Sallie Mae 2008 Annual Report Download - page 158

6. Goodwill and Acquired Intangible Assets
Goodwill
In accordance with SFAS No. 142, all acquisitions must be assigned to a reporting unit or units. A
reporting unit is the same as or one level below an operating segment, as defined in SFAS No. 131. The
following table summarizes the Company’s allocation of goodwill to its reporting units.
(Dollars in millions) 2008 2007
As of
December 31,
Lending.......................................................... $388 $388
Asset Performance Group ............................................ 401 377
Guarantor services .................................................. 62 62
Upromise ........................................................ 140 137
Other ........................................................... — 1
Total ............................................................ $991 $965
Impairment Testing
In accordance with SFAS No. 142, the Company performs goodwill impairment testing annually in the
fourth quarter as of a September 30 valuation date or more frequently if an event occurs or circumstances
change such that there is a potential that the fair value of a reporting unit or reporting units may be below
their respective carrying values. In light of the general downturn in the economy, the tight credit markets, the
Company’s decline in market capitalization and the Company’s decision to wind down certain businesses and
product lines during the latter half of 2008, the Company assessed goodwill for potential impairment in the
third quarter of 2008 concluding that there was no indicated impairment of goodwill for any of its reporting
units and performed its annual goodwill impairment test during the fourth quarter as of a September 30, 2008
valuation date.
The Company retained an appraisal firm to perform Step 1 impairment testing as prescribed in
SFAS No. 142. Accordingly, the Company engaged the appraisal firm to determine the fair value of each of
its four reporting units to which goodwill was allocated as of September 30, 2008. The fair value of each
reporting unit was determined by weighting different valuation approaches with the primary approach being
the income approach which measures the value of each reporting unit based on the present value of its future
economic benefit determined based on discounted cash flows derived from the Company’s five-year cash flow
projections for each reporting unit. These projections incorporate assumptions of balance sheet and income
statement growth as well as cost savings and planned dispositions or wind down activities applicable to each
reporting unit. Under the Company’s guidance, the appraisal firm developed an equity rate of return (or
discount rate) for each reporting unit incorporating such factors as a risk free rate, a market rate of return, a
measure of volatility (Beta) and a Company specific and capital markets risk premium to adjust for the
unprecedented volatility and general lack of liquidity in the credit markets as of September 30, 2008.
Resulting discount rates as of September 30, 2008, which ranged from 13 percent to 17 percent, were higher
than discount rates considered in conjunction with impairment testing performed in prior years. Management
reviewed and approved these discount rates, including the factors incorporated to develop the discount rates
for each reporting unit. The discount rates applicable to the individual reporting units were applied to the
respective reporting units’ projected net cash flows and residual or terminal values yielding the fair value of
equity for the respective reporting units.
F-38
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)