Bank of Montreal 2004 Annual Report Download - page 118

BMO Financial Group Annual Report 2004114
Notes to Consolidated Financial Statements
Notes
Sensitivity of Assumptions
Key weighted-average economic assumptions used in measuring
the pension benefit liability, the other employee future benefit
liability and related expenses are outlined in the adjoining table.
The sensitivity analysis provided in the table should be used with
caution as it is hypothetical and changes in each key assumption
may not be linear. The sensitivities in each key variable have
been calculated independently of changes in other key variables.
Actual experience may result in changes in a number of
key assumptions simultaneously. Changes in one factor may
result in changes in another, which could amplify or reduce
certain sensitivities.
Other employee
Pension future benefits
Benefit Benefit Benefit Benefit
(Canadian $ in millions, except as noted) liability expense liability expense
Discount rate (%) 6.0 6.2 6.2 6.4
Impact of: 1% increase (392) (15) (97) (3)
1% decrease 485 17 123 3
Rate of compensation increase (%) 3.9 4.0 3.9 4.1
Impact of: .25% increase 23 2 1
–
.25% decrease (22) (2) (1) –
Expected rate of return on assets (%) na 6.7 na 8.0
Impact of: 1% increase na (31) na
–
1% decrease na 31 na –
Assumed overall health care cost trend (%) na na 8.2(1) 8.4(2)
Impact of: 1% increase na na 107 10
1% decrease na na (90) (8)
(1) Trending to 4.4% in 2013 and remaining at that level thereafter.
(2) Trending to 4.5% in 2013 and remaining at that level thereafter.
na – not applicable
Cash Flows
Cash payments made by the Bank during the year in connection with our employee future benefit plans are as follows:
(Canadian $ in millions) Pension benefit plans Other employee future benefit plans
2004 2003 2002 2004 2003 2002
Contributions to defined benefit plans $ 189 $ 325 $ 434 $ – $ – $4
Contributions to defined contribution plans 11 10 9
–– –
Benefits paid directly to pensioners by the Bank 19 82023 25 23
Total $ 219 $ 343 $ 463 $ 23 $ 25 $ 27
Our best estimate of the amounts we expect to contribute for the year ending October 31, 2005
is $170 million to our pension and $35 million to our other employee future benefit plans.
Estimated Future Benefit Payments to Pensioners and Employees
Estimated future benefit payments in the next five years and
thereafter are as follows:
(Canadian $ in millions) Pension Other employee
Year benefit plans future benefit plans
2005 $ 182 $ 35
2006 191 32
2007 206 34
2008 219 37
2009 231 40
2010 – 2014 1,376 259
We report our provision for income taxes in our Consolidated
Statement of Income based upon transactions recorded in our
consolidated financial statements regardless of when they are
recognized for income tax purposes, with the exception noted below
for repatriation of retained earnings from our foreign subsidiaries.
In addition, we record income tax expense or benefit directly in
shareholders’ equity when the taxes relate to amounts recorded
in shareholders’ equity. For example, income tax expense on
hedging gains related to our net investment in foreign operations
is recorded in shareholders’ equity as part of net unrealized
foreign exchange gain (loss).
The net future income tax asset included in other assets is the
cumulative amount of tax applicable to temporary differences
between the accounting and tax values of our assets and liabilities.
Future income tax assets and liabilities are measured at the tax
rates expected to apply when these differences reverse. Changes
in future income tax assets and liabilities related to a change in tax
rates are recorded in income in the period of the tax rate change.
We expect that we will realize our future income tax assets in the
normal course of our operations.
Components of Future Income Tax Balances
(Canadian $ in millions) 2004 2003
Future Income Tax Assets
Allowance for credit losses $ 431 $ 500
Employee future benefits 184 159
Deferred compensation benefits 148 148
Other 111 136
Total future income tax assets 874 943
Future Income Tax Liabilities
Premises and equipment (316) (307)
Pensions (410) (360)
Intangible assets (112) (80)
Other (47) (50)
Total future income tax liabilities (885) (797)
Net future income tax asset (liability) $ (11) $ 146
Note 21 Income Taxes