Accounting & Tax

Ameritrade May Restate Results

Improper documentation may render certain contracts ineligible for hedge-accounting treatment.
Stephen TaubOctober 25, 2005

Ameritrade Holding Corp. disclosed that it may restate its results for the past three fiscal years because of its accounting for certain hedging deals.

The securities brokerage stated that it is discussing with the Securities and Exchange Commission the accounting for and disclosure of prepaid variable forward contracts related to its investment in Knight Capital Group Inc. The discussions, Ameritrade elaborated, concern “the manner and timing” in which the company documented its hedging designation regarding the contracts and whether this documentation meets “applicable accounting requirements.”

Ameritrade stated that it designated these contracts, entered into during fiscal 2003, as cash-flow hedges of the forecasted future sales of the Knight shares. Historically, the company continued, it has recorded all changes in fair value of hedges on its balance sheet in “other comprehensive income,” net of income taxes. Changes in the fair value of the hedges are substantially offset by changes in the fair value of the Knight investment, Ameritrade added.

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“While the company believes that the hedges were effective and consistently measured from the date of inception, a determination that the documentation does not meet the accounting requirements would result in these instruments being ineligible for hedge accounting treatment,” Ameritrade added in a press release.

The company estimated that accounting for these as non-hedging instruments would increase 2005 earnings by $5 million, boost 2004 earnings by $10.5 million, and lower 2003 earnings by $28 million. Ameritrade added that there would be no impact on cash flows or total stockholders’ equity.

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