Sallie Mae 2008 Annual Report Download - page 138

2. Significant Accounting Policies (Continued)
discontinues the hedge accounting prospectively, ceases recording changes in the fair value of the hedged
item, and begins amortization of any basis adjustments that exist related to the hedged item.
The Company also has a number of derivatives, primarily Floor Income Contracts and certain basis
swaps, that the Company believes are effective economic hedges but are not considered hedges under
SFAS No. 133. These derivatives are classified as “trading” for GAAP purposes and as a result they are
marked-to-market through GAAP earnings with no consideration for the price fluctuation of the economically
hedged item.
Under SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity,” equity forward contracts that allow a net settlement option either in cash or the
Company’s stock are required to be accounted for in accordance with SFAS No. 133 as derivatives. Prior to
2008, the Company used these contracts to lock-in the purchase price of the Company’s stock related to share
repurchases. As a result, the Company marks its equity forward contracts to market through earnings in the
“gains (losses) on derivative and hedging activities, net” line item in the consolidated statements of income
along with the net settlement expense on the contracts. See Note 11, “Stockholders’ Equity,” for a discussion
on the change in accounting related to equity forward contracts as of December 31, 2007. As of January 2008,
these contracts had been settled.
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 Acquired Intangible Assets
The Company accounts for goodwill and acquired intangible assets in accordance with SFAS No. 142,
“Goodwill and Other Intangible Assets,” pursuant to which goodwill is not amortized. Goodwill is tested for
impairment annually as of September 30 at the reporting unit level, which is the same as or one level below
an operating segment as defined in SFAS No. 131, “Disclosure About Segments of an Enterprise and Related
Information.” Goodwill is also tested at interim periods if an event occurs or circumstances change that would
indicate the carrying amount may be impaired.
In accordance with SFAS No. 142, Step 1 of the goodwill impairment analysis consists of a comparison
of the fair value of the reporting unit to its carrying value, including goodwill. If the carrying value of the
reporting unit exceeds the fair value, Step 2 in the goodwill impairment analysis is performed to measure the
amount of impairment loss, if any. Step 2 of the goodwill impairment analysis compares the implied fair value
of the reporting unit’s goodwill to the carrying value of the reporting unit’s goodwill. The implied fair value
of goodwill is determined in a manner consistent with determining goodwill in a business combination. If the
carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, an impairment
loss is recognized in an amount equal to that excess.
Other acquired intangible assets, which include but are not limited to tradenames, customer and other
relationships, and non-compete agreements, are also accounted for in accordance with SFAS No. 142.
Acquired intangible assets with definite or finite lives are amortized over their estimated useful lives in
proportion to their estimated economic benefit. Finite-lived acquired intangible assets are reviewed for
impairment using an undiscounted cash flow analysis when an event occurs or circumstances change
F-18
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)