Fomento Economico Mexicano S.A.B. de C.V. Annual Report 2015

FY2015 Annual Report · Fomento Economico Mexicano S.A.B. de C.V.

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www.femsa.com
investor@femsa.com.mx
General Anaya No. 601 Pte. Colonia Bella Vista
Monterrey, Nuevo León, Mexico, C.P. 64410
Phone: (52) 81 8328-6180

www.annualreport.femsa.com/

c r e at i n g
s t o r i e s

FEMSA is a multinational beverage and retail company headquartered

in Mexico. Through Coca-Cola FEMSA (48% stake), we are the largest

independent bottler of Coca-Cola products in the world. Through

FEMSA Comercio (100% stake), we operate OXXO, the leading

convenience store chain in Mexico and a growing portfolio of other

small-format retail chains in Latin America, as well as a network of retail

service stations for fuel, lubricants and car care products in Mexico.

We also hold the second largest equity stake in Heineken (20% stake),

a major global brewer. In addition, our FEMSA Strategic Businesses

provide logistics, point-of-sale refrigeration and plastics solutions to our

own businesses and third party clients.

creating
stories

TABLE OF CONTENTS
Competitive Advantages 2 · Financial Highlights 10 · FEMSA at a Glance 12
Letter to Shareholders 14 · FEMSA Comercio Retail Division 18
FEMSA Comercio Fuel Division 23 · Coca-Cola FEMSA 24 · Sustainability 30
FEMSA Foundation 32 · Executive Team 34 · Corporate Governance 35
Board of Directors 36 · Financial Summary 38 · Management’s Discussion & Analysis 40
Annual Report of the Audit Committee 44 · Independent Auditor’s Report 46
Consolidated Statements 47

Founding of Cervecería Cuauhtémoc

Five enthusiastic entrepreneurs, Isaac Garza, José Calderón,
José A. Muguerza, Francisco G. Sada, and Joseph M.
Schnaider founded Cervecería Cuauhtémoc, a brewery known
at the time as Fábrica de Hielo y Cerveza Cuauhtémoc,
in Monterrey, Nuevo León, Mexico, with 72 employees.

Annual Report 20151890

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www.femsa.com
investor@femsa.com.mx
General Anaya No. 601 Pte. Colonia Bella Vista
Monterrey, Nuevo León, Mexico, C.P. 64410
Phone: (52) 81 8328-6180

www.annualreport.femsa.com/

c r e at i n g
s t o r i e s

FEMSA is a multinational beverage and retail company headquartered

in Mexico. Through Coca-Cola FEMSA (48% stake), we are the largest

independent bottler of Coca-Cola products in the world. Through

FEMSA Comercio (100% stake), we operate OXXO, the leading

convenience store chain in Mexico and a growing portfolio of other

small-format retail chains in Latin America, as well as a network of retail

service stations for fuel, lubricants and car care products in Mexico.

We also hold the second largest equity stake in Heineken (20% stake),

a major global brewer. In addition, our FEMSA Strategic Businesses

provide logistics, point-of-sale refrigeration and plastics solutions to our

own businesses and third party clients.

creating
stories

Founding of Cervecería Cuauhtémoc

Annual Report 20151890

125 years of creating stories
From our start as a brewing company in 1890 in Mexico, to our
profile today as a global leader in the beverage and retail industry,
much has clearly changed. Yet we still embrace the same passion
and spirit of innovation that have always driven us, and the
enduring commitment to quality, community and value creation
for all our stakeholders.
The history of our first 125 years has been shaped by hundreds
of thousands of individual stories, by our people and their
aspirations, by our customers, suppliers and communities, and
how they all joined together to create something bigger, something
better, allowing us to become a part of our stakeholders’ lives and
accompany them through the years. Today we celebrate those
stories and share a selection of them in this book.

O u r s t o r i e s a r e s h a p e d b y o u r p e o p l e

2015Competitive advantages

We operate in a complex and competitive industry,
with changing –and often challenging– market
conditions. Our aim is to grow profitably and
sustainably by leveraging our core capabilities and
competitive strengths: consumer focus, continuous
growth, managing complexity profitably and
exceptional people.

consumer
focus

We strive to create a perfect experience
for each of our consumers on every
occasion. That means knowing and
understanding who they are, meeting
their evolving needs and ensuring that
each interaction exceeds expectation.

10+ million average
transactions per day
at OXXO

The launch of a national leader

We acquired a brewery in Tecate, Baja California,
Mexico, and launched this small, regional brand
across Mexico, catapulting it into its position
today as the nation’s leading canned beer.

1954#1 inbeverages in every region where we operatecreating storiescontinuous
growth

By expanding into new products and
formats, and scaling our geographic
footprint within and beyond our
current markets, we continue to deliver
on our promise of sustainable growth.

+8,000 new jobs
created in 2015 with
OXXO store openings

Our first step towards an
international presence

The globalization of Coca‑Cola FEMSA
began with the acquisition of 51 percent of
Coca‑Cola Buenos Aires, Argentina.

1994creating storiesTotal consolidated revenues in 2015 rose18.3% over the prior year3,000

average number
of SKUs per
OXXO store

managing
complexity
profitably

We operate in 12 countries across
diverse economies and cultures, serving
millions of consumers each day. From
procurement, production and pricing,
to data analytics, demand forecasting
and distribution, the complexities of our
businesses are vast. We thrive in this
environment –and deliver profitable
growth– by leveraging our technology,
experience and know-how.

357.6 million
consumers in
our markets

Tailored solutions through
FEMSA Logística

FEMSA Logística began to operate as an
independent company to provide logistics
solutions to FEMSA’s subsidiaries.

creating stories1990exceptional
people

Our success is a direct reflection of
our people. We believe in the talent
and potential of our more than
260,000 employees, and rely on a
Comprehensive Talent Management
model to attract, develop, retain and
grow the best teams in the business.

21 directors and
managers rotated
across our operations
in 2015 to enhance
their skills

The founding of a world‑class university

Eugenio Garza Sada, CEO of Cervecería Cuauhtémoc,
founded the Instituto Tecnológico y de Estudios
Superiores de Monterrey, which he called “my ninth
and dearest child .“ He was the university’s most
devoted promoter and ideologist.

1943creating storiesPs. 293.1 million invested in onsite and online training in 201510

Financial Highlights

Millions of pesos

Total revenues

Income from operations (2)

Operating margin

Consolidated net income

Controlling Interest (3)

Non-Controlling Interest

Controlling interest earnings per BD unit (4)

Controlling Interest earnings per ADS (5)

Operating cash flow (EBITDA)

EBITDA margin

Total assets

Total liabilities

Total equity

Capital expenditures

Total cash and cash equivalents (6)

Short-term debt

Long-term debt

Controlling interest book value per share (7)

Net controlling interest income per share (7)

Headcount (8)

2015 (1)

2015

2014

%Change

2013

%Change

18,121

311,589

263,449

1,962

10.8%

1,354

1,029

325

0.3

2.9

2,712

15.0%

23,805

9,740

14,065

1,098

1,710

343

5,000

0.59

0.06

33,735

10.8%

23,276

17,683

5,593

4.9

49.4

29,983

11.4%

22,630

16,701

5,929

4.7

46.7

46,626

40,945

15.0%

409,332

167,476

241,856

18,885

29,396

5,895

85,969

10.15

0.99

15.5%

376,173

146,051

230,122

18,163

35,497

1,553

82,935

9.53

0.93

18.3%

12.5%

2.9%

5.9%

-5.7%

4.3%

5.8%

13.9%

8.8%

14.7%

5.1%

4.0%

-17.2%

279.6%

3.7%

6.5%

5.9%

258,097

29,857

11.6%

22,155

15,922

6,233

4.4

44.5

39,870

15.4%

359,192

136,642

222,550

17,882

27,259

3,827

72,921

8.91

0.89

246,158

216,740

13.6%

209,232

2.1%

0.4%

2.1%

4.9%

-4.9%

6.8%

4.9%

2.7%

4.7%

6.9%

3.4%

1.6%

30.2%

-59.4%

13.7%

7.0%

4.9%

3.6%

(1) U.S. dollar figures are converted from Mexican pesos using the noon-buying rate published by U.S. Federal Reserve Board, which was Ps. 17.1950 per US$1.00 as of December 31, 2015.
(2) Company’s key performance indicator.
(3) Represents the net income that is assigned to the controlling shareholders of the entity.
(4) “BD” units each of which represents one series “B” share, two series “D-B” shares and two series “D-L” shares. Data based on outstanding 2,161,177,770 BD units and 1,417,048,500 B units.
(5) American Depositary Shares, a U.S. dollar-denominated equity share of a foreign-based company available for purchase on an American stock exchange.
(6) Cash consists of non-interest bearing bank deposits and cash equivalents consist principally of short-term bank deposits and fixed rate investments.
(7) Data based on outstanding shares of 17,891,131,350.
(8)

Includes headcount from Coca-Cola FEMSA (excluding the Philippines operations), FEMSA Comercio and Other Businesses of FEMSA.

FEMSA Consolidated

34%
35

32%

49%

46%

11
16%
Ps. 409,332
Total Assets
millions of Mexican pesos

41%

Ps. 311,589
Total Revenues
millions of Mexican pesos

67%

Ps. 33,735
Income from Operations
millions of Mexican pesos

n Coca-Cola FEMSA

n FEMSA Comercio - Retail Division

n FEMSA Comercio - Fuel Division

n Others (Includes other companies and our 20%
economic interest in Heineken)

FEMSA Annual Report 2015

Coca-Cola FEMSA

FEMSA Comercio
Retail Division

FEMSA Comercio
Fuel Division

% annual
growth

5.0

15.7

-1.8

0.4

Headcount1
thousands

% annual
growth

19.9

5.6

-5.6

3.4

73.4

84.9

83.4

83.7

147.7

156.0

147.3

152.4

% annual
growth

9.7

12.0

7.5

20.9

Headcount
thousands

% annual
growth

16.6

12.9

12.4

21.2

Total Revenues
billions of Mexican pesos

% annual
growth

% operating
margin

19.4

-2.3

-3.3

9.2

14.9

13.7

14.1

14.9

22.0

21.5

20.7

22.6

Total Revenues
billions of Mexican pesos

% annual
growth

% operating
margin

22.7

16.6

9.8

25.6

7.8

8.1

7.9

8.2

91.9

103.0

110.7

133.7

86.4

97.6

109.6

132.9

6.8

7.9

8.7

10.9

Income from Operations2
billions of Mexican pesos

% annual
growth

20.2

2.4

-0.7

10.0

EBITDA3
billions of Mexican pesos

% annual
growth

17.2

30.4

-2.0

-1.0

27.9

28.6

28.4

31.2

166.1

216.7

212.4

210.2

% annual
growth

19.8

17.3

11.5

23.5

EBITDA3
billions of Mexican pesos

% annual
growth

17.2

27.4

10.4

53.7

9.0

10.5

11.8

14.5

31.1

39.6

43.7

67.2

Total Assets
billions of Mexican pesos

(1) Excluding the Philippines operations.
(2) Company’s key performance indicator.
(3) EBITDA equals Income from Operations plus Depreciation, Amortization and other non-cash items.

Headcount
thousands

Total Revenues
billions of Mexican pesos

4.6

18.5

0.2

Income from Operations2
billions of Mexican pesos

EBITDA3
billions of Mexican pesos

Total Assets
billions of Mexican pesos

0.3

3.2

Our results
represent a
balance of our
performance
across different
operations and
markets

creating stories12

FEMSA at a glance

Coca-Cola FEMSA1

Population
served
(Millions)

Points
of sale

Plants

Distribution
facilities

Distribution
routes2

Headcount Brands3

Mexico

Central
America

Colombia

Venezuela

Brazil

Argentina
Philippines4

Total

71.9

21.9

46.7

72.1

12.2

101.8

357.6

853,373

143

3,547

43,988

113,400

446,236

176,503

332,142

51,325

806,369

2,779,348

320

1,230

507

1,291

208

1,792

327

8,895

6,198

5,182

7,336

18,005

3,003

15,306

99,018

FEMSA Comercio
Retail Division

Clients5
(Millions)

Points
of sale6

Distribution
facilities6

Headcount

10.8

14,994

133,748

Mexico and
Colombia

FEMSA Comercio
Fuel Division

Population
served
(Millions)

Mexico

37.6

Points
of sale

307

Headcount

4,551

Note: Only includes Coca-Cola FEMSA and FEMSA Comercio information.
(1) FEMSA owns 47.9%; the remaining 28.1% and 24.0% are owned by

The Coca-Cola Company and the investing public, respectively.
(2)
Includes third-party distributors.
(3)
Includes brand extensions.
(4) Includes third-party headcount.
(5) Clients per year based on the number of daily transactions.
(6)

Includes OXXO stores and drugstores in Mexico.

We continued to see
more opportunities
ahead of us than
ever before

FEMSA Annual Report 2015●

Mexico

●

Guatemala

● Nicaragua
●

●

Costa Rica

Panama

Colombia

●

Philippines

●

Peru

COCA-COLA
FEMSA

FEMSA COMERCIO
RETAIL DIVISION

FEMSA COMERCIO
FUEL DIVISION

COCA-COLA
FEMSA

FEMSA
COMERCIO

STRATEGIC
BUSINESSES

Venezuela

●

Brazil

Chile

Argentina

Dear
Shareholders
FEMSA celebrated a remarkable milestone this year: the 125th
anniversary of our founding. Even as we continue on our path
of growth, diversification, expansion and consolidation, this is
an occasion that merits highlighting.

Advancing our strategic priorities:
2015 highlights

In that regard, 2015 was a notable year: as we outline
below, FEMSA made important advances in the year,
including new acquisitions, geographic growth and
product innovations, as well as top line gains and
margin expansion. Perhaps most importantly, we saw
the resilience of our businesses in the face of ongoing
macroeconomic challenges – giving us confidence in
the fundamental strength and agility of our operations.

Key developments in the year at FEMSA Comercio
include the opening of 1,208 net new OXXO stores
in Mexico and Colombia, equivalent to an average of
more than three new stores per day, for a total of over
14,000 OXXO units at year-end 2015. Notably, we

José Antonio Fernández Ca rbaja l
Executive Chairman of the Boa rd

Ca rlos S a laza r Lomelín
Chief Executive Officer

FEMSA Annual Report 2015From the company’s entrepreneurial beginnings as a local Monterrey brewer in 1890, to our global profile as a NYSE-listed beverage and retail leader today, the vision and philosophy of the founders has not wavered: to work with and for the communities we serve, and to create long-term value for all our stakeholders. We are proud and humbled to carry on their tradition, creating new stories for the generations to come.As with any good story –business or otherwise– the narrative unfolds over time. We strongly believe in taking a multi-year approach to our strategic objective of delivering returns that exceed our costs, and executing consistently across business cycles even when short-term market dynamics require us to respond with specific measures.
Name change and NYSE listing

We changed our name from VISA to
FEMSA, and listed FEMSA’s shares on the
New York Stock Exchange (NYSE) under
the ticker symbol FMX in May 1998.

At Coca-Cola FEMSA, where we faced difficult
conditions in several of our key markets, we focused
on operational efficiency, including the startup of
two new state-of-the-art bottling plants in Brazil
and Colombia, as well as point-of-sale execution
that contributed to a 0.7% rise in transactions.
Notable launches in the year included Schweppes
Guaraná Class in Brazil, Naranja & Nada and
Limon & Nada in Mexico, and Santa Clara brand
semi-skim milk in Mexico.

The strategic transformation of Coca-Cola FEMSA
continued this year, shaping us into a leaner, nimbler
and more flexible organization; at the same time,
we focused on the short-term requirements of
navigating economic pressures and foreign exchange
challenges by acting on the variables under our
control, resulting in market share gains and, notably,
margin expansion.

Expanding our retail
presence in Latin America
via acquisition of Chile’s
drugstore leader Sofocar

creating storieshave held capital expenditures steady while driving up EBITDA profitability, thanks to the benefits of scale and operating leverage. Key in-store initiatives such as incremental financial services and more effective promotional activity in our key categories, as well as gradual yet continuous improvement in Mexico’s consumption environment, led to solid same-store sales growth, reflecting a better mix of ticket and traffic.OXXO is already one of the top retailers in Mexico by revenue, and largest in the Americas by number of units, but we still see plenty of horizontal opportunity in terms of market penetration potential. On the drugstore front, we closed two key acquisitions in the year that advanced our growth strategy in this compelling small-box retail segment: 100% of Farmacon, a Sinaloa, Mexico-based drugstore chain with more than 200 stores, and a majority equity stake in Socofar, based in Santiago, Chile, with over 640 drugstores and 150 beauty stores in Chile and 150 drugstores in Colombia. These acquisitions are an important step forward in leveraging our growing segment expertise, and the latter transaction specifically can be seen as a platform from which to drive our growth strategy in that region.Early in the year, we announced our participation in the retail gasoline business to take advantage of evolving regulations and reforms in Mexico’s energy sector. This is a highly fragmented, high-growth potential industry that fits well with our OXXO service model, and offers attractive returns on capital through our asset-light model. At year-end 2015, our FEMSA Comercio’s Fuel Division operated 307 gasoline stations in Mexico, predominantly in the north of the country.199816

We now control more
than 1,850 drugstores
and beauty stores in
Mexico, Chile and
Colombia, a 200%+
jump from 2014

Coca-Cola FEMSA retained its position as the
largest franchise bottler in the world, and we see
strong organic growth potential ahead as per capita
consumption improves across most of our markets.

Within our Strategic Businesses, FEMSA Logística
became the first Mexican company to receive
ISO 39001 certification, a comprehensive road
safety management system through which we
aim to significantly increase our already high
safety standards across the fleet. FEMSA Logística
continues to increase its value-creating potential
through organic growth with internal and external
clients, as well as strategic acquisitions in our key
markets. At Imbera, we introduced new models and
continued to upgrade our refrigeration technology
to reduce costs and improve our environmental
footprint, further enhancing our client partnerships
across the US and Latin America.

Inscribed at the heart of our mission is the generation of
economic and social value. In keeping with this way of
being and working, our commitment to sustainability
was evident in various ways over the past year due to

the generation of social and environmental benefits.
In 2015 we continued to reinforce our Comprehensive
Talent Management Model to assure the professional
and personal development of our employees. In
environmental matters, we focused our efforts on
better understanding the impact of our operations,
so that we can use the information to strengthen
our Environmental Strategy and take more efficient
action to mitigate these impacts in all our Business
Units. During the year we added a third wind farm
to supply clean energy in Mexico, advancing toward
our goal of satisfying 85% of the electricity needs of
our Mexican operations (based on 2010 consumption)
from clean energy sources by the year 2020. With
this commitment we adhered to the COP21. To build
better community relations, under a concerted effort
by all the FEMSA Business Units, we developed the
Methodology for Addressing Risks and Community
Relations (MARRCO), for professionalizing community
management locally at our work centers and implement
mutually beneficial actions.

Our results in the year reflect the solid operational
improvements highlighted above within the context
of market conditions that ranged from improving

Heineken joins the family

We received a 20% stake in Heineken shares
in exchange for 100% of FEMSA beer shares,
significantly growing our market share and
improving our global competitiveness.

FEMSA Annual Report 2015201017

consumption and continued recovery in Mexico,
to extreme volatility and soft macroeconomic
environments in certain South American markets,
particularly in regards to foreign exchange.

Total revenues in 2015 increased 18.3% over the
previous year to Ps. 311.6 billion (US$ 18.1 billion),
driven by growth at FEMSA Comercio. Income from
operations rose 12.5% to Ps. 33.7 billion (US$ 1.96
billion), with net income rising 2.9% to Ps. 23.3 billion
(US$ 1.35 billion), earnings per unit were mainly
driven by our 20% participation in Heineken, whose
net profit in the year rose 25%. Earnings per BD unit
were Ps. 4.94 (US$ 2.87 per ADR).

What stories will we create next?

Looking ahead, we are cautiously optimistic
about continued improvement in the business

environment and consumption trends across most
of our markets. Notwithstanding external growth
drivers, however, we will continue to build on
our momentum by focusing on the disciplined
deployment of capital to take advantage of our
balance sheet flexibility, leveraging our core
competencies and current business platforms to
identify new and adjacent opportunities that will
create value over the long term.

We are grateful to our 261,464 strong FEMSA family
for their passion and commitment, and on behalf of
the entire FEMSA team, thank you to our consumers,
shareholders, suppliers and communities for your
continued confidence and support. We look forward
to creating the next stories together.

Sincerly,

José Antonio Fernández Carbajal
Executive Chairman of the Board

Carlos Salazar Lomelín
Chief Executive Officer

became its Chairman and led it along an impressive path
of growth and diversification, making it one of the leading
department store chains in the Americas, and one of the
largest credit suppliers in the country, benefiting hundreds of
thousands of Mexican families.

A close friend and colleague of Eugenio Garza Lagüera, Max
accompanied us starting in 1985 as shareholder and board
member of VISA, the forerunner of FEMSA. His values
were always compatible with FEMSA’s, and for more than
thirty years he supported it faithfully, from its most difficult
moments to its phase of growth and consolidation. His vision
as a strategist and businessman, combined with his extensive
experience and familiarity with retail activities, were key to
the evolution of FEMSA and its Business Units.

His positions on the Board were vital to bringing the
company through its difficult phase of debt structuring in
the late 1980s and to spurring on the company’s growth by
taking advantage of its competitive strengths. He always
stood with us, and always supported us in the fundamental
decisions that have made us what we are today.

Inevitably, we will miss Max’s wise counsel, his commitment
to his friends, family, community and his country. We will
miss his vision of life, his vocation, and the great human
being he always was.

May he rest in peace.

In Memoriam
Don Max Michel Suberville
(✝ February 2016)

“Don Max” left a legacy that should serve as an example
to all. He forged a life full of personal and professional
success as an extraordinary entrepreneur, who believed
that business was merely an instrument for doing good
to others. He was a simple, austere man, and he enjoyed
the country and nature. Toward his family and friends
he was unfailingly affectionate, loyal, straightforward
and generous.

Honoring the heritage of dedication and perseverance
handed down by his predecessors, he began working at El
Puerto de Liverpool at a very young age. After spending
many years in the various departments of the company, he

creating stories1818

FEMSA Comercio
Retail Division

A new store concept is born

The first OXXO store opened in Monterrey, Mexico.
Within a year, operations had expanded to three
new cities in the Country: Chihuahua, Hermosillo
and Mexicali.

1978FEMSA Annual Report 2015creating stories1919

FEMSA Comercio’s Retail
Division is driving the evolution
of the retail landscape in the
markets where it operates.
Along with OXXO, the leading
convenience store chain in
Mexico and fastest growing
retailer in the country, we are
leveraging our expertise in
small-box retail to drive growth
in new markets and formats, as
well as in adjacent segments,
through disciplined execution
and our focus on the perfect
customer experience.

An average of three
new OXXO stores
open each day

% annual
growth

13.5

10.9

10.6

9.7

9.4

OXXO stores
new openings

9,561

10,601

11,721

12,853

14,061

2015creating stories20

OXXO: growth, profitability and innovation

We opened 1,208 net new OXXO convenience stores during
the year, for a total of 14,061 stores in operation in Mexico
and Colombia at year-end 2015. This is in line with our
objective of adding more than 1,000 net new stores each
year, using proprietary site-selection processes and strict
cost of capital parameters, and represents the creation of
more than 8,000 direct new jobs.

OXXO’s successful business model embraces the following
principles, among others:

• Proximity to our customers: Even with strong sequential
growth in recent years, there is still significant market
penetration opportunity, not just in underserved regions
but also in large population centers that are continuously
growing and therefore require incremental stores. Our
geographically dispersed network of 16 distribution
centers supports our scaling strategy.

• Segmentation, differentiation, category development: We
meet a broad range of consumer needs, from quenching
thirst and replenishing groceries, to bill payment,
cash deposits and withdrawals and cellular airtime
purchases. Innovations include the introduction of our

Saldazo branded debit card; proprietary brands such
as Delixia (prepared foods), Bitz (snacks) and O’Sabor
(fresh-prepared hot food), and of course andatti, the
leading fresh-brewed coffee brand in Mexico celebrating
its 10th anniversary this year. We are also making
progress in our segmentation strategy, adjusting the value
proposition of each store to its location and environment.
On average, each store now carries almost 3,000 SKUs.

• Speed, access, service: With familiar floor plans across

our network, extended business hours and rapid service,
our customers can rely on OXXO as their one-stop shop
for products and services. We conducted an average
of more than 10 million transactions per day in 2015,
signaling the growing importance of OXXO in the daily
lives of our consumers.

• Operating structure: OXXO stores are company owned,
not franchises, giving us direct control over product
selection, execution and service quality. A majority of
our stores are operated by commission-based partners,
and because we prioritize growth while generating excess
returns on capital, most of our real estate is leased rather
than owned.

Offering
fast, fresh
and delicious
options

FEMSA Annual Report 2015Leveraging our expertise in small-box retail

We entered the drugstore segment in 2013 with the
acquisitions of two regional chains in Mexico, Farmacias
YZA and Farmacias FM Moderna, leveraging our consumer
know-how and small-box retail expertise to enhance the
FEMSA Comercio value proposition with the addition of
pharmaceutical and health and beauty products.

We made an additional two acquisitions in 2015 to advance
our growth strategy in this segment: Farmacon, which
operates over 200 stores in Mexico, and a majority stake in
Socofar, which operates over 640 Cruz Verde drugstores
and 150 Maicao beauty stores in Chile, and 150 drugstores
in Colombia. Combined with our Farmacias YZA and
Farmacias FM Moderna units, we now operate more than
1,900 drugstores and beauty stores in our markets today,
an almost 220% jump from 2014. We see this segment as an
important driver of our capital allocation and international
growth strategy, representing an opportunity to consolidate
another fragmented industry adjacent to our core.

Profitable growth
is driven by scale
and operating
leverage

Celebrating a major milestone

At OXXO, we surpased the 10,000 store mark
after opening 1,040 new stores in 2013.

2013creating stories22

In the quick-service restaurant category, we hold a majority
stake in Doña Tota, a regional chain with over 200 sites
in Mexico and the United States that enjoys strong brand
recognition in its territories.

A key growth driver

Growth at FEMSA Comercio’s Retail Division has been
sustained and disciplined, outpacing the industry. It
comprises a growing share of FEMSA’s total revenues and
EBITDA, and while the operating and financial structure
is changing as we add new formats and geographies,
the benefits of scale and operating leverage ensure that
continued expansion will drive long-term value.

2015 was another year of healthy growth, driven by new
store openings, the acquisitions of Farmacon and Socofar,
and continued improvement in Mexico’s consumption
environment, particularly in the north of the country in
parallel with the region’s manufacturing-driven economic
gains, and in-store innovations.

Total revenues rose a strong 21.2% in 2015, to Ps. 132.9 billion.
Organic revenues, which exclude non-comparable results
from acquisitions made in the past twelve months, increased
a solid 14.1%. Same store sales rose an average of 6.9% over
2014, driven by a 5.1% increase in average customer ticket
and a 1.7% increase in store traffic.

Gross profit increased 20.1% year over year, while gross
margin contracted by 30 percentage points to 35.6%
primarily reflecting the integration of Socofar and Farmacon.
Similarly, income from operations increased 25.6% to
Ps. 10.9 billion, while the operating margin increased
30 percentage points.

Same stores sales
increased an
average of 6.9%
over 2014

Drugstores are a new business

We acquired two drugstore chains in
Mexico: Farmacias YZA the Yucatan
based leader in the south eastern region
of the country, and
Farmacias FM Moderna,
leader in Sinaloa,
leveraging our expertise
in small‑box retail to
develop new formats.

2013FEMSA Annual Report 2015creating stories

FEMSA Comercio
Fuel Division

Retail service stations: a compelling opportunity

Mexico’s regulatory framework for the energy sector was
amended in late 2013, opening up the market to investment
by companies such as FEMSA. We saw a clear growth
opportunity in the gas station business: not only for the
returns on capital it offered, but because of the seamless
alignment with our OXXO service model and ability to
leverage our brand equity and consumer knowledge.

Under the OXXO GAS brand, we differentiate ourselves
through service and trust. In addition to fuel, oil and
additives, we offer high quality services and products at
affordable prices, as well as exclusive promotions available
only to OXXO GAS clients.

We added 80 new gas stations during 2015, in addition to
the 227 gas stations acquired at the beginning of the year,
for a total of 307 sites year-end 2015, located in 14 states.
It remains a highly fragmented sector – our market share
is just over 2% today – but we are confident that as our
geographic footprint expands, preference for the OXXO
GAS brand will continue to grow as well.

FEMSA Comercio’s Fuel Division generated Ps. 18.5 billion
in revenues in 2015. Gross profit totaled Ps. 1.4 billion,
income from operations rose to Ps. 207 million with an
operating margin of 1.1% in the year.

OXXO GAS
Number of Gas Stations

307

creating stories2424

Coca-Cola FEMSA

A refreshing start

We founded our Business Unit Coca‑Cola
FEMSA with the creation of FEMSA Division
Refrescos in 1979.

1979FEMSA Annual Report 2015creating stories25
25

We are the largest franchise
bottler of Coca-Cola beverages
in the world, operating in
Latin America and Southeast
Asia, two of the most attractive
regions in the industry.
Facing an evolving consumer
landscape across our operations
and a complex business
environment in some of our key
markets, we are transforming
ourselves into a leaner, more
agile and efficient company by
continuously finding new ways
to enhance our operations and
better serve our consumers,
while never losing focus of our
core strategic capabilities.

Options for
every taste and
every occasion

% annual
growth

6.0

15.0

5.2

6.6

0.5

Beverage volume
million unit cases*

* One unit case equals 24 8-ounce bottles.

2,649

3,046

3,205

3,417

3,436

2015creating stories26

businesses. To do so, we leveraged the strength of our
brand portfolio and took local pricing initiatives in all of
our operations, extending our Magic Price Points strategy;
mitigated currency pressures through our hedging strategy;
focused extensively on point-of sale-execution as well
as expanded cooler coverage to strengthen consumer
engagement; and introduced portfolio innovations, including
a greater focus on returnables, to satisfy the evolving needs
of our consumers and to offer affordable alternatives.

While sparkling beverages still comprise the largest share
of our sales volume, long-term growth trends indicate that
still beverages, or Non-Carbonated Beverages (NCBs), will
drive an increasing share of future growth in the industry,
with consumption of dairy products specifically expected
to grow at an attractive rate in Latin America. To further
leverage this NCB opportunity, we are investing in our
relevant joint ventures and redefining the potential of
value-added dairy; one compelling example is the Santa
Clara portfolio of high-end dairy products in Mexico that is
growing at a double-digit pace.

Our efforts to transform challenges into opportunities
and achieve long-term value can be exemplified by our
franchises in Brazil and the Philippines.

In Brazil, despite difficult market conditions, we have
consolidated our position as the country’s leading
Coca-Cola bottler over the past three years, reaching close
to 40% of the Coca-Cola System’s volume in that country.

Total volume
growth 2015
vs 2011
(increase in mm
unit cases)

Total beverage
consumption
per capita
(8oz presentation)

Population
served
(million)

Mexico

Central
America

Colombia

Venezuela

Brazil

Argentina

Philippines

Total

71.9

21.9

46.7

72.1

12.2

101.8

357.6

418.1

23.5

67.9

45.8

208.3

23.2

786.9

596

188

164

182

231

460

123

296

FEMSA Annual Report 2015A story of expansion and growthOur remarkable expansion in recent years includes the acquisition of multiple franchises in new territories. We are a key strategic partner within the Coca-Cola System, with over 3.4 billion unit cases sold in 2015 through approximately 20.3 billion transactions. Our geographic footprint provides compelling opportunities for organic growth based on per capita consumption trends in most of our markets.Our growth also reflects the expansion and diversification of our product portfolio to include new lines and categories, innovative packaging options and returnable and non-returnable presentations to ensure we meet an ever broadening range of consumer needs for every occasion and at multiple price points. Thriving in a complex and evolving marketOur geographic footprint across ten countries provides us with the benefits of diversification. In 2015, for example, we saw a gradual recovery of consumption in Mexico, our largest market, and delivered solid results there, whereas our industry faced a number of headwinds elsewhere, including competitive pressures, changing consumer habits and significant depreciation among most Latin American currencies, putting pressure on our margins.Thus a key effort in the year was to consolidate our leadership position and protect the profitability of our 27

We acquired two key bottling franchises, modernized the
Jundiaí mega-plant—the world’s largest Coca-Cola bottling
facility, opened a new mega-distribution center in São Paulo
with voice picking and warehouse management systems,
and in 2015 opened our state-of-the-art bottling plant
in Itabirito, Brazil, built to LEED standards and already
yielding considerable cost savings and productivity gains.

Along with our Magic Price Points strategy in Brazil
for single-serve presentations of brand Coca-Cola, we
launched smaller one-way PET presentations and expanded
coverage of the 2-liter multi-serve returnable presentation
for both Coke and Fanta. Consumers are embracing our
comprehensive sparkling flavor strategy, including the

recently introduced premium Schweppes Guarana brand,
while in the non-carbonated beverage category, our Leao
FUZE tea brand platform and segmented juice offerings are
appealing to a broad range of consumers.

As a result of our portfolio strategy, strengthened supply
chain, and point-of-sale execution we closed the year with
historically high market share, and despite the sluggish
economy, our Brazilian operation delivered improved
margins for the year.

In the Philippines, we continued the profitable
transformation of the franchise that marked our strategic
expansion beyond Latin America just three years ago.

Non-carbonated
beverages are
expected to grow at
an attractive rate

The acquisition of Jugos del Valle

Jointly with The Coca‑Cola Company, we
acquired Jugos del Valle, a firm operating
in Mexico and Brazil. This consolidated our
position in non‑carbonated beverages.

2007creating storiescreating stories28

We streamlined the portfolio of predominantly returnable
glass bottles, focusing on the fastest moving SKUs; launched
Mismo, a popular 250- to 300-ml single-serve, one-way PET
presentation for on-the-go consumption of brand Coca-Cola,
Sprite, and Royal; and recently introduced Timeout, a taller,
slimmer 8-ounce, single-serve, returnable glass presentation
for brand Coca-Cola, offering a more competitive value
proposition for our clients and consumers.

We are also achieving a more balanced route to market
across the country with the rollout of our pre-sale platform,
notably in high-density urban areas, and the deployment of
a dedicated sales force for our wholesalers. Furthermore, we
strengthened our supply chain, modernizing our production
capacity, including the installation of four high-speed tri-
block bottling lines in our Manila and Mindanao facilities,
while gaining full control of distribution and logistics.

Our streamlined portfolio, more robust route to market and
enhanced supply chain capabilities yielded positive results
in the Philippines in 2015: our core sparkling beverage
portfolio generated 7.0% growth in consumer transactions
on top of 8.7% volume growth, while delivering profitable
financial results for the year.

Welcome the Philippines

We began our expansion beyond Latin
America in 2013 with the acquisition of
Coca‑Cola Bottlers Philippines Inc.

We are profitably
transforming our
franchise in the
Philippines

2013FEMSA Annual Report 201529

For the third consecutive year, Coca-Cola FEMSA was
the only beverage company selected to comprise the
Dow Jones Sustainability Emerging Markets Index and
one of only nine beverage corporations in the Dow Jones
Sustainability Index family.

Financial and operating performance

Reported total revenues increased 3.4% to Ps. 152.4
billion. Excluding the translation effects of exchange
rate movements and the results from hyperinflationary
economies, such as Venezuela, total revenues would have
grown rose 8.6%. This primarily reflected average price per
unit case growth across our operations and volume growth
in Mexico, Colombia, Argentina and Central America. The
comparable number of transactions rose slightly in the year
to 20.3 billion, compared to 20.1 billion in 2014, with still
beverages outpacing both the sparkling and water categories.

Reported gross profit grew 5.3% to Ps. 72.0 billion, with
gross margin expansion of 90 basis points. This was due
mainly to the benefit of lower sweetener and PET prices in
local currencies in most of our territories, coupled with our
currency hedging strategy that helped offset the effect of the
devaluation of most of our operations currencies. Reported
operating income increased 9.2% to Ps. 22.6 billion, with a
margin expansion of 80 basis points to 14.9%.

Advancing our transformation process

We embarked on an intensive multi-year process in 2014 to
create a leaner, more agile and flexible organization with the
right set of skills to drive our competitiveness, enhance our
innovation capabilities, accelerate our decision-making, and
prepare for the next wave of growth through an efficient and
effective management structure.

That transformation process continued in 2015, with the
following highlights in the period:

• The development of the KOFmmercial Digital Platform, a
flexible new platform that will drive a dramatic evolution
of our commercial processes; for example, it addresses
back office transformation, segmentation and sales force
automation, and predictive analytics. The platform will
be tested and rolled out in Mexico over the course of
2016 and deployed across all other markets thereafter.

• Manufacturing improvements and efficiencies, including
the inauguration of state-of-the-art bottling plants in
Tocancipa, Colombia and Itabirito, Brazil following
investments of approximately US$250 million and
US$258 million, respectively. We are implementing a new
Manufacturing Management Model that centralizes plant
maintenance planning and budgeting, including predictive
or preventative maintenance, and allows us to map critical
data from our production equipment and processes.

• Distribution improvements and efficiencies, such as

capacity optimization through cross-docks and cross-
trucks and the redesign of our secondary trucks to
increase efficiency.

creating stories30

Sustainability

Pioneers in promoting
health services

The Cuauhtémoc Brewery provided
health services to our workforce
free of charge, prior to the
advent of the Mexican
government ’s social security
system (Instituto Mexicano
del Seguro Socia) IMSS.

2015FEMSA Annual Report 20151918creating storiesAdvancing our sustainability efforts

Deeply embedded within our mission is the commitment to
create social value alongside economic value, ensuring that all
our stakeholders thrive, today and for generations to come.

Coca-Cola FEMSA improved its
efficiency of liters of water used
per liter of beverage produced by
10% compared to 2010.

• Expand the use of renewables for our energy requirements.
A key corporate milestone this year was the start-up in
Mexico of the Dominica II wind farm, advancing our
commitment to incorporate renewable energy in our
energy mix and contribute to the international effort
to reduce CO2e emissions. Dominica II, Bii Nee Stiipa,
Stiipa Naya and Ventika II- the latter is currently under
construction and is projected to begin operations in 2016-
will supply approximately 25% of the annual electricity
needs to our facilities in Mexico, providing environmental
benefits and reducing our energy costs.

In December we announced FEMSA´s adherence to
COP 21, with a commitment to source 85% of our energy
needs (based on 2010 levels) from clean energy by 2020.

Our Community

We believe that thriving communities are a better place to
live and do business. We seek to learn from and connect
with our communities in order to strengthen and
develop them. Total 2015 investment: Ps. 369.8 million
(US$ 21.5 million).

Our focus in 2015:

• Develop and pilot test a standardized methodology

for community relations and local risk management,
conducted as a collaborative effort between FEMSA and
the Business Units.

The use of a rigorous methodology to identify, evaluate and
consistently address community needs should enable us
to deliver measurable positive impact over the long term.
In 2015, we fine-tuned our approach: leveraging internal
capabilities by empowering our people to engage locally;
establishing alliances to achieve specific aims; and supporting
social programs that enhance self-sufficiency skills.

Our People

It is our employees who materialize our goals, and we
aspire to become the best place for them to work. We seek
to promote their personal and professional development,
with a work environment that inspires and motivates them.
We see volunteerism as an integral component of personal
development and citizenship. Total 2015 investment:
Ps. 1.2 billion (US$ 67 million).

Our focus in 2015:

• Strengthen our Comprehensive Talent Management

Model to institutionalize our people policies, processes
and systems.

• Reinforce our work culture and leadership model; to
do so we surveyed 35,000 employees and conducted
interviews, workshops and focus groups across the
organization to assess our organizational health and
define initiatives for each business unit. We continued
building a talent planning roadmap to meet future
business requirements.

Occupational safety and health remain a permanent
priority, with a decrease in indices of accidents and general
diseases in 2015 compared to 2014

Our Planet

We seek to minimize the environmental impact of our
operations through greater operating efficiency, with each
business unit focusing on the environmental issues most
material to its stakeholders and sustainability goals. Total
2015 investment: Ps. 800.2 million (US$ 46.5 million).

Our focus in 2015:

• Determine the priority of our actions to reduce impact

at the business unit level. As a part of our Environmental
Profit and Loss Analysis made in 2014 we will be
working to map the environmental footprint of our
clients and consumers. With these inputs we began to
update our Environmental Strategy that will incorporate
and amplify our relations beyond our operations.

3 million people have
access to banking thanks
to the services offered
by OXXO

We invite you to read our 2015 Sustainability Report on our website at:
http://www.sustainabilityreport.femsa.com/index.html

creating stories

FEMSA Foundation

Origins of FEMSA Foundation

FEMSA Foundation is created as the
Company’s instrument for social
investement, focused on the
solution of long‑term problems
regarding water and nutrition,
through education, science
and technology.

20152008FEMSA Annual Report 2015creating stories33

capacities to manage water resources in the region. In 2015,
the Center began development of its Decision Making
Theater, which will support key water professionals and
authorities with vital data.

Other highlights this year included:

• Published “Water and Cities in Latin America: Challenges

for Sustainable Development.”

• Launched Water for the Future to protect more than
6,000 hectares and return over 6.9 million m3 of water
to nature in Latin America.

• Partnered with Cuauhtémoc Moctezuma Heineken

Mexico to develop their water balancing strategy and
implementation plan for Mexico.

Nutrition

We support healthy nutritional habits and lifestyles through
education programs increasingly focused on infants and
young children, where early good habit formation and
prevention of nutritional deficits can have a significantly
positive impact on their future.

We also fund advanced research on the relationship
between food, genetics and the prevention of malnutrition-
related illnesses; emergent food technologies and
bioprocesses; and genetic design and generation of new
products. We partner with experienced international
organizations, universities and other entities from the public
and private sector.

Highlights in the year include:

• Reached over 40,500 children, youths, teachers and parents
in Mexico, Guatemala, Nicaragua, Colombia and Argentina
on topics such as breastfeeding, healthy cooking methods,
fruit and vegetable consumption, and exercise.

• Partnered with the Sesame Street Workshop and

other international organizations for an online and TV
educational platform.

• Supported R&D for a non-invasive diabetes detection test
and low-cost nutritional supplements, among others.

We published the landmark book
“Water & Cities” in conjunction
with renowned water experts
such as SIWI, UNDP and CAF

The FEMSA Foundation is our instrument for social
investment, focusing on two main areas: water and
nutrition. It is governed by its own Board of Directors,
and aims to create lasting impacts through high-level
international partnerships that leverage the benefits we
bring to communities and increase the social return on our
investments. In 2015 we secured over Ps.343.46 million
(USD $21.61 million) in partner investments, an additional
USD $3.42 for every dollar we invested in the year.

Water

We address water issues in Latin America through three main
initiatives: watershed sustainability; improved water access,
sanitation, and hygiene in communities; and supporting and
bettering water-related decision-making processes.

In watershed sustainability we work alongside several
international partners to provide seed capital for regional
Water Funds that serve as transparent financial and
governance mechanisms for sustainable watershed
management. We currently support 19 Water Funds in the
region, which in turn help ensure the health of over 1.7
million hectares of watersheds via more than USD $10.58
million invested in their long-term conservation.

To address water and sanitation we collaborate with the
Millennium Water Alliance and Coca-Cola Company Latin
America through our Water Links program, which has
worked in rural areas of Mexico, Nicaragua, Guatemala,
Honduras and Colombia for the past three years.

Through the Water Center for Latin America and the
Caribbean, and in collaboration with Tecnológico de
Monterrey and the Inter-American Development Bank,
we have trained over 450 water professionals to improve

40,500+ children and
adults benefited by FEMSA
Foundation and its partners
across Latin America

For more information about FEMSA Foundation, please visit:
http://www.femsafoundation.org/report2015

creating stories34

Executive Team

Our management team is committed to creating economic, social and environmental value
for our stakeholders. The combined experience of these executives –often across multiple
Business Units and roles within FEMSA –ensures a deep understanding of the challenges
and opportunities we face, as well as the rich culture and values upholding the organization.

José Antonio Fernández Carbajal
Executive Chairman of the Board

Mr. Fernández joined FEMSA
in 1988, serving in various roles
including CEO of OXXO. He was
appointed CEO of FEMSA in
1995 and Chairman of the Board
in 2001, serving in both positions
until January 2014. He is Vice-
Chairman of the Heineken N.V.
Supervisory Board and member
of the Heineken Holding N.V.
Board. Mr. Fernández also serves
as Chairman of the Board of
Coca-Cola FEMSA, FEMSA
Foundation, Tecnológico de
Monterrey, and the US-Mexico
Foundation. He is a member of
the Board of Industrias Peñoles
and Grupo Televisa, and co-
chairs the Mexico Institute of the
Woodrow Wilson Center. His
degree in Industrial Engineering
and Systems and MBA were both
earned from Tecnológico de
Monterrey.

Carlos Salazar Lomelín
Chief Executive Officer

Mr. Salazar was appointed
Chief Executive Officer in 2014
following his tenure as CEO of
Coca-Cola FEMSA since 2000,
and prior to that as CEO of
FEMSA Cerveza. He has also
held various management roles
in other FEMSA subsidiaries,
including Grafo Regia and
Plásticos Técnicos Mexicanos.
Mr. Salazar is member of
the Advisory Board of the
Tecnológico de Monterrey’s
EGADE Business School. He
holds a BA in Economics and
an MBA from Tecnológico
de Monterrey and pursued
graduate studies in Economic
Development in Italy.

Daniel Alberto Rodríguez Cofré
Chief Financial and Corporate
Officer (Chief Executive Officer
of FEMSA Comercio as of
January 2016)

Mr. Rodríguez, who joined
FEMSA in 2015 as Corporate
Vice President, has a long
track record in senior finance
and management positions in
Latin America, Europe and
Africa, having served as CFO
of Shell South America and
Global CFO of one of Shell’s
operating divisions. He was
appointed Chief Financial
Officer of CENCOSUD (Centros
Comerciales Sudamericanos S.A.)
in 2008, and from 2009 to 2014
served as that company’s CEO.
He is a member of the Board of
Directors of Coca-Cola FEMSA
and an alternate member of the
Board of FEMSA. Mr. Rodríguez
holds a forest engineering degree
from Austral University of Chile
and an MBA from Adolfo Ibañez
University.

Javier Gerardo Astaburuaga
Sanjines
Vice President of Corporate
Development

Mr. Astaburuaga joined FEMSA
in 1982. His roles in the company
have included co-CEO of
FEMSA Cerveza, Director of
Sales for Northern Mexico, CFO
of FEMSA Cerveza, and Chief
Financial and Corporate Officer
of FEMSA. He was appointed
to his current position in April
2015. Mr. Astaburuaga earned
his Bachelor’s degree in Public
Accounting from Tecnológico
de Monterrey.

Alfonso Garza Garza
Vice President of Strategic
Businesses

Mr. Garza joined FEMSA
in 1985 and held various
positions including CEO of
FEMSA Empaques. In 2012 he
was appointed to his current
position. From 2011 to 2013,
he served as President of the
Employers Confederation of
Mexico (COPARMEX) for the
state of Nuevo León, and has
been National Vice President of
this organization since 2009. In
2009 he was appointed Chairman
of the Talent and Culture
Committee of Tecnológico
de Monterrey. He also serves
as a member of the Board of
Directors of Coca-Cola FEMSA
and Tecnológico de Monterrey.
Mr. Garza earned a Bachelor’s
degree in Industrial Engineering
from Tecnológico de Monterrey
and completed postgraduate
coursework at IPADE.

Genaro Borrego Estrada
Vice President of Corporate Affairs

Mr. Borrego joined FEMSA in
2008. Prior to that, he served
as Governor of the Mexican
State of Zacatecas (1986-1992),
and from 1993-2000 he led the
Mexican Social Security Institute
(IMSS). In 2000, he was elected
as a Senator of the Federal
Congress to represent the State
of Zacatecas. He holds a degree
in Industrial Relations from
Universidad Iberoamericana.

José González Ornelas
Vice President of Administration
and Corporate Control

Mr. González assumed his
current position in 2001. He first
joined the company in 1973 and
served in various roles in the
organization, including CFO of
FEMSA Cerveza and Director
of Planning and Corporate

Development of FEMSA. In 1997,
he was appointed CEO of FEMSA
Logística. He serves as Secretary
of the Audit Committee of
both FEMSA’s and Coca-Cola
FEMSA’s boards, and member
of the Board of Directors of
Productora de Papel, S.A. He
holds a BA in Accounting
from Universidad Autónoma
de Nuevo León and completed
postgraduate courses in Business
Administration from IPADE.

John Anthony Santa Maria
Otazúa
Chief Executive Officer of
Coca-Cola FEMSA

Mr. Santa Maria was appointed
to his current position in 2014,
having joined Coca-Cola FEMSA
in 1995 and serving in several
senior management positions in
the interim, including COO of
the company’s Mexico Division,
Strategic Planning and Business
Development Officer. Mr. Santa
Maria earned a Bachelor´s
degree and an MBA with a
major in Finance from Southern
Methodist University.

Eduardo Padilla Silva
Chief Executive Officer of FEMSA
Comercio (Chief Financial and
Corporate Officer of FEMSA as of
January 2016)

Mr. Padilla joined FEMSA in
1997 as FEMSA’s Director of
Planning and Control, was
appointed CEO of FEMSA
Strategic Procurement in 2000,
and CEO of FEMSA Comercio
in 2004. Prior to joining FEMSA,
Mr. Padilla served as CEO of
Terza, S.A. de C.V., a subsidiary
of Grupo ALFA. Mr. Padilla
earned a Bachelor’s degree in
Mechanical Engineering from
Tecnológico de Monterrey and
an MBA from Cornell University.
He also holds a Master’s degree
from IPADE.

FEMSA Annual Report 201535

Corporate Governance

Our Board of Directors pursues the highest standards of corporate governance, with a
commitment to quality, accuracy and reliability in our disclosure practices, financial
transparency, accountability, and the highest ethical standards. We adhere to best corporate
governance policies and practices; specifically, we comply with the standards set forth in the
Mexican Securities Law (Ley del Mercado de Valores) and the applicable provisions of the
Sarbanes-Oxley Act (United States of America). We were among the first in our industry
to embrace the Code of Best Corporate Governance Practices established by the Mexican
Entrepreneurial Council.

The following committees support the work of the Board of Directors:

Audit Committee
The Audit Committee is responsible for (i) reviewing the
accuracy and integrity of quarterly and annual financial
statements in accordance with accounting, internal
control and auditing requirements; (ii) the appointment,
compensation, retention, and oversight of the independent
auditor, who reports directly to the Audit Committee; and
(iii) identifying and following up on contingencies and
legal proceedings.

The Audit Committee has implemented procedures for
receiving, retaining, and addressing complaints regarding
accounting, internal control, and auditing matters, including
the submission of confidential, anonymous complaints from
employees regarding questionable accounting or auditing
matters. To carry out its duties, the Audit Committee may
hire independent counsel and other advisors. As necessary,
the company compensates the independent auditor and any
outside advisor hired by the Audit Committee and provides
funding for ordinary administrative expenses incurred by
the Audit Committee in the course of its duties.

As required by Mexican Securities Law and applicable
NYSE listing standards, all committee members are
independent directors. The members of the committee are:
José Manuel Canal Hernando (Chairman and financial
expert), Francisco Zambrano Rodriguez, Alfonso González
Migoya and Ernesto Cruz Velázquez de León. The Secretary
(non-member) is José González Ornelas.

Corporate Practices Committee
The Corporate Practices Committee is responsible for
preventing or reducing the risk of performing transactions
that could damage the value of our company or that could
benefit a particular group of shareholders. The committee
may call a shareholders’ meeting and include matters on the
agenda for that meeting as it may deem appropriate. They
are also responsible for the approval of policies for the use
of the company’s assets or related party transactions, the
approval of the compensation of the Chief Executive Officer
and relevant officers, and support our Board of Directors in
the preparation of reports on accounting practices.

As required by Mexican Securities Law, each member of the
Corporate Practices Committee is an independent director.
The members of the committee are: Alfredo Livas Cantú
(Chairman), Robert E. Denham, Moisés Naím and Ricardo
Saldívar Escajadillo. The Secretary (non-member) is Javier
Astaburuaga Sanjines.

Finance & Planning Committee
The Finance and Planning Committee’s responsibilities
include (i) evaluating the investment and financing policies
proposed by the Chief Executive Officer; and (ii) evaluating
risk factors to which the corporation is exposed, as well as
its management policies. The members of the committee
are: Ricardo Guajardo Touché (Chairman), Federico Reyes
García, Robert E. Denham, Francisco Javier Fernández
Carbajal and Alfredo Livas Cantú. The Secretary (non-
member) is Javier Astaburuaga Sanjines.

For more information on how our corporate governance practices
differ from those of United States companies under NYSE listing
standards, please refer to the Corporate Governance section of our
website: www.femsa.com/investor.

creating storiesSecretary

Carlos Eduardo Aldrete Ancira

Alternate Secretary

Arnulfo Treviño Garza

FEMSA Annual Report 2015

Board Of Directors

The Board is guided by the long-term interests of our company’s shareholders and other
stakeholders. Members are responsible for determining corporate strategy; defining
and overseeing the implementation of vision and values; and approving related-party
transactions and transactions not in the ordinary course of business.

Series “B” Directors
José Antonio Fernández Carbajal
Executive Chairman of the Board
of Fomento Económico Mexicano,
S.A.B. de C.V.

Elected 1984
Alternate: Federico Reyes Garcíac

Mariana Garza Lagüera Gonda
Private Investor

Elected 1998
Alternate: Eva María Garza
Lagüera Gonda

Paulina Garza Lagüera Gonda
Private Investor

Elected 1999
Alternate: Othón Páez Garza

José Fernando Calderón Rojas
Chief Executive Officer and
Chairman of the Boards of
Directors of Franca Servicios, S.A.
de C.V., Servicios Administrativos
de Monterrey, S.A. de C.V., Regio
Franca, S.A. de C.V., and Franca
Industrias, S.A. de C.V.

Elected 1984
Alternate: Francisco José
Calderón Rojas

Consuelo Garza de Garza
Founder and Former President,
Asociación Nacional Pro-
Superación Personal, A.C. (a NGO)

Elected 1995
Alternate: Alfonso Garza Garza

Max Michel Suberville
(✝ February 2016)
Investor

Elected 1985
Alternate: Max Michel González

Alberto Baillères González
Chairman of the Board of Grupo
BAL companies, Chairman of the
Governance Board of the Instituto
Tecnológico Autónomo de México
(ITAM)

Elected 1989
Alternate: Arturo Fernández
Pérez

Francisco Javier Fernández
Carbajal c
Chief Executive Officer of Servicios
Administrativos Contry, S.A. de
C.V.

Elected 2004
Alternate: Javier Astaburuaga
Sanjines b, c

Ricardo Guajardo Touché c, i
Chairman of the Board of Solfi, S.A.
de C.V.

Elected 1988
Alternate: Alfonso González
Migoya a, i

Alfredo Livas Cantú b, c, i
President of Praxis Financiera, S.C.

Elected 1995
Alternate: Sergio Deschamps
Ebergenyi i

Bárbara Garza Lagüera Gonda
Private Investor, President of
the Acquisitions Committee of
Colección FEMSA

Elected 1998
Alternate: Juan Guichard Michel

Carlos Salazar Lomelín
Chief Executive Officer of FEMSA

Elected 2014
Alternate: Eduardo Padilla Silva

Ricardo Saldívar Escajadillo b,i
President of the Board of Directors
and Chief Executive Officer of The
Home Depot Mexico

Elected 2006
Alternate: Alfonso de Angoitia
Noriega i

Series “D” Directors
Armando Garza Sada i
Chairman of the Board of Grupo
Alfa, S.A.B. de C.V.

Elected 2003
Alternate: Enrique F. Senior
Hernández i

Moisés Naímb, i
Distinguished Fellow at the
Carnegie Endowment for
International Peace, producer and
host of Efecto Naím, author and
journalist

Elected 2011
Alternate: Francisco Zambrano
Rodríguez a, i

José Manuel Canal Hernando a, i
Independent Consultant

Elected 2003

Michael Larson i
Chief Investment Officer for
William H. Gates III

Elected 2010
Alternate Director: Daniel
Alberto Rodríguez Cofré

Robert E. Denham b, c, i
Partner at Munger, Tolles & Olson,
LLP (law firm)

Elected 2001
Alternate Director: Ernesto Cruz
Velázquez de León a, i

a Audit Committee

b Corporate Practices Committee

c Finance & Planning Committee

Independent Director

FEMSA Annual Report 2015

creating stories

Consolidated
Financial
Statements

Contents

Financial Summary

Management’s Discussion and Analysis

Audit Committee Annual Report

Independent Auditors’ Report

Consolidated Statements of Financial Position

Consolidated Income Statements

Consolidated Statements of Comprehensive Income

Consolidated Statements of Changes in Equity

Consolidated Statements of Cash Flows

Notes to the Consolidated Financial Statements

Headquarters

114

creating stories

FEMSA Annual Report 2015

Financial Summary

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES
MONTERREY, N.L., MEXICO

Amounts expressed in millions of Mexican pesos (Ps.)
as of December 31:

(2)

Income Statement
Net sales
Total revenues
Cost of goods sold
Gross profit
Operating expenses
Income from operations
Other non-operating expenses (income), net
Financing expenses, net
Income before income taxes and share of the profit
of associates and joint ventures
accounted for using the equity method
Income taxes
Share of the profit of associates and joint ventures accounted for
using the equity method, net of taxes
Consolidated net income
Controlling Interest
Non-Controlling Interest
Ratios to total revenues (%)
Gross margin
Operating margin
Consolidated net income
Other information
Depreciation
Amortization and other non cash charges

to income from operations
Operative Cash Flow (EBITDA)
Capital expenditures

(3)

2015

2014

2013

2012

Ps.

310,849
311,589
188,410
123,179
89,444
33,735
954
7,618

Ps. 262,779
263,449
153,278
110,171
80,188
29,983
(508)
6,988

25,163
7,932

6,045
23,276
17,683
5,593

39.5%
10.8%
7.5%

9,761

3,130
46,626
18,885

23,503
6,253

5,380
22,630
16,701
5,929

41.8%
11.4%
8.6%

9,029

1,933
40,945
18,163

256,804
258,097
148,443
109,654
79,797
29,857
326
4,249

25,282
7,756

4,629
22,155
15,922
6,233

42.5%
11.6%
8.6%

8,805

1,208
39,870
17,882

Ps.

236,922
238,309
137,009
101,300
72,073
29,227
(345)
1,904

27,668
7,949

8,332
28,051
20,707
7,344

42.5%
12.3%
11.8%

7,175

1,278
37,680
15,560

2011 (1)

200,426
201,540
117,244
84,296
59,812
24,484
625
196

23,663
7,618

4,856
20,901
15,332
5,569

41.8%
12.1%
10.4%

5,694

1,320
31,498
12,609

FEMSA Annual Report 2015

creating stories

Balance Sheet
Assets
Current assets

Investments in associates and joint ventures
Property, plant and equipment, net
Intangible assets,net

(4)

Other assets, net
Total assets
Liabilities

Short-term bank loans and current portion of
long-term bank loans and notes payable

Other current liabilities

Long-term bank loans and notes payable
Post-employment and other long-term employee benefits

Deferred tax liabilities
Other long-term liabilities
Total liabilites
Total equity
Controlling interest
Non-controlling interest
Financial ratios (%)

Liquidity
Leverage
Capitalization
Data per share
Controlling interest book value
Net controlling interest income
Dividends paid

(7)

(5)

(6)

Series B shares
Series D shares
Number of employees
Number of outstanding shares

(8)

(9)

2015

2014

2013

2012

2011 (1)

86,723
111,731
80,296
108,341
22,241
409,332

5,895
59,451
85,969
4,229
6,230
5,702
167,476
241,856
181,524
60,332

1.327
0.692
0.28

10.146
0.988

79,112
102,159
75,629
101,527
17,746
376,173

1,553
47,766
82,935
4,207
3,643
5,947
146,051
230,122
170,473
59,649

1.604
0.635
0.27

9.528
0.933

73,569
98,330
73,955
103,293
10,045
359,192

3,827
45,042
72,921
4,074
2,993
7,785
136,642
222,550
159,392
63,158

1.505
0.614
0.26

8.909
0.890

75,455
83,840
61,649
67,893
7,105
295,942

8,702
39,814
28,640
3,675
700
4,250
85,781
210,161
155,259
54,902

1.555
0.408
0.16

8.678
1.157

59,983
78,643
54,563
63,030
7,143
263,362

5,573
33,752
23,819
2,584
414
5,049
71,191
192,171
144,222
47,949

1.525
0.370
0.14

8.061
0.857

0.366
0.458
246,158
17,891.13

0.000
0.000
216,740
17,891.13

0.667
0.833
209,232
17,891.13

0.309
0.386
182,260
17,891.13

0.229
0.287
168,370
17,891.13

(1) 2011 figures were restated for comparison with 2015, 2014, 2013 and 2012 as a result of transition to International Financial Reporting Standards (IFRS).
(2)

Company’s key performance indicator.
Includes investments in property, plant and equipment, as well as deferred charges and intangible assets.
Includes bottles and cases.

(3)
(4)
(5) Controlling interest divided by the total number of shares outstanding at the end of each year.
(6) Net controlling interest income divided by the total number of shares outstanding at the end of the each year.
(7)

Expressed in nominal pesos of each year.
Includes incremental employees resulting from mergers & acquisitions made during the year.

(8)
(9) Total number of shares outstanding at the end of each year expressed in millions.

FEMSA Annual Report 2015

creating stories

Management’s Discussion and Analysis

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES, MONTERREY, N.L., MEXICO

AUDITED FINANCIAL RESULTS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2015
COMPARED TO THE TWELVE MONTHS ENDED DECEMBER 31, 2014.

Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) is a Mexican holding company. Set forth
below is certain audited financial information for FEMSA and its subsidiaries (the “Company” or
“FEMSA Consolidated”) (NYSE: FMX; BMV: FEMSA UBD). The principal activities of the Company are
grouped mainly under the following subholding companies (the “Subholding Companies”): Coca-Cola
FEMSA, S.A.B de C.V. (“Coca-Cola FEMSA” or “KOF”), (NYSE: KOF, BMV: KOFL) which engages in
the production, distribution and marketing of beverages, and FEMSA Comercio, S.A. de C.V. (“FEMSA
Comercio”), including its Retail Division which operates small-format chain stores and its Fuel Division
which operates retail service stations for fuels, motor oils and others, the latter of which, as of December
31, 2015 , is treated as a separate business segment called Fuel Division.

The consolidated financial information included in this annual report was prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”).

The 2015 and 2014 results are stated in nominal Mexican pesos (“pesos” or “Ps.”). Translations of pesos
into US dollars (“US$”) are included solely for the convenience of the reader and are determined using the
noon buying rate for pesos as published by the U.S. Federal Reserve Board in its H.10 Weekly Release of
Foreign Exchange Rates as of December 31, 2015, which was 17.1950 pesos per US dollar.

This report may contain certain forward-looking statements concerning Company’s future performance
that should be considered good faith estimates made by the Company. These forward-looking statements
reflect management expectations and are based upon currently available data. Actual results are subject
to future events and uncertainties, which could materially impact the Company’s actual performance.

FEMSA Consolidated
2015 amounts in millions of Mexican pesos

Total Revenues % Growth vs ‘14 Gross Profit % Growth vs ‘14

FEMSA Consolidated
Coca-Cola FEMSA
FEMSA Comercio – Retail Division
FEMSA Comercio – Fuel Division

311,589
152,360
132,891
18,510

18.3%
3.4%
21.2%
N/A

123,179
72,030
47,291
1,420

11.8%
5.3%
20.1%
N/A

FEMSA’s consolidated total revenues increased 18.3% to Ps. 311,589 million in 2015 compared to Ps.
263,449 million in 2014. Coca-Cola FEMSA’s total revenues increased 3.4% to Ps. 152,360 million, driven
by the local currency average price per unit case growth in all of their operations and volume growth
in Mexico, Central America, Colombia and Argentina. FEMSA Comercio – Retail Division’s revenues
increased 21.2% to Ps. 132,891 million, driven by the integration of Socofar and the opening of 1,208 net
new OXXO stores combined with an average increase of 6.9% in same-store sales. FEMSA Comercio –
Fuel Division amount to Ps. 18,510 million in 2015.

Consolidated gross profit increased 11.8% to Ps. 123,179 million in 2015 compared to Ps. 110,171 million
in 2014. Gross margin decreased 230 basis points to 39.5% of consolidated total revenues compared to
2014, reflecting the incorporation of FEMSA Comercio – Fuel Division, which has a lower margin than
the rest of FEMSA’s business units, and a margin contraction at FEMA Comercio – Retail Division driven
by the integration of Socofar.

Consolidated operating expenses increased 11.5% to Ps. 89,444 million in 2015 compared to Ps. 80,188
million in 2014. As a percentage of total revenues, consolidated operating expenses decreased from 30.4%
in 2014 to 28.7% in 2015.

FEMSA Annual Report 2015

creating stories

Consolidated administrative expenses increased 14.3% to Ps. 11,705
million in 2015 compared to Ps. 10,244 million in 2014. As a percentage
of total revenues, consolidated administrative expenses decreased 10
basis points, from 3.9% in 2014, compared to 3.8% in 2015.

Consolidated selling expenses increased 10.7% to Ps. 76,375 million
in 2015 as compared to Ps. 69,016 million in 2014. As a percentage
of total revenues, selling expenses decreased 160 basis points, from
26.1% in 2014 to 24.5% in 2015.

Consolidated income from operations increased 12.5% to Ps. 33,735
million in 2015 as compared to Ps. 29,983 million in 2014. As a
percentage of total revenues, operating margin decreased 60 basis
points, from 11.4% in 2014 to 10.8% in 2015.

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.

Net financing expenses increased to Ps. 7,618 million from Ps. 6,988
million in 2014, driven by an interest expense of Ps. 7,777 million in
2015 compared to Ps. 6,701 million in 2014 resulting from higher
interest expenses at Coca-Cola FEMSA Brazil, following the reset of
terms of certain cross-currency swaps related to the acquisition of
Spaipa and Fluminense in 2013.

Income before income taxes and share of the profit in Heineken
results increased 7.1% to Ps. 25,163 million in 2015 compared with
Ps. 23,503 million in 2014, mainly as a result of growth in FEMSA’s
income from operations, which more than compensated higher
financing expenses.

Our accounting provision for income taxes in 2015 was Ps. 7,932
million, as compared to Ps. 6,253 million in 2014, resulting in an
effective tax rate of 31.5% in 2015, as compared to 26.6% in 2014, in
line with our expected medium term range of low 30’s. The lower
effective tax rate registered during 2014 is mainly related to a one-
time benefit resulting from the settlement of certain contingent tax
liabilities under the tax amnesty program offered by the Brazilian tax
authorities, which was registered during 2014.

Consolidated net income was Ps. 23,276 million in 2015 compared to
Ps. 22,630 million in 2014, resulting from growth in FEMSA’s income
from operations and an increase in FEMSA’s 20% participation in
Heineken’s results, which more than compensated for higher interest
expenses. Controlling interest amounted to Ps. 17,683 million in 2015
compared to Ps. 16,701 million in 2014. Controlling interest in 2015
per FEMSA Unit was Ps. 4.94 (US$ 2.87 per ADS).

Coca-Cola FEMSA
Coca-Cola FEMSA total revenues increased 3.4% to Ps. 152,360
million in 2015, as compared to 2014, despite the negative translation
effect resulting from using the SIMADI exchange rate to translate
the results of their Venezuelan operation and the depreciation of the
Brazilian real, Colombian peso, the Mexican peso and the Argentine
peso. On a currency neutral basis and excluding Venezuela, total
revenues grew 8.6%, driven by the growth of the average price per
unit case in all the operations and volume growth in Mexico, Central
America, Colombia and Argentina.

Coca-Cola FEMSA gross profit increased 5.3% to Ps. 72,030 million
in 2015, as compared to 2014, with a gross margin expansion of 90
basis points. In local currency, the benefit of lower sweetener and
PET prices, in combination with their currency hedging strategy,
was partially offset by the depreciation of the average exchange rate
of the Brazilian real, the Colombian peso, the Mexican peso and
the Argentine peso as applied to our U.S. dollar-denominated raw
material costs. Gross margin reached 47.3% in 2015.

The components of cost of goods sold include raw materials
(principally concentrate, sweeteners and packaging materials),
depreciation costs attributable to our production facilities, wages and
other employment costs associated with labor force employed at our
production facilities and certain overhead costs. Concentrate prices
are determined as a percentage of the retail price of our products
in the local currency, net of applicable taxes. Packaging materials,
mainly PET and aluminum, and HFCS, used as a sweetener in some
countries, are denominated in U.S. dollars.

Operating expenses increased 3.7% to Ps. 49,386 million in 2015
compared with Ps. 47,639 million in 2014.

Administrative expenses increased 0.3% to Ps. 6,405 million in 2015,
compared with Ps. 6,385 million in 2014. Selling expenses increased
3.5% to Ps. 41,879 million in 2015 compared with Ps. 40,465 million
in 2014.

Income from operations increased 9.2% to Ps. 22,645 million in 2015
compared with Ps. 20,743 million in 2014.

FEMSA Comercio – Retail Division
FEMSA Comercio – Retail Division total revenues increased 21.2% to
Ps. 132,891 million in 2015 compared to Ps. 109,624 million in 2014,
primarily as a result of the opening of 1,208 net new OXXO stores
during 2015, together with an average increase in same-store sales
of 6.9%, as well as the incremental revenues from the acquisitions of
Socofar and Farmacon drugstores in Chile and Mexico, respectively.
As of December 31, 2015, there were a total of 14,061 OXXO stores.
As referenced above, OXXO same-store sales increased an average of

FEMSA Annual Report 2015

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6.9% compared to 2014, driven by a 5.1% increase in average customer
ticket while store traffic increased 1.7%.

Cost of goods sold increased 21.9% to Ps. 85,600 million in 2015,
compared with Ps. 70,238 million in 2014. Gross margin contracted
30 basis points to reach 35.6% of total revenues. This decrease was
mainly driven by the integration of Socofar and Farmacon drugstores,
both of which have a lower gross margins than the OXXO operations.
As a result gross profit increase 20.1% to Ps. 47,291 million in 2015
compared with 2014.

Operating expenses increased 18.5% to Ps. 36,393 million in 2015
compared with Ps. 30,706 million in 2014. The increase in operating
expenses was driven by (i) expenses related to the incorporation of
the new drugstore operations, Socofar and Farmacon, (ii) the strong
organic growth in new stores across formats and (iii) the strengthening
of FEMSA Comercio’s business and organizational structure in
preparation for the growth of new operations, particularly drugstores.

Administrative expenses increased 40.5% to Ps. 2,868 million in 2015,
compared with Ps. 2,042 million in 2014; as a percentage of sales, they
reach 2.2%. Selling expenses increased 16.9% to Ps. 33,305 million in
2015 compared with Ps. 28,492 million in 2014.

Income from operations increased 25.6% to Ps. 10,898 million in 2015
compared with Ps. 8,680 million in 2014, resulting in an operating
margin expansion of 30 basis points to 8.2% as a percentage of total
revenues for the year, compared with 7.9% in 2014.

FEMSA Comercio – Fuel Division
The operations that comprise the FEMSA Comercio – Fuel Division
were integrated in 2015. As such, no results of operation are available
for this segment for periods prior to 2015.

FEMSA Comercio – Fuel Division total revenues amounted to Ps.
18,510 million in 2015.

Cost of goods sold reached Ps. 17,090 million in 2015.

Administrative expenses amounted to Ps. 88 million in 2015. Selling
expenses reached 1,124 million in 2015.

Key Events During 2015
The following texts reproduced our press releases exactly as the time
they were published.

Coca-Cola FEMSA granted RobecoSAM’s Industry Mover
Sustainability Award 2015

On January 22, 2015 Coca-Cola FEMSA announced that it had been
granted the Industry Mover award as part of RobecoSAM’s 2015 “The
Sustainability Yearbook”.

In September of 2014, Coca-Cola FEMSA was included for the
second consecutive year as a member of the Dow Jones Sustainability
Index for Emerging Markets. As one of the topscoring companies in
the beverage industry, it has gained a membership in RobecoSAM’s
2015 “The Sustainability Yearbook”, the world’s most comprehensive
publication on corporate sustainability. Every year since 2004, The
Sustainability Yearbook has listed the world’s most sustainable
companies in each industry as determined by their score in
RobecoSAM’s annual Corporate Sustainability Assessment (CSA).
Coca-Cola FEMSA has been granted the 2015 Industry Mover award
for its excellent performance in sustainability. This recognition
stands out as it is the first time that a Mexican company participates
as a member of The Sustainability Yearbook and also the first time
that a Mexican corporate receives RobecoSAM’s Industry Mover
Sustainability Award.

Entry into Gas Station Market

On March 1, 2015, FEMSA Comercio announced that since 1995,
FEMSA Comercio had provided services and assets for the operation
of gasoline service stations through agreements with third parties
that owned Mexican Petroleum (Petróleos Mexicanos, or PEMEX)
franchises, using the commercial brand OXXO GAS.

Mexican legislation had historically precluded FEMSA Comercio
from participating in the retail sale of gasoline and therefore precluded
ownership of PEMEX franchises, given FEMSA’s foreign institutional
investor base. In response to recent changes in this legislation,
FEMSA Comercio, acting through its subsidiary OXXO GAS, agreed
on March 1, 2015 to acquire the related PEMEX franchises from the
aforementioned third parties and plans to lease, acquire or open more
gasoline service stations in the future.

Standard & Poor’s Upgrades FEMSA’s International Credit
and Debt Ratings to ‘A-’ from ‘BBB+’ on Strong Credit Metrics,
Outlook Stable

On June 11, 2015 - Standard & Poor’s has upgraded FEMSA global
scale corporate credit and debt ratings ‘A-’ from ‘BBB+’. At the same
time, Standard & Poor’s affirmed the ‘mxAAA’ long-term national
scale corporate credit and debt ratings and the ‘mxA-1+’ short-term
national scale rating on FEMSA, with a stable outlook.

Coca-Cola FEMSA inaugurates state-of-the art facilities in Brazil
and Colombia

On June 12, 2015 Coca-Cola FEMSA announced the inauguration of
its new, state-of-the-art bottling facilities in Brazil and Colombia with
a combined investment of more than US$500 million.

Built to LEED certification standards, these plants set a benchmark
in sustainability in the Coca-Cola System globally, implementing the

FEMSA Annual Report 2015

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latest technology to deliver a more efficient use of energy and water,
as well as using energy co-generation systems.

With an investment of US$258 million, the plant of Itabirito, Minas
Gerais, Brazil began construction in 2012 and started operations in
November 2014. With an annual production capacity of approximately
370 million unit cases, this plant is expected to generate more than
600 direct and indirect jobs.

Coca-Cola FEMSA’s plant in Tocancipá, Colombia, began construction
in 2013 and was completed to begin operations in February 2015.
Through an investment of more than US$219 million, this plant is
expected to generate approximately 450 direct and indirect jobs and have
an annual production capacity of approximately 130 million unit cases.

FEMSA Comercio closes the acquisition of Farmacias Farmacon

On June 18, 2015 FEMSA Comercio announced that its subsidiary
Cadena Comercial de Farmacias, S.A.P.I. de C.V. had closed the
acquisition of 100% of Farmacias Farmacon after obtaining all
required regulatory approvals. Farmacias Farmacon is based in the
city of Culiacán, Sinaloa and operated over 200 stores in the Mexican
states of Sinaloa, Sonora, Baja California and Baja California Sur.
This transaction represents an important step as FEMSA Comercio
advances in its strategy in this attractive small-box retail segment.

Coca-Cola FEMSA selected for the third time as a member of the
Dow Jones Sustainability Emerging Markets Index

On September 17, 2015 Coca-Cola FEMSA announced that it had
been selected for the third consecutive time as a member of the Dow
Jones Sustainability Emerging Markets Index.

In September of 2013, Coca-Cola FEMSA was included for the first
time as a member of the Dow Jones Sustainability Index for Emerging
Markets. As one of the top-scoring companies in the beverage industry,
it gained a membership in RobecoSAM’s 2015 “The Sustainability
Yearbook”, the world’s most comprehensive publication on corporate
sustainability. In January 2015, the Company was granted the Industry
Mover award for its excellent performance in sustainability.

FEMSA Comercio closes the acquisition of majority equity stake
in Grupo Socofar

On September 23, 2015 FEMSA Comercio announced that it had
successfully closed the acquisition of a majority equity stake in Grupo
Socofar, (“Socofar”), a leading South American drugstore operator,
after obtaining all required regulatory approvals. Socofar is based
in Santiago, Chile and operated over 640 drugstores and 150 beauty

stores throughout Chile as well as over 150 drugstores in Colombia.

This transaction represents an important step as FEMSA Comercio
advances in its strategy in this attractive small-box retail segment,
leveraging its growing expertise in the drugstore business by acquiring
control of a best-in-class operator with leading banners and attractive
growth prospects in South America, and establishing a solid base
from which to expand across the region. It also provides important
capabilities to FEMSA Comercio in the operation of standalone beauty
store retail banners, pharmaceutical distribution to third-party clients,
and the production of generic and bioequivalent pharmaceuticals.

Femsa announces changes to Senior Finance Team

On November 23, 2015 FEMSA announced changes to senior
management team that became effective January 18, 2016. Eduardo
Padilla Silva, former Chief Executive Officer of FEMSA Comercio,
became FEMSA’s Chief Financial and Corporate Officer. For his
part Daniel Rodríguez Cofré, former FEMSA’s Chief Financial
and Corporate Officer, became Chief Executive Officer of FEMSA
Comercio following the successful and proven strategy of rotating top
talent among the different areas of business.

Eduardo Padilla, who joined FEMSA in 1997, returns to FEMSA’s
corporate office after 16 years heading FEMSA Comercio, a remarkable
period during which OXXO has become the leading proximity retail
format in Mexico, with more than 13,000 stores across the country
as well as promising new formats such as drugstores and gasoline
stations. Eduardo and his team have been instrumental in building
the culture and putting in place the processes that have enabled this
significant growth, while positioning FEMSA Comercio to pursue
incremental opportunities in Mexico and beyond. In his new role,
Eduardo will be able to apply his talent and energy to the whole of
FEMSA’s business portfolio.

After one year heading the financial and staff functions of the Company,
Daniel Rodríguez is once again in charge of a large retail enterprise
with various formats and operations in several Latin American
markets. Daniel joined FEMSA in January of 2015 after being CEO
of Chile-based retailer Cencosud for six years, and prior to that he
spent more than a decade in senior finance positions at Royal Dutch
Shell in the Americas as well as Europe. His expertise in retail and his
knowledge of the fuel and lubricant industries will serve Daniel well
as he leads FEMSA Comercio through the next stages of its growth.

These appointments represent one more step in the evolution and
strengthening of FEMSA’s management team in preparation for
sustained growth ahead.

FEMSA Annual Report 2015

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Annual Report of the Audit Committee

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES
MONTERREY, N.L., MEXICO

To the Board of Directors Fomento Económico
Mexicano, S.A.B. de C.V. (the “Company”):

Pursuant to Articles 42 and 43 of the Mexican Securities Law (Ley
del Mercado de Valores) and the Charter of the Audit Committee, we
submit to the Board of Directors our report on the activities performed
during, 2015. We considered the recommendations established in
the Code of Corporate Best Practices and, since the Company is a
publicly-listed company in the New York Stock Exchange (¨NYSE¨),
we also complied with the applicable provisions set forth in Sarbanes-
Oxley Act. We met at least on a quarterly basis and, based on a work
program, we carried out the activities described below:

Risk Assessment
We periodically evaluated the effectiveness of the Enterprise Risk
Management Process, which is established to identify, measure,
record, assess, and manage the Company´s risks, as well as for
the implementation of follow-up measures to ensure its effective
operation.

We reviewed with Management and both External and Internal
Auditors of the Company, the key risk factors that could adversely
affect the Company´s operations and assets, and we determined that
they have been appropriately identified, managed, and considered in
both audit programs.

Internal Control
We verified the compliance by Management of its responsibilities
regarding internal control, and the establishment of general guidelines
and the procedures necessary for their application and compliance.
This process included presentations to the Audit Committee by the
area responsible of the most important subsidiaries. Additionally, we
followed the comments and remarks made in this regard by External
Auditors as a result of their findings.

We verified the actions taken by the Company in order to comply with
section 404 of Sarbanes-Oxley Act regarding the self-assessment of
internal controls. During this process, we made sure that a follow up
on main preventive and corrective actions implemented concerning
internal control issues that required improvement, were taken, and
the submission to the authorities of requested information.

External Audit
We recommended to the Board of Directors the appointment of the
external auditors (who have been the same for the past seven years)
for the Company and its subsidiaries for fiscal year 2015. For this
purpose, we verified their independence and their compliance with
the requirements established by applicable laws and regulations. We
analyzed their approach, work program as well as their coordination
with Internal Audit.

We were in permanent and direct communication with them to be
timely informed of their progress and their observations, and also
to consider any comments that resulted from their review of the
quarterly financial statements. We were timely informed of their
conclusions and reports, regarding the annual financial statements
and followed up on the actions implemented resulting from the
findings and recommendations provided during the year.

We authorized the fees of the external auditors for their annual audit
and other permitted services, and verified that such services would
not compromise their Independence.

With the appropriate input from Management, we carried out an
evaluation of their services for the previous year and initiated the
evaluation process for fiscal year 2015.

Internal Auditing
In order to maintain its independence and objectivity, the Internal
Audit area reports to the Audit Committee therefore:

We reviewed and approved the annual work program and budget,
in order to comply with the requirements of Sarbanes-Oxley Act.
For its preparation, the Internal Audit area participated in the risk
assessment process and the validation of the internal control system.

We received periodic reports regarding the progress of the approved
work program, any deviations and the causes thereof.

We followed up the implementation of the observations developed
by Internal Audit.

We confirmed the existence and validated the implementation of an
Annual Training program.

We reviewed and discuss with the responsible of the IA function the
evaluations of the Internal Audit service performed by the responsible
of each business unit and the Audit Committee.

Financial Information, Accounting Policies and Reports to the
Third Parties
We reviewed the quarterly and annual financial statements of the
Company with the individuals responsible for its preparation and
recommended to the Board of Directors, its approval and authorize
its publication. As part of this process, we analyzed the comments
of the external auditors and confirm that the criteria, accounting
policies and information used by Management to prepare financial
information were adequate, sufficient, and consistently applied
with the prior year. As a consequence, the information submitted
by Management reasonably reflects the financial position of the
Company, its operating results and cash flows for the fiscal year
ending on December 31, 2015.

FEMSA Annual Report 2015

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We also reviewed the quarterly reports prepared by Management and
submitted to shareholders and the financial community, verifying
that such information was prepared under International Financial
Reporting Standards (IFRS) and the same accounting criteria for
preparing the annual information. We also reviewed the existence of
an integral process that provides a reasonable assurance of fairness in
the information content. To conclude, we recommended to the Board
of Directors to authorize the release of such information.

Our reviews also included reports and any other financial information
required by Mexican and United States regulatory authorities.

We reviewed and approved the changes to the accounting standards
used by the Company that became effective in 2015, recommending
their approval to the Board of Directors.

Compliance with Applicable Laws and Regulations, Legal Issues
and Contingencies
We verified the existence and reliability of the Company-established
controls to ensure compliance with the various legal provisions
applicable to the Company. When required, we verified its appropriate
disclosure in the financial reports.

We made periodic reviews of the various tax, legal and labor
contingencies of the Company. We supervised the efficiency of the
procedures established for their identification and follow-up, as well
as their adequate disclosure and recording.

Code of Conduct
We reviewed the new version of the Business Code of Ethics of the
Company which incorporates among other changes an update of its
values, validating that it includes a compliance provision with the Anti-
Money Laundering laws in the countries where we operate, as well as
compliance with anti-corruption laws (FCPA), and recommended its
approval to the Board of Directors.

With the support of Internal Audit, we verified the compliance of the
Business Code of Ethics, the existence of adequate processes to update
it and its communication to employees, as well as the application of
sanctions in those cases where violations were detected.

We reviewed the complaints received in the Company´s Whistle-
Blowing System and followed up on their correct and timely handling.

Administrative Activities
We held regular meetings with Management to be informed of any
relevant or unusual activities and events. We also met individually
with external and internal auditors to review their work, and
observations.

In those cases where we deemed advisable, we requested the support
and opinion from independent experts. We are not aware of any
significant non-compliance with the operating policies, the internal
control system or the accounting records of the Company.

We held executive meetings and when applicable reviewed with
Management our resolutions.

We submitted quarterly reports to the Board of Directors, on the
activities performed by the Committee.

We reviewed the Audit Committee Charter and made the
amendments that we deemed appropriate, submitting such changes
for its approval by the Board of Directors.

We verified that the financial expert of the Committee meets the
technical background and experience requirements to be considered
as such, and that each Committee Member meets the independence
requirements set forth in by the applicable laws and regulations.

Our activities were duly documented in the minutes prepared for
each meeting. Such minutes were properly reviewed and approved
by Committee members.

We made our annual performance self-assessment, and submitted
the results to the Chairman of the Board of Directors.

Sincerely

February 22, 2016
José Manuel Canal Hernando

creating stories

FEMSA Annual Report 2015

Independent Auditor’s Report

The Board of Directors and Shareholders of
Fomento Económico Mexicano, S.A.B. de C.V.

Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Fomento Económico Mexicano, S.A.B. de C.V. and its subsidiaries, which comprise
the consolidated statements of financial position as at December 31, 2015 and 2014, and the consolidated income statements, consolidated statements of
comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended
December 31, 2015, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that
are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with
International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of
accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Fomento Económico Mexicano, S.A.B.
de C.V. and its subsidiaries as at December 31, 2015 and 2014, and their financial performance and cash flows for each of the three years in the period ended
December 31, 2015, in accordance with International Financial Reporting Standards, as issued by the International Accounting Standards Board.

Mancera, S.C.
A member practice of
Ernst & Young Global Limited

Agustín Aguilar Laurents
February 29, 2016
Monterrey, N.L. MEXICO

FEMSA Annual Report 2015

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Consolidated Statements of Financial Position

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES
MONTERREY, N.L., MEXICO

As of December 31, 2015 and 2014.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.)

Note

December
2015 (*)

December
2015

December
2014

ASSETS

Current Assets:
Cash and cash equivalents

Investments

Accounts receivable, net

Inventories
Recoverable taxes

Other current financial assets
Other current assets
Total current assets

Investments in associates and joint ventures
Property, plant and equipment, net
Intangible assets, net

Deferred tax assets
Other financial assets
Other assets, net
TOTAL ASSETS
LIABILITIES AND EQUITY

Current Liabilities:

Bank loans and notes payable
Current portion of long-term debt

Interest payable
Suppliers

Accounts payable
Taxes payable
Other current financial liabilities
Total current liabilities
Long-Term Liabilities:

Bank loans and notes payable
Post-employment and other long-term employee benefits

Deferred tax liabilities
Other financial liabilities

Provisions and other long-term liabilities

Total long-term liabilities
Total liabilities
Equity:
Controlling interest:
Capital stock
Additional paid-in capital

Retained earnings

Cumulative other comprehensive (loss)

Total controlling interest
Non-controlling interest in consolidated subsidiaries
Total equity
TOTAL LIABILITIES AND EQUITY

5
6
7
8

9
9

10
11
12
24
13
13

18
18

18
16
24
25
25

(*) Convenience translation to U.S. dollars ($) – See Note 2.2.3
The accompanying notes are an integral part of these consolidated statements of financial position.

Ps.

1,710
1
1,047
1,435
497
141
213
5,044
6,498
4,670
6,301
482
521
289
23,805

130
213
35
2,080
537
531
274
3,800

5,000
246
362
29
303
5,940
9,740

Ps.

29,396
19
18,012
24,680
8,544
2,418
3,654
86,723
111,731
80,296
108,341
8,293
8,955
4,993
Ps. 409,332

Ps.

2,239
3,656
597
35,773
9,236
9,136
4,709
65,346

85,969
4,229
6,230
495
5,207
102,130
167,476

195
1,501
9,103
(243)
10,556
3,509
14,065
23,805

3,348
25,807
156,532
(4,163)
181,524
60,332
241,856
Ps. 409,332

Ps.

35,497
144
13,842
17,214
8,030
2,597
1,788
79,112
102,159
75,629
101,527
6,278
6,551
4,917
376,173

449
1,104
482
26,467
7,778
8,177
4,862
49,319

82,935
4,207
3,643
328
5,619
96,732
146,051

3,347
25,649
147,122
(5,645)
170,473
59,649
230,122
376,173

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FEMSA Annual Report 2015

Consolidated Income Statements

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES
MONTERREY, N.L., MEXICO

For the years ended December 31, 2015, 2014 and 2013.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.),
except per share amounts.

Note

2015 (*)

2015

2014

2013

Net sales
Other operating revenues
Total revenues
Cost of goods sold
Gross profit
Administrative expenses
Selling expenses
Other income
Other expenses
Interest expense
Interest income
Foreign exchange loss, net
Monetary position loss, net
Market value gain on financial instruments
Income before income taxes and share of the profit of associates
and joint ventures accounted for using the equity method

Income taxes
Share of the profit of associates and joint ventures accounted

for using the equity method, net of taxes

Consolidated net income
Attributable to:
Controlling interest
Non-controlling interest
Consolidated net income

Basic net controlling interest income:

Per series “B” share
Per series “D” share

Diluted net controlling interest income:

Per series “B” share
Per series “D” share

19
19
18

23
23

(*) Convenience translation to U.S. dollars ($) – See Note 2.2.3
The accompanying notes are an integral part of these consolidated income statements.

18,078
43
18,121
10,957
7,164
681
4,442
24
(159)
(452)
59
(69)
(2)
21

1,463
461

352
1,354

1,029
325
1,354

0.05
0.06

Ps. 310,849
740
311,589
188,410
123,179
11,705
76,375
423
(2,741)
(7,777)
1,024
(1,193)
(36)
364

25,163
7,932

6,045
23,276

Ps.

17,683
5,593
23,276

0.88
1.10

Ps.

262,779
670
263,449
153,278
110,171
10,244
69,016
1,098
(1,277)
(6,701)
862
(903)
(319)
73

23,744
6,253

5,139
22,630

16,701
5,929
22,630

0.83
1.04

Ps.

256,804
1,293
258,097
148,443
109,654
9,963
69,574
651
(1,439)
(4,331)
1,225
(724)
(427)
8

25,080
7,756

4,831
22,155

15,922
6,233
22,155

0.79
1.00

0.79
0.99

FEMSA Annual Report 2015

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Consolidated Statements of Comprehensive Income

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES
MONTERREY, N.L., MEXICO

For the years ended December 31, 2015, 2014 and 2013.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.)

Note

2015 (*)

2015

2014

2013

Consolidated net income
Other comprehensive income:
Items that may be reclassified to consolidated net income, net of tax:
Unrealized loss on available for sale securities
Valuation of the effective portion of
derivative financial instruments

Exchange differences on the translation of foreign

operations and associates

Share of other comprehensive income (loss) of associates

and joint ventures

Total items that may be reclassified
Items that will not to be reclassified to consolidated net income in

subsequent periods, net of tax:
Remeasurements of the net defined benefit share of

other comprehensive income (loss) of associates and joint ventures

Remeasurements of the net defined benefit liability
Total items that will not be reclassified
Total other comprehensive loss, net of tax
Consolidated comprehensive income, net of tax
Controlling interest comprehensive income

Reattribution to non-controlling interest of other comprehensive

income by acquisition of Grupo YOLI

Controlling interest, net of reattribution
Non-controlling interest comprehensive income

Reattribution from controlling interest of other comprehensive

income by acquisition of Grupo YOLI

Non-controlling interest, net of reatribution
Consolidated comprehensive income, net of tax

1,354

Ps.

23,276

Ps.

22,630

Ps.

22,155

(129)

16
(106)

10
8
18
(88)
1,266
1,115

-
1,115
151

-
151
1,266

$
$

122

493

(2,234)

(12,256)

282
(1,830)

1,322
(10,441)

169
144
313
(1,517)
21,759
19,165

-
19,165
2,594

Ps.

-
2,594
21,759

Ps.
Ps.

(881)
(361)
(1,242)
(11,683)
10,947
11,283

-
11,283
(336)

-
(336)
10,947

Ps.

Ps.
Ps.

Ps.

Ps.
Ps.

(2)

(246)

1,151

(3,120)
(2,217)

491
(112)
379
(1,838)
20,317
15,030

(36)
14,994
5,287

36
5,323
20,317

(*) Convenience translation to U.S. dollars ($) – See Note 2.2.3
The accompanying notes are an integral part of these consolidated statements of comprehensive income.

FEMSA Annual Report 2015

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Consolidated Statements of Changes in Equity

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES
MONTERREY, N.L., MEXICO

For the years ended December 31, 2015, 2014 and 2013.
Amounts expressed in millions of Mexican pesos (Ps.)

Capital
Stock

Additional
Paid-in
Capital

Retained
Earnings

Unrealized
Gain (Loss) on
Available
for Sale
Securities

Valuation of

the Effective

Portion of

Derivative

Financial

Exchange

Differences

Translation

of Foreign

Operations

Instrument

and Associates

on the Remeasurements

of the Net

Defined

Benefit

Liability

Total

Controlling

Interest

Non-

Controlling

Interest

Total

Equity

Ps.

3,346

Ps.

22,740

Ps.

128,508

Ps.

349

Ps.

1,961

Ps.

(1,647)

Ps. 155,259

Ps.

54,902

Ps.

210,161

Balances at January 1, 2013

Net income

Other comprehensive income, net of tax

Comprehensive income

Dividends declared

Repurchase of shares associated with share-based payment plans

Acquisition of Grupo Yoli through issuance of Coca-Cola FEMSA shares (see Note 4)

(172)

2,865

Other acquisitions (see Note 4)

Increase in share of non-controlling interest

Other movements of equity method of associates, net of taxes
Balances at December 31, 2013

Net income

Other comprehensive income, net of tax

Comprehensive income

Dividends declared

3,346

25,433

Issuance (repurchase) of shares associated with share-based payment plans

216

Other movements of equity method of associates, net of taxes
Balances at December 31, 2014

3,347

25,649

Net income
Other comprehensive income, net of tax

Comprehensive income

Dividends declared

(2)

15,922

(13,368)

(222)
130,840

16,701

(419)
147,122

17,683

(7,350)

Issuance of shares associated with share-based payment plans

158

Acquisition of Grupo Socofar (see Note 4)

Contributions from non-controlling interest

Other movements of equity method of associates, net of taxes
Balances at December 31, 2015

Ps.

3,348

Ps.

25,807

(923)
Ps. 156,532

The accompanying notes are an integral part of these consolidated statements of changes in equity.

Ps.

606

Ps.

(2,688)

Ps.

(2,081)

Ps. 181,524

Ps.

60,332

Ps.

241,856

(170)

(1,214)

458

181

779

(1,187)

126

(4,412)

(1,132)

299

945

238

15,922

(928)

14,994

(13,368)

(172)

2,901

(222)

159,392

16,701

(5,418)

11,283

217

(419)

170,473

17,683

1,482

19,165

(7,350)

159

(923)

6,233

(910)

5,323

(3,125)

(7)

5,120

430

515

63,158

5,929

(6,265)

(336)

(3,152)

(21)

5,593

(2,999)

2,594

(3,351)

1,133

250

22,155

(1,838)

20,317

(16,493)

(179)

8,021

430

515

(222)

222,550

22,630

(11,683)

10,947

(3,152)

196

(419)

23,276

(1,517)

21,759

(10,701)

216

1,133

250

(923)

307

(3,633)

(2,319 )

59,649

230,122

FEMSA Annual Report 2015

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Capital

Stock

Additional

Paid-in

Capital

Retained

Earnings

Unrealized

Gain (Loss) on

Available

for Sale

Securities

Valuation of
the Effective
Portion of
Derivative
Financial
Instrument

Exchange
Differences

Translation
of Foreign
Operations
and Associates

on the Remeasurements
of the Net
Defined
Benefit
Liability

Total
Controlling
Interest

Non-
Controlling
Interest

Total
Equity

Ps.

3,346

Ps.

22,740

Ps.

128,508

Ps.

349

Ps.

1,961

Ps.

(1,647)

Ps. 155,259

Ps.

54,902

Ps.

210,161

Repurchase of shares associated with share-based payment plans

Acquisition of Grupo Yoli through issuance of Coca-Cola FEMSA shares (see Note 4)

(172)

2,865

(170)

(1,214)

458

3,346

25,433

181

779

(1,187)

126

(4,412)

(1,132)

Issuance (repurchase) of shares associated with share-based payment plans

216

Other movements of equity method of associates, net of taxes

Balances at December 31, 2014

3,347

25,649

307

(3,633)

(2,319 )

299

945

238

15,922

(928)

14,994

(13,368)

(172)

2,901

(222)
159,392

16,701

(5,418)

11,283

217

(419)
170,473

17,683
1,482

19,165

(7,350)

159

6,233

(910)

5,323

(3,125)

(7)

5,120

430

515

-
63,158

5,929

(6,265)

(336)

(3,152)

(21)

-
59,649

5,593
(2,999)

2,594

(3,351)

1,133

250

22,155

(1,838)

20,317

(16,493)

(179)

8,021

430

515

(222)
222,550

22,630

(11,683)

10,947

(3,152)

196

(419)
230,122

23,276
(1,517)

21,759

(10,701)

216

1,133

250

Ps.

3,348

Ps.

25,807

Ps. 156,532

Ps.

606

Ps.

(2,688)

Ps.

(2,081)

(923)
Ps. 181,524

-
60,332

(923)
241,856

Ps.

Balances at January 1, 2013

Net income

Comprehensive income

Dividends declared

Other comprehensive income, net of tax

Other acquisitions (see Note 4)

Increase in share of non-controlling interest

Other movements of equity method of associates, net of taxes

Balances at December 31, 2013

Net income

Other comprehensive income, net of tax

Comprehensive income

Dividends declared

Net income

Other comprehensive income, net of tax

Comprehensive income

Dividends declared

Issuance of shares associated with share-based payment plans

158

Acquisition of Grupo Socofar (see Note 4)

Contributions from non-controlling interest

Other movements of equity method of associates, net of taxes

Balances at December 31, 2015

The accompanying notes are an integral part of these consolidated statements of changes in equity.

(2)

15,922

(13,368)

(222)

130,840

16,701

(419)

147,122

17,683

(7,350)

(923)

FEMSA Annual Report 2015

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Consolidated Statements of Cash Flows

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES
MONTERREY, N.L., MEXICO

For the years ended December 31, 2015, 2014 and 2013.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.)

Cash flows from operating activities:
Income before income taxes
Adjustments for:
Non-cash operating expenses
Employee profit sharing
Depreciation
Amortization
(Gain) loss on sale of long-lived assets
(Gain) on sale of shares
Disposal of long-lived assets
Impairment of long-lived assets
Share of the profit of associates and joint ventures accounted

for using the equity method, net of taxes

Interest income
Interest expense
Foreign exchange loss, net
Monetary position loss, net
Market value (gain) on financial instruments
Cash flow from operating activities before changes in operating accounts
and employee profit sharing
Accounts receivable and other current assets
Other current financial assets
Inventories
Derivative financial instruments
Suppliers and other accounts payable
Other long-term liabilities
Other current financial liabilities
Post-employment and other long-term employee benefits
Cash generated from operations
Income taxes paid
Net cash generated by operating activities
Cash flows from investing activities:
Acquisition of Grupo Socofar, net of cash acquired (see Note 4)
Acquisition of Grupo Yoli, net of cash acquired (see Note 4)
Acquisition of Companhia Fluminense de Refrigerantes, net of cash acquired (see Note 4)
Acquisition of Spaipa S.A. Industria Brasileira de Bebidas, net of cash acquired (see Note 4)
Other acquisitions, net of cash acquired (see Note 4)
Investment in shares of Coca-Cola FEMSA Philippines, Inc. CCFPI (see Note 10)
Other investments in associates and joint ventures
Purchase of investments
Proceeds from investments
Interest received
Derivative financial instruments
Dividends received from associates and joint ventures
Property, plant and equipment acquisitions
Proceeds from the sale of property, plant and equipment
Acquisition of intangible assets
Investment in other assets
Collections of other assets
Investment in other financial assets
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from borrowings
Payments of bank loans
Interest paid
Derivative financial instruments
Dividends paid
Contributions from non-controlling interest
Increase in shares of non-controlling interest
Other financing activities
Net cash (used in) generated by financing activities
(Decrease) increase in cash and cash equivalents
Initial balance of cash and cash equivalents
Effects of exchange rate changes and inflation effects on cash and cash
equivalents held in foreign currencies
Ending balance of cash and cash equivalents

(*) Convenience translation to U.S. dollars ($) – see Note 2.2.3
The accompanying notes are an integral part of these consolidated statements of cash flow.

2015 (*)

2015

2014

2013

1,815

Ps.

31,208

Ps.

28,883

Ps.

29,911

167
72
568
62
(14)
(1)
24
8

(352)
(59)
452
69
2
(21)

2,792
(255)
18
(252)
26
323
48
(33)
(22)
2,645
(508)
2,137

(401)
-
-
-
(339)
-
(17)
-
7
60
13
139
(1,017)
37
(56)
(87)
13
(2)
(1,650)

490
(903)
(265)
485
(622)
15
-
2
(798)
(311)
2,064

(43)
1,710

2,873
1,243
9,761
1,064
(249)
(14)
416
134

(6,045)
(1,024)
7,777
1,193
36
(364)

48,009
(4,379)
318
(4,330)
441
5,556
822
(570)
(382)
45,485
(8,743)
36,742

(6,890)
-
-
-
(5,821)
-
(291)
-
126
1,024
232
2,394
(17,485)
630
(971)
(1,502)
223
(28)
(28,359)

8,422
(15,520)
(4,563)
8,345
(10,701)
250
-
26
(13,741)
(5,358)
35,497

(743)
29,396

Ps.

209
1,138
9,029
985
7
-
153
145

(5,139)
(862)
6,701
903
319
(73)

42,398
(4,962)
1,736
(1,122)
245
6,910
(2,308)
793
(416)
43,274
(5,910)
37,364

-
-
-
-
-
-
90
(607)
589
863
(25)
1,801
(16,985)
209
(706)
(796)
-
(41)
(15,608)

5,354
(5,721)
(3,984)
(2,267)
(3,152)
-
-
482
(9,288)
12,468
27,259

(4,230)
35,497

Ps.

752
1,936
8,805
891
(41)
-
122
-

(4,831)
(1,225)
4,331
724
427
(8)

41,794
(1,948)
(1,508)
(1,541)
402
517
(109)
417
(317)
37,707
(8,949)
28,758

-
(1,046)
(4,648)
(23,056)
(3,021)
(8,904)
(335)
(118)
1,488
1,224
119
1,759
(16,380)
252
(1,077)
(1,436)
-
(52)
(55,231)

78,907
(39,962)
(3,064)
697
(16,493)
-
515
(16)
20,584
(5,889)
36,521

(3,373)
27,259

Ps.

FEMSA Annual Report 2015

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Notes to the Consolidated Financial Statements

FOMENTO ECONÓMICO MEXICANO, S.A.B. DE C.V. AND SUBSIDIARIES
MONTERREY, N.L., MEXICO

As of December 31, 2015, 2014 and 2013.
Amounts expressed in millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.)

Note 1. Activities of the Company
Fomento Económico Mexicano, S.A.B. de C.V. (“FEMSA”) is a Mexican holding company. The principal activities of FEMSA and its subsidiaries (the “Company”),
as a business unit, are carried out by operating subsidiaries and companies under direct and indirect holding company subsidiaries of FEMSA.

The following is a description of the Company´s activities as of the date of the issuance of these consolidated financial statements, together with the ownership
interest in each subholding company or business unit:

% Ownership

December 31,
2015

December 31,
2014

Activities

47.9%(1)
(63.0% of the
voting shares)

100%

Production, distribution and marketing of certain Coca-Cola trademark
beverages in Mexico, Guatemala, Nicaragua, Costa Rica, Panama,
Colombia, Venezuela, Brazil, Argentina and Philippines (see Note 10).
At December 31, 2015, The Coca-Cola Company (TCCC) indirectly owns
28.1% of Coca-Cola FEMSA’s capital stock. In addition, shares
representing 24.0% of Coca-Cola FEMSA’s capital stock are traded on the
Bolsa Mexicana de Valores (Mexican Stock Exchange “BMV”) and on the
New York Stock Exchange, Inc (NYSE) in the form of American
Depositary Shares (“ADS”).

Small-box retail chain format operations in Mexico, Colombia and the
United States, mainly under the trade name “OXXO”; drugstore operations
in Chile and Colombia, mainly under the trademark “Cruz Verde” and
Mexico under different brands such as Farmacon, YZA and Moderna.

100%

Retail service stations for fuels, motor oils, lubricants and car care
products under the trade name “OXXO GAS” with operations in Mexico.

Subholding Company

Coca-Cola FEMSA,
S.A.B. de C.V.
and subsidiaries
(“Coca-Cola FEMSA”)

FEMSA Comercio, S.A.
de C.V. and subsidiaries
(“FEMSA Comercio –
Retail Division”)

FEMSA Comercio, S.A.
de C.V. and subsidiaries
(“FEMSA Comercio –
Fuel Division”)

CB Equity, LLP
(“CB Equity”)

100%

Other companies

100%

(1)

The Company controls Coca-Cola FEMSA’s relevant activities.

This Company holds Heineken N.V. and Heineken Holding N.V. shares,
which represents in the aggregate a 20% economic interest in both
entities (“Heineken Company”).

Companies engaged in the production and distribution of coolers,
commercial refrigeration equipment and plastic cases; as well as
transportation logistics and maintenance services to FEMSA’s
subsidiaries and to third parties.

Note 2. Basis of Preparation
2.1 Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International
Accounting Standards Board (“IASB”).

The Company’s consolidated financial statements and notes were authorized for issuance by the Company’s Chief Executive Officer Carlos Salazar Lomelín and
Chief Financial and Corporate Officer Eduardo Padilla Silva on February 19, 2016. These consolidated financial statements and notes were then approved by the
Company’s Board of Directors on February 23, 2016 and subsequent events have been considered through that date (see Note 28). These consolidated financial
statements and their accompanying notes will be presented at the Company´s shareholders meeting in March 8, 2016. The Company´s shareholders have the
faculty to approve or modify the Company´s consolidated financial statements.

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FEMSA Annual Report 2015

2.2 Basis of measurement and presentation
The consolidated financial statements have been prepared on the historical cost basis, except for the following:

• Available-for-sale investments.

• Derivative financial instruments.

• Long-term notes payable on which fair value hedge accounting is applied.

• Trust assets of post-employment and other long-term employee benefit plans.

The financial statements of subsidiaries whose functional currency is the currency of a hyperinflationary economy are stated in terms of the measuring unit
current at the end of the reporting period.

2.2.1 Presentation of consolidated income statement
The Company classifies its costs and expenses by function in the consolidated income statement, in order to conform to the industry practices where the Company
operates.

2.2.2 Presentation of consolidated statements of cash flows
The Company’s consolidated statement of cash flows is presented using the indirect method.

2.2.3 Convenience translation to U.S. dollars ($)
The consolidated financial statements are stated in millions of Mexican pesos (“Ps.”) and rounded to the nearest million unless stated otherwise. However, solely
for the convenience of the readers, the consolidated statement of financial position as of December 31, 2015, the consolidated income statement, the consolidated
statement of comprehensive income and consolidated statement of cash flows for the year ended December 31, 2015 were converted into U.S. dollars at the
exchange rate of 17.1950 Mexican pesos per U.S. dollar as published by the U.S. Federal Reserve Board in its H.10 Weekly Release of Foreign Exchange Rates as of
that date. This arithmetic conversion should not be construed as representation that the amounts expressed in Mexican pesos may be converted into U.S. dollars
at that or any other exchange rate. As explained in Note 2.1 above, as of February 23, 2016 (the issuance date of these financial statements) such exchange rate was
Ps. 18.2762 per U.S. dollar, a devaluation of 6.2% since December 31, 2015.

2.3 Critical accounting judgments and estimates
In the application of the Company’s accounting policies, which are described in Note 3, management is required to make judgments, estimates and assumptions
about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on
historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate
is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

2.3.1 Key sources of estimation uncertainty
The following are the key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Existing circumstances and
assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes
are reflected in the assumptions when they occur.

2.3.1.1 Impairment of indefinite lived intangible assets, goodwill and depreciable long-lived assets
Intangible assets with indefinite lives including goodwill are subject to annual impairment tests. An impairment exists when the carrying value of an asset or cash
generating unit (CGU) exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell
calculation is based on available data from binding sales transactions in arm’s length transactions of similar assets or observable market prices less incremental
costs for disposing of the asset. In order to determine whether such assets are impaired, the Company initially calculates an estimation of the value in use of the
cash-generating units to which such assets have been allocated. The value in use calculation requires management to estimate the future cash flows expected
to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The Company reviews annually the carrying value of its
intangible assets with indefinite lives and goodwill for impairment based on recognized valuation techniques. While the Company believes that its estimates are
reasonable, different assumptions regarding such estimates could materially affect its evaluations. Impairment losses are recognized in current earnings in the
period the related impairment is determined. The key assumptions used to determine the recoverable amount for the Company’s CGUs, including a sensitivity
analysis, are further explained in Notes 3.16 and 12.

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment
testing for an asset is required, the Company estimates the asset’s recoverable amount. When the carrying amount of an asset or CGU exceeds its recoverable
amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In
determining fair value less costs to sell, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate
valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair
value indicators.

2.3.1.2 Useful lives of property, plant and equipment and intangible assets with defined useful lives
Property, plant and equipment, including returnable bottles as they are expected to provide benefits over a period of more than one year, as well as intangible
assets with defined useful lives are depreciated/amortized over their estimated useful lives. The Company bases its estimates on the experience of its technical
personnel as well as based on its experience in the industry for similar assets, see Notes 3.12, 3.14, 11 and 12.

2.3.1.3 Post-employment and other long-term employee benefits
The Company regularly evaluates the reasonableness of the assumptions used in its post-employment and other long-term employee benefit computations.
Information about such assumptions is described in Note 16.

FEMSA Annual Report 2015

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2.3.1.4 Income taxes
Deferred income tax assets and liabilities are determined based on the differences between the financial statement carrying amounts and the tax basis of assets
and liabilities. The Company regularly reviews its deferred tax assets for recoverability, and records a deferred tax asset based on its judgment regarding the
probability of historical taxable income continuing in the future, projected future taxable income and the expected timing of the reversals of existing temporary
differences, see Note 24.

2.3.1.5 Tax, labor and legal contingencies and provisions
The Company is subject to various claims and contingencies related to tax, labor and legal proceedings as described in Note 25. 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 provision and/or discloses the relevant circumstances, as
appropriate. If the potential loss of any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a
provision for the estimated loss. Management’s judgment must be exercised to determine the likelihood of such a loss and an estimate of the amount, due to the
subjective nature of the loss.

2.3.1.6 Valuation of financial instruments
The Company is required to measure all derivative financial instruments at fair value.

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. The
Company bases its forward price curves upon market price quotations. Management believes that the chosen valuation techniques and assumptions used are
appropriate in determining the fair value of financial instruments, see Note 20.

2.3.1.7 Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value,
which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities assumed by the Company to the former
owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value, except that:

• Deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12,

Income Taxes and IAS 19, Employee Benefits, respectively;

• Liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Company entered
into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2, Share-based Payment at the acquisition date, see
Note 3.24; and

• Assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations are

measured in accordance with that Standard.

Management’s judgment must be exercised to determine the fair value of assets acquired and liabilities assumed.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value
of the Company previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the
consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the Company previously held interest in the acquiree
(if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.

For each business combination, with respect to the non-controlling present ownership interests in the acquiree that entitle their holders to a proportionate share
of net assets in liquidation, the Company elects whether to measure such interests at fair value or at the proportionate share of the acquiree’s identifiable net assets.

2.3.1.8 Investments in associates
If the Company holds, directly or indirectly, 20 per cent or more of the voting power of the investee, it is presumed that it has significant influence, unless it can be
clearly demonstrated that this is not the case. If the Company holds, directly or indirectly, less than 20 per cent of the voting power of the investee, it is presumed
that the Company does not have significant influence, unless such influence can be clearly demonstrated. Decisions regarding the propriety of utilizing the equity
method of accounting for a less than 20 per cent-owned corporate investee requires a careful evaluation of voting rights and their impact on the Company’s ability
to exercise significant influence. Management considers the existence of the following circumstances which may indicate that the Company is in a position to
exercise significant influence over a less than 20 per cent-owned corporate investee:

• Representation on the board of directors or equivalent governing body of the investee;

• Participation in policy-making processes, including participation in decisions about dividends or other distributions;

• Material transactions between the Company and the investee;

• Interchange of managerial personnel; or

• Provision of essential technical information.

Management also considers the existence and effect of potential voting rights that are currently exercisable or currently convertible when assessing whether the
Company has significant influence.

In addition, the Company evaluates certain indicators that provide evidence of significant influence, such as:

• Whether the extent of the Company’s ownership is significant relative to other shareholders (i.e., a lack of concentration of other shareholders);

• Whether the Company’s significant shareholders, fellow subsidiaries, or officers hold additional investment in the investee; and

• Whether the Company is a part of significant investee committees, such as the executive committee or the finance committee.

FEMSA Annual Report 2015

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2.3.1.9 Joint arrangements
An arrangement can be a joint arrangement even though not all of its parties have joint control of the arrangement. When the Company is a party to an arrangement
it shall assess whether the contractual arrangement gives all the parties, or a group of the parties, control of the arrangement collectively; joint control exists only
when decisions about the relevant activities require the unanimous consent of the parties that control the arrangement collectively. Management needs to apply
judgment when assessing whether all the parties, or a group of the parties, have joint control of an arrangement. When assessing joint control, management
considers the following facts and circumstances:

a) Whether all the parties or a group of the parties, control the arrangement, considering definition of joint control, as described in Note 3.11.2; and

b) Whether decisions about the relevant activities require the unanimous consent of all the parties, or of a group of the parties.

As mentioned in Note 10, Coca-Cola FEMSA accounts for its 51% investment at Coca-Cola FEMSA Philippines, Inc. (CCFPI) as a joint venture. This is based
on the facts that Coca-Cola FEMSA and TCCC: (i) during the initial four-year period all decisions are taken jointly by Coca-Cola FEMSA and TCCC; and (ii)
potential voting rights to acquire the remaining 49% of CCFPI are not probable to be executed in the foreseeable future due to the fact the call option was “out of
the money” as of December 31, 2015 and 2014.

2.3.1.10 Venezuela exchange rates and consolidation
As is further explained in Note 3.3 below, the exchange rate used to account for foreign currency denominated monetary items arising in Venezuela, and also the
exchange rate used to translate the financial statements of the Company’s Venezuelan subsidiary for group reporting purposes are both key sources of estimation
uncertainty in preparing the accompanying consolidated financial statements.

As is also explained in Note 3.3 below, the Company believes that it currently controls its subsidiary operations in Venezuela but recognizes the challenging
economic and political environment in Venezuela. Should the Company in the future conclude that it no longer controls such operations, its consolidated financial
statements would change by material amounts as further explained below.

2.4 Changes in accounting policies
The Company has adopted the following amendments to IFRS, during 2015:

Amendments to IAS 1 Disclosure Initiative

The amendments to IAS 1 “Presentation of Financial Statements” clarify, rather than significantly change, existing IAS 1 requirements, such as:

• The materiality requirements in IAS 1;

• That specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated;

• That entities have flexibility as to the order in which they present the notes to financial statements; and

• That the share of OCI of associates and joint ventures accounted for using the equity method must be classified as either those items that will be subsequently

reclassified to profit or loss and those that will not, and be presented as a single line item within each of those categories.

Furthermore, the amendments clarify the requirements that apply when additional subtotals are presented in the statement of financial position and the
statement(s) of profit or loss and OCI. These amendments are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted.
The Company adopted these amendments and the only impact on the Company´s consolidated financial statements was presentation and disclosure.

Note 3. Significant Accounting Policies
3.1 Basis of consolidation
The consolidated financial statements comprise the financial statements of the Company. Control is achieved when the Company is exposed, or has rights, to
variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Specifically, the Company controls an investee if and only if the Company has:

• Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee);

• Exposure, or rights, to variable returns from its involvement with the investee; and

• The ability to use its power over the investee to affect its returns.

When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing
whether it has power over an investee, including:

• The contractual arrangements with the other vote holders of the investee;

• Rights arising from other contractual arrangements; and

• The Company’s voting rights and potential voting rights.

The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of
control. Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary.
Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements of income and
comprehensive income from the date the Company gains control until the date the Company ceases to control the subsidiary.

FEMSA Annual Report 2015

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Consolidated net income and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Company and to
the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial
statements of subsidiaries to bring their accounting policies into line with the Company’s accounting policies. All intercompany assets and liabilities, equity,
income, expenses and cash flows have been eliminated in full on consolidation.

3.1.1 Acquisitions of non-controlling interests
Acquisitions of non-controlling interests are accounted for as transactions with owners in their capacity as owners and therefore no goodwill is recognized as a
result. Adjustments to non-controlling interests arising from transactions that do not involve the loss of control are measured at carrying amount and reflected in
shareholders’ equity as part of additional paid-in capital.

3.2 Business combinations
Business combinations are accounted for using the acquisition method at the acquisition date, which is the date on which control is transferred to the Company.
In assessing control, the Company takes into consideration substantive potential voting rights.

The Company measures goodwill at the acquisition date as the fair value of the consideration transferred plus the fair value of any previously-held equity interest
in the acquiree and the recognized amount of any non-controlling interests in the acquiree (if any), less the net recognized amount of the identifiable assets
acquired and liabilities assumed. If after reassessment, the excess is negative, a bargain purchase gain is recognized in consolidated net income at the time of the
acquisition.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts that differ from amounts previously
recognized are recognized in consolidated net income of the Company.

Costs related to the acquisition, other than those associated with the issuance of debt or equity securities, that the Company incurs in connection with a business
combination are expensed as incurred.

Any contingent consideration payable is recognized at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured
and settlement is accounted for within equity. Otherwise, if after reassessment, subsequent changes to the fair value of the contingent considerations are
recognized in consolidated net income.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports
provisional amounts for the items for which the accounting is incomplete, and discloses that its allocation is preliminary in nature. Those provisional amounts are
adjusted retrospectively during the measurement period (not greater than 12 months), or additional assets or liabilities are recognized, to reflect new information
obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

3.3 Foreign currencies, consolidation of foreign subsidiaries and accounting for investments in associates and joint ventures
In preparing the financial statements of each individual subsidiary and accounting for investments in associates and joint ventures, transactions in currencies
other than the individual entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the
end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not remeasured.

Exchange differences on monetary items are recognized in consolidated net income in the period in which they arise except for:

• The variations in the net investment in foreign subsidiaries generated by exchange rate fluctuation which are included as part of the exchange differences on

translation of foreign operations within the cumulative other comprehensive income (loss) item, which is recorded in equity.

• Intercompany financing balances with foreign subsidiaries are considered as long-term investments when there is no plan to pay such financing in the
foreseeable future. Monetary position and exchange rate fluctuation regarding this financing is recorded in the exchange differences on translation of foreign
operations within the cumulative other comprehensive income (loss) item, which is recorded in equity.

• Exchange differences on transactions entered into in order to hedge certain foreign currency risks.

Foreign exchange differences on monetary items are recognized in profit or loss. Their classification in the income statement depends on their nature. Differences
arising from fluctuations related to operating activities are presented in the “other expenses” line (see Note 19) while fluctuations related to non-operating
activities such as financing activities are presented as part of “foreign exchange gain (loss)” line in the income statement.

For incorporation into the Company’s consolidated financial statements, each foreign subsidiary, associates or joint venture’s individual financial statements are
translated into Mexican pesos, as described as follows:

• For hyperinflationary economic environments, the inflation effects of the origin country are recognized, and subsequently translated into Mexican pesos using

the year-end exchange rate for the consolidated statements of financial position and consolidated income statement and comprehensive income; and

• For non-hyperinflationary economic environments, assets and liabilities are translated into Mexican pesos using the year-end exchange rate, equity is translated
into Mexican pesos using the historical exchange rate, and the income statement and comprehensive income is translated using the exchange rate at the date of
each transaction. The Company uses the average exchange rate of each month only if the exchange rate does not fluctuate significantly.

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Country or
Zone

Guatemala
Costa Rica
Panama
Colombia
Nicaragua
Argentina b)
Venezuela a)
Brazil
Chile
Euro Zone
Philippines

Functional /
Recording
Currency

Quetzal
Colon
U.S. dollar
Colombian peso
Cordoba
Argentine peso
Bolivar
Reai
Chilean peso
Euro (€)
Philippine peso

Exchange Rates of Local Currencies Translated to Mexican Pesos

Average Exchange Rate for

Exchange Rate as of

2015

2.07
0.03
15.85
0.01
0.58
1.71
a)
4.81
0.02
17.60
0.35

2014

1.72
0.02
13.30
0.01
0.51
1.64
a)
5.66
0.02
17.66
0.30

2013

1.62
0.03
12.77
0.01
0.52
2.34
a)
5.94
0.03
16.95
0.30

December 31,
2015

December 31,
2014

2.25
0.03
17.21
0.01
0.62
1.32
a)
4.41
0.02
18.94
0.36

1.94
0.03
14.72
0.01
0.55
1.72
a)
5.54
0.02
17.93
0.33

a) Venezuela
The Company has operated under exchange controls in Venezuela since 2003, which limit its ability to remit dividends abroad or make payments other than in
local currency and that may increase the real price paid for raw materials and services purchased in local currency. Cash balances of the Company’s Venezuela
subsidiary which are not available for use at the time the Company prepares its consolidated financial statements are disclosed in Note 5.

The exchange rate used by the Company for its Venezuela operations depends on the type of the transaction as explained below.

As of December 31, 2015 and 2014, the companies in Venezuela were able to convert bolivars to U.S. dollars at one of the following legal exchange rates:

i) The official exchange rate. Used for transactions involving what the Venezuelan government considers to be “essential goods and services”. Certain of Coca-Cola
FEMSA concentrate purchases from The Coca-Cola Company and other strategic suppliers qualify for such treatment. As of December 31, 2015 and 2014, the
official exchange rate was 6.30 bolivars per U.S. dollar.

ii) SICAD. Used for certain transactions, including payment of services and payments related to foreign investments in Venezuela, determined by the state-run
system known as Sistema Complementario de Administración de Divisas or SICAD exchange rate. The SICAD determined this alternative exchange rate based
on limited periodic sales of U.S. dollars through auctions. As of December 31, 2015 the SICAD exchange rate was 13.50 bolivars per U.S. dollar (1.27 mexican
peso per bolivar) and as of December 31, 2014 the SICAD exchange rate was 12.00 bolivars per U.S. dollar (1.23 mexican peso per bolivar).

iii) SICAD II. The Venezuelan government enacted a new law in 2014 that authorized an additional method of exchanging Venezuelan bolivars to U.S. dollars.
During 2014 and part of 2015 SICAD-II was used for certain types of transactions not covered by the official exchange rate or the SICAD exchange rate. The
SICAD-II exchange rate as of December 31, 2014 was 49.99 bolivars per U.S. dollar (0.29 mexican peso per bolivar). In February 2015, this exchange rate was
eliminated.

iv) SIMADI. In February 2015, the Venezuelan government enacted a new market-based exchange rate determined by the system known as the Sistema Marginal
de Divisas, or SIMADI. The SIMADI determines the exchange rates based on supply and demand of U.S. dollars. The SIMADI exchange rate as of December
31, 2015 was 198.70 bolivars per U.S. dollar (0.09 mexican peso per bolivar).

The Company’s recognition of its Venezuelan operations [in Venezuela] involves a two-step accounting process in order to translate into bolivars all transactions
in a different currency than bolivars and then to translate them to Mexican Pesos.

Step-one.- Transactions are first recorded in the stand-alone accounts of the Venezuelan subsidiary in its functional currency, which are bolivars. Any non-bolivar
denominated monetary assets or liabilities are translated into bolivars at each balance sheet date using the exchange rate at which the Company expects them to
be settled, with the corresponding effect of such translation being recorded in the income statement.

As of December 31, 2014, Coca-Cola FEMSA had U.S. $449 million in monetary liabilities recorded using the official exchange rate, as Coca-Cola FEMSA believes
that such items qualify as essential goods and services as explained above. As of December 31, 2015, Coca-Cola FEMSA had U.S. $418.5 million in monetary
liabilities recorded using the official exchange rate and U.S. $138.7 recorded at SICAD at the moment this exchange rate was determined by the government, of
which U.S. $44.9 million were recorded at 12.00 bolivars, U.S. $35.9 were recorded at 12.80 bolivars and U.S. $57.9 at 13.50 bolivars.

Coca-Cola FEMSA believes that these payables for imports of essential goods should continue to qualify for settlement at the official exchange rate they were
recorded, but also recognizes the current illiquidity of the U.S. dollar market in Venezuela. If there is a change in the official exchange rate used in the future, or
should Coca-Cola FEMSA determine these amounts no longer qualify, the Coca-Cola FEMSA might need to will recognize a portion of such impact of this change
in the income statement.

Step-two.- In order to integrate the results of the Venezuelan operations into the consolidated figures of Coca-Cola FEMSA, such Venezuelan results are translated
from Venezuelan bolivars into Mexican pesos. During 2015, Coca-Cola FEMSA used SIMADI exchange rate based on the expectations that this would have been
the exchange rate to what dividends will be settled. During 2014, the Company decided to use the SICAD II exchange rate to better reflect the economic conditions
in Venezuela at the time. Prior to 2014, the Company used the official exchange rate (6.30 bolivars per U.S. dollar).

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b) Argentina
Official exchange rates for Argentina are published by the Argentine Central Bank. The Argentine peso has experienced significant devaluation over the past
several years and the government has adopted various rules and regulations since late 2011 that established new restrictive controls on capital flows into the
country. These enhanced exchange controls have practically closed the foreign exchange market to retail transactions. It is widely reported that the Argentine
peso/U.S. dollar exchange rate in the unofficial market substantially differs from the official foreign exchange rate. The Argentine government could impose
further exchange controls or restrictions on the movement of capital and take other measures in the future in response to capital flight or a significant depreciation
of the Argentine peso.

On the disposal of a foreign operation (i.e., a disposal of the Company’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary
that includes a foreign operation, a disposal involving loss of joint control over a joint venture that includes a foreign operation, or a disposal involving loss of
significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in other comprehensive income in respect
of that operation attributable to the owners of the Company are recognized in the consolidated income statement. The Company continues to monitor all of its
foreign operations, but most notably its Venezuela operations for the reasons explained herein. Over the past few years, the Company has accumulated significant
amounts of accumulated other comprehensive loss (approximating Ps. 15,536 million) related to such Venezuela operations. To the extent that economic and
or operational conditions were to worsen in the future resulting in a conclusion that the Company no longer controls such operations, such would involve both
deconsolidation and an income statement charge for accumulated amounts. There can be no assurances that such might not happen in the future.

In addition, in relation to a partial disposal of a subsidiary that does not result in the Company losing control over the subsidiary, the proportionate share of
accumulated exchange differences are re-attributed to non-controlling interests and are not recognized in profit or loss. For all other partial disposals (i.e., partial
disposals of associates or joint ventures that do not result in the Company losing significant influence or joint control), the proportionate share of the accumulated
exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising on the acquisition of a foreign operation are treated as assets and
liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Foreign exchange differences arising are
recognized in equity as part of the cumulative translation adjustment.

The translation of assets and liabilities denominated in foreign currencies into Mexican pesos is for consolidation purposes and does not indicate that the
Company could realize or settle the reported value of those assets and liabilities in Mexican pesos. Additionally, this does not indicate that the Company could
return or distribute the reported Mexican peso value equity to its shareholders.

3.4 Recognition of the effects of inflation in countries with hyperinflationary economic environments
The Company recognizes the effects of inflation on the financial information of its Venezuelan subsidiary that operates in hyperinflationary economic environments
(when cumulative inflation of the three preceding years is approaching, or exceeds, 100% or more in addition to other qualitative factors), which consists of:

• Using inflation factors to restate non-monetary assets, such as inventories, property, plant and equipment, intangible assets, including related costs and

expenses when such assets are consumed or depreciated;

• Applying the appropriate inflation factors to restate capital stock, additional paid-in capital, net income, retained earnings and items of other comprehensive
income by the necessary amount to maintain the purchasing power equivalent in the currency of Venezuela on the dates such capital was contributed or income
was generated up to the date of these consolidated financial statements are presented; and

• Including the monetary position gain or loss in consolidated net income.

The Company restates the financial information of subsidiaries that operate in a hyperinflationary economic environment (Venezuela) using the consumer price
index of that country. The Venezuelan economy’s cumulative inflation rate for the period 2013-2015, 2012-2014 and 2011-2013 was 562.9%, 210.2% and 139.3%;
respectively.

During 2014, the International Monetary Fund (IMF) issued a declaration of censure and called on Argentina to adopt remedial measures to address the quality
of its official inflation data. The IMF noted that alternative data sources have shown considerably higher inflation rates than the official data since 2008. Consumer
price data reported by Argentina from January 2014 onwards reflect the new national Consumer Price Index (CPI) which means Indice de Precios al Consumidor
Nacional Urbano (IPCNu), which differs substantively from the preceding CPI. Because of the differences in geographical coverage, weights, sampling, and
methodology, the IPCNu data cannot be directly compared to the earlier CPI-GBA data.

3.5 Cash and cash equivalents and restricted cash
Cash is measured at nominal value and consists of non-interest bearing bank deposits. Cash equivalents consist principally of short-term bank deposits and fixed
rate investments, both with maturities of three months or less at the acquisition date and are recorded at acquisition cost plus interest income not yet received,
which is similar to market prices.

The Company also maintains restricted cash held as collateral to meet certain contractual obligations (see Note 9.2). Restricted cash is presented within other
current financial assets given that the restrictions are short-term in nature.

3.6 Financial assets
Financial assets are classified into the following specified categories: “fair value through profit or loss (FVTPL) ,” “held-to-maturity investments,” “available-for-
sale” and “loans and receivables” or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The classification depends on the nature
and purpose of holding the financial assets and is determined at the time of initial recognition.

When a financial asset is recognized initially, the Company measures it at its fair value plus, in the case of a financial asset not at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition of the financial asset.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that
market participants act in their economic best interest.

The Company’s financial assets include cash, cash equivalents and restricted cash, investments with maturities of greater than three months, loans and receivables,
derivative financial instruments and other financial assets.

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3.6.1 Effective interest rate method
The effective interest rate method is a method of calculating the amortized cost of loans and receivables and other financial assets (designated as held to-maturity)
and of allocating interest income/expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts
(including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through
the expected life of the financial asset, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

3.6.2 Investments
Investments consist of debt securities and bank deposits with maturities of more than three months at the acquisition date. Management determines the
appropriate classification of investments at the time of purchase and assesses such designation as of each reporting date (see Note 6).

3.6.2.1 Available-for-sale investments are those non-derivative financial assets that are designated as available for sale or are not classified as loans and receivables,
held to maturity investments or financial assets at fair value through profit or loss. These investments are carried at fair value, with the unrealized gains and
losses, net of tax, reported in other comprehensive income. Interest and dividends on investments classified as available-for-sale are included in interest income.
The fair values of the investments are readily available based on quoted market prices. The exchange effects of securities available for sale are recognized in the
consolidated income statement in the period in which they arise.

3.6.2.2 Held-to maturity investments are those that the Company has the positive intent and ability to hold to maturity, and after initial measurement, such financial
assets are subsequently measured at amortized cost, which includes any cost of purchase and premium or discount related to the investment. Subsequently, the
premium/discount is amortized over the life of the investment based on its outstanding balance utilizing the effective interest method less any impairment.
Interest and dividends on investments classified as held-to maturity are included in interest income.

3.6.3 Loans and receivables
Loans and receivables are non-derivative financial instruments with fixed or determinable payments that are not quoted in an active market. Loans and receivables
with a stated term (including trade and other receivables) are measured at amortized cost using the effective interest method, less any impairment.

Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
For the years ended December 31, 2015, 2014 and 2013 the interest income on loans and receivables recognized in the interest income line item within the
consolidated income statements is Ps. 53, Ps. 47 and Ps. 127, respectively.

3.6.4 Other financial assets
Other financial assets include long term accounts receivable and derivative financial instruments. Long term accounts receivable with a stated term are measured
at amortized cost using the effective interest method, less any impairment.

3.6.5 Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be
impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, (an incurred “loss
event”) and that loss event has an impact on the estimated future cash flows of the financial assets that can be reliably estimated.

Evidence of impairment may include indicators as follows:

• Significant financial difficulty of the issuer or counterparty; or

• Default or delinquent in interest or principal payments; or

• It becoming probable that the borrower will enter bankruptcy or financial re-organization; or

• The disappearance of an active market for that financial asset because of financial difficulties.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present
value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the
carrying amount is reduced through the use of an allowance for doubtful accounts. When a trade receivable is considered uncollectible, it is written off against the
allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the
allowance account are recognized in consolidated net income.

No impairment was recognized for the years ended December 31, 2015, 2014 and 2013.

3.6.6 Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

• The rights to receive cash flows from the financial asset have expired, or

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material
delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b)
the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

3.6.7 Offsetting of financial instruments
Financial assets are required to be offset against financial liabilities and the net amount reported in the consolidated statement of financial position if, and only
when the Company:

• Currently has an enforceable legal right to offset the recognized amounts; and

• Intends to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

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3.7 Derivative financial instruments
The Company is exposed to different risks related to cash flows, liquidity, market and third party credit. As a result, the Company contracts different derivative
financial instruments in order to reduce its exposure to the risk of exchange rate fluctuations between the Mexican peso and other currencies, and interest rate
fluctuations associated with its borrowings denominated in foreign currencies and the exposure to the risk of fluctuation in the costs of certain raw materials.

The Company values and records all derivative financial instruments and hedging activities, in the consolidated statement of financial position as either an asset
or liability measured at fair value, considering quoted prices in recognized markets. If such instruments are not traded in a formal market, fair value is determined
by applying techniques based upon technical models supported by sufficient, reliable and verifiable market data. Changes in the fair value of derivative financial
instruments are recorded each year in current earnings or as a component of cumulative other comprehensive income based on the item being hedged and the
effectiveness of the hedge.

3.7.1 Hedge accounting
The Company designates certain hedging instruments, which include derivatives to cover foreign currency risk, as either fair value hedges or cash flow hedges.
Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item, along with its risk
management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the
Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item attributable to the
hedged risk.

3.7.2 Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income
and accumulated under the heading valuation of the effective portion of derivative financial instruments. The gain or loss relating to the ineffective portion is
recognized immediately in consolidated net income, and is included in the market value (gain) loss on financial instruments line item within the consolidated
income statements.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to consolidated net income in the periods when the
hedged item is recognized in consolidated net income, in the same line of the consolidated income statement as the recognized hedged item. However, when
the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognized in other
comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or
non-financial liability.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised,
or when it no longer qualifies for hedge accounting. Any gain or loss recognized in cumulative other comprehensive income in equity at that time remains in equity
and is recognized when the forecast transaction is ultimately recognized in consolidated net income. When a forecast transaction is no longer expected to occur,
the gain or loss accumulated in equity is recognized immediately in consolidated net income.

3.7.3 Fair value hedges
The change in the fair value of a hedging derivative is recognized in the consolidated income statement as foreign exchange gain or loss. The change in the fair
value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the consolidated
income statement as foreign exchange gain or loss.

For items which had been accounted for as fair value hedges, and subsequently accounted for as a cash flow hedge and now carried at amortized cost, the
adjustment to carrying value to its principal amount is amortized through profit or loss over the remaining term of the hedge using the EIR method. EIR
amortization may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to
the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable
to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated net income.

3.8 Fair value measurement
The Company measures financial instruments, such as derivatives, and non-financial assets, at fair value at each balance sheet date. Also, fair values of financial
instruments measured at amortized cost are disclosed in Notes 13 and 18.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

• In the principal market for the asset or liability; or

• In the absence of a principal market, in the most advantageous market for the asset or liability.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest
and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing
the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as
follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

• Level 2 — Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3 — Are unobservable inputs for the asset or liability. Unobservable inputs shall be used to measure fair value to the extent that observable inputs are not

available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date.

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For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between
Levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of
each reporting period.

The Company determines the policies and procedures for both recurring fair value measurements, such as those described in Note 20 and unquoted liabilities
such as debt described in Note 18.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the
asset or liability and the level of the fair value hierarchy as explained above.

3.9 Inventories and cost of goods sold
Inventories are measured at the lower of cost and net realizable value. Net realizable value represents the estimated selling price for inventories less all estimated
costs of completion and costs necessary to make the sale.

Inventories represent the acquisition or production cost which is incurred when purchasing or producing a product, and are based on the weighted average cost
formula. The operating segments of the Company use inventory costing methodologies to value their inventories, such as the weighted average cost method in
Coca-Cola FEMSA and retail method in FEMSA Comercio – Retail Division and FEMSA Comercio – Fuel Division.

Cost of goods sold is based on average cost of the inventories at the time of sale.

Cost of goods sold in Coca-Cola FEMSA includes expenses related to the purchase of raw materials used in the production process, as well as labor costs (wages
and other benefits), depreciation of production facilities, equipment and other costs, including fuel, electricity, equipment maintenance and inspection.

Cost of goods sold in FEMSA Comercio – Retail Division includes expenses related to the purchase of goods and services used in the sale process of the
Company´s products.

Cost of goods sold in FEMSA Comercio – Fuel Division includes expenses related to the purchase of gasoline, diesel and all engine lubricants used in the sale
process of the Company.

3.10 Other current assets
Other current assets, which will be realized within a period of less than one year from the reporting date, are comprised of prepaid assets and agreements with
customers.

Prepaid assets principally consist of advances to suppliers of raw materials, advertising, promotional, leasing and insurance costs, and are recognized as other
current assets at the time of the cash disbursement. Prepaid assets are carried to the appropriate caption in the income statement when inherent benefits and
risks have already been transferred to the Company or services have been received.

The Company has prepaid advertising costs which consist of television and radio advertising airtime paid in advance. These expenses are generally amortized
over the period based on the transmission of the television and radio spots. The related production costs are recognized in consolidated net income as incurred.

Coca-Cola FEMSA has agreements with customers for the right to sell and promote Coca-Cola FEMSA’s products over a certain period. The majority of
these agreements have terms of more than one year, and the related costs are amortized using the straight-line method over the term of the contract, with
amortization presented as a reduction of net sales. During the years ended December 31, 2015, 2014 and 2013, such amortization aggregated to Ps. 317, Ps. 338
and Ps. 696, respectively.

3.11 Investments in associates and joint arrangements
3.11.1 Investments in associates
Associates are those entities over which the Company has significant influence. Significant influence is the power to participate in the financial and operating
policy decisions of the investee, but is not control over those policies.

Investments in associates are accounted for using the equity method and initial recognition comprises the investment’s purchase price and any directly attributable
expenditure necessary to acquire it.

The consolidated financial statements include the Company’s share of the consolidated net income and other comprehensive income, after adjustments to align
the accounting policies with those of the Company, from the date that significant influence commences until the date that significant influence ceases.

Profits and losses resulting from ‘upstream’ and ‘downstream’ transactions between the Company (including its consolidated subsidiaries) and an associate are
recognized in the consolidated financial statements only to the extent of unrelated investors’ interests in the associate. ‘Upstream’ transactions are, for example,
sales of assets from an associate to the Company. ‘Downstream’ transactions are, for example, sales of assets from the Company to an associate. The Company’s
share in the associate’s profits and losses resulting from these transactions is eliminated.

When the Company’s share of losses exceeds the carrying amount of the associate, including any long-term investments, the carrying amount is reduced to nil
and recognition of further losses is discontinued except to the extent that the Company has a legal or constructive obligation to pay the associate or has to make
payments on behalf of the associate.

Goodwill identified at the acquisition date is presented as part of the investment in shares of the associate in the consolidated statement of financial position. Any
goodwill arising on the acquisition of the Company’s interest in an associate is measured in accordance with the Company’s accounting policy for goodwill arising
in a business combination, see Note 3.2.

After application of the equity method, the Company determines whether it is necessary to recognize an additional impairment loss on its investment in its
associate. The Company determines at each reporting date whether there is any objective evidence that the investment in the associates is impaired. If this is the
case, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, and recognizes
the amount in the share of the profit or loss of associates and joint ventures accounted for using the equity method in the consolidated income statements.

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3.11.2 Joint arrangements
A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The Company classifies
its interests in joint arrangements as either joint operations or joint ventures depending on the Company’s rights to the assets and obligations for the liabilities of
the arrangements.

Joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. The Company
recognizes its interest in the joint ventures as an investment and accounts for that investment using the equity method, as described in Note 3.11.1. As of
December 31, 2015 and 2014 the Company does not have an interest in joint operations.

After application of the equity method, the Company determines whether it is necessary to recognize an impairment loss on its investment in its joint venture.
The Company determines at each reporting date whether there is any objective evidence that the investment in the joint ventures is impaired. If this is the case,
the Company calculates the amount of impairment as the difference between the recoverable amount of the joint venture and its carrying value and recognizes the
amount in the share of the profit or loss of joint ventures accounted for using the equity method in the consolidated statements of income.

3.12 Property, plant and equipment
Property, plant and equipment are initially recorded at their cost of acquisition and/or construction, and are presented net of accumulated depreciation and/or
accumulated impairment losses, if any. The borrowing costs related to the acquisition or construction of qualifying asset is capitalized as part of the cost of that
asset, if material.

Major maintenance costs are capitalized as part of total acquisition cost. Routine maintenance and repair costs are expensed as incurred.

Investments in progress consist of long-lived assets not yet in service, in other words, that are not yet used for the purpose that they were bought, built or
developed. The Company expects to complete those investments during the following 12 months.

Depreciation is computed using the straight-line method over the asset’s estimated useful life. Where an item of property, plant and equipment comprises major
components having different useful lives, they are accounted and depreciated for as separate items (major components) of property, plant and equipment. The
Company estimates depreciation rates, considering the estimated useful lives of the assets.

The estimated useful lives of the Company’s principal assets are as follows:

Buildings
Machinery and equipment
Distribution equipment
Refrigeration equipment
Returnable bottles
Leasehold improvements
Information technology equipment
Other equipment

Years

15-50
10-20
7-15
5-7
1.5-4
The shorter of lease term or 15 years
3-5
3-10

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate
accounted for on a prospective basis.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the
asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds
(if any) and the carrying amount of the asset and is recognized in consolidated net income.

Returnable and non-returnable bottles:
Coca-Cola FEMSA has two types of bottles: returnable and non-returnable.

• Non returnable: Are recorded in consolidated net income at the time of the sale of the product.

• Returnable: Are classified as long-lived assets as a component of property, plant and equipment. Returnable bottles are recorded at acquisition cost; and for
countries with hyperinflationary economies, restated according to IAS 29, “Financial Reporting in Hyperinflationary Economies.” Depreciation of returnable
bottles is computed using the straight-line method considering their estimated useful lives.

There are two types of returnable bottles:

• Those that are in Coca-Cola FEMSA’s control within its facilities, plants and distribution centers; and

• Those that have been placed in the hands of customers, and still belong to Coca-Cola FEMSA.

Returnable bottles that have been placed in the hands of customers are subject to an agreement with a retailer pursuant to which Coca-Cola FEMSA retains
ownership. These bottles are monitored by sales personnel during periodic visits to retailers and Coca-Cola FEMSA has the right to charge any breakage identified
to the retailer. Bottles that are not subject to such agreements are expensed when placed in the hands of retailers.

Coca-Cola FEMSA’s returnable bottles are depreciated according to their estimated useful lives (3 years for glass bottles and 1.5 years for PET bottles). Deposits
received from customers are amortized over the same useful estimated lives of the bottles.

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3.13 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period
of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use
or sale. Borrowing costs may include:

• Interest expense; and

• Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

Interest income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs
eligible for capitalization.

All other borrowing costs are recognized in consolidated net income in the period in which they are incurred.

3.14 Intangible assets
Intangible assets are identifiable non monetary assets without physical substance and represent payments whose benefits will be received in future years.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value
as at the date of acquisition (see Note 3.2). Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated
impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite, in accordance with the period over which the Company expects
to receive the benefits.

Intangible assets with finite useful lives are amortized and mainly consist of:

• Information technology and management system costs incurred during the development stage which are currently in use. Such amounts are capitalized and
then amortized using the straight-line method over their expected useful lives, with a range in useful lives from 3 to 10 years. Expenses that do not fulfill the
requirements for capitalization are expensed as incurred.

• Long-term alcohol licenses are amortized using the straight-line method over their estimated useful lives, which range between 12 and 15 years, and are

presented as part of intangible assets with finite useful lives.

Amortized intangible assets, such as finite lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset or group of assets may not be recoverable through its expected future cash flows.

Intangible assets with an indefinite life are not amortized and are subject to impairment tests on an annual basis as well as whenever certain circumstances
indicate that the carrying amount of those intangible assets exceeds their recoverable value.

The Company’s intangible assets with an indefinite life mainly consist of rights to produce and distribute Coca-Cola trademark products in the Company’s
territories. These rights are contained in agreements that are standard contracts that The Coca-Cola Company has with its bottlers.

As of December 31, 2015, Coca-Cola FEMSA had nine bottler agreements in Mexico: (i) the agreements for the Valley of Mexico territory, which are up for
renewal in May 2016 and June 2023, (ii) the agreement for the Southeast territory, which is up for renewal in June 2023, (iii) three agreements for the Central
territory, which are up for renewal in May 2016, July 2016 and May 2025, (iv) the agreement for the Northeast territory, which is up for renewal in May 2016, and
(v) two agreements for the Bajio territory, which are up for renewal in May 2016 and May 2025.

As of December 31, 2015, Coca-Cola FEMSA had four bottler agreements in Brazil, which are up for renewal in October 2017 (two agreements) and April 2024
(two agreements); and one bottler agreement in each of Argentina, which is up for renewal in September 2024; Colombia, which is up for renewal in June 2024;
Venezuela, which is up for renewal in August 2016; Guatemala, which is up for renewal in March 2025; Costa Rica, which is up for renewal in September 2017;
Nicaragua, which is up for renewal in May 2016 and Panama, which is up for renewal in November 2024.

The bottler agreements are automatically renewable for ten-year terms, subject to the right of either party to give prior notice that it does not wish to renew a
specific agreement. In addition, these agreements generally may be terminated in the case of material breach. Termination would prevent the Company from
selling Coca-Cola trademark beverages in the affected territory and would have an adverse effect on the Company´s business, financial conditions, results from
operations and prospects.

3.15 Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than
through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for
immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale
within one year from the date of classification.

When the Company is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for
sale when the criteria described above are met, regardless of whether the Company will retain a non-controlling interest in its former subsidiary after the sale.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

3.16 Impairment of non financial assets
At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication
that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent
of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount
of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated
to individual CGUs, or otherwise they are allocated to the smallest CGUs for which a reasonable and consistent allocation basis can be identified.

For goodwill and other indefinite lived intangible assets, the Company tests for impairment on an annual basis and whenever certain circumstances indicate that
the carrying amount of the cash generating unit might exceed its recoverable amount.

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Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its
recoverable amount. An impairment loss is recognized immediately in consolidated net income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or CGU) is increased to the revised estimate of its recoverable amount, but
so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the
asset (or CGU) in prior years. A reversal of an impairment loss is recognized immediately in consolidated net income. Impairment losses related to goodwill are
not reversible.

For the year ended December 31, 2015 and 2014, the Company recognized impairment of Ps. 134 and Ps. 145, respectively (see Note 19). No impairment was
recognized for the year ended December 31, 2013.

3.17 Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at inception date, whether fulfillment of the
arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified
in an arrangement.

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases
are classified as operating leases.

Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of
the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.
Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Interest expenses are recognized immediately in consolidated net income, unless they are directly attributable to qualifying assets, in which
case they are capitalized in accordance with the Company’s general policy on borrowing costs. Contingent rentals are recognized as expenses in the periods in
which they are incurred. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the
term of the relevant lease.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of
the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in
the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The
aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative
of the time pattern in which economic benefits from the leased asset are consumed. Leasehold improvements on operating leases are amortized using the straight-
line method over the shorter of either the useful life of the assets or the related lease term.

3.18 Financial liabilities and equity instruments
3.18.1 Classification as debt or equity
Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual
arrangements and the definitions of a financial liability and an equity instrument.

3.18.2 Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by
the Company are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase,
sale, issue or cancellation of the Company’s own equity instruments.

3.18.3 Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at FVTPL, loans and borrowings, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Company determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognized initially at fair value less, in the case of loans and borrowings, directly attributable transaction costs.

The Company financial liabilities include trade and other payables, loans and borrowings, and derivative financial instruments, see Note 3.7.

Subsequent measurement
The measurement of financial liabilities depends on their classification as described below.

3.18.4 Loans and borrowings
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses
are recognized in the consolidated income statements when the liabilities are derecognized as well as through the effective interest method amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest
method. The effective interest method amortization is included in interest expense in the consolidated income statements, see Note 18.

3.18.5 Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by
another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is
treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the
consolidated income statements.

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3.19 Provisions
Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that the Company will be
required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking
into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation,
its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if
it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

The Company recognizes a provision for a loss contingency when it is probable (i.e., the probability that the event will occur is greater than the probability that it
will not) that certain effects related to past events, would materialize and can be reasonably quantified. These events and their financial impact are also disclosed
as loss contingencies in the consolidated financial statements when the risk of loss is deemed to be other than remote. The Company does not recognize an asset
for a gain contingency until the gain is realized, see Note 25.

Restructuring provisions are recognized only when the recognition criteria for provisions are fulfilled. The Company has a constructive obligation when a detailed
formal plan identifies the business or part of the business concerned, the location and number of employees affected, a detailed estimate of the associated costs,
and an appropriate timeline. Furthermore, the employees affected must have been notified of the plan’s main features.

3.20 Post-employment and other long-term employee benefits
Post-employment and other long-term employee benefits, which are considered to be monetary items, include obligations for pension and retirement plans,
seniority premiums and postretirement medical services, are all based on actuarial calculations, using the projected unit credit method.

In Mexico, the economic benefits from employee benefits and retirement pensions are granted to employees with 10 years of service and minimum age of 60. In
accordance with Mexican Labor Law, the Company provides seniority premium benefits to its employees under certain circumstances. These benefits consist of
a one-time payment equivalent to 12 days wages for each year of service (at the employee’s most recent salary, but not to exceed twice the legal minimum wage),
payable to all employees with 15 or more years of service, as well as to certain employees terminated involuntarily prior to the vesting of their seniority premium
benefit. For qualifying employees, the Company also provides certain post-employment healthcare benefits such as the medical-surgical services, pharmaceuticals
and hospital.

For defined benefit retirement plans and other long-term employee benefits, such as the Company’s sponsored pension and retirement plans, seniority premiums
and postretirement medical service plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried
out at the end of each reporting period. All remeasurements of the Company’s defined benefit obligation such as actuarial gains and losses are recognized directly in
other comprehensive income (“OCI”). The Company presents service costs within cost of goods sold, administrative and selling expenses in the consolidated income
statements. The Company presents net interest cost within interest expense in the consolidated income statements. The projected benefit obligation recognized
in the consolidated statement of financial position represents the present value of the defined benefit obligation as of the end of each reporting period. Certain
subsidiaries of the Company have established plan assets for the payment of pension benefits, seniority premiums and postretirement medical services through
irrevocable trusts of which the employees are named as beneficiaries, which serve to increase the funded status of such plans’ related obligations.

Costs related to compensated absences, such as vacations and vacation premiums, are recognized on an accrual basis. Cost for mandatory severance benefits are
recorded as incurred.

The Company recognizes a liability and expense for termination benefits at the earlier of the following dates:

a) When it can no longer withdraw the offer of those benefits; or

b) When it recognizes costs for a restructuring that is within the scope of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets,” and involves the

payment of termination benefits.

The Company is demonstrably committed to a termination when, and only when, the entity has a detailed formal plan for the termination and is without realistic
possibility of withdrawal.

A settlement occurs when an employer enters into a transaction that eliminates all further legal of constructive obligations for part or all of the benefits provided
under a defined benefit plan. A curtailment arises from an isolated event such as closing of a plant, discontinuance of an operation or termination or suspension
of a plan. Gains or losses on the settlement or curtailment of a defined benefit plan are recognized when the settlement or curtailment occurs.

During 2014, the Company settled its pension plan in Brazil and consequently recognized the corresponding effects of the settlement on the results of the current
period, refer to Note 16.

3.21 Revenue recognition
Sales of products are recognized as revenue upon delivery to the customer, and once all the following conditions are satisfied:

• The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

• The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• The amount of revenue can be measured reliably;

• It is probable that the economic benefits associated with the transaction will flow to the Company; and

• The costs incurred or to be incurred in respect of the transaction can be measured reliably.

All of the above conditions are typically met at the point in time that goods are delivered to the customer at the customers’ facilities. Net sales reflect units
delivered at list prices reduced by promotional allowances, discounts and the amortization of the agreements with customers to obtain the rights to sell and
promote the Company’s products.

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Rendering of services and other
Revenue arising from services of sales of waste material and packing of raw materials are recognized in the other operating revenues caption in the consolidated
income statement.

The Company recognized these transactions as revenues in accordance with the requirements established in the IAS 18 “Revenue” for delivery of goods and
rendering of services, which are:

a) The amount of revenue can be measured reliably;

b) It is probable that the economic benefits associated with the transaction will flow to the entity.

Interest income
Revenue arising from the use by others of entity assets yielding interest is recognized once all the following conditions are satisfied:

• The amount of the revenue can be measured reliably; and

• It is probable that the economic benefits associated with the transaction will flow to the entity.

For all financial instruments measured at amortized cost and interest bearing financial assets classified as held to maturity, interest income is recorded using the
effective interest rate (“EIR”), which is the rate that exactly discounts the estimated future cash or receipts through the expected life of the financial instrument or a
shorter period, where appropriate, to the net carrying amount of the financial asset. The related interest income is included in the consolidated income statements.

3.22 Administrative and selling expenses
Administrative expenses include labor costs (salaries and other benefits, including employee profit sharing “PTU”) of employees not directly involved in the sale or
production of the Company’s products, as well as professional service fees, the depreciation of office facilities, amortization of capitalized information technology
system implementation costs and any other similar costs.

Selling expenses include:

• Distribution: labor costs (salaries and other related benefits), outbound freight costs, warehousing costs of finished products, write off of returnable bottles in
the distribution process, depreciation and maintenance of trucks and other distribution facilities and equipment. For the years ended December 31, 2015, 2014
and 2013, these distribution costs amounted to Ps. 20,205, Ps. 19,236 and Ps. 17,971, respectively;

• Sales: labor costs (salaries and other benefits, including PTU) and sales commissions paid to sales personnel; and

• Marketing: promotional expenses and advertising costs.

PTU is paid by the Company’s Mexican subsidiaries to its eligible employees. In Mexico, employee profit sharing is computed at the rate of 10% of the individual
company taxable income, except for considering cumulative dividends received from resident legal persons in Mexico, depreciation of historical rather tax
restated values, foreign exchange gains and losses, which are not included until the asset is disposed of or the liability is due and other effects of inflation are also
excluded. As of January 1, 2014, PTU in Mexico will be calculated from the same taxable income for income tax, except for the following: a) neither tax losses from
prior years nor the PTU paid during the year are deductible; and b) payments exempt from taxes for the employees are fully deductible in the PTU computation.

3.23 Income taxes
Income tax expense represents the sum of the tax currently payable and deferred tax. Income taxes are charged to consolidated net income as they are incurred,
except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also
recognized in other comprehensive income or directly in equity, respectively.

3.23.1 Current income taxes
Income taxes are recorded in the results of the year they are incurred.

3.23.2 Deferred income taxes
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding
tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are
generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible
temporary differences can be utilized and if any, future benefits from tax loss carry forwards and certain tax credits. Such deferred tax assets and liabilities are not
recognized if the temporary difference arises from initial recognition of goodwill (no recognition of deferred tax liabilities) or from the initial recognition (other than in
a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit, except in the case of Brazil, where
certain goodwill amounts are at times deductible for tax purposes.

Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are
recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax
credits and unused tax losses can be utilized. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each
reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except
where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable
that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred income taxes are classified as a long-term asset or liability, regardless of when the temporary differences are expected to reverse.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be recovered.

Deferred tax relating to items recognized in the other comprehensive income are recognized in correlation to the underlying transaction in OCI.

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Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax
rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects
the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount
of its assets and liabilities.

In Mexico, the income tax rate is 30% for 2013, 2014 and 2015, and as result of Mexican Tax Reform for 2014, it will remain at 30% for the following years (see Note 24).

3.24 Share-based payments arrangements
Senior executives of the Company receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for
equity instruments. The equity instruments are granted and then held by a trust controlled by the Company until vesting. They are accounted for as equity settled
transactions. The award of equity instruments is a fixed monetary value on grant date.

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. The fair value determined at the grant
date of the equity-settled share-based payments is expensed and recognized based on the graded vesting method over the vesting period, based on the Company’s
estimate of equity instruments that will eventually vest. At the end of each reporting period, the Company revises its estimate of the number of equity instruments
expected to vest. The impact of the revision of the original estimates, if any, is recognized in consolidated net income such that the cumulative expense reflects
the revised estimate.

3.25 Earnings per share
The Company presents basic and diluted earnings per share (EPS) data for its shares. Basic EPS is calculated by dividing the net income attributable to controlling
interest by the weighted average number of shares outstanding during the period adjusted for the weighted average of own shares purchased in the year. Diluted
EPS is determined by adjusting the weighted average number of shares outstanding including the weighted average of own shares purchased in the year for the
effects of all potentially dilutive securities, which comprise share rights granted to employees described above.

3.26 Issuance of subsidiary stock
The Company recognizes the issuance of a subsidiary’s stock as an equity transaction. The difference between the book value of the shares issued and the amount
contributed by the non-controlling interest holder or third party is recorded as additional paid-in capital.

Note 4. Mergers and Acquisitions
4.1 Mergers and acquisitions
The Company has had certain mergers and acquisitions for the years 2015, 2014 and 2013; which were recorded using the acquisition method of accounting.
The results of the acquired operations have been included in the consolidated financial statements since the date on which the Company obtained control of the
business, as disclosed below. Therefore, the consolidated income statements and the consolidated statements of financial position in the years of such acquisitions
are not comparable with previous periods. The consolidated statements of cash flows for the years ended December 31, 2015 and 2013 show the cash outflow for
the merged and acquired operations net of the cash acquired related to those mergers and acquisitions. For the year ended December 31, 2014, the Company did
not have any acquisitions or mergers.

While the acquired companies disclosed below, from Note 4.1.2 to Note 4.1.4, represent bottlers of Coca-Cola trademarked beverages, such entities were not
under common ownership control prior to their acquisition.

4.1.1 Acquisition of Grupo Socofar
On September 30, 2015, FEMSA Comercio – Retail Division completed the acquisition of 60% of Grupo Socofar. Grupo Socofar is an operator of pharmacies in
South America which operated, directly and through franchises, 643 pharmacies and 154 beauty supply stores in Chile, and over 150 pharmacies in Colombia.
Grupo Socofar was acquired for Ps. 7,685 in an all cash transaction. Transaction related costs of Ps. 116 were expensed by FEMSA Comercio – Retail Division
as incurred, and recorded as a component of administrative expenses in the accompanying consolidated income statements. Socofar was included in operating
results from the closing in September 2015.

FEMSA Comercio – Retail Division is currently in the process of allocating to all assets acquired and liabilities assumed in the acquisition the consideration
transferred as the sum of the acquisition-date fair values of the net assets acquired because it is conducting a detailed review process. FEMSA Comercio – Retail
Division expects to finish the allocation during the following year but before the measurement period allowed by IFRS; preliminary estimate of fair value of
Socofar´s net assets acquired is as follows.

Total current assets (including cash acquired of Ps. 795)
Total non-current assets
Total assets
Total liabilities

Net assets acquired
Goodwill
Non-controlling interest

(1)

Total consideration transferred
(1)

Measured at the proportionate share of the acquiree’s identificable net assets.

Ps.

2015

10,499
3,875
14,374
(11,555)

2,819
5,994
(1,128)

Ps.

7,685

FEMSA Comercio – Retail Division expects to recover the amount recorded as goodwill through synergies related to the implementation of successful practices
from its existing Mexican operations such as speed and quality in execution of the customer’s value proposition and growth. Goodwill has been allocated to
FEMSA Comercio’s Pharma & Beauty cash generating unit.

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Selected income statement information of Socofar for the period from the acquisition date through December 31, 2015 is as follows:

Income Statement

Total revenues
Income before income taxes
Net income

2015

7,583
394
354

Ps.

4.1.2 Acquisition of Grupo Spaipa
On October 29, 2013, Coca-Cola FEMSA through its Brazilian subsidiary Spal Industria Brasileira de Bebidas, S.A. completed the acquisition of 100% of Grupo
Spaipa and three holding companies (collectively “Spaipa”) and was acquired for Ps. 26,856 in an all cash transaction. Spaipa was a bottler of Coca-Cola trademark
products which operated mainly in Sao Paulo and Paraná, Brazil. This acquisition was made to reinforce Coca-Cola FEMSA’s leadership position in Brazil.
Transaction related costs of Ps. 8 were expensed by the Company as incurred, and recorded as a component of administrative expenses in the accompanying
consolidated income statements. Spaipa was included in operating results from November 2013.

The fair value of Spaipa’s net assets acquired is as follows:

Total current assets (including cash acquired of Ps. 3,800)
Total non-current assets
Distribution rights
Total assets
Total liabilities
Net assets acquired

Goodwill
Total consideration transferred

Ps.

5,918
5,090
11,872
22,880
(6,807)
16,073

10,783
26,856

Coca-Cola FEMSA expects to recover the amount recorded as goodwill through synergies related to the available production capacity. Goodwill has been allocated
to Coca-Cola FEMSA’s cash generating unit in Brazil. The goodwill recognized and expected to be deductible for income tax purposes according to Brazil tax law,
is Ps. 22,202.

Selected income statement information of Spaipa for the period from the acquisition date through December 31, 2013 is as follows:

Income Statement

Total revenues
Income before income taxes
Net income

2013

2,466
354
311

Ps.

4.1.3 Acquisition of Companhia Fluminense de Refrigerantes
On August 22, 2013, Coca-Cola FEMSA through its Brazilian subsidiary Spal Industria Brasileira de Bebidas, S.A. completed the acquisition of 100% of Companhia
Fluminense de Refrigerantes (“Companhia Fluminense”) for Ps. 4,657 in an all cash transaction. Companhia Fluminense was a bottler of Coca-Cola trademark
products which operated in the states of Minas Gerais, Rio de Janeiro and Sao Paulo, Brazil. This acquisition was made to reinforce Coca-Cola FEMSA’s leadership
position in Brazil. Transaction related costs of Ps. 11 were expensed by Coca-Cola FEMSA as incurred, and recorded as a component of administrative expenses
in the accompanying consolidated income statements. Companhia Fluminense was included in operating results from September 2013.

The fair value of Companhia Fluminense’s net assets acquired is as follows:

Total current assets (including cash acquired of Ps. 9)
Total non-current assets
Distribution rights
Total assets
Total liabilities
Net assets acquired

Goodwill
Total consideration transferred

Ps.

515
1,721
2,077
4,313
(1,963)
2,350

2,307
4,657

Selected income statement information of Companhia Fluminense for the period from the acquisition date through December 31, 2013 is as follows:

Income Statement

Total revenues
Loss before taxes
Net loss

2013

981
(39)
(34)

Ps.

FEMSA Annual Report 2015

creating stories

4.1.4 Merger with Grupo YOLI
On May 24, 2013, Coca-Cola FEMSA completed the merger of 100% of Grupo Yoli. Grupo Yoli comprised the bottler entity YOLI de Acapulco, S.A. de C.V. and
other nine entities. Grupo Yoli was a bottler of Coca-Cola trademark products which operated mainly in the state of Guerrero, as well as in parts of the state of
Oaxaca in Mexico. This merger was made to reinforce Coca-Cola FEMSA’s leadership position in Mexico. The transaction involved the issuance of 42,377,925 new
L shares of Coca-Cola FEMSA, along with a cash payment immediately prior to closing of Ps. 1,109, in exchange for 100% share ownership of Grupo YOLI, which
was accomplished through a merger. The total purchase price was Ps. 9,130 based on a share price of Ps. 189.27 per share on May 24, 2013. Transaction related
costs of Ps. 82 were expensed by Coca-Cola FEMSA as incurred, and recorded as a component of administrative expenses in the accompanying consolidated
income statements. Grupo YOLI was included in operating results from June 2013.

The fair value of Grupo Yoli net assets acquired is as follows:

Total current assets (including cash acquired of Ps. 63)
Total non-current assets
Distribution rights
Total assets
Total liabilities
Net assets acquired

Goodwill
Total consideration transferred

2013

837
2,144
3,503
6,484
(1,487)
4,997

4,133
9,130

Ps.

Coca-Cola FEMSA expects to recover the amount recorded as goodwill through synergies related to the available production capacity. Goodwill has been allocated
to Coca-Cola FEMSA’s cash generating unit in Mexico. The entire amount of goodwill will not be tax deductible.

Selected income statement information of Grupo YOLI for the period from the acquisition date through December 31, 2013 is as follows:

Income Statement

Total revenues
Income before taxes
Net income

2013

2,240
70
44

Ps.

4.1.5 Other acquisitions
During 2015, other cash payments, related to the Company’s smaller acquisitions which in the aggregate amounted to Ps. 5,892. These payments were primarily
related to the following: acquisition of 100% Farmacias Farmacon, a regional drugstore operator in the western Mexican states of Sinaloa, Sonora, Baja California
and Baja California Sur with headquarters in the city of Culiacan, Sinaloa, at the acquisition date Farmacias Farmacon operated 215 stores; merger of 100% of
PEMEX franchises in which FEMSA Comercio – Fuel Division has been providing operation services for gasoline service stations through agreements with third
parties, using the commercial brand name “OXXO GAS”, at the acquisition date there were 227 OXXO GAS stations; acquisition of 100% of “Zimag”, supplier of
logistics services in Mexico, with experience in warehousing, distribution and value added services over twelve cities in Mexico mainly in Mexico City, Monterrey,
Guanajuato, Chihuahua, Merida and Tijuana; acquisition of 100% of Atlas Transportes e Logistica, supplier of logistics services in Brazil, with experience in the
service industry breakbulk logistics with a network of 49 operative centers and over 1,200 freight units through all regions in Brazil. Transactions related costs in
the aggregate amounted of Ps. 39 were expensed as incurred, and recorded as a component of administrative expenses in the accompanying consolidated income
statements.

The preliminary estimation of fair value about these net assets acquired in the aggregate is as follows:

Total current assets (including cash acquired of Ps. 71)
Total non-current assets
Total assets
Total liabilities
Net assets acquired

Goodwill
Total consideration transferred

2015

1,411
859
2,270
(1,753)
517

5,375
5,892

Ps.

FEMSA Comercio – Retail Division and the logistic services business expect to recover the amount recorded as goodwill through synergies related to the ability
to apply the operational processes of these business units. Farmacias Farmacon goodwill have been allocated to FEMSA Comercio’s Pharma & Beauty cash
generating unit and merger of PEMEX franchises goodwill have been allocated to FEMSA Comercio – Fuel Division cash generating unit in Mexico. Zimag and
Atlas Transportes e Logistica goodwill has been allocated to FEMSA Logistic Services business’s cash generating unit in Mexico and Brazil, respectively.

Selected income statement information of these acquisitions for the period from the acquisition date through December 31, 2015 is as follows:

Income Statement

Total revenues
Income before income taxes
Net income

2015

20,262
107
51

Ps.

FEMSA Annual Report 2015

creating stories

During 2013, other cash payments, net of cash acquired, related to the Company’s smaller acquisitions amounted to Ps. 3,021. These payments were primarily
related to the following: acquisition of Expresso Jundiaí, supplier of logistics services in Brazil, with experience in the service industry breakbulk logistics,
warehousing and value added services. Expresso Jundiaí operated a network of 42 operating bases as of the date of the agreement, and has presence in six states in
South and Southeast Brazil; acquisition of 80% of Doña Tota, brand leader in quick service restaurants in Notheast Mexico, originated in the state of Tamaulipas,
Mexico, which operated 204 restaurants in Mexico and 11 in the state of Texas, United States, as of the date of the agreement. This transaction resulted in the
acquistion of assets and rights for the production, processing, marketing and distribution of its fast food products, which was treated as business combination
according to IFRS 3 “Business Combinations;” acquisition of Farmacias Moderna, leading pharmacy in the state of Sinaloa, Mexico which operated 100 stores in
Mazatlan, Sinaloa as of the date of the agreement; and acquisition of 75% of Farmacias YZA, a leading pharmacy in Southeast Mexico, in the state of Yucatan,
which operated 330 stores, as of the date of the agreement.

Unaudited Pro Forma Financial Data
The following unaudited consolidated pro forma financial data represent the Company’s historical financial statements, adjusted to give effect to (i) the acquisition
of Grupo Socofar, Farmacias Farmacon, Zimag, Atlas Transportes e Logística and merger of PEMEX franchises, mentioned in the preceding paragraphs as if
they occurred on January 1, 2015; and (ii) certain accounting adjustments mainly related to the pro forma depreciation of fixed assets of the acquired companies.
Unaudited pro forma financial data for all acquisitions and merger included, are as follow.

Total revenues
Income before income taxes and share of the profit of associates and joint ventures accounting for using the equity method
Net income
Basic net controlling interest income per share Series “B”
Basic net controlling interest income per share Series “D”

Below are pro forma 2013 results as if Spaipa, Companhia Fluminense and Grupo Yoli were acquired on January 1, 2013:

Unaudited pro forma financial
information for the –year ended
December 31, 2015

Ps. 368,446
28,053
26,389
1.04
1.30

Ps.

Unaudited pro forma financial
information for the –year ended
December 31, 2013

Ps.

270,705
23,814
20,730
0.76
0.95

Note 5. Cash and Cash Equivalents
For the purposes of the statement of cash flows, cash includes cash on hand and in banks and cash equivalents, which are short-term, highly liquid investments
that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, with a maturity date of three months or
less at their acquisition date. Cash at the end of the reporting period as shown in the consolidated statement of cash flows is comprised of the following:

Cash and bank balances
Cash equivalents (see Note 3.5)

December 31,
2015

Ps.

12,530
16,866
29,396

December 31,
2014

Ps.

12,654
22,843
35,497

As explained in Note 3.3 above, the Company operates in Venezuela, which has a certain level of exchange control restrictions, which might prevent cash and cash
equivalent balances from being available for use elsewhere in the group. At December 31, 2015 and 2014, cash and cash equivalent balances of the Company’s
Venezuela subsidiaries were Ps. 1,267 and Ps. 1,954, respectively.

Note 6. Investments
As of December 31, 2015 and 2014 investments are classified as held-to maturity, the carrying value of the investments is similar to their fair value. The following
is a detail of held-to maturity investments:

(1)

Held-to Maturity
Bank Deposits

Acquisition cost
Accrued interest
Amortized cost

2015

19
-
19
19

2014

143
1
144
144

Ps.

Ps.
Ps.

Ps.

Ps.
Ps.

(1)

Denominated in euros at a fixed interest rate. Investments as of December 31, 2015 mature during 2016.

For the years ended December 31, 2015, 2014 and 2013, the effect of the investments in the consolidated income statements under the interest income item is
Ps. 1, Ps. 3 and Ps. 3, respectively.

creating stories

FEMSA Annual Report 2015

Note 7. Accounts Receivable, Net

Trade receivables
Allowance for doubtful accounts
The Coca-Cola Company (see Note 14)
Loans to employees
Other related parties (see Note 14)
Heineken Company (see Note 14)
Others

December 31,
2015

December 31,
2014

Ps.

14,696
(849)
1,559
151
243
754
1,458
18,012

Ps.

9,312
(456)
1,584
241
273
811
2,077
13,842

7.1 Trade receivables
Accounts receivable representing rights arising from sales and loans to employees or any other similar concept, are presented net of discounts and the allowance
for doubtful accounts.

Coca-Cola FEMSA has accounts receivable from The Coca-Cola Company arising from the latter’s participation in advertising and promotional programs and
investment in refrigeration equipment and returnable bottles made by Coca-Cola FEMSA.

The carrying value of accounts receivable approximates its fair value as of December 31, 2015 and 2014.

Aging of past due but not impaired (days outstanding)

60-90 days
90-120 days
120+ days
Total

7.2 Changes in the allowance for doubtful accounts

Opening balance
Allowance for the year
Charges and write-offs of uncollectible accounts
Effects of changes in foreign exchange rates
Ending balance

December 31,
2015

December 31,
2014

Ps.

178
161
588
927

2014

489
94
(90)
(37)
456

Ps.

65
24
182
271

2013

413
154
(34)
(44)
489

2015

456
167
(99)
325
849

Ps.

In determining the recoverability of trade receivables, the Company considers any change in the credit quality of the trade receivable from the date credit was
initially granted up to the end of the reporting period. The concentration of credit risk is limited due to the customer base being large and unrelated.

Aging of impaired trade receivables (days outstanding)

60-90 days
90-120 days
120+ days
Total

December 31,
2015

December 31,
2014

Ps.

4
13
832
849

Ps.

13
10
433
456

7.3 Payments from The Coca-Cola Company
The Coca-Cola Company participates in certain advertising and promotional programs as well as in the Coca-Cola FEMSA’s refrigeration equipment and
returnable bottles investment program. Contributions received by Coca-Cola FEMSA for advertising and promotional incentives are recognized as a reduction
in selling expenses and contributions received for the refrigeration equipment and returnable bottles investment program are recorded as a reduction in the
investment in refrigeration equipment and returnable bottles items. For the years ended December 31, 2015, 2014 and 2013 contributions received were Ps. 3,749,
Ps. 4,118 and Ps. 4,206, respectively.

FEMSA Annual Report 2015

Note 8. Inventories

Finished products
Raw materials
Spare parts
Work in process
Inventories in transit
Other

creating stories

December 31,
2015

December 31,
2014

Ps.

17,631
3,629
1,661
108
1,534
117
24,680

Ps.

10,989
3,493
1,353
279
929
171
17,214

For the years ended at 2015, 2014 and 2013, the Company recognized write-downs of its inventories for Ps. 1,290, Ps. 1,028 and Ps. 1,322 to net realizable value,
respectively.

For the years ended at 2015, 2014 and 2013, changes in inventories are comprised as follows and included in the consolidated income statement under the cost
of goods sold caption:

Changes in inventories of finished goods and work in progress
Raw materials and consumables used
Total

2015

Ps. 132,835
53,514
Ps. 186,349

2014

92,390
55,038
147,428

Ps.

2013

76,163
49,740
125,903

Ps.

Note 9. Other Current Assets and Other Current Financial Assets
9.1 Other current assets

Prepaid expenses
Agreements with customers
Short-term licenses
Other

Prepaid expenses as of December 31, 2015 and 2014 are as follows:

Advances for inventories
Advertising and promotional expenses paid in advance
Advances to service suppliers
Prepaid leases
Prepaid insurance
Others

December 31,
2015

December 31,
2014

Ps.

3,363
168
86
37
3,654

Ps.

1,375
161
68
184
1,788

December 31,
2015

December 31,
2014

Ps.

2,291
58
601
115
58
240
3,363

Ps.

380
156
517
80
29
213
1,375

Advertising and promotional expenses paid in advance recorded in the consolidated income statement for the years ended December 31, 2015, 2014 and 2013
amounted to Ps. 4,613, Ps. 4,460 and Ps. 6,232, respectively.

9.2 Other current financial assets

Restricted cash
Derivative financial instruments (see Note 20)
Short term note receivable

(1)

The carrying value approximates its fair value as of December 31, 2015 and 2014.

December 31,
2015

December 31,
2014

Ps.

704
523
1,191
2,418

Ps.

1,213
384
1,000
2,597

The Company has pledged part of its short-term deposits in order to fulfill the collateral requirements for the accounts payable in different currencies. As of
December 31, 2015 and 2014, the fair value of the short-term deposit pledged were:

Venezuelan bolivars
Brazilian reais
Colombian pesos

December 31,
2015

December 31,
2014

Ps.

344
360
-
704

Ps.

550
640
23
1,213

FEMSA Annual Report 2015

creating stories

Note 10. Investments in Associates and Joint Ventures
Details of the Company’s associates and joint ventures accounted for under the equity method at the end of the reporting period are as follows:

Ownership Percentage

Carrying Amount

Principal
Activity

Place of
Incorporation

December 31,
2015

December 31,
2014

December 31,
2015

December 31,
2014

Beverages

The
Netherlands

20.0%

Ps. 92,694 Ps. 83,710

Investee

Heineken Company (1) (2)

Coca-Cola FEMSA:
Joint ventures:

Grupo Panameño de Bebidas
Dispensadoras de Café, S.A.P.I. de C.V.
Estancia Hidromineral Itabirito, L.T.D.A.

Coca-Cola FEMSA Philippines, Inc. (“CCFPI”)
Fountain Agua Mineral, L.T.D.A.

Associates:

Beverages
Services
Bottling and
distribution
Bottling
Beverages

Panama
Mexico

Brazil
Philippines
Brazil

50.0%
50.0%

50.0%
51.0%
50.0%

36.3%
26.5%
35.0%
26.3%
38.7%
24.4%
Various

50.0%
50.0%

50.0%
51.0%
50.0%

36.3%
32.8%
35.0%
26.3%
38.7%
24.4%
Various

40.0%
Various

1,573
161

160
9,996
491

2,187
172
100
1,531
80
1,363
60

1,740
190

164
9,021
573

2,082
194
98
1,470
91
1,670
33

467
696

467
656
Ps. 111,731 Ps. 102,159

Promotora Industrial Azucarera, S.A. de C.V. (“PIASA”)
Industria Envasadora de Queretaro, S.A. de C.V. (“IEQSA”)
Industria Mexicana de Reciclaje, S.A. de C.V. (“IMER”)
Jugos del Valle, S.A.P.I. de C.V.
KSP Partiçipações, L.T.D.A.
Leao Alimentos e Bebidas, L.T.D.A.
Other investments in Coca-Cola FEMSA’s companies

Sugar production Mexico
Canned bottling Mexico
Mexico
Mexico
Brazil
Brazil
Various

Recycling
Beverages
Beverages
Beverages
Various

FEMSA Comercio:

Café del Pacifico, S.A.P.I. de C.V. (Caffenio)

(1)

(1) (3)

Other investments

(1)

Associate.

Coffee
Various

Mexico
Various

40.0%
Various

(2)

As of December 31, 2015, comprised of 12.53% of Heineken, N.V. and 14.94% of Heineken Holding, N.V., which represents an economic interest of 20% in Heineken. The Company has
significant influence, mainly, due to the fact that it participates in the Board of Directors of Heineken Holding, N.V. and the Supervisory Board of Heineken N.V.; and for the material
transactions between the Company and Heineken Company.

(3)

Joint ventures.

During 2015, Coca-Cola FEMSA received dividends from Industria Envasadora de Queretaro, S.A. de C.V., in the amount of Ps. 13 and subsequently sold shares for
an amount of Ps. 22.

During 2015, Coca-Cola FEMSA made capital contributions to Compañía Panameña de Bebidas, S.A.P.I. de C.V. in the amount of Ps. 7.

During 2015, Coca-Cola FEMSA made capital contributions to Leao Alimentos e Bebidas, L.T.D.A. in the amount of Ps. 71.

During 2014, Coca-Cola FEMSA converted its account receivable from Compañía Panameña de Bebidas, S.A.P.I. de C.V. in the amount of Ps. 814 into an additional
capital contribution in the investee.

During 2014, Coca-Cola FEMSA made capital contributions to Jugos del Valle, S.A.P.I. de C.V. in the amount of Ps. 25.

During 2014, Coca-Cola FEMSA received dividends from Jugos del Valle, S.A.P.I. de C.V., Estancia Hidromineral Itabirito, L.T.D.A., and Fountain Agual Mineral
L.T.D.A., in the amount of Ps. 48, Ps. 50 and Ps. 50, respectively.

On January 25, 2013, Coca-Cola FEMSA closed the acquisition of 51% of CCFPI for an amount of $688.5 U.S. dollars (Ps. 8,904) in an all-cash transaction. As part of
the agreement, Coca-Cola FEMSA obtained a call option to acquire the remaining 49% of CCFPI at any time during the seven years following the closing. Coca-Cola
FEMSA also has a put option to sell its 51% ownership to The Coca-Cola Company at any time from the fifth anniversary of the date of acquisition until the sixth
anniversary, at a price which is based in part on the fair value of CCFPI at the date of acquisition (see Note 20.7).

As mentioned in Note 4, on May 24, 2013, Coca-Cola FEMSA completed the acquisition of 100% of Grupo Yoli. As part of these acquisition, Coca-Cola FEMSA
increased its equity interest to 36.3% in Promotora Industrial Azucarera, S.A de C.V. Coca-Cola FEMSA has recorded the incremental interest acquired at its estimated
fair value.

Although Coca-Cola FEMSA currently owns 51% of CCFPI, when considering (i) the terms of the shareholders’ agreements (specifically the fact that during the initial
four year period the joint approval of both Coca-Cola FEMSA and TCCC is required to approve CCFPI´s annual business plan, which is the key documents pursuant
to which CCFPI´s business is operated and any other matters); and (ii) potential voting rights to acquire the remaining 49% of CCFPI are not probable to be executed
in the foreseeable future and the fact that the call option remains “out of the money”, the Company has concluded that Coca-Cola FEMSA did not control CCFPI
during any of the periods presented in the consolidated financial statements and consequently the Company has accounted for this investment as joint venture using
the equity method.

FEMSA Annual Report 2015

creating stories

On April 30, 2010, the Company acquired an economic interest of 20% of Heineken Group. Heineken’s main activities are the production, distribution and marketing
of beer worldwide. The Company recognized an equity income of Ps. 5,879, Ps. 5,244 and Ps. 4,587, net of taxes regarding its interest in Heineken for the years ended
December 31, 2015, 2014 and 2013, respectively. The Company’s equity method in the net income attributable to equity holders of Heineken exclusive of amortization
of adjustments amounted to Ps. 6,567 (€. 378 million), Ps. 5,362 (€. 303 million), and Ps. 4,680 (€. 273 million), for the years ended December 31, 2015, 2014 and 2013,
respectively.

Summarized financial information in respect of the associate Heineken accounted for under the equity method is set out below.

December 31, 2015

December 31, 2014

Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Total equity
Equity attributable to equity holders of Heineken
Total revenue and other income
Total cost and expenses
Net income
Net income attributable to equity holders of the company
Other comprehensive income
Total comprehensive income
Total comprehensive income attributable to equity holders of the company

Reconciliation from the equity of the associate Heineken to the investment of the Company.

Peso

Ps. 111,997
602,217
161,273
267,551
285,390
256,323
Ps. 363,191
309,812
Ps. 37,166
32,844
4,809
Ps. 41,975
37,323

Million of

€.

Euro

5,914
31,800
8,516
14,128
15,070
13,535
20,922
17,847
2,141
1,892
277
2,418
2,150

Million of

Peso

Euro

Ps. 109,101
515,282
152,950
230,285
241,148
222,453
Ps. 342,313
293,134
30,216
26,819
4,210
34,426
29,826

Ps.

€. 6,086
28,744
8,532
12,846
13,452
12,409
€. 19,350
16,570
€. 1,708
1,516
238
€. 1,946
1,686

Equity attributable to equity holders of Heineken
Economic ownership percentage

Investment in Heineken Company exclusive of goodwill and others adjustments
Effects of fair value determined by Purchase Price Allocation
Goodwill

Investment in Heineken Company

December 31, 2015

December 31, 2014

Million of

Peso

Ps. 256,323
20%

Ps. 51,265
18,704
22,725

€.

Ps. 92,694

€.

Euro

13,535
20%
2,707
988
1,200
4,895

Million of

Peso

Euro

Ps. 222,453
20%

Ps.

44,491
17,707
21,512

€. 12,409
20%

€. 2,482
988
1,200

Ps.

83,710

€. 4,670

As of December 31, 2015 and 2014 fair value of Company’s investment in Heineken N.V. Holding and Heineken N.V. represented by shares equivalent to 20% of
its outstanding shares amounted to Ps. 165,517 (€. 8,740 million) and Ps. 116,327 (€. 6,489 million) based on quoted market prices of those dates. As of February
23, 2016, issuance date of these consolidated financial statements, fair value amounted to €. 8,252 million.

During the years ended December 31, 2015, 2014 and 2013, the Company received dividends distributions from Heineken, amounting to Ps. 2,343, Ps. 1,795 and
Ps. 1,752, respectively.

As of December 31, 2015, 2014 and 2013 the total net income corresponding to the inmaterial associates of Coca-Cola FEMSA was Ps. 185, Ps. 195 and Ps. 138,
respectively.

As of December 31, 2015, 2014 and 2013 the total net (loss) income corresponding to the inmaterial joint ventures of Coca-Cola FEMSA was Ps. (30), Ps. (320)
and Ps. 151, respectively.

The Company’s share of other comprehensive income from equity investees, net of taxes for the year ended December 31, 2015, 2014 and 2013 are as follows:

Items that may be reclassified to consolidated net income:
Valuation of the effective portion of derivative financial instruments
Exchange differences on translating foreign operations
Total
Items that may not be reclassified to consolidated net income in subsequent periods:
Remeasurements of the net defined benefit liability

2015

213
69
282

Ps.

169

2014

2013

Ps.

(257)
1,579
1,322

Ps.

(91)
(3,029)
(3,120)

(881)

Ps.

491

FEMSA Annual Report 2015

Note 11. Property, Plant and Equipment, Net

Cost

Land

Buildings

Machinery
and
Equipment

Refrigeration
Equipment

Returnable
Bottles

Cost as of January 1, 2013
Additions
Additions from business combinations
Transfer of completed projects

Ps. 5,769
433
536

Ps. 14,377 Ps.
167
2,278

45,082
4,648
2,814

Ps.

11,991
1,107
428

Ps.

5,814
1,435
96

Investments
in Fixed
Assets in
Progress

Ps. 5,357
8,238
614

Leasehold
Improvements

Other

Total

Ps.

9,618 Ps.
11
36

754 Ps. 98,762
16,380
341
7,066
264

creating stories

in progress

389

1,158

992

1,144

785

(6,296)

1,828

Cost as of December 31, 2013

Ps. 7,094

Ps. 17,544 Ps.

49,877

Ps.

13,389

7,386

Ps. 7,039

Ps. 10,693 Ps.

1,566 Ps. 114,588

-
(11)

-
(291)

(216)
(2,049)

-
(749)

-
(324)

-
(748)

-
(697)

(250)

(1,336)

(3,678)

(1,135)

(466)

(291)

(103)

(55)

(7,314)

228
-

1,191
-

2,252
32

603
-

46
-

165
-

-
-

277
-

4,762
32

-
(15)

(216)
(4,884)

Ps. 7,094
803

Ps. 17,544 Ps.

49,877
4,156

Ps.

13,389
32

7,386
398

Ps. 7,039
11,209

Ps.

(115)

(610)

891

(57)

(68)

1,717

2,823

1,523

1,994

(10,050)

1,990

-
(17)

-
(144)

(134)
(2,243)

-
(632)

-
(60)

-
(5)

-
(587)

Ps. 10,693 Ps.

1,566 Ps. 114,588
16,985

234

(253)

(113)

-
(79)

(134)
(3,767)

Transfer to/(from) assets classified as

held for sale

Disposals
Effects of changes in foreign

exchange rates

Changes in value on the recognition

of inflation effects

Capitalization of borrowing costs

Cost as of January 1, 2014
Additions
Changes in fair value of past

acquisitions

Transfer of completed projects

in progress

Transfer to/(from) assets classified

as held for sale

Disposals
Effects of changes in foreign

exchange rates

Changes in value on the recognition

of inflation effects

Capitalization of borrowing costs

(664)

(3,125)

(5,415)

(1,975)

(323)

(545)

(44)

(506)

(12,597)

110
-

355
-

531
33

186
-

7
-

29
263

-
-

110
-

1,328
296

Cost as of December 31, 2014

Ps. 7,211

Ps. 15,791 Ps.

50,519

Ps.

12,466

Ps.

9,402

Ps. 7,872

Ps. 12,250 Ps.

1,075 Ps. 116,586

Cost as of January 1, 2015
Additions
Additions from business

acquisitions

Transfer of completed projects

in progress

Transfer to/(from) assets classified

as held for sale

Disposals
Effects of changes in foreign

exchange rates

Changes in value on the recognition

of inflation effects

Capitalization of borrowing costs
Cost as of December 31, 2015

Ps. 7,211
675

Ps. 15,791 Ps. 50,519
5,122

1,688

Ps. 12,466
851

Ps. 9,402
1,655

Ps. 7,872
6,942

Ps. 12,250 Ps. 1,075 Ps. 116,586
17,485

511

-
(56)

251

870

862

1,289

3,251

1,168

662

(8,143)

1,714

2,013

-
(219)

(10)
(2,694)

-
(972)

-
(103)

-
-

-
(356)

-
(40)

(10)
(4,440)

(595)

(1,352)

(4,330)

(1,216)

(266)

(1,004)

(23)

(848)

(9,634)

245
-

503
-

957
-

295
-

301
-

91
57

-
-

229
-

2,621
57

Ps. 7,569

Ps. 17,951 Ps. 53,685

Ps. 12,592

Ps. 11,651

Ps. 5,815

Ps. 14,488 Ps.

927 Ps. 124,678

FEMSA Annual Report 2015

Accumulated Depreciation

Land

Buildings

Machinery
and
Equipment

Refrigeration
Equipment

Returnable
Bottles

Investments
in Fixed
Assets in
Progress

Ps.

-
-

-
-
-

Ps. (4,451) Ps.

(431)

(20,561)
(4,380)

Ps.

(6,622)
(1,452)

Ps.

(1,988)
(1,662)

Ps.

-
200

591

105
1,992

2,061

-
785

755

-
33

143

(583)

(996)

(442)

(6)

Ps. (4,674) Ps.

(21,779)

Ps.

(6,976)

Ps.

(3,480)

Ps.

Ps. (4,674) Ps.

(466)

(21,779)
(4,525)

Ps.

(6,976)
(1,181)

Ps.

(3,480)
(1,879)

Ps.

-
77

62
2,086

-
602

1,512

3,481

1,046

-
57

105

(175)

(707)

(135)

(8)

Ps. (3,726) Ps.

(21,382)

Ps.

(6,644)

Ps.

(5,205)

Ps.

Ps. (3,726) Ps.

(515)
172

(21,382) Ps.
(4,864)
2,001

(6,644)
(1,184)
946

Ps.

(5,205)
(1,984)
80

Ps.

498

2,222

1,044

167

(187)

(426)

(166)

(436)

-
-

creating stories

Leasehold
Improvements

Other

Total

Ps.

(3,176) Ps.
(784)

(315) Ps. ( 37,113)
(8,805)
(96)

-
682

-
6

105
3,698

3,631

(122)

(2,149)

Ps.

(3,270) Ps.

(454) Ps. (40,633)

Ps.

(3,270) Ps.
(863)

(454) Ps. (40,633)
(9,029)
(115)

-
517

-
1

62
3,340

236

6,382

(54)

(1,079)

Ps.

(3,614) Ps.

(386) Ps. (40,957)

Ps.

(3,614) Ps.
(1,071)
270

(386) Ps. (40,957)
(9,761)
(143)
3,471
2

212

4,165

(86)

(1,300)

Accumulated Depreciation as of

January 1, 2013
Depreciation for the year
Transfer (to)/from assets classified

as held for sale

Disposals
Effects of changes in foreign

exchange rates

Changes in value on the recognition

of inflation effects

Accumulated Depreciation
as of December 31, 2013

Accumulated Depreciation as

of January 1, 2014
Depreciation for the year
Transfer (to)/from assets

classified as held for sale

Disposals
Effects of changes in foreign

exchange rates

Changes in value on the recognition

of inflation effects

Accumulated Depreciation
as of December 31, 2014

Accumulated Depreciation
as of January 1, 2015
Depreciation for the year
Disposals
Effects of changes in foreign

exchange rates

Changes in value on the recognition

of inflation effects

Accumulated Depreciation
as of December 31, 2015

Carrying Amount

As of December 31, 2013

As of December 31, 2014
As of December 31, 2015

Ps.

Ps. (3,758) Ps. (22,449) Ps. (6,004)

Ps. (7,378)

Ps.

Ps. (4,392) Ps.

(401) Ps. (44,382)

Ps. 7,094

Ps. 12,870 Ps.

28,098

Ps. 7,211

Ps. 12,065 Ps.

29,137

Ps.

6,413

5,822

Ps.

3,906

4,197

Ps. 7,039

Ps. 7,872

Ps.

7,423 Ps.

1,112 Ps. 73,955

8,636 Ps.

689 Ps. 75,629

Ps. 7,569

Ps. 14,193 Ps. 31,236

Ps.

6,588

Ps. 4,273

Ps. 5,815

Ps. 10,096 Ps.

526 Ps. 80,296

During the years ended December 31, 2015, 2014 and 2013 the Company capitalized Ps. 57, Ps. 296 and Ps. 32, respectively of borrowing costs in relation to
Ps. 993, Ps. 1,915 and Ps. 790 in qualifying assets. The effective interest rates used to determine the amount of borrowing costs eligible for capitalization were
4.1%, 4.8% and 4.1%, respectively.

For the years ended December 31, 2015, 2014 and 2013 interest expense, interest income and net foreign exchange losses (gains) are analyzed as follows:

Interest expense, interest income and foreign exchange losses (gains)
Amount capitalized
Net amount in consolidated income statements

(1)

Amount of interest capitalized in property, plant and equipment and amortized intangible assets.

Commitments related to acquisitions of property, plant and equipment are disclosed in Note 25.

2015

8,031
85
7,946

Ps.

2014

7,080
338
6,742

2013

3,887
57
3,830

Ps.

FEMSA Annual Report 2015

Note 12. Intangible Assets

creating stories

Cost

Cost as of January 1, 2013
Purchases
Acquisition from business combinations
Transfer of completed development systems
Disposals
Effect of movements in exchange rates
Changes in value on the recognition of

inflation effects

Capitalization of borrowing costs

Rights to
Produce and
Distribute
Coca-Cola
Trademark
Products

Other
Indefinite

Total
Lived Unamortized

Technology
Costs and
Intangible Management

Goodwill

Intangible
Assets

Assets

Systems in
Systems Development

Alcohol
Licenses

Total
Amortized
Intangible
Assets

Other

Total
Intangible
Assets

Ps. 57,270 Ps. 6,972
-
-
14,692
19,868
-
-
-
-
(356)

(1,828)

Ps.

339 Ps. 64,581
-
36,181
-
(163)
(2,194)

-
1,621
-
(163)
(10)

417
-

-
-

417
-

Ps. 2,863 Ps. 1,019 Ps.

164
70
172
-
(75)

-
25

644
-
(172)
-
-

113
-

726 Ps.
179
-
-
(46)
-

384 Ps. 4,992 Ps. 69,573
1,110
1,110
123
36,447
266
196
-
-
-
(209)
(46)
-
(2,282)
(88)
(13)

-
-

113
25

530
25

Cost as of December 31, 2013

Ps. 75,727 Ps. 21,308

Ps. 1,787 Ps. 98,822

Ps. 3,219 Ps. 1,604 Ps.

859 Ps.

690 Ps. 6,372 Ps. 105,194

Cost as of January 1, 2014
Purchases
Change in fair value of past acquisitions
Transfer of completed development systems
Disposals
Effect of movements in exchange rates
Changes in value on the recognition of

inflation effects

Capitalization of borrowing costs

(2,416)

Ps. 75,727 Ps. 21,308
-
-
4,117
-
-
(251)

(5,343)

-
-

Ps. 1,787 Ps. 98,822
13
1,496
-
(8)
(5,604)

13
(205)
-
(8)
(10)

2,295
-

-
-

2,295
-

Ps. 3,219 Ps. 1,604 Ps.

227
-
278
(387)
(152)

(2)
42

229
-
(278)
-
(1)

-
-

859 Ps.
168
-
-
-
-

690 Ps. 6,372 Ps. 105,194
681
668
44
1,479
(17)
(17)
-
-
-
(428)
(420)
(33)
(5,770)
(166)
(13)

-
-

(2)
42

2,293
42

Cost as of December 31, 2014

Ps. 70,263 Ps. 25,174

Ps. 1,577 Ps. 97,014

Ps. 3,225 Ps. 1,554 Ps. 1,027 Ps.

671 Ps. 6,477 Ps. 103,491

Cost as of January 1, 2015
Purchases
Acquisitions from business combinations
Transfer of completed development systems
Disposals
Effect of movements in exchange rates
Changes in value on the recognition of

inflation effects

Capitalization of borrowing costs
Cost as of December 31, 2015

Amortization and Impairment Losses

Amortization as of January 1, 2013
Amortization expense
Disposals
Effect of movements in exchange rates

Amortization as of December 31, 2013

Amortization as of January 1, 2014
Amortization expense
Impairment losses
Disposals
Effect of movements in exchange rates
Amortization as of December 31, 2014

Amortization as of January 1, 2015
Amortization expense
Disposals
Effect of movements in exchange rates
Amortization as of December 31, 2015

Ps. 70,263 Ps. 25,174 Ps. 1,577 Ps. 97,014 Ps. 3,225 Ps. 1,554 Ps. 1,027 Ps. 671 Ps. 6,477 Ps. 103,491
1,219
13,134
-
(469)
(7,849)

-
11,369
-
-
(2,693)

-
12,607
-
-
(7,737)

1,219
527
-
(469)
(112)

-
1,238
-
-
(52)

480
328
1,085
(150)
(94)

(1,085)
(242)
(2)

83
199
-
(77)
(16)

198
-
-
-
-

458
-

(4,992)

-
-
-
-

1,121
-

-
-

1,121
-

(12)
28

-
-

(12)
28

1,109
28

Ps. 66,392 Ps. 33,850 Ps. 2,763 Ps. 103,005 Ps. 4,890 Ps.

683 Ps. 1,225 Ps. 860 Ps. 7,658 Ps. 110,663

Ps.

- Ps.
-
-
-

- Ps.

- Ps.
-
-
-
-
- Ps.

- Ps.
-
-
-
- Ps.

Ps.

-
-
-
-

-
-
-
-
-
-

(103) Ps.
-
103
-

(103) Ps. (1,228) Ps.

-
103
-

(271)
2
35

- Ps.
-
-
-

(150) Ps.
(73)
46
-

(199) Ps. (1,577) Ps.
(72)
-
9

(416)
48
44

(1,680)
(416)
151
44

- Ps.

Ps. (1,462) Ps.

- Ps.

(177) Ps.

(262) Ps. (1,901) Ps.

(1,901)

- Ps.
-
(36)
-
-

-
-
(36)
-
-

Ps. (1,462) Ps.
(268)
-
387
-

Ps.

(36) Ps.

(36) Ps. (1,343) Ps.

- Ps.
-
-
-
-
- Ps.

(177) Ps.
(58)
-
-
-
(235) Ps.

(262) Ps. (1,901) Ps.
(97)
-
-
9

(423)
-
387
9

(1,901)
(423)
(36)
387
9

(350) Ps. (1,928) Ps.

(1,964)

- Ps.
-
-
-
- Ps.

(36) Ps.

(36) Ps. (1,343) Ps.

-
-
-

(461)
126
59

(36) Ps.

(36) Ps. (1,619) Ps.

- Ps.
-
-
-
- Ps.

(235) Ps.
(67)
-
-
(302) Ps.

(350) Ps. (1,928) Ps. (1,964)
(604)
(76)
(604)
168
42
168
78
19
78
(365) Ps. (2,286) Ps. (2,322)

FEMSA Annual Report 2015

creating stories

Carrying Amount

As of December 31, 2013

As of December 31, 2014
As of December 31, 2015

Ps. 75,727 Ps. 21,308

Ps. 1,787 Ps. 98,822

Ps. 1,757 Ps. 1,604 Ps.

682 Ps.

428 Ps. 4,471 Ps. 103,293

Ps. 70,263 Ps. 25,174

Ps. 1,541 Ps. 96,978 Ps. 1,882 Ps. 1,554 Ps.

792 Ps.

321 Ps. 4,549 Ps. 101,527

Ps. 66,392 Ps. 33,850 Ps. 2,727 Ps. 102,969 Ps. 3,271 Ps.

683 Ps.

923 Ps. 495 Ps. 5,372 Ps. 108,341

During the years ended December 31, 2015, 2014 and 2013 the Company capitalized Ps. 28, Ps. 42 and Ps. 25, respectively of borrowing costs in relation to Ps.
410, Ps. 600 and Ps. 630 in qualifying assets, respectively. The effective interest rates used to determine the amount of borrowing costs eligible for capitalization
were 4.1%, 4.2% and 4.1%, respectively.

For the years ended 2015, 2014 and 2013, allocation for amortization expense is as follows:

Cost of goods sold
Administrative expenses
Selling expenses

2015

61
407
136
604

Ps.

2014

12
156
255
423

Ps.

The average remaining period for the Company’s intangible assets that are subject to amortization is as follows:

Technology Costs and Management Systems
Alcohol Licenses

2013

10
249
157
416

Years

3-10
6

Coca-Cola FEMSA Impairment Tests for Cash-Generating Units Containing Goodwill and Distribution Rights
For the purpose of impairment testing, goodwill and distribution rights are allocated and monitored on an individual country basis, which is considered to be the
CGU.

The aggregate carrying amounts of goodwill and distribution rights allocated to each CGU are as follows:

Mexico
Guatemala
Nicaragua
Costa Rica
Panama
Colombia
Venezuela
Brazil
Argentina
Total

December 31,
2015

December 31,
2014

Ps.

55,137
410
465
1,391
1,033
4,746
621
23,557
69
87,429

Ps.

55,137
352
418
1,188
884
5,344
823
29,622
88
93,856

Goodwill and distribution rights are tested for impairments annually. The recoverable amounts of the CGUs are based on value-in-use calculations. Value in use
was determined by discounting the future cash flows generated from the continuing use of the CGU.

The foregoing forecasts could differ from the results obtained over time; however, Coca-Cola FEMSA prepares its estimates based on the current situation of each
of the CGUs.

The recoverable amounts are based on value in use. The value in use of CGUs is determined based on the method of discounted cash flows. The key assumptions
used in projecting cash flows are: volume, expected annual long-term inflation, and the weighted average cost of capital (“WACC”) used to discount the projected
flows.

To determine the discount rate, Coca-Cola FEMSA uses the WACC as determined for each of the cash generating units in real terms and as described in following
paragraphs.

The estimated discount rates to perform the IAS 36 “Impairment of assets”, impairment test for each CGU consider market participants’ assumptions. Market
participants were selected taking into consideration the size, operations and characteristics of the business that are similar to those of Coca-Cola FEMSA.

The discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual
risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the specific circumstances of
Coca-Cola FEMSA and its operating segments and is derived from its WACC. The WACC takes into account both debt and equity. The cost of equity is derived
from the expected return on investment by Company’s investors. The cost of debt is based on the interest bearing borrowings Coca-Cola FEMSA is obliged to
service. Segment-specific risk is incorporated by applying individual beta factors. The beta factors are evaluated annually based on publicly available market data.

Market participant assumptions are important because, not only do they include industry data for growth rates, management also assesses how the CGU’s
position, relative to its competitors, might change over the forecasted period.

creating stories

FEMSA Annual Report 2015

The key assumptions used for the value-in-use calculations are as follows:

• Cash flows were projected based on actual operating results and the five-year business plan. Cash flows for a further five-year were forecasted maintaining the
same stable growth and margins per country of the last year base. Coca-Cola FEMSA believes that this forecasted period is justified due to the non-current
nature of the business and past experiences.

• Cash flows after the first ten-year period were extrapolated using a perpetual growth rate equal to the expected annual population growth, in order to calculate

the terminal recoverable amount.

• A per CGU-specific Weighted Average Cost of Capital (“WACC”) was applied as a hurdle rate to discount cash flows to get the recoverable amount of the units;

the calculation assumes, size premium adjusting.

The key assumptions by CGU for impairment test as of December 31, 2015 were as follows:

CGU

Mexico
Colombia
Venezuela
Costa Rica
Guatemala
Nicaragua
Panama
Argentina
Brazil

Pre-tax
WACC

6.7%
7.6%
17.8%
8.2%
10.6%
13.4%
7.4%
9.8%
8.0%

Post-tax
WACC

6.1%
6.8%
17.1%
7.9%
10.0%
12.8%
6.8%
9.1%
7.4%

Expected Annual
Long-Term Inflation
2016-2025

Expected Volume
Growth Rates
2016-2025

3.4%
3.0%
72.5%
4.7%
3.7%
5.3%
3.1%
22.8%
4.9%

2.1%
4.4%
3.9%
3.9%
4.7%
6.4%
5.2%
3.4%
4.0%

The key assumptions by CGU for impairment test as of December 31, 2014 were as follows:

CGU

Mexico
Colombia
Venezuela
Costa Rica
Guatemala
Nicaragua
Panama
Argentina
Brazil

Pre-tax
WACC

5.5%
6.4%
12.9%
7.7%
10.0%
12.7%
7.6%
9.9%
6.2%

Post-tax
WACC

5.0%
5.9%
12.3%
7.6%
9.4%
12.2%
7.2%
9.3%
5.6%

Expected Annual
Long-Term Inflation
2015-2024

Expected Volume
Growth Inflation
2015-2024

3.5%
3.0%
51.1%
4.7%
5.0%
6.0%
3.8%
22.3%
6.0%

2.3%
5.3%
3.9%
2.7%
4.3%
2.7%
4.1%
2.5%
3.8%

The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal
sources (historical data). Coca-Cola FEMSA consistently applied its methodology to determine CGU specific WACC’s to perform its annual impairment testing.

Sensitivity to Changes in Assumptions
At December 31, 2015, Coca-Cola FEMSA performed an additional impairment sensitivity calculation, taking into account an adverse change in post-tax WACC,
according to the country risk premium, using for each country the relative standard deviation between equity and sovereign bonds and an additional sensitivity
to the volume of 100 basis points and concluded that no impairment would be recorded.

CGU

Mexico
Colombia
Venezuela
Costa Rica
Guatemala
Nicaragua
Panama
Argentina
Brazil

(1)

Compound Annual Growth Rate (CAGR).

Change in
WACC

+0.7%
+0.9%
+5.8%
+2.4%
+1.2%
+2.6%
+0.6%
+5.6%
+1.1%

Change in Volume
Growth CAGR (1)

-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%
-1.0%

Effect on Valuation

Passes by 7.53x
Passes by 5.16x
Passes by 7.08x
Passes by 2.27x
Passes by 6.41x
Passes by 3.53x
Passes by 11.89x
Passes by 137.35x
Passes by 2.29x

FEMSA Annual Report 2015

Note 13. Other Assets, Net and Other Financial Assets
13.1 Other assets, net

Agreement with customers, net
Long term prepaid advertising expenses
(1)
Guarantee deposits
Prepaid bonuses
Advances to acquire property, plant and equipment
Recoverable taxes
Others

creating stories

December 31,
2015

December 31,
2014

Ps.

238
52
1,870
122
370
1,181
1,160
4,993

Ps.

239
87
1,400
92
988
1,329
782
4,917

(1)

As it is customary in Brazil, the Company is required to collaterize tax, legal and labor contingencies by guarantee deposits (see Note 25.7).

13.2 Other financial assets

Non-current accounts receivable
Derivative financial instruments (see Note 20)
Other non-current financial assets

December 31,
2015

December 31,
2014

Ps.

478
8,377
100
8,955

Ps.

155
6,299
97
6,551

As of December 31, 2015 and 2014, the fair value of long term accounts receivable amounted to Ps. 452 and Ps. 69, respectively. The fair value is calculated based
on the discounted value of contractual cash flows whereby the discount rate is estimated using rates currently offered for receivable of similar amounts and
maturities, which is considered to be level 2 in the fair value hierarchy.

Note 14. Balances and Transactions with Related Parties and Affiliated Companies
Balances and transactions between the Company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.

The consolidated statements of financial positions and consolidated income statements include the following balances and transactions with related parties and
affiliated companies:

(2)

(1) (8)

Balances
Due from The Coca-Cola Company (see Note 7)
Balance with BBVA Bancomer, S.A. de C.V.
Balance with Grupo Financiero Banorte, S.A. de C.V.
Instituto Tecnológico y de Estudios Superiores de Monterrey, A.C.
(1) (7)
Due from Heineken Company
Due from Grupo Estrella Azul
Other receivables
Due to The Coca-Cola Company
Due to BBVA Bancomer, S.A. de C.V.
(6) (7)
Due to Caffenio
Due to Heineken Company
Other payables
(1)

(5) (6) (8)

(1) (4)

(6) (7)

(3)

(5)

(6)

(3)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

Presented within accounts receivable.
Presented within cash and cash equivalents.
Presented within other financial assets.
Presented within other current financial assets.
Recorded within bank loans.
Recorded within accounts payable.
Associates.
Non controlling interest.

December 31,
2015

December 31,
2014

Ps.

1,559
2,683
1,178
79
754
69
1,352
3,140
292
108
2,588
981

Ps.

1,584
4,083
3,653
126
811
59
1,209
4,343
149
111
2,408
1,206

FEMSA Annual Report 2015

creating stories

Balances due from related parties are considered to be recoverable. Accordingly, for the years ended December 31, 2015 and 2014, there was no expense resulting
from the uncollectibility of balances due from related parties.

Transactions

Income:

(1)

Services to Heineken Company
Logistic services to Grupo Industrial Saltillo, S.A. de C.V.
Logistic services to Jugos del Valle
Other revenues from related parties
Expenses:

(1)

(3)

Purchase of concentrate from The Coca-Cola Company
Purchases of raw material and beer from Heineken Company
Purchase of coffee from Caffenio
Purchase of baked goods and snacks from Grupo Bimbo, S.A.B. de C.V.
Purchase of cigarettes from British American Tobacco Mexico

(1)

(3)

(2)

Advertisement expense paid to The Coca-Cola Company
(1)
Purchase of juices from Jugos del Valle, S.A.P.I. de C.V.
Purchase of sugar from Promotora Industrial Azucarera, S.A. de C.V.
Interest expense and fees paid to BBVA Bancomer, S.A. de C.V.
Purchase of sugar from Beta San Miguel
Purchase of sugar, cans and aluminum lids from Promotora Mexicana

(3)

(1)

(2) (4)

de Embotelladores, S.A. de C.V.

(3)

Purchase of canned products from IEQSA
Purchase of inventories to Leao Alimentos e Bebidas, L.T.D.A.

(1)

(3)

Advertising paid to Grupo Televisa, S.A.B.

Interest expense paid to Grupo Financiero Banamex, S.A. de C.V.
Insurance premiums for policies with Grupo Nacional Provincial, S.A.B.

(3)

Donations to Instituto Tecnológico y de Estudios Superiores de Monterrey, A.C.
Donations to Fundación FEMSA, A.C.
Donations to Difusión y Fomento Cultural, A.C.

(3)

Interest expense paid to The Coca-Cola Company

(2)

(3)

Other expenses with related parties
(1)

Ps.

2015

3,396
407
564
644

Ps. 27,330
14,467
1,774
3,740
-
1,316
3,082
1,236
68
1,264

587
731
3,359
175
-
58
-
30
59
1
470

Ps.

2014

3,544
313
513
670

28,084
15,133
1,404
3,674
-
1,167
2,592
1,020
99
1,389

567
591
2,891
158
2
140
42
-
73
4
321

Ps.

2013

2,412
287
471
399

25,985
11,865
1,383
2,860
2,460
1,291
2,628
956
77
1,557

670
615
2,123
92
19
67
78
27
-
60
299

(2)

(3)

(4)

Associates.
Non controlling interest.
Members of the board of directors in FEMSA participate in board of directors of this entity.
Net of the contributions from The Coca-Cola Company of Ps. 3,749, Ps. 4,118 and Ps. 4,206, for the years ended in 2015, 2014 and 2013, respectively.

Also as disclosed in Note 10, during January 2013, Coca-Cola FEMSA purchased its 51% interest in CCFPI from The Coca-Cola Company. The remainder of
CCFPI is owned by The Coca-Cola Company and Coca-Cola FEMSA has currently outstanding certain call and put options related to CCFPI’s equity interests.

Commitments with related parties

Related Party

Commitment

Conditions

Heineken Company

Supply

Supply of all beer products in Mexico’s OXXO stores. The contract may be
renewed for five years or additional periods. At the end of the contract OXXO
will not hold exclusive contract with another supplier of beer for the next 3 years.
Commitment term, Jan 1st, 2010 to Jun 30, 2020.

The benefits and aggregate compensation paid to executive officers and senior management of the Company were as follows:

Short-term employee benefits paid
Postemployment benefits
Termination benefits
Share based payments

Ps.

2015

1,162
42
63
463

Ps.

2014

964
45
114
283

Ps.

2013

1,268
37
25
306

FEMSA Annual Report 2015

creating stories

Note 15. Balances and Transactions in Foreign Currencies
Assets, liabilities and transactions denominated in foreign currencies are those realized in a currency different than the functional currency of the Company. As of
the end and for the years ended on December 31, 2015, 2014 and 2013, assets, liabilities and transactions denominated in foreign currencies, expressed in Mexican
pesos (contractual amounts) are as follows:

Balances

As of December 31, 2015
U.S. dollars
Euros
Other currencies

Total

As of December 31, 2014
U.S. dollars
Euros
Other currencies

Total

Transactions

For the year ended December 31, 2015
U.S. dollars
Euros
Other currencies

Total

For the year ended December 31, 2014
U.S. dollars
Euros
Other currencies

Total

For the year ended December 31, 2013
U.S. dollars
Euros
Other currencies

Total

Assets

Liabilities

Short-Term

Long-Term

Short-Term

Long- Term

Ps. 10,939
3
-

Ps.

630
-
1,173

Ps.

1,672
23
152

Ps. 71,123
-
41

Ps. 10,942

Ps.

1,803

Ps.

1,847

Ps. 71,164

Ps.

5,890
32
27

5,949

Ps.

989
-
1,214

2,203

Ps.

7,218
27
50

7,295

Ps. 66,140
-
31

Ps. 66,171

Revenues

Other
Revenues

Purchases of
Raw
Materials

Interest
Expense

Consulting
Fees

Assets
Acquisitions

Other

Ps.

1,891
-
20

1,911

2,817
7
178

3,002

2,013
1
-

2,014

Ps.

472
1
-

473

641
-
-

641

605
3
-

608

Ps. 11,710
2
-

Ps. 1,973
-
-

Ps.

Ps. 11,712

Ps. 1,973

Ps.

Ps. 15,006
80
10

Ps. 1,669
15
-

Ps.

Ps. 15,096

Ps. 1,684

Ps.

Ps. 15,017
55
-

Ps. 15,072

Ps.

435
9
-

444

Ps.

34
2
-

14
-
-

11
-
-

Ps.

75
-
-

Ps. 478
5
-

Ps. 483

Ps.

80
2
-

Ps. 2,035
37
204

Ps. 2,276

Ps. 2,068
13
4

Ps. 2,085

Ps. 1,348
15
3

Ps. 1,366

Mexican peso exchange rates effective at the dates of the consolidated statements of financial position and at the issuance date of the Company’s consolidated
financial statements were as follows:

U.S. dollar
Euro

December 31,

2015

17.2065
18.7873

2014

14.7180
17.9182

February 23,
2016

18.2762
19.9997

Note 16. Post-Employment and Other Long-Term Employee Benefits
The Company has various labor liabilities for employee benefits in connection with pension, seniority and post-retirement medical benefits. Benefits vary
depending upon the country where the individual employees are located. Presented below is a discussion of the Company’s labor liabilities in Mexico, which
comprise the substantial majority of those recorded in the consolidated financial statements.

During 2014, Coca-Cola FEMSA settled its pension plan in Brazil and consequently Coca-Cola FEMSA recognized the corresponding effects of the settlement
as disclosed below.

16.1 Assumptions
The Company annually evaluates the reasonableness of the assumptions used in its labor liability for post-employment and other non-current employee benefits
computations.

FEMSA Annual Report 2015

creating stories

Actuarial calculations for pension and retirement plans, seniority premiums and post-retirement medical benefits, as well as the associated cost for the period,
were determined using the following long-term assumptions for non-hyperinflationary Mexico:

Mexico

Financial:
Discount rate used to calculate the defined benefit obligation

Salary increase
Future pension increases
Healthcare cost increase rate
Biometric:
Mortality
Disability
Normal retirement age

(2)

(1)

Employee turnover table

(3)

December 31,
2015

December 31,
2014

December 31,
2013

7.00%
4.50%
3.50%
5.10%

7.50%
4.79%
3.50%
5.10%

EMSSA 2009
IMSS-97
60 years
BMAR 2007

EMSSA 82-89
IMSS-97
60 years
BMAR 2007

Measurement date December:
(1)

EMSSA. Mexican Experience of social security. Updated due to lower mortality rates.

(2)

IMSS. Mexican Experience of Instituto Mexicano del Seguro Social.

(3)

BMAR. Actuary experience.

In Mexico the methodology used to determine the discount rate was the Yield or Internal Rate of Return (“IRR”) which involves a yield curve. In this case, the
expected rates of each period were taken from a yield curve of Mexican Federal Government Treasury Bond (known as CETES in Mexico).

In Mexico upon retirement, the Company purchases an annuity for the employee, which will be paid according to the option chosen by the employee.

Based on these assumptions, the amounts of benefits expected to be paid out in the following years are as follows:

2016
2017
2018
2019
2020
2021 to 2025

16.2 Balances of the liabilities for post-employment and other long-term employee benefits

Pension and
Retirement Plans

Seniority
Premiums

Ps.

489
347
293
336
413
1,809

Ps.

33
31
33
36
41
287

Post
Retirement
Medical
Services

Ps.

12
17
18
18
19
101

Total

Ps. 534
395
344
390
473
2,197

Pension and Retirement Plans:
Defined benefit obligation

Pension plan funds at fair value

Net defined benefit liability
Seniority Premiums:
Defined benefit obligation

Seniority premium plan funds at fair value

Net defined benefit liability
Postretirement Medical Services:
Defined benefit obligation
Medical services funds at fair value
Net defined benefit liability
Post-employment:
Defined benefit obligation

Post-employment plan funds at fair value

Net defined benefit liability
Total post-employment and other long-term employee benefits

December 31,
2015

December 31,
2014

Ps.

Ps.
Ps.

5,308
(2,068)
3,240

610
(103)
507

404
(57)
347

135
-
135
4,229

Ps.

Ps.
Ps.

5,270
(2,015)
3,255

563
(87)
476

338
(56)
282

194
-
194
4,207

FEMSA Annual Report 2015

creating stories

16.3 Trust assets
Trust assets consist of fixed and variable return financial instruments recorded at market value, which are invested as follows:

Type of Instrument

Fixed return:
Traded securities
Bank instruments
Federal government instruments of the respective countries

Variable return:

Publicly traded shares

December 31,
2015

December 31,
2014

13%
6%
63%

18%
100%

19%
8%
57%

16%
100%

In Mexico, the regulatory framework for pension plans is established in the Income Tax Law and its Regulations, the Federal Labor Law and the Mexican Social
Security Institute Law. None of these laws establish minimum funding levels or a minimum required level of contributions.

In Mexico, the Income Tax Law requires that, in the case of private plans, certain notifications must be submitted to the authorities and a certain level of
instruments must be invested in Federal Government securities among others.

The Company’s various pension plans have a technical committee that is responsible for verifying the correct operation of the plan with regard to the payment
of benefits, actuarial valuations of the plan, and supervise the trustee. The committee is responsible for determining the investment portfolio and the types of
instruments the fund will be invested in. This technical committee is also responsible for reviewing the correct operation of the plans in all of the countries in
which the Company has these benefits.

The risks related to the Company’s employee benefit plans are primarily attributable to the plan assets. The Company’s plan assets are invested in a diversified
portfolio, which considers the term of the plan so as to invest in assets whose expected return coincides with the estimated future payments.

Since the Mexican Tax Law limits the plan asset investment to 10% for related parties, this risk is not considered to be significant for purposes of the Company’s
Mexican subsidiaries.

In Mexico, the Company’s policy is to invest at least 30% of the fund assets in Mexican Federal Government instruments. Guidelines for the target portfolio have
been established for the remaining percentage and investment decisions are made to comply with these guidelines insofar as the market conditions and available
funds allow.

In Mexico, the amounts and types of securities of the Company in related parties included in portfolio fund are as follows:

Debt:
Cementos Mexicanos. S.A.B. de C.V.
Grupo Televisa, S.A.B. de C.V.
Grupo Financiero Banorte, S.A.B. de C.V.
El Puerto de Liverpool, S.A.B. de C.V.
Grupo Industrial Bimbo, S.A.B. de C. V.
Gentera, S.A.B. de C.V.

Capital:

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

Coca-Cola FEMSA, S.A.B. de C.V.
Alfa, S.A.B. de C.V.
Gruma, S.A.B. de C.V.
Grupo Industrial Bimbo, S.A.B. de C.V.
The Coca-Cola Company
Gentera, S.A.B. de C.V.

December 31,
2015

December 31,
2014

Ps.

7
45
12
5
3
8

113
-
13
5
3
-
-

7
45
12
5
3
-

96
12
8
-
-
11
7

During the years ended December 31, 2015, 2014 and 2013, the Company did not make significant contributions to the plan assets and does not expect to make
material contributions to the plan assets during the following fiscal year.

FEMSA Annual Report 2015

creating stories

16.4 Amounts recognized in the consolidated income statements and the consolidated statement of comprehensive income

December 31, 2015
Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment Venezuela

Total

December 31, 2014
Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment Venezuela
Total

December 31, 2013
Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment Venezuela

Total
(1)

Interest due to asset ceiling amounted to Ps. 8 in 2013.

(2)

Amounts accumulated in other comprehensive income as of the end of the period.

Income Statement

Current
Service
Cost

Past
Service
Cost

Gain or Loss
on Settlement
or Curtailment

Ps.

233
88
16
6

343

Ps.

3
-
-
-

Ps.

(120)
(9)
-
-

(129)

Current
Service
Cost

Past
Service
Cost

Gain or Loss
on Settlement

221
75
10
24
330

Ps.

54
9
-
-
63

Ps.

(193)
(27)
-
-
(220)

Current
Service
Cost

Past
Service
Cost

Gain or Loss
on Settlement

(2)

OCI

Net Interest Remeasurements
of the Net
on the Net
Defined
Defined
Benefit
Benefit
Liability
Liability

Ps.

212
32
23
9

Ps. 913
39
119
-

Ps.

276

Ps. 1,071
Net Interest Remeasurements
of the Net
on the Net
Defined
Defined
Benefit
Benefit
Liability
Liability

Ps.

279
28
16
18
341

998
76
74
99
Ps. 1,247
Net Interest Remeasurements
of the Net
on the Net
Defined
Defined
Benefit
Benefit
(1)
Liability

Liability

220
55
11
48

334

Ps.

12
-
-
-

Ps.

(7)
-
-
-

(7)

Ps.

164
22
15
67

268

Ps.

470
44
14
312

840

Ps.

For the years ended December 31, 2015, 2014 and 2013, current service cost of Ps. 343, Ps. 330 and Ps. 334 has been included in the consolidated income statement
as cost of goods sold, administration and selling expenses.

Remeasurements of the net defined benefit liability recognized in other comprehensive income are as follows:

Amount accumulated in other comprehensive income as of the beginning
of the period, net of tax
Actuarial losses arising from exchange rates
Remeasurements during the year, net of tax
Actuarial gains arising from changes in demographic assumptions
Actuarial gains and (losses) arising from changes in financial assumptions
Amount accumulated in other comprehensive income as of the end of the period, net of tax

Remeasurements of the net defined benefit liability include the following:

• The return on plan assets, excluding amounts included in interest expense.

• Actuarial gains and losses arising from changes in demographic assumptions.

• Actuarial gains and losses arising from changes in financial assumptions.

December 31,
2015

December 31,
2014

December 31,
2013

Ps.

951
(12)
(46)
-
(77)
816

Ps.

585
(173)
318
41
171
942

Ps.

469
(26)
251
-
(109)
585

FEMSA Annual Report 2015

16.5 Changes in the balance of the defined benefit obligation for post-employment

Pension and Retirement Plans:

Initial balance
Current service cost
Past service cost
Interest expense
Settlement
Effect on curtailment
Remeasurements of the net defined benefit obligation
Foreign exchange loss (gain)
Benefits paid
Plan amendments

Acquisitions

Ending balance
Seniority Premiums:
Initial balance
Current service cost
Past service cost
Interest expense
Settlement
Effect on curtailment
Remeasurements of the net defined benefit obligation
Benefits paid
Acquisitions

Ending balance

Postretirement Medical Services:

Initial balance
Current service cost
Interest expense
Remeasurements of the net defined benefit obligation
Benefits paid
Ending balance
Post-employment:
Initial balance
Current service cost
Certain liability cost
Interest expense
Remeasurements of the net defined benefit obligation
Foreign exchange (gain)
Benefits paid
Ending balance

16.6 Changes in the balance of plan assets

Total Plan Assets:
Initial balance

Actual return on trust assets
Foreign exchange loss (gain)
Life annuities
Benefits paid
Acquisitions

Plan amendments
Effect due to settlement
Ending balance

creating stories

December 31,
2015

December 31,
2014

December 31,
2013

Ps.

5,270
233
3
353
-
(120)
(154)
39
(316)
-
-
5,308

563
88
-
38
-
(9)
(34)
(45)
9
610

338
16
26
44
(20)
404

194
5
73
-
-
(137)
-
135

Ps.

4,866
221
54
353
(482)
-
378
42
(162)
-
-
5,270

475
75
9
33
(27)
-
29
(37)
6
563

267
10
20
60
(19)
338

743
24
-
18
54
(638)
(7)
194

Ps.

4,495
220
-
311
(7)
-
(143)
(60)
(152)
28
174
4,866

324
55
-
24
-
-
2
(36)
106
475

267
11
17
(11)
(17)
267

594
48
-
67
238
(187)
(17)
743

December 31,
2015

December 31,
2014

December 31,
2013

Ps.

2,158
65
7
61
(63)
-
-
-
2,228

Ps.

2,371
133
(8)
197
-
-
-
(535)
2,158

Ps.

2,110
29
(73)
88
-
201
16
-
2,371

As a result of the Company’s investments in life annuities plan, management does not expect it will need to make material contributions to plan assets in order
to meet its future obligations.

16.7 Variation in assumptions
The Company decided that the relevant actuarial assumptions that are subject to sensitivity and valuated through the projected unit credit method, are the
discount rate, the salary increase rate and healthcare cost increase rate. The reasons for choosing these assumptions are as follows:

• Discount rate: The rate that determines the value of the obligations over time.

• Salary increase rate: The rate that considers the salary increase which implies an increase in the benefit payable.

• Healthcare cost increase rate: The rate that considers the trends of health care costs which implies an impact on the postretirement medical service obligations

and the cost for the year.

FEMSA Annual Report 2015

creating stories

The following table presents the amount of defined benefit plan expense and OCI impact in absolute terms of a variation of 0.5% in the assumptions on the net
defined benefit liability associated with the Company’s defined benefit plans. The sensitivity of this 0.5% on the significant actuarial assumptions is based on a
projected long-term discount rates to Mexico and a yield curve projections of long-term sovereign bonds:

+0.5%:

Discount rate used to calculate the
defined benefit obligation and the
net interest on the net defined
benefit liability

Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment
Total

Expected salary increase

Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment
Total

Assumed rate of increase in healthcare costs
Postretirement medical services

-0.5%:

Discount rate used to calculate the
defined benefit obligation and the
net interest on the net defined
benefit liability

Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment
Total

Expected salary increase

Pension and retirement plans
Seniority premiums
Postretirement medical services
Post-employment
Total

Assumed rate of increase in healthcare costs

Income Statement

Current
Service Cost

Past
Service Cost

Ps.

218
82
14
-
314

249
90
16
-
355

Ps.

3
-
-
-
3

Gain or
Loss on
Settlement or
Curtailment

Ps.

(111)
(9)
-
-
(120)

Ps.

(130)
(10)
-
-
(140)

(1)

OCI

Effect of
Net Interest
on the Net

Remeasurements
of the Net
Defined Benefit Defined Benefit
Liability (Asset)
Liability (Asset)

Ps.

208
31
19
-
258

232
33
23
-
288

Ps.

588
11
105
-
Ps. 704

Ps. 951
82
119
-
Ps. 1,152

Ps.

Ps. 134

Current
Service Cost

Past
Service Cost

Ps.

249
94
17
-
360

218
87
16
-
321

Ps.

3
-
-
-
3

Gain or
Loss on
Settlement or
Curtailment

Effect of
Net Interest
on the Net

Remeasurements
of the Net
Defined Benefit Defined Benefit
Liability (Asset)
Liability (Asset)

Ps.

(130)
(10)
-
-
(140)

(111)
(9)
-
-
(120)

Ps.

216
32
24
-
272

195
31
23
-
249

Ps. 1,001
80
136
-
Ps. 1,217

Ps. 609
10
119
-
Ps. 738

Postretirement medical services
(1)

Amounts accumulated in other comprehensive income as of the end of the period.

Ps.

Ps. 105

16.8 Employee benefits expense
For the years ended December 31, 2015, 2014 and 2013, employee benefits expenses recognized in the consolidated income statements are as follows:

Wages and salaries
Social security costs
Employee profit sharing
Post employment benefits
Share-based payments
Termination benefits

2015

Ps. 39,459
6,114
1,243
493
463
503
Ps. 48,275

2014

35,659
5,872
1,138
514
283
431
43,897

Ps.

2013

36,995
5,741
1,936
607
306
480
46,065

Ps.

FEMSA Annual Report 2015

creating stories

Note 17. Bonus Programs
17.1 Quantitative and qualitative objectives
The bonus program for executives is based on complying with certain goals established annually by management, which include quantitative and qualitative
objectives, and special projects.

The quantitative objectives represent approximately 50% of the bonus, and are based on the Economic Value Added (“EVA”) methodology. The objective established
for the executives at each entity is based on a combination of the EVA generated per entity and the EVA generated by the Company, calculated at approximately
70% and 30%, respectively. The qualitative objectives and special projects represent the remaining 50% of the annual bonus and are based on the critical success
factors established at the beginning of the year for each executive.

The bonus amount is determined based on each eligible participant’s level of responsibility and based on the EVA generated by the applicable business unit the
employee works for. This formula is established by considering the level of responsibility within the organization, the employees’ evaluation and competitive
compensation in the market. The bonus is granted to the eligible employee on an annual basis and after withholding applicable taxes.

17.2 Share-based payment bonus plan
The Company has implemented a stock incentive plan for the benefit of its senior executives. As discussed above, this plan uses as its main evaluation metric
the EVA. Under the EVA stock incentive plan, eligible employees are entitled to receive a special annual bonus (fixed amount), to be paid in shares of FEMSA or
Coca-Cola FEMSA, as applicable or stock options (the plan considers providing stock options to employees; however, since inception only shares of FEMSA or
Coca-Cola FEMSA have been granted).

The plan is managed by FEMSA’s chief executive officer (CEO), with the support of the board of directors, together with the CEO of the respective sub-holding
company. FEMSA’s Board of Directors is responsible for approving the plan’s structure, and the annual amount of the bonus. Each year, FEMSA’s CEO in
conjunction with the Evaluation and Compensation Committee of the board of directors and the CEO of the respective sub-holding company determine the
employees eligible to participate in the plan and the bonus formula to determine the number of shares to be received. Until 2015 the shares were vested ratably
over a six year period, beginning with January 01, 2016 onwards they will ratably vest over a four year period, with retrospective effects. Early December 31, 2015,
the Company and the eligible employee agree to the share-based payment arrangement, being when it and the counterparty have a shared understanding of the
terms and conditions of the arrangement. FEMSA accounts for its share-based payment bonus plan as an equity-settled share based payment transaction as it
will ultimately settle its obligations with its employees by issuing its own shares or those of its subsidiary Coca-Cola FEMSA.

The Company contributes the individual employee’s special bonus (after taxes) in cash to the Administrative Trust (which is controlled and consolidated by
FEMSA), who then uses the funds to purchase FEMSA or Coca-Cola FEMSA shares (as instructed by the Administrative Trust’s Technical Committee), which
are then allocated to such employee. The Administrative Trust tracks the individual employees’ account balance. FEMSA created the Administrative Trust with
the objective of administering the purchase of FEMSA and Coca-Cola FEMSA shares by each of its subsidiaries with eligible executives participating in the stock
incentive plan. The Administrative Trust’s objectives are to acquire FEMSA shares, or shares of Coca-Cola FEMSA and to manage the shares granted to the
individual employees based on instructions set forth by the Technical Committee. Once the shares are acquired following the Technical Committee’s instructions,
the Administrative Trust assigns to each participant their respective rights. As the trust is controlled and therefore consolidated by FEMSA, shares purchased
in the market and held within the Administrative Trust are presented as treasury stock (as it relates to FEMSA’s shares) or as a reduction of the noncontrolling
interest (as it relates to Coca-Cola FEMSA’s shares) in the consolidated statement of changes in equity, on the line issuance (repurchase) of shares associated with
share-based payment plans. Should an employee leave prior to their shares vesting, they would lose the rights to such shares, which would then remain within the
Administrative Trust and be able to be reallocated to other eligible employees as determined by the Company. The incentive plan target is expressed in months
of salary, and the final amount payable is computed based on a percentage of compliance with the goals established every year. For the years ended December 31,
2015, 2014 and 2013, the compensation expense recorded in the consolidated income statement amounted to Ps. 463, Ps. 283 and Ps. 306, respectively.

All shares held in the Administrative Trust are considered outstanding for diluted earnings per share purposes and dividends on shares held by the trust are
charged to retained earnings.

As of December 31, 2015 and 2014, the number of shares held by the trust associated with the Company’s share based payment plans is as follows:

Beginning balance

Shares acquired by the Administrative Trust to employees

Shares released from Administrative Trust to employees upon vesting

Forfeitures

Ending balance

Number of Shares

FEMSA UBD

KOF L

2015

2014

2015

2014

4,763,755
1,491,330

(2,008,293)
-
4,246,792

7,001,428
517,855
(2,755,528)

-
4,763,755

1,298,533

466,036

(604,258)
-
1,160,311

1,780,064

330,730

(812,261)

1,298,533

The fair value of the shares held by the trust as of the end of December 31, 2015 and 2014 was Ps. 830 and Ps. 788, respectively, based on quoted market prices of
those dates.

FEMSA Annual Report 2015

Note 18. Bank Loans and Notes Payables

(in millions of Mexican pesos)

2016

2017

2018

2019

2020

2021 and
Thereafter

At December 31,

(1)

Carrying
Value at

Carrying
Value at
December 31, December 31, December 31,
(1)

Fair
Value at

2015

2014

creating stories

Short-term debt:
Fixed rate debt:
Colombian pesos
Bank loans

Interest rate
Argentine pesos
Notes payable

Interest rate
Chilean pesos
Bank loans

Interest rate

Finance leases

Interest rate
Variable rate debt:
Colombian pesos
Bank loans

Interest rate
Brazilian Reais
Bank loans

Interest rate
Total short-term debt

Long-term debt:
Fixed rate debt:
U.S. dollars
Yankee bond

Interest rate

Bank of NY (FEMSA USD 2023)

Interest rate

Bank of NY (FEMSA USD 2043)

Interest rate

Bank loans

Interest rate
Mexican pesos
Units of investment (UDIs)

Interest rate
Domestic senior notes
Interest rate
Brazilian reais
Bank loans

Interest rate

Finance leases

Interest rate
Argentine pesos
Bank loans

Interest rate
Chilean pesos
Bank loans

Interest rate

Finance leases

Interest rate

Subtotal
(1)

Ps.

219
6.5%

Ps.

- Ps.
-

165
26.2%

1,442
4.2%
10
2.4%

235
8.2%

168
14.8%

Ps. 2,239 Ps.

-
-

-
-
-
-

-
-

-
-
- Ps.

-
-

-
-
-
-

-
-

-
-
-

Ps.

- Ps.
-
-
-
-
-
-
-

17,158
2.4%
-
-
-
-
-
-

-
-
-
-

174
5.4%
67
4.6%

18
15.3%

3,385
4.2%
-
-

187
5.7%
66
4.6%

-
-

-
-
-
-

151
6.3%
65
4.6%

-
-

120
7.3%
14
3.6%
Ps. 393

82
7.6%
15
3.6%
Ps. 3,735 Ps.

30
7.9%
16
3.5%
17,420

Ps.

-
-

-
-
-
-

-
-

-
-
-

-
-
-
-
-
-
-
-

-
-
-
-

116
6.6%
62
4.6%

-
-

-
-
17
3.5%
195

Ps.

-
-

-
-
-
-

-
-

-
-
-

Ps.

-
-

-
-
-
-

-
-

-
-
-

Ps.

219 Ps.
6.5%

165
26.2%

1,442
4.2%
10
2.4%

220 Ps.

164
-

1,442
-
10
-

235
8.2%

235
-

-
-

301
30.9%

-
-
-
-

-
-

148
168
12.6%
14.8%
2,239 Ps. 2,239 Ps. 449

168
-

Ps.

8,566
4.6%
-
-
-
-
-
-

-
-
-
-

80
6.7%
51
4.6%

-
-

-
-
18
3.3%
8,715

Ps. 25,609
4.4%
5,068
2.9%
11,675
4.4%
-
-

-
-
9,989
6.2%

111
5.6%
149
4.6%

-
-

-
-
12
3.2%
Ps. 52,613

Ps. 51,333 Ps. 52,990 Ps. 43,893
3.8%
4,308
2.9%
9,900
4.4%
30
3.9%

-
4,852
-
10,737
-
-
-

3.8%
5,068
2.9%
11,675
4.4%
-
-

3,385
4.2%
9,989
6.2%

819
6.0%
460
4.6%

18
15.3%

3,385
-
9,527
-

653
-
356
-

17
-

3,599
4.2%
9,988
6.2%

601
4.6%
762
4.6%

309
26.8%

232
7.5%
92
3.4%

-
-
-
-
Ps. 83,071 Ps. 82,841 Ps. 73,390

232
-
92
-

All interest rates shown in this table are weighted average contractual annual rates.

FEMSA Annual Report 2015

creating stories

(in millions of Mexican pesos)

2016

2017

2018

2019

2020

At December 31,

(1)

Variable rate debt:
U.S. dollars
Bank loans

Interest rate
Mexican pesos
Domestic senior notes
Interest rate
Argentine pesos
Bank loans

Interest rate
Brazilian reais
Bank loans

Interest rate

Finance leases

Interest rate
Colombian pesos
Bank loans

Interest rate

Finance leases

Interest rate
Chilean pesos
Bank loans

Interest rate

Subtotal
Total long-term debt
Current portion of long term debt

Ps.

-
-

- Ps.
-

2,496
3.6%

82
32.2%

189
11.9%
-
-

280
6.9%
0.04
8.4%

-
-

41
32.2%

107
9.2%
-
-

684
6.5%
0.04
8.4%

Ps.

-
-

107
9.2%
-
-

54
8.0%
0.05
8.4%

216
6.2%
Ps. 3,263
Ps. 3,656

283
6.3%
Ps. 1,115 Ps.
Ps. 4,850 Ps.

374
6.2%
535
17,955

Ps.
Ps.

-
-

107
9.2%
-
-

53
8.0%
0.05
8.4%

358
6.2%
518
713

Ps.

Ps.
Ps.

-
-

74
9.2%
-
-

53
8.0%
0.01
8.4%

549
5.7%
676
9,391

2021 and
Thereafter

Ps.

-
-

-
-
-
-

52
8.2%
-
-

395
5.9%
Ps.
447
Ps. 53,060

(1)

All interest rates shown in this table are weighted average contractual annual rates.

Carrying
Value at

Carrying
Value at
December 31, December 31, December 31,
(1)

Fair
Value at

2015

2014

Ps.

- Ps.
-

- Ps. 6,956
0.9%
-

2,496
3.6%

123
32.2%

584
10.1%
-
-

1,176
6.9%
0.19
8.4%

2,500
-

120
-

511
-
-
-

1,165
-
0.19
-

2,473
3.4%

232
21.5%

156
6.7%
63
10.0%

769
5.9%
-
-

2,175
-

-
2,175
-
6.0%
6,554 Ps. 6,471 Ps. 10,649
Ps.
Ps. 89,625 Ps. 89,312 Ps. 84,039
(1,104)
Ps. 82,935

Ps. 85,969

(3,656)

FEMSA Annual Report 2015

Hedging Derivative
Financial Instruments (1)

Cross currency swaps:
Units of investments to Mexican pesos and variable rate:
Ps.
Fixed to variable

(2)

Interest pay rate
Interest receive rate

U.S. dollars to Mexican pesos
Fixed to variable

(3)

Interest pay rate
Interest receive rate

Variable to fixed

Interest pay rate
Interest receive rate

Fixed to fixed

Interest pay rate
Interest receive rate
U.S. dollars to Brazilian reais
Fixed to variable

Interest pay rate
Interest receive rate

Variable to variable
Interest pay rate
Interest receive rate

Chilean pesos
Variable to fixed

Interest pay rate
Interest receive rate

Interest rate swap:
Mexican pesos
Variable to fixed rate:
Interest pay rate
Interest receive rate
(2)
:

Variable to fixed rate
Interest pay rate
Interest receive rate
(3)
:

Variable to fixed rate
Interest pay rate
Interest receive rate

creating stories

2016

2017

2018

2019

2020

(notional amounts in millions of Mexican pesos)

2021 and
Thereafter

Total
2015

Total
2014

- Ps.
-
-

2,500
3.4%
4.2%

Ps.

-
-
-

Ps.

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-

-
-
-

-
-

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-

-
-
-

5.2%
3.4%

-
-

-
-
-
7,571
3.5%
2.4%
-
-
-

5,592
12.7%
2.7%
17,551
12.6%
2.1%

-
-
-

-
-

-
-
-

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-

-
-
-

76
6.5%
4.5%

-
-

Ps.

-
-
-

-
-
-
-
-
-
-
-
-

-
-
-
-
-
-

1,097
6.9%
6.8%

-
-
-

-
-

Ps.

- Ps. 2,500 Ps. 2,500
3.1%
-
4.2%
-

3.4%
4.2%

11,403
4.8%
4.0%
-
-
-
1,267
5.7%
2.9%

-
-
-
-
-
-

-
-
-

1,197
7.1%
5.5%

-
-

7.2%
4.8%

11,403
4.8%
4.0%
7,571
3.5%
2.4%
1,267
5.7%
2.9%

5,592
12.7%
2.7%
17,551
12.6%
2.1%

1,097
6.9%
6.8%

1,273
7.0%
5.5%

5.2%
3.4%

7.2%
4.8%

11,403
4.6%
4.0%
6,476
3.2%
2.4%
1,267
5.7%
2.9%

6,653
11.3%
2.7%
20,311
11.3%
1.5%

-
-
-

5.0%
3.2%

7.2%
4.6%

(1)

All interest rates shown in this table are weighted average contractual annual rates.

(2)

Interest rate swaps with a notional amount of Ps. 1,250 that receive a variable rate of 3.4% and pay a fixed rate of 5.2%; joined with a cross currency swap of the same notional amount,
which covers units of investments to Mexican pesos, that receives a fixed rate of 4.2% and pays a variable rate of 3.4%.

(3)

Interest rate swaps with a notional amount of Ps. 11,403 that receive a variable rate of 4.8% and pay a fixed rate of 7.2%; joined with a cross currency swap of the same notional amount,
which covers U.S. dollars to Mexican pesos, that receives a fixed rate of 4.0% and pay a variable rate of 4.8%.

For the years ended December 31, 2015, 2014 and 2013, the interest expense is comprised as follows:

Interest on debts and borrowings
Finance charges payable under capitalized interest
Finance charges for employee benefits
Derivative instruments
Finance operating charges
Finance charges payable under finance leases

2015

4,586
(60)
276
2,894
79
2
7,777

Ps.

2014

3,992
(117)
341
2,413
66
6
6,701

2013

3,055
(59)
268
825
225
17
4,331

Ps.

On May 7, 2013, the Company issued long-term debt on the NYSE in the amount of $1,000, which was made up of senior notes of $300 with a maturity of 10
years and a fixed interest rate of 2.875%; and senior notes of $700 with a maturity of 30 years and a fixed interest rate of 4.375%. After the issuance, the Company
contracted cross-currency swaps to reduce its exposure to risk of exchange rate and interest rate fluctuations associated with this issuance, see Note 20.

In November, 2013, Coca-Cola FEMSA issued U.S. $1,000 in aggregate principal amount of 2.375% senior notes due 2018, U.S. $750 in aggregate principal amount
of 3.875% senior notes due 2023 and U.S. $400 in aggregate principal amount of 5.250% senior notes due 2043, in an SEC registered offering. These notes are
guaranteed by its subsidiaries: Propimex, S. de R.L. de C.V., Comercializadora La Pureza de Bebidas, S. de R.L. de C.V., Controladora Interamericana de Bebidas,
S. de R.L. de C.V., Grupo Embotellador Cimsa, S. de R.L. de C.V., Refrescos Victoria del Centro, S. de R.L. de C.V., Servicios Integrados Inmuebles del Golfo, S. de
R.L. de C.V. and Yoli de Acapulco, S.A. de C.V. (“Guarantors”).

FEMSA Annual Report 2015

creating stories

On December 4, 2007, the Company obtained the approval from the National Banking and Securities Commission (Comisión Nacional Bancaria y de Valores
or “CNBV”) for the issuance of long-term domestic senior notes (“Certificados Bursátiles”) in the amount of Ps. 10,000 (nominal amount) or its equivalent in
investment units. As of December 31, 2014 the Company has issued the following domestic senior notes: i) on December 7, 2007, the Company issued domestic
senior notes composed of Ps. 3,500 (nominal amount) with a maturity date on November 29, 2013 and a floating interest rate, which was paid at maturiry; ii) on
December 7, 2007, the Company issued domestic senior notes in the amount of 637,587,000 investment units (Ps. 2,500 nominal amount), with a maturity date
on November 24, 2017 and a fixed interest rate.

Coca-Cola FEMSA has the following debt bonds: a) registered with the Mexican stock exchange: i) Ps. 2,500 (nominal amount) with a maturity date in 2016 and
a variable interest rate, ii) Ps. 2,500 (nominal amount) with a maturity date in 2021 and fixed interest rate of 8.27% and iii) Ps. 7,500 (nominal amount) with a
maturity date in 2023 and fixed interest rate of 5.46%; and b) registered with the SEC: i) Senior notes of U.S. $500 with interest at a fixed rate of 4.63% and maturity
date on February 15, 2020, ii) Senior notes of U.S. $1,000 with interest at a fixed rate of 2.38% and maturity date on November 26, 2018, iii) Senior notes of
U.S. $900 with interest at a fixed rate of 3.88% and maturity date on November 26, 2023 and iv) Senior notes of U.S. $600 with interest at a fixed rate of 5.25% and
maturity date on November 26, 2043 all of which are guaranteed by Coca-Cola FEMSA subsidiaries: Propimex, S. de R.L. de C.V., Comercializadora La Pureza
de Bebidas, S. de R.L. de C.V., Controladora Interamericana de Bebidas, S. de R.L. de C.V., Grupo Embotellador Cimsa, S. de R.L. de C.V., Refrescos Victoria del
Centro, S. de R.L. de C.V., Distribuidora y Manufacturera del Valle de Mexico, S. de R.L. de C.V (as successor guarantor of Servicios Integrados Inmuebles del
Golfo, S. de R.L. de C.V.) and Yoli de Acapulco, S. de R.L. de C.V. (“Guarantors”).

The Company has financing from different institutions under agreements that stipulate different restrictions and covenants, which mainly consist of maximum
levels of leverage and capitalization as well as minimum consolidated net worth and debt and interest coverage ratios. As of the date of these consolidated financial
statements, the Company was in compliance with all restrictions and covenants contained in its financing agreements.

In January 13, 2014, Coca-Cola FEMSA issued an additional U.S. $350 million of senior notes comprised of 10 year and 30 year bonds. The interest rates and
maturity dates of the new notes are the same as those of the initial 2013 notes offering. These notes are also guaranteed by the same Guarantors.

In February 2014, Coca-Cola FEMSA prepaid in full outstanding Bank loans denominated in pesos for a total amount of Ps. 4,175 (nominal amount).

In December 2015, Coca-Cola FEMSA prepaid in full outstanding Bank loans denominated in U.S. million dolars for a total amount of $450 (nominal amount).

Note 19. Other Income and Expenses

Gain on sale of shares (see Note 4)
Gain on sale of long-lived assets
Gain on sale of other assets
Sale of waste material
Write off-contingencies (see Note 25.5)
Recoveries from previous years
Insurance rebates
Others
Other income
Contingencies associated with prior acquisitions or disposals
Loss on sale of long-lived assets
Impairment of long-lived assets
Disposal of long-lived assets
Foreign exchange losses related to operating activities
Securities taxes from Colombia
Severance payments
Donations
Legal fees and other expenses from past acquisitions
Other
Other expenses
(1)

(1)

Charges related to fixed assets retirement from ordinary operations and other long-lived assets.

2015

14
249
-
41
-
16
17
86
423
93
-
134
416
917
30
285
362
223
281
2,741

Ps.

Ps.
Ps.

Ps.

2014

-
-
276
44
475
89
18
196
1,098
-
7
145
153
147
69
277
172
31
276
1,277

Ps.

Ps.
Ps.

Ps.

2013

-
41
170
43
120
-
-
277
651
385
-
-
122
99
51
190
119
110
363
1,439

Ps.

Ps.
Ps.

Ps.

FEMSA Annual Report 2015

creating stories

Note 20. Financial Instruments
Fair Value of Financial Instruments
The Company measures the fair value of its financial assets and liabilities classified as level 2 applying the income approach method, which estimates the fair value
based on expected cash flows discounted to net present value. The following table summarizes the Company’s financial assets and liabilities measured at fair value,
as of December 31, 2015 and 2014:

Derivative financial instrument (current asset)
Derivative financial instrument (non-current asset)
Derivative financial instrument (current liability)
Derivative financial instrument (non-current liability)

December 31, 2015

December 31, 2014

Level 1

-
-
270
-

Level 2

523
8,377
89
277

Level 1

-
-
313
112

Level 2

384
6,299
34
39

20.1 Total debt
The fair value of bank and syndicated loans is calculated based on the discounted value of contractual cash flows whereby the discount rate is estimated using rates
currently offered for debt of similar amounts and maturities, which is considered to be level 2 in the fair value hierarchy. The fair value of the Company’s publicly
traded debt is based on quoted market prices as of December 31, 2015 and 2014, which is considered to be level 1 in the fair value hierarchy.

Carrying value
Fair value

Ps.

2015

91,864
91,551

Ps.

2014

84,488
86,595

20.2 Interest rate swaps
The Company uses interest rate swaps to offset the interest rate risk associated with its borrowings, pursuant to which it pays amounts based on a fixed rate
and receives amounts based on a floating rate. These instruments have been designated as cash flow hedges and are recognized in the consolidated statement of
financial position at their estimated fair value. The fair value is estimated using formal technical models. The valuation method involves discounting to present
value the expected cash flows of interest, calculated from the rate curve of the cash flow currency, and expresses the net result in the reporting currency. Changes
in fair value are recorded in cumulative other comprehensive income, net of taxes until such time as the hedged amount is recorded in the consolidated income
statements.

At December 31, 2015, the Company has the following outstanding interest rate swap agreements:

Maturity Date

2017
2019
2021
2022
2023

At December 31, 2014 the Company has the following outstanding interest rate swap agreements:

Maturity Date

2017
2023

Ps.

Notional
Amount

1,250
76
623
574
11,403

Fair Value Liability
December 31,
2015

Fair Value Asset
December 31,
2015

Ps.

(36)
(3)
(62)
(9)
-

-
-
-
-
89

Notional
Amount

Fair Value Liability
December 31,
2014

Fair Value Asset
December 31,
2014

Ps.

1,250 Ps.
11,403

(35)
(4)

Ps.

-
12

The net effect of expired contracts treated as hedges are recognized as interest expense within the consolidated income statements.

FEMSA Annual Report 2015

creating stories

20.3 Forward agreements to purchase foreign currency
The Company has entered into forward agreements to reduce its exposure to the risk of exchange rate fluctuations between the Mexican peso and other currencies.
Foreign exchange forward contracts measured at fair value are designated hedging instruments in cash flow hedges of forecast inflows in Euros and forecast
purchases of raw materials in U.S. dollars. These forecast transactions are highly probable.

These instruments have been designated as cash flow hedges and are recognized in the consolidated statement of financial position at their estimated fair value
which is determined based on prevailing market exchange rates to terminate the contracts at the end of the period. The price agreed in the instrument is compared
to the current price of the market forward currency and is discounted to present value of the rate curve of the relevant currency. Changes in the fair value of these
forwards are recorded as part of cumulative other comprehensive income, net of taxes. Net gain/loss on expired contracts is recognized as part of cost of goods
sold when the raw material is included in sale transaction, and as a part of foreign exchange when the inflow in Euros are received.

At December 31, 2015, the Company had the following outstanding forward agreements to purchase foreign currency:

Maturity Date

2016

Notional
Amount

Fair Value Liability
December 31,
2015

Fair Value Asset
December 31,
2015

Ps.

6,735

Ps.

(84)

Ps.

383

At December 31, 2014, the Company had the following outstanding forward agreements to purchase foreign currency:

Maturity Date

2015
2016

Notional
Amount

4,411
1,192

Ps.

Fair Value Liability
December 31,
2014

Fair Value Asset
December 31,
2014

Ps.

-
(26)

Ps.

298
-

20.4 Options to purchase foreign currency
The Company has executed call option and collar strategies to reduce its exposure to the risk of exchange rate fluctuations. A call option is an instrument that
limits the loss in case of foreign currency depreciation. A collar is a strategy that combines call and put options, limiting the exposure to the risk of exchange rate
fluctuations in a similar way as a forward agreement.

These instruments have been designated as cash flow hedges and are recognized in the consolidated statement of financial position at their estimated fair value
which is determined based on prevailing market exchange rates to terminate the contracts at the end of the period. Changes in the fair value of these options,
corresponding to the intrinsic value, are initially recorded as part of “cumulative other comprehensive income”. Changes in the fair value, corresponding to
the extrinsic value, are recorded in the consolidated income statements under the caption “market value gain/ (loss) on financial instruments,” as part of the
consolidated net income. Net gain/(loss) on expired contracts including the net premium paid, is recognized as part of cost of goods sold when the hedged item
is recorded in the consolidated income statements.

At December 31, 2015, the Company paid a net premium of Ps. 75 millions for the following outstanding call options to purchase foreign currency:

Maturity Date

2016

Notional
Amount

Fair Value Liability
December 31,
2015

Fair Value Asset
December 31,
2015

Ps.

1,612

Ps.

At December 31, 2014, the Company had the following outstanding collars agreements to purchase foreign currency:

Maturity Date

2015

Notional
Amount

Fair Value Liability
December 31,
2014

Fair Value Asset
December 31,
2014

Ps.

402

Ps.

FEMSA Annual Report 2015

creating stories

20.5 Cross-currency swaps
The Company has contracted for a number of cross-currency swaps to reduce its exposure to risks of exchange rate and interest rate fluctuations associated with
its borrowings denominated in U.S. dollars and other foreign currencies. Cross-Currency swaps contracts are designated as hedging instruments through which
the Company changes the debt profile to its functional currency to reduce exchange exposure.

These instruments are recognized in the consolidated statement of financial position at their estimated fair value which is estimated using formal technical
models. The valuation method involves discounting to present value the expected cash flows of interest, calculated from the rate curve of the cash foreign
currency, and expresses the net result in the reporting currency. These contracts are designated as financial instuments at fair value through profit or loss. The fair
values changes related to those cross currency swaps are recorded under the caption “market value gain (loss) on financial instruments,” net of changes related to
the long-term liability, within the consolidated income statements.

The Company has cross-currency contracts designated as cash flow hedges and are recognized in the consolidated statement of financial position at their
estimated fair value. Changes in fair value are recorded in cumulative other comprehensive income, net of taxes until such time as the hedge amount is recorded
in the consolidated income statement.

At December 31, 2015, the Company had the following outstanding cross currency swap agreements:

Maturity Date

2017
2018
2020
2023

At December 31, 2014, the Company had the following outstanding cross currency swap agreements:

Maturity Date

2015
2017
2018
2019
2023

Ps.

Notional
Amount

2,711
30,714
4,034
12,670

Ps.

Notional
Amount

30
2,711
33,410
369
12,670

Ps.

Fair Value
Liability
2015

-
-
(116)
-

Fair Value Asset
December 31,
2015

Ps.

1,159
2,216
-
4,859

Fair Value Liability
December 31,
2014

Fair Value Asset
December 31,
2014

Ps.

-
-
-
-
-

Ps.

6
1,209
3,002
15
2,060

20.6 Commodity price contracts
The Company has entered into various commodity price contracts to reduce its exposure to the risk of fluctuation in the costs of certain raw material. The fair
value is estimated based on the market valuations to terminate the contracts at the end of the period. These instruments are designated as Cash Flow Hedges and
the changes in the fair value are recorded as part of “cumulative other comprehensive income.”

The fair value of expired commodity price contract was recorded in cost of goods sold where the hedged item was recorded.

At December 31, 2015, Coca-Cola FEMSA had the following sugar price contracts:

Maturity Date

2016

At December 31, 2015, Coca-Cola FEMSA had the following aluminum price contracts:

Maturity Date

2016

At December 31, 2014, Coca-Cola FEMSA had the following sugar price contracts:

Maturity Date

2015
2016
2017

Notional
Amount

Fair Value Liability
December 31,
2015

Ps.

1,497

Ps.

(190)

Notional
Amount

Fair Value Liability
December 31,
2015

Ps.

436 Ps.

(84)

Ps.

Notional
Amount

1,341
952
37

Fair Value Liability
December 31,
2014

Ps.

(285)
(101)
(2)

FEMSA Annual Report 2015

At December 31, 2014, Coca-Cola FEMSA had the following aluminum price contracts:

Maturity Date

2015
2016

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Notional
Amount

361
177

Ps.

Fair Value Liability
December 31,
2014

Ps.

(12)
(9)

20.7 Financial Instruments for CCFPI acquisition:
The Company’s call option related to the remaining 49% ownership interest in CCFPI is measured at fair value in its financial statements using a Level 3 concept.
The call option had an estimated fair value of approximately Ps. 859 million at inception of the option, and approximately Ps. 456 million and Ps. 755 million as of
December 31, 2015 and 2014, respectively. Significant observable inputs into that Level 3 estimate include the call option’s expected term (7 years at inception),
risk free rate as expected return (LIBOR), a volatility (14.17%) and the underlying enterprise value of the CCFPI. The enterprise value of CCFPI for the purpose of
this estimate was based on CCFPI’s long-term business plan. The Company uses Black & Scholes valuation technique to measure call option value. The Company
acquired its 51% ownership interest in CCFPI in January 2013 and continues to integrate CCFPI into its global operations using the equity method of accounting,
and currently believes that the underlying exercise price of the call option is “out of the money”. The Level 3 fair value of the Company’s put option related to its
51% ownership interest approximates zero as its exercise price as defined in the contract adjusts proportionately to the underlying fair value of CCFPI.

The Company estimates that the call option is “out of the money” as of December 31, 2015 and 2014. As of December 31, 2015 and 2014, the call option is “out of
the money” by approximately 13.89% and 17.71% or U.S. $90 million and U.S. $107 million, respectively, with respect to the strike price.

20.8 Net effects of expired contracts that met hedging criteria

Type of Derivatives

(1)

Interest rate swaps
Cross currency swap
Cross currency swap
Forward agreements to purchase foreign currency
Commodity price contracts
Options to purchase foreign currency
Forward agreements to purchase foreign currency
(1)

Impact in Consolidated
Income Statement

Interest expense
Interest expense
Foreign exchange
Foreign exchange
Cost of goods sold
Cost of goods sold
Cost of goods sold

Ps.

2015

-
2,595
(10,911)
(180)
619
(21)
(523)

2014

337
-
-
38
291
-
22

Ps.

2013

214
-
-
(1,710)
362
-
-

This amount corresponds to the settlement of cross currency swaps portfolio in Brazil presented as part of the other financial activities in the consolidated statements of cash flows.

20.9 Net effect of changes in fair value of derivative financial instruments that did not meet the hedging criteria for accounting purposes

Type of Derivatives

Interest rate swaps
Cross currency swaps
Others

Impact in Consolidated
Income Statement

Market value
gain (loss) on
financial instruments

Ps.

2015

-
(20)
56

Ps.

20.10 Net effect of expired contracts that did not meet the hedging criteria for accounting purposes

Type of Derivatives

Cross-currency swaps

Impact in Consolidated
Income Statement

Market value

Ps.

2015

204

Ps.

2014

10
59
3

2014

Ps.

2013

(7)
33
(19)

2013

Ps.

20.11 Market risk
Market risk is the risk that the fair value of future cash flow of a financial instrument will fluctuate because of changes in market prices. Market prices include
currency risk and commodity price risk.

The Company’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and commodity prices. The Company enters into
a variety of derivative financial instruments to manage its exposure to foreign currency risk, and commodity prices risk including:

• Forward Agreements to Purchase Foreign Currency in order to reduce its exposure to the risk of exchange rate fluctuations.

• Cross-Currency Swaps in order to reduce its exposure to the risk of exchange rate fluctuations.

• Commodity price contracts in order to reduce its exposure to the risk of fluctuation in the costs of certain raw materials.

The Company tracks the fair value (mark to market) of its derivative financial instruments and its possible changes using scenario analyses.

FEMSA Annual Report 2015

creating stories

The following disclosures provide a sensitivity analysis of the market risks management considered to be reasonably possible at the end of the reporting period,
which the Company is exposed to as it relates to foreign exchange rates and commodity prices, which it considers in its existing hedging strategy:

Foreign Currency Risk

2015

FEMSA

(1)

Coca-Cola FEMSA

2014

FEMSA

(1)

Coca-Cola FEMSA

2013

FEMSA

(1)

Coca-Cola FEMSA

(1)

Does not include Coca-Cola FEMSA.

Change in
Exchange Rate

Effect on
Equity

Effect on
Profit or Loss

+14% MXN/EUR

Ps.

(319)

Ps.

+10% CLP/USD

-10% CLP/USD

-14% MXN/EUR

+11% MXN/USD

+21% BRL/USD

+17% COP/USD

+36% ARS/USD

-11% MXN/USD

-21% BRL/USD

-17% COP/USD

-36% ARS/USD

(9)

319

(197)

(387)

(113)

(231)

197

387

113

231

+9% MXN/EUR

Ps.

(278)

Ps.

-9% MXN/EUR

+7% MXN/USD

+14% BRL/USD

+9% COP/USD

+11% ARS/USD

-7% MXN/USD

-14% BRL/USD

-9% COP/USD

-11% ARS/USD

+7% MXN/EUR

Ps.

-7%MXN/EUR

+11% MXN/USD

+13% BRL/USD

+6% COP/USD

-11% MXN/USD

-13% BRL/USD

-6% COP/USD

278

119

(119)

(96)

(42)

(22)

(157)

157

(67)

(86)

(19)

Ps.

FEMSA Annual Report 2015

Cross Currency Swaps (1) (2)

2015

FEMSA

(3)

Coca-Cola FEMSA

2014

FEMSA

(3)

Coca-Cola FEMSA

2013

FEMSA

(3)

Coca-Cola FEMSA

Net Cash in Foreign Currency (1)

2015

FEMSA

(3)

Coca-Cola FEMSA

2014

FEMSA

(3)

Coca-Cola FEMSA

2013

FEMSA

(3)

Coca-Cola FEMSA

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Change in
Exchange Rate

Effect on
Equity

Effect on
Profit or Loss

-11% MXN/USD

Ps.

+11% MXN/USD

-11% MXN/USD

-21% BRL/USD

+11% MXN/USD

+21% BRL/USD

(4,517)

4,517

-7% MXN/USD

Ps.

+7% MXN/USD

-7% MXN/USD

-14% BRL/USD

+7% MXN/USD
+14% BRL/USD

-11% MXN/ USD

Ps.

-11% MXN/ USD

-13% BRL/USD

-
-

Ps.

(2,043)

2,043

(938)

(1,086)

938

1,086

Ps.

(1,100)

1,100

(481)

(3,935)

415
2,990

Ps.

(1,581)

(392)

(3,719)

Change in
Exchange Rate

Effect on
Profit or Loss

+14% EUR/ +11%USD

Ps.

-14% EUR/ -11%USD

+11%USD

-11%USD

+9% EUR/+7%USD

Ps.

-9% EUR/-7%USD

+7%USD

-7%USD

+7% EUR/+11% USD

Ps.

-7% EUR/-11% USD

+11% USD

-11% USD

504

(504)

(1,112)

1,112

233

(233)

(747)

747

335

(335)

(1,090)

1,090

Change in
U.S.$ Rate

Effect on
Equity

Sugar - 31%

Ps.

Aluminum - 18%

Sugar - 27%

Ps.

Aluminum - 17%

Sugar - 18%

Ps.

Aluminum - 19%

(406)

(58)

(528)

(87)

(298)

(36)

(1)

(2)

(3)

The sensitivity analysis effects include all subsidiaries of the Company.
Includes the sensitivity analysis effects of all derivative financial instruments related to foreign exchange risk.
Does not include Coca-Cola FEMSA.

Commodity Price Contracts (1)

2015

Coca-Cola FEMSA

2014

Coca-Cola FEMSA

2013

Coca-Cola FEMSA

(1)

Effects on commoditie price contracts are only in Coca-Cola FEMSA.

100

FEMSA Annual Report 2015

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101

20.12 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flow of a financial instrument will fluctuate because of changes in market interest rates.

The Company is exposed to interest rate risk because it and its subsidiaries borrow funds at both fixed and variable interest rates. The risk is managed by the
Company by maintaining an appropriate mix between fixed and variable rate borrowings, and by the use of the different derivative financial instruments. Hedging
activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring the most cost-effective hedging strategies are applied.

The following disclosures provide a sensitivity analysis of the interest rate risks management considered to be reasonably possible at the end of the reporting
period, which the Company is exposed to as it relates to its fixed and floating rate borrowings, which it considers in its existing hedging strategy:

Interest Rate Swap

(1)

2015

(2)

FEMSA

Coca-Cola FEMSA

2014

(2)

FEMSA

Coca-Cola FEMSA

2013

(2)

FEMSA

Coca-Cola FEMSA
(1)

(2)

The sensitivity analysis effects include all subsidiaries of the Company.
Does not include Coca-Cola FEMSA.

Change in
Bps.

Effect on
Equity

(100 Bps.)

Ps.

(542)

(100 Bps.)

Ps.

(528)

(100 Bps.)

Ps.

(32)

Interest Effect of Unhedged Portion Bank Loans

Change in interest rate
Effect on profit loss

2015

2014

2013

+100 Bps.
(192)
Ps.

+100 Bps.
(244)

Ps.

+100 Bps.
(332)

Ps.

20.13 Liquidity risk
Each of the Company’s sub-holding companies generally finances its operational and capital requirements on an independent basis. As of December 31, 2015
and 2014, 82.66% and 80.66%, respectively of the Company’s outstanding consolidated total indebtedness was at the level of its sub-holding companies. This
structure is attributable, in part, to the inclusion of third parties in the capital structure of Coca-Cola FEMSA. Currently, the Company’s management expects
to continue financing its operations and capital requirements when it is considering domestic funding at the level of its sub-holding companies, otherwise;
it is generally more convenient that its foreign operations would be financed directly through the Company because of better market conditions obtained by
itself. Nonetheless, sub-holdings companies may decide to incur indebtedness in the future to finance their own operations and capital requirements of the
Company’s subsidiaries or significant acquisitions, investments or capital expenditures. As a holding company, the Company depends on dividends and other
distributions from its subsidiaries to service the Company’s indebtedness.

The Company’s principal source of liquidity has generally been cash generated from its operations. The Company has traditionally been able to rely on cash
generated from operations because a significant majority of the sales of Coca-Cola FEMSA and FEMSA Comercio are on a cash or short-term credit basis, and
FEMSA Comercio’s OXXO stores are able to finance a significant portion of their initial and ongoing inventories with supplier credit. The Company’s principal
use of cash has generally been for capital expenditure programs, acquisitions, debt repayment and dividend payments.

Ultimate responsibility for liquidity risk management rests with the Company’s board of directors, which has established an appropriate liquidity risk
management framework for the management of the Company’s short-, medium- and long-term funding and liquidity requirements. The Company manages
liquidity risk by maintaining adequate reserves and continuously monitoring forecast and actual cash flows, and with a low concentration of maturities per
year.

The Company has access to credit from national and international bank institutions in order to meet treasury needs; besides, the Company has the highest
rating for Mexican companies (AAA) given by independent rating agencies, allowing the Company to evaluate capital markets in case it needs resources.

As part of the Company’s financing policy, management expects to continue financing its liquidity needs with cash from operations. Nonetheless, as a result
of regulations in certain countries in which the Company operates, it may not be beneficial or, as in the case of exchange controls in Venezuela, practicable to
remit cash generated in local operations to fund cash requirements in other countries. Exchange controls like those in Venezuela may also increase the real
price of remitting cash from operations to fund debt requirements in other countries. In the event that cash from operations in these countries is not sufficient
to fund future working capital requirements and capital expenditures, management may decide, or be required, to fund cash requirements in these countries
through local borrowings rather than remitting funds another country. In addition, the Company’s liquidity in Venezuela could be affected by changes in the
rules applicable to exchange rates as well as other regulations, such as exchange controls. In the future the Company management may finance its working
capital and capital expenditure needs with short-term or other borrowings.

The Company’s management continuously evaluates opportunities to pursue acquisitions or engage in joint ventures or other transactions. We would expect
to finance any significant future transactions with a combination of cash from operations, long-term indebtedness and capital stock.

The Company’s sub-holding companies generally incur short-term indebtedness in the event that they are temporarily unable to finance operations or meet
any capital requirements with cash from operations. A significant decline in the business of any of the Company’s sub-holding companies may affect the
sub-holding company’s ability to fund its capital requirements. A significant and prolonged deterioration in the economies in which we operate or in the
Company’s businesses may affect the Company’s ability to obtain short-term and long-term credit or to refinance existing indebtedness on terms satisfactory
to the Company’s management.

100

FEMSA Annual Report 2015

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101

The Company presents the maturity dates associated with its long-term financial liabilities as of December 31, 2015, see Note 18. The Company generally
makes payments associated with its long-term financial liabilities with cash generated from its operations.

The following table reflects all contractually fixed pay-offs for settlement, repayments and interest resulting from recognized financial liabilities. It includes
expected net cash outflows from derivative financial liabilities that are in place as of December 31, 2015. Such expected net cash outflows are determined based
on each particular settlement date of an instrument. The amounts disclosed are undiscounted net cash outflows for the respective upcoming fiscal years, based
on the earliest date on which the Company could be required to pay. Cash outflows for financial liabilities (including interest) without fixed amount or timing
are based on economic conditions (like interest rates and foreign exchange rates) existing at December 31, 2015.

Non-derivative financial liabilities:
Notes and bonds
Loans from banks

Obligations under finance leases
Derivative financial liabilities

2016

2017

2018

2019

2020

2021 and
thereafter

Ps. 5,929
3,522
112
2,615

Ps. 6,760
1,763
100
1,757

Ps. 20,286
964
96
(55)

Ps. 2,763
818
92
318

Ps. 11,024
869
77
292

Ps. 81,339
627
172
(4,294)

The Company generally makes payments associated with its non-current financial liabilities with cash generated from its operations.

20.14 Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company has adopted
a policy of only dealing with creditworthy counterparties, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company only
transacts with entities that are rated the equivalent of investment grade and above. This information is supplied by independent rating agencies where available
and, if not available, the Company uses other publicly available financial information and its own trading records to rate its major customers. The Company’s
exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved
counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee.

The Company has a high receivable turnover; hence management believes credit risk is minimal due to the nature of its businesses, which have a large portion of
their sales settled in cash. The Company’s maximum exposure to credit risk for the components of the statement of financial position at 31 December 2015 and
2014 is the carrying amounts (see Note 7).

The credit risk on derivative financial instruments is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating
agencies.

The Company manages the credit risk related to its derivative portfolio by only entering into transactions with reputable and credit-worthy counterparties as well
as by maintaining in some cases a Credit Support Annex (CSA) that establishes margin requirements, which could change upon changes to the credit ratings
given to the Company by independent rating agencies. As of December 31, 2015, the Company concluded that the maximum exposure to credit risk related with
derivative financial instruments is not significant given the high credit rating of its counterparties.

Note 21. Non-Controlling Interest in Consolidated Subsidiaries
An analysis of FEMSA’s non-controlling interest in its consolidated subsidiaries for the years ended December 31, 2015 and 2014 is as follows:

Coca-Cola FEMSA
Other

The changes in the FEMSA’s non-controlling interest were as follows:

Balance at beginning of the year
Net income of non controlling interest
Other comprehensive loss:

(1)

Exchange differences on translation of foreign operation
Remeasurements of the net defined benefits liability

Valuation of the effective portion of derivative financial instruments
Increase in capital stock
Acquisitions effects
Contribution from non-controlling interest
Dividends
Share based payment
Balance at end of the year
(1)

December 31,
2015

Ps.

58,340
1,992
60,332

December 31,
2014

Ps.

59,202
447
59,649

2015

Ps. 59,649
5,593
(2,999)
(3,110)
75
36
-
1,133
250
(3,351)
57
Ps. 60,332

2014

63,158
5,929
(6,265)
(6,264)
(110)
109
-
-
-
(3,152)
(21)
59,649

Ps.

2013

54,902
6,233
(910)
(664)
(80)
(166)
515
5,550
-
(3,125)
(7)
63,158

Ps.

For the years ended at 2015, 2014 and 2013, Coca-Cola FEMSA’s net income allocated to non-controlling interest was Ps. 94, Ps. 424 and Ps. 239, respectively.

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103

102

FEMSA Annual Report 2015

Non controlling cumulative other comprehensive loss is comprised as follows:

Exchange differences on translation foreign operation
Remeasurements of the net defined benefits liability
Valuation of the effective portion of derivative financial instruments
Cumulative other comprehensive loss

December 31,
2015

December 31,
2014

Ps.

(9,436)
(241)
(93)
(9,770)

Ps.

(6,326)
(316)
(129)
(6,771)

Coca-Cola FEMSA shareholders, especially the Coca-Cola Company which hold Series D shares, have some protective rights about investing in or disposing of
significant businesses. However, these rights do not limit the continued normal operations of Coca-Cola FEMSA.

Summarized financial information in respect of Coca-Cola FEMSA is set out below.

Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Total revenue
Total consolidated net income
Total consolidated comprehensive income
Net cash flow from operating activities
Net cash flow from used in investing activities
Net cash flow from financing activities

December 31,
2015

December 31,
2014

Ps.

40,717
168,536
29,484
71,034
152,360
10,329
5,033
23,519
(10,945)
(8,567)

Ps.

38,128
174,238
28,403
73,845
147,298
10,966
(1,005)
24,406
(11,137)
(11,350)

Note 22. Equity
22.1 Equity accounts
The capital stock of FEMSA is comprised of 2,161,177,770 BD units and 1,417,048,500 B units.

As of December 31, 2015 and 2014, the capital stock of FEMSA was comprised 17,891,131,350 common shares, without par value and with no foreign ownership
restrictions. Fixed capital stock amounts to Ps. 300 (nominal value) and the variable capital may not exceed 10 times the minimum fixed capital stock amount.

The characteristics of the common shares are as follows:

• Series “B” shares, with unlimited voting rights, which at all times must represent a minimum of 51% of total capital stock;

• Series “L” shares, with limited voting rights, which may represent up to 25% of total capital stock; and

• Series “D” shares, with limited voting rights, which individually or jointly with series “L” shares may represent up to 49% of total capital stock.

The Series “D” shares are comprised as follows:

• Subseries “D-L” shares may represent up to 25% of the series “D” shares;

• Subseries “D-B” shares may comprise the remainder of outstanding series “D” shares; and

• The non-cumulative premium dividend to be paid to series “D” shareholders will be 125% of any dividend paid to series “B” shareholders.

The Series “B” and “D” shares are linked together in related units as follows:

• “B units” each of which represents five series “B” shares and which are traded on the BMV; and

• “BD units” each of which represents one series “B” share, two subseries “D-B” shares and two subseries “D-L” shares, and which are traded both on the BMV

and the NYSE.

As of December 31, 2015 and 2014, FEMSA’s capital stock is comprised as follows:

Units
Shares:

Series “B”
Series “D”

Subseries “D-B”
Subseries “D-L”

Total shares

“B” Units

“BD” Units

Total

1,417,048,500

2,161,177,770

3,578,226,270

7,085,242,500
-
-
-
7,085,242,500

2,161,177,770
8,644,711,080
4,322,355,540
4,322,355,540
10,805,888,850

9,246,420,270
8,644,711,080
4,322,355,540
4,322,355,540
17,891,131,350

The net income of the Company is subject to the legal requirement that 5% thereof be transferred to a legal reserve until such reserve equals 20% of capital stock
at nominal value. This reserve may not be distributed to shareholders during the existence of the Company, except as a stock dividend. As of December 31, 2015
and 2014, this reserve amounted to Ps. 596.

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FEMSA Annual Report 2015

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103

Retained earnings and other reserves distributed as dividends, as well as the effects derived from capital reductions, are subject to income tax at the rate in effect
at the date of distribution, except when capital reductions come from restated shareholder contributions and when the distributions of dividends come from net
taxable income, denominated “Cuenta de Utilidad Fiscal Neta” (“CUFIN”).

Dividends paid in excess of CUFIN are subject to income tax at a grossed-up rate based on the current statutory rate. Since 2003, this tax may be credited against
the income tax of the year in which the dividends are paid, and in the following two years against the income tax and estimated tax payments. Due to the Mexican
Tax Reform, a new Income Tax Law (LISR) went into effect on January 1, 2014. Such law no longer includes the tax consolidation regime which allowed calculating
the CUFIN on a consolidated basis; therefore, beginning in 2014, distributed dividends must be taken from the individual CUFIN balance of FEMSA, which can
be increased with the subsidiary companies’ individual CUFINES through the transfers of dividends. The sum of the individual CUFIN balances of FEMSA and
its subsidiaries as of December 31, 2015 amounted to Ps. 91,248.

In addition, the new LISR sets forth that entities that distribute dividends to its stockholders who are individuals and foreign residents must withhold 10% thereof
for ISR purposes, which will be paid in Mexico. The foregoing will not be applicable when distributed dividends arise from the accumulated CUFIN balances as
December 31, 2013.

At an ordinary shareholders’ meeting of FEMSA held on March 15, 2013, the shareholders approved a dividend of Ps. 6,684 that was paid 50% on May 7, 2013
and other 50% on November 7, 2013; and a reserve for share repurchase of a maximum of Ps. 3,000. As of December 31, 2014, the Company has not repurchased
shares. Treasury shares resulted from share-based payment bonus plan are disclosed in Note 17.

At an ordinary shareholders’ meeting of FEMSA held on December 6, 2013, the shareholders approved a dividend of Ps. 6,684 that was paid on December 18, 2013.

At an ordinary shareholders’ meeting of Coca-Cola FEMSA held on March 5, 2013, the shareholders approved a dividend of Ps. 5,950 that was paid 50% on May
2, 2013 and other 50% on November 5, 2013. The corresponding payment to the non-controlling interest was Ps. 3,073.

At an ordinary shareholders’ meeting of Coca-Cola FEMSA held on March 6, 2014, the shareholders approved a dividend of Ps. 6,012 that was paid 50% on May
4, 2014 and other 50% on November 5, 2014. The corresponding payment to the non-controlling interest was Ps. 3,134.

At an ordinary shareholders’ meeting of FEMSA held on March 19, 2015, the shareholders approved a dividend of Ps. 7,350 that was paid 50% on May 7, 2015
and other 50% on November 5, 2015; and a reserve for share repurchase of a maximum of Ps. 3,000. As of December 31, 2015, the Company has not repurchased
shares. Treasury shares resulted from share-based payment bonus plan are disclosed in Note 17.

At an ordinary shareholders’ meeting of Coca-Cola FEMSA held on March 12, 2015, the shareholders approved a dividend of Ps. 6,405 that was paid 50% on May
5, 2015 and other 50% on November 3, 2015. The corresponding payment to the non-controlling interest was Ps. 3,340.

For the years ended December 31, 2015, 2014 and 2013 the dividends declared and paid by the Company and Coca-Cola FEMSA were as follows:

FEMSA
Coca-Cola FEMSA (100% of dividend)

Ps.

2015

7,350
6,405

Ps.

2014

-
6,012

For the years ended December 31, 2015 and 2014 the dividends declared and paid per share by the Company are as follows:

Series of Shares

“B”
“D”

Ps.

2015

0.36649
0.45811

Ps.

2013

13,368
5,950

2014

-
-

22.2 Capital management
The Company manages its capital to ensure that its subsidiaries will be able to continue as going concerns while maximizing the return to shareholders through
the optimization of its debt and equity balance in order to obtain the lowest cost of capital available. The Company manages its capital structure and makes
adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the dividend payment to
shareholders, return capital to shareholders or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the
years ended December 31, 2015 and 2014.

The Company is not subject to any externally imposed capital requirements, other than the legal reserve (see Note 22.1) and debt covenants (see Note 18).

The Company’s finance committee reviews the capital structure of the Company on a quarterly basis. As part of this review, the committee considers the cost of
capital and the risks associated with each class of capital. In conjunction with this objective, the Company seeks to maintain the highest credit rating both nationally
and internationally and is currently rated AAA in Mexico and BBB+ in the United States, which requires it to have a debt to earnings before interest, taxes,
depreciation and amortization (“EBITDA”) ratio lower than 2. As a result, prior to entering into new business ventures, acquisitions or divestures, management
evaluates the optimal ratio of debt to EBITDA in order to maintain its credit rating.

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Note 23. Earnings per Share
Basic earnings per share amounts are calculated by dividing consolidated net income for the year attributable to controlling interest by the weighted average
number of shares outstanding during the period adjusted for the weighted average of own shares purchased in the period.

Diluted earnings per share amounts are calculated by dividing consolidated net income for the year attributable to controlling interest by the weighted average
number of shares outstanding during the period plus the weighted average number of shares for the effects of dilutive potential shares (originated by the Company’s
share based payment program).

Shares expressed in millions:
Weighted average number of shares for basic

earnings per share

Effect of dilution associated with non-vested

shares for share based payment plans

Weighted average number of shares adjusted for
the effect of dilution (Shares outstanding)

Dividend rights per series (see note 22.1)
Weighted average number of shares further
adjusted to reflect dividend rights

Allocation of earnings, weighted
Net Controlling Interest Income Allocated

2015

2014

2013

Per Series
“B” Shares

Per Series
“D” Shares

Per Series
“B” Shares

Per Series
“D” Shares

Per Series
“B” Shares

Per Series
“D” Shares

9,241.91

8,626.69

9,240.54

8,621.18

9,238.69

8,613.80

4.51

18.02

5.88

23.53

7.73

30.91

9,246.42
100%

8,644.71
125%

9,246.42
100%

8,644.71
125%

9,246.42
100%

8,644.71
125%

9,246.42
46.11%

10,805.89
53.89%

Ps. 8,153.84 Ps. 9,529.04 Ps.

9,246.42
46.11%
7,701.08

10,805.89
53.89%
8,999.92 Ps.

9,246.42 10,805.89
46.11%
53.89%
7,341.74 Ps. 8,579.98

Ps.

Note 24. Income Taxes
In December of 2013, the Mexican government enacted a package of tax reforms (the “2014 Tax Reform”) which includes several significant changes to tax laws,
discussed in further detail below, entering into effect on January 1, 2014. The following changes are expected to most significantly impact the Company’s financial
position and results of operations:

• The introduction of a new withholding tax at the rate of 10% for dividends and/or distributions of earnings generated in 2014 and beyond;

• A fee of one Mexican peso per liter on the sale and import of flavored beverages with added sugar, and an excise tax of 8% on food with caloric content equal

to, or greater than 275 kilocalories per 100 grams of product;

• The prior 11% value added tax (VAT) rate that applied to transaction in the border region was raised to 16%, matching the general VAT rate applicable in the

rest of Mexico;

• The elimination of the tax on cash deposits (IDE) and the business flat tax (IETU);

• Deductions on exempt payroll items for workers are limited to 53%;

• The income tax rate in 2013 was 30%. Scheduled decreases to the income tax rate that would have reduced the rate to 29% in 2014 and 28% in 2015 and

thereafter, were canceled in connection with the 2014 Tax Reform;

• The repeal of the existing tax consolidation regime, which was effective as of January 1, 2014, modified the payment term of a tax on assets payable of Ps.
180, which will be paid over the following 5 years instead of an indefinite term. Additionally, deferred tax assets and liabilities associated with the Company’s
subsidiaries in Mexico are no longer offset as of December 31, 2015 and 2014, as the future income tax balances are expected to reverse in periods where the
Company is no longer consolidating these entities for tax purposes and the right of offset does not exist; and

• The introduction of an new optional tax integration regime (a modified form of tax consolidation), which replaces the previous tax consolidation regime. The
new optional tax integration regime requires an equity ownership of at least 80% for qualifying subsidiaries and would allow the Company to defer the annual
tax payment of its profitable participating subsidiaries for a period equivalent to 3 years to the extent their individual tax expense exceeds the integrated tax
expense of the Company.

The impacts of the 2014 Tax Reform on the Company’s financial position and results of operations as of and for the year ended December 31, 2013, resulted from
the repeal of the tax consolidation regime as described above regarding the payable of Ps. 180 and the effects of the changes in tax rates on deferred tax assets and
liabilities as disclosed below, which was recognized in earnings in 2013.

On November 18, 2014, a tax reform became effective in Venezuela. This reform included changes on how the carrying value of operating losses is reported.
The reform established that operating losses carried forward year over year (but limited to three fiscal years) may not exceed 25% of the taxable income in the
relevant period. The reform also eliminated the possibility to carry over losses relating to inflationary adjustments and included changes that grant Venezuelan
tax authorities broader powers and authority in connection with their ability to enact administrative rulings related to income tax withholding and to collect taxes
and increase fines and penalties for tax-related violations, including the ability to confiscate assets without a court order.

On December 30, 2015, the Venezuelan government published a tax reform for 2016 which establishes: (i) a new tax on financial transactions that will be effective
beginning February 1, 2016, for those identified as “special taxpayers” at a rate of 0.75% over certain financial transactions, including bank withdraws, transfers
of bonds and securities, payments of debts not utilizing a bank account and forgiveness of debt; and (ii) elimination of inflationary effects on calculations of
income tax.

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In Guatemala, the income tax rate for 2014 was 28.0% and it decreased for 2015 to 25.0%, as scheduled.

In 2009, Nicaragua established rules related with transfer pricing. This obligation originally would be effective on January 1, 2016, but the National Assembly
passed an amendment to postpone the measure until June 30, 2017.

In Brazil, since July 2015, all the financial revenues (except exchange variance) have been subjected to Federal Social Contributions at the rate of 4.65%.

Also in Brazil, starting 2016 the rates of value-added tax in certain states will be changed as follows: Mato Grosso do Sul – from 17% to 20%; Minas Gerais - the
tax rate will remain at 18% but there will be an additional 2% as a contribution to poverty eradication just for the sales to non-taxpayer (final consumers); Rio de
Janeiro - the contribution related to poverty eradication fund will be increased from 1% to 2% effectively in April; Paraná - the rate will be reduced to 16% but a
rate of 2% as a contribution to poverty eradication will be charged on sales to non-taxpayers.

Additionally in Brazil, starting on January 1st, 2016, the rates of federal production tax will be reduced and the rates of the federal sales tax will be increased.
Coca-Cola FEMSA estimates the average of these taxes over the net sales would move from 14.4% in 2015 to 15.5% in 2016.

24.1 Income Tax
The major components of income tax expense for the years ended December 31, 2015, 2014 and 2013 are:

Current tax expense
Deferred tax expense:
Origination and reversal of temporary differences

(Recognition) application of tax losses

Total deferred tax (income) expense
Change in the statutory rate (1)

(1)

Effect in 2013 because of 2014 Mexican Tax Reform.

Recognized in Consolidated Statement of Other Comprehensive Income (OCI)

Income tax related to items charged or
recognized directly in OCI during the year:

Unrealized loss (gain) on cash flow hedges
Unrealized gain on available for sale securities
Exchange differences on translation of foreign operations
Remeasurements of the net defined benefit liability
Share of the other comprehensive income of associates and joint ventures
Total income tax cost (benefit) recognized in OCI

2015

Ps.

9,879

Ps.

826
(2,789)
(1,963)
16
7,932

2015

93
-
1,699
49
193
2,034

Ps.

2014

7,810

1,303
(2,874)
(1,571)
14
6,253

2014

219
-
(60)
(49)
189
299

2013

7,855

257
(212)
45
(144)
7,756

2013

(128)
(1)
1,384
(56)
(1,203)
(4)

Ps.

A reconciliation between tax expense and income before income taxes and share of the profit or loss of associates and joint ventures accounted for using the equity
method multiplied by the Mexican domestic tax rate for the years ended December 31, 2015, 2014 and 2013 is as follows:

Mexican statutory income tax rate
Difference between book and tax inflationary values and translation effects
Annual inflation tax adjustment
Difference between statutory income tax rates
Non-deductible expenses
Taxable (non-taxable) income, net
Change in the statutory Mexican tax rate
Others

2015

30.0%
(1.3%)
(1.5%)
0.4%
3.3%
(0.3%)
0.1%
0.8%
31.5%

2014

30.0%
(3.1%)
(4.4%)
0.9%
3.7%
(1.1%)
0.1%
0.2%
26.3%

2013

30.0%
(0.2%)
(1.2%)
1.2%
1.0%
0.7%
(0.6%)
-
30.9%

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FEMSA Annual Report 2015

Deferred Income Tax Related to:

Allowance for doubtful accounts
Inventories
Other current assets
Property, plant and equipment, net
Investments in associates and joint ventures
Other assets
Finite useful lived intangible assets
Indefinite lived intangible assets
Post-employment and other long-term employee benefits
Derivative financial instruments
Provisions
Temporary non-deductible provision
Employee profit sharing payable
Tax loss carryforwards
Cumulative other comprehensive income
Exchange differences on translation of foreign operations in OCI
Other liabilities

(1)

Deferred tax (income) expense
Deferred tax income net recorded in share of the profit of associates

and joint ventures accounted for using the equity method

Deferred tax (income) expense, net

Deferred income taxes, net
Deferred tax asset
Deferred tax liability
(1)

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Consolidated Statement
of Financial Position as of

December 31,
2015

December 31,
2014

Ps.

(128)
66
120
(1,858)
307
99
419
146
(672)
127
(1,209)
2,486
(311)
(5,272)
(171)
3,834
(46)

Ps.

(242)
132
114
(1,654)
(176)
226
246
75
(753)
(38)
(1,318)
2,534
(268)
(3,249)
(303)
2,135
(96)

(2,063)
(8,293)
6,230

Ps.

(2,635)
(6,278)
3,643

Ps.

Consolidated Statement
of Income

Ps.

2014

(106)
77
(18)
(968)
87
422
(133)
(195)
(92)
(99)
(477)
2,450
(13)
(2,874)
-
-
475

Ps.

2013

(24)
(2)
109
(630)
115
(2)
236
88
30
62
(164)
562
(27)
(212)
-
-
(131)

Ps.

(1,464)

Ps.

2015

93
(14)
21
(314)
684
(52)
201
84
86
165
(8)
735
(43)
(2,789)
-
-
(113)
(1,264)

Ps.

(683)
(1,947)

Ps.

(93)

(109)

Ps.

(1,557)

Ps.

(99)

Deferred tax related to derivative financial instruments and remeasurements of the ned defined benefit liability.

Deferred tax related to Other Comprehensive Income (OCI)

Income tax related to items charged or
recognized directly in OCI as of the year:

Unrealized loss (gain) on derivative financial instruments
Remeasurements of the net defined benefit liability
Total deferred tax income related to OCI

The changes in the balance of the net deferred income tax asset are as follows:

Initial balance
Deferred tax provision for the year
Change in the statutory rate
Deferred tax income net recorded in share of the profit of associates

and joint ventures accounted for using the equity method

Acquisition of subsidiaries (see Note 4)
Effects in equity:
Unrealized loss (gain) on cash flow hedges
Unrealized gain on available for sale securities

Exchange differences on translation of foreign operations
Remeasurements of the net defined benefit liability
Retained earnings of associates

Restatement effect of beginning balances associated with

hyperinflationary economies

Ending balance

Ps.

2015

105
(275)
(170)

2014

(799)
(1,571)
14

93
(516)

109
-
617
(427)
(180)

Ps.

2015

(2,635)
(1,963)
16

683
(161)

184
-
1,729
121
(396)

359
(2,063)

Ps.

25
(2,635)

Ps.

2014

12
(315)
(303)

2013

(1,328)
45
(144)

109
647

(149)
(1)
2
102
(121)

39
(799)

The Company offsets tax assets and liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred
tax assets and deferred tax liabilities related to income taxes are levied by the same tax authority.

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Tax Loss Carryforwards
The subsidiaries in Mexico and South America have tax loss carryforwards. The tax losses carryforwards and their years of expiration are as follows:

Year

2020
2021
2022
2023 and thereafter
No expiration (South America)

Tax Loss
Carryforwards

Ps.

23
8
13
5,529
10,890
16,463

During 2013 Coca-Cola FEMSA completed certain acquisitions in Brazil as disclosed in Note 4. In connection with those acquisition Coca-Cola FEMSA recorded
certain goodwill balances that are deductible for Brazilian income tax reporting purposes. The deduction of such goodwill amortization has resulted in the
creation of NOLs in Brazil. NOLs in Brazil have no expiration, but their usage is limited to 30% of Brazilian taxable income in any given year. As of December 31,
2015 Coca-Cola FEMSA believes that it is more likely than not that it will ultimately recover such NOLs through the reversal of temporary differences and future
taxable income. Accordingly no valuation allowance has been provided.

The changes in the balance of tax loss carryforwards are as follows:

Balance at beginning of the year
Additions
Additions from acquisitions
Usage of tax losses
Translation effect of beginning balances
Balance at end of the year

2015

8,734
8,545
825
(215)
(1,426)
16,463

Ps.

2014

558
8,199
-
(45)
22
8,734

Ps.

There were no withholding taxes associated with the payment of dividends in either 2015, 2014 or 2013 by the Company to its shareholders.

The Company has determined that undistributed profits of its subsidiaries, joint ventures or associates will not be distributed in the foreseeable future. The
temporary differences associated with investments in subsidiaries, associates and joint ventures, for which a deferred tax liability has not been recognized,
aggregate to Ps. 44,082 (December 31, 2014: Ps. 43,394 and December 31, 2013: Ps. 44,920).

24.2 Other taxes
The operations in Guatemala, Nicaragua, Colombia and Argentina are subject to a minimum tax, which is based primary on a percentage of assets. Any payments
are recoverable in future years, under certain conditions.

Note 25. Other Liabilities, Provisions, Contingencies and Commitments
25.1 Other current financial liabilities

Sundry creditors
Derivative financial instruments
Others
Total

The carrying value of short-term payables approximates its fair value as of December 31, 2015 and 2014.

25.2 Provisions and other long term liabilities

Provisions
Taxes payable
Others
Total

25.3 Other financial liabilities

Derivative financial instruments
Security deposits
Total

December 31,
2015

December 31,
2014

Ps.

4,336
358
15
4,709

Ps.

4,515
347
-
4,862

December 31,
2015

December 31,
2014

Ps.

3,415
458
1,334
5,207

Ps.

4,285
444
890
5,619

December 31,
2015

December 31,
2014

Ps.

277
218
495

Ps.

151
177
328

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25.4 Provisions recorded in the consolidated statement of financial position
The Company has various loss contingencies, and has recorded reserves as other liabilities for those legal proceedings for which it believes an unfavorable
resolution is probable. Most of these loss contingencies are the result of the Company’s business acquisitions. The following table presents the nature and amount
of the loss contingencies recorded as of December 31, 2015 and 2014:

Indirect taxes
Labor
Legal
Total

25.5 Changes in the balance of provisions recorded
25.5.1 Indirect taxes

Balance at beginning of the year
Penalties and other charges
New contingencies
Reclasification in tax contingencies with Heineken
Contingencies added in business combination
Cancellation and expiration
Payments
Current portion
Brazil amnesty adoption
Effects of changes in foreign exchange rates
Balance at end of the year

December 31,
2015

December 31,
2014

Ps.

1,725
1,372
318
3,415

Ps.

2,271
1,587
427
4,285

December 31,
2015

December 31,
2014

December 31,
2013

Ps.

2,271
21
84
-
-
(205)
(214)
-
-
(232)
1,725

Ps.

3,300
220
38
1,349
1,190
(798)
(2,517)
-
(599)
88
2,271

Ps.

1,263
1
263
-
2,143
(5)
(303)
(163)
-
101
3,300

During 2014, Coca-Cola FEMSA took advantage of a Brazilian tax amnesty program. The settlementof certain outstanding matters under that amnesty program
generated a benefit Ps. 455 which is reflected in other income during the year ended December 31, 2014 (see Note 19).

25.5.2 Labor

Balance at beginning of the year
Penalties and other charges
New contingencies
Contingencies added in business combination
Cancellation and expiration
Payments
Effects of changes in foreign exchange rates
Balance at end of the year

December 31,
2015

December 31,
2014

December 31,
2013

Ps.

1,587
210
44
-
(102)
(114)
(253)
1,372

Ps.

1,063
107
145
442
(53)
(57)
(60)
1,587

Ps.

934
139
187
157
(226)
(69)
(59)
1,063

A roll forward for legal contingencies is not disclosed because the amounts are not considered to be material.

While provision for all claims has already been made, the actual outcome of the disputes and the timing of the resolution cannot be estimated by the Company
at this time.

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25.6 Unsettled lawsuits
The Company has entered into several proceedings with its labor unions, tax authorities and other parties that primarily involve Coca-Cola FEMSA and its
subsidiaries. These proceedings have resulted in the ordinary course of business and are common to the industry in which the Company operates. The aggregate
amount being claimed against the Company resulting from such proceedings as of December 31, 2015 is Ps. 29,502. Such contingencies were classified by legal
counsel as less than probable but more than remote of being settled against the Company. However, the Company believes that the ultimate resolution of such
several proceedings will not have a material effect on its consolidated financial position or result of operations.

Included in this amount Coca-Cola FEMSA has tax contingencies, amounting to approximately Ps. 19,133, with loss expectations assessed by management
and supported by the analysis of legal counsel which it considers possible. Among these possible contingencies, are Ps. 5,770 in various tax disputes related
primarily to credits for ICMS (VAT) and Tax credits over raw materials acquired from Free Trade Zone Manaus (IPI). Possible claims also include Ps. 11,613
related to the disallowance of IPI credits on the acquisition of inputs from the Manaus Free Trade Zone. Cases related to these matters are pending final decision
at the administrative level. Possible claims also include Ps. 1,348 related to compensation of federal taxes not approved by the IRS (Tax authorities). Cases
related to these matters are pending final decision in the administrative and judicial spheres. Finally, possible claims include Ps. 402 related to the requirement
by the Tax Authorities of State of São Paulo for ICMS (VAT), interest and penalty due to the alleged underpayment of tax arrears for the period 1994-1996.
Coca-Cola FEMSA is defending its position in these matters and final decision is pending in court. In addition, the Company has Ps. 4,586 in unsettled indirect
tax contingencies regarding indemnification accorded with Heineken over FEMSA Cerveza. These matters are related to different Brazilian federal taxes which
are pending final decision.

In recent years in its Mexican and Brazilian territories, Coca-Cola FEMSA has been requested to present certain information regarding possible monopolistic
practices. These requests are commonly generated in the ordinary course of business in the soft drink industry where this subsidiary operates. The Company does
not expect any material liability to arise from these contingencies.

25.7 Collateralized contingencies
As is customary in Brazil, the Company has been required by the tax authorities there to collateralize tax contingencies currently in litigation amounting to Ps.
3,569 and Ps. 3,026 as of December 31, 2015 and 2014, respectively, by pledging fixed assets and entering into available lines of credit covering the contingencies
(see Note 13).

25.8 Commitments
As of December 31, 2015, the Company has contractual commitments for finance leases for machinery and transport equipment and operating lease for the rental
of production machinery and equipment, distribution and computer equipment, and land for FEMSA Comercio’s operations.

The contractual maturities of the operating lease commitments by currency, expressed in Mexican pesos as of December 31, 2015, are as follows:

Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years
Total

Mexican
Pesos

Ps.

3,768
13,262
16,742
Ps. 33,772

U.S.
Dollars

200
782
330
1,312

Ps.

Others

1
13
2
16

Ps.

Rental expense charged to consolidated net income was Ps. 6,088, Ps. 4,988 and Ps. 4,345 for the years ended December 31, 2015, 2014 and 2013, respectively.

Future minimum lease payments under finance leases with the present value of the net minimum lease payments are as follows:

Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years

Total mínimum lease payments
Less amount representing finance charges
Present value of minimum lease payments

2015
Minimum
Payments

Present
Value of
Payments

2014
Minimum
Payments

Present
Value of
Payments

Ps.

109
359
166

634
67
567

Ps.

91
327
149

567
-
567

299
533
63

895
64
831

Ps.

263
504
64

831
-
831

The Company through its subsidiary Coca-Cola FEMSA has firm commitments for the purchase of property, plant and equipment of Ps. 92 as December 31, 2015.

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Note 26. Information by Segment
The analytical information by segment is presented considering the Company’s business units (as defined in Note 1) based on its products and services, which
is consistent with the internal reporting presented to the Chief Operating Decision Maker. A segment is a component of the Company that engages in business
activities from which it earns revenues, and incurs the related costs and expenses, including revenues, costs and expenses that relate to transactions with any of
Company’s other components. All segments’ operating results are reviewed regularly by the Chief Operating Decision Maker, which makes decisions about the
resources that would be allocated to the segment and to assess its performance, and for which financial information is available.

Inter-segment transfers or transactions are entered into and presented under accounting policies of each segment, which are the same to those applied by the
Company. Intercompany operations are eliminated and presented within the consolidation adjustment column included in the tables below.

a) By Business Unit:

2015

Total revenues
Intercompany revenue
Gross profit
Administrative expenses
Selling expenses
Other income
Other expenses
Interest expense
Interest income
Other net finance expenses
Income before income taxes and share of the profit
of associates and joint ventures accounted for using

(3)

the equity method

Income taxes
Share of the profit of associates and joint ventures

accounted for using the equity method, net of taxes

Consolidated net income

Depreciation and amortization
Non-cash items other than depreciation

(2)

and amortization

Investments in associates and joint ventures
Total assets
Total liabilities
Investments in fixed assets (4)
(1)

Coca-Cola

FEMSA
Comercio
FEMSA Retail Division

FEMSA
Comercio
Fuel Division

CB Equity

(1)

Other

3,794
72,030
-
-
-
-

Ps. 152,360 Ps. 132,891 Ps. 18,510
-
1,420
-
-
-
-
(78)
35
-

-
47,291
-
-
-
-
(634)
31
-

(6,337)
414
-

14,725
4,551

10,130
956

155

(10)

7,144

3,336

1,443

17,873
210,249
101,514
11,484

280

744
67,211
44,783
6,048

164
28

19
3,230
2,752
228

Ps.

-
-
-
-
-
-
-
-
18
-

8
2

5,879

92,694
95,502
4,202
-

Ps. 22,774
11,152
5,334
-
-
-
-
(1,269)
1,067
-

208
2,395

282

326

401
49,213
30,298
1,448

Consolidation
Adjustments

Ps. (14,946)
(14,946)
(2,896)
-
-
-
-
541
(541)
-

Consolidated

Ps. 311,589
-
123,179
11,705
76,375
423
(2,741)
(7,777)
1,024
(865)

(72)
-

25,163
7,932

6,045

23,276

10,825

2,066

-
(16,073)
(16,073)
(323)

111,731
409,332
167,476
18,885

(2)

(3)

(4)

Includes other companies (see Note 1) and corporate.
Includes bottle breakage.
Includes foreign exchange loss, net; loss on monetary position for subsidiaries in hyperinflationary economies; and market value gain on financial instruments.
Includes acquisitions and disposals of property, plant and equipment, intangible assets and other long-lived assets.

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2014

(3)

Income taxes
Share of the profit of associates and joint ventures

accounted for using the equity method, net of taxes

Consolidated net income

Depreciation and amortization
Non-cash items other than depreciation and amortization

(2)

Investments in associates and joint ventures
Total assets
Total liabilities
Investments in fixed assets (4)

2013

(3)

Income taxes
Share of the profit of associates and joint ventures

accounted for using the equity method, net of taxes

Consolidated net income

Depreciation and amortization
Non-cash items other than depreciation and amortization

(2)

Investments in associates and joint ventures
Total assets
Total liabilities
Investments in fixed assets (4)
(1)

Ps.

Coca-Cola

FEMSA
Comercio
FEMSA Retail Division

Ps. 147,298 Ps. 109,624
-
39,386
-
-
-
-
(686)
23
-

3,475
68,382
-
-
-
-
(5,546)
379
-

14,952
3,861

(125)

6,949
693

17,326
212,366
102,248
11,313

7,959
541

2,872
204

742
43,722
31,860
5,191

Ps.

Ps. 156,011 Ps. 97,572
-
34,586
-
-
-
-
(601)
5
-

3,116
72,935
-
-
-
-
(3,341)
654
-

17,224
5,731

289

7,132
12

16,767
216,665
99,512
11,703

2,890
339

2,443
197

734
39,617
37,858
5,683

CB Equity

(1)

Other

Consolidation
Adjustments

-
-
-
-
-
-
-
-
16
-

8
2

5,244

-
-

83,710
85,742
2,005
-

-
-
-
-
-
-
-
-
12
-

4
1

4,587

-
-

80,351
82,576
1,933
-

Ps.

Ps. 20,069
10,067
4,871
-
-
-
-
(1,093)
1,068
-

905
1,849

(17)

193
87

381
51,251
26,846
1,955

Ps.

Ps. 17,254
9,624
4,670
-
-
-
-
(865)
1,030
-

5,120
1,685

(56)

121
108

478
45,487
21,807
831

(13,542)
(13,542)
(2,468)
-
-
-
-
624
(624)
-

(80)
-

-
-

Consolidated

Ps. 263,449
-
110,171
10,244
69,016
1,098
(1,277)
(6,701)
862
(1,149)

23,744
6,253

5,139

22,630

10,014
984

-
(16,908)
(16,908)
(296)

102,159
376,173
146,051
18,163

(12,740)
(12,740)
(2,537)
-
-
-
-
476
(476)
-

(158)
-

-
-

Ps. 258,097
-
109,654
9,963
69,574
651
(1,439)
(4,331)
1,225
(1,143)

25,080
7,756

4,831

22,155

9,696
317

-
(25,153)
(24,468)
(335)

98,330
359,192
136,642
17,882

(2)

(3)

(4)

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b) By Geographic Area:
The Company aggregates geographic areas into the following for the purposes of its consolidated financial statements: (i) Mexico and Central America division
(comprising the following countries: Mexico, Guatemala, Nicaragua, Costa Rica and Panama) and (ii) the South America division (comprising the following
countries: Brazil, Argentina, Colombia, Chile and Venezuela). Venezuela operates in an economy with exchange controls and hyper-inflation; and as a result,it
is not aggregated into the South America area, (iii) Europe (comprised of the Company’s equity method investment in Heineken) and (iv) the Asian division
comprised of the Coca Cola FEMSA’s equity method investment in CCFPI (Philippines) which was acquired in January 2013.

Geographic disclosure for the Company is as follow:

2015
Mexico and Central America (1) (2)
South America (3)
Venezuela
Europe
Consolidation adjustments
Consolidated

2014
Mexico and Central America (1) (2)
South America (3)
Venezuela
Europe
Consolidation adjustments
Consolidated

2013
Mexico and Central America (1) (2)
South America (3)
Venezuela
Europe
Consolidation adjustments
Consolidated
(1)

Total
Revenues

228,563
74,928
8,904
-
(806)
311,589

186,736
69,172
8,835
-
(1,294)
263,449

Ps.

Total
Non Current
Assets

Ps. 158,506
67,568
3,841
92,694
-
Ps. 322,609

Ps.

139,899
67,078
6,374
83,710
-
297,061

Total
Revenues

171,726
55,157
31,601
-
(387)
258,097

Central America includes Guatemala, Nicaragua, Costa Rica and Panama. Domestic (Mexico only) revenues were Ps. 218,809, Ps. 178,125 and Ps. 163,351 during the years ended
December 31, 2015, 2014 and 2013, respectively. Domestic (Mexico only) non-current assets were Ps. 157,080 and Ps. 138,662, as of December 31, 2015, and December 31, 2014,
respectively.

(2)

Coca-Cola FEMSA’s Asian division consists of the 51% equity investment in CCFPI (Philippines) which was acquired in 2013, and is accounted for using the equity method of
accounting (see Note 10). The equity in earnings of the Asian division were Ps. 86, Ps. (334) and Ps. 108 in 2015, 2014 and 2013, respectively as is the equity method investment in
CCFPI was Ps. 9,996, Ps. 9,021 and Ps. 9,398 this is presented as part of the Company’s corporate operations in 2015, 2014 and 2013, respectively and thus disclosed net in the table
above as part of the “Total Non Current assets” in the Mexico & Central America division. However, the Asian division is represented by the following investee level amounts, prior to
reflection of the Company’s 51% equity interest in the accompanying consolidated financial statements: revenues Ps. 19,576, Ps. 16,548 and Ps. 13,438, gross profit Ps. 5,325, Ps. 4,913
and Ps. 4,285, income before income taxes Ps. 334, Ps. 664 and Ps. 310, depreciation and amortization Ps. 2,369, Ps. 643 and Ps. 1,229, total assets Ps. 22,002 Ps. 19,877 and Ps. 17,232,
total liabilities Ps. 6,493, Ps. 6,614 and Ps. 4,488, capital expenditures Ps. 1,778, Ps. 2,215 and Ps. 1,889, as of December 31, 2015, 2104 and 2013, respectively.

(3)

South America includes Brazil, Argentina, Colombia, Chile and Venezuela, although Venezuela is shown separately above. South America revenues include Brazilian revenues of
Ps. 39,749, Ps. 45,799 and Ps. 31,138 during the years ended December 31, 2015, 2014 and 2013, respectively. Brazilian non-current assets were Ps. 44,851 and Ps. 51,587, as of
December 31, 2015 and December 31, 2014, respectively. South America revenues include Colombia revenues of Ps. 14,283, Ps. 14,207 and Ps. 13,354 during the years ended
December 31, 2015, 2014 and 2013, respectively. Colombia non-current assets were Ps. 12,755 and Ps. 12,933, as of December 31, 2015 and December 31, 2014, respectively. South
America revenues include Argentina revenues of Ps. 14,004, Ps. 9,714 and Ps. 10,729 during the years ended December 31, 2015, 2014 and 2013, respectively. Argentina non-current
assets were Ps. 2,861 and Ps. 2,470, as of December 31, 2015 and December 31, 2014, respectively. South America revenues include Chile revenues of Ps. 7,586 during the year ended
December 31, 2015. Chile non-current assets were Ps. 7,031, as of December 31, 2015.

Note 27. Future Impact of Recently Issued Accounting Standards not yet in Effect
The Company has not applied the following standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s
financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.

IFRS 9, Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments which reflects all phases of the financial instruments project and replaces IAS
39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and
measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted.
The transition to IFRS 9 differs by requirements and is partly retrospective and partly prospective. The Company has not early adopted this IFRS, and the
Company has yet to complete its evaluation of whether it will have a material impact on its consolidated financial statements.

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IFRS 15, Revenue from Contracts with Customers
IFRS 15, “Revenue from Contracts with Customers”, was originally issued in May 2014 and applies to annual reporting periods beginning on or after January 1,
2018, earlier application is permitted. Revenue is recognized as control is passed, either over time or at a point in time.

The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most
current revenue recognition guidance, including industry specific guidance. In applying the revenue model to contracts within its scope, an entity will: 1) Identify
the contract(s) with a customer; 2) Identify the performance obligations in the contract; 3) Determine the transaction price; 4) Allocate the transaction price to the
performance obligations in the contract; 5) Recognize revenue when (or as) the entity satisfies a performance obligation. Also, an entity needs to disclose sufficient
information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts
with customers. The Company has yet to complete its evaluation of whether there will be a significant impact as a consequence of this standard’s adoption;
nonetheless most of the Company’s operations are at a single point in time, which is when the Company transfers goods or services to a customer. The Company
does not expect a potential impact on its consolidated financial statements and the Company expects to complete its evaluation during 2017.

IFRS 16, Leases
IFRS 16 “Leases” was issued in January 2016 and supersedes IAS 17 “Leases” and related interpretations. The new standard brings most leases on-balance sheet
for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the
distinction between operating and finance leases is retained. IFRS 16 is effective for periods beginning on or after 1 January 2019, with earlier adoption permitted
if IFRS 15 ‘Revenue from Contracts with Customers’ has also been applied.

Under IFRS 16 a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is treated similarly to other non-financial assets and depreciated
accordingly and the liability accrues interest. This will typically produce a front-loaded expense profile (whereas operating leases under IAS 17 would typically
have had straight-line expenses) as an assumed linear depreciation of the right-of-use asset and the decreasing interest on the liability will lead to an overall
decrease of expense over the life of the lease.

The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at the rate implicit in the lease if that
can be readily determined. If that rate cannot be readily determined, the lessee shall use their incremental borrowing rate. However, a lessee may elect to account
for lease payments as an expense on a straight-line basis over the lease term for leases with a lease term of 12 months or less and containing no purchase options
(this election is made by class of underlying asset); and leases where the underlying asset has a low value when new, such as personal computers or small items of
office furniture (this election can be made on a lease-by-lease basis). The Company has yet to complete its evaluation whether there will be a potential impact as
a consequence of this standard’s adoption, although given the nature of the Company’s operations, it will expect a significant impact on its consolidated financial
statements.

Amendments to IAS 7, Disclosure Initiative
The amendments to IAS 7 Statement of Cash Flows, require that the following changes in liabilities arising from financing activities be disclosed separately
from changes in other assets and liabilities: (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other
businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes. One way to fulfill the new disclosure requirement
is to provide a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities.

Liabilities arising from financing activities are those for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows
from financing activities. The new disclosure requirements also relate to changes in financial assets if they meet the same definition.

These amendments are effective for annual periods beginning on or after 1 January 2017 with earlier application permitted, and entities need not provide
comparative information when they first apply them. The Company is in the process of assessing the potential impacts from the adoption of these amendments
in its financial statements.

Note 28. Subsequent Events
In January 18, 2016, Eduardo Padilla Silva replaced Daniel Rodriguez Cofré as our Chief Financial and Corporate Officer, and Mr. Rodriguez Cofré replaced
Mr. Padilla Silva as Chief Executive Officer of FEMSA Comercio.

In February 17, 2016, the president of Venezuela announced a devaluation of the official exchange rate of 37% and moved the existing three-tier exchange rates
system into dual system as part of a package of economic policies aimed to face the economic crisis from the OPEC member-countries. The official exchange rate
(6.30 bolivars per U.S. dollar as of December 31, 2015) and the SICAD exchange rate (13.50 bolivars per U.S. dollar as of December 31, 2015), were merged into a
new official exchange rate at 10 bolivars per U.S. dollar. The SIMADI exchange rate was maintained in the same conditions it operated before this date. At the date
of this report, no specific guidance has been defined with respect to the use of each exchange rate available. The Company will closely monitor developments in
this area, which may affect the exchange rate(s) used prospectively.

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Headquarters

FEMSA Corporate Offices
General Anaya No. 601 Pte.
Col. Bella Vista
Monterrey, Nuevo León
Mexico, C.P. 64410
Phone: (52) 81 8328-6000
Fax: (52) 81 8328-6080

Coca-Cola FEMSA
Mario Pani N° 100
Col. Santa Fé Cuajimalpa 05348,
México, D.F. Mexico
Phone: (52) 55 1519-5000

FEMSA Comercio
Edison No. 1235 Nte.
Col. Talleres
Monterrey, Nuevo León
Mexico, C.P. 64480
Phone: (52) 81 8389-2121
Fax: (52) 81 8389-2106

FEMSA Negocios Estratégicos
General Anaya No. 601 Pte.
Col. Bella Vista
Monterrey, Nuevo León
Mexico, C.P. 64410
Phone: (52) 81 8328-6600
Fax: (52) 81 8328-6601

The FEMSA 2015 Annual Report may contain certain forward-looking statements concerning FEMSA and its subsidiaries’ future
performance and should be considered as good faith estimates of FEMSA and its subsidiaries. These forward-looking statements
reflect management’s expectations and are based upon currently available data. Actual results are subject to further events and
uncertainties which could materially impact the Company’s subsidiaries’ actual performance.

Investor Relations
Juan Fonseca
Gerardo Lozoya
Phone: (52) 81 8328-6167
Fax: (52) 81 8328-6080
e-mail: investor@femsa.com.mx

Corporate Communication
Mauricio Reyes
Erika De la Peña
Phone: (52) 55 5249-6843
Fax: (52) 55 5249-6861
e-mail: comunicacion@femsa.com

For more information visit us at:
www.femsa.com
www.femsa.com/investor

Contact Information

General Counsel
Carlos E. Aldrete Ancira
General Anaya No. 601 Pte.
Colonia Bella Vista
Monterrey, Nuevo León
Mexico, C.P. 64410
Phone: (52) 81 8328-6180

Independent Accountant
Mancera, S.C.
A Member Practice of Ernst & Young Global Limited
Av. Lázaro Cárdenas No. 2321 Pte. Piso 5
Col. Residencial San Agustín
San Pedro Garza García, Nuevo León
Mexico, C.P. 66260
Phone: (52) 81 8152-1800

Depositary Bank and Registrar
BNY Mellon
BNY Mellon Shareowner Services
P.O. Box 30170
College Station, TX 77842-3170
Phone: 888 BNY ADRS
(269-2377)

International Callers: 201-680-6825
e-mail: shrrelations@cpushareownerservices.com
Website: www.bnymellon.com/shareowner

Stock Markets and Symbols
Fomento Económico Mexicano, S.A.B. de C.V. stock
trades on the Bolsa Mexicana de Valores (BMV) in
the form of units under the symbols FEMSA UBD
and FEMSA UB. The FEMSA UBD units also trade
on The New York Stock Exchange, Inc. (NYSE) in the
form of ADRs under the symbol FMX.

P R I N T ED USI

WIND E N E

Y
G

Supplied by Community Energy

Design: www.signi.com.mx

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www.femsa.com
investor@femsa.com.mx
General Anaya No. 601 Pte. Colonia Bella Vista
Monterrey, Nuevo León, Mexico, C.P. 64410
Phone: (52) 81 8328-6180

www.annualreport.femsa.com/

c r e at i n g
s t o r i e s

FEMSA is a multinational beverage and retail company headquartered

in Mexico. Through Coca-Cola FEMSA (48% stake), we are the largest

independent bottler of Coca-Cola products in the world. Through

FEMSA Comercio (100% stake), we operate OXXO, the leading

convenience store chain in Mexico and a growing portfolio of other

small-format retail chains in Latin America, as well as a network of retail

service stations for fuel, lubricants and car care products in Mexico.

We also hold the second largest equity stake in Heineken (20% stake),

a major global brewer. In addition, our FEMSA Strategic Businesses

provide logistics, point-of-sale refrigeration and plastics solutions to our

own businesses and third party clients.

creating
stories

Founding of Cervecería Cuauhtémoc

Annual Report 20151890