##### Table of Contents

**As filed with the Securities and Exchange Commission on June 28, 2011.**

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 20-F**

**ANNUAL REPORT PURSUANT TO SECTION 13**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

 

For the fiscal year ended December 31, 2010 

 

Commission file number 333-08752 

 

 

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

**(Exact name of registrant as specified in its charter)**

 

**Mexican Economic Development, Inc.**

**(Translation of registrant’sname into English)**

 

**United Mexican States**

**(Jurisdiction of incorporation or organization)**

 

**General Anaya No. 601 Pte.**

**Colonia Bella Vista**

**Monterrey, NL 64410 Mexico**

**(Address of principal executive offices)**

 

**
 
**

**Juan F. Fonseca**

**General Anaya No. 601 Pte.**

**Colonia Bella Vista**

**Monterrey, NL 64410 Mexico**

**(52-818) 328-6167**

**investor@femsa.com.mx**

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

**address of company contact person)**

 

**
 
**

 

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

 

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

None 

Securities for whichthere is a reporting obligation pursuant to Section 15(d) of the Act: 

None 

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

 

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

 

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

 

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

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be file by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.

 

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

 

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

 

If “Other” has been checked in response to the previous question, indicate by check mark which financialstatement item the registrant has elected to follow. 

 

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

 

 

 

 

Table of Contents
**TABLE OF CONTENTS**

 
      **Page**INTRODUCTION   1  References  1  Currency Translations and Estimates  1  Forward-Looking Information  1ITEMS 1-2.  NOT APPLICABLE  2ITEM 3.  KEY INFORMATION  2  Selected Consolidated Financial Data  2  Dividends  5  Exchange Rate Information  7  Risk Factors  8ITEM 4.  INFORMATION ON THE COMPANY  18  The Company  18  Overview  18  Corporate Background  18  Ownership Structure  23  Significant Subsidiaries  25  Business Strategy  25  Coca-Cola FEMSA  26  FEMSA Comercio  42  FEMSA Cerveza and Equity Method Investment in the Heineken Group  46  Other Business  47  Description of Property, Plant and Equipment  47  Insurance  49  Capital Expenditures and Divestitures  49  Regulatory Matters  49ITEM 4A.  UNRESOLVED STAFF COMMENTS  55ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS  55  Overview of Events, Trends and Uncertainties  55  Recent Developments  55  Operating Leverage  57  New Accounting Pronouncements  60  Operating Results  63  Liquidity and Capital Resources  71  U.S. GAAP Reconciliation  78ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES  79  Directors  79  Senior Management  84  Compensation of Directors and Senior Management  87  EVA Stock Incentive Plan  87  Insurance Policies  88  Ownership by Management  88  Board Practices  88
 
i 

Table of Contents  Employees   90  
ITEM 7.
  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   91    Major Shareholders   91    Related-Party Transactions   92    Voting Trust   92    Interest of Management in Certain Transactions   92    Business Transactions between Coca-Cola FEMSA and The Coca-Cola Company   93  
ITEM 8.
  FINANCIAL INFORMATION   95    Consolidated Financial Statements   95    Dividend Policy   95    Legal Proceedings   95    Significant Changes   97  
ITEM 9.
  THE OFFER AND LISTING   97    Description of Securities   97    Trading Markets   98    Trading on the Mexican Stock Exchange   98    Price History   99  
ITEM 10.
  ADDITIONAL INFORMATION   102    Bylaws   102    Taxation   108    Material Contracts   111    Documents on Display   117  
ITEM 11.
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   118    Interest Rate Risk   118    Foreign Currency Exchange Rate Risk   121    Equity Risk   124    Commodity Price Risk   124  ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   124  
ITEM 12A.
  DEBT SECURITIES   124  
ITEM 12B.
  WARRANTS AND RIGHTS   124  
ITEM 12C.
  OTHER SECURITIES   124  
ITEM 12D.
  AMERICAN DEPOSITARY SHARES   124  ITEMS 13-14.  NOT APPLICABLE   125  
ITEM 15.
  CONTROLS AND PROCEDURES   125  
ITEM 16A.
  AUDIT COMMITTEE FINANCIAL EXPERT   126  
ITEM 16B.
  CODE OF ETHICS   126  
ITEM 16C.
  PRINCIPAL ACCOUNTANT FEES AND SERVICES   127  
 
ii 

Table of ContentsITEM 16D.  NOT APPLICABLE   128  ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS   128  ITEM 16F.  NOT APPLICABLE   129  ITEM 16G.  CORPORATE GOVERNANCE   129  ITEM 17.  NOT APPLICABLE   131  ITEM 18.  FINANCIAL STATEMENTS   131  ITEM 19.  EXHIBITS   132  
 
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**INTRODUCTION**

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

**References**

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

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

References to “U.S. dollars,” “US$,” “dollars” or “$” are to the lawful currency ofthe United States of America. References to “Mexican pesos,” “pesos” or “Ps.” are to the lawful currency of the United Mexican States, or Mexico. 

**Currency Translations and Estimates**

This annualreport contains translations of certain Mexican peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. These translations should not be construed as representations that the Mexican peso amounts actuallyrepresent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated. Unless otherwise indicated, such U.S. dollar amounts have been translated from Mexican pesos at an exchange rate of Ps. 12.3825 to US$ 1.00, thenoon buying rate for Mexican pesos on December 31, 2010, as published by the Federal Reserve Bank of New York. On May 31, 2011, this exchange rate was Ps. 11.5790 to US$ 1.00. See “Item 3. Key Information—Exchange RateInformation” for information regarding exchange rates since January 1, 2006. 

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

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

**Forward-Looking Information**

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

 
1 

Table of Contents**ITEMS 1-2.****NOT APPLICABLE**
 
**ITEM 3.****KEY INFORMATION**
**Selected Consolidated Financial Data**

This annual report includes, under Item 18, our audited consolidated balancesheets as of December 31, 2010 and 2009, the related consolidated statements of income, cash flows and changes in stockholders’ equity for the years ended December 31, 2010, 2009 and 2008. Our audited consolidated financial statementsare prepared in accordance with Mexican Financial Reporting Standards, or Mexican FRS, (*Normas de Información Financiera*or NIF), which differ in certain significant respects from accounting principles generally accepted in the UnitedStates, or U.S. GAAP. 

Notes 27 and 28 to our audited consolidated financial statements provide a description of the principaldifferences between Mexican FRS and U.S. GAAP as they relate to our company, together with a reconciliation to U.S. GAAP of net income, comprehensive income and stockholders’ equity as well as U.S. GAAP consolidated balance sheets, statementsof income and comprehensive income and cash flows for the same periods presented for Mexican FRS purposes and for the consolidated statement of changes in stockholders’ equity for the years ended December 31, 2010 and 2009. In thereconciliation to U.S. GAAP, we present our subsidiary Coca-Cola FEMSA, which is a consolidated subsidiary for purposes of Mexican FRS, under the equity method for U.S. GAAP purposes, due to the substantive participating rights of The Coca-ColaCompany as a minority shareholder in Coca-Cola FEMSA for the years ended December 31, 2009 and 2008. 

On February 1,2010, FEMSA and The Coca-Cola Company signed an amendment to their Shareholders’ Agreement. As a result of this amendment, FEMSA began to consolidate Cola-Cola FEMSA for U.S. GAAP purposes on this date. See Note 27A to our audited consolidatedfinancial statements. 

Beginning on January 1, 2008, in accordance with changes to NIF B-10 under the Mexican FRS, wediscontinued the use of inflation accounting for our subsidiaries that operate in “non-inflationary” countries where cumulative inflation for the three preceding years was less than 26%. Our subsidiaries in Mexico, Guatemala, Panama,Colombia and Brazil operate in non-inflationary economic environments, therefore 2010, 2009 and 2008 figures reflect inflation effects only through 2007. Our subsidiaries in Nicaragua, Costa Rica, Venezuela and Argentina operate in economicenvironments in which cumulative inflation during the same three-year period was 26% or greater, and we therefore continue recognizing inflationary accounting for 2010, 2009 and 2008. For comparison purposes, the figures prior to 2008 have beenrestated in Mexican pesos with purchasing power as of December 31, 2007, taking into account local inflation for each country with reference to the consumer price index. Local currencies have been converted into Mexican pesos using officialexchange rates published by the local central bank of each country. Our subsidiary in the Euro Zone operated in a non-inflationary economic environment in 2010. See Note 5 to our audited consolidated financial statements. 

As a result of discontinuing inflationary accounting for subsidiaries that operate in non-inflationary economic environments, thefinancial statements are no longer considered to be presented in a reporting currency that comprehensively includes the effects of price level changes. Therefore, the inflationary effects of inflationary economic environments arising in 2008, 2009and 2010 result in a difference that must be reconciled for U.S. GAAP purposes, except for Venezuela, which is considered to be a hyperinflationary environment since January 2010 and which inflationary effects have not been reversed under U.S. GAAP.See Notes 27 and 28 to our audited consolidated financial statements. 

On April 30, 2010, FEMSA announced the closing ofthe transaction pursuant to which FEMSA agreed to exchange 100% of its beer operations for a 20% economic interest in Heineken Holding N.V. and Heineken N.V., which, together with their respective subsidiaries, we refer to as Heineken or theHeineken Group. See “Item 4. Information on the Company—FEMSA Cerveza and Equity Method Investment in Heineken Group.” Under Mexican FRS, we have reclassified our audited consolidated balance sheets as of December 31, 2010and 2009, the related consolidated statements of income and changes in stockholders’ equity and cash flows for the years ended December 31, 2010, 2009 and 2008 to reflect FEMSA Cerveza, S.A. de C.V. (now Cuauhtémoc MoctezumaHolding, S.A. de C.V.), which we refer to as FEMSA Cerveza or Cuauhtemoc Moctezuma, as a discontinued 

 
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operation. However, FEMSA Cerveza is not presented as a discontinued operation under U.S. GAAP. See “Item 5. Operating and Financial Review and Prospects—U.S. GAAPReconciliation” and Notes 27 and 28 to our audited consolidated financial statements. 

The following table presentsselected financial information of our company. This information should be read in conjunction with, and is qualified in its entirety by, our audited consolidated financial statements and the notes to those statements. See “Item 18. FinancialStatements.” The selected financial information is presented on a consolidated basis and is not necessarily indicative of our financial position or results from operations at or for any future date or period. Under Mexican FRS, FEMSA Cervezafigures for years prior to 2010 have been reclassified and presented as discontinued operations for comparison purposes to 2010 figures. See Note 2 to our audited consolidated financial statements. Under U.S. GAAP, FEMSA Cerveza figures arepresented as a continuing operation. 

 
   **Selected Consolidated FinancialInformation****Year Ended December 31,**    **2010(2)**  **2010**  **2009**  **2008**  **2007**  **2006**    
**(In millions of U.S. dollars and millions of Mexican pesos, except for percentages,per**

**share data and weighted average number of shares outstanding)**
 
**Income Statement Data:**
       
**Mexican FRS:(1)**
       
Total revenues
  $13,705   Ps.169,702   Ps.160,251   Ps.133,808   Ps.114,459    Ps.102,870  
Income from operations(3)
   1,819    22,529    21,130    17,349    14,300    12,431  
Income taxes(4)
   457    5,671    4,959    3,108    3,931    3,091  
Consolidated net income before discontinued operations
   1,451    17,961    11,799    7,630    8,438    6,685  
Income from the exchange of shares with Heineken, net of taxes
   2,150    26,623    —      —      —      —    
Net income from discontinued operations
   57    706    3,283    1,648    3,498    3,175  
Consolidated net income
   3,658    45,290    15,082    9,278    11,936    9,860  
Net controlling interest income
   3,251    40,251    9,908    6,708    8,511    7,127  
Net non-controlling interest income
   407    5,039    5,174    2,570    3,425    2,733  
Net controlling interest income before discontinued operations:(5)
       
Per series “B” share
   0.05    0.64    0.33    0.25    0.25    0.20  
Per series “D” share
   0.07    0.81    0.42    0.32    0.32    0.24  
Net controlling income from discontinued operations:(5)
       
Per series “B” share
   0.11    1.37    0.16    0.08    0.17    0.16  
Per series “D” share
   0.14    1.70    0.20    0.10    0.21    0.20  
Net controlling interest income:(5)
       
Per Series B Share
   0.16    2.01    0.49    0.33    0.42    0.36  
Per Series D Share
   0.21    2.51    0.62    0.42    0.53    0.44  
Weighted average number of shares outstanding (in millions):
       
Series B Shares
   9,246.4    9,246.4    9,246.4    9,246.4    9,246.4    9,246.4  
Series D Shares
   8,644.7    8,644.7    8,644.7    8,644.7    8,644.7    8,644.7  
Allocation of earnings:
       
Series B Shares
   46.11%   46.11%   46.11%   46.11%   46.11%   46.11% 
Series D Shares
   53.89%   53.89%   53.89%   53.89%   53.89%   53.89% 
**U.S. GAAP:(6)**
       
Total revenues
  $14,299   Ps.177,053   Ps. 102,902   Ps.91,650   Ps. 83,362    Ps. 75,704  
Income from operations
   1,715    21,235    8,661    7,881    7,667    7,821  
Participation in Coca-Cola FEMSA’s earnings(6)
   15    183    4,516    2,994    3,635    2,420  
 
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Table of Contents   **Selected Consolidated FinancialInformation****Year Ended December 31,**    **2010(2)**  **2010**  **2009**  **2008**  **2007**  **2006**    
**(In millions of U.S. dollars and millions of Mexican pesos, except for percentages,per**

**share data and weighted average number of shares outstanding)**
 
Consolidated net income
   5,831    72,204(12)   10,685    6,599    8,589    6,804  
Less: Net income attributable to the non-controlling interest income
   (384)   (4,759)   (783)   253    (32)   169  
Net income attributable to controlling interest income
   5,447    67,445    9,902    6,852    8,557    6,973  
Net controlling interest income(5):
       
Per Series B Share
   0.27    3.36    0.49    0.34    0.43    0.35  
Per Series D Share
   0.34    4.20    0.62    0.43    0.53    0.43  
Weighted average number of shares outstanding (in millions):
       
Series B Shares
   9,246.4    9,246.4    9,246.4    9,246.4    9,246.4    9,246.4  
Series D Shares
   8,644.7    8,644.7    8,644.7    8,644.7    8,644.7    8,644.7  
**Balance Sheet Data:**
       
**Mexican FRS:(1)**
       
Total assets of continuing operations
  $18,056   Ps.223,578   Ps.153,638   Ps.126,833   Ps.114,537   Ps.97,623  
Total assets of discontinued operations
   —      —      72,268    71,201    68,881    62,350  
Current liabilities of continuing operations
   2,464    30,516    37,218    35,351    28,783    22,846  
Current liabilities of discontinued operations
   —      —      10,883    12,912    13,581    10,503  
Long-term debt of continuing operations(7)
   1,793    22,203    21,260    21,853    23,066    21,160  
Other long-term liabilities of continuing operations
   1,442    17,846    8,500    8,285    9,882    7,249  
Non-current liabilities of discontinued operations
   —      —      32,216    22,738    18,453    20,007  
Capital stock
   432    5,348    5,348    5,348    5,348    5,348  
Total stockholders’ equity
   12,357    153,013    115,829    96,895    89,653    78,208  
Controlling interest
   9,477    117,348    81,637    68,821    64,578    56,654  
Non-controlling interest
   2,880    35,665    34,192    28,074    25,075    21,554  
**U.S. GAAP:(6)**
       
Total assets
  $27,015   Ps.334,517   Ps.158,000   Ps.139,219   Ps.127,167   Ps.116,392  
Current liabilities
   2,474    30,629    23,539    23,654    18,579    14,814  
Long-term debt(7)
   1,771    21,927    24,119    19,557    16,569    18,749  
Other long-term liabilities
   3,216    39,825    10,900    9,966    8,715    8,738  
Non-controlling interest
   6,339    78,495    1,274    505    698    166  
Controlling interest
   13,216    163,641    98,168    85,537    82,606    73,925  
Capital stock
   432    5,348    5,348    5,348    5,348    5,348  
Stockholders’ equity(8)
   19,555    242,136    99,442    86,042    83,304    74,091  
**Other information:**
       
**Mexican FRS:(1)**
       
Depreciation(9)
  $366   Ps. 4,527   Ps. 4,391   Ps. 3,762   Ps. 4,930   Ps. 4,954  
Capital expenditures(10)
   902    11,171    9,067    7,816    5,939    5,003  
Operating margin(11)
   13.3%   13.3%   13.2%   13.0%   12.5%   12.1% 
**U.S. GAAP:**
       
Depreciation(9)
  $394   Ps. 4,884   Ps. 2,786   Ps. 2,439   Ps. 2,114   Ps. 2,080  
Operating margin(11)
   11.9%   11.9%   8.4%   8.6%   9.2%   10.3% 
 
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(1)As a result of the FEMSA Cerveza share exchange with the Heineken Group on April 30, 2010, related figures are presented as discontinued operations for Mexican FRSpurposes. As a result, prior year financial information has been modified in order to conform to 2010 financial information. 
 
(2)Translation to U.S. dollar amounts at an exchange rate of Ps. 12.3825 to US$1.00 solely for the convenience of the reader. 
 
(3)Beginning in 2008, Mexican Financial Reporting Standard NIF D-3 (“Employee’s Benefits”) permitted the presentation of financial expenses related to laborliabilities as part of the comprehensive financing result, which was previously recorded within operating income. Accordingly, information for prior years has been reclassified for comparability purposes. 
 
(4)For 2010, 2009 and 2008, includes income tax, and for 2007 and 2006, includes income tax and tax on assets. Since 2007, we are required to present employee profitsharing within “other expenses” pursuant to Mexican Financial Reporting Standards Interpretation (INIF) No. 4 “*Presentación en el Estado de Resultados de la Participación de los Trabajadores en laUtilidad*” (Presentation of Employee Profit Sharing in the Income Statement). Information for prior years has been modified for comparability purposes. 
 
(5)Income per share data has been modified retrospectively to reflect our 3:1 stock split effective May 25, 2007. 
 
(6)As of February 1, 2010, Coca-Cola FEMSA has been consolidated for U.S. GAAP purposes. Prior to that date, Coca-Cola FEMSA was recorded under the equity method, asdiscussed in Note 27A to our audited consolidated financial statements. 
 
(7)Includes long-term debt minus the current portion of long-term debt. 
 
(8)In 2009, U.S. GAAP requires that non-controlling interest be included as part of the total stockholders’ equity. This standard was applied retrospectively forcomparative purposes. 
 
(9)Includes bottle breakage. 
 
(10)Includes investments in property, plant and equipment, intangible and other assets. 
 
(11)Operating margin is calculated by dividing income from operations by total revenues. 
 
(12)Includes gain recognized in other income due to control acquisition of Coca-Cola FEMSA. See Note 27A to our audited consolidated financial statements.
**Dividends**

We have historically paid dividends per BD Unit (including in the form of ADSs) approximately equal to or greater than 1% of the market price on the date of declaration, subject to changes in our resultsfrom operations and financial position, including due to extraordinary economic events and to the factors described in “Risk Factors” that affect our financial condition and liquidity. These factors may affect whether or not dividends aredeclared and the amount of such dividends. We do not expect to be subject to any contractual restrictions on our ability to pay dividends, although our subsidiaries may be subject to such restrictions. Because we are a holding company with nosignificant operations of our own, we will have distributable profits and cash to pay dividends only to the extent that we receive dividends from our subsidiaries. Accordingly, we cannot assure you that we will pay dividends or as to the amount ofany dividends. 

The following table sets forth for each year the nominal amount of dividends per share that we declared inMexican pesos and U.S. dollar amounts and their respective payment dates for the 2006 to 2010 fiscal years: 

 

**Date Dividend Paid**
  **Fiscal Year**