TD Bank 2006 Annual Report Download - page 112

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Financial Results
108
In 2006, TD Banknorth repurchased 8.5 million of its own shares
for $290 million (US$256 million) and the Bank acquired 1 million
additional shares of TD Banknorth for $34 million (US$30 million)
in the course of open-market purchases. In addition to the TD
Banknorth shares acquired by the Bank in relation to the Hudson
United Bancorp transaction (described below), the Bank began
reinvesting in TD Banknorth’s dividend reinvestment program in
November 2005 and, as at October 31, 2006, had acquired 3.4
million shares of TD Banknorth pursuant to the program. As at
October 31, 2006, the Bank’s ownership interest in TD Banknorth
was 57%, an increase from 55.5% as at October 31, 2005.
Hudson United Bancorp
On January 31, 2006, TD Banknorth completed the acquisition of
Hudson United Bancorp (Hudson) for total consideration of $2.2
billion (US$1.9 billion), consisting of cash consideration of $1,073
million (US$941.8 million) and the remainder in TD Banknorth
common shares. The cash consideration was funded by the sale
of TD Banknorth common shares to the Bank. TD Banknorth con-
solidates the financial results of Hudson. The transaction resulted
in a dilution loss for the Bank of $72 million in 2006. The acquisi-
tion of Hudson by TD Banknorth contributed $6.0 billion of
personal/business loans and mortgages, $3.2 billion of securities,
$1.9 billion of goodwill and intangibles, $.8 billion of other
assets, $8.4 billion of deposits and $3.5 billion of other liabilities
to the Bank’s Consolidated Balance Sheet.
Interchange Financial Services Corporation
On April 13, 2006, TD Banknorth announced an agreement to
acquire Interchange Financial Services Corporation (Interchange)
for US$480.6 million cash consideration. The deal is expected to
close in TD Banknorth’sfirst calendar quarter of 2007.
Cash for the transaction will be financed primarily through
TD Banknorth’s sale of approximately 13 million of its common
shares to the Bank at a price of US$31.17 per share, for approxi-
mately US$405 million. Based on the Bank’sownership interest
as at October 31, 2006, the impact of this transaction is expected
to bring the Bank’s percentage ownership of TD Banknorth
to 59.3%.
(c) TD Waterhouse U.S.A. and Ameritrade
On January 24, 2006, the Bank closed the transaction involving
the sale of its U.S. brokerage business, TD Waterhouse U.S.A.,
at a fair market value of $2.69 billion to Ameritrade Holding
Corporation (Ameritrade) in exchange for a 32.5% ownership in
the combined legal entity operating under the name “TD
Ameritrade”. The transaction resulted in a net dilution gain on
sale of US$1.45 billion ($1.67 billion) after-tax during the year
($1.64 billion pre-tax).
On acquisition, the Bank’s investment in TD Ameritrade less
the Bank’s share of TD Ameritrade’s net book value was approxi-
mately $3.7 billion and consisted primarily of intangibles (approx-
imately $930 million) and goodwill. In connection with the
transaction, TD Waterhouse Canada acquired 100% of
Ameritrade’s Canadian brokerage operations for $77 million
(US$67 million) cash consideration, which consisted primarily of
intangibles and goodwill.
Pursuant to the terms of the TD Ameritrade Stockholders
Agreement, the Bank’s beneficial ownership of TD Ameritrade is
currently limited to 39.9% of the outstanding voting securities.
This limit will increase to 45% in January 2009.
The Bank acquired 44.4 million shares for $939.1 million
(US$831.4 million) through open market purchases, which
together with TD Ameritrade’s share repurchase program, result-
ed in the Bank’s ownership interest in TD Ameritrade increasing
from 32.5% to 39.8% as at October 31, 2006.
The Bank reports its investment in TD Ameritrade using the
equity method of accounting. The fiscal periods of the Bank and
TD Ameritrade are not coterminus. The Bank’s equity share of TD
Ameritrade’s results from the acquisition date to September 30,
2006, has been reported in the Bank’s results for the fiscal year.
On September 14, 2006, the Bank announced an arrangement
with Lillooet Limited (Lillooet), a company sponsored by Royal
Bank of Canada, pursuant to which the Bank hedged the price
risk related to 27 million shares of TD Ameritrade common stock.
The number of shares hedged and the hedge price was deter-
mined based on market conditions over a specified hedging
establishment period.
The purpose of the arrangement with Lillooet is to provide the
Bank with price protection in the event it decides to increase its
beneficial ownership in TD Ameritrade in 2009. The arrangement
provides that Lillooet must make a payment to the Bank in early
2009 in the event that the trading price of TD Ameritrade shares
is in excess of a specific amount. If the trading price of TD
Ameritrade shares is below such amount, the Bank will be
required to pay Lillooet an amount related to such difference.
The arrangement is scheduled to be settled in 2009, subject to
acceleration or early termination in certain circumstances. The
arrangement does not provide the Bank any right to acquire, or
any voting or other ownership rights with respect to, any shares
of TD Ameritrade.
Lillooet is a variable interest entity and the Bank is its primary
beneficiary. Accordingly, the Bank has consolidated Lillooet’s
financial statements in these Consolidated Financial Statements.
As a result of consolidation, TD Ameritrade shares held by
Lillooet have been included in the Bank’s reported investment in
TD Ameritrade. The Bank has also recognized the income of TD
Ameritrade related to the .3% of TD Ameritrade shares owned
by Lillooet as at September 30, 2006. At November 15, 2006,
Lillooet owned 27 million shares of TD Ameritrade, representing
4.5% of the outstanding common shares of TD Ameritrade.
For a description of transactions with TD Ameritrade, see
Note 28.
In 2005, the Bank restructured its global structured products
businesses within Wholesale Banking to reduce focus on the less
profitable and morecomplex activities and concentrate resources
on growing the more profitable areas of the business. As a
result, the Bank recorded $43 million of restructuring costs in
2005.During 2006, the Bank recorded an additional $50 million
of restructuring costs, consisting primarily of severance costs in
relation to the restructuring of the global structured products
businesses.
Asat October 31, 2006, the total unutilized balance of restruc-
turing costs of $27 million (2005 – $25 million) shown below is
included in other liabilities in the Consolidated Balance Sheet.
RESTRUCTURING COSTS
NOTE 26