8 and V10 engines to be con-

structed within a single cycle, as and when required.

The pilot phase of this “Vflex” line began in October

2

006 and series production is due to commence in

April 2007.

At the BMW plant in Dingolfing, the new axle

drive technology centre was commissioned in April

006. This has further strengthened the BMW

2

Group’s position as leader in the field of innovative

chassis and powertrain components.

1

9

entire plant switched to two-shift operations. In

J une, the 100,000th BMW 3 Series vehicle since

series production began rolled off the production

line at the BMW Leipzig plant.

At the BMW Spartanburg plant, series pro-

duction of several new models commenced during

for BMW plants the world over. With a view to offering

independent apprenticeship training at the Landshut

plant, one of the main focuses of attention in 2006

was the start of construction of the Apprenticeship

and Further Training Centre, with a capital expendi-

ture sum in 2006 of approximately euro 3 million.

The Shenyang plant in Northern China is oper-

ated by the distribution and production joint venture,

BMW Brilliance Automotive Ltd. The first units of

the BMW 5 Series extended-version, which has been

exclusively developed for the Chinese market, were

manufactured there in September 2006. This plant

manufactures BMW 3 and BMW 5 Series cars.

The first revised BMW X3 vehicles came off

the production line at the plant of BMW cooperation

partner Magna Steyr Fahrzeugtechnik in Graz,

Austria, in August.

The largest engine manufacturing plant in the

BMW Group is located in Steyr, Austria. More than

703,000 engines were manufactured there in 2006,

of which more than 68 % were diesel engines. The

first part of an environmentally sustainable process

and waste water concept had been commissioned

2

006. Production of the BMW Z4 Roadster and

BMW Z4 M Roadster started at the beginning of

the year, followed by the BMW Z4 Coupé and

BMW Z4 M Coupé in April. The first “second gen-

eration” BMW X5 came off the production line in

Spartanburg in October. In order to be able to react

even more flexibly to fluctuations in demand, the

production area was modified accordingly at the be-

ginning of the year. This involved changing the pre-

vious two-line production system to a single-line,

thus allowing the number of manufactured vehicles

of any particular model to be varied even more flexi-

bly and in line with market demand. In May, the paint

shop switched its entire energy supply to methane

gas obtained from a nearby waste disposal site, thus

helping the BMW Spartanburg plant to decrease its

carbon dioxide emissions by 53,593 tons in 2006.

Since production began in 1994, more than one in Steyr in 2005. By the end of 2006, the waste

million BMW vehicles have been manufactured at the water connection at the BMW plant in Steyr was

BMW Spartanburg plant. The one-millionth BMW

closed off: in other words, production at the Steyr

brand car rolled off the production line in March 2006. plant now operates without creating any waste water

The BMW Rosslyn plant in South Africa re-

ceived a special accolade in 2006. For its excellent

accomplishments in the field of logistics, it was

presented the South African “Logistics Achievers

Award” by a jury of recognised logistics experts.

Almost 54,800 units of the BMW 3 Series Sedan

were manufactured at the BMW Rosslyn plant in

whatsoever. Using an innovative combination of

technologies, the water used in the plant’s various

production processes is purified and fed back into

the production system. This saves the Steyr plant

30 million litres of water p.a., thereby helping to con-

serve the environment.

At the Hams Hall plant, engines are manufac-

tured for both the BMW and the MINI brands. A total

of 217,434 four-cylinder petrol engines were pro-

duced at the British plant in 2006. This included

25 ,1 57 units of the new MINI engine generation,

which has been developed in cooperation with PSA

Peugeot Citroën. The other 192,277 engines were

manufactured for BMW brand cars and supplied to

the various BMW plants in Leipzig, Munich, Regens-

burg, Spartanburg and Rosslyn as well as to the

BMW cooperation partner, Magna Steyr Fahrzeug-

technik, in Austria.

2

006.

The BMW Landshut plant was again able to

present itself as a reliable manufacturing site for in-

novative vehicle components made of light alloy

casting and plastics, with the focus on intelligent

construction using lightweight materials. A com-

pletely new type of plastics technology was put to

use for the first time in 2006. Specialists at the

Landshut Innovation and Technology Centre (LITZ)

developed the material for the front thermoplastic

side panels of the BMW 3 Series Coupé and Con-

vertible, enabling them, as a standard process, to

run through the painting process with the entire body MINI P roduction Triangle s tarte d

frame in spite of the high temperatures involved in

the surface finishing process. This effectively cut

out a previously necessary step in the assembly se-

quence. In addition, the component plant set a new

record in the production of cardan shafts. More than

The series production start for the new MINI also

heralds the beginning of a new cooperation net-

work of BMW Group plants in the United Kingdom.

The BMW Group has invested almost GBP 200 mil-

lion in the MINI Production Triangle with its plants

in Hams Hall, Oxford and Swindon. In the medium

1

.3 million units left the Landshut plant, destined

2

0

Group Manage me nt Re port

term, the maximum production capacity will be

boosted by 20 % to a total of 240,000 MINI brand

cars p.a. Once full production capacity has been

reached, the number of employees working within

the Production Triangle will increase from the cur-

rent figure of 6,350 to a workforce of approximately

BMW Group re ce ive s Exce lle nce Award

On 7 November, the European Foundation for Quality

Management (EFQM) presented the Excellence

Award to the BMW Group. This award is presented

in recognition of outstanding management achieve-

ments relating to the promotion of competitiveness,

employee and customer satisfaction, social respon-

sibility and, last but not least, careful use of resources.

The Chassis and Powertrain Component Pro-

duction Unit, representing the company as a whole,

entered the competition for the Excellence Award.

More than 3,000 employees from the BMW sites in

Dingolfing, Berlin, Landshut and Munich took part.

The Excellence Award is presented to compa-

nies and organisations in Europe which have

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

6

,800 employees.

At the Hams Hall plant, some GBP 30 million

have been invested in the manufacture of a new

family of petrol-driven engines to power the latest

MINI. When the full production capacity of the new

MINI has been reached, the total number of BMW

and MINI engines manufactured at the Hams Hall

plant will increase in the medium term from an origi-

nal figure of 180,000 to over 300,000 units p.a.

The workforce at the engine plant will increase ac-

cordingly from 750 to at least 1,000 employees.

4

5

6

3

4

6

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3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

achieved a leading position internationally, not only

as a result of their technical and business achieve-

More than GBP 100 million has been invested in ments, but primarily because of a sustainable busi-

the Oxford plant, in order to increase the maximum ness strategy, showing at least three successive

production capacity from a current figure of 200,000 years of proven practise. One important factor here

units to 240,000 p.a. and to equip the chassis con-

struction, paint shop and the vehicle assembly areas

with state-of the-art process technology for the

manufacture of the new MINI. When full production

capacity has been reached here, this will lead to the

creation of 200 additional jobs, bringing the total

workforce at the Oxford plant up to 4,700 employees.

The BMW Group has invested around GBP 60

million in the Swindon plant for the production of

pressed parts and the pre-assembly of chassis com-

ponents. This plant, with around 1 ,1 00 employees,

has undergone a comprehensive programme of

modernisation over the last three years and now

works with up-to-date pressing and mating tech-

nology.

is the rigorous pursuit of stakeholder interests – for

customers and employees just as much for share-

holders, business partners or other interested par-

ties. The BMW Group’s strategic, customer-friendly

approach and its sustainable corporate culture

based on partnership were particularly acclaimed.

Two mode l variants of the P hantom manufac-

ture d in Goodwood

At the Rolls-Royce plant in Goodwood, England,

two variants of the Phantom are currently being

manufactured. Alongside the Sedan, a special

extended-wheelbase version is also being manu-

factured in Goodwood. From summer 2007 onwards,

the new Rolls-Royce Convertible, the Phantom

Drophead Coupé, will be added as a third model.

The planned production volume of the Phantom

Drophead Coupé for 2007 is already covered by

customer orders.

2

1

Ne w re cord s ale s of motorcycle s

meant that 2.5 % fewer customers took delivery of

For the first time in its corporate history, the BMW

Group sold more than 100,000 BMW motorcycles

in a single financial year. With a sales volume of

motorcycles than in the previous year. In the United

Kingdom, where the number of motorcycles sold

*

decreased by 3.9 % to 5,213 units, the performance

should be seen against the background of an overall

contracting market.

1

00,064 motorcycles in 2006, the previous year’s

figure was topped by 2.7 %.The R1200 GS Adven-

ture and the new two-cylinder models of the F-Se-

ries, which have been available since March 2006,

contributed particularly to this positive development.

In the USA, the Motorcycles segment was

able to repeat its previous year’s performance. With

12,825 units sold, the sales volume here was mar-

ginally higher than in the previous year (+0.2 %).

Overall, the American motorcycles market de-

veloped positively in 2006. However, the Cruiser and

Supersport segments, in which the BMW Group

is not currently represented, showed the best per-

formance. The increase in the number of BMW

motorcycles sold in Central and South America

was very encouraging; the sales volume for these

markets was 2,740 units, up by 24.7 % on the pre-

vious year.

In J apan, the BMW Group recorded sales volume

growth in 2006 following three years of declining

figures. 2,644 BMW motorcycles were sold there,

10 .1 % more than in the previous year.

The sale of BMW motorcycles also developed

positively in South Africa, with 21.4 % more units

sold than one year earlier (2,682 units).

Marke ts s till pe rforming incons is te ntly

As in previous years, the BMW Group’s motorcycle

business reflects diverging market developments.

In Europe, sales of BMW motorcycles totalled

7

3,850 units, a 2.7 % increase over the previous

year. Within this total, increased sales volumes were

registered in particular for the markets of Southern

Europe. A sharp increase was registered in Spain,

where, with 10,002 motorcycles sold in 2006, the

BMW Group achieved a new sales volume record,

surpassing the previous year’s figure by 25.0 %.

1

3,651 motorcycles were sold in Italy, 7.5 % more

than one year earlier. Sales volumes in Greece (1,338

units, +10.2 %) and Portugal (535 units, + 32 .1 %)

developed positively, even though each of these mar-

kets contracted as a whole.

By and large, the sales volume recorded for the

remaining European countries failed to reach the

previous year’s level. With a sales volume of 23,617

units, the BMW Group sold 1.9 % fewer motorcycles

in Germany than in the previous year, even though

some products were purchased during the final

months of 2006 to avoid the forthcoming increase

in value added tax. With a market share of 18.5 %,

the BMW Group was nevertheless able to defend

its position as market leader in Germany, where the

market has now been in decline for seven consecu-

*Previous year’s figure adjusted: 5,425 units (excluding Ireland)

R 1200 GS continue s to be the BMW Group’s

be s t-s e lling motorcycle

In 2006, the BMW R1200 GS again headed the

list of top-selling BMW motorcycles. Including

the Adventure version, 31 ,1 38 units of this large,

long-distance enduro were delivered to customers.

The Motorcycles segment has never before sold

as many units of one model in a single year.

Second on the sales volume list for 2006, with

tive years. In France, the sales volume of 7,701 units 13,384 units, came the R1200 RT, a large long-dis-

BMW motorcycle s de live re d

BMW Group – key motorcycle marke ts 2006

in 1,000 units

as a percentage of sales volume

1

00

Deutschland

23.6

13.6

9

8

7

5

0

5

0

5

0

Italy

USA

12.8

Spain

France

1

0.0

United Kingdom

27.1

Other

7

5.2

.7

0

2

03

04

05

06

9

2.6

93.0

92.3

97.5

100.1

2

Group Manage me nt Re port

tance tourer, followed by the F 650 GS which, de-

spite nearing the end of its model-life cycle, never-

theless took third position. Including the Dakar

version, 12,511 units of this enduro were handed

over to customers.

exclusive HP (High Performance) range of the Motor-

cycles segment.

Motorcycle production we ll ahe ad of previous

ye ar’s volume

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

For the first time in its corporate history, the BMW

Group manufactured more than 100,000 BMW mo-

torcycles in a single financial year. Of the 103,759

BMW motorcycles produced in 2006 (+12.8 % com-

pared to the previous year), 101,352 units were

manufactured at the BMW Berlin plant, also a new

record for that plant. Furthermore, since September

2006, BMW motorcycles for the new G 650 X

single-cylinder series are being manufactured by

Piaggio S.p.A. in Noale, Italy. During the year under

report, 2,407 units came off the production line

there.

Mode l initiative continue d

The Motorcycles segment’s performance in 2006

was positively influenced by the continuation of its

model initiative. Two new BMW motorcycles – the

long-distance enduro R1200 GS Adventure and

the sporty long-distance K1200 GT Tourer – were

launched in the first quarter 2006, followed in the

second quarter by the R1200 S Sport Boxer and

the new, sporty F 800 S. Following the market intro-

duction of the R1200 R Roadster in September,

the whole range of the Boxer model series is now

available on the markets.The F 800 ST Sport Tourer,

designed more as a touring bike based on the

F 800 S, also followed in September. Alongside the

well-established single-cylinder, boxer and four-

cylinder models, these new motorcycles enhance

BMW’s motorcycle range within the highly competi-

tive middle class with an in-line twin engine.

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

The Motorcycles segment will again continue

its model initiative in 2007. The first new models to

come onto the market in 2007 were presented

back in October 2006 at the world’s largest motor-

cycle fair, INTERMOT, in Cologne.The BMW Group

presented a completely new single-cylinder model

range at that fair. The G 650 Xcountry Scrambler,

the G 650 Xchallenge Hard-Enduro and the

G 650 Xmoto Streetmoto are all based on the

same underlying technology, yet are each com-

pletely different in character. In addition, the K model

range has been expanded by the K1200 R Sport

version, which is equipped with a sporty and

dynamic fairing. In addition, the HP2 Megamoto

(based on the HP2 Enduro) will compliment the

BMW motorcycle s in 2006 – analys is by s e rie s

as a percentage of sales volume

R Series

F Series

K Series

60.3

1

8.6

2

1.1

2

3

Financial S e rvice s s e gme nt comple te s

s ucce s s ful ye ar

63 % of these contracts related to new vehicles

manufactured by the BMW Group.

The Financial Services segment continued to grow

profitably in 2006, again making an important con-

tribution to the overall performance of the BMW

Group. The business volume of the segment in bal-

ance sheet terms rose by 8.9 % to euro 44,010 mil-

lion. Adjusted for exchange rate impact, the increase

would have been as much as 14.4 %. At the year-

end, 2,270,528 lease and financing contracts were

in place with dealers and retail customers, equivalent

to a growth of 8.8 % in comparison with one year

earlier. The proportion of new cars of the BMW Group

leased or financed by the Financial Services seg-

ment was 42.4 %, 1.3 percentage points above the

proportion recorded in 2005.

The increase in the number of new contracts

was attributable to credit financing (+7.3 %) and

leasing (+ 3 .1 %). At 31 December 2006, leases

accounted for 37.4 % of all new retail customer con-

tracts, roughly maintaining the level of the previous

year.

In the area of used car financing, the number

of new contracts increased by 3 .1 %. Most of these

were related to the credit financing of used BMW

and MINI brand cars.

The number of contracts in place with retail

customers at the year-end rose to 2,076,312 units,

9.3 % above the previous year’s figure. Growth was

recorded in all regions. The portfolio of retail cus-

tomer business contracts was up by 4.4 % in Ger-

many, by 15 .1 % in the remaining European markets

Re gional expans ion continuing

The business activities of the Financial Services seg- and by 10.7 % for the markets in the Asia/Oceania/

ment were further expanded over the course of 2006 Africa region.The largest proportion of the world-

with four new ventures based on cooperation agree- wide contract portfolio again related to the Americas

ments in Bulgaria, Kuwait, Romania and Slovenia.

In addition, a newly founded unit started opera-

tions in Greece, offering financing services to retail

customers and dealers. In total, the Financial Ser-

vices segment looks after customers in more than

region; the number of contracts there increased by

8.0 % to a total of 681,623 units.

Multiple -brand financing on growth cours e

The multiple-brand financing line of business con-

tinued to make good progress in 2006. In the mean-

time, credit financing and leasing are being marketed

under the brand name “Alphera” in as many as 21

countries, either via multiple-brand dealerships or

directly by group companies.

On the one hand, the year under report was

influenced by geographical expansion, including

within the USA. In addition, organisational structures

and IT systems were enhanced at the level of the

group’s national companies, thus laying the founda-

tion for further growth. Compared to the previous

year, new business grew by a very pleasing 17.8 %

in 2006 to more than 60,000 contracts.

5

0 markets, either with its own companies or in

the form of ventures based on cooperation agree-

ments.

Re tail cus tome r bus ine s s again up on the

previous ye ar

Finance and leasing business with retail customers,

the segment’s largest line of business, was also ex-

panded in 2006. In total, new contracts were signed

with retail customers with the value of euro 24,449

million, representing a 4.0 % increase over the pre-

vious year. This corresponds to 916,005 new con-

tracts, or 5.7 % more than in 2005. Approximately

Contract portfolio of BMW Group Financial S e rvice s

in 1,000 units

Contract portfolio re tail cus tome r financing of

BMW Group Financial S e rvice s 2006

as a percentage by region

2

1

,400

,200

,000

,800

,600

,400

,200

America

Rest of Europe

3

2.8

28.4

Germany

Asia/Oceania/Africa

1

3.2

25.6

0

2

03

04

05

06

1

,443

1,623

1,843 2,087

2,271

2

4

Group Manage me nt Re port

Continue d growth in the are a of de ale r

financing

The total volume of dealer financing contracts man-

aged by the Financial Services segment stabilised

at a high level in 2006. The total volume of dealer

financing at 31 December 2006 amounted to euro

Hungary and Russia. On top of this, the range of

products on offer in existing markets was also ex-

panded. The motor vehicle insurance line of busi-

ness continued to perform strongly in 2006, reflected

in a 17.1% increase in new business. At the end of

2006, the segment had a worldwide portfolio of

603,939 insurance contracts, a figure 39.8 % higher

than one year earlier.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

7,246 million, with more than 194,000 contracts in

place at that date. This represents a volume in-

crease of 2.3 % compared to one year earlier. New

areas of growth were opened up during the year

under report by increasing geographical coverage

and by expanding the range of dealer financing

products offered to multiple-brand dealers. These

areas represent significant potential growth factors

for the future.

4

5

6

3

4

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8

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3

4

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2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

De pos it bus ine s s influe nce d by incre as e d

compe tition

– Net assets position

The Financial Services segment is currently engaged

in deposit business in Germany, the United Kingdom

and the USA (in the latter via brokers). Since the be-

ginning of 2006, the segment has been conducting

deposit business in the United Kingdom in con-

junction with a cooperation agreement with the

Newcastle Building Society.

The Financial Services segment derives great

benefit from the first-class credit ratings of its financ-

ing companies. In J une 2006, for example, Moody’s

Investors Service issued an A1 and Prime-1 rating

to the BMW Bank of North America (USA) for its short-

term and long-term deposits, reflecting its above-

average profitability and solid capital resources.

In the face of greater competition, the segment’s

deposit volume worldwide was 9.6 % lower than

one year earlier, totalling euro 5,781 million at 31 De-

cember 2006. The total deposit volume includes

approximately euro 1,200 million of deposits bro-

kered by agents in the USA.

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

Fle e t bus ine s s re mains on growth cours e

The BMW Group brand-neutral fleet business, which

offers its services on the markets under the name

Alphabet, operates in the fields of financing, full-

service leasing and fleet management.

Despite greater competition in this area, the

pace of growth achieved in the previous year was

maintained. In this vein, Alphabet achieved an im-

portant milestone in the second quarter of 2006,

topping the figure of 150,000 contracts. At the year-

end, 13 Alphabet companies were managing a total

portfolio of 179,884 contracts. This represents an

increase of 29.9 % over the year, with the previous

year’s level being surpassed in all markets.

In December 2006, the BMW Group signed a

contract to acquire LHS Leasing- und Handels-

gesellschaft mbH and DSL Fleetservices GmbH.

The acquisition is still subject to approval by the

The objective of encouraging deposit cus-

tomers to move into more diversified forms of in-

vestment is successfully being realised with the help

EU antitrust authorities and had not been completed of the tried and tested product combination of

by the reporting date. With the purchase of these

two companies, Alphabet would move into the top

ten companies of its kind in Europe and its portfolio

would grow to over 230,000 contracts.

“Save &Invest” as well as with the new savings mod-

el “Save &Plan”. This model allows wealth to be built

up on a long-term basis by regular savings which are

split between a savings account and a fund invest-

ment.

Continue d growth in the are a of ins urance

bus ine s s

In the investment funds business, the range of

funds on offer was expanded by the addition of several

attractive investment funds over the course of the

year. Furthermore, Express Certificates were also

offered for the first time. Despite the overall positive

development of the stock markets, investors in Ger-

many withdrew funds, resulting in the net cash inflow

for investment funds in 2006 falling by 10.5 % to euro

84 million. By the year-end, the number of customer

deposit accounts had increased by 10.3 % to 30,011.

In addition to credit financing and lease contracts,

the Financial Services segment also operates as an

agent for motor vehicle, residual liability and other

vehicle-related insurance policies via cooperations

with local insurance companies. This service is now

being offered in more than 30 markets. In 2006,

several new products were brought onto the market

in a number of countries, including Switzerland,

2

5

The credit card business continued to grow

strongly and was expanded further in 2006. At 31

S light incre as e in workforce

The BMW Group’s workforce increased by 777 em-

December 2006, 339,824 customers owned a BMW ployees (+0.7 %) during the financial year 2006 to

or MINI Card, 16.5 % more than at the end of 2005.

The BMW Card was introduced in the United

reach 106,575 employees at 31 December 2006.

Approximately 75 % of the workforce is employed in

Germany, where the number of employees remained

practically unchanged.

The employee fluctuation rate at BMW AG has

been low for many years, both in comparison with

other car manufacturers and other sectors.

The BMW Group recruits staff continuously on

a targeted basis in order to compensate for fluctua-

tion. In 2006, for example, in addition to more than

1,200 newly filled apprenticeship positions, 664 posts

were also advertised and filled externally.

Arab Emirates and in Bahrain in J une 2006 and was

already available in Australia, Germany, the United

Kingdom, J apan, New Zealand, Austria, Spain,

Thailand and the USA. As part of the expansion of

banking activities, the MINI Card has also been avail-

able since mid-2006 in the USA and the United

Kingdom (previously only in Germany and J apan).

Balance d ris k s ituation

During the financial year 2006, the credit risk for

credit and lease financing activities was at a similar

level to the previous year. Bad debts increased

slightly by 4 basis points to 0.41%. The interest rate

risk is managed using a risk-return approach. Di-

versified value-at-risk, as measured by the Financial

Services segment to quantify the interest rate risk^*,

Numbe r of appre ntice s hip pos itions re mains

at high leve l

1,207 young people commenced their training with

the BMW Group at the start of the training year. In

total, the BMW Group employed 4,359 apprentices

decreased from euro 44.2 million to euro 34.9 million. at the year-end, 2.4 % fewer than one year earlier.

*

based on a 99 % confidence level and a holding period of 10 days

The slight reduction was partly due to the earlier

final examination dates for some apprentices. These

vacated positions will not be replaced until the next

recruitment round. For this reason, the apprentice

S oftlab: pre mium advice from a s ingle provide r

The Softlab Group operates in the IT consultancy

services market, working with its customers’ systems ratio in Germany (i.e. the ratio of apprentices to the

along the whole value-added chain from process

consultancy, the implementation of tailored IT solu-

tions through to their operation. Strategic acquisi-

tions made by the Softlab Group in recent years have

contributed to this development. In 2006, it took

total workforce) fell by 0.1 percentage points in 2006

to a level of 4.9 %.

Starter programmes for high school leavers and

university graduates are also in place to complement

the range of opportunities available to those about

over F.A.S.T. Gesellschaft für angewandte Software- to start their careers at the BMW Group.

technologie mbH, Munich, thus enabling it to

strengthen its market position, particularly in the

field of consulting.

Furthe r training tailore d to s uit re quire me nts

Both primary and further training of employees are

especially significant for a premium manufacturer

like the BMW Group in order to maintain high quality

BMW Group appre ntice s at 31 De ce mbe r

5

4

3

2

,500

,000

,500

,000

,500

,000

,500

0

2

03

04

05

06

4

,1 99 4,306 4,464 4,464

4,359

2

6

Group Manage me nt Re port

BMW Group e mploye e s

31.12.2006

31.12.2005

Change

in %

1

0

Group Management Report

Automobiles

98,505

2,782

3,478

1,810

1,743

98,260

2,838

3,093

1,607

1,541

0.2

– 2.0

12.4

12.6

13.1

Motorcycles

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

Financial Services

Other

thereof consultancy/software

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

BMW Group

unadjusted^*

106,575

105,798

0.7

106,575

10 6,174

0.4

– Net assets position

*

Figure for end of previous year including acquired entities

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

standards for all processes. Training activities are

United Kingdom and Asia. Apart from this, approxi-

Outlook

always planned and implemented in line with require- mately 200 employees from non-German locations

ments. During the financial year 2006, the BMW

Group invested euro 184 million in primary and fur-

ther training for its employees, 5.2 % less than in

the previous year, whereby the reduction was attrib-

utable to a realignment of training measures.

were working in Germany or at another international

location away from their home countries. In the case

of longer-term projects, employees remain abroad

for an average period of three years. This represents

a suitable time scale in which employees can pass

on process and technical know-how, receive further

training while abroad and, at the same time, gain in-

ternational experience which will stand them in good

stead during the subsequent course of their careers.

Apart from more than 1,000 employees who have

worked abroad for longer periods, more than 400

employees were called up for international duty on a

short-term basis.

High de mand for inte rnational pos itions

The transfer of know-how across borders and net-

working at all levels are crucial factors for busi-

nesses with international operations such as the

BMW Group. As an example, specialists are moved

around between the individual production sites as

production start-ups commence for new models,

thus ensuring the same high quality during each

individual start-up. The sales companies located in

Attractive e mploye r

3

9 countries around the world also cooperate closely

The BMW Group remains one of the most attractive

enterprises to work for. This was again confirmed

in 2006 by numerous studies and rankings. In the

with the corporate headquarters in Munich.

In 2006, more than 800 employees from

BMW AG were working at locations outside Germany. study “Germany’s Most Popular Employers” (Tren-

The main target countries were the group’s busi-

ness locations in markets currently experiencing

dynamic growth, in particular North America, the

dence), young academics from both the business

and engineering fields chose the BMW Group for

the fifth time in a row as the most popular employer.

At a European level, the BMW Group was also voted

the most popular employer by engineers in the

study “The European Student Barometer 2006”.

The good reputation of the BMW Group as an em-

ployer is an important factor in being able to attract

outstanding talent to work for it. This high level of

attractiveness as an employer is not only restricted

to external aspects; it is also reflected in the out-

come of the most recent employee survey from the

year 2005. 92.6 % of employees stated that they

were either satisfied or very satisfied with their work

at the BMW Group. Employee satisfaction was

measured on the basis of a total of 16 questions.

Employe e fluctuation ratio BMW AG^*

as a percentage of workforce

3

2

1

0

.5

.0

.5

.0

.5

.0

.5

0

2

03

04

05

06

1

.40

1.43

1.91

2.45

2.68

*

Number of employees on unlimited employment contracts leaving the company

2

7

The outcome of the survey was that the high level

of satisfied employees (91.1%) registered in the

previous survey made in 2002, was once again sur-

passed.

processes and, where necessary, implementing ap-

propriate IT systems to support this. The objective

is to ensure that employees receive efficient service

and competent advice from members of the human

resources department and a swift response to their

enquiries. At the same time, it provides more sup-

port to management to deal with personnel-related

issues and find appropriate solutions to department-

specific problems.

The Human Resources department rolled out

new business processes at all German sites, includ-

ing providing access to the channels “Personnel

Direct” and “Personnel Management”. The objective

of the new business processes is to lend personnel

support to both employees and senior management

staff even more efficiently and directly and with an

J oint agre e me nt for blue -collar and white -

collar s taff

As part of the ERA (Entgelt Rahmenabkommen/

Remuneration Framework Agreement) collective

bargaining tariff agreement signed at the end of

2

005, companies affiliated to the Bavarian metal and

electrical industry gave a commitment to implement

ERA within four years.This new collective bargaining

agreement creates a uniform remuneration system,

removing the outdated distinction between blue-

collar and white-collar staff. Under ERA, twelve re-

muneration groups and uniform performance evalua- even greater degree of expertise than before.The new

tion systems will apply for all of BMW AG’s German

sites, for which the metal and electrical industry

collective bargaining agreement is valid, as well as

for sites within the collective bargaining regions of

Saxony and Berlin (excluding sales branches).

A significant element of the arrangements, an-

chored in agreements between the General Works

Council and corporate management which go

beyond ERA, is the basic understanding that retire-

ment models will still be made available to employees

after 2009 (when state support of early retirement

part-time working arrangements in Germany is

expected to come to an end). In the light of demo-

graphic developments, company agreements of

this kind are becoming increasingly significant. In a

similar vein, a voluntary company agreement was

concluded concerning the BMW Additional Pension

business model is constructed around the uniform

access channels mentioned above, each of which

clearly distinguishes between the range of tasks

relevant for senior management and employees.The

new business model allows the Human Resources

department to provide better quality information re-

garding personnel and strategic matters to the various

business departments that require such information.

It also allows enquiries from employees to be

processed more efficiently by applying standardised

processes and “bundling” certain topics for spe-

cialists. One further advantage of “Personnel

Direct” is that Human Resources department staff

can be reached under one single number through-

out Germany.

“Today for Tomorrow” proje ct – taking a

(

AVWL). On the basis of this agreement (as stipulated

pro-active approach to de mographic re alitie s

The ageing population in many industrial countries,

and in particular in Germany, also has an impact on

business as a whole as well as on each individual

in the collective bargaining tariff agreement), a

pension-related payment of euro 319.08 p.a. (euro

1

59.48 p.a. for apprentices) is to be transferred in

future to individual savings accounts for all employees company. Within an ageing society, companies which

to whom the tariff agreement applies.

are able to improve their workforce’s skills and then

put those skills and know-how to best use will be

at a distinct advantage. The BMW Group is imple-

menting this by means of an all-embracing project

which has been given the title “Today for Tomorrow”.

The objective is to exploit the continual demographic

change as an opportunity for the business.

"

Exce lle nce in Human Re s ource s " (EHR)

programme continue d

Following the introduction of new IT core systems

and the employee portal “MyNetwork”, which is

currently used by approximately 80,000 employees,

the BMW Group is pushing ahead with the EHR pro-

gramme, with the aim of further increasing the effi-

ciency of activities related to human resources work.

Since the commencement of the project in 2005,

this has involved analysing and redesigning all major

The project’s five main areas of emphasis are:

–

the creation of a working environment for the future

Workplaces are continuously improved in ergo-

nomic terms, in order to avoid physical strain and

damage as far as possible. In the production area,

2

8

Group Manage me nt Re port

this can, for example, be achieved by using rotary

sling technology and creating height-adjustable

workstations.

health-care management and prevention

The BMW Group promotes the good health of its

workforce by installing fitness centres and making

High s tandards for e nvironme ntal prote ction

High environmental and quality standards are main-

tained at all BMW Group sites. This was borne out

once again in December 2006 when the certifica-

tion audit of the production function, in accordance

with DIN EN ISO 9001 and DIN EN ISO 14001 re-

–

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

fitness courses available at almost all of its produc- spectively, was successfully concluded. The audit

tion sites, by encouraging health-care measures

for specific target groups and by providing exten-

sive medical facilities. In 2006, Health-Care Days

were held at both the Munich and the Leipzig

plants. The new concept behind this project is

to help to identify health risks, to put targeted fol-

low-up measures in place and to promote a bet-

ter awareness of good health. Some 8,000 em-

ployees participated in these health-care days

and plans are now underway to do the same at

other locations in 2007.

was again conducted using a matrix approach, in

which each manufacturing site is audited on a three-

year cycle. Central functions of the production area

and control functions within the management system

are both subject to annual scrutiny. Furthermore, at

the beginning of 2006, system operations in the

Research and Innovation Centre were successfully

validated in accordance with the European Eco-

Management and Audit Scheme, EMAS II. Specialist

external auditors (the German TÜV organisation)

confirmed a very high standard in terms of quality

and environmental performance, highlighting several

processes as exemplary.

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

–

training and expertise management

Lifetime learning has always had a big role to play

at the BMW Group. The company’s future know-

how requirements are quantified at an early stage

with the aid of qualitative personnel planning.

Work-based methods of learning, which closely

link material learned to occupational activities, will

be encouraged even more in the future. This so-

The BMW Group follows a concept of preventa-

tive environmental protection and is committed to

the efficient management of resources. This is evi-

dent from a number of key figures. Over the last ten

years, for example, energy consumption has been

reduced by more than 26 % and CO emissions by

2

called “Project Camp” method of learning encour- approximately 24 %. Apart from using natural gas,

ages the transfer of know-how between young district-wide heating and combined heat and power

employees on the one hand and experienced em- generation technologies, a number of innovative

ployees on the other, and actively gets the best

out of inter-generational learning.

individual employee working lifetime models

The aim is to be in a position in which the BMW

Group can offer its employees retirement pro-

energy projects which have been implemented at the

various BMW Group sites are also making a signifi-

cant contribution to this reduction. The use of the

groundwater cooling system enables the BMW Group

to air-condition parts of the Research and Innovation

–

grammes which meet the needs of both employee Centre using near-surface groundwater from drains

and employer. Financial scope has already been for the underground railway. This reduces CO₂

created in this area by reallocating parts of the profit emissions by approximately 5,000 tons a year. This

share scheme.

groundwater cooling project was awarded the

Bavarian Energy Prize in May 2006.

communication

Information should be communicated in such a

way as to make both senior management and

employees more aware of changes affecting

society and business. As part of the process of

The BMW Spartanburg plant in the USA meets

more than half of its energy requirements through

the use of methane gas obtained from a nearby waste

landfill site.This helped to reduce CO emissions

2

encouraging each individual to take responsibility by 53,593 tons in 2006. The U.S. Environmental

for future provisions for health and retirement

needs, the BMW Group launched the electronic

portal “My Future Provision” on its intranet.

Protection Agency (EPA) honoured the BMW Spar-

tanburg plant and system supplier Dürr with the

“Energy Partner of the Year”award.

A further contribution towards reducing energy

usage is an integrated painting process used at the

MINI plant in Oxford. This process, which was intro-

duced in May 2006, reduces the number of coats

2

9

of paint necessary from four to three.The primer

coat application and oven stage has now been

integrated into one of two newly developed base

coats. This also enabled the use of solvents per

vehicle to be reduced by 1.4 % compared with the

previous year. Through innovative use of water-

countries involved considerable efforts because of

the short space of time between implementation of

regulations into national law and having to demon-

strate that a comprehensive network was in place.

This is also due to the fact that the necessary re-

cycling infrastructure had previously been extremely

based and powder-based clear coating technologies, limited.

the BMW Group has been able to reduce emissions

All BMW Group vehicles are already optimised

of solvents by more than 50 % over the last ten years. at the development phase with a view to sub-

During the last five years, the BMW Group has

also succeeded in significantly reducing the amount

of waste water created. Since 1996, the amount of

processing water required per manufactured vehicle

has gone down by 47 %, partly as a result of the

continuous development of circulation systems at

all BMW Group sites. The BMW engine plant in

Steyr reached a major milestone in the area of effi-

cient waste water treatment and circulation systems

sequent recycling. For example, all components

through which liquids will flow are designed in such

a way that operating liquids, such as oil, fuel, brake

fluid and coolant can be emptied quickly and easily.

All pyrotechnical components within the vehicle

(airbags, seat belt tensioners, safety battery termi-

nals, etc.) are designed so that they can be released

by means of a central connector, thus simplifying

the recycling process and saving time. Moreover,

at the end of 2006. Using an innovative combination many components built into BMW Group vehicles

of membrane technologies, the water used in the

plant’s production processes is purified and fed

back into the production system.This made it

possible to close off the production’s waste water

are made with materials derived from recycled parts.

This saves valuable resources and conserves the

environment.

connection at the end of 2006. The use of this tech- Environme nt-frie ndly trans portation s olutions

nology will lead to a saving of 30 million litres of

water p.a. in the future.

The BMW Group’s environmental care activities

also cover logistics. The aim is to reduce the volume

of pollutants which are emitted along the entire

chain, from the procurement of materials, supply

lines between locations, right up to the final delivery

of the vehicle to the customer. The BMW Group

therefore focuses on more ecologically sound trans-

portation methods, such as ship and rail. In 2006,

for example, 32 % of over-land transportation was

Imple me ntation of the EU End-of-Life Ve hicle s

Dire ctive

Over the last few years, a network of recovery centres

for end-of-life vehicles has been set up in the coun-

tries of the European Union. Since 1 J anuary 2007,

customers in the EU have been able to return their

BMW, MINI or Rolls-Royce vehicles to these recovery accomplished by rail, thereby maintaining the high

centres to be recycled free of charge. During 2006,

the number of recovery centres taking back BMW

Group end-of-life vehicles increased by 23 %. The

establishment of a comprehensive recovery and

recycling infrastructure in the Eastern European EU

level attained in 2005.

Logistics experts within the BMW Group are

also working on a project to reduce the use of wax or

adhesive foils currently employed to protect the

outside surfaces of vehicles. In total, approximately

Volatile organic compounds (VOC) pe r unit produce d

P roce s s e fflue nt pe r manufacture d car

(m /unit)

3

(kg /unit)

3

2

.25

.00

.75

.50

.25

.00

1.00

0.90

0.80

0.70

0.60

0.50

*

04

0

2

03

04

05

06

02

03

05

06

3

.23

2.88

2.26

2.07

2.04

0.92

0.98

0.83

0.76

0.67

*

Variance to reported figures from previous years due to larger basis of data

3

0

Group Manage me nt Re port

5

3 % of vehicles were delivered without protection

to this commitment by reducing its fleet consump-

tion by almost 30 %. The BMW Group is also making

in 2006, compared with 42 % in the previous year.

The detrimental impact of protecting outside surfaces an active contribution towards fulfilling the voluntary

was therefore significantly reduced.

commitment given by the European Automobile

Manufacturers (ACEA) to the EU Commission. This

voluntary commitment envisages a 25 % reduction

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

The BMW Group long-te rm e ne rgy s trate gy –

innovation for lowe r fue l cons umption

in CO emissions over the period 1995 to 2008.This

2

The BMW Group supports the Kyoto targets and

has been working intensively for years to reduce its

fleet’s fuel consumption. The energy strategy pur-

sued by the BMW Group is sub-divided into three

steps. In the short and medium term, the fuel con-

sumption of vehicles will be reduced by new, highly

efficient engine generations, active aerodynamics,

the use of innovative lightweight materials and intel-

ligent energy management within the vehicle. For

the BMW Group, all of these activities fall under the

concept of BMW EfficientDynamics. In the medium

term, the BMW Group is working on achieving addi-

tional consumption benefits through various meas-

ures such as increasing the electrification of the

drivetrain and hybridisation. From the BMW Group’s

perspective, the most sustainable technology in

means that the European fleet average for passenger

cars should be reduced to 140 gram per kilometre

driven by the year 2008.

The extent to which engineers within the BMW

Group have achieved fuel consumption reductions

in recent years can be demonstrated by a com-

parison of the enterprise’s best-selling models, the

BMW 3 Series and the BMW 5 Series, over four

model cycles.

The new BMW 525i requires 33 % less fuel

than the BMW 525i from the model year 1982.

The toxicity of emissions has been reduced by 95 %

over the period. At the same time, the BMW 525i

from the model year 2007 with 160 kW generates

approximately 45 % more power than the equivalent

model from 1982. These substantial improvements

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

the long-term is the use of hydrogen in the combus- were achieved despite the fact that much higher

tion engine, since hydrogen can be produced from

various regenerative energy sources with practically

level of safety and comfort requirements now in

place make the new BMW 525i 16 % heavier than

the equivalent model from 1982.

no CO emission. In November 2006, the BMW

2

Group presented the BMW Hydrogen 7, based on

There has also been a significant reduction in

the BMW 7 Series, the first hydrogen-powered vehi- fuel consumption for the BMW 3 Series Sedan

cle to be offered in the premium segment.

when compared over four generations. Compared to

the fuel consumption of the BMW 320i from the

model year 1983, the consumption level of the cur-

rent BMW 320i is almost 23 % lower.

Good progre s s made towards re ducing fle e t

cons umption

In recent years the BMW Group has made good

progress in reducing the fuel consumption level of

its fleet. In accordance with the agreement made

by the German Automobile Industry (VDA) to reduce

fleet consumption by 25 % in the period from 1990

Efficie ntDynamics

Through its EfficientDynamics concept, the BMW

Group is continually generating fuel consumption

reductions with the aim of offering the most efficient

to 2005, the BMW Group has contributed significantly vehicle in each relevant premium segment. Measures

Ene rgy cons ume d pe r unit produce d

CO₂e mis s ions pe r unit produce d

in MWh

in tons

3

2

.75

.50

.25

.00

.75

.50

1.15

1.10

1.05

1.00

0.95

0.90

*

**

*

05

0

2

03

04

05

06

02

03

04

06

3

.21

2.94

2.90

0.98

1.00

0.94

0.99

0.94

^*Variance to reported figures from previous years due to larger basis of data

^*The increase is attributable to a change in the energy mix.

Variance to reported figures from previous years due to larger basis of data

**

3

1

Efficie ncy improve me nt of the BMW 525 i ^]

1

(Index = BMW 525i model year 1982, compared with the BMW 525i available from spring 2007)

Difference in %

–100

–75

–50

–25

+25

+50

+75

+100

BMW 525i(1982)

110 kW

BMW 525i (2007)

160 kW

Power

+ 45

Torque

+ 26

215 Nm

270 Nm

We ight ²

]

+ 16

1,365 kg

1,585 kg

Drag

– 18

0.74 m²

0.61 m²

Exhaus t gas e mis s ions ³

Fue l cons umption ⁴

]

– 95

ECE R15-04

11.1 l/100 km

EU 4

]

– 33

7.4 l/100 km

1

] Sedan, manual transmission (1982: five-gear economy transmission)

here have been adjusted to the new measurement method valid in the EU (unladen weight including 75 kg for driver and luggage).

exhaust gas emissions (CO, HC, NOx) by 90 –95 %, in line with the currently valid Euro-4 norm.

4] Combined EU fuel consumption. In 1982, consumption was calculated

2] In 1982, weight was given as a DIN (= German Industry Norm) unladen weight. The values shown

3] Reduction of statutorily restricted

using the DIN-1/3-Mix method (until 1996). The value shown here has been adjusted to the currently valid New European Driving Cycle.

Efficie ncy improve me nt of the BMW 320 i ^]

1

(Index = BMW 320i model year 1983, compared with the BMW 320i)

Difference in %

–100

–75

–50

–25

+25

+50

+75

+100

BMW 320i(1983)

92 kW

BMW 320i (2006)

110 kW

Power

+ 20

+ 18

Torque

170 Nm

200 Nm

We ight ²

]

1 ,1 25 kg

1,435 kg

+ 28

Drag

–19

–23

0.73 m²

0.59 m²

Exhaus t gas e mis s ions ³

Fue l cons umption ⁴

]

– 95

ECE R15-04

9.6 l/100 km

EU 4

]

7.4 l/100 km

1

] Sedan, manual transmission.

in the EU (unladen weight including 75 kg for driver and luggage).

currently valid Euro-4 norm.

4] Combined EU fuel consumption. Consumption was measured until 1996 using the DIN-1/3-Mix method. The value shown here has been

adjusted to the currently valid New European Driving Cycle.

2] In 1982, weight was given as a DIN unladen weight. The values shown here have been adjusted to the new measurement method valid

3] Reduction of statutorily restricted exhaust gas emissions (CO, HC, NOx) by 90 –95 %, in line with the

Efficie ncy improve me nt of the BMW 118 i revis e d mode l ^]

1

(Index = BMW 118i model year 2004, compared with the 118i available from spring 2007)

Difference in %

–100

–75

–50

–25

+25

+50

+75

+100

BMW 118 i (2004)

95 kW

BMW 118 i (2007)

105 kW

Power

+ 10

+ 5

+ 2

Torque

180 Nm

190 Nm

We ight

1,325 kg

1,350 kg

Drag

–3

0.65 m²

0.63 m²

Exhaus t gas e mis s ions

Fue l cons umption ²

EU 4

]

–19

7.3 l/100 km

5.9 l/100 km

1

] manual transmission

2] Combined EU fuel consumption

Fue l cons umption of BMW Group cars according to VDA commitme nt

Index: 1990 = 100; Basis: fleet consumption of newly registered cars in Germany measured on the basis of the New European Driving Cycle in accordance with

the VDA commitment for passenger/estate cars^*)

(

1

00

9

8

7

5

0

5

0

5

0

9

0

91

00.0 97.5 90.9 89.3 85.8 83.7 86.3 87.3 85.6 82.1 79.6 77.3 74.3 74.0 74.0 70.7 69.4

^*The adoption of the uniform VDA computation method for the various DIN-1/3-Mix measurement methods (used up to 1996) and the New European Driving Cycle (used from

997 onwards) gives rise to minor discrepancies compared to earlier BMW Group Annual Reports.

92

93

94

95

96

97

98

99

00

01

02

03

04

05

06

1

3

2

Group Manage me nt Re port

taken to improve EfficientDynamics contribute to

further reductions in fuel consumption and vehicle

emissions, simultaneously enhancing both dynamics

The optimum shift point was made ready for

series production in 2006 and, from spring 2007

onwards, will also be successively introduced into

and performance. BMW Group’s engineers consider volume models. The engine’s electronics system

all potential areas for optimising a vehicle, including calculates the optimum moment to change gear in

improved aerodynamics, more efficient engine tech- terms of fuel economy, dependent of the actual

nologies, lightweight construction through to a com- driving situation. A shift point indicator on the instru-

prehensive system of energy and heat management ment panel – an illuminated arrow symbol which also

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

within the vehicle. The BMW Group endeavours to

make any new fuel consumption reducing technolo-

gies available to as many customers as possible, as

soon as possible. This is seen as the only way to

achieve ecological progress for the fleet as a whole.

The new “High Precision Injection” petrol injection

technology gives the BMW Group the world’s first

jet-guided direct fuel injection system suitable for

large-scale serial production and actually provides a

practical solution for reducing consumption using

a lean operation approach in ways which other tech-

nologies have been unable to exploit. In spring 2007,

this technology will be introduced to the four-cylin-

der Otto engines of the BMW 1 Series and the six-

cylinder Otto engines of the BMW 5 Series.

indicates the optimum gear to change to – prompts

the driver to change gear at the ideal moment.

The potential offered by these EfficientDynamics

measures is evident when looking at the fuel con-

sumption figures of the revised BMW 1 Series, which

will become available on the markets from spring

2007 onwards. Improved fuel economy in the new

BMW 1 Series models is achieved by the use of

new lean operation engines and the Auto Start /

Stop function. This saves around 14% of fuel in

the 120i and around 19 % in the 118i. The revised

models of the 118d and 120d diesel-engine vehicles

also require around 15 % less fuel than their prede-

cessors. In this way, the BMW Group is making a

significant contribution to lowering fleet fuel con-

sumption within the context of the voluntary ACEA

commitment.

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

In addition, the BMW Group will successively

introduce the Auto Start/Stop Function feature to

their range of models, starting with the BMW 1 Se-

ries. This innovation automatically switches off the

engine as soon as the vehicle stops moving and

Ele ctrification of the powe rtrain continue s to

make progre s s

starts it again extremely quickly as soon as the driver The BMW Group is also working on a hybrid version

wishes to continue the journey. This technology can

help to save a great deal of fuel, especially in urban

stop-and-go driving conditions.

The Brake Energy Regeneration system will

also increase efficiency. Beginning in spring 2007,

this technology will be included in all BMW 1 Series

and 5 Series vehicles and will then be successively

integrated into an increasing number of other models

as they come onto the market. Electrical energy is

then only produced for the vehicle’s on-board elec-

of the powertrain for its high-performance models.

In cooperation with General Motors and Daimler-

Chrysler, the BMW Group is working on the develop-

ment of a “Two-Mode” hybrid drive-system capable

of reducing fuel consumption by up to 20 %.The

new system offers for the first time an increase in

efficiency and performance, both for urban driving

and on highways.

A “Two-Mode” hybrid drive system of this type

was presented by the cooperation partners at the

trical system during the engine’s run-over and braking Engine Symposium in Vienna in April 2006. This is

phases.The Brake Energy Regeneration system

offers two practical benefits. Firstly, it reduces fuel

consumption significantly. Secondly, the driver bene-

a fully integrated combination of electric motors and

a fixed-ratio transmission system.

General Motors, DaimlerChrysler and the BMW

fits directly from the fact that the alternator is decou- Group are developing this hybrid system with a

pled during load phases. Since no electricity is pro-

duced during this phase, more thrust is available to

the driver when accelerating. This not only makes

the vehicle more economical to run, but also gives a

more dynamic drive.

view to reducing the volume of power transmitted

through the less efficient electrical section of the

system. This makes it possible to use smaller electric

motors, thereby reducing power loss in the drive

system.

3

The new concept will be used initially in rear-

wheel drive vehicles. The objective of this partner-

ship is the joint development of the key technical

components for hybrid vehicles of the future. As a

consequence of these cooperation arrangements,

Re s e arch and deve lopme nt expe nditure

incre as e d

At the end of 2006, the BMW Group’s worldwide

research and development network consisted of

ten locations in five countries with a total of approxi-

the BMW Group expects to minimise series develop- mately 9,400 employees.

ment times considerably, achieve higher market

maturity, larger volumes and faster market entry. In

spite of the close cooperation in creating a common

hybrid module, this solution still leaves enough

scope to take into account the specific design con-

cept applicable to each relevant brand.

Research and development expenses totalled

euro 3,208 million in 2006, 3.0 % higher than in the

previous year. The research and development ex-

penditure ratio was 6.5 %.

Le ading pos ition amongs t pre mium

manufacture rs

Hydroge n 7 – the firs t s e rie s -deve lope d ve hicle

with a hydroge n combus tion e ngine

The leading position of the BMW Group amongst

premium manufacturers in the area of technology

and innovation was again underlined in 2006 by the

numerous international awards it received.

In the long term, the BMW Group is working to-

wards hydrogen as the fuel source of the future.

The BMW Group presented the BMW Hydrogen 7

in November 2006 in Berlin, the world’s first hydro-

gen-driven luxury Sedan. This vehicle is practically

emission-free and suitable for everyday use.The

new model, based on the BMW 760Li, represents

a milestone en route to a new era of sustainable

mobility.The BMW Hydrogen 7 is powered by

a combustion engine capable of running on both

hydrogen and petrol.This vehicle has gone through

the entire series development process and is the

result of a clearly-defined strategy, which already

enables the BMW Group to put tomorrow’s hydro-

gen technology to use in today’s vehicles. In addi-

In February, the BMW Group was presented

with the “Design Award of the Federal Republic of

Germany” for the BMW 6 Series Coupé and Con-

vertible models. This is the highest official German

design award and is presented by the German

Design Council under the auspices of the Federal

Ministry for Business and Technology. Companies

and individuals do not apply for the design award;

they are nominated by the economics ministries of

the various federal states or by the Federal Ministry

for Economic Affairs. The prerequisite is that a

product must already have won a national or inter-

national award. A maximum of 25 products are

tion, the new technology will be able to benefit from presented with awards.

the whole range of efficiency improvement meas-

ures right up to the full hybrid version.

In April, the BMW 3 Series was voted the “World

Car of the Year”. Under the “World Car of the Year

Award” programme, a panel of 46 international auto-

motive journalists adjudicate the most important

new models on the basis of 20 criteria, including

styling, performance, handling, comfort and utility.

The award was presented during the New York

International Auto Show.

The BMW Hydrogen 7 is capable of covering

over 200 kilometres powered by hydrogen and a

further 500 kilometres in the conventional petrol

mode. The BMW Hydrogen 7 holds approximately

eight kilograms of liquid hydrogen and its conven-

tional petrol tank has a capacity of 74 litres.

The introduction of the BMW Hydrogen 7 by

the BMW Group will create momentum to increase

hydrogen supply coverage. At the same time, the

BMW Group calls on the relevant networking partners

in the fields of politics, science, research and busi-

For the first time in the history of the “Engine of

the Year Award”, an engine achieved the unusual

feat of being voted engine of the year for two years

in succession, namely the V-10 High Performance

engine used in the BMW M5/M6. The BMW Group’s

ness to build up infrastructures and promote tech- engines won awards in no less than five categories:

nologies related to hydrogen as an energy source.

– the V10-5.0 litre engine (BMW M5 and BMW M6):

Best Engine 2006

–

the V10-5.0 litre engine (BMW M5 and BMW M6):

Best Performance Engine 2006

3

4

Group Manage me nt Re port

–

the V10-5.0 litre engine (BMW M5 and BMW M6): slow speeds and in traffic jams, but also ensuring

Winner in the 4.0 plus litre category

more comfort and safety in flowing traffic conditions.

The system will become available in BMW brand

cars during the course of 2007.

the 3.2 litre straight six cylinder engine (BMW M3,

BMW Z4 M Roadster and Z4 M Coupé): Winner

in the 3.0 to 4.0 litre category

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

–

the 3.0 litre twin turbo diesel engine (BMW 535d): Ne w dynamic driving s imulator

Winner in the 2.5 to 3.0 litre category In J uly 2006, the BMW Group’s new dynamic driving

In November, ten days even before its official market simulator was commissioned, a further step for-

launch, the new MINI won one of the most presti- ward towards improving development and testing in

gious international car awards, the Golden Steering realistic conditions. This driving simulator enables

4

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2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

Wheel 2006. An international panel of 25 jurors

comprising motor sports personalities, automobile

experts and well-known car drivers tested the vehi-

cles for two days and adjudicated them in 15 cate-

specialists to create test conditions that had pre-

viously only been possible with real cars on testing

grounds. In terms of the efficiency of development

work, it is essential that functionality, reliability and

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

gories. In its class, the new MINI came out as winner the handling of innovative systems, such as driver

Outlook

in seven of the 15 categories.

assist systems, can be fully tested at an early stage

in the development process. The driving simulator

therefore allows the timing of the practice test for

new systems to be brought forward. Being able to

Ne w abs orbe r facilitie s built to te s t e le ctro-

magne tic tole rance

In October 2006, new facilities to test electromag- carry out development work under laboratory con-

netic tolerance were commissioned at the BMW

Group’s Research and Innovation Centre (FIZ) in

Munich. For the first time, this test equipment en-

ditions brings significant benefits compared to a real

test drive. Every situation can be recreated as often

as necessary, thus enhancing the validity of statis-

ables specialists to simulate the interaction of elec- tically evaluated results.

tronic systems and assist functions under realistic

driving conditions in order to ensure their reliable

functioning. In this context, engineers have to take

into account the fact that these systems create

electromagnetic fields of varying strengths which,

under given circumstances, can interact with or be

affected by electromagnetic fields from outside

the car. All incidences of interference are analysed

punctiliously in order to rule out malfunctions.

The new test complex, unique in this configura-

tion in the automobile industry, is also equipped

with roller testing facilities and computer-controlled

moveable dummies. It therefore allows the activation

of driving stability systems at exactly defined speeds

and the impact of other driver assist systems to be

simulated.

Drive r as s is t sys te ms make for the pe rfe ct drive

The BMW Group presented in J uly 2006 the Active

Cruise Control system with Stop & Go function at

one of its innovation days. This is an assist system

conceived first and foremost for driving on motor-

ways and fast roads. It covers a range of speeds

from 180 km/h down to zero. Active Cruise Control

with Stop &Go function accelerates and slows

down the car fully automatically, thus relieving the

driver not only in long convoy driving conditions, at

3

5

P urchas ing s tructure s influe nce d by mode l

life -cycle s

Re gional mix of BMW Group purchas e volume s 2006

in %, basis : production material

In 2006, the BMW Group purchased approximately

one half of its bought-in parts in Germany. Across

the rest of Western Europe, the purchase volume

changed in line with production volumes within

the BMW Group. Due to the sales growth of the

BMW 3 Series, the volume of parts bought in from

Central and Eastern Europe increased correspond-

ingly. This was largely attributable to the fact that

suppliers for these model series are located to an

increasing extent in newly acceded countries within

the European Union. The NAFTA market is used

primarily to purchase parts for cars manufactured at

the BMW Spartanburg plant. The production line

change and the BMW X5 model change caused the

purchase volume in this region to fall. The volume

of parts bought in from South America was mainly

attributable to the lower production volume of the

MINI at the Oxford plant, brought about by capacity

expansion measures.

5

4

Germany

Rest of Western Europe

Central and Eastern Europe

NAFTA

1

3

Africa

Asia /Australia

South America

9

20

1

0

institutes have indicated, since the year-end, that

the commodity markets may have eased somewhat,

it is likely that high price levels will persist in 2007.

P urchas ing ce ntre s he lp to e nhance innovative

s tre ngth

The BMW Group’s international network of pur-

chasing centres is committed to the process of

opening up new procurement markets. Focus has

been sharpened in particular on the so-called

“emerging markets”. By realising cost benefits in

these markets, the BMW Group can generate a

positive impact on purchase prices, thus improving

its competitiveness. By analogy to the way that the

BMW Group’s competitiveness is being improved,

suppliers are also encouraged to take better advan-

tage of the cost benefits available on emerging mar-

kets and to modify their process chains accordingly.

At the same time, measures must be put in place to

ensure that stipulated quality and availability levels

are constantly maintained.

S ituation on the commodity marke ts re mains

te ns e

The high price levels on the raw material markets

once again represented a major challenge for the

group’s purchasing departments in 2006. Signifi-

cantly higher costs had to be paid for supplies of

steel, plastic, aluminium and copper.

The annual average market price of aluminium,

copper and plastic went up in 2006 by 34%, 76 %

and 13 % respectively. Only in the case of steel did

the annual average market price in 2006 remain at

its 2005 level.

The price of industrial raw materials went up by

1% in US dollar terms and by 30 % in euro terms.

The BMW Group’s purchasing centres are part

of the innovation management process.They inves-

3

The price of non-precious metals increased by 56 % tigate whether the innovative technical solutions

in US dollar terms and by 55 % in euro terms. Energy offered by the supply markets meet the requirements

supplies saw a price increase of 21% and 22 % in

US dollar and euro terms respectively.

In the case of precious metals (rhodium, palla-

dium, platinum), purchase price hedges reduced the

impact for the BMW Group of extreme market price

rises. Compared to the previous year, the price of

of the BMW Group’s product profile and assess

whether they can make a contribution to the product

creation process. This is an essential factor helping

to enhance the BMW Group’s innovative strength.

S upplie r manage me nt furthe r optimis e d

precious metals relevant for the BMW Group went up As a manufacturer of premium vehicles, the BMW

in 2006 by rates of between 27 % and 116 %.

Measures were put in place in the area of raw

materials to ensure that additional costs were fairly

spread over the entire added-value chain, with the

BMW Group also bearing its share of the cost. Al-

though the purchase price predictions of various

Group also attaches great importance to the effi-

ciency of its suppliers. Using a range of targeted

measures, the BMW Group was again able to improve

its supplier management systems in 2006.

The BMW Group fosters relationships with its

suppliers at an early point in the creative process in

3

6

Group Manage me nt Re port

order to elucidate potential topics of innovation. The

technical and commercial feasibility of new ideas is

S ale s ne twork expande d furthe r

In 2006, the main challenge for the BMW Group

then jointly evaluated. The BMW Group also involves in terms of sales and marketing activities was the

its large system suppliers in the initial phase of the

development process for new products. At supplier

workshops, also held early on in the creative process, ence, especially in developing markets.The Group

strengthening of its global sales network.

1

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Group Management Report

The BMW Group continued to expand its pres-

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

joint solutions are worked on to reduce manufac-

turing costs and optimise technical issues, such as

vehicle weight reduction.

The growing complexity and inter-connectivity

of modern vehicles increases the responsibility of

suppliers within the supply chain. The BMW Group

encourages its suppliers to be aware of this respon-

sibility, particularly in the area of quality manage-

ment using web-based quality planning tools and

further training.

An electronic standard has been put in place to

monitor the core processes involved in working to-

gether with suppliers. Inquiries, purchase orders and

specific supply requests for series and test compo-

nents are sent electronically via EDI (Electronic Data

Interchange) or the internet.The same channels can

also be used to obtain information on parts origin,

also invested in its established markets by strength-

ening its sales organisation in these areas. Although

the Group’s highest growth rates were achieved

in emerging markets, the market triad of Western

Europe, the USA and J apan still generates around

85 % of the BMW Group’s total sales volume.

In 2006, the BMW Group continued its prepara-

tions for entering the Indian market. The new sales

company in Delhi started operations on 1 J anuary

2007. The official opening of the new BMW Group

plant in the southern Indian city of Chennai is

planned for March.

The BMW Group also opened its own sales

organisations in the Czech Republic and Slovakia

with effect from 1 J uly 2006 and in Slovenia with

effect from 1 J anuary 2007. This is all part of a Group

strategy to assume direct market responsibility in

4

5

6

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3

4

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2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

materials balance details regarding recycling require- all EU countries within Central and Eastern Europe.

ments or change management information.

At a dealership level too, the BMW Group pressed

ahead with its engagement in new markets.The

number of dealerships in China was increased to

61 in 2006, representing a rise of approximately

one third compared to one year earlier. The first

steps were also taken to create a dealership net-

As part of the process of increasing the level of

responsibility that suppliers are expected to assume

for quality, the BMW Group also provides real-time

data to its suppliers. Data regarding supply quality

from all plants can be retrieved, as can information

concerning customer complaints and warranty costs. work in India.

In the established markets, by contrast, activities

High e cological and s ocial s tandards expe cte d

of s upplie rs

aimed at strengthening the quality of the existing

sales organisation dominated. Here too, the main

focus was on retail sales. In the final analysis, nine

out of ten BMW and MINI customers purchase their

vehicles at one of over 3,000 BMW or 1,500 MINI

dealerships around the world.

The BMW Group also expects its suppliers to ad-

here to high social and ecological standards. The

BMW Group’s national and international purchasing

guidelines also stipulate social and ecological stan-

dards.

It is essential for the overall success of the

Surveys are regularly made about how suppliers BMW Group that dealerships are given support in

comply with, and implement, those standards. This

data is recorded in the BMW Group’s supplier data-

base. In 2006, the BMW Group, together with its

suppliers, successfully implemented all current re-

quirements stipulated by the EU End-of-Life Vehicle

Directive with regard to prohibited materials.

the development of common business interests.

Measures taken in this respect in 2006 included

continued implementation of the Customer Relation-

ship Management Programme and the Used Vehi-

cle Programme as well as investments in training

centres for dealers, such as in the United Kingdom,

3

7

Italy or Mexico.The availability of spare parts was

tivities were already fully aimed towards the Americas

also greatly improved in a number of countries, such Cup 2007 in Valencia.

as South Africa or Malaysia.

Altogether, great consideration was given to

communicating the BMW brand in view of the

In addition to external dealerships, the BMW

Group also has a network of 36 branches around the changing ways customers use various media and

world that, in many markets, serve as a source of

reference.

this has been reflected in a number of innovative of-

fers tailored to suit these new media. One example

The Rolls-Royce dealership network was further is the internet campaign for the new BMW X5 with

expanded and now comprises 74 sales partners

worldwide.

a version of the BMW website optimised for portable

electronic devices, including BMW audio and video

podcasts about the automobile trade fairs in Detroit,

Geneva and Tokyo or with free downloads of BMW

audio book thrillers.

In 2006, marketing activities for the MINI brand

were wholly directed towards the market launch

of the new MINI. The integrated launch campaign

under the motto “Incredibly MINI. The new MINI”

not only introduced the new models, but also high-

lighted attitudes and lifestyles associated with

the MINI brand using unconventional activities and

formats – coupled with a dash of the typical humour

also associated with the MINI.

Inve s tme nt in s trong brands

Apart from the substance and emotionality of its

products, the BMW Group also benefits from the

strength of its various brands. To this end, it con-

tinues to invest substantial sums on precise meas-

ures to improve their profile.

With consideration to the separate market

positioning of the BMW und MINI brands, the BMW

Group selected two new creative partners in 2006 –

Media Arts Lab for the BMW brand and Plantage

for the MINI brand. From 2007 onwards, these two

agencies will not only work on the German market,

but also on the development of launch and brand

campaigns that can be rolled out internationally.

In 2006, various innovative marketing campaigns

contributed towards the strengthening of the BMW

brand. One example of this is the current worldwide

“Expertise Campaign” and another is the “Company

of Ideas” campaign used in the USA, BMW’s largest

market. The “Expertise Campaign” explains various

BMW technological advances in an unconventional

and humorous way, such as the workings of the

xDrive four-wheel-drive system, demonstratively

using a jumping jack toy figure. The “Company of

Ideas” advertisements make general allusions to

the idea of independence and the company’s ability

to innovate.

In the field of sports marketing, the BMW brand

entered into new territory with the “F1 Pit Lane

Park”, presenting a “Hands-On Formula 1” pit lane

accessible to all visitors over a series of five race

weekends. The BMW Group’s involvement with golf

was expanded in the form of a partnership with the

PGA Tour and Western Golf Association to create

the “BMW Championship”. In the area of sailing, ac-

3

8

Group Manage me nt Re port

BMW S tock and Bonds in 2006

We ak dollar unable to dampe n s tock marke t

mood

in value registered in recent years therefore con-

tinued, albeit with a small amount of volatility.

By contrast, BMW preferred stock once again

outperformed the overall market, closing on 29 De-

cember at a price of euro 43.52. During the year

under report, BMW preferred stock therefore gained

34.3 % in value.

The renewed weakening of the US dollar against

the euro and the persistently high price level of

key commodities determined the mood on the

stock markets in 2006. In 2005, the US dollar had

strengthened by 13 % against the euro; over the

course of 2006 it weakened again. Compared to

the exchange rate at the beginning of the year, the

US currency lost 11.9 % in value against the euro,

moving in a range of US dollar 1.18 –1.33 to the euro

during the year under report and reaching its lowest

level of US dollar 1.33 to the euro on 5 December.

The situation on the commodity markets eased

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

P rogramme to buy back s hare s of common

s tock

At the Annual General Meeting of BMW AG on

12 May 2005, the shareholders authorised the

Board of Management to acquire up to a maximum

of 10 % of the share capital in place at the date of

4

5

6

3

4

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3

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2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

towards the end of 2006, but only after experiencing the resolution and to withdraw these shares from

Outlook

strong fluctuations during the year. For example,

one barrel of Brent Crude cost US dollar 58.51 at

the end of the year, whereas in August the price

had been in the region of US dollar 80. In fact, com-

pared to the beginning of the year, the price of this

raw material – which is crucial for the automobile in-

dustry – went down by 5.4 %.

Despite the deterioration in exchange rates

affecting export-orientated companies in the euro

region, the stock markets nevertheless saw some

sharp rises.

circulation without any further resolution by the

Annual General Meeting.

In conjunction with this authorisation, 3 % of

the share capital was acquired.This involved the ac-

quisition of 20,232,722 shares of BMW common

stock at an average stock exchange price of euro

37.47. The shares were withdrawn from circulation

in accordance with the resolution of the Board of

Management taken on 21 February 2006. At the

Annual General Meeting of BMW AG held on 16 May

2006, the Board of Management was again autho-

rised to acquire shares of common and/or preferred

stock via the stock exchange, up to a maximum of

10 % of the share capital in place at the date of the

Compared to its level at the beginning of the

year, the EURO STOXX 50 rose by almost 15.1%

during the period under report.The leading German

stock index, the DAX, improved by as much as 21.9 %. resolution. This authorisation replaces the previously

The Prime Automobile sector index also performed

well within this favourable market environment,

closing at 569.56 points and thus gaining 25.7 %

compared to one year earlier.

valid one and expires on 15 November 2007.

Buy-back of s hare s of pre fe rre d s tock for

e mploye e s tock plan

BMW common stock closed on 29 December

006, the final day of trading for the year, at euro

3.51, 17 % ahead of its J anuary price.The increase

Since 1989, employees have been able to participate

in the success of the Company through the acqui-

sition of below-market priced shares of preferred

2

4

Deve lopme nt of BMW s tock compare d to s tock exchange indice s

Index: 29.12.1996 = 100)

(

4

3

2

1

50

00

50

00

50

00

50

00

5

0

9

7

98

99

00

01

02

03

04

05

06

BMW preferred stock

BMW common stock

Prime Automobile

DAX

3

9

stock. In the meantime, this instrument of employee

participation has spanned a timeframe of more

than 30 years. This successful programme will be

continued in 2007. As notified in the Federal

Gazette on 21 December 2006, up to 800,000

shares will be acquired during the course of 2007

for the purpose of issue to employees. As in the

past, the buy-back will be executed under the

leadership of a number of securities houses or

banks, which are able to determine the timing of

individual buy-backs independently of, and un-

influenced by, BMW AG.

S cope of information for inve s tors and analys ts

continuous ly expande d

The continuous improvement in the quality of com-

munication with the financial markets was well ap-

preciated by market participants. In 2006, the BMW

Group’s investor relations team was judged to be

the best in the sector, winning first place in the Extel

Survey, published in summer 2006. Readers of the

investor magazine “Börse Online” judged the in-

vestor relations work of the BMW Group to be the

best of any DAX 30 company.

The internet plays a key role in the process of

communicating financial information. Within this

context, the on-going development of the BMW

S ucce s s ful bond is s ue s

In order to refinance the unabated high rate of growth Group’s investor relations website is of major sig-

of the Financial Services segment, the BMW Group nificance (www.bmwgroup.com/ir). Apart from finan-

increased its issuing activities with bonds and asset- cial publications and other important information

backed-security transactions (ABS) during 2006.

These issues were made by the group’s relevant

financing companies. The American capital market

was used primarily via ABS transactions and money

market instruments such as Commercial Paper.

In 2006, a benchmark bond of euro 1 billion

was placed on the European capital market. Bonds

were also issued in British pounds, US dollars and

Swiss francs.

The BMW Group was able to benefit from the

favourable conditions prevailing on the lending mar-

kets. Issue activities were aided by the BMW Group’s

policy of keeping the markets well informed and by

the above-average good ratings that the group en-

joys. As in previous years, financial terms and con-

ditions were particularly attractive in the euro region.

The bonds were highly sought after by institutional

and private investors alike. The strength of the

BMW Group’s three authentic premium brands is

therefore reflected in the global capital markets.

for shareholders, since 2005 it has been possible,

for example, to listen to quarterly conferences in

the form of audio podcasts. This service was widely

used during the period under report.

Incre as ing importance of s us tainability as

analys is crite rion for the s tock marke ts

Business sustainability aspects are becoming in-

creasingly important as an element of the BMW

Group’s capital market work. In addition to regular

capital market discussions focused on Socially

Responsible Investment (SRI), the BMW Group also

held SRI Roadshows in both London and Paris.

In September 2006, the BMW Group was again

included as sector leader in the Dow J ones Sus-

tainability Indexes.The BMW Group is therefore the

only enterprise in the sector to have been included

in this important group of indices for sustainable

investment for the eighth time in succession. For

the last five years, it has also been a member of the

Deve lopme nt in the value of a BMW s tock inve s tme nt in euro thousand

Investment of euro 10,000 at 1.1.1997, including dividends and proceeds from subscription rights, values at end of year

4

3

2

1

0

5

0

5

0

5

0

5

9

7

98

99

00

01

02

03

04

05

06

euro thousand

12.9

15.6

19.0

22.0

25.4

18.8

24.3

22.3

25.4

29.8

4

0

Group Manage me nt Re port

relevant FTSE4Good index group. For the second

time in succession, the BMW Group was judged by

the Carbon Disclosure Project to be “Best in Class in

Leadership Index. The Carbon Disclosure Project

is an initiative started by institutional investors evalu-

ating companies on the basis of how they face up

to the challenges of climate change.

2

006” for its strategy in the face of climate change.

1

0

Group Management Report

The BMW Group is now included in the Climate

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

BMW s tock

2006

2005

2004

2003

2002

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

Common s tock

Number of shares in 1,000

601,995

–

622,228

13,488

622,228

–

622,228

–

622,228

–

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Shares bought back at the reporting date

_S_t_o_c_k_e_x_c_h_a_n_g_e_p_r_i_c_e_i_n_e_u_r_o1]

Year-end closing price

43.51

46.47

35.52

37.05

39.97

32.04

33.20

37.44

31.78

36.75

38.40

21.12

28.92

47.60

27.97

High

Low

Outlook

P re fe rre d s tock

Number of shares in 1,000

Stock exchange price in euro ^]

Year-end closing price

High

52 ,1 96

51,468

1

43.52

45.91

31.80

33.00

33.98

24.48

24.80

26.20

22.86

24.65

26.25

14.86

18.60

31.99

18.17

Low

2004 ^]

5

2003

2002

2

006

2005

Key data pe r s hare in e uro

Dividend

Common stock

0.70 ²^]

0.72 ²^]

4.38

0.64

0.66

0.62

0.64

0.58

0.60

0.52

0.54

Preferred stock

Earnings per share of common stock ^]

3

3.33

2.89

3.00

4

E

arnings per share of preferred stock ^]

4.40

3.35

2.91

7.37

3.02

Cash flow ^]

6

8.21

9.17

9.13

6.76

Equity

29.24

25.17

24.52

23.95

20.59

1

2

3

4

5

6

] Xetra closing prices

] proposed by management

] annual average weighted amount

] stock weighted according to dividend entitlements

] adjusted for new accounting treatment of pension obligations

] calculated on the basis of operating cash flow

4

1

Dis clos ure s purs uant to § 289 (4) and § 315 (4) HGB

The Company’s share capital, totalling euro

intention to participate at the meeting. Shareholders

6

54 ,1 91,358 is, pursuant to Article 4 (1) of the Articles are also required to provide evidence of their entitle-

of Incorporation (status: 9 March 2006) sub-divided

into 601,995 ,1 96 shares of common stock and

ment to participate and exercise their voting rights

at the Annual General Meeting. For this purpose,

documentary evidence of the shareholding, issued

5

2 ,1 96 ,1 62 non-voting shares of preferred stock,

each with a par value of euro 1. The shares are issued by the custodian bank (in the written form specified

to bearer.

Article 24 of the Articles of Incorporation con-

fers preferential treatment to the non-voting shares

by §126b BGB), in either German or English, is re-

quired. Votes may also be exercised by proxy. The

Company may determine that proxy authorisations

of preferred stock with regard to the appropriation of may be granted electronically or by telefax, and may

the Company’s unappropriated profit. Accordingly,

the unappropriated profit is required to be appropri-

ated in the following order:

a) subsequent payment of any arrears on dividends

on non-voting preferred shares in the order of

accruement,

stipulate the specific rules for granting proxy authori-

sations (see Article 17 of the Articles of Incorpora-

tion). The chairperson may determine a reasonable

time limit with respect to the right of shareholders

to raise questions and speak (Article 19 (2) of the

Articles of Incorporation).

b) payment of an additional dividend of euro 0.02 per

euro 1 par value on non-voting preferred shares

and

c) uniform payment of any other dividends on com-

mon and preferred shares, provided the share-

holders do not resolve otherwise at the Annual

General Meeting.

The voting power attached to each share corre-

sponds to its par value. Each euro 1 of par value of

share capital represented in a vote is entitled to one

vote (Article 18 (1) of the Articles of Incorporation).

The Company’s shares of preferred stock are

non-voting. They only confer voting rights in excep-

tional cases stipulated by law.

The right of shareholders to have their shares issued

in individual share certificates is excluded.

Shareholders are only entitled to participate at

the Annual General Meeting and exercise their voting

rights if, prior to the meeting, they have given notice

The Company’s Board of Management is not

aware of any other restrictions relating to voting rights

or the transfer of shares.

Based on the information available to the Com-

pany, the following direct or indirect holdings ex-

ceeding 10 % of the voting rights were held at the

(in the written form specified by §126b of the Ger-

man Civil Code), either in German or English, of their date stated:

Direct share of

voting rights (%)

Indirect share of

voting rights (%)

Date

J ohanna Quandt GmbH & Co. KG für Automobilwerte

J ohanna Quandt

15.4

1.3

1.4.2002^*

1.4.2002

1.4.2002^*

15.4

11.5

16.1

Susanne Klatten GmbH & Co. KG für Automobilwerte

Susanne Klatten

11.5

1.0

Stefan Quandt GmbH & Co. KG für Automobilwerte

Stefan Quandt

16.1

1.3

*

confirmed by notifications as at 20 J anuary 2007.

The shareholdings disclosed above may have

changed subsequent to the stated date, if these

of Management consists of two or more members.

The Supervisory Board determines the number of

changes were not required to be reported to the Com- the members of the Board of Management. It is

pany. 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 mandatory notification rules.

responsible for appointing members to the Board of

Management and for revoking appointments. It also

designates one of the members as the Chairman of

the Board of Management.

The appointment and removal of members of

the Board of Management are based on the rules

contained in §84 and §85 AktG. In accordance with

Article 7 of the Articles of Incorporation, the Board

Amendments to the Articles of Incorporation

must comply with §179 et seq. AktG. All amendments

must be resolved by the shareholders at the Annual

General Meeting (§119 (1) no.5, §179 (1) AktG).The

4

2

Group Manage me nt Re port

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

ing the impact of the change of control on the co-

operation arrangements are not allayed during the

subsequent discussion process.

Incorporation). Resolutions are passed at the Annual – Under the terms of a contractual agreement with

1

0

Group Management Report

General Meeting by simple majority of shares unless

otherwise explicitly required by binding provisions

of law (§20 of the Articles of Incorporation).

There is no authorised or conditional capital at

the reporting date.

In accordance with the resolution passed at the

Annual General Meeting on 16 May 2006, the Board

of Management is authorised, up to 15 November

2007 and subject to the price limits stipulated in the

resolution, to acquire common and/or non-voting

preferred shares via the stock exchange, up to a

maximum of 10 % of the share capital in place at the

date of the resolution.

The Board of Management is also authorised,

without any further resolution by the Annual General

Meeting, to withdraw from circulation the treasury

shares (common and/or non-voting preferred

shares) acquired in accordance with the authorisa-

tion described above.

DaimlerChrysler and General Motors, BMW AG

acquires intellectual property rights in conjunc-

tion with a cooperation for the development of a

hybrid propulsion system. The cooperation can

be terminated with immediate effect by either

party if a change of control occurs with respect to

any other contractual party or an affiliate of an-

other contractual party. Examples of a change of

control are the acquisition of beneficial owner-

ship of securities which confer the majority of

voting power or the acquisition of beneficial own-

ership of securities which confer 20 % of the

voting power provided that within 18 months a

majority of the shareholder-elected members of

the Supervisory Board are the nominees of the

new beneficial owner as well as certain merger

transactions and the transfer of all or substantially

all of the assets involved in the performance of

the cooperation agreement.

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

Furthermore, the Board of Management is

authorised to buy back shares and sell bought-back

shares in situations specified in §71 AktG.

The BMW AG is party to the following significant

agreements which contain special provisions for the

event of a change of control or the acquisition of

control which could arise, for example, from a take-

over offer:

– BMW AG acts as the guarantor for all of the obli-

gations 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 ac-

quired by a third party or the other party is merged

with another legal entity. The termination 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.

– Regarding the trading of derivative financial instru-

ments, framework agreements are in place with

financial institutions and banks (ISDA Master

Agreements), each of which contain extraordinary

rights of termination, which trigger the immediate

settlement of all current transactions, in the event

that the creditworthiness of the respective con-

tractual party is materially weaker following the di-

rect or indirect acquisition of the beneficial owner-

ship of equity securities having the power to elect

a majority of the Supervisory Board of a contrac-

tual party or any other ownership interest enabling

the acquirer to exercise control of a contractual

party or a merger or transfer of assets.

–

An agreement, concluded with an international

consortium of banks relating to a syndicated credit

line (which was not being utilised at the balance

sheet date), entitles the lending banks to give ex-

traordinary notice to terminate the credit line

(such that all outstanding amounts, including in-

terest, would fall due immediately) if one or more

parties jointly acquire direct or indirect control of

BMW AG. The term “control” 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 produc-

tion of a new family of small (1 to 1.6 litre) petrol-

driven engines entitles each of the cooperation

partners to give extraordinary notification of termi- The BMW Group has not concluded any compen-

nation in the event of a competitor acquiring

control over the other contractual party and if any

concerns of the other contractual party concern-

sation agreements with members of the Board of

Management or with employees for situations in-

volving a take-over offer.

4

3

Analys is of the Group Financial S tate me nts

Group inte rnal manage me nt sys te m

The underlying long-term objective of the group’s

the task is to manage each individual project over

time. This involves the continual monitoring of

internal management system is to increase the value projects as well as determining and implementing

of the BMW Group as a whole. The targets set for

the Automobiles, Motorcycles and Financial Services

measures necessary to achieve the defined targets.

The project decision and related project selec-

segments all stem from this objective. Within the Au- tion are therefore important aspects of value-based

tomobiles and Motorcycles segments, this approach management. Net present values (NPVs) and rates of

is put into practise for specific product, process and

structure-related projects. By contrast, the Financial

Services segment is primarily concerned with the

return are computed as part of the decision-making

process. This involves computing the present value

of cash flows and the internal project rate of return

cash flows resulting from its credit and lease portfolio. (or model rate of return in the case of vehicle projects)

expected to be generated by a project decision and

Minimum rate of re turn de rive d from cos t of

capital

comparing them with the minimum rate of return

derived from capital market data.

The cornerstone of the value-added management

of the BMW Group is the entity-specific minimum

rate of return, derived from capital market data, and

based on the weighted average cost of capital:

Using this method, the amount by which a project

will contribute to the total value of the segment

(i.e. the project’s added-value) can be documented

when the project decision is taken. Targets and per-

formance are each controlled using target NPVs and

Cos t of equity capital x market value of equity capital individual cash flow-related parameters which have

Market value of equity and debt capital

an impact on those values.

WACC =

+

The NPV of a project programme is computed

by aggregating the amounts for all projects and dis-

counting them back to a specific date. This value

serves as the main target for the Automobiles and

Motorcycles segments. The business value of each

segment is then computed by deducting the market

value of debt capital. For both of these segments,

the objective is to increase business value, as com-

puted above, on a continuous basis.

Cos t of debt capital x market value of debt capital

Market value of equity and debt capital

The cost of equity capital is measured using the

Capital Asset Pricing Model (CAPM). The cost of

debt capital is partly based on the average interest

rate paid for long-term external debt and partly on

the interest rate applicable for pension obligations.

Value manage me nt in the context of proje ct

control

Re turn on capital us e d to me as ure value on

a pe riodic bas is

The strategies set for each segment (and also the

ensuing project decisions) give rise to the areas of

strategic emphasis which are then implemented at

a functional level. The overall project development

process becomes more targeted as a result of the

closer link between the strategies defined for each

segment and the objectives defined for specific

projects. Once a project decision has been reached,

The management of product projects and product

programmes described above is subject to basic

conditions which result from periodic planning.The

aim here is to monitor and manage periodic tar-

gets on a long-term basis. Periodic performance is

managed in the light of defined accounting policies

and external financial reporting requirements.The

BMW Group primarily uses profit before tax and

Key pe rformance indicators

2006

2005

2004^*

2003

2002

in %

Re turn on Capital Employe d

Automobiles

21.7

17.7

23.2

17.8

25.4

10.4

23.8

16.7

30.1

22.3

Motorcycles

Re turn on As s e ts

Financial Services

BMW Group

1.4

6.3

1.3

5.6

1.4

6.5

1.4

6.6

1.4

7.6

*

adjusted for new accounting treatment of pension obligations

4

Group Manage me nt Re port

segment-specific rates of return as the key indicator

figures by which it manages operating performance.

For example, return on capital employed is used

as the main performance indicator for the Automo-

biles and Motorcycles segments. Return on sales

is also used as a performance indicator. The return

Group revenues rose by 5.0 % compared to the

previous year. Adjusted for exchange rate factors,

group revenues would have increased by 5.5 % or

euro 2,574 million. Revenues from the sale of BMW,

MINI and Rolls-Royce brand cars went up by 1.9 %,

Revenues from motorcycles business grew by 3.1%.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

on assets is used for the group as a whole. In addition Revenues from financial services business climbed

to the return on assets, the Financial Services seg-

ment also manages its business using risk-based

performance indicators (e.g. Value at Risk).

by 19.0 % due to higher business volumes. Revenues

from other activities of the Group totalled euro 193

million and related mainly to the softlab Group. The

comparable figure for the previous year was euro

119 million.

Revenue trends varied from region to region.

Whereas group revenues decreased in Germany by

3.6 %, they increased in the rest of Europe by 6.8 %.

Revenues generated in the Americas region rose

by 6.7 %. For the Africa, Asia and Oceania regions,

they grew in total by 11.6 %, mainly on the back of

marked sales volumes increases in specific Asian

markets.

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

Profit before financial res ult

ROCE =

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Capital employed

Profit before interes t expens e and taxes

ROA Group =

Outlook

Balance s heet total

Profit before tax

ROA Financial S ervices =

Net operating as s ets

Group cost of sales increased at a slightly lower

rate than revenues. The impact of additional costs

anticipated by the BMW Group since the beginning

of 2006 – namely the effect of unfavourable ex-

change rates and higher raw material prices – were

offset by efficiency improvements and an improved

product mix. Despite the adverse factors stated

Long-te rm cre ation of value

The overall target set for earnings is continuous

growth for which the group’s minimum rate of return

is used as the relevant performance indicator. These

periodic targets are supplementary to project and

programme targets.

In order to implement this comprehensive target above, gross profit increased in absolute terms by

and management system, whilst at the same time 6.3 %, giving a gross profit percentage of 23.1%

satisfying periodic reporting and accounting require- (2005: 22.9 %). The gross profit percentage for both

ments, the model analyses show for each project

decision reached the impact of cash flows on the

NPV and on the model rate of return as well as the

impact on periodic earnings. This approach enables

the BMW Group to analyse the effect of each project-

based decision on business value (quantified in

terms of the NPV of the project programme) as well

as on annual earnings and rates of return. “Multi-

project planning” data gleaned from these proce-

Industrial operations and Financial operations was

0.6 percentage points lower than in the previous

year. Information about the composition of the sub-

groups is provided in Note [1].

Sales and administrative costs increased by

4.4 % due to the higher business volume; the in-

crease was, however, lower than the increase in

revenues. They represented 10.1% of revenues,

0.1 percentage points lower on a year-to-year com-

dures allows on-going comparison between dynamic parison.

multi-period targets and periodic performance.

Research and development costs were 3.2 %

higher than in 2005, and represented 5.2 % of

revenues (2005: 5.3 %). Research and development

costs include amortisation of capitalised develop-

ment costs amounting to euro 872 million (2005:

euro 745 million). Total research and development

costs amounted to euro 3,208 million (2005: euro

3 ,1 15 million). This figure comprises research costs,

development costs not recognised as assets and

Earnings pe rformance

The BMW Group recorded a net profit of euro 2,874

million (2005: euro 2,239 million) for the financial

year 2006. The post-tax return on sales was 5.9 %

(2005: 4.8 %). The group therefore generated earn-

ings per share of common stock of euro 4.38 and

earnings per share of preferred stock of euro 4.40.

–

New car and motorcycles sales volume records

Group and segment earnings above previous year’s level

Adverse external factors hold down reported earnings,

qualitative key performance figures nevertheless positive

Settlement of Rolls-Royce exchangeable bond has one-off

impact on earnings

45

–

Capital expenditure reaches new high level

Group Income S tate me nt

in euro million

1.1. to

3

1.12. 2006

31.12. 2005

Revenues

48,999

– 37,660

11,339

46,656

– 35,992

10,664

Cost of sales

Gros s profit

Sales and administrative costs

– 4,972

– 2,544

227

– 4,762

– 2,464

355

Research and development costs

Other operating income and expenses

P rofit be fore financial re s ult

4,050

3,793

Result from equity accounted investments

Other financial result

– 25

99

14

– 520

– 506

3,287

Financial result

74

P rofit be fore tax

4,124

Income taxes

–1,250

– 1,048

Ne t profit

2,874

2,239

capitalised development costs. The research and

development expenditure ratio for 2006 was 6.5 %

exchangeable bond option obligation relating to the

BMW Group’s investment in Rolls-Royce plc, London,

and is also included in the line item “Sundry other

financial result”. In the previous year, fair value meas-

(2005: 6.7 %).

Depreciation and amortisation of property, plant

and equipment and intangible assets included in cost urement had resulted in a loss of euro 356 million.

of sales, sales and administrative costs and research

and development costs totalled euro 3,272 million

Fair value losses on other derivative financial instru-

ments had a negative impact on “Sundry other finan-

cial result”. The net result from using the equity

method decreased by euro 39 million, primarily as

a result of an impairment loss recognised on TRITEC

Motors Ltda., Campo Largo. The net positive result

from investments was up by euro 4 million. Net

interest expense decreased by euro 41 million. The

net negative amount resulting from unwinding the

discounting on pension obligations and recognising

income for the expected return on pension plan

assets decreased by 6.5 % on a year-on-year basis.

In the light of the financial result performance

described above, the group profit before tax im-

(2005: euro 3,025 million).

The positive net amount from other operating

income and expenses went down by 36.1% com-

pared to the previous year. Other operating income

decreased primarily as a result of lower income from

the reversal of provisions. In the previous year, a

provision relating to the Rover disengagement had

been reversed. Other operating expenses increased

by euro 28 million or 5.7 %.

The profit before financial result was up by euro

2

57 million or 6.8 % against the previous year, there-

fore reaching a new high level.

The financial result improved by euro 580 million. proved by 25.5 % compared to the previous year.

This includes the one-off gain of euro 386 million

arising on the partial settlement of the exchangeable

bond on Rolls-Royce plc, London shares.This gain is

reported mostly in “Sundry other financial result” and

the remainder in “Net interest result”. A fair value loss

of euro 14 million was recognised on the remaining

The pre-tax return on sales was 8.4 % (2005: 7.0 %).

Excluding the impact of the gain arising on the par-

tial settlement of the exchangeable bond on shares

in Rolls-Royce plc, London, and the fair market loss

arising on the option obligation, the profit before tax

improved by 3.0 % to euro 3,752 million.

4

6

Group Manage me nt Re port

The group net profit was up by euro 635 million

or 28.4 % against the previous year. The marginally

lower effective tax rate was attributable to the fact

that the gain recognised on the partial settlement

of the exchangeable bond on shares in Rolls-Royce

plc, London, was tax-exempt. In accordance with the

provisions of §37 (5) of the German Corporation Tax

Act, tax reimbursement receivables of euro 123 mil-

lion have been recognised as an asset on the basis

of their present value.

The Automobiles segment recorded a 3.5 %

increase in sales volume and a 4.2 % increase in

revenues, with product mix shifts having a positive

impact on revenues. Segment profit increased by

only 1.2 % to euro 3,012 million due to the effect of

adverse external factors.

The Financial Services segment again expanded

its business successfully in 2006, enabling seg-

ment profit to be improved by 13.2 % compared to

the previous year.

Reconciliations to the Group profit in 2006 are

positive (2005: negative) mainly as a result of the

gain arising on the partial settlement of the exchange-

able bond on shares in Rolls-Royce plc, London.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

Financial pos ition

The group cash flow statement shows the sources

and applications of cash flows for the financial

years 2006 and 2005, classified into cash flows

from operating, investing and financing activities.

Cash flows from operating activities are deter-

mined indirectly starting with the group net profit.

By contrast, cash flows from investing and financial

activities are based on actual payments and re-

ceipts. Cash and cash equivalents in the cash flow

statement correspond to the amount disclosed in

the balance sheet.

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

Motorcycles segment revenues increased by

3

.4 %, whilst segment profit improved by 10.0 %.

Efficiency improvement programmes in particular

contributed to improved profitability in this seg-

ment.

Reve nue s by s e gme nt

in euro million

1.1. to

3

1.12. 2006

31.12. 2005

Automobiles

Motorcycles

Financial Services

Reconciliations

Group

47,767

1,265

45,861

1,223

11,079

–11 ,1 12

48,999

9,408

– 9,836

46,656

P rofit be fore tax by s e gme nt

in euro million

1.1. to

3

1.12. 2006

31.12. 2005

Automobiles

Motorcycles

Financial Services

Reconciliations

Group

3,012

66

2,976

60

685

605

361

– 354

3,287

4,124

4

7

Change in cas h and cas h e quivale nts

in euro million

12,000

11,000

10,000

9

8

,000

7

,000

0

6

5

4

3

2

1

–

1,000

2,000

Cash and cash

equivalents

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. 2006

3

1.12. 2005

1

,621

+ 9,980

–13,670

+ 3,323

+ 82

1,336

Operating activities of the BMW Group generated

totalled euro 6,876 million (2005: euro 5,819 million),

whilst cash outflows to repay bonds totalled euro

4,491 million (2005: euro 3,432 million). The dividend

payment made during the financial year 2006 was

a positive cash flow of euro 9,980 million in 2006,

down by euro 711 million or 6.7 % compared to one

year earlier. Changes in net current assets during

2

006 resulted in a net cash outflow of euro 49 million euro 419 million. The share buy-back programme

(

2005: net inflow of euro 923 million). The net cash

involved a cash outflow in 2006 of euro 253 million.

73.0 % (2005: 89.4 %) of the cash outflow for

investing activities was covered by the cash inflow

from operating activities.

The cash flow statement for Industrial opera-

tions shows that the cash inflow from operating

activities exceeded the cash outflow for investing

outflow was due to the higher level of inventories.

The cash outflow for investing activities

amounted to euro 13,670 million and was therefore

euro 1,707 million higher than in 2005. The marked

increase in cash outflow for investing activities was

due, on the one hand, to increased capital expendi-

ture in 2006 and, on the other, to the receipt, in 2005, activities by 21.6 % (2005: 150.7 %). By contrast, the

of the final sales price instalment of euro 1,000 million

from the sale of Land Rover. Capital expenditure on

intangible assets and property, plant and equipment

resulted in the cash outflow for investing activities

increasing by euro 438 million compared to the pre-

vious year. The cash outflow for net investments in

financial services activities also rose steeply and was

euro 505 million higher than in the previous year.

Financing activities in 2006 generated a posi-

tive cash flow of euro 3,323 million (2005: euro

cash flow statement for Financial operations shows

that, due to the high level of capital expenditure on

leased products and receivables from sales financing,

the cash inflow from operating activities did not cover

the cash outflow for investing activities. The short

fall was 50.2 % (2005: 52.5 %).

After adjustment for the effects of exchange-

rate fluctuations and changes in the composition of

the BMW Group which resulted in a positive amount

of euro 82 million (2005: euro 66 million), the various

cash flows resulted in a decrease in cash and cash

6

99 million). Cash inflows from the issue of bonds

4

8

Group Manage me nt Re port

equivalents of euro 285 million (2005: decrease of

euro 507 million).

The carrying amount of property, plant and

equipment increased by 1.8 % to euro 11,285 mil-

lion. The bulk of capital expenditure related to further

expansion of the worldwide production and sales

networks. Capital expenditure on property, plant and

equipment was euro 2,656 million, 10.3 % more

than in the previous year. Important areas of capital

expenditure included expansion of the Oxford and

Spartanburg plants. Depreciation on property, plant

and equipment totalled euro 2,313 million (+4.6 %).

Balances brought forward for subsidiaries being

consolidated for the first time amounted to euro

22 million. Capital expenditure on intangible assets

and property, plant and equipment totalled euro

4,313 million (+8.0 %), which, as in the previous

year, was financed fully out of cash flow. Capital

expenditure as a percentage of revenues was 8.8 %

(2005: 8.6 %).

Net interest-bearing assets relating to Industrial

operations (including receivables from the financial

operations sub-group) amounted to euro 5,385 mil-

lion at 31 December 2006, an increase of euro 508

million compared to one year earlier. Net interest-

bearing assets relating to Industrial operations com-

prise cash and cash equivalents (euro 1,235 million),

marketable securities relating to Industrial operations

(euro 1,993 million) and receivables from Financial

operations (euro 4,276 million) less financial liabili-

ties relating to Industrial operations. Excluding inter-

est and currency derivatives, the latter amounted to

euro 2 ,1 19 million.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

Ne t as s e ts pos ition

The group balance sheet total increased by euro

4

,491 million or 6.0 % to euro 79,057 million. Cur-

As a result of the growth of business, the total

carrying amount of leased products increased

sharply by 19.9 % to euro 13,642 million. Adjusted

for changes in exchange rates, leased products

would have risen by 29.9 %.

The carrying amount of other investments de-

creased by 66.0 % to euro 401 million, mainly as a

result of the partial settlement of the exchangeable

bond on shares in Rolls-Royce plc, London.The

market value of the remaining investment is now

euro 99 million above its historical cost. Fair value

rency effects, largely attributable to a weaker US

dollar, held down the increase in the balance sheet

total in 2006. Adjusted for changes in exchange

rates, the balance sheet total would have increased

by 10.0 % or euro 7 ,1 62 million. The main factors

behind the increase on the assets side were the in-

creased level of leased products (+19.9 %), financial

assets (+19.8 %), intangible assets (+15.7 %) and

receivables from sales financing (+4.5 %). On the

equity and liabilities side of the balance sheet, the

main increases related to equity (+12.7 %) and finan- gains or losses on the shares are recognised directly

cial liabilities (+5.2 %).

in other accumulated equity.

Intangible assets increased by 15.7 % to euro

Receivables from sales financing were up by

4.5 % to euro 30,368 million due to the higher

business volume. Of this amount, customer and

dealer financing accounted for euro 23,038 million

(+3.3 %) and finance leases accounted for euro

7,330 million (+8.6 %).

5

,312 million. Within intangible assets, capitalised

development costs went up by 16.0 % to euro

,810 million. Development costs recognised as as-

sets during the year under report amounted to euro

,536 million (+10.0 %), equivalent to a capitalisa-

4

1

tion ratio of 47.9 % (2005: 44.8 %). As in the previous

year, increased capitalised development costs re-

sulted from the higher number of projects in the

series development phase. Amortisation on intangi-

ble assets totalled euro 872 million (+17.0 %).

Inventories increased by euro 267 million

(+4.1%) to euro 6,794 million, mainly as a result of

the inclusion of new sales companies in the group

reporting entity. Trade receivables went up by 5.8 %

compared to 31 December 2005.

4

9

Balance s he e t s tructure Group

in euro billion

7

9

75

79

Non-current assets

64 %

24 %

Equity

6

4 %

23 %

4

0 %

Non-current provisions and liabilities

3

9 %

Current assets

36 %

38 %

36 %

Current provisions and liabilities

3

6 %

of which cash and cash equivalents

and marketable securities

2 %

2

006

2005

2006

Balance s he e t s tructure indus trial ope rations

in euro billion

3

8

35

38

Non-current assets

51 %

41 %

Equity

5

5 %

39 %

3

1 %

Non-current provisions and liabilities

Current provisions and liabilities

3

2

5 %

Current assets

49 %

4

5 %

2

8 %

6 %

of which cash and cash equivalents

and marketable securities

3 %

4 %

2

006

2005

2006

5

0

Group Manage me nt Re port

Financial assets increased by 19.8 % to euro

,950 million, mainly as a result of higher fair values

of derivative financial instruments.

Other provisions decreased by 6.3 % to euro

5,536 million, mainly due to lower obligations for

on-going operational expenses. The main factor

here was the reduction in warranty provisions. Pro-

visions for other obligations were also lower. By con-

trast, personnel-related obligations increased by

euro 138 million.

Deferred tax liabilities increased by 9.4 % to

euro 2,758 million, primarily as a result of the higher

level of capitalised development costs.

3

Liquid funds fell by 8.8 % to euro 3,370 million.

Whereas marketable securities were roughly at

the previous year’s level, cash and cash equivalents

decreased by euro 285 million compared to one

year earlier.

On the equity and liabilities side of the balance

sheet, equity grew by 12.7 % to euro 19 ,1 30 million.

The profit for the year attributable to shareholders

of BMW AG increased equity by euro 2,868 million.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

Financial liabilities increased by 5.2 % to euro

36,456 million. Within financial liabilities, bonds in-

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Fair value changes recognised directly in other accu- creased by 8.3 % to euro 16,420 million, mainly as

mulated equity reduced equity by euro 43 million

2005: reduction of euro 875 million). This was the

a result of the higher volume of the medium term

note programme. Liabilities to banks and obligations

under asset-backed financing transactions were

also up, whereas liabilities from customer deposits

(banking) were down by 9.6 %.

Trade payables amounted to euro 3,737 million

and were thus 5.4% higher than one year earlier.

Other liabilities totalling euro 5,856 million were

up by 11.8 %. This was mainly attributable to the in-

crease in other taxes and in deferred income relating

to service and repair agreements.

(

Outlook

result of translation differences and the fair value

measurement of financial instruments and available-

for-sale securities. In addition, the increase in dis-

count factors applied in Germany and the United

Kingdom in 2006 gave rise to actuarial gains totalling

euro 515 million. In the previous year, actuarial losses

of euro 736 million had been recognised as a result

of lower interest rates. The dividend payment for

the financial year 2005 and the buy-back of shares

in the first quarter 2006 reduced equity by a further

euro 672 million. Minority interest amounted to

euro 4 million. Overall, the equity ratio of the BMW

Group improved by 1.4 percentage points to

Compe ns ation Re port

The compensation of the Board of Management

comprises fixed and variable remuneration compo-

nents. In addition, benefits are also payable at the

end of members’ mandates, primarily in the form of

pension benefits. Further details, including an analy-

sis of remuneration by individual, are disclosed in

the Compensation Report which can be found in

the “Corporate Governance” section of the Annual

Report on pages 121 to 124. The Compensation

Report is a sub-section of the Management Report.

2

4.2 %.

The equity ratio for Industrial operations was

0.6 % compared to 39.1% at the end of the pre-

4

vious year. The equity ratio for Financial operations

remained at 10.4 %.

The amount recognised in the balance sheet

for pension obligations decreased by 4.5 % to euro

5

,017 million. Following the change in accounting

policy for pension obligations in the previous year,

the amount reported under pension provisions cor-

S ubs e que nt eve nts re port

responds to the full defined benefit obligation (DBO). No events have occurred after the balance sheet date

In the case of pension plans with fund assets, the

fair value of fund assets is offset against the defined

benefit obligation. The decrease in pension obliga-

tions was attributable principally to the fact that

higher discount factors were applied in Germany

and the United Kingdom.

which could have a major impact on the earnings

performance, financial position and nets assets of

the BMW Group.

5

1

Value adde d s tate me nt

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 ex-

penses are treated as bought-in costs in the value

added calculation. 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 treats depreciation as a com-

ponent of value added which, in the allocation state-

ment, is treated as internal financing.

Net value added by the BMW Group in 2006

increased by 8.8 % to euro 13,585 million. The

increase in comparison to the previous year was

attributable primarily to the higher level of revenues.

The increase in gross valued added, at 10.8 %, was

even more pronounced since it is not affected by

depreciation and amortisation, which are higher

than in the previous year.

The bulk of the net value added (54.9 %) is

applied to employees. The amount applied to

providers of finance increased to 12.0 %.The govern-

ment /public sector also accounted for 12.0 % (in-

cluding deferred taxes). The proportion of net value

added applied to shareholders, at 3.4 %, was similar

to the previous year’s level. The remaining propor-

tion of net value added (17.7 %) will be retained in

the Group to finance future operations. In absolute

terms, this amount increased by 32.4 %.

5

2

Group Manage me nt Re port

BMW Group value adde d s tate me nt

in euro million

2006

in %

2005

in %

Change

in %

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

Work pe rforme d

Revenues

48,999

393

97.7

0.8

46,656

–188

98.6

– 0.4

1.8

Financial income

Other income

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

744

1.5

844

Total Group output

50,136

100.0

47,312

100.0

6.0

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Cost of materials

Other expenses

Bought-in cos ts

26,598

5,037

53.1

10.0

63.1

25,694

4,925

54.3

10.4

64.7

31,635

30,619

3.3

10.8

8.8

Outlook

Gros s value adde d

18,501

4,916

36.9

9.8

16,693

4,207

35.3

8.9

Depreciation and amortisation

Ne t value adde d

13,585

27.1

12,486

26.4

Applie d to:

Employees

7,448

1,627

1,636

458

54.9

12.0

3.4

7,306

1,351

1,590

419^*

58.5

10.9

12.7

3.3

1.9

20.4

2.9

Providers of finance

Government /public sector

Shareholders

9.3

Group

2,410

6

17.7

–

1,820^*

14.6

–

32.4

–

Minority interest

Ne t value adde d

–

13,585

100.0

12,486

100.0

8.8

*

adjustment to dividends due to acquisition of treasury shares

BMW Group value adde d 2006

in %

9

.8

10.0

54.9 %

Employees

Net value added

Cost of materials

Depreciation and amortisation

Other expenses

2

7.1

1

2.0 %

Providers of finance

Government/public sector

Shareholders

3

.4 %

5

3.1

1

7.7 %

Group

5

3

Key pe rformance figure s

2

006

2005

Gross Margin

%

23.1

14.9

8.3

22.9

14.6

8.1

EBITDA Margin

EBIT Margin

Pre-tax return on sales

Post-tax return on sales

Pre-tax return on equity

Post-tax return on equity

8.4

7.0

5.9

4.8

24.3

16.9

19.9

13.5

Equity ratio – Group

Industrial operations

Financial operations

%

24.2

40.6

10.4

22.8

39.1

10.4

Coverage of intangible assets, property, plant and equipment by equity

%

115.3

108.2

Return on Assets

BMW Group

%

6.3

1.4

5.6

1.3

Financial Services

Return on Capital Employed

Automobiles

%

21.7

17.7

23.2

17 .8

Motorcycles

Cash inflow from operating activities

Cash outflow from investing activities

euro million

9,980

13,670

73.0

10,691

11,963

89.4

Coverage of cash outflow from investing activities by cash inflow from operating activities

%

Net financial assets of industrial operations

euro million

5,385

4,877

5

4

Group Manage me nt Re port

Comme nts on the Financial S tate me nts of

BMW AG

totalled euro 1,324 million (2005: euro 1,472 million).

This represents a decrease of 10.1% and was mainly

due to completion of structural investment at the

Leipzig plant. Depreciation and amortisation amounted

to euro 1,765 million.

Whereas the Group financial statements are drawn

up in accordance with IFRSs issued by the IASB, the

financial statements of BMW AG are drawn up in

accordance with the provisions of the German Com-

mercial Code (HGB). Where it is permitted and con-

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

By 17 February 2006, a total of 20,232,722

shares of common stock had been bought back via

sidered sensible, the principles and policies of IFRSs the stock exchange at a total acquisition cost of

are also applied in the individual company financial

statements.The pension provision in the individual

company financial statements, for example, is also

determined in accordance with IAS 19 and the full

defined benefit obligation recognised. In numerous

other cases, however, the accounting principles and

policies in the individual company financial state-

ments of BMW AG differ from those applied in the

Group financial statements. The main differences

relate to the recognition of intangible assets, depre-

euro 758 million, and withdrawn from circulation in

accordance with the resolution taken by the Board

of Manangement on 21 February 2006. Of the total

number of shares withdrawn, 13,488,480 shares,

with an acquisition cost of euro 506 million, had al-

ready been held by BMW AG at 31 December 2005.

Equity decreased by the amount of the buy-back

value of the shares withdrawn from circulation.The

equity ratio fell from 25.8% to 23.4%. Long-term

external capital (registered profit-sharing certificates,

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

ciation and amortisation methods, the measurement pension provisions, the liability to the BMW Unter-

of inventories and provisions as well as the treat-

ment of financial assets.

stützungsvereins e.V. and liabilities due after one

year) increased marginally (+1.3 %) to euro 4.8 billion.

As in previous years, the cash inflow from

BMW AG’s operating activities was used to finance

subsidiaries.

BMW AG develops, manufactures and sells cars

and motorcycles manufactured by itself and for-

eign subsidiaries. These vehicles are sold through

the Company’s own branches, independent dealers,

subsidiaries and importers. The number of cars

manufactured at German and foreign plants in 2006

rose by 3.3 % to 1,366,838 units. At 31 December

2

006, BMW AG had 76 ,1 56 employees, 380 fewer

than one year earlier. Wage earners account for

approximately 53 % of the workforce.

In 2006, revenues were 1.5 % higher than in the

previous year. Sales to foreign group sales compa-

nies accounted for euro 30.8 billion, or approximately

7

3 % of the total revenues of euro 42.4 billion. Cost

of sales remained at approximately the same level as

in 2005, and therefore went up at a slightly slower

rate than revenues. The gross profit, at euro 6.1 bil-

lion, was 11.6 % higher than in the previous year.

Adverse currency factors relating to the US

dollar and J apanese yen, alongside continued in-

tense competition on the automobile markets and

increases in raw material prices, all had a negative

impact on BMW AG’s earnings. By contrast, the in-

crease in the interest rate used to measure pension

provisions (from 4.25 % to 4.40 %) and the dis-

counted tax reimbursement resulting from a change

in German law with regard to the corporation tax

credit, had a positive effect.

In the financial year 2006, capital expenditure on

intangible assets and property, plant and equipment

5

BMW AG

2006

2005

Balance S he e t at 31 De ce mbe r in euro million

As s e ts

Intangible assets

80

5,268

86

5,717

Property, plant and equipment

Investments

4,823

4,774

Tangible , intangible and inve s tme nt as s e ts

10,171

10,577

Inventories

2,866

2,764

Trade receivables

1,075

4,478

693

1,054

2,751

558

Receivables from subsidiaries

Other receivables and other assets

Marketable securities

1,583

106

1,488

518

Cash and cash equivalents

Curre nt as s e ts

10,801

9,133

P re payme nts

73

92

2

1,045

19,802

Eq u ity a n d lia b ilitie s

Subscribed capital

654

674

– 13

661

Nominal value of shares acquired for withdrawal from circulation

Issued capital

Capital reserves

1,991

1,818

458

1,971

2,052

424

Revenue reserves

Unappropriated profit available for distribution

Equity

4,921

5,108

Re gis te re d profit-s haring ce rtificate s

34

1

35

–

S pe cial untaxe d re s e rve for e mis s ion rights grante d fre e of charge

Pension provisions

Other provisions

P rovis ions

4,347

6 ,1 31

4 ,1 74

6,447

10,478

10,621

Liabilities to banks

Trade payables

607

2,046

1,618

1,313

5,584

500

1,858

941

Liabilities to subsidiaries

Other liabilities

710

Liabilitie s

4,009

De fe rre d income

27

29

2

1,045

19,802

5

6

Group Manage me nt Re port

BMW AG

2006

2005

Income S tate me nt in euro million

1

0

Group Management Report

Revenues

42,417

– 36,364

6,053

41,801

– 36,379

5,422

Cost of sales

Gros s profit

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

Sales costs

– 2,560

– 917

– 2,966

654

– 2,731

– 904

– 2,917

893

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

Administrative costs

– Internal Management System

– Earnings performance

– Financial position

Research and development costs

Other operating income and expenses

Result on investments

– Net assets position

304

647

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Net interest result

– 8

– 23

P rofit from ordinary activitie s

560

387

Outlook

Income taxes

Other taxes

Ne t profit

– 60

–15

485

50

– 13

424

Profit carried over from previous year

Transfer to revenue reserves

4

– 31

458

–

Unappropriate d profit available for dis tribution

424

Revenues generated with car rental companies

involving a repurchase commitment are derecog-

nised. Based on the draft Pronouncement issued

on 1 J uly 2004 by the German Institute of Public

Accountants (IDW) relating to the “Specific Issues in

connection with Transfer of Ownership and Profit

Realisation in accordance with HGB” (IDW ERS HFA

13), the vehicles involved are presented within cur-

rent assets, measured at amortised cost, since

economic ownership has not been transferred to the

car rental companies.

5

7

KPMG Deutsche Treuhand-Gesellschaft Aktienge-

sellschaft Wirtschaftsprüfungsgesellschaft, Munich

has issued an unqualified audit opinion on the finan-

cial statements of BMW AG, of which the balance

sheet and the income statement are presented here.

The BMW AG Financial Statements and Manage-

ment Report for the financial year 2006 will be sub-

mitted to the operator of the electronic version of

the German Federal Gazette and can be obtained via

the Company Register website.These financial state-

ments are available from BMW AG, 80788 Munich,

Germany.

5

8

Group Manage me nt Re port

Ris k Manage me nt

Ris k manage me nt in the BMW Group

At present, no risks have been identified which could

threaten the existence of the Group or which could

have a materially adverse impact on the net assets,

financial position or results of operations of the Group.

However, risks can never be entirely ruled out.

In the course of its business activities, the BMW

Group is exposed to various types of risk:

As a globally operating enterprise, the BMW Group

is confronted with numerous risks. At the same

time, opportunities can arise from changing circum-

stances, which the BMW Group endeavours to an-

ticipate and exploit to improve its competitive position.

Business risks are only consciously entered into

when it is considered that the value of the business

can be increased and the potential outcome can

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

Ris ks re lating to the ge ne ral e conomic

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

be controlled.The Board of Management and Super- e nvironme nt

visory Board are regularly informed about risks

which could have a significant impact on business

development.

In order to identify, evaluate and document the

main risks, the BMW Group uses a comprehensive

risk management system which involves the following

processes:

– As a result of its global activities, the BMW Group

– Net assets position

is affected by global economic factors such as

changes in currency parities and changes on the

financial markets. The US dollar is particularly

important for the development of group revenues

and earnings and represents the main single

source of risk within the BMW Group’s foreign

currency portfolio. Exchange rate fluctuations of

the British pound and the J apanese yen in relation

to the euro can also have a material impact on

earnings. Based on group forecasts, these three

currencies account for some 80 % of the foreign

currency exposure of the BMW Group.

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

–

Business decisions are reached after in-depth

project analyses, including detailed information

concerning potential risks and opportunities, have

been taken into consideration. In addition, as part

of the long-term planning strategy and short-

term forecasting procedures, the risks and oppor-

tunities attached to specific business activities

are evaluated and used as the basis for setting

targets and implementing appropriate risk-miti-

gation measures.

The BMW Group manages currency risks at both

a strategic and an operating level.

From a strategic point of view, i.e. in the medium

and long-term, the BMW Group endeavours to

manage foreign exchange risks by “natural hedg-

ing”, in other words by increasing the volume of

purchases denominated in foreign currency or

increasing the volume of local production. Cur-

rency risks are hedged in the short and medium

term on the financial markets. Hedging transac-

tions are entered into only with financial partners

of first-class credit standing. The nature and

scope of such measures are set out in guidelines

applicable throughout the BMW Group. A cash-

flow-at-risk model and scenario analyses are

used to measure exchange rate risks. These in-

struments are also used as part of the process of

currency management for the purpose of taking

business decisions.

– Changes in the international commodity markets

also have an impact on the business development

of the BMW Group. In order to safeguard the sup-

ply of production materials and to minimise the

cost risk, the commodity markets relevant for the

BMW Group are closely monitored.The market price

trend of precious metals such as platinum, palla-

dium and rhodium, for which appropriate hedging

–

The Group reporting system keeps all decision-

makers fully informed and up-to-date about per-

formance against targets and highlights changes

affecting the market and competitors. By con-

tinuous monitoring of critical success factors,

variances are identified at an early stage, thus

allowing appropriate counter-measures to be im-

plemented.

–

Overall risk management is supervised by the

corporate controlling department and is reviewed

for its appropriateness and effectiveness by exter-

nal auditors and by the Group’s internal audit de-

partment.Throughout the BMW Group, a network

of risk managers is in place, regularly carrying

out risk reviews to identify and analyse significant

risks. The results of the reviews are summarised

in a separate risk report which is then presented

to the Board of Management.

–

By regularly sharing experiences with other com-

panies, the BMW Group ensures that innovative

ideas and approaches flow into the risk manage-

ment system and that operational risk management

is subjected to continual improvement.

5

9

strategies are decided upon by the Raw Materials

Committee, is also important in this context.

Changes in the price of crude oil, which is an im-

portant basic material in the manufacture of com-

ponents, have an indirect impact on production

costs. As a manufacturing enterprise, the BMW

Group is also affected by changes in energy

prices, caused by both market factors and tax

legislation.

Cyclical economic volatility also entails an ele-

ment of risk for future business development.

Unforeseeable interventionist economic policies

can also impair the BMW Group’s performance

in specific markets. The BMW Group anticipates

these risks by monitoring the markets in detail

and using early warning indicators. Risk is also

spread due to the worldwide nature of the BMW

Group’s activities. At the same time, determined

engagement in new markets and segments with

both existing and new products creates significant

opportunities for the BMW Group to strengthen

its competitive position.

although this provides economic benefits, it also

creates a certain degree of mutual dependence.

Some suppliers have become very important for

the production activities of the BMW Group. De-

livery delays, cancellations, strikes or poor quality

can lead to production stoppages and thus have

a negative impact on profitability. The Group miti-

gates these risks by employing extensive proce-

dures for selecting, monitoring and handling sup-

pliers. Before selection, for example, both the

technical competence and the financial strength

of potential suppliers are appraised. A compre-

hensive Supplier Relationship Management sys-

tem, which also takes account of social and eco-

logical aspects, helps to reduce risk exposure.

–

Ris ks re lating to the provis ion of financial

s e rvice s

– As a consequence of the growth of lease busi-

ness, the BMW Group faces an increased residual

value risk on the vehicles which are returned to

the Group at the end of lease contracts. Changes

in the residual values of BMW Group vehicles on

the used car markets are therefore constantly

monitored and forecasted. The overall risk posi-

tion is measured each quarter by comparing fore-

casted market values and contractual values ac-

cording to model and market.

–

An escalation of political tensions, terrorist activi-

ties or possible pandemics could have a negative

impact on the economic situation, the interna-

tional capital markets and hence the business de-

velopment of the BMW Group.

S pe cific indus try ris ks

Provisions and write-downs on leased-out cars

are recognised in the balance sheet to cover all

identified risks. This risk is also reduced by meas-

ures such as active life-cycle management and

management of used car markets at an interna-

tional level, both of which have a stabilising effect

on the residual values of BMW Group vehicles.

– Operating risks relating to the provision of finan-

cial services are managed by the BMW Group by

means of a process which records and measures

risks and incorporates specific measures to avoid

risk. In this way, the BMW Group minimises the

risk of losses which could arise as a result of

inappropriate or failed internal procedures and

systems, human error or external factors. This

includes measures to ensure that operations can

be continued at an appropriate level in the event

of impairment caused by external factors.

–

Changes in fuel prices, which may be either mar-

ket-induced or due to governmental tax policies,

and the increasingly stringent requirements to

reduce fleet fuel consumption as well as CO and

2

NO emissions, all continue to place high de-

X

mands on the BMW Group’s engine and product

development.

The statutory regulations for CO emissions tar-

2

geted by the European Commission could have

a materially adverse effect on the business de-

velopment of the Automobiles segment and con-

sequently on the group’s earnings performance.

Ope rating ris ks

–

Risks arising from business interruption and loss

of production are insured up to economically rea-

sonable levels. The BMW Group’s extremely flexi-

ble production network and working time models

also help to reduce operating risks.

– The BMW Group mitigates liquidity and interest

rate change risks by matching maturities and

employing derivative financial instruments.The

liquidity situation is monitored continually by

–

Close cooperation between manufacturers and

suppliers is usual in the automotive sector, and

6

0

Group Manage me nt Re port

means of a rolling cash flow forecast. As part of a

value-based interest rate management system,

interest rate risks are measured and limited using

a value-at-risk approach. The risk-return ratio is

tested continuously using simulated computations.

In addition, sensitivity analyses are prepared

to measure the potential impact of interest rate

changes on earnings.

In order to avoid currency risks, financing and lease

business is refinanced, as a general rule, in the

currency of the relevant market.

A major part of financing and lease business with-

in the Financial Services segment is refinanced

on the capital markets. As a result of its good

credit standing, reflected in the long-standing

first-class short-term ratings issued by Moody’s

larly in the case of lower rating categories. On top

of this, the dynamic global credit markets will con-

tinue to supply highly flexible instruments to miti-

gate risk (e.g. securitisation, coverage using credit

derivatives, credit syndication).

For retail customer financing purposes, the BMW

Group uses validated scorecards in order to reach

credit decisions more quickly and to monitor risk.

Criteria such as arrears and bad debt ratios are

analysed monthly and used to actively manage

the credit portfolio and to improve portfolio quality.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

–

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Le gal ris ks

– The BMW Group is not involved in any court or

arbitration proceedings which could have a sig-

nificant impact on the economic position of the

Group.

Outlook

(P-1) and Standard & Poor’s (A-1), the BMW Group

is able to obtain competitive conditions.The long- – Like all enterprises, the BMW Group is exposed

term ratings for the BMW Group published by

Standard &Poor’s and Moody’s in September2005

remain valid, enabling the BMW Group to obtain

competitive conditions. Moody’s issued an A1

rating and Standard &Poor’s an A+ rating, both

with stable outlook.

to the risk of warranty claims. Adequate provisions

have been recognised in the balance sheet to

cover such claims. Part of the risk, especially where

the American market is concerned, has been in-

sured externally up to economically acceptable

levels. The high quality of BMW Group products,

additionally ensured by regular quality audits and

on-going improvement measures, helps to reduce

this risk. In comparison with competitors, this

can give rise to benefits and opportunities for the

BMW Group.

–

Various methods and systems such as credit-

rating and scoring are in place to manage credit

risk, partly in the light of Basle II requirements.

Depending on the credit volume applied for and

the credit risk rating of the party involved, financing

applications for international dealers, importers

and fleet customers are presented to the local,

regional or corporate credit committees for ap-

proval. A two-step credit application process helps

to reduce the risk of default affecting the Group’s

worldwide financial services operations.This

process, which is based on clear and binding

credit risk rules applicable throughout the group,

also specifies the maximum amounts of un-

secured credit volumes permitted (“unsecured

risks”). The dual control principle applies world-

wide and is rigorously implemented. In another

measure to reduce risk, the BMW Group is con-

tinuously making efforts to standardise its credit-

decision processes and the quality of those

processes on a worldwide basis, and to ensure

that uniform rating systems are in place. Close

contact to borrowers, a thorough knowledge of

the vehicle products sold, local credit checks and

on-going measurement of collateral all make a

vital contribution towards avoiding losses, particu-

–

Changes in the regulatory environment may im-

pair the sales volume, revenues and earnings

performance of the BMW Group in individual mar-

kets or economic regions.

Pe rs onne l ris ks

– As an attractive employer, the BMW Group has

found itself in a favourable position for many years

in the intense competition for qualified technical

and managerial staff. Employee satisfaction and

a low level of employee fluctuation also help to

minimise the risk of know-how drift.

– An ageing and shrinking population in Germany

will have a lasting impact on the conditions pre-

vailing in the labour, product, services and financial

markets. Demographic changes will give rise to

risks and opportunities which enterprises will

be increasingly faced with in coming years.The

BMW Group carefully reviews the effects of

demographic change on operations, focusing in

particular on the following issues:

6

1

–

the creation of a working environment for the

future

promotion and maintenance of the workforce’s

ability to perform with the appropriate set of skills

training

increasing employees’ awareness of their re-

sponsibility to make personal provisions for

their future

measures as well as standard activities such as virus

scanners, firewall systems and access controls at

operating system and application level.

Protecting BMW Group-specific know-how is

also treated as a major issue as far as cooperation

arrangements and relationships with partner com-

panies are concerned. The BMW Group protects its

intellectual property by ensuring that the relevant

departments have clear instructions regarding data

protection and the use of information technology. In-

formation underlying key areas of expertise is espe-

cially protected. In addition, staff members working

in IT functions are increasingly receiving specific train-

ing in the area of data protection.

–

individual employee working life-time models

–

The BMW Group’s pension obligations to its

employees resulting from defined benefit plans

are measured on the basis of actuarial reports.

In accordance with IAS 19, future pension pay-

ments are discounted by reference to market

yields on high quality corporate bonds. These

yields are subject to market fluctuation and influ-

ence the level of pension obligations. Further-

more, changes in other factors, such as longer

life expectancies, can also have an impact on

pension obligations.

In the United Kingdom, the USA and a number of

other countries, funds intended to cover pension

entitlements are held separately from corporate

assets and are mainly invested in fixed-income

securities with a high level of creditworthiness,

and in equities. In Germany, by contrast, the funds

remain part of the enterprise’s assets.

Information and IT ris ks

The BMW Group protects data, business secrets and

innovative developments against unauthorized ac-

cess, damage and misuse using security measures

appropriate to the risk involved. These measures

encompass manual, process design and IT controls.

Group directives are in place requiring employees

to handle information appropriately and ensure that

information systems are properly used. Targeted

communication measures increase employees’

awareness of security requirements.

The protection of information and data is an in-

tegral component of business processes and is

achieved within the BMW Group by applying inter-

national security standards. Together with the related

IT infrastructure, the group’s core process “Product

development” has been audited and certified to in-

ternational security standard (ISO 27001/17799).

Certification had already been received back in 2003

and was again achieved in 2006.

The technical data protection procedures used

by the BMW Group include process-specific security

6

2

Group Manage me nt Re port

Outlook

The e conomic e nvironme nt in 2007

Motorcycle marke ts s till deve loping dive rge ntly

The motorcycle markets relevant to the BMW Group

(500 cc plus) are forecast to register a low growth

rate in 2007, with the individual markets developing

divergently. Stronger growth is expected in the

Southern European countries.

The BMW Group predicts that the global economy

will lose some of its momentum in 2007, with the

growth rate tailing off towards the end of the year,

but that it will nevertheless continue to grow overall

at a high level. Higher interest rates across the board

and the persistent high level of oil prices are, in the

meantime, beginning to have an impact. For the

year as a whole, it is forecast that prices will remain

at a similarly high level compared to 2006. Although

marginally lower global demand for oil and the fact

that new production and refinery capacities are com-

ing on line do not point to a sharp increase in prices,

the oil market will nevertheless remain strained and

consequently subject to volatility.

1

0

Group Management Report

1

3

4

0

2

5

8

1

A Review of the Financial Year

General Economic Environment

Review of operations

BMW Stock and Bonds

Disclosures pursuant to §289 (4)

and §315 (4) HGB

Inte re s t rate s to re main at high leve l

Interest rates rose sharply in 2006 and will remain

at that high level throughout 2007. Within the euro

region, the European Central Bank is expected to

continue to raise interest rates. For the US dollar re-

gion, the BMW Group anticipates that the US Federal

Reserve Bank will increase rates again by the second

half of the year at the latest.

4

5

6

3

4

6

8

0

3

4

8

2

Financial Analysis

– Internal Management System

– Earnings performance

– Financial position

– Net assets position

– Subsequent events report

– Value added statement

– Key performance figures

– Comments on BMW AG

Risk Management

Outlook

In 2007, the US economy is not expected to

grow as fast as in recent years. However, even taking Outlook for the BMW Group in 2007

a sharp rise in interest rates, higher energy and raw

material prices and a more sluggish property mar-

ket into account, it is still not expected to weaken

significantly. Growth rates are also likely to drop

slightly in J apan and the euro region. Nevertheless,

the overall economic situation in these regions still

remains robust. In the euro region, it is most likely

to be Germany that will put the brake on the growth

rate, with consumer spending, already on the weak

Within the economic parameters described above,

the BMW Group expects overall that it will continue

to make good progress in the financial year 2007.

The sales volume of the Automobiles segment

is forecast to rise further, with each of its three

brands – BMW, MINI and Rolls-Royce – expected to

achieve new high levels. Seasonal effects will again

be evident during the year, albeit reflecting an oppo-

site pattern to the year 2006. Whilst sales volume

side, being held down by the value added tax increase. growth is likely to be on the moderate side during

The emerging markets of Asia, Eastern Europe and

Latin America will continue to grow strongly. Here,

too, the global slow-down will, however, result in

slightly lower growth rates.

the early months of the year, it should be much

stronger during the second half of the year.

Adverse external factors attributable to the for-

eign exchange impact and to higher raw material

prices will continue to affect the reported earnings

of the Automobiles segment in 2007. Nonetheless,

the BMW Group aims to improve segment profit

before tax, given that the continuing positive trend

in sales volumes, plus the benefit of on-going effi-

ciency improvement measures, will help profitability.

As far as the motorcycles business is con-

cerned, the BMW Group forecasts that the individual

markets will continue to develop extremely diver-

gently in 2007. Numerous new models, the related

entry into new segments and intensified market

activities will again have a positive impact on busi-

ness development. Efficiency improvement pro-

grammes will be continued on an on-going basis,

thus contributing to sustainable profitable growth.

The BMW Group’s Financial Services business

will continue to grow in 2007. It will, however, be

Economic outlook for the automobile indus try

in 2007

The fast-growing Asian markets will continue to give

impetus to the global automobile economy in 2007.

These markets will continue to grow dynamically,

albeit at a slightly slower pace. China’s and India’s

automobile markets will continue to expand, with

high growth rates in the double-digit range.The

equivalent markets in Latin American will also enjoy

another year of strong growth.

By contrast, the triad of traditional car markets

(USA, J apan and Western Europe) will again generate

little momentum; the overall forecast here is one of

market stagnation. In Germany, purchases brought

forward into 2006 may even cause a small contraction

of the market in 2007.

6

3

confronted with increased refinancing costs in the

wake of higher interest rates. The Financial Services

segment will counter the resulting pressure on

earnings by purposeful expansion across all lines of

business. This strategy will be accompanied by fur-

ther geographical expansion and a wider range of

products. The BMW Group considers that financial

services will generally become more significant in

terms of vehicle sales. Overall therefore, the seg-

ment’s business volume is expected to continue its

upward trend. This growth, together with a pro-

gramme of continuous efficiency improvement,

will make a positive contribution towards improved

earnings.

the Rolls-Royce exchangeable bond in 2006, pre-tax

group earnings for the financial year 2007 are fore-

cast to be better than in 2006.

The extent of this improvement in earnings will

largely depend on whether opportunities arise to

improve group earnings against a background of ad-

verse currency factors, high raw material prices,

changes in interest rates and greater competition.

The BMW Group is rising to these challenges by

achieving sales volume growth and continuously

improving efficiency.

The BMW Group aims to continue its growth

course in the coming years and, in comparison to

the sector, will continue to generate above-average

returns.

With the exchangeable bond option on the

BMW Group’s investment in Rolls-Royce plc, London,

largely settled in 2006, reconciliations to group

profit will not benefit from any comparable positive

earnings impact in 2007.

The BMW Group will continue to make good use

of opportunities to achieve further growth over the

coming years and, with that aim in mind, invest in

both new products and in the further expansion of

its sales and production networks. Based on current

forecasts, total capital expenditure for the period

from 2005 to 2009 is still forecast to be in the region

of approximately euro 19 billion.

The number of people employed by the BMW

Group will remain more or less constant in 2007.

The necessary build-up of the workforce during the

product and market initiative was completed in 2005

and in the coming years, it will only be necessary to

offset normal fluctuation.

Foreign exchange rate factors and the on-going

high price levels on international commodity mar-

kets will again influence the BMW Group’s earnings

in 2007. However, it is anticipated that these exter-

nal factors will have less of an impact than in the

past and that the additional cost to the BMW Group

will be correspondingly lower than in the previous

year. Growth in the operating segments as well as

continuous efficiency and productivity improvements

will continue to have a positive impact on group

earnings.

Based on the general economic environment

and segment forecasts discussed above, the BMW

Group anticipates a continuation of its good per-

formance in 2007. Adjusted for the one-off gain on

6

4

Group Financial S tate me nts

Conte nts

Group Financial Statements

Group and sub-group Income Statements

Group and sub-group Balance Sheets at 31 December

Group and sub-group Cash Flow Statements

Group Statement of Changes in Equity

Statement of Income and Expenses recognised directly in Equity

Notes to the Group Financial Statements

Accounting Principles and Policies

Notes to the Income Statement

65

66

68

70

71

72

79

Notes to the Balance Sheet

86

Other Disclosures

Segment Information

104

111

Auditors’ Report

115

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

7

1

Statement of Income and

Expenses recognised directly

in Equity

7

2

Notes

– Accounting Principles

and Policies

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

6

5

BMW Group

Group and s ub-group Income S tate me nts

in euro million

Notes

Group

Industrial operations^*

Financial operations ^*

2

006

2005

2006

2005

2006

2005

Revenues

[8]

[9]

48,999

46,656

49,227

47,206

11,349

– 10,050

1,299

9,801

– 8,623

1,178

Cost of sales

Gros s profit

– 37,660 –35,992

– 39,238 –37,343

11,339 10,664

9,989

9,863

Sales and administrative costs

[10]

[11]

[12]

– 4,972

– 2,544

227

– 4,762

–2,464

355

– 4,464

– 2,544

176

– 4,312

–2,464

275

– 535

–

– 479

–

Research and development costs

Other operating income and expenses

P rofit be fore financial re s ult

50

24

4,050

3,793

3,157

3,362

814

723

Result from equity accounted investments [13]

– 25

99

14

–520

–506

3,287

– 25

383

14

– 488

– 474

2,888

–

– 33

781

–

46

Other financial result

Financial result

[14]

74

358

46

P rofit be fore tax

4,124

3,515

769

Income taxes

[15]

– 1,250

–1,048

– 1,066

–934

– 246

–242

Ne t profit

2,874

2,239

2,449

1,954

535

527

Attributable to minority interest

6

–

6

–

Attributable to s hare holde rs of BMW AG

2,868

2,239

2,443

1,954

535

527

Earnings pe r s hare

of common s tock in euro

Earnings pe r s hare

[16]

4.38

4.40

3.33

3.35

of pre fe rre d s tock in euro

*

before consolidation of transactions between the sub-groups; unaudited

6

Group Financial S tate me nts

BMW Group

Group and s ub-group Balance S he e ts at 31 De ce mbe r

As s e ts

Notes

Group

Industrial operations^*

Financial operations ^*

in euro million

2006

2005

2006

2005

2006

2005

Intangible assets

[19]

[20]

[21]

5,312

11,285

13,642

4,593

11,087

11,375

5,276

11,260

254

4,569

11,060

230

36

25

24

27

Property, plant and equipment

Leased products

16,364

14 ,1 10

Investments accounted for using the

equity method

[22]

[23]

[24]

[25]

[26]

60

401

94

1 ,1 78

17,202

642

60

388

–

94

1 ,1 47

–

13

–

31

Other investments

Receivables from sales financing

Financial assets

17,865

816

17,865

755

17,202

516

61

126

1 ,1 44

908

Deferred tax

755

772

1 ,1 92

875

– 1,828

255

–1,674

273

Other assets

378

613

Non-curre nt as s e ts

50,514 47,556

19,366 19,278

33,485 30,509

Inventories

[27]

[28]

[23]

[24]

[25]

[26]

[29]

6,794

2,258

12,503

3 ,1 34

246

6,527

2 ,1 35

11,851

2,654

267

6,784

2,214

–

6,521

2,086

–

10

44

6

49

Trade receivables

Receivables from sales financing

Financial assets

12,503

786

11,851

632

2,348

222

2,022

238

6

5

Group Financial Statements

Current tax

24

29

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Other assets

2,272

1,336

1,955

1,621

5,574

1,235

3,411

1,372

772

753

Cash and cash equivalents

Curre nt as s e ts

101

249

28,543 27,010

79,057 74,566

18,377 15,650

37,743 34,928

14,240 13,569

47,725 44,078

7

1

7

2

Notes

– Accounting Principles

and Policies

Total as s e ts

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

Total assets adjusted for

1

04 – Other Disclosures

11 – Segment Information

asset backed financing transactions

74,556

70,667

–

43,224

40 ,1 79

*

before consolidation of transactions between the sub-groups; unaudited

6

7

Equity and liabilitie s

in euro million

Notes

Group

Industrial operations^*

2006 2005

Financial operations ^*

2006

2005

674

2006

2005

Subscribed capital

Capital reserves

Revenue reserves

Accumulated other equity

Treasury shares

Minority interest

Equity

654

1,911

18 ,1 21

– 1,560

–

1,971

16,351

–1,517

–506

–

4

[30]

19,130 16,973

15,315 13,672

4,965

4,581

Pension provisions

Other provisions

[31]

[32]

[33]

[34]

[35]

5,017

2,865

2,758

18,800

1,932

5,255

3,243

2,522

16,830

1,659

4,983

2,462

2,012

882

5,220

2,921

1,611

1,070

1,224

34

403

35

322

Deferred tax

464

658

Financial liabilities

17,918

1,732

15,760

1,457

Other liabilities

1,458

Non-curre nt provis ions and liabilitie s

31,372 29,509

11,797 12,046

20,551 18,232

Other provisions

[32]

[33]

[34]

[36]

[35]

2,671

567

2,663

462

2,489

437

2,367

322

207

130

328

140

Current tax

Financial liabilities

Trade payables

17,656

3,737

3,924

17,838

3,544

3,577

1,407

3,288

3,010

10,631

655

16,249

449

17,183

426

3 ,1 18

2,748

9,210

Other liabilities

5 ,1 74

3 ,1 88

Curre nt provis ions and liabilitie s

28,555 28,084

22,209 21,265

47,725 44,078

Total e quity and liabilitie s

79,057 74,566

37,743 34,928

Total equity and liabilities adjusted for

asset backed financing transactions

74,556

70,667

–

43,224

40 ,1 79

*

before consolidation of transactions between the sub-groups; unaudited

6

8

Group Financial S tate me nts

BMW Group

Group and s ub-group Cas h Flow S tate me nts

in euro million

Notes

Group

2

006

2005

Net profit

2,874

3,808

3,340

137

2,239

3,441

3,025

764

Depreciation of leased products

Depreciation and amortisation of tangible, intangible and investment assets

Change in provisions

Change in deferred taxes

242

236

Other non-cash income and expense items

Gain/loss on disposal of non-current assets and marketable securities

Result from equity accounted investments

Changes in current assets and liabilities

Change in inventories

– 329

– 68

176

– 99

25

– 14

– 265

– 566

782

187

– 239

Change in receivables

Increase in liabilities

975

Cas h inflow from ope rating activitie s

[39]

9,980

10,691

Investment in intangible assets and property, plant and equipment

Proceeds from the disposal of intangible assets and property, plant and equipment

Expenditure for investments

– 4,313

39

– 3,875

42

6

5

Group Financial Statements

– 29

– 74

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

Proceeds from the disposal of investments

Proceeds from sale of Land Rover

110

13

–

1,000

– 9,461

3 ,1 97

Investment in leased products

– 10,754

3,719

– 50,313

47,848

– 2,654

2,677

–13,670

7

1

Disposals of leased products

Additions to receivables from sales financing

Payments received on receivables from sales financing

Investment in marketable securities

– 45,365

42,634

– 455

7

2

7

8

9

6

Proceeds from marketable securities

381

1

04 – Other Disclosures

11 – Segment Information

Cas h outflow from inve s ting activitie s

[39]

–11,963

Buy-back of treasury shares

– 253

– 419

6,876

– 4,491

–

– 506

– 419

5,819

– 3,432

–

Payment of dividend for the previous year

Proceeds from the issue of bonds

Repayment of bonds

Internal financing of financial operations

Change in financial liabilities

1,027

583

– 214

– 549

699

Change in commercial paper

Cas h inflow /outflow from financing activitie s

[39]

3,323

Effe ct of exchange rate and change s in compos ition of group on

cas h and cas h e quivale nts

82

66

Change in cas h and cas h e quivale nts

– 285

– 507

Cash and cash equivalents as at 1 J anuary

1,621

2 ,1 28

Cas h and cas h e quivale nts as at 31 De ce mbe r

[39]

1,336

1,621

*

unaudited

6

9

Industrial operations ^*

Financial operations ^*

2

006

2005

2006

2005

2

3

,449

4

1,954

5

535

3,560

25

527

2,899

28

Net profit

Depreciation of leased products

,315

2,997

441

– 54

342

– 99

– 14

Depreciation and amortisation of tangible, intangible and investment assets

Change in provisions

2

36

– 104

227

107

2

304

418

– 166

–

7

Change in deferred taxes

–

436

70

Other non-cash income and expense items

Gain/loss on disposal of non-current assets and marketable securities

Result from equity accounted investments

Changes in current assets and liabilities

Change in inventories

–

2

5

–

261

330

184

– 73

– 4

– 70

3

218

Change in receivables

3

64

501

329

276

Increase in liabilities

5

,373

6,184

4,607

4,507

Cas h inflow from ope rating activitie s

–

4,272

– 3,834

39

– 41

8

– 41

3

Investment in intangible assets and property, plant and equipment

Proceeds from the disposal of intangible assets and property, plant and equipment

Expenditure for investments

3

1

–

24

138

6

– 5

– 212

7

6

–

34

Proceeds from the disposal of investments

Proceeds from sale of Land Rover

1,000

– 369

355

–

392

–10,362

3,355

– 50,313

47,848

– 35

– 9,092

2,842

– 45,365

42,634

– 272

–

Investment in leased products

3

64

–

Disposals of leased products

Additions to receivables from sales financing

Payments received on receivables from sales financing

Investment in marketable securities

–

2,619

,419

4,417

–183

381

– 2,467

2

258

Proceeds from marketable securities

–

– 9,253

– 9,496

Cas h outflow from inve s ting activitie s

–

253

419

1

– 506

– 419

–

Buy-back of treasury shares

Payment of dividend for the previous year

Proceeds from the issue of bonds

Repayment of bonds

6,875

– 4,490

1,040

1 ,1 56

– 61

5,819

– 3,432

3,456

–106

– 678

5,059

–

1

–

1,040

129

44

1,197

– 3,456

–108

129

Internal financing of financial operations

Change in financial liabilities

–

6

Change in commercial paper

–

– 4,360

4,520

Cas h inflow /outflow from financing activitie s

Effe ct of exchange rate and change s in compos ition of group on

cas h and cas h e quivale nts

1

04

18

– 22

48

–

137

– 625

–148

118

Change in cas h and cas h e quivale nts

1

,372

1,997

249

131

Cash and cash equivalents as at 1 J anuary

1

,235

1,372

101

249

Cas h and cas h e quivale nts as at 31 De ce mbe r

7

0

Group Financial S tate me nts

BMW Group

Group S tate me nt of Change s in Equity

in euro million

Subscribed

Capital Revenue

Accumulated other equity

Treasury Minority

shares interest

Total

capital reserves reserves

Translation Fair value Derivative

Pension

obliga-

tions

differences measure-

ment of

financial

instru-

ments

marketable

securities

3

1 De ce mbe r 2004 ^*

674

1,971 14,531

–763

62

1,072 –1,013

–

16,534

– 506

– 419

227

Acquisition of treasury shares

Dividends paid

–

– 506

–

– 419

–

117

–

Translation differences

Financial instruments

Actuarial gains and losses

on pension obligations

Deferred tax on transactions

recognised directly in equity

Net profit 2005

–

110

515

–1,780

–1,265

–

–736

–

–736

–

–15

–

627

–

287

–

899

2,239

3

1 De ce mbe r 2005

674

1,971 16,351

– 646

562

29 –1,462

– 506

16,973

Acquisition of treasury shares

Withdrawal of shares from

circulation

–

– 253

–

– 253

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

– 20

– 60

– 679

– 419

–

759

–

– 419

–199

–172

Dividends paid

–

Translation differences

Financial instruments

Actuarial gains and losses

on pension obligations

Deferred tax on transactions

recognised directly in equity

Net profit 2006

–191

–

20

– 28

–

– 370

198

–

7

1

7

2

–

543

–

543

7

8

9

6

–

2,868

–

22

–

– 69

–

–168

–

6

– 215

2,874

– 2

–

1

04 – Other Disclosures

11 – Segment Information

Other changes

–

– 2

4

3

1 De ce mbe r 2006

654

1,911 18,121

– 837

214

178

–1,115

19,130

see also Note [30]

^*adjusted figures

7

1

BMW Group

S tate me nt of Income and Expe ns e s re cognis e d dire ctly in Equity

i

n euro million

2006

2005

515

Fair value gains and losses on available-for-sale investments

recognised directly in equity

– 370

Fair value gains and losses on financial instruments used for

hedging purposes recognised directly in equity

Exchange differences arising on the translation of foreign subsidiaries

Actuarial gains and losses on defined benefit pension

and similar obligations

218

–1,670

117

–191

515

– 215

– 43

–736

899

Deferred tax on gains and losses recognised directly in equity

Gains and los s e s re cognis e d dire ctly in e quity

– 875

P rofit afte r tax attributable to s hare holde rs of BMW AG

Aggre gate amount of ne t profit for pe riod and gains and los s e s

re cognis e d dire ctly in e quity

2,868

2,825

2,239

1,364

7

2

Group Financial S tate me nts

BMW Group

Note s to the Group Financial S tate me nts

Accounting P rinciple s and Policie s

[1] Bas is of pre paration

Industrial and Financial operations, which are elimi-

The consolidated financial statements of Bayerische nated in the Group financial statements, are internal

Motoren Werke Aktiengesellschaft (“BMW Group

financial statements“ or “Group financial statements“)

at 31 December 2006 have been drawn up in accor-

dance with International Financial Reporting Standards

sales of products, the provision of funds for Group

companies and the related interest. These additional

disclosures allow the assets, liabilities, financial po-

sition and performance of Industrial operations and

Financial operations to be presented, in accordance

(IFRSs) as applicable in the EU. The designation

“IFRSs” also includes all valid International Accounting with the recognition and measurement principles

Standards (IASs). All interpretations of the Interna-

stipulated by IFRSs, as if they were two separate

tional Financial Reporting Interpretations Committee groups. This information, which has not been audited

(

IFRIC) mandatory for the financial year 2006 are al-

so applied.

The Group financial statements comply in their

by the Group auditors, is provided on a voluntary

basis.

In conjunction with the refinancing of financial

services business, a significant volume of receivables

arising from retail customer and dealer financing is

sold. Similarly, rights and obligations relating to leases

present form with provision §315a of the German

Commercial Code (HGB). This provision, in con-

junction with the Regulation (EC) No. 1606/2002 of

the European Parliament and Council of 19 J uly 2002, are sold. The sale of receivables is a well established

relating to the application of International Financial

Reporting Standards, provides the legal basis for

preparing consolidated financial statements in ac-

cordance with international standards in Germany

and applies to financial years beginning on or after

1 J anuary 2005.

instrument used by industrial companies. These

transactions are usually in the form of “asset backed

financing” transactions involving the sale of a port-

folio of receivables to a trust which, in turn, issues

marketable securities to refinance the purchase

price. The BMW Group continues to “service” the

receivables and receives an appropriate fee for these

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

7

1

The BMW Group and sub-group income state-

ments are presented using the cost of sales method. services. In accordance with IAS 27 (Consolidated

7

2

The Group balance sheet and sub-group balance

sheets correspond to the classification provisions

contained in IAS 1 (Presentation of Financial State-

ments). In order to improve clarity, various items are

aggregated in the income statement and balance

sheet. These items are disclosed and analysed sep-

arately in the Notes.

In order to support the sale of its products, the

BMW Group provides various financial services –

mainly loan and lease financing – to retail customers

and to dealers. The inclusion of the financial servic-

es activities of the Group therefore has an impact on

the Group financial statements. In order to provide

a better insight into the earnings, financial and net

assets position of the Group, additional information

has been presented in the BMW Group financial

statements on its industrial and financial operations.

Financial operations include financial services and

the activities of the Group financing companies.The

operating interest income and expense of Financial

operations are included in revenues and cost of

and Separate Financial Statements) and the inter-

pretation contained in SIC-12 (Consolidation –

Special 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 significant risks and rewards. The bal-

ance sheet value of the assets sold at 31 December

2006 totalled euro 4.5 billion (31 December 2005:

euro 3.9 billion). For an additional understanding of

the asset, liability and financial position of the BMW

Group, the Group balance sheet contains a supple-

mentary disclosure of the balance sheet total adjusted

for assets which have been sold.

The Group currency is the euro. All amounts are

disclosed in millions of euros (euro million) unless

stated otherwise.

The Group Financial Statements, drawn up in

accordance with §315a HGB, and the Group Manage-

ment Report for the financial year 2006 will be sub-

mitted to the operator of the electronic version of

the German Federal Gazette and can be obtained

7

8

9

6

1

04 – Other Disclosures

11 – Segment Information

sales respectively. The holding companies BMW (UK)

Holdings Ltd., Bracknell, BMW Holding B.V., The

Hague, BMW Österreich Holding GmbH, Steyr, BMW via the Company Register website. Printed copies

(

US) Holding Corp., Wilmington, Del., BMW España

will also be made available on request. In addition

the Group Financial Statements and the Group

Management Report can be downloaded from the

Finance S.L., Madrid, and BMW Holding Malaysia

Sdn Bhd, Kuala Lumpur, are allocated to Industrial

operations. The main business transactions between BMW Group website at www.bmwgroup.com/ir.

7

3

[

2] Cons olidate d companie s

The number of subsidiaries, special purpose

funds and other special purpose entities included

in the Group financial statements changed in 2006

as follows:

The BMW Group financial statements include, be-

sides BMW AG, all material subsidiaries, 17 special

securities funds and 19 trusts (almost all used for

asset backed financing transactions) both in Ger-

many and abroad.

Germany

Foreign

Total

Included at 31.12.2005

44

1

136

12

180

13

Included for the first time in 2006

No longer included in 2006

Include d at 31.12. 2006

–

4

45

144

189

6

8 subsidiaries (2005: 72), either dormant or

rights. Three equity investments are not consolidated

since they are not material to the Group’s earnings,

financial and net assets position. They are included

in the line “Other investments”, measured at cost less,

where applicable, accumulated impairment losses.

A separate “List of Group Investments” pur-

generating a negligible volume of business, are not

included. Their influence on the Group’s earnings,

financial and net assets position is immaterial.

Non-inclusion of operating subsidiaries reduces

total Group revenues by 1.5 % (2005: 1.7 %).

Two joint ventures have been consolidated using suant to §313 (4) HGB will be submitted to the oper-

the equity method. With effect from the beginning

of the financial year 2006, F.A.S.T. Gesellschaft für

angewandte Softwaretechnologie mbH, Munich,

became a fully consolidated subsidiary following

the acquisition of the remaining 50 % of the voting

ator of the electronic version of the German Federal

Gazette. This list, along with the “List of Third Party

Companies which are not of Minor Importance for

the Group”, will also be posted on the BMW Group

website.

[

3] Change s in the group re porting e ntity

Bavaria Insurance Brokers Limited, Dublin, is no

longer a consolidated company.

BMW Hellas Trade of Cars SA, Athens, Park Lane

Ltd., Bracknell, BMW Portugal Lda., Lisbon, BMW

Holding Malaysia Sdn Bhd, Kuala Lumpur, BMW

Malaysia Sdn Bhd, Kuala Lumpur, BMW Asia Tech-

nology Centre Sdn Bhd, Kuala Lumpur, BMW China

Automotive Trading Ltd., Peking, BMW Leasing

The group reporting entity also changed by com-

parison to the previous year as a result of the first-

time consolidation of two special purpose entities

and the deconsolidation of three special purpose

entities.

(

Thailand) Co., Ltd., Bangkok, BMW Danmark A/S,

The changes in the composition of the group

reporting entity do not have a material impact on

the earnings, financial and net assets position of the

Kolding, BMW International Investment B.V., Rijswijk,

and F.A.S.T. Gesellschaft für angewandte Software-

technologie mbH, Munich, were consolidated for the Group.

first time in 2006.

[4] Cons olidation principle s

at their fair value. The excess of the Group’s interest

The equity of subsidiaries is consolidated in accor-

dance with IFRS 3 (Business Combinations). IFRS 3

in the net fair value of the identifiable assets and lia-

bilities acquired over cost is recognised as goodwill

requires that all business combinations are accounted and is subjected to a regular review for possible

for using the purchase method, whereby identifiable

assets and liabilities acquired are measured initially

impairment. Goodwill of euro 91 million which arose

prior to 1 J anuary 1995 remains netted against

7

4

Group Financial S tate me nts

reserves. In the event of impairment and deconsoli-

based on the group’s shareholding. Any difference

dation, goodwill that has been deducted from equity between the cost of investment and the group’s

is dealt with directly in equity.

share of equity are accounted for as a general rule

using the purchase method. Investments in other

companies are accounted for using the equity

method, when significant influence can be exercised

(IAS 28 Investments in Associates). This is normally

the case when voting rights of between 20 % and

50 % are held (associated companies).

Receivables, liabilities, provisions, income and

expenses and profits between consolidated com-

panies (intragroup profits) are eliminated on consoli-

dation.

Under the equity method, investments are

measured at the group’s share of equity taking

account of fair value adjustments on acquisition,

[5] Fore ign curre ncy trans lation

set directly against accumulated other equity. Ex-

The financial statements of consolidated companies change differences arising from the use of different

which are drawn up in a foreign currency are trans-

lated using the functional currency concept (IAS 21:

The Effects of Changes in Foreign Exchange Rates)

and the modified closing rate method. The func-

tional currency of a subsidiary is determined as a

general rule on the basis on the primary economic

environment in which it operates and corresponds

therefore to the relevant local currency. Income and

expenses of foreign subsidiaries are translated in the

Group financial statements at the average exchange

rate for the year, and assets and liabilities are trans-

exchange rates to translate the income statement

are also offset directly against accumulated other

equity.

Foreign currency receivables and payables in

the single entity accounts of BMW AG and sub-

sidiaries are recorded, at the date of the transaction,

at cost. Exchange gains and losses computed at

the balance sheet date are recognised as income or

expense.

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

7

1

The exchange rates of those currencies which

have a material impact on the Group financial state-

7

2

lated at the closing rate. Exchange differences arising ments were as follows:

from the translation of shareholders’ equity are off-

7

8

9

6

1

04 – Other Disclosures

11 – Segment Information

Closing rate

Average rate

2005

3

1.12.2006

31.12.2005

2006

US Dollar

1.32

0.67

1.18

0.69

1.26

0.68

1.24

0.68

British Pound

South African Rand

J apanese Yen

Australian Dollar

9.20

7.47

8.52

7.91

156.88

1.67

139.11

1.61

146.06

1.67

136.83

1.63

[

6] Accounting principle s

of payment can be assumed. Revenues are stated

net of discounts, allowances, settlement discount

and rebates. In the case of long-term construction

work, revenues are, in accordance with IAS 18

(Revenue) and IAS 11 (Construction Contracts),

recognised using the stage of completion method.

Revenues also include lease rentals and interest

income from financial services. Revenues for the

financial operations sub-group also include the

The financial statements of BMW AG and of its sub-

sidiaries in Germany and elsewhere have been

prepared for consolidation purposes using uniform

accounting policies in accordance with IAS 27.

Revenues from the sale of products are recog-

nised when the risks and rewards of ownership

of the goods are transferred to the customer, the

sales price is agreed or determinable and receipt

7

5

interest income earned by group financing com-

panies.

The net profit is accordingly allocated to the differ-

ent categories of stock. The portion of the group net

profit for the year which is not being distributed 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 disclosed separately.

If the sale of products includes a determinable

amount for subsequent services (“multiple-compo-

nent contracts”), the related revenues are deferred

and recognised as income over the period of the

contract. Amounts are normally recognised as in-

come by reference to the expected pattern of related

expenditure.

Profits arising on the sale of vehicles for which a

group company retains a repurchase commitment

Purchased and internally-generated intangible

assets are recognised as assets in accordance with

IAS 38 (Intangible Assets), where it is probable that

(buy-back contracts) are not recognised until such

profits have been realised. The vehicles are included the use of the asset will generate future economic

in inventories and stated at cost.

benefits and where the costs of the asset can be

determined reliably. Such assets are measured at

acquisition and/or manufacturing cost and, to the

extent that they have a finite useful life, amortised

on a straight-line basis over their estimated useful

lives. With the exception of capitalised development

costs, intangible assets are generally amortised

over their estimated useful lives of between three

and five years. Intangible assets with finite useful

lives are assessed regularly for recoverability and

their carrying amounts are reduced to the recover-

able amount in the event of impairment.

Cost of sales comprises the cost of products

sold and the acquisition cost of purchased goods

sold. It includes all directly attributable material and

production costs and production overheads, includ-

ing depreciation/amortisation of property, plant and

equipment and 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 business and interest expense from

refinancing the entire financial services business,

including the expense of risk provisions and write-

downs, are reported in cost of sales. Cost of sales

for the financial operations sub-group also includes

Development costs for vehicle and engine

projects are capitalised at production cost, to the

extent that costs can be allocated reliably and both

technical feasibility and successful marketing are

the interest expense of group financing companies. assured. It must also be probable that the develop-

Research costs and development costs which

are not capitalised are recognised as an expense

when incurred.

ment expenditure will generate future economic

benefits. Capitalised development costs comprise

all expenditure that can be attributed directly to the

development process, including development-re-

lated overheads. Capitalised development costs

are amortised on a systematic basis, following the

commencement of production, over the estimated

product life which is generally seven years.

All items of property, plant and equipment are

considered to have finite useful lives and are meas-

ured at acquisition or manufacturing cost. Deprecia-

ble assets are reduced by systematic depreciation

based on the estimated useful lives of the assets.

In accordance with IAS 20 (Accounting for

Government Grants and Disclosure of Government

Assistance), public sector grants are not recognised

until there is reasonable assurance that the condi-

tions attaching to them have been complied with

and the grants will be received. They are recognised

as income over the periods necessary to match

them with the related costs which they are intended

to compensate.

Basic earnings per share are computed in ac-

cordance with IAS 33 (Earnings per Share). Undiluted Depreciation on property, plant and equipment

earnings per share are calculated for common and

preferred stock by dividing the net profit after mi-

nority interest, as attributable to each category of

reflects the pattern of their usage and is generally

computed using the straight-line method. Compo-

nents of items of property, plant and equipment

stock, by the average number of outstanding shares. with different useful lives are depreciated separately.

7

6

Group Financial S tate me nts

Expenditure on low value non-current assets is

written off in full in the year of acquisition.

Systematic depreciation is based on the following

useful lives, applied throughout the Group:

in years

Factory and office buildings, distribution facilities and residential buildings

Plant and machinery

8 to 50

5 to 10

3 to 10

Other equipment, factory and office equipment

For machinery used in multiple-shift operations,

depreciation 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 portion of production-related overheads.

This includes production-related depreciation and

an appropriate proportion of administrative and so-

cial costs.

The recoverability of the carrying amount of in-

tangible assets (including capitalised development

costs and goodwill) and property, plant and equip-

ment is tested regularly for impairment in accordance

with IAS 36 (Impairment of Assets) on the basis of

cash generating units. An impairment loss is recog-

nised when the recoverable amount (defined as the

higher of the asset’s net selling price and its value in

use) is lower than the carrying amount. If the reason

for the previously recognised impairment loss no

longer exists, the impairment loss is reversed up to

the level of its rolled-forward depreciated or amor-

tised cost.

Investments accounted for using the equity

method are (except when the investment is impaired)

measured at the group’s share of equity taking ac-

count of fair value adjustments on acquisition.

Investments in non-consolidated group com-

panies reported in other investments are measured

at cost, or at their lower fair value.

Investments in other companies are measured

at their quoted market price or fair value. When, in

individual cases, these values are not available or

cannot be determined reliably, investments in other

companies are measured at cost.

Non-current marketable securities are measured

according to the category of financial asset to which

they are classified. No held-for-trading financial as-

sets are included under this heading.

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Financing costs are not included in acquisition

or manufacturing cost.

7

1

Statement of Income and

Expenses recognised directly

in Equity

Non-current assets also include assets relating

to leases. The BMW Group uses property, plant and

equipment as lessee and also leases out assets,

mainly vehicles manufactured by the Group, as les-

sor. 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 recog-

nised as financial liabilities.

Where Group products are recognised by BMW

Group leasing companies as leased assets under

operating leases, they are measured at manufactur-

ing cost. All other leased products are measured at

acquisition cost. All leased products are depreciated

using the straight-line method over the period of

the lease to the lower of their imputed residual value

or estimated fair value.

7

2

Notes

– Accounting Principles

and Policies

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

Financial assets are accounted for on the basis

of the settlement date. On initial recognition, they

are measured at acquisition cost, including transac-

tion costs.

Subsequent to initial recognition, available-for-

sale and held-for-trading financial assets are meas-

ured at fair value. When market prices are not avail-

able, the fair value of available-for-sale financial

assets is measured using appropriate valuation

7

techniques e.g. discounted cash flow analysis based market information and recognised valuation tech-

on market information available at the balance sheet

date.

niques. In those cases where hedge accounting is

applied, changes in fair value are recognised either

in income or directly in equity under accumulated

other equity, depending on whether the transac-

tions are classified as fair value hedges or cash flow

hedges. In the case of fair value hedges, the results

Loans and receivables which are not held by the

Group for trading purposes, held-to-maturity finan-

cial investments and all financial assets for which

published price quotations in an active market are

not available and whose fair value cannot be deter-

mined reliably, are measured, to the extent that they

of the fair value measurement of the derivative finan-

cial instruments and the related hedged items are

have a fixed term, at amortised cost, using the effec- recognised in the income statement. In the case of

tive interest method. When the financial assets do

not have a fixed term, they are measured at acquisi-

tion cost.

fair value changes from cash flow hedges which are

used to mitigate the future cash flow risk on a recog-

nised asset or liability or on forecast transactions,

In accordance with IAS 39 (Financial Instruments: unrealised gains and losses on the hedging instru-

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 impairment test are recognised as

an expense. Gains and losses on available-for-sale

ment are recognised initially directly in accumulated

other equity. Any such gains or losses are recog-

nised subsequently in the income statement when

the hedged item is recognised in the income state-

ment. The portion of the gains or losses from fair

value measurement not relating to the hedged item

financial assets are recognised directly in equity until is recognised immediately in the income statement.

the financial asset is disposed of or is determined to

be impaired, at which time the cumulative loss pre-

viously recognised in equity is included in net profit

or loss for the period.

With the exception of derivative financial instru-

ments, all receivables and other current assets relate

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 immediately in

the income statement.

In accordance with IAS 12 (Income Taxes), de-

to loans and receivables which are not held for trading. ferred taxes are recognised on all temporary differ-

They are measured at amortised cost. Receivables

with maturities of over one year which bear no or a

lower than market interest rate are discounted. Ap-

propriate allowances are recognised to take account

of all identifiable risks.

Receivables from sales financing comprise

receivables from retail customer, dealer and lease

financing.

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 or-

der to reduce the currency, interest rate and market

price risks from operating activities and related fi-

nancing requirements. All derivative financial instru-

ments (such as interest, currency and combined

interest/currency swaps as well as forward currency

contracts) are measured in accordance with IAS 39

at their fair value, irrespective of their purpose or the

intention for which they are held. The fair values of

derivative financial instruments are measured using

ences between the tax and accounting bases of

assets and liabilities and on consolidation proce-

dures. Deferred tax assets also include claims to

future tax reductions which arise from the expected

usage of existing tax losses available for carryfor-

ward, where usage is probable. Deferred taxes are

computed using enacted or planned tax rates which

are expected to apply in the relevant national juris-

dictions when the amounts are recovered.

Inventories of raw materials, supplies and goods

for resale are stated at the lower of average acquisi-

tion cost and net realisable value.

Work in progress and finished goods are stated

at the lower of average acquisition cost and net

realisable value. Manufacturing cost comprises all

costs which are directly attributable to the manu-

facturing process and an appropriate proportion of

production-related overheads. This includes pro-

duction-related depreciation and an appropriate

proportion of administrative and social costs.

7

8

Group Financial S tate me nts

Financing costs are not included in acquisition

or manufacturing cost.

more than one year are discounted to the present

value of the expenditures expected to settle the

Provisions for pensions and similar obligations are obligation at the balance sheet date.

recognised using the projected unit credit method in

accordance with IAS 19 (Employee Benefits). Under

this method, not only obligations relating to known

Financial liabilities are measured on first-time

recognition at cost, which is equivalent to the fair

value of the consideration given. Transaction costs

vested benefits at the reporting date are recognised, are included in this initial measurement. Subse-

but also the effect of future increases in pensions

and salaries. This involves taking account of various

quent to initial recognition, liabilities are, with the

exception of derivative financial instruments, meas-

input factors which are evaluated on a prudent basis. ured at amortised cost. The BMW Group has no

The provision is derived from an independent actu-

arial valuation which takes into account the relevant

biometric factors.

liabilities which are held for trading. Liabilities from

finance leases are stated at the present value of

the future lease payments and disclosed under finan-

Actuarial gains and losses are recognised, net of cial liabilities.

deferred tax, directly in equity.

The preparation of the Group financial state-

The expense related to the reversal of discount- ments in accordance with IFRSs requires manage-

ing on pension obligations and the income from the

expected return on pension plan assets are reported

separately as part of the financial result. All other costs

relating to allocations to pension provisions are allo-

cated to costs by function in the income statement.

Other provisions are recognised when the Group nomic useful lives, the recognition and measure-

has an obligation to a third party, an outflow of re-

sources is probable and a reliable estimate can be

ment to make certain assumptions and estimates

that affect the reported amounts of assets and lia-

bilities, revenues and expenses and contingent

liabilities. The assumptions and estimates relate

principally to the group-wide determination of eco-

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

ment of provisions and the recoverability of future

tax benefits. Actual amounts could in certain cases

7

1

made of the amount of the obligation. Measurement differ from those assumptions and estimates.

is computed on the basis of fully attributable costs.

Non-current provisions with a remaining period of

7

2

Where new information comes to light, differences

are reflected in the income statement.

7

8

9

6

1

04 – Other Disclosures

11 – Segment Information

[

7] Ne w financial re porting rule s

In addition, the following Interpretations were applied

for the first time:

(a) Financial reporting rules applied for the first time

in the financial year 2006

The following revised financial reporting standards

were applied for the first time in the financial year

– IFRIC 4 (Determining whether an Arrangement

contains a Lease)

– IFRIC 5 (Rights to Interests arising from Decom-

missioning, Restoration and Environmental

Rehabilitation Funds)

– IFRIC 6 (Liabilities arising from Participating in a

Specific Market – Waste Electrical and Electronic

Equipment)

2

–

006:

Amendments to IAS 39 and IFRS 4 (Financial

Guarantee Contracts)

–

Amendment to IAS 21 (Effects of Changes in

Foreign Exchange Rates)

7

9

BMW Group

Note s to the Group Financial S tate me nts

Note s to the Income S tate me nt

The financial reporting rules applied for the first time

in 2006 did not have a significant impact on the

BMW Group.

– IFRIC 10 (Interim Financial Reporting and

Impairment)

– IFRIC 11 (IFRS 2 – Group and Treasury Share

Transactions)

(b) New financial reporting rules issued in 2006

The IASB issued IFRS 8 (Operating Segments) in

IFRIC 8 is mandatory for financial years commencing

006. IFRS 8 will replace IAS 14 (Segment Reporting) on or after 1 May 2006. IFRIC 9 is mandatory for

2

and is mandatory for financial periods commencing

after 1 J anuary 2009.

In addition, the following Interpretations were

issued:

financial years commencing on or after 1 J une

2006. IFRIC 10 takes effect for financial years com-

mencing after 1 November 2006. IFRIC 11 applies

to financial years commencing on or after 1 March

2007. The financial reporting rules issued in 2006

–

IFRIC 8 (Scope of IFRS 2)

IFRIC 9 (Reassessment of Embedded Derivatives) will not have a significant impact on the BMW Group.

[8] Reve nue s

Revenues by activity comprise the following:

in euro million

2006

2005

Sales of products and related goods

Income from lease instalments

Sale of products previously leased to customers

Interest income on loan financing

Other income

38,769

4 ,1 41

38,042

3,322

2,759

1,632

901

3 ,1 07

1,925

1,057

Reve nue s

48,999

46,656

An analysis of revenues by business segment and geographical region is shown in the segment information

on pages 111 to 114.

[9] Cos t of s ale s

Cost of sales comprises:

in euro million

2006

2005

Manufacturing costs

26,449

1,081

6,612

1,308

501

25,598

1,553

5,586

1,033

541

Warranty expenditure

Cost of sales directly attributable to financial services

Interest expense for financial operations

Expense for risk provisions and write-downs for financial services business

Other cost of sales

1,709

37,660

1,681

35,992

Cos t of s ale s

Cost of sales include euro 8,421 million (2005:

euro: 7 ,1 60 million) relating to financial services

business.

Expense for risk provisions and write-downs in-

cludes write-downs of euro 211 million (2005: euro

248 million) on receivables from financial services.

8

0

Group Financial S tate me nts

Manufacturing costs for industrial operations

include impairment losses on intangible assets and

property, plant and equipment of euro 15 million

of reduced taxes on assets and consumption-based

taxes amounted to euro 11 million (2005: euro 15

million).

(2005: euro 25 million). Public subsidies in the form

[

10] S ale s and adminis trative cos ts

Administrative costs amounted to euro 933 mil-

lion (2005: euro 873 million) and comprised expenses

for administration not attributable to development,

production or sales functions.

Sales costs amounted to euro 4,039 million (2005:

euro 3,889 million) and comprise mainly marketing,

advertising and sales personnel costs.

[

11] Re s e arch and deve lopme nt cos ts

Total research and development expenditure

comprising research costs, development costs not

recognised as assets and capitalised development

costs were as follows:

Research and development costs of euro 2,544 mil-

lion (2005: euro 2,464 million) comprise all research

costs and development costs not recognised as

assets as well as amortisation and disposals of capi-

talised development costs totalling euro 872 million

(2005: euro 745 million).

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

in euro million

2006

2005

7

1

Statement of Income and

Expenses recognised directly

in Equity

Research and development costs

2,544

– 872

1,536

3,208

2,464

– 745

1,396

3,115

7

2

Notes

– Accounting Principles

and Policies

Amortisation

New expenditure for capitalised development costs

Total re s e arch and deve lopme nt expe nditure s

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

[12] Othe r ope rating income and expe ns e s

in euro million

2006

2005

Exchange gains

245

141

24

135

265

66

Income from the reversal of provisions

Income from the reversal of write-downs

Gains on the disposal of assets

Sundry operating income

102

232

744

116

262

844

Othe r ope rating income

Exchange losses

219

109

34

161

165

29

Expense for additions to provisions

Expenses for write-downs on receivables

Sundry operating expenses

Othe r ope rating expe ns e s

155

517

134

489

Othe r ope rating income and expe ns e s

227

355

Sundry operating income includes public-sector grants of euro 32 million (2005: euro 36 million).

8

1

[

13] Re s ult from e quity me thod accounting

result of the joint venture, BMW Brilliance Automotive

Ltd., Shenyang, and an impairment loss on the in-

vestment in TRITEC Motors Ltda., Campo Largo.

The loss of euro 25 million (2005: profit of euro 14

million) from equity method accounting includes the

[14] Othe r financial re s ult

in euro million

2006

62

2005

28

Income from investments

–

thereof from subsidiaries: euro 58 million (2005: euro 3 million)

Impairment losses on investments in subsidiaries and other companies

Reversals of impairment losses on investments in subsidiaries and other companies

Re s ult on inve s tme nts

– 46

16

–

32

28

Expected return on plan assets

Other interest and similar income

315

259

283

363

–

thereof from subsidiaries: euro 19 million (2005: euro 21 million)

Inte re s t and s imilar income

574

646

Expense from reversing the discounting of pension obligations

Expense from reversing the discounting of other long-term provisions

Write-downs on marketable securities

– 501

– 35

– 2

– 482

– 78

– 10

Sundry interest and similar expenses

– 319

– 318

–

thereof to subsidiaries: euro 2 million (2005: euro 1 million)

Inte re s t and s imilar expe ns e s

– 857

– 283

– 888

– 242

Ne t inte re s t re s ult

Fair value measurement of financial instruments

350

– 306

S undry othe r financial re s ult

350

– 306

Othe r financial re s ult

99

– 520

Income from investments relates principally to divi-

dend income from BMW Asia Pte. Ltd., Singapore

and from BMW (P+A) Ltd., Bracknell.

Within sundry other financial result, income and

expenses resulting from the fair value measurement

of hedged items and hedging instruments have

been presented on a net basis. The improvement is

mainly attributable to the partial settlement of the

exchangeable bond on shares in Rolls-Royce plc,

London. Furthermore, the previous year’s figure

was affected by a substantial loss recognised on

the option obligation.

[15] Income taxe s

Taxes on income comprise the following:

in euro million

2006

2005

Current tax expense

Deferred tax expense

993

257

437

611

1

,250

1,048

8

2

Group Financial S tate me nts

Current tax expense in the previous year in-

cluded tax reimbursements relating to prior years.

Deferred tax expense decreased mainly as a

result of the lower expense to recognise deferred

tax liabilities.

Deferred taxes are recognised on temporary

differences between the carrying amount of assets

and liabilities for IFRS purposes and their tax bases.

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 corporation tax rate of 25.0 % applies

in Germany. After taking account of the average mul-

tiplier rate (Hebesatz) of 412 % for municipal trade

tax and the solidarity charge of 5.5 %, the overall

tax rate for BMW companies in Germany is un-

changed at 38.9 %. The tax rates for companies

outside Germany range from 12.5 % to 40.7 %

(2005: 10.0 % to 40.7 %). A valuation allowance is

recognised on deferred tax assets when recover-

ability is uncertain. In determining the level of the

valuation allowance, all positive and negative fac-

tors concerning the likely existence of sufficient

taxable profit in the future are taken into account.

These estimates can change depending on the

actual course of events.

An analysis of deferred tax assets and liabilities

by position at 31 December is shown below:

in euro million

Deferred tax assets

Deferred tax liabilities

2

006

2005

2006

2005

6

5

Group Financial Statements

Intangible assets

Property, plant and equipment

Leased products

Investments

–

1

127

1,859

510

1,594

474

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

48

572

2

780

3,368

–

3,255

–

16

7

1

Other current assets

Tax loss carryforwards

Provisions

1,058

849

807

3,696

–

3,810

–

947

7

2

1,540

3,653

1,600

1,639

3,386

1,489

9,192

134

98

Liabilities

827

789

7

8

9

6

Consolidations

403

281

1

04 – Other Disclosures

11 – Segment Information

9

,322

10,797

10,301

Valuation allowance

Netting

– 528

– 641

– 7,779

772

–

– 8,039

2,758

–

– 7,779

2,522

– 8,039

7

55

Compared to the previous reporting period, the

main changes to deferred tax assets and liabilities

were as follows:

The increase of deferred tax liabilities relating

to intangible assets was mainly due to the higher

level of capitalised development costs recognised in

accordance with IFRS.

The changes in deferred tax assets and liabili-

ties relating to leased products and other current

assets are attributable primarily to financial services

business. The figures reflect higher business vol-

umes and the different categorisation of operating

and finance lease arrangements for tax and account-

ing purposes.

As at the end of the previous year, no valuation

allowance is recognised on deferred tax assets

relating to capital allowances on property, plant and

equipment in the United Kingdom.

Deferred tax assets on tax losses available for

carryforward and capital losses increased marginally

on a net basis (i.e. after taking account of the amount

shown as a valuation allowance). This was due to

8

3

the expectation that a greater volume of tax losses

will be utilisable, especially in the United Kingdom.

Tax losses available for carryforward, which for the

most part can be carried forward without restriction,

totalled euro 1.7 billion at the year-end (31.12.2005:

euro 2 .1 billion). A valuation allowance of euro 65 mil-

lion (2005: euro 188 million) was recognised in

Deferred taxes are not recognised on retained

profits of euro 13,866 million (31.12.2005: euro

12,413 million) 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.

2

006 on deferred tax assets relating to tax losses.

Deferred tax assets of euro 463 million (31.12.2005:

euro 453 million) relating to capital losses in the

United Kingdom of euro 1.5 billion (unchanged) were

written down in full since these losses can only be

offset against capital gains, but not against operating

profits.

The increase of deferred tax assets relating

to liabilities was due primarily to the higher level of

other liabilities and the related increase in temporary

differences.

The tax returns of the BMW Group entities are

checked regularly by German and foreign tax author-

ities. Taking account of a variety of factors – including

existing interpretations, commentaries and legal de-

cisions relating to the various tax jurisdictions and

the BMW Group’s past experience – adequate provi-

sion has, as far as identifiable, been made for poten-

tial future tax obligations.

The actual tax expense for the financial year 2006

of euro 1,250 million (2005: euro 1,048 million) is

euro 354 million (2005: euro 231 million) lower than

Deferred taxes recognised directly in equity

amounted to euro 512 million (31.12.2005: euro 727 the expected tax expense of euro 1,604 million (2005:

million), whereby the decrease was mainly due to

actuarial gains and losses arising in conjunction with

pension obligations. The level of actuarial gains and

losses in 2006 was affected in particular by the in-

crease in the discount factors applied.

euro 1,279 million) which would theoretically arise

if the tax rate of 38.9 % (unchanged), applicable for

German companies, was applied across the Group.

The difference between the expected and actual

tax expense is attributable to the following:

in euro million

2006

2005

Expe cte d tax expe ns e

1,604

1,279

Variances due to different tax rates

Tax reductions (–)/tax increases (+) as a result of non-taxable income and

non-deductible expenses

– 213

–123

– 68

– 94

158

– 232

– 34

Tax expense (+)/benefits (–) for prior periods

Other variances

21

Actual tax expe ns e

1,250

1,048

The slightly lower effective tax rate is partially

due to lower nominal tax rates in a number of coun-

tries. The tax-exempt gain on the partial settlement

of the exchangeable bond on shares in Rolls-Royce

plc, London, also had an impact. Furthermore, legis-

lation relating to the taxation of retained earnings in

Germany has changed as a result of §37 (5) of the

German Corporation Tax Act (new version). For this

reason, the present value of the tax reimbursements

arising under the new rules was recognised as an

asset for the first time in 2006.

8

4

Group Financial S tate me nts

[16] Earnings pe r s hare

2

006

2005

Net profit for the year after minority interest

euro million

2,867.8

2,239.3

Profit attributable to common stock

Profit attributable to preferred stock

euro million

2,641.0

226.8

2,066.6

172.7

Average number of common stock shares in circulation

Average number of preferred stock shares in circulation

number

602,461,673

51,506,787

619,815,630

51,488 ,1 37

Earnings pe r s hare of common s tock

Earnings pe r s hare of pre fe rre d s tock

e uro

4.38

4.40

3.33

3.35

Divide nd pe r s hare of common s tock

Divide nd pe r s hare of pre fe rre d s tock

e uro

0.70

0.72

0.64

0.66

6

5

Group Financial Statements

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

relevant financial years. Diluted earnings per share

were not applicable in either the current or prior

year.

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

7

1

Statement of Income and

Expenses recognised directly

in Equity

Notes

[17] Othe r dis clos ure s re lating to the income s tate me nt

7

2

– Accounting Principles

and Policies

The income statement includes personnel costs as follows:

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

in euro million

2006

2005

Pe rs onne l cos ts

Wages and salaries

6,207

1,241

6 ,1 04

1,202

Social security, retirement and welfare costs

–

thereof retirement costs: euro 767 million (2005: euro 713 million)

7,448

7,306

8

5

The average number of employees during the year was:

2

006

2005

Wage earners

52,812

44,394

53,708

43,397

97,105

Other employees

9

7,206

Apprentices and students gaining work experience

6,521

6,441

1

03,727

103,546

The fee expense recognised in the financial

year 2006 for the auditors of the Group financial

statements, KPMG Deutsche Treuhand-Gesell-

schaft, Aktiengesellschaft, Wirtschaftsprüfungsge-

sellschaft, pursuant to §314 (1) no. 9 HGB amounted

to euro 4 million (2005: euro 4 million) and consists

of the following:

in euro million

2006

2005

Fe e expe ns e

Year-end audits

Tax advisory services

2

4

2

4

The item “Year-end audits” includes fees for the

audit of the annual financial statements of BMW AG,

the audit of the Group financial statements and the

audit of the annual financial statements of the German

subsidiaries.

The item “Tax advisory services” relates prin-

cipally to fees for services provided to employees

seconded abroad.

8

6

Group Financial S tate me nts

BMW Group

Note s to the Group Financial S tate me nts

Note s to the Balance S he e t

[18] Analys is of change s in Group tangible , intangible and inve s tme nt as s e ts 2006

in euro million

Acquisition and manufacturing cost

.1.2006 ^]

1

Translation

differences

Additions

Reclassi-

fications

Disposals

31.12.2006

1

Development costs

Other intangible assets

Intangible as s e ts

6,593

739

–

– 5

1,536

121

–

445

56

7,684

799

7,332

1,657

501

8,483

Land, titles to land, buildings, including buildings on

third party land

6 ,1 50

18,977

2,078

– 70

– 185

– 46

242

1,717

206

152

464

16

49

1,333

211

6,425

19,640

2,043

Plant and machinery

Other facilities, factory and office equipment

Advance payments made and construction in progress

P rope rty, plant and e quipme nt

899

– 15

491

– 632

–

3

740

28,104

– 316

2,656

1,596

28,848

Le as e d products

13,983

94

– 1,182

–

8,522

–

4,578

12

16,745

82

6

5

Group Financial Statements

Inve s tme nts accounte d for us ing the e quity me thod

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Investments in associated companies

Investments in other companies

Non-current marketable securities

Othe r inve s tme nts

191

1,002

32

– 2

–

152

–

74

807

28

267

195

14

– 1

– 3

11

7

1

1,225

163

909

476

1

2

] including the gross balances brought forward of companies consolidated for the first time

] including impairment losses of euro 15 million

7

2

Notes

– Accounting Principles

and Policies

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

Analys is of change s in Group tangible , intangible and inve s tme nt as s e ts 2005

in euro million

Acquisition and manufacturing cost

.1.2005 ^]Translation

differences

1

Additions

Reclassi-

fications

Disposals

31.12.2005

1

Development costs

Other intangible assets

Intangible as s e ts

5,596

583

–

9

1,396

189

–

399

44

6,593

737

6,179

1,585

443

7,330

Land, titles to land, buildings, including buildings on

third party land

5,584

18,464

1,957

820

89

222

51

314

1 ,1 07

257

183

441

21

31

1,260

225

6 ,1 39

18,974

2,061

Plant and machinery

Other facilities, factory and office equipment

Advance payments made and construction in progress

P rope rty, plant and e quipme nt

10

730

– 645

–

17

898

26,825

9,275

65

372

2,408

1,533

28,072

Le as e d products

1,291

–

7,202

29

–

3,785

–

13,983

94

Inve s tme nts accounte d for us ing the e quity me thod

Investments in associated companies

Investments in other companies

Non-current marketable securities

Othe r inve s tme nts

150

564

20

2

–

3

5

41

438³^]

–

19

–

174

1,002

32

17

8

734

496

27

1,208

1

2

3

] including the gross balances brought forward of companies consolidated for the first time

] including impairment losses of euro 25 million

] total fair value measurement changes recognised directly in accumulated other equity

8

7

Depreciation and amortisation

Reversals

Net book values

31.12.2006 31.12.2005

.1.2006¹

]

Translation Current year²^]

differences

Disposals

31.12.2006

1

2

,447

90

,737

–

– 4

872

87

445

50

–

26

2,874

297

4,810

502

4 ,1 46

447

2

959

495

3,171

5,312

4,593

2

,384

– 30

– 128

– 36

–

207

1,867

239

32

1,318

201

–

2,529

13,525

1,508

1

3,896

6 ,1 15

535

3,757

5,871

562

1

3 ,1 04

1

,506

1

–

739

897

1

6,995

–194

2,313

1,551

17,563

11,285

11,087

2

,608

– 222

–

1,576

22

859

–

3,103

22

13,642

60

11,375

94

–

4

0

–

46

–

16

–

70

5

197

190

14

149

997

5

–

5

–

32

4

46

16

75

401

1,178

Depreciation and amortisation

Reversals

Net book values

31.12.2005 31.12.2004

.1.2005¹

]

Translation Current year²^]

differences

Disposals

31.12.2005

1

2

,1 01

20

,421

–

–1

745

68

399

44

–

53

2,447

290

4 ,1 46

447

3,495

263

3

2

813

443

2,737

4,593

3,758

2

,1 74

32

171

37

193

1,783

236

17

1,255

208

–

2,382

13 ,1 03

1,499

1

3,757

5,871

562

3,387

6,059

522

1

2,404

1

,434

1

–

897

756

1

6,013

240

2,212

1,480

16,985

11,087

10,724

1

,773

241

–

1,182

–

588

–

2,608

–

11,375

94

7,502

65

–

2

5

–

25

5

149

997

125

559

20

5

–

0

–

32

3

30

1,178

704

8

Group Financial S tate me nts

[

19] Intangible as s e ts

item is not presented separately in the BMW Group

balance sheet since the amount is not significant in

relation to either the balance sheet total or intangible

assets.

Reversals of impairment losses on intangible

assets totalling euro 26 million (2005: euro 53 mil-

lion) were recognised during the year.

Changes in intangible assets during the year are

shown in the analysis of changes in Group tangible,

intangible and investment assets on pages 86 and

87.

Intangible assets mainly comprise capitalised de-

velopment costs on vehicle and engine projects as

well as subsidies for tool costs, licences, purchased

development projects and software. Amortisation

on intangible assets is presented in cost of sales,

administrative costs and research and development

costs.

Goodwill, with a total carrying amount of euro

6

6 million (2005: euro 57 million), relates mainly to

entory AG, Ettlingen, and to the Axentiv Group. This

[

20] P rope rty, plant and e quipme nt

run for periods up to 2023 at the latest. Some of

the leases contain extension and purchase options.

The leases for plant and machinery and other equip-

ment at the Oxford production plant, with a carrying

amount of euro 46 million (2005: euro 77 million)

at 31 December, run for periods up to 2012 at the

latest. For each of the leases, there is a recurring

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 analy-

sis of changes in Group tangible, intangible and in-

vestment assets on pages 86 and 87.

6

5

Group Financial Statements

Property, plant and equipment includes leased

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

buildings, plant and machinery and other equipment option to extend the leases by one year. A purchase

with a carrying amount of euro 146 million (2005: option was not agreed. The lease for plant and ma-

euro 205 million). This comprises mainly operational chinery and other facilities, factory and office equip-

7

1

buildings used by BMW AG and leased plant and

equipment used primarily in the Oxford and Hams

ment at the Hams Hall production plant, with a car-

rying amount of euro 25 million (2005: euro 38 mil-

7

2

Hall production plants. Due to the nature of the lease lion) runs until 2018 and may be extended for one

arrangements (finance leases), economic owner- year periods thereafter. A purchase option was not

ship of these assets is attributable to the Group. The agreed.

7

8

9

6

1

04 – Other Disclosures

11 – Segment Information

leases relating to operational buildings, with a carrying

amount of euro 66 million (2005: euro 79 million)

Minimum lease payments of the relevant leases

are as follows:

in euro million

31.12.2006

31.12.2005

Total of future minimum lease payments

due within one year

91

413

257

95

494

298

887

due between one and five years

due later than five years

7

61

Interest portion of the future minimum lease payments

due within one year

16

59

19

78

due between one and five years

due later than five years

111

113

210

1

86

Present value of future minimum lease payments

due within one year

75

354

146

76

416

185

677

due between one and five years

due later than five years

5

75

8

9

[

21] Le as e d products

services business. Minimum lease payments of

euro 6,210 million (2005: euro 5,919 million) from

non-cancellable operating leases fall due as follows:

The BMW Group, as lessor, leases out assets (pre-

dominantly own products) as part of its financial

in euro million

31.12.2006

31.12.2005

within one year

3,342

2,867

1

2,908

3,010

1

between one and five years

later than five years

6

,210

5,919

Contingent rents of euro 4 million (2005: euro

million), based principally on the distance driven,

were recognised in income. The agreements have,

in part, extension and purchase options as well as

price escalation clauses.

Changes in leased products during the year

are shown in the analysis of changes in Group tangi-

ble, intangible and investment assets on pages 86

and 87.

2

[

22] Inve s tme nts accounte d for us ing the e quity

BMW Brilliance Automotive Ltd., Shenyang, and

TRITEC Motors Ltda., Campo Largo. The Group’s

interest in these joint ventures (50 % in each case),

on an aggregated basis, was as follows:

me thod and othe r inve s tme nts

Investments accounted for using the equity method

include the Group’s interests in the joint ventures

in euro million

31.12.2006

31.12.2005

Dis clos ure s re lating to the Income S tate me nt

Income

Losses

589

568

463

461

Dis clos ure s re lating to the balance s he e t

Non-current assets

122

286

134

215

Current assets

Equity

110

34

99

85

Non-current liabilities

Current liabilities

264

165

Other investments relate primarily to invest-

ments in non-consolidated subsidiaries and to equi-

ty investments in other entities.

Disposals of investments in subsidiaries relate

mainly to the first-time consolidation of BMW Hellas

Trade of Cars SA, Athens, Park Lane Ltd., Bracknell,

BMW Portugal Lda., Lisbon, BMW Holding Malaysia

Additions to investments in subsidiaries relate

to share capital increases for the companies PT BMW Sdn Bhd, Kuala Lumpur, BMW Malaysia Sdn Bhd,

Indonesia, J akarta, BMW Philippines Corp., Manila,

BMW Roma S.r.l., Rome, BMW Distribution S.A.S.,

Montigny le Bretonneux, and BMW Vertriebs GmbH,

Salzburg. They also include the foundation of BMW

India Pvt. Ltd., New Delhi, and the acquisition of a

majority interest in the Sauber Group.

Kuala Lumpur, BMW Asia Technology Centre Sdn

Bhd, Kuala Lumpur, BMW China Automotive Trading

Ltd., Peking, BMW Leasing (Thailand) Co., Ltd.,

Bangkok, and BMW Danmark A/S, Kolding.

Write-downs on investments in subsidiaries re-

late mainly to PT BMW Indonesia, J akarta.

9

0

Group Financial S tate me nts

In the case of investments in other companies,

the changes in 2006 related to the disposal of shares investments disclosed in the balance sheet and

in Rolls-Royce plc, London, following the exercise of changes during the year are shown in the analysis

the conversion option relating to exchangeable bond of changes in Group tangible, intangible and invest-

A break-down of the different classes of other

issued by the BMW Group on shares in Rolls-Royce

plc, London.

ment assets on pages 86 and 87.

[

23] Re ce ivable s from s ale s financing

loan financing for retail customers and dealers and

euro 7,330 million (2005: euro 6,752 million) for

Receivables from sales financing, totalling euro

3

0,368 million (2005: euro 29,053 million), comprise finance leases. Finance leases are analysed as

euro 23,038 million (2005: euro 22,301 million) for

follows:

in euro million

31.12.2006

31.12.2005

Gross investment in finance leases

due within one year

3,029

5 ,1 92

6

2,771

4,773

3

6

5

Group Financial Statements

due between one and five years

due later than five years

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

8,227

7,547

Present value of future minimum lease payments

due within one year

7

1

2,758

4,567

5

2,511

4,238

3

due between one and five years

due later than five years

7

2

7,330

6,752

7

8

9

6

1

04 – Other Disclosures

11 – Segment Information

Unre alis e d inte re s t income

897

795

Contingent rents recognised as income, generally

relating to the distance driven, amounted to euro 7

Receivables from sales financing include euro

17,865 million (2005: euro 17,202 million) with a re-

million (2005: euro 4 million). Write-downs on finance maining term of more than one year.

leases amounting to euro 60 million (2005: euro 46

million) were measured and recognised on the basis

of specific credit risks.

[24] Financial as s e ts

Financial assets comprise:

in euro million

31.12.2006

31.12.2005

Interest and currency derivatives

Marketable securities and investment funds

Loans to third parties

1,321

2,034

67

806

2,074

90

Credit card receivables

239

221

Other

289

105

3

,950

3,296

642

thereof non-current

thereof current

816

3 ,1 34

2,654

9

1

The increase in the line item “Interest and cur-

rency derivatives” relates primarily to changed

exchange rate parities with the US dollar and to the

higher level of interest rates.

Marketable securities and investment funds

relate to available-for-sale financial assets and com-

prise:

in euro million

31.12.2006

31.12.2005

Stocks

579

487

943

25

500

467

Investment funds

Fixed income securities

Sundry marketable securities

1,085

22

2

,034

2,074

The contracted maturities of debt securities are as follows:

in euro million

31.12.2006

31.12.2005

Fixed income securities

due within 3 months

1

16

due later than 3 months

Sundry marketable securities

due within 3 months

942

1,069

3

4

18

due later than 3 months

22

9

68

1,107

Investment funds and fixed income securities

include euro 2 million and euro 64 million respec-

tively assigned as collateral to Deutsche Treuinvest

Stiftung, Frankfurt am Main, (2005: cash and cash

equivalents of euro 43 million assigned as collateral).

to secure obligations relating to pre-retirement part-

time work arrangements.

[25] Income tax as s e ts

Income tax assets can be analysed as follows:

3

1 December 2006

Maturity

within

one year

Maturity

later than

one year

Total

in euro million

Deferred tax

Current tax

–

755

123

878

755

246

123

1

23

1,001

3

1 December 2005

Maturity

within

one year

Maturity

later than

one year

Total

in euro million

Deferred tax

Current tax

–

772

–

772

267

2

67

772

1,039

9

2

Group Financial S tate me nts

[26] Othe r as s e ts

Other assets comprise:

in euro million

31.12.2006

31.12.2005

Other taxes

584

693

202

683

120

368

418

766

Receivables from subsidiaries

Receivables from other companies in which an investment is held

Prepayments

87

635

Collateral receivables

153

Sundry other assets

509

2

,650

2,568

613

thereof non-current

thereof current

378

2,272

1,955

Receivables from subsidiaries include trade re-

ceivables of euro 198 million (2005: euro 160 mil-

lion) and financial receivables of euro 495 million

(2005: euro 606 million). A total of euro 44 million

Prepayments of euro 683 million (2005: euro

635 million) relate mainly to prepaid interest, de-

velopment costs not eligible for capitalisation as

non-current assets, insurance premiums and rent.

Prepayments of euro 522 million (2005: euro 438

million) have a maturity of less than one year.

Collateral receivables comprise mainly custom-

ary collateral arising on the sale of receivables.

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

(2005: euro 114 million) has a remaining term of

more than one year.

7

1

Receivables from other companies in which an

investment is held are all due within one year (2005:

non-current amount of euro 4 million).

7

2

Notes

– Accounting Principles

and Policies

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

[27] Inve ntorie s

Inventories comprise the following:

in euro million

31.12.2006

31.12.2005

Raw materials and supplies

Work in progress, unbilled contracts

Finished goods

689

911

674

931

4,280

914

4,042

880

Goods for resale

6

,794

6,527

At 31 December 2006, inventories measured at

their net realisable value amounted to euro 316 mil-

lion (2005: euro 268 million) and are included in

total inventories of euro 6,794 million (2005: euro

amounting to euro 12 million (2005: euro 10 million)

were recognised in 2006. Amounts recognised as

income from the reversal of write-downs were not

significant.

6

,527 million). Write-downs to net realisable value

9

3

[

28] Trade accounts re ce ivable

lion due later than one year (2005: all due within

one year).

Trade receivables amounting in total to euro 2,258

million (2005: euro 2 ,1 35 million) include euro 21 mil-

[

29] Cas h and cas h e quivale nts

and at bank, all with a maturity of under three

months.

Cash and cash equivalents of euro 1,336 million

(2005: euro 1,621 million) comprise cash on hand

[30] Equity

Up to 17 February 2006, a total of 20,232,722

The Group Statement of Changes in Equity is

shown on page 70.

treasury shares of common stock were bought back

via the stock exchange at an average price per share

of euro 37.47 and a total acquisition cost of euro

758 million. These shares were withdrawn from cir-

culation in accordance with the resolution taken by

the Board of Management on 21 February 2006.

Equity was reduced by the buy-back amount.

Transaction costs amounted to euro 0.776 mil-

lion (net of income tax effect) and were recognised

directly in equity.

At the Annual General Meeting on 16 May 2006,

the shareholders authorised the Board of Manage-

ment to acquire treasury shares via the stock ex-

change, up to a maximum of 10 % of the share capital

in place at the date of the resolution and to withdraw

these shares from circulation without any further reso-

lution by the Annual General Meeting. At the same

time, the authorisation from 12 May 2005 to acquire

treasury shares was rescinded. The authorisation

from 16 May 2006 is valid until 15 November 2007.

Numbe r of s hare s is s ue d

At 31 December 2006, common stock issued by

BMW AG was divided into 601,995 ,1 96 shares with

a par-value of one euro. Preferred stock issued by

BMW AG was divided into 52 ,1 96 ,1 62 shares with a

par-value of one euro, unchanged from the previous

year. Unlike the common stock, no voting rights are

attached to the preferred stock. All of the company’s

stock is issued to bearer. Preferred stock bears an

advance profit (additional dividend) of euro 0.02 per

share. 689,375 of the shares of preferred stock are

only entitled to receive dividends with effect from

the beginning of the financial year 2007.

During the financial year 2006, BMW Group

acquired 689,375 treasury shares of preferred stock

at an average price of euro 37.52 per share; these

shares were issued to employees at a reduced price

of euro 27.84 per share in conjunction with an em-

ployee share scheme. As a result of the repurchase

of shares of preferred stock and their subsequent

issue, the preferred stock portion of share capital re-

mained unchanged at euro 52 million.

Capital re s e rve s

The capital reserves comprise additional paid in

capital on the issue of shares. The balance reported

decreased by euro 60 million to euro 1,911 million

as a result of the withdrawal of treasury shares from

circulation.

At the Annual General Meeting of BMW AG

on 12 May 2005, the shareholders authorised the

Board of Management to acquire treasury shares

via the stock exchange, up to a maximum of 10 % of

Reve nue re s e rve s

the share capital in place at the date of the resolution Revenue reserves comprise the post-acquisition

and to withdraw these shares from circulation without and non-distributed earnings of consolidated group

any further resolution by the Annual General Meeting. companies. In addition, revenue reserves include

The authorisation for the buy-back was valid until

both positive and negative goodwill arising on the

consolidation of group companies prior to 31 Decem-

ber 1994.

11 November 2006.

In conjunction with this authorisation, the Board

of Management of BMW AG resolved on 20 Sep-

tember 2005 to put a programme in place to buy

back shares via the stock exchange. Under this pro-

gramme, 3 % of BMW AG’s common stock was

acquired.

Revenue reserves stood at euro 18 ,1 21 million at

31 December 2006, 10.8% higher than one year

earlier. They were increased in 2006 by the amount

of the net profit attributable to shareholders of

BMW AG amounting to euro 2,868 million and were

9

4

Group Financial S tate me nts

reduced by the payment of the dividend for 2005

amounting to euro 419 million. As a result of the

withdrawal of treasury shares from circulation,

revenues reserves decreased by euro 679 million.

The unappropriated profit of BMW AG of euro

123 million and has been recognised in full as

an asset.

Accumulate d othe r e quity

Accumulated other equity consists of all amounts

recognised directly in equity resulting from the trans-

lation of the financial statements of foreign sub-

sidiaries, the effects of recognising changes in the

fair value of financial instruments directly in equity

as well as actuarial gains and losses relating to de-

4

58 million for 2006 will be proposed to the Annual

General Meeting for distribution. A tax reimburse-

ment claim of euro 12 million arose in 2006 in con-

junction with the corporation tax system applicable

until 2001.

As a consequence of new German tax legislation fined benefit pension plans and similar obligations.

relating to transitional taxation measures enacted

in conjunction with the introduction of the European

company and other changes in tax regulations, the

BMW AG’s ability to recover tax reduction claims

of euro 156 million arising from the previous corpo-

Accumulated other equity was increased by de-

ferred taxes amounting to euro 512 million (2005:

euro 727 million) recognised directly in equity.

Minority inte re s t

ration tax system are no longer linked to actual distri- The minority interest in the equity of subsidiaries

butions. The corporation tax credit will now be dis- amounted to euro 4 million (2005: euro 0 .1 88 million).

bursed in ten equal instalments over a ten-year period This includes a minority interest of euro 6 million

6

5

Group Financial Statements

between 2008 and 2017. The present value of the

tax reimbursement receivable amounted to euro

(2005: euro 0.098 million) in subsidiaries’ results for

the year.

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

7

1

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

[

31] Pe ns ion provis ions

fixed contributions into a separate entity or fund and

Pension provisions are recognised as a result of com- does not assume any other obligations. The total

7

2

mitments to pay future vested pension benefits and

current pensions to present and former employees

of the BMW Group and their surviving dependants.

Depending on the legal, economic and tax circum-

stances prevailing in each country, various pension

plans are used, based generally on the length of

service and salary of employees. Due to similarity

of nature, the obligations of BMW Group companies

in the U.S. and of BMW (South Africa) (Pty) Ltd.,

Pretoria, for post-employment medical care are also

disclosed as pension provisions. The provision for

these pension-like obligations amounts to euro 49

million (2005: euro 43 million) and is measured, simi-

pension expense for all defined contribution plans

of the BMW Group amounts to euro 409 million

(2005: euro 400 million). This includes employer

contributions paid to state pension insurance

schemes amounting to euro 388 million (2005: euro

381 million).

Under defined benefit plans, the enterprise is

required to pay the benefits granted to present and

past employees. Defined benefit plans may be fund-

ed or unfunded, the latter sometimes financed by

means of accounting provisions. Most of the pen-

sion commitments of the BMW Group in Germany

relate to BMW AG, whose pension plans, like all

7

8

9

6

1

04 – Other Disclosures

11 – Segment Information

lar to pension obligations, in accordance with IAS 19. those of all of the BMW Group’s German subsidiaries,

In the case of post-employment medical care, it is

assumed that costs will increase on a long-term basis

by 6 % p.a. (unchanged from the previous year).

The expense for medical care costs in the financial

year 2006 amounted to euro 6 million (2005: euro

are unfunded and financed by means of accounting

provisions. In addition, a deferred remuneration re-

tirement scheme is in place which is funded by em-

ployee contributions. The main funded plans of the

BMW Group are in the United Kingdom, the USA,

Switzerland, the Netherlands, Belgium and J apan.

Pension obligations are computed on an actuar-

ial basis at the level of the defined benefit obligation.

8

million).

Post-employment benefit plans are classified as

either defined contribution or defined benefit plans.

Under defined contribution plans, an enterprise pays This computation requires the use of estimates.

9

5

The main assumptions, in addition to life expectancy, used in the United Kingdom (UK) and in the other

depend on the economic situation in each particular

country. The following weighted average values are

countries:

in %

Germany

UK

Other

2006

3

1 December

2006

2005

2006

2005

Discount rate

4.40

3.25

1.75

4.25

3.25

1.75

5.11

4.12

3.09

4.72

3.86

2.83

5.19

2.59

1.79

5.28

2.62

1.89

Salary level trend

Pension level trend

The salary level trend refers to the expected rate

of salary increase which is estimated annually de-

Actuarial gains or losses may result from in-

creases or decreases in either the present value of

pending on inflation and the period of service of em- the defined benefit obligation or in the fair value of

ployees with the Group.

the plan assets. Causes of actuarial gains or losses

include the effect of changes in the measurement

parameters, changes in estimates caused by the

actual development of risks impacting on pension

obligations and differences between the actual and

expected return on plan assets. Past service cost

arises where a BMW Group company introduces a

defined benefit plan or changes the benefits payable

under an existing plan.

Based on the measurement principles con-

tained in IAS 19, the following funding status applies

to the Group’s pension plans:

In the case of funded plans, the defined benefit

obligation is offset against plan assets measured at

their fair value. Where the plan assets exceed the

pension obligations and the enterprise has a right of

reimbursement or a right to reduce future contribu-

tions, the surplus amount is recognised in accor-

dance with IAS 19 as an asset under other assets. In

the case of funded pension plans, a liability is recog-

nised under pension provisions where the benefit

obligation exceeds fund assets.

in euro million

1 December

Germany

UK

Other

Total

3

2006

2005

2006

2005

2006

2005

2006

2005

Present value of pension benefits covered by

accounting provisions

4,412

–

4,234

–

6,568

6 ,1 34

434

–

6,576

5,784

792

134

316

450

298

152

112

315

4,546

6,884

4,346

6,891

Present value of funded pension benefits

Defined benefit obligations

4,412

–

4,234

–

427 11,430 11,237

Fair value of plan assets

233

194

6,432

4,998

6,017

5,220

Net obligation

4,412

4,234

Income (+) expense (–) from past service cost

not yet recognised

–

1

– 2

10

1

– 2

10

Amount not recognised as an asset because of

the limit in IAS 19.58

5

439

440

– 1

–

792

819

– 27

11

164

165

– 1

16

Balance s he e t amount at 31.12.

thereof pension provision

4,412 4,234

202 5,015 5,228

4,412

–

4,234

–

202

–

5,017

– 2

5,255

– 27

thereof pension asset (–)

Pension provisions relating to pension plans in

euro 202 million). This includes euro 80 million (2005:

other countries amounted to euro 165 million (2005: euro 82 million) relating to externally funded plans.

9

6

Group Financial S tate me nts

The change in the defined benefit obligations

was attributable mainly to changes in the discount

rates used in the actuarial computation.

The changes in the pension provision and the

pension asset (reimbursement claims or right to re-

duce future contributions to the funds) as disclosed

in the balance sheet can be derived as follows:

in euro million

Germany

UK

Other

Total

2

006

2005

2006

2005

2006

2005

2006

2005

Balance sheet amounts at 1 J anuary

Expense from pension obligations

Pension payments or transfers to external funds

Actuarial gains (–) and losses (+)

4,234

329

3,336

271

792

71

678

90

202

45

180

36

5,228

445

4 ,1 94

397

– 72

– 67

– 98

– 87

– 55

– 27

– 225

– 181

on defined benefit obligations

– 167

–

619

–

– 241

– 98

516

8

– 4

1

– 400

– 117

1 ,1 31

– 424

Actuarial gains (–) and losses (+) on plan assets

Employee contributions to the deferred

remuneration retirement scheme

– 425

– 19

87

1

75

–

13

–

20

–

– 17

164

165

– 1

–

87

– 3

75

36

Translation differences and other changes

Balance s he e t amounts at 31 De ce mbe r

thereof pension provision

16

4,412 4,234

439

440

– 1

792

819

– 27

202 5,015 5,228

6

5

Group Financial Statements

4,412

–

4,234

–

202

–

5,017

– 2

5,255

– 27

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

thereof pension asset (–)

7

1

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

The defined benefit plans of the BMW Group

give rise to an expense from pension obligations in

the financial year 2006 of euro 445 million (2005:

euro 397 million), comprising the following com-

ponents:

7

2

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

in euro million

Germany

UK

Other

2006

Total

2

006

2005

2006

64

2005

53

2005

2006

2005

198

Current service cost

160

120

34

25

258

Expense from reversing the discounting of

pension obligations

169

–

151

–

307

–

308

–

25

1

23

–

501

1

482

–

Past service cost

Expected return on plan assets (–)

Expe ns e from pe ns ion obligations

–

– 300

71

– 271

90

– 15

45

–12

36

– 315

445

– 283

329

271

397

The expense from reversing the discounting of

pension obligations and the income from the ex-

pected return on plan assets are reported as part of

the financial result. All other components of pension

expense are included in the relevant costs by func-

tion in the income statement.

The level of the pension obligations differs de-

pending on the pension system applicable in each

country. Since the state pension system in the

United Kingdom only provides a basic fixed amount

benefit, retirement benefits are largely organised in

the form of company pensions and arrangements

The actual return from external pension funds

was euro 432 million (2005: euro 707 million).

9

7

financed by the individual. The pension benefits in

the United Kingdom therefore contain contributions

made by the employee.

The net obligation from pension plans in

Germany, the United Kingdom and other countries

changed as follows:

in euro million

Ge rmany

Defined benefit obligation

Plan assets

Net obligation

2006 2005

2

006

2005

2006 2005

1

J anuary

4,234

329

–

3,336

271

–

4,234

329

–

3,336

271

–

Expense from pension obligations

Payments to external funds

Pension payments

– 72

– 167

– 67

619

– 72

– 167

– 67

619

Actuarial gains (–) and losses (+)

Employee contributions to the deferred remuneration

retirement scheme

87

1

75

–

87

1

75

–

Translation differences and other changes

3

1 De ce mbe r

4,412

4,234

4,412

4,234

in euro million

Unite d Kingdom

Defined benefit obligation

Plan assets

Net obligation

2006 2005

2

006

2005

2006

2005

1

J anuary

6,576

371

5,764

361

– 5,784

– 300

– 98

– 5,086

– 271

– 87

792

71

678

90

Expense from pension obligations

Payments to external funds

–

– 98

–

– 87

–

Pension payments

– 278

– 241

140

– 262

516

278

262

Actuarial gains (–) and losses (+)

Translation differences and other changes

– 98

– 425

–177

– 339

8

91

197

– 132

20

3

1 De ce mbe r

6,568

6,576

– 6,134 – 5,784

434

792

in euro million

Othe r countrie s

Defined benefit obligation

Plan assets

Net obligation

2

006

2005

2006

2005

2006

2005

1

J anuary

427

59

353

48

– 233

– 14

– 51

6

–180

–12

– 27

5

194

45

173

36

Expense from pension obligations

Payments to external funds

–

– 51

– 4

– 27

– 4

Pension payments

– 10

8

– 9

– 4

39

Actuarial gains (–) and losses (+)

Translation differences and other changes

– 19

13

1

– 11

– 21

152

– 3

– 34

450

–20

– 233

19

3

1 De ce mbe r

427

– 298

194

9

8

Group Financial S tate me nts

Plan assets in the United Kingdom and other countries comprise the following:

in euro million

Compone nts of plan as s e ts

Other countries

United Kingdom

Total

2

006

2005

2006

2005

2006

2005

Equity instruments

Debt securities

Real estate

1,902

3,323

664

1,471

3,461

621

172

106

5

141

85

4

2,074

3,429

669

1,612

3,546

625

Other

245

231

15

3

260

234

3

1 De ce mbe r

6,134

5,784

298

233

6,432

6,017

Benefit obligations are covered in Germany by

accounting provisions. In the United Kingdom, a

substantial portion of plan assets is invested in debt

securities in order to minimise fair value fluctuations.

[32] Othe r provis ions

6

5

Group Financial Statements

Other provisions principally comprise the following items:

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

in euro million

31.12.2006

31.12.2005

7

1

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

Total

thereof

due within

one year

Total

thereof

due within

one year

7

2

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

Obligations for personnel and social expenses

Obligations for on-going operational expenses

Other obligations

1,493

3,000

1,043

979

1 ,1 35

557

1,355

3,414

1 ,1 37

812

1,428

423

1

04 – Other Disclosures

11 – Segment Information

5

,536

2,671

5,906

2,663

Provisions for obligations for personnel and so-

cial expenses comprise mainly profit-share schemes

and bonuses, early retirement part-time working

arrangements and employee long-service awards.

The increase compared to the previous year was

mainly attributable to the higher level of obligations

relating to early retirement arrangements.

tions. These obligations decreased during the year

under report.

Provisions for other obligations cover numerous

specific risks and obligations of uncertain amount.

They comprise mainly obligations and risks in re-

spect of the disengagement from the former Rover

Group, risks from legal disputes and the obligation

for recovery and recycling of end-of-life vehicles.

Provisions for obligations for on-going opera-

tional expenses comprise primarily warranty obliga-

9

Other provisions changed during the year as follows:

in euro million

At Translation

.1.2006 differences

Additions Reversal of

discounting

Utilised

Reversed

At

*

1

31.12.2006

Obligations for personnel and

social expenses

1,356

– 8

877

2

729

5

1,493

Obligations for on-going

operational expenses

Other obligations

3,434

1 ,1 58

– 32

– 24

– 64

991

416

23

9

1,371

302

45

214

264

3,000

1,043

5,536

5

,948

2,284

34

2,402

*

including first-time consolidated entities

Of the amount shown as reversed, euro 123 million are included in costs by function in the income statement.

[33] Income tax liabilitie s

3

1 December 2006

Maturity

within

one year

Maturity

later than

one year

Total

in euro million

Deferred tax

Current tax

–

2,758

361

2,758

567

206

2

06

3,119

3,325

3

1 December 2005

Maturity

within

one year

Maturity

later than

one year

Total

in euro million

Deferred tax

Current tax

–

2,522

3

2,522

462

459

4

59

2,525

2,984

Current tax liabilities of euro 567 million (2005:

euro 462 million) comprise euro 88 million (2005:

euro 219 million) for taxes payable and euro 479 mil-

lion (2005: euro 243 million) for tax provisions. In

2006, tax provisions totalling euro 2 million were re-

versed (2005: euro 90 million).

1

00 Group Financial S tate me nts

[

34] Financial liabilitie s

Group at the relevant balance sheet dates relating to

financing activities and comprise:

Financial liabilities include all liabilities of the BMW

3

1 December 2006

in euro million

Maturity

within

one year

Maturity

between one

and five years

Maturity

later than

five years

Total

Bonds

4,442

2,077

5 ,1 38

4 ,1 54

1,305

279

8,450

2,205

643

3,528

16,420

4,288

5,781

4 ,1 54

4,501

596

Liabilities to banks

6

Liabilities from customer deposits (banking)

Commercial paper

–

Asset backed financing transactions

Interest and currency derivatives

Bills of exchange payable

Other

3 ,1 96

317

–

1

–

1

260

235

220

3,754

715

1

7,656

15,046

36,456

6

5

Group Financial Statements

3

1 December 2005

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

in euro million

Maturity

within

one year

Maturity

between one

and five years

Maturity

later than

five years

Total

7

1

Statement of Income and

Expenses recognised directly

in Equity

Bonds

5,057

1,846

5,768

3,814

1,018

156

6,481

1,798

624

3,624

15 ,1 62

3,653

6,392

3,814

3,899

850

7

2

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

Liabilities to banks

9

Liabilities from customer deposits (banking)

Commercial paper

–

7

8

9

6

–

1

04 – Other Disclosures

11 – Segment Information

Asset backed financing transactions

Interest and currency derivatives

Bills of exchange payable

Other

2,881

673

21

2

–

2

177

473

246

3,900

896

1

7,838

12,930

34,668

Other financial liabilities of euro 715 million at 31 December 2006 (2005: euro 896 million) comprise mainly

finance lease liabilities.

1

01

Bonds comprise:

Issuer

Interest

Issue volume

in relevant currency

Weighted

average maturity

period (in years)

Weighted

average effective

interest rate (in %)

(ISO-Code)

BMW Finance N.V., The Hague

variable

fixed

J PY 2,500 million

EUR 805 million

GBP 100 million

CAD 100 million

USD 20 million

2.0

1.7

1.0

2.0

6.6

9.1

4.8

6.0

5.0

0.4

3.4

5.2

4.4

5.4

1.5

4.2

5.0

5.2

2.0

J PY 92,000 million

EUR 3 ,1 39 million

USD 650 million

GBP 400 million

CHF 200 million

fixed

BMW Coordination Center V.o.F., Bornem

variable

fixed

EUR 1 ,1 35 million

CHF 100 million

USD 60 million

GBP 25 million

SGD100 million

EUR 30 million

1.2

1.5

1.0

1.4

3.6

2.0

5.4

5.1

3.3

3.8

fixed

BMW (UK) Capital plc, Bracknell

variable

fixed

J PY 5,000 million

EUR 275 million

GBP 150 million

2.0

2.5

7.0

0.6

3.7

6.0

BMW US Capital, LLC, Wilmington, Del.

variable

fixed

J PY 47,750 million

USD 1,400 million

EUR 695 million

EUR 2,500 million

J PY 2,200 million

USD 750 million

CHF 450 million

GBP 150 million

AUD 100 million

1.9

4.0

2.0

7.1

3.0

6.2

3.8

3.0

2.0

0.5

5.3

3.7

4.0

1.1

4.3

2.3

4.6

5.8

fixed

Rolls-Royce Motor Cars Ltd., Bracknell

Other

variable

GBP 45.8 million

1.0

5.4

variable

fixed

J PY 3,000 million

EUR 1,475 million

USD 120 million

J PY 82,000 million

EUR 300 million

CHF 250 million

GBP 150 million

8.0

2.2

0.6

3.7

5.7

2.3

3.0

1.6

5.8

6.0

13.8

4.0

fixed

4.0

fixed

3.5

1

02 Group Financial S tate me nts

The following details apply to the commercial paper:

Issuer

Issue volume

in relevant currency

Weighted

average maturity

period (in days)

Weighted

average nominal

interest rate (in %)

(ISO-Code)

BMW AG, Munich

EUR 775 million

EUR 475 million

EUR 460 million

GBP 50 million

18.1

15.7

20.5

22.0

26.8

8.3

3.7

3.5

3.7

5.2

5.3

BMW Coordination Center V.o.F., Bornem

BMW Finance N.V., The Hague

BMW (UK) Capital plc, Bracknell

GBP 250 million

USD 2,640 million

BMW US Capital, LLC, Wilmington, Del.

[35] Othe r liabilitie s

Other liabilities comprise the following items:

6

5

Group Financial Statements

3

1 December 2006

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

in euro million

Maturity

within

one year

Maturity

between one

and five years

Maturity

later than

five years

Total

7

1

Statement of Income and

Expenses recognised directly

in Equity

Other taxes

553

41

–

553

41

7

2

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

Social security

Advance payments from customers

Deposits received

Subsidiaries

267

48

11

–

278

7

8

9

6

95

–

143

1

04 – Other Disclosures

40

–

40

11 – Segment Information

Deferred income

Other

909

2,066

1,362

118

1,586

306

40

346

2,577

2,224

5,856

3

,924

3

1 December 2005

in euro million

Maturity

within

one year

Maturity

between one

and five years

Maturity

later than

five years

Total

Other taxes

328

121

359

60

1

–

329

122

Social security

Advance payments from customers

7

–

366

Deposits received

104

–

164

Subsidiaries

39

–

39

Liabilities to other companies in which an investment is held

2

–

2

Deferred income

Other

1,026

1,642

1 ,1 79

110

1,402

216

41

257

2,421

1,793

5,236

3

,577

1

03

Deferred income comprises the following items:

in euro million

31.12.2006

31.12.2005

Total

thereof

Total

thereof

due within

one year

due within

one year

Deferred income from lease financing

Deferred income relating to service contracts

Grants

763

1,295

412

484

266

60

678

1,083

443

408

375

43

Other deferred income

107

99

217

200

2

,577

909

2,421

1,026

Deferred income relating to service contracts

structures; this has been invested in the construction

relates to service and repair work to be provided un- of the production plant in Leipzig. In accordance with

der commitments given at the time of the sale of a

vehicle (Multi-Component Arrangements). Grants

comprise primarily public funds to promote regional

IAS 20, they are recognised as income over the useful

lives of the assets to which they relate.

[36] Trade payable s

3

1 December 2006

in euro million

Maturity

within

one year

Maturity

between one

and five years

Maturity

later than

five years

Total

Trade payables

3,624

74

39

3,737

Total

3

1 December 2005

in euro million

Maturity

within

one year

Maturity

between one

and five years

Maturity

later than

five years

Trade payables

3,389

103

52

3,544

The total amount of financial liabilities, other

liabilities and trade payables with a maturity later

than five years amounts euro 4 ,1 39 million (2005:

euro 4,209 million).

1

04 Group Financial S tate me nts

BMW Group

Note s to the Group Financial S tate me nts

Othe r Dis clos ure s

[37] Continge nt liabilitie s and othe r financial commitme nts

Continge nt liabilitie s

No provisions were recognised for the following con- since an outflow of resources is not considered to

tingent liabilities (stated at their nominal amount),

be probable:

in euro million

31.12.2006

31.12.2005

Guarantees

224

23

5

62

15

16

93

Performance guarantees

Bills of exchange

2

52

As at the end of the previous year, all contingent commitments, primarily under lease contracts for

liabilities relate to non-group entities.

Several liability applies in the case of investments

in general partnerships.

The usual commercial guarantees have been

given in relation to the sale of Rover Cars and Land

Rover activities.

land, buildings, plant and machinery, tools, office

and other facilities.The leases run for periods of one

to 96 years and in some cases contain extension

and/or purchase options. Lease payments of euro

77 million (2005: euro 79 million) were recognised

as expense during the year.

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

The total of future minimum lease payments

under non-cancellable leases can be analysed by

maturity as follows:

Othe r financial obligations

In addition to liabilities, provisions and contingent

liabilities, the BMW Group also has other financial

7

1

7

2

Notes

– Accounting Principles

and Policies

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

in euro million

31.12.2006

31.12.2005

1

04 – Other Disclosures

11 – Segment Information

Nominal total of future minimum lease payments

due within one year

271

583

560

174

521

due between one and five years

due later than five years

591

1

,414

1,286

The above amounts include euro 4 million (2005:

euro 2 million) in respect of non-consolidated sub-

sidiaries and euro 65 million (2005: euro 63 million)

for back-to-back operating leases.

In addition, the BMW Group is the lessee in the

case of operating leases for vehicles which are

leased to third parties over matching periods. The

following amounts are payable under these contracts:

in euro million

31.12.2006

31.12.2005

Total of future minimum lease payments

due within one year

677

497

–

802

667

due between one and five years

due later than five years

–

1

,174

1,469

1

05

These future obligations are matched, or ex-

ceeded, by income on sub-leases.

Sundry other financial commitments amount to

euro 249 million (2005: euro 217 million).

Purchase commitments for property, plant and

equipment amount to euro 1,099 million (2005: euro

1

,057 million).

[

38] Financial ins trume nts

Derivative financial instruments are used to reduce

the risk remaining after netting.

Us e and control of financial ins trume nts

As an enterprise with worldwide operations, busi-

ness is conducted in a variety of currencies, from

which exchange rate risks arise. The BMW Group’s

operations are financed in various currencies,

mainly by the issue of bonds and medium term

notes and through bank loans. The BMW Group’s

financial management system involves 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, market prices and ex-

change rates. Financial instruments are only used

to hedge underlying positions or forecast trans-

actions.

The scope of permitted transactions, responsi-

bilities, 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 pro-

cessing. Exchange rate, interest rate and liquidity

risks of the BMW Group are managed at a corporate

level. At 31 December 2006, derivative financial in-

struments were in place to hedge exchange rate

risks, in particular for the currencies US dollar, British

pound, Canadian dollar and J apanese yen.

Further disclosures relating to risk management

are provided in the management report.

Quantitative dis clos ure s on financial

ins trume nts

The carrying amount and fair value of material non-

derivative financial instruments are set out in the

following table:

Protection against such risks is provided at first

instance though natural hedging which arises when

the values of non-derivative financial instruments

have matching maturities and amounts (netting).

in euro million

31.12.2006

31.12.2005

Fair value

Carrying amount Fair value Carrying amount

Receivables from sales financing

Financial liabilities

30,368

36,456

30 ,1 83

36,244

29,053

34,668

29,426

34,534

The fair values shown are computed using mar-

ket information 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 2006 on

the basis of the following interest rates:

ISO-Code

in %

EUR

USD

GBP

J PY

Interest rate for six months

Interest rate for one year

Interest rate for five years

Interest rate for ten years

3.8

4.0

4.1

4.2

5.4

5.3

5.1

5.2

5.4

5.6

5.4

5.1

0.6

0.8

1.4

1.9

1

06 Group Financial S tate me nts

These interest rates were adjusted, where

necessary, to take account of the credit quality and

risk of the underlying financial instrument.

The nominal amounts of derivative financial

instruments correspond to the purchase or sale

amounts or contract values of the underlying trans-

actions. The nominal amounts, fair values (and also

carrying amounts) and maturities of derivative finan-

cial instruments of the BMW Group are shown in

the following analysis:

in euro million

Nominal

amount

Fair value s

Total

due within due between

due later

than

one year

one and

five years

3

1 December 2006

As s e ts

Currency hedge contracts

Interest rate contracts

Other derivative instruments

Total

15,567

13,411

172

618

658

572

55

46

468

6

–

135

–

45

39

29 ,1 50

1,321

666

520

135

6

5

Group Financial Statements

Liabilitie s

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Currency hedge contracts

Interest rate contracts

Other derivative instruments

Total

9,350

3,479

209

427

73

269

10

158

63

–

96

–

96

7

1

13,038

596

279

317

7

2

Notes

– Accounting Principles

and Policies

3

1 December 2005

As s e ts

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

Currency hedge contracts

Interest rate contracts

Other derivative instruments

Total

6,378

11,975

209

270

488

48

163

41

107

315

27

–

132

–

1

04 – Other Disclosures

11 – Segment Information

21

18,562

806

225

449

132

Liabilitie s

Currency hedge contracts

Interest rate contracts

Other derivative instruments

Total

14,509

5,792

561

361

36

154

2

207

13

–

21

–

453

850

–

453

673

20,862

156

21

The disclosed fair values of derivative financial

instruments, based on their nominal amounts, do

not take account of any compensating changes in

the value of the underlying transaction. Moreover,

the fair values disclosed do not necessarily corre-

spond to the amounts which the BMW Group will

realise in the future under the market conditions pre-

vailing at that time.

The currency hedge contracts comprise princi-

pally options and forward currency contracts which

are designated as a cash flow hedge. The interest

rate contracts include swaps which are accounted

for on the basis of whether they are designated as a

fair value hedge or as a cash flow hedge.

The fair values of financial instruments relating

to hedged forecast transactions and available-for-

1

07

sale securities are recognised directly in accumulated

other equity. At 31 December 2006, the positive

impact from the fair value measurement of financial

instruments (net of deferred taxes) amounted to

euro 392 million (2005: euro 591 million) and has

been recognised directly in equity. This comprises a

positive impact from cash flow hedges of euro 178

million (2005: euro 29 million) and a positive impact

from available-for-sale securities of euro 214 million

equity (2005: euro 3 million). In 2006, gains of euro

431 million (2005: euro 33 million) were realised on

the disposal of available-for-sale securities and the

equivalent amount removed from other accumulated

equity and recognised in the income statement.

Cre dit ris k

Financial assets are recognised in the balance sheet

net of write-downs for the risk that counter-parties

are unable to fulfil their contractual obligations, irre-

spective of the value of collateral received. In the

case of performance relationships underlying non-

derivative financial instruments, collateral will be

required, information on the credit-standing of the

counter-party obtained or historical data based

(2005: euro 562 million).

During the year under report, negative changes

in fair value measurement amounting to euro 199

million (2005: euro 543 million) were recognised

directly in equity. This includes a positive impact of

euro 149 million from cash flow hedges (2005: neg-

ative impact of euro 1,043 million) and a negative im- on the existing business relationship (i.e. payment

pact of euro 348 million (2005: positive impact of

euro 500 million) from available-for-sale securities.

In the financial year under report, positive fair

value measurement changes of euro 266 million

patterns to date) reviewed in order to minimise the

credit risk, all depending on the nature and amount

of exposure entered into. Write-downs are recorded

as soon as credit risks are identified on individual

financial assets. This credit risk is minimised by the

(2005: euro 661 million) were removed from other

accumulated equity and realised in the income state- fact that the Group only enters into such contracts

ment. Write-downs of euro 2 million (2005: euro 10

million) on available-for-sale securities, for which fair

value changes were previously recognised directly

in equity, were recognised as expenses in 2006.

Reversals of write-downs on current marketable se-

curities of euro 4 million were recognised directly in

with parties of first-class credit standing. The general

credit risk on derivative financial instruments utilised

by the BMW Group is therefore not considered to

be significant. A concentration of credit risk with par-

ticular borrowers or groups of borrowers has not

been identified.

[

39] Explanatory note s to the cas h flow s tate me nts

and are subject to an insignificant risk of changes in

value. The negative impact of changes in cash and

The cash flow statements show how the cash and

cash equivalents of the BMW Group, industrial oper- cash equivalents due to the effect of exchange rate

ations and financial operations have changed in the

course of the year as a result of cash inflows and

cash outflows. In accordance with IAS 7 (Cash Flow

Statements), cash flows are classified into cash

flows from operating, investing and financing activi-

ties. The cash flow statements of the BMW Group

are presented on pages 68 and 69.

fluctuations in 2006 was euro 42 million (2005: posi-

tive impact of euro 60 million).

The cash flows from investing and financial ac-

tivities are based on actual payments and receipts.

The cash flow from operating activities is com-

puted using the indirect method, starting from the

net profit of the Group. Under this method, changes

in assets and liabilities relating to operating activi-

ties are adjusted for currency translation effects

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 and changes in the composition of the Group.The

within three months from the balance sheet date changes in balance sheet positions shown in the

1

08 Group Financial S tate me nts

cash flow statement do not therefore agree directly

with the amounts shown in the Group balance

sheet.

The cash inflow from operating activities in-

cludes the following cash flows in accordance with

IAS 7 paragraphs 31 and 35:

in euro million

2006

2005

Interest received

Interest paid

391

328

62

283

240

28

Dividends received

Income taxes paid

733

604

[

40] Re late d party re lations hips

The BMW Group’s relationships with affiliated,

non-consolidated entities are conducted on the

basis of arm’s length principles. Transactions with

these related parties are small in scale and arise in

the normal course of business.

Transactions of BMW Group companies with

joint ventures and other equity investments – mainly

BMW Brilliance Automotive Ltd., Shenyang (50 %)

and TRITEC Motors Ltda., Campo Largo (50 %) –

all arise in the normal course of business and are

conducted on the basis of arm’s length principles.

Stefan Quandt is a shareholder and Deputy

In accordance with IAS 24 (Related Party Disclo-

sures), related individuals or entities which have the

ability to control the BMW Group or which are con-

trolled by the BMW Group, must be disclosed un-

less such parties are not already included in the

consolidated financial statements as consolidated

companies. Control is defined as ownership of more

than one half of the voting power of BMW AG or the

power to direct, by statute or agreement, the finan-

cial and operating policies of the management of

the Group.

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

7

1

Statement of Income and

Expenses recognised directly

in Equity

7

2

Notes

– Accounting Principles

and Policies

In addition, the disclosure requirements of IAS

4 also cover transactions with associates and with

parties which have the ability to exercise significant

influence over the financial and operating policies

Chairman of the Supervisory Board of BMW AG. He

is also sole shareholder and Chairman of the Super-

visory Board of DELTON AG, Bad Homburg v.d.H.,

which, via its subsidiaries, performed logistics serv-

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

2

1

04 – Other Disclosures

11 – Segment Information

of the BMW Group. This also includes close relatives ices for the BMW Group during the financial year

and intermediaries. Significant influence over the

financial and operating policies of the Group can

arise when a party holds 20 % or more of the shares

of BMW AG or is a member of the Board of Manage-

ment or Supervisory Board of BMW AG.

2006. In addition, companies of the DELTON Group

purchased vehicles from the BMW Group. In addi-

tion, SOLARWATT AG, Dresden, in which Stefan

Quandt has a significant investment, supplied solar

modules with a total value of euro 3 million to the

BMW Group in 2006. These service and sale con-

For the financial year 2006, the disclosure re-

quirements contained in IAS 24 only affect the BMW tracts are not material for the BMW Group and are

Group with regard to business relationships with

affiliated, non-consolidated entities, joint ventures

and other entities in which an investment is held as

well as with members of the Board of Management

and Supervisory Board of BMW AG.

made, without exception, on the basis of arm’s

length principles.

1

09

Susanne Klatten is a shareholder and member

of the Supervisory Board of BMW AG, and also a

With the exception of these related party trans-

actions, companies of the BMW Group did not enter

shareholder and Deputy Chairman of the Supervisory into any significant transactions with members of

Board of Altana AG, Bad Homburg v.d.H. which pur-

chased vehicles from the BMW Group during the

financial year 2006. These service and sale con-

tracts are not material for the BMW Group and are

made, without exception, on the basis of arm’s

length principles.

the Board of Management or Supervisory Board of

BMW AG or with companies in whose representative

bodies those persons are represented. The same

applies to close members of the families of those

persons.

[

41] De claration with re s pe ct to the Corporate

the German Stock Corporation Act, which is included

in the BMW Group Annual Report 2006 and which

is available to shareholders on the BMW Group web-

site under the address www.bmwgroup.com/ir.

Gove rnance Code

The Board of Management and the Supervisory

Board of Bayerische Motoren Werke Aktiengesell-

schaft have issued a declaration, required by §161 of

[

42] S hare holdings of me mbe rs of the Board of

Stefan Quandt, Bad Homburg v.d.H. and 11.58 %

to Susanne Klatten, Munich. The shareholding of

the members of the Board of Management of

BMW AG is, in total, less than 1% of the issued

stock shares.

Manage me nt and S upe rvis ory Board

The members of the Supervisory Board of BMW AG

hold in total 27.7 % of the issued common and

preferred stock shares, of which 16 .1 2 % relates to

[

43] Compe ns ation of me mbe rs of the Board of

remuneration of current members of the Board of

Management and the Supervisory Board amounts

to euro 17.8 million (2005: euro 15.2 million). The

compensation consists of the following:

Manage me nt and S upe rvis ory Board

Subject to the approval of the proposed dividend at

the Annual General Meeting of Shareholders, the

in euro million

2006

2005

Short-term employment benefits

17.2

0.6

14.7

0.5

Benefits due at end of employment relationship

1

7.8

15.2

Subject to the approval of the proposed divi-

dend at the Annual General Meeting, the salaries of

the members of the Board of Management for the

financial year 2006 amounted to euro 14.5 million

their employment relationship. This relates to the

expense for allocations to pension provisions.

Subject to the approval of the proposed divi-

dend at the Annual General Meeting, the compen-

sation of the members of the Supervisory Board for

the financial year 2006 amounts to euro 2.7 million

(2005: euro 2.5 million), comprising fixed compo-

nents of euro 0 .1 million (2005: euro 0 .1 million) and

(2005: euro 12.2 million).This comprises fixed com-

ponents of euro 2.3 million (2005: euro 2.0 million)

and variable components of euro 12.2 million (2005:

euro 10.2 million).

In addition, an amount of euro 0.6 million (2005: variable components of euro 2.6 million (2005: euro

euro 0.5 million) has been granted to current mem-

bers of the Board of Management after the end of

2.4 million).

1

10 Group Financial S tate me nts

Further details about the remuneration of cur-

rent members of the Board of Management and of

the Supervisory Board can be found in the compen-

sation report on pages 121 to 124. The compensa-

Pension obligations to former members of the

Board of Management and their surviving dependants

are fully covered by pension provisions amounting

to euro 38.8 million (2005: euro 37.0 million), com-

tion report is sub-section of the management report. puted in accordance with IAS 19.

The remuneration of former Board members

The names of the members of the Supervisory

and their surviving dependants amounted to euro

Board and of the Board of Management are disclosed

on pages 116 to 119.

3

.8 million (2005: euro 2.6 million).

[44] Application of exe mptions purs uant to § 264 (3) – BMW Leasing GmbH, Munich

and § 264 b HGB

– BMW M GmbH Gesellschaft für individuelle Auto-

A number of companies and incorporated partner-

ships (as defined by §264a HGB) which are affiliated

and consolidated entities of BMW AG and for which

the consolidated financial statements of BMW AG

represent exempting consolidated financial state-

ments, 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:

mobile, Munich

– BMW Vertriebs GmbH, Munich

– BMW Vertriebs GmbH & Co. oHG, Dingolfing

– Rolls-Royce Motor Cars GmbH, Munich

In addition, the following entities also apply the ex-

emption available in §264 (3) and §264b HGB with

regard to publication:

– Alphabet Fuhrparkmanagement GmbH, Munich

– BMW Leasing GmbH, Munich

– BMW Vertriebs GmbH, Munich

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

–

Alphabet Fuhrparkmanagement GmbH, Munich

– BMW Ingenieur-Zentrum GmbH + Co., Dingolfing

– BMW Vertriebs GmbH & Co. oHG, Dingolfing

7

1

7

2

Notes

– Accounting Principles

and Policies

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

1

11

BMW Group

Note s to the Group Financial S tate me nts

S e gme nt Information

[

45] S e gme nt information

Reconciliations to the Group profit before for the

Group include holding companies, group financing

companies and income and expenses not specifi-

cally attributable to the business segments. Recon-

ciliations also include certain operating companies

which are not allocated to segments, namely BMW

De s cription of bus ine s s s e gme nts

In accordance with the rules contained in IAS 14

(Segment Reporting), the BMW Group presents

segment information using business segments as

its primary reporting format and geographical seg-

ments as its secondary reporting format. This

distinction is based on internal management and

financial reporting systems and reflects the risk and

earnings structure of the Group.

The activities of the BMW Group are broken

down into the segments Automobiles, Motorcycles

and Financial Services.

Services Ltd., Bracknell, BMW (UK) Investments Ltd.,

Bracknell, and the softlab Group.

Othe r explanatory comme nts on s e gme nt

information

Segment information is generally prepared in

conformity with the accounting policies adopted for

preparing and presenting the Group financial state-

The Automobiles segment develops, manu-

factures, assembles and sells cars and off-road vehi- ments. Inter-segment receivables and payables,

cles, under the brands BMW, MINI and Rolls-Royce

as well as spare parts and accessories.

BMW and MINI brand products are sold in Ger-

many through branches of BMW AG and by inde-

provisions, income, expenses and profits are elimi-

nated in Reconciliations. Inter-segment sales take

place at arm’s length prices.

Significant non-cash items comprise mainly

pendent, authorised dealers. Sales outside Germany changes in provisions, write-downs, reversal of

are handled primarily by subsidiary companies and,

in a number of markets, by independent import com-

panies. Rolls-Royce brand vehicles are sold in the

USA via a subsidiary company and elsewhere by in-

dependent, authorised dealers.

write-downs and depreciation on leased products.

Capital expenditure comprises additions to

property, plant and equipment and intangible assets.

Segment assets and segment liabilities com-

prise all assets and liabilities employed by the rele-

vant business segment to generate the profit before

The BMW Motorcycles segment develops,

manufactures, assembles and sells BMW brand mo- financial result.

torcycles as well as spare parts and accessories.

The return on sales for each segment is based

The Financial Services segment focuses prima- on the profit before tax.

rily on car leasing, fleet business, retail customer

and dealer financing, customer deposit business

and insurance activities. The profit before financial

result of this segment includes net interest income

Internal financing is computed as the profit be-

fore tax activities adjusted for depreciation and signif-

icant non-cash items and less actual tax payments.

In the case of segment information by geo-

on retail customer and dealer financing business and graphical region, external sales are based on the lo-

the result of lease business. Leased products are cation of the customer’s registered office. Segment

carried at acquisition cost less straight-line deprecia- information is provided for the regions Germany,

tion down to the imputed residual value of the vehi-

cles. Leased products are written down to their fair

value where this is lower. Inter-group profits on own

products are eliminated on consolidation and in-

cluded in the Reconciliations to the Group profit be-

fore tax.

rest of Europe, the Americas and Africa, Asia and

Oceania, in line with internal management and re-

porting procedures.

1

12 Group Financial S tate me nts

S e gme nt information by bus ine s s s e gme nt

Automobiles

in euro million

2006

2005

Reve nue s with third partie s

37,948

37,247

Change compared to previous year

%

1.9

2.3

Inte r-s e gme nt reve nue s

9,819

8,614

Change compared to previous year

14.0

40.2

Total reve nue s

47,767

45,861

Change compared to previous year

4.2

7.8

Gros s profit

9,636

9,512

P rofit be fore financial re s ult

3,055

3,080

Change compared to previous year

%

– 0.8

– 7.7

Re s ult from e quity me thod accounting

Othe r financial re s ult

– 25

– 18

14

6

5

Group Financial Statements

– 118

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

Statement of Income and

Expenses recognised directly

in Equity

Notes

– Accounting Principles

and Policies

– Notes to the Income Statement

– Notes to the Balance Sheet

P rofit be fore tax

3,012

2,976

Change compared to previous year

%

1.2

– 5.9

7

1

Re turn on s ale s

6.3

– 117

5,552

4,185

3,159

392

6.5

802

7

2

S ignificant non-cas h ite ms

Inte rnal financing

7

8

9

6

1

04 – Other Disclosures

11 – Segment Information

6,017

3,832

2,903

369

Capital expe nditure

De pre ciation and amortis ation

Additions to le as e d products

Inve s tme nts accounte d for us ing the e quity me thod

As s e ts

60

94

27,227

20,069

95,920

25,679

19,692

96,436

Liabilitie s

Ave rage workforce during the ye ar

1

13

Motorcycles

Financial Services

Reconciliations

Group

2

006

2005

2006

2005

2006

2005

2006

2005

1

,255

.1

1,217

9,603

8,073

193

119

48,999

46,656

3

19.1

19.0

18.2

62.2

40.0

5.0

5.2

1

0

6

1,476

1,335

– 11,305

– 9,955

–

6

6.7

–14.3

10.6

– 4.4

13.6

31.9

–

,265

.4

1,223

11,079

9,408

– 11,112

– 9,836

48,999

46,656

3

18.9

17.8

14.4

13.0

31.8

5.0

5.2

3

22

315

1,215

1,067

166

– 230

11,339

10,664

7

5

67

689

622

231

24

4,050

3,793

1

1.9

76.3

10.8

20.8

862.5

–120.5

6.8

0.5

–

– 25

99

14

–

6

9

6

– 7

– 4

– 17

130

– 378

– 520

60

685

605

361

– 354

4,124

3,287

1

0.0

93.5

13.2

17.5

–

25.5

– 8.3

5

.2

4.9

3

6.2

3,475

4,095

42

6.4

2,803

3,346

40

–

30

–

478

8.4

3,400

7.0

4,086

9,649

3,993

3,025

7,202

1

2

1

44

141

76

272

145

10,063

4,313

6

7

4

7

22

45

91

24

28

12

3

3,272

–

10,362

–

9,092

–

– 2,232

–

– 2,259

–

8,522

–

60

94

6

3

87

96

602

377

2,859

50,529

44,480

3,315

47,270

41,318

2,958

614

1,015

– 3,794

1,293

79,057

59,927

103,727

74,566

57,593

103,546

– 5,018

1,676

2

,816

1

14 Group Financial S tate me nts

S

e gme nt information by re gion

External sales

Capital expenditure

Assets

in euro million

2006

2005

2006

2005

2006

2005

Germany

10,601

18,440

12,336

7,622

11,001

17,266

11,560

6,829

–

3,089

665

511

48

3,248

430

239

76

28,903

19,789

21,589

8,705

71

27,278

17,759

19,977

7,970

Rest of Europe

The Americas

Africa, Asia, Oceania

Reconciliations

Group

–

1,582

48,999

46,656

4,313

3,993

79,057

74,566

6

5

Group Financial Statements

6

7

5

6

8

0

Income Statements

Balance Sheets

Cash Flow Statements

Group Statement of

Changes in Equity

7

1

Statement of Income and

Expenses recognised directly

in Equity

7

2

Notes

– Accounting Principles

and Policies

7

8

9

6

– Notes to the Income Statement

– Notes to the Balance Sheet

1

04 – Other Disclosures

11 – Segment Information

Munich, 20 February 2007

Baye ris che Motore n We rke

Aktiengesellschaft

The Board of Management

1

15

BMW Group

Auditors ’ Re port

We have audited the consolidated financial state-

ments prepared by Bayerische Motoren Werke

environment of the Group and expectations as to

possible misstatements are taken into account in the

Aktiengesellschaft, comprising the income statement, determination of audit procedures. The effectiveness

the balance sheet, statement of changes in equity,

cash flow statement and the notes to the consoli-

dated financial statements and its report on the

position of the company and the Group for the busi-

ness year from 1 J anuary to 31 December 2006.

The preparation of the consolidated financial state-

ments and the group management report in accor-

dance with IFRSs, as adopted by the EU, and the

additional requirements of German commercial law

pursuant to §315a Abs.1 HGB are the responsibility

of the parent company`s management. Our respon-

sibility is to express an opinion on the consolidated

financial statements and on the group management

report based on our audit.

of the accounting-related internal control system

and the evidence supporting the disclosures in the

consolidated financial statements and the group

management report are examined primarily on a test

basis within the framework of the audit. The audit

includes assessing the annual financial statements

of those entities included in consolidation, the deter-

mination of entities to be included in consolidation,

the accounting and consolidation principles used

and significant estimates made by management,

as well as evaluating the overall presentation of the

consolidated financial statements and group manage-

ment report. We believe that our audit provides a

reasonable basis for our opinion.

We conducted our audit of the consolidated

Our audit has not led to any reservations.

financial statements in accordance with §317 HGB

and German generally accepted standards for the

audit of financial statements promulgated by the

In our opinion, based on the findings of our audit,

the consolidated financial statements comply with

IFRSs, as adopted by the EU, the additional require-

Institut der Wirtschaftsprüfer (IDW).Those standards ments of German commercial law pursuant to §315a

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 statements

in accordance with the applicable financial reporting

framework and in the group management report are

detected with reasonable assurance. Knowledge of

the business activities and the economic and legal

Abs.1 HGB and give a true and fair view of the net

assets, financial position and results of operations of

the Group in accordance with these requirements.

The group management report is consistent with the

consolidated financial 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, 2 March 2007

KP MG De uts che Tre uhand-Ge s e lls chaft

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

Dr. Schindler

Höfer

Wirtschaftsprüfer

1

16 Corporate Gove rnance

Me mbe rs of the S upe rvis ory Board

*

P rof. Dr.-Ing. Dr. h. c. Dr.-Ing. E. h.

J oachim Milbe rg

Konrad Gottinge r

Deputy Chairman

Chairman

Member of the Works Council, Dingolfing

Former Chairman of the Board of

Management of BMW AG

Member of the Presiding Board,

Personnel Committee, Audit Committee

and Mediation Committee

Chairman of the Presiding Board,

Personnel Committee, Audit Committee

Member of the Mediation Committee

Dr. Hans -Die trich Winkhaus

Deputy Chairman

*

Mandate s

Bertelsmann AG

FESTO AG

Former Chairman of the Board of

Henkel KGaA

MAN AG (Deputy Chairman)

Member of the Presiding Board,

Deere & Company

Personnel Committee and Audit Committee

*

Mandate s

*

Manfre d S choch

Deutsche Lufthansa AG

Deputy Chairman

ERGO Versicherungsgruppe AG

Chairman of the General Works Council

Henkel KGaA

Member of the Presiding Board,

Personnel Committee, Audit Committee

and Mediation Committee

Volke r Doppe lfe ld

(until 16.05.2006)

Former member of the Board of

Management of BMW AG

S te fan Quandt

Deputy Chairman

Industrial Engineer

**

Mandate s

Bizerba GmbH & Co. KG

UniCredit S.p.A.

Member of the Presiding Board,

Personnel Committee, Audit Committee

and Mediation Committee

*

Mandate s

DELTON AG (Chairman

Dresdner Bank AG

)

1

16 Corporate Governance

1

16 Members of the Supervisory Board

19 Members of the Board of Management

20 Corporate Governance in the

BMW Group

DataCard Corp.

1

21 Compensation Report

24 Directors’ Dealings

24 Shareholdings of members of the Board

of Management and Supervisory Board

25 Declaration of Board of Management

and of the Supervisory Board pursuant

to §161 AktG

1

*

Employee representative

* Mandates at 31 December 2006 or on final day of office

Membership of other statutory supervisory boards

Membership of equivalent national or foreign boards

1

17

*

Ulrich Ecke lmann

Arthur L. Ke lly

Head of Division Industry, Technology and

Environment with the Executive Board of IG Metall

Managing Partner of KEL

Enterprises L.P.

*

Mandate s

*

Be rtin Eichle r

BASF AG

Executive Member of the

Executive Board of IG Metall

DataCard Corp.

Deere & Company

Northern Trust Corp.

Robert Bosch Corp.

Snap-on Inc.

*

Mandate s

ThyssenKrupp AG (Deputy Chairman)

BGAG Beteiligungsgesellschaft der

Gewerkschaften GmbH (Chairman

)

S us anne Klatte n

BSc., MBA

*

We rne r Eis grube r

(

until 31.12.2006)

Honorary Senator of the

Technical University of Munich

Member of the Works Council, Dingolfing

*

Mandate s

Franz Hanie l

Engineer, MBA

ALTANA AG (Deputy Chairman

ALTANA Pharma AG

)

*

Mandate s

DELTON AG (Deputy Chairman

Franz Haniel & Cie. GmbH (Chairman

Heraeus Holding GmbH

UnternehmerTUM GmbH

Technical University of Munich

)

*

Willibald Löw

secunet Security Networks AG

Chairman of the Works Council, Landshut

Giesecke & Devrient GmbH

1

18 Corporate Gove rnance

*

We rne r Ne uge baue r

P rof. Dr. re r. nat. Drs . h. c. mult. Hube rt Markl

Former President of Max-Planck-Gesellschaft

zur Förderung der Wissenschaften e.V.

Professor of Biology (retired)

Regional Executive Officer of IG Metall Bavaria

*

Franz Obe rlände r

*

Mandate s

Member of the Works Council, Munich

Münchener Rückversicherungs-Gesellschaft AG

*

Anton Ruf

Georg von Holtzbrinck GmbH

Sanofi-Aventis S.A.

Director Product Line L7

*

S te fan S chmid

Wolfgang Mayrhube r

Chairman of the Board of Management of

Deutsche Lufthansa AG

(

from 03.01.2007)

Chairman of the Works Council, Dingolfing

*

Mandate s

P rof. Dr. J ürge n S trube

Chairman of the Supervisory Board of BASF AG

Eurowings Luftverkehrs AG

Fraport AG

LSG Lufthansa Service Holding AG

Lufthansa Cargo AG

*

Mandate s

Allianz Deutschland AG

BASF AG (Chairman

Lufthansa Technik AG

)

Münchener Rückversicherungs-Gesellschaft AG

Bertelsmann AG (Deputy Chairman)

Commerzbank AG

Thomas Cook AG (Deputy Chairman

)

Fuchs Petrolub AG (Chairman

Hapag-Lloyd AG

Linde AG

)

HEICO Corp.

SWISS International Air Lines AG

He inz-J oachim Ne ubürge r

*

We rne r Zie re r

(from 16.05.2006)

Chairman of the Works Council, Regensburg

Export Merchant, MBA

*

Mandate s

Allianz Versicherungs-AG

1

16 Corporate Governance

KKR Guernsey GP Limited

1

16 Members of the Supervisory Board

19 Members of the Board of Management

20 Corporate Governance in the

BMW Group

Gruppo Banca Leonardo S.p.A.

1

21 Compensation Report

24 Directors’ Dealings

24 Shareholdings of members of the Board

of Management and Supervisory Board

25 Declaration of the Board of Manage-

ment and of the Supervisory Board

pursuant to §161 AktG

1

*

Employee representative

* Mandates at 31 December 2006 or on final day of office

Membership of other statutory supervisory boards

Membership of equivalent national or foreign boards

1

19

Me mbe rs of the Board of Manage me nt

Dr.-Ing. Norbe rt Re ithofe r

Chairman (from 01.09.2006)

Dr.-Ing. Klaus Drae ge r

(from 01.11.2006)

Development and Purchasing

Dr. He lmut Panke

(until 31.08.2006)

Dr. Michae l Ganal

Chairman

Sales and Marketing

*

**

Mandate s

Microsoft Corp.

UBS AG

BMW Brilliance Automotive Ltd. (Deputy Chairman)

P rof. Dr.-Ing. Dr.-Ing. E. h. S e nator E. h.

Burkhard Gös che l

Frank-Pe te r Arndt

(from 01.09.2006)

(until 31.10.2006)

Production

Development and Purchasing

*

Mandate s

BMW Motoren GmbH (Chairman)

S te fan Kraus e

BMW (South Africa) (Pty) Ltd. (Chairman)

Finance

**

Mandate s

Leipziger Messe GmbH

Allianz Deutschland AG

Erns t Baumann

Human Resources, Industrial Relations Director

*

Mandate s

Krones AG

General Counsel:

Dr. Die te r Löche lt

*

* Mandates at 31 December 2006 or on final day of office

Membership of other statutory supervisory boards

Membership of equivalent national or foreign boards

1

20 Corporate Gove rnance

Corporate Gove rnance

Corporate Gove rnance in the BMW Group

For the BMW Group, corporate governance is an

all-embracing issue which affects all areas of the

enterprise. Transparent reporting and a policy of

corporate governance aimed at the interests of

stakeholders are well-established traditions within

the BMW Group. Cooperation between the Board

of Management and the Supervisory Board, in an

atmosphere of commonly shared trust and respon-

sibility, have long been the basis for managing the

affairs of the BMW Group. The underlying corporate

culture at BMW is founded upon the principles of

transparency, placing trust in others and taking re-

sponsibility for one’s own actions.

applied by the BMW Group. The BMW Group’s Cor-

porate Governance Code has been revised in con-

junction with the new version of the GCGC. A copy of

it can be obtained, along with other shareholder in-

formation, such as notifications pursuant to §15a of

the German Trade Securities Act (Directors’ Dealings)

from the BMW Group website. Interested parties

can also find other general information about the

Group, up-to-date analysts’ reports and all financial

publications of the Group at www.bmwgroup.com/ir.

A coordinator responsible for all corporate

governance issues regular reports to the Board of

Management and Supervisory Board.

Good corporate governance requires efficient

mechanisms, capable of preventing breaches of law,

and a system of regular review.

De claration of Compliance and the BMW Group

Corporate Gove rnance Code

Management and supervisory boards of companies

listed in Germany are required by law (§161 German

Additional measures were taken in 2006 within

the purchasing function to reduce the risk of irregular-

ities. Furthermore, in addition to the guidelines and

Stock Corporation Act) to report once a year whether training measures already in place, an open letter was

the officially published and relevant recommenda- sent to all employees working within the purchasing

tions issued by the “Government Commission of the function and to 600 suppliers specifically addressing

German Corporate Governance Code”, as valid at

the date of the declaration, have been, and are be-

ing, complied with. Companies affected are also

required to state which of the recommendations of

the Code have not been or are not being applied.

The Board of Management and Supervisory

Board of Bayerische Motoren Werke Aktiengesell-

schaft believe that the recommendations and sug-

gestions contained the German Corporate Gover-

nance Code (GCGC) help to enhance the financial

markets in Germany, in particular for international

investors. At the joint meeting held on 5 December

2006, the Board of Management and Supervisory

the issue of “Accepting gifts or other benefits and

participating in non-business events”. Systematic job

rotation is required within the purchasing function,

supported by measures taken by the Human Re-

sources department. It was again made absolutely

clear that all employees must act with integrity and

that any breaches of rules will be dealt with rigorously.

In the interest of investor protection and in

order to ensure that the BMW Group complies with

regulations relating to potential insider information,

the Board of Management has appointed an Ad-hoc

Committee made up of representatives from various

specialist departments; its members examine the

1

16 Corporate Governance

1

16 Members of the Supervisory Board

19 Members of the Board of Management

20 Corporate Governance in the

BMW Group

Board of BMW AG issued the Declaration of Compli- relevance of issues for ad-hoc disclosure purposes.

1

21 Compensation Report

24 Directors’ Dealings

24 Shareholdings of members of the Board

ance with the new version of the German Corporate

The procedures and decision-taking process applied

by this committee, which has been in place since

1994, have been brought into line with the revised

requirements of the Investors’ Protection Improve-

of Management and Supervisory Board Governance Code valid from 24 J uly 2006. With

1

25 Declaration of the Board of Manage-

the effect from that meeting, BMW AG complies

ment and of the Supervisory Board

pursuant to §161 AktG

with the recommendations of the GCGC with one

exception only, namely that the discussion and regu- ment Act. All persons working on behalf of the enter-

lar review of the structure of the compensation sys-

tem of the Board of Management is performed by

the Personnel Committee. The Chairman of that

committee informs the members of the Supervisory

prise with access to insider information are entered

into a special register and advised of their legal obli-

gations with regard to insider rules.

Fair treatment and mutual respect of others,

Board at its next meeting. All other recommendations equal opportunities and a clear stance against dis-

are complied with. Moreover, the Board of Manage-

ment and Supervisory Board have, in the past, de-

crimination are core principles, which have been

anchored for many years in the BMW Group’s “Long-

veloped the BMW Group’s own corporate governance Term Personnel Policies”. In 2005, these principles

code which is based on the GCGC and takes account were underlined in a “J oint Declaration of Human

of the specific circumstances of the BMW Group.

The aim is to provide shareholders and other stake-

holders with a comprehensive, stand-alone docu-

ment covering the corporate governance practices

Rights and Working Conditions in the BMW Group”

signed by the group’s management, the EURO Works

Council and the International Metalworkers Federation.

All employees in Germany are kept informed via the

1

21

group’s intranet of the objectives, rights and duties

Committee, having considered the overall position

ensuing from the General EqualTreatment Act (GETA). and forecasts of the BMW Group, decides on a

Staff and senior management, particularly those

working in the Human Resources department are

regularly given training regarding the content of the

GETA. Acknowledgement of the aims incorporated in

this law, together with the corresponding guide-

lines for management and employees are docu-

mented in the agreement “Fairness in the Workplace”.

salary framework, which will include a high variable

proportion.

The Personnel Committee reviews the compen-

sation system at regular intervals, with regard to

the structure and amount of the remuneration of the

Board of Management.

Fixed remuneration comprises a base remuner-

ation amount, which is paid as monthly salary, and

other remuneration elements. Other remuneration

elements comprise mainly the use of company cars

and the payment of insurance premiums.

The factors determining the amount of variable

compensation enable members of the Board of

Compe ns ation Re port

The BMW Group supports the endeavours of the

German Corporate Governance Code to increase

transparency in the disclosure of the components

of compensation.The following section therefore

describes the principles relating to the compensation Management to earn a competitive level of income

of the Board of Management and the stipulations

set out in the statutes relating to the compensation

of the Supervisory Board. As well as discussing

the structure of remuneration, the components of

compensation are also disclosed in absolute figures.

In accordance with the recommendations of the

GCGC, the compensation of each member of the

Board of Management and the Supervisory Board is

individually disclosed and analysed into components.

with a very high bonus element (2006: 84.1%, 2005:

83.6 %) for financial years in which the BMW Group

performs well. The measures used to determine

the variable component of compensation are the

BMW Group’s net profit for the relevant year and the

level of the dividend. An upper limit is set for the

compensation of each member of the Board of

Management.

The compensation system does not include any

stock options, value appreciation rights comparable

to stock options or any other stock-based compen-

sation components. No compensation agreements

have been concluded with members of the Board

of Management for situations involving a take-over

offer. The members of the Board of Management do

not receive any loans from the BMW Group. Similarly,

they did not receive any payments or benefits from

third parties in 2006 on account of their activities as

members of the Board of Management.

1

. Compe ns ation of the Board of Manage me nt

Re s pons ibilitie s

The determination and monitoring of the compen-

sation of the Board of Management are the respon-

sibility of the Personnel Committee of the Super-

visory Board. The Personnel Committee comprises

the Chairman of the Supervisory Board and his four

deputies.

Ove rall obje ctive s

Pension agreements are in place in the event of

the termination of a mandate.

The compensation model used for the Board of

Management should be attractive in the context of

the competitive environment for highly qualified

executives. As an incentive to encourage perform-

ance, the variable component should be closely

linked to the financial success of the BMW Group.

The structure of the compensation of the Board of

Management should also contain parallels to the

compensation system applied to employees and

senior management.

Pensions are paid to former members of the

Board of Management who have either reached the

age of 65, or, if their mandate had terminated earlier

and had not been extended, to members who have

reached the age of 60, or are unable to work due

to ill-health or accident, or who have entered into early

retirement in accordance with a special arrangement.

The pension comprises a basic monthly amount of

euro 10,000 or euro 15,000 (Chairman of the Board

of Management) plus a fixed amount.The fixed

amount is made up of approximately euro 75 for

each year of service in the company before becom-

Compone nts of compe ns ation

The compensation of the Board of Management

comprises a fixed and a variable component. In addi- ing a member of the Board of Management, plus

tion, benefits are payable at the end of members’

mandates, primarily in the form of pension benefits.

between euro 154 and euro 400, or between euro 153

and euro 600 (Chairman of the Board of Manage-

For the purposes of determining the overall compen- ment), for each full year of service on the board (up

sation of the Board of Management, the Personnel to a maximum of 15 years). Pension payments are

1

22 Corporate Gove rnance

adjusted by analogy to the rules applicable for the

adjustment of civil servants’ pensions: the pensions

of members of the Board of Management are ad-

justed accordingly when civil servants’ remuneration

level B6 (excluding allowances) is increased by more

than 5 %.

Management of BMW AG for the financial year 2006

amounted to euro 14.5 million (2005: euro 12.2 mil-

lion). This comprises fixed components (including

other remuneration) of euro 2.3 million (2005:

euro 2.0 million) and variable components of euro

12.2 million (2005: euro 10.2 million).

If a mandate is ended before the member of

the Board of Management reaches the age of 60, a

transitional payment amounting to 2/3rds of the

pension theoretically earned up to the date when a

full pension can be drawn, may become payable if,

after a minimum of three years of service as a mem-

ber of the Board of Management, this is considered

appropriate on the basis of an objective evaluation

of all circumstances. Arrangements are in place con-

cerning the offsetting of other income against pen-

sions and transitional payments.

in euro million

2006

2005

Amount Proportion Amount Proportion

Fixed renumeration

2.3

15.9 %

84.1 %

100 %

2.0

10.2

12.2

16.4 %

83.6 %

100 %

Variable renumeration 12.2

Total renumeration 14.5

In addition, an amount of euro 0.6 million (2005:

The amounts disclosed below as the annual pen- euro 0.5 million) was incurred for current members of

sion provision allocation for each member correspond the Board of Management after termination of their

to the pension service cost.

employment relationship.This relates to the expense

for allocations to pension provisions.

Former members of the Board of Management

are entitled to lease or purchase cars and motor-

cycles on the basis of the terms and conditions ap-

plicable to senior management.

The amount paid to former members of the

Board of Management and their surviving dependants

was euro 3.8 million (2005: euro 2.6 million). Pen-

sion obligations to former members of the Board of

Management and their surviving dependants are

fully covered by pension provisions amounting to

euro 38.8 million (2005: euro 37.0 million), computed

in accordance with IAS 19.

Compe ns ation of the Board of Manage me nt

for the financial ye ar 2006 (total)

On the basis of the proposed dividend, the total re-

muneration of the current members of the Board of

Compe ns ation of the individual me mbe rs of the Board of Manage me nt for the financial ye ar 2006

1

16 Corporate Governance

1

16 Members of the Supervisory Board

19 Members of the Board of Management

20 Corporate Governance in the

BMW Group

in euro

Fixed remuneration

Other

Salary remuneration

Variable

remuneration

Remuneration

Total

Allocation for

year to pension

provision

Fixed remune-

ration Total

1

21 Compensation Report

24 Directors’ Dealings

24 Shareholdings of members of the Board

of Management and Supervisory Board

25 Declaration of the Board of Manage-

ment and of the Supervisory Board

pursuant to §161 AktG

Norbert Reithofer¹^]

Helmut Panke ^]

Frank-Peter Arndt³^]

Ernst Baumann

Klaus Draeger ^]

Michael Ganal

Burkhard Göschel ^]

Stefan Krause

440,000

13,703

13,230

6,788

453,703

259,897

106,788

378,451

55 ,1 78

2,258,600

2 ,1 53,333

523,200

2,712,303

2,413,230

629,988

108,767

117,566

29,219

97,540

2

1

246,667

100,000

360,000

50,000

18,451

5 ,1 78

1,818,300

261,600

2 ,1 96,751

316,778

4

14,759

125,855

69,653

75,710

639,069

360,000

300,000

360,000

2,216,667

14,644

26,493

16,789

115,276

374,644

326,493

376,789

2,331,943

1,818,300

1,515,250

1,818,300

12 ,1 66,883

2 ,1 92,944

1,841,743

2 ,1 95,089

14,498,826

5

Total ^]

6

1

2

3

4

5

6

] Chairman of the Board of Management from 1 September 2006.

] Chairman of the Board of Management until 31 August 2006.

] Member of the Board of Management from 1 September 2006.

] Member of the Board of Management from 1 November 2006.

] Member of the Board of Management until 31 October 2006.

] Group perspective.

1

23

2

. Compe ns ation of the S upe rvis ory Board

Compe ns ation of the S upe rvis ory Board for the

financial ye ar 2006 (total)

On the basis of the proposed dividend, the compen-

sation of the Supervisory Board for activities during

the financial year 2006 amounted to euro 2.7 million

Re s pons ibilitie s , re gulation purs uant to

Article s of Incorporation

The compensation of the Supervisory Board is de-

termined by shareholders’ resolution at the Annual

General Meeting. Compensation is currently based (2005: euro 2.5 million). This comprised a fixed

on shareholders’ resolutions taken at the Annual

General Meeting on 18 May 1999 and §15 of the

Articles of Incorporation of BMW AG. The Articles

of Incorporation of BMW AG can be accessed via

the Internet.

component of euro 0.1 million (2005: euro 0.1 mil-

lion) and a variable component of euro 2.6 million

(2005: euro 2.4 million).

in euro million

2006

2005

Amount Proportion

Compone nts of compe ns ation

In addition to the reimbursement of expenses, each

member of the Supervisory Board receives a fixed

amount of euro 6,000 (payable after the end of the

financial year), and a variable amount of euro 1,500

for each percent of the dividend resolved by the

shareholders at the Annual General Meeting in ex-

cess of 4% of the company’s share capital (common

stock). The Chairman of the Supervisory Board re-

ceives three times this amount and each deputy

receives two times this amount. The company also

Fixed compensation

0.1

3.7 %

96.3 %

100 %

0.1

2.4

2.5

4.0 %

96.0 %

100 %

Variable compensation 2.6

Total compensation 2.7

None of the members of the Supervisory Board

performed advisory, agency or other services for

the BMW Group in a personal capacity in 2006. In

consequence, no additional compensation was paid.

reimburses to the member of the Supervisory Board It is BMW Group’s policy and practice, not to enter

any value added tax arising on their remuneration. into contractual relationships with members of the

Compe ns ation of the individual me mbe rs of the S upe rvis ory Board for the financial ye ar 2006

in euro

Fixed

Variable

compensation²^]

Total

compensation ^]

1

l

J oachim Milberg (Chairman)

Manfred Schoch (Deputy Chairman)

Stefan Quandt (Deputy Chairman)

Konrad Gottinger (Deputy Chairman)

Hans-Dietrich Winkhaus (Deputy Chairman)

Volker Doppelfeld ^]

Ulrich Eckelmann

18,000

12,000

2,238

6.000

6,000

3,780

6,000

156,018

297,000

198,000

36,888

99,000

62,384

99,000

2,574,272

315,000

210,000

39 ,1 26

3

105,000

66 ,1 64

Bertin Eichler

Werner Eisgruber

Franz Haniel

Arthur L. Kelly

Susanne Klatten

Willibald Löw

Hubert Markl

Wolfgang Mayrhuber

Heinz-J oachim Neubürger ^]

Werner Neugebauer

Franz Oberländer

4

105,000

2,730,290

Anton Ruf

J ürgen Strube

Werner Zierer

Total

1

2

] In accordance with §15 of the Articles of Incorporation, the fixed compensation is paid after the end of the financial year.

] Calculation based on dividend proposal of the Board of Management and Supervisory Board. The variable compensation for the financial year 2006 will be paid following the

resolution of the shareholders at the Annual General Meeting 2007 regarding the utilisation of unappropriated profit.

] Member of the Supervisory Board until 16 May 2006.

3

4

] Member of Supervisory Board from 16 May 2006.

1

24 Corporate Gove rnance

Supervisory Board requiring them to provide per-

sonal services, in particular advisory and agency

services, in return for compensation (cf. Section 4.4

of the BMW Group Corporate Governance Code).

The members of the Supervisory Board do not re-

ceive any loans from the BMW Group.

them, are required, pursuant to §15a of the German

Securities Trading Act (WpHG), to give notice of

any of their transactions with BMW stock or related

financial instruments, if the total sum of such trans-

actions exceeds an amount of euro 5,000 during the

calendar year. BMW AG was given notice of the fol-

lowing transactions, which were also posted on the

group website at www.bmwgroup.com:

Dire ctors ’ De alings

Members of the Board of Management and the

Supervisory Board and persons closely related to

Date of

transaction

Person reporting

Susanne Klatten

Person with Manage-

ment responsibility

Nature of

transaction and ISIN code

Financial instrument

Number

Price

in euro

Volume notified

in euro

2

.8.2006

Susanne Klatten

Member of the

Supervisory Board

Sale,

Off-

BMW

common stock

2,343,277 39.80 93,262,424.60

3,261,373 39.80 129,802,645.40

Exchange DE0005190003

Stefan Quandt

GmbH & Co. KG

für Automobilwerte

Stefan Quandt,

Member of the

Supervisory Board

Sale,

Off-

BMW

common stock

Exchange DE0005190003

S hare holdings of me mbe rs of the Board of

Manage me nt and the S upe rvis ory Board

The members of the Supervisory Board of BMW AG

hold in total 27.70 % of the issued common and

preferred stock shares, of which 16.12 % relates to

Stefan Quandt, Bad Homburg v.d.H. and 11.58 % to

Susanne Klatten, Bad Homburg v.d.H. The share-

holding of the members of the Board of Manage-

ment is, in total, less than 1% of the issued stock

shares.

1

16 Corporate Governance

1

16 Members of the Supervisory Board

19 Members of the Board of Management

20 Corporate Governance in the

BMW Group

1

21 Compensation Report

24 Directors’ Dealings

24 Shareholdings of members of the Board

of Management and Supervisory Board

25 Declaration of the Board of Manage-

ment and of the Supervisory Board

pursuant to §161 AktG

1

25

De claration of the Board of Manage me nt and of the S upe rvis ory Board

of Baye ris che Motore n We rke Aktie nge s e lls chaft with re s pe ct to the

recommendations of the “Government Commis s ion of the German Corporate

Gove rnance Code ” purs uant to § 161 Ge rman S tock Corporation Act

The Board of Management and Supervisory Board

of Bayerische Motoren Werke Aktiengesellschaft

declare the following with respect to the recommen-

dations of the “Government Commission of the Ger-

man Corporate Governance Code”:

The recommendations published in the official

section of the electronic Federal Gazette on 12 J uly

2

005 (Code version dated 2 J une 2005) have been

complied with, except for the exceptions described

in the declaration dated 6 December 2005 relating

to section 4.2.2 paragraph 1, section 4.2.4 sentence

2

, section 5.4.7 paragraph 3 and section 6.6 para-

graph 3.

The recommendations published in the official

section of the electronic Federal Gazette on 24 J uly

006 (Code version dated 12 J une 2006) are being,

2

and will be complied with, with the following diver-

gence: the discussion and regular review of the

structure of the compensation system of the Board

of Management is performed by the Personnel

Committee and not, additionally, by the Supervisory

Board (section 4.2.2 paragraph 1 GCGC).

Munich, 5 December 2006

Baye ris che Motore n We rke

Aktie nge s e lls chaft

Supervisory Board

Board of Management

Re as on for dive rge nce

Section 4.2.2 paragraph 1 GCGC:

The Supervisory Board has transferred discussion

and regular review of the structure of the compensa-

tion system of the Board of Management to the

Personnel Committee. The Supervisory Board is

informed on a regular basis of the work of the Per-

sonnel Committee.

1

26 Othe r Information

BMW AG

P rincipal S ubs idiarie s

P rincipal s ubs idiarie s of BMW AG

at 31 De ce mbe r 2006

Equity

Net result Capital investment

in euro million

in %

Domestic ^]

1

BMW Bank GmbH, Munich ^]

2

268

176

113

57

–

– 40

–

100

BMW Finanz Verwaltungs GmbH, Munich

BMW INTEC Beteiligungs GmbH, Munich ^]

2

softlab GmbH für Systementwicklung und EDV-Anwendung, Munich

BMW Ingenieur-Zentrum GmbH + Co., Dingolfing

BMW Maschinenfabrik Spandau GmbH, Berlin

BMW Leasing GmbH, Munich ^]

BMW Hams Hall Motoren GmbH, Munich ^]

BMW Fahrzeugtechnik GmbH, Eisenach ^]

BMW M GmbH Gesellschaft für individuelle Automobile, Munich ^]

2

47

10

4

]

40

2

16

–

3

15

2

11

4]

2

1

2

3

4

5

] In the case of German subsidiaries, based on financial statements drawn up in accordance with HGB.

] profit and loss transfer agreement with BMW AG

] profit and loss transfer agreement with a subsidiary of BMW AG

] below euro 0.5 million

] In the case of foreign subsidiaries, based on financial statements drawn up in accordance with uniform IFRSs accounting policies.

Equity and net result are translated at the closing rate.

1

26 Other Information

1

26 BMW AG Principal Subsidiaries

28 BMW Group 10-year Comparison

30 BMW Group Locations

32 Glossary

36 Index

38 Contacts

39 Financial Calendar

1

27

P rincipal s ubs idiarie s of BMW AG

at 31 De ce mbe r 2006

Equity

Net result Capital investment

in euro million

in %

Foreign ^]

5

BMW Österreich Holding GmbH, Steyr

BMW Motoren GmbH, Steyr

1,260

897

110

64

95

209

40

100

BMW Russland Trading OOO, Moscow

BMW China Automotive Trading Ltd., Beijing

BMW Austria Gesellschaft m.b.H., Salzburg

40

54

8

BMW Holding B.V., The Hague

5,789

453

406

61

703

37

–19

1

100

BMW Australia Finance Ltd., Melbourne, Victoria

BMW Finance N.V., The Hague

BMW Overseas Enterprises N.V., Willemstad

BMW (South Africa) (Pty) Ltd., Pretoria

BMW (Schweiz) AG, Dielsdorf

391

322

274

244

255

197

169

149

78

131

23

20

19

101

46

40

76

27

30

20

15

10

18

8

BMW J apan Corp., Tokyo

BMW J apan Finance Corp., Tokyo

BMW Italia S.p. A., Milan

BMW Canada Inc., Whitby

BMW France S.A., Montigny le Bretonneux

BMW Belgium Luxembourg S.A./N.V., Bornem

BMW Australia Ltd., Melbourne, Victoria

BMW Portugal Lda., Lisbon

44

BMW Korea Co., Ltd., Seoul

44

BMW Hellas Trade of Cars SA, Athens

BMW Sverige AB, Stockholm

44

43

BMW Nederland B.V., The Hague

BMW Automotive (Ireland) Ltd., Dublin

BMW New Zealand Ltd., Auckland

31

25

10

–1

BMW (UK) Holdings Ltd., Bracknell

BMW (UK) Manufacturing Ltd., Bracknell

BMW (UK) Ltd., Bracknell

1,594

899

729

344

174

46

227

272

29

100

BMW Financial Services (GB) Ltd., Hook

BMW (UK) Capital plc, Bracknell

26

BMW Malta Ltd., Valletta

776

658

590

68

49

–1

100

BMW Malta Finance Ltd., Valletta

BMW Coordination Center V.o.F., Bornem

BMW España Finance S.L., Madrid

BMW Ibérica S.A., Madrid

295

227

19

49

84

7

100

BMW de Mexico, S.A. de C.V., Mexico City

BMW (US) Holding Corporation, Wilmington, Del.

BMW Financial Services NA, LLC, Wilmington, Del.

BMW Manufacturing, LLC, Wilmington, Del.

BMW of North America, LLC, Wilmington, Del.

BMW US Capital, LLC, Wilmington, Del.

1,259

564

497

424

282

429

127

20

100

55

–1

1

28 Othe r Information

BMW Group 10 -ye ar Comparis on

2

006

2005

IASs /IFRSs

De live rie s to cus tome rs

Automobiles ^]

3

units

1,373,970

100,064

1,327,992

97,474

Motorcycles ⁴

]

P roduction

Automobiles ^]

Motorcycles ⁵

3

units

1,366,838

103,759

1,323 ,1 19

92,012

]

Financial S e rvice s

Contract portfolio

contracts

2,270,528

44,010

2,087,368

40,428

Business volume (based on balance sheet carrying amounts)

euro million

Income S tate me nt

Revenues

euro million

48,999

23.1

46,656

22.9

Gross profit percentage Group

Gross profit percentage industrial operations

Gross profit percentage financial operations

Profit before financial result

Profit before tax

%

20.3

20.9

11.4

12.0

euro million

%

4,050

4 ,1 24

8.4

3,793

3,287

7.0

Return on sales (EBT/revenues)

Income taxes

euro million

%

1,250

30.3

1,048

31.9

Effective tax rate

Net profit / – loss for the year

euro million

2,874

2,239

Balance s he e t

Non-current assets

Current assets

euro million

%

50,514

28,543

19 ,1 30

24.2

47,556

27,010

16,973

22.8

Equity

Equity ratio Group

Industrial operations

Financial operations

Non-current provisions and liabilities

Current provisions and liabilities

Balance sheet total

%

40.6

39.1

%

10.4

euro million

31,372

28,555

79,057

29,509

28,084

74,566

Cas h flow s tate me nt

Cash and cash equivalents at balance sheet date

Operative cash flow ^]

euro million

%

1,336

5,373

4,313

8.8

1,621

6 ,1 84

3,993

8.6

8

Capital expenditure

1

26 Other Information

Capital expenditure (capital expenditure /revenues)

1

26 BMW AG Principal Subsidiaries

28 BMW Group 10-year Comparison

30 BMW Group Locations

32 Glossary

36 Index

38 Contacts

Pe rs onne l

Workforce at the end of year⁷^]

106,575

76,621

105,798

75,238

Personnel cost per employee

euro

39 Financial Calendar

Divide nd

Dividend total

euro million

euro

458

419⁹^]

Dividend per share of common stock/preferred stock

0.70/0.72

0.64 /0.66

1

] adjusted for new accounting treatment of pension obligations

2] reclassified after harmonisation of internal and external reporting systems

3] including Rover Cars up to 9 May 2000

excluding C1 production by Bertone, production volume C1 up to 2002: 33,489 units

of treasury shares

6] the net profit before exceptional items amounted to euro 663 million

7] figures since 1998

1

29

2

004

2003

2002

2001

2000

HGB

1999

HGB

1998

HGB

1997

HGB

IASs /IFRSs

adjusted

IASs /IFRSs

2]

adjusted

IASs /IFRSs

1

]

1

,208,732

2,266

1 ,1 04,916

92,962

1,057,344

92,599

905,657

84,713

1,011,874

74,614

1,011,874

74,614

1 ,1 80,429

65 ,1 68

1 ,1 87 ,1 15

60,308

1 ,1 96,096

54,014

9

1

,250,345

3,836

1 ,1 18,940

89,745

1,090,258

93,010

946,730

90,478

1,026,775

74,397

1,026,775

74,397

1 ,1 47,420

69 ,1 57

1,204,000

60 ,1 52

1 ,1 94,704

54,933

9

,843,399

1,623,425

28,647

1,443,236

26,505

1,297,702

25,306

1,317 ,1 50

24,958

970,747

17,578

1,010,839

16,859

855,250

12,564

719,861

10,862

3

2,556

4

4,335

41,525

22.7

42,411

22.8

38,463

25.3

37,226

22.8

35,356

18.1

–

34,402

16.4

–

32,280

16.0

–

30,748

17.1

–

2

1

3.2

1.9

2.5

22.1

22.7

24.0

23.5

12.0

2,065

2,032

5.5

12.3

10.5

16.0

–

3

,774

,583

3,353

3,205

7.7

3,505

3,297

7.8

3,356

3,242

8.4

1,578

1,663

4.7

931

1,232

1,061

3.3

1,451

1,293

4.2

1 ,1 11

3.2

8

.1

,341

7.4

,242

1

2

1,258

39.3

1,277

38.7

1,376

42.4

823

637

38.3

1,026

448

537

50.6

462

590

45.6

638

3

40.5

40.3

–2,487⁶^]

1,947

2,020

1,866

1,209

4

2

1

0,822

6,812

6,534

36,921

24,554

16 ,1 50

26.3

34,667

20,844

13,871

25.0

31,282

19,977

10,770

21.0

30,079

19,261

9,432

19.1

20,056

15,819

4,896

13.6

19,857

17,650

3,932

10.5

18,586

12,053

6,445

21.0

16,735

10,506

5,240

19.2

2

4

4.4

1.6

45.4

43.1

37.0

35.9

19.1

11.9

28.7

25.3

9

.7

9.8

9.4

8.4

8.1

8.0

8.7

10.0

2

6,517

4,583

22,090

23,235

61,475

20,028

21,612

55,511

19,223

21,266

51,259

17,386

22,522

49,340

13,457

17,522

35,875

14,785

18,790

37,507

9,331

14,863

30,639

10,288

11,713

27,241

6

7,634

2

6

,1 28

,1 57

1,659

4,970

4,245

10.2

2,333

4,553

4,042

9.5

2,437

4,304

3,516

9.1

2,927

3,966

2,781

7.5

2,879

–

2,055

–

1,935

–

1,257

–

4

,347

.8

2 ,1 38

6.0

2 ,1 55

6.3

2 ,1 79

6.8

2,311

7.5

9

1

05,972

3,241

104,342

73,499

101,395

69,560

97,275

66,711

93,624

63,548

93,624

62,307

114,952

55,710

118,489

51,703

117,624

50,493

7

4

19

392

351

350

310

269

234

203

0

.62/0.64

0.58/0.60

0.52/0.54

0.46/0.48

0.40/0.42

10.23 /10.74

and Land Rover up to 30 J une 2000

4] excluding C1, sales volume to 2003: 32,859 units

exclude dormant employment contracts, employees in the non-work phases of pre-retirement part-time arrangements and low wage earners

5] up to 1999 including BMW F 650 assembly by Aprilia S.p.A., from 2006 including BMW G 650 X assemply by Piaggio S.p.A./

8] figures available since 2000 9] adjustment to dividend due to acquisition

1

30 Othe r Information

BMW Group Locations . The BMW Group is pre s e nt in the world marke ts

with 23 production and as s e mbly plants , 39 s ale s s ubs idiarie s and a

re s e arch and deve lopme nt ne twork.

1

26 Other Information

1

26 BMW AG Principal Subsidiaries

28 BMW Group 10-year Comparison

30 BMW Group Locations

32 Glossary

36 Index

38 Contacts

39 Financial Calendar

1

31

He adquarte rs

Re s e arch and Deve lopme nt

BMW Group Research and Innovation

Centre (FIZ), Munich

BMW Forschung und Technik, Munich

BMW Group Car IT, Munich

BMW Innovations- und Technologiezentrum

für Leichtbau, Landshut

BMW Entwicklungszentrum für Dieselmotoren,

Steyr, Austria

BMW Group Designworks, Newbury Park, USA

BMW Group Technology Office, Palo Alto, USA

BMW Group Engineering and Emission Test

Center, Oxnard, USA

BMW Group Technology Office, Tokyo, J apan

BMW Group Entwicklungsbüro, Peking, China

P roduction

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 (including Wackersdorf)

Rosslyn plant, South Africa

BMW Brilliance Automotive Ltd.,

Shenyang, China (joint venture with

Brilliance China Automotive Holdings)

Spartanburg plant, USA

Steyr plant, Austria

Swindon plant, GB

TRITEC Motors Ltda., Curitiba,

Brazil (joint venture with DaimlerChrysler)

Contract production

Magna Steyr Fahrzeugtechnik, Austria

As s e mbly plants

CKD production Cairo, Egypt

CKD production Chennai, India (Opening March

2

007)

CKD production J akarta, Indonesia

CKD production Kaliningrad, Russia

CKD production Kuala Lumpur, Malaysia

CKD production Rayong, Thailand

S ale s s ubs idiary marke ts

Argentina

Australia

Austria

Belgium

Brazil

Malta

Mexico

Netherlands

New Zealand

Norway

China

Philippines

Poland

Portugal

Russia

Slovakia

Slovenia

South Africa

South Korea

Spain

Canada

Czech Republic

Denmark

Finland

France

Germany

Great Britain

Greece

Hungary

India

Indonesia

Ireland

Sweden

Switzerland

Thailand

USA

Italy

J apan

Malaysia

1

32 Othe r Information

Glos s ary

[

ACEA]

on a sustainability concept. The BMW Group has

been one of the leading companies in the DJ SI

since 1999.

Abbreviation for “Association des Constructeurs

Européens d’Automobiles” (European Automobile

Manufacturers Association).

[EBIT]

[

Cash flow, operating]

Abbreviation for “Earnings Before Interest and Taxes”.

The profit before income taxes, minority interest and

financial result.

Cash inflow from industrial operations.

[Common stock]

Stock with voting right (cf. preferred stock).

[EBITDA]

Abbreviation for “Earnings Before Interest,Taxes,

Depreciation and Amortisation”. The profit before

income taxes, minority interest, financial result and

depreciation /amortisation.

[

Cost of materials]

Comprises all expenditure to purchase raw materials

and supplies.

[DAX]

[Effectiveness]

Abbreviation for “Deutscher Aktien Index”, the Ger-

The degree to which offsetting changes in fair value

man Stock Index.The index is based on the weighted or cash flows attributable to a hedged risk are

market prices of the 30 largest German stock cor-

porations (by stock market capitalisation).

achieved by the hedging instrument.

[EfficientDynamics]

[

Deferred taxes]

The aim of “EfficientDynamics” is to reduce con-

sumption and emissions whilst simultaneously

increasing dynamics and performance.This involves

a holistic approach to achieving optimum automo-

bile potential, ranging from efficient engine tech-

nologies, lightweight construction and comprehen-

sive energy and heat management inside the

vehicle.

Accounting for deferred taxes is a method of

allocating tax expense/benefit to the appropriate

accounting period.

[Derivatives]

Financial products, whose measurement is derived

principally from market price, market price fluctua-

tions and expected market price changes of the

underlying instrument (e.g. indices, stocks or bonds). [EMAS]

Abbreviation for “Eco-Management and Audit

[

DJ SI]

Scheme”. A management tool that allows com-

panies and organisations to evaluate, report on and

improve their environmental performance.

Abbreviation for “Dow J ones Sustainability Index

World”. A family of indexes created by Dow J ones

and the Swiss investment agency SAM Sustain-

ability Group for companies with strategies based

1

26 Other Information

1

26 BMW AG Principal Subsidiaries

28 BMW Group 10-year Comparison

30 BMW Group Locations

32 Glossary

36 Index

38 Contacts

39 Financial Calendar

1

33

[Equity ratio]

[Principal subsidiaries]

The proportion of equity (= subscribed capital, re-

serves and accumulated other equity) to the balance

sheet total.

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

[

ERA]

– 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 share-

holder

– has control (directly or indirectly) over another

enterprise on the basis of a control agreement or

a provision in the statutes of that enterprise.

Remuneration Framework Agreement.

[Free cash flow]

Free cash flow corresponds to the cash inflow from

operating activities of Industrial operations less

the cash outflow for investing activities of Industrial

operations.

[IASs]

International Accounting Standards.

[Production network]

The BMW Group production network consists

worldwide of 16 plants, six assembly plants and one

[IFRSs]

International Financial Reporting Standards, intended contract production plant. Within this network, the

to ensure global comparability of financial reporting

and consistent presentation of financial statements.

plants supply one another with systems and com-

ponents and are all characterised by a high level of

The IFRSs are issued by the International Accounting productivity, agility and flexibility.

Standards Board and include the International

Accounting Standards (IASs), which are still valid.

Internal financing]

Internal financing is calculated as the profit before

tax, adjusted for depreciation and amortisation and

material non-cash items, less income tax paid.

[Production Triangle MINI]

The three British plants (Hams Hall, Oxford and

Swindon) are jointly manufacturing the MINI – with

greater capacity levels, flexibility and efficiency.

The Hams Hall plant produces the new MINI petrol

engines; the Oxford plant remains responsible for

chassis construction, painting and assembly. The

Swindon plant produces the pressed panels and

chassis components.

[

[Preferred stock]

Stock which receives a higher dividend than com-

mon stock, but without voting rights.

1

34 Othe r Information

[Rating]

[Risk management]

Standardised evaluation of a company’s credit

standing which is widely accepted on the global

capital markets. Ratings are published by inde-

pendent rating agencies e.g. Standard & Poor’s or

Moody’s based on their analysis of a company.

An integral component of all business processes.

Following enactment of the Law on Control and

Transparency 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

[Return on Assets BMW Group]

Profit before interest expense (expense from revers-

ing the discounting of pension obligations and of

other non-current provisions, other interest and simi- continued existence of the company. This applies

lar expenses) and tax as a percentage of the balance

sheet total.

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 docu-

[Return on Assets Financial Services]

Profit before tax as a percentage of operating assets. ment that system and monitor it regularly with the

aid of the internal audit department.

[Return on Capital Employed]

Profit before financial result as a percentage of

capital employed. Capital employed is defined as

operating assets less non-interest bearing liabilities.

For this purposes, non-interest bearing liabilities

exclude non-interest bearing provisions and liabili-

ties.

[Sports Activity Vehicle]

The BMW X5 is the first-ever Sports Activity Vehicle –

a combination of a typical BMW sedan featuring

sporting and comfortable driving features on the

one hand, with far-reaching driving abilities in terrain

on the other.This creates a new market segment.

In 2004, the BMW Group added another SAV, the

BMW X3, to its model range.

[Return on sales]

The ratio of the profit from ordinary activities to

Group revenues. For segment reporting purposes,

the computation is based on the profit before finan-

cial result.

[Subscribed capital]

The share capital of a company is computed by

multiplying the nominal value of the shares by the

number of shares.

1

26 Other Information

1

26 BMW AG Principal Subsidiaries

28 BMW Group 10-year Comparison

30 BMW Group Locations

32 Glossary

36 Index

38 Contacts

39 Financial Calendar

1

35

[

Supplier relationship management]

Supplier relationship management (SRM) uses

ocused procurement strategies to organise net-

f

worked supplier relationships, optimise processes

for supplier qualification and selection, ensure

the application of uniform standards throughout

the group and create efficient sourcing and pro-

curement processes along the whole added-value

chain.

[Sustainability]

Sustainability or sustainable development. The

United Nations Conference on the Environment

and Development, held in Rio de J aneiro in 1992,

resolved a global action plan for combating poverty,

ensuring a suitable population policy, promoting

urban development, human rights, trade, agriculture,

environmental protection, research and technology.

Referred to as Agenda 21, this action plan serves

to ensure sustainable development, preserving the

world’s natural resources and limiting the emission

of pollutants to a volume the environment can ab-

sorb or degrade.

[xDrive]

The xDrive all-wheel drive system distributes engine

power fully variably to all four wheels. The system

recognises at a very early stage when power has to

be shifted and reacts in fractions of a second. This

increases driving dynamics, ensures maximum trac-

tion and can maintain the vehicle’s directional stability

in critical situations.

1

36 Othe r Information

Index

[

A]

Exchange rates 12, 38, 44, 48, 74, 78,105

Accounting principles 54, 72, 74

Analysis of changes in Group tangible, intangible and

investment 86

Explanatory notes to the cash flow statements 107

[F]

Annual comparison 128

Financial assets 48, 50, 53–54, 66, 76 –77, 90 –91,

Annual General Meeting 06, 09 –10, 38, 41–42, 93ff., 107

09, 123

1

Financial instruments 42, 45, 50, 59, 70 –71, 77–78,

81, 94,105ff., 124

Financial liabilities 100

Application of §264 (3) and §264b of the German

Commercial Code (HGB) 110

Apprentices 25, 27, 85

Financial result 44 –45, 65, 78, 81, 96,111–112,128,

1

32,134

[

B]

Financial Services 02, 06,10 –11,14, 23ff., 39,

43 –44, 46 –47, 53, 59 ff., 72, 74 –75, 79, 82, 89,

111–112,127–128,134

Financial statements 03, 07–08,11, 43, 54, 57, 72ff.,

78 –79, 85 –86, 94,104,108,110 –111,115,126,128,

133

Balance sheet 23, 42, 44, 46, 48ff., 55, 57, 59 –60,

7

1

Balance sheet structure 49

Board of Management 04ff., 38, 41–42, 50, 58, 93,

2, 74, 77–78, 86, 88ff., 95–96, 100, 105, 107–108,

15,128,133–134

1

08 ff., 114, 118ff., 133–134

Fleet consumption 30 –31

Foreign currency translation 74

[

C]

Capital expenditure 02–03, 05,11,19, 45, 47–48, 54,

3,111–112,114,128

Cash and cash equivalents 46ff., 55, 66, 68, 91, 93,

07, 128

[G]

6

Group management report 10ff.

1

[I]

Cash flow statement 03,11, 46 –47,107–108,115,128

Changes in the group reporting entity 73

Commercial Code 54, 72

Income Statement 45, 56 –57, 65, 72, 74, 77ff., 84,

89, 96, 99,107,115,128

Income tax assets 91

Compensation of members of the Board of Manage-

ment and the Supervisory Board 109

Compensation report 121ff.

Income taxes 45, 56, 65, 77, 81, 83,108,128,132

Intangible assets 11, 45, 47–48, 53ff., 66, 68, 75 –76,

80, 82, 86, 88,111,132

Consolidated companies 73–74,108

Consolidation principles 73,115

Contingent liabilities and other financial commit-

ments 104

Internal financing 51, 68,111–112,133

Inventories 47–48, 54 –55, 66, 68, 75, 77, 92

Investments accounted for using the equity method

and other investments 76, 86, 89,112

Corporate Governance 06 –07, 50,109,120 –121,

1

24–125

[K]

Cost of materials 51–52,132

Cost of sales 44–45, 54, 56

Cost of sales 65, 72, 75, 79, 88

Key data per share 40

[L]

Current assets 47, 49, 55 –56, 66, 68, 76 –77, 82, 89, Leased products 47–48, 66, 68,76, 82, 86, 89,111–112

9

2,128

Locations 26, 28 –29, 33,130

[

D]

[M]

DAX 07, 38 –39,132

Debt 43, 60, 91, 98

Deferred income 50, 55,102–103

Deferred taxes 51, 68, 77, 82–83, 94,107,132

Dividend 08ff., 40ff., 47, 50, 68, 75, 81, 84, 93 –94,

109,121ff.,128,133

Mandates of members of Board of Management 119

Mandates of members of Supervisory Board 116

Market price changes 132

Marketable securities 48ff., 55, 68, 72, 76, 81, 86,

90 –91,107

Minority interest 50, 52, 67, 84, 94,132

Motorcycles 03, 06,10,14, 21–22, 26, 43ff., 53 –54,

62,111–112,122

1

26 Other Information

1

26 BMW AG Principal Subsidiaries

28 BMW Group 10-year Comparison

30 BMW Group Locations

32 Glossary

36 Index

38 Contacts

Dow J ones Sustainability Index World 39,132

[ ]

E

39 Financial Calendar

Earnings per share 40, 44, 65, 75, 84

[N]

Employees 03, 08 –09, 20, 25ff., 33, 38 –39, 42,

New accounting treatment 02–03,11, 40, 43,128

New financial reporting rules 78 –79

Non-current assets 66, 68, 76, 89, 92,128

5

1–52, 54, 61

Employees 85, 93ff.,120 –121,128

Environment 12,14,19, 27, 29, 38, 58, 60ff., 74,115,

117, 121, 135

[O]

Equity 40, 42ff., 48ff., 53ff., 65ff., 70 –71, 73ff., 81, 83, Other disclosures relating to the income statement 84

6, 89, 93 –94, 98,107–108,112,115,126ff.,133 Other liabilities 50, 55, 67, 83,102–103

8

1

37

Index for graphs

Other operating income and expenses 45, 56, 65, 80

Other provisions 50, 55, 67, 78, 98 –99

Outlook 14, 60, 62

[Finances]

BMW Group Capital expenditure 02

BMW Group Profit before tax 02

BMW Group Revenues 02

BMW Group Revenues by region 11

BMW Group capital expenditure and operating cash

flow 11

[

P]

Pension provisions 50, 54 –55, 67, 78, 94, 95,

09 –110,122,132

1

Personnel costs 80, 84

Prepayments 55, 92

Exchange rates compared to the Euro 12

Oil price 13

Principal subsidiaries 126 –127,133

Product and market initiative 63

Production 03ff., 11,13,17ff., 26ff., 32, 35, 42, 48,

Precious metals price trend 13

Steel price trend 13

Contract portfolio of BMW Group Financial Services 23

Contract portfolio retail customer financing of BMW

Group Financial Services 2006 23

5

8 –59, 62–63, 75ff., 80, 88, 103,119,128,130ff.

Production network 05,18 –19, 59,133

Profit before tax 02–03,10, 43ff., 62, 65,111–112,

Regional mix of BMW Group purchase

volumes 2006 35

Change in cash and cash equivalents 47

Balance sheet structure Group 49

Balance sheet structure industrial operations 49

BMW Group value added 2006 52

1

28, 133 –134

Property, plant and equipment 11, 45, 47–48, 53ff.,

6, 68, 75 –76, 80, 82, 86, 88,105,111,132

Provisions 28, 42, 45–46, 49 –50, 54 –55, 59ff.,

6

1

7–68, 72, 74 –75, 78ff., 94, 95, 98 –99,104,109ff.,

22,128,132,134

Purchases 58, 62

[Production and sales volume]

BMW Group Deliveries of automobiles 02

BMW Group Deliveries of automobiles by region

and market 15

[

R]

Rating 24, 60,134

Receivables 46ff., 55, 66, 68, 72, 74, 77, 79 –80, 90,

BMW Group – key automobile markets 2006 15

BMW brand cars in 2006 – analysis by series 16

Deliveries of BMW diesel automobiles 17

MINI brand cars in 2006 – analysis by engine and

model variant 17

9

2–93,105,111

Reconciliations 10, 46, 63,111–112,114

Related party relationships 108

Research and development 33, 44 –45, 56, 65, 80,

8

8,130,131

Automobile production of the BMW Group by

plant in 2006 18

Return on sales 44 –45, 53,111–112,128,134

Revenues 02–03,10 –11, 44ff., 48, 51–52, 54 –56,

BMW Group – key motorcycle markets 2006 21

BMW motorcycles delivered 21

5

8, 60, 65, 72ff., 78 –79, 94,112,128,134

Risk management 04, 07, 58,105,134

BMW motorcycles in 2006 – analysis by series 22

[

S]

[Workforce]

Sales and administrative costs 44 –45, 65, 80

Sales volume 03, 05 –06,10,14ff., 21–22, 36,

BMW Group apprentices at 31 December 25

Employee fluctuation ratio BMW AG 26

4

5 –46, 60, 62–63,128

Segment information 79,111ff.

[Environment]

Shareholdings of members of the Board of Manage-

ment and Supervisory Board 109,124

Stock 02, 08ff., 24, 38ff., 44, 54, 65, 75, 84, 93,109,

Process effluent per manufactured car 29

Volatile organic compounds (VOC)

per unit produced 29

1

20ff., 128, 132ff.

Subsidiaries 48, 54 –55, 71, 73 –74, 81, 83, 85, 89,

2, 94,102,104,108,126 –127,130,133

Supervisory Board 04ff., 41–42, 58,108ff.,116,118,

20ff.

CO emissions per unit produced 30

2

Energy consumed per unit produced 30

Efficiency improvement of the BMW 118i revised

model 31

Efficiency improvement of the BMW 320i 31

Efficiency improvement of the BMW 525i 31

Fuel consumption of BMW Group cars according

to VDA commitment 31

9

1

Supervisory Board Report 04ff.

Suppliers 35 –36, 59,120

[

T]

Trade accounts receivable 93

Trade payables 50, 55, 67,103

[Stock]

Development of BMW stock compared to stock

exchange indices 38

Development in value of a BMWstock investment 39

[

W]

Workforce 03, 20, 25ff., 54, 61, 63,112,128

This version of the Annual Report is a translation

from the German version. Only the original German

version is binding.

1

38

Contacts

Business Press

The BMW Group on the Internet

Telephone +49 89 382-2 33 62

Further information about the BMW Group is

available online at www.bmwgroup.com.

Investor Relations information is available directly

at www.bmwgroup.com/ir.

+

49 89 382-2 41 18

Fax

+49 89 382-2 44 18

E-mail

presse@bmwgroup.com

Information about the various BMW Group brands

is available at www.bmw.com, www.mini.com and

www.rolls-roycemotorcars.com.

Investor Relations

Telephone +49 89 382-2 42 72

+

49 89 382-2 53 87

Fax

E-mail

+49 89 382-2 44 18

ir@bmwgroup.com

1

26 Other Information

1

26 BMW AG Principal Subsidiaries

28 BMW Group 10-year Comparison

30 BMW Group Locations

32 Glossary

36 Index

38 Contacts

39 Financial Calendar

1

39

Financial Cale ndar

Interim Report to 31 March 2007

Annual General Meeting

3 May 2007

15 May 2007

Interim Report to 30 J une 2007

Interim Report to 30 September 2007

1 August 2007

6 November 2007

The BMW Group

The year 2006

Focus: Assuming responsibility

Assuming

responsibility.

Creating values.

Preface by the Chairman of the Board of Management >> 04

The BMW Group >> 08

The year 2006 >> 14

Focus: Assuming responsibility >> 36

The BMW Group

03

Growing profitably,

acting responsibly.

Challenge and

aspiration at once.

The BMW Group’s

solution: assuming

responsibility.

Focus: responsibility

Page

3

6

04

Ladies and Gentlemen,

I am pleased to inform you that we have achieved our objec-

tives for the year 2006 and, in fact, even exceeded some of

them. In the financial year 2006, the BMW Group confirmed

its position as the world’s leading premium manufacturer

in the automobile industry with record sales, revenues and

income.Thus, 2006 was the most successful year ever in

the Company’s history.

The 1,373,970 automobiles and 100,064 motorcycles

sold, as well as around 2.3 million contracts in place in the

Financial Services segment show that we were again able

to continue our growth course in 2006. Never before have

so many customers placed their trust in us. We are proud

of this and at the same time realise that it is our duty to earn

this trust anew each and every day with our automobiles,

motorcycles and financial services.

Our key financial data also improved last year. For the first

time in the Company’s history, our profit before tax exceeded

the four billion euro mark. Admittedly, book profit from the

exchangeable bond option relating to shares in Rolls-Royce

plc, London, gave us tailwind. However, even without this

special effect, our profit clearly tops that of the previous

year – despite the well-known adverse external factors

arising from negative currency effects and high prices for

raw materials.

Norbert Reithofer

Chairman of the Board of Management

We achieved all this only because all the employees in the

BMW Group work together as a team to attain our objec-

tives.They do so with a dedication and motivation, which

cannot be taken for granted. Therefore, my colleagues

on the Board of Management and I would like to express

our sincere thanks to all of them. Our dealer network and

business partners also contributed to the success of the

BMW Group in 2006 with great commitment. Their dedi-

cation and willingness to invest help to ensure that the

BMW Group will continue its growth course in the future.

Preface

05

At this juncture, I would also like in particular to thank my

colleagues Dr. Helmut Panke and Professor Burkhard Göschel,

both of whom retired from the Board of Management in 2006

upon reaching the statutory age limit. The BMW Group has

gained a position of strength as a result of their successful

work in recent years.

Today, many of our models hold leading positions in the

premium segments of the international automobile markets.

Indeed, the BMW 3 and 5 Series are the market leaders

worldwide in their respective segments. We aim to strengthen

this position in the coming years – and, to this end, we will

extend our product range with a variety of new models. Here

are a few examples: in March, we will be launching attractive

new products such as the new BMW 3 Series Convertible,

the revised BMW 1 and 5 Series, and the M5 Touring.The

new BMW X5, which has already been introduced success-

fully in the United States, will also be launched in Europe

and Asia during the first months of 2007. Other new products

will follow in the course of the year. In 2007, we will continue

the model change in the MINI, for example, with the new

MINI One and the MINI Cooper D, thus stabilising the brand’s

extraordinary success. For Rolls-Royce, the year 2007 will

be dominated by the market launch of the convertible,

the Rolls-Royce Phantom Drophead Coupé, which has

already aroused great interest and expectations. As already

announced, a new model positioned below the Phantom

will also be added to the product range in the coming years.

The new and existing models will enable us to develop

new markets and segments in 2007 and the following years.

To do this, we will again step up our international presence

in 2007. The latest example is our commitment in India

where we opened a new sales subsidiary near Delhi at the

beginning of the year. A few days ago our new BMW plant

in Chennai began production of BMW 3 Series automobiles

for the Indian market. The plant will also produce BMW 5

Series models for India from May onwards. Our activities in

China continue to develop in a very promising way. In 2006,

0

6

we sold 36,430 automobiles there, more than a 50 percent

increase on the previous year. This significant growth is

further proof that we are following the right path with our

strategy to develop new markets.

But we will also continue to grow in our core markets in

Europe, the United States and J apan. That is how we

intend to demonstrate our position as leading premium

manufacturer. I am firmly convinced that we will succeed

in this because one thing is perfectly clear: the BMW Group

stands for premium and no other manufacturer in the world

can do this better than we can. Steadily rising sales volumes

for BMW, MINI and Rolls-Royce, robust business with BMW

motorcycles as well as years of continuing growth for

BMW Financial Services are all impressive evidence of this.

However, a record year such as 2006 should not mislead us.

Our Company, like the entire automobile industry, faces

formidable challenges. The continuing weakness of the US

dollar against the euro, comparatively high prices for raw

materials and still very intense competition on the world’s

automobile and motorcycle markets will again influence the

course of business in the year ahead. This is the environ-

ment in which we have to maintain the upper hand if we are

to end the coming year as successfully as the year 2006.

At the same time, we as company have to rise to the huge

challenges we all face and make our contribution – first and

foremost the reduction of CO emissions and their con-

2

sequences for climate change. Here all members of society

are called upon to contribute whatever they can. And that

is exactly what the BMW Group will do – as so often in its

own way, which is typical of our Company. As automobile

manufacturer we have a responsibility in many fields. We

Preface

07

must continue to develop our business success, increase

the Company’s profitability and, at the same time, safeguard

employment. We have to meet our customers’ wishes for

efficient and dynamic vehicles and, at the same time, con-

tinue to keep environmental protection in mind. And we

must push ahead with innovations and develop drive con-

cepts that guarantee individual mobility even in an age with-

out fossil fuels.

Against this background, it is decisive to consider and bal-

ance the interests of shareholders, customers, employees

and other stakeholders in order to master the challenges and,

at the same time, to safeguard the success of the BMW

Group in the future. We at the BMW Group aim to devote

even greater attention to this objective and to our responsi-

bility as company in the next few years. So there is good

reason why the subject of responsibility should play a spe-

cial role in this Annual Report. For it is the answers to the

challenges mentioned earlier that determine a company’s

future viability; a characteristic that is to be found neither in

the Balance Sheet nor in the Income Statement. But it is

this characteristic that determines decisively the value of

a

company such as the BMW Group. This is the value which

we aim to increase – in 2007 and in the years that follow.

Yours,

Norbert Reithofer

Chairman of the Board of Management

0

8

The BMW Group

The Company is unique in the automobile industry. It is among the

most profitable manufacturers in its sector. It concentrates exclu-

sively on the premium segments of the international automobile and

motorcycle markets. And it does so with a consistency of purpose

that is unequalled. Premium and nothing else – that is the philosophy

behind the BMW Group’s success. An aspiration that determines the

character of the entire Company: not only in the automobile and

motorcycle business, but also in the business with financial services

for corporate and private customers.

Premium – and nothing else.

Growing profitably – worldwide.

Anticipating the future – sustainably.

The BMW Group

09

Premium – and nothing else. Anyone who purchases a BMW, a MINI or a

Rolls-Royce knows exactly what to expect. All the vehicles of these three

brands stand for top quality and innovative technical solutions – in short: product

substance. At the same time, the vehicles of all three brands, however much

they differ from one another, have something else in common: they convey a

particular lifestyle and exert a defining influence on the spirit of their time. In

other words: they arouse emotions. This combination of product substance and

emotions endows with the automobiles and motorcycles of the BMW Group

with their unique character.

Premium is what the BMW Group does best. Premium is this Company’s

inherent strength. Each of the three brands – BMW, MINI and Rolls-Royce –

has its own unmistakable profile, authenticity and individual history. Thus, each

brand appeals to a particular type of customer. We aim constantly to meet all

the expectations of these clearly defined groups of customers. This means we

will always supply the customer with 100 percent BMW, 100 percent MINI or

1

00 percent Rolls-Royce. Conversely, the BMW Group does not claim to provide

something for everyone. Rather, the BMW Group does what it can do best –

with consistency of purpose and without compromises.

1

0

Growing profitably – worldwide. The BMW Group aims to continue its success

with this strategy in the future. Numerous potentials for further growth exist.

For example, demand for premium automobiles is increasing worldwide, with pre-

mium automobile markets growing more strongly than the so-called volume

segments. The BMW Group intends to participate in this growth.That is why it

is extending its product range and is pressing forward into new segments with

new models. In doing so, the Company is meeting the customers’ wish for

individualised vehicle concepts. With success: in the last six years alone, the

BMW Group’s automobile sales have risen by almost two thirds. This growth is

the result of the most extensive product and market initiative in the Company’s

history. At the same time, the financial services segment also grew steadily and

is now one of the mainstays of the Group’s business development.

However, for the BMW Group growth means not only launching new, desirable

products onto the market, but also developing new markets at the same time –

and at exactly the right time. In doing so, the BMW Group follows the principle

of “production follows market”. First of all, it develops the market with importers

and then it enters the market with its own sales subsidiary. If a market offers

corresponding potential, the Company establishes its own production facilities

there. Numerous examples demonstrate the success of this strategy: the

BMW Group built its own BMW plant in South Africa in 1974, which today plays

an important role in the Company’s worldwide production network. In the United

States, the BMW Group has been represented by its own plant in Spartanburg,

South Carolina, since the mid-1990s. Since then the BMW Group’s sales on the

world’s largest automobile market has more than trebled; the BMW Group is the

leading European premium manufacturer in the United States.

In 2004, a sales and production joint venture was opened in cooperation

with a partner in the emerging Chinese market. Since then sales have more than

doubled there, too. In 2007, the BMW Group is now entering India with its own

sales subsidiary and an assembly plant for BMW 3 and 5 Series automobiles.

Thus, the BMW Group currently has 23 production locations in 13 countries and

is represented by 39 of its own sales subsidiaries all over the world.

The BMW Group

11

Anticipating the future – sustainably. J ust as the BMW Group knows what it

does best in terms of its products, the Company also knows what it stands for:

profitable growth and the long-term increase in the Company’s value. Achieve-

ments merely serve as the point of departure for further improvements. This

conviction, combined with the wish to achieve the very best, moves and drives

not only the more than 106,000 employees of the BMW Group worldwide. It

also shapes corporate culture and determines all processes in the Company.

More than 1.3 million customers placed their trust in the BMW Group last year.

Thus, they have once again made the Company the most successful premium

manufacturer in the automobile industry worldwide. The BMW Group aims to

justify this trust in the future, too. Therefore it will continue to offer its customers

individual mobility with technically superior and emotionally appealing automo-

biles and motorcycles as well as attractive financial services – and will do so as

an independent company that shapes its future on its own.

1

2

nationalities work together at the BMW Group’s Munich location. Thus, the BMW

Group is not only a truly international company in its geographical scope, but also

in the composition of its workforce.

9

8

billion euros were paid to BMW Group employees in wages

and salaries in 2006.This amount includes pension scheme

and social security costs.

7.448

BMW enthusiasts visited the BMW Group Mobile Tradition museum

in 2006. Only about half the visitors came from German-speaking

countries, the rest were international guests.

1

96,735

is the number under which the BMW brand and trademark were entered

in the German Imperial Trademark Register on 10 December 1917.

2

21,388

The BMW Group

13

people are employed in the BMW Group’s dealer network,

namely at independent dealerships or importers – almost as

many people as within the BMW Group itself.

100,000

seconds was the average time between two sales of a

BMW Group automobile in 2006.

2

3

tons is the load the foresail of the BMW

ORACLE Racing Team’s yacht has to

bear in regattas such as the America’s

Cup – even though the sail itself weighs

a mere 38 kilograms.

6

seconds are all it takes for the BMW Sauber Team’s F1.06 to accelerate

from 0 to 100 km/h. Less than three seconds later the vehicle reaches

a speed of 200 km/h – and it has a stopping distance of only 55 metres

when the brakes are slammed on.

2

.6

metres was the distance the golf balls of the 156 players had

to travel in the 18th BMW International Open.

2

,885,757

1

4

The year 2006 was the most successful in the company

history of the BMW Group.This is evident not only from record

sales, revenues and income, but also from the many events and

highlights that marked the year 2006 for the BMW Group – here

are some of them.

The year 2006

15

What events

marked the

year 2006 for the

BMW Group?

Too many to all be

listed here. Some

of the highlights

.

Highlights

3

1

6

J anuary

February

March

April

May

J une

J uly

August

September

October

The year

November

2

006

December

The year 2006

17

0

9/01/2006 North American International Auto Show Detroit. >> 18

0

1

2

1/02/2006 Construction work begins in India. >> 19

0/02/2006 Design Award of the Federal Republic of Germany. >> 19

7/02/2006 World premiere at the International Motor Show in Geneva. >> 20

0/02/2006 Prince Andrew visits Rolls-Royce in Goodwood. >> 21

0

2

7/03/2006 BMW plant in Spartanburg passes the one million mark. >> 21

8/03/2006 New yacht for the BMW ORACLE Racing Team. >> 22

1

3/04/2006 BMW 3 Series is World Car of the Year. >> 23

1

0/05/2006 Engine of the Year – V10 power unit from the BMW M5/M6. >> 23

7/05/2006 Victories in the Mille Miglia 2006. >> 24

0

1

9/06/2006 Hotel MINI International opens in time for the Football World Cup. >> 25

6/06/2006 100,000 BMW 3 Series automobiles made in Leipzig. >> 25

0

2

1/07/2006 Sales subsidiaries opened in the Czech Republic and in Slovakia

. >> 25

5/07/2006 Relaunch of an icon. >> 26

0

9/08/2006 Go ahead for the Scientific Award 2007. >> 26

0

1

2

1/09/2006 Change in the Board of Management of the BMW Group. >> 27

2/09/2006 MINI production triangle launched. >> 27

2/09/2006 A new era of mobility begins – the BMW Hydrogen 7. >> 28

6/09/2006 BMW Group remains the most popular employer. >> 28

8/09/2006 MINI world premiere at the Mondial de l’Automobile 2006. >> 29

9/09/2006 Rolls-Royce announces new model range. >> 30

1

0/10/2006 BMW Motorrad at INTERMOT 2006 in Cologne. >> 30

0

1

2/11/2006 2,000,000 retail customer contracts for BMW Group Financial Services. >> 31

8/11/2006 Excellence Award for the BMW Group. >> 31

9/11/2006 Golden Steering Wheel for MINI. >> 31

8/11/2006 Auto China, the international motor show in Beijing. >> 32

9/11/2006 BMW and Andy Priaulx score a double victory in the FIA WTCC. >> 32

0

1

1/12/2006 BMW X5 has its world premiere at the Los Angeles Auto Show. >> 33

7/12/2006 BMW Group as partner of the world’s most important art fair. >> 34

4/12/2006 Super-brain for BMW Sauber F1. >> 35

5/12/2006 BMW plant in Berlin breaks the 100,000 barrier. >> 35

1

8

0

9 /01/2006

BMW Z4 Roadsters have their

world premiere at the North

American International Auto

Show Detroit.

Detroit. At the beginning of J anuary the BMW Group

staged two world premieres at the North American

International Auto Show (NAIAS).The new BMW Z4

Roadster and the particularly powerful BMW Z4 M

Roadster by BMW M GmbH were introduced to the

public for the first time. The BMW Z4 Coupé Con-

cept Car was also exhibited to show the model’s

additional potential for the near future in terms of

design, technology and performance.

With the BMW Concept X3 EfficientDynamics,

the Company demonstrated how the intelligent

management of energy flows can help to reduce

fuel consumption and emissions.

At the beginning of 2006, the year of the 100th

birthday of the Mini’s inventor, Sir Alec Issigonis,

the MINI brand presented the design study MINI

Concept Detroit at NAIAS. This model interprets

the core idea of the Mini Traveller with the motto

>

>01 BMW Z4 Roadster:

s pecial focus on new

engines and a dis creetly

updated des ign.

>

>02 BMW Z4 M Roadster:

a purist high-perform-

ance vehicle that extends

the range upwards .

“Go sports!”

>>03 Des ign study MINI

Concept Detroit: dynamic

engine performance and

s porting ambience ins ide

the car combined with

flexible, intelligent us e of

s pace.

>> 01

>>04 The BMW Group is

continuing its inter-

national market initiative

in India. From 2007 the

BMW Group will begin by

s etting up s ix new BMW

dealers hips in Delhi,

Mumbai, Chandigarh and

Bangalore.

>> 02

>> 03

The year 2006

19

0

1/02 /2006

10 /02 /2006

Construction

work begins in

India.

Design Award of the Federal

Republic of Germany for the

BMW Group.

Chennai. A milestone for Frankfurt/Munich. In 2006, the BMW Group was

the BMW Group’s activ-

ities in India: construc-

tion work began on the

new plant in India. In the

new assembly plant in

Chennai, in the south-

the only manufacturer to receive the “Design

Award of the Federal Republic of Germany” twice

over. Each year, this prestigious official design prize

is awarded by the German Design Council on

behalf of the Federal Ministry of Economics and

Technology. The BMW Group gained the Design

east of India, BMW 3 and Award for the BMW 6 Series Coupé and Convertible

Series automobiles are and for its trade fair presentation of the MINI brand.

to be produced exclu- Companies and individuals cannot compete

sively for the Indian mar- for the award on their own. Rather, they have to be

5

ket.The BMW Group is

also establishing its own

sales subsidiary in the

Greater Delhi area and

is thus continuing its

international market ini-

tiative with a wide range

of activities in India. In

addition to running the

assembly plant and

nominated by the ministries and senators of eco-

nomic affairs of Germany’s federal states or by the

Federal Ministry of Economics.To be considered,

however, the product must have already won a Ger-

man or international prize. Awards are made for a

maximum of 25 products.

importing BMW auto-

mobiles, the subsidiary’s

responsibilities will in-

clude the development

of the dealer network,

pricing and product

strategy, marketing and

aftersales. Subsidiary

and assembly plant will

go into operation at the

beginning of 2007. The

BMW Group will also

expand its dealer net-

work to all the country’s

major urban areas.

>> 04

2

0

1

7/02 /2006

World premiere at the International

Motor Show in Geneva.

Geneva. The BMW Group introduced two particularly

sporty automobiles to the international public at

the 76th International Motor Show in Geneva: the

BMW Z4 M Coupé and the BMW Z4 Coupé 3.0si.

The third new product on show was the BMW 320si,

which is available in a limited edition and at the same

time serves as a basis for the competition vehicle in

the World Touring Car Championship 2006 (WTCC).

The first major European motor show of the

year is also the arena for presenting numerous tech-

nical innovations. Therefore BMW also presented a

world premiere in Geneva in the drive sector: the first

straight-six petrol engine with bi-turbocharger, High

Precision Injection and all-aluminium crankcase.

The MINI brand presented a particularly sporty

automobile in Geneva. The new MINI Cooper S with

J ohn Cooper Works GP Kit weighs about 50 kilo-

grams less than a MINI Cooper S with average equip-

ment. At the same time, with engine power boosted

to 160 kW/218 bhp and a top speed of 235 km/h,

the model produced in a strictly limited edition of

2

,000 units offers performance that far exceeds that

>

> 01 of the MINI Cooper S.

>> 02

>> 04

>> 03

The year 2006

21

2

0 /02 /2006

07/03 /2006

Prince Andrew BMW plant in Spartanburg

visits

passes the one million mark.

Rolls-Royce

in Goodwood.

Spartanburg. At the beginning of March, the one

millionth BMW was produced at the BMW plant in

Spartanburg, South Carolina.The jubilee vehicle,

a blue Z4 M Roadster, remained on the premises

and was handed over to the plant’s Visitor Centre.

Twelve years ago, on 8 September 1994, the

first BMW rolled off the assembly lines in the United

States. The BMW Group has invested more than

Goodwood. For the first

time, His Royal Highness

the Duke of York, Prince

Andrew, visited the

Rolls-Royce Motor Cars

manufacturing plant

and head office in Good- 2.6 billion US dollars in Spartanburg to date and now

wood near Chichester.

The Duke of York

has more than 4,300 employees there. Today, the

Spartanburg plant produces the BMW Z4 models

and the X5 for markets all over the world.

arrived in a Rolls-Royce

Phantom and was wel-

comed by the Chairman

and Chief Executive of

Rolls-Royce Motor Cars,

Ian Robertson. During a

tour of the plant, Prince

Andrew was informed

about the production

process: each Phantom

is hand-built.

>>01 BMW Z4 M Coupé:

without compromis e,

purist and extraordinarily

powerful.

>

>02 BMW Z4 Coupé:

two-door roadster

with s uperior chas s is ,

maximum dynamics and

agility.

>>03 BMW 320s i: excel-

>> 05

lent performance and

exclus ive appearance,

combined with the typi-

cal functionality of the

BMW 3 S eries .

>>04 MINI Cooper S

J ohn Cooper Works GP Kit:

the first s eries -produced

MINI with just two s eats .

>> 06

>>05 His Royal Highnes s

the Duke of York,

Prince Andrew, as ked

employees about

the production of the

Rolls -Royce Phantom.

>>06 BMW plant in

S partanburg: at the

beginning of 2006 the

production area was

converted to one-line

production.

2

8 /03 /2006

New yacht for the BMW ORACLE

Racing Team.

Valencia. Its name: USA 87. 24 metres long, four

metres wide, total weight 24 tons. At the end of March

the BMW ORACLE Racing Team’s new yacht was

christened officially by smashing a bottle of champagne

across the bow. The new yacht is the impressive result

of 1,000 hours of two-boat testing and 30,000 man-

hours of boat-building – and is the decisive milestone

on the way to participating in the 32nd America’s Cup

in Valencia in the summer of 2007. The BMW ORACLE

Racing Team spent much of the 2006 season improv-

ing the new yacht. The season was a great success.

In 2006, the BMW ORACLE Racing Team took part in

four regattas and won two first places.

>>01 Christening of the

US A 87: S ue Dicks on,

wife of the BMW ORACLE

Racing team CEO Chris

Dicks on, took on the role

of godmother for the new

BMW ORACLE racing

yacht.

>

>02 US A 87: At the

end of February the hull,

weighing around two

tons , was trans ported

from S eattle to Valencia in

a s pectacular way – 8,900

kilometres aboard a Rus s -

ian cargo plane.

>> 01

>>03 The BMW V10 high-

performance engine

that powers the BMW M5

and M6.

>> 02

The year 2006

23

1

3 /04 /2006

10 /05 /2006

BMW 3 Series

is World Car of

the Year.

Engine of the Year – V10 power

unit from the BMW M5/M6.

Munich. Never before in the history of the “Engine

of the Year” award has a power unit received the

accolade in two consecutive years. The V10 high-

performance power unit from the BMW M5/M6

accomplished this feat. In Stuttgart in May, around

60 internationally renowned motoring journalists

voted it “International Engine of the Year 2006”.

Munich/New York.The

BMW 3 Series is the

“World Car of the Year”.

In the competition for

this international car

award, the fifth genera-

tion of the BMW 3 Series The power unit also received the much-sought-after

automobile beat the

6 other contenders in

its category. For the

World Car of the Year”

award a panel of 46 mo-

toring journalists from

all over the world judges

the most important new

models of the year ac-

cording to 20 criteria,

including design, per-

formance, handling,

“Best Performance Engine 2006” award and won

the Best Above 4-litre category.

2

The 3.2-litre straight-six with 343 bhp from the

BMW M3, which now also powers the BMW Z4 M

Roadster and Z4 M Coupé, was another success

for the BMW Group: for the sixth time in a row it was

Best in the 3- to 4-litre category – no engine has

ever achieved this since the competition began.

In addition, the 3.0-litre twin-turbocharged

diesel engine, which powers the BMW 535d with

272 bhp, won the 2.5- to 3.0-litre category for the

second time and is thus the only diesel winner in

“

comfort and functionality. the competition. The new BMW 3-litre six-cylinder

The awards ceremony

was held during the

New York International

Auto Show.

petrol engine, used in almost all BMW models, took

second place.

>> 03

2

4

1

7/05 /2006

Victories in the Mille Miglia 2006.

Munich/San Donato Milanese. In the year of the

BMW 328’s 70th birthday, the Cané /Galliani team of

the BMW Group Mobile Tradition won the Mille

Miglia 2006 in the historic BMW 328 MM Roadster

that had already taken third place in 1940.

The ladies’ trophy or “Coppa delle Dame” was

awarded for the twelfth time to Franca Boni and her

daughter Monica Barziza, who had already won in

a BMW 328 in the previous year.

Altogether, 375 vehicles went to the start of

what is undoubtedly the most famous classic car

rally. Eleven teams represented the BMW Group

Mobile Tradition.

>

>01 The winning team in

the ladies ’ trophy, “Coppa

delle Dame”: Franca Boni

and Monica Barziza won

for the twelfth time.

>

>02 Giuliano Cané and

his co-pilot and wife Lucia

Galliani won the race for

the ninth time; s even of

thes e victories were in a

BMW.

>> 01

>>03 The interior of the

MINI Hotel is equipped

s o comfortably that it

can be us ed as overnight

accommodation.

>>04 Welcome to MINI

Hotel International: the

MINI Hotels were always

right at the heart of the

World Cup action.

>> 02

The year 2006

25

0

9 /06 /2006

16 /06 /2006

01/07/2006

Hotel MINI

100,000 BMW

3 Series auto-

mobiles made

Sales subsidiaries opened in the

Czech Republic and in Slovakia.

International

opens in time

for the Football in Leipzig

World Cup.

.

Munich. The BMW Group extended its global

presence by opening sales subsidiaries in the

Czech Republic and Slovakia from 1 J uly 2006.

Thus, as part of its ongoing market initiative, the

Company is continuing resolutely to implement

its strategy of assuming market responsibility in

all the EU states of Central and Eastern Europe.

In these countries, the BMW Group is responsible

not only for importing vehicles, but also for opera-

tions such as the management of the dealerships,

including aftersales and marketing.

With the start of its activities in the Czech

Republic and in Slovakia, the BMW Group’s sales

network is now directly represented in 37, and

from the beginning of 2007 in 39 countries world-

wide. The Company sells 97% of its automo-

biles in these countries. A network of national

importers serves another 100 or so countries.

Leipzig. On 16 J une

2

006, the 100,000th

Munich. MINI Hotels

specially designed for

football fans were ready

in time for the World

Cup. To ensure that all

the football fans felt

really at home the MINI

Hotel International was

joined by MINI national

hotels in the appropriate

national colours. The

MINI Hotel International

is equipped so comfor-

tably that anyone who

BMW 3 Series auto-

mobile rolled off the

assembly lines at the

BMW plant in Leipzig

since the beginning of

series production on

1 March 2005. The

BMW 330i in Titan Silver

Metallic was destined

for a customer in Saxony-

Anhalt.The BMW plant

in Leipzig reached this

milestone earlier than

scheduled and thus

so wishes can spend the impressively demon-

night in it.

strated its efficiency. So

far, more than 4 ,1 00 new

jobs have been created

on the plant premises,

>> 03

more than 2,300 at BMW,

the others at suppliers

and service partners. In

2

007, daily output is to

increase to 650 vehicles.

>> 04

2

6

2

5 /07/2006

09 /08 /2006

Relaunch of an icon.

Go ahead for

the Scientific

Award 2007.

Munich. An architectural icon looks as good as new.

In September, after 29 months, the employees

moved back into the BMW Group’s headquarters in

Munich, a complex comprising the “Four Cylinders”, Munich. The BMW

the BMW Museum, a low-rise building and a multi-

storey car park. The “inside” of both the 22-storey

Group invited young

academics to apply for

Tower and the low-rise building had been completely the Scientific Award

replaced from April 2004 onwards. During this period, 2007 for up-and-coming

the 1,500 employees had their offices in nearby

buildings.

scientists. In this com-

petition with the motto

When the striking bowl-shaped BMW Museum “Passion for Innovation”

re-opens in the spring of 2008 it will be far larger

and have a new concept.

prizes are awarded for

excellent Bachelor’s,

The BMW Tower is classified as a historic monu- Master’s and Doctoral

ment.Therefore, its external façade, made of silvery

shining aluminium elements, was left untouched

and only cleaned. Inside, however, everything was

stripped down to the bare concrete ceilings and

floors: air-conditioning and heating systems, lifts,

fittings and furnishings, and the entire electrical

supply system. A Herculean task: 330,000 cubic

metres of enclosed space and thus a gross usable

area of 53,000 square metres were refurbished.

Theses from all fields of

expertise. In 2007, the

competition will be held

for the ninth time. The

award is worth a total of

70,000 euros. The

deadline for entries was

7 J anuary 2007.

An international and

multi-disciplinary jury

with representatives of

science and industry

judges the entries. Dur-

ing the selection process,

the jury considers the

following criteria: innov-

ation potential, relation

to reality, benefit for the

environment and society,

theory, economic effi-

ciency and form of pres-

entation.

1

4,000 tons of material required environmentally

compatible disposal. All 2,302 windows in the

BMW Group’s headquarters in the BMW Tower

were replaced.

>> 01

The competition

for the BMW Group’s

Scientific Award was

introduced in 1991 and

is held every two years.

So far, the BMW Group

has honoured 45 young

prize-winners together

with their respective

professors.

The year 2006

27

0

1/09 /2006

12 /09 /2006

Change in the

Board of

MINI ProductionTriangle launched.

Munich/Oxford. The start of series production of

the new MINI also signalled the launch of a new pro-

duction network for the BMW Group in Great Britain.

The BMW Group has invested a total of nearly 200

million pounds sterling to build the new MINI in the

so-called MINI production triangle with plants in

Hams Hall, Oxford and Swindon. Thus, maximum

production capacity will rise by 20 percent to up to

240,000 units a year in the medium term. By the

time the plant reaches full capacity, the number of

employees in the production triangle will have risen

from the current 6,350 to a total of around 6,800.

The British Chancellor of the Exchequer, Gordon

Brown, visited the BMW Group plant in Oxford for

the start of production of the new MINI, along with

representatives of British industry and the Chair-

man of the Board of Management of BMW AG, Dr.

Management of

the BMW Group.

Munich. At its meeting

on 20 J uly 2006, the

Supervisory Board of

BMW AG made deci-

sions which will deter-

mine the course of the

BMW Group’s manage-

ment in the long term.

Dr. Norbert Reithofer

was appointed to suc-

ceed Dr. Helmut Panke

as Chairman of the

Board of Management

>

>01 The BMW “Four

from 1 September 2006. Norbert Reithofer.

Cylinders ” in Munich were

completely refurbis hed

within 29 months .

The Supervisory

Board appointed Frank-

Peter Arndt, formerly

Head of the BMW

“The new MINI production triangle is a particu-

larly efficient and flexible production network that

allows us to react individually to our customers’

wishes in the MINI’s production”, said Reithofer.

“This flexibility and customer orientation is unique

in the small car segment.”

>

>02 MINI plant in Oxford:

s urface check in the paint

s hop.

plant in Dingolfing, as

Reithofer’s successor

responsible for Produc-

tion. The Supervisory

Board also appointed

Dr. Klaus Draeger to the

Board of Management

from 1 November 2006.

He will take over respon-

sibility for Research,

Development and Pur-

chasing from Professor

Burkhard Göschel.

>> 02

Draeger was formerly

responsible for the

development of the

BMW 5, 6 and 7 Series.

2

8

1

2 /09 /2006

26 /09 /2006

A new era of mobility begins –

the BMW Hydrogen 7.

BMW Group

remains the