NOTE 12
INVESTMENT IN ASSOCIATES AND JOINT VENTURES
INVESTMENT IN TD AMERITRADE HOLDING CORPORATION The Bank has significant influence over TD Ameritrade Holding Corporation (TD Ameritrade) and accounts for its investment in TD Ameritrade using the equity method. The Bank’s equity share in TD Ameritrade’s earnings, excluding dividends, is reported on a one-month lag basis. The Bank takes into account changes in the subsequent period that would significantly affect the results. As at October 31, 2016, the Bank’s reported investment in TD Ameritrade was 42.38% (October 31, 2015 – 41.54%) of the outstanding shares of TD Ameritrade with a fair value of $10 billion (US$8 billion) (October 31, 2015 – $10 billion (US$8 billion)) based on the closing price of US$34.21 (October 31, 2015 – US$34.47) on the New York Stock Exchange.
During the year ended October 31, 2016, TD Ameritrade repurchased 12.0 million shares (for the year ended October 31, 2015 – 8.4 million shares). Pursuant to the Stockholders Agreement in relation to the Bank’s equity investment in TD Ameritrade, if stock repurchases by TD Ameritrade cause the Bank’s ownership percentage to exceed 45%, the Bank is required to use reasonable efforts to sell or dispose of such excess stock, subject to the Bank’s commercial judgment as to the optimal timing, amount, and method of sales with a view to maximizing proceeds from such sales. However, in the event that stock repurchases by TD Ameritrade cause the Bank’s ownership percentage to exceed 45%, the Bank has no absolute obligation to reduce its ownership
Condensed Consolidated Balance Sheets1 (millions of Canadian dollars)
Assets
Receivables from brokers, dealers, and clearing organizations Receivables from clients, net Other assets, net
Total assets
Liabilities Payable to brokers, dealers, and clearing organizations Payable to clients Other liabilities
Total liabilities Stockholders’ equity2
Total liabilities and stockholders’ equity 1
2
Customers’ securities are reported on a settlement date basis whereas the Bank reports customers’ securities on a trade date basis.
The difference between the carrying value of the Bank’s investment in TD Ameritrade and the Bank’s share of TD Ameritrade’s stockholders’ equity is comprised of goodwill, other intangibles, and the cumulative translation adjustment.
Condensed Consolidated Statements of Income (millions of Canadian dollars, except as noted)
2016
Revenues Net interest revenue
Fee-based and other revenue Total revenues
Operating expenses
Employee compensation and benefits Other
Total operating expenses Other expense (income) Pre-tax income
Provision for income taxes Net income1
Earnings per share – basic (dollars) Earning per share – diluted (dollars) 1
1,111 1,553
2,664 70
1,678 563
$ 1,115 $ 2.10
2.09
The Bank’s equity share of net income of TD Ameritrade is subject to adjustments relating to amortization of intangibles, which are not included.
991
1,370 2,361 45
1,585 585
$ 1,000 $ 1.84
1.83 823
1,168 1,991 17
1,377 524
$ 853 $ 1.55
1.54
$ 789 3,623
4,412
$ 1,596 16,014 21,038
$ 38,648
$ 2,736 25,555 3,583
31,874 6,774
$ 38,648
$ 1,127 16,697 16,661
$ 34,485
$ 3,539 20,966 3,570
28,075 6,410
$ 34,485
percentage to 45%. In addition, stock repurchases by TD Ameritrade cannot result in the Bank’s ownership percentage exceeding 47%. Pursuant to the Stockholders Agreement in relation to the Bank’s equity investment in TD Ameritrade, the Bank has the right to designate five of twelve members of TD Ameritrade’s Board of Directors. The Bank’s designated directors currently include the Bank’s Group President and Chief Executive Officer and four independent directors of TD or TD’s U.S. subsidiaries.
TD Ameritrade has no significant contingent liabilities to which the Bank is exposed. During the years ended October 31, 2016, and October 31, 2015, TD Ameritrade did not experience any significant restrictions to transfer funds in the form of cash dividends, or repayment of loans or advances.
Pursuant to its pre-emptive rights and subject to any required regulatory approval, the Bank intends to purchase US$400 million in new common equity from TD Ameritrade in connection with TD Ameritrade’s acquisition of Scottrade Financial Services, Inc. (Scottrade). As a result, the Bank’s anticipated pro forma common stock ownership in TD Ameritrade is expected to be approximately 41.4%. Refer to the “Financial Results Overview – Significant Events in 2016” section of the MD&A for a discussion of the announced acquisition of Scottrade Bank.
The condensed financial statements of TD Ameritrade, based on its consolidated financial statements, are included in the following tables.
As at
September 30 September 30 2016
2015
For the years ended September 30 2015
$ 764 3,227
3,991
$ 629 2,756
3,385
2014
TD BANK GROUP ANNUAL REPORT 2016 FINANCIAL RESULTS 167
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