TD Bank 2003 Annual Report Download - page 63

TD BANK FINANCIAL GROUP ANNUAL REPORT 2003 • Financial Results 61
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 impair-
ment is determined. The Bank’s finite life intangible assets consist
primarily of core deposit intangibles that represent the intangible
value of depositor relationships acquired when deposit liabilities
are assumed in an acquisition. Other significant finite life intangi-
ble assets include term deposit, loan and mutual fund intangibles
resulting from acquisitions. The majority of these finite life intan-
gible 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.
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. Gains
and losses on disposal are included in other income in the
Consolidated Statement of Operations. When land, building and
equipment are no longer in use or considered impaired they are
written down to their net recoverable amount. 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 of the
Bank. Under this plan, options are periodically awarded to partici-
pants 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 stock
options issued up to October 31, 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 out-
standing 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. As of November 1, 2002,
the Bank adopted the accounting standard on stock-based com-
pensation and has elected to adopt on a prospective basis the fair
value method of accounting for all stock option awards. Under
this method the Bank recognizes a compensation expense based
on the fair value of the options on the date of grant 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 stock options awarded and outstanding
prior to November 1, 2002.
The Bank also operates a share purchase plan available to all
employees. Under the plan, the Bank matches 50% of employ-
ees’ 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.
In addition, the Bank operates phantom share unit plans which
are offered to certain employees of the Bank. Under these plans
participants are granted phantom share units equivalent to the
Bank’s common stock that generally vest over three to four years.
A liability is established by the Bank related to the phantom share
units awarded and an incentive compensation expense is recog-
nized in the Consolidated Statement of Operations over the
vesting period. At the maturity date, the participant receives
cash representing the value of the phantom share units. The Bank
also offers deferred share unit plans to eligible executives. Under
these plans a portion of the participant’s annual incentive award
may be deferred as share units equivalent to the Bank’s common
stock. The deferred share units are redeemable when the partici-
pant ceases to be an employee of the Bank and must be
redeemed for cash within one year thereafter. Dividend equiva-
lents accrue to the participants. Compensation expense for these
plans are recorded in the year the incentive award is earned by
the plan participant. 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 contributions from the Bank and members of the plans. In
addition, the Bank maintains 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 disability and maternity leave.
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 actuarial valuations using the
projected benefit method pro-rated on service and management’s
best estimates of investment returns on the plan assets, compen-
sation 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 amortization 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 plans, 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.
The Bank records a valuation allowance when it is not more
likely than not that all of the future tax assets recognized will
be realized prior to their expiration.