Sallie Mae 2005 Annual Report Download - page 140

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)
F-18
2. Significant Accounting Policies (Continued)
impairments to purchased receivable assets. Under SOP 03-3, the yield that may be accreted as interest
income on such loans is limited to the excess of the Company’s estimate of undiscounted expected
principal, interest and other cash flows from the loan over its initial investment in the loan. Net interest
income earned on the purchased portfolios is recorded as collection revenue on the accompanying income
statement.
The Company also receives fees for collections on behalf of clients performed on a contingency basis.
Revenue is earned and recognized upon receipt of the borrower funds.
The Company also receives fees from guarantor agencies for default aversion services when a loan is
delinquent and is initially placed with the Company. The Company is obligated to provide such services for
the remaining life of the loan for no additional fee. In the event that the loan defaults, the Company is
obligated to rebate a portion of the fee to the guarantor agency in proportion to the principal and interest
outstanding when the loan defaults. The Company recognizes fees received, net of actual rebates, over the
service period which is estimated to be the life of the loan.
Guarantor Servicing Fees
The Company performs services including loan origination and account maintenance services for
guarantor agencies, ED, educational institutions and financial institutions. The fees associated with these
services are accrued as earned. The Company is party to a guarantor servicing contract with United
Student Aid Funds, Inc. (“USA Funds”), which accounted for 82 percent of guarantor servicing fees for
the year ended December 31, 2005.
Software Development Costs
Certain direct development costs associated with internal-use software are capitalized, including
external direct costs of services and payroll costs for employees devoting time to the software projects.
These costs are included in other assets and are amortized over a period not to exceed five years beginning
when the asset is technologically feasible and substantially ready for use. Maintenance costs and research
and development costs relating to software to be sold or leased are expensed as incurred.
During the years ended December 31, 2005, 2004 and 2003, the Company capitalized $22 million, $18
million and $17 million, respectively, in costs related to software development, and expensed $112 million,
$99 million and $95 million, respectively, related to routine maintenance, betterments and amortization.
At December 31, 2005 and 2004, the unamortized balance of capitalized internally developed software
included in other assets was $53 million and $44 million, respectively.
Goodwill and Intangible Assets
The Company accounts for goodwill and other intangible assets in accordance with SFAS No. 142,
“Goodwill and Other Intangible Assets,” pursuant to which goodwill and intangible assets with indefinite
lives are not amortized but must be tested for impairment annually or more frequently if an event indicates
that the asset(s) might be impaired. Intangible assets with finite lives are amortized over their estimated
lives. Such assets are amortized using the straight line method or accelerated method, depending on the
asset class, over a period of up to eighteen years.