SEC Filing | FEMSA

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Form 20-F

As filed with the Securities and Exchange Commission on April 27, 2012.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

ANNUAL REPORT PURSUANT TO SECTION 13

OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

Commission file number 333-08752

Fomento Económico Mexicano, S.A.B. de C.V.

(Exact name of registrant as specified in its charter)

Mexican Economic Development, Inc.

(Translation of registrant’s name into English)

United Mexican States

(Jurisdiction of incorporation or organization)

General Anaya No. 601 Pte.

Colonia Bella Vista

Monterrey, NL 64410 Mexico

(Address of principal executive offices)

Juan F. Fonseca

General Anaya No. 601 Pte.

Colonia Bella Vista

Monterrey, NL 64410 Mexico

(52-818) 328-6167

investor@femsa.com.mx

(Name, telephone, e-mail and/or facsimile number and

address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:


Title of each class:				Name of each exchange on which registered:
American Depositary Shares, each representing 10 BD Units, and each BD Unit consisting of one Series B Share, two Series D-B Shares and two Series D-L Shares, without par value				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:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:


2,161,177,770		BD Units, each consisting of one Series B Share, two Series D-B Shares and two Series D-L Shares, without par value. The BD Units represent a total of 2,161,177,770 Series B Shares, 4,322,355,540 Series D-B Shares and 4,322,355,540 Series D-L Shares.
1,417,048,500		B Units, each consisting of five Series B Shares without par value. The B Units represent a total of 7,085,242,500 Series B Shares.

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


x Yes		¨ No

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


¨ Yes		x No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). N/A


¨ Yes		¨ No

Indicate by check mark whether the registrant: (1) has filed all reports required to be file 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.


x Yes		¨ No

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


Large Accelerated filer x		Accelerated filer ¨		Non-accelerated filer ¨

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


U.S. GAAP ¨		IFRS ¨		Other x

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		x Item 18

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		x No

TABLE OF CONTENTS


		Page
INTRODUCTION			1

	References		1
	Currency Translations and Estimates		1
	Forward-Looking Information		1

ITEMS 1-2.	NOT APPLICABLE		2

ITEM 3.	KEY INFORMATION		2

	Selected Consolidated Financial Data		2
	Dividends		5
	Exchange Rate Information		7
	Risk Factors		8

ITEM 4.	INFORMATION ON THE COMPANY		19

	The Company		19
	Overview		19
	Corporate Background		19
	Ownership Structure		25
	Significant Subsidiaries		27
	Business Strategy		27
	Coca-Cola FEMSA		28
	FEMSA Comercio		46
	FEMSA Cerveza and Equity Method Investment in the Heineken Group		50
	Other Business		51
	Description of Property, Plant and Equipment		51
	Insurance		53
	Capital Expenditures and Divestitures		53
	Regulatory Matters		53

ITEM 4A.	UNRESOLVED STAFF COMMENTS		59

ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		60

	Overview of Events, Trends and Uncertainties		60
	Recent Developments		60
	Operating Leverage		62
	New Accounting Pronouncements		65
	Operating Results		70
	Liquidity and Capital Resources		78
	U.S. GAAP Reconciliation		85

ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		86

	Directors		86
	Senior Management		91
	Compensation of Directors and Senior Management		94
	EVA Stock Incentive Plan		94
	Insurance Policies		95
	Ownership by Management		95
	Board Practices		96


	Employees	97

ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	98

	Major Shareholders	98
	Related-Party Transactions	99
	Voting Trust	99
	Interest of Management in Certain Transactions	99
	Business Transactions between Coca-Cola FEMSA and The Coca-Cola Company	100

ITEM 8.	FINANCIAL INFORMATION	102

	Consolidated Financial Statements	102
	Dividend Policy	102
	Legal Proceedings	102
	Significant Changes	104

ITEM 9.	THE OFFER AND LISTING	104

	Description of Securities	104
	Trading Markets	105
	Trading on the Mexican Stock Exchange	105
	Price History	106

ITEM 10.	ADDITIONAL INFORMATION	109

	Bylaws	109
	Taxation	115
	Material Contracts	118
	Documents on Display	124

ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	125

	Interest Rate Risk	125
	Foreign Currency Exchange Rate Risk	129
	Equity Risk	132
	Commodity Price Risk	132

ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	132

ITEM 12A.	DEBT SECURITIES	132

ITEM 12B.	WARRANTS AND RIGHTS	132

ITEM 12C.	OTHER SECURITIES	132

ITEM 12D.	AMERICAN DEPOSITARY SHARES	132

ITEMS 13-14.	NOT APPLICABLE	133

ITEM 15.	CONTROLS AND PROCEDURES	133

ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	135

ITEM 16B.	CODE OF ETHICS	135

ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	136



ITEM 16D.	NOT APPLICABLE	137

ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	137

ITEM 16F.	NOT APPLICABLE	138

ITEM 16G.	CORPORATE GOVERNANCE	138

ITEM 16H.	NOT APPLICABLE	140

ITEM 17.	NOT APPLICABLE	140

ITEM 18.	FINANCIAL STATEMENTS	140

ITEM 19.	EXHIBITS	141

iii

INTRODUCTION

This annual report contains information materially consistent with the information presented in the audited financial statements and is free of material misstatements of fact that are not material inconsistencies with the information in the audited financial statements.

References

The terms “FEMSA,” “our company,” “we,” “us” and “our,” are used in this annual report to refer to Fomento Económico Mexicano, S.A.B. de C.V. and, except where the context otherwise requires, its subsidiaries on a consolidated basis. We refer to our subsidiary Coca-Cola FEMSA, S.A.B. de C.V., as “Coca-Cola FEMSA,” and our subsidiary FEMSA Comercio, S.A. de C.V., as “FEMSA Comercio.”

The term “S.A.B.” stands for sociedad anónima bursátil, which is the term used in the United Mexican States, or Mexico, to denominate a publicly traded company under the Mexican Securities Market Law (Ley del Mercado de Valores), which we refer to as the Mexican Securities Law.

References to “U.S. dollars,” “US$,” “dollars” or “$” are to the lawful currency of the United States of America (which we refer to as the United States). References to “Mexican pesos,” “pesos” or “Ps.” are to the lawful currency of Mexico. References to “euros” or “€” are to the lawful currency of the European Economic and Monetary Union (which we refer to as the Euro Zone).

Currency Translations and Estimates

This annual report contains translations of certain Mexican peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the Mexican peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, such U.S. dollar amounts have been translated from Mexican pesos at an exchange rate of Ps. 13.9510 to US$ 1.00, the noon buying rate for Mexican pesos on December 30, 2011, as published by the Federal Reserve Bank of New York. On March 30, 2012, this exchange rate was Ps. 12.8115 to US$ 1.00. See “Item 3. Key Information—Exchange Rate Information” for information regarding exchange rates since 2007.

To the extent estimates are contained in this annual report, we believe that such estimates, which are based on internal data, are reliable. Amounts in this annual report are rounded, and the totals may therefore not precisely equal the sum of the numbers presented.

Per capita growth rates and population data have been computed based upon statistics prepared by the Instituto Nacional de Estadística, Geografía e Informática of Mexico (National Institute of Statistics, Geography and Information, which we refer to as INEGI), the Federal Reserve Bank of New York, the U.S. Federal Reserve Board and Banco de México (Bank of Mexico), local entities in each country and upon our estimates.

Forward-Looking Information

This annual report contains words, such as “believe,” “expect” and “anticipate” and similar expressions that identify forward-looking statements. Use of these words reflects our views about future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements as a result of various factors that may be beyond our control, including but not limited to effects on our company from changes in our relationship with or among our affiliated companies, movements in the prices of raw materials, competition, significant developments in Mexico or international economic or political conditions or changes in our regulatory environment. Accordingly, we caution readers not to place undue reliance on these forward-looking statements. In any event, these statements speak only as of their respective dates, and we undertake no obligation to update or revise any of them, whether as a result of new information, future events or otherwise.

ITEMS 1-2.

NOT APPLICABLE

ITEM 3.

KEY INFORMATION

Selected Consolidated Financial Data

This annual report includes, under Item 18, our audited consolidated balance sheets as of December 31, 2011 and 2010, and the related consolidated statements of income, cash flows and changes in stockholders’ equity for the years ended December 31, 2011, 2010 and 2009. Our audited consolidated financial statements are prepared in accordance with Mexican Financial Reporting Standards (Normas de Información Financiera Mexicanas, which we refer to as Mexican FRS or NIF), which differ in certain significant respects from accounting principles generally accepted in the United States, or U.S. GAAP.

Notes 26 and 27 to our audited consolidated financial statements provide a description of the principal differences between Mexican FRS and U.S. GAAP as they relate to our company, together with a reconciliation to U.S. GAAP of net income, comprehensive income and stockholders’ equity as well as U.S. GAAP consolidated balance sheets, statements of income and comprehensive income and cash flows for the same periods presented for Mexican FRS purposes and for the consolidated statement of changes in stockholders’ equity for the years ended December 31, 2011 and 2010.

In the reconciliation to U.S. GAAP for the year ended December 31, 2009, we present our subsidiary Coca-Cola FEMSA, which is a consolidated subsidiary for purposes of Mexican FRS, under the equity method for U.S. GAAP purposes, due to the substantive participating rights of The Coca-Cola Company as a minority shareholder in Coca-Cola FEMSA during that year. On February 1, 2010, FEMSA and The Coca-Cola Company signed an amendment to their Shareholders’ Agreement. As a result of this amendment, FEMSA began to consolidate Cola-Cola FEMSA for U.S. GAAP purposes on this date. See Note 26A to our audited consolidated financial statements.

Beginning in 2012, Mexican issuers with securities registered in the National Securities Registry (Registro Nacional de Valores) of the Comisión Nacional Bancaria y de Valores (Mexican National Banking and Securities Commission, or the CNBV) are required to prepare financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, which we refer to as IFRS. Accordingly, as of January 1, 2012, we are preparing our financial information in accordance with IFRS and will present financial information for 2011 on a comparable basis. See Note 28 to our audited consolidated financial statements.

Beginning on January 1, 2008, in accordance with changes to NIF B-10 under Mexican FRS, we discontinued the use of inflation accounting for our subsidiaries that operate in “non-inflationary” countries where cumulative inflation for the three preceding years was less than 26%. Our subsidiaries in Mexico, Guatemala, Panama, Colombia and Brazil operate in non-inflationary economic environments, and therefore 2011, 2010 and 2009 figures reflect inflation effects only through 2007. Our subsidiaries in Nicaragua, Costa Rica, Venezuela and Argentina operate in economic environments in which cumulative inflation during the same three-year periods was greater than 26%, and we therefore continue recognizing inflationary accounting for 2011, 2010 and 2009. For comparison purposes, the figures prior to 2008 have been restated in Mexican pesos with purchasing power as of December 31, 2007, taking into account local inflation for each country with reference to the consumer price index. Local currencies have been converted into Mexican pesos using official exchange rates published by the local central bank of each country. Our subsidiary in the Euro Zone, CB Equity LLP (which we refer to as CB Equity), operated in a non-inflationary economic environment in 2011 and 2010. See Note 4 to our audited consolidated financial statements.

As a result of discontinuing inflationary accounting for subsidiaries that operate in non-inflationary economic environments, the financial statements are no longer considered to be presented in a reporting currency that comprehensively includes the effects of price level changes. Therefore, the inflationary effects of inflationary economic environments arising in 2009, 2010 and 2011 result in a difference that must be reconciled for U.S. GAAP purposes, except for Venezuela, which is considered to be a hyperinflationary environment since January 2010 and for which inflationary effects have not been reversed under U.S. GAAP. See Notes 26 and 27 to our audited consolidated financial statements.

On April 30, 2010, FEMSA announced the closing of the transaction pursuant to which FEMSA agreed to exchange 100% of its beer operations for a 20% economic interest in Heineken Holding N.V. and Heineken N.V., which, together with their respective subsidiaries, we refer to as Heineken or the Heineken Group. See “Item 4. Information on the Company—FEMSA Cerveza and Equity Method Investment in the Heineken Group.” Under Mexican FRS, we have reclassified our consolidated statements of income and cash flows for the year ended December 31, 2009 to reflect Cuauhtémoc Moctezuma Holding, S.A. de C.V. (formerly FEMSA Cerveza, S.A. de C.V.), which we refer to as Cuauhtémoc Moctezuma or FEMSA Cerveza, as a discontinued operation. However, FEMSA Cerveza is not presented as a discontinued operation under U.S. GAAP. See “Item 5. Operating and Financial Review and Prospects—U.S. GAAP Reconciliation” and Notes 26 and 27 to our audited consolidated financial statements.

The following table presents selected financial information of our company. This information should be read in conjunction with, and is qualified in its entirety by, our audited consolidated financial statements and the notes to those statements. See “Item 18. Financial Statements.” The selected financial information is presented on a consolidated basis and is not necessarily indicative of our financial position or results from operations at or for any future date or period. Under Mexican FRS, FEMSA Cerveza figures for years prior to 2010 have been reclassified and presented as discontinued operations for comparison purposes to 2011 and 2010 figures. See Note 5B to our audited consolidated financial statements. Under U.S. GAAP, FEMSA Cerveza figures are presented as a continuing operation.


	Selected Consolidated Financial Information Year Ended December 31,
	2011⁽²⁾			2011			2010			2009			2008			2007
	(in millions of U.S. dollars and millions of Mexican pesos, except for percentages, per share data and weighted average number of shares outstanding)
Income Statement Data:
Mexican FRS:⁽¹⁾
Total revenues	$	14,554			Ps.203,044			Ps.169,702			Ps.160,251			Ps.133,808			Ps.114,459
Income from operations⁽³⁾		1,928			26,904			22,529			21,130			17,349			14,300
Income taxes⁽⁴⁾		550			7,687			5,671			4,959			3,108			3,931
Consolidated net income before discontinued operations		1,483			20,684			17,961			11,799			7,630			8,438
Income from the exchange of shares with Heineken, net of taxes		—			—			26,623			—			—			—
Net income from discontinued operations		—			—			706			3,283			1,648			3,498
Consolidated net income		1,483			20,684			45,290			15,082			9,278			11,936
Net controlling interest income		1,085			15,133			40,251			9,908			6,708			8,511
Net non-controlling interest income		398			5,551			5,039			5,174			2,570			3,425
Net controlling interest income before discontinued operations:
Per Series B Share		0.05			0.75			0.64			0.33			0.25			0.25
Per Series D Share		0.07			0.94			0.81			0.42			0.32			0.32
Net controlling income from discontinued operations:
Per Series B Share		—			—			1.37			0.16			0.08			0.17
Per Series D Share		—			—			1.70			0.20			0.10			0.21
Net controlling interest income:
Per Series B Share		0.05			0.75			2.01			0.49			0.33			0.42
Per Series D Share		0.07			0.94			2.51			0.62			0.42			0.53
Weighted average number of shares outstanding (in millions):
Series B Shares		9,246.4			9,246.4			9,246.4			9,246.4			9,246.4			9,246.4
Series D Shares		8,644.7			8,644.7			8,644.7			8,644.7			8,644.7			8,644.7
Allocation of earnings:
Series B Shares		46.11	%		46.11	%		46.11	%		46.11	%		46.11	%		46.11	%
Series D Shares		53.89	%		53.89	%		53.89	%		53.89	%		53.89	%		53.89	%


	Selected Consolidated Financial Information Year Ended December 31,
	2011⁽²⁾			2011			2010			2009			2008			2007
	(in millions of U.S. dollars and millions of Mexican pesos, except for percentages, per share data and weighted average number of shares outstanding)

U.S. GAAP:⁽⁴⁾
Total revenues	$	14,640			Ps.204,242			Ps.177,053			Ps.102,902			Ps.91,650			Ps.83,362
Income from operations		1,810			25,252			21,235			8,661			7,881			7,667
Participation in Coca-Cola FEMSA’s earnings⁽⁴⁾		—			—			183			4,516			2,994			3,635
Consolidated net income		1,279			17,851			72,204	⁽¹⁰⁾		10,685			6,599			8,589
Less: Net income attributable to the non-controlling interest income		(387	)		(5,402	)		(4,759	)		(783	)		253			(32	)
Net income attributable to controlling interest income		892			12,449			67,445			9,902			6,852			8,557
Net controlling interest income:
Per Series B Share		0.04			0.62			3.36			0.49			0.34			0.43
Per Series D Share		0.06			0.78			4.20			0.62			0.43			0.53
Weighted average number of shares outstanding (in millions):
Series B Shares		9,246.4			9,246.4			9,246.4			9,246.4			9,246.4			9,246.4
Series D Shares		8,644.7			8,644.7			8,644.7			8,644.7			8,644.7			8,644.7

Balance Sheet Data:
Mexican FRS:⁽¹⁾
Total assets of continuing operations	$	19,691			Ps.274,704			Ps.223,578			Ps.153,638			Ps.126,833			Ps.114,537
Total assets of discontinued operations		—			—			—			72,268			71,201			68,881
Current liabilities of continuing operations		2,769			38,630			30,516			37,218			35,351			28,783
Current liabilities of discontinued operations		—			—			—			10,883			12,912			13,581
Long-term debt of continuing operations⁽⁵⁾		1,723			24,031			22,203			21,260			21,853			23,066
Other long-term liabilities of continuing operations		1,500			20,929			17,846			8,500			8,285			9,882
Non-current liabilities of discontinued operations		—			—			—			32,216			22,738			18,453
Capital stock		383			5,348			5,348			5,348			5,348			5,348
Total stockholders’ equity		13,699			191,114			153,013			115,829			96,895			89,653
Controlling interest		9,575			133,580			117,348			81,637			68,821			64,578
Non-controlling interest		4,124			57,534			35,665			34,192			28,074			25,075

U.S. GAAP:⁽⁴⁾
Total assets	$	27,956			Ps.390,016			Ps.334,517			Ps.158,000			Ps.139,219			Ps.127,167
Current liabilities		2,772			38,676			30,629			23,539			23,654			18,579
Long-term debt⁽⁵⁾		1,722			24,031			21,927			24,119			19,557			16,569
Other long-term liabilities		3,164			44,148			39,825			10,900			9,966			8,715
Non-controlling interest		7,205			100,517			78,495			1,274			505			698
Controlling interest		13,092			182,644			163,641			98,168			85,537			82,606
Capital stock		383			5,348			5,348			5,348			5,348			5,348
Stockholders’ equity⁽⁶⁾		20,297			283,161			242,136			99,442			86,042			83,304

Other information:
Mexican FRS:⁽¹⁾
Depreciation⁽⁷⁾	$	394			Ps.5,498			Ps.4,527			Ps.4,391			Ps.3,762			Ps.4,930
Capital expenditures⁽⁸⁾		897			12,515			11,171			9,067			7,816			5,939
Operating margin⁽⁹⁾		13.2	%		13.2	%		13.3	%		13.2	%		13.0	%		12.5	%

U.S. GAAP:
Depreciation⁽⁷⁾	$	412			Ps.5,743			Ps.4,884			Ps.2,786			Ps.2,439			Ps.2,114
Operating margin⁽⁹⁾		12.4	%		12.4	%		11.9	%		8.4	%		8.6	%		9.2	%

(1)	As a result of the FEMSA Cerveza share exchange with the Heineken Group on April 30, 2010, related figures are presented as discontinued operations for Mexican FRS purposes. As a result, prior year financial information has been modified in order to conform to 2010 financial information.

(2)	Translation to U.S. dollar amounts at an exchange rate of Ps. 13.9510 to US$ 1.00 solely for the convenience of the reader.

(3)

Beginning in 2008, NIF D-3, “Employee Benefits,” permitted the presentation of financial expenses related to labor liabilities as part of the comprehensive financing result, which was previously recorded within operating income. Accordingly, information for 2007 has been reclassified for comparability purposes.

(4)	As of February 1, 2010, Coca-Cola FEMSA has been consolidated for U.S. GAAP purposes. Prior to that date, Coca-Cola FEMSA was recorded under the equity method, as discussed in Note 26A to our audited consolidated financial statements.

(5)	Includes long-term debt minus the current portion of long-term debt.

(6)	As of January 1, 2009, U.S. GAAP requires that non-controlling interest be included as part of the total stockholders’ equity. This standard was applied retrospectively for comparative purposes.

(7)	Includes bottle breakage.

(8)	Includes investments in property, plant and equipment, intangible and other assets.

(9)	Operating margin is calculated by dividing income from operations by total revenues.

(10)	Includes gain recognized in other income due to control acquisition of Coca-Cola FEMSA. See Note 26A to our audited consolidated financial statements.

Dividends

We have historically paid dividends per BD Unit (including in the form of American Depositary Shares, or ADSs) approximately equal to or greater than 1% of the market price on the date of declaration, subject to changes in our results from operations and financial position, including due to extraordinary economic events and to the factors described in “Item 3. Key Information—Risk Factors” that affect our financial condition and liquidity. These factors may affect whether or not dividends are declared and the amount of such dividends. We do not expect to be subject to any contractual restrictions on our ability to pay dividends, although our subsidiaries may be subject to such restrictions. Because we are a holding company with no significant operations of our own, we will have distributable profits and cash to pay dividends only to the extent that we receive dividends from our subsidiaries. Accordingly, we cannot assure you that we will pay dividends or as to the amount of any dividends.

The following table sets forth for each year the nominal amount of dividends per share that we declared in Mexican peso and U.S. dollar amounts and their respective payment dates for the 2007 to 2011 fiscal years:


Date Dividend Paid	Fiscal Year with Respect to which Dividend was Declared	Aggregate Amount of Dividend Declared		Per Series B Share Dividend		Per Series B Share Dividend			Per Series D Share Dividend		Per Series D Share Dividend
May 15, 2007	2006⁽¹⁾		Ps.1,485,000,000		Ps.0.0741	$	0.0069			Ps.0.0926	$	0.0086
May 8, 2008	2007⁽¹⁾		Ps.1,620,000,000		Ps.0.0807	$	0.0076			Ps.0.1009	$	0.0095
May 4, 2009 and November 3, 2009⁽²⁾	2008		Ps.1,620,000,000		Ps.0.0807	$	0.0061			Ps.0.1009	$	0.0076
May 4, 2009					Ps.0.0404	$	0.0030			Ps.0.0505	$	0.0038
November 3, 2009					Ps.0.0404	$	0.0030			Ps.0.0505	$	0.0038
May 4, 2010 and November 3, 2010⁽³⁾	2009		Ps.2,600,000,000		Ps.0.1296	$	0.0105			Ps.0.1621	$	0.0132
May 4, 2010					Ps.0.0648	$	0.0053			Ps.0.0810	$	0.0066
November 3, 2010					Ps.0.0648	$	0.0053			Ps.0.0810	$	0.0066
May 3, 2011 and November 2, 2011⁽⁴⁾	2010		Ps.4,600,000,000		Ps.0.2294	$	0.0199			Ps.0.28675	$	0.0249
May 3, 2011					Ps.0.1147	$	0.0099			Ps.0.14338	$	0.0124
November 2, 2011					Ps.0.1147	$	0.0100			Ps.0.14338	$	0.0125
May 3, 2012 and November 6, 2012⁽⁵⁾	2011		Ps.6,200,000,000		Ps.0.3092		N/a	⁽⁶⁾		Ps.0.3865		N/a
May 3, 2012					Ps.0.1546		N/a			Ps.0.1932		N/a
November 2, 2012					Ps.0.1546		N/a			Ps.0.1932		N/a

(1)	The per series dividend amount has been adjusted for comparability purposes to reflect the 3:1 stock split effective May 25, 2007.

(2)	The dividend payment for 2008 was divided into two equal payments. The first payment was payable on May 4, 2009, with a record date of April 30, 2009, and the second payment was payable on November 3, 2009, with a record date of October 30, 2009.

(3)	The dividend payment for 2009 was divided into two equal payments. The first payment was payable on May 4, 2010, with a record date of May 3, 2010, and the second payment was payable on November 3, 2010, with a record date of November 2, 2010.

(4)	The dividend payment for 2010 was divided into two equal payments. The first payment was payable on May 3, 2011, with a record date of May 2, 2011, and the second payment was payable on November 2, 2011, with a record date of November 1, 2011.

(5)	The dividend payment for 2011 was divided into two equal payments. The first payment will become payable on May 3, 2012 with a record date of May 2, 2012, and the second payment will become payable on November 6, 2012 with a record date of November 5, 2012.

(6)	The U.S. dollar amount of the 2011 dividend payments will be based on the exchange rate at the time such payments are made.

At the annual ordinary general shareholders meeting, or AGM, the board of directors submits the financial statements of our company for the previous fiscal year, together with a report thereon by the board of directors. Once the holders of Series B Shares have approved the financial statements, they determine the allocation of our net profits for the preceding year. Mexican law requires the allocation of at least 5% of net profits to a legal reserve, which is not subsequently available for distribution, until the amount of the legal reserve equals 20% of our paid in capital stock. As of the date of this report, the legal reserve of our company is fully constituted. Thereafter, the holders of Series B Shares may determine and allocate a certain percentage of net profits to any general or special reserve, including a reserve for open-market purchases of our shares. The remainder of net profits is available for distribution in the form of dividends to our shareholders. Dividends may only be paid if net profits are sufficient to offset losses from prior fiscal years.

Our bylaws provide that dividends will be allocated among the shares outstanding and fully paid at the time a dividend is declared in such manner that each Series D-B Share and Series D-L Share receives 125% of the dividend distributed in respect of each Series B Share. Holders of Series D-B Shares and Series D-L Shares are entitled to this dividend premium in connection with all dividends paid by us other than payments in connection with the liquidation of our company.

Subject to certain exceptions contained in the deposit agreement dated May 11, 2007, among FEMSA, The Bank of New York, as ADS depositary, and holders and beneficial owners from time to time of our ADSs, evidenced by American Depositary Receipts, or ADRs, any dividends distributed to holders of our ADSs will be paid to the ADS depositary in Mexican pesos and will be converted by the ADS depositary into U.S. dollars. As a result, restrictions on conversion of Mexican pesos into foreign currencies and exchange rate fluctuations may affect the ability of holders of our ADSs to receive U.S. dollars and the U.S. dollar amount actually received by holders of our ADSs.

Exchange Rate Information

The following table sets forth, for the periods indicated, the high, low, average and year-end noon buying exchange rate published by the Federal Reserve Bank of New York for cable transfers of pesos per U.S. dollar. The Federal Reserve Bank of New York discontinued the publication of foreign exchange rates on December 31, 2008, and therefore, the data provided for the periods beginning January 1, 2009 are based on the rates published by the U.S. Federal Reserve Board in its H.10 Weekly Release of Foreign Exchange Rates. The rates have not been restated in constant currency units and therefore represent nominal historical figures.


Year ended December 31,	Exchange Rate
	High		Low		Average⁽¹⁾		Year End
2007		11.27		10.67		10.93		10.92
2008		13.94		9.92		11.21		13.83
2009		15.41		12.63		13.50		13.06
2010		13.19		12.16		12.64		12.38
2011		14.25		11.51		12.46		13.95

(1)	Average month-end rates.


	Exchange Rate
	High		Low		Period End
2010:
First Quarter		Ps.13.19		Ps.12.30		Ps.12.30
Second Quarter		13.14		12.16		12.83
Third Quarter		13.17		12.49		12.63
Fourth Quarter		12.61		12.21		12.38
2011:
First Quarter		12.25		11.92		11.92
Second Quarter		11.97		11.51		11.72
Third Quarter		13.87		11.57		13.77
Fourth Quarter		14.25		13.10		13.95
2012:
January		13.75		12.93		13.04
February		12.95		12.63		12.79
March		12.99		12.63		12.81
First Quarter		13.75		12.63		12.81

RISK FACTORS

Risks Related to Our Company

Coca-Cola FEMSA

Coca-Cola FEMSA’s business depends on its relationship with The Coca-Cola Company, and changes in this relationship may adversely affect its results from operations and financial condition.

Substantially all of Coca-Cola FEMSA’s sales are derived from sales of Coca-Cola trademark beverages. Coca-Cola FEMSA produces, markets and distributes Coca-Cola trademark beverages through standard bottler agreements in certain territories in Mexico and Latin America, which we refer to Coca-Cola FEMSA’s “territories.” See “Item 4. Information on the Company—Coca-Cola FEMSA—Coca-Cola FEMSA’s Territories.” Through its rights under Coca-Cola FEMSA’s bottler agreements and as a large shareholder, The Coca-Cola Company has the right to participate in the process for making important decisions related to Coca-Cola FEMSA’s business.

The Coca-Cola Company may unilaterally set the price for its concentrate. In addition, under Coca-Cola FEMSA’s bottler agreements, it is prohibited from bottling or distributing any other beverages without The Coca-Cola Company’s authorization or consent, and it may not transfer control of the bottler rights of any of its territories without consent of The Coca-Cola Company.

The Coca-Cola Company also makes significant contributions to Coca-Cola FEMSA’s marketing expenses, although it is not required to contribute a particular amount. Accordingly, The Coca-Cola Company may discontinue or reduce such contributions at any time.

Coca-Cola FEMSA depends on The Coca-Cola Company to renew its bottler agreements. As of December 31, 2011, Coca-Cola FEMSA had seven bottler agreements in Mexico, with each one corresponding to a different territory as follows: (i) the agreements for Mexico’s Valley territory expire in June 2013 and April 2016; (ii) the agreements for the Central territory expire in May 2015 and July 2016; (iii) the agreement for the Northeast territory expires in September 2014; (iv) the agreement for the Bajio territory expires in May 2015; and (v) the agreement for the Southeast territory expires in June 2013. Coca-Cola FEMSA’s bottler agreements with The Coca-Cola Company will expire for Coca-Cola FEMSA’s territories in other countries as follows: Argentina in September 2014; Brazil in April 2014; Colombia in June 2014; Venezuela in August 2016; Guatemala in March 2015; Costa Rica in September 2017; Nicaragua in May 2016; and Panama in November 2014. All of Coca-Cola FEMSA’s bottler agreements are automatically renewable for ten-year terms, subject to the right of either party thereto to give prior notice that it does not wish to renew the relevant agreement. In addition, these agreements generally may be terminated in the case of material breach. Termination would prevent Coca-Cola FEMSA from selling Coca-Cola trademark beverages in the affected territory and would have an adverse effect on Coca-Cola FEMSA’s business, financial condition, results from operations and prospects.

The Coca-Cola Company has substantial influence on the conduct of Coca-Cola FEMSA’s business, which may result in Coca-Cola FEMSA taking actions contrary to the interests of its remaining shareholders.

The Coca-Cola Company has substantial influence on the conduct of Coca-Cola FEMSA’s business. As of April 20, 2012, The Coca-Cola Company indirectly owned 29.4% of Coca-Cola FEMSA’s outstanding capital stock, representing 37.0% of its capital stock with full voting rights. The Coca-Cola Company is entitled to appoint five of Coca-Cola FEMSA’s maximum of 21 directors and the vote of at least two of them is required to approve certain actions by Coca-Cola FEMSA’s board of directors. We are entitled to appoint 13 of Coca-Cola FEMSA’s maximum of 21 directors and all of its executive officers. On February 1, 2010, we and The Coca-Cola Company signed a second amendment to the shareholders agreement that confirms our power to govern Coca-Cola FEMSA’s operating and financial policies in order to exercise control over its operations in the ordinary course of business. The Coca-Cola Company has the power to determine the outcome of certain protective rights, such as mergers, acquisitions or the sale of any line of business, requiring approval by its board of directors, and may have the power

to determine the outcome of certain actions requiring approval of Coca-Cola FEMSA’s shareholders. See “Item 10. Additional Information—Material Contracts—Coca-Cola FEMSA.” The interests of The Coca-Cola Company may be different from the interests of Coca-Cola FEMSA’s remaining shareholders, which may result in Coca-Cola FEMSA taking actions contrary to the interests of its remaining shareholders.

Coca-Cola FEMSA has significant transactions with affiliates, particularly The Coca-Cola Company, which may create the potential for conflicts of interest and could result in less favorable terms to Coca-Cola FEMSA.

Coca-Cola FEMSA engages in several transactions with subsidiaries of The Coca-Cola Company. In addition, Coca-Cola FEMSA has entered into cooperative marketing arrangements with The Coca-Cola Company and is a party to a number of bottler agreements with The Coca-Cola Company. Coca-Cola FEMSA also has agreed to develop still beverages and waters in its territories with The Coca-Cola Company and has entered into agreements to acquire companies with The Coca-Cola Company. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Business Transactions between Coca-Cola FEMSA and The Coca-Cola Company.”

Coca-Cola FEMSA could engage in transactions on less favorable terms with related parties, due to potential conflicts of interest, compared to terms that could be obtained with an unaffiliated third party.

Competition could adversely affect Coca-Cola FEMSA’s financial performance.

The beverage industry in the territories in which Coca-Cola FEMSA operates is highly competitive. Coca-Cola FEMSA faces competition from other bottlers of sparkling beverages such as Pepsi products, and from producers of low cost beverages, or “B brands.” Coca-Cola FEMSA also competes in different beverage categories, other than sparkling beverages, such as water, juice-based beverages, teas, sport drinks and value-added dairy products. Although competitive conditions are different in each of Coca-Cola FEMSA’s territories, it competes principally in terms of price, packaging, consumer sales promotions, customer service and product innovation. See “Item 4. Information on the Company—Coca-Cola FEMSA—Competition.” There can be no assurances that Coca-Cola FEMSA will be able to avoid lower pricing as a result of competitive pressure. Lower pricing, changes made in response to competition and changes in consumer preferences may have an adverse effect on Coca-Cola FEMSA’s financial performance.

Changes in consumer preference could reduce demand for some of Coca-Cola FEMSA’s products.

The non-alcoholic beverage industry is rapidly evolving as a result of, among other things, changes in consumer preferences. Specifically, consumers are becoming increasingly aware of and concerned about environmental and health issues. Concerns over the environmental impact of plastic may reduce the consumption of Coca-Cola FEMSA’s products sold in plastic bottles or result in additional taxes that would adversely affect consumer demand. In addition, researchers, health advocates and dietary guidelines are encouraging consumers to reduce their consumption of certain types of beverages sweetened with sugar and high fructose corn syrup (or HFCS), which could reduce demand for certain of Coca-Cola FEMSA’s products. A reduction in consumer demand would adversely affect Coca-Cola FEMSA’s results from operations.

Water shortages or any failure to maintain existing concessions could adversely affect Coca-Cola FEMSA’s business.

Water is an essential component of all of Coca-Cola FEMSA’s products. Coca-Cola FEMSA obtains water from various sources in its territories, including springs, wells, rivers and municipal and state water companies pursuant to either contracts to obtain water or pursuant to concessions granted by governments in its various territories.

Coca-Cola FEMSA obtains the vast majority of the water used in its production pursuant to concessions to exploit wells, which are generally granted based on studies of the existing and projected groundwater supply. Coca-Cola FEMSA’s existing water concessions or contracts to obtain water may be terminated by governmental

authorities under certain circumstances and their renewal depends on receiving necessary authorizations from local and/or federal water authorities. See “Item 4. Information on the Company—Regulatory Matters—Water Supply Law.” In some of Coca-Cola FEMSA’s other territories, the existing water supply may not be sufficient to meet Coca-Cola FEMSA’s future production needs, and the available water supply may be adversely affected by shortages or changes in governmental regulations and environmental changes.

We cannot assure you that water will be available in sufficient quantities to meet Coca-Cola FEMSA’s future production needs or will prove sufficient to meet Coca-Cola FEMSA’s water supply needs.

Increases in the prices of raw materials would increase Coca-Cola FEMSA’s cost of goods sold and may adversely affect Coca-Cola FEMSA’s results from operations.

In addition to water, Coca-Cola FEMSA’s most significant raw materials are (1) concentrate, which it acquires from affiliates of The Coca-Cola Company, (2) packaging materials and (3) sweeteners. Prices for sparkling beverages concentrate are determined by The Coca-Cola Company as a percentage of the weighted average retail price in local currency, net of applicable taxes. In 2005, The Coca-Cola Company decided to gradually increase concentrate prices for sparkling beverages in Brazil and Mexico. These increases were fully implemented in Brazil in 2008 and in Mexico in 2009. However, Coca-Cola FEMSA may experience further increases in its territories in the future. The prices for Coca-Cola FEMSA’s remaining raw materials are driven by market prices and local availability as well as the imposition of import duties and import restrictions and fluctuations in exchange rates. Coca-Cola FEMSA is also required to meet all of its supply needs from suppliers approved by The Coca-Cola Company, which may limit the number of suppliers available to it. Coca-Cola FEMSA’s sales prices are denominated in the local currency in each country in which it operates, while the prices of certain materials, including those used in the bottling of its products, mainly resin, ingots to make plastic bottles, finished plastic bottles, aluminum cans and HFCS, are paid in or determined with reference to the U.S. dollar, and therefore may increase if the U.S. dollar appreciates against the currencies of the countries in which Coca-Cola FEMSA operates, as was the case in 2008 and 2009. While the U.S. dollar did not appreciate against the currency of any of the countries in which Coca-Cola FEMSA operates in 2010 or most of 2011, we cannot assure you that an appreciation of the U.S. dollar with respect to such currencies will not occur in the future. See “Item 4. Information on the Company—Coca-Cola FEMSA—Raw Materials.”

Coca-Cola FEMSA’s most significant packaging raw material costs arise from the purchase of resin and plastic ingots to make plastic bottles and from the purchase of finished plastic bottles, the prices of which are tied to crude oil prices and global resin supply. The average prices that Coca-Cola FEMSA paid for resin and plastic ingots in U.S. dollars increased significantly in 2011, as compared to 2010. We cannot provide any assurance that prices will not increase further in future periods. Average sweetener prices, including of sugar and HFCS, paid by Coca-Cola FEMSA during 2011 were higher as compared to 2010 in all of the countries in which it operates. During the 2009-2011 period, international sugar prices were volatile due to various factors, including shifting demands, availability and climate issues affecting production and distribution. Sugar prices in all of the countries in which Coca-Cola FEMSA operates other than Brazil are subject to local regulations and other barriers to market entry that cause Coca-Cola FEMSA to pay in excess of international market prices for sugar. See “Item 4. Information on the Company—Coca-Cola FEMSA—Raw Materials.” We cannot assure you that Coca-Cola FEMSA’s raw material prices will not further increase in the future. Increases in the prices of raw materials would increase Coca-Cola FEMSA’s cost of goods sold and adversely affect its financial performance.

Taxes could adversely affect Coca-Cola FEMSA’s business.

The countries in which Coca-Cola FEMSA operates may adopt new tax laws or modify existing law to increase taxes applicable to its business. For example, in Mexico, a general tax reform became effective on January 1, 2010, pursuant to which, as applicable to Coca-Cola FEMSA, there is a temporary increase in the income tax rate from 28% to 30% from 2010 through 2012. This increase will be followed by a reduction to 29% for the year 2013 and a further reduction in 2014 to return to the previous rate of 28%. In addition, the value added tax (VAT) rate increased in 2010 from 15% to 16%. This increase had an impact on Coca-Cola FEMSA’s results from operations due to the reduction in disposable income of consumers.

In Panama, there was an increase in a certain consumer tax, effective as of April 1, 2010, affecting syrups, powders and concentrate. Some of these materials are used for the production of Coca-Cola FEMSA’s sparkling beverages. These taxes increased from 6% to 10%.

Coca-Cola FEMSA’s products are also subject to certain taxes in many of the countries in which it operates. Certain countries in Central America, as well as Brazil and Argentina also impose taxes on sparkling beverages. See “Item 4. Information on the Company—Regulatory Matters—Taxation of Sparkling Beverages.” We cannot assure you that any governmental authority in any country where Coca-Cola FEMSA operates will not impose new taxes or increase taxes on its products in the future. The imposition of new taxes or increases in taxes on Coca-Cola FEMSA’s products may have a material adverse effect on Coca-Cola FEMSA’s business, financial condition, prospects and results from operations.

Regulatory developments may adversely affect Coca-Cola FEMSA’s business.

Coca-Cola FEMSA is subject to regulation in each of the territories in which it operates. The principal areas in which Coca-Cola FEMSA is subject to regulation are environment, labor, taxation, health and antitrust. Regulation can also affect Coca-Cola FEMSA’s ability to set prices for its products. See “Item 4. Information of the Company—Regulatory Matters.” The adoption of new laws or regulations or a stricter interpretation or enforcement thereof in the countries in which Coca-Cola FEMSA operates may increase its operating costs or impose restrictions on its operations, which, in turn, may adversely affect its financial condition, business and results from operations. In particular, environmental standards are continually becoming more stringent in several of the countries in which Coca-Cola FEMSA operates, and Coca-Cola FEMSA is also continually in the process of keeping up and complying with these standards, although we cannot assure you that Coca-Cola FEMSA will be able to meet the timelines for compliance established by the relevant regulatory authorities. See “Item 4. Information on the Company—Regulatory Matters—Environmental Matters.” Further changes in current regulations may result in an increase in compliance costs, which may have an adverse effect on Coca-Cola FEMSA’s future results from operations or financial condition.

Voluntary price restraints or statutory price controls have been imposed historically in several of the countries in which Coca-Cola FEMSA operates. Coca-Cola FEMSA is currently subject to price controls in Argentina and Venezuela. The imposition of these restrictions or voluntary price restraints in other territories may have an adverse effect on Coca-Cola FEMSA’s results from operations and financial position. See “Item 4. Information of the Company—Regulatory Matters—Price Controls.” We cannot assure you that governmental authorities in any country where Coca-Cola FEMSA operates will not impose statutory price controls or that Coca-Cola FEMSA will not need to implement voluntary price restraints in the future.

In January 2010, the Venezuelan government amended the Ley para la Defensa y Acceso a las Personas a los Bienes y Servicios (Defense of and Access to Goods and Services Law). Any violation by a company that produces, distributes and sells goods and services could lead to fines, penalties or the confiscation of the assets used to produce, distribute and sell these goods without compensation. Although we believe that Coca-Cola FEMSA is in compliance with this law, consumer protection laws in Venezuela are subject to continuing review and changes, and any such changes could lead to an adverse impact on Coca-Cola FEMSA.

In July 2011, the Venezuelan government passed the Ley de Costos y Precios Justos (Fair Costs and Prices Law). The purpose of this law is to establish the regulations and administrative processes necessary to maintain the price stability of, and equal access to, goods and services. The law also creates the National Ministry of Costs and Prices, whose main role is to oversee price controls and set maximum retail prices on certain consumer goods and services. Of Coca-Cola FEMSA’s products, only certain of its still water beverages were affected by these regulations, which mandated Coca-Cola FEMSA to lower its sale prices as of April 2012. Any failure to comply with this law would result in fines, temporary suspension or the closure of operations. While Coca-Cola FEMSA is currently in compliance with this law, we cannot assure you that the Venezuelan government’s future regulation of goods and services will not result in a forced reduction of prices in other of Coca-Cola FEMSA’s products, which could have a negative effect on its results of operations.

In January 2012, the Costa Rican government approved a decree that regulates the sale of food and beverages in schools. The decree came into effect in 2012. Enforcement of this law will be gradual, from applicability in 2012 to 2014, depending on the specific characteristics of the food or beverage in question. In accordance with the decree, the sale of specific sparkling beverages and still beverages that contain sugar, syrup or HFCS in any type of presentation in schools is prohibited. Coca-Cola FEMSA will still be allowed to sell water and certain still beverages in schools. We cannot assure you that the Costa Rican government will not further restrict sales of other of Coca-Cola FEMSA’s products in schools in the future; any such further restrictions could lead to an adverse impact on Coca-Cola FEMSA’s results of operations.

Coca-Cola FEMSA’s operations have from time to time been subject to investigations and proceedings by antitrust authorities and litigation relating to alleged anticompetitive practices. Coca-Cola FEMSA has also been subject to investigations and proceedings on environmental and labor matters. We cannot assure you that these investigations and proceedings could not have an adverse effect on Coca-Cola FEMSA’s results from operations or financial condition. See “Item 8. Financial Information—Legal Proceedings.”

Economic and political conditions in the countries other than Mexico in which Coca-Cola FEMSA operates may increasingly adversely affect its business.

In addition to operating in Mexico, our subsidiary Coca-Cola FEMSA conducts operations in Guatemala, Nicaragua, Costa Rica, Panama, Colombia, Venezuela, Brazil and Argentina. Total revenues and income from Coca-Cola FEMSA’s combined non-Mexican operations increased as a percentage of its consolidated total revenues and income from operations from 47.4% and 32.4%, respectively, in 2006, to 64.3% and 62.0%, respectively, in 2011. As a consequence, Coca-Cola FEMSA’s results have been increasingly affected by the economic and political conditions in the countries, other than Mexico, where it conducts operations.

Consumer demand, preferences, real prices and the costs of raw materials are heavily influenced by macroeconomic and political conditions in the other countries in which Coca-Cola FEMSA operates. These conditions vary by country and may not be correlated to conditions in Coca-Cola FEMSA’s Mexican operations. Deterioration in economic and political conditions in any of these countries would have an adverse effect on Coca-Cola FEMSA’s financial position and results from operations. In Venezuela, Coca-Cola FEMSA continues to face exchange rate risk as well as scarcity of raw materials and restrictions with respect to the importation of such materials. Venezuelan political events may also affect Coca-Cola FEMSA’s operations. The political uncertainty involving Venezuela’s October 2012 elections or otherwise could have a negative effect on the Venezuelan economy, which in turn could result in an adverse effect on Coca-Cola FEMSA’s business. We cannot provide any assurances that political developments in Venezuela, over which we have no control, will not have an adverse effect on Coca-Cola FEMSA’s business, financial condition or results from operations.

In addition, presidential elections were held in November 2011 in each of Guatemala and Nicaragua. The elections in Guatemala led to the election of a new president and political party (the Partido Patriota (Patriotic Party)). The elections in Nicaragua led to the reelection of José Daniel Ortega Saavedra, a member of the Partido Frente Sandinista de Liberación Nacional (Sandinista National Liberation Front), as president. We cannot assure you that the elected presidents in these countries will continue to apply the same policies that have been applied to Coca-Cola FEMSA in the past.

Depreciation of the local currencies of the countries in which Coca-Cola FEMSA operates against the U.S. dollar may increase its operating costs. Coca-Cola FEMSA has also operated under exchange controls in Venezuela since 2003 that limit its ability to remit dividends abroad or make payments other than in local currencies and that may increase the real price paid for raw materials and services purchased in local currency. In January 2010, the Venezuelan government announced a devaluation of its official exchange rate and the establishment of a multiple exchange rate system, which was set at 2.60 bolivars to US$ 1.00 for high priority categories and 4.30 bolivars to US$ 1.00 for non-priority categories, and which recognized the existence of other exchange rates in which the Venezuelan government will intervene. In December 2010, the Venezuelan government announced its decision to implement a new singular fixed exchange rate of 4.30 bolivars to US$ 1.00, which resulted in a devaluation of the bolivar against the U.S. dollar. Future changes in the Venezuelan exchange control regime, and future currency devaluations or the imposition of exchange controls in any of the countries in which Coca-Cola FEMSA has operations could have an adverse effect on its financial position and results from operations.

We cannot assure you those political or social developments in any of the countries in which Coca-Cola FEMSA has operations, over which it has no control, will not have a corresponding adverse effect on the economic situation and on its business, financial condition or results from operations.

Weather conditions may adversely affect Coca-Cola FEMSA’s results from operations.

Lower temperatures and higher rainfall may negatively impact consumer patterns, which may result in lower per capita consumption of Coca-Cola FEMSA’s beverage offerings. Additionally, adverse weather conditions may affect road infrastructure in the territories in which Coca-Cola FEMSA operates and limit its ability to sell and distribute its products, thus affecting Coca-Cola FEMSA’s results from operations. As was the case in most of Coca-Cola FEMSA’s territories in 2011, adverse weather conditions affected Coca-Cola FEMSA’s sales in certain regions of these territories.

FEMSA Comercio

Competition from other retailers in Mexico could adversely affect FEMSA Comercio’s business.

The Mexican retail sector is highly competitive. FEMSA participates in the retail sector primarily through FEMSA Comercio. FEMSA Comercio’s OXXO convenience stores face competition on a regional basis from 7-Eleven, Super Extra, Super City and Círculo K stores. OXXO convenience stores also face competition from numerous small chains of retailers across Mexico and from retailers that participate with store formats other than convenience stores. FEMSA Comercio may face additional competition from new market entrants. Increased competition may limit the number of new locations available to FEMSA Comercio and require FEMSA Comercio to modify its product offering or pricing. In addition, consumers may prefer alternative products or store formats offered by competitors. As a result, FEMSA Comercio’s results from operations and financial position may be adversely affected by competition in the future.

Sales of OXXO convenience stores may be adversely affected by changes in economic conditions in Mexico.

Convenience stores often sell certain products at a premium. The convenience store market is thus highly sensitive to economic conditions, since an economic slowdown is often accompanied by a decline in consumer purchasing power, which in turn results in a decline in the overall consumption of FEMSA Comercio’s main product categories. During periods of economic slowdown, OXXO stores may experience a decline in traffic per store and purchases per customer, and this may result in a decline in FEMSA Comercio’s results from operations.

FEMSA Comercio may not be able to maintain its historic growth rate.

FEMSA Comercio increased the number of OXXO stores at a compound annual growth rate of 14.5% from 2007 to 2011. The growth in the number of OXXO stores has driven growth in total revenue and operating income at FEMSA Comercio over the same period. As the overall number of stores increases, percentage growth in the number of OXXO stores is likely to decrease. In addition, as convenience store penetration in Mexico grows, the number of viable new store locations may decrease, and new store locations may be less favorable in terms of same store sales, average ticket and store traffic. As a result, FEMSA Comercio’s future results from operations and financial condition may not be consistent with prior periods and may be characterized by lower growth rates in terms of total revenue and operating income. In Colombia, FEMSA Comercio may not be able to maintain similar historic growth rates to those in Mexico.

FEMSA Comercio’s business may be adversely affected by an increase in the crime rate in Mexico.

In recent years, crime rates have increased, particularly in the north of Mexico, and there has been a particular increase in drug-related crime and other organized crime. Although FEMSA Comercio has stores across the majority of the Mexican territory, the north of Mexico represents an important region in FEMSA Comercio’s operations. An increase in crime rates could negatively affect sales and customer traffic, increase security expenses incurred in each store, result in higher turnover of personnel or damage to the perception of the OXXO brand, each of which could have an adverse effect on FEMSA Comercio’s business.

FEMSA Comercio’s business may be adversely affected by changes in information technology.

FEMSA Comercio invests aggressively in information technology (which we refer to as IT) in order to maximize its value generation potential. Given the rapid speed at which FEMSA Comercio adds new services and products to its commercial offerings, the development of IT systems, hardware and software needs to keep pace with the growth of the business. If these systems became unstable or if planning for future IT investments were inadequate, it could affect FEMSA Comercio’s business by reducing the flexibility of its value proposition to consumers or by increasing its operating complexity, either of which could adversely affect FEMSA Comercio’s revenue-per-store trends.

Risks Related to Our Holding of Heineken N.V. and Heineken Holding N.V. Shares

FEMSA will not control Heineken N.V.’s and Heineken Holding N.V.’s decisions.

On April 30, 2010, FEMSA announced the closing of the transaction pursuant to which FEMSA agreed to exchange 100% of its beer operations for a 20% economic interest in the Heineken Group, which we refer to as the Heineken transaction. As a consequence of the Heineken transaction, FEMSA now participates in the Heineken Holding N.V. Board of Directors, which we refer to as the Heineken Holding Board, and in the Heineken N.V. Supervisory Board, which we refer to as the Heineken Supervisory Board. However, FEMSA is not a majority or controlling shareholder of Heineken N.V. or Heineken Holding N.V., nor does it control the decisions of the Heineken Holding Board or the Heineken Supervisory Board. Therefore, the decisions made by the majority or controlling shareholders of Heineken N.V. or Heineken Holding N.V. or the Heineken Holding Board or the Heineken Supervisory Board may not be consistent with or may not consider the interests of FEMSA’s shareholders or may be adverse to the interests of FEMSA’s shareholders. Additionally, FEMSA has agreed not to disclose non-public information and decisions taken by Heineken.

Heineken is present in a large number of countries.

Heineken is a global distributor and brewer of beer in a large number of countries. As a consequence of the Heineken transaction, FEMSA shareholders are indirectly exposed to the political, economic and social circumstances affecting the markets in which Heineken is present, which may have an adverse effect on the value of FEMSA’s interest in Heineken, and, consequently, the value of FEMSA shares.

Strengthening of the Mexican peso.

In the event of a depreciation of the euro against the Mexican peso, the fair value of FEMSA’s investment in shares will be adversely affected.

Furthermore, the cash flow that is expected to be received in the form of dividends from Heineken will be in euros, and therefore, in the event of a depreciation of the euro against the Mexican peso, the amount of expected cash flow will be adversely affected.

Heineken N.V. and Heineken Holding N.V. are publicly listed companies.

Heineken N.V. and Heineken Holding N.V. are listed companies whose stock trades publicly and is subject to market fluctuation. A reduction in the price of Heineken N.V. or Heineken Holding N.V. shares would result in a reduction in the economic value of FEMSA’s participation in Heineken.

Risks Related to Our Principal Shareholders and Capital Structure

A majority of our voting shares are held by a voting trust, which effectively controls the management of our company, and whose interests may differ from those of other shareholders.

As of March 23, 2012, a voting trust, of which the participants are members of seven families, owned 38.69% of our capital stock and 74.86% of our capital stock with full voting rights, consisting of the Series B Shares. Consequently, the voting trust has the power to elect a majority of the members of our board of directors and to play a significant or controlling role in the outcome of substantially all matters to be decided by our board of directors or our shareholders. The interests of the voting trust may differ from those of our other shareholders. See “Item 7. Major Shareholders and Related Party Transactions” and “Item 10. Additional Information—Bylaws—Voting Rights and Certain Minority Rights.”

Holders of Series D-B and D-L Shares have limited voting rights.

Holders of Series D-B and D-L Shares have limited voting rights and are only entitled to vote on specific matters, such as certain changes in the form of our corporate organization, dissolution, or liquidation, a merger with a company with a distinct corporate purpose, a merger in which we are not the surviving entity, a change of our jurisdiction of incorporation, the cancellation of the registration of the Series D-B and D-L Shares and any other matters that expressly require approval from such holders under the Mexican Securities Law. As a result of these limited voting rights, Series D-B and D-L holders will not be able to influence our business or operations. See “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders” and “Item 10. Additional Information—Bylaws—Voting Rights and Certain Minority Rights.”

Holders of ADSs may not be able to vote at our shareholder meetings.

Our shares are traded on the New York Stock Exchange, or NYSE, in the form of ADSs. We cannot assure you that holders of our shares in the form of ADSs will receive notice of shareholders’ meetings from our ADS depositary in sufficient time to enable such holders to return voting instructions to the ADS depositary in a timely manner. In the event that instructions are not received with respect to any shares underlying ADSs, the ADS depositary will, subject to certain limitations, grant a proxy to a person designated by us in respect of these shares. In the event that this proxy is not granted, the ADS depositary will vote these shares in the same manner as the majority of the shares of each class for which voting instructions are received.

Holders of BD Units in the United States and holders of ADSs may not be able to participate in any future preemptive rights offering and as a result may be subject to dilution of their equity interests.

Under applicable Mexican law, if we issue new shares for cash as a part of a capital increase, other than in connection with a public offering of newly issued shares or treasury stock, we are generally required to grant our shareholders the right to purchase a sufficient number of shares to maintain their existing ownership percentage. Rights to purchase shares in these circumstances are known as preemptive rights. By law, we may not allow holders of our shares or ADSs who are located in the United States to exercise any preemptive rights in any future capital increases unless (1) we file a registration statement with the U.S. Securities and Exchange Commission, which we refer to as the SEC, with respect to that future issuance of shares or (2) the offering qualifies for an exemption from the registration requirements of the U.S. Securities Act of 1933. At the time of any future capital increase, we will evaluate the costs and potential liabilities associated with filing a registration statement with the SEC, as well as the benefits of preemptive rights to holders of our shares in the form of ADSs in the United States and any other factors that we consider important in determining whether to file a registration statement.

We may decide not to file a registration statement with the SEC to allow holders of our shares or ADSs who are located in the United States to participate in a preemptive rights offering. In addition, under current Mexican law, the sale by the ADS depositary of preemptive rights and the distribution of the proceeds from such sales to the holders of our shares in the form of ADSs is not possible. As a result, the equity interest of holders of our shares in the form of ADSs would be diluted proportionately. See “Item 10. Additional Information—Bylaws—Preemptive Rights.”

The protections afforded to minority shareholders in Mexico are different from those afforded to minority shareholders in the United States.

Under Mexican law, the protections afforded to minority shareholders are different from, and may be less than, those afforded to minority shareholders in the United States. Mexican laws do not provide a remedy to shareholders relating to violations of fiduciary duties. There is no procedure for class actions as such actions are conducted in the United States and there are different procedural requirements for bringing shareholder lawsuits against directors for the benefit of companies. Therefore, it may be more difficult for minority shareholders to enforce their rights against us, our directors or our controlling shareholders than it would be for minority shareholders of a United States company.

Investors may experience difficulties in enforcing civil liabilities against us or our directors, officers and controlling persons.

FEMSA is organized under the laws of Mexico, and most of our directors, officers and controlling persons reside outside the United States. In addition, all or a substantial portion of our assets and their respective assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States on such persons or to enforce judgments against them, including any action based on civil liabilities under the U.S. federal securities laws. There is doubt as to the enforceability against such persons in Mexico, whether in original actions or in actions to enforce judgments of U.S. courts, of liabilities based solely on the U.S. federal securities laws.

Developments in other countries may adversely affect the market for our securities.

The market value of securities of Mexican companies is, to varying degrees, influenced by economic and securities market conditions in other emerging market countries. Although economic conditions are different in each country, investors’ reaction to developments in one country can have effects on the securities of issuers in other countries, including Mexico. We cannot assure you that events elsewhere, especially in emerging markets, will not adversely affect the market value of our securities.

The failure or inability of our subsidiaries to pay dividends or other distributions to us may adversely affect us and our ability to pay dividends to holders of ADSs.

FEMSA is a holding company. Accordingly, FEMSA’s cash flows are principally derived from dividends, interest and other distributions made to FEMSA by its subsidiaries. Currently, FEMSA’s subsidiaries do not have contractual obligations that require them to pay dividends to FEMSA. In addition, debt and other contractual obligations of our subsidiaries may in the future impose restrictions on our subsidiaries’ ability to make dividend or other payments to FEMSA, which in turn may adversely affect FEMSA’s ability to pay dividends to shareholders and meet its debt and other obligations. As of December 31, 2011, FEMSA had no restrictions on its ability to pay dividends. Given the exchange of 100% of our FEMSA Cerveza business for a 20% economic interest in the Heineken Group, FEMSA’s non-controlling shareholder position in Heineken N.V. and Heineken Holding N.V. means that it will be unable to require payment of dividends with respect to the Heineken N.V. or Heineken Holding N.V. shares.

Risks Related to Mexico and the Other Countries in Which We Operate

Adverse economic conditions in Mexico may adversely affect our financial position and results from operations.

We are a Mexican corporation, and our Mexican operations are our single most important geographic territory. Given the exchange of 100% of our FEMSA Cerveza business for a 20% economic interest in the Heineken Group, FEMSA shareholders may face a lesser degree of exposure with respect to economic conditions in Mexico and a greater degree of indirect exposure to the political, economic and social circumstances affecting the markets in which Heineken is present. For the year ended December 31, 2011, 60% of our consolidated total revenues were attributable to Mexico and at the net income level the percentage attributable to our Mexican

operations is further reduced. The Mexican economy experienced a downturn as a result of the impact of the global financial crisis on many emerging economies that began in the second half of 2008 and continued through 2010. In the fourth quarter of 2011, Mexican gross domestic product, or GDP, increased by approximately 3.7% on an annualized basis compared to the same period in 2010, due to an improvement in the manufacturing and services sectors of the economy. The Mexican economy continues to be heavily influenced by the U.S. economy, and therefore, further deterioration in economic conditions in, or delays in recovery of, the U.S. economy may hinder any recovery in Mexico. In the past, Mexico has experienced both prolonged periods of weak economic conditions and deteriorations in economic conditions that have had a negative impact on our results from operations. Given the continuing global macroeconomic downturn in 2009 and 2010, and the slow and uncertain recovery in 2011, which also affected the Mexican economy, we cannot assure you that such conditions will not have a material adverse effect on our results from operations and financial position going forward.

Our business may be significantly affected by the general condition of the Mexican economy, or by the rate of inflation in Mexico, interest rates in Mexico and exchange rates for, or exchange controls affecting, the Mexican peso. Decreases in the growth rate of the Mexican economy, periods of negative growth and/or increases in inflation or interest rates may result in lower demand for our products, lower real pricing of our products or a shift to lower margin products. Because a large percentage of our costs and expenses are fixed, we may not be able to reduce costs and expenses upon the occurrence of any of these events, and our profit margins may suffer as a result.

In addition, an increase in interest rates in Mexico would increase the cost to us of variable rate debt, which constituted 41% of our total debt as of December 31, 2011 (including the effect of interest rate swaps), and have an adverse effect on our financial position and results from operations.

Depreciation of the Mexican peso relative to the U.S. dollar could adversely affect our financial position and results from operations.

Depreciation of the Mexican peso relative to the U.S. dollar increases the cost to us of a portion of the raw materials we acquire, the price of which is paid in or determined with reference to U.S. dollars, and of our debt obligations denominated in U.S. dollars and thereby negatively affects our financial position and results from operations. A severe devaluation or depreciation of the Mexican peso may result in disruption of the international foreign exchange markets and may limit our ability to transfer or to convert Mexican pesos into U.S. dollars and other currencies for the purpose of making timely payments of interest and principal on our U.S. dollar-denominated debt or obligations in other currencies. Although the value of the Mexican peso against the U.S. dollar had been fairly stable until mid-2008, in the fourth quarter of 2008, the Mexican peso depreciated approximately 27% compared to the fourth quarter of 2007. Since 2008, the Mexican peso has continued to experience exchange rate fluctuations relative to the U.S. dollar, as follows. During 2009 and 2010, the Mexican peso experienced a recovery relative to the U.S. dollar of approximately 5.2% and 5.6% compared to the year of 2008 and 2009, respectively. During 2011, the Mexican peso experienced a devaluation relative to the U.S. dollar of approximately 12.7% compared to 2010. In the first quarter of 2012, the Mexican peso appreciated approximately 8.2% relative to the U.S. dollar compared to the fourth quarter of 2011.

While the Mexican government does not currently restrict, and since 1982 has not restricted, the right or ability of Mexican or foreign persons or entities to convert Mexican pesos into U.S. dollars or to transfer other currencies out of Mexico, the Mexican government could institute restrictive exchange rate policies in the future, as it has done in the past. Currency fluctuations may have an adverse effect on our financial position, results from operations and cash flows in future periods.

When the financial markets are volatile, as they have been in recent periods, our results from operations may be substantially affected by variations in exchange rates and commodity prices, and to a lesser degree, interest rates. These effects include foreign exchange gain and loss on assets and liabilities denominated in U.S. dollars, fair value gain and loss on derivative financial instruments, commodities prices and changes in interest income and interest expense. These effects can be much more volatile than our operating performance and our operating cash flows.

Political events in Mexico could adversely affect our operations.

Mexican political events may significantly affect our operations. Presidential elections in Mexico occur every six years, and the most recent election occurred in July 2006. Elections of the senate also occurred in July 2006, and although the Partido Acción Nacional (or the PAN) won a plurality of the seats in the Mexican congress in the election, no party succeeded in securing a majority. Elections of the Cámara de Diputados (House of Representatives) occurred in 2009, and although the Partido Revolucionario Institucional (or the PRI) won a plurality of seats in the House of Representatives, no party succeeded in securing a majority. The legislative gridlock resulting from the absence of a clear majority by any single party, which is expected to continue until the Mexican presidential and federal congressional elections to be held in July 2012, has impeded the progress of structural reforms in Mexico, which may adversely affect economic conditions in Mexico, and consequently, our results of operations.

The Mexican presidential election in July 2012 will result in a change in administration, as Mexican law does not allow a sitting president to run for a second consecutive term. The presidential race is expected to be highly contested among a number of different parties, including the PRI, the PAN and the Partido de la Revolución Democrática (the Party of the Democratic Revolution, or PRD), each with its own political platform. As a result, we cannot predict which party will win the presidential election or whether changes in Mexican governmental policy will result from a change in administration. Such changes, should they occur, may adversely affect economic conditions and/or the industries in which we operate in Mexico, and therefore our results of operations and financial position.

Insecurity in Mexico could increase, and this could adversely affect our results.

The presence and increasing levels of violence among drug cartels, and between these and the Mexican law enforcement and armed forces, pose a risk to our business. Organized criminal activity and related violent incidents remained high during 2011 and the first quarter of 2012 and are relatively concentrated along the northern Mexican border, as well as in certain other Mexican states such as Sinaloa, Michoacán and Guerrero. Mexican President Felipe Calderón has acted to fight the drug cartels and has disrupted the balance of power among them. The principal driver of organized criminal activity is the drug trade that aims to supply and profit from the uninterrupted demand for drugs and the supply of weapons from the United States. This situation could impact our business because consumer habits and patterns adjust to the increased perceived and real insecurity as people refrain from going out as much and gradually shift some on-premise consumption to off-premise consumption of food and beverages on certain social occasions. Insecurity could increase, and this could therefore adversely affect our operational and financial results.

Depreciation of local currencies in other Latin American countries in which we operate may adversely affect our financial position.

Total revenues increased in certain of our non-Mexican beverage operations at a higher rate relative to their respective Mexican operations in 2010. Although this was not the case in 2011, the recurrence of such a higher rate of total revenue growth could result in a greater contribution to the respective results from operations for these territories, but may also expose us to greater risk in these territories as a result. The devaluation of the local currencies against the U.S. dollar in our non-Mexican territories can increase our operating costs in these countries, and depreciation of the local currencies against the Mexican peso can negatively affect our results from operations for these countries. In recent years, the value of the currency in the countries in which we operate had been relatively stable except in Venezuela. Future currency devaluation or the imposition of exchange controls in any of these countries, including Mexico, would have an adverse effect on our financial position and results from operations.

ITEM 4.

INFORMATION ON THE COMPANY

The Company

Overview

We are a Mexican company headquartered in Monterrey, Mexico, and our origin dates back to 1890. Our company was incorporated on May 30, 1936 and has a duration of 99 years. The duration can be extended indefinitely by resolution of our shareholders. Our legal name is Fomento Económico Mexicano, S.A.B. de C.V., and in commercial contexts we frequently refer to ourselves as FEMSA. Our principal executive offices are located at General Anaya No. 601 Pte., Colonia Bella Vista, Monterrey, Nuevo León 64410, Mexico. Our telephone number at this location is (52-81) 8328-6000. Our website is www.femsa.com. We are organized as a sociedad anónima bursátil de capital variable under the laws of Mexico.

We conduct our operations through the following principal holding companies, each of which we refer to as a principal sub-holding company:

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Coca-Cola FEMSA, which engages in the production, distribution and marketing of soft drinks;

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FEMSA Comercio, which operates convenience stores; and

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CB Equity, which holds our investment in Heineken.

On April 30, 2010, FEMSA announced the closing of the transaction pursuant to which FEMSA agreed to exchange 100% of its beer operations for a 20% economic interest in the Heineken Group. Under Mexican FRS, we have reclassified our consolidated statements of income and cash flows for the year ended December 31, 2009 to reflect FEMSA Cerveza as a discontinued operation. However, FEMSA Cerveza is not a discontinued operation under U.S. GAAP. See “Item 5. Operating and Financial Review and Prospects—U.S. GAAP Reconciliation” and Notes 26 and 27 to our audited consolidated financial statements.

Corporate Background

FEMSA traces its origins to the establishment of Mexico’s first brewery, Cervecería Cuauhtémoc, S.A., which we refer to as Cuauhtémoc, which was founded in 1890 by four Monterrey businessmen: Francisco G. Sada, José A. Muguerza, Isaac Garza and José M. Schneider. Descendants of certain of the founders of Cuauhtémoc are participants of the voting trust that controls the management of our company.

The strategic integration of our company dates back to 1936 when our packaging operations were established to supply crown caps to the brewery. During this period, these operations were part of what was known as the Monterrey Group, which also included interests in banking, steel and other packaging operations.

In 1974, the Monterrey Group was split between two branches of the descendants of the founding families of Cuauhtémoc. The steel and other packaging operations formed the basis for the creation of Corporación Siderúrgica, S.A. (now Alfa, S.A.B. de C.V.), controlled by the Garza Sada family, and the beverage and banking operations were consolidated under the Valores Industriales, S.A. de C.V. (the corporate predecessor of FEMSA) corporate umbrella controlled by the Garza Lagüera family. FEMSA’s shares were first listed on what is now the Bolsa Mexicana de Valores, S.A.B. de C.V. (which we refer to as the Mexican Stock Exchange) on September 19, 1978. Between 1977 and 1981, FEMSA diversified its operations through acquisitions in the soft drinks and mineral water industries, the establishment of the first convenience stores under the trade name OXXO and other investments in the hotel, construction, auto parts, food and fishing industries, which were considered non-core businesses and were subsequently divested.

In August 1982, the Mexican government suspended payment on its international debt obligations and nationalized the Mexican banking system. In 1985, certain controlling shareholders of FEMSA acquired a

controlling interest in Cervecería Moctezuma, S.A., which was then Mexico’s third-largest brewery and which we refer to as Moctezuma, and related companies in the packaging industry. FEMSA subsequently undertook an extensive corporate and financial restructuring that was completed in December 1988, and pursuant to which FEMSA’s assets were combined under a single corporate entity, which became Grupo Industrial Emprex, S.A. de C.V., which we refer to as Emprex.

In October 1991, certain majority shareholders of FEMSA acquired a controlling interest in Bancomer, S.A., which we refer to as Bancomer. The investment in Bancomer was undertaken as part of the Mexican government’s reprivatization of the banking system, which had been nationalized in 1982. The Bancomer acquisition was financed in part by a subscription by Emprex’s shareholders, including FEMSA, of shares in Grupo Financiero Bancomer, S.A. de C.V. (currently Grupo Financiero BBVA Bancomer, S.A. de C.V.), which we refer to as BBVA Bancomer, the Mexican financial services holding company that was formed to hold a controlling interest in Bancomer. In February 1992, FEMSA offered Emprex’s shareholders the opportunity to exchange the BBVA Bancomer shares to which they were entitled for Emprex shares owned by FEMSA. In August 1996, the shares of BBVA Bancomer that were received by FEMSA in the exchange with Emprex’s shareholders were distributed as a dividend to FEMSA’s shareholders.

Upon the completion of these transactions, we began a series of strategic transactions to strengthen the competitive positions of our operating subsidiaries. These transactions included the sale of a 30% strategic interest in Coca-Cola FEMSA to a wholly-owned subsidiary of The Coca-Cola Company and a subsequent public offering of Coca-Cola FEMSA shares, both of which occurred in 1993, and the sale of a 22% strategic interest in FEMSA Cerveza to Labatt Brewing Company Limited, which we refer to as Labatt, in 1994. Labatt, which was later acquired by InBev S.A., or InBev (known at the time of the acquisition of Labatt as Interbrew and currently referred to as A-B InBev), subsequently increased its interest in FEMSA Cerveza to 30%.

In 1998, we completed a reorganization that:

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changed our capital structure by converting our outstanding capital stock at the time of the reorganization into BD Units and B Units, and

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united the shareholders of FEMSA and the former shareholders of Emprex at the same corporate level through an exchange offer that was consummated on May 11, 1998.

As part of the reorganization, FEMSA listed ADSs on the NYSE representing BD Units, and listed the BD Units and its B Units on the Mexican Stock Exchange.

In May 2003, our subsidiary Coca-Cola FEMSA expanded its operations throughout Latin America by acquiring 100% of Panamerican Beverages, Inc., which we refer to as Panamco, then the largest soft drink bottler in Latin America in terms of sales volume in 2002. Through its acquisition of Panamco, Coca-Cola FEMSA began producing and distributing Coca-Cola trademark beverages in additional territories in Mexico, Central America, Colombia, Venezuela and Brazil, along with bottled water, beer and other beverages in some of these territories. The Coca-Cola Company and its subsidiaries received Series D Shares in exchange for their equity interest in Panamco of approximately 25%.

In August 2004, we consummated a series of transactions with InBev, Labatt and certain of their affiliates to terminate the existing arrangements between FEMSA Cerveza and Labatt. As a result of these transactions, FEMSA acquired 100% ownership of FEMSA Cerveza and previously existing arrangements among affiliates of FEMSA and InBev relating to governance, transfer of ownership and other matters with respect to FEMSA Cerveza were terminated.

In June 2005, we consummated an equity offering of 80.5 million BD Units (including BD Units in the form of ADSs) and 52.78 million B units that resulted in net proceeds to us of US$ 700 million after underwriting spreads and commissions. We used the proceeds of the equity offering to refinance indebtedness incurred in connection with the transactions with InBev, Labatt and certain of their affiliates.

In January 2006, FEMSA Cerveza, through one of its subsidiaries, acquired 68% of the equity of the Brazilian brewer Cervejarias Kaiser, which we refer to as Kaiser, from the Molson Coors Brewing Company, or Molson Coors, for US$ 68 million. Molson Coors retained a 15% ownership stake in Kaiser, while Heineken N.V.’s ownership of 17% remained unchanged. In December 2006, Molson Coors completed its exit from Kaiser by exercising its option to sell its 15% holding to FEMSA Cerveza. On December 22, 2006, FEMSA Cerveza made a capital increase of US$ 200 million in Kaiser. At the time, Heineken N.V. elected not to participate in the increase, thereby diluting its 17% interest in Kaiser to 0.17%, and FEMSA Cerveza thereby increased its stake to 99.83% of the equity of Kaiser. However, in August 2007, FEMSA Cerveza and Heineken N.V. closed a stock purchase agreement whereby Heineken N.V. purchased the shares necessary to regain its 17% interest in Kaiser. As a result of this transaction, FEMSA Cerveza obtained ownership of 83% of Kaiser and Heineken N.V. obtained ownership of 17%.

In November 2006, we acquired from certain subsidiaries of The Coca-Cola Company 148,000,000 Series D shares of Coca-Cola FEMSA, representing 8.02% of the total outstanding stock of Coca-Cola FEMSA. We acquired these shares at a price of US$ 427.4 million in the aggregate, pursuant to a Memorandum of Understanding with The Coca-Cola Company. As of April 20, 2012, we indirectly owned Series A Shares of Coca-Cola FEMSA equal to 50.0% of its capital stock (63.0% of its capital stock with full voting rights) and The Coca-Cola Company indirectly owned Series D Shares of Coca-Cola FEMSA equal to 29.4% of its capital stock (37.0% of its capital stock with full voting rights). The remaining 20.6% of Coca-Cola FEMSA’s capital stock consisted of Series L Shares with limited voting rights, which trade on the Mexican Stock Exchange and/or on the NYSE in the form of ADSs under the trading symbol KOF.

In March 2007, at our company’s AGM, our shareholders approved a three-for-one stock split of FEMSA’s outstanding stock and our ADSs traded on the NYSE. The pro rata stock split had no effect on the ownership structure of FEMSA. The new units issued in the stock split were distributed by the Mexican Stock Exchange on May 28, 2007, to holders of record as of May 25, 2007, and ADSs traded on the NYSE were distributed on May 30, 2007, to holders of record as of May 25, 2007.

In November 2007, Administración, S.A.P.I. de C.V., or Administración, a Mexican company owned directly or indirectly by Coca-Cola FEMSA and by The Coca-Cola Company, acquired 58,350,908 shares representing 100% of the shares of the capital stock of Jugos del Valle, for US$ 370 million in cash, with assumed liabilities of US$ 86 million. On June 30, 2008, Administración and Jugos del Valle merged, and Jugos del Valle became the surviving entity. Subsequent to the initial acquisition of Jugos del Valle, Coca-Cola FEMSA offered to sell 30% of its interest in Administración to other Coca-Cola bottlers in Mexico. In December 2008, the surviving Jugos del Valle entity sold its operations to The Coca-Cola Company, Coca-Cola FEMSA and other bottlers of Coca-Cola trademark brands in Brazil. These still beverage operations were integrated into a joint business with The Coca-Cola Company in Brazil. Through Coca-Cola FEMSA’s joint ventures with The Coca-Cola Company, we distribute the Jugos del Valle line of juice-based beverages and have begun to develop and distribute new products. As of December 31, 2011, 2010, 2009 and 2008, Coca-Cola FEMSA has a recorded investment of 19.8% of the capital stock of Jugos del Valle.

In April 2008, FEMSA shareholders approved a proposal to amend our bylaws in order to preserve the unit structure for our shares that has been in place since May 1998, and to maintain our existing share structure beyond May 11, 2008. Our bylaws previously provided that on May 11, 2008 our Series D-B Shares would convert into Series B Shares and our Series D-L Shares would convert into Series L Shares with limited voting rights. In addition, our bylaws provided that, on May 11, 2008, our current unit structure would cease to exist and each of our B Units would be unbundled into five Series B Shares, while each BD Unit would unbundle into three Series B Shares and two newly issued Series L Shares. Following the April 22, 2008 shareholder approvals, the automatic conversion of our share and unit structures no longer exist, and, absent shareholder action, our share structure will continue to be comprised of Series B Shares, which must represent not less than 51% of our outstanding capital stock, and Series D-B and Series D-L Shares, which together may represent up to 49% of our outstanding capital stock. Our Unit structure, absent shareholder action, will continue to consist of B Units, which bundle five Series B Shares, and BD Units, which bundle one Series B Share, two Series D-B Shares and two Series D-L Shares. See “Item 9. The Offer and Listing—Description of Securities.”

In May 2008, Coca-Cola FEMSA completed its acquisition of Refrigerantes Minas Gerais, Ltda., or REMIL, in Brazil for US$ 364.1 million, net of cash received, and assumed liabilities of US$ 196.9 million.

In January 2010, FEMSA announced that its Board of Directors unanimously approved a definitive agreement under which FEMSA would exchange its FEMSA Cerveza business for a 20% economic interest in Heineken, one of the world’s leading brewers. Under the terms of the agreement, FEMSA received 43,018,320 shares of Heineken Holding N.V. and 43,009,699 shares of Heineken N.V., with an additional 29,172,504 shares of Heineken N.V. (which shares we refer to as the Allotted Shares) to be delivered pursuant to an allotted share delivery instrument, or the ASDI. Heineken also assumed US$ 2.1 billion of indebtedness, including FEMSA Cerveza’s unfunded pension obligations. The Allotted Shares were delivered to FEMSA in several installments during 2010 and 2011, with the final installment delivered on October 5, 2011. As of December 31, 2011, FEMSA’s interest in Heineken N.V. represented 12.53% of Heineken N.V.’s outstanding capital and 14.94% of Heineken Holding N.V.’s outstanding capital. The principal terms of the Heineken transaction documents are summarized below in “Item 10. Additional Information—Material Contracts.”

In February 2010, FEMSA signed an agreement with subsidiaries of The Coca-Cola Company to amend the shareholders agreement for Coca-Cola FEMSA. The purpose of the amendment is to set forth that the appointment and compensation of the chief executive officer and all officers reporting to the chief executive officer, as well as the adoption of decisions related to the ordinary operations of Coca-Cola FEMSA, shall only require a simple majority vote of the board of directors. Decisions related to extraordinary matters (such as business acquisitions or combinations in an amount exceeding US$ 100 million, among others) shall continue to require the vote of the majority of the board of directors, including the affirmative vote of two of the board members appointed by The Coca-Cola Company. The amendment was approved at Coca-Cola FEMSA’s extraordinary shareholders meeting on April 14, 2010, and is reflected in the bylaws of Coca-Cola FEMSA. This amendment was signed without transfer of any consideration. The percentage of our voting interest in our subsidiary Coca-Cola FEMSA remains the same after the signing of this amendment.

In April 2010, Heineken N.V. and Heineken Holding N.V. held their AGM, and approved the acquisition of 100% of the shares of the beer operations owned by FEMSA, under the terms announced in January 2010. The AGM of Heineken appointed, subject to the completion of the acquisition of FEMSA’s beer operations, Mr. Jose Antonio Fernández Carbajal as member of the Board of Directors of Heineken Holding N.V. and the Heineken Supervisory Board, and Mr. Javier Astaburuaga Sanjines as second representative in the Heineken Supervisory Board. Their appointments became effective on April 30, 2010.

In April 2010, FEMSA held its AGM, during which shareholders approved the transaction with Heineken. Shareholders approved the exchange of 100% of FEMSA’s beer operations in Mexico and Brazil for a 20% economic interest in the Heineken Group, and the assumption by Heineken of debt in the amount of US$2.1 billion, under the transaction terms described in January 2010.

In April 2010, FEMSA announced the closing of the transaction pursuant to which FEMSA agreed to exchange 100% of its beer operations for a 20% economic interest in the Heineken Group. The principal terms of the Heineken transaction documents are summarized below in “Item 10. Additional Information—Material Contracts.”

In September 2010, FEMSA sold Promotora de Marcas Nacionales, S. de R.L. de C.V., which we refer to as Promotora, to The Coca-Cola Company. Promotora was the owner of the Mundet brands of soft drinks in Mexico.

In September 2010, FEMSA signed definitive agreements with GPC III, B.V. to sell its flexible packaging and label operations, Grafo Regia, S.A. de C.V. This transaction was part of FEMSA’s strategy to divest non-core assets. The transaction was closed on December 31, 2010.

During the third quarter of 2010, Coca-Cola FEMSA completed a transaction with a Brazilian subsidiary of The Coca-Cola Company to produce, sell and distribute Matte Leão branded products. This transaction reinforced Coca-Cola FEMSA’s non-carbonated product offering through the platform that is operated by The Coca-Cola Company and its bottling partners in Brazil. As a part of the agreement, Coca-Cola FEMSA has been selling and distributing certain Matte Leão branded ready-to-drink products since the first quarter of 2010. As of April 20, 2012, Coca-Cola FEMSA had a 19.4% indirect interest in the Matte Leão business in Brazil.

In March 2011, a consortium of investors formed by FEMSA, the Macquarie Mexican Infrastructure Fund and other investors, acquired Energía Alterna Istmeña, S. de R.L. de C.V., which we refer to as EAI, and Energía Eólica Mareña, S.A. de C.V., which we refer to as EEM, from subsidiaries of Preneal, S.A., which we refer to as Preneal. EAI and EEM together constitute the Mareña Renovables Wind Power Farm, a 396 megawatt late-stage wind energy project in the southeastern region of the State of Oaxaca. The Mareña Renovables Wind Power Farm is expected to be the largest wind power farm in Latin America.

In March 2011, Coca-Cola FEMSA, with The Coca-Cola Company and through Compañía Panameña de Bebidas S.A.P.I. de C.V., acquired Grupo Industrias Lácteas, which we refer to as Estrella Azul, a Panamanian company engaged for more than 50 years in the dairy and juice-based beverage categories. Coca-Cola FEMSA acquired a 50% interest and will continue to develop this business with The Coca-Cola Company. Beginning in April 2011, both The Coca-Cola Company and Coca-Cola FEMSA commenced the gradual integration of Estrella Azul into the existing beverage platform they share for the development of non-carbonated products in Panama.

In October 2011, Coca-Cola FEMSA merged with Administradora de Acciones del Noreste, S.A. de C.V., which constituted the beverage division of Grupo Tampico, S.A. de C.V. (which we refer to as Grupo Tampico) and was one of the largest family-owned Coca-Cola product bottlers in Mexico, as calculated by sales volume. This franchise territory operates in the states of Tamaulipas, San Luis Potosí and Veracruz, as well as in certain parts of the states of Hidalgo, Puebla and Querétaro, and sold 155.7 million unit cases of beverages in 2011. The aggregate enterprise value at the announcement date of this transaction was Ps. 9,300 million. Grupo Tampico’s principal shareholders received 63.5 million newly issued Coca-Cola FEMSA Series L Shares. Coca-Cola FEMSA began to consolidate the beverage division of Grupo Tampico in its financial statements as of October 2011.

In December 2011, Coca-Cola FEMSA began the construction of a production plant in Minas Gerais, Brazil, which will require an investment of 250 million Brazilian reais (equivalent to approximately US$ 140 million). We expect that the construction will generate 800 direct and indirect jobs. As of December 31, 2011, it was anticipated that the new plant would be completed within 18 months and begin operations in June 2013. The plant will be located on a parcel of land 300,000 square meters in size, and it is expected that by 2015 the annual production capacity will be approximately 2.1 billion liters of sparkling beverages, representing an increase of approximately 47% as compared to the current installed capacity of Coca-Cola FEMSA’s plant in Belo Horizonte, Brazil. The new plant will produce all of Coca-Cola FEMSA’s existing brands and presentations of Coca-Cola products.

In December 2011, Coca-Cola FEMSA merged with the beverage division of Corporación de los Ángeles, S.A. de C.V. (which we refer to as Grupo CIMSA), which division was a Mexican family-owned bottler of Coca-Cola trademark products. This franchise territory operates mainly in the states of Morelos and Mexico, as well as in certain parts of the states of Guerrero and Michoacán, and sold 154.8 million unit cases of beverages in 2011. The aggregate enterprise value at the announcement date of this transaction was Ps. 11,000 million. A total of 75.4 million new Coca-Cola FEMSA Series L Shares were issued in connection with the transaction, and Coca-Cola FEMSA began to consolidate the beverage division of Grupo CIMSA in its financial statements as of December 2011. As part of its merger with the beverage division of Grupo CIMSA, Coca-Cola FEMSA acquired a 13.2% equity interest in Promotora Industrial Azucarera, S.A. de C.V., which we refer to as Piasa.

On December 15, 2011, Coca-Cola FEMSA entered into an agreement to merge the beverage division of Grupo Fomento Queretano, S.A.P.I. de C.V. (which we refer to Grupo Fomento Queretano) into Coca-Cola FEMSA. Grupo Fomento Queretano’s beverage division operates mainly in the Mexican state of Querétaro, as well as in parts of the states of Mexico, Hidalgo and Guanajuato. The merger agreement was approved by both Coca-Cola FEMSA’s and Grupo Fomento Queretano’s boards of directors, and is subject to the approval of the Comisión Federal de Competencia (the Mexican Antitrust Commission, or the CFC) and of the shareholders meetings of both companies. The transaction will involve the issuance of approximately 45.1 million new Coca-Cola FEMSA Series L Shares, and in addition Coca-Cola FEMSA will assume Ps. 1,221 million in net debt. This transaction is expected to be completed in the second quarter of 2012.

In February 2012, Coca-Cola FEMSA announced that it had entered into a 12-month exclusivity agreement with The Coca-Cola Company to evaluate the potential acquisition by Coca-Cola FEMSA of a controlling ownership stake in the bottling operations owned by The Coca-Cola Company in the Philippines. Both parties believe that Coca-Cola FEMSA’s expertise and successful track record operating in fragmented markets and emerging economies could be effectively deployed in such territory, and contribute significantly toward expanding the penetration of, and consumer preference for, The Coca-Cola Company’s brands in that market. This exclusivity agreement does not require either party to enter into any transaction, and there can be no assurances that a definitive agreement will be executed.

On February 23, 2012, a wholly-owned subsidiary of Mitsubishi Corporation, and Stichting Depositary PGGM Infrastructure Funds, a pension fund managed by PGGM, acquired the 45% interest held by FEMSA in the parent companies of the Mareña Renovables Wind Power Farm. Certain subsidiaries of FEMSA, FEMSA Comercio and Coca-Cola FEMSA have entered into 20-year wind power supply agreements with the Mareña Renovables Wind Power Farm to purchase energy output produced by it. These agreements will remain in full force and effect. The sale of FEMSA’s participation as an investor will result in a gain.

Ownership Structure

We conduct our business through our principal sub-holding companies as shown in the following diagram and table:

Principal Sub-holding Companies—Ownership Structure

As of March 31, 2012

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(1)	Compañía Internacional de Bebidas, S.A. de C.V., which we refer to as CIBSA.

(2)	Percentage of capital stock, equal to 63.0% of capital stock with full voting rights.

(3)	Ownership in CB Equity held through various FEMSA subsidiaries.

(4)	Combined economic interest in Heineken N.V. and Heineken Holding N.V.

The following table presents an overview of our operations by reportable segment and by geographic region:

Operations by Segment—Overview

Year Ended December 31, 2011 and % of growth vs. last year⁽¹⁾


	Coca-Cola FEMSA				FEMSA Comercio				CB Equity⁽²⁾
	(in millions of Mexican pesos, except for employees and percentages)
Total revenues		Ps.124,715	20.5	%		Ps.74,112	19.0	%		Ps. —	— %
Income from operations		20,152	18.0	%		6,276	20.7	%		(7)	(133)%
Total assets		151,608	32.9	%		26,998	14.0	%		76,791	14.6%
Employees		78,979	15.4	%		83,820	14.7	%		—	N/a

Total Revenues Summary by Segment⁽¹⁾

Year Ended December 31,

2011

2010

2009

(in millions of Mexican pesos)

Coca-Cola FEMSA

Ps.124,715

Ps.103,456

Ps.102,767

FEMSA Comercio

74,112

62,259

53,549

CB Equity⁽²⁾

—

N/a

Other

13,373

12,010

10,991

Consolidated total revenues⁽³⁾

Ps.203,044

Ps.169,702

Ps.160,251

Total Revenues Summary by Geographic Region⁽⁴⁾⁽⁵⁾

Year Ended December 31,

2011

2010

2009

Mexico and Central America⁽³⁾⁽⁶⁾

Ps.130,256

Ps.111,769

Ps.101,023

South America⁽³⁾⁽⁷⁾

53,113

44,468

37,507

Venezuela

20,173

14,048

22,448

Consolidated total revenues⁽³⁾

Ps.203,044

Ps.169,702

Ps.160,251

(1)	The sum of the financial data for each of our segments and percentages with respect thereto differ from our consolidated financial information due to intercompany transactions, which are eliminated in consolidation, and certain assets and activities of FEMSA.

(2)	CB Equity holds Heineken N.V. and Heineken Holding N.V. shares.

(3)	For 2009, consolidated total revenues have been modified to exclude FEMSA Cerveza financial information due to its presentation as a discontinued operation.

(4)	In 2011, Coca-Cola FEMSA changed its business structure and organization. As a result, revenues by geographic region have been regrouped into the following two regions: Mexico and Central America; and South America. See Note 25 to our audited consolidated financial statements.

(5)	The sum of the financial data for each geographic region differs from our consolidated financial information due to intercompany transactions, which are eliminated in consolidation.

(6)	Central America includes Guatemala, Nicaragua, Costa Rica and Panama. Domestic (Mexico-only) revenues were Ps. 122,690 million, Ps. 105,448 million and Ps. 94,819 million for the years ended December 31, 2011, 2010 and 2009, respectively.

(7)

Includes Colombia, Brazil and Argentina. South America revenues include Brazilian revenues of Ps. 31,405 million, Ps. 27,070 million and Ps. 21,465 million, and Colombian revenues of Ps. 12,320 million, Ps. 11,057 million and Ps. 9,904 million, each for the years ended December 31, 2011, 2010 and 2009, respectively.

Significant Subsidiaries

The following table sets forth our significant subsidiaries as of February 29, 2012:


Name of Company	Jurisdiction of Establishment	Percentage Owned
CIBSA	Mexico		100.0	%
Coca-Cola FEMSA⁽¹⁾	Mexico		50.0	%
Propimex, S. de R.L. de C.V. (a limited liability company; formerly Propimex, S.A. de C.V.)	Mexico		50.0	%
Controladora Interamericana de Bebidas, S.A. de C.V.	Mexico		50.0	%
Coca-Cola FEMSA de Venezuela, S.A. (formerly Panamco Venezuela, S.A. de C.V.)	Venezuela		50.0	%
Spal Industria Brasileira de Bebidas, S.A.	Brazil		48.9	%
FEMSA Comercio	Mexico		100.0	%
CB Equity	United Kingdom		100.0	%

(1)	Percentage of capital stock. FEMSA owns 63.0% of the capital stock with full voting rights.

Business Strategy

FEMSA is a leading company that participates in the non-alcoholic beverage industry through Coca-Cola FEMSA, the largest independent bottler of Coca-Cola products in the world in terms of sales volume; in the retail industry through FEMSA Comercio, operating the largest and fastest-growing chain of convenience stores in Latin America; and in the beer industry, through its ownership of the second-largest equity stake in Heineken, one of the world’s leading brewers, with operations in over 70 countries.

We understand the importance of connecting with our end consumers by interpreting their needs, and ultimately delivering the right products to them for the right occasions and the optimal value proposition. We strive to achieve this by developing brand value, expanding our significant distribution capabilities, and improving the efficiency of our operations while aiming to reach our full potential. We continue to improve our information gathering and processing systems in order to better know and understand what our consumers want and need, and we are improving our production and distribution by more efficiently leveraging our asset base.

We believe that the competencies that our businesses have developed can be replicated in other geographic regions. This underlying principle guided our consolidation efforts, which culminated in Coca-Cola FEMSA’s acquisition of Panamco in May 2003. The continental platform that this combination produced—encompassing a significant territorial expanse in Mexico and Central America, including some of the most populous metropolitan areas in Latin America—has provided us with opportunities to create value through both an improved ability to execute our strategies and the use of superior marketing tools. We have also increased our capabilities to operate and succeed in other geographic regions, by developing significant management and marketing tools to gain an understanding of local consumer needs and trends, as is the case with OXXO’s new Colombian operations. Going forward, we intend to use those capabilities to continue our international expansion of both Coca-Cola FEMSA and OXXO.

Our ultimate objectives are achieving sustainable revenue growth, improving profitability and increasing the return on invested capital in each of our operations. We believe that by achieving these goals we will create sustainable value for our shareholders.

Coca-Cola FEMSA

Overview

Coca-Cola FEMSA is the largest franchise bottler of Coca-Cola trademark beverages in the world. Coca-Cola FEMSA operates in the following territories:

•

Mexico – a substantial portion of central Mexico (including Mexico City and the states of Michoacán and Guanajuato) and the southeast and northeast of Mexico (including the Gulf region).

•

Central America – Guatemala (Guatemala City and surrounding areas), Nicaragua (nationwide), Costa Rica (nationwide) and Panama (nationwide).

•

Colombia – most of the country.

•

Venezuela – nationwide.

•

Brazil – the area of greater São Paulo, Campinas, Santos, the state of Mato Grosso do Sul, part of the state of Minas Gerais and part of the state of Goiás.

•

Argentina – Buenos Aires and surrounding areas.

Coca-Cola FEMSA was organized on October 30, 1991 as a sociedad anónima de capital variable (a variable capital stock corporation) under the laws of Mexico with a duration of 99 years. On December 5, 2006, as required by amendments to the Mexican Securities Law, Coca-Cola FEMSA became a sociedad anónima bursátil de capital variable (a listed variable capital stock corporation). Coca-Cola FEMSA’s legal name is Coca-Cola FEMSA, S.A.B. de C.V. Coca-Cola FEMSA’s principal executive offices are located at Guillermo González Camarena No. 600, Col. Centro de Ciudad Santa Fe, Delegación Álvaro Obregón, México, D.F., 01210, México. Coca-Cola FEMSA’s telephone number at this location is (52-55) 5081-5100. Coca-Cola FEMSA’s website is www.coca-colafemsa.com.

The following is an overview of Coca-Cola FEMSA’s operations by reporting segment in 2011.

Operations by Reporting Segment—Overview

Year Ended December 31, 2011⁽¹⁾


	Total Revenues		Percentage of Total Revenues			Income from Operations		Percentage of Income from Operations
Mexico and Central America⁽²⁾		52,196		41.9	%		8,906		44.2	%
South America (excluding Venezuela)⁽³⁾		52,408		42.0	%		7,943		39.4	%
Venezuela		20,111		16.1	%		3,303		16.4	%
Consolidated		124,715		100.0	%		20,152		100.0	%

(1)	Expressed in millions of Mexican pesos, except for percentages.

(2)	Includes Mexico, Guatemala, Nicaragua, Costa Rica and Panama. Includes results of the beverage division of Grupo Tampico from October 2011 and of the beverage division of Grupo CIMSA from December 2011.

(3)	Includes Colombia, Brazil and Argentina.

Corporate History

In 1979, one of our subsidiaries acquired certain sparkling beverage bottlers that are now a part of Coca-Cola FEMSA. At that time, the acquired bottlers had 13 Mexican distribution centers operating 701 distribution routes, and their production capacity was 83 million physical cases. In 1991, FEMSA transferred its ownership in the bottlers to FEMSA Refrescos, S.A. de C.V., the corporate predecessor of Coca-Cola FEMSA, S.A.B. de C.V.

In June 1993, a subsidiary of The Coca-Cola Company subscribed for 30% of Coca-Cola FEMSA’s capital stock in the form of Series D Shares for US$ 195 million. In September 1993, FEMSA sold Series L Shares that

represented 19% of Coca-Cola FEMSA’s capital stock to the public, and Coca-Cola FEMSA listed these shares on the Mexican Stock Exchange and, in the form of ADSs, on the NYSE. In a series of transactions between 1994 and 1997, Coca-Cola FEMSA acquired territories in Argentina and additional territories in southern Mexico.

In May 2003, Coca-Cola FEMSA acquired Panamco and began producing and distributing Coca-Cola trademark beverages in additional territories in the central and the gulf regions of Mexico and in Central America (Guatemala, Nicaragua, Costa Rica and Panama), Colombia, Venezuela and Brazil, along with bottled water, beer and other beverages in some of these territories. As a result of the acquisition, the interest of The Coca-Cola Company in the capital stock of Coca-Cola FEMSA increased from 30.0% to 39.6%.

During August 2004, Coca-Cola FEMSA conducted a rights offering to allow existing holders of its Series L Shares and ADSs to acquire newly-issued Series L Shares in the form of Series L Shares and ADSs, respectively, at the same price per share at which we and The Coca-Cola Company subscribed in connection with the Panamco acquisition. In March 2006, its shareholders approved the non-cancellation of the 98,684,857 Series L Shares (equivalent to approximately 9.87 million ADSs, or over one-third of the issued Series L Shares at the time) that were not subscribed for in the rights offering which were available for subscription at a price of no less than US$ 2.216 per share or its equivalent in Mexican currency.

In November 2006, we acquired, through a subsidiary, 148,000,000 Coca-Cola FEMSA Series D Shares from certain subsidiaries of The Coca-Cola Company representing 9.4% of the total outstanding voting shares and 8.0% of the total outstanding equity of Coca-Cola FEMSA, at a price of US$ 2.888 per share for an aggregate amount of US$ 427.4 million. With this purchase, we increased our ownership to 53.7% of Coca-Cola FEMSA’s capital stock. Pursuant to Coca-Cola FEMSA’s bylaws, the acquired shares were converted from Series D Shares to Series A Shares.

In November 2007, Administración, S.A.P.I., a Mexican company owned directly or indirectly by Coca-Cola FEMSA and The Coca-Cola Company, acquired 100% of the shares of capital stock of Jugos del Valle. See “—The Company—Background.” The business of Jugos del Valle in the United States was acquired and sold by The Coca-Cola Company. Subsequently, Coca-Cola FEMSA and The Coca-Cola Company and all Mexican and Brazilian Coca-Cola bottlers entered into a joint business for the Mexican and the Brazilian operations, respectively, of Jugos del Valle, through transactions completed during 2008. Taking into account the participations held by the beverage divisions of Grupo Tampico and Grupo CIMSA, Coca-Cola FEMSA currently holds an interest of 24.0% in the Mexican joint business and approximately 19.7% in the Brazilian joint businesses of Jugos del Valle. Jugos del Valle sells fruit juice-based beverages and fruit derivatives.

In May 2008, Coca-Cola FEMSA entered into a transaction with The Coca-Cola Company to acquire its wholly-owned bottling franchise REMIL, located in the State of Minas Gerais in Brazil, and Coca-Cola FEMSA paid a purchase price of US$ 364.1 million in June 2008. Coca-Cola FEMSA began to consolidate REMIL in its financial statements as of June 1, 2008.

In December 2007 and May 2008, Coca-Cola FEMSA sold most of its proprietary brands to The Coca-Cola Company. The proprietary brands are now being licensed back to Coca-Cola FEMSA by The Coca-Cola Company pursuant to Coca-Cola FEMSA’s bottler agreements. The December 2007 transaction was valued at US$ 48 million and the May 2008 transaction was valued at US$ 16 million. Coca-Cola FEMSA believes that both of these transactions were conducted on an arm’s length basis. Revenues from the sale of proprietary brands in which Coca-Cola FEMSA has a significant continuing involvement are deferred and amortized against the related costs of future sales over the estimated sales period.

In July 2008, Coca-Cola FEMSA acquired the jug water business of Agua de los Ángeles, S.A. de C.V., or Agua de los Ángeles, in the Valley of Mexico (Mexico City and surrounding areas) from Grupo Embotellador CIMSA, S.A. de C.V., at the time one of the Coca-Cola bottling franchises in Mexico, for a purchase price of US$ 18.3 million. The trademarks remain with The Coca-Cola Company. Coca-Cola FEMSA subsequently merged Agua de los Ángeles into its jug water business under the Ciel brand.

In February 2009, Coca-Cola FEMSA, together with The Coca-Cola Company, acquired the Brisa bottled water business in Colombia from Bavaria, a subsidiary of SABMiller. Coca-Cola FEMSA acquired the production

assets and the distribution territory, and The Coca-Cola Company acquired the Brisa brand. Coca-Cola FEMSA and The Coca-Cola Company equally shared in paying the purchase price of US$ 92 million. Following a transition period, in June 2009, Coca-Cola FEMSA started to sell and distribute the Brisa portfolio of products in Colombia.

In May 2009, Coca-Cola FEMSA entered into an agreement to develop the Crystal trademark water products in Brazil jointly with The Coca-Cola Company.

In August 2010, Coca-Cola FEMSA acquired from The Coca-Cola Company, along with other Brazilian Coca-Cola bottlers, the business operations of the Matte Leão tea brand. As of April 20, 2012, Coca-Cola FEMSA had a 19.4% indirect interest in the Matte Leão business in Brazil.

In March 2011, Coca-Cola FEMSA, with The Coca-Cola Company and through Compañía Panameña de Bebidas S.A.P.I. de C.V., acquired Estrella Azul, a Panamanian conglomerate that participates in the dairy and juice-based beverage categories in Panama. Coca-Cola FEMSA will continue to develop this business with The Coca-Cola Company.

In October 2011, Coca-Cola FEMSA merged with the beverage division of Administradora de Acciones del Noreste, S.A. de C.V., which constituted Grupo Tampico’s beverage division and was one of the largest family-owned bottlers of Coca-Cola trademark products in Mexico, as calculated by sales volume. This franchise territory operates in the states of Tamaulipas, San Luis Potosí and Veracruz, as well as in certain parts of the states of Hidalgo, Puebla and Querétaro, and sold 155.7 million unit cases of beverages in 2011. The aggregate enterprise value at the announcement date of this transaction was Ps. 9,300 million, and a total of 63.5 million new Coca-Cola FEMSA Series L Shares were issued in connection with the transaction. Coca-Cola FEMSA began to consolidate the beverage division of Grupo Tampico in its financial statements as of October 2011.

In December 2011, Coca-Cola FEMSA merged with the beverage division of Grupo CIMSA, a Mexican family-owned bottler of Coca-Cola trademark products with operations mainly in the states of Morelos and México, as well as in certain parts of the states of Guerrero and Michoacán. This franchise territory sold 154.8 million unit cases of beverages in 2011. The aggregate enterprise value of this transaction was Ps. 11,000 million, and a total of 75.4 million new Coca-Cola FEMSA Series L Shares were issued in connection with this transaction. Coca-Cola FEMSA began to consolidate the beverage division of Grupo CIMSA in its financial statements as of December 2011. As part of Coca-Cola FEMSA’s merger with the beverage division of Grupo CIMSA, it also acquired a 13.2% equity interest in Piasa.

Recent Mergers and Acquisitions

On December 15, 2011, Coca-Cola FEMSA entered into an agreement to merge the beverage division of Grupo Fomento Queretano into Coca-Cola FEMSA. Grupo Fomento Queretano’s beverage division operates mainly in the Mexican state of Querétaro, as well as in parts of the states of Mexico, Hidalgo and Guanajuato. The merger agreement was approved by both Coca-Cola FEMSA’s and Grupo Fomento Queretano’s boards of directors, and is subject to the approval of the CFC and of the shareholders meetings of both companies. The transaction will involve the issuance of approximately 45.1 million new Coca-Cola FEMSA Series L Shares, and in addition Coca-Cola FEMSA will assume Ps. 1,221 million in net debt. This transaction is expected to be completed in the second quarter of 2012.

In February 2012, Coca-Cola FEMSA entered into a 12-month exclusivity agreement with The Coca-Cola Company to evaluate the potential acquisition by Coca-Cola FEMSA of a controlling ownership stake in the bottling operations owned by The Coca-Cola Company in the Philippines. Coca-Cola FEMSA remains in the process of evaluating this potential acquisition.

Capital Stock

As of April 20, 2012, we indirectly owned Series A Shares of Coca-Cola FEMSA equal to 50.0% of its capital stock (63.0% of its capital stock with full voting rights). As of April 20, 2012, The Coca-Cola Company indirectly owned Series D Shares of Coca-Cola FEMSA equal to 29.4% of its capital stock (37.0% of its capital stock with full voting rights). Series L Shares with limited voting rights, which trade on the Mexican Stock Exchange and/or in the form of ADSs on the NYSE, constituted the remaining 20.6% of Coca-Cola FEMSA’s capital stock.

LOGO

Business Strategy

In August 2011, Coca-Cola FEMSA restructured its business under two new divisions: Mexico and Central America; and South America, creating a more flexible structure to execute its strategies and extend Coca-Cola FEMSA’s track record of growth. Previously, Coca-Cola FEMSA managed its business under three divisions: Mexico; Latincentro; and Mercosur. With this new business structure, Coca-Cola FEMSA aligned its business strategies more efficiently, ensuring a faster introduction of new products and categories, and a more rapid and effective design and deployment of commercial models.

Coca-Cola FEMSA operates with a large geographic footprint in Latin America in two divisions:

•

Mexico and Central America (covering certain territories in Mexico, Guatemala, Nicaragua, Costa Rica and Panama); and

•

South America (covering certain territories in Colombia, Brazil, Venezuela and Argentina).

One of Coca-Cola FEMSA’s goals is to maximize growth and profitability to create value for its shareholders. Its efforts to achieve this goal are based on: (1) transforming Coca-Cola FEMSA’s commercial models to focus on its customers’ value potential and using a value-based segmentation approach to capture the industry’s value potential; (2) implementing multi-segmentation strategies in its major markets to target distinct market clusters divided by consumption occasion, competitive intensity and socioeconomic levels; (3) implementing well-planned product, packaging and pricing strategies through different distribution channels; (4) driving product innovation along its different product categories; (5) developing new businesses and distribution channels; and (6) achieving the full operating potential of its commercial models and processes to drive operational efficiencies throughout its company. To achieve these goals, Coca-Cola FEMSA intends to continue to focus its efforts on, among other initiatives, the following:

•

working with The Coca-Cola Company to develop a business model to continue exploring and participating in new lines of beverages, extending existing product lines and effectively advertising and marketing its products;

•

developing and expanding its still beverage portfolio through innovation, strategic acquisitions and by entering into agreements to acquire companies with The Coca-Cola Company;

•

expanding its bottled water strategy, with The Coca-Cola Company, through innovation and selective acquisitions to maximize profitability across its market territories;

•

strengthening its selling capabilities and go-to-market strategies, including pre-sale, conventional selling and hybrid routes, in order to get closer to its clients and help them satisfy the beverage needs of consumers;

•

implementing selective packaging strategies designed to increase consumer demand for its products and to build a strong returnable base for the Coca-Cola brand;

•

replicating its best practices throughout the value chain;

•

rationalizing and adapting its organizational and asset structure in order to be in a better position to respond to a changing competitive environment;

•

committing to building a multi-cultural collaborative team, from top to bottom; and

•

broadening its geographic footprint through organic growth and strategic joint ventures, mergers and acquisitions.

Coca-Cola FEMSA seeks to increase per capita consumption of its products in the territories in which it operates. To that end, its marketing teams continuously develop sales strategies tailored to the different characteristics of its various territories and distribution channels. Coca-Cola FEMSA continues to develop its product portfolio to better meet market demand and maintain its overall profitability. To stimulate and respond to consumer demand, Coca-Cola FEMSA continues to introduce new categories, products and presentations. See “—Product and Packaging Mix.” In addition, because Coca-Cola FEMSA views its relationship with The Coca-Cola Company as integral to its business, Coca-Cola FEMSA uses market information systems and strategies developed with The Coca-Cola Company to improve its business and marketing strategies.

Coca-Cola FEMSA also continuously seeks to increase productivity in its facilities through infrastructure and process reengineering for improved asset utilization. Its capital expenditure program includes investments in production and distribution facilities, bottles, cases, coolers and information systems. Coca-Cola FEMSA believes that this program will allow it to maintain its capacity and flexibility to innovate and to respond to consumer demand for its products.

Coca-Cola FEMSA focuses on management quality as a key element of its growth strategy, and remains committed to fostering the development of quality management at all levels. Both we and The Coca-Cola Company provide Coca-Cola FEMSA with managerial experience. To build upon these skills, Coca-Cola FEMSA also offers management training programs designed to enhance its executives’ abilities and to provide a forum for exchanging experiences, know-how and talent among an increasing number of multinational executives from its new and existing territories.

Sustainable development is an integral part of Coca-Cola FEMSA’s strategic framework for business growth. Coca-Cola FEMSA bases its efforts on five core areas: (i) Ethics and Corporate Values, which defines its commitment to acting, defining and organizing itself based on its corporate values and culture; (ii) Quality of Life in the Company, which encourages the integral development of its employees and their families; (iii) Health and Wellness, to promote an attitude of health, self-care, nutrition and physical activity, both within and outside the company; (iv) Community Engagement, to develop education and learning projects that improve the quality of life

in the communities where Coca-Cola FEMSA operates; and (v) Environmental Care, to establish guidelines that result in actions to minimize the impact that Coca-Cola FEMSA’s operations might have on the environment and create a broader awareness of caring for the environment.

Coca-Cola FEMSA’s Territories

The following map shows Coca-Cola FEMSA’s territories, giving estimates in each case of the population to which it offers products, the number of retailers of its beverages and the per capita consumption of its beverages as of December 31, 2011:

LOGO

Per capita consumption data for a territory are determined by dividing total beverage sales volume within the territory (in bottles, cans and fountain containers) by the estimated population within such territory, and are expressed on the basis of the number of eight-ounce servings of Coca-Cola FEMSA products consumed annually per capita. In evaluating the development of local volume sales in its territories and to determine product potential, Coca-Cola FEMSA and The Coca-Cola Company measure, among other factors, the per capita consumption of all of Coca-Cola FEMSA’s beverages.

Coca-Cola FEMSA’s Products

Coca-Cola FEMSA produces, markets and distributes Coca-Cola trademark beverages. These Coca-Cola trademark beverages include: sparkling beverages (colas and flavored sparkling beverages), waters and still beverages (including juice drinks, coffee, teas and isotonics). The following table sets forth Coca-Cola FEMSA’s main brands as of December 31, 2011:


*Colas:*	Mexico and Central America⁽¹⁾	South America⁽²⁾	Venezuela
Coca-Cola	ü	ü	ü
Coca-Cola Light	ü	ü	ü
Coca-Cola Zero	ü	ü

*Flavored sparkling beverages:*	Mexico and Central America⁽¹⁾	South America⁽²⁾	Venezuela
Chinotto			ü
Crush		ü
Fanta	ü	ü
Fresca	ü
Frescolita	ü		ü
Hit			ü
Kist	ü
Kuat		ü
Lift	ü
Mundet	ü
Quatro		ü
Simba		ü
Sprite	ü	ü
Schweppes	ü	ü	ü

*Water:*	Mexico and Central America⁽¹⁾	South America⁽²⁾	Venezuela
Alpina	ü
Aquarius⁽³⁾		ü
Brisa		ü
Ciel	ü
Crystal		ü
Manantial		ü
Nevada			ü


*Other Categories:*	Mexico and Central America⁽¹⁾	South America⁽²⁾	Venezuela
Cepita		ü
Hi-C⁽⁴⁾	ü	ü
Jugos del Valle⁽⁵⁾	ü	ü	ü
Nestea⁽⁶⁾	ü		ü
Powerade⁽⁷⁾	ü	ü	ü
Matte Leao⁽⁸⁾		ü
Valle Frut⁽⁹⁾	ü	ü	ü
Estrella Azul⁽¹⁰⁾	ü
Hugo⁽¹¹⁾		ü
Del Prado⁽¹²⁾	ü

(1)	Includes Mexico, Guatemala, Nicaragua, Costa Rica and Panama.

(2)	Includes Colombia, Brazil and Argentina.

(3)	Flavored water. In Brazil, also flavored sparkling beverage.

(4)	Juice-based beverage. Includes Hi-C Orangeade in Argentina.

(5)	Juice based beverage.

(6)	Nestea will no longer be a product licensed by The Coca-Cola Company in Coca-Cola FEMSA’s territories as of May 2012 and will be replaced with Fuze Tea.

(7)

Isotonic.

(8)	Ready to drink tea.

(9)	Orangeade. Includes Fresh in Costa Rica, Nicaragua, Panama, Colombia and Venezuela.

(10)	Milk and value-added dairy and juices.

(11)	Milk and juice blend.

(12)	Juice-based beverages.

Sales Overview

Coca-Cola FEMSA measures total sales volume in terms of unit cases. One unit case refers to 192 ounces of finished beverage product (24 eight-ounce servings) and, when applied to soda fountains, refers to the volume of syrup, powders and concentrate that is required to produce 192 ounces of finished beverage product. The following table illustrates Coca-Cola FEMSA’s historical sales volume for each of its territories.


	Sales Volume Year Ended December 31,
	2011		2010		2009
	(millions of unit cases)
Mexico and Central America
Mexico⁽¹⁾		1,366.5		1,242.3		1,227.2
Central America⁽²⁾		144.3		137.0		135.8
South America (excluding Venezuela)
Colombia⁽³⁾		252.1		244.3		232.2
Brazil⁽⁴⁾		485.3		475.6		424.1
Argentina		210.7		189.3		184.1
Venezuela		189.8		211.0		225.2

Combined Volume		2,648.7		2,499.5		2,428.6

(1)	Includes results of the beverage division of Grupo Tampico from October 2011 and of the beverage division of Grupo CIMSA from December 2011.

(2)	Includes Guatemala, Nicaragua, Costa Rica and Panama.

(3)	As of June 2009, includes sales from the Brisa bottled water business.

(4)	Excludes beer sales volume. As of the first quarter of 2010, Coca-Cola FEMSA began to distribute certain ready-to-drink products under the Matte Leão brand.

Product and Packaging Mix

Out of the more than 120 brands and line extensions of beverages that Coca-Cola FEMSA sells and distributes, its most important brand, Coca-Cola, together with the line extensions thereof, Coca-Cola Light and Coca-Cola Zero, accounted for 61.6% of total sales volume in 2011. Coca-Cola FEMSA’s next largest brands, Ciel (a water brand from Mexico), Fanta (and its line extensions), Sprite (and its line extensions) and ValleFrut (and its line extensions), accounted for 10.4%, 5.1%, 2.7% and 2.2%, respectively, of total sales volume in 2011. Coca-Cola FEMSA uses the term line extensions to refer to the different flavors in which Coca-Cola FEMSA offers its brands. Coca-Cola FEMSA produces, markets and distributes Coca-Cola trademark beverages in each of its territories in containers authorized by The Coca-Cola Company, which consist of a variety of returnable and non-returnable presentations in the form of glass bottles, cans and plastic bottles mainly made of polyethylene terephthalate, which we refer to as PET.

Coca-Cola FEMSA uses the term presentation to refer to the packaging unit in which it sells its products. Presentation sizes for Coca-Cola FEMSA’s Coca-Cola trademark beverages range from a 6.5-ounce personal size to a 3-liter multiple serving size. For all of Coca-Cola FEMSA’s products excluding water, it considers a multiple serving size to be equal to, or larger than, 1.0 liters. In general, personal sizes have a higher price per unit case as compared to multiple serving sizes. Coca-Cola FEMSA offers both returnable and non-returnable presentations, which allow it to offer portfolio alternatives based on convenience and affordability to implement revenue management strategies and to target specific distribution channels and population segments in its territories. In addition, Coca-Cola FEMSA sells some Coca-Cola trademark beverage syrups in containers designed for soda fountain use, which it refers to as fountain. Coca-Cola FEMSA also sells bottled water products in bulk sizes, which term refers to presentations equal to or larger than 5 liters, which have a much lower average price per unit case than Coca-Cola FEMSA’s other beverage products.

The characteristics of Coca-Cola FEMSA’s territories are very diverse. Central Mexico and Coca-Cola FEMSA’s territories in Argentina are densely populated and have a large number of competing beverage brands as compared to the rest of its territories. Coca-Cola FEMSA’s territories in Brazil are densely populated but have lower per capita consumption of beverage products as compared to Mexico. Portions of southern Mexico, Central America and Colombia are large and mountainous areas with lower population density, lower per capita income and lower per capita consumption of beverages. In Venezuela, Coca-Cola FEMSA faces operational disruptions from time to time, which may have an effect on its volumes sold, and consequently, may result in lower per capita consumption.

The following discussion analyzes Coca-Cola FEMSA’s product and packaging mix by reporting segment. The volume data presented are for the years 2011, 2010, and 2009.

Mexico and Central America. Coca-Cola FEMSA’s product portfolio consists of Coca-Cola trademark beverages. In 2008, as part of its efforts to strengthen its multi-category beverage portfolio, Coca-Cola FEMSA incorporated the Jugos del Valle line of juice-based beverages in Mexico, and subsequently in Central America. Per capita consumption of Coca-Cola FEMSA’s beverage products in Mexico and Central America was 632 and 179 eight-ounce servings, respectively, in 2011.

The following table highlights historical sales volume and mix in Mexico and Central America for Coca-Cola FEMSA’s products:


	Year Ended December 31,
	2011			2010			2009
	(millions of unit cases)
Total Sales Volume⁽¹⁾
Total		1,510.8			1,379.3			1,363.0
% Growth		9.5	%		1.2	%		6.3	%


	(in percentages)
Unit Case Volume Mix by Category⁽¹⁾
Sparkling beverages		74.9	%	75.2	%	74.7	%
Water⁽²⁾		19.7		19.4		20.2
Still beverages		5.4		5.4		5.1

Total		100.0	%	100.0	%	100.0	%

(1)

Includes results from the operations of the beverage division of Grupo Tampico from October 2011 and from the beverage division of Grupo CIMSA from December 2011.

(2)

Includes bulk water volumes.

In 2011, multiple serving presentations represented 67.6% of total sparkling beverages sales volume in Mexico, remaining flat as compared to 2010, and 55.7% of total sparkling beverages sales volume in Central America, a 60 basis points decrease as compared to 2010. Coca-Cola FEMSA’s strategy is to foster consumption in single serving presentations while maintaining multiple serving volumes. In 2011, returnable packaging, as a percentage of total sparkling beverage sales volume, accounted for 31.7% in Mexico, a 130 basis points increase as compared to 2010, and 31.7% in Central America, a 150 basis points decrease as compared to 2010.

In 2011, Coca-Cola FEMSA’s sparkling beverages decreased as a percentage of its total sales volume, from 75.2% in 2010 to 74.9% in 2011, mainly due to the integration of the beverage divisions of Grupo Tampico and Grupo CIMSA in Mexico, which have a higher mix of water in their portfolios.

In 2011, Coca-Cola FEMSA’s most popular sparkling beverage presentations in Mexico were the 2.5-liter returnable plastic bottle, the 3.0-liter non-returnable plastic bottle and the 0.6-liter non-returnable plastic bottle (the 20-ounce bottle that is also popular in the United States), which together accounted for 56.8% of total sparkling beverage sales volume in Mexico.

Total sales volume reached 1,510.8 million unit cases in 2011, an increase of 9.5% as compared to 1,379.3 million unit cases in 2010. The integration of the beverage divisions of Grupo Tampico and Grupo CIMSA in Mexico contributed 48.9 million unit cases in 2011, of which 63.0% were sparkling beverages, 5.2% bottled water, 27.4% bulk water and 4.4% still beverages. Excluding the integration of these territories, volume grew 6.0% in 2011, to 1,461.8 million unit cases. Organically sparkling beverages sales volume increased 6.0% as compared to 2010, contributing more than 70% of incremental volumes. The bottled water category, including bulk water, grew 5.6%, accounting for more than 15% of incremental volumes. The still beverage category increased 7.5%, representing the remainder of incremental volumes.

South America (Excluding Venezuela). Coca-Cola FEMSA’s product portfolio in South America consists mainly of Coca-Cola trademark beverages and the Kaiser beer brands in Brazil, which Coca-Cola FEMSA sells and distributes. In 2008, as part of its efforts to strengthen its multi-category beverage portfolio, Coca-Cola FEMSA incorporated the Jugos del Valle line of juice-based beverages in Colombia. In 2009, this line of beverages was re-launched in Brazil as well. The acquisition of Brisa in 2009 helped Coca-Cola FEMSA to become the leader, as calculated by sales volume, in the water market in Colombia. In 2010, Coca-Cola FEMSA incorporated ready-to-drink beverages under the Matte Leão brand in Brazil. During 2011, as part of its continuous effort to develop non-carbonated beverages, Coca-Cola FEMSA launched Cepita in non-returnable PET bottles and Hi-C, an orangeade, both in Argentina. Beginning in 2009, as part of its efforts to foster sparkling beverage per capita consumption in Brazil, Coca-Cola FEMSA re-launched a 2.0-liter returnable plastic bottle for the Coca-Cola brand and introduced two single-serving 0.25-liter presentations. During 2011, these presentations contributed significantly to incremental volumes in Brazil. Per capita consumption of Coca-Cola FEMSA’s beverages in Colombia, Brazil and Argentina was 129, 261 and 395 eight-ounce servings, respectively, in 2011. The following table highlights historical total sales volume and sales volume mix in South America (excluding Venezuela), not including beer:


	Year Ended December 31,
	2011			2010			2009
	(millions of unit cases)
Total Sales Volume
Total		948.1			909.2			840.4
% Growth		4.3	%		11.2	%		8.4	%

	(in percentages)
Unit Case Volume Mix by Category
Sparkling beverages		85.9	%		85.5	%		87.2	%
Water⁽¹⁾		9.2			10.1			8.8
Still beverages		4.9			4.4			4.0

Total		100.0	%		100.0	%		100.0	%

(1)	Includes bulk water volume.

Total sales volume was 948.1 million unit cases in 2011, an increase of 4.3% as compared to 909.2 million unit cases in 2010. Growth in sparkling beverages, mainly driven by sales of the Coca-Cola brand in both Argentina and Colombia, and the Fanta and Schweppes brands in Brazil, accounted for the majority of the growth during the year. Growth in still beverages, mainly driven by the Jugos del Valle line of products in Brazil and the Cepita juice brand and Hi-C orangeade in Argentina, represented the balance of incremental volumes. These increases compensated for a decrease in volume in Coca-Cola FEMSA’s water portfolio, including bulk water, mainly driven by the reduction in volume of the Brisa brand in Colombia.

In 2011, returnable packaging, as a percentage of total sparkling beverage sales volume, accounted for: 39.6% in Colombia, a 240 basis points decrease as compared to 2010; 27.8% in Argentina, a decrease of 70 basis points as compared to 2010; and 15.8% in Brazil, a 100 basis points increase as compared to 2010. In 2011, multiple serving presentations represented 62.1%, 71.3% and 85.0% of total sparkling beverages sales volume in Colombia, Brazil and Argentina, respectively.

Coca-Cola FEMSA continues to distribute and sell the Kaiser beer portfolio in its Brazilian territories through the 20-year term, consistent with arrangements in place with Cervejarias Kaiser since 2006, prior to the acquisition of Cervejarias Kaiser by FEMSA Cerveza. Beginning in the second quarter of 2005, Coca-Cola FEMSA ceased including beer that it distributes in Brazil in its reported sales volumes. On April 30, 2010, the transaction pursuant to which we exchanged 100% of our beer operations for a 20% economic interest in the Heineken Group closed.

Venezuela. Coca-Cola FEMSA’s product portfolio in Venezuela consists of Coca-Cola trademark beverages. Per capita consumption of Coca-Cola FEMSA’s beverages in Venezuela during 2011 was 150 eight-ounce servings.

The following table highlights historical total sales volume and sales volume mix in Venezuela:


	Year Ended December 31,
	2011			2010			2009
	(millions of unit cases)
Total Sales Volume
Total		189.8			211.0			225.2
% Growth		(10.0	%)		(6.3	%)		9.0	%

	(in percentages)
Unit Case Volume Mix by Category
Sparkling beverages		91.7	%		91.3	%		91.7	%
Water⁽¹⁾		5.4			6.5			5.7
Still beverages		2.9			2.2			2.6

Total		100.0	%		100.0	%		100.0	%

(1)	Includes bulk water volume.

Coca-Cola FEMSA has implemented a product portfolio rationalization strategy that allows it to minimize the impact of certain operating disruptions that have been recurrent in Venezuela over the last several years. During 2011, Coca-Cola FEMSA faced a 26-day strike at one of its Venezuelan production and distribution facilities and a difficult economic environment that prevented it from growing sales volume of its products. As a result, Coca-Cola FEMSA’s sparkling beverage volume decreased by 9.6%.

In 2011, multiple serving presentations represented 78.4% of total sparkling beverages sales volume in Venezuela, an 80 basis points increase as compared to 2010. In 2011, returnable presentations represented 8.0% of total sparkling beverages sales volume in Venezuela, a 40 basis points increase as compared to 2010. Total sales volume was 189.8 million unit cases in 2011, a decrease of 10.0% as compared to 211.0 million unit cases in 2010.

Seasonality

Sales of Coca-Cola FEMSA’s products are seasonal, as its sales levels generally increase during the summer months of each country and during the Christmas holiday season. In Mexico, Central America, Colombia and Venezuela, Coca-Cola FEMSA typically achieves its highest sales during the summer months of April through September, as well as during the Christmas holidays in December. In Brazil and Argentina, Coca-Cola FEMSA’s highest sales levels occur during the summer months of October through March and the Christmas holidays in December.

Marketing

Coca-Cola FEMSA, in conjunction with The Coca-Cola Company, has developed a marketing strategy to promote the sale and consumption of Coca-Cola FEMSA’s products. Coca-Cola FEMSA relies extensively on advertising, sales promotions and retailer support programs to target the particular preferences of its consumers. Coca-Cola FEMSA’s consolidated marketing expenses in 2011, net of contributions by The Coca-Cola Company, were Ps. 4,508 million. The Coca-Cola Company contributed an additional Ps. 2,561 million in 2011, which mainly includes contributions for coolers, bottles and cases. Through the use of advanced IT, Coca-Cola FEMSA has collected customer and consumer information that allows it to tailor its marketing strategies to target different types of customers located in each of its territories, and to meet the specific needs of the various markets it serves.

Retailer Support Programs. Support programs include providing retailers with point-of-sale display materials and consumer sales promotions, such as contests, sweepstakes and the giveaway of product samples.

Coolers. Cooler distribution among retailers is important for the visibility and consumption of Coca-Cola FEMSA’s products and to ensure that they are sold at the proper temperature.

Advertising. Coca-Cola FEMSA advertises in all major communications media. It focuses its advertising efforts on increasing brand recognition by consumers and improving its customer relations. National advertising campaigns are designed and proposed by The Coca-Cola Company’s local affiliates, with Coca-Cola FEMSA’s input at the local or regional level.

Channel Marketing. In order to provide more dynamic and specialized marketing of its products, Coca-Cola FEMSA’s strategy is to classify its markets and develop targeted efforts for each consumer segment or distribution channel. Coca-Cola FEMSA’s principal channels are small retailers, “on-premise” consumption such as restaurants and bars, supermarkets and third-party distributors. Presence in these channels entails a comprehensive and detailed analysis of the purchasing patterns and preferences of various groups of beverage consumers in each of the different types of locations or distribution channels. In response to this analysis, Coca-Cola FEMSA tailors its product, price, packaging and distribution strategies to meet the particular needs of and exploit the potential of each channel.

Multi-Segmentation. Coca-Cola FEMSA has been implementing a multi-segmentation strategy in the majority of its markets. This strategy consists of the implementation of different product/price/package portfolios by market cluster or group. These clusters are defined based on consumption occasion, competitive intensity and socio-economic levels, rather than solely on the types of distribution channels.

Client Value Management. Coca-Cola FEMSA has been transforming its commercial models to focus on its customers’ value potential using a value-based segmentation approach to capture the industry’s potential. Coca-Cola FEMSA started the rollout of this new model in its Mexico, Central America, Colombia and Brazil operations in 2009 and had covered close to 90% of its total volumes as of the end of 2011.

Coca-Cola FEMSA believes that the implementation of these strategies described above also enables it to respond to competitive initiatives with channel-specific responses as opposed to market-wide responses. In addition, it allows Coca-Cola FEMSA to be more efficient in the way it goes to market and invests its marketing resources in those segments that could provide a higher return. Coca-Cola FEMSA’s marketing, segmentation and distribution activities are facilitated by its management information systems. Coca-Cola FEMSA has invested significantly in creating these systems, including in hand-held computers to support the gathering of product, consumer and delivery information for most of its sales routes throughout its territories.

Product Sales and Distribution

The following table provides an overview of Coca-Cola FEMSA’s distribution centers and the retailers to which it sell its products:

Product Distribution Summary

as of December 31, 2011


	Mexico and Central America⁽¹⁾		South America⁽²⁾		Venezuela
Distribution centers		152		65		32
Retailers ⁽³⁾		863,409		663,678		209,597

(1)	Includes Mexico, Guatemala, Nicaragua, Costa Rica and Panama.

(2)	Includes Colombia, Brazil and Argentina.

(3)	Estimated.

Coca-Cola FEMSA continuously evaluates its distribution model in order to fit with the local dynamics of the marketplace and analyze the way it goes to market, recognizing different service needs from its customers, while looking for a more efficient distribution model. As part of this strategy, Coca-Cola FEMSA is rolling out a variety of new distribution models throughout its territories, seeking improvements in its distribution network.

Coca-Cola FEMSA uses several sales and distribution models depending on market, geographic conditions and the customer’s profile: (1) the pre-sale system, which separates the sales and delivery functions, permitting trucks to be loaded with the mix of products that retailers have previously ordered, thereby increasing both sales and distribution efficiency; (2) the conventional truck route system, in which the person in charge of the delivery makes immediate sales from inventory available on the truck; (3) a hybrid distribution system, where the same truck carries product available for immediate sale and product previously ordered through the pre-sale system; (4) the telemarketing system, which could be combined with pre-sales visits; and (5) sales through third-party wholesalers of Coca-Cola FEMSA’s products.

As part of the pre-sale system, sales personnel also provide merchandising services during retailer visits, which Coca-Cola FEMSA believes enhance the shopper experience at the point of sale. Coca-Cola FEMSA believes that an adequate number of service visits to retailers and frequency of deliveries are essential elements in an effective selling and distribution system for its products.

Coca-Cola FEMSA’s distribution centers range from large warehousing facilities and re-loading centers to small deposit centers. In addition to its fleet of trucks, Coca-Cola FEMSA distributes its products in certain

locations through electric carts and hand-trucks in order to comply with local environmental and traffic regulations. In some of its territories, Coca-Cola FEMSA retains third parties to transport its finished products from the bottling plants to the distribution centers.

Mexico. Coca-Cola FEMSA contracts with one of our subsidiaries for the transportation of finished products to its distribution centers from its Mexican production facilities. From the distribution centers, Coca-Cola FEMSA then distributes its finished products to retailers through its own fleet of trucks.

In Mexico, Coca-Cola FEMSA sells a majority of its beverages at small retail stores to consumers who may take the beverages for consumption at home or elsewhere. It also sells products through the “on-premise” consumption segment, supermarkets and other locations. The “on-premise” consumption segment consists of sales through sidewalk stands, restaurants, bars and various types of dispensing machines, as well as sales through point-of-sale programs in concert halls, auditoriums and theaters.

Brazil. In Brazil, Coca-Cola FEMSA sold 21.1% of its total sales volume through supermarkets in 2011. Also in Brazil, the delivery of its finished products to customers is completed by a third party, while it maintains control over the selling function. In designated zones in Brazil, third-party distributors purchase Coca-Cola FEMSA products at a discount from the wholesale price and resell the products to retailers.

Territories other than Mexico and Brazil. Coca-Cola FEMSA distributes its finished products to retailers through a combination of its own fleet of trucks and third-party distributors. In most of its territories, an important part of Coca-Cola FEMSA’s total sales volume is sold through small retailers, with low supermarket penetration.

Competition

Although Coca-Cola FEMSA believes that its products enjoy wider recognition and greater consumer loyalty than those of its principal competitors, the markets in the territories in which it operates are highly competitive. Coca-Cola FEMSA’s principal competitors are local Pepsi bottlers and other bottlers and distributors of national and regional beverage brands. Coca-Cola FEMSA faces increased competition in many of its territories from producers of low-price beverages, commonly referred to as “B brands.” A number of Coca-Cola FEMSA’s competitors in Central America, Venezuela, Brazil and Argentina offer beer in addition to sparkling beverages, still beverages, and water, which may enable them to achieve distribution efficiencies.

Price discounting and packaging have joined consumer sales promotions, customer service and non-price retailer incentives as the primary means of competition among bottlers. Coca-Cola FEMSA competes by seeking to offer products at an attractive price in the different segments in its markets and by building on the value of its brands. Coca-Cola FEMSA believes that the introduction of new products and new presentations has been a significant competitive technique that allows it to increase demand for its products, provide different options to consumers and increase new consumption opportunities. See “—Sales Overview.”

Mexico and Central America. Coca-Cola FEMSA’s principal competitors in Mexico are bottlers of Pepsi products, whose territories overlap but are not co-extensive with Coca-Cola FEMSA’s. Coca-Cola FEMSA competes with a joint venture recently formed by Grupo Embotelladores Unidos, S.A.B. de C.V., the former Pepsi bottler in central and southeast Mexico, a subsidiary of PepsiCo, and Empresas Polar, S.A., the leading beer distributor and Pepsi bottler in Venezuela. Coca-Cola FEMSA’s main competition in the juice category in Mexico is Grupo Jumex. In the water category, Bonafont, a water brand owned by Group Danone, is its main competition. In addition, Coca-Cola FEMSA competes with Cadbury Schweppes in sparkling beverages and with other national and regional brands in its Mexican territories, as well as low-price producers, such as Big Cola and Consorcio AGA, S.A. de C.V., which offer various presentations of sparkling and still beverages.

In the countries that comprise Coca-Cola FEMSA’s Central America region, its main competitors are Pepsi and Big Cola bottlers. In Guatemala and Nicaragua, it competes with a joint venture between AmBev and The Central American Bottler Corporation. In Costa Rica, Coca-Cola FEMSA’s principal competitor is Florida Bebidas S.A., a subsidiary of Florida Ice and Farm Co. In Panama, its main competitor is Cervecería Nacional, S.A. Coca-Cola FEMSA also faces competition from “B brands” offering multiple-serving size presentations in some Central American countries.

South America (excluding Venezuela). Coca-Cola FEMSA’s principal competitor in Colombia is Postobón, a well-established local bottler that sells flavored sparkling beverages, some of which have a wide consumption preference, such as manzana Postobón (apple Postobón), which is the second most popular flavor in the Colombian sparkling beverage industry in terms of total sales volume. Postobón also sells Pepsi products. Postobón is a vertically integrated producer, the owners of which hold other significant commercial interests in Colombia. Coca-Cola FEMSA also competes with low-price producers, such as the producers of Big Cola, which principally offer multiple-serving size presentations in the sparkling and still beverage industry.

In Brazil, Coca-Cola FEMSA competes against AmBev, a Brazilian company with a portfolio of brands that includes Pepsi, local brands with flavors such as guaraná, and proprietary beer brands. Coca-Cola FEMSA also competes against “B brands” or “Tubainas,” which are small, local producers of low-cost flavored sparkling beverages in multiple-serving presentations that represent a significant portion of the sparkling beverage market.

In Argentina, Coca-Cola FEMSA’s main competitor is Buenos Aires Embotellador S.A. (BAESA), a Pepsi bottler, which is owned by Argentina’s principal brewery, Quilmes Industrial S.A., and is indirectly controlled by AmBev. In addition, Coca-Cola FEMSA competes with a number of competitors offering generic, low-priced sparkling beverages as well as many other generic products and private label proprietary supermarket brands.

Venezuela. In Venezuela, Coca-Cola FEMSA’s main competitor is Pepsi-Cola Venezuela, C.A., a joint venture formed between PepsiCo and Empresas Polar, S.A., the leading beer distributor in the country. Coca-Cola FEMSA also competes with the producers of Big Cola in part of the country.

Raw Materials

Pursuant to Coca-Cola FEMSA’s bottler agreements, it is authorized to manufacture, sell and distribute Coca-Cola trademark beverages within specific geographic areas, and is required to purchase in some of its territories, for all Coca-Cola trademark beverages, concentrate from companies designated by The Coca-Cola Company and artificial sweeteners from companies authorized by The Coca-Cola Company. Concentrate prices for sparkling beverages are determined as a percentage of the weighted average retail price in local currency net of applicable taxes. Although The Coca-Cola Company has the right to unilaterally set the price of concentrates, in practice this percentage has historically been set pursuant to periodic negotiations with The Coca-Cola Company.

In 2005, The Coca-Cola Company decided to gradually increase concentrate prices for sparkling beverages in Brazil and Mexico. These increases were fully implemented in Brazil in 2008 and in Mexico in 2009. As part of the cooperation framework that Coca-Cola FEMSA reached with The Coca-Cola Company at the end of 2006, The Coca-Cola Company will provide a relevant portion of the funds derived from the concentrate increase for marketing support of Coca-Cola FEMSA’s sparkling and still beverages portfolio. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions—Business Transactions between Coca-Cola FEMSA and The Coca-Cola Company.”

In addition to concentrate, Coca-Cola FEMSA purchases sweeteners, carbon dioxide (CO₂), resin and ingots to make plastic bottles, finished plastic and glass bottles, cans, caps and fountain containers, as well as other packaging materials and raw materials. Sweeteners are combined with water to produce basic syrup, which is added to the concentrate as the sweetener for most of Coca-Cola FEMSA’s beverages. Coca-Cola FEMSA’s bottler agreements provide that, with respect to Coca-Cola trademark beverages, these materials may be purchased only from suppliers approved by The Coca-Cola Company, including affiliates of ours. Prices for packaging materials and HFCS historically have been determined with reference to the U.S. dollar, although the local currency equivalent in a particular country is subject to price volatility in accordance with changes in exchange rates. Coca-Cola FEMSA’s most significant packaging raw material costs arise from the purchase of resin, plastic ingots to make plastic bottles and finished plastic bottles, which Coca-Cola FEMSA obtains from international and local producers. The prices of these materials are tied to crude oil prices and global resin supply. In recent years, Coca-Cola FEMSA has experienced volatility in the prices it pays for these materials. Across its territories, Coca-Cola FEMSA’s average price for resin in U.S. dollars increased approximately 30% in 2011 as compared to 2010.

Under Coca-Cola FEMSA’s agreements with The Coca-Cola Company, it may use raw or refined sugar or HFCS as sweeteners in its products. Sugar prices in all of the countries in which Coca-Cola FEMSA operates, other than Brazil, are subject to local regulations and other barriers to market entry that cause Coca-Cola FEMSA to pay in excess of international market prices for sugar in certain countries. In recent years, international sugar prices have experienced significant volatility.

None of the materials or supplies that Coca-Cola FEMSA uses are presently in short supply, although the supply of specific materials could be adversely affected by strikes, weather conditions, governmental controls or national emergency situations.

Mexico and Central America. In Mexico, Coca-Cola FEMSA purchases its returnable plastic bottles from Graham Packaging México, S.A. de C.V., known as Graham, which is the exclusive supplier of returnable plastic bottles to The Coca-Cola Company and its bottlers in Mexico. Coca-Cola FEMSA mainly purchases resin from Indorama Ventures Polymers México, S. de R.L. de C.V. (formerly Arteva Specialties, S. de R.L. de C.V.), M. & G. Polímeros México S.A. de C.V. and DAK Resinas Americas Mexico S.A. de C.V., which ALPLA México S.A. de C.V., known as ALPLA, and Envases Innovativos de México S.A. de C.V. manufacture into non-returnable plastic bottles for Coca-Cola FEMSA.

Coca-Cola FEMSA purchases all of its cans from Promotora Mexicana de Embotelladoras, S.A. de C.V., known as PROMESA, a cooperative of Coca-Cola bottlers in which, as of April 20, 2012, Coca-Cola FEMSA held a 25.0% equity interest. Coca-Cola FEMSA mainly purchases its glass bottles from Compañía Vidriera, S.A. de C.V., known as VITRO, and Glass & Silice, S.A. de C.V. (formerly Vidriera de Chihuahua, S.A. de C.V., or VICHISA), a wholly-owned subsidiary of Cuauhtémoc Moctezuma (formerly FEMSA Cerveza), which currently is a wholly-owned subsidiary of the Heineken Group.

Coca-Cola FEMSA purchases sugar from, among other suppliers, Piasa and Beta San Miguel, S.A. de C.V., sugar cane producers in which, as of April 20, 2012, Coca-Cola FEMSA held approximately 13.2% and 2.5% equity interests, respectively. Coca-Cola FEMSA purchases HFCS from CP Ingredientes, S.A. de C.V. and Almidones Mexicanos, S.A. de C.V., known as Almex.

Imported sugar is subject to import duties, the amount of which is set by the Mexican government. As a result, sugar prices in Mexico are in excess of international market prices for sugar, and in 2011, were 47% higher on average in Mexico. In 2011, sugar prices increased approximately 29% as compared to 2010.

In Central America, the majority of Coca-Cola FEMSA’s raw materials such as glass and plastic bottles are purchased from several local suppliers. Coca-Cola FEMSA purchases all of its cans from PROMESA. Sugar is available from suppliers that represent several local producers. Local sugar prices in the countries that comprise the region have increased, mainly due to volatility in international prices. In Costa Rica, Coca-Cola FEMSA acquires plastic non-returnable bottles from ALPLA C.R. S.A., and in Nicaragua it acquires such plastic bottles from ALPLA Nicaragua, S.A.

South America (excluding Venezuela). In Colombia, Coca-Cola FEMSA uses sugar as a sweetener in most of its products, and buys such sugar from several domestic sources. During 2011, Coca-Cola FEMSA started to use HFCS as an alternative sweetener for its products. Coca-Cola FEMSA purchases HFCS from Archer Daniels Midland Company. It purchases plastic bottles from Amcor and Tapón Corona de Colombia S.A. It purchases all of its glass bottles from Peldar O-I and cans from Crown, both suppliers in which Grupo Ardila Lulle, owners of Coca-Cola FEMSA’s competitor Postobón, owns a minority equity interest. Glass bottles and cans are available only from these local sources.

Sugar is available in Brazil at local market prices, which historically have been similar to international prices. Sugar prices in Brazil in recent periods have been volatile, mainly due to the increased demand for sugar cane for production of alternative fuels, and Coca-Cola FEMSA’s average acquisition cost for sugar in 2011 increased approximately 30% as compared to 2010. Coca-Cola FEMSA purchases glass bottles, plastic bottles and cans from several domestic and international suppliers.

In Argentina, Coca-Cola FEMSA mainly uses HFCS that it purchases from several different local suppliers as a sweetener in its products, instead of sugar. Coca-Cola FEMSA purchases glass bottles, plastic cases and other raw materials from several domestic sources. It purchases pre-formed plastic ingots, as well as returnable plastic bottles, at competitive prices from Embotelladora del Atlántico S.A., a local subsidiary of Embotelladora Andina S.A., a Coca-Cola bottler with operations in Argentina, Chile and Brazil, and other local suppliers. Coca-Cola FEMSA also acquires pre-formed plastic ingots from ALPLA Avellaneda S.A. and other suppliers. Coca-Cola FEMSA produces its own can presentations, aseptic packaging and hot filled products for distribution of its products to its customers in Buenos Aires.

Venezuela. Coca-Cola FEMSA uses sugar as a sweetener in all of its products, and purchases such sugar mainly from the local market. Since 2003, from time to time, Coca-Cola FEMSA has experienced a sugar shortage due to lower domestic production and the inability of the predominant sugar importers to obtain permission to import in a timely manner. While sugar distribution to the food and beverages industry and to retailers is controlled by the government, Coca-Cola FEMSA did not experience any disruptions during 2011 with respect to access to sufficient sugar supply. However, we cannot assure you that Coca-Cola FEMSA will not experience disruptions in its ability to meet its sugar requirements in the future, should the Venezuelan government impose restrictive measures in the future. Coca-Cola FEMSA buys glass bottles from one local supplier, Productos de Vidrio, S.A., but there are alternative suppliers authorized by The Coca-Cola Company. Coca-Cola FEMSA acquires most of its plastic non-returnable bottles from ALPLA de Venezuela, S.A. and all of its aluminum cans from a local producer, Dominguez Continental, C.A.

Under current regulations promulgated by the Venezuelan authorities, Coca-Cola FEMSA’s ability to import some of its raw materials and other supplies used in its production could be limited, and access to the official exchange rate for these items for Coca-Cola FEMSA and its suppliers, including, among other items, resin, aluminum, plastic caps, distribution trucks and vehicles, is only achieved by obtaining proper approvals from the relevant authorities.

Plants and Facilities

Over the past several years, Coca-Cola FEMSA made significant capital investments to modernize its facilities and improve operating efficiency and productivity, including:

•

increasing the annual capacity of its bottling plants by installing new production lines;

•

installing clarification facilities to process different types of sweeteners;

•

installing plastic bottle-blowing equipment;

•

modifying equipment to increase flexibility to produce different presentations, including faster sanitation and changeover times on production lines; and

•

closing obsolete production facilities.

As of December 31, 2011, Coca-Cola FEMSA owned 35 bottling plants company-wide. By country, it has fourteen bottling facilities in Mexico, five in Central America, six in Colombia, four in Venezuela, four in Brazil and two in Argentina.

As of December 31, 2011, Coca-Cola FEMSA operated 249 distribution centers, approximately 51% of which were in its Mexican territories. Coca-Cola FEMSA owns more than 86% of these distribution centers and leases the remainder. See “Item 4. Information on the Company—Coca-Cola FEMSA—Product Sales and Distribution.”

The table below summarizes by country, installed capacity and percentage utilization of Coca-Cola FEMSA’s production facilities:

Bottling Facility Summary

As of December 31, 2011


Country	Installed Capacity (thousands of unit cases)		% Utilization⁽¹⁾
Mexico		1,897,760		70	%
Guatemala		34,544		80	%
Nicaragua		65,475		58	%
Costa Rica		84,238		54	%
Panama		40,754		64	%
Colombia		531,046		47	%
Venezuela		296,052		63	%
Brazil		650,356		68	%
Argentina		316,040		66	%

(1)	Annualized rate.

FEMSA Comercio

Overview and Background

FEMSA Comercio operates the largest chain of convenience stores in Mexico, measured in terms of number of stores as of December 31, 2011, under the trade name OXXO. As of December 31, 2011, FEMSA Comercio operated 9,561 OXXO stores, of which 9,538 are located throughout the country, with a particularly strong presence in the northern part of Mexico, and the remaining 23 stores are located in Bogotá, Colombia.

FEMSA Comercio, the largest single customer of Cuauhtémoc Moctezuma and of the Coca-Cola system in Mexico, was established by FEMSA in 1978 when two OXXO stores were opened in Monterrey, one store in Mexico City and another store in Guadalajara. The motivating factor behind FEMSA’s entrance into the retail industry was to enhance beer sales through company-owned retail outlets as well as to gather information on customer preferences. In 2011, a typical OXXO store carried 2,324 different store keeping units (SKUs) in 31 main product categories.

In recent years, FEMSA Comercio has represented an effective distribution channel for our beverage products, as well as a rapidly growing point of contact with our consumers. Based on the belief that location plays a major role in the long-term success of a retail operation such as a convenience store, as well as a role in our continually improving ability to accelerate and streamline the new-store development process, FEMSA Comercio has focused on a strategy of rapid, profitable growth. FEMSA Comercio opened 960, 1,092 and 1,135 net new OXXO stores in 2009, 2010 and 2011, respectively. The accelerated expansion in the number of stores yielded total revenue growth of 19.0% to reach Ps. 74,112 million in 2011. Same store sales increased an average of 9.2%, driven by increases in store traffic and average customer ticket. Starting in 2008, FEMSA Comercio revenues reflect an accounting effect of the mix shift from physical prepaid wireless air-time cards to the sale of electronic air-time for which only the margin is recorded, not the full revenue amount of the electronic recharge. FEMSA Comercio performed approximately 2.7 billion transactions in 2011 compared to 2.3 billion transactions in 2010.

Business Strategy

A fundamental element of FEMSA Comercio’s business strategy is to utilize its position in the convenience store market to grow in a cost-effective and profitable manner. As a market leader in convenience store retailing, based on internal company surveys, management believes that FEMSA Comercio has an in-depth understanding of its markets and significant expertise in operating a national store chain. FEMSA Comercio intends to continue increasing its store base while capitalizing on the market knowledge gained at existing stores.

FEMSA Comercio has developed proprietary models to assist in identifying appropriate store locations, store formats and product categories. Its model utilizes location-specific demographic data and FEMSA Comercio’s experience in similar locations to fine tune the store format and product offerings to the target market. Market segmentation is becoming an important strategic tool, and it should increasingly allow FEMSA Comercio to improve the operating efficiency of each location and the overall profitability of the chain.

FEMSA Comercio has made and will continue to make significant investments in IT to improve its ability to capture customer information from its existing stores and to improve its overall operating performance. The majority of products carried through OXXO stores are bar-coded, and all OXXO stores are equipped with point-of-sale systems that are integrated into a company-wide computer network. To implement revenue management strategies, FEMSA Comercio created a division in charge of product category management for products, such as beverages, fast food and perishables, to enhance and better utilize its consumer information base and market intelligence capabilities. FEMSA Comercio utilizes a technology platform supported by an enterprise resource planning (ERP) system, as well as other technological solutions such as merchandising and point-of-sale systems, which will allow FEMSA Comercio to continue redesigning its key operating processes and enhance the usefulness of its market information going forward. In addition, FEMSA Comercio has expanded its operations by opening six new stores in Bogotá, Colombia in 2011.

FEMSA Comercio has adopted innovative promotional strategies in order to increase store traffic and sales. In particular, FEMSA Comercio sells high-frequency items such as beverages, snacks and cigarettes at competitive prices. FEMSA Comercio’s ability to implement this strategy profitably is partly attributable to the size of the OXXO chain, as FEMSA Comercio is able to work together with its suppliers to implement their revenue-management strategies through differentiated promotions. OXXO’s national and local marketing and promotional strategies are an effective revenue driver and a means of reaching new segments of the population while strengthening the OXXO brand. For example, the organization has refined its expertise in executing cross promotions (discounts on multi-packs or sales of complementary products at a special price) and targeted promotions to attract new customer segments, such as housewives, by expanding the offerings in the grocery product category in certain stores. FEMSA Comercio is also strengthening its capabilities to increasingly provide consumers with services such as utility bill payment and other basic transactions.

Store Locations

With 9,538 OXXO stores in Mexico and 23 stores in Colombia as of December 31, 2011, FEMSA Comercio operates the largest convenience store chain in Latin America measured by number of stores. OXXO stores are concentrated in the northern part of Mexico, but also have a growing presence in the rest of the country.

FEMSA Comercio

Regional Allocation of OXXO Stores in Mexico and Latin America^(*)

as of December 31, 2011

LOGO

FEMSA Comercio has aggressively expanded its number of stores over the past several years. The average investment required to open a new store varies, depending on location and format and whether the store is opened in an existing retail location or requires construction of a new store. FEMSA Comercio is generally able to use supplier credit to fund the initial inventory of new stores.

Growth in Total OXXO Stores


	Year Ended December 31,
	2011			2010			2009			2008			2007
Total OXXO stores		9,561			8,426			7,334			6,374			5,563
Store growth (% change over previous year)		13.5	%		14.9	%		15.1	%		14.6	%		14.8	%

FEMSA Comercio currently expects to continue the growth trend established over the past several years by emphasizing growth in areas of high economic potential in existing markets and by expanding in underserved and unexploited markets. Management believes that the southeast part of Mexico is particularly underserved by the convenience store industry.

The identification of locations and pre-opening planning in order to optimize the results of new stores are important elements in FEMSA Comercio’s growth plan. FEMSA Comercio continuously reviews store performance against certain operating and financial benchmarks to optimize the overall performance of the chain. Stores unable to maintain benchmark standards are generally closed. Between December 31, 2007 and 2011, the total number of OXXO stores increased by 3,998, which resulted from the opening of 4,091 new stores and the closing of 93 existing stores.

Competition

OXXO competes in the overall retail market, which we believe is highly competitive. OXXO convenience stores face direct competition from 7-Eleven, Super Extra, Super City and Círculo K, and other local convenience stores as well as from a number of other modern and traditional retail formats. OXXO competes both for consumers and for new locations for stores and the managers to operate those stores. Based on an internal market survey conducted by FEMSA Comercio, management believes that FEMSA Comercio operates approximately 66% of the stores in Mexico that could be considered part of the convenience store segment of the retail market as of the end of December 31, 2011. OXXO convenience stores also face competition from numerous small chains of retailers across Mexico and from retailers that participate with store formats other than convenience stores. Furthermore, FEMSA Comercio operates in the 32 Mexican states and has much broader geographical coverage than any of its competitors in Mexico.

Market and Store Characteristics

Market Characteristics

FEMSA Comercio is placing increased emphasis on market segmentation and differentiation of store formats to more appropriately serve the needs of customers on a location-by-location basis. The principal segments include residential neighborhoods, commercial and office locations and stores near schools and universities, along with other types of specialized locations.

Approximately 62% of OXXO’s customers are between the ages of 15 and 35. FEMSA Comercio also segments the market according to demographic criteria, including income level.

Store Characteristics

The average size of an OXXO store is approximately 106 square meters of selling space, excluding space dedicated to refrigeration, storage or parking. The average constructed area of a store is approximately 186 square meters and, when parking areas are included, the average store size is approximately 432 square meters.

FEMSA Comercio—Operating Indicators


	Year Ended December 31,
	2011			2010			2009			2008			2007
	(percentage increase compared to previous year)
Total FEMSA Comercio revenues		19.0	%		16.3	%		13.6	%		12.0	%		14.3	%
OXXO same-store sales⁽¹⁾		9.2	%		5.2	%		1.3	%		0.4	%		3.3	%

(1)	Same-store sales growth is calculated by comparing the sales of stores for each year that have been in operation for more than 12 months with the sales of those same stores during the previous year.

Beer, cigarettes, soft drinks, snacks and cellular telephone air-time represent the main product categories for OXXO stores. FEMSA Comercio has a distribution agreement with Cuauhtémoc Moctezuma (which is now part of the Heineken Group). As a result of this agreement, OXXO stores only carry beer brands produced and distributed by Cuauhtémoc Moctezuma. OXXO stores will continue to benefit from the existing relationship under which Cuauhtémoc Moctezuma will continue to be the exclusive supplier of beer to OXXO until June 2020. Prior to 2001, OXXO stores had informal agreements with Coca-Cola bottlers, including Coca-Cola FEMSA’s territories in central Mexico, to sell only their products. Beginning in 2001, certain OXXO stores began selling other brands of sparkling beverages in some cities in Mexico.

Approximately 67% of OXXO stores are operated by independent managers responsible for all aspects of store operations. The managers are commission agents and are not employees of FEMSA Comercio. Each store manager is the legal employer of the store’s staff, which typically numbers six people per store. FEMSA Comercio continually invests in on-site operating personnel, with the objective of promoting loyalty, customer service and low personnel turnover in the stores.

Advertising and Promotion

FEMSA Comercio’s marketing efforts include both specific product promotions and image advertising campaigns. These strategies seek to increase store traffic and sales, and to reinforce the OXXO name and market position.

FEMSA Comercio manages its advertising on three levels depending on the nature and scope of the specific campaign: local or store-specific, regional and national. Store-specific and regional campaigns are closely monitored to ensure consistency with the overall corporate image of OXXO stores and to avoid conflicts with national campaigns. FEMSA Comercio primarily uses point of purchase materials, flyers, handbills and print and radio media for promotional campaigns, although television is used occasionally for the introduction of new products and services. The OXXO chain’s image and brand name are presented consistently across all stores, irrespective of location.

Inventory and Purchasing

FEMSA Comercio has placed considerable emphasis on improving operating performance. As part of these efforts, FEMSA Comercio continues to invest in extensive information management systems to improve inventory management. Electronic data collection has enabled FEMSA Comercio to reduce average inventory levels. Inventory replenishment decisions are carried out on a store-by-store basis.

Management believes that the OXXO chain’s scale of operations provides FEMSA Comercio with a competitive advantage in its ability to realize strategic alliances with suppliers. General category offerings are determined on a national level, although purchasing decisions are implemented on a local, regional or national level, depending on the nature of the product category. Given the fragmented nature of the retail industry in Mexico in general, Mexican producers of beer, soft drinks, bread, dairy products, snacks, cigarettes and other high-frequency products have established proprietary distribution systems with extensive direct distribution routes. As a result, approximately 52% of the OXXO chain’s total sales consist of products that are delivered directly to the stores by suppliers. Other products with longer shelf lives are distributed to stores by FEMSA Comercio’s distribution

system, which includes 13 regional warehouses located in Monterrey, Guadalajara, Mexicali, Mérida, León, Obregón, Puebla, Chihuahua, Reynosa, Tijuana, Villahermosa and two in Mexico City. The distribution centers operate a fleet of approximately 627 trucks that make deliveries to each store approximately twice per week.

Seasonality

OXXO stores experience periods of high demand in December, as a result of the holidays, and in July and August, as a result of increased consumption of beer and soft drinks during the hot summer months. The months of November and February are generally the weakest sales months for OXXO stores. In general, colder weather during these months reduces store traffic and consumption of cold beverages.

Other Stores

FEMSA Comercio also operates other small format stores, which include soft discount stores with a focus on perishables, liquor stores and smaller convenience stores.

FEMSA Cerveza and Equity Method Investment in the Heineken Group

Until April 30, 2010, FEMSA Cerveza was our wholly-owned subsidiary, producing beer in Mexico and Brazil and exporting its products to more than 50 countries worldwide, with North America being its most important export market, followed by certain markets in Europe, Latin America and Asia. As of December 31, 2009, FEMSA Cerveza was ranked the tenth-largest brewer in the world in terms of sales volume, and in Mexico, its main market, FEMSA Cerveza was ranked the second-largest beer producer in terms of sales volume. In 2009, approximately 66.4% of FEMSA Cerveza’s sales volume came from Mexico, with the remaining 24.8% from Brazil and 8.8% from exports. As of December 31, 2009, FEMSA Cerveza sold 40.548 million hectoliters of beer and produced and/or distributed 21 brands of beer in 14 different presentations resulting in a portfolio of 111 different product offerings in Mexico.

As of December 31, 2009, FEMSA Cerveza represented 23.5% of our total revenues and 34.1% of our total assets. For the period from January 1, 2010 to April 30, 2010, FEMSA Cerveza contributed net income of Ps. 706 million to our net income. On April 30, 2010, FEMSA announced the closing of the transaction pursuant to which FEMSA agreed to exchange 100% of its beer operations for a 20% economic interest in the Heineken Group. The principal terms of the Heineken transaction documents are summarized below in “Item 10. Additional Information—Material Contracts.”

As of April 30, 2010, FEMSA owns a non-controlling interest in the Heineken Group, one of the world’s leading brewers. Our 20% economic interest in the Heineken Group was initially comprised of 43,018,320 shares of Heineken Holding N.V. and 43,009,699 shares of Heineken N.V., with an additional 29,172,504 Allotted Shares to be delivered pursuant to the ASDI. As of December 31, 2011, the delivery of the Allotted Shares had been completed. See Note 9 to our audited consolidated financial statements. For 2011, FEMSA recognized equity income of Ps. 5,080 million regarding its 20% economic interest in the Heineken Group.

As described above, FEMSA Comercio has a distribution agreement with Cuauhtémoc Moctezuma (which is now a part of the Heineken Group) pursuant to which OXXO stores only carry beer brands produced and distributed by Cuauhtémoc Moctezuma. OXXO stores will continue to benefit from the existing relationship under which Cuauhtémoc Moctezuma will continue to be the exclusive supplier of beer to OXXO until June 2020. As of April 30, 2010, Coca-Cola FEMSA has agreed with Cervejarias Kaiser (also now part of the Heineken Group) to continue to distribute and sell the Kaiser beer portfolio in Coca-Cola FEMSA’s Brazilian territories for a 20-year term beginning in 2003, consistent with the arrangement already in place. In addition, our corporate and shared services subsidiary will continue to provide certain services to Cuauhtémoc Moctezuma and its subsidiaries.

Other Business

Our other business consists of the following smaller operations that support our core operations:

•

Our refrigeration business produces vertical and horizontal commercial refrigerators for the soft drink, beer and food industries, with an annual capacity of 404,000 units at December 31, 2011. In 2011, this business sold 350,040 refrigeration units, 30% of which were sold to Coca-Cola FEMSA, and the remainder of which were sold to third parties. Until December 31, 2010, our labeling and flexible packaging business was our wholly-owned subsidiary. In 2010, this business sold 14% of its label sales volume to Cuauhtémoc Moctezuma, 20% to Coca-Cola FEMSA and 66% to third parties. Our labeling and flexible packaging business was sold on December 31, 2010.

•

Our logistics services subsidiary provides a broad range of logistics and vehicle maintenance services to Coca-Cola FEMSA, FEMSA Comercio, Cuauhtémoc Moctezuma and third-party clients in the beverages, consumer products and retail industries. It has operations in Mexico, Brazil, Colombia, Panama, Costa Rica and Nicaragua.

•

Until September 23, 2010 we owned the Mundet brands in Mexico, which were disposed of through the sale to The Coca-Cola Company of Promotora de Marcas Nacionales, S.A. de C.V., which was a wholly-owned subsidiary of FEMSA.

•

Our corporate services subsidiary employs all of our corporate staff, including the personnel managing the areas of finance, corporate accounting, taxation, legal, financial and strategic planning, human resources and internal audit. Through this subsidiary, we direct, control, supervise and review the operations of our sub-holding companies. As of December 31, 2011, FEMSA Comercio, FEMSA Logística and our packaging subsidiaries pay management fees for the services provided to them. In addition, Coca-Cola FEMSA has entered into a services agreement pursuant to which it pays for specific services. As part of the Heineken transaction, the corporate and shared services subsidiaries continue to provide some limited corporate services and shared services to subsidiaries of Cuauhtémoc Moctezuma (now part of the Heineken Group), for which such companies continue to pay.

Description of Property, Plant and Equipment

As of December 31, 2011, we owned all of our manufacturing facilities and substantially all of our warehouses and distribution centers. Our properties primarily consisted of production and distribution facilities for our soft drink operations and office space. In addition, FEMSA Comercio owns approximately 10.9% of the OXXO store locations, while the other stores are located in properties that are rented under long-term lease arrangements with third parties.

The table below sets forth the location, principal use and production area of our production facilities, each of which is owned by Coca-Cola FEMSA.

Production Facilities As of December 31, 2011


Country	Location	Principal Use	Production Area
			(in thousands of sq. meters)
Mexico	San Cristóbal de las Casas, Chiapas	Soft Drink Bottling Plant	45
	Cuautitlán, Estado de México	Soft Drink Bottling Plant	35
	Los Reyes la Paz, Estado de México	Soft Drink Bottling Plant	50
	Toluca, Estado de México	Soft Drink Bottling Plant	242
	León, Guanajuato	Soft Drink Bottling Plant	124
	Morelia, Michoacán	Soft Drink Bottling Plant	50
	Ixtacomitán, Tabasco	Soft Drink Bottling Plant	117
	Apizaco, Tlaxcala	Soft Drink Bottling Plant	80
	Coatepec, Veracruz	Soft Drink Bottling Plant	142
	La Pureza Altamira, Tamaulipas	Soft Drink Bottling Plant	300
	Poza Rica, Veracruz	Soft Drink Bottling Plant	42
	Pacífico, Estado de México	Soft Drink Bottling Plant	89
	Cuernavaca, Morelos	Soft Drink Bottling Plant	37
	Toluca, Estado de México	Soft Drink Bottling Plant	41

Guatemala	Guatemala City	Soft Drink Bottling Plant	47

Nicaragua	Managua	Soft Drink Bottling Plant	54

Costa Rica	Calle Blancos, San José	Soft Drink Bottling Plant	52
	Coronado, San José	Soft Drink Bottling Plant	14

Panama	Panama City	Soft Drink Bottling Plant	29

Colombia	Barranquilla	Soft Drink Bottling Plant	37
	Bogotá	Soft Drink Bottling Plant	105
	Bucaramanga	Soft Drink Bottling Plant	26
	Cali	Soft Drink Bottling Plant	76
	Manantial	Soft Drink Bottling Plant	67
	Medellín	Soft Drink Bottling Plant	47

Venezuela	Antimano	Soft Drink Bottling Plant	15
	Barcelona	Soft Drink Bottling Plant	141
	Maracaibo	Soft Drink Bottling Plant	68
	Valencia	Soft Drink Bottling Plant	100

Brazil	Campo Grande	Soft Drink Bottling Plant	36
	Jundiaí	Soft Drink Bottling Plant	191
	Mogi das Cruzes	Soft Drink Bottling Plant	119
	Belo Horizonte	Soft Drink Bottling Plant	73

Argentina	Alcorta	Soft Drink Bottling Plant	73
	Monte Grande, Buenos Aires	Soft Drink Bottling Plant	32

Insurance

We maintain an “all risk” insurance policy covering our properties (owned and leased), machinery and equipment and inventories as well as losses due to business interruptions. The policy covers damages caused by natural disaster, including hurricane, hail, earthquake and damages caused by human acts, including explosion, fire, vandalism, riot and losses incurred in connection with goods in transit. In addition, we maintain an “all risk” liability insurance policy that covers product liability. We purchase our insurance coverage through an insurance broker. The policies for “all risk” property insurance and “all risk” liability insurance are issued by ACE Seguros, S.A., and the coverage is partially reinsured in the international reinsurance market. We believe that our coverage is consistent with the coverage maintained by similar companies operating in Mexico.

Capital Expenditures and Divestitures

Our consolidated capital expenditures for the years ended December 31, 2011, 2010, and 2009 were Ps. 12,515 million, Ps. 11,171 million and Ps. 9,103 million respectively, and were for the most part financed from cash from operations generated by our subsidiaries. These amounts were invested in the following manner:


	Year Ended December 31,
	2011		2010		2009
	(in millions of Mexican pesos)
Coca-Cola FEMSA	Ps.	7,826	Ps.	7,478	Ps.	6,282
FEMSA Comercio		4,096		3,324		2,668
Other		593		369		153

Total⁽¹⁾	Ps.	12,515	Ps.	11,171	Ps.	9,103

(1)	Capital expenditures and divestitures in 2009 have been modified in order to conform to presentation of 2011 and 2010 figures due to the discontinued operations of FEMSA Cerveza.

Coca-Cola FEMSA

During 2011, Coca-Cola FEMSA’s capital expenditures focused on increasing plant production capacity, placing coolers with retailers, returnable bottles and cases, improving the efficiency of its distribution infrastructure and IT. Capital expenditures in Mexico and Central America were approximately Ps. 4,117 million and accounted for approximately 53% of Coca-Cola FEMSA’s capital expenditures, with South America representing the balance.

FEMSA Comercio

FEMSA Comercio’s principal investment activity is the construction and opening of new stores. During 2011, FEMSA Comercio opened 1,135 net new OXXO stores. FEMSA Comercio invested Ps. 4,096 million in 2011 in the addition of new stores, warehouses and improvements to leased properties.

Regulatory Matters

Competition Legislation

The Ley Federal de Competencia Económica (Federal Economic Competition Law or Mexican Competition Law) became effective on June 22, 1993. The Mexican Competition Law and the Reglamento de la Ley Federal de Competencia Económica (Regulations under the Mexican Competition Law), effective as of October 13, 2007, regulate monopolies and monopolistic practices and require Mexican government approval of certain mergers and acquisitions. The Mexican Competition Law subjects the activities of certain Mexican companies, including us, to regulatory scrutiny. In addition, the Regulations under the Mexican Competition Law prohibit members of any trade association from reaching any agreement relating to the price of their products. Management believes that we are currently in compliance in all material respects with Mexican competition legislation.

In Mexico and in some of the other countries in which we operate, we are involved in different ongoing competition related proceedings. We believe that the outcome of these proceedings will not have a material adverse effect on our financial position or results from operations. See “Item 8. Financial Information—Legal Proceedings—Coca-Cola FEMSA—Antitrust Matters.”

Price Controls

Voluntary price restraints or statutory price controls have been imposed historically in several of the countries in which Coca-Cola FEMSA operates. Currently, there are no price controls on Coca-Cola FEMSA’s products in any of its territories, except for (i) Argentina, where authorities directly supervise certain products sold through supermarkets to control inflation, and (ii) Venezuela, where the government has recently imposed price controls on certain products including still bottled water. See “Item 3. Key Information—Risk Factors—Regulatory developments may adversely affect Coca-Cola FEMSA’s business.”

Taxation of Sparkling Beverages

All the countries in which Coca-Cola FEMSA operates, except for Panama, impose a value-added tax on the sale of sparkling beverages, with a rate of 16% in Mexico beginning in January 2011, 12% in Guatemala, 15% in Nicaragua, 13% in Costa Rica, 16% in Colombia (applied only to the first sale in supply chain), 12% in Venezuela (beginning in April 2009), 17% (Mato Grosso do Sul) and 18% (São Paulo and Minas Gerais) in Brazil, and 21% in Argentina. In addition, several of the countries in which Coca-Cola FEMSA operates impose the following excise or other taxes:

•

Guatemala imposes an excise tax of 0.18 cents in local currency (Ps. 0.3221 as of December 31, 2011) per liter of sparkling beverage.

•

Costa Rica imposes a specific tax on non-alcoholic bottled beverages based on the combination of packaging and flavor, currently assessed at 15.50 colones (Ps. 0.4180 as of December 31, 2011) per 250 ml, and an excise tax on local brands of 5%, foreign brands of 10% and mixers of 14%.

•

Nicaragua imposes a 9% tax on consumption, and municipalities impose a 1% tax on Coca-Cola FEMSA’s Nicaraguan gross income.

•

Panama imposes a 5% tax based on the cost of goods produced. Panama also imposes a 10% selective consumption tax on syrups, powders and concentrate.

•

Brazil imposes an average production tax of approximately 4.9% and an average sales tax of approximately 9.6%, both assessed by the federal government. Most of these taxes are fixed, based on average retail prices in each state where the company operates (VAT) or fixed by the federal government (excise and sales tax).

•

Argentina imposes an excise tax on sparkling beverages containing less than 5% lemon juice or less than 10% fruit juice of 8.7%, and an excise tax on flavored sparkling beverages with 10% or more fruit juice and on sparkling water of 4.2%, although this excise tax is not applicable to certain of Coca-Cola FEMSA’s products.

Environmental Matters

In all of our territories, our operations are subject to federal and state laws and regulations relating to the protection of the environment.

Mexico

In Mexico, the principal legislation is the Ley General del Equilibrio Ecológico y la Protección al Ambiente (Federal General Law for Ecological Equilibrium and Environmental Protection, or the Mexican Environmental Law) and the Ley General para la Prevención y Gestión Integral de los Residuos (General Law for the Prevention and Integral Management of Waste), which are enforced by the Secretaría de Medio Ambiente y Recursos Naturales (Ministry of the Environment and Natural Resources, or SEMARNAT). SEMARNAT can bring administrative and criminal proceedings against companies that violate environmental laws, and it also has the power to close non-complying facilities. Under the Mexican Environmental Law, rules have been promulgated concerning water, air and noise pollution and hazardous substances. In particular, Mexican environmental laws and regulations require that we file periodic reports with respect to air and water emissions and hazardous wastes and set forth standards for waste water discharge that apply to our operations. We are also subject to certain minimal restrictions on the operation of delivery trucks in Mexico City. We have implemented several programs designed to facilitate compliance with air, waste, noise and energy standards established by current Mexican federal and state environmental laws, including a program that installs catalytic converters and liquid petroleum gas in delivery trucks for our operations in Mexico City. See “Item 4. Information on the Company—Coca-Cola FEMSA—Total Sales and Distribution.”

In addition, we are subject to the Ley de Aguas Nacionales, as amended (the National Water Law), enforced by the Comisión Nacional del Agua (the National Water Commission). Adopted in December 1992, and amended in 2004, the National Water Law provides that plants located in Mexico that use deep water wells to supply their water requirements must pay a fee to the local governments for the discharge of residual waste water to drainage. Pursuant to this law, certain local authorities test the quality of the waste water discharge and charge plants an additional fee for measurements that exceed certain standards published by the National Water Commission. In the case of non-compliance with the law, penalties, including closures, may be imposed. All of Coca-Cola FEMSA’s bottler plants located in Mexico have met these standards. In addition, Coca-Cola FEMSA’s plants in Apizaco and San Cristóbal are certified with ISO 14001.

In Coca-Cola FEMSA’s Mexican operations, it established a partnership with The Coca-Cola Company and ALPLA, a supplier of plastic bottles to Coca-Cola FEMSA in Mexico, to create Industria Mexicana de Reciclaje (IMER), a PET recycling facility located in Toluca, Mexico. This facility started operations in 2005 and has a recycling capacity of approximately 25,000 metric tons per year from which 15,000 metric tons can be re-used in PET bottles for food packaging purposes. Coca-Cola FEMSA has also continued contributing funds to a nationwide recycling company, Ecología y Compromiso Empresarial (Environmentally Committed Companies). In addition, Coca-Cola FEMSA’s plants located in Toluca, Reyes, Cuautitlán, Apizaco, San Cristóbal, Morelia, Ixtacomitan, Coatepec, Poza Rica and Cuernavaca have received a Certificado de Industria Limpia (Certificate of Clean Industry).

As part of our environmental protection and sustainability strategies, several of our subsidiaries have entered into 20-year wind power supply agreements with the Mareña Renovables Wind Power Farm to receive electrical energy for use at production and distribution facilities of FEMSA and Coca-Cola FEMSA throughout Mexico, as well as for a significant number of OXXO convenience stores. The Mareña Renovables Wind Power Farm will be located in the state of Oaxaca and is expected to have a capacity of 396 megawatts. We anticipate the Mareña Renovables Wind Power Farm will begin operations in 2013.

Also as part of Coca-Cola FEMSA’s environmental protection and sustainability strategies, in December 2009, Coca-Cola FEMSA, jointly with strategic partners, entered into a wind energy supply agreement with a Mexican subsidiary of the Spanish wind farm developer, GAMESA Energía, S.A., or GAMESA, to supply green energy to Coca-Cola FEMSA’s bottling facility in Toluca, Mexico, owned by its subsidiary, Propimex, S. de R.L. de C.V. (formerly Propimex, S.A. de C.V.), or Propimex, and to some of its suppliers of PET bottles. The wind farm generating such energy, which is located in La Ventosa, Oaxaca, is expected to generate approximately 100 thousand megawatt hours of energy annually. The energy supply services began in April 2010 and, during 2010, provided Coca-Cola FEMSA with approximately 45 thousand megawatt hours of energy. In 2010, GAMESA sold its interest in the Mexican subsidiary that owned the wind farm to Iberdrola Renovables México, S.A. de C.V.

Central America

Coca-Cola FEMSA’s Central American operations are subject to several federal and state laws and regulations relating to the protection of the environment, which have been enacted in the last ten years, as awareness has increased in this region about the protection of the environment and the disposal of hazardous and toxic materials as well as water usage. In some countries in Central America, Coca-Cola FEMSA is in the process of bringing its operations into compliance with new environmental laws on the timeline established by the relevant regulatory authorities. Coca-Cola FEMSA’s Costa Rica and Panama operations have participated in a joint effort along with the local division of The Coca-Cola Company called Misión Planeta (Mission Planet) for the collection and recycling of non-returnable plastic bottles.

Colombia

Coca-Cola FEMSA’s Colombian operations are subject to several Colombian federal, state and municipal laws and regulations related to the protection of the environment and the disposal of treated water and toxic and hazardous materials. These laws include the control of atmospheric emissions, noise emissions, disposal of treated water and strict limitations on the use of chlorofluorocarbons. For Coca-Cola FEMSA’s plants in Colombia, it has obtained the Certificación Ambiental Fase IV (Phase IV Environmental Certificate) demonstrating its compliance at the highest level with relevant Colombian regulations. Coca-Cola FEMSA is also engaged in nationwide campaigns for the collection and recycling of glass and plastic bottles as well as reforestation programs. In 2011, jointly with the FEMSA Foundation, Coca-Cola FEMSA was awarded with the “Western Hemisphere Corporate Citizenship Award” for the social responsibility programs it carried out to respond to the extreme weather experienced in Colombia in 2010 and 2011, known locally as the “winter emergency.” In addition, Coca-Cola FEMSA also obtained the ISO 9001, ISO-22000 and PAS 220 certifications for its plants located in Medellín, Cali, Bogotá, Barranquilla, Bucaramanga and La Calera, as recognition for the highest quality in its production processes.

Venezuela

Coca-Cola FEMSA’s Venezuelan operations are subject to several Venezuelan federal, state and municipal laws and regulations related to the protection of the environment. The most relevant of these laws are the Ley Orgánica del Ambiente (Organic Environmental Law), the Ley Sobre Sustancias, Materiales y Desechos Peligrosos (Substance, Material and Dangerous Waste Law), the Ley Penal del Ambiente (Criminal Environmental Law) and the Ley de Aguas (Water Law). Since the enactment of the Organic Environmental Law in 1995, Coca-Cola FEMSA’s Venezuelan subsidiary has presented the proper authorities with plans to bring their production facilities and distribution centers into compliance with applicable laws, which mainly consist of building or expanding the capacity of water treatment plants in Coca-Cola FEMSA’s bottling facilities. Even though Coca-Cola FEMSA has had to adjust some of the originally proposed timelines due to construction delays, in 2009, Coca-Cola FEMSA completed the construction and received all the required permits to operate a new water treatment plant in its bottling facility located in the city of Barcelona. At the end of 2011, Coca-Cola FEMSA constructed a new water treatment plant in its bottling plant in the city of Valencia, which began operations in February 2012. During 2011, Coca-Cola FEMSA also commenced construction of a new water treatment plant in its Antimano bottling plant in Caracas, which construction is expected to conclude during the second quarter of 2012. Coca-Cola FEMSA is also concluding the process of obtaining the necessary authorizations and licenses before it can begin the construction and expansion of its current water treatment plant in its bottling facility in Maracaibo. In December 2011, Coca-Cola FEMSA also obtained the ISO 14000 certification for all of its plants in Venezuela.

In addition, in December 2010, the Venezuelan government approved the Ley Integral de Gestión de la Basura (Comprehensive Waste Management Law), which will regulate solid waste management and which may be applicable to manufacturers of products for mass consumption. The full scope of this law has not yet been established.

Brazil

Coca-Cola FEMSA’s Brazilian operations are subject to several federal, state and municipal laws and regulations related to the protection of the environment. Among the most relevant laws and regulations are those dealing with the emission of toxic and hazardous gases, disposal of wastewater and solid waste, and soil contamination by hazardous chemicals, which impose penalties, such as fines, facility closures or criminal charges depending upon the level of non-compliance.

Coca-Cola FEMSA’s production plant located in Jundiaí has been recognized by the Brazilian authorities for its compliance with environmental regulations and for having standards well above those imposed by the law. The plant has been certified for: (i) ISO 9001 since 1993; (ii) ISO 14001 since March 1997; (iii) norm OHSAS 18001 since 2005; (iv) ISO 22000 since 2007; and (v) PAS: 96 since 2010.

In Brazil it is also necessary to obtain concessions from the government to cast drainage. Coca-Cola FEMSA’s plants in Brazil have been granted this concession, except Mogi das Cruzes, where it has timely begun the process of obtaining one. In December, 2010, Coca-Cola FEMSA increased the capacity of the water treatment plant in its Jundiaí facility.

In Brazil, a municipal regulation of the City of São Paulo, implemented pursuant to Law 13.316/2002, came into effect in May 2008. This regulation requires Coca-Cola FEMSA to collect for recycling a specified annual percentage of plastic bottles made from PET sold in the City of São Paulo; such percentage increases each year. As of May 2009, Coca-Cola FEMSA was required to collect for recycling 50% of the PET bottles it sold in the City of São Paulo. As of May 2010, it was required to collect 75%, and as of May 2011, it was required to collect 90%. Currently, Coca-Cola FEMSA is not able to collect the entire required volume of PET bottles it has sold in the City of São Paulo for recycling. If Coca-Cola FEMSA does not meet the requirements of this regulation, which we believe to be more onerous than those imposed by the countries with the highest recycling standards, it could be fined and be subject to other sanctions, such as the suspension of operations in any of its plants and/or distribution centers located in the City of São Paulo. In May 2008, Coca-Cola FEMSA, together with other bottlers in São Paulo, through the Associação Brasileira das Indústrias de Refrigerantes e de Bebidas Não-alcoólicas (Brazilian Soft Drink and Non-Alcoholic Beverage Association, or ABIR), filed a motion requesting a court to overturn this regulation on the basis of impossibility of compliance. In addition, in November 2009, in response to a requirement of the municipal authority for Coca-Cola FEMSA to demonstrate the destination of the PET bottles sold by it in the City of São Paulo, Coca-Cola FEMSA filed a motion showing all of its recycling programs and requesting a more practical timeline to comply with the requirements of the law. In October 2010, the municipal authority of the City of São Paulo levied a fine on Coca-Cola FEMSA’s Brazilian operating subsidiary of 250,000 Brazilian reais (approximately Ps. 1,750,000 as of December 31, 2010) on the grounds that the report submitted by Coca-Cola FEMSA’s Brazilian operating subsidiary did not comply with the 75% proper disposal requirement for the period from May 2008 to May 2010. Coca-Cola FEMSA filed an appeal against this fine. Coca-Cola FEMSA is currently awaiting resolution of both matters.

In August 2010, Law No. 12.305/2010 established the Brazilian National Solid Waste Policy. This policy is based on the principle of shared responsibility between the government, companies and the public, and provides for the post-consumption return of products to companies and requires public authorities to implement waste management programs. This law is regulated by Federal Decree No. 7.404/2010, and was published in December 2010. Coca-Cola FEMSA is currently discussing with the relevant authorities the impact this law may have on Brazilian companies in complying with the regulation in effect in the City of São Paulo.

Argentina

Coca-Cola FEMSA’s Argentine operations are subject to federal and municipal laws and regulations relating to the protection of the environment. The most significant of these are regulations concerning waste water discharge, which are enforced by the Secretaría de Ambiente y Desarrollo Sustentable (Ministry of Natural Resources and Sustainable Development) and the Organismo Provincial para el Desarrollo Sostenible (Provincial Organization for Sustainable Development) for the province of Buenos Aires. Coca-Cola FEMSA’s Alcorta plant is in compliance with environmental standards and Coca-Cola FEMSA has been certified for ISO 14001:2004 for its plants and operative units in Buenos Aires.

For all of Coca-Cola FEMSA’s plant operations, it employs an environmental management system: Sistema de Administración Ambiental (Environmental Administration System, or EKOSYSTEM) that is contained within Sistema Integral de Calidad (Integral Quality System, or SICKOF).

Coca-Cola FEMSA has expended, and may be required to expend in the future, funds for compliance with and remediation under local environmental laws and regulations. Currently, we do not believe that such costs will have a material adverse effect on Coca-Cola FEMSA’s results from operations, or financial condition. However, since environmental laws and regulations and their enforcement are becoming increasingly more stringent in Coca-Cola FEMSA’s territories, and there is increased recognition by local authorities of the need for higher environmental standards in the countries where it operates, changes in current regulations may result in an increase in costs, which may have an adverse effect on Coca-Cola FEMSA’s future results from operations or financial condition. Coca-Cola FEMSA’s management is not aware of any significant pending regulatory changes that would require a significant amount of additional remedial capital expenditures.

We do not believe that Coca-Cola FEMSA’s business activities pose a material risk to the environment, and we believe that Coca-Cola FEMSA is in material compliance with all applicable environmental laws and regulations.

Other regulations

In December 2009, the Venezuelan government issued a decree requiring a reduction in energy consumption by at least 20% for industrial companies whose consumption is greater than two megawatts per hour and to submit an energy-usage reduction plan. Some of Coca-Cola FEMSA’s bottling operations in Venezuela outside of Caracas met this threshold and it submitted a plan, which included the purchase of generators for its plants. In January 2010, the Venezuelan government subsequently implemented power cuts and other measures for all industries in Caracas whose consumption was above 35 kilowatts per hour.

In January 2010, the Venezuelan government amended the Defense of and Access to Goods and Services Law. Any violation by a company that produces, distributes and sells goods and services could lead to fines, penalties or the confiscation of the assets used to produce, distribute and sell these goods without compensation. Although we believe Coca-Cola FEMSA is in compliance with this law, consumer protection laws in Venezuela are subject to continuing review and changes.

In July 2011, the Venezuelan government passed the Fair Costs and Prices Law. The purpose of this law is to establish the regulations and administrative processes necessary to maintain the price stability of, and equal access to, goods and services. The law also creates the National Ministry of Costs and Prices, whose main role is to oversee price controls and set maximum retail prices on certain consumer goods and services. Of Coca-Cola FEMSA’s products, only certain of its still water beverages were affected by these regulations, which mandated a lowering of its sale prices as of April 2012. Any failure to comply with this law would result in fines, temporary suspension or the closure of operations. While Coca-Cola FEMSA is presently in compliance with this law, we cannot assure you that the Venezuelan government’s future regulation of goods and services will not result in a forced reduction of prices in respect of certain of Coca-Cola FEMSA’s other products, which could have a negative effect on its results of operations.

Water Supply Law

In Mexico, Coca-Cola FEMSA obtains water directly from municipal utility companies and pumps water from its own wells and rivers pursuant to concessions obtained from the Mexican government on a plant-by-plant basis. Water use in Mexico is regulated primarily by the National Water Law, and regulations issued thereunder, which created the National Water Commission. The National Water Commission is in charge of overseeing the national system of water use. Under the National Water Law, concessions for the use of a specific volume of

ground or surface water generally run from five- to fifty-year terms, depending on the supply of groundwater in each region as projected by the National Water Commission. Concessionaires may request that concession terms be extended before expiration. The Mexican government is authorized to reduce the volume of ground or surface water granted for use by a concession by whatever volume of water is not used by the concessionaire for two consecutive years. However, because the current concessions for each of Coca-Cola FEMSA’s plants in Mexico do not match each plant’s projected needs for water in future years, we successfully negotiated with the Mexican government the right to transfer the unused volume under concessions from certain plants to other plants anticipating greater water usage in the future. These concessions may be terminated if, among other things, we use more water than permitted or we fail to pay required concession-related fees and do not cure such situations in a timely manner.

Although we have not undertaken independent studies to confirm the sufficiency of the existing or future groundwater supply, we believe that our existing concessions satisfy our current water requirements in Mexico.

In Argentina, a state water company provides water to Coca-Cola FEMSA’s Alcorta plant on a limited basis; however, we believe the authorized amount meets Coca-Cola FEMSA’s requirements for this plant. In Coca-Cola FEMSA’s Monte Grande plant in Argentina, it pumps water from its own wells, in accordance with Law 25.688.

In Brazil, we buy water directly from municipal utility companies and we also capture water from underground sources, wells or surface sources (i.e. rivers), pursuant to concessions granted by the Brazilian government for each plant. According to the Brazilian Constitution, water is considered an asset of common use and can only be exploited for the national interest by Brazilians or companies formed under Brazilian law. Concessionaires and users have the responsibility for any damage to the environment. The exploitation and use of water is regulated by the Código de Mineração (Code of Mining, Decree Law No. 227/67), the Código de Águas Minerais (Mineral Water Code, Decree Law No. 7841/45), the National Water Resources Policy (Law No. 9433/97) and by regulations issued thereunder. The companies that exploit water are supervised by the Departamento Nacional de Produção Mineiral—DNPM (National Department of Mineral Production) and the National Water Agency in connection with federal health agencies, as well as state and municipal authorities. In Coca-Cola FEMSA’s Jundiaí and Belo Horizonte plants, we do not exploit mineral water. In the Mogi das Cruzes and Campo Grande plants, we have all the necessary permits related for the exploitation of mineral water.

In Colombia, in addition to natural spring water, Coca-Cola FEMSA obtains water directly from its own wells and from utility companies. Coca-Cola FEMSA is required to have a specific concession to exploit water from natural sources. Water use in Colombia is regulated by law No. 9 of 1979 and decrees no. 1594 of 1984 and no. 2811 of 1974. The National Institute of National Resources supervises companies that exploit water.

In Nicaragua, the use of water is regulated by the Ley General de Aguas Nacionales (National Water Law), and in Costa Rica, the use of water is regulated by the Ley de Aguas (Water Law). In both of these countries, Coca-Cola FEMSA owns and exploits its own water wells granted to it through governmental concessions. In Guatemala, no license or permits are required to exploit water from the private wells in Coca-Cola FEMSA’s own plants. In Panama, Coca-Cola FEMSA acquires water from a state water company, and the use of water is regulated by the Reglamento de Uso de Aguas de Panamá (Panama Use of Water Regulation). In Venezuela, Coca-Cola FEMSA uses private wells in addition to water provided by the municipalities, and it has taken the appropriate actions, including actions to comply with water regulations, to have water supply available from these sources, regulated by the Ley de Aguas (Water Law).

We cannot assure you that water will be available in sufficient quantities to meet our future production needs, that we will be able to maintain our current concessions or that additional regulations relating to water use will not be adopted in the future in our territories. We believe that we are in material compliance with the terms of our existing water concessions and that we are in compliance with all relevant water regulations.

ITEM 4A.

UNRESOLVED STAFF COMMENTS

None

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion should be read in conjunction with, and is entirely qualified by reference to, our audited consolidated financial statements and the notes to those financial statements. Our audited consolidated financial statements were prepared in accordance with Mexican FRS, which differ in certain significant respects from U.S. GAAP. Notes 26 and 27 to our audited consolidated financial statements provide a description of the principal differences between Mexican FRS and U.S. GAAP as they relate to us, as well as U.S. GAAP consolidated balance sheets, statements of income and comprehensive income, and cash flows for the same periods presented for Mexican FRS purposes and for the consolidated statement of changes in stockholders’ equity for the years ended December 31, 2010 and 2011, and reconciliation to U.S. GAAP of net income, comprehensive income and stockholders’ equity. See “—U.S. GAAP Reconciliation.”

Overview of Events, Trends and Uncertainties

Management currently considers the following events, trends and uncertainties to be important to understanding its results from operations and financial position during the periods discussed in this section:

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Coca-Cola FEMSA’s Mexico and Central America region continues growing volumes at a steady but moderate pace, as does the South America region. The Coca-Cola brand, together with the recently added still-beverage operation, delivered the majority of volume growth.

•

FEMSA Comercio accelerated its rate of OXXO store openings and continues to grow in terms of total revenues and as a percentage of our consolidated total revenues. FEMSA Comercio has lower operating margins than our beverage business. Given that FEMSA Comercio has lower operating margins and fixed costs, it is more sensitive to changes in sales which could negatively affect operating margins.

Our results from operations and financial position are affected by the economic and market conditions in the countries where our subsidiaries conduct their operations, particularly in Mexico. Changes in these conditions are influenced by a number of factors, including those discussed in “Item 3. Key Information—Risk Factors.”

Recent Developments

the southeastern region of the State of Oaxaca. Certain subsidiaries of FEMSA, FEMSA Comercio and Coca-Cola FEMSA have entered into 20-year wind power supply agreements with the Mareña Renovables Wind Power Farm to purchase energy output produced by it. These agreements will remain in full force and effect. The sale of FEMSA’s participation as an investor will result in a gain.

Changes in Mexican Financial Reporting Standards

Adoption of International Financial Reporting Standards for public companies

The CNBV has announced that, commencing in 2012, all Mexican public companies must report their financial information in accordance with IFRS. Since 2006, the Consejo Mexicano para la Investigación y Desarrollo de Normas de Información Financiera (Mexican Board of Research and Development of Financial Reporting Standards) has been modifying Mexican FRS in order to ensure their convergence with IFRS. Starting on January 1, 2012, we are reporting our financial information in accordance with IFRS and will present financial information for 2011 on a comparable basis.

Effects of Changes in Economic Conditions

Our results from operations are affected by changes in economic conditions in Mexico and in the other countries in which we operate. For the years ended December 31, 2011, 2010, and 2009, 60%, 62%, and 59%, respectively, of our total sales were attributable to Mexico. As a result, we have significant exposure to the economic conditions of certain countries, particularly those in Central America, Colombia, Venezuela and Brazil, although we continue to generate a substantial portion of our total sales from Mexico. The participation of these other countries as a percentage of our total sales has not changed significantly during the last five years and is expected to increase in future periods due to acquisitions.

The Mexican economy is gradually recovering from a downturn as a result of the impact of the global financial crisis on many emerging economies in 2009. In 2011, Mexican GDP expanded by approximately 3.9% compared to an expansion of 5.4% for the full year of 2010, according to INEGI. According to the Banco Nacional de México survey regarding the economic expectations of specialists, Mexican GDP is expected to increase by 3.43% in 2012, as of the latest estimate, published on April 2, 2012. The Mexican economy continues to be heavily influenced by the U.S. economy, and therefore, further deterioration in economic conditions in, or delays in the recovery of, the U.S. economy may hinder any recovery in Mexico.

Our future results may be significantly affected by the general economic and financial conditions in the countries where we operate, including by levels of economic growth, by the devaluation of the local currency, by inflation and high interest rates or by political developments, and may result in lower demand for our products, lower real pricing or a shift to lower margin products. Because a large percentage of our costs are fixed costs, we may not be able to reduce such costs and expenses, and our profit margins may suffer as a result of downturns in the economy of each country.

The decrease in interest rates in Mexico in 2011 decreases our cost of Mexican peso-denominated variable interest rate indebtedness and could have a favorable effect on our financial position and results of operations during 2012.

Beginning in the fourth quarter of 2009 and through 2011, the exchange rate between the Mexican peso and the U.S. dollar fluctuated from a low of Ps. 11.51 per U.S. dollar, to a high of Ps. 14.25 per U.S. dollar. At December 30, 2011, the exchange rate (noon buying rate) was Ps. 13.9510 to US$ 1.00. On March 30, 2012, the exchange rate was Ps. 12.8115 to US$ 1.00. See “Item 3. Key Information—Exchange Rate Information.” A depreciation of the Mexican peso or local currencies in the countries in which we operate relative to the U.S. dollar increases our cost of raw materials priced in U.S. dollars, including raw materials whose prices are set with reference to the U.S. dollar. In addition, a depreciation of the Mexican peso or local currencies in the countries in which we operate relative to the U.S. dollar will increase our U.S. dollar-denominated debt obligations, which could negatively affect our financial position and results from operations.

Operating Leverage

Companies with structural characteristics that result in margin expansion in excess of sales growth are referred to as having high “operating leverage.”

The operating subsidiaries of Coca-Cola FEMSA are engaged, to varying degrees, in capital-intensive activities. The high utilization of the installed capacity of the production facilities results in better fixed cost absorption, as increased output results in higher revenues without additional fixed costs. Absent significant increases in variable costs, gross profit margins will expand when production facilities are operated at higher utilization rates. Alternatively, higher fixed costs will result in lower gross profit margins in periods of lower output.

In addition, the commercial operations of Coca-Cola FEMSA are carried out through extensive distribution networks, the principal fixed assets of which are warehouses and trucks and are designed to handle large volumes of beverages. Fixed costs represent an important proportion of the total distribution expense of Coca-Cola FEMSA. Generally, the higher the volume that passes through the distribution system, the lower the fixed distribution cost as a percentage of the corresponding revenues. As a result, operating margins improve when the distribution capacity is operated at higher utilization rates. Alternatively, periods of decreased utilization because of lower volumes will negatively affect our operating margins.

FEMSA Comercio operations result in a low margin business with relatively fixed costs. These two characteristics make FEMSA Comercio a business with an operating margin that might be affected more easily by a change in sales levels.

Critical Accounting Estimates

The preparation of our audited consolidated financial statements requires that we make estimates and assumptions that affect (1) the reported amounts of our assets and liabilities, (2) the disclosure of our contingent liabilities at the date of the financial statements and (3) the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on our historical experience and on various other reasonable factors that together form the basis for making judgments about the carrying values of our assets and liabilities. Our actual results may differ from these estimates under different assumptions or conditions. We evaluate our estimates and judgments on an on-going basis. Our significant accounting policies are described in Note 4 to our audited consolidated financial statements. We believe our most critical accounting policies that imply the application of estimates and/or judgments are the following:

Property, plant and equipment

Property, plant and equipment are depreciated over their estimated useful lives. The estimated useful lives are reviewed annually and represent the period we expect the assets to remain in service and to generate revenues. We base our estimates on the experience of our technical personnel. Depreciation is computed using the straight line method of accounting.

Where an item of property, plant and equipment is comprised of major components having different useful lives, these components are accounted for and depreciated as separate items (major components) of property, plant and equipment.

Imported assets are recorded using the exchange rate as of the acquisition date and are restated using the inflation factor of the country where the asset is acquired for inflationary economic environments.

We test depreciable long-lived assets for impairment at fair value when there are indicators of impairment and determine whether impairment exists, by first comparing the book value of the assets with their recoverable value based on undiscounted cash flows, and if such assets are not recoverable, then with their fair value, which is calculated considering their operating conditions and the future cash flows expected to be generated based on their estimated remaining useful life as determined by management.

Returnable and non-returnable bottles are aggregated as part of property, plant and equipment. Returnable bottles are depreciated based on the straight-line method over acquisition cost. Coca-Cola FEMSA estimates depreciation rates considering returnable bottles useful lives.

We recorded returnable bottles and cases at acquisition cost and restated them applying inflation factors only when they form part of our operations in countries with an inflationary economic environment. For Coca-Cola FEMSA, breakage is expensed as it is incurred as part of depreciation. The annual calculated depreciation expense has been similar to the annual bottle breakage expense. Whenever we decide to discontinue a particular returnable presentation and retire it from the market, we write off the discontinued presentation through an increase in breakage expense presented as part of depreciation.

Valuation and impairment of intangible assets and goodwill

We identify all intangible assets associated with business acquisitions and investments in shares. We separate intangible assets between those with a finite useful life and those with an indefinite useful life, in accordance with the period over which we expect to receive the benefits. Intangible assets and goodwill identified in investments in shares are presented within the total investment in shares.

The intangible assets of indefinite life associated with business acquisitions are subject to annual impairment tests. As of December 31, 2011, we have recorded intangible assets with indefinite lives, which consist of:

•

Coca-Cola FEMSA’s rights to produce and distribute Coca-Cola trademark products for Ps. 62,822 million primarily as a result of the Panamco acquisition;

•

Goodwill relating to Coca-Cola FEMSA acquisitions during 2011 that amounted to Ps. 5,214; and

•

Other intangible assets with indefinite lives that amounted to Ps. 343 million.

We review annually the carrying value of our intangible assets with indefinite lives and goodwill for impairment based on recognized valuation techniques. While we believe that our estimates are reasonable, different assumptions regarding such estimates could materially affect our evaluations.

Investments in shares, including related goodwill, are subject to impairments testing whenever certain events or changes in circumstances occur that indicate that the carrying amount may exceed fair value. We recognize an impairment loss when it is considered to be other than a temporary loss. As of December 31, 2011, identified intangible assets and goodwill relating to our 20% economic interest in the Heineken Group amounted to €3,055 million (approximately US$ 3,940 million) and €1,200 million (approximately US$ 1,548 million), respectively.

Following our evaluations during 2011 and up to the date of this annual report, we do not have information which leads to a significant impairment of intangible assets with indefinite lives or of our investments in shares of affiliated companies. We can give no assurance that our expectations will not change as a result of new information or developments. Future changes in economic or political conditions in any country in which we operate or in the industries in which we participate may cause us to change our current assessment.

Employee benefits

Our employee benefits are comprised of obligations for pension plan, seniority premium, post-retirement medical services and severance indemnities. The determination of our obligations and expenses for pension and other post-retirement benefits are determined by actuarial calculations and are dependent on our determination of certain assumptions used to estimate such amounts. We evaluate our assumptions at least annually.

While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and other post-retirement obligations and our future expense. The following table is a summary of the three key assumptions to be used in determining 2011 annual labor liability expense, along with the impact on this expense of a 1% change in each assumed rate.


	Nominal Rates⁽³⁾									Real Rates⁽⁴⁾									Impact of Rate Changes⁽²⁾
Assumptions 2011⁽¹⁾	2011			2010			2009			2011			2010			2009			+1%			-1%
																			(in millions of Mexican pesos)
Mexican and Foreign Subsidiaries:
Discount rate		7.6	%		7.6	%		8.2	%		4.0	%		4.0	%		4.5	%		Ps. (386	)		Ps.567
Salary increase		4.8	%		4.8	%		5.1	%		1.2	%		1.2	%		1.5	%		419			(275	)
Long-term asset return		9.0	%		8.2	%		8.2	%		5.0	%		3.6	%		4.5	%		(16	)		17

(1)	Calculated using a measurement date as of December 2011.

(2)	The impact is not the same for an increase of 1% as for a decrease of 1% because the rates are not linear.

(3)	For countries considered non-inflationary economic environments according to Mexican FRS.

(4)	For countries considered inflationary economic environments according to Mexican FRS.

Income taxes

As we describe in Note 23 to our audited consolidated financial statements, the Mexican tax reform as effective in 2011 did not impact our tax result. However, the following are the most important changes pursuant to the Mexican tax reform as effective in 2010 that are applicable to recent and upcoming years: an increase in the VAT rate from 15% in 2009 to 16% in 2010 and future years; an increase in the special tax on production and services from 25% in 2009 to 26.5% in 2010 and future years; and an increase in the statutory income tax rate from 28% in 2009 to 30% for 2010, 2011 and 2012, with a reduction from 30% to 29% and 28% for 2013 and 2014, respectively. In addition, the Mexican tax reform as effective in 2010 requires that income tax payments related to consolidated tax benefits obtained since 1999 be paid during the succeeding five years beginning in the sixth year when tax benefits were used. See Note 23 C and D to our audited consolidated financial statements.

The Impuesto Empresarial de Tasa Unica (IETU) functions similarly to an alternative minimum corporate income tax, except that any amounts paid are not creditable against future income tax payments. Mexican taxpayers are now subject to the higher of the IETU or the income tax liability computed under Mexican Income Tax Law. The IETU is calculated on a cash-flow basis, the rate for 2009 was 17.0% and the rate for both 2010 and 2011 was 17.5%.

We have paid corporate income tax since IETU came into effect and, based on our financial projections estimated for our Mexican tax returns, we expect to continue paying corporate income tax in the future and do not expect to pay IETU, therefore we did not record deferred IETU. As such, the enactment of IETU did not impact our consolidated financial position or results from operations, as it only recognizes deferred income tax.

We recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. We regularly review our deferred tax assets for recoverability and/or payment, and establish a valuation allowance based on our judgment regarding historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets, resulting in an impact in net income.

The statutory income tax rate in Mexico was 30% for each of 2011 and 2010, and 28% for 2009. The statutory income tax rate in Panama was 25%, 27.5% and 30%, respectively, for 2011, 2010 and 2009. The statutory income tax rates for 2011 in other countries in which we do business were: 31% in Guatemala; 30% in Nicaragua; 30% in Costa Rica; 33% in Colombia; 34% in Venezuela; 34% in Brazil; and 35% in Argentina. Tax loss carry-forwards may be applied to income tax over certain periods of time, varying by country as follows: in Mexico, 10 years; in Nicaragua, Costa Rica and Venezuela, 3 years; in Panama and Argentina, 5 years; in Colombia, tax losses may be carried forward for an indefinite period of time but are limited to 25% of taxable income for the relevant year; and in Brazil, tax losses may be carried forward for an indefinite period of time but cannot be restated and are limited to 30% of taxable income for the relevant year. We make judgments about the recoverability of tax loss carry-forward assets as described above.

Indirect tax and legal contingencies

We are subject to various claims and contingencies related to indirect tax and legal proceedings as described in Note 24 to our audited consolidated financial statements. Due to their nature, such legal proceedings involve inherent uncertainties including, but not limited to, court rulings, negotiations between affected parties and governmental actions. Management periodically assesses the probability of loss for such contingencies and accrues a liability and/or discloses the relevant circumstances, as appropriate. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, we accrue a liability for the estimated loss.

Derivative financial instruments

We are required to measure all derivative financial instruments at fair value and recognize them in the balance sheet as an asset or liability. Changes in the fair value of derivative financial instruments are recorded each year in net income or as a component of cumulative other comprehensive income, based on whether the instrument provides a hedge and is designated as such, and the ineffectiveness of the hedge. The fair values of derivative financial instruments are determined considering quoted prices in recognized markets. If such instruments are not traded, fair value is determined by applying techniques based upon technical models supported by sufficient reliable and verifiable data, recognized in the financial sector. We base our forward price curves upon market price quotations.

New Accounting Pronouncements

As described in Note 28 to our audited consolidated financial statements, we are adopting IFRS for the preparation of our financial information beginning in 2012. Pursuant to current SEC reporting requirements, foreign private issuers may provide in their SEC filings financial statements prepared in accordance with IFRS, without a reconciliation to U.S. GAAP.

The consolidated financial statements to be issued by us for the year ending December 31, 2012 will be our first annual financial statements that comply with IFRS. Our IFRS transition date is January 1, 2011, and therefore, the year ended December 31, 2011 will be the comparative period to be covered. IFRS 1, “First-Time Adoption of International Financial Reporting Standards” (which we refer to as IFRS 1), sets forth mandatory exceptions and allows certain optional exemptions to the complete retrospective application of IFRS.

Mandatory Exceptions

We have applied the following mandatory exceptions to retrospective application of IFRS, effective as of our IFRS transition date:

Accounting Estimates

Estimates prepared under IFRS as of January 1, 2011 are consistent with the estimates recognized under Mexican FRS as of the same date, unless we are required to adjust such estimates to agree with IFRS.

Derecognition of Financial Assets and Liabilities

We applied the derecognition rules of IAS 39, “Financial Instruments: Recognition and Measurement” (which we refer to as IAS 39) prospectively for transactions occurring on or after our IFRS transition date.

Hedge Accounting

As of our IFRS transition date, we have measured at fair value all derivative financial instruments and hedging relationships designated and documented effectively as accounting hedges, as required by IAS 39, which is consistent with the treatment under Mexican FRS. As a result, there was no impact in our consolidated financial statements due to the application of this exception.

Non-controlling Interest

We have applied the requirements of IAS 27, “Consolidated and Separate Financial Statements” (which we refer to as IAS 27) related to non-controlling interests prospectively beginning on our IFRS transition date.

Optional Exemptions

We have elected the following optional exemptions to retrospective application of IFRS, effective as of our IFRS transition date:

Business Combinations and Acquisitions of Associates and Joint Ventures

According to IFRS 1, an entity may elect not to apply IFRS 3, “Business Combinations” retrospectively to acquisitions made prior to the transition date to IFRS.

The exemption for past business combinations also applies to past acquisitions of investments in associates and of interests in joint ventures.

We have adopted this exemption and did not amend our business acquisitions or investments in associates and joint ventures prior to our IFRS transition date and we did not remeasure the values determined at the acquisition dates, including the amount of previously recognized goodwill in past acquisitions.

Share-based Payments

We have share-based plans, which we pay to our qualifying employees based on our own shares and those of our subsidiary, Coca-Cola FEMSA. Management decided to apply the optional exemptions established in IFRS 1, whereas we did not apply IFRS 2, “Share-based Payment” (which we refer to as IFRS 2): (i) to the equity instruments granted before November 7, 2002, (ii) to equity instruments granted after November 7, 2002 and that were earned before the latter of (a) our IFRS transition date and (b) January 1, 2005 and (iii) liabilities related to share-based payment transactions that were settled before our IFRS transition date.

Deemed Cost

An entity may individually elect to measure an item of its property, plant and equipment at the transition date to IFRS at its fair value and use that fair value as its deemed cost at that date. In addition, a first-time adopter may elect to use a previous generally accepted accounting principles revaluation of an item of property, plant and equipment at, or before, the transition date to IFRS as deemed cost at the date of the revaluation, if the revaluation was, at such date of the revaluation, broadly comparable to either (i) fair value, or (ii) cost or depreciated cost in accordance with IFRS and adjusted to reflect changes in a general or specific price index.

We have presented both our property, plant and equipment and our intangible assets at IFRS historical cost in all countries. In Venezuela, this IFRS historical cost represents actual historical cost in the year of acquisition, indexed for inflation in a hyperinflationary economy based on the provisions of IAS 29, “Hyperinflationary Economies” (which we refer to as IAS 29).

Cumulative Translation Effect

A first-time adopter is neither required to recognize translation differences and accumulate these in a separate component of equity, nor on a subsequent disposal of a foreign operation, to reclassify the cumulative translation difference for that foreign operation from equity to profit or loss as part of the gain or loss on disposal that would have existed at the IFRS transition date.

We applied this exemption and consequently we reclassified the accumulated translation effect recorded under Mexican FRS to retained earnings and, beginning January 1, 2011, we calculate the translation effect of our foreign operations prospectively according to IAS 21, “The Effects of Changes in Foreign Exchange Rates.”

Borrowing Costs

We applied the IFRS 1 exemption related to borrowing costs incurred for qualifying assets existing at the IFRS transition date, based on our similar Mexican FRS accounting policy, and beginning January 1, 2011 we capitalize eligible borrowing costs in accordance with IAS 23, “Borrowing Costs” (which we refer to as IAS 23).

Recording Effects of the Transition from Mexican FRS to IFRS

The following disclosures provide a qualitative description of the most significant preliminary effects from the transition to IFRS determined as of the date of the issuance of our consolidated financial statements.

Inflation Effects

According to Mexican FRS, the Mexican peso ceased to be the currency of an inflationary economy on December 31, 2007, as the three years’ cumulative inflation as of such date did not exceed 26%.

According to IAS 29, the last hyperinflationary period for the Mexican peso was in 1998. As a result, we have eliminated the cumulative inflation recognized within long-lived assets and contributed capital for our Mexican operations, based on Mexican FRS during the years 1999 through 2007, which were not deemed hyperinflationary for IFRS purposes.

For our foreign operations, the cumulative inflation from the acquisition date was eliminated (except in the case of Venezuela, which was deemed to be a hyperinflationary economy) from the date on which we began to consolidate them.

Employee Benefits

According to NIF D-3, a severance provision and the corresponding expenditure must be recognized based on the experience of an entity in terminating the employment relationship before the retirement date, or if the entity deems to pay benefits as a result of an offer made to employees to encourage a voluntary termination. For IFRS purposes, this provision is only recorded pursuant to IAS 19 (Revised 2011), “Employee Benefits” (which we refer to as IAS 19 (Revised 2011)), at the moment the entity has a demonstrable commitment to end the relationship with the employee or to make a bid to encourage voluntary retirement. This is evidenced by a formal plan that describes the characteristics of the termination of employment. Accordingly, at our IFRS transition date, we derecognized our severance indemnity recorded under Mexican FRS against retained earnings given that no such formal plan exists. A formal plan was not required for recording under Mexican FRS.

IAS 19 (Revised 2011), early adopted by us, eliminates the use of the “corridor” method, which defers the actuarial gains/losses and requires that such gains/losses be recorded directly within other comprehensive income in each reporting period. The standard also eliminates deferral of past service costs and requires entities to record them in comprehensive income in each reporting period. These requirements increased our liability for employee benefits with a corresponding reduction in retained earnings at our IFRS transition date.

Embedded Derivatives

For Mexican FRS purposes, we recorded embedded derivatives for agreements denominated in foreign currency. Pursuant to the principles set forth in IAS 39, there is an exception for embedded derivatives on those contracts that are denominated in certain foreign currencies if, for example, the foreign currency is commonly used in the economic environment in which the transaction takes place. We concluded that all of our embedded derivatives fell within the scope of this exception.

Therefore, at our IFRS transition date, we derecognized all embedded derivatives recognized under Mexican FRS.

Stock Bonus Program

Under NIF D-3, we recognized our stock bonus program plan offered to certain key executives as a defined contribution plan. IFRS require that such share-based payment plans be recorded under the principles set forth in IFRS 2. The most significant difference for changing the accounting treatment is related to the period during which compensation expense is recognized, which under NIF D-3 means the total amount of the bonus is recorded in the period in which it was granted, while in IFRS 2 it shall be recognized over the vesting period of such awards.

Additionally, the trust that holds the equity shares allocated to executives is considered to hold plan assets and is not consolidated under Mexican FRS. However, for IFRS Standing Interpretations Committee Interpretation (SIC) 12, “Consolidation – Special Purpose Entities,” we will consolidate the trust and reflect our own shares in treasury stock and reduce the non-controlling interest for Coca-Cola FEMSA shares held by the trust.

Deferred Income Taxes

The IFRS adjustments recognized by us had an impact on the calculation of deferred income taxes according to the requirements established by IAS 12, “Income Taxes” (IAS 12).

Furthermore, we derecognized a deferred liability recorded in the exchange of shares of FEMSA Cerveza with the Heineken Group. IFRS have an exception for recognition of a deferred tax liability for an investment in a subsidiary if the parent is able to control the timing of the reversal and it is probable that it will not reverse in the foreseeable future.

Retained Earnings

All the adjustments arising from our conversion to IFRS as of the transition date were recorded against retained earnings.

Other Differences in Presentation and Disclosures in the Financial Statements

Generally, IFRS disclosure requirements are more extensive than those of Mexican FRS, which will result in increased disclosures about accounting policies, significant judgments and estimates, financial instruments and management risks, among others. We will restructure our income statement under IFRS to comply with IAS 1, “Presentation of Financial Statements” (IAS 1). In addition, there may be some other differences in presentation.

There are other differences between Mexican FRS and IFRS. However, we consider the differences mentioned above to describe the significant effects.

As a result of the transition to IFRS, the effects as of January 1, 2011 on the principal items of a condensed statement of financial position are described as follows:


	Mexican FRS		IFRS Transition Effects			Preliminary IFRS
Current assets	Ps.	51,460	Ps.	(47	)	Ps.	51,413
Non-current assets		172,118		(10,078	)		162,040

Total assets		223,578		(10,125	)		213,453
Current liabilities		30,516		(254	)		30,262
Non-current liabilities		40,049		(10,012	)		30,037

Total liabilities		70,565		(10,266	)		60,299

Total stockholders’ equity	Ps.	153,013	Ps.	141		Ps.	153,154

The information presented above has been prepared in accordance with the standards and interpretations issued and in effect or issued and early adopted by us at the date of preparation of our consolidated financial statements (see Note 28 B to our consolidated financial statements). The standards and interpretations that are applicable at December 31, 2012, including those that will be applicable on an optional basis, are not known with certainty at the time of preparing our Mexican FRS consolidated financial statements as of December 31, 2011. Additionally, the IFRS accounting policies selected by us may change as a result of changes in the economic environment or industry trends that are observable after the issuance of our Mexican FRS consolidated financial statements. The information presented herein does not intend to comply with IFRS, and it should be noted that under IFRS, only one set of financial statements comprising the statements of financial position, comprehensive income, changes in stockholders’ equity and cash flows, together with comparative information and explanatory notes, can provide a fair presentation of our financial position, results of operations and cash flows.

Operating Results

The following table sets forth our consolidated income statement under Mexican FRS for the years ended December 31, 2011, 2010, and 2009:


	Year Ended December 31,
	2011⁽¹⁾			2011			2010			2009
	(in millions of U.S. dollars and Mexican pesos)
Net sales	$	14,470			Ps.201,867			Ps.168,376			Ps.158,503
Other operating revenues		84			1,177			1,326			1,748

Total revenues		14,554			203,044			169,702			160,251
Cost of sales		8,459			118,009			98,732			92,313

Gross profit		6,095			85,035			70,970			67,938
Operating expenses:
Administrative		591			8,249			7,766			7,835
Selling		3,576			49,882			40,675			38,973

Total operating expenses		4,167			58,131			48,441			46,808


Income from operations		1,928			26,904			22,529			21,130
Other expenses, net		(209	)		(2,917	)		(282	)		(1,877	)
Interest expense		(210	)		(2,934	)		(3,265	)		(4,011	)
Interest income		72			999			1,104			1,205

Interest expense, net		(138	)		(1,935	)		(2,161	)		(2,806	)
Foreign exchange gain (loss), net		84			1,165			(614	)		(431	)
Gain on monetary position, net		9			146			410			486
Market value (loss) gain on ineffective portion of derivative financial instruments		(11	)		(159	)		212			124

Comprehensive financing result		(56	)		(783	)		(2,153	)		(2,627	)

Equity method of associates		370			5,167			3,538			132

Income before income taxes		2,033			28,371			23,632			16,758
Income taxes		550			7,687			5,671			4,959

Consolidated net income before discontinued operations		1,483			20,684			17,961			11,799
Income from the exchange of shares with Heineken, net		—			—			26,623			—
Net income from discontinued operations		—			—			706			3,283

Consolidated net income		1,483			20,684			45,290			15,082

Net controlling interest income		1,085			15,133			40,251			9,908
Net non-controlling interest income		398			5,551			5,039			5,174

Consolidated net income		1,483			20,684			45,290			15,082

(1)	Translation to U.S. dollar amounts at an exchange rate of Ps. 13.9510 to US$ 1.00, provided solely for the convenience of the reader.

The following table sets forth certain operating results by reportable segment under Mexican FRS for each of our segments for the years ended December 31, 2011, 2010, and 2009. Due to the discontinued operation of FEMSA Cerveza it is not considered as a reportable segment.


	Year Ended December 31,
	Percentage Growth
	2011			2010			2009			2011 vs. 2010			2010 vs. 2009
	(in millions of Mexican pesos at December 31, 2010, except for percentages)
Net sales
Coca-Cola FEMSA		Ps.124,066			Ps.102,988			Ps.102,229			20.5	%		0.7	%
FEMSA Comercio		74,112			62,259			53,549			19.0	%		16.3	%
CB Equity⁽¹⁾		—			—			N/a			N/a			N/a
Total revenues
Coca-Cola FEMSA		124,715			103,456			102,767			20.5	%		0.7	%
FEMSA Comercio		74,112			62,259			53,549			19.0	%		16.3	%
CB Equity		—			—			N/a			N/a			N/a
Cost of sales
Coca-Cola FEMSA		67,488			55,534			54,952			21.5	%		1.1	%
FEMSA Comercio		48,636			41,220			35,825			18.0	%		15.1	%
CB Equity		—			—			N/a			N/a			N/a
Gross profit
Coca-Cola FEMSA		57,227			47,922			47,815			19.4	%		0.2	%
FEMSA Comercio		25,476			21,039			17,724			21.1	%		18.7	%
CB Equity		—			—			N/a			N/a			N/a
Income from operations
Coca-Cola FEMSA		20,152			17,079			15,835			18.0	%		7.9	%
FEMSA Comercio		6,276			5,200			4,457			20.7	%		16.7	%
CB Equity		(7	)		(3	)		N/a			(133.0	)%		N/a
Depreciation⁽²⁾
Coca-Cola FEMSA		4,163			3,333			3,472			24.9	%		(4.0	)%
FEMSA Comercio		1,175			990			819			18.7	%		20.9	%
CB Equity		—			—			N/a			N/a			N/a
Gross margin⁽³⁾⁽⁴⁾
Coca-Cola FEMSA		45.9	%		46.3	%		46.5	%		(0.4	) p.p.		(0.2	) p.p.
FEMSA Comercio		34.4	%		33.8	%		33.1	%		0.6	p.p.		0.7	p.p.
CB Equity		—			N/a			N/a			N/a			N/a
Operating margin⁽⁴⁾⁽⁵⁾
Coca-Cola FEMSA		16.2	%		16.5	%		15.4	%		(0.3	) p.p.		1.1	p.p.
FEMSA Comercio		8.5	%		8.4	%		8.3	%		0.1	p.p.		0.1	p.p.
CB Equity		N/a			N/a			N/a			N/a.			N/a

(1)	CB Equity holds Heineken N.V. and Heineken Holding N.V. Shares.

(2)	Includes breakage of bottles.

(3)	Gross margin is calculated with reference to total revenues.

(4)	As used herein, p.p. refers to a percentage point increase (or decrease), contrasted with a straight percentage increase (or decrease).

(5)	Operating margin is calculated with reference to total revenues.

Results from operations for the Year Ended December 31, 2011 Compared to the Year Ended December 31, 2010

FEMSA Consolidated

Under Mexican FRS, we reclassified our financial statements to reflect FEMSA Cerveza as a discontinued operation.

Total Revenues

FEMSA’s consolidated total revenues increased 19.6% to Ps. 203,044 million in 2011 compared to Ps. 169,702 million in 2010. All of FEMSA’s operations—beverages and retail—contributed positively to this revenue growth. Coca-Cola FEMSA’s total revenues increased 20.5% to Ps. 124,715 million, driven by double-digit total revenue growth in both of its divisions and the integration of the beverage divisions of Grupo Tampico and Grupo CIMSA in Mexico. FEMSA Comercio’s revenues increased 19.0% to Ps. 74,112 million, mainly driven by the opening of 1,135 net new stores combined with an average increase of 9.2% in same-store sales.

Gross Profit

Consolidated gross profit increased 19.8% to Ps. 85,035 million in 2011 compared to Ps. 70,970 million in 2010, driven by Coca-Cola FEMSA. Gross margin increased by 0.1 percentage points, from 41.8% of consolidated total revenues in 2010 to 41.9% in 2011.

Income from Operations

Consolidated operating expenses increased 20.0% to Ps. 58,131 million in 2011 compared to Ps. 48,441 million in 2010. The majority of this increase resulted from Coca-Cola FEMSA and additional operating expenses at FEMSA Comercio, resulting from accelerated store expansion. As a percentage of total revenues, consolidated operating expenses increased from 28.5% in 2010 to 28.6% in 2011.

Consolidated administrative expenses increased 6.2% to Ps. 8,249 million in 2011 compared to Ps. 7,766 million in 2010. As a percentage of total revenues, consolidated administrative expenses decreased from 4.6% in 2010 to 4.1% in 2011.

Consolidated selling expenses increased 22.6% to Ps. 49,882 million in 2011 as compared to Ps. 40,675 million in 2010. This increase was attributable to greater selling expenses at Coca-Cola FEMSA and FEMSA Comercio. As a percentage of total revenues, selling expenses increased 0.5 percentage points, from 24.0% in 2010 to 24.5% in 2011.

Consolidated income from operations increased 19.4% to Ps. 26,904 million in 2011 as compared to Ps. 22,529 million in 2010, driven by Coca-Cola FEMSA and FEMSA Comercio. Consolidated operating margin remained stable at 13.3% as a percentage of 2011 consolidated total revenues.

Some of our subsidiaries pay management fees to us in consideration for corporate services we provide to them. These fees are recorded as administrative expenses in the respective business segments. Our subsidiaries’ payments of management fees are eliminated in consolidation and, therefore, have no effect on our consolidated operating expenses.

Coca-Cola FEMSA

Total Revenues

Coca-Cola FEMSA total revenues increased 20.5% to Ps. 124,715 million in 2011, compared to Ps. 103,456 million in 2010 as a result of double-digit total revenue growth in its South America and Mexico and Central America divisions and the integration of the beverage divisions of Grupo Tampico and Grupo CIMSA in its Mexican territories during the fourth quarter of 2011. Excluding the integration of the beverage divisions of Grupo

Tampico and Grupo CIMSA in Mexico, total revenues grew approximately 19% in 2011. On a currency neutral basis and excluding the recently merged franchise territories in Mexico, total revenues increased approximately 16% in 2011. Consolidated average price per unit case increased 13.8%, reaching Ps. 45.38 in 2011 as compared to Ps. 39.89 in 2010.

Consolidated total sales volume reached 2,648.6 million unit cases in 2011, compared to 2,499.5 million unit cases in 2010, an increase of 6.0%. Volume growth resulted from increases in sparkling beverages, which accounted for approximately 80% of incremental volumes, driven by the Coca-Cola brand. The still beverage category, mainly driven by the Jugos del Valle line of business in Mexico, Brazil and Venezuela, and Hi-C orangeade and the Cepita juice brand in Argentina contributed with approximately 15% of the incremental volumes, and the bottled water category represented the balance. Excluding the integration of the beverage divisions of Grupo Tampico and Grupo CIMSA in Mexico, volumes grew 4.0% to 2,599.7 million unit cases.

Gross Profit

Cost of sales increased 21.5% to Ps. 67,488 million in 2011 compared to Ps. 55,534 million in 2010, as a result of higher sweetener and PET costs across Coca-Cola FEMSA’s operations, which were partially offset by the appreciation of the average exchange rates of the Brazilian real, the Colombian peso and the Mexican peso as applied to Coca-Cola FEMSA’s U.S. dollar-denominated raw material costs. Gross profit increased 19.4% to Ps. 57,227 million in 2011, as compared to 2010. Coca-Cola FEMSA’s gross margin decreased 0.4 percentage points to 45.9% in 2011.

Operating Expenses

Operating expenses increased 20.2% to Ps. 37,075 million in 2011. As a percentage of total revenues, operating expenses remained flat at 29.7% in 2011 as compared to 29.8% in 2010.

Income from Operations

Income from operations increased 18.0% to Ps. 20,152 million in 2011, as compared to Ps. 17,079 million in 2010 driven by Coca-Cola FEMSA’s South America division. Operating margin was 16.2% in 2011, a contraction of 0.3 percentage points as compared to 2010.

FEMSA Comercio