COCA COLA FEMSA SAB DE CV (Form: 6-K, Received: 08/25/2020 08:45:01)

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 6-K

REPORT OF A FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of August, 2020

Commission File Number: 1-12260

Coca-Cola FEMSA, S.A.B. de C.V.

(Exact name of the Registrant as specified in the charter)

Calle Mario Pani No. 100,

Santa Fe Cuajimalpa,

Cuajimalpa de Morelos,

05348, Ciudad de México,

México

(Address of Principal Executive Offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

This Report on Form 6-K shall be incorporated by reference into the

Registration Statements on Form F-3ASR of:

The Registrant (File No. 333-235558)

Propimex, S. de R.L. de C.V. (File No. 333-235558-07)

Comercializadora la Pureza de Bebidas, S. de R.L. de C.V. (File No. 333-235558-06)

Grupo Embotellador CIMSA, S. de R.L. de C.V. (File No. 333-235558-05)

Refrescos Victoria del Centro, S. de R.L. de C.V. (File No. 333-235558-03)

Distribuidora y Manufacturera del Valle de México, S. de R.L. de C.V. (File No. 333-235558-01)

Yoli de Acapulco, S. de R.L. de C.V. (File No. 333-235558-02)

Controladora Interamericana de Bebidas, S. de R.L. de C.V. (File No. 333-235558-04)

TABLE OF CONTENTS


	Page

Forward-Looking Information		1

Presentation of Information		2

Operating and Financial Review – Six Months Ended June 30, 2020		3

Recent Developments		15

Exhibit Index		18

We have prepared this report to provide our investors with disclosure and financial information regarding recent developments in our business and results of operations for the six months ended June 30, 2020.

The information in this report supplements information contained in our annual report on Form 20-F for the year ended December 31, 2019 (File No. 001-12260), filed with the U.S. Securities and Exchange Commission on April 17, 2020.

-i-

FORWARD-LOOKING INFORMATION

Some of the information contained or incorporated by reference in this report contains words such as “believe,” “expect,” “anticipate” and similar expressions that identify forward-looking statements. Use of these words reflects our views about future events and financial performance. Actual results could differ materially from those projected in these forward-looking statements as a result of various factors that may be beyond our control, including, but not limited to:

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effects on our company from changes in our relationship with The Coca-Cola Company;

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health epidemics, pandemics and similar outbreaks, including future outbreak of diseases, or the spread of existing diseases (including the novel coronavirus disease, also known as COVID-19 (“COVID-19”)), and their effect on customer behavior and on economic, political, social and other conditions in the countries where we operate and globally;

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fluctuation in the prices of raw materials;

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competition;

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significant developments in the countries where we operate;

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regulatory developments in the countries where we operate;

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fluctuation in currency exchange and interest rates;

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our ability to implement our business expansion strategy, including our ability to successfully integrate mergers and acquisitions we have completed in recent years;

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economic or political conditions or changes in our regulatory or legal environment, including the impact of existing laws and regulations, changes thereto or the imposition of new taxes, environmental, health, energy, foreign investment and/or antitrust laws or regulations impacting our business, activities and investments; and

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adverse weather conditions or natural disasters.

Forward-looking statements involve inherent risks and uncertainties. We caution you not to place undue reliance on these forward-looking statements. A number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. Some of these factors are discussed under “Risk Factors” in our most recent annual report on Form 20-F and include economic and political conditions and government policies in the countries in which we operate, inflation rates, exchange rates, regulatory developments, customer demand and competition. We caution you that the foregoing list of factors is not exclusive and that other risks and uncertainties may cause actual results to differ materially from those in forward-looking statements. You should evaluate any statements made by us in light of these important factors.

Forward-looking statements speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or future events or for any other reason.

PRESENTATION OF INFORMATION

Certain Defined Terms

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

Currency

References herein to “U.S.$” are to U.S. dollars. References herein to “Ps.” are to Mexican pesos. This report contains translations of various Mexican peso amounts into U.S. dollars at specified rates solely for your convenience. You should not construe these translations, or any other currency translations included herein, as representations that the Mexican peso amounts actually represent the U.S. dollar or other foreign currency amounts or could be converted into U.S. dollars or such other foreign currency at the rate indicated. Unless otherwise indicated, we have translated U.S. dollar amounts from Mexican pesos at the exchange rate of Ps.23.08 to U.S. $1.00, which was the noon buying rate for 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 for June 30, 2020.

Rounding

Certain figures included in this report have been rounded for ease of presentation. Percentage figures included in this report have not, in all cases, been calculated on the basis of such rounded figures but on the basis of such amounts prior to rounding. For this reason, percentage amounts in this report may vary from those obtained by performing the same calculations using the figures in our consolidated financial statements. Certain numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that preceded them due to rounding.

OPERATING AND FINANCIAL REVIEW – SIX MONTHS ENDED JUNE 30, 2020

The following is a summary and discussion of our unaudited interim condensed consolidated financial information as of June 30, 2020 and for the six month periods ended June 30, 2020 and 2019. The following tables and discussion should be read in conjunction with our audited consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2019.

In the opinion of our management, the unaudited interim condensed consolidated financial information discussed below is prepared in compliance with International Accounting Standards 34, Interim Financial Statements (“IAS 34”) and includes all adjustments, consisting only of normal and recurring adjustments, necessary for the fair presentation of this financial information in a manner consistent with the presentation under International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board made in our audited annual consolidated financial statements included in our annual report on Form 20-F for the year ended December 31, 2019.

Interim Condensed Consolidated Financial Data


	For the six months ended June 30,
	2020⁽¹⁾			2020			2019
	(in millions, except percentages)
	unaudited
Interim Condensed Consolidated Income Statement Data
Total revenues	U.S.$	3,828			Ps. 88,341			Ps. 94,444
Cost of goods sold		2,105			48,593			51,349

Gross profit		1,723			39,748			43,095

Administrative expenses		162			3,733			4,385
Selling expenses		1,058			24,399			25,578
Other income		17			384			364
Other expenses		82			1,896			1,404
Interest expense		203			4,691			3,475
Interest income		24			556			551
Foreign exchange loss (gain), net		(21	)		(493	)		199
Monetary position (gain) loss, net		(8	)		(175	)		30
Market value (gain) loss on financial instruments		—			(1	)		—

Income before income taxes from continuing operations and share of profit in equity accounted investees		288			6,638			8,939
Income taxes		91			2,091			2,519
Share of the loss of equity accounted investees		(6	)		(144	)		(64	)

Net income		191			4,403			6,356
Consolidated net income	U.S.$	191			Ps. 4,403			Ps. 6,356

Attributable to:
Controlling interest from continuing operations		202			4,659			6,087
Non-controlling interest from continuing operations		(11	)		(256	)		269

Consolidated net income		191			4,403			6,356

*Ratio to Revenues (%)*
Gross profit margin		45.0			45.0			45.6

Net income margin		4.99			4.99			6.73

(1)	Translation to U.S. dollar amounts at an exchange rate of Ps.23.08 to U.S.$1.00 solely for the convenience of the reader. See “Presentation of Information—Currency.”


			As of
	June 30, 2020⁽¹⁾		June 30, 2020		December 31, 2019
	(in millions)
	(unaudited)
*Interim Condensed Consolidated Statements of Financial Position Data:*
Cash and cash equivalents	U.S.$	1,797		Ps. 41,473		Ps. 20,491
Accounts receivable, net, inventories, recoverable taxes, other current financial assets, and other current assets		1,256		28,895		36,305
Total current assets		3,053		70,458		56,796
Investments in other entities		368		8,491		9,751
Property, plant and equipment, net		2,655		61,276		61,187
Rights of use assets		53		1,225		1,382
Intangible assets, net		4,737		109,339		112,050
Deferred tax assets, other non-current financial assets and other non-current assets		914		21,112		16,673
Total non-current assets		8,727		201,443		201,043
Total assets	U.S.$	11,780		Ps.271,901		Ps.257,839

Bank loans and notes payable		589		13,590		882
Current portion of non-current debt		158		3,657		10,603
Current portion of lease liabilities		21		493		483
Interest payable		30		682		439
Suppliers, accounts payable, taxes payable and other current financial liabilities		1,718		39,661		38,603
Total current liabilities		2,516		58,083		51,010
Bank loans and notes payable		3,208		74,039		58,492
Long-term lease liabilities		35		817		900
Post-employment and other non-current employee benefits, deferred tax liabilities, other non-current financial liabilities, provisions and other non-current liabilities		567		13,079		17,752
Total non-current liabilities		3,810		87,935		77,144

Total liabilities		6,326		146,018		128,154
Total equity		5,454		125,883		129,685

Equity attributable to equity holders of the parent		5,201		120,054		122,934

Non-controlling interest in consolidated subsidiaries		253		5,829		6,751

Total liabilities and equity	U.S.$	11,780		Ps.271,901		Ps.257,839

(1)	Translation to U.S. dollar amounts at an exchange rate of Ps.23.08 to U.S.$1.00 solely for the convenience of the reader. See “Presentation of Information—Currency.”

Consolidated Results of Operations for the Six Months Ended June 30, 2020 and 2019

The comparability of our financial and operating performance in the six months ended June 30, 2020 as compared to the same period in 2019 was affected by the translation effects resulting from exchange rate volatility during the six months ended June 30, 2020. To translate results of Argentina in the six months ended June 30, 2020, we used the end-of-period exchange rate of 70.46 Argentine pesos per U.S. dollar. The depreciation of the Argentine peso relative to the U.S. dollar on June 30, 2020 as compared to the end-of-period exchange rate on June 30, 2019, was 65.9%. In addition, the average depreciation of currencies used in our main operations relative to the U.S. dollar in the six months ended June 30, 2020 as compared to the same period in 2019, was: 28.1% for the Brazilian real, 12.7% for the Mexican peso, 15.9% for the Colombian peso and 22.2% for the Uruguayan peso.

Total Revenues

Our consolidated total revenues decreased by 6.5% to Ps.88,341 million in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of declines in sales volume driven mainly by the enforcement of lockdowns and social distancing measures related to the COVID-19 pandemic, coupled with unfavorable price-mix effects and an unfavorable currency translation effect resulting from the depreciation of most of our operating currencies relative to the Mexican peso. These effects were partially offset by pricing and revenue management initiatives implemented during the period. On a comparable basis, excluding currency translation effects, total revenues would have decreased by 2.8% in the six months ended June 30, 2020 as compared to the same period in 2019.

Total sales volume decreased by 3.8% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our sparkling beverage portfolio decreased by 2.3% in the six months ended June 30, 2020 as compared to the same period in 2019, as the performance of our colas portfolio was offset by a decline in our flavored sparkling beverage portfolio.

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Sales volume of our still beverage portfolio decreased by 10.3% in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of declines in sales volume across most of our territories which were partially offset by sales volume growth in Uruguay.

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Sales volume of our bottled water category, excluding bulk water, decreased by 23.5% in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of declines in sales volume across our territories.

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Sales volume of our bulk water category increased by 1.1% in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of growth in Mexico, Brazil and Argentina.

Consolidated average price per unit case decreased by 3.1% to Ps.51.18 in the six months ended June 30, 2020 as compared to Ps.52.83 in the same period in 2019, mainly as a result of unfavorable currency translation effects coupled with unfavorable price-mix effects. These effects were partially offset by our pricing and revenue management initiatives. On a comparable basis, average price per unit case would have increased by 0.7% in the six months ended June 30, 2020 as compared to the same period in 2019, driven mainly as a result of pricing and revenue management initiatives.

Gross Profit

Our gross profit decreased by 7.8% to Ps.39,748 million in the six months ended June 30, 2020 as compared to the same period in 2019. We had a gross margin decline of 60 basis points to reach 45.0% in the six months ended June 30, 2020 as compared to the same period in 2019. These declines were mainly as a result of (a) unfavorable price-mix effects; (b) higher concentrate costs in Mexico; (c) higher concentrate costs in Brazil related to the reduction of tax credits on concentrate purchased from the Manaus Free Trade Zone, due to our decision to suspend such tax credits; and (d) the depreciation in the average exchange rate of most of our operating currencies, which affected our U.S. dollar-denominated raw material costs. These effects were partially offset by our pricing initiatives, together with more stable sweetener and lower PET prices. On a comparable basis, our gross profit would have decreased by 4.5% in the six months ended June 30, 2020 as compared to the same period in 2019.

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 labor 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 local currency, net of applicable taxes. Packaging materials, mainly PET resin and aluminum, and high fructose corn syrup, used as a sweetener in some countries, are denominated in U.S. dollars.

Administrative and Selling Expenses

Our administrative and selling expenses decreased by 6.1% to Ps.28,132 million in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of labor, maintenance and marketing expense efficiencies, which were partially offset by an increase in freight costs. Our administrative and selling expenses as a percentage of total revenues increased by 10 basis points to 31.8% in the six months ended June 30, 2020 as compared to the same period in 2019. In the six months ended June 30, 2020, we continued investing across our territories to support marketplace execution, increase our cooler coverage, and bolster our returnable presentation base.

Other Expenses, Net

We recorded other expenses net of Ps.1,512 million in the six months ended June 30, 2020 as compared to Ps.1,040 million in the same period in 2019. This increase was driven mainly by impairments on equity method investments recognized during the second quarter of 2020, which were partially offset by savings related to restructuring indemnities incurred during the first six months of 2019.

Comprehensive Financing Result

The term “comprehensive financing result” refers to the combined financial effects of net interest expenses, net financial foreign exchange gains or losses, market value gains or losses on financial instruments, and net gains or losses on the monetary position of hyperinflationary countries where we operate. Net financial foreign exchange gains or losses represent the impact of changes in foreign exchange rates on financial assets or liabilities denominated in currencies other than local currencies. A financial foreign exchange loss arises if a liability is denominated in a foreign currency that appreciates relative to the local currency between the date the liability is incurred or the beginning of the period, whichever occurs first, and the date it is repaid or the end of the period, whichever occurs first, as the appreciation of the foreign currency results in an increase in the amount of local currency, which must be exchanged to repay the specified amount of the foreign currency liability.

Comprehensive financing result in the six months ended June 30, 2020 recorded an expense of Ps.3,466 million as compared to an expense of Ps.3,153 million in the same period in 2019. This 9.9% increase was mainly driven by a 41.4% increase in interest expense, net in the six months ended June 30, 2020 as compared to the same period in 2019. This increase in interest expense, net, was primarily a result of a one-time interest expense related to the prepayment in full of our U.S. dollar-denominated 3.875% Notes due 2023, as part of the execution of our successful debt refinancing initiatives during the first quarter of 2020. In addition, the increase in interest expense, net, was partially offset by a foreign exchange gain of Ps.493 million in the six months ended June 30, 2020 as compared to a foreign exchange loss of Ps.199 million in the same period in 2019. This gain was due to the positive impact of our cash exposure to U.S. dollars, as a result of the depreciation of the Mexican peso. Finally, in the six months ended June 30, 2020 we recognized a Ps.175 million gain in monetary position in hyperinflationary subsidiaries related to our operations in Argentina, as compared to a loss of Ps.30 million in the same period in 2019, also related to Argentina.

Income Taxes

In the six months ended June 30, 2020, our effective income tax rate was 31.5% as compared to 28.2% in the same period in 2019. This increase was driven mainly by impairments recognized during the second quarter of 2020.

Share of the Loss of Equity Accounted Investees, Net of Taxes

In the six months ended June 30, 2020, we recorded a loss of Ps.144 million in the share of the loss of equity accounted investees, net of taxes as compared to a loss of Ps.64 million in the same period in 2019, mainly as a result of losses in our joint ventures in Brazil and Panama.

Net Income (Equity holders of the parent)

For the reasons explained above, we reported a net controlling interest income of Ps.4,659 million in the six months ended June 30, 2020, as compared to a net controlling interest income of Ps.6,087 million in the same period in 2019.

Results by Consolidated Reporting Segment

Mexico and Central America

Total Revenues

Total revenues in our Mexico and Central America consolidated reporting segment decreased by 1.7% to Ps.52,904 million in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of volume declines and an unfavorable price-mix effect. On a comparable basis, total revenues would have decreased by 3.9% in the six months ended June 30, 2020 as compared to the same period in 2019.

Total sales volume in our Mexico and Central America consolidated reporting segment decreased by 3.4% to 998 million unit cases in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of lockdowns and social distancing measures related to the COVID-19 pandemic.

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Sales volume of our sparkling beverage portfolio decreased by 1.8% in the six months ended June 2020 as compared to the same period in 2019, driven by a decrease in our flavored sparkling beverage portfolio, partially offset by flat performance in our colas portfolio, in each case as compared to the six months ended June 30, 2019.

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Sales volume of our still beverage portfolio decreased by 10.1% in the six months ended June 30, 2020 as compared to the same period in 2019, driven by declines in the division.

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Sales volume of bottled water, excluding bulk water, decreased by 26.3% in the six months ended June 30, 2020 as compared to the same period in 2019, driven by declines in the division.

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Sales volume of our bulk water portfolio increased by 0.7% in the six months ended June 30, 2020 as compared to the same period in 2019, driven mainly by growth in Mexico, which was partially offset by a decline in Central America.

Sales volume in Mexico decreased by 3.4% to 885.1 million unit cases in the six months ended June 30, 2020, as compared to 916.1 million unit cases in the same period in 2019.

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Sales volume of our sparkling beverage portfolio decreased by 2.1% in the six months ended June 2020 as compared to the same period in 2019, driven by a decrease in our flavored sparkling beverage portfolio, which was partially offset by flat performance in our colas portfolio, in each case as compared to the six months ended June 30, 2019.

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Sales volume of our still beverage portfolio decreased by 8.5% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of bottled water, excluding bulk water, decreased by 26.0% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our bulk water portfolio increased by 0.7% in the six months ended June 30, 2020 as compared to the same period in 2019.

Consolidated average price per unit case increased by 1.7% to Ps.52.98 in the six months ended June 30, 2020, as compared to Ps.52.09 in the same period in 2019, mainly as a result of pricing and revenue management initiatives coupled with favorable currency translation effects. These factors were partially offset by unfavorable price-mix effects. On a comparable basis, average price per unit case would have decreased by 0.5% in the six months ended June 30, 2020 as compared to the same period in 2019.

Sales volume in Central America decreased by 3.2% to 112.9 million unit cases in the six months ended June 30, 2020, as compared to 116.6 million unit cases in the same period in 2019, mainly as a result of lockdowns and social distancing measures related to the COVID-19 pandemic.

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Sales volume of our sparkling beverage portfolio remained flat in the six months ended June 30, 2020 as compared to the same period in 2019, driven by an increase in sales volume of our colas portfolio, which was partially offset by a decrease in our flavored sparkling beverage portfolio, in each case as compared to the six months ended June 30, 2019.

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Sales volume of our still beverage portfolio decreased by 19.5% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of bottled water, excluding bulk water, decreased by 29.1% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our bulk water portfolio declined by 9.0% in the six months ended June 30, 2020 as compared to the same period in 2019.

Gross Profit

Our gross profit in this consolidated reporting segment remained flat at Ps.25,933 million in the six months ended June 30, 2020 as compared to the same period in 2019; however, gross profit margin increased by 80 basis points to 49.0% in the six months ended June 30, 2020 as compared to the same period in 2019. Gross profit margin increased mainly as a result of lower PET costs, our pricing initiatives and our favorable currency hedging strategies. These factors were partially offset by an unfavorable price-mix effect and higher concentrate costs in Mexico. On a comparable basis, gross profit would have decreased by 2.2%.

Administrative and Selling Expenses

Administrative and selling expenses as a percentage of total revenues in this consolidated reporting segment decreased by 40 basis points to 32.5% in the six months ended June 30, 2020 as compared to the same period in 2019. Administrative and selling expenses, in absolute terms, decreased by 2.8% in the six months ended June 30, 2020 as compared to the same period in 2019, driven mainly by operating expense efficiencies such as labor, maintenance and marketing expenses, and severance payments incurred during the first six months of 2019 related to the implementation of efficiency initiatives designed to create a leaner and more agile organization.

South America

Total Revenues

Total revenues in our South America consolidated reporting segment decreased by 12.7% to Ps.35,437 million in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of a decrease in sales volumes, unfavorable price-mix effects and an unfavorable currency translation effect resulting from the depreciation of most of our operating currencies in the division relative to the Mexican peso. These effects were partially offset by pricing and revenue management initiatives. Total revenues for beer amounted to Ps.7,254 million in the six months ended June 30, 2020. On a comparable basis, total revenues would have decreased by 1.1% in the six months ended June 30, 2020 as compared to the same period in 2019.

Total sales volume in our South America consolidated reporting segment decreased by 4.6% to 576.3 million unit cases in the six months ended June 30, 2020 as compared to the same period in 2019, mainly as a result of lockdowns and social distancing measures related to COVID-19.

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Sales volume of our sparkling beverage portfolio decreased by 3.1% in the six months ended June 30, 2020 as compared to the same period in 2019, driven by a 3.7% decrease in both our colas and flavored sparkling beverage portfolios, in each case as compared to the six months ended June 30, 2019.

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Sales volume of our still beverage portfolio decreased by 10.5% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our bottled water category, excluding bulk water, decreased by 20.0% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our bulk water portfolio increased by 4.8% in the six months ended June 30, 2020 as compared to the same period in 2019.

Sales volume in Brazil decreased by 4.0% to 379.5 million unit cases in the six months ended June 30, 2020, as compared to 395.5 million unit cases during the same period in 2019.

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Sales volume of our sparkling beverage portfolio decreased by 3.1% in the six months ended June 30, 2020 as compared to the same period in 2019, mainly driven by a decrease in our colas portfolio, partially offset by an increase in our flavored sparkling beverage portfolio, in each case as compared to the same period in 2019.

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Sales volume of our still beverage portfolio decreased by 9.3% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our bottled water, excluding bulk water, decreased by 14.9% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our bulk water portfolio increased by 18.1% in the six months ended June 30, 2020 as compared to the same period in 2019.

Sales volume in Colombia decreased by 2.3% to 119.7 million unit cases in the six months ended June 30, 2020, as compared to 122.5 million unit cases in the same period in 2019.

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Sales volume of our sparkling beverage portfolio increased by 2.5% in the six months ended June 30, 2020 as compared to the same period in 2019, mainly driven by an increase in both our colas and flavored sparkling beverage portfolio, in each case as compared to the same period in 2019.

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Sales volume of our still beverage portfolio decreased by 12.8% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of bottled water, excluding bulk water, decreased by 30.4% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our bulk water portfolio decreased by 7.0% in the six months ended June 30, 2020 as compared to the same period in 2019.

Sales volume in Argentina decreased by 11.8% to 58.5 million unit cases in the six months ended June 30, 2020, as compared to 66.3 million unit cases in 2019.

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Sales volume of our sparkling beverage portfolio decreased by 11.0% in the six months ended June 30, 2020 as compared to the same period in 2019, driven by a decrease in both our colas and flavored sparkling beverage portfolio.

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Sales volume of our still beverage portfolio decreased by 15.6% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of bottled water, excluding bulk water, decreased by 28.1% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of our bulk water portfolio increased by 35.2% in the six months ended June 30, 2020 as compared to the same period in 2019.

Sales volume in Uruguay decreased by 7.0% to 18.6 million unit cases in the six months ended June 30, 2020, as compared to 20 million unit cases in the same period in 2019.

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Sales volume of our sparkling beverage portfolio decreased by 9.3% in the six months ended June 30, 2020 as compared to the same period in 2019, mainly driven by a decrease in both our colas and flavored sparkling beverage portfolio, in each case as compared to the same period in 2019.

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Sales volume of our still beverage portfolio decreased by 44.1% in the six months ended June 30, 2020 as compared to the same period in 2019.

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Sales volume of bottled water increased by 13.8% in the six months ended June 30, 2020 as compared to the same period in 2019.

Consolidated average price per unit case decreased by 11.2% to Ps.48.05 in the six months ended June 30, 2020, as compared to Ps.54.10 in the same period in 2019, mainly as a result of unfavorable currency translation effects coupled with unfavorable price-mix effects. These effects were partially offset by our revenue management initiatives. On a comparable basis, average price per unit case would have increased by 3.1% in the six months ended June 30, 2020, as compared to the same period in 2019.

Gross Profit

Gross profit in this consolidated reporting segment amounted to Ps.13,815 million, a decrease of 19.4% in the six months ended June 30, 2020 as compared to the same period in 2019, with a 320 basis point gross margin contraction to 39.0% in the six months ended June 30, 2020 as compared to the same period in 2019. This decrease in gross profit was mainly driven by declines in sales volume and unfavorable price-mix effects, coupled with higher concentrate costs in Brazil related to the reduction of tax credits on concentrate purchased from the Manaus Free Trade Zone, due to our decision to suspend such tax credits. In addition, our gross profit was affected by the deprecation of the average exchange rate of all our operating currencies in the division, which affected our U.S. dollar-denominated raw material costs. These factors were partially offset by lower PET costs and currency hedging initiatives. On a comparable basis, gross profit would have decreased by 8.6%.

Administrative and Selling Expenses

Administrative and selling expenses as a percentage of total revenues in this consolidated reporting segment increased by 70 basis points to 30.9% in the six months ended June 30, 2020 as compared to the same period in 2019. Administrative and selling expenses, in absolute terms, decreased by 10.8% in the six months ended June 30, 2020 as compared to the same period in 2019, driven mainly by operating expense efficiencies such as labor, maintenance and marketing expenses, and severance payments incurred during the first six months of 2019 related to the implementation of efficiency initiatives designed to create a leaner and more agile organization.

Liquidity and Capital Resources

Liquidity

The principal source of our liquidity is cash generated from operations. A significant majority of our sales are on a cash basis with the remainder on a short-term credit basis. We have traditionally been able to rely on cash generated from operations to fund our working capital requirements and our capital expenditures. Our working capital benefits from the fact that most of our sales are made on a cash basis, while we generally pay our suppliers on credit. We have used a combination of borrowings from Mexican and international banks and bond issuances in the Mexican and international capital markets.

Our total indebtedness was Ps.91,286 million as of June 30, 2020, as compared to Ps.69,977 million as of December 31, 2019. Short-term debt (including current maturities of long term debt) and long-term debt were Ps.17,247 million and Ps.74,039 million, respectively, as of June 30, 2020, as compared to Ps.11,485 million and Ps.58,492 million, respectively, as of December 31, 2019. Total debt increased by Ps.21,309 million in 2020, compared to December 31, 2019. As of June 30, 2020, our cash and cash equivalents were Ps.41,473 million, as compared to Ps.20,491 million as of December 31, 2019. As of June 30, 2020, our cash and cash equivalents were comprised of 42.0% U.S. dollars, 36.0% Mexican pesos, 13.0% Brazilian reais, 1.0% Argentine pesos, 4.0% Colombian pesos and 4.0% other legal currencies. We believe that these funds, in addition to the cash generated by our operations, are sufficient to meet our operating requirements.

Future currency devaluations, the imposition of exchange controls in any of the countries where we have operations or the extended duration of the COVID-19 pandemic could have an adverse effect on our financial position and liquidity.

As part of our financing policy, we expect to continue to finance our liquidity needs mainly with cash flows from our operating activities. Nonetheless, as a result of regulations in certain countries where we operate, it may not be beneficial or practicable for us to remit cash generated in local operations to fund cash requirements in other countries. Exchange controls may also increase the real price of remitting cash to fund debt requirements in other countries. In the event that cash in these countries is not sufficient to fund future working capital requirements and capital expenditures, we may decide, or be required, to fund cash requirements in these countries through local borrowings rather than remitting funds from another country. In the future we may finance our working capital and capital expenditure needs with short-term or other borrowings.

We continuously evaluate opportunities to pursue acquisitions or engage in strategic transactions. We would expect to finance any significant future transactions with a combination of any of cash, long-term indebtedness and the issuance of shares of our company.

Our financing, treasury and derivatives policies provide that our finance and planning committee is responsible for determining the company’s overall financial strategy, including the dividends policy, investments of our funds, cash flow and working capital strategies, mergers and acquisitions, debt and equity issuances, repurchases of shares, contract of financial derivative instruments (only for hedging purposes), purchase and lease of assets and indebtedness of the company, among others; which is ultimately approved by our board of directors and implemented by our corporate finance department.

Sources and Uses of Cash

The following table summarizes the sources and uses of cash for the six months ended June 30, 2020 and 2019, from our consolidated statements of changes in cash flows:


	Six Months Ended June 30,
	2020			2019
	(in millions)
	(unaudited)
Net cash flows from operating activities		Ps. 18,140			Ps. 15,924
Net cash flows used in investing activities⁽¹⁾		(3,578	)		(3,609	)
Net cash flows generated by (used in) financing activities		3,563			(11,924	)
Dividends paid		(5,105	)		(3,722	)

Contractual Obligations

The table below sets forth our contractual obligations as of June 30, 2020:


	As of June 30, 2020
	Maturity less than 1 year			Maturity 1 – 3 years			Maturity 4 – 5 years		Maturity in excess of 5 years			Total
	(in millions)
	(unaudited)
Debt⁽¹⁾
Mexican pesos		Ps.13,649			Ps.1,457			Ps.7,497		Ps.22,543			Ps.45,146
U.S. dollars		—			—			—		41,962			41,962
Brazilian reais		187			84			69		8			348
Colombian pesos		1,331			—			—		—			1,331
Argentine pesos		473			—			—		—			473
Uruguayan pesos		1,607			419			—		—			2,026
Interest Payments on Debt⁽²⁾
Mexican pesos		2,714			2,073			3,509		3,827			12,123
U.S. dollars		1,520			1,520			3,042		18,629			24,711
Brazilian reais		13			6			4		1			24
Colombian pesos		32			—			—		—			32
Argentine pesos		55			—			—		—			55
Uruguayan pesos		158			7			—		—			165
Cross Currency Swaps
U.S. dollars to Mexican pesos⁽³⁾		—			(355	)		—		(1,777	)		(2,132	)
U.S. dollars to Brazilian reais⁽⁴⁾		(2,061	)		(2,742	)		—		—			(4,803	)
U.S. dollars to Colombian pesos⁽⁵⁾		(35	)		—			—		—			(35	)
Interest Rate Swaps
Brazilian variable interest rate to fixed rate⁽⁶⁾		105			—			—		—			105
Forwards
U.S. dollars to Mexican pesos⁽⁷⁾		(433	)		(28	)		—		—			(461	)
U.S. dollars to Brazilian reais⁽⁸⁾		(213	)		—			—		—			(213	)
U.S. dollars to Colombian pesos⁽⁹⁾		(23	)		—			—		—			(23	)
U.S. dollars to Argentine pesos⁽¹⁰⁾		8			—			—		—			8
U.S. dollars to Uruguayan pesos⁽¹¹⁾		(8	)		—			—		—			(8	)
Commodity Hedge Contracts
Sugar⁽¹²⁾		42			(13	)		—		—			29
Aluminum⁽¹³⁾		16			(8	)		—		—			8
PET resin⁽¹⁴⁾		92			(3	)		—		—			89
Lease obligations (IFRS 16)		500			162			412		264			1,338
Expected Benefits to be Paid for Pension and Retirement Plans, Seniority Premiums and Post-employment		278			404			629		1,987			3,298

(1)	Excludes the effect of cross currency swaps.

(2)

Interest was calculated using the contractual debt and nominal interest rates as of June 30, 2020. Liabilities denominated in U.S. dollars were converted to Mexican pesos at an exchange rate of Ps.22.97 per U.S. dollar, which was the exchange rate determined by Banco de México for the settlement of obligations in foreign currencies on June 30, 2020.

(3)

Cross-currency swaps used to convert U.S. dollar-denominated debt into Mexican peso-denominated debt with a notional amount of Ps.14,472 million. These cross-currency swaps are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(4)

Cross-currency swaps used to convert U.S. dollar-denominated debt into Brazilian real-denominated debt with a notional amount of Ps.16,347 million. These cross-currency swaps are considered hedges for accounting purposes and the amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(5)

Cross-currency swaps used to convert U.S. dollar-denominated debt into Colombian peso-denominated debt with a notional amount of Ps.466 million. These cross-currency swaps are considered hedges for accounting purposes and the amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(6)	Reflects the market value as of June 30, 2020 of the interest rate swaps used to hedge Brazilian interest rate variation. These interest rate swaps are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as June 30, 2020.

(7)	Reflects the market value as of June 30, 2020 of forward derivative instruments used to hedge against fluctuation in the Mexican peso. These instruments are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(8)	Reflects the market value as of June 30, 2020 of forward derivative instruments used to hedge against fluctuation in the Brazilian real. These instruments are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(9)	Reflects the market value as of June 30, 2020 of forward derivative instruments used to hedge against fluctuation in the Colombian peso. These instruments are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(10)	Reflects the market value as of June 30, 2020 of forward derivative instruments used to hedge against fluctuation in the Argentine peso. These instruments are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(11)	Reflects the market value as of June 30, 2020 of forward derivative instruments used to hedge against fluctuation in the Uruguayan peso. These instruments are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(12)	Reflects the market value as of June 30, 2020 of futures contracts used to hedge sugar cost. These instruments are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(13)	Reflects the market value as of June 30, 2020 of futures contracts used to hedge aluminum cost. These instruments are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

(14)	Reflects the market value as of June 30, 2020 of futures contracts used to hedge PET resin cost. These instruments are considered hedges for accounting purposes. The amounts shown in the table are fair value figures (gain)/loss as of June 30, 2020.

Debt Structure

The following chart sets forth the debt breakdown of our company and its subsidiaries by currency and interest rate type as of June 30, 2020:


Currency	Percentage of Total Debt⁽¹⁾			Average Nominal Rate⁽²⁾			Average Adjusted Rate⁽¹⁾⁽³⁾
Mexican pesos		68.0	%		6.7	%		7.3	%
U.S. dollars		13.2	%		3.6	%		2.8	%
Brazilian reais		13.8	%		6.8	%		9.1	%
Colombian pesos		2.1	%		4.6	%		4.5	%
Argentine pesos		0.6	%		37.7	%		37.7	%
Uruguayan pesos		2.4	%		12.1	%		12.1	%

(1)	Includes the effects of our derivative contracts as of June 30, 2020, including cross currency swaps from U.S. dollars to Mexican pesos and U.S. dollars to Brazilian reais.

(2)	Annual weighted average interest rate per currency as of June 30, 2020.

(3)

Annual weighted average interest rate per currency as of June 30, 2020 after giving effect to interest rate swaps and cross currency swaps. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk—Interest Rate Risk.” in our annual report on Form 20-F for the year ended December 31, 2019.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements.

Contingencies

We are subject to various claims and contingencies related to tax, labor and other legal proceedings. Due to their nature, such legal proceedings involve inherent uncertainties including, but not limited to, court rulings, changes in laws and regulations applicable to our operations and sales, negotiations between affected parties and governmental actions.

We have various losses related to tax, labor and other legal proceedings. We periodically assess the probability of loss for such contingencies and accrue a provision and/or disclose 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, we accrue a provision for the estimated loss. See note 19 to our unaudited interim condensed consolidated financial statements as of June 30, 2020 and for the six month periods ended June 30, 2020 and 2019 and note 26 to our consolidated financial statements as of December 31, 2019. We use outside legal counsel for certain complex legal proceedings. The following table presents the nature and amount of the loss contingencies recorded as of June 30, 2020:


	As of June 30, 2020
	(in millions)
	(unaudited)
Tax	Ps.	2,287
Labor		2,169
Legal		1,044
Total	Ps.	5,500

As is customary in Brazil, we have been required by the relevant authorities to collateralize tax contingencies currently in litigation amounting to Ps.9,213 million and Ps.10,471 million as of June 30, 2020 and December 31, 2019, respectively, by pledging fixed assets, or providing bank guarantees.

In connection with our acquisitions, sellers normally agree to indemnify us against certain contingencies that may arise as a result of the management of the businesses prior to the acquisition, subject to survival provisions and other limitations.

Capital Expenditures

The following table sets forth our capital expenditures, including investment in property, plant and equipment, deferred charges and other investments for the periods indicated on a consolidated basis and by consolidated reporting segment:


	Six Months Ended June 30,
	2020		2019
	(in millions )
	(unaudited)
Mexico and Central America⁽¹⁾		Ps. 2,554		Ps. 2,079
South America⁽²⁾		1,313		1,882
Capital expenditures, net		3,867		3,961

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

(2)	Includes Colombia, Brazil, Argentina and Uruguay.

In 2020 and 2019, we have focused our capital expenditures on investments in (i) returnable bottles and cases, (ii) improving the efficiency in our distribution infrastructure, (iii) placing coolers with retailers, (iv) information technology and (v) increasing production capacity.

We have budgeted approximately U.S.$438 million (Ps.10,110 million as of June 30, 2020) for our capital expenditures in 2020.

We estimate that of our projected capital expenditures for 2020, approximately 42.9% will be for our Mexican territories and the remaining will be for our non-Mexican territories. We believe that internally generated funds will be sufficient to meet our budgeted capital expenditure for the remainder of 2020. Our capital expenditure plan for the remainder of 2020 may change based on market and other conditions, our results and financial resources.

Historically, The Coca-Cola Company has contributed resources in addition to our own capital expenditures. We generally use these contributions for initiatives that promote volume growth of Coca-Cola trademark beverages, including the placement of coolers with retailers. Such contributions may result in a reduction in our selling expenses line. Contributions by The Coca-Cola Company are made on a discretionary basis. Although we believe that The Coca-Cola Company will make additional contributions in the future to assist our capital expenditure program based on past practice and the benefits to The Coca-Cola Company as owner of the Coca-Cola brands from investments that support the strength of the brands in our territories, we can give no assurance that any such contributions will be made.

Hedging Activities

We hold or enter into derivative instruments to hedge our exposure to market risks related to changes in interest rates, foreign currency exchange rates and commodity price risk. See “Item 11. Quantitative and Qualitative Disclosures about Market Risk.” in our annual report on Form 20-F for the year ended December 31, 2019.

The following table provides a summary of the fair value of derivative instruments as of June 30, 2020. The fair market value is estimated using market prices that would apply to terminate the contracts at the end of the period and are confirmed by external sources, which generally are also our counterparties to the relevant contracts.


	Fair Value as of June 30, 2020
	Maturity less than 1 year			Maturity 1 – 3 years			Maturity 4 – 5 years		Maturity in excess of 5 years			Total fair value
	(in millions)
	(unaudited)
Cross Currency Swaps
U.S. dollars to Mexican pesos		Ps. —			Ps. (355	)		Ps. —		Ps. (1,777	)		Ps.(2,132	)
U.S. dollars to Brazilian reais		(2,061	)		(2,742	)		—		—			(4,803	)
U.S. dollars to Colombian pesos		(35	)		—			—		—			(35	)
Interest Rate Swaps
Brazilian variable interest rate to fixed rate		105			—			—		—			105
Forwards
U.S. dollars to Mexican pesos		(433	)		(28	)		—		—			(461	)
U.S. dollars to Brazilian reais		(213	)		—			—		—			(213	)
U.S. dollars to Colombian pesos		(23	)		—			—		—			(23	)


	Fair Value as of June 30, 2020
	Maturity less than 1 year			Maturity 1 – 3 years			Maturity 4 – 5 years		Maturity in excess of 5 years	Total fair value
	(in millions)
U.S. dollars to Argentine pesos		8			—			—	—	8
U.S. dollars to Uruguayan pesos		(8	)		—			—	—	(8)
Commodity Hedge Contracts
Sugar		42			(13	)		—	—	29
Aluminum		16			(8	)		—	—	8
PET resin		92			(3	)		—	—	89

RECENT DEVELOPMENTS

Recent developments relating to COVID-19

The COVID-19 pandemic has negatively affected global and regional economic conditions. In response, we have taken preventive measures at our offices and facilities to ensure continued operations and to keep our teams and our customers healthy and safe. As part of those preventive measures we have created a comprehensive management framework designed to guide our mitigation actions across five key areas: collaborators, clients, consumers, community and cash flow. These initiatives include:

•

Collaborators: Ensuring employees’ safety and wellbeing is of utmost importance. Examples of additional measures include implementing reinforced health, sanitation and hygiene protocols across our facilities and providing our employees with additional protective equipment such as masks, gloves and sanitizing gels.

•

Clients: We are helping our clients to remain open for business in a safe way. Among our initiatives, we are leveraging our digital capabilities such as multichannel order-taking via B2B platforms, contact centers, and messaging and voice over IP services. In addition, our preventive measures include donating protective screens for our clients’ counters.

•

Consumers: Consumers are one of our top priorities. Accordingly, our mitigation actions include leveraging our affordability portfolio across key markets and channels, as well as reinforcing our presence in digital and direct-to-home channels.

•

Community: As part of our social response to the COVID-19 pandemic, we are donating beverages to health centers, transporting medical supplies, contributing to the construction of alternative health centers, and acquiring medical equipment, among other community relief initiatives.

•

Cash Flow: Consistent with our financial discipline, we are implementing measures to further strengthen our balance sheet and protect our cash flow by prioritizing or deferring capital expenditures and rationalizing expenses.

Government responses to the COVID-19 pandemic have caused temporary closures and social distancing measures at points of sale, including restaurants, cinemas and other venues, such as stadiums, auditoriums and concert halls, causing fluctuations in the volumes and mix of the products we sell. As a result, we have adopted a number of initiatives to reduce costs in the territories where we operate, including a review of our capital expenditures for the rest of 2020.

Despite the fact that the COVID-19 pandemic resulted in the imposition of strict measures in the territories where we operate, as of June 30, 2020, we have not had significant disruptions in our operations or supply chain. During the first six months ended June 30, 2020, we saw a very resilient traditional trade channel (sales made at small retail stores to consumers), which is our most important sales channel. In addition, we saw an increase in sales through our digital sales channels, such as food aggregators, digital platforms and telemarketing, as the imposition of measures and regulations aimed at containing the COVID-19 pandemic have tilted consumer preferences towards these channels. As a result, and in an effort to safeguard the health of our workforce and business partners, we are reinforcing our presence in these distribution channels. This reinforcement is aligned with our overall digitization and omnichannel strategies.

The COVID-19 pandemic has also caused and continues to cause significant volatility in the financial markets, undermining investors’ confidence in the growth of countries and businesses. Major stock markets have halted operations on several occasions as persistent market turmoil intensifies and new information becomes available. Currencies in many of the countries where we operate, including the Mexican peso, have suffered a significant depreciation against the U.S. dollar as compared to December 31, 2019, which has increased the cost of some of our raw materials, and therefore negatively affected our financial results. In addition, the long-term economic effects of the COVID-19 pandemic may include lower or negative growth rates in the markets where we operate and reduced demand for our products or a shift to lower margin products. The COVID-19 pandemic has also increased the interest rates for short term loans, and these market conditions, if persisting for an extended duration, could affect our costs of financing. Furthermore, the duration of the COVID-19 pandemic is uncertain, and we cannot predict whether the virus will continue spreading in the territories where we operate or when or if the pandemic will subside.

Recent developments relating to regulations in Mexico

In June 2019, the government of the State of Oaxaca, Mexico amended the Law for the Prevention and Management of Solid Waste (Ley para la Prevención y Gestión Integral de los Residuos Sólidos) to prohibit the use, sale and distribution of single-use PET bottles for water and all other beverages in the State of Oaxaca. As a result, on July 30, 2019, two of our Mexican subsidiaries filed a constitutional challenge (amparo) against the amended law aiming to obtain an injunction, which was denied. The proceeding continues and is pending resolution. However, we cannot assure you that any legal measures taken by us will have the desired effect or that the amendment will not have an adverse impact on our business and results of operations in Mexico.

In March 2020, the Mexican government amended the existing Official Mexican Standard (NOM-051), which regulates the labeling of prepackaged food and non-alcoholic beverages (“Products”), to introduce a new labeling system for Products sold in Mexico. The amended regulation sets forth that Products’ nutrition facts labels must include protein, sugar, added sugar, sodium, saturated fat and other fat contents per 100 grams or 100 milliliters. Nutrition facts labels must also include complementary nutritional information by means of octagonal seals, which shall apply to Products that exceed the NOM-051 parameters regarding recommended sugar, calorie, sodium, saturated fat and other fat contents, as well as warnings for any Products that contain caffeine or non-caloric sweeteners. In accordance with the amended NOM-051, our entire portfolio (except for water) is required to comply with the new labeling guidelines by October 1, 2020, although Products labeled in compliance with the pre-amended NOM-051 are permitted to remain on the market until November 30, 2020. We are currently implementing the measures necessary to comply with the new NOM-051 within the required timeframe, including with regards to our containers and packaging suppliers’ capacity, among other technical difficulties. Additionally, we have filed a constitutional challenge (amparo) against the amended NOM-051, which is still pending resolution. We cannot assure you that these amendments will not have an adverse impact on our business and results of operations in Mexico or that any legal measures taken by us will have the desired effect.

Recent developments relating to increased costs of renewable energy in Mexico

In the context of the power industry, the current Mexican federal government has publicly stated that one of its objectives is to strengthen the Federal Electricity Commission (Comisión Federal de Electricidad) (“CFE”). In this regard, during the second and third quarters of 2020, the governmental authorities within the power sector (i.e., the National Center of Energy Control (Centro Nacional de Control de Energía), the Energy Regulatory Commission (Comisión Reguladora de Energía) (“CRE”) and the Ministry of Energy (Secretaría de Energía)) issued certain orders, resolutions and public policies imposing restrictions and additional requirements for purposes of the development, construction and/or operation of intermittent renewable energy projects, particularly, solar photovoltaic and wind power plants. Accordingly, in May 2020, CRE, as regulator of the Mexican power sector, approved an increase to the transmission cost applicable to holders of grandfathered interconnection agreements (titulares de contratos de interconexión legados) that produce energy from renewable energy or efficient cogeneration sources. Grandfathered projects are those subject to the rules pursuant to the laws applicable before the Mexican energy reform as of 2013-2014. This new cost for the transmission service constitutes an increase for grandfathered renewable projects which was applied by CFE as of July 2020. While the entities legally obliged to pay for those transmission costs are generators (that is, holders of the grandfathered interconnection agreements), depending on the structure agreed in the corresponding energy supply/delivery contracts (“PPAs”) (e.g., as a pass-through of such transmission costs or a change in law), end-users under the grandfathered self-supply (autoabastecimiento) scheme may run the risk of transmission costs and be obligated to pay the relevant generator for said incremental costs. In other words, offtakers (as self-supplied consumers) would assume significant power-related costs vis-à-vis their operation. Several constitutional challenges (amparos) against such increase in transmission charges have been filed by multiple affected parties, including, generator(s) with which we have signed a PPA. A permanent have injunction (suspensión definitiva) in respect of such increase has been granted by Mexican federal courts in favor of most generators with whom we have entered into PPAs, except for one generator, which obtained a temporary injunction (suspension temporal) and expects that a permanent injunction will be granted on the hearings to be held in its amparo proceedings. Where a permanent injunction has been granted, the new transmission costs will not be applicable during the course of the corresponding amparo proceedings. Ultimately, courts will have to decide on the merits of the amparo challenge and whether to uphold or not the CRE resolution whereby these incremental transmission costs to grandfathered renewable/efficient cogeneration projects were established. We cannot assure you that these legal measures will have the desired effect and that this increase will not have an adverse impact on our results of operations as we may be forced to incur additional costs for consumption of electricity. Additionally, we may be forced to consume energy other than the renewable energy that is provided to us under current PPAs. Furthermore, we cannot assure you that the Mexican government will not implement similar measures or other changes in laws, policies and regulations impacting the power sector in Mexico, which could make it more difficult to purchase power at competitive prices.

Recent developments relating to our goals to reduce greenhouse gas emissions

In June 2020, we received the approval from the Science Based Targets Initiative (“SBTi”) for our greenhouse gas (“GHG”) emissions reduction targets. SBTi is a collaboration between the Carbon Disclosure Project, the United Nations Global Compact, the World Resources Institute and the World Wide Fund for Nature. In 2019, we worked in collaboration with our value chain to develop a robust GHG emissions inventory and have defined the following goals, intended to be met by 2030:

•

reduce absolute GHG emissions from our operations by 50% compared to the 2015 baseline;

•

reduce absolute GHG emissions from our value chain, covering purchased goods and services and upstream transportation and distribution by 20% compared to the 2015 baseline; and

•

achieve 100% renewable electricity in our operations.

The targets we established for our operations are consistent with reductions required to meet the goals of the Paris Agreement and limit global warming to well-below 2ºC. Our target for emissions from our value chain meets the SBTi’s criteria for ambitious value chain goals, meaning it is in line with current best practice.

EXHIBIT INDEX


Exhibit No.		Description

Exhibit 99.1		Unaudited Interim Condensed Consolidated Financial Statements as of June 30, 2020 and for the six-month periods ended June 30, 2020 and 2019.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 25, 2020


Coca-Cola FEMSA, S.A.B. de C.V.

By:		/s/ Constantino Spas Montesinos
Name:		Constantino Spas Montesinos
Title:		Chief Financial Officer

Exhibit 99.1

COCA COLA FEMSA, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Interim Condensed Consolidated Statement of Financial Position

As of June 30, 2020 and December 31, 2019

In millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.).

Note

June 30,
2020 ⁽¹⁾

June 30,
2020

December 31,
2019

ASSETS

CURRENT ASSETS

Cash and cash equivalents

1,797

Ps.

41,473

Ps.

20,491

Trade receivables, net

398

9,185

15,476

Inventories

432

9,967

10,538

Recoverable taxes

223

5,141

7,567

Other current financial assets

133

3,063

1,076

Other current assets

1,629

1,648

Total current assets

3,053

70,458

56,796

NON CURRENT ASSETS

Investments in other entities

368

8,491

9,751

Rights of use assets

1,225

1,382

Property, plant and equipment, net

2,655

61,276

61,187

Intangible assets, net

4,737

109,339

112,050

Deferred tax assets

491

11,333

10,432

Other non-current financial assets

223

5,143

204

Other non-current assets

200

4,636

6,037

Total non-current assets

8,727

201,443

201,043

TOTAL ASSETS

11,780

Ps.

271,901

Ps.

257,839

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Bank loans and notes payable

589

Ps.

13,590

Ps.

882

Current portion of non-current debt

158

3,657

10,603

Current portion of lease liabilities

493

483

Interest payable

682

439

Suppliers

702

16,213

19,832

Accounts payable

462

10,669

10,331

Taxes payable

300

6,915

7,156

Other current financial liabilities

254

5,864

1,284

Total current liabilities

2,516

58,083

51,010

NON-CURRENT LIABILITIES

Bank loans and notes payable

3,208

74,039

58,492

Post-employment and other non-current employee benefits

156

3,612

3,293

Non-current portion of lease liabilities

817

900

Deferred tax liabilities

1,958

3,771

Other non-current financial liabilities

401

1,897

Provisions and other non-current liabilities

309

7,108

8,791

Total non-current liabilities

3,810

87,935

77,144

TOTAL LIABILITIES

6,326

146,018

128,154

EQUITY

Common stock

2,060

Additional paid-in capital

1,974

45,560

45,560

Retained earnings

3,044

70,270

75,820

Other equity instruments

(75

)

(1,740

)

(1,740

)

Acumulative other comprehensive income

169

3,904

1,234

Equity attributable to equity holders of the parent

5,201

120,054

122,934

Non-controlling interest in consolidated subsidiaries

253

5,829

6,751

TOTAL EQUITY

5,454

125,883

129,685

TOTAL LIABILITIES AND EQUITY

11,780

Ps.

271,901

Ps.

257,839

⁽¹⁾	Convenience translation to U.S. dollars ($) – See Note 2.2.3

The accompanying notes are an integral part of these unaudited interim condensed consolidated statement of financial position.

COCA COLA FEMSA, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Interim Condensed Consolidated Income Statements

For the six-month periods ended June 30, 2020 and 2019.

In millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.), except for earnings per share amounts.


	Note		June 30, 2020 ⁽¹⁾			June 30, 2020			June 30, 2019
Net sales		21	$	3,805		Ps.	87,821		Ps.	93,909
Other operating revenues				23			520			535

Total revenues				3,828			88,341			94,444
Cost of goods sold				2,105			48,593			51,349

Gross profit				1,723			39,748			43,095

Administrative expenses				162			3,733			4,385
Selling expenses				1,058			24,399			25,578
Other income		13		17			384			364
Other expenses		13		82			1,896			1,404
Interest expense		12		203			4,691			3,475
Interest income				24			556			551
Foreign exchange (gain) loss, net				(21	)		(493	)		199
Monetary position (gain) loss, net				(8	)		(175	)		30
Market value (gain) loss on financial instruments				—			(1	)		—

Income before income taxes from continuing operations and share of profit in equity accounted investees				288			6,638			8,939
Income taxes		18		91			2,091			2,519
Share in the profit of equity accounted investees, net of tax				(6	)		(144	)		(64	)

CONSOLIDATED NET INCOME				191			4,403			6,356

Controlling interest from continuing operations				202			4,659			6,087
Non-controlling interest from continuing operations				(11	)		(256	)		269

CONSOLIDATED NET INCOME			$	191		Ps.	4,403		Ps.	6,356

Basic earnings per share from continuing operations		17	$	0.01		Ps.	0.28		Ps.	0.36
Diluted earnings per share from continuing operations		17	$	0.01		Ps.	0.28		Ps.	0.36

Shares		17		16,807			16,807			16,807

⁽¹⁾	Convenience translation to U.S. dollars ($) – See Note 2.2.3

The accompanying notes are an integral part of these unaudited interim condensed consolidated income statements.

COCA COLA FEMSA, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Interim Condensed Consolidated Statements of Comprehensive Income

For the six-month periods ended June 30, 2020 and 2019.

In millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.).


	Note	June 30, 2020 ⁽¹⁾			June 30, 2020			June 30, 2019
CONSOLIDATED NET INCOME		$	191		Ps.	4,403		Ps.	6,356

Other comprehensive income, net of taxes:
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Valuation of the effective portion of derivative financial instruments			58			1,349			(645	)
Exchange differences on the translation of foreign operations and associates			39			889			(825	)

Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods			97			2,238			(1,470	)

Items that will not to be reclassified to profit or loss in subsequent periods:
Remeasurements of the net defined benefit liability			(10	)		(234	)		(7	)

Other comprehensive loss) not being reclassified to profit or loss in subsequent periods			(10	)		(234	)		(7	)

Total other comprehensive income (loss), net of tax			87			2,004			(1,477	)

Consolidated comprehensive income (loss), net of tax		$	278		Ps.	6,407		Ps.	4,879

Attributable to:
Equity holders of the parent from continuing operations		$	318		Ps.	7,329		Ps.	4,742
Non-controlling interest from continuing operations			(40	)		(922	)		137

Consolidated comprehensive income for the year, net of tax		$	278		Ps.	6,407		Ps.	4,879

⁽¹⁾	Convenience translation to U.S. dollars ($) – See Note 2.2.3

The accompanying notes are an integral part of these unaudited interim condensed consolidated statements of comprehensive income.

COCA COLA FEMSA, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Interim Condensed Consolidated Statements of Changes in Equity

For the six-month periods ended June 30, 2020 and 2019.

In millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.).


	Notes	Capital Stock		Additional paid-in capital		Retained earnings			Other Equity Instruments			Valuation of the effective portion of derivative financial instrument			Exchange differences on Translation of Foreign Operations and Associates			Remeasurements of the net defined benefit liability			Equity Attributable to Equity Holders of the Parent			Non- ontrolling interest			Total Equity
Balances at December 31, 2018		Ps	. 2,060	Ps.	45,560		Ps. 71,270		Ps.	(1,524	)	Ps.	(149	)	Ps.	8,071		Ps.	(344	)	Ps.	124,944		Ps.	6,806		Ps.	131,750

Accounting standard adoption effects, net of tax			—		—		(114	)		—			—			—			—			(114	)		—			(114	)

Balances as of January 1, 2019			2,060		45,560		71,156			(1,524	)		(149	)		8,071			(344	)		124,830			6,806			131,636

Net income			—		—		6,087			—			—			—			—			6,087			269			6,356
Other comprehensive income (loss), net of tax			—		—		—			—			(619	)		(719	)		(7	)		(1,345	)		(132	)		(1,477	)

Total comprehensive income (loss)			—		—		6,087			—			(619	)		(719	)		(7	)		4,742			137			4,879
Dividends declared			—		—		(7,437	)		—			—			—			—			(7,437	)		(3	)		(7,440	)

Balances as of June 30, 2019		Ps.	2,060	Ps.	45,560	Ps.	69,806		Ps.	(1,524	)	Ps.	(768	)	Ps.	7,352		Ps.	(351	)	Ps.	122,135		Ps.	6,940		Ps.	129,075


	Notes	Capital Stock		Additional paid-in capital		Retained earnings			Other Equity Instruments			Valuation of the effective portion of derivative financial instrument			Exchange differences on Translation of Foreign Operations and Associates		Remeasurements of the net defined benefit liability			Equity Attributable to Equity Holders of the Parent			Non- ontrolling interest			Total Equity
Balances as of January 1, 2020		Ps.	2,060		Ps.45,560	Ps.	75,820		Ps.	(1,740	)	Ps.	(968	)	Ps.	3,057	Ps.	(855	)	Ps.	122,934		Ps.	6,751		Ps.	129,685

Net income			—		—		4,659			—			—			—		—			4,659			(256	)		4,403
Other comprehensive income (loss), net of tax			—		—		—			—			1,293			1,611		(234	)		2,670			(666	)		2,004

Total comprehensive income (loss)			—		—		4,659			—			1,293			1,611		(234	)		7,329			(922	)		6,407
Dividends declared			—		—		(10,209	)		—			—			—		—			(10,209	)		—			(10,209	)

Balances as of June 30, 2020		Ps.	2,060	Ps.	45,560	Ps.	70,270		Ps.	(1,740	)	Ps.	325		Ps.	4,668	Ps.	(1,089	)	Ps.	120,054		Ps.	5,829		Ps.	125,883

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

COCA COLA FEMSA, S.A.B. DE C.V. AND SUBSIDIARIES

Unaudited Interim Condensed Consolidated Statements of Cash Flows

For the six-month period ended June 30, 2020 and 2019.

In millions of U.S. dollars ($) and in millions of Mexican pesos (Ps.).


	June 30, 2020 ⁽¹⁾			June 30, 2020			June 30, 2019
OPERATING ACTIVITIES
Income before income taxes from continuing operations	$	282		Ps.	6,494		Ps.	8,875

Adjustments for:
Non-cash operating (income) expenses		1			16			96
Depreciation		186			4,290			4,237
Depreciation right-of-use		12			287			256
Amortization		22			497			533
Amortization prepaid expenses		13			319			300
Gain on disposal of long-lived assets		(1	)		(26	)		(17	)
Write-off of long-lived assets		6			146			70
Share of the loss of equity method, net of taxes		6			144			64
Interest income		(24	)		(556	)		(551	)
Interest expense		203			4,691			3,475
Foreign exchange (income) loss, net		(21	)		(493	)		199
Non-cash movements in post-employment and other non-current employee benefits obligations		6			146			113
Impairment		39			903			—
Monetary position, (loss) gain, net		(8	)		(175	)		30
Market value loss on financial instruments		—			(1	)		—
(Increase) decrease:
Accounts receivable and other current assets		256			5,905			3,168
Other current financial assets		(7	)		(173	)		(93	)
Inventories		24			543			(167	)
Suppliers and other accounts payable		(147	)		(3,402	)		(945	)
Other liabilities		(1	)		(34	)		(124	)
Other taxes		67			1,556			(400	)
Employee benefits paid		(15	)		(348	)		(290	)
Income taxes paid		(112	)		(2,589	)		(2,905	)

Net cash flows generated from operating activities continuing operations		787			18,140			15,924

INVESTING ACTIVITIES
Interest received		24			556			551
Acquisitions of long-lived assets		(147	)		(3,397	)		(3,542	)
Proceeds from the sale of long-lived assets		6			142			229
Acquisition of intangible assets		(12	)		(271	)		(130	)
Other non-current assets		(16	)		(367	)		(515	)
Dividends received from investments in associates and joint ventures		1			16			—
Investment in financial assets		(11	)		(257	)		(202	)

Net cash flows (used in) investing activities from continuing operations		(155	)		(3,578	)		(3,609	)

FINANCING ACTIVITIES
Proceeds from borrowings, net of emission expenses		1,780			41,095			213
Repayment of borrowings		(1,196	)		(27,618	)		(5,020	)
Interest paid		(159	)		(3,661	)		(2,320	)
Dividends paid		(221	)		(5,105	)		(3,722	)
Interest paid on leases		(3	)		(59	)		(72	)
Payments of leases		(12	)		(277	)		(226	)
Other financing activities		(35	)		(812	)		(777	)

Net cash flows generated by (used in) financing activities for continuing operations		154			3,563			(11,924	)

Net increase in cash and cash equivalents from continuing operations		786			18,125			391

Cash and cash equivalents at the beginning of the period		888			20,491			23,727

Effects of exchange rate changes and inflation effects on cash and cash equivalents held in foreign currencies		123			2,857			(633	)

Cash and cash equivalents at the end of the period	$	1,797		Ps.	41,473		Ps.	23,485

⁽¹⁾	Convenience translation to U.S. dollars ($) – See Note 2.2.3

The accompanying notes are an integral part of these interim condensed consolidated statements of cash flows.

Note 1. Activities of the Company

Coca-Cola FEMSA, S.A.B. de C.V. (“Coca-Cola FEMSA”) is a Mexican corporation, mainly engaged in acquiring, holding and transferring all types of bonds, shares and marketable securities. Coca-Cola FEMSA and its subsidiaries (the “Company”), as an economic unit, are engaged in the production, distribution and marketing of certain Coca-Cola trademark beverages in Mexico, Central America (Guatemala, Nicaragua, Costa Rica and Panama), Colombia, Brazil, Uruguay, Argentina and until November 2018 in Philippines.

Coca-Cola FEMSA is indirectly owned by Fomento Economico Mexicano, S.A.B. de C.V. (“FEMSA”), which holds 47.2% of its capital stock and 56% of its voting shares and The Coca-Cola Company (“TCCC”), which indirectly owns 27.8% of its capital stock and 32.9% of its voting shares. The remaining Coca-Cola FEMSA shares trade on the Bolsa Mexicana de Valores, S.A.B. de C.V. (BMV: KOF UBL) as series “L” shares which represents 15.6% of our common equity and its American Depositary Shares (“ADS”) (equivalent to ten series “L” shares) trade on the New York Stock Exchange, Inc (NYSE: KOF) as series “B” which represents 9.4% of our common equity. The address of its registered office and principal place of business is Mario Pani No. 100 Col. Santa Fe Cuajimalpa, Delegacion Cuajimalpa de Morelos, Mexico City, 05348, Mexico.

The most significant subsidiaries which the Company controls are discloed in Note 1 of our annual consolidated financial statements.

Note 2. Basis of Preparation

2.1 Statement of compliance

These condensed consolidated interim financial statements were prepared in accordance with International Accounting Standards — IAS 34 Interim Financial Reporting (“IAS 34”). They do not include all the information required for a complete set of IFRS financial statements. Selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in financial position and performance of Coca- Cola FEMSA since our last audited annual consolidated financial statements as of and for the year ended December 31, 2019.

The accompanying condensed consolidated statement of financial position as of June 30, 2020, as well as the condensed consolidated statements of income, comprehensive income (loss), cash flows and changes in equity for the six-month periods ended June 30, 2020 and 2019, and their related disclosures included in these notes, are unaudited. significant accounting policies are described in Note 2.3 and 3.

These interim condensed consolidated financial statements and notes were authorized for issuance by the Company’s Chief Executive Officer Constantino Spas Montecinos on August 24, 2020, based on figures approved by the Company’s Board of Directors on July 22, 2020; subsequent events have been considered through that date.

2.2 Basis of measurement and presentation

The consolidated financial statements have been prepared on historical cost basis, except for the following:

•

Derivative financial instruments.

•

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

•

Investments in equity instruments and some financial liabilities.

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

2.2.1 Presentation of consolidated income statement

The Company’s consolidated income statement classifies its related costs and expenses by function accordingly within the industry practices in which 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 June 30, 2020 the consolidated income statement, the consolidated statement of comprehensive income and consolidated statement of cash flows for the six-month period year ended June 30, 2020 were converted into U.S. dollars at closing exchange rate of 23.08 Mexican pesos per U.S. dollar as published by the Federal Reserve Bank of New York as of June 30, 2020. This arithmetic conversion should not be construed as representation that 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 August 14, 2020 the exchange rate was Ps. 22.02 per U.S. dollar, an appreciation of 4.61% since June 30, 2020.

2.3 Critical accounting judgments and estimates

For the application of the Company’s accounting policies, as 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 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 it affects only such period or in the current or subsequent periods of the revision if this affects both. In the process of applying the Company’s accounting policies, management has made the following judgements with most significant effects on the consolidated financial statements.

Critical accounting judgments and estimates applied to these condensed consolidated interim financial statement as of June 30, 2020 are the same as those mentioned in our last audited annual consolidated financial statements as of and for the year ended December 31, 2019.

2.4 Application of recently issued accounting standards

In the following sentences are presented a list of the new and modify standards, which have been issued by the ISAB, and that are applicable for annual periods starting January 1st, 2020.

Modifications to the Conceptual Framework

The Conceptual Framework for Financial Information (“Conceptual Framework”) have been issued on March 2018 replacing the previous version of the Conceptual Framework issued on 2010. The Conceptual Framework describes the purpose and concepts of general purpose for the financial information. The purpose of the Conceptual Framework is to:

Help to the IASB to develop standards that are based on consistent concepts;

Assist to preparers to develop congruent accounting policies when no Standard is applicable to a specific transaction or event, or when a Standard allows an accounting policy option; and

Help to all parties to understand and interpret the Standards.

The Conceptual Framework is not a Standard. No content of the Conceptual Framework prevails over any Standard or requirement of a Standard.

The Conceptual Framework is effective immediately for the IASB and the IFRIC, and is effective for periods beginning on or after January 1, 2020, and its early application is permitted, for companies that use the Conceptual Framework to develop their accounting policies when IFRS are not applicable for a particular transaction.

The modification did not have an impact in the Company´s consolidated financial statements.

Modifications to IFRS 3 Definition of a Business (“IFRS 3”)

It was issued in October 2018. The modified decision emphasize that the final purpose of a business is to provide goods and services to the clients, While the previous definition was focused on the yields in dividend terms, less costs or other economic benefits for the investors and others. The distinction between a business and a group of assets is important because an acquirer recognize goodwill when acquires a business.

The modifications to IFRS 3 are effectives on January 1^st, 2020. The modification did not have an impact in the Company´s consolidated financial statements.

Modifications to IAS 1 and IAS 8 Definition of Material or relative importance (“IAS 1” and “IAS 8”).

The definition of material or relative importance helps companies determine whether information about an item, transaction or other event should be provided to the users of the financial statements. However, companies had difficulty using the above definition in making judgments about materiality or relative importance in the preparation of the financial statements. Accordingly, the IASB published new definitions (Amendments to IAS 1 and IAS 8) in October 2018.

Previous definition:

Omissions of information or inaccuracies are material, or have relative importance if they can, individually or in whole, influence in the economic decisions taken by the users of the information on the base of the financial statements.

New definition:

Information is material if its omission, inaccuracy or concealment can be reasonably be expected to influence the decisions that the principal users of the financial information take on the base of the financial statements.

The definition of “material” in the IAS 8 is replaced by a reference to the IAS 1. In addition, to ensure the consistent, the IASB has modified the rest of the affected standards. The modifications that are effective on January 1^st, 2020, with mandatory prospective application and its early application is permitted. The modification did not have an impact in the Company´s consolidated financial statements.

Interest Rate Benchmark Reform—Amendments to IFRS 9, IAS 39 and IFRS 7

In September 2019, the IASB issued amendments to IFRS 9, IAS 39 and IFRS 7 Financial Instruments: Disclosures, which concludes phase one of its work to respond to the effects of Interbank Offered Rates (IBOR) reform on financial reporting. The amendments provide temporary reliefs which enable hedge accounting to continue during the period of uncertainty before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest rate (an RFR).

The amendments include a number of reliefs, which apply to all hedging relationships that are directly affected by IBOR reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and/or amount of benchmark-based cash flows of the hedged item or the hedging instrument.

Application of the reliefs is mandatory. The first three reliefs provide for:

•

The assessment of whether a forecast transaction (or component thereof) is highly probable

•

Assessing when to reclassify the amount in the cash flow hedge reserve to profit and loss

•

The assessment of the economic relationship between the hedged item and the hedging instrument

For each of these reliefs, it is assumed that the benchmark on which the hedged cash flows are based (whether or not contractually specified) and/or, for relief three, the benchmark on which the cash flows of the hedging instrument are based, are not altered as a result of IBOR reform.

A fourth relief provides that, for a benchmark component of interest rate risk that is affected by IBOR reform, the requirement that the risk component is separately identifiable need be met only at the inception of the hedging relationship. Where hedging instruments and hedged items may be added to or removed from an open portfolio in a continuous hedging strategy, the separately identifiable requirement need only be met when hedged items are initially designated within the hedging relationship.

To the extent that a hedging instrument is altered so that its cash flows are based on an RFR, but the hedged item is still based on IBOR (or vice versa), there is no relief from measuring and recording any ineffectiveness that arises due to differences in their changes in fair value.

The reliefs continue indefinitely in the absence of any of the events described in the amendments. When an entity designates a group of items as the hedged item, the requirements for when the reliefs cease are applied separately to each individual item within the designated group of items.

The amendments also introduce specific disclosure requirements for hedging relationships to which the reliefs are applied.

The amendments are effective for annual periods beginning on or after 1 January 2020 and must be applied retrospectively. However, any hedge relationships that have previously been de-designated cannot be reinstated upon application, nor can any hedge relationships be designated with the benefit of hindsight. Early application is permitted and must be disclosed. The modification did not have an impact in the Company´s consolidated financial statements.

Amendment to IFRS 16—Covid-19 related rental concessions

The amendment allows an optional practical expedient that simplifies how tenants account the rental concessions, arising as a direct consequence for the COVID-19 pandemic.

The practical file will only be applied if:

•

the new consideration is substantially equal to or lesser than the original consideration;

•

the decrease in the lease payments refers to rental payments that occur before June 30, 2021; and

•

no other substantial changes to the lease terms have been made.

Those lessees who apply this practical file must disclose:

•

The fact that the practical expedient has been applied to all eligible rental concessions and, if applicable to some selected ones; the nature of the contracts to which they have applied the practical file; and

•

the amount recognized in results for the reporting period that arises from the application of the practical file.

This amendment does not provide a practical expedient for lessors. Lessors are required to continue evaluating whether the rental concessions are lease modifications and justify them accordingly.

These modifications are effective for periods beginning on or after June 1, 2020, with earlier application permitted. The Company had no significant impact from the application of this amendment.

Note 3. Significant Accounting Policies

The accounting policies that were applied to these consolidated condensed interim financial statements as of and for the six-month period June 30, 2020, except for those newly issued financial reporting standards effective January 1, 2020, are the same as those applied by Coca-Cola FEMSA in its audited annual consolidated financial statements as at and for the year ended December 31, 2019.

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 in equity to its shareholders.


	Exchange Rates of Local Currencies Translated to MexicanPesos⁽¹⁾
	Functional / Recording Currency	Average Exchange Rate as of				Exchange Rate as of
Country or Zone	Currency	June 30, 2020		June 30, 2019		June 30, 2020		December 31, 2019
Mexico	Mexican peso		1.00		1.00		1.00		1.00
Guatemala	Quetzal		2.89		2.50		2.98		2.45
Costa Rica	Colon		0.04		0.03		0.04		0.03
Panama	U.S. dollar		22.27		19.27		22.97		18.85
Colombia	Colombian peso		0.01		0.01		0.01		0.01
Nicaragua	Cordoba		0.65		0.58		0.67		0.56
Argentina	Argentine peso		0.32		0.44		0.33		0.31
Brazil	Reais		4.29		4.99		4.19		4.68
Uruguay	Uruguayan peso		0.52		0.55		0.54		0.51

(1)	Exchange rates published by the Central Bank of each country where the Company operates.

3.1 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 subsidiaries 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).

As of June 30, 2020 and December 31, 2019, the operations of the Company are classified as follows:


Country	Cumulative Inflation 2017-2020			Type of Economy	Cumulative Inflation 2016-2019			Type of Economy
Mexico		12.8	%	Non-hyperinflationary		13.2	%	Non-hyperinflationary
Guatemala		11.4	%	Non-hyperinflationary		11.8	%	Non-hyperinflationary
Costa Rica		4.7	%	Non-hyperinflationary		5.8	%	Non-hyperinflationary
Panama		0.1	%	Non-hyperinflationary		0.5	%	Non-hyperinflationary
Colombia		9.7	%	Non-hyperinflationary		11.0	%	Non-hyperinflationary
Nicaragua		16.1	%	Non-hyperinflationary		15.6	%	Non-hyperinflationary
Argentina		192.5	%	Hyperinflationary		179.4	%	Hyperinflationary
Brazil		9.6	%	Non-hyperinflationary		11.1	%	Non-hyperinflationary
Uruguay		28.6	%	Non-hyperinflationary		22.0	%	Non-hyperinflationary

3.2 Leases

In accordance with IFRS 16, the Company evaluates whether a contract is, or contains a lease when the contract transfers the right to control the control of an identified asset during a period of time in exchange for a consideration.

The Company evaluates whether a contract is a lease agreement when:

•

The contract involves the use of an identified asset—this can be specified explicitly or implicitly, and must be physically distinct or represent substantially the entire capacity of a physically distinct asset. If the lessor has substantive substitution rights, the asset is not identified;

•

The Company has the right to receive substantially all the economic benefits of the use of the asset throughout the period of use;

•

The Company has the right to direct the use of the asset when it has the right to make the most relevant decisions about how, and for what purpose the asset is used. When the use of the asset is predetermined, the Company has the right to direct the use of the asset if: i) has the right to operate the asset; or ii) designed the asset to pre- determine for what purpose it will be used.

Initial measurement

On the start date of the lease, the Company recognizes a right-of-use-asset and a leasing liability. The right-of-use asset is initially measure at cost, which includes the initial amount of the lease liability adjusted for any lease payment made during or before the initial application date. The right-of-use asset considers the incurred initial direct costs and an estimate of the costs to dismantle and eliminate the underlying asset, or to restore the underlying asset or the place where it is located, less any lease incentive received.

The lease liability is initially measured at the present value of future lease payments for the period remaining at the date of initial application. Such payments are discounted using the incremental rate of the Company, which is considered as the rate that the Company would have to pay for a similar period financing, and with a similar guarantee, to obtain an asset of similar value to the leased asset. For the Company, the discount rate used to measure the right-of-use asset and the lease liability is the rate related to the Company’s financing cost.

Lease payments included in the measurement of the lease liability include the following:

•

Fixed payments, including payments that are substantially fixed;

•

Variable lease payments that depends of an index or a rate, initially measured using the index or the rate as of the lease beginning date;

•

The price related to a purchase option that the Company has reasonable exercising certainty, an option to extend the contractual agreement and penalties for early termination of the lease agreement, unless the Company has reasonable certainty of not exercising those options.

•

Amounts payable for residual value guarantees;

•

Payments for early cancellation, if this option is contemplated on the lease conditions.

The Company does not recognize a right-of-use asset and lease liability for those short-term agreements with a contractual period of 12 months or less and leases of low-value assets, mainly information technology equipment used by employees, such as laptops and desktops, handheld devices and printers. The Company recognizes the lease payments associated with these agreements as an expense in the consolidated statement of income as they are incurred.

Subsequent Measurement

The right-of-use asset is subsequently depreciated using the straight-line method from the start date over to the shortest period between the useful life of the right-of-use asset (term of the lease agreement) and the useful life of the related leased asset. In addition, the right-of-use asset is periodically evaluated for impairment and adjusted for some lease liability remedies.

Lease liabilities are subsequently measured at amortized cost using the effective interest rate method. The Company re-measures the lease liability without modifying the incremental discount rate when there is a modification in future lease payments under a residual value guarantee or if the modification arises from a change in the index or rate when they are variable payments. The lease liability is measured again using a new incremental discount rate at the date of modification when:

•

An option to extend or terminate the agreement is exercised by modifying the non-cancelable period of the contract;

•

The Company changes its assessment of whether it will exercise a purchase option.

When the lease liability is measured again, an adjustment is made to the corresponding carrying amount of the right of use asset, or is recorded in profit or loss if the carrying amount of the asset by right of use has been reduced to zero.

A modification to the lease agreement is accounted for as a separate agreement if the following two conditions are met:

The modification increases the scope of the lease by adding the right to use one or more underlying assets; and

ii)

The consideration of the lease is increased by an amount proportional to the independent price of the increase in scope and by any adjustment to that independent price to reflect the contract circumstances.

In the consolidated statements of income, the interest expense of the lease liability is presented as a component of the financial expense, unless they are directly attributable to qualified assets, in which case they are capitalized according to the Company financing cost accounting policy. The right-of-use assets are measured according to the cost model, depreciated during the lease term using the straight line and recognized in the consolidated statement of income.

Improvements in leased properties are recognized as part of property, plant and equipment in the consolidated statement of financial position and amortized using the straight-line method, for the shortest period between the useful life of the asset and the term of the related lease.

Note 4. Cash and Cash Equivalents

Includes cash on hand and in bank deposits and cash equivalents, which are short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value, with a maturity date of three months or less at their acquisition date. Cash and cash equivalents at the end of the reporting period as shown in the interim condensed consolidated statements of financial position and cash flows is comprised of the following:


	June 30, 2020		December 31, 2019
Cash and bank balances	Ps.	12,097	Ps.	4,641
Cash equivalents		29,376		15,850

	Ps.	41,473	Ps.	20,491

Note 5. Trade Accounts Receivable, Net

As of June 30, 2020 and December 31, 2019, Company’s trade accounts receivables, net are as follows:


	June 30, 2019			December 31, 2019
Trade receivables	Ps.	6,665		Ps.	11,277
The Coca-Cola Company (related party) (Note 11)		931			802
Loans to employees		82			56
FEMSA and subsidiaries (related parties) (Note 11)		656			2,039
Other related parties (Note 11)		268			614
Other		1,198			1,181
Allowance for expected credit losses		(615	)		(493	)

	Ps.	9,185		Ps.	15,476

Note 6. Inventories

As of June 30, 2020 and December 31, 2019, Company’s inventories are Ps. 9,967 and Ps. 10,538, respectively. For the the six-month period ended June 30, 2020 and 2019, the Company recognized write-downs of its inventories for Ps. 29 and Ps. 121 respectively, to net realizable value.

Note 7. Other Current Assets and Other Current Financial Assets

As of June 30, 2020 and December 31, 2019, Company’s other current assets and other current financial assets totalled Ps. 4,692 and Ps. 2,724, respectively.

Note 8. Leases

For the six-month period ended as of June 30, 2020, the change in the Company’s right-of-use asset, is as follows:


	Ps. Total
Cost as of January 1, 2020		1,382
Additions		214
Disposals		(25	)
Depreciation		(287	)
Indexation effect		(19	)
Hyperinflationary economies effect		8
Effects of changes in foreign exchange rates		(48	)

	Ps	.1,225

As of June 30, 2020, Company’s lease liabilities, are as follows:


	June 30, 2020
Maturity analysis –
Less than one year	Ps.	493
One to three years		222
More than three years		595

Total lease liabilities at June 30, 2020		1,310

Current		493
Non-Current	Ps.	817

The interest expense for leases reported in the income statements for the six-month period ended June 30, 2020 and 2019 was Ps. 59 and Ps. 72 respectively.

The expenses for the low value assets and short-term leases reported in the income statements for the six-month period ended on June 30, 2020 and 2019 was Ps. 229 and Ps. 11 respectively.

For the six-month period ended June 30, 2020, the accumulated amount of concessions, decreases or cancellations for leases, which arose as a direct consequence of COVID-19, it is Ps. 2. The company applied the practical file to all decreases that met the criteria for the amendment to IFRS 16 effective as of June 1, 2020.

Note 9. Property, Plant and Equipment, Net

As of June 30, 2020 and December 31, 2019, Company’s property, plant and equipment, net are as follows:


	June 30, 2020		December 31, 2019
Land	Ps.	5,424	Ps.	5,258
Buildings		14,342		14,091
Machinery and equipment		20,894		20,521
Refrigeration equipment		9,227		9,378
Returnable bottles		6,091		6,061
Investments in fixed assets in progress		4,518		5,156
Leasehold improvements		389		417
Others		391		305

Total ⁽¹⁾	Ps.	61,276	Ps.	61,187

(1) Total includes Ps. 263 and Ps. 610 outstanding payment with suppliers, as of June 30, 2020 and December 31, 2019, respectively.

Note 10. Intangible Assets

As of June 30, 2020, and December 31, 2019, Company’s intangible assets are as follows:


	June 30, 2020		December 31, 2019
Rights to produce and distribute Coca-Cola trademark products	Ps.	79,753	Ps.	81,255
Goodwill		24,832		25,833
Other indefinite lived intangible assets		1,214		1,165
Technology cost and management systems		2,602		2,625
Systems in development		489		690
Others		449		482

	Ps.	109,339	Ps.	112,050

For the six-month period ended June 30, 2020 and 2019, allocation for amortization expense is as follows:


	June 30, 2020		June 30, 2019
Cost of goods sold	Ps.	12	Ps.	14
Administrative expenses		394		394
Selling expenses		91		125

	Ps.	497	Ps.	533

Note 11. Balances and transactions with related parties and affiliated companies

For the six-month period endend June 30, 2020, the company had significant operations with related parties of FEMSA for an amount of approximately of Ps. 3,436, mainly for purchase of coolers and other logistic and administrative expenses; The Coca-Cola Company for an amount of approximately of Ps. 15,097 mainly or the purchase of concentrate; and with Heineken for an amount of approximately Ps. 7,282, mailny for purchases of beer from Heineken Group.

For the six-month period ended June 30, 2019, the company had significant operations with related parties by FEMSA for an amount of approximately of Ps. 3,638, mainly for purchase of coolers and other logistic and administrative expenses; The Coca-Cola Company for an amount of approximately of Ps. 16,213 for the purchase of concentrate; and with Heineken for an amount of approximately of Ps. 8,393 for purchases of beer from Heineken Group, mainly.

Note 12. Bank Loans and Notes Payable

As of June 30, 2020, Company’s bank loans and notes payable are as follows:


	At June 30,⁽¹⁾
(in millions of Mexican pesos)	2020			2021			2022		2023		2024		2025 and Thereafter		Carrying value at June 30, 2020			Fair value at June 30, 2020		Carrying value at December 31, 2019⁽¹⁾
Short-term debt:
Fixed rate debt:
Colombian pesos
Bank loans	Ps.	244		Ps.	629		Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	873		Ps.	873	Ps.	230
Interest rate		4.37	%		5.20	%		—		—		—		—		4.97	%		—		4.37	%
Argentine pesos
Bank loans		473			—			—		—		—		—		473			473		126
Interest rate		37.66	%		—			—		—		—		—		37.66	%		—		63.50	%
Uruguayan pesos
Bank loans		73			563			—		—		—		—		636			636		63
Interest rate		13.16	%		15.90	%		—		—		—		—		15.59	%		—		11.59	%

Subtotal		790			1,192			—		—		—		—		1,982			1,982		419

Variable rate debt:
Mexican pesos
Bank loans		2,500			8,650			—		—		—		—		11,150			11,150		—
Interest rate		5.79	%		7.03	%		—		—		—		—		6.75	%		—		—
Colombian pesos
Bank loans		458			—			—		—		—		—		458			458		431
Interest rate		3.06	%		—			—		—		—		—		3.06	%		—		4.66	%
Argentine pesos
Bank loans		—			—			—		—		—		—		—			—		32
Interest rate		—			—			—		—		—		—		—			—		54.3	%

Subtotal		2,958			8,650			—		—		—		—		11,608			11,608		463

Total short-term debt	Ps.	3,748		Ps.	9,842		Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	13,590		Ps.	13,590	Ps.	882

(1) All interest rates shown in this table are weighted average contractual annual rates.


	At June 30,⁽¹⁾
(in millions of Mexican pesos)	2020			2021			2022			2023			2024			2025 and Thereafter			Carrying value at June 30, 2020			Fair value at June 30, 2020		Carrying value at December 31, 2019⁽¹⁾
Long-term debt:
Fixed rate debt:
U.S. Dollar
Yankee bond	Ps.	—		Ps.	—		Ps.	—		Ps.	—		Ps.	—		Ps.	41,962		Ps.	41,962		Ps.	43,894	Ps.	37,575
Interest rate		—			—			—			—			—			3.57	%		3.57	%		—		4.48	%
Mexican pesos
Senior notes		—			2,499			—			7,497			—			11,485			21,481			22,484		18,484
Interest rate		—			8.27	%		—			5.46	%		—			7.73	%		7.00	%		—		6.95	%
Brazilian reais
Bank loans		45			34			59			44			25			8			215			215		309
Interest rate		5.95	%		6.06	%		6.02	%		6.16	%		6.59	%		6.62	%		6.13	%		—		6.05	%
Uruguayan pesos
Bank loans		513			877			—			—			—			—			1,390			1,390		1,266
Interest rate		10.15	%		10.77	%		—			—			—			—			10.54	%		—		10.01	%

Subtotal		558			3,410			59			7,541			25			53,455			65,048			67,983		57,634

Variable rate debt:
Mexican pesos
Senior notes		—			—			1,457			—			—			1,723			3,180			3,213		1,459
Interest rate		—			—			5.86	%		—			—			5.69	%		5.77	%		—		7.99	%
Bank loans		—			—			—			—			—			9,335			9,335			9,400		9,358
Interest rate		—			—			—			—			—			6.05	%		6.05	%		—		8.20	%
Colombian pesos
Bank loans		—			—			—			—			—			—			—			—		402
Interest rate		—			—			—			—			—			—			—			—		5.61	%
Brazilian reais
Bank loans		80			28			25			—			—			—			133			133		242
Interest rate		7.45	%		8.45	%		8.44	%		—			—			—			7.85	%		—		7.82	%

Subtotal		80			28			1,482			—			—			11,058			12,648			12,746		11,461

Total long-term debt	Ps.	638		Ps.	3,438		Ps.	1,541		Ps.	7,541		Ps.	25		Ps.	64,513		Ps.	77,696		Ps.	80,729	Ps.	69,095

Current portion of long term debt		638			3,019			—			—			—			—			3,657			—		10,603

Long-term debt	Ps.	—		Ps.	419		Ps.	1,541		Ps.	7,541		Ps.	25		Ps.	64,513		Ps.	74,039		Ps.	80,729	Ps.	58,492

(1)	All interest rates shown in this table are weighted average contractual annual rates.

During the first half of 2020 Coca-Cola FEMSA: i) issued a Yankee bond for an amount of $ 1,250 million (Ps. 28,170) at an interest rate of 2.75%, ii) issued Senior Notes in Mexico for an amount of Ps. 4,718, iii) celebrated short term bank loans in Mexico for an amount of Ps. 11,150, such loans were used to settled bank loans denominated in USD and for general corporate purposes. Additionally the Company obtained during the mentioned period bank loans in Uruguay, Colombia and Argentina for an amount of Ps. 1,664.

In addition, the Company: i) Fully paid the Yankee bond for $ 900 with a fixed interest rate of 3.88% and maturity on November 26, 2023, ii) Yankee bond matured for $ 500 with a fixed interest rate of 4.63% and maturity on February 15, 2020.

The Company has financing from different financial institutions under agreements that stipulate restrictive covenants, on maximum levels of leverage. As of the date of these consolidated financial statements, the Company is in compliance with all of its restrictive covenants.

For the six-month period ended June 30, 2020 and 2019, the interest expense is comprised as follows:


	June 30, 2020		June 30, 2019
Interest on debts and borrowings	Ps.	3,820	Ps.	2,219
Finance charges for employee benefits		117		99
Derivative instruments		610		1,006
Finance charges for leases		59		72
Finance operating charges		85		79

	Ps.	4,691	Ps.	3,475

Note 13. Other Income and Expenses


	June 30, 2020			June 30, 2019
Other income:
Gain on sale of long-lived assets	Ps.	142		Ps.	229
Cancellation of contingencies		—			68
Foreign exchange gain related to operating activities		—			67
Tax actualization effects		217	⁽¹⁾		—
Other		25			—

	Ps.	384		Ps.	364

Other expenses:
Provisions for contingencies	Ps.	224		Ps.	350
Loss on the retirement of long-lived assets		146			70
Loss on sale of long-lived assets		116			211
Impairment on equity method investees		903	⁽²⁾		—
Severance payments		—			701	⁽³⁾
Donations		168			8
Foreign exchange loss related to operating activities		239			—
Other		100			64

	Ps.	1,896		Ps.	1,404

(1)

Following a favorable decision from Brazilian tax authorities received during 2019, Coca-Cola FEMSA has been entitled to reclaim indirect tax payments made in prior years in Brazil, resulting in the recognition of a tax credit and an extraordinary positive effect in the operating revenues and other income captions of the condensed consolidated income statements. See note 20.1.1.

(2)	As of June 30, 2020 the Company recognize an impairment on its joint ventures investment in Compañia Panameña de Bebidas, S.A.P.I. de C.V., for an amount of Ps. 402 and recognize an impairment on its associate investment in Leao Alimentos e Bebidas, LTDA. for an amount of Ps. 501.

(3)	During 2019, the Company incurred in reestructuing costs related to some of their operatons as part of an efficiency program.

Note 14. Financial Instruments

Fair Value of Financial Instruments

The Company measures the fair value of its financial assets and liabilities classified as level 1 and 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 June 30, 2020 and December 31, 2019:

June 30, 2020

December 31, 2019

Level 1

Level 2

Level 1

Level 2

Derivative financial instrument asset

124

7,741

905

Derivative financial instrument liability

250

179

2,191

14.1 Total debt

The fair value of bank 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 of June 30, 2020 and December 31, 2019, which is considered to be Level 1 in the fair value hierarchy (See Note 12).

14.2 Forward agreements to purchase foreign currency

The Company has entered into forward agreements to reduce its exposure to the risk of exchange rate fluctuations among the Mexican peso and other currencies.

Net changes in the fair value of forward agreements that do not meet criteria for hedge accounting are recorded in the consolidated income statements under the caption “market value gain on financial instruments”.

As of June 30, 2020, the Company had the following outstanding forward agreements to purchase foreign currency:

Maturity Date

Notional
Amount

Fair Value Liability
June 30, 2020

Fair Value Asset
June 30, 2020

2020

Ps.7,089

Ps.

(22)

Ps.

682

2021

4,399

(52

)

As of December 31, 2019, the Company had the following outstanding forward agreements to purchase foreign currency:

Maturity Date

Notional
Amount

Fair Value Liability
December 31, 2019

Fair Value Asset
December 31, 2019

2020

Ps.

7,692

Ps.

(315)

Ps.

14.3 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, 2019, the Company paid a net premium of Ps. 3 million for the following outstanding collar options to purchase foreign currency:

Maturity Date

Notional
Amount

Fair Value Liability
December 31, 2019

Fair Value Asset
December 31,
2019

2020

Ps.

107

Ps.

—

Ps.

14.4 Cross-currency swaps

The Company has contracts denominated as interest cross-currency rate swaps in order to reduce the risk emanated from interest rate and exchange rate fluctuation in the contracted obligations denominated in USD, hedging the total contracted loans. Exchange rate swaps are designated as hedge instruments where the Company changes the debt profile to the functional currency to reduce the exchange rate fluctuation risk.

The fair value is estimated using market prices that would apply to terminate the contracts at the end of the period. For accounting purposes, the cross currency swaps are recorded as Cash Flow Hedges in regards to the foreign exchange risk, and Fair Value Hedges in regards to the interest rate risk and foreign exchange risk. The fair value changes related to exchange rate fluctuations of the notional amount of those cross currency swaps and the accrued interest are recorded in the consolidated income statements. The remaining portion of the fair value changes, when designated as Cash Flow Hedges, are recorded in the consolidated statement of financial position in “cumulative other comprehensive income”. If they are designated as Fair Value Hedges the changes in this remaining portion are recorded in the income statements as “market value (gain) loss on financial instruments”.

At June 30, 2020, the Company had the following outstanding cross – currency swap agreements:

Maturity Date

Notional
Amount

Fair Value Liability
June 30, 2020

Fair Value Asset
June 30, 2020

2020

Ps.

5,321

Ps.

—

Ps.

2,061

2021

466

—

2023

13,094

—

3,098

2027

8,040

—

942

2030

4,364

—

834

As of December 31, 2019, the Company had the following outstanding cross – currency swap agreements:


Maturity Date	Notional Amount		Fair Value Liability December 31, 2019			Fair Value Asset December 31, 2019
2020	Ps.	13,788	Ps.	(297)		Ps.	781
2023		10,742		(594	)		—
2027		6,596		(843	)		—

14.5 Interest rate swaps

The Company has contracted a number of interest rate swaps to reduce its exposure to interest rate fluctuations associated with its debt denominated in BRL. These interest rate swaps, for accounting purposes are recorded as fair value hedges and the interest rate variation is recorded in the consolidated income statement as “market value (gain) loss on financial instruments”.

As of June 30, 2020, the Company has the following outstanding interest rate swap agreements:

Maturity Date

Notional
Amount

Fair Value Liability
June 30, 2020

Fair Value Asset
June 30, 2020

2020

Ps.

5,321

Ps.

(105)

Ps.

—

As of December 31, 2019, the Company has the following outstanding interest rate swap agreements:

Maturity Date

Notional
Amount

Fair Value Liability
December 31, 2019

Fair Value Asset
December 31, 2019

2020

Ps.4,365

Ps.

(142)

Ps.

—

The net effect of expired contracts treated as hedges are recognized as interest expense within the consolidated income statements.

14.6 Treasury Lock contracts

The Company has contracted a number of treasury locks to reduce its exposure to interest rate fluctuations associated with its USD debt These treasury locks, for accounting purposes are recorded as Cash Flow Hedges and the interest rate variation is recorded in the consolidated balance sheet as “cumulative other comprehensive income”.

At December 31, 2019, the Company had the following outstanding treasury locks agreements:

Maturity Date

Notional
Amount

Fair Value Liability
December 31, 2019

Fair Value Asset
December 31,
2019

2020

Ps.

10,365

Ps.

—

Ps.

102

14.7 Commodity price contract

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 when the hedged item was recorded also in cost of goods sold.

As of June 30, 2020, Coca-Cola FEMSA had the following sugar price contracts:

Maturity Date

Notional
Amount

Fair Value Liability
June 30, 2020

Fair Value Asset
June 30, 2020

2020

Ps.

1,164

Ps.

(92)

Ps.

2021

1,106

(18

)

2022

299

—

As of June 30, 2020, Coca-Cola FEMSA had the following aluminum price contracts:

Maturity Date

Notional
Amount

Fair Value Liability
June 30, 2020

Fair Value Asset
June 30, 2020

2020

Ps.

405

Ps.

(31)

Ps.

2021

463

—

2022

114

—

As of June 30, 2020, Coca-Cola FEMSA had the following PX+MEG contracts:

Maturity Date

Notional
Amount

Fair Value Liability
June 30, 2020

Fair Value Asset
June 30, 2020

2020

Ps.

195

Ps.

(58)

Ps.

2021

839

(51

)

As of December 31, 2019, Coca-Cola FEMSA had the following sugar price contracts:


Maturity Date	Notional Amount		Fair Value Liability December 31, 2019		Fair Value Asset December 31, 2019
2020	Ps.	1,554	Ps.	(18)	Ps.	71
2021		98		—		7

As of December 31, 2019, Coca-Cola FEMSA had the following aluminum price contracts:

Maturity Date

Notional
Amount

Fair Value Liability
December 31, 2019

Fair Value Asset
December 31,
2019

2020

Ps.

394

Ps.

(1)

Ps.

As of December 31, 2019, Coca-Cola FEMSA had the following PX+MEG contracts:

Maturity Date

Notional
Amount

Fair Value Liability
December 31, 2019

Fair Value Asset
December 31,
2019

2020

Ps.

320

Ps.

(28)

Ps.

—

Note 15. Non-Controlling Interest in Consolidated Subsidiaries

An analysis of non-controlling interest in its consolidated subsidiaries as of June 30, 2020 and December 31, 2019 is as follows:


	June 30, 2020		December 31, 2019
Mexico	Ps.	5,050	Ps.	5,671
Colombia		23		21
Brazil		756		1,059

	Ps.	5,829	Ps.	6,751

Note 16. Dividends

At an ordinary shareholders’ meeting of Coca-Cola FEMSA held on March 17, 2020, the shareholders approved a dividend of Ps. 10,209 that was paid 50% on May 5, 2020 and the remaining 50% will be paid on November 3, 2020.

At an ordinary shareholders’ meeting of Coca-Cola FEMSA held on March 14, 2019, the shareholders approved a dividend of Ps. 7,437 that was paid 50% on May 3, 2018 and other 50% was paid on November 1, 2018. The corresponding payment to the non-controlling interest was Ps. 3.

Note 17. 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 equity holders of the parent 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.

On January 31, 2019, the Board Directors of Coca Cola FEMSA approved:

(i)

An eight-for-one stock split (the “Stock Split”) of each series of shares of the Company;

(ii)

The issuance of Series B ordinary shares with full voting rights;

(iii)

The creation of units, comprised of 3 Series B shares and 5 Series L shares, to be listed for trading on the Mexican Stock Exchange (“BMV”) and in the form of American depositary shares (ADSs) on the New York Stock Exchange (“NYSE”); and

(iv)

Amendments to the Company’s bylaws mainly to give effect to the matters approved in paragraphs (i), (ii), and (iii), described above.

On March 22,2019, the CNBV (Mexican National Banking and Securities Commission) approved and authorized the stock split.

As a result, (i) the percentage of ownership held by the Company’s shareholders did not change, and (ii) the percentage of ordinary shares with full voting rights was adjusted proportionally due to the issuance of the Series B shares, as set forth in the table below.

The capital stock of the Company prior to and immediately after the stock split is as follows:

Outstanding shares prior to the Stock Split:


Series of shares	Shareholders	Outstanding shares		% of the capital stock			% of ordinary shares with full voting rights
A	Wholly-owned subsidiary of Fomento Económico Mexicano, S.A.B. de C.V.		992,078,519		47.223	%		62.964	%
D	Wholly-owned subsidiaries of The Coca-Cola Company		583,545,678		27.777	%		37.036	%
L	Public float		525,208,065		25.0	%		0	%

Total			2,100,832,262		100	%		100	%

Outstanding shares after the Stock Split:


Series of shares	Shareholders	Outstanding shares		% of the capital stock			% of ordinary shares with full voting rights
A	Wholly-owned subsidiary of Fomento Económico Mexicano, S.A.B. de C.V.		7,936,628,152		47.223	%		55.968	%
D	Wholly-owned subsidiaries of The Coca-Cola Company		4,668,365,424		27.777	%		32.921	%
B	Public float		1,575,624,195		9.375	%		11.11	%
L	Public float		2,626,040,325		15.625	%		0	%

Total			16,806,658,096		100	%		100	%

The earnings per share for the six-month periods ended June 30, 2020 and 2019 have been adjusted retrospectively for comparative purposes based on the number of shares resulting from the stock split.

Basic and diluted earnings per share amounts are as follows:

June 2020

Per Series
“A” Share

Per Series
“D” Share

Per Series
“B” Share

Per Series
“L” Share

Consolidated net income

2,079

1,223

413

688

Consolidated net income attributable to equity holders of the parent- controlling operations

2,200

1,294

437

728

Weighted average number of shares for basic earnings per share (millions of shares)

7,937

4,668

1,576

2,626


	June 2019
	Per Series “A” Share		Per Series “D” Share		Per Series “B” Share		Per Series “L” Share
Consolidated net income		3,002		1,765		596		993
Consolidated net income attributable to equity holders of the parent- controlling operations		2,874		1,691		571		951
Weighted average number of shares for basic earnings per share (millions of shares)		7,937		4,668		1,576		2,626

Note 18. Income Taxes

18.1 Recoverable taxes

Recoverable taxes are mainly integrated by higher provisional payments of income tax during 2020 in comparison to prior year, which will be compensated in future years.

The operations in Guatemala, Panama, Nicaragua and Colombia are subject to a minimum tax, which is based primary on a percentage of assets and gross margin, except in the case of Panama and Nicaragua any payments are recoverable in future years, under certain conditions.

18.1.1 Exclusion of the State VAT (ICMS) on the Social Contribution on gross revenue (PIS / COFINS) calculate basis

On March 15, 2017 the Brazilian Federal Supreme Court (STF) ruled that the inclusion of the VAT (ICMS) on federal sales taxes (PIS and COFINS) taxable basis is unconstitutional. During 2019, our companies in Brazil obtained conclusive favorable motions over this exclusion of VAT (ICMS) over PIS / COFINS calculation. The net favorable effects of each case are to be recorded at the time all formalities and legal procedures are finalized and the asset become virtually certain. During 2020 and 2019, the administrative formalities for two of the motions and the recoverable taxes were concluded and were recorded in the income statement.

As of June 30, 2020 and December 31, 2019 the amount of recoverable taxes in Brazil including PIS and COFINS is Ps. 2,989 and Ps. 4,223.

18.2 Tax Reform

Since 2016, the Brazilian federal production and sales tax rates have being modified. However, the Supreme Court decided in early 2017 that the value-added tax will not be used as the basis for calculating the federal sales tax, which resulted in a reduction of the federal sales tax. Notwithstanding the above, the tax authorities appealed the Supreme Court’s decision and are still waiting for a final resolution. For 2020, the federal production and sales taxes together resulted in an average of 15.86% tax over net sales.

In addition, the excise tax on concentrate in Brazil was reduced from 20.0% to 4.0% from September 1, 2018 to December 31, 2018. Temporarily the excise tax rate on concentrate increased from 4.0% to 12.0% from January 1, 2019 to June 30, 2019, and then it was reduced to 8.0% from July 1, 2019 to September 30, 2019, and increased to 10.0% from October 1, 2019 to December 31, 2019. On January 1, 2020 the excise tax rate will be reduced back to 4.0%.

Since March 2020, in Santa Catarina state the ICMS was reduced from 17% to 12% excluding from this benefit to beer and other alcoholic products. As well since May 2020 in the state of Parana, ICMS was excluded from water products. On January 1, 2017, a general tax reform in Colombia reduced the income tax rate from 35.0% to 34.0% for 2017 and then to 33.0% for the following years. In addition, for entities located outside the free trade zone, this reform imposed an extra income tax rate of 6.0% for 2017 and 4.0% for 2018.

For taxpayers located in the free trade zone, the special income tax rate increased from 15.0% to 20.0% for 2017. Additionally, the reform eliminated the temporary tax on net equity, the supplementary income tax at a rate of 9.0% as contributions to social programs and the temporary contribution to social programs at a rate of 5.0%, 6.0%, 8.0% and 9.0% for the years 2015, 2016, 2017 and 2018, respectively.

On January 1, 2019, a new tax reform became effective in Colombia. This reform reduced the income tax rate from 33.0% to 32.0% for 2020, to 31.0% for 2021 and to 30.0% for 2022. The minimum assumed income tax (renta presuntiva sobre el patrimonio) was also reduced from 3.5% to 1.5% for 2019 and 2020, and to 0% for 2021. In addition, the thin capitalization ratio was adjusted from 3:1 to 2:1 for operations with related parties only.

Effective January 1, 2019, the value-added tax was calculated at each sale instead of applied only to the first sale (being able to transfer the value-added tax throughout the entire supply chain). For the companies located in the free trade zone, the value-added tax was calculated based on the cost of production instead of the cost of the imported raw materials (therefore, we were able to credit the value added-tax on goods and services against the value added-tax on the sales price of our products). The municipality sales tax was 50.0% credited against payable income tax for 2019 and 100.0% credited for 2020. Finally, the value-added tax paid on acquired fixed assets can be credited against income tax or the minimum assumed income tax.

The Tax Reform increased the dividend tax on distributions to foreign nonresident’s entities and individuals from 5% to 7.5%. In addition, the tax reform established a 7.5% dividend tax on distributions between Colombian companies. The tax is charged only on the first distribution of dividends between Colombian entities, and could be credited against the dividend tax due once the ultimate Colombian company makes a distribution to its shareholders nonresident shareholders (individuals or entities) or to Colombian individual residents.

In October 2019, the Colombian Constitutional Court declared unconstitutional the tax reform of 2018 (Law 1943). On December 27, 2019, the Senate enacted a new tax reform through the Economic Growth Law, which became effective as of January 1, 2020. In general, the reform maintains the provisions introduced under Law 1943 with certain changes as follow: (i) reduction of the minimum assumed income tax rate (renta presuntiva sobre el patrimonio) from 1.5% to 0.5% for 2020 and maintained the 0% rate for year 2021 and onwards; (ii) reduction of dividends tax rate applicable to Colombian resident individuals from 15% to 10%; (iii) increasing of dividends tax rate applicable to foreign nonresidents (individuals and companies) from 7.5% to 10%; (iv) it postponed to 2022 the possibility of taxpayers to claim 100% of municipality sales tax as a credit against their income tax liability; and (v) gave more flexibility to recover VAT of imported goods from free trade zones.

On January 1, 2018, a tax reform became effective in Argentina. This reform reduced the income tax rate from 35.0% to 30.0% for 2018 and 2019, and then to 25.0% for the following years. In addition, such reform imposed a new tax on dividends paid to non-resident stockholders and resident individuals at a rate of 7.0% for 2018 and 2019, and then to 13.0% for the following years.

However, on December 23, 2019, Argentina enacted a tax reform that became effective since January 2020, keeping the corporate income tax rate of 30% and the dividend withholding tax of 7% for two more years. Besides, beginning on 1 January 2020, taxpayers may deduct 100% of the negative or positive inflation adjustment the year in which the adjustment is calculated, instead of a six years period allocation.

In addition, this reform imposed a new tax applicable for 2020-2024 period, to purchases of foreign currency by Argentine residents to pay goods, services or obligations from abroad. The tax rate will be 30% and will apply to the amount of the taxable purchases. The tax will be withheld at the time of payment for the purchases.

Regarding sales tax in the province of Buenos Aires, the tax rate decreased from 1.75% to 1.5% valid since 2018; while in the City of Buenos Aires, the tax rate increased from 1.0% to 2.0% in 2018, and was reduced to 1.5% in 2019, and will be reduced to 1.0% in 2020, to 0.5% in 2021 and will be zero in 2022.

Effective January 1, 2019, the Mexican government eliminated the right to offset any tax credit against any payable tax (general offset or compensación universal). As of such date, the right to offset any tax credit will be against taxes of the same nature and payable by the same person (not being able to offset tax credits against taxes payable by third parties).

On October 30, 2019, Mexico approved a new Tax Reform, which became effective on January 1, 2020. The most relevant changes are: (i) Taxpayers will be limited to a net interest deduction equal to 30% of the entity’s Adjusted Taxable Income (ATI). ATI will be determined similarly to EBITDA (earnings before interest, taxes, depreciation and amortization). A $20,000,000 pesos (approximately USD 1M) exception applies for deductible interest at a Mexican group level. The non-deductible interests that exceed the limitation could be carried forward for the subsequent 10 tax years; (ii) The reform modifies the excise tax (IEPS) of 1.17 pesos to 1.2616 per liter on the production, sale and import of beverages with added sugar and HFCS (High-fructose corn syrup) for flavored beverages and starting January 1, 2021, this tax will be subject to an annual increase based on the inflation of the previous year; (iii) The excise tax of 25% on energized beverages will be applicable whenever the beverages include a mixture of caffeine with any other stimulating effects substances; (iv) Federal Fiscal Code (FFC) was modified to attribute joint liability to partners, shareholders, directors, managers or any other responsible of the management of the business; (v) added a disclosure obligation of certain reportable transactions to tax authorities; and (vi), increased the tax authorities’ discretion to limit tax benefits or attributes in situations where authorities understand there is a lack of business reason and no economic benefit obtained, other than the tax benefit.

On January 1, 2019 a tax reform became effective in Costa Rica. This reform will allow that the tax on sales not only be applied to the first sale, but to be applied and transferred for each sale; therefore, the tax credits on tax on sales will be recorded not only on goods related to production and on administrative services, but on a greater number of goods and services. Value-added tax on services provided within Costa Rica will be charged at a rate of 13.0% if provided by local suppliers, or withheld at the same rate if provided by foreigner suppliers. Although a territorial principle is still applicable in Costa Rica for operations abroad, a tax rate of 15.0% has been imposed on capital gains from the sale of assets located in Costa Rica. New income tax withholding rates were imposed on salaries and compensations of employees, at the rates of 25.0% and 20.0% (which will be applicable depending on the employee’s salary). Finally, the thin capitalization rules were adjusted to provide that the interest expenses (generated with non-members of the financial system) that exceed 20.0% of the company’s EBITDA will not be deductible for tax purposes.

On November 18, 2019, Panama’s National Assembly voted through a national health program that included a tax on sugar-sweetened beverages. It imposed a 5.0% excise tax (Impuesto Selectivo al Consumo) to non-carbonated beverages added with sugar or any caloric sweetener applicable since December 2019.

Starting January 1, 2020, the excise tax increased from 5.0% to 7.0% to carbonated beverages added with sugar or any caloric sweetener. Drinkable foods based on dairy products, grains or cereals, nectars, fruit juices and vegetables with natural fruit concentrates are exempt from this tax.

For the six-month period ended June 30, 2020 and 2019, the Company´s effective tax rate was 31.5% and 28.2%, respectively. This increase was driven mainly by impairments recognized during the second quarter of 2020.

For the six-month period ended June 30, 2020 and 2019, the major components of income tax expense are:


	June 30, 2020			June 30, 2019
Current tax expense		Ps. 5,222			Ps. 2,821
Deferred tax expense:		(3,131	)		(302	)

		Ps. 2,091			Ps. 2,519

Note 19. Other Liabilities, Provisions and Contingencies

As of June 30, 2020 and December 31, 2019, other current financial liabilities are Ps. 5,864 and Ps. 1,284, respectively. The balance as of June 30, 2020 includes dividends to be paid in November 2020 for an amount of Ps. 5,104.

As of June 30, 2020 and December 31, 2019, Company’s provisions, other non-current liabilities and other non-current financial liabilities are Ps. 7,509 and Ps. 10,688, respectively.

During June 2020, the Company cancelled indemnifiable assets and contingent liabilities that expired, for an amount of Ps. 1,929.

In respect to contingencies, 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 contingencies are the result of the Company’s business acquisitions. The following table presents the nature and amount of the contingencies recorded as of June 30, 2020 and December 31, 2019:


	June 30, 2020		December 31, 2019
Taxes		Ps. 2,287		Ps. 4,696
Labor		2,169		2,222
Legal		1,044		1,065

Total		Ps. 5,500		Ps. 7,983

While provision for all probable 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.

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. Such contingencies were classified by the Company as less than probable but not remote, the estimated amount including uncertain tax position as of June 30, 2020 of these lawsuits is Ps. 79,284, however, the Company believes that the ultimate resolution of such proceedings will not have a material effect on its consolidated financial position or result of operations.

The Company has tax contingencies, most of which are related to its Brazilian operations, with loss expectations assessed by management and supported by the analysis of legal counsel considered as possible. The main possible contingencies of Brazilian operations amounting to approximately Ps. 51,107. This refers to various tax disputes related primarily to: (i) Ps. 9,537 of credits for ICMS (VAT); (ii) Ps. 32,470 related to tax credits of IPI over raw materials acquired from Free Trade Zone Manaus; (iii) Claims of Ps. 6,202 related to compensation of federal taxes not approved by the Tax authorities; and (iv) Ps. 2,898 relating that question the amortization of goodwill generated in acquisitions operations. The Company is defending its position in these matters and final decision is pending in court.

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 subsidiaries operates. The Company does not expect any material liability to arise from these contingencies.

As is customary in Brazil, Coca-Cola FEMSA has been required by the tax authorities there to collateralize tax contingencies currently in litigation amounting to Ps. 9,213 and Ps. 10,471, as of June 30, 2019 and December 31, 2019, respectively, by pledging fixed assets and entering into available lines of credit covering the contingencies. Additionally in some cases, the Company is required to guarantee tax, legal and labor contingencies by guarantee deposits, these amounts are included in other non current assets line.

Note 20. Information by Segment

The Company’s chief operating decision maker (“CODM”) is the Chief Executive Officer, who periodically reviews financial information at the country level. Thus, each of the separate countries in which the Company operates is considered an operating segments, with the exception of the countries in Central America which represent a single operating segment.

The Company has aggregated operating segments into the following reporting segments for the purposes of its consolidated financial statements: (i) Mexico and Central America division (comprising the following countries: Mexico (including corporate operations), Guatemala, Nicaragua, Costa Rica and Panama, and (ii) the South America division (comprising the following countries: Brazil, Argentina, Colombia and Uruguay).

The Company is of the view that the quantitative and qualitative aspects of the aggregated operating segments are similar in nature for all periods presented. In evaluating the appropriateness of aggregating operating segments, the key indicators considered included but were not limited to:(i) similarities of customer base, products, production processes and distribution processes, (ii) similarities of governments, (iii) inflation trends, since hyper-inflationary economy has different characteristics that carry out to making decision on how to deal with the cost of the production and distribution, (iv) currency trends and (v) historical and projected financial and operating statistics, historically and according to our estimates the financial trends of the countries aggregated into an operating segment have behaved in similar ways and are expected to continue to do so.

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. Selected information of the condensed consolidated income statements by geographic operating segment for the six-month period ended June 30, 2020 and 2019 is as follows:

2020

Mexico and
Central America⁽¹⁾

South America⁽²⁾

Consolidated

Total revenues

Ps.

52,904

Ps.

35,437

Ps.

88,341

Intercompany revenue

2,538

2,546

Gross profit

25,933

13,815

39,748

Income before income taxes and share of the profit or loss of associates and joint ventures accounted for using the equity method

10,337

(3,699

)

6,638

Depreciation and amortization

3,028

2,046

5,074

Non-cash items other than depreciation and amortization

927

441

1,368

Equity in earnings (loss) of associated companies and joint ventures

)

(138

)

(144

)

Total assets

165,541

106,360

271,901

Investments in associate companies and joint ventures

5,870

2,621

8,491

Total liabilities

120,242

25,776

146,018

Capital expenditures, net⁽³⁾

2,554

1,313

3,867

2019

Mexico and
Central America⁽¹⁾

South America⁽²⁾

Consolidated

Total revenues

Ps.

53,831

Ps.

40,613

Ps.

94,444

Intercompany revenue

2,688

2,695

Gross profit

25,946

17,149

43,095

Income before income taxes and share of the profit or loss of associates and joint ventures accounted for using the equity method

5,185

3,754

8,939

Depreciation and amortization

2,949

2,077

5,026

Non-cash items other than depreciation and amortization

505

155

660

Equity in earnings (loss) of associated companies and joint ventures

(94

)

(64

)

Total assets

147,374

110,465

257,839

Investments in associate companies and joint ventures

6,198

3,553

9,751

Total liabilities

95,694

32,460

128,154

Capital expenditures, net⁽³⁾

2,079

1,882

3,961

(1)

Central America includes Guatemala, Nicaragua, Costa Rica and Panama. Domestic (Mexico only) revenues were Ps. 43,571 and Ps. 45,049 during the six-month period ended June 30, 2020 and 2019, respectively. Domestic (Mexico only) total assets were Ps. 145,232 and Ps. 130,047 as of June 30,2020 and December 31, 2019, respectively. Domestic (Mexico only) total liabilities were Ps. 115,360 and Ps. 91,427 as of June 30,2020 and December 31, 2019, respectively.

(2)

South America includes Brazil, Argentina, Colombia and Uruguay. South America revenues include Brazilian revenues of Ps. 25,374 and Ps. 28,777 during the six-month period ended June 30, 2020 and 2019, respectively. Brazilian total assets were Ps. 76,580 and Ps. 82,667 as of June 30, 2020 and December 31, 2019, respectively. Brazilian total liabilities Ps. 17,404 and Ps. 24,103 as of June 30, 2020 and December 31, 2019, respectively. South America revenues also include Colombian revenues of Ps. 5,779 and Ps. 6,409 during the six-month period ended June 30, 2020 and 2019, respectively. Colombian total assets were Ps. 17,331 and Ps. 16,518 as of June 30, 2020 and December 31, 2019, respectively. Colombian total liabilities were Ps. 3,783 and Ps. 4,154 as of June 30, 2020 and December 31, 2019, respectively. South America revenues also include Argentine revenues Ps. 2,890 and Ps. 3,774 during the six-month period ended June 30, 2020 and 2019, respectively. Argentine total assets were Ps. 5,799 and Ps. 5,341 as of June 30, 2020 and December 31, 2019, respectively. Argentine total liabilities were Ps. 1,537 and Ps. 1,637 as of June 30, 2020 and December 31, 2019, respectively. South America revenues also include Uruguay revenues Ps. 1,394 and Ps. 1,653 during the six-month period ended June 30, 2020 and 2019, respectively. Uruguay total assets were Ps. 6,650 and Ps. 5,939 as of June 30, 2020 and December 31, 2019, respectively. Uruguay total liabilities were Ps. 3,052 and Ps. 2,566 as of June 30, 2020 and December 31, 2019, respectively.

(3)	Includes acquisitions and disposals of property, plant and equipment, intangible assets and other long-lived assets.

Note 21. Revenue Recognition

The Company recognizes revenue when it has transferred to the client control over the good sold or the service rendered. Control refers to the ability of the client to direct and obtain substantially all the transferred product benefits. Also, it implies that the customer has the ability to prevent a third-party from directing the use and obtaining substantially all the benefits of the transferred product. Coca-Cola FEMSA’s management applies the following considerations to analyze the moment in which the control of the good sold or the service is transferred to the client

•

Identify the contract (written, spoken or according to the conventional business practices)

•

Evaluate the goods and services engaged in the client’s contract and identify the related performance obligations.

•

Consider the contract terms and the commonly accepted practices in the business to determine the transaction price. The transaction price is the consideration that the Company expects to be entitled for transferring the goods and services engaged with the client, excluding the collected amount for third parties, such as taxes directly related to the sales. The consideration engaged in a customer’s contract may include fixed amount, variable amounts or both of them.

•

Allocate the transaction price to each performance obligation (to each good or services different) for an amount that represents the part of the benefit that the Company expects to receive in exchange for the right of transferring the goods or services engaged with the client.

•

Recognize revenue when (or while) it satisfied the performance obligation through the transfer of the goods or services engaged.

All of the conditions mentioned above are accomplished normally when the goods are delivered and services are provided to the customer and this moment is considered a point in time. The net sales reflect the units delivered at list price, net of promotions and discounts.

The Company generates revenues for the following principal activities:

Sale of goods

It includes the sales of goods by all the subsidiaries of the Company, mainly the sale of beverages of the leading brand of Coca-Cola inwhich the revenue is recognized in the point of time those products were sold to the customers

Rendering of services

It includes the revenues of distribution services that the Company recognizes as revenues as the related performance obligation is satisfied. The Company recognizes revenues for rendering of services during the time period in which the performance obligation is satisfied according with the following conditions:

•

The customer receives and consume simultaneously the benefits, as the Company satisfies the performance obligation;

•

The customer controls related assets, even if the Company improve them;

•

The revenues can be measured reliably; and

•

The Company has the right to payment for the performance completed to date


Sources of Revenue	For the six-month period ended June 30, 2020		For the six-month period ended June 30, 2019
Revenues sale of products	Ps.	87,821	Ps.	93,909
Services rendered		188		175
Other operating revenues		332		360

Revenue from contracts with customers	Ps.	88,341	Ps.	94,444

Variable allowances granted to customers

The Company adjusts the transaction price based on the estimations of the promotions, discounts or any other variable allowances that may be grantable to the customers and are recognized at the moment of sale, this is net of sale. These estimations are based on the commercial agreements celebrated with the customers and in the historical performance of the customer using the expected value method, due to a significant portion of sales are made in cash and the credits sales are based on short term contracts so the financial components on credit sales are not significant.

Contracts costs

The incremental costs for obtaining a customer contracts are recognized as an asset if the Company expects to recover the costs associated to them. The incremental costs are those in which you incur to obtain a contract and that wouldn’t be incurred if the contract hadn’t been obtained. The Company recognizes these costs as an expense in the consolidated income statement when the associated revenue is realized in a period equal or less than one year. The recognized assets, as previously indicated, is amortized in a systematic way as goods and services are transferred to the client in such way that the asset will be recognized in the income statement through its amortization in the same period that revenue is recognized.

Note 22. Supplemental Guarantor Information

Interim Condensed Consolidating Financial Information

The following consolidating information presents condensed consolidating statements of financial position as of June 30, 2020 and December 31, 2019 and condensed consolidating statements of income, other comprehensive income and cash flows for each of the six month periods ended June 30, 2020 and 2019 of the Company and 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. (the Guarantors).

These statements are prepared in accordance with IFRS, as issued by the IASB, with the exception that the subsidiaries are accounted for as investments under the equity method rather than being consolidated. The guarantees of the Guarantors are full and unconditional.

The accounting policies applied in the preparation of the condensed financial statements is the same as those used in the preparation of the consolidated financial statements (see Note 3).

The Company’s consolidating condensed financial information for the (i) Coca-Cola FEMSA as a Parent; (ii) its 100% owned guarantors subsidiaries (on standalone basis), which are wholly and unconditional guarantors under both prior years debt and current year debt referred to as “Senior Notes” in Note 12; (iii) the combined non-guarantor subsidiaries; iv) eliminations and v) the Company’s consolidated financial statements are as follows:


	Parent		Combined Wholly-owned Guarantors Subsidiaries		Combined non-guarantor Subsidiaries		Eliminations			Consolidated Total
	Unaudited
	Consolidated Statement of Financial Position As of June 30, 2020
Assets:
Current assets:
Cash and cash equivalents	Ps.	21,327	Ps.	9,345	Ps.	10,801	Ps.	—		Ps.	41,473
Accounts receivable, net		23,315		27,356		43,141		(84,627	)		9,185
Inventories		—		1,630		8,337		—			9,967
Recoverable taxes		226		1,339		3,576		—			5,141
Other current assets and other current financial assets		31		328		4,333		—			4,692

Total current assets		44,899		39,998		70,188		(84,627	)		70,458

Non-current assets:
Investments in other entities		139,237		116,393		2,637		(249,776	)		8,491
Rights of use assets		—		512		713		—			1,225
Property, plant and equipment, net		—		18,650		42,626		—			61,276
Intangible assets, net		28,863		37,284		43,192		—			109,339
Deferred tax assets		5,160		2,260		3,913		—			11,333
Other non-current assets and other non-current financial assets		36,878		7,122		8,869		(43,090	)		9,779
Total non-current assets		210,138		182,221		101,950		(292,866	)		201,443

Total assets	Ps.	255,037	Ps.	222,219	Ps.	172,138	Ps.	(377,493	)	Ps.	271,901

Liabilities:
Current liabilities:
Short-term bank loans and notes payable and current portion of non-current debt	Ps.	13,649	Ps.	—	Ps.	3,598	Ps.	—		Ps.	17,247
Current portion of lease liabilities		—		145		348		—			493
Interest payable		654		—		28		—			682
Suppliers		16		8,250		8,011		(64	)		16,213
Other current liabilities		32,579		37,564		37,868		(84,563	)		23,448

Total current liabilities		46,898		45,959		49,853		(84,627	)		58,083

Non-current liabilities:
Bank loans and notes payable		73,458		—		581		—			74,039
Lease liabilities		—		369		448		—			817
Other non-current liabilities		16,405		36,923		2,841		(43,090	)		13,079

Total non-current liabilities		89,863		37,292		3,870		(43,090	)		87,935

Total liabilities		136,761		83,251		53,723		(127,717	)		146,018

Equity:
Equity attributable to equity holders of the parent		118,276		138,968		112,586		(249,776	)		120,054
Non-controlling interest in consolidated subsidiaries		—		—		5,829		—			5,829

Total equity		118,276		138,968		118,415		(249,776	)		125,883

Total liabilities and equity	Ps.	255,037	Ps.	222,219	Ps.	172,138	Ps.	(377,493	)	Ps.	271,901


	Parent		Combined Wholly- owned Guarantors Subsidiaries		Combined non-guarantor Subsidiaries		Eliminations			Consolidated Total
	Consolidated Statement of Financial Position As of December 31, 2019
Assets:
Current assets:
Cash and cash equivalents	Ps.	9,849	Ps.	4,464	Ps.	6,178	Ps.	—		Ps.	20,491
Accounts receivable, net		18,832		28,528		59,730		(91,614	)		15,476
Inventories		—		1,462		9,076		—			10,538
Recoverable taxes		189		1,474		5,904		—			7,567
Other current assets and other current financial assets		188		522		2,014		—			2,724

Total current assets		29,058		36,450		82,902		(91,614	)		56,796

Non-current assets:
Investments in other entities		153,782		147,846		3,571		(295,448	)		9,751
Rights of use assets		—		594		788		—			1,382
Property, plant and equipment, net		—		19,130		42,057		—			61,187
Intangible assets, net		27,608		36,501		47,941		—			112,050
Deferred tax assets		4,411		2,208		3,813		—			10,432
Other non-current assets and other non-current financial assets		22,697		5,742		19,663		(41,861	)		6,241
Total non-current assets		208,498		212,021		117,833		(337,309	)		201,043

Total assets	Ps.	237,556	Ps.	248,471	Ps.	200,735	Ps.	(428,923	)	Ps.	257,839

Liabilities:
Current liabilities:
Short-term bank loans and notes payable and current portion of non-current debt	Ps.	9,421	Ps.	—	Ps.	2,064	Ps.	—		Ps.	11,485
Current portion of lease liabilities		—		143		340		—			483
Interest payable		422		—		17		—			439
Suppliers		11		3,735		16,225		(139	)		19,832
Other current liabilities		33,151		48,249		28,846		(91,475	)		18,771

Total current liabilities		43,005		52,127		47,492		(91,614	)		51,010

Non-current liabilities:
Bank loans and notes payable		57,455		—		1,037		—			58,492
Lease liabilities		—		452		448		—			900
Other non-current liabilities		14,161		36,797		8,653		(41,859	)		17,752

Total non-current liabilities		71,616		37,249		10,138		(41,859	)		77,144

Total liabilities		114,621		89,376		57,630		(133,473	)		128,154

Equity:
Equity attributable to equity holders of the parent		122,935		159,095		136,354		(295,450	)		122,934
Non-controlling interest in consolidated subsidiaries		—		—		6,751		—			6,751

Total equity		122,935		159,095		143,105		(295,450	)		129,685

Total liabilities and equity	Ps.	237,556	Ps.	248,471	Ps.	200,735	Ps.	(428,923	)	Ps.	257,839


	Parent			Combined Wholly-owned Guarantors Subsidiaries			Combined non-guarantor Subsidiaries			Eliminations			Consolidated Total
	Unaudited Condensed consolidating income statements: For the six-months periods ended June 30, 2020
Total revenues	Ps.	1		Ps.	44,722		Ps.	69,881		Ps.	(26,263	)	Ps.	88,341
Cost of goods sold		—			24,835			46,221			(22,463	)		48,593

Gross profit		1			19,887			23,660			(3,800	)		39,748
Administrative expenses		222			1,480			3,535			(1,504	)		3,733
Selling expenses		—			10,805			15,941			(2,347	)		24,399
Other expenses (income), net		(9	)		712			809			—			1,512
Interest expense, net		3,160			1,618			(651	)		8			4,135
Foreign exchange (gain) loss, net		940			(200	)		(1,233	)		—			(493	)
Other financing (gain) expense income, net		—			—			(176	)		—			(176	)
Income taxes		(914	)		1,700			1,305			—			2,091
Share in the profit of equity accounted investees, net of tax		8,056			2,677			(140	)		(10,737	)		(144	)

Consolidated Net income	Ps.	4,658		Ps.	6,449		Ps.	3,990		Ps.	(10,694	)	Ps.	4,403

Attributable to:
Equity holders of the parent		4,658			6,449			4,246			(10,694	)		4,659
Non-controlling interest		—			—			(256	)		—			(256	)

Consolidated Net income	Ps.	4,658		Ps.	6,449		Ps.	3,990		Ps.	(10,694	)	Ps.	4,403


	Parent			Combined Wholly-owned Guarantors Subsidiaries		Combined non-guarantor Subsidiaries			Eliminations			Consolidated Total
	Unaudited Condensed consolidating income statements: For the six-months periods ended June 30, 2019
Total revenues	Ps.	1		Ps.	47,594	Ps.	75,878		Ps.	(29,029	)	Ps.	94,444
Cost of goods sold		—			27,455		48,538			(24,644	)		51,349

Gross profit		1			20,139		27,340			(4,385	)		43,095
Administrative expenses		445			1,662		3,844			(1,566	)		4,385
Selling expenses		—			11,690		16,708			(2,820	)		25,578
Other expenses (income), net		2			183		855			—			1,040
Interest expense, net		2,325			1,931		(1,332	)		—			2,924
Foreign exchange (gain) loss, net		(190	)		45		344			—			199
Other financing (gain) expense income, net		—			—		30			—			30
Income taxes		(423	)		1,351		1,591			—			2,519
Share in the profit of equity accounted investees, net of tax		8,244			5,559		32			(13,899	)		(64	)

Consolidated Net income	Ps.	6,086		Ps.	8,836	Ps.	5,332		Ps.	(13,898	)	Ps.	6,356

Attributable to:
Equity holders of the parent		6,086			8,836		5,063			(13,898	)		6,087
Non-controlling interest		—			—		269			—			269

Consolidated Net income	Ps.	6,086		Ps.	8,836	Ps.	5,332		Ps.	(13,898	)	Ps.	6,356


	Parent			Wholly-owned Guarantors Subsidiaries			Combined non-guarantor Subsidiaries			Eliminations			Consolidated Total
	Unaudited Condensed consolidating statements of comprehensive income For the six-months periods ended June 30, 2020
Consolidated net income	Ps.	4,658		Ps.	6,449		Ps.	3,990		Ps.	(10,694	)	Ps.	4,403

Other comprehensive income, net of taxes:
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Valuation of the effective portion of derivative financial instruments, net of taxes		1,293			599			(1,142	)		599			1,349
Exchange differences on translation of foreign operations		1,611			4,098			889			(5,709	)		889

Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:		2,904			4,697			(253	)		(5,110	)		2,238

Items not to be reclassified to profit or loss in subsequent periods:
Remeasurements of the net defined benefit liability, net of taxes		(233	)		(26	)		(677	)		702			(234	)

Net other comprehensive income (loss) not being reclassified to profit or loss in subsequent periods:		(233	)		(26	)		(677	)		702			(234	)

Total comprehensive income (loss), net of tax		2,671			4,671			(930	)		(4,408	)		2,004

Consolidated comprehensive income (loss) for the year, net of tax	Ps.	7,329		Ps.	11,120		Ps.	3,060		Ps.	(15,102	)	Ps.	6,407

Attributable to:
Equity holders of the parent	Ps.	7,329		Ps.	11,120		Ps.	3,982		Ps.	(15,102	)	Ps.	7,329
Non-controlling interest		—			—			(922	)		—			(922	)

Consolidated comprehensive income (loss) for the year, net of tax	Ps.	7,329		Ps.	11,120		Ps.	3,060		Ps.	(15,102	)	Ps.	6,407


	Parent			Wholly-owned Guarantors Subsidiaries			Combined non-guarantor Subsidiaries			Eliminations			Consolidated Total
	Unaudited Condensed consolidating statements of comprehensive income For the six-months periods ended June 30, 2019
Consolidated net income	Ps.	6,086		Ps.	8,836		Ps.	5,332		Ps.	(13,898	)	Ps.	6,356

Other comprehensive income, net of taxes:
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Valuation of the effective portion of derivative financial instruments, net of taxes		(619	)		209			(444	)		209			(645	)
Exchange differences on translation of foreign operations		(719	)		(9,484	)		(825	)		10,203			(825	)

Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods:		(1,338	)		(9,275	)		(1,269	)		10,412			(1,470	)

Items not to be reclassified to profit or loss in subsequent periods:
Remeasurements of the net defined benefit liability, net of taxes		(7	)		81			(429	)		348			(7	)

Net other comprehensive income (loss) not being reclassified to profit or loss in subsequent periods:		(7	)		81			(429	)		348			(7	)

Total comprehensive income (loss), net of tax		(1,345	)		(9,194	)		(1,698	)		10,760			(1,477	)

Consolidated comprehensive income (loss) for the year, net of tax	Ps.	4,741		Ps.	(358	)	Ps.	3,634		Ps.	(3,138	)	Ps.	4,879

Attributable to:
Equity holders of the parent	Ps.	4,741		Ps.	(358	)	Ps.	3,497		Ps.	(3,138	)	Ps.	4,742
Non-controlling interest		—			—			137			—			137

Consolidated comprehensive income (loss) for the year, net of tax	Ps.	4,741		Ps.	(358	)	Ps.	3,634		Ps.	(3,138	)	Ps.	4,879


	Parent			Combined Wholly-owned Guarantors Subsidiaries			Combined non-guarantor Subsidiaries			Eliminations			Consolidated Total
	Unaudited Condensed Consolidated Statements of Cash Flows for the six-months periods ended June 30, 2020
Cash flows from operating activities:
Income before income tax	Ps.	3,744		Ps.	8,149		Ps.	5,295		Ps.	(10,694	)	Ps.	6,494
Non-cash items		(3,963	)		1,130			2,327			10,694			10,188
Changes in working capital		104			4,758			(3,492	)		88			1,458

Net cash flows (used in)/from financing activities		(115	)		14,037			4,130			88			18,140

Investing activities:
Interest received		1,816			1,090			1,719			(4,069	)		556
Acquisition of long-lived assets, net		—			(1,241	)		(2,014	)		—			(3,255	)
Acquisition of intangible assets and other investing activities		(2,398	)		(168	)		1,928			—			(638	)
Investments in financial assets, net		—			(227	)		14,425			(14,455	)		(257	)
Dividends received		9,837			11,438			16			(21,275	)		16

Net cash flows used in investing activities		9,255			10,892			16,074			(39,799	)		(3,578	)

Financing activities:
Proceeds from borrowings		38,819			—			2,276			—			41,095
Repayment of borrowings		(26,231	)		—			(1,387	)		—			(27,618	)
Interest paid		(4,337	)		(2,635	)		(758	)		4,069			(3,661	)
Dividends paid		(5,105	)		(4,997	)		(16,278	)		21,275			(5,105	)
Interest paid on lease liabilities		—			(55	)		(4	)		—			(59	)
Payments of leases		—			(61	)		(128	)		(88	)		(277	)
Other financing activities		(3,671	)		(12,297	)		701			14,455			(812	)

Net cash flows (used in)/from financing activities		(525	)		(20,045	)		(15,578	)		39,711			3,563

Net (decrease) increase in cash and cash equivalents		8,615			4,884			4,626			—			18,125
Initial balance of cash and cash equivalents		9,849			4,464			6,178			—			20,491
Effects of exchange rate changes and inflation effects on the balance sheet of cash held in foreign currencies		2,863			(3	)		(3	)		—			2,857

Ending balance of cash and cash equivalents	Ps.	21,327		Ps.	9,345		Ps.	10,801		Ps.	—		Ps.	41,473


	Parent			Combined Wholly- owned Guarantors Subsidiaries			Combined non-guarantor Subsidiaries			Eliminations			Consolidated Total
	Unaudited Condensed Consolidated Statements of Cash Flows for the six-months periods ended June 30, 2019
Cash flows from operating activities:
Income before income tax	Ps.	5,663		Ps.	10,187		Ps.	6,923		Ps.	(13,898	)	Ps.	8,875
Non-cash items		(7,392	)		(4,829	)		7,128			13,898			8,805
Changes in working capital		(35	)		1,585			(3,394	)		88			(1,756	)

Net cash flows (used in)/from financing activities		(1,764	)		6,943			10,657			88			15,924

Investing activities:
Interest received		1,421			1,160			2,776			(4,806	)		551
Acquisition of long-lived assets, net		—			(1,401	)		(1,912	)		—			(3,313	)
Acquisition of intangible assets and other investing activities		(1,014	)		(28	)		397			—			(645	)
Investments in financial assets, net		(42	)		(172	)		3,267			(3,255	)		(202	)
Dividends received		8,756			779			—			(9,535	)		—

Net cash flows used in investing activities		9,121			338			4,528			(17,596	)		(3,609	)

Financing activities:
Proceeds from borrowings		—			—			213			—			213
Repayment of borrowings		(4,665	)		—			(355	)		—			(5,020	)
Interest paid		(2,002	)		(19	)		(5,105	)		4,806			(2,320	)
Dividends paid		(3,718	)		(5,966	)		(3,573	)		9,535			(3,722	)
Interest paid on lease liabilities		—			(68	)		(4	)		—			(72	)
Payments of leases		—			(55	)		(83	)		(88	)		(226	)
Other financing activities		(2,816	)		1,454			(2,670	)		3,255			(777	)

Net cash flows (used in)/from financing activities		(13,201	)		(4,654	)		(11,577	)		17,508			(11,924	)

Net (decrease) increase in cash and cash equivalents		(5,844	)		2,627			3,608			—			391
Initial balance of cash and cash equivalents		16,529			1,026			6,172			—			23,727
Effects of exchange rate changes and inflation effects on the balance sheet of cash held in foreign currencies		(322	)		(13	)		(298	)		—			(633	)

Ending balance of cash and cash equivalents	Ps.	10,363		Ps.	3,640		Ps.	9,482		Ps.	—		Ps.	23,485

Note 23. Explanation of the seasonality or cyclical nature of intermediate operations

The Company’s operation results are subject to seasonality. In general, business units net sales increases during summer and winter seassons during holidays. In Mexico, Central America and Colombia, the Company reaches highest’s net sales levels during summer from April to August, as well as in December due to holidays. In Brazil, Uruguay and Argentina, highest’s net sales levels occur during summer from October to March and in December. Our operational results reflects seasonality, but includes also, among others, economic conditions and weather. Due to above mentioned, the Company’ quaterly operation results can be neither consider as an isolate indicator of the full year results nor historical operation results as an isolate indicator of the forecast results. For the six-month period ended June 30, 2020 and 2019, there are not significant impacts on the Company’s operations results due to seasonality.

Note 24. Future Impact of Recently Issued Accounting Standards not yet in Effect:

The Company has not applied the following standards, amendments and interpretations that are issued, but not yet effective, up to the date of issuance of the Company’s financial statements. The Company intends to adopt these standards, if applicable, when they become effective.

IFRS 17 Insurance Contracts (“IFRS 17”)

Issued in May 2017 in replacement for IFRS 4 Insurance Contracts (“IFRS 4”), which exempted companies from accounting for insurance contracts using national accounting standards resulting in a large difference in approaches and GAAP differences. IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure for issued insurance contracts. It also requires similar criteria applicable to issued reinsurance contracts with discretionary participation characteristics. IFRS 17 resolves the comparability of problems arising from IFRS 4 by requiring that all insurance contracts be accounted for consistently. In accordance with the provisions of IFRS 17, insurance obligations will be accounted for using current values instead of historical cost. IFRS 17 is effective for periods beginning on or after January 1, 2021, and its early application is permitted. The modification will not have an impact in the Company’s consolidated financial statements.

Modifications to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Business.

They were issued in September 2014, acknowledging the inconsistency between the requirements of IFRS 10 and those of IAS 28 (2011), in relation to the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the modifications is that a total profit or loss is recognized when a transaction involved a business (whether it is in a subsidiary or not). A partial gain or loss is recognized when the transaction involved assets that do not constitute a business, even if these assets are in a subsidiary. In December 2015, the IASB decided to indefinitely defer the effective date of the modifications made, indicating that a new one will be determined, when the reviews are completed, resulting from the research project for the registration of the participation method.

The modification will not have an impact in the Company´s consolidated financial statements.

Modifications to IAS 1 – Liabilities classification as currents or non-currents.

The amendments to the IAS 1, reference to the classification of liabilities as currents or non-currents only affects the presentation of liabilities in the Statement of Financial Position, and not to the amount or moment of the recognition of any asset, income or expense, ether to the information that the entities disclosure about these points. The amendments:

•

Clarify that the classification of the liabilities as currents or non-currents should base in the existent rights at the end of the period about which is informed, and align the drafting in all the affected paragraphs to refer the “right” to differ the twelve month liquidation, and make explicit that only the current rights “at the end of the report period” should affect the classification of a liability

•

Clarify that the classification is not going to be affected by the expectancies about if an entity exercise its right to differ the liquidation of a liability

•

Clarify that the liquidation refers to the transference to the counterpart of cash, instruments of equity and other assets or services.

The company is evaluating the possible impacts of the adoption of the amendment.

Modifications to the IAS 16 Property, Plant and Equipment – Sale before the previous use

The amendment is effective for annual periods that begin on January 1^st, 2020. With the permitted anticipate application. The entities will only apply retrospectively the amendment to those elements of property, plant and equipment that are taken to the necessary location and conditions, so they can operate in the manner the administration foresaw, in or after the beginning of the first period presented in the financial inform that the entity applies in the amendment.

The purpose of this project is to clarify the accountability for the net incomes derivate of the sales of any produced element while an element of Property, Plant and Equipment (PP&E) is putted in use.

On May 2020, International Accounting Standards Board (IASB) issued Property, Plant and Equipment: incomes before its predicted use, that made modification to the IAS 16; Property, “Plant and Equipment”. These amendments prohibit that a company deduce the cost of the property, plant and equipment; the received amounts for the sale of produced goods while the company prepares the asset for its expected use. Instead, a company will recognize those sales incomes and related costs in results. The company is evaluating the possible impacts of the amendment adoption.

Modifications to IFRS – 3 – Reference to conceptual frameworks.

IFRS 3, Business Combinations specifies how an entity should account for the assets and liabilities it acquires when it obtains control of a business. IFRS 3 requires an entity to refer to the Conceptual Framework for Financial Reporting (Conceptual Framework) to determine what constitutes an asset or a liability.

Originally, IFRS 3 required an entity to refer to the version of the Conceptual Framework that existed when IFRS 3 was developed. The purpose of this project was to update IFRS 3 to require an entity to refer instead to a later version issued in March 2018.

The Board completed this project in May 2020 by issuing amendments to IFRS 3. The amendments updated the reference to the Conceptual Framework. They also added to IFRS 3 an exception to its requirement for an entity to refer to the Conceptual Framework to determine what constitutes an asset or a liability. The exception specifies that, for some types of liabilities and contingent liabilities, an entity applying IFRS 3 should instead refer to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The Board added this exception to avoid an unintended consequence of updating the reference. Without the exception, an entity would have recognized some liabilities on the acquisition of a business that it would not recognize in other circumstances. Immediately after the acquisition, the entity would have had to derecognize such liabilities and recognize a gain that did not depict an economic gain.

The Board expects this exception to remain in IFRS 3 for as long as the definition of a liability in IAS 37 differs from the definition in the latest version of the Conceptual Framework. The Board plans to consider aligning the definitions as part of a project to make targeted improvements to IAS 37.

The amendments to IFRS 3 are effective for business combinations occurring in reporting periods starting on or after January 1, 2022. Earlier application is permitted.

The company is evaluating all the possible impacts derivate of the adoption of this amendment.

Note 25. Subsequent Events

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