CDW 2012 Annual Report Download - page 47

Table of Contents
Goodwill and Other Intangible Assets
Goodwill is not amortized but is subject to periodic testing for impairment at the reporting unit level. Our reporting units used to assess
potential goodwill impairment are the same as our operating segments. We are required to perform an evaluation of goodwill on an annual basis
or more frequently if circumstances indicate a potential impairment. The annual test for impairment is conducted as of December 1. We have the
option of performing a qualitative assessment of a reporting unit's fair value from the last quantitative assessment or performing a quantitative
assessment by comparing a reporting unit's estimated fair value to its carrying amount. Under the quantitative assessment, testing for impairment
of goodwill is a two-step process. The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. If the
carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of reporting unit goodwill with the
carrying amount of that goodwill to determine the amount of impairment loss. Fair value of a reporting unit is determined by using a weighted
combination of an income approach and a market approach, as this combination is considered the most indicative of the reporting units’ fair
value in an orderly transaction between market participants. Under the income approach, we determine fair value based on estimated future cash
flows of a reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a
reporting unit and the rate of return an outside investor would expect to earn. Under the market approach, we utilize valuation multiples derived
from publicly available information for peer group companies to provide an indication of how much a knowledgeable investor in the
marketplace would be willing to pay for a company. We have weighted the income approach and the market approach at 75% and 25%,
respectively.
Determining the fair value of a reporting unit (and the allocation of that fair value to individual assets and liabilities within the reporting
unit to determine the implied fair value of goodwill in the event a step two analysis is required) is judgmental in nature and requires the use of
significant estimates and assumptions. These estimates and assumptions include primarily, but are not limited to, discount rate, terminal growth
rate, selection of appropriate peer group companies and control premium applied, and forecasts of revenue growth rates, gross margins, operating
margins, and working capital requirements. The allocation requires analysis to determine the fair value of assets and liabilities including, among
others, customer relationships, trade names, and property and equipment. Any changes in the judgments, estimates, or assumptions used could
produce significantly different results. Although we believe our assumptions are reasonable, actual results may vary significantly and may
expose us to material impairment charges in the future.
Intangible assets include customer relationships, trade names, internally developed software and other intangibles. Intangible assets
with determinable lives are amortized on a straight-line basis over the estimated useful lives of the assets. The cost of software developed or
obtained for internal use is capitalized and amortized on a straight-line basis over the estimated useful life of the software. These intangible
assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be
recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its
eventual disposition. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recorded for
the excess of the asset’s carrying amount over its fair value.
Allowance for Doubtful Accounts
We record an allowance for doubtful accounts related to trade accounts receivable for estimated losses resulting from the inability of
our customers to make required payments. We take into consideration historical loss experience, the overall quality of the receivable portfolio
and specifically identified customer risks. If actual collections of customer receivables differ from our estimates, additional allowances may be
required which could have an impact on our results of operations.
Income Taxes
Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and their reported amounts
in the consolidated financial statements using enacted tax rates in effect for the year in which the differences are expected to reverse. We
perform an evaluation of the realizability of our deferred tax assets on a quarterly basis. This evaluation requires us to use estimates and make
assumptions and considers all positive and negative evidence and factors, such as the scheduled reversal of temporary differences, the mix of
earnings in the jurisdictions in which we operate, and prudent and feasible tax planning strategies.
We account for unrecognized tax benefits based upon our assessment of whether a tax benefit is more likely than not to be sustained
upon examination by tax authorities. We report a liability for unrecognized tax benefits resulting from unrecognized tax benefits taken or
expected to be taken in a tax return and recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.
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