UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2011
Commission file number: 001-11080
Empresas ICA, S.A.B. de C.V.
(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) |
Blvd. Manuel Avila Camacho 36
Col. Lomas de Chapultepec
Del. Miguel Hidalgo
11000 Mexico City
Mexico
(Address of principal executive offices)
Victor Bravo Martin
Blvd. Manuel Avila Camacho 36
Col. Lomas de Chapultepec
Del. Miguel Hidalgo
11000 Mexico City
Mexico
(5255) 5272 9991 x 3653
victor.bravo@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 Ordinary Participation Certificates, or CPOs, each representing one Ordinary Share American Depositary Shares, or ADSs, evidenced by American Depositary Receipts, each representing four CPOs | | New York Stock Exchange, Inc.* New York Stock Exchange, Inc.* 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:604,679,197 Ordinary Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No þ
Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:U.S. GAAP ¨ IFRS þ Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ¨ Item 18 ¨
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 ¨ No þ
TABLE OF CONTENTS
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TABLE OF CONTENTS
(continued)
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PART I
Introduction
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 Blvd. Manuel Avila Camacho 36, Col. Lomas de Chapultepec, Del. Miguel Hidalgo, 11000, Mexico City, Mexico. 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 that perform civil and industrial construction and engineering, engage in real estate and home development activities and operate infrastructure facilities, including airports, toll roads and water treatment systems. The references herein to segments or sectors are to combinations of various subsidiaries that have been grouped together for management or financial reporting purposes.
| Item 1. | Identity of Directors, Senior Management and Advisors |
Not applicable.
| Item 2. | Offer Statistics and Expected Timetable |
Not applicable.
A. SELECTED FINANCIAL DATA
Our consolidated financial statements included in this annual report are prepared in accordance with International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our date of transition to IFRS was January 1, 2010. The consolidated annual financial statements as of and for the year ended December 31, 2011 are our first financial statements prepared in accordance with IFRS. IFRS 1, “First-time Adoption of International Financial Reporting Standards” has been applied in preparing these consolidated financial statements. A description of the effects of our transition to IFRS on our financial information is presented in Note 36 to our audited consolidated financial statements and in “Item 5. Operating and Financial Review and Prospects – Operating Results – Critical Accounting Policies and Estimates.” We publish our consolidated financial statements in Mexican pesos.
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 peso 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.13.95 to U.S.$1.00, the noon buying rate for Mexican pesos on December 30, 2011 as published by the Federal Reserve Bank of New York. On April 20, 2012, the Federal Reserve Bank of New York noon buying rate was Ps.13.12 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 sum due to rounding.
Financial Data
The following tables present our selected consolidated financial information for or as of each of the periods or dates indicated, and have been derived in part from our audited consolidated financial statements. This information should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements, including the notes to our consolidated financial statements. The selected consolidated financial information for 2010 differs from the information we previously published for 2010, because it has been prepared in accordance with IFRS for comparative purposes, as required by IFRS 1.
| | | | | | | | | | | | |
| | | As of and for the year ended December 31, | |
| | | 2011 | | | 2011 | | | 2010 | |
| | | (Millions of
U.S.
dollars)(1) | | | (Thousands of Mexican pesos, except share, per
share, per ADS and inflation data) | |
Comprehensive Income Data: | | | | | | | | | | | | |
Total revenues | | | 3,066 | | | | 42,768,785 | | | | 34,476,059 | |
Gross profit | | | 472 | | | | 6,589,407 | | | | 4,982,944 | |
General expenses | | | 243 | | | | 3,387,674 | | | | 2,714,683 | |
Other expense (income), net (2) | | | (35 | ) | | | (494,692 | ) | | | 30,268 | |
Operating income | | | 264 | | | | 3,696,425 | | | | 2,237,993 | |
Financing cost, net | | | 247 | | | | 3,461,503 | | | | 1,308,343 | |
Share in income of associated companies | | | (3 | ) | | | (38,303 | ) | | | (79,618 | ) |
Income tax expense | | | (2 | ) | | | (33,205 | ) | | | 284,347 | |
Income from continuing operations | | | 22 | | | | 306,430 | | | | 724,921 | |
Income from discontinued operations | | | (106 | ) | | | (1,483,859 | ) | | | (245,991 | ) |
Other comprehensive income | | | 45 | | | | 629,526 | | | | (348,632 | ) |
Total comprehensive income | | | 173 | | | | 2,419,815 | | | | 622,280 | |
Consolidated net income | | | 128 | | | | 1,790,289 | | | | 970,912 | |
Consolidated net income attributable to noncontrolling interest | | | 22 | | | | 310,000 | | | | 341,458 | |
Consolidated net income attributable to controlling interest | | | 106 | | | | 1,480,289 | | | | 629,454 | |
Basic and diluted earnings per share of controlling interest from continuing operations | | | — | | | | (0.005 | ) | | | 0.591 | |
Basic and diluted earnings per share of controlling interest from discontinued operations | | | 0.17 | | | | 2.349 | | | | 0.379 | |
Basic and diluted earnings per share of controlling interest from consolidated net income(3) | | | 0.17 | | | | 2.344 | | | | 0.971 | |
Basic and diluted earnings per ADS of controlling interest from consolidated net income(3) | | | 0.67 | | | | 9.38 | | | | 3.88 | |
Weighted average shares outstanding (000s): | | | | | | | | | | | | |
Basic and diluted(3) | | | — | | | | 631,588 | | | | 648,183 | |
| | | |
Balance Sheet Data: | | | | | | | | | | | | |
Total assets | | | 7,088 | | | | 98,888,073 | | | | 72,535,639 | |
Long-term debt(4) | | | 2,173 | | | | 30,320,024 | | | | 26,029,040 | |
Capital stock | | | 597 | | | | 8,334,043 | | | | 8,950,796 | |
Additional paid-in capital | | | 508 | | | | 7,091,318 | | | | 7,085,536 | |
Total stockholders’ equity | | | 1,492 | | | | 20,824,102 | | | | 19,329,951 | |
| | | |
Other Data: | | | | | | | | | | | | |
Capital expenditures | | | 464 | | | | 6,469,765 | | | | 8,085,395 | |
Depreciation and amortization | | | 91 | | | | 1,267,200 | | | | 1,191,713 | |
| (1) | Except share, per share, per ADS and inflation data. Amounts stated in U.S. dollars as of and for the year ended December 31, 2011 have been translated at a rate of Ps.13.95 to U.S.$1.00 using the Federal Reserve Bank of New York noon buying rate on December 30, 2011. See “Exchange Rates.” |
| (2) | For 2011, includes principally Ps.467 million in gain on sales of investments and Ps.6 million in gain on sales of property, plant and equipment. For 2010, includes principally losses on sales of equipment of Ps.21 million and losses on sales of investments of Ps.10 million. |
| (3) | Basic earnings per share and per ADS are based on the weighted average number of shares outstanding during each period and are calculated assuming a ratio of 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. During the year ended December 31, 2011, we had no potentially dilutive common shares outstanding. The assumed conversion of our potentially dilutive securities during the year ended December 31, 2010 had no material effect. Accordingly, no diluted EPS is presented in the accompanying consolidated statements of income for 2011 and 2010. See Note 5.x to our consolidated financial statements. |
| (4) | Excluding current portion of long-term debt and net of commissions expenses. |
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Exchange Rates
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. 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) | |
2007 | | | 11.27 | | | | 10.67 | | | | 10.92 | | | | 10.93 | |
2008 | | | 13.94 | | | | 9.92 | | | | 13.83 | | | | 11.21 | |
2009 | | | 15.41 | | | | 12.63 | | | | 13.06 | | | | 13.58 | |
2010 | | | 13.19 | | | | 12.16 | | | | 12.38 | | | | 12.62 | |
2011: | | | 14.25 | | | | 11.51 | | | | 13.95 | | | | 12.43 | |
November | | | 14.25 | | | | 13.38 | | | | 13.62 | | | | 13.70 | |
December | | | 13.99 | | | | 13.49 | | | | 13.95 | | | | 13.77 | |
2012: | | | | | | | | | | | | | | | | |
January | | | 13.75 | | | | 12.93 | | | | 13.04 | | | | 13.38 | |
February | | | 12.95 | | | | 12.63 | | | | 12.79 | | | | 12.78 | |
March | | | 12.99 | | | | 12.63 | | | | 12.81 | | | | 12.75 | |
April (through April 20) | | | 13.23 | | | | 12.73 | | | | 13.12 | | | | 13.03 | |
| (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, we cannot assure you 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 30, 2011, the Federal Reserve Bank of New York’s noon buying rate was Ps.13.95 per U.S.$1.00. On April 20, 2012, the Federal Reserve Bank of New York’s noon buying rate was Ps.13.12 per U.S.$1.00.
For a discussion of the effects of fluctuations in the exchange rates between the Mexican peso and the U.S. dollar, see “Item 10. Additional Information — Exchange Controls.”
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B. RISK FACTORS
Risks Related to Our Operations
Our performance is tied to Mexican public sector spending on infrastructure facilities.
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. Beginning in the second half of 2008 and due to the impact of the credit crisis and turmoil in the global financial system, the rate of awards of infrastructure projects in Mexico was slower than contemplated under the National Infrastructure Program, although we did see an increase in contracting in both 2010 and 2011 for our company. As a result of the upcoming presidential election in Mexico, we expect the rate of awards to decelerate in 2012. These and other delays, including of payment, can also result from changes in administration at the federal, state or local level reviewing the terms of project contracts granted by a previous administration or pursuing different priorities than the previous administration. Additionally, the Mexican government may face budget deficits that prohibit it from funding proposed and existing projects or that cause it to exercise its right to terminate our contracts with little or no prior notice. 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 adversely affect us.”
The global credit crisis and unfavorable general economic and market conditions of recent years may negatively affect our liquidity, business and results of operations, and may affect a portion of our client base, subcontractors and suppliers.
The effect of a continued economic crisis and related turmoil in the global financial system on the economies in which we operate, our clients, our subcontractors, our suppliers and us cannot be predicted. It could lead to reduced demand and lower prices for construction projects, air travel and our related businesses. See “— Our performance is tied to Mexican public sector spending on infrastructure facilities.” In response to current market conditions, clients may choose to make fewer capital expenditures, to otherwise slow their spending on or cancel our services, to delay payments (which may in turn cause us to pay our providers more slowly) or to seek contract terms more favorable to them. Furthermore, any financial difficulties suffered by our subcontractors or suppliers could increase our costs or adversely impact project schedules. Although during most of 2010 and during the first half of 2011 there were signs of recovery in the global economy, this recovery may be fragile and may only reflect temporary benefits from government stimulus programs that may not be sustained. The subsequent slowdown in the United States and Europe during the second half of 2011, which continued to some degree into 2012, as well as concerns over the sovereign debt obligations of several European countries (including Greece, Portugal, Spain, Ireland, and to a lesser extent, Italy) and the consequent impact on the solvency of European banks has increased the possibility of another worldwide recession. Our Spanish construction subsidiary, Grupo Rodio Kronsa, which we refer to as Rodio Kronsa, has continued to be adversely affected by the uncertain market conditions in Europe.
Many lenders and institutional investors have reduced and, in some cases, ceased to provide funding to borrowers. Credit rating agencies have also become more stringent in their debt rating requirements. Continued disruption of the credit markets could adversely affect our suppliers’, clients’ (particularly our private sector clients’) and our own borrowing capacities, which could, in turn, adversely affect the continuation and expansion of our projects because of contract cancellations or suspensions, project delays (as delays in our supply chain can in turn affect our deliverables) or payment delays or defaults by our clients, which could result in the need to foreclose on our rights to collateral. See “— We may have difficulty obtaining the letters of credit and performance bonds that we require in the normal course of our operations.” Our ability to expand our business would be limited if, in the future, we were unable to access or increase our existing credit facilities on favorable terms or at all. These disruptions could negatively affect our liquidity, business and results of operations.
Competition from foreign and domestic construction companies may adversely affect our 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 compete with foreign construction companies for most of the industrial and infrastructure projects on which we bid in Mexico and on certain civil construction projects as well. We believe that competition from foreign companies has reduced and may continue to reduce the Mexican construction industry’s operating margins, including our own, as foreign competition has driven down pricing. Furthermore, our foreign competitors may have better access to capital and greater financial and other resources, which would afford them a competitive advantage in bidding for such projects.
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Foreign competition also allows sponsors such as government agencies for infrastructure construction and industrial construction projects to require contractors to provide construction on a “turnkey” basis, which increases our financial risks.
Our use of the percentage-of-completion method of accounting for construction contracts could result in a reduction of previously recorded profits.
Under our accounting policies, 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 and inherent in the nature of our industry, it is possible for actual costs to vary from estimates previously made, which may result in reductions or reversals of previously recorded profits.
Our future revenues will depend on our ability to finance and bid for infrastructure projects.
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 and minimum equity requirements. Our policy is not to bid for projects that have significant financing requirements without prior funding commitments from financial institutions. However, we cannot assure you that we will obtain financing on a timely basis or on favorable terms. 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. 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, uncertainty and tightening in the global credit markets, including developments related to the global economic crisis, 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. Additionally, we have increasingly been required to give parent guarantees at the level of Empresas ICA, S.A.B. de C.V. as a form of credit enhancement for debt of our subsidiaries, as well as accept market disruption clauses which, if invoked, typically require a borrower to pay increased funding costs when the interest rate of a financing no longer adequately reflects the actual cost for the lender to obtain funds.
We have faced, and may continue to face, liquidity constraints.
In recent years we faced substantial constraints on our liquidity due to financing requirements for new projects. Our expected future sources of liquidity include cash flow from our construction activities, asset sales such as the U.S.$420 million sale of our Corredor Sur tollroad concession to the Government of Panama and the sale of two of our subsidiaries to our affiliate Red de Carreteras de Occidente, S.A.P.I.B. de C.V., or RCO, both in 2011, third party financing, or raising capital to fund our projects’ capital requirements. We cannot assure you that we will be able to continue to generate liquidity from any of these sources.
Our indebtedness could adversely affect our financial condition and results of operations.
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. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources.”
Our outstanding consolidated indebtedness to banks, financial institutions and others was Ps.50,034 million (net of commissions) as of December 31, 2011. This indebtedness may constrain our ability to raise incremental financing or increase the cost at which we could raise any such financing and increase our annual interest expense. We cannot assure you that our business will generate cash in an amount sufficient to enable it to service its debt or to fund its other liquidity needs, which may adversely affect our overall performance. We may need to refinance all or a portion of our debt, on or before maturity. We cannot assure you that we will be able to refinance any of our debt on commercially reasonable terms.
In addition, the indenture under which we issued U.S.$500 million of notes at the holding company level in February 2011 and facility agreements with certain commercial banks contain, and any future indebtedness we incur may contain, various covenants and conditions that limit our ability and the ability of certain of our subsidiaries to, among other things: incur or guarantee additional debts; create liens; enter into transactions with affiliates; and merge or consolidate with other companies. As a result of these covenants, we are limited in the manner in which we conduct our business and may be unable to engage in certain business activities. We believe we are currently in compliance with all our restrictive covenants.
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We may have difficulty raising additional capital in the future on favorable terms, or at all, which could impair our ability to operate our business or achieve our growth objectives.
In the event that our cash balances and cash flow from operations, together with borrowing capacity under our credit facilities, becomes insufficient to make investments or acquisitions or provide necessary additional working capital in the future, we could require additional financing from other sources. Our ability to obtain such additional financing will depend in part upon prevailing capital market conditions, as well as conditions in our business and our operating results, and those factors may affect our efforts to arrange additional financing on terms that are satisfactory to us. The market volatility in recent years has created downward pressure on stock prices and credit capacity for certain issuers, often without regard to those issuers’ underlying financial strength, and for financial market participants generally. If adequate funds are not available, or are not available on acceptable terms, as could be the case if current levels of market disruption and volatility continue or worsen, our ability to access the capital markets could be adversely affected, and we may not be able to make future investments, take advantage of acquisitions or other opportunities, or respond to competitive challenges. We could also seek to partner with competitors with more access to cash or financing, which could build our competitors’ experience and weaken our competitive position relative to them.
Under our construction contracts, we are increasingly required to assume the risk of inflation, increases in the cost of raw materials and errors in contract specifications, which could jeopardize our profits and liquidity.
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, and construction contracts throughout the industry, 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 these materials can negatively affect our results if we are unable to transfer the risk to the client. 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 and liquidity. We have not entered into long-term purchase contracts for cement or steel; instead, we have relied on purchases from various suppliers. Prices for various steel products increased significantly between 2003 and 2008, we believe due in part to a decrease in production because of the global financial crisis, but stabilized beginning in 2009 and continuing through 2011. Although we seek to negotiate for the recovery of the increase in the cost of raw materials in our contracts whenever possible, we cannot assure you that we will be successful in recovering any portion of these cost increases, which will negatively affect our operating margins.
We may also experience 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 and liquidity would be negatively affected. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Construction—Civil Construction.”
Our increasing participation in projects outside Mexico involves greater risks than those typically faced in Mexican projects and could jeopardize our profits.
To date, our foreign projects in Latin America and elsewhere have generated mixed results. We have experienced significant losses on projects in Latin America and elsewhere in the past. As a result of these losses, we have sought to be more selective in our involvement in international operations. 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 as well as our increasing evaluation of new opportunities and new regions for expansion, there is a risk that future profits could be jeopardized.
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Our operations in markets outside of Mexico expose us to several risks, including risks from changes in foreign currency exchange rates, interest rates, inflation, governmental spending, social instability and other political, economic or social developments that may materially reduce our net income.
Our hedging contracts may not effectively protect us from financial market risks and may negatively affect our cash flow.
Our activities are exposed to various financial market risks (such as risks related to interest rates, exchange rates and prices). One strategy we use to attempt to minimize the potential negative effects of these risks on our financial performance is to enter into derivative financial instruments to hedge our exposure to such risks with respect to our recognized and forecasted transactions and our firm commitments. Our policy is not to enter into derivative transactions for speculative purposes.
We have entered into various types of hedges, including with respect to foreign currency exposures, and other trading derivative instruments for the terms of some of our long-term credit facilities with the objective of reducing the uncertainties resulting from interest rate and exchange rate fluctuations. To date, our derivative financial instruments have had mixed results. Their marked-to-market valuation as of December 31, 2011 decreased our derivative liabilities by Ps.83 million and increased our derivative assets by Ps.296 million.
The contract amounts for our derivative financial instruments are generally based on our estimates of cash flows for a project as of the date we execute the derivative. As actual cash flows may differ from estimated cash flows, we cannot assure you that our derivative financial instruments will protect us from the adverse effects of financial market risks. See “- Risks Related to Mexico and Other Markets in Which We Operate—Appreciation or depreciation of the Mexican peso relative to the U.S. dollar, other currency fluctuations and foreign exchange controls could adversely affect our financial condition and results of operations.” The use of derivative financial instruments may also generate obligations for us to make additional cash payments, which would negatively affect our liquidity. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Derivative Financial Instruments”.
A substantial percentage of our cash and cash equivalents are held through less-than-wholly owned subsidiaries or joint ventures, or in reserves, that restrict our access to them.
As of December 31, 2011, we had total cash and cash equivalents of Ps.10,900 million, of which Ps.6,055 million was restricted, as compared to Ps.4,519 million as of December 31, 2010. Restricted cash is presented as a separate line item in our balance sheet. As of December 31, 2011, we held 30% of our consolidated cash and cash equivalents (including restricted cash) through less-than-wholly owned subsidiaries or in joint ventures (12% in the ICA-Fluor joint venture with Fluor Daniel Mexico, S.A., or Fluor, a subsidiary of the Fluor Corporation, 5% in the Airports segment, 10% in reserves to secure financing for projects like the Aqueduct II water supply project, the Rio de los Remedios—Ecatepec toll highway project, the Nuevo Necaxa—Tihuatlan highway project, the El Realito aqueduct project and the Agua Prieta water treatment project, 1% in Rodio Kronsa and 1% in Los Portales, S.A., our real estate business in Peru). The remainder of our total cash and cash equivalents as of December 31, 2011 (Ps.7,699 million), was held in the parent company or in other operating subsidiaries.
Some uses of cash and cash equivalents by certain of our less than wholly-owned subsidiaries requires the consent of the other shareholders or partners, as applicable, of such subsidiary or joint venture, which is the Fluor Corporation, in the case of ICA-Fluor; Soletanche Bachy France S.A.S, in the case of Rodio Kronsa; FCC Construccion, S.A., in the case of both the Nuevo Necaxa- Tihuatlan highway and the Aqueduct II water supply project; Fomento de Construcciones y Contratas S.A. and Constructora Meco S.A. in the case of the Panama Canal (PAC-4) expansion project; Aqualia Gestion Integral del Agua, S.A., Aqualia Infraestructuras, S.A. and Servicios de Agua Trident, S.A. de C.V., in the case of our concessionaire for the El Realito water supply system; and LP Holding, S.A., in the case of Los Portales, S.A. In the case of these entities, the consent of our partners or other shareholders is only required with respect to the use of cash and cash equivalents outside of normal budgeted operations. The budget for normal operations is set by the board of directors of each of these entities, which are comprised of equal numbers of members appointed by us and the other partner or shareholder. While the cash held in these entities is not destined for a specific use or set aside as a compensating balance, the requirements for its use could limit our access to liquid resources or limit us from freely deciding when to use cash and cash equivalents outside of normal operations. Additionally, a portion of our cash and cash equivalents are held in reserves established to secure financings. These resources form part of our restricted cash as presented in our balance sheet. At December 31, 2011, Ps.5,973 million, or 55%, of our cash and cash equivalents were held in reserves established to secure financings related to the following projects: the Acapulco Tunnel, the Kantunil–Cancun tollroad, the Rio Verde–Ciudad Valles highway, the Nuevo Necaxa–Tihuatlan highway, the La Piedad bypass and the Jalisco and Sonora detention center projects, which are governed by service provision contracts, or SPCs. The reserve requirements of such financings could also limit our access to liquid resources and limit our ability to decide when to use our cash and cash equivalents.
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Some of our assets are pledged under financing arrangements.
Portions of our assets are pledged to a number of banks under credit arrangements, including: WestLB AG, Banco Santander (Mexico), S.A., Banco Inbursa, S.A. Institucion de Banca Multiple, Grupo Financiero Inbursa, BBVA Bancomer, BG Trust Inc., Bank of America Merrill Lynch, Value Casa de Bolsa, S.A. de C.V., Banco Mercantil del Norte, S.A., Grupo Financiero Banorte, Banco Nacional de Mexico, S.A., Integrante del Grupo Financiero Banamex, Banco Espiritu Santo de Investimento, Banco del Bajio, S.A., Banco Nacional de Obras y Servicios Publicos, S.N.C., Institucion de Banca de Desarrollo, Bancolombia, S.A., Morgan Stanley Bank, N.A., Interamerican Credit Corporation and Bank of America Merrill Lynch. The assets we have pledged include: (i) collection rights under the La Yesca hydroelectric construction contract; (ii) construction machinery and equipment owned by Ingenieros Civiles Asociados, S.A. de C.V. (a construction subsidiary); (iii) real property of ViveICA under various bridge loan agreements to finance real estate development; (iv) collection rights over the tolls for the Kantunil—Cancun highway and the Acapulco Tunnel; (v) our collection rights under the Mexico-Pachuca highway construction contract; (vi) our toll collection rights on the Mitla-Tehuantepec highway project in Oaxaca, (vii) our collection rights from construction and non-penitentiary services under our two SPC contracts, (viii) toll collection rights over the Autovia Urbana Sur project, which is the construction of the second level of Periferico Sur highway in Mexico City and (ix) certain of our shares, and dividends with respect to such shares, in Aeroinvest S.A. de C.V. We generally pledge assets, such as collection or dividend rights, of each of our financed concession projects, including notably our shares of Autovia Necaxa-Tihuatlan, S.A. de C.V., or Auneti, our subsidiary that operates the Nuevo Necaxa-Tihuatlan highway, our shares in RCO, the operator of the first package of FARAC tollroads, Aguas Tratadas del Valle de Mexico, S.A. de C.V., our subsidiary that operates the Atotonilco water treatment project, our shares of Viabilis Infraestructura S.A.P.I. de C.V., or Viabilis, the contractor for the Rio de los Remedios-Ecatepec toll highway project, the collection rights of the Rio de Los Remedios project, our interest in Aquos El Realito, S.A. de C.V., our subsidiary that operates the El Realito aqueduct in San Luis Potosi, as well as our 50% interest in Los Portales, S.A., a real estate subsidiary located in Peru. In general, assets securing credit arrangements will remain pledged until the arrangements 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.
We may have difficulty obtaining the letters of credit and performance bonds that we require in the normal course of our operations.
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), the Mexican Ministry of Communication and Transportation, and Petroleos Mexicanos, or Pemex, and foreign clients, have increasingly required letters of credit and other forms of guarantees to secure such bids, to advance payments and to guarantee 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 in Mexico and abroad that historically have generated a substantial majority of our revenues. We cannot assure you that in the future we will not find it difficult to obtain performance bonds or letters of credit, particularly because, as a result of the credit crisis, many lenders and guarantors have reduced the amount of credit they extend and in some cases have stopped extending 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.
The nature of our engineering and construction business exposes us to potential liability claims and contract disputes, which may reduce our profits.
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 or our clients. We have been and may in the future be named as a defendant in legal proceedings where third parties or our clients 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 a 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.
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We have increasingly been required to meet minimum equity requirements, financial ratios or more stringent experience requirements and obtain transaction ratings in order to bid on large public infrastructure projects, which could reduce our ability to bid for potential projects.
In recent years, we have increasingly been required to meet minimum equity requirements, certain financial ratios or more stringent requirements and obtain transaction ratings on our financial proposals from a recognized rating agency 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 minimum financial ratios. The levels and types of ratios vary substantially. Although we have historically been able to comply with such requirements, we cannot assure you that we will be able to do so in the future. If we do not meet such requirements, it could impair 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 depends 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, associations and other strategic alliances and collaborations as part of our engineering, procurement, construction and infrastructure businesses, including RCO, ICA-Fluor, Rodio Kronsa, and ACTICA Sistemas S. de R.L. de C.V. as well as project-specific joint ventures, including for Line 12 of the Mexico City metro system, the Eastern Discharge Tunnel, the Atotonilco water treatment project, the Los Portales real estate development project and a joint venture with Prudential Investment Management, Inc. to develop low-income housing with Prudential Real Estate Investors, S. de R.L. de C.V., or PREI, under the Mexican government’s program for Sustainable Integrated Urban Development projects. 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. We cannot assure you that our business partnerships or joint ventures will be successful in the future.
If we are unable to form teaming arrangements, our ability to compete for and win certain contracts may be negatively impacted, especially in bids located outside of Mexico.
In both the private and public sectors, either acting as a prime contractor, a subcontractor or as a member of a team, we may join with other firms to form a team to compete for a single contract, especially in projects located outside of Mexico, where we may seek local experience, or involving a more complex technical and/or financial structure. Because a team can offer stronger combined qualifications than any firm standing alone, these teaming arrangements can be very important to the success of a particular contract bid process or proposal. The failure to maintain such relationships in certain markets, such as the government market, may impact our ability to win work.
Our backlog of construction contracts is not necessarily indicative of our future revenues.
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, we cannot assure you that cancellations, failure to collect or scope adjustments will not occur. We cannot assure you that we will secure contracts equivalent in scope and duration to replace the current backlog or that the current backlog will perform as expected. See “Item 5. Operating and Financial Review and Prospects — Operating Results — Construction — Construction Backlog.”
We face risks related to project performance requirements and completion schedules, which could jeopardize our profits.
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. Additionally, under certain Mexican laws, public officials may be held personally liable for decisions made in their professional capacities, and as a result officials who oversee our projects may fail to make decisions, such as executing change orders, required for
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progress of our projects. The failure to meet any schedule or performance requirements for any reason 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. We cannot assure you 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 our investment in a concession project may not meet the originally estimated returns.
Our return on any investment in any concession (including highway, bridge, tunnel or wastewater treatment concessions) is based on the duration of the concession and the amount of capital invested, in addition to the amount of usage revenues collected, debt service costs and other factors. For example, 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 (Proyecto para Prestacion de Servicios, 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. We cannot assure you that we will reach an agreement as to the amendment of any such contracts or that the grantor will honor its obligations thereunder. Particularly for new projects in which we take on construction risk, overruns of budgeted costs may create a higher capital investment base than expected, and therefore a lower return on capital. Given these factors, we cannot assure you that our return on any investment in a concession will meet the estimates contemplated in the relevant concession or PPP contract.
Governments may terminate our concessions under various circumstances, some of which are beyond our control.
Our concessions are among our principal assets, and we would be unable to continue the operations of a particular concession without the concession right from the granting government. A concession may be revoked by a 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 authorized rates or failure to comply with any other material term of a concession.
In particular, 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 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. Other governments often have similar provisions in their concession contracts and applicable law. We cannot assure you that we would receive such compensation on a timely basis or in an amount equivalent to the value of our investment in a concession and lost profits.
Our failure to recover adequately on claims or change orders against project owners for payment could have a material adverse effect on us.
We occasionally bring claims against project owners for additional costs that exceed the contract price or for amounts not included in the original contract price, including change orders. These types of claims occur due to matters such as owner-caused delays, increased unit prices or changes from the initial project scope that result, both directly and indirectly, in additional costs. Often, these claims can be the subject of lengthy arbitration, litigation or third-party expert proceedings, and it can be 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. With respect to change orders in particular, we may agree on the scope of work to be completed with a client without agreeing on the price, and in this case we may be required to use a third-party expert to set the price for the change order. We do not have control over such third-party experts and they may make price determinations that are unfavorable to us. As of December 31, 2011, we had Ps.1,413 million of allowance for doubtful accounts related to contract and trade receivables, including an allowance for doubtful accounts of Ps.143 million in the Airports segment related to the bankruptcy filing by the airlines of Grupo Mexicana. A failure to promptly recover on these types of claims and change orders could have a material adverse effect on our liquidity and financial condition.
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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.
We maintain a workforce based upon current and anticipated workloads. If we do not receive future contract awards or if these awards are delayed, we may incur significant costs.
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.
Risks Related to Our Airport Operations
Our Airport segment’s operating income and net income are dependent on our subsidiary GACN, and GACN’s revenues are closely linked to passenger and cargo traffic volumes and the number of air traffic movements at its airports.
We operate 13 concessioned airports in Mexico through GACN. As of December 31, 2011, we controlled shares representing approximately 59% of GACN’s capital stock. Our interest in GACN exposes us to risks associated with airport operations.
In 2011, GACN represented 6% of our revenues and 25% of our operating income. GACN’s airport concessions from the Mexican government are essential to GACN’s contribution to revenues and operating income. Any adverse effect on GACN would have an adverse effect on our operating results.
Historically, a substantial majority of GACN’s revenues have been derived from aeronautical services, and GACN’s principal source of aeronautical services revenues is passenger charges. Passenger charges are payable for each passenger (other than diplomats, infants, transfer and transit passengers) departing from the airport terminals we operate, collected by the airlines and paid to GACN. In 2010 and 2011, passenger charges represented 50.1% and 54.4%, respectively, of GACN’s total revenues. GACN’s revenues are thus 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, the U.S. and the world, the political situation in Mexico and elsewhere in the world, high incidences of crime, particularly related to drug trafficking, throughout Mexico but especially in the northern cities, 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, such as the Influenza A(H1N1) epidemic, have negatively affected the frequency and pattern of air travel worldwide. Generally all of our airports were negatively affected by reductions in the volume of passengers, the A(H1N1) virus and the exit from the Mexican market of five airlines in less than a year. In addition, Mexicana de Aviacion, Click Mexicana and Mexicana Link (collectively known as Grupo Mexicana) ceased operations during the third quarter of 2010. These suspensions adversely impacted the recovery of air traffic volumes in all of our airports, although total passenger traffic in 2011 increased as compared to 2010. The future occurrence or worsening of any of such developments going forward would adversely affect GACN’s business, and in turn, our business. Any decreases in passenger volume or 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.
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Terrorist attacks have had a severe impact on the international air travel industry, and terrorist attacks and other international events have adversely affected GACN’s business and may do so in the future.
As with all airport operators, GACN is subject to the threat of terrorist attack. The terrorist attacks on the United States on September 11, 2001, had a severe adverse impact on the air travel industry, particularly on U.S. carriers and on carriers operating international service to and from the United States. Airline traffic in the United States fell precipitously after the attacks. GACN’s terminal passenger volumes declined 5.8% in 2002 as compared to 2001. In the event of a terrorist attack involving one of GACN’s airports directly, airport operations would be disrupted or suspended during the time necessary to conduct rescue operations, investigate the incident and repair or rebuild damaged or destroyed facilities, and our future insurance premiums would likely increase. In addition, GACN’s 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 GACN’s 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. Federal Aviation Authority, in addition to the directives of Mexican aviation authorities. Security measures taken to comply with future security directives or in response to a terrorist attack or threat could reduce passenger capacity at GACN’s airports due to increased passenger screening and slower security checkpoints, as well as increase our operating costs, which would have an adverse effect on GACN’s business, results of operations, prospects and financial condition.
Other international events such as the war in Iraq and public health crises such as the Severe Acute Respiratory Syndrome, or SARS, crisis and the Influenza A(H1N1) crisis have negatively affected the frequency and pattern of air travel worldwide. Because GACN’s revenues are largely dependent on the level of passenger traffic in its airports, any general increase of hostilities relating to reprisals against terrorist organizations, further conflict in the Middle East, outbreaks of health epidemics such as SARS or Influenza A(H1N1), or other events of general international concern (and any related economic impact of such events) could result in decreased passenger traffic and increased costs to the air travel industry and, as a result, could cause a material adverse effect on GACN’s business, results of operations, prospects and financial condition.
Increases in fuel prices could adversely affect GACN’s business and results from operations.
International prices of fuel, which represent a significant cost for airlines using GACN’s airports, have increased in recent years, reaching record highs in the second quarter of 2008. Such increases in airlines costs were among the factors leading to cancellations of routes, decreases in frequencies of flights, and in some cases even contributed to filings for bankruptcy by some airlines (such as Alma and Aladia). For other airlines, such as Avolar and Aerocalifornia, such increased costs may have contributed to the denial of extensions of their concessions by the Mexican regulatory authorities for failure to satisfy security, service, coverage and quality requirements. Fuel prices in 2011 were slightly higher than prices in 2010 due primarily to political turmoil in the Middle East. The social and political crisis affecting the Middle East caused a surge in oil prices that has forced sharp increases in the price of fuel in 2011. Global weaknesses, such as the sovereign-debt issues in the eurozone, the deceleration of the U.S. economy due to the end of the government-led stimulus after the economic and financial crisis in 2009 and the slow-down in developing countries, principally China and India due to their dependence on capital inflows from, or exports to, developed countries also affect fuel prices, increasing costs for airlines.
Fuel prices may be subject to further increases resulting from any future terrorist attacks, a general increase in international hostilities or a reduction in output of fuel, voluntary or otherwise, by oil-producing countries, and there can be no assurances that future air business would not be further affected by increased fuel prices.
GACN provides a public service regulated by the Mexican government and its flexibility in managing its aeronautical activities is limited by the regulatory environment in which it operates.
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 2010 and 2011, approximately 64.2% and 67.0%, respectively, of GACN’s total revenues were earned from regulated services, which are subject to price regulation under its maximum rates. These regulations may limit GACN’s flexibility in operating its aeronautical activities, which could have a material adverse effect on its 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, we cannot assure you 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.
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We cannot predict how the regulations governing our Airports segment will be applied.
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 GACN to predict the impact of these legal requirements on GACN’s future operations. In addition, although Mexican law establishes ranges of sanctions that might be imposed should GACN fail to comply with the terms of one of its 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 GACN will not encounter difficulties in complying with these laws, regulations and instruments.
Morever, when determining GACN’s maximum rates for the next five-year period (covering 2016 through 2020), the Ministry of Communications and Transportation may be subject to significant pressure from different entities (such as, for example, the Mexican Federal Competition Commission (Comision Federal de Competencia) and the carriers operating at GACN’s airports) to modify GACN’s maximum rates, which may reduce the profitability of our airport business. We cannot assure you 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 GACN’s business, results of operations, prospects and financial condition.
On December 14, 2011, a bill was introduced in Mexico’s Congress to amend the Mexican Airport Law. The bill proposes that the Ministry of Communications and Transportation gain additional authority to plan and apply the standards, policies and programs for the Mexican airport system, to oversee the proper operation of civil aviation in Mexico and to establish rules for airport service providers and the general basis for flight schedules, so as to guarantee the competitiveness of Mexico’s airports. The bill has been approved by the Senate and is currently being considered in the House of Deputies. Should the current Mexican Airport law be amended with respect to matters that are related to GACN’s operations, such amendment could have a material adverse effect on GACN’s business, results of operations, prospects and financial condition.
The Mexican government could grant new or expanded concessions that compete with our airports and could have an adverse effect on our revenues.
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. Any competition from other such airports could have a material adverse effect on GACN’s 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, we cannot assure you that we would participate in such process, or that we would be successful if we did participate.
Our operations depend on certain key airline customers, and the loss of or suspension of operations of one or more of them could result in a loss of a significant amount of our revenues.
Of the total aeronautical revenues generated at GACN’s airports in 2011, Aerovias de Mexico, S.A. de C.V., or Aeromexico, and its affiliates accounted for 31.8%, VivaAerobus represented 15.3% and Interjet represented 15.1%. In recent years, discount carriers, charter carriers, low-cost carriers and other new market entrants have represented a growing proportion of the Mexican commercial airline market. In 2011, passengers traveling on discount, charter and low-cost carriers, such as VivaAerobus, Interjet and Volaris accounted for approximately 45.9% of GACN’s commercial aviation passenger traffic.
On November 29, 2011, AMR Corporation, the parent company of American Airlines and American Eagle, announced that AMR Corporation and certain of its U.S.-based subsidiaries filed voluntary petitions for Chapter 11 reorganization in the U.S. Bankruptcy Court for the Southern District of New York. The same day, the U.S. Bankruptcy Court for the Southern District of New York granted approval of a series of motions to help facilitate American Airlines and American Eagle’s continued normal business operations throughout the reorganization process.
AMR Corporation generated 3.9% of GACN’s revenues from January 1, 2011, to December 31, 2011, of which American Airlines accounted for 3.6% and American Eagle accounted for 0.3%. As a percentage of GACN’s total passenger traffic, AMR Corporation generated 3.0%, of which American Airlines accounted for 2.1% and American Eagle accounted for 0.9% during the same period.
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Grupo Mexicana, which comprises Mexicana de Aviacion, Click Mexicana, and Mexicana Link, operated at 12 of GACN’s 13 airports. In July 2010, prior to the bankruptcy filing by Mexicana de Aviacion, the three airlines operated 24 routes at GACN’s airports, of which 18 were also operated by other airlines.
On August 3, 2010, Mexicana de Aviacion announced that it filed for bankruptcy protection (concurso mercantil) before the 11th Federal judge in Mexico City and that it also sought bankruptcy protection in the United States. On August 27, 2010, Grupo Mexicana announced the indefinite suspension of operations of Mexicana de Aviacion, Click Mexicana, and Mexicana Link, while noting that it “will continue seeking out ways of securing the company’s long-term financial viability.” On September 7, 2010, Mexicana Click and Mexicana Link (subsidiaries of Grupo Mexicana) filed for bankruptcy protection before the 11th Federal Court in Mexico. Click Mexicana and Mexicana Link’s insolvency petitions were accepted in conciliary phase on November 16, 2010.
During the first six months of 2010, Grupo Mexicana generated 16.6% of GACN’s total passenger traffic, of which 7.6% was accounted for solely by Mexicana de Aviacion. Grupo Mexicana generated 17.3% of GACN’s domestic passenger traffic, including 7.2% from Mexicana de Aviacion. In terms of international traffic, Grupo Mexicana generated 13.1% of traffic, of which Mexicana de Aviacion accounted for 9.3%. Grupo Mexicana generated 12.2% of GACN’s revenues during the first six months of 2010, of which Mexicana de Aviacion accounted for 5.9%.
None of GACN’s contracts with its airline customers obligate them to continue providing service from GACN’s airports, and we can offer no assurance that, if any of GACN’s key customers reduced their use of GACN’s airports, competing airlines would add flights to their schedules to replace any flights no longer handled by GACN’s principal airline customers. Our business and results of operations could be adversely affected if we do not continue to generate comparable portions of our revenue from our key customers.
Due to increased competition, higher fuel prices and the general decrease in the demand consequent to the global volatility in the financial and exchange markets and economic crisis, many airlines are operating in adverse conditions. Further increases in fuel prices or other adverse economic developments could cause one or more of GACN’s principal carriers to become insolvent, cancel routes, suspend operations or file for bankruptcy. All such events could have a material adverse effect on GACN’s results of operations.
The operations of GACN’s airports may be affected by the actions of third parties, which are beyond our control.
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, airlines and providers of catering and baggage handling. 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. The disruption or stoppage of taxi or bus services at one or more of GACN’s airports could also adversely affect GACN’s operations. 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, financial difficulties or other similar event, may have a material adverse effect on the operation of GACN’s airports and on GACN’s results of operations.
Actions by parties purporting to be former owners of land comprising a portion of the Ciudad Juarez International Airport could cause our concession to operate the airport to be terminated.
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 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.
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. On August 28, 2009, the Mexican federal government filed its answer to the claim, in which it requested that the trial be moved to Mexican federal jurisdiction. In May 2010, the Court of Appeals granted the Federal Government’s request. The plaintiffs filed a constitutional claim against this ruling before the District Court in Chihuahua. On November 29, 2010, the District Court in Chihuahua confirmed the Court of Appeals ruling. The plaintiffs filed an appeal (recurso de revision) against this ruling before the Federal Circuit Court, and on July 7, 2011, the Federal Circuit Court ruled that the plaintiffs’ constitutional claim should be heard by a District Court in Ciudad Juarez. In October 2011, the District Court in Ciudad Juarez denied the plaintiffs’ constitutional claim, against which the plaintiffs filed a new appeal (recurso de revision) in November 2011 before the Federal Circuit Court. This petition is still pending.
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In the event that any subsequent action results in a decision that is substantially similar to the May 18, 2005 court order or that is 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 concession would require, GACN’s concession to operate the Ciudad Juarez Airport would terminate and negatively affect its results of operations. In 2011, the Ciudad Juarez International Airport represented 4.6% of GACN’s total revenues. 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, we cannot assure you that GACN would be so indemnified.
Risks Related to Mexico and Other Markets in Which We Operate
Adverse economic conditions in Mexico may adversely affect our financial condition or results of operations.
A substantial portion of our operations is conducted in Mexico and is dependent upon the performance of the Mexican economy. As a result, our business, financial condition and 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 2007, GDP grew by approximately 3.3% and inflation declined to 3.8%. In 2008, GDP grew by approximately 1.8% and inflation reached 6.5%. Mexico entered into a recession beginning in the fourth quarter of 2008, and in 2009 GDP fell by approximately 6.5% and inflation was 3.6%. In 2010, GDP grew 5.5% and inflation reached 4.4%. In 2011, GDP grew 3.9% and inflation declined to 3.8%.
Mexico also has, and is expected to continue to have, high real and nominal interest rates as compared to the United States. The annualized interest rates on 28-day Cetes averaged approximately 7.2%, 7.7%, 5.4%, 4.4% and 4.2% for 2007, 2008, 2009, 2010 and 2011, respectively. As of December 31, 2011, 53% of our debt is denominated in Mexican pesos, and we may continue to incur peso-denominated debt for our projects in Mexico for which the source of repayment of financing is in Mexican pesos. To the extent that we incur peso-denominated debt in the future, it could be at high interest rates.
If the Mexican economy experiences a further recession, if inflation or interest rates increase significantly or if the Mexican economy is otherwise adversely impacted, our business, financial condition or results of operations could be materially and adversely affected.
Appreciation or depreciation of the Mexican peso relative to the U.S. dollar, other currency fluctuations and foreign exchange controls could adversely affect our financial condition and results of operations.
A substantial portion of our construction revenues and a substantial portion of our debt, including U.S.$500 million of our senior notes due 2021, 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 purchases of machinery and 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, ICA Panama (up to its sale in August 2011) and Los Portales.
Beginning in the second half of 2008, the Mexican peso substantially depreciated against the U.S. dollar, falling from a Federal Reserve Bank of New York noon buying rate for Mexican pesos of Ps.10.37 on July 2, 2008 to Ps.13.83 on December 31, 2008 and Ps.14.21 on March 31, 2009, a depreciation of approximately 37%. The Mexican peso stabilized and partially recovered in 2010,
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when the noon buying rate was Ps.12.30 per U.S.$1.00 on March 31, 2010 and Ps.12.38 per U.S.$1.00 on December 31, 2010. Since then, there has been a significant depreciation in the Mexican peso against the U.S. dollar, and the noon buying rate increased to Ps.13.95 on December 30, 2011, representing a depreciation of approximately 13%. The Mexican peso has since partially recovered, and the noon buying rate was Ps.12.81 per U.S.$1.00 on March 30, 2012. Fixed price and not-to-exceed contracts require us to bear the risk of fluctuation in the exchange rate between the Mexican peso and other currencies in which our contracts, such as financing agreements, are denominated or which we may use for purchases of supplies, machinery or raw materials, day-to-day expenses or other inputs. 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. 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. We cannot assure you that the Mexican Central Bank will maintain its current policy with respect to the peso. Currency fluctuations may have an adverse effect on our financial condition, results of operations and cash flows in future periods. Such effects include foreign exchange gains and losses on assets and liabilities denominated in U.S. dollars, fair value gains and losses on derivative financial instruments, and changes in interest income and interest expense. These effects can be more volatile than our operating performance and our cash flows from operations. See “–Risks Related to Our Operations–Our hedging contracts may not effectively protect us from financial market risks and may negatively affect our cash flow.”
Economic and political developments in Mexico could affect Mexican economic policy and adversely affect us.
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 (including related to public safety) 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 legislative gridlock. However, in 2009, Mexico passed a new income tax law resulting in deferred income taxes to be paid with respect to consolidated companies for the period from 1999 to 2004. The Mexican congress has modified tax laws more frequently than other areas of the law. The timing and scope of such modifications are unpredictable, which can adversely affect our ability to manage our tax planning.
In the July 2009 Mexican federal elections, no party succeeded in securing a majority in either chamber of the Congress. This situation has resulted in partial government gridlock and political uncertainty due to the Mexican Congress’ partial inability to reach consensus, more importantly for us, on the structural reforms required to modernize certain sectors of the Mexican economy and on the National Infrastructure Program. 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.
Politicians are currently focused on the 2012 presidential elections and reforms regarding labor policies, gas, electricity, social security and oil as well as other new reforms may not be approved in the near future. In the past, public sector spending has tended to decrease in election years, and we expect this will occur in 2012. As in previous presidential election cycles, we plan to partially counter this risk by bidding for projects abroad, although certain risks in other countries may adversely affect our opportunity to win awards or execute awarded projects in a profitable and timely manner. See “–Risks Related to Our Operations – Our participation in projects outside Mexico involves greater risks than those typically faced in Mexican projects and could jeopardize our profits.” The effects on the social and political situation in Mexico of the 2012 presidential elections and presidential succession could adversely affect the Mexican economy, including the stability of its currency, which in turn could have a material adverse effect on our business, financial condition and results of operations, as well as market conditions and prices for our securities.
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Security risks may negatively affect our business, including our housing division, as well as our user-number based projects located in regions with increased insecurity.
Home sales in our low-income housing division depend substantially on purchasers’ access to credit through the Institution for Worker’s Housing (Instituto Nacional de la Vivienda para los Trabajadores, or Infonavit), a public funding agency. An increase in drug-related offenses and other crime has led to higher vacancy rates in housing developments in the northern border states of Mexico. As a result, it is possible that Infonavit may restrict grants or disbursements of housing credit in northern cities.
Likewise, projects located in regions with recently increased insecurity may affect the revenues of projects based on number of users, such as our toll road, tunnel and airport concessions. In addition, the results of operations of our Sonora and Jalisco SPC detention center projects may be negatively affected in periods of increased insecurity.
Developments in other countries could adversely affect the Mexican economy, our business, financial condition or results of operations and the market value of our securities.
The Mexican economy, the business, financial condition or results of 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 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. In the second half of 2008, the prices of both Mexican debt and equity securities decreased substantially as a result of the prolonged decrease in the United States securities markets. This general correlation continued in 2010 and 2011, even as both securities markets trended upward. 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. The Mexican debt and equities markets also have been adversely affected by ongoing developments in the global credit markets. 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.
Corporate disclosure in Mexico may differ from disclosure regularly published by or about issuers of securities in other countries, including the United States.
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.
Risks Related to our Securities and our Major Shareholders
You may not be entitled to participate in future preemptive rights offerings.
In a public offering, pursuant to Article 53 of the Mexican Securities Market Law, we are not required to grant preemptive rights to any holders of our ADSs, CPOs or shares. We are not required by law to undertake our capital increases using public offerings.
If we issue new shares for cash in a private offering, as part of a capital increase, we 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. However, we are not legally required to grant holders of ADSs, Ordinary Participation Certificates, or CPOs, or shares in the United States any preemptive rights in any future private offering.
To allow holders of ADSs in the United States to participate in a private preemptive rights offering, we would have to file a registration statement with the Securities and Exchange Commission or conduct an offering that qualified for an exemption from the registration requirements of the Securities Act of 1933, as amended. We cannot assure you that we would do so. 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, as well as any other factors that we consider important to determine whether we will file such a registration statement. 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.
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The significant share ownership of our management and members of our Board of Directors, coupled with their rights under the bylaws, may have an adverse effect on the future market price of our ADSs and shares.
As of March 31, 2012, the total beneficial shareholding of our directors and executive officers (including shares held in a management trust) was approximately 56,079,285, or 9.09%, of our outstanding shares. This total included shares beneficially owned by the Chairman of our Board of Directors, Bernardo Quintana Isaac, or his family, including Alonso Quintana (our Chief Operating Officer and Chief Executive Officer designee, and a member of our Board of Directors), Diego Quintana (responsible for investments in our Industrial Construction division and all partnerships and a member of our Board of Directors), and Rodrigo Quintana (our General Counsel), comprising approximately 6.02% of our outstanding shares. Additionally, the management trust held 18,770,662, or 3.04%, of our outstanding shares (including 4,532,258 shares included in the total of beneficial ownership by the Quintana family). Another trust controlled by our management, the foundation trust, held 8,293,356, or 1.34%, of our shares. See “Item 6. Directors and Senior Management—Share Ownership” and “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders.” See “Item 6. Directors, Senior Management and Employees—Management Bonuses.”
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 CPOs are not entitled to vote.
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.
C. FORWARD-LOOKING STATEMENTS
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), earnings 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, regulation, government housing policy and rates; |
| | • | | statements about our future performance or economic conditions in 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, failure to comply with covenants contained in our debt agreements, developments in legal proceedings, unanticipated increases in financing and other costs or the inability to obtain additional debt or equity financing on attractive terms, changes to our liquidity, economic and political conditions and government policies in Mexico or elsewhere, changes in capital markets in general that may affect policies or attitudes towards lending to Mexico or Mexican companies, changes in inflation rates, exchange rates, regulatory developments, customer demand, competition and tax and other laws affecting ICA’s businesses. 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.
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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 |
A. HISTORY AND DEVELOPMENT OF THE COMPANY
We are asociedad anonima bursatil de capital variableincorporated 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 Blvd. Manuel Avila Camacho 36, Col. Lomas de Chapultepec, Del. Miguel Hidalgo, 11000 Mexico City, Mexico, telephone (52-55) 5272-9991.
Based on data from the Mexican Chamber of the Construction Industry (Camara Mexicana de la Industria de la Construccion) and the INEGI (Instituto Nacional de Estadistica, Geografia e Informatica), we are the largest engineering, procurement and construction company in Mexico based on our relative share of the total revenues of the formal construction sector in Mexico, and are the largest provider in Mexico of construction services to both public and private-sector clients. We are engaged in a full range of construction and related activities, involving the construction of infrastructure facilities, as well as industrial, urban, and housing construction. In addition, we are engaged in the development and marketing of real estate, the construction, maintenance and operation of airports, highways, bridges and tunnels and in the management and operation of water supply systems and solid waste disposal systems under concessions granted by governmental authorities.
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 sold non-core assets, and used the proceeds from such sales to pay corporate debt. We concluded our non-core divestment program in 2006. Subsequently, we redefined our business focus to emphasize our construction business, which in 2011 and 2010 accounted for approximately 79% and 81%, respectively, of our revenues. We have also increased our participation in construction-related businesses both in Mexico and in foreign markets, 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. The strategy to pursue projects in foreign markets will continue to be an ongoing practice in future years.
Capital Spending
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 two-year period ended December 31, 2011. Capital spending in the following table includes amounts invested for property, plant and equipment as well as for acquisitions of real estate inventories. Acquisitions of real estate inventories are included in operating activities in our consolidated statements of cash flows, for which reason the table below does not represent capital expenditures as reported in our consolidated statements of cash flows.
| | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2011 | | | 2010 | |
| | | (Millions of
U.S. dollars) | | | (Millions of Mexican pesos) | |
Construction: | | | | | | | | | | | | |
Civil | | U.S.$ | 61 | | | | Ps. 854 | | | | Ps. 888 | |
Industrial | | | 3 | | | | 44 | | | | 40 | |
| | | | | | | | | | | | |
Subtotal | | | 64 | | | | 898 | | | | 928 | |
Airports | | | 28 | | | | 388 | | | | 626 | |
Concessions | | | 115 | | | | 1,603 | | | | 2,239 | |
Housing | | | 256 | | | | 3,561 | | | | 4,255 | |
Corporate and Other | | | 1 | | | | 20 | | | | 37 | |
| | | | | | | | | | | | |
Total | | U.S. $ | 464 | | | | Ps. 6,470 | | | | Ps. 8,085 | |
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Aggregate capital spending decreased 20% in 2011 as compared to 2010. The decrease in aggregate capital spending in 2011 primarily reflected decreased spending in almost all of our segments, including our Civil Construction, Airports, Concessions and Housing segments, due to a combination of factors. In our Civil Construction segment, the decrease was primarily related to the phase of construction of the projects currently under execution, with certain capital investments (such as investments in major equipment) having been made in prior years. In our Airports segment, we completed the planned purchase of required security equipment in 2010, which was not a recurring expense. In our Housing segment, our capital spending decreased due to an overall deceleration during 2011.
Our principal capital expenditures currently in progress include Ps.1,603 million in investments in our Concessions segment. All of such principal expenditures are geographically located in Mexico and funded through third party financings, including proceeds from our 2011 notes offering and our 2009 equity offering. Third party financing, other than our 2011 8.9% senior notes offering and 2009 equity offering, is typically structured through project finance vehicles.
Capital expenditures in 2011 related to our Housing segment include Ps.3,561 million of real estate inventories which include land and projects under construction. Capital spending related to our real estate inventories was Ps.4,255 as of December 31, 2010.
Divestitures
In August 2011, we entered into a Share Purchase Agreement to sell the company which held our Corredor Sur tollroad concession, ICA Panama, to Empresa Nacional de Autopistas, S.A., or ENA, a corporation owned by the Government of Panama, for U.S.$420 million. The transaction was completed on August 24, 2011. Simultaneously with the completion of the sale, we repaid approximately U.S.$154 million of Corredor Sur’s outstanding debt.
In addition, in September 2011 we completed the sale of our Queretaro–Irapuato and Irapuato–La Piedad highway concessions, operated under the PPP mechanism, to our affiliate RCO in exchange for an increased shareholding from 13.6% to 18.7% in RCO and cash. In addition, RCO assumed the existing debt related to the concession projects. We continue to operate and provide maintenance services to these highways.
Our board of directors and management may from time to time engage in discussions regarding possible strategic transactions, including merger, acquisition or divestment transactions with third parties and other alternatives, for the purpose of strengthening our position. However, there can be no assurance that we will be able to successfully identify, negotiate and complete any such strategic transactions. In addition, if we complete a strategic transaction, the implementation of such transaction will involve risks, including the risks that we will not realize the expected benefits of such transaction, that we may be required to incur non-recurring costs or other charges and that such transaction may result in a change in control. In addition, certain strategic transactions must be approved by our stockholders or board of directors, depending upon their materiality, and may require, among other things, approval from governmental agencies.
Public Sector Spending and the Mexican Economy
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 generally been dependent on the state of the Mexican economy and accordingly has varied significantly in the past. Mexico’s gross domestic product grew 1.5% overall in 2008, fell by approximately 6.5% in 2009 and grew 5.5% in 2010. In 2011, GDP increased 3.9%. The average interest rates on 28-day Mexican treasury notes were 4.2% in 2011, 4.4% in 2010 and 5.4% in 2009. Inflation was 3.8% in 2011, 4.4% in 2010 and 3.6% in 2009.
According to the INEGI, GDP of the Mexican construction sector, in real terms as compared to the prior year, increased 4.6% in 2011, remained flat at 0.0% in 2010 and decreased 6.4% in 2009, and represented 6.3%, 6.3% and 6.6% of Mexico’s total gross domestic product in those years, respectively. According to data published by the Mexican Ministry of Finance and Public Credit, the average annual budgetary investment in infrastructure was 3.5% of GDP during 2011, and 4.5% during the period between 2007 and 2011.
In 2007, President Felipe Calderon unveiled his National Infrastructure Program, which the government announced was designed to expand Mexico’s infrastructure, accelerate Mexico’s economic growth and make the Mexican economy more internationally competitive. The National Infrastructure Program anticipated public and private investments totaling Ps.951 billion from 2007 to 2012 in highways, railroads, ports, airports, telecommunications, water and sanitation, irrigation and flood control projects.
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In addition, the National Infrastructure Program called for an additional Ps.1,581 billion in energy sector investments. In February 2008, the Mexican government announced the creation of the National Fund for Infrastructure within the Banco Nacional de Obras y Servicios Publicos, S.N.C., or Banobras, development bank. The government stated that it intended to use the National Fund for Infrastructure to counteract effects of the credit crisis and related turmoil in the global financial system by providing financing, including guarantees, for important projects. The initial funding of Ps.44 billion for the National Fund for Infrastructure came from the privatization of the first package of tollroads offered by the Fideicomiso de Apoyo Rescate de Autopistas Concesionadas, or FARAC, in 2007. In 2011, Banobras extended an historic record volume of credit totaling Ps.57 billion under this program, almost doubling the credit granted in 2010. In the last five years, Banobras has granted more than Ps.200 billion to finance infrastructure projects. The National Fund for Infrastructure has stated that it expects to channel approximately Ps.270 billion in resources into communications and transportation, environmental, water, and tourism development projects through 2012. Although the progress of the National Infrastructure Program has not been as rapid as originally announced, particularly in the areas of energy, ports, and railways, we have seen the rate of awards increase in water treatment and water supply and continued progress in highways. One of the beneficiaries of the National Fund for Infrastructure lending from Banobras development bank is our Rio de los Remedios highway project, which in February 2010 entered into a Ps.3,000 million facility with Banobras.
B. BUSINESS OVERVIEW
Our operations are divided into the following six segments:
| | • | | Industrial Construction, |
Our construction business is comprised of Civil Construction and Industrial Construction segments. Effective January 1, 2011, we consolidated the results of Rodio Kronsa into our Civil Construction segment. Prior period results have been restated for comparison purposes. In both construction segments, 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.
Historically, substantially all of our construction services were performed in connection with projects developed and financed by third parties. However, the current industry trend is that governments and government agencies, including the Mexican government and Mexican state-owned enterprises, have significantly changed their spending practices on traditional 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. We have experienced strong demand (and expect to continue experiencing 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, prisons, 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.
Description of Business Segments
Construction
Our construction business is divided into the Civil Construction and Industrial Construction segments. In 2011, our construction business, comprised of the two construction segments, accounted for 79% of our revenues.
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Contracting Practices
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 traditional form of contract, while a total price is quoted, the construction project is broken down into its various constituent elements, such as excavation volume, square footage of built-up area, footage of pipes to be laid, and a price per unit is established for each such element. Where the amount of work required to complete the contract (i.e., the amount of each constituent element) is greater than the amount quoted in the contract due to incorrect specifications or changes in specifications, we are entitled to an increase in the contract price on the basis of the quantity of each element actually performed, multiplied by its unit price. These unit price contracts allow flexibility in adjusting the contract price to reflect work actually performed and the effects of inflation.
In recent years, however, our construction contracts have been increasingly of the fixed price type or not to exceed type, which generally do not provide for adjustment of pricing 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 segment and the clean fuels projects with Pemex in the Industrial Construction segment. Fixed price, not-to-exceed and mixed price contracts collectively accounted for approximately 83% of our construction backlog as of December 31, 2011 and 86% of our construction backlog as of December 31, 2010. We believe that fixed price contracts are more prevalent in the construction market and the contracts that we enter into in the future may reflect this shift to fixed price contracts. Additionally, we expect that, because of conditions attendant to financing arrangements, future concession-related, infrastructure and industrial construction contracts may restrict the adjustment of the contract price for additional work done due to incorrect contract specifications.
However, under Mexican law, traditional public works contracts provide for the price adjustment of certain components, regardless of whether the contract is fixed price or mixed price. Under a traditional public works mechanism, the counterparty pays us periodically (often monthly) as our work is certified over the term of the contract and we do not finance the project.
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 20% of our contract awards in 2011 (based on the contract amount) were foreign-currency denominated. Approximately 21% of our construction backlog as of December 31, 2011 was denominated in foreign currencies. Substantially all of our foreign-currency denominated contracts are denominated in U.S. dollars, except for contracts entered into by our Rodio Kronsa subsidiary and certain other foreign projects, which are denominated in other currencies such as euros, Peruvian soles, Costa Rica colones and Colombian pesos.
Our policy requires that a committee comprised of a number of our legal and finance executives review and approve all construction projects and concessions with construction components expected to generate material revenues. The committee supervises 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.
We obtain new contracts for new projects either through a process of competitive bidding or through negotiation. Generally, the Mexican Federal Public Administration and its agencies may only award construction contracts 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). However, public sector construction contracts may be awarded without a public bidding process under limited circumstances, such as: (i) in response to certain emergencies, including those relating to public health and safety as well as environmental disasters; (ii) when the project to be executed will be performed exclusively for military purposes or if the bidding process could jeopardize national security; (iii) when a publicly-bid contract has been rescinded due to breach by the winning contractor; (iv) when a public bidding process is declared void due to a lack of offers that comply with the bidding guidelines or prices or inputs are unacceptable, provided that the conditions of contracting are the same as those originally published; or (v) when there is a proven strategic alliance between the government and the contractor in order to promote technological innovation in projects. 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 2011, increases in scope of work accounted for Ps.12,394 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.
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.
Construction Backlog
Backlog in the engineering and construction industry is a measure of our share 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, | |
| | | 2011 | | | 2011 | | | 2010 | |
| | | (Millions of
U.S. dollars) | | | (Millions of Mexican pesos) | |
Construction | | | | | | | | | | | | |
Civil | | | U.S. $2,022 | | | | Ps.28,203 | | | | Ps.26,844 | |
Industrial | | | 510 | | | | 7,115 | | | | 8,455 | |
| | | | | | | | | | | | |
Total | | | U.S. $2,532 | | | | Ps.35,318 | | | | Ps.35,299 | |
Total contract awards and net additions to existing contracts totaled Ps.33,940 million (approximately U.S.$2,433 million) in 2011. See Note 9 to our consolidated financial statements. Five projects represented approximately 63% of backlog in the Civil Construction segment, and 50% of total backlog, at December 31, 2011. The following table sets forth certain information relating to these five projects.
| | | | | | | | | | |
| As of December 31, 2011 | | Amount | | | Estimated Completion Date | | % of Total Backlog | |
| | | (Millions of Mexican pesos) | | | | | | |
Civil Construction | | | | | | | | | | |
Mitla-Tehuantepec highway | | | Ps. 5,591 | | | Fourth quarter of 2014 | | | 16 | |
Eastern Discharge Tunnel | | | 3,698 | | | First quarter of 2013 | | | 10 | |
Autovia Urbana Sur | | | 3,148 | | | First quarter of 2013 | | | 9 | |
SPC Jalisco | | | 2,670 | | | Third quarter of 2012 | | | 8 | |
SPC Sonora | | | 2,549 | | | Third quarter of 2012 | | | 7 | |
As of December 31, 2011, approximately 9% of construction backlog was attributable to construction projects outside Mexico and public sector projects represented approximately 93% of our total backlog. At December 31, 2011, contracts with a value exceeding U.S.$500 million accounted for 26% of our total backlog, contracts with a value ranging from U.S.$50 million to U.S.$250 million accounted for 56% of our total backlog, and contracts with a value of less than U.S.$50 million accounted for 18% 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, we cannot assure you 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 substantial penalties fixed as a percentage of a contract price. Fixed price, not-to-exceed and mixed price contracts collectively accounted for approximately 83% of our construction backlog as of December 31, 2011. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Construction—Construction Backlog.”
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Competition
The principal competitive factors in each construction segment, 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 segments, competition is relatively more intense for infrastructure and industrial construction projects outside Mexico.
In our Civil Construction segment, in addition to the Mexican companies, we compete primarily with Spanish and Brazilian companies. Major competitors include Impulsora del Desarrollo y el Empleo en America Latina, S.A.B. de C.V., or IDEAL, and Carso Infraestructura y Construcciones, S.A. de C.V., both related parties of Grupo Carso, Gutsa Construcciones, S.A. de C.V., Tradeco Infraestructura, S.A. de C.V., La Peninsular Compañia Constructora S.A. de C.V. (a member of Grupo Hermes), Promotora y Desarrolladora Mexicana, S.A. de C.V., Azvi-Cointer de Mexico, S.A. de C.V., Fomento de Construcciones y Contratas, S.A., or FCC, ACS Actividades de Construcciones y Servicios, S.A. and Dragados S.A. (together, ACS), Constructora Norberto Odebrecht S.A. and Andrade Gutierrez S.A. This market is fragmented, with many small local participants in civil construction.
In our Industrial Construction segment, we compete with Mexican, Brazilian, Argentine, Korean, French and Japanese companies, including Odebrecht, Cobra Gestion de Infraestructuras, S.A. and Dragados Industrial and Dragados Offshore (each part of ACS), Techint S.A. de C.V., Duro Felguera Mexico, S.A. de C.V., Mitsubishi Corporation, Swecomex, S.A. de C.V. (a member of Grupo Carso), Transportacion Maritima Mexicana, S.A. de C.V., Samsung Ingenieria Manzanillo, S.A. de C.V., Grupo R S.A. de C.V., Korea Gas Corporation, Abengoa/Abener Energia, CELASA, Construcciones Mecanicas Monclova, Industrial Perforadora de Campeche, Inelectra, Samsung Engineering, Senermex, Snam/Saipam, Tecnicas Reunidas, Technip, Tradeco and TransCanada.
In our Concessions segment, we compete primarily with Mexican and Spanish companies, including IDEAL, Isolux Corsan Concesiones, S.A., Globalvia Infraestructuras, S.A. de C.V., Compañia Contratistas Nacional, S.A. de C.V., OHL Mexico, S.A.B. de C.V., Promotora y Operadora de Infraestructura, S.A.B. de C.V., Tradeco Infraestructura, S.A. de C.V., Fomento de Construcciones y Contratas, S.A., Abengoa Mexico, S.A. de C.V. and Impulsa Infraestructura, 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. Our Rodio Kronsa subsidiary 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.
Raw Materials
The principal raw materials we require for our construction operations are cement, construction aggregates and steel. In our Civil Construction segment, raw materials accounted for Ps.2,056 million, or 46%, of our cost of sales in 2011 and Ps.4,549 million, or 15%, of our cost of sales in 2010. In our Industrial Construction segment, raw materials accounted for Ps.2,056 million, or 46% of our costs of sales in 2011, and Ps.2,000 million, or 7%, of our cost of sales in 2010.
Civil Construction
Our Civil Construction segment focuses on infrastructure projects in Mexico, including the construction of roads, highways, transportation facilities (such as mass transit systems), bridges, dams, hydroelectric plants, prisons, 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 segment has also pursued opportunities in other parts of Latin America, the Caribbean, Asia and the United States, and is currently pursuing select opportunities outside of Mexico and performing three construction projects in Panama, one in Colombia and one in Costa Rica. Our Civil Construction segment performs activities such as demolition, clearing, excavation, de-watering, drainage, embankment fill, structural concrete construction, concrete and asphalt paving, and tunneling. In 2011, our Civil Construction segment accounted for approximately 67% of our total revenues. Effective January 1, 2011, we consolidated the results of Rodio Kronsa, consisting of our Spanish operations and accounting for 4% of our total revenues in 2011, into our Civil Construction segment. Prior period results for 2010 have been restated for comparison purposes.
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The Civil Construction segment’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 segment 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 through 2011:
| | • | | 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) and Terminal 2 of the Mexico City International Airport; |
| | • | | 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 metro system; and |
| | • | | the Mexico City sewage system. |
The most important projects under construction by the Civil Construction segment during 2011 included:
| | • | | Line 12 of the Mexico City metro system; |
| | • | | the Rio de los Remedios-Ecatepec highway; |
| | • | | the La Yesca hydroelectric project; |
| | • | | the Autovia Urbana Sur second level expressway; |
| | • | | the SPC Sonora and SPC Jalisco projects; and |
| | • | | the Eastern Discharge Tunnel of the Mexico City valley drainage system; |
The Civil Construction segment’s contract awards in 2011 totaled approximately Ps.19,335 million (approximately U.S.$1,386 million), of which Ps.2,968 million were awarded outside Mexico.
Autovia Urbana Sur. We were awarded a 30-year concession by the Federal District of Mexico, as part of a consortium with IDEAL, and a construction contract for the elevated toll section of the Autovia Urbana Sur expressway in Mexico City. The fixed price contract totals Ps.5,366 million and is expected to be executed over approximately 19 months.
Eastern Discharge Tunnel. In November 2008, the Mexican National Water Commission (Comision Nacional de Aguas), the government of Mexico City and the government of the state of Mexico, acting together as a trust, awarded an ICA-led consortium a Ps.9,526 million (excluding value-added tax) contract for the construction of the Eastern Discharge Tunnel (Tunel Emisor Oriente) in the Mexico City valley. The tunnel will increase drainage capacity in the Mexico City region and prevent flooding during the rainy season. The ICA-led consortium, Constructora Mexicana de Infraestructura Subterranea, S.A. de C.V., is comprised of Ingenieros Civiles Asociados, S.A. de C.V., Carso Infraestructura y Construccion, S.A. de C.V., Construcciones y Trituraciones, S.A. de C.V.,
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Constructora Estrella, S.A. de C.V. and Lombardo Construcciones, S.A. de C.V. We recognize 50% of the operations from this project, or Ps.4,727 million of the total construction contract. In 2011, we entered into an agreement increasing our share of the total contract value to Ps.7,062 million. The fixed-term contract has both unit price and fixed price components, and scheduled completion of the project for January 2013. The construction contract is under a traditional public works mechanism, in which the counterparty pays us periodically (often monthly) as our work is certified over the term of the contract and we do not finance the project. The project includes the construction of a 62-kilometer tunnel and 24 related access shafts. The tunnel will start at the border of the Federal District and Ecatepec, run along one side of Lake Zumpango, and end in El Salto, Hidalgo.
Line 12 of the Mexico City Metro. In July 2008, the government of Mexico City through its Directorate General of Transportation Works awarded an ICA-led consortium a Ps.15,290 million (excluding value-added tax) construction contract for Line 12 of the Mexico City metro system. Our civil construction subsidiary Ingenieros Civiles Asociados, S.A. de C.V. holds a 53% interest in the consortium, while Carso Infraestructura y Construccion, S.A. de C.V., the construction partner, holds a 17% interest, and Alstom Mexicana, S.A. de C.V., the integrator for the electro-mechanical systems, holds a 30% interest. The construction contract is under a traditional public works mechanism, in which the counterparty pays us periodically (often monthly) as our work is certified over the term of the contract and we do not finance the project. After a modification agreement with the client, we expect to complete this fixed-price, fixed-term project in the second half of 2012. The project includes the construction of a new 24.7-kilometer metro line that will link the eastern and western parts of the city, from Tlahuac to Mixcoac. The terms of the construction contract require us to post a performance bond in the amount of 10% of the total contract value, to be canceled on completion of the works. Once completed, Line 12 is expected to have the capacity to serve up to 412,000 passengers per day. The Mexico City metro system is the fifth largest urban transport system in the world, today extending more than 200 kilometers on 11 lines. Once Line 12 is completed, the system will extend more than 225 kilometers.
La Yesca. 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 our subsidiary Constructora de Proyectos Hidroelectricos S.A. de C.V., or 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, 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. CPH arranged financing of U.S.$910 million for a construction line of credit and U.S.$80 million at commencement for a revolving line of credit for the La Yesca hydroelectric project from WestLB AG, which also structured the financing for the El Cajon hydroelectric project. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness—La Yesca.” 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 fourth quarter of 2012. However, because we recognize revenues from the La Yesca hydroelectric project based on the percentage-of-completion method of accounting, the project generated a substantial portion of our revenues in 2010 and 2011. The La Yesca hydroelectric project generated Ps.3,273 millions of revenue, or 8% of total revenues, in 2011. The La Yesca hydroelectric project represented a substantial portion of our receivables and our indebtedness in 2011 and is expected to continue to represent a substantial portion of our receivables and our indebtedness in 2012. At December 31, 2011, we had Ps.14,040 million in contract receivables (including receivables recognized using the percentage-of-completion method of accounting) and Ps.13,208 million of debt in our consolidated financial statements relating to the La Yesca hydroelectric project, which debt and receivables are now considered current.
Our Civil Construction segment has pursued infrastructure projects in Central and South America and the Caribbean, and we expect to continue to do so on a case-by-case 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. In 2011, 6% of our revenues in the Civil Construction segment were attributable to construction activities outside Mexico. In January 2010, a consortium of ICA with 43%, Fomento de Construcciones y Contratas of Spain with 43%, and Constructora Meco of Costa Rica with 14%, was awarded a contract with an approximate value of U.S.$268 million by the Panama Canal Authority for the construction of a 3 kilometer section of the new Pacific Access Channel (PAC-4) for the Panama Canal’s new Pacific locks, running parallel to the existing channel from the Pedro Miguel to the Miraflores locks. The unit price, fixed term public works contract was awarded through an international bidding process. The PAC-4 contract is part of the overall project to widen the Panama Canal. In 2011, we were awarded contracts to (i) build the Northern Interceptor Tunnel in Medellin, Colombia, (ii) extend the Avenida Domingo Diaz and Corredor Norte highways, both in Panama City, Panama and (iii) expand the Atlantic petroleum terminal in Limon, Costa Rica.
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Industrial Construction
Our Industrial Construction segment 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. In 2011, our Industrial Construction segment accounted for 12% of our total revenues.
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 that give us a competitive advantage in these markets.
During 2011, 79% of the Industrial Construction segment’s revenues were derived from work performed for the public sector, as compared to 83% in 2010. The segment’s most important clients are Pemex Exploracion y Produccion, Pemex Refinacion and Pemex Gas y Petroquimica Basica. In the private sector, the segment’s most important clients in 2011 were Altos Hornos de Mexico, S.A. de C.V., or AHMSA, Minera y Metalurgica del Boleo, S.A. de C.V. and Minera Mexico, S.A. de C.V.
Typical Projects.Projects in our Industrial Construction segment typically involve sophisticated engineering techniques and require us to fulfill complicated technical and quality specifications. Our Industrial Construction segment contracts, as of December 31, 2011, were 45% peso-denominated and 55% dollar-denominated. 16% were unit-price, 37% were fixed price, 37% were mixed price and 10% were cost reimbursements, mainly from the contract for the Boleo mining project.
Among the principal projects we have completed in the Industrial Construction segment recently are:
| | • | | the Pemex Cayo Arcas offshore housing platform; and |
| | • | | the Pemex Reynosa V plant. |
The Industrial Construction segment’s contract awards in 2011 totaled approximately Ps.2,210 million (approximately U.S.$158 million) and included projects such as:
| | • | | the Dos Bocas Marine Terminal II; |
| | • | | the Ethylene XII petrochemical plant; |
| | • | | the PB Litoral T oil drilling platform; |
| | • | | the AHMSA Fenix Project; and |
| | • | | the ESDE Cananea III Plant Phase 2. |
The most important projects under construction by the Industrial Construction segment during 2011 included:
| | • | | the engineering, procurement and construction management contract for the Boleo mining project in Baja California Sur; |
| | • | | the Chicontepec II hydrocarbon deposit exploitation works; |
| | • | | the AHMSA Phase II steel mill and plate line expansion; |
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| | • | | the four Pemex clean fuels low sulfur gasoline projects in Minatitlan, Cadereyta, Madero and Salina Cruz; |
| | • | | the Minatitlan II refinery; |
| | • | | the Terminal Dos Bocas I tank repairs; and |
| | • | | a cryogenic plant at the Poza Rica gas processing complex. |
In 2012, Mexico’s state-owned oil company, Pemex, awarded a contract to ICA-Fluor for the engineering and construction of the first phase of a new refinery in Tula, Hidalgo. We will continue to proportionally consolidate the revenues from the U.S.$135 million contract as with all of ICA-Fluor’s projects through 2012.
Concessions
Our Concessions segment focuses on the construction, development, maintenance and operation of long-term concessions of tollroads, tunnels and water projects and accounted for 7% of our total revenues in 2011. The construction work we perform on our concessions is included in our Civil Construction segment. During 2011, we participated in six operating concessioned highways and one operating concessioned tunnel (the Acapulco tunnel) that we consolidate, and in the management and operation of a water treatment plant in Ciudad Acuña and other water supply systems, including the Aqueduct II water supply system.
Contracting Practices
Mexican state and municipal governments and the governments of certain foreign countries award concessions for the construction, maintenance and operation of infrastructure facilities. The Mexican government actively pursues a policy of granting concessions to private parties for the design, construction, financing, maintenance and operation of highways, prisons, bridges and tunnels 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. A long-term concession is a license of specified duration (typically between 20 and 40 years), granted by a federal, state or municipal government to finance, build, establish, operate and maintain a public means of communication or transportation.
Our return on any investment in a concession is based on the duration of the concession, in addition to the amount of toll revenues collected or government payments based on operation volume, operation and maintenance costs, debt service costs and other factors. Recovery of our investment in highway concessions is typically accomplished through the collection of toll tariffs or, if under the PPP contract structure, a fixed payment for highway availability (together with a smaller shadow tariff based on traffic volume), or a combination of the two methods. Our return on investment in our water treatment concessions is generally based on the volume of water supplied or treated. Revenues from our SPC projects (the federal detention centers in Sonora and Jalisco) are based on fees paid by the Mexican federal government for their operation and maintenance.
To finance the obligations of our projects, we typically provide a portion of the equity and the rest is arranged through third party financing in the form of loans and debt securities. Recourse on the indebtedness is typically limited to the subsidiary engaged in the project. Our investment of equity 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 or through direct capital contributions. Depending on the requirements of each specific infrastructure concession 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.
Highway and Tunnel Concessions
During 2011, we participated in three operating concessions: two highways and one operating concessioned tunnel (the Acapulco tunnel) that we consolidate.
The following table sets forth certain information as of December 31, 2011, regarding the highway and tunnel concessions in which we currently participate, either through subsidiaries or affiliates. As of December 31, 2011, we had three highway and tunnel concessions in operation.
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| | | | | | | | | | | | | | | | | | | | | | | | |
Concession (highway and tunnel) | | Kilometers | | | Date of
Concession | | | Concession
Term
(Years) | | | % Ownership of
Concessionaire(1) | | | % Ownership of
Construction | | | Concessionaire’s
Net Investment
in Concession
(Millions of
Mexican pesos)(2) | |
The Kantunil-Cancun Highway (3)(4) | | | 296 | | | | 1990 | | | | 30 | | | | 100 | | | | 100 | | | | 2,309 | |
Acapulco tunnel(3)(4) | | | 2.9 | | | | 1994 | | | | 40 | | | | 100 | | | | 100 | | | | 848 | |
Nuevo Necaxa-Tihuatlan Highway(5) | | | 85 | | | | 2007 | | | | 30 | | | | 50 | | | | 60 | | | | 2,812 | |
Rio Verde-Ciudad Valles Highway(4) | | | 113.2 | | | | 2007 | | | | 20 | | | | 100 | | | | 100 | | | | 3,563 | |
RCO first package of tollroads(3)(6) | | | 725 | | | | 2007 | | | | 30 | | | | 18.7 | | | | 100 | | | | 4,538 | |
The La Piedad Bypass(4) | | | 21 | | | | 2009 | | | | 30 | | | | 100 | | | | 100 | | | | 1,672 | |
Mitla-Tehuantepec highway(4) | | | 169 | | | | 2010 | | | | 20 | | | | 100 | | | | 60 | | | | 5 | |
Autovia Urbana Sur(6) | | | 15.9 | | | | 2010 | | | | 30 | | | | 30 | | | | 100 | | | | 393 | |
| (1) | Does not include the Mexican federal or local governments’ non-recoverable grants. |
| (2) | Represents each concessionaire’s investment in the applicable concession, net of depreciation and revaluation of assets for inflation through 2007, except for RCO, in which it represents net investment in equity. |
| (3) | Concession in operation. |
| (4) | Concession fully consolidated in our financial statements. |
| (5) | Concession proportionally consolidated in our financial statements. |
| (6) | Concession accounted for using the equity method in our financial statements. |
Acapulco Tunnel.In 1994, the government of the state of Guerrero granted our subsidiary Tuneles Concesionados de Acapulco, S.A. de C.V., or TUCA, a 25-year concession for the construction, operation and maintenance of a 2.9-kilometer tunnel connecting Acapulco and Las Cruces. The concession term started in June 1994. On November 25, 2002, the Congress of the State Government of Guerrero approved the extension of the concession term by 15 years because the actual volume of usage was lower than the amount foreseen by the terms of the concession agreement. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness—Acapulco Tunnel” and Note 13 to our audited consolidated financial statements.
Corredor Sur.In 1995, the Panamanian Ministry of Public Works awarded ICA Panama, S.A., our then 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 in Panama. The first segment of the highway opened in August 1999 and the final segment opened in February 2000. In March 2010, we were approached by the Government of Panama, which expressed its interest in purchasing our investment in the Corredor Sur tollroad for U.S.$420 million. In August 2011, we entered into a Share Purchase Agreement to sell our Corredor Sur tollroad concession (via a sale of 100% of ICA Panama’s shares) to ENA, a corporation owned by the Government of Panama, for U.S.$420 million. The sale was completed on August 24, 2011. Simultaneously with the completion of the sale, we repaid approximately U.S.$154 million of Corredor Sur’s outstanding debt. The results of Corredor Sur for the 2010 and 2011 periods, including the gain on sale, have been reclassified as discontinued operations and are not included in operating income.
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 a PPP contract. 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 a fixed payment for highway availability and a shadow tariff based on traffic volume. The improvements to the highway were completed and became fully operational in September 2009. In September 2011, we completed the sale of our Irapuato-La Piedad and Queretaro-Irapuato (described below) highway concessions in exchange for an increased shareholding from 13.6% to 18.7% in our affiliate RCO and cash. We continue to operate and provide maintenance services to these highways. The results of operation prior to the sale are included in the Concessions segment’s results of operations. The gain on the sale of these concessions is included as other income within other income.
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, is a toll-free road under a Public/Private Partnership contract. Recovery of our investment is expected to be accomplished through a two-part integrated quarterly payment made by the Ministry of Communications and Transportation. We are to be paid (1) a fixed payment for highway availability and (2) a shadow
29
tariff based on traffic volume. After delays in the acquisition of required rights of way, the improvements to the highway were completed in 2010 and the highway is now operational. In September 2011, we completed the sale of our Queretaro-Irapuato and Irapuato-La Piedad (described above) highway concessions in exchange for an increased shareholding from 13.6% to 18.7% in our affiliate RCO and cash. We continue to operate and provide maintenance services to these highways. The results of operation prior to the sale are included in the Concessions segment’s results of operations through the date of the sale. The gain on the sale of these concessions is included as other income within operating income.
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-kilometer highway is located in the states of Puebla and Veracruz. The 30-year concession, with a total investment of approximately U.S.$631 million, includes: (i) construction, operation, maintenance, and preservation of the 36.6 kilometer Nuevo Necaxa—Avila Camacho segment; (ii) operation, maintenance, and preservation of the 48.1 kilometer 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. In June 2008, we entered into a financing agreement in the amount of Ps.6,061 million to finance the construction of this project. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness—Nuevo Necaxa—Tihuatlan.”
The Rio Verde-Ciudad Valles Highway.In July 2007, the Ministry of Communications and Transportation awarded the 20-year concession for a 113.2-kilometer 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 U.S.$286 million. The scope of the concession includes: (i) the operation, conservation, maintenance, modernization, and widening of a 36.6 kilometer tranche from Rio Verde—Rayon; (ii) the construction, operation, conservation, and maintenance of an 68.6 kilometer tranche from Rayon—La Pitahaya; and (iii) the operation, conservation, maintenance, modernization, and widening of an 8.0 kilometer tranche from La Pitahaya—Ciudad Valles. This concession includes the exclusive right for the 20-year service contract with the Mexican federal government, acting through the Ministry of Communications and Transportation. On September 19, 2008, we procured the financing for this project in the amount of Ps.2,550 million. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness—Rio Verde-Ciudad Valles Highway.”
The First FARAC Package of Highways (RCO).On October 3, 2007, our affiliate RCO, of which we own 18.7% as of December 31, 2011, paid the Mexican government Ps.44,051 million for the concession to operate the first package of FARAC tollroads, which was awarded on August 6, 2007. RCO’s payment was financed by long-term bank loans incurred by RCO and capital contributed by RCO’s owners. 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 kilometers in the states of Michoacan, Jalisco, Guanajuato and Aguascalientes. The concession agreement also called for the consortium to make investments of up to Ps.1.5 billion to expand the toll roads through 2010. In October 2009, RCO placed Ps.6,550 million in equity-linked structured notes with Mexican institutional investors on the Mexican Stock Exchange. RCO used the net proceeds of the capital increase primarily to pay down debt. After the transaction (including our purchase of additional Series A shares in RCO at the same price per share as the Series B shares underlying the equity-linked structured notes), we owned 13.6% of RCO. On September 23, 2011, we announced that we had sold to RCO 100% of our shares in COVIQSA and CONIPSA (the concessionaires of the Queretaro-Irapuato and Irapuato-La Piedad highways, respectively), in exchange for consideration in cash and, principally, additional shares in RCO, which increased our ownership of RCO to 18.7%. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources — Indebtedness—RCO.” We record our investment in RCO as a long-term investment in unconsolidated affiliates. RCO’s debt is not consolidated and our share in the income of RCO is recorded in the line item “share of income in unconsolidated affiliates.”
We are entitled to appoint two members of RCO’s ten-voting member board. Goldman Sachs Infrastructure Advisors 2006 and Goldman Sachs Global Infrastructure Partners, collectively GSIP, appoint three members, RCO appoints one member, and there are four independent 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 U.S.$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.912 million to acquire the Mayab Consortium, which holds the concession to construct, operate, and maintain the 241.5-kilometer highway that connects the cities of Kantunil and Cancun in the states of Yucatan and Quintana Roo through December 2020. In August 2011, we signed an amendment to our concession agreement
30
with the Ministry of Communications and Transportation to construct an extension of the tollroad. The amendment includes the construction, operation, conservation and maintenance of a 54-kilometer expansion of the Kantunil-Cancun highway to Playa del Carmen and extends the term of the concession to 2050. The expansion of the highway will require an estimated investment of approximately Ps.1,900 million. We consolidate the investment in our consolidated financial statements, including long term debt that, as of December 31, 2011, was equivalent to Ps.2,446 million. This long-term debt matures in 2019 and 2020, and are expected to be repaid from toll revenues generated by the concession. See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness—The Kantunil-Cancun Highway (Mayab Consortium).”
The La Piedad Bypass.On March 24, 2009, through our wholly-owned subsidiary Libramiento ICA La Piedad, S.A. de C.V., we entered into a thirty-year concession for (i) the construction, operation, conservation and maintenance of the 21.38-kilometer La Piedad Bypass, to alleviate congestion caused by long-haul traffic between the Bajio region and western Mexico, and (ii) the modernization of 38.8 kilometers of the toll-free Federal Highway 110 in the states of Guanajuato and Michoacan and 7.32 kilometers of Highway 90.
The Mitla-Tehuantepec Highway.On June 17, 2010, through our wholly-owned subsidiaries Caminos y Carreteras del Mayab, S.A.P.I. de CV, and Controladora de Operaciones de Infraestructura, S.A. de C.V., or CONOISA, we entered into a twenty-year PPP concession for the construction, operation and maintenance of the 169-kilometer Mitla-Tehuantepec federal highway in Oaxaca. The road includes three segments: Mitla-Entronque Tehuantepec II, Mitla-Santa Maria Albarradas and Lachiguiri-Entronque Tehuantepec II. The construction work is expected to take 40 months. The highway will link the city of Oaxaca with the Isthmus of Tehuantepec, increasing the connectivity of the industrial port of Salina Cruz with central Oaxaca. The modernized highway is expected to promote the economic development of the region and the communities along its route. The engineering and design phase has begun and we expect to begin construction in the second quarter of 2012. In January 2012, we completed the transfer of 40% of this concession to IDEAL and now hold 60%.
Autovia Urbana Sur. We were awarded by Mexico City, as part of a consortium with IDEAL, a 30-year design, construction, maintenance and operating concession for the elevated toll section of the Autovia Urbana Sur expressway in Mexico City. Recovery of our investment is expected through the collection of tolls.
Barranca Larga-Ventanilla Highway. On April 16, 2012, the Ministry of Communications and Transportation awarded us a 30-year concession for the construction, operation and maintenance of the 104-kilometer Barranca Larga-Ventanilla tollroad in the state of Oaxaca. The construction work is expected to take 24 months and will be included in our backlog as of the second quarter of 2012. The development bank Banobras and the National Infrastructure Fund are expected to participate in the financing of the project, the acquisition of which is subject to customary regulatory approval by the Federal Competition Commission.
Other Long-Term Investments
| | | | | | | | | | | | | | | | | | | | | | | | |
Long-term contract | | Kilometers/
Volume | | | Date of
Concession | | | Concession
Term
(Years) | | | % Ownership of
Concessionaire | | | % Ownership of
Construction | | | Concessionaire’s
Net Investment
in Concession
(Millions of
Mexican pesos) | |
Rio de los Remedios(1) | | | 26 km | | | | 2008 | | | | 5 (Renewable) | | | | 50 | | | | 50 | | | | 0 | |
SPC Projects | | | N/A | | | | 2010 | | | | 22 | | | | 100 | | | | 100 | | | | 2,755.6 | |
| (1) | Concession fully consolidated in our financial statements. In May 2007, the contract was amended and restated. In the third quarter of 2011, the contract was amended to increase the value of the contract for the construction of the highway. |
Rio de los Remedios—Ecatepec. In 2008, we began participating in the Rio de los Remedios—Ecatepec project with a 50% interest in Viabilis Infraestructura, the contractor for the construction and financing of public works. In June 2009, we obtained a controlling interest in Viabilis by purchase one additional share above our existing 50% interest, allowing us an additional seat on the board of directors of Viabilis. As of such date, we consolidate Viabilis. The Ps.6,568 million project relates to covering a drainage canal and building a 25.5-kilometer toll highway in the Mexico City and state of Mexico metropolitan areas. The project calls for construction in three phases, with Phase 1 completed in July 2009 and Phase 2 and Phase 3 are estimated to be completed in 2012. Viabilis was awarded the construction contract for the project on November 15, 2004 by the System of Highways, Airports, Related and Auxiliary Services of the government of the state of Mexico. The contract was amended and restated in May 2007. In June 2008, we obtained bridge loan financing for the project in the amount of U.S.$40 million structured by the Ahorro Corporacion of Spain with Caja de Ahorros Municipal de Burgos as agent for various lenders. We have repaid the bridge loan and subsequently became a lender to the project, and in February 2010 we entered into a long term financing agreement, subject to certain conditions precedent, in which
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Phases 2 and 3 of the project will receive a loan in the amount of Ps.3,000 million from Banobras development bank. On March 9, 2012, we entered into a Share Purchase Agreement with Viabilis under which we expect to acquire Viabilis on a wholly owned basis. The sale is pending certain customary conditions precedent and other consents.
SPC Projects. In February 2011, we began construction pursuant to two agreements to build and operate over a 22-year term two federal penitentiaries: one for Ps.3,796 million and one for Ps.3,748 million. Construction for the projects is expected to take 16 months and has been included in our backlog as of the first quarter of 2011. The infrastructure operations relate to non-penitentiary services.
Water Distribution and Water Treatment Concessions
During 2010, we participated in one operating concessioned water treatment plant in Ciudad Acuña and the construction of other water supply systems, including the Aqueduct II water supply system that we began proportionally consolidating in 2008 and began operating in February 2011. The following table sets forth certain information as of December 31, 2011, regarding the water treatment plant and water supply system concessions in which we currently participate, either through subsidiaries or affiliates:
| | | | | | | | | | | | | | | | | | | | | | | | |
Concession | | Capacity
(m3mm) | | | Date of
Concession | | | Concession
Term
(Years) | | | % Ownership of
Concessionaire(1) | | | % of
Construction Work | | | Concessionaire’s
Net Investment
in Concession
(Millions of
Mexican pesos) | |
Ciudad Acuña Water Treatment Plant(2)(3) | | | 0.5 | | | | 1998 | | | | 22 | | | | 100 | | | | 100 | | | | 262 | |
Aqueducto II water supply system(2)(4) | | | 1.5 | | | | 2007 | | | | 20 | | | | 42 | | | | 50 | | | | 1,233 | |
El Realito water supply system(4) | | | 1.0 | | | | 2009 | | | | 25 | | | | 51 | | | | 51 | | | | 151 | |
Agua Prieta water treatment plant(4) | | | 8.5 | | | | 2009 | | | | 20 | | | | 50 | | | | 50 | | | | 487 | |
Atotonilco water treatment plant(5) | | | 42 | | | | 2010 | | | | 25 | | | | 10 | | | | 25 | | | | — | |
| (1) | Does not include the Mexican federal or local governments’ non-recoverable grants. |
| (2) | Concession in operation during 2011. |
| (3) | Concession fully consolidated in our financial statements. |
| (4) | Concession proportionally consolidated in our financial statements. |
| (5) | Concession accounted for using the equity method in our financial statements. |
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 2011, the concessionaire’s revenues were sufficient to cover its operating expenses. The indebtedness related to this project was repaid in full in September 2008. On August 17, 2009, we entered into an agreement under state law, which has allowed us to simplify the tariff scheme. As of December 2011, we receive approximately Ps.6.317 per cubic meter of water we treat at the plant, and we treat approximately 320 lps.
Aqueduct 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 108 kilometers from the Moctezuma River to the city of Queretaro. The required investment of Ps.2,854 million was financed by Banco Santander with HSBC and Banorte, among others, on October 5, 2007 in the amount of Ps.1,700 million for a 17-year period. Additionally, the National Fund for Infrastructure is contributing Ps.872 million directly to the new project. The construction of this project began in 2007. We initiated operations of the project in February 2011. 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 (primarily through our subsidiary CONOISA) with 37%; Servicios de Agua Trident, S.A. de C.V., a subsidiary of Mitsui Corp with 26%; Fomento de Construcciones y Contratas (including two additional affiliates) with 26%; and PMA Mexico with 11%. Including our interest in PMA Mexico, which is our affiliate, our direct and indirect economic interest in SAQSA is 42.39%. We began proportionally consolidating this project beginning in 2008.
El Realito Aqueduct. In 2009, a consortium we lead signed a 25-year service contract with the State Water Commission of San Luis Potosi to build, operate and maintain the El Realito aqueduct water supply and purification system. In March 2011, our subsidiary Aquos el Realito S.A. de C.V. entered into a 18-year term financing agreement for the construction of the El Realito Aqueduct project, to which it holds a long-term service agreement, in an amount up to Ps.1,319 million. The consortium is comprised
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of our subsidiary Controladora de Operaciones de Infraestructura, S.A. de C.V., or CONOISA, as consortium leader, with 51% and Fomento de Construcciones y Contratas, through a subsidiary, with 49%. We proportionally consolidate 51% of the construction performed by this consortium.
Agua Prieta Water Treatment Plant. In 2009, a consortium we lead was granted a 20-year contract with the Jalisco State Water Commission for the construction and operation of the Agua Prieta wastewater treatment plant. The Ps.2,211 million (as of December 31, 2011) contract is a fixed price, fixed term contract with a 33-month term for construction and a subsequent 207-month term for operation. We will earn a portion of the total contract price based on our construction work, which will be set forth in a construction contract at a later date. We expect to finance the project with contributions from the Mexican federal government’s National Fund for Infrastructure, equity contributions from the consortium and commercial bank debt. The consortium is made of the following participants: ICA, as consortium leader, with 50%, ATLATEC, S.A. de C.V. with 34% and Servicios de Agua Trident S.A. de C.V. with 16%.
Atotonilco Water Treatment Plant.A consortium of which our subsidiary CONOISA holds 10.2% was awarded, through an international bidding process, the concession for the construction and operation of the Atotonilco water treatment plant in Tula, Hidalgo by the National Water Commission, or Conagua. On January 7, 2010 the consortium entered into a definitive contract with Conagua. The consortium will be responsible for the design, construction, electromechanical equipment and testing, as well as the operation, conservation and maintenance of the water treatment plant including electricity cogeneration and the removal and final disposition of all waste and biosolids that are produced, over the 25-year term of the agreement. Of the Ps.9.3 billion total contract value, we expect to record approximately Ps.1,743 million in construction backlog related to the project. The contract is a fixed price, fixed term agreement. The Atotonilco plant is expected to be the largest of its kind in Mexico and one of the largest in the world, with a treatment capacity of up to 42 cubic meters of wastewater per second. The plant will be located at the outlet of the Eastern Discharge Tunnel, which we are also building. The consortium is comprised of Promotora del Desarrollo de America Latina, S.A. de C.V., a subsidiary of Grupo Carso, as leader with 40.8%, ACCIONA Agua S.A. with 24.26%, Atlatec, S.A. de C.V. (a subsidiary of Mitsui & Co., Ltd.) with 24.26%, our subsidiary CONOISA with 10.2% and other minority investors. The resources for the investment will be provided by the National Fund for Infrastructure for Ps.4.6 billion, representing 49% of the equity capital of the consortium, and commercial bank debt.
PMA Mexico. 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 management 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). We repurchased a 39% interest in PMA Mexico from Proactiva Medio Ambiente in 2007 and as of such date, we hold 49% of PMA Mexico and Proactiva Medio Ambiente holds 51%.
Airports
Our Airports segment accounted for 6% of our total revenues.
As of December 31, 2011, we controlled an aggregate of 234,502,700 shares of our airport subsidiary GACN, representing 58.6% of GACN’s capital stock. Our investment in GACN was comprised of 167,702,700 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 41.8% of its outstanding capital stock and 0.3% of the shares are held in GACN’s treasury. GACN is listed on the Mexican Stock Exchange and the Nasdaq.
Aeroinvest and ADPM have agreed that:
| | • | | Aeroinvest will select two members of GACN’s audit committee; 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
33
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 six months following the termination of the technical assistance agreement, under certain conditions,
| | • | | ADPM may require Aeroinvest and certain of its affiliates to purchase a portion of shares of SETA held by ADPM, which Aeroinvest has agreed to secure through a pledge (prenda bursatil) approximately 4% of the outstanding capital stock of GACN; 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 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 46% of GACN’s revenues in 2011 and 45% in 2010. 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.
In October 2008, GACN acquired 90% of the shares of Consorcio Grupo Hotelero T2, S.A. de C.V., which has the rights to develop and operate a 287-room hotel and approximately 5,000 square meters of commercial space inside the new Terminal 2 of the Mexico City International Airport under a 20-year contract with the Mexico City International Airport. NH Hoteles, S.A. of Spain owns the other 10%. As of December 31, 2011, total revenues of the hotel amounted to Ps.142 million, annual average occupancy increased to 82.8% and the annual average rate per room was Ps.1,321.
In 2011, the Airports segment accounted for 6% of our total revenues. The substantial majority of the Airports segment’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 67.0% of GACN’s total revenues in 2011 were earned from aeronautical (tariff-regulated) services such as the provision of aircraft parking, passenger walkways and airport security services. Changes in revenues from aeronautical services are principally driven by the passenger and cargo volume at the airports. All of our revenues from aeronautical services are also affected by the “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. In December 2010, the Ministry of Communications and Transportation approved the master development programs for each of our subsidiary concession holders for the 2011 to 2015 period. These programs will be in effect from January 1, 2011 until December 31, 2015.
The Airports segment 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.
In August 2010, Grupo Mexicana indefinitely suspended operations of three airlines (Mexicana Airlines, MexicanaClick and MexicanaLink). Grupo Mexicana and its affiliates accounted for 12.2% of GACN’s total revenues during the first six months of 2010 and 16.6% of GACN’s total passenger traffic during the same period.
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The following table provides summary data for each of the airports for the year ended December 31, 2011:
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, 2011 | |
| | | Terminal
Passengers | | | Revenues(1) | | | Revenues Per
Terminal
Passenger(2) | |
Airport | | (Number in
millions) | | | % | | | (Millions of
pesos) | | | % | | | (Pesos) | |
Metropolitan area: | | | | | | | | | | | | | | | | | | | | |
Monterrey International Airport | | | 5.6 | | | | 47.4 | | | | 1,094.5 | | | | 47.2 | | | | 196.0 | |
Tourist destinations: | | | | | | | | | | | | | | | | | | | | |
Acapulco International Airport | | | 0.6 | | | | 5.1 | | | | 125.7 | | | | 5.4 | | | | 210.8 | |
Mazatlan International Airport | | | 0.7 | | | | 6.1 | | | | 159.2 | | | | 6.9 | | | | 220.3 | |
Zihuatanejo International Airport | | | 0.5 | | | | 4.1 | | | | 95.1 | | | | 4.1 | | | | 198.0 | |
Total tourist destinations | | | 1.8 | | | | 15.3 | | | | 380.0 | | | | 16.4 | | | | 211.2 | |
Regional cities: | | | | | | | | | | | | | | | | | | | | |
Chihuahua International Airport | | | 0.8 | | | | 6.6 | | | | 147.4 | | | | 6.4 | | | | 188.5 | |
Culiacan International Airport | | | 1.1 | | | | 9.1 | | | | 192.0 | | | | 8.3 | | | | 179.4 | |
Durango International Airport | | | 0.2 | | | | 1.9 | | | | 44.4 | | | | 1.9 | | | | 195.6 | |
San Luis Potosi International Airport | | | 0.2 | | | | 2.1 | | | | 63.9 | | | | 2.8 | | | | 247.9 | |
Tampico International Airport | | | 0.5 | | | | 4.7 | | | | 105.6 | | | | 4.5 | | | | 192.6 | |
Torreon International Airport | | | 0.4 | | | | 3.2 | | | | 77.5 | | | | 3.3 | | | | 206.2 | |
Zacatecas International Airport | | | 0.2 | | | | 2.1 | | | | 51.2 | | | | 2.2 | | | | 206.5 | |
Total regional destinations | | | 3.5 | | | | 29.7 | | | | 681.9 | | | | 29.4 | | | | 194.2 | |
Border cities: | | | | | | | | | | | | | | | | | | | | |
Ciudad Juarez International Airport | | | 0.7 | | | | 5.7 | | | | 119.8 | | | | 5.2 | | | | 177.9 | |
Reynosa International Airport | | | 0.2 | | | | 1.8 | | | | 42.7 | | | | 1.8 | | | | 197.3 | |
Total border city destinations | | | 0.9 | | | | 7.6 | | | | 162.5 | | | | 7.0 | | | | 182.6 | |
| | | | | | | | | | | | | | | | | | | | |
TOTAL: | | | 11.8 | | | | 100.0 | | | | 2,318.9 | | | | 100.0 | | | | 196.8 | |
| (1) | Does not include eliminations of transactions among GACN’s subsidiaries. |
| (2) | Revenues per terminal passenger are calculated by dividing the total revenues for each airport by the number of terminal passengers for each airport. |
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 currently do not face significant competition.
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Housing
In 2011, our Housing segment accounted for 8% of our total revenues. Our Housing 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 construction services, such as urbanization.
The principal raw materials we require for our Housing operations are cement, steel, construction aggregates, doors, windows and other housing fixtures.
In 2010, we expanded our operations in the Housing segment by increasing our stake in Los Portales, a real estate development company in Peru, from 18% to 50%, and we participated in several new housing development projects in Mexico, including a joint venture with Prudential Investment Management, Inc. to develop social interest housing with PREI. During 2011 and 2010, we sold 6,797 and 7,116 homes, respectively. As of December 31, 2011, our Housing segment owned 1,703 hectares of land reserved for the construction of 94,375 housing units, totaling 37 projects in 11 different states in Mexico.
In 2008, we entered the Monterrey market and began offering a new model of economical housing development with enhanced urban planning compared to that typically offered in economical housing developments. Additionally, we continue to develop our vertical residential property on Reforma Avenue in Mexico City.
New low income housing construction in Mexico has increased steadily due to several governmental initiatives that 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. Although the credit crisis and elevated safety concerns, particularly in Mexico’s northern border cities, have recently had a significant negative impact on development in the non-low income housing market, the number of mortgage credits granted under these initiatives increased to approximately 105,000 housing units in 2011 from 80,000 housing units in 2010.
The Housing segment competes primarily with large Mexican public 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., as well as regional competitors.
Corporate and Other
Our Corporate and Other segment includes our real estate operations and, through our subsidiary Grupo ICA S.A. de C.V., our corporate operations. The results of operations in our Corporate and Other segment in 2011 and 2010 have not changed significantly.
Geographical Distribution of Revenues
Revenues from foreign operations accounted for approximately 6% of our revenues in 2011 and 6% of our revenues in 2010.
The following table sets forth our revenues by geographic area for each of the years in the two-year period ended December 31, 2011.
| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican
Pesos) | | | (Percent of Total) | | | (Millions of Mexican
Pesos) | | | (Percent of Total) | |
Mexico | | | Ps. 40,024 | | | | 94 | % | | | Ps. 32,399 | | | | 94 | % |
Spain | | | 1,044 | | | | 2 | | | | 1,306 | | | | 4 | |
Other Latin American countries and the United States | | | 1,701 | | | | 4 | | | | 771 | | | | 2 | |
Inter-segment eliminations | | | — | | | | — | | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Total | | | Ps. 42,769 | | | | 100 | % | | | Ps. 34,476 | | | | 100 | % |
| | | | | | | | | | | | | | | | |
Approximately 9% of our backlog as of December 31, 2011 is related to projects outside Mexico (as compared to approximately 5% as of December 31, 2010) and approximately 21% of our backlog as of December 31, 2011 was denominated in foreign currencies (principally U.S. dollars) (as compared to approximately 29% of our backlog as of December 31, 2010).
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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 past experiences with Mexican government officials and private-sector individuals. Although we are active abroad, we have sought to be more selective than in the past when bidding for international projects. See “Item 5. Operating and Financial Review and Prospects — Operating Results.”
Environmental Matters
Our Mexican operations are subject to both Mexican federal and state laws and regulations relating to the protection of the environment. At the federal level, the most important of these environmental laws is the Mexican General Law of Ecological Balance and Environmental Protection, or the Ecological Law(Ley General de Equilibrio Ecologico y Proteccion al Ambiente). Under the Ecological Law, rules have been promulgated concerning water pollution, air pollution, noise pollution and hazardous substances. Additionally, the Mexican federal government has enacted regulations concerning the import, export and handling of hazardous materials and bio-hazardous wastes. The waste and water treatment plants that are operated by one of our equity investees are subject to certain waste regulations, including for bio-hazardous waste. The Mexican federal agency in charge of overseeing compliance with the federal environmental laws is the Ministry of the Environment and Natural Resources(Secretaria de Medio Ambiente y Recursos Naturales). The Ministry of the Environment and Natural Resources has the authority to enforce Mexican federal environmental laws. As part of its enforcement powers, the Ministry of the Environment and Natural Resources can bring administrative and criminal proceedings against companies that violate environmental laws, and has the power to close non-complying facilities. We believe that we are in substantial compliance with Mexican federal and state environmental laws. Changes in Mexican federal or state environmental laws could require us to make additional investments to remain in compliance with such environmental laws, and changes in the interpretation or enforcement of such 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.
In projects outside of Mexico, including within the Panama Canal zone, we are also required to comply with environmental laws by applicable authorities. We believe we are in substantial compliance with environmental laws to which we are subject.
Sustainable Development
In 2011, in an effort to measure and improve our sustainability performance, we began publishing an annual Sustainability Report providing a snapshot of our operations’ economic, environmental and social impacts. Our annual report expands upon and deepens our engagement with a diverse range of stakeholders—including investors, local communities in which we operate, employees and their families, suppliers and other business partners—by explaining how we respond to their expectations and interests.
By creating and maintaining a culture of sustainability, we seek to achieve long-term business success that aligns with the interests and needs of other stakeholders.
C. ORGANIZATIONAL STRUCTURE
The following table sets forth our significant subsidiaries as of December 31, 2011, including the principal activity, domicile and our ownership interest:
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| | | | | | | | | | |
Subsidiary | | Principal Activity | | Domicile | | | Ownership
Interest
(%) | |
Constructoras ICA, S.A. de C.V. | | Construction | | | Mexico | | | | 100 | |
Controladora de Empresas de Vivienda, S.A. de C.V. | | Housing | | | Mexico | | | | 100 | |
Controladora de Operaciones de Infraestructura, S.A. de C.V. | | Concessions | | | Mexico | | | | 100 | |
Ingenieros Civiles Asociados, S.A. de C.V. | | Heavy urban and specialized construction | | | Mexico | | | | 100 | |
ICA—Fluor Daniel, S. de R.L. de C.V.(1) | | Industrial construction | | | Mexico | | | | 51 | |
Grupo Aeroportuario del Centro Norte, S.A.B. de C.V. | | Airport operations | | | Mexico | | | | 59 | (2) |
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 | | | | 99 | |
| (1) | Proportionally consolidated. |
| (2) | Directly and through our interest in SETA. |
D. PROPERTY, PLANT AND EQUIPMENT
Approximately 96% of our assets and properties, including concessions, are located in Mexico, with the balance in Europe and other Latin American countries. At December 31, 2011, the net book value of all land (excluding real estate inventories) and buildings, machinery and equipment and concessions was approximately Ps.33,308 million (approximately U.S.$2,387 million). We currently lease machinery from vendors. For information regarding property in our Housing segment, see “Item 4. Information on the Company-Business Overview-Description of Business Segments-Housing.”
Our principal executive offices, which we lease, are located at Blvd. Manuel Avila Camacho 36, Col. Lomas de Chapultepec, Del. Miguel Hidalgo, 11000 Mexico City, Mexico. We own the property where our executive offices were formerly located at Mineria No. 145, 11800, Mexico City, Mexico.
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 IFRS. Notes 2 and 36 to our consolidated financial statements provide a description of the effects of our transition to IFRS on our financial information.
Overview
We are a Mexican company principally engaged in construction, the operation of infrastructure projects under long-term concession or service agreements and homebuilding. Approximately 94% of our revenue in 2011 was generated in Mexico. 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, the contract terms relating to those projects, the volume of traffic on our highway concessions and in our airports, and conditions in the Mexican housing market, among other factors. In 2011, we had several significant projects in the mature phases of construction, which led to greater revenue and operating income compared to 2010. Nonetheless, due to the dynamic nature of project awards, this is not a predictor of future returns or trends.
The construction, infrastructure operations, and homebuilding industries, and as a result, our results of operations, are substantially influenced by political and economic conditions in Mexico. The National Infrastructure Program in Mexico, which the Mexican government announced was designed to expand Mexico’s infrastructure, accelerate Mexico’s economic growth and make the Mexican economy more internationally competitive, contemplated public and private investments totaling Ps.951 billion from 2007 to 2012 in highways, railroads, ports, airports, telecommunications, water and sanitation, irrigation, and flood control projects.
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In addition, the National Infrastructure Program called for an additional Ps.1,581 billion in energy sector investments. Mexico entered into a recession beginning in the fourth quarter of 2008, and in 2009 GDP fell by approximately 6.5%. Due to the impact of the turmoil in the global financial system and the recession in Mexico, the rate of awards of infrastructure projects in Mexico was slower in 2009 than we anticipated, particularly in the areas of energy, ports and railways. Mexico’s economy has since expanded, with GDP posting positive growth of 5.5% in 2010 and 3.9% in 2011. The National Infrastructure Program remains in place and new projects continue to be awarded. The Mexican government has also extended the time period for certain bidding processes for the awards, in part because of the need to reevaluate the corresponding projects’ feasibility in the current economic environment.
National politicians are currently focused on the 2012 presidential elections and reforms regarding labor policies, gas, electricity, social security and oil as well as other new reforms may not be approved. In the past, public sector spending has tended to decrease in election years, and we expect this will occur in 2012. As in previous presidential election cycles, we plan to minimize this trend by bidding for projects abroad, although certain risks in other Latin American countries may adversely affect our opportunity to win awards or execute awarded projects in a profitable and timely manner.
Our business strategy is to grow our construction business (composed of our Civil Construction and Industrial Construction segments) as well as to grow and diversify into construction-related activities, particularly infrastructure, which we believe offer opportunities for potentially higher growth, higher margins, and reduced volatility of operating results. Our goal is also to generate a greater portion of our consolidated revenues from our Concessions, Airports, and Housing segments over the medium term. These three segments in aggregate represented 22% of our consolidated revenues for both 2011 and 2010. Our infrastructure and other investments represent an actively managed portfolio of investments; some may be held to maturity and others may be divested prior to maturity, based on market developments or opportunities to redeploy capital in new projects. In August 2011, we entered into a Share Purchase Agreement to sell our Corredor Sur tollroad concession to ENA, a corporation owned by the Government of Panama, for U.S.$420 million. The transaction was completed on August 24, 2011. Simultaneously with the completion of the sale, we repaid approximately U.S.$154 million of Corredor Sur’s outstanding debt. In addition, in September 2011 we completed the sale of our Queretaro-Irapuato and Irapuato-La Piedad highway concessions, operated under the PPP mechanism, in exchange for an increased shareholding from 13.6% to 18.7% in our affiliate RCO and cash. We continue to operate and provide maintenance services to these highways.
A. OPERATING RESULTS
Certain U.S. dollar amounts have been translated from Mexican pesos for convenience purposes at an exchange rate of Ps.13.95 per U.S.$1.00, the noon buying rate for Mexican pesos on December 31, 2011, as published by the Federal Reserve Bank of New York.
Our operations are divided into the following six segments: (1) Civil Construction, (2) Industrial Construction, (3) Concessions, (4) Airports, (5) Housing, and (6) Corporate and Other.
Consolidated Results of Operations for the Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010
Total Revenues
Total revenues increased 24% in 2011 from 2010. This increase was primarily attributable to an increase in work volume on projects in our Civil Construction and Industrial Construction segments, which represented 73% of the consolidated revenue growth during the period, as well as an increase in the volume of projects in our Concessions segment, which represented 14% of the consolidated revenue growth during the period. All of the business segments (other than Corporate and Other) reported growth in total revenues, after eliminations.
The following table sets forth the revenues of each of our segments and divisions for each of the years in the two-year period ended December 31, 2011. See Note 35 to our consolidated financial statements.
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| | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of
Mexican
pesos) | | | (Percentage
of Total) | | | (Millions of
Mexican
pesos) | | | (Percentage
of Total) | |
Revenues: | | | | | | | | | | | | | | | | |
Construction: | | | | | | | | | | | | | | | | |
Civil | | | Ps. 28,710 | | | | 67 | % | | | Ps. 23,448 | | | | 68 | % |
Industrial | | | 5,210 | | | | 12 | % | | | 4,401 | | | | 13 | % |
| | | | | | | | | | | | | | | | |
Total | | | 33,920 | | | | 79 | % | | | 27,850 | | | | 81 | % |
Concessions | | | 3,130 | | | | 7 | % | | | 2,102 | | | | 6 | % |
Airports | | | 2,776 | | | | 6 | % | | | 2,505 | | | | 7 | % |
Housing | | | 3,507 | | | | 8 | % | | | 2,653 | | | | 8 | % |
Corporate and Other | | | 7 | | | | — | | | | 33 | | | | — | |
Eliminations | | | (571 | ) | | | (1 | %) | | | (667 | ) | | | (2 | %) |
| | | | | | | | | | | | | | | | |
Total | | | Ps. 42,769 | | | | 100 | % | | | Ps. 34,476 | | | | 100 | % |
Gross Profit
Consolidated cost of sales increased 23% in 2011 compared to 2010, slightly below the rate of growth of consolidated revenue over the same period, representing slightly greater economies of scale. As a result, consolidated gross profit increased 32% to Ps.6,589 million in 2011 compared to Ps.4,983 million in 2010, primarily due to gross profit increases in our Concessions segment and, to a lesser extent, in our Civil Construction and Industrial Construction segments, which increases were primarily a result of higher margins on the mix of projects. In 2010, the Airports segment recorded an allowance for doubtful accounts in cost of sales of Ps.143 million, related to the bankruptcy filing by the airlines of Grupo Mexicana. Cost of sales also includes the financing costs related to our financed projects in the Civil and Industrial Construction, Concessions and Housing segments in the construction stage.
General Expenses
Selling, general and administrative expenses increased 25% in 2011 from 2010, also below the rate of revenue increase. The increase in 2011 was primarily due to the growth in operations of the business segments, as well as from higher administration expenses, which increased in part due to our new voluntary retirement savings plan and increased participation in bidding processes in Mexico and abroad.
Other Income and Expenses, Net
In 2011, our net other income was Ps.495 million, compared to a loss of Ps. 30 million in 2010. This increase of Ps. 525 million was principally a result of the sale of the Queretaro-Irapuato and Irapuato-La Piedad highway concessions to RCO during the third quarter of 2011.
Operating Income
The following table sets forth operating income or loss of each of our segments and divisions for each of the years in the two-year period ended December 31, 2011.
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| | | | | | | | |
| | | Year Ended December 31 | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Operating Income (Loss): | | | | | | | | |
Construction: | | | | | | | | |
Civil | | | Ps. 1,116 | | | | Ps. 768 | |
Industrial | | | 356 | | | | 156 | |
| | | | | | | | |
Subtotal | | | 1,472 | | | | 923 | |
Airports | | | 917 | | | | 747 | |
Concessions | | | 917 | | | | 241 | |
Housing | | | 231 | | | | 275 | |
Corporate and Other | | | 193 | | | | (1 | ) |
Eliminations | | | (34 | ) | | | 53 | |
| | | | | | | | |
Total | | | Ps. 3,696 | | | | Ps. 2,238 | |
Operating margin | | | 9 | % | | | 6 | % |
Operating income increased 65% in 2011 from 2010. This increase was driven primarily by the Concessions segment’s revenue growth, the other income representing the gain on sales of the Queretaro-Irapuato and Irapuato-La Piedad PPP highways to our affiliate RCO, and the increase in operating income in Civil and Industrial Construction principally due to better margins in certain new construction projects awarded in 2011, which offset decreased operating income in our Housing segment. In 2011, the Civil Construction and Industrial Construction segments contributed 30% and 10%, respectively, of total operating income and the Concessions and Airports segments each contributed 25% of operating income. The balance, after eliminations, came from the Housing and Corporate and Other segments.
Construction
Civil Construction
The following table sets forth the revenues and operating income of the Civil Construction segment for each of the years in the two-year period ended December 31, 2011.
| | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Revenues | | | Ps. 28,710 | | | | Ps. 23,448 | |
Operating income | | | 1,116 | | | | 768 | |
Operating margin | | | 4 | % | | | 3 | % |
Revenues.The 22% increase in the Civil Construction segment’s revenues in 2011 from 2010 was principally due to the work performed on the Autovia Urbana Sur highway and the two SPC projects that started construction during the year, as well as the continued level of construction in other projects such as the Line 12 of the Mexico City Metro, the Rio de los Remedios-Ecatepec highway and La Yesca hydroelectric project. The projects that contributed the most to revenues in 2011 were Line 12 of the Mexico City metro system with Ps.4,075 million, the Rio de los Remedios-Ecatepec highway with Ps.3,755 million, the La Yesca hydroelectric project with Ps. 3,273 million, the Autovia Urbana Sur highway with Ps. 2,218 million, the two SPC projects jointly with Ps.2,326 million and the Eastern Discharge Tunnel with Ps.1,474 million.
Operating Income.Operating income for the Civil Construction segment increased by 45% in 2011 from 2010 due to a greater increase in revenues than in operating expenses, a result of higher margins in the mix of projects under construction, and a decrease in financing costs related to the La Yesca hydroelectric project from Ps. 227 million in 2010 to Ps. 70 million in 2011 due to the prepayment of certain derivative liabilities in 2010.
Industrial Construction
The following table sets forth the revenues and operating income of our Industrial Construction segment for each of the years in the two-year period ended December 31, 2011.
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| | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Revenues | | | Ps. 5,210 | | | | Ps. 4,401 | |
Operating income | | | 356 | | | | 156 | |
Operating margin | | | 7 | % | | | 4 | % |
Revenues.The Industrial Construction segment’s revenues increased by 18% in 2011 from 2010. This increase primarily reflected an increase in work on projects already under construction, including the Cadereyta and Madero clean fuels projects. The projects that contributed the most to revenues in 2011 were the Madero clean fuels plant for Ps.783 million, which was an increase of Ps.225 million from 2010, and the Cadereyta clean fuels project for Ps.786 million, which was an increase of Ps.342 million from 2010. The AHMSA Steel mill and plate line expansion and the Poza Rica Cryogenic plant project also contributed to revenues with Ps.664 million and Ps.535 million, respectively.
Operating Income.The Industrial Construction segment had a 129% increase in operating income in 2011 from 2010 primarily due to an increased volume of work, higher margins in the mix of projects, including in certain contracts with private sector clients, recognition of price increases and operating efficiencies.
Construction Backlog
The following table sets forth, at the dates indicated, our backlog of construction contracts.
| | | | | | | | | | | | |
| | | As of December 31, | |
| | | 2011 | | | 2011 | | | 2010 | |
| | | (Millions of U.S. dollars) | | | (Millions of Mexican pesos) | |
Construction | | | | | | | | | | | | |
Civil | | U.S.$ | 2,022 | | | | Ps. 28,203 | | | | Ps. 26,844 | |
Industrial | | | 510 | | | | 7,115 | | | | 8,455 | |
| | | | | | | | | | | | |
Total | | U.S.$ | 2,532 | | | | Ps. 35,318 | | | | Ps. 35,299 | |
Backlog at December 31, 2011 remained steady compared to December 31, 2010, reaching Ps.35,318 million primarily due to additions to existing contracts and new project awards replacing other projects as they are executed.
Five projects represented approximately 63% of backlog in the Civil Construction segment, and 50% of total backlog, at December 31, 2011. The Mitla-Tehuantepec highway accounted for Ps.5,591 million, or 16%, of our total backlog as of December 31, 2011. We expect to complete this project in the fourth quarter of 2014. The Eastern Discharge Tunnel of the Mexico City valley drainage system, which we expect to complete in the first quarter of 2013, accounted for Ps.3,698 million, or 10%, of our total backlog as of December 31, 2011. The Autovia Urbana Sur accounted for Ps.3,148 million, or 8.9%, of our total backlog as of December 31, 2011. The two SPC projects accounted for Ps.5,219 million, or 15%, of our total backlog as of December 31, 2011. We expect to conclude these projects in the third quarter of 2012.
In the Industrial Construction segment, backlog was Ps.7,115 million as of December 31, 2011. The four contracts for clean fuels projects (Salina Cruz, Madero, Minatitlan and Cadereyta) for Mexico’s state-owned oil company, Pemex, together accounted for Ps.4,436 million, or 62% of industrial construction backlog or 13% of our total construction backlog as of December 31, 2011. We expect to complete the Cadereyta project in the first quarter of 2013, the Madero project in the second quarter of 2013, and the Salina Cruz and Minatitlan projects in the third quarter of 2013.
As of December 31, 2011, approximately 9% of construction backlog was attributable to construction projects outside Mexico, and public sector projects represented approximately 93% of our total backlog.
Our book and burn index (defined as the ratio of new construction contracts, plus net contract additions, to executed construction works) was 1.0 in 2011 compared to 0.9 in 2010. New contract awards and net increases to existing contracts during 2011 offset the execution of projects during the year. During 2011 in our Civil Construction segment, we were awarded major new construction contracts for the Autovia Urbana Sur highway and the two SPCs for the Ministry of Public Security, the Puebla highway interchange as a traditional public works and the International Convention Center in Los Cabos. In our Industrial Construction segment, we were awarded an EPC contract for the construction of the PB Litoral T oil drilling platform and the Terminal Marina Dos Bocas, as well as additional contracts for private clients such as Altos Hornos de Mexico, or AHMSA, and the Ethylene XXI petrochemical plant for Braskem-Idesa.
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Concessions
The following table sets forth the revenues and operating results of our Concessions segment for each year in the two-year period ended December 31, 2011.
| | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Revenues | | | Ps. 3,130 | | | | Ps. 2,102 | |
Operating Income | | | 917 | | | | 241 | |
Operating Margin | | | 29 | % | | | 11 | % |
Revenues.The Concessions segment’s revenue was Ps.3,130 million in 2011. The 56% increase in revenue over 2010 was due primarily to an increase in the segment’s construction revenues for those concession projects that were in the construction phase as well as financial income, which contributed to 71% of the increase. The segment’s revenues are principally derived from the collection of tolls on toll roads, fees for the availability and use of toll-free roads, fees by volume of treated water delivered to the municipalities and the financial and construction revenues during the construction phase. The segment has nine highways, five concessioned water projects and two SPC projects as of December 31, 2011. Of these 16 concessions, eight were operational at year-end, and one (the Rio de los Remedios – Ecatepec Highway project) was in partial operation.
Operating Income.The Concessions segment reported a 280% increase in operating income for 2011 compared to 2010, principally due to an increase in other income, which was the result of our sale of the Queretaro-Irapuato and Irapuato-La Piedad highway concessions to our affiliate RCO for Ps.440.9 million, the commencement of construction of the SPC projects and the continued operation of concessions.
Airports
The following table sets forth the revenues and operating results of our Airports segment for each year in the two-year period ended December 31, 2011.
| | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Revenues | | | Ps. 2,776 | | | | Ps. 2,505 | |
Operating Income | | | 917 | | | | 747 | |
Operating Margin | | | 33 | % | | | 30 | % |
Revenues.The Airports segment’s revenues increased by 11% in 2011 from 2010. Aeronautical revenues, principally passenger charges, increased 13%, and non-aeronautical revenues increased 20%, with the largest increases generated by the NH Terminal 2 Hotel at the Mexico City International Airport, advertising, commercial leases (retailers, duty free and other leases) and GACN cargo fees. Total terminal passenger traffic volume increased 1.6% in 2011 compared to 2010, primarily due to increased passenger volume in Monterrey. Domestic terminal passenger traffic volume increased 3.4%, while international terminal passenger traffic volume decreased 7.4%, principally as a result of the suspension of operations of Grupo Mexicana in the third quarter of 2010. The main percentage increases in total terminal passenger traffic volume (excluding transit passengers) in 2011 as compared to 2010 were at the Tampico (21.5%), San Luis Potosi (11.6%), Reynosa (9.3%) and Torreon (11.1%) airports, while the Monterrey airport had the greatest absolute increase in total terminal passenger traffic volume. The main percentage decreases in total terminal passenger traffic (excluding transit passengers) in 2011 as compared to 2010 were at the Acapulco (19.1%) and Zacatecas (7.7%) airports.
Operating Income.The Airports segment reported a 23% increase in operating income for 2011 compared to 2010, mainly as a result of Ps.314 million of additional aeronautical and non-aeronautical revenues. Additionally, in 2010, we recognized an allowance for doubtful accounts for Ps.143 million in 2010 as a result of the bankruptcy filings by the companies of Grupo Mexicana, equivalent to 100% of Grupo Mexicana accounts receivable. This provision was recorded under cost of services.
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Housing
The following table sets forth the revenues and results of operations of our Housing segment for each year in the two-year period ended December 31, 2011.
| | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Revenues | | | Ps. 3,507 | | | | Ps. 2,653 | |
Operating income | | | 231 | | | | 275 | |
Operating margin | | | 7 | % | | | 10 | % |
Revenues.The Housing segment’s total revenues increased by 32% in 2011 from 2010, principally due to increased sales in our Los Portales business in Peru consisting principally of real estate and the sale of a parcel of land during the fourth quarter of 2011. These increases were partially offset by a 4% decrease in housing units sold in Mexico, which for the year constituted 6,797 units.
Operating Income.The Housing segment’s operating income decreased by 16% in 2011 from 2010. The decrease was primarily attributable to the reduction in units sold in Mexico and an increase in operating expenses.
Corporate and Other
After substantial completion of our non-core asset divestiture program, we sold substantially all of the operating assets in our Corporate and Other segment. The Corporate and Other segment contributed less than 1% of our total revenues in 2011.
The following table sets forth the revenues and operating loss of the Corporate and Other segment for each year in the two-year period ended December 31, 2011.
| | | | | | | | |
| | | Year Ended December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Revenues | | | Ps. 7 | | | | Ps. 33 | |
Operating income (loss) | | | 194 | | | | (1 | ) |
Revenues.The Corporate and Other segment’s revenues decreased by 80% in 2011 from 2010 primarily due to fewer real estate assets for sale and fewer sales in the segment.
Operating Income.The Corporate and Other segment’s operating income increased in 2011 compared to 2010. The gain was mainly due to an increase in non-recurring other income paid from other subsidiaries.
Financing Cost, Net
The following table sets forth the components of our net comprehensive financing costs for each year in the two-year period ended December 31, 2011.
| | | | | | | | |
| | | Year Ended December 31, 2011 | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Interest expense | | | Ps. 1,798 | | | | Ps. 1,353 | |
Interest income | | | (286 | ) | | | (350 | ) |
Exchange (gain) loss, net | | | 1,568 | | | | (10 | ) |
Loss on financial instruments | | | 381 | | | | 316 | |
| | | | | | | | |
Financing cost, net(1) | | | Ps.3,462 | | | | Ps. 1,308 | |
| (1) | Does not include net financing costs of Ps.1,473 million in 2011 and Ps.1,238 million in 2010 that are included in cost of sales. See Note 31 to our consolidated financial statements. |
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Net comprehensive financing costs in 2011 reached Ps.3,462 million. The 165% increase in net comprehensive financing costs in 2011 from 2010 was mainly due to exchange losses of Ps.1.57 billion recorded during the second half of 2011, mainly as a result of depreciation of the Mexican peso with regard to the U.S. dollar and its effect on the valuation of our U.S.$500 million of our 8.9% senior notes due 2021 and to higher interest expenses.
Interest expense increased 33% in 2011 compared to 2010, primarily due to increased debt levels as a result of incurring new indebtedness and additional drawings on existing credit facilities.
Interest income decreased 18% in 2011 due to a decrease in average invested cash balances, which in turn was caused by our increased reliance on cash to fund working capital needs.
Our total debt as of December 31, 2011 increased 56% compared to December 31, 2010, primarily as a result of an increase in the debt drawings for the construction of concession infrastructure projects, the issuance of U.S.$500 million of our 8.9% senior notes due 2021, and drawings on existing credit facilities for construction of the La Yesca hydroelectric project, which were permitted as a result of approved certifications for completed work on the project.
At December 31, 2011 and March 31, 2012, we had U.S.$1,711.7 million and U.S.$1,738.3 million, respectively, of debt issued or guaranteed as joint obligor or guarantor by our parent company.
At December 31, 2011 and 2010, 47% and 39%, respectively, of our total debt was denominated in currencies other than Mexican pesos, principally U.S. dollars or, in the case of some debt related to projects of Rodio Kronsa, 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 could both increase our interest costs and result in foreign exchange losses. Conversely, an increase in the value of the Mexican peso relative to such other currencies could have the opposite effect.
Share in Income and Loss of Unconsolidated Affiliated Companies
Our unconsolidated affiliates include, among others, RCO, our joint venture affiliate with GS Global Infrastructure Partners I, L.P., and PMA Mexico. Our share of income of unconsolidated affiliated companies was Ps.38 million in 2011 as compared to Ps.80 million in 2010, which reflected the sale in November 2010 of our interest in Autopistas Concesionadas del Altiplano, which operated the concession of San Martin-Tlaxcala-El Molinito highway.
Tax
In December 2009, modifications were published to the Mexican Income Tax Law (“Tax Reform”) and became effective on January 1, 2010. The Tax Reform requires companies to estimate an income tax (ISR) liability on benefits received in prior years from tax consolidation of subsidiaries. Our estimated tax payable as a result of the Tax Reform is Ps.3,429 million as of December 31, 2011, and is detailed as follows:
| | • | | Ps.622 million relates to benefits received from tax consolidation of subsidiaries of the period from 1999 to 2006 that will be payable from 2012 to 2016 in accordance with the payment program approved by the Mexican Tax authorities. |
| | • | | The remainder of Ps.2,807 relates to benefits received from tax consolidation of subsidiaries of the period from 2007 to 2011 and will be payable from 2013 and through 2021. |
In 2011, we recorded a consolidated net tax benefit of Ps.33 million, which included an ISR expense of Ps.100 million and a IETU benefit of Ps.133 million. As of December 31, 2011, we had a deferred ISR asset of Ps.3,371 million related to tax losses generated by our subsidiaries, as well as a net deferred ISR liability of Ps.1,485 million related to other net taxable temporary differences and a net IETU liability of Ps.382 million. See Note 23 to our consolidated financial statements.
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In 2010, we recorded a net tax provision of Ps.284 million, reflecting the current and deferred income tax and the business flat tax.
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. The flat rate business tax payable is calculated by subtracting certain tax credits from the tax determined. Revenues, and deductions as well as certain tax credits, are determined based on cash flows generated in each fiscal year. The law established that the flat rate business tax rate was 17.5% in 2010 and 2011 and will be thereafter. Unlike income tax, a parent and its subsidiaries 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. The flat rate business tax is assessed in addition to income tax.
The statutory tax rate in Mexico was 30% for 2011 and 2010. For 2012 the statutory tax rate will remain 30%, for 2013 it is expected to be 29% and for 2014 it is expected to be 28%. Generally, the differences between effective tax rates and statutory tax rates are due to different rates for foreign subsidiaries, the effects of inflation and exchange rate fluctuations.
Income from continuing operations
We reported consolidated income from continuing operations of Ps.306 million in 2011, compared to Ps.725 million in 2010. The decrease was primarily the result of higher financing costs offsetting the increase in operating income.
Discontinued operations
We reported income from discontinued operations of Ps.1,484 million in 2011, which reflected the proceeds of the sale of the Corredor Sur concession in Panama, after taxes and transaction expenses, including make-whole premiums under the original bond indenture governing the project’s debt.
Net Income
We reported consolidated net income of Ps.1,790 million in 2011, compared to consolidated net income of Ps.971 million in 2010, representing an increase of 84%. Despite the decrease in income before discontinued operations, principally as a result of higher financing cost, consolidated net income increased due to the gain on discontinued operations.
Net income of non-controlling interest was Ps.310 million in 2011 and Ps.341 million in 2010. Net income of controlling interest was Ps.1,480 million in 2011 and Ps.629 million in 2010.
Critical Accounting Policies and Estimates
In January 2009, the National Banking and Securities Commission (CNBV) issued amendments to the Single Circular for Issuers to include the obligation to file financial statements based on the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as of the year ending December 31, 2012, with the option of early adoption.
Our Board of Directors approved the early adoption of IFRS for the year ended December 31, 2011, with January 1, 2010 as the our “transition date.” Therefore, the consolidated financial statements for the year ended December 31, 2010 were our last annual financial statements to be prepared in conformity with Mexican Financial Reporting Standards (MFRS) for public use. A description of the effects of our transition to IFRS on our financial information is presented in Note 36 to our audited consolidated financial statements.
Consequently, we prepare our consolidated financial statements in accordance with IFRS and their amendments and interpretations, issued by the IASB. Our consolidated financial statements for the period ended December 31, 2010 were previously prepared and issued in accordance with Mexican Financial Reporting Standards. Such standards differ from IFRS in certain areas, for which reason the consolidated financial statements as of and for the year ended December 31, 2010, presented for comparative purposes with the consolidated financial statements as of and for the year ended December 31, 2011, were adjusted to recognize the effects of IFRS.
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IFRS 1 allows certain exemptions from the retroactive application of specific standards to prior periods, upon initial adoption of IFRS, in order to assist companies in transition. We have applied the mandatory exceptions as follows: (i) we applied the mandatory exception to accounting estimates in relation to consistency with the estimates made for the same period under MFRS; and (ii) we applied the mandatory exception on the determination of the balance of the noncontrolling interest prospectively from the date of transition. We also applied the following optional exemptions to retrospective application: (i) we applied prospectively, beginning from December, 2005, IFRS guidance relating to the accounting for business combinations. Accordingly, we retrospectively applied IFRS to all business combinations that occurred between that date and the date of transition; (ii) we elected to value certain land, buildings and major machinery and equipment at their fair value, using values calculated by appraisers duly recognized by the Mexican National Banking and Securities Commission, representing deemed cost for those assets. Additionally, for the remaining items of property, plant and equipment, we elected to utilize the indexed cost balance existing under Mexican Financial Reporting Standards, thereby maintaining inflation adjustments through 2007, such amounts also representing the deemed cost of those assets; (iii) we elected to recognize all unrecognized actuarial gains and losses on our employee benefits existing as of the date of transition in retained earnings; and (iv) we elected to prospectively apply the requirements of IAS 23,Borrowing Costs, from the date of transition.
Below is a description of the principal critical accounting policies which require the significant use of estimates and the judgment of management based on their experience and current events, as well as a description of the respective accounting internal control.
Accounting for Construction Contracts
Accounting Policy:
Revenue is recognized to the extent that it is probable that the economic benefits associated with the transaction will flow to the company. Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of activities.
For accounting purposes, we recognize revenue from construction contracts using the percentage of completion method established in International Accounting Standard 11 “Construction Contracts” (IAS 11). The percentage of completion method requires us to timely ascertain the performance of the project and appropriately present the legal and economic substance of the contract. Under this method, the revenues from the contract is matched with the costs incurred in reaching the stage of completion, resulting in the reporting of revenue, expenses and profit which can be attributed to the proportion of work completed.
Revenue from construction contracts are recognized based on costs incurred to date, in proportion to the total expected costs of the project.
The base revenue utilized to calculate percentage of profit 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 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, amortization, repairs and maintenance.
Costs which are not included within contract costs are: (i) any general administrative expenses not included under any form of reimbursement in the contract; (ii) selling expenses; (iii) any research and development costs and expenses not considered reimbursable under the contract; and (iv) the depreciation of machinery and equipment not used in the specific contract even though it is available on hand for a specific contract, when the contract does not allow revenue for such item. In addition, work performed in independent workshops and construction in-process 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 on uncompleted contracts.”
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For those funded projects in which financing revenue are included as part of the selling price, only borrowing costs directly related to the acquisition or construction of the asset, less the realized yields by the temporary investment of such funds and the exchange loss, to the extent it is an adjustment to interest costs, are attributed to the contract costs. The borrowing costs that exceed the estimates and cannot be passed on to the customers are not part of contract costs. In these types of contracts, the collection of the contract amount from the client may take place at the completion of the project. However, periodic reports of the advance of the project to date are provided to and approved by the client, which serve as the basis so that we can continue to obtain financing for the project.
When a contract includes construction of various facilities, construction of each facility is treated as a separate profit center when: (i) separate proposals have been submitted for each facility; (ii) each facility has been subject to separate negotiation and we and the customer have been able to accept or reject that part of the contract relating to each asset; (iii) the costs and revenues of each asset 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 an overall profit margin; 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.
Internal Control:
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 reasonably estimating (i) the projected revenue, (ii) the costs to be incurred in the project and (iii) the gross profit of the project, and identify the rights and obligations of the parties.
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 an analysis of the customer’s economic solvency and reputational standing, the legal framework, the availability of resources, the technological complexity of the project, 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 to be performed, 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 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 right to receive 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
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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.
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.
For fixed price contracts in the public sector, 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. The proposed application of these mechanisms for the public-to-private initiative converted into law is uncertain, but the law would benefit the Public/Private Partnership (Proyecto para Prestacion de Servicios, or PPP) by introducing options to renegotiate, in good faith, the contract terms in the event of government action to increase the project costs or otherwise reduce contractual benefits to developers.
In recent years, our construction contracts have been increasingly of the fixed price type or mixed price contracts in which a portion of the contract is at fixed price and the rest at unit prices. While we have entered into contracts with unit pricing in the last three 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.
Furthermore, we expect that due to the financing trends, future contracts related to concessions, infrastructure construction and industrial construction will restrict adjustments to the contract price for additional work performed as a result of incorrect contract specifications.
In order to be able to apply percentage-of-completion method, 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.
The estimations are based on the terms, conditions and specifications of each specific contract, including assumptions made by management of the project in order to ensure that all costs attributable to the project were included.
Periodically, we evaluate the reasonableness of the estimates used in the determination of the percentage of completion. Cost estimates are based on assumptions, which can differ from the actual cost over the life of the project. Accordingly, estimates are reviewed periodically, taking into account factors such as price increases for materials, the amount of work to be done, inflation, exchange-rate fluctuations, changes in contract specifications due to adverse conditions and provisions created based on the
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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 allowance is determined based on management’s best judgment in accordance with prevailing circumstances at that time, modified by changes in circumstances. Usually, we show a period between 30 and 60 days of “cost and estimated earnings in excess of billings on uncompleted contracts.” Our policy is not to recognize an allowance for doubtful accounts on contracts that require the customer to pay for the work not as it is performed, but only when the project is completed unless there are sufficient indicators that such receivable will not be collectible.
Construction backlog takes into account only those projects over which we have control. We consider ourselves to have control when we have a majority participation in the project and when we are assigned leadership of the project. In a case in which there is contractual joint control, the percentage of the contract is incorporated in the backlog according to our participation as provided in the contract.
Long-Lived Assets
The long-lived assets that we have refer to property, plant and equipment and concessions granted by the Mexican government and foreign governments for the construction, operation and maintenance of highways, bridges and tunnels, airport administration and municipal services.
The investment in concessions is classified either as an intangible asset, a financial asset (account receivable) or a combination of both based on the terms of service concession agreements.
A financial asset is originated when an operator constructs or makes improvements to the infrastructure and the operator has an unconditional right to receive a specific amount of cash or other financial asset during the contract term. An intangible asset is originated when the operator constructs or makes improvements and is allowed to operate the infrastructure for a fixed period after the construction ends. In this case the operator’s future cash flows have not been specified, because they may vary depending on the use of the asset.
A combination of both – a financial asset and an intangible asset – is originated when the return/profit for the operator is partially provided by a financial asset and partially by an intangible asset.
Accounting Policy:
Upon transition to IFRS, we utilized the deemed cost exception in IFRS with respect to certain of our long-lived assets. We elected to value certain land, buildings and major machinery and equipment at their fair value, using values calculated by appraisers duly recognized by the Mexican National Banking and Securities Commission, representing deemed cost for those assets. Additionally, for the remaining items of property, plant and equipment, we decided to utilize the indexed cost balance existing under Mexican Financial Reporting Standards, thereby maintaining inflation adjustments through 2007, such amounts also representing the deemed cost of those assets. Inflation was removed from our intangible assets under concession, such that their recognition was based on their historical cost. Subsequent to initial adoption of IFRS, we apply a historical cost model, which consists of recording acquisitions at their acquisition or construction cost, or at fair value in the case of goods acquired through contributions, donations or in payment of debt. The expenses incurred for improvements which increase the value of the asset are capitalized and are valued at their acquisition cost.
For certain investments in concessions, a financial asset is recorded at fair value and is subsequently valued at amortized cost by calculating interest through the effective interest method at the date of the financial statements, based on the yields determined for each of the concession contracts. For other concessions, an intangible asset are recorded at their acquisition or construction cost. The comprehensive cost of financing accrued during the construction period is capitalized.
We calculate depreciation on our fixed assets, such as buildings, furniture, office equipment and vehicles, over the useful life of the asset. The depreciation of machinery and equipment is calculated according to the units of production method (machine hours used in regard to total estimated usage hours of the assets during their useful lives, which range from 4 to 10 years). In investment in
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concessions, amortization as in the case of our investment in highways and tunnel concessions involving the use of facilities over the period of the concession is calculated by the units of production method. In the case of water treatment plants we consider treated water volumes. At the airport concessions, amortization is determined by considering the term of the concession, which is 50 years.
We periodically evaluate the impairment of long-lived assets, considering the cash-generating unit to which the asset belongs. If the carrying amounts of cash-generating units exceed their recoverable value, we write-down the cash-generating units to their recoverable value. The recoverable value is the greater of the net selling price of the cash-generating unit and its value in use, which is the present value of discounted future net cash flows.
When the recoverable value improves, and such improvement is greater than the carrying value of the asset and appears to be permanent, the loss from impairment recorded previously is reversed only up to the amount of the previously recognized impairment loss.
The maintenance costs of airports, which are approved in the master development plan, are provisioned with a charge to results of the year; in the other concessions, the provision is created with a charge to results of the year for the amount which is expected to be disbursed.
Internal Control:
Discount rates used to determine the value in use, which is the present value of discounted future net cash flows, are determined in real terms by calculating the weighted average cost of capital for each cash-generating unit, which in turn is calculated by estimating the cost of equity and the cost of debt incurred for each cash-generating unit. The cost of equity is calculated using the capital asset pricing model, which uses the beta coefficients of comparable public companies in local and international markets. The cost of incurred debt is calculated based on the terms of debt currently outstanding for projects in-process as well as existing financial market conditions. The method we use to calculate the recoverable value of our cash-generating units takes into account the particular circumstances of the assets, including the terms and conditions of each concession, machinery and equipment involved, and intangible assets.
We evaluate indicators of impairment as part of the process to determine the recoverable values of cash-generating units. The indicators of impairment considered for these purposes include, among others, 1) the operating losses or negative cash flows in the period if they are combined with a history or projection of losses, 2) depreciation and amortization charged to results which, in percentage terms, in relation to revenues, are substantially higher than those of previous years, 3) the effects of obsolescence, 4) reduced demand for the services rendered, 5) competition and other economic and legal factors. The mechanism to calculate the recovery value is based on the specific circumstances of the concessions, plant and machinery and intangibles. In the case of the concessioned routes, the projected revenues consider the projected vehicle flows, and assumptions and estimates are used relative to population growth and the peripheral economy of the concessioned route, temporary reductions in vehicle flows due to rate increases, commercial strategies to boost their use, among others, which may be determined and adjusted depending on the actual results obtained.
In addition, as part of the process to determine the recoverable values of our cash-generating units, we perform sensitivity analyses that measure the effect of key performance variables on projected net cash flows, considering the most probable outcomes of those variables. The critical variables used in our sensitivity analyses for the determination of recoverable value consider those variables that create value in each of our projects. These include (i) operating revenues, (ii) costs of operation and (iii) macroeconomic conditions, including foreseeable changes in interest rates. Our analyses also include contractually agreed-upon values related to maintenance and other investments when we are contractually bound to incur such investments in certain projects. Variations in discount rates are taken into account considering general changes in market interest rates and are applied to three possible scenarios with respect to projections of revenues: an optimistic case, a probable case (base case) and a pessimistic case. We consider that this range of outcomes is sufficiently broad to help us analyze the limits of the value of each critical variable and can also be broad enough for us to effectively consider projects that are in their mature phase. Variations are considered with respect to individual variables as well as with respect to “cross variations” where we apply simultaneous changes to combined variables.
Types of Long-Lived Assets
Depending upon their operating status, projects related to long-lived assets or cash-generating units can either be in the construction phase or operating phase. Projects in the construction phase are composed of investments in the process of being executed (constructed), whereas projects in the operating phase involve operating risks.
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In the case of highways, we participate in two main project types: concessions and public-private partnerships (PPPs). The main difference between these categories is that revenues for PPP projects are paid directly by the government (not users) and include fixed revenues in addition to variable revenues, which we believe improves our revenue profile and risk exposure arising from our highways portfolio. Projected variable revenue scenarios are taken from studies that forecast traffic volume. These forecasts also take into account anticipated changes in toll levels and are prepared using statistical models based on historic behavior for each project. Operating expense projections are developed by the individuals in charge of the project operation. Projections for investment commitments are considered when such commitments are contractually required under the concession agreement. Projections are reviewed by operating committees and by the trusts in which both the governmental authorities and the project’s lenders participate. Our analyses as of December 31, 2011, using base case scenarios, indicate that a combined 28.1% decrease in variable revenues or 194.9% increase in operating costs would not result in impairment of our contractual obligations related to maintenance for these projects in the operating phase.
In water treatment and transmission projects, the structure of the project differs only in that the service is not provided directly to the public at large, but instead to governmental entities for water and drainage systems. In these types of projects, revenues and expenses are related both to the demand for the services by the population as a whole and the operating capacity of the project. Typically revenues include a fixed component to recover investment and fixed operating and maintenance costs, as well as a variable component that depends on the volume of water processed. The sensitivity analyses in these cases are based principally on population increase, which is the most determinative factor for future demand for the service. Our analyses as of December 31, 2011, using base case scenarios, indicate that a 19.7% decrease in variable revenues or a 14.7% increase in operating costs, would not result in impairment of finished projects in the operating phase.
Our airport projects are regulated by five-year master plans negotiated with the Mexican government, in which our future investment commitments are established and in which the maximum tariff we can charge per passenger is set. These are high-volume projects in which the variable that most affects the value in use is revenue. The sensitivity analyses for these projects are based on different scenarios of passenger traffic and ability to recover the maximum tariff. Our analyses as of December 31, 2011, using base case scenarios, indicate that an 8.9% decrease in revenues or a 60% increase in operating costs would not result in impairment of our airports our contractual obligations related to investments at our airports.
As of December 31, 2011, our pre-tax discount rates for highway projects average approximately 12.2% in real terms (excluding inflation), for water projects average approximately 11% in real terms, and for our airports average approximately 13.9%.
Our estimates for all projects may be based on assumptions that differ from, and may be adjusted according to, actual use.
Income Tax
Accounting Policy:
We determine and recognize current and deferred taxes on income. In the case of income tax (ISR) we are subject to the tax consolidation regime.
The provision or benefit for current ISR and Business Flat Tax (IETU) is recorded in results of the year in which they are incurred. Deferred ISR and IETU are both recognized based on the assets and liabilities method, which considers the temporary differences derived from comparing assets and liabilities in the statements of financial position and their tax bases, plus any future benefit from the tax losses obtained in previous years which have not yet been deducted, and the offsetting of tax credits not used from previous periods. Temporary differences are recognized at the income tax rates which have been approved, or which are substantially enacted, at the date of the statement of financial position. Consequently, the effect on deferred assets and liabilities derived from a change in tax laws and rates is recognized in the statement of comprehensive income of the year in which they go into effect. The resulting deferred tax provision or benefit is reflected in our consolidated statement of comprehensive income.
The calculation and recognition of deferred taxes 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. In determining if deferred tax assets or tax loss carryforwards should be recognized, we consider the facts and circumstances that may have an impact in subsequent years on financial projections of taxable income, together with our estimates of recovery of tax losses for concession projects during the concession term. Our concession terms range from 20 to 50 years.
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Deferred tax assets are not recognized if they are not probable of being realized. Any change in our estimates may have an effect on our financial condition and results of operations.
In connection with IETU, we also perform projections of future taxable income over the period during which our existing deferred taxes will reverse in order to determine whether during those years, we expect to pay IETU or ISR. We record deferred taxes based on the tax we expect to pay. Such projections are based on our estimates of the taxable revenues that we expect to recognize in the future in the ordinary course of business, less tax deductions permitted by applicable law.
Derivative Financial Instruments
We enter into derivative financial instruments to hedge our exposure to interest rate and foreign currency exchange risk related to the financing for our construction and concessions projects.
Accounting Policy:
When the related transaction complies with all hedge accounting requirements, we designate the derivative as a hedging financial instrument (either as a cash flow hedge, a foreign currency hedge or a fair value hedge) at the time we enter into the contract. When we enter into a derivative for hedging purposes from an economic perspective, but such derivative does not comply with all the requirements established by IFRS to be considered as hedging instruments, the gains or losses from the derivative financial instrument are recorded in the results of the period. Our policy is not to enter into derivative instruments for purposes of speculation
Per IAS 39, “Financial Instruments: Recognition and Measurement,” we value and recognize 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, we value the derivative instrument using the valuation techniques carried out by a price provider authorized by the National Registry of Securities (Registro Nacional de Valores) and the valuations provided by valuation agents (counterparties). These valuations are based on methodologies recognized in the financial sector and are supported by sufficient and reliable information. Valuations are carried out monthly in order to review changes and impact on business units and consolidated results. Fair value is recognized in the consolidated statement of financial position as a derivative asset or derivative liability, in accordance with the rights and obligations of the derivative contract and in accordance with IFRS.
For cash flow hedges (including interest rate swaps and interest rate options) and foreign currency hedges designated as foreign currency cash flow hedges and including exchange rate instruments, foreign currency swaps and foreign currency options, the effective portion is recognized within statement of comprehensive income as a component of other comprehensive income. We subsequently reclassify the amounts in other comprehensive income to the interest income or expense within the statement of comprehensive income, affecting net income, when profit or loss is affected by the hedged item. The ineffective portion is recognized immediately in the interest income or expense of the period. For fair value hedges, the fluctuation in the fair value of both the derivative and the open risk position is recognized in interest income or expense of the period in which it takes place. We carry out tests of effectiveness for derivatives that qualify as hedging instruments from an accounting perspective at least every quarter and every month if material changes occur.
For those derivatives that do not comply with hedge accounting requirements, the fluctuation in their fair value is recognized in profit or loss of the period when valued.
Internal Control:
Our activities are exposed to different economic risks which include (i) market financial risks (interest rate, foreign currency and pricing), (ii) credit risk, and (iii) liquidity risk.
We try to minimize the potential negative effects of the aforementioned risks in financial performance through different strategies. We use financial derivatives to hedge those exposures to the financial risks of operations recognized in the statement of financial position (recognized assets and liabilities), as well as firm commitments and forecast transactions which are probable to occur.
We only contract hedge financial derivatives to reduce uncertainty in the returns on projects. The financial derivatives which we enter into may be designated for accounting purposes as hedges or for trading purposes, without affecting our objective of mitigating the risks to which we are exposed in the projects.
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In interest rate hedges we enter into the instruments in order to fix interest rates and thus make the projects more feasible. We enter into exchange rate hedge instruments to reduce the exchange rate risk in projects whose labor costs and inputs are incurred in a currency different from that of their financing source. We enter into the financing in the same currency as that of the payment source.
The contracting of financial derivatives is in most cases related to project financing, for which reason it is quite common that the same institution (or its affiliates) which provided the financing also acts as the counterparty. This includes instruments which cover fluctuations in the interest rate and the exchange rate. In both cases, the derivatives are contracted directly with the counterparties.
Our internal control policy establishes that the contracting of credit and of the risks involved in the projects requires a collective analysis by representatives from the finance, legal, administration and operations departments, before they can be authorized. As part of such analysis we also evaluate the use of derivatives to hedge financing risks. Based on internal control policy, the contracting of derivatives is the responsibility of the finance and administration departments once the aforementioned analysis is concluded.
When evaluating the use of derivatives to hedge financing risks, we conduct sensitivity analyses of the different possible levels of the relevant variables, in order to define the economic efficiency of each of the different alternatives available to hedge the risk measured. We compare each alternative in order to define the best one. Furthermore, we conduct effectiveness tests with the support of an appraisal expert to determine the treatment applicable to the financial instrument once it is entered into.
We maintain a policy of entering into financial instruments at the project level, and we do not enter into instruments involving margin calls or additional credit contracts to those authorized by our committees responsible for their performance, as no additional sources of liquidity are designated for those types of instruments. In those projects requiring collateral, the policy is that the necessary deposits are made initially or letters of credit are established at the time they are entered into, in order to limit project exposure.
See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Derivative Financial Instruments.”
Other Policies
Accounting for Real Estate Sales
Accounting Policy:
We recognize revenues derived from sales of low income housing, residential environment, and real estate in accordance with International Financial Reporting Interpretations Committee “Agreements for the Construction of Real Estate” (or IFRIC 15) and IAS 18, when the risks and benefits of the housing have been transferred to the buyer, which occurs upon passage of title to the buyer.
Our real estate inventories are divided into two large segments: land held for development and inventories in-process (which include both houses under construction and unsold finished houses).
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 reviewed quarterly and updated periodically when modifications are made to sales price or cost estimates of construction and development of the home. Variations in the original cost budget that require a change in 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, (iv) financial cost incurred during the construction period and (v) administration and supervision of real estate. The costs related to real estate projects that are capitalized during development of the project and are applied to cost of sales in the proportion in which revenues are recognized.
Internal Control:
To determine any possible impairment of our land held for development, we carry out appraisals every two to three years or more frequently when events or changes in circumstances indicate that the carrying amounts may not be recoverable.
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With respect to inventory in-process, approximately 82% of homes under construction and unsold finished homes are within the low-income sector, while the remainder is within the moderate-income sector. With respect to homes in the low income sector, sales of such homes are generally financed by government-sponsored housing fund programs, which provide financial aid to customers to stimulate home purchases in this sector. Prices of homes in this sector are generally regulated by such government programs, thereby limiting our flexibility to establish sale prices. Sale prices in this sector are therefore sensitive to the availability of funding offered by the government under such programs as well as conditions prevailing in the Mexican economy, which in turn can be affected by global economic conditions. However, through 2011, we have not historically experienced significant fluctuations in sales in this sector and have been able to maintain a stable gross margin of between 16% and 26%. Despite the global financial crisis, Mexican governmental policies supporting housing development have continued, albeit at a slower pace. Although we expect that trend to continue, any strict price controls put in place by the Mexican federal government or inherent from adverse economic conditions in Mexico that exceed our current operating margin could cause an impairment with respect to housing in this sector.
With respect to homes in the moderate-income sector, on a quarterly basis, we perform a review of estimated revenues and costs for the projects in-process to evaluate the sector’s operating margin. Additionally, on an annual basis, we perform formal impairment tests based on discounted cash flow projections and to determine the expected rates of returns of the project. Such cash flow projections incorporate actual revenues and costs through the date of the evaluation as well as estimated future investments we expect to incur to complete and sell the project. Revenues are projected based on the current selling price of the home, considering any discounts that we may offer. Selling prices for the moderate-income sector are based on market studies of what a willing buyer would pay, comparable prices for similar projects in the areas in which we develop and the general economic conditions in Mexico. We only offer discounts on sale prices of homes when sales prices have increased over time and the discount would not exceed the original sale price of the home. Our policy is not to grant discounts when the discounted sales price would result in a value lower than the carrying value of the inventory. Our management determines discounts on a home-by-home basis. Cost estimates are based on our cost budgeting system as discussed above. Impairment is recognized when the fair value less costs to sell is less than the carrying amount of the inventory. As in the low-income sector, we generally earn a gross margin of approximately 17% to 22% in this sector. Accordingly, we are only recognize impairment on inventories in the moderate-income sector if we offer discounts greater than our operating margin or otherwise significantly reduce our prices below our operating margin because of, for example, market forces or deteriorating economic factors. We have not historically recognized impairment on inventory in this sector, nor have our cash flow projections through 2011 indicated any impairment loss for the inventory of homes in this sector.
In both the low- and moderate-income sectors, we have seen between an 8% decrease in the last quarter of 2011 compared to the last quarter of 2010 and a 4% decrease in the first quarter of 2012 in home sales, when compared to the same period in the prior year.
Effect of Application of the Critical Accounting Policies and Estimates on Results and Financial Position
Set forth below are the results derived from the application of the aforementioned policies and their effects on our consolidated financial statements as of and for the years ended December 31, 2011 and 2010.
Construction Contracts
Our consolidated financial statements as of December 31, 2011 included a provision for costs relating to project terminations amounting to Ps.559 million and a machinery lease provision of Ps.611 million related to rental payments due and payable. Our consolidated financial statements as of December 31, 2010 included a provision for costs relating to project terminations amounting to Ps.539 million and a machinery lease provision of Ps.476 million related to rental payments due and payable, as well as a short-term provision of Ps.3 million for estimated losses upon project termination related to projects that we expected to be substantially completed during 2011. As of December 31, 2011 and 2010, our consolidated financial statements include an allowance for doubtful accounts related to construction contracts of Ps.1,142 million and Ps.421 million, respectively. Allowances and provisions were recorded based on our best estimates and current circumstances. If these circumstances change, we may need to modify the amount of allowances and provisions we have recorded.
Income Tax
In 2011, we recorded a net tax benefit of Ps.(33) million, which reflected the following components:
| | • | | a current ISR expense of Ps.914 million, |
| | • | | a deferred ISR benefit of Ps.814 million, |
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| | • | | a current IETU expense of Ps.194 million, and |
| | • | | a deferred IETU benefit of Ps.327 million. |
As of December 31, 2011, we had a net deferred ISR liability of Ps.1,486 million and a net deferred IETU liability of Ps. 382 million.
The tax payable of Ps. 3,429 million for the deconsolidation tax, is payable as follows: Ps. 210 million in 2012 (reflected in current liabilities as of December 31, 2011), Ps. 413 million from 2013 to 2016 and the remainder payable from 2013 and through 2021. The estimate reflected in the financial statements is calculated under the terms of the Law.
Tax losses as of December 31, 2011 have been recognized, as we believe we will be able to recover such losses either by offset of deferred tax liabilities that will reverse in subsequent periods or projections of future taxable income. Our existing level of backlog is expected to generate a greater volume of business in the future, resulting in increased taxable income that will compensate deferred tax assets recognized as of December 31, 2011.
In 2010, we recorded a net tax provision of Ps.284 million, which reflected the following components:
| | • | | a current ISR expense of Ps.221 million, |
| | • | | a deferred ISR expense of Ps.210 million, |
| | • | | a current IETU expense of Ps.295 million, and |
| | • | | a deferred IETU benefit of Ps.441 million. |
As of December 31, 2010, we had a net deferred tax liability of Ps.574 million and a net deferred IETU liability of Ps.834 million.
At December 31, 2011 and 2010, we also had an asset tax credit carryforwards of Ps.1,115 million and Ps.1,468 million, respectively, which can be recovered under certain circumstances. However, management has concluded that recovery of such benefits is not probable and has therefore not recognized the related deferred asset.
Derivative Financial Instruments
We have entered into interest rate swaps and options (designated as cash flow hedges), foreign currency swaps and options (designated as foreign currency cash flow hedges) and other derivative instruments (designated as trading derivatives as they do not meet hedge accounting requirements) for the terms of some of our long-term credit facilities with the objective of reducing the uncertainties resulting from interest rate and exchange rate fluctuations. To date, the results of our derivative financial instruments have been mixed. Their mark-to-market valuation as of December 31, 2011, decreased our derivative liabilities by Ps.219 million and increased our derivative assets by Ps.311 million. Those effects are reflected in our consolidated equity by Ps.483 million and Ps.381 million in our consolidated statement of comprehensive income for 2011. Their mark-to-market valuation as of December 31, 2010, decreased our derivative liabilities by Ps.36 million and decreased our derivative assets by Ps.57 million. Those effects were reflected in our consolidated equity by Ps.655 million and Ps.316 million in our consolidated statement of comprehensive income for 2010.
Long-Lived Assets
As of December 31, 2011, we did not recognize any impairment of long-lived assets.
Accounting for Low Income Housing Sales and Costs
As of December 31, 2011, there was no impairment in our real estate inventories or low income housing inventories.
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Recently Issued Accounting Standards
New International Financial Reporting Standards
We have not applied the following newly issued IFRS standards, as their effective dates are subsequent to December 31, 2011, although their early adoption is allowed:
| | • | | Improvements to IFRS 7,Financial Instruments: Disclosures, disclosures regarding transfer of financial assets, effective for annual periods beginning after July 1, 2011. |
| | • | | IFRS 9,Financial Instruments, effective for annual periods beginning on or after January 1, 2013. |
| | • | | IFRS 10,Consolidated Financial Statements, effective for annual periods beginning on or after January 1, 2013. |
| | • | | IFRS 11,Joint Ventures, effective for annual periods beginning on or after January 1, 2013. |
| | • | | IFRS 12,Disclosure of Interests in Other Entities, effective for annual periods beginning on or after January 1, 2013. |
| | • | | IFRS 13,Fair value Measurement, effective for annual periods beginning on or after January 1, 2013. |
| | • | | Amendments to IAS 1,Presentation of Items of Other Comprehensive Income, effective for annual periods beginning on or after July 1, 2012. |
| | • | | Amendments to IAS 19,Employee Benefits, effective for annual periods beginning on or after January 1, 2013. |
| | • | | IAS 27,Separate Financial Statements, effective for annual periods beginning on or after January 1, 2013. |
| | • | | IAS 28,Investments in Associates and Joint Ventures, effective for annual periods beginning on or after January 1, 2013. |
Each one of the standards is summarized as follows:
The amendments to IFRS 7,Financial Instruments: Disclosures increase the disclosure requirements for those transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period.
IFRS 9,Financial Instruments, issued in November 2009, introduces new requirements for the classification and measurement of financial assets. IFRS 9 was amended in October 2010 to incorporate requirements for derecognition of both financial assets and liabilities, and classification and measurement of financial liabilities.
| | • | | IFRS 9 requires all recognized financial assets that are within the scope of IAS 39,Financial Instruments: Recognition and Measurement to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods. |
| | • | | The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was recognized in profit or loss. |
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IFRS 10,Consolidated Financial Statements replaces the parts of IAS 27,Consolidated and Separate Financial Statements that deal with consolidated financial statements. SIC-12Consolidation – Special Purpose Entities has been withdrawn upon the issuance of IFRS 10. Under IFRS 10, the only one basis for consolidation is control. In addition, IFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in IFRS 10 to deal with complex scenarios.
IFRS 11,Joint Ventures, introduces new requirements on accounting for joint ventures to replace IAS 31,Interests in Joint Ventures. The option of applying the proportionate consolidation method on jointly controlled entities is eliminated. Additionally, IFRS 11 eliminates jointly controlled assets to now only differentiate between joint operations and joint ventures. Joint operations are joint agreements whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.
IFRS 12,Disclosure of Participation with Other Entities, requires greater disclosure for entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. The objective is to require information for financial statement users to assess the basis of control, restrictions on consolidated assets and liabilities, risk exposures arising from implications with unconsolidated entities and involvement of the holders of non-controlling interests in consolidated entities activities.
IFRS 13,Fair Value Measurements, defines fair value, establishes a framework for measurement and requires disclosures about fair value measurements.
The amendments to IAS 1,Presentation of Items of Other Comprehensive Income retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that will be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis.
The amendments to IAS 1 are effective for annual periods beginning on or after July 1, 2012. The presentation of items of other comprehensive income will be modified accordingly when the amendments are applied in the future accounting periods.
The amendments to IAS 19,Employee Benefits change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. The amendments require all actuarial gains and losses to be recognized immediately through other comprehensive income in order for the net pension asset or liability recognized in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus.
The amendments to IAS 19 are effective for annual periods beginning on or after Januar 1, 2013 and require retrospective application with certain exceptions. We anticipate that the amendments to IAS 19 will be adopted in our consolidated financial statements for the annual period beginning January 1, 2013 and that the application of the amendments to IAS 19 may have an impact on amounts reported in respect of our defined benefit plans. However, we have not yet performed a detailed analysis of the impact of the application of the amendments and hence have not yet quantified the extent of the impact.
IAS 27,Separate Financial Statements, provides the requirements for presentation of separate financial statements of parent companies.
IAS 28,Investments in Associates and Joint Ventures, is amended to conform to changes based on the issuance of IFRS 10, 11 and 12.
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B. LIQUIDITY AND CAPITAL RESOURCES
General
Our principal uses of funds in 2011 were:
| | • | | Ps.2,755 million for the SPC Projects; |
| | • | | Ps.2,080 million for repayment of certain indebtedness of our subsidiary Aeroinvest; |
| | • | | Ps.1,746 million for the Nuevo Necaxa-Tihuatlan highway |
| | • | | Ps.1,616 million for the Autovia Urbana Sur highway; |
| | • | | Ps.1,309 million for the Atotonilco water treatment plant; |
| | • | | Ps.737 million for the Rio Verde-Ciudad Valles highway; |
| | • | | Ps.719 million for the Rio de los Remedios-Ecatepec highway; |
| | • | | Ps.562 million for the Agua Prieta water treatment plant; |
| | • | | Ps.737 million for the La Piedad bypass; and |
| | • | | Ps.737 million for the El Reality Aqueduct. |
Our principal sources of funds in 2011 were third party financing for our construction, concessions and housing development projects, proceeds from project execution, a bond offering in the international capital markets, operating cash flow and asset sales such as the U.S.$420 million sale of our Corredor Sur tollroad concessionaire (ICA Panama) to the Government of Panama and the sale of COVIQSA and CONIPSA (the holders of two tollroad concessions) to our affiliate RCO. In February 2011, we raised U.S.$500 million from an offering of 8.9% senior notes due 2021. Also, in August 2011, two of our special purpose subsidiaries placed Ps.7,100 million in bonds in the Mexican market with a term of 20.8 years to finance the construction and operation of two infrastructure projects. Our obligations under these debt securities are secured by a pledge of the collection rights under the SPC agreements governing these projects.
Our expected future sources of liquidity include cash flow from our Civil Construction, Industrial Construction, Concessions and Airport segments as well as from third party debt and equity for our construction and housing projects. We cannot assure you that we will be able to continue to generate liquidity from these sources. We expect our principal future commitments for capital expenditures to include capital requirements related to new and existing concessions. Each of the concessions we currently have under contract has long-term third party financing. Our policy and practice is to have indicative arrangements in place for third party financing at the time we participate in a bid for a concession. It is also our policy and practice to have arrangements in place for third party financing at the time we participate in a bid for a construction project, if the construction project requires financing (such as the La Yesca hydroelectric project). Construction projects that require third party financing include those without traditional public works payment procedures, where we receive an initial payment in advance and we invoice the client periodically after making expenditures for the project. Our traditional public works contracts, on the other hand, require spending simultaneously with or after payment of invoices by the public project owner, thereby typically not requiring capital expenditures in excess of available funding. Because of our third-party financing policies and the procedures of our public works contracts, we expect our capital requirements related to concessions to vary less than our discretionary capital spending in other areas such as in non-public works construction, which are more often sensitive to market conditions, although there can be no assurance that our capital requirements related to concessions will not vary.
As of December 31, 2011, we had net working capital (current assets less current liabilities) of Ps.8,421 compared to Ps.2,001 million as of December 31, 2010. The increase in our total net working capital at December 31, 2011 from December 31, 2010 was primarily attributable to the unused proceeds received from the financings related to the SPC projects.
Although from 2008 through 2010, we saw a trend toward lower net working capital balances in the Company, that trend was due in part to large payments made on a smaller volume of projects towards the end of 2007 than we currently have. From 2010 to 2011,
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we no longer experienced the trend towards lower net working capital due in part to payments made on the new SPC projects and the conversion of the La Yesca hydroelectric project’s receivables to short term receivables. There can be no assurance, however, that the trend toward lower net working capital balances will not recur due to changes in the mix of projects under execution at any given time and their completion dates. Another trend toward our greater working capital needs is the growth of our Concessions segment, in which we have seen a trend toward greater investment requirements in infrastructure projects. When we perform construction under concessions, we generally must wait for an extended period—until after the concession has completed construction and begun operating—to recover the costs of construction. Additionally, our accounts receivables reflect a particular contracting scheme used in our Chicontepec II oil field and Package II of the Minatitlan refinery projects for Pemex where the contractor was paid only on major milestones, adding Ps. 635 million and Ps.1,679 million to our accounts receivable as of December 31, 2011 and 31, 2010, respectively, and requiring us to provide significant advance funding. Finally, when constructing public works, we often experience a delay in payment of our invoices, particularly in the initial phases of a project. The impact of the turmoil in the global financial system and the recession in Mexico as well as the upcoming elections in Mexico may result in delayed payment of monthly invoices for construction compared to what is historically typical. We believe that our working capital is sufficient to meet our requirements in connection with work we currently intend to carry out over both the short and long-term.
The increase in 2011 in current liabilities was primarily due to the reclassification of the debt related to the La Yesca hydroelectric project to current liabilities and, to a lesser extent, the incurrence of bridge loan financing while we finalize long-term financing arrangements. Our liabilities have increased in line with increases in our volume of work and number of projects, which typically result in current liabilities to subcontractors and suppliers.
Our cash and cash equivalents (including restricted cash) were Ps.10,900 million as of December 31, 2011, as compared to Ps.4,519 million as of December 31, 2010. At December 31, 2011, we had a current ratio (current assets over current liabilities) of 1.21, as compared to a current ratio of 1.10 at December 31, 2010.
Cash and cash equivalents (including restricted cash) at year-end 2011 included:
| | • | | Ps.1,300 million, or 12% of our cash and cash equivalents, held by ICA-Fluor, which are unrestricted; |
| | • | | Ps.5,978 million, or 55% of our cash and cash equivalents, held in reserves established to secure financings related to the Acapulco Tunnel, the Kantunil-Cancun toll road, the Rio Verde-Ciudad Valles, Nuevo Necaxa-Tihuatlan, the Mitla-Tehuantepec highway, the two SPC projects, and the La Piedad bypass project, all of which are restricted; |
| | • | | Ps.565 million, or 5% of our cash and cash equivalents, held in our Airports segment, of which Ps.31 million is restricted; |
| | • | | Ps.404 million, or 4% of our cash and cash equivalents, held by our Ingenieros Civiles Asociados subsidiary; and |
| | • | | Ps.116 million, or 1% of our cash and cash equivalents, held by Rodio Kronsa. |
Certain uses of cash and cash equivalents by certain of our less than wholly-owned subsidiaries require 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; Soletanche Bachy France S.A.S., in the case of Rodio Kronsa; FCC Construccion, S.A., in the case of the Nuevo Necaxa-Tihuatlan highway and the Aqueduct II water supply project; LP Holding, S.A., in the case of Los Portales, S.A.; Fomento de Construcciones y Contratas S.A. and Constructora Meca S.A. in the case of the Panama Canal (PAC-4) expansion project; and Aqualia Gestion Integral del Agua, S.A., Aqualia Infraestructuras, S.A. and Servicios de Agua Trident, S.A. de C.V., in the case of our concessionaire for the El Reality water supply system. Also, certain projects under construction in 2011 are managed jointly with Promotora del Desarrollo de America Latina, S.A. de C.V., such as the construction of the second level of Periferico Sur in Mexico City, or Autovia Urbana Sur, and the Mitla-Tehuantepec highway. In the case of these entities, the consent of our partners or other shareholders is only required with respect to the use of cash and cash equivalents outside of normal budgeted operations. The budget for normal operations is set by the board of directors of the relevant subsidiary, which are comprised of members appointed by both us and the other partners or shareholders, depending on the terms of the bylaws of the entity. While the cash held in these entities is not destined for a specific use or set aside as a compensating balance, the requirements for its use could limit our access to liquid resources or limit us from freely deciding when to use cash and cash equivalents outside of normal operations. Additionally, a portion of our cash and cash equivalents are held in reserves established to secure financings and thus form part of our restricted cash balances. The reserve requirements of such financings could also limit our access to liquid resources and limit our ability to decide when to use our cash and cash equivalents. 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, or in reserves, that restrict our access to them.”
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We used a net Ps.10,155 million in operating activities during 2011, as compared to using a net Ps.4,531 million in operating activities during 2010. The underlying drivers that led to changes in our operating cash flows in 2011 were (i) an increase in the number and volume of projects under execution, (ii) increased use of our cash reserves because of an increase in long-term accounts receivable owed by our clients (due to the payment structures of certain significant projects) and (iii) advance payments to suppliers.
Portions of our assets are pledged to a number of banks under credit arrangements, including: WestLB AG, Banco Santander (Mexico), S.A., Banco Inbursa, S.A. Institucion de Banca Multiple, Grupo Financiero Inbursa, BBVA Bancomer, BG Trust Inc., Bank of America Merrill Lynch, Value Casa de Bolsa, S.A. de C.V., Banco Mercantil del Norte, S.A., Grupo Financiero Banorte, Banco Nacional de Mexico, S.A., Integrante del Grupo Financiero Banamex, Banco Espiritu Santo de Investimento, Banco del Bajio, S.A., Banco Nacional de Obras y Servicios Publicos, S.N.C., Institucion de Banca de Desarrollo, Bancolombia, S.A., Morgan Stanley Bank, N.A., and Interamerican Credit Corporation. The assets we have pledged include collection rights under construction contracts, concessions, construction machinery and equipment, real property, dividend rights and shares of each of our financed concession projects. Notably among these, we have pledged our shares in the Autovia Urbana Sur highway concession, Autovia Necaxa-Tihuatlan, S.A. de C.V., or Auneti, our subsidiary that operates the Nuevo Necaxa-Tihuatlan highway, our 50% interest in Los Portales, S.A., a real estate subsidiary located in Peru, RCO, our Atotonilco water treatment project, our interest in the El Realito project, our interest in the Agua Prieta project, our shares of Viabilis Infraestructura S.A.P.I. de C.V., or Viabilis, the contractor for the Rio de los Remedios-Ecatepec toll highway project, as well as the collection rights of the Rio de Los Remedios project. In general, assets securing credit arrangements will remain pledged until the arrangement 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 December 31, 2011, we had unrestricted access to Ps.4,845 million of our cash and cash equivalents, compared to Ps.2,975 million at December 31, 2010. See Note 7 to our consolidated financial statements.
Our debt agreements contain standard covenants and events of default applicable to us, including cross-defaults that permit our lenders to accelerate debt. In addition, the indenture under which we issued U.S.$500 million of notes at the holding company level in February 2011 contains various covenants and conditions that limit our ability to, among other things: incur or guarantee additional debts; create liens; enter into transactions with affiliates; and merge or consolidate with other companies. As a result of these covenants, we are limited in the manner in which we conduct our business and may be unable to engage in certain business activities. We believe we are currently in compliance with all our restrictive covenants. Additionally, we have increasingly been required to accept market disruption clauses in our debt agreements, which, if invoked, typically require a borrower to pay a higher rate of interest when the interest rate under a loan agreement no longer adequately covers the actual cost to the lender of obtaining funds from whatever source it may reasonably select. Certain of our subsidiaries, such as the Constructora de Proyectos Hidroelectricos, S.A. de C.V. consortium, or CPH, 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. CPH’s financing for the La Yesca hydroelectric project contains various restrictive covenants typical in a project financing including, significantly, covenants limiting CPH’s access to additional cash other than what the project specifically requires until project completion and after final payment from the Mexican Federal Electricity Commission (Comision Federal de Electricidad) is received, as well as covenants limiting CPH’s ability to contract additional debt or guarantees. Our subsidiary Viabilis has contracted financing for the Rio de los Remedios-Ecatepec highway project that contains standard covenants and events of default applicable to Viabilis, significantly, reporting obligations, conduct of business, compliance with laws, limitations on merger and acquisition transactions, limits on contracting additional debt or guarantees, limits on modification of construction contracts without the consent of the lenders and a prohibition on derivative transactions. The Viabilis financing agreement does not include covenants or events of default related to financial ratios. Our unconsolidated affiliate RCO has financing with terms requiring a waterfall of payments that may restrict the cash available for distributions to shareholders until 2014. Restrictive covenants in our debt agreements restrict only the project contracting the financing agreement in which they are contained, and generally do not restrict our operating subsidiaries. See Note 21 to our consolidated financial statements and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Indebtedness.” We are not currently, and are not reasonably likely to be, in breach of any of our material debt covenants, and we do not have any stated events of default or cross-defaults in our debt agreements that would allow our lenders to accelerate our debt if not cured within applicable grace periods.
In certain bidding processes we have also been required to prove, typically at the bidding level, our debt ratios (total debt divided by total assets) and liquidity ratios (short-term assets divided by short-term debt). The requirements related to these ratios vary. In certain projects, we were required only to disclose the existing ratios to the potential client, without a minimum requirement, such as in the Atotonilco and El Realito water treatment projects and the PAC-4 project in Panama. In other bidding guidelines we have seen debt ratios required to be less than 0.7 or 0.8, and liquidity ratios required to be greater than 1.0 or 1.2. Our experience shows that these requirements can vary greatly from client to client and country to country. We have historically met or exceeded the debt and liquidity ratio requirements for the projects on which we have bid.
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We have also been required to demonstrate minimum capital in order to participate in bids for construction contracts and concessions. The minimum capital requirements are not uniform across clients, and can also vary for the same client depending on a project’s type and magnitude. For example, in two recent bids with the Ministry of Communications and Transportation, we were required to have minimum capital of Ps.280 million and Ps.900 million, respectively. The state government of Jalisco, Mexico required minimum capital of Ps.386 million for the Agua Prieta project, while the Atotonilco project’s client, the National Water Commission, required Ps.1,000 million. We believe we will continue to be required to demonstrate minimum capital in order to participate in certain bids for construction contracts and concessions.
Project Financing
We use a number of project financing structures to raise the capital necessary for our 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 under limited- or non-recourse structures. 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.
In our Concessions segment, we typically provide a portion of the equity itself and our investment is returned over time once the project is completed. Concessions are an approach to financing public-sector projects through the private sector. In certain non-concession projects that are financed as part of Mexico’s public works financing program, such as the La Yesca hydroelectric project, payment of the contract price is deferred until the project is operational. Due to the nature of most infrastructure projects, which typically involve long-term operations, we do not recover our equity or debt contribution or receive payment under the contract until the construction phase is completed. Depending on the requirements of each specific infrastructure project, whether such project is a concession or not, 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 our 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 selective in choosing projects where we expect to recover our investment and earn a reasonable rate of return. However, we cannot assure you that we will be able to realize these objectives or continue financing construction projects as we have in the past.
Indebtedness
Our total debt to equity ratio was 2.4 to 1.0 at December 31, 2011 and 1.7 to 1.0 at December 31, 2010. The deterioration in the debt to equity ratio at December 31, 2011 from December 31, 2010 mainly reflected the incurrence of debt to finance the execution of projects, including concessions under construction and the La Yesca hydroelectric project, as well as our issuance of U.S.$500 million of 8.9% senior notes due 2021.
As of December 31, 2011, approximately 22% of our consolidated revenues and 47% of our indebtedness were denominated in foreign currencies, mainly U.S. dollars. Unless, as is our policy, we contract debt financing in the same currency as the source of its repayment, decreases in the value of the Mexican peso relative to the U.S. dollar may increase the cost in Mexican pesos of our debt service obligations with respect to our U.S. dollar denominated indebtedness and may also result in foreign exchange losses as the Mexican peso value of our foreign currency denominated indebtedness is increased. We have entered into cash flow hedges, including with respect to foreign currency cash flow, and other trading derivative instruments for the terms of some of our long-term credit facilities with the objective of reducing the uncertainties resulting from interest rate and exchange rate fluctuations. To date, the results
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of our derivative financial instruments have been mixed and have not substantially affected our cash flows. See “Item 3. Risk Factors—Risks Related to Mexico and Other Markets in Which We Operate—Appreciation or depreciation of the Mexican peso relative to the U.S. dollar, other currency fluctuations and foreign exchange controls could adversely affect our financial condition and results of operations” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Derivative Financial Instruments.” Several of our subsidiaries have lesser exposure to foreign currency risk because a higher percentage of their revenues are denominated in U.S. dollars.
Certain of our subsidiaries, such as CPH, 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 21 to our consolidated financial statements.
In 2011, our debt service obligations (principal and interest before commissions expenses) totaled Ps.50,622 million for debt denominated in pesos and U.S. dollars, as compared to Ps.32,345 million in 2010. As of December 31, 2011, our net debt (interest paying debt less cash and cash equivalents) was Ps.39,722 million, as compared to Ps.27,826 million as of December 31, 2010. Our net debt increased in 2011 due to an increase in our debt, particularly in our Concessions segment and Corporate and Other segment.
Empresas ICA
In February 2011, we issued U.S.$500 million of 8.9% senior unsecured notes due 2021. The notes are guaranteed on a senior unsecured basis by our subsidiaries CICASA, CONOISA and CONEVISA. Approximately half of the net proceeds from of the notes was used to repay a bridge loan among our subsidiary Aeroinvest, as borrower, us, as guarantor, and Bank of America, N.A., acting through its Cayman Branch, as lender. The balance of the proceeds from the notes was used for general corporate purposes, including equity contributions for new and existing projects.
La Yesca
CPH is a special purpose subsidiary created to construct the La Yesca hydroelectric project. 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. 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 from WestLB AG, which also structured the financing for the El Cajon hydroelectric project. The financing consists of a U.S.$910 million line of credit to be used to cover construction costs and a U.S.$140 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 including, significantly, covenants limiting CPH’s access to additional cash other than what the project specifically requires until project completion and after final payment from the Mexican Federal Electricity Commission (Comision Federal de Electricidad) is received, as well as covenants limiting CPH’s ability to contract additional debt or guarantees. The $910 million construction line of credit was syndicated and has a term that lasts the duration of the construction period, 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 be made on the date of provisional acceptance of the first turbine unit, currently expected to occur in the second half of 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 upon delivery of the second turbine unit, expected to occur by the end of 2012. West LB is the sole lender of the U.S.$140 million working capital line of credit, which has the same term as the construction line of credit. The working capital line of credit is expected to be repaid from the construction line of credit.
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 half of 2012. The La Yesca hydroelectric project generated Ps.3,273 million of revenue, or 8% of total revenues, in 2011. The La Yesca hydroelectric project represented a substantial portion of our receivables and indebtedness in 2011, and is expected to continue to represent a substantial portion of our receivables and our indebtedness in the future until the fourth quarter of 2012. At December 31, 2011, we had Ps.14,040 million in contract receivables (including receivables based on the percentage-of-completion method of accounting) and Ps.13,208 million of debt (which became short-term debt in the fourth quarter of 2011) on our consolidated statement of financial position relating to the La Yesca hydroelectric project. In 2011, the project’s accounts receivables were reclassified as short-term.
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RCO
On August 6, 2007, the Ministry of Communications and Transportation awarded the first FARAC concession package to RCO, a consortium formed by two of our subsidiaries and GSIP in which we originally participated with 20% of the equity and GSIP originally held the remaining 80% of the equity. The FARAC concession consists of a 30-year concession to construct, operate, exploit, conserve, and maintain the 558-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 concessionaire, 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.
In October 2009, RCO placed Ps.6,550 million in equity-linked structured notes with Mexican institutional investors on the Mexican Stock Exchange. After the transaction (including our purchase of additional Series A shares in RCO at the same price per share as the Series B shares underlying the equity-linked structured notes), we owned 13.6% of RCO and GSIP owned 54.5%. The trust holding the Series B shares underlying the equity-linked structured notes owned the remaining 31.9% of RCO. RCO used the net proceeds of the capital increase together with the equity provided by the original shareholders primarily to pay down debt totaling Ps.5,666 million of the long-term financing with Banco Santander. After paying this debt reduction, the outstanding balance on the long-term financing with Banco Santander was Ps.27,291 million.
There are no parent company guarantees of these RCO financing arrangements.
In September 2011, we completed the sale of our Queretaro-Irapuato and Irapuato-La Piedad highway concessions to RCO in exchange for cash and an increased shareholding in RCO from 13.6% to 18.7%.
Aeroinvest
On December 22, 2010, our subsidiary Aeroinvest entered into a Ps.2,275 million bridge loan with Bank of America, N.A. Cayman Branch to prepay Aeroinvest’s series 2007-1 Class A, Class B and Class C notes issued in 2007. In February 2011, we repaid this loan in its entirety with the funds obtained from our issuance of U.S.$500 million of 8.9% senior notes that month. In December 2011, we entered into a loan agreement in an aggregate amount of U.S.$45 million under which we have also pledged through a trust agreement 115 million of GACN’s shares held by Aeroinvest as of March 31, 2012. The loan has a term of four years and is guaranteed by both CONOISA and our holding company Empresas ICA, S.A.B. de C.V. This loan also requires compliance with a Receipts to Debt Service Ratio of less than or equal to 1.20 to 1, a GACN Earnings Before Depreciation and Amortization (EBDA) to Debt Service Ratio of less than or equal to 2.0 to 1.0 and a total loan to value ratio of greater than or equal to 0.5 to 1.0.
Grupo Aeroportuario del Centro Norte
On July 14, 2011, our indirect subsidiary GACN placed Ps.1,300 million in 5-year peso-denominated notes (Certificados Bursatiles) with local investors in the Mexican market. The interest rate on the notes is the 28-day Mexican Interbank Equilibrium Rate, or TIIE, plus 70 basis points. GACN used the net proceeds of the offering to prepay Ps.1,011.3 million in existing debt and commissions, with the balance of the net proceeds used to fund committed investments under GACN’s Master Development Program for its 13 airports, as well as to make strategic investments.
SPC Projects
In August 2011, two of our special purpose subsidiaries placed Ps.7,100 million in bonds in two tranches—one Mexican peso tranche in the amount of Ps.5,323 million at a fixed annual rate of 10% and one UDI tranche in the amount of Ps.1,777 million with a real annual rate of 5.65%—in the Mexican market with a term of 20.8 years to finance two social infrastructure projects consisting of the construction of, and provision of non-penitentiary services to, two federal penitentiaries. Our obligations under these debt securities are secured by a pledge of the collection rights under the SPC contracts. We will begin making quarterly principal and interest payments on the bonds in 2013 according to their amortization schedule. On March 6, 2012, we reopened the bonds and issued an additional Ps.1,060 million in the Mexican market under substantially similar terms as the Mexican peso tranche.
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ViveICA Credit Lines
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 was denominated in pesos and had a maturity of six years, with a four-year revolving period during which ViveICA was permitted to draw on the funds. Because the facility was uncommitted, we did not pay a commitment fee to Deutsche Bank and Deutsche Bank had discretion to cease advancing funds under the agreement. Commencing in February 2010, we were in the amortization period of the facility. At December 31, 2011, we had an outstanding balance of Ps.152.9 million under the facility.
We used this facility to finance projects before project authorization documents were obtained and to recover the appraised value of the project land upon delivery of definitive project authorization, thus increasing the turnover and liquidity of projects. Under this facility, ViveICA was required to comply with certain affirmative and negative covenants including: (i) maintaining a ratio of earnings before interest taxes and depreciation to interest expense of greater than 2.0x (as of December 31, 2011, such ratio was 2.024x), and (ii) a financial debt to assets ratio of less than 0.6x (as of December 31, 2011, such ratio was .574x). This facility also included an event of default and a condition precedent to disbursement of funds under the facility requiring the debt of the facility to maintain a rating of at least “mxAAA” for S&P and “Aaa.mx” for Moody’s. In 2010, due to a downgrade in the rating of the facility as a result of changes in the methodology of the ratings agencies, we received a default notice from the trustee of the debt holders, which was later cured by renegotiating the terms of the agreement. As part of the renegotiation, the facility’s minimum rating requirement changed to “Baa2.mx” for Moody’s; in addition, the S&P rating requirement was eliminated. There was been no termination or acceleration of this facility. This facility was paid in full during the first quarter of 2012.
On August 20, 2009, ViveICA entered into facility funded by IXE Banco for Ps.350 million. The facility is denominated in pesos and has a maturity of 2 years with interest at the 28-day Mexican Interbank Equilibrium Rate, or TIIE, plus 3.5%. ViveICA has received funds from the facility of Ps.350 million, which it used to repay short-term commercial paper. As of December 31, 2011, , we had approximately Ps.112.8 million outstanding under this facility. We make monthly payments on the loan, which was expected to be fully paid upon expiration of its term on August 16, 2011. However, we executed an agreement to reschedule the payments under this facility beginning in June 2010 to extend the repayment term for 36 months thereafter. We extended the repayment term in order to provide increased working capital for ViveICA. Under this agreement, ViveICA and Ingenieros Civiles Asociados, S.A. de C.V. have agreed not reduce our equity in ViveICA by more than 10% for the term of the loan. Ingenieros Civiles Asociados has provided a guarantee under the terms of this facility.
On March 22, 2011, ViveICA entered into a Ps.500 million 3-year term facility with Banorte, with an interest at the 28-day TIIE, plus a 4% spread. This facility has a parent company guarantee from Empresas ICA, S.A.B. de C.V.
Nuevo Necaxa—Tihuatlan
On June 2, 2008, our subsidiary Auneti, which operates the Nuevo Necaxa—Tihuatlan toll highway concession, entered into a guaranteed multi-tranche loan for the long-term financing of the construction of the Nuevo Necaxa—Avila Camacho segment of the Nuevo Necaxa—Tihuatlan highway in the amount of Ps.6,061 million. The loan agreement consists of two tranches: (1) Tranche A provides a Ps.5,510 million loan for a nine-year term to be used for the acquisition of the concession and its construction, and (2) Tranche B provides a Ps.551 million support facility at the completion of construction, for a nine-year term, to be used for the payment of interest on Tranche A. Both tranches of the loan are without recourse to Auneti’s shareholders and were provided by Banco Santander, HSBC Securities (USA) Inc. and Dexia S.A. There is no parent company guarantee of this Auneti loan.
Atotonilco
On August 16, 2010, we entered into an 18-year term loan agreement with Banobras development bank for Ps.4,790 million. This facility has an interest rate at the 28-day TIIE plus 2.75% to 3.5%, depending on the year in which the funds are effectively disbursed. The collateral for this loan includes a pledge on our shares of the project concessionaire.
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Corredor Sur
On May 17, 2005, a trust organized by our then subsidiary ICA Panama issued U.S.$150 million of 6.95% notes due 2025, with payments of principal and interest to be made from the Corredor Sur highway’s operations. The notes were recourse solely to the trust, which had 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) 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. In August 2011, we entered into a Share Purchase Agreement to sell our Corredor Sur tollroad concession to ENA, a corporation owned by the Government of Panama, for U.S.$420 million. The transaction was completed on August 24, 2011. Simultaneously with the completion of the sale, we repaid approximately U.S.$154 million of Corredor Sur’s outstanding debt. There was no parent company guarantee of this Corredor Sur financing arrangement.
Acapulco Tunnel (TUCA)
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 were listed on the Mexican Stock Exchange. These 2005 notes accrued interest at TIIE plus 2.95%. The 2005 notes were 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.
In 2008, TUCA used the proceeds of a new note offering to repay the 2005 notes. TUCA issued the new notes in the amount of Ps.1,250 million, with a term of up to 26 years. The new notes accrue interest at the rate of TIIE plus up to 2.95% and are non-recourse.
There are no parent company guarantees of these Acapulco Tunnel financing arrangements.
Rio Verde—Ciudad Valles Highway
On September 19, 2008, our subsidiary ICA San Luis, S.A. de C.V., which operates the Rio Verde—Ciudad Valles highway concession entered into a long-term financing for the construction of a 113.2-kilometer highway in the state of San Luis Potosi, in the amount of Ps.2,550 million. The loan was structured by Banco Santander and has a term of 17 years. There is no parent company guarantee of this Rio Verde—Ciudad Valles highway financing arrangement.
The Kantunil-Cancun Highway (Mayab Consortium)
In 2008, as a consequence of our acquisition of the Mayab Consortium, which holds the concession for the Kantunil-Cancun highway, we assumed the Mayab Consortium’s long-term debt securities, which as of December 31, 2011 were equivalent to Ps.2,446 million. The debt is denominated inUnidades de Inversion, or UDIs, which are Mexican peso currency equivalent units of account that are indexed to Mexican inflation on a daily basis (as measured by the change in the Mexican National Consumer Price Index). As of December 31, 2011, one UDI was equal to approximately Ps.4.691316. The long-term debt matures in 2019 and 2020, and is expected to be repaid from toll revenues generated by the concession. We consolidate the investment in our consolidated financial statements. There is no parent company guarantee of this Kantunil-Cancun highway financing arrangement. In August 2011, we signed an amendment to our concession agreement with the Ministry of Communications and Transportation to construct an extension of the tollroad. The amendment includes the construction, operation, conservation and maintenance of a 54-kilometer expansion of the Kantunil-Cancun highway to Playa del Carmen and extends the term of the concession to 2050. The expansion of the highway will require an estimated investment of approximately Ps.1,900 million. In December 2011 we entered into a bridge loan agreement for U.S.$45 million with Morgan Stanley Bank, S.A. for a term of 9 months pending our arranging long term financing for the expansion. The term of this loan is 9 months and we have agreed to maintain a Maximum Leverage Ratio of less than 9.00 to 1.00.
Viabilis
In February 2010, our subsidiary Viabilis entered into a long-term financing agreement for the Rio de los Remedios-Ecatepec highway project with Banobras development bank. The Ps.3,000 million line of credit is to be applied to Phase 1 of the highway project. On April 15, 2010, Viabilis made its first draw under this line of credit in the amount of Ps.1,136 million. As of December 31, 2011, we have Ps.3,000 million outstanding under this line of credit. This credit facility matures in 2037 and has a fixed interest rate
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of 7.8% plus applicable margin, which varies between 295 and 370 basis points over the term of the loan. Repayment of the loan is expected to occur over the final 14 years of its term; 70% of the loan will be subject to a fixed payment calendar while 30% is payable only to the extent cash is available from the highway project after the fixed-calendar payments are made. The financing agreement includes standard covenants and events of default applicable to Viabilis, significantly, reporting obligations, conduct of business, compliance with laws, limitations on merger and acquisition transactions, limits on contracting additional debt or guarantees, limits on modification of construction contracts without the consent of the lenders and a prohibition on derivative transactions. The financing agreement does not include covenants or events of default related to financial ratios.
The financing package with Banobras for the Viabilis credit facility includes a joint and several guarantee of Viabilis’ performance by Ingenieros Civiles Asociados, S.A. de C.V., our construction subsidiary, as well as a payment guarantee by our subsidiary CICASA proportional to the percentage of Viabilis’ payment obligations corresponding to our subsidiary CONOISA’s percentage of ownership of Viabilis, which is currently 50%, until the beginning of Phase I operations of the highway. Additionally, our shares of Viabilis are pledged to Banobras as collateral.
El Realito
In March 2011, our subsidiary Aquos el Realito S.A. de C.V. entered into a 18-year term financing agreement for the construction of the El Realito Aqueduct project, to which it holds a long-term service agreement, in an amount up to Ps.1,319 million. As of December 31, 2011, our portion of the outstanding debt for the project was Ps.159 million. This credit arrangement also contains certain financial ratios. The debt service coverage ratio less than 1.2 but greater than 1.18 requires us to increase our debt service reserve account. We have entered into an interest rate swap in connection to this agreement and our effective rate is 7.81%.
Agua Prieta
In March 2011, our subsidiary Renova Atlatec S.A. de C.V., or Renova Atlatec, the holder of the long-term service agreement with the Jalisco State Water Comission (CEA) for the construction and operation of the Agua Prieta Waste Water Treatment Plant, entered into a 16-year term financing agreement for the construction of this project in the amount of Ps.1,175 million. As of December 31, 2011, our portion of the outstanding debt for this project was Ps.480 million. This loan is guaranteed by the shares of CONOISA in Renova Atlatec. The agreement also provides that the debtor must maintain a debt service coverage ratio of at least 1.02 to 1. We have entered into an interest rate swap in connection with this agreement with our effective rate being 8.17%.
Autovia Urbana Sur
In May 2011, our affiliate Concesionaria Vial San Jeronimo-Muyuguarda, S.A., which holds the concession for the second level of a section of the Periferico Sur expressway in Mexico City, entered into a long term financing agreement for the project’s construction in the amount of Ps.2,957 million. The loan has a term of 10 years and is secured by a pledge over our shares in the concessionaire. We have also entered into an interest rate swap in connection with this agreement.
Other Debt
As of December 31, 2011 we had no other material outstanding long-term debt.
Derivative Financial Instruments
We enter into derivative financial instruments to reduce uncertainty on the return of our projects. From an accounting perspective our derivative financial instruments can be classified as for hedging or for trading purposes. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Critical Accounting Policies and Estimates—Derivative Financial Instruments.” The decision to enter into a derivative financial instrument is linked, in most cases, to the financing for a project, because the uncertainties we seek to reduce result from fluctuations in interest rates and exchange rates relevant to the project’s financing. Our derivative financial instruments as of December 31, 2011 are composed of instruments that hedge interest rate and exchange rate fluctuations.
When financing for our projects is at a variable interest rate, we may enter into interest rate hedges. Our interest rate hedges can include swaps to reduce our exposure to volatility risks; these swaps convert the interest rate from variable to fixed. We may also enter into interest rate options that establish a maximum limit to the variable rate to cap financial costs. In 2010, we entered into interest rate swaps in connection with an Aeroinvest loan, the La Piedad bypass and the Atotonilco project.
We may enter into exchange rate hedges to reduce the foreign currency exchange rate risk where the currency used in the financing (and corresponding repayment) of the project is different from the currency in which we expect the project to incur labor, supply or other costs. In 2011 and 2010, we entered into foreign exchanges hedges in connection with AHMSA Phase II steel mill and plate line expansion in our Industrial Construction segment.
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It is our policy to enter into financial instruments at the level of each project, by the subsidiaries carrying out such project. Accordingly, the counterparty for a derivative financial instrument is often the same institution (or an affiliate) that provides the financing for the project to which that instrument is linked. We generally execute our derivatives directly with the hedge provider. We believe we have diversified the credit risk of our derivative financial instruments by contracting them with different financial institutions.
It is our policy not to enter into, and we have not entered into, derivative instruments that have margin calls or similar mechanisms that might impose additional obligations on parent companies of our subsidiaries. Since we enter into all our derivative instruments at the level of each project, hedge providers on occasion require additional financial support for the project subsidiary’s obligations. In those cases, our policy is to limit such support to cash collateral or a standby letter of credit provided at the time we enter into the derivative, so that the amount of such collateral or letter of credit is defined without any provision that would permit increase thereof or margin calls. It is also our policy that such collateral or letter of credit only be payable to the hedge provider upon an event of default under the hedge agreement.
Our internal control policies state that entering into derivative financial instruments requires collaborative analysis by representatives from our Finance, Legal, Administration and Operations areas, prior to approval. Once this analysis has been concluded and documented, the responsibility for entering into derivatives belongs to the Finance and Administration areas, in accordance with our internal control policy. Our policies do not expressly require authorization by the Corporate Practices, Finance, Planning and Sustainability Committee or the Audit Committee for entry into derivative financial instruments. Our policies limit the authority of those who can execute derivative financial instruments in certain ways, the most important of which are the following:
| | • | | Our Board of Directors establishes limitations on the amounts and types of derivative transactions that our officers may enter into on our behalf. |
| | • | | The Board has vested our Chief Executive Officer with the power to enter into derivative financial instruments subject to certain limits on amount and complexity. The CEO has delegated this power using powers of attorney, also subject to caps on amount and complexity, to our Vice President for Finance and Administration and appropriate Finance officers. |
| | • | | In the event that the CEO, the Vice President for Finance and Administration or an appropriate Finance officer wishes to enter into a derivative financial instrument that exceeds or goes beyond the limitations set by the board, the board’s specific authorization is required. |
When assessing the potential use of derivatives to hedge financial market risks, we perform sensitivity analyses of possible outcomes of alternative derivative instruments to help us evaluate the economic efficiency of each alternative available to us to hedge the risk. We compare the terms, obligations and conditions to choose which alternative best suits our strategy. Once we enter into a derivative, we conduct effectiveness tests with the help of expert appraisers to determine its accounting treatment. See “Item 5. Operating and Financial Review and Prospects – Operating Results – Critical Accounting Policies and Estimates – Derivative Financial Instruments.”
La Yesca Derivatives
During 2008, we entered into foreign currency exchange options related to the La Yesca hydroelectric project to hedge our foreign exchange risk, because the financing and sources of payment (revenues) related to this project are in U.S. dollars while the majority of its project costs are in Mexican pesos. These options establish exchange rate levels that we expect will permit the U.S. dollars obtained from the La Yesca financing to cover the project’s costs and expenses in Mexican pesos. The four options we entered into established together an average exchange rate of Ps.11.33 per U.S. dollar, for the period from July 2008 to July 2010 for three of the options and to April 2011 for the fourth option. The notional amount fluctuated from U.S.$194.5 million to U.S.$499.3 million, based on the spot exchange rate compared to the exchange rate set forth in the derivative contract. We analyzed the effectiveness of these instruments with the assistance of external evaluators. The analysis concluded that the amount of the derivative covered the peso-denominated costs of the project, and any reduction in the market value of the instrument was expected to be offset by exchange gains on the value of the construction contract.
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Nonetheless, due to changes in the La Yesca construction schedule and the increasing volatility of Mexican peso-U.S. dollar exchange rate fluctuations, on April 20, 2009, we and the provider of the La Yesca foreign currency exchange options restructured the options to (i) stabilize the notional amount so that it remains unchanged regardless of the difference between the spot exchange rate and the exchange rate set forth in the derivative contract, (ii) reduce the notional amount to Ps.2,083 million (approximately U.S.$183.5 million), corresponding to weekly transactions averaging Ps.16 million (approximately U.S.$1.4 million), to better fit the La Yesca hydroelectric project’s peso obligations, and (iii) reschedule the weekly settling of notional amounts to match the revised construction schedule and disbursement program. The options as restructured were effective for the period from April 22, 2009 through February 29, 2012. This option was again restructured in August 2011 to better reflect the conditions of the project, including reducing the notional amount.
The cost of the 2009 renegotiation of the La Yesca options was U.S.$33 million, for which the provider required a letter of credit from Compañia Hidroelectrica La Yesca, or COHYSA, as a credit support document. The letter of credit accrued interest at the London Interbank Offered Rate, or LIBOR, plus 450 basis points. The cost of renegotiation, including interest, becomes due upon completion of the La Yesca hydroelectric project. On September 15, 2010, we entered into a U.S.$16 million credit agreement to replace the expiring letter of credit. The cost of the 2011 restructuring was U.S.$2.9 million.
During 2007, we entered into two derivative contracts that establish a maximum interest rate of 5.5% (an interest rate cap). During 2008, we entered into a combination of a purchase of a cap option and a sale of a floor option (which establishes a minimum interest rate on the financing) on certain of our credit agreements related to the La Yesca project; this transaction was designated as a cash flow hedge. At December 31, 2011, the fair value of the combined cap and floor resulted in the recognition of a derivative liability of U.S.$5 million. At December 31, 2010, the fair value of the combined cap and floor resulted in the recognition of a derivative liability of U.S.$22 million.
RCO Derivative
RCO’s long-term financing has a floating interest rate. In order to hedge for fluctuations of the floating rate, RCO entered into six interest rate swaps; four that swapped the floating rate for a fixed interest rate and two that swapped the floating rate to a “real” (inflation-adjusted) interest rate. The real interest rate swaps are designed to hedge increases in the costs of RCO’s operating and capital expenditures because of inflation. Given that we recognize RCO as an equity method investment, the aggregate fair value to us of the six derivatives on December 31, 2011 was a loss of Ps.357 million, as compared to Ps.309 million on December 31, 2010, representing our share of the total value of the derivative. The cash flows derived from the four fixed rate swaps are paid or received on a monthly basis, while the cash flows derived from the two real rate swaps are paid on an annual basis. The aggregate notional amount for four fixed rate swaps is Ps.15,070 million, or approximately 58% of the total financing amount. The aggregate notional amount for the two real interest rate swaps is Ps.11,365 million. This derivative is classified as a hedging instrument.
Other Derivatives
In August 2006, we entered into a derivative financial instrument known as a “European style option,” which limited the interest rate on a notional amount of Ps.580 million of our debt securities. In August 2010, we renewed this financial instrument and changed the notional amount to Ps.490 million. After the sale of our CONIPSA subsidiary to our affiliate RCO in the third quarter of 2011, we no longer consolidate the entity that holds this derivative. Until the time of the sale, this option was classified as a hedge for accounting purposes.
Between November and December 2011, we entered into a series of foreign exchange forwards with varying maturities in order to mitigate foreign exchange exposure on the AHMSA Phase II steel mill and plate line expansion. These instruments have a fair value as of December 2011 of Ps.28 million. These instruments are classified as hedging contracts for accounting purposes.
In the second half of 2010, we entered into cross-currency swap transactions in order to mitigate our interest and exchange rate exposure in the Eastern Discharge Tunnel project to hedge prices of the tunnel boring machines used in this project. As of December 31, 2011, the fair value of these instruments is Ps.21 million. These instruments are classified as hedging contracts for accounting purposes.
In February 2011, we entered into four coupon-only swaps to hedge our foreign currency interest payment exposure related to our U.S.$500 million senior unsecured notes. For more information on our senior unsecured notes, see “Item 5. Liquidity and Capital Resources—Indebtedness—Empresas ICA.” The fair value as of December 31, 2011 of these swaps is Ps.293 million. These instruments are classified as hedging contracts for accounting purposes.
During 2011 we entered into a series of interest rate swaps (exchanging variable or floating rates for fixed rates) in our Concessions segment in connection with the following projects: the Atotonilco water treatment plant with a notional amount of Ps.4,310 million; the Autovia Urbana Sur project with a Ps.2,957 million notional amount; the Agua Prieta water treatment plant with a notional amount of Ps.940 million; and the El Realito water treatment plant with a notional amount of Ps.989 million.
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For our Mayab Consortium bridge loan related to the acquisition of the land for the expansion of the concession, we entered into a foreign exchange forward with a strike price of U.S.$14.25 per Mexican peso, which as of December 31, 2011 had a notional amount of U.S.$45 million.
Additional Sources and Uses of Funds
We may from time to time repurchase or sell our outstanding equity securities if market conditions and other relevant considerations make such repurchases or sales appropriate. The amount that we may use to repurchase our securities is authorized annually by our shareholders at our ordinary general meeting. See “Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchaser.”
Historically our clients have required us to issue bonds to secure, among other things, bids, advance payments and performance. In recent years, our clients have been increasingly requiring letters of credit and other forms of guarantees to secure such bids, advance payments and performance. We are currently in contact with issuers of letters of credit, but we cannot guarantee that we will be able to obtain all of the letters of credit required for our normal operations.
In recent years, our liquidity has also been adversely affected by the length of our average collection period for accounts receivable. Our average collection period for accounts receivable considered net of value-added tax was 212 days as of December 31, 2011, which is a 15% increase from 184 days as of December 31, 2010, primarily as a result of the La Yesca hydroelectric project from which we expect to collect payment at delivery and long-term accounts receivables of Viabilis.
C. TREND INFORMATION
Please see “Item 5. Operating and Financial Review and Prospects,” “Item 3. Key Information—Risk Factors” and “Item 4. Information on the Company” for trend information.
D. OFF-BALANCE SHEET ARRANGEMENTS
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 material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
E. 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, 2011, the scheduled maturities of our contractual obligations were as follows:
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| | | | | | | | | | | | | | | | | | | | |
| | | Payments Due by Period | |
Contractual Obligations | | Total | | | Less Than
1 Year | | | 1-3 Years | | | 3-5 Years | | | More Than
5 Years | |
| | | (Millions of Mexican pesos) | |
Long-term debt obligations | | | Ps. 44,208 | | | | Ps. 13,887 | | | | Ps. 2,440 | | | | Ps. 4,471 | | | | Ps. 23,410 | |
Notes payable | | | 5,826 | | | | 5,826 | | | | 0 | | | | 0 | | | | 0 | |
Fixed interest(1) | | | 21,759 | | | | 1,763 | | | | 3,347 | | | | 3,105 | | | | 13,544 | |
Variable interest(2) | | | 8,528 | | | | 871 | | | | 1,299 | | | | 1,133 | | | | 5,225 | |
Operating and financial leases obligations | | | 2,588 | | | | 800 | | | | 1,591 | | | | 66 | | | | 131 | |
Master development programs(3) | | | 2,625 | | | | 638 | | | | 1,987 | | | | 0 | | | | 0 | |
Purchase obligations | | | 614 | | | | 78 | | | | 210 | | | | 88 | | | | 239 | |
Seniority premiums | | | 1,092 | | | | 0 | | | | 744 | | | | 51 | | | | 297 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | Ps. 87,241 | | | | Ps. 23,863 | | | | Ps. 11,618 | | | | Ps. 8,914 | | | | Ps. 42,846 | |
| (1) | Fixed interest rates range from 3.78% to 10.10%. |
| (2) | Variable interest rate was estimated using the following ranges: 0.75% (LIBOR plus spread) to 6.99% (LIBOR plus spread); and 5.25% (TIIE plus spread) to 11.35% (TIIE plus spread). When calculating variable interest rates, we used LIBOR and TIIE as of December 31, 2011. |
| (3) | In 2015, the fifth year of our current master development program, we expect to conduct a negotiation with the Ministry of Communications and Transportation to determine the new master development program’s commitments for the subsequent five years. |
As of December 31, 2011, the scheduled maturities of other commercial commitments were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Amount of Commitment Expiration per Period | |
Contractual Obligations | | Total Amounts
Committed | | | Less Than
1 Year | | | 1-3 Years | | | 4-5 Years | | | Over
5 Years | |
| | | (Millions of Mexican pesos) | |
Standby letters of credit | | | Ps. 5,447 | | | | Ps. 2,722 | | | | Ps. 2,725 | | | | Ps. — | | | | Ps. — | |
Guarantees(1) | | | 27,223 | | | | 5,193 | | | | 21,987 | | | | 43 | | | | — | |
| | | | | | | | | | | | | | | | | | | | |
Total commercial commitments | | | Ps. 32,670 | | | | Ps. 7,915 | | | | Ps. 24,712 | | | | Ps. 43 | | | | Ps. — | |
| (1) | Consist principally of bonds delivered to guarantee bids, advance payments and performance. |
| Item 6. | Directors, Senior Management and Employees |
A. DIRECTORS AND SENIOR MANAGEMENT
Management of our business is vested in our Board of Directors. Our bylaws provide that the Board of Directors will consist of the number of directors elected by our shareholders at the annual ordinary general meeting. In September 2006, our bylaws were amended to comply with the Mexican Securities Market Law in effect since June 2006. See “Item 6. Directors Senior Management and Employees- Board Practices.” Our current Board of Directors was elected on April 18, 2012 in three classes, with terms designed to provide a transition to the staggered term arrangement provided by the bylaws. The President of the Board of Directors must be a Mexican national. The Board of Directors currently consists of 17 members. As of April 18, 2012, ten of our directors are independent directors within the meaning of the Mexican Securities Market Law. The directors are as follows:
| | | | | | | | | | | | |
Name | | Position | | | Years as Director | | | Age | |
Bernardo Quintana I.(3) | | | Chairman | | | | 34 | | | | 70 | |
Jose Luis Guerrero Alvarez(1) | | | Director | | | | 22 | | | | 68 | |
Alberto Mulas Alonso(2)(4)(5) | | | Director | | | | 6 | | | | 51 | |
Fernando Ruiz Sahagun(3)(4) | | | Director | | | | 6 | | | | 68 | |
Luis Rubio Friedberg(2)(4)(5) | | | Director | | | | 6 | | | | 57 | |
Francisco Javier Garza Zambrano(2)(4)(5) | | | Director | | | | 5 | | | | 57 | |
Diego Quintana Kawage(2) | | | Director | | | | 5 | | | | 41 | |
Alonso Quintana Kawage(3) | | | Director | | | | 4 | | | | 38 | |
Fernando Flores Perez(1)(4)(5) | | | Director | | | | 4 | | | | 66 | |
Elsa Beatriz Garcia Bojorges(3)(4)(5)(6) | | | Director | | | | 3 | | | | 46 | |
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| | | | | | | | | | | | |
Aaron Dychter Poltolarek(1)(4)(5) | | | Director | | | | 3 | | | | 59 | |
Salvador Alva Gomez (1)(4)(5) | | | Director | | | | 2 | | | | 61 | |
Margarita Hugues Velez(3)(4)(5) | | | Director | | | | 2 | | | | 41 | |
Carlos Benjamin Mendez Bueno(1) | | | Director | | | | 2 | | | | 59 | |
Luis Horcasitas Manjarrez(1) | | | Director | | | | 1 | | | | 59 | |
Ruben Lopez Barrera(2) | | | Director | | | | 1 | | | | 43 | |
Melissa Boisson Portillo(1)(4)(5) | | | Director | | | | 1 | | | | 34 | |
| (1) | Director whose term expires on April 30, 2013. |
| (2) | Director whose term expires on April 30, 2014. |
| (3) | Director whose term expires on April 30, 2015. |
| (4) | Independent directors within the meaning of the Mexican Securities Market Law. |
| (5) | Independent directors within the meaning of Rule 10A-3 under the Securities Exchange Act of 1934, as amended. |
| (6) | Audit committee financial expert, within the meaning of Section 407 of the Sarbanes-Oxley Act of 2002. |
Listed below are the names, responsibilities and prior business of our directors and senior management:
Bernardo Quintana Isaachas been a member of our Board of Directors since 1978. Mr. Quintana was our President from December 1994 to December 2006 and has continued as our Chairman since that date. Previously, Mr. Quintana was the Director of Investments for Banco del Atlantico, Vice President of ICA Tourism and Urban Development and our Executive Vice President. Mr. Quintana is currently a board member of several Mexican companies including Banamex, Cementos Mexicanos and Grupo Maseca. Mr. Quintana is also a member of Mexico’s National Counsel of Businessmen, was the Chairman of the board of trustees of the Universidad Nacional Autonoma de Mexico until May 2009, and is the Chairman of the board of directors of Fundacion ICA. Mr. Quintana holds a degree in civil engineering from the Universidad Nacional Autonoma de Mexico and an M.B.A. from the University of California at Los Angeles. He is the father of Mr. Alonso Quintana, Mr. Diego Quintana and Mr. Rodrigo Quintana.
Dr. Jose Luis Guerrero Alvarezhas been a member of our Board of Directors since 1990, and our Chief Executive Officer and Executive Vice President since January 2007. On March 26, 2012, our Board of Directors approved the retirement of Dr. Guerrero as our Chief Executive Officer, effective July 1, 2012. Dr. Guerrero was previously our Chief Financial Officer and Executive Vice President. Between 1972 and 1979, he held positions as Planning Director of Combinado Industrial Sahagun, Technical Director at Roca Fosforica Mexicana, and Technical Planning and Development Submanager at the Lazaro Cardenas Las Truchas steel plant. He also worked at Wichman Wimet, Conventry (United Kingdom), Fabricas Automex and Industria del Hierro. Dr. Guerrero holds an engineering degree in Mechanical and Electrical Engineering from the Universidad nacional Autonoma de Mexico (UNAM), a diploma D’Ingenieur from the Institut Superieur des Materiaux et de la Construction Mechanique of Paris, France, an M.S. and a Ph.D. in Engineering from the University of Illinois at Urbana-Champaign, and has attended various executive courses at Harvard University, Stanford University, the University of Pennsylvania, theInstituto Tecnologico Autonomo de Mexico (ITAM) and the Instituto Panamericano de Alta Direccion de Empresa (IPADE) Universities. Dr. Guerrero has been a professor in Materials Science in the Engineering School of UNAM and a professor of Finance at IPADE. In addition to being a member of our Board of Directors, Dr. Guerrero is also the Chairman of the Board of GACN, an independent member of the Board of Directors of the Mexican Stock Exchange, as well as the Chairman of its Supervisory Committee, and a member of the board of directors of Enova Endevour. He is also a former member of the board of directors of Banco Nacional de Mexico.
Alberto Mulas Alonsohas been a member of our Board of Directors since December 2006. Mr. Mulas currently serves as director on the boards of Grupo Modelo, S.AB. de C.V., GACN, Urbi Desarrollos Urbanos S.A.B. de C.V., Grupo Financiero Santander, Consorcio Comex, Organizacion Ramirez (owner of CINEPOLIS, a chain of movie theaters), Farmacias del Ahorro and Sociedad Hipotecaria Federal, Mexico’s government-owned mortgage and housing development bank. He has been the managing director of CReSCE Consultores, S.C., a consulting firm specializing in corporate finance, corporate governance and strategic planning, since January 2003. From 2001 to 2002, Mr. Mulas was a member of President Vicente Fox’s cabinet and was responsible for developing Mexico’s housing sector, first as undersecretary of housing at the Social Development Ministry and later as the first commissioner of the National Housing Commission (Comision Nacional de Fomento a la Vivienda), which he had also designed and created. Mr. Mulas was the national manager for Lehman Brothers, Inc. from 1992 to 1996 and Managing Director at Donaldson, Lufkin & Jenrette Securities Corp. from 1999 to 2001. Prior to this, he worked at J.P. Morgan and Bankers Trust in New York. Mr. Mulas holds a degree in chemical engineering from theUniversidad Iberoamericana and an M.B.A. from the Wharton School at the University of Pennsylvania.
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Francisco Garza Zambranohas been a member of our Board of Directors since 2006. After holding various senior management positions within CEMEX since 1988, Mr. Garza now serves as Chairman of the Advisory Board and Public Affairs Latin America at CEMEX. He holds a bachelors degree from the Tecnologico de Monterrey and an M.B.A. from Cornell University’s Johnson Graduate School of Management.
Fernando Ruiz Sahagunhas been a member of our Board of Directors since 2006. Mr. Ruiz is outside counsel for the tax consulting firm of Chevez, Ruiz Zamarripa y Cia of which he was founding partner. He is member of the board of directors of the following publicly traded companies: Grupo Mexico, Kimberly Clark de Mexico, San Luis Corporacion, Mexichem, Grupo Palacio de Hierro, Grupo Cementos de Chihuahua, Grupo Financiero Santander and Fresnillo PLC. He also serves on the board of directors of Bolsa Mexicana de Valores and ArcelorMittal Steel Lazaro Cardenas.
Luis Rubio Friedberghas been a member of our Board of Directors since 2006. Mr. Rubio is Chairman of the Centro de Investigacion para el Desarrollo (CIDAC), an independent economic and political research institute in Mexico City. He is a fellow of the World Economic Forum and serves on the boards of several investment funds, including the Oppenheimer funds, the India Fund, and the Asia Tigers Fund. Dr. Rubio is a finance specialist and has a masters degree and doctorate in political science from Brandeis University.
Alonso Quintana Kawageis Chief Operating Officer, head of the Executive Committee and a member of our Board of Directors. On March 26, 2012, our Board of Directors appointed Mr. Quintana as our new Chief Executive Officer, effective July 1, 2012. From January 2007 through June 2011, he was ICA’s Chief Financial Officer, where he led the efforts to secure the financing for the most rapid growth in ICA’s history, including landmark projects such as the La Yesca hydroelectric project, the FARAC I tollroads, and the Nuevo Necaxa – Tihuatlan highway. In addition, he led two international equity offerings in 2007 and 2009 that raised over U.S.$750 million in the international and domestic markets, and an international bond offering that raised U.S.$500 million in 2011. Mr. Quintana originally joined ICA in 1994, and has also served in ICA’s Industrial Construction and Civil Construction segments, as well as our infrastructure (Airports and Concessions) segments. He is also a director of GACN, our publicly-listed airport subsidiary. Mr. Quintana is a civil engineering graduate of theUniversidad Iberoamericana, and has an M.B.A from the Kellogg School of Management of Northwestern University.
Diego Quintana Kawagehas been a member of our Board of Directors since 2008, and is our representative for the Industrial Construction segment, as well as responsible for our Airports and Housing segments, strategic alliances and real estate development. He joined ICA in 1995, and served as the Director General of ViveICA, ICA’s homebuilding company, from 2004 to 2009 and as Finance Director of ViveICA from 2000 to 2003. He is an economics graduate of the Universidad Anahuac and has a Master’s of Science in Management from Stanford University.
Fernando Flores Perezhas been a member of our Board of Directors since 2008. Mr. Flores is presently founding partner of EFE Consultores, S.C. Mr. Flores has also worked for the administration of President Vicente Fox until December 2006 as General Director and Chairman of the board of the Mexican Institute of Social Security(Instituto Mexicano del Seguro Social). He also was Undersecretary of the Minister of Labor, Safety and Preventative Social Planning. He was CEO for Aerovias de Mexico and CEO and Chairman of Compañia Mexicana de Aviacion (MEXICANA). He was President of the National Chamber of Air Transportation(Camara Nacional del Aerotransporte). Previously he held executive positions in MEXICANA, the Mexican Institute of Social Security, Grupo Industrial DINA, and Combinado Industrial Sahagun. Mr. Perez holds a law degree from theUniversidad Iberoamericana and studied business administration at the same university.
Elsa Beatriz Garcia Bojorgesis a Researcher and Board Member of the Mexican Financial Reporting Standards Board (Consejo Mexicano de Normas de Informacion Financiera, A.C.), or CINIF, the body that investigates, develops, and promulgates the principles and norms that regulate financial information in Mexico. In 2010 and 2011, she participated on behalf of Mexico in the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting hosted by the United Nations Conference on Trade and Development. Previously, she worked as an independent consultant in the area of financial information systems, with clients including Grupo Industrial Peñoles, the National Banking and Securities Commission, the National Insurance and Surety Commission, and Grupo Nacional Provincial. Previously, she was a partner in the accounting firm Bouzas, Reguera, Gonzalez y Asociados, S.C. She holds an accounting degree with honors from the Universidad Nacional Autonoma de Mexico (UNAM), as well a diploma in financial engineering from the Colegio de Contadores Publicos de Mexico, A.C. (CCPM). She has been certified by the Mexican Institute of Public Accountants (IMCP) since 1999.
Aaron Dychter Poltolarekis a consultant and advisor on infrastructure, transportation, and energy investment projects as well as on economic and financial analysis. He is also President of ADHOC Consultores Asociados, A.C., a consulting company that he founded in 2007. He was Undersecretary for Transportation in the Ministry of Communications and Transportation from 1994 to
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2006. He led the privatization processes for the railways and airports in Mexico, as well as the creation of the first suburban train system for Mexico City. Previously he worked in the Ministry of Finance and Public Credit and the Ministry of Budget and Planning. Dr. Dychter is a graduate of the Universidad de las Americas and holds an M.A. and Ph.D. in economics from The George Washington University.
Salvador Alva Gomezhas been a member of our Board of Directors since April 2010. Mr. Alva holds a chemical engineering degree from the Universidad Nacional Autonoma de Mexico (UNAM) and an M.B.A. from the Universidad de las Americas (UDLA) in Puebla, Mexico. Over his 24 years at Pepsico, he was a member of its Executive Committee and was its President for Latin America. Currently he is President of Tecnologico de Monterrey System. He currently sits on the boards of Grupo Chapa, Endeavor, and Tecnologico de Monterrey.
Margarita Hugues Velezhas been a member of our Board of Directors since April 2010. Ms. Velez holds a law degree from the Universidad Panamericana in Mexico City. She is the Vice President of Legal Affairs and Secretary to the board of directors of Grupo Modelo, S.A.B. de C.V. Prior to joining Grupo Modelo, Ms. Hugues was a project finance and corporate attorney at Galicia y Robles, S.C. in Mexico City and at Hunton & Williams in Washington D.C.
Carlos Benjamin Mendez Buenohas been a member of our Board of Directors since April 2010, and has been the Divisional Director of our Concessions segment since January 2007. Mr. Mendez is a civil engineer with a bachelor’s degree from the Universidad Nacional Autonoma de Mexico (UNAM). He has participated in various post-graduate studies such as “Strategic Planning” at the University of Pennsylvania’s Wharton School, “Certification in Project Administration” from the International Institute of Learning and “Advanced Management Program (AD2)” from the Instituto Panamericano de Alta Direccion de Empresas (IPADE). He has been with us since 1975 and has held various management and senior management positions within civil construction, international projects, and infrastructure. Mr. Mendez is a member of the alumni association of the Engineering School at the UNAM, and was the Vice President for Industrial Relations, Representation, and Management of the Mexico City delegation to the Mexican Construction Industry Chamber until 2008. He is also a board member of the Mexican Road Association (AMC), represents ICA before the International Road Federation Executive Officers and represents Mexico before the World Road Association (PIARC).
Luis Horcasitas Manjarrezhas been a member of our Board of Directors since July 1, 2011. He has been our Vice President overseeing Civil Construction for ICA and a member of ICA’s Executive Committee. In his 34 years of experience in ICA, he has held a variety of positions including as divisional director of heavy construction, director of infrastructure operations, and director of international concessions, among others. Mr. Horcasitas was also the director of our El Cajon hydroelectric project. He studied engineering at the Escuela de Ingenieria Municipal and has taken specialized courses in road building. He previously served as the Vice President of Construction for the Mexican Association of Roadways, A.C. (AMIVT) and as alternate representative of the Communications and Transportation sector of the Mexican Construction Industry Chamber of Commerce. He is an active participant in several engineering related associations in Mexico.
Ruben Lopez Barrerahas been a member of our Board of Directors since July 1, 2011. He has been the Vice President and Director of Strategic Planning, Business Development, and International for ICA and a member of ICA’s Executive Committee. He previously served as GACN’s Chief Executive Officer and Director for Human Resources, Legal, and Communication, and as ICA’s Business Development Director and Project Finance Director. He has more than 18 years working in ICA. Mr. Lopez received a degree in Civil Engineering from theUniversidad Iberoamericana, a Master of Science in Management from the Stanford University Sloan Master’s Program, and a Master’s in Business Administration from the joint program of the Pontificia Universidad Catolica de Chile and the University of Washington in Seattle, WA.
Melissa Boisson Portillohas been elected to our Board of Directors beginning July 1, 2011. She is currently the Government’s Affairs and Sustainability Manager for the North Region of Latin America for The Dow Chemical Company based in Mexico City. Prior to her involvement with Dow, she held various public affairs positions in both, industry and government institutions as well as in the Interamerican Development Bank. She holds a Master of Science in Sustainable Development from the Instituto de Estudios Superiores de Monterrey, and studied at a research exchange and thesis program at Twente University in the Netherlands. She is a member of the International Network of Leaders in Environment and Development (LEAD); in addition, she holds a Bachelor’s degree in International Relations from theUniversidad Iberoamericana. Ms. Boisson participates in various corporate social-responsibility related groups and is Vice-Chair of the Social Responsibility Committee within the American Chamber of Commerce in Mexico and member of the board of a non-profit organization, INNOVEC, whose main focus is to promote science teaching and learning through innovative methodologies for Mexican children.
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Our executive officers currently are as follows:
| | | | |
Name | | Current Position | | Years as
Executive
Officer |
Jose Luis Guerrero Alvarez(1) | | Chief Executive Officer | | 22 |
Alonso Quintana Kawage(2) | | Vice President, Chief Operating Officer | | 5 |
Diego Quintana Kawage | | Executive Vice President, Industrial Construction, Airports, Homebuilding, Real Estate and Strategic Alliances | | 5 |
Carlos Benjamin Mendez Bueno | | Vice President, Concessions | | 5 |
Ruben Lopez Barrera | | Vice President, Strategic Planning, Business Development and International | | 2 |
Luis Horcasitas Manjarrez | | Vice President, Civil Construction | | 2 |
Juan Carlos Santos | | Divisional Director, Industrial Construction | | 5 |
Luis Urrutia Sodi | | Divisional Director, Housing | | 3 |
Victor Bravo Martin | | Chief Financial Officer | | 3 |
Rodrigo Quintana Kawage | | General Counsel | | 3 |
Porfirio Gonzalez | | Divisional Director, Airports; Chief Executive Officer of GACN | | 1 |
| (1) | On March 26, 2011, our Board of Directors approved the retirement of Dr. Guerrero as our Chief Executive Officer, effective July 1, 2012. |
| (2) | On March 26, 2011, our Board of Directors appointed Mr. Quintana as our new Chief Executive Officer, effective July 1, 2012. |
Juan Carlos Santosis our Divisional Director of Industrial Construction. He first joined ICA in 1992, and has served as an alternate member of our Board of Directors, the Director of Projects for ICA-Fluor, and the Project Manager for the liquefied natural gas terminal in Altamira, Tamaulipas. Previously, he was the contracts and project control manager for the Cantarell nitrogen plant. He is a civil engineering graduate of theUniversidad Nacional Autonoma de Mexicoand holds a master’s degree in business administration from Georgetown University in Washington, D.C.
Luis Urrutia Sodihas been our Divisional Director of our Housing segment since April 2009. Mr. Urrutia entered our company in 1993 and has held various positions of increasing responsibility in the corporation and in various subsidiaries. Prior to his promotion to Divisional Director, he has held the position of Director of Operations of Housing since 2005. Mr. Urrutia holds an undergraduate degree in Industrial Engineering from theUniversidad Iberoamericanaand an M.B.A. with a specialization in finance from the Boston University School of Management.
Victor Bravo Martinhas been our Chief Financial Officer since July 1, 2011. He previously served as Divisional Director of our Airports segment and Chief Executive Officer of GACN. Mr. Bravo has more than 25 years of professional experience at ICA. Additionally, he served as GACN’s Chief Financial Officer from March 2006 to July 2009. Prior to joining GACN, he served in various capacities with us from 1986 to 2006, including Corporate Finance Director, Project Finance Director, Corporate Finance Analysis Manager and Corporate Economic Analysis Manager. Mr. Bravo holds a B.S. in economics from theInstituto Tecnologico y de Estudios Superiores de Monterrey, a diploma in finance from theInstituto Tecnologico Autonomo de Mexico, and an M.B.A. from the Leonard N. Stern School of Business at New York University and the Manchester University School of Business.
Rodrigo Quintana Kawagehas been our General Counsel since June 2010. Previously, Mr. Quintana worked as in-house counsel at Banco de Mexico, Mexico’s central bank, and as an associate in the finance practice of Mayer Brown LLP, a global law firm, in its Chicago and New York offices. Mr. Quintana joined our legal department in 2001, and then rejoined after leaving Mayer Brown LLP in January 2009. Mr. Quintana holds law degrees from theInstituto Tecnologico Autonomo de Mexico in Mexico City and from the University of Chicago Law School. He is the son of Mr. Bernardo Quintana and the brother of Mr. Alonso Quintana and Mr. Diego Quintana.
Porfirio Gonzalezhas more than 15 years professional experience in the airport industry. He has been GACN’s Chief Executive Officer since July 2011. From 2006 through June 2011, he was GACN’s director of airports. In that position, he was responsible for the relationships of GACN and the airports with federal, state and local authorities. He also oversaw and coordinated the airport consultative councils of all 13 airports. These councils bring together airport managers, airlines, other airport service providers and governmental authorities to ensure effective airport operation. From 1998 to 2006, Mr. Gonzalez served as the director of the business division, subdirector of operations and development, and manager of the Monterrey International Airport. Prior to joining us he served in various capacities in the Mexican federal government and the state government of Nuevo Leon, including as General Director of Tourism. Mr. Gonzalez holds a B.S. in civil engineering from theUniversidad Autonoma de Nuevo Leon. He has also completed various specialization courses in the areas of airports, safety and security, finance, management and human resources.
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Since July 1, 2011, an Executive Committee headed by Mr. Alonso Quintana Kawage has coordinated our operations across our various business divisions. The members appointed to our Executive Committee are as follows:
| | |
Name | | Current Position |
Alonso Quintana Kawage | | President |
| |
Diego Quintana Kawage | | Executive Vice President, Industrial Construction division, Airports, Housing and Strategic Alliances |
| |
Carlos Benjamin Mendez Bueno | | Vice President, Concessions |
| |
Luis Horcasitas Manjarrez | | Vice President, Civil Construction |
| |
Ruben Lopez Barrera | | Vice President, Strategic Planning, Business Development and International |
B. COMPENSATION
For the year ended December 31, 2011, the aggregate compensation of our directors and executive officers paid or accrued in that year for services in all capacities was approximately Ps.208 million. In 2011, we paid management and non-management directors Ps.44 thousand net of taxes for each board meeting, Corporate Practices, Finance, Planning and Sustainability Committee meeting or Audit Committee meeting they attend. As of April 18, 2012, our shareholders approved the payment of Ps.44 thousand net of taxes to management and non-management directors for each board meeting. Additionally, we pay non-management directors U.S.$250 per hour for work related to their duties on our board or on either committee. We also paid the Chairman of the Board of Directors Ps.15 million net of taxes in 2011.
Management Bonuses
Performance bonuses are paid to eligible members of management by the subsidiaries that employ them.
Our Compensation Committee determines the bonuses for senior and middle management. The Corporate Practices, Finance, Planning and Sustainability Committee determines compensation for executive officers and the Chief Executive Officer. We have adopted the following policies regarding the calculation of the performance bonus:
| | • | | in years in which our income (calculated as described below) is 4% or less of our net worth, no bonuses will be paid, |
| | • | | in years in which our income (calculated as described below) is greater than 4% of our net worth, up to 20% of the amount by which income exceeds 4% of net worth may be paid as bonuses. |
Income for these purposes means income from all sources (including extraordinary items) before income taxes, employees’ statutory profit sharing and the bonus itself. Net worth for these purposes is our net worth as at the end of the year for which the bonus is being calculated, without giving effect to that bonus. This formula is subject to change by the Board of Directors, provided that all outside directors approve any such change.
A substantial portion of the shares beneficially owned by our directors and executive officers, along with other shares owned by our management, are owned through a trust, which we refer to as the management trust. The management trust is supervised by a technical committee consisting of members of our Board of Directors, and the Quintana family controls the vote of the management trust. This technical committee has broad discretionary authority over the corpus of this trust, including voting power over the shares contained therein and the conditions governing withdrawal of such shares. The technical committee is authorized to modify the terms of the management trust.
Bonuses are paid into the management trust and may be used by the technical committee to purchase shares, for the account of the bonus recipient. All dividends paid with respect to shares in the management trust are also deposited in the management trust. Cash dividends are, at the discretion of the technical committee, distributed to participants in the management trust or used to purchase shares at prevailing market prices for the benefit of the participants. Upon leaving us, participants in the management trust are entitled to receive the shares representing such participant’s interest in periodic installments. The management trust may, but is not required to, purchase the shares constituting such installments. All dividends received with respect of the shares owned by any former employee are paid to such former employee.
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As described above, members of management that leave us are entitled to receive, in annual installments, the shares credited to their accounts in the management trust. Certain exceptions may be made to these rules from time to time to permit employees leaving us to receive their shares on an accelerated basis.
Additionally, and only for our executive management, we have a performance bonus plan, directly linked to the overall performance of the company and on a secondary basis to the performance of certain business units and the satisfaction of personal objectives. This bonus is payable in cash.
Options to Purchase Securities from Registrant or Subsidiaries
On March 31, 2000, we adopted a stock option plan pursuant to which our officers and senior management were entitled to annual stock options. Options were granted based on a percentage of the grantees’ annual base salary on April 29, 2003.
The stock option plan was terminated on April 16, 2004 and all options granted under the plan expired on April 29, 2010. We do not expect to grant stock options going forward.
Prior to their expiration on April 29, 2010, 113,485 options (on a post-reverse split basis) were exercised at a weighted average exercise price of Ps.22.50. As of December 31, 2011, we had no stock options outstanding.
Pension Plan
In 2006, we created a defined benefit pension plan covering all active employees aged more than 65 who are part of our Board of Directors and have a minimum of 10 years of service as members of the board prior to their retirement. Until 2008, these employees were entitled to benefits beginning at the age of 55, with gradual reductions of their salary taken into account for pension purposes. Beginning in 2008, the plan was revised to defer entitlement to benefits until the age of 57. See Note 34 to our consolidated financial statements.
For the year ended December 31, 2011, the aggregate amount that we have accrued to provide pension and retirement benefits is Ps.87 million.
In 2011, the existing defined benefit pension plan was replaced as the vehicle for new enrollees with a new voluntary retirement savings plan offered to senior and executive management employees. This plan offers a pretax savings component of up to 10% of the employee’s taxable income, and corporate matching of up to 2.5%.
C. BOARD PRACTICES
For a table setting forth our current directors and management, the expiration of their current terms of office and the period of time during which each has served in that office, see “Item 6. Directors, Senior Management and Employees—Directors and Senior Management.” We have no service contracts for our directors providing benefits upon termination of employment.
The Mexican Securities Market Law enacted by Mexico’s Federal Congress on December 30, 2005 (in effect since June 2006) altered the legal regime applicable to public companies in Mexico. In order to comply with the new law, our shareholders approved the amendment of our by-laws at an extraordinary general shareholders’ meeting on September 12, 2006.
Management Structure
Our management is vested in a Board of Directors and a chief executive officer. The duties of the Board of Directors are, among others, to set general strategy for the company, and for the legal entities controlled by it, and to appoint, supervise and, if and as necessary, remove the chief executive officer. In fulfillment of its duties and responsibilities, our bylaws, in accordance with the Mexican Securities Market Law, provide for our Board of Directors to be aided by one or more committees made up of independent directors.
Our bylaws provide for our Board of Directors to be comprised of no fewer than 5 and no more than 21 directors, of which at least 25% must be independent directors. Members of the Board of Directors are elected on a staggered basis. Each year, one-third of the members of the board are elected by our shareholders and, once elected, board members occupy their positions for the following three years without the need for shareholder ratification in the interim. Notwithstanding the foregoing, at any ordinary general shareholders’ meeting, any director can be removed by a 51% vote of our shareholders.
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Any holder or group of holders of 10% of the voting capital stock of ICA may appoint a director. Shareholders that exercise such right may not participate in the appointment of remaining directors.
Our Board of Directors meets at least on a quarterly basis and has the duties and authority set forth in the company’s bylaws and in the Mexican Securities Market Law. The chairman of the Board of Directors is appointed by the shareholders at each annual ordinary general shareholders’ meeting, or by the Board of Directors itself, and has the authority to propose to the board the discussion and resolution of various matters, including proposals as to the independent directors that are to comprise the committee or committees that perform auditing and corporate practices duties, as well as the appointment and removal of the chief executive officer. The independent members of our board meet once per year with the chairman of our board. The chairman of our board may not be president of either the Audit Committee or the Corporate Practices, Finance, Planning and Sustainability Committee under Mexican law.
Our Board of Directors has the authority to establish special committees to assist the board in the performance of its duties. Our bylaws provide that audit and corporate practices duties may be delegated to one committee or to two separate committees at the discretion of the board.
Our chief executive officer is the main executive of the company, responsible for the management, direction and execution of our business, subject to the strategies set forth by the Board of Directors. The chief executive officer is also responsible for the fulfillment of resolutions approved by shareholders or the board. The chief executive officer is vested with broad agency authority. However, this authority is limited when it comes to exercising voting rights attached to the company’s shares in its subsidiaries. In regards thereto, the chief executive officer must act in accordance with instructions or policies provided by the board. Such authority is also limited in respect of sales of our real estate and equity holdings and in respect of transactions referred to in paragraph c), Section III of Article 28 of the Mexican Securities Market Law. In either such case, the chief executive officer may only act with the Board of Directors’ prior authorization. Furthermore, if the relevant transaction involves an amount equal to or exceeding 20% of the company’s net worth, the chief executive officer may only act with the prior authorization of our shareholders.
Board Practices
In response to the enactment of the Mexican Securities Market Law, our Board of Directors established a Corporate Practices and Sustainability Committee, which was replaced by the Corporate Practices, Finance, Planning and Sustainability Committee on April 24, 2009. The Corporate Practices and Sustainability Committee had and its replacement, the Corporate Practices, Finance, Planning and Sustainability Committee, has the duties set forth in Section I of Article 42 and other applicable provisions of the Mexican Securities Market Law. Such duties include providing an opinion on the nomination of the chief executive officer, assessing the performance of our senior management, providing an opinion on related-party transactions and compensation proposals for senior management and reviewing certain exemptive actions of the Board of Directors. The duties of the Corporate Practices, Finance, Planning and Sustainability Committee include, in addition, the duties of proposing general guidelines for creating and monitoring compliance with our strategic plan; providing an opinion on investment and financing policies proposed by our chief executive officer, providing an opinion on the assumptions in the annual budget and monitoring application of the budget and our control system; and evaluating risk factors that affect us and our mechanisms for controlling risk. As of April 18, 2012, the members of our Corporate Practices, Finance, Planning and Sustainability Committee are Fernando Flores Perez, as chairman, Alberto Mulas Alonso, Fernando Ruiz Sahagun and Aaron Dychter Poltolarek. Each member’s term on the Committee runs concurrently with such member’s term on our Board of Directors. All members of the Corporate Practices, Finance, Planning and Sustainability Committee are independent directors as such term is defined in the Mexican Securities Market Law, and Mr. Mulas and Mr. Dychter are independent directors as such term is defined in Rule 10A-3 under the U.S. Securities Exchange Act of 1934, as amended, or the Exchange Act.
The Mexican Securities Market Law required certain changes to the duties and functions of our Audit Committee, as established in our bylaws before the enactment of the current Mexican Securities Market Law. The Audit Committee is now responsible for the duties set forth in Section II of Article 42 and other applicable provisions of the Mexican Securities Market Law. Such duties include evaluating our independent auditor, reviewing the audit report, opinion, and other documents prepared annually by the independent auditor, informing the Board of Directors of the quality of and any deficiencies in the company’s internal control mechanisms and regarding internal audits of the company or entities controlled by the company. As of April 18, 2012, the members of the Audit Committee were Elsa Beatriz Garcia Bojorges, as chairman, and Margarita Hugues Velez and Fernando Flores Perez, each of whom were independent as such term is defined in the Mexican Securities Market Law and in Rule 10A-3 under the Exchange Act. Each member’s term on the Committee runs concurrently with such member’s term on our Board of Directors.
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Both of the above committees are empowered to call shareholders’ meetings and hire independent counsel and other advisors, as they deem necessary to carry out their duties, including, in the case of the Corporate Practices, Finance, Planning and Sustainability Committee, the review of related-party transactions.
D. EMPLOYEES
As of each of the three years ended December 31, 2011, 2010 and 2009, we had approximately 40,003, 29,647 and 26,587 employees, respectively, approximately 30%, 26% and 38% of whom were permanent employees, respectively. The number of temporary employees employed by us varies significantly and is largely dependent on the level of our construction activities.
In Mexico, all of our employees, other than managerial and certain administrative employees, are currently affiliated with labor unions. Labor relations in each facility in Mexico are governed by a separate collective bargaining agreement, executed between the relevant subsidiary and a union selected by the employees of the relevant facility. Wages are renegotiated every year while other terms are renegotiated every two years. Labor relations for each construction project are governed by a separate collective bargaining agreement, which is coterminous with the project. Such agreements are reviewed once per year if the duration of the project so permits. Although, from time to time we have faced strikes at particular facilities or construction sites, we have never had a strike that materially affected our overall operations in Mexico. We believe that we have good relations with our employees.
E. SHARE OWNERSHIP
As of March 31, 2012, Mr. Bernardo Quintana and members of his immediate family, including our directors Alonso Quintana Kawage and Diego Quintana Kawage and our general counsel Rodrigo Antonio Quintana Kawage, may be deemed to have had beneficial ownership of 37,158,831, or 6.02%, of our outstanding shares (excluding shares owned through the management trust). Through the management trust they hold 4,532,258 shares, or 0.73%, for a total of 41,691,089, or 6.76%, of our outstanding shares. Additionally, as of March 31, 2012, the following of our directors or officers each beneficially owned shares (other than shares owned through the management trust) totaling no more than 1% of any class of our capital stock: Jose Luis Guerrero Alvarez, Carlos Benjamin Mendez Bueno, Francisco Javier Garza Zambrano, Luis Urrutia Sodi, Salvador Alva Gomez and Luis Horcasitas Manjarrez. None of our directors or officers has voting rights different from other shareholders, other than, as applicable, rights as a participant in the management trust or fundacion trust described below and rights of the position of director and/or officer.
| Item 7. | Major Shareholders and Related Party Transactions |
A. MAJOR SHAREHOLDERS
The following table sets forth certain information regarding the ownership of outstanding shares as of March 31, 2012.
| | | | | | | | |
Identity of Person or Group | | Amount Owned | | | Percentage(1) | |
Bernardo Quintana I.(2) | | | 37,158,831 | | | | 6.02 | % |
Management Trust | | | 18,770,662 | | | | 3.04 | % |
Foundation Trust | | | 8,293,356 | | | | 1.34 | % |
| (1) | For all percentages, based upon 617,174,456 shares outstanding as of March 31, 2012. |
| (2) | Reflects shares owned directly by Mr. Quintana and his family, including Alonso Quintana Kawage, Diego Quintana Kawage and Rodrigo Antonio Quintana Kawage, and not through the management trust. |
The major shareholders, as set forth in the table above, do not have voting rights different from other shareholders, other than Mr. Quintana’s rights as a participant in the management trust and foundation trust described below and as a member of our Board of Directors. The significant changes in the percentage ownership held by our major shareholders since 2008 are as follows: in 2009, Mr. Quintana and his family purchased 3,305,000 shares during a public offering of newly issued shares and subsequently sold 6,483,731 shares.
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Our shares are the only class of security we offer in Mexico. We have no information as to the number of record holders in Mexico. At March 31, 2012, 247,528,617 shares, or 40.11% of shares outstanding, were held in the form of CPOs, which have limited voting rights. See “Item 9. The Offer and Listing – Trading – Limitations affecting ADS Holders and CPO Holders.” As of March 31, 2012, 7.71% of our outstanding shares were represented by 11,898,315 ADSs representing four of our shares each, and such ADSs were held by 62 recordholders with registered addresses in the United States. Because certain of the ADSs are held by nominees, the number of recordholders may not be representative of the number of beneficial holders. See “Item 9. The Offer and Listing – Trading.”
Our directors and executive officers, as a group, beneficially own approximately 56,079,285 shares (9.09% of the shares outstanding). A portion of the shares beneficially owned by our directors and executive officers (collectively, approximately 3.07% of the shares outstanding), are owned through a trust, referred to as the management trust. The technical committee of the management trust, which consists of members of our Board of Directors, has broad discretionary authority over the corpus of this trust, including voting power over the shares contained therein and the conditions governing withdrawal of such shares.
In April 2011, pursuant to the Mexican Securities Market Law, we announced that we had acquired 7,545,300 of our shares outstanding using the reserve for share purchases, at an average price of Ps.26.47 per share, for an amount of Ps.199,705,967.01. As part of our employee stock plan, 3,781,275 of these shares were transferred to the management trust at an average price of Ps.28.05 per share.
The technical committee is authorized to modify the terms of the management trust. The technical committee, in its discretion, is authorized to distribute bonuses to participants in the form of cash and permit our current employees to withdraw shares held in the management trust. The technical committee generally has discretion over the sale of shares withdrawn from the management trust and generally has sought to conduct such sales in a manner that minimizes any adverse effect on the market price of the shares. Whenever an employee belonging to the management trust retires, his or her shares are released from the management trust so that such employee may dispose of his or her shares as he or she wishes.
In 1992, members of management donated 10% of their then-owned shares to Fundacion ICA, a non-profit organization formed to fund research and education activities in Mexico. In addition, certain former members of management donated 20% of their shares to Fundacion ICA. Fundacion ICA’s shares are held by a trust, which we refer to as the foundation trust. We are entitled to appoint two of the five members of the foundation trust’s technical committee, while the remaining members are independent from us. Any disposition of the shares held by the foundation trust requires the approval of more than a simple majority of such technical committee and, therefore, may require approval of our representatives on this committee. Under the terms of the foundation trust, the shares held by Fundacion ICA, which, as of March 31, 2012, represented approximately 1.34% of the shares outstanding, are required to be voted in the manner specified by a majority of the technical committee. The Quintana family controls the vote of the foundation trust.
B. RELATED PARTY TRANSACTIONS
RCO Construction and Administrative Services
In 2011, we performed Ps.195 million of construction services for RCO, our joint venture affiliate with GSIP that operates the concession on the first FARAC package of toll roads. Additionally, we provided Ps.278 million in certain administrative services to RCO in 2011 pursuant to a long-term services agreement approved by our Board of Directors and RCO’s board of directors.
For a description of other related party transactions, see Note 32 to our consolidated financial statements.
| Item 8. | Financial Information |
See “Item 18. Financial Statements” beginning on page F-1.
A. LEGAL AND ADMINISTRATIVE PROCEEDINGS
We are party to various legal proceedings in the ordinary course of business. Other than as disclosed in this annual report, we are not currently involved in any litigation or arbitration proceeding, including any proceeding that is pending or threatened of which we
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are aware, which we believe will have, or has had, a material adverse effect on us. Other legal proceedings pending against or involving us and our subsidiaries are incidental to the conduct of our and their business and we believe will be resolved in our favor or with an insignificant effect on our financial position, results of operations and cash flow. We believe that the ultimate disposition of such other proceedings individually or on an aggregate basis will not have a material adverse effect on our consolidated financial condition or results of operations.
Campeche Playa/Faros de Panama
We acted as the general contractor and lender for the Campeche Playa, Golf, Marina & Spa Resort project (Proyecto Esmeralda Resort, S.A. de C.V., Marina Esmeralda Resort, S.A. de C.V. and Campeche Golf, S.A. de C.V., together, the Development Companies). The financings are secured by 94% of the shares of the Development Companies and substantially all their assets.
At the August 18, 2010 general shareholders’ meeting, the shareholders of the Development Companies approved the dismissal of their boards of directors and our appointment as Sole Administrator of the Development Companies, which we announced in September 2010. We took this action in order to protect our investment in this tourism project in the state of Campeche, after continued failure by the Development Companies to meet their commitments.
Foreclosure on substantially all the property, which includes the buildings under construction, a golf course, and more than 289 hectares of prime beach front land, concluded in December 2010. Consequently, as of December 31, 2010, we reclassified Ps.1,447 million related to the project from accounts receivable to long-term inventory. Foreclosure on the remaining collateral is still in progress in order to collect on Ps.465 million related to the project that still remains in our accounts receivable. There is ongoing litigation and dispute resolution proceedings related to the foreclosure on the project, the control of the board of directors and the related construction contracts. On February 9, 2012 we received Ps.104 million of the outstanding balance. While we believe that an adverse decision on these proceedings is unlikely, we can provide no assurance that litigation will not further affect our ability to collect on amounts owed to us related to the project.
In addition, we have accounts receivable totaling approximately U.S.$43 million with the companies developing the project for the construction work on the foundation of the Faros de Panama project, in Panama City, Panama. This receivable is secured by a mortgage on the land where the project is located. The process for foreclosing on this mortgage is advancing. The appraised value of the underlying property fully covers the amount of the receivable, but we can provide no assurance that foreclosure litigation will not further delay the collection on the amounts owed to us. We do not believe a material loss related to this legal proceeding is probable.
Malla Vial
We were involved in litigation with the Institute for Urban Development, or IDU(Instituto de Desarrollo Urbano), an agency of the municipal government of Bogota, Colombia, in charge of public works projects. The litigation concerns the Malla Vial Project, a street network refurbishment project in Bogota that was awarded to us in 1997. In April 2002, an arbitration tribunal in Colombia issued an award in favor of the IDU for 5,093 million Colombian pesos as compensation for our alleged breach of contract, which after the IDU obtained a judicial recognition of the arbitration award in Mexico in 2007, was paid in full. On January 8, 2009, the Mexican court recognized the payment in full.
In a separate proceeding related to the same project, the IDU has filed a claim in a Colombian court against us for liquidated damages for breach of the contract in an amount of approximately U.S.$2.2 million, and has made a claim against the bonding company for the return of an advance payment that had not yet been amortized, which obligation, in addition to the U.S.$2.2 million, we will indemnify. We have counterclaimed and demanded indemnification and damages. In December 2004, an administrative tribunal ordered the consolidation of all of these claims into one case. Regarding the claim against the bonding company, the tribunal ordered a suspension of any actions against the bonding company until the counterclaim filed by ICA was resolved, provided that such suspension should not last more than three years.
After negotiations between us and the IDU, on April 7, 2010, the director of the IDU announced that we had reached an agreement in principle with the IDU to resolve all matters related to the various Malla Vial litigation proceedings. This announcement was made through an open letter to the public and the mayor of Bogota and released through various media outlets.
While the IDU announced that we would pay U.S.$1.5 million under an agreement in principle with the IDU, subsequent political developments made this agreement invalid and the amount and possibility of settlement remain uncertain. In June 2011, the suspension order blocking actions against the bonding company expired. Therefore, there is the risk that, notwithstanding the
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unresolved counterclaims, the bond may be executed in an amount equal to U.S.$17 million plus interest, although such execution may be appealed. Nevertheless, we have reached a settlement agreement in principal with the IDU on all claims, and in December 2011 we filed a joint motion for the court to supervise and approve the conciliation procedure under Colombian law. On February 23, 2012, the court has set the conciliation hearing for May 29, 2012. We have reserved an amount that we believe represents the reasonably possible outcome of the resolution of this matter.
Puerto Rico Light Rail System
In 2004, the U.S. Department of Transportation’s Office of the Inspector General began to investigate the Puerto Rico light rail system. We understand that the U.S. Department of Transportation’s investigation extends to other contractors working on the light rail system. In connection with the investigation, on March 8, 2004, ICA Miramar received a subpoena for the production of documents from the U.S. Department of Transportation’s Office of the Inspector General. We cooperated with the U.S. Department of Transportation’s investigation and have received no further subpoenas. We cannot assure you as to the results of this investigation or that we will not be named a party to any proceedings.
On September 22, 2005, the Puerto Rico Highway and Transportation Authority, or the HTA, ICA Miramar’s client, filed a claim against ICA Miramar for indemnity in an ongoing litigation between the HTA and its principal contractor for the project. The principal contractor filed the underlying lawsuit on December 24, 2003, and HTA filed a countersuit on November 23, 2004. ICA Miramar estimates the indemnity and liquidated damages claims could result in liability in excess of U.S.$4 million. After an extended stay, the court appointed a special judge due to its declaration of the underlying matter and claim against ICA Miramar as complex litigation. The principal contractor subsequently amended its complaint against HTA and, in 2009, HTA filed its amended claim against ICA Miramar. On April 9, 2010, HTA and the principal contractor announced a settlement of the ongoing litigation against each other in court. The settlement agreement was signed by HTA and ICA Miramar with no admission of liability or damages. Final dismissal by the court is pending. We do not believe a material loss is probable in this matter.
Ciudad Juarez Airport
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 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.
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. On August 28, 2009, the Mexican federal government filed its answer to the claim, in which it requested that the trial be moved to Mexican federal jurisdiction. On November 10, 2010, the court of Chihuahua upheld the ruling to include the Ministry of Communications and Transportation. The plaintiffs filed a motion (recurso de revision) before the federal court on November 29, 2010, which appeal is pending. 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 our use, which we believe the terms of its concessions would require, our concession to operate the Ciudad Juarez Airport would terminate. In 2011, the Ciudad Juarez International Airport represented 4.9% of GACN’s revenue. Although we believe and have 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, we cannot assure you that we would be so indemnified. For this reason, our financial statements do not include a provision for this litigation.
We do not believe a material loss is probable in this matter.
Environmental Matters
There are currently no material legal or administrative proceedings pending against us with respect to any environmental matter in Mexico or the United States.
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B. DIVIDENDS
We did not pay dividends in respect of our ordinary shares in any year between 2000 and 2011 and do not anticipate paying dividends in 2012.
The declaration, amount and payment of dividends are approved by the shareholders, upon the recommendation of the Board of Directors, and may only be paid from retained earnings from accounts previously approved by our shareholders, provided that the legal reserves have been duly created and losses for prior fiscal years have been paid. If our shareholders approve the payment of dividends, the amount of the dividends will depend upon our operating results, financial condition and capital requirements, and upon general business conditions. A number of our loan agreements contain covenants that restrict the ability of certain of our subsidiaries to make capital distributions to us and, accordingly, may affect our ability to pay dividends.
C. SIGNIFICANT CHANGES
Except as identified in this annual report on Form 20-F, no significant change in our financial condition has occurred since the date of the most recent audited consolidated financial statements contained in this annual report.
| Item 9. | The Offer and Listing |
A. TRADING
Since April 9, 1992, our shares and the ADSs have been listed on the Mexican Stock Exchange and the NYSE, respectively. The ADSs have been issued by The Bank of New York as depositary. Each ADS represents four CPOs, issued by Banamex as the CPO trustee for a Mexican CPO trust. Each CPO represents an interest in one share held in the CPO trust.
The following table sets forth, for the five most recent full financial years, the annual high and low market prices for the ADSs on the New York Stock Exchange and the shares on the Mexican Stock Exchange.
| | | | | | | | | | | | | | | | |
| | | Mexican Stock
Exchange | | | New York Stock
Exchange | |
| | | Pesos per Share | | | U.S. dollars per ADS | |
| | | High | | | Low | | | High | | | Low | |
2007 | | | 75.48 | | | | 38.65 | | | | 28.04 | | | | 13.90 | |
2008 | | | 73.33 | | | | 14.04 | | | | 27.65 | | | | 4.26 | |
2009 | | | 35.49 | | | | 14.49 | | | | 10.85 | | | | 4.79 | |
2010 | | | 34.09 | | | | 28.34 | | | | 11.13 | | | | 8.78 | |
2011 | | | 32.42 | | | | 14.47 | | | | 10.82 | | | | 4.08 | |
The following table sets forth, for the periods indicated, the reported high and low sales prices for our shares on the Mexican Stock Exchange and the reported high and low sales prices for the ADSs on the New York Stock Exchange.
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| | | | | | | | |
| | | Mexican Stock
Exchange | | New York Stock
Exchange |
| | | Pesos per Share | | U.S. dollars per ADS |
| | | High | | Low | | High | | Low |
2010: | | | | | | | | |
First Quarter | | 33.77 | | 28.34 | | 10.62 | | 8.83 |
Second Quarter | | 33.32 | | 28.86 | | 10.93 | | 8.78 |
Third Quarter | | 32.98 | | 29.99 | | 10.43 | | 9.12 |
Fourth Quarter | | 34.09 | | 30.76 | | 11.13 | | 9.71 |
2011: | | | | | | | | |
First Quarter | | 32.42 | | 25.92 | | 10.82 | | 8.78 |
Second Quarter | | 28.72 | | 26.28 | | 9.94 | | 8.80 |
Third Quarter | | 26.92 | | 15.48 | | 9.30 | | 4.44 |
Fourth Quarter | | 18.78 | | 14.47 | | 5.56 | | 4.08 |
October | | 17.38 | | 14.47 | | 5.37 | | 4.08 |
November | | 18.61 | | 16.27 | | 5.56 | | 4.48 |
December | | 18.78 | | 16.94 | | 5.53 | | 4.78 |
2012: | | | | | | | | |
First Quarter | | 25.44 | | 16.60 | | 7.93 | | 4.81 |
January | | 21.31 | | 16.60 | | 6.60 | | 4.81 |
February | | 25.44 | | 21.29 | | 7.93 | | 6.71 |
March | | 24.44 | | 22.37 | | 7.71 | | 6.90 |
April (through April 6) | | 24.37 | | 21.86 | | 7.63 | | 6.64 |
Our bylaws prohibit ownership of our shares by non-Mexican investors. As of December 31, 2011, 36.12% of our shares were represented by CPOs, and 17.89% of the CPOs were held by the depositary. According to our depositary bank, as of December 31, 2011, 7.87% of our outstanding shares were represented by ADSs, and such ADSs were held by 59 holders with registered addresses in the United States. As of December 31, 2011, there were 604,679,197 shares outstanding.
As permitted by the Mexican Securities Market Law and the Rules promulgated by the Mexican Banking and Securities Commission, we may create a reserve fund from which we may repurchase our shares on the Mexican Stock Exchange at prevailing prices to the extent of funds remaining in this reserve account. We created this reserve account beginning in 1992. Any shares so repurchased will not be deemed to be outstanding for purposes of calculating any quorum or voting at a shareholders’ meeting during the period in which we own such shares. As of December 31, 1999, 2,570,000 shares had been repurchased. After 1999, we did not make any repurchases until October 9, 2008. On April 3, 2008, our shareholders approved the use of Ps.750.5 million for the repurchase reserve for the year 2008. In 2008, we repurchased 4,978,000 shares in the nominal amount of Ps.69.0 million. On April 16, 2010, our shareholders approved the use of Ps.729.6 million for the repurchase reserve for the year 2009. In 2009, we repurchased 371,500 shares in the nominal amount of Ps.5.2 million. On April 16, 2010, our shareholders approved the use of Ps.726.8 million for the repurchase reserve for the year 2010. In 2010, we made no share repurchases. On April 14, 2011, our shareholders approved the use of Ps.1,000 million for the repurchase reserve for the year 2011, and on November 17, 2011, our shareholders voted to increase such amount to Ps. 1,850 million and authorized management to carry out repurchases up to that amount in accordance with the Policy for the Acquisition and Placement of Own Shares. In addition, the November 17, 2011 shareholders’ meeting approved the cancellation of up to 32,748,689 repurchased shares, equivalent to approximately 5% of the shares outstanding as of December 31, 2010. In 2011, we repurchased 48,534,300 shares in the nominal amount of Ps.996.6 million. See “Item 10. Additional Information— Purchase by the Company of its Shares.”
Trading on the Mexican Stock Exchange
The Mexican Stock Exchange, located in Mexico City, is the only stock exchange in Mexico. Founded in 1894, it ceased operations in the early 1900s, and was reestablished in 1907. The Mexican Stock Exchange is organized as a public company. Member firms are exclusively authorized to trade on the floor of the Exchange. Trading on the Mexican Stock Exchange takes place exclusively through an automated inter-dealer quotation system known as SENTRA, which is open between the hours of 8:30 a.m. and 3:00 p.m., Mexico City time, each business day. Trading is performed electronically and is continuous. Trades in securities listed on the Mexican Stock Exchange can, subject to certain requirements, also be effected off the Exchange. Due primarily to tax considerations, however, most transactions in listed Mexican securities are effected through the Exchange. The Mexican Stock Exchange operates a system of automatic suspension of trading in shares of a particular issuer as a means of controlling excessive price volatility. The suspension procedures will not apply to shares that are directly or indirectly (through ADSs or other equivalent
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instruments) quoted on a stock exchange outside Mexico. Settlement is effected two business days after a share transaction is effected on the Mexican Stock Exchange. Deferred settlement, even if by mutual agreement, is not permitted without the approval of the Mexican Banking and Securities Commission. Most securities traded on the Mexican Stock Exchange are on deposit with S.D. Indeval Institucion para el Deposito de Valores, S.A. de C.V., a privately owned central securities depositary that acts as a clearing house, depositary, custodian and registrar for Mexican Stock Exchange transactions, eliminating the need for the physical transfer of shares.
The Mexican Stock Exchange is one of Latin America’s largest exchanges in terms of market capitalization, but it remains relatively small and illiquid compared to major world markets, and therefore subject to greater volatility.
As of December 31, 2011, 133 Mexican companies, excluding mutual funds, had equity listed on the Mexican Stock Exchange. In 2011, the ten most actively traded equity issues (excluding banks) represented approximately 86% of the total volume of equity issues traded on the Mexican Stock Exchange. Although the public participates in the trading of securities, a major part of the activity of the Mexican Stock Exchange reflects transactions by institutional investors. There is no formal over-the-counter market for securities in Mexico. The market value of securities of Mexican companies is, to varying degrees, affected by economic and market conditions in other emerging market countries.
Limitations Affecting ADS Holders and CPO Holders
Each of our ADSs represents four CPOs, and each CPO represents a financial interest in one share of common stock. Each share entitles the holder thereof to one vote at any of our shareholders’ meetings. Holders of CPOs are not entitled to vote the shares underlying such 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.
Whenever a shareholders’ meeting approves a change of corporate purpose, change of nationality or restructuring from one type of corporate form to another, any shareholder who has voted against such change or restructuring has the right to withdraw from us and receive an amount equal to the book value of its shares (in accordance with our latest balance sheet approved by the annual ordinary general meeting), provided such shareholder exercises its right to withdraw during the 15-day period following the meeting at which such change or restructuring was approved. Because the CPO trustee is required to vote the shares held in the CPO trust 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, appraisal rights will not be available to holders of CPOs.
Under Article 51 of the Mexican Securities Law, holders of at least 20% of our outstanding shares may have any resolution adopted by a shareholders’ meeting suspended by filing a complaint with a court of law within 15 days after the close of the meeting at which such action was taken by stating that the challenged action violates Mexican law or our corporate charter. To be entitled to relief, the holder (or the CPO trustee, in the case of CPOs) must not have attended the meeting or, if such holder attended, must have voted against the challenged action. Such relief will not be available to holders of CPOs or ADSs.
Item 10.Additional Information
A. MEMORANDUM AND ARTICLES OF INCORPORATION
Set forth below is a brief summary of certain significant provisions of our bylaws and Mexican law. This description does not purport to be complete and is qualified by reference to our bylaws, which have been filed as an exhibit to this annual report. For a description of the provisions of our bylaws relating to our Board of Directors and statutory auditors, see “Item 6. Directors, Senior Management and Employees.”
Organization and Register
We are asociedad anonima bursatil de capital variableorganized in Mexico under the Mexican Securities Market Law(Ley del Mercado de Valores)and the Mexican Companies Law(Ley General de Sociedades Mercantiles). We were registered in the Public Registry of Commerce of Mexico City on July 25, 1979, under folio number 8723. Our object and purpose according to Section 2 of our bylaws is (a) to hold an interest in the capital stock or equity of all types of legal persons; (b) to acquire any type of rights on all types of securities, of any type of legal person, as well as to dispose of and negotiate such securities; (c) to act as agent or representative of natural or legal persons;
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(d) to undertake all types of commercial or industrial activities allowed by law; (e) to obtain all types of loans or credit instruments; (f) to grant any type of financing or loan to companies, associations, trusts, and institutions in which the Company has an interest or holding; (g) to grant all types of personal and real guaranties, and guaranties for obligations or credit instruments to companies, associations, trusts, and institutions in which the Company has an interest or share; (h) to subscribe to and issue all types of credit instruments, as well as to endorse them; (i) to acquire, lease, usufruct, exploit, and sell chattels and real property required for its establishment, as well as to purchase and sell other things that are required to achieve its objectives; (j) to acquire, use and in general, dispose of industrial property rights, as well as copyrights, options thereon and preferences; and (k) to enter into, grant, and execute all acts, regardless of their legal nature, which it deems necessary or convenient for the realization of the aforementioned objectives, including associating with other national or foreign persons.
Voting Rights
Each share entitles the holder thereof to one vote at any meeting of our shareholders. Holders of CPOs are not entitled to vote the shares underlying such 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. ADS holders are entitled only to the rights of CPO holders and thus are not entitled to exercise any voting rights with respect to the shares or to attend our stockholders’ meetings.
Under Mexican Law, holders of shares of any series are entitled to vote as a class on any action that would prejudice the rights of holders of shares of such series but not rights of holders of shares of other series, and a holder of shares of such series would be entitled to judicial relief against any such action taken without such a vote. The determination whether an action requires a class vote on these grounds would initially be made by our Board of Directors or other party calling for shareholder action. A negative determination would be subject to judicial challenge by an affected shareholder, and the necessity for a class vote would ultimately be determined by a court. There are no other procedures for determining whether a proposed shareholder action requires a class vote, and Mexican law does not provide extensive guidance on the criteria to be applied in making such a determination.
Under the Mexican Securities Market Law and the Mexican Companies Law, the shareholders are authorized to create voting agreements. However, shareholders must notify our company of any such agreements and make disclosure to the public. Our bylaws require that any voting agreement that involves more than 5% of our outstanding shares be authorized by our Board of Directors.
Shareholders’ Meetings
General shareholders’ meetings may be ordinary meetings or extraordinary meetings. Extraordinary general meetings are those called to consider certain matters specified in Article 182 of the Mexican Companies Law, including, principally, amendments of the bylaws, liquidation, merger, spin-off, change in nationality and transformation from one type of company to another. General meetings called to consider all other matters are ordinary meetings.
An ordinary general meeting must be held during the four months following the end of each fiscal year to consider the approval of the report of our Board of Directors regarding our performance and our consolidated financial statements and that of certain of our subsidiaries for the preceding fiscal year, to elect directors and to determine the allocation of the profits of the preceding year. At such ordinary general meeting, any shareholder or group of shareholders representing 10% or more of the outstanding shares has the right to appoint one director. The shareholders establish the number of directors at each annual ordinary general meeting.
The quorum for ordinary general meetings is 50% of the outstanding shares and action may be taken by a majority of the shares present. If a quorum is not present, a subsequent meeting may be called at which action may be taken by holders of a majority of the shares present regardless of the percentage of outstanding shares represented at such meeting. The quorum for extraordinary general meetings is 75% of the outstanding shares, but if a quorum is not present a subsequent meeting may be called. The quorum for each subsequent meeting is 50% of the outstanding shares. Action at any extraordinary general meeting may only be taken by holders of at least 50% of the outstanding shares provided, however, that a quorum of 85% and approval of at least 80% of the outstanding shares, will be required to approve the following (1) mergers, other than mergers with subsidiaries; and (2) amendment or deletion of the provision in the bylaws that regulate share ownership of the company, shareholders’ meetings and the Board of Directors.
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Shareholders’ meetings may be called by the chairman of our Board of Directors, the chairman of Audit Committee or the chairman of the Corporate Practices, Finance, Planning and Sustainability Committee and must be called by any such chairman upon the written request of holders of at least 10% of our outstanding share capital. In addition, any such chairman shall call a shareholders’ meeting at the written request of any shareholder if no shareholders’ meeting has been held for two consecutive years or if the shareholders’ meetings held during such period have not considered the preceding year’s board of director’s report or our consolidated financial statements or have not the elected directors and determined their compensation. Notice of meetings must be published in a major newspaper in Mexico City. Meetings must be held in Mexico City. A proxy may represent a shareholder at a shareholders’ meeting.
Holders of 20% of our outstanding shares may oppose any resolution adopted at a shareholders’ meeting and file a petition for a court order to suspend the resolution temporarily within 15 days following the adjournment of the meeting at which the action was taken, provided that the challenged resolution violates Mexican law or our bylaws and the opposing shareholders neither attended the meeting nor voted in favor of the challenged resolution. In order to obtain such a court order, the opposing shareholder must deliver a bond to the court in order to secure payment of any damages that we may suffer as a result of suspending the resolution in the event that the court ultimately rules against the opposing shareholder. Shareholders representing at least 10% of the shares present at a shareholders’ meeting may request to postpone a vote on a specific matter on which they consider themselves to be insufficiency informed.
Dividend Rights
At the annual ordinary general meeting, our Board of Directors submits to the shareholders for their approval our consolidated financial statements and of certain of our subsidiaries. Five percent of our net earnings must be allocated to a legal reserve fund, until such fund reaches an amount equal to at least 20% of our share capital. Additional amounts may be allocated to other reserve funds as the shareholders determine. The remaining balance, if any, of net earnings may be distributed as dividends on the shares. Cash dividends on the shares will be paid against surrender to us of the relevant dividend coupon registered in the name of the holder thereof.
Holders of CPOs are entitled to receive the economic benefits corresponding to the shares underlying the CPOs, at the time that we declare and pay dividends or make distributions to stockholders, and to receive the proceeds of the sale of such shares at the termination of the CPO trust agreement. The CPO trustee will distribute cash dividends and other cash distributions received by it in respect of the shares held in the CPO trust to the holders of the CPOs in proportion to their respective holdings, in each case in the same currency in which they were received. Dividends paid with respect to shares underlying the CPOs will be distributed to the holders (including the depositary) on the business day on which Indeval receives the funds on behalf of the CPO trustee.
If our distribution consists of a dividend in shares, such shares will be held in the CPO trust and the CPO trustee will distribute to the holders of outstanding CPOs, in proportion to their holdings, additional CPOs in an aggregate number equal to the aggregate number of shares received by the CPO trustee as such dividend. If the maximum amount of CPOs that may be delivered under the CPO deed would be exceeded as a result of a dividend in shares, a new CPO deed would need to be entered into setting forth that new CPOs (including those CPOs exceeding the number of CPOs authorized under the CPO deed) may be issued. In the event that the CPO trustee receives any distribution with respect to shares held in the CPO trust other than in the form of cash or additional shares, the CPO trustee will adopt such method as it may deem legal, equitable and practicable to effect the distribution of such property.
If we offer or cause to be offered to the holders of shares the right to subscribe for additional shares, subject to applicable law, the CPO trustee will offer to each holder of CPOs the right to instruct the CPO trustee to subscribe for such holder’s proportionate share of such additional shares (subject to such holder’s providing the CPO trustee with the funds necessary to subscribe for such additional shares). Neither the CPO trustee nor we are obligated to register such rights, or the related shares, under the Securities Act. If the offering of rights is possible, under applicable law and without registration under the Securities Act or otherwise, and CPO holders provide the CPO trustee with the necessary funds, the CPO trustee will subscribe for the corresponding number of shares, which will be placed in the CPO trust, and deliver additional CPOs through Indeval in respect of such shares to the applicable CPO holders pursuant to the CPO deed or, to the extent possible, pursuant to a new CPO deed.
According to Mexican law, dividends or other distributions and the proceeds from the sale of the shares held in the CPO trust that are not received or claimed by a CPO holder within three years from the receipt of such dividends or distributions or ten years from such sale will become the property of the estate of the Mexican Ministry of Health.
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The Bank of New York as depository, is required to convert, as soon as possible, into U.S. dollars, all cash dividends and other cash distributions denominated in Mexican pesos (or any other currency other than U.S. dollars) that it receives in respect of the deposited CPOs, and to distribute the amount received to the holders of American Depositary Receipts, or ADRs, in proportion to the number of ADSs evidenced by such holder’s ADRs without regard to any distinctions among holders on account of exchange restrictions or the date of delivery of any ADR or ADRs or otherwise. The amount distributed will be reduced by any amounts to be withheld by us, the CPO trustee and the depositary, including amounts on account of any applicable taxes and certain other expenses. If the depositary determines that in its judgment any currency other than U.S. dollars received by it cannot be so converted on a reasonable basis and transferred, the depositary may distribute such foreign currency received by it or in its discretion hold such foreign currency (without liability for interest) for the respective accounts of the ADR holders entitled to receive the same.
If we declare a dividend in, or free distribution of, additional shares, upon receipt by or on behalf of the depositary of additional CPOs from the CPO trustee, the depositary may with our approval, and shall if we so request, distribute to the holders of outstanding ADRs, in proportion to the number of ADSs evidenced by their respective ADRs, additional ADRs evidencing an aggregate number of ADSs that represents the number of CPOs received as such dividend or free distribution. In lieu of delivering ADRs for fractional ADSs in the event of any such distribution, the depositary will sell the amount of CPOs represented by the aggregate of such fractions and will distribute the net process to holders of ADRs in accordance with the deposit agreement. If additional ADRs (other than ADRs for fractional ADSs) are not so distributed, each ADS shall thereafter also represent the additional CPOs distributed in respect of the CPOs represented by such ADS prior to such dividend or free distribution.
Changes in Share Capital and Preemptive Rights
The fixed portion of our capital stock may only be increased or decreased by resolution of an extraordinary general meeting, whereas the variable portion of our capital stock may be increased or decreased by resolution of an ordinary general meeting.
In the event of a capital increase, each holder of existing shares has a preferential right to subscribe for a sufficient number of new shares to maintain the holder’s existing proportionate holding of shares. Preemptive rights must be exercised within 15 days after publication of a notice of the capital increase in the Official Gazette of the Federation(Diario Oficial de la Federacion)or they will lapse. Preemptive rights may not be waived in advance by a shareholder except under limited instances, and cannot be represented by an instrument that is negotiable separately from the corresponding share. Shares issued by us in connection with an increase in its variable capital, with respect to which preemptive rights have not been exercised, may be sold by us on terms previously approved by the shareholders’ meeting or the Board of Directors, but in no event below the price at which they had been offered to shareholders.
Holders of CPOs or ADSs that are U.S. persons or are located in the United States may be restricted in their ability to participate in the exercise of such pre-emptive rights.
Shares issued under Article 53 of the Mexican Securities Market Law (which are those held in treasury to be delivered upon their subscription) may be offered for subscription and payment by the Board of Directors without preemptive rights being applicable, provided that the issuance is made to effect a public offering in accordance with the Mexican Securities Market Law.
Limitations on Share Ownership
Our bylaws prohibit ownership of the shares by foreign investors. Any acquisition of shares in violation of such provision would be null and void under Mexican law and such shares would be canceled and our share capital accordingly reduced. Non-Mexican nationals may, however, hold financial interests in shares through the CPOs issued under the CPO trust.
Pursuant to our amended bylaws, significant acquisitions of shares of our capital stock and changes of control require prior approval of our Board of Directors. Our Board of Directors must authorize in advance any transfer of voting shares of our capital stock that would result in any person or group becoming a holder of 5% or more of our shares. Any acquisition of shares of our capital stock representing more than 15% of our capital stock by a person or group of persons requires the purchaser to make a public offer for the greater of:
| | • | | the percentage of shares sought, or |
| | • | | 10 percent of the total shares. |
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If the tender offer is oversubscribed, shares sold will be allocated on a pro rata basis among the selling shareholders. If the authorized purchase of shares is for the intent of acquiring control of us, the purchaser must make an offer to purchase 100 percent of the shares.
The public offer to purchase must be made at the same price for all shares. The offer price is required to be highest of:
| | • | | the book value of the shares, |
| | • | | the highest closing price on the Mexican Stock exchange during the 365 days preceding the date of the authorization, or |
| | • | | the highest price paid at any time by the persons intending to purchase the shares. |
Notwithstanding the foregoing, the Board of Directors may authorize that the public offer be made at a different price, which may be based the prior approval of the Audit Committee and an independent valuation.
These provisions shall not apply in cases of transfer of shares as a result of death, the repurchase or amortization of shares, subscription of shares in exercise of preferential rights, or by us and our subsidiaries, or by the person who maintains effective control of us.
Delisting
In the event that we decide to cancel the registration of our shares with the National Registry of Securities(Registro Nacional de Valores)or the CNBV, orders this deregistration, our shareholders who are deemed to have “control” will be required to make a tender offer to purchase the shares held by minority shareholders prior to such cancellation. Shareholders deemed to have “control” are those that own a majority of our common shares, have the ability to control our shareholders’ meetings, or have the ability to appoint a majority of the members of our Board of Directors. The price of the offer to purchase will generally be the higher of:
| | • | | the average trading price on the Mexican Stock Exchange during the last 30 days on which the shares were quoted prior to the date on which the tender offer is made; and |
| | • | | the book value of the shares as reflected in our latest quarterly financial information filed with the CNBV and the Mexican Stock Exchange. |
In accordance with the applicable regulations, in the event that our controlling shareholders are unable to purchase all of our outstanding shares pursuant to a tender offer, they must form a trust and contribute to it the amount required to secure payment of the purchase price offered pursuant to the tender offer to all of our shareholders that did not sell their shares pursuant to the tender offer. The trust must exist for a period of at least six months.
Controlling shareholders are not required to make a tender offer if the deregistration is approved by 95% of our shareholders. Nevertheless, the trust mechanism described in the previous paragraph still must be implemented.
Five business days prior to the commencement of the tender offer, our Board of Directors must make a determination with respect to the fairness of the terms of the offer, taking into account the rights of our minority shareholders, and disclose its opinion, which must refer to the justifications for the offer price. If the Board of Directors is precluded from making this determination as a result of a conflict of interest, the board’s resolution must be based on a fairness opinion issued by an expert selected by the Audit Committee.
Certain Minority Rights
Mexican law includes a number of minority shareholder protections. These minority protections include provisions that permit:
| | • | | holders of at least 10% of our outstanding share capital to vote (including in a limited or restricted manner) to call a shareholders’ meeting; |
| | • | | holders of at least 10% of our outstanding share capital to appoint one member of our Board of Directors; |
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| | • | | holders of at least 5% of our outstanding share capital (represented by shares or CPOs) to bring an action against our directors, members of the Audit Committee and secretary of Board for violations of their duty of care or duty of loyalty, if |
| | • | | the claim covers all of the damage alleged to have been caused by us and not merely the damage suffered by the plaintiff, and |
| | • | | any recovery is for our benefit and not the benefit of the plaintiffs; |
| | • | | holders of at least 10% of our shares who are entitled to vote (including in a limited or restricted manner) at any shareholders’ meeting to request that resolutions, with respect to any matter on which were not sufficiently informed, be postponed; and |
| | • | | holders of at least 20% of our outstanding share capital to contest and suspend any shareholder resolution, subject to certain requirements under Mexican law. |
Other Provisions
Duration
Our corporate existence under our bylaws is unlimited, but may be terminated by resolution of an extraordinary general meeting of shareholders.
Conflict of Interest
A shareholder must abstain from voting in a shareholders’ meeting on a transaction in which the shareholder’s interest conflicts with our interest. If the shareholder nonetheless votes, such shareholder may be liable for damages, but only if the transaction would not have been approved without the vote of such shareholder. In addition, any director who has a conflict of interest with us relating to a proposed transaction must disclose the conflict and refrain from voting on the transaction or may be liable for damages.
Appraisal Rights
Whenever a shareholders’ meeting approves a change of corporate purpose, change of nationality or restructuring from one type of corporate form to another, any shareholder who has voted against such change or restructuring has the right to withdraw and receive an amount equal to the book value of its shares (in accordance with the latest balance sheet approved by the annual ordinary general meeting), provided such shareholder exercises its right to withdraw during the 15 day period following the meeting at which such change or restructuring was approved. Because the CPO trustee is required to vote the shares held in the CPO trust 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, appraisal rights will not be available to holder of CPOs.
Purchase by the Company of its Shares
We may purchase shares for cancellation pursuant to a decision of our extraordinary general meeting of shareholders. We may also repurchase shares on the Mexican Stock Exchange at the then prevailing market prices. Any such repurchase must be approved by our Board of Directors, and must be paid for using shareholders’ equity. If, however, the repurchased shares will be converted into treasury shares, we may allocate our capital toward such repurchases. The corporate rights corresponding to such repurchased shares may not be exercised during the period in which such shares are owned by us, and such shares will not be deemed to be outstanding for purposes of calculating any quorum or vote at a shareholders’ meeting during such period. The repurchased shares (including any received as dividends) must be resold on the Mexican Stock Exchange.
Purchase of Shares by Subsidiaries of the Company
Companies or other entities controlled by us may not purchase, directly or indirectly, shares or shares of companies or entities that are our shareholders.
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Rights of Shareholders
The protections afforded to minority shareholders under Mexican law are different from those in the United States and many other jurisdictions. The substantive law concerning fiduciary duties of directors has not been the subject of extensive judicial interpretation in Mexico, unlike many states in the United States where duties of care and loyalty elaborated by judicial decisions help to shape the rights of minority shareholders. Mexican civil procedure does not contemplate class actions or shareholder derivative actions, which permit shareholders in U.S. courts to bring actions on behalf of other shareholders or to enforce rights of the corporation itself. Shareholders cannot challenge corporate action taken at a shareholders’ meeting unless they meet certain procedural requirement, as described above under “Shareholders’ Meetings.”
As a result of these factors, in practice it may be more difficult for our minority shareholders to enforce rights against us or our directors or controlling shareholders than it would be for shareholders of a U.S. company.
In addition, under the U.S. securities laws, as a foreign private issuer we are exempt from certain rules that apply to domestic U.S. issuers with equity securities registered under the U.S. Securities Exchange Act of 1934, as amended, including the proxy solicitation rules, the rules requiring disclosure of share ownership by directors, officers and certain shareholders. We are also exempt from certain of the corporate governance requirements of the NYSE.
Enforceability of Civil Liabilities
We are organized under the laws of Mexico, and most of our directors, officers and controlling person reside outside the United States. In addition, all or a substantial portion of our subsidiaries and their assets are located in Mexico. As a result, it may be difficult for investors to effect service of process within the United States on such persons. It may also be difficult to enforce against them, either inside or outside the United States, judgments obtained against them in U.S. courts, or to enforce in U.S. courts judgments obtained against them in courts in jurisdictions outside the United States, in any action based on civil liabilities under the U.S. federal securities laws. There is doubt as to the enforceability against such persons in Mexico, whether in original actions or in actions to enforce judgments of U.S. courts, of liability based solely on the U.S. federal securities laws.
B. MATERIAL CONTRACTS
We have not entered into any material contracts, other than in the ordinary course of business for the two years immediately preceding the date of this annual report on Form 20-F.
C. EXCHANGE CONTROLS
Mexico has had a free market for foreign exchange since 1991 and the government has allowed the Mexican peso to float freely against the U.S. dollar since December 1994. We cannot assure you that the government will maintain its current foreign exchange policies. See “Item 3. Key Information – Exchange Rates.”
D. TAXATION
The following summary contains a description of the principal U.S. federal income and Mexican federal tax consequences of the purchase, ownership and disposition of CPOs or ADSs by a holder that is a citizen or resident of the United States or a U.S. domestic corporation or that otherwise will be subject to U.S. federal income tax on a net income basis in respect of the CPOs or ADSs (a “U.S. holder”), but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase CPOs or ADSs. In particular, the summary deals only with U.S. holders that will hold CPOs or ADSs as capital assets and does not address the tax treatment of U.S. holders that own (or are deemed to own) 10% or more of our voting shares or that may be subject to special tax rules, such as banks, insurance companies, dealers in securities or currencies, persons that will hold CPOs or ADSs as a position in a “straddle” for tax purposes and persons that have a “functional currency” other than the U.S. dollar.
The summary is based on tax laws of the United States and the federal income tax laws of Mexico as in effect on the date of this annual report, including the provisions of the income tax treaty between the United States and Mexico (and the protocols thereto), or the Tax Treaty, which are subject to change. Holders of CPOs or ADSs should consult their own tax advisers as to the U.S., Mexican or other tax consequences of the purchase, ownership and disposition of CPOs or ADSs, including, in particular, the effect of any foreign, state or local tax laws.
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For purposes of this summary, the term “non-resident holder” means a holder that is not a resident of Mexico and that will not hold CPOs or ADSs or a beneficial interest therein in connection with the conduct of a trade or business through a permanent establishment in Mexico.
For purposes of Mexican taxation, a natural person is a resident of Mexico, among other circumstances, if he has established his home or his vital interests in Mexico. Under Mexican law, individuals are considered to have their core of vital interests in Mexico if more than 50% of their income in any calendar year is from Mexican sources, or if their main center of professional activity is located in Mexico. Natural persons that are employed by the Mexican government will be deemed to be a resident of Mexico, even if their center of vital interests is in another country. A legal entity is a resident of Mexico either if it has its principal place of business or its place of effective management in Mexico. If a non-resident has a permanent establishment in Mexico for tax purposes, all income attributable to such permanent establishment will be subject to Mexican taxes, in accordance with applicable tax laws.
In general, for U.S. federal income tax purposes, holders of ADSs or CPOs will be treated as the beneficial owners of the shares represented by those ADSs or CPOs.
Taxation of Dividends
Mexican Tax Considerations
Under Mexican income tax law, dividends, either in cash or in kind, paid to non-resident holders with respect to the shares represented by the ADSs or CPOs are not subject to any Mexican withholding or similar tax.
U.S. Tax Considerations
The gross amount of any dividends paid with respect to the shares represented by ADSs or CPOs generally will be includible in the gross income of a U.S. holder on the day on which the dividends are received by the CPO trustee (which will be the same date as the date of receipt by the Depositary) and will not be eligible for the dividends received deduction allowed to corporations under the Internal Revenue Code of 1986. Dividends, which will be paid in Mexican pesos, will be includible in the income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day they are received by the CPO trustee. U.S. holders should consult their own tax advisors regarding the treatment of foreign currency gain or loss, if any, on any Mexican pesos received that are converted into U.S. dollars on a date subsequent to receipt. Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual prior to January 1, 2013 will be subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid will be treated as qualified dividends if (1) the securities with respect to the which the dividends are received are readily tradable on an established securities market in the United States or we are eligible for the benefits of a comprehensive income tax treaty with the United States that the Internal Revenue Service has approved for the purposes of the qualified dividend rules and (2) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment company, or PFIC. The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities market in the United States so long as they are so listed. The Tax Treaty has been approved for the purposes of the qualified dividend rules. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2011 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2012 taxable year.
The U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs or ordinary stock and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether we will be able to comply with them. Holders of ADSs, CPOs and ordinary shares should consult their own tax advisers regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.
Dividends generally will constitute foreign source income for U.S. foreign tax credit purposes.
Distributions to holders of additional shares with respect to their ADSs or CPOs that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to U.S. federal income tax.
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A holder of CPOs or ADSs that is a non-U.S. holder generally will not be subject to U.S. federal income or withholding tax on dividends received , unless such income is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States.
Taxation of Dispositions of ADSs or CPOs
Mexican Tax Considerations
Gain on the sale of CPOs by a non-resident holder will not be subject to any Mexican tax so long as (i) the transaction is carried out through the Mexican Stock Exchange or a securities market approved by the Mexican Ministry of Finance and Public Credit and (ii) the holder does not beneficially own and, within 24 months of the transaction, dispose of 10% or more of the capital stock of the CPO issuer. If these requirements are not met, the gain on the sale of CPOs or shares by a non-resident holder entity will be subject to a 5% Mexican withholding tax on the price obtained without any deductions allowed, if the transaction is carried out through the Mexican Stock Exchange and provided certain requirements set forth by the Mexican income tax law are complied with. Alternatively, the non-resident holder can choose to be subject to a 20% withholding rate on the gain obtained which gain should be calculated pursuant to Mexican income tax law provisions.
Gain on sales or other dispositions of CPOs or shares made in other circumstances generally would be subject to Mexican tax, regardless of the nationality or residence of the transferor. However, under the Tax Treaty, a non-Mexican holder that is eligible to claim the benefits of the Tax Treaty will be exempt from Mexican tax on gains realized on a sale or other disposition of CPOs or shares in a transaction that is not carried out through the Mexican Stock Exchange or such other approved securities markets, so long as the holder did not own, directly or indirectly, 25% or more of our capital stock (including ADSs) within the 12-month period preceding such sale or other disposition.
U.S. Tax Considerations
Gain or loss realized by a U.S. holder on the sale or other disposition of ADSs or CPOs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the amount realized on the disposition and such U.S. holder’s tax basis in the ADSs or the CPOs. Gain or loss realized by a U.S. holder on such sale, redemption or other disposition generally will be long-term capital gain or loss if, at the time of the disposition, the ADSs or the CPOs have been held for more than one year. The net amount of long-term capital gain recognized by an individual is taxed at reduced rate of tax. Deposits and withdrawals of CPOs by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.
Gain, if any, realized by a U.S. holder on the sale or other disposition of CPOs or ADSs will be treated as U.S. source income for U.S. foreign tax credit purposes. Consequently if a Mexican withholding tax is imposed on the sale or disposition of CPOs, a U.S. holder that does not receive significant foreign source income from other sources may not be able to derive effective U.S. foreign tax credit benefits in respect of these Mexican taxes. U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of CPOs.
A non-U.S. holder of CPOs or ADSs will not be subject to U.S. federal income or withholding tax on gain realized on the sale of CPOs or ADSs, unless:
| | • | | such gain is effectively connected with the conduct by the non-U.S. holder of a trade or business in the United States, or |
| | • | | in the case of gain realized by an individual non-U.S. holder, the non-U.S. holder is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met. |
Other Mexican Taxes
There are no Mexican inheritance, gift, succession or value-added taxes applicable to the ownership, transfer or disposition of debentures, ADSs or CPOs by non-resident holders; provided, however, that gratuitous transfers of CPOs may in certain circumstances cause a Mexican federal income tax to be imposed upon the recipient. There are no Mexican stamp, issue, registration or similar taxes or duties payable by non-resident holders of debentures, ADSs or CPOs.
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United States Backup Withholding and Information Reporting
A U.S. holder of ADSs or CPOs may, under certain circumstances, be subject to “backup withholding” with respect to certain payments to such U.S. holder, such as dividends, or the proceeds of a sale or disposition of ADSs or CPO unless such holder (1) is a corporation or comes within certain exempt categories, and demonstrates this fact when so required, or (2) provides a correct taxpayer identification number, certifies that it is not subject to backup withholding and otherwise complies with applicable requirements of the backup withholding rules. Any amount withheld under these rules does not constitute a separate tax and will be creditable against the holder’s U.S. federal income tax liability. While non-U.S. holders generally are exempt from backup withholding, a non-U.S. holder may, in certain circumstances, be required to comply with certain information and identification procedures in order to prove this exemption.
E. DOCUMENTS ON DISPLAY
The materials included in this annual report on Form 20-F, and exhibits thereto, may be inspected and copied at the Securities and Exchange Commission’s public reference room in Washington, D.C. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms. The Securities and Exchange Commission maintains a Web site at http://www.sec.gov that contains reports and information statements and other information regarding us. The reports and information statements and other information about us can be downloaded from the Securities and Exchange Commission’s Web site.
| Item 11. | Quantitative and Qualitative Disclosures about Market Risk |
We are exposed to market risk from changes in currency exchange rates and interest rates. From time to time, we assess our exposure and monitor our opportunities to manage these risks. We monitor our revenue and debt composition and perform market analysis to anticipate any interest rate changes.
Instruments for Trading Purposes and for Other-Than-Trading Purposes. At December 31, 2011, we had outstanding approximately Ps.27,330 million notional amount of derivative financial instruments for purposes other than trading and Ps.14,312 million notional amount of derivative financial instruments for trading (as classified according to financial reporting standards). We enter into derivative financial instruments to hedge our exposure to interest rate and foreign currency exchange risk related to the financing for our construction projects. When the related transaction complies with all hedge accounting requirements, we designate the derivative as a hedging financial instrument (either as a cash flow hedge, a foreign currency hedge or a fair value hedge) at the time we enter into the contract. When we enter into a derivative for hedging purposes from an economic perspective, but such derivative does not comply with all the requirements established by financial reporting standards to be hedging instruments, we designate the derivative as a trading instrument. Our policy is not to enter into derivative instruments for purposes of speculation. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Critical Accounting Policies and Estimates.” There are no significant differences in the financial market risk to which our aggregated portfolios of instruments for trading purposes and those for other-than-trading purposes are exposed.
Interest Rate Risk
Interest Rate Sensitivity Analysis Disclosure
The sensitivity analyses below are based on the assumption of an unfavorable movement of basis points in interest rates, in the amounts indicated, applicable to each category of floating-rate financial liabilities. These sensitivity analyses cover all of our indebtedness and derivative financial instruments. We calculated our sensitivity by applying the hypothetical interest rate to our outstanding debt and adjusting accordingly for debt that is covered by our derivative financial instruments for such fluctuations.
At December 31, 2011, a hypothetical, instantaneous and unfavorable change of 100, 50 and 25 basis points in the interest rate applicable to floating-rate financial liabilities, including derivative financial instruments only if held for purposes other than trading, would have resulted in additional financing expense of approximately Ps.267 million, Ps.132 million and Ps.40 million per year, respectively. A hypothetical, instantaneous and unfavorable change of 100, 50 and 25 basis points in the interest rate applicable to floating-rate financial liabilities, including derivative financial instruments only if held for trading purposes, would have resulted in additional financing expense of approximately Ps.2 million, Ps.1 million and Ps.610 thousand per year, respectively.
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Qualitative Information
Interest rate risk exists principally with respect to our indebtedness that bears interest at floating rates. At December 31, 2011, we had outstanding approximately Ps.50,034 million of indebtedness, of which 40% bore interest at fixed interest rates and 60% bore interest at floating rates of interest. At December 31, 2010, we had outstanding approximately Ps.32,470 million of indebtedness, of which 20% bore interest at fixed interest rates and 80% bore interest at floating rates of interest. The interest rate on our variable rate debt is determined by reference to the LIBOR and the TIIE rates.
We have entered into cash flow hedges, including with respect to interest rate swaps (not for trading purposes), and other trading derivative instruments for the terms of some of our long-term credit facilities with the objective of reducing the uncertainties resulting from interest rate fluctuations. See “Risk Factors – Risks Related to Our Operations – Our hedge contracts may not effectively protect us from financial market risks and may negatively affect our cash flow” and “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources – Derivative Financial Instruments.”
Foreign Currency Risk
Foreign Currency Sensitivity Analysis Disclosure
The sensitivity analyses below assume an instantaneous unfavorable fluctuation in exchange rates affecting the foreign currencies in which our indebtedness is denominated. These sensitivity analyses cover all of our foreign currency assets and liabilities, as well our derivative financial instruments, except for the principal of our 8.9% senior notes. We calculated our sensitivity by applying the hypothetical change in the exchange rate to our outstanding debt denominated in a foreign currency and adjusting accordingly for debt that is covered by our derivative financial instruments for such fluctuation.
At December 31, 2011, a hypothetical, instantaneous and unfavorable 14.34% change in the currency exchange rate applicable to our indebtedness, including derivative financial instruments only if held for purposes other than trading (and not including debt covered by trading instruments), would have resulted in an estimated foreign exchange loss of approximately Ps.124 million, reflecting the increased value in Mexican pesos of our foreign currency denominated indebtedness. We had no foreign currency derivatives classified as held for trading purposes at December 31, 2011.
Qualitative Information
Our principal exchange rate risk involves changes in the value of the Mexican peso relative to the dollar. As of December 31, 2011, approximately 22% of our consolidated revenues and 47% of our indebtedness were denominated in foreign currencies, mainly U.S. dollars. 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, ICA Panama (up to its sale in August 2011) and Los Portales. The majority of revenues and expenses of Rodio Kronsa are denominated in euros, so we believe we have a natural hedge for our exposure to exchange rate risk associated with our euro-denominated contracts. Several of our subsidiaries have lesser exposure to the foreign currency risk because a higher percentage of their revenues are denominated in U.S. dollars.
At December 31, 2011 and 2010, approximately 21% and 28% respectively, of our construction backlog was denominated in foreign currencies and approximately 45% and 46%, respectively, of our accounts receivable were denominated in foreign currencies. As of December 31, 2011 and 2010, approximately 23% and 22%, respectively, of our consolidated financial assets were denominated in foreign currencies, with the balance denominated in Mexican pesos. In addition, as of December 31, 2011 and 2010, approximately 47% and 39%, respectively, of our indebtedness was denominated in foreign currencies. Decreases in the value of the Mexican peso relative to the U.S. dollar could increase the cost in Mexican pesos of our foreign currency denominated costs and expenses and, unless contracted in the same currency as the source of repayment (as is our policy), of the debt service obligations with respect to our foreign currency denominated indebtedness. A depreciation of the Mexican peso relative to the dollar could also result in foreign exchange losses as the Mexican peso value of our foreign currency denominated indebtedness is increased, unless the source of repayment is in the same currency as the indebtedness (as is our policy). Beginning in the second half of 2008, the Mexican peso substantially depreciated against the U.S. dollar, falling 33% from July 2 to December 31, 2008. The Mexican peso stabilized in the first quarter of 2010, and continued to be stable throughout the remainder of the year. Since then, there has been a significant depreciation in the Mexican peso against the U.S. dollar, and the noon buying rate increased to Ps.13.95 on December 30, 2011, representing a depreciation of approximately 13%. The Mexican peso has since partially recovered, and the noon buying rate was Ps.12.81 per U.S.$1.00 on March 30, 2012.
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
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making timely payments of interest and principal on our U.S. dollar-denominated indebtedness or obligations in other currencies. 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. We cannot assure you that the Mexican Central Bank will maintain its current policy with respect to the peso.
We have entered into cash flow hedges, including with respect to foreign currency cash flow, for the terms of some of our long-term credit facilities with the objective of reducing the uncertainties resulting from exchange rate fluctuations. See “Risk Factors – Risks Related to Our Operations – Our hedging contracts may not effectively protect us from financial market risks and may negatively affect our cash flow” and “Item 5. Operating and Financial Review and Prospects – Liquidity and Capital Resources—Derivative Financial Instruments.”
| Item 12. | Description of Securities Other than Equity Securities |
ADS Fees
The following table sets forth the fees and charges that a holder of our ADSs may have to pay, directly or indirectly.
| | | | |
Service | | Fee or Charge Amount for ADS Holder depositing or withdrawing shares | | Payee |
| Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property | | U.S.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | | Bank of New York Mellon |
| | |
| Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | | U.S.$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | | Bank of New York Mellon |
| | |
| Any cash distribution to ADS registered holders | | U.S.$.02 (or less) per ADS | | Bank of New York Mellon |
| | |
Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADS registered holders | | A fee equivalent to the fee that would be payable if securities distributed to the ADS holder had been shares and the shares had been deposited for issuance of ADSs | | Bank of New York Mellon |
| | |
| Depositary services | | U.S.$.02 (or less) per ADSs per calendar year | | Bank of New York Mellon |
| | |
| Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares | | Registration or transfer fees | | Bank of New York Mellon |
| | |
| Cable, telex and facsimile transmissions (when expressly provided in the deposit agreement) | | Expenses of the depositary | | Bank of New York Mellon |
| | |
| Converting foreign currency to U.S. dollars | | Expenses of the depositary | | Bank of New York Mellon |
| | |
Other fees, as necessary | | Taxes and other governmental charges the Bank of New York Mellon or the custodian has to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | | Bank of New York Mellon |
| | |
Other fees, as necessary | | Any charges incurred by Bank of New York Mellon or its agents for servicing the deposited securities | | Bank of New York Mellon |
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Fees incurred in past annual period
In 2010, we paid U.S.$11,360.58 to The Bank of New York Mellon for legal fees related to our equity offering in 2009. In January 2011, we received U.S.$92,575.2, net of tax withheld, from The Bank of New York Mellon, as depositary of our ADSs, in connection with the establishment, maintenance and operation of our ADS program. From January 2011 to April 2011, we did not receive any payments from the depository.
Fees to be paid in the future
The Bank of New York Mellon, as depositary of our ADSs, has agreed to pay the standard out-of-pocket maintenance costs for the ADSs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, annual fees of related software programs, stationery, postage, facsimile, and telephone calls.
The depositary of our ADSs, The Bank of New York Mellon, collects its fees directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects these fees by deducting them from the amounts distributed or by selling a portion of distributable property to pay the fees. For example, the depositary may deduct from cash distributions, directly bill investors or charge the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for these services are paid.
PART II
| Item 13. | Defaults, Dividend Arrearages and Delinquencies |
None.
| Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds |
None.
| Item 15. | Controls and Procedures |
| (a) | Disclosure Controls and Procedures |
We have evaluated, with the participation of our chief executive officer and chief financial officer, the design and operation of our disclosure controls and procedures as of December 31, 2011.
There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our chief executive officer and chief financial officer concluded that as of December 31, 2011, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
| (b) | Management’s Annual Report on Internal Control Over Financial Reporting |
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934. For the year ended December 31, 2011, our financial statements were prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
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(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management assessed the design and effectiveness of our internal control over financial reporting as of December 31, 2011. In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, in Internal Control – Integrated Framework.
Based on our assessment and those criteria, our management concluded that our company maintained effective internal control over financial reporting as of December 31, 2011.
Galaz, Yamazaki, Ruiz Urquiza, S.C. a member of Deloitte Touche Tohmatsu Limited, the independent registered public accounting firm that has audited our consolidated financial statements, has issued an attestation report on the effectiveness of our internal control over financial reporting.
(c) Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
To the Board of Directors and Stockholders of Empresas ICA, S.A.B. de C.V.
We have audited the internal control over financial reporting of Empresas ICA, S.A.B. de C.V. and Subsidiaries (the “Company”), as of December 31, 2011, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
98
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2011 of the Company, and our report dated April 16, 2012 expressed an unqualified opinion on those financial statements and includes an explanatory paragraph regarding the translation of Mexican peso amounts into U.S. dollar amounts in conformity with the basis stated in Note 4 c to such consolidated financial statements.
Galaz, Yamazaki, Ruiz Urquiza, S.C.
Member of Deloitte Touche Tohmatsu Limited
C. P. C. Ramón Arturo García Chávez
Mexico City, Mexico
April 16, 2012
(d) Changes in Internal Control over Financial Reporting
As part of the adoption of IFRS, we monitored the implementation process through analyzing and identifying the principal differences between MFRS and IFRS in order to define the changes required in our accounting policies. Meetings were held with the management of each of our segments to measure the impact of IFRS on the consolidated financial statements. A specific internal control matrix was prepared during the adoption process, which includes the definition of the accounting structure for each of the items in which differences in our consolidated financial standards were identified. A central control area was named to authorize the changes required in the accounting structure. In the journal entries, we defined a separate cost center to identify and control the records under IFRS and MFRS, and accordingly we updated the journal entries in our financial information management system, modifying our internal control activities to align them to meet the requirements of reporting our financial information under IFRS.
| Item 16A. | Audit Committee Financial Expert |
We have determined that Ms. Elsa Beatriz Garcia Bojorges, a member of our Audit Committee, qualifies as an “audit committee financial expert” and as independent within the meaning of this Item 16A. On April 26, 2007, the shareholders affirmed in a resolution that Ms. Garcia Bojorgez is an independent member of our board. On April 14, 2011, the shareholders’ meeting appointed Ms. Bojorges as Chairman of the Audit Committee.
We have adopted a code of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended. Our code of ethics applies to our chief executive officer, chief financial officer, chief accounting officer and persons performing similar functions as well as to our directors and other officers/employees. Our code of ethics is filed as an exhibit to this Form 20-F.
| Item 16C. | Principal Accountant Fees and Services |
Audit and Non-Audit Fees
The following table sets forth the fees billed to us by our principal accounting firm, Galaz, Yamazaki, Ruiz Urquiza, S.C., member of Deloitte Touche Tohmatsu Limited, and its affiliates, which we collectively refer to as Deloitte, during the fiscal years ended December 31, 2011 and 2010:
99
| | | | | | | | |
| | | Total Fees | |
| | | As of December 31, | |
| | | 2011 | | | 2010 | |
| | | (Millions of Mexican pesos) | |
Fees | | | | | | | | |
Audit fees | | | Ps. 43.5 | | | | Ps. 45.6 | |
Audit-related fees | | | 3.1 | | | | 4.9 | |
Tax fees | | | 3.1 | | | | 3.4 | |
All other fees | | | 5.4 | | | | 7.1 | |
| | | | | | | | |
Total | | | Ps.55.1 | | | | Ps. 61.0 | |
The “audit fees” line item in the above table is the aggregate fees billed by Deloitte in 2011 and 2010 in connection with the audit of our annual consolidated financial statements, including an audit on our compliance with Section 404 of the Sarbanes-Oxley Act of 2002, the review of our quarterly financial statements, the review of the financial statements of certain subsidiaries and other statutory audit reports.
“Audit related fees” include other fees billed by Deloitte in 2011 and 2010 for assurance and related services that are reasonably related to the performance of the audit or review of our annual consolidated financial statements and are not reported under “audit fees.”
“Tax fees” include fees billed by Deloitte in 2011 and 2010 for services related to tax compliance.
The “all other fees” line item in the above table is the aggregate fees billed by Deloitte related to transfer pricing analysis, Mexican social security compliance and other advice.
Audit Committee Pre-Approval Policies and Procedures
Our Audit Committee approves all audit, audit-related services, tax services and other services provided by Deloitte. Any services provided by Deloitte that are not specifically included within the scope of the audit must be pre-approved by the Audit Committee prior to any engagement, subject to ade minimusexception allowing approval for certain services before completion of the engagement. In 2011, none of the fees paid to Deloitte was approved pursuant to thede minimusexception.
| Item 16D. | Exemptions from the Listing Standards for Audit Committees |
None.
| Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
The table below sets forth, for the periods indicated, the total number of shares of Empresas ICA, S.A.B. de C.V. purchased on our behalf, the average price paid per share and the total number of shares purchased in accordance with the rules and policies approved by our Board of Directors for the purchase of equity securities by the issuer. There were no purchases of equity securities by the issuer in 2012 through April 30.
| | | | | | | | |
2011 | | Total Number of
Shares Purchased | | | Average Price
Paid per Share | |
January 1-31 | | | 0 | | | | Ps. 0 | |
February 1-28 | | | 53,000 | | | | 28.03 | |
March 1-31 | | | 7,492,300 | | | | 26.46 | |
April 1-30 | | | 0 | | | | 0 | |
May 1-31 | | | 0 | | | | 0 | |
June 1-30 | | | 0 | | | | 0 | |
July 1-31 | | | 14,181,900 | | | | 23.96 | |
August 1-31 | | | 8,614,000 | | | | 18.51 | |
September 1-30 | | | 11,623,100 | | | | 16.43 | |
October 1-31 | | | 6,570,000 | | | | 15.29 | |
November 1-30 | | | 0 | | | | 0 | |
December 1-31 | | | 0 | | | | 0 | |
| | | | | | | | |
Total | | | 48,534,300 | | | | Ps. 20.53 | |
| (1) | We do not repurchase our shares other than through the share repurchase program. |
100
The total number of shares repurchased by the issuer with an average price per share of Ps.20.53 represents a total amount of Ps.996.6 million, which amount was drawn from the repurchase reserve approved by our shareholders at our ordinary general meeting.
At an ordinary meeting held on November 17, 2011, our shareholders voted to increase the share purchase reserve to Ps.1,850 million and authorized management to carry out repurchases up to that amount in accordance with the Policy for the Acquisition and Placement of Own Shares. The increase in the reserve will provide us with the flexibility to continue purchasing shares in the market in the coming years, depending on management’s evaluation of market conditions, the price of our stock, our liquidity position and other factors.
In addition, at the ordinary meeting our shareholders approved the cancellation of up to 32,748,689 repurchased shares, equivalent to approximately 5% of the shares outstanding as of December 31, 2010.
| Item 16F. | Changes in Registrant’s Certifying Accountant |
Not applicable.
| Item 16G. | Corporate Governance |
NYSE Corporate Governance Comparison
Pursuant to Section 303A.11 of the Listed Company Manual of the NYSE, we are required to provide a summary of the significant ways in which our corporate governance practices differ from those required for U.S. companies under the NYSE listing standards. We are a Mexican corporation with shares listed on the Mexican Stock Exchange. Our corporate governance practices are governed by our bylaws, the Mexican Securities Market Law and the regulations issued by the Mexican National Banking and Securities Commission. We also comply on a voluntary basis with the Mexican Code of Best Corporate Practices(Codigo de Mejores Practicas Corporativas)as indicated below, which was created in January 2001 by a group of Mexican business leaders and was endorsed by the Mexican Banking and Securities Commission. On an annual basis, we file a report with the Mexican Banking and Securities Commission and the Mexican Stock Exchange regarding our compliance with the Mexican Code of Best Corporate Practices.
The table below discloses the significant differences between our corporate governance practices and the NYSE standards.
| | |
NYSE Standards | | Our Current Corporate Governance Practices |
| A majority of board of directors must be independent. §303A.01 | | Pursuant to the Mexican Securities Market Law and our bylaws, our shareholders are required to appoint a Board of Directors of between five and twenty-one members, 25% of whom must be independent within the meaning of the Mexican Securities Market Law, which differs from the definition of independent under the rules of the New York Stock Exchange. |
| |
| | Our Board of Directors currently consists of seventeen members, of which ten are outside (i.e. non-management) directors. Ten of our directors are independent directors within the meaning of the Mexican Securities Market Law. Nine of our directors are independent directors within the meaning of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. |
101
| | |
| | Pursuant to our bylaws board members must be appointed based on their experience, ability and professional prestige. Our Board of Directors must meet at least every three months. |
| |
| A director is not independent if such director is: | | Under Article 26 is of the Mexican Securities Market Law, a director is not independent if such director is: |
| |
| (i) a person who the board determines has a material direct or indirect relationship with the listed company; | | (i) or has been within the last year, an employee or officer of the company; |
| |
| (ii) or has been within the last three years, an employee, or an immediate family member of an executive officer, of the listed company, other than employment as interim chairman or CEO; | | (ii) a shareholder that, without being an employee or officer of the company, has influence or authority over the company’s officers; |
| |
| (iii) or has been within the last three years, a person who receives, or whose immediate family member receives, more than $120,000 during any 12-month period in direct compensation from the listed company, other than director and committee fees and pension or other deferred compensation for prior service (and other than compensation for service as interim chairman or CEO or received by an immediate family member for service as a non-executive employee); | | (iii) a partner or employee of a consultant or adviser, to the company or its affiliates, where the income from the company represents 10% or more of the overall income of such consultant or adviser; |
| |
| (iv) a person who is, or whose immediate family member is, or has been within the last three years, a partner or employee of an internal or external auditor of the listed company, subject to limited exceptions for persons who did not personally work on the listed company’s audit in the last three years; | | (iv) an important client, supplier, debtor or creditor (or a partner, director or employee thereof). A client and supplier is considered important when its sales to or purchases from the company represent more than 10% of the client’s or supplier’s total sales or purchases. A debtor or creditor is considered important whenever the aggregate amount of the relevant loan represents more than 15% of the debtor’s, creditor’s or the company’s aggregate assets; |
| |
| (v) an executive officer, or an immediate family member of an executive officer, of another company where any of the listed company’s present executive officers at the same time serves or served on that company’s compensation committee; or | | |
| |
| (vi) an executive officer or employee of a company, or an immediate family member of an executive officer of a company, that has made payments to, or has received payments from, the listed company, its parent or a consolidated subsidiary for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company’s consolidated gross revenues (except for contributions to tax-exempt organizations provided that the listed company discloses such contributions in the company’s proxy statement or annual report) | | |
102
| | |
| |
| “Immediate family member” includes a person’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law and anyone (other than domestic employees) who shares the person’s home. Individuals who are no longer immediate family members due to legal separation, divorce or death (or incapacity) are excluded. §303A.02(b) | | (v) a “family member” related to any of the persons mentioned above in (i) through (iv). “Family member” includes a person’s spouse, concubine or other relative up to the fourth degree of consanguinity and affinity, as well as a spouse or concubine of the individuals mentioned above. |
| |
“Company” includes any parent or subsidiary in a consolidated group with the listed company. | | |
| |
Non-management directors must meet regularly in executive sessions without management. Independent directors should meet alone in an executive session at least once a year. §303A.03 | | There is no similar requirement under our bylaws or applicable Mexican law. |
| |
A listed company must have a nominating/corporate governance committee of independent directors. The committee must have a charter specifying the purpose, minimum duties and evaluation procedures of the committee. §303A.04 | | We are required to have a corporate practices committee pursuant to the provisions of the Mexican Securities Market Law and our bylaws. Our Corporate Practices, Finance, Planning and Sustainability Committee is composed of four directors, all of whom are independent within the meaning of the Mexican Securities Market Law and three of whom are independent within the meaning of Rule 10A-3 under the Exchange Act. The duties of our Corporate Practices, Finance, Planning and Sustainability Committee (which replaced our Corporate Practices and Sustainability Committee on April 24, 2009) include: |
| |
| | • providing an opinion on the nomination of the chief executive officer, |
| |
| | • assessing the performance of our senior management, |
| |
| | • providing an opinion on related party transactions, |
| |
| | • providing an opinion on compensation proposals for senior management, |
| |
| | • reviewing certain exemptive actions of the Board of Directors, |
| |
| | • proposing general guidelines for creating and monitoring compliance with our strategic plan, |
| |
| | • providing an opinion on the investment and financing policies our chief executive officer proposes, |
| |
| | • providing an opinion on the assumptions in the annual budget and monitoring application of the budget and our control system, and |
| |
| | • evaluating risk factors that affect us and our mechanisms for controlling them. |
| |
| A listed company must have a compensation committee composed entirely of independent directors, which must approve executive officer compensation. The committee must have a charter specifying the purpose, minimum duties and evaluation procedures of the committee. §303A.05 | | The Corporate Practices, Finance, Planning and Sustainability Committee provides an opinion on compensation proposals for the Chief Executive Officer and other executive officers pursuant to the provisions of the Mexican Securities Market Law. |
| |
| | Our Corporate Practices, Finance, Planning and Sustainability Committee makes recommendations as to compensation for senior and middle management to the Board of Directors, which must approve such recommendations. |
103
| | |
| |
| A listed company must have an audit committee satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the more stringent requirements under the NYSE standards. §§303A.06, 303A.07 | | We have a three-member Audit Committee, which is composed of independent directors appointed by our board. The Mexican Securities Market Law requires that our shareholders appoint the president of our Audit Committee. Currently all members of our Audit Committee are independent as such term is defined under the Mexican Securities Market Law and under Rule 10A-3 under the Exchange Act. |
| |
| | However, the members of our Audit Committee are not required to satisfy the NYSE independence and other audit committee standards that are not prescribed by Rule 10A-3. Our Audit Committee complies with the requirements of the Mexican Securities Market Law and has the following attributes: |
| |
| | • Our Audit Committee operates pursuant to a written charter adopted by the Audit Committee and approved by our Board of Directors. |
| |
| | • Pursuant to our bylaws and Mexican law, our Audit Committee submits an annual report regarding its activities to our Board of Directors. |
| |
| | • The duties of the Audit Committee include: |
| |
| | • periodically evaluating our internal control to oversee our internal auditing and control systems; |
| |
| | • periodically evaluating our internal control mechanisms; |
| |
| | • recommending independent auditors to our Board of Directors; |
| |
| | • establishing procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters controls; |
| |
| | • hiring independent counsel and other advisors as it deems necessary to carry out its duties, including the review of related-party transactions; and |
| |
| | • overseeing the performance of our outside auditor. |
| |
| Equity compensation plans and material revisions thereto require shareholder approval, subject to limited exemptions. §303A.08 | | In accordance with Mexican law, our shareholders have approved our existing equity compensation plans at shareholder meetings, which plans are carried out by the board with respect to our executives. |
| |
| A listed company must adopt and disclose corporate governance guidelines and a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waiver for directors or executive officers within four business days of such determination. §§303A.09, 303A.10 | | We have adopted a code of ethics, which has been accepted by all of our directors and executive officers and other personnel. We are required by Item 16B of this Form 20-F to disclose any waivers granted to our chief executive officer, chief financial and accounting officer and persons performing similar functions. |
| |
| The CEO must certify to the NYSE each year that he or she is not aware of any violation by the company of NYSE corporate governance listing standards and must promptly notify the NYSE in writing after any executive officer becomes aware of any non-compliance with the NYSE corporate governance listing standards. §303A.12 | | Our CEO will promptly notify the NYSE in writing if any executive officer becomes aware of any material noncompliance with any applicable provisions of the NYSE corporate governance rules. |
| Item 16H. | Mine Safety Disclosure |
Not applicable.
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PART III
| Item 17. | Financial Statements |
The Registrant has responded to Item 18 in lieu of this Item.
| Item 18. | Financial Statements |
Reference is made to pages F-1 to F-103 of this annual report.
| | |
| |
| 1.1 | | Amended and restated bylaws (estatutos sociales) of Empresas ICA, S.A.B. de C.V. (English translation) (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2006) (File No. 1-11080). |
| |
| 1.2 | | Amended and restated bylaws(estatutos sociales)of ICA-Fluor Daniel, S. de R.L. de C.V. (English translation) (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2004) (File 1-11080). |
| |
| 2.1 | | Deposit Agreement dated April 1, 1992, as amended and restated as of June 30, 1997, among Empresas ICA Sociedad Controladora, S.A. de C.V. (currently Empresas ICA, S.A.B. de C.V.), the Bank of New York, as Depositary and Holders of American Depositary Receipts (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2004) (File No. 1-11080). |
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| 3.1 | | Management Trust Agreement dated April 8, 1992, as amended on April 30, 2000 (English translation) (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2000) (File No. 1-11080). |
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| 3.2 | | CPO Trust Agreement dated May 28, 1997 (English translation) (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 1996) (File No. 1-11080). |
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| 4.1 | | Participation Agreement dated as of June 14, 2000 thereto among Grupo Aeroportuario del Centro Norte, S.A. de C.V., the Mexican Federal Government through the Ministry of Communications and Transportation, Nacional Financiera, S.N.C., Bancomext, and Aeropuertos y Servicios Auxiliares (English translation) (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2005) (File No. 1-11080). |
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| 4.2 | | Amendment No. 1 dated as of December 21, 2005 to the Participation Agreement dated as of June 14, 2000 thereto among Grupo Aeroportuario del Centro Norte, S.A. de C.V. (currently Grupo Aeroportuario Centro Norte, S.A.B. de C.V.), the Mexican Federal Government through the Ministry of Communications and Transportation, Nacional Financiera, S.N.C., Bancomext, and Aeropuertos y Servicios Auxiliares (English translation) (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2005) (File No. 1-11080). |
| |
| 4.3 | | Amended and Restated Airport Concession Agreement relating to the Monterrey Airport dated June 29, 1998 (English translation) (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2005) (File No. 1-11080). |
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| 4.4 | | Amended and Restated Consortium Agreement dated as of July 6, 2004 among Aeroports de Paris, Aeroinvest, S.A. de C.V. and VASA S.A. (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2005) (File No. 1-11080). |
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| 4.5 | | Amendment No. 1 dated as of December 13, 2005 to the Amended and Restated Consortium Agreement dated as of July 6, 2004 among Aeroports de Paris, Aeroinvest, S.A. de C.V. and VASA S.A. (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2005) (File No. 1-11080). |
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| 4.6 | | Amendment No. 2 dated as of September 5, 2006 to the Amended and Restated Consortium Agreement dated as of July 6, 2004 (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2007) (File No. 1-11080). |
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| 4.7 | | Common Agreement dated as of October 19, 2007 among Constructora de Proyectos Hidroelectricos, S.A. de C.V., as borrower, WestLB AG, New York Branch, as intercreditor agent, the working capital facility lenders from time to time party thereto, the construction facility lenders from time to time party thereto, WestLB AG, New York Branch, as working capital administrative agent, WestLB AG, New York Branch, as construction facility administrative agent, Citibank N.A., as offshore collateral agent, Banco Nacional de Mexico, S.A., Integrante del Grupo Financiero Banamex, as onshore collateral agent, and the other lenders and lender representatives from time to time party thereto (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2007) (File No. 1-11080). |
| |
| 4.8 | | Construction Facility Credit Agreement dated as of October 19, 2007 among Constructora de Proyectos Hidroelectricos, S.A. de C.V., as borrower, the several construction facility lenders from time to time parties thereto and WestLB AG, New York Branch, as construction facility administrative agent (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2007) (File No. 1-11080). |
105
| | |
| 4.9 | | Amended and Restated Working Capital Facility Credit Agreement dated as of October 13, 2010 among Constructora de Proyectos Hidroelectricos, S.A. de C.V., as borrower, the several Tranche A Lenders from time to time parties hereto, the several Tranche B Lenders from time to time parties hereto and WestLB AG, New York Branch, as working capital facility administrative agent (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2010) (File No. 1-11080). |
| |
| 4.10 | | Lump-Sum Public Works Construction Contract (English translation) dated as of June 17, 2008 by and between the Government of the Federal District through the Directorate General of Transportation Works and Ingenieros Civiles Asociados, S.A. de C.V., as leader of a joint venture (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2008) (File No. 1-11080). |
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| 8.1 | | Significant subsidiaries.* |
| |
| 11.1 | | Code of Ethics (English translation) as amended on January 24, 2011 (incorporated by reference to our annual report on Form 20-F for the year ended December 31, 2010) (File No. 1-11080). |
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| 12.1 | | Certification under Section 302 of the Sarbanes-Oxley Act of 2002.* |
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| 12.2 | | Certification under Section 302 of the Sarbanes-Oxley Act of 2002.* |
| |
| 13.1 | | Certification under Section 906 of the Sarbanes-Oxley Act of 2002.* |
Omitted from the exhibits filed with this annual report are certain instruments and agreements with respect to our long-term debt, none of which authorizes securities or results in an incurrence of debt in a total amount that exceeds 10% of our total assets. We hereby agree to furnish to the SEC copies of any such omitted instruments or agreements as the SEC requests.
106
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| | |
| Empresas ICA, S.A.B. de C.V. |
| |
| By: | | /s/ Jose Luis Guerrero Alvarez |
| | Name: Jose Luis Guerrero Alvarez |
| | Title: Chief Executive Officer |
Date: April 30, 2012
107
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements of Empresas ICA, S.A.B. de C.V. and
Subsidiaries
F-1
Report of Independent Registered Public Accounting Firm to the Board of Directors and Stockholders of Empresas ICA, S. A. B. de C. V.
We have audited the accompanying consolidated statements of financial position of Empresas ICA, S.A.B. de C.V. and subsidiaries (the “Company”) as of December 31, 2011, December 31, 2010 and January 1, 2010, and the related consolidated statements of comprehensive income, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Empresas ICA, S.A.B. de C.V. and subsidiaries as of December 31, 2011, December 31, 2010 and January 1, 2010, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2011, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2011, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 16, 2012 expressed an unqualified opinion on the Company’s internal control over financial reporting.
Our audits also comprehended the translation of Mexico peso amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 4c. The translation of the financial statement amounts into U.S. dollars and the translation of the financial statements into English have been made solely for the convenience of readers in the United States of America.
Galaz, Yamazaki, Ruiz Urquiza, S. C.
Member of Deloitte Touche Tohmatsu Limited
C. P. C. Ramón Arturo García Chávez
Mexico City, Mexico
April 16, 2012
F-2
Empresas ICA, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Financial Position
As of December 31, 2011, 2010 and January 1, 2010
(Thousands of Mexican pesos)
| | | | | | | | | | | | | | | | | | |
| | | Millions of U.S. Dollars
(Convenience Translation Note 4) December 31, 2011 | | | 2011 | | | 2010 | | | January 1, 2010
(Transition date) | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents (Note 7) | | $ | | | 347 | | | Ps. | 4,844,965 | | | Ps. | 2,975,384 | | | Ps. | 2,677,581 | |
Restricted cash (Note 7) | | | | | 428 | | | | 5,973,082 | | | | 1,401,090 | | | | 1,419,572 | |
Customers, net (Note 8) | | | | | 1,897 | | | | 26,462,594 | | | | 8,681,432 | | | | 8,352,364 | |
Other receivables, net (Note 12) | | | | | 252 | | | | 3,513,951 | | | | 2,696,667 | | | | 2,196,759 | |
Inventories, net (Note 10) | | | | | 77 | | | | 1,077,308 | | | | 815,643 | | | | 679,357 | |
Real estate inventories (Note 11) | | | | | 270 | | | | 3,767,898 | | | | 4,119,415 | | | | 2,473,885 | |
Advances to subcontractors and other | | | | | 159 | | | | 2,218,125 | | | | 1,269,026 | | | | 1,739,036 | |
| | | | | | | | | | | | | | | |
Current assets | | | | | 3,430 | | | | 47,857,923 | | | | 21,958,657 | | | | 19,538,554 | |
| | | | | | | | | | | | | | | |
Non-current assets: | | | | | | | | | | | | | | | | | | |
Restricted cash (Note 7) | | | | | 6 | | | | 81,667 | | | | 142,488 | | | | 413,514 | |
Customers, net (Note 8) | | | | | 590 | | | | 8,236,276 | | | | 14,672,708 | | | | 9,928,265 | |
Real estate inventories (Note 11) | | | | | 324 | | | | 4,517,614 | | | | 3,218,830 | | | | 2,821,949 | |
Financial assets from concessions (Note 13) | | | | | 608 | | | | 8,488,478 | | | | 4,655,476 | | | | 3,415,788 | |
Intangible assets from concessions, net (Note 13) | | | | | 1,059 | | | | 14,768,140 | | | | 17,373,385 | | | | 15,401,554 | |
Investment in associated companies (Note 13) | | | | | 393 | | | | 5,485,563 | | | | 3,238,755 | | | | 3,335,435 | |
Property, plant and equipment, net (Note 14) | | | | | 327 | | | | 4,565,736 | | | | 4,258,110 | | | | 4,287,123 | |
Derivative financial instruments (Note 20) | | | | | 23 | | | | 318,427 | | | | 7,618 | | | | 64,750 | |
Prepaid expenses | | | | | 61 | | | | 848,292 | | | | 1,104,246 | | | | 1,176,411 | |
Other assets, net (Note 15) | | | | | 25 | | | | 348,901 | | | | 280,062 | | | | 199,902 | |
Deferred income taxes (Note 23) | | | | | 242 | | | | 3,371,056 | | | | 1,625,304 | | | | 1,612,541 | |
| | | | | | | | | | | | | | | |
Non-current assets | | | | | 3,658 | | | | 51,030,150 | | | | 50,576,982 | | | | 42,657,232 | |
| | | | | | | | | | | | | | | |
Total assets | | $ | | | 7,088 | | | Ps. | 98,888,073 | | | Ps. | 72,535,639 | | | Ps. | 62,195,786 | |
| | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | |
Notes payable (Note 16) | | $. | | | 418 | | | Ps. | 5,826,272 | | | Ps. | 4,700,864 | | | Ps. | 3,564,187 | |
Current portion of long-term debt (Note 21) | | | | | 995 | | | | 13,888,201 | | | | 1,274,644 | | | | 657,349 | |
Trade accounts payable | | | | | 476 | | | | 6,647,926 | | | | 5,939,751 | | | | 4,840,544 | |
Income taxes (Note 23) | | | | | 30 | | | | 412,893 | | | | 378,562 | | | | 268,536 | |
Accrued expenses and other (Note 17) | | | | | 484 | | | | 6,749,015 | | | | 4,412,010 | | | | 4,581,263 | |
Provisions (Note 18) | | | | | 143 | | | | 1,990,871 | | | | 1,343,772 | | | | 894,987 | |
Advances from customers | | | | | 281 | | | | 3,921,824 | | | | 1,907,945 | | | | 2,917,537 | |
| | | | | | | | | | | | | | | |
Current liabilities | | | | | 2,827 | | | | 39,437,002 | | | | 19,957,548 | | | | 17,724,403 | |
| | | | | | | | | | | | | | | |
Non-current liabilities: | | | | | | | | | | | | | | | | | | |
Long-term debt (Note 21) | | | | | 2,173 | | | | 30,320,024 | | | | 26,029,040 | | | | 18,448,689 | |
Tax deconsolidation (Note 23) | | | | | 231 | | | | 3,219,355 | | | | 2,521,130 | | | | 2,720,588 | |
Deferred income taxes (Note 23) | | | | | 128 | | | | 1,780,080 | | | | 1,179,039 | | | | 1,459,329 | |
Derivative financial instruments (Note 20) | | | | | 64 | | | | 897,626 | | | | 1,116,727 | | | | 1,152,788 | |
Retirement benefit obligation (Note 34) | | | | | 44 | | | | 607,306 | | | | 475,125 | | | | 226,885 | |
Provisions (Note 18) | | | | | 47 | | | | 657,760 | | | | 850,018 | | | | 1,006,160 | |
Other long-term liabilities | | | | | 82 | | | | 1,144,818 | | | | 1,077,061 | | | | 747,699 | |
| | | | | | | | | | | | | | | |
Non-current liabilities | | | | | 2,769 | | | | 38,626,969 | | | | 33,248,140 | | | | 25,762,138 | |
| | | | | | | | | | | | | | | |
Total liabilities | | | | | 5,596 | | | | 78,063,971 | | | | 53,205,688 | | | | 43,486,541 | |
| | | | | | | | | | | | | | | |
Contingencies (Note 24) | | | | | | | | | | | | | | | | | | |
STOCKHOLDERS’ EQUITY (Note 26): | | | | | | | | | | | | | | | | | | |
Contributed capital: | | | | | | | | | | | | | | | | | | |
Common stock | | | | | 597 | | | | 8,334,043 | | | | 8,950,796 | | | | 8,925,990 | |
Additional paid-in capital | | | | | 508 | | | | 7,091,318 | | | | 7,085,536 | | | | 7,024,998 | |
| | | | | | | | | | | | | | | |
| | | | | 1,105 | | | | 15,425,361 | | | | 16,036,332 | | | | 15,950,988 | |
Earned capital: | | | | | | | | | | | | | | | | | | |
Reserve for repurchase of shares | | | | | 133 | | | | 1,850,000 | | | | 726,789 | | | | 726,789 | |
Accumulated deficit | | | | | (17 | ) | | | (239,068 | ) | | | (316,720 | ) | | | (979,586 | ) |
Cumulative translation effects of foreign subsidiaries | | | | | 24 | | | | 337,180 | | | | (238,328 | ) | | | (36,345 | ) |
Valuation of financial instruments | | | | | (35 | ) | | | (482,922 | ) | | | (654,832 | ) | | | (484,874 | ) |
Retirement benefit obligation and others | | | | | (6 | ) | | | (82,631 | ) | | | 32,201 | | | | 6,061 | |
| | | | | | | | | | | | | | | |
Controlling interest | | | | | 1,204 | | | | 16,807,920 | | | | 15,585,442 | | | | 15,183,033 | |
| | | | | | | | | | | | | | | |
Non-controlling interest (Note 27) | | | | | 288 | | | | 4,016,182 | | | | 3,744,509 | | | | 3,526,212 | |
| | | | | | | | | | | | | | | |
Total stockholders’ equity | | | | | 1,492 | | | | 20,824,102 | | | | 19,329,951 | | | | 18,709,245 | |
| | | | | | | | | | | | | | | |
Total liabilities and stockholders’ equity | | $ | | | 7,088 | | | Ps. | 98,888,073 | | | Ps. | 72,535,639 | | | Ps. | 62,195,786 | |
| | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Empresas ICA, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2011 and 2010
(Thousands of Mexican pesos, except per share data)
| | | | | | | | | | | | |
| | | Millions of U.S. Dollars
(Convenience Translation Note 4) December 31, 2011 | | | 2011 | | | 2010 | |
Continuing operations: | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | |
Construction | | $ | 2,431 | | | | Ps. 33,920,383 | | | | Ps. 27,849,781 | |
Concessions | | | 224 | | | | 3,129,808 | | | | 2,102,123 | |
Sales of goods and other | | | 410 | | | | 5,718,594 | | | | 4,524,158 | |
| | | | | | | | | | | | |
Total revenues | | | 3,065 | | | | 42,768,785 | | | | 34,476,062 | |
| | | | | | | | | | | | |
Costs: | | | | | | | | | | | | |
Construction | | | 2,204 | | | | 30,741,641 | | | | 24,940,301 | |
Concessions | | | 160 | | | | 2,236,438 | | | | 1,533,548 | |
Sales of goods and other | | | 229 | | | | 3,201,299 | | | | 3,019,269 | |
| | | | | | | | | | | | |
Total costs (Note 29) | | | 2,593 | | | | 36,179,378 | | | | 29,493,118 | |
| | | | | | | | | | | | |
Gross profit | | | 472 | | | | 6,589,407 | | | | 4,982,944 | |
General expenses | | | 243 | | | | 3,387,674 | | | | 2,714,683 | |
Other (income) expenses, net (Note 30) | | | (35 | ) | | | (494,692 | ) | | | 30,268 | |
| | | | | | | | | | | | |
Operating income | | | 264 | | | | 3,696,425 | | | | 2,237,993 | |
Interest expense | | | 129 | | | | 1,798,199 | | | | 1,352,586 | |
Interest income | | | (21 | ) | | | (286,111 | ) | | | (349,841 | ) |
Exchange loss (gain), net | | | 112 | | | | 1,568,199 | | | | (10,187 | ) |
Effects of valuation of financial instruments | | | 27 | | | | 381,216 | | | | 315,785 | |
| | | | | | | | | | | | |
| | | 247 | | | | 3,461,503 | | | | 1,308,343 | |
| | | | | | | | | | | | |
Share in income of associated companies | | | (3 | ) | | | (38,303 | ) | | | (79,618 | ) |
| | | | | | | | | | | | |
Income before income taxes | | | 20 | | | | 273,225 | | | | 1,009,268 | |
(Benefit) expense for income taxes (Note 23) | | | (2 | ) | | | (33,205 | ) | | | 284,347 | |
| | | | | | | | | | | | |
Income from continuing operations | | | 22 | | | | 306,430 | | | | 724,921 | |
Discontinued operations: | | | | | | | | | | | | |
Income from discontinued operations, net (Note 28) | | | (106 | ) | | | (1,483,859 | ) | | | (245,991 | ) |
| | | | | | | | | | | | |
Consolidated net income for the year | | | 128 | | | | 1,790,289 | | | | 970,912 | |
(Continued)
F-4
| | | | | | | | | | | | |
Other items of comprehensive income net of income taxes, except for translation effects: | | | | | | | | | | | | |
Actuarial losses of labor obligations and other | | | (8 | ) | | | (114,832 | ) | | | 26,140 | |
Translation effects of foreign subsidiaries | | | 41 | | | | 575,508 | | | | (201,983 | ) |
Valuation of financial instruments | | | 24 | | | | 331,537 | | | | (75,003 | ) |
Valuation effect derivative financial instruments of associated company | | | (12 | ) | | | (162,687 | ) | | | (97,786 | ) |
| | | | | | | | | | | | |
Total comprehensive income for the year | | $ | 173 | | | Ps. | 2,419,815 | | | Ps. | 622,280 | |
| | | | | | | | | | | | |
Consolidated net income attributable to: | | | | | | | | | | | | |
Controlling interest | | $ | 106 | | | Ps. | 1,480,289 | | | Ps. | 629,454 | |
Non-controlling interest | | | 22 | | | | 310,000 | | | | 341,458 | |
| | | | | | | | | | | | |
Consolidated net income for the year | | $ | 128 | | | Ps. | 1,790,289 | | | Ps. | 970,912 | |
| | | | | | | | | | | | |
Total comprehensive income attributable to: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Controlling interest | | $ | 151 | | | Ps. | 2,112,875 | | | Ps. | 283,653 | |
Non-controlling interest | | | 22 | | | | 306,940 | | | | 338,627 | |
| | | | | | | | | | | | |
| | $ | 173 | | | Ps. | 2,419,815 | | | Ps. | 622,280 | |
| | | | | | | | | | | | |
Basic and diluted earning per common share of the controlling interest: | | | | | | | | | | | | |
Continuing operations | | | | | | Ps. | (0.005 | ) | | Ps. | 0.591 | |
| | | | | | | | | | | | |
Consolidated net income | | | | | | Ps. | 2.344 | | | Ps. | 0.971 | |
| | | | | | | | | | | | |
Weighted average shares outstanding (000’s) | | | | | | | 631,588 | | | | 648,183 | |
| | | | | | | | | | | | |
(Conclude)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Empresas ICA, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Changes in Stockholders’ Equity
For the years ended December 31, 2011 and 2010
(In thousands of Mexican pesos except for share data (Note 26))
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Contributed capital | | | Earned capital | | | | | | | | | | |
| | | Shares | | | Common stock | | | Additional paid-in capital | | | Reserve for
repurchase of shares | | | Retained earnings | | | Cumulative
translation
effects of
foreign
subsidiaries | | | Valuation
of financial
instruments | | | Labor
obligations
and other | | | Controlling
interest | | | Non-controlling
interest in
consolidated Subsidiaries | | | Total
stockholders’ equity | |
Balance at January 1, 2010 | | | 645,687,012 | | | Ps | 8,925,990 | | | Ps | 7,024,998 | | | Ps | 726,789 | | | Ps | (979,586) | | | Ps | (36,345) | | | Ps | (484,874) | | | Ps | | | 6,061 | | | Ps | 15,183,033 | | | Ps | 3,526,212 | | | Ps | 18,709,245 | |
Decrease in non-controlling interest (Note 27) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | — | | | | — | | | | (120,330 | ) | | | (120,330 | ) |
Issuance of common stock | | | 3,740,874 | | | | 24,806 | | | | 60,538 | | | | — | | | | | | | | — | | | | — | | | | | | — | | | | 85,344 | | | | — | | | | 85,344 | |
Effect from acquisition of noncontrolling interest | | | — | | | | — | | | | — | | | | — | | | | 33,412 | | | | — | | | | — | | | | | | — | | | | 33,412 | | | | — | | | | 33,412 | |
Net income | | | — | | | | — | | | | — | | | | — | | | | 629,454 | | | | — | | | | — | | | | | | — | | | | 629,454 | | | | 341,458 | | | | 970,912 | |
Translation effects of foreign subsidiaries | | | — | | | | — | | | | — | | | | — | | | | — | | | | (201,983 | ) | | | — | | | | | | — | | | | (201,983 | ) | | | — | | | | (201,983 | ) |
Effect of valuation of derivative financial instruments of subsidiaries and associated companies | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | (169,958 | ) | | | | | — | | | | (169,958 | ) | | | (2,831 | ) | | | (172,789 | ) |
Other | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | 26,140 | | | | 26,140 | | | | — | | | | 26,140 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated comprehensive income (loss) | | | — | | | | — | | | | — | | | | — | | | | 629,454 | | | | (201,983 | ) | | | (169,958 | ) | | | | | 26,140 | | | | 283,653 | | | | 338,627 | | | | 622,280 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | | 649,427,886 | | | | 8,950,796 | | | | 7,085,536 | | | | 726,789 | | | | (316,720 | ) | | | (238,328 | ) | | | (654,832 | ) | | | | | 32,201 | | | | 15,585,442 | | | | 3,744,509 | | | | 19,329,951 | |
Application of earnings from prior years | | | — | | | | — | | | | — | | | | 1,402,637 | | | | (1,402,637 | ) | | | — | | | | — | | | | | | — | | | | — | | | | — | | | | — | |
Issuance of common stock | | | 3,785,611 | | | | 52,175 | | | | 5,782 | | | | 48,236 | | | | — | | | | — | | | | — | | | | | | — | | | | 106,193 | | | | — | | | | 106,193 | |
Decrease in non-controlling interest (Note 27) | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | — | | | | — | | | | (35,267 | ) | | | (35,267 | ) |
Repurchase of shares | | | (48,534,300 | ) | | | (668,928 | ) | | | — | | | | (327,662 | ) | | | — | | | | — | | | | — | | | | | | — | | | | (996,590 | ) | | | — | | | | (996,590 | ) |
Net income | | | — | | | | — | | | | — | | | | — | | | | 1,480,289 | | | | — | | | | — | | | | | | — | | | | 1,480,289 | | | | 310,000 | | | | 1,790,289 | |
Translation effects of foreign subsidiaries | | | — | | | | — | | | | — | | | | — | | | | — | | | | 575,508 | | | | — | | | | | | — | | | | 575,508 | | | | — | | | | 575,508 | |
Effect of valuation of derivative financial instruments of subsidiaries and associated companies | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 171,910 | | | | | | — | | | | 171,910 | | | | (3,060 | ) | | | 168,850 | |
Other | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | (114,832 | ) | | | (114,832 | ) | | | — | | | | (114,832 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated comprehensive income (loss) | | | — | | | | — | | | | — | | | | — | | | | 1,480,289 | | | | 575,508 | | | | 171,910 | | | | | | (114,832 | ) | | | 2,112,875 | | | | 306,940 | | | | 2,419,815 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2011 | | | 604,679,197 | | | Ps | 8,334,043 | | | Ps | 7,091,318 | | | Ps | 1,850,000 | | | Ps | (239,068 | ) | | Ps | 337,180 | | | Ps | (482,922 | ) | | Ps$ | | | (82,631 | ) | | Ps | 16,807,920 | | | Ps | 4,016,182 | | | Ps | 20,824,102 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Empresas ICA, S.A.B. de C.V. and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 2011 and 2010
(Thousands of pesos)
| | | | | | | | | | | | |
| | | Millions of
U.S. Dollars | | | | | | | |
| | | (Convenience
Translation Note 4)
December 31,
2011 | | | 2011 | | | 2010 | |
Cash flows from operating activities: | | | | | | | | | | | | |
Consolidated net income | | $ | 128 | | | | Ps. 1,790,289 | | | | Ps. 970,912 | |
Income taxes | | | (2 | ) | | | (33,205 | ) | | | 284,347 | |
Items related to investing activities: | | | | | | | | | | | | |
Depreciation and amortization | | | 91 | | | | 1,267,200 | | | | 1,191,713 | |
(Gain) loss on sale of property, plant and equipment | | | — | | | | (5,519 | ) | | | 21,312 | |
Adjustment for valuation of long-term investment | | | — | | | | — | | | | (10,654 | ) |
(Gain) loss on sale of investment in shares | | | (140 | ) | | | (1,950,676 | ) | | | 9,682 | |
Equity in earning of non-consolidated associated companies | | | (3 | ) | | | (38,304 | ) | | | (79,618 | ) |
Items related to financing activities: | | | | | | | | | | | | |
Interest expense | | | 171 | | | | 2,390,161 | | | | 1,597,499 | |
Unrealized exchange rate fluctuation | | | 185 | | | | 2,577,166 | | | | (460,025 | ) |
Valuation of derivative financial instruments | | | 27 | | | | 381,940 | | | | 299,485 | |
Others | | | 8 | | | | 106,193 | | | | 81,616 | |
| | | | | | | | | | | | |
| | | 465 | | | | 6,485,245 | | | | 3,906,269 | |
Changes in operating assets and liabilities: | | | | | | | | | | | | |
(Increase) decrease in: | | | | | | | | | | | | |
Customers, net | | | (828 | ) | | | (11,545,924 | ) | | | (7,072,384 | ) |
Inventories and other assets | | | (19 | ) | | | (261,810 | ) | | | (131,528 | ) |
Real estate inventories | | | (64 | ) | | | (890,781 | ) | | | (127,954 | ) |
Other receivables | | | (211 | ) | | | (2,944,973 | ) | | | 893,921 | |
Financial assets from concessions | | | (394 | ) | | | (5,494,743 | ) | | | (2,116,536 | ) |
Increase (decrease) in: | | | | | | | | | | | | |
Trade accounts payable | | | (25 | ) | | | (347,843 | ) | | | 232,092 | |
Advances from customers | | | 149 | | | | 2,078,816 | | | | (1,420,887 | ) |
Other current liabilities | | | 272 | | | | 3,789,093 | | | | 1,622,199 | |
Income tax payments | | | (86 | ) | | | (1,198,288 | ) | | | (442,955 | ) |
Activities of discontinued operations | | | 13 | | | | 176,045 | | | | 126,897 | |
| | | | | | | | | | | | |
Net cash used in operating activities | | | (728 | ) | | | (10,155,163 | ) | | | (4,530,866 | ) |
Investing activities: | | | | | | | | | | | | |
Investment in machinery and equipment | | | (29 | ) | | | (405,306 | ) | | | (492,040 | ) |
Dividends received | | | 15 | | | | 211,139 | | | | 5,319 | |
Other long term assets | | | (7 | ) | | | (91,683 | ) | | | (55,609 | ) |
Investment in concessions | | | (114 | ) | | | (1,586,682 | ) | | | (1,993,063 | ) |
Sale of property, plant and equipment | | | 6 | | | | 86,080 | | | | 390,128 | |
(Grants) collections of loans | | | (7 | ) | | | (100,810 | ) | | | 86,075 | |
Business acquisitions | | | (5 | ) | | | (74,000 | ) | | | (261,122 | ) |
Activities of discontinued operations | | | 204 | | | | 2,851,393 | | | | (82,785 | ) |
| | | | | | | | | | | | |
Net cash provided by (used) in investing activities | | | 63 | | | | 890,131 | | | | (2,403,097 | ) |
(Continued)
F-7
| | | | | | | | | | | | |
| | | | | | 2011 | | | 2010 | |
Financing activities: | | | | | | | | | | | | |
Proceeds from long-term debt | | | 1,938 | | | | 27,044,051 | | | | 16,621,255 | |
Payments of long-term debt | | | (545 | ) | | | (7,603,399 | ) | | | (6,862,378 | ) |
Derivative financial instruments | | | (25 | ) | | | (350,409 | ) | | | (534,570 | ) |
Payments under leasing agreements | | | (2 | ) | | | (34,012 | ) | | | (36,728 | ) |
Interest paid | | | (170 | ) | | | (2,369,972 | ) | | | (1,950,228 | ) |
Repurchase of shares | | | (71 | ) | | | (996,590 | ) | | | — | |
Decrease in noncontrolling interest | | | (1 | ) | | | (15,390 | ) | | | (93,502 | ) |
Increase in common stock | | | — | | | | — | | | | 3,727 | |
Activities of discontinued operations | | | (8 | ) | | | (111,260 | ) | | | (167,734 | ) |
| | | | | | | | | | | | |
Net cash provided by financing activities | | | 1,116 | | | | 15,563,019 | | | | 6,979,842 | |
| | | | | | | | | | | | |
| | | |
Effects of exchange rate change on cash | | | 6 | | | | 82,765 | | | | (68,231 | ) |
| | | |
Net increase in cash, cash equivalents and restricted cash | | | 451 | | | | 6,297,987 | | | | 45,879 | |
| | | |
Cash, cash equivalents and restricted cash at beginning of period | | | 324 | | | | 4,518,962 | | | | 4,541,314 | |
| | | | | | | | | | | | |
Cash, cash equivalents and restricted cash at the end of period | | $ | 781 | | | Ps. | 10,899,714 | | | Ps. | 4,518,962 | |
| | | | | | | | | | | | |
(Concluded)
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Empresas ICA, S.A.B. de C.V. and Subsidiaries
Notes to Consolidated Financial Statements
For the years ended December 31, 2011 and 2010 and at January 1, 2010
(Thousands of Mexican pesos except as otherwise indicated)
Empresas ICA, S.A.B. de C.V. and subsidiaries (“ICA” or, together with its subsidiaries, “the Company”) is a holding company incorporated in Mexico with over 64 years experience, the subsidiaries of which are engaged in a wide range of construction and related activities including the construction of infrastructure facilities as well as industrial, urban and housing construction, for both the Mexican public and private sectors. ICA’s subsidiaries are also involved in the construction, maintenance and operation of highways, bridges and tunnels granted by the Mexican government and foreign governments under concessions. Through its subsidiaries and affiliates, the Company also manages and operates airports and municipal services under concession arrangements. In addition, some of ICA’s subsidiaries are engaged in real estate and housing development. ICA’s shares are traded on the Mexican Stock Exchange and the New York Stock Exchange. Its registered address is 36 Boulevard Manuel Avila Camacho, Piso 15, Lomas de Chapultepec, 11000 Mexico, D. F.
| 2. | Adoption of International Financial Reporting Standards |
| | a. | In January 2009, the National Banking and Securities Commission (“CNBV” for its acronym in Spanish) issued amendments to the Single Circular for Issuers to include the obligation to file financial statements based on the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) as of the year ending December 31, 2012, with the option of early adoption. The Company’s management decided to early adopt IFRS for the year ended December 31, 2011. |
| | b. | Based on above, the consolidated financial statements for the year ended December 31, 2010 were the last annual consolidated financial statements of the Company to be prepared in conformity with Mexican Financial Reporting Standards (“MFRS”) for public use. The first consolidated financial statements prepared in accordance with IFRS are for the year ended December 31, 2011, with January 1, 2010 as the date of transition to IFRS. Guidance regarding the initial adoption of IFRS is included in IFRS 1,First-time Adoption of International Financial Reporting Standards (“IFRS 1”). |
As required by IFRS 1, in preparing the consolidated financial statements of 2011, certain methods of valuation and application of accounting principles have changed with respect to the Company’s consolidated financial statements previously presented under MFRS, in order to comply with IFRS. All standards and interpretations under IFRS in effect at December 31, 2011 have been applied in the accompanying 2010 consolidated financial statements, with the exeption of any mandatory exceptions or voluntary exemptions from retrospective application as required or permitted by IFRS 1, as discussed below.
The required reconciliations of consolidated equity and net income, together with a description of the effects of transition to IFRS in the consolidated financial statements of the Company are included in Note 36.
IFRS 1 requires certain exeptions and allows certain exemptions from the retrospective application of specific standards to prior periods in order to assist companies in transition to IFRS. The Company has applied the following mandatory exceptions and elected certain voluntary exemptions as follows:
| | i) | The mandatory exception regarding accounting estimates was applied in relation to consistency of such amounts with the estimates made for the same period under MFRS. |
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| | ii) | The mandatory exception with respect to non-controlling interests was applied, whereby certain accounting requirements related to non-controlling interests are accounted for prospectively from the date of transition, except with respect to business combinations that are accounted for retrospectively under the IFRS 1 exemption for business combinations. |
Additionally, the Company applied the following optional exemptions with respect to retrospective treatment of IFRS:
| | i) | The Company applied prospectively, beginning from December, 2005, IFRS guidance relating to the accounting for business combinations. Accordingly, the Company retrospectively applied IFRS to all business combinations that occurred between that date and the date of transition. |
| | ii) | The Company elected to value certain land, buildings and major machinery and equipment at their fair value, using values calculated by appraisers duly recognized by the CNBV, representing deemed cost for those assets. Additionally, for the remaining items of property, plant and equipment, the Company decided to utilize the indexed cost balance existing under MFRS, thereby maintaining inflation adjustments through 2007, such amounts also representing the deemed cost of those assets. |
| | iii) | The Company elected to recognize all unrecognized actuarial gains and losses on its employee benefits existing as of the date of transition in retained earnings. |
| | iv) | The Company elected to prospectively apply the requirements of IAS 23,Borrowing Costs, from the date of transition. |
Agreement for the sale of Corredor Sur—In March 2010, the Company was approached by the Government of Panama, which expressed its interest in purchasing the Company’s investment in the Corredor Sur tollroad. On August 24, 2011, the sale of the concession to Empresa Nacional de Autopistas, S.A. de C.V. (“ENA”), a company owned by the Government of Panamá was completed. The price established for the transaction was U.S. $420 million dollars. Simultaneously with the closing of the sale, ICA Panama paid approximately U.S $154 million dollars of outstanding bonds that were used to finance the construction of the Corredor Sur, which were originally issued in 2005, paying a premium to holders of U.S. $37 million dollars. ICA received approximately U.S. $125 million dollars, net, after expenses related to the transaction. Taxes incurred in Panama and the United States related to the sale are included in the consolidated statement of comprehensive income as part of discontinued operations. A more detailed description is presented in Note 28.
Sale of the Service Provision Project (“PPS”) of Irapuato La Piedad y Querétaro Irapuato to RCO—In September 2011, the Company executed a contract for the disposal of shares (the “Transaction”) with Red de Carreteras de Occidente, S.A.P.I.B, de C.V. (“RCO”) (affiliate company) to transfer to RCO all of the Company’s shareholdings in its subsidiaries Concesionaria Irapuato La Piedad, S.A. de C.V. (“CONIPSA”) and Concesionaria de Vías Irapuato Queretaro, S.A. de C.V. (“COVIQSA”).
The total cost of the Transaction was Ps.2,150 million, liquidated through Ps.1,550 million in additional shares issued by RCO and Ps.250 million in cash, as well as an additional payment, in-kind with stock, for Ps.350 million (the “Additional Payment”), the latter subject to the satisfaction of certain conditions. As of December 31, 2011, the Additional Payment represents a contingent asset which is not recognized in the consolidated statement of financial position. As a result of this transaction, ICA increased its share capital in RCO to 18.73%. In the instance that the requirements for the Additional Payment are fulfilled, the shareholding of ICA in RCO will increase in proportion to such payment. The price of the Transaction was determined based on discounted cash flows. The main effects of the Transaction are described in Note 4.g.
Loss on exchange rate fluctuation—The devaluation of the Mexican peso resulted in foreign exchange losses of Ps.2,577 million, as a result of the net monetary liability position of corporate debt in U.S. dollars. These exchange losses do not represent a cash outflow. At December 31, 2011 and 2010, the exchange rate used was Ps. 13.9922 and Ps.12.3792, respectively, per U.S. dollar, which means that the peso had depreciated against the U.S. dollar of Ps.1.613, equivalent to 13.03%.
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| 4. | Basis of presentation and Consolidation |
| | a. | Statement of compliance |
The consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. Included in subsection (g) is the Company’s policy regarding consolidation and included in Note 5 are the Company’s accouting policies and valuation principles applied in preparing the consolidated financial statements.
The accompanying consolidated financial statements include all financial reporting standards and valuation requirements that affect the Company’s consolidated financial information, as well as the alternatives allowed by IFRS.
The consolidated financial statements have been prepared on the historical cost basis except for the revaluation of certain non-current assets and financial instruments at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets. The consolidated financial statements are prepared in pesos, the legal currency of the United Mexican States and are presented in thousands, except where otherwise noted.
| | c. | Convenience translation |
Solely for convenience of readers, peso amounts included in the consolidated financial statements as of December 30, 2011 and for the year then ended have been translated into U.S. dollar amounts at the rate of 13.9512 pesos per U.S. dollar, the noon buying rate for pesos on December 31, 2011 as published by the Federal Reserve Bank of New York. Such translation should not be construed as a representation that the Mexican peso amounts have been, could have been or could, in the future, be converted into U.S. dollars at such rate or any other rate.
The Company presents its consolidated financial statements in Mexican pesos, since this is the functional currency in which ICA operates. Transactions in currencies other than the peso are recorded in accordance with established policies described in Note 5.a.
Investment Units (UDIs) are units of value established by the Bank of Mexico to address mortgage loans obligations or any financial or commercial transaction. The value of the UDI increases daily to maintain the purchasing power of money and is published in the Official Gazette in Mexico. The value of UDI’s is determined considering the Mexican National Consumer Price Index (“INPC”), taking into account inflation.
| | f. | Consolidated statements of comprehensive income |
The Company chose to present the consolidated statement of comprehensive income in a single statement, as well as presenting operating income in such statement. Costs and expenses were classified according to their function due to different economic activities and businesses of the Company. Additional information regarding depreciation expense, amortization expense and employee benefits is presented in Note 29.b.
| | g. | Principles of consolidation |
Financial statements of those companies in which ICA owns more than 50% of the capital stock or owns less than 50% of such capital stock but effectively controls such entity are consolidated within the financial statements. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.
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Joint venture—The assets, liabilities, revenues, costs and expenses of companies or associations subject to contractually agreed joint control are included in the consolidated financial statements using proportionate consolidation in accordance with International Accounting Standard (“IAS”) No. 31, Interests in Joint Ventures. The principal subsidiaries that are proportionately consolidated are: ICA Fluor Daniel, S. de R.L de C.V. and subsidiaries (“ICAFD”), Grupo Rodio Kronsa, S.A.; Suministro de Agua de Querétaro, S.A. de C.V., Constructora Nuevo Necaxa Tihuatlán, S.A. de C.V., Autovía Nuevo Necaxa Tihuatlán, S.A. de C.V. and Los Portales, S.A.
The financial statements of companies that are included in the consolidation are prepared as of December 31 of each year.
All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. However, the balances and transactions related to construction contracts performed by companies in the construction segment for the benefit of the concessions segment were not eliminated in the consolidation process, as those construction revenues require recognition while the works are being executed. This principle, implemented by ICA, is established in the International Financial Reporting Interpretations Committee (“IFRIC”) Interpretation No. 12,Service Concession Arrangements.
The non-controlling interests in equity of subsidiaries are presented separately as non-controlling interests in the consolidated statements of financial position, within the stockholders’ equity section, and the consolidated statements of comprehensive income.
Note 39 includes the subsidiaries consolidated by ICA as well as information related thereto.
The results of subsidiaries acquired or divested during the year are included in the consolidated statement of comprehensive income from the acquisition date or the date of divestiture, as applicable.
| | h. | The Company recognized a gain of Ps.441 million, derived from the Transaction with its associate RCO, which is included in other income in the consolidated statement of comprehensive income. This gain represents the difference between the fair value of the shares of CONIPSA and COVIQSA and the fair value of the shares received in exchange of RCO. As result of the Transaction, ICA increased its shareholding in the capital stock of RCO by 5.1%. The fair value of net assets exchanged was determined by an independent financial expert. |
In accordance with paragraph 22 of the IAS 28,Investments in Associates, the gain on the sale of shares of COVIQSA and CONIPSA was originated from a transaction with its affiliate company. Accordingly, the gain recognized in the consolidated financial statements was only up to the extent that it corresponded to the participation of other investors not associated with the Company.
Because the companies sold to RCO are not business lines or geographic areas, their disposal was not considered a discontinued operation.
ICA continues to provide operation and maintenance services to RCO, including with regard to the two highway projects transferred.
Determination of the gain on sale of subsidiaries is as follows:
| | | | |
| | | December 31, 2011 | |
Fair value of shares of RCO | | Ps. | 2,052,761 | |
Cash (1) | | | 250,000 | |
Carrying value of shares COVIQSA and CONIPSA | | | (1,871,380 | ) |
Others | | | 9,729 | |
| | | | |
Gain on sale of subsidiaries | | Ps. | 441,110 | |
| | | | |
| (1) | At the date of the consolidated financial statements, this amount is presented as an account receivable. |
The gain on sale of subsidiaries is presented in other (income) and expense, within operating income, in the consolidated statement of comprehensive income.
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| | i. | Acquisition and sale of subsidiaries |
In April 2010, ICA provided equity of Ps.151 million to Los Portales, S.A. (a company with operations in the housing development segment), there by increasing its shareholding in the entity from 18% to 50% and subsequently proportionally consolidating the entity as of the acquisition date. Previously, this investment was recognized using the equity method. Additionally, in December 2011, the Company sold the shares of Geoicasa, S. A. de C. V., generating a gain of Ps.26 million presented in other (income) expenses, within operating income, in the consolidated statement of comprehensive income. In exchange, ICA acquired the remaining 50% of the shares of Grupo Punta Condesa, S. A. de C. V., a company under joint control. Other disclosures required by IFRS 3,Business Combinations, are not considered relevant.
| 5. | Significant accounting policies |
The consolidated financial statements are prepared in accordance with IFRS. Preparation of financial statements under IFRS requires management of the Company to make certain estimates and use assumptions to value certain of the items in the consolidated financial statements as well as their related disclosures required therein. The areas with a high degree of judgment and complexity or areas where assumptions and estimates are significant in the consolidated financial statements are described in Note 6. The estimates are based on information available at the time the estimates are made, as well as the best knowledge and judgment of management based on experience and current events. However, actual results could differ from those estimates. The Company has implemented control procedures to ensure that its accounting policies are appropriate and are properly applied. Although actual results may differ from those estimates, the Company’s management believes that the estimates and assumptions used were adequate under the circumstances.
| | a. | Operations and transactions in foreign currency |
Translation of financial statements of foreign subsidiaries
The individual financial statements of each subsidiary of ICA are presented in the currency of the primary economic environment in which the entity operates (its functional currency). To consolidate the financial statements of foreign subsidiaries, their financial information is translated into Mexican pesos (the reporting currency), considering the following methodology:
When operations in which the functional currency and the recording currency are the same, the financial statements of the entity are translated to the reporting currency using the following exchange rates: i) the closing exchange rate in effect at the date of the statement of financial position for assets and liabilities, ii) historical exchange rates for stockholders’ equity as well as revenues, costs and expenses. Translation effects are recorded in comprehensive income (loss). The translation effects from financial instruments initially recorded in other comprehensive income are reclassified from equity to profit or loss on disposal or partial disposal of the net investment.
When the functional currency of a foreign transaction differs from the recording currency, before applying the terms of the preceding paragraph, the recording currency must be converted to the functional currency by using the following method: monetary assets and liabilities are converted by using the exchange rate in effect at the date of the statement of changes in financial position, while nonmonetary assets and liabilities, stockholders’ equity, income, costs and expenses must be considered at the historical exchange rate. Any differences arising from this method must be recognized in the results of the year.
On the disposal of a foreign operation, all of the accumulated exchange differences in respect of that operation attributable to the Company are reclassified to profit or loss in the year of disposal.
Foreign currency transactions
Foreign currency transactions are recorded at the exchange rate in effect at the date of the transaction date. Monetary assets and liabilities denominated in foreign currency are translated into Mexican pesos at the exchange rate prevailing at the end of the reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange fluctuations are recorded in profit or loss, except for:
F-13
| | • | Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings; |
| | • | Exchange differences on transactions entered into in order to hedge certain foreign currency risks (see paragraph (q) below for hedging accounting policies); and |
| | • | Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal of the net investment. |
| | b. | Cash and cash equivalents and restricted cash |
Cash and cash equivalents consist mainly of bank deposits in checking accounts and short-term investments, highly liquid and easily convertible into cash, maturing within three months as of their acquisition date, which are subject to immaterial value change risks. Cash is stated at nominal value and cash equivalents are measured at fair value. Cash and investments subject to restrictions or intended for a specific purpose are presented separately under current or non-current assets as the case may be.
| | c. | Inventories of materials |
Inventories are stated at the lower of cost, using average cost, or net realizable value. Net realizable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.
Reductions to the value of inventories are comprised of estimates representing the impairment of inventories.
| | d. | Real Estate Inventories |
Housing and housing development costs comprise the cost of the acquisition of land, improvements to the condition thereof, permits and licenses, labor costs, materials and direct and indirect costs. Borrowing costs incurred during the construction period are capitalized.
Land to be developed over a period of more than 12 months is classified under non-current assets and is recorded at acquisition cost.
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 reviewed quarterly and updated periodically when modifications are made to sales price or cost estimates of construction and development of the home. Variations in the original cost budget that require a change in cost of sales 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, (iv) borrowing costs incurred during the construction period and (v) administration and supervision of real estate. The costs related to real estate projects that are capitalized during development of the project and are applied to cost of sales in the proportion in which revenues are recognized.
With respect to homes in the moderate-income sector, on a quarterly basis, the Company performs a review of estimated revenues and costs for the projects in-progress to evaluate the sector’s operating margin. Additionally, on an annual basis, the Company performs formal impairment tests based on discounted cash flow projections and to determine the expected rates of returns of the project. Such cash flow projections incorporate actual revenues and costs through the date of the evaluation as well as estimated future investments the Company expects to incur to complete and sell the project. Revenues are projected based on the current selling price of the home, considering any discounts that the Company may offer. Selling prices for the moderate-income sector are based on market studies of
F-14
what a willing buyer would pay, comparable prices for similar projects in the areas in which the Company develops and the general economic conditions in Mexico. The Company only offers discounts on sale prices of homes when sales prices have increased over time and the discount would not exceed the original sale price of the home. The policy is not to grant discounts when the discounted sales price would result in a value lower than the carrying value of the inventory. Management determines discounts on a home-by-home basis. Cost estimates are based on the cost budgeting system as discussed above. Impairment is recognized when the sales price less costs to sell is less than the carrying amount of the inventory. Accordingly, the Company only recognizes impairment on inventories in the moderate-income sector if it offers discounts greater than the operating margin or otherwise significantly reduce the prices below the operating margin because of, for example, market forces or deteriorating economic factors.
The Company assesses the impairment of real estate inventories at each balance sheet date and appraisals are conducted every two years or more frequently if events or changes in circumstances indicate that certain amounts accrued will not be recoverable. If the valuation is less than the carrying value of the inventory, an impairment is recorded in results of the period in which the impairment was determined.
If circumstances that previously caused the reduction no longer exist or when there is clear evidence of an increase in net realizable value due to a change in economic circumstances, the previously recognized impairment is reversed.
| | e. | Property, plant and equipment |
Expenditures for property, plant and equipment, including renewals and improvements which extend useful lives, acquired subsequent to transition date, are capitalized and valued at acquisition cost.
Furniture and office equipment acquired before the Company’s transition date to IFRS are valued in accordance with their indexed cost basis recognized under MFRS, which included cumulative inflationary effects through December 31, 2007. This amount represents the deemed cost of such assets. Additionally, at transition date the Company decided to use expert appraisal valuations to value land, building and certain major machinery and equipment at their fair value, which represent the deemed cost of those assets.
Depreciation of buildings, furniture, office equipment and vehicles is calculated using the straight-line method over the useful life of the asset, taking into consideration the related asset’s residual value. Depreciation begins in the month in which the asset is placed in service. Depreciation of machinery and equipment is calculated according to the units of production method (machine hours used in regard to total estimated usage hours of the assets during their useful lives, which range from 4 to 10 years). Depreciation begins in the month in which the asset is placed in service. The useful lives of assets are as follows:
| | | | |
| | | Useful | |
| | | lives (years) | |
Buildings | | | 20 to 50 | |
Machinery and operating equipment | | | 4 to 10 | |
Furniture, office equipment and vehicles | | | 4 to 10 | |
Financing costs incurred during the construction and installation of buildings and machinery and equipment are capitalized.
Residual values, useful lives and depreciation methods are reviewed at the end of each year and adjusted prospectively if applicable.
The depreciation of property, plant and equipment is recorded in results. Land is not depreciated.
Sale of assets
The gain or loss on the sale or retirement of an item of property, plant and equipment is calculated as the difference between the net income from the sale and the carrying value of the asset, and is recognized in income when all risks and rewards of ownership of the asset is transferred to the buyer, which generally occurs when ownership of the asset is transferred to the buyer.
F-15
Construction in progress
Construction in progress is carried at cost less any recognized impairment loss. Cost includes professional fees and, in the case of qualifying assets, borrowing costs capitalized in accordance with the accounting policy of the Company. The depreciation of these assets, as well as other properties, begins when the assets are ready for use.
Subsequent costs
Subsequent costs form part of the value of the asset or are recognized as a separate asset only when it is probable that such disbursement represents an increase in productivity, capacity, efficiency or an extension of the life of the asset and the cost of the item can be determined reliably. All other expenses, including repairs and maintenance are recognized in comprehensive income as incurred.
Leases are classified as finance leases whenever the terms of the contract lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Financial leasing
In financial leasing where the Company is the lessee, assets are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The liability to the lessor is included in the statement of financial position as other accounts payable.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company’s general policy for borrowing costs (see paragraph g).
The assets recorded by these operations are depreciated using the same criteria applied to the equipment itself, depending on their nature and useful life.
Operating leasing
As lessor
Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized in profit using the same criteria used for the recognition of lease income.
As lessee
Any payment or collection made upon execution of an operating lease is treated as and advanced payment or collection that is recognized in results over the lease term, as the benefits of the leased asset are received or transfered. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in profit or loss in the period in which they are incurred.
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| | h. | Investment in associated companies |
An associated company is an entity over which ICA has significant influence and which is not a subsidiary or a joint venture. Significant influence is the power to participate in deciding financial and operating policies in the associated companies but does not imply control or joint control over those policies.
The results of associated companies are incorporated in the consolidated financial statements using the equity method, unless the investment is classified as held for sale, in which case it is accounted for in accordance with IFRS 5,Non-current Assets Held for Sale and Discontinued Operations.
| | i. | Investment in concessions |
Under all of the Company’s concession arrangements, (i) the grantor controls or regulates what services the Company must provide with the infrastructure, to whom it must provide them, and at what price; and (ii) the grantor controls, through ownership, any significant residual interest in the infrastructure at the end of the term of the arrangement. Accordingly, the Company classifies the assets derived from the construction, administration and operation of the service concession arrangements either as intangible assets, financial assets (accounts receivable) or a combination of both.
A financial asset results when an operator constructs or makes improvements to the infrastructure, in which the operator has an unconditional right to receive a specific amount of cash or other financial assets during the contract term. An intangible asset results when the operator constructs or makes improvements and is allowed to operate the infrastructure for a fixed period after construction is complete, in which the future cash flows of the operator have not been specified, because they may vary depending on the use of the asset, and are therefore considered contingent. Both a financial asset and an intangible asset may result when the return/gain for the operator is provided partially by a financial asset and partially by an intangible asset. The cost of financing incurred during the construction period is capitalized.
Financial assets are recorded at nominal value and subsequently valued at amortized cost by calculating interest through the effective interest method at the date of the financial statements, based on the yields determined for each of the concession contracts. Investments in concessions resulting in the recognition of an intangible asset are recorded at acquisition value or construction cost and are amortized over the concession period based on utilization rates (vehicle traffic during the concession period for toll roads; volume of water treated for water treatment plants).
The Company recognizes and measures contractual obligations for major maintenance of the infrastructure in accordance with IAS 37,Provisions, Contingent Liabilities and Contingent Assets. The Company considers that periodic maintenance plans for infrastructure, whose cost is recorded in expense in the period in which the obligation arises, are sufficient to maintain the concession in good operating condition, in accordance with the obligations specified by the grantor and to ensure the delivery of the related infrastructure in good operating use at the end of the term of the concession, ensuring that no additional significant maintenance costs will arise as a result of the reversion to the grantor.
Agencies of the Mexican government have given grants to ICA to finance projects, mainly investments in water supply. The conditions set out in relevant resolutions which award the grants are accredited to the competent agencies.
ICA identifies government grants with assets for which the concession implies the purchase of the asset or the construction or acquisition of other assets, restricting the type or location of such assets or the periods during which they are to be acquired or held.
Grants for the acquisition of assets are presented net against the related asset, and are applied to results over the same period and using the same amortization criteria as that of the related asset. When no basis exists to amortize a grant over a specific period, the grant is recognized in results when it becomes receivable.
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Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attached to them and that the grants will be received. Receipt of a grant does not provide conclusive evidence that the conditions attached to it have been or will be fulfilled.
Prepaid assets mainly consist of costs related to uncompleted construction contracts, (mainly related to insurance and performance bonds) which are recorded at historical cost and amortized over the estimated useful life of the asset, as applicable.
Goodwill arises from business combination and is recorded as an asset at date on that control is acquired (acquisition date). Goodwill is the excess of the consideration transferred over the fair value at the acquisition date of the identifiable assets acquired and liabilities assumed.
When the fair value of identifiable net assets acquired exceeds the sum of the consideration transferred, the amount of such excess is recognized in the consolidated statement of comprehensive income as a gain on purchase.
Goodwill is not amortized and is subject to impairment tests annually. For assessing impairment, goodwill is allocated to each cash-generating unit of which the Company expects to make profits. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of goodwill allocated to the unit and then to the other assets of unit, proportionally, based on the carrying amount of each asset in the unit. The impairment loss recognized for goodwill purposes cannot be reversed at a later period.
Upon the disposal a subsidiary, the amount attributable to goodwill is included in determining the gain or loss on disposal.
| | m. | Impairment of long-lived assets in use |
Management periodically evaluates the impairment of long-lived assets in order to determine whether there is evidence that those assets have suffered an impairment loss. If impairment indicators exist, the recoverable amount of assets is determined, with the help of independent experts, to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss.
F-18
| | n. | Financial assets and liabilities |
Financial assets and liabilities are initially measured at fair value. The costs of transaction that are directly attributable to the acquisition or issue of a financial asset or liability (other than financial assets and liabilities that are recognized at fair value through results), are added or deducted from the fair value of the related assets and liabilities upon initial recognition. Transaction costs directly attributable to the acquisition of assets or financial liabilities that are recognized at fair value through profit or loss are recognized immediately in profit or loss for the year.
Financial assets are classified into four categories, which in turn determine the form of recognition and valuation of financial assets:
“Financial assets at fair value through profit or loss”, “investments held-to-maturity”, “financial assets available-for-sale” and “loans and receivables”. The classification depends on the nature and purpose of the administration upon initial recognition. The Company generally only has financial assets at fair value through profit or loss and loans and receivables.
In the consolidated statement of financial position, financial assets are classified into current and noncurrent, depending on whether their maturity is less than / equal to or greater than 12 months.
Financial assets at fair value through results
Financial assets are classified at fair value through results when the financial asset is held for trading or it is designated fair value through results. A financial asset is classified as held for trading if:
| | • | It has been acquired principally for the purpose of selling it in the near term; or |
| | • | On initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or |
| | • | It is a derivative (except those designated as hedging instruments or that is a financial guarantee). |
Financial assets at fair value with changes in the results are recorded at fair value, recognizing in results any gain or loss arising from its remeasurement. The gain or loss recognized in results includes any dividend or interest earned from the financial asset and is recorded in interest expense or income in the consolidated statements of comprehensive income. Fair value is determined as described in Note 25.f.
Loans and receivables
Loans and receivables are non-derivative financial assets, that have fixed or determinable payments that are not quoted in an active market. After initial recognition, loans and receivables are measured at amortized cost using the effective interest method.
“Amortized cost” means the initial amount recognized for a financial asset or liability less principal repayments, less (or plus) the cumulative amortization using the effective interest method of any difference between the initial amount and the amount at maturity, less any reduction (directly or through a reserve) for impairment or bad debt.
Effective interest method
The effective interest method is a method of calculating the amortized cost of a financial asset or liability and of allocating interest income or cost over the relevant period. The effective interest rate is the rate that exactly discounts future cash receivable or payable (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial instrument, or (where appropriate) a shorter period, to the carrying amount of the financial asset or liability on its initial recognition.
F-19
When calculating the effective interest rate, all cash flows must be estimated (for example, prepayment, call and similar options) except for future credit losses. The calculation must include all commissions and payments or receipts between the parties to the financial instrument, including other premiums or discounts.
Impairment of financial assets
Financial assets other than financial assets at fair value through results are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.
For other financial assets, objective evidence of impairment could include:
| | • | Significant financial difficulty of the issuer or counterparty; or |
| | • | Default or delinquency in interest or principal payments; or |
| | • | It becoming probable that the borrower will enter bankruptcy or financial reorganization |
The carrying amount of the financial asset is reduced directly by the impairment loss, except for trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are recorded in results. Changes in the carrying amount of the allowance account are recognized in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through results to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed the amortized cost if would not have recognized the impairment.
Financial liabilities
Financial liabilities are classified as financial liabilities at fair value through profit or loss, or other financial liabilities based on the substance of contractual arrangements.
Upon initial recognition, financial instruments with characteristics of both liabilities and equity issued by the Company, are classified and separated into the separate components of debt and equity in accordance with the substance of the contractual agreement.
Financial liabilities at fair value through profit or loss
A financial liability at fair value through profit or loss is a financial liability that is classified as held for trading or designated at fair value through profit or loss.
A financial liability is classified as held for trading if:
| | • | It has been acquired principally for the purpose of repurchasing it in the near term; or |
| | • | On initial recognition it is part of a portfolio of identified financial instruments that are managed together for which there is evidence of a recent pattern of making short-term profits, or |
| | • | It is a derivative (except for derivatives designated as hedging instruments or are a financial guarantee). |
Gains or losses arising on remeasurement of financial liabilities classified at fair value through profit or loss are recognized in results.
F-20
The net gain or loss net recognized in profit or loss incorporates any interest paid on the financial liability in interest expense or income in the consolidated statements of comprehensive income.
Other financial liabilities
Other financial liabilities, including loans, bond issuances and debt with lenders and trade creditors and other payables are valued initially at fair value, represented generally by the consideration transferred, net of transaction costs, and are subsequently measured at amortized cost using the effective interest method.
Offsetting of financial assets and liabilities
Offsetting of financial assets and liabilities in the consolidated statement of financial position only occurs for accounts receivable and payable arising in transactions that contractually, or by law, have established a right of setoff and for which the Company has the intention to pay a net amount or to realize the asset and pay the liability simultaneously.
Fair value hierarchies
The fair value used to value assets and liabilities is determined according to the elements available to the Company based upon different hierarchical levels established by IFRS 7,Financial Instruments, Presentation and Disclosure:
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Data different than the quoted price included within Level 1 that are observable for the financial instrument, both directly (ie, prices) and indirectly (ie, inputs to valuation).
Level 3: Data for the instrument is not based on observable market data.
ICA is exposed to risks that are managed through the implementation of systems of identification, measurement, limitation of concentration, and supervision. The Risk Management department in ICA is of a preventative nature, focusing on risks in the medium and long term, taking into account the most likely scenarios of evolution of the variables affecting each risk. Financial risk management pays particular attention to interest rate risk, exchange rate risk, liquidity risk and credit risk (see Note 25).
| | q. | Derivative financial instruments |
The Company underwrites a variety of financial instruments to manage its exposure to interest rate risk and foreign exchange related to the financing of its concession projects and construction. Note 20 includes a more detailed explanation of derivative financial instruments.
Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently remeasured at fair value at the end of each reporting period. Fair value is determined based on recognized market prices. When the derivative is not listed on a market, fair value is based on valuation techniques accepted in the financial sector.
The resulting gain or loss from remeasurement to fair value is recognized in profit or loss unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Company designates certain derivatives as either fair value hedges of recognized assets or liabilities or firm commitments (fair value hedges), hedges of highly probable forecasted transactions or hedges of foreign currency risk of firm commitments (cash flow hedges). The decision to apply hedge accounting depends on economic or market conditions and economic expectations in the national or international markets.
F-21
A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is recognized as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is greater than 12 months and it is not expected to be realized or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
Hedge accounting
The Company contracts financial instruments for hedging purposes to mitigate risks derived from foreign currency and interest rate fluctuations. These instruments are either recorded as fair value or cash flow hedges.
At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.
Note 20 includes details of the fair values of derivative instruments used for hedging purposes.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in profit or loss, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognized in the line item in the statement of comprehensive income relating to the hedged item.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is recognized in profit or loss from that date.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in results, and is included in interest expense.
Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to results in the periods when the hedged item is recognized in results, in the same line item in the statement of comprehensive income where the hedged item is recognized. However, when a forecasted transaction that is hedged gives rise to the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and are included in the initial measurement of the cost of the non-financial asset or non-financial liability. Any accumulated gain or loss on the hedging instrument recognized in other comprehensive income remains there until the hedged item affects results. When a forecasted transaction is no longer expected to occur, the accumulated gain or loss is reclassified immediately to results.
Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. Any accumulated gain or loss recognized in other comprehensive income is immediately recognized in results.
Embedded derivatives
The Company reviews all of its contracts to identify embedded derivatives that should be separated from the host contract for purposes of valuation and accounting.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value through results.
F-22
An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative relates is greater than 12 months and it is not expected to be realized or settled within 12 months. Other embedded derivatives are presented as current assets or current liabilities.
The Company has no fair value hedges of net investment in a foreign operation or embedded derivatives at the end of the reporting period.
Provisions for major maintenance of machinery, costs expected to be incurred at the end of projects, machinery leasing and warranties, are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, when it is probable that the Company will be required to settle the obligation, and when a reliable estimate can be made of the amount of the obligation.
The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties associated with the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.
Provisions are classified as current or noncurrent based on the estimated time period to meet the obligations it covers.
| | s. | Reserve for repurchase of shares |
Purchases and sales of treasury shares are recorded decreasing or increasing stockholders’ equity of the Company through the reserve for the repurchase of shares account, based on the cost of reacquisition and replacement of such shares, respectively. Any gain or loss is recorded as additional paid-in capital. Gains or losses arising from the purchase, sale, issue or cancellation of equity instruments of ICA are not recognized in results.
| | t. | Statutory employee profit sharing (PTU) |
PTU is recorded in the results of the year in which it is incurred and presented under general expenses in the accompanying consolidated statements of comprehensive income.
Income tax expense represents the sum of the tax currently payable and deferred tax (“ISR”). The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in periods different from when they are recognized in accounting profit. The Business Flat Tax (“IETU”) is calculated on a modified tax base in which income and deductions are calculated on gross receipts less certain current-period deductions that are identified by statute. As opposed to ISR, the parent and its subsidiaries will incur IETU on an individual basis. Income tax incurred is the higher of ISR and IETU. Management evaluates whether each subsidiary will be principally subject to ISR or IETU in the future and recognizes deferred income tax assets and liabilities accordingly. The Company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
ICA is authorized by the Ministry of Finance and Public Credit of Mexico to prepare its ISR returns on a consolidated basis, which includes the proportional tax profit or loss of its Mexican subsidiaries. The tax provisions of foreign subsidiaries are determined based on taxable income of each individual company.
Deferred income taxes are recognized for the applicable temporary differences resulting from comparing the accounting and tax values of assets and liabilities plus any future benefits from tax loss carryforwards. Deferred tax assets are recognized to the extent of the realization of related benefits is probable.
F-23
Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.
Current or deferred taxes are recognized as income or expenses in net profit except when they involve other comprehensive income items, in which case they are recognized within other comprehensive income.
| | v. | Retirement benefit cost |
The costs of direct employee benefits and contributions to defined benefit and defined contribution plans are recognized as an expense when employees have rendered service entitling them to the benefits.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each reporting period. Actuarial gains and losses are recognized in other comprehensive income and are amortized over the expected average remaining working lives of the employees. The costs of prior services are recognized when direct benefits are received. Retirement benefits are amortized by utilizing the straight line method based on the average period until benefits are effectively acquired.
The retirement benefit obligation recognized in the consolidated statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.
Revenues are recognized when it is likely that the Company will receive the economic benefits associated with the transaction. Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of activities. Revenues are reduced for estimated customer returns, rebates and other similar allowances.
By type of activity, revenue is recognized based on the following criteria.
Construction Contracts
Revenues from construction contracts are recognized using the percentage-of-completion method based on the costs incurred method or the units of work method, considering total costs and revenues estimated at the end of the project, in accordance with IAS 11,Construction Contracts. The percentage-of-completion method provides an understanding of the performance of the project in a timely manner, and appropriately presents the legal and economic substance of the contracts. Under this method, revenues are determined based on the contract costs incurred in comparison to total contract costs, representing the profits that can be attributed to the portion of work completed.
F-24
The base revenue utilized to calculate the amount of revenue to recognize 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.
Under the terms of various contracts, revenues that are recognized are not necessarily related to the amounts billable to customers. Management periodically assesses the reasonableness of the accounts receivable. When there is evidence of difficulty in the recovery of the receivables, reserves are recorded for doubtful accounts affecting the results of the year in which the impairment occurs. The estimation of this reserve is based on the best judgment of the Company under the circumstances prevailing at the time of its determination.
Contract costs include all direct costs such as materials, labor, subcontracting costs, manufacturing and supply costs of equipment, start-up costs and indirect costs. Periodically, the Company evaluates the reasonableness of the estimates used in the determination of the percentage-of-completion. 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. For projects financed by the Company in which the amount of the contract included project revenue and the related financing, the financing cost, which also includes changes in the fair value of derivative financial instruments, is considered part of the contract cost which is recognized in results in accordance with progresses of project. In these types of contracts, the collection of the contract amount from the client may take place at the end of the project. However, periodic progress reports are presented to and approved by the customer, which form the basis for the Company to obtain where appropriate, financing for the project in question.
The item of “Cost and Estimated Earnings in Excess of Billings on Uncompleted Contracts” included in the heading of “Customers”, originates from construction contracts and represents the costs incurred plus recognized profit (or less any recognized losses) for all contracts in progress over the amount of the certificates of work performed and invoiced.
Infrastructure concessions
In accordance with IFRIC 12, both for the financial assets and intangible assets, the revenues and costs related to construction or improvements during the construction phase are recognized in revenues and construction costs.
Revenues stemming from the financing of concessions are recorded in the income statement as they accrue and are recorded within finance income from continuing operations.
Revenues from the operation of concession projects are recognized as concession revenues, as they accrue, which is generally at the time vehicles make use of the highway and pay the respective toll in cash or electronically at toll collection booths. Revenues are derived directly from users of the concession, or at times, from the grantor of the concession. Aeronautical services revenues consist of the right of use of airports. These revenues are recognized when services are provided. Prices for the services rendered are regulated by the grantor. In concessions involving toll revenues, tariff revisions do not apply until their effective date of application.
F-25
Real estate sales
According to IFRIC 15,Agreements for the Construction of Real Estate and IAS 18,Revenue, revenues derived from sales of low- and medium-income housing and real estate are recognized as revenue once the house or real estate development is completed and the rights, benefits and obligations related to the property have transferred to the buyer, which occurs upon formalization of the deed.
Real estate inventories are divided into two large segments: land held for development and inventories in-progress (which include both houses under construction and unsold finished houses).
Dividend and interest revenue
Dividend revenue from investments is recognized when the stockholders’ right to receive payment has been established.
Interest income is recorded on a periodic basis, with reference to capital and the effective interest rate applicable.
| | x. | Basic and diluted earnings per share |
Basic earnings per share is computed by dividing income of the controlling interest available to common stockholders by the weighted average number of common shares outstanding during the year. Basic earnings per share for discontinued operations is computed by dividing income of discontinued operations by the weighted average number of common shares outstanding during the year. The dilutive effect of the Company’s potential ordinary shares does not have a significant material effect on the Company’s determination of earnings per share; thus diluted earnings per share approximates basic earnings per share during the years ended December 31, 2011 and 2010.
| 6. | Critical accounting judgments and key sources of estimation uncertanty |
In the application of the Company’s accounting policies, which are described in Note 5, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
The following transactions are those in which management has exercised its professional judgment to apply accounting policies with a material effect on the amount recorded in the consolidated financial statements:
| | • | Determining the profit margin and degree of progress in construction contracts (see Note 5w). |
| | • | The realizability of real estate inventory (see Note 5d). |
| | • | The long-lived assets owned by the Company relate to buildings, machinery and equipment and concessions granted by the Mexican government and foreign governments for the construction, operation and maintenance of roads, bridges and tunnels, airport management and municipal services. The Company reviews the estimated useful life and depreciation or amortization methods used for tangible and intangible assets derived from the concession (described in Note 13) at the end of each reporting period. The effects of any modifications to estimates are recognized prospectively. Similarly, at the end of each reporting period, the Company reviews the carrying values of its tangible and intangible assets to detect indications of impairment losses (see Note 5m). Determining both the recoverable value of assets and their useful life and depreciation or amortization methods are estimates with a significant impact on the consolidated financial statements of the Company. |
F-26
| | • | The Company reviews the estimated useful lives of property, plant and equipment at the end of each anual reporting period. During 2010, based on detailed analysis, management changed the life of certain components of property, plant and equipment. The level of uncertainty associated with estimates of useful lives is related to changes in the market and use of the assets as a result of production volumes and technological development. |
| | • | In order to estimate accounts receivable, among other elements, the Company considers the credit risk derived from the customer’s financial position and any significant collection delays based on the terms agreed in construction service agreements. |
| | • | ICA has recoverable tax losses generated by tax reforms in previous years related to the tax consolidation regimen; it has assessed the recoverability of these amounts and has recognized a deferred ISR asset, as it believes it will recover the benefits resulting from the tax reforms. |
| | • | Management prepares estimates to determine and recognize the provision necessary for the maintenance and repair of highways and other infrastructure under concession, which affects the results of the periods in which the infrastructure under concession becomes available for use and through the date on which the maintenance and/or repair work is performed. |
| | • | The Company makes estimates for obligations required upon completion of projects, rental and maintenance of machinery, which are determined based on the degree of completion of projects and hours of use in the case of machinery. |
| | • | When determining deferred tax, the Company prepares tax projections to determine whether it will effectively incur IETU or ISR, which it then uses as the basis for calculating deferred taxes. The Company has noted that certain subsidiaries will only incur ISR, while others will only incur IETU; it has therefore recognized deferred taxes by using the basis applicable for each legal entity. |
| | • | The Company values and recognizes derivatives at fair value, regardless of the purpose for holding them. Its bases fair value on market prices for derivatives traded in recognized markets. If no active market exists, the derivative instrument is valued using the valuations of counterparties (valuation agents) verified by a price provider authorized by the National Registry of Securities (Registro Nacional de Valores). These valuations are based on methodologies recognized in the financial sector and are supported by sufficient and reliable information. Note 20 contains a description of the techniques and methods utilized to value derivative financial instruments. |
| | • | To determine certain provisions, the Company uses factors related to lead times for construction contracts and production volume, as well as hours of use for owned and leased machinery. |
| | • | The Company is subject to transactions or contingent events over which professional judgment is exercised in developing estimates of probability of occurrence of probable outflows associated with adverse outcomes. The factors considered in these estimates are the legal merits of the case, as substantiated by the opinion of the Company’s legal advisors. |
Although these estimates were made based on the best information available at December 31, 2011, it is possible that events may take place in the future that will require their modification (increases or decreases) in subsequent years, which such modification would be made prospectively in the Company’s consolidated financial statements.
F-27
| 7. | Cash and cash equivalents |
For purpose of the cash flow statement, cash and cash equivalents include cash on hand and held in bank accounts as well as investments in money market instruments.
| | a. | Cash and cash equivalents at each period as shown in the statement of cash flows, related items in the statement of financial position as follows: |
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Cash | | | Ps. 1,913,512 | | | | Ps. 817,030 | | | | Ps. 889,394 | |
Cash equivalents: | | | | | | | | | | | | |
Bank paper | | | 1,449,687 | | | | 893,989 | | | | 780,597 | |
Government securities | | | 433,478 | | | | 68,296 | | | | 181,850 | |
Commercial paper | | | 689,417 | | | | 813,800 | | | | 334,252 | |
Bank certificates of deposits | | | — | | | | — | | | | 59,224 | |
Other | | | 358,871 | | | | 382,269 | | | | 432,264 | |
| | | | | | | | | | | | |
Total cash and equivalents (1) | | | Ps. 4,844,965 | | | | Ps. 2,975,384 | | | | Ps. 2,677,581 | |
| | b. | Restricted cash and cash equivalents are as follows: |
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Cash | | | Ps. 5,973,082 | | | | Ps. 1,237,181 | | | | Ps. 1,405,424 | |
Government securities | | | 4,774 | | | | 160,191 | | | | 127,766 | |
Other | | | 76,893 | | | | 146,206 | | | | 299,896 | |
| | | | | | | | | | | | |
Total(1) | | | 6,054,749 | | | | 1,543,578 | | | | 1,833,086 | |
Long-term | | | 81,667 | | | | 142,488 | | | | 413,514 | |
| | | | | | | | | | | | |
Short-term | | | Ps. 5,973,082 | | | | Ps. 1,401,090 | | | | Ps. 1,419,572 | |
| (1) | At December 31, 2011 and 2010 and January 1, 2010 the total cash, cash equivalents and restricted are Ps.10,899 million, Ps.4,519 million and Ps.4,511 million, respectively. |
Restricted cash is composed principally by trusts that have been created to administer the amounts received from tolls and other related services generated by the concessions, which guarantee and are primarily utilized to pay the debt contracted and the maintenance of the concessions. At December 31, 2011, Ps.4,838 million of restricted cash corresponds to the funds recdeived from the placement of bond securities in an Issuer Trust mentioned in Note 21, that are administered by the issuing trust and will be used to build infrastructure in the preoperating stage.
F-28
| | a. | At December 31, 2011, 2010 and January 1, 2010, the balance of short-term customers is as follows: |
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Billings on contracts(1) | | | Ps. 14,654,044 | | | | Ps. 2,166,158 | | | | Ps. 2,998,809 | |
Retained billings on contracts | | | 115,261 | | | | 79,486 | | | | 116,913 | |
Guarantee deposits | | | 32,735 | | | | 75,005 | | | | 136,271 | |
Notes receivable | | | 1,022,397 | | | | 586,040 | | | | 1,184,248 | |
Less: advanced payments received on contracts | | | (2,409 | ) | | | (2,408 | ) | | | — | |
Less: allowance for doubtful accounts | | | (1,100,391 | ) | | | (598,023 | ) | | | (292,468 | ) |
| | | | | | | | | | | | |
| | | 14,721,637 | | | | 2,306,258 | | | | 4,143,773 | |
Cost and estimated earnings in excess of billings on uncompleted contracts(1) | | | 11,740,957 | | | | 6,375,174 | | | | 4,208,591 | |
| | | | | | | | | | | | |
Total customer receivables from sales and services | | | Ps. 26,462,594 | | | | Ps. 8,681,432 | | | | Ps. 8,352,364 | |
| | | | | | | | | | | | |
| (1) | As of December 31, 2011, the balance of billings on contracts and cost and estimated earnings in excess of billings on uncompleted contracts included Ps.12,931 million and Ps.1,109 million, respectively, due from the La Yesca Hydroelectric Project. In conformity with the financed public works mixed-price contract executed with the Comisión Federal de Electricidad (“CFE”), the consideration will be settled in one lump sum upon completion of the construction, which is expected to occur at the end of 2012. The contract receivables and the cost and estimated earnings in excess of billings on uncompleted contracts bear annual interest at an average 5.24% rate. Until December 31, 2010, the balance of both accounts was classified as long-term in the consolidated statement of financial position. |
Customer receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.
No interest is charged on current customer receivables. The Company has recognized an allowance for doubtful accounts of Ps. 1,413 million which represents unrecoverable determined based on historical default experience of the counterparty and an analysis of the counterparty’s current financial position. Except for the customers as mentioned in Note 35, no other customer represents more than 5% of the total balance of accounts receivable.
Customer receivables include amounts (see below for aging analysis) that are past due at the end of the reporting period but against which the Company has not recognized an allowance for doubtful accounts because there has not been a significant change in credit quality of the counterparty and the amounts are still considered recoverable. The Company does not hold any collateral or other credit enhancements over these balances nor does it have a legal right of offset against any amounts owed by the Company to the counterparty.
ICA’s principal customers are concentrated in the construction segment and represent 62% and 60% of total consolidated revenues for the years ended December 31, 2011 and 2010, respectively. See Note 35.
The management of accounts receivable and the determination of the need for a reserve is carried out by each individual entity that forms part of the consolidated financial statements, as each entity has more thorough knowledge of the financial situation and relationship with each of its customers. However, in each of the Company’s lines of business, certain guidelines exist regarding specific characteristics that each customer must possess depending on the nature of the line of business. With respect to the Company’s construction business, accounts receivable from the government are not estimated to have collection problems that may be relevant, and international activity is carried out primarily with public authorities in each country, which reduces the possibility of incurring a significant insolvency.
F-29
In industrial construction, the most significant contracts correspond to the private sector, to which a maximum risk level of risk is assigned and collection conditions and terms are established based on the credit profile of the customer analyzed at the beginning of the customer relationship based on the magnitude of the specific project. For foreign private clients, the Company’s policy is to generally require payments in advance at the start of the project and routine collections on a short-term basis to allow positive working capital management.
| | b. | Aging of past due but not impaired |
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Up to 120 days | | Ps. | 2,308,300 | | | Ps. | 1,841,042 | | | Ps. | 3,401,902 | |
120 to 360 days | | | 283,320 | | | | 677,708 | | | | 434,961 | |
| | | | | | | | | | | | |
Total | | Ps. | 2,591,620 | | | Ps. | 2,518,750 | | | Ps. | 3,836,863 | |
| | | | | | | | | | | | |
Average age (days) | | | 31 | | | | 39 | | | | 65 | |
| | | | | | | | | | | | |
| | c. | The balance of long-term customers is as follows: |
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1, 2010 | |
Billings on contracts(1)(2) | | Ps. | 5,965,734 | | | Ps. | 11,433,177 | | | Ps. | 6,614,752 | |
Notes receivable | | | 791,295 | | | | 953,097 | | | | 986,982 | |
Allowance for doubtful accounts | | | (313,077 | ) | | | (56,473 | ) | | | (52,088 | ) |
| | | | | | | | | | | | |
| | | 6,443,952 | | | | 12,329,801 | | | | 7,549,646 | |
Cost and estimated earnings in excess of billings on uncompleted contracts (1) | | | 1,792,324 | | | | 2,342,907 | | | | 2,378,619 | |
| | | | | | | | | | | | |
| | Ps. | 8,236,276 | | | Ps. | 14,672,708 | | | Ps. | 9,928,265 | |
| | | | | | | | | | | | |
| (1) | As of December 31, 2010, billings on contracts and cost and estimated earnings in excess of billings included Ps.7,881 million and Ps.1,292 million, respectively, due from the La Yesca Hydroelectric Project, and Ps.5,155 million and Ps.969 million, respectively, as of January 1, 2010. In conformity with contract executed with the CFE, completion of construction and collection of the outstanding amounts is expected to be in 2012. Therefore, at December 31, 2011, the balance of both accounts is presented within current customer receivables in the consoldiated statement of financial position. |
| (2) | As of December 31, 2011 and 2010 and January 1, 2010, the non-current balance of customers includes Ps.7,417 million, Ps.4,117 million and Ps.2,522 million (of both contract receivables and costs and estimated earnings in excess of billings), respectively, of Viabilis Infraestructura, S.A.P.I, de C.V., a subsidiary of ICA, which has executed a contract for the construction of Río de los Remedios-Ecatepec Highway with Sistema de Autopistas, Aeropuertos, Servicios Conexos y Auxiliares del Estado de México (“SAASCAEM”). The payment and the return on investment, as well as the total financing and investment settlement guarantee, will be based on toll revenue made by the trust created for such purposes. Collection will be made at the time the investment plus an internal rate of return of 10% is earned, which is expected to be within an estimated 30-year term. |
The allowance for doubtful accounts, considering both current and long term is:
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Billings on contracts | | Ps. | 829,324 | | | Ps. | 364,543 | | | Ps. | 223,359 | |
Trade receivable(1) | | | 271,067 | | | | 233,480 | | | | 69,109 | |
Notes receivable | | | 313,077 | | | | 56,473 | | | | 52,088 | |
| | | | | | | | | | | | |
| | Ps. | 1,413,468 | (2) | | Ps. | 654,496 | | | Ps. | 344,556 | |
| | | | | | | | | | | | |
| (1) | In 2010, GACN increased its allowance for doubtful accounts by Ps.174 million, of which Ps.143 million have been recorded for the suspension of operations of Grupo Mexicana. This allowance includes Ps. 133 million of the Airport Usage Rate (“TUA”), Ps.7 million of airport services, and Ps.3 million of other services. |
| (2) | At December 31, 2011, accounts receivable impaired represent customers with overdue balances older than 360 days and correspond mainly to the construction and airports segments. |
F-30
The changes in the allowance for doubtful accounts are as follows:
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Beginning balance | | Ps. | 654,496 | | | Ps. | 344,556 | |
Increase of the period | | | 761,078 | | | | 350,187 | |
Impairment losses recognized on receivables | | | (2,106 | ) | | | — | |
Impairment losses reversed | | | — | | | | (40,247 | ) |
| | | | | | | | |
Ending balance | | Ps. | 1,413,468 | | | Ps. | 654,496 | |
| | | | | | | | |
| d. | At December 31, 2011, 2010 and January 1, 2010, the balance of cost and estimated earnings in excess of billings on uncompleted contracts is as follows: |
| | | **** | | | | **** | | | | **** | | | | **** | | | | **** | | | | **** | | | | **** | |
| | | Projects | |
| | | La Yesca | | | Línea 12 | | | Túnel Emisor
Oriente | | | Arco Sur | | | Río de los
Remedios | | | Other Projects | | | December 31,
2011 | |
Costs incurred on uncompleted contracts | | Ps. | 12,418,141 | | | | Ps. 11,491,351 | | | | Ps. 2,926,096 | | | | Ps. 1,928,004 | | | | Ps. 6,721,680 | | | | Ps. 35,091,553 | | | | Ps. 70,576,825 | |
Estimated earnings | | | 333,599 | | | | 249,387 | | | | 533,832 | | | | 290,342 | | | | 695,600 | | | | 4,710,776 | | | | 6,813,536 | |
Losses incurred | | | — | | | | — | | | | — | | | | — | | | | — | | | | (387,680 | ) | | | (387,680 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Recognized revenue | | | 12,751,740 | | | | 11,740,738 | | | | 3,459,928 | | | | 2,218,346 | | | | 7,417,280 | | | | 39,414,649 | | | | 77,002,681 | |
Less: billings to date | | | 11,642,276 | | | | 8,532,636 | | | | 2,290,955 | | | | 1,004,868 | | | | 5,643,248 | | | | 34,355,417 | | | | 63,469,400 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total cost and estimated earnings in excess of billings on uncompleted contracts | | | 1,109,464 | | | | 3,208,102 | | | | 1,168,973 | | | | 1,213,478 | | | | 1,774,032 | | | | 5,059,232 | | | | 13,533,281 | |
Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non—current cost and estimated earnings in excess of billings on uncompleted contracts | | | — | | | | — | | | | — | | | | — | | | | 1,774,032 | | | | 18,292 | | | | 1,792,324 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current cost and estimated earnings in excess of billings on uncompleted contracts | | Ps. | 1,109,464 | | | Ps. | 3,208,102 | | | Ps. | 1,168,973 | | | Ps. | 1,213,478 | | | Ps. | — | | | Ps. | 5,040,940 | | | Ps. | 11,740,957 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-31
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Projects | |
| | | La Yesca | | | Línea 12 | | | Túnel Emisor
Oriente | | | Río de los
Remedios | | | Minatitlán | | | Other
Projects | | | December 31,
2010 | |
Costs incurred on uncompleted contracts | | Ps. | 9,194,311 | | | Ps. | 6,840,620 | | | Ps. | 962,678 | | | Ps. | 3,927,037 | | | Ps. | 6,108,833 | | | Ps. | 38,497,116 | | | Ps. | 65,530,595 | |
Estimated earnings | | | 284,658 | | | | 794,127 | | | | 169,885 | | | | 190,334 | | | | 670,707 | | | | 1,133,453 | | | | 3,243,164 | |
Losses incurred | | | — | | | | — | | | | — | | | | — | | | | — | | | | (779,374 | ) | | | (779,374 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Recognized revenue | | | 9,478,969 | | | | 7,634,747 | | | | 1,132,563 | | | | 4,117,371 | | | | 6,779,540 | | | | 38,851,195 | | | | 67,994,385 | |
Less: billings to date | | | 8,186,518 | | | | 5,509,429 | | | | 867,971 | | | | 3,083,304 | | | | 6,375,282 | | | | 35,253,800 | | | | 59,276,304 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total cost and estimated earnings in excess of billings on uncompleted contracts | | | 1,292,451 | | | | 2,125,318 | | | | 264,592 | | | | 1,034,067 | | | | 404,258 | | | | 3,597,395 | | | | 8,718,081 | |
Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non—current cost and estimated earnings in excess of billings on uncompleted contracts | | | 1,292,451 | | | | — | | | | — | | | | 1,034,067 | | | | — | | | | 16,389 | | | | 2,342,907 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current cost and estimated earnings in excess of billings on uncompleted contracts | | Ps. | — | | | Ps. | 2,125,318 | | | Ps. | 264,592 | | | Ps. | — | | | Ps. | 404,258 | | | Ps. | 3,581,006 | | | Ps. | 6,375,174 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| | | Projects | |
| | | La Yesca | | | Línea 12 | | | Túnel Emisor
Oriente | | | Rio de los
Remedios | | | Minatitlán | | | Other
Projects | | | January 1, 2010 | |
Costs incurred on uncompleted contracts | | Ps. | 5,839,202 | | | Ps. | 2,386,369 | | | Ps. | 495,176 | | | Ps. | 2,482,013 | | | Ps. | 5,574,571 | | | Ps. | 39,359,134 | | | Ps. | 56,136,465 | |
Estimated earnings | | | 180,584 | | | | 198,151 | | | | 116,628 | | | | 39,833 | | | | 569,708 | | | | 3,024,751 | | | | 4,129,655 | |
Losses incurred | | | — | | | | — | | | | — | | | | — | | | | — | | | | (474,323 | ) | | | (474,323 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Recognized revenue | | | 6,019,786 | | | | 2,584,520 | | | | 611,804 | | | | 2,521,846 | | | | 6,144,279 | | | | 41,909,562 | | | | 59,791,797 | |
Less: billings to date | | | 5,050,626 | | | | 2,353,177 | | | | 110,060 | | | | 1,802,010 | | | | 5,683,146 | | | | 38,205,568 | | | | 53,204,587 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total cost and estimated earnings in excess of billings on uncompleted contracts | | | 969,160 | | | | 231,343 | | | | 501,744 | | | | 719,836 | | | | 461,133 | | | | 3,703,994 | | | | 6,587,210 | |
Less: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Non—current cost and estimated earnings in excess of billings on uncompleted contracts | | | 969,160 | | | | — | | | | — | | | | 719,836 | | | | — | | | | 689,623 | | | | 2,378,619 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Current cost and estimated earnings in excess of billings on uncompleted contracts | | Ps. | — | | | Ps. | 231,343 | | | Ps. | 501,744 | | | Ps. | — | | | Ps. | 461,133 | | | Ps. | 3,014,371 | | | Ps. | 4,208,591 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
F-32
A reconciliation of backlog representing executed construction contracts at December 31, 2011, 2010 and January 1, 2010, is as follows:
| | | | | | | | | | | | |
| | | Civil Construction | | | Industrial
Construction | | | Total | |
Balance at January 1, 2010 | | Ps. | 28,413,273 | | | Ps. | 6,319,854 | | | Ps. | 34,733,127 | |
| | | |
New contracts and changes 2010 | | | 21,878,719 | | | | 6,536,735 | | | | 28,415,454 | |
Less: construction revenue earned 2010 | | | 23,448,423 | | | | 4,401,358 | | | | 27,849,781 | |
| | | | | | | | | | | | |
Balance at December 31, 2010 | | | 26,843,569 | | | | 8,455,231 | | | | 35,298,800 | |
| | | |
New contracts and changes 2011 | | | 30,069,758 | | | | 3,869,963 | | | | 33,939,721 | |
Less: construction revenue earned 2011 | | | 28,709,901 | | | | 5,210,482 | | | | 33,920,383 | |
| | | | | | | | | | | | |
Balance at December 31, 2011 | | Ps | 28,203,426 | | | Ps | 7,114,712 | | | Ps. | 35,318,138 | |
| | | | | | | | | | | | |
From January 1 to March 14, 2012 the Company entered into contracts totaling Ps.3,633 million, which correspond to the Civil Construction and Industrial Construction segments.
Inventories are as follows
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Raw materials and materials | | Ps. | 909,471 | | | Ps. | 600,496 | | | Ps. | 628,512 | |
Parts, accessories and other | | | 172,511 | | | | 225,941 | | | | 77,813 | |
Allowance for obsolete inventories | | | (4,674 | ) | | | (10,794 | ) | | | (26,968 | ) |
| | | | | | | | | | | | |
| | Ps. | 1,077,308 | | | Ps. | 815,643 | | | Ps. | 679,357 | |
| | | | | | | | | | | | |
The changes in the allowance for obsolete inventory are as follows:
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Beginning balance | | Ps. | 10,794 | | | Ps. | 26,968 | |
Uses | | | (6,120 | ) | | | (16,174 | ) |
| | | | | | | | |
Ending balance | | Ps. | 4,674 | | | Ps. | 10,794 | |
| | | | | | | | |
F-33
| 11. | Real estate inventories |
| a. | Short-term real estate inventories consist of the following: |
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Land held for future development | | Ps | 1,345,875 | | | Ps | 945,336 | | | Ps | 1,165,479 | |
Land under development | | | 1,040,591 | | | | 1,227,687 | | | | 1,347,239 | |
Construction in-progress | | | 2,499,386 | | | | 2,052,759 | | | | 1,821,880 | |
Real estate held for sale | | | 82,916 | | | | 124,128 | | | | 192,699 | |
Tourism and real estate projects | | | 1,733,959 | | | | 1,465,437 | | | | — | |
Vertical projects | | | 1,582,785 | | | | 1,522,898 | | | | 768,537 | |
| | | | | | | | | | | | |
| | | 8,285,512 | | | | 7,338,245 | | | | 5,295,834 | |
Less: | | | | | | | | | | | | |
Long-term | | | 4,517,614 | | | | 3,218,830 | | | | 2,821,949 | |
| | | | | | | | | | | | |
Short-term real estate | | Ps | 3,767,898 | | | Ps | 4,119,415 | | | Ps | 2,473,885 | |
| | | | | | | | | | | | |
Capitalized financing costs are Ps.68 million, Ps.102 million and Ps.274 million, as of December 31, 2011, 2010 and January 1, 2010, respectively.
Historically, impairment has never been recognized regarding the inventory in this sector.
| b. | The movement of the period in the statements of financial position at December 31, 2011 and 2010 and January 1, 2010 is as follows: |
| | | | | | | | | | | | |
| CONCEPT | | Horizontal | | | Vertical | | | Total | |
Balance at January 1, 2010 | | Ps. | 4,416,720 | | | Ps. | 879,114 | | | Ps. | 5,295,834 | |
Additions | | | 1,685,481 | | | | 2,884,853 | | | | 4,570,334 | |
Application to cost | | | (2,066,442 | ) | | | (305,483 | ) | | | (2,371,925 | ) |
Transferred | | | — | | | | (78,115 | ) | | | (78,115 | ) |
Disposal | | | — | | | | (79,455 | ) | | | (79,455 | ) |
Effect of foreign currency | | | — | | | | 1,572 | | | | 1,572 | |
| | | | | | | | | | | | |
Balance at December 31, 2010 | | | 4,035,759 | | | | 3,302,486 | | | | 7,338,245 | |
Additions | | | 1,788,321 | | | | 1,525,609 | | | | 3,313,930 | |
Application to cost | | | (1,775,745 | ) | | | (533,918 | ) | | | (2,309,663 | ) |
Transferred | | | (10,867 | ) | | | (43,931 | ) | | | (54,798 | ) |
Disposal | | | — | | | | (51,977 | ) | | | (51,977 | ) |
Effect of foreign currency | | | — | | | | 49,775 | | | | 49,775 | |
| | | | | | | | | | | | |
Balance at December 31, 2011 | | Ps. | 4,037,468 | | | Ps. | 4,248,044 | | | Ps. | 8,285,512 | |
| | | | | | | | | | | | |
At December 31, 2011 and 2010 and 1 January 2010, certain real estate inventory valued at Ps. 873 million, Ps.878 million and Ps.967 million, respectively, are pledged as collateral for loans outstanding totalling Ps.1.937 million, Ps.1.759 and Ps.1.293 million at December 31, 2011, 2010 and January 1, 2010, respectively. See Note 21.
At December 31, 2011 and 2010, and January 1, 2010, the main investment in real estate inventory corresponds to horizontal housing developments, amounting to Ps.4,037, Ps.4,035 and Ps.4.,416, million pesos, respectively.
F-34
As mentioned in Note 24, in December 2010, ICA activated the mechanism in a trust established to guarantee receivables owed to ICA from the Esmeralda Resort Project of Ps.1,447 million (including interest), by which ICA awarded itself the current buildings under construction, golf course, and land of over 289 hectares in a first level beach area as payment on the overdue receivables. As of December 31, 2010, these assets had been classified as current and non-current real estate inventories of Ps.522 and Ps.925 million, respectively. During 2011, ICA received an additional payment in the amount of Ps.151.5 million, paid in-kind with land, thus reducing the receivable owed to ICA from PER.
To date, there have been no signs of deterioration in real estate inventories.
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Sundry debtors | | Ps. | 525,220 | | | Ps. | 310,704 | | | Ps. | 624,235 | |
Notes receivable | | | 185,689 | | | | 73,310 | | | | 74,420 | |
Guarantee deposits | | | 219,183 | | | | 117,980 | | | | 97,453 | |
Financial assets from concessions | | | 13,982 | | | | 274,940 | | | | 93,701 | |
Recoverable taxes | | | 1,055,950 | | | | 1,134,416 | | | | 552,116 | |
Amounts receivable from related parties | | | 1,498,253 | | | | 792,195 | | | | 769,532 | |
Others | | | 41,704 | | | | 32,066 | | | | 19,241 | |
Allowance for doubtful accounts | | | (26,030 | ) | | | (38,944 | ) | | | (33,939 | ) |
| | | | | | | | | | | | |
| | Ps. | 3,513,951 | | | Ps. | 2,696,667 | | | Ps. | 2,196,759 | |
| | | | | | | | | | | | |
F-35
| 13. | Investment in concessions |
| | a. | The classification and integration of investment in concessions is as follows: |
Financial asset:
| | | | | | | | | | | | | | | | | | | | | | |
| | | Date of | | Ownership Percentage | | | Balance as of | | | | |
| Description of Project | | Concession Agreement | | 2011 | | | 2010 | | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Water treatment plant in Cd. Acuña (1) (4) | | September 1998 | | | 100 | % | | | 100 | % | | Ps. | 226,439 | | | Ps. | 267,485 | | | Ps. | 262,050 | |
Irapuato—La Piedad Highway(1) (7) | | August 2005 | | | — | | | | 100 | % | | | — | | | | 697,825 | | | | 710,759 | |
Querétaro—Irapuato Highway(1) (7) | | June 2006 | | | — | | | | 100 | % | | | — | | | | 571,581 | | | | 476,601 | |
Acueducto II Querétaro – Water supply (1) (2) (3) | | May 2007 | | | 42 | % | | | 42 | % | | | 612,441 | | | | 611,086 | | | | 528,551 | |
Nuevo Necaxa—Tihuatlán Highway(1) (2) | | June 2007 | | | 50 | % | | | 50 | % | | | 1,970,911 | | | | 1,261,360 | | | | 550,469 | |
Río Verde—Cd. Valles Highway(1) | | July 2007 | | | 100 | % | | | 100 | % | | | 2,352,062 | | | | 1,516,701 | | | | 980,304 | |
San Luis Potosí, El Realito, Water supply(1) (2) | | July 2009 | | | 51 | % | | | 51 | % | | | 93,971 | | | | 3,785 | | | | 755 | |
PTAR Wastewater Agua Prieta(2) | | September 2009 | | | 50 | % | | | 50 | % | | | 487,154 | | | | — | | | | — | |
Mitla Tehuantepec Highway(1) | | June 2010 | | | 100 | % | | | — | | | | 3,906 | | | | 593 | | | | — | |
Social infrastructure Sarre, | | December 2010 | | | 100 | % | | | 100 | % | | | 1,288,366 | | | | — | | | | — | |
Social infrastructure Pápagos, | | December 2010 | | | 100 | % | | | 100 | % | | | 1,467,210 | | | | — | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | 8,502,460 | | | | 4,930,416 | | | | 3,509,489 | |
Total short-term financial assets | | | | | | | | | | | | | 13,982 | | | | 274,940 | | | | 93,701 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total long-term financial assets | | | | | | | | | | | | | 8,488,478 | | | | 4,655,476 | | | | 3,415,788 | |
| | | | | | | | | | | | | | | | | | | | | | |
Intangible asset: | | | | | | | | | | | | | | | | | | | | | | |
Kantunil—Cancun Highway | | October 1990 | | | 100 | % | | | 100 | % | | | 2,309,172 | | | | 2,426,706 | | | | 2,586,266 | |
Acapulco Tunnel | | May 1994 | | | 100 | % | | | 100 | % | | | 848,253 | | | | 870,810 | | | | 894,361 | |
Corredor Sur in Panamá(6) | | August 1996 | | | — | | | | 100 | % | | | — | | | | 2,007,152 | | | | 2,178,894 | |
Water treatment plant in Cd. Acuña(1) (4) | | September 1998 | | | 100 | % | | | 100 | % | | | 35,750 | | | | 39,722 | | | | 42,705 | |
North Central Airport Group | | November 1998 | | | 59 | % | | | 59 | % | | | 7,051,236 | | | | 6,901,100 | | | | 6,758,592 | |
Irapuato—La Piedad Highway(1) (7) | | August 2005 | | | — | | | | 100 | % | | | — | | | | 94,609 | | | | 99,273 | |
Querétaro—Irapuato Highway(1) (7) | | June 2006 | | | — | | | | 100 | % | | | — | | | | 2,052,493 | | | | 1,394,908 | |
Acueducto II Querétaro – Water supply(1) (2) (3) | | May 2007 | | | 42 | % | | | 42 | % | | | 620,430 | | | | 607,175 | | | | 378,985 | |
Nuevo Necaxa—Tihuatlán Highway(1) (2) | | June 2007 | | | 50 | % | | | 50 | % | | | 840,878 | | | | 536,785 | | | | 232,118 | |
Rio Verde—Cd. Valles Highway(1) | | July 2007 | | | 100 | % | | | 100 | % | | | 1,210,998 | | | | 773,381 | | | | 461,612 | |
Parking lots – Perú(2) | | September 2008 | | | 50 | % | | | 50 | % | | | 121,294 | | | | 92,013 | | | | 12,200 | |
Libramiento La Piedad, Highway | | January 2009 | | | 100 | % | | | 100 | % | | | 1,672,312 | | | | 968,077 | | | | 361,210 | |
San Luis Potosí, El Realito, Water supply(1) (2) | | July 2009 | | | 51 | % | | | 51 | % | | | 57,032 | | | | 2,028 | | | | 430 | |
Agua Prieta , Water treatment plant(2) | | September 2009 | | | 50 | % | | | 50 | % | | | — | | | | 1,213 | | | | | |
Mitla Tehuantepec Highway(1) | | June 2010 | | | 100 | % | | | — | | | | 785 | | | | 121 | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Total intangible assets | | | | | | | | | | | | Ps. | 14,768,140 | | | Ps. | 17,373,385 | | | Ps. | 15,401,554 | |
| | | | | | | | | | | | | | | | | | | | | | |
F-36
Investment in associated companies:
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | Ownership
Percentage | | | Balance as of | |
| Investment | | Acquired since | | 2011 | | | 2010 | | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Autopistas Concesionadas del Altiplano, S.A. de C.V.(5) | | September 1991 | | | — | | | | 19.38 | % | | | — | | | | 146,127 | | | | 31,822 | |
Red de Carreteras de Occidente, S.A.P.I.B. de C.V. | | October 2007 | | | 18.70 | % | | | 13.63 | % | | | 4,537,867 | | | | 2,547,194 | | | | 2,799,142 | |
Distribuidor Vial San Jerónimo Muyuguarda | | December 2010 | | | 30 | % | | | 30 | % | | | 392,768 | | | | — | | | | — | |
Proactiva Medio Ambiente México, S.A. de C.V. | | Various | | | 49.00 | % | | | 49.00 | % | | | 533,767 | | | | 521,138 | | | | 485,104 | |
Other | | Various | | | — | | | | — | | | | 21,161 | | | | 24,296 | | | | 19,367 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total investment in associated companies | | | | | | | | | | | | | 5,485,563 | | | | 3,238,755 | | | | 3,335,435 | |
| | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | Ps. | 28,742,181 | | | Ps. | 25,267,616 | | | Ps. | 22,152,777 | |
| | | | | | | | | | | | | | | | | | | | | | |
| (1) | Combination of both financial and intangible assets. |
| (2) | Proportionately consolidated. |
| (3) | Includes 5% indirect participation. |
| (4) | During 2009, partially renegotiated which such portion represents an intangible asset. |
| (5) | In December 2010, this associated company sold its concession asset obtaining a profit of Ps.609 million, of which Ps.120 million belongs to the Company. |
| (6) | This concesion was sold to the Government of Panama in September 2011, see Note 3. |
| (7) | Concessions were sold to RCO in September 2011, see Note 4.h |
| b. | For the years ended December 31, 2011 and 2010, the Company recognized construction costs and related revenues in exchange for a financial asset, an intangible asset or a combination of both, in relation to construction on its concessions for Ps.1,768 million and Ps.1,459 million, respectively. |
| c. | The changes in investment in concessions in the consolidated statement of financial position at December 31, 2011 and 2010 and January 1, 2010 were as follows: |
| | | | | | | | | | | | |
| | | Cost | | | Amortization | | | Net | |
Balance at January 1, 2010 | | Ps. | 16,675,086 | | | Ps. | (1,273,532 | ) | | Ps. | 15,401,554 | |
Acquisition or increases | | | 2,580,374 | | | | — | | | | 2,580,374 | |
Decreases | | | (40,387 | ) | | | — | | | | (40,387 | ) |
Amortization | | | — | | | | (313,279 | ) | | | (313,279 | ) |
Transferred | | | (128,452 | ) | | | — | | | | (128,452 | ) |
Translation effects | | | (126,425 | ) | | | — | | | | (126,425 | ) |
| | | | | | | | | | | | |
Balance at December 31, 2010 | | | 18,960,196 | | | | (1,586,811 | ) | | | 17,373,385 | |
| | | | | | | | | | | | |
Acquisition or increases | | | 1,948,908 | | | | — | | | | 1,948,908 | |
Sales | | | (5,758,715 | ) | | | 1,738,193 | | | | (4,020,522 | ) |
Decreases | | | (17,329 | ) | | | — | | | | (17,329 | ) |
Amortization | | | — | | | | (528,027 | ) | | | (528,027 | ) |
Translation effects | | | 11,725 | | | | — | | | | 11,725 | |
| | | | | | | | | | | | |
Balance at December 31, 2011 | | Ps. | 15,144,785 | | | Ps. | (376,645 | ) | | Ps. | 14,768,140 | |
| | | | | | | | | | | | |
F-37
| d. | An analysis of the concessions classified as intangible assets is as follows: |
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Projects completed and in operation: | | | | | | | | | | | | |
Construction cost | | Ps. | 3,180,900 | | | Ps. | 8,103,411 | | | Ps. | 7,756,104 | |
Rights to use airport facilities | | | 5,479,205 | | | | 5,519,257 | | | | 5,559,306 | |
Improvements in concessioned assets | | | 2,987,488 | | | | 2,663,609 | | | | 2,249,636 | |
Financing costs capitalized | | | (28,124 | ) | | | (3,292 | ) | | | 17,944 | |
Government grants | | | — | | | | (135,910 | ) | | | (111,615 | ) |
Accumulated amortization | | | (1,569,166 | ) | | | (2,903,705 | ) | | | (2,801,573 | ) |
| | | | | | | | | | | | |
| | | 10,050,303 | | | | 13,243,370 | | | | 12,669,802 | |
Construction in-progress: | | | | | | | | | | | | |
Construction cost | | | 5,148,782 | | | | 4,130,015 | | | | 2,731,752 | |
Government grants | | | (430,945 | ) | | | — | | | | — | |
| | | | | | | | | | | | |
| | Ps. | 14,768,140 | | | Ps. | 17,373,385 | | | Ps. | 15,401,554 | |
| | | | | | | | | | | | |
| e. | Government grants that have been amortized to results in the year 2011 and 2010, classified within cost of concessions in the consolidated statements of comprehensive income amounted to Ps.845 million and Ps.69 million, respectively. |
| f. | Related interest income corresponding to concessions classified as financial assets was $1,062 million and $634 million for the years ended December 31, 2011 and 2010, respectively, which is classified within revenues in the accompanying statement of comprehensive income. |
| g. | Below is a description of the primary concessions held by the subsidiaries of the Company: |
Grupo Aeroportuario Centro Norte (GACN)
GACN is engaged in administration, operation and, when applicable, construction of airports under the concession granted by the Mexican Federal Government through the Communications and Transportation Ministry (“SCT”) for a 50-year period beginning on November 1, 1998. As these airports are state-owned, after the termination of the concession period, any improvements and additional installations permanently attached to the concessioned assets and created during the concession period will revert to the state. The concessioned airports are: Acapulco International Airport, Ciudad Juárez International Airport, Culiacán International Airport, Chihuahua International Airport, Durango International Airport, Mazatlán International Airport, Monterrey International Airport, Reynosa International Aiport, San Luis Potosí International Airport, Tampico International Airport, Torreón International Airport, Zacatecas International Airport and Zihuatanejo International Airport.
F-38
GACN is obligated to make investments in and perform improvements to concessioned assets according to the five-year Management Development Program (“MDP”). The total amount is Ps.2,745 million, based on December 2009 values and Ps.3,144 based on December 2011 values (as the SCT considers the effects of inflation on the required investment amounts) and represents the investment for the period from 2011 to 2015. At December 31, 2011, the remaining amount to be invested by the Company is Ps.2,625 million is as follows:
| | | | |
| Year | | Amount | |
2012 | | Ps. | 638,050 | |
2013 | | | 831,842 | |
2014 | | | 782,400 | |
2015 | | | 373,168 | |
| | | | |
| | Ps. | 2,625,460 | |
| | | | |
At December 31, 2010, the remaining required MDP amount to be invested for the 2005-2010 was Ps.220 million which corresponded to checked baggage systems and was concluded during 2011.
Acapulco Tunnel (“TUCA”)
In May 1994, the Government of the State of Guerrero (the “State Government”) granted, to one of the Company’s subsidiaries, a 25-year concession for the construction, operation and maintenance of a 2.947, kilometer tunnel connecting Acapulco and Las Cruces. The concession term started in June 1994. In November 2002, the Congress of the State Government of Guerrero approved the extension of the concession term by 15 years because the actual volume of usage was lower than the amount foreseen by the terms of the concession agreement.
Toll revenues provided by this concession guarantee a long-term debt agreement which matures over 25 years (see Note 21).
Irapuato—La Piedad—Highway (“CONIPSA”)
In August 2005, the SCT granted the Company a 20-year concession and service contract for the upgrading, operation, conservation and maintenance of the highway between Irapuato and La Piedad in the state of Guanajuato, covering a length of 74.3 kilometers under the Service Provision Project (PPS) program. The investment is expected to be recovered through quarterly collections comprising: (1) a payment by the SCT for keeping the concessioned route available for its use; and (2) a payment by the SCT for which the amount is based upon the number of vehicles using the concessioned route in accordance with the established tariff. The modernization work was finished in 2008, at which time the Company began operation, preservation and maintenance of the concessioned route.
Toll revenues provided by this concession guaranteed a long-term debt agreement with maturity in November 2019 (see Note 21)
In September 2011, the company sold its shares of CONIPSA to RCO, associated company, and thereby transferred the PPS to RCO; at December 31, 2011, the concession is recognized through recognition of RCO through the equity method (see paragraph g below).
Querétaro – Irapuato—Highway (“COVIQSA”)
In June 2006, the SCT granted a 20-year concession and services agreement to upgrade, extend and conserve the toll-free Querétaro-Irapuato highway in the states of Querétaro and Guanajuato. A total of 93 kilometers of the 108 kilometers will be upgraded under the PPS program and will be toll-free. The investment will be recovered through quarterly payments comprising: (1) the availability payment received from the SCT; and (2) the payment received from the SCT based on the number of vehicles using the concessioned highway according to the defined tariff. Date of completion of modernization and expansion was in September 2010, at which time the Company began operations.
F-39
At December 31, 2010, accumulated financing cost amounted to Ps.213 million. The annual average capitalization rate was 17% in the year 2010.
In September 2011, the company sold its shares of COVIQSA to RCO, associated company, and thereby transferred the PPS to RCO; at December 31, 2011, the concession is recognized through recognition of RCO through the equity method (see paragraph g below).
Nuevo Necaxa-Tihuatlán Highway (“AUNETI”)
In June 2007, the SCT granted a 30-year concession for: (i) construction, operation, maintenance and conservation of the Nuevo Necaxa — Ávila Camacho highway of 36.6 kilometers; (ii) operation, maintenance and conservation of the Ávila Camacho — Tihuatlán highway of 48.1 kilometers; and (iii) long-term service contract for the Nuevo Necaxa — Ávila Camacho highway capacity service.
At December 31, 2011 and 2010 and January 1, 2010, accumulated financing cost amounted to Ps.485 million, Ps.247 million and Ps.106 million, respectively. The annual average capitalization rate was 11.67%, 18.7% and 23.29%.
Río Verde—Ciudad Valles Highway (“RVCV”)
In July 2007, the SCT granted the Company a 20-year concession of the highway between Río Verde and Ciudad Valles covering a length of 113.2 kilometers for: (i) operation, maintenance upgrade, conservation and extension of the Río Verde — Rayón highway of 36.6 kilometers; (ii) construction, operation, maintenance and conservation of the Rayón — La Pitaya II highway of 68.6 kilometers; and (iii) operation, maintenance upgrade, conservation and extension of the La Pitaya — Ciudad Valles III highway of 8.0 kilometers.
At December 31, 2011 and 2010, and January 1, 2010, accumulated financing cost amounted to Ps.622 million, Ps.345 million, and Ps.145 million, respectively. The annual average capitalization rate was 12.49%, 15.71% and 13.31%, respectively.
Acueducto II Water System in Queretaro (“SAQSA”)
Suministro de Agua de Querétaro, S.A. de C.V. was created on May, 2007, for the purpose of rendering water pipeline and purification services for the Acueducto II System. In May 2007, SAQSA signed the concession contract to provide the pipeline and purification service for the Acueducto II system, together with the respective operation and maintenance, to carry water from the El Infiernillo source on the Rio Moctezuma. The project includes the construction of a collection reservoir, two pumping plants, a tunnel 4,840 meters long through the mountain and an 84 kilometer section downwards, a purification plant and a storage tank. This system will supply 50 million of cubic meters of drinking water a year, equal to 75% of the current supply of water for the metropolitan zone of Querétaro. The Acueducto began operations in February 2011.
At December 31, 2011 and 2010 and January 1, 2010, accumulated financing cost amounted to Ps.254 million, Ps.161 million and Ps.80 million, respectively. The annual average capitalization rate was 15.36%, 14.03% and 14.23%, respectively.
Kantunil- Cancún Highway
In March 2008, ICA acquired 100% of the stock of Consorcio del Mayab, S.A. de C.V., which holds the concession Kantunil- Cancun.
The concession was granted in 1990 to construct, operatet, and maintain the 241.5 kilometer highway that connects those cities in the states of Yucatán and Quintana Roo, respectively. The term of the concession is for 30 years and expires in December 2020.
F-40
During the third quarter of 2011, the Company signed an amendment to the concession which adds to the terms of the concession the construction, operation, conservation and maintenance of an additional 54 kilometers related to the Kantunil-Cancun highway to Playa del Carmen. This additiona highway project will connect Lazaro Cardenas with the Playa del Carmen municipality, which would be a branch of the toll road from Cancun to Merida. It is estimated that the additional 54 kilometers, which begain construction in January 2012, will have two phases: 7 km into the municipality of Solidaridad (Playa del Carmen) and another 47 kilometers into Lazaro Cardenas, which will have two lanes, one for each direction of 3.5 meters each with a width of 2.5 meters; with a right of way of 40 meters and a maximum speed of 110 kilometers per hour. The first section, called Cedral-Tintal, will be starting at the Trunk Cedral junction, which connects with Highway Kantunil ín in the town of Lazaro Cardenas, bound for Playa del Carmen; while the beginning of the branch-Playa del Carmen Tintal be built in the second grade-separated junction- called Tintal junction-, that the project will also connect with the toll road Mérida-Cancún. The term of the concession is extended 30 years, terminating in 2050.
In early 2012, the Company requested the extension of the concession to connect the tourist destinations of Playa del Carmen with Chiquilá and Holbox, Lazaro Cardenas, which will connect with the capital of Yucatan in an effort to decrease travel time.
Toll revenues provided by this concession guarantee the redeemable participation certificates that will be amortized over a 17-year period (see Note 21).
Libramiento La Piedad Highway (“LIPSA”)
In March 2009, the SCT granted to the Company’s subsidiary, Libramiento ICA La Piedad, S.A. de C.V., the concession to construct, operate, conserve and maintain the Libramiento de La Piedad (La Piedad Bypass), which is 21.388 km long. The concession is for 30 years and includes the modernization of the federal highways 110 and 90, for a length of 38.8 km and 7.32 km, respectively, located in the States of Guanajuato and Michoacán. The Libramiento de La Piedad will form part of the major junction joining the highway corridors of Mexico City-Nogales and Querétaro-Ciudad Juárez and will free the city of La Piedad from the long-haul traffic moving between the Bajío region and Western Mexico. The construction period under the original plan was 22 months to conclude during 2011. However, due to problems related to the delivery of rights of way, the concession was renegotiated and construction is anticipatd to conclude in July 2012.
At December 31, 2011 and 2010, accumulated financing cost amounted to Ps.74 million and Ps.25 million, respectively. The annual average capitalization rate was 13.24% and 10.61%, respectively.
Mitla- Tehuantepec Highway
In June 2010, the SCT executed agreements for the construction and operation of the Mitla- Tehuantepec highway in Oaxaca for the next 20 years, under the PPS program, with the subsidiaries Caminos y Carreteras Del Mayab, S.A.P.I. de C.V. and Controladorra de Operaciones de Infraestructutra, S.A. de C.V. (CONOISA). Construction work is valued at Ps.9,318 million. The project includes the concession for the construction, operation, maintenance and expansion, as well as the exclusive right to execute the PPS contract with the Federal Government for the 169 kilometers of the Mitla- Entronque Tehuantepec II, Mitla- Santa María Albarradas, and La Chiguiri- Entronque Tehuantepec II highways. The construction work will be performed over an approximate 40-month period.
No financing costs have been capitalized through December 31, 2011.
El Realito Aqueduct
In July 2009, the Comisión Estatal del Agua (the State Water Commission) of San Luis Potosí awarded the rendering of services contract for the construction and operation of the El Realito aqueduct for 25 years to the association led by CONOISA, a subsidiary company, and Fomento de Construcciones y Contratas (“FCC”). The total contract amount is Ps.2,382 million.
F-41
At December 31, 2011, accumulated financing cost amounted to Ps.7 million. The annual average capitalization rate was 5.29% for the year 2011.
Agua Prieta Waste Water Treatment Plant
In September 2009, the State Water Commission (Comisión Estatal del Agua) of Jalisco signed a contract with Consorcio Renova Atlatec, (ICA, Renova and Mitsui) for the construction and operation of the Agua Prieta waste water treatment plant for 20 years. The total value of the contract is Ps.2,318 million, through a private and public resource investment scheme from theFondo Nacional para el Desarrollo de Infraestructura (“FONADIN”).
At December 31, 2011, accumulated financing cost amounted to Ps.3 million. The annual average capitalization rate was 6% for the year 2011.
SARRE y Pápagos—Social infraestructure
On December 27, 2010, the Company executed Servicing Contracts (“CPS”) with the Ministry of Public Security (“Secretary”) of the United Mexican States (“Federal Government”). The purpose of CPS is for Sarre Infraestructura y Servicios, S.A. de C.V. (“Sarre”) and Pápagos Servicios para la Infraestructura, S.A. de C.V. (“Pápagos”), subsidiaries of ICA, to construct and operate social infrastructure and provide to the Federal Government the services associated with infrastructure, under the understanding that at no time the Company will be responsible for those functions and public services that are the sole responsibility of the Federal Government. In accordance with the CPS, the services to be provided by the Company only consist of the construction and maintenance of the infrastructure, and ongoing services related to cleaning, pest control, landscaping, stores, food, laundry and laboratory services. The construction of social infrastructure will be in accordance with the provisions of the contract, amounting to Ps.21,190 million and Ps.21,401, million for Sarre and Papagos, respectively. Construction is expected not to exeed 24 months, with an estimated completion date in August 2012.
Once the social infraestructure is built and accepted by the client, payments under the CPS will begin. The maximum term for the CPS is 20 years beginning when services commence.
At December 31, 2011, accumulated financing cost amounted to Ps.214 million. The annual average capitalization rate was 11% for the year 2011.
| h. | Investments in concessions through associated companies are as follows: |
Red de Carreteras de Occidente (RCO)
RCO, an associated company, was formed on August 13, 2007, with an initial participation of 20% by ICA of RCO’s capital stock. In October 2007, the SCT granted to RCO a 30-year concession for the construction, operation, maintenance and conservation of the Maravatío — Zapotlanejo and Guadalajara — Aguascalientes — León highways covering a length of 558 kilometers, in the states of Michoacán, Jalisco, Guanajuato and Aguascalientes. Additionally, the concession includes up to Ps.1,500 million of additional investments for extension of the four highways to be carried out in the future.
As a result of the sale mentioned in Note 4, the Company transferred to RCO the Irapuato-La Piedad highway (non-toll), with a length of 74.3 km, and the Querétaro-Irapuato highway (non-toll), a length of 108 km. located in the states of Guanajuato and Queretaro.
At the end of the concession, the assets subject thereto will revert to the Mexican government.
F-42
Condensed financial information of RCO is as follows:
| | | | | | | | | | | | |
| | | December 31, | | | December 31, | | | January 1, | |
| Statement of financial position: | | 2011 | | | 2010 | | | 2010 | |
Current assets | | Ps. | 3,329,459 | | | Ps. | 1,594,383 | | | Ps. | 2,200,935 | |
Investment in concession | | | 47,077,420 | | | | 44,508,994 | | | | 44,352,585 | |
Other non-current assets | | | 3,848,089 | | | | 3,169,597 | | | | 2,249,287 | |
Current liabilities | | | 1,438,584 | | | | 508,317 | | | | 651,425 | |
Long-term debt | | | 29,296,986 | | | | 27,320,336 | | | | 26,449,890 | |
Other non-current liabilities | | | 3,100,935 | | | | 2,255,398 | | | | 1,149,966 | |
Stockholders’ equity | | | 20,418,463 | | | | 19,188,923 | | | | 20,551,526 | |
| | | | | | | | |
| Statement of operations: | | Year Ended December 31, 2011 | | | Year Ended
December 31, 2010 | |
Revenues | | Ps. | 3,771,418 | | | Ps. | 4,135,987 | |
Operating income | | | 2,068,518 | | | | 1,516,208 | |
Net loss | | | (551,874 | ) | | | (665,941 | ) |
Long-term debt of RCO includes a loan received in September 2007 from financial institutions for Ps.31,000 million, which is guaranteed by the toll revenues provided by this concession. The loan has a seven-year term with the possibility to be extended by ten years, with monthly interest payments at the Mexican Interbank Equilibrium Offered rate (“TIIE”) plus 1.20% to 1.65% in the first year and gradually increasing in subsequent years up to a range of 1.80% to 2.25% in the sixth and seventh years. The loan includes additional credit lines for liquidity and capital expenditures for Ps.3,100 million and Ps.3,000 million, respectively.
The long-term credit entered into by RCO includes certain restrictive covenants which bar the acquisition of new bank loans, granting security, assuming obligations for payment of taxes, the sale of fixed assets and other noncurrent assets, making capital reimbursements, and require the maintenance of certain financial ratios. These financial ratios include a certain requirement of total liabilities to stockholders’ equity; current assets to current liabilities; current assets, less the accounts receivable from affiliates, to current liabilities; and operating income plus depreciation to net expenses. As of December 31, 2011 and 2010, RCO has complied with these requirements.
In October 2009, the trust that that was created specifically for investing in the Series B share capital of RCO, placed Ps.6,550 million in Long-Term Infrastructure Development Equity Certificates (CKDes) with Mexican institutional investors. In November 2009, the stockholders of RCO owning the Series A shares made equity contributions of Ps.4,000 million; consequently, the equity percentage held by ICA as of December 31, 2010 was reduced to 13.63%. As a result of the sale of the shares of COVIQSA and CONIPSA mentioned in Note 4, ICA’s participation increased to 18.70%, under which it continues to maintain significant influence.
Proactiva Medio Ambiente México (PMA)
Proactiva Medio Ambiente México (“PMA México”) is a consortium comprised of Constructoras ICA, S.A. de C.V. (“CICASA”) and Proactiva Medio Ambiente, S.A. de C.V. (“Proactiva”), whose principal activities are the operation of water supply distribution, treatment and management systems, as well as the disposal of solid waste to landfill sites, through concessions granted by governmental organizations.
F-43
Condensed financial information of PMA is as follows:
| | | | | | | | | | | | |
| Statement of financial position: | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Current assets | | Ps. | 921,042 | | | Ps. | 967,197 | | | Ps. | 803,915 | |
Investment in concession | | | 893,817 | | | | 872,537 | | | | 863,926 | |
Other non-current assets | | | 225,022 | | | | 263,948 | | | | 233,591 | |
Current liabilities | | | 364,612 | | | | 497,556 | | | | 502,934 | |
Long-term debt | | | 327,027 | | | | 226,493 | | | | 144,835 | |
Other non-current liabilities | | | 127,205 | | | | 180,349 | | | | 181,184 | |
Stockholders’ equity | | | 1,221,037 | | | | 1,199,284 | | | | 1,072,479 | |
| | | | | | | | |
| Statement of operations: | | Year Ended
December 31, 2011 | | | Year Ended
December 31, 2010 | |
Revenues | | Ps. | 1,586,606 | | | Ps. | 1,417,758 | |
Operating income | | | 230,136 | | | | 177,380 | |
Net income | | | 147,850 | | | | 126,805 | |
San Jerónimo- Muyuguarda- Dealer road
On December 17, 2010, the Mexico City Government signed the concession contract for the design, construction, use, development, operation and management of the property identified in the public domain as the Via Peripheral High in the upper Peripheral Manuel Avila Camacho (Anillo Periférico) in the tranche between San Jeronimo avenue and Distribuidor Vial Muyuguarda , with Concesionaria Distribuidor Vial San Jerónimo Muyuguarda, S.A. de C.V, a consortium formed by Promotora del Desarrollo de América Latina, S.A. de C.V. and Controladora de Operaciones de Infraestructura, S.A. de C.V. The concession contract has a term of 30 years.
Atotonilco—Waste Water Treatment Plant
This is a consortium comprised of Promotora del Desarrollo de América Latina, S.A. de C.V., as project leader with 40.8%, Acciona Agua, S.A. with 24.26%, Atlatec, S.A. de C.V. (a subsidiary of Mitsui & Co., Ltd.) with 24.26% , CONOISA with 10.2%, and other minority partners; in January 2010 it executed a contract with the National Water Commission (Comisión Nacional del Agua) (“CONAGUA”), for the construction and operation of the Atotonilco waste water treatment plant (“PTAR”) in Tula, Hidalgo. The total contract value is Ps.9,300 million and the term is for 25 years.
F-44
| 14. | Property, plant and equipment |
Property, plant and equipment consist of the following:
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Cost | | Ps. | 6,686,947 | | | Ps. | 6,228,897 | | | Ps. | 6,219,741 | |
Accumulated depreciation | | | (2,121,211 | ) | | | (1,970,787 | ) | | | (1,932,618 | ) |
| | | | | | | | | | | | |
| | Ps. | 4,565,736 | | | Ps. | 4,258,110 | | | Ps. | 4,287,123 | |
| | | | | | | | | | | | |
Land | | Ps. | 2,394,193 | | | Ps. | 2,332,262 | | | Ps. | 2,207,327 | |
Buildings | | | 827,031 | | | | 828,026 | | | | 536,908 | |
Machinery and operating equipment | | | 713,392 | | | | 701,483 | | | | 709,749 | |
Furniture, office equipment and vehicles | | | 338,275 | | | | 242,799 | | | | 198,540 | |
Machinery and equipment under lease | | | 147,168 | | | | 12,841 | | | | 24,364 | |
Machinery and equipment in-transit | | | 19,148 | | | | 77,290 | | | | 297,652 | |
Construction in-process | | | 126,529 | | | | 63,409 | | | | 312,583 | |
| | | | | | | | | | | | |
| | Ps. | 4,565,736 | | | Ps. | 4,258,110 | | | Ps. | 4,287,123 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cost | | Land | | | Buildings | | | Machinery and
operating
equipment | | | Furniture, office
equipment and
vehicles | | | Machinery and
equipment
under lease | | | Machinery and
equipment
in-transit | | | Construction
in-process | | | Total | |
Balances at January 1, 2010 | | Ps. | 2,207,327 | | | Ps. | 729,652 | | | Ps. | 2,109,492 | | | Ps. | 484,824 | | | Ps. | 78,211 | | | Ps. | 297,652 | | | Ps. | 312,583 | | | Ps. | 6,219,741 | |
Additions | | | 99,035 | | | | 24,961 | | | | 465,093 | | | | 117,154 | | | | — | | | | — | | | | 36,974 | | | | 743,217 | |
Disposals | | | — | | | | (38,191 | ) | | | (593,108 | ) | | | (68,328 | ) | | | — | | | | — | | | | — | | | | (699,627 | ) |
Transfers | | | 31,638 | | | | 381,338 | | | | 152,865 | | | | 17,225 | | | | (834 | ) | | | (220,362 | ) | | | (286,128 | ) | | | 75,742 | |
Others | | | (5,738 | ) | | | (8,805 | ) | | | (91,595 | ) | | | (4,018 | ) | | | — | | | | — | | | | (20 | ) | | | (110,176 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | | 2,332,262 | | | | 1,088,955 | | | | 2,042,747 | | | | 546,857 | | | | 77,377 | | | | 77,290 | | | | 63,409 | | | | 6,228,897 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Additions | | | 40,547 | | | | 44,925 | | | | 247,767 | | | | 182,570 | | | | 74,335 | | | | — | | | | 63,535 | | | | 653,679 | |
Disposals | | | (136 | ) | | | (407 | ) | | | (207,391 | ) | | | (31,112 | ) | | | (286 | ) | | | — | | | | — | | | | (239,332 | ) |
Transfers | | | 11,553 | | | | (11,421 | ) | | | 29,557 | | | | (44,473 | ) | | | 1,127 | | | | (58,142 | ) | | | — | | | | (71,799 | ) |
Others | | | 9,967 | | | | 20,665 | | | | 74,095 | | | | 11,190 | | | | — | | | | — | | | | (415 | ) | | | 115,502 | |
| | | | | | | | | | | | | | | | | | | | | | | �� | | | | | | | | | |
Balance at December 31, 2011 | | Ps. | 2,394,193 | | | Ps. | 1,142,717 | | | Ps. | 2,186,775 | | | Ps. | 665,032 | | | Ps. | 152,553 | | | Ps. | 19,148 | | | Ps. | 126,529 | | | Ps. | 6,686,947 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Accumulated depreciation | | Land | | | Buildings | | | Machinery and
equipment | | | Furniture, office
equipment and
vehicles | | | Machinery and
equipment
under lease | | | Machinery and
equipment in-
transit | | | Construction
in-process | | | Total | |
Balances at January 1, 2010 | | Ps. | — | | | Ps. | 192,744 | | | Ps. | 1,399,743 | | | Ps. | 286,284 | | | Ps. | 53,847 | | | Ps. | - | | | Ps. | — | | | Ps. | 1,932,618 | |
Elimination on sale of assets | | | — | | | | (74 | ) | | | (244,299 | ) | | | (67,616 | ) | | | — | | | | — | | | | — | | | | (311,989 | ) |
Depreciation expense | | | — | | | | 87,442 | | | | 215,644 | | | | 73,971 | | | | 10,689 | | | | — | | | | — | | | | 387,746 | |
Transfers | | | — | | | | (16,055 | ) | | | (29,824 | ) | | | 14,635 | | | | — | | | | — | | | | — | | | | (31,244 | ) |
Others | | | — | | | | (3,128 | ) | | | — | | | | (3,216 | ) | | | — | | | | — | | | | — | | | | (6,344 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2010 | | | — | | | | 260,929 | | | | 1,341,264 | | | | 304,058 | | | | 64,536 | | | | — | | | | — | | | | 1,970,787 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Elimination sale of assets | | | — | | | | — | | | | (85,981 | ) | | | (25,451 | ) | | | (286 | ) | | | — | | | | — | | | | (111,718 | ) |
Depreciation expense | | | — | | | | 44,274 | | | | 140,151 | | | | 76,423 | | | | 1,005 | | | | — | | | | — | | | | 261,853 | |
Transfers | | | | | | | (1,346 | ) | | | 18,894 | | | | (37,499 | ) | | | (59,870 | ) | | | — | | | | — | | | | (79,821 | ) |
Others | | | — | | | | 11,829 | | | | 59,055 | | | | 9,226 | | | | — | | | | — | | | | — | | | | 80,110 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2011 | | Ps. | — | | | Ps. | 315,686 | | | Ps. | 1,473,383 | | | Ps. | 326,757 | | | Ps. | 5,385 | | | Ps. | — | | | Ps. | — | | | Ps. | 2,121,211 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of December 31, 2011 no significant differences exist between the fair value and carrying amount of property, plant and equipment.
F-45
Assets pledged as security
Machinery and equipment with a carrying amount of Ps.490 million have been pledged as security for bank loans. The Company is not allowed to pledge these assets as security for other borrowings or to sell them to another entity.
In addition, the Company’s obligations under finance leases (see Note 19) are secured by the lessors’ title to the leased assets, which have a carrying amount of Ps.193 million, Ps.72 million and Ps.86 million at December 31, 2011 and 2010 and January 1, 2010, respectively.
Other assets are comprised of the following:
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1, 2010 | |
Goodwill | | Ps. | 155,008 | | | Ps. | 158,791 | | | Ps. | 116,950 | |
Investment in associated companies(1) | | | 193,893 | | | | 121,271 | | | | 82,952 | |
| | | | | | | | | | | | |
Total | | Ps. | 348,901 | | | Ps. | 280,062 | | | Ps. | 199,902 | |
| | | | | | | | | | | | |
| (1) | These investments in associates are different from those included in Note 13. Condensed financial information has been exluded due to immateriality |
Notes payable consist of the following:
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Notes payable to banks | | Ps. | 4,888,849 | | | Ps. | 3,109,843 | | | Ps. | 2,789,196 | |
Notes payable to banks denominated in U.S. dollars | | | 360,592 | | | | 1,021,355 | | | | 774,965 | |
Other denominations (principally euros) | | | 576,831 | | | | 569,666 | | | | 26 | |
| | | | | | | | | | | | |
| | Ps. | 5,826,272 | | | Ps. | 4,700,864 | | | Ps. | 3,564,187 | |
| | | | | | | | | | | | |
As of December 31, 2011 and 2010 and January 1, 2010, approximately Ps.1,210 million, Ps.1,665 million and Ps.1,422 million, respectively, of the notes payable were used to finance low-income housing projects. The notes payable are secured by the real estate inventory of such projects. Additionally, certain subsidiaries have loans secured by the resources generated from construction projects.
The notes payable to banks consist of short-term notes with weighted average variable interest rates of 8.90% and 3.80% in 2011 and 8.36% and 4.55% in 2010, for notes denominated in Mexican pesos and U.S. dollars, respectively.
At December 31, 2011 the Company had Ps.4,926 million available to be drawn under bank credit lines.
F-46
| 17. | Accrued expenses and other |
Accrued expenses and other consist of the following:
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Accrued operating expenses | | Ps. | 5,207,885 | | | Ps. | 3,223,039 | | | Ps. | 3,600,430 | |
Interest payable | | | 205,113 | | | | 140,282 | | | | 110,537 | |
Financial leasing | | | 151,932 | | | | 26,282 | | | | 29,169 | |
Derivative financial instruments | | | 140,397 | | | | 4,741 | | | | — | |
Accounts payable due to related parties | | | 394,521 | | | | 467,143 | | | | 334,862 | |
Bonus | | | 321,769 | | | | 254,412 | | | | 270,450 | |
Taxes other than income tax | | | 327,398 | | | | 296,111 | | | | 235,815 | |
| | | | | | | | | | | | |
| | Ps. | 6,749,015 | | | Ps. | 4,412,010 | | | Ps. | 4,581,263 | |
| | | | | | | | | | | | |
The Company recognizes provisions for those present obligations that result from a past event, which upon the expiration of the obligation, it is probable the Company will incur a probable an outflow of economic resources in order to settle the obligation. Provisions are recognized as accrued at an amount that represents the best estimate of the present value of future disbursements required to settle the obligation, at date of the accompanying consolidated financial statements.
At December 31, 2011 the composition and changes of principal provisions is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | December 31,
2010 | | | Additions
| | | Provisions used
and tranfers | | | Reversals
| | | December 31,
2011 | |
Provision for: | | | | | | | | | | | | | | | | | | | | |
Costs expected to be incurred at the end of the project | | Ps. | 539,097 | | | Ps. | 339,376 | | | Ps. | (23,515 | ) | | Ps. | (295,971 | ) | | Ps. | 558,987 | |
Repairs and maintenance of machinery | | | 476,030 | | | | 2,158,389 | | | | (1,898,615 | ) | | | (125,290 | ) | | | 610,514 | |
Estimated contract loss | | | 3,147 | | | | — | | | | (2,899 | ) | | | — | | | | 248 | |
Claims | | | 13,132 | | | | 13,279 | | | | (11,195 | ) | | | — | | | | 15,216 | |
Contingencies and warranty reserves for construction contracts | | | 312,366 | | | | 503,735 | | | | (1,294 | ) | | | (8,901 | ) | | | 805,906 | |
| | | | | | | | | | | | | | | | | | | | |
| | Ps. | 1,343,772 | | | Ps. | 3,014,779 | | | Ps. | (1,937,518 | ) | | Ps. | (430,162 | ) | | Ps. | 1,990,871 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | January 1, 2010 | | | Additions | | | Provisions used
and transfers | | | Reversals | | | December 31,
2010 | |
| | Ps. | 894,987 | | | Ps. | 2,219,791 | | | Ps. | (1,756,959 | ) | | Ps. | (14,047 | ) | | Ps. | 1,343,772 | |
| | | | | | | | | | | | | | | | | | | | |
F-47
The long-term provisions are as follows:
| | | | | | | | | | | | | | | | |
| | | December 31,
2010 | | | Additions | | | Provisions used
and
transfers | | | December 31,
2011 | |
Contingencies and warranty reserves for construction contracts | | Ps. | 35,419 | | | Ps. | 11,903 | | | Ps. | | (8,090) | | Ps. | 39,232 | |
Major maintenance | | | 814,599 | | | | 226,666 | | | | (422,737 | ) | | | 618,528 | |
| | | | | | | | | | | | | | | | |
| | Ps. | 850,018 | | | Ps. | 238,569 | | | Ps. | | (430,827) | | Ps. | 657,760 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | January 1,
2010 | | | Additions | | | Provisions used
and
transfers | | | December 31,
2010 | |
Contingencies and warranty reserves for construction contracts | | | Ps. 23,541 | | | | Ps. 25,330 | | | | Ps. | (13,452) | | | Ps. 35,419 | |
Major maintenance | | | 982,619 | | | | 124,714 | | | | (292,734 | ) | | | 814,599 | |
| | | | | | | | | | | | | | | | |
| | | Ps. 1,006,160 | | | | Ps. 150,044 | | | | Ps. | (306,186) | | | Ps. 850,018 | |
| | | | | | | | | | | | | | | | |
The provision related to costs expected to be incurred at the end of the project refers to costs that are originated under construction projects that the Company anticipates it will incur through the time the projects are finished and ultimately paid for by the customer. Such amounts are determined systematically based on a percentage of the value of the work completed, over the performance of the contract, based on the experience gained from construction activity.
Due to the nature of the industry in which the Company operates, projects are performed with individual specifications and guarantees, which require the Company to create guarantee and contingency provisions that are continually reviewed and adjusted during the performance of the projects until they are finished, or even after termination. The increases, applications and cancellations shown in the previous table represent the changes derived from the aforementioned reviews and adjustments, as well as the adjustments for expiration of guarantees and contingencies.
The Company recognizes a provision for the costs expected to be incurred for major maintenance, mainly at airports, which affect the results of periods from the commencement of operation of the concession, until the year in which the maintenance and/or repair work is performed. This provision is recognized in accordance with IAS 37,Provisions and Contingent Liabilities and Assetsand IFRIC 12. A portion is recorded as short-term and the remainder as long-term depending on the period in which the Company expects to perform the major maintenance.
The provision for lawsuits and claims covers the risks of the subsidiaries involved in a given administrative-law proceedings due to the inherent responsibilities of the activities that they perform. While the overall number of lawsuits may be significant, they involve immaterial amounts when considered individually.
The provision for repairs and maintenance of machinery under lease agreements is accrued based on the estimated hours used. The provision is used to cover the expenses related to conditioning, missing equipment and repairs for its return to the lessor in accordance with the terms of the lease agreement.
F-48
Financial lease
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Lease payables, short-term | | Ps. | 164,311 | | | Ps. | 39,181 | | | Ps. | 29,169 | |
Lease payables , long-term | | | 29,185 | | | | 33,240 | | | | 56,959 | |
| | | | | | | | | | | | |
| | Ps. | 193,496 | | | Ps. | 72,421 | | | Ps. | 86,128 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | Minimum lease
payments | | | Present value of minimum
lease de payments | |
| | | December 31,
2011 | | | December 31,
2010 | | | December 31,
2011 | | | December 31,
2010 | |
Less than one year | | Ps. | 165,470 | | | Ps. | 41,451 | | | Ps. | 164,316 | | | Ps. | 39,182 | |
Greater than one year less than five years | | | 30,026 | | | | 33,276 | | | | 29,180 | | | | 33,239 | |
| | | | | | | | | | | | | | | | |
| | | 195,496 | | | | 74,727 | | | | 193,496 | | | | 72,421 | |
Less future finance charges | | | (2,000 | ) | | | (2,306 | ) | | | — | | | | — | |
| | | | | | | | | | | | | | | | |
Present value of minimum lease payments | | Ps. | 193,496 | | | Ps. | 72,421 | | | Ps. | 193,496 | | | Ps. | 72,421 | |
| | | | | | | | | | | | | | | | |
Finance leases relate to machinery and equipment which has a 5-year maturity. The Company has the option of acquiring the leased equipment at the end of such lease contract periods at nominal value. The Company’s obligations under such finance leases are secured by the title deed of the lessor on the leased assets.
The fair value of finance lease liabilities approximates its carrying amount.
Operating leases
| | a. | Costs and expenses for operating leases. |
Operating leases are related to buildings, machinery and equipment, vehicles and computers with different maturities, which range from 5 to 10 years. All operating lease contracts with maturities greater than 5 years, contains a clause that stipulates a market rental review at least every 5 years. The Company does not have an option to purchase the leased assets at the final matutity date of such lease periods.
Payments recognized as cost and expense
| | | | | | | | |
| | | Year ended
December 31, 2011
| | | Year ended
December 31, 2010 | |
Minimum lease payments | | Ps. | 1,134,686 | | | Ps. | 1,092,000 | |
| | | | | | | | |
F-49
Operating lease commitments:
| | | | | | | | | | | | | | | | |
| | | At December 31, 2011 | |
| | | Land and buildings
| | | Machinery and
equipment | | | Others
| | | Total
| |
Less than one year | | Ps. | 36,563 | | | Ps. | 589,614 | | | Ps. | 9,741 | | | Ps. | 635,918 | |
Greater than 1 year and less than 5 years | | | 172,690 | | | | 1,026,851 | | | | 132,843 | | | | 1,332,384 | |
Greater than 5 years | | | 295,170 | | | | — | | | | 130,631 | | | | 425,801 | |
| | | | | | | | | | | | | | | | |
| | Ps. | 504,423 | | | Ps. | 1,616,465 | | | Ps. | 273,215 | | | Ps. | 2,394,103 | |
| | | | | | | | | | | | | | | | |
| |
| | | At December 31, 2010 | |
| | | Land and buildings
| | | Machinery and
equipment | | | Others
| | | Total
| |
Less than one year | | Ps. | 30,165 | | | Ps. | 704,910 | | | Ps. | 4,475 | | | Ps. | 739,550 | |
Greater than 1 year and less than 5 years | | | 153,775 | | | | 965,977 | | | | 9,785 | | | | 1,129,537 | |
Greater than 5 years | | | 317,956 | | | | — | | | | — | | | | 317,956 | |
| | | | | | | | | | | | | | | | |
| | Ps. | 501,896 | | | Ps. | 1,670,887 | | | Ps. | 14,260 | | | Ps. | 2,187,043 | |
| | | | | | | | | | | | | | | | |
| | b. | Revenues from operating leases |
The leases entered into by the Company contain monthly rental payments that generally increase each year based on the INPC, and/or the greater of a guaranteed minimum monthly rent plus a percentage of monthly income of the tenant if greater. At December 31, committed future rents are as follows:
| | | | | | | | |
| | | 2011 | | | 2010 | |
Less than one year | | Ps | 330,765 | | | Ps | 284,069 | |
Greater than 1 year and less than 5 years | | | 601,820 | | | | 450,142 | |
Greater than 5 years | | | 96,545 | | | | 116,384 | |
| | | | | | | | |
Total | | Ps | 1,029,130 | | | Ps | 850,595 | |
| | | | | | | | |
Future minimum lease payments in the table above do not include contingent rentals, such as increases for INPC or increases based on a percentage of the tenant’s monthly sales. Contingent rental income recorded for the years ended December 31, 2011 and 2010 were Ps.68 million and Ps.54 million, respectively.
Revenues from operating leases at December 31, 2011 and 2010, amounted to Ps.337 million and Ps.298 million, respectively.
| 20. | Derivative financial instruments |
Financial instruments for trading and hedging purposes. As of December 31, 2011, ICA had outstanding approximately Ps. 27,330 million and Ps. 14,312 million in notional amount of derivative financial instruments for hedging and trading purposes, respectively. The Company enters into derivative financial instruments to hedge the exposure to the interest rate risk and exchange rate risk of foreign currency related to the financing of construction projects. When the related transaction complies with all hedge accounting requirements, the Company designates the derivative as a hedging financial instrument (either as a cash flow hedge, a foreign currency hedge or a fair value hedge) at the time the Company enters into the contract. When the Company enters into a derivative for hedging purposes from an economic perspective, but such derivative does not comply with all the requirements established by IFRS to be considered a hedging instrument, the Company designates the derivative as a trading instrument. The Company’s policy is not to enter into derivative instruments for purposes of speculation.
F-50
There are no significant differences in the financial market risk to which the aggregated portfolios of instruments for trading purposes and those for hedging purposes are exposed.
Derivative financial instruments as of December 31, 2011 and 2010 and January 1, 2010 are composed of instruments that cover interest and exchange rate fluctuations.
To mitigate the risk of interest rate fluctuations, the Company uses swaps to set variable rates to fixed rates. Transactions that fulfill the hedge accounting requirements have been designated as cash flow hedges.
The worldwide financial crisis has caused a general decrease in interest rates, resulting in decreased cash flows from financial instruments and increased liabilities resulting from such instruments.
The following table shows the most significant financial instruments that the Company has entered into through its subsidiaries as of December 31, 2011, 2010 and January 1, 2010, to cover interest rate fluctuations through interest rate swaps:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Notional
(Thousands | | | | | | | | | Fair value
(Thousands of Mexican pesos) | |
| Project | | of Mexican
pesos) | | | Contracting
date | | | Maturing
date | | | Rate received
| | Rate paid
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Hedging | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
RVCV | | | 2,550,000 | | | | Dec 03, 08 | | | | Dec 28, 15 | | | TIIE28d (4.79%) | | | 9.65 | % | | | Ps. (306,188) | | | | Ps. (300,850) | | | | Ps. (223,089) | |
AUNETI(1) | | | 5,510,000 | | | | Jun 11, 08 | | | | Dec 06, 27 | | | TIIE28d (4.79%) | | | 9.66 | % | | | (464,011) | | | | (352,796) | | | | (170,992) | |
COVIQSA | | | 1,096,711 | | | | Nov 30, 07 | | | | Nov 27, 12 | | | TIIE91d (4.95%) | | | 8.00 | % | | | — | | | | (9,526) | | | | (43,297) | |
LIPSA | | | 704,243 | | | | Jan 27, 10 | | | | May 25, 20 | | | TIIE28d (4.79%) | | | 7.34 | (2)% | | | (36,730) | | | | (61,470) | | | | — | |
Agua Prieta | | | 940,000 | | | | May 18, 11 | | | | May 31, 24 | | | TIIE28d (4.79%) | | | 8.17 | % | | | (67,380) | | | | — | | | | — | |
El Realito | | | 989,250 | | | | Jul 25, 11 | | | | Jan 22, 25 | | | TIIE28d (4.79%) | | | 7.81 | % | | | (20,340) | | | | — | | | | — | |
The values shown in the “Rate received” column are as of December 31, 2011.
| (1) | The fair value data shows the percentage of participation that ICA holds in these companies. |
| (2) | Weighted average rate for the amount of the three derivatives of this Project. |
At March 14, 2012, the fair value of these instruments has not fluctuated significantly.
RVCV
On December 3, 2008 the Company entered into an interest rate swap in order to modify the profile of interest payments on a variable rate credit loan related to this project. Through the contract the Company receives the 28-day TIIE rate paid on the credit loan and agrees to pay a fixed rate of 9.65% plus the applicable margin in the period of construction of 1.80%. At December 31, 2011 and 2010, this swap was designated as a cash flow hedge for which fluctuations in fair value are presented in other comprehensive income.
AUNETI
When financing for the AUNETI project was obtained, the bank charged the Company a one-time commission fee of 1.75% of the total debt amount of Ps. 5,510 million. However, instead of discounting the debt by the commission fee, the Ps. 96 million (Ps. 48 million proportionate amount
F-51
for ICA) was added to interest rate swap derivatives outstanding with the same bank. Accordingly, the fee will be settled through each exchange made on settlement of the interest rate swaps. The recognition of this transaction resulted in a deferred asset subject to amortization (representing the commission payment) and a derivative financial instrument liability at the beginning of the debt contract Under IFRS this deferred asset is presented net of the related liability.
Beginning on October 1, 2011, these financial instruments have been designated as hedging instruments and changes in the fair value is included in other comprehensive income as of such date. During 2011, ICA recognized the ineffective portion of the instrument as a charge to profit of Ps.62 million and the effective portion within other comprehensive income of Ps.85 million. During 2010, the ineffective portion charged to profit was Ps.195 million.
COVIQSA
When the interest rate swap was entered into, a payment of Ps. 8 million was agreed upon to maintain a fixed 8.0% rate. This payment represented the fair value of the swap at the beginning of the contract. The swap establishes the option to extend the term at the financial agent’s discretion to November 27, 2012; because this option represented a net written option, the derivative did not meet hedging requirements and thus was initially classified as a trading derivative. On November 27, 2010, the bank exercised its option to extend the derivative to November 27, 2012. When the option was exercised, an interest rate exchange derivative was executed with the same rate conditions; as of December 31, 2010, the new instrument was documented as an effective hedging relationship; therefore, fair value fluctuations are presented in other comprehensive income.
On September 23, 2011, this derivative was transferred to RCO, as a result of the transaction mentioned in Note 4.
LIPSA
In January 2010, an interest rate swap was entered into to fix the project financing rate. With this instrument, a floating interest rate of the 28-day TIIE is received and a fixed interest rate of 8.59% is paid. As of December 31, 2011 and 2010, it is considered a hedging derivative and fair value fluctuations are presented under other comprehensive income.
On February 16, 2011, the derivative was restructured to adjust its terms to the project terms. Additionally, in April and August 2011, two additional interest rate swaps were entered into to conform to the project terms by reducing the fixed rate to a weighted average of 7.34%.
AGUA PRIETA
In June 2011, an interest rate swap was contracted to fix the project financing rate. The purpose of the swap is to mitigate the interest rate risk derived from market conditions. The Company receives a floating rate of 28-day TIIE and a pays a fixed interest rate of 8.17%. The maximum amount covered by this instrument is Ps.940 million. At the time the interest rate swap was entered into it was designated as a cash flow hedge.
EL REALITO
In July 2011, an interest rate swap was entered into to fix the project financing rate. The purpose of the swap is to mitigate the interest rate risk derived from market conditions. The Company receives a floating rate of 28-day TIIE and a pays a fixed interest rate of 7.81%. The maximum amount covered by this instrument is Ps.989 million.
Beginning on October 1, 2011, these financial instruments have been designated as hedging instruments and the fluctuations in their fair value is included in other comprehensive income. During 2011, the Company recognized an ineffective portion of the instrument as a charge to profit of Ps.5 million and the effective portion was recognized in other comprehensive income of Ps.15 million.
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Sensitivity Analysis
A sensitivity analysis was performed considering the following interest rate scenarios: +100 basis points, +50 basis points, +25 basis points, -25 basis points, -50 basis points -100 basis points.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Project | | Fair value 2011 | | | +100 bp | | | +50 bp | | | +25 bp | | | -25 bp | | | -50 bp | | | -100 bp | |
RVCV | | | (306,188 | ) | | | (244,056 | ) | | | (274,684 | ) | | | (290,324 | ) | | | (322,281 | ) | | | (338,609 | ) | | | (371,988 | ) |
Agua Prieta | | | (67,380 | ) | | | (35,926 | ) | | | (51,331 | ) | | | (59,272 | ) | | | (75,657 | ) | | | (84,116 | ) | | | (101,621 | ) |
LIPSA | | | (36,730 | ) | | | (12,709 | ) | | | (24,495 | ) | | | (30,556 | ) | | | (43,021 | ) | | | (49,435 | ) | | | (62,648 | ) |
AUNETI | | | (464,011 | ) | | | (321,646 | ) | | | (367,857 | ) | | | (391,622 | ) | | | (415,845 | ) | | | (465,723 | ) | | | (517,612 | ) |
El Realito | | | (20,340 | ) | | | (4,368 | ) | | | (12,189 | ) | | | (16,222 | ) | | | (24,544 | ) | | | (28,836 | ) | | | (37,698 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | (846,483 | ) | | | (618,705 | ) | | | (730,556 | ) | | | (787,996 | ) | | | (881,348 | ) | | | (966,719 | ) | | | (1,091,567 | ) |
Variation | | | | | | | 227,778 | | | | 115,928 | | | | 58,488 | | | | (34,866 | ) | | | (120,237 | ) | | | (245,084 | ) |
Considering the value of the Company’s consolidated assets, liabilities and stockholders’ equity included in the consolidated statement of financial position and the value of revenue in the consolidated statement of comprehensive income, under none of the aforementioned scenarios does the effect exceed the 5% and 3% threshold of these concepts as of or for the year ended December 31, 2011.
| | | | | | | | | | | | |
| | | Total | | | Threshold | | | % | |
Assets | | Ps. | 98,888,073 | | | Ps. | 4,944,405 | | | | 5 | % |
Liabilities | | | 78,063,971 | | | | 3,903,199 | | | | 5 | % |
Stockholders’ equity | | | 20,824,102 | | | | 1,041,206 | | | | 5 | % |
Revenues | | | 42,768,785 | | | | 1,283,064 | | | | 3 | % |
The Company enters into options to establish ceilings (CAPs) on the level of variable interest rates, which provides the Company the benefit of maintaining an adequate rate on financing for its projects. As of December, 2011, 2010 and January 1, 2010, none of the CAPs designated as cash flow hedges, except with respect to the Floor contract for the La Yesca project generated intrinsic value in the options, for which reason, the CAPs did not generate unrealized profits or losses to be recognized in other comprehensive income. Accordingly, for all CAPs disclosed below (except for the La Yesca Floor), the fluctuations in fair value are recognized in financing cost within results.
The following table shows the most significant financial instruments that the Company has entered into as of the dates indicated to cover interest rate fluctuations through interest rate options:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Notional
(thousands | | | | | | | | | Fair value (thousands of Mexican pesos) | |
| Project | | of Mexican
pesos) | | Contracting
date | | Maturing
date | | Rate
received | | Rate
paid | | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Hedging | | | | | | | | | | | | | | | | | | | | | | | | |
La Yesca (FLOOR) | | USD 703,612 | | Feb 01, 08 | | Jun 01, 12 | | LIBOR1M (0.26%) | | | 2.95 | % | | Ps. | (67,673 | ) | | Ps. | (262,803 | ) | | Ps. | (363,886 | ) |
Trading | | | | | | | | | | | | | | | | | | | | | | | | |
TUCA (CAP) | | 1,250,000 | | Jul 01, 08 | | Dec 30, 14 | | TIIE91d (4.95%) | | | 11.00 | % | | | 1,607 | | | | 2,128 | | | | 15,754 | |
CONIPSA (CAP) | | 490,100 | | Aug 26, 10 | | Ago 27, 12 | | TIIE91d (4.95%) | | | 7.50 | % | | | — | | | | 115 | | | | 742 | |
La Yesca (CAP) | | USD 703,612 | | Feb 01, 08 (renewal) | | Jun 01, 12 | | LIBOR1M (0.26%) | | | 4.53 | % | | | — | | | | 672 | | | | 36,382 | |
SAQSA (CAP) | | 1,450,000 | | Oct 20, 10 | | Jul 20, 12 | | TIIE28d (4.88%) | | | 6.50 | % | | | 1,110 | | | | 488 | | | | 61 | |
At March 14, 2012, the fair value of these instruments has not fluctuated significantly.
The values shown in the “Rate received” column are as of December 31, 2011.
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La Yesca
(CAP and FLOOR)
To protect the project from fluctuations in the London Interbank Offered Rate (“LIBOR”) (because it is a financed project), two options were entered into in October 2007 establishing a CAP on that rate of 5.5% for a notional amount of up to U.S.$ 852 million, paying a premium of U.S.$ 7.33 million. On January 10, 2008, the Company agreed with the financial agent to substitute this CAP with the combination of the purchase of a CAP option and the sale of a FLOOR option, beginning February 1, 2008. The CAP establishes a ceiling of 4.5% on the LIBOR rate and the FLOOR establishes a floor of 2.95%. In order to guarantee its potential obligations under the FLOOR option, the Company was required to establish collateral through a letter of credit of U.S. $ 6 million. A commission of U.S. $ 1 million was paid as a result of this restructuring.
In October 2008, the CAP and FLOOR were designated as cash flow hedging instruments. As of December 31, 2011, 2010 and January 1, 2010, the fair value of the FLOOR was recognized in other comprehensive income for the amount of its intrinsic value of Ps. 68 million, Ps. 276 million and Ps. 364 million, respectively (U.S.$ 4.8 million, U.S.$ 22.2 million and U.S.$ 27.8 million, respectively). The intrinsic value in the case of options is determined by the difference between the exercise price and market price of the underlying security, provided that this difference is not negative.
| c. | Exchange rate instruments, FX swaps and options |
The following table shows the most significant financial instruments that the Company has entered into as date to cover exchange rate fluctuations through FX swaps and options:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Notional (thousands of | | | | Year | | | Fair Value
(thousands of Mexican pesos) | |
| Project | | Mexican pesos and
foreign currency) | | Contracting Date | | Maturity Date | | Ref. | | Level | | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Hedging: | | | | | | | | | | | | | | | | | | | | | | | | |
Túnel Río de la Compañía (CCS) | | 91,215 (EUR 5,835) | | Dec 24, 07 | | Jun 24, 15 | | Pesos/EUR | |
| 15.63
|
| | Ps. | 5,151 | | | Ps. | 924 | | | Ps. | 13,419 | |
| | Interest on notional amount | | | | | | EURIBOR 6M (1.617%) | |
| 7.77
| %
| | | | | | | | | | | | |
AHMSA | | USD 50,500 | | Feb 22, 11 | | Sep 20, 12(2) | | Pesos/USD | | | 13.3273 | (1) | | | (27,955 | ) | | | 19,070 | | | | — | |
Mayab (FX FWD) | | USD 591 | | Dic 21, 10 | | Mar 20, 12 | | Pesos/USD | | | 13.94 | | | | 51 | | | | — | | | | — | |
Mayab (FX American FWD) | | USD 45,000 | | Dic 21, 10 | | Sep 19, 12 | | Pesos/USD | | | 14.25 | | | | (576 | ) | | | — | | | | — | |
Túnel Emisor Oriente (CCS) | | 295,922 (EUR 17,944) Interest on notional amount | | Jul 28, 10 | | Dic 30, 14 | | Pesos/
EUR EURIBOR 6M (1.617%) | |
| 16.49
4.80 |
% | | | 7,124 | | | | (7,938 | ) | | | — | |
Túnel Emisor Oriente (EUR Put) | | EUR 18,240 | | Jul 28, 10 | | Dic 30, 14 | | Pesos/ EUR | | | 15.20 | | | | (9,048 | ) | | | (7,497 | ) | | | — | |
Túnel Emisor Oriente (CCS) | | 460,381 (EUR 26,596) Interest on notional amount | | Oct 22, 10 | | Jun 17, 19 | | Pesos/ EUR EURIBOR 6M (1.617%) | |
| 17.31
6.99 |
% | | | 20,041 | | | | (8,643 | ) | | | — | |
ICA Senior Notes (CCS) | | USD 500,000 | | Feb 14, 11 | | Feb 4, 17 | | Pesos/USD | | | 12.055 | | | | 293,257 | | | | — | | | | — | |
Trading: | | | | | | | | | | | | | | | | | | | | | | | | |
La Yesca (FX FWD) | | USD 32,045 | | Aug 09, 11 | | Dec 28, 12 | | Pesos/USD | | | 11.350 | | | | (43,535 | ) | | | (87,736 | ) | | | (303,358 | ) |
| (1) | Price weighted by the amount of the FX forward. |
| (2) | The dates indicate the year of the last FX forward. |
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At March 14, 2012, the fair value of these instruments has not fluctuated significantly.
Sensitivity Analysis
For instruments included in paragraphs b and c above, a sensitivity analysis was performed considering the following interest rate scenarios: +100 basis points, +50 basis points, +25 basis points, -25 basis points, -50 basis points—100 basis points. Additionally, the following changes in the exchange rates were considered for each of the above scenarios: -100 cents, -50 cents, -25 cents, +25 cents + 50 cents and +100 cents.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Project | | Fair
value
December
2011 | | | +100 bp /
+100 cents | | | +50 bp /
+50 cents | | | +25 bp /
+25 cents | | | -25 bp /
-25 cents | | | -50 bp /
-50 cents | | | -100 bp /
-100 cents | |
La Yesca (FLOOR) | | | (67,673 | ) | | | (45,673 | ) | | | (56,097 | ) | | | (61,676 | ) | | | (73,449 | ) | | | (79,917 | ) | | | (89,369 | ) |
TUCA (CAP) | | | 1,607 | | | | 3,487 | | | | 2,420 | | | | 1,984 | | | | 1,285 | | | | 1,013 | | | | 599 | |
SAQSA (CAP) | | | 1,110 | | | | 3,012 | | | | 1,892 | | | | 1,464 | | | | 823 | | | | 593 | | | | 279 | |
La Yesca (CAP) | | | — | | | | 16 | | | | 1 | | | | — | | | | — | | | | — | | | | — | |
Túnel Río de la Compañía | | | 5,151 | | | | 3,183 | | | | 4,169 | | | | 4,661 | | | | 5,640 | | | | 6,128 | | | | 7,098 | |
AHMSA | | | (27,517 | ) | | | (2,363 | ) | | | (14,926 | ) | | | (21,219 | ) | | | (33,824 | ) | | | (40,141 | ) | | | (52,801 | ) |
Túnel Emisor Oriente (CCS) | | | 7,124 | | | | 47,898 | | | | 20,652 | | | | 6,708 | | | | (21,867 | ) | | | (36,509 | ) | | | (66,502 | ) |
Túnel Emisor Oriente (EUR Put) | | | (9,048 | ) | | | (7,054 | ) | | | (7,938 | ) | | | (8,462 | ) | | | (9,711 | ) | | | (10,456 | ) | | | (12,264 | ) |
Túnel Emisor Oriente (CCS) | | | 20,041 | | | | 4,153 | | | | 12,142 | | | | 16,103 | | | | 23,955 | | | | 27,844 | | | | 35,541 | |
ICA Senior Notes | | | 293,257 | | | | 164,040 | | | | 227,779 | | | | 260,295 | | | | 326,678 | | | | 360,542 | | | | 426,075 | |
Mayab (FX FWD) | | | 51 | | | | 640 | | | | 346 | | | | 199 | | | | (97 | ) | | | (245 | ) | | | (541 | ) |
Mayab (FX American FWD) | | | (576 | ) | | | 43,704 | | | | 21,644 | | | | 10,554 | | | | (11,747 | ) | | | (22,957 | ) | | | (45,500 | ) |
La Yesca (FX FWD) | | | (43,535 | ) | | | (23,012 | ) | | | (33,422 | ) | | | (38,524 | ) | | | (48,435 | ) | | | (53,200 | ) | | | (62,202 | ) |
Total | | | 179,992 | | | | 192,031 | | | | 178,662 | | | | 172,087 | | | | 159,251 | | | | 152,695 | | | | 140,413 | |
Variation | | | — | | | | (32,790 | ) | | | (16,940 | ) | | | (8,547 | ) | | | 9,356 | | | | 18,603 | | | | 38,878 | |
Considering the value of the Company’s consolidated assets, liabilities and stockholders’ equity included in the consolidated statement of financial position and the value of revenue in the consolidated statement of comprehensive income, under none of the aforementioned scenarios does the effect exceed the 5% and 3% threshold of these concepts as of or for the year ended December 31, 2011.
| | | | | | | | | | | | |
| Thousand Ps. | | Total | | | Threshold | | | % | |
Assets | | Ps. | 98,888,073 | | | Ps. | 4,944,405 | | | | 5 | % |
Liabilities | | | 78,063,971 | | | | 3,903,199 | | | | 5 | % |
Stockholders’ equity | | | 20,824,102 | | | | 1,041,206 | | | | 5 | % |
Revenues | | | 42,768,785 | | | | 1,283,064 | | | | 3 | % |
La Yesca
(Foreign exchange FX FWD)
The La Yesca project’s financing and contract revenue are in U.S. dollars; however, most project costs are incurred in Mexican pesos. Therefore, the project must exchange the U.S. dollars received from the financing to Mexican pesos to cover its obligations in that currency; therefore, four foreign currency exchange options were entered into from May to August 2008.
The option schemes established an exchange rate level at which the project exchanged the U.S. dollars obtained from the financing necessary to cover costs and expenses in Mexican pesos at a weighted
F-55
average exchange rate of Ps. 11.33 per U.S. dollar for the period from July 2008 to July 2010 for the first three options and to April 2011 for the last option. The notional amount for the foreign currency exchange option is established at two levels, which are determined based on the spot exchange rate compared to the weighted average exchange rate set in the foreign currency exchange options. Accordingly, for spot exchange rate levels lower than Ps. 11.33 per U.S. dollar, the notional amount is limited to U.S. $ 194.5 million; for spot exchange rate levels higher than Ps. 11.33 per U.S. dollar, the notional was set at U.S. $ 499.3 million (considering the period during which the exchange rate was below the preset level, the maximum notional value was U.S. $ 467 million). This notional amount was determined by the Company as the amount that would cover the project’s overall liabilities in Mexican pesos, based on management’s best estimate at those dates.
Due to changes in the La Yesca construction schedule and the increasing volatility of Mexican peso-U.S. dollar exchange rate fluctuations, in 2009, the Company and the provider of the La Yesca foreign currency exchange options restructured the options to (i) stabilize the notional amount so that it remains unchanged regardless of the difference between the spot exchange rate and the exchange rate set forth in the derivative contract, (ii) reduce the notional amount to U.S. $ 183.5 million, which reflects an average of U.S. $ 1.4 million in weekly operating expenses, to better fit the peso obligations of the La Yesca hydroelectric project, and (iii) reschedules the notional amounts every week so that they match the revised construction program and the payment program. This coverage scheme sets an exchange rate of Ps. 11.35 at which the project exchanges the dollars needed to cover peso expenses and costs during the effective term of the instrument.
The renegotiation cost of the financial derivative was U.S. $ 33 million, which will be paid once the La Yesca project is terminated, and will accrue interest at the LIBOR rate plus 450 basis points. In July 2010, the derivative was further restructured to adjust its terms to the project terms. This coverage scheme maintains an exchange rate of Ps. 11.35 per U.S. dollar during the term of the instrument, with a maximum exchange rate of Ps. 17.00. As part of this restructuring, U.S. $16 million of the previous renegotiation cost was prepaid, with the balance of U.S. $17 million (plus accrued interest) remaining at December 31, 2011 and 2010.
On August 2011, the derivative was further restructured to adjust its terms the project terms. The new scheme sets an exchange rate of Ps. 12.00 per U.S. dollar; the maximum exchange rate was reduced to Ps. 16.00. The cost of this restructuring was U.S. $2.9 million, at December 31, 2011, and is included under current liabilities.
Altos Hornos de México (“AHMSA”) (ICAFD project)
The Company entered into forwards or forward contracts for the sale of U.S. dollars with different maturities to eliminate the exchange rate risk associated with this project. As of December 31, 2011, the agreed exchange rate for these instruments is Ps. 13.3273 per U.S. dollar for a notional amount of U.S.$ 50 million (the exchange rate is weighted by the notional amount of each contract).
At the time the forward contracts were entered into they were designated as hedging instruments. The fluctuations in fair value are recognized in other comprehensive income.
Túnel emisor oriente
In 2010, exchange and interest rate swaps called Cross Currency Swaps, were entered into to mitigate the risks associated with the project. The primary position relates to loans for the acquisition of machinery related to the project. The cost of principal and interest on loans is 6.99% and 4.80% for each derivative.
As of December 31, 2011, the fair value of these hedging derivatives is recognized in other comprehensive income.
ICA Senior Notes
In February 2011, the Company entered into four Cross Currency Swaps (CCS) with maturities of six years, in order to mitigate the exchange rate risk of the bond coupons on ICA’s Senior Notes. The maximum level sets an exchange rate of Ps. 12.055 per U.S. dollar at a fixed rate of 9.95%. A fixed rate is paid in Mexican pesos in exchange for receiving interest in a foreign currency, used to pay the coupons to the holders of the bond.
F-56
These instruments have been designated as hedging instruments and fluctuations in their fair value is recognized in other comprehensive income.
| | a. | Debt to credit institutions and debentures and other securities at December 31, 2011, December 2010 and January 1, 2010, which amounted to Ps.44,796 million, Ps.27,644 milliona and Ps.19,453 million, respectively, net of Ps.588 million, Ps.341 million and Ps.347 million, from financing commissions or expenses, respectively, is detailed as follows: |
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1, 2010 | |
Payable in U.S. dollars: | | | | | | | | | | | | |
| | | |
Concessions: | | | | | | | | | | | | |
Secured bond, with a fixed annual interest rate of 6.95% and maturity in 2025, to refinance the debt contracted for Corredor Sur, which is guaranteed by toll revenues. This loan was pre-paid in August 2011 (see Note 26). | | Ps. | — | | | Ps. | 1,764,641 | | | Ps. | 1,898,443 | |
| | | |
Credit granted to Aeroinvest maturing in January 2015. The contracted rate is LIBOR plus 6% margin (6.5698% at December 31, 2011). | | | 629,649 | | | | — | | | | — | |
| | | |
Construction: | | | | | | | | | | | | |
Syndicated loan of up to U.S. $910 million for the construction of the La Yesca Hydroelectric Project, maturing in the second quarter of 2012. To date, U.S. $829.9 million has been used. The contracted rate is one month LIBOR plus 50 basis points (as of December 31, 2011 and 2010 and January 1, 2010, the rate is 0.7490%, 0.7667% and 0.7467%, respectively).Similarly, the project has a revolving bridge loan for working capital of U.S.$140 million, which matures on the same date as the syndicated loan. As of December 2011, U.S. $114 million has been withdrawn. The interest rate on this line of credit is within a range of one month LIBOR plus 0.75% to 4.25% (as of December 31, 2011 and 2010, the rates range between 1.0336% and 4.499%, and 1.0167% and 4.5167%, respectively). The financing is mainly guaranteed by the collection rights of the construction contract. | | | 13,208,170 | | | | 8,519,144 | | | | 5,721,323 | |
F-57
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Other purposes: | | | | | | | | | | | | |
On February 4, 2011, ICA placed senior notes for a principal amount of U.S. $500 million, a coupon of 8.90% and maturing in 2021. ICA issued these unsecured documents which are guaranteed by CICASA, CONOISA and Controladora de Empresas de Vivienda, S.A. de C.V. (“CONEVISA”). | | | 6,996,100 | | | | — | | | | — | |
| | | |
Credits granted to Los Portales for U.S.$7.5 million dollars and U.S.$2.5 million dollars. The loan matures in April 2012 and is amortized quarterly at fixed rates of 4.25% and 10.5%, respectively. | | | 197,487 | | | | 178,400 | | | | — | |
| | | |
Credit granted to CICASA maturing in July 2018. The contracted rate is one month LIBOR plus 450 basis points (4.7917% at December 31, 2011). | | | 202,887 | | | | — | | | | — | |
| | | |
Payable in Euros: | | | | | | | | | | | | |
| | | |
Construction: | | | | | | | | | | | | |
Bank loan granted in euros for import purchases, maturing in September 2015, payable in 16 semiannual installments beginning December 2007, bearing interest at EUROLIBOR plus a 0.45% margin (2.108%, 1.70% and 1.44% as of December 31, 2011 and 2010 and January 1, 2010, respectively). | | | 49,884 | | | | 58,049 | | | | 80,759 | |
| | | |
Payable in Mexican pesos: | | | | | | | | | | | | |
| | | |
Concessions and Airports: | | | | | | | | | | | | |
TUCA performed a new issuance of securitization certificates, which is guaranteed by collection rights and toll revenues of the Acapulco Tunnel, by issuing a share certificate program trust with a term of up to 25 years. Principal and interest are paid semiannually and bear interest at a rate of the 91-day TIIE plus 265 basis points (7.48%, 7.61% and 7.73% at December 31, 2011 and 2010 and January 1, 2010, respectively) and the 91-day TIIE plus 295 basis points, respectively (7.78%, 7.91% and 8.03% at December 31, 2011 and 2010 and January 1, 2010, respectively). The loan is also guaranteed by a letter of credit of Ps.75 million. | | | 1,243,250 | | | | 1,249,143 | | | | 1,250,000 | |
F-58
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Consorcio del Mayab, holder of the Kantunil – Cancún highway concession, issued 78,858,900 redeemable participation certificates (CPOAs), each equivalent to one UDI, separated into three types. The CPOAs will be amortized over a 17-year period and are payable on February and August 7 of each year. They mature in 2019 and 2020 and bear interest at 9.50%, 9.50% and 9.25% at December 31, 2011 and 2010 and January 1, 2010, respectively. This loan is guaranteed with toll revenues. | | | 2,445,524 | | | | 2,478,422 | | | | 2,429,986 | |
| | | |
In September 2007, Aeroinvest, S.A. de C.V., placed two discounted Europeso bonds for Ps.2,450 million with a ten-year term. The fixed interest rates on the remaining two bonds for the first seven years are 7.75% and 11.07% on the remaining three years. Payment of these bonds is guaranteed with the economic rights associated with equity in GACN, guaranteed by Aeroinvest and ICA. The effective rate, including the discount during 2009 was 23.58%.On December 22, 2010, this loan was pre-paid with resources obtained with a new credit. | | | — | | | | — | | | | 2,131,394 | |
| | | |
Bridge loan of Ps.2,300 million (to settle the Aeroinvest bond discussed above) with an interest rate of the 28-day TIIE plus 3.5% for the first months and subsequently the 28-day TIIE plus 4.5%, maturing in April 2012. On February 11, 2011, the Company settled the full amount of this loan with resources obtained with a new credit. As a result of this payment, the financial restrictions that indirectly affected GACN (mainly cash flows and indebtedness) were no longer effective. | | | — | | | | 2,280,560 | | | | — | |
| | | |
On July 15, 2011, GACN placed securities certificates for a principal amount of Ps.1,300 million, at a variable rate equal to 28-day TIIE plus 70 basis points and maturing on July 8, 2016. As of December 31, 2011 the rate is 5.5%. | | | 1,300,000 | | | | — | | | | — | |
F-59
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
On July 25, 2011, an irrevocable trust agreement was established for the issuance, management and payment F/1496 (Issuer Trust) between Papagos and Sarre (as trustors and beneficiaries in the second instance), and holders of Peso Series Trust Certificates represented by Monex Casa de Bolsa, S.A. de C.V., Grupo Financiero Monex, as common representative and beneficiaries in the first instance, and Deutsche Bank Mexico, S. A., commercial bank, in as trustee. On September 30, 2011, the Issuer Trust issued Ps.5,323, million of Trust Certificates (“CBFs”) in pesos to mature on April 30, 2032, with a fixed annual interest rate of 10%. On the same date, the Issuer Trust issued 387,181,900 Trust Certificates in UDIs, with value of Ps. 4.589563 per certificate representing Ps. 1.777 million, with a fixed annual interest rate of 5.65%. Interest on the CBFs, both in pesos and UDIs, will be paid quarterly, beginning July 30, 2013; the interest generated until that date will be capitalized. The certificates are redeemable quarterly in 76 consecutive payments starting from July 30, 2013. Proceeds were distributed proportionately between Papagos and Sarre using a factor of 0.497747 and 0.502253, respectively. The certificates are guaranteed with the patrimony of the Issuer Trust. They are also guaranteed, proportionately, by Papagos and Sarre. | | | 7,139,399 | | | | — | | | | — | |
| | | |
In September 2007, CONOISA obtained financing of Ps.430 million for the acquisition of 39% of shares of PMA México. The interest rate is the 91-day TIIE plus 0.45%, payable quarterly beginning in September 2008, maturing in 2012 (as of December 31, 2011 and 2010 and January 1, 2010, the interest rate was 5.25%, 5.44% and 5.53%, respectively). | | | 54,147 | | | | 161,493 | | | | 268,750 | |
F-60
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Loan granted for modernization and extension of the Irapuato — La Piedad highway, granted as a concession by the SCT to CONIPSA, maturing in November 2019, bearing interest at the 28-day TIIE plus 2.5% (7.62% as of December 31, 2010). The loan is guaranteed with toll revenues. This loan was transferred in September 2011 as a result of the sale of shares mentioned in Note 3. | | | — | | | | 520,378 | | | | 539,400 | |
| | | |
Loan granted to COVIQSA for modernization and further development of the highway. The loan matures in 2021, and is redeemable quarterly at a rate of the 91-day TIIE plus 2%, (as of December 31, 2010, the interest rate was 7.20%). This loan is guaranteed with toll revenues. This loan was transferred in September 2011 as a result of the sale of shares mentioned in Note 3. | | | — | | | | 1,249,463 | | | | 968,653 | |
| | | |
Loan granted to ICA San Luis, S.A. de C.V. for the construction of the Río Verde – Ciudad Valles highway in San Luis Potosí. The loan is payable in 17 years, matures in 2025, and is redeemable quarterly at a rate of the 28-day TIIE plus 180 basis points, (as of December 31, 2011 and 2010 and January 1, 2010, the interest rate was 6.8475%, 6.38% and 6.73%, respectively). This loan is guaranteed with toll revenues. | | | 2,529,600 | | | | 1,883,692 | | | | 1,094,596 | |
| | | |
Loan granted to SAQSA for the construction, operation and maintenance over a 20-year period of the Sistema Acueducto II (water system) of that city. The loan is payable in 17 years, matures in 2024, and is payable quarterly at a rate of the 28-day TIIE plus 200 basis points, (as of December 31, 2011 and 2010 and January 1, 2010, the interest rate was 6.565%, 6.84% and 6.92%, respectively). This loan is secured with a pledge on the shares of this subsidiary. | | | 607,648 | | | | 614,655 | | | | 516,784 | |
| | | |
Loan granted to AUNETI for the construction of the Nuevo Necaxa – Avila Camacho section of the highway in the states of Puebla and Veracruz. The loan matures in 2028 and is redeemable quarterly at a rate of 28-day TIIE plus 185 basis points, (as of December 31, 2011 and 2010 and January 1, 2010, the interest rate was 6.455%, 6.63% and 6.78%, respectively). This loan is guaranteed with toll revenues. | | | 2,431,244 | | | | 1,651,864 | | | | 770,261 | |
F-61
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Loan granted to LIPSA for the Libramiento la Piedad project. The credit line has a maximum amount of Ps.900 million, to be applied in two tranches, guaranteed with the tolls collected; the loan matures in 2024 and bears interest at a TIIE rate plus an applicable margin that varies between 275 and 350 basis points (7.544%, 7.63% and 8.37%, respectively, as of December 31, 2011 and 2010 and January 1, 2010). | | | 564,402 | | | | 229,685 | | | | — | |
| | | |
Loan granted to Viabilis for the Río de los Remedios highway project. The credit line has a maximum amount of Ps.3,000 million to be applied to stage I of the project (Puente de Vigas—México Pachuca highway project); the loan matures in 2024 and bears interest at a fixed 7.81% rate. As of December 31, 2011, Ps.3,000 million has been used. This loan is guaranteed with full corporate right shares of CONOISA. | | | 3,000,000 | | | | 2,143,528 | | | | — | |
| | | |
Credit granted to GACN to complete the construction of Terminal B at the Monterrey International Airport and the Terminal NH 2 of the Mexico City International Airport (“AICM”), maturing in September 2017, bearing interest at the 28-day TIIE rate plus 4.5% (9.38% and 9.43% at December 31, 2010 and January 1, 2010, respectively). This loan was pre-paid during 2011. | | | — | | | | 601,032 | | | | 470,590 | |
| | | |
Credit granted to GACN, maturing in April 2018, bearing interest at the 28-day TIIE rate plus 3.5% (7.89% and 7.90% at December 31, 2010 and January 1, 2010, respectively). This loan was pre-paid during 2011. | | | — | | | | 405,009 | | | | — | |
| | | |
Loan granted to Renova Atlatec for the construction, operation and maintenance over a 20-year period of the Project Agua Prieta (water system). The loan is payable in 16 years, matures in 2027, and interest is payable quarterly at a rate of the 28-day TIIE plus 300 basis points. As of December 31, 2011, the interest rate was 7%. | | | 479,800 | | | | — | | | | — | |
| | | |
Loan granted to El Realito for the construction, operation and maintenance over a 25-year period of the aqueduct (water system). The loan is payable in 18 years, matures in 2029, and interest is payable quarterly at a rate of the 28-day TIIE plus 275 basis points. As of December 31, 2011 the interest rate was 7.55%. | | | 159,036 | | | | — | | | | — | |
F-62
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Credit granted to Aeroinvest maturing in December 2011, bearing interest at the 28-day TIIE plus 4.00% (8.4% and 8.93% at December 31, 2010 and January 1, 2010, respectively). Settled on the date of maturity. | | | — | | | | 194,704 | | | | 194,004 | |
| | | |
Construction: | | | | | | | | | | | | |
Credit granted to ICASA, maturing in October 2019, bearing interest at EUROLIBOR plus a 0.3% (2.07% and 1.56% at December 31, 2011 and 2010, respectively). | | | 283,662 | | | | 292,444 | | | | — | |
| | | |
Credit granted to ICASA, maturing in June 2019 bearing interest at 6 months Eurolibor plus 1.1%, 2.8390% at December 31, 2011. | | | 418,691 | | | | — | | | | — | |
| | | |
Unsecured loan granted to ICASA for the construction of the Naval Specialty Hospital in Mexico City. The loan matures in march 2011 and bears interest at a fixed 9% rate. Settled on the date of maturity. | | | — | | | | 122,027 | | | | 114,120 | |
| | | |
Housing: | | | | | | | | | | | | |
| | | |
Fiduciary loan granted to Viveica, S.A. de C.V. (“Viveica”) for working capital. The loan matures in 2012, bears interest at the 28-day TIIE plus 4.5% (as of December 31, 2011 and 2010 and January 1, 2010, the interest rate was 9.35%, 9. 38% and 9.43%, respectively). | | | 151,990 | | | | 287,520 | | | | 413,916 | |
| | | |
Viveica bridge loan granted for the development of a project, due in March 2012, bearing interest at the 28-day TIIE rate plus 1.5% (6.37% and 6.42% at December 31, 2010 and January 2010, respectively).This loan was pre-paid during 2011. | | | — | | | | 236,152 | | | | 149,042 | |
| | | |
Loans of Ps.192 million and Ps.105 million granted to Viveica, maturing on March 22, 2012 and May 25, 2013, respectively, bearing interest at a 28-day TIIE rate plus 4.5% for the former and 5.2% for the latter (9.35% as of December 31, 2011, 9.37% and 10.12% as of December 31, 2010). The balance of the loan of Ps.105 million was prepaid in 2011. | | | 112,788 | | | | 297,875 | | | | — | |
F-63
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Viveica bridge loan granted for the development of a project, due in March 2014, bearing interest at the 28-day TIIE rate plus 4.0%, 8.85% at December 31, 2011. | | | 428,738 | | | | — | | | | — | |
| | | |
Simple credit guarantee granted to Viveica for the development of several projects, bearing interest at the 28-day TIIE rate plus 3.5% percentage points (8.43% at January 1, 2010). | | | — | | | | — | | | | 296,272 | |
| | | |
Others | | | 162,045 | | | | 224,382 | | | | 144,505 | |
| | | | | | | | | | | | |
| | | 44,796,141 | | | | 27,644,262 | | | | 19,452,798 | |
Less: | | | | | | | | | | | | |
Financing commissions or expenses, net | | | (587,916 | ) | | | (340,578 | ) | | | (346,760 | ) |
| | | | | | | | | | | | |
| | | 44,208,225 | | | | 27,303,684 | | | | 19,106,038 | |
| | | |
Current portion | | | (13,888,201 | ) | | | (1,274,644 | ) | | | (657,349 | ) |
| | | | | | | | | | | | |
| | | Ps 30,320,024 | | | | Ps 26,029,040 | | | | Ps 18,448,689 | |
| | | | | | | | | | | | |
| | b. | The scheduled maturities of long-term debt as of December 31, 2011 are as follows: |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 2012 | | | 2013 | | | 2014 | | | 2015 | | | 2016 | | | 2017 and
thereafter | | | Total | |
Bank loans | | Ps. | 13,724,371 | | | Ps. | 759,275 | | | Ps. | 867,230 | | | Ps. | 1,407,861 | | | Ps. | 1,076,242 | | | Ps. | 7,718,559 | | | Ps. | 25,553,538 | |
Bonds | | | 163,830 | | | | 435,516 | | | | 377,952 | | | | 427,730 | | | | 1,558,291 | | | | 15,691,368 | | | | 18,654,687 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | Ps. | 13,888,201 | | | Ps. | 1,194,791 | | | Ps. | 1,245,182 | | | Ps. | 1,835,591 | | | Ps. | 2,634,533 | | | Ps. | 23,409,927 | | | Ps. | 44,208,225 | (1) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | The debt includes financing commissions and expenses. |
| | c. | At December 31, 2011, the Company has credit lines awarded by banks, as follows: |
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Credit lines: | | | | | | | | |
Amount awarded | | Ps. | 31,600,036 | | | Ps. | 34,354,962 | |
Used | | | (26,298,088 | ) | | | (20,916,446 | ) |
| | | | | | | | |
Available to use | | Ps. | 5,301,948 | | | Ps. | 13,438,516 | |
| | | | | | | | |
Long-term debt and other agreements of the Company’s subsidiaries mentioned in this note above provide for various covenants that restrict the ability of certain subsidiaries of the Company to incur additional indebtedness and capital lease obligations, issue guarantees, sell fixed and other non-current assets and make capital distributions to ICA, as well as require compliance with certain other financial ratios. These financial ratios include: the ratio of total liabilities to equity; the ratio of current assets to current liabilities; the ratio of current assets less affiliated accounts receivable to current liabilities; and the ratio of operating earnings plus depreciation to net financing expenses. For the years ended December 31, 2011 and 2010, the Company and its subsidiaries were in compliance with such covenants.
F-64
| 22. | Foreign currency balances and transactions |
| | a. | The monetary position in foreign currencies of the Company’s Mexican subsidiaries, converted into U.S. dollars is as follows: |
| | | | | | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | |
| | | Foreign Currency Balances
(Thousands) | | | Mexican Peso Equivalent
(Thousands) | | | Foreign Currency Balances
(Thousands) | | | Mexican Peso Equivalent
(Thousands) | |
| Currency | | | | | | | | | | | | |
U.S. dollars: | | | | | | | | | | | | | | | | |
Assets | | $ | 1,318,577 | | | Ps. | 18,370,680 | | | $ | 1,102,686 | | | Ps. | 13,622,808 | |
Liabilities | | | (2,110,569 | ) | | | (29,531,501 | ) | | | (1,349,566 | ) | | | (16,697,277 | ) |
| | | | | | | | | | | | | | | | |
Liability position | | $ | (791,992 | ) | | Ps. | (11,160,821 | ) | | $ | (246,880 | ) | | Ps. | (3,074,469 | ) |
| | | | | | | | | | | | | | | | |
| | b. | Non-monetary assets of foreign origin, converted to U.S. dollars, of the Company’s Mexican subsidiaries are as follows: |
| | | | | | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | |
| | | Foreign currency | | | Mexican peso t | | | Foreign currency | | | Mexican peso | |
| | | balance | | | equivalent | | | balance | | | equivalent> | |
| | | (Thousands of
dollars) | | | (thousands) | | | (Thousands of
dollars) | | | (thousands) | |
Machinery and equipment | | $ | 17,272 | | | Ps. | 240,637 | | | $ | 12,204 | | | Ps. | 150,804 | |
Inventories | | | 317 | | | | 4,420 | | | | 1,054 | | | | 13,019 | |
| | c. | Condensed financial information of foreign subsidiaries expressed in thousands of U.S. dollars is as follows: |
| | | | | | | | |
| | | U.S. Dollars | | | U.S. Dollars
(thousands) | |
| | | December 31, 2011 | | | December 31, 2010 | |
Current assets | | $ | 206,553 | | | $ | 207,047 | |
Non-current assets | | | 143,944 | | | | 359,441 | |
Total liabilities | | | (230,223 | ) | | | (413,201 | ) |
| | | | | | | | |
Net assets | | $ | 120,274 | | | $ | 153,287 | |
| | | | | | | | |
| | d. | Transactions in thousands of U.S. dollars are as follows: |
| | | | | | | | |
| | | Year ended December 31, 2011 | | | Year ended December 31, 2010 | |
Exports | | $ | 4,516 | | | $ | 12,061 | |
Imports | | | 282,277 | | | | 220,440 | |
Interest expense | | | 9,321 | | | | 41,173 | |
| | e. | Pertinent exchange rate information at the date of the consolidated statements of financial position is as follows: |
| | | | | | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | |
U.S. dollar currency exchange | | Buy | | | Sell | | | Buy | | | Sell | |
Interbank rate | | | Ps. 13.9322 | | | | Ps. 13.9922 | | | | Ps. 12.3542 | | | | Ps. 12.3792 | |
Euro | | | 17.8199 | | | | 18.3224 | | | | 16.2973 | | | | 16.5774 | |
F-65
| | f. | .As of March 14, 2012, the interbank buy and sell exchange rates were Ps.12.7180 and Ps.12.7430, respectively. |
| 23. | (Benefit) expense for income taxes |
ISR- In 2011 and 2010, the income tax rate in Mexico was 30%, where it will remain until 2012; it will decrease to 29% in 2013, and 28% in 2014 and thereafter. The Company is subject to ISR on a consolidated basis with its Mexican subsidiaries as of 1989.
Tax reform-In December 2009, modifications were published to the Income Tax Law (“LISR”) (“Tax Reform”), effective as of 2010, which establish that: a) the payment of ISR on benefits received from tax consolidation of subsidiaries, obtained in the years 1999 through 2004, must be made in partial installments from the year 2010 until 2014 and b) the tax on benefits obtained from the tax consolidation of subsidiaries for 2005 and subsequent years will be paid during the sixth through tenth years after that in which the benefit was obtained. The payment of the tax on the dividends distributed between companies that consolidate for tax purposes, made in years prior to 1999, could also be required to be paid in some cases, as established in tax provisions, such as upon sale of the shares of the controlled companies or at the time the Company eliminates the tax consolidation regime, among others.
Tax payable as a result of the tax reforms related to special consolidation benefits for Ps.3,429 million will be payable as follows: Ps.210 million in fiscal year 2012 (included in current liabilities at December, 31, 2011) and Ps.413 million over the period from 2013 to 2016, and the remainder payable through 2021. The estimate presented in the consolidated statement of financial position was calculated based on the terms of the law.
At December 31, 2011 and 2010 and as of January 1, 2010, the Company has recognized a deferred income tax asset of Ps.3,371 million, Ps.1,625 million and Ps.1,612 million, respectively, related to the tax losses generated by its subsidiaries. The Company expects to benefit from the losses in future periods as evidenced by its projections of future taxable income, rather than through reversal of its existing deferred income tax liabilities, for which reason this asset is presented separately.
IETU—is calculated on a modified tax base in which income and deductions, as well as certain tax credits, are determined based on cash flows of each fiscal year. The IETU rate is 17.5%. The Asset Tax Law was repealed upon enactment of the IETU Law; however, under certain circumstances, asset tax paid in the ten years prior to the year in which ISR is paid, may be recovered, according to the terms of the law. In addition, as opposed to ISR, the parent and its subsidiaries will incur IETU on an individual basis.
| | a. | Details of deferred income tax and the income tax provision is as follows: |
| | Consolidated | statements of financial position: |
| | | | | | | | | | | | |
| Liabilities: | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Deferred ISR | | | Ps.1,485,605 | | | | Ps.574,131 | | | | Ps.346,595 | |
Deferred income tax related to items in other comprehensive income | | | (87,794 | ) | | | (228,788 | ) | | | (162,109 | ) |
Deferred IETU | | | 382,269 | | | | 833,696 | | | | 1,274,843 | |
| | | | | | | | | | | | |
| | | Ps. 1,780,080 | | | | Ps. 1,179,039 | | | | Ps. 1,459,329 | |
| | | | | | | | | | | | |
F-66
| | Consolidated | statements of comprehensive income: |
| | | | | | | | |
| | | Year ended
December 31,
2011 | | | Year ended
December 31,
2010 | |
ISR: | | | | | | | | |
Current | | Ps. | 5,727 | | | Ps. | 223,256 | |
Effect of tax reform | | | 908,673 | | | | 841,778 | |
Cancelation of liability as result of change in tax reform | | | — | | | | (844,076 | ) |
| | | | | | | | |
Total ISR | | | 914,400 | | | | 220,958 | |
Deferred ISR of the year | | | 840,501 | | | | 220,846 | |
Effect of tax loss carryforwards of subsidiaries in tax consolidation regime | | | (1,648,708 | ) | | | (11,828 | ) |
Others | | | (5,896 | ) | | | 685 | |
| | | | | | | | |
Deferred ISR | | | (814,103 | ) | | | 209,703 | |
| | | | | | | | |
Total ISR | | | 100,297 | | | | 430,661 | |
IETU: | | | | | | | | |
Current | | | 193,835 | | | | 294,833 | |
Deferred | | | (327,337 | ) | | | (441,147 | ) |
| | | | | | | | |
Total IETU | | | (133,502 | ) | | | (146,314 | ) |
| | | | | | | | |
(Benefit) expense for income taxes from continuing operations | | Ps. | (33,205 | ) | | Ps. | 284,347 | |
| | | | | | | | |
At December 31, 2011 and 2010, (loss) income before income taxes of foreign subsidiaries is Ps.(367) and Ps.322 million, respectively.
| | b. | The reconciliationof the statutory income tax rate and the effective income tax rate as a percentage of net income before income tax is as follows: |
| | | | | | | | |
| | | Year ended December 31, 2011 | | | Year ended December 31, 2010 | |
| | | % | | | % | |
Statutory rate | | | 30.00 | | | | 30.00 | |
Foreign subsidiaries net operating results | | | 40.28 | | | | 3.51 | |
Inflationary effects | | | 92.28 | | | | 16.73 | |
Permanent items | | | 145.01 | | | | (2.39 | ) |
Effect of tax reform | | | — | | | | 83.62 | |
Estimate for deferred tax assets of difficult recovery | | | (270.86 | ) | | | (82.24 | ) |
| | | | | | | | |
| | | 36.71 | | | | 49.23 | |
IETU | | | (48.86 | ) | | | (21.06 | ) |
| | | | | | | | |
Effective rate (from continuing operations) | | | (12.15 | ) | | | 28.17 | |
| | | | | | | | |
| | c. | Deferred income tax recognized in other comprehensive income: |
| | | | | | | | |
| | | Year ended December 31, 2011 | | | Year ended December 31, 2010 | |
Arising on income and expense recognized in other comprehensive income | | | | | | | | |
Actuarial losses from labor obligations | | Ps | (35,413 | ) | | Ps | . — | |
Others | | | — | | | | (41,351 | ) |
Revaluation of financial instruments treated as cash flow hedges | | | (206,967 | ) | | | (280,642 | ) |
| | | | | | | | |
Total income tax recognized in other comprehensive income | | Ps | (242,380 | ) | | Ps | (321,993 | ) |
| | | | | | | | |
F-67
| | d. | At December 31, 2011, 2010 and January 1, 2010, the main items comprising the balance of the deferred ISR liability are: |
| | | | | | | | | | | | |
| Liabilities: | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Customers | | Ps. | (3,083,149 | ) | | Ps. | (2,007,436 | ) | | Ps. | (2,487,012 | ) |
Property, plant and equipment | | | (26,180 | ) | | | (40,306 | ) | | | (168,895 | ) |
Real estate inventories | | | (482,579 | ) | | | (812,425 | ) | | | (719,119 | ) |
Intangible assets from concessions | | | (1,888,716 | ) | | | (1,752,358 | ) | | | (1,904,038 | ) |
| | | | | | | | | | | | |
Total liabilities | | | (5,480,624 | ) | | | (4,612,525 | ) | | | (5,279,064 | ) |
| | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
Accrued expenses and reserves | | | 1,575,455 | | | | 1,190,823 | | | | 1,125,070 | |
Inventories | | | 21,931 | | | | 39,354 | | | | 28,444 | |
Advances from customers | | | 1,213,076 | | | | 723,908 | | | | 825,074 | |
| | | | | | | | | | | | |
| | | 2,810,462 | | | | 1,954,085 | | | | 1,978,588 | |
| | | | | | | | | | | | |
Deferred ISR liabilities on temporary differences | | | (2,670,162 | ) | | | (2,658,440 | ) | | | (3,300,476 | ) |
| | | | | | | | | | | | |
Tax loss carryforwards in consolidated tax reporting | | | 331,545 | | | | 1,041,581 | | | | 1,368,263 | |
Tax loss carryforwards in unconsolidated tax reporting | | | 853,012 | | | | 1,042,728 | | | | 1,585,618 | |
| | | | | | | | | | | | |
Deferred taxes from tax losses | | | 1,184,557 | | | | 2,084,309 | | | | 2,953,881 | |
| | | | | | | | | | | | |
Net liability | | Ps. | (1,485,605 | ) | | Ps. | (574,131 | ) | | Ps. | (346,595 | ) |
| | | | | | | | | | | | |
At December 31, 2011 and 2010 and January 1 2010, the Company has asset tax credit carryforwards of Ps.1,115, Ps.1,468 and Ps.1,872 million, respectively, which can be recovered under certain circumstances. However, management has concluded that recovery of such benefits is not probable and has therefore not recognized the related deferred asset.
| | e. | The main items comprising the liability balance of deferred IETU at December 31, 2011 and 2010 and January 1, 2010 are as follows: |
| | | | | | | | | | | | |
| Liabilities: | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Customers | | Ps. | (1,095,965 | ) | | Ps. | (1,900,713 | ) | | Ps. | (2,327,403 | ) |
Inventories, net | | | (297,848 | ) | | | (178,303 | ) | | | (451,030 | ) |
Real estate inventories | | | (45,363 | ) | | | (31,408 | ) | | | (280,402 | ) |
Investments in concessions | | | (1,337,506 | ) | | | (449,747 | ) | | | (109,975 | ) |
Property, plant and equipment, and others | | | (750,093 | ) | | | (548,718 | ) | | | (1,081,873 | ) |
| | | | | | | | | | | | |
Total liabilities | | | (3,526,775 | ) | | | (3,108,889 | ) | | | (4,250,683 | ) |
| | | | | | | | | | | | |
Assets: | | | | | | | | | | | | |
Notes payable | | | 413,848 | | | | 249,666 | | | | 1,233,031 | |
Provisions | | | 677,616 | | | | 668,111 | | | | 685,961 | |
Tax credits permitted by IETU law | | | 2,053,042 | | | | 1,357,416 | | | | 1,056,848 | |
| | | | | | | | | | | | |
Total assets | | | 3,144,506 | | | | 2,275,193 | | | | 2,975,840 | |
| | | | | | | | | | | | |
IETU liability | | Ps. | (382,269 | ) | | Ps. | (833,696 | ) | | Ps. | (1,274,843 | ) |
| | | | | | | | | | | | |
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| | f. | The changes in deferred tax liabilities during the year are as follows: |
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Beginning balance | | Ps. | 1,179,039 | | | Ps. | 1,459,329 | |
ISR in results | | | 911,474 | | | | 227,536 | |
Income tax effects recognized in other comprehensive income | | | 140,994 | | | | (66,679 | ) |
Effects of IETU | | | (451,427 | ) | | | (441,147 | ) |
| | | | | | | | |
Ending balance | | Ps. | 1,780,080 | | | Ps. | 1,179,039 | |
| | | | | | | | |
| | g. | Changes in the liability resulting from the changes in the tax reform related to tax deconsolidation are as follows: |
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Beginning balance | | | Ps. 2,718,290 | | | | Ps. 2,790,962 | |
Tax loss carryforwards in consolidated tax reporting | | | 901,281 | | | | 832,340 | |
Special concepts of consolidation and other | | | 7,393 | | | | 9,438 | |
Difference of tax profit account | | | — �� | | | | (844,076 | ) |
Payments | | | (197,161 | ) | | | (70,374 | ) |
| | | | | | | | |
Ending balance | | | Ps. 3,429,803 | | | | Ps. 2,718,290 | |
| | | | | | | | |
| | h. | In accordance with Mexican tax law, indexed tax losses and asset tax, at a consolidated level, for which a deferred ISR asset, can be recovered under certain circumstances. The amount of the Company’s consolidated asset tax credits and consolidated tax loss carryforwards and expiration dates as of December 31, 2011, are as follows: |
| | | | | | | | |
| Year of | | Asset tax
credits | | | Tax loss
carry forwards | |
| Expiration | | | | | | |
2012 | | Ps. | 150,001 | | | Ps. | — | |
2013 | | | 118,080 | | | | — | |
2014 | | | 92,742 | | | | — | |
2015 | | | 113,600 | | | | — | |
2016 | | | 69,959 | | | | 288,943 | |
2017 | | | 271,470 | | | | 666,052 | |
2018 | | | — | | | | 150,154 | |
| | | | | | | | |
| | Ps. | 815,852 | | | Ps. | 1,105,149 | |
| | | | | | | | |
| | i. | The balances of stockholders’ equity tax accounts at December 31, 2011 and 2010 and January 1, 2010 are as follows: |
| | | | | | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Contributed capital account | | Ps. | 25,970,977 | | | Ps. | 25,320,902 | | | Ps. | 24,247,837 | |
Net consolidated tax profit account | | | 14,156,350 | | | | 13,231,120 | | | | 12,713,623 | |
| | | | | | | | | | | | |
Total | | Ps. | 40,127,327 | | | Ps. | 38,552,022 | | | Ps. | 36,961,460 | |
| | | | | | | | | | | | |
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| | a. | Esmeralda Resort Project—In 2010, an arbitration proceeding was filed against ICA by the companies Proyecto Esmeralda Resort, S.A. de C.V. (“PER”) and Marina Esmeralda Resort, S.A. de C.V. (“MER”), whereby these entities intended to rescind the two contracts for services provided by ICA for the construction of five buildings, the urbanization and electrification contract, and the contract for the construction of the Proyecto Esmeralda Resort marina in the State of Campeche. These claimants also requested a payment of Ps.268 million for alleged penalties, plus U.S.$439 million for alleged contractual, extra-contractual and non-pecuniary damages. |
After several actions taken, as of December 31, 2010, the plaintiffs had dismissed the arbitration proceeding. Although there is a discrepancy with respect to the final representations of the claimants, the ultimate outcome of the proceeding is expected to occur in the near future.
As a result of the suspension of services under the aforementioned contracts, in July 2010, ICA legally convened a General Stockholders’ Meeting with the stockholders of PER, MER and Campeche Golf, S.A. de C.V. (“GOLF”) (together, the “companies”), which was held on August 18, 2010. During this meeting, the stockholders approved the revocation of the then current Board of Directors of the companies and in its place, appointed a Sole Administrator for the companies. This Sole Administrator recognized the validity of the amounts owed by the companies to ICA as a result of non-compliance under the aforementioned contracts. In August 2010, ICA filed a trust foreclosure procedure as provided in the trust agreement (such trust established as part of the original project).The trust assets guarantee the amounts loaned by ICA to the companies for Ps.920 million, as well as previous amounts owed to ICA for services performed of Ps.361 million, plus interest and other matters. During this process, the Sole Administrator of the companies recognized: (i) the existence of events of default of the companies and (ii) the legal basis of the execution procedure for the amounts being requested by ICA.
In December 2010, the trust foreclosure concluded. As a result, the pledged assets were transferred to ICA as a partial payment of the amounts still owed to ICA by the companies. As of December 31, 2010, the remaining amount owed by PER, MER and GOLF was approximately Ps.553 million, which is guaranteed. On October 20, 2011, ICA received an additional payment in the amount of Ps.151.5 million, paid in-kind with land, thus reducing the receivable owed to ICA from PER.
| | b. | Malla Vial Colombia—In April 2002, an Arbitratral Court ordered ICA to pay all damages to the Instituto de Desarrollo Urbano del Distrito Capital de Bogotá, Colombia (“IDU”) for noncompliance with the work contract of the “Malla Vial” project in Bogotá, of approximately US$2.2 million and set the criteria for the settlement of such contract. This ruling was recognized by the Mexican judicial authorities in January 2009 and ICA paid the required amount. At the same time, in a separate but related proceess, the IDU and ICA filed counter law suits against each other which in December 2004 were recognized by an administrative court. |
Through a separate proceeding related to the same project, IDU filed a lawsuit against ICA with a Colombian court for damages resulting from contractual noncompliance for the approximate amount of US$4.72 million. Likewise, IDU filed legal proceedings against the bonding company to obtain the refund of the unapplied advance payment.
ICA filed a counterclaim requesting compensation and damages for the amount of US$ 17.8 million. The court ordered that the claim filed against the bonding company be suspended until the counterclaim filed by ICA is resolved. In June 2011, the suspension order issued by the judge regarding the executory action filed against the bonding company ended, thereby creating the possibility whereby, despite the reciprocal claims filed by the parties, the execution of bonds for the amount of US$ 17 million could be requested, although certain legal instances could be used to challenge a ruling in this regard.
Since April 2010, ICA and IDU have been engaged in negotiations. In December 2011, the parties jointly filed a request with the court for a conciliation hearing. On February 23, 2012, the court scheduled this hearing for May 29, 2012.
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Company management considers that the conciliation agreement will have an approximate value of US$6 million, for which a provision has already been created.
| | c. | Airports—A lawsuit was filed against Aeropuerto de Ciudad Juárez, S. A. de C. V., a subsidiary of the Company, on November 15, 1995, claiming a portion of plots of land (240 hectares) where the Ciudad Juárez International Airport is located, because such plots were claimed to have been incorrectly transferred to the Mexican government. The plaintiff sought a payment of US$120 million (approximately Ps.1,486 million) as an alternative to recovery of the land. In May 2005, an appeals court ruled that Aeropuerto de Ciudad Juárez, S. A. de C. V., had to return this land. The airport filed an amparo (constitutional claim), which was granted requiring the appellate court to re-analyze the case and the related evidence. On November 8, 2007, the Appeals Court issued a ruling declaring the previous sentence null, after which the plaintiffs filed an amparo, which was granted to them permitting them to continue the trial with the Mexican federal government as a party. The SCT filed an appearance in the case, responded to the complaint and requested removal to federal court due to lack of jurisdiction by the current court. On May 11, 2010, the court ruled in favor of the SCT´s motion and remanded the case to federal court. On June 2, 2010, the plaintiffs filed another amparo (constitutional claim) with the First District Court of the State of Chihuahua, which on November 10, 2010 confirmed the ruling removing the case from state court.On November 29, 2010, the plaintiffs filed a motion for review of the November 10, 2010 ruling, which will be heard by a Circuit Court, and is still pending. |
As of the date of these consolidated financial statements, the Company reports this matter as a contingency due to the fact that the substance of the claim has not been definitively ruled upon even though the SCT has now appeared in the case. The Company believes that in the event of an unfavorable ruling, the economic repercussions of the lawsuit will be borne by the Federal government, as established in the concession title. Accordingly, the Company has not recorded any provisions for this matter.
There are several administrative-law enforcement actions against the airports of Ciudad Juárez, Culiacán, Zihuatanejo, and Reynosa. In November 2009, the Municipality of Ciudad Juárez once again requested payment from the Ciudad Juárez airport, stating the existence of a debt of Ps.8 million. A new proceeding for annulment was filed by the Company and is still unresolved. In June 2010, the Municipality of Culiacán requested payment of property taxes from by the Company (Aeropuerto de Culiacán, S. A. de C. V.) for Ps.4 million. An action for annulment was filed against this request with the Administrative-Law Court of the State of Sinaloa, and is still unresolved. In October 2010, the Municipality of Zihuatanejo requested payment of Ps.2 million from the Zihuatanejo airport. An action for annulment was filed with the Tax Court of the State of Guerrero by the airport, which is still unresolved. In February 2011, the Municipality of Reynosa once again requested payment of property taxes of Ps.118 million from the Reynosa Airport (Aeropuerto de Reynosa, S.A. de C.V.). An action for annulment will again be filed by the airport. The Company does not believe that an unfavorable outcome is probable and thus, has not recognized any provisions related to these contingencies.
| | d. | Tren Urbano in Puerto Rico—In 2005, the Highway and Transportation Authority of Puerto Rico (“HTA”), (the client of ICA Miramar), filed a lawsuit against ICA Miramar for the indemnification in a lawsuit between the HTA and its main contractor in the Puerto Rico Urban Train project. The main contractor filed the lawsuit on December 24, 2003, and the HTA filed a counterclaim on November 23, 2004. ICA Miramar estimates that the lawsuit could result in a liability for the Company of approximately U.S.$ 4 million. |
After a lengthy suspension, the court appointed a special judge given the complexity of the lawsuits against ICA Miramar. The main contractor subsequently modified its lawsuit against the HTA and in 2009, the HTA modified its lawsuit against ICA Miramar. The court ordered the parties to negotiate the appointment of an arbitrator. The lawsuit is currently in the information gathering stage. On April 9, 2010, the HTA and the main contractor notified the courts of a transaction regarding the lawsuits against each other. The Company does not believe that a significant loss is probable.
| | e. | Performance guarantees—In the ordinary course of business, the Company is required to secure construction obligations, mainly related to the completion of construction contracts or the quality of its work, by granting letters of credit or bonds. At December 31, 2011, the Company had granted bonds to its customers for Ps.20,401 million and U.S.$277 million, respectively. |
F-71
Additionally, the Company has issued letters of credit to guarantee its performance obligations under certain concession arrangements and construction contracts, in the amount of Ps.2,835 million, U.S.$143 million dollars and $10 million euros.
| | a. | Significant accounting policies |
The significant accounting policies and adopted methods of recognition, valuation and basis of recognition of related income and expenses for each class of financial asset, financial liability and equity instrument is disclosed in Note 4.
| | b. | Categories of financial instruments and risk management policies |
The main categories of financial instruments are:
| | | | | | | | | | | | | | |
| Financial Assets | | Classification of risk | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Cash | | | | | Ps. 1,913,510 | | | | Ps. 813,309 | | | | Ps. 889,395 | |
Restricted cash | | | | | 6,054,749 | | | | 1,543,578 | | | | 1,833,086 | |
Cash equivalents | | Interest rate | | | 2,931,455 | | | | 2,162,075 | | | | 1,788,186 | |
Customers(1) | | Credit and Operating | | | 14,721,637 | | | | 2,306,258 | | | | 4,143,773 | |
Other receivables | | Credit and Operating | | | 3,513,951 | | | | 2,696,667 | | | | 2,196,759 | |
Customers—non current(1) | | Credit and Operating | | | 6,443,952 | | | | 12,329,801 | | | | 7,549,646 | |
Financial assets from concessions | | Credit and Interest rate | | | 8,488,478 | | | | 4,655,476 | | | | 3,415,788 | |
| | (1) | Cost and estimated earnings in excess of billings on uncompleted contracts is not considered a financial instrument, therefore it is not included. |
| | | | | | | | | | | | | | |
| Financial Liabilities | | Classification of risk | | December 31,
2011 | | | December 31,
2010 | | | January 1,
2010 | |
Derivative financial instruments | | Interest rate, Foreign
exchange and Credit | | | Ps. 897,626 | | | | Ps. 1,116,727 | | | | Ps. 1,152,788 | |
Notes payable and current portion of long-term debt | | Interest rate, Foreign
exchange and Liquidity | | | 19,714,473 | | | | 5,975,508 | | | | 4,221,536 | |
Long-term debt | | Interest rate, Foreign
exchange and Liquidity | | | 30,320,024 | | | | 26,029,040 | | | | 18,448,689 | |
Trade accounts payable | | Interest rate, Foreign
exchange and Liquidity | | | 6,647,926 | | | | 5,939,751 | | | | 4,840,544 | |
Accrued expenses and other | | Liquidity, Interest rate,
Foreign exchange and
Credit | | | 2,854,534 | | | | 1,958,850 | | | | 2,001,556 | |
Other long-term liabilities | | Operating and
Liquidity | | | 1,091,723 | | | | 1,063,744 | | | | 740,406 | |
Based on the nature of its activities, ICA is exposed to different financial risks, mainly as a result of its ordinary business activities and its debt contracts entered into to finance its operating activities. The principal financial risks to which operating units are exposedt are: market risk (interest rates, currency exchange rates and foreign currency pricing), credit risk and liquidity risk.
Periodically, the Company’s management assesses risk exposure and reviews the alternatives for managing those risks, seeking to minimize the effects of these risks using financial derivatives to hedge risk exposures. The Board of Directors sets and monitors policies and procedures to measure and manage the risks to which the Company is exposed, which are described below.
F-72
The Company is exposed to price risks, mainly for the following activities:
Construction Contracts
The construction contracts into which the Company 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 if it 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 the Company retains 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 the Company undertakes to provide materials or services at fixed unit prices required for a project in the private sector, the Company generally absorbs the risk related to inflation, exchange-rate fluctuations or price increases for materials. However, the Company seeks to mitigate these risks as follows: (i) when the bid tender is prepared, such risks are included in determining the costs of the project based on the application of certain economic variables which are provided by recognized economic analysis firms; (ii) contractual arrangements are made with the principal suppliers, among which advance payments are made to ensure that the cost of the materials remains the same during the contract term; and (iii) the exchange-rate risk is mitigated by contracting suppliers and subcontractors in the same currency as that in which the contract is executed with the customer.
For those risks that cannot be mitigated or which surpass acceptable levels, the Company carries out a quantitative analysis in which it determines the probability of occurrence of the risk, measures the potential financial impact, and adjusts the fixed price of the contract to an appropriate level, taking these risks into consideration.
For fixed price contracts in the public sector, the Public Works and Services Law 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 Función Pública) to issue guidelines through which public works contractors may recognize increases in their initial contract prices as a result of adverse economic changes The proposed application of these mechanisms for the public-to-private initiative is uncertain, but the proposed law would benefit the Public/Private Partnership (Proyecto para Prestacion de Servicios, or PPP) by introducing options to renegotiate, in good faith, the contract terms in the event of government action to increase the project costs or otherwise reduce contractual benefits to developers.
F-73
In recent years, the construction contracts have been increasingly of the fixed price type or mixed price contracts in which a portion of the contract is at fixed price and the rest at unit prices. While the Company has entered into contracts with unit pricing in the last three years, it believes that fixed price contracts are more prevalent in the construction market and the contracts that the Company enters into in the future will reflect this shift to fixed price contracts.
Additionally, it is expected that due to trends toward financing, future contracts related to concessions, infrastructure construction and industrial construction will restrict the price adjustment contract for additional work performed due to incorrect specifications in the original contract.
Concessions
The return to the Company on any investment in a concession for a highway, bridge, tunnel or wastewater treatment plant is based on the duration of the concession and the amount of capital invested, as well as the amount of the revenues obtained from use, debt servicing costs and other factors. For example, traffic volumes and, consequently, the revenues from highway tolls, are affected by several factors, including toll rates, the quality and proximity of alternate free highways, the price of fuel, taxes, environmental regulations, the purchasing power of the consumer and general economic conditions. The traffic volume of a highway is also strongly influenced by its integration into other highway networks.
Generally, the concession contracts and the Service Provision Projects (PPS) stipulate that the grantor must deliver the right-of-way to the land involved in the project in accordance with the construction program. If the grantor does not timely release such rights-of-way, the Company might be required to incur additional investments and suffer delays at the start of the operations and could therefore find it necessary to seek amendments to the concession contract or PPS. The Company cannot ensure that it will reach agreement on the amendments to any of such contracts. Particularly in relation to new projects, in which it absorbs construction costs, cost overruns may generate a capital base higher than that expected, which results in a lower capital return. Based on these factors, there is no assurance that its return on any investment in a highway, bridge, tunnel or residual water treatment plant concession matches the estimates established in the respective concession contract or PPS.
The concession titles are some of the principal assets of the Company, and it could not continue with the operations of any specific concession without the concessionaire rights granted by the governments involved. The granting governments may revoke any concession as established in the titles themselves and in the law applicable to the concession, which reasons might include that the development and/or maintenance programs were not duly fulfilled, that the operations were temporarily or permanently suspended, that the Company was unable to pay damages resulting from the operations, that it exceeded the maximum rates or that it did not comply with any significant other condition of a concession.
Additionally, the Mexican government may also terminate a concession, at any time, through a reversal of rights if, in accordance with applicable Mexican laws, it were considered to be in the public interest. The Mexican government may also assume the operation of a concession in the event of war, public unrest or a threat to national security. Furthermore, in the event of force majeure, the Mexican government may demand that the Company make specific changes in its operations. In the event of a reversal of assets in the public domain that were subject to the concessions held by the Mexican government, under Mexican laws, generally the Company may demand compensation for the value of the concessions or the extra costs incurred. By the same token, if the government took over the operations of the Company, provided that it was not for reasons of war, compensation is demanded from the government and from any third parties involved, for any resulting damages. Other governments generally have a similar condition in their construction contracts and in the applicable law. The Company cannot ensure that it would receive any compensation in a timely fashion or for an amount equivalent to the value of its investment in the concession, plus the respective lost profits or damages.
F-74
Interest rate risk management – This risk principally stems from changes in the future cash flows of debt entered into at variable interest rates (or with short-term maturity and presumable renewal) as a result of fluctuations in the market interest rates. The management of ICA examines the composition of revenues and debt and prepares a market analysis in an effort to anticipate any changes in interest rates. The purpose of managing this risk is to lessen the impact in the cost of the debt due to fluctuations in such interest rates. To mitigate this risk, the Company enters maintains an appropriate mix of fixed rate and variable rate loans and enters into financial derivatives which ensure fixed interest rates, establish maximum limits (ceilings) or narrow fluctuation bands for interest payments, relative to a substantial portion of any debt affected by such risk.
Such instruments include interest rate swap contracts and interest rate futures contracts. Hedging activities are assessed regularly so that they are in line with the interest rates and the identified risk. in order that the Company ensures that the most profitable hedging strategies are applied. As of December 31, 2011, the Company had an approximate Ps.50,035 million in outstanding debt, of which 21% has a fixed interest rate and the remaining 79% a variable interest rate. As of December 31, 2010, the Cpompany had an approximate Ps.32,005 million of outstanding debt, of which 26% had a fixed interest rate and the remaining 74% a variable interest rate. The interest rate on the variable rate debt of the Company is generally based on reference to the LIBOR rate and the TIIE rate.
The Company has entered into cash flow hedge contracts, including cash flows in foreign currency and other commercial derivative instruments for the duration of some of its long-term lines of credit, in order to reduce uncertainty due to interest rate fluctuations.
The hedge contracts might not protect the Company effectively against such market risks and could adversely affect its cash flow.
Analysis of interest-rate sensitivity – The following sensitivity analyses are based on the assumption of an adverse change in base points of the interest rates, in the amounts indicated, applicable to each category of variable rate financial liability. These sensitivity analyses cover all the debt of the Company and its financial derivatives. The Company determines its sensitivity analyses by applying the hypothetical interest rate to its outstanding debt and making adjustments due to such fluctuations for the debt which is hedged by the financial derivatives.
As of December 31, 2011, a hypothetical, instantaneous and adverse change of 100, 50 and 25 base points in the interest rate applicable to the variable rate financial liabilities, including financial derivatives only if they are held for hedging purposes, would have resulted in an additional financing expense of approximately Ps.228 million, Ps.116 million and Ps.59 million for the year, respectively. As of December 31, 2010, a hypothetical, instantaneous and adverse change of 100, 50 and 25 base points in the interest rate applicable to the variable rate financial liabilities, including financial derivatives only if they are held for trading purposes, would have resulted in an additional financing expense of approximately Ps.302 million Ps.155 million and Ps.99 million for the year, respectively.
Foreign exchange risk management – The Company performs transactions denominated in foreign currency; consequently, it is exposed to exchange rate risks, which are managed within the parameters of established and approved policies by using, as the case may be, exchange rate forward contracts when they are considered effective. The main risk related to the exchange rate involves changes in the value of the Mexican peso against the U.S. dollar.
In fixed price, lump sum or guaranteed maximum price contracts, estimates are made to try and contemplate the risk of fluctuations in the exchange rate between the Mexican peso and other currencies in which the contracts are expressed, included the related financing agreements, or other contracts entered into for the purchase of supplies, machinery or raw materials, ordinary expenses and other inputs. A severe devaluation or revaluation of the Mexican peso could also result in an interruption in the international currency markets and could limit the ability to transfer or convert pesos to U.S. dollars and other currencies in order to make the timely payment of interest and principal on the related obligations expressed in U.S. dollars or in other currencies. Although the Mexican government does not currently restrict, and has not restricted since 1982, the right or ability of
F-75
Mexican individuals or business entities to convert pesos into U.S. dollars or other currencies, or to transfer them outside Mexico, the Mexican government could institute exchange control policies in the future. It cannot be guaranteed that the Banco de México will maintain its current policy regarding the peso. The fluctuation of the currency may have an adverse effect on the Company’s financial position, results of operations and cash flows in future years. It is possible that the hedge contracts will not effectively protect the Company from such market risk and could negatively impact its cash flows.
As of December 31, 2011, approximately 22% of consolidated revenues and 47% of consolidated debt were expressed in foreign currencies, mainly U.S. dollars. An appreciation of the Mexican peso against the U.S. dollar would reduce the dollar-denominated revenues when expressed in pesos, whereas a depreciation of the peso against the U.S. dollar would increase the Company’s obligations under debt agreements when expressed in pesos.
Furthermore, currency fluctuations could affect the compatibility of the results of operations between different financial periods, due to the translation of the financial results of foreign subsidiaries, such as Rodio Kronsa. The majority of the revenues and expenses of Rodio Kronsa are expressed in euros, and the Company believes that it has a natural protection against the exposure to the exchange rate risk in relation to the contracts expressed in euros. Several of ICA’s subsidiaries have a lower exposure to risk in foreign currencies with respect to their foreign-currency denominated obligations, because a higher percentage of their revenues are expressed in U.S. dollars.
On December 31, 2011 and 2010, approximately 21% and 28%, respectively, of the Company’s backlog was denominated in foreign currencies, and approximately 56% and 50%, respectively, of the accounts receivable were denominated in foreign currencies. As of December 31, 2011 and 2010, approximately 21% and 18%, respectively, of consolidated financial assets were denominated in foreign currencies and the rest in Mexican pesos. Furthermore, as of December 31, 2011 and 2010, approximately 47% and 39%, respectively, of consolidated debt was expressed in foreign currencies. A depreciation of the Mexican peso against the U.S. dollar would increase the peso cost of the costs and expenses denominated in foreign currency and, unless they were denominated in the same currency as the source of payment (as established by ICA’s risk management policies) of the servicing obligations for debt expressed in foreign currency. As of the second half of 2011, the Mexican peso has depreciated substantially against the U.S. dollar, falling 11.08% from June 30, 2011 to December 31, 2011. The Mexican peso stabilized in the final quarter of 2011.
Foreign currency sensitivity analysis– The following sensitivity analyses are based on the scenario of a hypothetical, instantaneous, unfavorable changed in exchange rates, which affects the foreign currencies in which the Company��s debt is expressed. These sensitivity analyses cover the Company’s liabilities denominated in foreign currency, as well as its derivative financial instruments. Sensitivity is determined by applying a hypothetical exchange rate change to the outstanding debt expressed in foreign currency and subsequently adjusting for this fluctuation based on the debt hedged by derivative financial instruments.
As of December 31, 2011, a hypothetical, instantaneous, unfavorable changed in the exchange rate of 100 Mexican cents to the currency exchange rate applicable to the Company’s debt, including derivative financial instruments not held for trading purposes (and excluding the debt hedged by instruments held for trading purposes), would have resulted in an estimated exchange loss of approximately Ps.1,318 million pesos based on the highest value in pesos of the debt expressed in foreign currency. As of December 31, 2011, the Company did not hold any derivative financial instruments for trading purposes.
UDI exchange rate risk management – Although a portion of the Company’s long-term debt is denominated in UDIs, there is no exchange risk because Trust Securitization Certificates (CBFs) were issued in the same currency as that in which the payments to be received from the federal government agency will be denominated under the project to which the debt is related. Required principal repayments to date have been made and the Company has access to all the resources issued under the CBFs. Accordingly, the Company believes it has sufficient liquidity needed to conclude its construction of corporate infrastructure and begin its operation.
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UDI sensitivity analysis – The Company’s debt in UDIs is naturally hedged because its revenues are indexed for inflation monthly according to the INPC published by the INEGI. Consequently, the 25% portion of its debt denominated in UDIs is not subject to any exchange risk. Based on a projected inflation rate of the INPC of 4.5%, the ratio between debt service to total revenues is 26.28%, while the debt is paid regardless of the Company’s performance. If inflation were 10% throughout the entire project period, the ratio between the debt service to total revenues would be 15.54% and the Company’s debt would be paid regardless of its performance. If inflation were 0% throughout the entire project period, the ratio between the debt service to total revenues would be 37.26% and the Company’s debt would be paid regardless of this performance, although the total debt service reserve would be utilized for this purpose.
The sensitivity analysis does not reflect the inherent exchange risk because the Company’s exposure at year-end does not reflect its exposure throughout the year.
The carrying values of monetary assets and liabilities denominated in foreign currency at the end of the reporting period are as follows (figures in thousands):
| | | | | | | | | | | | | | | | |
| | | Liabilities | | | Assets | |
| Currency | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
U.S. dollars | | | (26,848,146 | ) | | | (14,358,198 | ) | | | 17,203,010 | | | | 12,250,425 | |
Euros | | | (1,439,494 | ) | | | (1,589,765 | ) | | | 858,134 | | | | 776,237 | |
Soles | | | (1,243,861 | ) | | | (724,845 | ) | | | 309,536 | | | | 596,146 | |
UDIs | | | 1,842,659 | | | | — | | | | — | | | | — | |
Credit risk management –Credit risk refers to the risk whereby one of the parties defaults on its contractual obligations, thereby generating a financial loss for the Company. To the extent possible, this risk is managed to reduce its impact by reviewing the solvency of the Company’s potential customers before entering into a contract. Once contracts are underway, the credit rating of uncollected amounts is periodically reviewed and the estimated recoverable amounts derived from doubtful accounts are analyzed by applying provisions to the results of the year. The credit risk has historically been very limited.
The Company’s maximum credit risk exposure is based on the table amounts detailed in Note 21. Similarly, details of overdue, unimpaired accounts receivable are included in Note 8.
ICA has adopted the policy of only doing business with solvent parties and obtaining sufficient collateral when necessary, so as to mitigate the risk of financial losses derived from potential default. Likewise, the Company only performs transactions with entities with the highest possible risk rating. The Company’s credit exposure is reviewed and approved by its senior management committees. The credit risk derived from cash, cash equivalents and derivative financial instruments is limited because counterparts are banks with high credit ratings assigned by credit bureaus. The financial instruments which potentially expose the Company to credit risks are primarily composed by receivable certifications and uncertified work completion (generically known as “construction instruments”) and other accounts receivable.
Claims are occasionally filed against customers for additional project costs which exceed the contract price or for amounts which were not included in the original contract price, including modification orders. This type of claim is filed for issues such as delays attributable to the customer, higher unit prices or the modification of the initial project scope, thereby resulting in additional indirect or direct costs. These claims are often subject to long arbitration or legal processes or procedures involving external experts, meaning that it is difficult to accurately forecast when they will be definitively resolved. When this occurs and it has unresolved claims, ICA can invest significant amounts of working capital in projects to cover excess costs while claims are resolved. In the specific case of
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modification orders, ICA can reach an agreement with the customer regarding the work scope, albeit without determining the final price. In this case, the opinion of external experts may be required to appraise unfavorable prices determined outside the Company’s control. As of December 31, 2011 and 2010, ICA had allowances for doubtful accounts of Ps.1,413 million and Ps.654 million related to commercial contracts and accounts receivable, including an allowance for doubtful accounts of Ps.143 million in the Airport segment related to the bankruptcy of the airlines of the Mexicana Group. The failure to quickly recover resources from this type of claim and modification orders could have a significant adverse effect on the Company’s liquidity and financial position.
Other accounts receivable are composed by amounts receivable from associated companies and notes receivable. The Company considers that these amounts will not result in a significant credit risk concentration.
Liquidity risk management –This risk is generated by temporary differences between the funding required by the Company to fulfill business investment commitments, debt maturities, current asset requirements, etc., and the origin of funds generated by its regular activities, different types of bank financing and disinvestment. This risk management is intended to maintain a balance between the flexibility, period and conditions of credit facilities contracted to provide short, medium and long-term funding requirements. In this regard, the Company’s use of project financing and debt with limited resources, as described in Note 21, and the short-term financing of current assets are particularly noteworthy. The Executive Committee of ICA is ultimately responsible for liquidity management. This Committee has established appropriate liquidity management guidelines. The Company manages its liquidity risk by maintaining reserves, financial facilities and adequate loans, while constantly monitoring projected and actual cash flows and reconciling the maturity profiles of financial assets and liabilities.
The following table shows the remaining contractual maturities of the Company’s non-derivative financial liabilities, together with agreed reimbursement periods. This table has been prepared based on the projected non-discounted cash flows of financial assets and liabilities at the date on which ICA must make payments and collect outstanding amounts. The table includes projected interest cash flows such as disbursements required for the financial debt included in the consolidated statement of financial position as well as with interest earned on financial assets. As interest is accrued at variable rates, the non-discounted amount is derived from interest rate curves at the end of the reporting period. Contractual maturity is based on the earliest date when ICA must make the respective payment.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2011 | | 1 year | | | Up to 2 years | | | Up to 3 years | | | Up to 4 years | | | Up to 5
years | | | Up to 6 years
and
thereafter | | | Total | |
Derivative financial instruments | | Ps. | 895,174 | | | Ps. | 2,452 | | | Ps. | — | | | Ps. | — | | | Ps. | — | | | Ps. | — | | | Ps. | 897,626 | |
Notes payable | | | 5,826,272 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,826,272 | |
Long-term debt(1) | | | 13,888,201 | | | | 1,194,791 | | | | 1,245,182 | | | | 1,835,591 | | | | 2,634,533 | | | | 23,409,927 | | | | 44,208,225 | |
Fixed interest | | | 1,762,971 | | | | 1,704,264 | | | | 1,643,093 | | | | 1,587,653 | | | | 1,517,556 | | | | 13,543,703 | | | | 21,759,240 | |
Variable interest | | | 871,060 | | | | 688,697 | | | | 610,210 | | | | 588,721 | | | | 543,903 | | | | 5,225,286 | | | | 8,527,877 | |
Trade accounts payable | | | 6,647,926 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 6,647,926 | |
Accrued expenses and Other | | | 2,854,534 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,854,534 | |
Other long-term liabilities | | | | | | | 694,242 | | | | 49,781 | | | | 26,849 | | | | 23,929 | | | | 296,922 | | | | 1,091,723 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | Ps. | 32,746,138 | | | Ps. | 4,284,446 | | | Ps. | 3,548,266 | | | Ps. | 4,038,814 | | | Ps. | 4,719,921 | | | Ps. | 42,475,838 | | | Ps. | 91,813,423 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2010 | | 1 year | | | Up to 2 years | | | Up to 3 years | | | Up to 4 years | | | Up to 5 years | | | Up to 6 years
and thereafter | | | Total | |
Derivative financial instruments | | Ps. | 883,876 | | | Ps. | 232,851 | | | Ps. | — | | | Ps. | — | | | Ps. | — | | | Ps. | — | | | Ps. | 1,116,727 | |
Notes payable | | | 4,700,864 | | | | — | | | | — | | | | | | | | | | | | | | | | 4,700,864 | |
Long-term debt(1) | | | 1,274,644 | | | | 12,364,407 | | | | 643,892 | | | | 664,207 | | | | 867,082 | | | | 11,489,452 | | | | 27,303,684 | |
Fixed interest | | | 526,353 | | | | 507,483 | | | | 469,285 | | | | 448,497 | | | | 424,231 | | | | 3,296,795 | | | | 5,672,644 | |
Variable interest | | | 1,090,013 | | | | 866,344 | | | | 579,241 | | | | 553,158 | | | | 526,362 | | | | 5,169,697 | | | | 8,784,815 | |
Trade accounts payable | | | 5,939,751 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 5,939,751 | |
Accrued expenses and Other | | | 1,958,850 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 1,958,850 | |
Other long-term liabilities | | | — | | | | 1,063,744 | | | | — | | | | — | | | | — | | | | — | | | | 1,063,744 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | Ps. | 16,374,351 | | | Ps. | 15,034,829 | | | Ps. | 1,692,418 | | | Ps. | 1,665,862 | | | Ps. | 1,817,675 | | | Ps. | 19,955,944 | | | Ps. | 56,541,079 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of January 1, 2010 | | 1 year | | | Up to 2 years | | | Up to 3 years | | | Up to 4 years | | | Up to 5 years | | | Up to 6 years
and thereafter | | | Total | |
Derivative financial instruments | | Ps. | 707,959 | | | Ps. | 222,415 | | | Ps. | 222,414 | | | Ps. | — | | | Ps. | — | | | Ps. | — | | | Ps. | 1,152,788 | |
Notes payable | | | 3,564,187 | | | | | | | | | | | | | | | | | | | | | | | | 3,564,187 | |
Long-term debt(1) | | | 657,349 | | | | 1,349,689 | | | | 6,401,475 | | | | 609,820 | | | | 605,126 | | | | 9,482,579 | | | | 19,106,038 | |
Fixed interest | | | 528,140 | | | | 543,748 | | | | 515,257 | | | | 487,883 | | | | 455,259 | | | | 1,864,050 | | | | 4,394,337 | |
Variable interest | | | 579,545 | | | | 428,360 | | | | 324,493 | | | | 283,941 | | | | 266,982 | | | | 2,421,930 | | | | 4,305,251 | |
Trade accounts payable | | | 4,840,544 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 4,840,544 | |
Accrued expenses and Other | | | 2,001,556 | | | | — | | | | — | | | | — | | | | — | | | | — | | | | 2,001,556 | |
Other long-term liabilities | | | — | | | | 222,968 | | | | 462,292 | | | | 18,437 | | | | 18,354 | | | | 18,355 | | | | 740,406 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | Ps. | 12,879,280 | | | Ps. | 2,767,180 | | | Ps. | 7,925,931 | | | Ps. | 1,400,081 | | | Ps. | 1,345,721 | | | Ps. | 13,786,914 | | | Ps. | 40,105,107 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (1) | The debt amount does not include financing commissions or expenses. |
The amounts forming part of the debt contracted with credit institutions include fixed and variable rate instruments. Variable-rate financial liabilities are subject to change when variable interest rates differ from the estimated interest rates determined at the end of the reporting period and presented at their fair value.
The Company expects resources from its operations, to be received when the related financial assets mature, to be sufficient to fulfill financial obligations. Furthermore, the Company has access to revolving credit lines with different banking institutions.
| | f. | Financial instruments at fair value |
The fair value of financial instruments presented below has been determined by the Company using available market information or other valuation techniques that require judgment and interpretation to develop estimates of fair values. The Company also uses assumptions that are based on market conditions existing at each of the dates of the consolidated statements of financial position.
The use of different assumptions and / or estimation methods could have a material effect on the estimated fair value amounts.
Financial instruments valued at fair value have been grouped into levels 1 to 3 according to the characteristics of the hierarchy that corresponds to them, identified in IFRS 7, which are:
Level 1 — quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 — inputs other than quoted prices in Level 1, that are observable for the asset or liability, either directly or indirectly.
Level 3 — unobservable inputs for the asset or liability, which include instruments measured based on the best available information, which might include certain internally-developed data, and considers risk premiums that a market participant would require.
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The amounts of cash and cash equivalents of the Company as well as accounts receivable and payable by third parties and related parties, and the current portion of bank loans and long-term debt approximate fair value because they have short maturities term. The long-term debt of the Company is recorded at amortized cost and bears interest at both fixed rates and variable rates related to market indicators.
The fair value of long-term debt in the following disclosure was obtained by using the quoted market prices or quotes from operators for similar instruments. The fair value of other financial instruments was determined using other techniques such as estimated cash flows, considering the dates of cash flow in term structure of interest rates, discounting these cash flows using rates that reflect the counterparty risk and the risk of the Company for the term of reference. The fair value of interest rate swaps is calculated as the present value of estimated future net cash flows. The fair value of currency futures is determined using the exchange traded futures as of the date of the consolidated statement of financial position.
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year ended December 31, 2011 | | | Quoted prices in active markets
for identical assets (Level 1) | | | Other significant observable
inputs (Level 2) | |
| | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | 2011 | | | 2010 | |
Assets | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative financial-assets | | Ps. | 322,929 | | | Ps. | 26,709 | | | Ps. | — | | | Ps. | — | | | Ps. | 322,929 | | | Ps. | 26,709 | |
Total financial assets at fair value | | | 322,929 | | | | 26,709 | | | | — | | | | — | | | | 322,929 | | | | 26,709 | |
Liabilities | | | | | | | | | | | | | | | | | | | | | | | | |
Derivative fiancial-liabilities | | Ps. | 1,038,023 | | | Ps. | 1,105,967 | | | | — | | | | — | | | Ps. | 1,038,023 | | | Ps. | 1,105,967 | |
Total financial liabilities at fair value | | | 1,038,023 | | | | 1,105,967 | | | | — | | | | — | | | | 1,038,023 | | | | 1,105,967 | |
The carrying amounts of financial instruments by category and their estimated fair values at December 31, 2011 and 2010 and January 1, 2010 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
| Financial assets: | | Carrying
amount | | | Fair value | | | Carrying
amount | | | Fair value | | | Carrying amount | | | Fair value | |
Cash and cash equivalents and restricted cash | | Ps. | 10,899,714 | | | Ps. | 10,899,714 | | | Ps. | 4,518,962 | | | Ps. | 4,518,962 | | | Ps. | 4,510,667 | | | Ps. | 4,510,667 | |
Loans and receivables: | | | | | | | | | | | | | | | | | | | | | | | | |
Customer and other current receivables | | | 33,168,016 | | | | 33,168,016 | | | | 21,988,202 | | | | 21,988,202 | | | | 17,305,966 | | | | 17,305,966 | |
Trade accounts payable and other current liabilities | | | (10,594,183 | ) | | | (10,594,183 | ) | | | (8,962,345 | ) | | | (8,962,345 | ) | | | (7,582,506 | ) | | | (7,582,506 | ) |
Long-term debt | | | (44,796,141 | ) | | | (46,805,571 | ) | | | (27,644,262 | ) | | | (28,292,437 | ) | | | (19,452,798 | ) | | | (20,026,971 | ) |
Derivative designated as hedging: | | | | | | | | | | | | | | | | | | | | | | | | |
Interest rate swaps | | | (894,649 | ) | | | (894,649 | ) | | | (808,488 | ) | | | (808,488 | ) | | | (485,544 | ) | | | (485,544 | ) |
Exchange rate swaps | | | (29,771 | ) | | | (29,771 | ) | | | (137,659 | ) | | | (137,659 | ) | | | (303,358 | ) | | | (303,358 | ) |
Options interest rate | | | — | | | | — | | | | (170,579 | ) | | | (170,579 | ) | | | (363,886 | ) | | | (363,886 | ) |
The fair values of certain financial instruments disclosed above at December 31, 2011 and 2010 and January 1, 2010 do not differ from their carrying value because the values observed in the market are very similar to those recorded in the related period, based on the nature of the asset and/or its short-term maturity.
There were no transfers between Level 1 and 2 in 2011 or 2010.
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Maturities of derivative financial instruments at December 31, 2011, are as follows:
| | | | | | | | | | | | | | | | | | | | |
| Maturity | | 0 to 1 year | | | 2 to 3 years | | | 3 to 5 years | | | Over 5 years | | | Total | |
Derivative financial instruments | | Ps. | (527,939 | ) | | Ps. | (889,897 | ) | | Ps. | (235,100 | ) | | Ps. | (111,061 | ) | | Ps. | (1,763,998 | ) |
The Company’s equity management is intended to maintain an optimum financial-net worth structure to reduce capital costs and safeguard its capacity to continue its operations with sound indebtedness ratios.
The Executive Committee quarterly reviews the Company’s equity structure. As part of this review, the Committee considers capital costs and the risks associated with each capital type. The equity structure is essentially managed based on an analysis of Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), which is calculated in the following manner: income attributable to controlling interests plus income attributable to non-controlling interests, discontinued operations, income taxes, otherexpenses (income), net, less the participation in the equity held in unconsolidated subsidiaries and associated entities, plus borrowing costs, depreciation, amortization and the borrowing costs included in the cost of sales of projects financed during the construction stage.
| | | | | | | | |
| | | December 31,
2011 | | | December 31,
2010 | |
Income from controlling interests | | Ps. | 1,480,289 | | | Ps. | 629,454 | |
Income from non-controlling interests | | | 310,000 | | | | 341,458 | |
Discontinued operations | | | (1,483,859 | ) | | | (245,991 | ) |
Income taxes | | | (33,205 | ) | | | 284,347 | |
Share in results of associated companies | | | (38,303 | ) | | | (79,618 | ) |
Borrowing costs | | | 3,461,503 | | | | 1,308,343 | |
Depreciation and amortization | | | 1,267,200 | | | | 1,191,713 | |
Interest expense included in cost of sales | | | 1,624,274 | | | | 1,099,628 | |
| | | | | | | | |
EBITDA | | Ps. | 6,587,899 | | | Ps. | 4,529,334 | |
| | | | | | | | |
| | b. | At December 31, 2011, the authorized common stock of the Company is Ps. 8,503 million with a single class of common stock without par value, comprised of the following: |
| | | | | | | | |
| | | Shares | | | Amount | |
Subscribed and paid shares | | | 604,679,197 | | | Ps. | 8,334,043 | |
Shares held in treasury | | | 12,495,459 | | | | 168,676 | |
| | | | | | | | |
| | | 617,174,656 | | | Ps. | 8,502,719 | |
| | | | | | | | |
| | c. | At the Ordinary Shareholders’ Meeeting held on November 17, 2011, the shareholders approved an increase in the reserve fund for the purchase of Company shares up to Ps.1,850 million, authorizing making available fund to purchase up to that amount of Company shares. Additionally, the shareholders approved the cancellation of up to 32,748,689 shares repurchased, equivalent to about 5% of shares outstanding at December 31, 2010. At a previous Ordinary Shareholders’ Meeting on April 14, 2011, the shareholders approved a maximum reserve of Ps.1,000 million to repurchase Company stock. |
| | d. | At the Stockholders’ Ordinary General Meeting on April 14, 2011, and April 15, 2010, the stockholders approved the results of operations for the years ended December 31, 2010 and 2009, respectively. |
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| | e. | A Stockholders’ Special Meeting held on June 25, 2009, the following resolutions were adopted: i) cancel up to 5,349,500 of the Company’s shares of variable capital, which were held in treasury, acquired under the share buyback program established by the Mexican Securities Law, ii) adjust the total number of shares representing authorized common stock of 499,923,345 shares to their theoretical value in effect at the acquisition date, and iii) increase the variable capital of the Company through the issuance and placement of up to 150 million unsubscribed shares, up to a maximum amount equivalent to U.S.$350 million through a public offering and over-allotment, both in the Mexican market (30%), and in foreign markets (70%), in the latter case through Nonredeemable Ordinary Participation Certificates (CPOs) or American Depositary Shares (ADSs), each one representing four CPOs, and each CPO with the underlying value of one share. |
| | f. | As part of the resolutions made at the Stockholders’ Ordinary General Meeting on April 24, 2009, the Board of Directors proposed to approve the number of shares that represent the Company’s minimum fixed capital at the end of 2008 to be 34,693,284. The resulting average theoretical value of such shares derived from the consolidation regime was Ps.13.8560 per each subscribed and paid-in share. Consequently, the Company’s minimum fixed capital amounts to Ps.481 million. Variable capital is unlimited. |
| | g. | Option plan- At the Ordinary General Stockholders’ meeting of March 31, 2000, the stockholders agreed to establish an employee stock option plan. The option plan will be effective for ten years. Under the option plan, ICA’s employees were able to acquire treasury shares at the quoted market price of the day before the grant date, which may not be lower than Ps.22.50 (pesos per share). The term for exercising the option is seven years. Shares obtained through options may only be sold in Mexico through the Mexican Stock Exchange, by following the provisions of the Mexican Law related to confidential information. The maximum annual amount of options for the purchase of shares that may be granted may not exceed 1.5% of the total amount of outstanding shares at December 31 of the previous year. |
At the Ordinary General Stockholders’ meeting held on April 16, 2004, the stockholders agreed to the cancellation of the Option Plan to purchase shares of ICA agreeing to maintain existing outstanding options until their expiration. Therefore, the Company maintained in its treasury 24,961,842 shares, to be subscribed and paid, valued at $ 22.5. All allocations of shares for the options were made during 2005, except for the allocation related to the 2003 grants, which were made in April 2006. Through 2008, 3,408,634 options have been exercised. During 2010 and 2009, 113,485 and 35,308 options were exercised, respectively, minus 231,887 and 166 shares transferred from the option plan to the share plan at 2009 and 2005, respectively. The balance of treasury shares held for the option plan of 370.827, was transferred to the share plan during 2010.
The following table reflects the Company’s employee stock option activity from January 1, 2010 through December 31, 2010, and the weighted average exercise prices:
| | | | | | | | |
| | | Number of Shares | | | Weighted Average
Exercise Price | |
Options outstanding and exercisable at January 1, 2010 | | | 286,700 | | | | Ps. 22.50 | |
Granted | | | — | | | | — | |
Expired | | | 173,215 | | | | 22.50 | |
Exercised | | | 113,485 | | | | 22.50 | |
| | | | | | | | |
Options outstanding and exercisable at December 31, 2010 | | | — | | | | — | |
| | | | | | | | |
| | h. | Shares plan—At December 31, 2005, the number of shares held in treasury assigned to meet the Company’s obligation under the employee bonus plan was 9,647,899, of which at December 31, 2008, 3,308,313 shares were granted. During 2010 and 2009, 3,627,389 and 2,819,452, respectively, of shares were issued to employees of ICA. |
Based on the resolutions adopted at the stockholders’ special meeting of June 25, 2009, it was agreed: i) to transfer 231,887 shares held in treasury for purposes of the option plan, whose rights were not exercised within the respective deadlines as established in the option plan, to be used for the executive stock plan, ii) for subsequent years, transfer, for use in conjunction with the executive stock plan, the shares dedicated to the option plan, whose option rights were not exercised within the respective deadlines. Accordingly, during 2010, 370,827 of treasury shares held to cover the option plan were transferred to be used for the employee bonus plan.
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The balance at December 31, 2011 of shares in treasury for the employee stock plan is 495,459 shares.
| | i. | During 2011, 2009 and 2008, the Company repurchased from the stock market 48,534,300, 371,500 and 4,978,000, respectively, of its own shares for Ps.668,928, Ps.5,148 and Ps.68,976, respectively, (nominal value). The latter two amounts are included in the shares referred to in subparagraph h) above. |
| | j. | Stockholders’ equity, except restated paid-in capital and tax retained earnings, will be subject to income tax at the rate in effect when the dividend is distributed. Any tax paid on such distribution may be credited against the income tax payable of the year in which the tax on the dividend is paid and the two fiscal years following such payment. |
| 27. | Non-controlling interest in consolidated subsidiaries |
Non-controlling interest consists of the following:
| | | | | | | | | | | | |
| | | December 31,
201 | | | December 31,
2010 | | | January 1,
2010 | |
Common stock | | Ps. | 2,867,521 | | | Ps. | |3,206,437 | | | Ps. | 3,101,103 | |
Contributions for future capital increases | | | 143,047 | | | | 118,547 | | | | 118,547 | |
Retained earnings and others | | | 1,005,614 | | | | 419,525 | | | | 306,562 | |
| | | | | | | | | | | | |
| | Ps. | 4,016,182 | | | Ps. | 3,744,509 | | | Ps. | 3,526,212 | |
| | | | | | | | | | | | |
The fluctuation in the non-controlling interest mainly occurs because of the effects of the dividends received and the effects of incorporation of subsidiaries.
| 28. | Discontinued operations |
| | a. | As discussed in Note 3, on August 24, 2011, ICA negotiated the sale of the “Corredor Sur” toll highway, a concession segment subsidiary, to Empresa Nacional de Autopistas, S.A. de C.V. (“ENA”). Amounts are presented within discontinued operations in the consolidated statement of comprehensive financing. Consideration received exceeded the carrying value of the related net assets. Details of the assets and liabilities sold and the related gain generated by the sale are discussed below. |
| | b. | Condensed financial information of Corredor Sur is as follows: |
| | | | | | | | |
| | | Eight months ended
August 31, 2011 | | | Year ended December
31, 2010 | |
Revenues | | Ps. | 476,145 | | | Ps. | 646,750 | |
Services cost | | | (114,749 | ) | | | (198,629 | ) |
| | | | | | | | |
Gross profit | | | 361,396 | | | | 448,121 | |
Operation expenses | | | (25,976 | ) | | | (40,176 | ) |
| | | | | | | | |
Operating income | | | 335,420 | | | | 407,945 | |
Financing cost | | | (661,038 | ) | | | (125,184 | ) |
| | | | | | | | |
(Loss) income before income taxes | | | (325,618 | ) | | | 282,761 | |
Income taxes | | | 20,752 | | | | (36,770 | ) |
| | | | | | | | |
| | |
(Loss) income from discontinued operations | | Ps. | (304,866 | ) | | Ps. | 245,991 | |
| | | | | | | | |
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| | c. | Assets and liabilities on which control was lost: |
| | | | | | | | |
| | | December 31,
2010 | | | January 1,
2010 | |
Assets: | | | | | | | | |
Cash and cash equivalents | | Ps. | 322,474 | | | Ps. | 703,028 | |
Accounts receivable | | | 31,375 | | | | 30,552 | |
Investment in concession | | | 1,938,790 | | | | 2,094,629 | |
Other assets | | | 364,870 | | | | 614,920 | |
| | | | | | | | |
| | | 2,657,509 | | | | 3,443,129 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Note payables | | | 1,752,798 | | | | 1,898,444 | |
Other liabilities | | | 313,755 | | | | 356,674 | |
| | | | | | | | |
| | | 2,066,553 | | | | 2,255,118 | |
| | | | | | | | |
Net assets sold | | Ps. | 590,956 | | | Ps. | 1,188,011 | |
| | | | | | | | |
| | d. | Income from sale of subsidiary: |
| | | | |
| | | September 2011 | |
Consideration received | | Ps. | 3,277,147 | |
Less: | | | | |
Net assets sold | | | 64,211 | |
Others(1) | | | 372,584 | |
Loss for the period from discontinued operation | | | 304,866 | |
Income tax attributable to the operation | | | 1,051,627 | |
| | | | |
Gain on sale of subsidiary | | Ps. | 1,483,859 | |
| | | | |
| | (1) | Includes grain from foreign operations for Ps. 73 million generated through the date of disposal and provision for legal indemnizations for Ps.333 million. |
Gain sale of subsidiary is presented in income from discontinued operations in the consolidated statement of comprehensive income.
| | e. | Cash flows from discontinued operations |
| | | | |
| | | December 31, 2011 | |
Consideration received in cash | | Ps. | 3,277,147 | |
Less: balance of cash and equivalents from discontinued operations | | | 322,474 | |
| | | | |
Net cash from discontinued operation | | Ps. | 2,954,673 | |
| | | | |
| | f. | Basic earnings and diluted earnings per share from discontinued operations for the year ended December 31, 2011 and 2010, amounts to Ps.2.349 and Ps.0.379, respectively. |
| | a. | Cost of sales from continuing operations consist of the following: |
| | | | | | | | |
| | | Year ended December
31, 2011 | | | Year ended December
31, 2010 | |
Direct cost | | Ps. | 30,679,892 | | | Ps. | 24,438,291 | |
Indirect cost | | | 3,543,429 | | | | 2,831,495 | |
Cost of sales of housing | | | 1,731,461 | | | | 1,947,752 | |
Cost of sales of real estate | | | 410,830 | | | | 264,366 | |
Others | | | (186,234 | ) | | | 11,334 | |
| | | | | | | | |
| | Ps. | 36,179,378 | | | Ps. | 29,493,118 | |
| | | | | | | | |
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| | b. | Costs and expenses for depreciation, amortization and employee benefit are as follows: |
| | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, 2011 | |
| | | | | | Indirect | |
| | | Direct cost | | | Cost | | | General expenses | | | Total | |
Depreciation | | Ps. | 135,325 | | | Ps. | 63,060 | | | Ps. | 63,469 | | | Ps. | 261,854 | |
Amortization | | | 576,112 | | | | 400,727 | | | | 28,507 | | | | 1,005,346 | |
Wages and salaries | | | 5,694,613 | | | | 463,324 | | | | 1,223,603 | | | | 7,381,540 | |
Development and improvements | | | 1,248 | | | | 6,324 | | | | 48,489 | | | | 56,061 | |
| | | | |
Bonus to employees | | | — | | | | — | | | | 199,626 | | | | 199,626 | |
| | | | | | | | | | | | | | | | |
| | | | | | Year ended December 31, 2010 | |
| | | | | | Indirect | |
| | | Direct cost | | | Cost | | | General expenses | | | Total | |
Depreciation | | Ps. | 321,605 | | | Ps. | 11,566 | | | Ps. | 54,575 | | | Ps. | 387,746 | |
Amortization | | | 372,037 | | | | 403,289 | | | | 28,641 | | | | 803,967 | |
Wages and salaries | | | 5,416,329 | | | | — | | | | 1,081,113 | | | | 6,497,442 | |
Development and improvements | | | 445 | | | | 3,998 | | | | 41,206 | | | | 45,649 | |
| | | | |
Bonus to employees | | | — | | | | — | | | | 89,879 | | | | 89,879 | |
Note 35 presents an analysis of revenues classified by the Company’s main products and services.
| 30. | Other (income) expense, net |
Other (income) expense, net, consists of the following:
| | | | | | | | |
| | | Year ended December 31,
2011 | | | Year ended December 31,
2010 | |
(Gain) loss on sales of property, plant and equipment | | Ps. | (5,519 | ) | | Ps. | 21,312 | |
(Gain) loss on sale of investments in shares | | | (466,821 | ) | | | 9,682 | |
Other | | | (22,352 | ) | | | (726 | ) |
| | | | | | | | |
| | Ps. | (494,692 | ) | | Ps. | 30,268 | |
| | | | | | | | |
Financing cost is detailed as follows:
| | | | | | | | | | | | | | | | |
| | | December 31, 2011 | |
| | | | | | Capitalized in | | | | |
| | | | | | statement of | | | Results | |
| | | Total | | | financial position | | | Project financing | | | Financing cost | |
Interest expense | | Ps. | 3,957,160 | | | Ps. | 502,335 | | | Ps. | 1,656,626 | | | Ps. | 1,798,199 | |
Interest income | | | (337,033 | ) | | | (18,570 | ) | | | (32,352 | ) | | | (286,111 | ) |
Exchange loss | | | 1,425,010 | | | | 9,302 | | | | (152,491 | ) | | | 1,568,199 | |
Valuation of derivative financial instruments | | | 381,940 | | | | — | | | | 724 | | | | 381,216 | |
| | | | | | | | | | | | | | | | |
Total | | Ps. | 5,427,077 | | | Ps. | 493,067 | | | Ps. | 1,472,507 | | | Ps. | 3,461,503 | |
| | | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | |
| | | December 31, 2010 | |
| | | | | | Capitalized in | | | | |
| | | | | | statement of | | | Results | |
| | | Total | | | financial position | | | Project financing | | | Financing cost | |
Interest expense | | Ps. | 2,877,804 | | | Ps. | 241,955 | | | Ps. | 1,283,263 | | | Ps. | 1,352,586 | |
Interest income | | | (393,464 | ) | | | (3,952 | ) | | | (39,671 | ) | | | (349,841 | ) |
Exchange loss | | | 6,571 | | | | 6,197 | | | | 10,561 | | | | (10,187 | ) |
Valuation of derivative financial instruments | | | 299,485 | | | | — | | | | (16,300 | ) | | | 315,785 | |
| | | | | | | | | | | | | | | | |
Total | | Ps. | 2,790,396 | | | Ps. | 244,200 | | | Ps. | 1,237,853 | | | Ps. | 1,308,343 | |
| | | | | | | | | | | | | | | | |
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| 32. | Related party balances and transactions |
| | a. | At December 31, 2011 and 2010, accounts receivable and accounts payable with related parties are as follows: |
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Accounts receivable: | | | | | | | | | | | | |
Fluor Daniel South America Limited | | Ps. | 39,960 | | | Ps. | 32,946 | | | Ps. | 33,527 | |
Red de Carreteras de Occidente, S.A.P.I.B. de C.V. | | | 764,981 | | | | 261,464 | | | | 156,836 | |
Los Portales, S.A.(1) | | | — | | | | — | | | | 30,680 | |
Fluor Daniel Mexico, S.A. | | | 21,335 | | | | 58,550 | | | | 127,604 | |
Global Vía Infraestructura | | | 56,970 | | | | — | | | | — | |
Viabilis Holding, S.A. de C.V. | | | 1,245 | | | | 938 | | | | 35,406 | |
Constructora Mexicana de Infraestructura Subterránea, S.A. de C.V.(1) | | | 276,678 | | | | 238,075 | | | | 325,644 | |
Constructora de Infraestructura de Agua de Querétaro, S.A. de C.V. (1) | | | 110,272 | | | | 99,431 | | | | 13,494 | |
Suministro de Agua de Querétaro, S.A. de C.V. (1) | | | 44,677 | | | | 25,791 | | | | — | |
Constructora Nuevo Necaxa-Tihuatlan, S.A. de C.V. (1) | | | 107,490 | | | | 10,115 | | | | — | |
Infraestructura y Saneamiento de Atotonilco, S.A. de C.V. | | | 19,375 | | | | 14,244 | | | | — | |
Corporación Geo, S.A. de C.V. | | | — | | | | 13,514 | | | | — | |
Otros | | | 55,270 | | | | 37,057 | | | | 46,341 | |
| | | | | | | | | | | | |
Total | | Ps. | 1,498,253 | | | Ps. | 792,125 | | | Ps. | 769,532 | |
| | | | | | | | | | | | |
Accounts payable: | | | | | | | | | | | | |
Controladora García Velez, S.A. de C.V. | | Ps. | — | | | Ps. | — | | | Ps. | 163,332 | |
Aeropuerto de Paris Management | | | 64,399 | | | | 50,060 | | | | 53,199 | |
Hotel N H Cristal, S.A. de C.V. | | | 28,122 | | | | 33,541 | | | | 24,053 | |
Autopistas Concesionadas del Altiplano, S.A. de C.V. | | | — | | | | 100,810 | | | | — | |
Constructora Nuevo Necaxa-Tihuatlan, S.A. de C.V. (1) | | | — | | | | 71,093 | | | | — | |
Fluor Daniel Mexico S.A. | | | 11,491 | | | | 51,169 | | | | — | |
Los Portales, S.A. (1) | | | — | | | | 16,122 | | | | — | |
Grupo Rodio Kronsa(1) | | | — | | | | 23,910 | | | | — | |
Construcciones y Trituraciones, S.A. de C.V. (1) | | | — | | | | 23,478 | | | | — | |
Aqualia Infraestructura, S.A. | | | 25,925 | | | | 20,292 | | | | — | |
Operadora CICSA | | | 32,234 | | | | — | | | | — — | |
CARSO Infraestructura | | | 38,649 | | | | — | | | | — | |
FCC Construcción, S.A. de C.V. | | | 143,346 | | | | 20,163 | | | | — | |
Otras | | | 50,355 | | | | 56,505 | | | | 94,278 | |
| | | | | | | | | | | | |
Total | | Ps. | 394,521 | | | Ps. | 467,143 | | | Ps. | 334,862 | |
| | | | | | | | | | | | |
| | (1) | Proportionately consolidated. |
| | b. | Transactions with related parties, carried out in the ordinary course of business, were as follows: |
| | | | | | | | |
| | | Year ended December 31,
2011 | | | Year ended December 31,
2010 | |
Construction revenues | | Ps. | 2,444,828 | | | Ps. | 1,195,836 | |
Services rendered | | | 304,150 | | | | 383,162 | |
Royalties | | | 75,608 | | | | 64,245 | |
Equipment leasing expense | | | 61,710 | | | | 25,738 | |
Cost and services expenses | | | 276,955 | | | | 35,163 | |
Financing cost | | | 10,050 | | | | — | |
Equipment leasing income and other | | | 92,214 | | | | 99,113 | |
F-87
| | c. | For the years ended December 31, 2011 and 2010, the aggregate compensation of the directors and executive officers paid or accrued for services in all capacities was approximately Ps.208 million, Ps.210 million, respectively. We pay non-management directors Ps.44 thousand (nominal value) net of taxes for each Board of Directors meeting, corporate practices committee, finance and sustainability meeting or audit committee meeting they attend. Additionally we paid Ps.15 million and Ps.10 million net of taxes to the non-management directors and president of the Board of Directors for the year ended December, 31 2011 and 2010, respectively. |
| 33. | Nonmonetary transactions |
During the years ended December 31, 2011 and 2010, the Company performed the following nonmonetary investment activities, which are not reflected in its consolidated cash flow statement:
| | a. | The Company recognized construction revenues which were exchanged for intangible assets at December 31, 2011 and 2010, for the amount of Ps.1,768 million and Ps.1,459 million, respectively. Construction costs are considered as an operating activity. |
| | b. | As discussed in Note 4, the Company sold 100% of the shares of COVIQSA and CONIPSA to RCO. This acquisition was essentially settled through payments of Ps.1,550 million in shares and Ps.350 million in additional shares subject to the fulfillment of certain conditions (additional payment). |
| | c. | In December 2010, ICA established a Trust to guarantee the accounts receivable of the Esmeralda Resort Project for the amount of Ps.1,425 million, whereby buildings under construction, the golf course and top-level beach zone land composed by more than 289 hectares were awarded. In October 2011, ICA obtained a payment in-kind composed by land ownership for the amount of the Ps.152 million pesos (see Note 24). |
| | d. | As discussed in Note 4, until November 2011, the Company jointly controlled the shares of Geoicasa, S.A. de C.V. (Geoicasa) and Grupo Punta Condesa, S.A. de C.V. (Condesa). In December 2011, it sold 50% of the shares of Geoicasa and received the remaining 50% of the shares of Condesa as payment. |
| | e. | In November 2011, the Company acquired machinery through capital leases for the amount of Ps.141 million and subsequently recorded an asset and liability for the same amount. The contract was executed for a 27-month period. |
| 34. | Retirement benefit obligation |
The liability for employees derives from the pension plan, seniority premiums and payments at the end of employment to employees upon retirement, are determined using the project unit credit method, with actuarial valuations. The benefits consist of a single payment equal to 12 day’s salary for each year of service based on the employee’s most recent salary, but without exceeding twice the current minimum wage established by law.
In 2006, the Company created a defined benefit pension plan covering all active employees aged more than 65, who are part of the board of Empresas ICA, S.A.B. de C.V. and have a minimum of 10 years’ of service as a member of the board prior to their retirement. These employees are entitled to the benefits at the age of 55, with gradual reductions of the salaries considered for pension purposes. Beginning January 1, 2008, the plan deferred the early retirement age an additional two years, which such deferral ended in 2010.
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The consolidated net cost of the period of obligations derived from the pension plan, payments at the end of employment to employees upon retirement and seniority premiums was Ps.87 million and Ps.60 million, respectively, and is as follows:
| | | | | | | | |
| | | Year ended
December 31, 2011 | | | Year ended
December, 2010 | |
Labor cost | | Ps. | 38,645 | | | Ps. | 28,672 | |
Financial cost | | | 39,394 | | | | 24,474 | |
Yield on plan assets | | | (1,677 | ) | | | (1,346 | ) |
Past service cost | | | 10,680 | | | | 8,696 | |
| | | | | | | | |
Net cost of the period | | Ps. | 87,042 | | | Ps. | 60,496 | |
| | | | | | | | |
Cost recognized in other comprehensive income:
| | | | | | | | |
| | | Year ended December 31,
2011 | | | Year ended December 31,
2010 | |
Actuarial loss | | Ps. | 91,557 | | | Ps. | 25,730 | |
| | | | | | | | |
The current values of obligations and the rates used in the calculation of the pension plan and seniority premiums are as follows:
| | | | | | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | | | January 1, 2010 | |
Vested benefit obligation | | Ps. | (706,313 | ) | | Ps. | (480,676 | ) | | Ps. | (85,973 | ) |
Plan assets | | | 94,780 | | | | 18,116 | | | | (203,858 | ) |
| | | | | | | | | | | | |
Defined benefit obligation | | | (611,533 | ) | | | (462,560 | ) | | | (289,831 | ) |
Unrecognized past services cost | | | 61,647 | | | | 22,876 | | | | 14,216 | |
| | | | | | | | | | | | |
Net liability arising from defined benefit obligation | | Ps. | (549,886 | ) | | Ps. | (439,684 | ) | | Ps. | (275,615 | ) |
| | | | | | | | | | | | |
Changes in the present value of the defined benefit obligations in the current period were as follows:
| | | | | | | | |
| | | December 31, 2011 | | | December 31, 2010 | |
Present values of obligations of the pension plan as of January 1 | | Ps. | 462,560 | | | Ps. | 289,831 | |
Actuarial service labor cost | | | 38,645 | | | | 28,672 | |
Financial cost | | | 39,394 | | | | 24,474 | |
Actuarial (gains) losses | | | (535 | ) | | | (517 | ) |
Loss on change in obligations | | | 78,537 | | | | 137,037 | |
Actuarial gain recognized in other comprehensive income | | | 91,555 | | | | 25,730 | |
Benefit payments | | | (21,956 | ) | | | (24,550 | ) |
Plan assets | | | (76,667 | ) | | | (18,117 | ) |
| | | | | | | | |
Present values of defined benefit obligation as of December 31, 2011 | | Ps. | 611,533 | | | Ps. | 462,560 | |
| | | | | | | | |
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Actual rates used in actuarial calculations:
| | | | | | | | | | | | |
| | | December 31, 2011
% | | | December 31, 2010
% | | | January 1, 2010
% | |
Discount rate of the projected benefit obligation at present value | | | 7.75 | % | | | 7.97 | % | | | 8.5 | % |
Salary increase | | | 5.50 | % | | | 5.50 | % | | | 5.5 | % |
Yield on plan assets | | | 7.75 | % | | | 8.50 | % | | | 9.0 | % |
35. Bussiness segment data
For management purposes, the Company is organized into six reportable segments, which are: Civil Construction, Industrial Construction, Housing Development, Airports, Concessions and Corporate and Other. These segments are the basis on which the Company reports its segment information. The segment reporting is presented considering internal reports on the business units of the Company, which are reviewed regularly by management for decision-making in the operating area in order to allocate resources to segments and assessing their yield.
Civil construction
The Civil Construction segment focuses on infrastructure projects in Mexico, including the construction of roads, highways, transportation facilities (such as mass transit systems), bridges, dams, hydroelectric plants, prisons, 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. The Civil Construction segment has also pursued opportunities in other parts of Latin America, the Caribbean, Asia and the United States, and in 2011 was pursuing select opportunities outside of Mexico and performing one construction project in Panama. The Civil Construction segment performs activities such as demolition, clearing, excavation, de-watering, drainage, embankment fill, structural concrete construction, concrete and asphalt paving, and tunneling. In 2011, the Civil Construction segment accounted for approximately 67% of total revenues.
Rodio Kronsa, until December 31, 2010 was presented as a separate segment in the Company’s MFRS financial statements. Effective January 1, 2011, the results of Rodio Kronsa are consolidated in the civil construction segment, considering its revenues and assets do not exceed 10%, coupled with the fact that control is exercised through the general management of ICA construction.
Industrial construction
The Industrial Construction segment 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. In 2011, the Industrial Construction segment accounted for 12% of total revenues.
Housing Development
In 2011, the Housing Development segment accounted for 8% of total revenues. The 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. Some construction services are subcontracted, such as urbanization.
The principal raw materials the Company requires for the Housing Development operations are cement, steel, construction aggregates, doors, windows and other housing fixtures.
In 2010, ICA expanded its operations in the Housing Development segment by increasing its stake in Los Portales, a real estate development company in Peru, from 18% to 50%, and participated in several new
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housing development projects in Mexico, including a joint venture with Prudential Investment Management, Inc. to develop social interest housing with PREI. During 2011 and 2010, the Company sold 6,797 and 7,116 houses, respectively. As of December 31, 2011, the Housing Development segment owned 1,703 hectares of land reserved for the construction of 94,375 housing units, totaling 38 projects in 14 different states in Mexico.
Airports
Through GACN, ICA operates 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 6% of our revenues in 2011 and 7% in 2010. 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.
Concessions
The concessions segment focuses on the construction, development, maintenance and operation of long-term concessions of toll roads, tunnels and water projects and accounted for 8% of total revenues in 2011. The construction work we perform on the concessions is included in the Civil Construction segment. During 2011, ICA participated in six operating concessioned highways and one operating concessioned tunnel (the Acapulco tunnel) that are consolidated in the financial statements, and in the management and operation of a water treatment plant in Ciudad Acuña and other water supply systems, including the Aqueduct II water supply system that we began proportionally consolidating in 2008.
Mexican state and municipal governments and the governments of certain foreign countries award concessions for the construction, maintenance and operation of infrastructure facilities. The Mexican government actively pursues a policy of granting concessions to private parties for the construction, maintenance and operation of highways, bridges and tunnels 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. A long-term concession is a license of specified duration (typically between 20 and 40 years), granted by a federal, state or municipal government to finance, build, establish, operate and maintain a public means of communication or transportation.
The return on any investment in a concession is based on the duration of the concession, in addition to the amount of toll revenues collected or government payments based on operation volume, operation and maintenance costs, debt service costs and other factors. Recovery of the investment in highway concessions is typically accomplished through the collection of toll tariffs or, if under the Public Private Partnership (PPP) contract structure, a fixed payment for highway availability (together with a smaller shadow tariff based on traffic volume), or a combination of the two methods. The return on investment in the water treatment concessions is generally based on the volume of water supplied or treated.
To finance the obligations of the projects, ICA typically provides a portion of the equity and the rest is arranged through third party financing in the form of loans and debt securities. Recourse on the indebtedness is typically limited to the subsidiary engaged in the project. The investment of equity is returned over time once the project is completed. Generally, ICA contributes equity to a project by accepting deferred payment of a portion of its construction contract price. Depending on the requirements of each specific infrastructure concession project, ICA typically seeks to form a consortium with entities that have expertise in different areas and that can assist us in obtaining financing from various sources.
A summary of certain segment information is as follows (amounts may not add or tie to other accompanying information due to rounding):
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Construction | | | Housing | | | | | | | | | Corporate | | | | | | | | | | |
| | | Civil | | | Industrial | | | Subtotal | | | Development | | | Airports | | | Concessions | | | and other | | | Total segments | | | Eliminations | | | Consolidated | |
December 31, 2011: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
External revenues | | | Ps. 28,709,901 | | | | Ps. 5,210,482 | | | | Ps. 33,920,383 | | | | Ps. 3,506,778 | | | | Ps. 2,776,283 | | | | Ps. 3,129,808 | | | | Ps. 6,777 | | | | Ps. 43,340,029 | | | | Ps.(571,244 | ) | | | Ps. 42,768,785 | |
Intersegment revenues | | | 16,794,323 | | | | 445,668 | | | | 17,239,991 | | | | 3,107,453 | | | | 2,295,690 | | | | 9,292,325 | | | | 2,024,173 | | | | 33,959,632 | | | | 571,244 | | | | 34,530,876 | |
Operating income | | | 1,116,184 | | | | 356,358 | | | | 1,472,542 | | | | 230,631 | | | | 916,807 | | | | 917,221 | | | | 193,520 | | | | 3,730,721 | | | | (34,296 | ) | | | 3,696,425 | |
Financing income | | | (233,836 | ) | | | (15,718 | ) | | | (249,554 | ) | | | (64,470 | ) | | | (20,957 | ) | | | (220,853 | ) | | | (242,580 | ) | | | (798,414 | ) | | | 512,303 | | | | (286,111 | ) |
Financing cost | | | 813,373 | | | | 97,941 | | | | 911,314 | | | | 161,620 | | | | 224,789 | | | | 647,427 | | | | 2,201,715 | | | | 4,146,865 | | | | (399,251 | ) | | | 3,747,614 | |
Income tax expense (benefit) | | | 658,775 | | | | 83,202 | | | | 741,977 | | | | 66,870 | | | | 153,881 | | | | 389,870 | | | | (508,685 | ) | | | 843,913 | | | | (877,118 | ) | | | (33,205 | ) |
Statutory employee profit sharing expense | | | 8,169 | | | | 43,876 | | | | 52,045 | | | | 8,951 | | | | 3,491 | | | | — | | | | — | | | | 64,487 | | | | — | | | | 64,487 | |
Share in operations of associated companies | | | — | | | | — | | | | — | | | | 8,439 | | | | — | | | | 29,864 | | | | — | | | | 38,303 | | | | — | | | | 38,303 | |
Segment assets | | | 45,154,285 | | | | 3,457,453 | | | | 48,611,738 | | | | 10,567,881 | | | | 10,229,352 | | | | 35,363,545 | | | | 33,441,885 | | | | 138,214,401 | | | | (39,326,328 | ) | | | 98,888,073 | |
Investments in associated companies | | | 921 | | | | — | | | | 921 | | | | 191,714 | | | | — | | | | (455 | ) | | | 26,289,475 | | | | 26,481,655 | | | | (26,287,762 | ) | | | 193,893 | |
Segment liabilities (1) | | | 17,770,177 | | | | 2,835,554 | | | | 20,605,731 | | | | 4,437,624 | | | | 1,927,962 | | | | 6,321,815 | | | | 6,842,145 | | | | 40,135,277 | | | | (12,633,178 | ) | | | 27,502,099 | |
Capital expenditures (2) | | | 854,270 | | | | 44,158 | | | | 898,428 | | | | 3,560,697 | | | | 387,673 | | | | 1,603,155 | | | | 19,812 | | | | 6,469,765 | | | | — | | | | 6,469,765 | |
Depreciation and amortization | | | 721,700 | | | | 37,863 | | | | 759,563 | | | | 39,672 | | | | 160,306 | | | | 283,740 | | | | 21,757 | | | | 1,265,038 | | | | 2,162 | | | | 1,267,200 | |
Net cash provided by (used in) operating activities | | | (2,578,493 | ) | | | 682,872 | | | | (1,895,621 | ) | | | (467,670 | ) | | | 595,722 | | | | (3,945,795 | ) | | | (1,089,124 | ) | | | (6,802,488 | ) | | | (3,703,084 | ) | | | (10,505,572 | ) |
Net cash provided by (used in) investing activities | | | (135,697 | ) | | | (42,090 | ) | | | (177,787 | ) | | | (143,182 | ) | | | (814,323 | ) | | | (4,690,793 | ) | | | (3,692,107 | ) | | | (9,518,192 | ) | | | 10,408,323 | | | | 890,131 | |
Net cash provided by (used in) financing activities | | | 3,253,771 | | | | (533,377 | ) | | | 2,720,394 | | | | 631,326 | | | | 251,821 | | | | 14,140,193 | | | | 4,890,060 | | | | 22,633,794 | | | | (6,720,365 | ) | | | 15,913,429 | |
December 31, 2010: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
External revenues | | | 23,448,423 | | | | 4,401,358 | | | | 27,849,781 | | | | 2,652,970 | | | | 2,504,982 | | | | 2,102,123 | | | | 33,136 | | | | 35,142,992 | | | | (666,930 | ) | | | 34,476,062 | |
Intersegment revenues | | | 10,378,764 | | | | 431,205 | | | | 10,809,969 | | | | 1,644,898 | | | | 1,126,305 | | | | 5,201,664 | | | | 639,959 | | | | 19,422,795 | | | | 666,934 | | | | 20,089,729 | |
Operating income | | | 767,582 | | | | 155,719 | | | | 923,301 | | | | 275,253 | | | | 746,920 | | | | 241,108 | | | | (1,310 | ) | | | 2,185,272 | | | | 52,721 | | | | 2,237,993 | |
Financing income | | | (258,580 | ) | | | (9,491 | ) | | | (268,071 | ) | | | (37,038 | ) | | | (38,337 | ) | | | (185,754 | ) | | | (49,534 | ) | | | (578,734 | ) | | | 228,893 | | | | (349,841 | ) |
Financing cost | | | 408,941 | | | | 2,855 | | | | 411,796 | | | | 47,700 | | | | 613,720 | | | | 548,106 | | | | 188,066 | | | | 1,809,388 | | | | (151,204 | ) | | | 1,658,184 | |
Income tax expense (benefit) | | | 269,551 | | | | 73,441 | | | | 342,992 | | | | 340,720 | | | | (51,923 | ) | | | 141,516 | | | | (202,697 | ) | | | 570,608 | | | | (286,261 | ) | | | 284,347 | |
Statutory employee profit sharing expense | | | — | | | | 60,721 | | | | 60,721 | | | | — | | | | — | | | | — | | | | — | | | | 60,721 | | | | — | | | | 60,721 | |
Share in operations of associated companies | | | 15 | | | | — | | | | 15 | | | | (4 | ) | | | (20 | ) | | | 73,112 | | | | 970,334 | | | | 1,043,437 | | | | (963,819 | ) | | | 79,618 | |
Segment assets | | | 32,389,503 | | | | 2,885,495 | | | | 35,274,998 | | | | 8,827,857 | | | | 10,037,663 | | | | 24,362,337 | | | | 25,830,499 | | | | 104,333,354 | | | | (31,797,715 | ) | | | 72,535,639 | |
Investments in associated companies | | | 933 | | | | — | | | | 933 | | | | 119,081 | | | | — | | | | (455 | ) | | | 20,892,297 | | | | 21,011,856 | | | | (20,890,585 | ) | | | 121,271 | |
Segment liabilities (1) | | | 12,124,090 | | | | 1,779,435 | | | | 13,903,525 | | | | 4,651,857 | | | | 1,793,635 | | | | 3,738,172 | | | | 7,589,313 | | | | 31,676,502 | | | | (11,530,023 | ) | | | 20,146,479 | |
Capital expenditures (2) | | | 887,932 | | | | 40,404 | | | | 928,336 | | | | 4,254,608 | | | | 625,829 | | | | 2,239,372 | | | | 37,250 | | | | 8,085,395 | | | | — | | | | 8,085,395 | |
Depreciation and amortization | | | 763,115 | | | | 36,430 | | | | 799,545 | | | | 25,397 | | | | 145,405 | | | | 197,766 | | | | 25,219 | | | | 1,193,332 | | | | (1,619 | ) | | | 1,191,713 | |
Net cash provided by (used in) operating activities | | | (5,054,425 | ) | | | 946,412 | | | | (4,108,013 | ) | | | 408,554 | | | | 395,179 | | | | (1,466,794 | ) | | | (1,108,096 | ) | | | (5,879,170 | ) | | | 813,734 | | | | (5,065,436 | ) |
Net cash provided by (used in) investing activities | | | (33,072 | ) | | | (22,174 | ) | | | (55,246 | ) | | | (139,037 | ) | | | (271,127 | ) | | | (1,138,000 | ) | | | (250,064 | ) | | | (1,853,474 | ) | | | (549,623 | ) | | | (2,403,097 | ) |
Net cash provided by (used in) financing activities | | | 5,077,596 | | | | (399,175 | ) | | | 4,678,421 | | | | (312,227 | ) | | | (176,634 | ) | | | 2,282,612 | | | | 1,287,380 | | | | 7,759,552 | | | | (245,140 | ) | | | 7,514,412 | |
January 1, 2010: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Segment assets | | | 26,278,021 | | | | 2,936,553 | | | | 29,214,574 | | | | 6,087,087 | | | | 9,986,824 | | | | 19,923,412 | | | | 19,335,276 | | | | 84,547,173 | | | | (22,351,387 | ) | | | 62,195,786 | |
Investments in associated companies | | | 920 | | | | — | | | | 920 | | | | 7,369 | | | | (1 | ) | | | (455 | ) | | | 16,679,770 | | | | 16,687,603 | | | | (16,604,651 | ) | | | 82,952 | |
Segment liabilities (1) | | | 12,053,194 | | | | 1,561,392 | | | | 13,614,586 | | | | 2,025,082 | | | | 2,155,877 | | | | 3,681,480 | | | | 2,979,758 | | | | 24,456,783 | | | | (4,532,177 | ) | | | 19,924,606 | |
Capital expenditures (2) | | | 922,174 | | | | 16,515 | | | | 938,689 | | | | 29,602 | | | | 943,162 | | | | 1,675,790 | | | | 29,689 | | | | 3,616,932 | | | | — | | | | 3,616,932 | |
| (1) | Segment liabilities include only the operating liabilities attributable to each segment. |
| (2) | Capital expenditures include purchases of property, plant and equipment, investments in concessions and other assets. |
F-92
The Company’s principal consolidated net revenues are from construction contracts with various Mexican public and private sector entities, as well as foreign public and private sector entities, summarized as follows (amounts may not add or tie to other accompanying information due to rounding):
| | | | | | | | |
| National: | | Year ended December 31, 2011 | | | Year ended December 31, 2010 | |
a. Public sector | | | | | | | | |
Petróleos Mexicanos | | | Ps. 4,116,249 | | | | Ps. 3,673,512 | |
Comisión Federal de Electricidad | | | 3,272,771 | | | | 3,459,182 | |
Secretaría de Comunicaciones y Transportes | | | 3,040,405 | | | | 3,043,900 | |
Aeropuertos y Servicios Auxiliares | | | 38,744 | | | | 38,096 | |
Instituto Mexicano del Seguro Social | | | 2,390 | | | | 120,759 | |
Secretaría de Seguridad Pública del Gobierno Federal | | | 2,325,869 | | | | — | |
Instituto Nacional de Rehabilitación | | | — | | | | 174,426 | |
Comisión Nacional del Agua | | | 2,555,044 | | | | 3,132,300 | |
Gobiernos Estatales | | | 174,354 | | | | 1,130,477 | |
Gobierno del Distrito Federal | | | 6,293,660 | | | | 5,270,741 | |
Instituto de Seguridad Social al Servicio de Trabajadores del Estado | | | 446,158 | | | | 553,434 | |
Sistema de Autopistas y Aeropuertos y Servicios Conexos y Auxiliares del Estado de México | | | 3,755,275 | | | | 1,044,895 | |
Comisión Estatal de Agua del Gobierno de Jalisco | | | 285,936 | | | | — | |
Secretaría de Seguridad Pública de Nayarit | | | 1,212,725 | | | | 1,014,249 | |
Centro Nacional de Evaluación para la Educación Superior, A.C. | | | 64,248 | | | | 10,352 | |
Comisión Estatal del Agua del Gobierno de San Luis Potosí | | | 39,641 | | | | — | |
Comisión Estatal del Agua del Gobierno de Querétaro | | | 43,579 | | | | — | |
| | |
b. Private sector | | | | | | | | |
Fideicomiso de Autotransportes del Golfo | | | 351,070 | | | | 249,294 | |
Minera y Metalúrgica del Boleo, S.A. de C.V. | | | 272,706 | | | | 50,145 | |
Marathon Oil Company | | | 1,313 | | | | 118,917 | |
Altos Hornos de México, S.A. | | | 663,789 | | | | 312,158 | |
Aeropuerto de la Ciudad de México | | | 18,889 | | | | 71,012 | |
Proyecto Esmeralda Resort | | | — | | | | 347,381 | |
RCO | | | 195,437 | | | | 1,036,994 | |
Vista Serena S. de R.L. | | | — | | | | 17,966 | |
Minera San Javier | | | 327,026 | | | | — | |
| | |
Foreign: | | | | | | | | |
Public and private sector | | | | | | | | |
| | |
Spain | | | 1,044,046 | | | | 1,305,823 | |
Colombia | | | 193,726 | | | | 79,315 | |
Peru | | | 891,759 | | | | 459,098 | |
Panama | | | 639,747 | | | | 266,937 | |
F-93
The Company’s segments operate in four principal geographical areas in the world: Mexico, its home country, Spain, United States and Latin America. The Company’s operations by geographic area were as follows (amounts may not add or tie to another balances due to rounding):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Foreign | | | | | | | | | | |
| | | Mexico | | | Spain | | | United
States | | | Latin America | | | Sub-total | | | Intersegment
Eliminations | | | Total | |
2011: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | Ps. | 32,105,604 | | | Ps. | 1,044,046 | | | | Ps — | | | Ps. | 770,732 | | | Ps. | 33,920,382 | | | Ps. | — | | | Ps. | 33,920,382 | |
Concessions | | | 3,091,710 | | | | — | | | | — | | | | 38,098 | | | | 3,129,808 | | | | — | | | | 3,129,808 | |
Sales of goods and other | | | 4,826,835 | | | | — | | | | — | | | | 891,759 | | | | 5,718,594 | | | | — | | | | 5,718,594 | |
Total revenues | | | 40,024,149 | | | | 1,044,046 | | | | — | | | | 1,700,590 | | | | 42,768,785 | | | | — | | | | 42,768,785 | |
Capital expenditures | | | 5,437,835 | | | | — | | | | 20,081 | | | | 1,011,849 | | | | 6,469,765 | | | | — | | | | 6,469,765 | |
Fixed assets | | | 3,841,411 | | | | 242,175 | | | | — | | | | 476,147 | | | | 4,559,733 | | | | 6,000 | | | | 4,565,733 | |
Total assets | | | 94,706,047 | | | | 988,758 | | | | 2,655,452 | | | | 3,323,189 | | | | 101,673,446 | | | | (2,785,373 | ) | | | 98,888,073 | |
| | | | | | | |
2010: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Construction | | | 26,232,519 | | | | 1,305,823 | | | | — | | | | 311,439 | | | | 27,849,781 | | | | — | | | | 27,849,781 | |
Concessions | | | 2,102,123 | | | | — | | | | — | | | | — | | | | 2,102,123 | | | | — | | | | 2,102,123 | |
Sales of goods and other | | | 4,065,060 | | | | — | | | | — | | | | 459,098 | | | | 4,524,158 | | | | — | | | | 4,524,158 | |
| | | | | | | |
Total revenues | | | 32,399,702 | | | | 1,305,823 | | | | — | | | | 770,537 | | | | 34,476,062 | | | | — | | | | 34,476,062 | |
Capital expenditures | | | 7,978,451 | | | | 95,267 | | | | — | | | | 11,677 | | | | 8,085,395 | | | | — | | | | 8,085,395 | |
Fixed assets | | | 3,823,810 | | | | 244,854 | | | | | | | | 183,947 | | | | 4,252,611 | | | | 5,497 | | | | 4,258,118 | |
Total assets | | | 67,787,221 | | | | 1,029,323 | | | | 1,219,873 | | | | 5,117,161 | | | | 75,153,578 | | | | (2,617,939 | ) | | | 72,535,639 | |
| | | | | | | |
January 1, 2010: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | 3,509,988 | | | | 95,267 | | | | — | | | | 11,677 | | | | 3,616,932 | | | | — | | | | 3,616,932 | |
Fixed assets | | | 3,955,399 | | | | 323,493 | | | | 5 | | | | 8,226 | | | | 4,287,123 | | | | — | | | | 4,287,123 | |
Total assets | | | 57,889,662 | | | | 1,274,193 | | | | 1,558,463 | | | | 4,624,565 | | | | 65,346,883 | | | | (3,151,097 | ) | | | 62,195,786 | |
F-94
| 36. | Explanation of the transition to IFRS |
| | a. | As described in Note 2 to the accompanying consolidated financial statements, the Company has applied mandatory exceptions and selected certain first-time optional exemptions from retrospective application of IFRS, as required or permitted by IFRS 1. The following reconciliations serve to quantify the transition effects of the main financial statement headings, together with the effect on stockholders’ equity at the transition date of January 1, 2010 and at December 31, 2010, and comprehensive income of the year ended December 31, 2010, as follows. |
| | | | | | | | | | | | |
| | | | | | January, 2010 | | | December 31, 2010 | |
| | | | | | (Date of transition) | | | (latest period
presented under
MFRS) | |
Total stockholders’ equity under MFRS | | | | | | | Ps. 20,766,059 | | | | Ps. 21,574,120 | |
| | | | | | | | | | | | |
Cancellation of the effects of inflation | | | i. | | | | (2,339,016 | ) | | | (2,339,016 | ) |
Capitalized inancing cost, valuation of derivative financial instruments | | | ii. | | | | (597,732 | ) | | | (804,964 | ) |
Revaluation of property, plant and equipment | | | iii. | | | | 285,468 | | | | 322,931 | |
Effects of business combinations | | | iv. | | | | 1,264,283 | | | | 1,293,516 | |
Provisions for major maintenance in airport concessions | | | v. | | | | (900,568 | ) | | | (964,842 | ) |
Adjustment to airport concessions intangible asset related to the change in maintenance policy | | | vi. | | | | (487,852 | ) | | | (235,711 | ) |
Cancellation of bid costs not awarded | | | vii. | | | | (24,709 | ) | | | (12,354 | ) |
Cancellation of deferred PTU | | | viii. | | | | 18,717 | | | | (15,945 | ) |
Employee severance benefits | | | ix. | | | | 66,136 | | | | 134,073 | |
Employee bonuses | | | x. | | | | (270,450 | ) | | | (333,017 | ) |
Effect of deferred taxes | | | xi. | | | | 1,162,276 | | | | 960,795 | |
Exchange of debt arising from a refinancing | | | xii | | | | (343,023 | ) | | | (414,606 | ) |
Others | | | | | | | 109,656 | | | | 164,971 | |
| | | | | | | | | | | | |
Total adjustments for the adoption of IFRS | | | | | | | (2,056,814 | ) | | | (2,244,169 | ) |
| | | | | | | | | | | | |
Total stockholders’ equity under IFRS | | | | | | | Ps. 18,709,245 | | | | Ps. 19,329,951 | |
| | | | | | | | | | | | |
| | | |
| | | | | | December, 31 2010 | | | | |
Comprehensive income under MFRS | | | | | | | Ps. 807,716 | | | | | |
| | | | | | | | | | | | |
Revaluation of property, plant and equipment – related depreciation | | | iii. | | | | 49,867 | | | | | |
Amortization of concessions | | | i., iv., vi. | | | | 252,142 | | | | | |
Provisions for major maintenance in airport concessions | | | v. | | | | (64,274 | ) | | | | |
Capitalized financing, valuation of derivative financial instruments | | | ii. | | | | (207,233 | ) | | | | |
Employee severance benefits | | | ix. | | | | 67,936 | | | | | |
Effect of deferred taxes | | | xi. | | | | (201,481 | ) | | | | |
Exchange of debt arising from a refinancing | | | xii. | | | | (71,582 | ) | | | | |
Others | | | | | | | (10,811 | ) | | | | |
| | | | | | | | | | | | |
Total adjustments for the adoption of IFRS | | | | | | | (185,436 | ) | | | | |
| | | | | | | | | | | | |
Comprehensive income under IFRS | | | | | | | Ps. 622,280 | | | | | |
| | | | | | | | | | | | |
F-95
| | | | | | | | |
| Cash flow | | December 31, 2010
MFRS | | | December 31, 2010
IFRS | |
Income before income taxes | | Ps. | 1,468,036 | | | Ps. | — | |
Net income | | | — | | | | 970,912 | |
Net cash flows used in operating activities | | | (4,107,532 | ) | | | (5,065,436 | ) |
Net cash flows used in investing activities | | | (2,795,785 | ) | | | (2,403,097 | ) |
Net cash flows from financing activities | | | 6,979,843 | | | | 7,514,412 | |
| | | | | | | | |
Net increase in cash and cash equivalents | | | 76,526 | | | | 45,879 | |
Effect of exchange rate changes on cash | | | (68,231 | ) | | | (68,231 | ) |
Cash and cash equivalents at beginning of year | | | 4,510,667 | | | | 4,541,314 | |
| | | | | | | | |
Cash and cash equivalents at end of year | | Ps. | 4,518,962 | | | Ps. | 4,518,962 | |
| | | | | | | | |
| | b. | Below is a description of major changes in accounting policies arising from the adoption of IFRS. |
| | i. | Effects of inflation—In conformity with IFRS, the effects of inflation are recognized when cumulative inflation of the preceding three years is equal to or greater than 100%. MFRS recognized the comprehensive effects of inflation through 2007. Given that the Mexican environment is no longer hyperinflationary since 1999, the effects of inflation recorded from 1999 to 2007 were reversed. This adjustment relates primarly to the reversal of cumulative inflation recognized on intangibles, inventory and deferred assets. Additional adjustments related to these assets, which are described below, therefore do not include inflationary effects. |
| | ii. | Capitalized comprehensive financing—Under MFRS, the Company included, as part of borrowing costs capitalized within contract costs, the effect of derivative financial instruments classified as economic hedges but which did not qualify as hedges for accounting purposes. Under IFRS, changes in fair value of derivatives not qualifying as accounting hedges are recognized in earnings and are not part of the concepts capitalized in accordance with IAS 23,Borrowing Costs. |
| | iii. | Revaluation of property plant and equipment—The Company chose to value its land, buildings and machinery and equipment at their fair value at the date of transition as permitted by IFRS 1. The amount recorded as of that date for these items amount to Ps.285,468. |
| | iv. | Business Combinations—As permitted by IFRS 1, the Company elected to apply IFRS 3, Business Combinations (2008), prospectively from December 2005 thus accounting for business acquisitions for Grupo Aeroportuario Centro Norte, S.A.B. de C.V., Construcciones y Trituraciones, S.A. de C.V. y Consorcio el Mayab, S.A. de C.V. under IFRS 3, which such acquisitions took place before the transition date. The main differences in the adjustment are as follows: (i) transaction costs, which were included in the value of the consideration paid under MFRS, are expensed under IFRS; (ii) a valuation of interests previously held in the acquiree are recognized at their fair value under IFRS, as opposed to their carrying value under MFRS; and (iii) a bargain purchase gain was recognized, net of the nonmonetary assets acquired, in the business acquisition for Grupo Aeroportuario Centro Norte, S.A.B. de C.V. Goodwill was not recognized either under IFRS or MFRS in the other aforementioned business acquisitions. |
| | v. | Provision for major maintenance in airport concessions —According to the policy adopted in conformity with IFRS, the costs of maintenance of airports, which are approved in the Management Development Program (“MDP”), are recorded in results of the year they are incurred or accrued. In accordance with MFRS, these costs were capitalized as assets when the respective cost is incurred. |
F-96
| | vi. | Amortization of airport concessions—Derived from the adoption of accounting policy referred to in the preceding paragraph, the Company eliminated the maintenance capitalized under MFRS, other than the first improvement to the concession asset, and modified the remaining term over which the concessions are amortized to a period representing the remaining contractual concession term. |
| | vii. | Capitalized bid costs—Derived from the adoption of IFRS, the Company changed its accounting policy related to prior expenses incurred in bidding for projects and thus removed from its consolidated statement of financial position at the transition date expenditures made for which it is not likely that the Company will awarded the project. |
| | viii. | Cancellation of deferred employee profit sharing—According to MFRS, the Company recorded a liability for deferred employee profit sharing. Under IFRS, these deferred liabilities should not be recognized as employee profit sharing only represents a current employee benefit, to be recognized at the time it accrues. |
| | ix. | Employee severance benefits —MFRS requires the recognition of a liability related to employee severance based on actuarial calculations. According to IFRS, a severance payment provision is not recognized until the Company is capable of evidencing its commitment to end the working relationship with the employee or has made the employee an offer to encourage voluntary retirement. The adjustment hereon represents the reversal of the severance liability under IFRS. |
| | x. | Employee bonsues – In accordance with IFRS, bonuses based on profits of the period in which employees render services, should be accrued when the Company has an obligation, legal or constructive, and is able to reasonably estimate the amount of the bonus. Under MFRS, these amounts were recorded in results at the time they were paid. |
| | xi. | Income taxes – The Company determined its deferred taxes in accordance with IFRS, based on the adjusted values of those assets and liabilities requiring adjustments as a result of the adoption of IFRS. |
| | xii. | Debt discounts and expenses –In December 2010, a prior debt contract was exchanged for the a new debt contract that was determined to be substantially similar to the old debt contract, as the present value of the cash flows discounted under the terms of the new debt differed by less than 10% from the discounted cash flows under the previous debt contrac t. In accordance with MFRS, the new debt did not qualify as a new debt instrument and the debt discount and placement expenses continued to be amortized over the remaining life of the new debt. However, IFRS also requires that the exchange of the debt be with the same creditor, a condition that is not fulfilled. Accordingly, the old debt costs are removed and the new debt costs are capitalized. |
| 37. | New accounting principles |
The Company has not applied the following new IFRS issued, as their effective dates are subsequent to December 31, 2011, though their early adoption is allowed:
- Improvements to IFRS 7,Financial Instruments: Disclosures, disclosures regarding transfer of financial assets, effective for annual periods beginning after July 1, 2011.
- IFRS 9,Financial Instruments, effective for annual periods beginning on or after January 1, 2013
- IFRS 10,Consolidated Financial Statements , effective for annual periods beginning on or after January 1, 2013
- IFRS 11,Joint Ventures , effective for annual periods beginning on or after January 1, 2013
- IFRS 12,Disclosure of Interests in Other Entities , effective for annual periods beginning on or after January 1, 2013
- IFRS 13,Fair value Measurement , effective for annual periods beginning on or after January 1, 2013
- Amendments to IAS 1,Presentation of Items of Other Comprehensive Income
- Amendments to IAS 19,Employee Benefits
- IAS 27,Separate Financial Statements , effective for annual periods beginning on or after January 1, 2013
- IAS 28,Investments in Associates and Joint Ventures , effective for annual periods beginning on or after January 1, 2013
F-97
The amendments to IFRS 7,Financial Instruments: Disclosures increase the disclosure requirements for those transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period.
IFRS 9,Financial Instruments, issued in November 2009 introduces new requirements for the classification and measurement of financial assets. IFRS 9 amended in October 2010 incorporates requirements for derecognition of both financial assets and liabilities, and classification and measurement of financial liabilities.
| | • | | IFRS 9 requires all recognized financial assets that are within the scope of IAS 39,Financial Instruments: Recognition and Measurement to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods. |
| | • | | The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accounting for changes in fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability´s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was recognized in profit or loss. |
IFRS 10,Consolidated Financial Statements replaces the parts of IAS 27,Consolidated and Separate Financial Statements that deal with consolidated financial statements. SIC-12Consolidation – Special Purpose Entities has been withdrawn upon the issuance of IFRS 10. Under IFRS 10, there is only one basis for consolidation, that is control. In addition, IFRS 10 includes a new definition of control that contains three elements: (a) power over an investee, (b) exposure, or rights, to variable returns from its involvement with the investee, and (c) the ability to use its power over the investee to affect the amount of the investor’s returns. Extensive guidance has been added in IFRS 10 to deal with complex scenarios.
IFRS 11,Joint Ventures, introduces new requirements on accounting for joint ventures to replace IAS 31,Interests in Joint Ventures. The option of applying the proportionate consolidation method on jointly controlled entities is eliminated. Additionally, IFRS 11 eliminates the jointly controlled assets classifications and joint arrangements are solely classified as joint operations or joint ventures. Joint operations are joint agreements whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers.
The IFRS 12,Disclosure of Participation with Other Entities, requires greater disclosure for entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. The objective is to require information for financial statement users to assess the basis of control, restrictions on consolidated assets and liabilities, risk exposures arising from implications with unconsolidated entities and involvement of the holders of non-controlling interests in consolidated entities activities.
F-98
The IFRS 13,Fair Value Measurements, defines fair value, establishes a framework for measurement and requires disclosures about fair value measurements.
The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into two categories: (a) items that will not be reclassified subsequently to profit or loss; and (b) items that will be reclassified subsequently to profit or loss when specific conditions are met. Income tax on items of other comprehensive income is required to be allocated on the same basis.
The amendments to IAS 1 are effective for annual periods beginning on or after 1 July 2012. The presentation of items of other comprehensive income will be modified accordingly when the amendments are applied in the future accounting periods.
The amendments to IAS 19 change the accounting for defined benefit plans and termination benefits. The most significant change relates to the accounting for changes in defined benefit obligations and plan assets. The amendments require the recognition of changes in defined benefit obligations and in fair value of plan assets when they occur, and hence eliminate the ‘corridor approach’ permitted under the previous version of IAS 19 and accelerate the recognition of past service costs. The amendments require all actuarial gains and losses to be recognised immediately through other comprehensive income in order for the net pension asset or liability recognised in the consolidated statement of financial position to reflect the full value of the plan deficit or surplus.
The amendments to IAS 19 are effective for annual periods beginning on or after 1 January 2013 and require retrospective application with certain exceptions. The directors anticipate that the amendments to IAS 19 will be adopted in the Group’s consolidated financial statements for the annual period beginning 1 January 2013 and that the application of the amendments to IAS 19 may have impact on amounts reported in respect of the Groups’ defined benefit plans. However, the directors have not yet performed a detailed analysis of the impact of the application of the amendments and hence have not yet quantified the extent of the impact.
IAS 27,Separate Financial Statements, provides the requirements for presentation of separate financial statements of parent companies.
IAS 28,Investments in Associates and Joint Ventures, is amended to conform to changes based on the issuance of IFRS 10, 11 and 12.
| 38. | Authorization for issuance of financial statements |
On April 16, 2012, the issuance of the consolidated financial statements prepared in accordance with IFRS was authorized by Dr. José Luis Guerrero Álvarez, General Director of Empresas ICA, S.A.B. de C.V. and Alonso Quintana Kawage, Deputy General Director of Empresas ICA, S.A.B. de C.V., and these consolidated financial statements are subject to approval at the general ordinary stockholders’ meeting, where they may be modified, based on provisions set forth in the Mexican General Corporate Law.
* * * * * *
F-99
| | | | | | | | |
| | | | | | | Ownership Percentage | | Ownership Percentage |
| Controlled entity | | Country | | Activity | | 2011 | | 2010 |
Sub-Holding: | | | | | | | | |
Aeroinvest, S.A. de C.V. | | Mexico | | Holding of shares | | 100% | | 100% |
Consorcio del Mayab, S.A. de C.V. | | Mexico | | Highway concessions | | 100% | | 100% |
Controladora de Empresas de Vivienda, S. A. de C. V. (“CONEVISA”) | | Mexico | | Holding of shares | | 100% | | 100% |
Controladora de Operaciones de Infraestructura, S. A. de C. V. (“CONOISA”) | | Mexico | | Holding of shares | | 100% | | 100% |
Constructoras ICA, S. A. de C. V. (“CICASA”) | | Mexico | | Holding of shares | | 100% | | 100% |
Icatech Corporation | | United States | | Holding of shares | | 100% | | 100% |
AIRPORTS | | Mexico | | | | | | |
Aeropuerto Acapulco | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Chihuahua | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Culiacán | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Ciudad Juárez | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Durango | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Mazatlan | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Monterrey | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Reynosa | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto San Luis Potosí | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Tampico | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Torreon | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Zacatecas | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Aeropuerto Zihuatanejo | | Mexico | | Managing and operating airport
concessions | | 54.48% | | 54.52% |
Consorcio Grupo Hotelero T2, S.A. de C.V. | | Mexico | | Holding of shares | | 54.48% | | 54.52% |
Grupo Aeroportuario Centro Norte, S.A. de C.V. | | Mexico | | Holding of shares | | 54.48% | | 54.52% |
Holding Consorcio Grupo Hotelero T2, S.A. de C.V. | | Mexico | | Holding of shares | | 54.48% | | 54.52% |
Oma Logística, S.A. de C.V. | | Mexico | | Managing and operating airport
concessions | | 0.00% | | 54.52% |
Operadora de Aeropuertos del Centro Norte, S.A. de C.V. | | Mexico | | Administrative services | | 54.48% | | 54.52% |
Servicios Aeroportuarios Centro Norte, S.A. de C.V. | | Mexico | | Administrative services | | 54.48% | | 54.52% |
Servicio Aereo Especializado del Centro Norte, S.A. de C.V. | | Mexico | | Managing and operating airport
concessions | | 0.00% | | 54.52% |
Servicios Corporativos Terminal T2, S.A. de C.V. | | Mexico | | Managing and operating airport
concessions | | 49.03% | | 49.07% |
Servicios Complementarios del Centro Norte, S.A. de C.V. | | Mexico | | Managing and operating airport
concessions | | 0.00% | | 54.52% |
Servicios de Tecnología Aeroportuaria, S.A. de C.V. | | Mexico | | Managing and operating airport
concessions | | 49.03% | | 49.07% |
SPECIALTY CONSTRUCTION | | | | | | | | |
Construcciones y Trituraciones, S.A. de C.V. | | Mexico | | Construction | | 100% | | 100% |
INDUSTRIAL CONSTRUCTION | | | | | | | | |
ICA El Salvador, S.A. | | El Salvador | | Construction | | 100% | | 100% |
URBAN CONSTRUCTION | | | | | | | | |
Casaflex, S.A.P.I. de C.V. | | Mexico | | Construction | | 50.10% | | 50.10% |
| | | | |
Ica Ingenieria, S.A. de C.V. | | Mexico | | Engineering services | | 100% | | 100% |
Icapital, S.A. de C.V. | | Mexico | | Corporate services | | 100% | | 100% |
Prefabricados y Transportes, S.A. de C.V. | | Mexico | | Construction | | 100% | | 100% |
F-100
| | | | | | | | |
| | | | | | | Ownership Percentage | | Ownership Percentage |
| Controlled entity | | Country | | Activity | | 2011 | | 2010 |
HEAVY CONSTRUCTION | | | | | | | | |
Autovía Urbana TT S.A.P.I de C.V. | | Mexico | | Infraestructure operation | | 50% | | 50% |
Compañía Hidroeléctrica La Yesca, S.A. de C.V. | | Mexico | | Construction | | 99% | | 99% |
Consorcio CICE | | Colombia | | Construction | | 80% | | 80% |
Constructora de Proyectos Hidroeléctricos, S.A. de C.V. | | Mexico | | Construction | | 99% | | 99% |
Constructora El Cajón, S.A. de C.V. | | Mexico | | Construction | | 75% | | 75% |
Constructora Hidroeléctrica La Yesca, S.A. de C.V. | | Mexico | | Construction | | 51% | | 51% |
Constructora Internacional de Infraestructura, S.A. de C.V. | | Mexico | | Construction | | 75% | | 75% |
Constructora ICA-Tecsa, S.A. | | Peru | | Construction | | 99.38% | | 99.38% |
Constructoras ICA de Chile, S.A. | | Chile | | Construction | | 99.85% | | 99.85% |
Constructoras ICA de Guatemala, S.A. | | Guatemala | | Construction | | 100% | | 100% |
Desarrolla de Proyectos Hidroeléctricos, S.A. | | Mexico | | Construction | | 100% | | 100% |
Desarrolladora Mexicana de Huites, S.A. de C.V. | | Mexico | | Construction | | 60% | | 60% |
Ica Construcción Civil de Venezuela, S.A. | | Venezuela | | Construction | | 100% | | 100% |
Ica Construcción Civil, S.A. de C.V. | | Mexico | | Construction | | 100% | | 100% |
Ica Construction Corporation (M) Sdn Bhd | | Malasia | | Construction | | 100% | | 100% |
Ica de Puerto Rico INC. | | Puerto Rico | | Holding of shares | | 100% | | 100% |
Ica- Miramar Corporation | | Puerto Rico | | Construction | | 100% | | 100% |
Ica- Miramar Metro San Juan Corp. | | Puerto Rico | | Construction | | 100% | | 100% |
Ica Promotora de Construcción Urbana, S.A. de C.V. | | Mexico | | Construction | | 100% | | 100% |
ICAPEV, C. A. | | Venezuela | | Construction | | 75% | | 75% |
Ica Venezuela, C.A. | | Venezuela | | Construction | | 100% | | 100% |
Icaprin Servicios, S.A. de C.V. | | Mexico | | Corporate services | | 100% | | 100% |
Ingenieros Civiles Asociados, S. A. de C. V. (“ICASA”) | | Mexico | | Construction | | 100% | | 100% |
Ingenieros Civiles Asociados México, S.A. | | Colombia | | Construction | | 100% | | 100% |
Ingenieros Civiles Asociados Panamá, S.A. | | Panamá | | Construction | | 100% | | 100% |
Recursos Técnicos y de Administración La Yesca, S.A. de C.V. | | Mexico | | Corporate services | | 100% | | 100% |
| | | | |
CORPORATE | | | | | | | | |
Autopistas Concesionadas de Venezuela, S.A. | | Venzuela | | Infraestructure operation | | 100% | | 100% |
Compañía Integradora Mercantil Agrícola, S.A. de C.V. | | Mexico | | Commodity trading, especially grains | | 100% | | 100% |
Construexport, S.A. de C.V. | | Mexico | | Corporate services | | 100% | | 100% |
Ica Reinsurance, A.G. | | Mexico | | Insurance | | 100% | | 100% |
Ica Risk Management Solutions Agente de Seguros y Fianzas, S.A. de C.V. | | Mexico | | Corporate services | | 0% | | 100% |
Maxipistas de Venezuela, C.A. | | Venezuela | | Infraestructure operation | | 75% | | 75% |
| | | | |
BUSINESS DEVELOPMENT | | | | | | | | |
Ica Construction Corporation | | United States | | Holding shares | | 100% | | 100% |
Icador, S.A. | | Ecuador | | Construction | | 100% | | 100% |
Ica Costa Rica, S.A. | | Costa Rica | | Construcyion | | 100% | | 100% |
Icatech Services Corporation | | United States | | Holding shares | | 100% | | 100% |
| | | | |
REAL ESTATE | | | | | | | | |
Promotora e Inversora Adisa, S.A. de C.V. | | Mexico | | Real estate construction | | 100% | | 100% |
Inmobiliaria Baja, S.A. de C.V. | | Mexico | | Real estate construction | | 100% | | 100% |
| | | | |
SERVICES | | | | | | | | |
Asesoria Técnica y Gestión Administrativa, S.A. de C.V. | | Mexico | | Corporate services | | 100% | | 100% |
Grupo ICA, S.A. de C.V. | | Mexico | | Corporate services | | 100% | | 100% |
Ica Desarrolladora de Recursos Gerenciales y Directivos, S.A. de C.V. | | Mexico | | Services | | 100% | | 100% |
Ica Propiedades Inmuebles, S.A. de C.V. | | Mexico | | Corporate services | | 100% | | 100% |
Ica Servicios de Dirección Corporativa, S.A. de C.V. | | Mexico | | Corporate services | | 100% | | 100% |
F-101
| | | | | | | | | | | | | | |
| | | | | | | | Ownership Percentage | | | Ownership Percentage | |
| Controlled entity | | Country | | | Activity | | 2011 | | | 2010 | |
INFRAESTRUCTURE | | | | | | | | | | | | | | |
Autovía Mitla- Tehuantepec, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 60 | % |
Autovía Paradores y Servicios, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 98 | % | | | 100 | % |
Caminos y Carreteras del Mayab, S.A.P.I. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Carceri e Infraestructura, S.A.P.I. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Concesionaria de Ejes Terrestres de Coahuila, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 76 | % | | | 76 | % |
Concesionaria Irapuato La Piedad, S.A. de C.V. (1) | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Concesionaria de Vías de Irapuato—Querétaro, S.A. de C.V. (1) | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Compañía Insular Americana, S.A. | | | Panama | | | Real estate | | | 0 | % | | | 100 | % |
Convías de Morelos, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Desarrolladora de Proyectos de Infraestructura, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Fideicomiso 21935 Autopista Kantunil Cancún | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Ica Infraestructura, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 95 | % | | | 95 | % |
Ica Panama (1) | | | Panama | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Ica San Luis, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Libramiento ICA La Piedad, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Maxipista de Panamá, S.A. | | | Panama | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Operadora de la Autopista del Occidente, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 98.78 | % | | | 98.78 | % |
Pápagos Servicios Para la Sociedad, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Renova Atlatec, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 50 | % | | | 50 | % |
Sarre Infraestructura y Servicios, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Sissa Coahuila, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Túneles Concesionados de Acapulco, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 100 | % | | | 100 | % |
Viabilis Infraestructura, S.A. de C.V. | | | Mexico | | | Operation of infraestructure | | | 50 | % | | | 50 | % |
HOUSING | | | | | | | | | | | | | | |
Arrendadora de Vivienda, S.A. de C.V. | | | Mexico | | | Housing | | | 100 | % | | | 100 | % |
Centro Sur, S.A. de C.V. | | | Mexico | | | Construction of real estate | | | 75 | % | | | 75 | % |
Grupo Punta Condesa, S.A. de C.V. | | | Mexico | | | Housing | | | 100 | % | | | 100 | % |
Promoción Inmobiliaria Turística Champotón, S.AP.I. de C.V. | | | Mexico | | | Real estate and tourism development | | | 100 | % | | | 100 | % |
Promoción Turística Aak-Bal, S.A.P.I. de C.V. | | | Mexico | | | Real estate and tourism development | | | 100 | % | | | 100 | % |
Viveflex, S.A. de C.V. | | | Mexico | | | Housing | | | 50 | % | | | 50 | % |
Viveica, S.A. de C.V. | | | Mexico | | | Housing | | | 100 | % | | | 100 | % |
Viveica Construcción y Desarrollo, S.A. de C.V. | | | Mexico | | | Housing | | | 100 | % | | | 100 | % |
(1) Company sold in 2011.
F-102
| | | | | | | | | | | | |
| | | | | | | Ownership Percentage | | | Ownership Percentage | |
| Joint Venture | | Country | | Activity | | 2011 | | | 2010 | |
Construction | | | | | | | | | | | | |
Administración y Servicios Atotonilco, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 0.64 | % | | | 42.50 | % |
Consorcio PAC 4 | | Panama | | Construction | | | 0.00 | % | | | 43.00 | % |
Constructora de Infraestructura de Agua de Querétaro, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 51.00 | % | | | 51.00 | % |
Constructora de Infraestructura de Aguas de Potosí, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 1.55 | % | | | 51.00 | % |
Constructora Mexicana de Infraestructura Subtérranea, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 60.00 | % | | | 50.00 | % |
Constructora MT de Oaxaca, S.A. de C.V. | | Mexico | | Construction | | | 60.00 | % | | | 60.00 | % |
Constructora Nuevo Necaxa—Tihuatlán, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 60.00 | % | | | 60.00 | % |
Grupo Rodio Kronsa | | Spain | | Construction | | | 50.00 | % | | | 50.00 | % |
Infraestructura y Saneamiento de Atotonilco, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 0.64 | % | | | 42.50 | % |
Vía Rápida del Sur, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 0.00 | % | | | 65.00 | % |
Industrial construction | | | | | | | | | | | | |
Caribbean Thermal Electric, LLC | | Dominican Republic | | Construction and industry | | | 51.00 | % | | | 51.00 | % |
Dominican Republic Combined Cycle, LLC | | Dominican Republic | | Construction and industry | | | 51.00 | % | | | 51.00 | % |
Industria Hierro, S.A. de C.V. | | Mexico | | Construction and industry | | | 51.00 | % | | | 51.00 | % |
ICA Fluor Daniel, S. de R.L. de C.V. | | Mexico | | Construction and industry | | | 51.00 | % | | | 51.00 | % |
ICA Fluor Operaciones, S.A. de de C.V. | | Mexico | | Corporate services | | | 51.00 | % | | | 51.00 | % |
ICA Fluor Servicios Operativos, S.A. de C.V. | | Mexico | | Corporate services | | | 51.00 | % | | | 51.00 | % |
ICA Fluor Servicios Gerenciales, S.A. de C.V. | | Mexico | | Corporate services | | | 51.00 | % | | | 51.00 | % |
IFD Servicios de Ingeniería, S.A. de C.V. | | Mexico | | Corporate services | | | 51.00 | % | | | 51.00 | % |
Housing | | | | | | | | | | | | |
Geoicasa, S.A. de C.V. (1) | | Mexico | | Housing | | | 50.00 | % | | | 0.00 | % |
Los Portales, S.A. | | Peru | | Construction of real estate | | | 50.00 | % | | | 50.00 | % |
Infraestructure | | | | | | | | | | | | |
Aquos El Realito, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 56.00 | % | | | 51.00 | % |
Autovía Necaxa—Tihuatlán, S.A. de C.V: | | Mexico | | Operation of infraestructure | | | 50.00 | % | | | 50.00 | % |
Operadora Autopista Río de Los Remedios, S.A.P.I. de C.V. | | Mexico | | Operation of infraestructure | | | 50.00 | % | | | 50.00 | % |
Suministro de Agua de Querétaro, S.A. de C.V. | | Mexico | | Operation of infraestructure | | | 42.39 | % | | | 42.39 | % |
Services | | | | | | | | | | | | |
Actica Sistemas, S. de R.L. de C.V. | | Mexico | | Systems develompment | | | 50.00 | % | | | 50.00 | % |
C7AI Servicios Industriales Especializados, S.A. de C.V. | | Mexico | | Services | | | 0.00 | % | | | 50.00 | % |
(1) Company sold in 2011.
F-103
