CDW 2012 Annual Report Download - page 66

Table of Contents CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 2012, 2011 and 2010, the Company recorded disposals of $12.2 million , $10.5 million and $11.4 million , respectively, to
remove assets that were no longer in use from property and equipment. The Company recorded a pre-tax loss of $0.1 million , $0.3
million and $0.7 million in 2012, 2011 and 2010, respectively, for certain disposed assets that were not fully depreciated.
Depreciation expense for the years ended December 31, 2012, 2011 and 2010 was $32.0 million , $31.3 million and $38.3 million ,
respectively.
As described in Note 1, the Company is 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. The Company’s
reporting units used to assess potential goodwill impairment are the same as its operating segments. The Company has two reportable
segments: Corporate, which is comprised primarily of business customers, and Public, which is comprised of government entities and
education and healthcare institutions. The Company also has two other operating segments, CDW Advanced Services and Canada,
which do not meet the reportable segment quantitative thresholds and, accordingly, are combined together as “Other” for segment
reporting purposes. The Company has 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 Company’s fair value in an orderly transaction between
market participants. Under the income approach, the Company determined 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, the Company utilized
valuation multiples derived from publicly available information for guideline companies to provide an indication of how much a
knowledgeable investor in the marketplace would be willing to pay for a company. The valuation multiples were applied to the
reporting units. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and
assumptions, including revenue growth rates, gross margins, operating margins, discount rates and future market conditions, among
others.
December 1, 2012 Evaluation
The Company performed its annual evaluation of goodwill as of December 1, 2012. All reporting units passed the first step of the
goodwill evaluation (with the fair value exceeding the carrying value by 49% , 44% , 104% and 17% for the Corporate, Public, Canada
and CDW Advanced Services reporting units, respectively) and, accordingly, the Company was not required to perform the second step
of the goodwill evaluation.
To determine the fair value of the reporting units, the Company used a 75% / 25% weighting of the income approach and market
approach, respectively. Under the income approach, the Company estimated future cash flows of each reporting unit based on internally
generated forecasts for the remainder of 2012 and the next six years. The Company used a 3.5% long-
term assumed consolidated annual
revenue growth rate for periods after the six-year forecast. The estimated future cash flows for the Corporate and Public reporting units
were discounted at 11.5% ; cash flows for the Canada and CDW Advanced Services reporting units were discounted at 11.8% and
12.0% , respectively, based on the future growth rates assumed in the discounted cash flows.
December 1, 2011 Evaluation
The Company performed its annual evaluation of goodwill as of December 1, 2011. All reporting units passed the first step of the
goodwill evaluation (with the fair value exceeding the carrying value by 43% , 27% , 159% and 17% for the Corporate, Public, Canada
and CDW Advanced Services reporting units, respectively) and, accordingly, the Company was not required to perform the second step
of the goodwill evaluation.
To determine the fair value of the reporting units, the Company used a 75% / 25% weighting of the income approach and market
approach, respectively. Under the income approach, the Company estimated future cash flows of each reporting unit based on internally
generated forecasts for the remainder of 2011 and the next six years. The Company used a 3.5% long-
term assumed consolidated annual
revenue growth rate for periods after the six-year forecast. The
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4.
Goodwill and Other Intangible Assets