Sallie Mae 2006 Annual Report Download - page 138

2. Significant Accounting Policies (Continued)
Debt Management Contingency Fees
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 performing default aversion services on
delinquent loans prior to default. The fee is received when the loan is initially placed with the Company and
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, the U.S. Department of Education (“ED”), educational institutions and financial institu-
tions. The fees associated with these services are accrued as earned.
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, 2006, 2005 and 2004, the Company capitalized $16 million,
$22 million and $18 million, respectively, in costs related to software development, and expensed $131 million,
$112 million and $99 million, respectively, related to routine maintenance, betterments and amortization.
During the year ended December 31, 2006, the Company purchased $9 million in software development costs
through the acquisition of Upromise. At December 31, 2006 and 2005, the unamortized balance of capitalized
internally developed software included in other assets was $54 million and $53 million, respectively. The
Company amortizes software development costs over three to four years.
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 are tested for impairment annually or more frequently if an event indicates that the
asset(s) might be impaired, employing standard industry appraisal methodologies, principally the discounted
cash flow method. Intangible assets with finite lives are amortized over their estimated useful lives. Such
assets are amortized in proportion to the estimated economic benefit using the straight line method or another
acceptable amortization method depending on the asset class, over a period of up to eighteen years. Finite
lived intangible assets are reviewed for impairment using an undiscounted cash flow analysis when an event
occurs that indicates the asset(s) may be impaired.
Accounting for Stock-Based Compensation
On January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,” which is a revision
of SFAS No. 123, “Accounting for Stock-Based Compensation,” using the modified prospective transition
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SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)