TD Bank 2009 Annual Report Download - page 128

TD BANK FINANCIAL GROUP ANNUAL REPORT 2009 FINANCIAL RESULTS124
c) Commerce
As a result of the Commerce acquisition on March 31, 2008, all of
the Commerce stock options, aggregating to 19.6 million, vested on
acquisition and were immediately converted into 10.8 million stock
options of the Bank using the exchange ratio set out in the merger
agreement. The fair value of the converted options was $263 million.
This was recorded in contributed surplus and was part of the purchase
consideration. As a result of the conversion, there are no longer any
Commerce stock options outstanding.
OTHER STOCK-BASED COMPENSATION PLANS
a) The Bank
The Bank operates restricted share unit and performance share unit
plans which are offered to certain employees of the Bank. Under these
plans, participants are awarded share units equivalent to the Bank’s
common shares that generally vest over three years. A liability is accrued
by the Bank related to such share units awarded and an incentive
compensation expense is recognized in the Consolidated Statement of
Income over the vesting period. At the maturity date, the participant
receives cash representing the value of the share units. The final number
of performance share units will vary from 80% to 120% of the initial
number awarded based on the Bank’s total shareholder return relative
to the average of the North American peer group. The number of
such share units outstanding under these plans as at October 31, 2009
is 11 million (2008 – 9 million; 2007 – 8 million).
The Bank also offers deferred share unit plans to eligible employees
and non-employee directors. Under these plans, a portion of the
participant’s annual incentive award and/or maturing share units may
be deferred as share units equivalent to the Bank’s common shares.
The deferred share units are not redeemable by the participant until
retirement, permanent disability or termination of employment or
directorship and must be redeemed for cash by the end of the next
calendar year. Dividend equivalents accrue to the participants in the
form of additional units. As at October 31, 2009, 2.5 million deferred
share units were outstanding (2008 – 2.3 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 these plans are recorded, net of the effects of related hedges, in
the Consolidated Statement of Income. For the year ended October
31, 2009, the Bank recognized compensation expense, net of the
effects of hedges, for these plans of $235 million (2008 – $191 million;
2007 – $125 million). The compensation expense recognized before
the effects of hedges was $309 million (2008 – $77 million; 2007 –
$202 million).
b) TD Banknorth
TD Banknorth offered restricted share units and performance share
unit plans for certain employees of TD Banknorth. Under these plans,
participants were granted units equivalent to TD Banknorth common
shares that generally vest at the end of three years. The number of
performance share units was adjusted to reflect the performance of
TD Banknorth against an annual operating earnings per share growth
target. At the maturity date, the participant receives cash representing
the value of the share units. As a result of the TD Banknorth privatiza-
tion, share units were converted to the equivalent of the Bank’s
common shares using the exchange ratio set out in the merger agree-
ment. In addition, for future performance periods, the final number
of performance share units will be adjusted based on the Bank’s
total shareholder return relative to the average of the other major
Canadian banks.
TD Banknorth also offered a performance-based restricted share
unit plan to certain executives that provided for the grant of share
units equivalent to the Bank’s common shares which vest at the end
of three years. The number of performance share units for the first
two years of the performance period was adjusted to reflect the
performance of TD Banknorth against an annual operating earnings
per share growth target. As a result of the TD Banknorth privatization,
the number of performance share units for the third and final year
of the performance period will be adjusted based on the Bank’s
total shareholder return relative to the average of the other major
Canadian banks.
The number of TD Banknorth share units under these plans as
at October 31, 2009 was 0.4 million (2008 – 0.5 million; 2007 –
1.6 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 share units are recorded, net of the effects of related
hedges, in the Consolidated Statement of Income. During the year,
TD Banknorth recognized compensation expense, net of the effects
of hedges, for these plans of $14 million (2008 – $32 million; 2007 –
$37 million). The compensation expense recognized before the effects
of hedges was $4 million (2008 – $12 million; 2007 – $46 million).
An employee stock purchase plan was available to employees with
one year of service. Participation in the employee stock purchase plan
ceased on December 31, 2006.
EMPLOYEE OWNERSHIP PLAN
The Bank also operates a share purchase plan available to employees.
Employees can contribute any amount of their eligible earnings
(net of source deductions) to the Employee Ownership Plan. The Bank
matches 100% of the first $250 of employee contributions each year
and the remainder of employee contributions at 50% to an overall
maximum of 3.5% of the employee’s eligible earnings or $2,250,
whichever comes first. Prior to March 1, 2007, employees could
contribute up to 6% of their annual base earnings to a maximum of
$4,500 per calendar year toward the purchase of the Bank’s common
shares. The Bank matched 50% of the employee contribution amount.
The Bank’s contributions vest once an employee has completed
two years of continuous service with the Bank. For the year ended
October 31, 2009, the Bank’s contributions totalled $52 million
(2008 – $52 million; 2007 – $49 million) and were expensed as part
of salaries and employee benefits incurred. As at October 31, 2009,
an aggregate of 8.7 million common shares were held under the
Employee Ownership Plan (2008 – 7.4 million; 2007 – 6.5 million).
The shares in the Employee Ownership Plan 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 Employee Ownership Plan are used to purchase
additional common shares for the Employee Ownership Plan in the
open market.