BMW 2002 Annual Report Download - page 29

001 BMW Group in figures
004 Report of the Supervisory Board
008 Supervisory Board
011 Board of Management
012 Group Management Report
031 BMW Stock
034 Corporate Governance
042 Group Financial Statements
106 BMW AG Financial Statements
112 BMW Group Annual Comparison
114 BMW Group Locations
116 Glossary
120 Index
28
The growth of the leasing business leads to an
increase in the number of vehicles returned to the
BMW Group at the end of lease contracts which
must be sold. Changes in residual values of vehicles
of the BMW Group on the used car markets are
therefore constantly monitored and forecast. Provi-
sions are recognised to cover identified risks. The risk
is also reduced by measures taken in the life cycle
management and management of used car markets
at an international level, which have led to generally
stable residual values of vehicles of the BMW Group.

The financing and lease business is refinanced as
a general rule in each of the markets in the relevant
currency so as to avoid currency risks.
 The BMW Group responds to operating risks in
sales financing by setting up a new process which
records and values these 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 the inappropriateness or failure
of internal procedures and systems, human error or
external factors.
Legal risks
 The BMW Group is not involved in any court or ar-
bitration proceedings which could have a significant
impact on the economic position of the Group.
 Like all enterprises, the BMW Group is exposed
to the risk of warranty claims. Adequate provisions
have been recognised in the balance sheet to cover
such claims. Part of the risk, especially relating to
the American market, has been insured up to eco-
nomically acceptable levels. The high quality of
BMW Group products, underpinned by regular
quality audits and on-going improvement measures,
helps
to reduce this risk.
Personnel risks
 As an attractive employer, the BMW Group has a
strong position in the intense competition for quali-
fied technical and management staff. A high level
of employee satisfaction and a low level of employee
fluctuation also help to minimise the risk of know-
how drift.
The exposure of the BMW Group to pension risks
is small. BMW AG recognises full provisions for
pension obligations to employees in Germany based
on actuarial valuations. The funds remain in the
company and thus help to finance on-going opera-
tions.
Pension obligations for active employees from
the former Rover/Land Rover activities were trans-
ferred to the pension funds of Rover and Land Rover
in 2002.
Pension entitlements in the USA and the remain-
ing pension obligations in Great Britain are funded
mainly by fixed-income securities with a high level
of creditworthiness and equity shares. Overall, this
reduces the risk of a possible shortfall in coverage
as a result of weak stock markets. Pension fund
shortfalls outside the IAS 19 (Employee Benefits)
corridor are
minimal. Shortfalls are being recognised
over a period up to 15 years. In 2003, the shortfall
of the Groups pension funds will result in an addi-
tional expense of approximately
euro 9 million.
IT risks
In information technology, the BMW Group under-
takes various measures relating to employees, or-
ganisational procedures, applications, systems and
networks in order to protect itself from unauthorised
access or misuse of data.