BMW 2010 Annual Report Download - page 60

58
12 GROUP MANAGEMENT REPORT
12 A Review of the Financial Year
14 General Economic Environment
18 Review of Operations
41 BMW Group – Capital Market
Activities
44 Disclosures relevant for takeovers
and explanatory comments
47 Financial Analysis
47 Internal Management System
49 Earnings Performance
51 Financial Position
53 Net Assets Position
55 Subsequent Events Report
55 Value Added Statement
57 Key Performance Figures
58 Comments on BMW AG
62 Internal Control System and
explanatory comments
63 Risk Management
70 Outlook
Comments on Financial Statements of BMW AG
The financial statements of BMW AG are drawn up in
accordance with the German Commercial Code (HGB)
and the German Stock Corporation Act (AktG). The pro-
visions of the German Accounting Law Modernisation
Act (BilMoG) were applied for the first time in the finan-
cial
year 2010. Prior year figures have not been restated.
Application of the BilMoG requirements had an impact
on extraordinary items in the income statement and
revenue reserves in the balance sheet.
BMW AG develops, manufactures and sells cars and
motorcycles manufactured by itself and foreign sub-
sidiaries. 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 2010 rose by 17.7% to 1,481,253
units. The workforce of BMW AG decreased by 705 to
69,518 employees at 31 December 2010, primarily as
aresult of natural employee fluctuation, pre-retirement
part-time working arrangements and voluntary employ-
ment contract termination agreements.
Widespread economic recovery and model life cycle fac-
tors resulted in strong sales volume growth, which was
reflected in a 20.5% growth in revenues. The most sig-
nificant increase was recorded in Asia. Sales to Group
sales companies accounted for euro 32.6 billion or ap-
proximately
71.2% of total revenues of euro 45.8 billion.
The increase in cost of sales was less pronounced than
the increase in revenues, mainly due to reduced material
costs. As a consequence, gross profit increased by euro
3.3 billion to euro 8.6 billion.
The decrease in other operating income and expenses
and in the result on investments was attributable to re-
duced income from Group companies and the lower
level of income from the reversal of provisions.
The profit from ordinary activities increased from euro
605 million to euro 2,337 million.
Extraordinary income and expenses mainly contain
items relating to the first-time application of BilMoG:
this gave rise to net extraordinary income of euro 274 mil-
lion
in 2010. Further information on the impact of
BilMoG is provided in the notes to the financial statements
of BMW AG.
The tax expense in 2010 comprises current year tax and
adjustments for previous years arising in connection
with intra-group transfer pricing arrangements. The re-
sulting threat of a double taxation charge at Group level
is being avoided primarily by instigating bilateral appeal
proceedings.
After deducting the expense for taxes, the Company reports
a net profit of euro 1,506 million (2009: euro 202 million).
Investments went up from euro 1,303 million at the end of
2009 to euro 1,875 million at 31 December 2010, mainly
as a result of capital increases made at the level of BMW
Bank GmbH, Munich, following a cash contribution
from BMW AG and the transfer of an investment by way
of non-cash contribution. The merger of BMW Ingenieur-
Zentrum GmbH, Dingolfing, and hence the
automatic
transfer of assets and liabilities of BMW Ingenieur-
Zen-
trum GmbH + Co oHG, Dingolfing, to BMW AG, Munich,
had the effect of reducing investments.
Capital expenditure on intangible assets and property,
plant and equipment amounted to euro 1,582 million
(2009: euro 1,667 million), 5.1% lower than in the pre-
vious
year. The main focus in 2010 was on product in-
vestments for production start-ups. In addition, property,
plant and equipment with a carrying amount of euro
703 million was transferred to BMW AG in conjunction
with the restructuring measure referred to above. Depreci-
ation
and amortisation amounted to euro 1,540 million.
In order to secure obligations resulting from pre-retire-
ment part-time work arrangements and a part of the
Company’s pension obligations, assets were transferred
to BMW Trust e.V., Munich, in conjunction with Contrac-
tual Trust Arrangements (CTA). The assets concerned
comprise mainly holdings in investment fund assets and
a receivable resulting from a so-called “Capitalisation
Transaction” (Kapitalisierungs geschäft). A further tranche
of pension obligations was externalised in 2010. Follow-
ing the implementation of BilMoG, fund assets have
been offset for the first time against the related guaran-
teed obligations. The resulting surplus of assets over
liabilities is reported in the BMW AG balance sheet on
the line “Surplus of pension and similar plan assets over
liabilities”.
Equity rose by euro 1,734 million to euro 7,088 million.
The first-time application of BilMoG resulted in a euro
407 million increase in reserves. The equity ratio im-
proved from 21.7% to 29.1%.
The amount recognised in the balance sheet for pension
provisions fell to euro 24 million. This was attributable
to the first-time offsetting of pension obligations against
assets transferred to BMW Trust e.V., Munich, as part of
the process of externalising pension obligations.
External liabilities to banks and from commercial paper
programmes were reduced during the financial year. In the
opposite direction, liabilities to subsidiaries in conjunction
with intra-group financing arrangements increased.