TD Bank 2007 Annual Report Download - page 97

TD BANK FINANCIAL GROUP ANNUAL REPORT 2007 Financial Results 93
NOTE 7LAND, BUILDINGS AND EQUIPMENT
NOTE 6VARIABLE INTEREST ENTITIES
A VIE is an entity in which the total equity investment at risk is
not sufficient to permit the entity to finance its activities without
additional subordinate financial support. The Bank identifies VIEs
in which it has an interest, determines whether it is the primary
beneficiary of such entities and if so, consolidates them. The pri-
mary beneficiary is an entity that is exposed to a majority of the
VIE’s expected losses or entitled to a majority of the VIE’s expect-
ed residual returns, or both.
The Bank is considered the primary beneficiary of Lillooet
Limited, which is discussed in Note 28. The Bank has no other sig-
nificant VIEs for which it is the primary beneficiary.
The Bank holds significant variable interests in VIEs where it is
not considered the primary beneficiary. The Bank’s variable inter-
ests in these non-consolidated VIEs are discussed below.
MULTI-SELLER CONDUITS
Multi-seller conduits (also referred to as customer securitization
vehicles) provide customers with alternate sources of financing
through the securitization of their assets. The customers sell their
receivables to the conduit and the conduit funds its purchase of
the receivables through issuance of short-term commercial paper
to outside investors. Each seller continues to service its assets and
absorb first losses. The Bank has no rights to the assets as they
are owned by the conduit. The Bank administers the conduits and
may also provide credit enhancements, swap facilities or liquidity
facilities to the conduits as well as securities distribution services.
During 2007, the Bank converted its liquidity facilities provided to
the conduits from general market disruption liquidity facilities to
liquidity facilities which can be drawn by the conduits as long as
at the time of the draw the conduit meets certain tests designed
to ensure the Bank does not provide credit enhancement. From
time to time, the Bank in its capacity as distribution agent may
hold commercial paper issued by the conduits which is classified
as trading securities. Also, the Bank earns fees which are recog-
nized when earned. The Bank holds variable interests in these
multi-seller conduits primarily through holding their commercial
paper, providing liquidity facilities and earning fees, however, the
Bank is not the primary beneficiary.
As at October 31, 2007, the multi-seller conduits had $12.6
billion (2006 – $10.3 billion) of commercial paper outstanding.
While the probability of loss is negligible, the Bank’s maximum
potential exposure to loss from these conduits was $12.6 billion
(2006 – $10.3 billion) due to its ownership interest in the com-
mercial paper and through the provision of liquidity facilities.
SINGLE-SELLER CONDUITS
The Bank uses single-seller conduits to enhance its liquidity posi-
tion, to diversify its sources of funding and to optimize manage-
ment of its balance sheet.
As at October 31, 2007, the single-seller conduits had $5.1 bil-
lion (2006 - $4.1 billion) of commercial paper outstanding. While
the probability of loss is negligible, the Bank’s maximum potential
exposure to loss for these conduits was $5.1 billion (2006 – $4.1
billion), through sole provision of liquidity facilities.
OTHER FINANCIAL TRANSACTIONS
The Bank enters into structured transactions with VIEs to assist
corporate clients in accessing cost efficient financing. Generally
both the Bank and the client invest in such VIEs with the proceeds
used to make loans to entities affiliated with the client. The Bank
is not the primary beneficiary of these VIEs and as at October 31,
2007, the Bank provided approximately $3 billion (2006 - $2 bil-
lion) in financing to these VIEs. The Bank has received guarantees
totaling approximately $3 billion from major financial institutions
covering our investments in these VIEs. In addition, the Bank has
received approximately $888 million of collateral and has pur-
chased $605 million of credit default swaps to further mitigate
any exposure to these VIEs. These VIEs held in excess of $12 bil-
lion in total assets as of October 31, 2007. The Bank’s maximum
total exposure to loss before considering guarantees, collateral
and credit default swaps is approximately $3 billion as at
October 31, 2007.
Buildings, equipment, furniture and fixtures, computer equipment
and software and leasehold improvements are recorded at cost
less accumulated depreciation. Land is recorded at cost. Gains
and losses on disposal are included in other income in the
Consolidated Statement of Income. When the Bank reports a gain
on sale of property in which it retains a significant leasing inter-
est, 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. When land, building and equipment are no
longer in use or considered impaired, they are written down to
their net recoverable amount. The Bank evaluates the carrying
value of long-lived assets whenever changes in circumstances
indicate that a potential impairment has occurred. Impairment is
considered to have occurred if the projected undiscounted cash
flows resulting from the use and eventual disposition of the assets
are less than their carrying value, at which time a write-down
would be recorded.
The Bank recognizes the legal obligation associated with the
retirement of a long-lived asset in the period in which it occurs
and can be reasonably estimated. The liability and corresponding
asset are recognized at fair value. The increase in the long-lived
asset is depreciated over the remaining useful life of the asset.
Depreciation methods and rates by asset category are
as follows:
Asset Depreciation rate and method
Buildings 5% or 10%, declining balance
Computer equipment 30%, declining balance
Computer software 3 to 7 years, straight-line
Furniture, fixtures and other equipment 20%, declining balance
Leasehold improvements lesser of lease term or
useful life, straight-line
(millions of Canadian dollars) 2007 2006
Cost
Accumulated
depreciation
Net book
value
Net book
value
Land $ 214 $ – $ 214 $ 229
Buildings 743 359 384 405
Computer equipment and software 1,224 760 464 461
Furniture, fixtures and other equipment 899 545 354 367
Leasehold improvements 808 402 406 400
Total $ 3,888 $ 2,066 $ 1,822 $ 1,862
Accumulated depreciation at the end of 2006 was $1,927 million.
Depreciation expense for buildings and equipment amounted to
$362 million for 2007 (2006 – $343 million; 2005 – $322 million).