Sallie Mae 2008 Annual Report Download - page 159

6. Goodwill and Acquired Intangible Assets (Continued)
The guideline company or market approach as well as the publicly traded stock approach were also
considered for the Company’s reporting units, as applicable, with less weighting placed on these approaches.
The market approach generally measures the value of a reporting unit as compared to recent sales or offering
of comparable companies. The secondary market approach indicates value based on multiples calculated using
the market value of minority interests in publicly-traded comparable companies or guideline companies.
Whether analyzing comparable transactions or the market value of minority interests in publicly-trade
guideline companies, consideration is given to the line of business and the operating performance or the
comparable companies versus the reporting unit being tested. Given current market conditions, the lack of
recent sales or offering in the market and the low correlation between the operations of identified guideline
companies to the Company’s reporting units, less emphasis is placed on the market approach.
The Company acknowledges that its stock price (as well as that of its peers) is a consideration in
determining the value of its reporting units and the Company as a whole. However, management believes the
income approach is a better measure of the value of its reporting units in the present environment. During the
third and fourth quarters of 2008, the Company specifically noted a trend of lower and very volatile market
capitalization. Over this period, the Company’s stock prices fluctuated significantly. During the fourth quarter
of 2008, the high, low and average prices for the Company’s stock were $12.03, $4.19 and $8.75, respectively.
At September 30, 2008 and December 31, 2008, the Company’s share price was $12.34 and $8.90,
respectively. Based on these share prices alone, the market capitalization of the Company was greater than the
carrying value of the reporting units. The Company believes the stock price has been significantly reduced due
to the current credit and economic environment which should not be a long term impact. In addition, the
Company’s appraisal firm has estimated control premiums pertaining to the Company’s reporting units ranging
from 10 percent to 30 percent.
As a result of this Step 1 impairment testing process, the estimated fair value of each reporting unit
exceeded the reporting units’ respective book values based on the methods and assumptions applicable to each
reporting unit. Management reviewed and approved the valuation prepared by the appraisal firm for each
reporting unit including the valuation methods employed and the key assumptions such as the discount rates,
growth rates and control premiums applicable to each reporting unit. Management also performed stress tests
of key assumptions using a wide range of discount rates and growth rates. Based on the valuations performed
in conjunction with Step 1 impairment testing and these stress tests, there was no indicated impairment for
any reporting unit.
The recent economic slowdown could adversely affect the operating results of the Company’s four
reporting units. In addition, the decrease in the market price of the Company’s common stock resulting from
the recent market turbulence has reduced its total market capitalization. Both of these factors adversely affect
the fair value of the Company’s reporting units and this adverse effect could be material. If the performance
of the Company’s reporting units does not occur, or if the Company’s stock price remains at a depressed level
or declines further resulting in continued deterioration in the Company’s total market capitalization, the fair
value of one or more of the reporting units could be significantly reduced, and the Company may be required
to record a charge, which could be material, for an impairment of goodwill. Management believes that the
turbulence in the stock market has resulted in a market price for the Company’s common stock that is not
indicative of the true value of the Company’s reporting units.
As of September 30, 2007, annual impairment testing indicated no impairment for any reporting units
with the exception of the mortgage and consumer lending reporting unit due largely to the wind down of one
of the Company’s mortgage operations. As a result, the Company recognized goodwill impairment of
approximately $20 million in the fourth quarter of 2007.
F-39
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)