Bank of Montreal 1997 Annual Report Download - page 86

Bank of Montreal 180th Annual Report 199780
Set out below is a reconciliation of our statutory tax rates and income tax that would be payable at these rates to the effective income
tax rates and provision for income taxes that we have reported in our Consolidated Statement of Income:
1997 1996 1995
Combined Canadian federal and provincial income taxes and statutory tax rate $ 909 41.9% $ 816 42.0% $ 696 41.9%
Increase (decrease) resulting from:
Tax-exempt income (71) (3.3) (67) (3.5) (51) (3.0)
Foreign operations subject to different tax rates (71) (3.3) (60) (3.1) (47) (2.8)
Goodwill and other valuation intangibles not deductible for tax purposes 21 1.0 21 1.1 26 1.5
Large corporations tax 8 0.4 9 0.4 7 0.4
Financial institutions temporary surcharge 10 0.4 9 0.4 6 0.3
Other 34 1.6 29 1.6 25 1.5
Provision for Income Taxes and Effective Tax Rate $ 840 38.7% $ 757 38.9% $ 662 39.8%
Our basic net income per common share is calculated by
dividing our net income, after deducting total preferred share
dividends, by the daily average number of fully paid common
shares outstanding throughout the year.
Our fully diluted net income per common share takes into
account the effects of certain securities that we issue, such as stock
options and redeemable and convertible securities, that could
potentially decrease our net income per common share. In 1997,
1996 and 1995 the fully diluted amount included the potential
dilution of convertible securities issued by a subsidiary.
Additionally in 1997, we have included the potential issuance of
shares under stock options issued in 1995. The average number
of common shares outstanding throughout the year used to cal-
culate our fully diluted net income per common share is based
on the assumption that all securities which are convertible or
redeemable at the option of the holder occurred at the beginning
of the year or from the date the security was issued, if later.
Our net income applicable to common shares and the average
number of common shares outstanding for the year used to
calculate our basic and fully diluted net income per common
share are as follows:
1997 1996 1995
Net income attributable to
common shares – basic $ 1,222 $ 1,099 $ 917
Average number of common
shares outstanding – basic 260,409,736 261,232,729 265,632,030
Average number of common shares
outstanding – fully diluted 268,699,928 268,361,643 273,919,447
Cash income per common share is calculated based on the net
income available to common shareholders, excluding amor-
tization of goodwill and other valuation intangibles after tax,
divided by the daily average number of fully paid common
shares outstanding throughout the year.
Note 14 Net Income Per Common Share
We review the valuation of our deferred income tax assets quarterly and
adjust our valuation allowance, as necessary, to reflect estimates of the
net realizable value of our deferred tax assets. We expect that we will
realize our deferred tax assets in the normal course of our operations.
We have a number of pension plans which provide benefits to our employees
in North America and other parts of the world. The principal pension plan
covers Canadian employees. Our plans generally provide retirement bene-
fits based on the employees’ years of service and average earnings at the
time of retirement and do not require employees to make contributions.
Voluntary contributions can be made by employees.
Our actuaries perform regular valuations of the accrued obligation for
pension benefits to our employees based on assumptions about salary
growth, retirement age and mortality. The pension plan assets are carried
at market value and are set aside to satisfy our pension obligations.
The pension expense is recorded in our Consolidated Statement of
Income as a component of salaries and employee benefits. It is determined
by the cost of the employee pension benefits offset by the assumed invest-
ment return on the pension plan assets. When the actual return differs
from the assumed, the experience gain or loss is deferred and allocated
to future periods.
The cumulative difference between the pension expense and the actual
cash contributions we make into the pension plans on our employees’
behalf are included in our Consolidated Balance Sheet as part of other
assets or other liabilities, as appropriate.
We also provide certain life insurance, health and dental care benefits
for retired employees. The cost of these benefits is recorded in salaries
and employee benefits expense as incurred.
Note 15 Pension Funds