Bank of Montreal 2004 Annual Report Download - page 108

BMO Financial Group Annual Report 2004104
Notes to Consolidated Financial Statements
Notes
(Canadian $ in millions) 2004 2003
Accounts receivable, prepaid expenses and other items $ 5,405 $ 4,812
Accrued interest receivable 666 636
Due from clients, dealers and brokers 3,748 3,885
Pension asset (Note 20) 1,155 1,171
Total $ 10,974 $ 10,504
Note 13 Other Assets
Goodwill
When we acquire a subsidiary, joint venture or investment
securities where we exert significant influence, we allocate the
purchase price paid to the assets acquired, including identifiable
intangible assets, and the liabilities assumed. Any excess of the
amount paid over the fair value of those net assets is considered to
be goodwill.
Goodwill is not amortized; however, it is tested at least annually
for impairment. The impairment test consists of allocating goodwill
Future Acquisition
On October 13, 2004, we announced that we have entered into
an agreement to acquire Indiana-based Mercantile Bancorp, Inc.
(“MBI”), a privately held community bank, for approximately
to our reporting units (groups of businesses with similar character-
istics) and then comparing the book value of the reporting units,
including goodwill, to their fair values. We determine fair value
using discounted cash flows or price-to-earnings or other multiples,
whichever is most appropriate under the circumstances. The excess
of carrying value over fair value, if any, is recorded as an impair-
ment charge in the period in which impairment is determined.
There were no write-downs of goodwill due to impairment
during the years ended October 31, 2004, 2003 and 2002.
$197 million in cash consideration. The acquisition of MBI is
subject to regulatory approval and is expected to close in the first
quarter of 2005, at which time it will be recorded in our consoli-
dated financial statements as the acquisition of a business.
Intangible Assets
Intangible assets related to our acquisitions are recorded at their
fair value at the acquisition date. Intangible assets by category are
as follows:
(Canadian $ in millions) 2004 2003
Accumulated Carrying Carrying
Cost amortization value value
Customer relationships $ 483 $ 196 $ 287 $ 374
Core deposits 191 96 95 91
Branch distribution networks 180 99 81 101
Other 32 15 17 23
Total $ 886 $ 406 $ 480 $ 589
Intangible assets with a finite life are amortized to income over the
period during which we believe the assets will benefit us on either
a straight-line or an accelerated basis, depending on the specific
asset, over a period not to exceed 15 years.
(1) Other changes in goodwill include the effects of translating goodwill denominated in foreign
currencies into Canadian dollars, purchase accounting adjustments related to prior year
purchases and certain other reclassifications.
(2) Relates primarily to New Lenox State Bank, First National Bank of Joliet, Household Bank
branches and Moneris Solutions Corporation.
(3) Relates primarily to CSFBdirect, Inc. and BMO Nesbitt Burns Corporation Limited.
(4) Relates to Guardian Group of Funds Ltd.
(5) Relates primarily to myCFO, Inc.
(6) Relates to Gerard Klauer Mattison & Co., Inc. and BMO Nesbitt Burns Corporation Limited.
We test intangible assets with a finite life for impairment when
events or changes in circumstances indicate that their carrying
value may not be recoverable. We write them down to fair value
when the related undiscounted cash flows are not expected to
allow for recovery of the carrying value. There were no write-downs
of intangible assets due to impairment during the years ended
October 31, 2004, 2003 and 2002.
Intangible assets with an indefinite life are not subject to
amortization; they are tested at least annually for impairment
to ensure that their fair value is greater than or equal to their
carrying value. Any excess of carrying value over fair value is
charged to income in the period in which impairment is determined.
We had $1 million of intangible assets with an indefinite life as at
October 31, 2004 and 2003, respectively.
The total estimated amortization expense relating to intangible
assets for each of the next five years is $90 million for 2005,
$81 million for 2006, $76 million for 2007, $64 million for 2008
and $60 million for 2009.
A continuity of our goodwill by reporting unit, within our operating groups, for the years ended October 31, 2004 and 2003 is as follows:
Personal and
Commercial Private Investment
(Canadian $ in millions) Client Group Client Group Banking Group Other Total
Retail and Retail
Commercial Client Investment Private Investment Technology
Banking Investing Products Banking Total Banking and Solutions
Goodwill as at October 31, 2002 $ 455 $ 688 $ 187 $ 37 $ 912 $ 58 $ 3 $ 1,428
Acquisitions during the year
–– – 58 58 15 – 73
Other (1) (51) (95) – (21) (116) – – (167)
Goodwill as at October 31, 2003 404 593 187 74 854 73 3 1,334
Acquisitions during the year 233
– – – – 2 – 235
Other (1) (49) (40) – – (40) 27 – (62)
Goodwill as at October 31, 2004 $ 588(2) $ 553(3) $ 187(4) $ 74(5) $ 814 $ 102(6) $ 3 $ 1,507
Note 12 Goodwill and Intangible Assets