TD Bank 2002 Annual Report Download - page 52

50
FINANCIAL RESULTS
Unrealized gains and losses on non-trading derivatives are
accounted for on a basis consistent with the related on-balance
sheet financial instrument. Realized gains and losses resulting
from the early termination, sale, maturity or extinguishment of
such derivatives are generally deferred and amortized over the
remaining term of the related on-balance sheet instruments.
Premiums on purchased options are deferred at inception and
amortized into other income over the contract life.
(l) Goodwill and intangible assets
As of November 1, 2001, the Bank prospectively adopted the
new accounting standard on goodwill and other intangible assets.
Goodwill represents the difference between the acquisition cost
of an investment and the fair value of the net tangible assets
acquired after an allocation is made for indefinite and finite life
intangible assets. Under the new standard, goodwill is not amor-
tized but is subject to fair value impairment tests, on at least
an annual basis. Goodwill is allocated to reporting units and any
potential goodwill impairment is identified by comparing the
carrying value of the reporting unit with its fair value. If any
potential impairment is identified, then the amount of the impair-
ment is quantified by comparing the carrying value of goodwill to
its fair value, based on the fair value of the assets and liabilities
of the reporting unit. Intangibles with a finite life are amortized
over their estimated useful life and also are tested for impairment
whenever circumstances indicate that the carrying value may
not be recoverable. Finite life intangible assets are considered
impaired and written down to their net recoverable amount when
their net carrying value exceeds their estimated future net cash
flows. Any impairment of goodwill or intangible assets is charged
to income in the period in which the impairment is determined.
The Bank’s finite life intangible assets consist primarily of core
deposit intangibles that represent the intangible value of deposi-
tor relationships acquired when deposit liabilities are assumed
in an acquisition. Other significant finite life intangible assets
include term deposit, loan and mutual fund intangibles resulting
from acquisitions. These finite life intangible assets are amortized
to income on a double declining basis over eight years, based on
their estimated useful lives.
(m) Land, buildings and equipment
Land is reported at cost. Buildings, equipment and leasehold
improvements are reported at cost less accumulated depreciation.
Gains and losses on disposal are reported in other income. When
the Bank reports a gain on sale of property in which it retains
a significant leasing interest, the portion of the gain which can
be allocated to the leased interest is deferred and amortized
to income over the remaining term of the lease. Depreciation
methods and rates by asset category are as follows:
Asset Rate and depreciation method
Buildings 5% or 10%, declining balance
Computer equipment 30%, declining balance
Computer software maximum 3 years, straight-line
Furniture, fixtures and
other equipment 20%, declining balance
Leasehold improvements estimated useful life, straight-line
(n) Stock-based compensation plans
The Bank operates various stock-based compensation plans. One
of these plans is a stock option plan for eligible employees and
non-employee directors of the Bank. Under this plan, options are
periodically awarded to participants to purchase common shares
at prices equal to the closing market price of the shares on the
date prior to the date the options were issued, subject to vesting
provisions. For years up to and including fiscal 2002, no expenses
have been recorded when the stock options were issued. The
consideration paid by option holders on the exercise of the
options is credited to capital stock. Until October 5, 2002,
option holders could elect to receive cash for the options equal
to the excess of the current market price of the shares over the
option exercise price. Effective October 6, 2002, new grants of
options and all outstanding options can only be settled for
shares. Cash payments to option holders who elected to receive
cash were charged to retained earnings on a net of tax basis.
Option awards granted after November 1, 2002 will be account-
ed for as described in Note 23.
The Bank also operates a share purchase plan available to all
employees. Under the plan, the Bank matches 50% of employees’
permitted contributions toward the purchase of Bank common
shares, subject to vesting provisions. The Bank’s annual contribu-
tions are recorded in salaries and employee benefits.
Changes in the value of phantom share units and deferred
share units are recorded, net of the effects of related hedges, in
the consolidated statement of operations.
(o) Employee future benefits
The Bank’s principal pension plan is The Pension Fund Society
of The Toronto-Dominion Bank, a defined benefit plan for
which membership is voluntary. As a result of the acquisition of
CT Financial Services Inc. (CT), the Bank sponsors a second
pension plan consisting of a defined benefit portion and a defined
contribution portion. Funding for both plans is provided by contri-
butions from the Bank and members of the plans. In addition, the
Bank and CT maintain partially funded benefit plans for eligible
employees. Related retirement benefits are paid from Bank assets
and contributions.
The Bank also provides certain post-retirement benefits, post-
employment benefits, compensated absences and termination
benefits for its employees (non-pension employee benefits),
which are generally non-funded. These benefits include health
care, life insurance and dental benefits. Employees eligible for
the post-retirement benefits are those who retire from the Bank at
certain retirement ages. Employees eligible for the post-employ-
ment benefits are those on long-term disability.
As of November 1, 2000, the Bank adopted the accounting
standard on employee future benefits on a retroactive basis with-
out restatement. As a result, an after-tax amount of $132 million
was charged to retained earnings. For the defined benefit plans
and the non-pension employee benefit plans, actuarial valuations
are made each year to determine the present value of the accrued
benefits. Pension and non-pension benefit expenses are determined
based upon separate actu
arial valuations using the projected
benefit method pro-rated on service and management’s best
estimates of investment returns on the plan assets, compensa-
tion increases, retirement age of employees and estimated
health care costs. The discount rate used to value liabilities is
based on a market rate as of the valuation date. The expense
includes the cost of benefits for the current year’s service, interest
expense on liabilities, expected income on plan assets based on
fair values and the amor tization of plan amendments on a
straight-line basis over the expected average remaining service
life of the employee group. The excess, if any, of the net actuarial
gain or loss over 10% of the greater of the projected benefit
obligation and the fair value of plan assets is also amortized over
the expected average remaining service life of the employee
group. The cumulative difference between expense and funding
contributions is reported in other assets or other liabilities.
For the defined contribution plan, annual pension expense is
based on the Bank’s contributions to the plan.