Annual Reports

  • 20-F (May 17, 2016)
  • 20-F (Apr 30, 2015)
  • 20-F (Apr 30, 2014)
  • 20-F (Apr 29, 2013)
  • 20-F (Apr 30, 2012)
  • 20-F (Jun 29, 2011)

 
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Empresas Ica Soc Contrladora 20-F 2007
FORM 20-F
Table of Contents

 
Washington, D.C. 20549
 
Form 20-F
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2006
 
Commission File number: 001-11080
 
(Exact name of registrant as specified in its charter)
 
     
The ICA Corporation   United Mexican States
(Translation of registrant’s name into English)   (Jurisdiction of incorporation or organization)
 
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
 
     
Title of each class:
 
Name of each exchange on which registered
 
Ordinary Shares
  New York Stock Exchange, Inc.*
Ordinary Participation Certificates, or CPOs, each representing one Ordinary Share
  New York Stock Exchange, Inc.*
American Depositary Shares, or ADSs, evidenced by American Depositary Receipts, each representing 12 CPOs
  New York Stock Exchange, Inc.
 
 
* Not for trading, but only in connection with the registration of American Depositary Shares, pursuant to the requirements of the Securities and Exchange Commission.
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: N/A
 
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 405,177,479 Ordinary Shares
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes þ No o
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934.
Yes o No þ
 
Note:  Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
 
Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 o Item 18 þ
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).
Yes o No þ
 


 

 
 
             
        Page
 
  Identity of Directors, Senior Management and Advisors   1
  Offer Statistics and Expected Timetable   1
  Key Information   1
  Information on the Company   21
  Unresolved Staff Comments   40
  Operating and Financial Review and Prospects   40
  Directors, Senior Management and Employees   64
  Major Shareholders and Related Party Transactions   77
  Financial Information   79
  The Offer and Listing   83
  Additional Information   86
  Quantitative and Qualitative Disclosures about Market Risk   95
  Description of Securities Other than Equity Securities   96
  Defaults, Dividend Arrearages and Delinquencies   96
  Material Modifications to the Rights of Security Holders and Use of Proceeds   96
  Controls and Procedures   97
  [Reserved]   100
  Audit Committee Financial Expert   100
  Code of Ethics   100
  Principal Accountant Fees and Services   100
  Exemptions from the Listing Standards for Audit Committees   101
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers   101
  Financial Statements   102
  Financial Statements   102
  Exhibits   102
  F-1
  G-1
 EX-1.1: AMENDED AND RESTATED BY-LAWS
 EX-4.13: AMENDMENT NO.2 TO THE AMENDED AND RESTATED CONSORTIUM AGREEMENT
 EX-8.1: SIGNIFICANT SUBSIDIARIES
 EX-11.1: CODE OF ETHICS AS AMENDED
 EX-12.1: CERTIFICATION
 EX-12.2: CERTIFICATION
 EX-13.1: CERTIFICATION


Table of Contents

PART I
 
 
Empresas ICA, S.A.B. de C.V., or ICA, is a corporation (sociedad anonima bursatil de capital variable) organized under the laws of the United Mexican States, or Mexico. Our principal executive offices are located at Mineria No. 145, Edificio Central, 11800 Mexico City, Mexico.
 
Item 1.   Identity of Directors, Senior Management and Advisors
 
Not applicable.
 
Item 2.   Offer Statistics and Expected Timetable
 
Not applicable.
 
Item 3.   Key Information
 
SELECTED FINANCIAL DATA
 
Our financial statements are prepared in accordance with Mexican Financial Reporting Standards, or MFRS, the body of Mexican accounting principles which differ in certain significant respects from accounting principles generally accepted in the United States, or U.S. GAAP. Note 29 to our financial statements provides a description of the principal differences between MFRS and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of our net income and total stockholders’ equity.
 
We publish our financial statements in Mexican pesos. Pursuant to MFRS, our financial statements included in this report and financial data for all periods throughout this annual report, unless otherwise indicated, have been restated in constant Mexican pesos as of December 31, 2006.
 
References in this annual report to “dollars,” “U.S.$” or “U.S. dollars” are to United States dollars. References to “Ps.” or “pesos” are to Mexican pesos. This annual report contains translations of certain Mexican pesos amounts into U.S. dollars at specified rates solely for your convenience. These translations should not be construed as representations that the Mexican peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, U.S. dollar amounts have been translated from Mexican pesos at an exchange rate of Ps.10.7995 to U.S.$1.00, the noon buying rate for Mexican pesos on December 29, 2006 as published by the Federal Reserve Bank of New York. On June 28, 2007 the Federal Reserve noon buying rate was Ps.10.79 to U.S $1.00.
 
The term “billion” as used in this annual report means 1,000 million. Certain amounts in this annual report may not total due to rounding.
 
Unless otherwise noted herein, all share and per share data in this annual report have been adjusted for all periods presented to reflect the 6:1 reverse stock split that we undertook in December 2005. See “Item 4. Information on the Company — History and Development of the Company — Reverse Stock Split.”
 
References in this annual report to “UDI” are to Unidades de Inversion, a Mexican peso currency equivalent indexed for Mexican inflation. UDIs are units of account whose value in pesos is indexed to inflation on a daily basis, as measured by the change in the Mexican National Consumer Price Index, or NCPI. As of December 31, 2006, one UDI was equal to approximately Ps.3.788954.
 
Our financial statements were prepared in accordance with MFRS Bulletins B-10, B-12, and B-15 issued by the Mexican Board for Research and Development of Financial Reporting Standards (Consejo Mexicano para la Investigacion y Desarrollo de Normas de Informacion Financiera A.C., or CINIF). Bulletin B-10 is designed to provide for the recognition of the effects of inflation by requiring us to record gains or losses in


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purchasing power from holding monetary liabilities or assets and to restate to constant Mexican pesos as of the date of the most recent balance sheet presented:
 
  •  Non-monetary assets should be restated using the NCPI,
 
  •  Alternatively, non-monetary assets of foreign origin may be restated using the consumer price index of the country of origin applied to the historical cost of the asset denominated in the relevant foreign currency and then translated into Mexican pesos at the exchange rate in effect at the most recent balance sheet date, and
 
  •  Non-monetary liabilities should be restated using the NCPI.
 
Bulletin B-12 requires that the statement of changes in financial position reconcile changes from the restated historical balance sheet to the current balance sheet. Bulletin B-15 allows prior period financial statements to be restated using a weighted average multiplier that reflects the NCPI for our Mexican operations and the inflation and currency exchange rate in the countries where our foreign subsidiaries operate for our foreign operations.
 
The difference between inflation accounting under MFRS and U.S. GAAP is not required to be included in the reconciliation to U.S. GAAP. See note 29 to our financial statements.
 
Note 29 to our audited consolidated financial statements provides a description of the principal differences between MFRS and U.S. GAAP as they relate to our company, together with a reconciliation to U.S. GAAP of net income and stockholders’ equity. As is described in note 29 to our audited consolidated financial statements, all of the financial information under U.S. GAAP in this annual report presented for years prior to 2006 was restated in 2005 to reflect (1) the reclassifications of amounts between accounts within stockholders’ equity due to differences related to (a) applications of accumulated losses against common stock allowed for MFRS but prohibited by U.S. GAAP and (b) application of offering costs for a public offering of stock in 2005 against common stock for U.S. GAAP, as such costs were applied against retained earnings for MFRS; (2) the reclassifications among operating, investing and financing activities and cash and cash equivalents within the U.S. GAAP cash flow statement for presentation of (a) restricted cash, included in cash and cash equivalents in MFRS, which must be presented under investing activities for U.S. GAAP purposes; (b) an available-for-sale investment that was included in cash and cash equivalents under MFRS and should be presented within investing activities for U.S. GAAP; (c) other assets within operating activities, which were presented in investing activities in the prior year cash flow; (d) long-term liabilities within operating activities, which were presented in financing activities in the prior year cash flow; and (e) inclusion of the effects (including supplemental disclosure) of fixed asset purchases on account; and (3) the restatement of deferred income taxes to include the effects of proportionately consolidating ICA Fluor Daniel, S. de R.L. de C.V.


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The following tables present our selected consolidated financial information and that of our subsidiaries for each of the periods indicated. This information should be read in conjunction with, and is qualified in its entirety by reference to, our financial statements, including the notes to our financial statements.
 
                                                 
    2006     2006     2005     2004     2003     2002  
    (Millions
    (Thousands of Mexican pesos, except per share and per ADS data)  
    of U.S.
       
    dollars)(1)        
 
Income Statement Data:
                                               
MFRS:
                                               
Total revenues
  U.S.$ 1,982     Ps. 21,395,719     Ps. 19,231,278     Ps. 13,707,074     Ps. 10,362,815     Ps. 9,433,702  
Gross profit
    285       3,068,379       2,411,782       1,721,476       1,036,458       1,321,766  
Selling, general and administrative expense
    134       1,450,769       1,309,436       1,175,025       991,833       1,145,270  
Operating income
    151       1,617,610       1,102,345       546,451       44,625       176,496  
Financing cost (income) net
    18       187,621       117,332       (13,020 )     402,979       514,814  
Other (income) expense, net(2)
    (5 )     (57,319 )     (155,559 )     16,583       297,893       255,944  
Income tax(3)
    35       381,564       360,045       533,653       359,650       609,804  
Share in income (loss) of affiliated companies
    2       21,525       102,139       182,932       (181,093 )     (148,778 )
Consolidated net income (loss)
    92       985,843       782,930       163,020       (1,200,450 )     (1,409,587 )
Net income (loss) of minority interest
    32       340,883       258,678       65,996       (40,594 )     153,555  
Net income (loss) of majority interest
    60       644,960       524,252       97,024       (1,159,856 )     (1,563,143 )
Basic and diluted earnings (loss) per share of majority interest(5)
    0.15       1.60       1.51       0.31       (9.08 )     (13.31 )
Basic and diluted earnings (loss) per ADS of majority interest(5)
    0.88       9.60       9.06       1.88       (54.50 )     (79.85 )
Weighted average shares outstanding (000s):
                                               
Basic and diluted(5)
    404,182       404,182       347,127       310,030       127,689       117,449  
U.S. GAAP:
                                               
Total revenues
    1,612       17,411,455       15,221,303       11,506,675       8,246,478       6,391,369  
Operating income (loss)(7)
    131       1,414,201       816,732       501,356       (60,046 )     (377,842 )
Income (loss) from continuing operations(4)
    56       466,687       482,131       (43,731 )     (1,179,651 )     (1,596,797 )
Income (loss) from discontinued operations(4)
                      60,044       (27,174 )     98,295  
Consolidated net income (loss)
    56       466,687       482,131       20,313       (1,206,825 )     (1,498,502 )
Basic earnings (loss) per share from:
                                               
Continuing operations(5)
    0.11       1.15       1.39       (0.14 )     (9.24 )     (13.60 )
Discontinued operations(5)
                      0.20       (0.21 )     0.84  
Basic earnings (loss) per share(5)
    0.11       1.15       1.39       0.06       (9.45 )     (12.76 )
Basic earnings (loss) per ADS(5)
    0.66       6.91       8.34       0.36       (56.70 )     (76.56 )
Diluted earnings (loss) per share from:
                                               
Continuing operations
    0.11       1.15       1.39       (0.14 )     (9.24 )     (13.60 )
Discontinued operations
                      0.20       (0.21 )     0.84  
Diluted earnings (loss) per share(5)
    0.11       1.15       1.39       0.06       (9.45 )     (12.76 )
Diluted earnings (loss) per ADS(5)
    0.66       6.91       8.33       0.39       (56.71 )     (76.55 )
Weighted average shares outstanding (000s):
                                               
Basic
    404,182       404,182       347,127       310,030       127,869       117,449  
Diluted
    404,997       404,997       347,510       310,030       127,869       117,449  
Balance Sheet Data:
                                               
MFRS:
                                               
Total assets
  U.S.$ 3,357     Ps. 36,257,131     Ps. 32,361,618     Ps. 21,705,223     Ps. 17,268,378     Ps. 16,734,378  
Long-term debt(8)
    674       7,273,864       10,437,196       6,656,148       3,488,559       463,061  
Capital stock
    701       7,568,470       7,727,490       9,467,404       8,938,170       7,066,605  


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    2006     2006     2005     2004     2003     2002  
    (Millions
    (Thousands of Mexican pesos, except per share and per ADS data)  
    of U.S.
       
    dollars)(1)        
 
Total stockholders’ equity
    1,305       14,092,014       13,405,197       6,309,522       5,781,836       4,543,102  
U.S. GAAP:
                                               
Total assets
    3,100       33,482,950       30,328,576       19,912,410       15,930,676       15,098,572  
Long-term debt(8)
    1,498       7,273,864       10,393,245       6,838,578       3,637,776       4,607,967  
Capital stock(6)(9)
    1,796       19,395,914       16,384,546       13,865,923       13,781,830       12,570,450  
Total stockholders’ equity(6)(9)
    822       8,860,973       8,626,078       5,766,469       5,436,629       4,225,891  
Other Data:
                                               
MFRS:
                                               
Capital expenditures
    136       1,471,079       1,039,404       1,115,994       672,838       196,963  
Depreciation and amortization
    79       848,914       763,148       965,157       598,145       483,878  
Inflation Data:
                                               
Change in consumer price index
  n/ a       4.05       3.33       5.19       5.19       3.97  
Restatement factor
  n/ a       4.49       0.15       3.64       3.64       8.95  
 
 
(1) Except share and inflation data. Amounts stated in U.S. dollars as of and for the year ended December 31, 2006 have been translated at a rate of Ps.10.7995 to U.S.$1.00 using the Federal Reserve noon buying rate on December 29, 2006. See “Exchange Rates.”
 
(2) Includes for 2005 gain on purchases and sales of investments of Ps.82 million and other income of Ps.55 million relating to gain from sale of claims rights. Includes for 2004 other expense of Ps.33 million relating to severance costs and a Ps.173 million reversal of an impairment charge related to a concession. Includes for 2003 other expense of Ps.51 million relating to severance costs, Ps.132 million in costs associated with the curtailment of the pension plan and Ps.21 million in other income relating to a reversal of an impairment charge related to an investment in property, plant and equipment. Includes for 2002 other expense of Ps.134 million relating to severance costs, and other expense of Ps.90 million from the write-off of recoverable value-added taxes. See, “Item 5. Operating and Financial Review and Prospects — Operating Result — Other Expenses, Net.”
 
(3) Effective January 1, 1999, we adopted Bulletin D-4 “Accounting for Income Tax, Tax on Assets and Statutory Employee Profit Sharing.”
 
(4) Our construction aggregates and manufacturing segments are reported as discontinued operations as a result of the sale of our interest in subsidiaries engaged in the construction aggregates segment in 2003 and the disposition of our manufacturing segment in 2002.
 
(5) Basic earnings (loss) per share and per ADS are based on the weighted average number of shares outstanding during each period and considering 6 shares per ADS. Diluted earnings (loss) per share and per ADS are calculated by giving effect to all potentially dilutive common shares outstanding during the period. See note 29 to our financial statements.
 
(6) We adopted in 2006 the recognition and disclosure provisions of SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R)”. The effect of this adoption resulted in a decrease in accumulated other comprehensive income within stockholders’ equity for Ps.256,692, net of income taxes (see note 29 (g)).
 
(7) There are differences in the classification of (i) certain expenses recorded under “other expenses (income)” related to severance costs, and the allowance and reversal for impairment of investments in concessions, property, plant and equipment and goodwill and (ii) statutory employee profit sharing. Under MFRS, these expenses are treated as non operating expenses and are not deducted in calculating operating income (loss), whereas under U.S. GAAP these expenses are treated as operating expenses and are deducted in calculating operating income (loss). Such amounts for 2006, 2005, 2004, 2003 and 2002 totaled Ps.216 million, Ps.(55) million, Ps.33 million, Ps.164 million and Ps.216 million, respectively. See note 29 to our financial statements.
 
(8) Excluding current portion of long-term debt.

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(9) In the current as well as prior years, the stockholders of the Company approved the reclassification of accumulated losses as well as the portion of the insufficiency from restatement of capital related to inflationary effects against common stock. The Company determined that such applications of losses against common stock are not appropriate under U.S. GAAP. Such difference between MFRS and U.S. GAAP does not affect total stockholders’ equity under U.S. GAAP, but rather reclassifies amounts among stockholders’ equity which are affected by such applications, including retained earnings, cumulative other comprehensive income, common stock, additional paid-in capital and the reserve for the repurchase of shares (see note 29).
 
The principal differences, other than inflation accounting, between MFRS and U.S. GAAP and their effects upon net income (loss) and total stockholders’ equity are presented below. See note 29 to our financial statements.


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    Year Ended December 31,  
    2006     2006     2005     2004     2003     2002  
    (Millions
    (Thousands of Mexican pesos)  
    of U.S.
       
    dollars)(1)        
 
Reconciliation of net income (loss):
                                               
Net income (loss) of majority reported under MFRS
  U.S.$ 60     Ps. 644,960     Ps. 524,252     Ps. 97,024     Ps. (1,159,856 )   Ps. (1,563,143 )
U.S. GAAP adjustments for:
                                               
B-15 effect
                (2,208 )     2,659       (49,610 )     55,514  
Deferred income taxes
    (8 )     (87,069 )     50,351       (3,948 )     42,825       45,619  
Deferred statutory employee profit sharing
    (12 )     (128,855 )                       (55,060 )
Reversal of low-income housing sales
    (5 )     (55,288 )                                
Capitalization of financing costs
          3,058       1,596       69,639       37,973       17,631  
Restatement for inflation on foreign sourced fixed assets
    (1 )     (6,507 )     (4,479 )     (15,352 )     (31,814 )     (6,949 )
Accrual for severance payments
    1       11,013       5,799       (19,287 )     (20,606 )      
Exchange loss from Argentine subsidiary
                                  28,328  
Compensation cost on stock option plan
          (1,429 )     (1,816 )     (2,426 )            
Impairment reversal
    1       7,689       5,676       (170,070 )     (21,857 )      
Effect of adjustment to labor obligations liability
                                  (21,246 )
Reversal of compensation cost recognized in MFRS upon exercise of option
    2       19,190       4,094                    
Fair value interest rate cap
                (62,251 )     62,251              
Minority interest applicable to above adjustments
    6       59,925       (38,883 )     (177 )     (3,879 )     804  
                                                 
Net income (loss) under U.S. GAAP
    44       466,687       482,131       20,314       (1,206,825 )     (1,498,502 )
                                                 
Reconciliation of stockholders’ equity
                                               
Total stockholders’ equity reported under MFRS
    1,305       14,092,014       13,405,197       6,309,521       5,781,836       4,543,102  
B-15 effect
                (37,485 )     158,692       249,320       (165,719 )
Less minority interest in consolidated subsidiaries included as stockholders’ equity under MFRS
    (420 )     (4,533,411 )     (4,504,111 )     (519,497 )     (478,177 )     (179,574 )
U.S. GAAP adjustments for:
                                               
Effect on retained earnings from:
                                               
Deferred income taxes
    (202 )     (2,185,977 )     (2,098,908 )     (2,149,259 )     (2,145,311 )     (2,188,136 )
Deferred statutory employee profit sharing
    (33 )     (361,682 )     (232,826 )     (232,826 )     (232,826 )     (232,826 )
Restatement for inflation on foreign sourced fixed assets
    (21 )     (232,124 )     (225,618 )     (221,139 )     (205,787 )     (173,973 )
Capitalization of financing costs
    (5 )     (50,487 )     (53,545 )     (55,141 )     (124,780 )     (162,753 )
Reversal of low-income housing sales
    (5 )     (55,288 )                                
Accrual for severance payments
    (5 )     (69,277 )     (80,290 )     (86,089 )     (66,802 )     (45,556 )
Gain on sale of foreign subsidiaries
    24       260,930       260,930       260,930       260,930       260,930  
Reversal of additional paid-in capital recognized in MFRS upon exercise of option
    (2 )     (23,284 )                        
Fair value of interest rate cap
                      62,251              
Impairment reversal
    (17 )     (178,562 )     (186,251 )     (191,926 )     (21,857 )        


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    Year Ended December 31,  
    2006     2006     2005     2004     2003     2002  
    (Millions
    (Thousands of Mexican pesos)  
    of U.S.
       
    dollars)(1)        
 
Reversal of compensation cost recognized in MFRS upon exercise of option
    2       23,284       2,278                    
Effect on insufficiency from restatement of capital and accumulated other comprehensive income related to:
                                               
Deferred income taxes
    199       2,153,149       2,158,253       2,190,259       2,179,213       2,181,465  
Deferred statutory employee profit sharing
    8       81,754       81,754       81,754       81,754       81,754  
Restatement for inflation on foreign sourced fixed assets
    20       219,329       219,329       219,329       219,329       219,329  
Gain on sale of foreign subsidiaries
    (24 )     (260,930 )     (260,930 )     (260,930 )     (260,930 )     (260,930 )
Adjustment for excess of additional minimum liability
    2       16,643       16,643                    
Adjustment to initially apply SFAS No. 158, net of tax
    (24 )     (256,692 )                        
Minority interest applicable to above adjustments
    21       221,584       161,658       200,540       200,716       204,524  
                                                 
Stockholders’ equity under U.S. GAAP
  U.S.$ 822     Ps. 8,860,973     Ps. 8,626,078     Ps. 5,766,469     Ps. 5,436,629     Ps. 4,225,891  
                                                 

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The following table sets forth, for the periods indicated, the high, low, average and period-end, free-market exchange rate between the peso and the U.S. dollar, expressed in pesos per U.S. dollar. The average annual rates presented in the following table were calculated using the average of the exchange rates on the last day of each month during the relevant period. The data provided in this table is based on noon buying rates published by the Federal Reserve Bank of New York for cable transfers in Mexican pesos. We have not restated the rates in constant currency units. All amounts are stated in pesos. We make no representation that the Mexican peso amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all.
 
                                 
    Exchange Rate  
Year Ended December 31,
  High     Low     Period End     Average(1)  
 
2002
    10.43       9.00       10.43       9.75  
2003
    11.40       10.11       11.24       10.79  
2004
    11.64       10.81       11.15       11.31  
2005
    11.41       10.41       10.63       10.87  
2006
    11.46       10.43       10.99       10.90  
December 2006
    10.99       10.77       10.80       10.85  
2007:
                               
January 2007
    11.09       10.76       11.04       10.96  
February 2007
    11.16       10.98       11.16       11.00  
March 2007
    11.18       11.01       11.04       11.11  
April 2007
    11.03       10.92       10.93       10.98  
May 2007
    10.93       10.74       10.74       10.82  
 
 
(1) Average of month-end rates or daily rates, as applicable.
 
Source: Federal Reserve Bank of New York.
 
In recent decades, the Mexican Central Bank has consistently made foreign currency available to Mexican private-sector entities (such as us) to meet their foreign currency obligations. Nevertheless, in the event of shortages of foreign currency, there can be no assurance that foreign currency would continue to be available to private-sector companies or that foreign currency needed by us to service foreign currency obligations or to import goods could be purchased in the open market without substantial additional cost.
 
Fluctuations in the exchange rate between the peso and the U.S. dollar will affect the U.S. dollar value of securities traded on the Mexican Stock Exchange (Bolsa Mexicana de Valores), and, as a result, will likely affect the market price of our American Depository Shares, or ADSs. Such fluctuations will also affect the U.S. dollar conversion by The Bank of New York, the depositary for our ADSs, of any cash dividends paid by us in pesos.
 
On December 29, 2006, the Federal Reserve Bank of New York’s noon buying rate was Ps.10.80 per U.S.$1.00. On June 28, 2007, the Federal Reserve Bank of New York’s noon buying rate was Ps.10.79 per U.S.$1.00.
 
For a discussion of the effects of fluctuations in the exchange rates between the Mexican peso and the U.S. dollar, see “Item 10. Additional Information — Exchange Controls.”


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RISK FACTORS
 
Risks Related to Our Operations
 
 
Our performance historically has been tied to Mexican public-sector spending on infrastructure facilities and to our ability to bid successfully for such contracts. Mexican public-sector spending, in turn, generally has been dependent on the state of the Mexican economy. A decrease in public-sector spending as a result of a deterioration of the Mexican economy, changes in Mexican governmental policy, or for other reasons can have an adverse effect on our financial condition and results of operations. In the period leading up to and following the recent change in Mexico’s president and Congress, the number of large public sector construction contracts the Mexican government offered for public bidding decreased and some public sector projects were deferred. We cannot provide any assurances that political developments in Mexico, over which we have no control, will not negatively affect our operations. See “Risk Factors — Risks Related to Mexico and Other Markets in Which We Operate — Economic and political developments in Mexico could affect Mexican economic policy and our business, financial condition and results of operations.”
 
 
In March 2003, the Mexican Federal Electricity Commission (Comision Federal de Electricidad, or CFE) awarded a U.S.$748 million (subsequently increased to U.S.$852 million as of December 31, 2006) contract for the engineering, procurement and construction of the El Cajon hydroelectric project to Constructora Internacional de Infraestructura, S.A. de C.V., or CIISA, a consortium in which two of our subsidiaries hold a combined 75% interest. The terms of the El Cajon contract required that we secure financing for the project costs and limit disbursements during the construction phase to 80% of the cash cost of any certified work performed. Because the terms of the construction contract provided that the CFE would pay for the project upon completion, and the financing obtained by CIISA covers only the project’s cash costs, the project did not generate any significant cash flow to us until February 27, 2007, when the CFE paid CIISA U.S.$525 million upon the delivery of the project’s first turbine unit. On June 1, 2007, CIISA delivered, and the CFE provisionally accepted, the project’s second turbine unit, the final acceptance of which, pursuant to the contract, requires CIISA to successfully conclude performance tests and deliver related documentation. We expect to complete the project in August 2007. There can be no assurance that we will receive part or all of the remaining U.S.$348 million owed to CIISA upon the project’s completion, or that we will recover any additional amounts that may be in dispute. We have recognized revenues from the El Cajon project based on the percentage of completion method of accounting, which relies on certain estimates and assumptions, and which as of March 31, 2007 permits us to recognize a value of U.S.$873 million. Since a substantial majority of the project’s revenues have been recognized and costs have been incurred as of March 2007, any decrease in the actual revenues collected or expected to be collected from the project would likely have a material impact on our cash flows and operating profit in 2007.
 
 
The market for construction services in Mexico is highly competitive. As a result of the integration of the Mexican economy into the global economy, we must compete with foreign construction companies for most of the industrial and infrastructure projects on which we bid in Mexico. We believe that competition from foreign companies has adversely affected the Mexican construction industry’s operating margins, including our own, as foreign competition has driven down pricing. Furthermore, many of our foreign competitors have better access to capital and greater financial and other resources, which affords them a competitive advantage in bidding for such projects.
 
Foreign competition also allows sponsors such as governing agencies for infrastructure construction and industrial construction projects to require contractors to provide construction on a “turnkey” basis, which increases our financial risks.
 
See “Item 4. Information on the Company — Business Overview — Description of Business Segments — Industrial Construction.”


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Under our accounting procedures, we measure and recognize a large portion of our revenues and profits under the percentage-of-completion accounting methodology. This methodology allows us to recognize revenues and profits ratably over the life of a construction contract without regard to the timing of receipt of cash payments by comparing the amount of the costs incurred to date against the total amount of costs expected to be incurred. The effect of revisions to revenues and estimated costs is recorded when the amounts are known and can be reasonably estimated, and these revisions can occur at any time and could be material. On a historical basis, we believe that we have made reasonably reliable estimates of the progress towards completion on our long-term contracts. However, given the uncertainties associated with these types of contracts, it is possible for actual costs to vary from estimates previously made, which may result in reductions or reversals of previously recorded revenues and profits.
 
 
In recent years we faced substantial constraints on our liquidity due to reduced sales and requirements to reduce or pay our corporate debt. Our expected future sources of liquidity include cash flow from our construction activities and third party financing to fund our projects’ capital requirements. There can be no assurance that we will be able to continue to generate liquidity from any of these sources.
 
We continue to face large funding needs for new projects that require full or partial financing and guarantees in the form of letters of credit and continuing financing needs from our current projects. The demand for funding could adversely affect our liquidity. There can be no assurance we will not face similar funding needs in the future. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources.”
 
 
We believe that our ability to finance construction projects through various financial arrangements has enabled us to compete more effectively in obtaining such projects. Providing financing for construction projects, however, increases our capital requirements and exposes us to the risk of loss of our investment in the project. We seek to compensate for this risk by entering into financing arrangements only on terms that we believe provide us with a reasonable return on our investment. There can be no assurance that we will be able to realize these objectives.
 
 
Historically, a majority of our construction business was conducted under unit price contracts, which contain an “escalation” clause that permits us to increase unit prices to reflect the impact of increases in the costs of labor, materials and certain other items due to inflation. These unit price contracts allow flexibility in adjusting the contract price to reflect work actually performed and the effects of inflation. In recent years, however, our construction contracts have been increasingly fixed price or not-to-exceed contracts, under which we are committed to provide materials or services at fixed unit prices, including our two major raw material requirements — cement and steel. Fixed price and not-to-exceed contracts shift the risk of any increase in our unit cost over our unit bid price to us. See “Item 4. Information on the Company — Business Overview — Description of Business Segments — Construction — Contracting Practices.”
 
In the past we experienced significant losses due to risks assumed by us in fixed price and not-to-exceed contracts, and we may face similar difficulties in the future. For example, a number of our construction contracts specify fixed prices for various raw materials and other inputs necessary for the construction business, including steel, asphalt, cement, construction aggregates, fuels and various metal products, increased prices of which can negatively affect our results if we are unable to transfer the risk to the customer.


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Under the terms of many of our fixed price contracts, we have been required to bear the cost of the increases in the cost of raw materials from the time we entered into the contracts, which has adversely affected our results of operations. We do not enter into long-term purchase contracts for cement or steel and, instead, rely on purchases from various suppliers. Prices for various steel products increased significantly between 2003 and 2006, which we believe has primarily been the result of substantially increased economic activity in China and, in 2006, a strike by a miners union at one of Mexico’s largest domestic producers of iron ore. In addition, there has been an increase in the price of copper products, which we estimate increased our expenses by approximately U.S.$5 million during the period from August 2004 to March 2007. Although we seek to negotiate for the recognition of the increase in the cost of raw materials for our contracts whenever possible, there can be no assurance that we will be successful in recovering any portion of these cost increases, which will negatively affect our operating margins.
 
We may also run into other construction and administrative cost overruns, including as a result of incorrect contract specifications that we are unable to pass on to the customer. We expect that, because of conditions attendant to financing arrangements, future concession-related, infrastructure and industrial construction contracts may not permit an adjustment of the contract price for additional work done due to incorrect project specifications and, as a result, our operating margins will be negatively affected. See “Item 5. Operating and Financial Review and Prospects — Operating Results — Construction — Civil Construction.”
 
 
As of March 31, 2007, we had total cash and short-term investments of Ps.4,525 million (March 31, 2007 pesos), as compared to Ps.5,108 million as of December 31, 2006, Ps.6,545 million as of December 31, 2005 and Ps.3,704 million as of December 31, 2004. As of March 31, 2007, we held 71% of our total cash and short-term investments through less-than-wholly owned subsidiaries or in joint ventures (42% in Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., or GACN, 28% in ICA-Fluor, 4% in CIISA and 1% in Rodio Cimentaciones Especiales S.A. and Kronsa Internacional S.A., our Spanish construction subsidiaries, which we refer to as Rodio Kronsa). The remainder of our total cash and short-term investments as of March 31, 2007 (Ps.1,293 million), was held at the parent company or in other operating subsidiaries. The use of cash and cash equivalents by ICA-Fluor, CIISA or Rodio Kronsa requires the consent of the other shareholders or partners, as applicable, of such subsidiary or joint venture, which are the Fluor Corporation, in the case of ICA-Fluor, La Peninsular Compañia Constructora, S.A. de C.V., Power Machines-ZTL, LMZ, Electrosila and Energomachtexport S.A. in the case of CIISA and Soletanche Bachy Group, in the case of Rodio Kronsa. Lack of such consent could limit our access to liquid resources and limits us from freely deciding when to use such cash.
 
 
As of March 31, 2007, a portion of our assets was pledged to issuers of letters of credit and under other credit arrangements. These assets are pledged to a number of banks, including: WestLB AG, Norddeutsche Landesbank Girozentrale and Banco Santander. The assets we have pledged include: series “B” shares in GACN held by Aeroinvest S.A. de C.V., or Aeroinvest (a subsidiary that indirectly holds interests in airport concessions); construction machinery and equipment owned by Ingenieros Civiles Asociados, S.A. de C.V. (a construction subsidiary); and the portion of cash flow that represents free cash flow from Corredor Sur and Acapulco tunnel. We expect that most of the assets securing letters of credit will remain pledged until the letters of credit secured by these assets expire. As a result of these arrangements, our ability to dispose of pledged assets requires the consent of these banks and our ability to incur further debt (whether secured or unsecured) is limited.
 
 
Historically, our clients have required us to obtain bonds to secure, among other things, bids, advance payments and performance. In recent years, however, our clients, including the CFE with the El Cajon


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hydroelectric project and Petroleos Mexicanos, or Pemex, have been increasingly requiring letters of credit and other forms of guarantees to secure such bids, advance payments and performance. In the past we have found it difficult to obtain the performance bonds or letters of credit necessary to perform the large infrastructure projects that historically have generated a substantial majority of our revenues. There can be no assurance that in the future we will not find it difficult to obtain performance bonds or letters of credit. Because we have pledged assets in order to secure letters of credit, our ability to provide additional letters of credit and other forms of guarantees secured with assets is limited, which may impact our ability to participate in projects in the future.
 
 
CIISA is required to post a performance bond or a letter of credit for the benefit of CFE equal to 10% of the value of the work to be performed each calendar year. CIISA obtained the U.S.$30 million letter of credit for 2005, the U.S.$10 million letter of credit for 2006 and the U.S.$1.0 million letter of credit for 2007. The letters of credit for any given year had to be obtained by December 31 of the preceding year. As owners of 75% of CIISA, we are required to obtain 75% of the aforementioned letters of credit, with the balance to be provided by the other shareholders of CIISA. In addition, we may be required to contribute additional capital to finance the portion of cash costs that are not disbursed by the CFE. In June 2006, we obtained a U.S.$60 million bank loan to finance the additional capital that we may be required to contribute to CIISA.
 
CIISA obtained permanent financing for the El Cajon hydroelectric project in the first quarter of 2004, consisting of a U.S.$452.4 million syndicated loan and a U.S.$230 million bond. The syndicated loan and bond contain various restrictive covenants typical for project financing. The permanent financing required that CIISA obtain U.S.$26 million in letters of credit to be used as collateral for the financing. The terms of the syndicated loan also include a U.S.$53 million contingent facility that can be drawn upon to cover increases in the cost of the project or if CFE requests that additional works be done on the project, and a U.S.$28 million cost-overrun facility that can be drawn upon to cover cost-overruns. If CIISA did not meet certain minimum financial ratios based on a percentage of certified work completed on the project, disbursements under the cost-overrun facility were contingent upon CIISA obtaining additional letters of credit. We used both the contingent and the cost-overrun facilities. In 2006 we executed a U.S.$60 million subordinated credit agreement with WestLB. Additionally, in 2007 CIISA posted a two-year quality guaranty for the first power generation unit in the form a U.S.$52 million bond and will be required to post an additional U.S.$33 million quality guaranty bond upon final acceptance of the second unit, which is expected to occur in August 2007. CIISA is a special purpose subsidiary created to construct the El Cajon hydroelectric project. We and the other shareholders of CIISA have agreed to guarantee certain obligations of CIISA under the project contracts, including the financing documents, subject to certain limitations in the event of an early termination of the public works contract for the project. If CIISA is unable to pay its liabilities, we would be forced to use part of our liquidity to fulfill the obligations.
 
 
We engage in engineering and construction activities for large facilities where design, construction or systems failures can result in substantial injury or damage to third parties. We have been and may in the future be named as a defendant in legal proceedings where parties may make a claim for damages or other remedies with respect to our projects or other matters. These claims generally arise in the normal course of our business. When it is determined that we have liability, we may not be covered by insurance or, if covered, the dollar amount of these liabilities may exceed our policy limits. In addition, even where insurance is maintained for such exposures, the policies have deductibles resulting in our assuming exposure for a layer of coverage with respect to any such claims. Any liability not covered by our insurance, in excess of our insurance limits or, if covered by insurance but subject to a high deductible, could result in a significant loss for us, which may reduce our profits and cash available for operations.
 
 
From 1994 to 2002, our strategy placed greater emphasis on our international operations in order to compensate for the lower level of construction activity in Mexico following the December 1994 Mexican peso


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devaluation and the resulting economic crisis in Mexico. We pursued this strategy through acquisitions of foreign companies, such as CPC S.A., or CPC, our former Argentine subsidiary, as well as through the direct involvement by our Civil Construction and Industrial Construction divisions in foreign projects, such as the Corredor Sur highway concession in Panama and the Malla Vial street network refurbishment project in Colombia. To date, our foreign projects in Latin America have generated mixed results. We had losses on projects such as the Malla Vial street network refurbishment project in Colombia, the construction of a segment of the light rail system in Puerto Rico, the construction of the San Juan Coliseum in Puerto Rico and the construction of the AES power project in the Dominican Republic. As a result of these losses, we have sought to be more selective in our involvement in international operations, and are placing limits on international operations based on risks related to the project’s location, the client and the risks inherent to particular projects. However, there can be no assurance we will be successful in these efforts. Based on the number of international contracts currently in place and past experience, there is a risk that future profits could be jeopardized.
 
 
In recent years, we have increasingly been required to meet minimum equity requirements, certain financial ratios or more stringent requirements in order to bid on large public infrastructure projects. For example, Pemex, Mexico’s state-owned oil company, has increasingly required that companies that submit bids for certain of its public projects meet minimum equity requirements. Similarly, Mexico City’s government has increasingly required that companies submitting bids for its public works projects meet certain minimum financial ratios. Although we have historically been able to comply with such requirements, there can be no assurance that we will be able to do so in the future. If we do not meet such requirements, it could reduce our ability to bid for potential projects, which would have an adverse effect on our financial condition and results of operations.
 
 
The amount of backlog is not necessarily indicative of our future revenues related to the performance of such work. Although backlog represents only business that is considered to be firm, there can be no assurance that cancellations, failure to collect or scope adjustments will not occur. As of March 31, 2007, three projects represented a significant part of our backlog: Ps.2,920 million or 25.3% of our construction backlog was related to a contract with Pemex for the construction of the cryogenic plants Reynosa 5 and Reynosa 6; Ps.1,880 million or 16.3% of our construction backlog was related to a contract with Pemex for the reconfiguration of Package II of the Minatitlan refinery, including auxiliary services, wastewater treatment and integration works at the facility, which we expect to complete in 2008; and Ps.1,162 million, or 10.1% of our construction backlog was related to contract with our subsidiary COVIQSA for the modernization and construction of the Queretaro-Irapuato Highway, which we expect to complete in 2008. We refer to the project contracted with Pemex for the reconfiguration of the Package II of the Minatitlan refinery as Package II of the Minatitlan refinery project. We cannot assure you that we will secure contracts equivalent in scope and duration to replace the backlog or that the current backlog will perform as expected. See “Item 5. Operating and Financial Review and Prospects — Operating Results — Construction — Construction Backlog.”
 
 
In certain instances, we have guaranteed completion of a project by a scheduled acceptance date or achievement of certain acceptance and performance testing levels. However, there is a risk that adherence to these guarantees may not be possible. The failure to meet any such schedule or performance requirements could result in costs that exceed projected profit margins, including fixed-amount liquidated damages up to a certain percentage of the overall contract amount and/or guarantees for the entire contract amount.
 
There can be no assurance that the financial penalties stemming from the failure to meet guaranteed acceptance dates or achievement of acceptance and performance testing levels would not have an adverse effect on our financial condition and results of operations.


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Our return on any investment in a highway, bridge, tunnel or wastewater treatment plant concession is based on the duration of the concession, in addition to the amount of usage revenues collected, debt service costs and other factors. Traffic volumes, and thus toll revenues, are affected by a number of factors including toll rates, the quality and proximity of alternative free roads, fuel prices, taxation, environmental regulations, consumer purchasing power and general economic conditions. The level of traffic on a given highway also is influenced heavily by its integration into other road networks. Given these factors, there can be no assurance that our return on any investment in a highway, bridge, tunnel or wastewater treatment plant concession will match estimates contained in the relevant concession agreement.
 
 
Our concession titles are some of our principal assets, and we would be unable to continue operations of a particular concession without the title. A concession may be revoked by the Mexican government for certain prescribed reasons pursuant to the particular title and the particular governing law, which may include failure to comply with development and/or maintenance programs, temporary or permanent halt in our operations, failure to pay damages resulting from our operations, exceeding our maximum rates or failure to comply with any other material term of a concession.
 
The Mexican government may also terminate a concession at any time through reversion, if, in accordance with applicable Mexican law, it determines that it is in the public interest to do so. The Mexican government may also assume the operation of a concession in the event of war, public disturbance or a threat to national security. In addition, in the case of a force majeure event, the Mexican government may require us to implement certain changes in our operations. In the event of a reversion of the public domain assets that are the subject of our concessions, the Mexican government under Mexican law is generally required to compensate us for the value of the concessions or added costs. Similarly, in the event of an assumption of our operations, other than in the event of war, the government is required to compensate us and any other affected parties for any resulting damages. There can be no assurance that we would receive compensation equivalent to the value of our investment in a concession.
 
 
We occasionally bring claims against project owners for additional cost that exceed the contract price or for amounts not included in the original contract price. These types of claims occur due to matters such as owner-caused delays or changes from the initial project scope, which result, both directly and indirectly, in additional cost. Often, these claims can be the subject of lengthy arbitration or litigation proceedings, and it is often difficult to accurately predict when these claims will be fully resolved. When these types of events occur and unresolved claims are pending, we may invest significant working capital in projects to cover cost overruns pending the resolution of the relevant claims. A failure to promptly recover on these types of claims could have a material adverse impact on our liquidity and financial condition.
 
Our continued success requires us to hire and retain qualified personnel.
 
Over the past year, the demand for employees who engage in and are experienced in the services we perform has continued to grow as our customers have increased their capital expenditures and the use of our services. The success of our business is dependent upon being able to attract and retain personnel, including engineers, corporate management and craft employees, who have the necessary and required experience and expertise. Competition for these kinds of personnel is intense. Difficulty in attracting and retaining these personnel could reduce our capacity to perform adequately in present projects and to bid for new ones.


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Our estimates of future performance depend on, among other matters, whether and when we will receive certain new contract awards. While our estimates are based upon our good faith judgment, these estimates can be unreliable and may frequently change based on newly available information. In the case of large-scale domestic and international projects where timing is often uncertain, it is particularly difficult to predict whether and when we will receive a contract award. The uncertainty of contract award timing can present difficulties in matching our workforce size with our contract needs. If an expected contract award is delayed or not received, Mexican labor law requirements could cause us to incur cost resulting from reductions in workforce or redundancy of facilities that would have the effect of reducing our profits.
 
 
Several years ago, we suffered recurring losses. We reported an operating loss of Ps.792 million in 2001, and net losses of Ps.1,200 million in 2003, Ps.1,409 million in 2002 and Ps.5,084 million in 2001. In 2006, 2005 and 2004, we reported both operating income and net income. Our long-term profitability is dependent in significant part on our ability to implement more selective contracting practices and productivity improvements, as well as various factors outside of our control, such as Mexican public sector spending on infrastructure, the demand for construction services, the cost of materials such as steel and cement, prevailing financing conditions and availability, and exchange and interest rates. There can be no assurance that we will be able to effectively implement more selective contracting practices and other productivity improvements, obtain financing on favorable terms, or that these various factors will not have an adverse effect on our financial condition or results of operations.
 
Risks Related to Our Airport Operations
 
 
In 2006, GACN represented 8% of our revenues and 39% of our operating income. The continuation of GACN’s airport concessions from the Mexican government is essential to GACN’s contribution of revenues. Any adverse effect to GACN would have an adverse effect on our operating results.
 
GACN’s revenues are closely linked to passenger and cargo traffic volumes and the number of air traffic movements at its airports. These factors directly determine GACN’s revenues from aeronautical services and indirectly determine its revenues from non-aeronautical services. Passenger and cargo traffic volumes and air traffic movements depend in part on many factors beyond our control, including economic conditions in Mexico and the U.S., the political situation in Mexico and elsewhere in the world, the attractiveness of GACN’s airports relative to that of other competing airports, fluctuations in petroleum prices (which can have a negative impact on traffic as a result of fuel surcharges or other measures adopted by airlines in response to increased fuel costs) and changes in regulatory policies applicable to the aviation industry. International conflicts and health epidemics have negatively affected the frequency and pattern of air travel worldwide. The occurrence of any of these developments would adversely affect GACN’s business, and in turn, our business. Any decreases in air traffic to or from our airports as a result of factors such as these could adversely affect GACN’s business, results of operations, prospects and financial condition, thereby negatively affecting our overall results.
 
 
As with all airport operators, we are subject to the threat of terrorist attack. The terrorist attacks on the United States on September 11, 2001 had a severe adverse impact on the air travel industry, particularly on U.S. carriers and on carriers operating international service to and from the United States. Airline traffic in the United States fell precipitously after the attacks. GACN’s terminal passenger volumes declined 5.8% in 2002 as compared to 2001. In the event of a terrorist attack involving one of GACN’s airports directly, airport operations would be disrupted or suspended during the time necessary to conduct rescue operations, investigate


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the incident and repair or rebuild damaged or destroyed facilities, and our future insurance premiums would likely increase. In addition, our insurance policies do not cover all losses and liabilities resulting from terrorism. Any future terrorist attacks, whether or not involving aircraft, will likely adversely affect our business, results of operations, prospects and financial condition.
 
Because a substantial majority of GACN’s international flights involve travel to the U.S., it may be required to comply with security directives of the U.S. Transportation Security Administration, in addition to the directives of Mexican aviation authorities. Security measures taken to comply with future security directives or in response to a terrorist attack or threat could reduce passenger capacity at GACN’s airports due to increased passenger screening and slower security checkpoints, which would have an adverse effect on GACN’s results of operations.
 
 
We operate 13 concessioned airports in Mexico through GACN. We began consolidating GACN’s balance sheet as of December 31, 2005 and its results of operations as of January 1, 2006. As of December 31, 2006, we controlled shares representing approximately 53% of GACN’S capital stock. Our interest in GACN exposes us to risks associated with airport operations.
 
GACN operates its airports under concessions, the terms of which are regulated by the Mexican government. As with most airports in other countries, GACN’s aeronautical fees charged to airlines and passengers are regulated. In 2004, 2005 and 2006, approximately 83.5%, 81.5% and 81.8%, respectively, of GACN’s total revenues were earned from aeronautical services, which are subject to price regulation. These regulations may limit our flexibility in operating GACN’s aeronautical activities, which could have a material adverse effect on GACN’s business, results of operations, prospects and financial condition. In addition, several of the regulations applicable to GACN’s operations and that affect its profitability are authorized (as in the case of its master development programs) or established (as in the case of its maximum rates) by the Ministry of Communications and Transportation for five-year terms. Except under limited circumstances, we generally do not have the ability to unilaterally change GACN’s obligations (such as the investment obligations under its master development programs or the obligation under its concessions to provide a public service) or increase its maximum rates applicable under those regulations should passenger traffic or other assumptions on which the regulations were based change during the applicable term. In addition, there can be no assurance that this price regulation system will not be amended in a manner that would cause additional sources of GACN’s revenues to be regulated, which could limit GACN’s flexibility in setting prices for additional sources of revenues that are not currently subject to any restriction.
 
 
As is the case with most airports, the operation of GACN’s airports is largely dependent on the services of third parties, such as air traffic control authorities and airlines. GACN is also dependent upon the Mexican government or entities of the government for provision of services, such as electricity, supply of fuel to aircraft, air traffic control and immigration and customs services for international passengers. We are not responsible for and cannot control the services provided by these parties. Any disruption in, or adverse consequence resulting from, their services, including a work stoppage or other similar event, may have a material adverse effect on the operation of GACN’s airports and on GACN’s results of operations.
 
In addition, GACN is dependent on third-party providers of certain complementary services such as catering and baggage handling. For example, Grupo Aeromexico and Grupo Mexicana together control Servicios de Apoyo en Tierra, or SEAT, pursuant to a joint venture. Consorcio Aeromexico, which owns Grupo Aeromexico, has announced publicly that it intends to sell its remaining ownership interest in SEAT separately from the proposed sale of its ownership interest in Grupo Aeromexico. SEAT is currently the largest provider of baggage and handling services at GACN’s airports. If these service providers, including SEAT, were to halt operations at any of GACN’s airports, GACN would be required to seek a new provider of these


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services or provide these services itself, either of which is likely to result in increased costs and have an adverse impact on its results of operations.
 
 
The Mexican government could grant additional or expanded concessions to operate existing government managed airports or authorize the construction of new airports, which could compete directly with our airports. In the future, we also may face competition from Aeropuerto del Norte, an airport near Monterrey operated by a third party pursuant to a concession. Historically, Aeropuerto del Norte has been used solely for general aviation flights. Recently, the state of Nuevo Leon has approached the Ministry of Communications and Transportation to discuss the possibility of amending Aeropuerto del Norte’s concession to allow it to serve commercial aviation flights. To date, the Ministry of Communications and Transportation has not amended Aeropuerto del Norte’s concession. However, there can be no assurance that the Ministry of Communications and Transportation will not authorize such an amendment and that commercial aviation flights will not operate from Aeropuerto del Norte in the future.
 
Any competition from other such airports could have a material adverse effect on our business and results of operations. Under certain circumstances, the grant of a concession for a new or existing airport must be made pursuant to a public bidding process. In the event that a competing concession is offered in a public bidding process, there can be no assurance that we would participate in such process, or that we would be successful if we did participate.
 
 
Parties purporting to be former owners of land comprising a portion of GACN’s Ciudad Juarez International Airport initiated legal proceedings against the airport to reclaim the land, alleging that it was improperly transferred to the Mexican government. As an alternative to recovery of this land, the claimants also sought monetary damages of U.S.$120 million. On May 18, 2005, a Mexican court ordered GACN to return the disputed land to the plaintiffs. An appellate court later vacated the May 18, 2005 court order, nullified the underlying legal proceeding and dismissed the plaintiffs’ claim without prejudice. The appellate decision was based upon Mexican constitutional provisions and the terms of our concessions. On November 28, 2006, against the appellate court order, the plaintiffs filed a new constitutional claim or juicio de amparo, which is pending resolution. In the event that any subsequent action results in a decision substantially similar to the May 18, 2005 court order or otherwise adverse to GACN, and the Mexican government does not subsequently exercise its power of eminent domain to retake possession of the land for GACN’s use, which we believe the terms of our concessions would require, GACN’s concession to operate the Ciudad Juarez Airport would terminate. In 2005 and 2006, the Ciudad Juarez International Airport represented 5.2% and 5.4%, respectively, of GACN’s revenue. Although we believe, and GACN has been advised by the Ministry of Communications and Transportation that, under the terms of GACN’s concessions the termination of its Ciudad Juarez concession would not affect the validity of its remaining airport concessions and that the Mexican federal government would be obligated to indemnify GACN against any monetary or other damages resulting from the termination of its Ciudad Juarez concession or a definitive resolution of the matter in favor of the plaintiffs, there can be no assurance that GACN would be so indemnified.
 
 
In December 2005, Aeroinvest, our subsidiary, entered into a credit agreement in the amount of U.S.$125 million with WestLB AG. In September 2006, it entered into a second credit agreement in the amount of U.S.$15 million with WestLB AG, which was later amended and transferred to Halkin Finance PLC, as lender, to increase the principal amount of the second credit agreement to U.S.$55 million. The second credit agreement was later increased to U.S.$91 million, which resulted in a total facility of U.S.$216 million. The funds from the facility were used primarily to finance the acquisition by Aeroinvest of 35.3% of the capital stock of GACN in the form of series “B” shares from the Mexican government, and an


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additional 2% of the capital stock of GACN in the form of series “B” shares by Servicios de Tecnologia Aeroportuaria, S.A. de C.V., or SETA. Under the conditions of the facility, GACN is not liable for the payment of any amounts due under the facility nor will GACN be liable for the proposed refinancing. Aeroinvest subsequently purchased additional series “B” shares representing 0.74% of the capital stock of GACN.
 
Aeroinvest is the holder of (1) 36.04% of GACN’s capital stock in the form of series “B” shares, and (2) 74.5% of the shares of SETA, which in turn holds 16.7% of the capital stock of GACN in the form of series “B” and series “BB” shares.
 
In June 2007, Aeroinvest entered into agreements with Merrill Lynch, Pierce, Fenner & Smith, Incorporated, or Merrill Lynch, to refinance the existing facility. The refinancing was approved at GACN’s extraordinary general shareholders’ meeting held January 31, 2007. The refinancing will consist of the issuance of three series of notes by a Mexican trust, each of which has a term of 10 years. The total amount of the refinancing is approximately Ps.2,805,000,000, payable in U.S. dollars. Its purpose is prepayment of the existing facility, related costs, fees, reserves and general corporate purposes. Aeroinvest has pledged and assigned its economic and corporate interests in its series “B” shares of GACN, and has assigned its economic and corporate interests in its 74.5% ownership of SETA. Under the refinancing, Aeroinvest will retain the right to vote at all times prior to failing to make a required payment. Both we and Aeroinvest made corporate guarantees in connection with the refinancing. If Aeroinvest defaults on its obligations under these credit facilities or notes, the creditors under these indebtedness arrangements could foreclose on the collateral, including our interest in shares of GACN representing 36.04% of GACN’s capital stock. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Indebtedness — GACN.”
 
 
 
In the past, Mexico has experienced adverse economic conditions, including high levels of inflation. See “Item 4. Information on the Company — History and Development of the Company — Public Sector Spending and the Mexican Economy.” If the Mexican economy were to experience a recession or if inflation and interest rates increase significantly, our business, financial condition and results of operation could be adversely affected.
 
 
A substantial portion of our construction revenues are earned under contracts whose prices are denominated in U.S. dollars, while the majority of our raw materials, a portion of our long-term indebtedness and a substantial portion of our day-to-day expenses, including employee compensation, are denominated in Mexican pesos. As a result, an appreciation of the Mexican peso relative to the U.S. dollar would decrease our dollar revenues when expressed in Mexican pesos. In addition, currency fluctuations may affect the comparability of our results of operations between financial periods, due to the translation of the financial results of our foreign subsidiaries, such as Rodio Kronsa.
 
We do not hedge our exposure to the U.S. dollar with respect to the Mexican peso and other currencies. Our debt service cost can increase if the peso depreciates. A severe devaluation or depreciation of the Mexican peso may also result in disruption of the international foreign exchange markets and may limit our ability to transfer or to convert Mexican pesos into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our U.S. dollar-denominated indebtedness or obligations in other currencies. We cannot assure you that the Mexican Central Bank will maintain its current policy with respect to the peso. In addition, while the Mexican government does not currently restrict, and since 1982 has not restricted, the right or ability of Mexican or foreign persons or entities to convert Mexican pesos into U.S. dollars or to transfer other currencies out of Mexico, the Mexican government could institute restrictive exchange control policies in the future. Currency fluctuations may have an adverse effect on our financial condition, results of operations and cash flows in future periods.


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We are a Mexican corporation and a substantial portion of our operations and assets are located in Mexico. As a result, our business, financial condition and results of operations may be affected by the general condition of the Mexican economy, the devaluation of the Mexican peso as compared to the U.S. dollar, price instability, inflation, interest rates, regulation, taxation, social instability and other political, social and economic developments in or affecting Mexico over which we have no control.
 
The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy and state-owned enterprises could have a significant effect on Mexican private sector entities in general, and us in particular, and on market conditions, prices and returns on Mexican securities, including our securities. In the past, economic and other reforms have not been enacted because of strong congressional opposition to the president. This was the case during the term of President Vicente Fox, which lasted from 2000 to 2006.
 
Federal elections were held in Mexico on July 2, 2006. Felipe Calderon of the center-right Partido Accion Nacional, or PAN, obtained a plurality of the vote, with a narrow margin over the Partido de la Revolucion Democratica, or PRD, and over the Partido Revolucionario Institucional, or PRI. Although the PAN won a plurality of the seats in the Mexican Congress in the election, no party succeeded in securing a majority in either chamber of the Mexican Congress. The absence of a clear majority by a single party is likely to continue at least until the next Congressional election in 2009. This situation may result in government gridlock and political uncertainty due to the Mexican Congress’ potential inability to reach consensus, most importantly, related to the structural reforms required to modernize certain sectors of the Mexican economy. Because our performance historically has been tied to Mexican public-sector spending on infrastructure facilities and Mexican public-sector spending is, in turn, generally dependent on the political climate in Mexico, we cannot provide any assurances that political developments in Mexico, over which we have no control, will not have an adverse effect on our business, financial condition or results of operations.
 
 
The market value of securities of Mexican companies may be, to varying degrees, affected by economic and market conditions in other countries. Although economic conditions in these countries may differ significantly from economic conditions in Mexico, investors’ reactions to developments in any of these other countries may have an adverse effect on the market value of securities of Mexican issuers. For example, in the second half of 1998 and in early 1999, prices of Mexican securities were adversely affected by the economic crises in Russia and Brazil.
 
 
There may be less or different publicly available information about issuers of securities in Mexico than is regularly published by or about issuers of securities in certain countries with more developed capital markets. In addition, accounting and other reporting principles and standards may differ substantially from those results that would have been obtained using other principles and standards such as U.S. GAAP.
 
 
 
If we issue new shares for cash as part of a capital increase, we generally must grant our stockholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage in our company. Rights to purchase shares in these circumstances are known as preemptive rights. We may not legally be permitted to allow holders of ADSs, Ordinary Participation Certificates, or CPOs, or shares in the United States to exercise any preemptive rights in any future capital increase unless:
 
  •  we file a registration statement with the Securities and Exchange Commission with respect to that future issuance of shares, or


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  •  the offering qualifies for an exemption from the registration requirements of the Securities Act of 1933, as amended, or the Securities Act.
 
At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the Securities and Exchange Commission and any other factors that we consider important to determine whether we will file such a registration statement.
 
There can be no assurance that we will file a registration statement with the Securities and Exchange Commission to allow holders of ADSs in the United States to participate in a preemptive rights offering. In addition, under current Mexican law, sales by the depository of preemptive rights and distribution of the proceeds from such sales to you, the ADS holders, is not possible.
 
 
As of December 31, 2006, our Chairman and his family and the management trust, as a group, beneficially owned approximately 10.84% of our total shares outstanding. Of this amount, 7.95% of our shares were beneficially held by Bernardo Quintana I. and his family and 2.89% were held through the management trust). See “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders.”
 
Actions by our management with respect to the disposition of the shares and ADSs they beneficially own, or the perception that such action may occur, may adversely affect the trading price of the shares on the Mexican Stock Exchange or the ADSs on the New York Stock Exchange.
 
 
Holders of ADSs and the underlying CPOs are not entitled to vote the shares underlying such ADSs or CPOs. Such voting rights are exercisable only by the CPO trustee, which is required to vote all such shares in the same manner as the holders of a majority of the shares that are not held in the CPO trust and that are voted at the relevant meeting. As a result, holders of ADSs or CPOs will not be entitled to exercise minority rights to protect their interests and are affected by decisions taken by significant holders of our shares that may have interests different from those of holders of ADSs and CPOs.


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This annual report contains forward-looking statements. We may from time to time make forward-looking statements in our periodic reports to the Securities and Exchange Commission on Forms 20-F and 6-K, in our annual report to shareholders, in offering circulars and prospectuses, in press releases and other written materials, and in oral statements made by our officers, directors or employees to analysts, institutional investors, representatives of the media and others. This annual report contains forward-looking statements. Examples of such forward-looking statements include:
 
  •  projections of operating revenues, net income (loss), net income (loss) per share, capital expenditures, dividends, cash flow, capital structure or other financial items or ratios;
 
  •  statements of our plans, objectives or goals, including those related to anticipated trends, competition and regulation;
 
  •  statements about our future economic performance or that of Mexico or other countries in which we operate; and
 
  •  statements of assumptions underlying such statements.
 
Words such as “believe,” “could,” “may,” “will,” “anticipate,” “plan,” “expect,” “intend,” “target,” “estimate,” “project,” “potential,” “predict,” “forecast,” “guideline,” “should” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.
 
Forward-looking statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors, some of which are discussed under “Risk Factors,” include cancellations of significant construction projects included in backlog, material changes in the performance or terms of our concessions, additional costs incurred in projects under construction, developments in legal proceedings, limitations on our access to sources of financing on competitive terms, changes to our liquidity, economic and political conditions and government policies in Mexico or elsewhere, inflation rates, exchange rates, regulatory developments, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements.
 
Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments.
 
Item 4.   Information on the Company
 
 
Our business began in 1947 with the incorporation of Ingenieros Civiles Asociados, S.A., which provided construction services for infrastructure projects for the Mexican public sector. Our registered office is located at Mineria No. 145, Edificio Central, 11800 Mexico, D.F., Mexico, telephone (52-55) 5272-9991.
 
According to data from the Mexican Chamber of the Construction Industry (Camara Mexicana de la Industria de la Construccion) and the INEGI (Instituto Nacional de Estadistica, Geografia e Informatica), we are the largest engineering, procurement and construction company in Mexico based on our relative share of the total revenues of the formal construction sector in Mexico, and are the largest provider in Mexico of construction services to both public and private-sector clients. We are engaged in a full range of construction and related activities, involving the construction of infrastructure facilities, as well as industrial, urban and housing construction. In addition, we are engaged in the development and marketing of real estate, the construction, maintenance and operation of airports, highways, bridges and tunnels and in the management and operation of water supply systems and solid waste disposal systems under concessions granted by governmental authorities.


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Since 1947, we have greatly expanded and diversified our construction and related businesses. In the past, our business strategy had been to strengthen and expand our core construction business, while diversifying our sources of revenue. In particular, the Mexican economic crisis triggered by the peso devaluation in 1994 led us to seek new growth opportunities in related businesses in Mexico and in construction businesses outside of Mexico, notably Latin America. In recent years, however, we redefined our business focus to emphasize our construction business in Mexico, which in 2005 and 2006 accounted for approximately 92% and 83%, respectively, of our revenues. As a result, we started our non-core divestment program, under which we have sold non-core assets, and used the proceeds from such sales to pay corporate debt. We concluded our non-core divestment program in 2006. In addition, we intend to increase our participation in the low-income housing development business and in other residential developments, as well as in infrastructure operations.
 
Our increased participation in infrastructure operations is a part of our strategy to minimize the effect of business and macroeconomic cycles in the construction industry.
 
 
On August 10, 2005 we sold 90,622,491 of our newly-issued shares at a price of Ps.27.00 per share through the Mexican Stock Exchange and to institutional investors outside of Mexico. Sixty-five percent of the shares were placed through the Mexican Stock Exchange and thirty-five percent of the shares were placed with institutional investors outside Mexico, including to certain qualified institutions in the United States in an offering exempt from registration under Section 4(2) of the U.S. Securities Act of 1933, as amended. We received total proceeds of Ps.2,447 million, before expenses. Of the net proceeds from this offering, as of December 31, 2006, we have used:
 
  •  Ps.1,693 million for the acquisition of the 44.94% interest in GACN;
 
  •  Ps.221 million as working capital for El Cajon and other projects in the civil construction segment;
 
  •  Ps.113 million for land reserve acquisitions in the Housing Development segment;
 
  •  Ps.94 million for payment of fees and commissions in connection with the issuance;
 
  •  Ps.56 million for an equity investment in the Irapuato — La Piedad highway concession; and
 
  •  Ps.270 million for corporate uses.
 
 
On December 12, 2005 we completed a one-for-six reverse stock split in which holders of our ordinary shares received one newly issued ordinary share for every six old ordinary shares. The exchange ratio of ordinary shares and ordinary participation certificates, or CPOs, remained 1:1. Simultaneously with the reverse stock split applicable to our ordinary shares, we amended the terms of the deposit agreement relating to our ADSs such that the exchange ratio of CPOs to ADSs was changed to 12:1 from 6:1. The combination of these transactions resulted in the equivalent of a one-for-twelve reverse split for our ADSs.
 
Unless otherwise noted herein, all share and per share data in this annual report have been adjusted to reflect he reverse stock split for all periods presented.
 
 
In December 2005, we directly and indirectly acquired approximately 45% of the shares of GACN, a company which holds concessions to operate, maintain and develop 13 airports in Mexico, in a series of transactions. First, we acquired an additional 59.6% interest in Servicios de Tecnologia Aeroportuaria, or SETA, bringing our total ownership interest in SETA to 74.5%. SETA is the strategic shareholder of GACN and owns approximately 15% of GACN’s capital stock. Second, we purchased a direct interest currently representing approximately 35% of the capital stock of GACN from the Mexican government. The aggregate U.S.$289.8 million purchase price for this 35% stake was funded using U.S.$164.8 million in cash on hand,


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which we obtained from the August 2005 equity offering, and U.S.$125 million from an 18-month bridge financing provided by WestLB AG and Nord LB. On June 13, 2006, we exercised an option to acquire an additional 2% interest in GACN. In December 2006, we acquired an additional 0.7% interest in GACN as part of the public offering of GACN shares held by Nacional Financiera, S.N.C., or NAFIN, a Mexican national credit institution and development bank. As a result of these transactions, we control, directly and through our investment in SETA, an approximate 53% interest in GACN. In June 2007, we entered into agreements with Merrill Lynch to refinance the loans we obtained in connection with the GACN acquisition. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Indebtedness — GACN.”
 
In January 2007, we signed an agreement to purchase 39% of the shares of the environmental services company Proactiva Medio Ambiente Mexico, S.A. de C.V., or PMA Mexico. PMA Mexico operates municipal potable water treatment and supply, sewage, wastewater treatment, sanitary landfills, solid waste management and hazardous waste managements systems through service contracts and concessions. PMA Mexico was previously known as Consorcio Internacional del Medio Ambiente, S.A. de C.V., or CIMA, and was established as a 50%-50% joint venture with Proactiva Medio Ambiente. In 2006, we sold all but 10% of our interest in CIMA for Ps.306 million (U.S.$27 million). Given our increased focus on infrastructure operations, the shares were repurchased from Proactiva Medio Ambiente and as of March 31, 2007, we hold 49% of PMA Mexico and Proactiva Medio Ambiente holds 51%.
 
Unless the context otherwise requires, the terms “us,” “we” and “ICA” as used in this annual report refer to Empresas ICA, S.A.B. de C.V. and its consolidated subsidiaries. We are a holding company that conducts all of our operations through subsidiaries. The references herein to segments or sectors are to combinations of various subsidiaries that have been grouped together for management or financial reporting purposes.
 
 
Our capital spending program is focused on the acquisition, upgrading and replacement of property, plant and equipment as well as investments in infrastructure concessions required for our projects.
 
The following table sets forth our capital spending for each year in the three-year period ended December 31, 2006.
 
                                 
    Year Ended December 31,  
    2006     2006     2005     2004  
    (Millions of
    (Millions of Mexican pesos)  
    U.S. dollars)        
 
Construction:
                               
Civil
  U.S.$ 38     Ps. 412     Ps. 181     Ps. 781  
Industrial
    3       30       155       173  
Rodio Kronsa
    6       69       100       125  
                                 
Total
    47       511       436       1,079  
Infrastructure
    84       908       558       28  
Airports
    40       436              
Other Concessions
    44       472       559       28  
Total
    131       1,419       994       1,108  
                                 
Housing Development
    2       17       26       1  
Corporate and Other
    3       36       20       7  
                                 
Total
  U.S.$ 136     Ps. 1,472     Ps. 1,040     Ps. 1,116  
                                 
 
Aggregate capital spending increased to Ps.1,472 million in 2006, from Ps.1,040 million in 2005. The increase in aggregate capital spending in 2006 primarily reflected the combined effect of the consolidation of GACN, which was offset in part by the change to proportional (50%) consolidation of Rodio Kronsa.


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Aggregate capital spending decreased to Ps.1,040 million in 2005, from Ps.1,116 million in 2004. The decrease in aggregate capital spending in 2005 primarily reflected a substantial decrease in capital spending in the Construction divisions (to Ps.436 million in 2005 from Ps.1,079 million in 2004), which was partially offset by an increase in capital spending in the Infrastructure segment (to Ps.558 million in 2005 from Ps.28 million in 2004). The significant decrease in investment in the Construction divisions was mainly attributable to lower investing requirements for the El Cajon project and the use of operating leases for construction equipment, rather than purchasing such equipment. The significant increase in investment in the Infrastructure segment was mainly attributable to our acquisition of a greater interest in GACN.
 
In addition, we made no net investments in or loans to unconsolidated affiliates in 2006, and made net investments in and loans to unconsolidated affiliates of Ps.48 million in 2005 and Ps.61 million in 2004.
 
In 2005, our investments in unconsolidated affiliates mainly related to a Ps.28 million investment in GEOICASA S.A. de C.V., a joint venture between Lotes y Fraccionamientos, S.A. de C.V. (subsidiary of GEO, S.A.B. de C.V.) and us in the entry-level home building market. We plan to extend the scope of this joint venture to the residential housing market. In 2004, our investments in unconsolidated affiliates mainly related to the Dravica Consortium, or Dravica, which is the consortium for the construction of the Caruachi hydroelectric dam in Venezuela in which we owned a 49% interest at December 31, 2006.
 
 
Our non-core asset divestment program was approved by our board of directors in 1999 and ratified by our shareholders in 2000. We completed this program in 2006. As part of our non-core asset divestment program, we created a working group that reported to our chief financial officer, and that oversaw major divestitures across our business segments. The working group’s responsibilities included coordinating the efforts of our various internal business segments and our legal and finance departments, as well as supervising any external advisors or brokers who were required for a particular transaction. Prior to any sale of an asset, we conducted a due diligence investigation in order to assess such asset’s condition and to prepare the asset for sale. Depending on the size and characteristics of the asset to be sold, we retained qualified brokers or financial advisors to participate in the process of valuing the asset, identifying potential buyers for the asset, negotiating the sale of the asset and closing the transaction. Our executive committee approved all sales within the non-core asset divestment program. From its inception in 1999 to its completion in 2006, we estimate our non-core asset divestiture program resulted in net proceeds to us of U.S.$816 million.
 
In 2005, we sold our remaining 20% interest in a tourism real estate development company in Cabo del Sol for U.S.$1 million and several real estate properties for U.S.$8.8 million.
 
In 2006, we sold several real estate properties in Los Mochis, Sinaloa for U.S.$1.9 million and real estate properties in Cancun, Quintana Roo for U.S.$0.9 million. As of December 31, 2006, we had approximately U.S.$17 million of divestitures pending, an amount that we do not consider material in terms of the size of our divestment program.
 
 
Our performance historically has been tied to Mexican public-sector spending on infrastructure and industrial facilities. Mexican public-sector spending, in turn, has been generally dependent on the state of the Mexican economy and accordingly has varied significantly in the past. See “Item 3 — Risk Factors — Risks Related to Our Operations — Our performance is tied to Mexican public-sector spending on infrastructure and industrial facilities.” Mexico’s gross domestic product increased by 4.8% in 2006, compared to a 3% increase in 2005. The average interest rates on 28-day Mexican treasury notes were 7.2% in 2006, 9.2% in 2005 and 6.8% in 2004. Inflation was 4.1% in 2006, 3.3% in 2005 and 5.2% in 2004.
 
According to INEGI, construction activity increased by 6.9% in 2006, 3.3% in 2005 and 6.1% in 2004, in each case in real terms as compared to the prior year, representing 5.1%, 3.8% and 3.9% of Mexico’s gross domestic product in those years, respectively. In 2006, according to data published by the Mexican Central Bank, Mexican public-sector spending on infrastructure projects was substantially the same in real terms as in 2005.


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Our operations are divided into four segments:
 
  •  Construction,
 
  •  Infrastructure (formerly Infrastructure Operations),
 
  •  Housing Development, and
 
  •  Corporate and Other.
 
Our construction segment is divided into three divisions: Civil Construction, Industrial Construction and Rodio Kronsa. In all three construction divisions, we provide a full range of services, including feasibility studies, conceptual design, engineering, procurement, project and construction management, construction, maintenance, technical site evaluations and other consulting services. In 2005 and 2006, we realigned our divisions to reflect changes in our business. Since January 1, 2005, our real estate operations have been included in our Corporate and Other segment and our housing construction operations have been reported as the Housing Development segment. As of January 1, 2006, we renamed our Infrastructure Operation segment the Infrastructure segment and, within this segment, we created two divisions: Airports and Other Concessions.
 
Historically, substantially all of our construction services were performed in connection with projects developed and financed by third parties. However, in recent years governments and government agencies, including the Mexican government and Mexican state-owned enterprises, have significantly reduced their spending on the development of infrastructure and industrial facilities and have sought, instead, to stimulate private investment in such facilities. Accordingly, we are increasingly required to participate in arranging the financing for the construction of infrastructure facilities and to invest equity or provide other financing for such projects. Competition has also increased due in part to the ability of many foreign competitors to obtain financing on more attractive terms. In recent years, we have experienced strong demand for infrastructure projects in which we are required to obtain financing, especially in projects for the construction of highways, railroads, power plants, hydroelectric projects, water storage facilities and oil drilling platforms and refineries, which is reflected in the higher volume of work we have recently undertaken on public sector projects.
 
 
 
Our construction business is divided into Civil Construction, Industrial Construction and Rodio Kronsa.
 
 
Historically, a majority of our construction business was conducted under unit price contracts, which contain an “escalation” clause that permits us to increase unit prices to reflect the impact of increases in the costs of labor, materials and certain other items due to inflation. Under this form of contract, while a total price is quoted, the construction project is broken down into its various constituent elements, such as excavation volume, square footage of built-up area, footage of pipes to be laid, and a price per unit is established for each such element. Where the amount of work required to complete the contract (i.e., the amount of each constituent element) is greater than the amount quoted in the contract due to incorrect specifications or changes in specifications, we are entitled to an increase in the contract price on the basis of the quantity of each element actually performed, multiplied by its unit price. These unit price contracts allow flexibility in adjusting the contract price to reflect work actually performed and the effects of inflation.
 
In recent years, however, our construction contracts have been increasingly of the fixed price or not-to-exceed type, which generally do not provide for adjustment except under certain circumstances for inflation or as a result of errors in the contract’s specifications, or mixed price contracts in which a portion of the contract is at fixed price and the rest at unit prices. Examples of mixed price projects in which we are currently involved include the El Cajon hydroelectric project in the Civil Construction division and the Minatitlan contract with Pemex in the Industrial Construction division. Fixed price, not-to-exceed and mixed price


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contracts collectively accounted for approximately 54% of our construction backlog as of December 31, 2006, 48% of our construction backlog as of December 31, 2005 and 65% of our construction backlog as of December 31, 2004. While we have entered into a large number or contracts with unit pricing in the last two years, we believe that fixed price contracts are more prevalent in the construction market and the contracts that we enter into in the future will reflect this shift to fixed price contracts. We expect that, because of conditions attendant to financing arrangements, future concession-related, infrastructure and industrial construction contracts, the adjustment of the contract price for additional work done due to incorrect contract specifications will be restricted.
 
We earn a significant portion of our construction revenues under contracts whose prices are denominated in currencies other than Mexican pesos, substantially all of which are of the fixed price, mixed price or not-to-exceed type. Approximately 30% of the contracts awarded to us in 2006 (based on the contract amount) were foreign currency-denominated. Approximately 63% of our construction backlog as of December 31, 2006 represented foreign currency-denominated contracts. Substantially all of our foreign-currency denominated contracts are denominated in U.S. dollars, except for contracts entered into by our Rodio Kronsa division, which are denominated in other currencies, principally Euros.
 
In 2004, we established a committee, which is comprised of a number of our legal and finance executives, to supervise our decisions to bid on new construction projects based upon a number of criteria, including the availability of multilateral financing for potential projects, the availability of rights of way, the adequacy of project specifications, the customer’s financial condition and the political stability of the host country, if the project is outside of Mexico. Currently, our policy requires that all construction projects with expected revenues above a specified threshold be reviewed and approved by this committee.
 
We obtain new contracts for new projects either through a process of competitive bidding or through negotiation. Generally, the Mexican government and its agencies and instrumentalities may not award a construction contract unless it has been awarded through a public bidding process conducted in accordance with the Public Works and Related Services Law (Ley de Obras Publicas y Servicios Relacionados con las Mismas). Public sector construction contracts may only be awarded without a public bidding process under very limited circumstances, such as where the amount involved is low, the project must be completed on an emergency basis, or technology or special patents are required. Accordingly, the majority of the contracts for new projects awarded to us from Mexican public-sector clients are awarded through competitive bidding. Most contracts for new projects awarded to us by private-sector and foreign government clients are also the result of a bidding process.
 
The competitive bidding process poses two basic risks: we may bid too high and lose the bid or bid too low and adversely affect our gross margins. The volume of work generally available in the market at the time of the bid, the size of our backlog at that time, the number and financial strength of potential bidders, whether the project requires the contractor to contribute equity or extend financing to the project, the availability of equipment and the complexity of the project under bid are all factors that may affect the competitiveness of a particular bidding process. Direct negotiation (as opposed to competitive bidding) generally tends to represent a more certain method of obtaining contracts and to result in better gross margins.
 
In addition to contracts for new projects, increases in the scope of work to be performed in connection with existing projects are an important source of revenue for us. In 2006, increases in scope of work accounted for Ps.3,601 million, or 20%, of our revenue. Contracts for such work are not typically put up for bid, but are negotiated by the client with the existing contractor.
 
In determining whether to bid for a project, we take into account, apart from the cost (including the cost of financing) and potential profit, efficient usage of machinery, the relative ease or difficulty of obtaining financing, geographic location, project-specific risks, current and projected backlog of work to be performed, our particular areas of expertise and our relationship with the client. Although we prefer to bid for larger projects in which we believe our size gives us a competitive advantage, beginning in 1995, due to a decline in demand for large infrastructure projects in Mexico, we began to participate in smaller projects, such as bridge construction, drainage work and highway repaving and improvements.


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As is customary in the construction business, from time to time we employ sub-contractors for particular projects, such as specialists in electrical, hydraulic and electromechanical installations. We are not dependent upon any particular sub-contractor or group of sub-contractors.
 
 
The principal competitive factors in each construction division, in addition to price, are performance and the ability to provide the engineering, planning, financing and management skills necessary to complete a project in a timely fashion.
 
The market for construction services in Mexico and elsewhere is highly competitive. In the Civil Construction and Industrial Construction divisions, competition is relatively more intense for infrastructure and industrial construction projects outside Mexico.
 
In our Civil Construction division, we compete primarily with Brazilian, Spanish and Mexican companies, including Constructora Norberto Odebrecht, S.A., Camargo Correa, S.A., Andrade Gutierrez, S.A., Fomento de Construcciones y Contratas, S.A., NECSO Entrecanales Cubiertas, S.A., Dragados y Construcciones, S.A. and Impulsora del Desarrollo Economico de America Latina, or IDEAL, Carso Infraestructura y Construcciones, S.A.B. de C.V. or CICSA, Compañia Contratista Nacional , S.A. de C.V or Coconal, Gutsa Construcciones, S.A. de C.V. or Gutsa, TRADECO Infraestructura, S.A. de C.V. and La Nacional Compañia Constructora.
 
In our Industrial Construction division, we compete with Mexican, Brazilian, Argentine and Japanese companies, including Constructora Norberto Odebrecht, S.A., Dragados y Construcciones, S.A., Techint, S.A. de C.V. (Mexico), or Techint, Duro Felguera Mexico, S.A. de C.V., Mitsubishi, Swecomex, S.A. de C.V., CMM and Grupo R.
 
In our Infrastructure segment, we compete primarily with Mexican and Spanish companies, including Fomento de Construcciones y Contratas, S.A., OHL, S.A. (Mexico), Macquarie Infrastructure, Abertis, IDEAL, Grupo Acciona, La Nacional Compañia Constructora, Construccion Aplicada, S.A. de C.V. and OMEGA Construcciones, S.A. de C.V.
 
We believe that our proven track record in Mexico and our experience and know-how have allowed us to maintain our leadership position in the Mexican construction market. In recent years, the sponsors of many infrastructure construction and industrial construction projects throughout the world, including in Mexico, have required contractors to provide construction on a “turnkey” basis. Many of our foreign competitors have better access to capital and greater financial and other resources and we have been increasingly experiencing significant competition in Mexico from Brazilian, Japanese, Spanish and, to a lesser extent, other European construction companies in recent years. The Rodio Kronsa division faces substantial competition in Spain from large construction companies that operate in that market, as well as from smaller, specialized construction companies that provide the same services offered by Rodio Kronsa.
 
 
The principal raw materials we require for our construction operations are cement, construction aggregates and steel. In our Civil Construction division, raw materials accounted for Ps.1,630 million, or 9%, of our costs of sales in 2006, Ps.840 million, or 13%, of our cost of sales in 2005 and Ps.607 million, or 14%, of our cost of sales in 2004. In our Industrial Construction division raw materials accounted for Ps.2,912 million, or 43%, of our costs of sales in 2006, Ps.3,236 million, or 46%, of our cost of sales in 2005 and Ps.1,587 million, or 37%, of our cost of sales in 2004.
 
 
Our Civil Construction division focuses on infrastructure projects in Mexico, including the construction of roads, highways, transportation facilities (such as mass transit systems), bridges, dams, hydroelectric plants, tunnels, canals and airports, as well as on the construction, development and remodeling of large multi-storied urban buildings, including office buildings, multiple-dwelling housing developments and shopping centers. Our Civil Construction division has also pursued opportunities in other parts of Latin America, the Caribbean, Asia


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and the United States. Our Civil Construction division performs activities such as demolition, clearing, excavation, de-watering, drainage, embankment fill, structural concrete construction, concrete and asphalt paving, and tunneling.
 
The Civil Construction division’s projects are usually large and complex and require the use of large construction equipment and sophisticated managerial and engineering techniques. Although our Civil Construction division is engaged in a wide variety of projects, our projects generally involve contracts whose terms range from two to five years.
 
We have played an active role in the development of Mexico’s infrastructure and have completed large infrastructure facilities and constructed buildings throughout Mexico and Latin America. Among the facilities and buildings we have constructed from our incorporation in 1947 until 2005:
 
  •  the Apulco, Comedero, El Novillo, El Caracol, Cajon de Peña, Tomatlan, Infiernillo, Chicoasen, El Guineo, El Cobano, Jicalan, Falcon, Huites and Aguamilpa dams;
 
  •  the Guadalajara-Colima, Mazatlan-Culiacan, Leon-Lagos-Aguascalientes, Guadalajara-Tepic, Mexico City Morelia-Guadalajara, Cuernavaca-Acapulco, Oaxaca-Sola de Vega and Torreon-Saltillo concessioned highways and the Tehuacan-Oaxaca federal highway;
 
  •  the Chihuahua-Pacifico railway system;
 
  •  the Mexico City sewage system;
 
  •  17 of the 58 existing airports in Mexico and two airports outside Mexico (the Tocumen Panama international airport in Panama and the Philip S.W. Goldson international airport in Belize);
 
  •  numerous hotels, including the Maria Isabel Sheraton, Nikko, Paraiso Radisson Mexico City, Presidente Chapultepec, Camino Real in Puerto Vallarta, two Sheratons in Cancun and one in each of Ixtapa and Huatulco, Westin Regina in Los Cabos and a Loews in the Dominican Republic;
 
  •  lines one through nine, A and part of B of the Mexico City subway system;
 
  •  the Iztapalapa Hospital in Mexico City; and
 
  •  the Federal Justice building in Cholula, Mexico.
 
The most important projects under construction by the Civil Construction division during 2006 included:
 
  •  the El Cajon hydroelectric project;
 
  •  various construction projects that are part of a new terminal at the Mexico City International Airport;
 
  •  the Tejocotal — Nuevo Necaxa highway;
 
  •  the renovation of the Moon Palace Hotel in Cancun;
 
  •  the Alvaro Obregon Hospital in Mexico City;
 
  •  the Cachamay multipurpose stadium in Venezuela;
 
  •  the Taxqueña traffic distribution in Mexico City; and
 
  •  the Irapuato-La Piedad highway.
 
The Civil Construction division’s contract awards in 2006 totaled approximately Ps.8,111 million (approximately U.S.$752 million), of which 9.6% were awarded outside Mexico.
 
In March 2003, the CFE awarded a U.S.$748 million (subsequently increased to U.S.$852 million as of December 31, 2006) contract for the engineering, procurement and construction of the El Cajon hydroelectric project to CIISA. The El Cajon hydroelectric project is located in the state of Nayarit, and is comprised of civil construction, electromechanical and ancillary work including the procurement, engineering, construction, transportation, testing, start-up and commissioning of two 375 megawatt turbo generating units. The El Cajon hydroelectric project is Mexico’s first engineering, procurement and construction contract for the complete


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construction of a hydroelectric project under Mexico’s public works financing program. The terms of the El Cajon contract required that we secure financing for the project costs and limit disbursements during the construction phase to 80% of the cash cost of any certified work performed. Because the terms of the construction contract provided that the CFE would pay for the project upon completion, and the financing obtained by CIISA covers only the project’s cash costs, the project did not generate any significant cash flow to us until February 27, 2007, when the CFE paid CIISA U.S.$525 million upon the delivery of the project’s first turbine unit. We expect to complete the project in August 2007. There can be no assurance that we will receive part or all of the remaining U.S.$323 million owed to CIISA upon the project’s completion, nor that we will recover any additional amounts in dispute. We have recognized revenues from the El Cajon project based on the percentage of completion method of accounting, which relies on certain estimates and assumptions and which as of March 31, 2007 permits us to recognize a value of U.S.$873 million. Since a substantial majority of the project’s revenues have been recognized and costs have been incurred as of June 2007, any decrease in the actual revenues collected or expected to be collected from the project would likely have a material impact on our cash flows and operating profit in 2007.
 
We recognized Ps.1,618 million and Ps.4,302 million of revenues from the El Cajon hydroelectric project in each of 2006 and 2005, which accounted for approximately 18.6% and 58.4% of the Civil Construction division’s revenues in those years. At December 31, 2006, we had Ps.9,318 million in contract receivables and Ps.7,170 million of debt on our balance sheet relating to the El Cajon hydroelectric project.
 
During 2005 and the early part of 2006, we were required to invest an aggregate of Ps.400 million of additional capital in CIISA to finance undisbursed portions of the project’s cash costs, which increased our ownership percentage in CIISA from 61% to 75%. We may be required to contribute additional capital to CIISA to finance the project’s cash costs. We expect to fund such capital contributions with bank financing. This increase reflects dilution of the ownership percentage of our partners, rather than transfers of interests in CIISA from our partners to us.
 
In the past, our Civil Construction division pursued infrastructure projects in Central and South America and the Caribbean, and may continue to do so on a more limited basis in the future. Projects in these areas ranged from construction of a section of the subway system in Santiago, Chile to the construction of a natural gas pipeline system in Argentina and the Caruachi hydroelectric dam in Venezuela. Our largest non-Mexican project during 2006 was the construction of the Cachamay Stadium in Venezuela. In 2006, less than 6% of our revenues in the Civil Construction division were attributable to construction activities outside Mexico.
 
 
Our Industrial Construction division focuses on the engineering, procurement, construction, design and commissioning of large manufacturing facilities such as power plants, chemical plants, petrochemical plants, fertilizer plants, pharmaceutical plants, steel mills, paper mills, drilling platforms and automobile and cement factories.
 
Relationship with ICA-Fluor.  In 1993, we sold a 49% interest in our industrial construction subsidiary to Fluor Daniel Mexico, S.A., or Fluor, a subsidiary of The Fluor Corporation, forming the ICA-Fluor joint venture. Since 1993, we have owned 51% of the ICA-Fluor joint venture. Partner resolutions require the approval of a simple majority of ICA-Fluor’s partners’ interests, except for decisions relating to matters such as capital increases, changes to ICA-Fluor’s bylaws, dividend payments and a sale of all or substantially all of the assets of ICA-Fluor. We and Fluor are each entitled to appoint an equal number of members of ICA-Fluor’s board of directors and executive committee. Historically, we have designated the chief executive officer of ICA-Fluor. In addition, we and Fluor have agreed that ICA-Fluor will be the exclusive means for either party to provide construction, procurement, project management, start-up and maintenance services to the production and pipeline, power plant, petrochemical, industrial, environmental services, mining, chemicals and plastics and processing markets within Mexico, Central America, and the Caribbean. This agreement will terminate upon a sale by Fluor or us of any of our partnership interests in ICA-Fluor or, following a breach of any of the ICA-Fluor agreements, one year after payment of any damages due to the non-breaching party in respect of this breach. We believe that our alliance with Fluor provides us with a wider range of business


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opportunities in the industrial construction markets in and outside Mexico, as well as access to technology and know-how which give us a competitive advantage in these markets.
 
In the past decade, over one-half of the work performed by the Industrial Construction division has been for the Mexican public sector, CFE and Pemex, and new contracts entered into by ICA-Fluor are increasingly oil and gas-based projects and services for Pemex. During 2006, 71% of the Industrial Construction division’s revenues were derived from work performed for the public sector and Pemex. Clients of the Industrial Construction division’s Mexican operations range from state-owned enterprises, such as Pemex Exploracion y Construccion, Pemex Gas y Petroquimica Basica, Pemex Refinacion and Pemex Petroquimica to private-sector clients, such as Sempra Energy Resources, Transalta Campeche, PPG, Enertek, Avantel, Alestra (a joint venture between AT&T, Grupo Alfa and Valores Industriales), Navistar, Iberdrola Energia Altamira S.A. de C.V., AES Elsta B.C. & Co., BASF Mexicana, S.A. de C.V., AES Andres, Snamprogetti, Cementos El Salvador, Linde A.G. and Compañia de Nitrogeno Cantarell (an international consortium among BOC Holdings, Linde, Marubeni Corporation and Westcoast Energy Inc.), Iberdrola Energia del Golfo, S.A. de C.V., Iberdrola Energia La Laguna, S.A. de C.V. Terminal de LNG de Altamira, S.A. de C.V. Ishikawajima-Harima Heavy Industries Co, Ltd, Dowell Schlumberger de Mexico, S.A. de C.V.
 
Typical Projects.  Projects in our Industrial Construction division typically involve sophisticated engineering techniques and require us to fulfill complicated technical and quality specifications. Our Industrial Construction division contracts are mainly U.S. dollar-denominated, fixed price contracts.
 
Among the principal projects we have completed in the Industrial Construction division recently are:
 
  •  the Pemex sulfur recovery plant in Chiapas;
 
  •  the Transalta Campeche combined cycle power plant;
 
  •  a combined cycle thermoelectric power plant for Altamira III, IV and V;
 
  •  the La Laguna combined cycle thermoelectric power plant in Durango;
 
  •  a liquified natural gas storage tanks for IHI in Altamira, Tamaulipas; and
 
  •  the Reynosa III and IV Cryogenic plants.
 
The Industrial Construction division’s contract awards in 2006 totaled approximately Ps.3,552 million (approximately U.S.$329 million) and included projects such as:
 
  •  the Cayo Arcas offshore housing platform; and
 
  •  the INDELPRO PP line and splitter, second phase.
 
The most important projects under construction by the Industrial Construction division during 2006 included:
 
  •  the reconfiguration of Package II of the Minatitlan refinery project;
 
  •  the Altamira V power plant;
 
  •  drilling platforms May-D and Sinan-NE; and
 
  •  the LNG terminal for Shell.
 
In October 2004, our joint venture with Fluor, ICA-Fluor, entered into a contract with Pemex for the reconfiguration of Package II of the Minatitlan refinery project, including auxiliary services, wastewater treatment and integration works at the facility. Package II of the Minatitlan refinery project was valued at Ps.8,015 million at December 31, 2006. We expect to complete this project in 2008. The project was awarded pursuant to a mixed price contract in which a portion of the contract involves fixed prices and, for the balance, unit prices. ICA-Fluor will receive payment from Pemex for construction services over the life of the contract, as we reach certain contractual milestones. ICA-Fluor posted a guarantee in the amount of U.S.$70 million for the value of certain works to be completed on Package II of the Minatitlan refinery project, which was obtained through an unsecured letter of credit.


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Turnkey Projects.  During the past decade, the Industrial Construction division has experienced a shift toward private sector investment. In recent years, certain clients, including Mexican state-owned enterprises such as CFE and Pemex, have required that projects sponsored by them be constructed on a turnkey basis with financing arranged by the parties constructing the project. Accordingly, bids for such projects must be complete packages, including, among other things, engineering, construction, financing, procurement and industrial elements. As a result of the increased complexity of the projects, bids are frequently submitted by consortia. Our ability to win these bids is affected by the relative strengths and weaknesses of our partners in the consortia and the ability of each consortium to obtain financing. In 2003, we entered into a single consortium with Schlumberger AG in connection with a contract to develop the Chicontepec oil field for Pemex, which we expect to complete in December 2007.
 
Typical of turnkey projects in this division is the nitrogen plant for Pemex’s Cantarell oil and natural gas field in Campeche. The plant was built pursuant to a 15-year build-own-operate-transfer contract and was awarded by Pemex to a consortium consisting of BOC Holdings, Linde, Marubeni Corporation, Westcoast Energy Inc. and ICA-Fluor. The consortium members contributed approximately 30% of the project’s total budget. The remainder was temporarily funded through bridge loans and refinanced on December 27, 1999 through a U.S.$381 million loan from the Export-Import Bank of Japan. ICA-Fluor provided a U.S.$29.7 million loan to the consortium, corresponding to approximately 3% of the project’s total budget of U.S.$1 billion. We, along with Linde, provided engineering, procurement and construction services to the project. The plant has a total generation capacity of 600 million standard cubic feet of high purity, high pressure nitrogen per day, which makes it the largest nitrogen generation facility in the world. The plant became operational in 2000. Other recent turnkey projects have included a cogeneration power plant for Enertek, an oxygen plant for Altos Hornos de Mexico, a silica plant for PPG, a cryogenic gas processing and cooling facility for Pemex, a cement plant for Cementos Apasco, a combined cycle power plant for AES Andres, a combined cycle power plant for Sempra, a combined cycle power plant for Transalta and a combined cycle power plant for Iberdrola.
 
 
The Rodio Kronsa division consisted of our Spanish and Argentine operations through 2006, and consists of our Spanish operations beginning in 2007.
 
Our Spanish operations consist of Rodio, (a sub-soil construction subsidiary) and Kronsa (a subsidiary that constructs specialized support piles). We own Rodio Kronsa through FRAMEX, an intermediary holding company that owns 100% of each of Rodio and Kronsa. We own 50% of FRAMEX and the remaining 50% interest is owned by the Soletanche Bachy Group. Rodio and Kronsa are each governed by a board of directors that is jointly appointed, in equal number, by the Soletanche Bachy Group and us, and we appoint the president of the board of each of Rodio and Kronsa. The officers of each of Rodio and Kronsa are appointed by the board to manage day-to-day operations.
 
Rodio Kronsa was founded in the 1930s and specializes in all forms of sub-soil construction, including the construction of tunnels, underpasses and retaining walls. Most of Rodio’s contracts are of the unit price variety. Because of the nature of its work, Rodio Kronsa is often hired as a subcontractor. Sub-soil construction involves substantial risk due to the uncertainty of subsurface conditions and the possibility of flooding. We believe that these risks are mitigated by the fact that third parties develop the designs for most of Rodio’s projects. Kronsa constructs specialized support piles for use in the construction industry. Kronsa also constructs retaining walls. The principal market for Rodio Kronsa is Spain, although Rodio Kronsa has performed work in various foreign countries, including Russia and several Latin American countries and has subsidiaries in Portugal and Central America.
 
Among the principal projects Rodio Kronsa have completed between 1973 and 2006 were:
 
  •  sounding, drilling and various works for the Almendra dam in Salamanca, Spain, the Alcantara dam in Caceres, Spain, and the El Atazar Dam in Madrid, Spain;
 
  •  construction work for the MetroSur subway system in Madrid, Spain;


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  •  sounding, drilling and various works for the Hatillo Dam in the Dominican Republic; and
 
  •  the foundations for housing projects in Spain.
 
In 2006, the most important projects constructed by Rodio Kronsa were:
 
  •  construction work for the M-30 highway in Madrid, Spain;
 
  •  works in the connection tunnel under the San Sebastiao blue I-line and red II-line in Portugal; and
 
  •  prefabricated piles in Riberas de Loiola, Spain.
 
In each of 2004, 2005 and 2006, CPC, contributed less than 1% of the CPC-Rodio division’s revenues. CPC was sold in 2007.
 
 
Backlog in the engineering and construction industry is a measure of the total dollar value of accumulated signed contracts at a moment in time.
 
The following table sets forth, at the dates indicated, our backlog of construction contracts.
 
                                 
    As of December 31,  
    2006     2006     2005     2004  
    (Millions of
    (Millions of Mexican pesos)  
    U.S. dollars)        
 
Construction
                               
Civil
  U.S.$ 371     Ps. 4,010     Ps. 4,576     Ps. 6,655  
Industrial
    454       4,908       8,892       14,927  
Rodio Kronsa
    31       337       840       727  
                                 
Total
  U.S.$ 856     Ps. 9,255     Ps. 14,311     Ps. 22,309  
                                 
 
Our backlog does not include the backlog of joint venture companies created for specific construction projects and in which we have a minority interest (such as the Caruachi hydroelectric plant in Venezuela). As of December 31, 2006, these joint venture companies had no backlog.
 
We were awarded contracts totaling Ps.12,530 million (approximately U.S.$1,160 million) in 2006. See note 8 to our financial statements. Three projects represented approximately half of our backlog at December 31, 2006. Package II of the Minatitlan refinery project accounted for Ps.2,765 million, or 30% of our total backlog as of December 31, 2006. This project is expected to be completed in 2008. In addition, we started work on a hospital for the Mexican Navy (Secretaria de Marina), which will be completed in 2008. As of December 31, 2006, the hospital accounted for Ps.968 million, or 10%, of our construction backlog. We also began work on the Cayo Arcas offshore housing platform for Pemex in 2007, which will be completed in 2008 and which accounted for approximately Ps.968 million, or 10% of our backlog as of December 31, 2006.
 
In 2004, we entered into a contract for the construction of Package II of the Minatitlan project and recorded Ps.8,015 million of backlog in 2004 associated with this project. Our backlog in 2004 reflected the full value of this contract, which resulted in a higher backlog in 2004, as compared to 2005 and 2006.
 
As of December 31, 2006, approximately 7% of construction backlog was attributable to construction projects outside Mexico and public sector projects represented approximately 83% of our total backlog. At December 31, 2006, contracts with a value exceeding U.S.$250 million accounted for 30% of our total backlog, contracts with a value ranging from U.S.$50 million to U.S.$250 million accounted for 33% of our total backlog, and contracts with a value of less than U.S.$50 million accounted for 37% of our total backlog.
 
The amount of backlog is not necessarily indicative of our future revenues related to the performance of such work. Although backlog represents only business that is considered to be firm, there can be no assurance that cancellations or scope adjustments will not occur.


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In certain instances, we have guaranteed completion by a scheduled acceptance date or achievement of certain acceptance and performance testing levels. Failure to meet any such schedule or performance requirements could result in costs that exceed projected profit margins, including penalties of up to 20% of the contract price. Fixed price, not-to-exceed and mixed price contracts collectively accounted for approximately 54% of our construction backlog as of December 31, 2006. See “Item 5. Operating and Financial Review and Prospects — Operating Results — Construction — Construction Backlog.”
 
 
As of January 1, 2006, we renamed our Infrastructure Operations segment the Infrastructure segment and divided the segment into to two divisions: the Airports division and the Other Concessions division. We began consolidating GACN’s balance sheet as of December 31, 2005 and its results of operations as of January 1, 2006 and we report this financial data in our Airports division.
 
We also participate in three operating concessioned highways (the San Martin-Tlaxcala-El Molinito highway and the Irapuato — La Piedad highway in Mexico and the Corredor Sur highway concession in Panama), one operating concessioned tunnel (the Acapulco tunnel) and in the management and operation of a water treatment plant in Ciudad Acuña and water supply systems, waste management and disposal services with Proactiva Medio Ambiente through the unconsolidated joint venture PMA Mexico, in which we own a minority interest. The financial data for these concessions is reported in our Other Concessions division.
 
Airports division
 
Pursuant to GACN’s bylaws, SETA has the right to present the board of directors of GACN with the name or names of the candidates for appointment as chief executive officer, to appoint and remove GACN’s chief financial officer, chief operating officer and its commercial director and to elect three members of GACN’s board of directors. SETA also has the right to veto certain actions requiring approval of GACN’s stockholders (including the payment of dividends, the amendment of GACN’s bylaws and the amendment of its right to appoint certain members of GACN’s senior management). The remaining shareholders in GACN currently hold 47.3% of its outstanding capital stock.
 
Through GACN, we operate 13 airports in the Central North region of Mexico pursuant to concessions granted by the Mexican government, including the Monterrey airport, which accounted for approximately for 44% of GACN’s revenues in 2006. The airports serve a major metropolitan area (Monterrey), three tourist destinations (Acapulco, Mazatlan and Zihuatanejo), two border cities (Ciudad Juarez and Reynosa) and seven regional centers (Chihuahua, Culiacan, Durango, San Luis Potosi, Tampico, Torreon and Zacatecas). All of the airports are designated as international airports under Mexican law, meaning that they are all equipped to receive international flights and maintain customs, refueling and immigration services managed by the Mexican government.
 
The substantial majority of the Airport division’s revenues are derived from providing tariff-regulated services, which generally are related to the use of airport facilities by airlines and passengers. For example, approximately 82% of GACN’s total revenues in 2006 were earned from tariff-regulated services. Changes in revenues from aeronautical services are principally driven by the passenger and cargo volume at the airports. Revenues from aeronautical services are also affected by the so-called “maximum rates” the subsidiary concessionaires are allowed to charge under the price regulation system established by the Ministry of Communications and Transportation. The “maximum rate” system of price regulation that applies to aeronautical revenues is linked to the traffic volume (measured in workload units) at each airport; thus, increases in passenger and cargo volume generally permit greater revenues from aeronautical services.
 
The Airport division also derives revenues from non-aeronautical activities, which principally relate to the commercial, non-aeronautical activities carried out at the airports, such as the leasing of space in terminal buildings to restaurants and retailers. Revenues from non-aeronautical activities are not subject to the system of price regulation established by the Ministry of Communications and Transportation. Thus, non-aeronautical revenues are principally affected by the passenger volume at the airports and the mix of commercial activities carried out at the airports. While we believe aeronautical revenues will continue to represent a substantial


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majority of future total revenues, we anticipate that the future growth of revenues from commercial activities will exceed the growth rate of this division’s aeronautical revenues.
 
The following table provides summary data for each of the 13 airports for the year ended December 31, 2006:
 
                                         
    Year Ended December 31, 2006  
                Revenues per
 
    Terminal
          terminal
 
Airport
  Passengers     Revenues     passenger(1)  
    Number (In millions)     %     (Millions of pesos)     %     (Pesos)  
 
Metropolitan area:
                                       
Monterrey International Airport
    5.3       44.6 %     719.9       44.2 %     135.8  
Tourist destinations:
                                       
Acapulco International Airport
    1.0       8.4 %     139.6       8.5 %     139.6  
Mazatlan International Airport
    0.8       7.0 %     123.7       7.5 %     154.6  
Zihuatanejo International Airport
    0.7       5.8 %     90.9       5.5 %     129.9  
Total tourist destinations
    2.5       21.2 %     354.2       21.6 %     141.7  
Regional cities:
                                       
Chihuahua International Airport
    0.7       5.6 %     96.0       5.9 %     137.1  
Culiacan International Airport
    0.8       7.2 %     111.1       6.8 %     138.9  
Durango International Airport
    0.2       2.0 %     31.5       2.2 %     180.0  
San Luis Potosi International Airport
    0.2       1.9 %     40.6       2.5 %     203.0  
Tampico International Airport
    0.5       4.1 %     64.9       4.0 %     129.8  
Torreon International Airport
    0.4       3.5 %     57.4       3.5 %     143.5  
Zacatecas International Airport
    0.3       2.8 %     47.1       2.9 %     157.0  
Total regional destinations
    3.2       27.1 %     453.1       27.6 %     141.6  
Border cities:
                                       
Ciudad Juarez International Airport
    0.7       5.9 %     87.7       5.3 %     125.3  
Reynosa International Airport
    0.1       1.2 %     15.8       1.5 %     249.0  
Total border city destinations
    0.8       7.1 %     112.6       6.9 %     140.8  
TOTAL:
    11.8       100.0 %     1,626.20       100.0 %     139.0  
                                         
 
 
(1) Revenues per terminal passenger are calculated by dividing the total revenues for each airport by the number of terminal passengers for each airport.
 
 
In view of the increasing focus on infrastructure in Mexico in 2007, we repurchased from Proactiva Medio Ambiente 39% of PMA Mexico, of which we now hold 49%. This interest provides us improved ability to operate concessions.
 
 
The Acapulco, Mazatlan and Zihuatanejo International Airports are substantially dependent on tourists. These airports face competition from competing tourist destinations. We believe that the main competitors to these airports are those airports serving other vacation destinations in Mexico, such as Los Cabos, Cancun and Puerto Vallarta, and abroad, such as Puerto Rico, Florida, Cuba, Jamaica, the Dominican Republic, other Caribbean islands and Central America.
 
Excluding our airports servicing tourist destinations, our airports and other concessions currently do not face significant competition.
 
In the future, we may face competition from the Aeropuerto del Norte, an airport near Monterrey operated by a third party pursuant to a concession. Historically, Aeropuerto del Norte has been used solely for


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general aviation operations. In addition, the Mexican government could grant new concessions to operate existing government managed airports, roads and municipal services which could compete directly with our projects. See “Item 3. Key Information — Risk Factors — Risks Related to Our Airport Operations — The Mexican government could grant new or expanded concessions that compete with our airports and could have an adverse effect on our revenues.”
 
Highway, Bridge and Tunnel Concessions
 
To promote the development of Mexico’s infrastructure without burdening the public sector’s resources and to stimulate private-sector investment in the Mexican economy, the Mexican government actively pursues a policy of granting concessions to private parties for the construction, maintenance and operation of highways, bridges and tunnels. A highway concession is a license of specified duration, granted by a federal, state or municipal government to finance, build, establish, operate and maintain a public means of communication or transportation. Mexican state and municipal governments and the governments of certain foreign countries award concessions for the construction, maintenance and operation of infrastructure facilities.
 
Our return on any investment in a highway, bridge or tunnel concession is based on the duration of the concession, in addition to the amount of toll revenues collected, operation and maintenance costs, debt service costs and other factors. Traffic volumes, and thus toll revenues, are affected by a number of factors including toll rates, the quality and proximity of alternative free roads, fuel prices, taxation, environmental regulations, consumer purchasing power and general economic conditions. The level of traffic on a given highway also is influenced heavily by its integration into other road networks.
 
The following table sets forth certain information regarding the highway, bridge and tunnel concessions in which we currently participate:
 
                                                         
                                  Concessionaire’s
       
                            % of
    Net Investment
    % Total
 
                Concession
    % Ownership
    Construction
    in Concession
    Investment
 
          Date of
    Term
    of
    Performed
    (Millions of
    Provided by
 
Concession
  Kilometers     Concession     (Years)     Concessionaire(1)     by ICA     Mexican pesos)(2)     ICA(3)  
 
San Martin-Tlaxcala-El Molinito highway
    25.5       1991       25.5       20 %     10 %   Ps. 20       4 %
Acapulco tunnel
    2.9       1994       40.0       100       100       660        
Corredor Sur highway (Panama)
    19.5       1995       30.0       100       100       2,223 (3)     68  
Irapuato — La Piedad highway
    74.32       2005       20.0       100       100       14       14  
Queretaro — Irapuato highway
    92.98       2006       20.0       100       100       14       14  
 
 
(1) Does not take into account the Mexican federal or local governments’ “sub-equity” contributions.
 
(2) Represents each concessionaire’s investment in the applicable concession, net of depreciation and revaluation of assets. For a description of the revaluation of assets, see note 12 to our financial statements.
 
(3) Represents the percentage of the total gross investment in each concession (including the government’s sub-equity contributions) provided by us whether in the form of equity, debt or in-kind contributions. Net investment does not reflect certain development costs, expenses associated with our negotiations with the Panamanian Ministry of Public Works and certain other costs. See “— Corredor Sur.”
 
San Martin-Tlaxcala-El Molinito.  The San Martin-Tlaxcala-El Molinito concessioned highway began operating in September 1991. During 2006, the concessionaire’s revenues were sufficient to cover its operating expenses as well as financing costs on its indebtedness.
 
Acapulco Tunnel.  In 1994, the state of Guerrero granted us a 25-year concession for the construction, operation and maintenance of a 2.9 km tunnel connecting Acapulco and Las Cruces, which we completed in 1996. On November 15, 2002, the term of the concession was extended fifteen years, bringing the total length of the concession to 40 years.
 
On June 30, 2005, a trust organized by our subsidiary Tuneles Concesionados de Acapulco, S.A. de C.V., or TUCA, issued and sold Ps.800 million in notes (Certificados Bursatiles) due 2022, which are listed on the Mexican Stock Exchange. These notes accrue interest at TIIE (the Mexican interbank rate), plus 2.95%. The


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notes are recourse solely to the trust, which has been assigned the Acapulco Tunnel’s tolls and toll collection rights. After repaying all outstanding debt of TUCA, Ps.66 million to Banco Nacional de Obras y Servicios Publicos, S.N.C. and Ps.206 million of TUCA’s ordinary participation certificates, we received approximately Ps.456 million from the sale of these notes, which was used for general corporate purposes.
 
Corredor Sur.  In 1995, the Panamanian Ministry of Public Works awarded ICA Panama, S.A., our wholly-owned subsidiary, a 30-year concession for the construction, operation and maintenance of the Corredor Sur highway, a four-lane, 19.8 kilometer highway. The first segment of the highway opened in August 1999 and the final segment opened in February 2000.
 
On May 17, 2005, a trust organized by our subsidiary ICA Panama issued U.S.$150 million of 6.95% notes due 2025. Payments of principal and interest on the notes will be made from the Corredor Sur highway’s operations. The notes are recourse solely to the trust, which has been assigned the right to payment from the tolls. The net proceeds from the placement of the notes (approximately U.S.$134.9 million) were principally used to repay 100% of the project’s outstanding indebtedness (including a payment of U.S.$51.2 million in respect of outstanding indebtedness to the International Finance Corporation, or IFC) and to fund certain reserve accounts as required under the terms of the concession’s financing. The balance of the proceeds from the placement of the notes was used to repay a portion of our indebtedness and for other corporate purposes.
 
See “Item 8. Financial Information — Legal and Administrative Proceedings — Legal Proceedings — Corredor Sur.”
 
The Irapuato-La Piedad Highway.  In September 2005, the Mexican Ministry of Transport and Communications awarded us a 20-year concession for the modernization, operation, conservation and maintenance of the Irapuato-La Piedad Highway. The 74.3 kilometer Irapuato — La Piedad highway will be a toll-free road under the Public/Private Partnership Structure (PPP). Recovery of our investment will be accomplished through a two-part integrated quarterly payment made by the Mexican Department of Communications and Transportation. We will be paid (1) a fixed payment for highway availability and (2) a shadow tariff based on traffic volume. The improvements to the highway are scheduled to be completed in July 2007. We will report income as the segments are modernized and expanded and become available for use.
 
The Queretaro-Irapuato Highway.  In June 2006, the Mexican Department of Communications and Transportation awarded us a 20-year concession for the modernization, operation, conservation and maintenance of the Queretaro-Irapuato Highway. The 108 kilometer Queretaro-Irapuato highway, of which 93 kilometers is under our concession, will be a toll-free road under the Public/Private Partnership Structure (PPP). Recovery of our investment will be accomplished through a two-part integrated quarterly payment made by the Mexican Department of Communications and Transportation. We will be paid (1) a fixed payment for highway availability and (2) a shadow tariff based on traffic volume. The improvements to the highway are scheduled to be completed in October 2009. We will report income as the segments are modernized and expanded and become available for use.
 
Water Distribution and Water Treatment Concessions.  We commenced construction of the Acuña water treatment plant in November 1998. The plant started commercial operations in October 2000, and we received our first payment in February 2001. The Acuña water treatment plant is currently operating at its full installed capacity (250 liters per second) and an increase in capacity is under negotiation. During 2006, the concessionaire’s revenues were sufficient to cover its operating expenses as well as financing costs on its indebtedness.
 
We are currently negotiating with the concession grantor to change the tariff scheme for the Acuña water treatment plant. Currently, we receive approximately Ps.6.85 per cubic meter of water we treat at the plant, and we treat approximately 250 liters per second. We are negotiating with the concession grantor to reduce the tariff associated with the plant to Ps.5.08 per cubic meter treated in exchange for our increasing the actual volume of water treated at the Acuña water treatment plant to 400 liters per second. If negotiations are successful, we will be required to invest approximately U.S.$1 million to increase the capacity of the plant to 500 liters per second.


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Beginning January 1, 2005, our real estate operations are reported as part of the Corporate and Other segment and our housing operations are reported as the Housing Development segment.
 
Our Housing Development segment participates in all stages of the housing industry, including acquiring the land and the permits and licenses required to build on it, performing and procuring architectural and engineering design, facilitating buyer financing and constructing and marketing homes. We subcontract some of the construction services, such as urbanization.
 
The Housing Development segment competes primarily with large Mexican housing developers such as Corporacion GEO, S.A.B. de C.V., Urbi Desarrollos Urbanos, S.A.B. de C.V., Desarroladora Homex, S.A.B. de C.V., Consorcio Ara S.A.B. de C.V., and Sare Holding, S.A.B. de C.V.
 
The principal raw materials we require for our Housing Development operations are cement, construction steel, construction aggregates, doors, windows and other housing fixtures.
 
In 2006, we participated in several new housing development projects, including: Valle de Allende in Ciudad Juarez, Las Fuentes in Queretaro, Casas del Mar in Cancun and Xochitepec II in Cuernavaca. During 2006, 2005 and 2004, we sold 5,909, 4,408 and 2,997 houses, respectively. As of December 31, 2006, our Housing Development segment owned 689 hectares of land reserved for the construction of 35,668 housing units, had agreements with partners to develop 12 hectares of land for the construction of 3,670 housing units and had negotiated the acquisition of 129 hectares of land for the construction of 7,745 units.
 
New housing construction in Mexico has increased steadily in recent years due to several governmental initiatives, which have improved the conditions for both developers and prospective buyers of housing. In addition, the incorporation of the Mexican Federal Mortgage Corporation (Sociedad Hipotecaria Federal) has made it easier for people to finance purchases and construction of homes in Mexico. From 2000 to 2006, the number of mortgage credits granted under these initiatives increased 225%, from 332,000 housing units in 2000 to approximately 750,000 housing units in 2006. Accordingly, through ViveICA, our housing subsidiary, we intend to acquire additional land for the construction of approximately 30,000 housing units over the next several years as a part of our strategy to expand our housing operations and to establish a greater presence in the Mexican home-building sector. We also plan to increase our share in the residential housing market. In addition, we may, from time to time, explore the possibility of acquiring other housing construction businesses as opportunities present themselves.
 
 
As of January 1, 2005, our real estate operations are included in our Corporate and Other segment. Results of operations in our Corporate and Other segment mainly reflect the sale of commercial and housing lots in Los Mochis and Cancun in 2006 and corporate expenses.
 
 
Revenues from foreign operations accounted for approximately 10% of our revenues in 2006, as compared to 13% and 20% in 2005 and 2004, respectively.


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The following table sets forth our revenues by geographic area for each of the years in the three-year period ended December 31, 2006.
 
                                                 
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of
          (Millions of
          (Millions of
       
    Mexican
    (Percent of
    Mexican
    (Percent of
    Mexican
    (Percent of
 
    pesos)     Total)     pesos)     Total)     pesos)     Total)  
 
Mexico
  Ps. 19,142       89 %   Ps. 16,598       86 %   Ps. 10,897       79 %
Spain
    1,532       7       2,412       12       2,543       19  
United States
                            4        
Other Latin American countries
    764       4       293       2       270       2  
Inter-segment eliminations
    43             71             7        
                                                 
Total
  Ps. 21,395       100 %   Ps. 19,232       100 %   Ps. 13,707       100 %
                                                 
 
Approximately 7% of our backlog as of December 31, 2006 related to projects outside Mexico (as compared to 6% as of December 31, 2005) and approximately 59% of our backlog as of December 31, 2006 was denominated in foreign currencies (principally U.S. dollars) (as compared to 72% as of December 31, 2005).
 
Foreign projects may be more difficult to supervise due to their greater distances from our principal operations. Foreign projects require familiarity with foreign legal requirements and business practices. In contrast to domestic infrastructure projects, foreign projects also typically do not allow us to benefit from our reputation and relationships with Mexican government officials and private- sector individuals. Over the last few years we have decided to concentrate on our Mexican operations and participate in other countries on a case-by-case basis. Although we are active abroad, we have sought to be more selective than in the past when bidding for international projects. To date, our foreign projects have generated mixed results. See “Item 5. Operating and Financial Review and Prospects — Operating Results.”
 
 
Our Mexican operations are subject to both Mexican federal and state laws and regulations relating to the protection of the environment. At the federal level, the most important of these environmental laws is the Mexican General Law of Ecological Balance and Environmental Protection, or the Ecological Law (Ley General de Equilibrio Ecologico y Proteccion al Ambiente). Under the Ecological Law, rules have been promulgated concerning water pollution, air pollution, noise pollution and hazardous substances. Additionally, the Mexican federal government has enacted regulations concerning the import, export and handling of hazardous materials and bio-hazardous wastes. The waste and water treatment plants that are operated by one of our equity investees are subject to certain waste regulations, including for bio-hazardous waste. The Mexican federal agency in charge of overseeing compliance with the federal environmental laws is the Ministry of the Environment and Natural Resources (Secretaria de Medio Ambiente y Recursos Naturales). The Ministry of the Environment and Natural Resources has the authority to enforce Mexican federal environmental laws. As part of its enforcement powers, the Ministry of the Environment and Natural Resources can bring administrative and criminal proceedings against companies that violate environmental laws, and has the power to close non-complying facilities. We believe that we are in substantial compliance with Mexican federal and state environmental laws. Changes in Mexican federal or state environmental laws could require us to make additional investments to remain in compliance with such environmental laws. Changes in the interpretation or enforcement of Mexican federal or state environmental laws could cause our operations to cease to be in compliance with such laws. Any such event could have an adverse effect on our financial condition and results of operations.
 
Since 1990, Mexican companies have been required to provide the Ministry of the Environment and Natural Resources with periodic reports regarding their production facilities’ compliance with the Ecological


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Law and the regulations thereunder. These reports are required to include information with respect to environmental protection controls and the disposal of industrial waste. We have provided the information required by these reports to the Ministry of the Environment and Natural Resources. There are currently no material legal or administrative proceedings pending against us with respect to any environmental matter in Mexico, and we do not believe that continued compliance with the Ecological Law or Mexican state environmental laws will have a material adverse effect on our financial condition or results of operations, or will result in material capital expenditures or materially adversely affect our competitive position. However, financing institutions providing credit for projects on a case-by-case basis now and in the future could require us to comply with international environmental regulations that may be more restrictive than Mexican environmental regulations.
 
 
The following table sets forth our significant subsidiaries as of December 31, 2006, including the principal activity, domicile, ownership interest and, if different, percentage of voting power held by us:
 
                         
    Principal
      Ownership
    Voting
 
Subsidiary
  Activity   Domicile   Interest     Power Held  
 
Constructoras ICA, S.A. de C.V. 
  Construction   Mexico     100 %     100 %
Controladora de Operaciones de Infraestructura, S.A. de C.V. 
  Real estate and concessions   Mexico     100       100  
Promotora e Inversora ADISA, S.A. de C.V. 
  Real estate and heavy construction   Mexico     100       100  
Controladora de Empresas de Vivienda, S.A. de C.V. 
  Housing development   Mexico     100       100  
ICATECH Corporation
  International holding company   United States     100       100  
Grupo Rodio Kronsa, S.A. 
  Sub-soil construction   Spain     50       50  
Ingenieros Civiles Asociados, S.A. de C.V. 
  Heavy and urban construction   Mexico     100       100  
ICA — Fluor Daniel, S. de R.L. de C.V. 
  Industrial construction   Mexico     51       51  
ICA Panama, S.A. 
  Highway construction concessionaire   Mexico     100       100  
Constructora Internacional de Infraestructura, S.A. de C.V. 
  Consortium for the construction of the El Cajon hydroelectric project   Mexico     75       75  
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. 
  Airport operations   Mexico     48       53 *
 
 
Directly and through our interest in SETA.
 
 
Approximately 93% of our assets and properties are located in Mexico, with the balance in the United States, Europe and other Latin American countries. At December 31, 2006, the net book value of all land (excluding real estate inventories) and buildings, machinery and equipment and concessions was approximately Ps.10,642 million (approximately U.S.985million). Beginning in 2002, as part of a strategy to better utilize our


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capital resources, we sold a substantial portion of the machinery used in our construction projects. We currently lease machinery from vendors.
 
Our principal executive offices, which we own, are located at Mineria No. 145, 11800, Mexico City, Mexico. Our telephone number is (52-55) 5272-9991. In January 2002, we sold an office building located at Viaducto Rio Becerra No. 27, Mexico City, to a third party and began renting it from the buyer.
 
We believe that all our facilities are adequate for our present needs and suitable for their intended purposes.
 
Item 4A.   Unresolved Staff Comments
 
None.
 
Item 5.   Operating and Financial Review and Prospects
 
The following discussion should be read in conjunction with our financial statements and the notes thereto. Our financial statements have been prepared in accordance with MFRS, which differ in significant respects from U.S. GAAP. Note 29 to our financial statements provides a description of the principal differences between MFRS and U.S. GAAP, as they relate to us, and a reconciliation to U.S. GAAP of net income (loss) and total stockholders’ equity. Under Bulletin B-10, financial data for all periods in our financial statements and throughout this annual report have been restated in constant Mexican pesos as of December 31, 2006.
 
U.S. dollar amounts have been translated from Mexican pesos at an exchange rate of Ps.10.7995 per U.S.$1.00, the noon buying rate for Mexican pesos on December 29, 2006, as published by the Federal Reserve Bank of New York.
 
Our operations are divided into six segments: Civil Construction, Industrial Construction, Rodio Kronsa (formerly CPC-Rodio), Infrastructure, Housing Development, and Corporate and Other. Beginning January 1, 2005, our real estate operations are reported in the Corporate and Other segment and our housing construction operations are reported as the Housing Development segment. As of January 1, 2005, we renamed our Infrastructure Operation segment the Infrastructure segment and created two divisions: Airports and Other Concessions.
 
OPERATING RESULTS
 
 
 
We are a Mexican company principally engaged in construction and construction-related activities. As a result, our results of operations are substantially affected by developments in Mexico and Mexican public spending on large infrastructure projects. Our results of operations also vary from period to period based on the mix of projects under construction, and the contract terms relating to those projects.
 
After several years of experiencing net losses, we realized net income of majority interest of Ps.645 million in 2006, Ps.524 million in 2005 and Ps.97 million in 2004. Our return to profitability has improved our liquidity position. In addition, we refinanced certain of our indebtedness on more favorable terms in the second quarter of 2005. Specifically, we refinanced Ps.282 million of our debt relating to the Acapulco Tunnel and U.S.$51 million of our debt relating to Corredor Sur. We also repaid all of the outstanding debt of Empresas ICA, S.A.B. de C.V., our holding company (U.S.$44 million), and the outstanding amount under the Inversora Bursatil S.A.B. de C.V., Casa de Bolsa Inbursa, secured credit facility (Ps.385 million), which allowed us to obtain the release of the assets pledged to the lender under this credit facility. We believe that these refinancings, which have provided us with U.S.$106 million in cash for future investments, have strengthened our financial condition.


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In December 2005, we directly and indirectly acquired interests in approximately 45% of the shares of GACN in a series of transactions. First, we acquired an additional 59.6% interest in SETA, bringing our total ownership interest in SETA to 74.5%. SETA is the strategic shareholder of GACN and owns approximately 15% of GACN’s capital stock. Second, we purchased a direct interest currently representing approximately 35% of the capital stock of GACN from the Mexican government. The aggregate U.S.$289.8 million purchase price for this 35% stake was funded using U.S.$164.8 million in cash on hand, which we obtained from the August 2005 equity offering, and U.S.$125 million from an 18-month bridge financing provided by WestLB AG and Nord LB. On June 13, 2006, we exercised an option to acquire an additional 2% interest in GACN. In December 2006, we acquired an additional 0.7% interest in GACN as part of the public offering of GACN shares held by NAFIN. As a result of these transactions, we control, directly and through our investment in SETA, an approximate 53% interest in GACN. In June 2007, we entered into agreements with Merrill Lynch to refinance the loans we obtained in connection with the GACN acquisition. See “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Indebtedness — GACN.”
 
We began to consolidate GACN on our balance sheet as of December 31, 2005 and its results of operations as of January 1, 2006.
 
Revenue
 
The following table sets forth the revenues (after elimination of interdivisional revenues) of each of our divisions for each of the years in the three-year period ended December 31, 2006. See note 27 to our financial statements.
 
                                                 
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of
    (Percentage
    (Millions of
    (Percentage
    (Millions of
    (Percentage
 
    Mexican pesos)     of Total)     Mexican pesos)     of Total)     Mexican pesos)     of Total)  
 
Revenues
                                               
Construction
                                               
Civil
  Ps. 8,677       41 %   Ps. 7,360       38 %   Ps. 4,765       35 %
Industrial
    7,536       35       7,891       41       4,818       35  
Rodio Kronsa
    1,559       7       2,436       13       2,544       19  
                                                 
Total
    17,772       83       17,687       92       12,127       89  
                                                 
Infrastructure
                                               
Airports
    1,640       8                          
Other Concessions
    415       2       391       2       416       3  
                                                 
Total
    19,827       93       18,078       94       12,543       92  
Housing Development
    1,529       7       1,137       6       944       7  
Corporate and Other
    41             16             220       1  
                                                 
Total
  Ps. 21,397       100 %   Ps. 19,231       100 %   Ps. 13,707       100 %
                                                 
 
Total revenues increased by 11% to Ps.21,397 million in 2006, from Ps.19,231 million in 2005. This increase was primarily attributable to the combined effect of the consolidation of GACN, including its results of operations, beginning January 1, 2006, an increase in sales in the Housing Development segment and an increase in the Civil Construction division, which was offset in part by the change to proportional (50%) consolidation of Rodio Kronsa.
 
Total revenues increased by 40% to Ps.19,231 million in 2005, from Ps.13,707 million in 2004. This increase was primarily attributable to a 46% increase in revenues from the construction divisions. The increase in construction revenues during 2005 was mainly the result of work performed by the Civil and Industrial Construction divisions on the El Cajon hydroelectric project, Package II of the Minatitlan refinery, the Altamira V energy plant, the Shell liquid natural gas terminal, marine drilling platforms in the Ku-Maloob-Zaap oil fields, the Reynosa III cryogenic plant, the Tejocotal Ì Nuevo Necaxa toll road and the Chicontepec oil field.


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We recorded selling, general and administrative expenses of Ps.1,451 million in 2006, an 11% increase from Ps.1,309 million in 2005, which was an 11% increase from Ps.1,175 in 2004. The increases in 2006 and 2005 were primarily due to increased overhead attributable to the increased volume of sales in the Civil Construction and Housing Development segments.
 
 
The following table sets forth operating income or loss of each of our divisions for each of the years in the three-year period ended December 31, 2006.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of Mexican pesos)  
 
Operating Income (Loss)
                       
Construction
                       
Civil
  Ps. 263     Ps. 466     Ps. 290  
Industrial
    389       516       42  
Rodio Kronsa
    75       66       93  
                         
Total
    727       1,048       425  
                         
Infrastructure
    744       53       53  
Airports
    639              
Other Concessions
    105       53       53  
Total
    1,471       1,101       478  
                         
Housing Development
    157       96       88  
Corporate and Other
    (11 )     (94 )     (19 )
                         
Total
  Ps. 1,618     Ps. 1,103     Ps. 547  
                         
Operating margin
    8 %     6 %     4 %
                         
 
Operating income reflects interest expense attributable to the El Cajon hydroelectric project and the construction of a drilling platform for Pemex, which are reported as cost of sales in the Civil Construction and the Industrial Construction divisions, respectively. During 2006, 2005 and 2004, Ps.491 million, Ps.473 million and Ps.271, respectively, of cost of sales in the Civil Construction division consisted of financing costs related to the El Cajon hydroelectric project.
 
 
 
The following table sets forth the revenues and operating income of the Civil Construction division for each of the years in the three-year period ended December 31, 2006.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 8,677     Ps. 7,360     Ps. 4,765  
Operating income
    263       466       290  
Operating margin
    3 %     6 %     6 %
 
Revenues.  The Civil Construction division’s revenues increased by 18% to Ps.8,677 million in 2006 from Ps.7,360 million in 2005. This increase mainly related to work performed on the construction of a new terminal in the Mexico City International Airport (Ps.2,093 million), the construction of the El Cajon


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Hydroelectric project (Ps.1,618 million) and the construction of the Cachamay Stadium in Venezuela (Ps.440 million).
 
In 2005, the Civil Construction division’s revenues increased by 54% to Ps.7,360 million in 2005 from Ps.4,765 million in 2004. This increase mainly reflected the increase in work performed at the El Cajon hydroelectric project, which represented Ps.4,302 million of the division’s revenue in 2005, compared to Ps.3,207 million in 2004. The increase in this division’s revenues also reflected an increased volume of work performed on other projects, including the Tejocotal-Nuevo Necaxa section of the Mexico-Tuxpan highway, the general hospital in Cancun, the reconstruction of the Hotel Moon Palace in Cancun and the Federal Justice building in Cholula.
 
Operating Income.  Operating income for the Civil Construction division decreased by 44% to Ps.263 million in 2006 from Ps.466 million in 2005. This decrease was mainly due to a decrease of the operating margin of the El Cajon Hydroelectric project by 1%, from 6% to 5%. See “Item 3. Key Information — Risk Factors — Our use of the percentage-of-completion method of accounting could result in a reduction or reversal of previously recorded revenues or profits.”
 
In 2005, the operating income for the Civil Construction division increased by 61% to Ps.466 million in 2005 from Ps.290 million in 2004. This increase was due mainly to the increase in revenues described above. In addition, the value of the El Cajon hydroelectric contract increased by U.S.$53 million in the first half of 2005 as a result of an amendment compensating us principally for direct and financing costs associated with increases in the price of steel. This additional amount is payable upon completion of the project, together with all other amounts payable under the contract. The total value of the amended contract was approximately U.S.$806 million at December 31, 2005.
 
Financing costs related to the El Cajon hydroelectric project represented Ps.490 million of the cost of sales of the Civil Construction division during 2006, Ps.473 million of this division’s cost of sales during 2005 and Ps.273 million of this division’s cost of sales during 2004.
 
 
The following table sets forth the revenues and operating income of our Industrial Construction division for each of the years in the three-year period ended December 31, 2006.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 7,536     Ps. 7,891     Ps. 4,818  
Operating income
    389       516       42  
Operating margin
    5 %     6 %     1 %
 
Revenues.  The Industrial Construction division’s revenues decreased by 5% to Ps.7,536 million in 2006, from Ps.7,891 million in 2005. This decrease primarily reflected the postponement of certain public sector projects due to the change of government. The projects that contributed the most to revenues in 2006 were the Package II of the Minatitlan refinery project (Ps.3,953 million), the Altamira V power plant (Ps.524 million) and the Chicontepec oil field project (Ps.485 million).
 
The Industrial Construction division’s revenues increased by 64% to Ps.7,891 million in 2005, from Ps.4,818 million in 2004. This increase primarily reflected a higher volume of work performed, as more projects were in an advanced stage of construction. The projects that contributed most to revenues in the 2005 period were Package II of the Minatitlan refinery project, the Altamira V power plant, marine drilling platforms for the Ku-Maloob-Zaap oil fields, the Reynosa III cryogenic plant in Tamaulipas and the liquefied natural gas terminal for Shell.
 
Operating Income.  The Industrial Construction division had operating income of Ps.389 million in 2006, compared to operating income of Ps.516 million in 2005. This decline was primarily due to a lower level of sales, reduced margins in projects under construction and increased bid preparation expenses.


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The Industrial Construction division had operating income of Ps.516 million in 2005, compared to operating income of Ps.42 million in 2004. This improvement was primarily due to the increase in revenues described above and lower bid preparation expenses in 2005 compared to 2004. Bid preparation expenses were Ps.21 million in 2005 compared to Ps.187 million in 2004.
 
 
The following table sets forth the revenues and operating income (loss) of our Rodio Kronsa division for each of the years in the three-year period ended December 31, 2006.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of Mexican pesos)  
 
Revenues
                       
CPC
  Ps. 27     Ps. 24     Ps. 1  
Rodio Kronsa
    1,532       2,412       2,543  
                         
Total
  Ps. 1,559     Ps. 2,436     Ps. 2,544  
                         
Operating income (loss)
                       
CPC
  Ps. (15 )   Ps. (11 )   Ps. 2  
Rodio Kronsa
    90       101       106  
                         
Total
  Ps. 75     Ps. 90     Ps. 108  
                         
Operating margin
    5 %     4 %     4 %
                         
 
Revenues.  The Rodio Kronsa division’s revenues decreased by 36% to Ps.1,532 million in 2006 from Ps.2,412 million in 2005. This change was primarily due to the change to proportional (50%) consolidation of Rodio Kronsa beginning in 2006. The decrease in revenues by 5% in 2005 from Ps.2,543 in 2004 was primarily due to a decrease in the volume of construction work Rodio Kronsa performed.
 
Operating Income.  The Rodio Kronsa division’s operating income decreased by 11% to Ps.90 million in 2006 from Ps.101 million in 2005. Operating income decreased as a result of the change to proportional (50%) consolidation Rodio Kronsa beginning in 2006.
 
The Rodio Kronsa division’s operating income decreased by 5% to Ps.101 million in 2005 from Ps.106 million in 2004. Operating income decreased as a result of relatively lower margins in projects under construction as well as the decrease in revenues.
 
CPC was adversely affected by the Argentine economic crisis. As a result, we previously substantially reduced the scope of CPC’s operations. On January 21, 2004, Techint assumed CPC’s rights and obligations under the contract for the construction of the Caracoles-Punta Negra hydroelectric project. CPC was sold to a local investor in the first quarter of 2007.
 
 
The following table sets forth, at the dates indicated, our backlog of construction contracts.
 
                                 
    As of December 31,  
    2006     2006     2005     2004  
    (Millions of U.S. dollars)     (Millions of Mexican pesos)  
 
Construction
                               
Civil
  U.S.$ 371     Ps. 4,010     Ps. 4.576     Ps. 6,655  
Industrial
    454       4,908       8,892       14,927  
Rodio Kronsa
    31       337       840       727  
                                 
Total
  U.S.$ 856     Ps. 9,255     Ps. 14,311     Ps. 22,309  
                                 


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Backlog at December 31, 2006 decreased to Ps.9,255 million compared to Ps.14,311 million at December 31, 2005, primarily due to the postponement of certain projects in the public sector due to the change of government. Backlog at December 31, 2004 was Ps.22,309 million. The decrease in 2005 was due to lower levels of backlog associated with the Package II of the Minatitlan refinery project due to the significant volume of work performed on this project during 2005.
 
Three projects represented approximately half of our backlog at December 31, 2006. Package II of the Minatitlan refinery project accounted for Ps.2,765 million, or 30% of our total backlog as of December 31, 2006. We expect to complete this project in 2008. In addition, we started work on the hospital for the Mexican navy. As of December 31, 2006, the hospital accounted for Ps.968 million, or 10%, of our construction backlog. We expect to complete this project in 2008. We also began work in 2007 on the offshore housing platform Cayo de Arcas for Pemex, that accounted for approximately Ps.968 million, or 10% of our backlog as of December 31, 2006. We expect to complete this project during 2008. As of December 31, 2006, approximately 7% of construction backlog was attributable to construction projects outside Mexico and public sector projects represented approximately 83% of our total backlog. Our book and burn index (defined as the ratio of new contracts plus contract additions, to executed works) was 0.71 in 2006.
 
We anticipate that, commencing in 2007, our reported backlog will reflect an increase in construction contracts previously not reported as backlog due to the application of a new accounting policy. Previously, construction projects performed for affiliated concessionaires were not required to be included in reported backlog. Under the new accounting policy, such projects must be recognized in revenues during the construction phase. See “Item 5. Operating and Financial Review and Prospects — Recently Issued Accounting Standards — Mexico-IFRIC 12.”
 
 
The following table sets forth the revenues and operating results of our Infrastructure segment for each year in the three-year period ended December 31, 2006.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 2,055     Ps. 391     Ps. 416  
Operating income
    744       53       53  
Operating margin
    36 %     14 %     13 %
 
Revenues.  The Infrastructure segment’s revenues increased to Ps.2,055 million in 2006 compared to Ps.391 million in 2005 and Ps.416 million in 2004, reflecting the full consolidation of GACN beginning January 1, 2006.
 
The Airports division represents the most significant source of our revenues in the Infrastructure segment. All of our revenues from the Airports division are regulated under the maximum-rate price regulation system applicable to our airports. Our revenues from the Airports division are principally derived from charges for passengers, landings, aircraft parking, the use of passenger walkways and the provision of airport security services. Our Infrastructure revenues from outside of the Airport division are principally derived from commercial activities such as the leasing of space in our airports to retailers, restaurants, airlines and other commercial tenants. The Airports division represented 80% of the Infrastructure segment’s revenues in 2006.
 
The Other Concessions division’s revenues are principally derived from the collection of tolls on toll roads, fees for the availability and use of toll-free roads, and fees by volume of treated water delivered to the municipalities. The Other Concessions division represented 20% of the Infrastructure segment’s revenues in 2006.
 
Operating Income.  The Infrastructure segment reported operating income of Ps.744 million in 2006 as compared to operating income of Ps.53 million in 2005, principally due to the full consolidation of GACN beginning January 1, 2006. The Infrastructure division reported operating income of Ps.53 million in 2005 as


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compared to operating income of Ps.53 million in 2004. Operating income remained stable from 2004 to 2005 principally due to an improvement in margins, which offset the decline in revenues in the same period.
 
In 2006, GACN represented 86% of the Infrastructure segment’s operating results and the Other Concessions division represented 14% of the Infrastructure segment’s operating results.
 
 
The following table sets forth the revenues and results of operations of our Housing Development segment for each year in the three-year period ended December 31, 2006.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 1,529     Ps. 1,137     Ps. 944  
Operating income
    157       96       88  
Operating margin
    10 %     8 %     9 %
 
Revenues.  Housing Development has been reported as an independent segment as of January 1, 2005, and results of operations for 2004 have been reclassified to facilitate comparison. The Housing Development segment’s revenues increased by 34% to Ps.1,529 million in 2006, from Ps.1,137 million in 2005. We sold 5,909 units in 2006 compared to 4,408 units sold in 2005. The increase in units sold was due to improvements in the commercialization and marketing process.
 
The Housing Development segment’s revenues increased 20% from Ps.944 million in 2004 to Ps.1,137 million in 2005, primarily due to the implementation of a new growth strategy, which has led to the construction of larger projects, improvements in our commercialization and marketing process and, to a lesser extent, a change in our revenue recognition policy. Since January 2005, revenue has been recorded when a buyer’s mortgage has been approved, where previously it was recognized based on the transfer of title. In 2005, we sold 4,408 houses, as compared to 2,997 houses sold in 2004.
 
Operating Income.  The Housing Development segment’s operating income increased to Ps.157 million in 2006, from Ps.96 million in 2005 and Ps.88 million in 2004. The increases in 2006 from 2005 and in 2005 from 2004 were primarily attributable to increases in sales and margin improvement.
 
 
During the past several years, as part of our non-core asset divestiture program, we have sold substantially all of the assets in our Corporate and Other segment. In August 2004, we divested Alsur, our grain warehouse business. We commenced reporting our real estate operations, which were formerly included in the Real Estate and Housing Development segment in this division as of January 1, 2005. To facilitate comparison, we have reclassified real estate operations within this division for 2004.
 
The following table sets forth the revenues and operating loss of the Corporate and Other segment for each year in the three-year period ended December 31, 2006.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 41     Ps. 17     Ps. 220  
Operating loss
    11       94       19  
 
Revenues.  The Corporate and Other segment’s revenues decreased to Ps.41 million in 2006 primarily as a consequence of a decrease in real estate sales from 2005 to 2006. This segment’s revenues decreased from Ps.220 million in 2004 to Ps.88 million in 2005 primarily as a consequence of the divestment of Alsur.
 
Operating Loss.  The Corporate and Other segment had an operating loss of Ps.11 million in 2006, compared to operating loss of Ps.94 million in 2005 and operating loss of Ps.19 million in 2004. The smaller operating loss in 2006 was mainly due to the sale of real estate at prices higher than book value that partially


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offset corporate expenses. All corporate expenses are recorded in this division, which resulted in net losses for each of 2006, 2005 and 2004.
 
 
The following table sets forth the components of our comprehensive financing results for each year in the three-year period ended December 31, 2006.
 
                         
    Year Ended December 31,  
    2006     2005     2004  
    (Millions of Mexican pesos)  
 
Interest expense(1)
  Ps. 668     Ps. 468     Ps. 335  
Interest income
    434       364       255  
Exchange gain (loss), net
    36       (7 )     30  
Gain (loss) on monetary position
    11       (6 )     63  
                         
Financing income (cost), net
  Ps. (187 )   Ps. (117 )   Ps. 13  
                         
 
 
(1) Does not include interest expense attributable to the El Cajon hydroelectric project and the drilling platforms for Pemex for which we obtained bank loans to finance working capital. Interest expense on these projects is reported as a part of cost of sales in Civil and Industrial Construction. During 2006, 2005 and 2004, Ps.491 million, Ps.473 million and Ps.273 million, respectively, of cost of sales in the Civil Construction division consisted of financing costs related to the El Cajon hydroelectric project, respectively.
 
We reported net comprehensive financing costs of Ps.187 million in 2006, as compared to financing costs of Ps.117 million in 2005 and contribution to income from financing activities of Ps.13 million in 2004. The increase in net comprehensive financing costs from 2005 to 2006 was mainly due to increased interest expense, which was partially offset by increased interest income. The change in 2006 also reflected gains on foreign exchange and from monetary position in 2006, as compared to losses from these items in 2005. The change in the net comprehensive financing income (cost) in 2005 as compared to 2004 was due to combined effects of financing costs related to the refinancing of the Corredor Sur and Acapulco tunnel notes as well as losses in foreign exchange and monetary position.
 
We accrued interest expense of Ps.668 million in 2006, as compared to interest expense of Ps.468 million in 2005 and Ps.335 million in 2004. The increase in interest expense in 2006 was primarily attributable to the increase in the debt level due to bank loans we took to finance the Irapuato — La Piedad modernization project and to obtain working capital for projects in the Mexico City International Airport. The increase in interest expense in 2005 from 2004 was primarily attributable to refinancing expenses related to Corredor Sur and the Acapulco Tunnel, which together accounted for Ps.180 million of non-recurring costs. The increase in non-recurring costs was partially offset by a decrease in the average interest rate on our consolidated debt in 2005, which was 7.3%.
 
Interest income increased from Ps.255 million in 2004 to Ps.364 million in 2005 and further increased to Ps.434 million in 2006, primarily because our full consolidation of GACN, which had a strong cash position, including its results of operations, began January 1, 2006. The increase in interest income in 2005 from 2004 was primarily due to the unused cash balance from proceeds of notes issued to finance the El Cajon Hydroelectric project.
 
The gain or loss on monetary position reflects the effects of inflation, as measured by the NCPI, on our net monetary position. The gain on monetary position in 2004 and 2006 reflected our net monetary liability position in those years and the loss in monetary position in 2005 reflected our net monetary asset position in that year.
 
We reported a foreign exchange gain of Ps.36 million in 2006, as compared to a foreign exchange loss of Ps.7 million in 2005 and a foreign exchange gain of Ps.30 million in 2004. The gains and losses on foreign exchange in these periods reflected the relative trading prices of the Mexican peso versus the U.S. dollar.


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Our total debt increased to Ps.13,475 million at December 31, 2006, compared to Ps.10,933 million at December 31, 2005, as a result of increased debt incurred in connection with the Irapuato-La Piedad modernization project, the acquisition of shares in GACN and for increased working capital needs for projects in the new terminal of the Mexico City International Airport. At December 31, 2006, we had no corporate debt (which we define as debt at the parent company level). In 2006, debt increased by Ps.2,542 million, of which Ps.1,738 million was related to El Cajon and Ps.861 million was related to other debt.
 
At December 31, 2006, 87% of our total debt was denominated in currencies other than Mexican pesos, principally U.S. dollars or, in the case of debt related to projects of Rodio, euros. We may in the future incur additional non-peso denominated indebtedness. Declines in the value of the Mexican peso relative to such other currencies will both increase our interest costs and result in foreign exchange losses. In other cases an increase in the value of the Mexican peso relative to such other currencies will have the opposite effect.
 
 
In 2006, our net other income was Ps.57 million, compared with net other income of Ps.156 million in 2005. The decline in 2006 was principally due to net gains in 2005 related to the sale of our 40% equity in PMA Mexico (formerly known as CIMA) and the sale of certain litigation rights.
 
In 2005, our net other income was Ps.155 million, compared with net other expenses of Ps.17 million in 2004. The improvement in 2005 was principally due a net gain of Ps.40 million related to the sale of our 40% equity in CIMA and a net gain of Ps.55 million related to the reversal of contingency reserves created for the sale of divested subsidiaries during previous periods. These gains were partially offset by losses incurred in connection with the sale of property, plant and equipment.
 
 
In 2006, we recorded a net tax provision of Ps.382 million. The provision is comprised of (1) a current income tax expense of Ps.231 million, including Ps.109 million related to airport concessions, (2) a deferred income tax expense of Ps.465 million due to the reversal of deferred income tax assets and liabilities, and (3) an additional deferred income tax benefit from the reduction of a reserve of Ps.314 million reflecting a change in the valuation allowance, which resulted from our estimation that we may be able to benefit from tax carryforwards and asset tax credit available to us in the period granted by Mexican law for the recovery of such tax carryforwards. In 2006, the statutory employee profit sharing expense equaled Ps.141 million, which reflected a current statutory employee profit sharing expense of Ps.99 million and a deferred statutory employee expense of Ps.43 million.
 
In 2005, we recorded a net tax provision of Ps.360 million, which reflected a current income tax expense of Ps.93 million, a deferred income tax expense of Ps.111 million, a deferred tax effect due to the decrease in the statutory tax rate and an expense of Ps.108 million reflecting a change in the valuation allowance, which resulted from our estimation that we may be unable to benefit from certain tax loss carryforwards and asset tax credits available to us in the period granted by Mexican law for the recovery of such tax carryforwards. In 2005, the statutory employee profit sharing expense equaled Ps.100 million, which reflected a current statutory employee profit sharing expense of Ps.84 million and a deferred statutory employee expense of Ps.16 million.
 
The statutory tax rate in Mexico has been reduced from 33% for 2004 to 30% for 2005 and 29% for 2006 and will be further reduced to 28% in 2007. Additionally the Mexican asset tax was reduced for 2007 to 1.25% from 1.8% of the value of the assets. However, due to changes in Mexican asset tax law, the effect of this decrease in 2007 may be more than offset by an expansion of the asset base taxed. See note 20 to our financial statements. Generally, the differences between effective tax rates and statutory tax rates are due to differences between taxable and financial accounting income or loss, including, to an important extent, those relating to the recognition of profit or loss on construction contracts that tend to fluctuate significantly from year to year. Income taxes payable on revenues from the El Cajon hydroelectric project are deferred until we receive payment from the CFE upon completion of the project in 2007.


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As of December 31, 2006, we had Ps.3,164 million in consolidated net operating loss carryforwards and Ps.2,232 million in consolidated asset tax credits available. See note 20 to our financial statements.
 
 
We reported net income from our equity interest in unconsolidated affiliates of Ps.22 million in 2006, compared to Ps.102 million in 2005 and Ps.183 million in 2004. The decrease in 2006 was primarily due to the absence of income from GACN which now is a consolidated subsidiary and the decrease of income from Dravica, due to the completion of the Caruachi Hydroelectric project in 2006. The decrease in 2005 as compared to 2004 was primarily due to a decline in income from Dravica, which was near the completion of the project. The primary source of income in 2004 was our subsidiary Dravica.
 
 
We reported net income before minority interest of Ps.986 million in 2006, compared to net income before minority interest of Ps.783 million in 2005 and net income before majority interest of Ps.163 million in 2004. The improvement in 2006 was primarily attributable to our increased work volume and an improvement in our gross margin. In 2005, the improvement was primarily attributable to our increased work volume and a decrease in our selling, general and administrative expenses as a percentage of our net revenues, which were partially offset by an increase in comprehensive financing cost of Ps.131 million. In 2004, the income was primarily attributable to Ps.546 million of operating income and income in unconsolidated affiliated companies of Ps.183 million, which were offset by an income tax expense of Ps.534 million.
 
Net income of minority interest was Ps.341 million in 2006, which primarily reflected gains in construction activities. Net income of minority interest was Ps.259 million in 2005, which primarily reflected gains in construction activities. Net income of minority interest was Ps.66 million in 2004.
 
 
The principal differences between MFRS and U.S. GAAP that affect our net income and majority stockholders’ equity relate to the accounting treatment of the following items:
 
  •  Minority interest;
 
  •  Bulletin B-15 inflation effects;
 
  •  Revenue recognition for low-income housing sales;
 
  •  Capitalization of financing costs;
 
  •  Restatement for inflation on foreign sourced fixed assets;
 
  •  Reversal of an impairment charges;
 
  •  Financial instruments;
 
  •  Compensation cost on stock option plan;
 
  •  Severance payments; and
 
  •  Deferred income tax and deferred statutory employee profit-sharing.
 
Pursuant to MFRS, our consolidated financial statements also recognize certain effects of inflation in accordance with Bulletin B-10 and Bulletin B-12, except for the restatement of foreign-sourced fixed assets from January 1, 1998. These effects have not been reversed in our reconciliation with U.S. GAAP. For a more detailed description of the differences between MFRS and U.S. GAAP as they affect our net income and total stockholders’ equity, see note 29 to our audited consolidated financial statements.


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Accounting Policies and Estimates:
 
We prepare our financial statements in accordance with MFRS (which were previously titled accounting principles generally accepted in Mexico, or Mexican GAAP, prior to January 1, 2006, at which date CINIF changed the terminology referring to the body of Mexican accounting principles as MFRS). MFRS includes Mexican Financial Information Standard, or NIF, A-8, “Supplementary Standards to Financial Reporting Standards”, which requires that we apply other comprehensive bodies of accounting principles in cases where MFRS is silent on an issue, first applying International Financial Reporting Standards, or IFRS, issued by the International Accounting Standard Board, or IASB, and subsequently any other standard or principle that is considered adequate, so long as it comes from a formal, recognized body of accounting principles which do not contravene the concepts of MFRS, such as U.S. GAAP.
 
MFRS requires us to make estimates that affect the amounts recorded for assets, liabilities, income and expenses in our financial statements. MFRS also requires us to make such estimates based on available information and on the best knowledge and judgment of management according to the experience and current facts. Nevertheless, the actual results could differ from these estimates. We have implemented control procedures to ensure that our accounting policies are timely and adequately applied. The accounting policies that involve the use of estimates that substantially affect our financial statements for the year ended December 31, 2006, are as follows:
 
 
As part of the planning process of a construction contract before commencing any project, we review the principal obligations and conditions of the specific contract for the purpose of (i) reasonably estimating the projected revenue, (ii) reasonably estimating the costs to be incurred in the project, (iii) reasonably estimating the gross profit of the project, and (iv) reasonably identifying the rights and obligations of the parties. Based on that analysis, and in conjunction with the legal and economic right to receive payment for the work performed as established in the contracts, we utilize the percentage-of-completion method to recognize revenues on our construction contracts.
 
The decision of whether or not to participate in a project is made collectively with representatives of the technical, legal, financial and administrative areas, which covers the analysis of the customer’s economic solvency and good standing, the legal framework, the availability of resources, the technological complexity and construction procedures, the obligations and rights assumed, the economic, financial and geological risks, and the possibility of those risks being mitigated, as well as the case-by-case analysis of each contract. Our policy is to avoid contracts with material risks, unless such risks may be mitigated or transferred to the customers, suppliers and/or subcontractors.
 
In contracts involving performance guarantees related to the equipment on which the performance of the project depends, the decision to participate will depend on, among other factors, our ability to transfer the risks and penalties related to these guarantees to the suppliers and/or subcontractors.
 
In contracts involving guarantees related to timely delivery, we generally plan the project to take into consideration the risk of delay and generally allow sufficient time for the timely completion of the project despite unavoidable delays.
 
Projects are executed in accordance with a work program determined prior to commencement of the project, which is periodically updated. The work plan includes the description of the construction procedures, the critical execution route, the allocation and timeliness of the resources required and the project’s cash flow forecast.
 
The construction contracts in which we participate are typically governed by the civil law of various jurisdictions which recognizes a contractor’s right to receive payment for work performed. Under this body of law, the buyer is the legal owner of the works in execution while they are in process, and the contractor is entitled to the payment for those works, even though payment may not occur until the completion of the contract.


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The construction contracts into which we enter are generally either (i) unit price or (ii) fixed price (either lump sum or not-to-exceed). The evaluation of the risks for each type of contract, whether a public works or private sector contract, is distinct.
 
In unit price contracts in the private sector, the customer generally assumes the risks of inflation, exchange-rate and price increases for the materials used in the contracts. Under a unit price contract, upon signing the parties agree upon the price for each unit of work. However, unit price contracts normally include escalation clauses whereby we retain the right to increase the unit price of such inputs as a result of inflation, exchange-rate variations or price increases for the materials, if any of these risks increases beyond a percentage specified in the contract.
 
For unit price contracts related to public works, in addition to escalation clauses, in Mexico, the Public Works and Services Law establishes mechanisms to adjust the value of such unit-price contracts for cost increases. The Public Works and Services Law provides the following mechanisms for the adjustment of unit prices in unit-price contracts: (i) a review of individual unit prices for which adjustment may be possible; (ii) review of unit prices by group where the estimated amount of work remaining to be performed represents at least 80% of the total amount of remaining work under the contract; and (iii) for those projects in which the relationship between the input and the total contract cost is established, an adjustment to reflect the increased cost may be made based on such proportion. The application of these mechanisms is required to be specified in the relevant contract.
 
In lump sum contracts, not-to-exceed contracts or contracts where there are no escalation clauses in which we undertake to provide materials or services at fixed unit prices required for a project in the private sector, generally we absorb the risk related to inflation, exchange-rate fluctuations or price increases for materials. However, we seek to mitigate these risks as follows (i) when the bid tender is prepared, such risks are included in determining the costs of the project based on the application of certain economic variables which are provided by recognized economic analysis firms; (ii) contractual arrangements are made with the principal suppliers, among which advance payments are made to ensure that the cost of the materials remains the same during the contract term; and (iii) the exchange-rate risk is mitigated by contracting suppliers and subcontractors in the same currency as that in which the contract is executed with the customer.
 
For those risks that cannot be mitigated or which surpass acceptable levels, we carry out a quantitative analysis, where we determine the probability of occurrence of each risk, measuring the potential financial impact, and adjust the fixed price estimation of the contract to an appropriate level, taking these risks into consideration.
 
For fixed price contracts in the public sector, the Public Works and Services Law also protects the contractors when adverse economic conditions arise that could not have been anticipated at the time of awarding the contract and thus were not considered in the initial contract bid. The Public Works and Services Law allows the Controller’s Office (Secretaria de la Funcion Publica) to issue guidelines through which public works contractors may recognize increases in their initial contract prices as a result of adverse economic changes.
 
This was the case after significant global increases in the price of steel occurred at the end of 2003 and beginning of 2004. The Controller’s Office (Secretaria de la Funcion Publica) issued general guidelines allowing public works contractors to recognize the increase in steel prices in their original contract prices. In the specific case of the El Cajon contract, this resulted in an increase to the initial contract price of approximately U.S.$43 million (on an initial contract of U.S.$748 million).
 
Our construction contracts are recorded using the percentage-of-completion method established in MFRS, which is similar to that established in U.S. GAAP through Accounting Research Bulletin 45 (ARB45) “Long-Term Construction-Type Contracts” and Statement of Position No. 81-1 “Accounting for Performance of Construction-Type and Certain Production-Type Contracts”. The percentage-of-completion method allows the timely recognition of the performance of the project and appropriately presents the legal and economic substance of the contracts. According to this method, revenue is recognized in periodic form according to the execution progress of the construction, as if it were a continuous sale.


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In order to be able to apply percentage-of-completion, the following requirements must be met: (i) the contract must clearly specify the legal rights related to the goods or services to be provided and to be received by the parties, the consideration to be exchanged and the terms of the agreement; (ii) our legal and economic right to receive the payment for the work performed as the contract is executed must be specified; (iii) the expectation must be that both the contractor and the customer will fulfill their respective contractual obligations; and (iv) based on the construction budget and contract, the total amount of revenue, the total cost to be incurred and the estimated profit can be determined.
 
Construction contracts are developed taking into account the expected costs and revenues to date as the contract progresses. The estimations are based on the terms, conditions and specifications of each specific project, including plans and assumptions made by management of the project in order to ensure that all costs attributable to the project were included.
 
In order to measure the extent of progress toward completion for the purpose of recognizing revenue, we utilize either the costs incurred method or the units of work method. The base revenue utilized to calculate percentage of profit as work progresses includes the following: (i) the initial amount established in the contract, (ii) additional work orders requested by the customer, (iii) changes in the considered yields, (iv) the value of any adjustments (for inflation, exchange rates, or changes in prices agreed to in the contract), (v) the decrease in the original contract value and final agreements in contracts, (vi) claims, and (vii) completion or performance bonuses and agreed penalties, as of the date on which any revision takes place and is effectively approved by the customers.
 
The base cost utilized to calculate the profit percentage under the costs incurred method includes the following: (i) the costs directly related to the specific contract, (ii) indirect costs related to the general contract activity that can be matched to a specific contract; and (iii) any other costs that may be transferred to the customer under the contract terms. The costs directly related to the specific contract include all direct costs such as materials, labor, subcontracting costs, manufacturing and supply costs of equipment manufactured off-site and depreciation. Indirect costs identified that are assignable to a contract include indirect labor, payroll of technical and administrative personnel, construction site camps and related expenses, quality control and inspection, internal and external contract supervision, insurance costs, bonds, depreciation and amortization, repairs and maintenance.
 
Costs which are not included within contract costs are: (i) any general administrative expenses not included under any form of reimbursement in the contract; (ii) selling expenses; (iii) any research and development costs and expenses not considered reimbursable under the contract; and (iv) the depreciation of machinery and equipment not used in the specific contract even though it is available on hand for a specific contract, when the contract does not allow revenue for such item. In addition, work performed in independent workshops and construction in-progress are also excluded costs and are recorded as assets when they are received or used under a specific project.
 
Costs incurred for change orders based on customers’ instructions which are still awaiting definition and price authorization are recognized as assets within the cost and estimated earnings in excess of billings of uncompleted contracts.
 
Periodically, we evaluate the reasonableness of the estimates used in the percentage-of-completion. Cost estimates are based on assumptions which can differ from the actual cost over the life of the project. Accordingly, estimates are reviewed periodically taking into account factors such as price increases for materials, the amount of work to be done, inflation, exchange-rate fluctuations, changes in contract specifications due to adverse conditions and provisions created based on the construction contracts over the project duration including those related to penalties, termination and startup clauses of the project, and the rejection of costs by customers, among others. If as a result of this evaluation there are modifications to the revenue or cost previously estimated or if the total estimated cost of the project exceeds expected revenues, an adjustment is made in order to reflect the effect in results of the period in which the adjustment or loss is incurred. The estimated revenues and costs may be affected by future events. Any change in these estimates may affect our results.


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We consider that the potential credit risk related to construction contracts is adequately covered because the construction projects in which we participate generally involve customers of recognized solvency. Billings received in advance of execution or certification of work are recognized as advances from customers. In addition, we periodically evaluate the reasonableness of our accounts receivable. In cases when an indication of collection difficulty exists, allowances for bad debts are created and charged to results in the same period. The estimate for such reserve is determined based on management’s best judgment in accordance with prevailing circumstances at that time. We are usually subject to a balance aging of between 30 and 60 days for work performed but not previously estimated in unfinished contracts. Under MFRS, our policy is not to recognize a provision for accounts receivable on contracts that require the customer to pay for the work not as it is performed, but only when the project is completed.
 
For those projects in which financing revenue is included as part of the selling price, the contract costs also include the net comprehensive financing costs incurred with the financing obtained to perform the contract. In cases where the actual financial cost exceeds the originally estimated financial cost, such excess is recognized in comprehensive financing costs. In these types of contracts, the collection of the contract amount from the client may take place at the completion of the project. However, periodic reports of the advance of the project to date are provided to and approved by the client, which serve as the basis so that we can continue to obtain financing for the project.
 
When a contract includes construction of various facilities, construction of each facility is treated as a separate profit center when: i) separate proposals for each facility have been presented; ii) each facility has been separately negotiated and has independent terms and conditions established in the contract; and iii) the revenue, costs and profit margin of each separate facility can be identified.
 
A group of contracts, whether with one or several clients, are treated together as one unique profit center when: i) the group of contracts have been negotiated together as a unique package; ii) the contracts are so intimately related that they are effectively part of a unique project with a global profit; and iii) the contracts are executed simultaneously or in a continuous sequence.
 
The estimated profit of various profit centers cannot offset one another. We ensure that when several contracts integrate a profit center, its results are properly combined.
 
In the case of a consortium, construction backlog takes into account only those contracts in which we have control over such project. We consider ourselves to have control when we have a majority participation in the project and when we are assigned leadership of the project.
 
 
We value our long-lived assets at their historical cost restated for inflation in accordance with Bulletin B-10. We calculate depreciation on our fixed assets, such as property, plant and equipment based on their remaining useful life. We calculate amortization, as in the case of our investment in concessions of highways, tunnels and rights involving the use of airport facilities and concessions over the duration of such concession. We periodically evaluate the impairment of long-lived assets. If the restated values of our long-lived assets exceed their recoverable value, we write-down the asset to its recoverable value. The recoverable value is determined as the greater of the net selling price of a cash-generating unit and its useful value, which is the present value of discounted future net cash flows. The mechanics to calculate the recoverable value are established considering the particular circumstances of the concessions, machinery and equipment and intangible assets.
 
Our estimates for forecasted revenues related to traffic volume, which we primarily use in connection with vehicle counting in the case of our highway concessions, are based on population growth estimates and on the economic conditions in the area surrounding the concessioned highway. Our calculations also take into account temporary decreases in vehicle use as a result of tariff increases and the impact of our marketing strategies that are aimed at generating higher revenues. Our estimates may be based on assumptions that differ from the actual use.


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Recognition of the loss from impairment under U.S. GAAP differs from that established by Bulletin C-15, “Impairment of Long-Lived Assets and Their Disposal.” Under U.S. GAAP, SFAS No. 144, “Accounting for the Impairment of Disposal of Long-Lived Assets,” requires that in the presence of certain events and circumstances, we review long-lived assets for impairment. An impairment loss under SFAS No. 144 is calculated as the difference between the fair value and the carrying value of the long-lived asset. However, an impairment loss is only recognized when it is determined that the long-lived asset is not recoverable. A long-lived asset is not recoverable when the estimated future undiscounted cash flows expected to result from the use of the asset are less that the carrying value of the asset.
 
 
A provision or benefit for income tax is recorded in the results of the year in which such tax expense or benefit is incurred. Deferred income tax assets and liabilities are recognized for temporary differences derived from comparing the accounting and tax values of assets and liabilities, plus any future benefits resulting from tax losses and unused tax loss carryforwards. The resulting deferred tax provision or benefit is reflected in our statement of operations. A deferred tax liability is recorded when there is a charge to results, or deferred tax asset when a credit is recorded.
 
The calculation and recognition of deferred taxes and the related valuation allowance requires the use of estimates, which may be affected by the amount of our future taxable income, the assumptions relied on by our management and our results of operations.
 
We periodically evaluate the fairness of deferred tax assets or liabilities based on historical tax results and estimated tax profits, among others. The method used to determine deferred taxes is similar to that established in SFAS No. 109, “Accounting for Income Taxes.” A valuation allowance is recorded for any deferred tax assets that, in the opinion of our management, are not probable of being realized. Any change in our estimates may have an effect on our financial condition and results of operations.
 
 
Set forth below are the results derived from the application of the aforementioned policies and their effects on our financial statements for the years ended December 31, 2006, 2005 and 2004:
 
 
Our financial statements as of December 31, 2005 include a provision of Ps.2 million for estimated losses upon project termination related to projects that were expected to be substantially completed during 2006; no loss provisions were recognized in our 2006 financial statements. As of December 31, 2006 and 2005, our financial statements include an allowance for doubtful accounts of Ps.170 million and Ps.179 million, respectively. Reserves and provisions were recorded based on our best estimates and current circumstances. If these circumstances change, we may need to modify the amount of reserves and provisions we have recorded.
 
 
In 2006 we recorded a net tax provision of Ps.382 million, which reflected a current income tax expense of Ps.231 million, a deferred income tax expense of Ps.465 million and a benefit related to a decrease in the valuation allowance of Ps.314 million. As of December 31, 2006, we had a net deferred tax asset of Ps.2,406 million, including deferred tax liabilities of Ps.2,659 million and creditable asset tax of Ps.2,232 million. As of December 31, 2006, a valuation allowance for tax loss carryforwards and asset tax credits of Ps.2,406 million was recorded because we believe that the period granted by Mexican law for the recovery of such amounts may expire before such tax loss carryforwards and tax on asset credits are recovered. If these circumstances were to change, we may be required to increase or decrease the valuation allowance.
 
In 2005, we recorded a net tax provision of Ps.360 million, which reflected a current income tax expense of Ps.93 million, deferred tax expense of Ps.111 million related to change in deferred tax assets and liabilities,


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a deferred income tax expense of Ps.48 million reflecting change in the statutory tax rate and an increase in the valuation allowance of Ps.108 million.
 
 
During 2004, we performed impairment analyses on our investments in concessions and other long-lived assets in conformity with Bulletin C-15, considering the usage value or sales price. We recorded a net impairment loss for accounting purposes of Ps.57,319 thousand, which is included in the consolidated statement of operations under the caption other expenses, net. No impairments or adjustments to the carrying value of other significant long-lived assets were made in 2006 or 2005.
 
Recently Issued Accounting Standards
 
 
When Mexican NIF Series A went into effect on January 1, 2006, which represents the Conceptual Framework described in note 3 to our financial statements, some of its provisions created divergence with specific NIFs already in effect. Consequently, in March 2006, CINIF issued Interpretation Number 3 (INIF No. 3), “Initial Application of Mexican Financial Reporting Standards”, establishing, that provisions set forth in specific NIFs that have not been amended should be followed until their adaptation to the Conceptual Framework is complete. For example, in 2006, revenues, costs and expenses were not required to be classified as ordinary and non-ordinary in the statement of income and other comprehensive income items in the statement of stockholders’ equity were not required to be reclassified into the statement of income at the time net assets that gave rise to them were realized.
 
CINIF continues to pursue its objective of moving towards a greater convergence with International Financial Reporting Standards. To this end, on December 22, 2006, it issued the following NIFs, which will become effective for fiscal years beginning on or after January 1, 2007:
 
  •  NIF B-3, Statement of Income
 
  •  NIF B-13, Events Occurring after the Date of the Financial Statements
 
  •  NIF C-13, Related Parties
 
  •  NIF D-6, Capitalization of Comprehensive Financing Result
 
Some of the significant changes established by these standards are as follows:
 
NIF B-3, “Statement of Income”, sets the general standards for presenting and structuring the statement of income, the minimum content requirements and general disclosure standards. Consistent with NIF A-5, “Basic Elements of Financial Statements”, NIF B-3 now classifies revenues, costs and expenses, into ordinary and non-ordinary. Ordinary items (even if not frequent) are derived from the primary activities representing an entity’s main source of revenues. Non-ordinary items are derived from activities other than those representing an entity’s main source of revenues. Consequently, the classification of certain transactions as special or extraordinary, according to former Bulletin B-3, was eliminated. As part of the structure of the statement of income, ordinary items should be presented first and, at a minimum, present income or loss before income taxes, income or loss before discontinued operations, if any, and net income or loss. Presenting operating income is neither required nor prohibited by NIF B-3. If presented, the line item other income (expense) is presented immediately before operating income. Cost and expense items may be classified by function, by nature, or a combination of both. When classified by function, gross income may be presented. Statutory employee profit sharing should now be presented as an ordinary expense (within other income (expense) pursuant to INIF No. 4 issued in January 2007) and no longer presented within income tax. Special items mentioned in particular NIFs should now be part of other income and expense and items formerly recognized as extraordinary should be part of non-ordinary items.
 
NIF B-13, “Events Occurring after the Date of the Financial Statements”, requires that for (1) asset and liability restructurings and (2) creditor waivers to their right to demand payment in case the entity defaults on


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contractual obligations, occurring in the period between the date of the financial statements and the date of their issuance, only disclosure needs to be included in a note to our financial statements while recognition of these items should take place in the financial statements of the period in which such events take place. Previously, these events were recognized in the financial statements in addition to their disclosure. NIF A-7, “Presentation and Disclosure”, in effect as of January 1, 2006, requires, among other things, that the date on which the issuance of the financial statements is authorized be disclosed as well as the name of authorizing management officer(s) or body (bodies). NIF B-13 establishes that if the entity owners or others are empowered to modify the financial statements, such fact should be disclosed. Subsequent approval of the financial statements by the stockholders or other body does not change the subsequent period, which ends when issuance of the financial statements is authorized.
 
NIF C-13, “Related Parties”, broadens the concept “related parties” to include a) the overall business in which the reporting entity participates; b) close family members of key officers; and c) any fund created in connection with a labor-related compensation plan. NIF C-13 requires the following disclosures: a) the relationship between the controlling and subsidiary entities, regardless of whether or not any intercompany transactions took place during the period; b) that the terms and conditions of consideration paid or received in transactions carried out between related parties are equivalent to those of similar transactions carried out between independent parties and the reporting entity, only if sufficient evidence exists; c) benefits granted to key officers; and d) name of the direct controlling company and, if different, name of the ultimate controlling company. Notes to comparative financial statements of prior periods should disclose the new provisions of NIF C-13.
 
NIF D-6, “Capitalization of Comprehensive Financing Result”, establishes general capitalization standards that include specific accounting for financing in domestic and foreign currencies or a combination of both. Some of these standards include: a) mandatory capitalization of comprehensive financing cost, or RIF, directly attributable to the acquisition of qualifying assets; b) in the instance financing in domestic currency is used to acquire assets, yields obtained from temporary investments before the capital expenditure is made are excluded from the amount capitalized; c) exchange gains or losses from foreign currency financing should be capitalized considering the valuation of associated hedging instruments, if any; d) a methodology to calculate capitalizable RIF relating to funds from generic financing; e) regarding land, RIF may be capitalized if development is taking place; and f) conditions that must be met to capitalize RIF, and rules indicating when RIF should no longer be capitalized. The entity may decide on whether to apply provisions of NIF D-6 for periods ending before January 1, 2007, in connection with assets that are in the process of being acquired at the time this NIF goes into effect.
 
On November 30, 2006, the Interpretations Committee of International Financial Reports issued IFRIC 12, “Agreements for Service Concessions,” which is of mandatory application as of January 1, 2008, although its early application is encouraged. Accordingly we have applied IFRIC 12 beginning January 1, 2007. This interpretation deals with recognition of concessions by private sector operators involved in supplying infrastructure assets and services to the public sector, such as schools and highways. The interpretation establishes that for those agreements which fall within this scope, the infrastructure assets are not recognized as property, plant and equipment of the operator; rather, depending on the contract terms, the operator will recognize: (1) a financial asset, whereby an operator constructs or makes improvements to the infrastructure, in which the operator has an unconditional right to receive a specific amount of cash or other financial asset during the contract term; or (2) an intangible asset, whereby the operator constructs or makes improvements and is allowed to operate the infrastructure for a fixed period after the construction is terminated, in which the future cash flows of the operator have not been specified, because they may vary depending on the use of the asset, and are therefore considered contingent; or (3) both, a financial asset and an intangible asset, when the return/gain for the operator is provided partially by a financial asset and partially by an intangible asset. This IFRIC establishes that for both the financial asset and the intangible asset, the revenues and costs related to the construction or the improvements are recognized in revenues during the construction phase in accordance with IAS 11 “Construction Contracts” (or its equivalent in NIF, NIF D-7).
 
We believe that this pronouncement is applicable to the concession contracts that we have signed with government agencies.


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These pronouncements are currently being analyzed to determine their effect on our financial position and results of operations.
 
 
In June 2006, the FASB issued FASB Interpretation No., or FIN, 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 provides detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is recognized at the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. Any difference between the tax position taken in the tax return and the tax position recognized in the financial statements using the criteria above results in the recognition of a liability in the financial statements for the unrecognized benefit. Similarly, if a tax position fails to meet the more-likely-than-not recognition threshold, the benefit taken in tax return will also result in the recognition of a liability in the financial statements for the full amount of the unrecognized benefit. FIN 48 will be effective for fiscal years beginning after December 15, 2006 and the provisions of FIN 48 will be applied to all tax positions under SFAS No. 109 upon initial adoption. The cumulative effect of applying the provisions of this interpretation will be reported as an adjustment to the opening balance of retained earnings for that fiscal year. We do not anticipate that the adoption of this new accounting principle will have a material effect on our financial position, results of operations or cash flows.
 
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin, or SAB, No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatement in Current Year Financial Statements.” This standard applies only to companies that are public in the U.S. SAB 108 addresses the process and diversity in practice of quantifying financial statement misstatements and the potential build up of improper amounts on the balance sheet. We adopted the provisions of SAB No. 108 in our 2006 financial statements, which did not affect our financial position, results of operations or cash flows.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 clarifies the definition of exchange price as the price between market participants in an orderly transaction to sell an asset or transfer a liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The changes to current practice resulting from the application of this statement relate to the definition of fair value, the methods used to measure fair value, and the expanded disclosures about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We do not anticipate the adoption of this new accounting principle will have a material effect on our financial position, results of operations or cash flows.
 
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans,” an amendment of FASB Statements Nos. 87, 88, 106, and 132(R). SFAS No. 158 requires an employer to recognize the over-funded or under-funded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial position, in order to recognize changes in that funded status in the year in which the changes occur through comprehensive income. SFAS No. 158 also prescribes additional disclosure requirements. These provisions of this statement became effective for us at December 31, 2006. In addition, a company must now measure the fair value of its plan assets and benefit obligations as of the date of its year-end balance sheet. A company is no longer permitted to measure the funded status of its plan(s) by being able to choose a measurement date up to three months prior to year-end. This provision within the standard will be effective for our fiscal year ending after December 31, 2008.
 
In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities.” SFAS No. 159 allows entities to voluntarily choose, at specified election dates, to measure various financial assets and financial liabilities at fair value (the “fair value option”). SFAS No. 159


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is effective for fiscal years beginning after November 15, 2007. We do not anticipate the adoption of this new accounting principle will have a material effect on our financial position, results of operations or cash flows.
 
LIQUIDITY AND CAPITAL RESOURCES
 
 
Our principal uses of funds in 2006 were:
 
  •  Ps.940 million for the purchase of land reserves for our Housing Development segment
  •  Ps.359 million for the modernization of the Irapuato — La Piedad PPP project in the Infrastructure segment
  •  Ps.440 million for working capital for the construction of the new terminal in the Mexico City International Airport in the Civil Construction segment
  •  Ps.1,996 million for the financing of the acquisition of GACN in the Infrastructure segment
 
Our principal sources of funds in 2006 were:
 
  •  Ps.359 million of bank loans to finance the Irapuato — La Piedad PPP project
  •  Ps.440 million of bank loans to finance working capital
  •  Ps.1,996 million of bank loans to finance the GACN acquisition
 
Our expected future sources of liquidity include cash flow from our Civil Construction, Industrial Construction and Infrastructure segments, third party financing for our construction and housing projects, as well as the divestment of certain other assets related to our core operations that are obsolete or no longer useful to us, such as construction machinery and equipment. There can be no assurance that we will be able to continue to generate liquidity from these sales.
 
As of March 31, 2007, we had net working capital (current assets less current liabilities) of Ps.7,702 million. We had net working capital of Ps.9,523 million as of December 31, 2006 as compared to net working capital of Ps.4,897 million as of December 31, 2005 and a net working capital of Ps.1,782 million as of December 31, 2004. Our net working capital as of December 31, 2005, December 31, 2006 and March 31, 2007 included Ps.1,808 million, Ps.2,402 million and Ps.2,382 million, respectively, of net working capital from GACN, which we began to consolidate in December 2005. The increase in net working capital from December 31, 2005 to December 31, 2006 was primarily attributable to the reclassification of accounts receivable of El Cajon Hydroelectric project from long-term receivables to short-term receivables, given their expected (and actual) receipt in 2007. The increase in net working capital from December 31, 2004 to December 31, 2005 was primarily attributable to the consolidation of GACN’s balance sheet in 2005, an increase in our cash position and a reduction in short-term debt, which was partially offset by a decrease in other receivables. We believe that our working capital is sufficient to meet our requirements in connection with work we currently intend to carry out in the near future.
 
Our cash and cash equivalents were Ps.5,109 million as of December 31, 2006, as compared to Ps.6,545 million as of December 31, 2005 and Ps.3,704 million as of December 31, 2004. Of our cash and cash equivalents as of December 31, 2006, Ps.1,860 million was attributable to the consolidation of GACN’s balance sheet in December 2005. At December 31, 2006, we had a current ratio (current assets over current liabilities) of 1.68, as compared to a current ratio of 1.64 at December 31, 2005. As of March 31, 2007, we had a current ratio of 1.22.
 
Cash and cash equivalents at year-end 2006 included:
 
  •  Ps.1,860 million of cash and cash equivalents (representing 36% of our cash and cash equivalents) held by GACN;
  •  Ps.1,374 million of cash and cash equivalents (representing 27% of our cash and cash equivalents) held by ICA-Fluor;
  •  Ps.378 million of cash and cash equivalents (representing 7.4% of our cash and cash equivalents) held by CIISA;


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  •  Ps.59 million of cash and cash equivalents (representing 1% of our cash and cash equivalents) held by Rodio.
 
The use of cash and cash equivalents by ICA-Fluor or Rodio Kronsa requires the consent of the other shareholders or partners, as applicable, in each such subsidiary or joint venture, which are the Fluor Corporation, in the case of ICA-Fluor, and the Soletanche Bachy Group, in the case of Rodio Kronsa. See “Item 3. Key Information — Risk Factors — A substantial percentage of our cash and cash equivalents are held through less-than-wholly owned subsidiaries or joint ventures that restrict our access to their resources.”
 
We generated Ps.1,910 million from operating activities during 2006, as compared to Ps.1,102 million in 2005 and Ps.546 million in 2004.
 
The terms of the El Cajon contract required that we secure financing for the project costs and limit disbursements during the construction phase to 80% of the cash cost of any certified work performed. Because the terms of the construction contract provided that the CFE would pay for the project upon completion, and the financing obtained by CIISA covers only the project’s cash costs, the project did not generate any significant cash flow to us until February 27, 2007, when the CFE paid CIISA U.S.$525 million upon the delivery of the project’s first turbine unit. On June 1, 2007, CIISA delivered, and the CFE provisionally accepted, the project’s second turbine unit, the final acceptance of which, pursuant to the contract, requires CIISA to successfully conclude performance tests and deliver related documentation. We expect to complete the project in August 2007. There can be no assurance that we will receive part or all of the remaining U.S.$348 million owed to CIISA upon the project’s completion, or that we will recover any additional amounts that may be in dispute. Because we have recognized revenues from the El Cajon project based on the percentage of completion method of accounting, which relies on certain estimates and assumptions, the project represented a material portion of our revenues in recent years, and is expected to continue to generate a material portion of our revenues in 2007. Since a substantial majority of the project’s revenues have been recognized and costs have been incurred as of June 2007, any decrease in the actual revenues expected to be earned from the project would likely have a material impact on our operating profit in 2007.
 
The El Cajon hydroelectric project generated Ps.1,634 million, Ps.4,301 million and Ps.3,206 million of revenue, or 8%, 22% and 23% of total revenue, in 2006, 2005 and 2004, respectively. The El Cajon hydroelectric project represents a substantial portion of our receivables and our indebtedness. At December 31, 2006, we had Ps.9,318 million in contract receivables and Ps.7,170 million of debt on our balance sheet relating to the El Cajon hydroelectric project.
 
As of March 31, 2007, some of our assets were pledged to issuers of letters of credit and under other credit arrangements. These assets are pledged to a number of banks, including: WestLB AG, Norddeutsche Landesbank Girozentrale and Banco Santander. The assets we have pledged include series “B” shares in GACN representing 36.04% of GACN’s capital stock held by Aeroinvest; construction machinery and equipment owned by Ingenieros Civiles Asociados, S.A. de C.V. (a construction subsidiary); and the portion of cash flow that represents free cash flow from Corredor Sur and Acapulco tunnel. As guarantee and collateral for a refinancing of an existing facility agreed upon with Merrill Lynch, we have assigned our economic and corporate interest in our series “B” shares of GACN, consisting of 36.04% of GACN’s capital stock, and in our 74.5% ownership of SETA. Under the refinancing, Aeroinvest will retain the right to vote at all times prior to failing to make a required payment. We expect that most of the assets securing letters of credit will remain pledged until the letters of credit secured by these assets expire. As a result of these arrangements, our ability to dispose of pledged assets requires the consent of these banks and our ability to incur further debt (whether secured or unsecured) is limited. At March 31, 2007, we had unrestricted access to Ps.1,176 million of our cash and cash equivalents, compared to Ps.1,519 million at December 31, 2006.
 
 
We utilize a number of project financing structures to raise the capital necessary to build projects. We historically financed our construction operations primarily through advances from customers. Increasingly, we have been required to arrange construction-phase financing. This has typically been done through bank financing. As these construction projects near completion, we typically seek to arrange longer-term financing


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to repay the short-term borrowings, either through the issuance of our own long-term debt or through the securitization of revenues from these projects. For example, in 2004, we replaced the bridge financing for the El Cajon hydroelectric project with a U.S.$452.4 million syndicated loan and a U.S.$230 million bond and in 2005 we refinanced the Corredor Sur outstanding indebtedness through the issuance of a U.S.$150 million bond. Our ability to arrange financing for the construction of infrastructure facilities is dependent on many factors, including the availability of financing in the credit market.
 
We typically provide a portion of the equity itself and our investment is returned over time once the project is completed. Generally, we contribute equity to a project by accepting deferred payment of a portion of its construction contract price. Concessions represent a similar approach to financing public-sector projects through the private sector. In certain projects, such as the Cantarell nitrogen plant, we provided debt financing in lieu of equity. In other projects, such as the El Cajon hydroelectric project, which are financed as part of the Mexico’s public works financing program, which is known in Mexico as the PIDIREGAS program, payment of the construction cost is deferred until the project is operational. Due to the nature of most infrastructure projects, which typically involve long-term operations, we recover our equity or debt contribution, and in cases like the El Cajon hydroelectric project receive payment under the contract, after the construction phase is completed. Depending on the requirements of each specific infrastructure project, we typically seek to form a consortium with entities that have expertise in different areas and that can assist us in obtaining financing from various sources. See “Item 3. Key Information — Business Overview — Infrastructure.” We anticipate that future revenues will depend significantly on our ability directly or indirectly to arrange financing for the construction of infrastructure projects.
 
In addition to providing equity capital to our project construction subsidiaries, we arrange third party financing in the form of loans and debt securities to finance the obligations of our projects. The revenues and receivables of the project are typically pledged to lenders and securityholders to secure the indebtedness of the project. Recourse on the indebtedness is typically limited to the subsidiary engaged in the project.
 
We believe that our ability to finance construction projects has enabled us to compete more effectively in obtaining such projects. Providing financing for construction projects, however, increases our capital requirements and exposes us to the risk of loss of our investment in a project. We attempt to compensate for this risk by entering into financing arrangements on terms generally intended to provide us with a reasonable return on our investment. We have implemented a policy to be more selective in choosing projects where we expect to recover our investment and earn a reasonable rate of return. However, there can be no assurance that we will be able to realize these objectives.
 
 
Our total debt to equity ratio was 0.96 to 1.0 at December 31, 2006, 0.82 to 1.0 at December 31, 2005 and 1.31 to 1.0 at December 31, 2004. The deterioration in the debt to equity ratio from December 31, 2005 to December 31, 2006 mainly reflected the increased level of debt in 2006. The new debt was principally incurred for the acquisition of GACN, funding the El Cajon Hydroelectric project and the Irapuato — La Piedad highway modernization project The improvement in the debt to equity ratio from December 31, 2004 to December 31, 2005 mainly reflected the August 2005 equity sale, the proceeds of which were used to repay indebtedness, the debt refinancing transactions described above and the increase in net income we experienced in 2005.
 
As of December 31, 2006, approximately 39% of our consolidated revenues and 86% of our indebtedness were denominated in foreign currencies, mainly U.S. dollars. Decreases in the value of the Mexican peso relative to the U.S. dollar will increase the cost in Mexican pesos of our debt service obligations with respect to our U.S. dollar denominated indebtedness. A depreciation of the Mexican peso relative to the U.S. dollar will also result in foreign exchange losses as the Mexican peso value of our foreign currency denominated indebtedness is increased. We currently do not have any financial instruments in place to hedge for foreign currency risk. Several of our subsidiaries have a reduced exposure to the foreign currency risk because a higher percentage of their revenues are denominated in U.S. dollars.
 
Certain of our subsidiaries, such as GACN, CIISA and ICA Panama, and unconsolidated affiliates have entered into debt and other agreements containing restrictive covenants that limit the ability of such subsidiaries


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and affiliates to pay us dividends. These restrictive covenants generally do not restrict our operating subsidiaries such as Ingenieros Civiles Asociados and ViveICA. See note 15 to our financial statements.
 
In 2006, our debt service obligations (principal and interest) totaled Ps.1,470 million for debt denominated in pesos and U.S dollars. As of December 31, 2006, our net debt (interest paying debt less cash and cash equivalents) was Ps.8,278 million. As of March 31, 2007 our net debt decreased to Ps.5,449 million due to the first payment from the CFE on the El Cajon hydroelectric project.
 
 
CIISA obtained permanent financing for the El Cajon hydroelectric project in the first quarter of 2004, consisting of a U.S.$452.4 million syndicated loan and a U.S.$230 million bond. The syndicated loan and bond contain various restrictive covenants typical for project financing. The permanent financing required that CIISA obtain U.S.$26 million in letters of credit to be used as collateral for the financing. The terms of the syndicated loan also include a U.S.$53 million contingent facility that can be drawn upon to cover increases in the cost of the project or if CFE requests that additional works be done on the project, and a U.S.$28 million cost-overrun facility that can be drawn upon to cover cost-overruns. Disbursements under the cost-overrun facility were contingent upon CIISA obtaining additional letters of credit, if CIISA did not meet certain minimum financial ratios based on a percentage of certified work completed on the project. We used both the contingent and the cost overrun facilities. In 2006 we executed a U.S.$60 million subordinated credit agreement with WestLB AG. Additionally, in 2007 CIISA posted a two-year quality guaranty for the first power generation unit in the form of a U.S.$52 million bond and will be required to post an additional U.S.$33 million quality guaranty bond on the final acceptance of the second unit, which is expected to occur in the second half of 2007. CIISA is a special purpose subsidiary, which was created to construct the El Cajon hydroelectric project. We and the other shareholders of CIISA have agreed to guarantee certain obligations of CIISA under the project contracts, including the financing documents, subject to certain limitations in the event of an early termination of the public works contract for the project.
 
 
On May 17, 2005, a trust organized by our subsidiary ICA Panama issued U.S.$150 million of its 6.95% notes due 2025. Payments of principal and interest on the notes will be made from the Corredor Sur highway’s operations. The notes are recourse solely to the trust, which has been assigned the right to payment from the tolls. The net proceeds from the placement of the notes (approximately U.S.$134.9 million) were principally used to repay 100% of the project’s outstanding indebtedness (including a payment of U.S.$51.2 million in respect of outstanding indebtedness to the IFC) and to fund certain reserve accounts as required under the terms of the concession’s financing. The balance of the proceeds from the placement of the notes was used to repay a portion of our parent company indebtedness and for other corporate purposes.
 
 
On June 30, 2005, a trust organized by our subsidiary TUCA issued and sold Ps.800 million in notes (Certificados Bursatiles) due 2022, which are listed on the Mexican Stock Exchange. These notes accrue interest at TIIE (the Mexican interbank rate), plus 2.95%. The notes are recourse solely to the trust, which has been assigned the Acapulco Tunnel’s tolls and toll collection rights. After repaying all outstanding debt of TUCA, Ps.66 million to Banco Nacional de Obras y Servicios Publicos, S.N.C. and Ps.206 million of TUCA’s ordinary participation certificates, we received approximately Ps.456 million from the sale of these notes, which was used for general corporate purposes.
 
 
In connection with the GACN acquisition, on December 22, 2005, our subsidiary Aeroinvest obtained a bridge loan from WestLB AG and Nord LB in the amount of U.S.$125 million. The bridge loan is guaranteed by our holding company, Empresas ICA. In September 2006, Aeroinvest entered into a second credit agreement in the amount of U.S.$15 million with WestLB AG, which was later transferred to Halkin Finance


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PLC and amended to increase its principal amount to U.S.$55 million, and later increased to U.S.$91 million for a total existing facility of U.S.$216 million.
 
In June 2007, Aeroinvest entered into agreements with Merrill Lynch to refinance the existing facility. The refinancing was approved at GACN’s extraordinary general shareholders’ meeting held January 31, 2007. The refinancing of the existing facility consists of the issuance of the following series of notes by a Mexican trust, payable in U.S. dollars: (1) Ps.2,125,000,000 aggregate principal amount of Series 2007-1 Class A Notes due 2017, (2) Ps.325,000,000 aggregate principal amount of Series 2007-1 Class B Notes due 2017, and (3) Ps.355,000,000 aggregate principal amount of Series 2007-1 Class C Notes due 2017. Its purpose is prepayment of the existing facility, related costs, fees, reserves and general corporate purposes. Aeroinvest has pledged as collateral its series “B” shares in GACN representing 36.04% of GACN’s capital stock. Additionally, Aeroinvest has assigned its economic and corporate interests (including its right to receive dividends) in such series “B” shares and in its series “A” shares representing 74.5% of the capital stock of SETA, which in turn owns an additional 16.7% of the capital stock of GACN. Under the refinancing, Aeroinvest will retain the right to vote at all times prior to failing to make a required payment. Both we and Aeroinvest made corporate guarantees for the benefit of Banco J.P. Morgan S.A., Institucion de Banca Multiple, J.P. Morgan Grupo Financiero, Division Fiduciaria (as issuer of the notes) and the Bank of New York (as trustee under the indenture governing the notes) in connection with the refinancing. So long as there are amounts outstanding under the notes, Aeroinvest is obligated to comply with certain affirmative and negative covenants, including maintenance of at least its present ownership interest in GACN and SETA, majority control over GACN and its subsidiaries and a minimum ratio of earnings before depreciation and amortization to debt service.
 
 
In the third quarter of 2002, we restructured Ps.155 million of our debt with BBVA Bancomer by entering into three new secured loan agreements. During 2005, we repaid the total outstanding amount of these secured loans using the proceeds from the sale of real estate in Hermosillo and Queretaro and a portion of the proceeds from the capital increase in 2003 and 2004.
 
During 2004, we transferred payment obligations of two of our subsidiaries to Ingenieros Civiles Asociados, S.A. de C.V. in connection with amounts owed to Caterpillar, Inc. A U.S.$3.7 million obligation was transferred from Dravica to ICA, S.A. de C.V. and a U.S.$1.8 million obligation was transferred from ICA Panama to ICA, S.A. de C.V. In each case the terms and conditions of the obligations remained the same. On May 25, 2005, we repaid U.S.$2 million of the amount owed to Caterpillar. As of March 31, 2006, there were no amounts outstanding owed to Caterpillar.
 
As of December 31, 2005, we had outstanding Ps.106 million of other long-term debt associated with financial leases for construction equipment and Ps.77 million of other long-term indebtedness related to a loan maturing in September 2008 that is secured by shares of SISSA Coahuila, S.A. de C.V., which was the remaining amount outstanding from the financing for the construction of the waste-water treatment plant. As of December 31, 2006 we had outstanding long-term other debt of Ps.52 million.
 
 
From February 1999 through December 2006, we sold assets for U.S.$784 million, including U.S.$2.8 million in 2006, a portion which were sold as part of a non-core asset divestment program.
 
In 2006, we sold:
 
  •  several real estate properties in Los Mochis, Sinaloa for U.S.$1.9 million and real estate properties in Cancun, Quintana Roo for U.S.$0.9 million.
 
We may from time to time repurchase our outstanding equity securities if market conditions and other relevant considerations make such repurchases appropriate. The amount that we may use to repurchase our securities, is authorized annually by our shareholders at our ordinary general meeting.


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Historically our clients have required us to issue bonds to secure, among other things, bids, advance payments and performance. In recent years, our clients have been increasingly requiring letters of credit and other forms of guarantees to secure such bids, advance payments and performance. We are currently in contact with issuers of letters of credit, but we cannot guarantee that we will be able to obtain all of the letters of credit required for our normal operations.
 
In recent years, our liquidity has also been adversely affected by the length of our average collection period for accounts receivable. Our average collection period for accounts receivable (including El Cajon) considered net of value-added tax was 180 days as of the first quarter of 2007, which is a 31% decrease from the first quarter of 2006 primarily as a result of the collection of the amount related to the first major milestone (testing of the first turbine) of El Cajon Hydroelectric project.
 
 
We do not engage in any off-balance sheet arrangements that have or that we believe are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
 
TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS
 
Contractual Obligations
 
The following tables set forth our contractual obligations and commercial commitments by time remaining to maturity.
 
As of December 31, 2006, the scheduled maturities of our contractual obligations were as follows:
 
                                         
    Payments Due by Period  
          Less Than
                More Than
 
Contractual Obligations
  Total     1 Year     1-3 Years     3-5 Years     5 Years  
    (Millions of Mexican pesos)  
 
Long-term debt obligations
  Ps. 7,274     Ps.     Ps. 2,748     Ps. 4,526     Ps.  
Current portion of long-term debt obligation
    4,756       4,756                    
Operating lease obligations
    955       289       496       92       78  
                                         
Total
  Ps. 12,985     Ps. 5,045     Ps. 3,244     Ps. 4,618     Ps. 78  
                                         
 
As of December 31, 2006, the scheduled maturities of other commercial commitments were as follows:
 
                                         
    Amount of Commitment Expiration per Period  
    Total Amounts
    Less Than
                Over
 
Contractual Obligations
  Committed     1 Year     1-3 Years     4-5 Years     5 Years  
    (Millions of Mexican pesos)  
 
Standby letters of credit
  Ps. 1,163     Ps.     Ps. 1,163     Ps.     Ps.  
Guarantees(1)
    8,812             8,812              
                                         
Total commercial commitments
  Ps. 9,975     Ps.     Ps. 9,975     Ps.     Ps.  
                                         
 
 
(1) Consist principally of bonds delivered to guarantee bids, advance payments and performance.


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Item 6.   Directors, Senior Management and Employees
 
DIRECTORS AND SENIOR MANAGEMENT
 
Management of our business is vested in our board of directors. Our bylaws provide that the board of directors will consist of the number of directors elected by our shareholders at the annual ordinary general meeting. In September 2006, our bylaws were amended to comply with the new Mexican Securities Market Law published on December 30, 2005 which replaced the prior Law in June 2006. See “Item 6. Directors Senior Management and Employees, Board Practices.” Our current board of directors was elected on April 26, 2007, in three classes, with terms designed to provide a transition to the staggered term arrangement provided by the bylaws. The President of the board of directors must be a Mexican national. We offer no service contracts for our directors providing benefits upon termination of employment. The board of directors currently consists of 18 members, of which thirteen are outside (i.e., non-management) directors. Twelve of our directors are independent directors within the meaning of the Mexican Securities Market Law. The directors are as follows:
 
                     
        Years as
   
Name
 
Position
 
Director
 
Age
 
Bernardo Quintana I.(2)
  Chairman   29   65
Jorge Borja Navarrete(2)(7)
  Director   21   64
Jose Luis Guerrero Alvarez(2)
  Director   17   63
Sergio F. Montaño Leon(2)
  Director   15   59
Emilio Carrillo Gamboa(1)(4)(5)
  Director   11   69
Alberto Escofet Artigas(1)(4)(5)
  Director   11   73
Luis Fernando Zarate Rocha(2)
  Director   9   63
Jorge Aguirre Quintana(2)
  Director   8   59
Juan Claudio Salles Manuel(1)(4)(5)(6)
  Director   4   70
Esteban Malpica Fomperosa(1)(4)(5)
  Director   4   57
Angeles Espinosa Yglesias(1)(4)(5)
  Director   3   64
Elmer Franco Macias(1)(4)(5)
  Director   3   66
Alberto Mulas Alonso(3)(4)(5)
  Director   3   46
Francisco Javier Garza Zambrano(3)(4)(5)
  Director   1   52
Fernando Ruiz Sahagun(3)(4)
  Director   1   64
Luis Rubio Friedberg(3)(4)(5)
  Director   1   52
Guillermo Javier Haro Belchez(3)(4)(5)
  Director   1   48
Sergio Manuel Alcocer Martinez de Castro(3)(4)(5)
  Director   0   44
 
 
(1) Director whose term expires on April 30, 2010.
 
(2) Director whose term expires on April 30, 2009.
 
(3) Director whose term expires on April 30, 2008.
 
(4) Independent directors within the meaning of the Mexican Securities Market Law.
 
(5) Independent directors within the meaning of Rule 10A-3 under the Securities Exchange Act of 1934, as amended.
 
(6) Audit committee financial expert, within the meaning of Section 407 of the Sarbanes-Oxley Act of 2002.
 
(7) Effective July 1, 2007, Mr. Borja will retire. His director position will remain vacant until he is replaced at the next ordinary general meeting of shareholders.


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Listed below are the names, responsibilities and prior business of our directors and senior management:
 
Bernardo Quintana I. has been a member of our board of directors since 1978. Mr. Quintana was our President from December 1994 to December 2006 and has continued as our Chairman since that date. Previously, Mr. Quintana was the Director of Investments for Banco del Atlantico, Vice President of ICA Tourism and Urban Development and our Executive Vice President. Mr. Quintana is currently a board member of several Mexican companies including Banamex, Cementos Mexicanos and Telmex. Mr. Quintana also serves as Chairman of the Board of GACN, S.A.B. de C.V., a publicly traded company. Mr. Quintana is also a member of Mexico’s National Counsel of Businessmen, is a member of the board of trustees of the Universidad Nacional Autonoma de Mexico and the Fundacion ICA. Mr. Quintana holds a degree in civil engineering from the Universidad Nacional Autonoma de Mexico and an MBA from the University of California at Los Angeles.
 
Jorge Borja Navarrete has been a member of our board of directors since 1986. Mr. Borja is our Executive Vice President in charge of overseeing ICA-Fluor, our Industrial Construction division. Mr. Borja has been with our company over 36 years. Mr. Borja holds a civil engineering degree from the Universidad Nacional Autonoma de Mexico and an MBA from the University of California at Los Angeles.
 
Jose Luis Guerrero Alvarez has been a member of our board of directors since 1990. Mr. Guerrero has been our Chief Executive Officer since January 2007 and previously was Executive Vice President and Chief Financial Officer. For the past 28 years Mr. Guerrero has held various positions in our finance, administrative, divestment, real estate, manufacturing and business development areas. Before joining us, Mr. Guerrero was the Planning Director at Combinado Industrial Sahagun, the Technical Director at Roca Fosforica Mexicana and held various other positions in Mexico and abroad. Mr. Guerrero holds a diploma D’Ingenieur I.S.M.C.M. from Institut Superieur des Materiaux et de la Construction Mechanique of Paris, France. M.S. and a Ph.D. in Engineering from the University of Illinois at Urbana-Champaign.
 
Sergio F. Montaño Leon has been a member of our board of directors since 1992, and is currently our Executive Vice President. Mr. Montaño has been with us since 1972, and has worked in the administrative and finance areas. Previously, Mr. Montaño worked at various Mexican companies, including Trebol and Cerveceria Moctezuma, S.A. where he held different administrative positions. Mr. Montaño holds a bachelor’s degree in public accounting from the Universidad Nacional Autonoma de Mexico.
 
Emilio Carrillo Gamboa has been a member of our board of directors since 1996. Mr. Carrillo served as the President of Telmex from 1975-1987, and as Mexico’s ambassador to Canada from 1987-1989. Mr. Carrillo is presently a senior partner of Bufete Carrillo Gamboa, and is chairman of the board of directors of Holcim-Apasco, a non-listed company and the Mexico Fund, a company listed on the NYSE. He is also member of the board of the following publicly traded companies: Grupo Modelo, Grupo Mexico, Southern Peru Copper Corporation, Kimberly Clark de Mexico and San Luis Corporation. He also serves on the boards of directors of the following non-listed companies: Bank of Tokio — Mitsubishi (Mexico), Gasoductos de Chihuahua, and Innova. Mr. Carrillo holds a law degree from the Universidad Nacional Autonoma de Mexico, and continued his legal education at Georgetown University Law Center.
 
Alberto Escofet Artigas has been a member of our board of directors since 1996. Mr. Escofet has been Chief Executive Officer of Alesco Consultores, S.A. de C.V. since 1991. Previously, Mr. Escofet served as Mexico’s Undersecretary of Energy and Undersecretary of Mines and Industry in the Ministry of Energy. Mr. Escofet has also been the Chief Executive Officer of Uranio Mexicano, Compañia de Luz y Fuerza del Centro and the CFE. Mr. Escofet is a member of the board of directors of Constructora y Perforadora Latina. Mr. Escofet holds a B.S. in mechanical and industrial engineering from the Universidad Nacional Autonoma de Mexico.
 
Luis Fernando Zarate Rocha has been a member of our board of directors since 1997. Mr. Zarate is in charge of the operations of SETA, the airport operator in which we have a majority interest. Mr. Zarate


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has been with our company for over 36 years and has worked on various heavy construction projects, in infrastructure projects and in our business development department. Mr. Zarate is also a member of the board of directors of Fundacion ICA. Mr. Zarate holds a B.S. in civil engineering from Universidad Nacional Autonoma de Mexico, where he has been a professor of engineering since 1978.
 
Jorge Aguirre Quintana has been a member of our board of directors since 2001. Mr. Aguirre is our Vice President in charge of overseeing civil construction. Previously Mr. Aguirre was the project director on the Cantarell nitrogen project and the construction director in our Industrial Construction division. Mr. Aguirre holds a civil engineering degree from the Universidad Nacional Autonoma de Mexico.
 
Juan Claudio Salles Manuel has been a member of our board of directors since April of 2003. Mr. Salles is a founding partner of the Salles Sainz — Grant Thornton, S.C., which specializes in financial consulting and financial statements auditing. Prior to working at Salles — Sainz Grant Thornton, Mr. Salles was a partner at Ruiz Urquiza y Cia, S.C. Mr. Salles is currently a member of the Mexican Institute of Public Accountants, and had previously served as the President of its national executive committee. Mr. Salles is also the President of the Advisory Committee of the Mexican Academy of Integral Performance Audit (Academia Mexicana de Auditoria Integral al Desempeño). Previously, Mr. Salles was also a member of the executive committee of the International Federation of Accountants. Mr. Salles holds a bachelor’s degree in public accounting from the Universidad Nacional Autonoma de Mexico, where he has been a professor since 1962.
 
Esteban Malpica Fomperosa has been a member of our board of directors since April 2003. Mr. Malpica is currently a member of the board of directors of Kimberly Clark de Mexico, S.A.B. de C.V., El Puerto de Liverpool, S.A.B. de C.V., Grupo Herdez, S.A.B. de C.V. and Grupo Gruma, S.A.B. de C.V. Since April 2004, Mr. Malpica has been a managing director of Praemia, S.C. From 1995 to 2001 he was a member of the executive committee at Banamex. From 1991 to 1994 Mr. Malpica was president of Acciones y Valores, S.A.B. de C.V. From 1992 to 1995, he was a vice-president of the Mexican Stock Exchange and chairman of the board of directors of the Mexico Equity & Income Fund. Mr. Malpica is a Certified Public Accountant with a degree from the Escuela de Contaduria of the Universidad Iberoamericana. He also holds an MBA from Notre Dame University.
 
Angeles Espinosa Yglesias has been a member of our board of directors since April 2004. Ms. Espinosa is the President of Fundacion Amparo. Ms. Espinosa is a member of the State Council on Culture and the Arts (Consejo Estatal para la Cultura y las Artes) in the state of Puebla and a director of the Historic Center (Centro Historico) of the city of Puebla. Ms. Espinoza is a member of the board of directors and the finance and planning committee of Casa de Bolsa Inbursa, the board of directors and the finance and planning committee of Telmex, S.A.B. de C.V. and a member of the Latin America Advisory Committee at Harvard University.
 
Elmer Franco Macias has been a member of our board of directors since April 2004. Mr. Franco has occupied different positions within the INFRA Group, where he began working in 1958. Mr. Franco holds a B.S. in electrical engineering from Universidad Nacional Autonoma de Mexico, concluded studies in Industrial Relations — Human Resources from the Universidad Iberoamericana and has participated in management programs at the Instituto Panamericano de Alta Direccion de Empresas (IPADE).
 
Alberto Mulas Alonso has been a member of our board of directors since April 2004. Mr. Mulas is the managing director of CReSE Consultores, S.C., a consulting firm that specializes in strategy, finance and corporate governance. Mr. Mulas’s experience derives from his work as an investment banker with Bankers Trust, JP Morgan, Lehman Brothers and Donaldson, Lufkin & Jenrette, having been responsible for the Mexican operations of the last two entities. Mr. Mulas has also worked for the administration of President Vicente Fox until December 2002 as Undersecretary of Urban Development and Housing, and then as the Commissioner of the National Housing Development Commission (Comisionado Nacional de Fomento a la Vivienda). Mr. Mulas is currently a director of the government development banks Bancomext and the Sociedad Hipotecaria Federal. He also serves on the boards of Cydsa, S.A.B. de C.V., GACN, S.A.B. de C.V., URBI, S.A.B. de C.V. and Acciones y Valores, S.A. Mr. Mulas holds a chemical


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engineering degree from Universidad Iberoamericana and has an MBA from Wharton Business School, University of Pennsylvania.
 
Francisco Garza Zambrano was elected Director in 2006. After holding various senior management positions within CEMEX since 1988, he now serves as President of the North American Region & Trading at CEMEX. He is directly responsible for CEMEX’s operations in both Mexico and the United States, and for its trading unit. He holds a bachelors degree from the Tecnologico de Monterrey and an M.B.A. from Cornell University’s Johnson Graduate School of Management.
 
Fernando Ruiz Sahagun has been a member of our board of directors since September 2006. Mr. Ruiz is managing partner at the accountancy consulting firm of Chevez, Ruiz Zamarripa y Cia. Currently he is president of the tax commission of the Business Coordinating Council (CCE) and a tax adviser, and representative of the CCE to the Ministry of Finance. He serves on the boards of a number of public and private companies, both in Mexico and abroad. Mr. Ruiz is an accounting graduate of the UNAM.
 
Luis Rubio Friedberg has been a member of our board of directors since September 2006. Mr. Rubio is president of the Centro de Investigacion para el Desarrollo (CIDAC), an independent economic and political research institute in Mexico City. He is a fellow of the World Economic Forum and serves on the boards of several investment funds, including the Oppenheimer funds, the India Fund, and the Asia Tigers Fund. Dr. Rubio is a finance specialist and has a masters degree and doctorate in political science from Brandeis University.
 
Guillermo Javier Haro Belchez has been a member of our board of directors since September 2006. Mr. Haro is secretary general of the Mexican Chamber of Deputies (the lower house of Congress) and has served in the controller’s offices of the federal government and the State of Mexico. He is a professor of political science and public administration at the UNAM. Mr. Haro is a law graduate of the Universidad La Salle and has a doctorate in law from the Universidad de Alcala de Henares in Madrid, Spain.
 
Sergio Manuel Alcocer Martinez de Castro was elected as an independent director on April 26, 2007. Mr. Alcocer is currently director of the Engineering Institute of the Universidad Nacional Autonoma de Mexico and currently teaches various courses at the Graduate School of Engineering of the same institution. He has a bachelors degree in civil engineering from the Engineering School of the Universidad Nacional Autonoma de Mexico and a Ph.D in engineering from the University of Texas at Austin. Mr. Alcocer has been research director of the Centro Nacional de Prevencion de Desastres and is president of the Reviewing Committee of the Complementary Technical Norms Applicable to the Design and Construction of Masonry Structures belonging to the construction code in Mexico City and is member of the Reviewing Committee of Complementary Technical Norms for the Design and Construction of Concrete structures of the same code. In 2001, Mr. Alcocer received a Mention of Distinction from the Universidad Nacional Autonoma de Mexico for young members of academia in the area of Technological Innovation and Industrial Design. Also in this year, he received the 2001 Research Award from the Academia Mexicana de Ciencias in the area of Technological Research. He is also member of various technical committees of the Instituto Americano del Concreto. Mr Alcocer is currently president of the Mexican Society of Structural Engineering and vice president of the Technical Committee of the National Office of Normalization and Certification of Construction and building. Mr. Alcocer is the first foreign member of the Board of Directors of the Earthquake Engineering Research Institute of the United States.


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Our executive officers currently are as follows:
 
             
        Years as
Name
 
Current Position
 
Executive Officer
 
Jose Luis Guerrero Alvarez
  Chief Executive Officer   17
Alonso Quintana Kawage
  Chief Financial Officer   0
Jorge Borja Navarrete(1)
  Executive Vice President, Industrial Construction   21
Sergio F. Montaño Leon
  Executive Vice President   17
Luis Fernando Zarate Rocha
  Vice President   12
Jorge Aguirre Quintana
  Vice President, Civil Construction   8
Carlos Mendez Bueno
  Divisional Director, Infrastructure, other concessions   0
Diego Quintana Kawage
  Divisional Director, Housing   0
Ruben Gerardo Lopez Barrera
  Divisional Director, Infrastructure, Airports and Chief Executive Officer, GACN   0
Luis Carlos Romandia Garcia
  General Counsel   2
 
 
(1) Effective July 1, 2007, Jorge Borja Navarrete will retire. Juan Carlos Santos, 39, will be the new Divisional Director of Industrial Construction.
 
Alonso Quintana Kawage has been our Chief Financial Officer since January 2007. Since 1994, he has served Empresas ICA in various capacities, including positions in its construction, corporate finance and project finance areas, and since 2003, on GACN’s board of directors. Mr. Quintana was previously the Director of Management and Finance of Empresas ICA. Mr. Quintana received a degree in civil engineering from the Universidad Iberoamericana and a master’s degree in business administration from the Kellogg School of Management at Northwestern University in Chicago. Mr. Quintana is the son of the Chairman of the board of directors, Mr. Bernardo Quintana Isaac.
 
Carlos Mendez Bueno is a civil engineer with a bachelors degree from the Universidad Nacional Autonoma de Mexico (UNAM). He has participated in various post-graduate studies such as “Strategic Planning” at the University of Pennsylvania’s Wharton School and “Certification in Project Administration” from the International Institute of Learning. He has been with us since 1975 and has held various management and senior management positions within civil construction, international projects, and infrastructure. As of January 2007 he was named the divisional director of our Infrastructure segment for Other Concessions. Mr. Mendez is a member of the alumni association of the Engineering School at the UNAM, and is currently Vice President for Industrial Relations, Representation, and Management of the Mexico City delegation to the Mexican Construction Industry Chamber. He is also a board member of the Mexican Road Association (AMC) and represents ICA before the International Road Federation (IRF).
 
Diego Quintana Kawage has been the Divisional Director of Housing since 2004 and serves as a permanent observer of our board of directors. Mr. Quintana previously served as Director of Administration and Finance and General Director of ViveICA. Mr. Quintana is currently vice-president and member of the Executive Commission of the National Chamber of Housing Development. Mr Quintana is the son of the chairman of the board of directors Mr. Bernando Quintana. He holds a degree in economics and has further studies in finance, project analysis and project management.
 
Ruben Gerardo Lopez Barrera has served as GACN’s Chief Executive Officer since December 2003. Previously, he served as GACN’s General Vice President, Human Resources and Legal, and GACN’s Communications Director. Mr. Lopez has also previously served as Business Development Director and Project Finance Director of ICA. Mr. Lopez received a degree in Civil Engineering from Universidad Iberoamericana, a degree in finance from the Instituto Tecnologico Autonomo de Mexico, a master’s degree in business administration from the Pontificia Universidad Catolica de Chile and the Washington University and a certificate in airport management and development from Aeroports de Paris.


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Luis Carlos Romandia Garcia has been our general counsel since May 2005 and has been secretary of our board of directors since 1995. Mr. Romandia has been employed by us since 1977 and has served as a lawyer for several of our subsidiaries during his tenure. Mr. Romandia holds a degree in law from the Universidad Nacional Autonoma de Mexico.
 
Juan Carlos Santos will be our Divisional Director of Industrial Construction. He has been with us for 18 years, including as an alternate member of our board of directors, the Director of Projects for ICA Fluor, and the Project Manager for the liquefied natural gas terminal in Altamira, Tamaulipas. Previously, he was the contracts and project control manager for the Cantarell nitrogen plant. He is a civil engineering graduate of the Universidad Nacional Autonoma de Mexico and holds a master’s degree in business administration from Georgetown University in Washington, D.C.
 
 
For the year ended December 31, 2006, the aggregate compensation of our directors and executive officers paid or accrued in that year for services in all capacities was approximately Ps.108 million. We pay non-management directors Ps.40,000 net of taxes and management directors Ps.20,000 net of taxes for each board meeting, corporate practices committee meeting or audit committee meeting they attend. Additionally, we pay our non-management directors U.S.$250 per hour for work related to their duties on our board or on either committee.
 
 
Generally members of senior and middle management currently become eligible for bonuses after five years of service. Cash performance bonuses are paid to eligible members of management by the subsidiaries that employ them.
 
The corporate practices committee recommends the amount of the performance-based bonuses to the board of directors. We have adopted the following policy regarding the calculation of the performance bonus:
 
  •  in years in which income is 6% or less of our net worth, no bonuses will be paid,
 
  •  in years in which income is greater than 6% of our net worth, up to 25% of the amount by which income exceeds 6% of net worth may be paid as bonuses.
 
Income for these purposes means income from all sources (including extraordinary items) before income taxes, employees’ statutory profit sharing and the bonus itself. Net worth for these purposes is our net worth as at the end of the year for which the bonus is being calculated, without giving effect to that bonus. This formula is subject to change by the board of directors, provided that all outside directors approve any such change.
 
A substantial portion of the shares beneficially owned by our directors and executive officers, along with other shares owned by our management, are owned through a trust, which we refer to as the management trust. The management trust is supervised by a technical committee, referred to as the technical committee, which consists of members of our board of directors. The technical committee has broad discretionary authority over the corpus of this trust, including voting power over the shares contained therein and the conditions governing withdrawal of such shares. The technical committee is authorized to modify the terms of the management trust.
 
Bonuses are paid into the management trust and may be used by the technical committee to purchase shares, for the account of the bonus recipient. All dividends paid with respect to shares in the management trust are also deposited in the management trust. Cash dividends are, at the discretion of the technical committee, distributed to participants in the management trust o