eTrade 2006 Annual Report Download - page 110

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The following tables show: 1) amounts recorded in accumulated other comprehensive income related to
derivative instruments accounted for as cash flow hedges; 2) the notional amounts and fair values of derivatives
terminated for the periods presented; and 3) the amortization of terminated interest rate swaps included in
operating interest expense and operating interest income (dollars in thousands):
Year Ended December 31,
2006 2005 2004
Impact on accumulated other comprehensive loss (net of taxes):
Beginning balance $ (70,831) $ (118,018) $ (123,754)
Gains (losses) on cash flow hedges related to derivatives,
net 36,409 7,032 (51,137)
Reclassifications into earnings, net 6,578 40,155 56,873
Ending balance $ (27,844) $ (70,831) $ (118,018)
Derivatives terminated during the period:
Notional $10,675,000 $17,920,000 $5,423,500
Fair value of net gains (losses) recognized in accumulated
other comprehensive loss $ 80,198 $ 2,228 $ (68,039)
Amortization of terminated interest rate swaps and options
included in operating interest expense and operating interest
income $ 10,043 $ 65,110 $ 101,807
The gains (losses) accumulated in other comprehensive loss on the derivative instruments terminated shown
in the preceding table will be included in operating interest expense and operating interest income over the
periods the variable rate liabilities and hedged forecasted issuance of liabilities will affect earnings, ranging from
five days to almost 15 years.
The following table shows the balance in accumulated other comprehensive loss attributable to open cash
flow hedges and discontinued cash flow hedges (dollars in thousands):
Year Ended December 31,
2006 2005 2004
Accumulated other comprehensive loss balance (net of taxes)
related to:
Open cash flow hedges $(50,158) $(36,736) $ (43,027)
Discontinued cash flow hedges 22,314 (34,095) (74,991)
Total cash flow hedges $(27,844) $(70,831) $(118,018)
Hedge Ineffectiveness
In accordance with SFAS No. 133, as amended, the Company recognizes hedge ineffectiveness on both fair
value and cash flow hedge relationships. The amount of ineffectiveness recorded in earnings for cash flow
hedges is equal to the excess of the cumulative change in the fair value of the actual derivative over the
cumulative change in the fair value of a hypothetical derivative which is created to match the exact terms of the
underlying instruments being hedged. These amounts are reflected in the other expense excluding interest line
item in the consolidated statement of income. Cash flow and fair value ineffectiveness is re-measured on a
quarterly basis. The following table summarizes income (expense) recognized by the Company as fair value and
cash flow hedge ineffectiveness (dollars in thousands):
Year Ended December 31,
2006 2005 2004
Fair value hedges $(1,409) $(4,937) $(3,895)
Cash flow hedges (93) 45 6,194
Total hedge ineffectiveness $(1,502) $(4,892) $ 2,299
107