Annual Report Consolidated

Transcription

1 Annual Report Consolidated annual accounts and directors report

2

3 Indra Consolidated Annual Accounts and Directors Report 2007

4 Consolidated Annual Accounts and Directors Report Contents Contents External Audit Report 4 Consolidated Annual Accounts 6 Directors Report 88

5 Indra 2007 Key figures * 2,167.6 Revenue. Pages 8, 54, 88, 89, 90, 93, 94 2,334.2 Order. Pages 88, 89, 90, 93 2,241.8 Order. Pages 88, 89, 90, Operating. Pages 54, 88, 89, Attributable. Pages 7, 8, 11, 88, 89, Basic. Pages 8, 49, ,609 Equity. Pages 6, 11 * Key figures in thousands of euros..

6 Consolidated Annual Accounts and Directors Report External Audit Report External Audit Report

7 Indra 2007

8 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Total assets (thousands of euros) 2,360, % % Consolidated balance sheets at 31 December 2007 and 2006 Assets Note Goodwill on consolidation 5 424, ,572 Other intangible assets 6 63,134 29,313 Property, plant and equipment 7 131,188 93,960 Investments in associates 8 7,206 2,126 Other investments 9 29,755 27,813 Long-term deposits 10-2,409 Fixed assets 655, ,193 Deferred tax assets 32 34,061 33,972 Total non-current assets 689, ,165 Income tax receivable 32 4,576 1,128 Inventories ,461 85,294 Trade and other receivables 12 1,462,344 1,043,654 Other assets 13 43,088 24,863 Cash and cash equivalents 14 32,217 42,300 Non-current assets held for sale Total current assets 1,671,148 1,197,239 Total assets 2,360,789 1,571,404 The accompanying notes form an integral part of the consolidated annual accounts.. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails)

9 Indra 2007 Profit for the year +29.5% , ,115 Consolidated balance sheets at 31 December 2007 and 2006 Equity and Liabilities Note Subscribed capital 16 32,826 29,238 First-time adoption reserve 16 1,902 2,406 Other reserves ,571 63,903 Treasury shares 16 (42,887) (39,800) Conversion differences 16 1,839 (1,065) Retained earnings , ,962 Profit for the year attributable to the parent , ,115 Total equity attrib. to equity holders of the parent 696, ,759 Minority interest 16 42,050 26,322 Total equity 738, ,081 Capital grants 18 17,913 11,788 Provisions for liabilities and charges 19 8,932 4,672 Long-term borrowings 20 46,207 53,689 Other long-term payables 21 41,259 43,144 Deferred tax liabilities 32 29,890 15,504 Total non-current liabilities 144, ,797 Income tax payable 32 5,136 18,617 Trade and other payables 22 1,137, ,257 Other current liabilities , ,178 Current borrowings ,448 47,474 Total current liabilities 1,477,929 1,070,526 Total equity and liabilities 2,360,789 1,571,404 The accompanying notes form an integral part of the consolidated annual accounts.. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 7

10 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Basic earnings per share +15.2% Consolidated income statements for the years ended 31 December 2007 and 2006 Note Revenue 25 2,167,614 1,406,780 Capital grants 6,236 4,677 Other income 1,899 1,874 Changes in inventories of finished goods and work in progress 36,208 18,781 Materials consumed 26 (804,065) (602,021) Personnel expenses 27 (856,917) (458,746) Other operating expenses (293,542) (186,898) Gross operating profit 257, ,447 Amortisation and depreciation 6 y 7 (33,958) (20,832) Net operating profit 223, ,615 Financial income 3,564 4,903 Financial expenses (16,912) (7,108) Exchange differences Net financial income/(expense) (12,744) (1,441) Share of profits/(losses) of associates 8 1, Share of profits/(losses) of other investees Other losses on non-current assets 29 (248) (506) Profit before tax 212, ,174 Income tax expense 32 (57,409) (44,238) Profit for the year 154, ,936 Attributable to equity holders of the parent 147, ,115 Attributable to minority interests 16 6,983 3,821 Basic earnings per share (Euros) Diluted earnings per share (Euros) The accompanying notes form an integral part of the consolidated annual accounts.. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails)

11 Indra 2007 Operating profit (thousands of euros) 250, % % Consolidated cash flow statements for the years ended 31 December 2007 and Profit before tax 212, ,174 Adjusted for: - Amortisation, depreciation, provisions and capital grants 26,666 30,109 - Other profit on assets (119) Share of profits/(losses) of associates (1,340) (446) - Finance income/(expense) 12,744 1,441 + Dividends received Operating profit prior to changes in working capital 250, ,800 Changes in trade and other receivables (97,467) (69,888) Changes in inventories (40,932) (19,259) Changes in trade and other payables 92,751 77,747 Cash generated from operations (45,648) (11,400) Income taxes paid (56,347) (43,723) Net cash from operating activities 148, ,677 Acquisition of non-current assets:: Property, plant and equipment (40,051) (20,417) Intangible assets (31,104) (17,577) Investments (39,398) (129,249) Proceeds from sale of non-current assets:: Property, plant and equipment Intangible assets Investments - 1,177 Deposits 1,589 7,274 Interest received 1,070 4,747 Cash used in investing activities (107,810) (153,538) Changes in treasury shares 1,047 (2,304) Dividends of subsidiaries paid to minority interests (2,871) (775) Dividends of the parent company (125,893) (55,439) Increase in capital grants 9,902 5,730 Increase in borrowings 49,693 - Decrease in borrowings - (23,789) Interest paid (13,615) (5,107) Net cash used in financing activities (81,737) (81,684) Net decrease in cash and cash equivalents (41,322) (96,545) Cash and cash equivalents at 1 January 42, ,955 Increase contributed by new companies 31,873 - Effect of exchange rate fluctuations in cash and cash equivalents (634) (110) Net decrease in cash and cash equivalents (41,322) (96,545) Cash and cash equivalents at 31 December 32,217 42,300 The accompanying notes form an integral part of the consolidated annual accounts.. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails)

12 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Statements of changes in consolidated equity for the years ended 31 December 2007 and 2006 Subscribed 1st adoption Other Treasury capital reserve reserves shares Balance at 12/31/06 29,238 2,406 63,903 (39,800) Distribution of 2006 profit: - Dividends Reserves - (504) - - Share capital increase 3, ,247 - Share capital decrease (25) - (844) - Changes in consolidated group Other increases and decreases in ,265 (3,087) Income and expense recognised directly in equity - Exchange differences Held-for-sale investments Interest rate and cash flow hedges Total income and expense recognised directly in equity Profit at 12/31/ Balance at 12/31/07 32,826 1, ,571 (42,887) Suscribed 1st adoption Other Treasury capital reserve reserves shares Balance at 12/31/05 29,238 4,032 58,117 (38,941) Distribution of 2005 profit: -Dividends Reserves - (1,626) - - Changes in consolidated group Other increases and decreases in ,858 (859) Income and expense recognised directly in equity - Profit on treasury shares - - 1, Exchange differences Held-for-sale investments Cash flow hedges Equity swap dividends Total income and expense recognised directly in equity - - 1,928 - Profit at 12/31/ Balance at 12/31/06 29,238 2,406 63,903 (39,800) The accompanying notes form an integral part of the consolidated annual accounts. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 10

13 Indra 2007 Conversion Retained Minority differences earnings Total interest Total (1,065) 291, ,759 26, ,081 - (127,813) (127,813) (2,870) (130,683) , , (869) - (869) ,672 11,672 - (793) 2,385 (119) 2,266 2,904-2, , (39) 546 2, , , , ,798 6, ,781 1, , ,609 42, ,659 Conversion Retained Minority differences earnings Total interest Total (573) 231, ,003 19, ,694 - (56,328) (56,328) - (56,328) - 1,626 - (25) (25) ,845 2,845 - (45) 2,954-2, ,300-1,300 (492) - (492) 25 (467) (35) (492) 579 2,015 (10) 2, , ,115 3, ,936 (1,065) 291, ,759 26, ,081 11

14 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts 1) Nature, Structure and Principal Activities of the Group The Parent Company of the Group, Indra Sistemas, S.A. (the Parent Company), adopted its present name at an extraordinary shareholders meeting held on 9 June The registered offices of the Parent Company are at Avenida de Bruselas, 35, Arroyo de la Vega, Alcobendas (Madrid). The statutory and principal activity of the Parent Company mainly consists of the design, development, integration and maintenance of systems, solutions and services based on intensive use of information technology. In 2007 the Indra Group has reorganised its legal structure to integrate the business structure through which the Parent Company carries out its activities, and thereby integrate its joint business project. Consolidated companies, their registered offices, activities and the percentage holdings owned by the Parent Company are shown in Appendix I, which forms an integral part of the notes to the consolidated annual accounts for the year ended 31 December The Group comprises the following subsidiaries, joint ventures and associates: a) Subsidiaries Entities that the Parent Company controls, directly or indirectly through other investees are considered to be subsidiaries. Control is understood to be the power to govern the financial and operating policies of an entity so as to obtain profits from its activities. During the year ended 31 December 2007 the main movements in the consolidated group relating to interests in subsidiaries are as follows: On 12 January 2007, the Parent Company increased share capital by issuing 18,068,171 shares, to proceed with the integration of the Soluziona Group (see note 16). The fair value of this share capital increase amounted to Euros 328,660 thousand. Aggregate details of the cost of this business combination and the fair value of the net assets acquired are as follows: Cost of the business combination: - Fair value of the shares issued (*),660 - Expenses inherent to the acquisition, ,038 Fair value of net assets acquired Goodwill 0,767,271 (*)Value calculated on the basis of the fair value of Indra Sistemas, S.A. at the date the deed was executed. 12

15 Indra 2007 The amounts recognised at the date of acquisition of the assets, liabilities and contingent liabilities are as follows: Assets Goodwill on consolidation Intangible assets Property, plant and equipment Fair value,798,974,004 Other financial assets,268 Deferred tax assets,808 Inventories,541 Trade and other receivables 7,381 Other assets 14, ,367 Liabilities Other deferred income (12) Provisions for liabilities and charges (14,150) Other long-term payables (1,335) Deferred tax liabilities (4,280) Income tax liabilities (1,861) Trade and other payables (105,979) Other liabilities (39,645) (167,262) Total net assets 153,105 Minority interests (14,091) Cost of the business combination (333,038) Cash and cash equivalents,753 Long-term financial debt (1,562) Credit institutions (28,558) Short-term financial investments Cash,087,786 Goodwill (192,271) Purchase price distribution has been determined through analysis of fixed assets, working capital, financial assets and liabilities, trademarks, corporate IT systems, patents and copyrights, customer relations and various commitments specified in the contract. On 28 February 2007, the Parent Company acquired the remaining 50% of BMB Gestión Documental, S.L.U. Goodwill of Euros 24,506 thousand was generated on this acquisition. This company was fully consolidated until its absorption by the Parent Company on 1 October

16 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts On 28 March 2007, BMB Gestión Documental, S.L.U. acquired the remaining 32.86% of CDS Corporación de Servicios Externos, S.L.U. This company was subsequently absorbed by the Parent Company. Goodwill of Euros 203 thousand was generated on this transaction. On 18 May and 24 September 2007, Soluziona Chile, S.A. acquired the remaining 40% of Soluziona CYS Holding, S.A. for Euros 1,254 thousand. A negative consolidation difference of Euros 122 thousand was generated on this acquisition. On 25 May 2007, Europraxis Atlante, S.L.U. acquired the remaining 25% of the share capital of Compraxis Prestaçao de Serviços de Consultoria, Ltda. for Euros 200, by exercising a purchase option. On 28 May 2007, the Parent Company acquired a 3.568% interest in Internet Protocol Sistemas Net, S.A., thereby increasing its interest in this company to 96.44%. Goodwill of Euros 216 thousand was generated on this acquisition. This company is fully consolidated. On 14 June 2007, Europraxis Atlante, S.L.U. acquired the remaining 49% of Advanced Logistics Group, S.A. for Euros 4,163 thousand, including variable payments. Goodwill of Euros 2,725 thousand was generated on this transaction. On 25 July 2007, Indra BMB, S.L.U. acquired 100% of the share capital of Indra BMB Servicios Digitales, S.A.U. (which in turn is the sole owner of Etnodiversidad Somontano, S.L.U. and Programarius, S.L.U.) for Euros 1,000 thousand. Goodwill of Euros 792 thousand was generated on this acquisition. On 31 August 2007, the Parent Company acquired 100% of the Australian company Interscan Navigation Systems for Euros 405 thousand. The purchase price included the acquisition price of the shares in this company and repayment of part of this company s debt to the former shareholders. Goodwill of Euros 1,521 thousand was generated on this transaction. This company is fully consolidated. During the year ended 31 December 2006 movement in the consolidated Group was as follows: On 11 January 2006 the Parent Company incorporated the Polish company Polska Sp.Zo.o, for which it subscribed and paid 100% of the share capital. On 5 June 2006 the Parent Company incorporated the Moroccan company Indra Sistemas Magreb SARL, for which it subscribed and paid 100% of the share capital. On 17 July 2006 the Parent Company incorporated the French company Indra France SAS, for which it subscribed and paid 100% of the share capital. On 20 July 2006 Europraxis Atlante, S.L.U. acquired 51% of Advanced Logistics Group, S.L. On 28 July 2006 the Parent Company acquired a further 70% of Internet Protocol Sistemas Net, S.A. and an additional 2.87% on 12 December, thereby increasing its interest in this company to 92.87%. On 15 September 2006 the Parent Company acquired 100% of Azertia Tecnologías de la Información, S.A.U. for Euros 116,391 thousand, including the total income and expenses inherent to the operation. Azertia Tecnologías de la Información, S.A.U. is the parent company of the Azertia Group, which is engaged in the design, development and maintenance of information technologies, mainly for the financial, energy, utilities, healthcare and legal sectors. The business acquired generated consolidated profit for the Group of Euros 2,714 thousand between the date of acquisition and the 2006 year end. Had the acquisition been made on 1 January 2006, the Indra Group s ordinary income and consolidated profit for the year ended 31 December 2006 would have amounted to Euros 1,539,177 thousand and Euros 128,223 thousand, respectively. 14

17 Indra 2007 Aggregate details of the cost of business combinations, the fair value of the net assets acquired and goodwill were as follows: Cost of the business combination: - Cash paid,800 - Dividends received (4,000) - Expenses inherent to the acquisition, ,391 Fair value of net assets acquired Goodwill,919,472 The fair value recognised at the date of acquisition of the assets, liabilities and contingent liabilities is as follows: Assets Goodwill on consolidation,062 Intangible assets,501 Property, plant and equipment,111 Other financial assets,111 Deferred tax assets,986 Inventories,136 Trade and other receivables,164 Other assets, ,629 Liabilities Capital grants (527) Provisions for liabilities and charges (16) Other long-term payables (1,899) Deferred tax liabilities (45) Income tax liabilities (896) Trade and other payables (26,207) Other liabilities (25,052) (54,642) Total net assets 78,987 Minority interests (804) Cost of the business combination (116,391) Cash and cash equivalents (21,264) Goodwill 59,472 15

18 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts The fair value of all the assets and liabilities related to this business combination was considered substantially equal to the carrying amount in the Azertia Group books at the date of the acquisition. These amounts have therefore been maintained. On 2 November 2006 Indra Sistemas de Seguridad, S.A. incorporated Indra Sistemas de Comunicaciones Seguras, S.L., Sociedad Unipersonal, for which it subscribed and paid 100% of the share capital. It subsequently sold 10% of the share capital on 13 November b) Joint ventures Joint ventures are those entities over whose economic activity the Company has joint control through a contractual agreement whereby the strategic financial and operating decisions relating to the activity require the unanimous consent of the Group and the other venturers. Joint ventures are jointly-controlled entities that entail the creation of a corporation, partnership or similar entity, in which each venturer holds an interest. Movement relating to interests in proportionately consolidated joint ventures during the year ended 31 December 2007 is as follows: In April and July 2007, the Parent Company contributed Euros 53 thousand and Euros 47 thousand, respectively, in respect of Alliance Ground Surveillance Industries GmbH share premium. During the year ended 31 December 2006, the following changes took place: On 11 May 2006 the Parent Company acquired 150 shares representing a 50% interest in I3 Televisión, S. L. On 12 May 2006 the Parent Company acquired a 16.66% interest in the Alliance Ground Surveillance Industries GmbH joint venture. On 31 August 2006 the Parent Company acquired a 16% interest in TCAR Industries GmbH. On 12 December 2006 the Parent Company acquired 751 shares representing a % interest in Ceicom Europe, S.L., thereby increasing its interest to 50%. On 12 December 2006 the Parent Company acquired 62,500 shares representing a 25% interest in Computación Ceicom, S.A., thereby increasing its interest to 50%. c) Associates Entities over which the Parent Company has significant influence, either directly or indirectly though other investees are considered to be associates. Significant influence is the power to intervene in the financial and operating policy decisions of the investee but is not control. Movement in interests in associates during the year ended 31 December 2007, relating to subsidiaries of the Prointec subgroup, is as follows: Acquisition of a 20% interest in Iniciativas Bioenergéticas, S.L. Acquisition of a 16% interest in Gestión de Recursos Eólicos Riojanos, S.L. During the year ended 31 December 2006, the following changes took place: On 28 April 2006, the Parent Company acquired a 70% interest in its investee Internet Protocol Sistemas Net, S.A. This company thereby became a subsidiary. On 12 December 2006 the Parent Company acquired a further % interest in its investee Ceicom Europe, S.L. This company thereby became a joint venture. On 12 December 2006 the Parent Company acquired a further 25% interest in its investee Computación Ceicom, S.A. This company thereby became a joint venture. The annual accounts of the companies comprising the consolidated Group have the same closing date as these consolidated annual accounts. 2) Basis of Presentation The accompanying consolidated annual accounts have been prepared by the directors of the Parent Company on the basis of the individual accounts of Indra Sistemas, S.A. and its subsidiaries, joint ventures and associates, to present fairly the shareholders equity and the financial position, results of operations, cash flows and changes in equity of the Group for the years ended 31 December 2007 and 31 December

19 Indra 2007 The directors of the Parent Company expect these consolidated annual accounts for the year 2007 to be approved by the shareholders at their annual general meeting without significant changes. The consolidated annual accounts for 2006 were approved by the shareholders at their annual general meeting held on 21 June Presentation and format The Group s consolidated annual accounts have been prepared in accordance with European Union-endorsed International Financial Reporting Standards (EU-IFRS). Accordingly, the consolidated balance sheet, income statement, cash flow statement and statement of changes in equity for the year ended 31 December 2007 include comparative figures for the previous year. The annual accounts for 2007 have been prepared using the same accounting principles as for 2006, except for standards and modifications endorsed by the European Union, which are obligatory as of 1 January 2007, as follows: Modified IAS 1 - Presentation of Financial Statements - Capital Disclosures IFRS 7 - Financial Instruments: Disclosures These modifications only affect disclosures. These consolidated annual accounts are presented in thousands of Euros, as this is the functional currency in the main economic environment in which the Indra Group operates. Foreign currency transactions are recorded following the principles described in note 4.u). Estimates The preparation of consolidated annual accounts under EU-IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Nevertheless, the results could have been different had other estimates been used. The accounting principles and areas requiring the greatest number of judgements and estimates in the preparation of the consolidated annual accounts are as follows: Percentage of completion of projects (note 4.t). Test of recovery of goodwill on consolidation (note 4.d). Provisions for liabilities and charges. The final cost of litigation and contingencies may vary depending on the interpretation of the principles, opinions and ultimate evaluations. Any variations in these circumstances could have a significant effect on the amounts recorded under provisions for liabilities and charges. Estimate of the useful life of property, plant and equipment and intangible assets. Consolidation criteria Subsidiaries The annual accounts of subsidiaries are included in the consolidated annual accounts from the acquisition date, which is the date that control effectively commences, until the date that control ceases. Subsidiaries are fully consolidated, and therefore the assets, liabilities, income, expenses and cash flows of subsidiaries are incorporated in the annual accounts after adjusting and eliminating intergroup operations. On the date of acquisition, the subsidiary s assets, liabilities and contingent liabilities are recognised at fair value. Positive differences between the cost of acquisition of the subsidiary and the fair value of its assets and liabilities relating to the Parent Company s interest therein is recorded as goodwill (see note 4.a). Negative differences are recognised in the consolidated income statement. If the business combination can only be determined provisionally, the identifiable net assets are initially recorded at their provisional value. Adjustments applied during the twelve-month period subsequent to the date of acquisition are recorded as if they had been known at that date. Once this period has concluded, any adjustments other than those related to the existence of contingent payments or deferred tax assets of the acquired company, not initially recognised, are considered as corrections of errors and are recorded in accordance with the criteria established in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. 17

20 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts For business combinations carried out in phases, each exchange transaction is treated separately using information relating to the cost of the transaction and the fair value of the net assets identifiable at the date of each exchange, in order to quantify the goodwill associated with the transaction. Joint ventures Significant investments in joint ventures are consolidated proportionately from the date joint control commences until the date that joint control ceases. The Group includes the proportionate share of the assets, liabilities, income and expenses recognised in the consolidated annual accounts of the jointly-controlled entity with items of a similar nature on a line by line basis. Associates Investments in associates are accounted for using the equity method from the date significant influence by the Parent Company commences until the date it ceases. The Group s share of an associate s post-acquisition profits or losses is recognised as an increase or decrease in the value of the investment, with a charge to share of profit/(losses) of associates in the consolidated income statement. Dividends from the associate are recognised as a decrease in the value of the investment. The Group has considered the date of acquisition of holdings in subsidiaries, joint ventures and associates as the date of first consolidation for the purposes of calculating goodwill or negative consolidation differences. All balances, transactions and unrealised profit or loss on operations between consolidated companies at 31 December 2007 and 2006 have been eliminated on consolidation. Third-party interests in the equity of fully-consolidated companies are reflected under minority interests in the consolidated balance sheets. Third-party shares in consolidated profit or loss for the years ended 31 December 2007 and 2006 are recognised under profit/loss attributable to minority interests in the consolidated income statements. 3) Distribution of Profit The directors of the Parent Company will propose to the shareholders at their ordinary general meeting that profit for the year be distributed as follows: Basis of distribution Profit for the year 141,139 Distribution: Legal reserve 390 Dividends Voluntary reserve,066,683 The board of directors will propose that a dividend of Euros 0.50 per share be distributed for 2007 (Euros 0.43 per share in 2006), marking a 16.3% increase in shareholder remuneration. This dividend, effective for all shares held, totals Euros 82,066 thousand and will be distributed with a charge to profit for the year. The distribution of profits for 2007 proposed by the directors of the Group companies is pending approval by the shareholders at their respective annual general meetings. 18

21 Indra ) Significant Accounting Principles The consolidated annual accounts have been prepared in accordance with European Union-endorsed International Financial Reporting Standards (EU-IFRS). The accounting policies set out below have been applied consistently in the periods presented in these consolidated annual accounts. The most significant accounting principles applied are as follows: a) Goodwill on consolidation Goodwill on consolidation deriving from business combinations is recorded under assets on the consolidated balance sheet when the cost of acquisition exceeds the Company s interest in the fair value of the identifiable assets, liabilities and contingent liabilities in the acquired companies at the date of exchange. Goodwill on consolidation is recorded using the consolidation criteria described in note 2. Goodwill acquired after 1 January 2004 is measured at cost while goodwill acquired previously is measured at the net carrying amount at 31 December 2003 in accordance with Spanish accounting principles. Goodwill is not amortised. The Parent Company tests goodwill for possible impairment each year as described in section d). Impairment losses on goodwill are not reversed in subsequent years. b) Other intangible assets Intangible assets are stated at cost of acquisition or production, less any impairment losses resulting from annual testing, as described in section d) of this note. Intangible assets include the following: Development costs, which represent direct costs incurred in developments specifically attributable to individual projects. Expenses related to research, development and innovation projects (R&D&innovation) are recognised directly in the consolidated income statement for the corresponding period, except for costs incurred on development projects, which are capitalised under development costs when the following conditions exist: It is technically possible to complete production of the intangible asset so that it is available for use or sale There is a clear intention to complete production of the intangible asset, for use or sale It is possible to use or sell the intangible asset The intangible asset is likely to generate economic profit in the future The appropriate technical and financial resources are available to enable completion of the intangible asset for use or sale It is possible to reliably evaluate the disbursement attributable to the intangible asset during its production Grants have been received for the development project. The repayment of loans obtained to finance the development project is conditional upon commercial viability and estimated sales revenues would permit amortisation of the amount capitalised over a maximum period of five years. In no case may the total costs capitalised exceed the final amount of grants or financing received to fund the development project. On conclusion of the development project, the total cost capitalised is recorded under development costs. The cost of completed development projects is amortised on the basis of the estimated income from grants or planned sales of the related commercial project. Software: expenses incurred on the acquisition of software or licences, as well as costs related to programmes developed by the Group, are capitalised when these assets contribute to the generation of income. Amounts capitalised do not include costs incurred to modify or upgrade programmes utilised by the Group or expenses arising from review, consultancy and training services rendered by third parties in relation to the implementation of software. Software is amortised in line with the Group s use thereof. Patents are stated at cost and amortised over the period of use stipulated therein. 19

22 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts c) Property, plant and equipment Property, plant and equipment acquired prior to 31 December 1983 are stated at cost or at the value contributed by shareholders, revalued as permitted by Law 9 of 13 July Property, plant and equipment acquired subsequent to 1983 are stated at the lower of cost and recoverable amount. Costs of extending, modernising or improving assets to increase productivity, capacity or efficiency, or extend their useful lives, are capitalised as an increase in the cost of the asset. Repairs and maintenance costs are expensed when incurred. As a consequence of the inclusion of the Inisel subgroup within the consolidated Group and the subsequent merger of Inisel with Indra Sistemas with effect from 1 January 1993, certain property, plant and equipment items were revalued in accordance with appraisals made by independent experts. Depreciation is provided on a straight-line basis on the cost or value assigned by independent experts over the following average estimated useful lives: Years Buildings Plant, machinery and other installations Furniture Information technology equipment Motor vehicles 7 Other property, plant and equipment 0 The rights to use and the option to purchase property, plant and equipment contracted through finance leases are recorded at the cash value of the asset at the time of acquisition, in accordance with the nature of the asset. The cash value of the debt is recorded as a liability. The finance cost of the operation is taken to expense in line with payment of the corresponding lease instalments. These rights are amortised on a straight-line basis over the useful lives of the relevant leased assets. d) Impairment Goodwill is tested annually for impairment and the fair value of the Group s assets with finite useful lives is tested when there is any indication of impairment. When the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in the consolidated income statement under impairment losses to reduce the carrying amount of the asset to the recoverable value. The recoverable value of an asset is the higher of the net selling price and the value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a reasonable interest rate. To estimate the value in use the Group prepares cash flow forecasts based on the best available estimates of income and expenses of the cash generating units, sector forecasts, historical experience and future expectations. To calculate the present value of cash flows, these are discounted at a rate that considers the cost of capital of the business and of the geographical area in which the business is carried out. For calculation purposes, the present cost of the money and the risk premiums generally used for each business and geographical area are taken into consideration. The Group calculates impairment on the basis of the five-year strategic plans of the different cash generating units to which the assets are allocated, applying expected growth rates and maintaining constant growth as of the fifth year. The rates used for the cost of capital of the business are determined before tax and include the associated risk rate. The rates used in 2007 range from 9%-10%. In the case of identifiable assets that do not generate cash independently, the recoverability of the cash generating unit to which the assets belong is estimated. Reversal of impairment losses incurred on assets, except in the case of goodwill, is recognised as revenue in the consolidated income statement, with an adjustment to the provision associated with the assets. If the asset has previously been revalued, the reversal is recognised under reserves. 20

23 Indra 2007 e) Financial assets Financial assets, except investments accounted for using the equity method (see note 2), are stated as follows: Loans and receivables are recognised at amortised cost, which basically reflects the amount disbursed less repayments of the principal plus accrued interest in the case of loans, and at the present value of the consideration in the case of receivables. Financial assets at fair value through profit and loss include financial assets held for trading and other financial assets managed and measured at fair value. These assets are carried at fair value and any fluctuations are recorded in the consolidated income statement. Held-to-maturity investments are financial assets other than loans and receivables, which have a fixed maturity and fixed or determinable payments and that the entity has the positive intent and ability to hold until maturity. Available-for-sale investments comprise the remaining investments not included in the abovementioned categories These investments are carried at fair value, recording net differences in relation to the acquisition cost under equity until the assets are written off the consolidated balance sheet, at which point they are taken to the consolidated income statement. These investments include investments in companies not forming part of the Indra Group, which are stated at fair value when this can be reliably measured. Given that the market value of shares in unquoted companies cannot usually be reliably measured, these investments are stated at cost of acquisition less any impairment losses. f) Inventories Inventories are stated at the lower of cost or net realisable value. Work in progress represents the direct cost of labour, materials or services acquired for projects. Materials and services directly attributable to projects are valued at cost, while labour is stated at standard rates, which does not differ significantly from the actual costs incurred in this respect. g) Trade and other receivables Subsequent to initial recognition, trade and other receivables are measured at amortised cost using the effective interest method, provided they have a fixed maturity date of more than one year. The group makes provision for bad debts when there is objective evidence of impairment losses. h) Capital grants Outright capital grants received by the Group to finance research and development costs are recognised as a liability for the amount received and are taken to income in line with the amortisation of projects capitalised under other intangible assets. i) Share options plan The share options plans allow Group employees and directors to acquire shares of the Parent Company at a specified price. The options granted by the Group are recognised at their fair value as a personnel expense with a corresponding increase in equity or debt, depending on the exercise method of each programme. The fair value of options granted is measured at the grant date using the Black-Scholes model, taking into account the exercise price, the exercise term, historical volatility, estimated dividend payments and the terms and conditions upon which the options were granted. The fair value of the option multiplied by the number of options granted which are expected to vest is recognised as a personnel expense, over the period during which the employees become unconditionally entitled to the options, that is, from the grant date to the exercise date. The amount recognised as an expense is adjusted periodically to reflect the estimated number of share options that vest. j) Provisions for liabilities and charges Obligations existing at year-end arising as a result of past events, the amount and settlement date of which are not determined and which could negatively affect the equity of Indra Group, are recognised as provisions for liabilities and charges under liabilities in the consolidated balance sheet at the present value of the most probable estimated amount that the Group would be obliged to disburse to settle the obligation. The amount of these provisions is calculated at each accounting close on the basis of the most reliable information available in relation to the consequences of the event from which they arise. 21

24 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts k) R&D loans R&D loans are extended to assist in the Group s research and development activities. Such loans bear zero explicit interest and the repayment schedule generally exceeds five years. R&D loans are initially recognised under liabilities at the present value of future cash flows and revalued at market interest rates. The difference between the nominal value and the revalued amount is recognised as a decrease in accrued expenses. In subsequent years the loan revaluation is recognised under financial expenses. l) Trade provisions Trade provisions are made to cover the estimated expenses of repairs or reviews of projects during the guarantee period. m) Current/long-term Assets and liabilities are classified in the consolidated balance sheet as follows: Long-term: debts maturing more than twelve months from the balance sheet date, which is the Group s normal operating cycle, and assets which are not expected to be realised, sold or consumed within this time. Current: assets expected to be realised, sold or consumed within the normal operating cycle of the Group and debts maturing within twelve months of the balance sheet date. n) Income taxes The income tax expense for the year is recognised in the income statement, except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Deferred tax assets and liabilities are provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected tax rate on realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date. Deferred tax assets and liabilities relating to movements in equity are recognised in equity. Deferred tax assets and tax credits are recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. o) Earnings per share The Group calculates basic earnings per share by dividing profit or loss by the weighted average number of shares available during the period. Available shares are issued shares not held by the Company. Diluted earnings per share are calculated taking into account the diluted effect of convertible bonds or hybrid instruments with an equity component. p) Foreign currency transactions Uninsured operations: Foreign currency transactions are accounted for in Euros at the rates of exchange prevailing at the transaction date. Exchange gains or losses arising on settlement of balances are taken to the consolidated income statement when they arise. Uninsured balances receivable and payable in foreign currencies are expressed in Euros at the rates of exchange prevailing at year end. Exchange gains or losses arising on settlement of balances are taken to the consolidated income statement when they arise. Insured operations: In order to eliminate the impact of exchange rate differences on the projects carried out by the Parent Company and its subsidiaries, forward purchases and sales of foreign currency are arranged with banks (see note 4.q). The exchange rate to be applied to foreign currency cash flows generated over the term of projects is established when the related contracts are drawn up. This exchange rate is also taken into consideration for the purposes of recognising income on the projects. The fixed exchange rate corresponds to the weighted average exchange rate obtained by applying the average market rates assigned on each maturity to forecast cash flows. 22

25 Indra 2007 For forward purchase and sale operations, at year-end the Company verifies that the value of the cash flows pending realisation on projects coincides with the forward conversion value. Possible differences arising when an expected flow from the product does not occur within the initially estimated time frame are expensed. q) Financial derivatives and hedging operations Financial derivatives that do not comply with the following hedge accounting criteria are measured and classified as financial assets or liabilities at fair value through profit or loss. Financial derivatives that comply with hedge accounting criteria are initially recognised at fair value plus any transaction costs directly attributable to their acquisition; or less any transaction costs directly attributable to the issue of the financial derivatives. The Group hedges the fair value of cash flows and has opted to recognise hedges of exchange rate exposure associated with firm commitments as cash flow hedges. At the inception of a hedge operation, the Group formally designates and documents hedging relationships, as well as its objective and strategy for undertaking the hedge. Hedge accounting is only applicable at the inception of the hedge and in subsequent periods, when the hedge is expected to be highly effective in offsetting changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated (prospective effectiveness testing); and when the actual effectiveness of the hedge can be reliably determined and is within a range of per cent (retrospective effectiveness testing). In the case of cash flow hedges, the Group evaluates whether forecast transactions are highly probable and whether they present an exposure to variations in cash flows that could ultimately affect profit or loss for the year. The Group has arranged forward purchases and sales of foreign currency. These exchange rate insurance contracts are considered financial derivatives and comply with conditions for hedge accounting, as follows: In the case of fair value hedges, changes in both the market value of derivative instruments designated as hedging instruments and the market value of the hedged item, as a result of the hedged exposure, are taken to the consolidated income statement. In the case of cash flow hedges, the gain or loss arising from changes in the market value of effective hedging derivatives are recognised in equity in the consolidated balance sheet. The fair value of exchange rate insurance is calculated using the official exchange rate of each currency at closing date. The Group has also contracted interest rate hedges to eliminate or significantly reduce risks associated with the hedged underlying operations. The fair value of interest rate hedges is based on market values for equivalent financial derivatives at the balance sheet date. All interest rate hedges are also effective as cash flow hedges. The Group recognises as income or expenses under equity any gains or losses on the fair value measurement of hedging instruments that relate to the part of the hedge identified as effective. r) Compensation for termination of employment Except in the case of justifiable cause, companies are liable to pay indemnities to employees whose services are discontinued. Indemnity payments, if they arise, are expensed when the decision to terminate employment is approved and announced to the affected parties. s) Distribution of costs by segment The Group s activities are performed in two main segments: Solutions, which includes a wide range of systems, applications and components for compiling data and information and for data and information processing, transmission and subsequent presentation, for the control and management of complex processes. The Company s solutions business is characterised by the customer-based approach and knowledge of the business, and incorporates a high degree of business and consulting technology. Services, including management and operation of systems and solutions, as well as certain business processes where technology is a strategic element. Inter-segment pricing is determined on an arm s length basis and profit or loss of each segment is measured using the contribution margin. This margin is the gross margin of projects less the cost of sales in the markets in which the Group offers its solutions and services, the costs of support of projects and the profit or loss of equity-accounted companies. For consolidation purposes, corporate functions and other activities which cannot be allocated to a specific segment are shown under Corporate (unallocated). 23

26 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Based on the different characteristics of the geographical areas in which the Group operates, the Group s activities in Spain, Europe, the United States, and Canada, Latin America and other countries have been designated secondary segments. t) Recognition of income and expenses The Group recognises income and expenses on contracts using the percentage of completion method, which is based on the estimated portion of the total contract completed at the closing date. Accordingly, the total estimated profit is distributed over the period in which the contract is expected to be carried out, based on the percentage of completion at each year end. Where certificates of work completed exceed income obtained by applying the percentage of completion method, the excess is recorded under advances from customers. Conversely, where certificates issued are lower than income resulting from the application of the percentage of completion method, uninvoiced income is recorded under trade and other receivables in the consolidated balance sheet. Losses estimated to arise on projects are recorded as soon as the amount is known. u) Conversion of annual accounts in foreign currencies For the purposes of converting the balance sheets and income statements of the foreign companies incorporated into the consolidated annual accounts of the Indra Group, the Group has translated the related balances at the year-end exchange rates on the following basis: All assets and liabilities reflected in the balance sheets of the foreign companies incorporated in the consolidation process have been converted at the rates of exchange prevailing at the closing date. Amounts reflected in the income statements of the foreign companies incorporated in the consolidation process have been converted at weighted average exchange rates on the basis of the volume of transactions carried out by these companies during the year. Equity at year-end, except for the profit or loss for the year, which is valued in accordance with the criteria explained in the preceding paragraph, has been stated at closing exchange rates. Any positive or negative differences between the equity determined as per the preceding paragraph and that resulting from the conversion of the assets and liabilities as described in the first paragraph of this note are recorded under conversion differences in the consolidated balance sheet of the Group, net of the portion of the difference attributable to minority interests which is recorded under the caption Minority Interests. 24

27 Indra ) Goodwill on consolidation Details and movement are as follows: Additions due to changes in consol, 31/12/05 Additions group Transfers 31/12/06 Additions Disposals Transfers 31/12/07 Dir. BDE (*), , ,136 Indra Diagram (*), , ,443 Indra Emac, , ,160 Asesoría de Empresas Tres Cantos (*) 1, , ,742 Grupo Europraxis 7, , ,786 Indra EWS (*), , ,462 Indra Sistemas Portugal, , ,857 Algoritmos y Sistemas (*), , ,605 Indra Bmb, ,249 24, ,755 Indra ATM (*), , ,447 Assesors Registrals (***), ,044 1, ,088 Internet Protocol Sistemas Net - 5, , ,728 Advanced Logistics Group - 1, ,003 2, ,728 Ceicom Europe Computación Ceicom (15) Euroquality - - 1,751-1, ,526 Dimensión Informática - - 4,429-4,429 1,350-1,094 6,873 Seintex (*) - - 2,882-2, ,882 C.D.S (***) Interscan , ,521 Indra Bmb Tecnologías de Reconocim Azertia S.D. (*) ,262 7,262 Azertia G.C. (*) Azertia T.I. (*) ,322 32,322 Grupo Azertia - 59, , (42,319) 17,153 Prointec , ,462 Filiales subgrupo Prointec , ,405 Soluziona Seguridad (**) ,310 3,310 Soluziona Consultoría y Tecnología (*) , ,637 Grupo Soluziona ,271 - (139,947) 52,324 Total 108,705 66,043 9, , ,740 (15) - 424,297 (*) Companies merged with the Parent Company. (**) Company merged with Indra Sistemas de Seguridad, S.L.U. (***) Companies merged with Indra BMB, S.L.U. The following operations generating goodwill were carried out during the year ended 31 December 2007: On 12 January 2007, Indra Sistemas increased its share capital by issuing 18,068,171 shares, to proceed with the integration of the Soluziona Group. The fair value of this share capital increase amounted to Euros 328,660 thousand. Euros 4,422 thousand of expenses inherent to the acquisition were capitalised and the total value of the Soluziona Group therefore amounts to Euros 333,038 thousand. On 28 February 2007, goodwill of Euros 24,506 thousand was generated on the Parent Company s acquisition of the remaining 50% of BMB Gestión Documental, S.L.U. for Euros 32,009 thousand. 25

28 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts On 3 April and 30 May 2007, Azertia Tecnologías de la Información S.A.U. (which merged with Indra in 2007) settled Euros 661 thousand and Euros 689 thousand, respectively, reflecting variable payments for the acquisition of Dimensión Informática, S.L.U. On 28 May 2007, the Parent Company acquired a 3.568% interest in Internet Protocol Sistemas Net, S.A. for Euros 428 thousand, thereby increasing its interest in this company to 96.44%. On 22 June 2007, Europraxis Atlante, S.L.U. acquired the remaining 49% of Advanced Logistics Group, S.L. for Euros 4,163 thousand, including variable payments. This transaction generated goodwill on consolidation of Euros 2,725 thousand. On 31 August 2007, the Parent Company acquired 100% of the Australian company Interscan Navigation Systems for Euros 405 thousand, including expenses inherent to the acquisition of Euros 363 thousand. Operations generating goodwill on consolidation in 2006 were as follows: On 20 July 2006 Europraxis Atlante, S.L.U. acquired 51% of Advanced Logistics Group, S.L. for Euros 2,312 thousand, generating goodwill on consolidation of Euros 1,003 thousand. On 28 July 2006 the Parent Company acquired an additional 70% and on 12 December 2006 a further 2.87% of Internet Protocol Sistemas Net, S.A. The price of both acquisitions amounted to Euros 8,745 thousand, generating goodwill on consolidation of Euros 5,148 thousand. Goodwill deriving from this company, which had been recognised under investments in associates at 31 December 2005, when the company was classified as an associate, was transferred to goodwill on consolidation. On 15 September 2006 the Parent Company acquired 100% of shares in Azertia Tecnologías de la Información, S.A. for Euros 116,391 thousand, generating goodwill on consolidation of Euros 59,472 thousand. On 12 December 2006 the Parent Company acquired an additional % of Ceicom Europe, S.L. for Euros 209 thousand, generating goodwill on consolidation of Euros 170 thousand. Goodwill deriving from this company, which had been recognised under investments in associates at 31 December 2005, when the company was classified as an associate, was transferred to goodwill on consolidation. On 12 December 2006 the Parent Company acquired an additional 25% of Computación Ceicom, S.A. for Euros 391 thousand, generating goodwill on consolidation of Euros 250 thousand. Goodwill deriving from this company, which had been recognised under investments in associates at 31 December 2005, when the company was classified as an associate, was transferred to goodwill on consolidation. 26

29 Indra ) Other Intangible Assets Details of other intangible assets at 31 December 2007 and 2006 are as follows: Balance at New Conversion Balance at 31/12/06 Co s differences Additions Disposals Transfers 31/12/07 Investments: Patents,727 7,832 (45) 0 (35) (443) 44,066 Software,606 16,025 (232) 18,477 (8,376) 2,361 62,861 Development costs,239 2,065 (56) 12,125 (12,330) (1,660) 31,383 Other intangible assets,957 3,544 (92) 72 (42) (1,133) 9, ,529 29,466 (425) 31,104 (20,783) (875) 148,016 Amortisation: Patents (34,349) (3,905) 75 (2,731) 7 (40,868) Software (24,049) (8,334) (7,276) 8, (30,565) Development costs (20,759) (407) (1,813) 12, (10,384) Other intangible assets (1,059) (964) (591) (561) (3,065) (80,216) (13,610) 299 (12,411) 20, (84,882) Carrying amount: Patents,378 3,927 0 (2,701) - (436) 3,198 Software 0,557 7,691 (90) 11,201 (34) 2,971 32,296 Development costs 0,480 1,658 (42) 10,312 (7) (1,402) 20,999 Other intangible assets,898 2,580 (24) (119) - (1,694) 6,641 Total 29,313 15,856 (126) 18,693 (41) (561) 63,134 Balance at New Conversion Balance at 31/12/05 Co s differences Additions Disposals Transfers 31/12/06 Investments: Patents, (637) (94) 36,727 Software,220 21,542 (77) 6,534 (7,460) ,606 Development costs,937 2,762 (1) 5,981 (960) (480) 31,239 Other intangible assets,086 - (2) 4,915 - (42) 6,957 76,020 24,836 (80) 17,579 (9,057) ,529 Amortisation Patents (32,657) (529) - (1,833) 576 (34,349) Software (11,021) (17,826) 0 (1,721) 6,650 (171) (24,049) Development costs (17,853) (267) - (2,639) - - (20,759) Other intangible assets (869) (6) (185) - - (1,059) (62,400) (18,628) 41 (6,378) 7,226 (77) (80,216) Carrying amount: Patents,120 - (1,684) (61) - 2,378 Software,199 3,716 (37) 4,813 (810) ,557 Development costs,084 2,495 (1) 3,342 (960) (480) 10,480 Other intangible assets,217 (6) (1) 4,730 - (42) 5,898 Total 13,620 6,208 (39) 11,201 (1,831) ,313 27

30 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Additions to software reflect the capitalisation of costs incurred on internal development work performed to commercialise software. Capitalised development costs have been financed or subsidised by the Spanish State through relevant public entities (see note 18). At 31 December 2007 fully amortised intangible assets amount to Euros 36,920 thousand (Euros 60,236 thousand at 31 December 2006). 7) Property, Plant and Equipment Details of property, plant and equipment at 31 December 2007 and 2006 are as follows: Balance at New Conversion Balance at 31/12/06 Co s differences Additions Disposals Transfers 31/12/07 Investments: Land, ,491 Buildings,179 9, (117) 37,756 Plant, machinery and other install. 103,045 1,088 (653) 13,371 (850) (997) 115,004 Furniture 0,598 4,695 (113) 3,783 (322) - 28,641 Motor vehicles, (32) (390) 2,715 Information technology equipment 55,057 14,059 (64) 11,690 (586) 2,941 83,097 Other property, plant and equipment 4,793 - (89) 1,235 (108) (718) 5,113 Work in progress, ,904 (22) (520) 12, ,404 30,112 (901) 41,551 (2,278) ,544 Depreciation: Buildings (11,385) (1,798) (63) (825) (14) (58) (14,143) Plant, machinery and other install. (67,222) 4, (7,219) 623 (176) (69,372) Furniture (11,422) (2,286) 02 (2,045) (15,355) Motor vehicles (843) (126) 7 (335) (1,089) Information technology equipment (39,656) (11,429) (10,842) 837 (175) (61,083) Other property, plant and equipment (1,916) (1,206) 72 (407) 102 (3,314) (132,444) (12,542) 629 (21,673) 2,032 (358) (164,356) Carrying amount: Land, ,491 Buildings,794 7,664 (13) (643) (14) (175) 23,613 Plant, machinery and other install. 35,823 5,391 (334) 6,152 (227) (1,173) 45,632 Furniture,176 2,409 (11) 1,738 (26) - 13,286 Motor vehicles 532 (15) (202) 1,626 Information technology equipment 15,401 2, ,766 22,014 Other property, plant and equipment 2,877 (1,206) (17) (6) (677) 1,799 Work in progress, ,904 (22) (520) 12,727 Total 93,960 17,570 (272) 19,878 (246) ,188 28

31 Indra 2007 Balance at New Conversion Balance at 31/12/05 Co s differences Additions Disposals Transfers 31/12/06 Investments: Land,698 1, ,731 Buildings,483 4,247 (31) (19) (479) (22) 28,179 Plant, machinery and other install. 70,587 25,927 (307) 8,499 (1,960) ,045 Furniture,664 3,797 (114) 2,626 (438) 20,598 Motor vehicles 1,507 (30) (459) - 1,786 Information technology equipment. 42,806 8,905 (157) 6,383 (2,754) (126) 55,057 Other property, plant and equipment 1,571 1,564 1,639 (47) 4,793 Work in progress, (3) 1,813 - (332) 3, ,707 47,141 (590) 21,387 (6,137) (104) 226,404 Depreciation: Buildings (10,265) (1,112) (540) (11,385) Plant, machinery and other install. (48,541) (15,841) (4,539) 1,688 - (67,222) Furniture (8,329) (2,215) (1,391) 409 (11,422) Motor vehicles (163) (1,053) (88) (843) Information technology equip. (27,609) (6,978) 77 (7,598) 2,511 (59) (39,656) Other property, plant and equip. (1,411) (198) (298) (40) (1,916) (96,318) (27,397) 232 (14,454) 5,543 (50) (132,444) Carrying amount: Land,698 1, ,731 Buildings,218 3,135 (559) (6) (22) 16,794 Plant, machinery and other install. 22,046 10,086 (296) 3,960 (272) ,823 Furniture,335 1,582 (59) 1,235 (29) 112 9,176 Motor vehicles 454 (15) (13) Information technology equipment 15,197 1,927 (80) (1,215) (243) (185) 15,401 Other property, plant and equipment 160 1, ,341 (31) (26) 2,877 Work in progress, (3) 1,813 - (332) 3,215 Total 68,389 19,744 (358) 6,933 (594) (154) 93,960 Additions to plant, machinery, other installations and work in progress during 2007, as in 2006, mainly reflect the refurbishment of the Parent Company s new offices in Barcelona and the building of new offices in Torrejón de Ardoz (Madrid). The most significant additions to information technology equipment during 2007 and 2006 mainly relate to updates of these assets and, particularly in 2007, to the extension of technological infrastructure as a result of the consolidation of Azertia and Soluziona. During the year Euros 263 thousand has been transferred to non-current assets held for sale (see note 15). Euros 126 thousand of total additions due to depreciation amounting to Euros 21,673 thousand reflects impairment of machinery. This impairment is recognised under other losses on non-current assets in the income statement. The remaining Euros 21,547 thousand has been recognised under depreciation. 29

32 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Details by nature of assets acquired through finance leases at 31 December 2007 and 2006 are as follows: Investments: Land,532,532 Buildings,500,500 Plant, machinery and other installations,108,007 Furniture Information technology equipment,368 Other property, plant and equipment 03 -,809,974 Depreciation: Buildings (542) (492) Plant, machinery and other installations ( 930 ) (2,028) Furniture ( 19 ) (16) Information technology equipment ( 1,131 ) (632) Other property, plant and equipment ( 103 ) - (2,725) (3,168) Carrying amount: Land,532,532 Buildings,958,008 Plant, machinery and other installations,178,979 Furniture Information technology equipment 7 7 Other property, plant and equipment 00 7 Total 6,084 7,023 As a result of the acquisition of the INISEL group in 1992, capital gains for a net amount of Euros 20,729 thousand were assigned by independent experts to certain assets. Details of the values assigned to assets currently held by the Group, net of accumulated depreciation on 31 December 2007 and 31 December 2006, are as follows: Revalued assets Land,401,401 Buildings 7,955 7,955 Plant and machinery,922,922 Total 18,278 18,278 Depreciation (7,560) (7,401) Carrying amount 10,718 10,877 At 31 December 2007 fully depreciated property, plant and equipment amount to Euros 89,774 thousand (Euros 86,226 thousand at 31 December 2006). 30

33 Indra ) Investments in Associates Details of investments in associates at 31 December 2007 and 2006 are as follows: Additions changes Balance at Balance at New consol. Balance at 31/12/05 Transfers Profit/(Loss) 31/12/06 Co s Investment Group Profit/(Loss) 31/12/07 SAES Capital , ,068 2,146 Eurofighter Simulation Systems (28) Euromids Indra Sistemas Tecnocom Iniciativas Bioenergéticas ,625 - (4) 3,621 Idetegolf Trías Beltrán Inmunologística Procrisa Ceicom Europe 7 (47) Computación Ceicom 01 (532) Internet Protocol Sistemas Net 1,285 (1,346) MRCM - 51 (51) Total 3,555 (1,874) 445 2, , ,340 7,206 Details of the main operations relating to investments in associates carried out in 2007 and 2006 are provided in note 1 c). 31

34 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts 9) Other Investments Movement in other investments during the years ended 31 December 2007 and 2006 is as follows: Balance at New Conversion Balance at 31/12/06 Co s differences Additions Disposals Transfers 31/12/07 Investments: Other long-term investments in non-group companies, (54) (8) 43,783 Fixed-income securities 741 (58) (145) Share options, (1,095) - - Long-term guarantee deposits 3, (60) 2,319 (2,212) 2,409 5,958 Loans to personnel (40) Cash flow hedges Other financial assets , (110) 2,844 (3,546) 2,401 50,725 Impairment: Other long-term investments in non-group companies (21,020) (20,970) (21,020) (20,970) Carrying amount: Other long-term investments in non-group companies, (4) (8) 22,813 Fixed-income securities 741 (58) (145) Share options, (1,095) - - Long-term guarantee deposits 3, (60) 2,319 (2,212) 2,409 5,958 Loans to personnel (40) Cash flow hedges Other financial assets Total 27, (110) 2,844 (3,496) 2,401 29,755 32

35 Indra 2007 Balance at New Conversion Balance at 31/12/05 Co s differences Additions Disposals Transfers 31/12/06 Investments: Other long-term investments in non-group companies, (2,265) (51) 43,385 Fixed-income securities (77) (106) Share options, (3,710) - 1,095 Long-term guarantee deposits 1,836 1,119 (10) 0 (185) (16) 3,284 Cash flow hedges Other financial assets ,525 1,409 (87) 1,319 (6,266) (67) 48,833 Impairment: Other long-term investments in non-group companies (22,247) (51) - (195) 1,473 - (21,020) (22,247) (51) - (195) 1,473 - (21,020) Carrying amount: Other long-term investments in non-group companies, (792) (51) 22,365 Fixed-income securities (77) (106) Share options, (3,710) - 1,095 Long-term guarantee deposits 1,836 1,119 (10) 0 (185) (16) 3,284 Loans to personnel Cash flow hedges Total 30,278 1,358 (87) 1,124 (4,793) (67) 27,813 33

36 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts a) Other long-term investments in non-group companies Details are as follows: Balance at New Balance at 31/12/06 Co s Additions Disposals Transfers 31/12/07 Investments: Midsco Sadiel Safelayer Secure Comunications Marco Polo, ,753 Galileo Sistemas y Servicios Inversis Networks, ,672 Hisdesat Servicios Estratégicos 7, ,572 Subgroup Prointec Neotec Bussitel (50) - - Others - (4) (8) 43, (54) (8) 43,783 Impairment: Midsco (52) (52) Safelayer Secure Comunications (152) (152) Marco Polo (2,644) (2,644) Galileo Sistemas y Servicios (3) (3) Inversis Networks (17,594) (17,594) Hisdesat Servicios Estratégicos (520) (520) Bussitel (50) Others (5) (5) (21,020) (20,970) Carrying amount: Midsco Sadiel Safelayer Secure Comunications Marco Polo Galileo Sistemas y Servicios Inversis Networks, ,078 Hisdesat Servicios Estratégicos 7, ,052 Subgroup Prointec Neotec Bussitel Others - (4) (8) Total 22, (4) (8) 22,813 34

37 Indra 2007 Balance at New Balance at 31/12/05 Co s Additions Disposals Transfers 31/12/06 Investments: Midsco Sadiel Safelayer Secure Comunications Marco Polo, (941) - 2,753 Galileo Sistemas y Servicios Inversis Networks, ,672 Hisdesat Servicios Estratégicos 7, ,572 Cadmo, (1,274) - - MRCM (6) (51) - Neotec Avanzit Telecom S.A.U. - - (44) - - Bussitel Others , (2,265) (51) 43,385 Impairment: Midsco (52) (52) Safelayer Secure Comunications (71) - (81) - - (152) Marco Polo (2,644) (2,644) Galileo Sistemas y Servicios (8) (3) Inversis Networks (17,788) (17,594) Hisdesat Servicios Estratégicos (406) - (114) - - (520) Cadmo (1,274) - - 1, Bussitel - (50) (50) Others (4) (1) (5) (22,247) (51) (195) 1,473 - (21,020) Carrying amount: Midsco Sadiel Safelayer Secure Comunications - (81) Marco Polo, (941) Galileo Sistemas y Servicios Inversis Networks, ,078 Hisdesat Servicios Estratégicos 7,166 - (114) - - 7,052 Cadmo MRCM (6) (51) - Neotec Avanzit Telecom S.A.U. - - (44) - - Bussitel Others Total 22, (792) (51) 22,365 35

38 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts The main non-group long-term investment transaction in 2007 reflects the Parent Company s participation in the share capital increase of Neotec Capital Riesgo Sociedad de Fondos S.A. SCR on 10 October 2007, in which the Parent Company subscribed shares amounting to Euros 270 thousand. At the 2007 year end the Parent Company holds a 4.49% interest in this company. The following operations relating to long-term investments in non-group companies were carried out during 2006: On 21 February 2006 the Parent Company acquired 4,509 shares in Neotec Capital Riesgo Sociedad de Fondos, S.A., S.C.R. from the Technological Development Centre. On 5 December 2006 this company increased its share capital. The Parent Company subscribed 28,574 of the new shares thereby increasing its interest to 4.72%. At the annual general meeting held on 22 February 2006, the shareholders of Marco Polo Investments SCR S.A. approved the distribution of part of the share premium to return shareholder contributions. In September 2006 the shareholders also approved a share capital reduction. The resulting divestment totalled Euros 941 thousand. On 3 April 2006 the Parent Company sold its entire interest in Cadmo Conocimiento, S.L. for Euros 26 thousand. b) Share options In 2006 share options relate to the underlying valuation of the embedded derivative in the share capital increase used to hedge the 2002 Options Plan, 2nd tranche (see note 34.b). c) Long-term guarantee deposits Long-term guarantees include guarantee deposits for rental of buildings and property used by the Group. Disposals in 2007 amount to Euros 2,212 thousand, including Euros 1,397 thousand that the Parent Company has pledged to guarantee possible adjustments in the acquisition price of shares in Internet Protocol Sistemas Net, S.A. Disposals in 2006 totalled Euros 185 thousand. Additions of Euros 2,319 thousand reflect arrangement costs relating to deposits for leased property, due to office relocation. 10) Long-Term Deposits Long-term deposits have been transferred to long-term guarantee deposits (see note 9.c). 11) Inventories Details of inventories at 31 December 2007 and 2006 are as follows: Merchandise,909,469 Raw materials,007 0 Projects in progress,198,621 Finished products 70 - Provision (923) (776) Carrying amount 128,461 85,294 36

39 Indra ) Trade and Other Receivables Details of trade and other receivables at 31 December 2007 and 2006 are as follows: Non-Group trade receivables 05, ,252 Unbilled work in progress, ,243 Advances to suppliers,698 22,507 Other recievables,436,762 Total 1,480,392 1,057,764 Provisions (18,048) (14,110) Carrying amount 1,462,344 1,043,654 Advances to suppliers at 31 December 2007 and 2006 include Euros 3,372 thousand and Euros 15,129 thousand, respectively, relating to the Indra EWS/STN Atlas Leopard 2 joint venture. 13) Other Assets Details of other assets at 31 December 2007 and 2006 are as follows: Other receivables,814,634 Advances and loans to personnel,677,638 Public entities,679 12,072 Prepayments,389,052 Short-term deposits,598 Short-term guarantees 0 Cash flow hedges (note 34 a),113,415 Interest receivable Carrying amount 43,088 24,863 Balances receivable from public entities comprise the following: Tax authorities:: Value added tax 7,084,673 Other taxes,529,806 Pending requests for offset of income - 7 Subtotal 13,613 11,836 Capital grants receivable from public entities,410 7 Social security Total 16,679 12,072 37

40 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts In 2006 short-term deposits included deposits with the bank that subscribed the share capital increases, carried out through redeemable shares, to cover the options plans. Details of short-term deposits at 31 December 2006 are as follows: No. Deposit Total deposit Date of increase Plan of shares (*) per share (thousands of Euros) options, tranche, , options, tranche 74,870.59,152 (*) The deposit must be equal at all times to the number of redeemable shares held by the financial entity multiplied by the amount of the deposit per share.,472 The average rate of interest generated on these deposits is 3.546%. 14) Cash and Cash Equivalents Details are as follows: Short-term deposits and fixed-income securities 8,457 23,733 Other short-term investments - 08 Subtotal 8,457 24,341 Cash,760 17,959 Total 32,217 42,300 At 31 December 2007 and 2006 short-term deposits and fixed-income securities generate interest at average rates of 3.99% and 3.74%, respectively, and relate to temporary investments of surplus cash. 15) Assets Held for Sale The Group owns office premises in Buenos Aires (Argentina), as well as certain small subsidiaries, which are for sale. 16) Subscribed Capital At 31 December 2007 subscribed and paid capital amounts to Euros 32,826,507.80, represented by 164,132,539 ordinary shares of Euros 0.20 par value each, represented by book entries. The share capital has been subscribed and fully paid. All the shares of the Parent Company are listed on the Madrid, Barcelona, Valencia and Bilbao stock exchanges. They are traded on the Automated Trading System and listed on the IBEX-35 index. On 12 January 2007 the share capital increase approved by the shareholders at their annual general meeting on 20 December 2006 was raised in a public deed. The share capital increase, which excluded preferential subscription rights, comprised the issue and floating of 18,068,171 new ordinary shares of Euros 0.20 par value each, with a share premium of Euros per share issued. The share capital increase was fully subscribed and paid by Unión Fenosa, S.A. through the contribution of the information technology consulting business Soluziona, which comprises the companies Soluziona Consultoría y Tecnologías de la Información, S.L.U., Soluziona Seguridad, S.A.U. and Soluziona Internacional Servicios Profesionales, S.L.U. 38

41 Indra 2007 The new shares were admitted for trading on 29 January In 2007, 100,660 class-c redeemable shares and 133,222 class-d redeemable shares were converted into ordinary class-a shares in connection with the exercise of options from the 2002 Options Plan. The remaining class-c and class-d shares were redeemed on 14 September 2007 (80,910 shares and 42,648 shares, respectively). At 31 December 2006 the Company held 146,187,926 shares divided into the following classes: Class-A: 145,831,486 ordinary shares of Euros 0.20 par value each, numbered consecutively from 1 to 145,831,486, inclusive, and represented by book entries Class-C: 181,570 redeemable shares of Euros 0.20 par value each, numbered consecutively from 1 to 181,570, inclusive, and represented by book entries Class-D: 174,870 redeemable shares of Euros 0.20 par value each, numbered consecutively from 1 to 174,870, inclusive, and represented by book entries. The redeemable shares issued: may be converted to ordinary shares as the options are exercised for which they serve as financial coverage, or may be redeemed by the Company if these options are not exercised. At 31 December 2006 the Parent Company had deposited Euros 2,472 thousand with the bank that subscribed the aforementioned share capital increases, carried out by issuing redeemable shares, to cover the options plans (see note 13). The Parent Company does not have a register of the percentage interests held by shareholders and can only verify the shareholding structure through direct communication from shareholders, if such details are publicised in application of prevailing legislation on significant shareholdings (which generally obliges notification of interests exceeding 3% of share capital), or through information provided by Iberclear, which the Company obtains when shareholders meetings are held. Consequently, according to information available to the Company, the significant shareholders of the Company with an interest exceeding 3%, excluding any interest held on behalf of third parties, are as follows: 31/12/07 31/12/06 Unión Fenosa.000% - Caja Madrid.830% % Casa Grande de Cartagena, S.L..680% 5.000% Barclays Bank Plc (*).146% 5.146% Caja de Ahorros de Asturias.000% 5.618% Fidelity International Ltd.(*) % (*) Based on CNMV register at 31 December

42 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Shares owned either directly or indirectly by members of the board of directors at 31 December 2007 are as follows: Shares owned % of share Directors Type Direct Indirect Total capital Javier Monzón de Cáceres Executive,496 7,872 77, Mediación y Diagnósticos, S.A. (1) (3) Proprietary,225 -, Manuel Soto Serrano Independent, , , Casa Grande de Cartagena, S.L. (2) Proprietary,328,735-9,328, Isabel Aguilera Navarro Independent,058 -, Luis Lada Díaz Independent Francisco Constans Ros Independent,253 -, Regino Moranchel Fernández Executive,368-48, Joaquín Moya-Angeler Cabrera Independent,253 -, Pedro Ramón y Cajal Agüeras Independent,253 -, Participaciones y Cartera de Inversión, S.L. (1) (4) Proprietary,225 -, Total 9,478, ,872 9,606, (1) Company solely owned by Caja Madrid Group companies. (2) Represented by Eusebio Vidal-Rivas (3) Represented by Matías Amat (4) Represented by Estanislao Rodriguez-Ponga. Shares owned either directly or indirectly by members of the board of directors at 31 December 2006 were as follows: Shares owned % of share Directors Type Direct Indirect Total capital Javier Monzón de Cáceres Executive,961 7,872 74, Mediación y Diagnósticos,S.A. (1) (2) Proprietary,333 -, Manuel Soto Serrano Independent, , , Humberto Figarola Plaja Executive,758-29, Isabel Aguilera Navarro Independent,166 -, Manuel Azpilicueta Ferrer Independent,841-16, Francisco Constans Ros Independent,361 -, Regino Moranchel Fernández Executive,833-45, Joaquín Moya-Angeler Cabrera Independent,361 -, Pedro Ramón y Cajal Agüeras Independent,361 -, Participaciones y Cartera de Inversión, S.L. (1) (3) Proprietary,333 -, Juan Carlos Ureta Domingo Independent,461 -, Total 181, , , (1) Company solely owned by Caja Madrid Group companies. (2) Represented by Carlos Vela. (3) Represented by Estanislao Rodriguez-Ponga. 40

43 Indra 2007 At 31 December ,783,307 shares were represented on the board of directors, which amount to 40.68% of total shares. At 31 December ,200,335 shares were represented on the board of directors, which amount to 15.19% of total shares. At the annual general meetings of Parent Company shareholders held on 21 June 2007 and 22 June 2006, the shareholders agreed to the distribution of the consolidated profit for 2006 and 2005, respectively, as shown in the statement of changes in equity, attached. The Group s capital management objectives aim to safeguard its capacity to continue operating as a going concern, enabling it to continue providing shareholder remuneration, to benefit other interest groups, and to maintain an optimum capital structure so as to reduce the cost of capital. The Group can adjust the amount of dividends payable to shareholders to maintain and adjust its capital structure, and can reimburse capital, issue shares or dispose of assets to reduce debt. The dividend policy defined by the Group s governing body is to distribute 50% - 60% of consolidated net profit, thereby enabling the acquisition of medium-sized businesses in strategic areas and markets in future years. First-time application reserve This reserve, which at 31 December 2007 amounts to Euros 1,902 thousand, comprises adjustments made to the opening balance sheet at 1 January 2004 in accordance with International Financial Reporting Standards (EU-IFRS). Other reserves Details are as follows: Share premium 75,955 54,552 Merger reserve,846,846 Other variations in equity,234,335 Remuneration of employees,536,170 Total 391,571 63,903 a) Share premium The share premium deriving from the share capital increases carried out in 2001, 2003 and 2007 is subject to the same restrictions and may be used for the same purposes as the voluntary reserves of the Parent Company, including conversion into share capital. b) Other changes in equity This caption comprises gains on the sale of treasury shares and dividends received in relation to shares associated with the equity swap. Gains on the sale of treasury shares during the year after tax amounts to Euros 1,212 thousand. c) Remuneration of employees Remuneration of employees comprises amounts recognised on shares granted to members of the board of directors, and share options extended to employees. Details are as follows: Remuneration in shares 7 0 Share options 7,989,750 Total 8,536 5,170 41

44 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Treasury shares As authorised by the shareholders at their annual general meeting, at 31 December 2007 the Parent Company directly holds 243,613 treasury shares amounting to Euros 4,498 thousand (76,697 shares amounting to Euros 1,411 thousand at 31 December 2006). At 31 December 2007 the Parent Company indirectly holds 2,281,000 shares amounting to Euros 38,389 thousand in connection with the equity swap contracted with a financial entity to hedge the 2005 Options Plan. These shares were acquired in 2005 (see note 21). Details and movement in treasury shares during 2007 and 2006 are as follows: Balance at Balance at 31/12/06 Additions Disposals 31/12/07 Used in: - Ordinary transactions, ,035 (106,948),498 - Equity Swap Options Plan 200, ,389 Total 39, ,035 (106,948) 42,887 Balance at Balance at 31/12/05 Additions Disposals 31/12/06 Used in: - Ordinary transactions 88,216 (87,357),411 - Equity Swap Options Plan 200, ,389 Total 38,941 88,216 (87,357) 39,800 Details and movement in shares during 2007 and 2006 are as follows: Used in: % total Number of shares % total capital 31/12/06 Additions Disposals 31/12/07 over/capital - Ordinary transactions ,697 5,960,708 (5,793,792) 243, Equity Swap O. P ,281, ,281, Total ,357,697 5,960,708 (5,793,792) 2,524, Used in: % total Number of shares % total capital 31/12/05 Additions Disposals 31/12/06 over/capital - Ordinary transactions ,948 5,528,831 (5,485,082) 76, Equity Swap O. P ,281, ,281, Total ,313,948 5,528,831 (5,485,082) 2,357, In 2007 the Parent Company acquired 5,960,708 treasury shares on the stock market (2.26% of official volume for the period) and sold 5,758,911 treasury shares (2.19% of official volume for the period). In 2006 the Parent Company acquired 5,528,831 treasury shares on the stock market (2.10% of annual volume) and sold 5,485,082 treasury shares (2.08% of annual volume). 42

45 Indra 2007 Retained earnings Details are as follows: Legal reserve,176,176 Reserves in fully-consolidated companies,990 21,688 Reserves in proportionately-consolidated companies,034 Merger reserve,081 15,081 Reserves in equity-accounted companies 790 Cash flow and interest rate hedge reserve,165 0 Voluntary reserves 04, ,463 Non-distributable reserves,238,150 Total 163, ,962 a) Legal reserve Companies are obliged to transfer 10% of the profits for the year to a legal reserve until such reserve reaches an amount equal to 20% of the share capital. This reserve is not distributable to shareholders and may only be used to offset losses if no other reserves are available. Under certain conditions it may also be used to increase share capital. Should the shareholders approve the board of directors proposal for the distribution of profit for the year, the legal reserve would again amount to 20% of the share capital resulting from the share capital increase carried out on 12 January 2007 (see note 1.a). At 31 December 2006, the Parent Company had appropriated to this reserve the minimum amount required by law. 43

46 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts b) Reserves in fully-consolidated companies Details by company of consolidation reserves at 31 December 2007 and 2006 are as follows: Indra Sistemas (1,413),228 Grupo Bmb,379 - Indra Emac Indra Espacio,429 17,092 Indra Sistemas de Seguridad,161,188 Indra SI (186) (129) Indra Sistemas Chile - Indra Sistemas Portugal (5) (8) Grupo Europraxis-Atlante (255) (154) Indra Italia - Inmize Capital (97) (96) Inmize Sistemas,192 Indra Systems (12) Indra Beijing (7) (15) Indra Brasil Indra Software Labs (1) (5) Indra México 70 7 Grupo Azertia,714 - I.P. Sistemas - Indra Sistemas Comunicaciones Seguras - Indra Magreb - Indra Francia (203) - Indra Polonia (2) - Total 26,990 21,688 44

47 Indra 2007 c) Reserves in proportionately-consolidated companies Details by company of consolidation reserves at 31 December 2007 and 2006 are as follows: Grupo BMB - 1,034 Ceicom Europe 0 - Computación Ceicom 74 - I3 TV (5) - Total 89 1,034 d) Merger reserve This reserve relates to the downstream merger of the Parent Company with its solely-owned subsidiary Indra ATM, S.L., Sociedad Unipersonal, in e) Reserves in equity-accounted companies Details by company of consolidation reserves at 31 December 2007 and 2006 are as follows: Eurofighter Simulation System 0 Euromids 09 Trías Beltrán Indra Sistemas Tecnocom - Total f) Exchange rate and interest rate hedging reserves This caption comprises the hedging reserve generated by the following: The effect of changes in fair value of exchange rate insurance contracts used to hedge highly probable future transactions or firm commitments. The effect of changes in fair value of interest rate swap contracts. Details are as follows: Cash flow and interest rate hedges,689 Deferred taxes for revaluation of unrealised assets and liabilities (524) (313) Total 1, g) Voluntary reserves The distribution of voluntary reserves of Euros 104,853 thousand is restricted due to capitalised research and development costs totalling a net amount of Euros 16,566 thousand, net goodwill of Euros 199,334 thousand and establishment costs of Euros 533 thousand recognised by the Parent Company. 45

48 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Profit for the year attributable to the Parent Company Details of the consolidated companies contribution to profit for 2007 and 2006 are disclosed in Appendix I attached. Minority interests Details of the consolidated companies contribution to profit for 2007 and 2006 are disclosed in Appendix I attached. Balance Profit/(loss) Profit/(loss) Balance at New attrib. to Conversion Change in % through at 31/12/06 Co s min. interests differences Dividends ownership equity 31/12/07 Indra Espacio,283-3,386 - (2,316) ,353 Inmize Capital Inmize Sistemas, ,656 Tourism & Leisure BMB Ges. Doc. Canarias CDS Corp. Serv. Ext (336) - - IP Sistemas (218) I.S. Comunicaciones Seguras Azertia T. I. México Azertia T. I. U.S.A. - (88) (1) Advanced Logistics Group, (1,433) - - Prointec - 10,443 1,979 (73) (554) (119) (39) 11,637 C & S Chile - 1,557 (165) - - (1,392) - - Soluziona Kenya (5) Elektrica Soluziona (33) Soluziona Zimbabwe Soluziona Filipinas - 1, ,724 Inserail Mecsa Consis Total 26,322 14,976 6, (2,870) (3,423) (39) 42,050 Balance Profit/(loss) Profit/(loss) Balance at New attrib. to Conversion Change in % through at 31/12/05 Co s min. interests differences Dividends ownership equity 31/12/06 Indra Espacio 7,254-2, (35) 19,283 Inmize Capital - (1) Inmize Sistemas,733-1, ,138 Tourism & Leisure BMB Ges. Doc. Canarias (25) CDS Corp. Serv. Ext IP Sistemas (158) I.S. Comunicaciones Seguras Azertia T. I. México Azertia T. I. U.S.A (22) (2) Advanced Logistics Group - 1, ,325 Total 19,691 3,003 3, (25) (158) (35) 26,322 46

49 Indra 2007 Balances related to minority interests at 31 December 2007 and 2006 are as follows: 31/12/07 31/12/06 M.I. share M.I. M.I. profit Capital M.I. M.I. profit capital reserves / (loss) Total capital reserves / (loss) Total Indra Espacio 16,673 3,386 20, ,925 2,064 19,283 Inmize Capital (1) 312 Inmize Sistemas 750 2, , ,233 1,405 3,138 Tourism & Leisure (6) Compraxis Portugal (1) - - BMB G. D. Canarias CDS Corp.Serv.Ext IP Sistemas I.S. Comunicaciones Seguras Azertia T.I. México Azertia T.I. U.S.A. (268) (88) (245) (22) 89 Advanced Logistics Group - (108) , ,325 Prointec 9,259 1,979 11, C & S Chile (165) Soluziona Kenya Elektrica Soluziona Soluziona Zimbabwe Soluziona Filipinas 1, , Inserail Mecsa Consis Total 2,431 32,636 6,983 42,050 1,973 20,528 3,821 26,322 47

50 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts 17) Earnings Per Share The calculation of the weighted average number of ordinary shares available and the weighted average number of diluted shares at 31 December 2007 and 2006 is as follows: Weighted Weighted average average number of Ordinary number of Ordinary ordinary shares shares ordinary shares shares at 31/12/07 at 31/12/07 at 31/12/06 at 31/12/06 Total issued shares,132, ,132, ,187, ,187,926 Treasury shares and financial instruments related to shares (2,695,341) (2,524,613) (2,613,366) (2,357,697) Total shares available 161,437, ,607, ,574, ,830,229 Total number of diluted shares 161,437, ,607, ,574, ,830,229 The calculation of basic earnings per share (rounded to four decimal places) for 2007 and 2006 is as follows: Net profit (thousands of Euros) 7, ,115 Weighted average number of ordinary diluted shares available 161,437, ,574,560 Basic earnings per ordinary diluted share (Euros) ) Capital Grants Details and movement in capital grants in 2007 and 2006 are as follows: Balance at New Taken to Balance at 31/12/06 Additions Co s Repayment profit/loss 31/12/07 Capital grants,788 12, (245) (6,481) 17,913 Balance at New Taken to Balance at 31/12/05 Additions Co s profit/loss Transfers 31/12/06 Capital grants,167, (4,741) (185) 11,788 Capital grants have been awarded by various public entities for development projects (see note 6) and training programmes. 48

51 Indra ) Provisions for Liabilities and Charges Details and movement during 2007 and 2006 are as follows: Balance at New Balance at 31/12/06 Co s Charges Applications Payments 31/12/07 Provisions for taxes, (199) (197) 1,198 Other provisions,592 1,226 5,001 (2,046) (39) 7,734 Total 4,672 1,230 5,511 (2,245) (236) 8,932 Balance at New Conv. Balance at 31/12/05 Co s Charges Applications Diff. Transfers 31/12/06 Provisions for taxes,075 - (69) (27) 1,080 Other provisions,133 1,540 (44) - (53) 3,592 Total 3, ,588 (113) (27) - 4,672 Details of provisions and their corresponding temporary difference and expected maturity dates are as follows: Tax provisions Balance at 31/12/06 x Balance at 31/12/07 Deferred Deferred Expected tax New Pay- tax application Item Balance asset companies Applications ments Charges Balance asset date Appeals filed with the tax authorities, (199) (197) 510 1, and 2009 Total tax provisions 1, (199) (197) 510 1, Tax provisions Balance at 31/12/05 x Balance at 31/12/06 Deferred Deferred Expected tax Conv. tax application Item Balance asset Applications diff. Charges Transfers Balance asset date Appeals filed with the tax authorities, (69) (27) , and 2008 Total tax provisions 1, (69) (27) ,

52 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Other provisions Balance at 31/12/06 x Balance at 31/12/07 Deferred Deferred tax New Pay- tax Expected Item Balance asset companies Applications ments Charges Balance asset application Trade claims, (2,046) - 1,091 1, and 2009 Personnel claims,310 1, ,785 5,758 4, Remuneration (39) Total other provisions 3,592 1,446 1,226 (2,046) (39) 5,001 7,734 4,492 Other provisions Balance at 31/12/05 x Balance at 31/12/06 Deferred Deferred tax New Pay- tax Expected Item Balance asset companies Applications ments Charges Balance asset application Trade claims, (53) (11) 520 2, and 2008 Personnel claims - - (33) 1,020 1,310 1, Total other provisions 2, (53) (44) 1,540 3,592 1,446 The amounts of appeals pending resolution before courts and city councils have been capitalised to the present value using the delay interest capitalisation rate for each year. 20) Long-Term Borrowings Details by maturity of long-term borrowings at 31 December 2007 are as follows: Finance Credit Year leases entities R&D loans Total 200,377 2,336 9,639 13, ,287 7,460 10, ,591 4,601 6,357 Subsequent years 1,514 14,668 16,275 Total at 31/12/07 2,013 7,728 36,368 46,109 In 2007 the Company has contracted a Euros 7,000 thousand loan which falls due on 19 February This loan accrues interest at variable rates and is payable in monthly instalments. To reduce the interest rate risk associated with this loan, the Company has arranged a swap contract with the same nominal amount and due date as the loan to which it relates. By virtue of this contract, Euribor is received monthly in exchange for payment of a fixed interest rate. Due to interest rate differences, in 2007 interest accrued on this swap amounts to an average rate of 3.89%. In 2007 the swap contract arranged to reduce the interest rate risk associated with the Euros 3,000 thousand loan extended in 2005, which falls due on 15 October 2010, has been prematurely rescinded. A new swap contract for a nominal amount of Euros 2,000 thousand has been signed, which matures on 26 March By virtue of this swap contract, variable Euribor established at the start of each quarter is received on a quarterly basis, in exchange for annual payment of a fixed interest rate, provided that the average variable quarterly interest rate does not exceed a pre-established reference amount. In this event, the average variable quarterly interest rate would be payable. Interest payable on this swap amounts to an average rate of 4.44%. 50

53 Indra 2007 Details by maturity of long-term borrowings at 31 December 2006 are as follows: Finance Credit Year leases entities R&D loans Total ,779 10,821 17, ,120 10, ,679 6,751 8,457 Subsequent years ,932 17,505 Total at 31/12/06 1,548 8,517 43,624 53,689 Long-term borrowings from credit entities include Euros 8,345 thousand in connection with loans extended to the Azertia subgroup, which accrue interest at between Euribor plus 0.45 and Euribor plus ) Other Long-Term Payables Details of other long-term payables are as follows: Guarantee deposits received,409 Suppliers of fixed assets,549,319 Equity swap,389 38,389 Interest rate swap - Uncalled share capital - Other long-term debt 7 Total 41,357 43,144 At 31 December 2007 suppliers of fixed assets include Euros 2,101 thousand relating to the Jocs del Mediterrani joint venture (Euros 2,136 thousand in 2006). Equity swap relates to debt for the financial instrument used to hedge the 2005 Options Plan (see note 16). The fair value of interest rate swaps at 31 December 2007 is Euros 98 thousand. 22) Trade and Other Payables Details of trade and other payables at 31 December 2007 and 2006 are as follows: Trade payables, ,919 Advances from clients, ,338 Total 1,137, ,257 51

54 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts 23) Other Current Liabilities Details of other current liabilities at 31 December 2007 and 2006 are as follows: Public entities,478 65,362 Salaries payable,263 34,497 Options - 7 Guarantee deposits received,386 Trade provisions,688 29,094 Accruals,739,069 Other payables,593,843 Total 198, ,178 Balances due to public entities comprise the following: Tax authorities VAT 7,445 37,934 Withholding tax on salaries,852 10,821 Other taxes,359,348 Subtotal 66,656 54,103 Grants repayable to public entities - 09 Social security,822 11,150 Total 81,478 65,362 24) Current Borrowings Details of current borrowings at 31 December 2007 and 2006 are as follows: Loans,245 34,391 Interest payable,821 Finance leases,417,670 Total 124,483 36,584 Official loans for research programs (note 6),965 10,890 Total 136,448 47,474 52

55 Indra ) Segment Reporting Information on the Group s business segments is as follows: 2007 () Segment reporting at Unallocated 31 December 2007: Solutions % Services % corporate Eliminations Total % Revenue from external customers 1,595, % 572,213 99% - - 2,167, % Inter-segment revenue,747 0% 4,518 1% - (11,265) - - Net sales 1,602, % 576, % - (11,265) 2,167, % Contribution margin 332,203 21% 90,626 16% 1 (4,996) 417,834 19% Other unallocated corporate income and expense - - (199,355) 4,996 (194,359) -9% Operating results 332,203 90,626 (199,354) - 223,475 10% Share of profit/(loss) of associates 1, ,340 0% Segment result 333,533 21% 90,636 16% (199,354) - 224,815 10% Other information Investments,,7 7,050-72,655 Amortisation/depreciation 0, 7,,852-33,958 Balance sheet Assets Segment assets,571,57 0,,052-2,353,583 Investment in associates 7, ,206 Total consolidated assets 2,360,789 Liabilities Segment liabilities,090, 0,882-1,622,130 Total consolidated liabilities 1,622, () Geographical segment reporting at USA and Latin 31 December 2007: Spain Europe Canada America Other Total Revenue from external customers 1,469, ,385 57, ,286 84,076 2,167,614 Investments, , ,655 Assets used,173,392 44,080 6, ,649 15,222 2,360,789 53

56 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts 2006 () Segment reporting at Unallocated 31 December 2006: Solutions % Services % corporate Eliminations Total % Revenue from external customers 1,039,927 99% 366, % - - 1,406, % Inter-segment revenue,291 1% 1,462 0% - (7,753) - - Net sales 1,046, % 368, % - (7,753) 1,406, % Contribution margin 220,992 21% 72,400 20% - (1,096) 292,296 21% Other unallocated corporate income and expense - - (129,532) (128,681) -9% Operating results 220,992 72,400 (129,532) (245) 163,615 12% Share of profit/(loss) of associates % Segment result 221,193 21% 72,645 20% (129,532) (245) 164,061 12% Other information Investments,347,167,452-38,966 Amortisation/depreciation,,27 0,214-20,832 Provisions,0,967-3,578 Balance sheet Assets Segment assets,138,, ,467-1,569,278 Investment in associates, ,126 Total consolidated assets 1,571,404 Liabilities Segment liabilities 725,,67 09,967-1,199,323 Total consolidated liabilities 1,199, () Geographical segment reporting at USA and Latin 31 December 2006: Spain Europe Canada America Other Total Revenue from external customers 944, ,901 44,824 62,062 53,204 1,406,780 Investments, 3,287 38,966 Assets used,444,465 37,701 12,701 76, ,571,404 54

57 Indra ) Materials Consumed and Other Supplies The total cost of materials consumed and other supplies incurred by the Group during the years ended 31 December 2007 and 2006 is as follows: Subcontracted work and materials consumed 803, ,032 Changes in inventories 774 (11) Total 804, ,021 27) Personnel Expenses Details of personnel expenses during the years ended 31 December 2007 and 2006 are as follows: Wages and salaries 72, ,741 Options (note 34 b),985,065 Social security and other social charges 0,988 96,940 Total 856, ,746 The average number of employees during 2007 and 2006, distributed by category, has been as follows: Number of employees Male Female Total Male Female Total Members of the board of directors 13 Senior management - Management Graduates and engineers,914 5,428 17,342 5,974 2,503 8,477 Administrative staff,463 2,039 3, ,522 Labourers Other staff Total 14,138 7,932 22,070 7,125 3,498 10,623 55

58 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts 28) Share of Profit/(Loss) of Investees Details at 31 December 2007 and 2006 are as follows: Profit on the disposal of other investments (note 9 a) Losses on valuation adjustments to available-for-sale financial assets (note 9 a) (221) The Euros 221 thousand loss in 2007 reflects impairment of non-current assets held for sale of TCAR and AGS. These two companies are being liquidated and no gains are expected to be generated. 29) Other Losses on Non-Current Assets Details at 31 December 2007 and 2006 are as follows: Losses on property, plant and equipment (241) (382) Losses on other intangible assets (7) (124) (248) (506) 30) Foreign Currency Transactions The main transactions in foreign currencies other than the Euro in 2007 and 2006 have been as follows: Sales, ,348 Purchases, ,370 31) Guarantees At 31 December 2007 various banks and insurance companies have extended guarantees of Euros 841,416 thousand to third parties on behalf of the Group, mainly to secure the completion of contracts. At 31 December 2006 guarantees totalled Euros 597,096 thousand. 32) Taxation The Parent Company files consolidated tax returns as the parent of tax group 26/01, which comprises the Parent Company and the subsidiaries Indra Sistemas de Seguridad, S.A.U., Inmize Capital, S.L., Europraxis-Atlante, S.L.U., Indra Software Labs, S.L.U., Indra BMB, S.L.U., Indra Emac, S.A., and Indra Sistemas de Comunicaciones Seguras, S.L. 56

59 Indra 2007 Deferred tax assets The evolution of deferred tax assets has been as follows: Balance at Gener- Conv. Rever- Balance at New Gener- Rever- Balance at 01,01,06 ated diffs. sals 31/12/06 Co s ated sals 31/12/07 Deferred tax assets 24,974 20,590 (25) (11,567) 33,972 5,641 10,736 (16,288) 34,061 Details of deferred tax assets at 31 December 2007 and 2006 are as follows: Item Charges to and application of provisions,487 22,462 Amortisation of goodwill,111,395 Excess amortisation/depreciation of assets,087,634 Applications of pending deductions,231,763 Other,145,718 Deferred tax assets,061 33,972 Corporate tax assets Details of corporate tax assets at 31 December 2007 and 2006 are as follows: Prior years recoverable income tax Recoverable income tax for the year,813 7 Total,576,128 Deferred tax liabilities Details of deferred tax liabilities in 2007 and 2006 are as follows: Gener- Rever- Balance at New Gener- Rever- Balance at 01,01,06 ated sals 31/12/06 Co s ated sals 31/12/07 Deferred tax liabilities,318 4,790 (3,604) 15,504 3,988 11,434 (1,036) 29,890 57

60 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Details of deferred tax assets at 31 December 2007 and 2006 are as follows: Balance at Balance at Item Finance lease operations,019,013 Taxable gains,313,847 Portfolio provisions,105,697 Amortisation of goodwill 7,434,391 Restatement of R&D loans,424,632 Other,595 Deferred tax liabilities,890,504 Income tax payable Details of income tax payable at 31 December 2007 and 2006 are as follows: Income tax (prior years) Income tax (current year),380 16,326 Income tax abroad 742,698 Total,136 18,617 Income tax expense Due to the treatment permitted by tax legislation for certain transactions, the accounting profit differs from taxable income. A reconciliation of the accounting profit for the year with the taxable income of the companies which form part of the Group and the income tax expense calculation at 31 December 2007 and 2006 are as follows: 58

61 Indra 2007 Item A.- Accounting profit before tax 212, ,174 Adjustments to accounting profit - Non-deductible provisions for/reversals of investments,211 (94) - Other positive differences 0,927,237 - Other negative differences (2,848) (3,712) - Gains on treasury shares,724,000 - Options,985,065 - Consolidation adjustments,769,847 Total adjustments to accounting profit 18,768 8,343 B.- Adjusted accounting profit 230, ,517 Temporary differences - Positive, generated during the year,693 46,620 - Positive, generated in prior years,083,621 - Negative, generated during the year (38,213) (14,635) - Negative, generated in prior years (41,248) (19,173) Total temporary differences (42,685) 15,433 C.- Taxable income 188, ,950 D.- Prior years loss carryforwards (184) - E.- Adjusted taxable income 188, ,950 Tax payable 68,648 65,994 Deductions - Internal double taxation relief (2,576) (1,676) - International double taxation relief (2,651) (1,417) - Investments in I+D+I and others (19,450) (11,493) F.- Credit for loss carryforwards (44) - G.- Taxes on foreign salaries 1, H.- Total taxes payable 45,003 51,643 Withholdings and payments on account 0,043 36,268 Application of deductions and capitalised loss carryforwards,977 - Tax recoverable/(payable) 1,983 15,375 I.- Deferred tax assets generated for the year (10,736) (17,761) J.- Deferred tax assets recovered,311,198 K.- Deferred tax liabilities generated for the year,434,774 L.- Deferred tax liabilities reversed (1,036) (1,844) M.- Credits in respect of loss carryforwards generated (793) N.- Credits in respect of loss carryforwards applied - 7 Accrued income tax (H+I+J+K+L+M+N) 58,118 45,764 Income tax of companies registered abroad 2,882 1,415 Prior years income tax (2,111) (3,615) Income tax for adjustments in equity (1,312) (1,323) Income tax for different tax rates (168) 1,997 O.- Income tax for the year 57,409 44,238 Total profit after tax (A-O) 154, ,936 Details of deferred tax assets and liabilities and movement recorded by the Group are disclosed earlier in this note. 59

62 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts A reconciliation of the legal tax rate and the effective tax rate applied by the Company is as follows: 2007 % - Consolidated profit (before tax) 212,190 - Income tax at the rate applicable in Spain, % - Effect of permanent differences,100.87% - Effect of deductions (24,677) % - Effect of other income tax adjustments from prior years (2,111) -0.99% - Effect of offset of prior years loss carryforwards,933.38% - Effect of tax credits generated-applied 0.07% - IFRS adjustments (1,312) -0.62% - Income tax abroad,882.36% - Effect of different international tax rates,490.12% 7, % 2006 % - Consolidated profit (before tax) 162,174 - Income tax at the rate applicable in Spain, % - Tax on foreign salaries 0.14% - Effect of permanent differences,920.80% - Effect of deductions (14,586) -8.99% - Effect of other income tax adjustments from prior years (3,615) -2.23% - Effect of tax credits generated-applied (246) -0.15% - IFRS adjustments (1,323) -0.82% - Income tax abroad, % - Effect of different tax rates,997.23% - Effect of different international tax rates %, % 60

63 Indra 2007 Details of loss carryforwards pending offset and credits for investment, training and export activities at 31 December 2007 and 2006 are as follows: 2007 () Credit for investments Loss Year of origin and others carryforwards 2003 and prior years 17, , , , ,042 Total at 31/12/07 1,214 38, () Credit for investments Loss Year of origin and others carryforwards 2002 and prior years, , , ,239 - Total at 31/12/06 9,055 1,003 At 31 December 2007, as in 2006, the Group has no reinvestment commitments. In accordance with Spanish tax legislation, taxes cannot be considered definitive until they have been inspected and agreed by the tax authorities or before the inspection period of four years has elapsed. The Parent Company has open to inspection all applicable taxes for 2004 and subsequent years. The Group companies consider that all applicable taxes for the years open to inspection have been properly filed and settled. However, in the event of inspection, discrepancies could arise regarding the interpretation of certain tax legislation, although the companies do not expect that any additional tax liabilities would be significant to the accompanying consolidated annual accounts taken as a whole. 33) Financial Risk Management and Hedging Policies The Indra Group manages and limits its financial risks based on policies approved at the highest executive level and in accordance with established regulations, policies and procedures. The Indra corporate management team is responsible for identifying and evaluating financial risks and ensuring that they are duly hedged. 1. Market risk (exchange rate) The exchange rate risk arises on the international operations the Indra Group carries out in the ordinary course of its business. In order to eliminate the impact of exchange rate differences on the projects carried out by the Parent Company and its subsidiaries, forward purchases and sales of foreign currency are arranged with banks. Indra analyses the exchange rate risk at the time each individual project contract is signed, and contracts exchange rate insurance policies to ensure that future profits are not affected by fluctuations in the exchange rate. 61

64 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts 2. Interest rate risk Interest rate risk arises due to exposure to movements in the non-current and current bank financing interest rate curves, which Indra Group has established at variable rates. Indra considers contracting financial instruments to manage these risks when circumstances so dictate. At 31 December 2007, Indra has arranged interest rate hedges for long-term financing through variable and fixed interest rate swap contracts for Euros 9,000 thousand. 3. Liquidity risk The Indra Group invests cash surpluses in highly liquid, non-speculative short-term instruments through prestigious financial entities. The Group has contracted sufficient credit facilities with various financial entities to cover cash shortfalls and meet its short-term commitments. 4. Credit risk The Indra Group is exposed to credit risk from possible default by clients. Although Indra s client portfolio has a very good credit rating, the Company uses irrevocable credit notes and insurance hedging policies to insure collections, especially in the international sales area. In addition, the client s financial solvency positions are analysed from the moment of initial application in order to approve any operations with the client. 34) Commitments and Other Contingent Liabilities a) Foreign currency commitments The Group arranged forward currency purchase agreements to cover open foreign currency positions at 31 December 2007 (see note 4.q). These commitments are as follows: Amount in foreign currency Currency Short-term Long-term Purchase Sale Purchase Sale US Dollar,377, ,153,783 12,011,383 23,544,547 Pound Sterling,126,639 3,715, ,374 - Swiss Franc,742,214-4,772,485 - Chilean Peso - 1,033,128, ,028, ,903,977 Argentine Peso 0, Thai Baht 7,409, Mexican Peso,597 33,374, At 31 December 2006 the Group had the following commitments: Amount in foreign currency Currency Short-term Long-term Purchase Sale Purchase Sale US Dollar 7,162,026 62,201,487 10,663,618 28,233,668 Pound Sterling,929,578 87,207 2,705,963 - Swiss Franc,630,248-4,134,332 - Chilean Peso - 763,303, Argentine Peso,100, Thai Baht - 2,782, Mexican Peso - 31,685,955-2,432,903 62

65 Indra 2007 At 31 December 2007 and 2006 exchange rate hedges are valued as follows: Short-term Long-term Short-term Long-term Exchange rate hedges Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Cash flow hedges,997 3, ,531 1, Fair value hedges, , b) Options on treasury shares 7,281 4, ,690 2, In 2005 the board of directors of the Parent Company approved an options plan for ordinary shares of the Parent Company in order to motivate and retain management and transform the creation of shareholder value in the medium term into a common goal of both the shareholders and management. The 2005 Options Plan was approved by the directors at the meeting of the Parent Company s board on 12 May In accordance with article 130 and the fourth additional provision of the Spanish Companies Act, the programme was also approved by the shareholders at their annual general meeting held on 27 June The main conditions of the options plans are as follows: The options granted entitle the holder to acquire ordinary shares of the Parent Company, provided that certain conditions are met. Each option represents one share. The 2005 Options Plan is applicable to 93 directors and other Group employees, including senior management. 2,281,000 options were granted, equivalent to 2,281,000 ordinary shares with a par value of Euros 0.20 each and representing 1.39% of share capital. The exercise price of options granted is Euros 16.83, which is equivalent to the average quotation price of shares during July, August and September Options granted may be executed from 1 April 2008 to 30 June Options are exercised through the acquisition of shares. The board of directors has arranged an equity swap contract with a financial entity in order to hedge the options granted, whereby the shares will be transferred if the above-mentioned conditions for execution of options are met. This contract bears interest at a rate referenced to Euribor and the Group receives 100% of the gross dividends associated with the hedged shares. Details of the remuneration plans based on the value of the share and hedges at 31 December 2007 and movement during the year are as follows: Number of options Strike Balance at Balance at price Expiry 31/12/06 Granted Exercised Extinguished 31/12/07 ( ) date 2002 Plan, tranche 00,660 - (100,660) /31/ Plan, tranche,222 - (132,222) /31/ options,248, ,248, from 04/01/08 to 06/30/09 Total options in force 2,480,882 - (232,882) - 2,248,000 63

66 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Hedge Equity Redeemable Unit carrying Swap shares amount 2002 Plan, tranche plan, tranche options,281, Total 2,281,000 - Details of share options granted and hedges existing at 31 December 2006 and movement during the year then ended were as follows: Number of options Strike Balance at Balance at price Expiry 31/12/05 Granted Exercised Extinguished 31/12/06 ( ) date 2002 Plan, tranche,725 - (585,249) (2,816) 100, /31/ Plan, tranche,872 - (464,581) (69) 132, /31/ options,281, (33,000) 2,248, from 04/01/08 to 06/30/09 Total options in force 3,566,597 - (1,049,830) (35,885) 2,480,882 Cobertura Equity Redeemable Unit carrying Swap shares amount 2002 Plan, tranche 1-181, plan, tranche 2-174, options,281, Total 2,281, ,440 At 31 December 2007, Euros 2,985 thousand has been charged to personnel expenses for the options granted under the 2002 and 2005 Options Plans (Euros 3,065 thousand in 2006) (see note 27). 35) Remuneration of the Board of Directors and Senior Management 1. Remuneration of the directors In accordance with the articles of incorporation, remuneration comprises a fixed sum, the maximum amount of which is determined by the shareholders at their general meeting, and a share in the profits of the Company. It may also consist of shares or share options, subsequent to approval by the shareholders. In 2005 the board of directors prepared a proposal, with the collaboration of the external consultancy firm of independent experts Spencer Stuart, which was submitted to the shareholders at their ordinary general meeting that year. The proposal established the global fixed amount of remuneration for the board of directors at a maximum of Euros 600,000 for 2005, 2006 and 2007 (this amount had not changed since 2002) and limited shares in profit, which were statutorily established at 1% of consolidated net profit, to a maximum of 1.4 times the amount of the fixed sum, with 50% of the gross amount distributable as Parent Company shares. This proposal was approved by the shareholders at their ordinary general meeting and was established based on a board of directors comprising 12 members. These criteria considered an average fixed amount of Euros 50,000 thousand per director per year, and Euros 70,000 thousand per year for profit sharing. When preparing the proposal, the board of directors aimed to devise an appropriate and motivating 64

67 Indra 2007 offer, in line with the number of hours incurred and the responsibility of each position. Care was also taken to avoid excessively high remuneration that could compromise the independence of independent directors. At their ordinary general meeting held in 2007, the shareholders agreed to increase the number of directors to 15 and to adjust the total amount of remuneration for the board of directors to this new number. The amount was thus increased proportionately with the growth in the number of directors, to a fixed annual amount of Euros 750,000. The maximum amount for profit sharing purposes was maintained as 1.4 times the amount of the fixed sum, totalling Euros 1,050,000. However, as the number of directors during the first half of 2007 was 14, the shareholders exceptionally established a maximum fixed amount for 2007 of Euros 725,000, and a maximum amount for profit sharing purposes of 1.4 times the amount of the fixed sum, therefore totalling Euros 1,015,000. As agreed by the board of directors, which is duly empowered to distribute to board members the global amount of remuneration established by the shareholders, since 2005 remuneration has been distributed to the directors as follows: (i) A fixed amount of Euros 27,000 for members of the board of directors; Euros 15,000 for Delegate Committee members; Euros 20,000 for Audit and Compliance Committee members; Euros 15,000 for Appointments, Remuneration and Corporate Governance Committee members. The chairperson of each body, except the Delegate Committee, receives remuneration totalling 1.5 times these amounts. (ii) Shares in profit are equally distributed amongst all members, in proportion with the time effectively dedicated to each position during the year. Each year the board of directors has agreed to reconsider the amount of profit sharing in the event that the growth and profitability targets published each year are not achieved, and to propose any necessary adjustments to the shareholders at the ordinary general meeting. This situation has not arisen in any year since the statutory remuneration was established in 1999, as the Company has achieved or exceeded its targets each year. The aforementioned limit for profit sharing purposes of 1.4 times the fixed amount has been applied since it was established by the shareholders in This limit is also applicable in 2007, in accordance with the accompanying annual accounts. Consequently, an itemised breakdown of total remuneration for 2007 and 2006 accrued by the members of the board of directors, in light of their position as directors of the Company, is as follows: 65

68 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts Remuneration of directors (thousands of Euros) 2007 Fixed amount Appointments, Remuneration Audit and and Corporate Total Profit Board of Delegate Compliance Governance Fixed Sharing Director Directors Committee Committee Committee Amount (50% in Shares) Total Adm. Valtenas (1) (2), ,500 35,000 48,500 I. Aguilera 7,000 15, ,000 70, ,000 M. Azpilicueta (3),500 7, ,500 28,500 35,000 63,500 Casa Grande de Cartagena (2) 13, ,500 35,000 48,500 F. Constans 7,000 15,000 28, ,333 70, ,333 H. Figarola (3), ,500 35,000 48,500 Mediación y Diagnósticos 7,000 15, ,000 57,000 70, ,000 L. Lada (2), ,500 21,000 35,000 56,000 H. López Isla 7,000 7,500 20, ,500 70, ,500 P. López Jiménez 7,000 7, ,000 49,500 70, ,500 J. Monzón 0,500 15, ,500 70, ,500 R. Moranchel 7,000 15, ,000 70, ,000 J. Moya-Angeler 7, ,500 49,500 70, ,500 M. Oriol (2),500 7,500 10, ,000 35,000 66,000 Part. y Cartera de Inversión 27, , ,000 70, ,000 P. Ramón y Cajal 7,000 15, ,000 70, ,000 M. Soto 7, ,667 15,000 63,667 70, ,667 J.C. Ureta (3), , ,500 35,000 58,500 Total 405, , ,000 82, ,500 1,015,000 1,732,500 Average remuneration by director (average of 14,5 directors during the year),500 70, ,500 (1) Representing Caja Asturias. (2) Director since July (3) Director until June Remuneration of directors (thousands of Euros) 2006 Fixed amount Appointments, Remuneration Audit and and Corporate Total Profit Board of Delegate Compliance Governance Fixed Sharing Director Directors Committee Committee Committee Amount (50% in Shares) Total I. Aguilera 7,000 15, ,000 70, ,000 M. Azpilicueta 7,000 15, ,000 57,000 70, ,000 F. Constans 7,000 15,000 20, ,000 70, ,000 H. Figarola 7, ,000 70,000 97,000 Mediación y Diagnósticos 7,000 15, ,000 57,000 70, ,000 J. Monzón 0,500 15, ,500 70, ,500 R. Moranchel 7,000 15, ,000 70, ,000 J. Moya-Angeler 7, ,500 49,500 70, ,500 Part. y Cartera de Inversión 27, , ,000 70, ,000 P. Ramón y Cajal 7,000 15, ,000 70, ,000 M. Soto 7, ,000 15,000 72,000 70, ,000 J.C. Ureta 7, , ,000 70, ,000 Total 337, ,000 90,000 67, , ,000 1,440,000 Average remuneration by director (average of 12 directors during the year). 5 0,000 70, ,000 66

69 Indra 2007 In accordance with the aforementioned agreements reached by the shareholders at their ordinary general meeting, 50% of the gross amount of the share in profit is distributed as Parent Company shares, the number of which is determined in line with their market value when the dividend is distributed. The directors have undertaken not to dispose of the shares for as long as they occupy their positions. The remaining 50%, less the withholding corresponding to the entire amount of the share in profit, is paid in cash. Application of the above in 2006 entailed the distribution of 1,892 Parent Company shares to each director, with a value equivalent to 77% of the net amount of the share in profit. The total remuneration of the directors indicated above represents 0.77% of consolidated net operating profit and 0.82% of consolidated profit before income tax for 2007, according to the accompanying consolidated annual accounts prepared by the board of directors (0.88% and 0.89%, respectively, in 2006). During 2007 and 2006 no options on Parent Company shares were granted to the members of the board of directors in light of their position as directors. At 2007 and 2006 year ends the members of the board of directors did not hold, in their capacity as directors, any Parent Company share options. In 2007 and 2006 the members of the board of directors did not receive any benefits or remuneration other than the aforementioned. Neither the Parent Company nor any of the Group companies have any pension commitments with the directors, nor have they extended any loans or advances to the directors. Remuneration of senior management who are also members of the board of directors (executive directors) is accrued through their professional relationship with the Parent Company and, as such, is independent from remuneration received in light of their position as directors, as established in the articles of incorporation. Details of such remuneration are provided in the following section. 2. Remuneration of senior management The remuneration of the Company s senior management is determined on an individual basis by the board of directors, subsequent to receiving a report from the Appointments, Remuneration and Corporate Governance Committee. In 2005 the aforementioned Commission proposed to the board of directors that the labour and remuneration framework for senior management should be reviewed, with the collaboration of the external firm of independent experts, Spencer Stuart. The board of directors approved the proposal. This review, performed on a regular basis, aimed to ensure that the items and amounts of remuneration, and other items associated with the professional relationship with senior management, were at all times in line with market practice, thereby encouraging the directors to remain in service and orientate their management practices in accordance with the situation and objectives of the Company. As proposed by the Appointments, Remuneration and Corporate Governance Committee, the board of directors agreed to the new remuneration of senior management for a three-year period, from 2005 to 2007 inclusive, and to certain conditions regarding their professional relationship referred to later in this note. This remuneration comprises similar components to the previous remuneration system, some of which are annual while others relate to more than one year, as detailed below. Annual remuneration comprises a fixed sum paid in cash; a variable remuneration component, also in cash, depending on the level of achievement of established annual targets and the evaluation of management performance; and remuneration in kind. Consequently, the criteria of the board of directors dictated that the fixed remuneration should remain invariable for the three years indicated (2005, 2006 and 2007), unless specific circumstances were to arise, which would make a review advisable. Medium-term remuneration is entirely variable and is dependent on senior management remaining within the Company until the end of the period to which it relates. It can comprise a cash incentive linked to the continuous achievement of targets and the evaluation of management performance for that period, and/or the granting of share options. The terms and amounts of each item were determined in line with the following criteria: variable remuneration should represent a substantial portion of the total remuneration; medium-term remuneration should be significant; and remuneration referenced to stock market value should be significant, although not excessive. In 2007, the Appointments, Remuneration and Corporate Governance Committee considered it necessary to analyse whether the dimensions and remuneration of senior management were adequate, in light of the acquisitions of Azertia and Soluziona and their significant bearing on the size and complexity of the Company s activities. With regard to the dimensions, the Committee proposed to the board of directors that five new general managers be appointed. The committee also proposed new remuneration conditions and recommended that the prevailing labour framework for senior management be applicable to the new general managers. Senior management would thereby comprise fourteen directors, as opposed to the previous nine. In relation to remuneration, with the collaboration of the external consultancy firm of independent experts Egon Zehnder, it reviewed senior management remuneration conditions to ascertain whether these were in line with market levels and the above-mentioned criteria. This review brought to light 67

70 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts certain discrepancies in the amounts of remuneration, which in some cases were significant. However, as the remuneration framework for senior management was to come up for general review in 2008, the Committee proposed to the board of directors that the remuneration items and amounts established in 2005 be left unchanged, and that this situation be taken into consideration when notifying and proposing the amounts of variable remuneration for The board of directors approved all proposals raised by the Appointments, Remuneration and Corporate Governance Committee. In June 2007 the executive vice-chairman stepped down from his position on the board of directors, although continued to serve as senior management until the end of the year, when he rescinded his professional relationship with the Company. The specific conditions established and agreed with the executive vice-chairman in this respect were applied. These conditions amounted to less than the sums generally established for termination of a professional relationship between the Company and senior management, which the Company has notified publicly and in the general shareholders meeting. Consequently, at 31 December 2007 the Company s senior management comprises 13 directors. Annual remuneration for 2007 and 2006 is therefore as follows (thousands of euros): Fixed remuneration,446 3,286 Variable remuneration,048,725 Remuneration in kind Members of senior management Average fixed remuneration of senior management 318 Total average remuneration of senior management 695 Variable remuneration as % of total % % Following the proposal made by the Appointments, Remuneration and Corporate Governance Committee the board of directors agreed that, on this occasion, 1,045 thousand of the amount allocated for payment of senior management for 2007 would be paid in parent company shares. This decision reflected its consideration of the Committee s recommendation that senior managers maintain a stable interest in the Company s share capital, equivalent to or in excess of their fixed annual remuneration. In 2007 and 2006, Euros 4,502,528 and Euros 3,472,756, respectively, of the above-mentioned amounts was payable to executive directors (senior management who are also members of the board of directors) in respect of annual remuneration. Variable remuneration represents 64% of total remuneration in 2007 and 50% in According to the accompanying annual accounts, the above annual remuneration represents 2.01% of consolidated net operating profit and 2.12% of consolidated profit before income tax for 2007 (2.12% and 2.14%, respectively, in 2006). Medium-term remuneration for 2007 is equal to that established in 2005 for the aforementioned three-year period from 2005 to 2007 for the then nine members of senior management, plus the amount relating to the five new directors appointed during the year. Mediumterm remuneration comprises the following: (i) Variable cash remuneration accrued in line with the achievement of targets established for the 2005 to 2007 period, for a maximum overall amount of 1.33 times the annual fixed remuneration effectively accrued at the 2007 year end, as evaluated by the board of directors after receipt of a report from the Appointments, Remuneration and Corporate Governance Committee. The Parent Company made a provision of Euros 1,804,369 for this purpose in 2005 and 2006, and Euros 2,292,362 in Euros 1,141,869 and Euros 1,081,762, respectively, of these amounts relate to the executive directors. (ii) 1,020,000 options on the same number of shares of the Parent Company, granted in June 2005 as part of the 2005 Options Plan (93 beneficiaries), with a strike price of Euros (market value of each share when granted) and which may be exercised between April 2008 and June Of the aforementioned shares, 480,000 relate to the executive directors. In 2007 and 2006 no share options have been granted to senior management. During 2007 and 2006 members of senior management exercised 39,916 and 423,500 options, respectively, on the same number of Parent Company shares in both cases. These share options were granted as part of the 2002 Options Plan (with 108 beneficiaries). The average strike price of these options amounted to Euros 6.93 (market value of each share when granted). 68

71 Indra 2007 In 2007 and 2006 the members of senior management did not receive any benefits or remuneration other than the aforementioned. Neither the Parent Company nor any of the Group companies has any pension commitments towards senior management, nor have they extended any loans or advances. The Appointments, Remuneration and Corporate Governance Committee has repeatedly recommended that senior management acquire Company shares on their own account, to secure a stable interest in the share capital of the Company equivalent to or in excess of their fixed annual remuneration. At the end of 2007, the thirteen senior managers held 251,842 shares, with a market value at that date equivalent to 1.11 times their fixed global annual remuneration. Each member of senior management has signed a contract with the Parent Company, regulating the conditions pertinent to their professional relationship. These contracts have been authorised by the board of directors after receipt of a favourable report and proposal from the Appointments, Remuneration and Corporate Governance Committee, which were presented to the shareholders at their ordinary general meeting in 2007 and disclosed in the Company s publicly available information. By virtue of the aforementioned contracts, should their professional relationship with the Company be terminated, and except in the case of voluntary departure or when there is justifiable cause for discontinuing employment, members of senior management are entitled to an indemnity equivalent to that established in article 56 of the Workers Statute, namely 45 days annual remuneration for each year of service in the Company, with a maximum payment equivalent to 3.5 years remuneration. In the case of the Chairman and the Managing Director, a minimum payment equivalent to three years remuneration is established. Furthermore, as disclosed in publicly available information and during the ordinary shareholders meeting, the executive directors and general managers of operations (including the international general manager) have also signed non-competition agreements, effective for two years as of the termination of their professional relationship with the Company, with compensation of between 0.5 and 0.75 times their annual remuneration for each year of non-competition. 36) Information Provided by the Members of the Board of Directors as Required by amended Article 127 (4th) of the Spanish Companies Act As required by amended section 4 of Article 127 of the Spanish Companies Act, the members of the board of directors have informed the Parent Company of shares or positions held in other companies. Details are presented in Appendix II to the accompanying annual accounts. 37) R&D&Innovation Activities A significant part of activities carried out by the Indra Group give rise to R&D&Innovation expenses, which are taken to the consolidated income statement when they are incurred (see note 4.b). The overall expense for R&D&Innovation projects carried out in 2007, including capitalised projects (see note 6), amounts to Euros 136,507 thousand, equivalent to 6.3% of the Group s total sales during this year. R&D&Innovation expenses incurred by the Parent Company during 2007 account for approximately 89% of total expenses of this nature incurred by the Group. In 2006, R&D&Innovation expenses amounted to Euros 99,136 thousand, equivalent to 7% of total Group sales. 38) Environmental Issues The Group s activities have not changed significantly in comparison with prior years and therefore the environmental impact continues to be low. Consequently, the directors consider that no significant contingencies exist in relation to protection or improvement of the environment and therefore have made no related provision for liabilities and charges at 31 December 2007 or Similarly, as in the prior year no significant assets have been allocated to protect and improve the environment, and no material expenses of this nature have been incurred during the year. The Group has neither requested nor received any environmental grants during the years ended 31 December 2007 and Notwithstanding the above, one of the foundations of Indra s Corporate Governance is the commitment to protect the environment during the course of its activities. This has been illustrated through the adoption at the Group s work centres of an environmental management system based on the UNE-EN ISO quality standard. In addition to the UNE-EN ISO certification awarded to the work centers 69

72 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts in Arroyo de la Vega, San Fernando de Henares, Torrejón de Ardoz and Triángulo, in December 2007 the certification was also issued to the Aranjuez work center and the building located in Calle Roc Boronat in Barcelona. The work center located in the La Finca business park in Pozuelo de Alarcón (Madrid) already had a certified environmental management system based on the UNE-EN ISO quality standard, prior to the merger of Soluziona and Indra. This work center has been integrated into Indra Sistemas and its environmental management system is now entirely compatible with that of Indra Sistemas. Indra Sistemas has also been awarded the certificate of compliance with Ruling 761/2001 EMAS (Eco Management and Audit Scheme) of the European Parliament and the Council of the European Union for the Arroyo de la Vega, San Fernando de Henares and Torrejón de Ardoz work centers. EMAS certification is of particular value in these work centers, due to the type of work carried out. 39) Remuneration of Auditors Remuneration of KPMG Auditores, S.L. and other related companies, as defined in the fourteenth additional provision of legislation governing the reform of the financial system, has been: Thousands of euros Annual accounts audit (*) Audit at August Due diligence services and other audit-related services ,323 (*) In 2007 includes Soluziona Group audits. The amounts detailed in the preceding paragraphs include the total fees for the 2007 and 2006 audits of the Group companies and other services, regardless of the date of invoice. 40) Transactions with Related Parties In accordance with the board of directors regulations, transactions with related parties must be authorised by the board of directors on the basis of a report from the Appointments, Remuneration and Corporate Governance Committee evaluating whether the proposed transaction complies with the principle of equal treatment of shareholders and whether it is carried out in market conditions. Transactions of a recurrent nature carried out in the normal course of business of the Company and in market conditions need only meet general operations authorisation guidelines. During 2007 and 2006, commercial, financial and professional services transactions have been carried out with the significant shareholders Caja Madrid, Unión Fenosa and Caja Asturias, or companies related to these, as well as with four companies related to the board members Mr. Ramón y Cajal, Mr. Moya-Angeler and Mrs. De Oriol and Mr. Ureta. These transactions have been authorised in accordance with the above-mentioned criteria and were carried out in the normal course of business of the Company and in market conditions. The transactions do not represent, either individually or overall, a significant amount of the Parent Company s net sales or balance sheet at 31 December 2007 and Details of transactions with shareholders and board members during the years ended 31 December 2007 and 2006 are as follows. These details have been prepared on the basis of the applicable provisions of the law governing the stock market, International Accounting Standards and the most recent recommendations and policies applied by the Parent Company in relation to corporate governance. 70

73 Indra Nature of transaction With shareholders (*) With directors Total 31/12/2007 Sale of goods and services 81,817-81,817 Purchase of goods and services 4,103 1,158 5,261 Interest received Expenses for financial services 1, ,251 Expenses for professional services ,157 1,252 88, Nature of transaction With shareholders (*) With directors Total 31/12/2006 Sale of goods and services,472 -,472 Purchase of goods and services Interest received - Expenses for financial services Expenses for professional services - 9, ,810 (*) Includes Inversis (company in which, Caja Madrid and Indra hold a joint majority interest). a) Transactions with shareholders All transactions with shareholders relate to operations carried out with the shareholders Unión Fenosa, Caja Madrid and Caja Asturias, as well as with Inversis (company in which, Caja Madrid and Indra hold a joint majority interest). Sale of goods and services reflects projects and services rendered on behalf of the aforementioned shareholders and Inversis. In 2007, purchase of goods and services includes Indra s rental of different office buildings from Unión Fenosa Group companies in Madrid, La Coruña and Mexico City for a total amount of Euros 1,422 thousand. Interest received reflects interest paid by Caja Madrid on short-term deposits placed in that entity. Expenses for financial services reflect guarantee management costs and interest on drawdowns from credit facilities extended by the shareholder Caja Madrid, as well as financial brokerage fees relating to Caja Madrid and Inversis. In 2007 and 2006 the main financial contracts signed with Caja Madrid are as follows: Credit facilities with annual maturity amounting to Euros 72,261 thousand in 2007 and Euros 50,000 thousand in 2006, which accrue interest at a rate indexed to monthly Euribor. The average balance drawn down in 2007 totals Euros 5,382 thousand (Euros 1,872 thousand in 2006). Guarantee facility with annual maturity amounting to Euros 84,100 thousand in 2007 and Euros 76,800 thousand in Payables discounting programme amounting to Euros 21,850 thousand in 2007 and Euros 23,350 thousand in 2006, with annual maturity This caption also includes the R&D&Innovation project known as ITECBAN. This project, developed by Indra, Caja Madrid and a further seven entities, is financed by the Center for Industrial Technological Development (CDTI, governed by the Ministry of Industry, Tourism and Commerce), with no economic value between the parties. It has been partially executed during In addition to the above-mentioned transactions, the Caja Madrid Group has received dividends amounting to Euros 18,139 thousand in 2007 and Euros 6,041 thousand in Dividends received by Unión Fenosa in 2007 total Euros 16,918 thousand, while Caja Asturias has received dividends of Euros 6,406 thousand and Casa Grande de Cartagena of Euros 6,570 thousand. 71

74 Consolidated Annual Accounts and Directors Report Consolidated Annual Accounts b) Transactions with directors Purchase of goods and services includes: The rental of a building located in Torrejón de Ardoz, with a surface area of 4,226 m2, from Inmoan, S.A., a company of which Mr. Moya-Angeler is the sole shareholder. The lease contract was signed in 1999 for a period of eight years, expiring in December 2007 and extendible until The amounts settled in 2007 and 2006 totalled Euros 229 thousand and Euros 189 thousand, respectively. The terms of the lease contract were negotiated with Mr. Moya-Angeler prior to his appointment as a director of Indra. Subsequently, as requested by Mr. Moya- Angeler, the board of directors expressly authorised this transaction, on the basis of a favourable report received from the Appointments, Remuneration and Corporate Governance Committee. The rental of a building located in Alcobendas, with an area of 4, m2, from Edificios Alcobendas, S.A., a company in which Mr. Ramón y Cajal holds a 10% interest. The lease contract was signed at the end of 2005, initially until May 2011 and extendible until The amount settled in 2007 totals Euros 384 thousand (Euros 317 thousand in 2006). Security services rendered by Seguriber, in which Mrs. De Oriol holds an indirect 50% interest and is chairwoman of the board of directors. These services were rendered to the Parent Company by Seguriber prior to Mrs. De Oriol being appointed to the board of directors. The amount settled in 2007 totalled Euros 545 thousand. In both years, Expenses for financial services reflect financial brokerage fees paid to Renta 4 Sociedad de Valores y Bolsa, S.A., a company in which Mr. Ureta holds a 60.4% interest and of which he is Chairman and Managing Director. Mr. Ureta stepped down from his position as director in the Parent Company in June In both years, Expenses for financial services reflect legal advisory fees paid to the lawyers practice Ramón y Cajal Abogados, a company of which Mr. Ramón y Cajal is Chairman and in which he holds a minority interest, exercising no control. Details of remuneration of the members of the board of directors are provided in note 35. c) Transactions with senior management During 2007 and 2006 there have been no transactions with senior management or related parties. Details of remuneration of senior management are provided in note ) Subsequent Events No significant events have occurred within the Group subsequent to year end. 72

75 Indra

76 Consolidated Annual Accounts and Directors Report Appendix I Appendix I Details of Group companies at December Registered offices Activity 1.- Parent company Indra Sistemas, S.A. Avenida de Bruselas, 35 Alcobendas (Madrid) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology 2.- Subsidiaries Indra Emac, S.A. Indra Espacio, S.A. Calle Mar Egeo, 4 Pol. Ind.1 San Fernando de Henares (Madrid) Calle Mar Egeo, 4 Pol. Ind.1 San Fernando de Henares (Madrid) Maintenance and engineering of systems for use in air defence and other related areas Design, development, integration and maintenance of surveillance equipment and systems for installation security Indra Sistemas de Seguridad, S.A. Carrer de Roc Boronat, 133 (Barcelona) Inmize Capital, S.L. Avenida de Bruselas, 35 Alcobendas (Madrid) Indra Sotware Labs, S.L. Avenida de Bruselas, 35 Alcobendas (Madrid) Indra BMB, S.L. Avenida de Bruselas, 35 Alcobendas (Madrid) Europraxis Atlante, S.L. Calle Carabela la Niña, 12 Barcelona Design, development, integration and maintenance of surveillance equipment and systems for installation security Management, engineering, commercialisation and sale of defence systems Design, manufacture and testing of IT system development products Business process outsourcing (BPO) and management, rendering of document and mortgage management services Professional services consisting of business, technological and solutions consulting Europraxis Consulting Brasil, Ltda. Sao Paulo (Brazil) Professional services consisting of business, technological and solutions consulting Europraxis Consulting Argentina, S.A. Buenos Aires (Argentina) Professional services consisting of business, technological and solutions consulting Metradis, S.L.U. Paseo del Club Deportivo 1, Pozuelo de Alarcón (Madrid) Distribution, sale, manufacture and installation of software and hardware systems, as well as related training and advisory services Azertia Tecnologías de la Información USA Inc. Azertia Gestión de Centros Venezuela S. A. New York (USA) Caracas (Venezuela) Design, development, production, integration, and maintenance of systems, solutions and services based on information, electronic and communications technology Design, development, production, integration, and maintenance of systems, solutions and services based on information, electronic and communications technology Inmize Sistemas, S.L. Avenida de Bruselas, 35 Alcobendas (Madrid) Management, engineering, commercialisation and sale of defence systems Safo Sistemas, S.L. Internet Protocol Sistemas Net, S.A. Paseo del Club Deportivo,1 Pozuelo de Alarcón (Madrid) Paseo del Club Deportivo,1 Pozuelo de Alarcón (Madrid) Distribution, sale, manufacture and installation of IT, software, hardware, telecommunications and audiovisual systems, as well as related training and advisory services Research, development, production, installation and marketing of products, systems and applications for telcommunications, IT and internet and security networks 74

77 Indra 2007 Registered offices Activity Indra SI, S.A. Buenos Aires (Argentina) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra Sistemas Chile, S.A. Santiago de Chile (Chile) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra Beijing Information Technology Systems Co. Ltd. Beijing (China) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra Systems, Inc. Orlando (USA) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra Brasil, Ltda. Sao Paulo (Brazil) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra Sistemas Portugal, S.A. Lisbon (Portugal) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Radiología Digital y Comunicaciones, S.L. Avda. Cataluña, 11 Valencia Software development, installation, commercialisation and maintenance; medical diagnostic equipment and image processing BMB Gestión Documental Canarias, S.L. Calle Tomás Miller, Las Palmas de G. Canaria Management of back-office processes (BPO) for financial entities. Formaliza Servicios de Formalización y Gestión, S.L. Calle Alcalá, Madrid Management of back-office processes (BPO) for financial entities. Indra BMB Servicios Digitales, S.A. Pº. De Gracia, 55 Barcelona Data capture and digitisation GIPSA, S.L. Calle Alcalá, Madrid Management of back-office processes (BPO) for financial entities. Sociedad de Procesos y Formalización 2004, S.L. OUAKHA Services, Saarl AU (Marruecos) Calle Alcalá, Madrid Tangiers (Marruecos) Management of back-office processes (BPO) for financial entities. Management of back-office processes (BPO) for financial entities. Indra Sistemas Magreb S.A.R.L Rabat (Marruecos) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra Sistemas Polska sp.zo.o Warsaw (Poland) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra France SAS Antony (France) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra Sistemas México S.A. de C.V. Mexico City (Mexico) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology 75

78 Consolidated Annual Accounts and Directors Report Appendix I Interscan Navigation Systems Pty Limited Registered offices Australia Activity Design, development, production and maintenance of navegation, landing and air traffic control systems Seintex Consultores S.A (Venezuela) Caracas (Venezuela) Design, development, production, integration and maintenance of IT-based systems, solutions and services for the legal sector. Azertia Tecnología de la Información México S.A.C.V. Mexico City (Mexico) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Indra USA Inc. Philadelphia (USA) Professional services consisting of technological and solutions consulting Azertia Tecnologías de la Información Colombia S.A. Azertia Tecnologías de la Información Venezuela S.A. Bogotá (Colombia) Caracas (Venezuela) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology, as well as related advisory and training services Advanced Logistics Group, S.A. Comte de Urgell, 240 Barcelona Programarius, S.L. Pº. De Gracia, 55 Barcelona Dimensión Informática S.L. Avenida de Cataluña, 11 Valencia Euroquality S.L. Calle María de Molina, 37 Madrid Preparation and performance of all types of studies, technical projects and reports concerning transport engineering, consulting and logistics Digitisation, data capture and the design, development and distribution of IT platforms Specialised information technology solutions and services for health and well-being systems Professional services consisting of quality, environmental and safety in the workplace consulting Azertia Tecnologías de la Información Argentina S.A. Buenos Aires (Argentina) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Soluziona, S.A. (Argentina) Buenos Aires (Argentina) Professional services consisting of technological and solutions consulting Soluziona, S.A. (Uruguay) Montevideo (Uruguay) Professional services consisting of technological and solutions consulting Soluziona C & S Holding, S.A. (Chile) Santiago (Chile) Professional services consisting of technological and solutions consulting Soluziona Ltda. (Brasil) Sao Paulo (Brazil) Professional services consisting of technological and solutions consulting Soluziona Mejico S.A. de C.V. Mexico City (Mexico) Professional services consisting of technological and solutions consulting Soluziona, S.P., C.A. (Venezuela) Caracas (Venezuela) Professional services consisting of technological and solutions consulting Soluziona Chile S.A. Santiago de Chile (Chile) Professional services consisting of technological and solutions consulting Indra Ucrania L.L.C. Kiev (Ukraine) Professional services consisting of technological and solutions consulting Soluziona Ltda. (Colombia) Bogota (Colombia) Professional services consisting of technological and solutions consulting Soluziona, S.A. (Panamá) Panama Professional services consisting of technological and solutions consulting Indra Czech Republic s.r.o. Prague (Czech Republic) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology 76

79 Indra 2007 Registered offices Activity Indra Eslovakia, a.s. Bratislava (Slovakia) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology Soluziona, kft (Hungría) Debrecen (Hungary) Professional services consisting of technological and solutions consulting Soluziona, S.R.L. (Moldavia) Chisinau (Moldavia) Professional services consisting of technological and solutions consulting Elektrica Soluziona S.A. (Rumanía) Bucharest (Romania) Professional services consisting of technological and solutions consulting Soluziona Kenya, Ltd. Nairobi (Kenya) Professional services consisting of technological and solutions consulting Soluziona Zimbabwe Harare (Zimbabwe) Professional services consisting of technological and solutions consulting Soluziona Philippines, Inc. Quezon (Philippines) Professional services consisting of technological and solutions consulting Soluziona, S.A. (Guatemala) Guatemala (Guatemala) Professional services consisting of technological and solutions consulting Prointec, S.A. Avda. de Burgos, Madrid Asdoconsult Ingenieros, S.L. Sant Pere Mes Alt, Barcelona Geoprin, S.A. Avda. de Burgos, Madrid Inse-Rail, S.A. Avda. de Burgos, Madrid Engineering and consultancy services mainly in relation to the environment, transport, construction, water and industry Technical engineering services Technical geological services Technical engineering services GICSA-Goymar Ingenieros Consultores, S.L. Avda. de Burgos, Madrid Technical engineering services Procinsa Ingeniería, S.A. Santa Susana, 3 Oviedo Technical engineering services Gibb Portugal-Consultores de Engenharia, Gestao e Ambiente, S.A. Ingeniería de Proyectos e Infraestructuras Mexicana, S.A. de C.V. Lisbon (Portugal) Mérida (Mexico) Technical engineering services Technical engineering and architectural services Prointec Concesiones y Servicios, S.L. Avda. de Burgos, Madrid Concession- holding and management services Consis Proiect SRL Bucharest (Romania) Civil engineering services and consultancy MECSA - Marcial Echenique y Compañía, S.A. Tourism & Leisure Advisory Service, S.L. Europraxis Consulting, Ltd (U.K.) Compraxis Prestaçao de Serviços de Consultoría, Ltda. Avda. de Burgos, Madrid Calle Carabela la Niña, 12 Barcelona Slough, Berkshire (United Kingdom) Lisbon (Portugal) Technical engineering services Professional tax, financial, industrial and technical advisory and consultancy services for all types of companies and organisations Professional services consisting of business, technological and solutions consulting. Professional services consisting of business, technological and solutions consulting. Europraxis Consulting, S.r.l. Milan (Italia) Professional services consisting of business, technological and solutions consulting. Advanced Logistic Group Venezuela, S.A. Colinas del Bello Monte (Venezuela) Professional services consisting of business, technological and solutions consulting. 77

80 Consolidated Annual Accounts and Directors Report Appendix I Advanced Logistic Group Andina, S.A.C. (Perú) Registered offices Lima (Peru) Activity Professional services consisting of business, technological and solutions consulting. Prointec Panamá, S.A. Ancon (Panama) Civil engineering services and consultancy Prointec Civil Engineering Consultancy (Irlanda) Dublin (Eire) Civil engineering services and consultancy Prointec ENG S.R.L. Bucharest (Romania) Civil engineering services and consultancy GIBB Prointec do Brasil, Ltda. Sao Paulo (Brazil) Civil engineering services and consultancy 3.- Jointly-controlled companies Ceicom Europe, S.L. Calle Rodríguez Marín, 92 Madrid Consultancy and IT services, development of IT solutions, development and marketing of technological products, Web services, operation of IT solutions for third parties and the import and export of any of these products and services. Computación Ceicom, S.A. Buenos Aires (Argentina) Data processing, consultancy and technical assistance in systems analysis, development and introduction of programmes for computer equipment I3 Televisión, S.L. Avda. Isla Graciosa, 13 San Sebastián de los Reyes (Madrid) Design, development, manufacture, supply, assembly, repair, maintenance, installation and commercialisation of IT products, solutions, applications and systems for the audiovisual industry Trías Beltrán 4, S.L. Calle Alcalá, Madrid Lease of the office premises located at Plaza Carlos Trias Beltran, 4, Madrid Administradora de Archivos, S A Azuqueca de Henares (Guadalajara) Spain Professional file storage, management and processing services UTE Indra EWS/STN Atlas Leopard 2 Calle Joaquín Rodrigo, 11 Aranjuez (Madrid) UTE Indra Dimetronic Calle Miguel Angel, 23 Madrid UTE Manteniment Rondes Avenida de Bruselas, 35 Alcobendas (Madrid) Development, supply, installation, integration and maintenance of the Leopard 2 tank combat system Project preparation, supply, installation and maintenance of the traffic control system and integration of systems of the Zaragoza control centre for the Madrid-Puigverd section of the Madrid-Zaragoza-Barcelona highspeed train line. Maintenance of the Llobegrat-Morrot node UTE Zaindu Hiru Polígono Industrial Torrelarragoiti Zamudio (Vizcaya) Maintenance and operation of the high capacity network (Metropolitan area - Area 4). UTE Saih Sur Avenida del General Perón, 36 Madrid UTE Jocs del Mediterrani Avenida de Bruselas, 35 Alcobendas (Madrid) Maintenance of the Cadiz-Málaga-Granada-Almería South automated hydraulogical information system (SAIH) network Contract for the operation and development of lotteries for the Catalonia Regional Government, organised and managed by the autonomous government s games and lotteries entity UTE Estrada Valgrande, Madrid Operation and management of the National Automated Traffic Enforcement Centre UTE Giss 11 Avenida de Bruselas, 35 Alcobendas (Madrid) IT services for the management of the Social Security IT platform 78

81 Indra 2007 Registered offices Activity 4.- Associates Saes Capital, S.A. Paseo de la Castellana, 55 Madrid Through associated companies, the design, development, production, integration, maintenance and operation of electronic, IT and communications systems mainly related to naval systems and submarine acoustics. Eurofighter Simulation System GmbH Munich (Germany) Development and production of flight simulators for the Eurofighter EF Euromids SAS Paris (France) Development, manufacture and commercialisation of tactical communications systems. Indra Sistemas Tecnocom, S.A de C.V. Mexico City (Mexico) Design, development, production, integration and maintenance of systems, solutions and services based on information, electronic and communications technology MRCM GmbH Ulm (Danube) (Germany) Development of solutions for electronic warfare systems. Idetegolf, S.A. María de Guzman, 61 1º A, 28003, Madrid Iniciativas Bioenergéticas, S.L. Gran Vía Juan Carlos I, 9, Logroño, 26005, La Rioja Inmologística 2RC, S.L. Aragó, , Barcelona Procrisa Servicios, S.L. Santa Susana, 3 1º, Oviedo Asturias Promotion, design, projection, management and construction of golf courses Study, promotion, development and execution of innovative projects relating to the environment and energy generation Consultancy, study and turnkey projects and promotions for logistics platforms Research, promotion, operation and maintenence of all types of businesses related to power generation installations This Appendix forms an integral part of notes 1 and 16 to the consolidated annual accounts, in conjunction with which it should be read. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 79

82 Consolidated Annual Accounts and Directors Report Appendix I Financial Figures of Group Companies at December % ownership Contributions of Group companies to profit for the year Consolidation adjustments Profit/ Total Profit/ IFRS Provision Other (loss) operating (loss) adjust- for invest- consol. Minority attributable Company Direct Indirect Total Equity income after tax ments ments Dividends adjust. interest to the Group 1.- Parent company Indra Sistemas, S.A. ((Parent company) 634,800 1,758, ,918 4,087 10,041 (7,858) (647) - 146, Subsidiaries Indra Emac, S.A. 100% - 100% 3,955 16,665 2, ,982 Indra Espacio, S.A. 51% - 51% 41,943 59,051 7,105 (15) - - (177) (3,386) 3,527 Indra Sistemas de Seguridad, S.A. 100% - 100% 2,771 19, (26) Indra Sistemas de Comunicaciones Seguras, S.L. 90% - 90% 5,758 2, (63) 564 Inmize Capital, S.L. 80% - 80% 1,575 - (3) (47) (49) Inmize Sistemas, S.L. - 50% 50% 4,392 3, (518) 426 Indra Software Labs, S.L. 100% - 100% 9,415 21, Grupo Bmb 100% - 100% 32,067 28,883 1, (173) (71) 1,735 Grupo Europraxis 100% - 100% 17,969 46,914 1,360 1, (104) (153) 2,742 Indra SI, S.A. 100% - 100% , (98) Indra Sistemas Chile, S.A. 100% - 100% (407) 15,698 (790) (773) Indra Beijing Information Technology Systems Co. Ltd. 100% - 100% (200) 563 (221) (221) Indra Systems, Inc 100% - 100% , (135) - (88) Indra Brasil, Ltda. 100% - 100% (975) 4,662 (422) (422) Indra Sistemas Portugal, S.A. 100% - 100% 3,590 25,826 (707) (680) Indra Sistemas México, S.A. de C.V. 100% - 100% (78) 9,276 (421) (421) Internet Protocol Sistemas Net, S.A % % 5,910 15, (147) (25) 191 Safo Sistemas, S.L % 100% (17) (17) Metradis, S.L % 100% Indra Sistemas Magreb S.A.R.L. 100% - 100% (3) - (220) (220) Indra France Sas 100% - 100% (292) 310 (561) (358) Indra Polska Sp.z.o.o 100% - 100% Interscan Navigation Systems Pty Ltd. 100% - 100% (1,944) 73 (887) (887) Seintex Consultores S.A (Venezuela) 100% - 100% 469 1, Azertia Tecnologías de la Información México SA de CV 83.00% % 5,396 24,755 1, (712) (101) 824 Azertia Tecnologías de la Información USA Inc. - 61% 61% (111) 1,448 (292) (204) Azertia Tecnologías de la Información Colombia S.A % 7.18% 100% 2,082 9, Azertia Tecnologías de la Información Venezuela S.A. 100% - 100% 2,438 8,406 (1,271) (1,024) Azertia Gestión de Centros Venezuela S A 100% - 100% 2,765 2,985 (2,673) (2,146) Euroquality S.L. 100% - 100% 1,376 4, Dimensión Informática S.L. 100% - 100% 2,793 22,327 (1,446) (258) - (1,695) Radiología Digital y Comunicaciones, S.L % 100% (14) 401 (21) (21) Azertia Tecnologías de la Información Argentina S.A. 100% - 100% 194 5,559 (283) (283) Soluziona Ltda. Brasil 100% - 100% 4,741 14, ,125-2,265 80

83 Indra 2007 % ownership Contributions of Group companies to profit for the year Consolidation adjustments Profit/ Total Profit/ IFRS Provision Other (loss) operating (loss) adjust- for invest- consol. Minority attributable Company Direct Indirect Total Equity income after tax ments ments Dividends adjust. interest to the Group Soluziona México S.A. de C.V. 100% - 100% (2,485) 10,163 (7,458) (6,486) Indra USA Inc. 100% - 100% Soluziona SP, C.A. Venezuela 100% - 100% 2,424 5,613 (158) Soluziona S.A. (Guatemala) 100% - 100% 169 2,112 (483) (3) - (486) Soluziona Chile S.A 100% - 100% 649 6,795 (5,183) ,022 - (3,244) Soluziona S.A. Panamá 100% - 100% 2,156 4, Soluziona LTDA. Colombia 100% - 100% 690 7,119 (1,486) (71) - (1,557) Soluziona C&S Holding S.A - 100% 100% 3,194 1,239 (796) (258) Soluziona S.A. Argentina - 100% 100% 252 2,828 (22) (22) Soluziona S.A. Uruguay - 100% 100% (145) 1,410 (415) (415) Indra Czech Republic s.r.o. 100% - 100% 3,356 11, Indra Ucrania L.L.C % 100% (85) 2,601 (90) (90) Indra Eslovakia, a.s. 100% - 100% 530 2,660 (160) (122) Soluziona KFT Hungría 100% - 100% 605 a1, Soluziona S.R.L Moldavia 100% - 100% 843 1, Elektrica Soluziona S.A (Rumanía) 50.7% % 1,102 6, (187) 192 Soluziona Kenya LTDA 70% - 70% 1,758 1, (141) (65) (113) Soluziona Zimbabwe LTDA 70% - 70% (84) 197 Soluziona Philippines INC 49.99% % 3,451 10, (35) (296) 297 Prointec, S.A % % 28,778 92,215 4, (697) (2,240) 2, Jointly-controlled companies Administradora de Archivos, S. A. 50% - 50% 2,478 4, I-3 Televisión, S.L. 50% - 50% 188 2, Ceicom Europe, S.L. 50% - 50% (112) 891 (190) (190) Computación Ceicom, S.L. 50% - 50% (67) (55) IRB Riesgo Operacional, S.L. 33% - 33% (225) UTE Indra EWS/STN Atlas Leopard % - 60% - 47, UTE Indra Dimetronic 82.00% - 82% - 1, UTE Indra Manteniment Rondes 30.00% - 30% 6 3, UTE Zaindu HIRU 13.00% - 13% UTE Saih Sur 35.00% - 35% 3 1, UTE Jocs del Mediterrani 25.00% - 25% (5,048) 6, UTE Estrada 33.00% - 33% 6 7, UTE Giss % - 35% 5 10, Associates Saes Capital, S.A % - 49% ,068-1,068 Indra Sistemas Tecnocom, Méjico S.A. de C.V % - 50% Eurofighter Simulation System GmbH 26.00% - 26% Euromids SAS 25.00% - 25% MRCM Gmbh 25.15% - 25% ,079 8,710 10,717 (7,858) 3,133 (6,983) 147,798 81

84 Consolidated Annual Accounts and Directors Report Appendix I % ownership Contributions of Group companies to profit for the year Consolidation adjustments Profit/ Total Profit/ IFRS Provision Other (loss) operating (loss) adjust- for invest- consol. Minority attributable Company Direct Indirect Total Equity income after tax ments ments Dividends adjust. interest to the Group BMB Group companies: 2.- Subsidiaries Indra BMB, S.L. 100% - 100% 30,226 28,883 BMB Gestión Documental Canarias, S.L. 70% - 70% 737 2,288 Formaliza Servicios de Formalización y Gestión, S.L. 100% - 100% ,289 Sociedad de Procesos y Formalización 2004, S.L. 100% - 100% 8 1,594 GIPSA, S.L. 100% - 100% 3 2,594 OUAKHA Services, Saarl AU (Marruecos) 100% - 100% (186) - Indra BMB Servicios Digitales, S.A. 100% - 100% Programarius, S.L % 100% (32) 226 Etnodiversidad Somontano, S.L % 100% Associates Trías Beltrán, S.L. 40% - 40% - - EPX Group companies 2.- Subsidiaries Europraxis Atlante, S.L. 22,078 30,379 Tourism & Leisure Advisory Services, S.L. 70% - 70% 438 2,993 Europraxis Consulting, Ltd. (UK) 100% - 100% Europraxis Consulting, Ltda. (Brasil) 100% - 100% (687) 2,091 Europraxis Consulting Argentina, S.A. 100% - 100% Compraxis Prestaçao de Servicios de Consultoria Ltda. 100% - 100% (1,375) 858 Advanced Logistics Group, S.A. 100% - 100% ,586 Europraxis Consulting, S.r.l. 100% - 100% 283 2,619 Advanced Logistics Group Andina, S.A.C. - 90% 90% (3) 28 Advanced Logistics Group Venezuela, S.A. - 90% 90% (77) 40 Prointec Group companies Prointec, S.A. Procinsa Ingeniería, S.A % 1.00% % Geoprin, S.A % 0.01% % 901 3,203 Asdoconsult, S.L % 1.00% % 261 2,871 GICSA-Goymar Ingenieros Consultores, S.L. 100% 0% 100% 446 2,256 Inse Rail, S.A. 90% - 90% 2,080 3,050 GIBB Portugal-Consultores de Engenharia Gestao Ambiente, S.A. 98% 2% 100% 756 5,976 Ingeniería de Proyectos de Infraestructuras Mexicana, S.A. de C.V. 98% 2% 100% 4-82

85 Indra 2007 % ownership Contributions of Group companies to profit for the year Consolidation adjustments Profit/ Total Profit/ IFRS Provision Other (loss) operating (loss) adjust- for invest- consol. Minority attributable Company Direct Indirect Total Equity income after tax ments ments Dividends adjust. interest to the Group Prointec Panamá, S.A. 75% - 75% - - Prointec ENG SRL (Rumanía) 100% - 100% - - Consis Proiect SRL (Rumanía) 60% - 60% 1,442 2,830 Prointec Concesiones y Servicios, S.L. 97% 3% 100% Mecsa, S.A. 73% - 73% 639 2,713 Prointec Civil Engineering Consultancy (Irlanda) 100% - 100% - - GIBB Pointec do Brasil, Ltda. 51% - 51% Associates Idetegolf, S.A. 33% - 33% 60 - Iniciativas Bioenergéticas, S.L. - 20% 20% 8,980 - Inmologística 2RC, S.L. - 25% 25% Procrisa Servicios, S.L. - 45% 45% Gestión de Recursos Eólicos Riojanos, S.L. - 16% 16% This Appendix forms an integral part of notes 1 and 16 to the consolidated annual accounts, in conjunction with which it should be read. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 83

86 Consolidated Annual Accounts and Directors Report Appendix I Financial Figures of Group Companies at December % ownership Contributions of Group companies to profit for the year Consolidation adjustments Profit/ Total Profit/ IFRS Provision Other (loss) operating (loss) adjust- for invest- consol. Minority attributable Company Direct Indirect Total Equity income after tax ments ments Dividends adjust. interest to the Group 1.- Parent company Indra Sistemas, S.A. ((Sociedad Dominante) 344,552 1,175, ,346 (6,607) 4,768 (3,796) , Subsidiaries Indra Emac, S.A. 100% - 100% 3,255 15,021 2, (58) - 2,282 Indra Espacio, S.A. 51% - 51% 39,565 46,578 4,727 (386) - - (144) (2,064) 2,133 Indra Sistemas de Seguridad, S.A. 100% - 100% 2,361 8, (53) Indra Sistemas Comunicaciones Seguras, S.L. - 90% 90% 5,131 2, (63) 568 Inmize Capital, S.L. 80% - 80% 1,578 - (5) (1) 1 (3) Inmize Sistemas, S.L. - 50% 40% 3,917 3, , (5) (1,405) 937 Indra Centros de Desarrollo, S.L. 100% - 100% , Itec Air Traffic Management, S.L. 100% - 100% Grupo Europraxis 100% - 100% 7,291 32,908 (265) 1, (496) (144) 321 Indra SI, S.A. 100% - 100% (193) 7,468 (1,251) (124) - (1,375) Indra Sistemas Chile, S.A. 100% - 100% ,416 (45) (24) Indra Beijing Information Technology Systems Ltd. 100% - 100% (134) (134) Indra Systems, Inc 100% - 100% , Indra Brasil, Ltda. 99% 1% 100% 1,375 9,109 (1,930) (10) - (1,940) Indra Sistemas Portugal, S.A. 100% - 100% 4,008 24,022 (1,182) (597) - (1,183) Indra Italia, S.r.l. 100% - 100% (1) Indra Sistemas México, S.A. de C.V. 100% - 100% 355 4, Grupo Internet Protocol Sistemas Net, S.A. 90% - 90% 5,596 8, (142) (73) 673 Indra Magreb 100% - 100% (89) (89) Indra Francia 100% - 100% (231) (202) - (433) Indra Polska 100% - 100% 11 - (2) (2) Grupo Azertia 100% - 100% 59,241 76,008 1, (22) (16) 2, Jointly-controlled companies Grupo BMB 50% - 50% 15,233 49,543 1, (659) (57) 1,747 I-3 Televisión, S.L. 50% - 50% 233 3,286 (34) (4) - (38) Alliance Ground Survillance Industries, GmbH 16.66% - 17% Ceicom Europe, S.L. 50% - 50% Computación Ceicom, S.A. 50% - 50% TCAR Industries GmbH 16% - 16% UTE Indra EWS/STN Atlas Leopard 2 60% - 60% UTE Indra Dimetronic 82% - 82% - 1,

87 Indra 2007 % ownership Contributions of Group companies to profit for the year Consolidation adjustments Profit/ Total Profit/ IFRS Provision Other (loss) operating (loss) adjust- for invest- consol. Minority attributable Company Direct Indirect Total Equity income after tax ments ments Dividends adjust. interest to the Group UTE Manteniment Rondes 30% - 30% - 4, UTE Zaindu Hiru 13% - 13% UTE Saih Sur 35% - 35% - 1, UTE Jocs del Mediterrani 25% - 25% - 6, Associates Saes Capital, S.A. 49% - 49% 2, Eurofighter Simulation System GmbH 26% - 26% 2,807 - (28) (28) Euromids SAS 25% - 25% MRCM GmbH 25% - 25% (505) - (50) (50) Indra Sistemas Tecnocom, S.A. de C.V. 50% - 50% ,787 (2,297) 5,558 (3,796) (2,316) (3,821) 114,115 BMB Group companies: BMB Gestión Documental, S.L. 50% - 50% 14,182 38,841 BMB Gestión Documental Canarias, S.L. - 70% 70% 503 2,022 Formaliza Servicios de Formalización y Gestión, S.L % 100% 747 5,256 Sociedad de Procesos y Formalización 2004, S.L % 100% 7 1,110 CDS Corporación de Servicios Externos, S.L. - 67% 67% 2,016 6,293 Assesors Registrals, S.L % 100% 587 2,903 GIPSA, S.L % 100% Ouakha Services Sarl Au (Marruecos) - 100% 100% 10 - Trías Beltrán, S.L. - 40% 40% 23 - Europraxis Group companies: Europraxis Atlante, S.L. 100% - 100% 9,842 22,913 Tourism & Leisure Advisory Services, S.L. - 70% 70% 296 2,392 Europraxis Consulting, Ltd. (UK) - 100% 100% 358 2,114 Europraxis Consulting, Ltda. (Brasil) 0.002% 100% 100% (68) 1,512 Europraxis Consulting Argentina, S.A. 0.84% 99% 100% Compraxis Prestaçao de Servicios de Consultoria Ltda. - 75% 75% (553) 1,762 Advanced Logistics Group, S.A. - 51% 51% 2,704 4,145 Europraxis Consulting, S.r.l % 100% (11) 1,102 This Appendix forms an integral part of notes 1 and 16 to the consolidated annual accounts, in conjunction with which it should be read. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 85

88 Consolidated Annual Accounts and Directors Report. Appendix II Appendix II Information provided by the Board of Directors in relation to Article 127 (4) of the Spanish Companies Act Company Position Shareholding Javier Monzón de Cáceres Banco Inversis Net, S.A. Representative of Indra Sistemas, S.A.. -- ACS Actividades de Construcción Servicios, S.A. Director 0.00% ACS Servicios y Concesiones, S.L. Director -- YPF, S.A. Director Titular -- Manuel Soto Serrano Banco Santander 4th Vice-chairman of the Board of Directors 0.00% Corporación Financiera Alba, S.A. Director 0.03% Inversiones Inmobiliarias Lar, S.A. Director -- Mercapital, S.L. Chairman of the Advisory Council -- Pedro López Jiménez Unión Fenosa, S.A. Chairman of the Board of Directors 0.098% ACS Actividades de Construcción Servicios, S.A. Director 0.615% ACS Servicios y Concesiones, S.L. Director -- Dragados, S.A. Vice-chairman -- Grupo Terratest Chairman (through Fapindus, S.L.) 45% Compañía Española de Petroleos, S.A. Director -- Regino Moranchel Fernández Europraxis-Atlante, S.L. Director, representative of Indra Sistemas, S.A.. -- Indra Sistemas Portugal, S.A Indra SI, S.A. Chairman of the Board of Directors, representative of Indra Sistemas, S.A.. Vice-chairman of the Board of Directors, representative of Indra Sistemas, S.A Pedro Ramón y Cajal Antena 3 Televisión, S.A. Vice-chairman of the Audit and Control Committee -- Participaciones y Cartera de Inversión, S.L. Eurobits Tecnologies, S.L. Member of the Board of Directors -- Joaquín Moya-Angeler Redsa, S.A. Chairman of the Board of Directors 50% Pulsar Technologies Chairman of the Board of Directors 32% Presenzia.Net Chairman of the Board of Directors 47% Scitum Member of the Board of Directors 3.90% Hildebrando Chairman of the Board of Directors 2.92% Bety Byte, S.L. Vice-chairman of the Board of Directors 22% 86

89 Indra 2007 Company Position Shareholding Estanislao Rodríguez- Ponga ((representative of Participación y Cartera de Inversión, S.L.) Caja de Ahorros y Monte de Piedad de Madrid Vice-chairman of the Board of Directors -- Radio Popular, S.A. Director 21 shares Testa Inmuebles en Renta, S.A. Director -- UTISA Tableros del Mediterráneo, S.L. Director -- Asón Inmobiliaria de Arriendos, S.L. Director -- Honorato López Isla R Cable y Telecomunicaciones Galicia, S.A. Chairman, representative of Unión Fenosa, S.A. -- R Cable y Telecomunicaciones Coruña, S.A. Chairman -- Felipe Fernández Fernández Infocaja, S.L. Vice-chairman of the Board of Directors and Chairman of the Steering Committee -- Luis Lada Díaz Ribafuerte, S.L. General Manager/Administrator (Self-Employed) -- This Appendix forms an integral part of note 36 to the consolidated annual accounts, in conjunction with which it should be read. (Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails) 87

90 Consolidated Annual Accounts and Directors Report Management Report Director s report 1) Summary of has been a positive year for Indra, once again recording above-market growth and improving profitability. The Azertia and Soluziona acquisition process was successfully completed, consolidating our position as Spanish market leader and strengthening our presence in Latin America. We have also met our objectives for 2007, which have been particularly challenging given the aforementioned acquisition process. Objectives Initial Revised Year end Growth in revenues * 9.5% % 10.5% % 11% Total order intake > sales 07 > sales 07 8% > sales 07 EBIT margin (before acquisition costs) % 11.1% EBIT margin (after acquisition costs) 10% >10% 10.3% (*) Based on pro forma revenues 2006, which includes Azertia and Soluziona At year end, the main figures compared to 2006 are as follows: Revenues have increased by 54% to Euros 2,167.6 million. Order intake reached Euros 2,334.2 million, 8% less than revenues figures and 51% higher than order intake for the previous year. The backlog grew by 19% to Euros 2,241.8 million. Operating Profit (EBIT) totalled Euros million, equivalent to an EBIT margin of 10.3%. This figure includes Euros 16.5 million in one-off expenses associated with the Azertia and Soluziona acquisition process. The EBIT margin would total 11.1% if these costs were excluded. Attributable Profit increased by 30% to Euros million, generating an increase in EPS (Earnings per Share) of 15.2% following the share capital increase carried out in January 2007 (18.1 million shares), subscribed by Unión Fenosa by contributing the Soluziona business. This growth is a result of the Company s good business performance and the effect of the consolidation of Azertia and Soluziona during the year. For comparative purposes, Indra has prepared pro forma 2006 data for the most significant indicators, including Azertia and Soluziona figures. When compared to this pro forma data, trends have been as follows: Order intake increased by 8% on 2006 figures. This growth was affected by a decrease in order intake for the EFA programme compared to the prior year, as was expected. Excluding the effect of this programme, growth in order intake for this year would have been 12.5%. Revenues have increased by 11% and growth of 16% was recorded in the international market, both figures exceeding average market and sector growth. The backlog grew by 8% to Euros 2,241.8 million. In terms of financial trends, at year end net debt totalled Euros 150 million, slightly less than projected, and working capital requirements remained at a level equivalent to 73 revenues days. In 2007 the amount earmarked for shareholder remuneration was also particularly significant, totalling Euros 126 million (Euros 0.78/share) and distributed through ordinary and extraordinary dividends. 2) Objectives for 2008 Indra maintains its growth and profitability objectives for 2008, although the general national and international economic climate remains uncertain and may have effects not currently foreseen. The benefits of the integration of Azertia and Soluziona in 2007 will be consolidated this year. General economic growth rates above the European average have been predicted for Spain and Latin America. Both markets expect increased demand for IT services, with similar growth rates to the prior year. 88

91 Indra 2007 Indra s strengthened commercial position in the other international markets means that the Company also has a positive outlook for activity in these markets in The objectives set for this year are as follows: Revenue growth of between 8 and 10%, with international markets growing at the same rate as the domestic market. Growth in order intake of between 9 and 10%. Order intake will once again exceed revenues and consequently the backlog will continue to grow. Increase in operating profitability, with an EBIT margin of between 11.3 and 11.5%, a rise of at least 1.3 percentage points since the acquisition of Azertia and Soluziona (pro forma EBIT margin of 10% in 2006). Attributable profit growth of 18-22%. Meeting these objectives will allow Indra to once again achieve growth levels above those expected for the main markets in which it operates and the average of the main companies in the sector, as well as to remain industry leader in terms of profitability. In 2008 Indra will also continue to develop measures to consolidate its competitive position locally or globally, depending on the different areas of business in which it operates. 3) Main figures 2007 The main year-end figures are shown in the following table: Indra 2007 ( m) 2006 ( m) Variation (%) Order Intake 2, , Revenues 2, , Backlog 2, , Operating Profit (EBIT) (before acquisition costs) EBIT margin (before acquisition costs) 11.1% 11.6% (0.5) p.p Net Operating Profit (EBIT) EBIT margin 10.3% 11.6% (1.3) p.p Attributable Profit Net Debt M 89

92 Consolidated Annual Accounts and Directors Report Management Report For comparison purposes, and considering the impact of the acquisition of Azertia and Soluziona, trends in the following figures at year end were: 2007 ( m) 2006 ( m) Indra Pro forma* Variation (%) Order Intake 2, , Revenues 2, , Backlog 2, , (*) Pro forma data for 2006 is a result of the acquisition of Azertia and Soluziona by Indra at that year end. Earnings per share 2007 ( ) 2006 ( ) Increase Basic EPS Diluted EPS Basic EPS is calculated based on the Attributable Profit for the year, considering a number of shares equal to the Company s total shares, less the weighted own shares at the end of each year. Weighting of these own shares is based on the number of days which the shares have been on the Company s balance sheet during the year Total no. of shares 164,132, ,187,926 Weighted own shares 2,695,341 2,613,366 Total shares considered 161,437, ,574,560 The increase in the total number of shares is due to the share capital increase by a total of 18,068,171 ordinary Class A shares carried out by Indra to acquire various Soluziona businesses. This share capital increase was approved by the shareholders at their extraordinary meeting held on 20 December 2006 and took effect on 29 January The redeemable shares remaining after coverage of the 2002 Options Plan were also redeemed on 27 September, following approval by the shareholders at their general meeting in June. A total of 42,648 Class C shares and 80,910 Class D shares were redeemed. At the end of December 2007 the Company s weighted treasury shares totalled 2,695,341, of which 2,281,000 shares (the same number as at 31 December 2006) were related to the 2005 Options Plan, hedged by means of an Equity-Swap contracted from a financial entity. Diluted EPS is calculated in the same way but taking into account the potential dilution generated by instruments which can be converted into shares or with an equity component. In the case of Indra, as it does not have convertible shares or any other instrument of this type, this dilution does not exist and therefore diluted EPS is the same as basic. 90

93 Indra ) Commercial activity and revenues by segments Total revenues at the 2007 close are broken down as follows: Total Sales Breakdown % Solutions Services a) Solutions The main figures within the solutions segment in 2007, and their comparative pro forma figures for the preceding year, are as follows: 2007 ( m) 2006 Variation Pro forma ( m) m % Order intake 1, , Revenues 1, , Backlog 1, , The main aspects to be noted are: The increase in order intake was 9% if we exclude the impact of the expected fall in the number of contracts related to the second stage of EFA. The good performance in air traffic management systems activity, whereby Indra continues to consolidate its international position both in new markets with high growth potential, such as Eastern Europe (project in Lithuania) and Asia (China, Indonesia and Thailand); and areas where Indra already operates, such as Latin America (Argentina, Costa Rica and Colombia, the latter of which was finalised in Q4) and Europe, where the most significant developments include the Euros 75.5 million contract signed with NATS (UK), of which Euros 67 million relate to Traffic systems contracts, with notable performance in the Spanish and USA markets, with projects in Indiana and Austin, and various road safety systems contracts (tunnel security), both in Spain and internationally. The development of maritime border surveillance systems in Asian and Eastern European markets, particularly the projects in Hong Kong and Latvia. The latter was finalized in the fourth quarter for a total of Euros 18.2 million. Growth for elections solutions and products, both in Spain (regional and autonomous elections) and on the international market (London, Oslo City Council and the Argentine presidential elections). Positive trends in proprietary solutions for the financial and insurance markets (IT systems and core business systems for the insurance industry), as well as the utilities, industrial and healthcare management sectors. 91

94 Consolidated Annual Accounts and Directors Report Management Report b) Services Services business activity for the year and the comparative pro forma figures for the preceding year are as follows: 2007 ( m) 2006 Variation Pro forma ( m) m % Order intake Revenues Backlog Of particular note is the 23% growth in order intake in this segment, which has been driven by: Positive development in the Company s business process outsourcing (BPO) activity, which has been strengthened by the acquisition of a 50% interest in BMB in March and the integration of all the Company s activities in this area within a single business model. Of particular note are the contracts signed in the financial and telecommunications markets. The international network of development centers (Eastern Europe, Latin America and the Philippines), which is leading to growth in applications maintenance and management businesses, improving Indra s competitive position in terms of resource availability and cost mix. This activity focuses mainly on large accounts in the telecommunications, energy, financial and insurance markets. The procurement and renewal of large multiyear contracts in the defence and transportation and traffic markets (with regard to infrastructure IT management), as well as the design of a new product for outsourcing services in these markets. 5) Revenues by geographical areas (secondary segments) Revenues by geographical areas are as follows: % Domestic Market Rest of EU Lat. Am. USA Others

95 Indra Pro forma ( m) Variation Revenues m % m % m % Total revenues 2, , Spain 1, , International Europe USA and Canada Latin America Others In 2007, as expected, the international market once again drove the Company s growth with a 16% increase in revenues. Positive performance in Latin America, especially in the Argentine, Brazilian and Central American markets. At 2007 year end, the Company s main markets in this area are Mexico, Argentina, Brazil and Chile. Considerable growth in other countries, due to the Company s international expansion and largely because of activity in traffic systems (Libya and Asia-Pacific) and defence activity in new geographical areas, where the Company has closed important contracts in 2007 (such as India and Kazakhstan). USA and Canada, where growth in simulation activity, with important contracts with the US Navy, has been combined with increased transport and traffic activity, due to various contracts in recent months in Indiana, Austin and Saint Louis. 6) Commercial activity and revenues by sectors Total revenues at the 2007 close are broken down as follows: % Defence and Security Transport and Traffic Energy and Industry Pub. Admins and Healthcare Financial and Insurance Telecommunications & Media Order intake 2007 ( m) 2006 Variation Pro forma ( m) m % Order intake 2, , Order intake in 2007 exceeded revenues by 8% and was up 8% compared to the pro forma figure from the prior year. This growth rate totals 12.5%, without considering the EFA second stage project for which the order intake fell compared to 2006, as forecast. 93

96 Consolidated Annual Accounts and Directors Report Management Report Trends in the following markets are noteworthy: Defence and Security which, excluding the impact of the EFA, has experienced marked growth and significant advances in the order intake from Spain and the USA, with contracts signed with the US Navy as part of the Training Systems Contract II (TSC II), as well as new markets such as India, Kazakhstan, China (Hong Kong) and Latvia (maritime border surveillance system), awarded in the last quarter of the year. The Financial and Insurance market, which experienced the highest growth in 2007, particularly in Spain. Particularly noteworthy is the BPO activity consolidated by the Company, following the purchase of the remaining 50% of BMB capital in March and the subsequent integration of all the Company s BPO activities. Public Administration and Healthcare, with positive trends in the Spanish healthcare market and a high order intake for electoral projects, not only in Spain but also on the international market (London, Argentina and Oslo City Council). Finally, the Transport and Traffic market, which continues to show signs of strength in international air traffic management, especially in Asia-Pacific, Latin America and Europe where, in the first few weeks of 2008, a contract was signed with NATS in the UK for Euros 67 million which, when added to the Euros 8 million contracted at the end of 2007, brings the total for this account to Euros 75.5 million. Revenues Total revenues for 2007 are up 11% on the pro forma figures for the previous year. The breakdown by markets is as follows: 2007 ( m) 2006 Variation Ventas Pro forma ( m) m % Transport and Traffic Telecommunications and Media Public Administration and Healthcare (*) Financial and Insurance Energy and Industry Defence and Security Total 2, , (*) Public Administration and Healthcare, excluding electoral projects, rose by 9%. The Defence and Security and Transport and Traffic markets have grown in line with predictions and, taken as a whole, their growth in the international market is particularly noteworthy. The Financial and Insurance market is one of the areas which has shown the greatest strength, mainly due to positive trends in the Spanish financial market and the impact of integration of all the Company s BPO activities following the acquisition of a 50% interest in BMB in March. Growth in the Telecommunications and Media market has accelerated in the latter part of the year, due to good performance in the Latin American market. Finally, growth in Public Administration and Healthcare was due to the healthcare area in Spain and electoral activity, which generated Euros 30.3 million. Backlog In 2007 the order intake exceeded revenues by 8%, which has led to an increase in the backlog, with a high level of coverage equivalent to 1.03 times the revenues for the last 12 months ( m) 2006 Variation Pro forma ( m) m % Backlog 2, ,

97 Indra ) Analysis of the consolidated financial statements The following should be noted regarding comparison of the 2007 income statement with the preceding year: Net Operating Profit (EBIT) totalled Euros million, involving an operating margin (EBIT/Revenues) of 10.3%. This figure includes extraordinary expenses of Euros 16.5 million for the Azertia and Soluziona acquisition process. Excluding these expenses, the net operating profit totalled Euros 240 million, with an ordinary operating margin (EBIT/Revenues) of 11.1%, slightly higher than the target set for Attributable Profit has risen by 30% to Euros million. EPS rose by 15% following the share capital increase of 18.1 million shares for the acquisition of the various Soluziona businesses. Excluding the aforementioned extraordinary acquisition costs, EPS growth totalled 24%. The following factors should be taken into consideration when calculating Attributable Profit: a financial loss of Euros 12.7 million, due to an average net debt position for 2007 which was higher than the same period in the prior year, following the purchase of a 50% interest in BMB at the beginning of March this year and dividend payments of Euros 126 million in a tax rate of 27%, as expected. minority interests of Euros 7 million, up from the prior year essentially due to the incorporation of part of the minority interests from Soluziona. With regard to the balance sheet at 31 December 2007, the main variations reflect the consolidation of Soluziona since 1 January 2007: The Euros million fall in net equity is mainly due to the share capital increase by a total of 18,068,171 new ordinary shares, which the Company carried out for the acquisition of various Soluziona businesses and took effect on 29 January Goodwill has risen by Euros 240 million, of which Euros 207 million was generated by the integration of Soluziona and Euros 27 million by the acquisition of a 50% interest in BMB. At year-end net operating working capital is Euros million, equivalent to 73 revenues days, compared to the 70 equivalent days at the previous year-end. This increase in working capital was slightly lower than forecast. Operating cash flow has grown by 29.1% to Euros million compared to The main cash flow movements in the year were: Investments in fixed assets (tangible and intangible) totalling Euros 72.7 million, following a number of unusual and considerable investments in 2007, such as the construction of a building on Company property in Madrid, investments in installations and equipment for the new Barcelona office and investment in developing a proprietary solution for control center systems for the rail transport industry. Investment in working capital totalling Euros 59.4 million. Financial investments totalling Euros 39.4 million have been made, notably Euros 32 million invested in the acquisition of the remaining 50% interest in BMB during the first quarter. A total dividend payment of Euros 126 million relating to 2006, comprising an extraordinary dividend of Euros 57 million paid in the second quarter and an ordinary dividend of Euros 69 million paid in the third. Consequently, the Company had net debt of Euros million at year-end. 8) Human resources The total workforce was 23,482 persons at the 2007 close, up on the 2006 close as follows: Changes to Ordinary Total Variation No. Persons consolidated Group variation variation (%) Compared to 31/12/2006 7,051 1,953 9, % Compared to the 2006 close, changes to the consolidated Group mainly comprise the impact of the acquisition of Soluziona and the 50% interest in BMB. 95

98 Consolidated Annual Accounts and Directors Report Management Report The average headcount is 22,055 persons, an increase of 108% on the prior year average, broken down as follows: Changes to Ordinary Total Variation No. Persons consolidated Group variation variation (%) Compared to 31/12/2006 6,498 4,946 11, % At the end of 2007, 22% of the Company s total staff are located outside Spain, mainly in Latin America (15% of the total). 9) Research and development activities Indra has continued to dedicate considerable human and financial resources to developing services and solutions to position it as technological leader in the different sectors and markets in which it operates. The amount earmarked for research, development and innovation activities represents approximately 6.3% of turnover for the year. 10) Main activity-related risks Indra is exposed to the following main risks: Strategic and economic environment risks Technological risks Risks from management of human capital Financial and administrative risks IT management risks Project management risks Equity risks Indra has prepared a risks map through which risks are managed. Risks are detected and the necessary guidelines and monitoring and control systems are established to prevent risks and minimise their impact. Risk management is described in more detail in the Corporate Governance report. 11) Share capital structure (Information required by article 116 bis of Spanish securities market law a) Share capital structure At 31 December 2007 the subscribed and fully paid share capital of the Company totals Euros 32,826,507.80, divided into 164,132,539 ordinary shares of Euros 0.20 par value each. Share capital wholly comprises ordinary shares of the same series which consequently confer the same rights and obligations. b) Any restriction on the transfer of shares Neither the articles of association or any other internal regulation approved by the Company restrict the transferability of its shares in any way. c) Significant shareholdings From the information available to the Company at 31 December 2007, the shareholders with over 3% of capital, excluding holdings on behalf of third parties, are: Unión Fenosa (15%); Caja Madrid (14.83%); Casa Grande de Cartagena (5.68%); Cajastur (5%) and Barclays Plc (5.15%). d) Restrictions on voting rights Voting rights are not subject to any statutory restrictions, although a minimum of 100 shares are required for attendance at the general meeting. 96

99 Indra 2007 e) Shareholder agreements No shareholder agreements are known to the Company or have been reported to the Spanish Securities Market Commission. 12) Other information required by article 116 bis of Spanish securities market law a) Rules applicable to the appointment and replacement of members of the board of directors and modification of the Company s articles of association As established by the Spanish Companies Act and articles of association, board members are designated or re-elected by the shareholders at the general meeting or, as appropriate, by the board of directors in its co-opting capacity as foreseen by article 138 of the Spanish Companies Act, in accordance with the criteria and procedures set out by articles 21, 22, 23 and 24 of the regulations for the board of directors. Article 22 of the articles of association establishes that board members are appointed for a period of three years. The Spanish Companies Act and the Company s articles of association stipulate that any amendments to the latter must be made by the shareholders at their annual general meeting, based on the quorum and majority foreseen by the Companies Act. b) Powers of the members of the board of directors and, in particular, those for issuing or repurchasing shares Board members do not hold the powers foreseen in the Civil Code but, in the case of executive directors, are delegated faculties in accordance with article 141 of the Spanish Companies Act. The board has therefore delegated all the powers corresponding to the board of directors collectively to the delegate committee, chairman of the board and managing director, except for those which are non-delegable by law or considered as such by article 5 of the board of directors regulations. The shareholders at their ordinary general meeting issue authorisations each year for the board of directors to make acquisitions directly or through subsidiaries of the Company s own shares, within 18 months and up to a limit of 5% of share capital, for a set maximum price. This faculty can be exercised by means of the delegated powers mentioned above. c) Significant agreements entered into by the Company and which are in force, modified or terminated in the event of a change of control over the Company following a public share offering, and their effects, except where disclosure is extremely detrimental to the Company. This exception is not applicable when the Company is legally required to publish this information: The Company has not entered into any significant agreements which are in force, modified or terminated in the event of a change in control over the Company following a public share offering. d) Agreements between the Company and its administrators and management or employees for indemnification when these resign or are dismissed unfairly or if working relations are terminated as the result of a public share offering Senior management labour relations are governed by contracts with the Company. These contracts have been authorised by the board of directors, subject to a favourable report and proposal from the Appointments, Remuneration and Corporate Governance Committee, and by the shareholders at their annual general meeting in The nature of these contracts is disclosed in the Company s public information. By virtue of these contracts, senior management are entitled to an indemnity equivalent to that established by article 56 of the Workers Statute, that is, 45 days of their annual salary for every year of service to the Company, up to a limit of 3.5 annual payments, in the event that labour relations with the Company are terminated, except in cases of voluntary redundancy or fair dismissal. A minimum amount of three annual payments is established for the chairman and managing director. The Executive Directors and General Managers of Operations (including the International General Manager) have also signed non-competition agreements, as disclosed at the general meeting of shareholders and publicly. These agreements are effective for two years as of the termination of professional relations with the Company, with compensation of between 0.5 and 0.75 times their annual remuneration for each year of non-competition. 13) Shareholder remuneration On 16 April 2007 the board /of directors approved the distribution of extraordinary interim dividends, charged to expenses for 2006, equivalent to Euros 0.35 gross per share. On 2 July 2007 the supplementary dividend of Euros 0.43 gross per share approved by the shareholders at their annual general meeting was paid. Total payment for both dividends was Euros 126,033 million. 97

100 Consolidated Annual Accounts and Directors Report Management Report The board will propose to the shareholders at their next general meeting the distribution of a gross ordinary dividend of Euros 0.50 per share, with a charge to 2007 profit. This would represent a 16.3% increase on the ordinary dividend distributed with a charge to 2006 profit and a payout of 55%. 14) Own shares As authorised by the shareholders at their annual general meeting, at 31 December 2007 the Parent Company holds 243,613 treasury shares amounting to Euros 1,063 thousand. At 31 December 2007 the Parent Company indirectly holds 2,281,000 shares amounting to Euros 38,389 thousand in connection with the equity swap contracted with a financial entity to hedge the 2005 Options Plan. In 2007 the Parent Company acquired 5,960,708 treasury shares on the stock market (2.26% of official volume for the period) and sold 5,758,911 treasury shares (2.19% of official volume for the period). 15) Subsequent events On 1 February the British company Longwater Systems Ltd, was acquired. This company is engaged in the design, manufacture and integration of ground-based air navigation aids. This acquisition, although not significant in size, is important as Indra s supply is strengthened by a company with single systems which are outstanding in their modularity and limited size and implementation and maintenance costs, and which also meet the relevant European and American standards. Longwater Systems supplements the Company s supply in this area of activity, following the acquisition of the Australian company Interscan last year. 98