TD Bank 2001 Annual Report Download - page 50

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FINANCIAL RESULTS
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
The difference between the acquisition cost of an investment
and the fair value of the net tangible assets acquired is allocated
firstly to intangible assets and the residual excess to goodwill.
Core deposit intangibles represent the intangible value of depositor
relationships acquired when deposit liabilities are assumed in an
acquisition. Other significant intangibles include term deposit,
loan and mutual fund intangibles resulting from acquisitions.
Intangible assets are amortized to income on a double declining
basis over eight years, based on their estimated useful lives.
Intangible assets are considered impaired and are written down
to their net recoverable amount when their net book value
exceeds their estimated future net cash flows. Goodwill is amor-
tized to income over a period not to exceed 20 years. Goodwill
amortization is presented on a net of tax basis as a separate
item in the consolidated statement of income, after the provision
for income taxes and non-controlling interest in net income
of subsidiaries. Goodwill is considered impaired and is written
down to fair value when the net book value of the investment
exceeds its estimated future net cash flows and the decline is
other than temporary.
(m) Land, buildings and equipment
Land is reported at cost. Buildings, equipment and lease hold
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 meth-
ods 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 two stock-based compensation plans. The
first of these is a stock option plan for eligible employees.
Participants may, subject to vesting provisions, exercise their
options for shares or may elect to receive cash for the options
equal to their intrinsic value, being the difference between the
option exercise price and the current market value of the shares.
No expenses are recorded when the stock options are issued. The
consideration paid by option holders on the exercise of the options
is credited to capital stock. Cash payments to option holders
who elect to receive cash are charged to retained earnings on a
net of tax basis. Certain employees of a subsidiary company,
TD Waterhouse Group, Inc. (TD Waterhouse) also participate in
the Bank’s stock option plan. In addition, TD Waterhouse offers a
stock option plan to its eligible employees allowing participants,
subject to vesting provisions, to exercise their options for TD
Waterhouse shares. The consideration paid by option holders on
the exercise of the options is credited to TD Waterhouse capital
stock and is reflected as an increase in non-controlling interest
in subsidiaries in the Bank’s consolidated balance sheet.
The second stock-based compensation plan is a share pur-
chase 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 contributions are recorded in salaries and
employee benefits.
(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-employment
benefits are those on long-term disability.
As of November 1, 2000, the Bank adopted the new account-
ing standard on employee future benefits on a retroactive
basis without restatement. As a result, an after-tax amount of
$132 million has been 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, compensation 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 valua-
tion 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.
(p) Provision for income taxes
The Bank recognizes both the current and future income tax
consequences of all transactions that have been recognized in
the financial statements. Future income tax assets and liabilities
are determined based on the tax rates that are expected to apply
when the assets or liabilities are reported for tax purposes.
(q) Comparative figures
Certain comparative figures have been reclassified to conform
with the presentation adopted in 2001.