CDW 2012 Annual Report Download - page 63

Table of Contents CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Level 3 – inputs are generally unobservable and typically reflect management’
s estimates of assumptions that market participants would
use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing
models, discounted cash flow models and similar techniques.
Accumulated Other Comprehensive Income (Loss)
Unrealized gains or losses on derivatives designated as cash flow hedges and foreign currency translation adjustments are included in
shareholders’ equity (deficit) under accumulated other comprehensive income (loss).
The components of accumulated other comprehensive income (loss) are as follows:
Revenue Recognition
The Company is a primary distribution channel for a large group of vendors and suppliers, including original equipment manufacturers
(“OEMs”), software publishers and wholesale distributors. The Company records revenue from sales transactions when title and risk of
loss are passed to the customer, there is persuasive evidence of an arrangement for sale, delivery has occurred and/or services have been
rendered, the sales price is fixed or determinable, and collectability is reasonably assured. The Company's shipping terms typically
specify F.O.B. destination, at which time title and risk of loss have passed to the customer.
Revenues from the sales of hardware products or software products and licenses are generally recognized on a gross basis with the
selling price to the customer recorded as sales and the acquisition cost of the product recorded as cost of sales. These items can be
delivered to customers in a variety of ways, including (i) as physical product shipped from the Company's warehouse, (ii) via drop-
shipment by the vendor or supplier, or (iii) via electronic delivery for software licenses. At the time of sale, the Company records an
estimate for sales returns and allowances based on historical experience. The Company's vendor partners warrant most of the products
the Company sells.
The Company leverages drop-shipment arrangements with many of its vendors and suppliers to deliver products to its customers
without having to physically hold the inventory at its warehouses, thereby increasing efficiency and reducing costs. The Company
recognizes revenue for drop-shipment arrangements on a gross basis upon delivery to the customer with contract terms that typically
specify F.O.B. destination.
Revenue from professional services is either recognized as incurred for services billed at an hourly rate or recognized using a
proportional performance model for services provided at a fixed fee. Revenue from Software as a Service arrangements, Infrastructure
as a Service arrangements, and data center services, including internet connectivity, web hosting, server co-location and managed
services, is recognized over the period service is provided.
The Company also sells certain products for which it acts as an agent. Products in this category include the sale of third-party services,
warranties, software assurance (“SA”) or third-party hosted Software as a Service and Infrastructure as a Service arrangements. SA is a
product that allows customers to upgrade, at no additional cost, to the latest technology if new applications are introduced during the
period that the SA is in effect. These sales do not meet the criteria for gross sales recognition, and thus are recognized on a net basis at
the time of sale. Under net sales recognition, the cost paid to the vendor or third-party service provider is recorded as a reduction to
sales, resulting in net sales being equal to the gross profit on the transaction.
The Company's larger customers are offered the opportunity by certain of its vendors to purchase software licenses and SA under
enterprise agreements (“EAs”). Under EAs, customers are considered to be compliant with applicable license requirements for the
ensuing year, regardless of changes to their employee base. Customers are charged an annual true-up fee for changes in the number of
users over the year. With most EAs, the Company's vendors will transfer the license and bill the customer directly, paying resellers such
as the Company an agency fee or commission on these sales. The Company records these fees as a component of net sales as earned and
there is no corresponding cost of sales amount. In certain instances, the Company bills the customer directly under an EA and accounts
for the
57
(in millions) December 31,
2012
2011 2010
Unrealized loss on interest rate swap agreements, net of taxes of $0, $0 and
$0.9, respectively
$
—
$
—
$
(1.9
)
Foreign currency translation adjustment
0.4
(2.1
)
(0.3
)
Accumulated other comprehensive income (loss)
$
0.4
$
(2.1
)
$
(2.2
)