Note 13. Intangible Assets


	Rights to Produce
	and Distribute						Other Indefinite		Total		Technology								Total
	Coca-Cola						Lived		Unamortized		Costs and		Systems in						Amortized		Total
	Trademark Products		Goodwill		Trademark Rights		Intangible Assets		Intangible Assets		Management Systems		Development		Alcohol Licenses		Other		Intangible Assets		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


	Rights to Produce
	and Distribute						Other		Total		Technology								Total		Total
	Coca-Cola						Indefinite Lived		Unamortized		Costs and		Systems in						Amortized		Intangible
	Trademark Products		Goodwill		Trademark Rights		Intangible Assets		Intangible Assets		Management Systems		Development		Alcohol Licenses		Other		Intangible Assets		Assets
Cost as of January 1,2019	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
Additions		—		—		—		164		164		824		334		191		685		2,034		2,198
Acquisitions from business combinations (see Note 4)		—		6,542		469		—		7,011		759		—		—		12		771		7,782
Changes in fair value of past acquisitions		(2,887)		2,903		—		153		169		(6)		—		—		(185)		(191)		(22)
Transfer of completed development systems		—		—		—		—		—		412		(413)		—		1		—		—
Disposals		—		—		(48)		—		(48)		(580)		—		(130)		—		(710)		(758)
Effect of movements in exchange rates		(3,475)		(2,069)		(520)		(134)		(6,198)		(553)		(23)		—		(337)		(913)		(7,111)
Changes in value on the recognition of inflation effects		—		—		—		—		—		—		—		—		(6)		(6)		(6)
Cost as of December 31, 2019	Ps.	81,255	Ps.	47,906	Ps.	6,600	Ps.	2,160	Ps.	137,921	Ps.	9,563	Ps.	675	Ps.	1,829	Ps.	3,443	Ps.	15,510	Ps.	153,431


	Rights to Produce
	and Distribute						Other Indefinite		Total		Technology								Total		Total
	Coca-Cola				Trademark		Lived		Unamortized		Costs and		Systems in		Alcohol				Amortized		Intangible
	Trademark Products		Goodwill		Rights		Intangible Assets		Intangible Assets		Management Systems		Development		Licenses		Other (1)		Intangible Assets		Assets
Cost as of January 1,2020	Ps.	81,255		47,906	Ps.	6,600	Ps.	2,160	Ps.	137,921	Ps.	9,563	Ps.	675	Ps.	1,829	Ps.	3,443	Ps.	15,510	Ps.	153,431
Additions		1		—		—		—		1		771		202		111		398		1,482		1,483
Acquisitions from business combinations (see Note 4)		—		12,080		2,101		—		14,181		26		—		—		8,597		8,623		22,804
Changes in the fair value of past acquisitions		—		(1,323)		347		(361)		(1,337)		—		—		—		1,268		1,268		(69)
Transfer of completed development systems		—		—		—		—		—		397		(399)		—		2		—		—
Disposals		—		(183)		(116)		(305)		(604)		(164)		(6)		(43)		(373)		(586)		(1,190)
Specialty's disposal		—		(1,194)		(215)		(11)		(1,420)		—		—		—		(5)		(5)		(1,426)
Effect of movements in exchange rates		(4,607)		(4,466)		(70)		(59)		(9,202)		276		(40)		—		(1,614)		(1,378)		(10,580)
Changes in value on the recognition of inflation effects		—		—		—		—		—		—		—		—		38		38		38
Cost as of December 31, 2020	Ps.	76,649	Ps.	52,820	Ps.	8,647	Ps.	1,424	Ps.	139,540	Ps.	10,869	Ps.	432	Ps.	1,897	Ps.	11,754	Ps.	24,952	Ps.	164,492

(1)

Includes customer relationships related to the acquisition through the controlling interest in NW Synergy Holdings LLC disclosed in Note 4.


	Rights to Produce
	and Distribute						Other Indefinite		Total		Technology								Total		Total
	Coca-Cola						Lived		Unamortized		Costs and		Systems in						Amortized		Intangible
Amortization and Impairment Losses	Trademark Products		Goodwill		Trademark Rights		Intangible Assets		Intangible Assets		Management Systems		Development		Alcohol Licenses		Other		Intangible Assets		Assets
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)
Amortization as of January 1,2019	Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	(4,437)	Ps.	—	Ps.	(544)	Ps.	(757)	Ps.	(5,738)	Ps.	(5,738)
Amortization expense		—		—		—		—		—		(1,351)		—		(123)		(337)		(1,811)		(1,811)
Disposals		—		—		—		—		—		445		—		30		—		475		475
Philippines disposal
Effect of movements in exchange rates		—		—		—		—		—		165		—		—		68		233		233
Changes in value on the recognition of inflation effects		—		—		—		—		—		(29)		—		—		1		(28)		(28)
Amortization as of December 31, 2019	Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	(5,207)	Ps.	—	Ps.	(637)	Ps.	(1,025)	Ps.	(6,869)	Ps.	(6,869)
Amortization as of January 1,2020	Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	(5,207)	Ps.	—	Ps.	(637)	Ps.	(1,025)	Ps.	(6,869)	Ps.	(6,869)
Amortization expense		—		—		—		—		—		(1,536)		—		(97)		(832)		(2,465)		(2,465)
Disposals		—		—		—		—		—		129		—		—		50		179		179
Effect of movements in exchange rates		—		—		—		—		—		142		—		—		51		193		193
Changes in value on the recognition of inflation effects		—		—		—		—		—		(29)		—		—		—		(29)		(29)
Amortization as of December 31, 2020	Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	—	Ps.	(6,501)	Ps.	—	Ps.	(734)	Ps.	(1,756)	Ps.	(8,991)	Ps.	(8,991)

Rights to Produce

and Distribute

Other Indefinite

Total

Technology

Total

Coca-Cola

Lived

Unamortized

Costs and

Systems in

Amortized

Intangible

Carrying Amount

Trademark Products

Goodwill

Trademark Rights

Intangible Assets

Management Systems

Development

Alcohol Licenses

Other

Intangible Assets

Assets

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

As of December 31, 2019

Ps.

81,255

Ps.

47,906

Ps.

6,600

Ps.

2,160

Ps.

137,921

Ps.

4,356

Ps.

675

Ps.

1,192

Ps.

2,418

Ps.

8,641

Ps.

146,562

As of December 31, 2020

Ps.

76,649

Ps.

52,820

Ps.

8,647

Ps.

1,424

Ps.

139,540

Ps.

4,368

Ps.

432

Ps.

1,163

Ps.

9,998

Ps.

15,961

Ps.

155,501

For the years ended December 31, 2020, 2019 and 2018, the Company did not recognize any capitalization of borrowing costs.

For the years ended 2020, 2019 and 2018, allocation for amortization expense is as follows:


	2020		2019		2018

Cost of goods sold	Ps.	288	Ps.	317	Ps.	399
Administrative expenses		1,412		953		858
Selling expenses		765		542		656
	Ps.	2,465	Ps.	1,812	Ps.	1,913

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		10 - 12

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, 2020		December 31, 2019
Mexico	Ps.	56,352	Ps.	56,352
Guatemala		1,755		1,679
Nicaragua		433		420
Costa Rica		1,425		1,442
Panama		1,200		1,131
Colombia		4,414		4,367
Brazil		31,741		38,765
Argentina		312		306
Uruguay		2,450		2,626
Total	Ps.	100,082	Ps.	107,088

Goodwill and distribution rights are tested for impairments annually. The recoverable amounts are based on value in use calculations. The value in use of a CGU is determined based on the discounted cash flows method generated from the continuing use of the CGU.

The foregoing forecasts reflect the outcomes that Coca-Cola FEMSA consider most likely to occur based on the current situation of each of the CGUs including the macroeconomic situation in each CGU including the potential continue impacts of the COVID-19 pandemic which has heightened the inherent uncertainty in such estimations, the foregoing forecasts could differ from the results obtained over time.

The value in use of a CGU is determined based on the discounted cash flows method. The key assumptions used to calculate value in use are: volume, expected annual long-term inflation, and the weighted average cost of capital (WACC) used to discount the projected cash flows.

To determine the discount rate, Coca-Cola FEMSA uses the WACC as determined for each of the cash generating units in real terms and as described in following paragraphs.

The estimated discount rates to perform the 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 into the projected cash flow. 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 the 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 would consider. 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 WACC per each CGU 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, 2020 were as follows:


					Expected Annual Long-		Expected Volume
					Term Inflation		Growth Rates
CGU	Pre-tax WACC		Post-tax WACC		2021‑2030		2021‑2030
Mexico	7.4	%	5.3	%	3.9	%	2.0	%
Colombia	11.0	%	7.3	%	2.8	%	4.1	%
Costa Rica	15.3	%	10.8	%	2.7	%	4.3	%
Guatemala	10.6	%	8.3	%	3.1	%	6.8	%
Nicaragua	20.6	%	13.9	%	3.7	%	7.1	%
Panama	8.8	%	6.8	%	1.5	%	7.9	%
Argentina	26.3	%	20.4	%	30.1	%	3.9	%
Brazil	9.1	%	6.0	%	3.0	%	2.4	%
Uruguay	9.9	%	7.1	%	7.8	%	2.0	%

The key assumptions by CGU for impairment test as of December 31, 2019 were as follows:


					Expected Annual Long-		Expected Volume
					Term Inflation		Growth Rates
CGU	Pre-tax WACC		Post-tax WACC		2020‑2029		2020‑2029
Mexico	7.3	%	5.2	%	3.5	%	0.7	%
Colombia	8.9	%	6.2	%	3.1	%	4.0	%
Costa Rica	13.8	%	9.7	%	2.2	%	2.1	%
Guatemala	9.1	%	7.1	%	4.0	%	8.5	%
Nicaragua	21.1	%	12.4	%	4.4	%	3.0	%
Panama	8.5	%	6.6	%	2.0	%	5.4	%
Argentina	21.6	%	14.8	%	39.2	%	3.7	%
Brazil	9.3	%	5.6	%	3.6	%	2.0	%
Uruguay	9.4	%	6.8	%	7.4	%	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). Coca-Cola FEMSA consistently applied its methodology to determine CGU specific WACC’s to perform its annual impairment testing.

Sensitivity to Changes in Assumptions

At December 31, 2020, 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	+0.4	%	‑1.0	%	Passes by 4.8x
Colombia	+0.4	%	‑1.0	%	Passes by 1x
Costa Rica	+1.1	%	‑1.0	%	Passes by 2.1x
Guatemala	+0.6	%	‑1.0	%	Passes by 29.7x
Nicaragua	+1.7	%	‑1.0	%	Passes by 1.1x
Panama	+0.3	%	‑1.0	%	Passes by 6.9x
Argentina	+3.0	%	‑1.0	%	Passes by 6.7x
Brazil	+0.6	%	‑1.0	%	Passes by 1.8x
Uruguay	+0.4	%	‑1.0	%	Passes by 2x

(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 follows: (i) FEMSA Comercio – Proximity Division is integrated as Mexico, and (ii) FEMSA Comercio – Health Division are integrated as Mexico, Chile, Colombia and Ecuador for each of them and (iii) FEMSA Comercio – Fuel Division includes only Mexico.

As of December 31, 2020 in FEMSA Comercio – Health Division there is a significant carrying amount of goodwill allocated in Chile and Colombia as a cash generating unit (South America) with a total carrying amount of Ps. 6,681.

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 –Health Division.

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 assess in the market. Segment-specific risk is incorporated by applying beta factors which are evaluated annually based on publicly available market data.

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 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, 2020 were as follows:


					Expected Annual
					Long-Term Inflation		Expected Volume Growth
CGU	Pre-tax WACC		Post-tax WACC		2021‑2030		Rates 2021‑2030
South America	8.3	%	5.8	%	2.8	%	0.2	%
(FEMSA Comercio – Health Division)

The key assumptions by CGU for impairment test as of December 31, 2019 were as follows:


					Expected Annual		Expected Volume
			Post-tax		Long-Term Inflation		Growth Rates
CGU	Pre-tax WACC		WACC		2020‑2029		2020‑2029
South America	9.4	%	6.6	%	3.0	%	0.3	%
(FEMSA Comercio – Health Division)

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, 2020, 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.


			Change in Sales
CGU	Change in WACC		Growth CAGR (1)		Effect on Valuation
FEMSA Comercio – Health Division (South America)	+0.2	%	‑0.5	%	Passes by 1.34x

(1)

Compound Annual Growth Rate (“CAGR”).

Other Businesses Impairment Test for Cash-Generating Units Containing Goodwill and trademark rights.

For the purpose of impairment testing, goodwill and trademark rights are allocated and monitored on an individual country basis, which is considered to be a CGU. The Company has integrated its cash generating units as a specialized distribution platform for cleaning products and consumables, located in United States.

As of December 31, 2020 in specialized distribution there is a significant carrying amount of goodwill and trademark rights as a cash generating unit with a total carrying amount of Ps. 10,169. Goodwill and trademark rights are tested for impairments annually.

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 the 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 assess in the market. Segment-specific risk is incorporated by applying beta factors which are evaluated annually based on publicly available market data.

The key assumptions used for the value-in-use calculations are as follows:

A per CGU-specific WACC was applied by specialized distribution 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, 2020 were as follows:


					Expected Annual
					Long-Term Inflation		Expected Volume Growth
CGU	Pre-tax WACC		Post-tax WACC		2021‑2025		Rates 2021‑2025
United States	8.2	%	6.0	%	2.0	%	1.7	%
(Specialized Distribution)

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

(1)

Compound Annual Growth Rate (“CAGR”).

Change in Sales

Growth CAGR (1)

Effect on Valuation

United States (Specialized Distribution)

Passes by 1.25x