TD Bank 2006 Annual Report Download - page 94

TD BANK FINANCIAL GROUP ANNUAL REPORT 2006 Financial Results
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TD Banknorth Stock Option Activity
Weighted Weighted
average average
exercise exercise
(millions of shares) 2006 price 2005 price
Number outstanding,
beginning of year 8.0 $30.38 6.3 $28.36
Granted 2.6 31.34 2.2 36.31
Exercised (.5) 25.92 (.4) 29.11
Forfeited/cancelled (.3) 32.80 (.1) 35.95
Number outstanding, end of year 9.8 $29.79 8.0 $30.38
Exercisable, end of year 6.3 $27.89 5.0 $28.14
service with the Bank. For the year ended October 31, 2006,
the Bank’s contributions totaled $41 million (2005 – $36 million;
2004 – $33 million). As at October 31, 2006, an aggregate of 6
million common shares were held under the ESP (2005 – 5.9 mil-
lion; 2004 – 5.4 million). The shares in the ESP are purchased in
the open market and are considered outstanding for computing
the Bank’s basic and diluted earnings per share. Dividends earned
on Bank common shares held by the ESP are used to purchase
additional common shares for the ESP in the open market.
TD BANKNORTH
TD Banknorth Inc. (TD Banknorth) also maintains various stock
option plans for key employees and non-employee directors.
The options provide holders with the right to purchase common
shares of TD Banknorth Inc. at a fixed price. Activity for all stock
option plans is summarized below:
The following table summarizes information relating to stock
options outstanding and exercisable at October 31, 2006.
TD Banknorth Range of Exercise Prices
Options outstanding Options exercisable
Number of shares Weighted Number of shares
outstanding average remaining Weighted average outstanding Weighted average
(millions of shares) contractual life exercise price (millions of shares) exercise price
$14.52 - $18.15 .2 3.2578 $15.80 .2 $15.80
$18.15 - $21.78 .6 3.4061 19.55 .6 19.55
$21.78 - $25.41 .7 4.1625 23.30 .7 23.30
$25.41 - $29.04 1.6 5.8088 26.19 1.6 26.19
$29.04 - $32.67 4.7 7.5444 31.84 2.4 31.46
$32.67 - $36.30 2.0 8.0813 34.89 .8 34.84
The fair value of options granted was estimated at the date of
grant using the Black-Scholes valuation model with the following
assumptions: (i) risk-free interest rate of 4.47% (2005 – 4.17%);
(ii) expected option life of 7.5 years (2005 – 7.5 years); (iii)
expected volatility of 15.08% (2005 – 13.09%); and (iv) expected
dividend yield of 2.78% (2005 – 2.32%). During the year, 2.6
million (2005 –2.2 million) of options weregranted with a
weighted average fair value of $5.77 per option (2005 – $ 6.34
per option).
During the year,TD Banknorth recognized compensation
expense in its income statement of $8 million (2005 – $3 million)
for the stock option awards granted.
TD BANKNORTH OTHER STOCK-BASED
COMPENSATION PLANS
TD Banknorth operates an equity incentive plan for directors,
officers and certain employees of TD Banknorth. Under this plan,
participants aregranted restricted share units to be settled in
cash or TD Banknorth’s common shares that generally vest at the
end of three years. The number of TD Banknorth restricted share
units under these plans at October 31, 2006 was 1.4 million
(2005 – .7 million).
TD Banknorth offers aperformance-based restricted share unit
plan to certain executives. This plan provides for the grant of
restricted stock units tied to the market value of a common share
of the Bank. The cash amount payable in respect of the perform-
ance-based restricted stock units is adjusted up or down, up to
amaximum of 20%, to reflect the performance of TD Banknorth
against an annual operating earnings per sharegrowth target.
As at October 31, 2006, .4 million deferred share units were
outstanding (2005 – .5 million).
Compensation expense for these plans is recorded in the year
the incentive award is earned by the plan participant. Changes
in the value of restricted share units and deferred share units
are recorded, net of the effects of related hedges, in its income
statement. For the year ended October 31, 2006, TD Banknorth
recognized compensation expense, net of the effects of hedges,
for these plans of $19 million (2005 – $10 million).
In addition, TD Banknorth and its subsidiaries maintain 401(k)
plans covering substantially all permanent employees, and an
employee stock purchase plan that is available to employees with
one year of service.
The Bank’s principal pension plan, The Pension Fund Society of
The Toronto-Dominion Bank (the Society), is a defined benefit
plan for which membership is voluntary. Benefits under the plan
aredetermined based upon the length of service and the final
five year average salary of the member. As a result of the acquisi-
tion of CT Financial Services Inc. (CT), the Bank sponsors a pen-
sion plan consisting of a defined benefit portion and a defined
contribution portion. Funding for both defined benefit plans is
provided by contributions from the Bank and members of the
plans. In addition, the Bank maintains other partially funded
benefit plans for eligible employees. Related retirement benefits
are paid from the Bank’s assets and contributions.
The Bank also provides certain post-retirement benefits, post-
employment benefits, compensated absence and termination
benefits for its employees (non-pension employee benefits), which
aregenerally 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. Some retirees may be required to pay a portion
of the cost of their benefits. Employees eligible for the post-
employment benefits are those on disability and maternity leave.
EMPLOYEE FUTURE BENEFITS
NOTE 15