Bank of Montreal 1997 Annual Report Download - page 85

Bank of Montreal 180th Annual Report 1997 79
In 1996 we also granted options to Grupo Financiero Bancomer
to purchase up to 9,957,285 of our common shares as part of
the consideration paid for our investment in Grupo Financiero
Bancomer. The options can be exercised starting March 29, 2001
and expire on March 29, 2003. The options can only be exercised
if Grupo Financiero Bancomer meets certain performance
targets. The value we assigned to each option was $2.22 which
has been included in the value of common shares in our
Statement of Shareholders’ Equity.
One of our subsidiaries, Bank of Montreal Securities Canada
Limited, has issued various classes of non-voting shares which
can be exchanged for our common shares. Class B and C shares
can be exchanged at the option of the holder for our common
shares. The number of our common shares that will be issued on
the exchange of these shares is based on a formula. Class E
shares can be exchanged at the option of the holder over a four-
year period, with 25% of the shares becoming exchangeable
each year. Class F shares can be exchanged at any time at the
option of the holder.
The Nesbitt Burns Corporation Limited, a subsidiary of Bank
of Montreal Securities Canada Limited, has issued non-voting
Class D shares which are exchangeable for our common shares.
However, we have the option of redeeming these shares for
cash, if we choose, with the amount based on the net book value
of the shares.
At the end of the current year, we had reserved 6,727,097
common shares for potential issue in respect of our Shareholder
Dividend Reinvestment and Share Purchase Plan, 7,402,920
common shares in respect of the exchange of Class B, C, E and F
shares of Bank of Montreal Securities Canada Limited, 1,000,000
common shares in respect of the exchange of Class D shares of
The Nesbitt Burns Corporation Limited and 29,545,185 common
shares for the potential exercise of stock options.
Potential Share Issuances
The following table sets out the number of common shares
which we may issue in various circumstances:
1997 1996
Issue Number Price Number Price
date of shares per share of shares per share
Stock Option Plan 1995 2,414,400 $ 25.50 2,604,200 $ 25.50
1996 2,838,500 31.00 3,042,500 31.00
1997 2,758,850 39.85 – –
1997 75,000 57.50 – –
8,086,750 5,646,700
Other options 1996 9,957,285 $ 36.50 9,957,285 $ 36.50
18,044,035 15,603,985
Other convertible
issuances 1992 2,763,516 $ 14.03 2,954,133 $ 14.12
1994 2,237,474 18.07 3,302,055 17.93
5,000,990 6,256,188
Total 23,045,025 21,860,173
This table does not include share issues which are redeemable at our option or subject to
our ability to settle a conversion option with cash.
We report income tax expense in the Consolidated Statement of Income
based upon transactions recorded in the consolidated financial statements
regardless of when they are recognized for income tax purposes.
Total income taxes include our provision for income taxes in the
Consolidated Statement of Income and income taxes in respect of items
recorded directly in retained earnings.
Provision for Income Taxes 1997 1996 1995
Provision for income taxes reported in the
Consolidated Statement of Income $ 840 $ 757 $ 662
Income tax expense (benefit) related to
foreign currency translation reported
in shareholders’ equity (92) 10 9
Total $ 748 $ 767 $ 671
Components of Total Income Taxes
Canada:
Current
Federal $ 443 $ 440 $ 364
Provincial 169 144 122
612 584 486
Deferred
Federal (83) 47 54
Provincial (24) 15 18
(107) 62 72
Total Canadian 505 646 558
Foreign:
Current 252 103 118
Deferred (9) 18 (5)
Total Foreign 243 121 113
Total $ 748 $ 767 $ 671
Net deferred income taxes included in other assets is the cumulative
amount of tax applicable to differences in timing between when we recog-
nize transactions for accounting and tax purposes.
Changes in Accounting Policies
The Canadian Institute of Chartered Accountants has approved new
standards for recording and disclosing income taxes beginning in fiscal
2001. Our practices already comply with these new standards.
We are subject to Canadian taxation on the income earned in our
foreign branches, and certain earnings of foreign subsidiaries
when repatriated to Canada. Income which we earn in foreign
countries is generally subject to tax in those countries.
Components of Deferred Income Tax Balances
1997 1996
Deferred Income Tax Assets
Allowance for credit losses $ 370 $ 296
Deferred items 95 75
Other 100 58
565 429
Valuation allowance (12) (11)
Deferred Income Tax Assets 553 418
Deferred Income Tax Liabilities
Premises and equipment (132) (106)
Deferred pension (125) (126)
Purchase accounting adjustments (16) (19)
Other (3) (6)
Deferred Income Tax Liabilities (276) (257)
Net Deferred Income Tax Asset $ 277 $ 161
Note 13 Income Taxes