CDW 2014 Annual Report Download - page 78

Table of Contents CDW CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
and Public, which is comprised of government entities and education and healthcare institutions. The Company also has three other
operating segments, CDW Advanced Services, Canada, and Kelway, 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 to determine if it is more likely than not that
the reporting unit's goodwill is impaired 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, 2014 Evaluation
The Company performed its annual evaluation of goodwill as of December 1, 2014 by utilizing a quantitative assessment for all
reporting units. All reporting units passed the first step of the goodwill evaluation (with the fair value exceeding the carrying value by
169% , 147% , 276% and 78% 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 2014 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 9.0% ; cash flows for the Canada and CDW Advanced Services reporting units were discounted at 9.3% and 11.5%
,
respectively, based on the future growth rates assumed in the discounted cash flows. Discount rates utilized during the 2014 goodwill
evaluation declined compared to those used in 2013 as a result of the market performance of the Company's common stock and a lower
equity risk premium with the exception of CDW Advanced Services. The discount rate for CDW Advanced Services increased to
account for additional forecast risk.
December 1, 2013 Evaluation
The Company performed its annual evaluation of goodwill as of December 1, 2013 by utilizing a quantitative assessment for all
reporting units. All reporting units passed the first step of the goodwill evaluation (with the fair value exceeding the carrying value by
107% , 82% , 167% and 168% 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 2013 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 10.0% ; cash flows for the Canada and CDW Advanced Services reporting units were discounted at 10.3% and
10.5% , respectively, based on the future growth rates assumed in the discounted cash flows. Discount rates utilized during the 2013
goodwill evaluation declined compared to those used in 2012 as a result of the market performance of the Company's common stock
and a lower equity risk premium.
December 1, 2012 Evaluation
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