Bank of Montreal 1999 Annual Report Download - page 103

Bank of Montreal Group of Companies 1999 Annual Report 97
(1) The accumulated balances related to each component of
other comprehensive income, net of tax, are as follows
:
1999 1998
Unrealized gain (loss) on translation
of net investment in foreign operations,
net of hedging activities $ 160 $ 314
Net unrealized gains (losses) on available
for sale securities (i) (182) 195
Total Accumulated Other
Comprehensive Income $ (22) $ 509
(i) Under United States GAAP, Statement of Financial
Accounting Standards No. 115, “Accounting for Certain Invest-
ments in Debt and Equity Securities”, we have designated as
available for sale securities all of our investment securities,
other than our investment in our associated corporations.
Available for sale securities are carried at fair value, with any
unrealized gains (losses) recognized through other comprehen-
sive income. Under Canadian GAAP, investment securities are
carried at amortized cost.
(2) Under United States GAAP, Emerging Issues Task Force
No. 94-8, “Accounting for Conversion of a
Loan into a Debt
Security in a Debt Restructuring”, the fair value
of securities
received in a restructuring as settlement of a claim for past-due
interest on a loan should be recognized in income when received.
Under Canadian GAAP, we record the securities at a nominal
value when received and recognize any gains in income only
when the securities are sold.
(3) Under United States GAAP, Statement of Financial
Accounting Standards No.
125, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabil-
ities”, gains on securitized assets are recognized at the date
of securitization. Under Canadian GAAP, gains on securitized
assets must be deferred and recognized over the life of the
securitization.
(4) The impact of applying United States GAAP to non-interest
expense before restructuring charge is as follows
:
1999 1998 1997
Increase (decrease)
Foreign currency translation (i) $18 $ 51 $ 12
Merger costs (ii) 827
–
Pension benefits (iii) 36 38 –
Other post-retirement benefits (iv) 31 33 37
Other post-employment benefits (v) 555
Stock options (vi) 24 13 8
Amortization of goodwill (vii) (10) (8) (8)
Amortization of goodwill (viii) 49 48 46
Total $ 161 $ 207 $ 100
(i) Under United States GAAP, Statement of Financial
Accounting Standards No. 52, “Foreign Currency Translation”,
Mexico was prescribed by the Securities and Exchange Com-
mission to be a highly inflationary economic environment for
our quarter beginning February 1, 1997 up to and including our
quarter ended January 31, 1999. As a result, translation losses
on our investment in Bancomer are required to be reported in
net income under United States GAAP. Under Canadian GAAP,
Mexico was not considered to be a highly inflationary economic
environment during these periods.
(ii) Under United States GAAP, Accounting Principles Board
Opinion No. 16, “Business Combinations”, the costs
associated
with our proposed merger with Royal Bank are
required to be
reported in net income as incurred. Under Canadian GAAP, we
treated these expenses as a reduction in retained earnings.
(iii) Under United States GAAP, Statement of Financial
Accounting Standards No. 87, “Employers’ Accounting for Pen-
sions”, we use a market discount rate to value our pension
obligation which is a key component of our pension expense.
Under Canadian GAAP, the rate used to discount our pension
obligation is management’s best estimate of the long-term rate
of return on assets.
(iv) Under United States GAAP,
Statement of Financial
Accounting Standards No.
106, “Employers’ Accounting for
Postretirement Benefits Other Than Pensions”, benefits paid to
retirees, other than pension, must be accrued over the working
lives of the employees. Under Canadian GAAP, we expense
these costs as incurred.
(v) Under United States GAAP,
Statement of Financial
Accounting Standards No.
112, “Employers’ Accounting for Post-
employment Benefits”, benefits under various disability plans
must
be accrued when certain conditions are met. Under
Canadian GAAP, we expense these costs as incurred.
(vi) Under United States
GAAP, Statement of Financial
Accounting Standards No.
123, “Accounting for Stock Based
Compensation”, the fair value of stock options granted is recog-
nized as compensation expense over the period that the options
vest. Under Canadian GAAP, we include the amount of proceeds
in shareholders’ equity when the options are exercised.
(vii) Under United States
GAAP, Accounting Principles Board
Opinion No.
16,“BusinessCombinations”,ouracquisition
of
Suburban Bank Corp. would have been accounted for using the
pooling-of-interests method. Under Canadian GAAP, we
accounted for this purchase using the purchase method as this
was not a merger of equals.
(viii) In Canada, the Accounting Standards Board has approved
an addendum to “Business Combinations, Section No. 1580”
that permits goodwill amortization expense to be presented
net-of-tax on a separate line in the Consolidated Income State-
ment. This presentation is not currently permitted under
United States GAAP but has been proposed in a Financial
Accounting Standards Board Exposure Draft.
(5) Includes cumulative adjustment to shareholders’ equity
arising from current and prior years’ GAAP differences.
Future Changes in United States Accounting Policies
In fiscal 2001, we will be required to adopt for United States
reporting purposes, Statement of Financial Accounting Stan-
dards No. 133, “Accounting for Derivative Instruments and
Hedging Activities”. This Statement outlines accounting and
reporting standards for derivative instruments and hedging
activities. Under this standard, all derivatives will be recognized
at fair value in the balance sheet, and changes in the fair value
of these instruments will be accounted for depending on the
intended use of each derivative and its designation as a hedge.
Formal interpretations of this new standard continue to be issued
by the Financial Accounting Standards Board. We are continu-
ing to evaluate the potential implications of this new standard
and the interpretations. Our analysis to date indicates that the
effects of this Statement would not be material if we were to
adopt it as of October 31, 1999. The ultimate effect to us, if any,
of this standard is dependent on the fair value, nature, and pur-
pose of derivative instruments held at November 1, 2000.