Sallie Mae 2006 Annual Report Download - page 136

2. Significant Accounting Policies (Continued)
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. 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 on the income statement along with the net settlement expense
on the contracts.
The “gains (losses) on derivative and hedging activities, net” line item on the income statement 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).
Foreign Currency Transactions
The Company has financial services operations in foreign countries. The financial statements of these
foreign businesses have been translated into U.S. dollars in accordance with U.S. GAAP. All balance sheet
accounts are translated at the current exchange rate at each period end through the “other comprehensive
income” component of stockholders’ equity and income statement items are translated at the average exchange
rate for the period through income. Transaction gains and losses resulting from exchange rate changes on
transactions denominated in currencies other than the entity’s functional currency are included in other
operating income.
Statement of Cash Flows
Included in the Company’s financial statements, is the Consolidated Statements of Cash Flows. It is the
policy of the Company to include all derivative net settlements, irrespective of whether the derivative is a
qualifying hedge, in the same section of the Statement of Cash Flows that the derivative is economically
hedging.
As discussed in the Restricted Cash and Investments section of this note, the Company’s restricted cash
balances primarily relate to on-balance sheet securitizations. This balance is primarily the result of timing
differences between when principal and interest is collected on the trust assets and when principal and interest
is paid on the trust liabilities. As such, changes in this balance are reflected in investing activities.
Restatement of the Consolidated Statements of Cash Flows
The Company is restating the consolidated statements of cash flows for the years ended December 31,
2005 and 2004. The restatements will solely affect the classification of items in operating, investing and
financing activities, but will have no impact on the net increase (decrease) in cash and cash equivalents set
forth in the consolidated statements of cash flows for any of the previously reported periods. The restatements
do not affect the Company’s consolidated balance sheets, consolidated statements of income or consolidated
statements of changes in stockholders’ equity. Accordingly, the Company’s historical revenues, net income,
earnings per share, total assets and total stockholders’ equity remain unchanged.
F-17
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)