TD Bank 2007 Annual Report Download - page 21

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Management’s Discussion and Analysis 17
TD Banknorth
Going-private transaction
On April 20, 2007, the Bank completed its privatization of
TD Banknorth. Under this transaction, the Bank acquired all of
the outstanding common shares of TD Banknorth that it did
not already own for US$32.33 per TD Banknorth share for a
total cash consideration of $3.7 billion (US$3.3 billion). The
acquisition has been accounted for by the purchase method.
On closing, TD Banknorth became a wholly-owned subsidiary
of the Bank and TD Banknorth’s shares were delisted from the
New York Stock Exchange.
As a result of the transaction, there was a net increase in
goodwill and intangibles on the Bank’s Consolidated Balance
Sheet at the completion of the transaction of approximately
$1.5 billion. Other purchase consideration allocation adjust-
ments were not significant. The allocation of the purchase price
is subject to finalization.
In the normal course of the Bank’s financial reporting,
TD Banknorth is consolidated on a one month lag basis.
Acquisition of Interchange Financial Services Corporation
TD Banknorth completed its acquisition of Interchange on
January 1, 2007 for a total cash consideration of $545 million
(US$468.1 million), financed primarily through TD Banknorth’s
sale of 13 million of its common shares to the Bank for
$472 million (US$405 million). As a result, $1.9 billion of
assets and $1.4 billion of liabilities were included in the Bank’s
Interim Consolidated Balance Sheet at the date of acquisition.
TD Banknorth consolidates the financial results of Interchange.
TD Ameritrade
TD Ameritrade announced two common stock repurchase
programs in 2006 for an aggregate of 32 million shares. As a
result of TD Ameritrade’s share repurchase activity, the Bank’s
direct ownership position in TD Ameritrade increased above the
ownership cap of 39.9% under the Stockholders Agreement.
In accordance with the Bank’s previously announced intention,
the Bank sold three million shares of TD Ameritrade in the
second quarter to bring its direct ownership position to 39.9%.
The Bank recognized a gain of $6 million on this sale.
As at October 31, 2007, the Bank’s beneficial ownership of
TD Ameritrade was 39.99% due to continued TD Ameritrade
share repurchase activity. The Bank intends to sell shares of
TD Ameritrade to bring its beneficial ownership of TD Ameritrade
to, or under, the ownership cap of 39.9% in accordance with
the Stockholders Agreement.
Moreover, as a result of consolidation of financial statements
of Lillooet Limited (Lillooet) in the Consolidated Financial
Statements for the year ended October 31, 2007, TD Ameritrade
shares held by Lillooet have been included in the Bank’s
reported investment in TD Ameritrade. The Bank has recognized
income of TD Ameritrade related to the TD Ameritrade shares
owned by Lillooet for the year ended October 31, 2007.
For more details, see Note 28 to the Consolidated Financial
Statements.
FINANCIAL RESULTS OVERVIEW
Net Income
AT A GLANCE OVERVIEW
• Reported net income was $3,997 million, down
$606 million, or 13%, from 2006.
• Adjusted net income was $4,189 million, up $813 million,
or 24%, from 2006.
Reported net income was $3,997 million, compared with
$4,603 million in 2006. The decrease in reported net income
was entirely due to the $1,665 million dilution gain from the
sale of TD Waterhouse U.S.A. to Ameritrade in 2006, partially
offset by higher operating earnings. Adjusted net income was
$4,189 million, compared with $3,376 million in 2006. The
increase in adjusted net income was driven by year-over-year
earnings growth from all business segments, as well as a
smaller loss in the Corporate segment. Canadian Personal and
Commercial Banking net income increased by $287 million due
to volume growth, higher insurance revenue and improved fee
revenue. U.S. Personal and Commercial Banking adjusted net
income grew by $104 million, primarily due to higher Bank
ownership resulting from the privatization of TD Banknorth on
April 20, 2007. The Canadian Wealth Management business
generated net income growth of $91 million, largely due to
growth in assets under management and assets under adminis-
tration. TD Ameritrade’s contribution for the year rose $81 mil-
lion, driven by higher economic ownership and strong revenue
growth. Wholesale Banking delivered an increase in adjusted
net income of $160 million, driven largely by stronger results
from the capital markets businesses.
Reported diluted earnings per share were $5.48, compared
with $6.34 in 2006. Adjusted diluted earnings per share were
$5.75, an increase of 23%, compared with $4.66 in 2006. The
increase in adjusted diluted earnings per share was a result of
the higher adjusted net income.
U.S. GAAP (see the Reconciliation of Canadian and U.S.
Generally Accepted Accounting Principles contained in the
Bank’s 2007 Annual Report on Form 40-F filed with the U.S.
Securities and Exchange Commission (SEC) and available on the
Bank’s website at http://www.td.com/investor/index.jsp and at
the SEC’s internet site (http.//www.sec.gov)).
Net income available to common shareholders under U.S.
GAAP was $4,053 million, compared with $3,977 million under
Canadian GAAP. The higher U.S. GAAP net income available to
common shareholders primarily resulted from recognition of
unrealized gains related to the reclassification of certain securi-
ties from available for sale to trading, and from an increase in
income due to the de-designation of certain fair value and cash
flow hedging relationships that were designated under
Canadian GAAP effective November 1, 2006.