follow your senses. audi group key figures · 2012-12-18 · audi starts 2004 by exhibiting a...

Dec. 31, 2004 Dec. 31, 2003 Change in %

Production Cars 784,972 761,582 3.1

Engines 1,485,536 1,342,883 10.6

Vehicle sales Cars 971,832 1,003,791 – 3.2

Audi 779,441 769,893 1.2

Germany 235,092 237,786 – 1.1

Outside Germany 544,349 532,107 2.3

Lamborghini 1,592 1,305 22.0

Other Volkswagen Group brands 190,799 232,593 – 18.0

Employees Average 53,144 52,689 0.9

Revenue EUR million 24,506 23,406 4.7

Profit before tax EUR million 1,142 1,101 3.7

Profit after tax EUR million 871 811 7.4

Rate of return before tax Percent 4.7 4.7

Capital investments EUR million 2,056 2,047 0.4

Development expenditure

recognised as an intangible asset 652 591 10.3

Depreciation and amortisation EUR million 1,852 1,833 1.0

Cash flow from operating

activities EUR million 2,690 2,786 – 3.4

Balance sheet total EUR million 14,806 14,024 5.6

Equity ratio Percent 40.4 39.6

1 The changes to IAS 38 have been applied from 2004; the figures affected by these changes for the previous year have been adjusted for greater ease of comparison.From 2004, the balance sheet has been classified in line with the revised IAS 1 on the basis of the maturities of items; the figures for the previous year have been adjusted accordingly.

Audi Group Key Figures1

2004 Annual Report

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Vorsprung durch Technik www.audi.com

AUDI AGFinance Analysis and PublicationsI/FF-1285045 IngolstadtGermanyPhone +49 (0)8 4189-4 03 00Fax +49 (0)8 4189-3 09 00

Annual Press ConferenceFebruary 22, 2005Customer Centre at Audi Forum Ingolstadt

Annual General MeetingMay 11, 2005Customer Centre at Audi Forum Neckarsulm

Interim ReportAugust 2, 2005

2005 Financial Calendar

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117

Review of 2004

January to March

American debutAudi starts 2004 by exhibiting a twelve-cylinder model and a new face at theNorth American International Auto Showin Detroit. The first international show-ing of the Audi A8 L 6.0 quattro* at anexhibition garners considerable publicacclaim. The flagship model, whichsignals an innovative departure in thedesign domain with its single-framegrille, is the first twelve-cylinder carto be launched on the North Americanmarket by Audi.

Award-winning gearboxThe Association of Belgian Motor SportJournalists (UJPA) grants its “FuturAutoAward” to the Audi Direct Shift GearboxDSG. This renowned prize is awarded for technological developments in theautomotive industry. This pioneeringgearbox technology owes the award to

An entirely new sphere of drivingWill Smith teams up with a car of futur-istic design in his fight to ward off thethreat to mankind. In his film “I, ROBOT”,the German premiere of which is held in Berlin, the actor sets out in pursuit ofvillains in the Audi RSQ. Audi designersdeveloped this visionary vehicle speciallyfor the movie. Its eye-catching single-frame grille is also a central aspect ofcontemporary Audi design. The visionaryAmerican cityscapes of the year 2035are, however, the only place that carshave yet been known to roll on spheresrather than wheels.

Drive like a Bayern Munich football starTrue football fans are not content simplyto go to matches week in, week out. Atwww.audi.de/werksdienstwagen, BayernMunich fans have the opportunity to buy ten club cars previously owned byplayers and club officials. The packageincludes a hand-signed number plateand a hand-signed shirt of the famousfirst owner. The first car to be sold isFranz Beckenbauer’s A8 6.0 quattro*.

its combination of impressive agilityand low fuel consumption. According to the specialist jury, this technologycombines the advantages of a manualgearbox with the merits of a modernautomatic.

Partners in horsepowerTechnical mastery, elegance and aes-thetic appeal are as vital to equestriansas they are to carmakers. As sponsorof the Spanish Riding School in Vienna,Audi will in future enjoy a presence atevents held by the oldest riding schoolin the world. This partnership bringstogether tradition, perfectionism anddynamism.

A6 in six centresWorld debut for the A6. The new modelwith the striking single-frame grille isunveiled simultaneously to an audience

PioneeringA team of researchers spearheaded bythe Audi engineer Horst Lindner is nomi-nated for the “German Future Prize”. The researchers developed an innovativelaser technique with which the oilconsumption of engines can be cut byup to 75 percent and wear reduced by asmuch as 90 percent. The German FuturePrize is awarded each year by theGerman President in recognition of out-standingly innovative and promisingdevelopments in the field of technology.The UV laser plant is already in produc-tion use at Audi in Györ.

Under the Sicilian sunThe new generation of the Audi A4features new suspension, new enginesand a completely revised design. At thisnew model’s first official presentation in Sicily, the brilliance of the Mediter-ranean sun mirrors the brilliant conceptof the new single-frame grille. Thejournalists test-driving the cars at theevent are captivated by the sportiness,dynamic performance and elegance of both the saloon and the Avant.

Back to our rootsThe museum’s location is steeped intradition. On precisely the same spotwhere August Horch established AudiAutomobilwerke GmbH in 1910, Prof. Dr. Martin Winterkorn opens the AugustHorch Museum 94 years later. Followingthe completion of a refurbishmentproject lasting two years, the building inAudistrasse, Zwickau displays historicexhibits from Audi’s past in a modernsetting. The exhibition represents a jour-ney through time, tracking around onecentury of automotive construction inSaxony.

Pikes Peak becomes Q7Whereas the concept car was calledPikes Peak, the production model of Audi’s sport utility vehicle (SUV) is tobear the name “Q7”. The new name isannounced by Prof. Dr. Martin Winter-korn at the Paris Motor Show. With theletter Q denoting a new model familywithin the Audi brand, the number 7reflects the model’s positioning in aclass between the Audi A6 and the A8. The market launch of the Audi Q7 isscheduled for early 2006.

Chinese Premier visits AudiOn the day of the Chinese Premier WenJiabao’s visit to AUDI AG in Ingolstadt,the production lines are kept runningeven on a Sunday. Ultramodern produc-tion technologies are the focus of inter-est for the guest of honour during hisfirst visit to Germany. The politician findsout more about models destined forthe Chinese market and how productionmethods are being transferred to Audi’sChinese location in Changchun. He is accompanied by the Bavarian PrimeMinister Edmund Stoiber and a 40-strong delegation.

On the ballFootballers and Audi vehicles are bothsporty and dynamic. At the suggestionof its partner Audi, Bayern Munich playsa friendly against ETO Györ, the localteam at Audi’s Hungarian production

Triumphant returnAudi returns to the DTM (German Tour-ing Car Masters) in triumphant style:after a break of more than ten years, theAudi teams carry on from their suc-cesses of the early 1990s as if they hadnever been away. Audi works driverMattias Ekström clinches the champion-ship in the penultimate race in Brno.With the drivers’ and team trophiesalready in the bag before the start of thefinal race, Audi also captures the DTMmanufacturers’ title at Hockenheim.

15 million Audi vehicles in 40 yearsA success story that can be measured infigures: 15 million Audi vehicles have left the production line since 1965. Thenew A4 adds the latest chapter to a storythat began with a 72 bhp Audi almost 40 years earlier. Whereas just 15,768Audi vehicles were built at Ingolstadt in1965, more than 780,000 Audi cars aremanufactured worldwide in 2004. Theproduction volume has thus increasedalmost fifty-fold in the past fourdecades.

plant. The game, arranged to mark thecentenary of the Hungarian first divisionoutfit, ends 4:1 to the German recordchampions. Among the spectators at thematch are Audi Chairman Winterkornand the Bavarian Prime Minister Stoiber.The proceeds of the game are ear-marked entirely for social projects inGyör.

Rock on the piazzaClassical, pop, comedy or jazz: theprogramme is as varied as the audienceat the Summer Concerts sponsored byAudi. At the opening event on the piazzain front of the Audi Forum, 7,000 enthu-siastic fans find out just what is behindthe motto of the entire concert series:“Vorsprung – experience it live”. Starssuch as Reamonn and Patrick Nuogenerate that perfect open-air feeling inthe audience. Events are now also held

10 years of the Aluminium Centre atNeckarsulmThe centre of expertise for lightweightdesign within the Volkswagen Groupcelebrates its tenth anniversary. This iswhere the first pioneering Audi SpaceFrame ASF for the A8 was developed.The Aluminium and Lightweight DesignCentre brings together development,production planning and quality assur-ance activities under one roof. There arearound 110 employees continually refin-ing Audi’s lightweight design expertise.

250,000th TT built at GyörIt is yellow, sporty and represents amilestone in the success story of AUDIHUNGARIA MOTOR Kft. The 250,000th TTto be built at Györ is a 184 kW (250 bhp)Coupé* with quattro drive and theinnovative Direct Shift Gearbox DSG. The model is exported to over 40 coun-tries.

Golden Steering Wheel for the Audi A6It is the star of the executive class. Thenew A6 wins the Golden Steering Wheeland in so doing sets new standards in the premium segment. The Germannewspaper “Die Zeit” remarks that the Audi A6 puts its challengers in theirplace “through its combination ofdriving pleasure, attractive design andtechnical details”. The jury of this pres-tigious competition reflects this view and presents the golden trophy for theA6 saloon to Prof. Dr. Martin Winterkornin Berlin.

April to June

October to DecemberJuly to September

German Commercial Code IFRS

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Production2 Cars 446,808 491,501 557,777 619,030 626,059 650,850 727,033 735,913 761,582 784,972

Engines 607,175 620,603 763,928 1,241,351 1,266,896 1,187,666 1,225,448 1,284,488 1,342,883 1,485,536

Vehicle sales Cars 447,855 492,046 546,436 599,509 634,973 919,621 991,444 995,531 1,003,791 971,832

Audi Cars 447,855 492,046 546,436 599,509 634,708 653,404 726,134 742,128 769,893 779,441

Germany Cars 204,138 217,858 238,735 244,127 257,686 239,644 254,866 243,650 237,786 235,092

Outside Germany Cars 243,717 274,188 307,701 355,382 377,287 413,760 471,268 498,478 532,107 544,349

Outside Germany Percent 54.4 55.7 56.3 59.3 59.4 63.3 64.9 67.2 69.1 69.8

Market share, Germany Percent 6.2 6.1 6.8 6.5 6.8 6.9 7.5 7.4 7.4 7.2

Lamborghini Cars – – – – 265 296 297 424 1,305 1,592

Other Volkswagen Group brands Cars – – – – – 265,921 265,013 252,979 232,593 190,799

Employees Average 32,823 34,529 37,761 41,011 45,800 49,396 51,141 51,198 52,689 53,144

Revenue EUR million 8,527 9,616 11,458 13,918 15,146 19,952 22,032 22,603 23,406 24,506

Cost of materials EUR million 5,620 6,365 7,568 9,578 10,155 14,539 15,860 16,726 17,163 17,676

Personnel costs EUR million 1,553 1,663 1,973 2,111 2,291 2,542 2,660 2,739 2,938 3,072

Personnel costs per employee EUR 47,311 48,173 52,251 51,485 50,022 51,456 52,018 53,496 55,763 57,798

Depreciation and amortisation EUR million 529 455 556 885 945 1,179 1,412 1,614 1,833 1,852

Profit before tax EUR million 301 441 569 861 839 971 1,286 1,219 1,101 1,142

Profit after tax EUR million 57 154 188 237 324 725 747 752 811 871

Share price (year-end price)3 EUR 24.29 48.06 70.81 75.16 61.20 59.59 160.00 191.00 225.00 220.15

Compensatory payment EUR 0.31 0.46 0.61 0.77 0.77 1.20 1.30 1.30 1.05 X4

Added value EUR million 1,882 2,157 2,606 3,039 3,198 3,590 3,892 4,000 4,287 4,585

Capital investments EUR million 442 739 1,006 1,620 1,516 2,378 2,084 2,342 2,047 2,056

Cash flow from operating activities EUR million 907 765 1,020 1,213 1,163 2,058 2,393 2,440 2,786 2,690

Non-current assets EUR million 1,714 1,978 2,412 3,126 3,679 7,039 7,667 8,264 8,549 8,872

Current assets EUR million 2,562 2,914 3,182 3,359 3,024 3,219 3,437 4,342 5,475 5,934

Equity EUR million 926 1,014 1,109 1,231 1,441 3,749 4,252 4,834 5,552 5,988

Liabilities EUR million 3,349 3,878 4,485 5,254 5,262 6,509 6,852 7,772 8,472 8,818

Balance sheet total EUR million 4,275 4,892 5,594 6,485 6,703 10,258 11,104 12,606 14,024 14,806

1 The changes to IAS 38 have been applied from 2004; the figures affected by these changes for the years 2000 to 2003 have been adjusted for greater ease of comparison.From 2004, the balance sheet has been classified in line with the revised IAS 1 on the basis of the maturities of items; the figures for the years 2000 to 2003 have been adjusted accordingly.

2 Excluding 875 Avant RS 2 (1995).3 Figures for 1995 to 1998 adjusted at a ratio of 1:10 following the introduction of individual share certificates;

year-end price on Munich Stock Exchange.4 In accordance with the resolution to be passed by the Annual General Meeting of Volkswagen AG on April 21, 2005.

10-Year Overview1

of over 1,000 journalists and VIPs in six European cities. The event venues ofBerlin, Madrid, London, Stockholm, Parisand Milan are networked by satellitelink.

August Horch honoured at lastAugust Horch, the founder of the carbrands Horch and Audi, is admitted to the “European Automotive Hall ofFame” in Geneva. This distinction paystribute to a pioneer of automotiveengineering who was instrumental intransforming what started life as the“patented motor vehicle” into the car aswe now know it. The Chairman of theBoard of Management of AUDI AG, Prof. Dr. Martin Winterkorn, and HeikeMüller, granddaughter of August Horch,together take receipt of the officialplaque at the Geneva Motor Show.

in the Reduit Tilly fortress on the banksof the Danube in Ingolstadt. The totalaudience at the end of the concertseason: around 27,000.

Success in 24 hoursAudi finishes the Le Mans 24 Hours with a triple victory. The importer teamsAudi Sport Japan Team Goh, Audi SportUK Team Veloqx and Team ADT Cham-pion Racing earn their place on thewinner’s rostrum at this traditionalendurance race in France. This is thefourth Le Mans win for the R8, adding to its impressive string of successes.The three Audi works drivers Seiji Ara,Rinaldo Capello and Tom Kristensenclinch victory for Japan Team Goh.

* CO2 emission and fuel consumption figures can be found in the glossary.

1

Contents

Foreword 2Report of the Supervisory Board 4

Strategy and Products 6A roll-call of achievements 10Products that captivate: the appeal of carmaking 12The winner’s rostrum: Audi all the way 14More than a group of brands: an alliance of sporty values 16

Technology 18Technology transfer: from motor racing to series production 2225 years of quattro: from rally circuit to fast lane 24

Employees 26Ideas that smooth the way for production 30Prospects through training: learning the Audi way 32

Environment and Society 34Saving energy as a guiding principle 38Reaping what you sow: education and research 40

Markets and Customers 42New markets: paving the way for growth 46Audi in Hollywood and Detroit 48

Group Companies 54Corporate Governance 58Audi Shares 59Management Report of the Audi Group 60Consolidated Financial Statements 72Glossary 11410-Year Overview 117

Audi is one of the world’s leading premium automotive brands, and builds

high-quality, technologically progressive cars that are among the most admired on

the international market. An advanced, forward-looking approach to corporate

management and development constitutes the basis of our success. We place our

customers’ wishes at the very heart of our unceasing quest to find ever better solu-

tions. This philosophy is reflected in our brand claim “Vorsprung durch Technik”.

There are many arguments in favour of our cars. Aspects of commonsense, as well

as their sheer fascination and appeal. When you set out in an Audi, you discover

new dimensions to driving. You sense the allure of true sportiness, hear the rhythm

of progress and see the power of pioneering technologies. The feature pages of

this Annual Report illustrate precisely those things that appeal to the eye, the ear

and the senses of smell and touch. Follow your senses and you will be richly

rewarded.

A DVD inside the back coverof this Annual Report

features exciting film clips marking the anniversary of “25 years of Audi quattro”.

2

Members of the Board of Management

Dipl.-Betriebswirt (FH)Rupert Stadler, Finance andOrganisation

Dr. rer. pol. Jochem Heizmann,Production

Dipl.-Ing.Erich Schmitt,Purchasing

Dr. rer. pol. Horst Neumann, HumanResources

Dipl.-KaufmannRalph Weyler,Marketing andSales

Prof. Dr. rer. nat. Martin Winterkorn,Chairman of the Boardof Management,Technical Development

Dr. h.c. Andreas Schleef, Chairman of theBoard of Manage-ment of SEAT S.A.

3

Foreword

2004 will go down as one of the most successful years of motor sport participation in thehistory of Audi. Outstanding achievements included our fourth victory in the legendary Le Mans 24 Hours, and securing the team, drivers’ and manufacturers’ titles in the German Touring CarMasters (DTM). These successes played an instrumental part in further raising the profile of ourbrand.

2004 was moreover the year in which we rejuvenated our core model series. We kicked off this process with the launch of our new flagship model, the Audi A8 with a twelve-cylinderengine. This ground-breaking luxury saloon is the embodiment of dynamism, elegance, sporti-ness and sophistication. The refined design with the single-frame grille is an outward mani-festation of the progress that Audi has accomplished. Within a matter of months, the twelve-cylinder A8 generated such appeal that it propelled us into the position of clear market leaderin Europe in this top segment.

The next landmark event of 2004 was the launch of the innovative A6 saloon – the mostsporty executive saloon on the market. Customers and test experts alike have been captivatedby its design, technology and finish. Within a few months of going on sale, the A6 saloon hadachieved a very strong market position.

We then launched the A3 Sportback in the summer. This model combines the idea of a compact five-door vehicle with the elegance of a sports coupé. With its distinctive character, itoffers our customers significantly more scope for differentiation than the five-door version ofthe first-generation Audi A3.

The new A4 and S4 models represent a central pillar of Audi’s success. Making theirdebut at the Paris Motor Show, they broke new ground with their design and technical content.Ultramodern TDI and FSI engines, exclusive materials and the award-winning MMI control inter-face make the latest A4 an outstanding product in its competitive field.

All in all, Audi therefore now has the youngest product range in the premium segment.The current range of models strengthens our position amid the cut-and-thrust of automotivemarkets worldwide, with our cars’ considerable appeal providing an assurance of lasting suc-cess.

Both aspects – the innovative product range and our motor sport successes – have thecombined effect of guaranteeing a further image boost for the Audi brand. It already emphati-cally embodies values such as sportiness, sophistication and dynamism, as customers anddealers alike have confirmed.

This positive light in which the market perceives the brand furthermore mirrors theintrinsic dynamism that our company and all its employees have embraced. It reflects an ambi-tion of superlative achievement not only in our products, but also in every area of our businessand work.

On behalf of the entire Board of Management, I would like to thank all those who havebeen and remain instrumental to Audi’s success.

Ingolstadt, February 2005

Prof. Dr. rer. nat. Martin Winterkorn

The 2004 financial year was a highly successful onefor Audi. Audi renewed its core model series, raisedits brand profile and performed vital groundworkfor the future. Production, revenue and vehicle salesconsequently rose for the eleventh year in succes-sion. Earnings in 2004 were yet again affectedsignificantly by the increasing weakness of the USdollar and unremitting pressure of competition,particularly in the North American market. It is acredit to the combined efforts of the management,the workforce and the employees’ elected represen-tatives that the company was so notably successfulin the premium segment in spite of these difficulteconomic circumstances. The Supervisory Boardtakes this opportunity to thank and congratulate allconcerned.

Throughout the past financial year the Super-visory Board considered the development of salesmarkets and the situation and business progress ofAUDI AG and of its principal subsidiaries at quar-terly meetings and with the aid of detailed writtenand oral reports.

Following detailed consultations, the finan-cial, personnel and investment plans were ap-proved on December 6, 2004. The Supervisory Board

furthermore followed the company’s progressoutside the context of its meetings and supportedthe work of the company’s management in anadvisory capacity.

The members of the Presiding Committeeheld in-depth consultations before the SupervisoryBoard meetings.

PwC Deutsche Revision AktiengesellschaftWirtschaftsprüfungsgesellschaft was commis-sioned with the task of auditing the Annual andConsolidated Financial Statements and the man-agement reports of AUDI AG and the Audi Group,and subsequently signed these off without qualifi-cation. The examination conducted by the AuditCommittee and Supervisory Board likewise revealedno cause for objections, with the result that theSupervisory Board was able to ratify the Annual andConsolidated Financial Statements at its meetingon February 18, 2005. The annual accounts are thusestablished.

The Audit Committee met on three occasionsin 2004 and was informed in depth about the Con-solidated Financial Statements for 2003, the riskmanagement measures within the company and thecurrent situation at the end of 2004. The focus was

4

Report of the Supervisory Board

Dr.-Ing. e.h.

Bernd Pischetsrieder,

Chairman of the Supervisory Board

placed on comprehensive analyses of the marketsituation in Germany, the USA and China. The audi-tors participated in the first meeting and explainedtheir key findings in the Annual and ConsolidatedFinancial Statements.

The principal topics of the SupervisoryBoard’s consultations in the 2004 financial yearwere the specific organisational form of the Audibrand group (Audi, SEAT, Lamborghini brands) and the development of major subsidiaries.

At its meeting on December 6, 2004 the Super-visory Board, following detailed consultations,approved the remuneration model for the membersof the Board of Management of AUDI AG and thecontent of the annual declaration of compliancepursuant to Section 161 of German Stock Corpora-tion Law.

There was the following change to thecomposition of the Supervisory Board in the pastfinancial year:

Dr. Jens Neumann surrendered office as a member of the Supervisory Board and Audit Com-mittee with effect from December 31, 2004. Dr.Neumann was a member of the Supervisory Boardfor almost twelve years, including nine years as amember of the Presiding Committee and Negoti-ating Committee. The Supervisory Board would like to express its sincere thanks and appreciation to Dr. Neumann for his many years of service. Uponthe application of the Board of Management, theRegistration Court at the local court of Ingolstadtappointed Mr. Francisco Javier Garcia Sanz assupplementary member of the Supervisory Boardwith effect from January 1, 2005 for the remainderof Dr. Neumann’s term of office, pursuant toSection 104 of German Stock Corporation Law. TheSupervisory Board elected Mr. Garcia Sanz as a new member of the Audit Committee.

As a result of the slowdown in economicgrowth in the USA, there will be no significantstimuli for the European and consequently also theGerman market in 2005. In spite of the prolongedperiod of uncertainty among consumers, privateconsumption in Germany is nevertheless expectedto pick up slightly as a result of some impetus fromthe labour market and falling oil prices. Demand for

Report of the Supervisory Board

5

cars in Germany is, however, not expected torecover this year.

Audi will be extending the current A4 prod-uct family in 2005 with the launch of the Audi RS 4.From the spring, the latest version of the Audi A6Avant will reinforce our position in the executiveclass and consequently make a substantial contri-bution towards the company’s positive develop-ment.

Hand in hand with the workforce and themanagement, the Supervisory Board will continueto contribute towards the company’s futuresuccess over and above the statutory minimumrequirements.

Ingolstadt, February 18, 2005

Dr.-Ing. e.h. Bernd PischetsriederChairman of the Supervisory Board

Progress is not an abstract concept. On the contrary. Successful ideas are those that take on a tangible form. Easy to operate. Intuitive to handle. Ideally positioned. Every touch redeemsthe promise of perfection. It’s then that you realise what the true essence of accomplishedtechnology is: a perfect companion.

Touching

6

perfection


Technically accomplished:

Plausibly structured,clearly arranged,intuitively operated. Thesystematic nature of theMulti Media Interface MMI sets the standard.Not just in the A6 Avant*.

the logic of infotainment

Strategy and Products

A roll-call of achievements

Based on the principle of “thinking for the present,acting for the future”, Audi has been systematicallyrenewing its product range over the past two years.The strategy of refining both design and technicalcontent most definitely bore fruit in 2004.

Within the space of only ten months, werenewed all the cornerstone models of our productrange: the twelve-cylinder A8*, the A6 saloon, the A3 Sportback and the A4 family comprising saloon,Avant and S models.

The polls conducted by major car magazinesclearly demonstrated how successful the newdesign strategy is. In a pan-European survey withover 317,000 respondents, Audi achieved top marksfor the decisive criteria “Emotion” and “Quality”.Audi emerged as the clear winner in the imagesurvey of another specialist publication where theopinions of some 80,000 readers were evaluated.They affirmed in particular the Audi characteristics“progressive technology”, “sportiness”, “safety”,“exclusive finish”, “quality”, “reliability” and“design”.

10

Fascination and efficiency

The true test of the ability to “weather” adverse conditions comes when the weather turns reallybad. The car industry has encountered several bad weather fronts in recent years. Amid all the marketdifficulties experienced, Audi has demonstrated its stability. More outward appeal, more inwardefficiency: this was the guiding principle behind the strategy for 2004. New, fascinating products,numerous motor sport triumphs and the synergy potential of the Audi brand group transformed lastyear into one of the most successful in the lengthy history of the brand.

Single-frame grille, striking shoulderline and ascending dynamic line at silllevel: the A6 saloon is the first Audimodel to display all the key elements ofthe evolved Audi design.


Double strategy: more desirable, more effectiveAudi is pursuing a dual objective. On the one hand,it aims to strengthen the desirability of the brandand supply fascinating cars in order to improve yetfurther on its position in the market for premiumcars. On the other hand, it harbours the ambition ofoptimising processes and utilising resources evenmore purposefully in order to enhance the effi-ciency of the company as a whole. Audi sets its ownbenchmark very high. Customers and test expertsconfirm that the current products have preciselythat proverbial “Vorsprung”, or competitive edge,that is the brand’s very essence.

In such a mature and advanced industry asthe car sector, success can only be achieved with astrong, appealing, distinctive brand. And with adedicated team to back up that brand.

But how does a brand acquire strength andappeal? One of the keys to success is the qualitystrategy that Audi has been pursuing for manyyears. Audi is now ranked as the leading player inthe car industry for quality of finish and materials.But Audi believes that quality applies as much toservice as it does to the vehicles it builds.

Arousing feelings: sophistication and attractiveshapesSophistication, quality and reliability are the indis-pensable basis for a successful premium manu-facturer. We create trust and loyalty through thesevalues. Yet the emotional values of a car are becom-ing increasingly important. Even if many peopleassess cars primarily in terms of horsepower, enginesize, acceleration and interior space, the decision to buy is often swayed by the heart, not the mind.Design is what matters. Forms that spontaneouslyappeal to the onlooker. Forms that focus on thepeople who will be using the products.

In our price segment, a car must alwaysreflect its owner’s outlook on life. Design is there-fore one of the most important reasons for buying.The new direction of Audi design, with the dynamicstyling and single-frame radiator grille, is there-fore another major factor behind the success of ourbrand, alongside sophistication. The new Audidesign generates enthusiasm and is in many cases

what makes that vital difference in tilting acustomer’s decision in favour of a vehicle from ourbrand.

Sales successes and new marketsWe are able to report new sales records for 21 mar-kets in 2004, including such important countries as Great Britain and Spain. With the Audi A8, we arethe market leader in Western Europe in the impor-tant segments of eight and twelve-cylinder luxurysaloons.

Our notable successes are not limited toWestern Europe; we have also been enjoying in-creasing success in Eastern Europe, as is confirmedby high growth rates in Russia, the Czech Republicand Poland. We will capitalise more on our marketopportunities in these budding markets, as in Asia and India. We are already at the vanguard ofthe new premium market in China. Audi is pursuinga dual strategy: on the one hand greater marketexploitation, and on the other hand further marketsin the portfolio.


11

China is an important strategic market for theflagship model in the Audi range. Audi is alreadymarket leader in the segment for twelve-cylinderluxury saloons in Western Europe.

Products that captivate: the appeal of carmaking

New Audi products have rarely appeared in suchrapid succession as last year: the twelve-cylinderA8* at the start of 2004, the A6 in the spring, the A3 Sportback in the summer and the Audi A4 in theautumn. This dazzling array of new products meansthat Audi has the youngest model range in thepremium segment. This effect will become evenmore marked from 2005 onwards, when all corelines have switched to our new exterior design.

Audi A8: market leader in the superlative classThe new twelve-cylinder A8* is the flagship of themodel range. This beacon of engineering artembodies the systematic way in which our brandclaim has been put into practice. The Audi A8 with twelve-cylinder engine met with a rousingreception in specialist quarters. What is more, itstepped into the role of market leader in Europe’stop image segment after only a very short time on the market.

The twelve-cylinder engine elevates the A8from luxury class to superlative class. You have tomaster the art of twelve cylinders to be privy to thesecret of building outstanding cars. The twelve-cylinder A8* is the most sporty representative of theluxury saloon segment. Its appeal is underpinnedby the core skills of the Audi brand: there is stillnothing on the market to rival this combination oflightweight aluminium design, quattro drive and a W12 engine. The outward manifestation of theA8’s assured presence is the new front-end designwith the dominant single-frame grille.

Audi A6: elegance and power on four wheelsThe A6 saloon demonstrates just how fascinatingan Audi can be. It arouses emotions, reveals ele-gance and demonstrates power. The A6 signals anew departure for Audi: the adoption of a futuristicformal idiom, the fusion of form and content, a newdimension of quality. The A6 derives its impressiveperformance essentially from the new generation ofTDI and petrol six-cylinder engines. These are usedhere for the first time in conjunction with the inno-vative six-speed automatic transmissions.

The most beautiful estate cars are called AvantMany customers are eagerly awaiting the Audi A6 Avant, which is being launched in spring 2005. There was an overwhelming consensus at theadvance presentations to dealers, potential cus-tomers and the press that the A6 Avant is the mostfascinating Avant ever to have been built by Audi.And it is the most attractive estate model in itsclass. Around half of all A6 cars sold in the past hadan Avant body. The A6 Avant will thus emerge as another mainstay of the company’s success this year.

New compact concept: the Audi A3 SportbackThe Audi A3 Sportback exemplifies an utterlynew automotive concept. It combines the idea of acompact five-door vehicle with the elegance of asports coupé. This second model in the A3 car lineis readily identifiable as a very dynamic model in itsown right. The high number of orders received evenbefore its launch highlight how the A3 Sportbackspontaneously captivates its audience.

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The new A6 Avant will be a vitalpillar of Audi’s success in 2005.Avant customers often choose morepowerful engines and more exclu-sive equipment specifications thanbuyers of saloon cars.


Engaging and self-assured: the Audi A4The latest generation of A4 models has been on themarket since last November. The new Audi A4 hasundergone a decisive character shift in the directionof sportiness. In whichever engine version, it makesa sporty, assured statement about its owner. Wehave completely rejuvenated the A4: it now featuresstate-of-the-art FSI and TDI engines, thoroughlyrevised suspension and equipment items that werepreviously reserved for executive-class models.Tests conducted by experts have repeatedly con-firmed that the A4’s interior has long boasted astandard of quality and finish worthy of the luxuryclass.


13

The latest generation of the Audi A4 car line with the new Audi design exemplifies sporty handling characteristics and an exclusive finish.

The trendsetting design idiom that we havenow implemented in all core lines has met with arapturous response all over the world.

Venture into a highly promising market segment:the Audi Q72006 will see Audi make its first inroads into a mar-ket segment that is of great importance, particu-larly for the North American market – the segmentof large sport utility vehicles (SUV). The Audi modelto be launched under the name Q7 will serve as the basis for a new product family. It also repre-sents the latest step in our policy of systematicallytapping new market segments.

The winner’s rostrum: Audi all the way

Audi participates in motor sport in order to win. But also in order to demonstrate to countless motorsport enthusiasts the world over how sporty thepremium brand Audi is. We firmly believe that youcan only be genuinely sporty if you yourself partici-pate in sport. The fascination of successful racingcars is something that can be transferred to pro-duction models – turbo FSI technology being a casein point.

Top performance over 379 lapsJune 13, 2004. It was a close-run thing. Only min-utes before the chequered flag signalled the end ofthe Le Mans 24 Hours, the second-placed Audi R8with the starting number 88 lay a mere 30 secondsbehind the eventual winner. It had led the field for15 hours. Averaging over 229 kilometres an hour, ithad clocked the fastest lap. And then victory wassnatched from it. By the Japanese-based Audi SportTeam Goh, also competing in an Audi R8 and withthree talented drivers. Their win made Seiji Ara the first Japanese driver ever to have won this race,Rinaldo Capello a multiple Le Mans winner, andallowed the Dane Tom Kristensen to better thatincredible record hitherto held by Jackie Ickx bynotching up his sixth Le Mans win. The finale of the2004 race in Le Mans was utterly dominated by the

Ingolstadt-based brand with the four rings. Thirdplace was also occupied by an Audi R8, as indeedwas fifth spot. The press office of the event organ-iser “Automobile Club de l’Ouest” summarised the triple victory of 2004 succinctly: “The winner’srostrum: Audi all the way”.

The toughest endurance race in the worldFollowing its triumphs in 2000, 2001 and 2002, thiswas Audi’s fourth win at Le Mans. Only very fewbrands have achieved a similar feat in the 81 yearssince the first race. Our highly motivated, experi-enced teams played an important part in thisachievement. Yet none of it would have been possi-ble without the technically superior turbo FSI engine.Driving faster than other contenders and putting in fewer pit stops for refuelling – alongside the dri-vers’ expertise, this was the key to our success.

Le Mans was not the only venue where Audiascended the winner’s rostrum. R8 drivers capturedchampionship titles in other major races, too: in the American Le Mans Series, the US version of theendurance race, and in the European Le MansEndurance Series featuring the classic 1,000 kilome-tre races at Monza, Silverstone, Spa-Francorchampsand the Nürburgring. Experts describe the Audi R8racing cars as the best sports car prototypescurrently around. With R8 cars having competed inover 60 races to date, the 50th victory for the R8

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America’s tribute to the Le Mans 24 Hours: Audi won the AmericanLe Mans Series yet again in 2004.

came on September 12, 2004 in the 1,000 kilometrerace at Spa-Francorchamps – an impressive tally.

Spectacular DTM successAudi returned to the German Touring Car Masters(DTM), entering works teams in 2004. Audi Sportparticipated in Europe’s most popular touring carseries with six newly developed A4 DTM touringcars. One thing was clear from the outset: the com-bination of young drivers and many decades ofdevelopment experience was a winning formula.

26-year-old Mattias Ekström captured overallvictory in the drivers’ championship even before the last DTM race. But that was not all. Our A4 DTMracing cars ensured a thrilling finale in the last raceof the season at Hockenheim. In front of a recordcrowd of more than 130,000 spectators, worksdriver Martin Tomczyk secured victory in the teamcompetition for Audi Sport Team Abt. Audi alsoclinched pride of place on the winner’s rostrum inthe manufacturers’ championship. The overall tallywas therefore a triple win at Le Mans and first placein all three individual categories of the DTM. Audi is aiming to repeat this multiple win at the German

Touring Car Masters in 2005. Audi Sport is prepar-ing a new DTM car based on the new Audi A4, incor-porating the knowledge it gleaned from its come-back year of 2004. The Audi A4 DTM 2005 will alsobe visually distinct from the championship-winningcar thanks to its striking single-frame radiator grilleand the new body shape.

Top placings in international motor sportThe Audi RS 6 clinched an equally notable triumph.In its final year in production, it repeated its victoryin the manufacturers’ championship of the Ameri-can Speed GT World Challenge – its third succes-sive win in that discipline. In the USA, we are ableto use this race series involving near-productionmodels as an important medium for sports commu-nication. The Audi driver Michael Galati finished insecond place in the drivers’ competition, just a fewpoints behind the eventual winner.

With victory in the Finnish Touring Car Cham-pionship and a place on the winner’s rostrum in theSwedish Touring Car Championship, 2004 wasclearly one of the most successful years of motorsport competition in Audi’s lengthy history.


15

DTM winner Mattias Ekström received a rapturouswelcome when he visited the Audi Neckarsulm plantwith his Audi A4 DTM.

More than a group of brands: an alliance of sporty values

Audi, the lead brand in the group, followed up thethree concept studies of 2003 with the launch offour new production models. The twelve-cylinderA8*, the A6 saloon, the A3 Sportback and the A4demonstrate that Audi is able to introduce emo-tional elements through its new design idiom, aswell as rational ones. Design is moreover a factorbehind the success of SEAT and Lamborghini, asvarious major awards demonstrate.

The production models of the SEAT Altea and Toledo clearly illustrate the direction in whichthe Spanish brand is heading: extrovert-sporty,unconventional, athletic. Lamborghini added a cru-cial new dimension to that proverbial Italian stylingwith the Gallardo. The first few examples of the new Murciélago Roadster were also delivered tocustomers in 2004. Walter de’Silva, Head of Designfor the Audi brand group, succinctly summarisedthe progress that has been achieved: “The Gallardo,the Altea and the new Audi A6 all show how fasci-nating the future of the three brands looks.”

The basis: triangle, circle, squareThe art of handling design within a brand grouppivots on accentuating the individual character ofeach brand. The design strategy masterminded by de’Silva neatly resolves a seeming contradiction.A simple geometrical shape is used to exemplifyevery visible detail of a particular brand – triangle,circle or square.

Such design is able to appeal to people’sfeelings. And for all the design freedom that theindividual brands have, each new model clearlyreveals the signature of Audi brand group design.Design awards have been forthcoming not just forAudi, but also for SEAT and Lamborghini. TheGallardo, for instance, received the British Designand Art Direction Award, regarded in the industry asthe “Oscar” of applied design. The prestigious asso-ciation “Designers (Europe)” presented the SEATAltea with the European Design Award for the “BestConcept Car in 2003”. The Altea also captured othercoveted awards such as the “red dot: best of thebest” and “Auto Trophy 2004”. This list of distinc-tions serves as clear confirmation of the new stylis-tic approach to design within the Audi brand group.

16

The new SEAT Toledo builds on the process of design evolution that was initiated by thesuccessful Altea.


The spark of inspirationDesign was the first cross-company function in ourbrand group. And for a very good reason. The shapeof a car dictates its character to a very large degree.If this character is fascinating and enticing, it willreadily inspire customers and employees alike. As well as possessing emotional merits, the Audibrand group offers a raft of rational advantages.The group enjoys a high level of profitability. Wehave already identified and realised synergy poten-tial at many points within core corporate processes,for instance in Technical Development, Productionand Logistics.

People make the brand groupA brand group is an organisational form, but aboveall it consists of people who work together. Thereare intensive exchanges of personnel betweenMartorell in Spain, Sant’Agata in Italy, and Audi’sGerman locations. Around 150 of our employees arecurrently involved – with a sharply rising tendency.We are furthering the group idea not merely

through cross-brand structures, but also by pro-moting personal familiarity with the other brands.After all, the companies working together are based in three different countries, have evolved indifferent ways and also differ in terms of size andcorporate culture.

The tasks of the brand group are diverse. For SEAT, the prime objective is to refine its image.The Spanish brand has achieved immense progressin the areas of quality, technology and emotionalappeal in recent years.

The Italian brand Lamborghini aims to “stokethe fire even hotter”. Audi is supporting technicaldevelopment work with its expertise, productionoperations with its capacity and quality assurancewith its decades of proven results. But in all this, a Lamborghini will always remain an extreme, typi-cally Italian super sports car.

One particularly successful example of thepartnership is the aluminium ASF body of theGallardo, which was developed hand in hand withAudi’s Aluminium and Lightweight Design Centre.


17

Open-top driving – capable of wellover 300 km/h: the LamborghiniMurciélago Roadster* with itstwelve-cylinder engine was theoutstanding new product of 2004for customers with exclusivepreferences.

Vigilance is a question of responsibility. Things are perceived clearly when seen in the right light. Interpretations are redefined. Eyes probe uncharted terrain. What might otherwisehave remained hidden is now detected more rapidly. Foresight – a sound basis for feeling safe at the wheel.

Beholding

18

attraction

Well ahead:

Audi’s adaptive lightboosts cornering safety.The high-intensity head-lights respond to the car’s steering angle andspeed. Bends in the roadare illuminated moreeffectively.

lights that probe corners

Technology

Technology transfer: from motor racing to seriesproduction

Helping motor racing technology make the leap into production cars is no mere hollow pledge atAudi. An example of the close ties between compe-tition racing and everyday driving is the new 2.0TFSI engine that is available in the Audi A3*, AudiA3 Sportback* and A4*. This new engine is the firstvolume-production unit worldwide to combine FSIpetrol direct injection with a turbocharger.

This technology was first used in our multipleLe Mans winner, the Audi R8. The FSI injectiontechnology squeezes maximum power and torqueout of every drop of petrol. In conjunction with the exhaust-gas turbocharger, the engine developsconsiderable pulling power at very low enginespeeds. It thus responds with spontaneity and con-siderable agility to the accelerator pedal, forinstance when overtaking. The result is a confidentand economical style of driving.

Another concept that has its origins in motorracing technology is the Direct Shift Gearbox DSG.Thanks to its electro-hydraulically controlled twinclutch, it permits extremely quick gear changes withuninterrupted traction and thus sports-style drivingpleasure. The driver benefits from both the superiorfuel consumption of a conventional manual gear-box and the qualities of a modern automatic trans-mission.

The DSG and TFSI technologies handle the propulsive power with particular efficiency.When both are combined, the outstanding effi-ciency of this race-tested technology becomes fullyapparent: with an output of 147 kW (200 bhp) andtorque of 280 Newton-metres, the engine in theAudi A3 Sportback 2.0 TFSI* uses less than eightlitres of fuel per 100 kilometres over the ECE drivingcycle.

22

The power that propels our

customers

Audi’s decision to use the claim “Vorsprung durch Technik” so prominently as part of its brandessence obliges it to redeem this pledge. But there is more to concepts such as FSI, DSG, TDI,adaptive air suspension and quattro than simplyindulging in technology for its own sake – everyinnovation treats additional customer benefit asits top priority. And motor sport is often the areathat inspires new technologies.

The sporty Direct Shift Gearbox DSG: fast gearchanges with uninterrupted traction.


Sports appeal and economy in the business classFSI technology is also on offer in the Audi A4* andA6*. The 3.2-litre V6 engine is the most impressiveexample of the sports potential of Audi’s directinjection technology. Together with the powerful3.0-litre V6 TDI engine, another new development, itsets new standards of sportiness and driving enjoy-ment at affordable running costs in the prestigiousfull-size segment.

The new diesel engines likewise demonstratethat the notions of economy and high performanceare readily compatible. The 3.0-litre and 2.7-litre V6 TDI engines* have third-generation common rail fuel injection with piezo injectors – the mostadvanced diesel technology currently available.Piezo crystals expand rapidly when an electricalvoltage is applied to them. They consequentlyrespond to control commands much more rapidlyand precisely than mechanically actuated systems.This allows the precious diesel fuel to be meteredeven more frugally. The maximum injection pres-sure is 1,600 bar; this is equivalent to the weight of a midsize car resting on an area the size of afinger nail.

More precise injection of the diesel fuel onthe one hand permits considerable energy effi-ciency. On the other hand, it reduces combustionnoise; in other words, the engine runs both more

efficiently and more quietly. The 3.0 TDI achieves avery high specific output, yet still undercuts thestringent limits of the EU4 emission standard exclu-sively through engine-internal measures. A dieselparticulate filter is also available.

Change of suspension before the next bendThe electronically controlled adaptive air suspen-sion paves the way for agile, dynamic drivingwithout neglecting comfort. This technology isavailable as standard for the Audi A8 and allroadquattro, and as an optional extra for the A6. Theadaptive air suspension comprises a separate airspring for each wheel. The characteristics of thespring are modified by varying the amount of airin the suspension struts. The system constantlyassesses the momentary driving situation while thecar is moving, via sensors mounted to the bodyand axles.

In the event of sudden evasive action, thesuspension is immediately made correspondinglyfirmer. The advantages are also felt in everydaydriving situations, something that becomes fullyapparent as soon as you enter a bend. The rollingand pitching movements of the body are reduced toa minimum. The new suspension is as adaptable as the air inside it. The car glides along smoothly oneven the bumpiest of roads.

Technology

23

The adaptive air suspension paves the way for agile,dynamic driving with maximum comfort.

The automatic self-levelling suspensionkeeps the vehicle’s position in relation to the roadconstant in every suspension mode – irrespective ofthe load. In addition to the control processes takingplace in the background, adaptive air suspensionincorporates several ways of influencing the drivingcharacteristics as individually preferred. There arefour different suspension modes available for this.In addition to the “automatic” and “comfort” set-tings, which place the emphasis more on comfort,there is the “dynamic” mode for a more sportyresponse. Finally, the “lift” mode enables the driverto raise the vehicle’s ride height.

The Audi is thus capable of handling evendifficult road conditions. For those who want evengreater versatility, there is adaptive air suspensionsport, the first sports suspension system in theworld to be based on pneumatic springs. In thisinstance we have tuned the springs, suspensionand stabilisation for an even greater dynamicresponse, without forgoing the accustomed quali-ties of ride comfort.

Last but not least, adaptive air suspensionenables drivers of the Audi allroad quattro to adjustthe ride height across a range of four settings.

25 years of quattro: from rally circuit to fast lane

quattro, the permanent four-wheel drive concept,ensures that the high propulsive power of an engineis translated reliably into propulsion. As long ago as the 1980 Geneva Motor Show, Audi exhibited avehicle whose name came to encapsulate an un-precedented success story: the Audi quattro. It cele-brated countless triumphs on rally courses aroundthe world. The descendants of that legendarymodel, known as the “Ur-quattro”, also notched upan impressive tally of victories on the racing circuit.

Permanent four-wheel drive has also demon-strated its pre-eminence in volume production andintroduced a new dimension of traction, safety anddriving enjoyment to everyday motoring. On anAudi with quattro drive, all four wheels are drivenpermanently. The advantage is the following: eachwheel need transfer only half as much propulsivepower compared with a conventional concept thathas only one pair of driven wheels. Since a wheel is only able to transfer propulsive and corneringforces to the road within certain limits, an Audi withquattro drive achieves correspondingly more cor-nering force by virtue of having four driven wheels.

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Audi revolutionised the 1981 RallyWorld Championship with the “Ur-quattro”. Pictured: Michèle Mouton/Fabrizia Pons in the Swedish Rally.

In other words, very high cornering stability andexcellent straight-line running.

An Audi with quattro drive capitalises on itssuperlative traction particularly in wet conditions oron gravel, snow, slush or roads with patchy ice.Although purely electronic control systems are alsocapable of preventing the wheels of conventionalcars from spinning, these involve reducing thepropulsive power. The quattro principle is different:the self-locking Torsen interaxle differential distrib-utes the propulsive power between the front andrear wheels with the optimum split. When varia-tions in traction arise – for instance if only the front wheels are on black ice – the system responds in an instant. Up to 75 percent of the torque is thendiverted to whichever wheels achieve better grip, in this example the rear wheels. A further version of quattro technology is used in conjunction withtransverse engines, as in the Audi A3 and the TT.The electro-hydraulic multi-plate clutch reacts to changes in the traction conditions without anyperceptible delay.

Over 1.8 million quattro models have beenbuilt to date. At least one in four Audi cars sold isnow a quattro. In some markets, quattro modelsaccount for as much as 80 percent of sales.

Technology

25

The resounding victories involving the “Ur-quattro” in the World RallyChampionships at the start of the1980s were an important factor in themarket success of quattro drive.

Audi models with quattro drive as a proportion

of total vehicle sales

in percent (figures rounded)

1983 1990 1997 2004

25

20

15

10

5

0

4 7 15 27

Ultramodern engine technology captivates by its performance. Those who listen carefullywill be able to detect the typical heartbeat of an Audi. Because authority and strength have a rhythm all of their own: an auspicious pulse that whets the appetite for what lies in store.

Hearing

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vitality

Athletically advanced:

Innovations inspired by motor sport help ourproduction models tomove even further ahead.Turbo FSI technology is a case in point. Developedfor the Audi R8, the all-conquering Le Manswinner, it is now amongthe core virtues of the A3 Sportback.

the power of the engines

Employees

Ideas that smooth the way for production

Contributing to decisions and participating in whathappens – as part of a team – is intrinsic to Audi’scorporate strategy. The entrepreneurial outlook ofeach one of more than 50,000 employees is the key to corporate success. “Through their expertise,dedication and responsibility, Audi employeesdemonstrate day in, day out how the economic suc-cess of a company stems from the ideas, creativity

and visions of every individual,” explains Dr. HorstNeumann, AUDI AG Board Member for HumanResources. The suggestions scheme at Audi seeksto involve as many employees as possible directlyin how the company operates, and to optimiseprocesses and products on the basis of their ideasand suggestions.

The example of Walter Schäffer illustrateshow every employee can contribute to the company’ssuccess through bright ideas and active involve-ment. The 40-year-old industrial mechanic works inthe body shop, where small components are madefor the A3 and A4 models at the Ingolstadt plant.This is where he and two colleagues devised a rotat-ing circular bench last year. Their invention meansthat this workstation achieves almost three timesthe level of productivity with conventional produc-tion techniques. “We can now turn out 2,050 partsper shift, when we used to manage only 850,”explains Walter Schäffer. ”And it makes the workless strenuous.” This idea alone is saving thecompany EUR 36,000 each year. But this was notSchäffer’s only bright idea: he has submitted a totalof 804 ideas over the past few years, almost 90 per-cent of which have been implemented. An inspiredidea of Franziska Pommersheim, a productionworker on the electrical components productionline in Neckarsulm, is another revealing example.

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Contributing through ideas,

creativity and actions

Motivated employees and good ideas are the most precious asset of a company. Audi has foundit highly rewarding to encourage both: the sug-gestions scheme puts proposed improvementsdirectly into practice and is therefore an importantaspect in steadily improving working processes at Audi. In addition there are apprenticeships in awide range of vocations, attractive internships and rewarding access schemes to prepare futuregenerations for work.

Walter Schäffer, industrial mechanic at the Audi body shop in Ingolstadt, has submitted over 800 suggestions in the past ten years.

A simple modification to the assembly process forthe A6 dashboard meant that a particular lead couldbe shortened by 1.40 metres. This produced a sub-stantial cost saving for the wiring.

The ingenuity of these two workers is typicalof the many others who are constantly reflecting onhow to make their workplace and working environ-ment more efficient.

Forging ahead with over 50,000 ideas a yearLast year alone, 17,620 employees submitted 52,805 suggestions for improvements. The resultingsaving of EUR 43.8 million that these brought the company is emphatic proof that entrepreneurialideas and actions at all levels ultimately affect thebottom line. The employees moreover receive ashare of the savings achieved. Every idea that is putinto practice is rewarded financially, even if itsvalue cannot be expressed in euros and cents, forexample if it contributes towards environmentalprotection or industrial safety. Rewards totallingEUR 6.2 million were paid out to employees in 2004.This reflects how both the company and its employ-ees ultimately profit from the suggestions scheme.

Even the suggestions scheme itself is under-going a continuous process of improvement. The

entire process – from describing an idea to assess-ing its feasibility and providing feedback to thesubmitter – is traced in the computer-aided systemAudimax, to which all employees have access. Thishas boosted the transparency of the suggestionsprocess and significantly reduced the time it takesto process suggestions.

Both the suggestions scheme and theorganisation of work in teams are very effectivemeans of promoting the initiative, creativity andinvolvement of employees. Particularly effectiveimprovements can be achieved via the continuousimprovement process (KVP), where the employeesanalyse existing problems in workshops and thendraw up suitable solutions. Since the introductionof the “KVP2” scheme in 1993, ideas that havebrought the company potential savings of almostEUR 270 million have been implemented in morethan 7,000 workshops. In 2004 alone, the amountsaved at the Ingolstadt and Neckarsulm plantscame to around EUR 18 million. The workshopspool employees’ knowledge and experience andthus act as a springboard for cost-cutting mea-sures, but also for improvements to the workingenvironment, quality and channels of commu-nication.

Employees

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Franziska Pommersheim from Neckarsulm is the woman with the most ideas at Audi.

Audi training campaign

Year-end totals

2000 2001 2002 2003 2004

2,000

1,500

1,000

500

0

Neckarsulm 564 681 721 757 773

Ingolstadt 1,036 1,138 1,231 1,320 1,408

Total 1,600 1,819 1,952 2,077 2,181

Prospects through training: learning the Audi way

There is more to entrepreneurial success than justadvanced technology: expert, motivated employeesare the basis of all work. Sound training is there-fore a top priority. But training also means offeringyoung people prospects for their career – all themore vital in times of economic difficulty. We offeropportunities at many different levels – apprentice-ships and traineeships for school-leavers, intern-ships for students, and the international trainingprogramme for graduates.

Vocational training – theory and practice for thefutureAudi has consciously been investing in training its own junior skilled workers for many years. Inview of the current high levels of youth unemploy-ment, the company is also mindful of the role it isplaying in giving young people a good start to their working life. Last year, 682 young people took the first steps down their career path in 20 differentvocations at Audi. There were 2,181 apprentices atIngolstadt and Neckarsulm at the end of 2004,the highest total ever. This serves as a clear indi-cation that trained, well-qualified workers are Audi’s most valuable asset at its German produc-tion locations.

The young people taken on are moreoversupplying the proof that this investment in trainingis paying dividends: these trainees and apprenticeshave demonstrated their commitment, creativity

and motivation at numerous project meetings andnationwide competitions. The “brake light assis-tant” by Sabrina Scherer, Florian Belzner and TobiasKühnle from Neckarsulm is just one project thatexemplifies the pioneering spirit of our youngpeople. “Our development is an attempt to preventnose-to-tail collisions by varying the intensity of the brake light,” explains Sabrina, one of 340 youngwomen currently completing an industrial appren-ticeship at Audi. The three apprentices came out ontop in the Audi internal competition “Youth inResearch”.

Internships – leading through experience There is much more to an internship at Audi thansimply “sampling” what professional life is like. A successful career is dependent on experience.

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Audi puts its faith in well-trained junior workers from itsown ranks. At the end of 2004,there were 2,181 young people intraining.

That is why Audi increased the number of intern-ships at Ingolstadt and Neckarsulm from 500 to 700last year and now offers young people in all areas of the company the opportunity to work as a place-ment student.

Students of technical subjects in particularfind that Audi provides an ideal context in which toput into practice what they have learned duringtheir studies. Project tasks within Technical Devel-opment include taking on responsible roles in thedevelopment of pioneering technologies, carryingout appropriate test drives, creating a virtual prov-ing ground or helping to supervise a new drivingsimulator.

Placement students with above-average qual-ifications are in addition included in a special devel-opment scheme over and above their internship.This gives them access to further internships bothin Germany and abroad, as well as the opportunityto prepare their graduate thesis at Audi in a practi-cal context.

The international trainee schemeAudi is stepping up its involvement in growthmarkets, especially in Asia. This involvement callsfor suitably qualified personnel. The “China” traineescheme was consequently developed in 2004. Itsaim is to promote understanding and knowledgespecifically of the Chinese economic region.

Highly qualified juniors who have success-fully completed their studies in engineering or eco-nomic sciences and have experience in China takepart in two international projects – at least one of which is in China – during their training phase ofbetween 12 and 18 months at AUDI AG. The partici-pants are moreover prepared for future collabora-tion with Chinese business partners by means offurther training measures such as language coursesand intercultural training.

Regular meetings with Chinese engineers or sales staff who are spending between severalmonths and three years at Audi in Germany further-more give trainees the opportunity to establishnetworks and share experiences. Even during theprogramme, the “China” trainees thus contributetowards an effective partnership between Ingol-

Employees

33

International gateway to Audi: trainees handle projects at the group locations worldwide.

stadt, Neckarsulm and the Chinese locationsChangchun and Beijing.

As well as the “China” trainee scheme, out-standing university graduates are given the chanceto find their feet at Audi via the international traineescheme. Last year, a further 21 trainees received the opportunity to become acquainted with theprocesses and structures of an internationalcompany group. Each of these trainees works onapproximately four projects of varying scope inGermany and abroad during the scheme. Theirexperience is rounded off by discussions of strate-gic corporate issues with members of the Board of Management and senior managers, and by talksgiven by specialists from specific departments. This scheme equips these trainees in particular forcross-functional posts throughout the entire group.

It is a wonderful feeling when the world is your oyster. It feels even better when the sky is so close you could almost touch it. You discover more when driving with the top down. Sportyurge combined with sunbeams, starlight, the wind in your face. Boundless driving pleasure,accessible every day.

Breathing

34

freedomfreedom

Enticingly attractive:

Consistently cosmopolitan.The S4 Cabriolet venturesinto uncharted territoryby utterly redefining thenotion of freedom.

the horizons within

Environment and Society

Saving energy as a guiding principle

The invocation “Save Energy – Protect the Envi-ronment” adorns countless light switches at Audi,reminding employees that they can actively helpsave energy. This pithy slogan is also one of theguiding principles of Audi’s environmental strategy.There are various power generating facilities at the Ingolstadt plant, for instance the HeatingHouses West and East, and the pioneering com-bined heat, power and refrigerating plant. There hasin addition been a district heating connection sincethe end of 2003. Audi uses the waste heat from the Ingolstadt refuse utilisation plant, thus cuttingcarbon dioxide emissions by some 12,000 tonnes

a year. As the price for the district heat is fixed forfive years but the energy costs for oil and gas arecurrently rising, the company is able not only toreduce emissions, but also to cut costs.

Our heat recovery facilities include heatwheels on the roofs of the production halls at theplant. Measuring five metres in diameter, theyblend warm air from the production halls with coldair drawn in from outside. The waste heat generatedduring the production process is recovered forAudi’s benefit. In all, there are now 483 such heatexchangers at Audi’s biggest plant, contributingtowards a heat saving equivalent to 386,000 mega-watt-hours annually. This is equivalent to 38.6 mil-lion cubic metres of natural gas, the principal

38

Preparing now for tomorrow’s world:

responsible action

Securing lasting success for a large company involves handling resources responsibly. The key issuesfor Audi are how to treat the environment kindly, and how to keep absorbing new knowledge. Energy and environmental management, and fruitful partnerships with universities are two examples of how we are consciously preparing for the future. Because we want to maintain the equation Audi = Vorsprung durch Technik.

Stephan Brun, energy officer for industrialenvironmental protection, checks forcompressed air leaks with an ultrasonic tester.

medium for heat generation at Audi. The energysaved would be sufficient to heat more than 10,000homes for a whole year.

The Audi Energy Team in actionFor the past two years, 19 employees from the areasof Production, Environmental Protection, QualityAssurance, Technical Development, Toolmaking andPlant Security have formed a team of energy offi-cers. Their aim is to pinpoint scope for saving energythroughout the company. The spotlight is on organ-isational measures that help to optimise the wayelectricity, natural gas, water and compressed airare used.

Compressed air is supplied to workshops andproduction halls via a network of pipes and serves asa means of driving pneumatic screwdrivers or otherpneumatic equipment. Leaks can occur on valves or connecting points between the pipes. That iswhy Stephan Brun, energy officer for industrial envi-ronmental protection, has to make regular checksusing a special detector in order to trace any leaks.“Because generating compressed air is rather an in-volved affair, it costs about eight to ten times asmuch as electricity. A leak four millimetres in diame-ter will inflate costs by around 2,000 euros per year.The action we take to reduce compressed air leaksrepresents a saving of about 100,000 euros a year.”

Emissions trading: Audi is well equippedOn the basis of a resolution by EU environmentministers from 2002, emissions trading started inEurope on January 1, 2005, with the objective ofachieving an overall reduction in emissions ofgreenhouse gases. Since this date, companies havebeen allocated a maximum quota for carbon dioxide emissions. If this quota is exceeded, theexcess has to be purchased, for example from othercompanies that have not exhausted their emissionscontingent. Audi has prepared itself well for thissituation. The highly efficient combined heat, powerand refrigerating plant (CHPR) at Ingolstadt is prov-ing invaluable in this connection. The CHPR sup-plies electricity, heat and refrigeration. It uses envi-ronmentally-friendly natural gas as its fuel. Naturalgas achieves a fuel efficiency of more than 75 per-cent. Compared with conventional means of energygeneration, carbon dioxide emissions are thereforecut by around 25 percent, or 17,000 tonnes peryear. In conventional energy generation, the energyforms of heat and refrigeration are generatedseparately and electricity sourced externally fromthe grid. A CHPR, by contrast, produces the threeenergy sources refrigeration, heat and electricitysimultaneously by means of intelligent plantengineering – always in line with the prevailingdemand.


39

Eduard Paun, who is respon-sible for monitoring andsupervising the combinedheat, power and refrigeratingplant, ensures that energy isused efficiently at Audi.

Reaping what you sow: education and research

Pioneering partnerships in higher educationA centre of excellence by the name of INI.TUM – ajoint venture involving Audi, the Technical Univer-sity of Munich and the city of Ingolstadt – receivedthe go-ahead at the end of 2003. The purpose ofINI.TUM is to conduct application-based researchinto the field of vehicle and production technology.“We firmly believe that highly motivated youngemployees and the dovetailing of research andpractical work will enable us to keep supplying ourcustomers with Vorsprung durch Technik in thefuture,” remarked Prof. Dr. Martin Winterkorn at thesigning of the agreement. What has been achievedafter the first year makes impressive reading: thereare already 22 young scientists working on Audiprojects at the Simultaneous Engineering Centre,

the headquarters of INI.TUM in the northeast ofIngolstadt. Heike Sacher and Thomas Bock, bothINI.TUM graduates, are conducting research intoautomotive technology on Audi’s behalf. Bock, anengineering graduate, is working on the networkingof active driver assistance systems. Sacher studiedpsychology and is analysing the interactionbetween driver and vehicle. The basic requirementfor admission to the joint-venture scheme is a uni-versity degree, with the intention to write a post-graduate thesis.

“INI.TUM offers me the chance to use what Ilearned through my studies in a practical, focusedway,” comments Sacher on her work. For Audi, this partnership is the ultramodern approach toresearch: knowledge to university standards that isapplication-oriented and used in a interdisciplinaryway.

INI.TUM’s range of academic services wasalready extended last summer with the launch ofthe INI.TUM Colloquium, a series of lectures byhigh-ranking speakers on scientific and company-related topics.

Audi promotes applied researchInvesting in education and research is a very impor-tant facet of the way in which we demonstrate oursocial responsibility. We have therefore agreed afurther partnership in the sphere of education, withthe Ingolstadt University of Applied Science. Theestablishment of the Institute for Applied Research(IAF) will tap into research-based expertise and also generate contacts with potential employees.The new institute commenced operations in the2004/2005 winter semester.

Its purpose is to conduct research in thefields of vehicle electrics/electronics and produc-tion/logistics. It gives PhD and undergraduate stu-dents, for instance, a genuine opportunity to followup an interest in research. “Our partnership withthe Ingolstadt University of Applied Science notonly significantly raises the profile of Ingolstadt asa venue for research, but also underlines the appealof its university-standard facilities and of Audi as an employer,” explains Dr. Jochem Heizmann, AudiBoard Member for Production. Projects running

40

Achim Wilging, Thomas Bock and Heike Sacher, three of the 22 researchers at INI.TUM, are performing work in the areas ofautomotive and production technology on behalf of Audi.

for a period of between one and three years enablesuitable students from the University of AppliedScience to work in applied research on Audi’sbehalf. This boosts the innovative potential of ourcompany.

Opportunities for the young unemployedAudi takes the notion of social responsibility tomean more than simply supporting young academ-ics. We also offer fresh prospects for the youngunemployed. Audi has already let its actions speakfor itself in launching a project for selecting andtraining the unemployed. Young persons who havebeen unemployed for between three and twelvemonths have benefited from on-the-job trainingthat has led to qualifications, and thus earned anopportunity for employment.

Reducing unemployment is the purpose of afurther Audi project. Since October 2004, 54 youngpeople who have so far been unable to find appren-ticeships have been able to acquire initial experi-ence of working life and get to know an industrialcompany in a familiarisation and training courselasting between six and twelve months. The com-pany offers 36 of these on-the-job training posts at

Ingolstadt, and 18 at Neckarsulm. In addition toindustrial training, the young people taking partreceive tuition at a vocational college.

In keeping with the Pact for Training’s objec-tive of offering a place to young people who aresuitably enthusiastic and capable, particular impor-tance is attached to aptitude in the selectionprocess. We use a computer-aided vocational apti-tude test that has also proven useful in selectingapprentices: an individual profile of strengths andweaknesses is compiled for every applicant. Theresults for arithmetical thinking, spatial imagina-tion, mechanical-technical understanding and com-mand of language serve to indicate whether thecandidate is best suited to a technical or perhaps a commercial training course.

Audi has consequently made a clear state-ment in the context of the “National Pact forTraining and Junior Skilled Workers”. Through thisproject Audi has made an additional contributiontowards reducing youth unemployment. As anemployer, the company is able to form a picture ofthe abilities of the young people participating and maybe offer them an apprenticeship if theysuccessfully complete the scheme.


41

University partnership:Dr. Peter Tropschuh and Prof. Dr. MartinWinterkorn (both AUDI AG), Prof. Dr. Wolf-gang Herrmann andProf. Dr. Bernd Heißing(Technical University ofMunich) at the signingof the agreement onthe INI.TUM project.

There is no inherent contradiction between sporting ambitions and an appreciation of quality. Elegance appeals to the senses. It arouses the desire to touch it. Whether soft andsupple or firm and smooth, the lasting impression is of a stylish presence and an aura that knows no compromises.

Feeling

42

quality


Meticulously selected:

The Audi interior combinesappealing shapes withexclusive materials and an outstanding finish. For the ultimate sense of well-being. As on the twelve-cylinder A8*.

the quality of materials

Markets and Customers

New markets: paving the way for growth

Eastern Europe: notable success for the Audi A8Audi is able to report a remarkable success story in Russia. The country is already one of thebiggest markets for the new Audi A8. More carsthan ever were sold to customers in Russia in

the past financial year, this success stemming from the efficient sales structure. Audi is repre-sented in the main centres of population by anexclusive dealer network that is growing steadily.Audi dealers will be investing over EUR 100 million in the Russian dealer network over the next fiveyears.

46

Growth and creativity

Audi’s export share continued to rise in the 2004 financial year – with record sales in 21 markets. In addition to the strategically important markets of Western Europe, the USA, China and Japan, weperceive significant opportunities in other regions too, including Eastern Europe, South Korea, Australia and India. Audi’s creativity in the sphere of marketing and communication was reflected byits involvement in a highly successful Hollywood movie, the award-winning commercial for the A6 and finally the study vehicle going by the name of the Audi allroad quattro concept.

Major markets Vehicle sales Year-on-year Market share Year-on-year per-

2004 percentage in 2004 in % centage change,

change overall market

Audi worldwide 779,441 1.2

Germany 235,092 – 1.1 7.2 0.9

USA 77,917 – 9.8 1.81 2.21

Great Britain 77,882 11.1 3.0 – 0.5

China (including Hong Kong) 64,018 0.8 2.4 15.4

Italy 50,500 – 1.6 2.4 0.8

Spain (including Canary Islands) 43,764 6.4 3.0 9.7

France 37,676 0.6 1.8 0.2

Belgium 21,509 11.9 4.4 5.7

Austria 15,711 – 7.2 4.9 3.7

Netherlands 15,038 5.4 2.3 – 1.0

Switzerland 14,105 – 6.6 5.2 – 1.2

Japan 13,751 4.7 5.71 – 1.61

Sweden 11,598 – 0.4 4.2 1.2

South Africa 10,086 28.9 3.0 27.7

Canada 7,422 – 5.6 0.9 – 5.2

Lamborghini worldwide 1,592 22.0

1 Foreign brands only.


We are likewise very successful in the Czechmarket, where we are the market leader in the pre-mium segment. The same applies in Poland. In spiteof the difficult market situation, we continued togrow there in 2004. These latter two countries werealso among the markets where we achieved record-breaking sales last year.

Asia: the right place at the right momentIn China, despite a difficult economic situation andmore intense competition, we achieved record salesfor the fourth year in succession in 2004, with morethan 64,000 vehicles sold. It is now our third-largestexport market after the USA and Great Britain. Audi is furthermore the market leader in China’spremium segment, with a market share of morethan 70 percent.

We are responding by launching our latestmodels in China. In May 2004, for instance, thelong-wheelbase version of the Audi A8 6.0 quattrowith twelve-cylinder engine* made its debut inChina, where it was unveiled at the Audi ForumBeijing. The A8 is considered the most progressiveluxury saloon in the Chinese market.

We are looking strategically to the future in stepping up our activities in India, where there isparticular focus on the luxury market. We are nowsetting our sights on a further market of the futurein establishing a dealer network in India.

In South Korea, AUDI AG has established itsown importer company. “This decision underscoresthe importance of the Korean market for Audi,”explains Ralph Weyler, the Audi Board Member forSales. “We believe there is still considerable scopefor our brand to progress there, as indeed through-out the entire Asia-Pacific region. Having our ownimporter company puts us in a position to take thenecessary decisions and make the necessary invest-ments in order to secure substantial growth overthe next few years.” The importer company in SouthKorea commenced operations on October 1, 2004.

Audi has adopted a similar approach in Aus-tralia. AUDI AG has acquired the remaining 50 per-cent stake in the Australian importer Audi AustraliaPty Ltd. Audi Australia has thus now become a fully-owned subsidiary of AUDI AG. The takeover reflectsour change of tack in the Asia-Pacific region.

Sales successesThe Audi brand posted its best-ever figures forvehicle sales in 21 markets in 2004.

The countries in which new sales recordswere established included Great Britain, Spain,Belgium, the Netherlands, Denmark, Greece, Fin-land and Turkey.

We believe there is still considerable poten-tial for the Audi brand to grow in the USA. Our aimis to establish a new sales record there in 2005.


47

India is the latest sales market forAUDI AG: an Audi A8 4.2 quattro*pictured in front of the Taj Mahal, oneof the country’s most famous buildings.

Audi in Hollywood and Detroit

Audi realises its claim of “Vorsprung” – or“Progress” – not just through technology, but alsoin its innovative advertising: examples from 2004are the successful positioning of an Audi prototypein a Hollywood blockbuster, and the TV campaignfor the Audi A6. “Vorsprung” is also a suitable wayof describing our progressive design and superiortechnology.

We ventured into new territory in the field ofimage development with “I, ROBOT”. This was thefirst time that designers in Ingolstadt had createdand built a car specifically for a film project. Audi’sinvolvement in “I, ROBOT” consequently representsa landmark in brand communication. Audi hadpreviously always supplied production models. Inisolated cases, models have been used in filmingfor Hollywood productions before their marketlaunch, such as the Audi TT Roadster in “MissionImpossible II”, starring Tom Cruise.

Audi RSQ: turbo boost for the brand imageThe outlay for “I, ROBOT” has been well worth it.The results of surveys conducted in the USA revealthat the Audi RSQ has given a substantial boost tothe brand’s image ratings. Audi has gained consid-

48

55 million movie-goers world-wide have seen the Audi RSQ in “I, ROBOT”. The car, whichappears to roll on spheres –instead of wheels – in the film,was purpose-designed forthe project.

erable ground for criteria such as attractiveness,distinctiveness and affinity among those who haveseen “I, ROBOT” in the USA.

“I, ROBOT” drew a worldwide cinema audi-ence of over 55 million, thus ranking among the topten most successful films of 2004. With Audi’ssupport, the film even opened in China at the endof November. The aims of the project – to increasebrand recognition and raise the emotional appealof the Audi brand – were more than achieved.

For all its futuristic appearance, the RSQ isclearly identifiable as an Audi. Walter de’Silva,design chief for the Audi brand group, pointed hisdesigners in the right direction by telling them:“Break with every convention. But always rememberwhat makes our brand different.”

Dustin Hoffman: “graduating” in the Audi A6The task of classic advertising at Audi is to convey“Vorsprung durch Technik” to customers in anevocative and appealing manner. One outstandingexample is the TV commercial for the A6, for whichAudi was able to engage film legend Dustin Hoff-man. In a tribute to the classic movie “The Graduate”– permission to shoot the commercial having beengranted by StudioCanal Image, France, which holds the rights to the movie – the two-time Oscar


49

winner rescues his own daughter from the wrongman. She is already standing at the altar when, atthe very last moment, he persuades her to listen toher own feelings. The pair jump into the new AudiA6 and drive off. The 40-second film bears the title“Just like your mother”. This was only Hoffman’ssecond TV commercial in his lengthy film career. “I really enjoyed being involved in this project. Theidea was realised with a magnificent script, a veryprofessional team and a brilliant car,” concludedthe actor.

A Silver Lion at CannesOur A6 commercial stood up to close scrutiny byadvertising and marketing experts, as well as bytelevision viewers. The jury of the “51st InternationalAdvertising Festival” in Cannes awarded the filmthe Silver Lion in the “Cars” category. The CannesLions are regarded as the “Oscars” of the advertis-ing industry. This was Audi’s sixth Lion in the pastfive years.

A quattro for the futureAudi demonstrated what an Audi allroad quattromight look like in the future at the North AmericanInternational Automobile Show in Detroit at thestart of 2005. The crossover study named the Audiallroad quattro concept put in its debut appearanceat America’s most important motor show. Its wide

track and raised body produce a muscular, distinc-tive silhouette. The underbody guard made ofribbed stainless steel, boldly shaped bumpers andflared wheel arches clearly signal its off-road tal-ents. Other characteristic features of the study carare the contrasting-colour wheel arches, door sillsand bumpers, plus the large-area glass sunroofknown as the open sky system, creating a transpar-ent surface along virtually the entire length of theroof between the A-post and the D-post.

The study is moreover an important technol-ogy demonstrator – for instance featuring a worldfirst by the name of “Audi road vision”, an opticalsensing system that identifies the condition andproperties of the road surface and represents aquantum leap in driving safety.

It also has “Audi lane assist” on board, asystem that warns the driver by means of steeringwheel vibrations if the car inadvertently drifts out ofits lane. “Audi side assist” serves as a lane changingassistant. Wheel sensors monitor the area to theside of the vehicle and consequently also detectother vehicles in the mirrors’ blind spot.

This is the first Audi study vehicle featuring a diesel engine to be shown in the USA. The powerunit in the Audi allroad quattro concept is an ultra-modern V8 TDI engine with a displacement of fourlitres, an output of 210 kW, 650 Newton-metres oftorque and a diesel particulate filter.

Walter Maria de’Silva is Head of Design forthe Audi brand group and has paved the way forAudi’s new, emotional formal idiom.

allroad quattro concept: an answer to thequestion of what the allroad quattro of the futuremight look like. The concept study was the starof the Audi stand at the Detroit Auto Show inJanuary 2005.

Exciting lines, clear contours. When confronted with seductive shapes, resistance is useless.The temptation too strong, the lure too irresistible. The marriage of stunning looks and inner substance signals the start of a truly passionate affair. Stirring sentiments are not theexclusive preserve of the silver screen.

Displaying

50

passion

Unswervingly progressive:

Spectacular design,supreme handling, engag-ing performance. The TThas all the key ingredientsof a powerful attraction.

perfection in detail

Finance

Audi Hungaria maintains pattern of growthThe success story of AUDI HUNGARIA MOTOR Kft.continued in the 2004 financial year: Audi’s Hungariansubsidiary was able to boost its revenue and engineproduction further. Thanks to additional capitalinvestments in engine development operations andproduction capacity, the company has paved the wayfor its continuing steady development in the future.

In the field of engine production, the produc-tion volume in the year under review rose by 10.9 per-cent to a total of 1,480,630 (1,334,985) units. The pro-duction total was made up of 1,194,700 (1,048,128)four-cylinder engines, 233,877 (238,387) six-cylinderengines and 52,053 (48,470) eight-cylinder engines.

AUDI HUNGARIA MOTOR Kft. supplied a total of597,095 (600,537) engines to the Audi Group. 805,562(659,698) engines were destined for use in vehicles of other Volkswagen Group brands. Wilhelm KarmannGmbH in Rheine was supplied with 31,862 (29,375)engines for the Audi A4 Cabriolet, which it builds onbehalf of AUDI AG. Outside customers, too, tookadvantage of the expertise of AUDI HUNGARIAMOTOR Kft. in the field of engine development andproduction, placing orders for 39,281 (30,043) units.

Reflecting the product life cycle of the Audi TT,which appeared on the market in 1998, vehicleproduction fell to 23,605 compared with 33,953 units(incl. 1,616 of the Audi A3) in the previous year. Thistotal included 14,753 (20,807) of the Audi TT Coupéand 8,852 (11,530) of the Audi TT Roadster.

In building the Audi TT, which already ranks asa classic in the sports car segment, AUDI HUNGARIAMOTOR Kft. has established its reputation as a vehicleproduction plant within the Audi Group. The companywill put the expertise thus acquired to good use in the future. The successor version of the Audi TT, forexample, will again be built in Györ.

Group Companies

54

AUDI Aktiengesellschaft

AUDI HUNGARIAMOTOR Kft. quattro GmbHAutomobili Lamborghini

Holding S.p.A.

Automobili Lamborghini S.p.A.

Motori Marini Lamborghini S.p.A.

Lamborghini ArtiMarca S.p.A.

AUTOGERMA S.p.A.

Main companies within the Audi Group

AUDI HUNGARIA MOTOR Kft. engine production

Thousand units 2000 2001 2002 2003 2004

1,500

1,200

900

600

300

0

1,061 1,220 1,280 1,335 1,481

Investments in intangible assets and in prop-erty, plant and equipment amounted to EUR 449 (319)million in the 2004 financial year. The focus of invest-ing activities was on the second phase of the enginedevelopment centre and the resulting doubling ofdevelopment capacity. AUDI HUNGARIA MOTOR Kft. in addition staged numerous investment projects forthe engine production area, in particular for six-cylinder engine production (3.2 FSI and 3.0 TDI) andfour-cylinder engine production (2.0 TFSI). In the com-ponents area, manufacturing penetration was furtherincreased by the installation of a connecting rodproduction line for four-cylinder diesel engines. Thisfacility will enable AUDI HUNGARIA MOTOR Kft. tomanufacture its own connecting rods in future.

AUDI HUNGARIA MOTOR Kft. saw its revenuerise by 5.4 percent to 3,929 (3,726) million. One ofHungary’s highest-revenue companies, it employedan average of 5,146 (4,939) people in the year underreview.

Further growth at LamborghiniAutomobili Lamborghini S.p.A reported continuingbusiness expansion in the 2004 financial year. Theluxury sports car manufacturer from Sant’AgataBolognese achieved vigorous growth in production,revenue and sales, and consequently further strength-ened its outstanding competitive position in thismarket segment. This success was due in no smallmeasure to the Lamborghini Gallardo, which com-pleted an outstanding first full year in production.

Lamborghini unveiled the Murciélago Roadsterat the Geneva Motor Show in the early part of theyear; this is the open-top version of the super sportscar. Like the Murciélago Coupé, the Roadster pos-sesses uncompromising dynamism and a matchlessdesign. The Murciélago Roadster* thus extends thetradition of open-top Lamborghini twelve-cylindermodels, whose ranks include the 350 GTS, MiuraRoadster and latterly the Diablo Roadster.

The Murciélago Roadster was first launched inthe final quarter of 2004 in what is Lamborghini’smost important market – the USA. The new modelthen went on sale at the start of 2005 in all othercountries in which the Italian brand with the fightingbull logo maintains a presence.

Lamborghini models again received designawards and prizes in various countries in 2004, thenewest model being no exception. An internationaljury comprising designers, car and art historians and journalists voted the Murciélago Roadster the“Most Beautiful Car in the World 2004” in the supercarcategory. The Gallardo had been honoured with thesame award one year earlier.

Such acclaim from specialist critics served asfurther evidence of the exceptional achievements of Lamborghini’s designers, who were able to occupythe new “Centro Stile Lamborghini” in 2004 – thedesign centre that represents the future of the brand.The building also houses facilities that have thepurpose of upholding Lamborghini’s heritage: therestoration workshop for historic vehicles and theService Centre, which is able to service everyLamborghini ever built.

Production by Automobili Lamborghini S.p.A. in 2004 rose by a further 23.7 percent on the recordfigure of the previous year to 1,678 (1,357) vehicles.This total was made up of 304 units of the MurciélagoCoupé, 1,294 of the Gallardo and, for the first time, 80 of the Murciélago Roadster.

55* CO2 emission and fuel consumption figures can be found in the glossary.

Automobili Lamborghini S.p.A. vehicle production

Vehicles 2000 2001 2002 2003 2004

1,500

1,200

900

600

300

0

291 280 442 1,357 1,678

Vehicle sales totalled 1,592 (1,305) units, 22.0 percent up on the 2003 figure. The principal salesregion was the USA, which accounted for 41 percentof the total. Some 13 percent were sold in Germany,just under 9 percent in Great Britain around 8 percentin Japan.

The brand is now also represented in China,which has emerged as one of the world’s major carmarkets. Lamborghini presented its first officialChinese dealer, based in Beijing, at the Beijing MotorShow in June 2004. Two further dealers, in Shanghaiand Guangzhou, commenced trading in the latterpart of the year.

In the year under review, the Gallardo con-tributed substantially towards the 21.5 percent rise inLamborghini Group revenue to EUR 243 (200) million.The number of employees as an average for the yearrose to 726 (685) by virtue of the higher productionvolume.

Difficult market context for AUTOGERMA S.p.A.AUTOGERMA S.p.A., based in Verona, is the generalimporter in Italy for Audi and all other brands of theVolkswagen Group. The company, a subsidiary ofAutomobili Lamborghini Holding S.p.A., has been partof the Audi Group since 2000. Autogerma remainedconfronted by a difficult market context in the 2004financial year, with intense competition over pricesand high levels of pre-registered cars. Despite theappearance of countless new models, the car marketas a whole was only slightly above the previous year’slevel, with sales totalling just under 2.3 million units.

Autogerma recorded sales of 241.299 (283,934)vehicles in the year under review. When broken downby brand, Audi almost matched the prior-year figure in the premium segment with sales of 50,500 (51,341)vehicles. Sales of Volkswagen commercial vehiclesmade good progress. In particular the new VW Caddyand the new T5 Transporter model, which has beenavailable since 2003, helped to push sales up to 6,709

(5,282) vehicles. The other brands of the VolkswagenGroup, on the other hand, experienced a reversal.Škoda sales were relatively stable at 20,478 (23,061)units, despite the impending model change in thehigh-volume Škoda Octavia Combi. SEAT posted salesof 33,233 (41,057) cars. A total of 130,289 (163,193)Volkswagen cars were delivered to their new owners.One factor behind this downturn was the advancedlife cycle of several Volkswagen models, in particularthe Passat.

There were several market launches at Auto-germa in the 2004 financial year: the first new modelswere the twelve-cylinder Audi A8* in January and theVW Caddy in March, followed by the SEAT Altea andthe Audi A6 saloon in April. The Audi A3 Sportbackand the new Škoda Octavia saloon appeared on themarket in September. The new Audi A4 was launchedin November.

Autogerma unveiled two new models at theBologna Motor Show at the end of the year. The newVW Golf Plus made its international debut, and thenew Audi A6 Avant was displayed for the first time toa wider audience.

56

AUTOGERMA S.p.A. vehicle sales

2004 2003

� Volkswagen Passenger Cars 130,289 163,193

� Audi 50,500 51,341

� SEAT 33,323 41,057

� Škoda 20,478 23,061

� VW Commercial Vehicles 6,709 5,282

2.8%8.5%

13.8%

20.9% 54.0%

In view of the difficult market situation, therevenue of AUTOGERMA S.p.A. fell by 0.5 percent toEUR 4,456 (4,480) million. The average size of theworkforce throughout the year was 770 (712) employ-ees.

quattro GmbH still forging aheadquattro GmbH supports the premium values “sporti-ness”, “individuality” and “exclusivity” of the Audibrand through its range of products. Established in1983 as a fully-owned subsidiary of AUDI AG, it devel-ops and creates exclusive lifestyle articles, high-performance vehicles such as the RS 4 and the RS 6,and also exclusive customised fittings and attractivesports packages.

The success of the Audi RS 6 was maintained inits last year in production. Approximately 1,200 moreof this model were sold in 2004, taking the total forthe most powerful production Audi to date to 8,100units, all within the space of just 24 months. To markthe phase-out of the RS 6, there was a very successfullimited edition by the name of RS 6 plus, with anoutput of 353 kW (480 bhp) and an electronicallygoverned top speed of 280 km/h. Development workat quattro GmbH is currently focusing primarily on the RS 4 successor model.

The Audi exclusive customisation programme is designed to meet individual customer preferences.Around 51,000 Audi models were customised beforehandover to the customer during the past financialyear. As well as exclusive equipment items, quattroGmbH is able to supply technically sophisticated info-tainment and communications systems. Through Audiexclusive, quattro GmbH is able to target discerninggroups of customers in the deluxe segment and thussupport the positioning of the Audi brand further upthe range.

The S line sports packages underline the sportyemphasis of Audi models and place the accent onspecific exterior and interior packages, alloy wheelsand sports suspension. The launching of S line sportspackages for the new Audi A3 Sportback and Audi A6models now extends the S line range, which is thusavailable for virtually all car lines. The S line range has helped quattro GmbH post a further rise in profitsfrom this area of business. Almost one in ten cus-tomers fitted their Audi with at least one of the avail-able S line sports packages in the 2004 financial year.

With the reorganisation of the business area for Audi design lifestyle articles, quattro GmbH haspositioned the product range with greater emphasison design. With this new emphasis in mind, newproducts were developed in the first quarter of 2004.The Audi design product range includes Audi designmountain bikes, the exclusive leather collection and,as its new highlight, the Audi design Square chrono-graph by Sinn. These sophisticated lifestyle articlessuccessfully transfer Audi’s typical design languagefrom the world of cars into other product domains.

quattro GmbH is able to look back on a success-ful 2004 financial year. Revenue was boosted year onyear by around 9.5 percent, to EUR 220 (201) million.Increased revenue from the customisation pro-grammes more than compensated for the fall in rev-enue from the Audi RS 6 due to its phase-out.

Group Companies


Sales of S line sports packages

Units 2001 2002 2003 2004

100,000

80,000

60,000

40,000

20,000

0

3,900 36,000 74,500 112,000

58

No additions to Code in 2004No changes or additions were agreed by theGovernment Commission on the German CorporateGovernance Code in 2004.

Implementation of recommendationsThe Board of Management and Supervisory Boardconsidered the Code’s regulations in the past finan-cial year.

The Code in the version dated May 21, 2003 iscomplied with. However, the restriction applies thatAUDI AG will not disclose the remuneration of mem-bers of the Board of Management (Section 4.2.4 Sen-tence 2) or the remuneration of members of theSupervisory Board (Section 5.4.5 Para. 3 Sentence 1)individually, in order not to infringe privacy rights.

The following qualifications moreover apply tothe suggestions made in the Code:

The Annual General Meeting will not be broad-cast on the Internet (Section 2.3.4) in order not toinfringe individual shareholders’ right to privacy.

The scope for absent shareholders to contactthe company’s proxy exercising voting rights (Section2.3.3 Sentence 3, 2nd half of sentence) even duringthe Annual General Meeting is not relevant, as theAnnual General Meeting is not broadcast on the Inter-net.

The Code’s suggestion of taking long-termperformance into consideration in the SupervisoryBoard’s remuneration (Section 5.4.5 Para. 2 Sentence2) and taking one-off variable components tied tobusiness success into consideration in the Board ofManagement’s remuneration (Section 4.2.3 Sentence2) is not currently implemented by AUDI AG, as thedebate in specialist quarters as to the specific form to be taken has not yet been brought to a close. Theoutcome of this debate is to be awaited.

System of remunerationThe basic principles of the system of remuneration for the members of the Board of Management aredescribed in detail in the Notes to this Annual Report,under “Details of the Supervisory Board and Board of Management”. This information is also available onthe company’s website (www.audi.com/notes).

Internet declaration on the CodeThe joint declaration of the Board of Managementand Supervisory Board of AUDI AG on the recom-mendations of the German Corporate GovernanceCode was placed on the Audi website(http://www.audi.com/cgk-declaration) on December 6, 2004.

Corporate Governance

59

Audi Shares

Audi share price trend

EUR

300

250

200

150

100

50

0

2000 2001 2002 2003 2004

Highest Year-end price Lowest

Audi share price (Munich Stock Exchange)

International Securities Identification number (ISIN):

DE0006757008, German Securities Identification Number

(WKN): 675700

EUR 2004 2003

Highest 250.00 294.90

Lowest 210.00 192.00

Year-end price 220.15 225.00

Ratios per Audi share

EUR 2004 2003*

Profit after tax 20.19 18.80

Cash flow from

operating activities 62.55 64.80

Equity 139.26 129.11

* The values per share have been adjusted in the context of the change to IAS 38.

Profit transfer and compensatory payment forshareholdersThere exists between AUDI AG and Volkswagen AG,which controls around 99 percent of the share capitalof AUDI AG, a control and profit transfer agreement in which the level of the compensatory payment to the outside shareholders is laid down. The latteraccordingly receive the amount that is paid as adividend on one Volkswagen ordinary share for thesame financial year. The dividend payable for the 2004 financial year will be determined by the AnnualGeneral Meeting of Volkswagen AG on April 21, 2005.

Stock market developmentsInternational stock markets experienced a sidewaysshift in 2004. The main indices fluctuated within anarrow range and exhibited only slight growth overall.The growth in the global economy consequentlyfailed to spill over into financial markets.

Following a positive start to the year, questionmarks over the sustainability of growth and theimpact of higher raw materials prices unsettledinvestors. Despite the healthy market fundamentals,the mood on stock markets remained subdued untilthe autumn. Stock markets worldwide received aboost in the final quarter following the clear outcometo the US presidential elections and as a result ofcompanies announcing higher than expected profits.This prompted sharp stock market gains initially inthe USA, then subsequently provided a boost to stockmarkets worldwide. It was not until the end of theyear that most indices surpassed their opening levels.

The German Share Index (DAX) rose to 4,150points by the end of January. The index then experi-enced several upswings and downswings up untilAugust within the corridor of 3,650 to 4,150 points.Particularly the terrorist attacks in Madrid in Marchand the oil price rises in May and August precipitateda sharp slump in the market. The DAX reached itsyear-low of 3,646 points in August. Mirroring the morepositive mood on international share markets, theindex recovered in the fourth quarter, closing the yearon 4,256 points.

The Prime Automobile sector index for Germanautomotive shares started the year on 352 points. Inthe run-up to the season of shareholders’ meetings atthe end of April 2004, the index reached its year-highof 369 points, then fell in line with the general trend.After falling back to 324 points following heavy pricelosses in August, the Prime Automobile became dis-connected from the positive market trend and merelymoved sideways. The index closed the year on 345points.

Audi share price trendAudi shares started the year on EUR 220 and rose inparallel with the market to a year-high of EUR 250 atthe end of January. The share price yielded again inthe months that followed, remaining within the rangeof EUR 210 and 230 between April and the end of theyear. Audi shares finished the year on EUR 220.

General economy and the sector

Global economic situationFollowing a phase of vigorous expansion in the globaleconomy at the start of 2004, global growth lostmomentum in the second quarter of the year. Despitethe high prices of oil and raw materials, however, theupward growth trend as a whole remained intact. The global economy thus achieved its highest rate ofgrowth for three decades in 2004. All major economicregions shared in this buoyancy in the global econ-omy, which was driven by the USA and China. Growthwas promoted by such factors as the favourableunderlying monetary conditions and lively investmentactivity by companies, particularly in developingcountries.

As a result of lively demand, corporate invest-ment and imports in the USA rose sharply. However,the high economic dynamism of the United States as the driving force behind the global economy easedoff somewhat mid-way through the year. Both the end of the US Federal Reserve’s low-interest policyand the abandonment of financial policies which hadexercised a stimulating effect served to diminishprivate demand. The quality of private consumptionnevertheless improved as a result of the positivetrend in employment.

There was no uniform pattern to the impact of the economic recovery in Western Europe. Consid-erable differences in the vigour and origins of expan-sion were nevertheless apparent. Whereas domesticdemand in Great Britain and Spain bolstered theeconomy, expansion in Italy for example was only veryrestrained. Central and Eastern European countries,on the other hand, experienced a high level of eco-nomic growth.

Germany continued to bring up the rearcompared with the remainder of Europe. Whereasdomestic demand remained slack last year, exportsenjoyed further growth until mid-way through theyear. In the second half of the year, the weakness ofthe US dollar then proved an increasing burden on exports, causing the economic upswing that hadtaken root at the start of the year to grind to a halt.

Latin America was able to emerge from aperiod of stagnation lasting several years and enjoyeddynamic economic growth. High export activity andstrong domestic demand contributed in particulartowards this development.

In Asia, China’s sustained high growth spreadthroughout the entire region. Both developing Asiancountries and Japan, where the economy expandedmore rapidly than had been expected, benefited fromthe Chinese import market.

International car marketAs a result of substantial growth in the global econ-omy, car sales worldwide in 2004 rose by around five percent on the prior-year total, to 41.2 million pas-senger cars. The Asian and South American regionsacted as the driving forces behind this growth. On the other hand, sales in major car markets in WesternEurope and the passenger car market in the USAremained flat or slipped back. Developments innumerous sales markets were dominated by intensecompetition stemming from the practice of grantinghigh discounts.

In Western Europe, new car registrations in2004 were 2.1 percent up on the previous year at 14.5 million units. This positive overall result was duein no small measure to vigorous market growth of 9.7 percent in Spain. Of the other major markets inEurope, Italy and Germany achieved only slight ratesof growth, whereas new car registrations in Franceremained virtually unchanged from the previous year. The car boom has passed its latest peak in GreatBritain. Registrations of new cars here were down 0.5 percent, the first fall in four years.

The generally dynamic state of the US economywas not mirrored by sales of passenger cars. In adifficult market context where strong purchase incen-tives continued to be offered, the overall Americancar market slipped back by 1.6 percent to some 7.5 million vehicles.

In South America, registrations in Brazil, themost important car market, once again rose by7.7 percent following two years of negative growth. In Argentina, the recovery in the economy was accom-panied by resurgent vehicle sales, which more thandoubled year on year.

The Asia/Pacific region posted growth of 7.6 percent in 2004, with 11.3 million new passengercars registered. In China, the second-largest market in the region after Japan, the rate of growth nonethe-less gradually slowed down as the year progressed.Particularly the restrictions on vehicle financingimposed by the state served to dampen growth.

Management Report of the Audi Group

60

61

The German car marketThe weak domestic demand in the German car markethad a noticeable impact in 2004. In spite of the large number of new models, the attractive terms offinance available and to some extent high discounts,a recovery in car sales only materialised towards theend of the year. Registrations of new cars totalled justunder 3.3 million units, an increase of 0.9 percent onthe prior-year figure. The market shares of foreignmanufacturers slipped marginally by 0.4 percentagepoints to 35.1 percent.

The trend towards diesel models continued inthe year under review. Their share of total passengercar registrations rose by 4.1 percentage points to 44.0 percent. In addition to the marked rise in thenumber of low-consumption diesel models offered onthe market, higher fuel prices were an importantfactor behind this trend.

Domestic passenger car production was 1.4 percent up on the previous year, at almost 5.2 mil-lion vehicles. Passenger car exports were on a par withthe previous year, at around 3.7 million units. WesternEurope was the principal sales region for Germanmanufacturers, with just under 2.6 million units. Thestrength of the euro, on the other hand, hindered car exports to the USA, which were 3.8 percent downon the previous year.

Situation of the company

Another record year for productionThe Audi Group extended the successful progress ofrecent years and stepped up vehicle production by3.1 percent to a new record level of 784,972 (761,582)units. Of this total, 783,294 (760,225) were Audivehicles and 1,678 (1,357) vehicles of the Lamborghinibrand.

Audi increased production of the Audi A3 andAudi A4 car lines at the Ingolstadt plant to a total of 480,015 (476,964) vehicles. In addition, 7,762 of theAudi A3 and 31,962 (29,285) of the Audi A4 Cabrioletwere built on behalf of AUDI AG. The 9.1 percent rise in production output at Neckarsulm to 239,950(220,023) Audi vehicles resulted above all from highdemand for the new Audi A6 saloon. Even though this model did not appear on the market until almost half-way through the year and key entry-level engineversions were not available until the final quarter,

production of the A6 car line rose by 22.4 percent to181,701 (148,477) units. Models of the Audi A2, Audi RS 6, Audi allroad quattro and Audi A8 car lineswere also built at Neckarsulm.

The subsidiary AUDI HUNGARIA MOTOR Kft.manufactured 23,605 (32,337) of the Audi TT Coupéand Audi TT Roadster at its plant in Györ, Hungary.

AUDI AG shipped a total of 61,128 (55,584) ofthe A4 and A6 model lines to China last year incompletely knocked down form.

Just one year before quattro drive celebrates its 25th anniversary, the proportion of Audi vehiclesfitted with permanent four-wheel drive reached 26.7 (24.7) percent.

Automobili Lamborghini S.p.A. increased itsproduction of super sports cars from 1,357 to 1,678units. In addition to production of 384 (424) Coupéand Roadster versions of the Murciélago, 1,294 (933)of the Gallardo were built at Sant’Agata Bolognese.

Production of vehicles

2004 2003

Audi A2 19,745 27,323

Audi A3 174,750 151,117

Audi A4 313,027 327,463

Audi A4 Cabriolet 31,962 29,285

Audi A6 181,701 148,477

Audi RS 6 1,233 4,841

Audi allroad quattro 14,842 17,634

Audi A8 22,429 21,748

Audi TT Coupé 14,753 20,807

Audi TT Roadster 8,852 11,530

Total, Audi brand 783,294 760,225

Lamborghini Murciélago 384 424

Lamborghini Gallardo 1,294 933

Total, Lamborghini brand 1,678 1,357

Total, Group 784,972 761,582

The Audi Group stepped up engine production in theyear under review to 1,485,536 (1,342,883) units. Thebreakdown of the total again serves to demonstrateAudi’s expertise worldwide in the domain of dieseltechnology. Compared with the previous year, theproportion of Audi vehicles with a diesel engine roseto 51.6 (46.0) percent of the production total.

In Hungary, AUDI HUNGARIA MOTOR Kft. increased itsproduction volume to 1,480,630 (1,334,985) four, sixand eight-cylinder engines.

Production of ten and twelve-cylinder enginesat Automobili Lamborghini S.p.A. for installation in Gallardo and Murciélago models was increased to1,678 (1,357) units.

Engine production by the British subsidiaryCOSWORTH TECHNOLOGY LIMITED fell to 3,228(6,541) units in the year under review, principally as a result of the phasing-out of the Audi RS 6.

Audi vehicle sales up on prior-year levelSales of Audi models last year again showed anincrease on the previous year to 779,441 (769,893)vehicles, despite the difficult conditions encounteredin certain markets and the large number of modelchanges affecting the core car lines A3, A4 and A6.

Automobili Lamborghini S.p.A., too, enjoyed afurther marked rise in vehicle sales of 22.0 percent to 1,592 (1,305) sports cars.

The downturn in vehicle sales by the Italian subsidiaryAUTOGERMA S.p.A. to 190,799 (232,593) vehicles of the SEAT, Škoda, Volkswagen Passenger Cars andVolkswagen Commercial Vehicles brands reflects the continuing difficulties being experienced by theItalian market.

The vehicle sales of the Audi Group conse-quently also fell to 971,832 (1,003,791) units.

Model launches in 2004Audi extended its product range in the luxury seg-ment back in February 2004 with the launch of the 12-cylinder Audi A8.

Timed to coincide with the start of the open-airseason, the Audi S4 Cabriolet put in its first appear-ance on the market in March 2004.

In the second quarter, the Audi A6 saloon thenenjoyed a successful debut in the Western Europeanmarket, initially with six-cylinder and eight-cylinderengines. Important entry-level engine versions wereadded to the engine range in the course of the year,and the Audi A6 saloon also went on sale in furthersignificant markets such as North America.

62

Vehicle sales

2004 2003

Audi A2 21,452 28,547

Audi A3 179,966 151,536

Audi A4 310,469 328,727

Audi A4 Cabriolet 30,541 32,079

Audi A6 172,965 153,405

Audi RS 6 1,233 4,841

Audi allroad quattro 14,840 18,621

Audi A8 22,773 19,621

Audi TT Coupé 15,876 20,218

Audi TT Roadster 9,326 12,298

Total, Audi brand 779,441 769,893

Lamborghini Murciélago 377 415

Lamborghini Gallardo 1,215 890

Total, Lamborghini brand 1,592 1,305

Other Volkswagen

Group brands 190,799 232,593

Total, Group 971,832 1,003,791

Proportion of Audi vehicles with a diesel engine

% 2000 2001 2002 2003 2004

50

40

30

20

40.1 44.2 46.3 46.0 51.6

The new Audi A3 Sportback, a cross between acompact five-door car and an elegant sports coupé inthe premium compact class, appeared on the marketin September 2004.

The new Audi A4 model generation becameavailable to customers from November. Audi unveiledparticularly high-performance versions of the A4 carline in December, in the guise of the Audi S4 and Audi S4 Avant.

The new Audi design line featuring the Audisingle-frame grille has consequently been adopted for virtually all models in the core car lines since lastyear. At the same time, the AUDI AG product rangewas rejuvenated during the past financial year in aneffort to further enhance the customer appeal of theAudi brand.

Automobili Lamborghini S.p.A. also extendedits model range during the past year with the launchof the Murciélago Roadster in November.

Number of employees (annual average)The average number of employees within the AudiGroup rose by 0.9 percent during the past financialyear to 53,144 (52,689).

The workforce of AUDI AG rose to 44,918 (44,728)employees. Of this total, 31,150 (31,087) employeeswere based in Ingolstadt and 13,768 (13,641) employ-ees in Neckarsulm. There were 5,146 (4,939) employ-ees at AUDI HUNGARIA MOTOR Kft. The numberof employees at COSWORTH TECHNOLOGY LIMITEDshowed a slight year-on-year decrease to 766 (813).The Lamborghini Group employed an average of

726 (685) people throughout 2004. There was also ahigher average workforce total at the Italian importerAUTOGERMA S.p.A., with 770 (712) employees.

Newly consolidated companiesAudi Zentrum Stuttgart GmbH & Co. KG, based inStuttgart, was added to the group of companiesconsolidated under the umbrella of the Audi Group inthe 2004 financial year. It was consolidated using theequity method.

Sale of sharesThe shares in the participating interest COSWORTHTECHNOLOGY LIMITED, with its headquarters inNorthampton, Great Britain, as well as in its sub-sidiary COSWORTH TECHNOLOGY, Inc., based in Novi,USA, were sold with effect from January 1, 2005,subject to the approval of the antitrust authorities.There were consequently no changes to the group at the reporting date of December 31, 2004.

Profit transfer agreementsThe Annual General Meeting of AUDI AG ratified theprofit transfer agreement with Audi Akademie GmbHon May 12, 2004.

Change in accounting standardsThe balance sheet was restructured for the 2004financial year as a result of revised accounting stan-dards. The prior-year figures for certain items in theincome statement, balance sheet and cash flow state-ment were in addition adjusted as a result of changesto accounting standards in respect of intangibleassets. The following explanatory notes are based onthe adjusted prior-year figures.

Research and developmentResearch and development spending within the AudiGroup amounted to EUR 1,398 (1,257) million in thepast financial year. An amount of EUR 652 (591) mil-lion of this total was recognised in the balance sheet.The research and development expenditure recog-nised as an expense, including EUR 468 million foramortisation of intangible assets arising from devel-opment and for disposals, consequently totalled EUR 1,214 (1,103) million.


63

Employees within the Audi Group

(annual average)

2004 2003

Ingolstadt plant 31,150 31,087

Neckarsulm plant 13,768 13,641

AUDI HUNGARIA MOTOR Kft. 5,146 4,939

COSWORTH TECHNOLOGY LIMITED 766 813

Lamborghini Group 726 685

AUTOGERMA S.p.A. 770 712

Other 818 812

Financial performance

Revenue at new record levelRevenue rose last year by 4.7 percent to a new recordlevel of EUR 24,506 (23,406) million.

Revenue from the sale of Audi vehicles roseoverall by 4.2 percent to EUR 17,854 (17,139) million.The A4 car line brought in the largest share of rev-enue, namely 42.4 percent. Sales of A4 models gener-ated EUR 7,571 (8,043) million. The success of thenewly launched Audi A6 saloon is also reflected in the substantial rise of 3.9 percentage points in therevenue share of this car line, to 27.8 percent. Rev-enue from sales of A3 and TT models amounted toEUR 3,823 (3,416) million. Sales of A8 models broughtin revenue of EUR 1,215 (1,190) million, or 6.8 percentof the total revenue from the sale of Audi vehicles.

The 3.7 percent rise in cost of sales to EUR 21,989(21,206) million was less than the proportionalincrease in revenue, in spite of the erosion of pro-ceeds by exchange rate movements last year. Afterdeduction of the cost of sales from revenue, the gross profit is consequently up sharply by 14.4 per-cent to EUR 2,517 (2,200) million.

Distribution costs rose, in particular as a result of thelarge number of model changes following the rejuve-nation of the model range, to EUR 1,755 (1,458) mil-lion. Administrative expenses were slightly down onthe previous year at EUR 242 (246) million.

Other operating expenses showed a rise of 29.2 percent on the corresponding prior-year figure,to EUR 717 (555) million.

The profit from operating activities thus rose by 17.7 percent to EUR 1,237 (1,051) million.

The financial result for the year underreview was EUR –95 (50) million. This downturn isattributable among other things to lower income from accounting for the shares in FAW-VolkswagenAutomotive Company, Ltd. using the equity methodand the measurement of currency option transactionsat fair value because of the reporting date.

The profit before tax of the Audi Group wasboosted to EUR 1,142 (1,101) million in the past finan-cial year.

64

Revenue by model line

EUR million 2004 2003

� Audi A2 278 388

� Audi A3/TT 3,823 3,416

� Audi A4/A4 Cabriolet 7,571 8,043

� Audi A6/allroad quattro/RS 6 4,967 4,102

� Audi A8 1,215 1,190

1.6%6.8%

27.8%

42.4%

21.4%

Key earnings data

2004 2003

Rate of return before tax 4.7% 4.7%

Rate of return after tax 3.6% 3.5%

Equity return after tax 15.1% 15.5%

Capital turnover 1.7 1.7

Development of profit before tax and

rate of return before tax

2000 2001 2002 2003 2004

1,200

900

600

300

0

Profit before

tax (EUR million) 971 1,286 1,219 1,101 1,142

Rate of return

before tax (%) 4.9 5.8 5.4 4.7 4.7

The rate of return before tax was on a par with theprevious year, at 4.7 percent.

After deduction of taxes, earnings for last yearrose to EUR 871 (811) million. AUDI AG transferredEUR 405 (160) million to Volkswagen AG on the basisof the control and profit transfer agreement. Thebalance of 463 (648) million remaining after deductionof the profit share of minority interests was allocatedto other retained earnings.

Added value calculationThe added value calculation illustrates the outputgenerated by the Audi Group in the past financialyear, less inputs received. Including other income, theadded value for 2004 amounted to EUR 4,585 (4,287)million.

When broken down according to the individual parties involved in the added value process, theemployees account for the lion’s share of 67.0 percentor EUR 3,072 (2,938) million. Creditors accounted forEUR 78 (43) million, a higher share than in the previousyear. The state accounted for EUR 565 (495) million.The share represented by the profit transfer toVolkswagen AG of EUR 405 (160) million or 8.8 (3.7) per-cent of the added value was up on the previous year.The profit share of minority interests amounted toEUR 2 (3) million. The balance of EUR 463 (648) millionwas allocated to the retained earnings to strengthenthe equity base.


65

Added value

2004 2003 2004 2003

EUR million EUR million % %

Revenue 24,506 23,406

+ Other income 1,401 1,248

– Expenditures 21,322 20,367

Added value 4,585 4,287 100.0 100.0

Distribution

Employees 3,072 2,938 67.0 68.5

Creditors (interest) 78 43 1.7 1.0

State 565 495 12.3 11.6

Transfer of profits to Volkswagen AG 405 160 8.8 3.7

Profit share of minority shareholders 2 3 0.1 0.1

Transfer to retained earnings 463 648 10.1 15.1

Net worth and financial position

Development of balance sheetThe balance sheet total for the Audi Group rose by5.6 percent in 2004, to EUR 14,806 (14,024) million.

Of this total, the non-current assets rose to EUR 8,872 (8,549) million. Fixed assets were slightlyhigher than in the previous year at EUR 8,430 (8,263)million to a large degree as a result of the continuinghigh level of investment spending. Capital invest-ments by the Audi Group over the past year totalledEUR 2,056 (2,047) million. Of this total, investments inproperty, plant and equipment amounted to EUR1,236 (1,382) million. Other non-current assets totalledEUR 442 (286) million.

The current assets of the Audi Group rose to EUR 5,934 (5,475) million. Inventories showed only aslight increase on the previous year at EUR 1,832(1,814) million. Whereas other current assets fell toEUR 2,343 (2,453) million in the year under review,cash and cash equivalents were boosted substantiallyto EUR 1,759 (1,208) million.

Equity rose by 7.9 percent to EUR 5,988 (5,552) million following the transfer of the remainingbalance for the year of EUR 463 (648) million to theother retained earnings. The equity ratio of 40.4 per-cent was consequently 0.8 percentage points up onthe previous year. The non-current liabilities rose by12.1 percent to EUR 4,033 (3,597) million in particularas a result of the higher provisions for warrantyclaims and higher defined benefit liabilities. Currentliabilities were slightly down on the previous year, at EUR 4,785 (4,875) million.

Healthy financial positionThe cash flow from operating activities amounted toEUR 2,690 (2,786) million in the past financial year.The decrease of 3.4 percent on the previous year canbe attributed first and foremost to the higher tied-upcapital within working capital for reporting datereasons. The cash flow once again covered the entireinvestment spending for the past financial year.

After taking account of the outflow for investingactivities totalling EUR 2,041 (2,017) million, thereconsequently remains a net cash flow of EUR 649(769) million.

Net liquidity was thus augmented by 32.9 per-cent to EUR 2,033 (1,530) million at the balance sheetdate.

66

Capital investments by the Audi Group

EUR million 2000 2001 2002 2003 2004

2,500

2,000

1,500

1,000

500

0

Capital

investments 2,378 2,084 2,342 2,047 2,056

Cash flow

from operating

activities 2,058 2,393 2,440 2,786 2,690

Cash flow

EUR million 2004 2003

Cash flow from

operating activities 2,690 2,786

Investing activities 2,041 2,017

Net cash flow 649 769

Net liquidity 2,033 1,530

Current liabilities

Non-current liabilities

Equity

Cash and cash equivalents

Othercurrent assets

Inventories

Other non-current assets

Fixed assets

Risk report

The risk management system within the Audi GroupIn accordance with the risk management strategyof the Audi Group, the wide-ranging risks that areinseparably associated with the business activities ofthe company are minimised or if possible avoided inorder to prevent potential losses to the company.Risks are consciously taken only where they are read-ily calculable and this course of action is unavoidablewithin the context of seizing favourable businessopportunities to enhance the value of the company.

The Audi Group maintains a group-wide riskmanagement and risk early warning system. Thiscovers the parent company and all subsidiaries fromwhich potential existence-threatening developmentscould spread to the parent company.

The tasks of risk management in the AudiGroup are reflected by organisational processes at thelevel of the individual corporate divisions and sub-sidiaries. Risk management is thus an integral aspectof the existing business processes of the Audi Group.Clearly defined task areas as well as reporting andrecording obligations are laid down for the corporatedivisions and subsidiaries.

In the context of the defined spheres of respon-sibility within the risk management system, potential

risks are identified, appropriate measures are elabo-rated and implemented for their management andmonitoring, and the success of the measures taken isconstantly monitored. The effectiveness of themanagement and monitoring system is constantlyexamined.

Within the process of identifying and evalu-ating risks, the probability of individual risks material-ising is estimated and the potential extent of the loss in each individual case quantified. The lost profitcontribution serves as the measure for this purpose.

Reports on key risks are submitted to the Boardof Management and Supervisory Board on a regularbasis.

In the context of its business activities, the Audi Group encounters the following key risk areas:

Risks from the economic context and the car industryIn view of its business activities, the Audi Group ishighly dependent on the general underlying state ofthe economy. Economic stagnation or recession,particularly in the Western European region, has adirect impact on consumer behaviour in the car sector.

The resulting sales risks relate in particular tosales of vehicles of other Volkswagen Group brandsvia the subsidiary AUTOGERMA S.p.A. in the Italianmarket.


67

6,875

8,053

1,450

164 1,711

211

8,430

442

1,832

1,6932,091

2,343

7,477

1,463

190

1,512

5401,759

5,988

4,834

3,749

4,0332,965

2,648

4,785 4,8073,861

5,552

3,597

4,875

4,252

2,876

3,976

76 462

8,263

1,814

286

2,453

1,208

Balance sheet structure Assets Equity and liabilities

EUR million 2000 2001 2002 2003 2004 2004 2003 2002 2001 2000

10,258 11,104 12,606 14,024 14,806 14,806 14,024 12,606 11,104 10,258

The premium segment, in which the models of the Audi brand are positioned, is fundamentallyless exposed to the negative impact of cyclical fluctu-ations. The possibility of sales risks from a deterio-ration in the general economy and the consequentdownturn in the market can, however, not beexcluded even in that segment.

As an international player, the Audi Groupgenerates a significant portion of its revenue in for-eign currency. This revenue is exposed to risks fromexchange rate movements. A further weakening of the US dollar in relation to the euro can in particularsignificantly reduce revenue.

Changes to the legal context, such as tougherstatutory requirements for vehicle safety, fuel con-sumption and exhaust emissions, can have a negativeimpact on earnings by necessitating technical devel-opment expenditure on such aspects and modifica-tions to the standard specifications of vehicles.

Growing predatory competition in the carsector as a result of the increasing use of sales pro-motion measures harbours further market risks.

The risks of continuing price increases ininternational raw materials markets are countered bytargeted strategies. Although long-term supply con-tracts have been concluded, additional costs, particu-larly where passed on by suppliers, may be incurredin the medium term.

Risks from operating activitiesThere are diverse risks within the context of the AudiGroup’s operating activities which can potentiallyundermine its financial position and financial perfor-mance.

There exists adequate insurance cover againstpotential losses as a result of failure of the energysupply, technical faults, fires, explosions and similarincidents.

The close, economically advantageous col-laboration between car manufacturers and suppliersthat is customary in this industry and the resultingdependency inflate the risk of production hitches as a result of delivery delays, non-delivery and qualitydefects. The resulting risks of loss of income are heldin check through the use of appropriate methods ofselecting and monitoring suppliers and by taking outappropriate insurance cover.

Despite the presence of an efficient, systematicquality management approach within the Audi Group,potential product liability risks cannot be entirelyexcluded. These can both result in financial losses tothe company and also harm its image.

Financial risksAs a result of the international emphasis of itsbusiness activities, the Audi Group is exposed to risksfrom price and exchange rate fluctuations. There are in addition interest-rate, liquidity and credit risksin the context of the company’s use of financialinstruments.

Detailed information on the hedging policy andon risk management in the area of financial risks, inparticular in relation to the use of derivative financialinstruments in hedging transactions, is provided inthe notes to the consolidated financial statements ofthe Audi Group from page 104, in the chapter “Otherparticulars” under the item “Hedging policy and riskmanagement”.

Overall assessment of the risk situationCompared with the previous year, there is no substan-tial change in the risk situation of the Audi Group.

The risks described harbour the potential toundermine the net worth and financial position and financial performance of the Audi Group to a sig-nificant degree. However, on the basis of all knownparticulars and circumstances, there are currently norisks that can endanger the company’s survival forthe foreseeable future.

Events occurring after the balance sheet dateNo events of particular significance which must bereported according to IAS 10 occurred afterDecember 31, 2004.

68

Outlook

Economic developmentFollowing high overall growth in the previous year,the global economy will continue to expand in 2005,though with less vigour. As a result of only moderaterises in interest rates and positive prospects ofincome, corporate investment will continue to rise.Raw material and crude oil prices in particular willprove a burden, and are set to remain high at least for the medium term.

In the USA, the gradual tightening of monetaryand financial policy will have the effect of slowingdown economic expansion. The rising interest rateswill act as a brake on private consumption and invest-ment activity.

In Western Europe, the rate of growth isexpected to be below average, as there will be noappreciable improvement in internal demand. Exportswill moreover be hindered by the continuing strengthof the euro. This will affect the German economy inparticular, which will continue to depend principallyon exports in 2005. Early indicators already pointtowards a slowdown in growth in the first half of theyear. There is again no evidence of a self-sustainingupturn in the German economy in 2005.

Asia will continue to enjoy dynamic growth.Economic expansion is expected to remain high inChina. State measures to counteract an overheatingof the economy should, however, reduce the rate of growth and consequently dampen economic devel-opments somewhat in developing countries in the Far East and in Japan.

Outlook for the car marketAs a result of continuing global economic growth, afurther increase in worldwide car sales is expected in2005. The Asia/Pacific region will continue to providethe stimuli. Above all China will remain an importantgrowth market, even if the growth rates will no longer reach the levels of previous years. India can be regarded as an up-and-coming car market. Themarket for premium products here, however, is stillrelatively small.

A slight increase in registrations of new cars is expected in the American passenger car marketfollowing several recessive years.

On the other hand, persistently slack internaldemand will mean that there will be no recovery inthe car market in Western Europe.

There are no foreseeable factors that couldprecipitate a sustained recovery in passenger carsales in the German car market. The overall volume of registrations is therefore expected to remain on a par with the previous year.

German car manufacturers will neverthelessbenefit from the rise in worldwide passenger car salesin 2005, and will be able to step up both vehicle pro-duction and exports.

In light of this, Audi anticipates a stableearnings situation for the 2005 financial year and arenewed rise in production and revenue.

New models in 2005The first models of the new Audi A6 Avant will bedelivered to customers as early as March 2005. The new Audi RS 4 will also make its public debut inMarch, at the Geneva Motor Show. This new topmodel in the Audi A4 car line will then go on sale inApril.

Capital investmentsThe Audi Group intends to maintain the high level ofcapital investments of recent years. The scheduledinvestment volume for the period from 2005 to 2009 isEUR 12.6 billion. This represents around eight percentof the scheduled revenue. 74 percent of this totalalone will be invested in new products.

Over 80 percent of the investment budget isearmarked for the German locations Ingolstadt andNeckarsulm. Around nine percent is to be invested in the Hungarian plant in Györ.


69

This report was originally prepared in German. In caseof ambiguities the German version shall prevail:

Independent Auditor’s Report

We have audited the consolidated financial state-ments of AUDI AG, Ingolstadt, consisting of thebalance sheet, the income statement and the state-ment of changes in equity and cash flows as well asthe notes to the consolidated financial statements for the business year from January 1 to December 31,2004. The preparation and the content of the consoli-dated financial statements according to the Inter-national Financial Reporting Standards of the IASB(IFRS) are the responsibility of the Company’s Boardof Management. Our responsibility is to express anopinion, based on our audit, whether the consolidatedfinancial statements are in accordance with IFRS.

We conducted our audit of the consolidatedfinancial statements in accordance with German audit-ing regulations and generally accepted standards forthe audit of financial statements promulgated by theInstitut der Wirtschaftsprüfer in Deutschland e.V.(IDW). Those standards require that we plan and per-form the audit to obtain reasonable assurance aboutwhether the consolidated financial statements arefree of material misstatements. Knowledge of thebusiness activities and the economic and legal envi-ronment of the Group and evaluations of possiblemisstatements are taken into account in the determi-nation of audit procedures. The evidence supportingthe amounts and disclosures in the consolidatedfinancial statements are examined on a test basiswithin the framework of the audit. The audit includesassessing the accounting principles used and signi-ficant estimates made by the Board of Management,as well as evaluating the overall presentation of theconsolidated financial statements. We believe thatour audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financialstatements give a true and fair view of the net assets,financial position, results of operations and cashflows of the Group for the business year in accor-dance with IFRS.

Our audit, which also extends to the groupmanagement report prepared by the Board ofManagement for the business year from January 1 toDecember 31, 2004, has not led to any reservations. In our opinion, on the whole the group managementreport together with the other information of theconsolidated financial statements provides a suitableunderstanding of the Group´s position and suitablypresents the risks of future development. In addition,we confirm that the consolidated financial statementsand the group management report for the businessyear from January 1 to December 31, 2004 satisfy theconditions required for the Company´s exemptionfrom its duty to prepare consolidated financial state-ments and the group management report in accor-dance with German accounting law.

Hanover, February 4, 2005

PwC Deutsche Revision AktiengesellschaftWirtschaftsprüfungsgesellschaft

Gadesmann ppa. SchröderWirtschaftsprüfer Wirtschaftsprüfer

Independent Auditor’s Report

70

The Board of Management of AUDI AG is responsiblefor the preparation of the consolidated financial state-ments and group management report. Reporting isperformed on the basis of the International FinancialReporting Standards (IFRS) and the interpretations ofthe International Financial Reporting InterpretationsCommittee (IFRIC), as well as of the predecessororganisation, the Standing Interpretations Committee(SIC). The group management report is prepared inaccordance with the requirements of the GermanCommercial Code (HGB). The conditions of Section292a of German Commercial Code for exemption fromthe obligation to prepare consolidated financial state-ments in accordance with German accounting stan-dards are met. The assessment of these conditions isbased on German Accounting Standard No. 1 (GAS 1),published by the German Accounting Standards Board.

The regularity of the consolidated financialstatements and group management report is assuredby means of internal controlling systems, the imple-mentation of uniform guidelines throughout thegroup, and employee training and advancementmeasures. Compliance with the legal requirementsand with internal group guidelines, as well as the reli-ability and functioning of the systems of controlling,are checked on an ongoing basis throughout thegroup. The early warning function required by law isachieved by means of a group-wide risk managementsystem that enables the Board of Management toidentify potential risks at an early stage and initiatecorrective action as necessary.

PwC Deutsche Revision AktiengesellschaftWirtschaftsprüfungsgesellschaft, Hanover, has exam-ined the consolidated financial statements and groupmanagement report in its capacity as independentauditor, in accordance with the resolution of theAnnual General Meeting, and issued its unqualifiedcertification as shown on the page opposite.

The consolidated financial statements, thegroup management report, the audit report and themeasures to be taken by the Board of Managementfor the prompt identification of risks which could posea threat to the company’s survival were discussed at length by the Supervisory Board in the presence ofthe auditors. The findings of this examination areindicated in the Report of the Supervisory Board.

Declaration of the AUDI AG Board of Management on the 2004 consolidated financial statements

71

72

Consolidated Financial Statements of the Audi Group at December 31, 2004

Income statement of the Audi Group for the 2004 financial year

EUR ‘000 Notes 2004 2003

Revenue 1 24,505,864 23,405,551

Cost of sales 2 21,989,478 21,205,918*

Gross profit 2,516,386 2,199,633*

Distribution costs 3 1,754,755 1,457,893

Administrative expenses 4 242,093 245,746

Other operating income 5 948,501 840,867

Other operating expenses 6 231,292 285,689

Profit from operating activities 1,236,747 1,051,172*

Result from investments accounted for using

the equity method 7 + 20,672 + 53,504

Other financial results 8 – 115,007 – 3,211

Financial result – 94,335 + 50,293

Profit before tax 1,142,412 1,101,465*

Income tax expense 9 271,905 290,326*

Profit after tax 870,507 811,139*

Minority interests 10 2,264 2,699

Interests of AUDI AG shareholders 868,243 808,440*

Appropriation of profits

Profit transfer to Volkswagen AG 11 405,000 160,000

Transfer to retained earnings 463,243 648,440*

EUR Notes 2004 2003

Earnings per share 12 20.19 18.80*

Diluted earnings per share 12 20.19 18.80*

* = adjusted in the context of the change to IAS 38 (see explanation in Notes, under “Primary accounting basis”)

73

Consolidated Financial Statements

Balance sheet of the Audi Groupat December 31, 2004

ASSETS EUR ‘000 Notes Dec. 31, 2004 Dec. 31, 2003

NON-CURRENT ASSETS 8,872,676 8,549,166*

Fixed assets

Intangible assets 13 2,759,332 2,489,575*

Property, plant and equipment 14 5,366,040 5,511,644

Investment property 15 9,868 10,066

Investments accounted for using the

equity method 16 134,996 103,527

Other long-term investments 17 160,224 148,654

Deferred tax assets 18 360,816 243,700

Other receivables and other financial assets 19 81,400 42,000

CURRENT ASSETS 5,933,600 5,475,136

Inventories 20 1,831,613 1,814,073

Trade receivables 21 1,393,050 1,230,812

Effective income tax assets 22 922 558

Other receivables and assets 23 528,246 714,049

Securities 24 420,558 508,125

Cash and cash equivalents 25 1,759,211 1,207,519

14,806,276 14,024,302*

EQUITY AND LIABILITIES EUR ‘000 Notes Dec. 31, 2004 Dec. 31, 2003

EQUITY 5,987,986 5,551,830*

Issued capital 26 110,080 110,080

Capital reserve 27 56,730 56,730

Retained earnings 28 5,817,119 5,373,546*

Minority interests 29 4,057 11,474

LIABILITIES 8,818,290 8,472,472*

Non-current liabilities 4,032,753 3,597,936*

Financial liabilities 30 15,281 17,440

Deferred tax liabilities 31 511,275 624,956*

Other liabilities 32 126,510 85,565

Defined benefit liabilities 33 1,561,739 1,483,743

Effective income tax obligations 34 628,834 298,200

Other provisions 35 1,189,114 1,088,032

Current liabilities 4,785,537 4,874,536

Financial liabilities 36 148,239 184,232

Trade payables 37 2,074,061 2,142,872

Effective income tax obligations 38 127,923 309,770

Other liabilities 39 1,038,025 783,810

Other provisions 40 1,397,289 1,453,852

14,806,276 14,024,302*


74

Cash flow statement of the Audi Groupfrom January 1 to December 31, 2004

EUR ‘000 2004 2003

Profit before profit transfer and taxation 1,142,412 1,101,465*

Income tax payments – 321,550 – 354,907

Amortisation of development expenditure recognised

as an intangible asset 461,361 437,512*

Depreciation of property, plant and equipment and amortisation

of intangible assets 1,388,884 1,395,323

Impairment losses on long-term investments 2,104 306

Depreciation of investment property 162 146

Result arising from asset disposals 14,928 27,165

Result from accounting using the equity method – 13,107 – 7,735

Change in provisions (excluding tax provisions) 94,488 319,644

Change in inventories – 23,033 – 8,174

Change in receivables – 16,689 – 298,205

Change in liabilities – 14,889 180,773

Other non-cash expenses/income – 25,264 – 6,851

Cash flow from operating activities 2,689,807 2,786,462*

Additions for development expenditure recognised

as an intangible asset – 652,033 – 591,047*

Investments in property, plant and equipment and in

intangible assets – 1,355,043 – 1,438,020

Acquisition of affiliated companies and participating interests – 52,889 – 13,771

Loans advanced – 101 – 1,958

Investments in investment property – 44 – 2,402

Cash inflows arising from asset disposals 19,146 30,213

Cash flow from investing activities – 2,040,964 – 2,016,985*

Net cash flow 648,843 769,477*

Change in securities 112,832 26,619

Investing activities including investments in securities – 1,928,132 – 1,990,366

Transfer and distribution of profit

(of which to Volkswagen AG: EUR 160 million

(previous year: EUR 185 million)) – 162,441 – 188,065

Change in financial liabilities and in credit extended – 42,627 29,682

Lease payments – 4,802 – 4,475

Cash flow from financing activities – 209,870 – 162,858

Effect of changes to the group – 31,186

Effect of foreign exchange-rate changes – 113 2,832

Change in cash and cash equivalents 551,692 667,256

Cash and cash equivalents at start of period 1,207,519 540,263

Cash and cash equivalents at end of period 1,759,211 1,207,519

Cash and cash equivalents 1,759,211 1,207,519

Securities and credit extended 437,236 524,328

Gross liquidity 2,196,447 1,731,847

Credit outstanding – 163,519 – 201,671

Net liquidity 2,032,928 1,530,176


75


Statement of changes in equity of the Audi Groupfrom December 31, 2002 to December 31, 2004

Issued Capital Retained earnings Equity

capital reserve Legal Currency Reserve Interests Minority Total

reserve exchange for of interests

and other reserve cash flow AUDI AG

retained hedges share-

EUR ‘000 earnings holders

Position at

Dec. 31, 2002 110,080 56,730 4,760,124 – 3,935 16,916 4,939,915 6,027 4,945,942

Adjustment by

IAS 38 – – – 113,284 – – – 113,284 – – 113,284

Position at Jan. 1,

2003 (adjusted) 110,080 56,730 4,646,840 – 3,935 16,916 4,826,631 6,027 4,832,658

Currency

adjustments – – – 2,264 – 28,139 – – 30,403 – 235 – 30,638

Differences from

changes in consoli-

dated companies – – 75,376 – – 75,376 6,048 81,424

Dividends paid – – – – – – – 3,065 – 3,065

Transfer to retained

earnings (adjusted) – – 648,440 – – 648,440 2,699 651,139

Changes in

measurement not

affecting income – – – – 64,421 64,421 – 64,421

Result from settled

cash flow hedges – – – – – 44,109 – 44,109 – – 44,109

Position at Dec. 31,

2003 (adjusted) 110,080 56,730 5,368,392 – 32,074 37,228 5,540,356 11,474 5,551,830

Currency

adjustments – – 1,046 – 15,143 – – 14,097 – 1,416 – 15,513

Withdrawal of

holders of

minority interests – – – – – – – 5,824 – 5,824

Dividends paid – – – – – – – 2,441 – 2,441

Transfer to

retained earnings – – 463,243 – – 463,243 2,264 465,507

Changes in

measurement not

affecting income – – – – 25,374 25,374 – 25,374

Result from settled

cash flow hedges – – – – – 30,947 – 30,947 – – 30,947

Position at

Dec. 31, 2004 110,080 56,730 5,832,681 – 47,217 31,655 5,983,929 4,057 5,987,986

Equity is explained in further detail under items 26, 27, 28 and 29 in the Notes.

In view of the retrospective application of IAS 38, equity at December 31, 2002 was reducedretroactively by EUR 113,284 thousand with no effect on the income statement and at December 31, 2003

by a further EUR 4,646 thousand included in theincome statement (further explanatory notes under“Primary accounting basis”).

76

Gross carrying amounts

Costs Changes Currency Additions Additions Transfers Disposals

in con- changes from

solidated accounting

companies using the

equity

EUR ‘000 Jan. 1, 04 method

Intangible assets

Concessions, industrial property rights

and similar rights and values, as well as

licences thereto 168,990 – – 12 117,837 – 10,037 17,351

Goodwill 367,725 – – – – – 195,234

Development expenditure recognised

as an intangible asset, products currently

in development 928,850 – – 382,448 – – 739,391 –


as an intangible asset, products currently in use 2,400,176 – – 269,585 – 739,391 635,977

Payments on account for intangible assets 1,946 – – 2,718 – – 170 27

3,867,687 – – 12 772,588 – 9,867 848,589

Property, plant and equipment

Land, land rights and buildings, including

buildings on land owned by others

and leased buildings 3,078,146 – – 578 55,821 – 38,989 2,417

Plant and machinery 3,676,200 – – 555 152,081 – 174,824 78,249

Furniture, fixtures and office equipment,

as well as leased furniture, fixtures and

office equipment 6,547,259 – – 26 780,919 – 324,265 151,929

Payments on account and assets

in course of construction 660,250 – – 48 247,013 – – 547,945 6,019

13,961,855 – – 1,207 1,235,834 – – 9,867 238,614

Investment property 15,188 – – 200 44 – – –


equity method 103,527 – – 15,129 33,491 22,768 – –

Other long-term investments

Investments in affiliated companies 137,398 – – 2 13,561 – – –

Investments in associates – – – 13 – – –

Participating interests 11,256 – – – – – –

148,654 – – 2 13,574 – – –

Total fixed assets 18,096,911 – – 16,550 2,055,531 22,768 – 1,087,203

Notes to the consolidated financial statements of the Audi Group for the 2004 financial year

Fixed assets for the 2004 financial year

77


Reduction in gross carrying amounts Carrying amounts

Disposals Costs Accumu- Changes Currency Deprecia- Transfers Disposals Accumu-

from lated de- in con- changes tion and lated de-

accounting preciation solidated amortisa- preciation

using the and amor- companies tion for and amor-

equity tisation current tisation

method Dec. 31, 04 Jan. 1, 04 year Dec. 31, 04 Dec. 31, 04 Dec. 31, 03

– 279,501 73,698 – – 12 38,807 5,809 17,208 101,094 178,407 95,292

– 172,491 195,234 – – – – 195,234 – 172,491 172,491

– 571,907 – – – – – – – 571,907 928,850

– 2,773,175 1,109,180 – – 461,361 – 629,426 941,115 1,832,060 1,290,996

– 4,467 – – – – – – – 4,467 1,946

– 3,801,541 1,378,112 – – 12 500,168 5,809 841,868 1,042,209 2,759,332 2,489,575

– 3,169,961 1,313,008 – – 190 125,292 – 1,095 1,327 1,435,688 1,734,273 1,765,138

– 3,924,301 2,392,122 – – 453 390,298 – 533 74,541 2,706,893 1,217,408 1,284,078

– 7,500,488 4,744,413 – – 28 834,486 – 3,513 135,978 5,439,380 2,061,108 1,802,846

– 353,251 668 – – – – 668 – – 353,251 659,582

– 14,948,001 8,450,211 – – 671 1,350,076 – 5,809 211,846 9,581,961 5,366,040 5,511,644

– 15,032 5,122 – – 119 161 – – 5,164 9,868 10,066

9,661 134,996 – – – – – – – 134,996 103,527

– 150,957 – – – – – – – 150,957 137,398

– 13 – – – – – – – 13 –

– 11,256 – – – 2,002 – – 2,002 9,254 11,256

– 162,226 – – – 2,002 – – 2,002 160,224 148,654

9,661 19,061,796 9,833,445 – – 802 1,852,407 – 1,053,714 10,631,336 8,430,460 8,263,466

78

Fixed assets for the 2003 financial year

Gross carrying amounts

Costs Changes Currency Additions Additions Transfers Disposals

in con- changes (adjusted) from (adjusted) (adjusted)

solidated accounting

companies using the

equity

Jan. 1, 03 method

EUR ‘000 (adjusted)

Intangible assets


and similar rights and values, as well as

licences thereto 116,110 3,466 – 115 54,780 – 8,505 13,756

Goodwill 365,874 – – 1,851 – – –


as an intangible asset, products currently

in development 835,267 – – 467,651 – – 374,068 –


as an intangible asset, products currently in use 2,136,684 – – 123,396 – 374,068 233,972

Payments on account for intangible assets 7,790 – – 1,196 – – 7,040 –

3,461,725 3,466 – 115 648,874 – 1,465 247,728

Property, plant and equipment

Land, land rights and buildings, including

buildings on land owned by others

and leased buildings 2,851,292 23,184 – 3,755 92,711 – 134,234 19,520

Plant and machinery 3,440,749 782 – 5,137 178,672 – 204,277 143,143

Furniture, fixtures and office equipment,

as well as leased furniture, fixtures and

office equipment 5,997,384 1,759 – 540 634,419 – 208,095 293,858

Payments on account and assets

in course of construction 731,471 – – 421 476,395 – – 537,407 9,788

13,020,896 25,725 – 9,853 1,382,197 – 9,199 466,309

Investment property 21,751 2,159 – 460 2,402 – – 10,664 –


equity method – – – 20,241 – 123,338 39,555 –

Other long-term investments

Investments in affiliated companies 163,214 – – 229 5,110 – – 30,697

Investments in associates 3 – – – – – 3

Participating interests 38,901 4,108 – 145 8,025 – – 39,555 78

202,118 4,108 – 374 13,135 – – 39,555 30,778

Total fixed assets 16,706,490 35,458 – 31,043 2,046,608 123,338 – 744,815

The prior-year figures adjusted in the context of the change to IAS 38 are explaned in the Notes, under “Primary accounting basis”.

79


Reduction in gross carrying amounts Carrying amounts

Disposals Costs Accumu- Changes Currency Deprecia- Transfers Disposals Accumu-

from lated de- in con- changes tion and (adjusted) (adjusted) lated de-

accounting preciation solidated amortisa- preciation

using the and amor- companies tion for and amor-

equity tisation current tisation

method Dec. 31, 03 Jan. 1, 03 year Dec. 31, 03 Dec. 31, 03 Dec. 31, 02

(adjusted) (adjusted)

– 168,990 54,920 2,207 – 32 30,257 92 13,746 73,698 95,292 61,190

– 367,725 148,956 – – 46,278 – – 195,234 172,491 216,918

– 928,850 – – – – – – – 928,850 835,267

– 2,400,176 905,640 – – 437,512 – 233,972 1,109,180 1,290,996 1,231,044

– 1,946 – – – – – – – 1,946 7,790

– 3,867,687 1,109,516 2,207 – 32 514,047 92 247,718 1,378,112 2,489,575 2,352,209

– 3,078,146 1,189,849 4,289 – 449 125,587 – 1,965 4,303 1,313,008 1,765,138 1,661,443

– 3,676,200 2,103,068 297 – 2,640 424,458 – 31 133,030 2,392,122 1,284,078 1,337,681

– 6,547,259 4,247,576 865 – 355 768,745 – 76 272,342 4,744,413 1,802,846 1,749,808

– 660,250 668 – – – – – 668 659,582 730,803

– 13,961,855 7,541,161 5,451 – 3,444 1,318,790 – 2,072 409,675 8,450,211 5,511,644 5,479,735

– 15,188 2,334 930 – 268 146 1,980 – 5,122 10,066 19,417

39,125 103,527 – – – – – – – 103,527 –

– 137,398 – – – – – – – 137,398 163,214

– – – – – – – – – – 3

– 11,256 – 80 – 2 – – 78 – 11,256 38,901

– 148,654 – 80 – 2 – – 78 – 148,654 202,118

39,125 18,096,911 8,653,011 8,668 – 3,746 1,832,983 – 657,471 9,833,445 8,263,466 8,053,479

General information

AUDI AG has the legal form of a German share-issuingcompany (Aktiengesellschaft). Its registered office isin Ettinger Strasse, Ingolstadt, and it is entered in theCommercial Register in Ingolstadt under HR B 1.

Around 99 percent of the share capital of AUDI AG is held by Volkswagen AG, Wolfsburg, withwhich a control and profit transfer agreement exists.The consolidated financial statements of AUDI AG are included in the consolidated financial statementsof Volkswagen AG, which are deposited with the LocalCourt of Wolfsburg.

The object of the company is the development,production and sale of motor vehicles, other vehiclesand engines of all kinds, together with their acces-sories, as well as machinery, tools and other technicalarticles.

Primary accounting basisAUDI AG prepares its consolidated financial state-ments on the basis of the International FinancialReporting Standards (IFRS) and the interpretations ofthe International Financial Reporting InterpretationsCommittee (IFRIC). All pronouncements of the Inter-national Accounting Standards Board (IASB) whereapplication is mandatory have been observed. Theprior-year figures have been calculated according tothe same principles.

The income statement is prepared according tothe internationally practised function of expensemethod.

The consolidated financial statements provide a true and fair view of the financial performance andfinancial position of the Audi Group.

The conditions pursuant to Section 292a ofGerman Commercial Code for exemption from therequirement to prepare consolidated financial state-ments in accordance with German accounting stan-dards are met. The assessment of these conditions isbased on German Accounting Standard No. 1 (GAS 1),published by the German Accounting StandardsBoard. To achieve equal value with consolidated finan-cial statements prepared in accordance with Germanlaw, additional information pursuant to Section 292aof German Commercial Code is disclosed.

Within the context of the Improvement Project,the IASB has approved a number of changes to exist-ing IAS and, in particular to promote convergencewith the US Generally Accepted Accounting Principles

(US-GAAP), issued new IFRS which are fundamentallyto be applied for financial years starting from January1, 2005. Some of these standards are already appliedon a voluntary basis in the 2004 financial year:

IAS 1 (revised 2003) “Presentation of FinancialStatements”As a result of application of IAS 1 (revised 2003)“Presentation of Financial Statements”, the classifica-tions of the income statement and also of the con-solidated balance sheet in the consolidated financialstatements for 2004 have changed.

In the consolidated income statement, thereare changes in the items “Result from investmentsaccounted for using the equity method” and “Otherfinancial results”, which now comprise the financialresult, as well as in “Appropriation of profits”. Theitem “Other financial results” is now broken downfurther in the Notes.

The consolidated balance sheet is now classi-fied according to maturities. Balance sheet items aretherefore broken down into non-current and currentassets and liabilities. Prior-year figures have beenadjusted accordingly. Assets and liabilities are alwaysclassified as current if they are expected to be recov-ered or settled within no more than one year after thebalance sheet date. Correspondingly, assets andliabilities are classified as non-current if they are heldby the company for longer than one year.

Minority interests are now shown separatelyunder Equity.

Trade receivables and payables are shown onthe balance sheet as current items.

Deferred tax assets and deferred tax liabilitiesare reported as non-current in the balance sheet’smaturity classification.

IAS 36 (revised 2004) “Impairment of Assets” inconjunction with IFRS 3 “Business Combinations”(replaces IAS 22)In the case of the Audi Group, the changes to IAS 36relate to goodwill arising from the acquisition ofAUTOGERMA S.p.A., Verona (Italy), which in the pasthas been amortised on a scheduled straight-line basisover its anticipated useful life. In view of the amend-ment to IAS 36, which is applied prospectively, it isnecessary to perform an impairment test annually infuture to assess whether an impairment of the good-will has occurred (see item 13). In this case, an impair-ment loss is recognised. If impairment cannot be

80

established, the carrying amount of the goodwill isretained unchanged from the previous year. Fullyamortised goodwill has been derecognised in the2004 financial year.

According to IFRS 3, any excess of acquirer’sinterest in the assets and liabilities acquired over costis to be recognised in the income statement in thesame year.

IAS 38 (revised 2004), “Intangible Assets”IAS 38 was applied early and retrospectively for the2004 financial year. The opening balance sheet valuesat January 1, 2004 and the comparative figures forthe 2003 financial year were adjusted accordingly. Thecalculation method for the components of develop-ment expenditure which could be recognised as anintangible asset at December 31, 2003 was changedretrospectively in agreement with IAS 8, according towhich certain overheads included in developmentexpenditure are no longer recognised as an intangibleasset.

The change to the measurement method wasapplied retrospectively to the comparative figures for 2003. As a result of this change, retained earningsat December 31, 2004 were reduced by EUR 117,930thousand. The opening retained earnings for 2003were reduced by EUR 113,284 thousand, the amountrecognised in the income statement in the 2003financial year totals EUR 4,646 thousand.

The reconciliation for profit after tax for the previousyear is as follows:

Notes on accounting policies which differ fromGerman lawThe substantial differences between IFRS andaccounting policies in accordance with German lawrelate to the following points:

Goodwill is not amortised on a scheduled basisover its useful life.

Development expenditure is carried as intan-gible assets in accordance with IAS 38, provided thatthe production of the developed products is likely tobring economic benefit to the Audi Group.

The straight-line method of depreciation isapplied instead of the diminishing balance method;multi-shift depreciation is not practised. Depreciationis determined on the basis of useful life. Specialdepreciation for tax purposes and simplifications are not permissible in the IFRS financial statements.

Rented property, plant and equipment arerecognised as assets and the resulting liabilitiessimultaneously recognised as liabilities, provided theeconomic interest in the property, plant and equip-ment can be attributed to the companies of the AudiGroup pursuant to IAS 17.

Securities are reported at their market value,even if this is higher than the cost of purchase.

Derivative financial instruments to hedgeagainst foreign exchange exposure are likewisereported at their market value even if this is higherthan the cost of purchase.

The opportunities and risks from the measure-ment of financial instruments used as a hedge foritems on the balance sheet (fair value hedges) arerecognised in the income statement immediately.

The changes in the market value of financialinstruments which are used for hedging future cashflows (foreign exchange contracts and currencyoption transactions) are handled in a differentiatedmanner. Whereas the fluctuations in the market valueof currency option transactions immediately have aneffect on the net profit or loss for the period, thechanges in value of foreign exchange contracts (cashflow hedges) are initially reported in a special reservewithin equity and only have an impact on the incomestatement when the hedged item is due.

Provisions are only recognised where obliga-tions to third parties exist.

Non-current provisions are reported at theirpresent value.

Defined benefit liabilities are determined pur-suant to IAS 19 according to the Projected Unit CreditMethod, taking into account future pay and pensionincreases.

Foreign-currency receivables and liabilities arereported at the middle rate on the balance sheet dateinstead of according to the principle of unequal treat-ment of profits and losses.


81

EUR million 2003

Profit after tax for the Audi Group

before adjustment 816

Effect of IAS 38 (development expenditure) – 7

Effect of deferred taxes 2

Profit after tax for the Audi Group

after adjustment 811

Pursuant to IAS 12, deferred tax is determinedaccording to the balance sheet focused liabilitymethod. Tax deferrals are to be created for all tempo-rary differences between the tax base of assets andliabilities and the carrying amounts of them in theconsolidated financial statements (temporary con-cept). Deferred tax assets regarding the carryforwardof unused tax losses are in addition to be recognised.

The GroupIn addition to AUDI AG, the consolidated financialstatements include all key companies where AUDI AGdirectly or indirectly has scope for determining thefinancial and business policy in such a way that AUDI AG or other group companies benefit from theactivities of the companies in question (subsidiaries).Consolidation begins at that point in time from whichit acquires the opportunity for control; it ends whenthat opportunity ceases to be available.

The constellation of fully consolidated sub-sidiaries remained unchanged in the past financialyear.

Companies (joint ventures) which are under jointmanagement on the basis of the articles of incorpo-ration, even though the shares held are in excess of 50 percent of the share capital, are accounted forusing the equity method. The 51 percent share in Audi Zentrum Stuttgart GmbH & Co. KG, Stuttgart,was accounted for using the equity method for thefirst time in the 2004 financial year.

Companies where AUDI AG is able to exercisesignificant direct or indirect influence on financial andoperating policy decisions (“associates”) are likewiseaccounted for using the equity method, unless theyare of only minor importance.

Subsidiaries excluded from consolidation andparticipating interests are always reported at theircost of purchase, as no active market exists for theshares of these companies and no fair value canreliably be determined with a justifiable amount ofeffort. These subsidiaries are substantially dormantcompanies or companies with only limited businessoperations.

The following table shows the composition of theAudi Group:

The main companies within the Audi Group are listedafter the Notes. A list of all companies in which sharesare held is filed with the Ingolstadt CommercialRegister under HR B 1, and published on the Audiwebsite at www.audi.com/subsidiaries. This list can inaddition be requested directly from AUDI AG, FinanceAnalysis and Publications I/FF-12, 85045 Ingolstadt,Germany.

As a result of their inclusion in Audi's consoli-dated financial statements, quattro GmbH, Neckar-sulm, Audi Vertriebsbetreuungsgesellschaft mbH,Ingolstadt, and Audi Synko GmbH, Ingolstadt, satisfythe conditions of Section 264 Para. 3 of German Com-mercial Code and make use of the exemption rule.

Consolidation principlesThe assets and liabilities of the domestic and foreigncompanies included in the consolidated financialstatements are accounted for in accordance with thestandard accounting policies of the Audi Group.

For subsidiaries fully consolidated for the firsttime, the assets and liabilities are to be measured attheir fair value at the time of acquisition. Thus, differ-ences between pre-acquisition carrying amounts andfair values of assets acquired and liabilities assumedare carried, depreciated or dissolved in accordancewith the corresponding assets and liabilities. If thepurchase prices of the shares exceed the group’sinterest in the equity calculated in this way for the

82

Total 2004 2003

AUDI AG and fully

consolidated subsidiaries

Germany 5 5

Other countries 11 11

Enterprises whose shares

are accounted for using the

equity method

Germany 1 –

Other countries 2 2

Subsidiaries reported

at cost of purchase and

other associates

Germany 10 9

Other countries 7 5

36 32

individual company, goodwill arises. Goodwill acqui-red in a business combination is tested for impair-ment regularly, at the balance sheet date, and animpairment loss recognised if necessary.

Receivables and liabilities between consoli-dated companies are offset, and expenses and income eliminated. Intra-group profits and losses areeliminated from group inventories and non-currentassets.

Consolidation processes affecting income aresubject to deferrals of income taxes, with deferred taxassets and liabilities offset where the term and taxcreditor coincide.

With the exception of the criteria for measure-ment of goodwill from acquisitions, the consolidationmethods applied in 2004 remain unchanged.

The same accounting policies for determiningthe pro rata equity are applied to investmentsaccounted for using the equity method. The last set ofaudited accounts of the company in question servesas the basis for this purpose.

Currency translationThe currency of the Audi Group is the euro (EUR).

Foreign currency transactions in the separatefinancial statements of AUDI AG and the subsidiariesare translated at the prevailing exchange rate on thedate of the transaction. Monetary items in foreigncurrency are reported at the balance sheet date onthe basis of the exchange rate on that date. Exchangedifferences are recognised in the current-periodincome statements of the respective group com-panies.

The foreign companies belonging to the Audi Group are foreign entities which prepare theirfinancial statements in their local currency. AUDI

HUNGARIA MOTOR Kft. is the sole exception, as itprepares its annual financial statements not in itslocal currency but in euros. The concept of the “func-tional currency” is applied when translating financialstatements prepared in foreign currency. Assets andliabilities are translated at the closing rate. The effectsof foreign currency translation on equity are reportedin the currency exchange reserve. The items in theincome statement are translated using weighted aver-age monthly rates. Exchange differences resultingfrom the use of diverging exchange rates in thebalance sheet and income statement are recognisedin equity with no effect on the income statement.

As all consolidated subsidiaries have their registeredoffices in countries in which there is currently nohyperinflation, IAS 29 does not apply.


83

Closing rate Average rate

EUR 1 = Dec. 31, 2004 Dec. 31, 2003 2004 2003

Australia (AUD) 1.7459 1.6802 1.6892 1.7380

Brazil (BRL) 3.6150 3.6486 3.6340 3.4729

China (CNY) 11.2734 10.4535 10.2900 9.3592

Great Britain (GBP) 0.7051 0.7048 0.6786 0.6919

Japan (JPY) 139.6500 135.0500 134.3979 130.9390

84

Recognition and measurement principles

Recognition of income and expensesRevenue is always recorded at the time of renderingof the services or delivery of the goods or products, inother words upon passage of risk to the customer.The percentage of completion method is only appliedin exceptional cases, as the dates on which a serviceis commenced and completed regularly fall within thesame accounting period.

Operating expenses are recognised when theservice is rendered or at the time they are incurredeconomically.

Intangible assetsIntangible assets acquired for consideration arerecognised at cost of purchase, taking account ofancillary costs and cost reductions, and amortised ona scheduled straight-line basis over their useful life.

Concessions, rights and licences relate to pur-chased computer software and subsidies paid.

Research costs are treated as current expensesin accordance with IAS 38. The development expen-diture for products going into series production isrecognised as an intangible asset, provided that theproduction of these products is likely to bring eco-nomic benefit to the Audi Group. If the conditions forrecognition as an intangible asset are not met, theexpenditure is recognised as an expense in theincome statement in the year in which they occur.

Development expenditure recognised as anintangible asset comprises all direct costs and over-heads directly allocable to the development process.As a result of the change to IAS 38, these capitalisedcosts were reduced by EUR 188,741 thousand at Janu-ary 1, 2004 with no effect on the income statement byway of a retrograde adjustment. Borrowing costs arenot capitalised. Amortisation is performed on a straight-line basis from the start of production, over the anti-cipated model life of the developed products.

The amortisation is allocated to the correspondingfunctional areas.

Goodwill acquired in a business combination is recognised pursuant to IAS 36 and tested forimpairment regularly, at the balance sheet date. Ifnecessary, an impairment loss resulting from this test is recognised.

In accordance with IAS 36, impairment loss onintangible assets is recognised where the recoverableamount of the asset (present value of the future cash flows expected to be derived from the asset inquestion) has fallen below its carrying amount. If thereasons for impairment performed in previous yearscease to apply, impairment losses are reversed. There was no need for either impairment or reversalsof impairment in the period under review.

Property, plant and equipmentProperty, plant and equipment are measured at cost,less scheduled straight-line depreciation according tothe pro rata temporis method.

The costs of purchase include the purchaseprice, ancillary costs and cost reductions.

In the case of self-constructed fixed assets, thecost of construction includes both the directly alloca-ble cost of materials and cost of labour, and indirectmaterials and indirect labour which must be capi-talised, together with pro rata depreciation. Intereston borrowings is not included.

Minor assets with a cost of purchase of up to EUR 410are fully depreciated in the year of acquisition.

The amortisation plan is based principally on thefollowing useful lives:

Useful life


and similar rights and values 3–15 years

of which software 3 years


as an intangible asset 5–10 years

The depreciation plan is based principally on thefollowing useful lives:

Useful life

Buildings 25–33 years

Plant fixtures 10–18 years

Plant and machinery 6–12 years

Furniture and fixtures,

including special tools 3–15 years


85

Impairment loss on property, plant and equip-ment pursuant to IAS 36 is recognised where therecoverable amount from the use of the asset in ques-tion has fallen below its carrying amount. If thereasons for impairment performed in previous yearscease to apply, impairment losses are reversed.

In accordance with IAS 17, property, plant andequipment used on the basis of lease agreements arerecognised in the balance sheet if the conditions of afinancial lease are met, in other words if the signifi-cant risks and opportunities which result from its usehave passed to the lessee. Recognition is performedat the time of the agreement, at cost or at the presentvalue of the minimum lease payments if lower. Thestraight-line depreciation method is based on eco-nomic life, or on the term of the lease contract ifshorter. The payment obligations resulting from thefuture lease instalments are recognised as a liabilityat the present value of the leasing instalments.

Investment propertyInvestment property is measured at amortised cost.Buildings are depreciated on the basis of a useful lifeof 33 years.

Investments accounted for using the equity methodCompanies (joint ventures) which are under jointmanagement on the basis of the articles of incorpora-tion, even though the shares held are in excess of 50 percent of the share capital, are accounted forusing the equity method. Companies where AUDI AGis able to exercise significant direct or indirect in-fluence on financial and operating policy decisions(associates) are likewise accounted for using theequity method.

Financial instrumentsFinancial instruments refer to any contract that givesrise to both a financial asset of one enterprise and afinancial liability or equity instrument of anotherenterprise. They include both primary and derivativeinstruments. Derivative financial instruments are usedas a hedge for items on the balance sheet and forfuture cash flows.

IAS 39 subdivides financial assets into fourcategories:– Financial instruments held for trading– Held-to-maturity investments– Loans and receivables originated by the enterprise– Available-for-sale financial assets

The financial assets used within the Audi Group aregenerally classified as “available for sale” or “loansand receivables originated by the enterprise”. Nofinancial instruments in the category of “held-to-maturity investments” are in use. Where financialinstruments are purchased or sold in the “customary”manner, they are recognised using settlement dateaccounting.

Financial instruments held for trading in accor-dance with IAS 39 include certain hedging instru-ments such as currency option transactions which donot satisfy the stringent requirements of IAS 39.

Financial instruments are reported at amortisedcost or at fair value.

The amortised cost of a financial asset or finan-cial liability is the amount at which the financial assetor liability was measured at initial recognition minusprincipal repayments and any impairment losses. In the case of liabilities, amortised costs always corre-spond to the nominal or settlement value.

The fair value generally corresponds to themarket value or quoted market price. If no active mar-ket exists, the fair value is determined by means ofinvestment mathematics methods.

86

Primary financial instrumentsInvestments in subsidiaries excluded from consolida-tion and participating interests are generally shownat their respective cost of purchase, as no activemarket exists for these companies and no fair valuecan reliably be determined with a justifiable amountof effort.

Loans and receivables originated by the enter-prise and liabilities are measured at amortised cost.These include in particular– loans advanced,– trade receivables and payables,– other current assets and liabilities.

In the case of current items, the fair values to be indi-cated in addition in the Notes correspond to amor-tised costs. For non-current assets and liabilities, fairvalues are determined by discounting future cashflows at market rates.

Liabilities from financial lease agreements arecarried at the present value of the leasing instal-ments.

Available-for-sale financial assets are alwaysmeasured at their fair value. In the case of quotedfinancial instruments, the fair value corresponds tothe market value on the balance sheet date. This cate-gory substantially comprises securities. Changes tothe fair value are recognised in the income statement.

Derivative financial instrumentsDerivative financial instruments are used as a hedgefor items on the balance sheet and for future cashflows.

In the case of hedges against the risk ofchanges in value of balance sheet items (fair valuehedges), both the hedging transaction and thehedged risk portion of the underlying transaction arerecognised at fair value. Changes in the value ofhedging and underlying transactions are included inthe financial result.

As a means of hedging future cash flows in for-eign currency, the Audi Group uses foreign exchangecontracts (cash flow hedges) and currency optiontransactions. These hedging instruments are likewisemeasured at fair value. Whereas the fluctuations inthe value of currency option transactions immediately

have an effect on the net profit or loss for the period,the changes in value of cash flow hedges are initiallyreported in a special reserve within equity with noeffect on the income statement and are only recog-nised as income or expense once the hedged item isdue.

Deferred taxPursuant to IAS 12, deferred tax is determined accord-ing to the balance sheet focused liability method. Thismethod specifies that tax deferrals are to be createdfor all temporary differences between the tax base ofassets and liabilities and the carrying amounts ofthem in the consolidated financial statements (tem-porary concept). Deferred tax assets regarding thecarryforward of unused tax losses are in addition tobe recognised.

Deferrals amounting to the anticipated taxburden or tax relief in subsequent financial years arecreated on the basis of the likely tax rate at the timeof realisation. In accordance with IAS 12, the taxconsequences of distributions of profit are not recog-nised until the resolution on the appropriation ofprofits is passed.

Deferred tax assets include future tax reliefresulting from temporary differences between thecarrying amounts in the consolidated balance sheetand the valuations in the balance sheet for tax pur-poses. Deferred tax assets for the carryforward ofunused tax losses that can be realised in the futureand from tax relief are also to be recognised.

Deferred tax assets and deferred tax liabilitiesare offset, provided there is identity of the tax credi-tors and maturities.

Pursuant to IAS 1.70, deferred tax is reported as non-current.

A reduction of the carrying amount is per-formed for deferred tax assets which are unlikely to be realised.


87

InventoriesRaw materials and supplies are measured at theupdated average cost of purchase or at the lower netrealisable value. Other costs of purchase and pur-chase cost reductions are taken into account asappropriate.

Work in progress and finished goods are valuedat cost of conversion or at the lower net realisablevalue. The cost of conversion includes direct materi-als and direct labour, as well as an appropriate por-tion of the necessary indirect materials and indirectlabour, production-related depreciation and expensesallocable to the products from the amortisation ofseries development expenditure recognised as anintangible asset. Distribution costs, administrativeexpenses and interest on borrowings are not capi-talised.

Merchandise is valued at cost of purchase orat the lower net realisable value. Provision has beenmade for all discernible storage and inventory risks byway of appropriate write-downs. Individual downwardvaluation adjustments are made on all inventories as soon as the probable proceeds from their sale oruse are lower than the carrying amounts of the inven-tories. The estimated selling price less the estimatedcosts incurred up until their sale is regarded as thenet realisable value of inventories.

Securities, cash and cash equivalentsSecurities held as current assets are measured atmarket value, in other words at the quoted marketprice at the balance sheet date.

Cash and cash equivalents are measured atnominal value.

Defined benefit liabilitiesThe actuarial measurement of defined benefit liabili-ties is based on the Projected Unit Credit Method fordefined retirement benefit plans as specified in IAS 19(Employee Benefits). This method takes account ofpensions and entitlements to future pensions knownat the balance sheet date as well as anticipated futurepay and pension increases.

Other provisionsIn accordance with IAS 37, provisions are recognisedif an obligation existing towards third parties is likelyto lead to cash outflows and where the amount of theobligation can reliably be estimated.

Pursuant to IAS 37, the other provisions for alldiscernible risks and uncertain liabilities are reportedat their probable cost and not offset against recourseentitlements.

Provisions with over one year to maturity aremeasured at their discounted settlement value at thebalance sheet date. An interest rate of 3.0 percent isused as the discount rate. The settlement value alsoincludes the cost increases to be taken into accountat the balance sheet date, according to IAS 37.

88

Notes to the consolidated income statement

1 Revenue

Revenue is categorised by region for the purpose of segment reporting, along the same lines as thoseused for internal group steering and reporting.

The other sales constitute goods and servicessupplied to affiliated companies and sales to thirdparties.

2 Cost of sales

The cost of sales comprises the costs incurred ingenerating revenue and purchase prices in tradingtransactions. This item also includes expenses result-ing from the creation of provisions for warrantycosts as well as development expenditure which cannot be recognised as an intangible asset.

The comparative statements for 2003 have been adjusted to conform to the changed policy pur-suant to IAS 38. This change retroactively increasesthe prior-year figure by EUR 6,835 thousand to EUR 21,205,918 thousand.

3 Distribution costs

Distribution costs substantially comprise expensesfor marketing and sales promotion, advertising,public relations activities and outward freight, as wellas depreciation for the sales sector.

4 Administrative expenses

The administrative expenses include labour andmaterials costs, as well as depreciation for the admin-istrative sector.

5 Other operating income

Income from the processing of payments in foreigncurrency substantially comprises gains resulting fromexchange-rate movements between the dates of out-put and payment, and exchange-rate gains as a resultof measurement at the average rate on the closingdate. In the same way, exchange rate losses arereported under other operating expenses.

The overall item of currency hedging trans-actions is shown under Other particulars (item 1.1).

Group revenue according to brands

EUR ‘000 2004 2003

Audi brand 17,853,567 17,138,628

Lamborghini brand 216,697 172,939

Volkswagen brand 2,207,517 2,201,536

SEAT brand 345,827 436,921

Škoda brand 207,051 235,373

Total revenue for vehicles 20,830,659 20,185,397

Other sales 3,675,205 3,220,154

Total revenue 24,505,864 23,405,551

EUR ‘000 2004 2003

Income from rebilling 282,427 247,876

Income from the reversal

of provisions and accruals 215,252 234,686

Income from realised

derivative currency hedging

transactions 156,946 112,212

Income from ancillary

business 57,516 66,014

Income from the

processing of payments

in foreign currency 52,496 56,331

Income from the reversal

of reductions for impairment

on receivables and

other assets 3,262 418

Income arising from

asset disposals 3,174 3,110

Income from investment

property 164 2,405

Miscellaneous operating

income 177,264 117,815

Total other operating income 948,501 840,867


89

6 Other operating expenses

The losses arising from asset disposals includeexpenses from disposals of development expenditurerecognised as an intangible asset as well as of prop-erty, plant and equipment.

The overall item of currency hedging trans-actions is shown under Other particulars (item 1.1).

7 Result from investments accounted for using theequity method

8 Other financial results

The other income from participating interests relatesabove all to a share in the profits of VolkswagenTransport GmbH & Co. OHG, Wolfsburg.

EUR ‘000 2004 2003

Expense from the

processing of payments

in foreign currency 54,544 58,239

Expense from realised

derivative currency hedging


Impairment losses on

receivables 37,063 10,179

Losses arising from

asset disposals 18,102 30,275

Amortisation of goodwill – 46,277

Miscellaneous operating

expenses 77,389 119,660

Total other operating

expenses 231,292 285,689

EUR ‘000 2004 2003

Income from investments

accounted for using the

equity method 22,768 54,286

Expense from investments

accounted for using the

equity method 2,096 782

Total result from

investments accounted for

using the equity method + 20,672 + 53,504

EUR ‘000 2004 2003

Result from participating

interests + 16,988 + 18,422

other income from

investments in

affiliated companies 16,906 17,749

income from profit

transfer agreements 2,084 991

impairment losses on

participating interests 2,002 –

expense from the

transfer of losses – 318

Interest on employee

benefit obligations 96,815 91,042

Interest on other provisions 21,169 21,786

Net interest – 14,011 + 91,195

Total other financial result – 115,007 – 3,211

90

Net interest is calculated as follows:

Interest income and expense are attributed on anaccrual basis.

The overall item of currency hedging instru-ments is shown under Other particulars (item 1.1).

9 Income tax expense

Income tax expense includes taxes passed on byVolkswagen AG on the basis of the single-entity rela-tionship between the two companies for tax pur-poses, along with taxes owed by AUDI AG and its con-solidated subsidiaries, as well as deferred taxes.

The prior-year figures for deferred tax wereadjusted as a result of exercising the choice to applyIAS 38 (revised 2004) “Intangible Assets” early. Effectson the income statement of the early application ofthe revised standard are represented under Generalinformation on the notes to the consolidated financialstatements.

Tax expense consists of the following:

Of the current tax expense, an amount of EUR 482 million (EUR 473 million) was passed on byVolkswagen AG.

The current taxes in Germany are calculated at the tax rate of 38.3 percent (39.7 percent). This rep-resents the sum of the corporate income tax rate of25.0 percent, the solidarity surcharge of 5.5 percentand the average trade earnings tax rate for the group.Deferred taxes were calculated accordingly at a rateof 38.3 percent in the financial year under review, asin the previous year.

The national income tax rates applicable for for-eign companies range from 16 percent to 40 percent.

EUR ‘000 2004 2003

Income from securities as

well as loans advanced 156 –

Income from the measure-

ment at market value 60,464 98,731

of derivative financial

instruments 33,598 69,614

of securities and of

non-current loans

advanced 26,866 26,992

of assets and liabilities – 2,125

Expense from the measure-

ment at market value 71,727 11,897

of derivative

financial instruments 70,469 10,108

of securities and of

non-current loans

advanced 1,258 1,789

Other interest and

similar income 75,302 48,253

of which from affiliated

companies 53,163 21,546

Other interest and

similar expenses 77,939 43,358

of which to affiliated

companies 75,550 41,447

Interest expense included

in leasing instalments 267 534

Total net interest – 14,011 + 91,195

EUR ‘000 2004 2003

Current income tax expense 552,809 481,732

of which for Germany 482,157 473,322

of which for other countries 70,652 8,410

of which tax income/

expense not relating

to the period – 18,647 – 9,874

of which income from the

reversal of tax provisions – 10,319 – 17,401

Deferred tax income – 280,904 – 191,406

of which for Germany – 111,116 – 85,111

of which for other countries – 169,788 – 106,295

Total income tax expense 271,905 290,326


91

AUDI HUNGARIA MOTOR Kft., Györ (Hungary),was included in the calculation of deferred taxes inthe previous financial year. As a result of the bringingin line of Hungarian law with the framework condi-tions of the European Union for investment subsidies,tax relief on capital investments in the previous yearresulted in deferred tax assets totalling EUR 98 mil-lion, which have been included in income. As a resultof capital investments made and the company’s cur-rent plans, this figure rose during the 2004 financialyear to EUR 220 million.

The realisation of tax losses resulted in areduction of EUR 17 million (EUR 5 million) in currentincome tax expense in the 2004 financial year. Thereexist carryforwards of unused tax losses totalling EUR 170 million, of which an amount of EUR 107 mil-lion can be used indefinitely.

Deferred tax totalling EUR 4 million (EUR 13 mil-lion) relates to business transactions (derivativefinancial instruments) credited directly to equity.

Tax-rate changes produced deferred tax incomeof EUR 2 million.

Deferred taxes are explained in greater detail in therecognition and measurement principles.

The following deferred tax assets and liabilities carried in the balance sheet are attributable to the individual balance sheet items:

Deferred tax assets Deferred tax liabilities

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2003

Intangible assets 28,026 2,001 799,135 771,662

Property, plant and equipment 100,015 117,941 319,215 370,079

Long-term investments 70,781 52,160 0 209

Inventories 30,296 18,877 2,741 4,877

Receivables and other assets 26,878 23,403 54,303 67,090

Other current assets 220,628 98,771 18,723 9,299

Defined benefit liabilities 98,080 116,018 266 392

Other provisions 420,860 382,134 23,793 0

Liabilities 42,709 32,050 11,453 11,172

Loss carryforwards 29,806 2,723 – –

Gross value 1,068,079 846,078 1,229,629 1,234,780

of which non-current 720,458 531,689 934,949 948,411

Offsetting measures – 716,658 – 608,436 – 716,658 – 608,436

Consolidation measures 9,395 6,058 – 1,696 – 1,388

Carrying amount 360,816 243,700 511,275 624,956

92

Reconciliation from anticipated to reported incometax expenseThe anticipated tax expense is above the reportedincome tax expense. The reasons for the differencebetween the anticipated and reported tax expense are illustrated by the following reconciliation:

10 Minority interests

The profit due to other shareholders is in respect ofshareholders of AUDI SENNA Ltda., São Paulo (Brazil).

11 Profit transfer to Volkswagen AG

On the basis of the profit transfer agreement withAUDI AG, an amount of EUR 405 million (EUR 160 mil-lion) is to be transferred to Volkswagen AG.

12 Earnings per share

Basic earnings per share are calculated by dividingthe profit share due to AUDI AG shareholders by theweighted average number of shares outstandingduring the financial year.

In Audi’s case, the diluted earnings per shareare the same as the basic earnings per share, as therewere no potential shares in AUDI AG in existence ateither December 31, 2003 or December 31, 2004.

The comparative earnings figures for 2003 have beenadjusted to conform to the changed policy pursuantto IAS 38. This change retroactively reduces the prior-year figures by EUR 4,646 thousand to EUR 808,440thousand.

Outside shareholders in AUDI AG receive acompensatory payment for each individual sharecertificate instead of a dividend for the 2004 financialyear. The level of this payment corresponds to thedividend that is paid on one Volkswagen AG ordinaryshare. The dividend payment will be determined bythe Annual General Meeting of Volkswagen AG onApril 21, 2005.

EUR ‘000 2004 2003

Profit before tax 1,142,412 1,101,465

Anticipated income tax

expense 38.3% (39.7%) 437,544 437,282

Progression:

Divergent foreign tax burden – 66,719 – 119,013

Tax portion for:

tax relief on capital

investments – 174,365 – 98,300

tax-exempt income – 17,423 – 26,128

expenses not deductible

for tax purposes 36,608 41,286

temporary differences

and losses for which

no deferred tax has been

recorded 23,430 38,243

Tax income/expense not

relating to the period – 18,647 – 9,874

Effects of tax-rate changes – 2,026 – 3,709

Other tax effects 53,503 30,539

Income tax expense reported 271,905 290,326

Effective tax rate in % 23.8 26.4

2004 2003

Profit share of

AUDI AG shareholders

in EUR thousand 868,243 808,440

Weighted average number

of shares

(basic and diluted totals

are identical) 43,000,000 43,000,000

Earnings per share in EUR 20.19 18.80


93

Notes to the consolidated balance sheet

NON-CURRENT ASSETS

13 Intangible assets

The goodwill results exclusively from the consolida-tion in full of AUTOGERMA S.p.A., Verona (Italy).

In accordance with IAS 36, impairment of thisgoodwill is tested at the end of the year. The AudiGroup uses the value in use as the basis for determin-ing any possible impairment of goodwill and intangi-ble assets with an indefinite useful life. The planningdata was prepared on the basis of available knowl-edge. A slight increase in demand for cars in Italy isexpected. The planning data is influenced by theprevailing macroeconomic developments, as well asby past developments. The planning period at Audiextends over a period of five years; for the time fol-lowing on from this, plausible assumptions are maderegarding future development. The discount rate is11.2 percent and therefore corresponds to therequired return on equity within the Audi Group. Bymeans of sensitivity analyses we have ensured thatany departure from key assumptions would not resultin any need for recognition of impairment loss ongoodwill of indefinite useful life.

The comparative statements of developmentexpenditure recognised as an intangible asset for2003 have been adjusted to conform to the changedpolicy pursuant to IAS 38. This change retroactivelyreduces the prior-year figures by EUR 188,741 thou-sand to EUR 2,489,575 thousand.

Dec. 31, 2004 Dec. 31, 2003


Concessions, industrial

property rights and

similar rights and values,

as well as licences thereto 178,407 95,292

Goodwill 172,491 172,491


recognised as an intangible

asset for

products currently

in development 571,907 928,850

products currently in use 1,832,060 1,290,996

Payments on account for

intangible assets 4,467 1,946

2,759,332 2,489,575

94

The following table indicates the adjustments made:

2003 Adjustment 2003

according (adjusted)

EUR ‘000 to IAS 38

DEVELOPMENT EXPENDITURE RECOGNISED AS AN INTANGIBLE ASSET,

products currently in development

Costs

Jan. 1, 2003 907,800 – 72,533 835,267

Additions 501,672 – 34,021 467,651

Transfers – 404,066 29,998 – 374,068

Carrying amount at Dec. 31, 2002 907,800 – 72,533 835,267

Carrying amount at Dec. 31, 2003 1,005,406 – 76,556 928,850

DEVELOPMENT EXPENDITURE RECOGNISED AS AN INTANGIBLE ASSET,

products currently in use

Costs

Jan. 1, 2003 2,327,272 – 190,588 2,136,684

Additions 134,412 – 11,016 123,396

Transfers 404,066 – 29,998 374,068

Disposals – 255,149 21,177 – 233,972

Position at Dec. 31, 2003 2,610,601 – 210,425 2,400,176

Amortisation

Jan. 1, 2003 986,855 – 81,215 905,640

Additions 475,714 – 38,202 437,512

Disposals – 255,149 21,177 – 233,972

Position at Dec. 31, 2003 1,207,420 – 98,240 1,109,180

Carrying amount at Dec. 31, 2002 1,340,417 – 109,373 1,231,044

Carrying amount at Dec. 31, 2003 1,403,181 – 112,185 1,290,996

Research and development expenditure recognised as an

expense

2004 2003


Research expenditure and

development expenditure

not recognised as an

intangible asset 746,393 665,576

Amortisation and disposals

of development expenditure

recognised as an

intangible asset 467,911 437,512

Total research and

development expenditure

recognised as an expense 1,214,304 1,103,088

Spending on research and development activities in the 2004 financial year totalled EUR 1,398 million (EUR 1,257 million). Of this total, EUR 652 million (EUR 591 million, adjusted) satisfy the criteria forrecognition of an asset according to IAS 38.


95

17 Other long-term investments

The increase in investments in affiliated companies isthe result of the establishment of Audi Korea Ltd.,Seoul (South Korea) and the capital increase at AudiElectronics Venture GmbH, Gaimersheim.

The carrying amounts are equivalent to the fairvalues.

18 Deferred tax assets

The temporary differences between tax bases andcarrying amounts in the consolidated balance sheetare explained in the recognition and measurementprinciples under the item “Deferred tax”. Pursuant toIAS 1 (revised 2003), deferred tax assets are to bereported as non-current assets irrespective of theirmaturities.

19 Other receivables and other financial assets

The other assets have a fair value of EUR 56,428thousand (EUR 9,511 thousand), the loans advancedhave a fair value of EUR 17,358 thousand (EUR 17,878thousand).

There are no significant restrictions on owner-ship or disposal for the reported receivables andother assets. The carrying amounts correspond to thefair values, unless otherwise noted.

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Investments in affiliated

companies 150,957 137,398

Investments in associates 13 –

Participating interests 9,254 11,256

160,224 148,654

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Other assets 56,528 9,563

Loans advanced to


Loans advanced to

associates 14,322 14,809

Other loans advanced 1,887 2,215

Other tax assets 7,465 14,019

81,400 42,000

14 Property, plant and equipment

In the 2004 financial year, recognition of impairmentlosses pursuant to IAS 36 was not necessary (EUR 96million in the previous year).

Payments totalling EUR 52 million (EUR 55 mil-lion) for assets rented on the basis of operating leaseagreements were recognised as an expense.

15 Investment property

Land and buildings held for the purpose of generat-ing rental income (investment property pursuant to IAS 40) are reported under Investment property.The fair value of investment property amounts to EUR 13,432 thousand.

16 Investments accounted for using the equitymethod

The addition in the 2004 financial year relates to acapital increase at FAW-Volkswagen AutomotiveCompany, Ltd., Changchun (China) and to the acquisi-tion of shares in Audi Zentrum Stuttgart GmbH & Co.KG, Stuttgart.

The carrying amounts are equivalent to the fairvalues.

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Land, land rights and

buildings, including

buildings on land owned

by others 1,734,273 1,765,138

Plant and machinery 1,217,408 1,284,078

Furniture, fixtures and

office equipment 2,061,108 1,802,846

of which finance lease 2,304 5,564

Payments on account

and assets in course of

construction 353,251 659,582

5,366,040 5,511,644

96

CURRENT ASSETS

20 Inventories

The write-down as a result of the measurement ofinventories on the basis of sales market amounted toEUR 63,063 thousand (EUR 45,392 thousand).

No reversal of write-downs was performed inthe financial year. There are no significant restrictionson ownership or disposal for the reported inventories.

21 Trade receivables

The fair value of trade receivables amounts to EUR 1,393,013 thousand (EUR 1,230,810 thousand).

The trade receivables not realised until morethan twelve months after the balance sheet dateamount to EUR 7,353 thousand (EUR 1,355 thousand).

22 Effective income tax assets

Entitlements to income tax rebates predominantlyfor foreign group companies are reported under thisitem.

23 Other receivables and assets

All other receivables and assets are due within oneyear of the balance sheet date.

There are no significant restrictions on owner-ship or disposal for the reported receivables andother assets. The carrying amounts correspond to thefair values.

Derivative currency hedging instruments aremeasured at market value. The market values are indi-cated by the following summary:

The overall item of currency hedging instruments isshown under Other particulars (item 1.1).

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Raw material and supplies 391,746 369,372

Work in progress 267,258 264,396

Finished goods and

merchandise 1,171,420 1,170,279

Payments on account for

inventories 1,189 10,026

1,831,613 1,814,073

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Trade receivables from

third parties 686,277 815,415


joint ventures and

associates 169,577 145,840

enterprises in which the

company has participating

interests – 783

1,393,050 1,230,812

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Other receivables from


of which from

derivative currency

hedging instruments 134,099 170,370

Other receivables from

associates 13 30,240

Other receivables from enter-

prises in which the company

has participating interests 46 62

Other assets 181,906 194,403

Other tax assets 131,381 141,200

Assets from derivative

currency hedging instruments 1,085 127

Other loans advanced 229 290

528,246 714,049

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Derivative currency

hedging instruments

Cash flow hedges 79,689 82,435

Currency option


Currency swaps 1,085 –

135,184 170,497


97

24 Securities

Securities held as current assets comprise fixed-interest or variable-interest securities and shares.

The rates of return ranged between 4.08 per-cent and 6.47 percent.

25 Cash and cash equivalents

The rates of return for overnight money and termmoney ranged between 1.97 percent and 2.04 per-cent.

Balances existed with various banks and invarious currencies. Liquid funds were invested withaffiliated companies via the cash pooling arrange-ments.

EQUITY

26 Issued capital

The issued capital of AUDI AG totals EUR 110,080,000.Each share represents a mathematical share of EUR 2.56 in the issued capital. It is divided into43,000,000 bearer individual share certificates.

27 Capital reserves

The capital reserves contain shareholder contri-butions from the issue of shares in the company. Itremained unchanged at EUR 56,730 thousand onDecember 31, 2004.

28 Retained earnings

The opportunities and risks from foreign exchangecontracts serving as hedges for future cash flows aredeferred with no effect on the income statement inthe reserve for cash flow hedges. When the cash flowhedges fall due, the results from the settlement of theexchange-rate hedging contracts are reported in theother operating result.

The comparative statements for 2003 have been adjusted to conform to the changed policy pur-suant to IAS 38. This change retroactively reduces the prior-year figure for the other retained earnings byEUR 117,930 thousand to EUR 5,368,262 thousand.

The balance of EUR 463,243 thousand (EUR 648,440 thousand, adjusted) remaining afterthe transfer of profit to Volkswagen AG and afterdeduction of the profit share for minority interests isallocated to the other retained earnings.

29 Minority interests

Minority interests in the equity relate to AUDI SENNALtda., São Paulo (Brazil). The decrease results princi-pally from the acquisition of third party shares in Audi Australia Pty Ltd., Botany (Australia) by AUDI AG.

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Balances with banks and

affiliated companies 1,758,858 1,207,197

Cheques and cash in hand 353 322

1,759,211 1,207,519

Dec. 31, 2004 Dec. 31, 2003


Legal reserve 131 131

Reserve for cash flow hedges 31,655 37,228

Currency exchange reserve – 47,217 – 32,075

Other retained earnings 5,832,550 5,368,262

5,817,119 5,373,546

LIABILITIES

Non-current liabilities

30 Financial liabilities

Non-current financial liabilities with a time to maturityof more than five years amount to EUR 2,287 thou-sand (EUR 2,796 thousand). The carrying amounts areequivalent to the fair values.

The liabilities to banks relate predominantly tothe financing of Audi Japan K.K.

Measurement of the financial lease agreementsis based on an interest rate of 6.5 percent p.a. in eachcase. These agreements will incur borrowing coststotalling EUR 76 thousand over the next few years.

31 Deferred tax liabilities

The temporary differences between tax bases andcarrying amounts in the consolidated balance sheetare explained in the recognition and measurementprinciples under the item “Deferred tax”. Pursuant toIAS 1 (revised 2003), deferred tax liabilities arereported as non-current liabilities irrespective of theirmaturities.

The comparative statements for 2003 have beenadjusted to conform to the changed policy pursuantto IAS 38. This change retroactively reduces the prior-year figures by EUR 70,811 thousand to EUR 624,956thousand.

32 Other liabilities

Carrying amounts Fair values

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2003

Liabilities to affiliated companies 91,181 58,309 80,977 53,470

Derivative currency hedging instruments (cash flow hedges) – 168 – 168

Other liabilities 35,329 27,088 35,329 27,088

of which taxes – 162 – 162

of which in respect of social insurance 5,356 4,933 5,356 4,933

126,510 85,565 116,306 80,726

98

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Liabilities to banks 14,695 16,131

Liabilities from financial

lease agreements 586 1,309

15,281 17,440


99

Other liabilities with a time to maturity of more than five years amount to EUR 37,244 thousand (EUR 9,962thousand).

A sum of EUR 51,000 thousand was transferredfrom the previous year's current liabilities to affiliatedcompanies to non-current liabilities to affiliatedcompanies.

Derivative currency hedging instruments are reportedat market values. The overall item of currency hedginginstruments is shown under Other particulars (item 1.1).

The liabilities from factoring companies havebeen reclassified as current and non-current financialliabilities instead of other liabilities.

33 Defined benefit liabilities

Defined benefit liabilities are created on the basis ofplans to provide retirement, invalidity and survivingdependents’ benefits. They relate exclusively tobenefit commitments for employees of AUDI AG, AudiVertriebsbetreuungsgesellschaft mbH, AUTOGERMAS.p.A., Audi Japan K.K. and COSWORTH TECHNOLOGYLIMITED. The benefit amounts generally depend on the length of service and the remuneration of theemployees.

Within the Audi Group, a distinction is madebetween benefit systems based on provisions andthose financed externally via pension funds.

The pension fund model introduced at AUDI AGon January 1, 2001 is based on contribution-basedretirement benefit commitments, which are classifiedas defined benefit plans pursuant to IAS 19 (EmployeeBenefits). The remuneration-based annual cost ofproviding employee benefits is invested in funds on afiduciary basis by Volkswagen Pension Trust e.V. Thismodel offers AUDI AG employees the opportunity toincrease their pension claims, while providing full riskcover. As the units administrated on a fiduciary basissatisfy the requirements of IAS 19 as plan assets,these funds were offset against the retirement benefitobligations.

Obligations for retirement benefits are meas-ured according to the Projected Unit Credit Methodpursuant to IAS 19. Here, the future obligations are measured on the basis of benefit claims vestedpro rata at the balance sheet date. For purposes of measurement, trend assumptions are used for therelevant quantities which affect the level of benefit.

The biometric mortality was determined using the“1998 Reference Tables” by Dr. K. Heubeck.

The calculation is based on the following individualactuarial assumptions:

% Dec. 31, 2004 Dec. 31, 2003

Remuneration trend 2.25–4.00 2.75–3.50

Retirement benefit trend 1.50–3.10 1.50–3.64

Interest rate 2.00–5.40 3.00–5.75

Fluctuation rate 1.40 1.40

Expected return on

plan assets 5.75–6.80 6.75–7.50

Progression from the present value of defined benefitobligations to the defined benefit liabilities for meet-ing retirement benefit commitments recognised inthe balance sheet:

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Present value of funded

defined benefit obligations 206,750 169,111

Fair value of plan assets – 196,500 – 135,039

Deficit 10,250 34,072

Present value of unfunded

defined benefit obligations 1,809,792 1,553,079

Unrecognised actuarial

losses – 258,303 – 103,408

Defined benefit liabilities

recognised in the

balance sheet 1,561,739 1,483,743

100

Actuarial gains and losses result from changes in the number of people participating in the pensionscheme and from a deviation in the actual trends (for example, increases in pay or retirement benefit)from the figures assumed for calculation purposes.Such gains and losses are only recognised in theincome statement where they exceed ten percent ofthe higher of retirement benefit obligations or the fair value of the plan assets on the reporting date. Inaccordance with IAS 19, this excess is recognised asincome or expense on the basis of the future averageremaining working life of the employees.

The interest element in pension costs is shown asinterest cost in the other financial result. There wasan actual gain from plan assets of EUR 12,969 thou-sand (EUR 14,914 thousand) in the past financial year.

34 Effective income tax obligations

The effective income tax obligations consist ofcurrent tax liabilities including provisions for currenttaxes. Effective income tax obligations with a time to maturity of more than five years amount to EUR 115,800 thousand (EUR 158,200 thousand).

The defined benefit liabilities recognised in thebalance sheet changed as follows:

EUR ‘000 2004 2003


at January 1 1,483,743 1,413,591

Changes to the group – 844

Employee benefit expenses 181,595 161,874

Pension payments from

company assets – 54,661 – 50,308

Contributions paid to funds – 47,981 – 42,367

Transfers received from

affiliated companies 510 1,639

Transfers made to

affiliated companies – 1,310 – 1,370

Currency differences – 157 – 160


at December 31 1,561,739 1,483,743

The amounts recognised in the income statement areas follows:

EUR ‘000 2004 2003

Current service cost

for services rendered

by employees in the

financial year 94,756 76,504

Interest cost 96,815 91,042

Expected return on

plan assets – 10,914 – 6,989

Net actuarial losses

recognised in year 937 1,318

Currency differences

from foreign schemes – – 1

Total of expense and

income recognised in the

income statement 181,594 161,874


101

35 Other provisions

The obligations from sales operations comprise mid-term and long-term risks from the sale of vehicles,components and original parts, including the dis-posal of end-of-life vehicles. These are for the mostpart warranty claims that are determined on the basisof the previous or the estimated future loss experi-ence.

Commitments to the workforce are substan-tially in respect of long-service awards and pre-retirement part-time arrangements.

The other provisions relate to a wide range ofone-off risks.

Jan. 1, 2004 Consumed Reversed Allocated Transferred Com- Dec. 31, 2004

EUR ‘000 pounded

Obligations

from sales

operations 809,177 – 14,853 – 20,494 385,742 – 264,947 18,701 913,326

Workforce-

related

provisions 250,144 – 4,630 – 42,950 – 45,590 2,468 245,342

Other

provisions 28,711 – 2,503 – 1 3,577 662 0 30,446

Overall 1,088,032 – 21,986 – 20,495 432,269 – 309,875 21,169 1,189,114

102

Current liabilities

36 Financial liabilities

Measurement of the financial lease agreements isbased on an interest rate of 6.5 percent p.a. in eachcase. These agreements will incur borrowing costs totalling EUR 268 thousand over the next few years.

37 Trade payables

The fair value of trade payables in respect of thirdparties amounts to EUR 1,638,542 thousand (EUR1,828,847 thousand). In the case of liabilities toaffiliated companies, the fair value corresponds to thecarrying amount.

The customary retention of title moreoverapplies for liabilities from deliveries of goods.

Liabilities totalling EUR 4,342 thousand weretransferred to trade payables from financial liabilitiesin 2003.

38 Effective income tax obligations

The effective income tax obligations consist ofcurrent tax liabilities including provisions for currenttaxes.

39 Other liabilities

Derivative currency hedging instruments are reportedat market values. The market values are indicated bythe following summary:

The overall item of currency hedging instruments isshown under Other particulars (item 1.1).

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Liabilities to affiliated

factoring companies 118,544 157,889

Liabilities from cash pooling

to affiliated companies 16,153 12,458

Liabilities from cash pooling

to enterprises in which the

company has participating

interests 5,913 5,244

Liabilities to affiliated banks 5,420 3,429

Liabilities to banks 452 723

Liabilities from financial

lease agreements 1,757 4,489

148,239 184,232

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Trade payables in respect of

third parties 1,638,542 1,828,919


associates 15,211 43,712

enterprises in which the

company has

participating interests 327 414

2,074,061 2,142,872

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Liabilities to affiliated

companies 462,243 216,509

of which from

derivative currency


Liabilities to associates 6,893 –

Liabilities to enterprises

in which the company has

participating interests 7 15

Advances received for

orders from customers 8,532 19,428

External derivative currency


Other liabilities 558,862 544,764

of which taxes 102,121 137,611

of which in respect of

social insurance 114,429 100,763

1,038,025 783,810

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Derivative currency

hedging instruments

Cash flow hedges 28,385 21,930

Currency swaps – 777

28,385 22,707


103

40 Other provisions

The obligations from sales operations comprise short-term risks from the sale of vehicles, components andoriginal parts. These are for the most part warrantyclaims that are determined on the basis of the previ-ous or the estimated future loss experience. This itemin addition includes discounts, bonuses and similarto be granted, arising after the balance sheet date butoccasioned by sales before the balance sheet date.

Obligations in respect of the workforce aresubstantially in respect of outstanding vacation, accu-mulated overtime, awards for suggested improve-ments and ex gratia payments.

The other provisions relate to a wide range ofone-off risks.

EUR ‘000 Jan. 1, 2004 Consumed Reversed Allocated Transferred Dec. 31, 2004

Obligations from sales

operations 1,192,659 – 921,015 – 77,883 626,529 264,947 1,085,237

Workforce-related provisions 56,441 – 32,943 – 2,238 11,877 45,590 78,727

Other provisions 204,752 – 82,299 – 33,159 144,693 – 662 233,325

Overall 1,453,852 – 1,036,257 – 113,280 783,099 309,875 1,397,289

104

Notes to the cash flow statement

The cash and cash equivalents indicated in the cashflow statement comprise exclusively the cash andcash equivalents as reported in the balance sheet.

The cash flow statement explains the streamsof payments for both the 2004 financial year and theprevious year, categorised according to cash inflowsand outflows from operating, investing and financingactivities. Effects of changes to the group and toforeign exchange rates on cash flows are shown sepa-rately.

The item Income tax payments comprises pay-ments made to Volkswagen AG on the basis of thesingle-entity relationship for tax purposes in Germany,and payments to foreign tax authorities.

The change in cash and cash equivalents as aresult of changes to the group relates to companiesthat are consolidated for the first time and werecarried at cost in previous years.

Investing activities include additions to prop-erty, plant and equipment and long-term investments,as well as development expenditure recognised as anintangible asset. The change in investment propertyand the cash inflows arising from asset disposals arelikewise reported here.

Financing activities include cash outflows fromthe transfer and distribution of profit, as well aschanges in other financial liabilities.

Liabilities from factoring are reported as finan-cial liabilities. The change in factoring liabilities isreported accordingly in financing activities. Liabilitiesfrom the purchase of vehicles of other VolkswagenGroup manufacturers are now always reported undertrade payables, irrespective of whether the companyhas assigned its receivables to a factoring companyor not. This resulted in a reduction in cash flow fromoperating activities of EUR 93,130 thousand in thecomparative figures for the previous year, whereascash flow from financing activities rose by the sameamount.

In addition, the comparative statements for2003 have been adjusted to conform to the changedpolicy pursuant to IAS 38. This change reduces cash flow from operating activities by EUR 45,037thousand and increases cash flow from investingactivities by the same amount.

Other particulars

1 Hedging policy and risk management

1.1 Price and foreign exchange exposureThe Audi Group is exposed to price and exchange rate fluctuations in view of its international businessactivities. These risks are limited by concludingappropriate hedging transactions for matchingamounts and maturities. The measures to hedgeagainst foreign exchange exposure are coordinatedregularly between AUDI AG and the group treasuryof Volkswagen AG in accordance with the Volkswagenorganisational guideline.

Marketable derivative financial instruments(foreign exchange contracts and currency optiontransactions) are used for this purpose. The hedgingtransactions are performed centrally on behalf of Audiby Volkswagen AG on the basis of an agency agree-ment. Contracts are concluded exclusively with top-grade national and international banks whose credit-worthiness is regularly examined by leading ratingagencies. The results from foreign exchange hedgingare credited or charged to the Audi Group each monthon the basis of the proportion of the VolkswagenGroup’s overall hedging volume.

In accordance with the Volkswagen organisa-tional guideline, AUDI AG moreover concludeshedging transactions of its own to a limited extent,where this helps to simplify current operations.


105

1.5 Credit riskThe credit risk from financial assets consists in therisk of default by a counterparty and therefore doesnot exceed the positive fair values of these assets.

We work on the assumption that the actual riskfrom primary financial instruments is covered byreductions for impairment or uncollectability.

The credit risk from derivative financial instru-ments does not exceed the balance of positive marketvalues in the event of default by a counterparty ofVolkswagen AG or the Audi Group companies. Theactual credit risk is negligible, as Volkswagen AG andAUDI AG only conclude contracts with top-class busi-ness partners and trading limits are defined for eachbusiness partner as a risk management measure.

Nominal volume of derivative financial instrumentsThe nominal volumes of the hedging transactionsshown represent the total of all buying and sellingprices on which the transactions are based:

Hedging measures in 2004 related principally to theUS dollar, the pound sterling and the Japanese yen.

1.2 Market riskA market risk exists if price changes on financialmarkets have a negative influence on the value offinancial instruments. The market values shown in thetable have been calculated on the basis of the marketinformation available at the balance sheet date and represent the redemption (cash-in) values of thederivative financial instruments. The redemptionvalues are calculated on the basis of quoted prices orstandardised methods.

1.3 Interest rate riskAn interest rate risk, in other words potential fluctua-tions in the value of financial instruments as a resultof changes to market rates, can occur above all in the case of medium and long-term, fixed-interestreceivables or liabilities.

Fixed-interest loans advanced totalled EUR 18million (EUR 19 million) at December 31, 2004. In view of the low volume of these financial instruments,no interest-rate hedging contracts were taken out.

1.4 Liquidity riskA liquidity forecast based on a definite planninghorizon and credit facilities of Volkswagen AG assurethe adequate liquidity of the Audi Group at all times.

Nominal volumes Market values

Time to maturity

EUR ‘000 Dec. 31, 2004 up to 1 year Dec. 31, 2003 up to 1 year Dec. 31, 2004 Dec. 31, 2003

Foreign exchange contracts 1,265,836 1,140,220 1,541,022 1,498,073 51,304 60,337

Currency option transactions 514,767 514,767 633,729 633,729 54,410 88,062

Currency swaps 10,652 7,982 62,962 62,962 1,085 – 777

Total portfolio 1,791,255 1,662,969 2,237,713 2,194,764 106,799 147,622

106

2 Contingencies

Contingencies are unrecognised contingent liabilities,the amount of which corresponds to the maximumpossible claim at the balance sheet date.

3 Litigation settlements

Neither AUDI AG nor any of its group companies areinvolved in ongoing or prospective legal or arbitrationproceedings which could have a significant influenceon their economic position. Appropriate provisionshave been created within each group company, oradequate insurance benefits are anticipated, for pos-sible financial charges resulting from other legal orarbitrational proceedings.

4 Other financial obligations

EUR ‘000 Dec. 31, 2004 Dec. 31, 2003

Obligations from factoring

operations 1,344,836 1,024,674

Liabilities from guarantees 4,262 3,431

Furnishing of collateral

for outside liabilities – 2,175

Liabilities from guarantee

bonds 950 950

1,350,048 1,031,230

Dec. 31, 2004 Dec. 31, 2003

Due Due

within 1– 5 years over 5 years Overall over 1 year Overall

EUR million 1 year

Ordering commitments for

property, plant and

equipment 503 244 – 747 412 1,029

intangible assets 84 11 – 95 3 59

Obligations from

long-term rental and

lease agreements 24 23 6 53 26 46

agreed loans 36 – – 36 – 36

647 278 6 931 441 1,170


107

5 Discontinuing operations

There are no plans to discontinue operations asdefined by IAS 35.

6 Cost of materials

7 Personnel costs

8 Total average employees for the year

9 Related party disclosures

Related parties as defined in IAS 24 are – Volkswagen AG and – other parties (persons and companies) which

could be affected by the reporting entity or whichcould exert influence on the reporting entity.

All business with related parties has been conductedon the basis of international comparable uncontrolledprice methods pursuant to IAS 24, according to theterms that customarily apply to outside third parties.The goods and services procured from related partiesinclude primarily supplies for production, as well as development, transport, financial and distributionservices and, to a lesser extent, design, training andother services and supplies of original parts. Businessto related parties comprises for the most part sales of new and used cars, engines and components.

Members of the Board of Management orSupervisory Board of AUDI AG also belong to thesupervisory or management boards of other compa-nies with which the Audi Group maintains businessrelations. All transactions with such companies are likewise conducted according to the terms thatcustomarily apply to outside third parties.

Cash management within the Audi Group iscentralised at AUDI AG. The group companies investtheir liquid funds with AUDI AG or raise liquid fundsfrom it. Residual amounts are equalised via the cashpool of Volkswagen AG. All transactions are handledon market terms.

EUR ‘000 2004 2003

Raw materials and

consumables used as well

as purchased goods 16,540,797 15,817,873

Purchased services 1,135,127 1,344,806

17,675,924 17,162,679

EUR ‘000 2004 2003

Wages and salaries 2,481,290 2,390,670

Social insurance as well as

expenses for employee

benefits and maintenance

payments 590,331 547,450

of which in respect of

retirement benefit plans 116,337 79,010

of which employer’s

contributions to German

state retirement benefit

scheme 198,018 193,444

3,071,621 2,938,120

Employees 2004 2003

Domestic group companies 45,511 45,316

Foreign group companies 7,633 7,373

Overall 53,144 52,689

of which apprentices 1,986 1,844

Segment reporting

The Audi Group is structured along the lines of theregional locations of its assets, into the followingsegments: Germany (AUDI AG, Audi Vertriebsbe-treuungsgesellschaft mbH, Audi Zentrum HannoverGmbH, Audi Synko GmbH, quattro GmbH), Rest ofEurope (AUDI HUNGARIA MOTOR Kft., COSWORTHTECHNOLOGY LIMITED, the Lamborghini Groupcomprising the companies Automobili LamborghiniHolding S.p.A., Automobili Lamborghini S.p.A., MotoriMarini Lamborghini S.p.A., Lamborghini ArtiMarcaS.p.A. and AUTOGERMA S.p.A.), and Rest of world(Audi Australia Pty Ltd., AUDI DO BRASIL E CIA., Audi Japan K.K., AUDI SENNA Ltda.).

The subdivision of the group into three seg-ments on the basis of the locations of assets reflectsthe arrangements for internal group steering andreporting.

The principal activities of AUDI AG, quattroGmbH and the Lamborghini Group are the develop-ment, production, assembly and sale of cars andengines. AUDI HUNGARIA MOTOR Kft. develops andmanufactures engines and cars. COSWORTHTECHNOLOGY LIMITED develops, manufactures andassembles engines and vehicle components.AUTOGERMA S.p.A. imports and sells models of theAudi, SEAT, Škoda, Volkswagen Commercial Vehiclesand Volkswagen Passenger Cars brands as well asoriginal parts. AUDI DO BRASIL E CIA. holds adormant equity holding in the Curitiba Business Unit.AUDI SENNA Ltda. sells Audi vehicles in Brazil. Audi Japan K.K. and Audi Australia Pty Ltd. sell Audivehicles in their respective markets. Audi Vertriebs-betreuungsgesellschaft mbH supports the GermanAudi sales organisation. Audi Synko GmbH secureslocations for Audi dealerships.

Transactions between the segments are con-ducted on generally accepted market terms, in theway that is customary for transactions with outsidethird parties.

108

External revenue Internal revenue Total revenue

EUR million 2004 2003 2004 2003 2004 2003

Germany 17,370 16,641 2,330 2,197 19,700 18,838

Rest of Europe 6,527 6,189 2,162 2,304 8,689 8,493

Rest of world 609 576 – – 609 576

Consolidation measures – – – 4,492 – 4,501 – 4,492 – 4,501

Audi Group 24,506 23,406 – – 24,506 23,406

Profit before tax Segment assets Segment liabilities

EUR million 2004 2003 Dec. 31, 2004 Dec. 31, 2003 Dec. 31, 2004 Dec. 31, 2003

Germany 768 676* 12,578 11,993* 8,157 7,582

Rest of Europe 355 360* 4,285 4,303* 1,253 1,616

Rest of world 24 61 383 379 254 243

Consolidation measures – 5 4 – 2,801 – 2,894* – 1,366 – 1,629

Audi Group 1,142 1,101* 14,445 13,781* 8,298 7,812

* after adjustment pursuant to revised IAS 38

109

Pursuant to IAS 14 (Segment Reporting), revenue isbroken down according to the geographical locationsof customers.


Investments in intangible Long-term investments

assets and property, plant

and equipment

EUR million 2004 2003 2004 2003

Germany 1,511 1,635* 17 13

Rest of Europe 507 394* – –

Rest of world 1 2 30 –

Consolidation measures – 11 0 – –

Audi Group 2,008 2,031* 47 13

Depreciation and Other non-cash expenses

amortisation

EUR million 2004 2003 2004 2003

Germany 1,621 1,590* 818 996

Rest of Europe 259 241 115 302

Rest of world 1 0 10 17

Consolidation measures – 29 2 – 179 – 365

Audi Group 1,852 1,833* 764 950

* after adjustment pursuant to revised IAS 38

Revenue

Share 2004 Share 2003

EUR million % EUR million %

Germany 7,834 32.0 7,399 31.6

Rest of Europe 12,162 49.6 11,252 48.1

North America 2,286 9.3 2,509 10.7

Asia/Oceania 1,921 7.9 2,010 8.6

Africa 200 0.8 138 0.6

South America 103 0.4 98 0.4

Overall 24,506 100.0 23,406 100.0

110

German Corporate Governance Code

The Board of Management and Supervisory Board of AUDI AG submitted the declaration pursuant toSection 161 of German Stock Corporation Law on the“German Corporate Governance Code” on December6, 2004 and made it accessible on the websitewww.audi.com/cgk-declaration.

Details of the Supervisory Board and Board ofManagement

The remuneration of members of the Board ofManagement complies with the legal requirements ofGerman Stock Corporation Law as well as the recom-mendations and most of the suggestions of the“German Corporate Governance Code”. The overallremuneration is made up of fixed and variable com-ponents.

The fixed components assure a basic remunera-tion that enables the board member to execute hisduties conscientiously and in the best interests of thecompanies, without becoming dependent upon theattainment of short-term targets. Conversely, variablecomponents that are dependent on the economicreality of the company reconcile the interests of theBoard of Management with those of the other stake-holders.

The remuneration of members of the Board ofManagement for the 2004 financial year amounted toEUR 4,264 thousand (EUR 5,393 thousand), of whichvariable components accounted for EUR 2,195 thou-sand (EUR 3,199 thousand).

The fixed remuneration components for themembers of the Board of Management totalled EUR 2,069 thousand (EUR 2,194 thousand) in the 2004financial year.

As well as fixed payments in cash, there arevarying levels of contributions in kind, including inparticular the use of company cars.

Every member of the Board of Management ispaid a variable annual gratuity. The variable gratuitycomprises components recurring annually that aretied to the economic success of the company. It islargely based on the earnings achieved by the com-pany and its economic situation.

Share options serve as variable remunerationcomponents providing a long-term incentive. Theseoptions are based on the performance of Volkswagenordinary shares. In the context of the sixth tranche of

the share options plan, in the 2004 financial year eachmember of the Board of Management was able tosubscribe to up to 500 non-transferable convertiblebonds at a price of EUR 2.56 each, entitling the holderto up to 5,000 Volkswagen ordinary shares. A condi-tion of participation in this share options plan wasthe contribution of between EUR 5,000 and 25,000 intime bonds, depending on the number of convertiblebonds being acquired.

The structure of the share options plan isessentially as follows: the basis for determining theconversion price (basic conversion price) of a trancheis the average Xetra closing prices of Volkswagenordinary shares on the five trading days precedingeach decision to issue convertible bonds. Conversionmay take place for the first time after a qualifyingperiod of 24 months and then up until a period of fiveyears from the time of issue of the convertible bondshas elapsed. The conversion price is initially 110 per-cent of the basic conversion price, rising by five per-centage points in each subsequent year. The Board ofManagement may exercise its conversion rights onlythree times a year, during four-week exercise periods,each of which commences on a public reporting dateof Volkswagen AG. The share options plan is thus cen-tred on demanding, relevant comparative parametersin the spirit of the German Corporate GovernanceCode.

Further details are given in the Agenda to theAnnual General Meeting of Volkswagen AG on April16, 2002, at which authorisation to introduce theshare options plan was granted.

The purpose of the share options plan’s struc-ture is to grant the Board of Management a remunera-tion component that is based on appreciation in thecompany’s share price. It is thus intended to con-tribute towards increasing value creation and towardsenhancing the company’s value. The share optionsplan is in addition a widely used instrument forrecruiting and retaining board members.

The retrospective adjustment of the stockoption plan’s performance targets or comparativeparameters is excluded.

Inappropriate inflows from the share optionsare not to be expected due to the link with the shareprice performance of Volkswagen ordinary shares andthe restricted number of options per tranche.

In order to implement the recommendation ofthe German Corporate Governance Code, the Super-visory Board is prepared to come to an agreement withthe members of the Board of Management on a cap in the event of exceptional, unforeseen developments.

111

In the context of the sixth tranche of the shareoptions plan, the members of the Board of Manage-ment of AUDI AG subscribed to a total of 2,700 of theaforementioned convertible bonds in the 2004 finan-cial year. At December 31, 2004 the members of theBoard of Management were entitled to purchase atotal of 121,000 ordinary shares of Volkswagen AG inthe event of the conditions of conversion being met.The value of the share options from all tranchestotalled EUR 137 thousand at December 31, 2004. Thiscalculation is based on a binomial model and takes all parameters of the share options plan into account.

Former members of the Board of Managementhad subscribed to 5,000 convertible bonds in connec-tion with their activities at AUDI AG. The debenturesguarantee the right to purchase a total of 50,000ordinary shares of Volkswagen AG in the event of the conditions of conversion being met. The value ofthese share options totalled EUR 6 thousand atDecember 31, 2004.

In certain circumstances, members of theBoard of Management are entitled to retirementbenefits and a disability pension.

The defined benefit liabilities for pensions forcurrent members of the Board of Managementtotalled EUR 4,773 thousand (EUR 3,932 thousand) atDecember 31, 2004.

Former members of the Board of Managementand their surviving dependents received paymentstotalling EUR 2,067 thousand (EUR 1,255 thousand).The defined benefit liabilities for this group of per-sons amount to EUR 15,180 thousand (EUR 15,308thousand).

The members of the Board of Management,together with their membership of other supervisoryboards and regulatory bodies – pursuant to Sections285 Sentence 1 No. 10 of the German CommercialCode and 125 Para. 1 Sentence 3 of German StockCorporation Law – are indicated in the Notes to thefinancial statements of AUDI AG.

The remuneration of the Supervisory Board of AUDI AG totalled EUR 382 thousand (EUR 404 thou-sand), including EUR 172 thousand (EUR 161 thou-sand) in fixed remuneration components and EUR 210thousand (EUR 243 thousand) in variable remunerationcomponents. The level of the variable remunerationcomponents is based on the compensatory paymentmade for the 2004 financial year in accordance with the provision in the articles of incorporationapplicable at the time.


Supervisory Board1

Position at December 31, 2004

Dr.-Ing. e.h. Chairman2

Bernd Pischetsrieder Shareholders’ representative

Xaver Meier Deputy Chairman2, 4

Employees’ representative

Dr. rer. pol. h.c.

Bruno Adelt Shareholders’ representative2

Senator h.c.

Helmut Aurenz Shareholders’ representative

Joachim Dilger Employees’ representative

Heinz Eyer Employees’ representative

Dr. rer. pol.

Thomas R. Fischer Shareholders’ representative

Wolfgang Förster Employees’ representative

Dr. rer. pol. h.c.

Peter Hartz Shareholders’ representative

Dr. jur. Claus Helbig Shareholders’ representative

Johann Horn Employees’ representative

Berthold Huber Employees’ representative2

Peter Mosch Employees’ representative

Dr. jur. Jens Neumann Shareholders’ representative5

Dr.-Ing.

Franz-Josef Paefgen Shareholders’ representative

Richard Polzmacher Employees’ representative

Hans Dieter Pötsch Shareholders’ representative3

Norbert Rank Employees’ representative5

Dr. rer. pol. Axel

Freiherr von Ruedorffer Shareholders’ representative

Max Wäcker Employees’ representative

Dr. rer. pol. Carl H. Hahn Honorary Chairman

1 The profession and company of the members of the SupervisoryBoard, together with other non-executive directorships, areindicated in the Notes to the financial statements of AUDI AG.

2 Member of the Presiding Committee and the NegotiatingCommittee

3 Chairman of the Audit Committee4 Deputy Chairman of the Audit Committee5 Member of the Audit Committee

Events occurring after the balance sheet date

No events which must be reported according to IAS 10 occurred after December 31, 2004.

Ingolstadt, February 4, 2005

The Board of Management

112

113

Statement of interests held by the Audi Group at December 31, 2004

Name and registered office Capital share in %

AUDI AG, Ingolstadt

Audi Australia Pty Ltd., Botany (Australia) 100.00

AUDI DO BRASIL E CIA., Curitiba (Brazil) 100.00

AUDI HUNGARIA MOTOR Kft., Györ (Hungary) 100.00

Audi Japan K.K., Tokyo (Japan) 100.00

Audi Synko GmbH, Ingolstadt 100.00

Audi Zentrum Hannover GmbH, Hanover 100.00

Audi Vertriebsbetreuungsgesellschaft mbH, Ingolstadt 100.00

Automobili Lamborghini Holding S.p.A., Sant’Agata Bolognese (Italy) 100.00

AUTOGERMA S.p.A., Verona (Italy) 100.00

Automobili Lamborghini S.p.A., Sant’Agata Bolognese (Italy) 100.00

Motori Marini Lamborghini S.p.A., Sant’Agata Bolognese (Italy) 100.00

Lamborghini ArtiMarca S.p.A., Sant’Agata Bolognese (Italy) 100.00

COSWORTH TECHNOLOGY LIMITED, Northampton (Great Britain) 100.00

quattro GmbH, Neckarsulm 100.00

AUDI SENNA Ltda., São Paulo (Brazil) 51.00

Audi Zentrum Stuttgart GmbH & Co. KG, Stuttgart 51.00

YANASE Audi Sales Company Ltd., Tokyo (Japan) 33.40

FAW-Volkswagen Automotive Company, Ltd., Changchun (China) 10.00

Principal group companies

adaptive air suspensionadaptive air suspension is an electronically controlledair suspension system which enhances suspensioncomfort at all four wheels by means of a continuouslyvariable damper system. It allows the body’s rideheight to be lowered depending on road speed, pro-ducing superior directional stability as a result.

adaptive lightThe adaptive light system involves an auxiliary head-light, incorporated into the headlight unit, whichimproves visibility when cornering. Featuring swivelheadlight units, the dynamic cornering light illumi-nates twists and turns in the road far more effectively,above a speed of 12 km/h. It comes on automaticallywhen the turn indicator is operated or if the driverturns the steering wheel to take a corner.

Audi allroad quattro conceptCrossover vehicle and technology demonstrator whichcontinues the tradition of the Audi allroad quattro.

Audi lane assistAudi lane assist is a system that warns the driver byvibrations of the steering wheel if the car inadver-tently drifts out of its lane. A video camera pointingstraight ahead supplies the necessary signals.

Audi road visionAudi road vision is a sensor system for detecting thetype of road and surface conditions. Laser andinfrared spectroscopy are used to scan the road. Thedriver is informed of possible risks, e.g. icy roads, viathe instrument cluster. The system also suppliesadditional parameters to the electronic stabilisationprogram ESP and the distance control system knownas adaptive cruise control so that the vehicle can“proactively” adapt to changing road conditions.

Audi side assistThis assistance system uses radar sensors to monitorthe area to the side and rear of the vehicle. The sen-sors have a range of up to 50 metres behind the vehi-cle; the blind spot is also covered. The warning signalis provided by additional lights in the exterior mirror.

Audi Space Frame® (ASF)The ASF is a high-strength aluminium frame structureon which each planar component is integrated as partof the structure. This results in extremely high rigidity,better-than-average crash protection and a significantreduction in vehicle weight.

CHPRCHPR stands for combined heat, power and refrigerat-ing plant. Audi operates a power-generating plant ofthis kind at its Ingolstadt site. This is noted in particu-lar for its high efficiency.

Direct Shift Gearbox (DSG)The DSG combines the advantages of a conventionalsix-speed manual gearbox with the qualities of a mod-ern automatic. The driver benefits from enormousagility and acceleration, without any interruption inthe power flow. The basis is a three-shaft six-speedmanual gearbox with twin multi-plate clutch. Thanksto electro-hydraulic control, two gears can beengaged simultaneously. While one gear is engaged,the next appropriate gear is pre-selected when thegearshift point is approached, but its clutch kept dis-engaged. The gearshift process opens the clutch ofthe activated gear and closes the other clutch at thesame time with a certain overlap. The gear changetakes place under load which means that a perma-nent flow of power is maintained.

electro-hydraulic multi-plate clutchThis is the solution for quattro drive on models with a transverse engine, such as the Audi A3 and Audi TT.The multi-plate clutch is located in front of the reardifferential and is electronically controlled. By varyingthe oil pressure which acts on the plates, propulsivepower is distributed variably, to the rear wheels aswell.

FSIFSI technology increases the torque and output ofpetrol (gasoline) engines, makes them more economi-cal and paves the way for lower exhaust emissions. In contrast to conventional petrol engines, FSI tech-nology involves injecting the fuel directly into thecombustion chamber. A throttle valve is no longernecessary. This process dethrottles the engine,reduces thermal losses and thus permits bothincreased power output and lower fuel consumption.

KVP2

KVP is the German abbreviation for continuousimprovement process. KVP2 is an advanced form ofthis improvement initiative as practised at Audi. Inter-disciplinary workshops constitute the core element.

Glossary

114

Multi Media Interface (MMI)MMI is an integrated operating module that enablesvehicle and infotainment components to be operatedintuitively and according to a simple logical principle.The MMI consists essentially of two elements: the MMIterminal in the centre console and the MMI display.The central element of the MMI terminal is a combinedrotary control/pushbutton with four control keysarranged around it with which the user can navigatethrough all menus and make the desired selection.

open sky systemMeasuring more than half a square metre in size, the panorama glass sunroof known as the open skysystem is twice as large as conventional sunroofs and consequently lets more light into the interior. Theglass-look roof extends all the way from the wind-screen to the rear window and emphasises the car’ssporty appearance.

quattro®

quattro permanent four-wheel drive enjoys a longtradition at Audi, dating back to 1980. The quattroprinciple involves distributing the engine’s power per-manently to all four wheels according to demand. It provides high active safety, reliable traction on vir-tually all surfaces and optimum directional stability atall times, even in cross-winds. It is easily superior todriver-operated four-wheel-drive systems because itssafety benefits are permanently “on standby”.

RSQAn Audi prototype developed specially for the film “I, ROBOT” which appears to run on spheres ratherthan wheels.

single-frame grilleThe dominant feature on the front end of the A3Sportback, A4, A6 and twelve-cylinder A8*. The outerchrome ring of the single-frame grille surrounds thefins. The single-frame grille, in specific variations, isthe identifying feature of all new Audi models.

SUVA classic SUV combines the outstanding characteris-tics of an off-road car with the dynamism, safety andcomfort of a sporty saloon model. The Audi Q7 alsofeatures the variability and functionality of a van. Thisis a new SUV generation that reinterprets the combi-nation of sport and utility: a high-performance SUVwhich leads the way in design, driveability and utilityvalue.

TDI®

At Audi, TDI denotes diesel models with diesel directinjection. The characteristics of TDI engines are econ-omy, low emissions, high traction and an excellentpower yield. Audi has many years of experience withTDI technology, an area which it has pioneered since1989.

TFSIThe Audi 2.0 TFSI is not merely an entirely newlydeveloped engine, but also the first ever productionengine to combine turbocharging with the FSI con-cept of petrol direct injection. The fuel-air mixture isdistributed purely homogeneously within the com-bustion chamber. This provides a distinctive charac-teristic, placing the emphasis on high performanceand agile responsiveness at all engine speeds.

Torsen centre differentialThe Torsen centre differential is responsible for dis-tributing the drive torque on all Audi quattro modelswith longitudinal engine. Thanks to its design, itspontaneously and actively distributes the drivetorque to the axle with the better traction. It is mainte-nance-free and does not require electronic assistance.Power is divided between the wheels on the sameaxle by intervention of the brakes via EDL, the elec-tronic differential lock.

turbochargerThe operating principle is as follows: a turbine usesthe energy of the exhaust-gas flow to drive a com-pressor impeller located on the same shaft (but in thefresh-air flow). It compresses the fresh air as it isdrawn in and forces it into the cylinders. The enginethus has more oxygen for the combustion process.Power output, torque and efficiency can all beboosted in this way compared with naturally aspi-rated engines of the same displacement. The mainpoints in favour of turbochargers are the energysaving, lower emissions and improved torque.

For further technical explanations and informativediagrams, see www.audi.com/glossary.


Glossary

116

Model Power Trans- Fuel consumption (l/100km) CO2 emissions

output mis- Urban Extra urban Combined combined

(kW) sion (g/km)

min. max. min. max. min. max. min. max.

TT Coupe 3.2 quattro 184 M6 14.9 8.1 10.6 254

TT Coupe 3.2 quattro 184 DSG 13.6 13.7 7.6 7.7 9.8 9.9 235 238

A3 2.0 TFSI quattro 147 M6 12.3 12.5 6.8 7.0 8.8 9.0 211 216

A3 2.0 TFSI 147 DSG 10.6 10.7 6.0 6.1 7.7 7.8 185 187

A3 Sportback 2.0 TFSI quattro 147 M6 12.4 12.5 6.9 7.0 8.9 9.0 214 216

A3 Sportback 2.0 TFSI 147 DSG 10.6 10.8 6.0 6.2 7.7 7.9 185 190

A4 2.0 FSI 110 M5 9.9 10.2 5.4 5.6 7.1 7.3 170 175

A4 2.0 FSI 110 CVT 10.5 10.9 5.5 5.9 7.3 7.7 175 185

A4 2.0 TFSI 147 M6 10.9 11.3 5.8 6.1 7.7 8.0 185 192

A4 2.0 TFSI 147 CVT 11.2 11.5 6.3 6.4 8.1 8.3 194 199

A4 2.0 TFSI quattro 147 M6 12.6 12.8 6.6 6.8 8.8 9.0 211 216

A4 2.0 TFSI quattro 147 A6 13.1 13.7 7.2 7.4 9.4 9.7 226 233

A4 3.2 FSI 188 CVT 13.8 13.9 6.9 7.0 9.5 9.6 228 230

A4 3.2 FSI quattro 188 M6 15.7 15.9 7.5 7.7 10.6 10.8 254 259

A4 3.2 FSI quattro 188 A6 15.6 15.7 7.9 8.0 10.7 10.8 257 259

A4 3.0 TDI quattro DPF 150 A6 11.8 12.0 6.4 6.5 8.4 8.5 226 229

A4 3.0 TDI quattro DPF 150 M6 10.8 10.9 5.9 6.0 7.6 7.8 204 209

A4 3.0 TDI quattro 150 A6 11.6 12.0 6.2 6.4 8.2 8.4 220 226

A4 3.0 TDI quattro 150 M6 10.6 10.7 5.9 6.0 7.6 7.7 204 206

A6 3.2 FSI 188 M6 14.3 14.6 7.1 7.3 9.7 10.0 233 240

A6 3.2 FSI quattro 188 M6 16.5 16.9 7.7 7.9 10.9 11.1 262 266

A6 3.2 FSI quattro 188 A6 15.7 15.8 8.1 8.2 10.9 11.0 262 264

A6 2.7 TDI 132 M6 9.6 9.9 5.2 5.5 6.8 7.1 181 190

A6 3.0 TDI quattro 165 M6 11.2 11.4 6.0 6.2 7.9 8.1 212 218

A6 3.0 TDI quattro 165 A6 11.8 12.0 6.3 6.5 8.3 8.5 223 229

A6 3.0 TDI quattro DPF 165 M6 11.3 11.5 6.1 6.3 8.0 8.2 215 221

A6 3.0 TDI quattro DPF 165 A6 11.7 11.9 6.5 6.7 8.4 8.6 227 232

A6 Avant 2.7 TDI 132 M6 9.8 9.9 5.4 5.5 7.0 7.1 187 190

A8 4.2 quattro 246 A6 17.5 17.6 8.7 8.8 11.9 12.0 286 288

A8 4.2 quattro LWB 246 A6 17.5 17.7 8.7 8.9 11.9 12.1 286 290

A8 6.0 quattro 331 A6 21.4 21.5 10.8 10.9 14.7 14.8 353 355

A8 6.0 quattro LWB 331 A6 20.5 20.7 9.9 10.1 13.8 14.0 331 336

Lamborghini Murciélago Roadster 426 M6 32.6 15.1 21.5 500

Key:DPF: diesel particulate filterA: automatic transmissionM: manual gearboxDSG: Direct Shift GearboxCVT: continuously variable transmissionThe transmission/gearbox type is followed by the number of gears/speeds (e.g. M5).

Fuel consumption and emission figures

117

Review of 2004

January to March

American debutAudi starts 2004 by exhibiting a twelve-cylinder model and a new face at theNorth American International Auto Showin Detroit. The first international show-ing of the Audi A8 L 6.0 quattro* at anexhibition garners considerable publicacclaim. The flagship model, whichsignals an innovative departure in thedesign domain with its single-framegrille, is the first twelve-cylinder carto be launched on the North Americanmarket by Audi.

Award-winning gearboxThe Association of Belgian Motor SportJournalists (UJPA) grants its “FuturAutoAward” to the Audi Direct Shift GearboxDSG. This renowned prize is awarded for technological developments in theautomotive industry. This pioneeringgearbox technology owes the award to

An entirely new sphere of drivingWill Smith teams up with a car of futur-istic design in his fight to ward off thethreat to mankind. In his film “I, ROBOT”,the German premiere of which is held in Berlin, the actor sets out in pursuit ofvillains in the Audi RSQ. Audi designersdeveloped this visionary vehicle speciallyfor the movie. Its eye-catching single-frame grille is also a central aspect ofcontemporary Audi design. The visionaryAmerican cityscapes of the year 2035are, however, the only place that carshave yet been known to roll on spheresrather than wheels.

Drive like a Bayern Munich football starTrue football fans are not content simplyto go to matches week in, week out. Atwww.audi.de/werksdienstwagen, BayernMunich fans have the opportunity to buy ten club cars previously owned byplayers and club officials. The packageincludes a hand-signed number plateand a hand-signed shirt of the famousfirst owner. The first car to be sold isFranz Beckenbauer’s A8 6.0 quattro*.

its combination of impressive agilityand low fuel consumption. According to the specialist jury, this technologycombines the advantages of a manualgearbox with the merits of a modernautomatic.

Partners in horsepowerTechnical mastery, elegance and aes-thetic appeal are as vital to equestriansas they are to carmakers. As sponsorof the Spanish Riding School in Vienna,Audi will in future enjoy a presence atevents held by the oldest riding schoolin the world. This partnership bringstogether tradition, perfectionism anddynamism.

A6 in six centresWorld debut for the A6. The new modelwith the striking single-frame grille isunveiled simultaneously to an audience

PioneeringA team of researchers spearheaded bythe Audi engineer Horst Lindner is nomi-nated for the “German Future Prize”. The researchers developed an innovativelaser technique with which the oilconsumption of engines can be cut byup to 75 percent and wear reduced by asmuch as 90 percent. The German FuturePrize is awarded each year by theGerman President in recognition of out-standingly innovative and promisingdevelopments in the field of technology.The UV laser plant is already in produc-tion use at Audi in Györ.

Under the Sicilian sunThe new generation of the Audi A4features new suspension, new enginesand a completely revised design. At thisnew model’s first official presentation in Sicily, the brilliance of the Mediter-ranean sun mirrors the brilliant conceptof the new single-frame grille. Thejournalists test-driving the cars at theevent are captivated by the sportiness,dynamic performance and elegance of both the saloon and the Avant.

Back to our rootsThe museum’s location is steeped intradition. On precisely the same spotwhere August Horch established AudiAutomobilwerke GmbH in 1910, Prof. Dr. Martin Winterkorn opens the AugustHorch Museum 94 years later. Followingthe completion of a refurbishmentproject lasting two years, the building inAudistrasse, Zwickau displays historicexhibits from Audi’s past in a modernsetting. The exhibition represents a jour-ney through time, tracking around onecentury of automotive construction inSaxony.

Pikes Peak becomes Q7Whereas the concept car was calledPikes Peak, the production model of Audi’s sport utility vehicle (SUV) is tobear the name “Q7”. The new name isannounced by Prof. Dr. Martin Winter-korn at the Paris Motor Show. With theletter Q denoting a new model familywithin the Audi brand, the number 7reflects the model’s positioning in aclass between the Audi A6 and the A8. The market launch of the Audi Q7 isscheduled for early 2006.

Chinese Premier visits AudiOn the day of the Chinese Premier WenJiabao’s visit to AUDI AG in Ingolstadt,the production lines are kept runningeven on a Sunday. Ultramodern produc-tion technologies are the focus of inter-est for the guest of honour during hisfirst visit to Germany. The politician findsout more about models destined forthe Chinese market and how productionmethods are being transferred to Audi’sChinese location in Changchun. He is accompanied by the Bavarian PrimeMinister Edmund Stoiber and a 40-strong delegation.

On the ballFootballers and Audi vehicles are bothsporty and dynamic. At the suggestionof its partner Audi, Bayern Munich playsa friendly against ETO Györ, the localteam at Audi’s Hungarian production

Triumphant returnAudi returns to the DTM (German Tour-ing Car Masters) in triumphant style:after a break of more than ten years, theAudi teams carry on from their suc-cesses of the early 1990s as if they hadnever been away. Audi works driverMattias Ekström clinches the champion-ship in the penultimate race in Brno.With the drivers’ and team trophiesalready in the bag before the start of thefinal race, Audi also captures the DTMmanufacturers’ title at Hockenheim.

15 million Audi vehicles in 40 yearsA success story that can be measured infigures: 15 million Audi vehicles have left the production line since 1965. Thenew A4 adds the latest chapter to a storythat began with a 72 bhp Audi almost 40 years earlier. Whereas just 15,768Audi vehicles were built at Ingolstadt in1965, more than 780,000 Audi cars aremanufactured worldwide in 2004. Theproduction volume has thus increasedalmost fifty-fold in the past fourdecades.

plant. The game, arranged to mark thecentenary of the Hungarian first divisionoutfit, ends 4:1 to the German recordchampions. Among the spectators at thematch are Audi Chairman Winterkornand the Bavarian Prime Minister Stoiber.The proceeds of the game are ear-marked entirely for social projects inGyör.

Rock on the piazzaClassical, pop, comedy or jazz: theprogramme is as varied as the audienceat the Summer Concerts sponsored byAudi. At the opening event on the piazzain front of the Audi Forum, 7,000 enthu-siastic fans find out just what is behindthe motto of the entire concert series:“Vorsprung – experience it live”. Starssuch as Reamonn and Patrick Nuogenerate that perfect open-air feeling inthe audience. Events are now also held

10 years of the Aluminium Centre atNeckarsulmThe centre of expertise for lightweightdesign within the Volkswagen Groupcelebrates its tenth anniversary. This iswhere the first pioneering Audi SpaceFrame ASF for the A8 was developed.The Aluminium and Lightweight DesignCentre brings together development,production planning and quality assur-ance activities under one roof. There arearound 110 employees continually refin-ing Audi’s lightweight design expertise.

250,000th TT built at GyörIt is yellow, sporty and represents amilestone in the success story of AUDIHUNGARIA MOTOR Kft. The 250,000th TTto be built at Györ is a 184 kW (250 bhp)Coupé* with quattro drive and theinnovative Direct Shift Gearbox DSG. The model is exported to over 40 coun-tries.

Golden Steering Wheel for the Audi A6It is the star of the executive class. Thenew A6 wins the Golden Steering Wheeland in so doing sets new standards in the premium segment. The Germannewspaper “Die Zeit” remarks that the Audi A6 puts its challengers in theirplace “through its combination ofdriving pleasure, attractive design andtechnical details”. The jury of this pres-tigious competition reflects this view and presents the golden trophy for theA6 saloon to Prof. Dr. Martin Winterkornin Berlin.

April to June

October to DecemberJuly to September

German Commercial Code IFRS

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Production2 Cars 446,808 491,501 557,777 619,030 626,059 650,850 727,033 735,913 761,582 784,972

Engines 607,175 620,603 763,928 1,241,351 1,266,896 1,187,666 1,225,448 1,284,488 1,342,883 1,485,536

Vehicle sales Cars 447,855 492,046 546,436 599,509 634,973 919,621 991,444 995,531 1,003,791 971,832

Audi Cars 447,855 492,046 546,436 599,509 634,708 653,404 726,134 742,128 769,893 779,441

Germany Cars 204,138 217,858 238,735 244,127 257,686 239,644 254,866 243,650 237,786 235,092

Outside Germany Cars 243,717 274,188 307,701 355,382 377,287 413,760 471,268 498,478 532,107 544,349

Outside Germany Percent 54.4 55.7 56.3 59.3 59.4 63.3 64.9 67.2 69.1 69.8

Market share, Germany Percent 6.2 6.1 6.8 6.5 6.8 6.9 7.5 7.4 7.4 7.2

Lamborghini Cars – – – – 265 296 297 424 1,305 1,592

Other Volkswagen Group brands Cars – – – – – 265,921 265,013 252,979 232,593 190,799

Employees Average 32,823 34,529 37,761 41,011 45,800 49,396 51,141 51,198 52,689 53,144

Revenue EUR million 8,527 9,616 11,458 13,918 15,146 19,952 22,032 22,603 23,406 24,506

Cost of materials EUR million 5,620 6,365 7,568 9,578 10,155 14,539 15,860 16,726 17,163 17,676

Personnel costs EUR million 1,553 1,663 1,973 2,111 2,291 2,542 2,660 2,739 2,938 3,072

Personnel costs per employee EUR 47,311 48,173 52,251 51,485 50,022 51,456 52,018 53,496 55,763 57,798

Depreciation and amortisation EUR million 529 455 556 885 945 1,179 1,412 1,614 1,833 1,852

Profit before tax EUR million 301 441 569 861 839 971 1,286 1,219 1,101 1,142

Profit after tax EUR million 57 154 188 237 324 725 747 752 811 871

Share price (year-end price)3 EUR 24.29 48.06 70.81 75.16 61.20 59.59 160.00 191.00 225.00 220.15

Compensatory payment EUR 0.31 0.46 0.61 0.77 0.77 1.20 1.30 1.30 1.05 X4

Added value EUR million 1,882 2,157 2,606 3,039 3,198 3,590 3,892 4,000 4,287 4,585

Capital investments EUR million 442 739 1,006 1,620 1,516 2,378 2,084 2,342 2,047 2,056

Cash flow from operating activities EUR million 907 765 1,020 1,213 1,163 2,058 2,393 2,440 2,786 2,690

Non-current assets EUR million 1,714 1,978 2,412 3,126 3,679 7,039 7,667 8,264 8,549 8,872

Current assets EUR million 2,562 2,914 3,182 3,359 3,024 3,219 3,437 4,342 5,475 5,934

Equity EUR million 926 1,014 1,109 1,231 1,441 3,749 4,252 4,834 5,552 5,988

Liabilities EUR million 3,349 3,878 4,485 5,254 5,262 6,509 6,852 7,772 8,472 8,818

Balance sheet total EUR million 4,275 4,892 5,594 6,485 6,703 10,258 11,104 12,606 14,024 14,806

1 The changes to IAS 38 have been applied from 2004; the figures affected by these changes for the years 2000 to 2003 have been adjusted for greater ease of comparison.From 2004, the balance sheet has been classified in line with the revised IAS 1 on the basis of the maturities of items; the figures for the years 2000 to 2003 have been adjusted accordingly.

2 Excluding 875 Avant RS 2 (1995).3 Figures for 1995 to 1998 adjusted at a ratio of 1:10 following the introduction of individual share certificates;

year-end price on Munich Stock Exchange.4 In accordance with the resolution to be passed by the Annual General Meeting of Volkswagen AG on April 21, 2005.

10-Year Overview1

of over 1,000 journalists and VIPs in six European cities. The event venues ofBerlin, Madrid, London, Stockholm, Parisand Milan are networked by satellitelink.

August Horch honoured at lastAugust Horch, the founder of the carbrands Horch and Audi, is admitted to the “European Automotive Hall ofFame” in Geneva. This distinction paystribute to a pioneer of automotiveengineering who was instrumental intransforming what started life as the“patented motor vehicle” into the car aswe now know it. The Chairman of theBoard of Management of AUDI AG, Prof. Dr. Martin Winterkorn, and HeikeMüller, granddaughter of August Horch,together take receipt of the officialplaque at the Geneva Motor Show.

in the Reduit Tilly fortress on the banksof the Danube in Ingolstadt. The totalaudience at the end of the concertseason: around 27,000.

Success in 24 hoursAudi finishes the Le Mans 24 Hours with a triple victory. The importer teamsAudi Sport Japan Team Goh, Audi SportUK Team Veloqx and Team ADT Cham-pion Racing earn their place on thewinner’s rostrum at this traditionalendurance race in France. This is thefourth Le Mans win for the R8, adding to its impressive string of successes.The three Audi works drivers Seiji Ara,Rinaldo Capello and Tom Kristensenclinch victory for Japan Team Goh.


Dec. 31, 2004 Dec. 31, 2003 Change in %

Production Cars 784,972 761,582 3.1

Engines 1,485,536 1,342,883 10.6

Vehicle sales Cars 971,832 1,003,791 – 3.2

Audi 779,441 769,893 1.2

Germany 235,092 237,786 – 1.1

Outside Germany 544,349 532,107 2.3

Lamborghini 1,592 1,305 22.0

Other Volkswagen Group brands 190,799 232,593 – 18.0

Employees Average 53,144 52,689 0.9

Revenue EUR million 24,506 23,406 4.7

Profit before tax EUR million 1,142 1,101 3.7

Profit after tax EUR million 871 811 7.4

Rate of return before tax Percent 4.7 4.7

Capital investments EUR million 2,056 2,047 0.4


recognised as an intangible asset 652 591 10.3

Depreciation and amortisation EUR million 1,852 1,833 1.0

Cash flow from operating

activities EUR million 2,690 2,786 – 3.4

Balance sheet total EUR million 14,806 14,024 5.6

Equity ratio Percent 40.4 39.6

1 The changes to IAS 38 have been applied from 2004; the figures affected by these changes for the previous year have been adjusted for greater ease of comparison.From 2004, the balance sheet has been classified in line with the revised IAS 1 on the basis of the maturities of items; the figures for the previous year have been adjusted accordingly.

Audi Group Key Figures1

2004 Annual Report

2004 A

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ual R

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Vorsprung durch Technik www.audi.com

AUDI AGFinance Analysis and PublicationsI/FF-1285045 IngolstadtGermanyPhone +49 (0)8 4189-4 03 00Fax +49 (0)8 4189-3 09 00

Annual Press ConferenceFebruary 22, 2005Customer Centre at Audi Forum Ingolstadt

Annual General MeetingMay 11, 2005Customer Centre at Audi Forum Neckarsulm

Interim ReportAugust 2, 2005

2005 Financial Calendar

Follow your senses.

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