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)

 
Other

Empresas Ica Soc Contrladora 20-F 2008
20-F
 
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, 2007
 
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)
 
Mineria No. 145
Edificio Central
11800 Mexico City
Mexico
(Address of principal executive offices)
 
Alonso Quintana
(5255) 5272 9991 x 3653
alonso.quintana@ica.com.mx
(Name, telephone, e-mail and/or facsimile
number and address of company contact person)
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 four 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: 498,029,907 Ordinary Shares
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
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.
 
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.
 
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):
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
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
 
Item 1.
  Identity of Directors, Senior Management and Advisors     1  
Item 2.
  Offer Statistics and Expected Timetable     1  
Item 3.
  Key Information     1  
Item 4.
  Information on the Company     24  
Item 4A.
  Unresolved Staff Comments     45  
Item 5.
  Operating and Financial Review and Prospects     45  
Item 6.
  Directors, Senior Management and Employees     70  
Item 7.
  Major Shareholders and Related Party Transactions     83  
Item 8.
  Financial Information     85  
Item 9.
  The Offer and Listing     89  
Item 10.
  Additional Information     92  
Item 11.
  Quantitative and Qualitative Disclosures about Market Risk     101  
Item 12.
  Description of Securities Other than Equity Securities     102  
Item 13.
  Defaults, Dividend Arrearages and Delinquencies     102  
Item 14.
  Material Modifications to the Rights of Security Holders and Use of Proceeds     102  
Item 15.
  Controls and Procedures     102  
Item 16.
  [Reserved]     105  
Item 16A.
  Audit Committee Financial Expert     105  
Item 16B.
  Code of Ethics     105  
Item 16C.
  Principal Accountant Fees and Services     105  
Item 16D.
  Exemptions from the Listing Standards for Audit Committees     106  
Item 16E.
  Purchases of Equity Securities by the Issuer and Affiliated Purchasers     106  
Item 17.
  Financial Statements     107  
Item 18.
  Financial Statements     107  
Item 19.
  Exhibits     107  
Index to Empresas ICA, S.A.B. de C.V. and Subsidiaries Consolidated Financial Statements
    F-1  


 

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 (individually referred to as Mexican Financial Information Standards (Normas de Informacion Financiera), or NIFs or Bulletins), 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 consolidated net income and consolidated stockholders’ equity.
 
We publish our financial statements in Mexican pesos. Pursuant to MFRS, our consolidated 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, 2007.
 
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.10.9169 to U.S.$1.00, the noon buying rate for Mexican pesos on December 31, 2007 as published by the Federal Reserve Bank of New York. On June 10, 2008, the Federal Reserve noon buying rate was Ps.10.39 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 (a) the 6:1 reverse stock split that we undertook in December 2005, in which holders of our ordinary shares received one newly issued ordinary share for every six old ordinary shares, and the simultaneous change in the exchange ratio of ADSs to ordinary participation certificates, or CPOs, from 1:6 to 1:12; and (b) the change in the exchange ratio of ADSs to CPOs from 1:12 to 1:4 that we undertook in August 2007. In both cases, the exchange ratio of ordinary shares and CPOs remained 1:1. Unless otherwise noted herein, all share, per share, ADS and per ADS data in this annual report on Form 20-F have been adjusted to reflect the reverse stock split and the change in the ratio of CPOs to ADSs for all periods presented.
 
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, 2007, one UDI was equal to approximately Ps.3.932983.


1


 

Our financial statements were prepared in accordance with MFRS, including Bulletins B-10, Recognition of the Effects of Inflation on Financial Information; B-12, Statements of Changes in Financial Position; and B-15, Foreign Currency Transactions and Translation of Financial Statements of Foreign Operations, 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 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.
 
 
Through the end of 2007, MFRS required us to recognize certain effects of inflation in our consolidated financial statements. It also required us to restate financial statements from prior periods in constant pesos as of the end of the most recent period presented. As discussed below, due to the current level of inflation in Mexico, we do not expect to apply the effects of inflation accounting to our financial information beginning in 2008.
 
 
Our consolidated financial statements and other financial information included in this annual report on Form 20-F recognize effects of inflation in accordance with MFRS. The main inflation adjustments are as follows:
 
  •  Non-monetary assets acquired domestically are restated using a factor derived from the NCPI from the date of acquisition; non-monetary assets of foreign origin are restated using a specific index which represents the NCPI of the country of origin applied to the historical cost in the foreign currency, subsequently translated to Mexican pesos using the exchange rate in effect at the most recent balance sheet date;
 
  •  Common stock, additional paid-in capital, retained earnings and other equity accounts are restated using a factor derived from the NCPI, cumulative from the date of contribution or generation;
 
  •  Revenues and expenses that are associated with monetary items are restated from the month in which they were generated or incurred through year-end, based on factors derived from the NCPI;


2


 

 
  •  Monetary position result, which represents the erosion of the purchasing power of monetary items caused by inflation, is determined by applying NCPI factors to the net monetary asset or liability position;
 
  •  Revenues and expenses that are associated with non-monetary items are restated when incurred based on the restated value of the corresponding asset from the date of consumption of the non-monetary asset through the end of the period, using factors derived from the NCPI.
 
 
Financial statements for all periods have been restated in constant pesos as of December 31, 2007. The restatement in constant pesos uses a factor that is determined using (a) the inflation rate in each country in which we operate, (b) the exchange rate between the Mexican peso and the currency of each country in which we operate and (c) the contribution to our consolidated revenues of our operations in each country in which we operate. The effect of this factor is to apply a weighted average rate of inflation relative to the Mexican peso.
 
The factor we used to restate our consolidated financial statements as of December 31, 2006 and 2005 to December 31, 2007 constant pesos was 1.0424.
 
The high value of the restatement factor has a significant impact on the comparison between our results of operations for 2007 and for prior years. To illustrate the effects of the restatement in constant pesos, if we provided a particular service for 100 nominal pesos of revenue in 2006 and again in 2007, the restatement in constant pesos would result in a 4.1% decrease in revenue, from Ps.104.2 constant pesos in 2006 to Ps.100 constant pesos in 2007.
 
 
MFRS has changed for periods beginning in 2008 with the issuance of NIF B-10, Recognition of the Effects of Inflation on Financial Information, and the inflation accounting methods summarized above will no longer apply unless the economic environment qualifies as “inflationary” for purposes of MFRS. An environment is considered inflationary if the cumulative inflation rate equals or exceeds an aggregate of 26% over the three preceding years (equivalent to an average of 8% in each year). Because of the relatively low level of Mexican inflation in recent years, and based on current forecasts, we do not expect the Mexican economic environment to qualify as inflationary in 2008 or 2009, but that could change depending on actual economic performance.
 
As a result, we expect to present financial statements without inflation accounting beginning in 2008. We will not restate financial statements for prior periods to give retrospective effect to the cessation of inflation accounting. In comparing our results for 2008 to results for prior periods, we expect that the most important effects of the cessation of inflation accounting, and of related changes in other accounting standards, will be as follows:
 
  •  We will no longer recognize monetary gains and losses attributable to the effects of inflation on our monetary assets and liabilities. We expect our financing costs to be less volatile as a result.
 
  •  We will cease to adjust the carrying values of non-monetary assets for inflation and currency variations. We expect that this will make our depreciation charges less volatile.
 
  •  We will no longer recalculate the results of our non-Mexican operations (that are not considered to be in an “inflationary” environment) to Mexican pesos by applying the period end exchange rate to the inflation-adjusted local currency amounts; instead we will use nominal local currency amounts and apply average exchange rates for the period. Non-Mexican operations in “inflationary” environments such as Venezuela will continue to use the current restatement method. We expect that these changes will make our results more sensitive to exchange-rate variations.
 
  •  We will cease to restate results of prior periods. Financial information for dates and periods prior to 2008 will continue to be expressed in constant pesos as of December 31, 2007.


3


 

 
Effects of Inflation Accounting on U.S. GAAP Reconciliation
 
U.S. GAAP does not ordinarily contemplate the recognition of effects of inflation or the restatement of prior-period financial statements. However, in reconciling our net income and stockholders’ equity to U.S. GAAP, we have generally not reversed the effect of inflation accounting under MFRS, pursuant to an accommodation provided by the SEC to permit the presentation of inflation in a company’s reconciliation from local principles to U.S. GAAP for companies in countries where local accounting principles require comprehensive price-level adjusted financial statements. There are two exceptions to this accommodation that apply specifically to us: as previously mentioned, (i) we restate prior period financial statements using a weighted average re-expression factor to take into account our foreign operations. The SEC requires that restatement of prior period financial statements be based solely on the Mexican NCPI; and (ii) we restate our non-monetary assets of foreign origin using a specific index which represents the NCPI of the country of origin applied to the historical cost in the foreign currency, subsequently translated to Mexican pesos using the exchange rate in effect at the most recent balance sheet date; the SEC requires that restatement of non-monetary assets of foreign origin be based solely on the Mexican NCPI. The effects of both of these exceptions are included as reconciling items in our reconciliation to U.S. GAAP. See note 29 to our audited consolidated financial statements.
 
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.
 
                                                 
    2007     2007     2006(10)     2005(10)     2004(10)     2003(10)  
    (Millions of
    (Thousands of Mexican pesos, except per share and per ADS data)  
    U.S. dollars)(1)        
 
Income Statement Data:
                                               
MFRS:
                                               
Total revenues
  U.S.$ 2,060     Ps. 22,489,019     Ps. 22,713,683     Ps. 20,004,984     Ps. 14,241,679     Ps. 10,768,588  
Gross profit
    326       3,553,917       3,289,517       2,572,209       1,762,262       1,057,927  
Selling, general and administrative expense
    184       2,003,509       1,585,977       1,450,615       1,224,846       1,033,887  
Operating income
    142       1,550,408       1,703,540       1,121,594       537,416       24,040  
Financing cost (income), net
    38       419,530       168,829       105,385       (40,276 )     379,965  
Other (income) expense, net(2)
    (2 )     (22,706 )     87,673       (58,188 )     47,670       314,128  
Income tax expense(3)
    178       1,949,263       397,742       375,311       556,280       374,900  
Share in income (loss) of affiliated companies
    1       10,828       22,438       106,470       190,688       (188,773 )
Consolidated net income (loss)
    (72 )     (784,851 )     1,071,734       805,556       164,430       (1,233,725 )
Net income (loss) of minority interest
    8       89,576       355,336       269,646       68,794       (42,315 )
Net income (loss) of majority interest
    (80 )     (874,427 )     716,398       535,910       95,638       (1,191,410 )
Basic and diluted earnings (loss) per share of majority interest(5)
    (0.19 )     (2.02 )     1.77       1.54       0.31       (10.29 )
Basic and diluted earnings (loss) per ADS of majority interest(5)
    (0.74 )     (8.09 )     7.09       6.18       1.23       (37.27 )
Weighted average shares outstanding (000s):
                                               
Basic and diluted(5)
    432,198       432,198       404,182       347,127       310,177       115,751  
U.S. GAAP:
                                               
Total revenues
    1,610       17,571,289       18,064,385       15,792,102       11,938,175       8,555,721  
Operating (loss) income(7)
    112       1,225,709       1,467,234       847,359       520,157       (62,298 )
Income (loss) from continued operations(4)
    (90 )     (985,175 )     484,189       500,211       (45,371 )     (1,223,586 )
Income (loss) from discontinued operations(4)
    0       0       0       0       66,446       (28,495 )
Consolidated net income (loss)
    (90 )     (985,175 )     484,189       500,211       21,075       (1,252,080 )
Basic earnings (loss) per share from:
                                               
Continuing operations(5)
    (0.21 )     (2.28 )     1.19       1.44       (0.15 )     (9.57 )
Discontinued operations(5)
    0.00       0.00       0.00       0.00       0.21       (0.22 )
Basic earnings (loss) per share(5)
    (0.21 )     (2.28 )     1.19       1.44       0.07       (9.79 )
Basic earnings (loss) per ADS(5)
    (0.84 )     (9.12 )     4.79       5.76       0.27       (39.17 )
Diluted earnings (loss) per share from:
                                               
Continuing operations
    (0.21 )     (2.28 )     1,19       1.44       (0.15 )     (9.57 )
Discontinued operations
    0.00       0.00       0.00       0.00       0.21       (0.22 )
Diluted earnings (loss) per share(5)
    (0.21 )     (2.28 )     1.19       1.44       0.07       (9.79 )
Diluted earnings (loss) per ADS(5)
    (0.84 )     (9.12 )     4.79       5.76       0.27       (39.17 )
Weighted average shares outstanding (000s):
                                               
Basic
    432,198       432,198       404,182       347,127       310,030       127,869  
Diluted
    432,849       432,849       404,997       347,510       310,030       127,869  


4


 

                                                 
    2007     2007     2006(10)     2005(10)     2004(10)     2003(10)  
    (Millions of
    (Thousands of Mexican pesos, except per share and per ADS data)  
    U.S. dollars)(1)        
 
Balance Sheet Data:
                                               
MFRS:
                                               
Total assets
  U.S.$ 3,315     Ps. 36,185,407     Ps. 37,852,306     Ps. 33,739,144     Ps. 22,644,021     Ps. 17,997,442  
Long-term debt(8)
    549       5,990,094       7,582,276       10,879,733       6,938,369       3,636,474  
Capital stock
    1,257       13,722,959       7,889,373       8,055,136       9,868,822       9,317,148  
Total stockholders’ equity
    1,728       18,863,138       14,747,389       13,978,735       6,592,774       6,023,871  
U.S. GAAP:
                                               
Total assets
    3,157       34,462,058       34,738,561       31,465,898       20,659,125       16,528,076  
Long-term debt(8)
    549       5,990,094       7,546,634       10,782,992       7,095,025       3,774,193  
Capital stock(9)
    1,629       17,778,322       17,059,623       16,998,966       14,385,895       13,964,177  
Stockholders’ equity(6)(9)
    1,295       14,138,862       9,193,259       8,949,556       5,982,712       5,640,502  
Other Data:
                                               
MFRS:
                                               
Capital expenditures
    494       5,393,337       1,105,492       610,393       1,163,312       701,366  
Depreciation and amortization
    64       698,316       864,785       780,660       991,708       612,372  
Inflation Data:
                                               
Change in consumer price index
    n/a       3.75       4.05       3.33       5.19       3.97  
Restatement factor
    n/a       4.24       4.49       0.15       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, 2007 have been translated at a rate of Ps.10.9169 to U.S.$1.00 using the Federal Reserve noon buying rate on December 31, 2007. See “Exchange Rates.”
 
(2) Includes for 2007, Ps.68 million for the reversal of an uncollectible account receivable from the sale of an investment, Ps.32 million of statutory employee profit sharing expense and Ps.13 million of other income related to value-added tax reversals and gains on sales of investments. For 2006, includes Ps.37 million from reversals of taxes for unconsolidated entities, Ps.12 million of gains on sales of investments and Ps.11 million of other income, offset by Ps.147 million of statutory employee profit sharing expense. Includes for 2005 gain on purchases and sales of investments of Ps.103 million, other income of Ps.58 million relating to gain from sale of claims rights and Ps.104 million of statutory employee profit sharing expense. Includes for 2004 other expense of Ps.34 million relating to severance costs, Ps.30 million of statutory employee profit sharing expense, and Ps.180 million in other income related to reversal of an impairment charge related to a concession. Includes for 2003 other expense of Ps.53 million relating to severance costs, Ps.138 million in costs associated with the curtailment of the pension plan, Ps.4 million of statutory employee profit sharing expense and Ps.22 million in other income relating to a reversal of an impairment charge related to an investment in property, plant and equipment.
 
(3) During 2007, income tax expense includes the effects of the new business flat tax in Mexico. See note 20 to our consolidated financial statements.
 
(4) During 2004 and 2003, we sold our shares in several of our subsidiaries. Under U.S. GAAP, such sales would have been treated as discontinued operations.
 
(5) Basic earnings (loss) per share and per ADS are based on the weighted average number of shares outstanding during each period and considering four 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 consolidated 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.266,318, net of income taxes (see note 29 to our consolidated financial statements).
 
(7) There are differences in the classification of certain expenses recorded under “other expenses (income)” related to severance costs, statutory employee profit sharing the reversal of value-added taxes and gains and losses on sales of investments, as well as reversals of impairment on property, plant and equipment, investments in concessions and goodwill. Under MFRS, these expenses or income are treated as non-operating expenses or income and are not deducted or added back in calculating operating income (loss),

5


 

whereas under U.S. GAAP these amounts are treated as operating expenses and are deducted or added back in calculating operating income (loss). Such amounts for 2007, 2006, 2005, 2004, and 2003 totaled Ps. 43 million, Ps.153 million, Ps.113 million, Ps.245 million and Ps.180 million, respectively. See note 29 to our financial statements.
 
(8) Excluding current portion of long-term debt.
 
(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 to our consolidated financial statements).
 
(10) Effective January 1, 2008, we adopted Interpretation No. 12, Service Concession Arrangements, issued by the International Financial Reporting Interpretations Committee, or IFRIC, of the International Accounting Standards Board. This interpretation deals with the accounting by private sector operators involved in supplying infrastructure assets and services to the public sector, classifying the investment as a financial asset, intangible asset or a combination of both. Effects of adoption of IFRIC 12 resulted in classifying certain intangible assets as a financial assets, as well as the recognition of revenues during the construction phase in certain concessions. As a result of the early adoption of IFRIC 12 (not mandatory until 2008), financial information previously issued as of and for the years ended December 31, 2006, 2005, 2004 and 2003 were restated as follows:
 
                                                                 
    December 31, 2006   December 31, 2005   December 31, 2004   December 31, 2003
    As Presented   As Restated   As Presented   As Restated   As Presented   As Restated   As Presented   As Restated
 
Balance sheets:
                                                               
Current assets
    Ps.24,431,132       Ps. 24,437,840       Ps. 13,028,418       Ps. 13,033,789       Ps. 10,361,124       Ps. 10,366,458       Ps. 9,134,141       Ps.9,138,024  
Investment in concessions
    8,273,509       10,087,000       8,110,123       7,838,984       3,416,073       3,144,583       3,745,422       3,495,950  
Property, plant, equipment and other assets
    5,089,793       3,327,466       12,595,211       12,866,370       8,848,327       9,132,978       5,120,995       5,363,469  
Current liabilities
    (14,504,192 )     (14,504,191 )     (7,923,206 )     (7,923,206 )     (8,504,174 )     (8,504,174 )     (7,926,656 )     (7,926,656 )
Non-current liabilities
    (8,600,726 )     (8,600,726 )     (11,836,969 )     (11,836,969 )     (7,544,304 )     (7,544,304 )     (4,046,916 )     (4,046,916 )
Stockholders’ equity
    (14,689,516 )     (14,747,389 )     (13,973,577 )     (13,978,968 )     (6,577,046 )     (6,595,541 )     (6,026,986 )     (6,023,871 )
 
                                                                 
    2006   2005   2004   2003
    As Presented   As Restated   As Presented   As Restated   As Presented   As Restated   As Presented   As Restated
 
Statements of operations:
                                                               
Revenues
  Ps. 22,302,897     Ps. 22,713,683     Ps. 20,046,684     Ps. 20,004,984     Ps. 14,288,254     Ps. 14,241,679     Ps. 10,802,198     Ps. 10,768,588  
Operating income
    1,686,196       1,703,540       1,149,085       1,121,594       569,621       537,416       46,517       24,040  
Net income (loss)
    1,027,643       1,071,734       816,127       805,556       169,932       164,430       (1,251,349 )     (1,233,725 )


6


 

The principal differences, other than inflation accounting, between MFRS and U.S. GAAP and their effects upon consolidated net income (loss) and consolidated stockholders’ equity are presented below. See note 29 to our consolidated financial statements.
 
                                                 
    Year Ended December 31,  
    2007     2007     2006     2005     2004     2003  
    (Millions of
    (Thousands of Mexican pesos)  
    U.S. dollars)(1)        
 
Reconciliation of net income (loss) of majority interest:
                                               
Net income (loss) of majority interest reported under MFRS
  U.S.$ (80 )   Ps. (874,427 )   Ps. 716,398     Ps. 535,910     Ps. 95,638     Ps. (1,191,410 )
U.S. GAAP adjustments for:
                                               
Concession effect (IFRIC 12)
    (6 )     (64,070 )     (44,092 )     10,570       5,500       (17,624 )
Bulletin B-15 effect
                (3,160 )     (4,860 )     2,285       (45,787 )
Deferred income taxes
    (8 )     (87,449 )     (90,334 )     52,239       (4,096 )     44,431  
Deferred statutory employee profit sharing
          3,441       (133,687 )                  
Reversal of low-income housing sales
    (10 )     (102,688 )     (57,361 )                  
Capitalization of financing costs
    1       6,412       3,173       1,656       72,250       39,397  
Restatement for inflation on foreign sourced fixed assets
                (6,751 )     (4,647 )     (15,928 )     (33,007 )
Accrual for severance payments
    (1 )     (16,452 )     11,426       6,016       (20,010 )     (21,379 )
Compensation cost on stock option plan
                (1,483 )     (1,884 )     (2,517 )     0  
Impairment reversal
    1       7,415       7,978       5,889       (176,448 )     (22,677 )
Reversal of compensation cost recognized in MFRS upon exercise of option
    2       19,150       19,910       4,248              
Fair value interest rate cap
                      (64,585 )     64,585        
Purchase method of GACN
          (2,133 )                        
Minority interest applicable to above adjustments
    12       125,626       62,172       (40,341 )     (184 )     (4,024 )
                                                 
Net (loss) income under U.S. GAAP
  U.S.$ (90 )   Ps. (985,175 )   Ps. 484,189     Ps. 500,211     Ps. 21,075     Ps. (1,252,080 )
                                                 
Reconciliation of stockholders’ equity
                                               
Total stockholders’ equity reported under MFRS
  U.S.$ 1,728     Ps. 18,863,138     Ps. 14,747,389     Ps. 13,978,735     Ps. 6,592,774     Ps. 6,023,871  
Concession effect (IFRIC 12)
    (11 )     (122,670 )     (58,600 )     (14,508 )     (18,495 )     3,115  
Bulletin B-15 effect
                (46,110 )     (73,155 )     139,038       232,682  
Less minority interest in consolidated subsidiaries included as stockholders’ equity under MFRS
    (400 )     (4,361,882 )     (4,725,628 )     (4,695,085 )     (541,524 )     (498,452 )
U.S. GAAP adjustments for:
                                               
Effect on retained earnings from:
                                               
Deferred income taxes
    (216 )     (2,355,400 )     (2,267,951 )     (2,177,617 )     (2,229,856 )     (2,225,760 )
Deferred statutory employee profit sharing
    (34 )     (371,804 )     (375,245 )     (241,558 )     (241,557 )     (241,557 )
Restatement for inflation on foreign sourced fixed assets
    (22 )     (240,830 )     (240,830 )     (234,079 )     (229,432 )     (213,504 )
Capitalization of financing costs
    (4 )     (45,968 )     (52,380 )     (55,553 )     (57,209 )     (129,459 )
Reversal of low-income housing sales
    (15 )     (160,049 )     (57,361 )                  
Accrual for severance payments
    (8 )     (88,327 )     (71,875 )     (83,301 )     (89,317 )     (69,307 )
Gain on sale of foreign subsidiaries
    25       270,715       270,715       270,715       270,715       270,715  
Reversal of additional paid-in capital recognized in MFRS upon exercise of option
    (4 )     (43,307 )     (24,157 )                  
Fair value of interest rate cap
                            64,585        
Impairment reversal
    (16 )     (177,842 )     (185,257 )     (193,235 )     (199,123 )     (22,677 )
Reversal of compensation cost recognized in MFRS upon exercise of option
    4       43,307       24,157       2,364              
Purchase method of GACN
          (2,133 )                        
Reversal of acquisition cost of minority interest
    49       530,891                          


7


 

                                                 
    Year Ended December 31,  
    2007     2007     2006     2005     2004     2003  
    (Millions of
    (Thousands of Mexican pesos)  
    U.S. dollars)(1)        
 
Effect on insufficiency from restatement of capital and accumulated other comprehensive income related to:
                                               
Deferred income taxes
    205       2,235,643       2,233,892       2,239,187       2,272,394       2,260,933  
Deferred statutory employee profit sharing
    8       84,820       84,820       84,820       84,820       84,820  
Restatement for inflation on foreign sourced fixed assets
    21       227,554       227,554       227,554       227,554       227,554  
Gain on sale of foreign subsidiaries
    (25 )     (270,715 )     (270,715 )     (270,715 )     (270,715 )     (270,715 )
Adjustment for excess of additional minimum liability
          4,299       17,267       17,267              
Adjustment for SFAS No. 158, net of tax
    (22 )     (236,095 )     (266,318 )                  
Minority interest applicable to above adjustments
    32       355,517       229,892       167,720       208,060       208,243  
                                                 
Stockholders’ equity under U.S. GAAP
  U.S.$ 1,295     Ps. 14,138,862       Ps. 9,193,259     Ps. 8,949,556     Ps. 5,982,712     Ps. 5,640,502  
                                                 
 
 
(1) Amounts stated in U.S. dollars as of and for the year ended December 31, 2007 have been translated at a rate of Ps.10.9169 to U.S.$1.00 using the Federal Reserve noon buying rate on December 31, 2007. See “Exchange Rates.”

8


 

 
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)  
 
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  
2007
    11.27       10.67       11.27       10.93  
November 2007
    11.00       10.67       10.90       10.88  
December 2007
    10.92       10.80       10.92       10.85  
2008:
                               
January 2008
    10.97       10.82       10.82       10.91  
February 2008
    10.82       10.67       10.73       10.77  
March 2008
    10.85       10.63       10.63       10.73  
April 2008
    10.60       10.44       10.51       10.51  
May 2008
    10.57       10.31       10.33       10.44  
June 2008 (through June 10)
    10.39       10.29       10.39       10.34  
 
 
(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 31, 2007, the Federal Reserve Bank of New York’s noon buying rate was Ps.10.9169 per U.S.$1.00. On June 10, 2008, the Federal Reserve Bank of New York’s noon buying rate was Ps.10.39 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.”


9


 

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. We cannot provide any assurances that economic and political developments in Mexico, over which we have no control, will not negatively affect our operations. See “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.”
 
 
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.
 
 
Under our accounting procedures, we measure and recognize a large portion of our revenues and profits under the percentage-of-completion accounting methodology for construction contracts. 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 estimated costs and thus revenues, is recorded when the amounts are known and can be reasonably estimated. 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 have been increasingly required to contribute equity to and arrange financing for construction projects. We believe that our ability to finance construction projects through various financial arrangements has enabled us to compete more effectively in obtaining such projects. We are currently undertaking various construction and infrastructure projects that involve significant funding commitments. The financing requirements for public construction contracts may range from a term of months to the total construction period of the project, which may last several years. Financing for private clients is tailor-made and most of the time requires payment during the construction period. Providing financing for construction projects, however, increases our capital requirements and exposes us to the risk of loss of our investment in the project. In particular, recent uncertainty and tightening in the global credit markets, including developments


10


 

related to the collapse of the United States sub-prime mortgage market, may adversely affect our ability to obtain financing. Our inability to obtain financing for any of these projects could have a material adverse effect on our financial condition and results of operation.
 
 
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.”
 
 
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.
 
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 2007, 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. 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.”


11


 

 
As of March 31, 2008, we had total cash and short-term investments of Ps.6,863 million (March 31, 2008 pesos), as compared to Ps.6,872 million as of December 31, 2007. As of March 31, 2008, we held 53.4% of our consolidated cash and short-term investments through less-than-wholly owned subsidiaries or in joint ventures (23.6% in the Airport Division, 14% in the ICA-Fluor joint venture with Fluor Daniel Mexico, S.A., or Fluor, a subsidiary of the Fluor Corporation, 10.5% in Constructora Internacional de Infraestructura, S.A. de C.V., or CIISA, 0.6% in Constructora de Proyectos Hidroelectricos S.A. de C.V., or CPH, and 0.8% 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, 2008 (Ps.3,197 million), was held at the parent company or in other operating subsidiaries. The use of cash and cash equivalents by ICA-Fluor, CIISA, CPH 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., in the case of CIISA, La Peninsular Compañia Constructora, S.A. de C.V., in the case of CPH, and Soletanche Bachy France, 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, 2008, 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, Banco Santander, BBVA Bancomer, BG Trust Inc., Merrill Lynch and Value Casa de Bolsa. The assets we have pledged include: (i) collection rights under the La Yesca hydroelectric construction contract; (ii) our shares in Concesionaria Irapuato la Piedad, S.A. de C.V., our subsidiary that operates the Irapuato — La Piedad highway concession; (iii) our shares in SISSA Coahuila, S.A. de C.V. (a subsidiary operating a waste-water treatment plant); (iv) our dividend rights in our series “B” shares in Grupo Aeroportuario del Centro Norte. S.A.B. de C.V., or GACN, held by Aeroinvest S.A. de C.V., or Aeroinvest (a subsidiary that indirectly holds interests in airport concessions); (v) our dividend rights in our series “A” shares in Servicios de Tecnologia Aeroportuaria, S.A. de C.V., or SETA (a 74.5% subsidiary that holds a 16.7% interest in GACN); (vi) Aeroinvest’s collection rights of approximately $47 million related to various loans granted to SETA; (vii) construction machinery and equipment owned by Ingenieros Civiles Asociados, S.A. de C.V. (a construction subsidiary); and (viii) the collection rights from Corredor Sur, Kantunil Cancun highway and Acapulco tunnel. In general, 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 Mexican Federal Electricity Commission (Comision Federal de Electricidad) 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.


12


 

 
In September 2007, the Mexican Federal Electricity Commission, awarded a U.S.$768 million contract for the engineering, procurement and construction of the La Yesca hydroelectric project to CPH, a consortium in which two of our subsidiaries hold a combined 67% interest. La Peninsular Compañia Constructora, S.A. de C.V. holds the remaining interest in the consortium. The La Yesca hydroelectric project is located on the border between the states of Jalisco and Nayarit, and is comprised of civil construction, electromechanical and ancillary work including the procurement, engineering, construction, transportation, start-up, testing and commissioning of two 375-megawatt turbogenerating units. The terms of the La Yesca contract required that we secure financing for the project costs and limit disbursements during the construction phase to 90% of the cash cost of any certified work performed. The consortium arranged financing for the La Yesca hydroelectric project from WestLB AG, which also structured the financing for the El Cajon hydroelectric project. Because the terms of the construction contract provide that the Mexican Federal Electricity Commission will pay for the project upon completion and the financing obtained by CPH covers only the project’s cash costs, the project will not generate any significant cash flow to us until completion, which is scheduled to occur in the second quarter of 2012. However, because we recognize revenues from the La Yesca hydroelectric project based on the percentage-of-completion method of accounting, which relies on certain estimates and assumptions, the project is expected to generate a material portion of our revenues in 2008, 2009, 2010 and 2011. The La Yesca hydroelectric project is expected to represent a substantial portion of our receivables and our indebtedness in the future. At December 31, 2007, we had Ps.123 million in contract receivables and Ps.384 million of debt on our balance sheet relating to the La Yesca hydroelectric project. The debt figure is higher than the receivables figure due to the fact that the withdrawals of the revolving credit facility are made in advance.
 
 
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 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


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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 success of our joint ventures depend on the satisfactory performance by our joint venture partners of their joint venture obligations. The failure of our joint venture partners to perform their joint venture obligations could impose on us additional financial and performance obligations that could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture.
 
We enter into various joint ventures as part of our engineering, procurement and construction businesses, including Red de Carreteras de Occidente, or RCO, ICA-Fluor, Rodio-Kronsa and project-specific joint ventures. The success of these and other joint ventures depends, in part, on the satisfactory performance by our joint venture partners of their joint venture obligations. If our joint venture partners fail to satisfactorily perform their joint venture obligations as a result of financial or other difficulties, the joint venture may be unable to adequately perform or deliver its contracted services. Under these circumstances, we may be required to make additional investments and provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profits or, in some cases, significant losses for us with respect to the joint venture.
 
 
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, 2008, five projects represented a significant part of our backlog:
 
  •  Ps.7,917 million or 27.2% of our construction backlog was related to the La Yesca hydroelectric project, which has a scheduled completion date of June 2012;
 
  •  Ps.4,344 million or 14.5% of our construction backlog was related to a contract with Pemex for the Chicontepec II project, which has a scheduled completion date of November 2011;
 
  •  Ps.2,727 million or 9.4% of our construction backlog was related to the Nuevo Necaxa-Tihuatlan concession highway, which has a scheduled completion date of April 2012;
 
  •  Ps.2,581 million or 8.9% of our construction backlog was related to the Rio Verde-Ciudad Valles concession highway, which has a scheduled completion date of May 2010; and
 
  •  Ps.2,473 million or 8.5% of our construction backlog was related to Queretaro Aqueduct, which has a scheduled completion date of January 2010.


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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.
 
 
Our return on any investment in a highway, bridge, tunnel or waste-water 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. Usually concession and Public/Private Partnership Structure, or PPP, contracts provide that the grantor of the contract shall deliver the right-of-way to the project land in accordance with the construction schedule. If the grantor fails to deliver such rights-of-way on time, we may incur additional investments and delays at the start of operations, and therefore we may need to seek the modification of the concession or PPP contract. There can be no assurance that we will reach an agreement as to the amendment of any such contracts. Given these factors, there can be no assurance that our return on any investment in a highway, bridge, tunnel or waste-water treatment plant concession will meet the estimates contemplated in the relevant concession or PPP contract.
 
 
Our concessions 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.


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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. As of March 31, 2008, we had Ps.507 million of allowance for doubtful accounts related to contract and trade receivables, which amount included allowances for the El Cajon hydroelectric project and Terminal II of the Mexico City International Airport. A failure to promptly recover on these types of claims could have a material adverse impact on our liquidity and financial condition.
 
Our continued growth requires us to hire and retain qualified personnel.
 
Over the past years, 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 continued growth 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 this kind 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.
 
 
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 costs 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.959 million in 2001, and net losses of Ps.1,234 million in 2003, Ps.1,453 million in 2002 and Ps.5,300 million in 2001. In 2006, 2005 and 2004, we reported both operating income and net income, but in 2007 we reported a net loss of Ps.785 million principally as a result of provisions related to Mexico’s implementation of a flat rate business tax and the elimination of the asset tax. 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.


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Risks Related to Our Airport 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, 2007, we controlled shares representing approximately 55.87% of GACN’s capital stock. Our interest in GACN exposes us to risks associated with airport operations.
 
In 2007, GACN represented 8% of our revenues and 47% of our operating income. GACN’s airport concessions from the Mexican government are essential to GACN’s contribution of revenues. Any adverse effect on 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.
 
 
GACN’s operations depend on certain key airline customers. Of GACN’s total revenues for 2007, Aeromexico and its affiliates accounted for 25.1%, Mexicana and its affiliates accounted for 14.0% and Aviacsa and its affiliates accounted for 9.4%. In addition, approximately one-fourth of GACN’s passenger traffic is handled by low-cost carriers. GACN’s contracts with its airline customers are not subject to a mandatory volume of business and we can offer no assurance that, if any of GACN’s key customers reduces or terminates its use of our airports, competing airlines would add flights to their schedules that would replace any flights no longer handled by our principal airlines customers.
 
 
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 6% 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 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


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to increased passenger screening and slower security checkpoints, which would have an adverse effect on GACN’s results of 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 2005, 2006 and 2007, approximately 81%, 81% and 82%, 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.
 
 
Many of the laws, regulations and instruments that regulate our airport business were adopted or became effective in 1999, and there is only a limited history that would allow us to predict the impact of these legal requirements on our future operations. In addition, although Mexican law establishes ranges of sanctions that might be imposed should we fail to comply with the terms of one of our concessions, the Mexican Airport Law (Ley de Aeropuertos) and its regulations or other applicable law, we cannot predict the sanctions that are likely to be assessed for a given violation within these ranges. We cannot assure you that we will not encounter difficulties in complying with these laws, regulations and instruments.
 
Moreover, when determining our maximum rates for the next five-year period (covering 2011 to 2015), the Ministry of Communications and Transportation may be subject to significant pressure from different entities (such as, for example, the Mexican Competition Commission and the carriers operating at our airports) to impose rates that will reduce the profitability of our airport business. Therefore there can be no assurance that the laws and regulations governing our airport business, including the rate-setting process and the Mexican Airport Law, will not change in the future or be applied or interpreted in a way that could have a material adverse effect on our results from operations.
 
 
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.


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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 regarding the return of the land. However that decision and three subsequent constitutional claims (juicios de amparo) permitted the case to be reconsidered, and as a result of such constitutional claims, the original claimants must now include the Ministry of Communications and Transportation, as a party to the litigation since the Ministry of Communications and Transportation is the grantor of the concession title to the Ciudad Juarez Airport. 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 2006 and 2007, the Ciudad Juarez International Airport represented 5.4% and 5.7%, 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.
 
 
As of December 31, 2007, we controlled an aggregate of 223,492,500 shares of our airport subsidiary GACN, representing 55.87% of GACN’s capital stock. Our investment in GACN was comprised of 156,692,500 series B shares that we owned directly through our wholly-owned subsidiary Aeroinvest, and 66,800,000 series B and BB shares that we controlled through our ownership of 74.5% of the capital stock of SETA. The remaining 25.5% of SETA was owned by Aeroports de Paris Management, or ADPM. The remaining shareholders in GACN held 44.13% of its outstanding capital stock.


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In June 2007, Aeroinvest entered into agreements with Merrill Lynch, Pierce, Fenner & Smith, Incorporated, or Merrill Lynch, to refinance the former facility. The refinancing was approved at GACN’s extraordinary general shareholders’ meeting held January 31, 2007. The refinancing consists 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 was approximately Ps.2,805 million, payable in Mexican pesos. The refinancing was used to prepay the former facility, related costs, fees, reserves and for 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 retains 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 — Aeroinvest.”
 
 
 
A substantial portion of our operations are conducted in Mexico and are dependent upon the performance of the Mexican economy. As a result, our business, financial condition or results of operations may be affected by the general condition of the Mexican economy, over which we have no control. See “Item 4. Information on the Company — History and Development of the Company — Public Sector Spending and the Mexican Economy.” In the past, Mexico has experienced economic crises, caused by internal and external factors, characterized by exchange rate instability (including large devaluations), high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment rates. We cannot assume that such conditions will not return or that such conditions will not have a material adverse effect on our business, financial condition or results of operations.
 
Mexico experienced a period of slow growth from 2001 through 2003, primarily as a result of the downturn in the U.S. economy. In 2001, Mexico’s GDP declined by 0.2%, while inflation reached 4.4%. In 2002, GDP grew by 0.8% and inflation reached 5.7%. In 2003, GDP grew by 1.4% and inflation was 4.0%. In 2004, GDP grew by 4.2% and inflation increased to 5.2%. In 2005, GDP grew by approximately 2.8% and inflation decreased to 3.3%. In 2006, GDP grew by approximately 4.8% and inflation reached 4.1%. In 2007, GDP grew by approximately 1.8% and inflation declined to 3.8%.
 
Mexico also has, and is expected to continue to have, high real and nominal interest rates. The annualized interest rates on 28-day Cetes averaged approximately 11.3%, 7.1%, 6.2%, 6.8%, 9.2%, 7.2% and 7.2% for 2001, 2002, 2003, 2004, 2005, 2006 and 2007, respectively. To the extent that we incur peso-denominated debt in the future, it could be at high interest rates.
 
If the Mexican economy falls into a recession, if inflation or interest rates increase significantly or the Mexican economy is otherwise adversely impacted, our business, financial condition or results of operations could be materially and 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.


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We generally do not hedge our exposure to the U.S. dollar with respect to the Mexican peso and other currencies; however, recently under some of our long -term credit facilities we have been required to obtain interest rate, currency rate and foreign exchange coverage for the terms of those facilities. 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.
 
 
We are a Mexican corporation and a substantial majority 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, as well as 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. 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 Mexican economy, the business, financial condition or results or operations of Mexican companies and 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 other countries may differ significantly from economic conditions in Mexico, investors’ reactions to adverse developments in other countries may have an adverse effect on the market value of securities of Mexican issuers. In October 1997, prices of both Mexican debt and equity securities decreased substantially as a result of the sharp drop in Asian securities markets. Similarly, 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. The Mexican debt and equities markets also have been adversely affected by ongoing developments in the global credit markets.


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In addition, in recent years economic conditions in Mexico have become increasingly correlated with economic conditions in the United States as a result of NAFTA and increased economic activity between the two countries. Therefore, adverse economic conditions in the United States, the termination of NAFTA or other related events could have a material adverse effect on the Mexican economy. We cannot assure you that events in other emerging market countries, in the United States or elsewhere will not materially adversely affect our business, financial condition or results of operations.
 
 
A principal objective of the securities laws of the United States, Mexico, and other countries is to promote full and fair disclosure of all material corporate information, including accounting information. However, there may be different or less publicly available information about issuers of securities in Mexico than is regularly made available by public companies in countries with highly developed capital markets, including the United States.
 
In addition, accounting standards and disclosure requirements in Mexico differ from those of the United States. In particular, our financial statements are prepared in accordance with MFRS, which differ from U.S. GAAP and accounting principles adopted in other countries in a number of respects. Items on the financial statements of a company prepared in accordance with MFRS may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with 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 consolidated net income (loss) and consolidated stockholders’ equity.
 
 
 
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
 
  •  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.
 
 
At May 15, 2008, our directors and executive officers, as a group, beneficially owned approximately 69,416,085 shares (13.94% of the shares outstanding). As of December 31, 2007, our Chairman and his family and the management trust, as a group, beneficially owned approximately 9% of our total shares outstanding. Of this amount, 6.9% of our shares were beneficially held by Bernardo Quintana and his family, including his


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sons Alonso Quintana, our Chief Financial Officer and a member of our board of directors, and Diego Quintana, our Vice President of Housing and a member of our board of directors, and 2.1% were held by the management trust. Also as of December 31, 2007, Maria Asuncion Aramburuzabala, a member of our board of directors, and her family, as a group, beneficially owned approximately 4.86% of our total shares outstanding. See “Item 6. Directors and Senior Management — Share Ownership” and “Item 7. Major Shareholders and Related Party Transactions — Major Shareholders.”
 
Actions by our management and board of directors 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
 
 
We are a sociedad anonima bursatil de capital variable incorporated as Empresas ICA, S.A.B. de C.V. under the laws of Mexico. 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


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operation of water supply systems and solid waste disposal systems under concessions granted by governmental authorities.
 
Since 1947, we have 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. 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. After a protracted construction crisis in Mexico, in 1999 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 recent years, we have redefined our business focus to emphasize our construction business in Mexico, which in 2006 and 2007 accounted for approximately 83% and 89%, respectively, of our revenues.
 
We have also recently increased our participation in construction-related businesses such as infrastructure operations and housing development as part of our strategy to minimize the effect of business and macroeconomic cycles in the construction industry. Reflecting this strategy, we have expanded into the following lines of business:
 
  •  In December 2005, we acquired a controlling interest in GACN. As of December 31, 2007, we directly and indirectly controlled shares representing approximately 55.87% of GACN’s capital stock. GACN operates 13 airports in the central north region of Mexico, including the Monterrey International Airport.
 
  •  In recent years we have expanded our involvement in housing development. Our Housing Development segment (comprised of our housing development subsidiary, ViveICA S.A. de C.V., or ViveICA) is active in all stages of the development process in the housing industry. ViveICA’s business includes land acquisition, project and urban conceptualization, permit and license applications, and procurement and engineering design. Our housing development increased from 5,909 homes sold in 2006 to 7,786 homes in 2007.
 
  •  In 2007 and 2008, we invested in two new tollroad projects. On October 3, 2007, our affiliate Red de Carreteras de Occidente, S. de R.L. de C.V., or RCO, paid the Mexican government Ps.44,051 million for the concession to operate the first of four packages of tollroads to be offered by the Fideicomiso de Apoyo al Rescate de Autopistas Concesionadas, or FARAC. We own 20% of RCO and GS Global Infrastructure Partners I, L.P. and two of its affiliates, or GSIP, own the remaining 80%. On March 12, 2008, we acquired all the equity of Consorcio del Mayab, S.A. de. C.V., or the Mayab Consortium, which holds the concession for the Kantunil — Cancun tollroad. We paid Ps.870 million to the selling shareholders.
 
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.


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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, 2007.
 
                                 
    Year Ended December 31,  
    2007     2007     2006     2005  
    (Millions of
    (Millions of Mexican pesos)  
    U.S. dollars)        
 
Construction:
                               
Civil
  U.S.$ 38     Ps. 415     Ps. 430     Ps. 189  
Industrial
    7       79       30       161  
Rodio Kronsa
    11       125       72       105  
Total
    57       619       532       455  
Infrastructure:
                               
Airports
    60       657       455       0  
Other Concessions(1)
    371       4,049       44       87  
Total
    431       4,706       499       87  
Housing Development
    5       57       18       26  
Corporate and Other
    1       11       56       42  
                                 
Total
  U.S.$ 494     Ps. 5,393     Ps. 1,105     Ps. 610  
                                 
 
 
(1) In 2007, includes Ps.3,118 million for the investment in a 20% interest in RCO, our tollroad-operating affiliate.
 
Aggregate capital spending increased almost fivefold in 2007 as compared to 2006. The increase in aggregate capital spending in 2007 primarily reflected an increase in other concessions represented mainly by our investment in the joint venture RCO with our partners GSIP.
 
Aggregate capital spending increased 81% from 2005 to 2006. 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.
 
In addition, we made net investments in and loans to unconsolidated affiliates of Ps.3,588 million in 2007, no net investments in or loans to unconsolidated affiliates in 2006, and net investments in and loans to unconsolidated affiliates of Ps.50 million in 2005.
 
 
Our performance and results of operations historically have 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 3.3% in 2007, compared to a 4.8% increase in 2006. The average interest rates on 28-day Mexican treasury notes were 7.2% in 2007, 7.2% in 2006 and 9.2% in 2005. Inflation was 3.8% in 2007, 4.1% in 2006 and 3.3% in 2005.
 
According to INEGI, Construction GDP increased by 2.1% in 2007, 7.2% in 2006 and 3.3% in 2005, in each case in real terms as compared to the prior year, representing 5.1%, 5.1% and 4.8% of Mexico’s gross domestic product in those years, respectively. In 2007, according to data published by the Mexican Central


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Bank, Mexican public-sector spending on infrastructure projects increased 6.1% in real terms in comparison to 2006.
 
After a transition period of several months, the government of President Felipe Calderon, who assumed office in December 2006, began soliciting bids for new projects. In 2007, President Calderon unveiled his National Infrastructure Program, which the government has announced is designed to expand Mexico’s infrastructure, accelerate Mexico’s economic growth and make the Mexican economy more internationally competitive. The National Infrastructure Program contemplates public and private investments totaling Ps.951 billion over the 2007 to 2012 period in highways, railroads, ports, airports, telecommunications, water and sanitation, irrigation, and flood control projects. In addition, the National Infrastructure Plan calls for an additional Ps.1,581 billion in energy sector investments.
 
 
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 Operations 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


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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 La Yesca 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 contracts collectively accounted for approximately 77% of our construction backlog as of December 31, 2007, 54% of our construction backlog as of December 31, 2006 and 48% of our construction backlog as of December 31, 2005. 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 will restrict the adjustment of the contract price for additional work done due to incorrect contract specifications.
 
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 48% of the contracts awarded to us in 2007 (based on the contract amount) were foreign currency-denominated. Approximately 30% 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.


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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 2007, increases in scope of work accounted for Ps.7,904 million, or 35%, of our year-end backlog. 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.
 
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., Acciona Infraestructura, S.A., ACS Servicios 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, Korean 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, Samsung Ingenieria Manzanillo, S,A. de C.V. and Grupo R, S.A. de C.V.
 
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.1,142 million, or 6%,


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of our costs of sales in 2007, Ps.1,699 million, or 9%, of our cost of sales in 2006 and Ps.876 million, or 5%, of our cost of sales in 2005. In our Industrial Construction division, raw materials accounted for Ps.3,154 million, or 17%, of our costs of sales in 2007, Ps.3,006 million, or 15%, of our cost of sales in 2006 and Ps.3,373 million, or 19%, of our cost of sales in 2005.
 
 
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 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 2006:
 
  •  the Apulco, Comedero, El Novillo, El Caracol, Cajon de Peña, Tomatlan, Infiernillo, Chicoasen, El Guineo, El Cobano, Jicalan, Falcon, Huites, Aguamilpa, Caruachi and El Cajon 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;
 
  •  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);
 
  •  various hotels and office buildings, including the Maria Isabel Sheraton, Nikko, Paraiso Radisson Mexico City, Westin Regina Los Cabos and the Torre Mayor, among others;
 
  •  lines one through nine, A and part of B of the Mexico City subway system; and
 
  •  the Mexico City sewage system.
 
The most important projects under construction by the Civil Construction division during 2007 included:
 
  •  various construction projects that are part of Terminal II at the Mexico City International Airport;
 
  •  the Querataro-Irapuato highway;
 
  •  the Queretaro Aqueduct II;
 
  •  a hospital for the Mexican Navy (Secretaria de Marina) in Mexico City; and
 
  •  a soccer stadium for the Chivas Sport Club.
 
The Civil Construction division’s contract awards in 2007 totaled approximately Ps.23,631 million (approximately U.S.$2,165 million), of which 5.8% were awarded outside Mexico.
 
In September 2007, the Mexican Federal Electricity Commission awarded a U.S.$768 million contract for the engineering, procurement and construction of the La Yesca hydroelectric project to CPH. The La Yesca hydroelectric project is located on the border between the states of Jalisco and Nayarit, and is comprised of civil construction, electromechanical and ancillary work including the procurement, engineering, construction,


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transportation, start-up, testing and commissioning of two 375-megawatt turbogenerating units. The terms of the La Yesca contract require that we secure financing for the project costs and limit disbursements during the construction phase to 90% of the cash cost of any certified work performed. CPH arranged U.S.$910 million of financing for the La Yesca hydroelectric project from WestLB AG, which also structured the financing for the El Cajon hydroelectric project. Because the terms of the construction contract provide that the Mexican Federal Electricity Commission will pay for the project upon completion, and the financing obtained by CPH covers only the project’s cash costs, the project will not generate any significant cash flow to us until completion, which is scheduled to occur in the second quarter of 2012. However, because we recognize revenues from the La Yesca hydroelectric project based on the percentage-of-completion method of accounting, which relies on certain estimates and assumptions, the project is expected to generate an important portion of our revenues in 2008, 2009, 2010 and 2011. The La Yesca hydroelectric project is expected to represent substantial portion of our receivables and our indebtedness in the future. At December 31, 2007, we had Ps.123 million in contract receivables and Ps.384 million of debt on our balance sheet relating to the La Yesca hydroelectric project.
 
In March 2003, the Mexican Federal Electricity Commission awarded a U.S.$748 million (subsequently increased to U.S.$871 million as of December 31, 2007) 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 was 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 was Mexico’s first engineering, procurement and construction contract for the complete construction of a hydroelectric project under Mexico’s public works financing program. On February 27, 2007, the Mexican Federal Electricity Commission paid CIISA U.S.$525 million upon the delivery of the project’s first turbine unit. In June 2007, CIISA delivered the second turbine to the Mexican Federal Electricity Commission. The project was completed in August 2007. On August 31, 2007, CIISA received a second payment of U.S.$308 million, bringing the total payment received to U.S.$833 million. Through March 31, 2008, we have recognized U.S.$901 million of revenues based on the percentage-of-completion method of accounting, which relies on certain estimates and assumptions. The difference — U.S.$68 million — is comprised of two parts. The first part is U.S.$37 million in accounts receivable, representing work approved by the Mexican Federal Electricity Commission that has been outstanding for more than 120 days. In accordance with our accounting policies, in the fourth quarter of 2007 we created a provision for 50% of the U.S.$37 million, or Ps.202 million. The second part of the difference is U.S.$31 million in executed work that the Mexican Federal Electricity Commission has not yet approved for payment. We and the Mexican Federal Electricity Commission are negotiating regarding the U.S.$31 million in executed work through the use of mediation, on-site negotiations and expert appraisals. There can be no assurance that we will receive part or all of the U.S.$68 million that remains unpaid. We and the Mexican Federal Electricity Commission have agreed to submit additional differences for which we cannot reach an agreement to an international arbitration proceeding. An arbitral tribunal has been constituted and is currently drafting the terms of reference, which set out the undisputed facts relating to the arbitration, the claims of the parties and the issues to be decided.
 
During 2005 and 2006, we were required to invest an aggregate of Ps.1,066 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%. 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 2007 was the construction of the Cachamay Stadium in Venezuela. In 2007, less than 18% of our revenues in the Civil Construction division were attributable to construction activities outside Mexico.


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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 plants 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 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, the Mexican Federal Electricity Commission and Pemex, and new contracts entered into by ICA-Fluor are increasingly oil and gas-based projects and services for Pemex. During 2007, 82% 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 Cantarell nitrogen plant;
 
  •  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 liquefied natural gas storage tanks for IHI in Altamira, Tamaulipas; and
 
  •  the Reynosa III and IV Cryogenic plants.


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The Industrial Construction division’s contract awards in 2007 totaled approximately Ps.11,615 million (approximately U.S.$1,064 million) and included projects such as:
 
  •  the Chicontepec II project for Pemex;
 
  •  the construction of the cryogenic plants Reynosa 5 and Reynosa 6 for Pemex; and
 
  •  the steel mill plant for AHMSA.
 
The most important projects under construction by the Industrial Construction division during 2007 included:
 
  •  the reconfiguration of Package II of the Minatitlan refinery project;
 
  •  the construction of the cryogenic plants Reynosa 5 and Reynosa 6 for Pemex;
 
  •  The INDELPRO PP line and splitter, second phase; and
 
  •  the Cayo de Arcas offshore housing platform.
 
In October 2004, ICA-Fluor entered into a contract with Pemex for the reconfiguration of Package II of the Minatitlan refinery project, including auxiliary services, waste-water treatment and integration works at the facility. Package II of the Minatitlan refinery project was valued at Ps.723 million at December 31, 2007. 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 of U.S.$88 million for the value of certain work to be completed on Package II of the Minatitlan refinery project, which was obtained through an unsecured letter of credit.
 
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 the Mexican Federal Electricity Commission 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 has a scheduled completion date of May 2008.
 
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.


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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 Aps FRAMEX, or 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 Soletanche Bachy France. Rodio and Kronsa are each governed by a board of directors that is jointly appointed, in equal number, by Soletanche Bachy France 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 2007 were the following:
 
  •  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;
 
  •  sounding, drilling and various works for the Hatillo Dam in the Dominican Republic;
 
  •  the foundations for housing projects in Spain; and
 
  •  the M-30 freeway burial in Madrid.
 
In 2007, the most important projects constructed by Rodio Kronsa were:
 
  •  Porta Firal foundation work on the building to be the headquarters for Iberdrola, in Barcelona;
 
  •  foundation work on the Moscow Metro Tower in Russia; and
 
  •  street widening of Alameda Juan Pablo II in San Salvador.
 
In each of 2005, 2006 and 2007, 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 particular moment.
 
The following table sets forth, at the dates indicated, our backlog of construction contracts.
 
                                 
    As of December 31,  
    2007     2007     2006     2005  
    (Millions of
    (Millions of Mexican pesos)  
    U.S. dollars)        
 
Construction
                               
Civil
  U.S.$ 1,823     Ps. 19,898     Ps. 4,180     Ps. 4,769  
Industrial
    777       8,487       5,116       9,269  
Rodio Kronsa
    67       729       352       876  
                                 
Total
  U.S.$ 2,667     Ps. 29,114     Ps. 9,648     Ps. 14,914  
                                 


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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, 2007, these joint venture companies had no backlog.
 
We were awarded contracts totaling Ps.37,532 million (approximately U.S.$3,438 million) in 2007. See note 7 to our financial statements. Three projects represented approximately half of our backlog at December 31, 2007. The La Yesca hydroelectric project accounted for Ps.8,229 million, or 28% of our total backlog as of December 31, 2007. This project is scheduled to be completed in June 2012. In addition, the Chicontepec II project for Pemex, which is scheduled to be completed in 2011 accounted for Ps.4,461 million, or 15%, of our construction backlog as of December 31, 2007. We also began work on the Nuevo Necaxa-Tihuatlan highway project, which is currently scheduled be completed in February 2011 and which accounted for approximately Ps.2,727 million, or 9%, of our backlog as of December 31, 2007.
 
As of December 31, 2007, approximately 4% of construction backlog was attributable to construction projects outside Mexico and public sector projects represented approximately 59% of our total backlog. At December 31, 2007, contracts with a value exceeding U.S.$250 million accounted for 53% of our total backlog, contracts with a value ranging from U.S.$50 million to U.S.$250 million accounted for 35% of our total backlog, and contracts with a value of less than U.S.$50 million accounted for 12% 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.
 
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 77% of our construction backlog as of December 31, 2007. See “Item 5. Operating and Financial Review and Prospects — Operating Results — Construction — Construction Backlog.”
 
 
We divide our Infrastructure 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.
 
In January 2007, we signed an agreement to purchase an additional 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, waste-water 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.319 million (U.S.$27 million). Given our increased focus on infrastructure operations, we repurchased the 39% interest in PMA Mexico from Proactiva Medio Ambiente and as of March 31, 2008, we hold 49% of PMA Mexico and Proactiva Medio Ambiente holds 51%.
 
During 2007 we participated in five operating concessioned highways that we consolidate, 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. In addition, in August 2007 the Ministry of Communications and Transportation awarded the first of four packages of FARAC tollroads to our affiliate RCO, of which we own 20%. We account for RCO using the equity method. RCO has assumed responsibility for the construction, operation, conservation and maintenance of the four tollroads. Since March 2008, we also participate in the operation of the Kantunil Cancun highway, which we consolidate. The financial data for these and other consolidated concessions is reported in our Other Concessions division.
 
In May 2007 a consortium we head was granted a 20-year concession by the State Water Commission of Queretaro for the construction, operation, and maintenance of the Aqueduct II water supply and purification


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system in Queretaro state. The Aqueduct II is expected to bring water 108km from Moctezuma River to the city of Queretaro. We own, directly and indirectly, a 42% interest in the consortium.
 
Airports Division
 
As of December 31, 2007, we controlled an aggregate of 223,492,500 shares of our airport subsidiary GACN, representing 55.87% of GACN’s capital stock. Our investment in GACN was comprised of 156,692,500 series B shares that we owned directly through our wholly-owned subsidiary Aeroinvest, and 66,800,000 series B and BB shares that we controlled through our ownership of 74.5% of the capital stock of SETA. The remaining 25.5% of SETA was owned by Aeroports de Paris Management, or ADPM. The remaining shareholders in GACN held 44.13% of its outstanding capital stock. GACN is listed on the Mexican Stock Exchange and the Nasdaq.
 
Aeroinvest and ADPM have also agreed that:
 
  •  Aeroinvest will select two members of GACN’s Audit Committee, one of whom must satisfy the independence criteria of the Sarbanes-Oxley Act of 2002; and
 
  •  Aeroinvest and ADPM will jointly select at least one member of GACN’s Nominations Committee and Corporate Practices Committee.
 
The consortium agreement also requires the unanimous vote of Aeroinvest and ADPM to approve: (i) the pledging or creation of a security interest in any of GACN’s shares held by SETA or the shares issued by SETA; (ii) any amendments to SETA’s bylaws or the SETA shareholders’ agreement; (iii) a merger, split, dissolution or liquidation; (iv) the amendment or termination of GACN’s bylaws or the participation agreement, technical assistance agreement, and technology transfer agreement entered into at the time of GACN’s privatization; (v) changes in GACN’s capital structure; (vi) the conversion of GACN’s Series BB shares into Series B shares ; and (vii) any sale or transfer of shares of SETA.
 
Under the consortium agreement, transfers by either Aeroinvest or ADPM of its shares in SETA to an unaffiliated third party are subject to limited rights of first refusal in favor of the non-transferring shareholder, and such transfers by Aeroinvest are subject, under certain conditions, to tag-along rights in favor of ADPM. In addition, the consortium agreement includes put and call options in respect of shares of SETA held by Aeroinvest, whereby, from June 14, 2009 through the later of June 14, 2015 and the date that is six months following the termination of the technical assistance agreement, under certain conditions, ADPM may require Aeroinvest to purchase all or a portion of shares of SETA held by ADPM, and in the event of the parties’ inability to resolve definitively a matter to be decided by the board of directors or shareholders of SETA, Aeroinvest may require ADPM to sell to Aeroinvest all or a portion of shares of SETA held by ADPM.
 
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 45% of GACN’s revenues in 2007. 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 2007 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.


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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 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 airports for the year ended December 31, 2007:
 
                                         
    Year Ended December 31, 2007  
                Revenues Per
 
    Terminal
          Terminal
 
Airport
  Passengers     Revenues     Passenger(1)  
    (Number in millions)     %     (Millions of pesos)     %     (Pesos)  
 
Metropolitan area:
                                       
Monterrey International Airport
    6.6       46.2 %     847.8       44.4 %     128.5  
Tourist destinations:
                                       
Acapulco International Airport
    1.1       7.4       148.4       7.8       134.9  
Mazatlan International Airport
    0.9       6.4       143.4       7.5       159.4  
Zihuatanejo International Airport
    0.7       4.7       96.2       5.0       137.4  
Total tourist destinations
    2.6       18.6       388.0       20.3       143.7  
Regional cities:
                                       
Chihuahua International Airport
    0.9       6.0       116.7       6.1       129.7  
Culiacan International Airport
    1.1       8.0       145.2       7.6       132.0  
Durango International Airport
    0.3       2.0       38.2       2.0       127.3  
San Luis Potosi International Airport
    0.3       1.9       46.3       2.4       154.3  
Tampico International Airport
    0.6       4.1       72.5       3.8       120.8  
Torreon International Airport
    0.5       3.7       75.0       3.9       149.8  
Zacatecas International Airport
    0.3       2.0       39.2       2.1       130.7  
Total regional destinations
    3.9       27.6       533.0       27.9       133.3  
Border cities:
                                       
Ciudad Juarez International Airport
    0.9       6.4       109.6       5.7       121.8  
Reynosa International Airport
    0.2       1.3       30.4       1.6       152.0  
Total border city destinations
    1.1       7.7       140.1       7.3       127.3  
                                         
TOTAL:(2)
    14.2       100.0 %     1,908.8       100.0 %     132.6  
 
 
(1) Revenues per terminal passenger are calculated by dividing the total revenues for each airport by the number of terminal passengers for each airport.
 
(2) Total does not include eliminations at the consolidated level.
 
Competition
 
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.


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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 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.”
 
 
The Other Concessions Division includes highway, bridge and tunnel concessions, as well as water distribution and water treatment concessions.
 
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, either through subsidiaries or affiliates:
 
                                                         
                                  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. 32       8  
Acapulco tunnel
    2.9       1994       40       100       100       662       100  
Corredor Sur highway (Panama)
    19.5       1995       30       100       100       2,194       100  
Irapuato — La Piedad highway
    74.32       2005       20       100       100       701       100  
Queretaro — Irapuato highway
    92.98       2006       20       100       100       354       100  
Nuevo Necaxa— Tihuatlan Highway
    85       2007       30       50       50       6       50  
Rio Verde — Ciudad Valles Highway
    113.2       2007       20       100       100       24       100  
RCO first package of tollroads
    558       2007       30       20       100       3,112       7  
The Kantunil — Cancun Highway(4)
    241.5       1990       20       100           Ps. 1,391       100  
 
 
(1) Does not take into account the Mexican federal or local governments’ “sub-equity” contributions.


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(2) Represents each concessionaire’s investment in the applicable concession, net of depreciation and revaluation of assets, except for San Martin Tlaxcala-El Molinito highway and RCO, in which it represents net investment in equity. For a description of the revaluation of assets, see notes 3 and 11 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.”
 
(4) Values as of March 31, 2008.
 
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 (nominal value) in notes (Certificados Bursatiles) due 2022, which are listed on the Mexican Stock Exchange. These notes accrue interest at TIIE 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 (nominal value) to Banco Nacional de Obras y Servicios Publicos, S.N.C. and Ps.206 million (nominal value) of TUCA’s ordinary participation certificates, we received approximately Ps.460 million (nominal value) 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 Ministry of Communications and Transportation 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 PPP. Recovery of our investment will be accomplished through a two-part integrated quarterly payment made by the Ministry 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 September 2008. We will report income as the segments are modernized and expanded and become available for use.


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The Queretaro-Irapuato Highway.  In June 2006, the Ministry 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 PPP. Recovery of our investment will be accomplished through a two-part integrated quarterly payment made by the Ministry 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.
 
Nuevo Necaxa-Tihuatlan Highway.  In June 2007, the Ministry of Communications and Transportation awarded us a 30-year concession for the construction, operation, maintenance and preservation of the Nuevo Necaxa-Tihuatlan highway. The 85 km highway is located in the states of Puebla and Veracruz. The 30-year concession, with a total investment of approximately US$631 million, includes: (i) construction, operation, maintenance, and preservation of the 36.6 km Nuevo Necaxa — Avila Camacho segment; (ii) exploitation, operation, maintenance, and preservation of the 48.1 km Avila Camacho — Tihuatlan segment; and (iii) a long-term service contract to sustain the capacity of the highway for the Nuevo Necaxa — Avila Camacho segment, in accordance with the exclusive rights provided by the concession. This is the final tranche to complete the highway that will connect Mexico City with the port of Tuxpan in Veracruz.
 
The Rio Verde-Ciudad Valles Highway.  In July, 2007 the Ministry of Communications and Transportation awarded the 20-year concession for a 113.2 km highway between Rio Verde and Ciudad Valles in the state of San Luis Potosi to a consortium made up of our subsidiaries. The estimated total investment will be approximately US$286 million. The scope of the concession includes: (i) the operation, conservation, maintenance, modernization, and widening of a tranche from Rio Verde — Rayon, 36.6 km; (ii) the construction, operation, exploitation, conservation, and maintenance of a tranche from Rayon — La Pitahaya, 68.6 km; and (iii) the operation, conservation, maintenance, modernization, and widening of a tranche from La Pitahaya — Ciudad Valles, 8.0 km. This concession includes the exclusive right for the long-term service contract with the Federal Government, acting through the Ministry of Communications and Transportation.
 
The First FARAC Package of Highways (RCO).  On October 3, 2007 our affiliate RCO paid the Mexican government Ps.44,051 million for the concession to operate the first of four packages of FARAC tollroads, which was awarded on August 6, 2007. RCO assumed responsibility for construction, operation, conservation, and maintenance of four tollroads through 2037. The Maravatio — Zapotlanejo, Guadalajara — Zapotlanejo, Zapotlanejo — Lagos de Moreno, and Leon — Lagos — Aguascalientes tollroads have a total length of 558 km in the states of Michoacan, Jalisco, Guanajuato, and Aguascalientes. The concession agreement also calls for the consortium to make investments of up to Ps.1.5 billion to expand the toll roads through 2010. We own 20% of RCO and GSIP owns the remaining 80%. RCO’s payment to the Mexican government was financed by long-term bank loans incurred by RCO and capital contributed by RCO’s owners. We record our investment in the consortium as a long-term investment in unconsolidated affiliates. The debt is not consolidated and income is recorded in the line item “share of income in unconsolidated affiliates”.
 
We are entitled to appoint two voting members of RCO’s six-voting member board and GSIP is entitled to appoint the other four voting members. Most decisions by RCO’s board are taken by majority vote, although certain decisions, including hiring key management and entering into agreements with the shareholders, may only be taken after approval by the majority plus one of the voting members and certain other decisions, including calls for additional investments and entering into, modifying or terminating any arrangement in excess of $20 million, may only be taken after approval by 90% of the voting members.
 
The Kantunil-Cancun Highway (Mayab Consortium).  On March 12, 2008, we acquired all the equity of the Mayab Consortium, which holds the concession for the Kantunil — Cancun tollroad. We paid Ps.870 million to the selling shareholders. The Mayab Consortium holds the concession to construct, exploit, and maintain the 241.5 km highway that connects the cities of Kantunil and Cancun in the states of Yucatan and Quintana Roo through December 2020. We expect to consolidate the investment in our financial statements, including debt totaling Ps.2,133 million. The long-term securities debt matures in 2019 and 2020, and is expected to be repaid from toll revenues generated by the concession.


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Ciudad Acuña Water Treatment Plant.  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’s equipment has been upgraded, allowing the plant to operate more efficiently, lowering costs, and increasing its processing capacity to 500 liters per second (lps). During 2007, 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 340 lps. We are negotiating with the concession grantor to create a two-tier tariff system to be applied to water treated up to 250 lps (per the contract) and additional water treated up to 400 lps, anticipating a growth in the demand for treated lps.
 
Acueducto II Water Supply.  In May 2007 a consortium we lead was granted a 20-year concession by the State Water Commission of Queretaro for the construction, operation, and maintenance of the Aqueduct II water supply and purification system in Queretaro state. The Aqueduct II is expected to bring water 108km from Moctezuma River to the city of Queretaro. The required investment of Ps.2,854 million is expected to be financed with resources provided by Banco Nacional de Obras y Servicios Publicos, S.N.C., Infrastructure Investment Fund, or FINFRA, equity capital from the consortium, and commercial bank debt. The project will be constructed over a term of 26 months. The concessionaire Suministro de Agua de Queretaro, S.A. de C.V., or SAQSA, is made up of the following shareholders: ICA, as consortium leader, 37%; Servicios de Agua Trident, S.A. de .C.V., a subsidiary of Mitsui Corp, 26%; Fomento de Construcciones y Contratas, or FCC, 26%; and PMA Mexico, 11%. Including our interest in PMA Mexico, which is our affiliate, our direct and indirect economic interest in SAQSA is 42.39%.
 
 
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 2007, we participated in several new housing development projects, including: Las Torres in Leon, Valle del Marques in Ciudad Juarez, Paseos del Pedregal in Queretaro, Habitat Piedras Blancas in Tijuana, Santa Monica in Aguascalientes, Paseo de las Palmas in Cancun, Bosques in the state of Mexico, and Reforma 27 in Mexico City. During 2007, 2006 and 2005, we sold 7,786, 5,909 and 4,408 houses, respectively. As of December 31, 2007, our Housing Development segment owned 1,574 hectares of land reserved for the construction of 77,564 housing units, had agreements with partners to develop 288 hectares of land for the construction of 8,026 housing units and had negotiated the acquisition of 493 hectares of land for the construction of 29,480 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 2007, the


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number of mortgage credits granted under these initiatives increased from 332,000 housing units in 2000 to approximately 550,000 housing units in 2007. 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. The results of operations in our Corporate and Other segment in 2007, 2006 and 2005 mainly reflect the sale of real estate in Queretaro, Cancun and Los Mochis.
 
 
Revenues from foreign operations accounted for approximately 17% of our revenues in 2007, as compared to 11% and 14% in 2006 and 2005, respectively.
 
The following table sets forth our revenues by geographic area for each of the years in the three-year period ended December 31, 2007.
 
                                                 
    Year Ended December 31,  
    2007     2006     2005  
    (Millions of
          (Millions of
          (Millions of
       
    Mexican
    (Percent of
    Mexican
    (Percent of
    Mexican
    (Percent of
 
    pesos)     Total)     pesos)     Total)     pesos)     Total)  
 
Mexico
  Ps. 18,902       84 %   Ps. 20,446       90 %   Ps. 17,340       87 %
Spain
    1,894       8       1,625       7       2,539       13  
United States
    0       0       0       0       0       0  
Other Latin American countries
    1,942       9       797       4       305       2  
Inter-segment eliminations
    (249 )     (1 )     (154 )     (1 )     (180 )     (1 )
                                                 
Total
  Ps. 22,489       100 %   Ps. 22,714       100 %   Ps. 20,005       100 %
                                                 
 
Approximately 4% of our backlog as of December 31, 2007 is related to projects outside Mexico (as compared to 6% as of December 31, 2006) and approximately 47% of our backlog as of December 31, 2007 was denominated in foreign currencies (principally U.S. dollars) (as compared to 53% as of December 31, 2006).
 
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,


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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 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.


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The following table sets forth our significant subsidiaries as of December 31, 2007, including the principal activity, domicile, ownership interest and percentage of voting power held by us:
 
                         
            Ownership
    Voting
 
    Principal
      Interest
    Power Held
 
Subsidiary
  Activity   Domicile   (%)     (%)  
 
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
  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   Panama     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     52       56*  
Constructora de Proyectos Hidroelectricos, S.A. de C.V. / Constructora Hidroelectrica la Yesca, S.A. de C.V. 
  Consortia for the construction of the La Yesca hydroelectric project   Mexico     67       67  
 
 
Directly and through our interest in SETA.
 
 
Approximately 87% of our assets and properties, including concessions, are located in Mexico, with the balance in the United States, Europe and other Latin American countries. At December 31, 2007, the net book value of all land (excluding real estate inventories) and buildings, machinery and equipment and concessions was approximately Ps.1,503 million (approximately U.S.$138 million). Beginning in 2002, as part of a strategy to better utilize our 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.


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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 consolidated financial statements and the notes thereto. Our consolidated financial statements have been prepared in accordance with MFRS, which differ in significant respects from U.S. GAAP. Note 29 to our consolidated 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 consolidated net income (loss) and consolidated 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, 2007.
 
U.S. dollar amounts have been translated from Mexican pesos at an exchange rate of Ps.10.9169 per U.S.$1.00, the noon buying rate for Mexican pesos on December 31, 2007, 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 within the segment: 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.
 
Our results of operations for 2007 principally reflected a 7% reduction in Construction segment revenues that was offset only almost completely by increased revenues in our other segments. We believe this was principally a result of the relatively high level of construction projects nearing completion in the months leading up to the July 2006 federal election in Mexico, and the post-election slowdown in new contract awards in the second half of 2006. In addition, the contracts we were awarded in 2007 are not yet contributing significantly to revenues. We recorded a net loss of Ps.785 million in 2007 principally as a result of the implementation of a new flat rate business income tax in Mexico and elimination of the asset tax.
 
After a transition period of several months, the government of President Felipe Calderon, who assumed office in December 2006, began soliciting bids for new projects in mid-2007. In 2007, President Calderon unveiled his National Infrastructure Program, which the government has announced is designed to expand Mexico’s infrastructure, accelerate Mexico’s economic growth and make the Mexican economy more internationally competitive. The National Infrastructure Program contemplates public and private investments totaling Ps.951 billion over the 2007 to 2012 period in highways, railroads, ports, airports, telecommunications, water and sanitation, irrigation, and flood control projects. In addition, the National Infrastructure Plan calls for an additional Ps.1,581 billion in energy sector investments.


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Starting in May 2007, we have seen an increase in the pace of bidding and awarding of public sector contracts in Mexico. We expect that the new projects that have been recently awarded to us will contribute positively to revenues once the contracts and concession agreements have been signed, financing is obtained and the projects enter into the construction phase.
 
Our business strategy is to grow our construction business as well as to grow and diversify into construction-related activities such as infrastructure and housing development, which we believe offer opportunities for potentially higher growth, higher margins, and reduced volatility of operating results. Our goal is to generate a greater portion of our consolidated revenues from our Infrastructure and Housing Development segments by 2010. In 2007, these two segments represented 22% of our consolidated revenues.
 
The following table sets forth the revenues of each of our divisions for each of the years in the three-year period ended December 31, 2007. See note 28 to our financial statements.
 
                                                 
    Year Ended December 31,  
    2007     2006     2005  
    (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. 7,744       34 %   Ps. 9,599       42 %   Ps. 7,777       39 %
Industrial
    8,036       36       7,855       35       8,226       41  
Rodio Kronsa
    1,894       8       1,625       7       2,539       13  
Total
    17,674       79       19,080       84       18,543       93  
Infrastructure:
                                               
Airports
    1,897       8       1,695       7       0       0  
Other Concessions
    837       4       412       2       366       2  
Total
    2,735       12       2,107       9       366       2  
Housing Development
    2,169       10       1,593       7       1,185       6  
Corporate and Other
    159       0       87       0       91       0  
Eliminations
    (248 )     0       (154 )     0       (179 )     0  
                                                 
Total
  Ps. 22,489       100 %   Ps. 22,714       100 %   Ps. 20,005       100 %
                                                 
 
The 1% decrease in total revenues in 2007 as compared to 2006 was primarily attributable to the combined effect of significant increases in revenues from the Infrastructure and Housing Development segments and a smaller increase in the Industrial Construction revenues, which were more than offset by a decline in Civil Construction. The decline in Civil Construction was primarily attributable to the completion of projects during 2006, the last year of the previous government, while new projects awarded by the current government are not yet significantly contributing to revenues as in the case of the La Yesca hydroelectric project.
 
The 14% increase in total revenues in 2006 as compared to 2005 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.
 
 
Selling, general and administrative expenses increased 26% from 2006 to 2007, and increased 9% from 2005 to 2006. The increase in 2007 was primarily due to increased overhead attributable to the increased volume of sales in the Housing Development and Infrastructure segments, which are developing new projects that require increased personnel and services. The increase in 2006 was primarily due to increased overhead attributable to the increased volume of sales in the Civil Construction and Housing Development segments.


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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, 2007.
 
                         
    Year Ended December 31, 2007  
    2007     2006     2005  
    (Millions of Mexican pesos)  
 
Operating Income (Loss):
                       
Construction:
                       
Civil
  Ps. 156     Ps. 417     Ps. 591  
Industrial
    307       297       433  
Rodio Kronsa
    61       78       69  
Total
    524       793       1,092  
Infrastructure:
                       
Airports
    759       666       0  
Other Concessions
    81       91       27  
Total
    840       757       27  
Housing Development
    224       164       100  
Corporate and Other
    (23 )     (26 )     (67 )
Eliminations
    (15 )     16       (31 )
                         
Total
  Ps. 1,550     Ps. 1,704     Ps. 1,122  
                         
Operating margin
    6.9 %     7.5 %     5.6 %
                         
 
During 2006 and 2005, Ps.512 million and Ps.408 million , 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, 2007.
 
                         
    Year Ended December 31,  
    2007     2006     2005  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 7,744     Ps. 9,599     Ps. 7,777  
Operating income
    156       417       591  
Operating margin
    2.0 %     4.3 %     7.6 %
 
Revenues.  The 19% decrease in the Civil Construction division’s revenues from 2006 to 2007 was principally due to the reduced volume of work in the 2007 period. The projects that contributed the most to revenues in 2007 were the El Cajon hydroelectric project (Ps.497 million), the construction of a new terminal in the Mexico City International Airport (Ps.1,380 million) and the construction of the Cachamay Stadium in Venezuela (Ps.1,257 million).
 
In 2006, the Civil Construction division’s revenues increased by 23% from 2005. This increase mainly reflected work performed on the construction of a new terminal in the Mexico City International Airport (Ps.3,026 million), the construction of the El Cajon hydroelectric project (Ps.1,687 million) and the construction of the Cachamay Stadium in Venezuela (Ps.459 million).


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Operating Income.  Operating income for the Civil Construction division decreased by 63% in 2007 from 2006. This decrease was due to the decline in revenues, lower margins in the mix of projects under construction and higher bid preparation expenses in the 2007 period.
 
In 2006, the operating income for the Civil Construction division decreased by 29% from 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.”
 
Financing costs related to the El Cajon hydroelectric project represented Ps.172 million of the financing cost of the Civil Construction division during 2007, Ps.512 million of this division’s cost of sales during 2006 and Ps.408 million of this division’s cost of sales during 2005.
 
 
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, 2007.
 
                         
    Year Ended December 31,  
    2007     2006     2005  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 8,036     Ps. 7,855     Ps. 8,226  
Operating income
    307       297       433  
Operating margin
    3.8 %     3.8 %     5.3 %
 
Revenues.  The Industrial Construction division’s revenues increased by 2% in 2007 from 2006. This increase primarily reflected an increased volume of work performed. The projects that contributed the most to revenues in 2007 were Package II of the Minatitlan refinery (Ps.3,551 million), the Reynosa 5 and Reynosa 6 cryogenic plants for Pemex (Ps.1,450 million) and the Chicontepec oil field project (Ps.695 million).
 
The Industrial Construction division’s revenues decreased by 5% in 2006 from 2005. This decrease primarily reflected the postponement of certain public sector projects due to the change of government. The projects that contributed most to revenues in the 2006 period were the Package II of the Minatitlan refinery project (Ps.4,121 million), the Altamira V power plant (Ps.546 million) and the Chicontepec oil field project (Ps.506 million).
 
Operating Income.  The Industrial Construction division had a 3% increase in operating income in 2007, compared to 2006. This increase was primarily due to an increase in executed work, which more than offset lower margins in the mix of projects under construction and higher bid preparation expenses in the 2007 period.
 
The Industrial Construction division had a 31% decrease in operating income in 2006 compared to 2005. This decline was primarily due to a lower level of sales, reduced margins in projects under construction and increased bid preparation expenses.
 
 
The following table sets forth the revenues and operating income of our Rodio Kronsa division for each of the years in the three-year period ended December 31, 2007.
 
                         
    Year Ended December 31,  
    2007     2006     2005  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 1,894     Ps. 1,625     Ps. 2,539  
Operating income
    61       78       69  
Operating margin
    3.2 %     4.8 %     2.7 %


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Revenues.  The Rodio Kronsa division’s revenues increased by 17% in 2007 from 2006. This increase was primarily due to a higher volume of work. The decrease in revenues by 36% in 2006 from 2005 was primarily due to the change to proportional (50%) consolidation of Rodio Kronsa beginning in 2006.
 
Operating Income.  The Rodio Kronsa division’s operating income decreased by 22% to Ps.61 million in 2007 from Ps.78 million in 2006. Operating income decreased largely due to the mix of projects, which more than offset the increase in revenues.
 
The Rodio Kronsa division’s operating income increased by 13% in 2006 from 2005. Operating income increased as a result of better margins in the work executed in 2006 compared to 2005.
 
This division was formerly known as CPC-Rodio, reflecting the inclusion in the division of our Argentine subsidiary, CPC, S.A. or CPC. In each of 2005, 2006 and 2007, CPC contributed less than 1% of the division’s revenues. Because of this, the division was renamed Rodio Kronsa in 2006 to reflect the limited importance of CPC and the relatively greater importance of Kronsa Internacional S.A. to the division. 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, 2007  
    2007     2007     2006     2005  
    (Millions of
    (Millions of Mexican pesos)  
    U.S. dollars)        
 
Construction
                               
Civil
  U.S.$ 1,823     Ps. 19,898     Ps. 4,180     Ps. 4,769  
Industrial
    777       8,487       5,116       9,269  
Rodio Kronsa
    67       729       352       876  
                                 
Total
  U.S.$ 2,667     Ps. 29,114     Ps. 9,648     Ps. 14,914  
                                 
 
Backlog at December 31, 2007 increased substantially compared to December 31, 2006, primarily due to increased successful promotion of infrastructure projects by the government in 2007. The decrease in 2006 from December 31, 2005 was primarily due to the postponement of certain projects in the public sector due to the change of government.
 
Three projects represented approximately half of our backlog at December 31, 2007. The La Yesca hydroelectric project accounted for Ps.8,229 million, or 28% of our total backlog as of December 31, 2007. We expect to complete this project in June 2012. In addition, in 2007 we started work on the Chicontepec II project for Pemex. As of December 31, 2007, this project accounted for Ps.4,461 million, or 15%, of our construction backlog. We expect to complete this project in 2011. We also began work in 2007 on the Nuevo Necaxa-Tihuatlan highway for our Infrastructure segment, which accounted for approximately Ps.2,727 million, or 9% of our backlog as of December 31, 2007. We expect to complete this project during 2011. As of December 31, 2007, approximately 4% of construction backlog was attributable to construction projects outside Mexico and public sector projects represented approximately 59% of our total backlog. Our book and burn index (defined as the ratio of new contracts plus contract additions, to executed works) was 2.12 in 2007.
 
Our reported backlog in 2007 reflects 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.


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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, 2007.
 
                         
    Year Ended December 31, 2007  
    2007     2006     2005  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 2,735     Ps. 2,107     Ps. 366  
Operating income
    840       757       27  
Operating margin
    31 %     36 %     7 %
 
Revenues.  The Infrastructure segment’s revenues increased 30% in 2007 compared to 2006, reflecting increased passenger traffic volume in 2007 in the Airports Division and increased traffic on our concession toll roads and tunnels in the Other Concessions division. The increase in Infrastructure revenues in 2006 from 2005 reflected 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 other than regulated operations 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 69% of the Infrastructure segment’s revenues in 2007.
 
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 31% of the Infrastructure segment’s revenues in 2007.
 
Operating Income.  The Infrastructure segment reported an 11% increase in operating income in 2007 compared to 2006, principally due to the increase in revenues in the Airports division, which more than offset the decrease in operating income in the Other Concessions division due to the combined effects of increased bid preparation expenses and the commencement of new projects, as well as increases in personnel salaries. The Infrastructure segment reported an increase in operating income in 2006 as compared to 2005 principally due to the full consolidation of GACN in 2006.
 
 
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, 2007.
 
                         
    Year Ended December 31, 2007  
    2007     2006     2005  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 2,169     Ps. 1,593     Ps. 1,185  
Operating income
    224       164       100  
Operating margin
    10.3 %     10.3 %     8.4 %
 
Revenues.  Housing Development has been reported as an independent segment as of January 1, 2005. The Housing Development segment’s revenues increased by 36% in 2007 from 2006. We sold 7,786 units in 2007 compared to 5,909 units sold in 2006. The increase in units sold was due principally to internal growth in operations and increased demand. A unit is considered sold when we receive a certificate of occupancy from an independent qualified entity and the client has a committed credit loan from a financial entity that provides mortgages.


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The Housing Development segment’s revenues increased 34% in 2006 compared to 2005, primarily due to improvements in the marketing and commercialization process. In 2006, we sold 5,909 houses, as compared to 4,408 houses sold in 2005.
 
Operating Income.  The Housing Development segment’s operating income increased by 37% from 2006 to 2007 and 64% from 2005 to 2006. The increases in 2007 from 2006 and in 2006 from 2005 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 operating assets in our Corporate and Other segment. 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.
 
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, 2007.
 
                         
    Year Ended December 31, 2007  
    2007     2006     2005  
    (Millions of Mexican pesos)  
 
Revenues
  Ps. 159     Ps. 87     Ps. 91  
Operating loss
    (23 )     (26 )     (67 )
 
Revenues.  The Corporate and Other segment’s revenues increased 83% in 2007 primarily due to an increase in our divestiture of real estate assets. This segment’s revenues were substantially the same in 2005 and 2006.
 
Operating Loss.  The Corporate and Other segment had a lower operating loss in 2007 compared to 2006 and a lower operating loss in 2006 compared to 2005. The operating losses in each year were mainly due to the losses generated by the sale of real estate at prices below book value.
 
 
The following table sets forth the components of our comprehensive financing results for each year in the three-year period ended December 31, 2007.
 
                         
    Year Ended December 31, 2007  
    2007     2006     2005  
    (Millions of Mexican pesos)  
 
Interest expense(1)
  Ps. 999     Ps. 733     Ps. 488  
Interest income
    (526 )     (525 )     (420 )
Exchange (gain) loss, net
    (87 )     (37 )     21  
(Gain) loss on monetary position
    33       (1 )     16  
                         
Financing cost, net
  Ps. 420     Ps. 169     Ps. 105  
                         
 
 
(1) Does not include interest expense attributable to the El Cajon hydroelectric project and the drilling platforms for Pemex during 2006 and 2005 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 and 2005, Ps.512 million and Ps.408 million, respectively, of cost of sales in the Civil Construction division consisted of financing costs related to the El Cajon hydroelectric project, respectively.
 
The 149% increase in net comprehensive financing costs from 2006 to 2007 was mainly due to higher interest expense in 2007 related to a higher level of debt in pesos unrelated to the El Cajon hydroelectric project. The increase in the net comprehensive financing income (cost) from 2005 to 2006 was mainly due to increased interest expense, which was partially offset by increased interest income. The change in 2006 also


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reflected gains on foreign exchange transactions and from monetary position in 2006, as compared to losses from these items in 2005.
 
The 36% increase in interest expense in 2007 compared to 2006 was primarily attributable to interest expense of a higher level of debt to finance projects in the Infrastructure and Housing segments. The 50% increase in 2006 from 2005 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.
 
Interest income increased less than 1% from 2006 to 2007 primarily because of a stable cash position and increased 25% from 2005 primarily because our full consolidation of GACN, which had a strong cash position, including its results of operations, began January 1, 2006.
 
The gain or loss on monetary position reflects the effects of inflation, as measured by the NCPI, on our net monetary position. The loss on monetary position in 2007 and the gain on monetary position in 2006 reflected the decreases and increases in our net monetary liability position in those years.
 
We reported an increased foreign exchange gain in 2007 compared to 2006 and compared to a foreign exchange loss in 2005. The gains and losses on foreign exchange in these periods reflected the relative trading prices of the Mexican peso versus the U.S. dollar.
 
Our total debt decreased 45% at December 31, 2007, compared to December 31, 2006, as a result of payment of 100% of the debt related to the El Cajon hydroelectric project, which was partially offset by the incurrence of new financings during the year. In 2007, debt thus decreased by Ps.6,341 million, of which Ps.9,053 million was payments related to the El Cajon hydroelectric project. At December 31, 2007, we had no corporate debt (which we define as debt at the parent company level).
 
At December 31, 2007, 34% 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 2007, our net other income was Ps.23 million, compared with net other expense of Ps.88 million in 2006. The increase in 2007 was principally due to the reversal of an uncollectible account (Ps.68 million) related to the sale of shares of an affiliate (Torre Mayor).
 
In 2006, our net other expense was Ps.88 million, compared with net other income of Ps.58 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.
 
 
A flat rate business tax law was enacted in Mexico on October 1, 2007 and went into effect on January 1, 2008. The flat rate business tax applies to the sale of goods, the provision of independent services and the granting of use or enjoyment of goods, according to the terms of the law, less certain authorized deductions. Payable flat rate business tax is calculated by subtracting certain tax credits from the tax determined. Revenues, as well as deductions and certain tax credits, are determined based on cash flows generated beginning January 1, 2008. The law establishes that the flat rate business tax rate will be 16.5% in 2008, 17% in 2009, and 17.5% as of 2010. As opposed to income tax, a parent and its subsidiaries will incur flat rate business tax on an individual basis. Upon enactment of the flat rate business tax law, the asset tax was eliminated; additionally, under certain circumstances, asset tax paid in the ten years prior to a year in which income tax is paid may be refunded.
 
In accordance with MFRS, we reviewed and evaluated our tax-related asset and liability balances as of December 31, 2007 for purposes of determining the effect of the tax law changes in Mexico. We recognized


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the estimated effect that the tax law changes will have on our future financial statements over the next 50 years taking into consideration the longest concession term that we had as of December 31, 2007. As a result, we took non-cash provisions to adjust our deferred taxes totaling a net Ps.1,536 million. The tax charges are primarily related to GACN.
 
In 2007, we recorded a net tax provision of Ps.1,949 million equivalent to an effective rate of 168% due mainly to the adoption of the new flat rate tax. The provision for taxes increased from Ps.398 million in 2006 principally as a result of the implementation of a new flat rate business income tax in Mexico and elimination of the asset tax. The provision is comprised of (1) a current income tax expense of Ps.208 million, including Ps.187 million related to airport concessions, (2) a deferred income tax benefit of Ps.453 million due to the reversal of deferred income tax liabilities, (3) a deferred flat rate business tax expense of Ps.1,536 million and (4) an additional deferred income tax expense of Ps.658 million reflecting an increase in the valuation allowance, which resulted from our estimation that we may be unable to benefit from tax carryforwards and asset tax credit available to us over the period granted by Mexican law for the recovery of such tax carryforwards.
 
In 2006, we recorded a net tax provision of Ps.398 million, which reflected a current income tax expense of Ps.240 million, a deferred income tax expense of Ps.484 million and a benefit of Ps.327 million reflecting a decrease in the valuation allowance, which resulted from our estimation that we may be able 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.
 
The statutory tax rate in Mexico has been reduced from 30% for 2005 to 29% for 2006 and 28% for 2007. 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.
 
As of December 31, 2007, we had Ps.2,808 million in consolidated net loss carryforwards and Ps.2,101 million in consolidated asset tax credits available. See note 20 to our consolidated financial statements.
 
 
We reported net income from our equity interest in unconsolidated affiliates of Ps.11 million in 2007, compared to Ps.22 million in 2006 and Ps.106 million in 2005. The decrease in 2007 was primarily due to the effect of net losses in the concessionaire startups. The decrease in 2006 as compared to 2005 was primarily due to the absence of income from GACN which now is a consolidated subsidiary and the decrease in income from Dravica, due to the completion of the Caruachi Hydroelectric project in 2006.
 
 
We reported net loss before minority interest of Ps.785 million in 2007, compared to net income before minority interest of Ps.1,072 million in 2006 and net income before minority interest of Ps.806 million in 2005. The loss in 2007 was primarily attributable to provisions related to the implementation of the flat rate business tax and the elimination of the asset tax by the Mexican government. In 2006, the improvement 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.137 million.
 
Net income of minority interest was Ps.90 million in 2007 as compared to Ps.355 million in 2006, which primarily reflected the impact of provisions related to the implementation of the flat rate business tax and the elimination of the asset tax by the Mexican government. Net income of minority interest was Ps.355 million in 2006 as compared to Ps.270 million in 2005, which primarily reflected gains in construction activities.


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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;
 
  •  Concession arrangements (IFRIC 12)
 
  •  Foreign currency translation (Bulletin B-15);
 
  •  Revenue recognition for low-income housing sales;
 
  •  Capitalization of financing costs;
 
  •  Restatement for inflation on foreign sourced fixed assets;
 
  •  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 consolidated income and consolidated stockholders’ equity, see note 29 to our audited consolidated financial statements.
 
Critical Accounting Policies and Estimates:
 
We prepare our financial statements in accordance with MFRS. MFRS includes 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, 2007, 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) 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 each contract, we utilize the percentage-of-completion method established in Bulletin D-7, Construction Contracts and the Manufacture of Capital Assets, 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 considers the analysis of the customer’s economic


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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 mitigation of risks, as well as the 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 allow sufficient time for the timely completion of the project in spite of 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 payment for work performed, even though payment may not occur until the completion of the contract. The typical terms of our contracts also provide for our entitlement to receipt of payment for work performed.
 
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 related to inflation, exchange rates and price increases for each type of contract depends on if the contract is a public works contract or is with the private sector.
 
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, once the contract is signed 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 public 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, we generally 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.


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For those risks that cannot be mitigated or which surpass acceptable levels, we carry out a quantitative analysis in which we determine the probability of occurrence of the risk, measure the potential financial impact, and adjust the fixed price of the contract to an appropriate level, taking these risks into consideration.
 
For fixed price contracts in the public sector, in addition to that above, the Public Works and Services Law 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.
 
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, or ARB, 45, “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.
 
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 total expected costs and revenues as the contract progresses. The estimations are based on the terms, conditions and specifications of each specific project, including 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, for example) agreed to in the contract, (v) the decrease in the original contract value and agreements in contracts (vi) claims and conventional penalties, and (vii) completion or performance bonuses, 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, start-up costs 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


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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 caption “cost and estimated earnings in excess of billings of uncompleted contracts”.
 
Periodically, we evaluate the reasonableness of the estimates used in the determination of the percentage completion in any given project. 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.
 
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, except where the actual financing cost exceeds the original estimated financing cost. In these instances, such excess is recognized within financing cost. 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 center of profit 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.
 
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.


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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.
 
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.
 
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.
 
We have also reviewed and evaluated our tax-related asset and liability balances as of December 31, 2007 for purposes of determining the effect of the tax law changes for the business flat tax. This involved projections of future taxable income over the period during which existing deferred taxes at December 31, 2007 would reverse.
 
 
To finance our projects, we obtain financing under different conditions. When such financing is at a variable rate, we enter into swaps to reduce our exposure to volatility risks; these swaps convert the interest rate from variable to fixed. Occasionally, we enter into options that establish a maximum limit to the variable


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rate. When we enter into transactions in a currency other than our functional currency, and such transactions pose an additional foreign currency exchange risk, we contract exchange-rate options, enabling us to reduce our exposure to such foreign currency risks.
 
We value all derivatives at fair value, regardless of the purpose for holding them. We base fair value on market prices for derivatives traded in recognized markets. If no active market exists, fair value is based on other valuation methodologies supported by sufficient and reliable information. Fair value is recognized on the balance sheet as an asset or liability, in accordance with the rights or obligations derived from the contracts executed.
 
When the transactions comply with all hedging requirements, we designate the derivatives as a hedging financial instrument at the beginning of the relationship. For fair value hedges, the fluctuation in the fair value of both the derivative and the open risk position is recognized in results of the period in which it takes place. For cash flow hedges, the effective portion is temporarily recognized in comprehensive income within stockholders’ equity and is subsequently reclassified to results at the same time that they are affected by the item being hedged. The ineffective portion is recognized immediately in results of the period.
 
Those derivatives that do not comply with all the requirements established in applicable regulations to be designated as hedging instruments have been designated as trading derivatives for accounting purposes. The fluctuation in fair value on these derivatives is recognized in results of the period.
 
 
 
We recognize revenues derived from sales of low-income housing at the earlier of (a) the date on which the house is completed and credit is approved by the financing agency and (b) the title of the house has passed to the buyer.
 
In accordance with U.S. GAAP, sales are recognized when all of the following conditions are met: (i) a sale is consummated, (ii) the buyer’s initial and continuing investments are adequate to demonstrate a commitment to pay for the property, (iii) the seller’s receivable is not subject to future subordination and (iv) the seller has transferred to the buyer the usual risks and rewards of ownership in a transaction that is in substance a sale and the seller does not have substantial continuing involvement with the property.
 
The valuation of inventory, the control of the cost of sales and the related profit are recognized through a cost budgeting system. The cost budgeting system is updated periodically when modifications are made to the sales price or cost estimates of construction and development of the home. Variations in the original cost budget that require a decrease in the value of inventory are applied to results in the period in which they are determined. Inventory costs include (i) the cost of land, (ii) rights, licenses, permits and other project costs, (iii) housing development costs, construction and infrastructure costs and (iv) administration and supervision of real estate. The costs related to real estate projects that are directly identified and related to the project are capitalized during development of the project and are applied to cost of sales in the proportion in which revenues are recognized.
 
The reversal of these sales in the U.S. GAAP reconciliation that affect our net income and majority stockholders’ equity, net of their related cost of sales for 2007 and 2006 are Ps.102,688 and Ps.57,361 respectively. The amounts related to this adjustment in 2005 were not material.
 
 
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, 2007, 2006 and 2005:
 
 
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


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loss provisions were recognized in our 2006 or 2007 financial statements. As of December 31, 2007 and 2006, our financial statements include an allowance for doubtful accounts of Ps.424 million and Ps.177 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 2007 we recorded a net tax provision of Ps.1,949 million, which reflected a current income tax expense of Ps.209 million, a deferred income tax benefit of Ps.453 million, a deferred flat rate business tax expense of Ps.1,537 million and an expense related to an increase in the valuation allowance of Ps.658 million. As of December 31, 2007, we had a net deferred tax asset of Ps.3,167 million, including deferred tax liabilities of Ps.231 million and creditable asset tax of Ps.2,268 million. As of December 31, 2007 a valuation allowance for tax loss carryforwards and asset tax credits of Ps.3,167 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 2006, we recorded a net tax provision of Ps.398 million, which reflected a current income tax expense of Ps.240 million, deferred tax expense of Ps.484 million related to change in deferred tax assets and liabilities and a decrease in the valuation allowance of Ps.327 million.
 
 
During 2007, we entered into two derivative contracts which establish a maximum interest rate of 5.5% on certain of our credit agreements; this transaction was designated as a cash flow hedge. The difference between the premium paid and the fair value was recognized in our results. At December 31, 2007, the fair value of the derivative was U.S.$3.5 million. Additonally, in August 2006, we entered into a derivative financial instrument known as a “European option” that limits the interest rate on a notional amount of Ps.580 million of our debt securities. At December 31, 2007, the fair value of the option was Ps.3,530; the difference between the premium paid and fair value was recognized in our results because the options were classified as trading for accounting purposes.
 
Recently Issued Accounting Standards
 
 
In 2007, CINIF issued the following NIFs and Interpretations of Financial Reporting Standards, or INIFs, which became effective for fiscal years beginning on January 1, 2008:
 
  •  NIF B-2, Statement of Cash Flows
 
  •  NIF B-10, Effects of Inflation
 
  •  NIF B-15, Translation of Foreign Currencies
 
  •  NIF D-3, Employee Benefits
 
  •  NIF D-4, Taxes on Income
 
  •  INIF 5, Recognition of the Additional Consideration Agreed to at the Inception of a Derivative Financial Instrument to Adjust it to Fair Value
 
  •  INIF 6, Timing of Formal Hedge Designation
 
  •  INIF 7, Application of Comprehensive Income or Loss Resulting From a Cash Flow Hedge on a Forecasted Purchase of a Non-Financial Asset


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Some of the significant changes established by these standards are as follows:
 
NIF B-2, Statement of Cash Flows. This NIF establishes general rules for the presentation, structure and preparation of a cash flow statement, as well as the disclosures supplementing such statement, which replaces the statement of changes in financial position. NIF B-2 requires that the statement show a company’s cash inflows and outflows during the period. Line items should be presented gross. Cash flows from financing activities are now presented below those from investing activities (a departure from the statement of changes in financial position). In addition, NIF B-2 allows entities to determine and present their cash flows from operating activities using either the direct or the indirect method.
 
NIF B-10, Effects of Inflation. This NIF defines two economic environments: a) inflationary environment, when cumulative inflation of the three preceding years is 26% or more, in which case the effects of inflation should be recognized using the comprehensive method; and b) non-inflationary environment, when cumulative inflation of the three preceding years is less than 26%, in which case, no inflationary effects should be recognized in the financial statements. Additionally, NIF B-10 eliminates the replacement cost and specific indexation methods for inventories and fixed assets, respectively, and requires that the cumulative gain or loss from holding non-monetary assets be reclassified to retained earnings, if such gain or loss is realized; the gain or loss that is not realized will be maintained in stockholders’ equity and charged to current earnings of the period in which the originating item is realized.
 
NIF B-15, Translation of Foreign Currencies. NIF B-15 eliminates classification of integrated foreign operations and foreign entities and incorporates the concepts of accounting currency, functional currency and reporting currency. NIF B-15 establishes the procedures to translate the financial information of a foreign subsidiary: i) from the accounting to the functional currency; and ii) from the functional to the reporting currency, and allows entities to present their financial statements in a reporting currency other than their functional currency.
 
NIF D-3, Employee Benefits. This NIF addresses current and deferred PTU. Deferred PTU should be calculated using the same methodology established in NIF D-4. It also includes the career salary concept and the amortization period of most items is reduced to five years, as follows:
 
Items will be amortized over a five-year period, or less, if employees’ remaining labor life is less than the:
 
  •  Beginning balance of the transition liability for severance and retirement benefits
 
  •  Beginning balance of past service cost and changes to the plan
 
  •  Beginning balance of gains and losses from severance benefits, according to actuarial calculations, should be amortized against the results of 2008
 
  •  Beginning balance of gains and losses from retirement benefits, according to actuarial calculations, should be amortized over a five-year period (net of the transition liability), with the option to fully amortize such item against the results of 2008.
 
NIF D-4, Taxes on Income. This NIF relocates accounting for current and deferred PTU to NIF D-3, eliminates the permanent difference concept, redefines and incorporates various definitions and requires that the cumulative income tax effect be reclassified to retained earnings, unless it is identified with some of the other comprehensive income items that have not been applied against current earnings.
 
INIF 5, Recognition of the Additional Consideration Agreed to at the Inception of a Derivative Financial Instrument to Adjust it to Fair Value. INIF 5 states that any additional consideration agreed to at the inception of a derivative financial instrument to adjust it to its fair value at that time should be part of the instrument’s initial fair value and not subject to amortization as established by paragraph 90 of Bulletin C-10. INIF 5 also establishes that the effect of the change should be prospectively recognized, affecting results of the period in which this INIF becomes effective. If the effect of the change is material, it should be disclosed.
 
INIF 6, Timing of Formal Hedge Designation. INIF 6 states that hedge designations may be made as of the date a derivative financial instrument is contracted, or at a later date, provided its effects are prospectively


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recognized as of the date when formal conditions are met and the instrument qualifies as a hedging relationship. Paragraph 51.a) of Bulletin C-10 only considered the hedge designation at the inception of the transaction.
 
INIF 7, Application of Comprehensive Income or Loss Resulting From a Cash Flow Hedge on a Forecasted Purchase of a Non-Financial Asset. INIF 7 states that the effect of a hedge reflected in other comprehensive income or loss resulting from a forecasted purchase of a non-financial asset should be capitalized within the cost of such asset, whose price is set through a hedge, rather than reclassifying the effect to the results of the period affected by the asset, as required by Paragraph 105 of Bulletin C-10. The effect of this change should be recognized by applying any amounts recorded in other comprehensive income or loss to the cost of the acquired asset, as of the effective date of this INIF.
 
At the date of issuance of our consolidated financial statements, we have not fully assessed the effects of adopting these new standards on our financial information.
 
 
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 and interim periods within those fiscal years for financial assets and liabilities, such as derivatives measured at fair value under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, an irrevocable election to measure hybrid financial instruments at fair value under SFAS No. 155, Accounting for Certain Hybrid Financial Instruments, and servicing assets and liabilities measured at fair value under SFAS No. 156, Accounting for Servicing of Financial Assets. SFAS No. 157 has been deferred until fiscal years beginning after November 15, 2008 for nonfinancial assets and liabilities such as asset retirement obligations measured at fair value at initial recognition under SFAS No. 143, Accounting for Asset Retirement Obligations, long-lived asset groups measured at fair value under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and liabilities for exit or disposal activities measured at fair value under SFAS No. 146, Accounting for Costs Associated With Exit or Disposal Activities. We are in the process of determining the impact of adopting this new accounting principle on our consolidated financial position, results of operations and cash flows.
 
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115. SFAS No. 159 permits an entity to choose to measure many financial instruments and certain other items at fair value. The objective is to expand the use of fair value measurements in accounting for financial instruments. The fair value option permits a company to choose to measure eligible items at fair value at specified election dates. A company will report unrealized gains and losses on items for which the fair value option has been elected in earnings after adoption. SFAS No. 159 is effective for fiscal years beginning after November 15, 2006. We are in the process of determining the impact of adoption this new accounting principle on our consolidated financial position, results of operations and cash flows.
 
In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51. SFAS No. 160 (a) amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and the deconsolidation of a subsidiary; (b) changes the way the consolidated income statement is presented; (c) establishes a single method of accounting for changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation; (d) requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated; and (e) requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent’s owners and the interests of the noncontrolling owners of a subsidiary.


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SFAS No. 160 must be applied prospectively but presentation and disclosure requirements (relating to the presentation of minority interest in the balance sheet and statement of income) must be applied retrospectively to provide comparability in the financial statements. Early adoption is prohibited. We do not anticipate the adoption of this new accounting principle will have a material effect on our consolidated financial position, results of operations and cash flows.
 
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, a replacement of FASB No. 141. SFAS No. 141(R) requires (a) a company to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at fair value as of the acquisition date; and (b) an acquirer in preacquisition periods to expense all acquisition-related costs. SFAS No. 141(R) requires that any adjustments to an acquired entity’s deferred tax asset and liability balance that occur after the measurement period be recorded as a component of income tax expense. This accounting treatment is required for business combinations consummated before the effective date of SFAS No. 141(R) (non-prospective), otherwise SFAS No. 141(R) must be applied prospectively. The presentation and disclosure requirements must be applied retrospectively to provide comparability in the financial statements. Early adoption is prohibited. SFAS No. 141(R) is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. We do not anticipate the adoption of this new accounting principle will have a material effect on our consolidated financial position, results of operations and cash flows.
 
On March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, which enhances the current disclosure framework in SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 161 primarily requires (i) qualitative disclosures about objectives and strategies for using derivatives in the context of each instrument’s primary underlying risk exposure; (ii) quantitative disclosures about the location and fair value amounts of and gains and losses on derivative instruments, in a tabular format; and (iii) disclosures about credit-risk related contingent features in derivative agreements. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. This Statement encourages, but does not require, comparative disclosures for earlier periods at initial adoption. We are in the process of determining the effects of this new standard on our consolidated financial information.
 
LIQUIDITY AND CAPITAL RESOURCES
 
 
Our principal uses of funds (nominal value) in 2007 were:
 
  •  Ps.3,118 million to acquire a 20% equity partnership in RCO
 
  •  Ps.439 million for the purchase of land reserves for our Housing Development segment
 
  •  Ps.355 million for the prepayment of tranche C of the Aeroinvest debt
 
  •  Ps.257 million for the equity contribution to the Nuevo Necaxa — Tihuatlan Highway project
 
  •  Ps.192 million for the equity contribution to the Rio Verde — Ciudad Valles Highway
 
Our principal sources of funds in 2007 were net proceeds from the September 2007 equity offering (Ps.5,688 million) and cash flow from operations, which included collections related to the El Cajon hydroelectric project.
 
Our expected future sources of liquidity include cash flow from our Civil Construction, Industrial Construction and Infrastructure segments and third party financing for our construction and housing projects. There can be no assurance that we will be able to continue to generate liquidity from these sales.
 
As of March 31, 2008, we had net working capital (current assets less current liabilities) of Ps. 8,190 million. We had net working capital of Ps.8,749 million as of December 31, 2007 as compared to net working capital of Ps.9,934 million as of December 31, 2006 and a net working capital of Ps.5,111 million as of December 31, 2005. Our net working capital as of March 31, 2008, December 31, 2007 and December 31, 2006 included


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Ps.1,417 million, Ps.1,840 million and Ps.2,480 million, respectively, of net working capital from our Airport Division, which we began to consolidate in December 2005. The decrease in net working capital from December 31, 2006 to December 31, 2007 was primarily attributable to the collection of the El Cajon hydroelectric project work certifications and the payment of short-term debt related to El Cajon. 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. 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.6,872 million as of December 31, 2007, as compared to Ps.5,325 million as of December 31, 2006 and Ps.6,823 million as of December 31, 2005. Of our cash and cash equivalents as of December 31, 2007, Ps.6,872 million was mainly attributable to increases in cash positions in the Corporate and Infrastructure segments. At December 31, 2007, we had a current ratio (current assets over current liabilities) of 1.99, as compared to a current ratio of 1.68 at December 31, 2006. As of March 31, 2008, we had a current ratio of 1.76.
 
Cash and cash equivalents at year-end 2007 included:
 
  •  Ps.1,827 million of cash and cash equivalents (representing 27% of our cash and cash equivalents) held by GACN;
 
  •  Ps.1,188 million of cash and cash equivalents (representing 17% of our cash and cash equivalents) held by ICA-Fluor;
 
  •  Ps.254 million of cash and cash equivalents (representing 4% of our cash and cash equivalents) held in the reserves established to secure the Acapulco Tunnel and Corredor Sur financings;
 
  •  Ps.141 million of cash and cash equivalents (representing 2% 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 Soletanche Bachy France, 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 a net Ps.8,313 million from operating activities during 2007, as compared to using a net Ps.2,409 million in 2006 and Ps.932 million in 2005.
 
The terms of the La Yesca contract required that we secure financing for the project costs and limit disbursements during the construction phase to 90% of the cash cost of any certified work performed. The consortium arranged U.S.$910 million of financing for the La Yesca hydroelectric project from WestLB AG, which also structured the financing for the El Cajon hydroelectric project. The financing consists of U.S.$910 million line of credit to be used to cover construction costs and a U.S.$80 million revolving line of credit to be used to finance monthly working capital requirements and to be repaid from the construction line of credit, both of which contain various restrictive covenants typical for project financing. Because the terms of the construction contract provided that the Mexican Federal Electricity Commission would pay for the project upon completion, and the financing obtained by CPH covers only the project’s cash costs, the project will not generate any significant cash flow to us until completion, which is scheduled to occur in the second quarter of 2012. However, because we recognize revenues from the La Yesca hydroelectric project based on the percentage-of-completion method of accounting, which relies on certain estimates and assumptions, the project is expected to generate a material portion of our revenues in 2008, 2009, 2010 and 2011. The La Yesca hydroelectric project is expected to represent a substantial portion of our receivables and our indebtedness in the future. At December 31, 2007, we had Ps.123 million in contract receivables and Ps.384 million of debt on our consolidated balance sheet relating to the La Yesca hydroelectric project.
 
As of March 31, 2008, 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, Banco Santander,


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BBVA Bancomer, BG Trust Inc., Merrill Lynch and Value Casa de Bolsa. The assets we have pledged include: (i) collection rights under the La Yesca hydroelectric construction contract; (ii) our shares in Concesionaria Irapuato la Piedad, S.A. de C.V., our subsidiary that operates the Irapuato — La Piedad highway concession; (iii) our shares in SISSA Coahuila, S.A. de C.V.; (iv) our dividend rights in our series “B” shares in GACN held by Aeroinvest S.A. de C.V., or Aeroinvest (a subsidiary that indirectly holds interests in airport concessions); (v) our dividend rights in our series “A” shares in Servicios de Tecnologia Aeroportuaria, S.A. de C.V., or SETA (a 74.5% subsidiary that holds a 16.7% interest in GACN); (vi) Aeroinvest’s collection rights of approximately $47 million related to various loans granted to SETA; (vii) construction machinery and equipment owned by Ingenieros Civiles Asociados, S.A. de C.V. (a construction subsidiary); and (viii) the collection rights from Corredor Sur, Kantunil Cancun highway and Acapulco tunnel. In general, 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, 2008, we had unrestricted access to Ps.6,144 million of our cash and cash equivalents, compared to Ps.6,575 million at December 31, 2007. See note 4 to our financial statements.
 
 
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 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 and La Yesca hydroelectric projects, 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 and La Yesca hydroelectric projects 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


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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 0.41 to 1.0 at December 31, 2007, 0.95 to 1.0 at December 31, 2006 and 0.82 to 1.0 at December 31, 2005. The improvement in the debt to equity ratio from December 31, 2006 to December 31, 2007 mainly reflected our payment of 100% of the debt related to the El Cajon hydroelectric project, which was partially offset by the incurrence of new financings during the year. 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 in 2007 was principally incurred for funding the La Yesca hydroelectric project and the acquisition of shares in GACN and PMA Mexico.
 
As of December 31, 2007, approximately 37% of our consolidated revenues and 34% 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. An appreciation of the Mexican peso relative to the U.S. dollar would decrease our dollar revenues when expressed in Mexican pesos. We generally do not hedge our exposure to the U.S. dollar with respect to the Mexican peso and other currencies; however, recently under some of our long-term credit facilities we have entered into interest rate, currency rate and foreign exchange hedges for the terms of those facilities. 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, CPH and ICA Panama, and unconsolidated affiliates have entered into debt and other agreements containing restrictive covenants that limit the ability of such subsidiaries 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 18 to our financial statements.
 
In 2007, our debt service obligations (principal and interest) totaled Ps.9,811 million for debt denominated in pesos and U.S dollars. As of December 31, 2007, our net debt (interest paying debt less cash and cash equivalents) was Ps.834 million. As of March 31, 2008 our net debt increased to Ps.5,583 million due to the consolidation of debt of the Kantunil-Cancun concession highway and other credits for the civil construction projects.
 
 
CPH is a special purpose subsidiary created to construct the La Yesca hydroelectric project. We and the other shareholder of CPH have agreed to guarantee certain obligations of CPH 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. CPH obtained financing for the construction phase of the La Yesca hydroelectric project in the first quarter of 2008, consisting of a U.S.$910 million line of credit to be used to cover construction costs and a U.S.$80 million revolving line of credit to be used to finance monthly working capital requirements and to be repaid from the construction line of credit, both of which contain various restrictive covenants typical in a project financing. The $910 million construction line of credit was syndicated and has a term that lasts the duration of the construction period, which ends in July 2012, subject to certain permissible extensions if the La Yesca project completion date is delayed. The repayment of the construction line of credit is scheduled to occur in two installments: (i) the first payment to made on the date of provisional acceptance of the first turbine unit, currently expected to occur in January 2012, in the amount of 60% of the fixed-price and 100% of the unit-price construction works performed as of that date, and (ii) the balance to be repaid in July 2012, subject to certain permissible extensions if the La Yesca project completion is delayed. West LB is the sole lender of the U.S.$80 million working capital line of credit, which has the same term as


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the construction line of credit. The working capital line of credit is expected to be repaid from the construction line of credit.
 
 
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 (nominal value) in notes (Certificados Bursatiles) due 2022, which were listed on the Mexican Stock Exchange. These notes accrued interest at TIIE plus 2.95%. The notes were prepaid with the proceeds of a new issuance of notes (Certificados Bursatiles) in the amount of Ps.1,250 million (nominal value) due 2033 issued and sold by a trust organized by our subsidiary TUCA, which are listed on the Mexican Stock Exchange. These notes accrue interest at TIIE plus 2.65%. 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, paying the corresponding fees and expenses and creating the account reserves provided for in the trust, we received approximately Ps.394 million (nominal value) from the sale of these notes, which was used for general corporate purposes.
 
 
In June 2007, Aeroinvest entered into agreements with Merrill Lynch, Pierce, Fenner & Smith, Incorporated to refinance existing credit facilities totaling U.S.$216 million, which was used primarily to finance the acquisitions by Aeroinvest of 35.3% of the capital stock of GACN in the form of series “B” shares from the Mexican government, and by SETA of an additional 2% of the capital stock of GACN in the form of series “B” shares. The refinancing was approved at GACN’s extraordinary general shareholders’ meeting held January 31, 2007. The refinancing of the existing facilities consists of the issuance of the following series of notes by a Mexican trust, payable in U.S. dollars: (1) Ps.2,125 million aggregate principal amount of Series 2007-1 Class A Notes due 2017, (2) Ps.325 million aggregate principal amount of Series 2007-1 Class B Notes due 2017, and (3) Ps.355 million aggregate principal amount of Series 2007-1 Class C Notes due 2017. Its purpose was prepayment of the existing facilities, payment of related costs, fees and 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 the pledged shares at all times unless it has failed to make a required payment. Aeroinvest, ADP, SETA, Banco Nacional de Comercio Exterior, S.N.C., Division Fiduciaria and Banco J.P. Morgan, S.A., Institucion de Banca Multiple, J.P. Morgan Grupo Financiero, Division Fiduciaria entered into a voting agreement pursuant to which Aeroinvest agreed to vote its series “B” shares representing 36.04% of the capital stock of GACN as a bloc in the same way SETA votes its shares of the capital stock of GACN at all ordinary and extraordinary general shareholders’ meetings, subject to certain exceptions set forth in the consortium agreement entered into between us and ADP. Both we and Aeroinvest issued 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


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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 October 2007, we prepaid Ps.355 million aggregate principal amount of Series 2007-1 Class C Notes due 2017.
 
 
On September 4, 2007, our housing subsidiary ViveICA entered into an uncommitted revolving debt facility funded by Deutsche Bank for the peso equivalent of U.S.$50 million to finance projects in several cities. The facility is denominated in pesos and has a maturity of six years, with a four-year revolving period during which ViveICA may draw on the funds. Because the facility is uncommitted, we will not pay a commitment fee to Deutsche Bank and Deutsche Bank will have discretion to cease advancing funds under the agreement.
 
This facility will allow ViveICA to finance projects before project authorization documents have been obtained and recuperate the appraised value of the project land upon delivery of definitive project authorization, thus increasing the turnover and liquidity of projects. The facility has been rated AAA on the Mexican scale by both the Moody’s and S&P rating agencies. The amount of the facility may be increased to the peso equivalent of U.S.$100 million upon mutual agreement of both parties. As of March 31, 2008, we have withdrawn approximately U.S. $10 million.
 
 
As of December 31, 2005, we had outstanding Ps.110 million of other long-term debt associated with financial leases for construction equipment and Ps.80 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 a waste-water treatment plant. As of December 31, 2007 we had outstanding long-term other debt of Ps.26 million.
 
On August 6, 2007, the Ministry of Communications and Transportation awarded the first of four FARAC concession packages to RCO, a consortium formed by two of our subsidiaries and GSIP in which we participate with 20% of the equity and GSIP holds the remaining 80% of the equity. The FARAC concession consists of a 30-year concession to construct, operate, exploit, conserve, and maintain the 548-kilometer Maravatio — Zapotlanejo, Guadalajara — Zapotlanejo, Zapotlanejo — Lagos de Moreno, and Leon — Lagos — Aguascalientes toll roads in the states of Michoacan, Jalisco, Guanajuato and Aguascalientes, as well as extension or enlargement works as the Ministry of Communications and Transportation determines. RCO paid Ps.44,051 million for the assets. The concessionaire obtained a Ps.31,000 million long-term financing with Banco Santander Central Hispano, S.A. We have a minority interest in the concession, accounting for it as a non-consolidated affiliate, and were required to contribute Ps.3,118 million as equity capital. Our consortium partner GSIP and the long-term financing described above contributed the remaining investment amount paid to the Mexican federal government under the concession. The terms of the financing required, among other conditions: (i) the pledge of our and GSIP’s shares of the consortium in favor of the creditors and (ii) a waterfall of payments that may restrict the cash available for distributions to shareholders until 2014. Because the investment is accounted for under the equity method, the debt is not consolidated on our balance sheet.
 
 
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.
 
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.


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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 the El Cajon hydroelectric project) considered net of value-added tax was 140 days as of the first quarter of 2008, which is a 23% decrease from the first quarter of 2007, primarily as a result of the second payment of the 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, 2007, 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. 5,990     Ps.     Ps. 455     Ps. 903     Ps. 4,632  
Fixed interest(1)
    1,956       204       607       391       754  
Variable interest(2)
    4,685             9       243       4,433  
Current portion of long-term debt obligations(3)
    206       206                    
Operating lease obligations
    282       4       71       207        
                                         
Total
  Ps. 13,119     Ps. 414     Ps. 1,142     Ps. 1,744     Ps. 9,819  
                                         
 
 
(1) Fixed interest rates range from 7.75% to 11.07%.
 
(2) Variable interest rate was estimated using the following ranges: 4.6% (LIBOR plus spread) to 6.95% (LIBOR plus spread); and 8.38% (TIIE plus spread) to 10.88% (TIIE plus spread). When calculating variable interest rates, we used LIBOR and TIIE as of December 31, 2007.
 
(3) Fixed interest rates range from 5% to 10.41% and the variable interest rate is 10.43% (TIIE plus spread). When calculating variable interest rates, we used the TIIE rate as of December 31, 2007.
 
As of December 31, 2007, 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. 2,058     Ps.     Ps. 2,058     Ps.     Ps.  
Guarantees(1)
    11,290               11,290                  
                                         
Total commercial commitments
  Ps. 13,348     Ps.     Ps. 13,348     Ps.     Ps.