Sallie Mae 2007 Annual Report Download - page 138

2. Significant Accounting Policies (Continued)
The “gains (losses) on derivative and hedging activities, net” line item in the consolidated statements of
income includes the unrealized changes in the fair value of the Company’s derivatives (except effective cash
flow hedges which are recorded in other comprehensive income), the unrealized changes in fair value of
hedged items in qualifying fair value hedges, as well as the realized changes in fair value related to derivative
net settlements and dispositions that do not qualify for hedge accounting. Net settlement income/expense on
derivatives that qualify as hedges under SFAS No. 133 are included with the income or expense of the hedged
item (mainly interest expense).
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. Such assets are impaired when the estimated fair value is less than the current carrying
value. 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. 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.
Guarantor Servicing Fees
The Company provides a full complement of administrative services to FFELP guarantors including
guarantee issuance, process, account maintenance, and guarantee fulfillment services for guarantor agencies,
the U.S. Department of Education (“ED”), educational institutions and financial institutions. The fees
associated with these services are recognized as earned based on contractually determined rates. The Company
is party to a guarantor servicing contract with United Student Aid Funds, Inc. (“USA Funds”), which
accounted for 86 percent, 83 percent and 82 percent of guarantor servicing fees for the years ended
December 31, 2007, 2006, and 2005, respectively.
Contingency Fee Revenue
The Company receives fees for collections of delinquent debt 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 for defaults, over the service period which is estimated to be the life of the
loan.
Collections Revenue
The Company purchases delinquent and charged-off receivables on various types of consumer debt with a
primary emphasis on charged-off credit card receivables, and sub-performing and non-performing mortgage
loans. The Company accounts for its investments in charged-off receivables and sub-performing and non-
performing mortgage loans in accordance with AICPA’s SOP 03-3, “Accounting for Certain Loans or Debt
F-17
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)