Sallie Mae 2007 Annual Report Download - page 140

2. Significant Accounting Policies (Continued)
From time to time, the Company enters into one-time benefit arrangements with employees, primarily
senior executives, who are involuntarily terminated. The Company recognizes the cost associated with these
one-time employee termination benefits in accordance with SFAS No. 146, “Accounting for Costs Associated
with Exit or Disposal Activities.” A liability is recognized when all of the following conditions have been met
and the benefit arrangement has been communicated to the employees:
• Management, having the authority to approve the action, commits to a plan of termination;
• The plan of termination identifies the number of employees to be terminated, their job classifications or
functions and their locations and the expected completion date;
• The plan of termination establishes the terms of the benefit arrangement, including the benefits that
employees will receive upon termination and in sufficient detail to enable employees to determine the
type and amount of benefits they will receive if they are involuntarily terminated; and
• Actions required to complete the plan of termination indicate that it is unlikely that significant changes
to the plan of termination will be made or that the plan of termination will be withdrawn.
Severance costs under a one-time termination benefit arrangement may include all or some combination
of severance pay, medical and dental benefits, outplacement services, and certain other costs.
In conjunction with cost reduction efforts, during the fourth quarter of 2007, the Company recorded
severance costs totaling $23 million associated with the elimination of approximately 350 positions across all
areas of the Company. These severance costs were recorded in operating expense, of which $19 million,
$2 million and $2 million were recorded in the Company’s Lending, APG and Corporate and Other reportable
segments, respectively. At December 31, 2007, $18 million of such costs were included in other liabilities in
the consolidated balance sheet and will be paid in 2008.
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, 2007, 2006 and 2005, the Company capitalized $19 million,
$16 million and $22 million, respectively, in costs related to software development, and expensed $126 million,
$131 million and $112 million, respectively, related to routine maintenance, betterments and amortization. At
December 31, 2007 and 2006, the unamortized balance of capitalized internally developed software included
in other assets was $54 million for both periods. The Company amortizes software development costs over
three to five years.
Accounting for Stock-Based Compensation
On January 1, 2006, the Company adopted the provisions of SFAS No. 123(R), “Share-Based Payment,”
which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation,” and began recognizing
stock-based compensation cost in its consolidated statements of income using the fair value based method.
Prior to 2006, the Company accounted for its stock option plans using the intrinsic value method of accounting
provided under Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
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SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts, unless otherwise stated)