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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

o		REGISTRATION STATEMENT PERSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED ON DECEMBER 31, 2007

OR

o		TRANSITION REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM  _____  TO  _____ 

OR

o		SHELL COMPANY REPORT PERSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

COMMISSION FILE NUMBER: 1-10905

Vitro, S.A.B. de C.V.

(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)

United Mexican States
(Jurisdiction of incorporation or organization)

Ave. Ricardo Margáin Zozaya 400, Col. Valle del Campestre,
San Pedro Garza García, Nuevo León, 66265 México
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Shares of Series “A” common stock, no par value		New York Stock Exchange*
Ordinary Participation Certificate, each representing one share of Series “A” common stock		New York Stock Exchange*
American Depositary Shares, evidenced by American Depositary Receipts, each representing three Ordinary Participation Certificates		New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
11.75% Senior Notes due 2013
8.625% Senior Notes due 2012
9.125% Senior Notes due 2017
The number of outstanding shares of each of the issuer’s classes of capital stock
as of December 31, 2007:
358,504,974 shares of Series “A” common stock, no par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act

Yes o                     No þ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Yes o                      No þ

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer       o       Accelerated filer       þ      Non-accelerated filer       o

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP o International Financial Reporting Standards as issued by the International Accounting Standards Board o      Other þ

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the Registrant has elected to follow:

Item 17 o                     Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o                     No þ

 

 

TABLE OF CONTENTS

		Page
Presentation of Certain Information			iii
Forward-Looking Statements			v
Item 1. Identity of Directors, Senior Management and Advisers			1
Item 2. Offer Statistics and Expected Timetable			1
Item 3. Key Information			1
Recent Developments			1
Risk Factors			3
Exchange Rates			12
Selected Consolidated Financial Information			13
Item 4. Information on the Company			18
Organizational Structure			18
Business			19
Item 4A. Unresolved Staff Comments			37
Item 5. Operating and Financial Review and Prospects			38
Operating Results			38
Liquidity and Capital Resources			47
Off-Balance Sheet Arrangements			53
Tabular Disclosure of Contractual Obligations			54
Accounting Considerations			55
Research and Development			58
Item 6. Directors, Senior Management and Employees			59
Directors and Senior Management			59
Board Practices			67
Share Ownership			71
Employees			73
Item 7. Major Shareholders and Related Party Transactions			74
Major Shareholders			74
Related Party Transactions			77
Item 8. Financial Information			78
Item 9. The Offer and Listing			80
Listing Details			80
Markets			82

		Page
Item 10. Additional Information			83
Mexican Corporate Law and By-Laws			83
Material Contracts			95
Exchange Controls			95
Material Tax Consequences			96
Where You Can Find More Information			101
Differences in Corporate Governance Practices			102
Item 11. Quantitative and Qualitative Disclosures About Market Risk			106
Item 12. Description of Securities Other than Equity Securities			109
Item 13. Defaults, Dividend Arrearages and Delinquencies			109
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds			109
Item 15. Controls and Procedures			109
Item 16. Reserved			111
Item 16A. Audit Committee Financial Expert			111
Item 16B. Code of Ethics			112
Item 16C. Principal Accountant Fees and Services			112
Item 16D. Exemption from the Listing Standards for Audit Committees			113
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers			113
Item 17. Financial Statements			113
Item 18. Financial Statements			113
Item 19. Exhibits			114
Exhibit 2.11
Exhibit 2.12
Exhibit 2.18
Exhibit 2.19
Exhibit 2.23
Exhibit 2.24
Exhibit 8.1
Exhibit 12.1
Exhibit 12.2
Exhibit 12.3
Exhibit 13.1

PRESENTATION OF CERTAIN INFORMATION

Vitro, S.A.B. de C.V., formerly Vitro, S.A. de C.V., is a corporation ( sociedad anónima bursátil de capital variable ) organized under the laws of Mexico, and is a holding company that conducts substantially all of its operations through its subsidiaries. In this annual report, except when indicated or the context otherwise requires, (a) the words “Vitro” and “our holding company” refer to Vitro, S.A.B. de C.V., and not its consolidated subsidiaries and (b) the words “the Company,” “we,” “us,” “our” and “ours” refer to Vitro, S.A.B. de C.V., together with its consolidated subsidiaries. References in this annual report to business units are to combinations of various consolidated entities that have been grouped together for management and presentation purposes.

References in this annual report to “pesos” or “Ps.” are to the lawful currency of the United Mexican States, which we refer to as “Mexico”. References to “U.S. dollars,” “dollars” or “$” are to dollars of the United States of America, which we refer to as the “United States” or “U.S.”

Our consolidated financial statements are prepared in accordance with Mexican Financial Reporting Standards (“Mexican FRS”) issued by the Mexican Board for Research and Development of Financial Reporting Standards (the “CINIF”), which differs in certain significant respects from accounting principles generally accepted in the United States, which we refer to as “U.S. GAAP.” See note 24 to our consolidated financial statements as of December 31, 2007 and for each of the three years in the period ended December 31, 2007 which provides a description of the principal differences between Mexican FRS and U.S. GAAP as they relate to us.

On August 29, 2007, Viméxico, S.A. de C.V. (“Viméxico”), the holding company for our Flat Glass business unit, acquired 55% of the outstanding shares of Productos de Valor Agregado en Cristal, S.A. de C.V. (“PVA”), a company dedicated to the installation of value-added glass products.

On July 24, 2007, Viméxico exercised its option to acquire the 50% equity interest of Vitro AFG, S.A. de C.V. (“Vitro AFG”) of its joint venture partner AFG Industries (“AFG”), a subsidiary of Asahi Glass Co. Limited (a Japanese company), and Vitro AFG became a wholly-owned subsidiary of Viméxico.

In April 2006, Empresas Comegua, S.A. (“Comegua”) acquired Vidrios Panameños, S.A. (“Vipasa”), a glass container company located in Panama for a purchase price of Ps. 218 million ($20 million). See “Item 4. Information on the Company—Business—Acquisitions.”

On February 1, 2007, Vitro completed an offering, of $1.0 billion of senior guaranteed notes (the “Initial Notes”) principally to refinance existing third-party debt at the Vitro holding company level, substantially all of the third-party debt at its subsidiary Vitro Envases Norteamérica, S.A. de C.V. (“VENA”) and certain third-party debt at subsidiaries of Viméxico. As a result of this transaction, as of December 31, 2006, Ps. 4,378 million ($403 million) of short-term borrowings and current maturities were reclassified as long-term debt. In connection with that offering, we entered into a registration rights agreement with the initial purchasers of the Initial Notes in which we agreed, among other things, to complete an exchange offer. This exchange offer was intended to satisfy our obligations under this registration rights agreement. The holders of the Initial Notes were entitled to exchange in the exchange offer their Initial Notes for new notes (the “Exchange Notes” or “Notes”) which were identical in all material respects to the Initial Notes except that (i) the Exchange Notes have been registered under the Securities Act. The Notes are guaranteed by VENA (wholly-owned subsidiary) and its wholly-owned subsidiaries and by Viméxico (our 91.8% owned subsidiary) and its wholly-owned subsidiaries, and accordingly, as a non-wholly-owned subsidiary, separate consolidated financial statements of Viméxico and its subsidiaries set forth in this annual report. (See note 24 to our consolidated financial statements for supplemental information regarding our guarantor and non-guarantor subsidiaries).

On June 16, 2006, we completed the sale of our 51% equity ownership interest in Vitrocrisa Holding, S. de R.L. de C.V. and its subsidiaries Crisa Libbey, S.A. de C.V. and Crisa Industrial, LLC (together, “Vitrocrisa”) to Libbey, Inc. (“Libbey”), the owner of the remaining 49% equity interest. See “Item 4. Information on the Company—Business—Strategic Sale of Non-Core Businesses and Assets.” Vitrocrisa, which was previously presented as one of our reportable segments is presented as a discontinued operation. Accordingly, all financial and operating information relating to Vitrocrisa in this annual report is presented as a discontinued operation. In addition, the discussion of our indebtedness in this annual report does not include the indebtedness of Vitrocrisa, which is presented on our consolidated balance sheets as a part of “total liabilities from discontinued operations” for fiscal years 2003, 2004 and 2005.

Certain of our subsidiaries have been classified as discontinued operations as they meet the definition of held for sale for U.S. GAAP purposes. These subsidiaries did not meet the definition of discontinued operations for Mexican FRS purposes as they do not constitute the sale of a significant portion of our business. See note 24 k) to our consolidated financial statements for a description of those subsidiaries.

This annual report contains translations of certain constant peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. These convenience translations should not be construed as representations that the constant peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the specified rate indicated or at all. The exchange rate used in preparing our consolidated financial statements and in preparing convenience translations of such information into U.S. dollars is the exchange rate calculated and published by the Banco de México, or the Mexican Central Bank, in the Diario Oficial de la Federación , Mexico’s Daily Official Gazette of the Federal Government, for the conversion of U.S. dollar-denominated amounts into pesos, which we refer to as the “Free Exchange Rate.” As of December 31, 2007, the Free Exchange Rate was 10.8662 pesos per U.S. dollar.

Our consolidated financial statements contained in this annual report are expressed in constant Mexican pesos as of December 31, 2007. As of January 1, 2008 our financial information will be presented in nominal pesos in accordance with Mexican FRS. All peso amounts pertaining to fiscal year 2007 and earlier that are contained in this annual report are restated in constant pesos as of December 31, 2007, except where otherwise indicated. As of January 1, 2008, our financial information will be presented in nominal pesos in accordance with Mexican FRS. See “Item 5. Operating and Financial Review and Prospects—Accounting Considerations—New Accounting Pronouncements.”

For purposes of this annual report, we consider our “export sales” to be (a) sales of products produced by our Mexican subsidiaries to third parties outside Mexico and to our foreign subsidiaries that do not act as our distributors and (b) sales of products by our foreign distributor subsidiaries. For purposes of determining the amount of our export sales to be disclosed, we consider sales to be made at the time of sale to third parties outside Mexico and to our foreign subsidiaries that do not act as our distributors (principally Vitro America, Inc., which we refer to as “Vitro America”), and at the time of sale of the product by our foreign subsidiaries that act as our distributors (principally Vitro Packaging, Inc., which we refer to as “Vitro Packaging”) to third parties outside Mexico.

Under Mexican corporate law, ordinary shares of our Series “A” common stock held by our Stock Option Trust (17,464,614 shares as of April 17, 2008) are considered issued and outstanding and therefore are entitled to receive dividends and vote on matters on which our other shares are entitled to vote. However, for accounting purposes, our ordinary shares held by our Stock Option Trust are considered treasury stock and therefore not outstanding. Thus, for purposes of calculating net income (loss) from continuing operations per share, net income (loss) from discontinued operations per share, the cumulative effect of change in accounting principles per share and diluted and basic net income (loss) per share, as well as for purposes of determining shareholders’ equity, we considered our ordinary shares held by our Stock Option Trust as treasury stock and not outstanding. As of April 17, 2008, 47,541,076 ordinary shares were held by our Pension Plan Trust. Those ordinary shares are treated as outstanding for all purposes.

We use the term “joint venture” to refer to companies which are not our wholly-owned subsidiaries and in which we, directly or indirectly, either have management control or share management control with other parties. We believe that our use of the term “joint venture” is consistent with international business practices. However, our “joint ventures” are not necessarily “Joint Ventures” as defined in International Financial Reporting Standards (“IFRS”).

Certain amounts included in this annual report may not sum due to rounding.

FORWARD-LOOKING STATEMENTS

This annual report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to our future prospects, developments and business strategies.

These forward-looking statements are identified by our use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “goals,” “target,” “strategy” and similar terms and phrases, and may include references to assumptions. These statements are contained in the sections entitled “Item 3. Key Information—Risk Factors”, “Item 4. Information on the Company”, and “Item 5. Operating and Financial Review and Prospects” and other sections of this annual report.

These forward-looking statements reflect our best assessment at the time and thus involve uncertainty and risk. Therefore, these forward-looking statements are qualified by reference to the cautionary statements set forth in this annual report. It is possible that our future financial performance may differ materially from our expectations because of a variety of factors, some of which include, without limitation, the following:

	•		cost and availability of energy;
	•		transportation costs and availability;
	•		consolidation among competitors and customers;
	•		the general political, economic and competitive conditions in markets and countries where we have operations, including competitive pricing pressures, inflation or deflation and changes in tax rates;
	•		foreign currency exchange fluctuations relative to the U.S. dollar against the Mexican peso;
	•		changes in capital availability or cost, including interest rate or foreign currency exchange rate fluctuations;
	•		liquidity, debt repayment and access to credit;
	•		fluctuations in the price of raw materials and labor costs;
	•		capacity utilization of our facilities;
	•		availability of raw materials;
	•		the ability to integrate operations of acquired businesses;
	•		consumer preferences for forms of packaging that are alternatives to glass containers;
	•		the ability to hire and retain experienced management;
	•		the performance by customers of their obligations under purchase agreements;
	•		lifting of trade barriers and enforcement of measures against unfair trade practices;
	•		the enactment of stricter environmental laws; and
	•		the timing and occurrence of events which are beyond our control.

Any forward-looking statements in this annual report are based on certain assumptions and analysis made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate under the current circumstances. Forward-looking statements are not a guarantee of future performance and actual results or developments may differ materially from expectations. You are therefore cautioned not to place undue reliance on such forward-looking statements. While we continually review trends and uncertainties affecting our results of operations and financial position, we do not intend to update any particular forward-looking statements contained in this document.

Item 1. Identity of Directors, Senior Management and Advisers

Not applicable

Item 2. Offer Statistics and Expected Timetable

Not applicable

Item 3. Key Information

RECENT DEVELOPMENTS

New Perspectives

Strategic Focus

Commencing in 2001, we began a corporate restructuring and recapitalization program to strengthen our financial condition and improve our operating results. The program focused on the sale of our non-core assets and other assets not aligned with the long-term strategy of our core businesses, Glass Containers and Flat Glass, and stronger financial results from our core business units.

From 2001 through 2006, we sold our equity interests in a number of non-core businesses, including the sale of Vitrocrisa, and our interests in real estate parcels, generating aggregate gross proceeds of approximately $560 million. These transactions provided a source of cash that was used primarily to reduce our level of debt.

Over the past 5 years, we also improved the profitability of our core business units, and from 2003 to 2007, our operating income increased from Ps. 1,977 million ($182 million) to Ps. 2,704 million ($249 million), an increase of 37%.

In addition, in October 2006, we completed a rights offering of our common stock, which further strengthened our balance sheet by increasing the variable portion of our common stock by Ps. 550 million (nominal) ($50 million).

Debt Refinancing

In February 2007, based upon the success of implementing our strategic program, we completed the sale of $1.0 billion senior notes, comprised of $300 million 8.625% Senior Notes due 2012 (the “2012 Senior Notes”) and $700 million 9.125% Senior Notes due 2017 (the “2017 Senior Notes”). In our Senior Notes offering, we achieved more favorable terms and conditions in our overall debt, including lengthening the average maturity of our debt and reducing interest rates, which lowered our cost of capital, improved cash flows and established a path for solid growth of our businesses. Substantially all of the net proceeds from the offering were used to refinance our outstanding short-term indebtedness and substantially all of our long-term debt, other than our 11.75% Senior Notes due 2013 (the “2013 Senior Notes”). As a result of this transaction, as of December 31, 2006, Ps. 4,378 million ($403 million) of short-term borrowings and current maturities were reclassified as long-term debt and the average life of our indebtedness was extended from 3.3 years to 7.9 years.

Strategic Growth

Starting in 2006, we sought to expand our businesses by increasing our production capacity and by completing small growth opportunities. Our capital expenditures in 2006 were Ps. 1,252 million ($115 million), which we further increased in 2007 to Ps. 2,695 million ($248 million). These capital expenditures were used primarily for deferred maintenance and improvements of our major furnaces as well as for expansion of our capacity to satisfy organic growth from the increased volume of demand for our Glass Containers products.

From 2006 to May 2008, we completed a number of small acquisitions, for approximately Ps. 550 million ($51 million), most significantly, Vipasa in Central America, the minority interests in Vitro Flex and Vitro AFG from our former joint venture partners, a 55% equity interest in PVA, and a business in France through our subsidiary Vitro Cristalglass S.L. (“Vitro Cristalglass”).

Genesis Project

We are still in the process of transforming our management, operational and reporting processes through the implementation of an enterprise wide process model, which we refer to as the Genesis Project. The objective of the Genesis Project is to transform Vitro’s global operating model to a results-oriented, client-focused model.

As part of the Genesis Project, we are implementing a fully integrated enterprise resource planning, or ERP, system using software from SAP AG, or (“SAP”).

We believe the main strategic benefits of the Genesis Project will be to:

	•		Standardize and optimize our operating and administrative processes,
	•		Facilitate the integration of our operations globally,
	•		Improve and maintain compliance with regulatory requirements regarding effective internal control over financial reporting,
	•		Standardize management and operational information across our subsidiaries in Mexico and abroad, enhancing also its availability for decision making at all levels of the Vitro organization,
	•		Establish, integrate and apply best practices standards in our operations, and
	•		Continue our strategy of pursuing consistent and integrated growth globally.

As part of this project we are implementing a shared service center in Monterrey, Mexico, which we believe will allow us to centralize certain standard operations of our businesses and realize cost savings through economies of scale by the standardization of similar processes within our businesses. With this shared service center we believe we can accomplish or surpass the expectations of internal and external customers in a timely manner and improve the services we have provided in the past.

The Genesis Project, which started in 2006, is being implemented throughout all the Company’s businesses and will be completed in two phases. Through the end of 2007, we have invested approximately Ps. 423 million ($39 million) in this project.

See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Genesis Project” for a detail of the costs of implementing this Project.

RISK FACTORS

You should carefully consider the following risk factors, as well as all of the other information presented in this annual report, including our consolidated financial statements and the notes thereto. In general, investing in the securities of issuers in emerging market countries such as Mexico involves certain risks not typically associated with investing in securities of U.S. companies.

The risks and uncertainties described below are not the only risks and uncertainties affecting us. Additional risks and uncertainties that we do not know about or that we currently think are immaterial also may impair our business operations or our ability to make payments under our existing indebtedness.

For purposes of this section, when we state that a risk, uncertainty or problem may, could or would have an “adverse effect” on us, we mean that the risk, uncertainty or problem may, could or would have an adverse effect on our business, financial condition, liquidity, results of operations or prospects, except as otherwise indicated or as the context may otherwise require.

RISK FACTORS RELATING TO US

We have high interest payment requirements.

On February 1, 2007, we completed a major refinancing program by virtue of which we refinanced substantially all of our indebtedness under improved terms and conditions. See “Item 3. Key Information— Recent Developments—New Perspectives” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Financing Transactions.” Although the refinancing program reduced our interest expense and extended our debt maturities, we continue to have high interest payment requirements. As of December 31, 2007, our total consolidated indebtedness was Ps. 14,918 million ($1,373 million) and our consolidated off-balance sheet financings, related to our receivable securitization and sale of receivable transactions, were Ps. 1,509 million ($139 million). Our interest expense on debt for the year ended December 31, 2007 was Ps. 1,696 million ($156 million), while our operating income was Ps. 2,704 million ($249 million). After the refinancing program, our average interest rate was reduced.

Our ability to make scheduled interest payments when due depends on, and is subject to, several factors, including our financial and operating performance, which is subject to prevailing economic conditions and financial, business and other factors.

The amount of our interest payment requirements could adversely affect our business in a number of ways, including but not limited to, the following:

	•		we may have less cash available to expand and improve our business, since we are required to dedicate a significant portion of our cash flow from operations to the payment of interest on our debt;
	•		our ability to obtain additional debt financing may be limited and the terms on which such financing is obtained may be negatively affected; and
	•		our ability to compete effectively against better-capitalized competitors and to withstand downturns in our business may be affected since a significant portion of our cash flow from operations is required to be dedicated to making interest payments. As a result, we may lose market share and experience lower sales, which, in turn, could result in a material adverse effect on our financial condition, results of operations and liquidity.

Our indentures contain certain restrictive covenants.

Our current indentures that govern the terms of our indebtedness contain certain restrictive covenants that are customary for similar indebtedness. Such covenants include restrictions on our ability to (i) incur additional indebtedness unless, at the time of incurrence, we satisfy certain conditions, (ii) pay dividends above a certain permitted amount or make other restricted payments, (iii) grant certain liens on our assets, (iv) make certain investments, and (v) take part in certain merger, consolidation, and asset sale transactions.

As of December 31, 2007, under the covenants of our current indentures, we are prohibited from incurring additional debt (other than certain permitted exceptions) and from making certain investments (other than certain permitted investments).

The restrictions in our indentures could limit our flexibility to adjust to changes in our business and the industries in which we operate and/or limit our ability to fund future operations, acquisitions or meet extraordinary capital needs.

We have to pay interest and principal on our dollar-denominated debt with revenues generated in pesos or other currencies, as we do not generate sufficient revenue in dollars from our operations.

As of March 31, 2008, 96% of our outstanding debt was denominated in dollars. This debt must be serviced by funds generated from sales by our subsidiaries. We do not generate sufficient revenues in dollars from our operations to service our entire dollar denominated debt. Consequently, we have to use revenues generated in pesos or other currencies to service our dollar denominated debt. A devaluation of the peso against the dollar could adversely affect our ability to service our debt.

As of March 31, 2008, we have entered into swap arrangements under which all interest payments, until 2012, on $500 million principal amount of our outstanding debt were swapped from a fixed dollar rate to a variable peso rate and interest payments on another $500 million principal amount of our outstanding debt were swapped from a fixed dollar rate to a fixed peso rate. In the ordinary course of business, we also enter into currency swap and option agreements to hedge our exposure to foreign currency exchange rate variations.

We cannot assure that in the future these instruments will be available on favorable terms to us, if at all, to fully hedge our exposure. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

We have experienced rising operating costs in our businesses.

Some of the components of our cost of goods sold are subject to market price variations. For instance, our total energy cost represented 15% of our consolidated cost of goods sold in 2007. Such cost is directly linked to the price of natural gas which has experienced significant increases in recent years due to, among other things, the effects of hurricanes in the production area of the Gulf of Mexico. NYMEX natural gas prices have increased from an average price of $3.22 per million British Thermal Units (“MMBTU”), during 2003 to an average price of $7.12 per MMBTU during 2007, representing an increase of 120%. Since the price of natural gas in Mexico is tied to the price of natural gas in Southern Texas, which in turn is fully exposed to market factors such as demand in the United States or the amount of available natural gas reserves, we are exposed to such price variations. Other potential sources of significant variations in our costs are packaging and freight costs.

Our cost of goods sold is sensitive to the price of natural gas. Every dollar fluctuation per MMBTU has had an annual impact of approximately $20 million on our cost of goods sold based on our average historical consumption of approximately 1.7 million MMBTUs per month. The closing price of natural gas on the New York Mercantile Exchange (“NYMEX”) as of June 23, 2008 was $13.20 per MMBTU. We have not been able to raise the prices of our products to fully reflect the increases in our operating costs and therefore our results of operations could be adversely affected by continued high prices of natural gas.

In the ordinary course of business, we enter into forwards and other derivatives agreements to hedge our exposure to natural gas price variations. However, we cannot assure you that these instruments will be available on favorable terms to us, if at all, to fully hedge our exposure to such variations. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

We continue to experience competition from our global competitors and vertically integrated customers.

Historically, aggressive investment by our global competitors such as Compagnie de Saint Gobain (“Saint Gobain”) and Guardian Industries Corporation (“Guardian”), and vertically integrated customers with glass manufacturing facilities in Mexico, coupled with the increased imports of low-cost competitive products into several of our important markets, has resulted in an increase in capacity that has brought significant pricing pressure on our products, particularly in our Flat Glass construction market where the industry is faced with over-capacity. Similarly, our competitors may make new investments in Mexico in the glass containers market. Loss of existing or future market share to competitors or customers in any of our business units may adversely affect our performance and, to the extent that one or more of our competitors becomes more successful than us with respect to any key competitive factor, our results of operations, financial position and liquidity may be adversely affected.

Difficult market conditions in the automotive industry may affect our operating margins and results of operations.

The North American automotive industry continues to face difficult market conditions. North American automobile manufacturers have experienced slower demand and increased pricing pressures on their products. These difficult market conditions in the automotive industry may continue to lead to additional pricing pressure on our products and may lead to loss of sales volume, either of which may have an adverse effect on us. In addition, the automotive industry has experienced pressures due to increased oil prices which could decrease of our original equipment manufacturers (“OEMs”) business sales, as the U.S. demand in the automobile sector has declined.

Certain of our flat glass products sold to OEMs in the automotive industry are sold under global purchase agreements, which are entered into after completion of a bidding process. Such automotive OEMs have significant buying power which, coupled with substantial competition, puts pressure on prices and margins relating to products supplied under the global purchase agreements. As a result, even if we were awarded the right to sell to an automotive OEM under a global purchase agreement, we may sell at operating margins that are lower than margins generally achievable from sales to other flat glass customers. The automotive OEM business line represented 8% of our consolidated net sales for the year ended December 31, 2006 and 9% for the year ended December 31, 2007.

We have customers that are significant to us and the loss of all or a portion of their business would have an adverse effect on us.

Because of the relative importance of our largest customers, our business is exposed to a certain degree of risk related to customer concentration. Although no single customer accounted for more than 8% of our consolidated net sales in 2007, we have customers that are significant to our business units. Our three largest customers, who serve different markets, accounted for an aggregate of 14% of our consolidated net sales in 2007. Given that our profitability depends on our maintenance of a high capacity utilization rate, the loss of all or a portion of the sales volume from a significant customer would have an adverse effect on us. Among our most significant customers are automotive OEMs and beer and soft-drink bottlers. One of our main customers has vertically integrated operations and therefore, a capacity increase in its glass production could adversely affect our results of operations.

Downturns in the economies in which we operate may negatively affect the demand for our products and our results of operations.

Demand for our flat glass and glass containers products is affected by general economic conditions in the markets in which we operate, principally Mexico, the United States and Europe. As a result, demand for our products and, consequently, our results of operations have been and may be negatively affected by the downturn in the economies in which we operate.

A downturn in the Mexican economy, from which we derived 43% and 44% of our consolidated net sales for the year ended December 31, 2006 and 2007, respectively, would reduce the demand for our products and negatively impact our results of operations. Similarly, a prolonged economic downturn in the United States, from which we derived 43% and 37% of our consolidated net sales in 2006 and 2007, respectively, would have an adverse impact on the export and foreign subsidiary sales of our Flat Glass and Glass Containers business units. Furthermore, in recent years, economic conditions in Mexico have become increasingly correlated to economic conditions in the United States. Therefore, adverse economic conditions in the United States could have a significant adverse effect on the Mexican economy. Also, in the past, economic crises in Asia, Russia, Brazil, Argentina and other countries have adversely affected the Mexican economy and therefore our results of operations.

Economic downturns in Mexico and the United States may also subject us to increased foreign currency exchange rate and interest rate risks and impair our results of operations and our ability to raise capital or service our debt.

Inflation fluctuations may have an adverse effect on our total comprehensive financing result.

Our total comprehensive financing results includes net interest expense, the net effect of inflation on our monetary assets and liabilities (which, as discussed below, applies only for inflationary environments beginning on January 1, 2008 according to the new Mexican FRS B-10, “Effects of Inflation”), the net effect of changes in nominal foreign currency exchange rates on monetary assets and liabilities denominated in foreign currencies and gains or losses related to some of our derivative transactions.

Inflation has historically affected our total comprehensive financing result. During periods of inflation, the principal amount of our monetary debt will generally be reduced in real terms by the rate of inflation. The amount of such reduction will result in a gain from monetary position. This gain is offset by the reduction in real terms in the value of the monetary assets we held during such period. Historically, our monetary liabilities have exceeded our monetary assets and, thus, we have tended to experience monetary gains during periods of inflation. Declining levels of inflation in recent years have resulted in lower monetary gains.

The new Mexican FRS B-10, which became effective for fiscal years beginning on January 1, 2008, provides that, in non-inflationary environments (when cumulative inflation of the three preceding years is less than 26%), no inflationary effects should be recognized in a company’s financial statements. Given the cumulative inflation in Mexico for the three years ended December 31, 2007, the Mexican economic environment will not qualify as inflationary in 2008, thereby eliminating inflationary accounting in our consolidated financial statements. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Trend Information—Inflation and Foreign Currency Exchange Rate Fluctuations” and “—New Accounting Pronouncements”.

Foreign currency exchange rate fluctuations may have an adverse effect on our total comprehensive financial result.

Our total comprehensive financing result is impacted by changes in the nominal value of the peso relative to the U.S. dollar. Foreign currency exchange gains or losses included in our total financing cost result primarily from the impact of nominal changes in the U.S. dollar-peso exchange rate on our Mexican subsidiaries’ U.S. dollar-denominated monetary liabilities (such as U.S. dollar-denominated debt and accounts payable arising from imports of raw materials and equipment) and assets (such as U.S. dollar-denominated cash, cash equivalents and accounts receivable). Because our U.S. dollar-denominated monetary liabilities have historically been significantly in excess of our U.S. dollar-denominated monetary assets, the nominal devaluation or appreciation of the peso relative to the U.S. dollar has historically resulted in foreign currency exchange losses and gains, respectively. Accordingly, in 2003, 2006 and 2007, the nominal devaluation of the peso relative to the U.S. dollar during the year resulted in foreign currency exchange losses. The nominal appreciation of the peso relative to the U.S. dollar resulted in a foreign currency exchange gain in 2004 and 2005. In May 2004, with the unwinding of certain currency exchange swaps we recorded a net exchange loss.

As of March 31, 2008, we have entered into swap arrangements under which all interest payments, until 2012, on $500 million principal amount of our outstanding debt were swapped from a fixed dollar rate to a variable peso rate and interest payments on another $500 million principal amount of our outstanding debt were swapped from a fixed dollar rate to a fixed peso rate. In the ordinary course of business, we also enter into currency swap and option agreements to hedge our exposure to foreign currency exchange rate variations.

We cannot assure you that these instruments or other currency swap and option agreements will be available at favorable terms to us, if at all, to fully hedge our exposure. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

Changes in the value of the peso to the U.S. dollar and the Euro may have an adverse effect on us.

Changes in the value of the peso to the U.S. dollar have an effect on our results of operations. In general, as described more fully in the following paragraphs, a real devaluation of the peso will likely result in an increase of our operating margins and a real appreciation of the peso will likely result in a decrease in our operating margins, in each case, when measured in pesos. This is so because the aggregate amount of our consolidated net sales denominated in or linked to U.S. dollars exceeds the aggregate amount of our costs of goods sold and our general, administrative and selling expenses denominated in or linked to U.S. dollars.

A substantial portion of the sales generated by our Mexican and U.S. subsidiaries are either denominated in or linked to the value of the U.S. dollar. The prices of a significant number of the products we sell in Mexico, in particular those of flat glass for automotive uses, capital goods and packaging products are linked to the U.S. dollar. In addition, substantially all of our export sales are invoiced in U.S. dollars and subsequently translated into pesos using the exchange rate in effect at the time of the transaction.

Further, a strong peso relative to the U.S. dollar makes the Mexican market more attractive for importers and competitors that might not otherwise sell in the Mexican market. A strong peso relative to the U.S. dollar also makes those of our products whose prices are denominated in or are linked to the value of the U.S. dollar less competitive or profitable. When the peso appreciates in real terms, with respect to such products, we must either increase our prices in U.S. dollars, which make our products less price-competitive, or bear reduced operating margins when measured in pesos. Given the competitive nature of the industries in which we operate, in the past we have had to reduce our operating margins for such products in response to appreciation of the peso relative to the U.S. dollar.

The sales generated by our Spanish subsidiary in our European operations are either denominated in or linked to the value of the Euro, while its cost of goods sold is denominated in or linked to U.S. dollars. Changes in the value of the U.S. dollar to the Euro may have an adverse effect on us in a similar fashion to those described with respect to the value of the peso above.

We may be adversely affected by increases in interest rates.

Interest rate risk exists primarily with respect to our floating-rate peso and dollar-denominated debt, which generally bear interest based on the Mexican equilibrium interbank interest rate, which we refer to as the “TIIE,” or the London interbank offered rate, which we refer to as “LIBOR”. If the TIIE or LIBOR rates increase significantly, our ability to service our debt will be adversely affected.

As of December 31, 2007, our floating-rate peso and dollar-denominated debt amounted to Ps. 366 million and $34 million. As of March 31, 2008, we entered into swap arrangements under which all interest payments, until 2012, on $500 million principal amount of our outstanding debt were swapped from a fixed dollar rate to a variable peso rate.

We cannot assure you that these instruments will continue to be favorable to us or if other instruments will be available at favorable terms to us, if at all, to fully hedge our exposure. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk.”

The costs of complying with environmental protection and health and safety laws, and any liabilities arising thereunder, may increase and adversely affect our business, results of operations, cash flows or financial condition.

We are subject to various environmental protection, health and safety laws and regulations governing, among other things, the generation, storage, handling, use, remediation, disposal and transportation of hazardous materials, the emission and discharge of hazardous materials into the ground, air or water, and the health and safety of our employees.

We are also required to obtain permits from governmental authorities for certain operations. We cannot assure you that we have been or will be at all times in complete compliance with such laws, regulations and permits. If we violate or fail to comply with these laws, regulations or permits, we could be fined or otherwise sanctioned by regulators. We could also be held liable for any and all consequences arising out of human exposure to hazardous substances or other environmental damage.

Since 1998, we have been participating in a voluntary audit program at our Mexican facilities. As a result of audits by and implementation of certain measures suggested by the Procuraduría Federal de Protección al Ambiente (“PROFEPA”), action plans are entered into, and costs are incurred, to make environmental investments and improvements required for PROFEPA Clean Industry certification.

Environmental laws are complex, change frequently and have tended to become more stringent over time. While we have budgeted for future capital and operating expenditures to maintain compliance with environmental laws, we cannot assure you that environmental laws will not change or become more stringent in the future. Therefore, we cannot assure you that our costs of complying with current and future environmental, health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances will not adversely affect our business, results of operations, cash flow or financial condition. See “Item 4. Information on the Company—Business—Environmental Matters.”

Substitution trends in the glass container industry may continue to adversely affect our business.

Glass containers have been, and continue to be, subject to competition from alternate forms of packaging, including plastic containers, aluminum cans and laminated paper containers. In mature glass containers markets, such as in the United States, demand for glass containers began a sustained long-term decline in the 1970s (although such decline has substantially diminished in recent years). In connection with such decline, the glass containers industry experienced a reduction in capacity and consolidation among glass container producers. The remaining glass containers producers in mature markets have faced, and may continue to face, pricing pressures as a result of competition from other forms of packaging. Mexico is becoming a mature market, with increased competition from alternate forms of packaging, particularly plastic, aluminum cans and laminated paper containers. Such products have adversely affected, and may continue to adversely affect, our prices and operating margins, principally with respect to glass containers for the beer, soft drinks and food industries. Our Glass Containers business unit represented 51% of our consolidated net sales in 2007.

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

We are focused on improving and maintaining an effective internal control structure. During 2005, 2006 and 2007 we implemented new controls and procedures related to the preparation, review and presentation of our financial information. These measures include the following modifications to our internal controls:

	•		reinforcement of personnel knowledge base regarding technical accounting matters;
	•		hiring a professional service firm to assist our accounting staff with the implementation of superior processes and new internal controls; and
	•		Genesis Project implementation, including the ERP conversion, across Vitro’s global operating model. See “Item 3. Key Information—Recent Developments—Genesis Project” and “Item 15. Controls and Procedures”.

There can be no assurance that the implementation of our new internal controls, including the ERP, will be completed without unforeseen challenges or significant additional expenditures. In addition, any unremediated internal control deficiencies may reduce our ability to provide accurate financial information to our investors.

We have a disagreement with our partner in our Flat Glass business unit about the merger of Vitro Plan into Viméxico, which may affect the value of the guaranty of the 2012 Senior Notes, 2017 Senior Notes, and 2013 Senior Notes by our Flat Glass business unit.

On December 11, 2006 the shareholders of Vitro Plan concluded the extraordinary meeting upon a second call to approve the merger of Vitro Plan into Viméxico. Viméxico, a subsidiary of Vitro, held a $135 million loan receivable from Vitro Plan. At the meeting, resolutions were adopted approving (a) the merger of Vitro Plan into Viméxico based on financial information as of October 31, 2006, with Viméxico as the surviving entity, and (b) the cancellation upon delivery of existing Vitro Plan stock certificates in exchange for Viméxico stock certificates, using a ratio of 7.19319816 shares of Viméxico common stock per share of Vitro Plan common stock.

Prior to the merger, Vitro Plan was a direct 65%-owned subsidiary of Vitro, and the company through which Vitro conducted its Flat Glass business. As a result of the merger, Viméxico is a direct 91.8%-owned subsidiary of Vitro. Prior to the merger, Pilkington Plc, which we refer to as “Pilkington”, owned a 35% equity interest in Vitro Plan and, as a result of the merger, owns an 8.2% equity interest in Viméxico. Pilkington voted against the adoption of the shareholder resolutions approving the merger. Under the merger, the outstanding $135 million intercompany indebtedness owed by Vitro Plan was cancelled, reducing the debt of Viméxico, as the surviving party to the merger to a level that could more readily be supported by its cash flow from operations.

On January 16, 2007, Pilkington commenced litigation, challenging and opposing, among other claims, the resolutions adopted at the December 11, 2006 extraordinary meeting approving the merger. On February 28, 2008, the court denied all of Pilkington’s claims and declared the merger valid. Pilkington has filed an appeal of this decision which on June 26, 2008 was resolved by the Appeals Court confirming the denial of all claims by Pilkington and ratifying in all aspects the decision issued by the lower court, including, as a consequence, the validity of the Merger and the obligation to pay litigation costs and attorney’s fees. However, Pilkington still has on last opportunity to challenge such rulings through an “Amparo” procedure (which is a constitutional challenge held before a federal court).

Additionally, on December 6, 2007, Pilkington commenced another litigation, alleging, among other claims, that the December 11, 2006 extraordinary meeting was invalid and, therefore, the resolutions adopted at such meeting and the merger agreement are invalid. This litigation is at an early stage and we do not expect any decision by the courts during 2008.

In the event these proceedings ultimately result in the merger being declared not effective, the guarantee by Viméxico of the 2012 Senior Notes, the 2017 Senior Notes and the 2013 Senior Notes, could not include any of the assets owned by Vitro Plan. It is also possible that such determination could include a determination that the guarantees provided by the subsidiaries of Vitro Plan are also ineffective. Vitro believes, based on the advice of Rivera, Gaxiola y Asociados, S.C., our Mexican special litigation counsel, that the merger of Vitro Plan into Viméxico complied with all applicable legal requirements, specifically the by-laws of Vitro Plan and the Mexican General Law of Mercantile Corporations and, as a result, that the risk that the merger between Vitro Plan and Viméxico is reversed, nullified, voided or set aside is minimal. Even if the shareholder resolutions approving the merger were to be set aside and the guarantee by Vitro Plan determined to be ineffective, such Mexican special litigation counsel has advised us that it believes that it is likely that substantially all of the guarantees of the 2012 Senior Notes, the 2017 Senior Notes and the 2013 Senior Notes granted by the subsidiaries of Vitro Plan would nonetheless remain in effect.

If any of the guarantees referred to above were to be determined to be ineffective or avoided, the 2012 Senior Notes, the 2017 Senior Notes, and the 2013 Senior Notes would be effectively junior to all liabilities of Vitro Plan and any of its subsidiaries whose guarantee was thereby avoided.

RISK FACTORS RELATING TO ECONOMIES IN WHICH WE PARTICIPATE

Economic developments in Mexico and the United States affect our business.

The year 2007 was characterized by a slowdown in global economic activity compared to 2006. After three years of solid and generalized growth, the world economy decelerated. Global GDP grew 3.3% in 2007, below the 3.9% growth rate in 2006, according to International Monetary Fund research. The main cause of this economic slowdown is attributed to the United States economy, due to the growth decline from 3.3% in 2006 to 2.2% in 2007. This deceleration is expected to continue in 2008 in the United States mainly due to the weakening of the real estate sector.

The real estate and construction market in the United States is now being seriously affected by the sub-prime mortgage crisis, which is also affecting the economy overall. The growth in housing sales and construction financed by credit played a large role in the economy’s expansion by lifting other sectors of the economy. Losses on subprime mortgages have negatively affected not only the housing and construction markets but other sectors and the availability of credit generally. Increased foreclosures could generate increased inventory on the housing market which could affect our residential and commercial construction sales. See “Item 5. Operating and Financial Review and Prospects—Operating Results—Trend Information.”

In Mexico, GDP growth reached 3.3%, below the 4.7% growth rate in 2006. For 2008 additional economic uncertainties are anticipated due to, among other factors, the economic deceleration in the United States.

Over the past few years, Mexico’s rate of inflation has remained low, amounting to 4.1% in 2006 and 3.8% in 2007.

The majority of our manufacturing facilities are located in Mexico. For each of the years ended December 31, 2005, 2006 and 2007, 41%, 43% and 44%, respectively, of our consolidated net sales resulted from sales to parties located within Mexico. In the past, inflation has led to high interest rates on peso-denominated obligations and devaluations of the peso.

While helping the country to maintain low levels of inflation and a manageable deficit, the Mexican government’s continued fiscal and monetary policy has not provided the flexibility necessary to support Mexico’s economic improvement. As a result, new investment and growth in aggregate purchasing power have been marginal. Several factors could affect the growth of Mexico’s economy and its industrial sector. These factors include the extent of the U.S. economic growth and the participation of Mexico’s industrial sector in such growth; the Mexican government’s approval and implementation of fiscal and other structural reforms such as the evolution of energy prices, particularly natural gas; and the current political environment.

Future economic development in or affecting Mexico or the United States could adversely affect us and our ability to obtain financing.

Developments in other countries may adversely affect our business or the market price of our securities.

The market price of securities of Mexican companies is, to varying degrees, affected by economic and market conditions in other countries. Although economic conditions in such countries may differ significantly from economic conditions in Mexico, investors’ reactions to developments in such countries may have an adverse effect on the market price of securities of Mexican companies, including ours.

If foreign currency exchange controls and restrictions are imposed, we may not be able to service our debt in U.S. dollars, which exposes investors to foreign currency exchange risk.

In the past, the Mexican economy has experienced balance of payments deficits, shortages in foreign currency reserves and other problems that have affected the availability of foreign currencies in Mexico. The Mexican government does not currently restrict or regulate the ability of persons or entities to convert pesos into U.S. dollars. However, it has done so in the past and could do so again in the future. We cannot assure you that the Mexican government will not institute a restrictive currency exchange control policy in the future. Any such restrictive foreign currency exchange control policy could prevent or restrict access to U.S. dollars and limit our ability to service our U.S. dollar-denominated debt.

Political events in Mexico could affect Mexican economic policy and adversely affect us.

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy could have a significant impact on Mexican private sector entities in general, as well as on market conditions and prices and returns on Mexican securities, including our securities.

The current legislature and Mr. Felipe Calderon Hinojosa, President of Mexico, may bring significant changes in laws, public policies and/or regulations that could adversely affect Mexico’s political and economic situation, which could adversely affect our business. Social and political instability in Mexico or other adverse social or political developments in or affecting Mexico could adversely affect us and our ability to obtain financing. It is also possible that political uncertainty may adversely affect Mexican financial markets.

Mr. Calderon recently presented to the Mexican Congress an energy reform proposal. This energy reform proposal intends to provide PEMEX sufficient administrative and financial autonomy, through several mechanisms, in order to strengthen its financial position and preserve PEMEX’s future operations.

We cannot provide any assurance that future political developments in Mexico, over which we have no control, will not have an unfavorable impact on Mexican private sector entities in general, as well as on market conditions and prices and returns on Mexican securities, including our securities.

Social Instability in Mexico could affect Mexican economic policy and adversely affect us

In 2007, some incidents occurred at certain PEMEX gas pipelines located in Salamanca, Guanajuato and other counties in Veracruz, Mexico. Such incidents disrupted the natural gas supply to companies in Mexico. As a consequence, several companies including us and some of our clients and suppliers suffered a temporary shut-down in operations. The possibility of having similar incidents in the future could adversely affect our business and operations.

Our financial statements may not give you the same information as financial statements prepared under United States accounting principles.

Mexican companies listed on the Bolsa Mexicana de Valores, which we refer to as the “Mexican Stock Exchange,” including us, must prepare their financial statements in accordance with Mexican FRS. Mexican FRS differs in certain significant respects from the U.S. GAAP as it relates to our consolidated financial statements, including among others the treatment of minority interests, workers’ profit sharing; accounting for the effects of deferred income taxes and consolidation of subsidiaries. For these and other reasons, the presentation of financial statements and reported earnings prepared in accordance with Mexican FRS may differ materially from the presentation of financial statements and reported earnings prepared in accordance with U.S. GAAP. See note 24 to our audited consolidated financial statements included elsewhere in this annual report for a description of the principal differences between Mexican FRS and U.S. GAAP.

EXCHANGE RATES

The following table sets forth, for each year in the five year period ended December 31, 2007, the high, low, average and annual period-end Noon Buying Rates, all expressed in pesos per U.S. dollar. No representation is made that the peso or U.S. dollar amounts referred to in this annual report could have been or could be converted into U.S. dollars or pesos, as the case may be, at the rates indicated, at any particular rate or at all.

		Noon Buying Rate (1)
Year ended December 31,		High				Low				Average				Period-End
2003		Ps.	11.41			Ps.	10.11			Ps.	10.80			Ps.	11.24
2004			11.64				10.81				11.29				11.15
2005			11.41				10.41				10.89				10.63
2006			11.46				10.43				10.91				10.80
2007			11.27				10.67				10.93				10.92

The following table sets forth, for each month in the six-month period ended on May 31, 2008 and the first 23 days of June, the high and low Noon Buying Rates, all expressed in pesos per U.S. dollar.

		Noon Buying Rate (1)
		High				Low
December 2007		Ps.	10.92			Ps.	10.80
January 2008			10.97				10.82
February			10.82				10.67
March			10.85				10.63
April			10.60				10.44
May			10.57				10.31
June (through June 23, 2008)			10.44				10.27

SELECTED CONSOLIDATED FINANCIAL INFORMATION

The following table presents selected consolidated financial information and other data for each of the periods presented. This information and data should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated financial statements and the notes thereto included elsewhere in this annual report and the information under the section entitled “Item 5. Operating and Financial Review and Prospects” as it relates to 2005, 2006 and 2007. The years ended December 31, 2003 and 2004 are derived from our audited financial statements not included in this annual report. Our consolidated financial statements are prepared in accordance with Mexican FRS, which differs in certain significant respects from U.S. GAAP. note 24 to our consolidated financial statements for the year ended December 31, 2007 provides a description of the principal differences between Mexican FRS and U.S. GAAP as they relate to us.

Financial data expressed in pesos and set forth in the following table for each year in the five year period ended December 31, 2007 has been restated in millions of constant pesos as of December 31, 2007.

		As of or for the year ended December 31,
		2003				2004				2005				2006				2007				2007
		(Ps. millions) (1)																				($ millions) (1)(2)
Income Statement Data:
Mexican FRS:
Net sales		Ps.	26,521			Ps.	26,385			Ps.	26,567			Ps.	27,876			Ps.	28,591			$	2,631
Cost of sales			18,920				19,109				19,198				20,230				20,187				1,858
Gross profit			7,602				7,276				7,369				7,646				8,404				773
Selling, general and administrative expenses			5,625				5,643				5,530				5,529				5,700				524
Operating income			1,977				1,632				1,839				2,117				2,704				249
Financing result:
Interest expense, net			2,025				2,204				2,355				2,155				1,836				169
Derivative financial instruments			0				0				17				337				201				18
Exchange loss (gain), net			844				90				(417	)			224				94				9
Gain from monetary position (3)			(633	)			(776	)			(455	)			(440	)			(471	)			(43	)
Total comprehensive financing result			2,235				1,518				1,500				2,276				1,660				153
Other expenses (income), net (4)			208				279				494				(229	)			869				80
(Loss) income before income and asset taxes			(466	)			(165	)			(155	)			70				175				16
Income and asset tax expense (benefit)			47				(9	)			(519	)			228				44				4
Net income (loss) from continuing operations before changes in accounting principles			(513	)			(156	)			364				(158	)			131				12
Net income (loss) from discontinued operations (5)			64				97				3				(31	)			0				0
Gain on sale of discontinued operations			0				0				0				480				0				0
Cumulative effect of changes in accounting principles (11)			0				0				(124	)			0				0				0
Net income (loss) (5)			(449	)			(59	)			243				291				131				12
Net income (loss) of majority interest (5)			(672	)			(308	)			63				401				(13	)			(1	)
Net income (loss) from continuing operations per share			(1.86	)			(0.57	)			1.33				(0.54	)			0.38				0.04
Net income (loss) from discontinued operations per share (5)			0.23				0.36				0.01				1.55				0				0
Diluted and basic net income (loss) of majority interest per share (5)			(2.44	)			(1.13	)			0.23				1.39				(0.04	)			(0.00	)
U.S. GAAP (6)(11) :
Net sales		Ps.	23,300			Ps.	23,891			Ps.	24,292			Ps.	25,655			Ps.	26,159			$	2,407
Operating income			1,110				723				831				1,436				2,524				232
Net income (loss) from continuing operations (5)(11)			(1,077	)			(873	)			(183	)			(554	)			469				43
Net income (loss) (5)(11)			(839	)			(248	)			(287	)			(74	)			469				43
Net income (loss) from continuing operations per share (5)(11)			(3.91	)			(3.21	)			(0.66	)			(1.92	)			1.37				0.13
Net income (loss) from discontinued operations per share (5)(11)			0.87				2.30				(0.38	)			1.66				0				0
Diluted and basic net income (loss) per share (5)(11)			(3.05	)			(0.91	)			(1.04	)			(0.26	)			1.37				0.13

		As of or for the year ended December 31,
		2003				2004				2005				2006				2007				2007
		(Ps. millions) (1)																				($ millions) (1)(2)
Balance Sheet Data:
Mexican FRS:
Cash and cash equivalents			1,146				2,838				1,441				1,222				1,638				151
Current assets			9,260				10,704				9,863				9,175				11,136				1,025
Total assets from discontinued operations (5)			2,585				2,180				2,021				0				0				0
Total assets			36,045				34,692				32,937				28,695				32,187				2,962
Current liabilities			9,276				8,200				8,675				4,835				7,140				657
Total debt			17,658				17,926				15,959				12,826				14,918				1,373
Total liabilities from discontinued operations (5)			1,995				1,647				1,398				0				0				0
Total liabilities			26,058				25,715				23,704				19,329				22,801				2,098
Stockholders’ equity (5)			9.987				8,977				9,234				9,366				9,386				864
Minority interest in consolidated subsidiaries (5)			3,360				3,114				3,198				1,892				1,960				180
Majority stockholders’ equity (5)			6,627				5,863				6,036				7,474				7,426				684
U.S. GAAP (5)(11) :
Total assets		Ps.	34,541			Ps.	33,736			Ps.	30,579			Ps.	26,097			Ps.	29,985			$	2,759
Total liabilities			25,874				25,895				23,178				19,272				22,923				2,110
Net assets			8,667				7,841				7,402				6,826				7,062				650
Capital stock			7,566				7,566				7,566				7,632				7,632				702
Stockholders’ equity			6,188				5,375				4,913				5,710				5,850				538
Other Data:
Mexican FRS:
Capital expenditures			1,968				1,505				1,107				1,252				2,695				248
Depreciation and amortization			2,035				2,283				1,854				1,795				1,414				130
Total shares issued at end of period (6)			324				324				324				386.9				386.9
Total shares held in Stock Option Trust at end of period (6)			24.7				22.8				22.3				17.6				17.5
Total shares held as treasury stock at end of period (6)			28.2				28.2				28.2				28.3				28.3
Total shares issued and outstanding at end of period (6)			271.1				273.1				273.5				341.0				341.0
Average total shares outstanding during period (6)			275.2				271.8				273.1				289.6				341.0
Inflation and Foreign Currency Exchange Rate Data:
Percentage of change in INPC (7)			4.0	%			5.2	%			3.3	%			4.1	%			3.8	%
Peso/dollar exchange rate at the end of period (8)			11.2372				11.1495				10.6344				10.8116				10.8662
Average exchange rate (9)			10.8251				11.3091				10.8786				10.9034				10.9371

		Year ended December 31,
		(millions)
		2003				2004				2005				2006				2007
Restructuring charges (i)		Ps.	99			Ps.	267			Ps.	332			Ps.	61			Ps.	7
Impairment of long-lived assets			143				352				385				393				122
Loss (gain) from sale of long-lived assets			5				10				6				(795	)			47
Loss (gain) from sale of subsidiaries			(41	)			(545	)			137				(68	)			11
Assignment of Vitro Club Trust (ii)											(458	)
Early extinguishment of employee retirement obligations											18				8				97
Fees and costs for extinguishment of debt																			488
Statutory employee profit sharing			44				129				51				55				54
Other			(42	)			66				23				117				43
		Ps.	208			Ps.	279			Ps.	494			Ps.	(229	)		Ps.	869

	(i)		The restructuring charges relate to the downsizing and streamlining of our corporate functions and organization at some of our business units and are part of an ongoing benefit arrangement.
	(ii)		The Vitro Club holds land and facilities for our employees’ recreational activities, which are held in a trust (the “Trust”). The Trust can only be assigned if all of the participants name one entity as the sole beneficiary. In 2005, all the participants named the Company as the sole beneficiary, and therefore the Company has the right to take control of the Trust. The Company recorded the fair value of the assets and recognized other income of Ps. 458 million.

Dividends per Share

The following table sets forth, for each year in the five year period ended December 31, 2007, the dividends and dividends per share Vitro declared and paid with respect to such year, expressed in pesos and U.S. dollars. All peso amounts contained in the table below are stated in nominal pesos.

Fiscal Year With
Respect to Which
Dividend Was		Month Dividend		Total Dividend				Dividends per				Dividend per				Month Dividend
Declared		Was Declared		Amount (1)				Share				Share (2)				Was Paid
				(Ps. millions)				(Pesos)				(Dollars)
2003		March 2004			89				0.30				0.0267			April 2004
2004		March 2005			90				0.30				0.0268			April 2005
2005		April 2006			89				0.30				0.0270			May 2006
2006		March 2007			133				0.37				0.0334			April 2007
2007		April 2008			143				0.40				0.0372			May 2008

Item 4. Information on the Company

ORGANIZATIONAL STRUCTURE

The following chart presents the organizational structure of our business units, our principal subsidiaries and our direct or indirect percentage equity ownership in such subsidiaries as of June 23, 2008.

BUSINESS

Business Overview

Vitro, S.A.B. de C.V. is a corporation with variable capital ( sociedad anónima bursátil de capital variable ) organized under the laws of Mexico and is a holding company that conducts substantially all of its operations through subsidiaries. We were incorporated in Mexico in 1909 and, based on our consolidated net sales in 2007, we believe that we are the largest manufacturer of glass containers and flat glass in Mexico. Our principal executive offices are located at Ave. Ricardo Margáin 400, Col. Valle del Campestre, San Pedro Garza García, Nuevo León, 66265 Mexico, telephone number (52-81) 8863-1200. Our agent for service of process, exclusively for actions brought by the Securities and Exchange Commission, which we refer to as the “SEC,” pursuant to the requirements of the U.S. federal securities laws, is CT Corporation System, 111 Eighth Avenue, New York, New York 10011.

Our consolidated net sales for the year ended December 31, 2007 totaled Ps. 28,591 million ($2,631 million). In 2007, 44% and 37% of our consolidated net sales were sales made in Mexico and the United States, respectively. Our operations are organized into two operating business units: the Glass Containers business unit (representing approximately 51% of our consolidated net sales in 2007) and the Flat Glass business unit (representing approximately 48% of our consolidated net sales in 2007).

As of December 31, 2007, our total assets were Ps. 32,187 million ($2,962 million). We have manufacturing facilities in ten countries, distribution centers throughout the Americas and Europe and export our products to over 50 countries.

Our Glass Containers business unit manufactures and distributes glass containers for the soft drink, beer, food, liquor and wine, pharmaceutical and cosmetics industries, as well as raw materials, machinery and molds for the glass industry, and, based on its net sales of Ps. 14,676 million ($1,351 million) in 2007, we believe the Glass Containers business unit is the largest glass container producer in Mexico and Central America and among the largest in the world. The principal operating subsidiaries of the Glass Containers business unit are: (i) Compañía Vidriera, S.A. de C.V. (Covisa), which conducts a substantial majority of our glass containers operations in Mexico, (ii) Comegua, our joint venture with London Overseas and Golden Beer which, based on Comegua’s net sales of Ps. 2,127 million ($196 million) in 2007, we believe is the largest glass containers producer in Central America (London Overseas and Golden Beer each hold 25.15% of Comegua’s outstanding shares), (iii) Vitro Packaging, our glass containers distribution subsidiary in the United States, (iv) Vidrio Lux, S.A. (Vilux), which is engaged in the manufacturing and distribution of glass containers in Bolivia and neighboring countries, (v) Industria del Álcali, S.A. de C.V. (Alcali), which is engaged in the manufacturing and distribution of soda ash, sodium bicarbonate, calcium chloride and salt, the main raw materials used in the manufacturing of glass containers and (vi) Fabricación de Máquinas, S.A. de C.V. (Fama), which is engaged in the manufacturing of capital goods such as glass forming machines and molds.

Our Flat Glass business unit focuses on the manufacturing, processing and distribution of flat glass for the construction and the automotive industry. Based on the Flat Glass business unit’s net sales of Ps. 13,605 million ($1,252 million) in 2007, we believe the business unit is the largest flat glass producer in Mexico, the second largest in Latin America, one of the largest distributors of flat glass products in the United States and a leading provider of insulated flat glass products in Spain and Portugal.

The principal operating subsidiaries of our Flat Glass business unit are: (i) Vitro Vidrio y Cristal, S.A. de C.V. and Vidrio y Cristal del Noroeste, S.A. de C.V which manufacture and distribute our raw (float) flat glass products for the Mexican construction industry and to automotive safety glass manufacturers as raw material, (ii) Vitro Automotriz, S.A. de C.V. (VAU), and Vitro Flex, S.A. de C.V., which manufacture our flat glass products for the Mexican and the United States automotive industry, for the Original Equipment Manufacturers (“OEM”), and for the Automotive Glass Replacement (“AGR”) markets, (iii) Vitrocar, S.A. de C.V. and Cristales Automotrices, S.A. de C.V., our joint venture with a group of individual investors that own a 49% interest in this entity, which conduct our automotive replacement glass installation business throughout Mexico, (iv) Vitro America, which conducts a substantial majority of our flat glass operations in the United States, (v) Vitro Cristalglass S.L., our joint venture with a group of individual investors that own a 40% interest in this entity which is engaged in the manufacturing and distribution of flat glass products for the Spanish, French and Portuguese construction industry,

(vi) Vitro Chaves Industria de Vidrio, S.A. (Vitro Chaves), a joint venture of Vitro Cristalglass with a group of individual investors that own a 40% interest in this entity which is engaged in the manufacturing and distribution of flat glass products for the Portuguese construction industry, (vii) Vitro Cristalglass France SAS, a Vitro Cristalglass subsidiary, which is engaged in the production and distribution of value-added glass products in the French residential and commercial construction market, and (viii) Vitro Colombia, S.A., which conducts our Colombian flat glass operations and is engaged in the manufacture and distribution of flat glass products for the automotive and construction market.

Acquisitions

In April 2008 the Company, through its subsidiary Vitro Cristalglass, completed the acquisition of the operations of Verres et Glaces d’Epinay, a Paris-based value-added flat glass company, for an equivalent of Ps. 41 million ($4 million). This acquisition is in line with the Company’s strategic plan to broaden its geographic coverage in Europe and strengthen its position in the value-added products and services market. The new operations have been incorporated into our subsidiary Vitro Cristalglass France, which is now engaged in the production and distribution of value-added glass products to the French residential and commercial construction market.

In August 2007, Vidrio y Cristal acquired 55% of the outstanding shares of PVA, a company engaged in the installation of value-added glass products; for an equivalent of Ps. 110 million ($10 million).

In July 2007, Viméxico exercised its option to acquire the other 50% of the outstanding shares of Vitro AFG (now Vidrio y Cristal del Noroeste, S.A. de C.V.) from its joint venture partner AFG for Ps. 67 million ($6 million) in cash. This company’s primary operations are the manufacture, processing and distribution of flat glass.

In April 2006, our subsidiary Comegua acquired Vipasa, a glass container company located in Panama for Ps. 218 million ($20 million). We believe Vipasa is the largest glass container manufacturer for the beverage, liquor, food and pharmaceutical industries in Panama with a dominant market share and exports to more than 10 countries in the Americas.

In September 2006, Viméxico, Vitro’s flat glass division, and Visteon ended their joint venture agreement in Vitro Flex through a reimbursement and cancellation of Visteon’s capital investment. Viméxico is now the sole owner of Vitro Flex. Vitro Flex primarily manufactures tempered and laminated glass for use in Ford vehicles. Fairlane Holdings (a Visteon affiliate) received Ps. 109 million ($10 million) for its 38% stake in Vitro Flex. An initial payment of $2 million was made in September 2006, which is being followed by four annual payments of $1.85 million, which started in September 2007. The transaction is being funded by Vitro Flex with cash from operations. Vitro Flex together with VAU, now directly manages its relationship with Ford and serves all of Vitro’s automotive customers. Under the prior structure, contractual restrictions limited Vitro Flex’s ability to use excess capacity for non Ford volumes.

Strategic Sales of Non-Core Businesses and Assets

Commencing in 2001, we began a corporate restructuring and recapitalization program focused primarily on the sale of non-productive assets and assets no longer integral to the long-term strategy of our business, with the aim of reducing our overall debt levels. During the period from 2001 through 2006, we concentrated our divestiture efforts on rightsizing our two core businesses, Glass Containers and Flat Glass.

In June 2006, we completed the sale of our 51% ownership interest in Vitrocrisa to Libbey, the owner of the remaining 49% equity interest. We received proceeds of $119 million from this divestiture, comprised of $80 million in cash from the sale of our equity interest, $28 million from the payment of intercompany receivables and $11 million from the repayment of intercompany debt. As a part of this transaction, all of the liabilities of Vitrocrisa were assumed by Libbey, including bank debt of $62 million as of May 31, 2006.

In March 2006, we sold our 51% interest in Química M, our subsidiary engaged in the manufacture and distribution of polyvinyl butyral, which is an inner layer of plastic film used in the manufacture of clear and shaded windshields, to Solutia Inc., the other shareholder in Química M, for $20 million in cash.

In April 2005, we sold our 100% interest in Plásticos Bosco, S.A. de C.V. (“Bosco”), which consisted of two subsidiaries engaged in the manufacture and distribution of plastic tubes and disposable thermofoldware and industrial products, to Grupo Convermex, S.A. de C.V., for Ps. 107 million ($10 million) in cash. In 2004, Bosco had consolidated net sales of Ps. 471 million ($43 million) and a consolidated operating loss of Ps. 9 million ($1 million). The consolidated net sales and operating loss of Bosco were Ps. 112 million ($10 million) and Ps. 7 million ($0.6 million), respectively, during the period from January 1, 2005, to April 1, 2005. We recorded a loss upon the sale of Bosco of Ps. 137 million ($13 million).

In September 2004, we sold our 50% interest in Vancan, S.A. de C.V. (“Vancan”), our joint venture with Rexam, Inc. engaged in the manufacture and distribution of aluminum containers, to Rexam, Inc. for $22.6 million in cash after certain price adjustments. In 2003, our 50% interest in Vancan had consolidated net sales of Ps. 473 million ($43 million) and a consolidated operating income of Ps. 54 million ($5 million). The consolidated net sales and operating income of our 50% interest in Vancan were Ps. 348 million ($32 million) and Ps. 35 million ($3 million), respectively, during the period from January 1, 2004 to September 30, 2004.

In April 2004, we sold our 60% interest in Vitro OCF, S.A. de C.V. (“Vitro OCF”), our joint venture with Owens Corning engaged in the manufacture and distribution of fiberglass and fiberglass products, to Owens Corning for $71.5 million in cash. Pursuant to the terms of the sale, we paid Vitro OCF’s and its subsidiaries’ bank debt (which was reflected on our consolidated balance sheet) of $22 million immediately prior to the sale. The consolidated net sales and operating income of Vitro OCF were Ps. 225 million ($21 million) and Ps. 52 million ($5 million), respectively, during the period from January 1, 2004, to April 2, 2004. In 2003, Vitro OCF had consolidated net sales and operating income of Ps. 817 million ($75 million) and Ps. 200 million ($18 million), respectively. The gain on our sale of this interest was Ps. 454 million ($42 million). This business was previously included in our Flat Glass reportable segment.

In March 2004, Vitro America closed all of its distribution and production facilities and operations in the northwestern United States. The closing plan included operation of the facilities through June 30, 2004. As of December 31, 2004, all operations at these facilities had ceased. Vitro America conducts a substantial majority of our flat glass operations in the United States and is a subsidiary of Viméxico, which is included in our Flat Glass reportable segment.

During 2004, we also closed two small facilities in Mexico dedicated to the manufacture of architectural value-added products. The amount incurred for these closures was Ps. 22 million ($2 million). This business was previously included in our Flat Glass reportable segment.

In September 2003, we sold 100% of the outstanding shares of ECSA, one of our subsidiaries engaged in the manufacture and distribution of plastic products, to a subsidiary of Phoenix Capital Limited for $18 million, $15 million of which we received at closing and the remainder of which was paid in May 2005. The net sales and operating income of ECSA were Ps. 164 million ($15 million) and Ps. 10 million ($1 million), respectively, during the period from January 1, 2003, to September 10, 2003. The gain on sale of this component was Ps. 42 million ($4 million). This business was previously included in our Glass Containers reportable segment.

Our Operating Business Units

Our organizational structure, comprised of the Glass Containers and Flat Glass business units, allows us to focus on the needs of the distinct end markets we serve, which results in a diversified revenue base, and enables us to take advantage of our expertise in the efficient production and distribution of high quality glass products.

Business Segment Data

The following table sets forth the business segment data for the three years ended December 31, 2007 in millions of constant pesos.

		Glass				Flat				Corporate &
		Containers				Glass				Eliminations				Consolidated				$ million
2007
Consolidated net sales		Ps.	14,639			Ps.	13,591			Ps.	361			Ps.	28,591			$	2,631
Operating income			2,054				782				(132	)			2,704				249
Total assets			17,040				12,835				2,312				32,187				2,962
Capital expenditures			2,328				324				43				2,695				248
2006
Consolidated net sales		Ps.	13,982			Ps.	13,461			Ps.	433			Ps.	27,876			$	2,565
Operating income			1,853				418				(154	)			2,117				195
Total assets			13,937				11,401				3,357				28,695				2,641
Capital expenditures			894				338				20				1,252				115
2005
Consolidated net sales		Ps.	12,349			Ps.	13,701			Ps.	517			Ps.	26,567			$	2,445
Operating income			1,327				514				(2	)			1,839				169
Total assets			14,668				13,949				4,775				32,937				3,031
Capital expenditures			622				468				17				1,107				102

The following table sets forth the business segment data as a percentage of consolidated data.

		Glass				Flat				Corporate &
		Containers				Glass				Eliminations				Consolidated
2007
Consolidated net sales			51	%			48	%			1	%			100	%
Operating income			76	%			29	%			(5	%)			100	%
Total assets			53	%			40	%			7	%			100	%
Capital expenditures			86	%			12	%			2	%			100	%
2006
Consolidated net sales			50	%			48	%			2	%			100	%
Operating income			88	%			20	%			(8	%)			100	%
Total assets			49	%			40	%			11	%			100	%
Capital expenditures			71	%			27	%			2	%			100	%
2005
Consolidated net sales			46	%			52	%			2	%			100	%
Operating income			72	%			28	%							100	%
Total assets			45	%			42	%			13	%			100	%
Capital expenditures			56	%			42	%			2	%			100	%

Glass Containers

The principal operating subsidiaries of our Glass Containers business unit are:

	•		Covisa, which conducts a substantial majority of our glass containers operations in Mexico;
	•		Comegua, our joint venture with London Overseas and Golden Beer, which we believe is the largest glass containers producer in Central America (London Overseas and Golden Beer each hold 25.15% of Comegua’s outstanding shares);
	•		Vitro Packaging, our glass containers distribution subsidiary in the United States;
	•		Vilux, which is engaged in the manufacture and distribution of glass containers in Bolivia and neighboring countries;
	•		Álcali, which is engaged in the manufacture and distribution of soda ash, sodium bicarbonate, calcium chloride and salt, which are the main raw materials used in the manufacture of glass products; and
	•		Fama, which is engaged in the manufacture of capital goods such as glass forming machines and molds.

Based on the Glass Containers business unit’s net sales of Ps. 14,676 million ($1,351 million) in 2007, we believe it is the largest glass container producer in Mexico and Central America and among the largest in the world. In 2007, this business unit accounted for 51% of our consolidated net sales. During the same period, 28% of the net sales of the Glass Containers business unit came from exports and 15% came from sales by our foreign subsidiaries that are part of the business unit.

The Glass Containers business unit produces glass containers for the soft drink, beer, food, liquor and wine, pharmaceuticals and cosmetics industries. Its customers include leading companies such as Avon, Bacardi, Campbells, Coty, Diageo, Encore Glass, Estee Lauder, Gerber, Grupo Cuervo, Grupo Domecq, Grupo Modelo, Herdez McCormick, Jafra, Jeyes, Jugos del Valle, Jumex, Nestle, Pepsi Cola, Procter & Gamble, Sauza, Tamazula, and The Coca-Cola Company. In addition, our Glass Containers business unit manufactures and distributes:

	•		soda ash, sodium bicarbonate, calcium chloride and salt, which are the main raw materials used in the manufacture of glass products, and
	•		capital goods such as glass forming machines and molds.

The Glass Containers business unit operates eight manufacturing facilities in Mexico, three in Central America and one in Bolivia, and has two recycling plants in Mexico. The Glass Containers business unit, which exports to the United States mainly through our subsidiary Vitro Packaging, has five sales offices, four design centers and one distribution center in the United States.

In April 2006, Comegua acquired Vipasa, a glass container company located in Panama for a purchase price of Ps. 218 million ($20 million). We believe Vipasa is the largest glass container manufacturer for the beverages, liquor, food and pharmaceuticals industries in Panama with a dominant market share and exports to more than 10 countries in the Americas.

Flat Glass

The Flat Glass business unit is owned 91.8% by Vitro and is comprised of three main businesses: Float Glass manufacturing, Automotive Safety Glass manufacturing and distribution and our International Division, which is primarily focused on the distribution and manufacturing of flat glass products for the construction and architectural industries. The majority of our Flat Glass business unit’s operations (approximately 65%) are dedicated to the building products industry, while the remainig (approximately 35%) of the unit’s operations is concentrated in the automotive industry. In 2007, 24% of our Flat Glass business unit’s sales derived from Mexico, 19% derived from exports, and 57% derived from foreign subsidiaries. Sales done by Vitro America, our foreign subsidiary in the United States, represented 37% of the Flat Glass business unit’s sales.

Based on the Flat Glass business unit’s net sales of Ps. 13,605 million ($1,252 million) in 2007, we believe the business unit is the largest flat glass producer in Mexico, the second-largest in Latin America, one of the largest distributors of flat glass products in the United States and a leading provider of insulated flat glass products in Spain and Portugal. In 2007, this business unit accounted for 48% of Vitro’s consolidated net sales.

In July, 2007, Viméxico exercised its option to acquire the other 50% of the outstanding shares of Vitro AFG (now Vidrio y Cristal del Noroeste, S.A. de C.V.) from its joint venture partner AFG for Ps. 67 million ($6 million) in cash. With the termination of this joint venture, Viméxico became the sole owner of this entity, whose primary operations include the manufacture, processing and distribution of flat glass.

Our Float Glass manufacturing business is conducted through:

•

Vidrio y Cristal and Vidrio y Cristal del Noroeste, (formerly Vitro AFG) which manufacture and distribute a majority of our raw (float) flat glass products for the Mexican construction industry and to automotive safety glass manufacturers as raw material.

Vidrio y Cristal and Vidrio y Cristal del Noroeste focus on the manufacture, processing and distribution of float glass used as raw material for the construction and automotive industries.

In 2007, the Float Glass manufacturing business represented 17% of our Flat Glass business unit’s total sales to third parties. A substantial portion is supplied to the building industry and to a lower extent is supplied to the automotive safety glass industry, as well as furniture and home appliance manufacturers. We believe we are the leading float glass manufacturing business in Mexico on the basis of sales, with a 43% market share in Mexico as of December 31, 2007. As of December 31, 2007, the Float Glass manufacturing business owned four float glass furnaces of which one in Mexico City has been shut down since March 2006 (fully written-down for accounting purposes as a result of an impairment charge recorded in 2006).

Our Automotive Safety Glass manufacturing and distribution business is conducted through the following subsidiaries:

	•		VAU and Vitro Flex, our subsidiaries that manufacture and distribute our flat glass products for the Mexican and the United States’ automotive industry for the OEM and AGR markets;
	•		Vitrocar, which is engaged in our AGR installation business in Mexico through distribution and installation centers strategically located throughout Mexico; and
	•		Cristales Automotrices, our joint venture with a group of individual investors that owns a 49% equity interest in this business and operates a part of our AGR installation business, in Mexico City and its surrounding states.

In 2007, the Automotive Safety Glass manufacturing and distribution business represented 35% of our Flat Glass business unit’s total sales, with sales primarily derived from the automotive OEM market in North America. On the basis of volume in pieces, we estimate we are the third-largest automotive safety glass manufacturing and distribution business in North America, with a 13.4% market share as of December 31, 2007. The total amount of required float glass used as a row material for the manufacturing of automotive safety glass is sourced internally by Vidrio y Cristal.

Based on the number of molding furnaces the business unit currently operates in Mexico, we believe the Automotive Safety Glass manufacturing and distribution business is also a major manufacturer of safety glass products for the automotive OEM and AGR markets in Mexico. Our Automotive Safety Glass manufacturing and distribution business’ customer base includes General Motors, Ford Motor Co., DaimlerChrysler, Volkswagen and Nissan.

Our International Division operates through the following subsidiaries:

	•		Vitro America, which performs a substantial majority of our flat glass operations in the United States and derives 85% of its sales from the distribution of construction glass and 15% from the distribution and installation of auto glass;
	•		Vitro Cristalglass, our joint venture with a group of individual investors that owns a 40% equity interest in this business, and is engaged in the manufacture and distribution of value-added flat glass products for the Spanish, French and Portuguese construction industries, with specialties in value-added glass products and glass for landmark construction projects;

	•		Vitro Cristalglass France, which conducts our flat glass business operations in France and is engaged in the production and distribution of value-added glass products in the French residential and commercial construction market- see Item 4. Information on the Company — Business — Acquisitions;
	•		Vitro Chaves, a joint venture of Vitro Cristalglass with a group of individual investors that owns a 40% equity interest in this business, and is engaged in the manufacture and distribution of glass and glazing products for the Portuguese construction industry; and
	•		Vitro Colombia, which conducts our Colombian flat glass operations and is engaged in the manufacture and distribution of flat glass products for the automotive and construction markets.

Vitro America processes, distributes and installs flat glass products for the construction and automotive markets in the United States. It operates in 23 states in the U.S. through 9 fabrication centers, 26 distribution centers and 98 installation centers. A portion of the glass processed by Vitro America is produced by the business unit in Mexico, and the balance is purchased from unaffiliated third parties. In 2007, a majority of Vitro America’s glass purchases in terms of volume were supplied from our Flat Glass Mexican subsidiaries.

In Europe, Vitro Cristalglass currently has seven processing facilities throughout Spain and two distribution centers in Barcelona, Spain. Vitro Chaves currently has one processing facility and one distribution center in Lisbon, Portugal. Vitro Cristalglass also controls our recently acquired processing facility in Villetaneuse, France.

Our Products

The following table sets forth our principal products, customers and end-users, sales regions and joint venture partners by business line within each of our two business units.

Glass Containers:

				Customers and
Business Line		Products		End-Users		Sales Regions		Joint Venture Partners
Glass Containers		Glass containers		Soft drink, beer, food, wine & liquor, pharmaceutical and cosmetics industries		Mexico, the United States, the Caribbean, Central and South America, Europe, and Asia		London Overseas and Golden Beer in Comegua
Raw Materials		Soda ash, sodium bicarbonate, calcium chloride and salt		Glass manufacturers and detergent producers		Mexico, the United States and South America
Machinery and Molds		Glass forming machines, castings for glass molds, machinery parts and electronic controls		Flat Glass business unit, Glass Containers business unit, glass manufacturers and other third-party manufacturers		Mexico, the United States and Central and South America

Flat Glass:

				Customers and
Business Line		Products		End-Users		Sales Regions		Joint Venture Partners
Float Glass		Float glass, architectural tempered safety glass, insulated glass units, laminated, table tops		Construction industry, distributors, retailers and installers, and furniture and home appliances manufacturers. Automotive Safety Glass manufacturers.		Mexico, the United States, Canada, Europe and Central and South America		Pilkington in Viméxico/ Individual investors in Vitro Cristalglass and in Vitro Chaves
Automotive Glass		Windshields, side laminated glass, rear and side tempered glass		Automotive OEMs, automotive glass replacement (AGR) market, distributors and installers		Mexico, the United States, Canada and Central and South America		Pilkington in Viméxico/ Individual investors in Cristales Automotrices

See “Item 5. Operating and Financial Review and Prospects—Results of Operations”, “Item 8. Financial Information—Export Sales” and note 21 to our consolidated financial statements included elsewhere in this annual report for a breakdown of our consolidated net sales by business unit and geographic market for each year in the three year period ended December 31, 2007.

Our Operations

Glass Containers Business Unit

Our Glass Containers business unit, which accounted for 51% of our consolidated net sales in 2007, manufactures and distributes glass containers for the food, beverage, pharmaceutical and cosmetics industries, as well as raw materials, machinery and molds for the glass industry, and, based on its net sales of Ps. 14,676 million ($1,351 million) in 2007, we believe the Glass Containers business unit is the largest glass container producer in Mexico and Central America and among the largest in the world.

As of December 31, 2007, our Glass Containers business unit’s total assets were Ps. 17,040 million ($1,568 million). The business unit owns eight manufacturing facilities in Mexico, three in Central America and one in Bolivia. In 2007, we believe our Glass Containers business unit’s sales represented approximately 74% of the non-captive glass container market in Mexico and approximately 3% of the glass container market in the United States, in each case in terms of units. We define a non-captive market to exclude buyers (such as beverage and beer bottlers) that are supplied glass containers by their affiliates. In Mexico, the Glass Containers business unit has four design centers, one of which specializes in the cosmetics and pharmaceuticals market.

The Glass Containers business unit’s strategy is to:

	•		focus on current operations to maximize organic growth and to take advantage of future opportunities by adding capacity when refurbishing existing furnaces;
	•		consolidate its competitive position by defending share and margins in the domestic market;
	•		use our growing position in niche markets and focus on value added products to enhance profitability;
	•		continue the promotion of innovative new product development;
	•		reduce costs and enhance operating efficiencies; and
	•		maximize cash flow through growth in sales and margins while optimizing the use of capital expenditures and assets.

Among the business unit’s key competitive strengths are its productivity, quality levels, wide variety of glass colors and decorative alternatives, its versatile production processes and its vertical integration with respect to raw materials, machinery and molds. The business unit’s high levels of productivity and quality, as well as its ability to rapidly meet changes in demand, allows it to aggressively compete with other container technologies in Mexico and offer value-added products at attractive prices in the United States and other export markets. The versatility and flexibility of the business unit’s production processes are reflected in the business unit’s ability to offer customers special glass colors and fast turnarounds on small production runs on a cost-efficient basis, as well as decorating and labeling processes, including ultraviolet organic paints, “plastishield,” adhered ceramic labels and heat transfer labels. In addition, we believe that the location of the business unit’s facilities is a competitive strength that has helped us implement our business strategy. The business unit’s capacity to produce cost efficient short runs with a wide variety of colors, shapes and decorations, its innovative designs and its “one-stop shop” concept, which provides its customers with a complete packaging solution, including glass containers, closures, carriers, labels and boxes, also enables it to compete effectively in value-added markets.

Our Glass Containers business unit manufactures glass containers for both high-volume markets and value-added markets. We refer to markets that demand high volumes of standard products at competitive prices as high-volume markets, and we refer to markets that require shorter production runs of highly designed products and involve premium pricing as value-added markets. The business unit’s business strategy has emphasized the introduction of products into value-added markets, in addition to retaining our market share in the Mexican high-volume markets. The specialty nature of the products sold in value-added markets allows the business unit to charge higher per unit prices for these products, resulting in higher margins.

One of our Glass Containers business unit’s competitive advantages is its time to market on the product development cycle for glass containers where we have a response time of three weeks for a prototype, which we believe is shorter than the response time of some of the other world-class producers of glass containers. Similarly, the business unit’s technological expertise permits the introduction of new products with innovative customized images in order to meet the design requirements of its customers.

Additionally, in January 2007 our Glass Containers business unit signed a three year take-or-pay contract with Grupo Modelo which includes pre-established volumes and a price adjustment formula. Vitro has been designated Grupo Modelo’s preferred third party supplier.

Traditionally, the Glass Containers business unit has had access to technology that we believe is state-of-the-art in the glass containers industry. For the production of glass bottles, the Glass Containers business unit utilizes its own technology, some of which has been patented, and technology provided by Owens-Illinois pursuant to a series of technical assistance agreements that began in 1964 and expired in September 1999. We currently have the right to use the technology provided to us by Owens-Illinois under these technical assistance agreements. Our glass containers labeling capability includes state-of-the-art technology in organic paints. This process, which is called ultraviolet cure, was developed to further our continuous efforts to grow in high-margin niche markets by providing value-added products. We hold the patent for this type of paint, which is more environmentally friendly than similar products in the market due to its organic nature. We have supplied this type of decoration for several years to customers such as The Coca-Cola Company.

Sales of the Glass Containers business unit in the beer and soft drinks business lines in Mexico are seasonal, with hot weather positively affecting our sales. As a result, second and third quarter sales are typically higher than sales in the first and fourth quarters. Accordingly, the Glass Containers business unit generally builds its inventory of glass containers during the fourth and first quarters in anticipation of seasonal demand.

In Mexico, the business unit has 23 furnaces in six glass container manufacturing facilities (Vidriera Monterrey, Vitro Cosmos, Vidriera los Reyes, Vidriera Querétaro, Vidriera Guadalajara and Vidriera Toluca), each located near a major customer. We estimate that in 2007 the business unit’s manufacturing facilities produced approximately 41% of the glass tonnage melting capacity in Mexico, and that we sold 74% of the glass container units on the Mexican non-captive market in 2007.

In the United States, the business unit’s distributor, Vitro Packaging, has four design centers, five sales offices and one distribution center, all strategically located to serve its target markets. In 2007, we believe the business unit’s imports into the United States represented approximately 22% of all sales of imported glass containers into the United States, which would make it the largest glass container importer into the United States in terms of sales.

In Central America, Comegua owns three manufacturing facilities, one located in Guatemala, one in Costa Rica and one in Panama. Comegua also has a design center located in Guatemala. In Bolivia, the business unit owns and operates one manufacturing facility.

In April 2006, Comegua acquired Vipasa, a glass container company located in Panama for a purchase price of Ps. 218 million ($20 million)- see Item 4. Information on the Company — Business — Acquisitions.

Mexican Operations

We believe that the Glass Containers business unit is the largest glass containers producer in Mexico based on the business unit’s net sales in 2007. In 2007 the Glass Containers business unit’s sales to the Mexican market were Ps. 8,371 million ($770 million). The Glass Containers business unit produces glass containers, raw materials, machinery and molds at eight manufacturing facilities located throughout Mexico. The business unit’s facilities are located in close proximity to major customers, ensuring heightened responsiveness to customer design and production requirements and optimizing transportation costs. All of the Glass Containers business unit’s facilities in Mexico have obtained the Hazard Analysis and Critical Control Points (HACCP) certification, except for Fama and Álcali, and have recertified the ISO 9000:2000 certification. During 2007, the glass facilities were operating at approximately 97% of their capacity. We also own two cullet-processing plants, which supplies us the cullet. In the cullet processing plants, scrap or broken glass is gathered for re-melting and mixed with virgin raw materials in order to obtain cost reductions in the production process without affecting the quality of the products. Although there are currently no mandatory recycling laws in Mexico similar to those in force in the United States or in other countries, we conduct campaigns throughout Mexico to collect glass containers.

The Glass Containers business unit’s customers include leading companies such as Avon, Bacardí, Coty, Estee Lauder, Gerber, Grupo Domecq, Grupo Modelo, Jugos del Valle, Nestle, Procter & Gamble and The Coca-Cola Company. In Mexico, the Glass Containers business unit relies primarily on its own sales and marketing force, utilizing outside sales representatives to service customers with smaller volume demand. The business unit has implemented an online system for sharing information with customers. From their respective offices, the business unit’s customers can access product information, place orders, check inventories, trace shipments and consult account statements. Our “one-stop shop” concept, which provides our customers with a complete packaging solution, including containers, closures, carriers, labels and boxes, enables us to compete effectively in value-added markets. We have selectively implemented this concept within Mexico, the United States and Central America.

Exports and U.S. Operations

Total export sales of the Glass Containers business unit, which do not include the sales of our Central and South American operations, amounted to $364 million (nominal dollars) in 2007. The large majority of the export sales of the business unit are made to the United States, principally through our distribution subsidiary in the United States, Vitro Packaging, which also sources a small amount of the glass containers it sells from third parties. The Glass Containers business unit increased export sales into the United States by offering value-added specialty products, particularly to the cosmetics market and to wine and liquor bottlers in the United States. The business unit also produces special promotional containers for soft drink bottlers in the United States. The exports represented 28% of the Glass Containers business unit’s net sales in 2007.

Central and South American Operations

Comegua, a joint venture in which we hold a controlling 49.7% interest, is a Panamanian holding company that operates manufacturing facilities in Guatemala, Costa Rica, and Panama and supplies glass containers to the soft drink, food, beer and wine markets throughout Central America and the Caribbean. Comegua’s consolidated net sales in 2007 were Ps. 2,127 million ($196 million).

In April 2006, Comegua acquired Vipasa, a glass container company located in Panama for a purchase price of Ps. 218 million ($20 million) — see Item 4. Information on the Company — Business — Acquisitions.

We also own 100% of the common stock of Vilux, a company that owns and operates the only glass container manufacturing facility in Bolivia. Vilux’s net sales in 2007 were Ps. 113 million ($10 million).Vilux distributes glass containers for the soft drinks, food, beer, wine and liquor industries throughout Bolivia, southern Peru and Chile.

Raw Materials, Machinery and Molds

Our raw materials operations are carried out by our subsidiary Álcali. Álcali’s net sales in 2007 were Ps. 1,252 million ($115 million). Álcali’s principal products are soda ash, sodium bicarbonate, calcium chloride and salt for industrial and commercial consumption. Most of Álcali’s soda ash production, which is used in the manufacture of glass, detergents and tripolyphosphates, is sold to third parties. Álcali competes in the soda ash sector with the American Natural Soda Ash Corporation (“Ansac”), a United States exporter of natural soda ash. Álcali maintains a separate sales and marketing force for its products, which are distributed directly to its customers.

Our machinery and molds operations are conducted through our subsidiary Fama. Fama was founded in 1943 to source our needs for molds and machinery for our glass manufacturing operations. It had net sales of Ps. 695 million ($64 million) for the year ended December 31, 2007. Fama produces state-of-the-art glass-forming machines for our internal use. In addition, Fama produces castings of special alloys for glass molds and for different types of machinery and parts for machinery used in the oil industry. Fama also produces mold equipment for the glass industry and ancillary equipment for the glass, packaging and other industries, as well as electronic controls for machinery operating and process controls for glass-forming machines. Finally, Fama manufactures annealing lehrs, which are ovens used to anneal glass, for the float and hollow glass industries. Fama’s products are mainly sold to us. Fama generally competes with major international manufacturers of machinery and equipment for the glass industry.

Competition

Although based on the business unit’s net sales in 2007 of Ps. 14,676 million ($1,351 million) we believe the Glass Containers business unit is the principal supplier of glass containers in Mexico, it competes with various smaller domestic manufacturers as well as with the glass containers operations of the two major Mexican beer producers who produce bottles for their own consumption. The Glass Containers business unit in Mexico also competes with alternative forms of packaging, including metal, plastic, paper and aseptic containers. In the soft drinks industry, the Glass Containers business unit has faced increasing competition from polyethylene therephtalate containers (“PET”), as well as, to a lesser extent, from aluminum cans. In particular, since 1993 the shift of soft drinks and food containers from glass to PET has continued, albeit at a slower rate in recent years. In response to the trend in soft drinks and food containers from glass to PET, we continue to implement measures to offset the effect of PET substitution, including improving operating efficiencies, new product presentations and customer service. In 2007, for the third consecutive year, the returnable soft drinks glass industry increased versus the previous year, and our overall sales in the Mexican soft drinks market experienced a 1% compound annual growth rate from 2004 to 2007.

In Mexico, the business unit competes for customers primarily on the basis of service (focusing on on-time deliveries and design), quality (including the ability to conform to a wide variety of specifications) and scale (including the ability to assure customers of the capacity necessary to support their growth).

The Glass Containers business unit faces greater competition in the United States than in Mexico, mainly from Saint Gobain and Owens-Illinois. However, the business unit has utilized its competitive advantage to supply a variety of higher margin, value-added products, including specialty food, beverage, cosmetics, wine and liquor glass containers, and to increase its production expertise and flexibility, thereby allowing it to realize higher operating margins relative to traditional products. The business unit’s ability to offer cost-effective short production runs, quick new product turn-around, an extensive glass color selection, diverse labeling capabilities and unique container designs are all examples of the application of its competitive strengths. The Glass Containers business unit competes primarily on quality, design and price in the United States. In Central America, the Glass Containers business unit competes with a number of smaller regional manufacturers.

Flat Glass Business Unit

Flat Glass accounted for 48% of our consolidated net sales in 2007. In 2007, the Flat Glass business unit’s net sales were Ps. 13,605 million ($1,252 million) and its export sales were $237 million (nominal dollars). During 2007, 20% of the business unit’s net sales were derived from export sales and 56% were derived from its foreign subsidiaries.

The Flat Glass business unit’s holding company is Viméxico. The Flat Glass business unit began operations in Mexico in 1936. Since 1965 and prior to the merger of Vitro Plan with Viméxico, Vitro Plan was jointly owned by Vitro (65%) and Pilkington (35%). On December 11, 2006, Vitro Plan was merged with Viméxico, and as a result, the surviving entity is now jointly owned by Vitro (91.8%) and Pilkington (8.2%).

The business unit’s customer base includes several large distributors and installers in the construction industry in Mexico and abroad, several automotive manufacturers such as General Motors, Ford Motor Co., DaimlerChrysler, Volkswagen and Nissan, and distributors and installers in the automotive replacement industry.

As of December 31, 2007, the Flat Glass business unit’s total assets were Ps. 12,835 million ($1,181 million). The business unit owns over 250 operating centers, including four float glass furnaces and four automotive safety glass processing facilities in Mexico, nine fabrication facilities in the United States, seven processing facilities in Spain and one in Portugal. We believe our float glass capacity represented 57% of the float glass produced in Mexico and 3% of the total installed capacity in the NAFTA region.

The Flat Glass business unit’s strategy is to:

	•		reduce costs and enhance operating efficiencies;
	•		improve cash flow and optimize asset use;
	•		protect and increase our market share in the Mexican market for construction glass, reducing our reliance on the export market;
	•		maintain our leading position and growth trend in the OEM glass business through increasing participation with the Asian car manufacturers;
	•		consolidate and grow North American leadership of laminated window products for the OEMs and other value-added products;
	•		diversify client portfolio;
	•		increase fabrication of value-added products in the United States and Mexico;
	•		increase European presence through Vitro Cristalglass; and
	•		leverage the “Vitro” brand name.

For the construction market, we rely on a preferred client network, Vitromart, which consists of 216 of the business unit’s largest distributors of flat glass for the construction industry. Additionally our Flat Glass business unit’s strategy has emphasized production-retail integration for the Mexican auto glass replacement market. Vitrocar and Cristales Automotrices, are the biggest automotive glass-replacement installation chain in Mexico. Vitrocar and Cristales Automotrices operate 186 installation centers throughout Mexico, of which 66 are owned by these two companies and 120 are franchised. Both companies have agreements with the main insurance companies operating in Mexico in order to provide a complete service to such companies’ clients.

Mexican Operations

We believe that the Flat Glass business unit is the largest flat glass producer in Mexico based on the business unit’s net sales in Mexico in 2007. The business unit maintains seven distribution centers throughout Mexico where construction customers or automotive customers can access information about the availability of products on a real-time basis. 44% of Flat Glass sales are from the Mexican operations out of which Ps. 3,974 million ($366 million) are done in Mexico and $237 million (nominal dollars) are exports. The majority of these export sales are made to automotive OEMs in the United States. The principal product that Vidrio y Cristal and Vidrio y Cristal del Noroeste produce and distribute is float glass for the construction industry, principally for commercial and residential uses, as well as raw material for the automotive safety glass producers. Vidrio y Cristal also produces tabletops and coated glass. For the Mexican automotive industry, VAU and Vitro Flex produce safety glass products such as windshields, side and back lights, rear quarters and sunroofs.

Vidrio y Cristal operates two float glass furnaces near Monterrey, Mexico and Vidrio y Cristal del Noroeste operates one in Mexicali, Mexico. Products at these facilities are manufactured using the float method, which involves pouring molten glass over a molten tin bath. During 2007, the float glass facilities were operating at 94% of their capacity. See “Item 4. Information on the Company—Business—Our Property, Plant and Equipment.” All but one of Vidrio y Cristal’s and Vidrio y Cristal del Noroeste’s facilities have obtained ISO 9001 Certification.

Vidrio y Cristal and Vidrio y Cristal del Noroeste, now operating together, sell raw glass to builders, glass installers and distributors in the construction segment and a small proportion to the automotive safety glass producers as raw material. The sales force markets its construction products to a large number of distributors and is supported by a technical support department that offers technical advice to construction glass installers. These subsidiaries have designated commercial executives to serve as individualized customer service representatives for the business unit’s principal purchasers of construction products.

For the production of automotive safety glass, VAU and Vitro Flex, now operating together, operate four processing facilities in Mexico for the automotive OEM market and the AGR market. Sales are made directly to automotive OEMs in Mexico and the United States, while the AGR market is serviced through the business unit’s distribution centers throughout Mexico, independent distributors and installers and Vitrocar’s and Cristales Automotrices’ stores. Ford Motor Co. is the largest end customer of the business unit’s automotive safety glass products, which purchases these products for use in Ford Motor Co.’s assembly plants in Mexico and the United States and to serve the AGR market through the Carlite brand. In addition, VAU and Vitro Flex sell automotive safety glass products to automobile manufacturers in Mexico, United States and other markets; main clients include GM, Ford, Chrysler, Nissan and Freightliner.

In order to better serve their customers, VAU and Vitro Flex have established account plans for automotive OEMs. OEM account plans consist of staff whose time is exclusively dedicated to major OEMs and who provide specialized assistance in the areas of engineering, service and sales.

United States Operations

The United States operations of the Flat Glass business unit are conducted through Vitro America, which, based on its consolidated net sales in 2007, is one of the largest distributors of flat glass products in the United States. In 2007, Vitro America had consolidated net sales of $451 million, of which 85% were to the construction industry and 15% were to the automotive replacement market.

Vitro America purchases flat glass as raw material from our Mexican subsidiaries and from United States manufacturers and uses it to process tempered, spandrel, insulated, laminated, mirrors and other products. In 2007, our Mexican subsidiaries supplied 46% of all flat glass purchased by Vitro America, which purchases include coated and other proprietary products that Vitro could not supply. These products are sold directly to distributors as well as to end-buyers through Vitro America’s own distribution centers and retail shops. Vitro America also distributes and sells to furniture manufacturers in the United States a significant number of custom-made glass tabletops produced by the Flat Glass business unit’s manufacturing plants in Mexico. Additionally, Vitro America engages in the design, manufacture and installation of custom skylights in the United States and several other countries. Vitro America also distributes to the United States automotive replacement market a full line of automotive glass products, including windshields and side and back windows for American and foreign cars and trucks.

Vitro America operates 9 fabrication facilities, 26 distribution centers and 98 installation centers in the United States. Vitro America sells its construction products to builders and glass installers, who use its products in industrial and commercial projects such as skyscrapers and other buildings, through its own distribution network and retail stores. Vitro America sells its automotive products to the replacement market through its own distribution network and retail stores.

European Operations

The Flat Glass business unit competes in the European flat glass construction market through Vitro Cristalglass and Vitro Chaves, mainly with value added products. Vitro Cristalglass processes and distributes double glass, laminated glass and tempered glass mainly for the Spanish, French and Portuguese market. Vitro Cristalglass operates with seven insulated glass manufacturing centers and two distribution centers, located in Barcelona. Additionally, Vitro Cristalglass has the biggest semi-finished manufacturing process center of Spain located in Ponferrada. Vitro Chaves manufactures and distributes insulated and laminated glass products in Portugal with their main facility located in Chaves (north of Portugal) and a distribution center located in Lisbon. In 2007, Vitro Cristalglass and Vitro Chaves had consolidated net sales of Ps. 2,462 million ($227 million) and Ps. 392 million ($36 million), respectively. Most of the sales of Vitro Cristalglass are of insulated glass windows, a value-added product, which are distributed to builders and distributors by Vitro Cristalglass’ own sales force. Vitro Chaves’ main products are insulated and laminated glass for the construction industry, which are distributed through its own and Vitro Cristalglass’ distribution network.

In April 2008, Vitro Cristalglass acquired certain assets from Verres et Glaces D’Epinay (located in Villetaneuse, France), the most significant being an Isolated Glass (“IG”) fabrication facility, which serves the commercial and residential market in Northern France.

Central and South American Operations

Through its Colombian subsidiary, Vitro Colombia, and, to a lesser extent, through its subsidiaries in Venezuela, Ecuador and Panama, the Flat Glass business unit processes tempered and laminated glass for the automotive replacement, construction and specialty markets in Central and South America. Vitro Colombia has one processing facility which is located in Colombia. In 2007, Vitro Colombia and its subsidiaries had consolidated net sales of Ps. 422 million ($39 million). Vitro Colombia is expanding into the OEM automotive glass market in Colombia and other Andean Pact nations as well as into the automotive replacement market in South America. Vitro Colombia markets its products through a network of independent distributors to small- and medium-sized builders.

Competition

In Mexico, Vidrio y Cristal and Vidrio y Cristal del Noroeste face competition in the construction industry mainly from Saint Gobain, Guardian, and from imports of glass products. Guardian, which since 1999 has competed with our Flat Glass business unit as an importer of raw flat glass products, completed the construction of a float glass furnace in Queretaro in 2004, which is estimated to produce 200,000 tons of float glass per year. The local competition of Vidrio y Cristal and Vidrio y Cristal del Noroeste compete primarily on price, service and quality. See “Item 3. Key Information—Risk Factors—Risk Factors Relating to Us—We continue to experience competition from our global competitors and vertically integrated customers.”

With respect to automotive safety glass, the business unit’s principal competition includes Saint Gobain, PPG Industries, Asahi, Pilkington, Visteon and imports of low-volume automotive glass products that are being utilized in new automotive designs produced in Mexico. Saint Gobain operates an automotive glass manufacturing facility located in Cuautla, Mexico.

Vitro America faces competition in the United States from a variety of flat glass manufacturers in the United States, as well as from a large number of medium- and small-sized producers and distributors of flat glass products. Vitro America competes in the United States primarily on the basis of breadth of geographic distribution capabilities, service (on a full line of products) price and quality.

In Europe, Vitro Cristalglass, as an Insulated Glass Manufacturer, faces competition with regional competitors and integrated competitors like Saint Gobain. In Central and South America, Vitro Colombia main competitors are Guardian, Pilkington and Saint Gobain.

Our Raw Materials

Soda Ash, Sand and Feldspar

The most important raw materials we utilize are soda ash, which we largely purchase from Ansac, silica sand and feldspar. In 2005, we entered into a five-year supply agreement with Unimin Corporation (“Unimin”), whereby we have committed to purchase, and certain of Unimin’s subsidiaries are committed to sell, our requirements of silica sand and feldspar at the current market prices. Álcali has, to a large extent, the production capacity to supply the soda ash required by our glass making operations in Mexico. To the extent that any of our Mexican subsidiaries require silica sand or soda ash of a different grade than that produced by Unimin or by Ansac and Álcali, such companies may acquire such silica sand or soda ash from various suppliers in the United States. We are not dependent on any single supplier for any of the raw materials utilized in our operations.

Energy

Certain of our subsidiaries agreed to purchase, in the aggregate, 90 megawatts of electrical power and 1.3 million tons of steam per year pursuant to a 15-year “take-or-pay” power purchase agreement with Tractebel Energía, S. de R.L. de C.V. (“Tractebel Energia”). This contract began in April 2003 and the price at which we are required to purchase electrical power and steam is based on variables such as inflation, the peso/U.S. dollar exchange rate and the price of natural gas, whose future value is uncertain.

Fuel

The percentage of estimated fuel consumption hedged can vary from 10% to 100%. The percentage of consumption hedged and the hedged prices change constantly according to market conditions based on the Company’s needs and to the use of alternative fuels within its production processes. As of December 31, 2007, the Company had hedges for approximately 20% of estimated natural gas consumption for 2008.

As of June 23, 2008, the closing price of natural gas on the New York Mercantile Exchange was $13.20 per MMBTU. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk - Natural Gas Price Risk.”

Our Capital Expenditures

Our capital expenditures program is currently focused on new investments in technological upgrades and maintenance of our manufacturing facilities, as well as expansion of our production capacity. Our capital expenditures program also contemplates the purchase and maintenance of environmental protection equipment required to meet applicable environmental laws and regulations, as such may be in effect from time to time. The following table sets forth, for the periods presented, our capital expenditures by business unit.

		Year ended December 31,
		2005				2006				2007
Business Unit		(Ps. millions)
Glass Containers		Ps.	622			Ps.	894			Ps.	2,328
Flat Glass			468				338				324
Corporate and other			17				20				43
Total		Ps.	1,107			Ps.	1,252			Ps.	2,695

During 2008, we expect to make capital expenditures in the range of Ps. 2,695 million ($248 million) as follows:

	•		Our Glass Containers Business Unit expects to make capital expenditures of Ps. 2,065 million ($190 million), of which Ps. 1,282 million ($118 million) will be used to provide maintenance to certain of our furnaces and to the relocation of our Vidriera Mexico operation to the Vidriera Toluca facility. The remaining Ps. 783 million ($72 million) will be applied to expand production capacity. The production capacity expansion would take place within the Vidriera Monterrey, Vidriera Mexico (in its new location at the Vidriera Toluca premises), and Vidriera Los Reyes facilities.
	•		Our Flat Glass Business Unit expects to make capital expenditures of Ps. 598 million ($55 million), of which Ps. 348 million ($32 million) will be used by its Mexican subsidiaries, highlighted by the purchase of a new furnace for the Company’s automotive glass operations and the other Ps. 250 million ($23 million) will be used by its foreign subsidiaries.
	•		Our corporate entities expect to make capital expenditures of approximately Ps. 32 million ($3 million).

The capital expenditures are expected to be financed with cash flows generated by our operations and with current cash on hand. Should we be unable to fund the total amount of our capital expenditures with cash flows from operations, we might defer a portion of such expenditures to future periods.

See “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources”, for a discussion of our principal capital expenditures during the last three full fiscal years.

Genesis Project

Through the end of 2007, we have invested approximately Ps. 423 million ($39 million) related to the implementation of the Genesis Project. During 2008, we expect to invest approximately Ps. 163 million ($15 million) for the continued implementation of the Genesis Project. The majority of the cost of the Genesis Project is being capitalized and will be amortized over the expected useful life of the asset. See “Item 3. Key Information—Recent Developments—Genesis Project.”

Our Property, Plant and Equipment

All of our assets and property are located in Mexico, the United States, Central and South America and Europe. On December 31, 2007, the net book value of land and buildings, machinery and equipment and construction in progress was Ps. 17,841 million ($1,642 million), of which Ps. 14,960 million ($1,377 million) represented assets located in Mexico; Ps. 337 million ($31 million) represented assets located in the United States; Ps. 1,923 million ($177 million) represented assets located in Central and South America; and Ps. 621 million ($57 million) represented assets located in Europe.

Our principal executive offices are located in the Monterrey, Mexico area. We own and operate 37 manufacturing facilities worldwide, of which our float glass furnaces are our largest facilities. Our subsidiary Comegua has granted a lien on one of its furnaces, and our subsidiary Vitro Cristalglass has granted a lien on one of its facilities.

The following table sets forth, for the periods presented, the average capacity utilization and location of each of our business unit’s principal manufacturing facilities.

Average Capacity

Average Capacity

Utilization (1) as of

Utilization (2) as of

Number of Facilities

Business Unit

December 31, 2006

December 31, 2007

by City or Country

Glass Containers

98

%

97

%

Monterrey(3)

Guadalajara

Mexico City(2)

Queretaro

Toluca

Costa Rica

Guatemala

Panama

Bolivia

Flat Glass

Float

94

%

99

%

Monterrey(4)

Furnaces (3)

Mexico City(2) (4)

Mexicali

United States(9)

Automotive Facilities

79

%

77

%

Colombia Spain(7) Portugal

We also maintain over 60 sales offices and warehouses in Mexico and over 165 warehouses, sales offices and retail shops in the United States, most of which are leased.

We believe that all our facilities are adequate for our present needs and suitable for their intended purpose and that our manufacturing facilities are generally capable of being utilized at a higher capacity to support increases in demand.

See “Item 4. Information on the Company—Our Capital Expenditures” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital Expenditures” for a discussion of our capital expenditures.

Environmental Matters

Our Mexican operations are subject to Mexican federal, state and municipal laws and regulations relating to the protection of the environment. The primary federal environmental law is the Ley General de Equilibrio Ecológico y la Protección al Ambiente (“LGEEPA” or the General Ecological and Environmental Protection Law) pursuant to which regulations have been promulgated concerning air pollution, noise pollution, environmental impact assessments, environmental audits and hazardous wastes and substances. LGEEPA sets forth the legal framework applicable to the generation and handling of hazardous wastes and substances, the release of contaminants into the air, soil and water, as well as the environmental impact assessment procedure. The Ley de Aguas Nacionales (National Water Law) and regulations thereunder govern the prevention and control of water pollution.

The Ley General para la Prevención y Gestión Integral de los Residuos (General Law for the Prevention and Integrated Management of Waste) regulates the generation, handling, transportation, storage and final disposal of hazardous waste, as well as the import and export of hazardous materials and hazardous wastes. The Mexican federal government has established a public registry where federally regulated emission sources report their air and water emissions, as well as information on the generation, handling, transportation and disposal of hazardous substances.

In addition to the foregoing, Normas Oficiales Mexicanas (Mexican Official Standards), which are technical standards issued by regulatory authorities pursuant to the Ley General de Metrología y Normalización (General Law of Metrology and Normalization) and other laws that include the aforementioned environmental laws, establish standards relating to air emissions (including air emissions for glass manufacturing operations), waste water discharges, the generation, handling and disposal of hazardous wastes and noise control, among others.

The Mexican federal authority in charge of overseeing compliance with the federal environmental laws is the Secretaria del Medio Ambiente y Recursos Naturales (Secretary of Environment and Natural Resources), which we refer to as “SEMARNAT”. An agency of SEMARNAT, the Procuraduria Federal de Protección al Ambiente (Federal Environmental Protection Agency), which we refer to as “PROFEPA”, has the authority to enforce the Mexican federal environmental laws. As part of its enforcement powers, PROFEPA can bring administrative, civil and criminal proceedings against companies and individuals that violate environmental laws, regulations and Mexican Official Standards and has the authority to impose a variety of sanctions. These sanctions may include, among others, monetary fines, revocation of authorizations, concessions, licenses, permits or registries, administrative arrests, seizure of contaminating equipment, and in certain cases, temporary or permanent closure of facilities.

Additionally, as part of its inspection authority, PROFEPA is entitled to periodically inspect the facilities of companies whose activities are regulated by the Mexican environmental legislation and verify compliance therewith. Furthermore, in special situations or certain areas where federal jurisdiction is not applicable or appropriate, the state and municipal authorities can administer and enforce certain environmental regulations of their respective jurisdictions.

In 1998, our subsidiaries initiated a voluntary environmental auditing program implemented by PROFEPA. This program entails PROFEPA-approved auditors conducting environmental audits of the relevant facilities to determine if such facilities comply with applicable Mexican environmental laws. Once an audit is completed, the auditor issues a report of findings and recommendations, which must be delivered to PROFEPA. The audited facility thereafter enters into an agreement with PROFEPA on an action plan to be undertaken, pursuant to which, after being implemented to PROFEPA’s satisfaction, the audited entity receives the Industria Limpia (“Clean Industry”) certificate. The Clean Industry certificate is valid for two years and may be extended at the request of the audited entity, provided that an auditor reaudits and certifies that the relevant facility operates pursuant to the Clean Industry certificate that was previously granted. Obtaining this certificate implies that the audited facility is in compliance with applicable Mexican environmental laws at the time of receipt of the certificate.

A PROFEPA-approved independent auditor has completed environmental audits at all 15 of our facilities in Mexico. All of these facilities have already obtained the Clean Industry certificate.

Our foreign operations are subject to federal, state and local laws relating to the protection of the environment of the country in which such operations are conducted. From time to time, we conduct environmental assessments of our foreign operations, some of which are currently underway, to determine whether we are in compliance with applicable foreign environmental laws. We expect to spend approximately $1 million in capital expenditures over the next two years to comply with these and other environmental regulations as they become effective or are modified. We may, however, incur amounts greater than currently estimated due to changes in law and other factors beyond our control. Although there can be no assurance, we do not believe that continued compliance with Mexican and foreign environmental laws applicable to our operations will have a material adverse effect on our financial position or results of operations.

Item 4A. Unresolved Staff Comments

Not applicable

Item 5. Operating and Financial Review and Prospects

You should read this discussion in conjunction with, and this discussion is qualified in its entirety by reference to, our consolidated financial statements and notes thereto and other financial information included elsewhere in this annual report. Our consolidated financial statements are prepared in accordance with Mexican FRS, which differs in certain significant respects from U.S. GAAP. Note 24 to our consolidated financial statements for the year ended December 31, 2007 provides a description of the principal differences between Mexican FRS and U.S. GAAP as they relate to us. This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including without limitation those set forth in “Item 3. Key Information—Risk Factors” and the other matters set forth in this annual report. See “Forward-Looking Statements.”

OPERATING RESULTS

Factors Affecting Our Results of Operations

Our statement of operations is affected by, among other factors, (i) the level of demand for our products in the countries in which we operate, (ii) our costs of production, which principally consist of costs of raw materials, labor, energy and depreciation, (iii) the relationship between the peso and the U.S. dollar, (iv) financing costs, which are incurred in both pesos and U.S. dollars and (v) increased competition in our domestic market and abroad. See “Item 3. Key Information—Risk Factors—Risk Factors Relating to Us—Difficult market conditions in the automotive industry may affect our operating margins and results of operations,” “Item 3. Key Information—Risk Factors—Risk Factors Relating to Us—We have customers that are significant to us and the loss of all or a portion of their business would have an adverse effect on us,” “Item 3. Key Information—Risk Factors—Risk Factors Relating to Us—Downturns in the economies in which we operate may negatively affect the demand for our products and our results of operations,” “Item 3. Key Information—Risk Factors—Risk Factors Relating to Us—Changes in the relative value of the peso to the U.S. dollar and the Euro may have an adverse effect on us,” “Item 3. Key Information— Risk Factors—Risk Factors Relating to Us—Inflation fluctuations may have an adverse effect on our total comprehensive financing result,” “Item 3. Key Information— Risk Factors—Risk Factors Relating to Us—Foreign exchange rate fluctuations may have an adverse effect on our total comprehensive financing result,” “Item 3. Key Information—Risk Factors—Risk Factors Relating to Us—We may be adversely affected by increases in interest rates,” and “Item 3. Key Information—Risk Factors—Risk Factors Relating to Us—Substitution trends in the glass container industry may continue to adversely affect our business.”

Trend Information

The Mexican glass container market has shown an upward trend during the past years. The continued popularity of glass as a packaging option given its high quality image, its endless possibilities of innovation and its environmental friendly aspects when compared to other container products has helped this positive trend. In fact, some products that years ago migrated to other types of packaging are returning to glass due to consumer preferences. Looking forward, one of the main growth drivers in the Mexican glass container market is expected to be the migration from returnable to non-returnable glass containers in the beer segment. Regarding the United States market, the Glass Containers business unit has focused its strategy in value-added niche markets where it has been able to capture the demand growth and estimates it will continue to show the same trend in the future. This particular business unit is not expected to be affected by the economic recession, as history has proved that there is no correlation between glass containers consumption and GDP growth.

The long term fundamentals of the different markets where the Flat Glass business unit participates are also strong. The Mexican flat glass construction market has experienced growth in recent years and it is expected to grow in the future due to: strong demand, the current housing deficit and the positive interest rate conditions prevailing in Mexico. The automotive OEM business has experienced increasing pressures in different geographic markets. We are heavily dependent on the big three US car manufactures which are currently experiencing difficult times. High gasoline prices are also affecting sales of the OEM business, specially the ones related to Sport Utility Vehicles (“SUV’s”), which represent an important percentage of our auto glass volume.

The Flat Glass business unit continues to diversify its customer base to Japanese Manufacturers and to attract new automotive platform contracts. Despite the automotive industry’s pressures, our automotive business has benefited from the growth and the strong fundamentals of the Mexican AGR market. The Spanish residential construction market is experiencing a slowdown. Vitro Cristalglass has been able to partially offset this situation through its geographic diversification and the access to other European markets. One example of the steps taken by Vitro Cristalglass to achieve a broader geographic diversification is the acquisition of Vitro Cristalglass France, which is now engaged in the production and distribution of value-added glass products to the French residential and commercial construction market. Longer term, the Spanish construction market is expected to recover its growth momentum. Despite the positive results in 2007, Vitro America, our flat glass subsidiary in the United States, is facing a challenging environment derived from the economic recession and the sub-prime mortgage crisis in the United States. The real estate and construction market in the U.S. is now being seriously affected by the effects of the sub-prime mortgage market, which is also affecting the economy overall. Credit induced housing has played a very large role in the economy’s expansion that has lifted other sectors of the economy and is in reverse now. Increased foreclosures could generate increased inventory on the housing market which could affect our residential and commercial construction sales, which as of today is still not clear when it will recover. See “Item 3. Key Information—Risk Factors—Risk Factors Relating to Us—Downturns in the economies in which we operate may negatively affect the demand for our products and our results of operations” and “Item 3. Key Information— Risk Factors—Risk Factors Relating to Economies in Which We Participate—Economic developments in Mexico and the United States affect our business.”

Substantially all of our export sales and most of our domestic sales in Mexico are denominated in or affected by the US dollar, and accordingly, the following discussion of the trends of our business units is based upon a US dollar presentation.

Our Glass Containers business unit performed extremely well in 2007, with a record year in terms of sales, despite constraints on our production from interruptions in the supply of natural gas during July and September 2007. Domestic sales have been driven by increased volumes coupled with a better product mix at most of our business lines. Higher sales in the food and wine & liquor lines compensated for marginal lower sales in the remaining business lines. Export sales continued to benefit from an increase in volumes in food and wine & liquor as well as a better product mix at cosmetics, fragrances and toiletries (“CFT”), soft drinks and wine & liquor business lines.

Our Flat Glass Business unit also performed very well, with increased sales across all our business lines, other than sales from the construction market in the United States. In the automotive business line higher volumes to the AGR market more than offset a reduction in volumes to the OEMs.

The increase in the price of certain of our raw materials, in particular natural gas, continues to negatively affect our cost of goods sold. The average NYMEX natural gas price during 2007 was $7.12 per MMBTU and even though it decreased 2% compared to 2006, it has increased 120% compared with 2003.

Our cost of goods sold is sensitive to the price of natural gas. In recent years, every dollar fluctuation per MMBTU has had an annual impact of approximately $20 million on our cost of goods sold based on our average historical consumption of approximately 1.7 million MMBTUs per month. The NYMEX closing price of natural gas as of June 23, 2008 was $13.20 per MMBTU. We have not been able to raise the prices of our products to fully reflect the increases in our operating costs and therefore our results of operations could be adversely affected. See “Item 3. Key Information— Risk Factors—Risk Factors Relating to Us— We have experienced rising operating costs in our businesses.”

Economic Developments in Mexico and the United States Affect our Business

A substantial portion of our operations are in Mexico and a substantial majority of our consolidated net sales are made in Mexico and the United States. Therefore, economic conditions in Mexico and the United States have a significant effect on our business, results of operations and financial position.

2007 was a year of moderate global economic growth. The economies of Mexico and the United States, our two biggest markets, recorded actual GDP growth in 2007 of 3.3% and 2.2%, respectively, compared with growth of 4.7% and 3.3%, respectively, in 2006. Mexico’s economic growth rate was mainly driven by the increase in oil prices. Analysts, however, continue to view the pace of growth as weak, as economic uncertainties are anticipated due to, among other factors, the economic deceleration in the United States. Over the past few years, Mexico’s rate of inflation has remained low, amounting to 4.1% in 2006 and 3.8% in 2007.

The majority of our manufacturing facilities are located in Mexico. For each of the years ended December 31, 2005, 2006 and 2007, 41%, 43%, and 44%, respectively, of our consolidated net sales resulted from sales to parties located within Mexico.

While helping the country to maintain low levels of inflation and a manageable deficit, the Mexican government’s continued fiscal and monetary policy does not provide the flexibility necessary to support Mexico’s economic improvement. As a result, new investment and growth in aggregate purchasing power have been marginal. Several factors could affect the growth of Mexico’s economy and its industrial sector. These factors include (i) the extent of the U.S. economic recovery and the participation of Mexico’s industrial sector in that recovery and (ii) the Mexican government’s approval and implementation of fiscal and other structural reforms such as the evolution of energy prices, particularly natural gas. In spite of these political and economic dynamics, we will continue to focus on the factors within our control and position ourselves to take full advantage of new market opportunities.

Inflation and Foreign Currency Exchange Rate Fluctuations

The following table sets forth, for the periods presented, certain information relating to inflation and foreign currency exchange rates:

		For the Year Ended December 31,
		2005				2006				2007
Nominal peso devaluation (appreciation) relative to the U.S. dollar (1)			(4.6%)				1.7%				0.5%
Mexican inflation (based on changes in INPC) (1)			3.3%				4.1%				3.8%
U.S. inflation (based on changes in Consumer Price Index) (2)			3.5%				2.5%				4.1%
Inflation differential (Mexican vs. U.S.) (1)(2)(3)			(0.2%)				1.6%				(0.3%)
Real peso devaluation (appreciation) relative to the U.S. dollar (4)			(4.5%)				0.1%				0.8%
Free Exchange Rate as of year end (1)		Ps.	10.6344			Ps.	10.8116			Ps.	10.8662
Mexican GDP growth rate (5)			3.0%				4.7%				3.3%
Exchange rate of euro per pesos as of year end (6)		Ps.	12.5932			Ps.	14.2680			Ps.	15.9526

Effects of Inflation and Foreign Currency Exchange Rate Fluctuations on Operating Margins

Changes in the relative value of the peso to the U.S. dollar have an effect on our results of operations. In general, as described more fully in the following paragraphs, a real devaluation of the peso will likely result in an increase in our operating margins and a real appreciation of the peso will likely result in a decrease in our operating margins, in each case, when measured in pesos. This is because the aggregate amount of our consolidated net sales denominated in or affected by U.S. dollars exceeds the aggregate amount of our cost of goods sold and our selling, general and administrative expenses denominated in or affected by U.S. dollars.

A substantial portion of the sales generated by our Mexican and U.S. subsidiaries are either denominated in or affected by the value of the U.S. dollar. The prices of a significant number of the products we sell in Mexico, in particular those of flat glass for automotive uses and capital goods are linked to the U.S. dollar. In addition, substantially all of our export sales are invoiced in U.S. dollars and subsequently translated into pesos using the exchange rate in effect at the time of the transaction. The translated U.S. dollar sales of our Mexican subsidiaries are then restated into constant pesos using INPC, as of the date of the most recent balance sheet included in those financial statements.

As a result, when the peso devalues in real terms against the U.S. dollar, as was the case in 2003, 2006 and 2007, the same level of U.S. dollar sales as in a prior period will result in higher constant peso revenues in the more recent period. Conversely, when the peso appreciates in real terms against the U.S. dollar, as was the case in 2004 and 2005, the same level of U.S. dollar sales as in a prior period will result in lower constant peso revenues in the more recent period. Moreover, because a material portion of our cost of goods sold, including labor costs, and selling, general and administrative expenses are invoiced in pesos and are not directly affected by the relative value of the peso to the U.S. dollar, the real appreciation or devaluation of the peso relative to the U.S. dollar has a significant effect on our operating margins, at least in the short term.

Further, a strong peso relative to the U.S. dollar makes the Mexican market more attractive for importers and competitors that might not otherwise sell in the Mexican market. A strong peso relative to the U.S. dollar also makes those of our products whose prices are denominated in or are affected by the value of the U.S. dollar less competitive or profitable. When the peso appreciates in real terms, with respect to such products, we must either increase our prices in U.S. dollars, which make our products less price-competitive, or bear reduced operating margins when measured in pesos. Given the competitive nature of the industries in which we operate, in the past we have chosen to reduce our operating margins for such products in response to appreciation of the peso relative to the U.S. dollar. For the year ended December 31, 2005, the appreciation of the peso in real terms had an adverse effect on our operating margins and, while the peso did not appreciate in the years ended December 31, 2006 and 2007, it may appreciate again in the future, potentially resulting in an adverse effect on our operating margins. Sales of products manufactured, processed or sold by us outside Mexico (principally by Vitro America, Vitro Packaging, Comegua, and Vitro Cristalglass), as well as such subsidiaries’ expenses, are restated during a financial reporting period by adjusting such amount for the inflation observed in the country in which the subsidiary operates and then translated into pesos at the exchange rate in effect at the end of the period. Since such subsidiaries’ revenues and expenses are generally both earned and incurred in the same currency, the devaluation or appreciation of the peso has a much more limited effect on the operating margins of such subsidiaries. However, profits, as reported in real peso terms, are substantially impacted by the devaluation or appreciation of the peso relative to the appropriate currency.

Effect of Inflation and Foreign Currency Exchange Rate Fluctuations on Total Comprehensive Financing Result

Our total comprehensive financing result includes (i) net interest expense, (ii) the net effect of inflation on our monetary assets and liabilities, (iii) the net effect of changes in nominal foreign currency exchange rates on monetary assets and liabilities denominated in foreign currencies and (iv) since 2005, due to the implementation of Bulletin C-10, “Derivative Financial Instruments and Hedging Activities,” gains or losses related to hedging transactions. Net interest expense is calculated as the nominal amount of interest expense incurred by us with respect to our short- and long-term debt and off-balance sheet financings, minus the nominal amount of interest income generated by us with respect to our monetary assets.

Inflation affects our total comprehensive financing result. During periods of inflation, the principal amount of our monetary debt will generally be reduced in real terms by the rate of inflation. The amount of such reduction will result in a gain from monetary position. This gain is offset by the reduction in real terms in the value of the monetary assets we held during such period. Historically, our monetary liabilities have exceeded our monetary assets and, thus, we have tended to experience monetary gains during periods of inflation. Declining levels of inflation in recent years have resulted in lower monetary gains.

Our total comprehensive financing result is also impacted by changes in the nominal value of the peso relative to the U.S. dollar. Foreign currency exchange gains or losses included in total financing cost result primarily from the impact of nominal changes in the U.S. dollar-peso exchange rate on our and our Mexican subsidiaries’ U.S. dollar-denominated monetary liabilities (such as dollar-denominated debt and accounts payable arising from imports of raw materials and equipment) and assets (such as dollar-denominated cash and cash equivalents and accounts receivable from exports). Because our U.S. dollar-denominated liabilities have historically been significantly in excess of our dollar-denominated monetary assets, the devaluation or appreciation of the peso resulted in exchange losses and gains, respectively. Accordingly, in 2006 and 2007, the nominal devaluation of the peso relative to the U.S. dollar resulted in foreign currency exchange losses. The nominal appreciation of the peso relative to the U.S. dollar resulted in a foreign currency exchange gain in 2005.

Results of Operations

On June 16, 2006, we completed the sale of our 51% equity ownership interest in Vitrocrisa to Libbey, the owner of the remaining 49% equity interest. Vitrocrisa, which was previously presented as one of our reportable segments is presented as discontinued operation as its disposition represents the end of a significant activity of the Company. Accordingly, all financial and operating information relating to Vitrocrisa in this annual report are presented as a discontinued operation.

The following table sets forth, for the periods presented, selected items of our consolidated statement of operations calculated as a percentage of our consolidated net sales.

		For the year ended December 31,
		2005				2006				2007
Net sales			100.0	%			100.0	%			100.0	%
Cost of goods sold			72.3				72.6				70.6
Gross profit			27.7				27.4				29.4
General, administrative and selling expenses			20.8				19.8				19.9
Operating income			6.9				7.6				9.5
Total comprehensive financing result			5.6				8.2				5.8
Net income			0.9				1.0				0.5

The following table sets forth, for the periods presented, the consolidated net sales, export sales and operating income (before corporate and other eliminations) of each of our business units, as well as the contribution to our consolidated results of operations, in percentage terms, of the consolidated net sales, export sales and operating income (after corporate and other eliminations, and reflecting export sales in U.S. dollars) of each of our business units. The following table does not include the results of discontinued operations. Peso amounts set forth in the following table have been restated in millions of constant pesos as of December 31, 2007.

		For the year ended December 31,
		2005								2006								2007								2007
						% of								% of								% of
		Amount				Total				Amount				Total				Amount				Total				Amount
		(Ps. millions, except for percentages)																								($ millions) (1)
Net sales
Glass Containers		Ps.	12,488				47	%		Ps.	14,068				51	%		Ps.	14,676				51	%		$	1,351
Flat Glass			13,704				52	%			13,462				48	%			13,605				48	%			1,252
Corporate and other eliminations			375				1	%			346				1	%			310				1	%			28
Consolidated net sales		Ps.	26,567				100	%		Ps.	27,876				100	%		Ps.	28,591				100	%		$	2,631
		(Ps. millions, except for percentages)																								($ millions) (1)
Net sales
Domestic		Ps.	10,919				41	%		Ps.	11,875				43	%		Ps.	12,707				44	%		$	1,169
Exports			6,987				26	%			6,384				23	%			6,674				23	%			614
Foreign Subsidiaries			8,662				33	%			9,617				34	%			9,210				32	%			848
		Ps.	26,567				100	%		Ps.	27,876				100	%		Ps.	28,591				100	%		$	2,631
		($millions (2) , except for percentages)
Net sales
Domestic		$	916				41	%		$	1,028				43	%		$	1,145				45	%
Exports			588				27	%			556				23	%			601				23	%
Foreign Subsidiaries			708				32	%			817				34	%			814				32	%
		$	2,212				100	%		$	2,401				100	%		$	2,560				100	%
		($millions (2) , except for percentages)
Export sales
Glass Containers		$	290				49	%		$	344				62	%		$	364				61	%
Flat Glass			298				51	%			212				38	%			237				39	%
Consolidated export sales		$	588				100	%		$	556				100	%		$	601				100	%
		(Ps. millions, except for percentages)																								($ millions) (1)
Operating income (loss)
Glass Containers		Ps.	1,327				72	%		Ps.	1,853				87	%		Ps.	2,054				76	%		$	189
Flat Glass			514				28	%			418				20	%			782				29	%			72
Corporate and other eliminations			(2	)			0	%			(154	)			(7	)%			(132	)			(5	)%			(12	)
Consolidated operating income		Ps.	1,839				100	%		Ps.	2,117				100	%		Ps.	2,704				100	%		$	249