Sallie Mae 2009 Annual Report Download - page 151

2. Significant Accounting Policies (Continued)
In addition to one-time involuntary benefit arrangements, the Company sponsors the SLM Corporation
Employee Severance Plan, which provides severance benefits in the event of termination of the Company’s
and its subsidiaries’ full-time employees (with the exception of certain specified levels of management and
employees of the Company’s APG subsidiaries) and part-time employees who work at least 24 hours per
week. The Company also sponsors the DMO Employee Severance Plan, which provides severance benefits to
certain specified levels of full-time management and full-time employees in the Company’s APG subsidiaries.
The Employee Severance Plan and the DMO Employee Severance Plan (collectively, the “Severance Plan”)
establishes specified benefits based on base salary, job level immediately preceding termination and years of
service upon termination of employment due to Involuntary Termination or a Job Abolishment, as defined in
the Severance Plan. The benefits payable under the Severance Plan relate to past service and they accumulate
and vest. Accordingly, the Company recognizes severance costs to be paid pursuant to the Severance Plan in
accordance with ASC 712, “Compensation—Nonretirement Postemployment Benefits,” when payment of such
benefits is probable and reasonably estimable. Such benefits, including severance pay calculated based on the
Severance Plan, outplacement services and continuation pay, have been incurred during the years ended
December 31, 2009 and 2008, and the fourth quarter of 2007 as a direct result of the Company’s restructuring
initiatives. Accordingly, such costs are classified as restructuring expenses in the accompanying consolidated
statements of income. See Note 15, “Restructuring Activities,” for further information regarding the
Company’s restructuring activities.
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, 2009, 2008 and 2007, the Company capitalized $16 million,
$23 million and $19 million, respectively, in costs related to software development, and expensed $138 million,
$120 million and $126 million, respectively, related to routine maintenance, betterments and amortization. At
December 31, 2009 and 2008, the unamortized balance of capitalized internally developed software included
in other assets was $53 million and $56 million, respectively. 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 ASC 718, “Compensation-Stock Compensa-
tion,” which includes 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 and no compensation cost related to its stock option grants was recognized in its
consolidated statements of income.
ASC 718 requires that the excess tax benefits from tax deductions on the exercise of share-based
payments exceeding the deferred tax assets from the cumulative compensation cost previously recognized be
classified as cash inflows from financing activities in the consolidated statement of cash flows. Prior to the
adoption of ASC 718, the Company presented all excess tax benefits resulting from the exercise of share-
based payments as operating cash flows. The excess tax benefit for the year ended December 31, 2009 was
$0.
F-24
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)