Sallie Mae 2012 Annual Report Download - page 134

SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Significant Accounting Policies (Continued)
Severance Plan. The benefits payable under the Severance Plan relate to past service and they accumulate and
vest. Accordingly, we recognize severance costs to be paid pursuant to the Severance Plan when payment of such
benefits is probable and reasonably estimable. Such benefits, including severance pay calculated based on the
Severance Plan, medical and dental benefits, outplacement services and continuation pay, have been incurred
during the years ended December 31, 2012, 2011 and 2010, as a direct result of our restructuring initiatives.
Accordingly, such costs are classified as restructuring expenses in the accompanying consolidated statements of
income. See “Note 12—Restructuring Activities” for further information regarding our restructuring activities.
Contract termination costs are expensed at the earlier of (1) the contract termination date or (2) the cease use
date under the contract. Other exit costs are expensed as incurred and classified as restructuring expenses if
(1) the cost is incremental to and incurred as a direct result of planned restructuring activities and (2) the cost is
not associated with or incurred to generate revenues subsequent to our consummation of the related restructuring
activities.
Accounting for Stock-Based Compensation
We recognize stock-based compensation cost in our consolidated statements of income using the fair value
based method. Under this method we determine the fair value of the stock-based compensation at the time of the
grant and recognize the resulting compensation expense over the vesting period of the stock-based grant.
Income Taxes
We account for income taxes under the asset and liability approach which requires the recognition of
deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the
carrying amounts and tax basis of our assets and liabilities. To the extent tax laws change, deferred tax assets and
liabilities are adjusted in the period that the tax change is enacted.
“Income tax expense/(benefit)” includes (i) deferred tax expense/(benefit), which represents the net change
in the deferred tax asset or liability balance during the year plus any change in a valuation allowance, and
(ii) current tax expense/(benefit), which represents the amount of tax currently payable to or receivable from a
tax authority plus amounts accrued for unrecognized tax benefits. Income tax expense/(benefit) excludes the tax
effects related to adjustments recorded in equity.
If we have an uncertain tax position, then that tax position is recognized only if it is more likely than not to
be sustained upon examination based on the technical merits of the position. The amount of tax benefit
recognized in the financial statements is the largest amount of benefit that is more than fifty percent likely of
being sustained upon ultimate settlement of the uncertain tax position. We recognize interest related to
unrecognized tax benefits in income tax expense/(benefit), and penalties, if any, in operating expenses.
Earnings (Loss) per Common Share
We compute earnings (loss) per common share (“EPS”) by dividing net income allocated to common
shareholders by the weighted average common shares outstanding. Net income allocated to common
shareholders represents net income applicable to common shareholders (net income adjusted for preferred stock
dividends including dividends declared, accretion of discounts on preferred stock including accelerated accretion
when preferred stock is repaid early, and cumulative dividends related to the current dividend period that have
not been declared as of period end). Diluted earnings per common share is computed by dividing income
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