LIQUIDITY AND CAPITAL RESOURCES

General

     We have had substantial losses in recent years, and face significant liquidity constraints. Our expected sources of liquidity include dividends and royalties paid by ICA Fluor Daniel, revenues from our Civil Construction segment and the continuation of our non-core asset divestment program, as well as the divestment of certain other assets related to our core operations that are obsolete or no longer useful

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to us such as construction machinery and equipment. There can be no assurance that we will be able to continue to generate liquidity from asset sales, particularly given the relatively few non-core assets that remain available for sale.

     Our non-core divestment program has consisted, and is expected to continue to consist, of sales of assets that we do not consider to be necessary for the operation of our main lines of business. There can be no assurance that we will be able to improve our cash flows and liquidity sufficiently to resolve our liquidity problems. See “Item 3. Key Information—Risk Factors—Risks Related to Our Operations.”

     We had net working capital of Ps.618 million as of December 31, 2002 as compared to net working capital of Ps.720 million as of December 31, 2001 and a net working capital deficit of Ps.246 million in 2000. As of March 31, 2003, we had a net working capital deficit of Ps.569 million. The change in net working capital from December 31, 2001 to December 31, 2002 was primarily due to a decrease in account receivables, in cash and cash equivalents.

     Our cash and cash equivalents were Ps.2,888 million as of December 31, 2002, as compared to Ps.3,659 million as of December 31, 2001 and Ps.2,625 million as of December 31, 2000. Our cash and cash equivalents as of December 31, 2002 were comprised of Ps.968 million in short-term Mexican peso-denominated investments and the equivalent of Ps.1,920 million in short-term foreign currency-denominated investments (mainly in U.S. dollars). At December 31, 2002, we had a current ratio (current assets over current liabilities) of 1.10, as compared to a current ratio of 1.08 at December 31, 2001. As of March 31, 2003, we had a current ratio of 0.92.

     Cash and cash equivalents at year-end 2002 included Ps.1,821 million of cash and cash equivalents (representing 63% of our cash and cash equivalents) held by ICA-Fluor Daniel, and Ps.131 million of cash and cash equivalents (representing 5% of our cash and cash equivalents) held by Rodio. The use of cash and cash equivalents by ICA Fluor Daniel or Rodio requires the consent of our joint venture partner. Our joint venture partners are the Fluor Corporation in the case of ICA Fluor Daniel and the Soletanche Bachy Group in the case of Rodio. The payment of dividends by ICA Fluor Daniel or Rodio requires the consent of our joint venture partner in the relevant joint venture.

     We had a deficit from operating activities of Ps.1,228 million during 2002. We had resources generated from operating activities of Ps.295 million and Ps.3,238 million in 2001 and 2000, respectively.

     In May 2001, we pledged our shares in ICA-Fluor Daniel to our partner Fluor Corporation in exchange for ICA Fluor Daniel guaranteeing a one-year loan for us for U.S.$16.5 million. We repaid the loan in May 2002, and the shares have been returned to us.

     As of December 31, 2002, we had pledged substantially all of our assets to Grupo Financiero Inbursa, Banamex and BBVA Bancomer in order to secure loans from each of these banks. The assets we have pledged include our headquarters in Mexico City; substantially all income generated from dividends and royalties paid by ICA Fluor Daniel; an office building located at Mineria No.130, Mexico City; the proceeds from the sale of the Veracruz grain terminal and the Empalme industrial plant belonging to Industria del Hierro; substantially all of our real estate assets and all of our shares in the following subsidiaries: Alsur, ViveICA, Solaqua and Centro Sur. We expect that the proceeds from the sale of any of these assets will be used to prepay the principal amount owed on the loans secured by these pledges. As a result of these arrangements, our ability to dispose of pledged assets requires the consent of these three banks, and our ability to incur further debt (whether secured or unsecured) is limited. See “Item 3. Key Information—Risk Factors—Substantially all of our assets are pledged to creditors.”

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Contractual Obligations

     The following tables set forth our contractual obligations and commercial commitments by time remaining to maturity.

     As of December 31, 2002, the scheduled maturities of our contractual obligations, including accrued interest were as follows:

     As of December 31, 2002, the scheduled maturities of other commercial commitments, including accrued interest were as follows:

(1)  Consist principally of bonds delivered to guarantee bids, advance payments and performance.

Indebtedness

     Our total debt to equity ratio was 1.32 to 1.0 at December 31, 2002, 1.09 to 1.0 at December 31, 2001 and 0.73 to 1.0 at December 31, 2000. The deterioration in the debt to equity ratio from December 31, 2001 to December 31, 2002 mainly reflected a decrease in equity resulting from our consolidated net loss of Ps.1,197 million, which more than offset a decrease in total debt. The increase in the total debt to equity ratio from December 31, 2000 to December 31, 2001 principally reflected the creation of provisions and the write-off of Ps.3,838 million of assets in the fourth quarter of 2001. For a description of the assets that were written-off see note 4 to our financial statements.

     In December 2002, we entered into a ten-year secured credit agreement with Grupo Financiero Inbursa in an amount of Ps.1,183 million. The loan’s initial interest rate is 14.5% and it increases by 90 basis points each year up to a maximum interest of 22.6%. There is a 28 month grace period for the payment of principal. The loan may be prepaid without penalty. We pledged the following assets as collateral for the loan: our headquarters in Mexico City; substantially all income (dividends and royalties) from ICA Fluor Daniel; all proceeds from the sale of the Veracruz grain terminal and the Empalme industrial plant belonging to Industria del Hierro; substantially all of our real estate assets and all of our shares in the following subsidiaries: Alsur, ViveICA, Solaqua and Centro Sur. Under the terms

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of the Inbursa secured loan, we are free to make use of our pledged assets (including the income generated from dividends and royalties paid by ICA Fluor Daniel) during the loan’s grace period, so long as we remain current on our interest payments. The loan’s grace period ends in April 2005. After 2005, we will be entitled to the income generated from dividends and royalties paid by ICA Fluor Daniel to the extent such income exceeds certain minimum required reserve amounts and scheduled principal amortizations contained in the Inbursa loan.

     In the third quarter of 2002, we restructured our debt with BBVA Bancomer by entering into three new loan agreements. The first loan agreement relates to a 32-month secured loan in an amount of Ps.79 million. The interest rate of the loan is determined by reference to the Mexican inter-bank interest rate (commonly referred to as TIIE) plus 100 basis points. There is an eight-month grace period for payment of principal and interest. The loan is secured by certain lots of our real estate development in Queretaro and undeveloped land in the state of Sonora. The second loan agreement is a secured loan agreement in an amount of Ps.52 million. The loan is secured by an office building located at Mineria No.130, Mexico City and two real estate lots from the Cabo del Sol tourism real estate development. In a third loan agreement, we pledged four warehouses belonging to Alsur to cover Ps.19 million that remain unsecured. None of the loan agreements impose a prepayment penalty.

     In 2001, AES Andres awarded to us a contract for the engineering, procurement and construction of a 305 megawatt combined cycle power generating plant in the Dominican Republic. In 2002, we loaned U.S.$12 million at an interest of LIBOR plus 8% to our client AES Andres for the completion of the power plant. The loan is due in December 2004. The plant is currently undergoing testing.

     In 2002, we repurchased and cancelled U.S.$72.93 in principal amount of our convertible subordinated debentures (including U.S.$190,000 that we repurchased in 2002 but cancelled in 2003). As of December 31, 2002, approximately U.S.$96.3 million in principal amount of the convertible subordinated debentures remained outstanding.

     In 2002, our debt service obligations (principal and interest) totaled Ps.1,016 million, while our deficit from operating activities was Ps.1,228 million. In March 2004, U.S.$96.3 million of our outstanding convertible subordinated debentures are scheduled to mature. Unless we generate additional resources from improved results of operations, favorable results from pending arbitration and legal proceedings, collections of accounts receivable, further divestments, or capital contributions from current or new shareholders, we believe we will have to restructure our debt in the near future. There can be no assurance that any of these developments will occur. We have retained J.P. Morgan Securities, Inc. to be our financial advisor in connection with the restructuring of our debt, and have entered into discussions with certain of our creditors in an effort to extend the maturity of our debt and reduce our debt service costs. There can be no assurance that we will restructure our debt on terms we believe to be sustainable.

     Certain of our subsidiaries 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. See note 16 to our financial statements.

     As of December 31, 2002, approximately 68% of our consolidated revenues and 47% of our indebtedness were denominated in foreign currencies, mainly U.S. dollars. Decreases in the value of the Mexican peso relative to the U.S. dollar will increase the cost in Mexican pesos of our debt service obligations with respect to our U.S. dollar denominated indebtedness. A depreciation of the Mexican peso relative to the U.S. dollar will also result in foreign exchange losses as the Mexican peso value of our foreign currency denominated indebtedness is increased. We currently do not have any financial instruments in place to hedge for foreign currency risk. Several of our subsidiaries have a reduced exposure to the foreign currency risk because a higher percentage of their revenues are denominated in U.S. dollars.

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Financing of the El Cajon Project

     In March 2003, the El Cajon project consortium, in which two of our subsidiaries hold a 61% of interest, entered into a U.S.$90 million bridge credit facility with WestLB AG for the financing of the first portion of the project’s construction costs. As of the date of this annual report, U.S.$14 has been disbursed to the consortium under the bridge credit facility. On June 17, 2003, the consortium was notified by WestLB AG that it was in default under the bridge credit facility as a result of (i) CFE’s failure to grant the consortium access to the project site, and (ii) the consortium’s failure to obtain the consent of WestLB AG and the project’s independent engineer prior to entering into an amendment to the project’s construction contract. The consortium has obtained a waiver from WestLB AG, which waives these events of default through August 10, 2003. The waiver will terminate earlier if any unrelated event of default under the bridge credit facility occurs prior to August 10, 2003. The consortium is currently in negotiations with WestLB AG and CFE aimed at curing these events of default, and expects to resolve these issues in a manner that will cure these events of default. However, there can be no assurance that these negotiations will result in a satisfactory resolution of these issues. For a description of the possible consequences of our failure to resolve these issues in a manner satisfactory to WestLB AG and CFE prior to August 10, 2003 see “Item 3. Key Information—Risk Factors—The consortium that was awarded the El Cajon project is seeking to cure non-financial defaults under the U.S.$90 million bridge credit facility.”

     Although there can be no assurance, the consortium expects to secure the balance of the requisite financing for the project through a syndicated bank loan contemplated to be arranged by WestLB AG. The financing of the project is expected to cover project costs, which include construction costs, 25% of the project’s overhead expenses, interest expense, and financial and legal fees. Under the terms of the bridge credit facility, the consortium has posted a U.S.$26 million letter of credit for the benefit of WestLB AG. In addition, for 2003, the consortium is required to post a performance bond of U.S.$10 million, which equals to the 10% of the value of the works to be performed in 2003, for the benefit of CFE and will be required to post performance bonds of U.S.$27 million for each of 2004 and 2005. For 2006 and 2007, performance bonds of U.S.$10 million and U.S.$1 million, respectively, will be required. The performance bonds for any given year must be posted by December 31 of the preceding year. As a 61% owner of the consortium, we are only required to post 61% of the above mentioned performance bonds. In 2003, in accordance with an agreement reached with CFE, the consortium posted letters of credit instead of performance bonds. Mr. Quintana, our President and Chief Executive Officer, and his family guaranteed U.S.$15 million out of U.S.$22 million (61% of the total amount) of the letters of credit required for the El Cajon project. In return, Mr. Quintana and his family received a fee equal to 2% of the guaranteed amounts. As a result of the ongoing obligation to post performance bonds for the El Cajon project, the El Cajon hydroelectric project may constrain our liquidity and may limit our ability to devote cash resources to other projects or needs. Moreover, there can be no assurance that CFE and WestLB AG’s performance bond and letter of credit requirements will not have a materially adverse effect on our liquidity, financial condition or results of operation. For a description of the El Cajon project, see “Item 4. Information on the Company—Business Overview—Description of Business Segments—Civil Construction.”

Additional Sources and Uses of Funds

     Our principal use of funds in 2002, as reflected in note 15 and 16 to our financial statements, was the payment of accrued expenses and services and interest payments on our debt obligations.

     We may from time to time repurchase our outstanding debt or equity securities if market conditions and other relevant considerations make such repurchases appropriate.

     Beginning in February 1999, we turned to the disposition of non-core assets as a source of liquidity. These non-core assets have included equity in subsidiary companies, equity in non-consolidated companies, the sale of real estate and the sale of construction equipment. From February 1999 through December 2002, we sold U.S.$683 million of assets, U.S.$160 of which were sold in 2002. In 2002, the principal assets that we sold were:

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     Historically, the sale of PICs received in the concession restructurings was an important source of liquidity. As of December 31, 2001, however, we had sold all of the PICs received in the concession restructurings. In 2000, we sold an aggregate of UDI 770 million in principal amount of PICs (Ps.2,475 million at December 31, 2002) at a weighted average discount of 7.22% of their face amount. The sale of PICs in 2000 yielded aggregate proceeds of Ps.3,405 million (nominal). We utilized a substantial portion of the proceeds to reduce our debt.

     We historically financed our construction operations primarily through advances from customers. In the early to mid 1990s, however, as we increasingly were required to invest in our own construction projects, such as highway concessions, we substantially increased our capital. Accordingly, in April 1992 we raised approximately U.S.$460 million through an initial public offering of equity and in the first quarter of 1994 we completed an offering of U.S.$475 million of 5% convertible subordinated debentures due 2004. As financing opportunities in the international capital markets diminished, we obtained capital from borrowings from Mexican banks.

     We have been required increasingly to arrange construction-phase financing for the construction projects. This has typically been done through short-term bank financing or the issuance of commercial paper or medium-term notes. As these construction projects near completion, we typically seek to arrange longer-term financing to repay the short-term borrowings, either through the issuance of our own long-term debt or through the securitization of revenues from these projects.

     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.

     Since December 1994, our ability to arrange financing for the construction of infrastructure facilities, both domestically and in the international capital markets, has been limited. We believe that the scarcity of financing further reduced the volume of infrastructure work performed from 1995 through 2002 when compared to that performed in prior years. Nevertheless, we obtained financing in 1996 from the Inter-American Development Bank, or the IDB, and the Export-Import Bank for a portion of the construction costs of the Samalayuca II thermoelectric plant. In 1998, our consortium partners obtained U.S.$381 million of financing for the Cantarell nitrogen plant from the Export-Import Bank of Japan. In addition, in 1998 we obtained financing from the IFC for a portion of the construction costs of the Punta Langosta cruise ship terminal, and in September 1999, we entered into a U.S.$70 million loan agreement with the IFC for the construction of the Corredor Sur highway concession. In March 2003, a consortium in which two of our subsidiaries hold a 61% interest, entered into a U.S.$90 million bridge credit facility with WestLB AG for the financing of a portion of the El Cajon hydroelectric project. For more information about the El Cajon project, see “Item 4. Information on the Company—Business Overview—Description of Business Segments—Civil Construction.” See “Item 3. Key Information—Risk Factors—The consortium that was awarded the El Cajon project is seeking to cure non-financial defaults under the U.S.$90 million bridge credit facility.”

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     In recent years, our resources from operating activities and liquidity have also been adversely affected by a substantial increase in our average collection period on accounts receivable. Our average collection period on accounts receivable increased from 71 days in 1998 to 86 days as of the first quarter of 2003, primarily due to our clients’ inability to make timely payments as a result of Latin America’s general economic instability and the overall reduction in spending by certain Mexican government agencies.

     In January 2001, we initiated legal proceedings against the Ministry of Communications and Transportation (the Secretaria de Comunicaciones y Transportes ) seeking payment for work performed on eight highway projects. We estimate that value of the work done on the projects was approximately U.S.$13 million. A judgment in our favor in the amount of U.S.$13 million plus interest was rendered by the trial court level and was confirmed by the court of appeals. The precise amount of interest due to us as part of the award is still being calculated by the court. There can be no assurance as to the timing of when we will receive the award.

     In February 2001, we initiated legal proceedings against the Mexican Racetrack Administrator (the Administradora Mexicana de Hipodromo ) seeking payment for work performed. We have sued for total payment of U.S.$17.7 million, including U.S.$10 million for the value of the work, plus damages caused as a result of the delayed payment. On May 27, 2003, we reached an agreement with the Mexican Racetrack Administrator, ratified by the court, pursuant to which we received from the Mexican Racetrack Administrator a payment in an amount equivalent to U.S.$10 million.