TD Bank 2007 Annual Report Download - page 102

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Financial Results98
NOTE 14 ACCUMULATED OTHER COMPREHENSIVE INCOME
NOTE 15 STOCK-BASED COMPENSATION
Comprehensive income is composed of the Bank’s net income
and other comprehensive income. Other comprehensive income
includes unrealized gains and losses on available-for-sale
securities, foreign currency translation gains and losses on the
net investment in self-sustaining operations and changes in the
Accumulated Other Comprehensive Income, Net of Income Taxes
(millions of Canadian dollars) As at October 31, 2007 As at October 31, 2006
Unrealized gain on available-for-sale securities, net of cash flow hedges $ 393 $ –
Unrealized foreign currency translation losses on investments in subsidiaries,
net of hedging activities (2,073)(918)
Gains on derivatives designated as cash flow hedges 9–
Accumulated other comprehensive income balance as at October 31 $ (1,671 ) $ (918)
fair market value of derivative instruments designated as cash
flow hedges, all net of income taxes.
The following table summarizes the Bank’s accumulated
other comprehensive income (loss), net of income taxes, as at
October 31, 2007 and 2006.
The Bank operates various stock-based compensation plans.
The Bank uses the fair value method of accounting for all stock
option awards granted after October 31, 2002. Under the fair
value method, the Bank recognizes compensation expense based
on the fair value of the options, which is determined by using an
option pricing model. The fair value of the options is recognized
over the vesting period of the options granted as compensation
expense and contributed surplus. The contributed surplus balance
is reduced as the options are exercised and the amount initially
recorded for the options in contributed surplus is credited to
capital stock. No compensation expense is recorded for 23.9
million stock options awarded and outstanding prior to November
1, 2002, because the Bank prospectively adopted the current
accounting standard on stock-based compensation. 6.5 million of
these stock options remain unexercised, as at October 31, 2007.
STOCK OPTION PLAN
The Bank maintains a stock option program for certain key
employees and non-employee directors. Non-employee directors
have not been granted stock options since December 2001.
Options on common shares are periodically granted to eligible
employees of the Bank under the plan for terms of seven or ten
years and vest over a three or four-year period. These options
provide holders with the right to purchase common shares of
the Bank at a fixed price equal to the closing market price of
the shares on the day prior to the date the options were issued.
Under this plan, 11 million common shares have been reserved
for future issuance (2006 – 12.5 million; 2005 – 14.3 million).
The outstanding options expire on various dates to May 30, 2016.
A summary of the Bank’s stock option activity and related
information for the years ended October 31 is as follows:
Stock Option Activity
(millions of shares)
2007
Weighted
average
exercise
price 2006
Weighted
average
exercise
price 2005
Weighted
average
exercise
price
Number outstanding, beginning of year 18.3 $ 41.18 19.9 $38.08 22.1 $35.21
Conversion of TD Banknorth options to TD Bank underlying 4.1 57.16 – – – –
Granted 1.5 67.42 1.9 59.95 2.2 49.41
Exercised (3.8) 39.71 (3.4)33.78 (4.3)28.95
Forfeited/cancelled –54.46 (0.1)43.38 (0.1)38.46
Number outstanding, end of year 20.1 $ 45.02 18.3 $41.18 19.9 $38.08
Exercisable, end of year 15.0 $ 40.87 12.9 $37.85 13.2 $36.30
cancellation up to five million common shares, representing
approximately 0.7% of the Bank’s outstanding common shares as
at December 13, 2006. This bid was completed in August, 2007
after the purchase of five million shares at a cost of $356 million.
The Bank repurchased four million common shares at a cost of
$264 million under its previous normal course issuer bid which
commenced on September 18, 2006 and was completed in
October 2006.
DIVIDEND REINVESTMENT PLAN
The Bank offers a dividend reinvestment plan for its common
shareholders. Participation in the plan is optional and under the
terms of the plan, cash dividends on common shares are used to
purchase additional common shares. At the option of the Bank,
the common shares may be issued from the Bank’s treasury at an
average market price based on the last five trading days before
the date of the dividend payment, with a discount of between
0% to 5% at the Bank’s discretion, or from the open market at
market price. During the year, a total of 1.2 million common
shares were issued from the Bank’s treasury with no discount.
In 2006, 5 million common shares were issued from the Bank’s
treasury at a discount of 1% and an additional 0.4 million were
issued with no discount under the dividend reinvestment plan.
DIVIDEND RESTRICTIONS
The Bank is prohibited by the Bank Act from declaring dividends
on its preferred or common shares if there are reasonable grounds
for believing that the Bank is, or the payment would cause the
Bank to be, in contravention of the capital adequacy and liquidity
regulations of the Bank Act or directions of the Superintendent
of Financial Institutions Canada. The Bank does not anticipate
that this condition will restrict it from paying dividends in the nor-
mal course of business.
The Bank is also restricted from paying dividends in the event
that either Trust or Trust II fails to pay semi-annual distributions
in full to holders of their respective trust securities, TD CaTS and
TD CaTS II. In addition, the ability to pay dividends on common
shares without the approval of the holders of the outstanding
preferred shares is restricted unless all interest distributions and
dividends on the preferred shares have been declared and paid
or set apart for payment. Currently, these limitations do not
restrict the payment of interest on preferred shares or dividends
on common shares.