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Intangible Assets | 12 Months Ended
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Dec. 31, 2018
Text block [abstract] |
Intangible Assets | Note 12. Intangible Assets
|  | Rights to Produce and Distribute Coca-Cola Trademark Products |  |  | Goodwill |  |  | Trademark Rights |  |  | Other Indefinite Lived Intangible Assets |  |  | Total Unamortized Intangible Assets |  |  | Technology Costs and Management Systems |  |  | Systems in Development |  |  | Alcohol Licenses |  |  | Other |  |  | Total Amortized Intangible Assets |  |  | Total Intangible Assets |
Cost as of January 1, 2016 |  | Ps. | 66,392 |  |  | Ps. | 33,850 |  |  | Ps. | 1,481 |  |  | Ps. | 1,246 |  |  | Ps. | 102,969 |  |  | Ps. | 4,890 |  |  | Ps. | 683 |  |  | Ps. | 1,225 |  |  | Ps. | 860 |  |  | Ps. | 7,658 |  |  | Ps. | 110,627 |
Additions |  |  | — |  |  |  | — |  |  |  | 3 |  |  |  | — |  |  |  | 3 |  |  |  | 345 |  |  |  | 609 |  |  |  | 191 |  |  |  | 146 |  |  |  | 1,291 |  |  |  | 1,294 |
Acquisitions from business combinations (see Note 4) |  |  | 9,602 |  |  |  | 12,276 |  |  |  | 239 |  |  |  | 1,067 |  |  |  | 23,184 |  |  |  | 318 |  |  |  | 3 |  |  |  | — |  |  |  | 174 |  |  |  | 495 |  |  |  | 23,679 |
Changes in fair value of past acquisitions |  |  | — |  |  |  | (2,385 | ) |  |  | 4,315 |  |  |  | (554 | ) |  |  | 1,376 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,078 |  |  |  | 1,078 |  |  |  | 2,454 |
Transfer of completed development systems |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 304 |  |  |  | (304 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (336 | ) |  |  | — |  |  |  | — |  |  |  | (24 | ) |  |  | (360 | ) |  |  | (360 | )
Effect of movements in exchange rates |  |  | 8,124 |  |  |  | 8,116 |  |  |  | 187 |  |  |  | 392 |  |  |  | 16,819 |  |  |  | 451 |  |  |  | (193 | ) |  |  | — |  |  |  | 104 |  |  |  | 362 |  |  |  | 17,181 |
Changes in value on the recognition of inflation effects |  |  | 1,220 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 1,220 |  |  |  | 141 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 141 |  |  |  | 1,361 |
Capitalization of borrowing costs |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 11 |  |  |  | 11 |
Cost as of December 31, 2016 |  | Ps. | 85,338 |  |  | Ps. | 51,857 |  |  | Ps. | 6,225 |  |  | Ps. | 2,151 |  |  | Ps. | 145,571 |  |  | Ps. | 6,124 |  |  | Ps. | 798 |  |  | Ps. | 1,416 |  |  | Ps. | 2,338 |  |  | Ps. | 10,676 |  |  | Ps. | 156,247 |
|  | Rights to Produce and Distribute Coca-Cola Trademark Products |  |  | Goodwill |  |  | Trademark Rights |  |  | Other Indefinite Lived Intangible Assets |  |  | Total Unamortized Intangible Assets |  |  | Technology Costs and Management Systems |  |  | Systems in Development |  |  | Alcohol Licenses |  |  | Other |  |  | Total Amortized Intangible Assets |  |  | Total Intangible Assets |
Cost as of January 1, 2017 |  | Ps. | 85,338 |  |  | Ps. | 51,857 |  |  | Ps. | 6,225 |  |  | Ps. | 2,151 |  |  | Ps. | 145,571 |  |  | Ps. | 6,124 |  |  | Ps. | 798 |  |  | Ps. | 1,416 |  |  | Ps. | 2,338 |  |  | Ps. | 10,676 |  |  | Ps. | 156,247 |
Additions |  |  | 1,288 |  |  |  | — |  |  |  | — |  |  |  | 6 |  |  |  | 1,294 |  |  |  | 464 |  |  |  | 920 |  |  |  | 221 |  |  |  | 445 |  |  |  | 2,050 |  |  |  | 3,344 |
Acquisitions from business combinations (see Note 4) |  |  | 4,144 |  |  |  | 140 |  |  |  | 5 |  |  |  | — |  |  |  | 4,289 |  |  |  | 6 |  |  |  | — |  |  |  | — |  |  |  | 80 |  |  |  | 86 |  |  |  | 4,375 |
Changes in fair value of past acquisitions |  |  | 5,167 |  |  |  | (7,022 | ) |  |  | 836 |  |  |  | 9 |  |  |  | (1,010 | ) |  |  | (188 | ) |  |  | — |  |  |  | — |  |  |  | 892 |  |  |  | 704 |  |  |  | (306 | )
Transfer of completed development systems |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 412 |  |  |  | (412 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 110 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 110 |  |  |  | 110 |
Effect of movements in exchange rates |  |  | (2,563 | ) |  |  | (1,526 | ) |  |  | 119 |  |  |  | 91 |  |  |  | (3,879 | ) |  |  | 175 |  |  |  | (15 | ) |  |  | — |  |  |  | 52 |  |  |  | 212 |  |  |  | (3,667 | )
Changes in value on the recognition of inflation effects |  |  | (727 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (727 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 175 |  |  |  | 175 |  |  |  | (552 | )
Venezuela deconsolidation effect |  |  | (745 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (745 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (139 | ) |  |  | (139 | ) |  |  | (884 | )
Cost as of December 31, 2017 |  | Ps. | 91,902 |  |  | Ps. | 43,449 |  |  | Ps. | 7,185 |  |  | Ps. | 2,257 |  |  | Ps. | 144,793 |  |  | Ps. | 7,103 |  |  | Ps. | 1,291 |  |  | Ps. | 1,637 |  |  | Ps. | 3,843 |  |  | Ps. | 13,874 |  |  | Ps. | 158,667 |
|  | Rights to Produce and Distribute Coca-Cola Trademark Products |  |  | Goodwill |  |  | Trademark Rights |  |  | Other Indefinite Lived Intangible Assets |  |  | Total Unamortized Intangible Assets |  |  | Technology Costs and Management Systems |  |  | Systems in Development |  |  | Alcohol Licenses |  |  | Other |  |  | Total Amortized Intangible Assets |  |  | Total Intangible Assets |
Cost as of January 1, 2018 |  | Ps. | 91,902 |  |  | Ps. | 43,449 |  |  | Ps. | 7,185 |  |  | Ps. | 2,257 |  |  | Ps. | 144,793 |  |  | Ps. | 7,103 |  |  | Ps. | 1,291 |  |  | Ps. | 1,637 |  |  | Ps. | 3,843 |  |  | Ps. | 13,874 |  |  | Ps. | 158,667 |
Additions |  |  | — |  |  |  | 75 |  |  |  | — |  |  |  | 71 |  |  |  | 146 |  |  |  | 1,051 |  |  |  | 371 |  |  |  | 131 |  |  |  | 94 |  |  |  | 1,647 |  |  |  | 1,793 |
Acquisitions from business combinations (see Note 4) |  |  | 4,602 |  |  |  | 842 |  |  |  | 170 |  |  |  | — |  |  |  | 5,614 |  |  |  | 35 |  |  |  | 57 |  |  |  | — |  |  |  | 291 |  |  |  | 383 |  |  |  | 5,997 |
Changes in fair value of past acquisitions |  |  | — |  |  |  | 272 |  |  |  | — |  |  |  | — |  |  |  | 272 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 272 |
Internal development |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 41 |  |  |  | 41 |  |  |  | 41 |
Transfer of completed development systems |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 904 |  |  |  | (904 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (2 | ) |  |  | (2 | ) |  |  | (43 | ) |  |  | — |  |  |  | — |  |  |  | (146 | ) |  |  | (189 | ) |  |  | (191 | )
Philippines Disposal |  |  | (3,882 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (3,882 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (596 | ) |  |  | (596 | ) |  |  | (4,478 | )
Effect of movements in exchange rates |  |  | (5,005 | ) |  |  | (4,108 | ) |  |  | (656 | ) |  |  | (349 | ) |  |  | (10,118 | ) |  |  | (343 | ) |  |  | (38 | ) |  |  | — |  |  |  | (311 | ) |  |  | (692 | ) |  |  | (10,810 | )
Changes in value on the recognition of inflation effects |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 57 |  |  |  | 57 |  |  |  | 57 |
Cost as of December 31, 2018 |  | Ps. | 87,617 |  |  | Ps. | 40,530 |  |  | Ps. | 6,699 |  |  | Ps. | 1,977 |  |  | Ps. | 136,823 |  |  | Ps. | 8,707 |  |  | Ps. | 777 |  |  | Ps. | 1,768 |  |  | Ps. | 3,273 |  |  | Ps. | 14,525 |  |  | Ps. | 151,348 |
Amortization and Impairment Losses |  | Rights to Produce and Distribute Coca-Cola Trademark Products |  |  | Goodwill |  |  | Trademark Rights |  |  | Other Indefinite Lived Intangible Assets |  |  | Total Unamortized Intangible Assets |  |  | Technology Costs and Management Systems |  |  | Systems in Development |  |  | Alcohol Licenses |  |  | Other |  |  | Total Amortized Intangible Assets |  |  | Total Intangible Assets |
Amortization as of January 1, 2016 |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (1,619 | ) |  | Ps. | — |  |  | Ps. | (302 | ) |  | Ps. | (365 | ) |  | Ps. | (2,286 | ) |  | Ps. | (2,286 | )
Amortization expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (630 | ) |  |  | — |  |  |  | (74 | ) |  |  | (302 | ) |  |  | (1,006 | ) |  |  | (1,006 | )
Impairment losses |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 313 |  |  |  | — |  |  |  | — |  |  |  | 36 |  |  |  | 349 |  |  |  | 349 |
Effect of movements in exchange rates |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1 | ) |  |  | — |  |  |  | — |  |  |  | (35 | ) |  |  | (36 | ) |  |  | (36 | )
Amortization as of December 31, 2016 |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (1,937 | ) |  | Ps. | — |  |  | Ps. | (376 | ) |  | Ps. | (666 | ) |  | Ps. | (2,979 | ) |  | Ps. | (2,979 | )
Amortization as of January 1, 2017 |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (1,937 | ) |  | Ps. | — |  |  | Ps. | (376 | ) |  | Ps. | (666 | ) |  | Ps. | (2,979 | ) |  | Ps. | (2,979 | )
Amortization expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (961 | ) |  |  | — |  |  |  | (81 | ) |  |  | (217 | ) |  |  | (1,259 | ) |  |  | (1,259 | )
Impairment losses |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (110 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (110 | ) |  |  | (110 | )
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Venezuela deconsolidation effect |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (120 | ) |  |  | (120 | ) |  |  | (120 | )
Venezuela impairment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Effect of movements in exchange rates |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (254 | ) |  |  | — |  |  |  | — |  |  |  | 148 |  |  |  | (106 | ) |  |  | (106 | )
Amortization as of December 31, 2017 |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (3,262 | ) |  | Ps. | — |  |  | Ps. | (457 | ) |  | Ps. | (855 | ) |  | Ps. | (4,574 | ) |  | Ps. | (4,574 | )
Amortization as of January 1, 2018 |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (3,262 | ) |  | Ps. | — |  |  | Ps. | (457 | ) |  | Ps. | (855 | ) |  | Ps. | (4,574 | ) |  | Ps. | (4,574 | )
Amortization expense |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (1,453 | ) |  |  | — |  |  |  | (87 | ) |  |  | (373 | ) |  |  | (1,913 | ) |  |  | (1,913 | )
Disposals |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 93 |  |  |  | — |  |  |  | — |  |  |  | 98 |  |  |  | 191 |  |  |  | 191 |
Philippines Disposal |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 375 |  |  |  | 375 |  |  |  | 375 |
Effect of movements in exchange rates |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 236 |  |  |  | — |  |  |  | — |  |  |  | (1 | ) |  |  | 235 |  |  |  | 235 |
Changes in value on the recognition of inflation effects |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (51 | ) |  |  | — |  |  |  | — |  |  |  | (1 | ) |  |  | (52 | ) |  |  | (52 | )
Amortization as of December 31, 2018 |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | — |  |  | Ps. | (4,437 | ) |  | Ps. | — |  |  | Ps. | (544 | ) |  | Ps. | (757 | ) |  | Ps. | (5,738 | ) |  | Ps. | (5,738 | )
Carrying Amount |  | Rights to Produce and Distribute Coca-Cola Trademark Products |  |  | Goodwill |  |  | Trademark Rights |  |  | Other Indefinite Lived Intangible Assets |  |  | Total Unamortized Intangible Assets |  |  | Technology Costs and Management Systems |  |  | Systems in Development |  |  | Alcohol Licenses |  |  | Other |  |  | Total Amortized Intangible Assets |  |  | Total Intangible Assets |
As of December 31, 2016 |  | Ps. | 85,338 |  |  | Ps. | 51,857 |  |  | Ps. | 6,225 |  |  | Ps. | 2,151 |  |  | Ps. | 145,571 |  |  | Ps. | 4,187 |  |  | Ps. | 798 |  |  | Ps. | 1,040 |  |  | Ps. | 1,672 |  |  | Ps. | 7,697 |  |  | Ps. | 153,268 |
As of December 31, 2017 |  | Ps. | 91,902 |  |  | Ps. | 43,449 |  |  | Ps. | 7,185 |  |  | Ps. | 2,257 |  |  | Ps. | 144,793 |  |  | Ps. | 3,841 |  |  | Ps. | 1,291 |  |  | Ps. | 1,180 |  |  | Ps. | 2,988 |  |  | Ps. | 9,300 |  |  | Ps. | 154,093 |
As of December 31, 2018 |  | Ps. | 87,617 |  |  | Ps. | 40,530 |  |  | Ps. | 6,699 |  |  | Ps. | 1,977 |  |  | Ps. | 136,823 |  |  | Ps. | 4,270 |  |  | Ps. | 777 |  |  | Ps. | 1,224 |  |  | Ps. | 2,516 |  |  | Ps. | 8,787 |  |  | Ps. | 145,610 |
During the year ended December 31, 2016 the Company capitalized Ps. 8 of borrowing costs in relation to Ps. 28 in qualifying assets. The effective interest rate used to determine the amount of borrowing costs eligible for capitalization was 4.1%. For the years ended December 31, 2018 and 2017, the Company did not recognize any capitalization of borrowing costs. On March 28, 2017 Coca-Cola FEMSA acquired distribution rights and other intangibles of AdeS soy-based beverages in its territories in Mexico and Colombia for an aggregate amount of Ps. 1,287. This acquisition was made to reinforce Coca-Cola FEMSA leadership position. For the years ended 2018, 2017 and 2016, allocation for amortization expense is as follows:
|  | 2018 |  |  | 2017 |  |  | 2016 |
Cost of goods sold |  | Ps. | 399 |  |  | Ps. | 132 |  |  | Ps. | 82 |
Administrative expenses |  |  | 858 |  |  |  | 627 |  |  |  | 727 |
Selling expenses |  |  | 656 |  |  |  | 500 |  |  |  | 207 |
|  | Ps. | 1,913 |  |  | Ps. | 1,259 |  |  | Ps. | 1,016 |
The average remaining period for the Company’s intangible assets that are subject to amortization is as follows:
|  | Years
Technology Costs and Management Systems |  | 3 - 10
Alcohol Licenses |  | 12 - 15
Coca-Cola FEMSA Impairment Tests for Cash-Generating Units Containing Goodwill and Distribution Rights For the purpose of impairment testing, goodwill and distribution rights are allocated and monitored on an individual country basis, which is considered to be a CGU. The aggregate carrying amounts of goodwill and distribution rights allocated to each CGU are as follows:
|  | December 31, 2018 |  |  | December 31, 2017 |
Mexico |  | Ps. | 56,352 |  |  | Ps. | 56,352 |
Guatemala |  |  | 1,853 |  |  |  | 488 |
Nicaragua |  |  | 460 |  |  |  | 484 |
Costa Rica |  |  | 1,417 |  |  |  | 1,520 |
Panama |  |  | 1,182 |  |  |  | 1,185 |
Colombia |  |  | 4,600 |  |  |  | 5,824 |
Brazil |  |  | 42,153 |  |  |  | 48,345 |
Argentina |  |  | 327 |  |  |  | 50 |
Uruguay |  |  | 3,003 |  |  |  | — |
Philippines |  |  | — |  |  |  | 3,882 |
Total |  | Ps. | 111,347 |  |  | Ps. | 118,130 |
Goodwill and distribution rights are tested for impairments annually. The recoverable amounts are based on value in use. The value in use of a CGU is determined based on the discounted cash flows method. The key assumptions used in projecting cash flows are: volume, expected annual long-term inflation, and the weighted average cost of capital (WACC) used to discount the projected cash flows. The cash flow forecasts could differ from the results obtained over time; however, Coca-Cola FEMSA prepares its estimates based on the current situation of each of the CGUs. To determine the discount rate, Coca-Cola FEMSA uses the WACC as determined for each of the cash generating units in real terms and as described in following paragraphs. The estimated discount rates to perform impairment test for each CGU consider market participants’ assumptions. Market participants were selected taking into consideration the size, operations and characteristics of the businesses that are similar to those of Coca-Cola FEMSA. The discount rates represent the current market assessment of the risks specific to each CGU, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the opportunity cost to a market participant, considering the specific circumstances of Coca-Cola FEMSA and its operating segments and is derived from its WACC. The WACC takes into account both debt and equity. The cost of equity is derived from the expected return on investment by Company’s investors. The cost of debt is estimated based on the interest-bearing borrowings Coca-Cola FEMSA is obliged to service, which is equivalent to the cost of debt based on the conditions that a creditor in the market. Segment-specific risk is incorporated by applying beta factors which are evaluated annually based on publicly available market data. Market participant assumptions are important because, not only do they include industry data for growth rates, management also assesses how the CGU’s position, relative to its competitors, might change over the forecasted period. The key assumptions used for the value-in-use calculations are as follows:
• |  | Cash flows were projected based on actual operating results and the five-year business plan. Cash flows for a further five-year were forecasted maintaining the same stable growth and margins per country of the last year base. Coca-Cola FEMSA believes that this forecasted period is justified due to the non-current nature of the business and past experiences.
• |  | Cash flows after the first ten-year period were extrapolated using a perpetual growth rate equal to the expected annual population growth, in order to calculate the terminal recoverable amount.
• |  | A per CGU-specific WACC was applied as a hurdle rate to discount cash flows to get the recoverable amount of the units; the calculation assumes, size premium adjustments.
The key assumptions by CGU for impairment test as of December 31, 2018 were as follows:
CGU |  | Pre-tax WACC |  |  | Post-tax WACC |  |  | Expected Annual Long-Term Inflation 2019-2028 |  |  | Expected Volume Growth Rates 2019-2028 |
Mexico |  |  | 7.4 | % |  |  | 5.3 | % |  |  | 4.0 | % |  |  | 1.4 | %
Colombia |  |  | 7.8 | % |  |  | 5.2 | % |  |  | 3.1 | % |  |  | 4.0 | %
Costa Rica |  |  | 13.9 | % |  |  | 9.2 | % |  |  | 4.0 | % |  |  | 1.6 | %
Guatemala |  |  | 9.4 | % |  |  | 7.5 | % |  |  | 3.2 | % |  |  | 7.3 | %
Nicaragua |  |  | 21.2 | % |  |  | 11.0 | % |  |  | 6.2 | % |  |  | 3.8 | %
Panama |  |  | 9.2 | % |  |  | 7.0 | % |  |  | 2.4 | % |  |  | 3.0 | %
Argentina |  |  | 19.6 | % |  |  | 11.3 | % |  |  | 21.9 | % |  |  | 2.7 | %
Brazil |  |  | 10.7 | % |  |  | 6.6 | % |  |  | 3.8 | % |  |  | 1.7 | %
The key assumptions by CGU for impairment test as of December 31, 2017 were as follows:
CGU |  | Pre-tax WACC |  |  | Post-tax WACC |  |  | Expected Annual Long-Term Inflation 2018-2027 |  |  | Expected Volume Growth Rates 2018-2027 |
Mexico |  |  | 7.3 | % |  |  | 5.3 | % |  |  | 3.7 | % |  |  | 2.2 | %
Colombia |  |  | 9.1 | % |  |  | 6.6 | % |  |  | 3.1 | % |  |  | 3.2 | %
Costa Rica |  |  | 11.5 | % |  |  | 7.8 | % |  |  | 3.3 | % |  |  | 2.7 | %
Guatemala |  |  | 13.9 | % |  |  | 10.7 | % |  |  | 4.7 | % |  |  | 7.1 | %
Nicaragua |  |  | 16.6 | % |  |  | 10.6 | % |  |  | 5.0 | % |  |  | 4.9 | %
Panama |  |  | 8.3 | % |  |  | 6.5 | % |  |  | 2.3 | % |  |  | 3.4 | %
Argentina |  |  | 11.0 | % |  |  | 7.3 | % |  |  | 10.7 | % |  |  | 3.1 | %
Brazil |  |  | 9.7 | % |  |  | 6.2 | % |  |  | 4.1 | % |  |  | 1.3 | %
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data). Coca-Cola FEMSA consistently applied its methodology to determine CGU specific WACC’s to perform its annual impairment testing. During the year ended December 31, 2017 and due to the worsened economic and operational conditions in Venezuela,Coca-Cola FEMSA has recognized an impairment for distribution rights in such country for an amount of Ps. 745, such effect has been recorded in other expenses in the consolidated financial statements. Sensitivity to Changes in Assumptions At December 31, 2018, Coca-Cola FEMSA performed an additional impairment sensitivity calculation, taking into account an adverse change in post-tax WACC, according to the country risk premium, using for each country the relative standard deviation between equity and sovereign bonds and an additional sensitivity to the volume of 100 basis points and concluded that no impairment would be recorded.
|  |  |  |  | Change in Volume |  |  |  |
CGU |  | Change in WACC |  |  | Growth CAGR (1) |  |  | Effect on Valuation |
Mexico |  |  | +0.3 | % |  |  | -1.0 | % |  |  | Passes by 5.0x |
Colombia |  |  | +0.6 | % |  |  | -1.0 | % |  |  | Passes by 3.9x |
Costa Rica |  |  | +1.7 | % |  |  | -1.0 | % |  |  | Passes by 1.9x |
Guatemala |  |  | +0.7 | % |  |  | -1.0 | % |  |  | Passes by 18.4x |
Nicaragua |  |  | +0.3 | % |  |  | -0.3 | % |  |  | Passes by 1.0x |
Panama |  |  | +0.3 | % |  |  | -1.0 | % |  |  | Passes by 6.9x |
Argentina |  |  | +6.1 | % |  |  | -1.0 | % |  |  | Passes by 8.9x |
Brazil |  |  | +1.1 | % |  |  | -1.0 | % |  |  | Passes by 1.3x |
(1) | Compound Annual Growth Rate (“CAGR”).
FEMSA Comercio – Proximity Division, FEMSA Comercio – Health Division and FEMSA Comercio – Fuel Division Impairment Test for Cash-Generating Units Containing Goodwill For the purpose of impairment testing, goodwill is allocated and monitored on an individual country basis by operating segment. The Company has integrated its cash generating units as follow: (i) FEMSA Comercio – Proximity Division and (ii) FEMSA Comercio – Health Division are integrated as Mexico, for each of them and (iii) FEMSA Comercio – Fuel Division includes only Mexico. As of December 31, 2018 in FEMSA Comercio – Health Division there is a significant carrying amount of goodwill allocated in Chile and Colombia as a group of cash generating (South America) with a total carrying amount of Ps. 6,048. The recoverable amounts are based on value in use. The value in use of CGUs is determined based on the method of discounted cash flows. The key assumptions used in projecting cash flows are: sales, expected annual long-term inflation, and the weighted average cost of capital (“WACC”) used to discount the projected cash flows. The cash flow forecasts could differ from the results obtained over time; however, the Company prepares its estimates based on the current situation of each of the CGUs or group of CGUs. To determine the discount rate, the Company uses the WACC as determined for each of the cash generating units or group of the cash generating units in real terms and as described in following paragraphs. The estimated discount rates to perform the IAS 36 “Impairment of assets”, impairment test for each CGU or group of CGUs consider market participants’ assumptions. Market participants were selected taking into consideration the size, operations and characteristics of the businesses that are similar to those of FEMSA Comercio – Proximity, Health and Fuel Divisions. The discount rates represent the current market assessment of the risks specific to each CGU or group of CGUs, taking into consideration the time value of money and individual risks of the underlying assets that have not been incorporated in the cash flow estimates. The discount rate calculation is based on the opportunity cost to a market participant, considering the specific circumstances of the Company and its operating segments and is derived from its WACC. The WACC takes into account both debt and cost of equity. The cost of equity is derived from the expected return on investment by Company’s investors. The cost of debt is based on the interest-bearing borrowings the Company is obliged to service, which is equivalent to the cost of debt based on the conditions that a creditor would asses in the market. Segment-specific risk is incorporated by applying beta factors which are evaluated annually based on publicly available market data. Market participant assumptions are important because, not only do they include industry data for growth rates, management also assesses how the CGU’s position, relative to its competitors, might change over the forecasted period. The key assumptions used for the value-in-use calculations are as follows:
| • |  | Cash flows were projected based on actual operating results and the five-year business plan. The Company believes that this forecasted period is justified due to the non-current nature of the business and past experiences.
| • |  | Cash flows projected based on actual operating results and five-year business plan were calculated using a perpetual growth rate equal to the expected annual population growth, in order to calculate the terminal recoverable amount.
| • |  | A per CGU-specific Weighted Average Cost of Capital (“WACC”) was applied by FEMSA Comercio – Health Division as a hurdle rate to discount cash flows to get the recoverable amount of the units; the calculation assumes size premium adjustments.
The key assumptions by CGU for impairment test as of December 31, 2018 were as follows:
CGU |  | Pre-tax WACC |  |  | Post-tax WACC |  |  | Expected Annual Long-Term Inflation 2019-2028 |  |  | Expected Volume Growth Rates 2019-2028 |
South America (FEMSA Comercio – Health Division) |  |  | 9.0 | % |  |  | 6.3 | % |  |  | 3.0 | % |  |  | 0.4 | %
The key assumptions by CGU for impairment test as of December 31, 2017 were as follows:
CGU |  | Pre-tax WACC |  |  | Post-tax WACC |  |  | Expected Annual Long-Term Inflation 2018-2027 |  |  | Expected Volume Growth Rates 2018-2027 |
South America (FEMSA Comercio – Health Division) |  |  | 6.9 | % |  |  | 6.2 | % |  |  | 3.0 | % |  |  | 2.0 | %
The values assigned to the key assumptions represent management’s assessment of future trends in the industry and are based on both external sources and internal sources (historical data). The Company consistently applied its methodology to determine CGU specific WACC’s to perform its annual impairment testing. Sensitivity to Changes in Assumptions At December 31, 2018, the Company performed an additional impairment sensitivity calculation, taking into account an adverse change in post-tax WACC, according to the country risk premium, using for each country the relative standard deviation between equity and sovereign bonds and a sensitivity analysis of sales that would be affected considering a contraction in economic conditions as a result of lower purchasing power of customers, which based on management estimation considered to be reasonably possible an effect of 100 basis points in the sale’s compound annual growth rate (“CAGR”), concluding that no impairment would be recognized.
CGU |  | Change in WACC |  |  | Change in Sales Growth CAGR (1) |  |  | Effect on Valuation |
FEMSA Comercio – Health Division (South America) |  |  | +0.3 | % |  |  | -0.5 | % |  |  | Passes by 1.15x |
(1) | Compound Annual Growth Rate.

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