2003 annual report 2004 financial...

Dec. 31, 2003 Dec. 31, 2002 Change in %

Production Cars 761,582 735,913 3.5

Engines 1,342,883 1,284,488 4.5

Vehicle sales Cars 1,003,791 995,531 0.8

Audi 769,893 742,128 3.7

Germany 237,786 243,650 – 2.4

Outside Germany 532,107 498,478 6.7

Lamborghini 1,305 424 207.8

Other Volkswagen Group brands 232,593 252,979 – 8.1

Employees Average 52,689 51,198 2.9

Revenue EUR million 23,406 22,603 3.6

Profit before tax EUR million 1,108 1,254 – 11.6

Net profit EUR million 816 774 5.4

Rate of return before tax Percent 4.7 5.6

Capital investments EUR million 2,094 2,410 – 13.1

Capitalised development costs 636 834 – 23.7

Depreciation EUR million 1,871 1,641 14.0

Cash flow from

operating activities EUR million 2,9251 2,503 16.9

Balance sheet total EUR million 14,213 12,787 11.2

Equity ratio Percent 39.8 38.6

1 New method of reporting cash flow from operating activities from 2003; the figure for 2002 has been adjusted

Audi Group Key Figures

Road Book of Emotions

2003 Annual Report

2003 A

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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 25, 2004Customer Centre at Audi Forum Ingolstadt

Annual General MeetingMay 12, 2004Customer Centre at Audi Forum Ingolstadt

Interim ReportAugust 3, 2004

2004 Financial Calendar

This booklet provides an overview of the Audi model range. If this pocket is empty, please contact the Finance Analysis and Publications Department:

Phone +49 (0)8 4189-4 03 00

Review of 2003

January to March

Audi Pikes Peak quattro – debut inDetroitThe Pikes Peak quattro provides aglimpse of the shape of things to comeat Audi when it appears at the DetroitAuto Show in January. The response tothis crossover model is so positive thatthe decision is taken at the end of 2003to build it as a production model.

Audi tops reader pollsThe Audi TT is voted “Coupé of the Year” for the fifth time by readers of therenowned British publication “WhatCar”. The new Audi A4 1.9 TDI is acknowl-edged as the “Best Compact ExecutiveSaloon”. The readers of “auto motor undsport” vote the Audi A4 and the Audi A8the “Best Cars in their Class” and theAudi allroad quattro as the “Best Cross-over of 2003”.

10 years of Audi HungariaAUDI HUNGARIA MOTOR Kft. celebratesits tenth anniversary. The company is the central engine supplier of the AudiGroup and has been Hungary’s largestexporter for many years. The HungarianPrime Minister Péter Medgyessy paystribute to the achievements of Audi’sHungarian subsidiary at the officialcelebrations.

10 years of Audi ToolmakingThe Toolmaking Division of AUDI AG also celebrates ten years of operations.It is regarded as a pioneer of innovativetechniques within the car industry,including aluminium forming technol-ogy, and patents have been filed for agreat many of its own developments.

World Ski Championships 2003presented by AudiAudi accompanies skiing enthusiastsworldwide through the winter. In addi-tion to sponsoring the Alpine Ski WorldCup, Audi is involved in the Alpine World Ski Championships in St. Moritz.

Flood victims aided by AudiThe victims of the catastrophic floods in summer 2002 receive financial assis-tance from Audi. AUDI AG employeeshad donated generously, with the com-pany matching every euro contributedby the workforce. In March 2003, it isconsequently possible to hand over halfa million euros to a total of 32 charitiesand municipal bodies.

Audi becomes automotive sponsor of Real MadridAudi and Real Madrid sign an agreementmaking Audi the exclusive automotivesponsor of the Spanish champions: anideal partnership between the mostfamous football club in the world andthe leading premium car brand in Spain.Audi and Real Madrid are both able tolook back on a history of successstretching back around one century.

40 years under the sign of the bullUncompromising sportiness, refinedaggression and Italian hot-bloodedness– these are the attributes that charac-terise the exclusive Lamborghini brand.To mark the company’s anniversary, Auditraces the unique history of this supersports car manufacturer in a specialexhibition.

Geneva: presentation of the new A3The new Audi A3 makes its debut at theGeneva Motor Show. The new compactAudi has everything it needs to repeatthe unique success story of the previousA3 model. The presentation of the“small” Lamborghini Gallardo and theunveiling of the Audi Nuvolari quattrostudy, a 441 kW (600 bhp) high-perfor-mance Gran Turismo also causes a stir.

Audi reports record figuresChairman of the Board of ManagementDr. Martin Winterkorn announces theannual financial statements for 2002 toaround 200 journalists at the AnnualPress Conference at the Audi ForumIngolstadt. The Audi Group once againreports record figures for revenue andvehicle sales.

Audi A8 keeps IMF movingAudi provides a fleet of 250 Audi A8 carsfor the meeting of the World Bank andthe International Monetary Fund inDubai. These saloons are a secure andcomfortable means of transport forthe top representatives of both organi-sations and 184 issuing banks. This isthe largest fleet of A8 saloons ever tohave been in action at an internationalevent.

Audi at the 2003 Frankfurt Motor ShowAudi’s stand at the 2003 Frankfurt Motor Show features some exciting newexhibits. The real star is the Audi Le Mans quattro, sharing the samegenes as the triple Le Mans winner, theAudi R8. The spotlight is also on theAudi S4 Cabriolet and the new A8 3.0 TDIwith piezo injection system.

100,000th A6 from ChangchunAudi reaches a further landmark in Chinawith the production of the 100,000thAudi A6 at the Changchun plant. Thelong-wheelbase version of the Audi A6,built specifically for the Chinese market,has been in production locally since1999 and was the first luxury saloon tobe built in China.

Starter’s orders for the A4 in ChangchunAudi further extends its productionrange in China. A second car line, theAudi A4, goes into local production in China, with Audi once again assuminga pioneering role: the A4 is the firstmidsize luxury vehicle to be built in China, and is aimed at the growinggroup of young lifestyle-orientedcustomers.

INI.TUM gets the go-aheadINI.TUM denotes the Ingolstadt-basedinstitutes of the Technical Universityof Munich. The new centre for applica-tion-based research in the field ofvehicle and information technologyis launched by AUDI AG, the TechnicalUniversity of Munich and the city ofIngolstadt. All participating partiesstand to benefit from the project: fromthe university’s point of view, it repre-sents an important component of itsregionalisation policy. From Audi’s pointof view, the PhD students perform valu-able research work and ensure that Audiwill continue to live up to its claim of“Vorsprung durch Technik” in the future.

One-millionth A3 builtA further landmark is reached in thesuccess story of the Audi A3: the one-millionth specimen of this successfulcar line leaves the production line; thenew A3 already accounts for 120,000 of the total.

Bayern Munich, powered by AudiBayern Munich receives an end-of-sea-son boost from its automotive sponsor,Audi. The players of the new Germanchampions collect their new Audi cars in Ingolstadt. Bayern Munich are now“powered by Audi” in a very real sense.The Bayern players’ new fleet of carsmusters a total of almost 8,000 bhp.

Triple victory in the category“Four Wheel Drive of the Year 2003”The new Audi A8 is voted “Best FourWheel Drive of the Year 2003” by thereaders of the motoring magazine“AUTO BILD alles allrad”. In second place is the Audi A6 quattro, with theAudi TT quattro following in third spot. There are a further 31 contendersin the full list.

DSV athletes teaming up with AudiIt is announced that top skiers, coachesand officials of the German Ski Federa-tion are to be provided with vehicles forthe 2003/2004 winter season. WorldChampion and overall World Cup winnerRonny Ackermann is thrilled: “Howeverdeep the snow is, I know that quattrodrive will get me safely to my destina-tion.” The same applies to trips to theAudi wind tunnel, where athletes striveto find the aerodynamically optimumposition and test new materials with theaid of Audi’s technicians.

Concept Design Munich openedThe revamped Audi design studio isopened in Munich’s Schwabing quarter.Designers, engineers and trend special-ists develop futuristic visions for theAudi brand group here. Concept DesignMunich in particular sees its role asproviding intellectual guidance andpushing back the frontiers of creativity.

250,000th aluminium bodyThe 250,000th Audi with aluminium bodyleaves the production line at Neckarsulm– an A8 4.0 TDI quattro. Audi has beenusing aluminium in volume productionfor around ten years now, and has thusset new standards as a pioneer of light-weight design: the A2 and A8 modelswith their all-aluminium body havecollected around 40 awards from inter-nationally renowned institutions andmedia.

Design awardsAudi models win three out of twelvecategories in the face of competitionfrom 326 candidates from both Germanyand other countries in the reader poll“Autonis 2003” staged by the periodical“AUTO Straßenverkehr”. This emphaticdecision by nearly 50,000 well-informedreaders serves to underline the charisma of Audi’s design philosophy.

More triumphs for the Audi R8Audi wins the American Le Mans Seriesfor the fourth time in succession. TheAudi customer teams Infineon Joest andADT Champion Racing add to the Audi R8’s string of victories in the 2003season. Frank Biela and Marco Werner(Infineon Team Joest) win the drivers’standings ahead of JJ Lehto and JohnnyHerbert (Team ADT Champion Racing).

Awards for the Audi A8Readers of the motoring magazine “Auto Zeitung” award the Audi A8 the“Auto Trophy 2003” in the category“Luxury Class Overall”. The internationaltrade world is likewise outspoken in its praise of the A8: “The Audi A8 isclearly the best in its class and a techno-logical standard-bearer that will have an enduring impact on alternative light-weight concepts,” emphasises FritzEbert, President of the Automotive CircleInternational, at the presentation of the“EuroCarBody Award 2003”, the mostcelebrated European innovation prize forbody manufacturing.

April to June

October to DecemberJuly to September

German Commercial Code IAS

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Production2 Cars 352,589 446,808 491,501 557,777 619,030 626,059 650,850 727,033 735,913 761,582

Engines 544,538 607,175 620,603 763,928 1,241,351 1,266,896 1,187,666 1,225,448 1,284,488 1,342,883

Vehicle sales Cars 376,180 447,855 492,046 546,436 599,509 634,973 919,621 991,444 995,531 1,003,791

Audi Cars 376,180 447,855 492,046 546,436 599,509 634,708 653,404 726,134 742,128 769,893

Germany Cars 160,803 204,138 217,858 238,735 244,127 257,686 239,644 254,866 243,650 237,786

Outside Germany Cars 215,377 243,717 274,188 307,701 355,382 377,287 413,760 471,268 498,478 532,107

Outside Germany Percent 57.3 54.4 55.7 56.3 59.3 59.4 63.3 64.9 67.2 69.1

Market share, Germany Percent 5.2 6.2 6.1 6.8 6.5 6.8 6.9 7.5 7.4 7.4

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

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

Employees Average 32,215 32,823 34,529 37,761 41,011 45,800 49,396 51,141 51,198 52,689

Revenue EUR million 6,880 8,527 9,616 11,458 13,918 15,146 19,952 22,032 22,603 23,406

Cost of materials EUR million 4,457 5,620 6,365 7,568 9,578 10,155 14,539 15,860 16,726 17,163

Personnel costs EUR million 1,342 1,553 1,663 1,973 2,111 2,291 2,542 2,660 2,739 2,938

Personnel costs per employee EUR 41,660 47,311 48,173 52,251 51,485 50,022 51,456 52,018 53,496 55,763

Depreciation EUR million 467 529 455 556 885 945 1,199 1,435 1,641 1,871

Profit before tax EUR million 96 301 441 569 861 839 986 1,322 1,254 1,108

Net profit EUR million 11 57 154 188 237 324 734 769 774 816

Share price (year-end price)3 EUR 24.03 24.29 48.06 70.81 75.16 61.20 59.59 160.00 191.00 225.00

Compensatory payment EUR 0.15 0.31 0.46 0.61 0.77 0.77 1.20 1.30 1.30 X4

Added value EUR million 1,464 1,882 2,157 2,606 3,039 3,198 3,600 3,914 4,023 4,292

Capital investments EUR million 769 442 739 1,006 1,620 1,516 2,422 2,151 2,410 2,094

Cash flow5 EUR million 624 907 765 1,020 1,213 1,163 2,094 2,452 2,503 2,9256

Fixed assets EUR million 1,835 1,714 1,978 2,412 3,126 3,679 6,988 7,624 8,238 8,471

Current assets EUR million 1,787 2,562 2,914 3,182 3,359 3,024 3,379 3,631 4,548 5,742

Equity EUR million 910 926 1,014 1,109 1,231 1,441 3,817 4,342 4,940 5,658

Liabilities EUR million 2,712 3,349 3,878 4,485 5,254 5,262 6,551 6,913 7,847 8,555

Balance sheet total EUR million 3,622 4,275 4,892 5,594 6,485 6,703 10,368 11,256 12,787 14,213

1 Figures for 2001 calculated for the first time according to the International Accounting Standards (IAS); figures for the 2000 financial year reconciled with IAS for purposes of comparison

2 Excluding 2,021 (1994) and 875 (1995) Avant RS23 Figures for 1994 –1998 adjusted at ratio of 1:10 following introduction of individual share certificates;

year-end price on Munich Stock Exchange4 In accordance with the resolution to be passed by the Annual General Meeting of Volkswagen AG on April 22, 20045 In IAS: cash flow from operating activities6 New method of reporting cash flow from operating activities from 2003; the figure for 2002 has been adjusted

102 | 103

10-Year Overview1

| 1

Contents

Foreword 2Report of the Supervisory Board 4

Product Strategy 6Audi Brand Group 8The New Audi A6 14

Technology 18The New V8 TDI Engine 20Ultramodern LED Lighting Technology in Series Production 22

Environment and Society 24Responsibility for the Environment 26Corporate Citizenship 28

Employees 30Entrepreneurial Ideas and Actions 32Prospects for Young People 34

Market and Customer 36Market News 38China’s Love Affair with Audi 40

Group Companies 44Corporate Governance 48Audi Shares 49Management Report of the Audi Group 50Consolidated Financial Statements 61Glossary 10010-Year Overview 103

Audi is one of the world’s leading automotive premium 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 constitute the basis of our success.

We place our customers’ wishes at the very heart of our unceasing quest

to find ever better solutions. This philosophy ist reflected in our brand claim

“Vorsprung durch Technik”.

Our cars serve as a gateway to a fascinating realm of experience. They elicit an

emotional response and give every journey an unmistakable character. Kilometre

after kilometre. The roadbooks in this Annual Report highlight what it means to

be travelling in an Audi. Their purpose is simply to convey a concise initial

impression. Because it is only possible to appreciate every facet of these cars

by driving them yourself.

An overview of the Audi model range is provided

in the booklet at the end of the Annual Report.

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

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.

2 | 3

Foreword

The success of landmark strategic decisions often takes some time to transpire:2003 was a year in which such evidence came to light. The almost flawlesschangeover to the new-generation Audi A3 illustrated just how practicable theidea of extending the premium range into the compact class genuinely is.Whereas the first A3 in 1996 still constituted a bold venture into a previously non-existent vehicle segment, the new A3 systematically improves on this best-seller.All this, let it be said, at a time when Germany in particular – our biggest market– has been battered by the adverse economic climate.

The same is true of the second generation of the Audi A8, which recorded itsfirst full year in production in 2003. This arguably most sporty of luxury saloonshas already easily surpassed the success of its predecessor in Europe andespecially the United States.

The Audi brand demonstrated immense confidence in unveiling three trail-blazing concept studies last year, all of which met with an unprecedentedlypositive reception: the Pikes Peak quattro, the Nuvolari quattro and the Le Mansquattro. These studies highlight the direction that our brand is taking in reposi-tioning itself with a greater emphasis on sportiness.

The accent will likewise be on “sportiness”, “progressiveness”, “sophistica-tion” and “emotion” in the new production models that will be launched in 2004.

We aim to set a new benchmark in the intensely competitive segment ofbusiness saloons with our new Audi A6. On the strength of its dynamism, design,innovations and compelling overall concept, the A6 will be a crucial factor inAudi’s success. It will redefine the face of our brand.

We will be extending the Audi range in the premium compact class with anew five-door product variant that will signal our entry into this attractive class in the USA.

Audi employees at its locations in Neckarsulm, Ingolstadt and Györ per-formed admirably in what was a difficult 2003. New record-breaking figures forproduction and unit sales demonstrate both their motivation and the fact that we were able to improve our overall cost situation quite considerably. Thevery respectable profit before tax, which had to absorb considerable exchangerate movements and the costs of production start-ups, moreover underscoresthe entrepreneurial efficiency of AUDI AG.

On behalf of the entire Board of Management I would like to thank all our cus-tomers and also those who have contributed towards Audi’s continuing successthrough their individual efforts.

Ingolstadt, February 2004

Dr. rer. nat. Martin Winterkorn

The 2003 financial year saw Audi improve on itsrevenue, production and vehicle sales for thetenth year in succession. These gains are not fullyreflected in the earnings figure. A continuing highlevel of capital investment in the technical devel-opment of new products, additional burdensresulting from the generally weak state of themarket and the adverse shift in the exchange rateall prompted a downturn in earnings. Throughthe high level of capital investment, the Board ofManagement and Supervisory Board neverthelesslaid the foundations for further successes in thenext few years. The fact that AUDI AG was onceagain able to post record vehicle sales despitethe difficult economic situation is a fitting tributeto the combined efforts of the management, theworkforce and the employees’ elected represen-tatives. The Supervisory Board takes this opportu-nity to thank and acknowledge all concerned.

All seats on the Supervisory Board were up forre-election during the past year. The ten employ-ees’ representatives were elected on April 29,2003. The election of the shareholders’ representa-tives was held at the Annual General Meeting onMay 14, 2003. The term of office of all SupervisoryBoard members ends with the close of the AnnualGeneral Meeting which is to grant discharge forthe 2007 financial year. At its constituent meetingon May 14, 2003 the Supervisory Board re-elected Dr. Bernd Pischetsrieder as its Chairman andXaver Meier as Deputy Chairman. The NegotiatingCommittee pursuant to Section 27 Para. 3 ofGerman Codetermination Law and the Audit Com-mittee pursuant to Section 5.3.2 of the GermanCorporate Governance Code were also elected.

No meeting of the Negotiating Committee hasbeen required to date.

Throughout the past year, the SupervisoryBoard considered the development of salesmarkets, and the situation and business progressof the company and in particular its major sub-sidiaries at quarterly meetings, on the basis ofdetailed reports. Following detailed consulta-tions, the financial, personnel and investmentplans were approved at the meeting held onDecember 9, 2003.

The Supervisory Board moreover regularlymonitored the company’s development outsidethe context of its meetings and actively sup-ported the company management in its work.Each meeting of the Supervisory Board waspreceded by detailed consultations between themembers of the presiding committee.

PwC Deutsche Revision AktiengesellschaftWirtschaftsprüfungsgesellschaft was commis-sioned with the task of auditing the ConsolidatedFinancial Statements of the Audi Group and theAnnual Financial Statements of AUDI AG, as well as the management reports; these receivedthe unqualified certification of the auditors. Theexamination conducted by the Audit Committeeand Supervisory Board likewise revealed no cause for objections. At its meeting on February20, 2004, the Supervisory Board was consequentlyable to ratify both sets of accounts. The AnnualFinancial Statements of AUDI AG are thus estab-lished.

The principal topics of consultations held inthe past year were the measures to enhanceproduction flexibility, Audi’s activities in China

Report of the Supervisory Board

Dr.-Ing. e.h.

Bernd Pischetsrieder,

Chairman of the Supervisory Board

and Hungary, and exchange rate movements andtheir impact on the company’s financial perfor-mance. The Supervisory Board also discussed theongoing development of the German CorporateGovernment Code in detail and passed the neces-sary resolutions.

The Audit Committee met on three occasionsin the past financial year and was informed indepth on the Consolidated Financial Statementsfor 2002, risk management measures within the company and the current situation at the end of 2003. The auditors participated in the firstmeeting and explained their key findings in the2002 Consolidated Financial Statements.

There were the following changes to the Board of Management:

Peter Abele retired on March 31, 2003. TheSupervisory Board is deeply grateful and indebtedto Mr Abele for over 17 years of meritoriousservice to Audi, including as Board Member for“Finance and Organisation” since June 1997.Rupert Stadler took over this position with effectfrom April 1, 2003.

After six years of effective service, Dr. WernerMischke retired from the Board of Managementof AUDI AG with effect from April 30, 2003 andassumed the posts of Chairman of the AdvisoryBoard of quattro GmbH and Chairman of theBoard of Directors of Automobili LamborghiniS.p.A. with effect from January 1, 2003.

Ralph Weyler was appointed to succeed Dr. Georg Flandorfer as Board Member with re-sponsibility for “Marketing and Sales” with effectfrom October 1, 2003. After over six successfulyears at Audi, Dr. Flandorfer is turning his atten-tion to new tasks within Volkswagen AG. TheSupervisory Board would like to thank Dr. Mischkeand Dr. Flandorfer for their considerable effortson behalf of the company, and wishes them muchsuccess in their new posts.

There was the following change to thecomposition of the Supervisory Board before theconstituent meeting on May 14, 2003:

Prof. Dr. Robert Büchelhofer surrendered officewith effect from April 8, 2003 after seven years’service, including around six years as chairman.Upon the application of the Board of Manage-ment, the Registration Court of Ingolstadtappointed Hans Dieter Pötsch as supplementarymember with effect from April 25, 2003.

The nascent economic recovery in the USAand Asia at the end of 2003 now appears to bespreading to other economic regions of theworld. In Germany, advance indicators seem topoint towards an economic recovery that couldalso revive the car market. Production and salesof the new Audi A6 will commence in the springof 2004. This model will account for a substantialportion of our sales volume and earnings, but it is above all a standard-bearer of the brand image,and will bring us closer to realising our strategicbrand objective of “attracting new customersthrough innovative, sporty vehicles”.

Hand in hand with the workforce and the man-agement, the Supervisory Board will continue tocontribute towards the company’s future successby performing more than its statutory minimumduties.

Ingolstadt, February 20, 2004

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

4 | 5

Product Strategy

Total distance: 30.2 kmJourney time: 0:27 hoursVehicle: Audi A6

Distance in km Destination Description

0.0 Certainty Congress centre

2.1 Invitations Motorway

10.9 Temptations Approach road

14.5 Fascination Car park entrance

14.6 Exhilaration Lower deck

14.8 Curiosity Upper deck

15.4 Daydreams Tunnel

18.5 Fantasies Urban expressway

20.7 Exertion Motorway

27.5 Privilege Urban expressway

30.2 Passion Link road

Tense expectation . . .

6 | 7

. . . tingling certainty. Wherever they happen to meet, he knows it’s definitely worth it . . .

km 0.0

Audi, SEAT and Lamborghini

A team with three clear strengthsAudi is the lead brand of the sporty brand group.Through Audi, SEAT and Lamborghini have accessto many years of top technical knowledge and to sales and marketing know-how. Both brandsare able to tap into this resource of expertise thatis unparalleled within the sphere of automotivecompetitors. Audi has accomplished the uniquefeat of becoming a recognised member of thatelite circle of the world’s best car manufacturerswithin just a few years.

However different Audi, SEAT and Lamborghinimay appear to be in their present form, they areunited by a strong bond comprising the strandssport, technology and design. The sports outlookis also reflected by the mentality of the employ-ees: the urge “always to be better” is as much athome in Ingolstadt and Neckarsulm as it is inMartorell and Sant’Agata.

Every SEAT and every Lamborghini encapsulatesAudi’s wealth of expertiseThe roles are clearly defined within the brandgroup. Lamborghini is the top sports brand. TheItalian-built super sports cars with the raging bull in their emblem are the stuff that dreams aremade of. Audi, with its three central valuessportiness, sophistication and progressiveness,represents the core of the brand family. Thestrategic direction of the group is determined inIngolstadt. Its range of products extends from the premium compact class to the luxury class.

SEAT interprets the notion of sportiness in itsown highly charged way. SEAT is consequentlyable to address younger target groups and bringthem closer to the Audi brand. The group’scommunication strategy aims to mobilise thetrickle-down effect from Audi to SEAT. Audi is

Three brands under joint leadership: Audi, SEATand Lamborghini

Audi brand group

With visible kick: car brands are brought to life by the products themselves. A car must demon-

strate at first glance whether it is tame or wild, staid or extravagant, leisurely or sporty. The

promise that it radiates when stationary must be redeemed when it is on the move. But above all,

a car must do one thing: it must fascinate. On every journey, in any weather, year after year.

km 2.1

. . . Attraction at very first sight. Tendency rising. Some invitations have lingering appeal . . .

moreover able to use specific skills and capacitiesat SEAT. The first visible evidence of the brandgroup’s work was the ALTEA prototype, which waspresented at the Frankfurt Motor Show.

Lofty ambitions for all brandsAll three brands share the same ambitiousstandards of quality and reliability that Audi hasembodied for many years.

Thanks to its composition, the Audi brandgroup is able to offer customers an extremelybroad portfolio of sporty vehicles – with a rangeof prices and diversity that no competitor is ableto emulate. By rigorously upholding the characterof the individual brands, it is possible to continueenhancing the status of the cars by makingintelligent use of shared modules.

This approach moreover ensures that thedistinctive profiles of Audi, SEAT and Lamborghiniare placed even more sharply in focus.

Uncompromising, extreme, Italian2003 was the year of the Gallardo at Lamborghini.For the first time in many years, the Italian brandnow has two product lines to offer. What is more,the Gallardo gives the company access to a muchbroader group of customers than its ultra-exclu-sive “large” model, the Murciélago. After fiveyears of ownership by Audi, Lamborghini can takepride in having rediscovered the primeval natureof the brand, all the while enhancing its aura of sophistication. The response of customers andthe media worldwide resoundingly confirms this.

The Gallardo is a poised four-wheel-drive two-seater with a 368 kW (500 bhp) engine: a thorough-bred driving machine designed to awaken thetrue spirit of Lamborghini every day, whatever theweather – extreme acceleration, extreme corner-ing speeds. On top of all these qualities, it has analuminium space frame developed together withAudi specialists at Neckarsulm. As well as thissporty lightweight structure, the high-tech cre-dentials are exemplified by the V10 engine whichLamborghini engineers helped to develop, refineand give its special “bite”.

The production start-up of the Gallardo was a real challenge to the company, which grew to 762 employees by the end of 2003. After all,Lamborghini’s production volume more thantrebled between 2002 and 2003.

8 | 9

Product Strategy

The first product of the Audi brand group: the SEAT ALTEA

km 10.9

. . . What is attractiveness? A fragrance? A face? Some temptations just shouldn’t be resisted . . .

Customer analyses reveal that the Gallardoappeals in particular to drivers who have previ-ously preferred other brands. Almost three-quarters of Gallardo customers are new addi-tions to Lamborghini’s exclusive list of customers.

The new R-GT celebrated its debut at theFrankfurt Motor Show. This is a version of theMurciélago modified for tough competitionracing. Lamborghini will consequently once again be cutting an impressive figure on race-tracks worldwide.

2003 also marked the 40th anniversary of thecompany. The limited-edition Murciélago willprovide an exclusive group of customers with alifelong reminder of how Ferruccio Lamborghiniyielded to his penchant for fast cars in 1963 andset out to compete with the established manu-facturers.

Fit for the futureAudi is channelling considerable effort into build-ing on its strong market position in China. Thebrand has enjoyed the reputation as the pioneerof China’s burgeoning premium market since1998. Its position as market leader is now to beconsolidated by further extending the rangeavailable, flexibly increasing the local productioncapacity and building up a premium sales system.Many years of experience, the confidence of itsChinese counterparts and a knowledge of the spe-cific demands of this emerging market constitutethe basis of Audi’s success in the world’s mostpopulous country. With around 2.3 million newlyregistered vehicles, the Chinese car marketexpanded by almost 70 percent compared withthe previous year.

Audi also placed the spotlight on cost man-agement within the company in 2003. The recentexchange rate situation has heightened aware-ness of the cost items throughout the entireexport-oriented car industry. In Audi’s case, aboutone third of new cars are sold outside the euro-zone, with the tendency if anything rising. Thechallenge is therefore to enhance the efficiency ofthe entire company in order to keep improvingproduct substance and product quality.

The year of the Audi A3Around seven years on, it can safely be said thatthe “invention” of the Audi A3 was an accom-plished feat of planning. And a bold one, at that:when the first Audi A3 was unveiled in 1996,many from within the car trade doubted whetherthere was any future in a “premium compactsegment” of the market.

A super sports car with aluminium body: the Lamborghini Gallardo

km 14.5

. . . Fascination. Heart and mind in total harmony – the perfect blend. Perceptible magic . . .

Today, with over one million A3 models havingbeen built, any lingering doubts have long sinceevaporated. The second-generation A3 that Audipresented at the Geneva Motor Show in 2003easily outstripped the sales performance of itspredecessor in the first nine months after itslaunch. Around 120,000 of the new A3 were dis-patched from the factory halls in 2003, within the space of just nine months. The palpably moredynamic presence of the new model, its out-standing handling and fascinating engines havenot gone unnoticed by the public. The top-of-the-range model is the version with a 3.2-litre, six-cylinder engine and the innovative Direct ShiftGearbox (DSG). 250 horsepower (184 kW), quattrodrive and the gearbox that shifts without inter-rupting the power flow introduce a level of

dynamism into the A3 that was previously un-known in this segment. The sporty emphasis ofthe A3 is naturally also apparent in the smallerpetrol and TDI engines.

An S model open to the skiesThe Audi S4 met with a very positive responsefrom customers and the media. The A4 Cabrioletclearly exceeded the company’s sales expecta-tions in its very first full year in production. It wasconsequently only logical to create an S versionof this open-top four-seater. Audi decided tounveil this model at the Frankfurt Motor Show.

Market research indicated that the proportionof S models will be higher for the Cabriolet thanfor any other model in the Audi range. Thebiggest market for this 253 kW (344 bhp) car willbe North America.

10 | 11

Product Strategy

The second-generation Audi A3: even more sporty and dynamic

The makings of a classic: the S4 Cabriolet

km 14.6

. . . In his mind he’s already with her. The A6 quickens in response. Unbridled exhilaration . . .

New lustre for the four ringsAmid the cut-and-thrust of the car market, theAudi brand has always been capable of producinga few surprises. By skilfully blending sophistica-tion with customer-centred innovations, it hassucceeded within the space of around a decadein becoming a fully-fledged member of the eliteclub of the world’s best car manufacturers.Comparable examples of such a rapid ascent areextremely rare. Audi has moreover managed togive its brand image a new, sporty finesse withinlittle more than one year. The brand with the fourrings has been able to reposition itself in relationto its competitors, thereby further enhancing its own appeal. Its consistently high sales figuresat a time when markets remain flat are visibleevidence of this.

A perception of the Audi brand as simultane-ously ultra-dynamic and sophisticated is one ofthe strategic objectives of the company. “Sporty”applies not simply to the character of a particularvehicle, but refers rather to the reorientation andexpansion of the entire product range. Notionssuch as sensuality and emotion play a key part.

The standard-bearers of the company’s newdirection in 2003 were the three concept studiesPikes Peak quattro, Nuvolari quattro and Le Mansquattro, which elicited a resoundingly positiveresponse from visitors to the motor shows inDetroit, Geneva and Frankfurt. They point the wayforward for Audi: powerful, dynamic, captivatingand innovative. All three are interpretations ofAudi’s refined design principles, which emphasisein particular the sensuous styling and the modi-fied radiator grille – the single frame.

The most sporty saloon in its class: the new Audi A8

km 14.8

. . . combined with curiosity. On the journey back he wants to savour its sheer power anew . . .

The power of eight cylindersAudi deliberately kicked off the launch of the newA8 with the large eight-cylinder engine versions,the 4.2 and 3.7-litre petrol engines. Customerswere so captivated by these engines and theentire A8 concept that the A8 became the mostsuccessful eight-cylinder luxury saloon in Europeat a stroke.

Audi launched the world’s most powerfulpassenger-car eight-cylinder diesel engine in theguise of the A8 4.0 TDI. In conjunction withquattro drive and the lightweight design of theAudi Space Frame, this is a luxury saloon whereyou will need to look inside the engine compart-ment to discover that it is really a diesel. Its road performance belies this fact, though its lowfuel consumption and immense torque of 650Newton-metres do provide a strong hint.

Audi Pikes Peak quattroThe star of Detroit 2003 bears a name thatconjures up Audi’s illustrious tradition of motorsport: an Audi quattro won the renowned hill-climb up Pikes Peak in the Rocky Mountains threetimes in succession. That was back in the eighties.The Audi Pikes Peak quattro, vintage 2003, com-bines the virtues of a saloon, an Avant, a van anda sport utility vehicle. This imposing six-seateris powered by a 368 kW (500 bhp) biturbo eight-cylinder engine – and, like all the study carsunveiled in 2003, it is ready for the road.

Audi Nuvolari quattroTogether with the new Audi A3, the Nuvolariconcept study was probably the most fascinatingattraction at the 2003 Geneva Motor Show: aspacious Gran Turismo combining elegance anddynamism. A study car that has the makings of amodern classic. A sports tourer that also reveals a predisposition for the avant-garde. The Nuvolariquattro’s V10 engine develops an enormous 441 kW (600 bhp). The name of this study vehiclepays tribute to one of the most illustrious driversof Auto Union’s racing cars in the nineteen-thirties: Tazio Nuvolari, whom many historians ofmotor racing consider to be the best driver of his time.

Audi Le Mans quattroOver some 80 years of the Le Mans 24 Hours, onlyvery few brands have succeeded in notching upthree wins in succession. Audi accomplished thishat trick in 2000, 2001 and 2002, then proceededto unveil the Audi Le Mans quattro study at theFrankfurt Motor Show in 2003. The study car haseverything that a purebred sports car needs: a449 kW (610 bhp) mid engine, ideal weight distri-bution, Audi Space Frame body and of coursequattro drive.

While on the subject of quattro: Audi’s suc-cessful four-wheel-drive principle has unleasheda veritable torrent of imitation concepts bythe car industry in recent years. For Audi, quattroalways means high agility, outstanding road-holding and increased safety reserves. This is whyall three Audi concept studies unveiled last yearuse quattro drive as their basis.

12 | 13

Product Strategy

The new Audi face with the single-frame radiator grille

km 15.4

. . . Evening falls across the city. Cones of light illuminate the dusk. Time for daydreams . . .

The new Audi A6

Leading the way in design and performanceThe new Audi A6 signals the advent of a vehiclethat enhances the core characteristics of the full-size class with traits borrowed from the luxurysegment. In terms of design, performance andsophistication, it redefines the benchmark in itsclass.

The A6 shows its strengths – even whenstandingThe dynamic styling of the coupé-like shape ofthe new Audi A6 is one of its most eye-catchingfeatures. The trapezoidal single-frame radiatorgrille symbolises the forces that are unleashedonce the A6 sets off. The sporty impression is

accentuated by bumpers painted in the bodycolour as standard and the dynamic appearanceof the rear spoiler that provides extra road grip athigh speeds. All models are moreover equippedwith a dual-branch exhaust system. Its mereoutward appearance highlights the intention ofthe A6 to occupy top spot in its class.

More spacious and saferThe new A6 has grown overall. Larger vehicledimensions, a wider track and a longer wheelbaseprovide the occupants with further enhanced ride comfort of the highest calibre. The luggagecompartment on the new A6 is now for the firsttime equally voluminous on the front-wheel-driveand quattro models. There is now more leg roomand shoulder room inside. This not only improvesthe sense of space, but also enhances passiveprotection for the passengers.

Active safety benefits from the latest genera-tion of the electronic stabilisation program ESP,including brake assist, and electronic brake-forcedistribution EBD. The standard safety equipmentin addition includes active head restraints at thefront, fog lights and a light and rain sensor. Theuse of daytime driving lights in conjunction withxenon plus headlights is a world first for thisvehicle category. As an option, this system can beextended by the “adaptive light” dynamic head-lights which pivot the beams into a bend in accor-dance with the steering angle and road speed.

The new A6 incorporates extensive safetyequipment, thus affording abundant protectivepotential for the driver and passengers alike.

. . . and fantasies without horizons. Another dynamic change of gear. A challenge like this . . .

The new Audi A6 will appear on the roads from April

km 18.5

Outward evidence of inner valuesThe interior design of the Audi A6 conveys clearsports appeal and ergonomic perfection in anutterly new light. The ergonomically arrangedinstrument panel integrates the driver perfectlyinto the cockpit.

Only choice materials are used for the interior.There are fine leathers and inlays in wood or alu-minium to choose from, providing every customerwith ample scope for customising their vehicle.Sophistication extends to the standard specifi-cation of the new Audi A6, too. Its calibre is of astandard that can by no means be taken forgranted even in the luxury class. For example, theuse of the electromechanical parking brake asfeatured on the A8 renders the handbrake leversuperfluous. The centre console accommodatesthe controls for the standard-fit Multi Media Inter-face “MMI basic”, which comes complete with a 6.5-inch monochrome monitor, integrated radioand CD player.

Stylish differentiationOver and above the standard specification, thenew Audi A6 is available with a wide range ofoptional elements. Unmistakable one-off configu-rations can be created to reflect the individualcustomer’s preferences. The possibilities rangefrom the extensive selection of paint finishes toexclusive leathers and trims for the interior. In the area of infotainment, there is the MMI as usedon the A8 with a 7-inch colour monitor that canfor instance be extended by a navigation systemwith DVD and BOSE surround sound.

Perfection in handlingThe new Audi A6 sets the standard not just interms of design and equipment. The body, therobust structure of which had already beenwidely acknowledged on the previous version,has been further improved thanks to systemati-cally refined joining techniques and cutting-edgelightweight design technology. The result is anincrease in torsional rigidity of over 35 percent,which is particularly evident in the handlingcharacteristics.

The suspension of the new Audi A6 usessports technology: the refined four-link frontsuspension is paired with the self-trackingtrapezoidal-link rear suspension adopted fromthe Audi A8 – a combination used on both front-wheel-drive and quattro versions. Together withservotronic as standard and the excellent value

14 | 15

Product Strategy

Design and performance – the new Audi A6 sets the standard

km 20.7

. . . merits a cool head. He really savours the exertion. Makes the very most of it. Metre by metre . . .

for negative rear-end lift, the new A6 offers un-rivalled handling and reliable directional stabilityall the way up the speed range.

The basic characteristic of the A6 suspensionis its constantly active response with preciselydefined self-steering behaviour and unequivocalagility. At the same time, the new Audi A6 alwaysupholds the standards of a luxury-class saloon in terms of vibrational and suspension comfort.

Driving forceThere will be an attractive range of engines avail-able for the new Audi A6 right from its marketlaunch at the end of April 2004. Customers havefour high-performance engines to choose from,all of them meeting the stringent EU4 exhaustemission standards and offering an attractiveselection of outputs and torques.

The V6 3.0 TDI features the latest-generationcommon rail fuel injection system with piezoinjectors. This system is capable of injecting thefuel at pressures of up to 1,600 bar. This makesthe engine run even more quietly, while boostingits output. The impressive 450 Newton-metres of torque, which the engine actually develops atbarely more than idle speed, assures ample low-end power.

Of the range of petrol engines, the new V6 2.4developing 130 kW (177 bhp) constitutes a com-fort-oriented entry-level engine. The latest FSItechnology from the world of motor racing hasbeen incorporated into the design of the powerful

V6 3.2 FSI petrol engine with an output of 188 kW(255 bhp). This engine exhibits a peak-torquerange reminiscent of a TDI engine and thus offersa superbly sporty power characteristic. At the topend of the range, there is a 4.2-litre, eight-cylinderengine developing 246 kW (335 bhp).

Depending on which engine is chosen, there is a choice of a six-speed manual gearbox and a six-speed tiptronic automatic transmission. Themultitronic continuously variable automatic trans-mission will become available at a later date. Thetiptronic transmission and quattro permanentfour-wheel drive are standard equipment inconjunction with the ultra-high-torque V8 4.2 andV6 3.0 TDI engines. The tiptronic transmission can also be operated via shift paddles on thesteering wheel if desired.

With its thrilling characteristics, the destinyof the new Audi A6 is already clear: it will lead theway through its design and performance.

. . . Glinting asphalt. The engine’s rich hum. Her favourite song on the radio. It’s his privilege . . .

km 27.5

16 | 17

Product Strategy

. . . He gently increases pressure on the accelerator pedal. There it is, routine imbued with passion.

km 30.2

Technology

Total distance: 467.8 kmJourney time: 4:29 hoursVehicle: 12-cylinder Audi A8 L


100.7 Urge Tunnel

102.9 Ambition Urban expressway

232.1 Stature By-pass

435.8 Safety Motorway

467.8 Success Group HQ He is accustomed to . . .

18 | 19

. . . being in the leading pack. The urge to get ahead is his defining trait. Always and everywhere . . .

km 100.7

The new V8 TDI engine

Another landmark achievement in dieseltechnology for AudiSubstantial torque, high performance, andoutstanding acceleration and pulling power: allcharacteristics of a top athlete.

Audi has repeatedly restated its pioneeringrole in the development of ultra-efficient, high-performance TDI engines since as far back as1989.

The latest remarkable example is the new 4.0-litre V8 TDI, which is used in the A8. It lendsthis lightweight luxury saloon the attributes of a top athlete. Moderate fuel consumption andplentiful refinement also make the A8 4.0 TDIquattro the ideal companion for long journeys.

The most powerful V8 diesel engine in the worldThe new model represents the addition of afurther sporty version to Audi’s range. The V8 TDIengine in the Audi A8 is currently the highest-powered, highest-torque V8 diesel engine in anyproduction saloon car, developing 202 kW(275 bhp) and 650 Newton-metres of torque. Itspeak torque of 650 Newton-metres, which isachieved from engine speeds of 1,800 to 2,500rpm, offers a quality of traction across the entireroad-speed range that can otherwise only beexperienced in sports cars.

The 4.0-litre V8 TDI biturbo with two inter-coolers is a further representative of Audi’s newfamily of V-engines, which already includes the4.2-litre petrol versions in the Audi S4 and Audiallroad quattro 4.2. One significant new feature ofthe V-engines is that there is a chain drive forthe camshafts and auxiliaries instead of a toothedbelt.

4.0-litre V8 TDI biturbo engine with two intercoolers

A unique blend of many individual strengths

Finding a unique blend of technical strengths is the Audi philosophy when developing pioneering

components and models. This is illustrated by two examples: the new V8 TDI engine and the LED

lighting technology that is now finding its way into Audi’s production models.

. . . The conviction of being good: the natural ambition of a winner. Shifting up to sixth gear . . .

km 102.9

20 | 21

Technology

Compact design and improved valve control forexceptional refinementOther technical highlights of the 4.0-litre V8 TDIinclude its very compact dimensions and lowweight. The engine measures just 516 millimetresin length, and it weighs in at only 270 kilograms.These notable figures are attributable to thecompact chain drive and the newly developedengine block. The latter is made from vermiculargraphite cast iron, a material that exhibits twicethe strength of conventional grey cast iron yetweighs around 15 percent less.

In conjunction with the virtually play-freecamshaft drive, the new valve control with rollercam followers is able to demonstrate its advan-tages: it reduces the level of mechanical noisegenerated by the valve gear and is instrumentalto the V8 TDI’s impressive refinement. The rigiddesign of the engine block and the unit’s effectiveencapsulation also help to lessen the soundemitted by the eight-cylinder engine.

More efficient combustion with new commonrail technologyA second-generation common rail system takescharge of mixture preparation in the V8. The injec-tion pressure has been increased to 1,600 bar.This, in conjunction with the solenoid-valve injec-tors with 7-hole nozzles, results in even fineratomisation of the fuel and consequently in extra-efficient combustion. The advantages are twofold:extra power and torque, coupled with lower fuelconsumption and emissions.

Higher output but lower consumptionThe economical way in which the V8 generates its power is just as impressive as its power andtorque curves. In the Audi A8 4.0 TDI quattro, thisengine version achieves an overall consumptionof just 9.6 litres of diesel per 100 kilometres for the EU driving cycle. Despite having 37 kW(50 bhp) more power and despite the higherweight of the vehicle, this figure actually under-cuts the consumption of its predecessor, the A8 3.3 TDI quattro. The 4.0-litre V8 TDI thus makesthe Audi A8 the perfect long-distance vehicle: onetankful of fuel will be sufficient for significantlymore than 900 kilometres.

Audi A8 with 4.0-litre V8 TDI engine

. . . The resolve to show true stature. Leading with style and on merit. Meticulous and cultured . . .

km 232.1

Ultramodern LED lighting technology in series production

LED headlights as standard on the new A8 L 6.0 quattroLED headlights are not only brighter, but more-over use less energy than conventional bulb-typeheadlights. And LEDs have a much longer operat-ing life – much longer, in fact, than the averagelife of a vehicle. This promises to render the taskof changing a bulb a thing of the past. Theseadvantages can already be exploited: the Audi A8 L 6.0 quattro is the first car in the world to beequipped with LED daytime driving lights.

Pioneering technologyThe letters LED stand for “light-emitting diode”, a technology that has until now only been usedfor applications where low levels of light were

required, for example indicator lights or the car’srear lights. Audi is opening a new chapter in theannals of technology by introducing these high-intensity, high-performance LED headlights.

Audi first unveiled this innovative technologyon the much-acclaimed concept studies exhibitedin 2003: on the Audi Pikes Peak quattro in the formof fog lights, and on the Audi Nuvolari quattroand Audi Le Mans quattro in the headlights.

LEDs also offer clear advantages when itcomes to vehicle design: because they requireless installation space than other light sources,being only half as deep as conventional head-lights, they give the designers greater freedomfor the design of the vehicle’s front end.

Innovative solution for dynamic adaptive lightsThat is not all, because LED technology harboursyet further potential for the future. For example inthe field of adaptive headlights, which appearedfor the first time on volume-built Audi vehicles inthe guise of Audi adaptive light and are nowavailable on the A8. LEDs can in future be used as the light source for dynamic adaptive headlights,circumventing the need for any moving parts. By means of software-controlled activation ofadditional compact lighting elements, the width,direction and intensity of the light cone can bespecifically adapted in line with road speed andsteering angle. This brings clear safety benefitsfor the driver.

Headlights in the Audi A8 L 6.0 quattro with LED daytime driving lights

. . . Just like his A8. Indicating to pull out to overtake. Accelerating. Safely moving into the fast lane . . .

km 435.8

22 | 23

Technology

. . . Savouring success with all the senses. Every day anew. He’s now reached today’s destination.

km 467.8

Environment and Society

Total distance: 77.1 kmJourney time: 1:12 hoursVehicle: Audi A4 Avant


10.8 Freedom Artists’ quarter

35.9 Poise Motorway

53.5 Happiness Coastal road

69.8 Joie de vivre Avenue

77.1 Charm Club house On the move . . .

24 | 25

. . . in search of encounters. Discovering new worlds. Freedom every day. It’s there for the taking . . .

km 10.8

Responsibility for the environment

Efficient environmental managementEcological resources management is a declaredcorporate aim of Audi, occupying a prominentposition within its portfolio of corporate pro-cesses. Audi has participated voluntarily in the EU Eco-Management and Audit Scheme (EMAS)since 1995. Last year, external inspectors onceagain examined whether the Audi environmental

management system satisfies the rigorousrequirements of the European Community systemEMAS. This scheme goes further than merelydemanding compliance with all the relevant envi-ronmental regulations, and lays down furtherrequirements for efficient environmental manage-ment. Thanks to continuous improvements to its environmental protection measures, the AudiIngolstadt plant received confirmation of its suc-cessful participation in this extensive examinationfor the third time in 2003. As well as Ingolstadt,the Neckarsulm plant, AUDI HUNGARIA MOTORKft. in the Hungarian city of Györ and COSWORTHTECHNOLOGY LIMITED in Great Britain have been accredited in accordance with the EU Eco-Management and Audit Scheme.

Preserving resources by using district heatingProtecting the environment above all meansdeploying vital resources responsibly and usingalternative methods of energy generation. Beingconnected up to the district heating network ofthe Ingolstadt refuse incineration plant (MVA) isthe latest environmental project. A large portionof the heat generated by this plant had previouslygone to waste. As the MVA generates a constantamount of heat, it is not worthwhile supplying

Embracing responsibility: corporate culture at Audi

. . . Carefree moments. Relaxed. Unlimited independence. Poised. Between Heaven and Earth . . .

Saves time and energy: the “cold test” examines the loadability of TDI engines with the aid of anelectric motor

As a supplier of exclusive cars, Audi bears considerable responsibility for the environment and society.

In order to live up to its responsibilities, the company is constantly improving its efforts to protect

the environment – for example by using district heating and environmentally compatible methods

of testing engines. Audi’s social involvement likewise has a great many facets. School projects and

initiatives for young people are just some of the many activities in which it was involved in 2003.

km 35.9

private households with district heating duringthe summer months in view of their low con-sumption. Audi, on the other hand, uses heat all the year round, for example for technicalprocesses such as cavity sealing.

Since the start of 2004, the MVA has beensupplying an amount of up to 94,000 megawatt-hours of heat per year in the form of hot water.The water, which has a temperature of 125 degreesCelsius, flows to the Audi site under pressurealong 400 millimetre wide, highly insulated pipes.It is then fed into the company’s network. Thisarrangement enables Audi to cut its natural gasconsumption and consequently reduce carbondioxide emissions by up to 19,000 tonnes peryear.

Tapping new potentialAudi has significantly reduced its energy andwater consumption in recent years, as well as thelevels of waste generated. The company hastapped further potential for savings in the field ofenergy management by reducing its natural gasconsumption thanks to the use of district heating.The aim is to continue exploiting all possible waysof cutting consumption and to make sure that the relevant information is exchanged betweenall the departments concerned. To perform thisdemanding task, a circle of energy representa-tives and an energy team were established toidentify and implement further potential ways ofsaving.

Cold-testing avoids emissionsThe Hungarian subsidiary AUDI HUNGARIAMOTOR Kft. based in Györ likewise demonstratedlast year how ecological and economic advan-tages can go hand in hand. The “cold test”involves propelling engines exclusively by meansof an electric motor for purposes of load-testing.The four-cylinder TDI diesel engine completes themost important operational and leak tests within30 seconds. As no combustion process takesplace inside the engine – in contrast to a hot test– no fuel and coolant supply is necessary, and no emissions are generated.

The advantages of this approach are notmerely ecological: because it reduces the overalltime spent testing each engine from as much as nine minutes to just under two minutes, thenumber of test rigs and therefore the spacerequired can be substantially reduced. All in all,the method saves time and money, while yieldingsuperior results. The cold test at Györ is nowincorporated into the assembly process as a regu-lar series production process. Every single one ofthe 2,230 pump-injector diesel engines built eachday is cold-tested. Audi will gradually introducecold-testing for other engine families.

26 | 27


. . . The A4 takes them closer to happiness. Shows them the sea, the beach, waves for surfing . . .

km 53.5

Corporate citizenship

A tradition of responsible actionAs a major employer and an international-scalecompany, Audi bears considerable social respon-sibility. Audi has been living up to this respon-sibility for many years and is involved in a widevariety of areas. These include supporting facili-ties for the disabled and social organisations,organising benefit concerts and cultural events,and teaming up with universities or local initia-tives.

Audi supports projects for young peoplePromoting school projects and initiatives foryoung people is a particular priority for Audi,which was involved in a whole range of events lastyear: examples include the nationwide “Girls’ Day 2003” which has the purpose of encouraging

young women to choose careers in technical andscientific areas. A total of 500 school-age girlsvisited the two German plants on that day to gainan insight into the relevant occupations at Audi.

Audi promoting newspapers in schoolsAudi staged the projects “KLASSE!” and “ZiSch –Zeitung in der Schule” in conjunction with thelocal newspapers in Ingolstadt and Heilbronn.Around 7,000 pupils at all types of schools tookpart in the scheme in 2003. The aim of the pro-jects is to promote reading and writing skills.With the aid of specially created teaching materi-als, the pupils composed reports and articles,which were then published in the newspapers.Audi sponsored a newspaper subscription forevery class involved and offered pupils the oppor-tunity to participate in a wide range of events,including factory tours, environmental projectsand job application courses, which the pupilsthen reported on in their articles.

Schools Development Day in IngolstadtBoth Audi and schools are keen to promote ITskills as a key qualification of the future. For thisreason, Audi hosted a Schools Development Dayon the subject of information technology. Sec-ondary schools from the northern part of UpperBavaria and Audi trainees presented their ITprojects to 1,000 visitors and illustrated ways ofincorporating IT into lessons.

. . . Where is joie de vivre greater? When they reach their destination? Or on their way there? . . .

Dr. Neumann, Board Member for Human Resources,learns more about the IT projects on the SchoolsDevelopment Day

km 69.8

28 | 29


. . . Certain questions cannot be answered easily. Precisely this is what lends them their special charm.

km 77.1

Employees

Total distance: 32.8 kmJourney time: 0:28 hoursVehicle: Audi A3


2.3 Excitement Beach

14.8 Harmony Country road

22.5 Security Promenade

26.5 Expectation Avenue

32.8 Anticipation Viaduct Fountains of spray . . .

. . . Beads of water on the windows. Excitement from the rear. He smiles: the boys are having fun . . .

30 | 31

km 2.3

. . . The A3 glides along the country road. Sheer harmony. Inquisitive gazes scan the horizon . . .

km 14.8

Entrepreneurial ideas and actions

Decision-making in a teamThis is the motto of Christine Eberlein, Head ofSeries Production Modifications. “Motivatingemployees means involving them in decisions –that’s the only solution. Even when decisions withmajor repercussions have to be taken, I rely 100percent on my team, in which everyone has theirown area of responsibility.” Christine Eberlein’smanagement style symbolises the corporate

culture and fundamental outlook and approach of the entire Audi workforce. It signals the defini-tive break with the traditional form of labourorganisation, which consciously and concertedlyrestricts decision-making to as few people aspossible. Audi believes that entrepreneurial dedi-cation is a core aspect of the ongoing develop-ment of the individual and therefore of the entirecompany.

The objective: satisfied customersThe customer is always at the centre of success-ful enterprise. Entrepreneurial actions andattitudes are characterised first and foremost bycustomer centricity and the awareness of allemployees of quality and cost issues. But enter-prise also includes inventiveness, courage andthe willingness to make changes. These in turnare dependent on the employees having the nec-essary expertise, dedication and responsibility. The Board of Management would expressly like to thank the entire workforce and the employees’elected representatives for their personaldedication.

Christine Eberlein: “As their superior, I rely on theskills and commitment of my workers.”

Working at Audi means shaping the company

Entrepreneurial success is based on entrepreneurial actions. For the true spirit of enterprise to

function, employees – from trainee to top manager – need a high degree of freedom to influence

matters and make their own decisions. Those who work at Audi are actively involved in the

company’s success, which for many people provides the assurance of apprenticeships and jobs

with a secure future.

. . . The boy is asleep on the back seat. Next to him his teddy. Security that can be sensed . . .

32 | 33

Employees

km 22.5

ExpertiseAudi employs people with wide-ranging experi-ence and varied cultural backgrounds. One thingthat they all have in common is a high degree ofexpertise, in a broader sense than mere specialistskills. Extensive methodological and social skills are also among the qualities required ofAudi employees. These characteristics have beeninstrumental to Audi’s ascent to the status of a premium-segment manufacturer over the pastfew years.

DedicationAudi employees actively shape the company forwhich they work. The opportunity to suggestimprovements has long been a feature of Audi’scorporate culture. In the year 2003 a total of62,403 suggestions were submitted, resulting insavings of EUR 45.6 million.

ResponsibilityEach individual is in a position to improve Audi’scompetitive position and thereby safeguard their own job by demonstrating dedication andresponsibility. These qualities in addition pave theway for the creation of new jobs and apprentice-ships. By taking on responsibility, employees canalso reap financial rewards through profit-sharingand bonuses.

Qualification structure of blue-collar workers (AUDI AG)

Average in thousands

1999 2000 2001 2002 2003

30

20

10

10

Blue-collar workers 29.3 31.7 32.0 31.2 31.1

of which

skilled workers 18.9 20.9 21.2 20.9 21.1

Qualification structure of white-collar staff (AUDI AG)

Average in thousands

1999 2000 2001 2002 2003

19

16

13

10

White-collar staff 9.6 10.2 10.7 11.3 11.7

of which

university graduates 3.7 3.9 4.3 4.6 5.4

. . . Mountains in the morning light. Eager expectation. Heading for adventure. On the bridge . . .

km 26.5

Prospects for young people

Audi training campaignStefanie Russer and Michaela Heigl are appren-tices at Audi, in the areas of mechatronics andtool mechanics. “I always wanted to learn a tech-nical job,” remarks Michaela. “When I looked atwhat Audi were offering, I knew that was what I wanted to do.” There has been an ongoing train-ing campaign at Audi for the past three years, as part of the “Initiative for More Training”. 675young people, including 143 women, were able toembark on an outstanding, secure apprentice-ship in 17 different occupations in 2003. The totalnumber of apprentices has gradually risen tomore than 2,000 since the initiative was launched.

This has been made possible by the introductionof a new type of training model: by means ofoffset training times that are synchronised withAudi’s production shifts, maximum use can bemade of the training facilities and the apprenticescan be integrated efficiently into the productionprocedures.

Ways out of unemploymentParticularly in times of economic difficulty it isimportant to offer young people bright prospectsfor their working life. The Audi training campaignis therefore not limited just to school-leavers. Bylaunching the “AQuA” project (recruitment andtraining for the unemployed) in 2003, Audi aimsto re-integrate the unemployed back into theworld of work. The scheme, which runs for twoyears, is open to young persons with no typicaltraining in the car industry and who have beenunemployed for between three and twelvemonths. In partnership with the employmentoffice and the Chamber of Commerce, partici-pants can sit a Chamber of Commerce examina-tion in “Automobile Manufacturing” at the end of the period. This certificate then offers theprospect of a long-term employment contract at Audi and fulfils the requirement for a place atthe school of master craftsmen and for taking amaster craftsman’s diploma. 50 unemployed per-sons commenced the training measures, whichcomprise both theory and practicals, last June.The success rate to date has easily exceededexpectations and confirms both the participants’high level of motivation and the appeal of theprogramme.

Technology also appeals to women: more and moreyoung women are taking up technical apprentice-ships at Audi

34 | 35

Employees

. . . In anticipation of spending the day together. A day that is like no other. Satisfaction.

km 32.8

Market and Customer

Total distance: 20.2 kmJourney time: 0:19 hoursVehicle: Audi TT Roadster


10.0 Appeal Alpine road

12.8 Speed Mountain pass

13.9 Adrenaline Hairpin bend

14.5 Hot and cold Snowscape

16.1 Fulfilment High mountain road

18.7 Ideal line Bend

20.2 Pride High plateau

The lure for adventure . . .

. . . beyond the familiar. Appealing, desirable, alluring. There’s absolutely no reason to resist . . .

36 | 37

km 10.0

Market news

Audi in GermanyThe largest sales market for the Audi brand isGermany. Around one third of Audi vehicle sales in 2003 were in Germany. Despite declining salesAudi was able to maintain its market share of 7.4 percent at the previous year’s high level. Thenew Audi A3 has enjoyed an excellent sales startin Germany. Since its market launch in May 2003,this model has already clocked up sales of 40,456.

Partnership with Bayern Munich and Real MadridAs the automotive sponsor of the championship-winning teams Bayern Munich and Real Madrid,Audi was able to attract many football enthusiaststo its brand last year. The teams and managers of both clubs drive Audi cars. David Beckham,Real Madrid and England’s midfield star, likewisetook receipt of his Audi – an A4 Cabriolet – at thestart of November.

Audi worldwideThe proportion of Audi sales outside Germanyhas been steadily rising for a number of years. In 2003, exports accounted for 69.1 percent.Above all Austria, Great Britain, Italy and theNetherlands were burgeoning markets withinWestern Europe, which as a whole remained flat.Sales were likewise higher in the USA, Audi’slargest export market. The Audi A4 Cabriolet andthe new Audi A8 in particular were received very positively on the US market. The new A6 isexpected to provide a boost to growth in 2004.China advanced to third place in the export statis-tics, posting easily the steepest rate of growth.There was also a marked increase in sales inJapan. The Audi TT in particular is proving verypopular there.

David Beckham together with Dr. Martin Winterkornand Florentino Pérez, President of Real Madrid

Ten years of growth

Over the past ten years, Audi has established itself at the vanguard of the premium segment

through innovative technologies and multiple design awards. Record-breaking vehicle sales for the

tenth year in succession serve as both an endorsement and an encouragement. Our objective for

the future? To captivate customers every day anew with “Vorsprung durch Technik”.

. . . He loves glamorous backdrops. But they have to be cool. Step on the speed. Into the bends . . .

km 12.8

The success story of the new A8Within the space of one year, the new Audi A8 hascarved out a place for itself as the most sportymodel in the luxury class. Superlative interior com-fort and sporty dynamism are the defining char-acteristics of this luxury long-distance saloon.Since the market launch of the A8 in November2002, more than 21,600 units have been sold and a large number of engine and equipment itemsadded to the range. The Audi A8 will once againbe in the spotlight in the early part of 2004, whena 331 kW (450 bhp) twelve-cylinder engine and a3.0 TDI version will be launched.

38 | 39

Market and Customer

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

2003 percentage in 2003 in % centage change,

change overall market

Audi worldwide 769,893 3.7

Germany 237,786 – 2.4 7.4 – 0.5

USA 86,421 0.8 2.01 – 3.11

Great Britain 70,107 6.9 2.7 0.6

China (incl. Hong Kong) 63,531 71.5 2.8 69.6

Italy 51,341 2.5 2.2 – 2.5

Spain (incl. Canary Islands) 41,124 0.2 3.1 3.8

France 37,467 – 8.2 1.9 – 6.3

Belgium 19,228 – 2.6 4.4 – 1.9

Austria 16,933 7.8 5.5 7.4

Switzerland 15,097 – 12.2 5.9 – 8.3

Netherlands 14,268 7.7 2.4 – 4.3

Japan 13,137 12.8 5.41 – 4.91

Sweden 11,645 – 3.9 4.2 2.6

Brazil 8,387 – 21.4 0.7 – 4.1

Canada 7,861 8.6 0.9 – 7.4

Lamborghini worldwide 1,305 207.8

1 Foreign brands only

Audi A8 in ChinaThe new Audi A8 made its first appearance inChina to mark the opening of the first Audi Forumin Asia. Beijing is home to our ninth showcasefacility, alongside other major cities such as New York, Paris, London and Berlin. Visitors candiscover more about the Audi model range on a floor area of around 1,000 square metres. Thehighlight of the Forum is an exclusive A8 lounge.Audi aims to strengthen its position as the marketleader in China’s premium segment with theluxury saloon, the Audi A8.

. . . Frost swirls through the air. Adrenaline making your scalp tingle. Ice crystals on your skin . . .

km 13.9

China’s love affair with Audi

Market leader in the premium segment: a success with a precedentBuying their own car is the overriding dream ofmany Chinese. And most of them aspire notsimply to own just any make of car, but an Audi.Audi is the market leader in the premium seg-ment and the best-known car brand in China. Thissuccess story began 15 years ago when produc-tion of the Audi 100 commenced under licence.Today, Chinese customers are able to choose froma broad range of models from the Audi A4, whichis also available in the guise of the Cabriolet,through the Audi A6 and Audi A8, to the Audi TTCoupé and TT Roadster. Thanks to this broadselection, China has emerged as Audi’s third-largest export market within just a few years. Thetask is now to build on this position – a majorchallenge in a market that is experiencing a dy-namic rate of change. China’s car market isunfolding at fast-forward, undergoing a rapidtransformation that took many decades in certainother markets.

WTO membership stimulates growthThe sustained dynamism of the Chinese economyhas produced a string of record-breaking years.All indicators such as gross domestic product,foreign direct investment, currency reserves andexport and import volumes have posted growthrates way above the average for the global econ-omy. In particular, China’s membership of theWorld Trade Organisation has lent added momen-tum to this dynamic growth. Various major infra-

structure projects are for example in planning or under construction. These are intended tomeet growing demand for energy and water, andimprove the logistics situation.

Sales potential of five million vehiclesFirst-time vehicle registrations in China rose by69.6 percent to just under 2.3 million units in 2003.The car industry is now the undisputed drivingforce behind China’s economic development as a whole. The liberalisation of the car market,prompted by the country’s accession to the WTO,now means that all major international car manu-facturers have entered into partnerships withlocal Chinese companies. In spite of growingcompetition, the country’s as yet very low vehicledensity of around one vehicle per 100 inhabitantsharbours considerable potential for future growth.The gradual lifting of vehicle import restrictions

The Audi A6 has been built at Changchun since 1999,when it became the first luxury vehicle to be built in China

. . . Hot and cold. A gentle touch of the steering wheel. The car glides smoothly over the ice . . .

km 14.5

by 2006 and the 2008 Olympic Games in Beijingwill provide additional impetus. It is estimatedthat sales of passenger cars will reach around fivemillion by 2008. When all factors are taken intoaccount, the forecasts point towards rapid, stablegrowth for China for some years to come.

Saving up for their first carThe per capita income of the urban Chinese popu-lation rose year on year by nine percent in 2003.In absolute terms, levels of income are still rela-tively low compared with Western Europe: an em-ployee in Beijing, for example, earns an averageof USD 850 per month. Private savings totallingEUR 1.2 trillion are nevertheless the third-highestin the world. The Chinese rank buying their owncar as their third biggest priority, behind fundingtheir children’s education and buying their ownapartment.

Audi active in China since 1988When Audi forged initial contacts with Chinesecounterparts some 15 years ago, the project still appeared somewhat exotic. Although manyWestern entrepreneurs were aware of the size of the country and its population, there was awidespread belief that China was insufficientlyattractive as a sales market. With hindsight, thescope of what was initially agreed between Audiand the Chinese partner FAW (First AutomobileWorks) in Changchun (Northeast China) looksvery modest. The joint venture initially involvedbuilding four and five-cylinder Audi 100 modelsunder licence. The FAW-Volkswagen AutomotiveCompany, Ltd., a joint venture between FAW

and Volkswagen AG, was established in 1991.Audi entered the joint venture in 1995 as the third interested party, with a stake of ten percent.This signalled the end of Audi production underlicence and heralded in a new era of partnership.

Volume production from 1996Audi has been building cars in larger quantities at FAW-Volkswagen since 1996: between 1996 and 1999 it initially built the Audi 200, then along-wheelbase version of the Audi A6 designedspecifically for the Chinese market starting inSeptember 1999, followed by the Audi A4 in April2003 as its second locally-built car line. Produc-tion of the A4 and A6 models ensures that theavailable capacity at FAW-Volkswagen is utilisedto the full. To mark the 50th anniversary of itspartner FAW, the foundation stone for the exten-sion to FAW-Volkswagen was laid in July 2003.Within just a few years, this operation has madethe leap from low-volume licence production ofthe Audi 100 to large-scale production by amodern joint venture.

Over 250,000 cars built locallyOver a quarter of a million cars with the four-ringbadge had been built in China by the end of 2003.Vehicle sales – over 75 percent of which are toprivate customers – were up 71.5 percent on 2002 to 63,531. This total includes mainly Audi A4 and Audi A6 models, predominantly from localproduction as well as imported vehicles, such asthe Audi A8, 1,265 of which were sold in China in 2003. The dealer network now numbers 89 out-lets in 55 cities nationwide, and ranks as the

40 | 41

Market and Customer

. . . Dynamism cannot be held in check. Fulfilment begins when expectations become reality . . .

km 16.1

benchmark for the competition. Audi launcheda service quality campaign in summer 2003 inorder to build on this leading position. There arenow 62 Audi Service Mobiles – specially equippedvehicles providing a breakdown recovery andemergency service – helping to establish an evencloser service network in this vast country.

Rich diversity of cultures and languagesFor all the talk of globalisation, the principle stillholds true that all business is local. This meansthat it is vitally important to have a knowledgeand understanding of the culture of one’s coun-terpart. Regional traditions and particularitiesalso need to be taken into account. China is amultinational state with over 50 national minori-ties and tribes. They speak a total of more than 13 different languages and dialects. ThoughChina’s culture dates back more than 5,000 years,

it has a young population: 42 percent of the 1.3 billion Chinese are under 40, and the averageage is less than 32. The economic reforms ofMao’s successor Deng Xiaoping paved the wayfor China’s opening up to the West in 1978. Chinahas since emerged as a major economic forcethat is increasingly looking to play a role on theinternational stage.

Knowledge carves out an advantageAudi is now benefiting from 15 years of experi-ence in operating in China. Particularly the Audi A4 has proved to be the ideal product for thegrowing number of lifestyle customers. Audireinforced the brand’s status, especially amongyoung customer groups, by staging various majorevents in 2003. The most spectacular of thesewere an Audi cavalcade along the boulevard pastTiananmen Square, led by the multiple Le Manswinner Emanuele Pirro in the Audi R8, and RealMadrid’s match in Beijing sponsored by Audi.Events such as these are all part of that wealth ofexperience that will continue to give Audi a vitaladvantage in the Chinese car market of thefuture.

Emanuele Pirro, the multiple Le Mans winner, drivingthe Audi R8 past Tiananmen Square

. . . Rapid reactions. A quick spurt at just the right time. Finding the ideal line. Ambitions . . .

km 18.7

42 | 43

Market and Customer

. . . Calculation. Courage. He pauses out of sheer pride. His pulse is racing. Above him, only the sky.

km 20.2

Successful financial year for Audi HungariaIn the year that it celebrated its tenth anniversary,AUDI HUNGARIA MOTOR Kft., based in Györ, Hungary,was able to repeat the successful business perfor-mance of past years in 2003. The financial year saw afurther rise in production and significant capitalinvestments in the engine production facilities. Thepurpose of the investment campaign was to add new engines featuring pioneering technology to theproduct range. During the year under review, AUDIHUNGARIA MOTOR Kft. also focused on preparing allcorporate divisions for Hungary’s forthcomingaccession to the European Union.

AUDI HUNGARIA MOTOR Kft. built a total of1,334,985 (1,280,067) engines. This represents anincrease of 4.3 percent on 2002. Of this total,1,048,128 (986,423) were four-cylinder engines,238,387 (279,555) six-cylinder engines and 48,470(14,089) eight-cylinder engines. The marked rise indemand for the high-performance 4.2-litre, eight-cylinder engines and the economical four-cylinderpump-injector engines was notable.

The engines built in Györ are distributed toVolkswagen Group production plants worldwide.There they are fitted in various models of theVolkswagen, Audi, SEAT and Škoda brands.

Production of the Audi TT showed a slight down-turn, reflecting the advanced stage of its product life-cycle, from 34,711 in the previous year to 32,337.This total comprised 20,807 (21,488) of the Audi TTCoupé and 11,530 (13,223) of the Audi TT Roadster.

The launching of the new 3.2-litre, six-cylinder enginefor the TT family, combined with the innovative DirectShift Gearbox DSG, should help to stabilise salesfigures at a high level in 2004.

Following the successful market launch of the new Audi A3 in the spring of 2003, 1,616 of theprevious Audi A3 model (18,895) were built on behalfof AUDI AG at AUDI HUNGARIA MOTOR Kft.

Investments in property, plant and equipmentincluding intangible assets totalled EUR 319 (253)million in the year under review. The purpose of thisspending was principally to boost production capac-ity, broaden the product range and further expand the plant infrastructure.

The V6 engine production line, where productionof the new generation of V6 engines (3.2-litre FSI and3.0-litre TDI) has started, accounted for the bulk of

Group Companies

AUDI Aktiengesellschaft

AUDI HUNGARIAMOTOR Kft.

COSWORTHTECHNOLOGY LIMITED 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 1999 2000 2001 2002 2003

1,200

900

600

300

0

1,002 1,061 1,220 1,280 1,335

capital investment spending. Meanwhile the AUDIHUNGARIA MOTOR Kft. product range of four-cylinderversions was extended by the advent of the newgeneration of 2.0-litre FSI turbo engines.

AUDI HUNGARIA MOTOR Kft. was able to boost itsrevenue by 4.8 percent to EUR 3,726 (3,557) million in2003. It employed an average of 4,939 (4,767) peoplein the year under review.

Cosworth Technology boosts revenueCOSWORTH TECHNOLOGY LIMITED, which has itsheadquarters in Northampton, Great Britain, providesa full range of services for the development, pro-duction and diagnosis of engines and is thus able tohighlight its expertise as a one-stop partner forengine concepts.

Projects for new engine concepts for various vehi-cle manufacturers, encompassing everything from theinitial draft to acceptance testing of the prototypes,were successfully completed at the developmentcentre in Northampton.

The foundry at Worcester, which operates usingCOSWORTH TECHNOLOGY LIMITED’s patented alu-minium casting technique, specialises in casting coreengine components – cylinder heads and engineblocks – of a very high quality standard. By systemati-cally improving its production systems, the companyhas steadily increased its productivity. CosworthTechnology is manufacturing a new, highly sophisti-cated product requiring precision casting in the guiseof the cylinder head for the V10 Lamborghini engine.

The production and assembly plant at Welling-borough includes engine assembly and commission-ing operations, as well as the machining of enginecomponents. 4,844 engines for the Audi RS 6 werebuilt in 2003. In total, 6,541 (3,979) complete engineswere built in the year under review. This represents an increase of 64.4 percent. Cosworth Technologyreached an important landmark in the process of further diversifying its business activities by alsoconcluding a long-term supply agreement for themachining of industrial engines.

The electronic developments of the subsidiaryCOSWORTH TECHNOLOGY, INC., based in Novi, USA,raised the company’s profile on the American marketas an expert partner for vehicle information anddiagnostic systems. Cosworth Technology extendedits business area to Europe through new orders forthe installation of electronic diagnostic systems.

In spite of the difficult market conditions for foundry products and engineering services,COSWORTH TECHNOLOGY LIMITED was able to improve its revenue situation and boost revenue to EUR 162 (130) million.

The workforce of COSWORTH TECHNOLOGYLIMITED averaged 813 (786) employees over the year.

Sales record for LamborghiniAutomobili Lamborghini celebrated 40 years of sports car manufacturing in 2003. The company,based in Sant’Agata Bolognese and founded in 1963by Ferruccio Lamborghini, ended its anniversary yearwith a new production and sales record.

To mark its fortieth birthday, Lamborghini launcheda limited edition of the super sports car Murciélago.This special model, of which only 50 specimens werebuilt, is distinguished from the production model byits paint finish in the exclusive colour “Artemis Green”and by modifications to the interior equipment andoutward appearance.

The market launch of the new Gallardo model wasa further highlight of the financial year. Lamborghini’ssecond car line alongside the Murciélago put in itsmaiden appearance at the Geneva Motor Show in theearly part of the year. The Gallardo sets new stan-dards in its segment as a high-performance sportscar that is suitable for everyday driving. It is poweredby a newly designed ten-cylinder engine with adisplacement of five litres and an output of 368 kW(500 bhp), four-wheel drive and an aluminium body.With its extreme, uncompromising and above allutterly Italian character, the Gallardo lends furthersubstance to Lamborghini’s brand presence.

In the period under review, Lamborghini investedabove all in the new production line for the Gallardoand in a building that will house the service, vehiclerestoration and design departments from early 2004.Investment spending in the 2003 financial yeartotalled EUR 63 (88) million.

44 | 45

Production by Automobili Lamborghini S.p.A.reached a new record level in 2003. A total of 1,357(442) vehicles sporting the brand emblem with thebull were built, comprising 424 of the Murciélago and933 of the Gallardo. The production volume wasconsequently three times that of the previous year.

Lamborghini also enjoyed a sharp rise in vehicle salesof almost 208 percent. A total of 1,305 (424) sportscars, comprising 415 of the Murciélago and 890 of theGallardo, were shipped to customers worldwide. Themost important market was the USA, accounting for around 35 percent of sales, followed by Germanyon 20 percent, Great Britain on 12 percent andSwitzerland and Japan each on ten percent.

Thanks to the new model, the revenue of theLamborghini Group rose to around EUR 200 (93) mil-lion in the 2003 financial year. The average numberof employees rose to 685 (567) as a result of theincreased production output.

AUTOGERMA S.p.A. affected by market conditionsAUTOGERMA S.p.A., based in Verona, is the Italiangeneral importer for the brands of the VolkswagenGroup and has been a subsidiary of LamborghiniHolding S.p.A. since 2000. The company’s businessprogress last year remained subdued as a result of the protracted difficult market situation in Italy. Asin the previous year, the car market as a whole con-tracted in 2003 and there were only just under 2.3 mil-lion cars registered as new, representing a downturnof about 2.5 percent.

Autogerma recorded sales of 283,934 (303,086)vehicles in the 2003 financial year. This producedrevenue of EUR 4,480 (4,807) million, a shortfall of 6.8 percent on the previous year.

Sales of vehicles of the Audi and SEAT brandsposted slight growth. Sales of Audi vehicles totalled51,341 (50,107). 41,057 (40,201) customers tookreceipt of a new SEAT. Sales of the Škoda brandremained flat at 23,061 (23,051) vehicles. The with-drawal of the previous Golf model and the launch of its successor on the Italian market in Novemberhad an adverse effect on sales of Volkswagen passen-ger cars. As a result of the changeover, car sales ofthe Volkswagen brand fell to 163,193 (183,626) units.The sales total for Volkswagen Commercial Vehicleswas likewise down on the previous year at 5,282(6,101) units as a result of the changeover to the newTransporter.

Important events in 2003 included the marketlaunch of new models, the Audi A3 in May and the VW Golf in November, both of which were exception-ally well received by the public. To improve standardsof customer service, Autogerma set up a call centrefor Italian customers of all Volkswagen Group brandsat the start of the year.

Autogerma employed an average of 712 (695) per-sons throughout the year.

AUTOGERMA S.p.A. vehicle sales

2003 2002

� Volkswagen Passenger Cars 163,193 183,626

� Audi 51,341 50,107

� SEAT 41,057 40,201

� Škoda 23,061 23,051

� VW Commercial Vehicles 5,282 6,101

1.9%8.1%

14.5%

18.0% 57.5%

Automobili Lamborghini S.p.A. vehicle production

Vehicles 1999 2000 2001 2002 2003

1,200

900

600

300

0

252 291 280 442 1,357

quattro GmbH further expands business activitiesThe core competence of quattro GmbH involvescustomising Audi vehicles with sporty and exclusiveequipment. In this way, quattro GmbH helps to infusethe Audi brand with even greater passion and distinc-tive appeal. quattro GmbH, which was established in1983, has had four business areas since its reorgani-sation in 1998: RS models, S line, Audi exclusive and Audi design lifestyle articles. It consequently hasan extensive product range that is sold all over theworld.

The Audi RS 6, which was launched in summer2002 in Germany, successfully carved out a niche foritself as a high-performance vehicle in all majormarkets, particularly the USA, in the 2003 financialyear. Its international sales success and the positivemarket reception underline the important role of theRS models in enhancing the sporty positioning of the Audi brand. A total of around 7,000 of the RS 6were sold worldwide between its launch in June 2002and the end of 2003.

quattro GmbH made further headway with extend-ing the range of S line products. S line packages arenow available in various forms for virtually all Audimodels. In particular as a result of the launch of S lineexterior packages for the Audi A4 and Audi TT, quattroGmbH has responded to increasing customer demandfor equipment that provides an additional sportyaccent. This product line again enjoyed substantialgrowth rates in the 2003 financial year.

Office packages round off the range of quattroGmbH custom equipment for the Audi A8 that is soldas the Audi exclusive product line. These exclusivecommunication and infotainment systems enable the Audi brand to target new customer groups andprovide enduring evidence of the core competence“Vorsprung durch Technik”. Audi exclusive alsoincludes interesting features with which all othermodel series can be customised. The Audi exclusiveproduct line emphasises the Audi brand’s ambitionsas a premium supplier.

Within the field of Audi design lifestyle articles,quattro GmbH was given responsibility for productdesign and marketing for the entire Audi brand group.The various brand profiles are being further raisedand their market presence reinforced through the suc-cessful positioning of new, exclusive lifestyle articles.

quattro GmbH was able to step up its businessactivities quite substantially in 2003, boosting revenueyear-on-year by around 83 percent to EUR 201 (110)million. Sales of the RS 6 accounted for a sizeableportion of this total.

New consolidated companiesThe portfolio of companies consolidated under theumbrella of the Audi Group was enlarged in the 2003financial year. New additions in Germany were AudiSynko GmbH, Audi VertriebsbetreuungsgesellschaftmbH and Audi Zentrum Hannover GmbH. Thebusiness purpose of Audi Synko is to invest in Audidealerships in strategically important locations. Thetasks of Audi Vertriebsbetreuungsgesellschaft involveproviding dealer support for the Audi sales organisa-tion in Germany, including all sales, service andmarketing functions, as well as customer care for theGerman market. Audi Zentrum Hannover is an Audidealer and service operation.

Among foreign subsidiaries, Audi Australia Pty.Ltd., Homebush Bay (Australia) and Audi Japan K.K.,Tokyo (Japan) were fully consolidated for the firsttime. Audi Australia is the Australian general importerfor Audi vehicles. Audi Japan is responsible for themanagement of Audi sales operations in Japan.

The companies FAW-Volkswagen AutomotiveCompany, Ltd., Changchun (China) and YANASE AudiSales Company Ltd., Tokyo (Japan) were consolidatedfor the first time at equity in 2003, in other words onthe basis of the pro rata equity held in these compa-nies. FAW-Volkswagen Automotive Company, Ltd.manufactures Audi vehicles in China and is responsi-ble for selling them. YANASE Audi Sales Company Ltd.– a joint venture between Audi Japan K.K. and Yanase Co. Ltd. – operates the dealer network forAudi vehicles in Japan.

46 | 47

Group Companies

German Corporate Governance CodeThe German Corporate Governance Code containsimportant regulations on the management and super-vision of German listed companies, in accordancewith internationally recognised standards of soundand responsible corporate management. The purposeof the Code is consequently to promote the confi-dence of international and domestic investors, cus-tomers, employees and the general public in thecorporate management of German listed companies.

Pursuant to Section 161 of German Stock Corpora-tion Law, the Board of Management and SupervisoryBoard must declare each year to what extent the com-pany complies with or departs from the recommenda-tions of the German Corporate Governance Code.

Code extendedFollowing the introduction of the Code in 2002, aninitial amendment was made in 2003. The new recom-mendations centre on the transparency of the Boardof Management’s remuneration. The relevant section(4.2) of the Code has been extended by the incorpora-tion of the recommendations “Individualised disclo-sure of Management and Supervisory Board remuner-ation”, “Ceiling for share options”, “Disclosure of thevalue of share options”, “Publication of the system ofremuneration on the Internet” and “Information forthe Annual General Meeting on the system of remu-neration”.

Implementation of recommendationsThe Board of Management and Supervisory Board ofAUDI AG considered the Code’s regulations in detailin 2003.

The initial declaration submitted by the Board ofManagement and Supervisory Board of AUDI AG onDecember 9, 2002 regarding the Code in the versiondated November 7, 2002 contained a qualificationwith regard to Section 5.4.5 Para. 1 Sentence 3, to theeffect that the Board of Management and SupervisoryBoard were to await the next Annual General Meetingon May 14, 2003 for proposing an amendment to the Articles of Incorporation on the regulation onremuneration for the chair and members of Super-visory Board committees.

On December 9, 2003 the Board of Managementand Supervisory Board of AUDI AG declared that theaforementioned qualification had been renderedunnecessary by the resolution of the Annual GeneralMeeting.

They moreover declared that the version of theCode dated May 21, 2003 is complied with. However,the restriction applies that AUDI AG will not disclosethe remuneration of members of the Board of Man-agement (Section 4.2.4 Sentence 2) or the remunera-tion of members of the Supervisory Board (Section5.4.5. Para. 3 Sentence 1) individually, in order not toinfringe privacy rights.

The following qualifications moreover apply to thesuggestions made in the Code:

The Annual General Meeting will not be broadcaston the Internet (Section 2.3.4.) in order not to infringethe individual shareholder’s right to privacy.

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

The Code’s suggestion of taking long-term perfor-mance into consideration in the Supervisory Board’sremuneration (Section 5.4.5 Para. 2 Sentence 2 ofCode) and taking one-off variable components tied tobusiness success into consideration in the Board ofManagement’s remuneration (Section 4.2.3 Sentence 2of Code) is currently being openly discussed in depthin specialist quarters. Instead of this suggestionbeing implemented now by AUDI AG, the outcome ofthe discussion is to be awaited before a final decisionis reached.

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(www.audi.com/cgk-declaration) on December 11,2003.

Corporate Governance

Stock market developmentsDevelopments on international stock markets weredominated by the escalating conflict in Iraq at thestart of 2003. Uncertainty as to its outcome and theresulting consequences prompted many investors to shift the emphasis of their investment activitiestowards classic fixed-interest forms of investment.This undermined the general share price level, whichreached its lowest ebb in March when a numberof indices recorded their year-lows. The rapid end tothe political tensions in April heralded in an initialrecovery on stock markets which held up in thesecond half of the year and was further underpinnedby the brighter economic prospects.

The German Share Index (DAX) initially suffered a downward trend from January. From opening at 2,898.68 points on January 2, 2003 the index fell to a low of 2,188.75 points in mid-March. The tide thenturned in the second quarter. The DAX climbedsteadily until the end of the year, reaching 3,965.16points at the end of December. The Prime Automobile,the sector index for German automotive shares,experienced a similar pattern of development. Thisindex fell from 284.07 points at the start of the year to210.42 points in March, then recovered to a year-highof 356.77 points in September. The index closed theyear on 350.96 points.

Development of Audi sharesAudi shares started the year on EUR 192, thenessentially remained within a corridor of EUR 205 toEUR 235 up until September. After briefly touchingEUR 271 in the fourth quarter, Audi shares finishedthe year on EUR 225.

Profit transfer and compensatory payment forshareholdersVolkswagen AG controls around 99 percent of theshare capital of AUDI AG. On the basis of the controland profit transfer agreement between AUDI AG andVolkswagen AG, the outside shareholders receive a compensatory payment instead of a dividend. Thecompensatory payment is equivalent to the dividendpaid on one Volkswagen AG ordinary share for thesame financial year. The level of this dividend for the2003 financial year will be determined by the AnnualGeneral Meeting of Volkswagen AG on April 22, 2004.

48 | 49

Audi Shares

Audi share price trend

EUR

300

250

200

150

100

50

0

1999 2000 2001 2002 2003

Highest Year-end price Lowest

Audi share price (Munich Stock Exchange)

International Securities Identification Number (ISIN):

DE0006757008, German Securities Identification Number

(WKN): 675700

EUR 2003 2002

Highest 294.90 318.00

Lowest 192.00 145.00

Year-end price 225.00 191.00

Ratios per Audi share

EUR 2003 2002

Net profit 18.91 17.94

Cash flow from

operating activities 68.01 58.201

Equity 131.59 114.88

1 The value per share has been adjusted due to the new method of reporting cash flow from operating activities from 2003

General economy and the sector

Global economic situationIn 2003 the global economy recovered more slowlythan initially expected. It was not until the second halfof the year that the economic situation picked up,aided by appropriate monetary and fiscal policies. Themain driving forces behind this development were the US and Japanese economies. China has likewisecontributed towards this economic recovery in recentyears, with growth rates regularly in the order of eightpercent. Stock markets made a vigorous recovery inthe second half of the year and increased expecta-tions of an economic upturn by rising in some casesquite considerably.

The economy in North America was already show-ing signs of a recovery in the second quarter. In theUSA, both the aggressive low-interest policy of recentyears and the agenda of extensive tax cuts and sub-sidies have stimulated private consumption.

In Western Europe, any progress was at best falter-ing in the first six months of the year. Initial positivesigns emerged in the second half of the year in West-ern Europe, stimulated by the gradual recovery of theglobal economy. After more than three years of stag-nation, the German economy likewise exhibited thefirst signs of a revival towards the end of last year.According to the Ifo business barometer of December2003, the companies surveyed predicted that thedomestic economy will pick up in the next six months.Positive developments were fuelled above all by for-eign demand. Eastern European countries, principallythose about to accede to the EU, once again demon-strated the stability of their general economic devel-opment.

In Latin America, the economy further deterioratedsomewhat last year. The trend towards economicstabilisation was undermined above all by protractedhigh unemployment and the political instability ofcertain countries.

Although the Asian economy was held back untilmid-way through the year by the rapid spread of the respiratory disease SARS, the economy in mostcountries recovered in the second half of the year.China was once again the driving force behind growthin the Asian region in 2003.

International car marketAgainst the backdrop of only a slow economic recov-ery, car sales worldwide remained on a par with theprevious year in 2003.

In Western Europe, 14.2 million vehicles were sold,approximately 1.3 percent fewer than in the previousyear. The sharpest downturn was in France, wheresales fell by 6.3 percent. Spain and Great Britain suc-cessfully bucked the trend. Whereas the number ofvehicles registered as new in Spain rose by 3.8 per-cent, sales in Great Britain remained at the previousyear’s high level.

The positive economic development in EasternEurope was also reflected by an increase in first-timeregistrations of 6.4 percent, to around 2.2 millionpassenger cars.

The market for new vehicles in the USA once again shrank. The figure of 7.6 million passenger carsregistered as new was around 6.1 percent down onthe prior-year total. Despite the slight drop in sales of2.0 percent, German manufacturers were able toincrease their market share to 10.5 percent.

Brazil, the largest car market in Latin America,experienced a downturn of 3.6 percent last year.Argentina was an exception in this region: following asharp slump in sales in previous years, registrationsof new cars virtually doubled last year.

Car sales in the Asia-Pacific region once againbenefited from growth in China. With new car salestotalling 10.0 million units, 11.1 percent more newvehicles were sold in the Asia-Pacific region than inthe previous year. First-time registrations in Japanremained at the previous year’s level.

Management Report of the Audi Group

Development of major car markets

First-time registrations

Million vehicles 2003 2002

USA1 7.6 8.1

Western Europe 14.2 14.4

Germany 3.2 3.3

1 excluding SUV

The German car marketThe German car market fell marginally short of theprevious year’s performance, with 3.2 million carsregistered as new in 2003.

Whereas demand for foreign models rose by3.8 percent to 1.1 million vehicles mainly thanks tothe much broader range of diesel models on themarket, demand for German-built cars was down.

The diesel share of newly registered cars rose by afurther 1.9 percentage points last year, to 39.9 per-cent.

Domestic passenger-car production was at theprevious year’s level of 5.1 million vehicles.

Situation of the company

Good production performanceIn spite of the tight situation in the car sector, theAudi Group yet again boosted passenger-car produc-tion in the year under review by 3.5 percent to 760,225(735,471) Audi vehicles and 1,357 (442) Lamborghinivehicles. High demand for the A6 in the Chinesemarket meant that production of completely knockeddown (CKD) Audi vehicles enjoyed the highest year-on-year percentage growth, rising by 76.8 percent to55,584 (31,440) units.

50 | 51

Production of the new Audi A3 in particular lay behindthe rise in production output by the Ingolstadt plantto 476,964 (435,718) vehicles. As well as the Audi A3,the Audi A4 saloon and the Audi A4 Avant are built atIngolstadt. 220,023 (225,442) of the Audi A2, Audi A6,Audi RS 6, Audi allroad quattro and Audi A8 left theproduction lines in Neckarsulm.

The Hungarian subsidiary AUDI HUNGARIAMOTOR Kft. produced a total of 33,953 (53,606) vehi-cles. As well as completing 32,337 (34,711) of the Audi TT Coupé and Audi TT Roadster, 1,616 (18,895) ofthe previous Audi A3 model were assembled in Györ.

Wilhelm Karmann GmbH in Rheine manufactured a total of 29,285 (20,705) of the Audi A4 Cabriolet on behalf of AUDI AG during the year under review.

Around one quarter of all Audi vehicles wereequipped with quattro permanent four-wheel drive(187,908 vehicles).

The proportion of diesel-engined vehicles was onlyslightly down on the previous year’s level; the figureof 46.0 (46.3) percent reflects the overwhelmingsuccess of Audi diesel technology.

Automobili Lamborghini S.p.A. introduced a sec-ond car line, the Gallardo, alongside the Murciélagothat has been on the market since 2002. Overallproduction rose to 1,357 vehicles, including 933 of the Gallardo.

Engine production within the Audi Group was up4.5 percent in the past financial year, to 1,342,883(1,284,488) units.

Production of vehicles

2003 2002

Audi A2 27,323 37,578

Audi A3 151,117 115,051

Audi A4 327,463 339,562

Audi A4 Cabriolet 29,285 20,705

Audi A6 148,477 154,872

Audi RS 6 4,841 2,052

Audi allroad quattro 17,634 19,998

Audi A8 21,748 10,942

Audi TT Coupé 20,807 21,488

Audi TT Roadster 11,530 13,223

Total, Audi brand 760,225 735,471

Lamborghini Murciélago 424 442

Lamborghini Gallardo 933 –

Total, Lamborghini brand 1,357 442

Total, Group 761,582 735,913

Diesel share of Audi engine production

% 2000 2001 2002 2003

50

40

30

20

40.1 44.2 46.3 46.0

The largest engine manufacturer within the Audi Group, AUDI HUNGARIA MOTOR Kft., built a totalof 1,334,985 (1,280,067) four-, six- and eight-cylinderengines. Engine production by COSWORTHTECHNOLOGY LIMITED was stepped up substantiallyto 6,541 (3,979) engines, in particular as a result ofhigh demand for RS 6 engines.

Further slight rise in vehicle salesDespite recessive car markets, the Audi Group postedan increase in vehicle sales for the tenth year in suc-cession. A total of 1,003,791 (995,531) vehicles weresold. Sales of Audi brand models flourished, rising by3.7 percent to 769,893 (742,128) entirely against thegeneral trend.

The Italian subsidiary AUTOGERMA S.p.A. sold 232,593(252,979) vehicles of the SEAT, Škoda, VolkswagenPassenger Car and Volkswagen Commercial Vehiclebrands. Sales by the Italian sports car manufacturerLamborghini rose sharply to 1,305 (424) vehicles.

Model launches and vehicle studies in 2003The sporty S4 saloon and S4 Avant versions of the A4car line were launched in April 2003. Both models are powered by a high-torque V8 engine developing253 kW (344 bhp). The Audi allroad quattro has beenavailable with a 4.2-litre V8 engine since the secondquarter of the year.

The launch of the new three-door Audi A3, one of the mainstays of the Audi Group’s sales volume,followed in May. Shortly afterwards, the Audi A8became available with long wheelbase, as well as a4.0-litre V8 TDI engine. An attractive 3.2-litre V6 engineversion of the Audi TT with optional Direct ShiftGearbox DSG for both the Coupé and the Roadsterhas been on the market since August. An even moredynamic version of the Audi A2 featuring a new dieselengine with an output of 66 kW (90 bhp) has beenavailable since November.

Interesting studies providing a glimpse of the Audi brand’s sporting ambitions were once againpresented to the public in 2003.

The “Audi Pikes Peak quattro” study was exhibitedat the Detroit Auto Show at the start of the year. Thisblend of a saloon, estate car and sporty all-terrainvehicle will go into series production at the end of2005. A short time later, Audi presented its vision ofan elegant, high-performance Gran Turismo in theguise of the “Audi Nuvolari quattro” concept study atthe Geneva Motor Show. A further highlight, the “Audi Le Mans quattro”, made its public debut at theFrankfurt Motor Show in September; this is a supersports car with a five-litre, V10 FSI biturbo enginedeveloping 449 kW (610 bhp).

Annual average number of employeesThe growth of the Audi Group in the past financialyear was accompanied by a rise in the averagenumber of employees throughout the year by 1,491employees, to 52,689.

AUDI AG employed 44,728 (44,260) persons. Thebreakdown of the employee total for the individualplants and subsidiaries of the Audi Group is indicatedin the table. The importers in Japan and Australiawere fully consolidated for the first time in 2003. Audi Japan K.K. employed 58 persons. The averageemployee total at Audi Australia Pty. Ltd. was 37.

Vehicle sales

2003 2002

Audi A2 28,547 40,142

Audi A3 151,536 126,665

Audi A4 328,727 339,153

Audi A4 Cabriolet 32,079 13,174

Audi A6 153,405 156,039

Audi RS 6 4,841 2,052

Audi allroad quattro 18,621 18,944

Audi A8 19,621 10,204

Audi TT Coupé 20,218 21,845

Audi TT Roadster 12,298 13,910

Total, Audi brand 769,893 742,128

Lamborghini Murciélago 415 424

Lamborghini Gallardo 890 –

Total, Lamborghini brand 1,305 424

Other Volkswagen

Group brands 232,593 252,979

Total, Group 1,003,791 995,531

Research and developmentResearch and development spending by the AudiGroup totalled EUR 1,257 (1,335) million in the 2003financial year. An amount of EUR 636 (834) million of this total was capitalised. Including depreciation of capitalised development costs amounting to EUR 476 million, research and development costsamounted to EUR 1,096 (900) million.

Changes in company managementWith effect from January 1, 2003, Rupert Stadler wasappointed to the Board of Management, initially asmember without portfolio. He took charge of the“Finance and Organisation” Division with effect fromApril 1, 2003. He took over in this capacity from PeterAbele, who retired on March 31, 2003.

Dr. Werner Mischke was appointed Chairman ofthe Board of Directors of Automobili LamborghiniS.p.A. and Chairman of the Advisory Board of quattroGmbH with effect from January 1, 2003. Dr. Mischkeleft the Board of Management of AUDI AG with effectfrom April 30, 2003.

Ralph Weyler was appointed to succeed Dr. GeorgFlandorfer as Board Member with responsibilityfor “Marketing and Sales” with effect from October 1,2003. Dr. Flandorfer has assumed new duties withinVolkswagen AG.

Investments

AUDI HUNGARIA MOTOR Kft. AUDI HUNGARIA MOTOR Kft., based in Györ, Hungary,specialises in the development and production ofmotor vehicle engines and components. Both theAudi TT Roadster and the Audi TT Coupé are in addi-tion built at the Hungarian plant. Following the launchof the current A3 model in May 2003, contract produc-tion of the previous Audi A3 model was halted. All A3and S3 models have since been built at the Ingolstadtplant. In the area of engine production, volume pro-duction of the new 4.0-litre V8 TDI engine used in theAudi A8 commenced during the past financial year.The two-litre pump-injector version with an output of103 kW (140 bhp) was in addition added to the pro-duction range of four-cylinder TDI engines.

COSWORTH TECHNOLOGY LIMITED Cosworth Technology has three divisions at threelocations in Great Britain and one in the USA. Theheadquarters at Northampton provide all servicesassociated with the development of engines. High-performance engines are manufactured and enginecomponents machined at Wellingborough. Thefoundry in Worcester specialises in the production ofhigh-grade aluminium engine components.

Cosworth Technology, Inc. based in Novi, USA,supplies modern vehicle information and diagnosticsystems as well as the classic engine developmentservices.

Lamborghini GroupAs well as the sports car manufacturer AutomobiliLamborghini S.p.A., the Lamborghini Group, consoli-dated under Automobili Lamborghini Holding S.p.A.,includes the power boat engines manufacturerMotori Marini Lamborghini S.p.A. and LamborghiniArtiMarca S.p.A., which sells Lamborghini accessoriesand exclusive merchandise.

In addition to building the Lamborghini Murciélago,production of the new Lamborghini Gallardo com-menced at Automobili Lamborghini S.p.A. during thepast financial year.

52 | 53


Employees within the Audi Group

(annual average)

2003 2002

Ingolstadt plant 31,087 30,628

Neckarsulm plant 13,641 13,632

AUDI HUNGARIA MOTOR Kft. 4,939 4,767

COSWORTH TECHNOLOGY LIMITED 813 786

Lamborghini Group 685 567

AUTOGERMA S.p.A. 712 695

Other 812 123

AUTOGERMA S.p.A.AUTOGERMA S.p.A., a fully owned subsidiary ofAutomobili Lamborghini Holding S.p.A. based inVerona, Italy, is the general importer of vehicles of theAudi, SEAT, Škoda, Volkswagen Commercial Vehicleand Volkswagen Passenger Car brands. Against thebackdrop of a contracting overall market in Italy, salesby Autogerma were likewise down 6.3 percent on theprevious year.

quattro GmbHquattro GmbH, of Neckarsulm, complements the Audi brand’s range of vehicles by supplying sportyhigh-performance cars. Demand for the Audi RS 6,which had been launched in 2002, easily outstrippedexpectations with sales totalling 4,841 (2,052) units.Both the saloon and Avant versions have a 4.2-litre V8engine developing 331 kW (450 bhp), and combineuncompromising sports appeal with the comfort ofthe Audi A6 car line. Through its “S line” businessarea, quattro GmbH is enjoying considerable successwith its wide range of sports packages supplied ex works for virtually all vehicles in the current Audimodel range. quattro GmbH is responding toincreasing demand for customised cars via its “Audiexclusive” equipment range. The company’s portfolio of activities is rounded off by an extensive selectionof exclusive Audi lifestyle accessories.

Newly consolidated companiesThe portfolio of companies consolidated under theumbrella of the Audi Group once again grew in the2003 financial year. In Germany, Audi Synko GmbH, acompany which has the objective of investing in Audidealerships in strategically important locations, andAudi Zentrum Hannover GmbH were fully consoli-dated. Audi Vertriebsbetreuungsgesellschaft mbH,which is likewise fully consolidated, concentrates onproviding support, consultancy and training for theretail companies in the Audi sales organisation inGermany, including all dealer, sales, service and mar-keting functions.

In the Asia-Pacific region, Audi Japan K.K., a com-pany which has the responsibility of managing salesoperations in Japan, and Audi Australia Pty. Ltd., the Australian importer for Audi vehicles and parts,are now also fully consolidated.

FAW-Volkswagen Automotive Company, Ltd. and YANASE Audi Sales Company Ltd. have beenconsolidated at equity since 2003. As a successfulpremium-standard supplier to the Chinese market, FAW-Volkswagen Automotive has been the localmanufacturer of the A6 since 1999 and the A4 since April 2003. YANASE Audi Sales Company wasestablished in December 2002 as a joint venture ofAudi Japan K.K. and Yanase Co. Ltd. with the purposeof selling Audi vehicles and parts in Japan.

Profit transfer agreementsThe Annual General Meeting of AUDI AG ratified profittransfer agreements with Audi Electronics VentureGmbH, Audi Synko GmbH, Audi Vertriebsbetreuungs-gesellschaft mbH, AUTO UNION GmbH and NSUGmbH on May 14, 2003.

Financial performance

Renewed rise in revenueIn spite of the sluggish recovery in the global econ-omy, the Audi Group was able to post improvedvehicle sales in the 2003 financial year in virtually allregions, thus going against the general trend.Revenue totalling EUR 23,406 (22,603) million conse-quently showed an improvement of 3.6 percent on the previous year’s figure.

Sales of Audi vehicles contributed the lion’s share.Revenue from the sale of Audi models rose overall by 2.6 percent to EUR 17,139 (16,706) million, thanksin no small measure to the success of the newlylaunched second-generation A3. The A4 was themodel making the largest contribution towards thistotal, bringing in EUR 8,043 (8,055) million or 46.9percent of total revenue. Revenue for the A6 modelseased off compared with the previous year to EUR 4,102 (4,759) million, substantially due to theforthcoming model changeover. Sales of the Audi A3 and Audi TT generated revenue of EUR 3,416 (2,811)million. Sales of the current A8 model series madeparticularly good progress, generating revenue ofEUR 1,190 (545) million.

The cost of sales was up 6.7 percent on the previousyear to EUR 21,199 (19,875) million. This dispropor-tionately high increase in relation to the developmentin revenue is in essence attributable to exchange rateshifts that have diminished revenue, and to the rise in depreciation of capitalised development costs andproperty, plant and equipment.

After deduction of the cost of sales from revenue, the gross operating profit was consequently down19.1 percent to EUR 2,206 (2,728) million.

The rise in distribution costs to EUR 1,458 (1,377)million and the higher general administrative costs of EUR 246 (203) million are mainly attributable to thefirst-time consolidation of sales subsidiaries.

The other operating result was significantly higherthan the previous year and reached EUR 555 (188)million.

The operating result fell to EUR 1,058 (1,336) mil-lion.

The finance result showed a significant improve-ment in the past financial year, to EUR 50 (– 82) million. This is substantially the outcome of the risein the investment result to EUR 72 (42) million and theimprovement in the interest result to EUR 91 (– 20)million. The other financial result moved slightly inthe opposite direction, to EUR – 113 (– 103) million.

The Audi Group posted a pre-tax profit of EUR 1,108 (1,254) million. This figure was consider-ably affected by the changes in the value of the US dollar and the pound sterling, the negative impactof which could not be entirely balanced out by thehigher unit sales and the successful implementationof cost-cutting schemes and process improvements.

The rate of return before tax for 2003 was 4.7 percent,as against 5.6 percent in the previous year.

The profit before tax however increased from EUR 774 million to EUR 816 million. This is primarilydue to the fact that deferred tax assets resulting fromtax relief on capital investments by AUDI HUNGARIAMOTOR Kft. were recognised for the first time.

Within the scope of the effective control and profittransfer agreement, AUDI AG transferred an amountof EUR 160 (185) million to Volkswagen AG. Afterdeducting the profit share of other shareholders, theremaining surplus of EUR 653 (587) million wastransferred to the other revenue reserves.

54 | 55


Revenue by model line

EUR million 2003 2002

� Audi A2 388 536

� Audi A3/TT 3,416 2,811

� Audi A4/A4 Cabriolet 8,043 8,055

� Audi A6/allroad quattro/RS 6 4,102 4,759

� Audi A8 1,190 545

2.3%7.0%

23.9%

46.9%

19.9%

Key earnings data

2003 2002

Rate of return before tax 4.7% 5.6%

Rate of return after tax 3.5% 3.4%

Equity return after tax 15.4% 16.7%

Capital turnover 1.6 1.8

Development of profit before tax and

rate of return before tax

2000 2001 2002 2003

1,200

900

600

300

0

Profit before

tax (EUR million) 986 1,322 1,254 1,108

Rate of return

before tax (%) 4.9 6.0 5.6 4.7

Net worth and financial position

Development of balance sheetThe balance sheet total for 2003 rose by 11.2 percentto EUR 14,213 (12,787) million. On the assets side,investing activities boosted fixed assets by 2.8 per-cent to EUR 8,471 (8,238) million. Fixed assets thusrepresented 59.6 (64.4) percent of total assets. Capitalinvestments by the Audi Group consequently totalledEUR 2,094 (2,410) million in the year under review. Of this total, EUR 1,382 (1,516) million were investedin property, plant and equipment and related in themain to the A3, A6 and A8 model series. Property,plant and equipment consequently rose slightly toEUR 5,512 (5,480) million. The increase in intangibleassets to EUR 2,678 (2,534) million is attributableamong other things to the capitalisation of develop-ment costs totalling EUR 636 (834) million.

Current assets for the Audi Group rose to EUR 5,742 (4,548) million in the year under review.Inventories accounted for an amount of EUR 1,814(1,711) million of this total. Receivables and liquidassets were 36.4 percent up on the previous year, atEUR 3,685 (2,701) million.

On the equity and liabilities side, shareholders’equity rose to EUR 5,658 (4,940) million following theallocation of the remaining surplus for the year, afterthe transfer of profit and the deduction of the profitshare of other shareholders, totalling EUR 653 (587)

million to the other revenue reserves. The equityratio rose to 39.8 (38.6) percent. Borrowings rose to EUR 8,555 (7,847) million mainly as a result of trans-fers to the provisions for warranty claims, the pre-retirement part-time scheme and pensions. Liabilitiesamounted to EUR 3,785 (3,371) million. This produceda borrowing capital ratio of 60.2 (61.4) percent.

Added value

2003 2002 2003 2002

EUR million EUR million % %

Revenue 23,406 22,603

+ Other income 1,245 684

– Expenditures 20,359 19,264

Added value 4,292 4,023 100.0 100.0

Distribution

Employees 2,938 2,739 68.5 68.1

Creditors (interest) 43 52 1.0 1.3

State 495 457 11.5 11.3

Transfer of profits to Volkswagen AG 160 185 3.7 4.6

Profit share of minority shareholders 3 3 0.1 0.1

Transfer to revenue reserves 653 587 15.2 14.6

Capital investments by the Audi Group

EUR million 2000 2001 2002 2003

2,500

2,000

1,500

1,000

500

0

Capital

investments 2,422 2,151 2,410 2,094

Cash flow

from operating

activities 2,094 2,452 2,503 2,925

Fixed assets

Inventories

Receivables andliquid assets

Deferred tax assets

Equity

Long-termborrowings

Medium-termborrowings

Short-termborrowings

Deferred tax liabilities

Healthy financial positionIn the past financial year, the Audi Group boostedcash flow from operating activities by a further 16.9percent to EUR 2,925 (2,503) million. As in previousyears, it was thus able to finance the entire volume of investment of EUR 2,062 (2,373) million from oper-ating activities. Demand-based steering of investmentenabled us to implement our investment plans in full and to the customary standard of quality. Netcash flow, i.e. cash flow from operating activities lessinvesting activities, was significantly up on the pre-vious year at EUR 863 (130) million. Net liquidity wasthus augmented by 74.0 percent to EUR 1,526 (877)million.

56 | 57


6,988

8,238

1,450

1,711

8,471

1,814

1,8012,701

3,685

7,624

1,463

2,047

5,658

4,940

3,8171,565

1,355

1,2741,307

1,138

831

4,987 4,5663,891

696 788 555

4,342

1,435

961

3,792

726

Balance sheet structure Assets Equity and liabilities

EUR million 2000 2001 2002 2003 2003 2002 2001 2000

10,368 11,256 12,787 14,213 14,213 12,787 11,256 10,368

Cash flow

EUR million 2003 2002

Cash flow from

operating activities 2,925 2,503

Investing activities 2,062 2,373

Net cash flow 863 130

Net liquidity 1,526 877

129 122 137 243

Risk report

Risk management within the Audi GroupTo ensure that risks which could pose a threat to thecompany’s survival are identified at an early stage,companies are obliged by German corporate gover-nance legislation (KonTraG) to implement a riskmanagement system.

AUDI AG uses a risk management system thattakes into account the risks of all corporate divisionsand all major subsidiaries of the group. The risk earlywarning system permits the prompt identification ofpotential risks to the net worth, financial position andfinancial performance of the company. Clear spheresof responsibility as well as reporting and recordingobligations are laid down for all corporate divisionsand subsidiaries. First, the magnitude of a loss andthe probability of a risk materialising are assessed foreach individual risk. The magnitude of losses fromserious risks is then quantified. The functioning of therisk management system is checked regularly and itsefficiency continually refined.

Risks from worldwide economic developmentsThe anticipated recovery of the global economy in2004 is accompanied by uncertainty in a great manyareas. Continuing political conflicts in the Near andMiddle East could destabilise the nascent worldwiderecovery. A strong euro represents a risk for export-oriented companies in eurozone countries.

Risks from the development of the car marketThe car market will again progress at various speedsin individual regions in 2004. Despite positive signalsfrom the US car market, American manufacturers in particular could continue to resort to special salesmeasures to underpin sales in 2004. The pricing pres-sure is likewise growing on the Western European car market. As a premium brand, Audi has until nowremained largely immune to this development, andwill continue to give priority to qualitative growth and improving profitability within the context of theAudi brand strategy.

Price, foreign currency and liquidity risksAs a result of its international business activities, theAudi Group is exposed to risks from developments on international foreign exchange markets. Thesedevelopments principally affect payments in foreigncurrency as a result of its operations, in other wordspredominantly for goods and services. Opportunitiesand risks are actively steered by intensively observingthe market and implementing appropriate hedginginstruments. Derivative financial instruments con-cluded via Volkswagen AG with national and interna-tional banks of top-grade creditworthiness areemployed for hedging purposes.

A regularly updated liquidity projection with adaily, weekly and monthly horizon is drawn up inorder to steer the liquidity risk.

Legal risksThe consequences of the material prohibitions whichcame into force in the EU on July 1, 2003 remainunclear as development cost risks from the substitu-tion of heavy metals in the current implementationphase which runs until 2007/2008 cannot be excluded.

Operating risksThe Audi Group has taken out appropriate insurancecover to guard against financial risks from the inter-ruption of production operations. The Audi Group is able to respond to fluctuations in demand byadjusting production swiftly and economically withthe aid of flexible working-hours models.

The close, economically advantageous collabora-tion between car manufacturers and suppliers that iscustomary in this industry and the related short-termdependency on the supplier increases the risk ofproduction hitches as a result of non-delivery, deliverydelays or quality defects. Audi uses comprehensivesupplier selection, steering and monitoring tech-niques to limit these risks and the associated loss ofincome.

Vehicle sales are exposed to risks stemming bothfrom the general state of the economy and from the political environment. There exist further risks inthe form of the increasing use of sales promotionmeasures within the car industry. To limit the afore-mentioned risks, the Audi Group uses extensivemarket and competitor analyses in order to predictcustomer behaviour in the individual regions andsteer it accordingly.

Overall situation of the companyOn the basis of all particulars and circumstancesknown to us, there are currently no risks to the AudiGroup which would have such a significant effect on its net worth, financial position and financial per-formance that they could endanger the Audi Group’ssurvival for the foreseeable future.

Events occurring after the balance sheet dateNo events of particular significance which must bereported according to IAS 10 occurred afterDecember 31, 2003.

Outlook

Economic developmentThe gradual recovery in the global economy shouldcontinue in 2004, now that the economic situationhas improved in virtually all regions of the world inrecent months. The USA is providing the initial impe-tus. The economic recovery will be underpinned bythe expansionary monetary policy of recent years andby fiscal policy. In the first half of the year, privateconsumption in the USA will be fuelled above all bytax rebates as a result of last year’s tax reform.

Economic growth will improve only hesitantly inWestern Europe in 2004. The unstable situation on theemployment market will initially continue to have aconstraining effect on private consumption. Exportswill be the main source of positive stimulus. The pro-tracted weakness of the US dollar must neverthelessbe rated as a risk. If its value against the euro con-tinues to deteriorate, it will undermine exports andendanger the entire economic recovery.

In Germany, it is hoped that private consumptionwill pick up as a result of the tax reform, thus kick-starting the economy.

The Asian region is once again set to exhibit verydynamic growth in 2004. The Chinese economy in par-ticular is once more likely to act as the driving force inthe region this year. The expected recovery of theemerging markets in Southeast Asia will lend addedimpetus to the economy of the entire region.

Outlook for the car marketWorldwide car sales should increase again slightly in2004. Demand for cars will grow at its most dynamicrate in the Asia-Pacific region, above all in China.Whereas a slight recovery in the car market isexpected in North America, in Western Europe salesare likely to stagnate at the previous year’s level.

In Germany, vehicle sales are expected to pick upin the second half of the year. The appearance of alarge number of new models and the high averageage of the vehicle population, leading to substantialreplacement demand, should provide a significantstimulus.

We predict that German car manufacturers willenjoy an upswing in production, prompted above allby the anticipated rise in export demand. Audiexpects its profitability to remain stable.

New models in 2004The new 12-cylinder Audi A8 was presented to thepublic at the Detroit Auto Show in January 2004. This luxury saloon is powered by a 331 kW (450 bhp)engine with a displacement of six litres and peaktorque of 580 Nm. The Audi A8 model range will beextended by a new six-cylinder TDI engine in March2004.

The new Audi A6 saloon, which will be appearingon the market in the second quarter, will be makingits official debut at the Geneva Motor Show, again in March 2004. Sales of the Audi S4 Cabriolet startedin January 2004. The first models will be delivered tocustomers in March 2004.

The sports car manufacturer AutomobiliLamborghini S.p.A. will be taking the wraps off theLamborghini Murciélago Barchetta at the GenevaMotor Show; this car is due to appear on the marketin the fourth quarter of 2004.

Capital investmentsTo preserve the international competitiveness of the Audi Group in the future, an investment volume of some EUR 12.4 billion is scheduled for the periodfrom 2004 to 2008. More than 70 percent of this sumwill be spent on new products. Over 80 percent will bespent on the German sites in Ingolstadt and Neckar-sulm. Investing activities are to be financed from cashflow from operating activities. Capital investmentsover the entire planning period amount to aroundeight percent of forecast revenue.

58 | 59


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 the bal-ance sheet, the income statement and the statementof changes in equity and cash flows as well as thenotes to the consolidated financial statements for thebusiness year from January 1 to December 31, 2003.The preparation and the content of the consolidatedfinancial statements according to the InternationalFinancial Reporting Standards of the IASB (IFRS) arethe responsibility of the Company’s Board of Manage-ment. Our responsibility is to express an opinion,based on our audit, whether the consolidated finan-cial statements are in accordance with IFRS.

We conducted our audit of the consolidated finan-cial statements in accordance with German auditingregulations 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 signifi-cant 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 financial state-ments give a true and fair view of the net assets,financial position, results of operations and cashflows of the Group for the business year 2003 inaccordance with IFRS.

Our audit, which also extends to the group man-agement report prepared by the Board of Manage-ment for the business year from January 1 to Decem-ber 31, 2003, has not led to any reservations. In ouropinion, on the whole the group management reporttogether with the other information of the consoli-dated financial statements provides a suitable under-standing of the Group´s position and suitably pre-sents the risks of future development. In addition, weconfirm that the consolidated financial statementsand the group management report for the businessyear from January 1 to December 31, 2003 satisfythe conditions required for the Company´s exemptionfrom its duty to prepare consolidated financialstatements and the group management report inaccordance with German accounting law.

Hanover, February 4, 2004

PwC Deutsche Revision AktiengesellschaftWirtschaftsprüfungsgesellschaft

Gadesmann ppa. SchröderWirtschaftsprüfer Wirtschaftsprüfer

Independent Auditor’s Report

Declaration of the Board of Management

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. The conditions of Section 292a ofGerman Commercial Code for exemption from theobligation 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 (DRS 1),published by the German Council for Standardisation.

The regularity of the consolidated financial state-ments and group management report is assured bymeans of internal controlling systems, the implemen-tation of uniform guidelines throughout the group,and employee training and advancement measures.Compliance with the legal requirements and withinternal group guidelines, as well as the reliability andfunctioning of the systems of controlling, are checkedon an ongoing basis throughout the group. The earlywarning function required by law is achieved bymeans of a group-wide risk management system thatenables the Board of Management to identify poten-tial risks at an early stage and initiate correctiveaction 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 at the end of the Notes.

The consolidated financial statements, the groupmanagement report, the audit report and the mea-sures to be taken by the Board of Management forthe prompt identification of risks which could pose a threat to the company’s survival were discussed at length by the Supervisory Board in the presence of the auditors. The findings of this examination areindicated in the Report of the Supervisory Board.

60 | 61

Consolidated Financial Statements of the Audi Groupat December 31, 2003

Income statement of the Audi Group for the 2003 financial year

EUR ‘000 Notes 2003 2002

Revenue 1 23,405,551 22,602,643

Cost of sales 2 21,199,083 19,874,905

Gross profit 2,206,468 2,727,738

Distribution costs 3 1,457,893 1,376,884

General administrative costs 4 245,746 203,167

Other operating income 5 840,867 639,539

Other operating expenses 6 285,689 451,222

Operating result 1,058,007 1,336,004

Result for holdings valued at equity 7 + 53,504 0

Other investment result 7 + 18,422 + 42,373

Net interest 8 + 91,195 – 20,403

Other financial results 9 – 112,828 – 103,475

Financial result + 50,293 – 81,505

Profit before tax 1,108,300 1,254,499

Income tax expense 10 292,515 480,142

Net profit 815,785 774,357

Profit share of minority shareholders 11 2,699 2,801

Consolidated net profit for the year 813,086 771,556

Profit transfer to Volkswagen AG 12 160,000 185,000

Transfer to revenue reserves 653,086 586,556

EUR Notes 2003 2002

Earnings per share 13 18.91 17.94

Diluted earnings per share 13 18.91 17.94

62 | 63

Consolidated Financial Statements

Balance sheet of the Audi Group at December 31, 2003

ASSETS EUR ‘000 Notes Dec. 31, 2003 Dec. 31, 2002

Fixed assets

Intangible assets 14 2,678,316 2,534,115

Property, plant and equipment 15 5,511,644 5,479,735

Holdings valued at equity 16 103,527 –

Other financial assets 16 167,362 205,096

Rented lessor’s assets 17 10,066 19,417

8,470,915 8,238,363

Current assets

Inventories 18 1,814,073 1,710,501

Trade receivables 19, 20 1,230,812 1,106,364

Other receivables and assets 19, 21 723,577 538,233

Securities 22 508,125 508,663

Cash 23 1,207,519 540,263

5,484,106 4,404,024

Deferred tax assets 24 243,700 137,025

Prepaid expenses 25 14,322 7,412

14,213,043 12,786,824

EQUITY AND LIABILITIES EUR ‘000 Notes Dec. 31, 2003 Dec. 31, 2002

Equity

Issued capital 26 110,080 110,080

Capital reserves 27 56,730 56,730

Revenue reserves 28 5,491,476 4,773,105

5,658,286 4,939,915

Minority interests 29 11,474 6,027

Provisions 30 4,061,342 3,679,593

Liabilities 31

Long-term debt 32 17,440 5,703

Short-term debt 32 188,574 165,887

Trade payables 33 2,138,530 1,906,842

Other liabilities 34 1,440,169 1,292,504

3,784,713 3,370,936

Deferred tax liabilities 35 695,767 787,962

Deferred income 36 1,461 2,391

14,213,043 12,786,824

Cash flow statement of the Audi Group from January 1 to December 31, 2003Cash and cash equivalents in the cash flow statementcomprise exclusively the cash as reported in thebalance sheet.

The cash flow statement explains the streams ofpayments for both the 2003 financial year and theprevious year, categorised according to cash inflowsand outflows from current business operations, from investing activities and from financing activities.Effects of changes to the group and to foreignexchange rates on payments are shown separately.

The item Tax payments comprises payments madeto Volkswagen AG on the basis of the single-entityrelationship in Germany, and payments to foreign taxauthorities.

The change in cash as a result of changes to thegroup relates to companies that are consolidated forthe first time and were carried on the cost of pur-chase basis in previous years.

Investing activities include additions to property,plant and equipment and to capitalised developmentcosts. The change in rented lessor’s assets and the income from asset disposals are likewise reportedhere.

Financing activities include cash outflows from thetransfer of profit and from distributions, as well aschanges in other borrowings.

Liabilites from factoring are reported under short-term debt for the first time in the 2003 financial year.The change in factoring liabilities is now allocated tofinancing activities accordingly. To permit greatercomparability, the prior-year figures in the cash flowstatement and balance sheet have been adjusted.

Development of equity

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

The differences from changes to the consoli-dated companies result in the main from the first-time inclusion at equity of FAW-VolkswagenAutomotive Company, Ltd., Changchun, and thefirst-time consolidation in full of Audi Japan K.K.,Tokyo.

Issued Capital Revenue reserves Total

capital reserve Legal Currency Reserve

and other exchange for

revenue reserve cash flow

EUR ‘000 reserves hedges

Position at Dec. 31, 2001 110,080 56,730 4,169,153 7,412 – 1,048 4,342,327

Currency adjustments – – – 1,752 – 11,347 – – 13,099

Differences from changes in

consolidated companies – – 6,167 – – 6,167

Transfer to revenue reserves – – 586,556 – – 586,556

Changes in value not affecting

income – – – – 48,408 48,408

Result from settled

cash flow hedges – – – – – 30,444 – 30,444

Position at Dec. 31, 2002 110,080 56,730 4,760,124 – 3,935 16,916 4,939,915

Currency adjustments – – – 2,264 – 28,139 – – 30,403

Differences from changes in

consolidated companies – – 75,376 – – 75,376

Transfer to revenue reserves – – 653,086 – – 653,086

Changes in value not affecting

income – – – – 64,421 64,421

Result from settled

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

Position at Dec. 31, 2003 110,080 56,730 5,486,322 – 32,074 37,228 5,658,286

64 | 65


Cash flow statement of the Audi Group from January 1 to December 31, 2003

EUR ‘000 2003 2002

Net profit before transfer and taxation 1,108,300 1,254,499

Tax payments – 354,907 – 316,680

Depreciation on capitalised development costs 475,714 331,484

Depreciation on property, plant and equipment and

on intangible assets 1,395,323 1,308,648

Depreciation on financial assets 306 –

Depreciation on rented lessor’s assets 146 494

Change in other provisions (excluding tax provisions) 319,644 279,997

Result from asset disposals 27,165 134,744

Result from valuation at equity – 7,735 –

Other non-cash expenses/income – 6,851 36,952

Change in inventories – 8,174 – 241,775

Change in receivables – 298,205 – 758,791

Change in liabilities 273,903 472,958

Cash flow from operating activities 2,924,629 2,502,530

Additions for development costs recognised as assets – 636,084 – 833,711

Investments in property, plant and equipment and

in intangible assets – 1,438,020 – 1,555,959

Acquisition of affiliated companies and investments – 13,771 – 6,239

Investments in other financial assets – 1,958 – 395

Investments in rented lessor’s assets – 2,402 – 1

Income from asset disposals 30,213 23,502

Investing activities – 2,062,022 – 2,372,803

Net cash flow 862,607 129,727

Change in marketable securities 26,619 155,046

Investing activities including investments in securities – 2,035,403 – 2,217,757

Transfer and distribution of profits

(of which to Volkswagen AG: EUR 185 million

(previous year: EUR 209 million)) – 188,065 – 213,846

Change in debt – 63,448 17,260

Lease payments – 4,475 – 15,250

Change in loans to group companies 0 – 61

Financing activities – 255,988 – 211,897

Change in cash and cash equivalents from changes to the group 31,186 7,887

Change in cash and cash equivalents from exchange-rate changes 2,832 – 2,640

Change in cash and cash equivalents 667,256 78,123

Cash and cash equivalents at start of period 540,263 462,140

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

Cash and cash equivalents 1,207,519 540,263

Securities and loans 524,328 508,665

Gross liquidity 1,731,847 1,048,928

Total third-party borrowings – 206,013 – 171,590

Net liquidity 1,525,834 877,338

Gross carrying values

Cost of Changes Foreign Additions Additions Transfers Disposals Disposals

purchase/ in con- currency from from

cost of solidated changes valuation valuation

sales companies at equity at equity

EUR ‘000 Jan. 1, 2003

Intangible assets

Concessions, industrial property

rights and similar rights and

values, as well as licences thereto 116,110 610 – 115 54,780 – 8,505 13,756 –

Goodwill 365,874 2,856 – 1,851 – – – –

Capitalised development costs,

products currently in development 907,800 – – 501,672 – – 404,066 – –


products currently in use 2,327,272 – – 134,412 – 404,066 255,149 –

Payments on account for

intangible assets 7,790 – – 1,196 – – 7,040 – –

3,724,846 3,466 – 115 693,911 – 1,465 268,905 –

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 –

Other fixtures and fittings,

tools and equipment and

leased fixtures and fittings,

tools and equipments 5,997,384 1,759 – 540 634,419 – 208,095 293,858 –

Payments on account and

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

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

Financial assets

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

Companies valued at equity – – – 20,241 – 123,338 39,555 – 39,125

Investments 38,901 4,108 – 140 8,025 – – 39,555 78 –

Loans to affiliated companies – 3,317 – 1,700 – – 3,317 –

Loans to companies valued

at equity – 15,511 – 702 – – – – –

Loans to companies linked

through participation 3 – – – – – 3 –

Other loans 3,094 – – 258 – – 731 –

205,212 22,936 – 21,312 15,093 123,338 – 34,826 39,125

Rented lessor’s assets 21,751 2,159 – 460 2,402 – – 10,664 – –

Total fixed assets 16,972,705 54,286 – 31,740 2,093,603 123,338 – 770,040 39,125

Notes to the consolidated financial statements of the Audi Group for the 2003 financial year

Fixed assets for the 2003 financial year

66 | 67


Allowances Carrying values

Cost of Cumu- Changes Foreign Deprecia- Transfers Disposals Write- Cumu-

purchase/ lative in con- currency tion for ups lative

cost of deprecia- solidated changes current deprecia-

sales tion companies year tion

Dec. 31, 2003 Jan. 1, 2003 Dec. 31, 2003 Dec. 31, 2003 Dec. 31, 2002

166,134 54,920 213 – 30 30,133 92 13,746 – 71,582 94,552 61,190

370,581 148,956 1,994 – 46,400 – – – 197,350 173,231 216,918

1,005,406 – – – – – – – – 1,005,406 907,800

2,610,601 986,855 – – 475,714 – 255,149 – 1,207,420 1,403,181 1,340,417

1,946 – – – – – – – – 1,946 7,790

4,154,668 1,190,731 2,207 – 30 552,247 92 268,895 – 1,476,352 2,678,316 2,534,115

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

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

103,527 – – – – – – – – 103,527 –

11,261 – 80 3 – – 78 – 5 11,256 38,901

1,700 – 2,200 – 306 – 2,200 – 306 1,394 –

14,809 – – – – – – – – 14,809 –

– – – – – – – – – – 3

2,621 116 – – – – – – 116 2,505 2,978

271,316 116 2,280 3 306 – 2,278 – 427 270,889 205,096

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

18,403,027 8,734,342 10,868 – 3,739 1,871,489 – 680,848 – 9,932,112 8,470,915 8,238,363

Fixed assets for the 2002 financial year

Gross carrying values

Cost of Changes Foreign Additions Transfers Disposals Cost of

purchase/ in con- currency purchase/

cost of solidated changes cost of

sales companies sales

EUR ‘000 Jan. 1, 2003 Dec. 31, 2003

Intangible assets

Concessions, industrial property

rights and similar rights and values,

as well as licences thereto 72,742 15 – 13 45,977 2,408 5,019 116,110

Goodwill 365,874 – – – – – 365,874


products currently in development 823,394 16,930 – 579,323 – 444,799 67,048 907,800


products currently in use 1,648,434 – – 254,388 444,799 20,349 2,327,272

Payments on account

for intangible assets – – – 7,790 – – 7,790

2,910,444 16,945 – 13 887,478 2,408 92,416 3,724,846

Property, plant and equipment

Land, land rights and buildings,

including buildings on land owned

by others and leased buildings 2,676,348 – – 1,960 97,940 126,366 47,402 2,851,292

Plant and machinery 3,329,656 181 – 4,387 188,631 171,556 244,888 3,440,749


tools and equipment and leased

fixtures and fittings,

tools and equipment 5,287,773 1,154 – 1,598 687,152 286,243 263,340 5,997,384


construction in progress 812,543 – –208 541,878 – 591,524 31,218 731,471

12,106,320 1,335 – 8,153 1,515,601 – 7,359 586,848 13,020,896

Financial assets

Shares in affiliated companies 164,343 – – 204 6,239 – 7,164 163,214

Investments 39,053 – – – – 152 38,901

Loans to companies linked

through participation 11 – – – – 8 3

Other loans 3,598 – – 395 – 899 3,094

207,005 – –204 6,634 – 8,223 205,212

Rented lessor’s assets 16,927 – – 1 4,951 128 21,751

Total fixed assets 15,240,696 18,280 – 8,370 2,409,714 – 687,615 16,972,705

68 | 69


Allowances Carrying values

Cumulative Changes Foreign Deprecia- Transfers Disposals Write-ups Cumulative

deprecia- in con- currency tion for deprecia-

tion solidated changes current tion

companies year

Jan. 1, 2003 Dec. 31, 2003 Dec. 31, 2003 Dec. 31, 2002

35,013 – – 24,914 – 5,007 – 54,920 61,190 37,729

104,530 – – 44,426 – – – 148,956 216,918 261,344

– – – – – – – – 907,800 823,394

675,720 – – 331,484 – 20,349 – 986,855 1,340,417 972,714

– – – – – – – – 7,790 –

815,263 – – 400,824 – 25,356 – 1,190,731 2,534,115 2,095,181

1,117,769 – –202 112,575 – 1,363 38,930 – 1,189,849 1,661,443 1,558,579

2,001,630 42 – 1,900 326,958 – 199 223,463 – 2,103,068 1,337,681 1,328,026

3,679,115 482 –927 799,775 1,562 232,431 – 4,247,576 1,749,808 1,608,658

714 – – – – 46 – 668 730,803 811,829

6,799,228 524 – 3,029 1,239,308 – 494,870 – 7,541,161 5,479,735 5,307,092

– – – – – – – – 163,214 164,343

– – – – – – – – 38,901 39,053

– – – – – – – – 3 11

116 – – – – – – 116 2,978 3,482

116 – – – – – – 116 205,096 206,889

1,969 – – 493 – 128 – 2,334 19,417 14,958

7,616,576 524 – 3,029 1,640,625 – 520,354 – 8,734,342 8,238,363 7,624,120

General information

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

99 percent of the share capital of AUDI AG is heldby Volkswagen AG, Wolfsburg, with which a controland profit transfer agreement exists. The consolidatedfinancial statements of AUDI AG are included in theconsolidated financial statements of Volkswagen AG,which are deposited with the Local Court of Wolfs-burg.

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 declarations of the Interna-tional Accounting Standards Board (IASB) whereapplication is mandatory have been observed.

The income statement has been drawn up accord-ing to the internationally practised function ofexpense method.

The consolidated financial statements provide atrue 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 financialstatements in accordance with German accountingstandards are thus met. The assessment of theseconditions is based on German Accounting StandardNo. 1 (DRS 1), published by the German Council forStandardisation. To achieve equal value with consoli-dated financial statements prepared in accordancewith German law, additional information pursuant toSection 292a of German Commercial Code is dis-closed.

Notes on accounting policies which differ fromGerman lawThe substantial differences between IFRS andaccounting policies in accordance with German lawrelate to the following points:– Goodwill arising from the consolidation of capital

is reported as an asset according to IAS 22 andamortised over its useful life.

– Development costs are carried as intangible assetsin accordance with IAS 38, provided that the pro-duction of the developed products is likely to bringeconomic benefit to the Audi Group.

– The straight-line method of depreciation is appliedinstead of the diminishing balance method; multi-level depreciation is no longer practised. Deprecia-tion is measured on the basis of useful lifeexpectancy. Special depreciation for tax purposesand simplifications are not permitted in the IFRSfinancial statements.

– Rented property, plant and equipment are recog-nised as assets and the resulting liabilities simulta-neously recognised as liabilities, provided theeconomic interest in the property, plant and equip-ment can be attributed to the companies of theAudi Group pursuant to IAS 17.

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

– Derivative financial instruments to hedge againstforeign exchange exposure are likewise reportedat their market value in accordance with IAS 39 –according to the same principle as the measure-ment of securities – even if this is higher than thecost 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 immediately.

The changes in the market value of financialinstruments (foreign exchange contracts andcurrency option transactions) which are used forhedging future payments are handled in a differ-entiated manner. Whereas the fluctuations in themarket value of currency option transactionsimmediately have an effect on the net profit or lossfor the period, the changes in value of foreignexchange contracts (cash flow hedges) are initiallyreported in a special reserve with no effect onincome and only have an impact on the incomestatement when the hedged item is due.

– Provisions are only formed where commitments tothird parties exist.

– Provisions for pensions are determined pursuantto IAS 19 according to the benefit/years of servicemethod, taking into account future pay and pen-sion increases. Actuarial gains and losses are onlyshown in the balance sheet and booked to incomewhere they exceed ten percent of the higher ofdefined benefit obligation or the fair value of theplan assets at the start of the financial year.

– Medium-term and long-term provisions arereported at their present value.

– Foreign-currency receivables and liabilities arereported at the middle rate on the balance sheetdate instead of according to the principle ofunequal treatment of losses and income.

– Minority interests are reported separately fromshareholders’ equity under a separate item.

– Pursuant to IAS 12, deferred tax is determinedaccording to the balance sheet liabilities method.Tax deferrals are to be created for all temporarydifferences between the valuations in the taxbalance sheet and the consolidated financial state-ments (temporary concept). Deferred tax from thecarryforward of losses is in addition to be recorded.

Consolidated companiesIn 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 othergroup companies benefit from the activities of thecompanies in question (subsidiaries). Consolidationbegins at that point in time from which it acquires theopportunity for control; it ends when that opportunityceases to be available.

The Audi Group includes AUDI AG, the compa-nies AUDI HUNGARIA MOTOR Kft. and COSWORTHTECHNOLOGY LIMITED, the four companies of theLamborghini Group, AUTOGERMA S.p.A., AUDI DOBRASIL E CIA., quattro GmbH and AUDI SENNA Ltda.The companies Audi VertriebsbetreuungsgesellschaftmbH, Ingolstadt, Audi Synko GmbH, Ingolstadt, AudiZentrum Hannover GmbH, Hanover, Audi Japan K.K.,Tokyo, Japan, and Audi Australia Pty. Ltd., HomebushBay, Australia, are fully consolidated for the first timein the 2003 financial year. The inclusion of thesecompanies does not substantially affect the compara-bility of the financial statements for 2003 with theprevious year’s accounts.

Companies where AUDI AG is able to exercisesignificant direct or indirect influence on financial and operating policy decisions (so-called associated

companies) are valued according to the equitymethod, unless they are of only minor importance.The interests in FAW-Volkswagen AutomotiveCompany, Ltd., Changchun, China and in YANASEAudi Sales Company Ltd, Tokyo, Japan, are includedat equity for the first time in the 2003 financial year.

Four foreign and eight domestic companies arenot consolidated. These companies are of only minorimportance for the financial performance and finan-cial position of the group.

Subsidiaries and investments are always reportedat their cost of purchase, as no active market existsfor these companies and no fair value can reliably bedetermined with a justifiable amount of effort. Thesesubsidiaries are substantially dormant companies orcompanies with only limited business operations.

The main companies within the Audi Group arelisted after the Notes. A list of all companies in whichshares are held is filed with the Ingolstadt Commer-cial Register, HR B 1, and published on the Audi web-site 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 its inclusion in Audi’s consolidatedfinancial statements, quattro GmbH, Neckarsulm, is released from the obligation to disclose its annualaccounts pursuant to Section 264 Para. 3 of GermanCommercial Code.

Consolidation principlesThe assets and liabilities of the domestic and foreigncompanies included in the consolidated financialstatements are measured in accordance with thestandard accounting policies of the Audi Group. Thesame accounting policies for determining the pro rataequity are applied for the companies valued at equity.The last set of audited accounts of the company inquestion serves as the basis for this purpose.

For subsidiaries fully consolidated for the firsttime, the assets and liabilities are to be recognised attheir fair value at the time of acquisition. If the acqui-sition costs of the subsidiaries exceed the group’sinterest in the shareholders’ equity calculated in thisway for the individual company, goodwill to be capi-talised arises. The resulting undisclosed accruals andprovisions as well as charges are carried, depreciatedor dissolved in accordance with the correspondingassets and liabilities. Goodwill is capitalised anddepreciated on a straight-line basis over its useful life.

70 | 71


Receivables and liabilities between consolidatedcompanies are offset, and expenditure and incomeeliminated. Intra-group profits have been eliminatedfrom group inventories and fixed assets.

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

The same consolidation principles were applied inthe financial statements for both 2002 and 2003.

Foreign currency translationThe currency of the Audi Group is the euro.

Foreign currency transactions in the separatefinancial statements of AUDI AG and the subsidiariesare translated at the prevailing exchange rate on the date 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 booked to the current-period result.

The foreign companies belonging to the Audi Group are foreign entities which prepare theirfinancial statements in their local currency. AUDIHUNGARIA MOTOR Kft. is the sole exception, as itprepares its annual financial statements in euros. Theconcept of the “functional currency” is applied whentranslating financial statements prepared in foreigncurrency. Assets and liabilities are translated at theclosing rate. The effects of foreign currency transla-tion on equity are reported in the reserve for foreigncurrency translation. The items in the income state-ment are translated using weighted average monthlyrates. Exchange differences resulting from the use ofdiverging exchange rates in the balance sheet andincome statement are offset against equity with noeffect on income.

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

Closing rate Average rate

EUR 1 = Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2002

Australia (AUD) 1.6802 1.8556 1.7380 1.7362

Brazil (BRL) 3.6486 3.7050 3.4729 2.7838

Great Britain (GBP) 0.7048 0.6505 0.6919 0.6287

Japan (JPY) 135.0500 124.3900 130.9390 118.0613

People’s Republic of China (CNY) 10.4535 8.6832 9.3592 7.8198

Notes to the consolidated income statement

1 Revenue

Revenue is always recorded at the time of perfor-mance of the services or delivery of the goods orproducts, in other words upon passage of risk to thecustomer. The percentage of completion method is only applied in exceptional cases, as the dates onwhich a service is commenced and completedregularly fall within the same accounting period.

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

The other sales above all constitute goods andservices supplied to affiliated companies and othersales to third parties.

2 Cost of sales

The cost of sales comprises the costs incurred in gen-erating revenue and cost prices in commercial trans-actions. This item also includes expenses resultingfrom the creation of provisions for warranty costs andfor development costs which cannot be capitalised.

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 General administrative costs

The general administrative costs include labourand materials costs, as well as depreciation for theadministrative 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 valuation at the average rate on the closing date. In the same way, exchange rate losses are reportedunder Other operating expenses, item 6.

The overall item of currency hedging transactionsis shown under Other particulars, item 2.1.

72 | 73


Group revenue according to products

EUR ‘000 2003 2002

Audi brand 17,138,628 16,705,861

Audi A2 387,582 535,791

Audi A3/Audi TT 3,415,572 2,810,976

Audi A4/Cabriolet 8,043,385 8,055,273

Audi A6 4,101,518 4,759,095

Audi A8 1,190,571 544,726

Lamborghini brand 172,939 81,674

Volkswagen Passenger

Cars brand 2,115,050 2,423,094

SEAT brand 436,921 428,559

Škoda brand 235,373 219,660

Total revenue for cars 20,098,911 19,858,848

Volkswagen Commercial

Vehicles brand 86,486 98,144

Other sales 3,220,154 2,645,651

Total revenue 23,405,551 22,602,643

EUR ‘000 2003 2002

Income from rebilling 247,876 227,325

Income from the reversal

of provisions and accruals 234,686 108,936

Income from realised

derivative currency

hedging transactions 112,212 57,758

Income from ancillary

business 66,014 62,510

Income from the

processing of payments

in foreign currency 56,331 50,242

Income from asset disposals 3,110 3,817

Income from rented

lessor’s assets 2,405 2,638

Income from the liquidation

of allowances for liabilities

and other assets 418 1,708

Miscellaneous operating

income 117,815 124,605

Total other operating

income 840,867 639,539

6 Other operating expenses

The expenses resulting from the disposal of assetsinclude disposals of capitalised development costs aswell as property, plant and equipment. The overallitem of currency hedging transactions is shown underOther particulars, item 2.1.

7 Result for holdings valued at equity and otherinvestment result

In the previous year, the income from profit transferagreements relates substantially to Audi Vertriebs-betreuungsgesellschaft mbH.

The other income from investments relates aboveall to a share in the profits of Volkswagen TransportGmbH & Co. OHG. The prior-year figure also containsthe dividends from FAW-Volkswagen AutomotiveCompany, Ltd. which is now valued at equity.

8 Net interest

Interest income and expenses are attributed on anaccrual basis.

The overall item of currency hedging instrumentsis shown under Other particulars, item 2.1.

EUR ‘000 2003 2002

Losses on asset disposals 30,275 139,800

Amortisation of goodwill 46,277 44,426

Expense from the

processing of payments

in foreign currency 58,239 52,203

Expense from realised

derivative currency

hedging transactions 21,059 7,099

Allowances for receivables 10,179 6,896

Miscellaneous operating

expenses 119,660 200,798

Total other operating

income 285,689 451,222

EUR ‘000 2003 2002

Income from holdings

valued at equity 54,286 –

Income from profit

transfer agreements 991 3,317

Other income from

investments 17,749 41,041

of which from

affiliated companies 17,749 24,250

of which from

investments – 16,791

Expense from holdings

valued at equity 782 –

Expense from the transfer

of losses 318 1,985

Total investment result 71,926 42,373

EUR ‘000 2003 2002

Income from securities

and borrowings – 379

Income from the valuation

at market value 98,731 14,452

of assets and liabilities 2,125 –

of marketable securities

and of long-term

borrowings 26,992 3,529

of derivative financial

instruments 69,614 10,923

Expense from the valuation

at market value 11,897 13,298

of assets and liabilities – 2,044

of marketable securities

and of long-term

borrowings 1,789 10,754

of derivative financial

instruments 10,108 500

Other interest and

similar income 48,253 52,597

of which from


Other interest and

similar expenses 43,358 73,578

of which to


Interest expense included

in leasing instalments 534 955

Total net interest 91,195 – 20,403

9 Other financial results

10 Income tax expense

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

Of the current tax expense, an amount of EUR 473million (EUR 361 million) was passed on toVolkswagen AG.

Pursuant to IAS 12, deferred tax is determinedaccording to the balance sheet liabilities method. Thismethod specifies that tax deferrals are to be createdfor all temporary differences between the valuationsin the tax balance sheet and the consolidated finan-cial statements (temporary concept). Deferred taxfrom the carryforward of losses is in addition to berecorded.

Deferrals amounting to the anticipated tax burdenor tax relief in subsequent financial years are createdon the basis of the likely tax rate at the time of realisa-tion. In accordance with IAS 12, the tax consequencesof the distribution of profits are not recognised untilthe resolution on the appropriation of profits ispassed.

Deferred tax assets include future tax relief result-ing from temporary differences between the carryingamounts in the consolidated balance sheet and thevaluations in the tax balance sheet. Deferred taxassets on tax loss carryforwards that can be realisedin the future and from tax relief are also recorded.

Deferred tax assets and deferred tax liabilities arenetted, provided there is identity of the tax creditorsand maturities.

An adjustment of value is performed for deferredtax assets which are unlikely to be realised.

The current German taxes are measured at the taxrate of 39.7 percent (38.3 percent). This represents the sum of the corporate income tax rate of 26.5 per-cent, the solidarity surcharge of 5.5 percent and theaverage trade earnings tax rate for the group. Thestatutory corporate income tax rate was raised onceto 26.5 percent (plus the solidarity surcharge of 5.5 percent) as a result of the Flood Relief Act for the2003 tax assessment period. Deferred taxes weremeasured accordingly at a rate of 38.3 percent in thecurrent financial year.

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

AUDI HUNGARIA MOTOR Kft. was included in thecalculation of deferred taxes for the first time in thecurrent financial year. As a result of the bringing inline of Hungarian law with the framework conditionsof the European Union for investments subsidies, tax relief on capital investments resulted in deferredtax assets totalling EUR 98 million, which have beenincluded in income.

74 | 75


EUR ‘000 2003 2002

Compounding of provisions

for pensions – 91,042 – 85,689

Compounding of other

reserves – 21,786 – 17,786

Total other financial results – 112,828 – 103,475

Composition of tax expense

EUR ‘000 2003 2002

Current tax expense 481,732 447,445

of which for Germany 473,322 361,107

of which for other

countries 8,410 86,338

of which tax income/

expense not relating to

the period – 9,874 – 3,616

of which income from the

reversal of tax provisions – 17,401 – 92

Deferred tax income/expense – 189,217 32,697

of which for Germany – 82,922 36,409

of which for other

countries – 106,295 – 3,712

Total income tax expense 292,515 480,142

The realisation of tax losses resulted in a reductionof EUR 5 million (EUR 1 million) in current income taxexpense in 2003. There exist outstanding loss carry-forwards totalling EUR 194 million, of which anamount of EUR 95 million can be used indefinitely.

Deferred tax totalling EUR 13 million (EUR 11 mil-lion) relates to business transactions (cash flowhedges) charged directly to equity.

Tax-rate changes produced deferred tax income ofEUR 4 million.

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

Deferred tax assets Deferred tax liabilities

EUR ‘000 Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2002

Intangible assets 2,001 552 842,473 812,306

Property, plant and equipment 117,941 82,405 370,079 401,540

Financial assets 52,160 35,553 209 229

Inventories 18,877 13,372 4,877 2,289

Receivables and other assets 23,403 9,746 67,090 23,461

Other current assets 98,771 75 9,299 1,424

Provisions for pensions 116,018 116,003 392 492

Other provisions 382,134 321,872 0 12,702

Liabilities 32,050 22,868 11,172 8,512

Loss carryforwards 2,723 3,877 – –

Gross value 846,078 606,323 1,305,591 1,262,955

of which long-term 531,689 359,141 1,006,029 1,031,105

Offsetting measures – 608,436 – 474,993 – 608,436 – 474,993

Consolidation measures 6,058 5,695 – 1,388 –

Carrying amount 243,700 137,025 695,767 787,962

Reconciliation from anticipated to actual income taxexpenseThe anticipated tax expense is higher than the actualtax expense. The reasons for the difference betweenthe anticipated and actual tax expense are as follows:

11 Profit share of minority shareholders

The profit due to other shareholders is in respect ofshareholders of AUDI SENNA Ltda. and also AudiAustralia Pty. Ltd., which was fully consolidated forthe first time in 2003.

12 Profit transfer to Volkswagen AG

On the basis of the profit transfer agreement withAUDI AG, an amount of EUR 160 million (EUR 185 mil-lion) is to be transferred to Volkswagen AG.

13 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 the case of Audi, the diluted earnings per shareare the same as the basic earnings per share, as therewere no potential shares in AUDI AG in existence at either December 31, 2002 or December 31, 2003.

Outside shareholders in AUDI AG receive a compen-satory payment for each individual share certificateinstead of a dividend for the 2003 financial year. Thelevel of this payment corresponds to the dividend thatis paid on one Volkswagen AG ordinary share. Thedividend payment will be determined by the AnnualGeneral Meeting of Volkswagen AG on April 22, 2004.

76 | 77


Reconciliation

EUR ‘000 2003 2002

Accounting profit 1,108,300 1,254,499

Anticipated income tax

expense 39.7% (38.3%) 439,995 480,473

Reconciliation:

Divergent foreign tax burden – 119,013 – 98,888

Tax portion for:

Tax-exempt earnings – 26,128 – 10,895

Tax relief on capital

investments – 98,300 –

Expenses not deductible

for tax purposes 41,286 17,460

Temporary differences

and losses for which no

deferred tax has been

recorded 38,243 46,699

Tax income/expense not

relating to the period – 9,874 – 3,569

Effects of tax-rate changes – 3,709 2,220

Other tax effects 30,015 46,642

Actual income tax expense 292,515 480,142

Effective tax rate in % 26.4 38.3

2003 2002

Profit share of AUDI AG

shareholders in

EUR thousand 813,086 771,556

Weighted average number

of shares (basic and diluted

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

Earnings per share in EUR 18.91 17.94

Notes to the consolidated balance sheet

14 Intangible assets

Measurement principlesIntangible assets acquired for consideration arereported at cost of purchase, taking account of ancil-lary costs and cost reductions, and depreciated on ascheduled straight-line basis over their economic life.

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

Goodwill is amortised on a scheduled straight-linebasis over its useful life.

Research costs are treated as current expenses inaccordance with IAS 38. The development costs ofproducts going into series production are capitalised,provided that the production of these products islikely to bring economic benefit to the Audi Group. If the conditions for capitalisation are not met, theexpenses are booked to the current-period result in the year in which they occur.

Capitalised development costs comprise all costsdirectly allocable to the development process, as wellas an appropriate portion of the development-relatedoverhead costs. Borrowing costs are not capitalised.Depreciation is performed on a straight-line basisfrom the start of production, over the anticipatedmodel life of the developed products.

The depreciation is allocated to the correspondingfunctional areas; the amortisation of goodwill isincluded in other operating expenses.

In accordance with IAS 36 impairment is recog-nised on intangible assets where the recoverableamount of the asset in question has fallen below thecarrying value. If the reasons for impairment in previ-ous years cease to apply, the corresponding amountsare written back. There was no need for either recog-nition of impairment or write-backs in the periodunder review.

Spending on research and development activities in the 2003 financial year totalled EUR 1,257 million(EUR 1,335 million). Of this total, EUR 636 million (EUR 834 million) satisfy the criteria for capitalisationaccording to IAS 38.

EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Concessions, industrial

property rights and similar

rights and values, as well

as licences thereto 94,552 61,190

Goodwill 173,231 216,918

Capitalised development

costs for

products currently in

development 1,005,406 907,800

products currently in use 1,403,181 1,340,417

Payments on account for

intangible assets 1,946 7,790

2,678,316 2,534,115

The depreciation plan is based principally on the following useful lives:

Useful life

Concessions, industrial property rights

and similar rights and values 3 – 15 years

of which software 3 years

Goodwill 5 – 10 years

Capitalised development costs 5 – 10 years

Research and development expenses

EUR ‘000 2003 2002

Research costs and

non-capitalised

development costs 620,539 501,199

Depreciation and

disposals of capitalised

development costs 475,714 398,532

Total research and

development expenses 1,096,253 899,731

15 Property, plant and equipment

Measurement principlesProperty, plant and equipment are measured at costof purchase or cost of sales, less scheduled straight-line depreciation according to the pro rata temporismethod.

The cost of purchase includes the purchase price,ancillary costs and cost reductions.

In the case of self-constructed fixed assets, thecost of sales includes both the directly allocable costof materials and cost of labour, and indirect materialsand indirect labour, together with pro rata deprecia-tion. Interest on borrowings is not included.

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

Impairment of property, plant and equipment pur-suant to IAS 36 is recognised where the recoverableamount of the asset in question has fallen below thecarrying value. Impairment losses totalled EUR 96million (EUR 97 million). If the reasons for impairmentin previous years cease to apply, the correspondingamounts are written back.

In accordance with IAS 17, property, plant andequipment used on the basis of lease agreements iscapitalised if the conditions of a finance lease aremet, in other words if the significant risks and oppor-tunities which result from its use have passed to thelessee. Capitalisation is performed at the time of theagreement, at cost of purchase or cost of sales, orat the present value of the minimum lease paymentsif lower. The straight-line depreciation method isbased on economic life, or on the term of the leasecontract if shorter. Payment commitments from futurelease instalments are recognised as a liability, withoutfuture interest costs being taken into account.

Payments totalling EUR 55 million (EUR 51 million)for assets rented on the basis of operating leaseagreements were recognised as an expense.

78 | 79


EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Land, land rights and

buildings, including

buildings on land owned

by others 1,765,138 1,661,443

Plant and machinery 1,284,078 1,337,681


tools and equipment 1,802,846 1,749,808

of which leased fixtures

and fittings, tools and

equipment 5,564 10,039


construction in progress 659,582 730,803

5,511,644 5,479,735

The depreciation plan is based principally on the following useful lives:

Useful life

Buildings 25 – 50 years

Plant fixtures 10 – 18 years

Plant and machinery 6 – 12 years

Tools and equipment,

including special tools 3 – 15 years

16 Holdings valued at equity and other financialassets

The change in holdings in affiliated companiesresulted principally from the first-time consolidationof Audi Japan K.K., Audi Australia Pty. Ltd., AudiVertriebsbetreuungsgesellschaft mbH and Audi SynkoGmbH.

The companies valued at equity are the interests inFAW-Volkswagen Automotive Company, Ltd. andYANASE Audi Sales Company Ltd.

Measurement principlesCompanies where AUDI AG is able to exercise signifi-cant direct or indirect influence on financial andoperating policy decisions (associated companies) are valued according to the equity method.

Shares in non-consolidated affiliated companiesand investments are always shown at their respectivecost of purchase, as no active market exists for thesecompanies and no fair value can reliably be deter-mined with a justifiable amount of effort.

The fair values of medium and long-term loans aredetermined by discounting at risk-adequate marketrates, and deviate from the carrying amounts recog-nised at amortised cost. In the case of short-termitems, the amortised cost corresponds to the fairvalue.

Loans are measured at the amortised cost usingthe effective interest method. The fair values to beindicated in addition in the Notes are determined bydiscounting future cash flows at the market rate.

Carrying values Fair values


Shares in affiliated companies 137,398 163,214 137,398 163,214

Companies valued at equity 103,527 – 103,527 –

Investments 11,256 38,901 11,256 38,901

Loans to affiliated companies 1,394 – 1,394 –

Loans to companies valued at equity 14,809 – 14,809 –

Loans to companies linked through participation – 3 – 3

Other loans 2,505 2,978 1,965 2,481

270,889 205,096 270,349 204,599

Impairment of financial assets is recognised if the market or stock market value has fallen below the carrying value. If the reasons for impairment inprevious years cease to apply, the correspondingamounts are written back. There was no need forrecognition of impairment in the period under review.

17 Rented lessor’s assets

Land and buildings held for the purpose of generat-ing rental income (investment property pursuant to IAS 40) are reported under rented lessor’s assets.The fair values of the rented lessor’s assets corre-spond to the carrying values.

Measurement principlesThe rented lessor’s assets are measured at amortisedcost. Buildings are depreciated on the basis of a use-ful life of 33 years.

18 Inventories

Of total inventories, EUR 291,986 thousand (EUR 343,264 thousand) are reported at the lower netrealisable value.

No write-back was performed in the financial year.There are no significant restrictions on ownership

or disposal for the reported inventories.The finished goods and merchandise figure for

2003 includes inventories to the value of EUR 122,851thousand for the companies consolidated for the firsttime.

Measurement principlesRaw materials and consumables used are measuredat the updated average cost of purchase or at thelower replacement value.

Ancillary costs of purchase and purchase costreductions are taken into account as appropriate.

Work in progress and finished goods are valued atcost of sales or at the lower replacement value. Thecost of sales includes direct materials and directlabour, as well as an appropriate portion of the indi-rect materials and indirect labour, production-relateddepreciation and the expenditure allocable to theproducts from the depreciation of capitalised devel-opments in series production. Distribution costs,general administrative costs and interest on borrow-ings are not capitalised.

Merchandise is valued at cost of purchase or at the lower replacement value.

Provision has been made for all discernible storageand inventory risks by way of appropriate valueadjustments. Individual downward valuation adjust-ments are made on all inventories as soon as theprobable proceeds from their sale or use are lowerthan the carrying values of the inventories. Theamount the inventories are expected to raise less thecosts incurred up to their sale is taken as the lowerreplacement value.

19 Receivables

Measurement principlesReceivables and other assets are valued at the nomi-nal amount or at the amortised cost. Provision ismade for discernible one-off risks and general creditrisks in the form of appropriate value adjustments.

The fair value is determined by discounting themedium and long-term asset items at market rates. Inthe case of short-term items, the fair value corre-sponds to the amortised cost.

80 | 81


EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Raw materials and

consumables used 369,372 311,061

Work in progress 264,396 276,514

Finished goods and

merchandise 1,170,279 1,112,600

Payments on account

for inventories 10,026 10,326

1,814,073 1,710,501

20 Trade receivables

The fair value of trade receivables amounts to EUR 1,230,810 thousand (EUR 1,105,828 thousand).

21 Other receivables and assets

The other receivables and assets have a fair value ofEUR 723,520 thousand (EUR 538,171 thousand).

There are no significant restrictions on ownershipor disposal for the reported receivables and otherassets.

Derivative currency hedging instruments aremeasured at market value. The market values areindicated by the following summary:

The overall item of currency hedging instruments isshown under Other particulars, item 2.1.

Time to maturity over 1 year Carrying values


Trade receivables from

third parties 1,355 15,550 815,415 676,112

affiliated companies – – 268,774 367,947

associated companies – – 145,840 62,230

companies linked through participation – – 783 75

1,355 15,550 1,230,812 1,106,364

EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Derivative currency

hedging instruments

Cash flow hedges 82,435 42,660

Currency option

transactions 88,062 16,065

Currency swaps – 275

170,497 59,000

Time to maturity over 1 year Carrying values


Other receivables from affiliated companies – – 347,727 304,704

of which from derivative currency hedging instruments – – 170,370 58,633

Other receivables from associated companies – – 30,240 1,040

Other receivables from investments – – 62 –

Other tax claims 14,045 63,680 155,778 107,870

Other assets 9,555 8,100 189,643 124,252

Assets from derivative currency hedging instruments – 44 127 367

23,600 71,824 723,577 538,233

22 Securities

Marketable securities comprise fixed-interest orvariable-interest securities and shares.

The rates of return ranged between 3.04 percentand 8.00 percent.

Measurement principlesMarketable securities are measured at market value,in other words at the stock market prices at thebalance sheet date.

23 Cash

The rates of return for overnight money and termmoney ranged between 1.98 percent and 3.10 per-cent.

Balances existed with various banks and in variouscurrencies. Liquid funds were invested with affiliatedcompanies via the cash pooling arrangements.

Measurement principlesCash is measured at nominal value.

24 Deferred tax assets

The temporary differences between the valuations inthe tax balance sheet and the consolidated financialstatements are explained in item 10.

25 Prepaid expenses

Prepaid expenses are used for the determination ofprofit on an accrual basis. Expenditure that does notresult in expenses until after the balance sheet date isshown on the assets side.

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 share capital. It is divided into43,000,000 bearer individual share certificates.

27 Capital reserves

The capital reserves contain shareholder contribu-tions from the issue of shares in the company. It remained unchanged at EUR 56,730 thousand onDecember 31, 2003.

28 Revenue reserves

The opportunities and risks from foreign exchangecontracts serving as hedges for future payments aredeferred with no effect on income in the reserve forcash flow hedges. When the cash flow hedges falldue, the results from the settlement of the exchange-rate hedging contracts are reported under the otheroperating result.

The balance of EUR 653,086 thousand (EUR 586,556 thousand) remaining after the transferof profit to Volkswagen AG and after deduction of theprofit share of minority shareholders is allocated tothe other revenue reserves.

29 Minority interests

Minority interests in the shareholders’ equity relate toAUDI SENNA Ltda., São Paulo, and Audi Australia Pty.Ltd., Homebush Bay.

82 | 83


EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Balances with banks and

affiliated companies 1,207,197 540,058

Cheques and cash in hand 322 205

1,207,519 540,263

EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Legal reserve 131 131

Reserve for

cash flow hedges 37,228 16,916

Reserve for foreign

exchange differences – 32,075 – 3,935

Other revenue reserves 5,486,192 4,759,993

5,491,476 4,773,105

30 Provisions

Provisions for pensionsProvisions to cover pension obligations are created on the basis of plans to provide retirement, invalidityand surviving dependents’ benefits. They relateexclusively to benefit commitments for employees ofAUDI AG, Audi Vertriebsbetreuungsgesellschaft mbH,AUTOGERMA S.p.A., Audi Japan K.K. and COSWORTHTECHNOLOGY LIMITED. The benefit amounts generallydepend on the length of service and the remunerationof the employees.

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 AG on January 1, 2001 is based on contribution-basedretirement benefit commitments, which are classifiedas benefit commitments pursuant to IAS 19. Theremuneration-based annual cost of commitments isinvested in funds on a fiduciary basis by VolkswagenPension Trust e.V. This model offers AUDI AG employ-ees the opportunity to increase their benefit entitle-ments, while providing full risk cover. As the unitsadministrated on a fiduciary basis satisfy the require-ments of IAS 19 as assets, these funds were offsetagainst the retirement benefit obligations derivedfrom them.

Obligations for retirement benefits are measuredaccording to the benefits/years of service method(projected unit credit method) pursuant to IAS 19.Here, the future commitments are measured on thebasis of benefit entitlements acquired pro rata at thebalance sheet date. For purposes of measurement,trend assumptions are used for the relevant quanti-ties which affect the level of benefit.

The biometric mortality was determined using the“1998 Reference Tables” by Dr. K. Heubeck.

Actuarial gains and losses result from changes in thenumber of people participating in the pensionscheme and from a deviation in the actual trends (forexample, increases in pay or retirement benefit) fromthe figures assumed for calculation purposes. Suchgains and losses are only booked to income where

Terms of provisions

Time to maturity over 1 year Total


Provisions for pensions 1,428,078 1,363,970 1,483,743 1,413,591

Tax provisions 10,329 – 46,126 51,796

Other provisions 1,077,703 800,329 2,531,473 2,214,206

Total 2,516,110 2,164,299 4,061,342 3,679,593

The calculation is based on the following individual actuarial assumptions:

% Dec. 31, 2003 Dec. 31, 2002

Remuneration trend 2.75 – 3.50 2.75 – 3.50

Retirement benefit trend 1.50 – 3.64 1.50 – 2.50

Interest rate 3.00 – 5.75 5.50 – 5.75

Fluctuation rate 1.40 1.40

Expected return on

plan assets 6.75 – 7.50 6.75 – 7.50

Progression from benefit/years of service to provisions for pensions to meet retirement benefit commitments recognised in the balance sheet:

EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Benefit/years of service

of externally financed

obligations 169,111 113,843

Fair value of plan assets – 135,039 – 78,383

Surplus 34,072 35,460

Benefit/years of service

of non-externally financed

obligations 1,553,079 1,495,119

Unrecognised actuarial

losses – 103,408 – 116,988

Provisions recognised in the

balance sheet 1,483,743 1,413,591

they exceed ten percent of the higher of retirementbenefit obligations or the fair value of the plan assetson the reporting date. In accordance with IAS 19, thisresidual amount is shown in the balance sheet on thebasis of the future average remaining working life of the employees and included in the revenue results.

The interest element in pension costs is shown as interest expense in the other financial results. Theactual gain from plan assets totalled EUR 14,914thousand in the past financial year (against a loss ofEUR 11,938 thousand in the previous year).

Tax provisionsThe tax provisions include obligations for ongoingtaxes on income and for other taxes. The deferred tax liabilities are explained separately under items 10and 35.

84 | 85


The amounts recognised in the income statement are as follows:

EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Current service cost

for services rendered by

employees in the

financial year 76,504 65,483

Interest cost 91,042 85,689

Expected return on plan

assets – 6,989 – 7,230

Net actuarial losses

recognised in year 1,318 168

Currency differences from

foreign schemes – 1 36

Total expense and income

recognised in the income

statement 161,874 144,146

The provisions for pensions recorded in the balancesheet changed as follows:

EUR ‘000 2003 2002

Provisions for pensions

at January 1 1,413,591 1,356,804

Changes to the group

(new pension plans) 844 –

Retirement benefit cost 161,874 144,146

Payment of retirement

benefits from company

assets – 50,308 – 46,115

Contributions to external

pension funds – 42,367 – 42,980

Transfers received from


Transfers to affiliated

companies – 1,370 – 8,569

Currency differences – 160 – 147

Provisions for pensions

at December 31 1,483,743 1,413,591

Other provisions

Measurement principlesIn accordance with IAS 37, provisions are created if an obligation existing towards third parties is likely tolead to cash outflows and where the amount of the obli-gation can reliably be estimated. If these criteria are notmet, the obligations in question are reported under con-tingent liabilities.

Pursuant to IAS 37, the miscellaneous provisions forall discernible 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 the bal-ance sheet date. Market rates are used as the discountrates. The settlement value also includes the costincreases to be taken into account at the balance sheetdate, according to IAS 37.

The obligations from sales operations comprise all risks from the sale of vehicles, components and origi-nal parts, including the disposal of end-of-life vehicles.These are for the most part warranty claims that aredetermined on the basis of the previous or the estimatedfuture loss experience. This item in addition includesprovisions for discounts, bonuses and similar to begranted on the basis of legal or constructive obligations,arising after the balance sheet date but occasioned bysales before the balance sheet date.

Commitments to the workforce are substantially inrespect of long-service awards, outstanding vacation,accumulated overtime, awards for suggested im-provements, ex gratia payments and pre-retirementpart-time arrangements.

The miscellaneous provisions relate to a widerange of one-off risks.

31 Liabilities

Measurement principlesShort-term liabilities are reported at the repayment or settlement value. Medium and long-term liabilitiesare carried in the balance sheet at amortised cost.

The fair values to be indicated in addition aredetermined by discounting future streams of pay-ments at market rates.

Liabilities from financial lease agreements are car-ried at the present value of the leasing instalments.

Jan. 1, 2003 Changes Con- Liqui- Allo- Com- Dec. 31, 2003

to the sumed dated cated/ pounded

EUR ‘000 group new

Obligations

from sales

operations 1,795,757 48,536 861,955 161,386 1,161,488 19,397 2,001,837

Workforce costs 241,263 1,842 49,253 969 113,463 238 306,584

Miscellaneous

provisions 177,186 1,592 87,700 9,398 139,221 2,151 223,052

Total 2,214,206 51,970 998,908 171,753 1,414,172 21,786 2,531,473

32 Short-term and long-term debt

The deposits from banks relate predominantly to thefinancing of Audi Japan K.K., which was consolidatedin the Audi Group for the first time in 2003.

Measurement of the financial lease agreements isbased on an interest of 6.5 percent p.a. in each case.These agreements will incur a finance charge totallingEUR 268 thousand over the next few years.

The liabilities from factoring companies have beenreclassified as short-term and long-term debt insteadof other liabilities.

33 Trade payables

The fair value of trade payables in respect of thirdparties amounts to EUR 1,828,847 thousand (EUR 1,743,672 thousand). Liabilities to affiliated com-panies have a fair value of EUR 265,485 thousand (EUR 162,718 thousand).

In the case of short-term items, the fair value cor-responds to the amortised cost.

No interest is calculated on the medium and long-term liabilities.

The customary retention of title moreover appliesfor liabilities from deliveries of goods.

86 | 87


Dec. 31, 2003 Dec. 31, 2002

Time to maturity Carrying Time to Carrying

values maturity values

EUR ‘000 up to 1 year 1– 5 years over 5 years over 1 year

Liabilities from banks 4,152 13,335 2,796 20,283 – –

Liabilities from financial lease

agreements 4,489 1,309 – 5,798 5,703 10,120

Liabilities from cash pooling 17,702 – – 17,702 – 13,702

Liabilities from factoring

companies 162,231 – – 162,231 – 147,768

188,574 14,644 2,796 206,014 5,703 171,590

Dec. 31, 2003 Dec. 31, 2002




Trade payables in respect of

third parties 1,826,719 2,200 – 1,828,919 8,000 1,743,863

affiliated companies 265,485 – – 265,485 – 162,718

associated companies 38,362 – – 38,362 _ 90

other companies linked

through participation 3,288 2,476 – 5,764 – 171

2,133,854 4,676 – 2,138,530 8,000 1,906,842

34 Other liabilities

The liabilities to affiliated companies have a fair valueof EUR 841,483 thousand (EUR 772,990 thousand). In the case of liabilities to companies linked throughparticipation, the carrying values correspond to thefair values.

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

The overall item of currency hedging instruments isshown under Other particulars, item 2.1.

35 Deferred tax liabilities

The temporary differences between the valuations inthe tax balance sheet and the consolidated financialstatements are explained in item 10.

36 Deferred income

Deferred income is used for the determination ofprofit on an accrual basis. Receipts that do not resultin income until after the balance sheet date areshown on the liabilities side.

Dec. 31, 2003 Dec. 31, 2002




Advances received for orders 19,428 – – 19,428 – 6,223

Liabilities to affiliated

companies 540,813 147,309 158,200 846,322 289,569 772,990

of which income taxes 273,303 140,000 158,200 571,503 282,200 457,390

of which from derivative

currency hedging

instruments 19,613 – – 19,613 – 15,172

Liabilities to companies

linked through participation 15 – – 15 – 12

Derivative currency hedging

instruments 3,094 168 – 3,262 – 71

Other liabilities 544,054 17,126 9,962 571,142 24,317 513,208

of which taxes 138,200 162 – 138,362 434 126,431

of which in respect of

social insurance 95,830 4,928 5 100,763 4,541 94,530

1,107,404 164,603 168,162 1,440,169 313,886 1,292,504

EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Derivative currency

hedging instruments

Cash flow hedges – 22,098 – 15,243

Currency swaps – 777 –

– 22,875 – 15,243

Other particulars

1 Financial instruments

Financial 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 instrumentsand derivative instruments or obligations. Derivativefinancial instruments are used as a hedge for itemson the balance sheet and for future payments.

IAS 39 subdivides financial instruments 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 instruments used within the Audi Groupare generally classified as “available for sale” or“loans and receivables originated by the enterprise”.“Financial instruments held for trading” arise whereexternal hedging transactions are concluded for rela-tionships involving credit between group companiesbut are eliminated from the consolidated financialstatements. No financial instruments in the categoryof “held-to-maturity investments” are in use. Wherefinancial instruments are purchased or sold in the “customary” manner, they are recognised usingsettlement date accounting.

Financial instruments are reported at amortisedcost or at fair value.

The amortised cost of a financial asset or financialliability is the amount at which the financial asset orliability was measured at initial recognition minusprincipal repayments and any impairment losses.

In the case of short-term receivables and liabilities,the amortised cost corresponds to the notional orrepayment value.

The fair value generally corresponds to the marketor stock market value. If no active market exists, thefair value is determined by means of investmentmathematics methods.

1.1 Primary financial instruments“Loans and receivables originated by the enterprise”and liabilities are measured at amortised cost. Theseinclude in particular– financial investments,– trade accounts receivable and payable,– other short-term receivables and liabilities.

In the case of short-term receivables and liabilities,the amortised cost corresponds to the notional orrepayment value.

“Available-for-sale financial assets” are alwaysmeasured at their fair value. In the case of quotedfinancial instruments, the fair value corresponds to the market value on the balance sheet date. Thiscategory substantially comprises long-term andcurrent securities.

Shares in subsidiaries and investments aregenerally shown at their respective cost of purchase,as no active market exists for these companies and nofair value can reliably be determined with a justifiableamount of effort.

1.2 Derivative financial instrumentsDerivative financial instruments are used as a hedgefor items on the balance sheet and for future pay-ments.

In the case of hedges against the risk of changesin value of balance sheet items (fair-value hedges),both the hedging transaction and the hedged riskportion of the underlying transaction are recognisedat fair value. Changes in fair value are included in thenet interest. The carrying value of the hedged under-lying transaction is simultaneously adjusted andrecognised.

As a means of hedging future payments in foreigncurrency, the Audi Group uses foreign exchangecontracts (cash flow hedges) and currency optiontransactions. These hedging instruments are likewiserecognised at fair value. Whereas the fluctuations inthe value of currency option transactions immediatelyhave 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 with no effect on incomeand are only recognised as income or expense oncethe hedged item is due.

88 | 89


2 Hedging policy and risk management

2.1 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 concluding appro-priate hedging transactions for matching amountsand maturities. The measures to hedge against foreignexchange exposure are coordinated regularlybetween AUDI AG and the group treasury ofVolkswagen AG in accordance with the Volkswagenorganisation’s guidelines.

Marketable derivative financial instruments (for-eign exchange contracts and currency option trans-actions) are used for this purpose. The hedging trans-actions are performed centrally on behalf of Audi byVolkswagen AG on the basis of an agency agreement.Contracts are concluded exclusively with top-gradenational and international banks whose creditworthi-ness is regularly examined by leading rating agencies.The results from foreign exchange hedging arecredited or charged to the Audi Group each month onthe basis of the proportion of the Volkswagen Group’soverall hedging volume.

In accordance with the Volkswagen organisationalguideline, AUDI AG moreover concludes hedgingtransactions of its own to a limited extent, where thishelps to simplify current operations.

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 2003 related principally to theUS dollar and the pound sterling.

Nominal values Market values

Time to maturity

EUR ‘000 Dec. 31, 2003 up to 1 year Dec. 31, 2002 up to 1 year Dec. 31, 2003 Dec. 31, 2002

Foreign exchange contracts 1,541,022 1,498,073 1,521,743 1,518,861 60,337 27,417

Currency option transactions 633,729 633,729 356,806 356,806 88,062 16,065

Currency swaps 62,962 62,962 24,311 24,311 – 777 275

Total portfolio 2,237,713 2,194,764 1,902,860 1,899,978 147,622 43,757

2.2 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.

2.3 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 thecase of medium and long-term fixed-interest receiv-ables or liabilities.

Fixed-interest loans totalled EUR 3 million (EUR 3million) on December 31, 2003. In view of the lowvolume of these financial instruments, no interest-rate hedging contracts were taken out.

2.4 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.

2.5 Credit riskThe credit risk from financial assets consists in therisk of default by a counterparty and therefore doesnot exceed the positive fair values from the contract-ing party.

We work on the assumption that the actual riskfrom underlying primary financial instruments coverthe estimated uncollectable portion of accountsreceivable.

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.

3 Contingencies

Contingencies are unrecognised contingent liabilities,the amount of which corresponds to the maximumpossible claim at the balance sheet date.

4 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 or have had such an influ-ence during the past two years. Appropriate provi-sions have been created within each group company,or adequate insurance benefits are anticipated, forpossible financial charges resulting from other legalor arbitrational proceedings.

90 | 91


EUR ‘000 Dec. 31, 2003 Dec. 31, 2002

Liabilities from guarantees 3,431 20

Furnishing of collateral

for outside liabilities 2,175 2,584

Liabilities from guarantee

bonds 950 0

6,556 2,604

5 Other financial obligations

The commitments from rental and lease agreementsrelate exclusively to rental agreements in which thecompanies of the Audi Group do not have an eco-nomic interest in the rented assets according to thecriteria of IAS 17.

6 Discontinuing operations

There are no plans to discontinue operations asdefined by IAS 35.

7 Cost of materials

8 Personnel costs

Dec. 31, 2003 Dec. 31, 2002

Due within Due in Due in Total Due in Total

EUR million 1year 1– 5 years over 5 years over 1 year

Ordering commitments for

property, plant and

equipment 617 412 – 1,029 368 920

intangible assets 56 3 – 59 16 129

Commitments from

long-term rental and lease

agreements 20 22 4 46 22 42

agreed loans 36 – – 36 – 36

729 437 4 1,170 406 1,127

EUR ‘000 2003 2002

Raw materials and

consumables used as well

as purchased goods 15,817,873 15,480,414

Purchased services 1,344,806 1,245,322

17,162,679 16,725,736

EUR ‘000 2003 2002

Wages and salaries 2,390,670 2,271,867

Social insurance and

expenses for retirement

benefits and maintenance

payments 547,450 467,040

of which in respect of

retirement benefits 79,010 67,936

2,938,120 2,738,907

9 Total average employees for the year

10 Related party disclosures

Related parties as defined in IAS 24 are:– Volkswagen AG,– companies which are controlled directly or indi-

rectly by AUDI AG but are not consolidated,– other consolidated and non-consolidated affiliated

companies in the Volkswagen Group which supplygoods and services to or purchase goods andservices from companies of the Audi Group in thecontext of their business purpose,

– members of the Board of Management or Super-visory Board,

– companies in which a substantial interest in the voting power is held by Volkswagen AG or bymembers of its management.

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 asdevelopment, transport, financial and distributionservices and, to a lesser extent, design, training andother services and supplies of original parts. Businessfrom related companies comprises for the most partsales of new and used cars, engines and components.

Members of the Board of Management or Super-visory Board of AUDI AG also belong to the supervi-sory or management boards of other companies withwhich the Audi Group maintains business relations.All transactions with such companies are likewiseconducted according to the terms that customarilyapply to outside third parties.

Cash management within the Audi Group is cen-tralised at AUDI AG. The group companies invest theirliquid funds with AUDI AG or raise liquid funds fromit. Residual amounts are equalised via the cash poolof Volkswagen AG. All transactions are handled onmarket terms.

92 | 93


2003 2002

Domestic group companies 45,316 44,261

Foreign group companies 7,373 6,937

Total 52,689 51,198

of which apprentices 1,844 1,733

Segment reporting

The Audi Group is structured along the lines of the regional 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., Motori Marini Lamborghini S.p.A., LamborghiniArtiMarca S.p.A. and AUTOGERMA S.p.A.), and rest ofworld (Audi Australia Pty. Ltd., AUDI DO BRASIL E CIA.,Audi Japan K.K., AUDI SENNA Ltda.).

The subdivision of the group into three segmentson the basis of the locations of assets reflects thearrangements for internal group steering and report-ing.

The principal activities of AUDI AG, quattro GmbHand the Lamborghini Group are the development,production, assembly and sale of cars and engines.AUDI HUNGARIA MOTOR Kft. manufactures enginesand cars. COSWORTH TECHNOLOGY LIMITED devel-ops, manufactures and assembles engines and vehi-cle components. AUTOGERMA S.p.A. imports andsells models of the Audi, SEAT, Škoda, VolkswagenCommercial Vehicles and Volkswagen Passenger Carsbrands as well as original parts. AUDI DO BRASIL ECIA. holds a dormant equity holding in the CuritibaBusiness Unit. AUDI SENNA Ltda. sells Audi vehiclesin Brazil. Audi Japan K.K. and Audi Australia Pty. Ltd.sell Audi vehicles in their respective markets. AudiVertriebsbetreuungsgesellschaft mbH supports theGerman Audi sales organisation. Audi Synko GmbHsecures locations for Audi dealerships.

Transactions between the segments are conductedon generally accepted market terms, in the way that iscustomary for transactions with outside third parties.

External revenue Internal revenue Total revenue

EUR million 2003 2002 2003 2002 2003 2002

Germany 16,641 16,532 2,197 1,800 18,838 18,332

Rest of Europe 6,189 6,037 2,304 2,489 8,493 8,526

Rest of world 576 34 0 0 576 34

Consolidation measures – 0 – 4,501 – 4,289 – 4,501 – 4,289

Audi Group 23,406 22,603 0 0 23,406 22,603

Profit before tax Segment assets Segment liabilities

EUR million 2003 2002 Dec. 31, 2003 Dec. 31, 2002 Dec. 31, 2003 Dec. 31, 2002

Germany 735 868 12,178 11,620 7,582 6,821

Rest of Europe 362 377 4,307 3,692 1,616 1,304

Rest of world 7 13 379 129 243 4

Consolidation measures 4 – 4 – 2,894 – 2,791 – 1,618 – 1,122

Audi Group 1,108 1,254 13,970 12,650 7,823 7,007

Pursuant to IAS 14.71, revenue is broken downaccording to the geographical locations of customers.

94 | 95


Investments in Investments in

intangible assets, property, financial assets

plant and equipment

EUR million 2003 2002 2003 2002

Germany 1,679 2,035 15 7

Rest of Europe 395 368 0 0

Rest of world 2 0 – –

Consolidation measures – – – –

Audi Group 2,076 2,403 15 7

Depreciation Other non-cash expenses

EUR million 2003 2002 2003 2002

Germany 1,628 1,418 996 1,043

Rest of Europe 241 224 302 322

Rest of world 0 0 17 0

Consolidation measures 2 – 1 – 365 – 130

Audi Group 1,871 1,641 950 1,235

Revenue

2003 share 2002 share

EUR million % EUR million %

Germany 7,399 31.6 6,974 30.9

Rest of Europe 11,252 48.1 11,248 49.7

North America 2,509 10.7 2,866 12.7

Asia/Oceania 2,010 8.6 1,205 5.3

South America 98 0.4 153 0.7

Africa 138 0.6 157 0.7

Total 23,406 100.0 22,603 100.0

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 De-cember 9, 2003 and made it accessible on the website www.audi.com/cgk-declaration.

Details of the Supervisory Board and Board ofManagement

The remuneration of members of the Board of Man-agement complies with the legal requirements of Ger-man Stock Corporation Law as well as the recommen-dations and most of the suggestions of the “GermanCorporate Governance Code”. The overall remunera-tion is made up of fixed and variable components.

The remuneration of members of the Board ofManagement for the 2003 financial year amounted toEUR 5,393 thousand (previous year: EUR 5,673 thou-sand), of which variable components accounted forEUR 3,199 thousand.

The fixed components assure a basic remunerationthat enables the board member to execute his dutiesconscientiously and in the best interests of thecompanies, without becoming dependent upon theattainment of short-term targets. Conversely, variableand other components that are dependent on theeconomic reality of the company reconcile the inter-ests of the Board of Management with those of theother stakeholders. The fixed remuneration compo-nents for the members of the Board of Managementtotalled EUR 2,194 thousand in the 2003 financialyear.

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 is paida variable annual gratuity. The variable gratuity com-prises components recurring annually that are tied tothe economic success of the company. It is largelybased on the earnings achieved by the company andits economic situation.

The inclusion of one-off variable componentsbased on business success in the Board of Manage-ment’s remuneration is currently being openlydiscussed in depth in specialist quarters. Instead ofthis suggestion being implemented now by AUDI AG,the outcome of the discussion is to be awaited.

Stock options serve as variable remunerationcomponents providing a long-term incentive. Theseoptions are based on the performance of Volkswagenordinary shares. In the context of the fifth tranche ofthe stock options plan, in the 2003 financial year eachmember of the Board of Management was able tosubscribe to up to 500 non-transferrable 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 stock options plan was thecontribution of between EUR 5,000 and 25,000 in timebonds, depending on the number of convertiblebonds being acquired.

The structure of the stock options plan is essen-tially as follows: the basis for determining the conver-sion price (basic conversion price) of a tranche is theaverage Xetra closing prices of Volkswagen ordinaryshares on the five trading days preceding each deci-sion to issue convertible bonds. Conversion may takeplace for the first time after a qualifying period of 24 months and then up until a period of 5 years fromthe time of issue of the convertible bonds has elapsed.The conversion price is initially 110 percent of thebasic conversion price, rising by five percentagepoints in each subsequent year. The Board of Man-agement may exercise its conversion rights only threetimes a year, during eight-week exercise periods, each of which commences on a public reporting dateof Volkswagen AG. The stock 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 April 16, 2002, at which authorisation to introduce the stock options plan was granted.

The purpose of the stock options plan’s structureis to grant the Board of Management a remunerationcomponent that is based on appreciation in the com-pany’s share price. It is thus intended to contributetowards increasing added value and towards enhanc-ing the enterprise value. The stock options plan is inaddition a widely used instrument of recruiting andretaining board members.

The retrospective adjustment of the stock optionplan’s performance targets or comparative parame-ters is excluded.

Inappropriate inflows from the stock options arenot to be expected due to the link with the share priceperformance of Volkswagen ordinary shares and the restricted number of options per tranche. In orderto implement the recommendation of the German

Corporate Governance Code, the Supervisory Board isprepared to come to an agreement with the membersof the Board of Management on a cap in the event of exceptional, unforeseen developments.

In the context of the fifth tranche of the stockoptions plan, the members of the Board of Manage-ment of AUDI AG subscribed to a total of 2,200 of the aforementioned convertible bonds in the 2003financial year. At December 31, 2003 the members ofthe Board of Management were entitled to purchase a total of 125,000 ordinary shares of Volkswagen AG inthe event of the conditions of conversion being met.The value of these stock options totalled EUR 331thousand on December 31, 2003.

In certain circumstances, members of the Board ofManagement are entitled to retirement benefits and a disability pension.

The provisions for pensions for current membersof the Board of Management totalled EUR 3,932 thou-sand (EUR 8.740 thousand) on December 31, 2003.

Former members of the Board of Management and their surviving dependents received paymentstotalling EUR 1,255 thousand (EUR 875 thousand). The provisions for pensions for this group of personsamounts to EUR 15,308 thousand (EUR 14,395 thou-sand).

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 ofAUDI AG amounted to EUR 404 thousand (EUR 149thousand), of which were EUR 161 thousand fixedremuneration components and EUR 243 thousandvariable remuneration components. The level of thevariable remuneration components is based on thedividend paid for the 2003 financial year in accor-dance with the provision in the Articles of Incorpora-tion applicable at the time.

96 | 97


Supervisory Board1

Position at December 31, 2003

Dr.-Ing. e.h. Chairman2

Bernd Pischetsrieder Shareholders’ representative

Xaver Meier Deputy Chairman2, 3

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’ representative3

Dr.-Ing.

Franz-Josef Paefgen Shareholders’ representative

Richard Polzmacher Employees’ representative

Hans Dieter Pötsch Shareholders’ representative3, 4

Norbert Rank Employees’ representative3

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, are indi-cated in the Notes to the Financial Statements of AUDI AG.

2 Member of the presiding committee and the negotiating committee3 Member of the Audit Committee4 Chairman 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, 2003.

Ingolstadt, February 4, 2004

The Board of Management

98 | 99

Statement of interests held by the Audi Group at December 31, 2003

Name and registered office Capital share in %

AUDI AG, Ingolstadt

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 Australia Pty. Ltd., Homebush Bay (Australia) 50.00

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 serves as a basis forlowering the body’s ride height depending on roadspeed, producing superior directional stability.

adaptive lightThe adaptive light system involves an auxiliaryheadlight, incorporated into the headlight unit, whichhelps the driver to see around corners. It comes onautomatically when the turn indicator is operated or ifthe driver turns the steering wheel by any significantdegree.

anti-lock brake system (ABS)ABS prevents the wheels from locking up duringbraking. The car consequently remains steerable andcontrollable even when the brakes are applied hard.This can help the driver to avoid an obstacle withouthaving to release the brakes first. When ABS is acti-vated, the driver will notice a slight pulsation of thebrake pedal. The anti-lock brake system is optimisedwith electronic brake-force distribution (EBD).

Audi Space Frame® (ASF)The ASF is a high-strength aluminium frame structureon which each planar component is integrated as part of the structure. This results in extremely highrigidity, better-than-average crash protection and a significant reduction in vehicle weight.

biturboThe suffix “biturbo” for Audi V-engines indicates thatthere are two exhaust-driven turbochargers, one foreach cylinder bank. The driver benefits from increasedlow-end torque, more output at higher engine speedsand greater responsiveness of the engine.

common rail fuel injection systemCommon rail systems, which Audi uses on the eight-cylinder 4.0 TDI and six-cylinder 3.0 TDI, incorporate ahigh-pressure pump that delivers the fuel to a railserving all cylinders. Feeder lines from this rail supplythe injectors, which inject the fuel directly into the

combustion chamber. The permanently high pressure,which reaches 1,600 bar in the second-generationcommon rail, ensures that the fuel is very finelyatomised, thus enhancing the efficiency of the com-bustion process. The injectors’ electronic controlpermits a flexible injection process comprising pilot,main and secondary injection; this reduces enginenoise and emissions and improves torque.

Direct Shift Gearbox (DSG)The DSG combines the advantages of a conventionalsix-speed manual gearbox with the qualities of amodern automatic. The driver benefits from enor-mous agility and acceleration, without any interrup-tion in the power flow. The basis is a three-shaft six-speed manual gearbox with twin multi-plateclutch. Thanks to electro-hydraulic control, two gearscan be engaged simultaneously. While one gear isengaged, the next appropriate gear is pre-selectedwhen the gearshift point is approached, but its clutchkept disengaged. The gearshift process opens the clutch of the activated gear and closes the otherclutch at the same time with a certain overlap. Thegear change takes place under load which means thata permanent flow of power is maintained.

dual-rate brake systemAudi A3 and Audi S4 models have a brake system with dual-rate brake servo. This means that brakingforce can be controlled sensitively when a low tomedium rate of deceleration is required. When thedriver applies the brakes in an emergency, however,the brake servo switches to a higher assistance factor above a defined deceleration speed in order tobring the vehicle safely to a halt.

Dynamic Ride Control (DRC)The suspension concept DRC was introduced for thefirst time on the Audi RS 6. DRC consists of a specialdamping system that counteracts rolling and pitchingmovements of the vehicle body without the use ofelectronics. The diagonally opposed shock absorbersare connected hydraulically. When steering into andaround a corner, the damper characteristic is variedby a central valve in such a way that movementsaround the longitudinal axis (rolling) are significantlyreduced. DRC counteracts vehicle movements aroundthe transverse axis (pitching) when accelerating orbraking according to the same principle.

Glossary

electromechanical parking brakeThe electromechanical parking brake is resistant towear, its braking effect is permanently constant and itcannot lock. It is activated by pulling the small brakelever on the centre console, which replaces theconventional handbrake lever. When driving off, theparking brake is released automatically as soon as thedriver has fastened his or her seat belt. The integralstarting assist function prevents the car from rollingback on uphill gradients.

electronic brake-force distribution (EBD)EBD ensures that the braking performance is distrib-uted between the front and rear wheels in accordancewith the condition of the road surface. It also reducesthe load on the front brakes and helps to reduce their temperature. This counteracts brake fade as aresult of excessive thermal loads. EBD optimises theanti-lock brake system (ABS).

electronic stabilisation program (ESP)ESP makes the vehicle easier to control in handlingsituations close to the limit. It reduces the danger ofswerving and thus improves directional stability. ESPidentifies the car’s intended direction and response. It applies the brakes on individual wheels, therebygenerating one-sided forces that help to keep the carmoving in the desired direction. The program usesthe anti-lock braking, electronic brake-force distribu-tion, electronic differential lock and anti-slip regula-tion systems and is permanently active.

FSI®

FSI technology increases the torque and output ofspark-ignition engines, makes them up to 15 percentmore economical and paves the way for lower exhaustemissions. In contrast to conventional spark-ignitionengines, FSI technology involves injecting the fueldirectly into the combustion chamber. No throttlevalve is now necessary. This dethrottles the engine,reduces thermal losses and thus permits bothincreased power output and lower fuel consumption.

LED technologyLight-emitting diodes (LED) have a whole series of technical advantages over conventional bulbs. The light-emitting diodes last an entire vehicle life,consume up to 50 percent less energy and take up less space. The A8 uses light-emitting diodes forall main rear light functions (tail lights, brake lights,turn indicators) and for the side turn indicators.Thanks to the development of high-performance LEDswith white light, it is now possible to use LED head-lights. The Audi A8 L 6.0 quattro is the first car in theworld to be equipped with LED daytime driving lights.

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: theMMI terminal in the centre console and the MMI dis-play, a retractable 7-inch colour monitor. The centralelement of the MMI terminal is a combined rotarycontrol/pushbutton with four control keys arrangedaround it, with the aid of which the user can navigatethrough all menus and make the desired selection.

multitronic®

multitronic is a continuously variable transmission.The power is transmitted at a torque of up to 310 Newton-metres via a steel link-plate chain, forjolt-free, forceful acceleration. In the manual mode,six simulated drive positions can be selected. In the automatic mode, the dynamic control program(DRP) calculates the optimum transmission ratio forthe driver and driving situation, based on load.

quattro®

quattro permanent four-wheel drive enjoys a lengthytradition of more than 20 years. This four-wheel-driveprinciple involves distributing the engine’s powerpermanently and according to demand to all fourwheels. It provides high active safety, reliable tractionon virtually all surfaces and optimum directionalstability at all times, even in cross-winds and is easilysuperior to driver-operated four-wheel-drive systemsbecause its safety benefits are permanently“on standby”.

100 | 101

servotronicWith servotronic, Audi offers a speed-dependent formof power steering that is more convenient for thedriver. The amount of power assistance is greatest atlow speeds, for example when manoeuvring or park-ing the car, which can thus be handled with minimaleffort. At higher speeds, an electronic sensing systemgradually reduces the level of power assistance. Inthis way, the driver can control the car at high speedand keep it on the chosen line even more accuratelythan with conventional power steering.

space floor conceptThe space floor concept in the Audi A2 optimisesspace and comfort in the interior because it allowsrear passengers to adopt an ergonomically correct,relaxed seated position. By lowering the rear foot-wells, the rear passengers’ legs are bent at a naturalangle, for a comfortable and relaxed position.

TDI®

Audi has many years of experience with TDI technol-ogy, an area in which it has been one of the pioneerssince 1989. At Audi, TDI denotes diesel models withdiesel direct injection. The characteristics of TDIengines are economy, low emissions, high tractionand an excellent power yield.

tiptronictiptronic is a special form of transmission whichunites the convenience of an automatic transmissionwith the driving enjoyment and dynamic response of a manual gearbox. The driver can switch from theautomatic mode to one-touch gearshifts at any timewhile on the move. Gearshifts take place withuninterrupted traction in both transmission modes.

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 greater torque.

xenon plusThe xenon plus system offers all the benefits of xenonheadlights – better illumination of the road ahead and consequently greater active safety when drivingafter dark – for the main beams as well. When thedriver switches to high beam or back to low beam, anelectromagnet is energised. Depending on the reflec-tor type, this either repositions a gate in unison withthe ellipsoidal reflector, or pivots the xenon arcassembly. The large amount of light produced by thexenon arc permits dispersion of the high beam andcombines a very large range with very broad lateralillumination. The additional halogen high-beamspotlight serves as a headlight flasher and furtheroptimises the beam’s throw.

4-level air suspension4-level air suspension for the front and rear axles is astandard technical feature of the Audi allroad quattro.With ground clearance of up to 208 mm and in con-junction with the standard feature of quattro drive,this vehicle is also capable of tackling difficult terrain.The ground clearance can be adjusted manually orautomatically to four different height settings,covering a total range of 66 mm. An automatic moderegulates the ride height in line with road speed.

For further technical explanations and informativediagrams, see www.audi.com/glossary.

Glossary

Review of 2003

January to March

Audi Pikes Peak quattro – debut inDetroitThe Pikes Peak quattro provides aglimpse of the shape of things to comeat Audi when it appears at the DetroitAuto Show in January. The response tothis crossover model is so positive thatthe decision is taken at the end of 2003to build it as a production model.

Audi tops reader pollsThe Audi TT is voted “Coupé of the Year” for the fifth time by readers of therenowned British publication “WhatCar”. The new Audi A4 1.9 TDI is acknowl-edged as the “Best Compact ExecutiveSaloon”. The readers of “auto motor undsport” vote the Audi A4 and the Audi A8the “Best Cars in their Class” and theAudi allroad quattro as the “Best Cross-over of 2003”.

10 years of Audi HungariaAUDI HUNGARIA MOTOR Kft. celebratesits tenth anniversary. The company is the central engine supplier of the AudiGroup and has been Hungary’s largestexporter for many years. The HungarianPrime Minister Péter Medgyessy paystribute to the achievements of Audi’sHungarian subsidiary at the officialcelebrations.

10 years of Audi ToolmakingThe Toolmaking Division of AUDI AG also celebrates ten years of operations.It is regarded as a pioneer of innovativetechniques within the car industry,including aluminium forming technol-ogy, and patents have been filed for agreat many of its own developments.

World Ski Championships 2003presented by AudiAudi accompanies skiing enthusiastsworldwide through the winter. In addi-tion to sponsoring the Alpine Ski WorldCup, Audi is involved in the Alpine World Ski Championships in St. Moritz.

Flood victims aided by AudiThe victims of the catastrophic floods in summer 2002 receive financial assis-tance from Audi. AUDI AG employeeshad donated generously, with the com-pany matching every euro contributedby the workforce. In March 2003, it isconsequently possible to hand over halfa million euros to a total of 32 charitiesand municipal bodies.

Audi becomes automotive sponsor of Real MadridAudi and Real Madrid sign an agreementmaking Audi the exclusive automotivesponsor of the Spanish champions: anideal partnership between the mostfamous football club in the world andthe leading premium car brand in Spain.Audi and Real Madrid are both able tolook back on a history of successstretching back around one century.

40 years under the sign of the bullUncompromising sportiness, refinedaggression and Italian hot-bloodedness– these are the attributes that charac-terise the exclusive Lamborghini brand.To mark the company’s anniversary, Auditraces the unique history of this supersports car manufacturer in a specialexhibition.

Geneva: presentation of the new A3The new Audi A3 makes its debut at theGeneva Motor Show. The new compactAudi has everything it needs to repeatthe unique success story of the previousA3 model. The presentation of the“small” Lamborghini Gallardo and theunveiling of the Audi Nuvolari quattrostudy, a 441 kW (600 bhp) high-perfor-mance Gran Turismo also causes a stir.

Audi reports record figuresChairman of the Board of ManagementDr. Martin Winterkorn announces theannual financial statements for 2002 toaround 200 journalists at the AnnualPress Conference at the Audi ForumIngolstadt. The Audi Group once againreports record figures for revenue andvehicle sales.

Audi A8 keeps IMF movingAudi provides a fleet of 250 Audi A8 carsfor the meeting of the World Bank andthe International Monetary Fund inDubai. These saloons are a secure andcomfortable means of transport forthe top representatives of both organi-sations and 184 issuing banks. This isthe largest fleet of A8 saloons ever tohave been in action at an internationalevent.

Audi at the 2003 Frankfurt Motor ShowAudi’s stand at the 2003 Frankfurt Motor Show features some exciting newexhibits. The real star is the Audi Le Mans quattro, sharing the samegenes as the triple Le Mans winner, theAudi R8. The spotlight is also on theAudi S4 Cabriolet and the new A8 3.0 TDIwith piezo injection system.

100,000th A6 from ChangchunAudi reaches a further landmark in Chinawith the production of the 100,000thAudi A6 at the Changchun plant. Thelong-wheelbase version of the Audi A6,built specifically for the Chinese market,has been in production locally since1999 and was the first luxury saloon tobe built in China.

Starter’s orders for the A4 in ChangchunAudi further extends its productionrange in China. A second car line, theAudi A4, goes into local production in China, with Audi once again assuminga pioneering role: the A4 is the firstmidsize luxury vehicle to be built in China, and is aimed at the growinggroup of young lifestyle-orientedcustomers.

INI.TUM gets the go-aheadINI.TUM denotes the Ingolstadt-basedinstitutes of the Technical Universityof Munich. The new centre for applica-tion-based research in the field ofvehicle and information technologyis launched by AUDI AG, the TechnicalUniversity of Munich and the city ofIngolstadt. All participating partiesstand to benefit from the project: fromthe university’s point of view, it repre-sents an important component of itsregionalisation policy. From Audi’s pointof view, the PhD students perform valu-able research work and ensure that Audiwill continue to live up to its claim of“Vorsprung durch Technik” in the future.

One-millionth A3 builtA further landmark is reached in thesuccess story of the Audi A3: the one-millionth specimen of this successfulcar line leaves the production line; thenew A3 already accounts for 120,000 of the total.

Bayern Munich, powered by AudiBayern Munich receives an end-of-sea-son boost from its automotive sponsor,Audi. The players of the new Germanchampions collect their new Audi cars in Ingolstadt. Bayern Munich are now“powered by Audi” in a very real sense.The Bayern players’ new fleet of carsmusters a total of almost 8,000 bhp.

Triple victory in the category“Four Wheel Drive of the Year 2003”The new Audi A8 is voted “Best FourWheel Drive of the Year 2003” by thereaders of the motoring magazine“AUTO BILD alles allrad”. In second place is the Audi A6 quattro, with theAudi TT quattro following in third spot. There are a further 31 contendersin the full list.

DSV athletes teaming up with AudiIt is announced that top skiers, coachesand officials of the German Ski Federa-tion are to be provided with vehicles forthe 2003/2004 winter season. WorldChampion and overall World Cup winnerRonny Ackermann is thrilled: “Howeverdeep the snow is, I know that quattrodrive will get me safely to my destina-tion.” The same applies to trips to theAudi wind tunnel, where athletes striveto find the aerodynamically optimumposition and test new materials with theaid of Audi’s technicians.

Concept Design Munich openedThe revamped Audi design studio isopened in Munich’s Schwabing quarter.Designers, engineers and trend special-ists develop futuristic visions for theAudi brand group here. Concept DesignMunich in particular sees its role asproviding intellectual guidance andpushing back the frontiers of creativity.

250,000th aluminium bodyThe 250,000th Audi with aluminium bodyleaves the production line at Neckarsulm– an A8 4.0 TDI quattro. Audi has beenusing aluminium in volume productionfor around ten years now, and has thusset new standards as a pioneer of light-weight design: the A2 and A8 modelswith their all-aluminium body havecollected around 40 awards from inter-nationally renowned institutions andmedia.

Design awardsAudi models win three out of twelvecategories in the face of competitionfrom 326 candidates from both Germanyand other countries in the reader poll“Autonis 2003” staged by the periodical“AUTO Straßenverkehr”. This emphaticdecision by nearly 50,000 well-informedreaders serves to underline the charisma of Audi’s design philosophy.

More triumphs for the Audi R8Audi wins the American Le Mans Seriesfor the fourth time in succession. TheAudi customer teams Infineon Joest andADT Champion Racing add to the Audi R8’s string of victories in the 2003season. Frank Biela and Marco Werner(Infineon Team Joest) win the drivers’standings ahead of JJ Lehto and JohnnyHerbert (Team ADT Champion Racing).

Awards for the Audi A8Readers of the motoring magazine “Auto Zeitung” award the Audi A8 the“Auto Trophy 2003” in the category“Luxury Class Overall”. The internationaltrade world is likewise outspoken in its praise of the A8: “The Audi A8 isclearly the best in its class and a techno-logical standard-bearer that will have an enduring impact on alternative light-weight concepts,” emphasises FritzEbert, President of the Automotive CircleInternational, at the presentation of the“EuroCarBody Award 2003”, the mostcelebrated European innovation prize forbody manufacturing.

April to June

October to DecemberJuly to September

German Commercial Code IAS

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Production2 Cars 352,589 446,808 491,501 557,777 619,030 626,059 650,850 727,033 735,913 761,582

Engines 544,538 607,175 620,603 763,928 1,241,351 1,266,896 1,187,666 1,225,448 1,284,488 1,342,883

Vehicle sales Cars 376,180 447,855 492,046 546,436 599,509 634,973 919,621 991,444 995,531 1,003,791

Audi Cars 376,180 447,855 492,046 546,436 599,509 634,708 653,404 726,134 742,128 769,893

Germany Cars 160,803 204,138 217,858 238,735 244,127 257,686 239,644 254,866 243,650 237,786

Outside Germany Cars 215,377 243,717 274,188 307,701 355,382 377,287 413,760 471,268 498,478 532,107

Outside Germany Percent 57.3 54.4 55.7 56.3 59.3 59.4 63.3 64.9 67.2 69.1

Market share, Germany Percent 5.2 6.2 6.1 6.8 6.5 6.8 6.9 7.5 7.4 7.4

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

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

Employees Average 32,215 32,823 34,529 37,761 41,011 45,800 49,396 51,141 51,198 52,689

Revenue EUR million 6,880 8,527 9,616 11,458 13,918 15,146 19,952 22,032 22,603 23,406

Cost of materials EUR million 4,457 5,620 6,365 7,568 9,578 10,155 14,539 15,860 16,726 17,163

Personnel costs EUR million 1,342 1,553 1,663 1,973 2,111 2,291 2,542 2,660 2,739 2,938

Personnel costs per employee EUR 41,660 47,311 48,173 52,251 51,485 50,022 51,456 52,018 53,496 55,763

Depreciation EUR million 467 529 455 556 885 945 1,199 1,435 1,641 1,871

Profit before tax EUR million 96 301 441 569 861 839 986 1,322 1,254 1,108

Net profit EUR million 11 57 154 188 237 324 734 769 774 816

Share price (year-end price)3 EUR 24.03 24.29 48.06 70.81 75.16 61.20 59.59 160.00 191.00 225.00

Compensatory payment EUR 0.15 0.31 0.46 0.61 0.77 0.77 1.20 1.30 1.30 X4

Added value EUR million 1,464 1,882 2,157 2,606 3,039 3,198 3,600 3,914 4,023 4,292

Capital investments EUR million 769 442 739 1,006 1,620 1,516 2,422 2,151 2,410 2,094

Cash flow5 EUR million 624 907 765 1,020 1,213 1,163 2,094 2,452 2,503 2,9256

Fixed assets EUR million 1,835 1,714 1,978 2,412 3,126 3,679 6,988 7,624 8,238 8,471

Current assets EUR million 1,787 2,562 2,914 3,182 3,359 3,024 3,379 3,631 4,548 5,742

Equity EUR million 910 926 1,014 1,109 1,231 1,441 3,817 4,342 4,940 5,658

Liabilities EUR million 2,712 3,349 3,878 4,485 5,254 5,262 6,551 6,913 7,847 8,555

Balance sheet total EUR million 3,622 4,275 4,892 5,594 6,485 6,703 10,368 11,256 12,787 14,213

1 Figures for 2001 calculated for the first time according to the International Accounting Standards (IAS); figures for the 2000 financial year reconciled with IAS for purposes of comparison

2 Excluding 2,021 (1994) and 875 (1995) Avant RS23 Figures for 1994 –1998 adjusted at ratio of 1:10 following introduction of individual share certificates;

year-end price on Munich Stock Exchange4 In accordance with the resolution to be passed by the Annual General Meeting of Volkswagen AG on April 22, 20045 In IAS: cash flow from operating activities6 New method of reporting cash flow from operating activities from 2003; the figure for 2002 has been adjusted

102 | 103

10-Year Overview1

Dec. 31, 2003 Dec. 31, 2002 Change in %

Production Cars 761,582 735,913 3.5

Engines 1,342,883 1,284,488 4.5

Vehicle sales Cars 1,003,791 995,531 0.8

Audi 769,893 742,128 3.7

Germany 237,786 243,650 – 2.4

Outside Germany 532,107 498,478 6.7

Lamborghini 1,305 424 207.8

Other Volkswagen Group brands 232,593 252,979 – 8.1

Employees Average 52,689 51,198 2.9

Revenue EUR million 23,406 22,603 3.6

Profit before tax EUR million 1,108 1,254 – 11.6

Net profit EUR million 816 774 5.4

Rate of return before tax Percent 4.7 5.6

Capital investments EUR million 2,094 2,410 – 13.1

Capitalised development costs 636 834 – 23.7

Depreciation EUR million 1,871 1,641 14.0

Cash flow from

operating activities EUR million 2,9251 2,503 16.9

Balance sheet total EUR million 14,213 12,787 11.2

Equity ratio Percent 39.8 38.6

1 New method of reporting cash flow from operating activities from 2003; the figure for 2002 has been adjusted

Audi Group Key Figures

Road Book of Emotions

2003 Annual Report

2003 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 25, 2004Customer Centre at Audi Forum Ingolstadt

Annual General MeetingMay 12, 2004Customer Centre at Audi Forum Ingolstadt

Interim ReportAugust 3, 2004

2004 Financial Calendar

This booklet provides an overview of the Audi model range. If this pocket is empty, please contact the Finance Analysis and Publications Department:

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