Sallie Mae 2006 Annual Report Download - page 137

2. Significant Accounting Policies (Continued)
As a result of an evaluation of the classification of our cash flows that the Company initiated in the
fourth quarter of 2006, management became aware of several incorrect classifications in its consolidated
statement of cash flows primarily related to restricted cash accounts involving on-balance sheet securitizations.
Specific to this item, management determined that changes in restricted cash related to on-balance sheet
securitizations were classified within the operating section of the consolidated statement of cash flows and
should have been classified within the investing section.
The following table illustrates the previously reported and restated amounts by activity classification.
As previously
reported Restated
As previously
reported Restated
2005 2004
Years Ended December 31,
Net cash (used in) provided by
operating activities ............ $ (698,827) $ 758,830 $ (317,216) $ 604,825
Net cash (used in) provided by
investing activities ............ (15,668,823) (16,903,732) (8,775,271) (9,612,146)
Net cash (used in) provided by
financing activities ............ 15,470,818 15,248,070 10,640,389 10,555,223
Net increase (decrease) in cash and
cash equivalents .............. (896,832) (896,832) 1,547,902 1,547,902
Cash and cash equivalents at
beginning of year ............. 3,395,487 3,395,487 1,847,585 1,847,585
Cash and cash equivalents at end of
year ....................... $ 2,498,655 $ 2,498,655 $ 3,395,487 $ 3,395,487
See also Note 21, “Restatement of Quarterly Consolidated Statements of Cash Flows (unaudited).”
Collections Revenue
The Company purchases delinquent and charged-off receivables on various types of consumer debt with a
primary emphasis on charged-off credit card receivables, and sub-performing and non-performing mortgage
loans. The Company accounts for its investments in charged-off receivables and sub-performing and non-
performing mortgage loans in accordance with AICPA Statement of Position (“SOP”) 03-3, “Accounting for
Certain Loans or Debt Securities Acquired in a Transfer.” Under SOP 03-3, the Company establishes static
pools of each quarter’s purchases and aggregates them based on common risk characteristics. The pools when
formed are initially recorded at fair value, based on each pool’s estimated future cash flows and internal rate
of return. The Company recognizes income each month based on each static pool’s effective interest rate. The
static pools are tested quarterly for impairment by re-estimating the future cash flows to be received from the
pools. Subsequent increases in estimated future cash flows are recognized prospectively through a yield
adjustment over the remaining life of the static pool. If the new estimated cash flows are less than previously
estimated, the pool is impaired and written down through a valuation allowance, to maintain the effective
interest rate. Net interest income earned on the purchased portfolios is recorded as collection revenue on the
accompanying income statement.
F-18
SLM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Dollars in thousands, except per share amounts, unless otherwise stated)